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EX-10.1 - NON INTERFERENCE AND SEVERANCE AGREEMENT - United Maritime Group, LLCd226824dex101.htm
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EX-32.2 - CERTIFICATION - United Maritime Group, LLCd226824dex322.htm
EX-31.1 - CERTIFICATION - United Maritime Group, LLCd226824dex311.htm
EX-31.2 - CERTIFICATION - United Maritime Group, LLCd226824dex312.htm
EX-10.2 - NON INTERFERENCE AND SEVERANCE AGREEMENT - United Maritime Group, LLCd226824dex102.htm
EX-10.3 - EQUITY INCENTIVE PLAN - United Maritime Group, LLCd226824dex103.htm
EX-32.1 - CERTIFICATION - United Maritime Group, LLCd226824dex321.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to                 .

Commission File Number 333-165796

 

 

UNITED MARITIME GROUP, LLC

(Exact name of registrant as specified in its charter)

 

 

 

FLORIDA   59-2147756

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

601 S. Harbour Island Blvd., Suite 230

Tampa, FL 33602

(Address of principal executive offices)

(813) 209-4200

(Company’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨   Accelerated filer ¨    Non-accelerated filer þ   Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

 

 

 


Table of Contents

TABLE OF CONTENTS

 

     Page  

PART I – Financial Information

  

Item 1. Financial Statements (unaudited)

     4   

Consolidated Statements of Operations and Comprehensive Loss

     4   

Consolidated Balance Sheets

     5   

Consolidated Statements of Cash Flows

     6   

Consolidated Statement of Changes in Member’s Equity

     7   

Notes to Consolidated Financial Statements

     8   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     26   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     38   

Item 4. Controls and Procedures

     38   

PART II — Other Information

  

Item 1. Legal Proceedings

     39   

Item 1A. Risk Factors

     39   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     39   

Item 6. Exhibits

     40   

Signatures

     41   

 

Exhibit 10.1

   Non-Interference and Severance Agreement by and among United Maritime Group, LLC and David Bradford

Exhibit 10.2

   Non-Interference and Severance Agreement by and among United Maritime Group, LLC and Richard Barnes

Exhibit 10.3

   Equity Incentive Plan for Executive Officers

Exhibit 31.1

   Certificate of the Chief Executive Officer

Exhibit 31.2

   Certificate of the Chief Financial Officer

Exhibit 32.1

   Written Statement of the Chief Executive Officer

Exhibit 32.2

   Written Statement of the Chief Financial Officer

101.INS

   XBRL Instance Document. (1)

101.SCH

   XBRL Taxonomy Extension Schema. (1)

 

- 2 -


Table of Contents

101.CAL

   XBRL Taxonomy Extension Calculation Linkbase. (1)

101.DEF

   XBRL Taxonomy Definition Linkbase. (1)

101.LAB

   XBRL Taxonomy Extension Label Linkbase. (1)

101.PRE

   XBRL Taxonomy Extension Presentation Linkbase. (1)

 

(1) 

Pursuant to Rule 406T of U.S, Securities and Exchange Commission Regulation S-T, the interactive data files on Exhibit 101 of this report are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

- 3 -


Table of Contents

PART I – Financial Information

ITEM 1. FINANCIAL STATEMENTS.

United Maritime Group, LLC and Subsidiaries

Consolidated Statements of Operations and Comprehensive Loss

(In thousands)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2011     2010     2011     2010  
     (Unaudited)     (Unaudited)  

Revenue

        

Revenue

   $ 85,618      $ 80,064      $ 242,036      $ 234,442   

Operating expenses

        

Operating expenses

     52,158        47,896        155,766        144,072   

Maintenance and repairs

     9,597        7,867        20,294        22,466   

Administrative and general

     8,957        8,856        26,355        26,249   

Depreciation

     9,275        11,356        27,866        32,923   

Amortization of intangible assets

     659        659        1,977        1,977   

Asset retirement obligation accretion expense

     55        51        161        149   

(Gain) loss on sale of assets

     (115     27        (2,425     (39
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     80,586        76,712        229,994        227,797   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     5,032        3,352        12,042        6,645   

Other income

     224        837        871        810   

Interest charges:

        

Interest expense

     6,113        6,634        18,645        20,040   

Amortization of deferred financing costs

     549        536        1,646        1,603   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (1,406   $ (2,981   $ (7,378   $ (14,188

Other comprehensive (loss) income:

        

Change in net unrealized (loss) gain on cash flow hedges

     (2,220     811        (1,447     3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (3,626   $ (2,170   $ (8,825   $ (14,185
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

United Maritime Group, LLC and Subsidiaries

Consolidated Balance Sheets

(In thousands)

 

     September 30, 2011     December 31, 2010  
     (Unaudited)        

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 2,876      $ 7,481   

Accounts receivable, net of allowances for doubtful accounts of $407 and $486, respectively

     27,848        31,183   

Materials and supplies

     19,425        19,081   

Prepaid expenses and other current assets

     6,203        3,314   
  

 

 

   

 

 

 

Total current assets

     56,352        61,059   

Property and equipment

     455,187        457,057   

Work in progress

     5,029        146   

Accumulated depreciation

     (145,859     (124,765
  

 

 

   

 

 

 

Property and equipment, net

     314,357        332,438   

Other assets:

    

Deferred financing costs, net of amortization of $3,189 and $1,603, respectively

     6,805        8,391   

Intangible assets, net of amortization of $10,604 and $8,456, respectively

     26,290        28,439   

Deferred drydocking costs, net

     4,757        5,743   
  

 

 

   

 

 

 

Total other assets

     37,852        42,573   
  

 

 

   

 

 

 

Total assets

   $ 408,561      $ 436,070   
  

 

 

   

 

 

 

Liabilities and member’s equity

    

Current liabilities:

    

Accounts payable

   $ 15,992      $ 11,081   

Accounts payable related parties

     0        1,500   

Accrued expenses

     15,107        10,934   

Deferred revenue

     5,332        4,195   

Other current liabilities

     1,128        0   
  

 

 

   

 

 

 

Total current liabilities

     37,559        27,710   

Asset retirement obligation

     3,060        2,899   

Other liabilities

     16,213        16,581   

Long-term debt

     220,025        248,985   
  

 

 

   

 

 

 

Total liabilities

     276,857        296,175   

Member’s equity

     131,704        139,895   
  

 

 

   

 

 

 

Total liabilities and member’s equity

   $ 408,561      $ 436,070   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

United Maritime Group, LLC and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

 

     For the Nine Months Ended September 30,  
     2011     2010  
     (Unaudited)     (Unaudited)  

Operating activities

    

Net loss

   $ (7,378   $ (14,188

Adjustments to reconcile net loss to net cash from operating activities:

    

Depreciation

     27,866        32,923   

Amortization of intangible assets

     1,977        1,977   

Amortization of deferred financing costs

     1,646        1,603   

Amortization of deferred drydocking assets

     2,802        3,024   

Accretion expense

     161        149   

Stock-based compensation

     334        338   

Deferred drydocking expenditures

     (1,817     (3,781

Loss on equity investment of unconsolidated affiliate

     0        127   

Gain on sale of assets

     (2,425     (39

Changes in operating assets and liabilities:

    

Accounts receivable

     3,335        3,815   

Materials and supplies

     (344     (2,697

Prepaid expenses and other assets

     (3,269     (2,373

Other deferred liabilities

     (370     606   

Accounts payable and accrued expenses

     8,896        9,238   
  

 

 

   

 

 

 

Net cash provided by operating activities

     31,414        30,722   
  

 

 

   

 

 

 

Investing activities

    

Additions to property and equipment

     (12,277     (14,248

Proceeds from sale of assets

     4,918        232   

Distributions from unconsolidated affiliate

     0        325   
  

 

 

   

 

 

 

Net cash used in investing activities

     (7,359     (13,691
  

 

 

   

 

 

 

Financing activities

    

Repayment of debt

     (96,963     (60,140

Asset based loan draws

     68,003        32,000   

Capital contribution by member

     300        500   

Payment of deferred financing costs

     0        (92
  

 

 

   

 

 

 

Net cash used in financing activities

     (28,660     (27,732
  

 

 

   

 

 

 

Net change in cash

     (4,605     (10,701

Cash and cash equivalents, at beginning of period

     7,481        11,631   
  

 

 

   

 

 

 

Cash and cash equivalents, at end of period

   $ 2,876      $ 930   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information

    

Cash paid during the period for:

    

Interest

   $ 13,818      $ 13,859   

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

United Maritime Group, LLC and Subsidiaries

Consolidated Statement of Changes in Member’s Equity

(In thousands, except share amounts)

(Unaudited)

 

                   Additional
Paid-in
Capital
     Accumulated
Other
Comprehensive
Loss
    Retained
Earnings
    Total
Member’s
Equity
 
                         
     Common Stock            
     Units      Amount            

Balance at January 1, 2011

     100       $ 173,000       $ 3,481       $ 1,213      $ (37,799   $ 139,895   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net loss

     0         0         0         0        (7,378     (7,378

Change in fair value of derivative

     0         0         0         (1,447     0        (1,447

Capital contribution

     0         0         300         0        0        300   

Stock-based compensation

     0         0         334         0        0        334   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

     100       $ 173,000       $ 4,115       $ (234   $ (45,177   $ 131,704   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

UNITED MARITIME GROUP, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. The Company and Nature of Business

In this quarterly report, unless the context otherwise requires, or unless specifically stated otherwise, references to the terms “we,” “our,” “us” and the “Company” refer to United Maritime Group, LLC, United Maritime Group Finance Corporation (“Finance Corp.”) and all of their subsidiaries that are consolidated under U.S. generally accepted accounting principles (“GAAP”).

Nature of Business and Principles of Consolidation

The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP. The Company has evaluated subsequent events and transactions for potential recognition or disclosure through such time as these statements were filed with the Securities and Exchange Commission, and has included those items deemed to be reportable in Note 13 (Subsequent Events).

The accompanying unaudited consolidated financial statements should be read in conjunction with our December 31, 2010 audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of the Company for the periods covered thereby. The accompanying unaudited consolidated financial statements include the accounts of United Maritime Group, LLC (“UMG” or “United Maritime”) and its wholly owned subsidiaries (U.S. United Bulk Terminal, LLC, U.S. United Barge Line, LLC, U.S. United Ocean Services, LLC, U.S. United Inland Services, LLC, UMG Towing Company, LLC and U.S. United Bulk Logistics, LLC). United Maritime is a wholly owned subsidiary of GS Maritime Intermediate Holding LLC (“GS Intermediate”). GS Intermediate is a wholly owned subsidiary of GS Maritime Holding LLC (“the Holding Company”). The Company’s principal operations are to provide logistic services for dry bulk commodities including terminal, barge and ocean transportation services. All intercompany balances and transactions have been eliminated in consolidation. Neither GS Intermediate nor the Holding Company is consolidated in the accompanying unaudited consolidated financial statements.

The member’s liability of United Maritime is limited by all protection available under Florida limited liability company law. The life of United Maritime is indefinite.

2. Significant Accounting Policies

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements and the disclosures made in the accompanying notes. Despite the intention to establish accurate estimates and use reasonable assumptions, actual results could differ from the Company’s estimates and such differences could be material.

Comprehensive Income

Accounting Standards Codification (“ASC”), Comprehensive Income (“ASC 220”), established standards for the reporting and the display of comprehensive income and its components in a full set of general purpose financial statements. ASC 220 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company has reported other comprehensive gains and losses in its unaudited consolidated statements of changes in member’s equity and on the unaudited consolidated statements of operations and comprehensive loss.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable in the accompanying consolidated balance sheets are reported net of estimated allowance for doubtful accounts. Accounts receivable are uncollateralized and consist of amounts due from customers. To provide for accounts receivable that could become uncollectible in the future, the Company established an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value.

 

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Table of Contents

The amount of the provision for doubtful accounts is based upon management’s assessment of historical and expected net collections, business and economic conditions, and other collection indicators. The primary tool used in management’s assessment is a detailed quarterly and annual review of historical collections and write-offs of accounts receivable. The results of the detailed review of historical collections and write-off experience, adjusted for changes in trends and conditions, are used to evaluate the allowance amount for the current period. Accounts receivable are written off after collection efforts have been followed in accordance with the Company’s policies.

A summary of the activity in the allowance for uncollectible accounts is as follows:

 

     Nine Months
Ended

September 30,
2011
    Year Ended
December 31,
2010
 
     (In thousands)  

Balance, beginning of period

   $ 486      $ 573   

Additions charged to provision for bad debts

     55        42   

Accounts receivable written off (net of recoveries)

     (134     (129
  

 

 

   

 

 

 

Balance, end of period

   $ 407      $ 486   
  

 

 

   

 

 

 

Inventory Costs

Materials and supplies, including fuel costs, are stated at the lower of cost or market using the average cost method.

Revenue

Revenue is primarily derived from coal, petcoke, steel-related products, phosphate, and grain transportation (among other cargoes), and transfer and storage services to unaffiliated entities. Revenue from transportation and transfer services is recognized as services are rendered. Revenue from certain transportation services is recognized using the percentage of completion method, which includes estimates of the distance traveled or time elapsed compared to the total estimated contract. Storage revenue is recognized monthly based on the volumes held at the storage facility beyond the contract grace period.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. Additions, replacements and betterments are capitalized; maintenance and repairs are charged to expense as incurred. Items sold or retired are removed from the assets and accumulated depreciation accounts and any resulting gains or losses are properly included in the unaudited consolidated statements of operations and comprehensive loss.

Planned Major Maintenance

In accordance with the guidance for planned major maintenance activities, expenditures incurred during a drydocking are deferred and amortized on a straight-line basis over the period until the next scheduled drydocking, generally two and a half years. The Company only includes in deferred drydocking costs those direct costs that are incurred as part of the vessel’s maintenance that is required by the Coast Guard and/or vessel classification society regulation. Direct costs include shipyard costs as well as the costs of placing the vessel in the shipyard. Expenditures for routine maintenance and repairs, whether incurred as part of the drydocking or not, are expensed as incurred.

 

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Table of Contents

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentration of credit risk consist principally of cash and trade receivables. The Company places its cash with high credit quality financial institutions. During the normal course of business, the Company extends credit to customers primarily in North America conducting business in the utility, metallurgical, phosphate and grain industries. The Company performs ongoing credit evaluations of its customers and does not generally require collateral. The customers’ financial condition and payment history have been considered in determining the allowance for doubtful accounts. The Company assesses the risk of non-performance of the derivative’s counter party in determining the fair value of the derivative instruments in accordance with ASC No. 820 (“ASC 820”), Fair Value Measurements.

Asset Impairment

The Company periodically assesses whether there has been a permanent impairment of its long-lived assets and certain intangibles held and used by the Company, in accordance with ASC No. 360 (“ASC 360”), Property, Plant, and Equipment and ASC No. 205, Presentation of Financial Statements. ASC 360 establishes standards for determining when impairment losses on long-lived assets have occurred and how impairment losses should be measured. The Company is required to review long-lived assets and certain intangibles, to be held and used, for impairment whenever events or circumstances indicate that the carrying value of such assets may not be recoverable. In performing such a review for recoverability, the Company is required to compare the expected future cash flows to the carrying value of long-lived assets and finite-lived intangibles. If the sum of the expected future undiscounted cash flows is less than the carrying amount of such assets and intangibles, the assets are impaired and the assets must be written down to their estimated fair market value. There were no impairments during the nine months ended September 30, 2011 or September 30, 2010.

Derivative Instruments and Hedging Activities

The Company applies the provisions of ASC No. 815, Derivatives and Hedging. These standards require companies to recognize derivatives as either assets or liabilities in the financial statements, to measure those instruments at fair value, and to reflect the changes in the fair values of those instruments as either components of other comprehensive income (“OCI”) or in net income, depending on the designation of those instruments. The changes in fair value that are recorded in OCI are not immediately recognized in current net income. As the underlying hedged transaction matures or the physical commodity is delivered, the deferred gain or loss on the related hedging instrument must be reclassified from OCI to earnings based on its value at the time of its reclassification. For effective hedge transactions, the amount reclassified from OCI to earnings is offset in net income by the amount paid or received on the underlying transaction.

We are exposed to various market risks, including changes in fuel prices. As of September 30, 2011, we have hedges in place for 0.9 million gallons for the remainder of 2011, 3.0 million gallons for 2012 and 3.0 million gallons for 2013. These amounts represent 59% of our estimated 2011 United Barge Line (“UBL”) business segment fuel exposure and 50% of our expected 2012 UBL fuel exposure and 50% of our expected 2013 UBL fuel exposure. Our average heating oil swap price as of September 30, 2011 is $2.33 per gallon for 2011, and $2.76 per gallon for 2012. For 2013 our average Ultra Low Sulfur Diesel swap price is $2.80 per gallon. The Company entered into derivative contracts during 2009, 2010 and 2011 to limit the exposure to price fluctuations for physical purchases of diesel fuel which were designated as cash flow hedges for the forecasted purchases of fuel oil. The hedges are contracted to expire by December 31, 2013, and settle monthly. As of September 30, 2011 and December 31, 2010, the current asset portion of the hedges was valued at $0.9 million and $1.2 million, respectively, classified as an other current asset and for September 30, 2011 the liability portion of the hedge was valued at $1.1 million, classified as an other liability. During the nine-month period ended September 30, 2011, the Company recognized a reduction in expense of $1.6 million, and for the nine-month period ended September 30, 2010, the Company recognized an expense of $0.1 million.

 

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Table of Contents

ASC 820, Fair Value Measurements, requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which of these assets and liabilities must be grouped based on significant levels of inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:

Level 1—Quoted prices for identical assets and liabilities in active markets.

Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Unobservable inputs for the assets or liability.

As of September 30, 2011 and December 31, 2010, the Company held certain items that are required to be measured at fair value on a recurring basis, including fuel hedge agreements. Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reflected in the financial statements at their carrying value, which approximates their fair value due to their short maturity.

The following items are measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of September 30, 2011 and December 31, 2010.

 

     Fair Value Measurements at Reporting Date Using  
     September 30,
2011
     Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 
     (In thousands)  

Other current assets:

           

Fuel hedge

   $ 892       $ 0       $ 892       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 892       $ 0       $ 892       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other liabilities:

           

Fuel hedge

   $ 1,128       $ 0       $ 1,128       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,128       $ 0       $ 1,128       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements at Reporting Date Using  
     December 31,
2010
     Quoted Prices in
Active Markets for
Identical Assets

(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 
     (In thousands)  

Other current assets:

           

Fuel hedge

   $ 1,213       $ 0       $ 1,213       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,213       $ 0       $ 1,213       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The fair value of the Company’s long-term debt was based upon observable inputs other than quoted market prices (Level 2 criteria).

 

     September 30, 2011  
                   Fair Value Measurement Category  
     Carrying
Value
     Fair Value      Level 1      Level 2      Level 3  
     (In thousands)  

Senior Secured Notes

   $ 165,025       $ 162,477       $ 0       $ 162,477       $ 0   

Asset Based Loan

     55,000         55,000         0         55,000         0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 220,025       $ 217,477       $ 0       $ 217,477       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2010  
                   Fair Value Measurement Category  
     Carrying
Value
     Fair Value      Level 1      Level 2      Level 3  
     (In thousands)  

Senior Secured Notes

   $ 189,985       $ 193,626       $ 0       $ 193,626       $ 0   

Asset Based Loan

     59,000         59,000         0         59,000         0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 248,985       $ 252,626       $ 0       $ 252,626       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

During the nine months ended September 30, 2011 and 2010, respectively, there were no assets that required an adjustment to their carrying values since no impairment indicators were present.

Asset Retirement Obligations

The Company has recognized liabilities for retirement obligations associated with certain long-lived assets, in accordance with ASC No. 410, Asset Retirement and Environmental Obligations. An asset retirement obligation for a long-lived asset is recognized at fair value at inception of the obligation, if there is a legal obligation under an existing or enacted law or statute, a written or oral contract, or by legal construction under the doctrine of promissory estoppels. Retirement obligations are recognized only if the legal obligation exists in connection with or as a result of the permanent retirement, abandonment, or sale of a long-lived asset.

When the liability is initially recorded, the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its future value. The corresponding amount capitalized at inception is depreciated over the remaining useful life of the asset. The liability must be revalued annually based on current market prices.

The Company recognized accretion expense associated with asset retirement obligations for each of the nine-month periods ended September 30, 2011 and 2010 of $0.2 million and $0.1 million, respectively. During these periods, no new retirement obligations were incurred and no significant revision to estimated cash flows used in determining the recognized asset retirement obligations was necessary.

Deferred Financing Costs

In December 2009, the Company incurred $10.3 million in financing costs in connection with the issuance of $200 million of senior secured notes due June 15, 2015 (the “Senior Secured Notes”) and the entry into a new asset based loan facility (the “ABL”). Such financing costs were deferred and are classified as deferred financing costs at September 30, 2011 and December 31, 2010. During each of the nine-month periods ended September 30, 2011 and 2010, the Company amortized $2.0 million of these costs, respectively.

 

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Reclassifications

Certain prior year amounts have been reclassified to conform with current year presentation. The reclassifications had no impact on net loss or member’s equity.

3. Long-Term Debt

In December 2009, the Company refinanced its existing debt with $200 million Senior Secured Notes and an asset based loan (“ABL”) facility of up to $135 million. As of September 30, 2011, the aggregate principal amount of indebtedness outstanding under the Senior Secured Notes and ABL was $165 million and $55 million, respectively.

Interest on the Senior Secured Notes is payable semi-annually, commencing June 15, 2010. The Senior Secured Notes mature and are due on June 15, 2015. The interest rate is fixed at 11.75% per annum. No principal payments are due until maturity, subject to early required mandatory prepayment provisions set forth in the indenture governing the Senior Secured Notes.

The interest on the ABL is payable monthly, commencing December 31, 2009. No principal payments are due until maturity on December 22, 2013, subject to early required mandatory prepayment provisions set forth in the credit agreement for the ABL. The interest rate as of September 30, 2011 was 4.00%, which reflects a rate of LIBOR plus the applicable margin of 3.75%.

The following is a schedule by year of approximate future minimum debt payments as of September 30, 2011:

 

     (In thousands)  

2013

   $ 55,000   

2014

     0   

2015

     165,025   
  

 

 

 

Total

   $ 220,025   
  

 

 

 

The Company’s debt agreements contain various restrictive covenants, including the maintenance of certain financial ratios, and limitations on capital expenditures, the ability to pay dividends, incur debt or subject assets to liens. At September 30, 2011, the Company was in compliance with all applicable covenants set forth in the indenture governing the Senior Secured Notes and the credit agreement governing the ABL.

4. Member’s Equity

In December 2007, we became an independent company acquired from TECO Energy by a group consisting of Greenstreet Equity Partners LLC, Jefferies Capital Partners and AMCI Capital L.P. and affiliates. We refer to the foregoing entities collectively as the “Equity Sponsors” and our acquisition from TECO Energy as the “Acquisition”.

On December 4, 2007, GS Maritime Holding LLC (“the Holding Company”) issued 100,000 class A units to the Equity Sponsors and certain members of our management team. The total member contribution for the class A units was $173 million. In connection with the closing of the Acquisition, the Holding Company also issued 9,890 profit units for the benefit of directors and employees of the Company. Since that time 8,190 profit units have been issued to employees and 4,983 profit units have been forfeited with the departure of certain employees of the Company, bringing the total number of issued and outstanding profit units to 13,097.

The Holding Company profit units are issued to certain Company employees, certain members of the Holding Company’s Board of Directors and others at the discretion of the Holding Company’s Board of Directors. The Holding Company’s Board of Directors has the discretion to issue units at any time, including profit units. The profit units granted to employees are divided into time-based and performance-based vesting. The time-based units vest over periods of up to 60 months. Assuming continued employment of the employee with the Company, 20% vest on the first anniversary of the grant date, and the remaining 80% vest in four equal installments on the second, third, fourth, and fifth anniversaries of the grant date. The performance-based units vest based on certain performance conditions being met or achieved and, in all cases, assuming continued employment. The performance conditions relate to holders of class A units receiving a specified multiple on their investment upon a liquidation event. If an employee is terminated, the Holding Company may repurchase the employee’s vested profit units at fair market value.

 

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For purposes of determining the compensation expense associated with profit unit grants, management valued the business enterprise using a variety of widely accepted valuation techniques which considered a number of factors such as the financial performance of the Company, the values of comparable companies and the lack of marketability of the Company’s equity. The Company then used the binomial option pricing model to determine the fair value of these units at the time of grant using valuation assumptions consisting of the expected term in which the units will be realized; a risk-free interest rate equal to the U.S. federal treasury bond rate consistent with the term assumption; expected dividend yield, for which there is none; and expected volatility based on the historical data of equity instruments of comparable companies.

The following table identifies the various issues and their relative factors from above:

 

Grant Date

   Term
(years)
   Risk Free
Rate
    Expected
Volatility
    Assumed
Forfeiture
Rate
 

December 2007

   5      3.28     40.50     5.00

August 2008

   5      3.00     48.50     10.00

March 2010

   5      2.00     50.50     5.00

October 2010

   4      1.60     53.50     5.00

November 2010

   5      1.60     53.50     5.00

September 2011

   5      0.95     48.00     5.00

In accordance with ASC No. 718, the Company recorded stock-based compensation expense for the nine months ended September 30, 2011 and 2010 of $0.3 million and $0.3 million, respectively, which is included in administrative and general expense in the unaudited consolidated statements of operations and comprehensive loss. The activity under the plan for the nine months ended September 30, 2011 is presented below.

 

     Profit Units
Outstanding
    Weighted Average
Grant Date Fair
Value
 

Non-vested balance at beginning of period January 1, 2011

     7,992      $ 455.63   

Units granted

     1,350        573.85   

Units forfeited

     (486     423.27   

Vested

     (339     402.40   
  

 

 

   

Non-vested balance at end of period September 30, 2011

     8,517      $ 529.52   
  

 

 

   

As of September 30, 2011, there was approximately $3.7 million of total unrecognized compensation expense related to the profit units. These costs are expected to be recognized over a weighted average period of 4 years.

5. Intangible Assets and Sale-Leasebacks

The Company has assessed all acquired operating leases in order to determine whether the lease terms were favorable or unfavorable given market conditions at the Acquisition date. As a result, the Company recorded a favorable lease intangible asset for $11.9 million. Also in connection with the Acquisition, an acquired intangible asset of $22.0 million was assigned to customer relationships, which is subject to amortization with a weighted average useful life of approximately 10 years.

 

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Amortization of intangible assets is charged to expense on a straight-line basis in the accompanying unaudited consolidated statements of operations and comprehensive loss. If impairment events occur, the Company could accelerate the timing of purchased intangible asset charges. For each of the nine month periods ended September 30, 2011 and 2010, amortization expense related to the intangible assets acquired and the intangible liability assumed was $2.0 million.

A summary of intangible assets at September 30, 2011 and 2010 follows (in thousands) (unaudited):

 

       January 1,
2011
          September 30,
2011
 
     Asset Life      Balance     Amortization     Balance  

Favorable Lease - Barges

     13.5 years       $ 1,391      $ 80      $ 1,311   

Favorable Lease - Ocean Vessels

     6 years         12,548        659        11,889   

Favorable Lease - Davant facility

     21 years         964        26        938   

Customer Relationship (Contracts)

     10 years         13,536        1,384        12,152   
     

 

 

   

 

 

   

 

 

 

Total

      $ 28,439      $ 2,149      $ 26,290   
     

 

 

   

 

 

   

 

 

 
     Liability
Life
              

Unfavorable Lease - Davant facility

     22 years       $ (7,011   $ (172   $ (6,839
     

 

 

   

 

 

   

 

 

 

Total

      $ (7,011   $ (172   $ (6,839
     

 

 

   

 

 

   

 

 

 
       January 1,
2010
          September 30,
2010
 
     Asset Life      Balance     Amortization     Balance  

Favorable Lease - Barges

     13.5 years       $ 1,498      $ 80      $ 1,418   

Favorable Lease - Ocean Vessels

     6 years         13,426        659        12,767   

Favorable Lease - Davant facility

     21 years         998        25        973   

Customer Relationship (Contracts)

     10 years         15,382        1,385        13,997   
     

 

 

   

 

 

   

 

 

 

Total

      $ 31,304      $ 2,149      $ 29,155   
     

 

 

   

 

 

   

 

 

 
     Liability
Life
              

Unfavorable Lease - Davant facility

     22 years       $ (7,240   $ (172   $ (7,068
     

 

 

   

 

 

   

 

 

 

Total

      $ (7,240   $ (172   $ (7,068
     

 

 

   

 

 

   

 

 

 

Estimated future amortization expense is as follows at September 30, 2011:

 

     (In thousands)  

2011

   $ 659   

2012

     2,636   

2013

     12,548   

2014

     1,758   

Thereafter

     1,849   

 

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6. Property and Equipment

Property and equipment consists of the following (in thousands):

 

     Average
Useful
Lives In
Years
   September 30,
2011
    December 31,
2010
 
     (unaudited)  

Land

      $ 6,931      $ 7,025   

Buildings

   1 - 30      4,151        4,501   

Vessels

   3 - 28      366,363        368,349   

Terminals

   1 - 35      56,763        56,915   

Machinery

   1 - 20      11,970        11,284   

Other

   1 - 20      9,009        8,983   

Work in progress

        5,029        146   
     

 

 

   

 

 

 

Total costs

        460,216        457,203   

Accumulated depreciation

        (145,859     (124,765
     

 

 

   

 

 

 

Property and equipment, net

      $ 314,357      $ 332,438   
     

 

 

   

 

 

 

7. Employee Postretirement Benefits

401(k) Savings Plan

The Company has a 401(k) savings plan covering substantially all employees of the Company that enables participants to save a portion of their compensation up to the limits allowed by IRS guidelines. Effective December 4, 2007, the Company and its subsidiaries’ employer matching contributions were 100% of up to 6% of eligible participant contributions. Effective May 5, 2009, the Company discontinued the employer contribution to this plan until further notice. Effective July 1, 2010, the Company reinstated the employer matching contribution of 50% of up to 6% of eligible participant compensation. For the nine months ended September 30, 2011, the Company recognized $0.9 million in expense related to matching contributions. This expense is reflected in the operating expenses financial statement line item in the Company’s unaudited consolidated statements of operations and comprehensive loss.

8. Income Taxes

At the Acquisition date, the Company changed the corporate structure from a corporation to a limited liability company (treated as a partnership for federal income tax purposes). As a result, the Company is no longer subject to federal income tax. State income taxes are immaterial in the periods presented.

9. Related Parties

The Company and its subsidiaries enter into certain transactions, in the ordinary course of business, with entities in which directors of the Company have interests. For each of the nine-month periods ended September 30, 2011 and 2010, respectively, the Company incurred management fees under the financial consulting and management services agreement of approximately $1.1 million and $0.8 million, which is classified as administrative and general expense in the Company’s unaudited consolidated statements of operations and comprehensive loss. In addition, approximately $0.7 million of expenses were incurred for each of the nine-month periods ended September 30, 2011 and 2010, for legal services, regulatory compliance, and other services that are with related party vendors and customers.

10. Commitments and Contingencies

Litigation

The Company is involved in various legal proceedings that have arisen in the ordinary course of business. In the opinion of the Company’s management, all such proceedings are adequately covered by insurance or, if not so covered, should not result in any liability which would have a material adverse effect on the consolidated financial position or consolidated operations of the Company.

 

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As previously disclosed in the Company’s filings with the Securities and Exchange Commission, on August 9, 2010, U.S. United Ocean Services, LLC (“UOS”), a wholly-owned subsidiary of the Company, received a letter from The Mosaic Company (“Mosaic”) claiming a “force majeure” event had occurred under UOS’ contract with Mosaic (the “Mosaic Agreement”). Mosaic has claimed force majeure as a result of preliminary injunctions affecting Mosaic’s South Fort Meade phosphate mine, and the Company has notified Mosaic of our disagreement with their claim of force majeure.

In 2010, Mosaic shipped amounts that were below its minimum contract volume. Since October 2010, Mosaic has terminated further shipments of phosphate “wet rock” under the Mosaic Agreement but has continued nominal shipments of finished phosphate fertilizer as a means of providing a partial mitigation of the volume shortfall. The impact on our revenue in 2010 of Mosaic’s failure to ship minimum volumes was approximately $9.3 million. Assuming that Mosaic would have shipped its annual minimum contract volume ratably throughout each year during the remaining term of the Mosaic Agreement, the impact of the stoppage on our future revenue will be approximately $9.7 million for each fiscal quarter during which the stoppage continues. We are pursuing rights to recover deadfreight through arbitration. We are also pursuing other uses of the shipping capacity used to service the Mosaic Agreement pending Mosaic’s resumption of its compliance with our agreement. In the fourth quarter of 2010, we placed one UOS tug and barge unit into temporary lay-up status and placed a second tug and barge unit into the same status in the first quarter of 2011 in an effort to mitigate our exposure to the reduction in volumes from Mosaic. The Company does not expect that these efforts to mitigate consequences of Mosaic’s actions will fully compensate for our revenue losses.

Operating Leases

The Company rents real property, boats and barges under certain non-cancelable operating leases expiring at various dates through 2029, excluding renewal options. Certain of the leases require the lessee to pay property taxes or are subject to escalating rent clauses. In addition, one lease requires contingent rental payments based on tonnage shipped. This contingent rental, as well as the related minimum rental payment, fluctuates with the Producer Price Index and the Consumer Price Index.

Rental expense for the nine months ended September 30, 2011 and 2010 amounted to approximately $14.7 million and $12.9 million, respectively. Rental expense is included in the operating expenses financial statement line item in the unaudited consolidated statements of operations and comprehensive loss. The following is a schedule by year of approximate future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of September 30, 2011:

 

     (In thousands)  

2011

   $ 6,287   

2012

     13,073   

2013

     11,567   

2014

     6,864   

2015

     6,577   

Thereafter

     40,770   
  

 

 

 

Total minimum lease payments

   $ 85,137   
  

 

 

 

Other

As of September 30, 2011, certain financial institutions had issued letters of credit on behalf of the Company with an aggregate face amount of approximately $4.0 million, none of which had been drawn as of September 30, 2011.

 

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11. Business Segments

The Company has three reportable business segments: United Bulk Terminal, United Barge Line and United Ocean Services. The Company records the corporate activity under the caption “Other.” The United Bulk Terminal segment includes barge and vessel unloading and loading as well as fleeting, shifting and storage at the terminal. The United Barge Line segment includes transporting, fleeting, shifting, and repair services along the Inland Waterways consisting of the Mississippi River, the Ohio River, the Illinois River and their tributaries (collectively known as “Inland Waterways”). The United Ocean Services segment provides transportation services on domestic and international voyages.

Management evaluates performance based on segment earnings, which is defined as operating income. The accounting policies of the reportable segments are consistent with those described in the summary of significant accounting policies. Intercompany sales are eliminated upon consolidation.

 

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Table of Contents
     Reportable Segments                    
     United Bulk
Terminal
     United
Barge
Line
    United
Ocean
Services
    Other (1)     Intersegment
Eliminations
    Total  
     (In thousands)  

Nine Months Ended September 30, 2011

             

Total revenue

   $ 48,422       $ 107,316      $ 93,611      $ 12,274      $ 0      $ 261,623   

Intersegment revenues

     0         0        0        0        (19,587     (19,587
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenue from external customers

     48,422         107,316        93,611        12,274        (19,587     242,036   

Operating expenses

             

Operating expenses

     20,889         83,503        58,687        0        (7,313     155,766   

Maintenance and repairs

     5,645         6,203        8,446        0        0        20,294   

Depreciation and amortization

     4,065         10,138        15,696        105        0        30,004   

(Gain) loss on sale of assets

     56         (1,973     (508     0        0        (2,425

Administrative and general

     7,750         9,816        8,787        12,276        (12,274     26,355   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     38,405         107,687        91,108        12,381        (19,587     229,994   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 10,017       $ (371   $ 2,503      $ (107   $ 0      $ 12,042   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 74,997       $ 170,647      $ 161,491      $ 353,191      $ (351,765   $ 408,561   

Total capital expenditures

   $ 3,301       $ 2,706      $ 6,178      $ 92      $ 0      $ 12,277   

 

(1) Other items (including corporate costs) are shown for purposes of reconciling to the Company’s consolidated totals as shown in the table above.

 

     Reportable Segments                     
     United Bulk
Terminal
     United
Barge
Line
    United
Ocean
Services
     Other (1)     Intersegment
Eliminations
    Total  
     (In thousands)  

Nine Months Ended September 30, 2010

              

Total revenue

   $ 41,035       $ 92,267      $ 107,267       $ 9,418      $ 0      $ 249,987   

Intersegment revenues

     0         0        0         0        (15,545     (15,545
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Revenue from external customers

     41,035         92,267        107,267         9,418        (15,545     234,442   

Operating expenses

              

Operating expenses

     18,474         69,000        62,724         0        (6,126     144,072   

Maintenance and repairs

     5,390         3,702        13,374         0        0        22,466   

Depreciation and amortization

     3,979         14,847        16,105         118        0        35,049   

Loss (gain) on sale of assets

     91         (131     1         0        0        (39

Administrative and general

     6,382         9,998        9,785         9,496        (9,412     26,249   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     34,316         97,416        101,989         9,614        (15,538     227,797   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 6,719       $ (5,149   $ 5,278       $ (196   $ (7   $ 6,645   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 80,063       $ 176,355      $ 182,818       $ 410,537      $ (406,250   $ 443,523   

Total capital expenditures

   $ 3,764       $ 2,137      $ 8,297       $ 50      $ 0      $ 14,248   

 

(1) Other items (including corporate costs) are shown for purposes of reconciling to the Company’s consolidated totals as shown in the table above.

 

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Table of Contents
     Reportable Segments                     
     United Bulk
Terminal
     United
Barge
Line
    United
Ocean
Services
     Other (1)     Intersegment
Eliminations
    Total  
     (In thousands)  

Three Months ended September 30, 2011

              

Total revenue

   $ 17,105       $ 39,297      $ 32,459       $ 4,740      $ 0      $ 93,601   

Intersegment revenues

     0         0        0         0        (7,983     (7,983
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Revenue from external customers

     17,105         39,297        32,459         4,740        (7,983     85,618   

Operating expenses

              

Operating expenses

     7,444         28,830        19,127         0        (3,243     52,158   

Maintenance and repairs

     2,069         3,548        3,980         0        0        9,597   

Depreciation and amortization

     1,346         3,393        5,215         35        0        9,989   

(Gain) loss on sale of assets

     0         (115     0         0        0        (115

Administrative and general

     2,759         2,747        3,141         5,050        (4,740     8,957   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     13,618         38,403        31,463         5,085        (7,983     80,586   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 3,487       $ 894      $ 996       $ (345   $ 0      $ 5,032   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 74,997       $ 170,647      $ 161,491       $ 353,191      $ (351,765   $ 408,561   

Total capital expenditures

   $ 690       $ 2,170      $ 1,993       $ 35      $ 0      $ 4,888   

 

(1) Other items (including corporate costs) are shown for purposes of reconciling to the Company’s consolidated totals as shown in the table above.

 

     Reportable Segments                     
     United Bulk
Terminal
     United
Barge
Line
    United
Ocean
Services
     Other (1)     Intersegment
Eliminations
    Total  
     (In thousands)  

Three Months ended September 30, 2010

              

Total revenue

   $ 14,579       $ 31,764      $ 35,988       $ 3,177      $ 0      $ 85,508   

Intersegment revenues

     0         0        0         0        (5,444     (5,444
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Revenue from external customers

     14,579         31,764        35,988         3,177        (5,444     80,064   

Operating expenses

              

Operating expenses

     6,812         22,735        20,616         0        (2,267     47,896   

Maintenance and repairs

     1,467         1,743        4,657         0        0        7,867   

Depreciation and amortization

     1,455         4,980        5,590         41        0        12,066   

(Gain) loss on sale of assets

     19         8        0         0        0        27   

Administrative and general

     2,221         3,218        3,339         3,255        (3,177     8,856   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     11,974         32,684        34,202         3,296        (5,444     76,712   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 2,605       $ (920   $ 1,786       $ (119   $ 0      $ 3,352   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 80,063       $ 176,355      $ 182,818       $ 410,537      $ (406,250   $ 443,523   

Total capital expenditures

   $ 422       $ 580      $ 3,922       $ 0      $ 0      $ 4,924   

 

(1) Other items (including corporate costs) are shown for purposes of reconciling to the Company’s consolidated totals as shown in the table above.

 

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12. Debtor Guarantor Financial Statements

In December 2009, the Company issued its Senior Secured Notes which were fully and unconditionally guaranteed on a joint and several basis by all the Company’s subsidiaries. All subsidiaries are 100% owned by the Company.

Condensed Consolidating Balance Sheet as of September 30, 2011

Unaudited

(In thousands)

 

     Parent      Guarantor
Subsidiaries
     Eliminations     Consolidated
Totals
 

Assets

          

Current assets:

          

Cash and cash equivalents

   $ 2,470       $ 406       $ 0      $ 2,876   

Accounts receivable trade, net of allowances for doubtful accounts

     179,457         36,833         (188,442     27,848   

Materials and supplies

     0         19,425         0        19,425   

Prepaid expenses and other current assets

     798         5,405         0        6,203   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     182,725         62,069         (188,442     56,352   

Property and equipment, net

     338         314,019         0        314,357   

Investment in subsidiaries

     163,323         0         (163,323     0   

Deferred financing costs, net of amortization

     6,805         0         0        6,805   

Intangible asset, net of amortization

     0         26,290         0        26,290   

Other assets

     0         4,757         0        4,757   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 353,191       $ 407,135       $ (351,765   $ 408,561   
  

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and member’s equity

          

Current liabilities

          

Accounts payable

   $ 9,651       $ 194,783       $ (188,442   $ 15,992   

Accrued expenses

     8,189         8,046         0        16,235   

Deferred revenue

     0         5,332         0        5,332   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     17,840         208,161         (188,442     37,559   

Other deferred liabilities

     0         19,273         0        19,273   

Long-term debt

     220,025         0         0        220,025   

Member’s equity

     115,326         179,701         (163,323     131,704   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 353,191       $ 407,135       $ (351,765   $ 408,561   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidating Balance Sheet as of December 31, 2010

Unaudited

(In thousands)

 

     Parent      Guarantor
Subsidiaries
     Eliminations     Consolidated
Totals
 

Assets

          

Current assets:

          

Cash and cash equivalents

   $ 7,180       $ 301       $ 0      $ 7,481   

Accounts receivable trade, net of allowances for doubtful accounts

     219,285         41,768         (229,870     31,183   

Materials and supplies

     0         19,081         0        19,081   

Prepaid expenses and other current assets

     501         2,813         0        3,314   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     226,966         63,963         (229,870     61,059   

Property and equipment, net

     350         332,088         0        332,438   

Investment in subsidiaries

     163,323         0         (163,323     0   

Deferred financing fees , net of amortization

     8,391         0         0        8,391   

Intangible asset, net of amortization

     0         28,439         0        28,439   

Other assets

     0         5,743         0        5,743   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 399,030       $ 430,233       $ (393,193   $ 436,070   
  

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and member’s equity

          

Current liabilities

          

Accounts payable

   $ 7,871       $ 233,080       $ (229,870   $ 11,081   

Accounts payable related parties

     1,500         0         0        1,500   

Accrued expenses

     4,893         6,041         0        10,934   

Deferred revenue

     0         4,195         0        4,195   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     14,264         243,316         (229,870     27,710   

Other deferred liabilities

     0         19,480         0        19,480   

Long term debt

     248,985         0         0        248,985   

Member’s equity

     135,781         167,437         (163,323     139,895   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 399,030       $ 430,233       $ (393,193   $ 436,070   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidating Statement of Operations

For the Nine Months Ended September 30, 2011

Unaudited

(In thousands)

 

     Parent     Guarantor
Subsidiaries
    Eliminations     Consolidated
Totals
 

Revenue

   $ 12,274      $ 249,349      $ (19,587   $ 242,036   

Operating expenses

     0        183,373        (7,313     176,060   

Administrative and general

     12,276        26,353        (12,274     26,355   

Depreciation and amortization

     105        29,899        0        30,004   

Gain on sale of assets

     0        (2,425     0        (2,425
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (107     12,149        0        12,042   

Interest expense, net

     20,291        0        0        20,291   

Other expense (income), net

     691        (1,562     0        (871
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (21,089   $ 13,711      $ 0      $ (7,378
  

 

 

   

 

 

   

 

 

   

 

 

 

Condensed Consolidating Statement of Operations

For the Nine Months Ended September 30, 2010

Unaudited

(In thousands)

 

     Parent     Guarantor
Subsidiaries
    Eliminations     Consolidated
Totals
 

Revenue

   $ 9,418      $ 240,569      $ (15,545   $ 234,442   

Operating expenses

     0        172,665        (6,127     166,538   

Administrative and general

     9,496        26,165        (9,412     26,249   

Depreciation and amortization

     118        34,931        0        35,049   

Gain on sale of assets

     0        (39     0        (39
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (196     6,847        (6     6,645   

Interest expense, net

     21,643        0        0        21,643   

Other income, net

     (78     (732     0        (810
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (21,761   $ 7,579      $ (6   $ (14,188
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidating Statement of Operations

For the Three Months Ended September 30, 2011

Unaudited

(In thousands)

 

     Parent     Guarantor
Subsidiaries
    Eliminations     Consolidated
Totals
 

Revenue

   $ 4,740      $ 88,861      $ (7,983   $ 85,618   

Operating expenses

     0        64,998        (3,243     61,755   

Administrative and general

     5,050        8,647        (4,740     8,957   

Depreciation and amortization

     35        9,954        0        9,989   

Gain on sale of assets

     0        (115     0        (115
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (345     5,377        0        5,032   

Interest expense, net

     6,662        0        0        6,662   

Other expense (income), net

     383        (607     0        (224
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (7,390   $ 5,984      $ 0      $ (1,406
  

 

 

   

 

 

   

 

 

   

 

 

 

Condensed Consolidating Statement of Operations

For the Three Months Ended September 30, 2010

Unaudited

(In thousands)

 

     Parent     Guarantor
Subsidiaries
    Eliminations     Consolidated
Totals
 

Revenue

   $ 3,177      $ 82,331      $ (5,444   $ 80,064   

Operating expenses

     0        58,030        (2,267     55,763   

Administrative and general

     3,255        8,778        (3,177     8,856   

Depreciation and amortization

     41        12,025        0        12,066   

Loss on sale of assets

     0        27        0        27   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (119     3,471        0        3,352   

Interest expense, net

     7,170        0        0        7,170   

Other income, net

     (78     (759     0        (837
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (7,211   $ 4,230      $ 0      $ (2,981
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended September 30, 2011

Unaudited

(In thousands)

 

     Parent     Guarantor
Subsidiaries
    Eliminations      Consolidated
Totals
 

Operating activities:

         

Net cash provided by operating activities

   $ 24,042      $ 7,372      $ 0       $ 31,414   

Investing activities:

         

Capital expenditures

     (92     (12,185     0         (12,277

Other investing activities

     0        4,918        0         4,918   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in investing activities

     (92     (7,267     0         (7,359

Financing activities:

         

Net change in debt

     (28,960     0        0         (28,960

Other financing activities

     300        0        0         300   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in financing activities

     (28,660     0        0         (28,660

Net (decrease) increase in cash and cash equivalents

     (4,710     105        0         (4,605

Cash and cash equivalents, at beginning of period

     7,180        301        0         7,481   
  

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents, at end of period

   $ 2,470      $ 406      $ 0       $ 2,876   
  

 

 

   

 

 

   

 

 

    

 

 

 

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended September 30, 2010

Unaudited

(In thousands)

 

     Parent     Guarantor
Subsidiaries
    Eliminations      Consolidated
Totals
 

Operating activities:

         

Net cash provided by operating activities

   $ 17,016      $ 13,706      $ 0       $ 30,722   

Investing activities:

         

Capital expenditures

     (50     (14,198     0         (14,248

Other investing activities

     0        557        0         557   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in investing activities

     (50     (13,641     0         (13,691

Financing activities:

         

Net change in debt

     (28,140     0        0         (28,140

Other financing activities

     408        0        0         408   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in financing activities

     (27,732     0        0         (27,732

Net (decrease) increase in cash and cash equivalents

     (10,766     65        0         (10,701

Cash and cash equivalents, at beginning of period

     11,261        370        0         11,631   
  

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents, at end of period

   $ 495      $ 435      $ 0       $ 930   
  

 

 

   

 

 

   

 

 

    

 

 

 

13. Subsequent Events

On October 14, 2011, the Company sold an ocean-going vessel that generated a gain on sale of $2.3 million and proceeds of $5.2 million.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “estimates,” “will,” “should,” “plans” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements as a result of various factors. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various factors, including those set forth under “Forward-Looking Statements” and “Risk Factors” in the Company’s Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2011, as amended by the Amendment No. 1 on Form 10-K/A filed with the SEC on April 29, 2011 (the “10-K”), all of which are incorporated herein by reference. Moreover, we caution you not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this quarterly report or to reflect the occurrence of unanticipated events.

The following discussion should be read in conjunction with the Company’s audited and unaudited consolidated financial statements and related notes thereto in Item 1, “FINANCIAL STATEMENTS” in this quarterly report and the Company’s audited Consolidated Financial Statements for the year ended December 31, 2010 and related notes thereto that are contained in the 10-K.

General

We are a leading independent provider of dry bulk marine transportation and terminal services in the U.S. We own and operate the largest coal and petcoke terminal in the Gulf of Mexico, which is strategically located as the first inbound dry bulk terminal on the Mississippi River. We also own and operate marine assets in the inland barge, U.S.-flag coastwise, and U.S. Government cargo preference markets and provide foreign flag ocean services through chartered assets. We operate in three business segments: United Bulk Terminal, United Barge Line and United Ocean Services. For the nine months ended September 30, 2011, United Bulk Terminal’s primary cargoes (by tons transferred) consisted of coal and petcoke and United Barge Line’s primary cargoes (by tons transported) consisted of coal, petcoke, steel-related products and grain. United Ocean Services’ primary cargoes (by total revenue) consisted of coal, petcoke, phosphate fertilizer and PL-480 shipments.

United Bulk Terminal (“UBT”)

UBT provides transfer, storage and blending services as well as fleeting and shifting services at our facility. Blending is the process of combining multiple grades of coal or petcoke cargoes based on customer specifications. Contract types for UBT are primarily based on transfer of cargo (i) from barge to storage to vessel or (ii) from barge directly to vessel. These contracts include a storage allowance and rate structure for storage charges. They include a transfer rate that may contain annual escalation clauses. Within most of its contracts, UBT provides production guarantees to its customers. Production guarantees relate to the tons per hour rate that UBT will guarantee to load or unload their vessels. If they are not exceeded, UBT owes demurrage to the customer; if they are exceeded, UBT earns despatch, which is compensation for loading and unloading faster than the guaranteed rate. The majority of UBT revenue is generated from the transfer of cargoes.

Operating costs for UBT consist primarily of leases related to the property, power consumption, employee costs, and maintenance and repairs of facility equipment.

 

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United Barge Line (“UBL”)

UBL provides inland towboat and barge transportation services. UBL primarily performs these services under affreightment contracts, under which our customers engage us to move cargo for a per ton rate from an origin point to a destination point along the inland waterways consisting of the Mississippi River, the Ohio River, the Illinois River and their tributaries on our barges, pushed primarily by our towboats. Affreightment contracts include both term and spot market arrangements.

Operating costs for UBL consist primarily of crewing, insurance, port costs, lease, maintenance and repairs, and fuel. Most of our term contracts have fuel price mechanisms which limit our exposure to changes in fuel price. However, our spot contracts do not have this mechanism and we therefore bear the risk of fuel price increases. In order to limit our exposure, we aim to hedge 50% to 75% of our expected fuel exposure over the next thirty to thirty-six month period.

We primarily utilize our owned fleet of towboats for transporting our barges. To the extent one or more of our towboats has unused capacity, we use the vessel to provide outside towing services. Outside towing revenue is earned by moving barges for third party affreightment carriers at a specific rate per barge per mile moved. These barges are typically added to our existing tows. On limited occasions, we have contracted for the use of third party towing services.

United Ocean Services (“UOS”)

UOS provides transportation services on domestic and international voyages. These services are contracted under single or consecutive voyage charters on a spot basis, or long-term contracts ranging from one to ten years. Most of the U.S. flag international voyages are performed under cargo preference programs, the most significant of which is Public Law 480 (“PL-480”). We have also been engaged in foreign flag charting activity focused primarily on the movement of pet coke and coal for existing customers. Revenues under these contracts are based on a per ton rate. We bear the risk of time lost due to weather, maintenance, and delay at docks which are not covered by demurrage. Demurrage is compensation due from the customer when there are delays at the dock that prevent the vessel from loading or unloading within the contract terms. Our contracts have fuel price mechanisms that limit our exposure to changes in fuel price. Occasionally, we time charter our vessels, such that the customer has exclusive use of a particular vessel for a specified time period and rates are on a per day basis. We pay expenses related to the vessel’s maintenance and operation and the charterer is responsible for all voyage costs, including port charges and fuel.

Rates for UOS movements are based on the amount of freight demand relative to the availability of vessels to meet that demand. In the coastwise market, a significant portion of the movements are based on long-term contractual relationships. Vessels are often customized or particularly suited for individual customers, cargoes or trades. There has been a reduction in new movements and spot opportunities due to the economic downturn. Cargo volumes in the preference trade are based on funding for such programs and the availability of U.S.-flag vessels. If customer requirements for movements of cargoes are reduced or spot employment is not available as a vessel completes its last movement, the vessel may be idle and not generate revenue. If this situation exists for an extended period of time, we may place a vessel in lay up status. While in lay up, all machinery is shut down, the crew is removed and the vessel is secured. Lay up minimizes the costs associated with the vessel, particularly fuel and crew costs. Restoring a vessel back to active service may require time to hire crews and perform dry-docking or other maintenance required to ensure the vessel is fully compliant with Class and Coast Guard regulations. In the ordinary course of our business, we continuously monitor the profitability and market value of our vessels and may, under certain conditions, strategically sell certain vessels from time to time.

Operating costs for UOS consist primarily of crewing, insurance, maintenance, lease, fuel and voyage-specific port and direct costs. Maintenance costs materially fluctuate in relation to the number and extent of regulatory drydockings in any given period. The cost associated with the U.S. Coast Guard and classification society mandated drydocking of vessels are accounted for as follows: (i) regulatory maintenance expenses are recorded as deferred costs and amortized over the period until the next scheduled dry-docking, (ii) routine maintenance expenses, such as inspections, docking costs and other normal expenditures, are expensed as incurred and (iii) costs relating to major steelwork, coatings or any other work that extends the life of the vessel are capitalized. Due to the age of our fleet and the nature of marine transportation, we have spent significant time and capital maintaining our vessels to ensure they are operating efficiently and safely.

 

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As previously disclosed in the Company’s filings with the Securities and Exchange Commission, on August 9, 2010, U.S. United Ocean Services, LLC (“UOS”), a wholly-owned subsidiary of the Company, received a letter from The Mosaic Company (“Mosaic”) claiming a “force majeure” event had occurred under UOS’ contract with Mosaic (the “Mosaic Agreement”). Mosaic has claimed force majeure as a result of preliminary injunctions affecting Mosaic’s South Fort Meade phosphate mine, and the Company has notified Mosaic of our disagreement with their claim of force majeure.

In 2010, Mosaic shipped amounts that were below its minimum contract volume. Since October 2010, Mosaic has terminated further shipments of phosphate “wet rock” under the Mosaic Agreement but has continued nominal shipments of finished phosphate fertilizer as a means of providing a partial mitigation of the volume shortfall. The impact on our revenue in 2010 of Mosaic’s failure to ship minimum volumes was approximately $9.3 million. Assuming that Mosaic would have shipped its annual minimum contract volume ratably throughout each year during the remaining term of the Mosaic Agreement, the impact of the stoppage on our future revenue will be approximately $9.7 million for each fiscal quarter during which the stoppage continues. We are pursuing rights to recover deadfreight through arbitration. We are also pursuing other uses of the shipping capacity used to service the Mosaic Agreement pending Mosaic’s resumption of its compliance with our agreement. In the fourth quarter of 2010, we placed one UOS tug and barge unit into temporary lay-up status and placed a second tug and barge unit into the same status in the first quarter of 2011 in an effort to mitigate our exposure to the reduction in volumes from Mosaic. The Company does not expect that these efforts to mitigate consequences of Mosaic’s actions will fully compensate for our revenue losses.

 

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Table of Contents

Business Segment Selected Financial Data

The following table sets forth, for the periods indicated, amounts derived from our unaudited consolidated financial statements:

 

     Three Months
Ended
September 30,
2011
    Three Months
Ended
September 30,
2010
    Nine Months
Ended
September 30,
2011
    Nine Months
Ended
September 30,
2010
 
     (In thousands)  

Statement of Operations:

        

Revenue:

        

UBT

   $ 17,105      $ 14,579      $ 48,422      $ 41,035   

UBL

     39,297        31,764        107,316        92,267   

UOS

     32,459        35,988        93,611        107,267   

Other and eliminations

     (3,243     (2,267     (7,313     (6,127
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 85,618      $ 80,064      $ 242,036      $ 234,442   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses: (1)

        

UBT

   $ 9,513      $ 8,279      $ 26,534      $ 23,864   

UBL

     32,378        24,478        89,706        72,702   

UOS

     23,107        25,273        67,133        76,098   

Other and eliminations

     (3,243     (2,267     (7,313     (6,126
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 61,755      $ 55,763      $ 176,060      $ 166,538   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss):

        

UBT

   $ 3,487      $ 2,605      $ 10,017      $ 6,719   

UBL

     894        (920     (371     (5,149

UOS

     996        1,786        2,503        5,278   

Other and eliminations

     (345     (119     (107     (203
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 5,032      $ 3,352      $ 12,042      $ 6,645   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance Sheet (at end of period):

        

Total assets:

        

UBT

   $ 74,997      $ 80,063      $ 74,997      $ 80,063   

UBL

     170,647        176,355        170,647        176,355   

UOS

     161,491        182,818        161,491        182,818   

Other and eliminations

     1,426        4,287        1,426        4,287   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 408,561      $ 443,523      $ 408,561      $ 443,523   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Excludes administrative and general expenses, depreciation and amortization and (gain)/loss on sale of assets.

History and Transactions

We began operations in 1959 to provide waterborne transportation services for the coal purchased as fuel for Tampa Electric Company’s power generation facilities. We were part of Tampa Electric Company until 1980, when we became a wholly owned subsidiary as part of TECO Energy’s broader diversification. In December 2007, we became an independent company acquired from TECO Energy by a group consisting of Greenstreet Equity Partners LLC, Jefferies Capital Partners and AMCI Capital L.P. and affiliates.

Basis of Presentation

The accompanying unaudited consolidated financial statements include the consolidated accounts of the Company for the periods prescribed for this reporting period.

 

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These statements have been prepared using our basis in the assets and liabilities acquired in the purchase transaction. The acquisition from TECO Energy was treated as a purchase and the assets so acquired were valued on our books at our assessments of their fair market value, as described below.

The unaudited consolidated financial statements included in this quarterly report may not necessarily reflect the consolidated financial position, operating results, changes in member’s equity and cash flows of the Company in the future.

Critical Accounting Policies

Preparation of our financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of sales and expenses during the reporting period. Our critical accounting policies, including the assumptions and judgments underlying them, are disclosed in Item 1 of this quarterly report under the caption “NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Note 2: Significant Accounting Policies”. The accompanying consolidated financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and settlement of liabilities in the ordinary course of business. Critical accounting estimates that affect the reported amounts of assets and liabilities on a going concern basis include amounts recorded as reserves for doubtful accounts, insurance claims and related receivable amounts, revenues and expenses on vessels using the percentage-of-completion method, valuation of fuel hedges, estimates of future cash flows used in impairment evaluations, liabilities for unbilled barge and boat maintenance, liabilities for unbilled harbor and towing services, and depreciable lives of long-lived assets. Estimates have varied from actual results due to specific events occurring that were unknown at the time of the estimate. Those events include items such as acquiring a back haul trip when it was not planned, unplanned vessel maintenance required and medical and property insurance claims.

Accounts Receivable and Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses from the inability of our customers to make required payments, which are provided for in bad debt expense. We determine the adequacy of this allowance by regularly reviewing our accounts receivable aging and evaluating individual customers’ receivables, considering customers’ financial condition, credit history and other current economic conditions. If a customer’s financial condition were to deteriorate which might impact its ability to make payment, then additional allowances may be required.

Revenue Recognition

Revenue is primarily derived from coal, petcoke, steel-related products, phosphate and grain transportation (among other cargoes), and transfer and storage services to unaffiliated entities. Revenues from transportation and transfer services are recognized as services are rendered. Revenue from certain transportation services is recognized using the percentage of completion method, which includes estimates of the distance traveled and/or time elapsed compared to the total estimated contract. Storage revenue is recognized monthly based on the volumes held at the storage facility over the contract grace period.

Inventories

Materials and supplies, including fuel costs, are stated at the lower of cost or market using the average cost method. We regularly review inventory on hand and record provisions based on those reviews. Our term contracts contain provisions that allow us to pass through a significant portion of any fuel expense increase to our customer, thereby reducing, but not eliminating, our fuel price risk. We cannot predict the occurrence of market fluctuations that may significantly increase the costs of materials and supplies.

Property and Equipment

Property and equipment are stated at cost. As a result of the acquisition and the related application of purchase accounting to the acquired assets and liabilities, there is a new basis of property and equipment subsequent to the acquisition date. There are items that could affect this basis, which include assumptions that there is responsible ownership and management, competent crewing and ongoing maintenance, there are no significant potential environmental hazards associated with the equipment and the vessels are in compliance with all applicable international, federal, state or local regulations. Management is not aware of any impending events or situations that would negatively affect in any material respect the key assumptions used in the analysis.

 

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Planned Major Maintenance

Expenditures incurred during a drydocking are deferred and amortized on a straight-line basis over the period until the next scheduled drydocking, generally two and a half years. The Company only includes in deferred drydocking costs those direct costs that are incurred as part of the vessel’s maintenance that is required by the Coast Guard and/or classification society regulations. Direct costs include shipyard costs as well as the costs of placing the vessel in the shipyard. Expenditures for routine maintenance and repairs, whether incurred as part of the drydocking or not, are expensed as incurred. If unforeseen maintenance issues were discovered during the drydocking process, expenditures could be higher than anticipated.

Asset Retirement Obligations

An asset retirement obligation for a long-lived asset is recognized at fair value at inception of the obligation, if there is a legal obligation under an existing or enacted law or statute, a written or oral contract, or by legal construction under the doctrine of promissory estoppels. Retirement obligations are recognized only if the legal obligation exists in connection with or as a result of the permanent retirement, abandonment, or sale of a long-lived asset.

When the liability is initially recorded, the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its future value. The corresponding amount capitalized at inception is depreciated over the remaining useful life of the asset. The liability must be revalued each period based on current market prices.

No new retirement obligations were incurred and no significant revision to estimated cash flows used in determining the recognized asset retirement obligations were necessary for the nine months ended September 30, 2011. Unforeseen or unknown conditions of future long-lived assets or new governmental regulations applicable to such assets may result in unexpected retirement obligation costs.

Derivative Instruments and Hedging Activities

The Derivative and Hedging Topic of the FASB Codification requires companies to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Topic also requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required by the Derivative and Hedging Topic of the FASB Codification, we record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain of our risk, even though hedge accounting does not apply or we elect not to apply hedge accounting. If, due to unexpected market changes, the hedge product is not sufficient to cover our usage and price fluctuations, our expenses may be significantly impacted.

 

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Long-lived Assets

The Company reviews long-lived assets for impairment annually or whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company performs undiscounted operating cash flow analyses to determine if impairment exists. If impairment is determined to exist, any related impairment loss is calculated based on the asset’s fair value and the discounted cash flow. There were no indications of impairment during the nine months ended September 30, 2011 or September 30, 2010. An unexpected change in vessel market value could create an impairment, thereby resulting in an undetermined loss on the vessel.

Results of Operations

Three Months Ended September 30, 2011 Compared With Three Months Ended September 30, 2010

Revenue. Revenue increased to $85.6 million for the three months ended September 30, 2011, compared to $80.1 million for the three months ended September 30, 2010, an increase of $5.5 million or 7%.

UBT total revenue increased to $17.1 million for the three months ended September 30, 2011, from $14.6 million for the three months ended September 30, 2010, an increase of $2.5 million or 17%. This increase resulted from higher rates and additional tons handled by UBT compared to the prior year. In addition, there was significant improvement in net despatch/demurrage performance, wherein the terminal results improve by reducing the turnaround time of customers’ barges and vessels. Finally, higher dockage-related revenues and increased activity and fuel surcharges in the fleet added to UBT’s revenues.

UBL total revenue increased to $39.3 million for the three months ended September 30, 2011, from $31.8 million for the three months ended September 30, 2010, an increase of $7.5 million or 24%. UBL revenue from open freight, which is generally coal and petcoke, increased to $25.1 million for the three months ended September 30, 2011, from $18.3 million for the three months ended September 30, 2010, an increase of $7.3, million or 40%. The revenue increase was attributable to an increase in rates. Revenue from covered freight, which is generally weather-sensitive cargoes such as grain and fertilizers, increased to $8.1 million for the three months ended September 30, 2011, from $7.4 million for the three months ended September 30, 2010, an increase of $0.7 million or 9%. This increase was due to increases in northbound volumes partially offset by a decrease in southbound volume coupled with an overall increase in both southbound and northbound rates. UBL outside towing revenue earned by moving barges for other barge owners increased to $3.6 million for the three months ended September 30, 2011, from $3.4 million for the three months ended September 30, 2010, an increase of $0.2 million or 6%. UBL other revenue decreased to $1.9 million for the three months ended September 30, 2011, from $2.7 million for the three months ended September 30, 2010, a decrease of $0.8 million or 30%. This decrease was primarily due to decreased demurrage.

UOS total revenue decreased to $32.5 million for the three months ended September 30, 2011, from $36.0 million for the three months ended September 30, 2010, a decrease of $3.5 million or 10%. UOS revenue from contracts increased to $21.5 million for the three months ended September 30, 2011, from $19.8 for the three months ended September 30, 2010, an increase of $1.7 million or 9%. This increase was primarily due to increases in coal and petcoke volumes as a result of asset repositioning from spot, partially offset by wetrock volume loss associated with the ongoing Mosaic claim of force majeure. The spot revenue for UOS, including PL-480, spot and foreign flag chartering activity, decreased to $9.8 million for the three months ended September 30, 2011, from $15.6 million for the three months ended September 30, 2010, a decrease of $5.8 million or 37%. This decrease is primarily associated with vessel allocations from spot to contract revenue, partially offset by an increase in foreign flag chartering activity.

Operating Expenses. Operating expenses increased to $61.8 million for the three months ended September 30, 2011, from $55.8 million for the three months ended September 30, 2010, an increase of $6.0 million or 11%. Operating expenses for the three months ended September 30, 2011, were 72% of operating revenue, and for the three months ended September 30, 2010, were 70% of revenue. The increase was attributable to higher fuel costs, lease and charter costs and maintenance costs, partially offset by a decrease in labor and port costs.

 

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Operating expenses for UBT increased to $9.5 million for the three months ended September 30, 2011, from $8.3 million for the three months ended September 30, 2010, an increase of $1.2 million or 15%. The increase in UBT operating expenses for the three months ended September 30, 2011 was primarily driven by higher maintenance costs, lease and charter costs and fuel costs.

Operating expenses for UBL increased to $32.4 million for the three months ended September 30, 2011, from $24.5 million for the three months ended September 30, 2010, an increase of $7.9 million or 32%. The largest increase in UBL operating expenses for the three months ended September 30, 2011, was attributable to higher maintenance costs. On August 5, 2011, United Barge Line sustained an incident on the lower Mississippi River resulting in two of its barges being sunk and incurring damage on its towboat and several other barges in the tow. Damages from the incident that exceed applicable deductibles will be covered by the Company’s property, liability and cargo insurance policies. Incident expenses totaling $1.6 million were recorded in the third quarter of 2011 and are reflected in maintenance costs. These higher maintenance costs, along with fuel costs, port costs, lease and charter and labor increased direct costs by $7.8 million.

Operating expenses for UOS decreased to $23.1 million for the three months ended September 30, 2011, from $25.3 million for the three months ended September 30, 2010, a decrease of $2.2 million or 9%. The decrease in UOS operating expenses for the three months ended September 30, 2011 was primarily attributable to lower maintenance costs, and port costs, partially offset by higher fuel costs. In this time period UOS was operating the equivalent of two less vessels in its fleet due to lower Mosaic volumes.

Administrative and general. Administrative and general costs increased to $9.0 million for the three months ended September 30, 2011, from $8.9 million for the three months ended September 30, 2010, an increase of $0.1 million, or 1%. The increase was primarily attributable to higher salaries and related costs offset by lower insurance expense.

Depreciation and amortization. Depreciation and amortization decreased to $10.0 million for the three months ended September 30, 2011, from $12.1 million for the three months ended September 30, 2010, a decrease of $2.1 million or 17%. Substantially all of the decrease is due to assets becoming fully depreciated.

Other income. Other income decreased to a gain of $0.3 million for the three months ended September 30, 2011, from a gain of $0.8 million for the three months ended September 30, 2010, a decrease of $0.5 million, or 63%. The gain in 2011 results from the sale of obsolete UBL barges and from the sale of scrap material.

Interest expense. Interest expense decreased to $6.7 million for the three months ended September 30, 2011, from $7.2 million for the three months ended September 30, 2010, a decrease of $0.5 million or 7%. This decrease was due primarily to the decrease in outstanding principal on the Senior Secured Notes and ABL year over year.

Income taxes. The Company is a limited liability company and is treated as a partnership for federal income tax purposes. Therefore, it records no income tax provision.

Nine Months Ended September 30, 2011 Compared With Nine Months Ended September 30, 2010

Revenue. Revenue increased to $242.0 million for the nine months ended September 30, 2011, compared to $234.4 million for the nine months ended September 30, 2010, an increase of $7.6 million or 3%.

UBT total revenue increased to $48.4 million for the nine months ended September 30, 2011, from $41.0 million for the nine months ended September 30, 2010, an increase of $7.4 million or 18%. This increase resulted from a significant improvement in net despatch/demurrage performance, wherein the terminal results improve by reducing the turnaround time of customers’ barges and vessels. Additionally, the terminal handled more tons at higher average rates compared to the prior year.

 

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UBL total revenue increased to $107.3 million for the nine months ended September 30, 2011, from $92.3 million for the nine months ended September 30, 2010, an increase of $15.0 million or 16%. UBL revenue from open freight, which is generally coal and petcoke, increased to $67.2 million for the nine months ended September 30, 2011, from $55.1 million for the nine months ended September 30, 2010, an increase of $12.1 million or 22%. The revenue increase was attributable to an increase in rates and higher northbound volumes. Revenue from covered freight, which is generally weather-sensitive cargoes such as grain and fertilizers, increased to $24.3 million for the nine months ended September 30, 2011, from $20.6 million for the nine months ended September 30, 2010, an increase of $3.7 million or 18%. This increase was due to increases in both southbound and northbound rates. UBL other revenue decreased to $4.8 million for the nine months ended September 30, 2011, from $5.8 million for the nine months ended September 30, 2010, a decrease of $1.0 million or 17%. This decrease was primarily due to decreased demurrage.

UOS total revenue decreased to $93.6 million for the nine months ended September 30, 2011, from $107.3 million for the nine months ended September 30, 2010, a decrease of $13.7 million or 13%. UOS revenue from contracts decreased to $48.5 million for the nine months ended September 30, 2011, from $55.1 for the nine months ended September 30, 2010, a decrease of $6.6 million or 12%. This decrease was primarily due to volume loss associated with the ongoing Mosaic claim of force majeure, partially offset by increases in coal, fertilizers and petcoke volumes as a result of asset repositioning from spot. The spot revenue for UOS, including PL-480, spot and foreign flag chartering activity, decreased to $42.3 million for the nine months ended September 30, 2011, from $50.8 million for the nine months ended September 30, 2010, a decrease of $8.5 million or 17%. This decrease is primarily associated with vessel allocations from spot to contract status, partially offset by an increase in foreign flag chartering activity.

Operating expenses. Operating expenses increased to $176.1 million for the nine months ended September 30, 2011, from $166.5 million for the nine months ended September 30, 2010, an increase of $9.6 million or 6%. Operating expenses for the nine months ended September 30, 2011, were 73% of operating revenue, and for the nine months ended September 30, 2010, were 71% of revenue. The increase was attributable to higher fuel costs and lease and charter costs, partially offset by a decrease in maintenance costs.

Operating expenses for UBT increased to $26.5 million for the nine months ended September 30, 2011, from $23.9 million for the nine months ended September 30, 2010, an increase of $2.6 million or 11%. The increase in UBT operating expenses for the nine months ended September 30, 2011 was primarily driven by higher lease and charter costs, fuel costs and maintenance costs.

Operating expenses for UBL increased to $89.7 million for the nine months ended September 30, 2011, from $72.7 million for the nine months ended September 30, 2010, an increase of $17.0 million or 23%. The largest increase in UBL operating expenses for the nine months ended September 30, 2011 was attributable to higher fuel costs, port costs, labor costs and maintenance costs, which impacted direct costs by $16.1 million.

Operating expenses for UOS decreased to $67.1 million for the nine months ended September 30, 2011, from $76.1 million for the nine months ended September 30, 2010, a decrease of $9.0 million or 12%. The decrease in UOS operating expenses for the nine months ended September 30, 2011 was primarily attributable to lower maintenance costs and port costs, partially offset by increased fuel cost of $0.7 million. In this time period UOS was operating the equivalent of two less vessels in its fleet due to lower Mosaic volumes.

Administrative and general. Administrative and general costs increased to $26.4 million for the nine months ended September 30, 2011 from $26.3 million for the nine months ended September 30, 2010, an increase of $0.1 million. Higher property taxes and salaries were mainly offset by decreases in insurance costs.

 

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Depreciation and amortization. Depreciation and amortization decreased to $30.0 million for the nine months ended September 30, 2011, from $35.0 million for the nine months ended September 30, 2010, a decrease of $5.0 million or 14%. Substantially all of the decrease is due to assets becoming fully depreciated.

Other income. Other income increased to a gain of $3.3 million for the nine months ended September 30, 2011, from $0.8 million for the nine months ended September 30, 2010, an increase of $2.5 million. The gain in 2011 results from the sale of obsolete UOS and UBL barges and from the sale of scrap material.

Interest expense. Interest expense decreased to $20.3 million for the nine months ended September 30, 2011, from $21.6 million for the nine months ended September 30, 2010, a decrease of $1.3 million or 6%. This decrease was due primarily to the decrease in outstanding principal on the Senior Secured Notes and ABL year over year.

Income taxes. The Company is a limited liability company and is treated as a partnership for federal income tax purposes. Therefore, it records no income tax provision.

Liquidity and Capital Resources

Our funding requirements include (i) maintenance of our marine fleet and terminal facility, (ii) interest payments and (iii) other working capital requirements. Our primary sources of liquidity are cash generated from operations and borrowings under our senior credit facilities.

We believe that our operating cash flow and amounts available for borrowing under our ABL will be adequate to fund our capital expenditures and working capital requirements for the next twelve months. Our ABL provides for available borrowings of up to $135 million subject to the borrowing base, and is secured by substantially all the assets of the borrowers and the guarantors on a first priority basis. As of September 30, 2011, our asset base would have allowed us to have access to the entire committed amount of $135 million, less $7.0 million of adjustments pursuant to the borrowing base, and as of such date, we had borrowed $55.0 million. We must comply with certain financial and other covenants under the ABL. While we currently believe that we will be able to meet all of the financial covenants imposed by our ABL, there is no assurance that we will in fact be able to do so or that, if we do not, we will be able to obtain from our lenders waivers of default or amendments to the ABL in the future.

Subject to certain conditions, the indenture governing the Senior Secured Notes requires us on an annual basis to offer to repurchase a portion of these notes or, at our option, repay a portion of the outstanding balance under the ABL, in each case with 50% of our Excess Cash Flow (as defined in the indenture). If we elect to repurchase our Senior Secured Notes, the purchase price will be equal to 100% of the principal amount, plus accrued and unpaid interest and any Special Interest (as defined in the indenture) to the date of purchase. If the aggregate purchase price of the Senior Secured Notes tendered exceeds the amount of our offer, the trustee under our indenture will select the notes to be accepted for purchase on a pro rata basis. Based on our 2010 Excess Cash Flow, we offered to repurchase up to $4.5 million of outstanding Senior Secured Notes, which reflects a credit, as permitted in the indenture, for 2010 open market purchases of $10 million. Our offer to repurchase was not accepted during the second quarter of 2011. The foregoing disclosure is being provided solely as part of our management’s discussion and analysis of our business and liquidity and is not an offer to repurchase or a solicitation of tenders of Senior Secured Notes.

In addition to the sources of liquidity described above, in the fourth quarter of 2011, we received $5.2 million of proceeds from the sale of an ocean-going vessel.

 

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The following were the net changes in operating, investing and financing activities for the periods presented:

 

     Nine Months Ended September 30,  
     2011     2010  
     (In thousands)  

Cash flows provided by (used in):

    

Operating activities

   $ 31,414      $ 30,722   

Investing activities

     (7,359     (13,691

Financing activities

     (28,660     (27,732
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

   $ (4,605   $ (10,701
  

 

 

   

 

 

 

Cash Flows Provided by Operating Activities

Net cash provided by operating activities was $31.4 million for the nine months ended September 30, 2011 as compared to $30.7 million for the nine months ended September 30, 2010, an increase of $0.7 million. Cash from operating activities increased due to lower working capital requirements.

Cash Flows Provided by Investing Activities

Net cash used in investing activities was $7.4 million for the nine months ended September 30, 2011 as compared to net cash used in investing activities of $13.7 million for the nine months ended September 30, 2010, a decrease in net cash used of $6.3 million. The decrease in net cash used in investing activities was primarily attributable to proceeds from the sale of obsolete UOS and UBL assets.

Cash Flows Provided by Financing Activities

Net cash used in financing activities was $28.7 million for the nine months ended September 30, 2011 as compared to net cash used in financing activities of $27.7 million for the nine months ended September 30, 2010, an increase in net cash used of $1.0 million. The increase in net cash used in financing activities was primarily attributable to the decrease in our outstanding indebtedness. During the third quarter of 2011, the Company repurchased $20.0 million of Senior Secured Notes, and may, from time to time, make additional open market, privately negotiated or other purchases.

Capital Expenditures

In 2011, we expect capital expenditures for maintenance and improvement of our vessel fleet, terminal and general capital equipment to be approximately $18 million. During the nine months ended September 30, 2011, we incurred $12.3 million in capital expenditures.

Drydock expenditures for our ocean-going vessels are driven by Coast Guard and vessel classification society regulations and management’s own strict maintenance guidelines and associated drydocking schedules, which require vessel drydocking twice every five years. Management completed one vessel drydocking in 2011 and expects up to two in 2012. Although actual costs cannot presently be estimated with certainty, management also expects that future overhauls of both ocean-going and inland vessels in the next three to five years may require significantly higher capital expenditures due to new and anticipated environmental regulations that would require upgrades for reduced air emissions upon the “remanufacture” of marine diesel engines and the installation of ballast water management systems.

 

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Contractual Obligations

The following is a tabular summary of our future contractual obligations as of September 30, 2011 for the categories set forth below, assuming only scheduled amortizations and repayment at maturity:

 

     2011      2012      2013      2014      2015      After
2015
     Total
Obligations
 
     (In thousands)  

Senior Secured Notes

   $ 0       $ 0       $ 0       $ 0       $ 165,025       $ 0       $ 165,025   

Interest on Senior Secured Notes (1)

     4,848         19,390         19,390         19,390         9,695         0         72,713   

Asset Based Loan

     0         0         55,000         0         0         0         55,000   

Interest on ABL (2)

     700         2,830         2,830         0         0         0         6,360   

Operating leases

     6,287         13,073         11,567         6,864         6,577         40,770         85,138   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 11,835       $ 35,293       $ 88,787       $ 26,254       $ 181,297       $ 40,770       $ 384,236   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Interest is calculated based on a fixed per annum rate of 11.75%.
(2) The contractual obligations related to the ABL are calculated based on the level of borrowings at September 30, 2011, and the interest rate at that time of 4.0% and 0.75% calculated on the unused commitment line.

Off Balance Sheet, Pension and Other Post-Employment Benefit Liabilities

We do not have any off balance sheet liabilities or any pension or other post-employment benefit liabilities.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market Risk

Fuel Hedging Policy

We are exposed to various market risks, including changes in fuel prices. As of September 30, 2011, we have hedges in place for 0.9 million gallons for the remainder of 2011, 3.0 million gallons for 2012 and 3.0 million gallons for 2013. These amounts represent 59% of our estimated 2011 United Barge Line (“UBL”) business segment fuel exposure, 50% of our expected 2012 UBL fuel exposure and 50% of our expected 2013 UBL fuel exposure. Our average heating oil swap price as of September 30, 2011 is $2.33 per gallon for 2011, and $2.76 per gallon for 2012. For 2013 our average Ultra Low Sulfur Diesel swap price is $2.80 per gallon.

Derivative Instruments and Hedging Activities

Please see the Notes to the Consolidated Financial Statements for details.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentration of credit risk consist principally of cash and trade receivables. The Company places its cash with high credit quality financial institutions. During the normal course of business, the Company extends credit to customers primarily in North America conducting business in the utility, metallurgical, phosphate and grain industries. The Company performs ongoing credit evaluations of its customers and does not generally require collateral. The customers’ financial condition and payment history have been considered in determining the allowance for doubtful accounts. The Company assesses the risk of nonperformance of the derivatives in determining the fair value of the derivatives instruments in accordance with ASC No. 820, Fair Value Measurements.

ITEM 4. CONTROLS AND PROCEDURES.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 15d-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2011.

 

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

The Company is involved in various legal proceedings that have arisen in the ordinary course of business. In the opinion of the Company’s management, all such proceedings are adequately covered by insurance or, if not so covered, should not result in any liability which would have a material adverse effect on the consolidated financial position or consolidated operations of the Company.

As previously disclosed in the Company’s filings with the Securities and Exchange Commission, on August 9, 2010, U.S. United Ocean Services, LLC (“UOS”), a wholly-owned subsidiary of the Company, received a letter from The Mosaic Company (“Mosaic”) claiming a “force majeure” event had occurred under UOS’ contract with Mosaic (the “Mosaic Agreement”). Mosaic has claimed force majeure as a result of preliminary injunctions affecting Mosaic’s South Fort Meade phosphate mine, and the Company has notified Mosaic of our disagreement with their claim of force majeure.

In 2010, Mosaic shipped amounts that were below its minimum contract volume. Since October 2010, Mosaic has terminated further shipments of phosphate “wet rock” under the Mosaic Agreement but has continued nominal shipments of finished phosphate fertilizer as a means of providing a partial mitigation of the volume shortfall. The impact on our revenue in 2010 of Mosaic’s failure to ship minimum volumes was approximately $9.3 million. Assuming that Mosaic would have shipped its annual minimum contract volume ratably throughout each year during the remaining term of the Mosaic Agreement, the impact of the stoppage on our future revenue will be approximately $9.7 million for each fiscal quarter during which the stoppage continues. We are pursuing rights to recover deadfreight through arbitration. We are also pursuing other uses of the shipping capacity used to service the Mosaic Agreement pending Mosaic’s resumption of its compliance with our agreement. In the fourth quarter of 2010, we placed one UOS tug and barge unit into temporary lay-up status and placed a second tug and barge unit into the same status in the first quarter of 2011 in an effort to mitigate our exposure to the reduction in volumes from Mosaic. The Company does not expect that these efforts to mitigate consequences of Mosaic’s actions will fully compensate for our revenue losses.

ITEM 1A. RISK FACTORS.

There have not been any material changes in our risk factors as previously disclosed in our Form 10-K, Item 1A as of December 31, 2010 (Commission File Number 333-165796).

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On August 30, 2011, GS Maritime Holding LLC, the ultimate parent of the Company (“GS Maritime”), issued an aggregate of 1,000 profit units to David Bradford, Vice President Finance and an aggregate of 350 profit units to Richard Barnes, Vice President Information Systems of the Company. The profit units were issued to Mr. Bradford and Mr. Barnes for no cash consideration in connection with the commencement of their employment with the Company. The profit units represent the right to receive a share of GS Maritime’s future profits, subject to the payment in full of certain senior equity securities of GS Maritime. The vesting of the profit units is partially time-based and partially performance-based. Half of the profit units vest in five equal annual installments on the first five anniversaries of the date of grant, subject to accelerated vesting in certain circumstances. The other half of the profit units will only vest upon a change in control of GS Maritime (subject to continued employment with the Company through such date), and only to the extent that a certain internal rate of return to GS Maritime’s investors is achieved in connection with such change in control. The profit units have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state. The profit units were issued to Mr. Bradford and Mr. Barnes in reliance on the exemptions from registration afforded by Section 4(2) of the Securities Act, Rule 506 of Regulation D under the Securities Act and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving any public offering.

 

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ITEM 6. EXHIBITS.

 

Exhibit
No.

  

Description

10.1    Non-Interference and Severance Agreement by and among United Maritime Group, LLC and David Bradford
10.2    Non-Interference and Severance Agreement by and among United Maritime Group, LLC and Richard Barnes
10.3    Equity Incentive Plan for Executive Officers
31.1    Certificate of the Chief Executive Officer of the Company, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Certificate of the Chief Financial Officer of the Company, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Written Statement of Steven Green, Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2    Written Statement of Jason Grant, Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document. (1)
101.SCH    XBRL Taxonomy Extension Schema. (1)
101.CAL    XBRL Taxonomy Extension Calculation Linkbase. (1)
101.DEF    XBRL Taxonomy Definition Linkbase. (1)
101.LAB    XBRL Taxonomy Extension Label Linkbase. (1)
101.PRE    XBRL Taxonomy Extension Presentation Linkbase. (1)

 

(1) 

Pursuant to Rule 406T of U.S, Securities and Exchange Commission Regulation S-T, the interactive data files on Exhibit 101 of this report are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, United Maritime Group, LLC has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

UNITED MARITIME GROUP, LLC
By:   /s/    JASON GRANT        
  Jason Grant
 

Chief Financial Officer

(duly authorized signatory,

principal financial officer of the Company)

Date: November 14, 2011

 

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EXHIBIT INDEX

 

Exhibit No.

  

Description

  10.1    Non-Interference and Severance Agreement by and among United Maritime Group, LLC and David Bradford
  10.2    Non-Interference and Severance Agreement by and among United Maritime Group, LLC and Richard Barnes
  10.3    Equity Incentive Plan for Executive Officers
  31.1    Certificate of the Chief Executive Officer of the Company, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2    Certificate of the Chief Financial Officer of the Company, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.1    Written Statement of Steven Green, Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2    Written Statement of Jason Grant, Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document. (1)
101.SCH    XBRL Taxonomy Extension Schema. (1)
101.CAL    XBRL Taxonomy Extension Calculation Linkbase. (1)
101.DEF    XBRL Taxonomy Definition Linkbase. (1)
101.LAB    XBRL Taxonomy Extension Label Linkbase. (1)
101.PRE    XBRL Taxonomy Extension Presentation Linkbase. (1)

 

(1) 

Pursuant to Rule 406T of U.S, Securities and Exchange Commission Regulation S-T, the interactive data files on Exhibit 101 of this report are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

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