d1064872_20-f.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
20-F
[_]
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REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) or 12(g)
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OF
THE SECURITIES EXCHANGE ACT OF 1934
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OR
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[X]
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For
the fiscal year ended December 31, 2009
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OR
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[_]
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF
THE SECURITIES EXCHANGE ACT OF 1934
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For
the transition period from ____________ to
____________
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OR
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[_]
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SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF
THE SECURITIES EXCHANGE ACT OF 1934
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Date
of event requiring this shell company report: Not
applicable
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Commission
file number: 1-10137
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EXCEL
MARITIME CARRIERS LTD.
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(Exact
name of Registrant as specified in its charter)
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(Translation
of Registrant's name into English)
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LIBERIA
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(Jurisdiction
of incorporation or organization)
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Excel
Maritime Carriers Ltd.
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Par
La Ville Place
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14
Par La Ville Road
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Hamilton
HM JX Bermuda
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(Address
of principal executive offices)
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Vicky
Poziopoulou
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|
(Tel)
+30 210 620 9520, v.poziopoulou@excelmaritime.com
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(Fax)
+30 210 620 9528
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17th
km National Road Athens-Lamia & Finikos Str.
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145
64, Nea Kifisia, Athens, Greece
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Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
Title
of each class
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Name
of each exchange on which registered
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Common
shares, par value $0.01
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|
New
York Stock Exchange
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Securities
registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate
the number of outstanding shares of each of the issuer's classes of capital or
common stock as of the close of the period covered by the annual
report:
As
of December 31, 2009, there were 79,770,159 shares of Class A common stock
and 145,746 shares of Class B common stock of the registrant
outstanding.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
If this
report is an annual report or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
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.
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 during the preceding
12 months.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer |_|
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Accelerated
filer |X|
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Non-accelerated
filer |_|
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Indicate
by check mark which basis of accounting the Registrant has used to prepare the
financial statements included in this filing.
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|X|
U.S. GAAP
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|_|
International Financial Reporting Standards as issued by the International
Accounting Standards Board
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Other
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If
"Other" has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to
follow.
If this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
TABLE
OF CONTENTS
PART I
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ITEM
1 -
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IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
5
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ITEM 2 -
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OFFER
STATISTICS AND EXPECTED TIMETABLE
|
5
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ITEM
3 -
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KEY
INFORMATION
|
5
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ITEM 4 -
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INFORMATION
ON THE COMPANY
|
32
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ITEM 4A
-
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UNRESOLVED
STAFF COMMENTS
|
44
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ITEM
5 -
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OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
|
44
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ITEM
6 -
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DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
|
57
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ITEM
7 -
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MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
61
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ITEM
8 -
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FINANCIAL
INFORMATION
|
63
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ITEM
9 -
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THE
OFFER AND LISTING
|
64
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ITEM
10 -
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ADDITIONAL
INFORMATION
|
65
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ITEM
11 -
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
80
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ITEM
12 -
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DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
|
81
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PART II
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ITEM
13 -
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DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
|
81
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ITEM
14 -
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MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
|
81
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ITEM
15 -
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CONTROLS
AND PROCEDURES
|
81
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ITEM
16A-
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AUDIT
COMMITTEE FINANCIAL EXPERT
|
83
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ITEM
16B-
|
CODE
OF ETHICS
|
83
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ITEM
16C-
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
83
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ITEM
16D-
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EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
83
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ITEM
16E-
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PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
|
84
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ITEM
16F.
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CHANGE
IN REGISTRANT'S CERTIFYING ACCOUNTANT
|
84
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ITEM16G.
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CORPORATE
GOVERNANCE
|
84
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PART III
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ITEM
17 -
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FINANCIAL
STATEMENTS
|
84
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ITEM
18 -
|
FINANCIAL
STATEMENTS
|
84
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ITEM
19 –
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EXHIBITS
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|
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Matters
discussed in this document may constitute forward-looking
statements.
The
Private Securities Litigation Reform Act of 1995 provides safe harbor
protections for forward-looking statements in order to encourage companies to
provide prospective information about their business. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance, and underlying assumptions and other statements, which
are other than statements of historical facts.
Please
note in this annual report, "we", "us", "our", "the Company", and "Excel" all
refer to Excel Maritime Carriers Ltd. and its consolidated
subsidiaries.
Excel
Maritime Carriers Ltd., or the Company, desires to take advantage of the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995 and is
including this cautionary statement in connection with this safe harbor
legislation. This document and any other written or oral statements made by us
or on our behalf may include forward-looking statements, which reflect our
current views with respect to future events and financial performance. The words
"believe", "anticipate", "intends", "estimate", "forecast", "project", "plan",
"potential", "will", "may", "should", "expect" and similar expressions identify
forward-looking statements.
The
forward-looking statements in this document are based upon various assumptions,
many of which are based, in turn, upon further assumptions, including without
limitation, managements examination of historical operating trends, data
contained in our records and other data available from third parties. Although
we believe that these assumptions were reasonable when made, because these
assumptions are inherently subject to significant uncertainties and
contingencies which are difficult or impossible to predict and are beyond our
control, we cannot assure you that we will achieve or accomplish these
expectations, beliefs or projections.
In
addition to these important factors and matters discussed elsewhere herein and
in the documents incorporated by reference herein, important factors that, in
our view, could cause actual results to differ materially from those discussed
in the forward-looking statements include the strength of world economies and
currencies, general market conditions, including fluctuations in charter hire
rates and vessel values, changes in the Company's operating expenses, including
bunker prices, drydocking and insurance costs, changes in governmental rules and
regulations, changes in income tax legislation or actions taken by regulatory
authorities, potential liability from pending or future litigation, general
domestic and international political conditions, potential disruption of
shipping routes due to accidents or political events, and other important
factors described from time to time in the reports filed by the Company with the
U.S. Securities and Exchange Commission, or the SEC.
PART
I
ITEM
1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not
applicable
ITEM
2 - OFFER STATISTICS AND EXPECTED TIMETABLE
Not
applicable
ITEM
3 - KEY INFORMATION
A.
Selected Financial Data
The
following table summarizes our selected historical financial information at the
dates and for the periods indicated prepared in accordance with U.S. Generally
Accepted Accounting Principles and gives effect to the adjustments described in
"Item 5, Operating and Financial Review and Prospects" and in Note 3 to our
consolidated financial statements. The consolidated statement of operations data
for the years ended December 31, 2007, 2008 and 2009 and the consolidated
balance sheet data as of December 31, 2008 and 2009 have been derived from
our audited consolidated financial statements included elsewhere in this 2009
Annual Report. The consolidated statement of operations data for the year ended
December 31, 2006 and the balance sheet data as of December 31, 2007 have been
derived from our audited financial statements as filed with the SEC on Form 6-K
on June 1, 2009. The selected consolidated financial data should be read in
conjunction with "Item 5, Operating and Financial Review and Prospects", the
consolidated financial statements, related notes, and other financial
information included elsewhere in this 2009 Annual Report.
Selected
Historical Financial Data and Other Operating
Information
|
|
|
Year ended December 31,
|
|
|
|
2005 (1)
|
|
|
2006(1)
|
|
|
2007(1)
|
|
|
|
2008 |
(1,2) |
|
|
2009 |
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
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(In
thousands of U.S. Dollars, except for share and per share data and average
daily results)
|
|
STATEMENT
OF OPERATIONS DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
revenues
|
|
$ |
118,082 |
|
|
$ |
123,551 |
|
|
$ |
176,689 |
|
|
$ |
461,203 |
|
|
$ |
391,746 |
|
Time
charter amortization
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
233,967 |
|
|
|
364,368 |
|
Revenues
from managing related party vessels
|
|
|
522 |
|
|
|
558 |
|
|
|
818 |
|
|
|
890 |
|
|
|
488 |
|
Voyage
expenses
|
|
|
(11,693 |
) |
|
|
(8,109 |
) |
|
|
(11,077 |
) |
|
|
(28,145 |
) |
|
|
(19,317 |
) |
Charter
hire expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(23,385 |
) |
|
|
(32,832 |
) |
Charter
hire amortization
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(28,447 |
) |
|
|
(39,952 |
) |
Commissions
– related party
|
|
|
(1,412 |
) |
|
|
(1,536 |
) |
|
|
(2,204 |
) |
|
|
(3,620 |
) |
|
|
(2,260 |
) |
Vessel
operating expenses
|
|
|
(24,215 |
) |
|
|
(30,414 |
) |
|
|
(33,637 |
) |
|
|
(69,684 |
) |
|
|
(83,197 |
) |
Depreciation
|
|
|
(20,092 |
) |
|
|
(28,453 |
) |
|
|
(27,864 |
) |
|
|
(98,753 |
) |
|
|
(123,411 |
) |
Vessel
impairment loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,232 |
) |
|
|
- |
|
Dry
docking and special survey
costs
|
|
|
(1,747 |
) |
|
|
(4,239 |
) |
|
|
(6,834 |
) |
|
|
(13,511 |
) |
|
|
(11,379 |
) |
General
and administrative
expenses
|
|
|
(6,637 |
) |
|
|
(9,837 |
) |
|
|
(12,586 |
) |
|
|
(32,925 |
) |
|
|
(42,995 |
) |
Contract
termination expense-related party
|
|
|
(4,963 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Loss
on disposal of JV ownership interest
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,705 |
) |
Gain
on sale of vessels
|
|
|
27,701 |
|
|
|
- |
|
|
|
6,993 |
|
|
|
- |
|
|
|
61 |
|
Write
down of goodwill
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(335,404 |
) |
|
|
- |
|
Loss
from vessel's purchase cancellation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(15,632 |
) |
|
|
- |
|
Operating
income
|
|
|
75,546 |
|
|
|
41,521 |
|
|
|
90,298 |
|
|
|
44,322 |
|
|
|
397,615 |
|
Interest
and finance costs,
net
|
|
|
(7,878 |
) |
|
|
(11,844 |
) |
|
|
(8,111 |
) |
|
|
(54,889 |
) |
|
|
(56,287 |
) |
Interest
rate swap losses,
net
|
|
|
- |
|
|
|
(773 |
) |
|
|
(439 |
) |
|
|
(35,884 |
) |
|
|
(1,126 |
) |
Foreign
exchange gains (losses)
|
|
|
117 |
|
|
|
(212 |
) |
|
|
(367 |
) |
|
|
71 |
|
|
|
(322 |
) |
Other,
net
|
|
|
66 |
|
|
|
145 |
|
|
|
(66 |
) |
|
|
1,585 |
|
|
|
408 |
|
US
source income taxes
|
|
|
(311 |
) |
|
|
(426 |
) |
|
|
(486 |
) |
|
|
(783 |
) |
|
|
(660 |
) |
Income
from investment in affiliate
|
|
|
- |
|
|
|
- |
|
|
|
873 |
|
|
|
487 |
|
|
|
- |
|
Loss
in value of investment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(10,963 |
) |
|
|
- |
|
Net
income
(loss)
|
|
|
67,540 |
|
|
|
28,411 |
|
|
|
81,702 |
|
|
|
(56,054 |
) |
|
|
339,628 |
|
Loss
assumed by non-controlling interests
|
|
|
- |
|
|
|
3 |
|
|
|
2 |
|
|
|
140 |
|
|
|
154 |
|
Net
income (loss) attributable to Excel
|
|
$ |
67,540 |
|
|
$ |
28,414 |
|
|
$ |
81,704 |
|
|
$ |
(55,914 |
) |
|
$ |
339,782 |
|
Selected
Historical Financial Data and Other Operating
Information
|
|
|
Year ended December 31,
|
|
|
|
2005 (1)
|
|
|
2006(1)
|
|
|
2007(1)
|
|
|
|
2008 |
(1,2) |
|
|
2009 |
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands of U.S. Dollars, except for share and per share data and average
daily results)
|
|
Earnings
(losses) per common share, basic
|
|
$ |
3.63 |
|
|
$ |
1.42 |
|
|
$ |
4.10 |
|
|
$ |
(1.53 |
) |
|
$ |
5.03 |
|
Weighted
average number of shares, basic
|
|
|
18,599,876 |
|
|
|
19,947,411 |
|
|
|
19,949,644 |
|
|
|
37,003,101 |
|
|
|
67,565,178 |
|
Earnings
(losses) per common share, diluted
|
|
$ |
3.63 |
|
|
$ |
1.42 |
|
|
$ |
4.09 |
|
|
$ |
(1.53 |
) |
|
$ |
4.85 |
|
Weighted
average number of shares, diluted
|
|
|
18,599,876 |
|
|
|
19,947,411 |
|
|
|
19,965,676 |
|
|
|
37,003,101 |
|
|
|
69,999,760 |
|
Cash
dividends declared per share
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
0.60 |
|
|
$ |
1.20 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash
equivalents
|
|
$ |
58,492 |
|
|
$ |
86,289 |
|
|
$ |
243,672 |
|
|
$ |
109,792 |
|
|
$ |
100,098 |
|
Current
assets, including cash
|
|
|
70,547 |
|
|
|
95,788 |
|
|
|
252,734 |
|
|
|
127,050 |
|
|
|
148,100 |
|
Vessels
net / advances for vessel acquisition
|
|
|
465,668 |
|
|
|
437,418 |
|
|
|
527,164 |
|
|
|
2,893,615 |
|
|
|
2,731,347 |
|
Total
assets
|
|
|
559,421 |
|
|
|
545,055 |
|
|
|
813,499 |
|
|
|
3,316,809 |
|
|
|
3,130,182 |
|
Current
liabilities, including current portion of long—term debt
|
|
|
57,110 |
|
|
|
43,719 |
|
|
|
55,990 |
|
|
|
314,903 |
|
|
|
217,174 |
|
Total
long—term debt, excluding current portion
|
|
|
215,926 |
|
|
|
185,467 |
|
|
|
315,301 |
|
|
|
1,256,707 |
|
|
|
1,121,765 |
|
Total
Stockholders' equity
|
|
|
286,385 |
|
|
|
315,865 |
|
|
|
442,208 |
|
|
|
1,053,398 |
|
|
|
1,486,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
FINANCIAL DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
$ |
73,639 |
|
|
$ |
58,341 |
|
|
$ |
108,733 |
|
|
$ |
263,899 |
|
|
$ |
147,252 |
|
Net
cash used in investing activities
|
|
|
(417,743 |
) |
|
|
(662 |
) |
|
|
(123,609 |
) |
|
|
(785,279 |
) |
|
|
(2,282 |
) |
Net
cash provided by (used in) financing activities
|
|
|
337,693 |
|
|
|
(29,882 |
) |
|
|
172,259 |
|
|
|
387,500 |
|
|
|
(154,664 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FLEET
DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of vessels (3)
|
|
|
14.4 |
|
|
|
17.0 |
|
|
|
16.5 |
|
|
|
38.6 |
|
|
|
47.2 |
|
Available
days for fleet (4)
|
|
|
5,070 |
|
|
|
5,934 |
|
|
|
5,646 |
|
|
|
13,724 |
|
|
|
16,878 |
|
Calendar
days for fleet (5)
|
|
|
5,269 |
|
|
|
6,205 |
|
|
|
6,009 |
|
|
|
14,134 |
|
|
|
17,229 |
|
Fleet
utilization (6)
|
|
|
96.2 |
% |
|
|
95.6 |
% |
|
|
94.0 |
% |
|
|
97.1 |
% |
|
|
98.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE
DAILY RESULTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
charter equivalent (7)
|
|
$ |
20,706 |
|
|
$ |
19,195 |
|
|
$ |
28,942 |
|
|
$ |
31,291 |
|
|
$ |
21,932 |
|
Vessel
operating expenses(8)
|
|
|
4,596 |
|
|
|
4,901 |
|
|
|
5,598 |
|
|
|
4,930 |
|
|
|
4,829 |
|
General
and administrative expenses (9)
|
|
|
1,237 |
|
|
|
1,620 |
|
|
|
2,156 |
|
|
|
2,324 |
|
|
|
2,514 |
|
Total
vessel operating expenses (10)
|
|
|
5,833 |
|
|
|
6,521 |
|
|
|
7,754 |
|
|
|
7,254 |
|
|
|
7,343 |
|
(1)
The financial information for the years presented has been adjusted to reflect
the adoption of the amendments in the accounting for Non-controlling Interest in
a Subsidiary provided in FASB Accounting Standards CodificationTM
("ASC") ASC Topic 810-10-45, the adoption of ASC Topic 470-20 which
requires the issuer of certain convertible debt instruments that may be settled
in cash on conversion to separately account for the liability (debt) and equity
(conversion option) components of the instrument in a manner that reflects the
issuer's non-convertible borrowing rate, as well as the change in the method of
accounting for dry docking and special survey costs discussed in the notes to
the consolidated financial statements included in "Item 18, Financial
Statements". With the exception of the amendments made in ASC 810 which require
retrospective application only in the presentation and disclosure requirements,
the other two accounting changes require retrospective application for all
periods presented and were effected in the accompanying consolidated financial
statements in accordance with ASC Topic 250 "Accounting Changes and Error
Corrections", which requires that an accounting change should be retrospectively
applied to all prior periods presented, unless it is impractical to determine
the prior period impacts. The effect of the above changes is presented in "Item
5, Operating and Financial Review and Prospects" and in Note 3 to our
consolidated financial statements.
(2)
On January 29, 2008, we entered into an Agreement and Plan of Merger with
Quintana Maritime Limited, or Quintana, and Bird Acquisition Corp., or Bird, our
wholly-owned subsidiary. On April 15, 2008, we completed the acquisition of 100%
of the voting equity interests in Quintana. As a result of the acquisition,
Quintana operates as a wholly-owned subsidiary of Excel under the name Bird. The
acquisition of Quintana was accounted for under the purchase method of
accounting. The Company began consolidating Quintana from April 16, 2008, as of
which date the results of operations of Quintana are included in the 2008
consolidated statement of operations.
(3)
Average number of vessels is the number of vessels that constituted our
fleet for the relevant period, as measured by the sum of the number of calendar
days each vessel was a part of our fleet during the period divided by the number
of calendar days in that period.
(4) Available days for fleet
are the total calendar days the vessels were in our possession for the relevant
period after subtracting for off hire days associated with major repairs,
dry-dockings or special or intermediate surveys.
(5)
Calendar days are the total days we possessed the vessels in our fleet for the
relevant period including off hire days associated with major repairs,
dry-dockings or special or intermediate surveys.
(6)
Fleet utilization is the percentage of time that our vessels were
available for revenue generating available days, and is determined by dividing
available days by fleet calendar days for the relevant period.
(7)
Time charter equivalent, or TCE, is a measure of the average daily
revenue performance of a vessel on a per voyage basis. Our method of calculating
TCE is consistent with industry standards and is determined by dividing voyage
revenues, (net of voyage expenses) by available days for the relevant time
period. Voyage expenses primarily consist of port, canal and fuel costs, net of
gains or losses from the sales of bunkers to time charterers that are unique to
a particular voyage, which would otherwise be paid by the charterer under a time
charter contract, as well as commissions.
Time
charter equivalent revenue and TCE rate are not measures of financial
performance under U.S. GAAP and may not be comparable to similarly titled
measures of other companies. However, TCE is a standard shipping industry
performance measure used primarily to compare period-to-period changes in a
shipping company's performance despite changes in the mix of charter types
(i.e., spot voyage charters, time charters and bareboat charters) under which
the vessels may be employed between the periods. The following table reflects
the calculation of our TCE rate for the years presented (amounts in thousands of
U.S. dollars, except for TCE rate, which is expressed in U.S. dollars and
available days):
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
revenues
|
|
$ |
118,082 |
|
|
$ |
123,551 |
|
|
$ |
176,689 |
|
|
$ |
461,203 |
|
|
$ |
391,746 |
|
Less:
Voyage expenses and commissions to related party
|
|
|
(13,105 |
) |
|
|
(9,645 |
) |
|
|
(13,281 |
) |
|
|
(31,765 |
) |
|
|
(21,577 |
) |
Time
Charter equivalent revenues
|
|
$ |
104,977 |
|
|
$ |
113,906 |
|
|
$ |
163,408 |
|
|
$ |
429,438 |
|
|
$ |
370,169 |
|
Available
days for fleet
|
|
|
5,070 |
|
|
|
5,934 |
|
|
|
5,646 |
|
|
|
13,724 |
|
|
|
16,878 |
|
Time
charter equivalent (TCE) rate
|
|
$ |
20,706 |
|
|
$ |
19,195 |
|
|
$ |
28,942 |
|
|
$ |
31,291 |
|
|
$ |
21,932 |
|
(8) Daily vessel operating
expenses, which include crew costs, provisions, deck and engine stores,
lubricating oil, insurance, maintenance and repairs is calculated by dividing
vessel operating expenses by fleet calendar days for the relevant time
period.
(9)
Daily general and administrative expenses are calculated by dividing general and
administrative expenses including foreign exchange differences by fleet calendar
days for the relevant time period.
(10)
Total vessel operating expenses, or TVOE, is a measurement of our total expenses
associated with operating our vessels. TVOE is the sum of vessel operating
expenses and general and administrative expenses. Daily TVOE is the sum of daily
vessel operating expenses and daily general and administrative
expenses.
B.
Capitalization and Indebtedness
Not
Applicable.
C.
Reasons for the Offer and Use of Proceeds
Not
Applicable.
D.
Risk Factors
Some of
the following risks relate principally to the industry in which we operate and
our business in general. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial also may impair our business operations. If
any of the following risks occur, our business, financial condition, operating
results and cash flows could be materially adversely affected and the trading
price of our securities could decline.
Industry
Specific Risk Factors
The dry bulk carrier charter market
has
sustained significant
fluctuations since October 2008, which has adversely affected our earnings and
may require us to impair the carrying values of our fleet, require us to raise
additional capital in order to remain compliant with our loan covenants and loan covenant
waivers and affect our ability to pay dividends in the
future.
The
Baltic Drybulk Index, or BDI, declined from a high of 11,793 in May 2008 to a
low of 663 in December 2008, which represents a decline of 94%. The BDI fell
over 70% during the month of October 2008 alone. Over the comparable period of
May through December 2008, the high and low of the Baltic Panamax Index and the
Baltic Capesize Index represent a decline of 96% and 99%,
respectively. Between January and December 2009, the BDI reached a
high of 4,661, though this level still represented a decline of 61% and 58%
respectively, in the Panamax and Capesize sector from the historic highs reached
in 2008, while currently the BDI stands at approximately 3,242. The decline and
volatility in charter rates is due to various factors, including the lack of
trade financing for purchases of commodities carried by sea, which has resulted
in a significant decline in cargo shipments, and the excess supply of iron ore
in China, which has resulted in falling iron ore prices and increased stockpiles
in Chinese ports. The decline and volatility in charter rates in the drybulk
market also affects the value of our drybulk vessels, which follows the trends
of drybulk charter rates, and earnings on our charters, and similarly, affects
our cash flows, liquidity and compliance with the covenants contained in our
loan agreements.
The
market value of our vessels may decrease, which would require us to raise
additional capital in order to remain compliant with our loan covenants and loan
covenant waiver agreements, and could result in the loss of our vessels and
adversely affect our earnings and financial condition.
The
current volatility in the dry bulk charter market may significantly reduce the
charter rates for our vessels trading in the spot market. While we have
currently received waivers from our lenders, in connection with the Nordea
Syndicated Bank Facility due 2016 in the amount of $1.4 billion, which we will
refer to as the Nordea credit facility, and the Credit Suisse credit facility in
the amount of $75.6 million, which we will refer to as the Credit Suisse credit
facility, for any non-compliance with loan covenants, if we are not able to
remedy such non-compliance by the time the waivers expire, our lenders could
require us to post additional collateral, enhance our equity and liquidity,
increase our interest payments or pay down our indebtedness to a level where we
are in compliance with our loan covenants, sell vessels from our fleet, or they
could accelerate our indebtedness and foreclose on their collateral, which would
impair our ability to continue to conduct our business. In addition, if we are
not in compliance with these covenants and we are unable to obtain waivers, we
will not be able to pay dividends in the future until the covenant defaults are
cured or we obtain waivers. This may limit our ability to continue to conduct
our operations, pay dividends to you, finance our future operations, make
acquisitions or pursue business opportunities.
In
addition, if we are able to sell additional shares at a time when the charter
rates in the dry bulk charter market are low, such sales could be at prices
below those at which shareholders had purchased their shares, which could, in
turn, result in significant dilution of our then existing shareholders and
affect our ability to pay dividends in the future and our earnings per share.
Even if we are able to raise additional capital in the equity markets, there is
no assurance we will remain compliant with our loan covenants in the
future.
In
addition, if the book value of a vessel is impaired due to unfavorable market
conditions or a vessel is sold at a price below its book value, we would incur a
loss that could adversely affect our operating results.
Charterhire
rates for dry bulk vessels are volatile and have declined significantly since
their recent historic highs and may decrease in the future, which may adversely
affect our earnings and financial condition.
We are an
independent shipping company that operates in the dry bulk shipping markets. One
of the factors that impacts our profitability is the freight rates we are able
to charge. The dry bulk shipping industry is cyclical with attendant volatility
in charter hire rates and profitability. The degree of charter hire rate
volatility among different types of dry bulk vessels has varied widely, and
charter hire rates for dry bulk vessels have recently declined from historically
high levels. Fluctuations in charter rates result from changes in the supply and
demand for vessel capacity and changes in the supply and demand for the major
commodities carried by sea internationally. Because the factors affecting the
supply and demand for vessels are outside of our control and are unpredictable,
the nature, timing, direction and degree of changes in industry conditions are
also unpredictable.
Factors
that influence demand for vessel capacity include:
|
·
|
supply
and demand for energy resources, commodities, and industrial
products;
|
|
·
|
changes
in the exploration or production of energy resources, commodities,
consumer and industrial products;
|
|
·
|
the
location of regional and global exploration, production and manufacturing
facilities;
|
|
·
|
the
location of consuming regions for energy resources, commodities,
semi-finished and finished consumer and industrial
products;
|
|
·
|
the
globalization of production and
manufacturing;
|
|
·
|
global
and regional and political conditions, including armed conflicts and
terrorist activities; embargoes and
strikes;
|
|
·
|
developments
in international trade;
|
|
·
|
changes
in seaborne and other transportation patterns, including the distance
cargo is transported by sea;
|
|
·
|
environmental
and other regulatory developments;
|
|
·
|
currency
exchange rates; and
|
The
factors that influence the supply of vessel capacity include:
|
·
|
the
number of newbuilding deliveries;
|
|
·
|
the
scrapping rate of older vessels;
|
|
·
|
the
level of port congestion;
|
|
·
|
changes
in environmental and other regulations that may limit the useful life of
vessels;
|
|
·
|
the
number of vessels that are out of service;
and
|
|
·
|
changes
in global dry bulk commodity
production.
|
We
anticipate that the future demand for our dry bulk vessels will be dependent
upon economic growth in the world's economies, seasonal and regional changes in
demand, changes in the capacity of the global dry bulk fleet and the sources and
supply of dry bulk cargo to be transported by sea. The capacity of the global
dry bulk carrier fleet seems likely to increase and economic growth may continue
to be slow. Adverse economic, political, social or other developments could have
a material adverse effect on our business and operating results.
The
current global economic downturn may continue to negatively impact our
business.
In the
current global economy, operating businesses have faced and continue to face
tightening credit, weakening demand for goods and services, weak international
liquidity conditions, and declining markets. Lower demand for dry bulk cargoes
as well as diminished trade credit available for the delivery of such cargoes
have led to decreased demand for dry bulk carriers, creating downward pressure
on charter rates and vessel values. The current economic downturn has had and
may continue to have during 2010 a number of adverse consequences for dry bulk
and other shipping sectors, including, among other things:
|
·
|
an
absence of financing for vessels;
|
|
·
|
a
further decrease in the market value of our vessels and no active
second-hand market for the sale of
vessels;
|
|
·
|
declaration
of bankruptcy by some charterers, operators and
shipowners.
|
The occurrence of one or more of these
events could have a material adverse effect on our business, results of
operations, cash flows and financial condition.
Continued disruptions in world
financial markets and the resulting governmental action in the United States and in other parts
of the world could have a material adverse impact on our ability to obtain
financing, our results of operations, financial condition and cash flows and could
cause the market price of our common shares to further
decline.
The
credit markets worldwide and in the United States continued to contract in 2009
and experienced de-leveraging and reduced liquidity, and the United States
federal government, state governments and foreign governments have implemented a
broad variety of governmental action and/or new regulation of the financial
markets and may
implement additional regulations in the future. Securities and futures markets
and the credit markets are subject to comprehensive statutes, regulations and
other requirements. The SEC, other regulators, self-regulatory organizations and
exchanges are authorized to take extraordinary actions in the event of market
emergencies, and may effect changes in law or interpretations of existing
laws.
A number
of financial institutions experienced serious financial difficulties in 2009.
The uncertainty surrounding the future of the credit markets in the United
States and the rest of the world has resulted in reduced access to credit
worldwide. As of December 31, 2009, we have total outstanding indebtedness of
$1.3 billion.
We face
risks attendant to changes in economic environments, changes in interest rates,
and instability in certain securities markets, among other factors. Major market
disruptions and the current adverse changes in market conditions and regulatory
climate in the United States and worldwide may adversely affect our business or
impair our ability to borrow amounts under our credit facilities or any future
financial arrangements. The current market conditions may last longer than we
anticipate. These recent and developing economic and governmental factors may
have a material adverse effect on our results of operations, financial condition
or cash flows and could cause the price of our common shares to further decline
significantly.
Changes in the economic and
political environment in China and policies adopted by the Chinese government to
regulate its economy may have a material adverse effect on our business,
financial condition and results of operations.
The
Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD, in such respects
as structure, government involvement, level of development, growth rate, capital
reinvestment, allocation of resources, rate of inflation and balance of payments
position. Prior to 1978, the Chinese economy was a planned economy. Since 1978,
increasing emphasis has been placed on the utilization of market forces in the
development of the Chinese economy. Annual and five year State Plans are adopted
by the Chinese government in connection with the development of the economy.
Although state-owned enterprises still account for a substantial portion of the
Chinese industrial output, in general, the Chinese government is reducing the
level of direct control that it exercises over the economy through State Plans
and other measures. There is an increasing level of freedom and autonomy in
areas such as allocation of resources, production, pricing and management and a
gradual shift in emphasis to a "market economy" and enterprise reform. Limited
price reforms were undertaken, with the result that prices for certain
commodities are principally determined by market forces. Many of the reforms are
unprecedented or experimental and may be subject to revision, change or
abolition based upon the outcome of such experiments. If the Chinese government
does not continue to pursue a policy of economic reform, the level of imports to
and exports from China could be adversely affected by the Chinese government's
changes to these economic reforms, as well as by changes in political, economic
and social conditions or other relevant policies of the Chinese government, such
as changes in laws, regulations or export and import restrictions, all of which
could, adversely affect our business, operating results and financial
condition.
Our operating
results will be subject to seasonal fluctuations, which could affect our
operating results and ability to service our debt or pay dividends in the
future.
We
operate our vessels in markets that have historically exhibited seasonal
variations in demand and, as a result, in charterhire rates. To the extent we
operate vessels in the spot market this seasonality may result in
quarter-to-quarter volatility in our operating results. The dry bulk sector is
typically stronger in the fall and winter months in anticipation of increased
consumption of coal and other raw materials in the northern hemisphere. In
addition, unpredictable weather patterns in these months tend to disrupt vessel
scheduling and supplies of certain commodities. As a result, our revenues from
our dry bulk carriers may be weaker during the fiscal quarters ended June 30 and
September 30, and, conversely, our revenues from our dry bulk carriers may be
stronger in fiscal quarters ended December 31 and March 31. While this
seasonality will not affect our operating results as long as our fleet is
employed on period time charters, if our vessels are employed in the spot market
in the future, it could materially affect our operating results.
Acts of piracy on ocean-going vessels
have recently increased in frequency, which could adversely affect our
business.
Acts of
piracy have historically affected ocean-going vessels trading in regions of the
world such as the South China Sea and in the Gulf of Aden off the coast of
Somalia. In 2008 and 2009, the frequency of piracy incidents increased
significantly, particularly in the Gulf of Aden off the coast of Somalia, with
dry bulk vessels and tankers particularly vulnerable to such attacks. For
example, in November 2008, the Sirius Star, a tanker vessel
not affiliated with us, was captured by pirates in the Indian Ocean while
carrying crude oil estimated to be worth $100.0 million. If these piracy attacks
result in regions in which our vessels are deployed being characterized as "war
risk" zones by insurers, as the Gulf of Aden temporarily was in May 2008, or as
"war and strikes" listed areas by the Joint War Committee, premiums payable for
such coverage could increase significantly and such insurance coverage may be
more difficult to obtain. In addition, crew costs, including due to employing
onboard security guards, could increase in such circumstances. We may not be
adequately insured to cover losses from these incidents, which could have a
material adverse effect on us. In addition, detention of any of our vessels,
hijacking as a result of an act of piracy against our vessels, or an increase in
cost, or unavailability, of insurance for our vessels, could have a material
adverse impact on our business, financial condition, results of operations and
ability to service our debt or pay dividends in the future.
We
are subject to international safety regulations, and the failure to comply with
these regulations may subject us to increased liability, may adversely affect
our insurance coverage and may result in a denial of access to, or detention in,
certain ports.
Our
business and the operation of our vessels are materially affected by government
regulation in the form of international conventions and national, state and
local laws and regulations in force in the jurisdictions in which the vessels
operate, as well as in the country or countries of their registration. Because
such conventions, laws, and regulations are often revised, we cannot predict the
ultimate cost of complying with such conventions, laws and regulations or the
impact thereof on the resale price or useful life of our vessels. Additional
conventions, laws and regulations may be adopted which could limit our ability
to do business or increase the cost of our doing business and which may
materially adversely affect our operations. We are required by
various governmental and quasi-governmental agencies to obtain certain permits,
licenses and certificates with respect to our operations.
The
operation of our vessels is affected by the requirements set forth in the IMO's
International Management Code for the Safe Operation of Ships and Pollution
Prevention or the ISM Code. The ISM Code requires ship owners, ship managers and
bareboat charterers to develop and maintain an extensive "Safety Management
System" that includes the adoption of a safety and environmental protection
policy setting forth instructions and procedures for safe operation and
describing procedures for dealing with emergencies. If we fail to comply with
the ISM Code, we may be subject to increased liability, our insurance coverage
may be invalidated or decreased, or our vessels may be detained or denied access
to certain ports. Currently, each of our vessels is ISM code-certified by Bureau
Veritas or American Bureau of Shipping and we expect that any vessel that we
agree to purchase will be ISM code-certified upon delivery to us. Bureau Veritas
and American Bureau of Shipping have awarded ISM certification to Maryville
Maritime Inc., or Maryville, our vessel management company and a wholly-owned
subsidiary of ours. However, there can be no assurance that such certification
will be maintained indefinitely. Recently, the U.S. Environmental Protection
Agency, or the EPA, has implemented regulations under the Clean Water Act, or
the CWA, that regulate the discharge of ballast water. In relation to these
regulations, we have submitted on July 31, 2009 for each of our vessels a permit
application called a Notice of Intent, or NOI which applies to the vessels
calling on U.S ports or travel through U.S. navigable waters.
Increased
inspection procedures and tighter import and export controls could increase
costs and disrupt our business.
International
shipping is subject to various security and customs inspection and related
procedures in countries of origin and destination and trans shipment points.
Inspection procedures may result in the seizure of contents of our vessels,
delays in the loading, offloading or delivery and the levying of customs duties,
fines or other penalties against us.
It is
possible that changes to inspection procedures could impose additional financial
and legal obligations on us or require significant capital expenditures. Changes
to inspection procedures could also impose additional costs and obligations on
our customers and may, in certain cases, render the shipment of certain types of
cargo uneconomical or impractical. Any such changes or developments may have a
material adverse effect on our business, financial condition and results of
operations.
Rising
fuel prices may affect our profitability.
Fuel is a
significant, if not the largest, expense in our shipping operations when vessels
are not under period charter. Changes in the price of fuel may adversely affect
our profitability. The price and supply of fuel is unpredictable and fluctuates
based on events outside our control, including geopolitical developments, supply
and demand for oil and gas, actions by OPEC and other oil and gas producers, war
and unrest in oil producing countries and regions, regional production patterns
and environmental concerns. Further, fuel may become much more expensive in the
future, which may reduce the profitability and competitiveness of our business
versus other forms of transportation.
An over-supply of dry bulk carrier
capacity may lead to reductions in charterhire rates and
profitability.
The
market supply of dry bulk carriers has been increasing, and the number of
drybulk carriers on order is near historic highs. These newbuildings were
delivered in significant numbers starting at the beginning of 2006 and
continuing through 2009. As of December 2009, newbuilding orders had been placed
for an aggregate of about 60% of the existing global dry bulk fleet on a
deadweight basis, with deliveries expected during the next 24 months. An
over-supply of dry bulk carrier capacity may result in a reduction of
charterhire rates. If such a reduction occurs, upon the expiration or
termination of our vessels' current charters we may only be able to re-charter
our vessels at reduced or unprofitable rates or we may not be able to charter
these vessels at all.
World
events outside our control may negatively affect the shipping industry, which
could adversely affect our operations and financial condition.
Terrorist
attacks like those in New York in 2001, London in 2005, Mumbai in 2008 and other
countries and the United States' continuing response to these attacks, as well
as the threat of future terrorist attacks, continue to cause uncertainty in the
world financial markets and may affect our business, results of operations and
financial condition. Additional acts of terrorism and any resulting armed
conflict around the world may contribute to further economic instability in the
global financial markets. In the past, political conflicts resulted in attacks
on vessels, mining of waterways and other efforts to disrupt international
shipping. For example, in October 2002, the VLCC Limburg was attacked by
terrorists in Yemen. Acts of terrorism and piracy have also affected vessels
trading in regions such as the South China Sea. Future terrorist attacks could
result in increased volatility of the financial markets in the United States and
globally and could result in an economic recession in the United States or the
world. These uncertainties could adversely affect our ability to obtain
additional financing on terms acceptable to us or at all. In addition, future
hostilities or other political instability in regions where our vessels trade
could affect our trade patterns. Any of these occurrences could have a material
adverse impact on our operating results, revenue, and costs.
We
are subject to vessel security regulations and will incur costs to comply with
recently adopted regulations and may be subject to costs to comply with similar
regulations which may be adopted in the future in response to
terrorism.
Since the
terrorist attacks of September 11, 2001 in the United States, there have been a
variety of initiatives intended to enhance vessel security. On November 25,
2002, the Maritime Transportation Security Act of 2002, or MTSA, came into
effect. To implement certain portions of the MTSA, in July 2003, the U.S. Coast
Guard issued regulations requiring the implementation of certain security
requirements aboard vessels operating in waters subject to the jurisdiction of
the United States. Similarly, in December 2002, amendments to the International
Convention for the Safety of Life at Sea, or SOLAS, created a new chapter of the
convention dealing specifically with maritime security. The new chapter went
into effect in July 2004, and imposes various detailed security obligations on
vessels and port authorities, most of which are contained in the newly created
International Ship and Port Facilities Security, or ISPS Code. Among the various
requirements are:
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on-board
installation of automatic information systems, to enhance vessel-to-vessel
and vessel-to-shore communications;
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on-board
installation of ship security alert
systems;
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the
development of vessel security plans;
and
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compliance
with flag state security certification
requirements.
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Furthermore,
additional security measures could be required in the future which could have a
significant financial impact on us. The U.S. Coast Guard regulations, intended
to be aligned with international maritime security standards, exempt non-U.S.
vessels from MTSA vessel security measures, provided such vessels have on board,
a valid International Ship Security Certificate, or ISSC, that attests to the
vessel's compliance with SOLAS security requirements and the ISPS Code. We have
implemented the various security measures addressed by the MTSA, SOLAS and the
ISPS Code and take measures for our vessels to attain compliance with all
applicable security requirements within the prescribed time periods. Although
management does not believe these additional requirements will have a material
financial impact on our operations, there can be no assurance that there will
not be an interruption in operations to bring vessels into compliance with the
applicable requirements and any such interruption, could cause a decrease in
charter revenues.
Our
commercial vessels are subject to inspection by a classification
society.
The hull
and machinery of every commercial vessel must be classed by a classification
society authorized by its country of registry. Classification societies are
non-governmental, self-regulating organizations and certify that a vessel is
safe and seaworthy in accordance with the applicable rules and regulations of
the country of registry of the vessel and the Safety of Life at Sea Convention.
The Company's vessels are currently enrolled with Bureau Veritas, American
Bureau of Shipping, Nippon Kaiji Kyokai, Det Norske Veritas and Lloyd's Register
of Shipping.
A vessel
must undergo Annual Surveys, Intermediate Surveys and Special Surveys. In lieu
of a Special Survey, a vessel's machinery may be on a continuous survey cycle,
under which the machinery would be surveyed periodically over a five-year
period. Our vessels are on Special Survey cycles for hull inspection and
continuous survey cycles for machinery inspection. Every vessel is also required
to be dry-docked every two to three years for inspection of the underwater parts
of such vessel. Generally, we will make a decision to scrap a vessel or reassess
its useful life at the time of a vessel's fifth Special Survey.
If any
vessel fails any Annual Survey, Intermediate Survey, or Special Survey, the
vessel may be unable to trade between ports and, therefore, would be
unemployable, potentially causing a negative impact on our revenues due to the
loss of revenues from such vessel until it was able to trade again.
Maritime
claimants could arrest our vessels, which could interrupt our cash
flow.
Crew
members, suppliers of goods and services to a vessel, shippers of cargo and
other parties may be entitled to a maritime lien against a vessel for
unsatisfied debts, claims or damages. In many jurisdictions a maritime lien
holder may enforce its lien by arresting a vessel through foreclosure
proceedings. The arrest or attachment of one or more of our vessels could
interrupt our cash flow and require us to make significant payments to have the
arrest lifted.
In
addition, in some jurisdictions, such as South Africa, under the "sister ship"
theory of liability, a claimant may arrest both the vessel which is subject to
the claimant's maritime lien and any "associated" vessel, which is any vessel
owned or controlled by the same owner. Claimants could try to assert "sister
ship" liability against one vessel in our fleet for claims relating to another
of our ships.
Governments
could requisition our vessels during a period of war or emergency, resulting in
loss of earnings.
A
government could requisition for title or seize our vessels. Requisition for
title occurs when a government takes control of a vessel and becomes her owner.
Also, a government could requisition our vessels for hire. Requisition for hire
occurs when a government takes control of a vessel and effectively becomes her
charterer at dictated charter rates. Generally, requisitions occur during a
period of war or emergency. Government requisition of one or more of our vessels
would negatively impact our revenues.
The
operation of our ocean-going vessels entails the possibility of marine disasters
including damage or destruction of the vessel due to accident, the loss of a
vessel due to piracy or terrorism, loss of life, damage or destruction of cargo
and similar events that may cause a loss of revenue from affected vessels and
could damage our business reputation, which may in turn lead to loss of
business.
The
operation of our ocean-going vessels entails certain inherent risks that may
adversely affect our business and reputation, including:
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Damage
or destruction of a vessel due to marine disaster such as a
collision;
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the
loss of a vessel due to piracy and
terrorism;
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cargo
and property losses or damage as a result of the foregoing or less drastic
causes such as human error, mechanical failure and bad
weather;
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environmental
accidents as a result of the foregoing;
and
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business
interruptions and delivery delays caused by mechanical failure, human
error, war, terrorism, political action in various countries, labor
strikes or adverse weather
conditions.
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Any of
these circumstances or events could substantially increase our costs. For
example, the costs of replacing a vessel or cleaning up a spill could
substantially lower its revenues by taking such vessels out of operation
permanently or for periods of time. The involvement of our vessels in a disaster
or delays in delivery or damages or loss of cargo may harm our reputation as a
safe and reliable vessel operator and could cause us to lose
business.
Company
Specific Risk Factors
We
are affected by voyage charters in the spot market and short-term time charters
in the time charter market, which are volatile.
We
charter some of our vessels on voyage charters, which are charters for one
specific voyage, and some on short-term time charter basis. A short-term time
charter is a charter with a term of less than six months. Although dependence on
voyage charters and short-term time charters is not unusual in the shipping
industry, the voyage charter and short-term time charter markets are highly
competitive and rates within those markets may fluctuate significantly based
upon available charters and the supply of and demand for sea borne shipping
capacity. While our focus on the voyage and short-term time charter markets may
enable us to benefit if industry conditions strengthen, we must consistently
procure this type of charter business to obtain these benefits. Conversely, such
dependence makes us vulnerable to declining market rates for this type of
charters.
Moreover,
to the extent our vessels are employed in the voyage charter market, our voyage
expenses will be more significantly impacted by increases in the cost of bunkers
(fuel). Unlike time charters in which the charterer bears all of the bunker
costs, in voyage charters we bear the bunker costs, port charges and canal dues.
As a result, increases in fuel costs in any given period could have a material
adverse effect on our cash flow and results of operations for the period in
which the increase occurs.
There can
be no assurance that we will be successful in keeping all our vessels fully
employed in these short-term markets or that future spot and short-term charter
rates will be sufficient to enable our vessels to be operated profitably. If the
current low charter rates in the dry bulk market continue through any
significant period, our earnings may be adversely affected.
A
decline in the market value of our vessels could lead to a default under our
loan agreements and the loss of our vessels.
When the
market value of a vessel declines, it reduces our ability to refinance the
outstanding debt or obtain future financing. Also, while we have currently
received waivers from our lenders, in connection with the Nordea credit facility
and the Credit Suisse credit facility, for any non-compliance with loan
covenants, further declines in the market and vessel values could cause us to
breach financial covenants in our lending facilities in the future. In such an
event, if we are unable to pledge additional collateral, or obtain waivers for
such breaches from the lenders, the lenders could accelerate the debt and in
general, if we are unable to service such accelerated debt, we may have vessels
repossessed by our lenders.
A
drop in spot charter rates may provide an incentive for some charterers to
default on their time charters.
When we
enter into a time charter, charter rates under that time charter are fixed for
the term of the charter. If the spot charter rates in the dry bulk shipping
industry become significantly lower than the time charter rates that some of our
charterers are obligated to pay us under our existing time charters, the
charterers may have incentive to default under that time charter or attempt to
renegotiate the time charter. If our charterers fail to pay their obligations,
we would have to attempt to re-charter our vessels at lower charter rates, which
would affect our results from operations and ability to comply with our loan
covenants. If our charterers default and we are not able to comply with our loan
covenants and our lenders chose to accelerate our indebtedness and foreclose on
their liens, we could be required to sell vessels in our fleet and our ability
to continue to conduct our business would be impaired.
We
depend upon a few significant customers for a large part of our revenues. The
loss of one or more of these customers could adversely affect our financial
performance.
We have
historically derived a significant part of our revenue from a small number of
charterers. During 2009 and 2008, we derived approximately 34% and 23%,
respectively, of our gross revenues from one charterer.
If one or
more of our customers is unable to perform under one or more charters with us
and we are not able to find a replacement charter, or if a customer exercises
certain rights to terminate the charter, we could suffer a loss of revenues that
could materially adversely affect our business, financial condition and results
of operations.
We could
lose a customer or the benefits of a time charter if, among other
things:
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the
customer fails to make charter payments because of its financial
inability, disagreements with us or
otherwise;
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the
customer terminates the charter because we fail to deliver the vessel
within a fixed period of time, the vessel is lost or damaged beyond
repair, there are serious deficiencies in the vessel or prolonged periods
of off-hire, default under the charter;
or
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the
customer terminates the charter because the vessel has been subject to
seizure for more than a specified number of
days.
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In
particular, we depend on our customer, Bunge Limited, or Bunge, which is an
agribusiness, for revenues from a substantial portion of our fleet and are
therefore exposed to risks in the agribusiness market. Changes in the economic,
political, legal and other conditions in agribusiness could adversely affect our
business and results of operations. Based on Bunge's filings with the SEC, these
risks include the following, among others:
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The
availability and demand for the agricultural commodities and agricultural
commodity products that Bunge uses and sells in its business, which can be
affected by weather, disease and other factors beyond Bunge's
control;
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Bunge's
vulnerability to cyclicality in the oilseed processing
industry;
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Bunge's
vulnerability to increases in raw material prices;
and
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Bunge's
exposure to economic and political instability and other risks of doing
business globally and in emerging
markets.
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Deterioration
in Bunge's business as a result of these or other factors could have a material
adverse impact on Bunge's ability to make timely charter hire payments to us and
to renew its time charters with us. This could have a material adverse impact on
our financial condition and results of operations.
When
our time charters end, we may not be able to replace them promptly or with
profitable ones and, in addition, any such new charters are potentially subject
to further decline in charter rates and other market deterioration, which could
cause us to incur impairment charges.
We cannot
assure you that we will be able to obtain charters at comparable rates or with
comparable charterers, if at all, when the charters on the vessels in our fleet
expire. The charterers under these charters have no obligation to renew or
extend the charters. We will generally attempt to recharter our vessels at
favorable rates with reputable charterers as the charters expire, unless
management determines at that time to employ the vessel in the spot market. We
cannot assure you that we will succeed. Failure to obtain replacement charters
will reduce or eliminate our revenue, our ability to expand our fleet and our
ability to service our debt and pay dividends to shareholders.
If dry
bulk vessel charter hire rates are lower than those under our current charters,
we may have to enter into charters with lower charter hire rates. Also, it is
possible that we may not obtain any charters. In addition, we may have to
reposition our vessels without cargo or compensation to deliver them to future
charterers or to move vessels to areas where we believe that future employment
may be more likely or advantageous. Repositioning our vessels would increase our
vessel operating costs.
The
market values of our vessels have declined and may further decrease, and we may
incur losses when we sell vessels or we may be required to write down their
carrying value, which may adversely affect our earnings.
The fair
market values of our vessels have generally experienced high volatility and have
declined significantly compared with May 2008. You should expect the market
values of our vessels to fluctuate depending on general economic and market
conditions affecting the shipping industry and prevailing charter hire rates,
competition from other shipping companies and other modes of transportation, the
types, sizes and ages of our vessels, applicable governmental regulations and
the cost of newbuildings.
If a
determination is made that a vessel's future useful life is limited or its
future earnings capacity is reduced, it could result in an impairment of its
value on our financial statements that would result in a charge against our
earnings and the reduction of our shareholders' equity. If for any reason we
sell our vessels at a time when prices have fallen, the sale may be less than
the vessels' carrying amount on our financial statements, and we would incur a
loss and a reduction in earnings.
Further
declines in charter rates and other market deterioration could cause us to incur
impairment charges.
We
evaluate the carrying amounts of our vessels to determine if events have
occurred that would require an impairment of their carrying amounts. The
recoverable amount of vessels is reviewed based on events and changes in
circumstances that would indicate that the carrying amount of the assets might
not be recovered. The review for potential impairment indicators and projection
of future cash flows related to the vessels is complex and requires us to make
various estimates including future freight rates and earnings from the vessels
which have been historically volatile.
When our
estimate of undiscounted future cash flows for any vessel is lower than the
vessel's carrying value, the carrying value is written down, by recording a
charge to operations, to the vessel's fair market value if the fair market value
is lower than the vessel's carrying value. The carrying values of our vessels
may not represent their fair market value in the future because the new market
prices of secondhand vessels tend to fluctuate with changes in charter rates and
the cost of newbuildings. Any impairment charges incurred as a result of
declines in charter rates could have a material adverse effect on our business,
results of operations, cash flows and financial condition.
If
we are not in compliance with the covenants in our loan agreements, our ability
to conduct our business and to pay dividends may be affected if we are unable to
obtain waivers or covenant modifications from our lenders.
Our loan
agreements contain various financial covenants. The current low dry bulk charter
rates and dry bulk vessel values have affected our ability to comply with some
of these covenants.
While we
have currently received waivers from our lenders, in connection with the Nordea
credit facility and the Credit Suisse credit facility if we are not able to
remedy such non-compliance by the time the waivers expire, our lenders could
require us to post additional collateral, enhance our equity and liquidity,
increase our interest payments or pay down our indebtedness to a level where we
are in compliance with our loan covenants, sell vessels in our fleet, or they
could accelerate our indebtedness and foreclose on their collateral, which would
impair our ability to continue to conduct our business. In addition, if we are
not in compliance with these covenants and we are unable to obtain waivers, we
will not be able to pay dividends in the future until the covenant defaults are
cured or we obtain waivers. We may also be required to reclassify all of our
indebtedness as current liabilities, which would be significantly in excess of
our cash and other current assets, and accordingly would adversely affect our
ability to continue as a going concern.
If our
indebtedness is accelerated, it would be very difficult in the current financing
environment for us to refinance our debt or obtain additional financing and we
could lose our vessels if our lenders foreclose their liens.
We
took on substantial additional indebtedness to finance the acquisition of
Quintana, and this additional indebtedness could significantly impair our
ability to operate our business.
In
connection with the acquisition of Quintana in 2008, we entered into the Nordea
Credit Facility, which consists of a $1.0 billion term loan and a
$400.0 million revolving loan. The security for the Nordea Credit Facility
includes, among other assets, mortgages on certain vessels previously owned by
us and the vessels previously owned by Quintana and assignments of earnings with
respect to certain vessels previously owned by us and the vessels previously
operated by Quintana. Such increased indebtedness could limit our financial and
operating flexibility, requiring us to dedicate a substantial portion of our
cash flow from operations to the repayment of our debt and the interest on our
debt, making it more difficult to obtain additional financing on favorable
terms, limiting our ability to capitalize on significant business opportunities
and making us more vulnerable to economic downturns.
Restrictive
covenants in our loan agreements impose financial and other restrictions on us,
including our ability to pay dividends.
Our loan
agreements impose operating and financial restrictions on us and require us to
comply with certain financial covenants. These restrictions and covenants limit
our ability to, among other things:
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pay
dividends during the period over which the initial covenants are
modified;
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maintain
excess cash flow generated from our
operations;
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incur
additional indebtedness, including through the issuance of
guarantees;
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change
the flag, class or management of our
vessels;
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create
liens on our assets;
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sell
our vessels without replacing such vessels or prepaying a portion of our
loan;
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merge
or consolidate with, or transfer all or substantially all our assets to,
another person; or
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Therefore,
we may need to seek permission from our lenders in order to engage in some
corporate actions. Our lenders' interests may be different from ours and we
cannot guarantee that we will be able to obtain our lenders' consent when
needed. If we do not comply with the restrictions and covenants in our loan
agreements, we will not be able to pay dividends to you in the future, finance
our future operations, make acquisitions or pursue business
opportunities.
We
may be unable to fulfil our obligations under our agreements to complete the
construction of six newbuilding vessels.
We
currently have contracts (construction contracts and/or Memoranda of Agreement)
to obtain six newbuilding vessels (including the four Capesize vessels of the
joint ventures for which no refund guarantee has been provided by the shipyard),
for an aggregate purchase price of $464.0 million. We have guaranteed the
performance of one of these joint ventures obligations under a contract for a
newbuilding vessel with purchase price of 72.4 million.
Our
ability to obtain financing in the current economic environment, particularly
for the acquisition of dry bulk vessels, which are experiencing low charter
rates and depressed vessel values, is limited, and unless there is an
improvement in our cash flow from operations and we are successful in obtaining
debt financing, we may not be able to complete these transactions and we would
lose the advances already paid, which amount to approximately $44.6 million as
of December 31, 2009, and we may incur additional liability and
costs.
The
derivative contracts we have entered into to hedge our exposure to fluctuations
in interest rates could result in higher than market interest rates and charges
against our income.
We have
entered into two interest rate swaps for purposes of managing our exposure to
fluctuations in interest rates applicable to indebtedness under two of our
credit facilities, which were advanced at a floating rate based on LIBOR. Our
hedging strategies, however, may not be effective and we may incur substantial
losses if interest rates move materially differently from our expectations.
Since our existing interest rate swaps do not, and future derivative contracts
may not, qualify for treatment as hedges for accounting purposes, we recognize
fluctuations in the fair value of such contracts in our income statement. In
addition, our financial condition could be materially adversely affected to the
extent we do not hedge our exposure to interest rate fluctuations under our
financing arrangements. Any hedging activities we engage in may not effectively
manage our interest rate exposure or have the desired impact on our financial
conditions or results of operations.
Our
ability to successfully implement our business plans depends on our ability to
obtain additional financing, which may affect the value of your investment in
the Company.
We will
require substantial additional financing to fund the acquisition of additional
vessels and to implement our business plans. We cannot be certain that
sufficient financing will be available on terms that are acceptable to us or at
all. If we cannot raise the financing we need in a timely manner and on
acceptable terms, we may not be able to acquire the vessels necessary to
implement our business plans and consequently you may lose some or all of your
investment in the Company.
While we
expect that a significant portion of the financing resources needed to acquire
vessels will be through long-term debt financing, we may raise additional funds
through additional equity offerings. New equity investors may dilute the
percentage of the ownership interest of existing shareholders in the Company.
Sales or the possibility of sales of substantial amounts of shares of our common
stock in the public markets could adversely affect the market price of our
common stock.
We
cannot assure you that we will be able to refinance indebtedness incurred under
our credit facilities.
For so
long as we have outstanding indebtedness under our credit facilities, we will
have to dedicate a portion of our cash flow from operations to pay the principal
and interest of this indebtedness. We cannot assure you that we will be able to
generate cash flow in amounts that are sufficient for these purposes. If we are
not able to satisfy these obligations, we may have to undertake alternative
financing plans or sell our assets. The actual or perceived credit quality of
our charterers, any defaults by them, and the market value of our fleet, among
other things, may materially affect our ability to obtain alternative financing.
If we are not able to find alternative sources of financing on terms that are
acceptable to us or at all, our business, financial condition, results of
operations and cash flows may be materially adversely affected.
Our
vessels may suffer damage and we may face unexpected drydocking costs which
could affect our cash flow and financial condition.
If our
vessels suffer damage, they may need to be repaired at a drydocking facility.
The costs of drydock repairs are unpredictable and can be substantial. We may
have to pay drydocking costs that our insurance does not cover. This would
decrease earnings.
Class
B shareholders can exert considerable control over us, which may limit future
shareholders' ability to influence our actions.
Our Class
B common shares have 1,000 votes per share and our Class A common shares have
one vote per share. Class B shareholders, including certain executive officers
and directors, together own 100% of our issued and outstanding Class B common
shares, representing approximately 64.6% of the voting power of our outstanding
capital stock as of December 31, 2009.
Because
of the dual class structure of our capital stock, the holders of Class B common
shares have the ability to control and will be able to control all matters
submitted to our stockholders for approval even if they come to own less than
50% of our outstanding common shares. Even though we are not aware of any
agreement, arrangement or understanding by the holders of our Class B common
shares relating to the voting of their shares of common stock, the holders of
our Class B common shares have the power to exert considerable influence over
our actions.
As of
December 31, 2009, Argon S. A. owned approximately 6.3% of our outstanding Class
A common shares and none of our outstanding Class B common shares, representing
approximately 2.2% of the total voting power of our outstanding capital stock.
Argon S.A. is holding these shares pursuant to a trust in favor of Starling
Trading Co, a corporation whose sole shareholder is Ms. Ismini Panayotides, the
adult daughter of the Company's Chairman. Ms. Panayotides has no power of voting
or disposition of these shares, and disclaims beneficial ownership of these
shares except to the extent of her securing interest.
As of
December 31, 2009, Boston Industries S.A. owned approximately 0.1% of our
outstanding Class A common shares and approximately 38.2% of our outstanding
Class B common shares, together representing approximately 24.8% of the total
voting power of our outstanding capital stock. Boston Industries S.A. is
controlled by Ms. Mary Panayotides, the spouse of the Company's Chairman. Ms.
Panayotides has no power of voting or disposition of these shares and disclaims
beneficial ownership of these shares.
As of
December 31, 2009, Lhada Holdings Inc. owned approximately 16.1% of our
outstanding Class A common shares and none of our outstanding Class B common
shares, representing approximately 5.7% of the total voting power of our
outstanding capital stock. Lhada Holdings Inc. is owned by a trust, the
beneficiaries of which are certain members of the family of the Company's
Chairman.
As of
December 31, 2009, Tanew Holdings Inc. owned approximately 16.1% of our
outstanding Class A common shares and none of our outstanding Class B common
shares, representing approximately 5.7% of the total voting power of our
outstanding capital stock. Tanew Holdings Inc. is owned by a trust, the
beneficiaries of which are certain members of the family of the Company's
Chairman.
As of
December 31, 2009, our chairman, Mr. Gabriel Panayotides, owned approximately
2.8% of our outstanding Class A common shares and approximately 21.1% of our
outstanding Class B common shares, representing approximately 14.7% of the total
voting power of our capital stock.
One
of our directors may have conflicts of interest, and the resolution of these
conflicts of interest may not be in our or our shareholders' best
interest.
We are
party to five joint ventures to purchase newbuilding Capesize dry bulk carrier
vessels. Four of these joint ventures are with AMCIC Cape Holdings LLC, or
AMCIC, an affiliate of Hans J. Mende, to purchase four newbuilding Capesize
vessels. Mr. Mende is a member of our Board of Directors, or our Board, and
serves on the board of directors of Fritz Shipco LLC, Iron Lena Shipco LLC,
Gayle Frances Shipco LLC, and Benthe Shipco LLC.
The
presence of Mr. Mende on the board of directors of each of the other four joint
ventures may create conflicts of interest because Mr. Mende has responsibilities
to these joint ventures. His duties as director of each of the other four joint
ventures may conflict with his duties as our director regarding business
dealings between the joint ventures and us. In addition, Mr. Mende has a direct
economic interest in four of the five joint ventures. The economic interests of
Mr. Mende in four of the five joint ventures may conflict with his duty as one
of our directors regarding business dealings between these joint ventures and
us.
As a
result of these joint venture transactions, conflicts of interest may arise
between the joint ventures and us.
If
we do not adequately manage the construction of the newbuilding vessels, the
vessels may not be delivered on time or in compliance with their
specifications.
We are
party to six contracts to purchase newbuilding vessels, five of which are
through joint ventures in which we participate. We are obliged to supervise the
construction of these vessels. If we are denied supervisory access to the
construction of these vessels by the relevant shipyard or otherwise fail to
adequately manage the shipbuilding process, the delivery of the vessels may be
delayed or the vessels may not comply with their specifications, which could
compromise their performance. Both delays in delivery and failure to meet
specifications could result in lower revenues from the operations of the
vessels, which could reduce our earnings.
If
our joint venture partners do not honor their commitments under the joint
venture agreements, the joint ventures may not take delivery of the newbuilding
vessels.
We rely
on our joint venture partners to honor their financial commitments under the
joint venture agreements, including the payment of their portions of
installments due under the shipbuilding contracts or MOAs. If our partners do
not make these payments, we may be in default under these
contracts.
Delays
in deliveries of or failure to deliver newbuildings under construction could
materially and adversely harm our operating results and could lead to the
termination of related time charter agreements.
Four of
our joint venture newbuilding vessels are under construction at Korea Shipyard
Co., Ltd., a greenfield shipyard that has never built vessels before and for
which there is no historical track record. The relevant joint ventures have not
yet received refund guarantees with respect to these vessels, which may imply
that the shipyard will not be able to timely deliver the vessels. The delivery
of any one or more of these vessels could be delayed or may not occur, which
would delay our receipt of revenues under the time charters for these vessels or
otherwise deprive us of the use of the vessel, and thereby adversely affect our
results of operations and financial condition. In addition, under some time
charters, we may be required to deliver a vessel to the charterer even if the
relevant newbuilding has not been delivered to us. If the delivery of the
newbuildings is delayed or does not occur, we may be required to enter into a
bareboat charter at a rate in excess of the charterhire payable to us. If we are
unable to deliver the newbuilding or a vessel that we have chartered at our
cost, the customer may terminate the time charter which could adversely affect
our results of operations and financial condition.
The
delivery of the newbuildings could be delayed or may not occur because
of:
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work
stoppages or other labor disturbances or other event that disrupts the
operations of the shipbuilder;
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quality
or engineering problems;
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changes
in governmental regulations or maritime self-regulatory organization
standards;
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lack
of raw materials and finished
components;
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failure
of the builder to finalize arrangements with
sub-contractors;
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failure
to provide adequate refund
guarantees;
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bankruptcy
or other financial crisis of the
shipbuilder;
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a
backlog of orders at the
shipbuilder;
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hostilities,
political or economic disturbances in the country where the vessels are
being built;
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weather
interference or catastrophic event, such as a major earthquake or
fire;
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our
requests for changes to the original vessel
specifications;
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shortages
of or delays in the receipt of necessary construction materials, such as
steel;
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our
inability to obtain requisite permits or approvals;
or
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a
dispute with the shipbuilder.
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In
addition, the shipbuilding contracts for the new vessels contain a "force
majeure" provision whereby the occurrence of certain events could delay delivery
or possibly terminate the contract. If delivery of a vessel is materially
delayed or if a shipbuilding contract is terminated, it could adversely affect
our results of operations and financial condition and our ability to service our
debt or pay dividends to our shareholders in the future.
We
face strong competition.
We obtain
charters for our vessels in highly competitive markets in which our market share
is insufficient to enforce any degree of pricing discipline. Although we believe
that no single competitor has a dominant position in the markets in which we
compete, we are aware that certain competitors may be able to devote greater
financial and other resources to their activities than we can, resulting in a
significant competitive threat to us.
We cannot
give assurances that we will continue to compete successfully with our
competitors or that these factors will not erode our competitive position in the
future.
Risk
of loss and lack of adequate insurance may affect our results.
Adverse
weather conditions, mechanical failures, human error, war, terrorism, piracy and
other circumstances and events create an inherent risk of catastrophic marine
disasters and property loss in the operation of any ocean-going vessel. In
addition, business interruptions may occur due to political circumstances in
foreign countries, hostilities, labor strikes, and boycotts. Any such event may
result in loss of revenues or increased costs.
Our
business is affected by a number of risks, including mechanical failure of our
vessels, collisions, property loss to the vessels, cargo loss or damage and
business interruption due to political circumstances in foreign countries,
hostilities and labor strikes.
In
addition, the operation of any ocean-going vessel is subject to the inherent
possibility of catastrophic marine disaster, including oil spills and other
environmental mishaps, and the liabilities arising from owning and operating
vessels in international trade. The United States Oil Pollution Act of 1990, or
OPA, by imposing potentially unlimited liability upon owners, operators and
bareboat charterers for certain oil pollution accidents in the U.S., has made
liability insurance more expensive for ship owners and operators and has also
caused insurers to consider reducing available liability coverage.
We carry
insurance to protect against most of the accident-related risks involved in the
conduct of our business and we maintain environmental damage and pollution
insurance coverage. We do not carry insurance covering the loss of revenue
resulting from vessel off-hire time. We believe that our insurance coverage is
adequate to protect us against most accident-related risks involved in the
conduct of our business and that we maintain appropriate levels of environmental
damage and pollution insurance coverage. Currently, the available amount of
coverage for pollution is $1.0 billion for dry bulk carriers per vessel per
incident. However, there can be no assurance that all risks are adequately
insured against, that any particular claim will be paid or that we will be able
to procure adequate insurance coverage at commercially reasonable rates in the
future. More stringent environmental regulations in the past have resulted in
increased costs for insurance against the risk of environmental damage or
pollution. In the future, we may be unable to procure adequate insurance
coverage to protect us against environmental damage or pollution.
Outside
of the United States, other national laws generally provide for the owner to
bear strict liability for pollution, subject to a right to limit liability under
applicable national or international regimes for limitation of liability. The
most widely applicable international regime limiting maritime pollution
liability is the Convention on Limitation of Liability for Maritime Claims
(London 1976), or 1976 Convention. Rights to limit liability under the 1976
Convention are forfeited where a spill is caused by a shipowner's intentional or
reckless conduct. Certain states have ratified the IMO's 1996 Protocol to the
1976 Convention. The Protocol provides for substantially higher liability limits
to apply in those jurisdictions than the limits set forth in the 1976
Convention. Finally, some jurisdictions are not a party to either the 1976
Convention or the Protocol of 1996, and, therefore, a ship owner's rights to
limit liability for maritime pollution in such jurisdictions may be
uncertain.
In some
areas of regulation, the European Union has introduced new laws without
attempting to procure a corresponding amendment of international law. In October
2009, the European Union amended a directive to impose criminal sanctions for
illicit ship-source discharges of polluting substances, including minor
discharges, if committed with intent, recklessly or with serious negligence and
the discharges individually or in the aggregate result in deterioration of the
quality of water. Criminal liability for pollution may result in substantial
penalties or fines and increased civil liability claims. The directive could
therefore result in criminal liability being incurred in circumstances where it
would not be otherwise incurred under international law. Experience has shown
that in the emotive atmosphere often associated with pollution incidents, the
negligence alleged by prosecutors has often been found by courts on grounds
which the international maritime community has found hard to understand.
Moreover, there is skepticism that "serious negligence" is likely to prove any
narrower in practice than ordinary negligence. Criminal liability for a
pollution incident could not only result in us incurring substantial penalties
or fines, but may also, in some jurisdictions, facilitate civil liability claims
for greater compensation than would otherwise have been payable.
Because
we obtain some of our insurance through protection and indemnity associations,
we may also be subject to calls, or premiums, in amounts based not only on our
own claim records, but also on the claim records of all other members of the
protection and indemnity associations.
We may be
subject to calls, or premiums, in amounts based not only on our claim records
but also on the claim records of all other members of the protection and
indemnity associations through which we receive insurance coverage for tort
liability, including pollution-related liability. Our payment of these calls
could result in significant expenses to us, which could have a material adverse
effect on our business, results of operations and financial condition and our
ability to pay interest on, or the principal of, the senior notes.
We
are a holding company, and we depend on the ability of our subsidiaries to
distribute funds to us in order to satisfy our financial
obligations.
We are a
holding company and our subsidiaries conduct all of our operations and own all
of our operating assets. We have no significant assets other than the equity
interests in our subsidiaries. As a result, our ability to satisfy our financial
obligations depends on our subsidiaries and their ability to distribute funds to
us. The ability of a subsidiary to make these distributions could be affected by
a claim or other action by a third party, including a creditor, or by the law of
the jurisdiction of their incorporation or formation, which regulates the
payment of dividends by companies.
Risks
associated with the purchase and operation of second hand vessels may affect our
results of operations.
The
majority of our vessels were acquired second-hand, and we estimate their useful
lives to be 28 years from their date of delivery from the yard, depending on
various market factors and management's ability to comply with government and
industry regulatory requirements. Part of our business strategy includes the
continued acquisition of second hand vessels when we find attractive
opportunities.
In
general, expenditures necessary for maintaining a vessel in good operating
condition increase as a vessel ages. Second hand vessels may also develop
unexpected mechanical and operational problems despite adherence to regular
survey schedules and proper maintenance. Cargo insurance rates also tend to
increase with a vessel's age, and older vessels tend to be less fuel-efficient
than newer vessels. While the difference in fuel consumption is factored into
the freight rates that our older vessels earn, if the cost of bunker fuels were
to increase significantly, it could disproportionately affect our vessels and
significantly lower our profits. In addition, changes in governmental
regulations, safety or other equipment standards may require:
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expenditures
for alterations to existing
equipment;
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the
addition of new equipment; or
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restrictions
on the type of cargo a vessel may
transport.
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We cannot
give assurances that future market conditions will justify such expenditures or
enable us to operate our vessels profitably during the remainder of their
economic lives.
The
aging of our fleet may result in increased operating costs in the future, which
could adversely affect our earnings.
In
general, the cost of maintaining a vessel in good operating condition increases
with the age of the vessel. Our current operating fleet has an average age of
approximately 9.7 years.
As our
fleet ages, we will incur increased costs. Older vessels are typically less fuel
efficient and more costly to maintain than more recently constructed vessels due
to improvements in engine technology. Cargo insurance rates also increase with
the age of a vessel, making older vessels less desirable to charterers.
Governmental regulations, including environmental regulations, safety or other
equipment standards related to the age of vessels may require expenditures for
alterations or the addition of new equipment, to our vessels and may restrict
the type of activities in which our vessels may engage. We cannot assure you
that, as our vessels age, market conditions will justify those expenditures or
enable us to operate our vessels profitably during the remainder of their useful
lives.
Technological
innovation could reduce our charterhire income and the value of our
vessels.
The charterhire rates and the value and
operational life of a vessel are determined by a number of factors including the
vessel's efficiency, operational flexibility and physical life. Efficiency
includes speed, fuel economy and the ability to load and discharge cargo
quickly. Flexibility includes the ability to enter harbors, utilize related
docking facilities and pass through canals and straits. The length of a vessel's
physical life is related to its original design and construction, its
maintenance and the impact of the stress of operations. If new dry bulk carriers
are built that are more efficient or more flexible or have longer physical lives
than our vessels, competition from these more technologically advanced vessels
could adversely affect the amount of charterhire payments we receive for our
vessels once their initial charters expire, and the resale value of our vessels
could significantly decrease. As a result, our business, results of operations,
cash flows and financial condition could be adversely affected.
If
we acquire additional dry bulk carriers and those vessels are not delivered on
time or are delivered with significant defects, our earnings and financial
condition could suffer.
We expect
to acquire additional vessels in the future. A delay in the delivery of any of
these vessels to us or the failure of the contract counterparty to deliver a
vessel at all could cause us to breach our obligations under a related time
charter and could adversely affect our earnings, our financial condition and the
amount of dividends, if any, that we pay in the future. The delivery of these
vessels could be delayed or certain events may arise which could result in us
not taking delivery of a vessel, such as a total loss of a vessel, a
constructive loss of a vessel, or substantial damage to a vessel prior to
delivery. In addition, the delivery of any of these vessels with substantial
defects could have similar consequences.
As
we expand our business, we may need to improve our operating and financial
systems and expand our commercial and technical management staff, and will need
to recruit suitable employees and crew for our vessels.
Our fleet
has experienced rapid growth. If we continue to expand our fleet, we will need
to recruit suitable additional administrative and management personnel. Although
we believe that our current staffing levels are adequate, we cannot guarantee
that we will be able to continue to hire suitable employees as we expand our
fleet. If we encounter business or financial difficulties, we may not be able to
adequately staff our vessels. If we are unable to grow our financial and
operating systems or to recruit suitable employees as we expand our fleet, our
business and financial condition may be adversely affected.
Because
most of our employees are covered by industry-wide collective bargaining
agreements, failure of industry groups to renew those agreements may disrupt our
operations and adversely affect our earnings.
We
currently employ approximately 1,114 seafarers on-board our vessels and 139
land-based employees in our Athens office. The 139 employees in Athens are
covered by industry-wide collective bargaining agreements that set basic
standards. We cannot assure you that these agreements will prevent labor
interruptions. Any labor interruptions could disrupt our operations and harm our
financial performance.
We
may not be exempt from Liberian taxation which would materially reduce our net
income and cash flow by the amount of the applicable tax.
The
Republic of Liberia enacted a new income tax law generally effective as of
January 1, 2001, or the New Act, which repealed, in its entirety, the prior
income tax law, or the Prior Law, in effect since 1977 pursuant to which we and
our Liberian subsidiaries, as non-resident domestic corporations, were wholly
exempt from Liberian tax.
In 2004,
the Liberian Ministry of Finance issued regulations pursuant to which a
non-resident domestic corporation engaged in international shipping such as
ourselves will not be subject to tax under the New Act retroactive to January 1,
2001, or the New Regulations. In addition, the Liberian Ministry of Justice
issued an opinion that the New Regulations were a valid exercise of the
regulatory authority of the Ministry of Finance. Therefore, assuming that the
New Regulations are valid, we and our Liberian subsidiaries will be wholly
exempt from tax as under the Prior Law. If we were subject to Liberian income
tax under the New Act, we and our Liberian subsidiaries would be subject to tax
at a rate of 35% on our worldwide income. As a result, our net income and cash
flow would be materially reduced by the amount of the applicable tax. In
addition, our stockholders would be subject to Liberian withholding tax on
dividends at rates ranging from 15% to 20%.
U.S.
tax authorities could treat us as a "passive foreign investment company," which
could have adverse U.S. federal income tax consequences to U.S.
holders.
A foreign
corporation will be treated as a "passive foreign investment company," or PFIC,
for U.S. federal income tax purposes if either (1) at least 75% of its gross
income for any taxable year consists of certain types of "passive income" or (2)
at least 50% of the average value of the corporation's assets produce or are
held for the production of those types of "passive income." For purposes of
these tests, "passive income" includes dividends, interest, and gains from the
sale or exchange of investment property and rents and royalties other than rents
and royalties which are received from unrelated parties in connection with the
active conduct of a trade or business. For purposes of these tests, income
derived from the performance of services does not constitute "passive income."
U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income
tax regime with respect to the income derived by the PFIC, the distributions
they receive from the PFIC and the gain, if any, they derive from the sale or
other disposition of their shares in the PFIC.
Based on
our past, current and proposed method of operation, we do not believe that we
have been, are or will be a PFIC with respect to any taxable year. In this
regard, we intend to treat the gross income we derive or are deemed to derive
from our time chartering activities as services income, rather than rental
income. Accordingly, we believe that our income from our time chartering
activities does not constitute "passive income," and the assets that we own and
operate in connection with the production of that income do not constitute
passive assets.
There is
substantial legal authority supporting this position consisting of case law and
United States Internal Revenue Service, or IRS, pronouncements concerning the
characterization of income derived from time charters and voyage charters as
services income for other tax purposes. However, it should be noted
that there is also authority which characterizes time charter income as rental
income rather than services income for other tax
purposes. Accordingly, no assurance can be given that the IRS or a
court of law will accept this position, and there is a risk that the IRS or a
court of law could determine that we are a PFIC. Moreover, no
assurance can be given that we would not constitute a PFIC for any future
taxable year if the nature and extent of our operations changed.
If the
IRS were to find that we are or have been a PFIC for any taxable year, our U.S.
shareholders will face adverse U.S. tax consequences. Under the PFIC rules,
unless those shareholders make an election available under the Code (which
election could itself have adverse consequences for such shareholders, as
discussed below under "Taxation"), such shareholders would be liable to pay U.S.
federal income tax at the then prevailing income tax rates on ordinary income
plus interest upon excess distributions and upon any gain from the disposition
of our common shares, as if the excess distribution or gain had been recognized
ratably over the shareholders' holding period of our common shares. See
"Taxation" for a more comprehensive discussion of the U.S. federal income tax
consequences to U.S. shareholders if we are treated as a PFIC.
We
may have to pay tax on United States source income, which would reduce our
earnings.
Under the
United States Internal Revenue Code of 1986, or the Code, 50% of the gross
shipping income of a vessel owning or chartering corporation, such as ourselves
and our subsidiaries, that is attributable to transportation that begins or
ends, but that does not both begin and end, in the United States may be subject
to a 4% United States federal income tax without allowance for deduction, unless
that corporation qualifies for exemption from tax under section 883 of the Code
and the applicable Treasury Regulations recently promulgated
thereunder.
We do not
believe that we are currently entitled to exemption under Section 883 for any
taxable year. Therefore, we are subject to an effective 2% United States federal
income tax on the gross shipping income that we derive during the year that is
attributable to the transport or cargoes to or from the United
States.
The
market price of our Class A common stock has fluctuated widely and the market
price of our Class A common stock may fluctuate in the future.
The
market price of our Class A common stock has fluctuated widely since our Class A
common stock began trading on the New York Stock Exchange, or NYSE, in September
2005 and may continue to do so as a result of many factors, including our actual
results of operations and perceived prospects, the prospects of our competition
and of the shipping industry in general and in particular the drybulk sector,
differences between our actual financial and operating results and those
expected by investors and analysts, changes in analysts' recommendations or
projections, changes in general valuations for companies in the shipping
industry, particularly the drybulk sector, changes in general economic or market
conditions and broad market fluctuations. In addition, future sales
of our Class A common stock may decrease our stock
price.
Because
we are a foreign corporation, you may not have the same rights that a
shareholder in a U.S. corporation may have.
We are a
Liberian corporation. Our articles of incorporation and bylaws and the Business
Corporation Act of Liberia 1976 govern our affairs. While the Liberian Business
Corporation Act resembles provisions of the corporation laws of a number of
states in the United States, Liberian law does not as clearly establish your
rights and the fiduciary responsibilities of our directors as do statutes and
judicial precedent in some U.S. jurisdictions. However, while the Liberian
courts generally follow U.S. court precedent, there have been few judicial cases
in Liberia interpreting the Liberian Business Corporation Act. Investors may
have more difficulty in protecting their interests in the face of actions by the
management, directors or controlling shareholders than would shareholders of a
corporation incorporated in a U.S. jurisdiction which has developed a
substantial body of case law.
Certain
of our directors, officers, and principal stockholders are affiliated with
entities engaged in business activities similar to those conducted by us which
may compete directly with us, causing such persons or entities with which they
are affiliated to have conflicts of interest.
Some of
our directors, officers and principal stockholders have affiliations with
entities that have similar business activities to those conducted by us or that
are parties to agreements with us. Certain of our directors are also directors
of other shipping companies and they may enter similar businesses in the future.
These other affiliations and business activities may give rise to certain
conflicts of interest in the course of such individuals' affiliation with us.
For instance, four of our joint ventures are with AMCIC Cape Holdings, or AMCIC,
an affiliate of Hans J. Mende, to purchase four newbuilding Capesize
vessels. Mr. Mende is a member of our Board of Directors, and also
serves on the board of directors of Fritz Shipco LLC, Iron Lena Shipco LLC,
Gayle Frances Shipco LLC, and Benthe Shipco LLC. Although we do not
prevent our directors, officers and principal stockholders from having such
affiliations, we use our best efforts to cause such individuals to comply with
all applicable laws and regulations in addressing such conflicts of interest.
Our officers and employee directors devote their full time and attention to our
ongoing operations, and our non-employee directors devote such time as is
necessary and required to satisfy their duties as directors of a public
company.
Excel
Maritime Carriers Ltd. is incorporated in the Republic of Liberia, which does
not have a well-developed body of corporate law.
Excel
Maritime Carriers Ltd.'s corporate affairs are governed by its amended and
restated articles of incorporation and by-laws and by the Liberian Business
Corporations Act, or the BCA. The provisions of the BCA are intended to resemble
provisions of the corporation laws of a number of states in the United States.
The rights and fiduciary responsibilities of directors under the law of the
Republic of Liberia are not as clearly established as the rights and fiduciary
responsibilities of directors under statutes or judicial precedent in existence
in certain U.S. jurisdictions. Stockholder rights may differ as
well.
We
may be unable to retain key management personnel and other employees in the
shipping industry, which may negatively impact the effectiveness of our
management and results of operations.
Our
success depends to a significant extent upon the abilities and efforts of our
management team. Our ability to retain key members of our management team and to
hire new members as may be necessary will contribute to that success. The loss
of any of these individuals could adversely affect our business prospects and
financial condition. Difficulty in hiring and retaining replacement personnel
could have a similar effect. We do not maintain "key man" life insurance on any
of our officers.
Because
we generate all of our revenues in U.S. dollars but incur a significant portion
of our expenses in other currencies, exchange rate fluctuations could hurt our
results of operations.
We
generate all of our revenues in U.S. dollars but incur approximately 20% of our
vessel operating expenses in currencies other than U.S. dollars. This variation
in operating revenues and expenses could lead to fluctuations in net income due
to changes in the value of the U.S. dollar relative to the other currencies, in
particular the Japanese yen, the Euro, the Singapore dollar and the British
pound sterling. Expenses incurred in foreign currencies against which the U.S.
dollar falls in value may increase as a result of these fluctuations, therefore
decreasing our net income. We do not currently hedge these risks. Our results of
operations could suffer as a result.
Our
substantial operations outside the United States expose us to political,
governmental and economic instability, which could harm our
operations.
Because
our operations are primarily conducted outside of the United States, they may be
affected by economic, political and governmental conditions in the countries
where we are engaged in business or where our vessels are registered. Future
hostilities or political instability in regions where we operate or may operate
could have a material adverse effect on our business, results of operations and
ability to service our debt and pay dividends. In addition, tariffs, trade
embargoes and other economic sanctions by the United States or other countries
against countries where our vessels trade may limit trading activities with
those countries, which could also harm our business, financial condition and
results of operations.
Unless
we set aside reserves for vessel replacement, at the end of a vessel's useful
life our revenue will decline if we are also unable to borrow funds for vessel
replacement.
If we do
not maintain cash reserves for vessel replacement, we may be unable to replace
the vessels in our fleet upon the expiration of their useful lives in the event
we also have insufficient credit or access to credit at the times of such
expiration. Our cash flows and income are dependent on the revenues earned by
the chartering of our vessels to customers. If we are unable to replace the
vessels in our fleet upon the expiration of their useful lives, our business,
results of operations, financial condition and ability to service our debt and
pay dividends will be adversely affected. Any reserves set aside for vessel
replacement would not be available for other cash needs or dividends. In periods
where we make acquisitions, our Board may limit the amount or percentage of our
cash from operations available to service our debt and pay dividends.
The
price of our Class A common stock may be volatile.
The price
of our Class A common stock prior to and after an offering may be volatile, and
may fluctuate due to factors such as:
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actual
or anticipated fluctuations in quarterly and annual
results;
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mergers
and strategic alliances in the shipping
industry;
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market
conditions in the industry;
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changes
in government regulation;
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fluctuations
in our quarterly revenues and earnings and those of our publicly held
competitors;
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shortfalls
in our operating results from levels forecast by securities
analysts;
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announcements
concerning us or our competitors;
and
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the
general state of the securities
market.
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Future
sales of our Class A common stock may depress our stock price.
The
market price of our Class A common stock could decline as a result of sales of
substantial amounts of our Class A common stock in the public market or the
perception that these sales could occur. In addition, these factors could make
it more difficult for us to raise funds through future equity
offerings.
Issuance
of preferred stock may adversely affect the voting power of our shareholders and
have the effect of discouraging, delaying or preventing a merger or acquisition,
which could adversely affect the market price of our common stock.
Our
articles of incorporation currently authorize our Board to issue preferred
shares in one or more series and to determine the rights, preferences,
privileges and restrictions, with respect to, among other things, dividends,
conversion, voting, redemption, liquidation and the number of shares
constituting any series subject to prior shareholders' approval. If our Board
determines to issue preferred shares, such issuance may discourage, delay or
prevent a merger or acquisition that shareholders may consider favorable. The
issuance of preferred shares with voting and conversion rights may also
adversely affect the voting power of the holders of common shares. This could
substantially impede the ability of public shareholders to benefit from a change
in control and, as a result, may adversely affect the market price of our common
stock and your ability to realize any potential change of control
premium.
We
have a substantial amount of indebtedness, which may adversely affect our cash
flow and our ability to operate our business, remain in compliance with debt
covenants of our notes and future and existing credit facilities and make
payments on our debt.
As of
December 31, 2009, we have had total debt of $1.3 billion. Our level
of debt could have important consequences for us, including the
following:
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we
may have difficulty borrowing money in the future for acquisitions,
capital expenditures or to meet our operating expenses or other general
corporate obligations;
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we
will need to use a substantial portion of our cash flows to pay interest
on our debt, which will reduce the amount of money we have for operations,
working capital, capital expenditures, expansion, acquisitions or general
corporate or other business
activities;
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we
may have a higher level of debt than some of our competitors, which may
put us at a competitive
disadvantage;
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we
may be more vulnerable to economic downturns and adverse developments in
our industry or the economy in general;
and
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our
debt level, and the financial covenants in our various debt agreements,
could limit our flexibility in planning for, or reacting to, changes in
our business and the industry in which we
operate.
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To
service our indebtedness, we will require a significant amount of
cash. Our ability to generate cash depends on many factors beyond our
control, and any failure to meet our debt obligations could harm our business,
financial condition and results of operations.
Our
ability to make scheduled payments on and to refinance our indebtedness and to
fund future capital expenditures will depend on our ability to generate cash
from operations in the future. This, to a certain extent, is subject
to general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. We cannot assure you that our
business will generate sufficient cash flow from operations in an amount
sufficient to enable us to pay our indebtedness or to fund our other liquidity
needs. If our cash flow and capital resources are insufficient to
fund our debt obligations, we may be forced to sell assets, seek additional
equity or debt capital or restructure our debt. We cannot assure you
that any of these remedies could, if necessary, be effected on commercially
reasonable terms, or at all. In addition, any failure to make
scheduled payments of interest and principal on our notes or any other
outstanding indebtedness would likely result in a reduction of our credit
rating, which could harm our ability to incur additional indebtedness on
acceptable terms. Our cash flow and capital resources may be
insufficient for payment of interest on and principal of our debt in the future
and any such alternative measures may be unsuccessful or may not permit us to
meet scheduled debt service obligations, which could cause us to default on our
obligations and could impair our liquidity.
The
agreements and instruments governing our debt contain restrictive covenants,
which may limit our liquidity and corporate activities and prevent proper
service of debt, which could result in the loss of our vessels.
Our loan
agreements impose significant operating and financial restrictions on
us. These restrictions may limit our ability to:
|
·
|
incur
additional indebtedness;
|
|
·
|
create
liens on our assets;
|
|
·
|
sell
capital stock of our subsidiaries;
|
|
·
|
engage
in mergers or acquisitions;
|
|
·
|
pay
dividends or redeem capital stock;
|
|
·
|
make
capital expenditures;
|
|
·
|
change
the management of our vessels or terminate or materially amend the
management agreement relating to each vessel;
and
|
Therefore,
we may need to seek permission from our lenders in order to engage in some
corporate actions. Our lenders' interests may be different from ours
and we cannot guarantee that we will be able to obtain our lenders' permission
when needed. This may prevent us from taking actions that we believe
are in our best interest.
We are subject to certain fraudulent
transfer and conveyance statutes which may adversely affect holders of our
notes.
Fraudulent
transfer and insolvency laws to which we and our subsidiary guarantors may be
subject may result in our notes and the guarantees being voided, subordinated or
limited.
The Republic of the Marshall Islands
Many of
our guarantors, as of the issue date of our notes, are organized under the laws
of the Republic of the Marshall Islands. While the Republic of the Marshall
Islands does not have a bankruptcy statute or general statutory mechanism for
insolvency proceedings, a Marshall Islands court could apply general U.S.
principles of fraudulent conveyance, discussed below, in light of the provisions
of the Marshall Islands Business Corporations Act, or the BCA, restricting the
grant of guarantees without a corporate purpose. In such case, a Marshall
Islands court could void or subordinate our notes or our subsidiary guarantees,
including for the reasons a U.S. court could void or subordinate a guarantee as
described below.
United
States
Federal
and state fraudulent transfer and conveyance statutes may apply to the issuance
of our notes and the incurrence of the subsidiary guarantees, particularly any
future guarantees of any U.S. subsidiaries we might create. Under U.S. federal
bankruptcy law and comparable provisions of U.S. state fraudulent transfer or
conveyance laws, if any such law would be deemed to apply, which may vary from
state to state, our notes or the subsidiary guarantees could be voided as a
fraudulent transfer or conveyance if (1) we or any of the guarantors, as
applicable, issued our notes or incurred the guarantees with the intent of
hindering, delaying or defrauding creditors, or (2) we or any of the guarantors,
as applicable, received less than reasonably equivalent value or fair
consideration in return for either issuing our notes or incurring the guarantees
and, in the case of (2) only, one of the following is also true at the time
thereof:
|
·
|
we
or any of the guarantors, as applicable, were insolvent or rendered
insolvent by reason of the issuance of our notes or the incurrence of the
subsidiary guarantees;
|
|
·
|
the
issuance of our notes or the incurrence of the subsidiary guarantees left
us or any of the guarantors, as applicable, with an unreasonably small
amount of capital to carry on the
business;
|
|
·
|
we
or any of the guarantors intended to, or believed that we or such
guarantor would, incur debts beyond our or such guarantor's ability to pay
as they mature; or
|
|
·
|
we
or any of the guarantors was a defendant in an action for money damages,
or had a judgment for money damages docketed against us or such guarantor
if, in either case, after final judgment, the judgment is
unsatisfied.
|
If a
court were to find that the issuance of our notes or the incurrence of the
subsidiary guarantee was a fraudulent transfer or conveyance, the court could
void the payment obligations under our notes or such subsidiary guarantee or
further subordinate our notes or such subsidiary guarantee to presently existing
and future indebtedness of ours or of the related guarantor, or require the
holders of our notes to repay any amounts received with respect to such
guarantee. In the event of a finding that a fraudulent transfer or conveyance
occurred, you may not receive any repayment on our notes. Further, the voidance
of our notes could result in an event of default with respect to our and our
subsidiaries' other debt that could result in acceleration of such
debt.
As a
general matter, value is given for a transfer or an obligation if, in exchange
for the transfer or obligation, property is transferred or an antecedent debt is
secured or satisfied. A debtor will generally not be considered to have received
value in connection with a debt offering if the debtor uses the proceeds of that
offering to make a dividend payment or otherwise retire or redeem equity
securities issued by the debtor.
We cannot
be certain as to the standards a court would use to determine whether or not we
or the guarantors were solvent at the relevant time or, regardless of the
standard that a court uses, that the issuance of the subsidiary guarantees would
not be further subordinated to our or any 38 of our guarantors' other debt.
Generally, however, an entity would be considered insolvent if, at the time it
incurred indebtedness:
|
·
|
the
sum of its debts, including contingent liabilities, was greater than the
fair saleable value of all of its assets;
or
|
|
·
|
the
present fair saleable value of its assets was less than the amount that
would be required to pay its probable liability on its existing debts,
including contingent liabilities, as they become absolute and mature;
or
|
|
·
|
it
could not pay its debts as they become
due.
|
Other
jurisdictions
The laws
of the other jurisdictions in which guarantors are or may be organized (such as
the Republic of Liberia and Cyprus) may also limit the ability of those
guarantors to guarantee debt of a parent company. These limitations arise under
various provisions or principles of corporate law, including provisions
requiring a subsidiary guarantor to receive adequate corporate benefit from the
financing, rules governing preservation of share capital, and thin
capitalization and fraudulent transfer principles. In certain of these
jurisdictions, the subsidiary guarantees will contain language limiting the
amount of debt guaranteed so that the applicable local law restrictions will not
be violated. Accordingly, if you were to enforce the subsidiary guarantees in
such jurisdictions, your claims may be limited. Furthermore, although we believe
that the subsidiary guarantees of such guarantors are enforceable (subject to
local law restrictions), a third-party creditor may challenge these guarantees
and prevail in court. We can provide no assurance that the subsidiary guarantees
will be enforceable.
It
may be difficult to serve process on or enforce a U.S. judgment against us, our
officers and the majority of our directors.
We are a
Liberian corporation and nearly all of our executive officers and directors are
located outside of the United States. Most of our directors and
officers and certain of the experts reside outside the United States. In
addition, a substantial portion of our assets and the assets of our directors,
officers and experts are located outside of the United States. As a
result, you may have difficulty serving legal process within the United States
upon us or any of these persons. You may also have difficulty
enforcing, both in and outside the United States, judgments you may obtain in
U.S. courts against us or any of these persons in any action, including actions
based upon the civil liability provisions of U.S. federal or state securities
laws. Furthermore, there is substantial doubt that the courts of the Republic of
Liberia or of the non-U.S. jurisdictions in which our offices are located would
enter judgments in original actions brought in those courts predicated on U.S.
federal or state securities laws.
ITEM
4 - INFORMATION ON THE COMPANY
A.
History and Development of the Company
We, Excel
Maritime Carriers Ltd., were incorporated under the laws of the Republic of
Liberia on November 2, 1988.
Our Class
A common stock has traded on the NYSE under the symbol "EXM" since September 15,
2005. Prior to that date, our Class A common stock traded on the American Stock
Exchange, or the AMEX, under the same symbol. As of December 31, 2009, we had
79,770,159 shares of our Class A common stock and 145,746 shares of our Class B
common stock issued and outstanding.
The
address of our registered office in Bermuda is 14 Par-la-Villa Road, Hamilton HM
JX, Bermuda. We also maintain executive offices at 17th km
National Road Athens-Lamia & Finikos Str., 145 64, Nea Kifisia, Athens,
Greece. Our telephone number at that address dialing from the U.S. is (011) 30
210 818 7000.
Capital
Expenditures and Divestitures
Beginning
on March 6, 2007, we held 18.9% of the outstanding common stock of Oceanaut
Inc., or Oceanaut, a corporation in the development stage, organized on May 3,
2006 under the laws of the Republic of the Marshall Islands. Oceanaut was formed
to acquire, through a merger, capital stock exchange, asset acquisition, stock
purchase or other similar business combination, vessels or one or more operating
businesses in the shipping industry.
On March
6, 2007 Oceanaut completed its initial public offering in the United States
under the United States Securities Act of 1933, as amended and sold 18,750,000
units, or the units, at a price of $8.00 per unit, raising gross proceeds of
$150.0 million. Prior to the closing of the initial public offering, Oceanaut
consummated a private placement to us, consisting of 1,125,000 units at $8.00
per unit price and 2,000,000 warrants at $1.00 per warrant to purchase an
equivalent amount of common stock at a price of $6.00 per share, raising gross
proceeds of $11.0 million. On April 6, 2009, Oceanaut announced that its
shareholders approved its dissolution and liquidation, and on April 15, 2009, we
received $5.2 million, representing approximately $8.26 per share of Oceanaut
common stock included in 625,000 of the 1,125,000 Oceanaut insider units that we
owned.
On April
27, 2007, our Board of Directors approved the sale of vessel Goldmar for $15.7
million, net of selling costs to a company affiliated with its
Chairman.
In
December 2007, the vessels July M and Mairouli were delivered to the Company for
$126.0 million in total.
On April
15, 2008, we completed our acquisition of Quintana. As a result of the
acquisition, Quintana operates as a wholly-owned subsidiary of Excel under the
name Bird Acquisition Corp., or Bird. Under the terms of the merger agreement,
each issued and outstanding share of Quintana common stock was converted into
the right to receive (i) $13.00 in cash and (ii) 0.3979 shares of Excel Class A
common stock. We paid approximately $764.0 million in cash and 23,496,308 shares
of our Class A common stock to existing shareholders of Quintana in exchange for
all of the outstanding shares of Quintana. The total consideration for the
acquisition amounted to $1.4 billion.
During
the year ended December 31, 2008, we paid $84.9 million in relation to our
vessels under construction, including vessel Sandra which was delivered to us on
December 26, 2008 at a total cost of $149.1 million.
In
February 2009, we sold the vessel Swift for net proceeds of approximately $3.7
million.
On
October 27, 2009 we and one of our joint venture partners completed two
agreements for the exchange of our ownership interests in three joint venture
companies. Please see "Item 10, Additional Information – C. Material Contracts –
Newbuilding Contracts", for a discussion of the restructuring of our ownership
interests in these joint ventures. Based on the agreements concluded, we agreed
to sell our 50% ownership
interest in Lillie Shipco LLC to AMCIC Cape Holdings LLC ("AMCIC"), an affiliate
company of a member of our Board of Directors for a consideration of $1.2
million and the transfer by AMCIC to us of its 50% ownership interest in Hope
Shipco LLC. In addition, AMCIC sold its 28.6% ownership interest in Christine
Shipco LLC to us for a consideration of $2.8 million. Following the completion
of the transaction, we became 100% owner of Hope Shipco LLC, increased our
interest in Christine Shipco LLC to 71.4% and disposed our interest in Lillie
Shipco LLC.
During
the year ended December 31, 2009, we paid $9.4 million representing scheduled
advances in relation to our vessels under construction.
B.
Business Overview
We are a
provider of worldwide sea borne transportation services for dry bulk cargo
including among others, iron ore, coal and grain, collectively referred to as
"major bulks," and steel products, fertilizers, cement, bauxite, sugar and scrap
metal, collectively referred to as "minor bulks". Our fleet is managed by one of
our wholly-owned subsidiaries, Maryville.
Currently,
our fleet consists of 40 vessels and, together with seven Panamax vessels under
bareboat charters, we operate 47 vessels, consisting of five Capesize, fourteen
Kamsarmax, 21 Panamax, five Handymax and two Supramax vessels, with a total
carrying capacity of approximately 3.9 million dwt. In addition to the above
fleet, we have also assumed - through a wholly owned subsidiary and five joint
venture vessel-owning companies, six shipbuilding contracts for six Capesize
vessels, two of which are expected to be delivered to us within the year ending
December 31, 2010. As no refund guarantees have yet been received for the
remaining four newbuilding contracts, their construction may be delayed and they
may never be delivered at all.
Our
Fleet
The
following is a list of the operating vessels in our fleet as of March 9, 2010,
all of which are drybulk carriers:
Vessel
Name
|
DWT
|
Year
Built
|
Type
|
Sandra
|
180,274
|
|
2008
|
Capesize
|
Lowlands
Beilun
|
170,162
|
|
1999
|
Capesize
|
Iron
Miner
|
177,931
|
|
2007
|
Capesize
|
Kirmar
|
164,218
|
|
2001
|
Capesize
|
Iron
Beauty
|
164,218
|
|
2001
|
Capesize
|
Iron
Manolis
|
82,269
|
|
2007
|
Kamsarmax
|
Iron
Brooke
|
82,594
|
|
2007
|
Kamsarmax
|
Iron
Lindrew
|
82,598
|
|
2007
|
Kamsarmax
|
Coal
Hunter
|
82,298
|
|
2006
|
Kamsarmax
|
Pascha
|
82,574
|
|
2006
|
Kamsarmax
|
Coal
Gypsy
|
82,221
|
|
2006
|
Kamsarmax
|
Iron
Anne
|
82,220
|
|
2006
|
Kamsarmax
|
Iron
Vassilis
|
82,257
|
|
2006
|
Kamsarmax
|
Iron
Bill
|
82,187
|
|
2006
|
Kamsarmax
|
Santa
Barbara
|
82,266
|
|
2006
|
Kamsarmax
|
Ore
Hansa
|
82,209
|
|
2006
|
Kamsarmax
|
Iron
Kalypso
|
82,224
|
|
2006
|
Kamsarmax
|
Iron
Fuzeyya
|
82,209
|
|
2006
|
Kamsarmax
|
Iron
Bradyn
|
82,769
|
|
2005
|
Kamsarmax
|
Grain
Harvester
|
76,417
|
|
2004
|
Panamax
|
Grain
Express
|
76,466
|
|
2004
|
Panamax
|
Iron
Knight
|
76,429
|
|
2004
|
Panamax
|
Coal
Pride
|
72,493
|
|
1999
|
Panamax
|
Iron
Man (1)
|
72,861
|
|
1997
|
Panamax
|
Coal
Age (1)
|
72,824
|
|
1997
|
Panamax
|
Vessel
Name
|
DWT
|
Year
Built
|
Type
|
Fearless
I (1)
|
73,427
|
|
1997
|
Panamax
|
Barbara
(1)
|
73,307
|
|
1997
|
Panamax
|
Linda
Leah (1)
|
73,317
|
|
1997
|
Panamax
|
King
Coal (1)
|
72,873
|
|
1997
|
Panamax
|
Coal
Glory (1)
|
73,670
|
|
1995
|
Panamax
|
Isminaki
|
74,577
|
|
1998
|
Panamax
|
Angela
Star
|
73,798
|
|
1998
|
Panamax
|
Elinakos
|
73,751
|
|
1997
|
Panamax
|
Rodon
|
73,656
|
|
1993
|
Panamax
|
Happy
Day
|
71,694
|
|
1997
|
Panamax
|
Birthday
|
71,504
|
|
1993
|
Panamax
|
Renuar
|
70,155
|
|
1993
|
Panamax
|
Powerful
|
70,083
|
|
1994
|
Panamax
|
Fortezza
|
69,634
|
|
1993
|
Panamax
|
First
Endeavour
|
69,111
|
|
1994
|
Panamax
|
July
M
|
55,567
|
|
2005
|
Supramax
|
Mairouli
|
53,206
|
|
2005
|
Supramax
|
Emerald
|
45,588
|
|
1998
|
Handymax
|
Marybell
|
42,552
|
|
1987
|
Handymax
|
Attractive
|
41,524
|
|
1985
|
Handymax
|
Lady
|
41,090
|
|
1985
|
Handymax
|
Princess
I
|
38,858
|
|
1994
|
Handymax
|
Total
|
3,860,130
|
|
|
|
(1) Indicates
a vessel sold by Quintana to a third party in July 2007 and subsequently leased
back to Quintana under a bareboat charter.
In
addition to the above fleet, we are party- through a wholly owned subsidiary and
the joint ventures in which we participate- to the following newbuilding
contracts for six Capesize vessels:
Vessel
|
DWT
|
Expected
Delivery
|
Ownership
|
Hope
|
181,000
|
|
November
2010
|
100%
|
Christine
|
180,000
|
|
April
2010
|
71.4%
|
Fritz
|
180,000
|
|
May
2010 (A)
|
50.0%
|
Benthe
|
180,000
|
|
June
2010 (A)
|
50.0%
|
Gayle
Frances
|
180,000
|
|
July
2010 (A)
|
50.0%
|
Iron
Lena
|
180,000
|
|
August
2010 (A)
|
50.0%
|
Total
|
1,081,000
|
|
|
|
(A)
Indicates contracted delivery dates for a new building vessel for which
no refund guarantee has yet received and may be delayed in delivery or may never
be delivered at all.
Business
Strategy
Our
business strategy includes:
· Fleet Expansion and Reduction in
Average Age. We intend to continue to grow our fleet and, over time,
reduce its average age. Most significantly, our acquisition of Quintana allowed
us to add 30 young and well maintained operating dry bulk carriers to our fleet.
Our vessel acquisition candidates generally are chosen based on economic and
technical criteria. We also expect to explore opportunities to sell some of our
older vessels at attractive prices.
· Balanced Fleet Deployment Strategy.
Our fleet deployment strategy seeks to maximize charter revenue
throughout industry cycles while maintaining cash flow stability. We intend to
achieve this through a balanced portfolio of spot and period time charters. Upon
completion of their current charters, our recently acquired vessels may or may
not be employed on spot/short-duration time charters, depending on the market
conditions at the time.
· Capitalizing on our Established
Reputation. We believe that we have established a reputation in the
international shipping community for maintaining high standards of performance,
reliability and safety. Since the appointment of new management in 1998
(Maryville), the Company has not suffered the total loss of a vessel at sea or
otherwise. In addition, our wholly-owned management subsidiary, Maryville,
carries the distinction of being one of the first Greece-based ship management
companies to have been certified ISO 14001 compliant by Bureau
Veritas.
· Expansion of Operations and Client
Base. We aim to become one of the world's premier full service dry bulk
shipping companies. We operate a fleet of 47 vessels with a total carrying
capacity of 3.9 million dwt and a current average age of approximately 9.7
years, which makes us one of the largest dry bulk shipping companies in the
industry and gives us the largest dry bulk fleet by dwt operated by any
U.S.-listed company.
Competitive
Strengths
We believe that we possess a number
of competitive strengths in our industry:
· Experienced Management Team.
Our management team has significant experience in operating dry bulk carriers
and expertise in all aspects of commercial, technical, operational and financial
areas of our business, promoting a focused marketing effort, tight quality and
cost controls, and effective operations and safety monitoring.
· Strong Customer
Relationships. We have strong relationships with our customers and
charterers that we believe are the result of the quality of our fleet and our
reputation for quality vessel operations. Through our wholly-owned management
subsidiary, Maryville, we have many long-established customer relationships, and
our management believes it is well regarded within the international shipping
community. During the past 19 years, vessels managed by Maryville have been
repeatedly chartered by subsidiaries of major dry bulk operators. In 2009, we
derived approximately 34% of our gross revenues from a single charterer,
Bunge.
· Cost Efficient Operations. We
historically operated our fleet at competitive costs by carefully selecting
second hand vessels, competitively commissioning and actively supervising cost
efficient shipyards to perform repair, reconditioning and systems upgrading
work, together with a proactive preventive maintenance program both ashore and
at sea, and employing professional, well trained masters, officers and crews. We
believe that this combination has allowed us to minimize off-hire periods,
effectively manage insurance costs and control overall operating
expenses.
Ship
Management
Historically,
our fleet was managed by Excel Management Ltd., or Excel Management, an
affiliated Liberian corporation formed on January 13, 1998 and controlled by the
Chairman of our Board, under a five-year management agreement. Excel Management
had sub-contracted Maryville to perform some of these management services.
Maryville became a wholly-owned subsidiary of ours on March 31,
2001.
In order
to streamline operations, reduce costs and take control of the technical and
commercial management of our fleet, in early March 2005, with effect from
January 1, 2005, we reached an agreement with Excel Management to terminate the
management agreement, the term of which was scheduled to extend until April 30,
2008. The technical and commercial management of our fleet was assumed by
Maryville in order to eliminate the fees we would have paid to Excel Management
for the remaining term of the management agreement, which would have increased
substantially given the expansion of our fleet.
In
exchange for terminating the management agreement mentioned above and in
exchange for a one time cash payment of $ 2.0 million, we agreed to issue to
Excel Management 205,442 shares of our Class A common stock and to issue to
Excel Management additional shares at any time until December 31, 2008 if we
issue additional shares of our Class A common stock to any other party for any
reason, such that the number of additional Class A common stock that would be
issued to Excel Management together with the initial 205,442 shares of Class A
common stock, in the aggregate, equal 1.5% of our total outstanding Class A
common stock after taking into account the third party issuance and the shares
issued to Excel Management under the anti-dilution provision of the agreement.
With the exception of the one time cash payment of $2.0 million discussed above,
no other consideration would be received from Excel Management for any shares of
Class A common stock issued by us to Excel Management pursuant to an
anti-dilution issuance.
On June
19, 2007, we issued to Excel Management 298,403 Class A common shares
(representing the 205,442 Class A common shares described in the termination
agreement and 92,961 additional Class A common shares to reflect the necessary
anti-dilution adjustment resulting from the issuance of Class A common stock by
us since March 2005) in exchange for the cash payment of $2.0
million.
In
addition, during the year ended December 31, 2008, we issued 392,801 shares of
our Class A common stock under the anti-dilution provision as a result of the
shares issued in relation to our acquisition of Quintana, the cancellation of a
vessel's purchase and of the incentive share issuances to certain of our
officers, directors, and employees. The anti-dilution provision lapsed as of
January 1, 2009.
Brokering
agreement
On March
4, 2005, we also entered into a one-year brokering agreement with Excel
Management. Under this brokering agreement, Excel Management will, pursuant to
our instructions, act as our broker with respect to, among other matters, the
employment of our vessels. For its chartering services under the brokering
agreement, Excel Management will receive a commission fee equal to 1.25% of the
revenue of our vessels. This agreement extends automatically for successive
one-year terms at the end of its initial term and may be terminated by either
party upon twelve months prior written notice. The agreement was automatically
extended by another year on March 4, 2010.
Permits
and Authorizations
The
business of the Company and the operation of its vessels are materially affected
by government regulation in the form of international conventions, national,
state and local laws and regulations in force in the jurisdictions in which the
vessels operate, as well as in the country or countries of their registration.
Because such conventions, laws, and regulations are often revised, the Company
cannot predict the ultimate cost of complying with such conventions, laws and
regulations or the impact thereof on the resale price or useful life of its
vessels. Additional conventions, laws and regulations may be adopted which could
limit the ability of the Company to do business or increase the cost of its
doing business.
The
Company is required by various governmental and quasi-governmental agencies to
obtain certain permits, licenses and certificates with respect to its
operations. The kinds of permits, licenses, certificates and other
authorizations required for each vessel depend upon several factors, including
the commodity transported, the waters in which the vessel operates the
nationality of the vessel's crew and the age of the vessel. Subject to these
factors, as well as the discussion below, the Company believes that it has been
and will be able to obtain all permits, licenses and certificates material to
the conduct of its operations. However, additional laws and regulations,
environmental or otherwise, may be adopted which could limit the Company's
ability to do business or increase the Company's cost of doing business and
which may materially adversely affect the Company's operations.
Environmental
and Other Regulations
Government
regulation significantly affects the ownership and operation of dry bulk
carriers. A variety of government and private entities subject dry bulk vessels
to both scheduled and unscheduled inspections. These entities include the local
port authorities (United States Coast Guard, harbor master or equivalent),
classification societies, flag state administrations (country of registry),
charterers or contract of affreightment counterparties, and terminal operators.
Certain of these entities will require us to obtain permits, licenses and
certificates for the operation of our vessels. Failure to maintain necessary
permits or approvals could require us to incur substantial costs or temporarily
suspend the operation of one or more of our vessels.
We
believe that the heightened level of environmental and quality concerns among
insurance underwriters, regulators and charterers is leading to greater
inspection and safety requirements on all vessels and may accelerate the
scrapping of older vessels throughout the dry bulk shipping industry. Increasing
environmental concerns have created a demand for vessels that conform to the
stricter environmental standards. We are required to maintain operating
standards for all of our vessels that emphasize operational safety, quality
maintenance, continuous training of officers and crews and compliance with
local, national and international environmental laws and regulations. We believe
that the operations of our vessels is in substantial compliance with applicable
environmental laws and regulations and that our vessels have all material
permits, licenses, certificates or other authorizations necessary for the
conduct of our operations.
International
Maritime Organization
The
International Maritime Organization, or IMO, (the United Nations agency for
maritime safety and the prevention of pollution by ships) has adopted the
International Convention for the Prevention of Pollution from Ships, 1973, as
modified by the related Protocol of 1978 relating thereto, which has been
updated through various amendments, or the MARPOL Convention. The MARPOL
Convention establishes environmental standards relating to oil leakage or
spilling, garbage management, sewage, air emissions, handling and disposal of
noxious liquids and the handling of harmful substances in packaged forms. The
IMO adopted regulations that set forth pollution-prevention requirements
applicable to dry bulk carriers. These regulations have been adopted by over 150
nations, including many of the jurisdictions in which the Company's vessels
operate.
In
September 1997, the IMO adopted Annex VI to MARPOL to address air pollution
from ships. Effective May 2005, Annex VI sets limits on sulfur oxide
and nitrogen oxide emissions from all commercial vessel exhausts and prohibits
deliberate emissions of ozone depleting substances (such as halons and
chlorofluorocarbons), emissions of volatile organic compounds from cargo tanks,
and the shipboard incineration of specific substances. Annex VI also
includes a global cap on the sulfur content of fuel oil and allows for special
areas to be established with more stringent controls on sulfur
emissions. Additional or new conventions, laws and regulations may be
adopted that could require the installation of expensive emission control
systems and adversely affect our business, cash flows, results of operations and
financial condition. In October 2008, the IMO adopted amendments to
Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter
and ozone-depleting substances, which amendments enter into force on July 1,
2010. The amended Annex VI will reduce air pollution from vessels by,
among other things, (i) implementing a progressive reduction of sulfur oxide
emissions from ships by reducing the global sulfur fuel cap initially to 3.50%
(from the current cap of 4.50%), effective from January 1, 2012, then
progressively to 0.50%, effective from January 1, 2020, subject to a feasibility
review to be completed no later than 2018; and (ii) establishing new tiers of
stringent nitrogen oxide emissions standards for new marine engines, depending
on their date of installation. The United States ratified the Annex
VI amendments in October 2008, and the U.S. Environmental Protection Agency, or
EPA, promulgated equivalent emissions standards in late 2009.
The IMO
also adopted the International Convention for the Safety of Life at Sea, or
SOLAS, and the International Convention on Load Lines, or LL, which impose a
variety of standards that regulate the design and operational features of
ships. The IMO periodically revises the SOLAS and LL
standards.
In
addition, the IMO adopted the International Convention for the Control and
Management of Ships' Ballast Water and Sediments, or the BWM Convention, in
February 2004. The BWM Convention's implementing regulations call for a phased
introduction of mandatory ballast water exchange requirements, to be replaced in
time with mandatory concentration limits. The BWM Convention will not enter into
force until 12 months after it has been adopted by 30 states, the combined
merchant fleets of which represent not less than 35% of the gross tonnage of the
world's merchant shipping tonnage. To date, there has not been sufficient
adoption of this standard for it to take force.
The
operation of our ships is also affected by the requirements set forth in the ISM
Code. The ISM Code requires ship owners and bareboat charterers to develop and
maintain an extensive "Safety Management System" that includes the adoption of a
safety and environmental protection policy setting forth instructions and
procedures for safe operation and describing procedures for dealing with
emergencies. The failure of a ship owner or bareboat charterer to comply with
the ISM Code may subject such party to increased liability, may decrease
available insurance coverage for the affected vessels, and may result in a
denial of access to, or detention in, certain ports. Currently, each of the
Company's applicable vessels is ISM code-certified. However, there can be no
assurance that such certifications will be maintained indefinitely.
The IMO
continues to review and introduce new regulations. It is impossible to predict
what additional regulations, if any, may be passed by the IMO and what effect,
if any, such regulations might have on our operations.
The
United States Oil Pollution Act of 1990
OPA
established an extensive regulatory and liability regime for the protection and
cleanup of the environment from oil spills. OPA affects all owners and operators
whose vessels trade with the United States, its territories and possessions or
whose vessels operate in United States waters, which includes the United States'
territorial sea and its 200 nautical mile exclusive economic zone around the
United States.
Under
OPA, vessel owners, operators and bareboat charterers are "responsible parties"
and are jointly, severally and strictly liable (unless the spill results solely
from the act or omission of a third party, an act of God or an act of war) for
all containment and clean-up costs and other damages arising from discharges or
threatened discharges of oil from their vessels. OPA defines these other damages
broadly to include:
(i) natural
resources damage and the costs of assessment thereof;
(ii) real
and personal property damage;
(iii) net
loss of taxes, royalties, rents, fees and other lost revenues;
(iv) lost
profits or impairment of earning capacity due to property or natural resources
damage;
(v) net
cost of public services necessitated by a spill response, such as protection
from fire, safety or health hazards; and
(vi) loss
of subsistence use of natural resources.
Effective
July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability for
non-tank vessels to the greater of $1,000 per gross ton or $0.85 million per
non-tank (e.g. drybulk) vessel that is over 3,000 gross tons (subject to
periodic adjustment for inflation). CERCLA, which applies to owners and
operators of vessels, contains a similar liability regime and provides for
cleanup, removal and natural resource damages. Liability under CERCLA is limited
to the greater of $300 per gross ton or $5 million for vessels carrying a
hazardous substance as cargo and the greater of $300 per gross ton or $0.5
million for any other vessel. These OPA and CERCLA limits of liability do not
apply if an incident was directly caused by violation of applicable U.S. federal
safety, construction or operating regulations or by a responsible party's gross
negligence or willful misconduct, or if the responsible party fails or refuses
to report the incident or to cooperate and assist in connection with oil removal
activities.
We
currently maintain pollution liability coverage insurance in the amount of $1.0
billion per incident for each of our vessels. If the damages from a catastrophic
spill were to exceed our insurance coverage it could have an adverse effect on
our business and results of operation.
OPA
specifically permits individual states to impose their own liability regimes
with regard to oil pollution incidents occurring within their boundaries, and
some states have enacted legislation providing for unlimited liability for oil
spills. In some cases, states, which have enacted such legislation, have not yet
issued implementing regulations defining vessel owners' responsibilities under
these laws. The Company intends to comply with all applicable state regulations
in the ports where the Company's vessels call.
The
U.S. Clean Water Act
The CWA
prohibits the discharge of oil, hazardous substances and ballast water in U.S.
navigable waters unless authorized by a duly-issued permit or exemption, and
imposes strict liability in the form of penalties for any unauthorized
discharges. The CWA also imposes substantial liability for the costs of removal,
remediation and damages and complements the remedies available under OPA and
CERCLA.
The
U.S. Clean Air Act
The U.S.
Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and
1990, or the CAA, requires the EPA to promulgate standards applicable to
emissions of volatile organic compounds and other air contaminants. Our vessels
are subject to vapor control and recovery requirements for certain cargoes when
loading, unloading, ballasting, cleaning and conducting other operations in
regulated port areas. Our vessels that operate in such port areas with
restricted cargoes are equipped with vapor recovery systems that satisfy these
requirements. The CAA also requires states to draft State Implementation Plans,
or SIPs, designed to attain national health-based air quality standards in
primarily major metropolitan and/or industrial areas. Several SIPs regulate
emissions resulting from vessel loading and unloading operations by requiring
the installation of vapor control equipment. As indicated above, our vessels
operating in covered port areas are already equipped with vapor recovery systems
that satisfy these existing requirements.
Other
Environmental Initiatives
European
Union Regulations
In
October 2009, the European Union amended a directive to impose criminal
sanctions for illicit ship-source discharges of polluting substances, including
minor discharges, if committed with intent, recklessly or with serious
negligence and the discharges individually or in the aggregate result in
deterioration of the quality of water. Criminal liability for pollution may
result in substantial penalties or fines and increased civil liability
claims.
Greenhouse
Gas Regulation
In
February 2005, the Kyoto Protocol to the United Nations Framework Convention on
Climate Change, or UNFCCC, which we refer to as the Kyoto Protocol, entered into
force. Pursuant to the Kyoto Protocol, adopting countries are required to
implement national programs to reduce emissions of certain gases, generally
referred to as greenhouse gases, which are suspected of contributing to global
warming. Currently, the emissions of greenhouse gases from international
shipping are not subject to the Kyoto Protocol. However, international
negotiations are continuing with respect to a successor to the Kyoto Protocol,
which sets emission reduction targets through 2012, and restrictions on shipping
emissions may be included in any new treaty. In December 2009, more than 27
nations, including the United States and China, signed the Copenhagen Accord,
which includes a non-binding commitment to reduce greenhouse gas emissions. The
European Union has indicated that it intends to propose an expansion of the
existing European Union emissions trading scheme to include emissions of
greenhouse gases from vessels, if such emissions are not regulated through the
IMO or the UNFCCC by December 31, 2010. In the United States, the EPA has issued
a final finding that greenhouse gases threaten public health and safety, and has
promulgated regulations, expected to be finalized in March 2010, regulating the
emission of greenhouse gases from motor vehicles and stationary
sources. The EPA may decide in the future to regulate greenhouse gas
emissions from ships and has already been petitioned by the California Attorney
General to regulate greenhouse gas emissions from ocean-going
vessels. Other federal and state regulations relating to the control
of greenhouse gas emissions may follow, including the climate change initiatives
that are being considered in the U.S. Congress. In addition, the IMO
is evaluating various mandatory measures to reduce greenhouse gas emissions from
international shipping, including market-based instruments. Any
passage of climate control legislation or other regulatory initiatives by the
EU, U.S., IMO or other countries where we operate that restrict emissions of
greenhouse gases could require us to make significant financial expenditures
that we cannot predict with certainty at this time.
The
International Dry Bulk Shipping Market
The dry
bulk shipping market is the primary provider of global commodities
transportation. Approximately one third of all seaborne trade is dry bulk
related.
After
three consecutive years in which demand for seaborne trade has grown faster than
newbuilding supply, the situation was reversed in mid-2005. While demand growth
slowed, a new all-time high for newbuilding deliveries, together with minimal
scraping, resulted in a weaker market in 2005 which continued in the first half
of 2006. Beginning with the second half of 2006, the market showed signs of
significant strength which continued in 2007 with the BDI closing the year 2007
at 9,143. The market remained at high levels until May 20, 2008 when the BDI
reached an all-time high.
Following
May 2008, the BDI fell over 90% from May 2008 through December 16, 2008 and
almost 75% during the fourth quarter of 2008 through December 16, 2008, reaching
a low of 663, or 94% below the May 2008 high point, in December 2008. The BDI
recovered during 2009, at a rate of 350% to close the year at 3005 points,
whoever from January 2009 through December 2009, the BDI was reaching a high of
4661, or 700% above the December 2008 low point, in November 2009.
The
average BDI value for 2009, about 2600, represented only 60% of the average BDI
for 2008, about 6390, despite the latter part of 2008 being depressed. The
current BDI value is approximately 24% higher than the 2009 average
levels.
The
general decline in the dry bulk carrier charter market has resulted in lower
charter rates for vessels exposed to the spot market and time charters linked to
the BDI. Specifically, we currently employ 14 of our vessels in the spot
market.
Dry bulk
vessel values have also declined both as a result of a slowdown in the
availability of global credit and the significant deterioration in charter
rates. Charter rates and vessel values have been affected in part by the lack of
availability of credit to finance both vessel purchases and purchases of
commodities carried by sea, resulting in a decline in cargo shipments, and the
excess supply of iron ore in China, resulting in falling iron ore prices and
increased stockpiles in Chinese ports. There can be no assurance as to how long
charter rates and vessel values will remain at their currently low levels or
whether they will improve to any significant degree. Charter rates may remain at
depressed levels for some time, which will adversely affect our revenue and
profitability.
Capesize
rates, which averaged $100,000 per day in August 2008, fell to approximately
$2,300 per day on December 2, 2008. The Capesize market is currently at
approximately USD 37,804 per day. We believe that while the root cause of the
fall has been a sharp slowdown in Chinese steel demand and prices leading to
reduced demand for iron ore and coal, the price reductions
of approximately 30% achieved from the 'big three' mining companies,
Companhia Vale do Rio Doce, a Brazilian mining company, BHP Billiton and Rio
Tinto, Anglo Australian mining companies, for the 2009 benchmark pricing,
coupled with lower transportation cost, sparked Chinese steel mills to restock
and turn back to foreign mined high quality iron ore. Additionally, the thawing
trade finance, bank's willingness to issue letters of credit resulted in
increased financing for the purchase of commodities carried by sea which has led
to a significant incline in cargo shipments and an attendant surge in charter
rates.
Vessel
Security Regulations
Since the
terrorist attacks of September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security. On November 25, 2002, the U.S.
Maritime Transportation Security Act of 2002, or MTSA, came into effect. To
implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard
issued regulations requiring the implementation of certain security requirements
aboard vessels operating in waters subject to the jurisdiction of the United
States. Similarly, in December 2002, amendments to SOLAS created a
new chapter of the convention dealing specifically with maritime security. The
new chapter became effective in July 2004 and imposes various detailed security
obligations on vessels and port authorities, most of which are contained in the
International Ship and Port Facilities Security Code, or the ISPS Code. The ISPS
Code is designed to protect ports and international shipping against terrorism.
After July 1, 2004, to trade internationally, a vessel must attain an
International Ship Security Certificate from a recognized security organization
approved by the vessel's flag state. Among the various requirements
are:
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on-board
installation of automatic identification systems to provide a means for
the automatic transmission of safety-related information from among
similarly equipped ships and shore stations, including information on a
ship's identity, position, course, speed and navigational
status;
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on-board
installation of ship security alert systems, which do not sound on the
vessel but only alert the authorities on
shore;
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the
development of vessel security
plans;
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ship
identification number to be permanently marked on a vessel's
hull;
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a
continuous synopsis record kept on-board showing a vessel's history
including, name of the ship and of the state whose flag the ship is
entitled to fly, the date on which the ship was registered with that
state, the ship's identification number, the port at which the ship is
registered and the name of the registered owner(s) and their registered
address; and
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compliance
with flag state security certification
requirements.
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The U.S.
Coast Guard regulations, intended to align with international maritime security
standards, exempt from MTSA vessel security measures non-U.S. vessels that have
on board, as of July 1, 2004, a valid ISSC attesting to the vessel's compliance
with SOLAS security requirements and the ISPS Code. We will implement
and comply with the various security measures addressed by the MTSA, SOLAS and
the ISPS Code to the extent they are applicable to us or our
vessels.
Customers
The
Company has many long-established customer relationships, and management
believes it is well regarded within the international shipping community. During
the past 19 years, vessels managed by Maryville have been repeatedly chartered
by subsidiaries of major dry bulk operators. In 2009, we derived approximately
34% of our gross revenues from a single charterer, Bunge. In particular, all 14
of our Kamsarmax vessels and two Panamax vessels are on time charter to Bunge
until December 31, 2010. Consequently, a significant portion of our future
revenues will be derived from Bunge – see "Risk Factors" above for further
details.
Inspection
by Classification Societies
The hull
and machinery of every large, commercial oceangoing vessel must be "classed" by
a classification society. A classification society certifies that a
vessel is "in-class," signifying that the vessel has been built and maintained
in accordance with the rules of the classification society and complies with
applicable rules and regulations of the vessel's country of registry and the
international conventions of which that country is a member. In
addition, where surveys are required by international conventions and
corresponding laws and ordinances of a flag state, the classification society
will undertake them on application or by official order, acting on behalf of the
authorities concerned.
The
classification society also undertakes on request other surveys and checks that
are required by regulations and requirements of the flag state. These surveys
are subject to agreements made in each individual case and/or to the regulations
of the country concerned.
For
maintenance of the class, regular and extraordinary surveys of hull, machinery,
including the electrical plant, and any special equipment classed are required
to be performed as follows:
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Annual
Surveys. For seagoing ships, annual surveys are conducted for
the hull and the machinery, including the electrical plant and where
applicable for special equipment classed, at intervals of 12 months
from the date of commencement of the class period indicated in the
certificate.
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Intermediate
Surveys. Extended annual surveys are referred to as
intermediate surveys and typically are conducted two and one-half years
after commissioning and each class renewal. Intermediate
surveys may be carried out on the occasion of the second or third annual
survey.
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Class
Renewal Surveys. Class renewal surveys, also known as special
surveys, are carried out for the ship's hull, machinery, including the
electrical plant and for any special equipment classed, at the intervals
indicated by the character of classification for the hull. At
the special survey the vessel is thoroughly examined, including
audio-gauging to determine the thickness of the steel
structures. Should the thickness be found to be less than class
requirements, the classification society would prescribe steel
renewals. The classification society may grant a one year grace
period for completion of the special survey. Substantial
amounts of money may have to be spent for steel renewals to pass a special
survey if the vessel experiences excessive wear and tear. In
lieu of the special survey every four or five years, depending on whether
a grace period was granted, a shipowner has the option of arranging with
the classification society for the vessel's hull or machinery to be on a
continuous survey cycle, in which every part of the vessel would be
surveyed within a five year cycle. At an owner's application,
the surveys required for class renewal may be split according to an agreed
schedule to extend over the entire period of class. This process is
referred to as continuous class
renewal.
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All areas
subject to survey as defined by the classification society are required to be
surveyed at least once per class period, unless shorter intervals between
surveys are prescribed elsewhere. The period between two subsequent
surveys of each area must not exceed five years.
Most
vessels are also dry docked every 30 to 36 months for inspection of the
underwater parts and for repairs related to inspections. If any
defects are found, the classification surveyor will issue a recommendation that
must be rectified by the shipowner within prescribed time limits.
Most
insurance underwriters make it a condition for insurance coverage that a vessel
be certified as "in-class" by a classification society that is a member of the
International Association of Classification Societies. All our
vessels are certified as being "in-class" by Bureau Veritas, American Bureau of
Shipping, Nippon Kaiji Kyokai, Det Norske Veritas and Lloyd's Register of
Shipping. All new and secondhand vessels that we purchase must be
certified prior to their delivery under our standard purchase contracts and
memoranda of agreement. If the vessel is not certified on the scheduled date of
closing, we have no obligation to take delivery of the vessel.
Our
wholly-owned management subsidiary, Maryville, implemented Safety Management and
Quality standards long before they became mandatory by the relevant
institutions. Although the shipping industry was aware that the ISM Code would
become mandatory as of July 1, 1998, Maryville, in conjunction with ISO
9002:1994, commenced operations back in 1995 aiming to voluntarily implement
both systems well before the International Safety Management date.
Maryville
was the first ship management company in Greece to receive simultaneous ISM and
ISO Safety and Quality Systems Certifications in February 1996 for the safe
operation of dry cargo vessels. At the end of 2003, Maryville's
Management System was among the first five company management systems to have
been successfully audited and found to be in compliance with management System
Standards for both ISO 9001:2000 and ISO 14001:1996 mentioned above.
Certification to Maryville for both standards was issued in early
2004.
In lieu
of a special survey, a vessel's machinery may be on a continuous survey cycle,
under which the machinery would be surveyed periodically over a five-year
period. The Company's vessels are on special survey cycles for hull inspection
and continuous survey cycles for machinery inspection. Every vessel is also
required to be dry-docked every two to three years for inspection of the
underwater parts of such vessel. Generally, the Company will make a decision to
scrap a vessel or reassess its useful life at the time of a vessel's fifth
special survey.
Risk
of Loss and Liability Insurance
General
The
operation of any cargo vessel includes risks such as mechanical failure,
structural damage to the vessel, collision, personal injuries, property loss,
cargo loss or damage and business interruption due to political circumstances in
foreign countries, piracy, hostilities and labor strikes. In
addition, there is always an inherent possibility of marine disaster, including
oil spills and other environmental mishaps, and the liabilities arising from
owning and operating vessels in international trade. OPA, which
imposes virtually unlimited liability upon owners, operators and demise
charterers of any vessel trading in the United States exclusive economic zone
for certain oil pollution accidents in the United States, has made liability
insurance more expensive for ship owners and operators trading in the U.S.
market.
Hull
and Machinery Insurance and War Risks Insurance
The
Company maintains hull and machinery and war risks insurance, which includes the
risk of actual or constructive total loss, and protection and indemnity
insurance with mutual assurance associations. The Company does not carry
insurance covering the loss of revenue resulting from vessel off-hire time. The
Company believes that its insurance coverage is adequate to protect it against
most accident-related risks involved in the conduct of its business and that it
maintains appropriate levels of environmental damage and pollution insurance
coverage. However, there can be no assurance that all risks are adequately
insured against, that any particular claim will be paid or that the Company will
be able to procure adequate insurance coverage at commercially reasonable
rates.
Protection
and Indemnity Insurance
Protection
and Indemnity insurance is provided by mutual protection and indemnity
associations, or P&I Clubs, which cover our third party liabilities in
connection with our shipping activities. This includes third-party
liability and other expenses and claims in connection with injury or death of
crew, passengers and other third parties, loss or damage to cargo, damage to
other third-party property, pollution arising from oil or other substances,
wreck removal and related costs. Subject to the "capping" discussed below, our
coverage, except for pollution, is unlimited.
Our
current protection and indemnity insurance coverage for oil pollution is $1
billion per vessel per incident. The 13 P&I Clubs that compose the
International Group of P&I Clubs insure more than 90% of the world's
commercial tonnage and have entered into a pooling agreement to reinsure each
association's liabilities. Each P&I Club has capped its exposure to this
pooling agreement at $4.25 billion. As a member of a P&I Club that itself is
a member of the International Group, we are subject to calls payable to the
associations based on its claim records as well as the claim records of all
other members of the individual associations and members of the pool of P&I
Clubs composing the International Group.
C.
Organizational Structure
We are
the parent company of the following subsidiaries as of March 9,
2010:
Subsidiary
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Place of Incorporation
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Percentage
of Ownership
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Maryville
Maritime Inc.
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Liberia
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100%
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Point
Holdings Ltd. (1)
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Liberia
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100%
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Bird
Acquisition Corp.(2)
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Marshall
Islands
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100%
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(1)
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Point
Holdings Ltd. is the parent company (100%) of sixteen Liberian ship-owning
subsidiaries as follows, each of which owns one vessel: Fianna Navigation
S.A., Marias Trading Inc., Yasmine International Inc., Tanaka Services
Ltd., Amanda Enterprises Ltd., Whitelaw Enterprises Co., Candy Enterprises
Inc., Fountain Services Ltd., Harvey Development Corp., Teagan Shipholding
S.A., Minta Holdings S.A., Odell International Ltd., Ingram Limited,
Snapper Marine ltd., Barland Holdings Inc. and Castalia Services
Ltd. In addition, Point is the parent company (100%) of the
following five Liberian non ship-owning companies, Magalie Investments
Corp., Melba Management Ltd., Naia Development Corp., Pisces Shipholding
Ltd and Liegh Jane Navigation S.A., as well as of the Liberian company
Thurman International Ltd. which is the parent company (100% owner) of
Centel Shipping Company Ltd., the owner of vessel
Lady.
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(2)
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Bird
is the parent company (100%) of the following Marshall Islands ship-owning
subsidiaries, each of which owns one vessel: Lowlands Beilun Shipco LLC,
Iron Miner Shipco LLC, Kirmar Shipco LLC, Iron Beauty Shipco LLC, Iron
Manolis Shipco LLC, Iron Brooke Shipco LLC, Iron Lindrew Shipco LLC, Coal
Hunter Shipco LLC, Pascha Shipco LLC, Coal Gypsy Shipco LLC, Iron Anne
Shipco LLC, Iron Vassilis Shipco LLC, Iron Bill Shipco LLC, Santa Barbara
Shipco LLC, Ore Hansa Shipco LLC, Iron Kalypso Shipco LLC, Iron Fuzeyya
Shipco LLC, Iron Bradyn Shipco LLC, Grain Harvester Shipco LLC, Grain
Express Shipco LLC, Iron Knight Shipco LLC, Coal Pride Shipco LLC, Sandra
Shipco LLC (formerly Iron Endurance Shipco LLC), and Hope Shipco LLC. In
addition, Bird is the parent company (100%) of the following seven
Marshall Islands non ship-owning companies, Iron Man Shipco LLC, Coal Age
Shipco LLC, Fearless Shipco LLC, Barbara Shipco LLC, Linda Leah Shipco
LLC, King Coal Shipco LLC and Coal Glory Shipco LLC, each of which sold
its vessel to a third party in July 2007 and subsequently leased the
vessel back under a bareboat charter. Bird is also a joint venture partner
in five Marshall Islands ship-owning companies, four of which are 50%
owned by Bird (Fritz Shipco LLC, Benthe Shipco LLC, Gayle Frances Shipco
LLC and Iron Lena Shipco LLC.) and one of which is 71.4% owned by Bird
(Christine Shipco LLC). Each of the foregoing subsidiaries has been formed
to be the owner of respective newbuilding Capesize dry bulk carriers. For
more information, please see below under "Item 10, Additional Information
– C. Material Contracts – Newbuilding Contracts".We have guaranteed the
performance of one of these joint ventures obligations under a contract
for a newbuilding vessel with purchase price of $72.4
million.
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Following
our acquisition of Quintana, we also own Quintana Management LLC, which was the
management company for Quintana's vessels prior to the merger on April 15, 2008
but has not provided management services to any of our vessels nor to any third
party vessels, and Quintana Logistics, which was incorporated in 2005 to engage
in chartering operations, including contracts of affreightment, and which has
had no operations during the period from the merger on April 15, 2008 to March
9, 2010. On December 24, 2008 Quintana Management LLC closed its Greek office
which was established under the provisions of Law 89/1967 and the company is in
the process of being dissolved.
D.
Property, Plant and Equipment
We do not
own any real estate property. Our management agreement with Maryville includes
terms under which we and our subsidiaries are being offered office space,
equipment and secretarial services at 17th km
National Road Athens-Lamia & Finikos Str., Nea Kifisia, Athens, Greece.
Maryville has a rental agreement with an unrelated party for the rental of these
office premises.
ITEM
4A – UNRESOLVED STAFF COMMENTS
None.
ITEM
5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The
following management's discussion and analysis of the results of our operations
and our financial condition should be read in conjunction with the financial
statements and the notes to those statements included in "Item 18, Financial
Statements". This discussion includes forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of many factors,
such as those set forth in the "Risk Factors" section and elsewhere in this
report.
A.
Results of Operations
Factors
Affecting Our Results of Operations
Voyage
revenues
Gross
revenues from vessels consist primarily of (i) hire earned under time charter
contracts, where charterers pay a fixed daily hire or (ii) amounts earned under
voyage charter contracts, where charterers pay a fixed amount per ton of cargo
carried. Gross revenues are also affected by the proportion between voyage and
time charters, since revenues from voyage charters are generally higher than
equivalent time charter hire revenues, as they are of a shorter duration and
cover all costs relating to a given voyage, including port expenses, canal
dues and fuel (bunker) costs. Accordingly, year-to-year comparisons of gross
revenues are not necessarily indicative of the fleet's performance. The time
charter equivalent per vessel, or TCE, which is defined as gross revenue per day
less commissions and voyage costs, provides a more accurate measure for
comparison.
Voyage
expenses and commissions to a related party
Voyage
expenses consist of all costs relating to a given voyage, including port
expenses, canal dues, fuel costs, net of gains or losses from the sale of
bunkers to charterers, and commissions. Under voyage charters, the owner of the
vessel pays such expenses whereas under time charters the charterer pays such
expenses excluding commissions. Therefore, voyage expenses can fluctuate
significantly from period to period depending on the type of charter
arrangement.
Time
charter amortization-revenue and Charter hire amortization-expense
Where we
identify any assets or liabilities associated with the acquisition of a vessel,
we record all such identified assets or liabilities at fair value. Fair value is
determined by reference to market data. We value any asset or liability arising
from the market value of the time charters assumed when a vessel is acquired.
The amount to be recorded as an asset or liability at the date of vessel
delivery is based on the difference between the current fair value of a charter
with similar characteristics as the time charter assumed and the net present
value of future contractual cash flows from the time charter contract
assumed. When the present value of the time charter assumed is
greater than the current fair value of such charter, the difference is recorded
as an asset; otherwise, the difference is recorded as liability. Such assets and
liabilities are amortized as an expense or revenue, respectively over the
remaining period of the time charters acquired.
Vessel
operating expenses
Vessel
operating expenses consist primarily of crewing, repairs and maintenance,
lubricants, victualling, stores, spares and insurance expenses. The vessel owner
is responsible for all vessel operating expenses under voyage charters and time
charters. Our vessel operating expenses have historically been increased as a
result of the enlargement of our fleet.
Other factors beyond our
control, some of which may affect the shipping industry in general, including,
for instance, developments relating to market prices for insurance and crew
wages, may also cause these expenses to increase.
Depreciation
Vessel
acquisition cost and subsequent improvements are depreciated on a straight-line
basis over the remaining useful life of each vessel, estimated to be 28 years
from the date of construction. In computing vessel depreciation, the estimated
salvage value is also taken into consideration. Effective October 1, 2008 and
following management's reassessment of the residual value of the vessels, the
estimated salvage value per light weight ton (LWT) was increased to $200 from
$120. Management's estimate was based on the average demolition prices
prevailing in the market during the last five years for which historical data
were available. We do not expect these assumptions to change in the near future.
Our depreciation charges have increased in recent periods due to the enlargement
of our fleet and will continue to grow as our fleet expands.
Depreciation
of office, furniture and equipment is calculated on a straight line basis over
the estimated useful life of the specific asset placed in service, which ranges
from three to nine years.
Dry-docking
and Special Survey costs
Dry-docking
and special survey relates to our regularly scheduled maintenance program
necessary to preserve the quality of our vessels as well as to comply with
international shipping standards and environmental laws and regulations.
Management anticipates that vessels will undergo dry-dock and special survey
every two and a half years and five years, respectively. Effective
January 1, 2009, these costs are expensed as incurred. In accordance with ASC
250, "Accounting Changes and Error Corrections", this change has been
retrospectively applied in the accompanying consolidated financial
statements.
General
and Administrative Expenses
Our
general and administrative expenses include onshore vessel administrative
related expenses such as legal and professional expenses and payroll and
expenses relating to our executive officers and office staff, office rent and
expenses, directors' fees, and directors and officers
insurance. General and administrative expenses include also the
amortization of our stock based compensation.
Fiscal
Year ended December 31, 2009 Compared to Fiscal Year ended December 31,
2008
Voyage
revenues from vessels
Voyage
revenues decreased by $69.5 million, or 15.1%, to $391.7 million in the
year ended December 31, 2009, compared to $461.2 million for the year ended
December 31, 2008. The decrease is attributable to the market
conditions prevailing during the year which resulted in lower rates earned by
our vessels operating in the spot market, while the average number of operating
vessels increased from 38.6 during the year ended December 31, 2008 to 47.2
during the year ended December 31, 2009. Time charter equivalent per ship per
day for the year ended December 31, 2009 amounted to $21,932 compared to time
charter equivalent per ship per day of $31,291 for the year ended December 31,
2008.
Time
charter amortization
Time
charter amortization, which relates to the amortization of unfavorable time
charters that were fair valued upon the acquisition of Quintana Maritime Ltd.,
amounted to $364.4 million in the year ended December 31, 2009 as compared to
$234.0 million for the year ended December 31, 2008. Included in the time
charter amortization for the year ended December 31, 2009 is also an amount of
$63.1 million related to the accelerated amortization of the time charter
liability related to vessels Sandra, Coal Pride and Grain Harvester due to the
termination of the time charters that were assumed by us upon acquiring
Quintana.
Voyage
expenses and commissions to a related party
Voyage
expenses decreased by $8.8 million, or 31.3%, to $19.3 million for the year
ended December 31, 2009, compared to $28.1 million for the year ended December
31, 2008. The decrease was driven by lower commissions due to
decreased voyage revenues which also account for the decrease of $1.3 million,
or 36.1%, in Commissions to a related party for the year ended December 31, 2009
as compared with the respective period in 2008.
Charter
hire expense
Charter
hire expense, representing bareboat hire for the bareboat vessels amounted to
$32.8 million for the year ended December 31, 2009 as compared with $23.4
million for the year ended December 31, 2008.
Charter
hire amortization
Charter
hire amortization, which relates to the favorable bareboat charters that were
fair valued upon the acquisition of Quintana Maritime Ltd, amounted to $40.0
million in the year ended December 31, 2009 as compared to $28.4 million for the
year ended December 31, 2008.
Vessel
operating expenses
Vessel
operating expenses increased by $13.5 million, or 19.4%, to $83.2 million in the
year ended December 31, 2009 compared to $69.7 million for the year ended
December 31, 2008. The increase is mainly attributable to the increase in the
number of vessels operated from an average of 38.6 vessels for the year ended
December 31, 2008 to 47.2 vessels for the year ended December 31, 2009. Daily
vessel operating expenses per vessel slightly decreased by $101 or 2.0%, to
$4,829 for 2009, compared to $4,930 for 2008.
Depreciation
Depreciation
expense, which includes depreciation of vessels and depreciation of office
furniture and equipment increased by $24.6 million, or 24.9%, to $123.4 million
for the year ended December 31, 2009, compared to $98.8 million for the year
ended December 31, 2008. The increase is mainly attributable to the increase in
the number of vessels operated from an average of 38.6 vessels for the year
ended December 31, 2008 to 47.2 vessels for the year ended December 31,
2009.
Dry-docking
and special survey costs
During
the year ended December 31, 2009, the Company incurred dry-docking and special
survey costs of approximately $11.4 million as compared to $13.5 million in the
year ended December 31, 2008.
General
and Administrative Expenses
General
and administrative expenses increased by $10.1 million, or 30.7%, to $43.0
million for the year ended December 31, 2009 compared to $32.9 million for the
year ended December 31, 2008. Our general and administrative expenses include
salaries and other related costs of the executive officers and other employees,
office rent, legal and auditing costs, regulatory compliance costs and other
miscellaneous office expenses.
Stock-based
compensation for the year ended December 31, 2009 was $19.8 million as compared
to $8.6 million for the corresponding year in 2008 and is included in the above
amounts. As at December 31, 2009, the total unrecognized cost related to these
awards was $3.8 million which will be recognized through December 31,
2012.
Excluding
those amounts, general and administrative expenses decreased by $1.1 million or
4.5% to $23.2 million in the year ended December 31, 2009 from $24.3 million for
the respective period in 2008. Since the majority of such expenses are paid in
Euro, the decrease presented was due to improved exchange rates between Euro and
USD during the year ended December 31, 2009 compared to the year ended December
31, 2008.
Loss
on disposal of Joint venture ownership interest
During
the year ended December 31, 2009, we recognized a loss of $3.7 million relating
to the disposal of our subsidiary Lillie ShipCo due to the exchange of ownership
interests in joint ventures which are discussed in Note 5 to our consolidated
financial statements included in Item 18, Financial Statements.
Interest
and finance costs, net
Interest
and finance costs, net, which include interest and finance costs and interest
income, increased by $1.4 million, or 2.6%, to $56.3 million in the year ended
December 31, 2009 compared to $54.9 million for the respective year in 2008. The
increase is primarily attributable to the decrease of interest income by $6.2
million from $7.1 million in the year ended December 31, 2008 to $0.8 million in
the year ended December 31, 2009. On the other hand, interest costs decreased by
$4.8 million from $61.9 million in the year ended December 31, 2008 to $57.1
million in the year ended December 31, 2009. The decrease was due to the
decrease in the average outstanding debt balances during the year ended December
31, 2009 following loan prepayments and loan payments amounting to $216.9
million and the decrease in LIBOR rates prevailing during the year ended
December 31, 2009.
Interest
rate swap losses
Interest
rate swap losses decreased by $34.8 million to $1.1 million in the year ended
December 31, 2009 as compared to $35.9 million in the year ended December 31,
2008. Realized interest rate swap losses for the year ended December 31, 2009
increased by $18.3 million to $28.4 million as compared to realized interest
rate swap losses of $10.1 in the year ended December 31, 2008. In addition,
included in interest rate swaps losses for the years ended December 31, 2008 and
2009 are unrealized losses of $25.8 million and unrealized gains of $27.2
million, respectively, attributable to the mark- to- market valuation of
interest rate swaps that do not qualify for hedge accounting.
Other
net
Other net
amounted to an income of $0.4 million for the year ended December 31, 2009
compared to an income of $1.6 million in the respective period in
2008.
U.S.
source income taxes
U.S.
source income taxes amounted to $0.8 million and $0.7 million for the years
ended December 31, 2008 and 2009, respectively.
Loss
assumed by non-controlling interests
Loss
assumed by non-controlling interests in the years ended December 31, 2008 and
2009 represents the joint ventures partners' share of the loss of the joint
ventures.
Fiscal
Year ended December 31, 2008 Compared to Fiscal Year ended December 31,
2007
Voyage
revenues from vessels
Voyage
revenues increased by $284.5 million, or 161.0%, to $461.2 million in the
year ended December 31, 2008, compared to $176.7 million for the year ended
December 31, 2007. The increase is attributable to the increased hire
rates earned over the year and the increase in the average number of vessels
operated from 16.5 during the year ended December 31, 2007 to 38.6 during the
year ended December 31, 2008. Time charter equivalent per ship per day for the
year ended December 31, 2008 amounted to $31,291 compared to time charter
equivalent per ship per day of $28,942 for the year ended December 31,
2007.
Time
charter amortization
Time
charter amortization, which relates to the amortization of unfavorable time
charters that were fair valued upon the acquisition of Quintana Maritime Ltd.,
amounted to $234.0 million for the year ended December 31, 2008. There was no
such amortization recorded in the corresponding period in 2007.
Voyage
expenses and commissions to a related party
Voyage
expenses increased by $17.0 million, or 153.2%, to $28.1 million for the year
ended December 31, 2008, compared to $11.1 million for the year ended December
31, 2007. The increase was driven by higher commissions due to
increased voyage revenues which also account for the increase by $1.4 million,
or 63.6%, in Commissions to a related party for the year ended December 31, 2008
as compared with the respective period in 2007.
Charter
hire expense
Charter
hire expense amounted to $23.4 million representing bareboat hire for the
bareboat vessels. No charter hire expense existed in the year ended
December 31, 2007.
Charter
hire amortization
Charter
hire amortization of $28.4 million relates to the favorable bareboat charters
that were fair valued upon the acquisition of Quintana Maritime Ltd. There was
no such charter hire amortization in the corresponding period in
2007.
Vessel
operating expenses
Vessel
operating expenses increased by $36.1 million, or 107.4%, to $69.7 million in
the year ended December 31, 2008 compared to $33.6 million for the year ended
December 31, 2007. The increase is mainly attributable to the increase in the
number of vessels operated from an average of 16.5 vessels for the year ended
December 31, 2007 to 38.6 vessels for the year ended December 31,
2008.
Daily
vessel operating expenses per vessel decreased by $668 or 11.9%, to $4,930 for
2008, compared to $5,598 for 2007. This decrease was mainly attributed to the
economies of scale from our merging with Quintana, which reduced the average age
of the combined fleet and the application of joint fleet management processes
that resulted in significant savings.
Depreciation
Depreciation
expense, which includes depreciation of vessels and depreciation of office
furniture and equipment increased by $70.9 million, or 254.1%, to $98.8 million
for the year ended December 31, 2008, compared to $27.9 million for the year
ended December 31, 2007. The increase is mainly attributable to the increase in
the number of vessels operated from an average of 16.5 vessels for the year
ended December 31, 2007 to 38.6 vessels for the year ended December 31,
2008.
Vessel
impairment loss
Vessel
impairment loss amounted to $2.2 million and relates to the loss determined on
vessel Swift following our impairment analysis at December 31, 2008. No
impairment loss was recognized in the year ended December 31, 2007.
Dry-docking
and special survey costs
During
the year ended December 31, 2008, the Company incurred dry-docking and special
survey costs of approximately $13.5 million as compared to $6.8 million in the
year ended December 31, 2007.
General
and Administrative Expenses
General
and administrative expenses increased by $20.3 million, or 161.1%, to $32.9
million for the year ended December 31, 2008 compared to $12.6 million for the
year ended December 31, 2007. Our general and administrative expenses include
salaries and other related costs of the executive officers and other employees,
office rent, legal and auditing costs, regulatory compliance costs and other
miscellaneous office expenses. The general and administrative costs were higher
during the year ended December 31, 2008 compared to the respective year in 2007
due to the increase in our shore-based personnel following the acquisition of
Quintana Maritime Ltd. and the increased costs of operating a larger fleet.
Stock-based compensation for the year ended December 31, 2008 was $8.6 million
as compared to $0.8 million for the corresponding year in 2007. As at December
31, 2008, the total unrecognized cost related to the above awards was $25.6
million which will be recognized through December 31, 2012. Out of this amount,
$14.7 million was forfeited subsequently to December 31, 2008.
In
addition, since the majority of such expenses are paid in Euro, the significant
increase in the average exchange rate between USD and Euro for the year ended
December 31, 2008 compared to the year ended December 31, 2007 also contributed
to the increase in our general and administrative expenses.
Write-down
of Goodwill
During
the year ended December 31, 2008, we recognized an impairment of $335.4 million
to write-off the goodwill that resulted from Quintana's
acquisition.
Loss
from vessel purchase cancellation
Loss from
vessel purchase cancellation amounted to approximately $15.6 million and
represents the costs to terminate the agreement for the acquisition of the Medi
Cebu, entered into in connection with a proposed transaction by Oceanaut. No
contracts to purchase vessels were cancelled in the year ended December 31,
2007.
Interest
and finance costs, net
Interest
and finance costs, net, which include interest and finance costs and interest
income, increased by $46.8 million, or 577.8%, to $54.9 million in the year
ended December 31, 2008 compared to $8.1 million for the respective year in
2007. The increase is primarily attributable to increased interest costs due to
the increase in the average outstanding debt balances during the year ended
December 31, 2008 following the loan obtained to partly finance the acquisition
of Quintana.
Interest
rate swap losses
Interest
rate swap losses increased by $35.5 million to $35.9 million in the year ended
December 31, 2008 as compared to $0.4 million in the year ended December 31,
2007. Realized interest rate swap losses for the year ended December 31, 2008
increased by $10.4 million to $10.1 million as compared to realized interest
rate swap gains of $0.3 in the year ended December 31, 2007. In addition,
included in interest rate swaps losses for the years ended December 31, 2007 and
2008 are unrealized losses of $0.7 million and $25.8 million, respectively
attributable to the mark- to- market valuation of interest rate swaps that do
not qualify for hedge accounting.
Other
net
Other net
amounted to an income of $1.6 million for the year ended December 31, 2008
compared to a loss of $0.1 million in the respective period in
2007.
U.S.
source income taxes
U.S.
source income taxes amounted to $0.5 million and $0.8 million for the years
ended December 31, 2007 and 2008, respectively.
Income
from investment
Income
from investment relates to our share (18.9%) of the earnings of Oceanaut. During
the years ended December 31, 2007 and 2008, income from this investment amounted
to $0.9 million and $0.5 million, respectively.
Loss
in value of investment
Loss in
value of investment amounted to approximately $11.0 million and represents the
unrecoverable amount of our investment in Oceanaut on the basis of its
liquidation. No such loss existed in the year ended December 31,
2007.
Loss
assumed by non-controlling interests
Loss
assumed by non-controlling interests in the year ended December 31, 2008
represents the joint ventures partners' share of the net income of the joint
ventures. Non controlling interests in the year ended December 31, 2007
represents the 25% share held by certain of the Company's officers and directors
in Oceanaut's results prior to its initial public offering on March 6,
2007.
Accounting
changes
During
the year ended December 31, 2009 the Company performed the following accounting
changes:
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·
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adopted
the amendments in the accounting for Non-controlling Interest
in a Subsidiary provided in ASC Topic
810-10-45;
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·
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adopted
ASC Topic 470-20 which requires the issuer of certain convertible debt
instruments that may be settled in cash on conversion to separately
account for the liability (debt) and equity (conversion option) components
of the instrument in a manner that reflects the issuer's non-convertible
borrowing rate;
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·
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changed
the method of accounting for dry docking and special survey costs from the
deferral method, under which costs associated with the dry-docking and
special survey of a vessel are deferred and charged to expense over the
period to a vessel's next scheduled dry-docking, to the direct expense
method, under which the dry-docking and special survey costs will be
expensed as incurred.
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With the
exception of the amendments made in accordance with ASC 810 which require
retrospective application only in the presentation and disclosure requirements,
the other two accounting changes require retrospective application for all
periods presented and were effected in the accompanying consolidated financial
statements in accordance with ASC Topic 250 "Accounting Changes and Error
Corrections", which requires that an accounting change should be retrospectively
applied to all prior periods presented, unless it is impractical to determine
the prior period impacts. The effect of the above changes is
presented in Note 3 to our consolidated financial statements in "Item 18,
Financial Statements".
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with U.S. GAAP. The preparation of those financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expenses and related disclosure at the date
of our financial statements. Actual results may differ from these estimates
under different assumptions and conditions. Critical accounting policies are
those that reflect significant judgments of uncertainties and potentially result
in materially different results under different assumptions and conditions. We
have described below what we believe are our most critical accounting policies,
because they generally involve a comparatively higher degree of judgment in
their application. For a description of all our significant accounting policies,
see Note 2 to our consolidated financial statements included under "Item 18,
Financial Statements".
Vessels'
Depreciation
We record
the value of our vessels at their cost (which includes acquisition costs
directly attributable to the vessel and expenditures made to prepare the vessel
for its initial voyage) less accumulated depreciation. Depreciation begins when
the vessel is ready for its intended use, on a straight-line basis over the
vessel's remaining economic useful life, after considering the estimated
residual value (vessel's residual value is equal to the product of its
lightweight tonnage and estimated scrap rate). Second hand vessels are
depreciated from the date of their acquisition through their remaining estimated
useful life. We estimate the useful life of our vessels to be 28 years from the
date of initial delivery from the shipyard and the residual value of our vessels
to be $120 per lightweight ton. A decrease in the useful life of a dry bulk
vessel or in its residual value would have the effect of increasing the annual
depreciation charge. Effective October 1, 2008 and following management's
reassessment of the residual value of the vessels, the estimated salvage value
per light weight ton (LWT) was increased to $200 from $120. Management's
estimate was based on the average demolition prices prevailing in the market
during the last five years for which historical data were available. The effect
of this change in accounting estimate, which did not require retrospective
application as per ASC Topic 250 "Accounting Changes and Error Corrections," was
to decrease net loss for the year ended December 31, 2008 by $0.5 million or
$0.01 per weighted average number of share, both basic and diluted. When
regulations place limitations over the ability of a vessel to trade on a
worldwide basis, its remaining useful life is adjusted at the date such
regulations become effective.
Impairment
of Long-Lived Assets
We
evaluate the carrying amounts of our vessels to determine if events have
occurred that would require modification to their carrying values or useful
lives. In evaluating useful lives and carrying values of long-lived assets, we
review certain indicators of potential impairment, such as undiscounted
projected operating cash flows, vessel sales and purchases, business plans and
overall market conditions.
The
current economic and market conditions, including the significant disruptions in
the global credit markets, are having broad effects on participants in a wide
variety of industries. Since mid-August 2008, the charter rates in the dry bulk
charter market have declined significantly, and dry bulk vessel values have also
declined both as a result of a slowdown in the availability of global credit and
the significant deterioration in charter rates, conditions that we consider
indicators of impairment.
We
determine undiscounted projected net operating cash flows for each vessel and
compare it to the vessel's carrying value. The projected net operating cash
flows are determined by considering the charter revenues from existing time
charters for the fixed fleet days and an estimated daily time charter equivalent
for the unfixed days (based on the most recent ten year historical average) over
the remaining estimated life of the vessel, net of brokerage commissions,
expected outflows for vessels' maintenance and vessel operating expenses,
assuming an average annual inflation rate of 3.5%.
If our
estimate of undiscounted future cash flows for any vessel is lower than the
vessel's carrying value, the carrying value is written down, by recording a
charge to operations, to the vessel's fair market value if the fair market value
is lower than the vessel's carrying value.
In
developing estimates of future cash flows, we must make assumptions about future
charter rates, ship operating expenses, vessels' residual value and the
estimated remaining useful lives of the vessels. These assumptions are based on
historical trends as well as future expectations. Although we believe that the
assumptions used to evaluate potential impairment are reasonable and
appropriate, such assumptions are highly subjective. Our analysis for the year
ended December 31, 2009 indicated no impairment on any of our
vessels.
Intangibles
Where we
identify any intangible assets or liabilities associated with the acquisition of
a vessel, we record all identified tangible and intangible assets or liabilities
at fair value. Fair value is determined by reference to market data and the
amount of expected future cash flows. We value any asset or liability arising
from the market value of the time charters assumed when an acquired vessel is
delivered to us. Where we have assumed an existing charter obligation or enter
into a time charter with the existing charterer in connection with the purchase
of a vessel at charter rates that are less than market charter rates, we record
a deferred liability based on the difference between the assumed charter rate
and the market charter rate for an equivalent vessel. Conversely, where we
assume an existing charter obligation or enter into a time charter with the
existing charterer in connection with the purchase of a vessel at charter rates
that are above market charter rates, we record a deferred asset, based on the
difference between the market charter rate and the contracted charter rate for
an equivalent vessel. This determination is made at the time the vessel is
delivered to us, and such assets and liabilities are amortized to revenue over
the remaining period of the charter. The determination of the fair value of
acquired assets and assumed liabilities requires us to make significant
assumptions and estimates of many variables including market charter rates,
expected future charter rates, and our weighted average cost of capital. The use
of different assumptions could result in a material change in the fair value of
these items, which could have a material impact on our financial position and
results of operations. In the event that the market charter rates relating to
the acquired vessels are lower than the contracted charter rates at the time of
their respective deliveries to us, our net earnings for the remainder of the
terms of the charters may be adversely affected although our cash flows will not
be so affected. Although management believes that the assumptions used to
evaluate the present and fair values discussed above are reasonable and
appropriate, such assumptions are highly subjective.
Accounting for Revenue and
Expenses
Vessels
are chartered using either voyage charters, where a contract is made in the spot
market for the use of a vessel for a specific voyage for a specified charter
rate, or time charters, where a contract is entered into for the use of a vessel
for a specific period of time and a specified daily charterhire rate. If a
charter agreement exists and collection of the related revenue is reasonably
assured, revenue is recognized, as it is earned ratably over the duration of the
period of each voyage or time charter. A voyage is deemed to commence upon the
completion of discharge of the vessel's previous cargo and is deemed to end upon
the completion of discharge of the current cargo. Demurrage income represents
payments by the charterer to the vessel owner when loading or discharging time
exceeded the stipulated time in the voyage charter and is recognized as it is
earned ratably over the duration of the period of each voyage charter. Deferred
revenue includes cash received prior to the balance sheet date for which all
criteria to recognize as revenue have not been met, including any deferred
revenue resulting from charter agreements providing for varying annual rates,
which are accounted for on a straight line basis. Deferred revenue also includes
the unamortized balance of the liability associated with the acquisition of
second-hand vessels with time charters attached which are acquired at values
below fair market value at the date the acquisition agreement is
consummated.
Voyage
expenses, primarily consisting of port, canal and bunker expenses net of gains
or losses from the sales of bunkers to time charterers are paid for by the
charterer under the time charter arrangements or by us under voyage charter
arrangements, except for commissions, which are always paid for by us regardless
of charter type. All voyage and vessel operating expenses are expensed as
incurred, except for commissions.
Commissions
paid to brokers are deferred and amortized over the related voyage charter
period to the extent revenue has been deferred since commissions are earned as
our revenues are earned.
Derivatives
We are
exposed to the impact of interest rate changes. Our objective is to manage the
impact of interest rate changes on earnings and cash flows of our borrowings. We
use interest rate swaps to manage net exposure to interest rate changes related
to our borrowings and to lower our overall borrowing costs. Such swap
agreements, designated as "economic hedges" are recorded at fair value in
accordance with the provisions of ASC 815 "Derivatives and Hedging" which
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value, with changes in the derivatives' fair value
recognized currently in earnings unless specific hedge accounting criteria are
met. None of our outstanding derivative contracts meet hedge accounting criteria
and the change in their fair value is recognized through earnings.
Convertible
Senior Notes
Effective
January 1, 2009, we adopted ASC Topic 470-20, "Debt with Conversion and Other
Options," which requires the issuer of certain convertible debt instruments that
may be settled in cash on conversion to separately account for the liability
(debt) and equity (conversion option) components of the instrument in a manner
that reflects the issuer's non-convertible debt borrowing rate and is applied
retrospectively.
We have
currently one outstanding convertible debt instrument that is impacted by ASC
Topic 470-20. The new standard requires that a fair value be assigned to the
equity conversion option of our $150 million, 1.875% convertible notes as of
October 16, 2007, the date of their issuance. This change resulted in a
corresponding decrease in the value assigned to the carrying value of the debt
portion of the instrument.
The value
assigned to the debt portion of the convertible notes was determined based on
market interest rate for similar debt instrument without the conversion feature
as of the issuance date of the convertible notes. The difference in market
interest rate versus the coupon rate on the convertible notes results in
non-cash interest that is amortized into interest expense over the expected
terms of the convertible notes. For purposes of the valuation, we used an
expected term of seven years since the convertible notes contain an embedded put
option that allows the holder to require us to purchase the notes at the option
of the holder on specified dates with the first such put option date on October
15, 2014.
ASC Topic
470-20 requires retrospective restatement of all periods presented with the
cumulative effect of the change in accounting principle on prior periods being
recognized as of the beginning of the first period presented. The adoption of
ASC Topic 470-20 had an effect on the accounting, both retrospectively and
prospectively, for the notes. Aside from a reduction of debt balances and an
increase to shareholders' equity by $44.7 million and $38.5 million on the
2008 and 2009 consolidated balance sheets and a non- cash increase to our
annual historical interest expense, net of amounts capitalized, of approximately
$1.1 million, $5.6 million and $6.2 million for 2007, 2008 and 2009,
respectively, we expect that the adoption will result in a non-cash increase to
our projected annual interest expense, net of amounts expected to be
capitalized, of approximately $6.7 million, $7.4 million and $8.1
million for each of the three years ending December 31, 2010, 2011
and 2012, respectively.
Recent
Developments
Fortis
Loan
On
February 11, 2010, our subsidiary Hope Shipco entered into a loan agreement for
the financing of Hope in the amount of maximum $42.0 million but in any event
not more than 75% of the fair value of the vessel upon delivery. The loan will
be drawdown in various installments following the vessel construction progress
through November 2010.
The first
drawdown, amounting to $13.9 million, took place on March 9, 2010 to partly
finance the second payment installment to the shipyard upon completion of the
steel cutting as provided in the relevant shipbuilding contract. The loan is
repayable in twenty quarterly installments and a balloon payment through January
2016. The first installment will commence three months from the vessel
delivery.
Payments
to shipyards and loan drawdowns
On March
8, 2010, an amount of $7.3 million representing Christine Shipco's scheduled
installment to the shipyard was paid. The installment was financed through the
final drawdown of $5.1 million of the company's borrowing facility and $1.1
million contribution made by each joint venture partner.
On March
9, 2010, Hope Shipco paid $15.6 million to the shipyard, representing the second
installment due on the steel cutting.
On March
9, 2010, Hope Shipco repaid its then-outstanding debt under its RBS credit
facility amounting to $10.9 million.
B.
Liquidity and Capital Resources
We
operate in a capital-intensive industry, which requires extensive investment in
revenue-producing assets. We have historically financed our capital requirements
with cash flow from operations, equity contributions from stockholders and
long-term bank debt. Our principal use of funds has been capital expenditures to
grow our fleet, maintain the quality of our dry bulk vessels, comply with
international shipping standards and environmental laws and regulations, fund
working capital requirements, make principal repayments on outstanding loan
facilities, and pay dividends.
Our
liquidity requirements relate to servicing our debt, funding investments in
vessels, funding working capital and maintaining cash reserves. Working capital,
which is current assets minus current liabilities, including the current portion
of long-term debt, amounted to a deficit of $69.1 million at December 31, 2009
compared to a working capital deficit of $187.9 million at December 31,
2008.
This
significant decrease in the working capital deficit was primarily due to our
equity raisings during 2009, through the equity infusion performed by entities
affiliated with the family of the Chairman of our Board of Directors and our
equity offering in August 2009, together amounting to approximately $90.1
million of net proceeds, out of which $67.6 million were applied against the
balloon payment of the Nordea credit facility as part of the loan amendment
discussed below.
We
believe that based upon current levels of revenue generated from vessel
employment and cash flows from operations, we will have adequate liquidity to
make the required payments of principal and interest on our debt and
fund working capital requirements at least through December 31,
2010.
Loan
amendments
On March
31, 2009 we amended the Nordea credit facility, in which Nordea Bank acts as
administrative agent for secured parties comprising itself and certain other
lenders, and the Credit Suisse credit facility and modified certain of the loan
terms in order to comply with the financial covenants related to our vessels'
market values following the significant decline in the vessel market. In
particular, the amended terms of each of the credit facilities which are valid
until January 2011 contain financial covenants requiring us to maintain minimum
liquidity of $25.0 million, maintain a leverage ratio based on book values of
not greater than 70%, maintain a net worth of not less than $750.0 million,
maintain a ratio of EBITDA to gross interest of not less than 1.75:1.0 and
maintain an aggregate fair market value of vessels serving as collateral for
each of the loans at all times of not less than 65% of the outstanding principal
amount of the respective loan. Additionally, under the terms of the amended
Nordea credit facility, we have deferred principal debt repayments of $150.5
million originally scheduled for 2009 and 2010 to the balloon payment at the end
of the facility's term in 2016. During the waiver and deferral periods, the
applicable credit facility margins will increase to 2.5% and 2.25%, for the
Nordea credit facility and the Credit Suisse credit facility,
respectively.
On July
31, 2009, we amended the loan agreement between Hope ShipCo and RBS by extending
the repayment to August 21, 2009 and increasing the interest margin to 2.25%
from August 1, 2009. The loan agreement was further amended following
the restructuring of the ownership interests in the joint ventures and its
repayment was extended to March 15, 2010. See Item 10C "Material Contracts" for
detailed description of our loan agreements.
Equity
Infusion
As part
of the loan amendments discussed above, entities affiliated with the family of
the Chairman of our Board of Directors injected $45.0 million in the Company,
which was applied against the balloon payment of the Nordea credit facility. In
exchange for their contribution, the entities received an aggregate of
25,714,286 Class A shares and 5,500,000 warrants, with an exercise price of
$3.50 per warrant. The shares, the warrants and the shares issuable on exercise
of the warrants are subject to 12-month lock-ups from March 31,
2009.
We have
the option to defer, again to the balloon payment in 2016, additional principal
debt repayments in an amount of up to 100% of the equity contributed, meaning
the $45.0 million already received as well as any other equity infusion by the
above-mentioned entities during 2009 and 2010.
Equity
Offering
On August
11, 2009, we completed an offering to the public of 6,000,000 shares of our
Class A common stock. Total net proceeds to us from the offering were
approximately $45.1 million. We used the net offering proceeds for repayment of
debt as well as to build up our committed capital expenditure reserve account,
which we may utilize for future capital expenditure requirements.
Suspension
of Dividends
In
February 2009, our Board of Directors suspended the payment of dividends, so as
to retain cash from operations and use it either to fund our operations or
vessel acquisitions or service our debt, depending on market conditions and
opportunities. We believe that this suspension will enhance our future
flexibility by permitting cash flow that would have been devoted to dividends to
be used for opportunities that may arise in the current marketplace. For legal
and economic restrictions on the ability of the Company's subsidiaries to
transfer funds to the company in the form of dividends, loans, or advances and
the impact of such restrictions, see "Risk Factors–We are a holding company, and
we depend on the ability of our subsidiaries to distribute funds to us in order
to satisfy our financial obligations above.
Cash
Flows
Our cash
and cash equivalents decreased to $100.1 million as of December 31, 2009
compared to $109.8 million as of December 31, 2008. The decrease was primarily
due to decreased net cash provided by operating activities ($147.3 million) and
the net cash of $154.7 million used in financing activities.
Operating
Activities
The net
cash from operating activities decreased by $116.6 million to $147.3 million
during the year ended December 31, 2009, compared to net cash from operating
activities of $263.9 million during the same period of 2008. This decrease in
net cash from operating activities is primarily attributable to the decrease in
voyage revenues driven by lower hire rates earned under our spot charter
contracts.
Investing
Activities
Net cash
used in investing activities was $2.3 million during the year ended December 31,
2009 which is mainly a result of (i) $1.6 million, representing the net cash
consideration paid to one of our joint venture partners in a transaction to
acquire additional equity interests in two of our subsidiaries described in Note
1 and Note 5 to the consolidated financial statements, (ii) $9.6 million,
representing installments paid to shipyards for our new-building vessels and
other capital expenditures for vessel improvements and furniture and equipment
as offset by (iii) $8.9 million, representing proceeds received from Oceanaut's
liquidation and from the sale of vessel Swift. Net cash used in investing
activities during the year ended December 31, 2008 amounted to $785.3 million
and is mainly a result of (i) $692.4 million, representing the cash
consideration paid for the acquisition of Quintana, net of cash acquired (ii)
$84.9 million, representing installments paid to shipyards for our new-building
vessels and (iii) $7.3 million advance payment for vessel Medi
Cebu.
Financing
Activities
Net cash
used in financing activities was $154.7 million for the year ended December 31,
2009, which is mainly attributed to $216.9 million of loan repayments and
principal payments partly made from the equity offering proceeds of $90.1
million. Proceeds from long-term debt amounted to $5.1 million in the year ended
December 31, 2009 and capital contributions from non-controlling interest owners
amounted to $3.3 million.
Net cash
from financing activities was $387.5 million for the year ended December 31,
2008, which is mainly attributed to $1.4 billion of new loan proceeds partly
offset by $944.9 million of loan repayments and principal payments accompanied
by the payment of related financing costs of $15.3 million, mainly in connection
with our acquisition of Quintana. In addition during the year ended December 31,
2008, we paid $48.5 million of dividends.
Summary
of Contractual Obligations
The
following table sets forth our contractual obligations and their maturity dates
as of December 31, 2009 (in millions):
|
|
Total
|
|
|
Less
than 1 year
|
|
|
1-3 years
|
|
|
3-5
years
|
|
|
More than 5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
obligations (1)
|
|
|
1,310.7 |
|
|
|
137.7 |
|
|
|
201.4 |
|
|
|
358.4 |
|
|
|
613.2 |
|
Interest
expense (2)
|
|
|
169.2 |
|
|
|
47.5 |
|
|
|
56.3 |
|
|
|
43.5 |
|
|
|
21.9 |
|
Operating
lease obligations (Bareboat charters) (3)
|
|
|
180.2 |
|
|
|
32.8 |
|
|
|
65.7 |
|
|
|
64.7 |
|
|
|
17.0 |
|
Vessels
under construction (4)
|
|
|
108.6 |
|
|
|
108.6 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Property
leases (5)
|
|
|
4.1 |
|
|
|
0.7 |
|
|
|
1.6 |
|
|
|
1.7 |
|
|
|
0.1 |
|
Total
|
|
|
1,772.8 |
|
|
|
327.3 |
|
|
|
325.0 |
|
|
|
468.3 |
|
|
|
652.2 |
|
(1) As
of December 31, 2009, we had two term loans outstanding maturing on April 2016
and December 2022 respectively and an amount of $150.0 million of un-secured
Convertible Senior Notes due 2027. The above table also includes the loans
outstanding under the joint venture's borrowing arrangements.
(2)
With the exception of the Convertible Senior Notes due in 2027 which bear
interest at an annual rate of 1.875%, all other debt bears interest at LIBOR
plus a margin. For the calculation of the contractual interest expense
obligations in the table above, for all years a LIBOR rate
of 0.25603% was used, based on the 3 months LIBOR as at December 31,
2009 plus the applicable margin. The interest rate of 1.875% was used for the
Convertible Senior Notes due in 2027. Derivative contracts were also included in
calculations. The above table does not reflect the effect of a counterparty swap
option to be declared on December 31, 2010.
(3)
The amount relates to the bareboat hire to be paid for seven vessels
chartered-in under bareboat charter agreements expiring in July
2015.
(4) The
amount relates to the total contractual obligations for the installments due on
two Capesize newbuildings, one wholly owned and one owned by the joint venture
discussed in Note 1 above. Of these amounts, the Company will contribute $105.0
million in the year ending December 31, 2010. The above table does not reflect
the purchase price of $310.8 million ($155.4 million of which represents the
Company's participation in the joint ventures) for the construction of four
Capesize vessels of the joint ventures for which no refund guarantee has been
provided by the shipyard and the construction of which has not yet commenced.
Therefore, these vessels may be delivered late or not delivered at all. Until
the refund guarantee is received, no installments will be made and therefore the
commitments under the agreements have not been incorporated into the table
above.
(5) The
amount relates to the rental of office premises by an unrelated party. The
monthly rental payment is approximately $0.06 million and the agreement expires
in February 2015.
C.
Research and Development, Patents and Licenses, etc.
We incur
from time to time expenditures relating to inspections for acquiring new vessels
that meet our standards. Such expenditures are insignificant and they are
expensed as they incur.
D.
Trend Information
Our
results of operations depend primarily on the charter hire rates that we are
able to realize. Charter hire rates paid for dry bulk carriers are
primarily a function of the underlying balance between vessel supply and
demand.
Since
early 2009, the charter rates in the dry bulk charter market have increased
significantly, albeit on average only representing approximately 40% of the
average 2008 values as gauged by the Baltic Dry Index (BDI). The dry bulk vessel
values have recovered somewhat, however, remain inferior to the values seen in
2008. The liquidity of the asset market is still impaired as a result of a
slowdown in the availability of global credit and the significant relative
deterioration in charter rates. Although improving market conditions have
already affected our quarter on quarter earnings for 2009 we expect our earnings
growth to be subdued in 2010, if deterioration of rates remerges. Although,
charter rates have increased from their low levels experienced at the end of
2008 and beginning of 2009, they are well below the average daily charter rates
we achieved in 2008 and we can not assure investors that we will be able to
employ our vessels at rates similar to their current employments.
E.
Off Balance Sheet Arrangements
We have
not engaged in off-balance sheet arrangements.
F.
Tabular Disclosure of Contractual Obligations
See "Item
5 – Operating and Financial Review and Prospects – Summary of Contractual
Obligations".
G.
Safe Harbor
See
Cautionary Statement Regarding Forward Looking Statements at the beginning of
this annual report.
ITEM
6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management
The
following table sets forth the name, age and position within the Company of each
of its current executive officers and directors. On December 30, 2002, the
shareholders voted to amend the Company's Articles of Incorporation to eliminate
the classification of the Company's directors. Accordingly, all directors serve
for one year terms. On September 24, 2009, the Company's shareholders voted to
set the Board's composition at six directors. The following table sets forth the
name, age and position of each of the current executive officers, executive and
non-executive directors of the Company.
Name
|
Age
|
Position
|
Gabriel
Panayotides
|
55
|
Chairman,
President and Director
|
George
Agadakis
|
57
|
Chief
Operating Officer
|
Eleftherios
Papatrifon
|
40
|
Chief
Financial Officer
|
Frithjof
Platou
|
72
|
Independent
Non – Executive Director
|
Evangelos
Macris
|
59
|
Independent
Non – Executive Director
|
Apostolos
Kontoyannis
|
61
|
Independent
Non – Executive Director
|
Trevor
J. Williams
|
67
|
Independent
Non – Executive Director
|
Hans
J. Mende
|
66
|
Non
– Executive Director
|
Biographical
information with respect to each of our directors and executive officers is set
forth below.
Gabriel Panayotides has been
the Chairman of the Board since February 1998. Mr. Panayotides has participated
in the ownership and management of ocean going vessels since 1978. He is also a
member of the Greek Committee of Bureau Veritas, an international classification
society. He holds a Bachelors degree from the Piraeus University of Economics.
Mr. Panayotides is also a member of the Board of Directors of D/S Torm. Mr.
Panayotides acted as the Company's Chief Executive Officer from February 2008 to
April 2008.
George Agadakis has been Chief
Operating Officer since the Company's inception. He is the Shipping Director of
Maryville and was General Manager of Maryville from January 1992 to January
2001. From 1983 to 1992 he served as Insurance and Claims Manager for Maryville.
He has held positions as Insurance and Claims Manager and as a consultant with
three other shipping companies since 1976. He holds diplomas in Shipping and
Marine Insurance from the Business Centre of Athens, the London School of
Foreign Trade Ltd and the London Chamber of Commerce.
Eleftherios (Lefteris) A.
Papatrifon has served as our Chief Financial Officer since January 1,
2005. Mr. Papatrifon has 15 years of experience in Corporate Finance and
Asset Management. From February 2002 to December 2004,
Mr. Papatrifon was the head of the investment banking division at Geniki
Bank of Greece, a subsidiary of Société Générale. From July 2000 to
February 2002, Mr. Papatrifon was the Head of Asset Management at
National Securities, S.A., in Greece. From June 1995 to
September 1998, Mr. Papatrifon held various asset management positions
at The Prudential Insurance Company of America. Mr. Papatrifon holds
undergraduate (BBA) and graduate (MBA) degrees from Baruch College (CUNY). He is
also a member of the CFA Institute and a CFA charterholder.
Frithjof Platou, a Norwegian
citizen, has broad experience in shipping and project finance, ship broking,
ship agency and trading and has served on the Boards of several companies in the
U.K. and Norway. Since 1984, he has managed his own financial consulting and
advisory company, Stoud & Co Limited, specializing in corporate and project
finance for the shipping, offshore oil & gas and various other industries.
He was head of the shipping and offshore departments at Den Norske Creditbank
and Nordic Bank as well as at American Express Bank. Mr. Platou holds a degree
in Business Administration from the University of Geneva, speaks and writes
fluent Norwegian, English, French and German, has a reasonable knowledge of
Spanish and a basic understanding of Japanese.
Evangelos Macris is a member
of the Bar Association of Athens and is the founding partner of Evangelos S.
Macris Law Office, a Piraeus based office specializing in Shipping Law. He holds
a degree in Economics and Political Science from the Pantion University in
Athens and a Law Degree from the University of Athens, as well as a post
graduate degree in Shipping Law from the University of London, University
College.
Apostolos Kontoyannis is the
Chairman of Investments and Finance Ltd., a financial consultancy firm he
founded in 1987, that specializes in financial and structuring issues relating
to the Greek maritime industry, with offices in Piraeus and London. Previously,
he was employed by Chase Manhattan Bank N.A. in Frankfurt (Corporate Bank),
London (Head of Shipping Finance South Western European Region) and Piraeus
(Manager, Ship Finance Group) from 1975 to 1987. Mr. Kontoyannis holds a
bachelors degree in Finance and Marketing and an M.B.A. in Finance from Boston
University.
Trevor J. Williams served as a
Director of the Company from November 1988 to April 2008. In September 2008, Mr.
Williams was elected to our Board once again. Since 1985, Mr. Williams has been
principally engaged as President and Director of Consolidated Services Limited,
a Bermuda-based firm providing management services to the shipping
industry.
Hans J. Mende has been a
member of our Board since April 2008 and was formerly a director of Quintana.
Mr. Mende also serves as Chairman of the Board of Directors of Alpha Natural
Resources, Inc. and is a director of Foundation Coal Holdings, Inc., both of
which are coal companies. Since 1986, when he co-founded AMCI International,
Inc., or AMCI, a mining and trading company, he has served as AMCI's President
and Chief Operating Officer. Prior to founding AMCI, Mr. Mende was employed by
the Thyssen Group, one of the largest German multinational companies with
interests in steel making and general heavy industrial production, in various
senior executive positions. At the time of his departure from Thyssen Group, Mr.
Mende was President of its international trading company.
No family
relationships exist among any of the executive officers and
directors.
B.
Compensation
For the
years ended December 31, 2008 and 2009, we paid aggregate directors fees of $0.3
million and $0.4 million, respectively. The aggregate compensation to the
executive officers and directors for the years ended December 31, 2008 and 2009
was $3.3 million and $2.6 million, respectively, inclusive of annual bonuses as
approved by the Compensation Committee. We have consulting agreements with
companies affiliated with certain officers and directors of our company in order
to compensate them for services rendered outside Greece. The consulting
agreements do not have an expiration date. We do not have a retirement plan for
our executive officers or directors.
Stock
Option Plan
There are
no further obligations under the stock option plan.
Incentives
Program
In
December 2006, the Board, based on a proposal by the Compensation Committee,
approved an incentives program providing for an annual bonus to the Company's
executive officers and the Chairman of the Board in the form of cash, restricted
stock awards and stock options. In particular, the annual bonus will amount to
2% of the Company's annual net profits and will be distributed as follows: 50%
in cash, 25% in restricted stock awards vested over a period of two years, of
which 50% will be vested on the first anniversary and the remaining 50% on the
second anniversary of the date the stock grant was awarded and 25% in stock
options granted over a period of two years, of which 50% will be exercisable on
the first anniversary and the remaining 50% on the second anniversary of the
date the options were granted. The stock options must be exercised within a
period of two years from the date they become effective otherwise they will
expire. The stock options will be priced at the closing market price on the day
they are granted less 20% discount.
On
January 15, 2007, the Board approved the incentives program that specified the
total annual bonus for 2006 amounting to $0.7 million in cash, plus an
additional 25% (approximately $0.2 million) in the form of restricted stock
awards vested over a period of two years, of which 50% will vest on the first
anniversary and the remaining 50% on the second anniversary.
In
February and March 2008, a cash bonus of $0.9 million was granted to the
Company's executive officers and the Chairman of the Board, which was accrued in
our 2007 consolidated financial statements. In addition, 10,420 shares of
restricted stock were granted to the Chairman of the Board. The Chairman had the
option to take the shares of restricted stock in either Class A or Class B
shares, and he selected the latter. On June 26, 2008, 10,420 shares of the
Company's Class B common stock were issued to the Chairman.
Additionally,
on May 28, 2008, 9,816 restricted shares of Class A common stock were issued to
the Company's executive officers and to Mr. Georgakis, who was no longer
employed by the Company as of that date.
In April
2008, the Compensation Committee proposed and agreed that 500,000 restricted
shares of the Company's Class A common stock, or the April Shares, were to be
granted to the Chairman of the Board of directors, in recognition of his
initiatives and efforts deemed to be outstanding and crucial to the success of
the Company during 2007. On June 26, 2008, the April Shares were issued to the
Chairman and, on the same date, 310,996 restricted shares of the Company's Class
A common stock were issued in the aggregate to the Company's Chief Financial and
Chief Operating Officers and to Mr. Molaris, who was then our Chief Executive
Officer. 50% of the April 2008 shares vested on December 31, 2008 and the other
50% vested on December 31, 2009. Following Mr. Molaris' resignation on February
23, 2009, the 300,000 restricted shares of the Company's Class A common stock
issued to him on June 26, 2008 were forfeited as of the date of his resignation.
On November 13, 2008, 240,000 more restricted shares of the Company's Class A
common stock were issued in the aggregate to the Company's Chief Operating and
Chief Financial officers. On December 31, 2008, the Company issued 97,129
restricted shares of Class A common stock as compensation to certain of the
Company's key employees. The Compensation Committee proposed, and the Board
approved, all of the aforementioned issuances in 2008 of restricted shares to
the Company's executive officers and directors.
On March
11, 2009, based on proposals of the Compensation Committee and following the
approval of the Company's Board of Directors, 180,000 restricted shares of our
Class A common stock were granted in the aggregate to the Company's Chief
Operating and Chief Financial officers. These shares vested on July
1, 2009.
On July
8, 2009, based on proposals of the Compensation Committee and following the
approval of the Company's Board of Directors, 2,000,000 restricted shares of our
Class A common stock were granted to the Chairman of our Board of Directors.
666,000 of these shares vested immediately upon granting, 666,000 of these
shares vested on December 31, 2009, and the remaining 668,000 of these shares
will vest on December 31, 2010.
On
October 26, 2009, based on discussions between the Compensation Committee and
the non-independent members of our Board of Directors and following the approval
of the non-independent members of our Board of Directors, an aggregate of
105,000 restricted shares of our Class A common stock were granted to our four
independent directors. Half of the restricted shares vested immediately upon
granting and the remainder will vest on June 30, 2010.
C.
Board Practices
All
directors serve until the Annual General Meeting of Shareholders in 2010 and the
due nomination, election and qualification of their successors.
The term
of office for each director commences from the date of his election and expires
on the date of the next scheduled Annual General Meeting of
Shareholders.
The Board
and the Company's management have engaged in an ongoing review of our corporate
governance practices in order to oversee our compliance with the applicable
corporate governance rules of the NYSE and the SEC.
As a
foreign private issuer, as defined in Rule 3b-4 under the Securities Exchange
Act of 1934, as amended, or the Exchange Act, the Company is permitted to follow
certain corporate governance rules of its home country in lieu of the NYSE's
corporate governance rules, or the NYSE Rules. The Company complies fully with
the NYSE Rules, except that the Company's corporate governance practices deviate
with respect to NYSE Rule 303A.08, which requires the Company to obtain prior
shareholder approval to adopt or revise any equity compensation
plans.
The
Company has adopted a number of key documents that are the foundation of its
corporate governance, including:
|
·
|
An
Audit Committee Charter;
|
|
·
|
A
Compensation Committee Charter; and
|
|
·
|
A
Nominating and Corporate Governance Committee
Charter.
|
These
documents and other important information on our corporate governance, including
the Board's Corporate Governance Guidelines, are posted in the "Investor
Relations" section of our website, and may be viewed at
http://www.excelmaritime.com. We will also provide any of these documents upon
the written request of a shareholder.
The Board
is committed to sound and effective corporate governance practices. The Board's
Corporate Governance Guidelines address a number of important governance issues
such as:
|
·
|
Selection
and monitoring of the performance of the Company's senior
management;
|
|
·
|
Succession
planning for the Company's senior
management;
|
|
·
|
Qualification
for membership on the Board;
|
|
·
|
Functioning
of the Board, including the requirement for meetings of the independent
directors; and
|
|
·
|
Standards
and procedures for determining the independence of
directors.
|
The Board
believes that the Corporate Governance Guidelines and other governance documents
meet current requirements and reflect a very high standard of corporate
governance.
Committees
of the Board
The Board
has established an Audit Committee, a Compensation Committee and a Nomination
Committee.
Audit
Committee
The
members of the Audit Committee are Messrs Apostolos Kontoyannis, Frithjof Platou
and Evangelos Macris, each of whom is an independent director. Mr Kontoyannis
was elected Chairman of the Audit Committee following the July 29, 2005 meeting
of the Board. The Audit Committee is governed by a written charter, which was
reviewed and approved by the Board. The Board has determined that the members of
the Audit Committee meet the applicable independence requirements of the SEC and
the NYSE that all members of the Audit Committee fulfill the requirement of
being financially literate and that Messrs Apostolos Kontoyannis and Frithjof
Platou are audit committee financial experts as defined under current SEC and
NYSE regulations.
Compensation
Committee
The
members of the Compensation Committee are Messrs. Frithjof Platou, Apostolos
Kontoyannis, and Evangelos Macris, each of whom is an independent director. Mr
Platou is Chairman of the Committee. The Compensation Committee is appointed by
the Board.
Nomination
and Corporate Governance Committee
The
members of the Nomination Committee are Messrs Evangelos Macris, Trevor J.
Williams and Apostolos Kontoyannis, each of whom is an independent director. Mr
Macris is Chairman of the Committee. The Nomination Committee is appointed by
the Board.
D.
Employees
We
currently employ approximately 1,114 seafarers on-board our vessels and 139
land-based employees in our Athens office. Our shore-based employees are covered
by industry-wide collective bargaining agreements that set basic standards of
employment.
E.
Share Ownership
The
shares of common stock beneficially owned by our directors and senior managers
are disclosed below in "Item 7. Major Shareholders and Related Party
Transactions."
ITEM
7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
Major Shareholders
The
following table sets forth, as of December 31, 2009, certain information
regarding the ownership of the Company's outstanding common securities by each
person known by the Company to own more than 5% of such securities and all the
directors and senior management as a group.
Name
of Shareholder
|
|
Number
and percentage of Class A common shares owned
|
|
Number
and percentage of Class B common shares owned
|
|
|
|
|
|
Argon
S.A (1)
|
|
5,032,520
(6.3%)
|
|
-
|
Boston
Industries S.A. (2)
|
|
**
|
|
55,676
(38.2%)
|
Tanew
Holdings Inc. (3)
|
|
15,607,143
(18.30%)
|
|
-
|
Lhada
Holdings Inc. (4)
|
|
15,607,143
(18.30%)
|
|
-
|
Name
of Shareholder
|
|
Number
and percentage of Class A common shares owned
|
|
Number
and percentage of Class B common shares owned
|
|
|
|
|
|
Officers
& Directors:
|
|
|
|
|
Gabriel
Panayotides (5)
|
|
33,464,286
(42.0%)
|
|
30,800
(21.1%)
|
Hans
Mende (6)
|
|
958,253
(1.2%)
|
|
-
|
Eleftherios
Papatrifon
|
|
**
|
|
-
|
George
Agadakis
|
|
**
|
|
**
|
All
officers & Directors
|
|
34,963,747
(43.8%)
|
|
31,425
(21.6%)
|
* Less
than 5%.
** Less
than 1%
The
Company's major shareholders and officers and directors do not have different
rights from other shareholders in the same class.
To our
knowledge, there are no arrangements, the operation of which may, at a
subsequent date, result in a change in control.
(1) Argon
S.A. is holding these shares pursuant to a trust in favor of Starling Trading
Co, a corporation whose sole shareholder is Ms. Ismini Panayotides, the adult
daughter of the Company's Chairman. Ms. Panayotides has no power of voting or
disposition of these shares, and disclaims beneficial ownership of these shares
except to the extent of her securing interest.
(2)
Boston Industries S.A. is controlled by Ms. Mary Panayotides, the spouse of the
Company's Chairman. Ms. Panayotides has no power of voting or disposition of
these shares and disclaims beneficial ownership of these shares.
(3) Tanew
Holdings Inc. is controlled by members of the family of Mr. Panayotides, the
Company's Chairman. Mr. Panayotides disclaims beneficial ownership of such
shares except with respect to his voting and dispositive interests in such
shares. Mr. Panayotides has no pecuniary in such
shares. Includes 2,750,000 shares issuable upon conversion of
warrants.
(4) Lhada
Holdings Inc. is controlled by members of the family of Mr. Panayotides, the
Company's Chairman. Mr. Panayotides disclaims beneficial ownership of such
shares except with respect to his voting and dispositive interests in such
shares. Mr. Panayotides has no pecuniary in such shares. Includes
2,750,000 shares issuable upon conversion of warrants.
(5)
Included in the Class A shares are (i) 15,607,143 shares owned by Tanew Holdings
Inc. (including 2,750,000 shares issuable upon conversion of warrants), a
company controlled by members of Mr. Panayotides' family (ii) 15,607,143 owned
by Lhada Holdings Inc. ( including 2,750,000 shares issuable upon conversion of
warrants), a company controlled by members of Mr. Panayotides' family. Class B
shares represent stock based awards granted to the Chairman of the Board of
Directors during 2006 and 2008. Mr. Panayotides disclaims beneficial ownership
of the 31,214,286 shares owned by Tanew Holdings Inc. and Lhada Holdings Inc.
except with respect to his voting and dispositive interests in such
shares.
(6)
Included in the Class A shares are 934,181 shares of our Class A common stock
held by AMCI Acquisition II, LLC, a limited liability company indirectly
controlled by Mr. Mende and 24,072 shares of our Class A common stock owned by a
trust of which Mr. Mende is the sole trustee.
B.
Related Party Transactions
Brokering
Agreement
On March
4, 2005, we entered into a one-year brokering agreement with Excel Management.
Under this brokering agreement, Excel Management will, pursuant to our
instructions, act as our broker with respect to, among other matters, the
employment of our vessels. For its chartering services under the brokering
agreement, Excel Management receives a commission fee equal to 1.25% of the
revenues of our vessels. This agreement extends automatically for successive
one-year terms at the end of its initial term. It may be terminated by either
party upon twelve months prior written notice. Commissions charged by Excel
Management during the years ended December 31, 2007, 2008 and 2009 amounted to
approximately $2.2 million, $3.6 million and $2.3 million,
respectively.
Vessels
Under Management
Our
wholly-owned subsidiary Maryville provides shipping services to two related
ship-owning companies at a current fixed monthly fee per vessel of $17,500. Such
companies are affiliated with the Chairman of our Board, and the management fees
earned from these vessels totalled $0.5 million for the year ended December 31,
2009.
Equity
Infusion
As part
of the amendments to the Nordea credit facility and the Credit Suisse credit
facility, entities affiliated with the family of our Chairman of the Board of
Directors injected $45.0 million in the Company, which was applied against the
balloon payment of the Nordea credit facility. In exchange for their
contribution, the entities received an aggregate of 25,714,286 Class A shares
and 5,500,000 warrants, with an exercise price of $3.50 per warrant. The shares,
the warrants and the shares issuable on exercise of the warrants are subject to
12–month lock-ups from March 31, 2009.
Joint
Ventures Restructuring
On
October 27, 2009 we and one of our joint venture partners completed two
agreements for the transfer/exchange of ownership interests in three of the
joint venture companies discussed in Note 5 to our consolidated financial
statements in "Item 18, Financial Statements." Based on the
agreements concluded, we agreed to sell our 50% ownership interest in Lillie
Shipco LLC to AMCIC for a consideration of $1.2 million and the transfer by
AMCIC to us of its 50% ownership interest in Hope Shipco LLC. In addition, AMCIC
sold its 28.6% ownership interest in Christine Shipco LLC to us for a
consideration of $2.8 million. Both agreements were conditional to the
satisfaction of various customary conditions precedent, as well as to the
execution of another agreement between companies affiliated with members of our
Board of Directors, such agreement being economically unrelated to the
transaction described above. Following the completion of the transaction, we
became 100% owner of Hope Shipco LLC and increased our interest in Christine
Shipco LLC to 71.4%. No change has been incurred in our participation in the
remaining four joint venture ship-owning.
C.
Interest of Experts and Counsel
Not
applicable.
ITEM
8 - FINANCIAL INFORMATION
A. Consolidated
Statements and Other Financial Information
See Item
18.
Legal
Proceedings
The
Company is a defendant in an action commenced in the Supreme Court of the State
of New York, New York County on August 21, 2008 by the Company's former Chief
Executive Officer, Mr. Christopher I. Georgakis, who resigned in February 2008,
entitled Georgakis v. Excel Maritime Carriers, Ltd., Index No.
650322/08.
In his Complaint, Mr. Georgakis alleges that the Company is liable for breach of
a November 1, 2004 stock option agreement, common law fraud in connection with
the stock option agreement and for defamation arising from a statement on a Form
6-K submitted to the SEC. Mr. Georgakis seeks at least $14,818,000 in damages
(including $5.0 million in punitive damages) and attorneys' fees and costs.
On January 2, 2009, the Company made a motion to dismiss the action for lack of
personal jurisdiction and for forum non conveniens, which was denied by the
Supreme Court on October 28, 2009. The Company has filed an appeal, requesting
from the Appellate Division to reverse the decision of the Supreme Court and to
dismiss the action in its entirety. In addition, the New York Stock Exchange has
filed an amicus curiae brief in support of the Company's appeal. The
Company believes that it has strong defenses to the claims and intends to
vigorously defend the action on the merits and accordingly has not accrued for
any loss contingencies with this respect. However, the ultimate outcome of this
case cannot be presently determined.
Dividend
Policy
Following
a decision of our Board of Directors on March 7, 2007, we commenced a dividend
policy beginning with the first quarter 2007. In this respect, during the year
ended December 31, 2007, we declared and paid dividends of $11.9 million or
$0.60 per share for the period. During the year ended December 31, 2008, we
declared and paid dividends of $48.5 million or $1.20 per share for the
period.
In
February 2009 our Board of Directors decided to suspend our dividend in light of
the challenging conditions both in the freight market and the financial
environment. The suspension of dividend was effective beginning with the
dividend of the fourth quarter of 2008. The decision aimed at preserving cash
and enhancing our liquidity and was considered to be a precautionary measure in
view of the disruptions arising with some of our charters.
The
dividend policy will be regularly assessed by our Board of Directors and will
depend, among other things, on our obligations, leverage, liquidity, capital
resources and overall market conditions. The Board retains the authority to
alter the dividend policy at its discretion.
B.
Significant changes
See
"Item 5 – Operating and Financial Review and Prospects Recent
Developments".
ITEM
9 - THE OFFER AND LISTING
Our Class
A common stock has traded on the NYSE under the symbol "EXM" since September 15,
2005. Prior to that date, our Class A common stock traded on AMEX under the same
symbol.
The table
below sets forth the high and low closing prices for each of the periods
indicated for shares of our Class A common stock. The high and low closing
prices for shares of our Class A common stock, by year, from 2005 to 2009 were
as follows:
For
The Year Ended
|
NYSE
Low
(US$)
|
|
NYSE
High
(US$)
|
|
|
|
|
|
|
December
31, 2005
|
11.30 |
|
|
28.47 |
|
December
31, 2006
|
7.66 |
|
|
14.61 |
|
December
31, 2007
|
14.71 |
|
|
81.38 |
|
December
31, 2008
|
3.61 |
|
|
57.72 |
|
December
31, 2009
|
3.17 |
|
|
11.23 |
|
The high and low closing prices for
shares of our Class A common stock, by quarter, in 2008 and 2009 were as
follows:
For
The Quarter Ended
|
NYSE
Low
(US$)
|
|
NYSE
High
(US$)
|
|
|
|
|
|
|
March
31, 2008
|
24.76 |
|
|
39.86 |
|
June
30, 2008
|
28.05 |
|
|
57.72 |
|
September
30, 2008
|
13.40 |
|
|
41.70 |
|
December
31, 2008
|
3.61 |
|
|
14.75 |
|
March
31, 2009
|
3.17 |
|
|
9.03 |
|
June
30, 2009
|
4.74 |
|
|
11.23 |
|
September
30, 2009
|
5.97 |
|
|
9.90 |
|
December
31, 2009
|
5.50 |
|
|
8.40 |
|
The high
and low closing prices for shares of our Class A common stock for the most
recent six months for each month were as follows:
For
The Months Ended
|
NYSE
Low
(US$)
|
|
NYSE
High
(US$)
|
|
|
|
|
|
|
September
2009
|
6.44 |
|
|
7.52 |
|
October
2009
|
5.64 |
|
|
7.16 |
|
November
2009
|
5.50 |
|
|
8.40 |
|
December
2009
|
6.16 |
|
|
7.44 |
|
January
2010
|
5.77 |
|
|
7.42 |
|
February
2010
|
5.13 |
|
|
6.15 |
|
March
1, 2010 to March 9, 2010
|
5.78 |
|
|
6.44 |
|
On
December 31, 2009, the closing price of shares of our Class A common stock as
quoted on the NYSE was $6.16. At that date, there were 79,770,159 Class A and
145,746 Class B shares of common stock issued and outstanding.
ITEM
10 - ADDITIONAL INFORMATION
A.
Share Capital
Not
applicable
B.
Memorandum and Articles of Association
Articles
of Incorporation
The
Company's Amended and Restated Articles of Incorporation, or the Articles,
provide that the Company is to engage in any lawful act or activity for which
companies may now or hereafter be organized under the Liberian Business
Corporation Act, as specifically but not exclusively outlined in Article THIRD
of the Articles.
Directors
Prior to
April 2008, the Board was unclassified and consisted of seven directors.
According to amended Article SIXTH (2)(i) of the Articles, the Board shall
consist of such number of directors, not less than three and no more than nine,
as shall be determined from time to time by the Board as provided in the By-Laws
or by vote of the shareholders. The Articles further allow for the Board to
create classes of directors any time it deems such an act appropriate, amend the
By-laws to implement the same and any vacancies created by such action may be
filled by way of a majority vote of the then incumbent directors until the next
succeeding Annual General Meeting of the Company's shareholders. The Articles
allow for the Board to approve proposals in which one or more directors may have
a material interest, provided that at least two of the three directors in the
New Class, as defined below, vote in favor of the proposal. Shareholders may
change the number of directors or the quorum requirements for meeting of the
Board by the affirmative vote of the holders of common shares representing
at
least two
thirds of the total number of votes that may be cast at any meeting of
shareholders, as calculated pursuant to Article FIFTH of the Articles. At each
Annual General Meeting of the Company's shareholders, the successors of the
directors shall be elected to hold office for a term expiring as of the next
succeeding Annual General Meeting.
At a
special meeting of shareholders on April 1, 2008, the shareholders approved an
amendment to the Articles that added a new Article TWELFTH, or the New Article.
The New Article provided that, for a period ending one year after the closing
date of the acquisition of Quintana, or April 15, 2008, the Board would consist
of seven or eight directors. Immediately following the approval of the New
Article, the Board's composition was set at eight directors. The New Article
further provided for a newly created class of directors, and, pursuant to the
Merger Agreement, this new class comprised three former officers or directors of
Quintana: Paul J. Cornell, Hans J. Mende, and Corbin J. Robertson, III. At the
Annual General Meeting of the Company's shareholders held on September 15, 2008,
the shareholders approved an amendment to the New Article that increased the
Board's composition to nine directors. The New Article lapsed by its own terms
on April 15, 2009.
At the
Annual General Meeting of the Company's shareholders held on September 24, 2009,
the Board's composition was set at six directors.
The
Company has both Class A common shares and Class B common shares. The holders of
the Class A common shares are entitled to one vote per share on each matter
requiring the approval of the holders of common shares of the Company, whether
pursuant to the Articles, the Bylaws, the Liberian Business Corporation Act or
otherwise. The holders of Class B common shares are entitled to one thousand
votes per Class B common share on each matter requiring approval of the holders
of the common shares of the Company. The Board shall have the fullest authority
permitted by law to provide by resolution for any voting powers, designations,
preferences and relative, participating, optional or other rights of and any
qualifications, limitations or restrictions on the preferred stock of the
Company subject to shareholders' prior approval.
The Board
has the authority to create and issue rights, warrants, and options entitling
the holders thereof to purchase from the Company shares of any class of stock or
other securities or property of the Company. The issuance of rights, warrants,
and options entitling the holders thereof to purchase from the Company any class
or series of shares other than Class A and preferred stock requires majority
approval by the shareholders of such class. The issuance of rights, warrants,
and options entitling the holders thereof to purchase from the Company preferred
stock requires majority approval by all of the Company's shareholders. However,
no shareholder approval is required pursuant to the aforementioned issuances if
such issuances are made to directors, officers, or employees of the Company
pursuant to an incentive or compensation plan duly authorized by the
Board.
Ownership
of Securities
There
are no limitations on the rights to own, or hold or exercise voting rights of,
securities of the Company.
Shareholder
Meetings
The Board
is to fix the date and time of the Annual General Meeting or other special
meeting of shareholders of the Company, after notice of such meeting is given to
each shareholder of record not less than 15 and not more than 60 days before the
date of such meeting. The presence in person or by proxy of shareholders
entitled to cast one-third of the total number of votes shall constitute a
quorum for the transaction of business at any such meeting.
C.
Material Contracts
Merger
Agreement
On
January 29, 2008, the Company announced that it had entered into the Merger
Agreement with Quintana and Bird, a direct wholly-owned subsidiary of the
Company. The Merger Agreement was amended on February 7, 2008; pursuant to the
terms of the Merger Agreement, Bird merged with and into Quintana, with Quintana
as the surviving corporation, which we refer to as the Merger. On April 14,
2008, the shareholders of Quintana approved the Merger, and the Merger became
effective on April 15, 2008. At the effective time of the Merger, Quintana
changed its name to Bird Acquisition Corp.
In the
Merger, each share of common stock of Quintana, other than (a) those shares
held in the treasury of Quintana, (b) those shares owned by the Company or
Bird or (c) those shares with respect to which dissenters rights were
properly exercised, was converted into the right to receive (i) 0.3979 of a
share of Class A common stock of the Company and (ii) $13.00 in cash,
without interest, which we refer to collectively as the Merger Consideration. In
addition, each outstanding restricted stock award subject to vesting or other
lapse restrictions vested and became free of such restrictions and the holder
thereof received the Merger Consideration with respect to each share of
restricted stock held by such holder. The total Merger Consideration was
approximately $764.0 million and 23.5 million shares of our Class A common
stock.
Completion
of the Merger was subject to various conditions, including, among others,
(i) approval of the holders of a majority in voting power of the
outstanding shares of the common stock of Quintana, (ii) absence of any
order, injunction or other judgment or decree prohibiting the consummation of
the Merger, (iii) receipt of required governmental consents and approvals,
(iv) the Company's receipt of the debt financing and (v) subject to
certain exceptions, the accuracy of the representations and warranties of the
Company and Quintana, as applicable, and compliance by the Company and Quintana
with their respective obligations under the Merger Agreement. These conditions
were fulfilled on or prior to the effective date of the Merger.
This
description of the Merger Agreement is only a summary and is qualified in its
entirety by reference to the Merger Agreement, which is attached as an exhibit
hereto.
Loan
Agreements and Derivative Contracts
As of
December 31, 2009 we had long-term debt obligations under the Nordea credit
facility and the Credit Suisse credit facility.
Nordea
Bank Finland PLC Senior Secured Credit Facility
In
connection with the Merger, we entered into the Nordea credit facility, in which
Nordea Bank acts as administrative agent for secured parties comprising itself
and certain other lenders. The Nordea credit facility matures in April 2016 and
consists of a $1.0 billion term loan and a $400.0 million revolving loan. The
term loan amortizes in 32 quarterly installments.
The full
amount of the loans was drawn down on April 15, 2008 and was used primarily to
finance the cash consideration paid to shareholders of Quintana and to repay the
outstanding debt of Quintana and the outstanding balance of $175.9 million under
the Company's previous loan agreements.
The term
loan and the revolving loan are maintained as Eurodollar loans bearing interest
at LIBOR plus a margin per annum.
The
Nordea credit facility is guaranteed by our vessel-owning subsidiaries and
certain of our other direct and indirect subsidiaries and amounts drawn under
the Nordea credit facility are secured by (among other assets) (i) a first
priority mortgage over, and an assignment of insurances and assignment of
earnings with respect to, each of the vessels we own except the Mairouli and July M, which we refer to
collectively as the collateral vessels, (ii) assignments of earnings,
subject to the rights of existing financing parties, with respect to the seven
vessels Quintana sold and leased back in 2007 and that we now operate under
bareboat charters, which we refer to as the designated vessels, (iii) an
assignment of charter for each collateral vessel and designated vessel (to the
extent we receive the consent of the relevant charterer), (iv) manager's
undertakings and an assignment of management agreement for each collateral
vessel and designated vessel, (v) account pledge agreements for each
collateral vessel and designated vessel and (vi) a pledge of shares of our
subsidiaries that guarantee the credit facility and certain other of our
material subsidiaries.
On March
31, 2009, we concluded an amendment agreement with the lenders and modified
certain of the loan terms in order to comply with the financial covenants that
make use of the vessels' market values following the significant decline in the
vessel market. In addition, in accordance with the amended terms, the loan
repayment schedule was modified to defer an amount of $150.5 million in the
balloon installment.
The
current loan terms which are valid until January 1, 2011 contain financial
covenants requiring us to:
|
·
|
Maintain
a ratio of total debt, less cash and cash equivalents to aggregate book
value of assets, less cash and cash equivalents of no greater than 0.7 to
1.0 at all times. Under the credit facility, total debt is defined with
respect to us and our consolidated subsidiaries as the aggregate sum of
all indebtedness as reflected on our consolidated balance
sheet;
|
|
·
|
Maintain,
at the end of each fiscal quarter, a ratio of EBITDA to gross interest
expense for the four fiscal quarters ended as of the end of such quarter
greater than 1.75 to 1.0;
|
|
·
|
From
and after our first fiscal quarter falling on or after the third
anniversary of the closing date of the original credit facility (April 15,
2008), maintain at the end of each fiscal quarter a ratio of total net
debt to EBITDA (where EBITDA is the annualized EBITDA from vessels
acquired during the prior 12 months), for the four fiscal quarters ended
as of the end of such quarter, of not greater than 6.0 to
1.0;
|
|
·
|
Maintain,
at the end of each fiscal quarter, a book net worth of greater than $750.0
million;
|
|
·
|
At
the end of each fiscal quarter to the third anniversary of the closing
date of the credit facility, maintain a minimum of cash and cash
equivalents of no less than 25.0
million;
|
|
·
|
Ensure
that the aggregate fair market value of the collateral vessels shall at
all times be at least 65% of the sum of (i) the then aggregate outstanding
principal amount of the credit facility and (ii) the unused commitment
under the revolving loan, provided that we have 45 days to cure any
default under this particular covenant so long as the default was not the
result of a voluntary vessel
disposition.
|
The Nordea
credit facility defines EBITDA as operating income plus the sum of (a)
depreciation expense and (b) amortization expense, in each case, as reflected in
our "Consolidated Statement of Operations" prepared in accordance with U.S. GAAP
(capital gains/losses from any vessel conveyance, sale, lease or sale-leaseback
transaction will be included in the determination of revenue for the purposes of
EBITDA). EBITDA will be calculated on a rolling basis for the four fiscal
quarters most recently ended.
The
amended Nordea credit facility provides for a term according to which on a semi-
annual basis not later than each January 1 and July 1(commencing July 1, 2009),
excess cash flow determined for the period of the preceding six (6) months
ending on the above dates shall be paid within sixty (60) days following the
above dates and shall be applied as follows, first, one hundred percent (100%)
to prepayment of all Deferred Option Principal being the aggregate of such
deferred instalments outstanding from time to time, second, seventy percent
(70%) of the then remaining excess cash flow shall be applied to the Term loan
repayment amounts in inverse order of maturity, and third the balance of the
remaining excess cash flow shall be used only to fund committed capital
expenditure, or CAPEX, and to build and maintain a CAPEX reserve
account.
The
Nordea credit facility defines excess cash flow as am amount equal to reported
EBITDA (adjusted for non-cash items) less cash dry docking and cash special
survey expenses (to the extent not included in EBITDA), less net interest
expenses (including payments due under any swap agreement with the borrower),
less payments of loan principal (under the Credit Agreement, and the Credit
Suisse credit facility).
A first
priority mortgage over the vessel Sandra, as well as, a first assignment of
vessel insurances and earnings has been provided as additional security. In
addition, no dividends may be declared and paid until the loan outstanding
balance is brought to the same levels as per the original schedule and no event
of default exists, while no repurchase of convertible Notes may be effected
unless through the concept of exchange offerings (i.e. without any cash outflow
for us).
Credit
Suisse Credit Facility
In
November 2007, we entered into the Credit Suisse credit facility for an amount
of $75.6 million in order to partly finance the acquisition cost of the vessels
Mairouli and July M. The loan, which bears
interest at LIBOR plus a margin, amortizes in quarterly equal installments
through December 2022 plus a balloon payment together with the last
instalment.
The
Credit Suisse credit facility is guaranteed by the Company and secured by (among
other assets) (i) a first priority mortgage over, and an assignment of
insurances and earnings with respect to, each of the vessels Mairouli and July M, (ii) manager's
undertakings and an assignment of management agreement for each of the two
vessels, and (iii) account pledge agreements for each of the two
vessels.
On March
31, 2009, we concluded a first supplemental agreement to the loan and modified
certain of its terms in order to comply with the financial covenants that make
use of the vessels' market values following the significant decline in the
vessel market.
The
amended terms which are valid until January 1, 2011 contain financial covenants
requiring us to:
|
·
|
Maintain
a ratio of total indebtedness, less cash and cash equivalents to total
capitalization (total debt plus shareholder's equity adjusted by the book
value of the fleet vessels), of no greater than 0.7 to 1.0 at all
times;
|
|
·
|
Maintain,
on a trailing twelve months basis, a ratio of EBITDA to net interest
expense greater than 1.75 to 1.0;
|
|
·
|
Maintain
a book net worth of at least $750.0
million;
|
|
·
|
Maintain
a minimum of cash and marketable securities of an amount not less than
$25.0 million; and
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Ensure
that the aggregate fair market value of the borrowers' vessels shall at
all times be at least 65% of the sum of the
loan.
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The
Credit Suisse credit facility defines EBITDA as our net income-whether positive
or negative-before (1) taxation for such period and (2) any extraordinary items
and after adding back (1) all paid or payable interest, acceptance commission
and all other continuing, regular or periodic costs, charges and expenses in the
nature of interest (whether paid, payable or capitalized) incurred by us in
effecting, servicing or maintaining our financial indebtedness as defined in the
loan agreement to the extent that they are taken into account in calculating our
net income, (2) amortization and depreciation and after deducting any
capitalized costs and any interest received or receivable to the extent that
interest is included in our net income and determined in accordance with U.S.
GAAP.
Royal
Bank of Scotland and Fortis Bank Credit Facilities Related to New
Buildings
In
addition to our long-term debt obligations under the Nordea credit facility and
the Credit Suisse credit facility and following the sale of our interest in
Lillie Shipco LLC, we have assumed the obligations of the new-buildings vessel
owning companies under two separate loan agreements.
On April
11, 2007, Christine Shipco LLC, or Christine Shipco, entered into a secured loan
agreement with Royal Bank of Scotland, or RBS, for an amount equal to 70% of the
pre-delivery installments, or $25.4 million, for the Capesize newbuilding to be
named Christine. Pre-delivery
installments payable to the yard are expected to total approximately $36.2
million, including partner's commitment while the remaining $36.2 million will
be paid to the seller upon delivery of the vessel. In June 2009, Christine
Shipco paid its scheduled $7.2 million installment to the shipyard. The
installment was financed through a loan drawdown on June 1, 2009, of $5.1
million and a contribution from non-controlling interest partners of $2.1
million.
As of
March 9, 2010, the total loan of $25.4 million had been drawn down under the
facility. The loan is repayable in one installment on the earlier of the
delivery date or August 31, 2010, but the loan may be prepaid in full or in part
at any time. We expect to take delivery of the vessel during the
second quarter of 2010. Under the terms of the joint venture agreement and the
loan agreement, we are not responsible for repayment of the pre-delivery
financing. Christine Shipco expects to refinance the loan upon delivery and
borrow an amount equal to the sum of the pre-delivery financing outstanding at
delivery and a portion of the delivery installment. We will be obligated to
make capital contributions to Christine Shipco to cover 71.4% of the principal
and interest due upon refinancing of the facility. The interest rate payable on
the loan is the aggregate of (1) LIBOR, (2) the margin of 1.125% and (3) the
mandatory cost, if any. The mandatory cost is an addition to the interest rate
to compensate the lender for the costs of compliance with the Bank of England
and European Central Bank requirements.
The
facility contains an additional security clause which states that at any time
the fair market value of the vessel less any part of the purchase price still to
be paid to the seller under the MOA must equal at least 130% of the outstanding
loan. In addition, the facility contains customary restrictive
covenants and events of default, including no payment of principal or interest,
breach of covenants or material misrepresentations, default under other material
indebtedness, bankruptcy, and change of control. Christine Shipco is not
permitted to pay dividends without the prior written consent of the
lender.
On May
11, 2007, Hope Shipco LLC, or Hope Shipco, entered into a separate secured loan
agreement with RBS to finance an amount equal to 70% of the first pre-delivery
installment due to the shipyard, or $10.9 million. The loan facility was drawn
down in full upon payment of the first pre-delivery installment in May 2007.
Under the terms of two separate amendments dated April 14, 2008 and July 30,
2008, the repayment date of the loan was extended to July 31,
2009. The loan is repayable in one installment and may be prepaid in
full or in part at any time.
The
interest rate payable on the loan is the aggregate of (1) LIBOR; (2) the margin
of 1.125%, which was increased to 2.25%, from August 1, 2009; and (3) the
mandatory cost, if any. The mandatory cost is an addition to the interest rate
to compensate the lender for the costs of compliance with the Bank of England
and European Central Bank requirements. As of March 9, 2010, we have not paid
any mandatory costs.
The
facility contains an additional security clause that states that at any time the
fair market value of the vessel less any part of the purchase price still to be
paid to the builder under the MOA must equal at least 115% of the outstanding
loan. In addition, the facility contains customary restrictive covenants
and events of default, including non-payment of principal or interest, breach of
covenants or material misrepresentations, default under other material
indebtedness, bankruptcy, and change of control. Hope Shipco is not permitted to
pay dividends without the prior written consent of the lender.
On
July 31, 2009, the Company entered into an agreement with the lending bank
of Hope Shipco and amended the loan agreement by extending the repayment to
August 21, 2009 and increasing the interest margin to 2.25% from
August 1, 2009. The loan agreement was further amended following the
restructuring of the membership interests in the joint ventures and its
repayment was extended to March 15, 2010. As of December 31, 2009, Hope Shipco
did not meet the additional security clause as provided by the loan agreement,
such balance amounting $10.9 million, which is repayable according to the loan
extension on March 15, 2010 was classified in the current portion of long-debt
in the accompanying 2009 consolidated balance sheet, see item 18 Financial
Statements. The loan was fully repaid on March 9, 2010.
On
October 27, 2009, the Hope Shipco and Christine Shipco loan agreements were
amended to reflect the changes in the ownership of the companies discussed below
under "Item 10, Additional Information – C. Material Contracts – Newbuilding
Contracts".
On
December 11, 2009, we accepted an offer letter from Fortis Bank or Fortis for
the financing of Hope in the amount of maximum $42.0 million but in any event
not more than 75% of the fair value of the vessel upon delivery. On February 11,
2010 the related loan agreement was signed. The loan will be drawdown in various
installments following the vessel construction progress through November 2010.
The loan is repayable in twenty quarterly installments and a balloon payment
through January 2016. The first installment will commence three months from the
vessel delivery. The first drawdown, amounting to $13.9 million, took place on
March 9, 2010 to partly finance the second payment instalment to the shipyard
upon the steel cutting has taken place as provided in the relevant shipbuilding
contract.
A first
priority assignment of the refund guarantee and the shipbuilding contract in
addition to other customary securities have been provided for the vessel
pre-delivery period and a first priority mortgage, as well as a first assignment
of vessel insurances and earnings have been provided as security for the vessel
post delivery period. A second priority mortgage and a second priority
assignment of the vessel insurances and earnings have been provided as security
for the Fortis Swap discussed below. The loan financial covenants are
in line with the covenants applicable under our remaining credit
facilities.
The financial loan covenants are in
line with the covenants applicable to Company under the remaining credit
facilities. However the additional security clause in respect with the hull
cover ratio stands at 115% whereas the remaining credit facilities provide for a
hull cover ratio covenant at 65% up to January 1, 2011 when this will be
increased to 135%.
1.875%
Unsecured Convertible Senior Notes due 2027
In
October 2007, we completed our offering of $125.0 million aggregate principal
amount of Convertible unsecured Senior Notes due 2027, subsequent to which the
initial purchaser exercised in full its option to acquire an additional of $25.0
million of the notes solely to cover over-allotments. The notes bear interest
semi-annually at a rate of 1.875% per annum, commenced on April 15, 2008 and
were originally convertible at a base conversion rate of approximately 10.9529
Excel Class A common shares per $1,000 principal amount of notes. This
conversion rate has since been adjusted to 11.2702 Excel Class A common shares
per $1,000 principal amount of notes as a consequence of the payment of
dividends by the Company in 2008 at levels exceeding a threshold set forth in
the indenture governing the notes. The initial conversion price was set at
$91.30 per share and an incremental share factor of 5.4765 Excel Class A common
shares per $1,000 principal amount of notes. The conversion price has since been
adjusted to $88.73 per share and the incremental share factor has since been
adjusted to 5.6351 Excel Class A common shares per $1,000 principal amount of
notes. On conversion, any amount due up to the principal portion of the notes
will be paid in cash, with the remainder, if any, settled in shares of Excel
Class A common shares. In addition, the notes holders are only entitled to the
conversion premium if the share price exceeds the market price trigger of $88.73
and thus, until the stock price exceeds the conversion price of $88.73, the
instrument will not be settled in shares and only the portion in excess of the
principal amount will be settled in shares. The notes are due October 15, 2027.
The notes also contain an embedded put option that allows the holder to require
us to purchase the notes at the option of the holder for the principal amount
outstanding plus any accrued and unpaid interest (i.e. no value for any
conversion premium, if applicable) on specified dates (i.e. October 15, 2014,
October 15, 2017 and October 15, 2022), and a separate call option that allows
us to redeem the notes at any time on or after October 22, 2014 for the
principal amount outstanding plus any accrued and unpaid interest (i.e. no value
for any conversion premium, if applicable). Any repurchase or redemption of the
notes will be for cash.
In the
event that any of our subsidiaries issues or guarantees any debt securities, the
indenture governing the senior convertible notes will require that such
subsidiaries deliver guarantees of the convertible senior notes for the benefit
of the holders thereof.
In
addition, we entered into a registration rights agreement with the initial
purchaser of the notes for the benefit of the holders of the notes and the
shares of our Class A common stock issuable on conversion of the notes. Under
this agreement, we have filed a shelf registration statement with the SEC
covering resales of the notes and the shares of our Class A common stock
issuable on conversion of the notes to be maintained effective for a specified
period of time as provided in the related agreement. In case we default under
the registration rights agreement, we shall pay interest at an annual rate of
0.5% of the principal amount of the notes as liquidated damages to Record
Holders of Registrable Securities and in addition in respect of any note
submitted for conversion, we shall issue additional shares of Class A Common
Stock equal to 3% of the applicable conversion rate as defined in the indenture.
We filed the above-mentioned registration statement after the time set forth in
the registration rights agreement and as a consequence paid additional interest
in the amount of $86,301 on October 15, 2008.
Fortis
Bank (Netherland) N.V Swap
Upon
completion of our acquisition of Quintana on April 15, 2008, we entered into a
guarantee with Fortis as security for the obligations of Quintana and its
subsidiaries under the master swap agreement entered into by Fortis, Quintana
and its subsidiaries. Under the guarantee, we guarantee the due payment of all
amounts payable under the master agreement and fully indemnify Fortis in respect
of all claims, expenses, liabilities and losses that are made or brought against
or incurred by Fortis as a result of or in connection with any obligation or
liability guaranteed by us being or becoming unenforceable, invalid, void or
illegal. Under the terms of the swap, we make quarterly payments to Fortis based
on the relevant notional amount at a fixed rate of 5.135%, and Fortis makes
quarterly floating-rate payments at LIBOR to us based on the same notional
amount, which ranges from $295.0 million to approximately $701.5 million. The
swap is effective until December 31, 2010. In addition, Fortis has the
option to enter into an additional swap with us effective December 31, 2010
to June 30, 2014. Under the terms of the optional swap, we will make
quarterly fixed-rate payments of 5.00% to Fortis based on a decreasing notional
amount of $504.0 million, and Fortis will make quarterly floating-rate payments
at LIBOR to us based on the same notional amount. The swap does not meet hedge
accounting criteria and, accordingly, changes in its fair value are reported in
earnings.
Credit
Suisse Swap
On
October 17, 2006, Excel entered into a swap agreement with Credit Suisse with a
notional amount of $40.0 million and a termination date of July 19, 2015. With
effect from April 2, 2008, Excel terminated the swap agreement entered into on
October 17, 2006 for a notional amount of $40.0 million and all rights, duties,
claims and obligations under the agreement were released and discharged. In
consideration of the cancellation, Excel received $0.9 million from the
counterparty.
Newbuilding
Contracts
On
acquiring Quintana, the Company assumed Quintana's agreements to acquire seven
newbuilding Capesize vessels through joint ventures, all of which were entered
by Quintana in April 2007. One of the ventures, named Christine Shipco, was a
joint venture among the Company, Robertson Maritime Investors LLC, or RMI, and
AMCIC, an affiliate of Hans J. Mende, a member of our Board, to purchase the
Christine, a
newbuilding 180,000 dwt Capesize dry bulk carrier, to be constructed at Imabari
Shipbuilding Co., Ltd. with delivery in 2010 for a purchase price of $72.4
million. As successor to Quintana, the Company originally owned 42.8% of
Christine Shipco, and each of RMI and AMCIC originally owned a 28.6%
stake.
Quintana
also entered into agreements with STX Shipbuilding Co., Ltd. for the
construction of two 181,000 dwt newbuilding Capesize bulk carriers for expected
delivery in mid- to late 2010 for an aggregate purchase price of approximately
$161.6 million. Quintana subsequently nominated Lillie Shipco LLC, or Lillie
Shipco and Hope Shipco, joint ventures that were originally 50% owned by the
Company (as successor to Quintana) and 50% owned by AMCIC, to purchase these
vessels. Quintana further entered into agreements with Korea Shipyard Co., Ltd.,
a new Korean shipyard, for the construction of four 180,000 dwt newbuilding
Capesize bulk carriers for delivery in mid-2010 at a purchase price of
approximately $77.7 million per vessel, or an aggregate purchase price of
approximately $310.8 million. Quintana subsequently nominated the four joint
ventures that are 50% owned by the Company (as successor to Quintana) and 50%
owned by AMCIC to purchase these vessels.
On
October 27, 2009, we entered into agreements with our joint venture partners to
consolidate and simplify our newbuilding program. This agreement provided us
with 100% control of the Hope Shipco Capesize vessel and majority control of the
Christine Shipco Capesize vessel. In addition, the agreement provided for the
transfer of our membership interests in certain consolidated joint venture
companies, under which we agreed to sell to AMCIC our 50% membership interest in
Lillie Shipco for consideration of $1.2 million and the transfer by AMCIC to us
of its 50% membership interest in Hope Shipco. In addition, in the context of
the above agreement, AMCIC sold its 28.6% membership interest in Christine
Shipco to us for consideration of $2.8 million. Following the completion of the
transaction, we became 100% owner of Hope Shipco and increased our interest in
Christine Shipco to 71.4%.
Other
than as described above and in "Item 5 – Operating and Financial Review and
Prospects – B. Liquidity and Capital Resources – Summary of Contractual
Obligations," there were no material contracts, other than contracts entered
into in the ordinary course of business, to which the Company or any member of
the group was a party during the two year period immediately preceding the date
of this report.
Equity
Infusion
As part
of the amendments to the Nordea credit facility and the Credit Suisse credit
facility, entities affiliated with the family of our Chairman of the Board of
Directors have injected $45.0 million in the Company, which was applied against
the balloon payment of the Nordea credit facility. In exchange for their
contribution, the entities received an aggregate of 25,714,286 Class A shares
and 5,500,000 warrants, with an exercise price of $3.50 per warrant. The shares,
the warrants and the shares issuable on exercise of the warrants are subject to
12-month lock-ups from March 31, 2009.
D.
Exchange Controls
Under
Liberian and Greek law, there are currently no restrictions on the export or
import of capital, including foreign exchange controls, or restrictions that
affect the remittance of dividends, interest or other payments to non resident
holders of our common shares.
E.
Taxation
Tax
Considerations
Liberian
Tax Considerations
The
Company is incorporated in the Republic of Liberia. It has recently become aware
that the Republic of Liberia enacted a new income tax generally act effective as
of January 1, 2001, or the New Act. In contrast to the income tax law previously
in effect since 1977, or the Prior Law, which the New Act repealed in its
entirety, the New Act does not distinguish between the taxation of non-resident
Liberian corporations such as ourselves and our Liberian subsidiaries, who
conduct no business in Liberia and were wholly exempted from tax under Prior
Law, and the taxation of ordinary resident Liberian corporations.
In 2004,
the Liberian Ministry of Finance issued regulations pursuant to which a
non-resident domestic corporation engaged in international shipping such as
ourselves will not be subject to tax under the new act retroactive to January 1,
2001, or the New Regulations. In addition, the Liberian Ministry of Justice
issued an opinion that the new regulations were a valid exercise of the
regulatory authority of the Ministry of Finance. Therefore, assuming that the
New Regulations are valid, we and our Liberian subsidiaries will be wholly
exempt from Liberian income tax as under Prior Law.
If we
were subject to Liberian income tax under the New Act, we and our Liberian
subsidiaries would be subject to tax at a rate of 35% on our worldwide income.
As a result, our net income and cash flow would be materially reduced by the
amount of the applicable tax. In addition, our shareholders would be subject to
Liberian withholding tax on dividends at rates ranging from 15% to
20%.
United
States Federal Income Tax Considerations
The
following discussion of United States federal income tax is based on the Code,
judicial decisions, administrative pronouncements, and existing and proposed
regulations issued by the United States Department of the Treasury, all of which
are subject to change, possibly with retroactive effect. In addition, the
discussion is based, in part, on the description of our business as described in
"Business" above and assumes that we conduct our business as described in that
section. Except as otherwise noted, this discussion is based on the assumption
that we will not maintain an office or other fixed place of business within the
United States. We have not maintained, and do not intend to maintain, an office
or other fixed place of business in the United States.
United
States Federal Income Taxation of Our Company
Taxation
of Operating Income: In General
Unless
exempt from United States federal income taxation under Code section 883, a
foreign corporation is subject to United States federal income taxation in
respect of any income that is derived from the use of vessels, from the hiring
or leasing of vessels for use on a time, voyage or bareboat charter basis, or
from the performance of services directly related to those uses, which we refer
to as shipping income, to the extent that the shipping income is derived from
sources within the United States.
For these
purposes, 50% of shipping income that is attributable to transportation that
begins or ends, but that does not both begin and end, in the United States
constitutes income from sources within the United States, which we refer to as
U.S.-source shipping income.
Shipping
income attributable to transportation that both begins and ends in the United
States is considered to be 100% from sources within the United States. We are
not permitted by law to engage in transportation that produces income which is
considered to be 100% from sources within the United States.
Section
883
Under
section 883 of the Code, a foreign corporation may be exempt from United States
federal income taxation on its U.S.-source shipping income.
Under
section 883 of the Code, a foreign corporation is exempt from United States
federal income taxation on its U.S.-source shipping income, if
both:
(1) it
is organized in a foreign country (its "country of organization") that grants an
"equivalent exemption" to corporations organized in the United States,
and
(2) either:
(A) more
than 50% of the value of its stock is owned, directly or indirectly, by
individuals who are "residents" of its country of organization or of another
foreign country that grants an "equivalent exemption" to corporations organized
in the United States, which we will refer to as the 50% Ownership Test;
or
(B) its
stock is "primarily and regularly traded on an established securities market" in
its country of organization, in another country that grants an "equivalent
exemption" to United States corporations, or in the United States, which we will
refer to as the Publicly-Traded Test.
The
Marshall Islands and Cyprus, the jurisdictions where certain of our ship-owning
subsidiaries are incorporated, have each been formally recognized by the IRS as
a foreign country that grants an "equivalent exemption" to United States
corporations. Liberia, the jurisdiction where we and certain of our ship-owning
subsidiaries are incorporated, has been formally recognized by the IRS as a
foreign country that grants an "equivalent exemption" to United States
corporations based on a Diplomatic Exchange of Notes entered into with the
United States in 1988. It is not clear whether the IRS will still recognize
Liberia as an "equivalent exemption" jurisdiction as a result of the New Act,
which on its face does not grant the requisite equivalent exemption to United
States corporations. If the IRS does not so recognize Liberia as an "equivalent
exemption" jurisdiction, we and our subsidiaries will not qualify for exemption
under Code section 883 and would not have so qualified for 2002 and subsequent
years. Assuming, however, that the New Act does not nullify the effectiveness of
the Diplomatic Exchange of Notes, the IRS will continue to recognize Liberia as
an equivalent exemption jurisdiction and we will be exempt from United States
federal income taxation with respect to our U.S.-source shipping income if
either the 50% Ownership Test or the Publicly-Traded Test is met. Because our
Class A common shares are publicly traded, it is difficult to establish that the
50% Ownership Test is satisfied.
Treasury
regulations under Code section 883 provide, in pertinent part, that stock of a
foreign corporation is considered to be "primarily traded" on an established
securities market if the number of shares that are traded during any taxable
year on that market exceeds the number of shares traded during that year on any
other established securities market. Our Class A common shares are "primarily"
traded on the NYSE.
Under the
regulations, stock of a foreign corporation is considered to be "regularly
traded" on an established securities market if (i) one or more classes of its
stock representing 50% or more of its outstanding shares, by voting power and
value, is listed on the market and is traded on the market, other than in
minimal quantities, on at least 60 days during the taxable year; and (ii) the
aggregate number of shares of its stock traded during the taxable year is at
least 10% of the average number of shares of the stock outstanding during the
taxable year. Our shares are not "regularly traded" within the meaning of the
regulations test because of the voting power held by our Class B common shares.
As a result, we do not satisfy the Publicly-Traded Test under the
regulations.
Under the
regulations, if we do not satisfy the Publicly-Traded Test and therefore are
subject to the 50% Ownership Test, we would have to satisfy certain
substantiation requirements regarding the identity of our shareholders in order
to qualify for the Code section 883 exemption. We do not satisfy these
requirements. Beginning with calendar year 2005, when the final regulations
became effective, we did not satisfy either the Publicly-Traded Test or the 50%
Ownership Test. Therefore, we did not qualify for the section 883 exemption for
the 2009 calendar year and, based upon our current capital structure, do not
anticipate qualifying for the section 883 exemption for any future taxable
year.
Section
887
Since we
do not qualify for exemption under section 883 of the Code for taxable years
beginning on or after January 1, 2005, our U.S.-source shipping income, to the
extent not considered to be "effectively
connected"
with the conduct of a U.S. trade or business, as discussed below, is subject to
a 4% tax imposed by section 887 of the Code on a gross basis, without the
benefit of deductions. Since under the sourcing rules described above, no more
than 50% of our shipping income is treated as being derived from U.S. sources,
the maximum effective rate of U.S. federal income tax on our shipping income
will never exceed 2% under the 4% gross basis tax regime. This tax was $0.5
million, $0.8 million and $0.7 million for the tax years 2007, 2008 and 2009,
respectively. Shipping income from each voyage is equal to the product of (i)
the number of days in each voyage and (ii) the daily charter rate paid to the
Company by the Charterer. For calculating taxable shipping income, days spent
loading and unloading cargo in the port were not included in the number of days
in the voyage. We believe that our position of excluding days spent loading and
unloading cargo in the port meets the more likely than not criterion to be
sustained upon a future tax examination; however, there can be no assurance that
the IRS would agree with our position. Had we included the days spent loading
and unloading cargo in the port, additional taxes would amount to approximately
$0.2 million, $0.3 million and $0.2 million for the tax years 2007, 2008 and
2009, respectively.
Effectively
Connected Income
To the
extent our U.S. source shipping income is considered to be "effectively
connected" with the conduct of a U.S. trade or business, as described below, any
such "effectively connected" U.S.-source shipping income, net of applicable
deductions, would be subject to the U.S. federal corporate income tax currently
imposed at rates of up to 35%. In addition, we may be subject to the 30% "branch
profits" tax on earnings effectively connected with the conduct of such trade or
business, as determined after allowance for certain adjustments, and on certain
interest paid or deemed paid attributable to the conduct of its U.S. trade or
business.
Our
U.S.-source shipping income would be considered "effectively connected" with the
conduct of a U.S. trade or business only if:
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We
have, or are considered to have, a fixed place of business in the United
States involved in the earning of shipping income;
and
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Substantially
all of our U.S.-source shipping income is attributable to regularly
scheduled transportation, such as the operation of a vessel that follows a
published schedule with repeated sailings at regular intervals between the
same points for voyages that begin or end in the United
States.
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We do not
intend to have, or permit circumstances that would result in having any vessel
operating to the United States on a regularly scheduled basis. Based on the
foregoing and on the expected mode of our shipping operations and other
activities, we believe that none of our U.S.-source shipping income will be
"effectively connected" with the conduct of a U.S. trade or
business.
United
States Taxation of Gain on Sale of Vessels
We will
not be subject to United States federal income taxation with respect to gain
realized on a sale of a vessel, provided the sale is considered to occur outside
of the United States under United States federal income tax principles. In
general, a sale of a vessel will be considered to occur outside of the United
States for this purpose if title to the vessel, and risk of loss with respect to
the vessel, pass to the buyer outside of the United States. It is expected that
any sale of a vessel by us will be considered to occur outside of the United
States.
United
States Federal Income Taxation of Holders of Common Stock
The
following is a discussion of the material United States federal income tax
considerations applicable to a U.S. Holder and a Non-U.S. Holder, each as
defined below, of our common stock. This discussion does not purport to deal
with the tax consequences of owning common stock to all categories of investors,
some of which, such as dealers in securities, investors whose functional
currency is not the United States dollar and investors that own, actually or
under applicable constructive ownership rules, shares possessing 10% or more of
the voting power of our common stock, may be subject to special
rules. This discussion deals only with holders who hold the common
stock as a capital asset. Shareholders are encouraged to consult their own tax
advisors concerning the overall tax consequences arising in their particular
situation under United States federal, state, local or foreign law of the
ownership of common stock.
United
States Federal Income Taxation of U.S. Holders
As used
herein, the term "U.S. Holder" means a beneficial owner of common stock that is
a United States citizen or resident, United States corporation or other United
States entity taxable as a corporation, an estate the income of which is subject
to United States federal income taxation regardless of its source, or a trust if
a court within the United States is able to exercise primary jurisdiction over
the administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust.
If a
partnership holds our common stock, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner in a partnership holding our common stock, you
are encouraged to consult your tax advisor.
Distributions
Subject
to the discussion of passive foreign investment companies below, any
distributions made by us with respect to our common stock to a U.S. Holder will
generally constitute dividends, which may be taxable as ordinary income or
"qualified dividend income" as described in more detail below, to the extent of
our current or accumulated earnings and profits, as determined under United
States federal income tax principles. Distributions in excess of our earnings
and profits will be treated first as a nontaxable return of capital to the
extent of the U.S. Holder's tax basis in his common stock on a dollar-for-dollar
basis and thereafter as capital gain. Because we are not a United States
corporation, U.S. Holders that are corporations will not be entitled to claim a
dividends received deduction with respect to any distributions they receive from
us. Dividends paid with respect to our common stock will generally be treated as
"passive category income" or, in the case of certain types of U.S. Holders,
"general category income" for purposes of computing allowable foreign tax
credits for United States foreign tax credit purposes.
Dividends
paid on shares of our common stock to a U.S. Holder who is an individual, trust
or estate, or a U.S. Individual Holder, will generally be treated as "qualified
dividend income" that is taxable to such U.S. Individual Holders at preferential
tax rates (through 2010) provided that (1) the common stock is readily tradable
on an established securities market in the United States (such as the NYSE, on
which shares of our Class A common stock are listed); (2) we are not a passive
foreign investment company for the taxable year during which the dividend is
paid or the immediately preceding taxable year (which we do not believe we are,
have been or will be); and (3) the U.S. Individual Holder has owned the common
stock for more than 60 days in the 121-day period beginning 60 days before the
date on which the common stock becomes ex-dividend. There is no assurance that
any dividends paid on our common stock will be eligible for these preferential
rates in the hands of a U.S. Individual Holder. Legislation has been previously
introduced in the U.S. Congress which, if enacted in its present form, would
preclude our dividends from qualifying for such preferential rates prospectively
from the date of the enactment. Any dividends paid by the Company which are not
eligible for these preferential rates will be taxed as ordinary income to a U.S.
Holder.
Special
rules may apply to any "extraordinary dividend" generally, a dividend in an
amount which is equal to or in excess of 10% of a shareholder's adjusted basis
(or fair market value in certain circumstances) in a share of common stock paid
by us. If we pay an "extraordinary dividend" on our common stock that is treated
as "qualified dividend income," then any loss derived by a U.S. Individual
Holder from the sale or exchange of such common stock will be treated as
long-term capital loss to the extent of such dividend.
Sale,
Exchange or Other Disposition of Common Stock
Assuming
we do not constitute a passive foreign investment company for any taxable year,
a U.S. Holder generally will recognize taxable gain or loss upon a sale,
exchange or other disposition of our common stock in an amount equal to the
difference between the amount realized by the U.S. Holder from such sale,
exchange or other disposition and the U.S. Holder's tax basis in such stock.
Such gain or loss will be treated as long-term capital gain or loss if the U.S.
Holder's holding period is greater than one year at the time of the sale,
exchange or other disposition. Such capital gain or loss will generally be
treated as U.S. source income or loss, as applicable, for U.S. foreign tax
credit purposes. A U.S. Holder's ability to deduct capital losses is subject to
certain limitations.
Passive
Foreign Investment Company Status and Significant Tax Consequences
Special
United States federal income tax rules apply to a U.S. Holder that holds stock
in a foreign corporation classified as a passive foreign investment company for
United States federal income tax purposes. In general, we will be treated as a
passive foreign investment company with respect to a U.S. Holder if, for any
taxable year in which such holder held our common stock, either:
|
·
|
at
least 75% of our gross income for such taxable year consists of passive
income (e.g., dividends, interest, capital gains and rents derived other
than in the active conduct of a rental business);
or
|
|
·
|
at
least 50% of the average value of the assets held by the corporation
during such taxable year produce, or are held for the production of,
passive income.
|
For
purposes of determining whether we are a passive foreign investment company, we
will be treated as earning and owning our proportionate share of the income and
assets, respectively, of any of our subsidiary corporations in which we own at
least 25% of the value of the subsidiary's stock. Income earned, or deemed
earned, by us in connection with the performance of services would not
constitute passive income. By contrast, rental income would generally constitute
"passive income" unless we were treated under specific rules as deriving our
rental income in the active conduct of a trade or business.
Based on
our current operations and future projections, we do not believe that we are,
nor do we expect to become, a passive foreign investment company with respect to
any taxable year. Although there is no legal authority directly on point, and we
are not relying upon an opinion of counsel on this issue, our belief is based
principally on the position that, for purposes of determining whether we are a
passive foreign investment company, the gross income we derive or are deemed to
derive from the time chartering and voyage chartering activities of our
wholly-owned subsidiaries should constitute services income, rather than rental
income. Correspondingly, such income should not constitute passive income, and
the assets that we or our wholly-owned subsidiaries own and operate in
connection with the production of such income, in particular, the dry bulk
carriers, should not constitute passive assets for purposes of determining
whether we are a passive foreign investment company. We believe there is
substantial legal authority supporting our position consisting of case law and
IRS pronouncements concerning the characterization of income derived from time
charters and voyage charters as services income for other tax purposes. However,
there is also authority which characterizes time charter income as rental income
rather than services income for other tax purposes. In the absence of
any legal authority specifically relating to the statutory provisions governing
passive foreign investment companies, the IRS or a court could disagree with our
position. In addition, although we intend to conduct our affairs in a manner to
avoid being classified as a passive foreign investment company with respect to
any taxable year, we cannot assure you that the nature of our operations will
not change in the future.
As
discussed more fully below, if we were to be treated as a passive foreign
investment company for any taxable year, a U.S. Holder would be subject to
different taxation rules depending on whether the U.S. Holder makes an election
to treat us as a "Qualified Electing Fund," which election we refer to as a QEF
election. As an alternative to making a QEF election, a U.S. Holder should be
able to make a "mark-to-market" election with respect to our common stock, as
discussed below.
Taxation
of U.S. Holders Making a Timely QEF Election
If a U.S.
Holder makes a timely QEF election, which U.S. Holder we refer to as an Electing
Holder, the Electing Holder must report each year for United States federal
income tax purposes his pro rata share of our ordinary earnings and our net
capital gain, if any, for our taxable year that ends with or within the taxable
year of the Electing Holder, regardless of whether or not distributions were
received from us by the Electing Holder. The Electing Holder's adjusted tax
basis in the common stock will be increased to reflect taxed but undistributed
earnings and profits. Distributions of earnings and profits that had been
previously taxed will result in a corresponding reduction in the adjusted tax
basis in the common stock and will not be taxed again once distributed. An
Electing Holder would generally recognize capital gain or loss on the sale,
exchange or other disposition of our common stock. A U.S. Holder would make a
QEF election with respect to any year that our company is a passive foreign
investment company by filing IRS Form 8621 with his United States federal income
tax return. If we were aware that we were to be treated as a passive foreign
investment company for any taxable year, we would provide each U.S. Holder with
all necessary information in order to make the QEF election described
above.
Taxation
of U.S. Holders Making a "Mark-to-Market" Election
Alternatively,
if we were to be treated as a passive foreign investment company for any taxable
year and, as we anticipate with respect to our Class A common stock, our stock
is treated as "marketable stock," a U.S. Holder would be allowed to make a
"mark-to-market" election with respect to our common stock, provided the U.S.
Holder completes and files IRS Form 8621 in accordance with the relevant
instructions and related Treasury Regulations. If that election is made, the
U.S. Holder generally would include as ordinary income in each taxable year the
excess, if any, of the fair market value of the common stock at the end of the
taxable year over such holder's adjusted tax basis in the common stock. The U.S.
Holder would also be permitted an ordinary loss in respect of the excess, if
any, of the U.S. Holder's adjusted tax basis in the common stock over its fair
market value at the end of the taxable year, but only to the extent of the net
amount previously included in income as a result of the mark-to-market election.
A U.S. Holder's tax basis in his common stock would be adjusted to reflect any
such income or loss amount. Gain realized on the sale, exchange or other
disposition of our common stock would be treated as ordinary income, and any
loss realized on the sale, exchange or other disposition of the common stock
would be treated as ordinary loss to the extent that such loss does not exceed
the net mark-to-market gains previously included by the U.S.
Holder.
Taxation
of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
Finally,
if we were to be treated as a passive foreign investment company for any taxable
year, a U.S. Holder who does not make either a QEF election or a
"mark-to-market" election for that year, whom we refer to as a "Non-Electing
Holder," would be subject to special rules with respect to (1) any excess
distribution (i.e., the portion of any distributions received by the
Non-Electing Holder on our common stock in a taxable year in excess of 125% of
the average annual distributions received by the Non-Electing Holder in the
three preceding taxable years, or, if shorter, the Non-Electing Holder's holding
period for the common stock), and (2) any gain realized on the sale, exchange or
other disposition of our common stock. Under these special rules:
|
·
|
the
excess distribution or gain would be allocated ratably over the
Non-Electing Holder's aggregate holding period for the common
stock;
|
|
·
|
the
amount allocated to the current taxable year and any taxable year before
we became a passive foreign investment company would be taxed as ordinary
income; and
|
|
·
|
the
amount allocated to each of the other taxable years would be subject to
tax at the highest rate of tax in effect for the applicable class of
taxpayer for that year, and an interest charge for the deemed deferral
benefit would be imposed with respect to the resulting tax attributable to
each such other taxable year.
|
These
penalties would not apply to a pension or profit sharing trust or other
tax-exempt organization that did not borrow funds or otherwise utilize leverage
in connection with its acquisition of our common stock. If a Non-Electing Holder
who is an individual dies while owning our common stock, such holder's successor
generally would not receive a step-up in tax basis with respect to such
stock.
United
States Federal Income Taxation of "Non-U.S. Holders"
A
beneficial owner of common stock (other than a partnership) that is not a U.S.
Holder is referred to herein as a "Non-U.S. Holder."
Dividends
on Common Stock
Non-U.S.
Holders generally will not be subject to United States federal income tax or
withholding tax on dividends received from us with respect to our common stock,
unless that income is effectively connected with the Non-U.S. Holder's conduct
of a trade or business in the United States. If the Non-U.S. Holder is entitled
to the benefits of a United States income tax treaty with respect to those
dividends, that income is taxable only if it is attributable to a permanent
establishment maintained by the Non-U.S. Holder in the United
States.
Sale,
Exchange or Other Disposition of Common Stock
Non-U.S.
Holders generally will not be subject to United States federal income tax or
withholding tax on any gain realized upon the sale, exchange or other
disposition of our common stock, unless:
|
·
|
the
gain is effectively connected with the Non-U.S. Holder's conduct of a
trade or business in the United States. If the Non-U.S. Holder is entitled
to the benefits of an income tax treaty with respect to that gain, that
gain is taxable only if it is attributable to a permanent establishment
maintained by the Non-U.S. Holder in the United States;
or
|
|
·
|
the
Non-U.S. Holder is an individual who is present in the United States for
183 days or more during the taxable year of disposition and other
conditions are met.
|
If the
Non-U.S. Holder is engaged in a United States trade or business for United
States federal income tax purposes, the income from the common stock, including
dividends and the gain from the sale, exchange or other disposition of the stock
that is effectively connected with the conduct of that trade or business will
generally be subject to regular United States federal income tax in the same
manner as discussed in the previous section relating to the taxation of U.S.
Holders. In addition, if you are a corporate Non-U.S. Holder, your earnings and
profits that are attributable to the effectively connected income, which are
subject to certain adjustments, may be subject to an additional branch profits
tax at a rate of 30%, or at a lower rate as may be specified by an applicable
income tax treaty.
Backup
Withholding and Information Reporting
In
general, dividend payments, or other taxable distributions, made within the
United States to you will be subject to information reporting requirements. Such
payments will also be subject to backup withholding tax if you are a
non-corporate U.S. Holder and you:
|
·
|
fail
to provide an accurate taxpayer identification
number;
|
|
·
|
are
notified by the IRS that you have failed to report all interest or
dividends required to be shown on your federal income tax returns;
or
|
|
·
|
in
certain circumstances, fail to comply with applicable certification
requirements.
|
Non-U.S.
Holders may be required to establish their exemption from information reporting
and backup withholding by certifying their status on IRS Form W-8BEN, W-8ECI or
W-8IMY, as applicable.
If you
sell your common stock to or through a United States office or broker, the
payment of the proceeds is subject to both United States backup withholding and
information reporting unless you certify that you are a non-U.S. person, under
penalties of perjury, or you otherwise establish an exemption. If you sell your
common stock through a non-United States office of a non-United States broker
and the sales proceeds are paid to you outside the United States then
information reporting and backup withholding generally will not apply to that
payment. However, United States information reporting requirements, but not
backup withholding, will apply to a payment of sales proceeds, even if that
payment is made to you outside the United States, if you sell your common stock
through a non-United States office of a broker that is a United States person or
has some other contacts with the United States.
Backup
withholding tax is not an additional tax. Rather, you generally may obtain a
refund of any amounts withheld under backup withholding rules that exceed your
income tax liability by filing a refund claim with the IRS.
F.
Dividends and Paying Agents
Not
applicable.
G.
Statement by Experts
Not
applicable.
H.
Documents on Display
We are
subject to the informational requirements of the Exchange Act. In accordance
with these requirements we file reports and other information with the SEC.
These materials, including this annual report and the accompanying exhibits, may
be inspected and copied at the public reference facilities maintained by the SEC
at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain
information on the operation of the public reference room by calling 1 (800)
SEC-0330, and you may obtain copies at prescribed rates from the Public
Reference Section of the SEC at its principal office in Washington, D.C. The SEC
maintains a website (http://www.sec.gov) that contains reports, proxy and
information statements and other information that we and other registrants have
filed electronically with the SEC. Our filings are also available on our website
at www.excelmaritime.com. In addition, documents referred to in this annual
report may be inspected at our headquarters at Par La Ville Place, 14 Par La
Ville Road, Hamilton HM JX, Bermuda.
I.
Subsidiary Information
Not
applicable.
ITEM
11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign
Currency Risk
We expect
to generate all of our revenue in U.S. Dollars. The majority of our operating
expenses and management expenses are in U.S. Dollars, and we expect to incur
approximately 20% of our operating expenses in currencies other than U.S.
Dollars, the majority of which are denominated in Euros. This difference could
lead to fluctuations in net income due to changes in the value of the U.S.
Dollar relative to other currencies, but we do not expect such fluctuations to
be material. We do not currently hedge our exposure to foreign currency
fluctuation and were not party to any foreign currency exchange contracts during
2007, 2008 and 2009. For accounting purposes, expenses incurred in Euros are
translated into U.S. Dollars at the exchange rate prevailing on the date of each
transaction.
Inflation
Risk
Although
inflation has had a moderate impact on the trading fleet's operating and voyage
expenses in recent years, management does not consider inflation to be a
significant risk to operating or voyage costs in the current economic
environment. However, in the event that inflation becomes a significant factor
in the global economy, inflationary pressures would result in increased
operating, voyage and financing costs.
Interest
Rate Risk
The
shipping industry is a capital intensive industry, requiring significant amounts
of investment. Much of this investment is provided in the form of long-term
debt. Our debt usually contains interest rates that fluctuate with the financial
markets. Increasing interest rates could adversely impact future
earnings.
Our
interest expense is affected by changes in the general level of interest rates,
particularly LIBOR. As an indication of the extent of our sensitivity to
interest rate changes, an increase of 100 basis points would have decreased our
net income and cash flows in the current year by approximately $5.7 million
based upon our debt level during 2009.
The
following table sets forth the sensitivity of our long-term debt including the
effect of our derivative contracts in U.S. dollars to a 100 basis points
increase in LIBOR during the next five years on the same basis.
Net
Difference in Earnings and Cash Flows (in $ millions):
Year
|
|
Amount
|
|
|
|
|
2010
|
|
8.0 |
|
2011
|
|
9.7 |
|
2012
|
|
8.7 |
|
2013
|
|
7.7 |
|
2014
|
|
6.7 |
|
Concentration
of Credit Risk
Financial
instruments, which potentially subject the Company to significant concentrations
of credit risk, consist principally of cash and cash equivalents, trade accounts
receivable and derivative contracts (interest rate swaps). The Company places
its cash and cash equivalents, consisting mostly of deposits, with high credit
qualified financial institutions. The Company performs periodic evaluations of
the relative credit standing of those financial institutions. The Company limits
its credit risk with accounts receivable by performing ongoing credit
evaluations of its customers' financial condition. The Company does not obtain
rights to collateral to reduce its credit risk. The Company is exposed to credit
risk in the event of non-performance by counter parties to derivative
instruments; however, the Company limits its exposure by diversifying among
counter parties with high credit ratings.
Interest
rate swaps
The
Company is exposed to interest rate fluctuations associated with its variable
rate borrowings, and its objective is to manage the impact of such fluctuations
on earnings and cash flows of its borrowings. In this respect, the Company uses
interest rate swaps to manage net exposure to interest rate fluctuations related
to its borrowings and to lower its overall borrowing costs. The Company has two
interest rate swaps outstanding with a total notional amount of approximately
$633.7 million as of December 31, 2009. These interest rate swap agreements do
not qualify for hedge accounting, and changes in their fair values are reflected
in the Company's earnings. In addition, the Company is also a party
to a swaption agreement under which the counterparty has the option to enter
into an swap with the Company effective December 31, 2010 to June 30,
2014. Under the terms of the optional swap, the Company will make quarterly
fixed-rate payments of 5.00% to the counterparty based on a amortizing notional
amount of $504 million, and the counterparty will make quarterly floating-rate
payments at LIBOR to the Company based on the same notional amount.
ITEM
12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not
applicable
PART
II
ITEM
13 - DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None
ITEM
14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
None
ITEM
15 - CONTROLS AND PROCEDURES
(a)
Disclosure Controls and Procedures.
Management,
with the participation of our President and our Chief Financial Officer,
evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) as of the end of the period
covered
by this
annual report (as of December 31, 2009). Based on that evaluation, the President
and the Chief Financial Officer concluded that the Company's disclosure controls
and procedures are effective as of the evaluation date to ensure that
information required to be disclosed by the Company in the reports that it files
or submits to the SEC under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms.
(b)
Management's Annual Report on Internal Control over Financial
Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange
Act. The Company's internal control over financial reporting is a process
designed under the supervision of the Company's President and Chief Financial
Officer, and effected by the Company's board of directors, management, and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the Company's financial statements
for external reporting purposes in accordance with U.S. generally accepted
accounting principles.
The
Company's system of internal control over financial reporting includes policies
and procedures that:
|
(i)
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
Company;
|
|
(ii)
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally
accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company;
and
|
|
(iii)
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company's assets that
could have a material effect on the financial
statements.
|
Management
has conducted an assessment of the effectiveness of the Company's internal
control over financial reporting based on the framework established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO").
Based on
this assessment, management has determined that the Company's internal control
over financial reporting as of December 31, 2009 is effective.
(c)
Attestation Report of Independent Registered Public Accounting Firm
The
independent registered public accounting firm Ernst Young (Hellas) Certified
Auditors Accountants S.A., that audited the consolidated financial statements of
the Company for the year ended December 31, 2009, included in this annual
report, has issued an attestation report on the Company's internal control over
financial reporting, appearing under Item 18, and such report is incorporated
herein by reference.
(d)
Changes in Internal Control over Financial Reporting
There
have been no changes in internal control over financial reporting that occurred
during the fiscal year covered by this annual report that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
Inherent
Limitations on Effectiveness of Controls
Our
management, including our President and our Chief Financial Officer, does not
expect that our disclosure controls or our internal control over financial
reporting will prevent or detect all error and all fraud. A control system, no
matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control system's objectives will be met. Our
disclosure controls and procedures are designed to provide reasonable assurance
of achieving their objectives. Projections of any evaluation of controls
effectiveness to future periods are subject to risks. Over time, controls may
become inadequate because of changes in conditions or deterioration in the
degree of compliance with policies or procedures.
ITEM 16A. Audit Committee
Financial Expert
In
accordance with the rules of the AMEX, the exchange at which the Company's stock
was listed at the time, the Company was not required to have an audit committee
until July 31, 2005. The Company appointed an Audit Committee in accordance with
AMEX and NYSE requirements prior to such deadline. The Board has determined that
Messrs. Apostolos Kontoyannis and Frithjof Platou, each an independent member of
the Board, are Audit Committee financial experts.
ITEM 16B. Code of
Ethics
The
Company has adopted a code of ethics that applies to all employees, directors,
officers, agents and affiliates of the Company. A copy of our code of ethics is
attached hereto as Exhibit 11.1. We will also provide a hard copy of our code of
ethics free of charge upon written request of a shareholder. Shareholders may
direct their requests to the attention of Ms. Vicky Poziopoulou at the Company's
registered address and phone number. In addition, our code of ethics is
available on our website at www.excelmaritime.com.
ITEM
16C. Principal Accountant Fees and Services
Our
principal accountants, Ernst & Young (Hellas), Certified Auditors
Accountants S.A., have billed us for audit, audit-related and non-audit services
as follows (in Euros):
|
|
2008
|
|
|
2009
|
|
Audit
fees
|
|
|
1,152,900 |
|
|
|
702,750 |
|
Audit-related
fees
|
|
|
- |
|
|
|
- |
|
Tax
fees
|
|
|
- |
|
|
|
- |
|
All
other fees
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
1,152,900 |
|
|
|
702,750 |
|
Audit
fees in 2009 relate to the audit of our consolidated financial statements and
the audit of our internal control over financial reporting and audit services
provided in connection with SAS 100 reviews and other filings and registration
of shares of common stock.
Audit
fees in 2008 relate to the audit of our consolidated financial statements and
the audit of our internal control over financial reporting and audit services
provided in connection with SAS 100 reviews and related registration filings
made with the SEC relating to the acquisition of Quintana and other filings and
registration of shares of common stock.
Under the
Sarbanes-Oxley Act of 2002, or the Act, and per NYSE rules and regulations, our
Audit Committee is responsible for the appointment, compensation, retention and
oversight of the work of the independent auditor. As part of this
responsibility, the Audit Committee is required to pre-approve audit,
audit-related and permitted non-audit services provided by the independent
auditor in order to ensure that such services do not impair the auditor's
independence.
To
implement the provisions of the Act, and the related rules promulgated by the
SEC, the Audit Committee has adopted, and the Board has ratified, an Audit and
Non-Audit Services Pre-Approval Policy to set forth the procedures and the
conditions pursuant to which audit and non-audit services proposed to be
performed by the independent auditor are pre-approved by the Committee or its
designee(s).
All audit
and audit-related services provided by Ernst & Young (Hellas), Certified
Auditors Accountants S.A., were pre-approved by the Audit
Committee.
ITEM
16D. Exemptions from the Listing Standards for Audit
Committees
Not
applicable.
ITEM
16E. Purchases of Equity Securities by the Issuer and
Affiliated Purchasers
Period
|
|
(a)
Total Number of Shares Purchased
|
|
|
(b)
Average Price Paid Per Share
|
|
|
(c)
Total Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
|
|
(d)
Maximum Number of Shares that May Yet Be Purchased Under the Plans or
Programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
30, 2009(1)
|
|
|
25,714,286 |
|
|
$ |
1.75 |
|
|
|
N/A |
|
|
|
N/A |
|
(1)
|
As
part of the amendments to the Nordea credit facility and the Credit Suisse
credit facility, entities affiliated with the family of the Chairman of
our Board of Directors injected $45.0 million in the Company, which was
applied against the balloon payment of the Nordea credit facility. In
exchange for their contribution, the entities received an aggregate of
25,714,286 Class A shares and 5,500,000 warrants, with an exercise price
of $3.50 per warrant. The shares, the warrants and the shares issuable on
exercise of the warrants are subject to 12-month lock-ups from March 31,
2009. Price per share includes purchase price of
warrants.
|
ITEM 16F. Change
in Registrant's Certifying Accountant
Not applicable.
ITEM
16G. Corporate Governance
As a
foreign private issuer, as defined in Rule 3b-4 under the Exchange Act, the
Company is permitted to follow certain corporate governance rules of its home
country in lieu of the NYSE Rules. The Company complies fully with the NYSE
Rules, except that the Company's corporate governance practices deviate with
respect to NYSE Rule 303A.08, which requires the Company to obtain prior
shareholder approval to adopt or revise any equity compensation
plans.
PART
III
ITEM
17 - FINANCIAL STATEMENTS
See Item
18
ITEM
18 - FINANCIAL STATEMENTS
The
following financial statements, together with the report of Ernst & Young
(Hellas) Certified Auditors Accountants S.A. thereon, are set forth on pages F-1
through F-43 and are filed as a part of this annual report.
EXCEL
MARITIME CARRIERS LTD.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
|
Report
of Independent Registered Public Accounting Firm on Internal Control over
Financial Reporting
|
|
F-3
|
|
|
|
Consolidated
Balance Sheets as of December 31, 2008 and 2009
|
|
F-4
|
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2007,
2008 and 2009
|
|
F-5
|
|
|
|
Consolidated
Statements of Stockholders' Equity for the years ended December 31, 2007,
2008 and 2009
|
|
F-6
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2007, 2008 and
2009
|
|
F-7
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
F-8
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of Excel Maritime Carriers Ltd.
We have
audited the accompanying consolidated balance sheets of Excel Maritime Carriers
Ltd. as of December 31, 2008 and 2009, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 2009. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Excel Maritime
Carriers Ltd. at December 31, 2008 and 2009, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2009, in conformity with U.S. generally accepted accounting
principles.
As
discussed in Notes 2 and 3 to the consolidated financial statements, effective
January 1, 2009, the Company adopted the amendments in ASC Topic 810-10-45
"Non-controlling Interest in a Subsidiary" and ASC Topic 470-20, "Debt with
Conversion and Other Options," as well as changed the method of accounting for
dry docking and special survey costs from the deferral method to the direct
expense method, and retrospectively adjusted the financial statements for each
of the three years in the period ended December 31, 2009.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Excel Maritime Carriers Ltd.'s internal
control over financial reporting as of December 31, 2009, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March
9, 2010 expressed an unqualified opinion thereon.
/s/ Ernst
& Young (Hellas) Certified Auditors Accountants S.A.
Athens,
Greece
March 9,
2010
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
The Board
of Directors and Shareholders of Excel Maritime Carriers Ltd.
We have
audited Excel Maritime Carriers Ltd.'s internal control over financial reporting
as of December 31, 2009, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Excel Maritime Carriers Ltd.'s
management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management's
Annual Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the company's internal control over financial
reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Excel Maritime Carriers Ltd. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2009,
based on the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Excel
Maritime Carriers Ltd. as of December 31, 2008 and 2009 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2009 of Excel Maritime
Carriers Ltd. and our report dated March 9, 2010 expressed an unqualified
opinion thereon.
/s/ Ernst
& Young (Hellas) Certified Auditors Accountants S.A.
Athens,
Greece
March 9,
2010
EXCEL
MARITIME CARRIERS LTD.
|
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2008 AND 2009
|
(Expressed
in thousands of U.S. Dollars – except for share and per share
data)
|
ASSETS
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
109,792 |
|
|
$ |
100,098 |
|
Restricted
cash
|
|
|
53 |
|
|
|
34,426 |
|
Accounts
receivable trade, net
|
|
|
6,220 |
|
|
|
3,784 |
|
Accounts
receivable, other
|
|
|
4,027 |
|
|
|
2,232 |
|
Due
from related parties (Note 5)
|
|
|
221 |
|
|
|
- |
|
Inventories
(Note 6)
|
|
|
4,714 |
|
|
|
4,479 |
|
Prepayments
and advances
|
|
|
2,023 |
|
|
|
3,081 |
|
Total
current assets
|
|
|
127,050 |
|
|
|
148,100 |
|
|
|
|
|
|
|
|
|
|
FIXED
ASSETS:
|
|
|
|
|
|
|
|
|
Vessels,
net of accumulated depreciation of $165,686 and $288,537 (Note
7)
|
|
|
2,786,717 |
|
|
|
2,660,163 |
|
Office
furniture and equipment, net of accumulated depreciation of $862 and
$1,280 (Note 7)
|
|
|
1,722 |
|
|
|
1,450 |
|
Advances
for vessels under construction and acquisitions (Note
8)
|
|
|
106,898 |
|
|
|
71,184 |
|
Total
fixed assets, net
|
|
|
2,895,337 |
|
|
|
2,732,797 |
|
|
|
|
|
|
|
|
|
|
OTHER
NON CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Time
charters acquired, net of accumulated amortization of $28,447 and $68,399
(Note 11)
|
|
|
264,263 |
|
|
|
224,311 |
|
Restricted
cash
|
|
|
24,947 |
|
|
|
24,974 |
|
Investment
in affiliate (Note 1)
|
|
|
5,212 |
|
|
|
- |
|
Total
assets
|
|
$ |
3,316,809 |
|
|
$ |
3,130,182 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt, net of unamortized
deferred
financing fees (Note 9)
|
|
$ |
220,410 |
|
|
$ |
134,681 |
|
Accounts
payable
|
|
|
6,440 |
|
|
|
5,349 |
|
Due
to related parties (Note 5)
|
|
|
641 |
|
|
|
253 |
|
Deferred
revenue
|
|
|
13,931 |
|
|
|
28,880 |
|
Accrued
liabilities
|
|
|
33,362 |
|
|
|
18,668 |
|
Current
portion of financial instruments (Note 10)
|
|
|
40,119 |
|
|
|
29,343 |
|
Total
current liabilities
|
|
|
314,903 |
|
|
|
217,174 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of
current portion and net of unamortized deferred financing
fees (Notes 3 and 9)
|
|
|
1,256,707 |
|
|
|
1,121,765 |
|
Time
charters acquired, net of accumulated amortization of $233,967 and
$598,335 (Note 11)
|
|
|
650,781 |
|
|
|
280,413 |
|
Financial instruments,
net of current portion (Note 10)
|
|
|
41,020 |
|
|
|
24,558 |
|
Total
liabilities
|
|
|
2,263,411 |
|
|
|
1,643,910 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 16)
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.1 par value: 5,000,000 shares authorized, none
issued
|
|
|
- |
|
|
|
- |
|
Common
Stock, $0.01 par value; 994,000,000 Class A shares and 1,000,000 Class B
shares authorized; 46,080,272 Class A shares and 145,746 Class B shares,
issued and outstanding at December 31, 2008 and 79,770,159 Class A shares
and 145,746 Class B shares, issued and outstanding at December 31, 2009
(Note 12)
|
|
|
461 |
|
|
|
799 |
|
Additional
paid-in capital (Note 12)
|
|
|
944,207 |
|
|
|
1,046,606 |
|
Accumulated
Other Comprehensive Loss
|
|
|
(74 |
) |
|
|
(85 |
) |
Retained
Earnings
|
|
|
94,063 |
|
|
|
433,845 |
|
Treasury
stock (115,529 Class A shares and 588 Class B shares at December 31, 2008
and 2009)
|
|
|
(189 |
) |
|
|
(189 |
) |
Excel
Maritime Carriers Ltd. Stockholders' equity
|
|
|
1,038,468 |
|
|
|
1,480,976 |
|
|
|
|
|
|
|
|
|
|
Non-controlling
interests (Notes 1 and 3)
|
|
|
14,930 |
|
|
|
5,296 |
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
1,053,398 |
|
|
|
1,486,272 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
3,316,809 |
|
|
$ |
3,130,182 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
|
EXCEL
MARITIME CARRIERS LTD.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
|
(Expressed
in thousands of U.S. Dollars-except for share and per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
Voyage
revenues (Note 1)
|
|
$ |
176,689 |
|
|
$ |
461,203 |
|
|
$ |
391,746 |
|
Time
charter amortization (Note 11)
|
|
|
- |
|
|
|
233,967 |
|
|
|
364,368 |
|
Revenue
from managing related party vessels (Note 5)
|
|
|
818 |
|
|
|
890 |
|
|
|
488 |
|
Total
revenues
|
|
|
177,507 |
|
|
|
696,060 |
|
|
|
756,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
expenses (Note 18)
|
|
|
11,077 |
|
|
|
28,145 |
|
|
|
19,317 |
|
Charter
hire expense
|
|
|
- |
|
|
|
23,385 |
|
|
|
32,832 |
|
Charter
hire amortization (Note 11)
|
|
|
- |
|
|
|
28,447 |
|
|
|
39,952 |
|
Commissions
to a related party (Notes 5 and 18)
|
|
|
2,204 |
|
|
|
3,620 |
|
|
|
2,260 |
|
Vessel
operating expenses (Note 18)
|
|
|
33,637 |
|
|
|
69,684 |
|
|
|
83,197 |
|
Depreciation (Note
7)
|
|
|
27,864 |
|
|
|
98,753 |
|
|
|
123,411 |
|
Drydocking
and special survey costs (Notes 2 and 3)
|
|
|
6,834 |
|
|
|
13,511 |
|
|
|
11,379 |
|
General
and administrative expenses (Note 13)
|
|
|
12,586 |
|
|
|
32,925 |
|
|
|
42,995 |
|
|
|
|
94,202 |
|
|
|
298,470 |
|
|
|
355,343 |
|
OTHER
OPERATING INCOME/(LOSS):
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of vessel (Note 7)
|
|
|
6,993 |
|
|
|
- |
|
|
|
61 |
|
Loss
on disposal of JV ownership interest (Note 5)
|
|
|
- |
|
|
|
- |
|
|
|
(3,705 |
) |
Vessel
impairment loss (Note 7)
|
|
|
- |
|
|
|
(2,232 |
) |
|
|
- |
|
Write
down of goodwill (Note 4)
|
|
|
- |
|
|
|
(335,404 |
) |
|
|
- |
|
Loss
from vessel's purchase cancellation (Note 1)
|
|
|
- |
|
|
|
(15,632 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
90,298 |
|
|
|
44,322 |
|
|
|
397,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and finance costs (Notes 9 and 19)
|
|
|
(15,596 |
) |
|
|
(61,942 |
) |
|
|
(57,096 |
) |
Interest
income
|
|
|
7,485 |
|
|
|
7,053 |
|
|
|
809 |
|
Interest
rate swap losses, net (Note 10)
|
|
|
(439 |
) |
|
|
(35,884 |
) |
|
|
(1,126 |
) |
Foreign
exchange gains (losses)
|
|
|
(367 |
) |
|
|
71 |
|
|
|
(322 |
) |
Other,
net
|
|
|
(66 |
) |
|
|
1,585 |
|
|
|
408 |
|
Total
other income (expenses), net
|
|
|
(8,983 |
) |
|
|
(89,117 |
) |
|
|
(57,327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) before taxes and income from investment in
affiliate
|
|
|
81,315 |
|
|
|
(44,795 |
) |
|
|
340,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Source Income taxes (Note 17)
|
|
|
(486 |
) |
|
|
(783 |
) |
|
|
(660 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) before income from investment in affiliate
|
|
|
80,829 |
|
|
|
(45,578 |
) |
|
|
339,628 |
|
Income
from Investment in affiliate
|
|
|
873 |
|
|
|
487 |
|
|
|
- |
|
Loss
in value of investment in affiliate (Note 1)
|
|
|
- |
|
|
|
(10,963 |
) |
|
|
- |
|
Net
income (loss)
|
|
$ |
81,702 |
|
|
$ |
(56,054 |
) |
|
$ |
339,628 |
|
Loss
assumed by non-controlling interests
|
|
|
2 |
|
|
|
140 |
|
|
|
154 |
|
Net
income (loss) attributed to Excel Maritime Carriers Ltd.
|
|
|
81,704 |
|
|
|
(55,914 |
) |
|
|
339,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(losses) per common share, basic
|
|
$ |
4.10 |
|
|
$ |
(1.53 |
) |
|
$ |
5.03 |
|
Weighted
average number of shares, basic (Note 15)
|
|
|
19,949,644 |
|
|
|
37,003,101 |
|
|
|
67,565,178 |
|
Earnings
(losses) per common share, diluted
|
|
$ |
4.09 |
|
|
$ |
(1.53 |
) |
|
$ |
4.85 |
|
Weighted
average number of shares, diluted (Note 15)
|
|
|
19,965,676 |
|
|
|
37,003,101 |
|
|
|
69,999,760 |
|
Cash
dividends declared per share (Note 14)
|
|
$ |
0.60 |
|
|
$ |
1.20 |
|
|
$ |
- |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
EXCEL
MARITIME CARRIERS LTD.
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
|
|
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND
2009
|
|
|
|
|
|
|
|
(Expressed
in thousands of U.S. Dollars – except for share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
(Loss)
|
|
|
Number of
Shares
|
|
|
Par
Value
|
|
|
Additional
Paid-in
Capital
|
|
|
Shares
to be issued
|
|
|
Accumulated
other comprehensive loss
|
|
|
Due
from a related party
|
|
|
Retained
Earnings
|
|
|
Treasury
Stock
|
|
|
Excel
Maritime Carriers Ltd.
Stockholders'
Equity
|
|
|
Non-controlling
interests
|
|
|
Total
Stockholders equity
|
|
BALANCE,
December
31, 2006
|
|
|
|
|
|
19,730,479 |
|
|
$ |
197 |
|
|
$ |
182,410 |
|
|
$ |
6,853 |
|
|
$ |
(79 |
) |
|
$ |
(2,024 |
) |
|
$ |
128,697 |
|
|
$ |
(189 |
) |
|
$ |
315,865 |
|
|
$ |
- |
|
|
$ |
315,865 |
|
-
Net income
|
|
|
81,704 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
81,704 |
|
|
|
- |
|
|
|
81,704 |
|
|
|
- |
|
|
|
81,704 |
|
-
Issuance of common stock
|
|
|
- |
|
|
|
298,403 |
|
|
|
3 |
|
|
|
6,850 |
|
|
|
(6,853 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
-
Stock-based compensation expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
826 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
826 |
|
|
|
- |
|
|
|
826 |
|
-Adoption
of ASC 470-20
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
49,874 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
49,874 |
|
|
|
- |
|
|
|
49,874 |
|
-Sale
of shares of Oceanaut
|
|
|
3,811 |
|
|
|
- |
|
|
|
- |
|
|
|
3,811 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,811 |
|
|
|
- |
|
|
|
3,811 |
|
-Due
from a related party
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,024 |
|
|
|
- |
|
|
|
- |
|
|
|
2,024 |
|
|
|
- |
|
|
|
2,024 |
|
-
Dividends paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(11,910 |
) |
|
|
- |
|
|
|
(11,910 |
) |
|
|
- |
|
|
|
(11,910 |
) |
-
Actuarial gains
|
|
|
14 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14 |
|
|
|
- |
|
|
|
14 |
|
Comprehensive
Income
|
|
|
85,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
December
31, 2007
|
|
|
|
|
|
|
20,028,882 |
|
|
$ |
200 |
|
|
$ |
243,771 |
|
|
$ |
- |
|
|
$ |
(65 |
) |
|
$ |
- |
|
|
$ |
198,491 |
|
|
$ |
(189 |
) |
|
$ |
442,208 |
|
|
$ |
- |
|
|
$ |
442,208 |
|
-
Net loss
|
|
|
(55,914 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(55,914 |
) |
|
|
- |
|
|
|
(55,914 |
) |
|
|
- |
|
|
|
(55,914 |
) |
-
Issuance of common stock
|
|
|
- |
|
|
|
25,028,775 |
|
|
|
250 |
|
|
|
691,851 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
692,101 |
|
|
|
- |
|
|
|
692,101 |
|
-
Stock-based compensation expense
|
|
|
- |
|
|
|
1,168,361 |
|
|
|
11 |
|
|
|
8,585 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,596 |
|
|
|
- |
|
|
|
8,596 |
|
-
Dividends paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(48,514 |
) |
|
|
- |
|
|
|
(48,514 |
) |
|
|
- |
|
|
|
(48,514 |
) |
-Adoption
of ASC 810-10-45
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,930 |
|
|
|
14,930 |
|
-
Actuarial losses
|
|
|
(9 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(9 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(9 |
) |
|
|
- |
|
|
|
(9 |
) |
Comprehensive
loss
|
|
|
(55,923 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
December
31, 2008
|
|
|
|
|
|
|
46,226,018 |
|
|
$ |
461 |
|
|
$ |
944,207 |
|
|
$ |
- |
|
|
$ |
(74 |
) |
|
$ |
- |
|
|
$ |
94,063 |
|
|
$ |
(189 |
) |
|
$ |
1,038,468 |
|
|
$ |
14,930 |
|
|
$ |
1,053,398 |
|
-
Net income
|
|
|
339,628 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
339,782 |
|
|
|
- |
|
|
|
339,782 |
|
|
|
(154 |
) |
|
|
339,628 |
|
-
Issuance of common stock
|
|
|
- |
|
|
|
31,714,286 |
|
|
|
318 |
|
|
|
89,812 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
90,130 |
|
|
|
- |
|
|
|
90,130 |
|
-
Stock-based compensation expense
|
|
|
- |
|
|
|
1,975,601 |
|
|
|
20 |
|
|
|
19,827 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
19,847 |
|
|
|
- |
|
|
|
19,847 |
|
-Non
controlling interest contributions
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,328 |
|
|
|
3,328 |
|
-
Transfer/ exchange of ownership interests
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,240 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,240 |
) |
|
|
(12,808 |
) |
|
|
(20,048 |
) |
-
Actuarial losses
|
|
|
(11 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(11 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(11 |
) |
|
|
- |
|
|
|
(11 |
) |
Comprehensive
Income
|
|
|
339,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
December
31, 2009
|
|
|
|
|
|
|
79,915,905 |
|
|
$ |
799 |
|
|
$ |
1,046,606 |
|
|
$ |
- |
|
|
$ |
(85 |
) |
|
$ |
- |
|
|
$ |
433,845 |
|
|
$ |
(189 |
) |
|
$ |
1,480,976 |
|
|
$ |
5,296 |
|
|
$ |
1,486,272 |
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
|
EXCEL
MARITIME CARRIERS LTD.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2008 AND
2009
|
(Expressed
in thousands of U.S. Dollars)
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
81,702 |
|
|
$ |
(56,054 |
) |
|
$ |
339,628 |
|
Adjustments
to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
27,864 |
|
|
|
98,753 |
|
|
|
123,411 |
|
Amortization
of convertible notes debt discount
|
|
|
1,134 |
|
|
|
5,628 |
|
|
|
6,154 |
|
Amortization
and write-off of deferred financing costs
|
|
|
437 |
|
|
|
4,270 |
|
|
|
3,823 |
|
Write
down of goodwill
|
|
|
- |
|
|
|
335,404 |
|
|
|
- |
|
Time
charter revenue amortization, net of charter hire amortization
expense
|
|
|
- |
|
|
|
(205,520 |
) |
|
|
(324,416 |
) |
Gain
on sale of vessels
|
|
|
(6,993 |
) |
|
|
- |
|
|
|
(61 |
) |
Loss
on disposal of JV ownership interest
|
|
|
- |
|
|
|
- |
|
|
|
3,705 |
|
Vessel
impairment loss
|
|
|
- |
|
|
|
2,232 |
|
|
|
- |
|
Loss
from vessel's purchase cancellation
|
|
|
- |
|
|
|
15,632 |
|
|
|
- |
|
Loss
in value of investment
|
|
|
- |
|
|
|
10,963 |
|
|
|
- |
|
Stock-based
compensation expense
|
|
|
826 |
|
|
|
8,596 |
|
|
|
19,847 |
|
Unrealized
interest rate swap (gain) loss
|
|
|
723 |
|
|
|
25,821 |
|
|
|
(27,238 |
) |
Unrecognized
actuarial (gains) losses
|
|
|
14 |
|
|
|
(9 |
) |
|
|
(11 |
) |
Income
from investment in affiliate
|
|
|
(873 |
) |
|
|
(487 |
) |
|
|
- |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
1,140 |
|
|
|
(4,754 |
) |
|
|
4,231 |
|
Financial
instruments settled in the period
|
|
|
- |
|
|
|
499 |
|
|
|
- |
|
Inventories
|
|
|
(1,149 |
) |
|
|
(45 |
) |
|
|
235 |
|
Prepayments
and advances
|
|
|
(309 |
) |
|
|
2,157 |
|
|
|
(1,058 |
) |
Due
from affiliate
|
|
|
(105 |
) |
|
|
105 |
|
|
|
- |
|
Due
from related parties
|
|
|
- |
|
|
|
(221 |
) |
|
|
221 |
|
Accounts
payable
|
|
|
1,210 |
|
|
|
(1,478 |
) |
|
|
(1,091 |
) |
Due
to related parties
|
|
|
134 |
|
|
|
259 |
|
|
|
(388 |
) |
Accrued
liabilities
|
|
|
1,453 |
|
|
|
21,307 |
|
|
|
(14,689 |
) |
Deferred
revenue
|
|
|
1,525 |
|
|
|
841 |
|
|
|
14,949 |
|
Net
Cash provided by Operating Activities
|
|
$ |
108,733 |
|
|
$ |
263,899 |
|
|
$ |
147,252 |
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of Quintana, net of $81,970 cash acquired
|
|
|
- |
|
|
|
(692,420 |
) |
|
|
- |
|
Joint
ventures ownership transfer
|
|
|
- |
|
|
|
- |
|
|
|
(1,591 |
) |
Advances
for vessels under construction
|
|
|
- |
|
|
|
(84,866 |
) |
|
|
(9,379 |
) |
Additions
to vessel cost
|
|
|
(126,068 |
) |
|
|
(342 |
) |
|
|
(113 |
) |
Investment
in Oceanaut
|
|
|
(11,004 |
) |
|
|
- |
|
|
|
- |
|
Payment
for business acquisition costs
|
|
|
(1,522 |
) |
|
|
- |
|
|
|
- |
|
Proceeds
from sale of vessels
|
|
|
15,740 |
|
|
|
- |
|
|
|
3,735 |
|
Payment
for vessel's purchase cancellation
|
|
|
- |
|
|
|
(7,250 |
) |
|
|
- |
|
Proceeds
received from Oceanaut liquidation
|
|
|
- |
|
|
|
- |
|
|
|
5,212 |
|
Office
furniture and equipment
|
|
|
(755 |
) |
|
|
(401 |
) |
|
|
(146 |
) |
Net
cash used in Investing Activities
|
|
$ |
(123,609 |
) |
|
$ |
(785,279 |
) |
|
$ |
(2,282 |
) |
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in restricted cash
|
|
|
- |
|
|
|
(10,000 |
) |
|
|
(34,400 |
) |
Proceeds
from long-term debt
|
|
|
225,600 |
|
|
|
1,405,642 |
|
|
|
5,067 |
|
Repayment
of long-term debt
|
|
|
(35,876 |
) |
|
|
(944,945 |
) |
|
|
(216,851 |
) |
Receipt
from a related party
|
|
|
2,024 |
|
|
|
- |
|
|
|
- |
|
Capital
contributions from non-controlling interest owners
|
|
|
(2 |
) |
|
|
738 |
|
|
|
3,328 |
|
Dividends
paid
|
|
|
(11,910 |
) |
|
|
(48,514 |
) |
|
|
- |
|
Issuance
of common stock, net of related issuance costs-related
party
|
|
|
- |
|
|
|
- |
|
|
|
44,983 |
|
Issuance
of common stock, net of related issuance costs
|
|
|
- |
|
|
|
(131 |
) |
|
|
45,147 |
|
Payment
of financing costs
|
|
|
(7,577 |
) |
|
|
(15,290 |
) |
|
|
(1,938 |
) |
Net
cash provided by (used in) Financing Activities
|
|
$ |
172,259 |
|
|
$ |
387,500 |
|
|
$ |
(154,664 |
) |
Net
increase (decrease) in cash and cash equivalents
|
|
|
157,383 |
|
|
|
(133,880 |
) |
|
|
(9,694 |
) |
Cash
and cash equivalents at beginning of year
|
|
|
86,289 |
|
|
|
243,672 |
|
|
|
109,792 |
|
Cash
and cash equivalents at end of the year
|
|
$ |
243,672 |
|
|
$ |
109,792 |
|
|
$ |
100,098 |
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
-Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
payments
|
|
$ |
14,489 |
|
|
$ |
35,595 |
|
|
$ |
56,159 |
|
US
Source Income taxes
|
|
$ |
489 |
|
|
$ |
861 |
|
|
$ |
740 |
|
-Non-cash
financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A common stock issued as part of the vessel purchase
cancellation
|
|
$ |
- |
|
|
$ |
8,382 |
|
|
$ |
- |
|
-Non-cash
financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A common stock issued as part of the consideration paid for the
acquisition of Quintana
|
|
$ |
- |
|
|
$ |
682,333 |
|
|
$ |
- |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
1. Basis
of Presentation:
The
accompanying consolidated financial statements include the accounts of Excel
Maritime Carriers Ltd. and its wholly owned subsidiaries and consolidated Joint
Ventures (collectively, the "Company" or "Excel"). Excel was formed in 1988,
under the laws of the Republic of Liberia. The Company is engaged in the ocean
transportation of dry bulk cargoes worldwide through the ownership and operation
of bulk carrier vessels.
On
January 29, 2008, the Company entered into an Agreement and Plan of Merger
with Quintana Maritime Limited ("Quintana") and Bird Acquisition Corp. ("Bird"),
a direct wholly-owned subsidiary of the Company. On April 15, 2008, the Company
completed the acquisition of 100% of the voting equity interests in Quintana. As
a result of the acquisition, Quintana operates as a wholly owned subsidiary of
Excel under the name Bird. Following the acquisition of Quintana, the
Company is the sole owner, except as otherwise noted, of all outstanding shares
of the following ship-owning subsidiaries:
|
|
Company
|
Country
of Incorporation
|
Vessel
name
|
Type
|
|
Year
of Built
|
|
|
|
Ship-owning
companies with vessels in operation
|
|
|
1. |
|
Iron
Miner Shipco LLC
|
Marshall
Islands
|
Iron
Miner
|
Capesize
|
|
|
2007 |
|
|
2. |
|
Iron
Beauty Shipco LLC
|
Marshall
Islands
|
Iron
Beauty
|
Capesize
|
|
|
2001 |
|
|
3. |
|
Kirmar
Shipco LLC
|
Marshall
Islands
|
Kirmar
|
Capesize
|
|
|
2001 |
|
|
4. |
|
Lowlands
Beilun Shipco LLC
|
Marshall
Islands
|
Lowlands
Beilun
|
Capesize
|
|
|
1999 |
|
|
5. |
|
Sandra
Shipco LLC (1)
|
Marshall
Islands
|
Sandra
|
Capesize
|
|
|
2008 |
|
|
6. |
|
Iron
Brooke Shipco LLC
|
Marshall
Islands
|
Iron
Brooke
|
Kamsarmax
|
|
|
2007 |
|
|
7. |
|
Iron
Lindrew Shipco LLC
|
Marshall
Islands
|
Iron
Lindrew
|
Kamsarmax
|
|
|
2007 |
|
|
8. |
|
Iron
Manolis Shipco LLC
|
Marshall
Islands
|
Iron
Manolis
|
Kamsarmax
|
|
|
2007 |
|
|
9. |
|
Coal
Gypsy Shipco LLC
|
Marshall
Islands
|
Coal
Gypsy
|
Kamsarmax
|
|
|
2006 |
|
|
10. |
|
Coal
Hunter Shipco LLC
|
Marshall
Islands
|
Coal
Hunter
|
Kamsarmax
|
|
|
2006 |
|
|
11. |
|
Pascha
Shipco LLC
|
Marshall
Islands
|
Pascha
|
Kamsarmax
|
|
|
2006 |
|
|
12. |
|
Santa
Barbara Shipco LLC
|
Marshall
Islands
|
Santa
Barbara
|
Kamsarmax
|
|
|
2006 |
|
|
13. |
|
Iron
Fuzeyya Shipco LLC
|
Marshall
Islands
|
Iron
Fuzeyya
|
Kamsarmax
|
|
|
2006 |
|
|
14. |
|
Ore
Hansa Shipco LLC
|
Marshall
Islands
|
Ore
Hansa
|
Kamsarmax
|
|
|
2006 |
|
|
15. |
|
Iron
Kalypso Shipco LLC
|
Marshall
Islands
|
Iron
Kalypso
|
Kamsarmax
|
|
|
2006 |
|
|
16. |
|
Iron
Anne Shipco LLC
|
Marshall
Islands
|
Iron
Anne
|
Kamsarmax
|
|
|
2006 |
|
|
17. |
|
Iron
Bill Shipco LLC
|
Marshall
Islands
|
Iron
Bill
|
Kamsarmax
|
|
|
2006 |
|
|
18. |
|
Iron
Vassilis Shipco LLC
|
Marshall
Islands
|
Iron
Vassilis
|
Kamsarmax
|
|
|
2006 |
|
|
19. |
|
Iron
Bradyn Shipco LLC
|
Marshall
Islands
|
Iron
Bradyn
|
Kamsarmax
|
|
|
2005 |
|
|
20. |
|
Grain
Express Shipco LLC
|
Marshall
Islands
|
Grain
Express
|
Panamax
|
|
|
2004 |
|
|
21. |
|
Iron
Knight Shipco LLC
|
Marshall
Islands
|
Iron
Knight
|
Panamax
|
|
|
2004 |
|
|
22. |
|
Grain
Harvester Shipco LLC
|
Marshall
Islands
|
Grain
Harvester
|
Panamax
|
|
|
2004 |
|
|
23. |
|
Coal
Pride Shipco LLC
|
Marshall
Islands
|
Coal
Pride
|
Panamax
|
|
|
1999 |
|
|
24. |
|
Fianna
Navigation S.A
|
Liberia
|
Isminaki
|
Panamax
|
|
|
1998 |
|
|
25. |
|
Marias
Trading Inc.
|
Liberia
|
Angela
Star
|
Panamax
|
|
|
1998 |
|
|
26. |
|
Yasmine
International Inc.
|
Liberia
|
Elinakos
|
Panamax
|
|
|
1997 |
|
|
27. |
|
Fearless
Shipco LLC (2)
|
Marshall
Islands
|
Fearless
I
|
Panamax
|
|
|
1997 |
|
|
28. |
|
Barbara
Shipco LLC (2)
|
Marshall
Islands
|
Barbara
|
Panamax
|
|
|
1997 |
|
|
29. |
|
Linda
Leah Shipco LLC (2)
|
Marshall
Islands
|
Linda
Leah
|
Panamax
|
|
|
1997 |
|
|
30. |
|
King
Coal Shipco LLC (2)
|
Marshall
Islands
|
King
Coal
|
Panamax
|
|
|
1997 |
|
|
31. |
|
Coal
Age Shipco LLC (2)
|
Marshall
Islands
|
Coal
Age
|
Panamax
|
|
|
1997 |
|
|
32. |
|
Iron
Man Shipco LLC (2)
|
Marshall
Islands
|
Iron
Man
|
Panamax
|
|
|
1997 |
|
|
33. |
|
Amanda
Enterprises Ltd.
|
Liberia
|
Happy
Day
|
Panamax
|
|
|
1997 |
|
|
34. |
|
Coal
Glory Shipco LLC (2)
|
Marshall
Islands
|
Coal
Glory
|
Panamax
|
|
|
1995 |
|
|
35. |
|
Fountain
Services Ltd.
|
Liberia
|
Powerful
|
Panamax
|
|
|
1994 |
|
|
36. |
|
Teagan
Shipholding S.A.
|
Liberia
|
First
Endeavour
|
Panamax
|
|
|
1994 |
|
|
37. |
|
Tanaka
Services Ltd.
|
Liberia
|
Rodon
|
Panamax
|
|
|
1993 |
|
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
1. Basis
of Presentation-continued
|
|
Company
|
Country
of Incorporation
|
Vessel
name
|
Type
|
|
Year
of Built
|
|
|
|
Ship-owning
companies with vessels in operation
|
|
|
38. |
|
Whitelaw
Enterprises Co.
|
Liberia
|
Birthday
|
Panamax
|
|
|
1993 |
|
|
39. |
|
Candy
Enterprises Inc.
|
Liberia
|
Renuar
|
Panamax
|
|
|
1993 |
|
|
40. |
|
Harvey
Development Corp.
|
Liberia
|
Fortezza
|
Panamax
|
|
|
1993 |
|
|
41. |
|
Minta
Holdings S.A.
|
Liberia
|
July
M
|
Supramax
|
|
|
2005 |
|
|
42. |
|
Odell
International Ltd.
|
Liberia
|
Mairouli
|
Supramax
|
|
|
2005 |
|
|
43. |
|
Ingram
Limited
|
Liberia
|
Emerald
|
Handymax
|
|
|
1998 |
|
|
44. |
|
Castalia
Services Ltd.
|
Liberia
|
Princess
I
|
Handymax
|
|
|
1994 |
|
|
45. |
|
Snapper
Marine Ltd.
|
Liberia
|
Marybelle
|
Handymax
|
|
|
1987 |
|
|
46. |
|
Barland
Holdings Inc.
|
Liberia
|
Attractive
|
Handymax
|
|
|
1985 |
|
|
47. |
|
Centel
Shipping Company Limited
|
Cyprus
|
Lady
|
Handymax
|
|
|
1985 |
|
Ship-owning
companies with vessels under construction
|
|
48. |
|
Christine
Shipco LLC (3)
|
Marshall
Islands
|
Christine
|
Capesize
|
Tbd
2010
|
|
49. |
|
Hope
Shipco LLC
|
Marshall
Islands
|
Hope
|
Capesize
|
Tbd
2010
|
|
50. |
|
Fritz
Shipco LLC (4)
(5)
|
Marshall
Islands
|
Fritz
|
Capesize
|
Tbd
2010
|
|
51. |
|
Benthe
Shipco LLC (4)
(5)
|
Marshall
Islands
|
Benthe
|
Capesize
|
Tbd
2010
|
|
52. |
|
Gayle
Frances Shipco LLC (4)
(5)
|
Marshall
Islands
|
Gayle
Frances
|
Capesize
|
Tbd
2010
|
|
53. |
|
Iron
Lena Shipco LLC (4)
(5)
|
Marshall
Islands
|
Iron
Lena
|
Capesize
|
Tbd
2010
|
(1)
|
Formerly
Iron Endurance Shipco LLC.
|
(2)
|
Indicates
a Company whose vessel was sold to a third party in July 2007 and
subsequently leased back under a bareboat
charter.
|
(3)
|
Christine
Shipco LLC is owned 71.4% by the
Company.
|
(4)
|
Consolidated
joint venture owned 50% by the
Company.
|
(5)
|
No
refund guarantees have yet been received for the newbuilding contracts
owned by these subsidiaries. These vessels may be delayed in delivery or
may never be delivered at all.
|
The
following wholly-owned subsidiaries have been established to acquire vessels,
although vessels have not yet been identified:
|
|
Company
|
Country
of Incorporation
|
|
54. |
|
Magalie
Investments Corp.
|
Liberia
|
|
55. |
|
Melba
Management Ltd.
|
Liberia
|
|
56. |
|
Naia
Development Corp.
|
Liberia
|
In
addition, the Company is the sole owner of the following non-shipowning
subsidiaries:
|
|
Company
|
Country
of Incorporation
|
|
57. |
|
Maryville
Maritime Inc. (1)
|
Liberia
|
|
58. |
|
Point
Holdings Ltd. (2)
|
Liberia
|
|
59. |
|
Thurman
International Ltd. (3)
|
Liberia
|
|
60. |
|
Bird
Acquisition Corp (4)
|
Marshall
Islands
|
|
61. |
|
Quintana
Management LLC (5)
|
Marshall
Islands
|
|
62. |
|
Quintana
Logistics LLC (6)
|
Marshall
Islands
|
|
63. |
|
Pisces
Shipholding Ltd. (7)
|
Liberia
|
|
64. |
|
Liegh
Jane Navigation S.A. (8)
|
Liberia
|
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
1. Basis
of Presentation-continued:
(1)
|
Maryville
Maritime Inc. is a management company that provides the commercial and
technical management of Excel's vessels and 2 vessels owned by the
Company's chairman.
|
(2)
|
Point
Holdings Ltd. is the parent company (100% owner) of sixteen Liberian
ship-owning companies, one Liberian holding company and five Liberian
non ship-owning companies.
|
(3)
|
Thurman
International Ltd. is the parent company (100% owner) of Centel Shipping
Company Limited, the owner of M/V
Lady.
|
(4)
|
Bird
Acquisition Corp. ("Bird") is the parent company (100% owner) of 31
Marshall Islands ship-owning companies. Bird is also a joint-venture
partner in five Marshall Island ship-owning companies, four of which are
50% owned by Bird and one 71.4% owned by Bird. Bird is the
successor-in-interest to Quintana Maritime
Ltd.
|
(5)
|
Quintana
Management LLC was the management company for Quintana's vessels, prior to
the merger on April 15, 2008. The company's Greek office, which was
established under the provisions of Law 89/1967 as amended, was closed on
December 24, 2008 and the company is in the process of being
dissolved.
|
(6)
|
Quintana
Logistics was incorporated in 2005 to engage in chartering operations,
including contracts of affreightment. It has no operations since the
merger.
|
(7)
|
Previously
the owning company of Goldmar, a vessel sold during 2007. The Company is
currently in the process of being
dissolved.
|
(8)
|
Previously
the owning company of Swift, a vessel sold in March 2009 (Note
7).
|
Investment
in Oceanaut
In
addition, as of December 31, 2008 the Company also owned 18.9% of the
outstanding common stock of Oceanaut Inc. ("Oceanaut"), a corporation under
development stage, organized on May 3, 2006 under the laws of the Republic of
the Marshall Islands. Oceanaut was formed to acquire, through a merger, capital
stock exchange, asset acquisition, stock purchase or other similar business
combination, vessels or one or more operating businesses in the shipping
industry. Approximately 3.8% of Oceanaut was held by certain of the Company's
officers and directors.
On
February 18, 2009, the board of directors of Oceanaut determined that Oceanaut
would not consummate a business combination by the March 6, 2009 deadline
provided for in its charter and that it would be advisable that Oceanaut be
dissolved. In view of the anticipated liquidation, the Company evaluated the
recoverability of its investment in Oceanaut and determined that an amount of
$11.0 million would not be recoverable in the event of Oceanaut's liquidation
and that a loss in value of its investment should be recognized as of December
31, 2008. The amount is separately reflected in the accompanying 2008
consolidated statement of operations.
During
its existence, Oceanaut entered into the following agreements in relation to
business acquisitions which were not consummated:
On
October 12, 2007, Oceanaut entered into definitive agreements pursuant
to which it had agreed to: (i) purchase, for an aggregate purchase price of
$700 million in cash, nine dry bulk vessels from third parties, (ii) issue
10,312,500 shares of its common stock, at a purchase price of $8.00 per share,
in a private placement by separate companies associated with the third
parties. On February 19, 2008, the above agreements were mutually
terminated.
On August
20, 2008, Oceanaut, through its nominated subsidiaries, entered into definitive
agreements pursuant to which Oceanaut agreed to purchase four dry bulk vessels
from third parties for an aggregate purchase price of $352.0 million. Pursuant
to Oceanaut's Amended and Restated Articles of Incorporation, entering into
these definitive agreements provided Oceanaut with a six-month extension to
March 6, 2009 for consummation of a business combination.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
1. Basis
of Presentation-continued:
In
relation to the above agreement and in the event that Oceanaut's shareholders
would not approve the purchase of the vessels by Oceanaut, the Company had
agreed to acquire one of these vessels, the Medi Cebu, from its owners
for $72.5 million. As security for this obligation, the Company advanced to the
seller of the Medi Cebu
an amount of $7.2 million, representing the 10% advance payment until either
Oceanaut would be able to satisfy its obligation under the governing Memorandum
of Agreement or the Company would acquire the vessel.
The
purchase of the vessels was subject to the approval of Oceanaut's shareholders.
On October 8, 2008, Oceanaut announced that, in light of the then market
conditions, the special shareholders' meeting scheduled for October 15, 2008 was
cancelled. Oceanaut would advise its shareholders of the new meeting date if and
when it would be rescheduled. Oceanaut was also discussing whether the terms of
each of the four MOAs, dated August 20, 2008, as amended on September 5, 2008,
for the purchase of dry bulk carrier vessels would be extended or
restructured.
Following
the cancellation of Oceanaut's shareholders meeting, the Company entered into
negotiations with the sellers of the Medi Cebu and on December 18,
2008, both parties agreed to mutually terminate the Memorandum of agreement
entered for the vessel acquisition. In consideration of the agreement
termination, the advance payment of $7.2 million was released to the vessel's
sellers who also received 1,100,000 of the Company's Class A common shares. Such
termination costs totalling $15.6 million are separately reflected in the
accompanying 2008 consolidated statement of operations. In addition, the
vessel's sellers have granted the Company a purchase option on the vessel for
$25.7 million on a charter free basis at any date up to and including December
31, 2009. The Company did not exercise such option as of December 31,
2009.
On April
6, 2009, Oceanaut's shareholders approved its dissolution and liquidation. In
connection with Oceanaut's dissolution, the Company received an amount of
approximately $5.2 million on April 15, 2009.
Concentration
of credit risk
During
the years ended December 31, 2007, 2008 and 2009 two charterers individually
accounted for more than 10% of the Company's voyage revenues as
follows:
Charterer
|
|
2007
|
|
2008
|
|
2009
|
A |
|
12% |
|
|
|
|
B |
|
|
|
23% |
|
34% |
Consolidated
Joint Ventures
Following
the acquisition of Quintana in 2008, the Company became a party to seven joint
venture agreements for the formation of joint venture ship-owning companies.
Christine Shipco LLC was owned 42.8% by the Company and 28.6% by each of
Robertson Maritime Investors LLC ("RMI") and AMCIC Cape Holdings LLC ("AMCIC"),
both affiliates to certain members of the Company's Board of Directors. Each of
the other six joint ventures, Lillie Shipco LLC, Hope Shipco LLC, Fritz Shipco
LLC, Benthe Shipco LLC, Gayle Frances Shipco LLC, and Iron Lena Shipco LLC were
owned 50% by the Company and 50% by AMCIC. Each of the joint ventures was formed
to be the owner of a newbuilding Capesize drybulk carrier, under specific
construction contracts or MOAs signed for a total contract price of $542.1
million and $3.1 million of extra cost.
On
October 27, 2009 the Company and one of its joint venture partners completed two
agreements for the exchange of ownership interests in three of the joint venture
companies discussed above (Note 5).
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
2. Significant
Accounting policies:
a) FASB Accounting Standards
Codification: In June 2009, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard No. 168 ("SFAS
168"), "The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles – a replacement of FASB Statement No.
162" (codified as "ASC 105"). ASC 105 establishes the Accounting
Standards Codification ("ASC") as the source of authoritative accounting
literature recognized by the FASB to be applied by nongovernmental entities in
addition to rules and interpretive releases of the Securities and Exchange
Commission ("SEC"), which are sources of authoritative generally accepted
accounting principles ("GAAP") for SEC registrants. All other non-grandfathered,
non-SEC accounting literature not included in the Codification will become
non-authoritative. ASC 105 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of the financial statements. Following this statement,
the FASB will issue new standards in the form of Accounting Standards Updates
("ASU").
In conjunction with the
issuance of SFAS 168, the FASB also issued its first Accounting Standards Update
No. 2009-1, "Topic 105 –Generally Accepted Accounting Principles" ("ASU 2009-1")
which includes SFAS 168 in its entirety as a transition to the ASC. ASU
2009-1 was effective on a prospective basis for interim and annual periods ended
after September 15, 2009.
The
Codification was effective for the Company for the interim reporting period
ended September 30, 2009. As a result of the adoption of this pronouncement, the
Company's consolidated financial statements reference the Codification as the
sole source of authoritative literature. Accordingly, all accounting references
have been updated and SFAS references have been replaced with ASC references as
if the SFAS has been adopted into the Codification. The Codification
did not change or alter existing GAAP and, therefore, it did not have an impact
of the Company's financial position, results of operations and cash
flows.
b) Principles of Consolidation:
The accompanying consolidated financial statements are prepared in accordance
with U.S. generally accepted accounting principles and include in each of the
three years in the period ended December 31, 2009 the accounts and operating
results of the Company and its wholly-owned and majority-owned subsidiaries
referred to in Note 1 above. All significant inter-company balances and
transactions have been eliminated in consolidation. The Company consolidates all
subsidiaries that are more than 50% owned.
In
addition, following the provisions of ASC 810, "Consolidation", the Company
evaluates any interest held in other entities to determine whether the entity is
a Variable Interest Entity ("VIE") and if the Company is the primary beneficiary
of the VIE. In this respect, the Company has evaluated its interests in the four
50% owned joint ventures discussed in Note 1 above and it has determined that,
each joint venture is a variable interest entity according to the provisions of
the Variable Interest Entities Subsections of Subtopic 810-10 and that the
Company is, in each case, the primary beneficiary. As such, the Company
consolidates the joint ventures.
The joint
venture partners' share of the net income or loss of the joint ventures is
presented separately in the accompanying consolidated statements of operations
as non controlling interests. The partners' share of net assets is presented
separately in the accompanying consolidated balance sheets as non-controlling
interests.
On
January 1, 2009, the Company adopted an amendment contained in ASC 810
which establishes guidelines for accounting for changes in ownership percentages
and for deconsolidation in partially owned subsidiaries. This amendment defines
a non-controlling interest, previously called a minority interest, as the
portion of equity in a subsidiary not attributable, directly or indirectly, to
the Company.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
2. Significant
Accounting policies-continued
ASC 810
requires, among other items, that a non-controlling interest be included in the
consolidated statement of financial position within equity separate from the
Company's equity; consolidated net income to be reported at amounts inclusive of
both the Company's and non-controlling interest's shares and, separately, the
amounts of consolidated net income attributable to the Company and
non-controlling interest all on the consolidated statement of income; and if a
subsidiary is deconsolidated, any retained non-controlling equity investment in
the former subsidiary be measured at fair value and a gain or loss be recognized
in net income based on such fair value. ASC 810 requires retrospective
application in the presentation and disclosure requirements for existing
non-controlling interests. All other requirements of the guidance shall be
applied prospectively.
The
adoption of this pronouncement impacted the Company's presentation of
non-controlling interests on the consolidated balance sheet and statements of
operation but had no impact on the Company's financial condition, results of
operations or cash flows for the years ended December 31, 2007 and 2008 (Note
3).
In
January 2010, the FASB issued ASU 2010-02, Consolidations (Topic 810) –
Accounting and Reporting for Decreases in Ownership of a Subsidiary- a Scope
Clarification. This update provides amendments to Subtopic 810-10 and related
guidance within U.S. GAAP to clarify the scope of the decrease in ownership
provisions of the Subtopic and related guidance. The amendments in this update
are effective in the period that an entity adopts ASC 810-10 and if an entity
has previously adopted ASC 810-10 as of the date the amendments of the update
are included in the Codification, the amendments are effective in the first
interim or annual reporting period ending on or after December 15,
2009.
c) Equity method investees:
Investments in the common stock of corporations, in which the Company believes
it exercises significant influence over operating and financial policies, are
accounted for using the equity method. Under this method the investment is
carried at cost, and is adjusted to recognize the investor's share of the
earnings or losses of the investee after the date of acquisition and is adjusted
for impairment whenever facts and circumstances determine that a decline in fair
value below the cost basis is other than temporary. The amount of the adjustment
is included in the determination of net income by the investor and such amount
reflects adjustments similar to those made in preparing consolidated financial
statements including adjustments to eliminate intercompany gains and losses, and
to amortize, if appropriate, any differences between investor cost and
underlying equity in net assets of the investee at the date of acquisition. The
investment of an investor is also adjusted to reflect the investor's share of
changes in the investee's capital.
d) Use of Estimates: The
preparation of consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
e) Other Comprehensive Income (Loss):
The Company follows the provisions of ASC 220, "Comprehensive Income",
which requires separate presentation of certain transactions, which are recorded
directly as components of Stockholders' equity. The Company's comprehensive
income (loss) is comprised of net income less actuarial gains/losses related to
the adoption and implementation of ASC 715, "Compensation-Retirement Benefits",
while for the year ended December 31, 2007 is also comprised of the Company's
share in capital raised by its equity investee, Oceanaut.
f) Concentration of Credit
Risk: Financial instruments, which potentially subject the
Company to significant concentrations of credit risk, consist principally of
cash and cash equivalents, trade accounts receivable and derivative contracts
(interest rate swaps). The Company places its cash and cash equivalents,
consisting mostly of deposits, with high credit qualified financial
institutions.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
2. Significant
Accounting policies-continued
The
Company performs periodic evaluations of the relative credit standing of those
financial institutions. The Company limits its credit risk with accounts
receivable by performing ongoing credit evaluations of its customers' financial
condition. The Company does not obtain rights to collateral to reduce its credit
risk. The Company is exposed to credit risk in the event of non-performance by
counter parties to derivative instruments; however, the Company limits its
exposure by diversifying among counter parties with high credit
ratings.
g) Foreign Currency
Translation: The functional currency of the Company is the U.S.
Dollar because the Company's vessels operate in international shipping markets,
and therefore primarily transact business in U.S. Dollars. The Company's
accounting records are maintained in U.S. Dollars. Transactions involving other
currencies during the year are converted into U.S. Dollars using the exchange
rates in effect at the time of the transactions. At the balance sheet date,
monetary assets and liabilities, which are denominated in other currencies, are
translated into U.S. Dollars at the year-end exchange rates. Resulting gains or
losses are separately reflected in the accompanying consolidated statements of
operations.
h) Cash and Cash Equivalents: The
Company considers highly liquid investments such as time deposits and
certificates of deposit with an original maturity of three months or less to be
cash equivalents.
i) Restricted Cash: Restricted
cash includes bank deposits that are required under the Company's borrowing
arrangements which are used to fund the loan and shipyard instalments coming
due. The funds can only be used for the purposes of loan repayment and to fund
the next shipyard installments. In addition, restricted cash also includes
minimum cash deposits required to be maintained with certain banks under the
Company's borrowing arrangements.
j) Accounts Receivable Trade, net:
Accounts receivable-trade, net at each balance sheet date, includes
receivables from charterers for hire, freight and demurrage billings, net of a
provision for doubtful accounts. At each balance sheet date, all potentially
uncollectible accounts are assessed individually for purposes of determining the
appropriate provision for doubtful accounts. The provision for doubtful accounts
at December 31, 2008 and 2009 amounted to $187 and $841,
respectively.
k) Insurance Claims: The Company
records insurance claim recoveries for insured losses incurred on damage to
fixed assets and for insured crew medical expenses. Insurance claim recoveries
are recorded, net of any deductible amounts, at the time the Company's fixed
assets suffer insured damages or when crew medical expenses are incurred,
recovery is probable under the related insurance policies and the Company can
make an estimate of the amount to be reimbursed following the insurance
claim.
l) Inventories: Inventories
consist of consumable bunkers and lubricants, which are stated at the lower of
cost or market value. Cost is determined by the first in, first out
method.
m) Vessels, net: Vessels are
stated at cost, which consists of the contract price and any material expenses
incurred upon acquisition (initial repairs, improvements, delivery expenses and
other expenditures to prepare the vessel for her initial voyage). Subsequent
expenditures for major improvements are also capitalized when they appreciably
extend the life, increase the earning capacity or improve the efficiency or
safety of the vessels. Otherwise these amounts are charged to expense as
incurred.
The cost
of each of the Company's vessels is depreciated beginning when the vessel is
ready for its intended use, on a straight-line basis over the vessel's remaining
economic useful life, after considering the estimated residual value (vessel's
residual value is equal to the product of its lightweight tonnage and estimated
scrap rate). Effective October 1, 2008 and following management's reassessment
of the residual value of the vessels, the estimated scrap value per light weight
ton (LWT) was increased to $0.2 from $0.12.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
2. Significant
Accounting policies-continued
Management's
estimate was based on the average demolition prices prevailing in the market
during the last five years for which historical data were available. The effect
of this change in accounting estimate, which did not require retrospective
application as per ASC 250, "Accounting Changes and Error Corrections" was to
decrease net loss for the year ended December 31, 2008 by $459 or $0.01 per
weighted average number of share, both basic and diluted. Management
estimates the useful life of the Company's vessels to be 28 years from the date
of initial delivery from the shipyard. However, when regulations place
limitations over the ability of a vessel to trade on a worldwide basis, its
remaining useful life is adjusted at the date such regulations become
effective.
n) Office furniture and Equipment, net:
Office furniture and equipment, net are stated at cost less accumulated
depreciation. Depreciation is calculated on a straight line basis over the
estimated useful life of the specific asset placed in service which range from
three to nine years.
o) Impairment of Long-Lived Assets:
The Company follows the guidance under ASC 360, "Property, Plant and
Equipment", which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. The standard requires that
long-lived assets and certain identifiable intangibles held and used or disposed
of by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. When the estimate of undiscounted cash flows, excluding interest
charges, expected to be generated by the use of the asset is less than its
carrying amount, the Company should evaluate the asset for an impairment
loss.
Measurement
of the impairment loss is based on the fair value of the asset which is
determined based on management estimates and assumptions and by making use of
available market data. The Company evaluates the carrying amounts and periods
over which long-lived assets are depreciated to determine if events have
occurred which would require modification to their carrying values or useful
lives. In evaluating useful lives and carrying values of long-lived assets,
management reviews certain indicators of potential impairment, such as
undiscounted projected operating cash flows, vessel sales and purchases,
business plans and overall market conditions.
The
Company determines undiscounted projected net operating cash flows for each
vessel and compares it to the vessel's carrying value. The projected net
operating cash flows are determined by considering the charter revenues from
existing time charters for the fixed fleet days and an estimated daily time
charter equivalent for the unfixed days over the remaining estimated life of the
vessel, net of vessel operating expenses, inflation adjusted. When the Company's
estimate of undiscounted future cash flows for any vessel is lower than the
vessel's carrying value, the carrying value is written down, by recording a
charge to operations, to the vessel's fair market value if the fair market value
is lower than the vessel's carrying value.
No
impairment loss was recorded in the years ended December 31, 2007 and 2009. The
Company's impairment analysis as of December 31, 2008 resulted in an impairment
loss of $2.2 million recorded and separately reflected in the accompanying 2008
consolidated statement of operations.
p) Assets Held For Sale: In
accordance with ASC 360, "Property, Plant, and Equipment", the Company
classifies long-lived assets to be sold as held-for-sale in the period in which
all of the following criteria are met: management having the appropriate
authority commits to a plan to sell the asset; the asset is available for
immediate sale in its present condition; an active program to locate a buyer and
other actions required to sell the asset have been initiated; sale of the asset
is probable and expected to occur within one year; the asset is being actively
marketed for sale at a price that is reasonable in relation to its fair value;
and actions required to complete the plan indicate that it is unlikely
significant changes to the plan will be made or that the plan will be withdrawn.
Assets held-for-sale are not depreciated and are measured at the lower of
carrying amount or fair value less costs to sell.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
2. Significant
Accounting policies-continued
q) Intangible assets/liabilities related
to time charter acquired: Where the Company identifies any assets or
liabilities associated with the acquisition of a vessel, the Company records all
such identified assets or liabilities at fair value. Fair value is determined by
reference to market data. The Company values any asset or liability arising from
the market value of the time charters assumed when a vessel is acquired. The
amount to be recorded as an asset or liability at the date of vessel delivery is
based on the difference between the current fair value of a charter with similar
characteristics as the time charter assumed and the net present value of future
contractual cash flows from the time charter contract assumed. When
the present value of the time charter assumed is greater than the current fair
value of such charter, the difference is recorded as an asset; otherwise, the
difference is recorded as liability. Such assets and liabilities, respectively,
are amortized as a reduction of, or an increase in, revenue over the remaining
period of the time charters acquired.
r) Goodwill: Goodwill represents the
excess of the purchase price over the estimated fair value of net assets
acquired. In accordance with ASC 350, "Intangibles-Goodwill and Other", the
Company performs a goodwill impairment analysis using the two-step method on an
annual basis and whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. The recoverability of goodwill is
measured at the Company's level representing the reporting unit as provided in
ASC 350-20-35-33 through 35-46 by comparing the Company's carrying amount,
including goodwill, to the fair market value of the Company. The
first step of the goodwill impairment test (Step one) is to identify potential
impairment. If the fair value of a reporting unit exceeds its carrying amount,
no impairment of the goodwill of the reporting unit is indicated and the second
step of the impairment test is unnecessary. However, if the carrying amount of a
reporting unit exceeds its fair value, the second step of the goodwill
impairment test (Step Two) is performed to measure the amount of impairment
loss, if any.
The
Company performed the 2008 annual testing for impairment of goodwill as of
September 30, 2008 and determined that no indication of goodwill impairment
existed as of that date. ASC 350 requires goodwill of a reporting
unit to be tested for impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a
reporting unit below its carrying amount. In this respect, during the
fourth quarter of 2008, management concluded that sufficient indicators existed
requiring it to perform another goodwill impairment analysis as of December 31,
2008.
Management
made this determination based upon a combination of factors, including the
significant and sustained decline in the Company's market capitalization below
its book value, the current financial turmoil, the deteriorating charter rates
during the fourth quarter of 2008 and illiquidity in the overall credit markets.
In estimating the fair value, management used the income approach which
estimates fair value based upon future revenue, expenses and cash flows
discounted to their present value using the Company's estimated weighted average
cost of capital. The estimated future cash flows projected can vary within a
range of outcomes depending on the assumptions and estimates used. The estimates
and judgments that most significantly affect the fair value calculation are
fleet utilization, daily charter rates and capital expenditures. Based on
the analysis performed, management concluded that the carrying value of goodwill
was above its implied fair value as of December 31, 2008 and an impairment loss
of $335.4 million was recognized as of December 31, 2008.
s) Accounting for Dry-Docking and
Special Survey Costs: As of December 31, 2008, the Company followed the
deferral method of accounting for dry-docking and special survey costs whereby
actual costs incurred were deferred and amortized on a straight-line basis over
a period of the earliest between the date of the next dry-docking and 2.5 years
for all surveys. Effective January 1, 2009, the Company changed the method of
accounting for dry-docking and special survey costs from the deferral method to
the direct expense method, under which the dry-docking and special survey costs
will be expensed as incurred. In accordance with ASC 250, "Accounting
Changes and Error Corrections", this change has been retrospectively applied in
the accompanying consolidated financial statements (Note 3).
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
2. Significant
Accounting policies-continued
t) Business Combinations: In
December 2007, the FASB issued an amendment of ASC 805, "Business Combinations".
ASC 805 establishes principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any non-controlling interest in the acquiree and the
goodwill acquired. ASC 805 also establishes disclosure requirements to
enable the evaluation of the nature and financial effects of the business
combination. The amended guidance applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. As the
provisions of ASC 805 are applied prospectively, the impact to the Company
cannot be determined until any such transactions occur.
u) Financing Costs: Direct
and incremental costs related to the issuance of debt such as legal, bankers or
underwriters' fees are capitalized and reflected as deferred financing costs.
Amounts paid to lenders or required to be paid to third parties on the lender's
behalf are classified as a contra to debt. All such financing costs are
amortized to interest and finance costs using the effective interest method over
the life of the related debt or for debt instruments that are puttable by the
holders prior to the debt's stated maturity, over a period no longer than
through the first put option date. Unamortized fees relating to loans repaid or
refinanced as debt extinguishment are expensed as interest and finance costs in
the period the repayment or extinguishment is made.
v) Convertible Senior Notes:
Effective January 1, 2009, the Company adopted ASC Topic 470-20, "Debt
with Conversion and Other Options," which requires the issuer of certain
convertible debt instruments that may be settled in cash on conversion to
separately account for the liability (debt) and equity (conversion option)
components of the instrument in a manner that reflects the issuer's
non-convertible debt borrowing rate and is applied retrospectively.
The
Company has currently one outstanding convertible debt instrument that is
impacted by ASC Topic 470-20. The new standard requires that a fair value be
assigned to the equity conversion option of the Company's $150,000, 1.875%
convertible notes (the "Convertibles Notes") as of October 16, 2007, the
date of issuance of the Convertible Notes. This change resulted in a
corresponding decrease in the value assigned to the carrying value of the debt
portion of the instrument.
The value
assigned to the debt portion of the Convertible Notes was determined based on
market interest rate for similar debt instrument without the conversion feature
as of the issuance date of the Convertible Notes. The difference in market
interest rate versus the coupon rate on the Convertible Notes results in
non-cash interest that is amortized into interest expense over the expected
terms of the Convertible Notes. For purposes of the valuation, the Company used
an expected term of seven years since the convertible Notes contain an embedded
put option that allows the holder to require the Company to purchase the notes
at the option of the holder on specified dates with the first such put option
date on October 15, 2014 (Note 3).
w) Financial Instruments: The
principal financial assets of the Company consist of cash and cash equivalents
and restricted cash, accounts receivable, trade (net of allowance), and
prepayments and advances. The principal financial liabilities of the Company
consist of accounts payable, accrued liabilities, deferred revenue, long-term
debt, and interest-rate swaps. The carrying amounts reflected in the
accompanying consolidated balance sheets of financial assets and liabilities,
with the exception of the 1.875% Unsecured Convertible Senior Notes due 2027
(Note 10), approximate their respective fair values.
x) Fair Value Measurements: In
September, 2006, the FASB issued ASC 820, "Fair Value Measurements and
Disclosures" which defines, and provides guidance as to the measurement of, fair
value. ASC 820 creates a hierarchy of measurement and indicates that, when
possible, fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants. ASC 820 applies when assets or liabilities in the financial
statements are to be measured at fair value, but does not require additional use
of fair value beyond the requirements in other accounting
principles.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
2. Significant
Accounting policies-continued
The
statement was effective for the Company as of January 1, 2008, excluding certain
nonfinancial assets and nonfinancial liabilities, for which the statement was
effective for fiscal years beginning after November 15, 2008 and its adoption
did not have a significant impact on the Company's financial position or results
of operations.
Effective
January 1, 2009, the Company adopted ASC 820-10-65, "Fair Value Measurements and
Disclosures" that provides additional guidelines for estimating fair value in
accordance with fair value accounting. The adoption of this statement did not
have a material impact on the Company's consolidated financial position, cash
flows or results of operations.
In
August 2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at
Fair Value, which provides additional guidance on how companies should measure
liabilities at fair value under ASC 820. The ASU clarifies that the quoted price
for an identical liability should be used. However, if such information is not
available, a entity may use, the quoted price of an identical liability when
traded as an asset, quoted prices for similar liabilities or similar liabilities
traded as assets, or another valuation technique (such as the market or income
approach). The ASU also indicates that the fair value of a liability is not
adjusted to reflect the impact of contractual restrictions that prevent its
transfer and indicates circumstances in which quoted prices for an identical
liability or quoted price for an identical liability traded as an asset may be
considered level 1 fair value. The adoption of this statement did not have a
material impact on the Company's consolidated results of operations or financial
condition.
y) Fair value
option: In February, 2007, the FASB issued ASC 825, "Financial
Instruments," which permits companies to report certain financial assets and
financial liabilities at fair value. ASC 825 was effective for the
Company as of January 1, 2008 at which time the Company could elect to apply the
standard prospectively and measure certain financial instruments at fair
value.
The
Company has evaluated the guidance contained in ASC 825, and has elected not to
report any existing financial assets or liabilities at fair value that are not
already reported, therefore, the adoption of the statement had no impact on its
financial position and results of operations. The Company retains the
ability to elect the fair value option for certain future assets and liabilities
acquired under this new pronouncement.
In April
2009, the FASB issued the accounting pronouncements that amend the requirements
for disclosures about fair value of financial instruments, for annual, as well
as interim, reporting periods. These pronouncements were effective
prospectively for all interim and annual reporting periods ending after
June 15, 2009. The adoption of this statement did not have any impact
on the Company's financial condition and results of operations.
z) Derivatives: The Company is
exposed to the impact of interest rate changes. The Company's objective is to
manage the impact of interest rate changes on earnings and cash flows of its
borrowings. The Company uses interest rate swaps to manage net exposure to
interest rate changes related to its borrowings and to lower its overall
borrowing costs. Such swap agreements, designated as "economic hedges" are
recorded at fair value with changes in the derivatives' fair value recognized in
earnings unless specific hedge accounting criteria are met. During the years
ended December 31, 2007, 2008 and 2009, there was no derivative transaction
meeting such hedge accounting criteria and therefore the change in their fair
value is recognised in earnings.
Effective
January 1, 2009, the Company adopted the accounting pronouncement relating
to the expanded disclosure requirements about derivative instruments and hedging
activities codified as ASC 815, "Derivatives and Hedging". ASC 815 intents 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.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
2. Significant
Accounting policies-continued
ASC 815
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. ASC 815 relates to disclosures
only and its adoption did not have any effect on the financial condition,
results of operations or liquidity of the Company.
In June
2008, FASB issued ASC 815-40, "Derivatives and Hedging; Contracts in Entity's
Own Equity" to provide guidance for determining whether an equity-linked
financial instrument (or embedded feature) is indexed to an entity's own stock.
According to ASC 815-40 an instrument or embedded feature that is both indexed
to an entity's own stock and potentially settled in shares may be exempt, if
certain other criteria are met, from mark-to-market accounting of derivative
financial instruments. ASC 815-40 addresses instruments with contingent and
other adjustment features that may change the exercise price or notional amount
or otherwise alter the payoff at settlement. This statement is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. The guidance
in this statement shall be applied to outstanding instruments as of the
beginning of the fiscal year in which this statement is initially applied. The
cumulative effect of the change in accounting principle shall be recognized as
an adjustment to the opening balance of retained earnings for that fiscal year,
presented separately. The adoption of ASC 815-40 did not have any impact on the
Company's financial position and results of operations.
aa) Accounting for Revenues and Related
Expenses: The Company generates its revenues from charterers for the
charterhire of its vessels. Vessels are chartered using either voyage charters,
where a contract is made in the spot market for the use of a vessel for a
specific voyage for a specified charter rate, or time charters, where a contract
is entered into for the use of a vessel for a specific period of time and a
specified daily charterhire rate. If a charter agreement exists and collection
of the related revenue is reasonably assured, revenue is recognized, as it is
earned ratably over the duration of the period of each voyage or time charter. A
voyage is deemed to commence upon the completion of discharge of the vessel's
previous cargo and is deemed to end upon the completion of discharge of the
current cargo.
Demurrage
income represents payments by the charterer to the vessel owner when loading or
discharging time exceeded the stipulated time in the voyage charter and is
recognized as it is earned ratably over the duration of the period of each
voyage charter.
Deferred
revenue includes cash received prior to the balance sheet date and is related to
revenue earned after such date. Voyage expenses, primarily consisting of port,
canal and bunker expenses that are unique to a particular charter, are paid for
by the charterer under the time charter arrangements or by the Company under
voyage charter arrangements, except for commissions, which are always paid for
by the Company, regardless of charter type. All voyage and vessel operating
expenses are expensed as incurred, except for commissions. Commissions paid to
brokers are deferred and amortized over the related voyage charter period to the
extent revenue has been deferred since commissions are earned as the Company's
revenues are earned.
bb) Repairs and
Maintenance: All repair and maintenance expenses including
underwater inspection expenses are expensed in the year incurred and are
included in Vessel operating expenses in the accompanying consolidated
statements of operations.
cc) Pension and Retirement Benefit
Obligations: Administrative employees are covered by state-sponsored
pension funds. Both employees and the Company are required to contribute a
portion of the employees' gross salary to the fund. Upon retirement, the
state-sponsored pension funds are responsible for paying the employees
retirement benefits and accordingly the Company has no such obligation.
Employer's contributions for the years ended December 31, 2007, 2008 and 2009
amounted to $1.4 million, $2.4 million and $2.7 million,
respectively.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
2. Significant
Accounting policies-continued
dd) Staff Leaving Indemnities –
Administrative Personnel: The Company's employees are entitled to
termination payments in the event of dismissal or retirement with the amount of
payment varying in relation to the employee's compensation, length of service
and manner of termination (dismissed or retired). Employees who resign, or are
dismissed with cause are not entitled to termination payments. The Company's
liability on an actuarially determined basis, at December 31, 2008 and 2009
amounted to $0.8 million and $1.0 million respectively, while the amount
recognized as Accumulated Other Comprehensive Loss at December 31, 2007, 2008
and 2009, following the adoption of ASC 715, "Compensation-Retirement Benefits"
amounted to $65, $74 and $85, respectively.
ee) Stock-Based Compensation:
Following the provisions of ASC 718, "Compensation- Stock Compensation"
the Company recognizes all share-based payments to employees, including grants
of employee stock options, in the consolidated statements of operations based on
their fair values on the grant date. Compensation cost on stock based awards
with graded vesting is recognized on an accelerated basis as though each
separately vesting portion of the award was-in substance, a separate
award.
ff)
Taxation: The
Company follows the provisions of ASC 740-10, "Accounting for
Uncertainty in Income Taxes" which clarifies the accounting for uncertainty in
income taxes by prescribing the minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements. ASC 740-10
also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.
gg)
Earnings
(losses) per Common Share: Basic earnings (losses) per common share
are computed by dividing net income (loss) available to common stockholders by
the weighted average number of common shares outstanding during the year.
Diluted earnings (losses) per common share, reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised.
hh) Segment Reporting: The
Company reports financial information and evaluates its operations by charter
revenues and not by the length of ship employment for its customers, i.e. spot
or time charters. The Company does not use discrete financial information to
evaluate the operating results for each such type of charter. Although revenue
can be identified for these types of charters, management cannot and does not
identify expenses, profitability or other financial information for these
charters. As a result, management, including the chief operating decision maker,
reviews operating results solely by revenue per day and operating results of the
fleet and thus the Company has determined that it operates under one reportable
segment. Furthermore, when the Company charters a vessel to a charterer,
the charterer is free to trade the vessel worldwide and, as a result, the
disclosure of geographic information is impracticable.
ii)
Subsequent
Events: In May 2009, FASB issued ASC 855, "Subsequent events". The
objective of this Statement is to establish general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. In
particular, this Statement sets forth: (i) the period after the balance sheet
date during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements; (ii) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements; (iii) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. This
Statement does not result in significant changes in the subsequent events that
an entity reports—either through recognition or disclosure—in its financial
statements.
This
Statement introduces the concept of financial statements being available to be
issued. It requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date, that is, whether that
date represents the date the financial statements were issued or were available
to be issued. In accordance with this Statement, an entity should apply the
requirements to interim or annual financial periods ending after June 15,
2009. The Company has adopted ASC 855 for the financial period ended
June 30, 2009.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
2. Significant
Accounting policies-continued
jj) Recent
Accounting Standards Updates:
ASU 2009-16: In December 2009,
the FASB issued ASU 2009-16, Transfers and Servicing (Topic 860) - Accounting
for Transfers of Financial Assets, which formally codifies FASB Statement No.
166, Accounting for Transfers of Financial Assets into the ASC. ASU 2009-16
represents a revision to the provisions of former FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities and will require more information about transfers of financial
assets, including securitization transactions, and where entities have
continuing exposure to the risks related to transferred financial assets. Among
other things, ASU 2009-16 (1) eliminates the concept of a "qualifying
special-purpose entity", (2) changes the requirements for derecognizing
financial assets, and (3) enhances information reported to users of financial
statements by providing greater transparency about transfers of financial assets
and an entity's continuing involvement in transferred financial assets. ASU
2009-16 will be effective for transfers of financial assets in fiscal years
beginning after November 15, 2009, and in interim periods within those
fiscal years with earlier adoption prohibited. The provisions of ASU 2009-16 are
not expected to have a material impact on the Company's consolidated financial
statements.
ASU 2009-17: In December 2009,
the FASB issued ASU 2009-17, Consolidations (Topic 810) - Improvements to
Financial Reporting by Enterprises Involved with Variable Interest Entities,
which codifies FASB Statement No. 167, Amendments to FASB Interpretation No.
46(R). ASU 2009-17 represents a revision to former FASB Interpretation No. 46
(Revised December 2003), Consolidation of Variable Interest Entities, and
changes how a reporting entity determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar rights) should be
consolidated. The determination of whether a reporting entity is required to
consolidate another entity is based on, among other things, the other entity's
purpose and design and the reporting entity's ability to direct the activities
of the other entity that most significantly impact the other entity's economic
performance. ASU 2009-17 also requires a reporting entity to provide
additional disclosures about its involvement with variable interest entities and
any significant changes in risk exposure due to that involvement. ASU
2009-17 is effective as of the beginning of an enterprise's first fiscal year
beginning after November 15, 2009, and for interim periods within that
first period. The Company is currently assessing the potential impacts, if any,
on its consolidated financial statements.
ASU 2010-01: In
January 2010, the FASB issued ASU 2010-01, Accounting for
Distributions to Shareholders with Components of Stock and Cash which amends
FASB ASC 505, Equity in order to clarify that the stock portion of a
distribution to shareholders that allows the shareholder to elect to receive
cash or stock with a potential limitation on the total amount of cash that all
shareholders can elect to receive in the aggregate is considered a share
issuance that is reflected in earnings per share prospectively and is not a
stock dividend for purposes of applying FASB ASC 505, Equity and FASB ASC 260,
Earnings Per Share. ASU 2010-01 is effective for interim or annual periods
ending on or after December 15, 2009 and is adopted retrospectively. The
Company has not been involved in any such distributions and thus, the impact to
the Company cannot be determined until any such distribution
occurs.
ASU 2010-06: In January 2010,
the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic
820)-Improving Disclosures About Fair Value Measurements. ASU 2010-06 amends ASC
820 to add new requirements for disclosures about transfers into and out of
Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and
settlements relating to Level 3 measurements. It also clarifies existing fair
value disclosures about the level of disaggregation and about inputs and
valuation techniques used to measure fair value. The ASU also amends guidance on
employers' disclosures about postretirement benefit plan assets under ASC 715 to
require that disclosures be provided by classes of assets instead of by major
categories of assets. The guidance in the ASU is effective for the first
reporting period (including interim periods) beginning after December 15, 2009,
except for the requirement to provide the Level 3 activity of purchases, sales,
issuances, and settlements on a gross basis, which will be effective for fiscal
years beginning after December 15, 2010, and for interim periods within those
fiscal years.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
2. Significant
Accounting policies-continued
In the
period of initial adoption, entities will not be required to provide the amended
disclosures for any previous periods presented for comparative purposes.
However, those disclosures are required for periods ending after initial
adoption. The provisions of ASU 2010-06 are not expected to have a material
impact on the Company's consolidated financial statements.
ASU 2010-09: In February 2010, the
FASB issued ASU 2010-09, Subsequent Events (Topic 855). ASU 2010-09 amends ASC
855 to clarify which entities are required to evaluate subsequent events through
the date the financial statements are issued and the scope of the disclosure
requirements related to subsequent events. The amendments remove the requirement
for an SEC filer to disclose the date through which management evaluated
subsequent events in both issued and revised financial statements. Revised
financial statements include financial statements revised as a result of either
correction of an error or retrospective application of U.S. GAAP. Additionally,
the FASB has clarified that if the financial statements have been
revised, then an entity that is not an SEC filer should disclose both
the date that the financial statements were issued or available to be issued and
the date the revised financial statements were issued or available to be issued.
Those amendments remove potential conflicts with the SEC's literature. All of
the amendments in this Update are effective upon its issuance, except for the
use of the issued date for conduit debt obligors. That amendment is effective
for interim or annual periods ending after June 15, 2010. The adoption of the
above amendments of ASU 2010-09 did not have a material impact on the Company's
consolidated financial statements.
3.
|
Newly
adopted accounting pronouncements and change in accounting
policy
|
As
already discussed under Note 2 above, during the year ended December 31, 2009
the Company adopted certain new accounting pronouncements and changed its policy
in relation to dry-docking and special survey costs that required retrospective
application for all years presented. Therefore, the 2007 and 2008 financial
information have been adjusted so the basis of presentation is consistent with
that of the 2009 financial information. The adjustments reflect: (i) the
change in the accounting for Non-controlling Interest in a Subsidiary provided
in ASC 810-10-45, (ii) the change in the accounting for convertible Senior
Notes provided in ASC 470-20, and (iii) the change in the method of accounting
for dry docking and special survey costs. The table below summarizes the changes
in all prior years presented.
Consolidated
Balance sheets
|
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2009
|
|
(Amounts
in thousands of U.S. Dollars)
|
|
As
originally reported
|
|
|
As
adjusted
|
|
|
Effect
of change
|
|
|
As
would be reported absent the accounting change
|
|
|
As
reported
|
|
|
Effect
of change
|
|
Increase
(decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
assets, net
|
|
|
16,144 |
|
|
|
- |
|
|
|
(16,144 |
) |
|
|
16,691 |
|
|
|
- |
|
|
|
(16,691 |
) |
Total
assets
|
|
|
3,332,953 |
|
|
|
3,316,809 |
|
|
|
(16,144 |
) |
|
|
3,146,873 |
|
|
|
3,130,182 |
|
|
|
(16,691 |
) |
Long-term
debt, net of current portion and net of deferred financing
fees
|
|
|
1,304,032 |
|
|
|
1,256,707 |
|
|
|
(47,325 |
) |
|
|
1,162,574 |
|
|
|
1,121,765 |
|
|
|
(40,809 |
) |
Minority
interest
|
|
|
14,930 |
|
|
|
- |
|
|
|
(14,930 |
) |
|
|
5,296 |
|
|
|
- |
|
|
|
(5,296 |
) |
Non-controlling
interests
|
|
|
- |
|
|
|
14,930 |
|
|
|
14,930 |
|
|
|
- |
|
|
|
5,296 |
|
|
|
5,296 |
|
Additional
Paid-in capital
|
|
|
894,333 |
|
|
|
944,207 |
|
|
|
49,874 |
|
|
|
996,732 |
|
|
|
1,046,606 |
|
|
|
49,874 |
|
Retained
earnings
|
|
|
112,756 |
|
|
|
94,063 |
|
|
|
(18,693 |
) |
|
|
459,601 |
|
|
|
433,845 |
|
|
|
(25,756 |
) |
Total
Stockholders' equity
|
|
|
1,007,287 |
|
|
|
1,053,398 |
|
|
|
46,111 |
|
|
|
1,456,858 |
|
|
|
1,486,272 |
|
|
|
29,414 |
|
Total
liabilities and stockholders' equity
|
|
|
3,332,953 |
|
|
|
3,316,809 |
|
|
|
(16,144 |
) |
|
|
3,146,873 |
|
|
|
3,130,182 |
|
|
|
(16,691 |
) |
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
3.
|
Newly
adopted accounting pronouncements and change in accounting
policy-continued
|
Consolidated
statements of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
(Amounts
in thousands of U.S. Dollars, except for per share data)
|
|
As
originally reported
|
|
|
As
adjusted
|
|
|
Effect
of change
|
|
|
As
originally reported
|
|
|
As
adjusted
|
|
|
Effect
of change
|
|
|
As
would be reported absent the accounting change
|
|
|
As
reported
|
|
|
Effect
of change
|
|
Income
(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred dry-docking and special survey costs
|
|
|
3,904 |
|
|
|
- |
|
|
|
3,904 |
|
|
|
7,447 |
|
|
|
- |
|
|
|
7,447 |
|
|
|
10,174 |
|
|
|
- |
|
|
|
10,174 |
|
Dry-dock
and special survey costs
|
|
|
- |
|
|
|
6,834 |
|
|
|
(6,834 |
) |
|
|
- |
|
|
|
13,511 |
|
|
|
(13,511 |
) |
|
|
- |
|
|
|
11,379 |
|
|
|
(11,379 |
) |
Gain
on sale of vessel
|
|
|
6,194 |
|
|
|
6,993 |
|
|
|
799 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
61 |
|
|
|
61 |
|
|
|
- |
|
Vessel
impairment loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,389 |
) |
|
|
(2,232 |
) |
|
|
157 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Operating
income
|
|
|
92,429 |
|
|
|
90,298 |
|
|
|
(2,131 |
) |
|
|
50,229 |
|
|
|
44,322 |
|
|
|
(5,907 |
) |
|
|
398,820 |
|
|
|
397,615 |
|
|
|
(1,205 |
) |
Interest
and finance cost
|
|
|
(14,536 |
) |
|
|
(15,596 |
) |
|
|
(1,060 |
) |
|
|
(56,643 |
) |
|
|
(61,942 |
) |
|
|
(5,299 |
) |
|
|
(51,238 |
) |
|
|
(57,096 |
) |
|
|
(5,858 |
) |
Net
income, before taxes
|
|
|
84,506 |
|
|
|
81,315 |
|
|
|
(3,191 |
) |
|
|
(33,589 |
) |
|
|
(44,795 |
) |
|
|
(11,206 |
) |
|
|
347,351 |
|
|
|
340,288 |
|
|
|
(7,063 |
) |
Net
income after taxes and before income from investment in
affiliate
|
|
|
84,020 |
|
|
|
80,829 |
|
|
|
(3,191 |
) |
|
|
(34,372 |
) |
|
|
(45,578 |
) |
|
|
(11,206 |
) |
|
|
346,691 |
|
|
|
339,628 |
|
|
|
(7,063 |
) |
Net
income (loss)
|
|
|
84,893 |
|
|
|
81,702 |
|
|
|
(3,191 |
) |
|
|
(44,848 |
) |
|
|
(56,054 |
) |
|
|
(11,206 |
) |
|
|
346,691 |
|
|
|
339,628 |
|
|
|
(7,063 |
) |
Net
income (loss) attributable to Excel
|
|
|
84,895 |
|
|
|
81,704 |
|
|
|
(3,191 |
) |
|
|
(44,708 |
) |
|
|
(55,914 |
) |
|
|
(11,206 |
) |
|
|
346,845 |
|
|
|
339,782 |
|
|
|
(7,063 |
) |
Earnings
per common share, basic
|
|
$ |
4.26 |
|
|
$ |
4.10 |
|
|
$ |
(0.16 |
) |
|
$ |
(1.23 |
) |
|
$ |
(1.53 |
) |
|
$ |
(0.30 |
) |
|
$ |
5.13 |
|
|
$ |
5.03 |
|
|
$ |
(0.10 |
) |
Earnings
per common share, diluted
|
|
$ |
4.25 |
|
|
$ |
4.09 |
|
|
$ |
(0.16 |
) |
|
$ |
(1.23 |
) |
|
$ |
(1.53 |
) |
|
$ |
(0.30 |
) |
|
$ |
4.95 |
|
|
$ |
4.85 |
|
|
$ |
(0.10 |
) |
Consolidated
statements of cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
(Amounts
in thousands of U.S. Dollars)
|
|
As
originally reported
|
|
|
As
adjusted
|
|
|
Effect
of change
|
|
|
As
originally reported
|
|
|
As
adjusted
|
|
|
Effect
of change
|
|
|
As
would be reported absent the accounting change
|
|
|
As
reported
|
|
|
Effect
of change
|
|
Inflow(outflow)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to Excel
|
|
|
84,895 |
|
|
|
81,704 |
|
|
|
(3,191 |
) |
|
|
(44,708 |
) |
|
|
(55,914 |
) |
|
|
(11,206 |
) |
|
|
346,845 |
|
|
|
339,782 |
|
|
|
(7,063 |
) |
Amortization
of deferred dry-docking and special survey costs
|
|
|
3,904 |
|
|
|
- |
|
|
|
(3,904 |
) |
|
|
7,447 |
|
|
|
- |
|
|
|
(7,447 |
) |
|
|
10,174 |
|
|
|
- |
|
|
|
(10,174 |
) |
Amortization
of debt discount
|
|
|
- |
|
|
|
1,134 |
|
|
|
1,134 |
|
|
|
- |
|
|
|
5,628 |
|
|
|
5,628 |
|
|
|
- |
|
|
|
6,154 |
|
|
|
6,154 |
|
Amortization
and write off of deferred financing fees
|
|
|
511 |
|
|
|
437 |
|
|
|
(74 |
) |
|
|
4,599 |
|
|
|
4,270 |
|
|
|
(329 |
) |
|
|
4,119 |
|
|
|
3,823 |
|
|
|
(296 |
) |
Gain
on sale of vessel
|
|
|
(6,194 |
) |
|
|
(6,993 |
) |
|
|
(799 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(61 |
) |
|
|
(61 |
) |
|
|
- |
|
Vessel
impairment loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,389 |
|
|
|
2,232 |
|
|
|
(157 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Dry-dock
and special survey costs
|
|
|
(6,834 |
) |
|
|
- |
|
|
|
6,834 |
|
|
|
(13,511 |
) |
|
|
- |
|
|
|
13,511 |
|
|
|
(11,379 |
) |
|
|
- |
|
|
|
11,379 |
|
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
As
already discussed in Note 1 above, on April 15, 2008, the Company completed the
acquisition of 100% of the voting equity interests in Quintana. Under the terms
of the merger agreement, each issued and outstanding share of Quintana common
stock was converted into the right to receive (i) $13.00 in cash and (ii) 0.3979
Excel Class A common shares. The acquisition of Quintana was accounted for under
the purchase method of accounting. The Company began consolidating Quintana from
April 16, 2008, as of which date the results of operations of Quintana are
included in the accompanying 2008 consolidated statement of operations. The
following table summarizes the fair values of the significant assets acquired
and liabilities assumed by the Company on April 15, 2008 (date of acquisition of
Quintana):
|
Assets:
|
|
|
|
|
Current
assets
|
|
$ |
91,029 |
|
|
Vessels
|
|
|
2,210,750 |
|
|
Newbuildings
|
|
|
171,090 |
|
|
Favorable
charter-in contracts of sold and leased out vessels
|
|
|
292,712 |
|
|
Other
Non Current assets
|
|
|
437 |
|
|
Total
assets acquired
|
|
|
2,766,018 |
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Current
liabilities, excluding current portion of long-term bank
debt
|
|
|
38,741 |
|
|
Bank
debt, including current portion of $73,968
|
|
|
669,918 |
|
|
Unfavorable
charters of owned vessels
|
|
|
747,000 |
|
|
Unfavorable
charters of newbuildings
|
|
|
65,778 |
|
|
Unfavorable
charter-out contracts of sold and leased out vessels
|
|
|
71,970 |
|
|
Financial
Instruments, net of current portion of $18,223
|
|
|
35,037 |
|
|
Minority
interest
|
|
|
14,332 |
|
|
Total
liabilities
|
|
|
1,642,776 |
|
|
|
|
|
|
|
|
Net
assets acquired
|
|
$ |
1,123,242 |
|
Goodwill
|
Cash
consideration
|
|
$ |
764,026 |
|
|
Consideration
paid in Excel's Class A shares (23,496,308 shares issued)
|
|
|
682,333 |
|
|
Total
consideration
|
|
$ |
1,446,359 |
|
|
Transaction
costs
|
|
|
11,887 |
|
|
Net
assets acquired
|
|
|
(1,123,242 |
) |
|
Goodwill
|
|
$ |
335,004 |
|
The
consideration for the Quintana acquisition consisted of stock and cash valued at
$1,458,246, including transaction costs.
Pursuant
to ASC 805, "Business Combinations", the measurement date set for the purpose of
calculating the fair value of Excel Class A common shares issued was determined
to be April 14, 2008 (being the earliest date at which the number of shares to
be issued was fixed) and the average closing price of Excel Class A common
shares for a period of five days before and including April 15, 2008 (date of
consummation of the merger) was used. Bank debt assumed upon acquisition, with
the exception of $37.4 million of debt related to Quintana's consolidated joint
ventures, was repaid on the date of acquisition from the proceeds of the Credit
Facility discussed in Note 9.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
4.
|
Quintana
Acquisition-continued
|
The
Company accounted for the determination of goodwill and other intangibles in
accordance with ASC 350, "Intangibles-Goodwill and Other" and placed significant
reliance on the use of estimates. The goodwill constituted a premium paid by the
Company over the fair value of the net assets of Quintana, which was
attributable to anticipated benefits including improved purchasing and placing
power and ongoing cost savings and operating efficiencies. Further, the merger
created one of the largest listed dry bulk companies in the world with 47
vessels in operation with a total carrying capacity of approximately 3.7 million
DWT and an average age of approximately 8.4 years (as of the acquisition date),
advancing one of Excel's strategic priorities to become one of the world's
premier full service dry bulk shipping companies. Other intangible assets
represented purchased assets that also lacked physical substance but that could
be separately distinguished from goodwill because of contractual or other legal
rights, or because the asset was capable of being sold or exchanged either on
its own or in combination with a related contract, asset or
liability.
In the
above purchase price allocation, no fair values have been assigned to certain
new building vessel contracts nor the time charters attached to certain of these
new building vessels, as no refund guarantees have been received for these
vessels and there are uncertainties in connection with the shipyard which has
undertaken their construction, and with their ability to deliver the vessels on
time or at all. The above fair values were based upon available market data
using management estimates and assumptions. The purchase price allocation was
prepared by the Company, assisted by a third party expert, based on management
estimates and assumptions, making use of available market data and taking into
consideration third party valuations of fleet and newbuildings acquired,
performed on a charter free basis.
During
the fourth quarter of 2008 and in the presence of sufficient indicators for
goodwill impairment assessment, an impairment analysis was performed and
management concluded that the carrying value of goodwill was above its implied
fair value as of December 31, 2008 and an impairment loss of $335.4 million was
recognized as of December 31, 2008.
The
following pro forma consolidated financial information reflects the results of
operations for the years ended December 31, 2007 and 2008, as if the acquisition
of Quintana had occurred at the beginning of each year presented and after
giving effect to purchase accounting adjustments and to the accounting changes
described above. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what operating results
would have been had the acquisition actually taken place as of the beginning of
each year presented. In addition, these results are not intended to be a
projection of future results and do not reflect any synergies that might be
achieved from the combined operations.
|
|
December 31,
|
|
|
|
2007
|
|
|
2008
|
|
Pro
forma revenues
|
|
$ |
719,543 |
|
|
$ |
866,505 |
|
Pro
forma operating income
|
|
|
434,332 |
|
|
|
131,125 |
|
Pro
forma net income (loss)
|
|
|
366,929 |
|
|
|
(3,426 |
) |
Pro
forma per share amounts:
|
|
|
|
|
|
|
|
|
Basic
net income
|
|
$ |
8.38 |
|
|
$ |
(0.09 |
) |
Diluted
net income
|
|
$ |
8.37 |
|
|
$ |
(0.09 |
) |
5. Transactions
with Related Parties:
Excel
Management Ltd.
As
discussed in Note 1, the operations of the Company's vessels are managed by
Maryville, a wholly owned subsidiary of the Company. As of December 31, 2004,
the operations of the Company's vessels were managed by Excel Management Ltd., a
corporation which is controlled by the Company's Chairman of the Board of
Directors under a management agreement, initially due to expire on April 30,
2008, which was terminated on March 2, 2005 with effect from January 1,
2005.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
5. Transactions
with Related Parties-continued
In
exchange for terminating the management agreement mentioned above and in
exchange for a one time cash payment of $ 2,024, the Company agreed
to issue 205,442 shares no later than March 2, 2007 (following
an amendment on March 2, 2006 based on an addendum to
the original Management Termination agreement to extend the period
for the issuance of the shares for one year) of
its Class A common stock to Excel Management Ltd. and to
issue to Excel Management Ltd additional shares at any time before January 1,
2009 if the Company issues additional shares of Class A
common stock to any other party for any reason, such that the number
of additional Class A common stock to be issued
to Excel Management Ltd. together with the
205,442 shares of Class A common stock to be issued to
Excel Management Ltd., in the aggregate, equal 1.5% of
the Company's total outstanding Class
A common stock after taking into account the third party issuance and
the shares to be issued to
Excel Management Ltd.
The fair
value of the 205,442 Class A shares and the fair value of the anti-dilution
provision on the date of the agreement totaled $6,987 and it was credited to
stockholders equity, while the amount of $2,024 was reflected as a receivable
and classified as a reduction of stockholders equity as of December 31,
2005.
On June
19, 2007, the Company received a lump sum cash payment of $2,024 that was due
from Excel Management Ltd. and issued 298,403 shares of Class A common stock in
accordance with the termination agreement discussed above. In addition,
following the shares issued as part of the consideration paid for the
acquisition of Quintana discussed in Note 4 above and the shares issued during
the year ended December 31, 2008 in connection with the shares issued in
connection with the cancellation of a vessel's purchase and the stock based
awards discussed under Note 12 below, 392,801 Class A common shares were issued
to Excel Management Ltd. pursuant to the anti-dilution provision under the
termination agreement. All shares issued are subject to a two-year lock-up from
the date of their issuance.
The
Company has a brokering agreement with Excel Management Ltd., under which Excel
Management Ltd. acts as the Company's broker to provide services for the
employment and chartering of the Company's vessels, for a commission fee equal
to 1.25% of the revenue of each contract Excel Management Ltd. has
brokered. The agreement was effective January 1, 2005 for an initial
period of one year and is automatically extended for successive one year
periods, unless written notice by either party is given at least one year prior
to the commencement of the applicable one year extension period.
Commissions
charged by Excel Management Ltd. during the years ended December 31, 2007, 2008
and 2009 amounted to $2,204, $3,620 and $2,260, respectively and are separately
reflected in the accompanying consolidated statements of operations. Amounts due
to Excel Management Ltd. as at December 31, 2008 and 2009 were $175 and $106,
respectively, and are included in due to related parties in the accompanying
consolidated balance sheets.
Vessels under
management
Maryville
(Note 1) provides shipping services to certain related ship-owning companies,
which are affiliated with the Chairman of the Company's Board of Directors. The
revenues earned for the years ended December 31, 2007, 2008 and 2009 amounted to
$818, $890 and $488, respectively and are separately reflected in the
accompanying consolidated statements of operations. Amounts due to such related
companies as of December 31, 2008 and 2009 were $466 and $147, respectively and
are included in due to related parties in the accompanying consolidated balance
sheets. In addition, as of December 31, 2008, there was also a receivable from
certain of these companies amounting to $221. Such amounts are separately
reflected in the accompanying consolidated balance sheets. In addition,
Maryville provides technical and supervision support to the construction of each
of the new-building vessels for $60 per annum per vessel until their respective
delivery.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
5. Transactions
with Related Parties-continued
Sale
of Vessel
On April
27, 2007, the Company's Board of Directors approved the sale of vessel Goldmar
for $15.7 million, net of selling costs to a company affiliated with the
Company's Chairman.
Equity
Infusion
As part
of the loan amendments discussed in Note 9 below, entities affiliated with the
family of the Chairman of the Company's Board of Directors injected $45.0
million into the Company, which was applied against the balloon payment of the
Nordea credit facility. In exchange for their contribution, the entities
received an aggregate of 25,714,286 Class A shares and 5,500,000 warrants to
purchase Class A common shares, with an exercise price of $3.50 per warrant. The
shares, the warrants and the shares issuable on exercise of the warrants are
subject to 12-month lock-ups from March 31, 2009.
Joint
venture ownership transfer agreements
On
October 27, 2009 the Company and one of its joint venture partners completed two
agreements for the transfer / exchange of ownership interests in three of the
joint venture companies discussed in Note 1 above. Based on the
agreements concluded, the Company agreed to sell its 50% ownership interest in
Lillie Shipco LLC to AMCIC for a consideration of $1.2 million and the transfer
by AMCIC to the Company of its 50% ownership interest in Hope Shipco LLC. In
addition, AMCIC sold its 28.6% ownership interest in Christine Shipco LLC to the
Company for a consideration of $2.8 million. Both agreements were conditional to
the satisfaction of various customary conditions precedent, as well as to the
execution of another agreement between companies affiliated with members of the
Company's Board of Directors, such agreement being economically unrelated to the
transaction described above. Following the completion of the transaction, the
Company became 100% owner of Hope Shipco LLC and increased its interest in
Christine Shipco LLC to 71.4%. No change has occurred in the Company's
participation in the remaining four joint venture ship-owning companies
discussed above.
Hope
Shipco LLC and Christine Shipco LLC will continue being consolidated in the
Company's consolidated financial statements, while Lillie Shipco LLC has been
deconsolidated as of the date the Company ceased to have a financial interest in
it. The assets and liabilities associated with Lillie Shipco LLC on disposal
date were as follows:
Total
assets
|
|
|
45,093 |
|
|
|
|
|
|
Total
liabilities
|
|
$ |
22,931 |
|
Equity
attributed to Excel
|
|
|
17,581 |
|
Non-controlling
interest
|
|
|
4,581 |
|
Total
liabilities and Stockholder's equity
|
|
$ |
45,093 |
|
In
accordance with ASC 810-10-45-23, changes in the parent's ownership interest
while the parent retains its controlling financial interest in its subsidiary
shall be accounted for as equity transactions, therefore, no gain or loss shall
be recognized in consolidated net income. On this basis, in the case
of Hope and Christine where the Company increased its controlling financial
interest, the transaction was accounted for as an equity transaction and the
resulting difference between the carrying value of the non-controlling interests
acquired and their related fair values of $7,240 was recognized in
stockholders'equity attributable to the parent.
In
accordance with ASC 810-10-40, if a parent deconsolidates a subsidiary, the
parent shall account for the deconsolidation by recognizing a gain or loss in
net income attributable to the parent. Following this guidance in relation to
the deconsolidation of Lillie, a loss of $3,705 was recognized in the
consolidated income statement.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
5. Transactions
with Related Parties-continued
The fair
values of the interests exchanged were determined through Level 2 inputs of the
fair value hierarchy as defined in ASC 820 "Fair value measurements and
disclosures" and were derived principally from or by corroborated or observable
market data. Inputs include independent broker's valuations, FFA indices,
average charter hire rates and other market observable data that allow value to
be determined.
6. Inventories:
The
amounts shown in the accompanying consolidated balance sheets are analyzed as
follows:
|
|
2008
|
|
|
2009
|
|
Bunkers
|
|
$ |
715 |
|
|
$ |
468 |
|
Lubricants
|
|
|
3,999 |
|
|
|
4,011 |
|
|
|
$ |
4,714 |
|
|
$ |
4,479 |
|
7. Vessels
and office furniture and equipment, net:
The
amounts shown in the accompanying consolidated balance sheets are analyzed as
follows:
|
|
2008
|
|
|
2009
|
|
Vessels
cost
|
|
$ |
2,952,403 |
|
|
$ |
2,948,700 |
|
Accumulated
depreciation
|
|
|
(165,686 |
) |
|
|
(288,537 |
) |
Vessels,
net
|
|
$ |
2,786,717 |
|
|
$ |
2,660,163 |
|
|
|
|
|
|
|
|
|
|
Office
furniture and equipment cost
|
|
$ |
2,584 |
|
|
$ |
2,730 |
|
Accumulated
depreciation
|
|
|
(862 |
) |
|
|
(1,280 |
) |
Office
furniture and equipment, net
|
|
$ |
1,722 |
|
|
$ |
1,450 |
|
All of
the Company's vessels have been provided as collateral to secure the bank loans
discussed in Note 9 below. Vessel cost at December 31, 2008 and 2009 includes
$2,210,750 representing the fair value of Quintana's vessels at the acquisition
date.
On April
27, 2007, the Company's Board of Directors approved the sale of vessel Goldmar
for $15.7 million, net of selling costs to a company affiliated with the
Company's Chairman. The realized gain of approximately $7.0 million
was recognized on delivery of the vessel to the buyer in May 2007 and is
separately reflected in the accompanying 2007 consolidated statement of
operations as gain on sale of vessel. In December 2007, the vessels July M and
Mairouli were delivered to the Company for $126.0 million in total.
On
December 26, 2008 vessel Sandra was delivered from the shipyard at a total cost
of $149.1 million reflecting the contract price and capitalized expenses of
$93.1 million and the Company's portion of the excess of the fair value of the
contract over its contracted price at the time of Quintana's
acquisition.
Management's
impairment analysis as of December 31, 2008, indicated that future undiscounted
operating cash flows for vessel Swift were below the vessel's carrying amount,
and accordingly an impairment loss of approximately $2.2 million was recognized
and separately reflected in the accompanying 2008 consolidated statement of
operations.
Based on
a Memorandum of Agreement dated February 20, 2009, vessel Swift was sold for net
proceeds of approximately $3.7 million. As discussed above, as of December 31,
2008, the vessel's value was impaired and written down to its fair value which
approximated the sale proceeds. The vessel was delivered to her new owners on
March 16, 2009. The sales proceeds were used to repay part of the $1.4 billion
loan discussed in Note 9 below.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
8. Advances
for vessels under construction:
As of
December 31, 2009, advances for vessels under construction reflect the advances
paid to the shipyard for vessels Christine and Hope (Note 1), as well as, the
Company's portion of the excess of the fair value of these contracts over their
contracted prices and capitalized interest. Related amounts as of
December 31, 2008 also include vessel Lillie (Note 5).
The
amount shown in the accompanying consolidated balance sheets is analyzed as
follows:
|
|
December
31,
|
|
|
|
2008
|
|
|
2009
|
|
Advances
to the shipyard and initial expenses
|
|
$ |
61,514 |
|
|
$ |
44,572 |
|
Company's
portion on the excess of the fair value of new building contracts over
their
contractual
prices following the purchase method of accounting (Note
4)
|
|
|
43,319 |
|
|
|
23,369 |
|
Capitalized
interest
|
|
|
2,017 |
|
|
|
3,063 |
|
Other
|
|
|
48 |
|
|
|
180 |
|
|
|
$ |
106,898 |
|
|
$ |
71,184 |
|
In
relation to the remaining four newbuildings of the joint venture ship-owning
companies Fritz Shipco LLC, Benthe Shipco LLC, Gayle Frances Shipco LLC, and
Iron Lena Shipco LLC, no refund guarantees have been received and the
construction of these vessels has not yet commenced. Therefore, these vessels
may be delivered late or not delivered at all. Until the refund guarantee is
received, no instalments will be made. The Company has pledged no assets as
collateral for the joint ventures' obligations.
The following table summarizes the
Company's long-term debt:
Description
|
|
December
31, 2008
|
|
|
December
31, 2009
|
|
Long-term
loans, net of unamortized deferred financing costs of $14.9 million and
$13.5 million, respectively
|
|
$ |
1,331,510 |
|
|
$ |
1,116,097 |
|
Credit
facilities of consolidated joint ventures, net of unamortized deferred
financing
costs
of $0.1 million and $0.04 million, respectively
|
|
|
42,932 |
|
|
|
31,158 |
|
1.875%
Convertible Senior Notes due 2027, net of unamortized financing costs of
$2.6 million
and
$2.3 million, respectively
|
|
|
102,675 |
|
|
|
109,191 |
|
|
|
|
1,477,117 |
|
|
|
1,256,446 |
|
Less:
Current portion of long-term debt, net of unamortized deferred financing
costs of $3.5 million
and
$3.0 million respectively
|
|
|
(220,410 |
) |
|
|
(134,681 |
) |
Long-term
debt, net of current portion
|
|
$ |
1,256,707 |
|
|
$ |
1,121,765 |
|
Long-
term loans-Initial agreements
In April
2008 the Company entered into a credit facility of $1.4 billion in order to
finance the cash consideration paid to Quintana's shareholders, to repay
Quintana's loans and the outstanding balance ($175.9 million) of certain
Company's loans and for working capital purposes. The loan consists of a term
loan ($1.0 billion) and a revolving credit facility ($400.0 million) and it was
drawndown in full on April 15, 2008. The term loan amortizes in quarterly
variable installments through April 2016, while the revolving credit facility
shall be repaid in one installment on the term loan maturity date.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
9. Long-Term
Debt-continued
The
loan contains certain financial covenants that require the Company to
maintain an adjusted market value leverage ratio of not greater than 70%,
maintain a ratio of EBITDA to gross interest expense of not less than 3.0 to
1.0, maintain a book net worth of greater than $750.0 million, maintain a
minimum of cash and cash equivalents of no less than 7.5% of the outstanding
total debt, and to ensure that the aggregate fair market value of the collateral
vessels at all times is not less than 135% of the sum of (i) the then aggregate
outstanding principal amount of the term loan and (ii) the unused commitment
under the revolving loan, provided that the Company has 45 days to cure any
default under this particular covenant so long as the default was not the result
of a voluntary vessel disposition.
In
November 2007, the Company concluded a term loan of $75.6 million in order to
partly finance the acquisition cost of the vessels acquired in December 2007
(Note 7). The loan amortizes in quarterly equal installments through December
2022 plus a balloon payment together with the last installment.
The
loan contains certain financial covenants that require the Company to
maintain an adjusted market value leverage ratio of not greater than 70%,
maintain a ratio of EBITDA to net interest expense greater than 2.0 to 1.0,
maintain a net worth (adjusted by the market value of total assets) of at least
$150.0 million, maintain a minimum of cash and marketable securities of an
amount not less than $10.0 million; and to ensure that the aggregate fair market
value of the borrowers' vessels at all times is not less than 125% of the sum of
the loan.
With
respect to the above two loans and as of December 31, 2008, the Company was not
in compliance with the financial covenants relating to the leverage ratio and
the minimum vessels market values securing the outstanding loan balances. In
order to address the above non-compliance and any probable future non
compliance, the Company reached agreements with its lenders on March 31, 2009
and amended certain loan terms for a period up to January 1st, 2011.
Long-
term loans-Amended agreements
As
discussed above, on March 31, 2009, the Company concluded an amended agreement
in relation to its $1.4 billion loan facility and modified certain of its terms
in order to comply with the financial covenants related to the collateral
vessels' market values following the significant decline prevailing in the
market and any potential non-compliance with the minimum liquidity covenant. The
amended terms, which were effective from December 4, 2008 and valid until
January 1, 2011, contain financial covenants requiring the Company to maintain
minimum liquidity of $25.0 million, maintain a leverage ratio based on book
values of not greater than 70%, maintain a book net worth of not less
that $750.0 million, maintain a ratio of EBITDA to gross interest of not less
than 1.75: 1.0 and maintain an aggregate fair market value of the collateral
vessels at all times not less than 65% of the sum of (i) the
aggregate outstanding principal amount of the term loan and (ii) the unused
commitment under the revolving loan.
In
addition, in accordance with the amended terms, the loan margin increased to
2.5% and the loan repayment schedule was modified to defer an amount of $150.5
million in the balloon payment which will be decreased by any excess cash flows
and equity injections. As part of the loan amendment, the permitted holders as
defined in the loan agreement (the "Permitted Holders") should inject not less
than $50.0 million of new equity in the form of shares issuance and warrants
exercisable no later than twelve months from their issuance. Any shortfall
resulting from the non exercisability of the warrants will be covered through
new equity raised by the Company. In this respect, on March 31, 2009, the
Company received an amount of $45.0 million as proceeds for the issuance of
25,714,286 Class A shares and 5,500,000 warrants, with an exercise price of
$3.50 per warrant, to two companies owned and controlled by entities affiliated
with the family of the Company's Chairman of the Board of Directors (Note 12).
The proceeds were used to prepay a portion of the balloon payment of the $1.4
billion facility on April 1, 2009.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
9. Long-Term
Debt-continued
During
the waiver period the Company shall have the option to declare the deferral of
additional one or more instalments ("Deferred Option Principal") up to an
aggregate amount equal to the paid-in equity of the Permitted Holders, subject
to (i) an increase in the margin of 0.05% as long as any deferrals
are outstanding, (ii) 100% of new equity and excess cash proceeds, accumulated
after the date of declaring the deferral option, being used towards payment of
deferral option amounts as long as deferral options are outstanding, and (iii)
deferral options are only permitted if all covenants are being met.
The loan
terms also provide that any excess cash flow as defined in the amended
agreement, will be firstly applied against any Deferred Option Principal, the
70% of the remaining excess cash flow against the term loan repayments and the
remainder 30% to build and maintain in a pledged account (included in
restricted cash in the accompanying 2009 consolidated balance sheet) a capex
reserve of up to $50.0 million, which is to be funded also
through new equity, to specifically finance the newbuildings
discussed under Note 8 above.
Any
amounts left in this reserve after dealing with the newbuildings shall be
applied against the deferred payments, to increase cash and cash equivalents in
order to comply with the minimum liquidity requirements set forth in the loan
agreement after January 1, 2011 and to reduce the loan repayment amount inverse
order of maturity.
A first
priority mortgage over the vessel Sandra, as well as a first assignment of
vessel insurances and earnings has been provided as additional security for the
amended $1.4 billion facility. In addition, no dividends may be declared and
paid until the loan outstanding balance is brought to the same levels as per the
original schedule and no event of default exists, while no repurchase of
convertible notes may be effected unless through the concept of exchange
offerings (i.e. without any cash outflow for the Company).
In
addition, on March 31, 2009, the Company concluded a first supplemental
agreement to its term loan of $75.6 million with Credit Suisse and modified
certain of its terms in order to comply with the financial covenants that relate
to the vessels' market values following the significant decline in the vessel's
fair market values.
The
amended terms which were effective from December 4, 2008 and valid until January
1, 2011 contain financial covenants requiring the Company to maintain minimum
liquidity of $25.0 million, maintain a leverage ratio based on book values of
not greater than 70%, maintain a book net worth of not less than $750.0 million,
maintain a ratio of EBITDA to gross interest of not less than 1.75: 1.0 and
maintain an aggregate fair market value of the borrowers' vessels at all times
not less than 65% of the sum of the loan. The loan margin increased to
2.25%.
Following
the amendatory agreements described above, the Company was in compliance with
all of the applicable debt covenants at December 31, 2009. In addition, based
upon projected operating results, management believes it is probable that the
Company will meet the financial covenants of the loan agreements discussed
above, as amended, at future covenant measurement dates. Accordingly, in
accordance with the provisions of ASC 470-10-45 "Debt-Other presentation
matters" and ASC 470-10-55 "Debt-Implementation guidance and illustrations", all
amounts not due within the next twelve months under the amended loan terms, have
been classified as long-term liabilities.
The
Company incurred $1.9 million of financing fees in relation to the above loan
amendments which are deferred and amortized over the term of the amended loan
agreements using the effective interest method.
Credit
Facilities of the new-building vessels
Christine
Shipco LLC
In April
2007, Christine Shipco LLC entered into a secured loan agreement for an amount
equal to 70% of the pre-delivery instalments, or $25.4 million, for the Capesize
newbuilding, to be named Christine. Pre-delivery instalments payable to the yard
are expected to total approximately $36.2 million, including partners'
commitments.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
9. Long-Term
Debt-continued
As of
December 31, 2009, $20.3 million have been drawndown under the facility, while
there are unused commitments of $5.1 million (Note 20). The loan is repayable in
one instalment on the earlier of the delivery date or August 31, 2010, but the
loan may be prepaid in full or in part at any time.
The
delivery date is expected to be during the second quarter of 2010. Under the
terms of the joint venture agreement and the loan agreement, Quintana Maritime
Limited, and ultimately the Company following the acquisition, is not
responsible for repayment of the pre-delivery financing. Christine Shipco LLC
expects to refinance the loan upon delivery and borrow an amount equal to the
sum of the pre-delivery financing outstanding at delivery and a portion of
the delivery instalment. The Company will be obliged to make capital
contributions to Christine Shipco LLC to cover 71.4% of the principal and
interest due upon refinancing of the facility.
The
facility contains a loan additional security clause which states that the fair
market value of the vessel less any part of the purchase price under the
memorandum of agreement, or MOA, still to be paid to the seller equals at least
130% of the outstanding loan. In addition, the facility contains customary
restrictive covenants and events of default, including no payment of principal
or interest, breach of covenants or material misrepresentations, default under
other material indebtedness, bankruptcy and change of control. If an event of
default occurs and is continuing, the lender may cancel any part of the loan
amount not then advanced and declare the amount already drawn down payable.
Christine Shipco LLC is not permitted to pay dividends without the prior written
consent of the lender.
Hope
Shipco LLC and Lillie Shipco LLC
In May
2007, Hope Shipco LLC and Lillie Shipco LLC entered into separate secured loan
agreements for amounts equal to 70% of the first pre-delivery instalments due to
the shipyard, or $10.9 million and $11.3 million, respectively. The loan
facilities were drawn down in full upon payment of the first pre-delivery
instalments in May 2007. In April 2008 Lillie Shipco LLC drew down an amount of
$5.6 million to partly finance the second pre-delivery instalment of the vessel
Lillie.
Each of
the facilities contains a loan covenant which states that the fair market value
of the vessel less any part of the purchase price under the MOA, still to be
paid to the builder equals at least 115% of the outstanding loan. In addition,
the facilities contain customary restrictive covenants and events of default,
including no payment of principal or interest, breach of covenants or material
misrepresentations, default under other material indebtedness, bankruptcy and
change of control. Neither Lillie Shipco LLC nor Hope Shipco LLC are permitted
to pay dividends without the prior written consent of the lenders. The loans are
secured by assignments of the shipbuilding contracts/ Memorandum of Agreement,
refund and performance guarantees.
On
October 27, 2009 following the completion of the transaction discussed under
Note 5 above, Hope Shipco LLC and Christine Shipco LLC amended their loan
agreements to reflect the changes in the ownership of the companies, while
Lillie Shipco loan was undertaken by the company's new owners. In addition,
based on the loan amendment for Hope Shipco LLC, the loan will be repaid in one
amount not later than March 15, 2010 (Note 20). The loan margin is
2.25%.
The
credit facilities of the new-building vessels as of December 31, 2009 are
payable in the short-term and thus the loan balances are included in the current
portion of long-term debt as of December 31, 2009.
On
December 11, 2009, the Company accepted a bank offer letter for the financing of
Hope in the amount of maximum $42.0 million but in any event not more than 75%
of the fair value of the vessel upon delivery. As of December 31, 2009, no
amount has been drawdown under the facility (Note 20).
Borrowings
under the credit facilities discussed above bear interest at LIBOR plus a margin
and the average interest rate (including the margin) at December 31, 2008 and
2009 was 5.5% and 4.1%, respectively.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
9. Long-Term
Debt-continued
1.875%
Unsecured Convertible Senior Notes due 2027
In
October 2007, the Company completed its offering of $125,000 aggregate principal
amount of Convertible un-secured Senior Notes due 2027 (the "Notes") subsequent
to which, the initial purchaser exercised in full its option to acquire an
additional of $25,000 of the Notes solely to cover over-allotments. The Notes
bear interest semi-annually at a rate of 1.875% per annum, commenced on April
15, 2008 and were initially convertible at a base conversion rate of
approximately 10.9529 Excel Class A common shares per $1 principal amount of
Notes. This conversion rate has since been adjusted to 11.2702 Excel Class A
common shares per $1 principal amount of Notes as a consequence of the payment
of dividends by the Company in 2008 at levels exceeding a threshold set forth in
the indenture governing the notes. The initial conversion price was set at
$91.30 per share and an incremental share factor of 5.4765 Excel Class A common
shares per $1 principal amount of notes.
The
conversion price has since been adjusted to $88.73 per share and the incremental
share factor has since been adjusted to 5.6351 Excel Class A common shares per
$1 principal amount of notes. On conversion, any amount due up to the principal
portion of the notes will be paid in cash, with the remainder, if any, settled
in shares of Excel Class A common shares. In addition, the notes holders are
only entitled to the conversion premium if the share price exceeds the market
price trigger of $88.73 and thus, until the stock price exceeds the conversion
price of $88.73, the instrument will not be settled in shares and only the
portion in excess of the principal amount will be settled in shares. The Notes
are due October 15, 2027.
The Notes
also contain an embedded put option that allows the holder to require the
Company to purchase the Notes at the option of the holder for the principal
amount outstanding plus any accrued and unpaid interest (i.e. no value for any
conversion premium, if applicable) on specified dates (i.e. October 15, 2014,
October 15, 2017 and October 15, 2022), and a separate call option that allows
for the Company to redeem the Notes at any time on or after October 22, 2014 for
the principal amount outstanding plus any accrued and unpaid interest (i.e. no
value for any conversion premium, if applicable). Any repurchase or redemption
of the notes will be for cash.
In
addition, the Company has entered into a registration rights agreement with the
initial purchaser of the Notes for the benefit of the holders of the Notes and
the shares of its Class A common stock issuable on conversion of the Notes.
Under this agreement, the Company has filed a shelf registration statement with
the SEC covering resales of the Notes and the shares of its Class A common stock
issuable on conversion of the Notes to be maintained effective for a specified
period of time as provided in the related agreement. In case the Company
defaults under the registration rights agreement, it shall pay interest at an
annual rate of 0.5% of the principal amount of the Notes as liquidated damages
to Record Holders of Registrable Securities and in addition in respect of any
Note submitted for conversion, it shall issue additional shares of Class A
Common Stock equal to 3% of the applicable conversion rate as defined in the
indenture. The Company filed the above-mentioned registration statement after
the time set forth in the registration rights agreement and as a consequence
paid additional interest in the amount of $86 on October 15, 2008.
As
discussed in Note 2, in May 2008, the FASB issued accounting guidance within ASC
470-20 which requires that the liability and equity components of convertible
debt instruments that may be settled in cash upon conversion (including partial
cash settlement) be separately accounted for in a manner that reflects an
issuer's nonconvertible debt borrowing rate. As a result, the liability
component is recorded at a discount reflecting its below market coupon interest
rate, and is subsequently accreted to its par value over its expected life, with
the rate of interest that reflects the market rate at issuance being reflected
in the results of operations. The Company adopted ASC 470-20 on January 1, 2009
as its convertible senior notes are within the scope of the standard.
These financial statements have applied ASC 470-20 on a retrospective basis,
whereby the prior period results have been adjusted. The Company applied a
nonconvertible borrowing rate of 8.64% which resulted in the recognition of a
discount on the convertible senior notes totalling $51,456, with the offsetting
amount recognized as a component of additional paid-in capital. The recognized
discount is amortized through October 2014.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
9. Long-Term
Debt-continued
As of
December 31, 2009, the following repayments of principal are required over the
next five years and through out their term for the Company's debt facilities,
including the credit facilities of the consolidated joint ventures:
Period
|
|
Principal
Repayment
|
|
January
1, 2010 to December 31, 2010
|
|
$ |
137,729 |
|
January
1, 2011 to December 31, 2011
|
|
|
97,200 |
|
January
1, 2012 to December 31, 2012
|
|
|
104,200 |
|
January
1, 2013 to December 31, 2013
|
|
|
104,200 |
|
January
1, 2014 to December 31, 2014
|
|
|
254,200 |
|
January
1, 2015 thereafter
|
|
|
613,220 |
|
|
|
$ |
1,310,749 |
|
Less:
Unamortized debt discount of the 1.875% Unsecured Convertible Senior
Notes
|
|
|
(38,539 |
) |
Total
|
|
$ |
1,272,210 |
|
Interest
expense for the years ended December 31, 2007, 2008 and 2009, net of interest
capitalized for all facilities discussed above amounted to $13.9 million, $50.0
million and $43.3 million, respectively, and is included in interest and finance
costs in the accompanying consolidated statements of operations. Interest
capitalized for the years ended December 31, 2007, 2008 and 2009 amounted to
$0.0 million, $3.3 million and $1.6 million respectively, and is included in
vessels under construction in the accompanying consolidated balance
sheets.
Loan
commitment fees for the years ended December 31, 2007, 2008 and 2009 amounted to
$0, $940 and $20, respectively, and are included in interest and finance costs
in the accompanying consolidated statements of operations.
10. Financial
Instruments:
The
Company is exposed to interest rate fluctuations associated with its variable
rate borrowings and its objective is to manage the impact of such fluctuations
on earnings and cash flows of its borrowings. In this respect, the Company uses
interest rate swaps to manage net exposure to interest rate fluctuations related
to its borrowings and to lower its overall borrowing costs.
In July
and October 2006, the Company entered into two derivative contracts, consisting
of an interest rate collar (cap and floor) with extendable swap (swaption) and
an interest rate swap agreement maturing in July 2008 (October 2010 for the
swaption) and July 2015, respectively. In April 2008, the Company
terminated the swap agreement maturing July 2015 discussed above and received
$938 from the counterparty, while on July 22, 2008 (with an effective date of
July 24, 2008) the counterparty exercised its option part of the agreement
(swaption) maturing on October 24, 2010. On April 15, 2008 and upon completion
of the acquisition of Quintana, the Company entered into an agreement with the
lending bank of Quintana and counterparty in a master swap agreement to
guarantee the fulfillment of the obligations under the master swap agreement
previously entered into by Quintana.
Under the
guarantee, the Company guarantees the due payment of all amounts payable under
the master agreement and fully indemnifies the counterparty in respect of all
claims, expenses, liabilities and losses which are made or brought against or
incurred by the counterparty as a result of or in connection with any obligation
or liability guaranteed by the Company being or becoming unenforceable, invalid,
void or illegal.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
10. Financial
Instruments-continued
Under the
terms of the swap, the Company makes quarterly payments to the counterparty at a
fixed rate of 5.135% based on a decreasing notional amount by $13.3
million quarterly. The notional amount as of December 31, 2009 was $558.7
million. The counterparty makes quarterly floating-rate payments at LIBOR to the
Company based on the same decreasing notional amounts. The swap matures on
December 31, 2010. In addition, the counterparty has the option to enter
into an additional swap with the Company effective December 31, 2010 to
June 30, 2014. Under the terms of the optional swap, the Company will make
quarterly fixed-rate payments of 5.00% to the counterparty based on an
amortizing notional amount of $504 million, and the counterparty will make
quarterly floating-rate payments at LIBOR to the Company based on the same
notional amount.
All the
above swaps do not meet hedge accounting criteria and accordingly changes in
their fair values are reported in earnings. Realized and unrealized gains and
losses in the accompanying consolidated statements of operations are analyzed as
follows (in thousands):
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
Realized
gains/ (losses)
|
|
$ |
284 |
|
|
$ |
(10,063 |
) |
|
$ |
(28,364 |
) |
Unrealized
gains/ (losses)
|
|
|
(723 |
) |
|
|
(25,821 |
) |
|
|
27,238 |
|
Total
losses
|
|
$ |
(439 |
) |
|
$ |
(35,884 |
) |
|
$ |
(1,126 |
) |
The above
realized and unrealized losses are included in Interest rate swap
gains/(losses), net in the accompanying consolidated statements of
operations. The fair values of the interest rate swaps determined
through Level 2 inputs of the fair value hierarchy as defined in ASC 820 "Fair
Value Measurements and disclosures" are derived principally from or corroborated
by observable market data. Inputs include quoted prices for similar assets,
liabilities (risk adjusted) and market-corroborated inputs, such as market
comparables, interest rates, yield curves and other items that allow value to be
determined.
The
estimated fair market value of the Convertible Senior Notes, which represents
the tradable value of the notes, determined through Level 2 inputs of the fair
value hierarchy, as discussed above, is approximately $88.9 million compared to
its carrying value.
The
carrying values of cash, accounts receivable and accounts payable are reasonable
estimates of their fair values due to the short-term nature of those financial
instruments. The fair values of long-term bank loans approximate the recorded
values due to the variable interest rates payable.
11. Time
Charters acquired:
Upon
Quintana's acquisition, the Company assumed its fleet's then existing time
charters and recognized an asset of $292.7 million relating to the fair value of
the favorable charter-in contracts (bareboat charters – Company being the
lessee) and a liability of $884.7 million relating to the fair value of the
unfavorable charters – Company being the lessor. The intangible asset recognized
for the fair value of the favorable charter-in contracts relates to the value of
the time charters on seven vessels acquired upon acquisition which were
previously sold and leased back by Quintana under eight-year term bareboat
charters. The intangible liability recognized for the unfavorable
charters assumed relates to Quintana's owned fleet, certain new buildings and
the seven vessels discussed above, that were subject to operating leases
(charters) at the date of acquisition. The intangible asset or liability, which
represents an adjustment to reflect the fair market value of the charters, was
determined by comparing the discounted cash flows under the existing charters
with those that could be reached in the current market for the remaining charter
period. Such intangible assets and liabilities are amortized over the
remaining term of the related charters as an increase in charter hire expense
and revenue, respectively, and are classified as non current in the accompanying
consolidated balance sheets. Such amortization for the years ended December 31,
2008 and 2009 amounted to $28.4 million and $40.0 million, respectively, and
$234.0 million and $364.4 million, respectively, and is separately reflected as
charter hire amortization and time charter amortization,
respectively.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
11. Time
Charters acquired-continued
Included
in the time charter amortization for the year ended December 31, 2009 is an
amount of $63.1 million related to the accelerated amortization of the deferred
liability related to vessels Sandra, Coal Pride and Grain Harvester due to the
termination of their time charters that were assumed by the Company upon
acquiring Quintana.
The
amortization schedule of these assets and liabilities for the years to follow
until they expire is as follows:
|
|
Amortization
|
|
Period
|
|
Asset
|
|
|
Liability
|
|
January
1, 2010 to December 31, 2010
|
|
$ |
40,243 |
|
|
$ |
244,823 |
|
January
1, 2011 to December 31, 2011
|
|
|
40,243 |
|
|
|
17,048 |
|
January
1, 2012 to December 31, 2012
|
|
|
40,353 |
|
|
|
7,441 |
|
January
1, 2013 to December 31, 2013
|
|
|
40,243 |
|
|
|
3,548 |
|
January
1, 2014 to December 31, 2014
|
|
|
40,243 |
|
|
|
3,548 |
|
January
1, 2015 and thereafter
|
|
|
22,986 |
|
|
|
4,005 |
|
Total
|
|
$ |
224,311 |
|
|
$ |
280,413 |
|
12. Common
Stock and Additional Paid-In Capital:
On
September 24, 2009, the stockholders of the Company, during the annual general
shareholders' meeting approved the adoption of an amendment to the Articles of
Incorporation increasing the number of authorized Class A common stock from
100,000,000 to 994,000,000 shares. Following such amendment, the Company's
authorized capital stock consists of (a) 994,000,000 shares (all in registered
form) of common stock, par value $0.01 per share (the "Class A shares"), (b)
1,000,000 shares (all in registered form) of common stock, par value $0.01 per
share (the "Class B shares") and (c) 5,000,000 shares (all in registered form)
of preferred stock, par value $0.1 per share.
The Board
of Directors shall have the fullest authority permitted by law to provide by
resolution for any voting powers, designations, preferences and relative,
participating, optional or other rights of, or any qualifications, limitations
or restrictions on, the preferred stock as a class or any series of the
preferred stock.
The
holders of the Class A shares and of the Class B shares are entitled to one vote
per share and to 1,000 votes per share, respectively, on each matter requiring
the approval of the holders of common stock, however each share of common stock
shares in the earnings of the company on an equal basis.
Issuance
of shares:
On June
19, 2007, the Company issued the 298,403 shares of Class A common stock
discussed in Note 5.
On April
15, 2008, the Company issued 23,496,308 shares of class A common stock in
connection with the acquisition of Quintana.
In July
and August 2008, 39,650 class A common shares were issued to certain
ex-employees of Quintana as compensation under their severance or employment
agreements upon the acquisition of Quintana.
During
the year ended December 31, 2008 1,157,941 class A common shares and 10,420
class B common shares were issued to the Company's executives, the chairman of
the Board of Directors and certain employees in connection with stock-based
compensation discussed in Note 13 below.
In
December 2008, the Company issued the 1,100,000 shares of Class A common stock
discussed in Note 1.
Following
all the shares issuances during the year ended December 31, 2008, additional
392,801 class A common shares were issued to Excel Management Ltd. in connection
with the anti-dilution provision of its agreement with the Company (Note
5).
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
12. Common
Stock and Additional Paid-In Capital-continued
As part
of the equity infusion discussed in Notes 5 and 9 above, on March 31, 2009, the
Company issued 25,714,286 Class A shares and 5,500,000 warrants to two companies
owned and controlled by entities affiliated with the family of the Company's
Chairman of the Board of Directors. The warrants, which are exercisable at a
price of $3.50 per warrant, have not been exercised as of December 31,
2009.
In
addition, on June 22, 2009, 180,000 shares of the Company's Class A common stock
were issued in relation to stock based awards granted to certain of the
Company's executive officers as discussed in Note 13 below.
In August
2009, the Company filed a prospectus supplement pursuant to Rule 424(b) relating
to the offer and sale of 6,000,000 shares of common stock, par value
$0.01 per share, pursuant to the Company's Registration Statement on Form F-3
filed with the SEC in July 2007. In this respect, 6,000,000 shares were issued
at $8.0 per share gross of underwriters' commissions and expenses, raising net
proceeds of approximately $45.1 million.
On July
16, 2009, 2,000,000 shares of the Company's Class A common stock were issued in
relation to stock based awards granted to the Chairman of the Board of Directors
as discussed in Note 13 below.
On
December 3, 2009, 105,000 shares of the Company's Class A common stock were
issued in relation to the stock based awards granted to its independent
directors as discussed in Note 13 below.
Adoption of recent accounting
pronouncements: As discussed in Notes 2 and 3, the effect of the
adoption, as of January 1, 2009, of the accounting guidance issued by
the FASB and contained within ASC 470-20 "Debt with Conversion and other
options" was an increase in additional paid-in capital of approximately $49.9
million, while the adoption of the accounting guidance issued by the FASB and
contained within ASC 810-10-65 "Consolidation-Transition and open effective date
information" resulted in an amount of approximately $14.9 million being
reflected under stockholders' equity.
13. Stock
Based Compensation:
As of
December 31, 2007, the Company had outstanding 100,000 options granted to its
former Chief Executive Officer on October 5, 2004 to purchase Company's Class A
common shares at an exercise price of $31.79, representing the closing price of
the Company's common stock at the grant date less a discount of 15%. All stock
options granted vested on the third anniversary of the date upon which the
options were granted (October 5, 2007) and expire on the fifth anniversary of
the date upon which the options were granted. The stock options granted were
fully recognized as expense over the vesting period based on their fair values
on the grant date. Due to the resignation of the Chief Executive Officer in
February 2008, the 100,000 share options have been forfeited. There are no
further rights or obligations under the options.
During
2008, the Board of Directors approved the following grants in the form of
restricted stock to the Company's executive officers, chairman and
employees:
|
·
|
10,996
Class A common shares of which half will vest on the first anniversary of
the grant date and the remainder on the second anniversary of the grant
date.
|
|
·
|
10,420
Class B common shares of which half will vest on the first anniversary of
the grant date and the remainder on the second anniversary of the grant
date.
|
|
·
|
500,000
Class A shares of which half will vest on December 31, 2008 and the
remainder on December 31, 2009.
|
|
·
|
300,000
Class A shares, with vesting upon performance conditions, of which 20%
will vest on the first anniversary of the CEO employment agreement (April
18, 2008), 30% on the second anniversary and 50% on the third
anniversary.
|
|
·
|
150,000
Class A shares of which 20% will vest in each of the five years period
ending December 31, 2012.
|
|
·
|
90,000
Class A shares of which 33.3% will vest in each of the three years period
ending December 31, 2010.
|
|
·
|
97,129
Class A shares which vest over a period of one year since the grant date
in December 2008.
|
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
13. Stock
Based Compensation-continued
On March
11, 2009, the Board of Directors approved the grant of 180,000 shares of the
Company's Class A common stock in the form of restricted stock to its executive
officers to be vested by 33.3% on each period ending June 30, 2009, 2010 and
2011. On May 20, 2009, the Board of Directors approved an amendment to the grant
and all the 180,000 shares awarded vested on July 1, 2009.
On July
8, 2009, the Board of Directors approved the grant of 2,000,000 shares of the
Company's Class A common stock in the form of restricted stock to its chairman
to be vested by 33.3% on July 8, 2009, December 31, 2009 and December 31, 2010.
The restricted stock granted is recognized as expense over the vesting period
based on its fair value on the grant date.
On
October 26, 2009, the Board of Directors approved the grant of 105,000 shares of
the Company's Class A common stock to its independent directors to be vested by
50% immediately and 50% on June 30, 2010. The stock granted is being recognized
as expense over the vesting period based on its fair value on the grant
date.
Restricted
stock outstanding as of December 31, 2009 includes the
following:
|
|
Number
of Shares
|
|
|
Weighted
Average Fair Value Per Share
|
|
Outstanding
at December 31, 2008
|
|
|
852,845 |
|
|
$ |
29.97 |
|
Granted
|
|
|
2,285,000 |
|
|
$ |
5.91 |
|
Vested
|
|
|
(1,977,178 |
) |
|
$ |
9.22 |
|
Cancelled
or expired
|
|
|
(309,399 |
) |
|
$ |
47.76 |
|
Outstanding
at December 31, 2009
|
|
|
851,268 |
|
|
$ |
7.11 |
|
During
the years ended December 31, 2007, 2008 and 2009 the compensation expense in
connection with all stock-based employee compensation awards amounted to $826,
$8,596 and $19,847, respectively, and is included in General and Administrative
expenses in the accompanying consolidated statements of operations. At December
31, 2009, the total unrecognized cost related to the above awards was $3.8
million which will be recognized through December 31, 2012.
14. Dividends:
On March
7, 2007, the Company's Board of Directors approved the implementation of a
dividend policy, for the payment of quarterly dividends, commencing on the
second quarter of 2007 in the amount of $0.20 per share. In this respect, during
the year ended December 31, 2007, the Company declared and paid approximately
$11.9 million, representing dividends of $0.60 per share.
During
the year ended December 31, 2008, the Company paid dividends amounting to $48.5
million or $1.20 per share as follows:
|
·
|
On
April 11, 2008, the Company paid a dividend of $0.20 per share, amounting
to $4.0 million.
|
|
·
|
On
June 16, 2008, the Company paid a dividend of $0.20 per share, amounting
to $8.7 million.
|
|
·
|
On
September 15, 2008, the Company paid a dividend of $0.40 per share,
amounting $17.8 million.
|
|
·
|
On
December 5, 2008, the Company paid a dividend of $0.40 per share,
amounting $18.0 million.
|
In
February 2009 the Company's Board of Directors decided to suspend the dividend
in light of the challenging conditions both in the freight market and the
financial environment. The suspension of dividend was effective from the
dividend of the fourth quarter of 2008 and aimed at preserving cash and
enhancing the Company's liquidity.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
15. Earnings
per share:
All
shares issued under the Company's Incentive Plan (including non-vested shares)
have equal rights to vote, with the exception of the 10,420 Class B shares
granted to the Company's chairman as discussed in Note 12 above, and have the
right to receive non forfeitable dividends only upon their vesting. For the
purposes of calculating basic earnings per share, non-vested shares are not
considered outstanding until the time-based vesting restriction has
lapsed.
Dividends
declared during the period for non vested shares are deducted from (added to)
the net income (loss) reported for purposes of calculating net income (loss)
available to (assumed by) common stockholders for the computation of basic
earnings (losses) per share. The Company had no dilutive securities during the
year ended December 31, 2008. During the years ended December 31, 2007 and 2009,
the denominator of the diluted earnings per share calculation includes the
incremental shares assumed issued under the treasury stock method weighted for
the period the shares were outstanding, with respect to the non vested shares
outstanding as of each year-end and the warrants outstanding as of December 31,
2009. The Company calculates the number of shares outstanding for the
calculation of basic and diluted earnings per share as follows:
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
Net
income (loss) for Basic Earnings per share
|
|
|
|
|
|
|
|
|
|
Net
income (loss) for the year
|
|
$ |
81,704 |
|
|
$ |
(55,914 |
) |
|
$ |
339,782 |
|
Dividends
received on unvested shares
|
|
|
- |
|
|
|
(622 |
) |
|
|
- |
|
Net
income (loss)- common stockholders
|
|
$ |
81,704 |
|
|
$ |
(56,536 |
) |
|
$ |
339,782 |
|
Net
income (loss) for Diluted Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) for the year
|
|
|
81,704 |
|
|
|
(55,914 |
) |
|
|
339,782 |
|
Net
income (loss) - common stockholders
|
|
$ |
81,704 |
|
|
$ |
(55,914 |
) |
|
$ |
339,782 |
|
Weighted average
common shares outstanding, basic
|
|
|
19,949,644 |
|
|
|
37,003,101 |
|
|
|
67,565,178 |
|
Add:
Dilutive effect of non vested shares
|
|
|
16,032 |
|
|
|
- |
|
|
|
282,346 |
|
Add:
Dilutive effect of warrants
|
|
|
- |
|
|
|
- |
|
|
|
2,152,236 |
|
Weighted
average common shares, diluted
|
|
|
19,965,676 |
|
|
|
37,003,101 |
|
|
|
69,999,760 |
|
Earnings
(losses) per share, basic
|
|
$ |
4.10 |
|
|
$ |
(1.53 |
) |
|
$ |
5.03 |
|
Earnings
(losses) per share, diluted
|
|
$ |
4.09 |
|
|
$ |
(1.53 |
) |
|
$ |
4.85 |
|
In
relation to the Convertible Senior Notes due in fiscal year 2027, the notes
holders are only entitled to the conversion premium if the share price exceeds
the market price trigger of $88.73 and thus, until the stock exceeds such
conversion price, the instrument will not be settled in shares and only the
portion in excess of the principal amount will be settled in shares. As of
December 31, 2007, 2008 and 2009, none of the shares were dilutive since the
average share price for the years ended December 31, 2007, 2008 and 2009 did not
exceed the conversion price.
16. Commitments
and Contingencies:
a)
|
Various
claims, suits, and complaints, including those involving government
regulations and product liability, arise in the ordinary course of the
shipping business. In addition, losses may arise from disputes with
charterers, agents, insurance and other claims with suppliers relating to
the operations of the Company's vessels. Currently, management is not
aware of any such claims or contingent liabilities, which should be
disclosed, or for which a provision should be established in the
accompanying consolidated financial statements. The Company accrues for
the cost of environmental liabilities when management becomes aware that a
liability is probable and is able to reasonably estimate the probable
exposure. Currently, management is not aware of any such claims or
contingent liabilities, which should be disclosed, or for which a
provision should be established in the accompanying consolidated financial
statements. The Company's protection and indemnity (P&I) insurance
coverage for pollution is $1 billion per vessel per
incident.
|
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
16. Commitments
and Contingencies-continued
b)
|
The
Company is a defendant in an action commenced in the Supreme Court of the
State of New York, New York County on August 21, 2008 by the Company's
former Chief Executive Officer, Mr. Christopher I. Georgakis, who resigned
in February 2008, entitled Georgakis v. Excel Maritime Carriers, Ltd.,
Index No. 650322/08. In his Complaint, Mr. Georgakis alleges that the
Company is liable for breach of a November 1, 2004 stock option agreement,
common law fraud in connection with the stock option agreement and for
defamation arising from a statement on a Form 6-K submitted to the SEC.
Mr. Georgakis seeks at least $14,818 in damages (including $5.0 million in
punitive damages) and attorneys' fees and costs. On January 2, 2009, the
Company made a motion to dismiss the action for lack of personal
jurisdiction and for forum non conveniens, which was denied by the Supreme
Court on October 28, 2009. The Company has filed an appeal, requesting the
Appellate Division to reverse the decision of the Supreme Court and to
dismiss the action in its entirety. In addition, the New York Stock
Exchange has filed an amicus curiae brief in support of the Company's
appeal. The Company believes that it has strong defenses to the
claims and intends to vigorously defend the action on the merits and
accordingly has not accrued for any loss contingencies with this respect.
However, the ultimate outcome of this case cannot be presently
determined.
|
c)
|
The
following table sets forth the Company's lease and other commitments as of
December 31, 2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015 and thereafter
|
|
|
Total
|
|
|
|
(Amounts
in million of US Dollars)
|
|
Operating
lease obligations (Bareboat charters) (1)
|
|
|
(32.8 |
) |
|
|
(32.8 |
) |
|
|
(32.9 |
) |
|
|
(32.8 |
) |
|
|
(31.9 |
) |
|
|
(17.0 |
) |
|
|
(180.2 |
) |
Long-
term charters out (2)
|
|
|
256.2 |
|
|
|
79.9 |
|
|
|
57.8 |
|
|
|
44.4 |
|
|
|
37.1 |
|
|
|
38.5 |
|
|
|
513.9 |
|
Vessels
under construction (3)
|
|
|
(108.6 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(108.6 |
) |
Property
leases (4)
|
|
|
(0.7 |
) |
|
|
(0.8 |
) |
|
|
(0.8 |
) |
|
|
(0.8 |
) |
|
|
(0.9 |
) |
|
|
(0.1 |
) |
|
|
(4.1 |
) |
(1) The
amount relates to the bareboat hire to be paid for the seven vessels
chartered-in under bareboat charter agreements expiring in July 2015 (Note
1).
(2) The
amount relates to revenue to be earned under our fixed time charters net of
related commissions.
(3) The
amount relates to the total contractual obligations for the installments due on
two Capesize newbuildings, one wholly owned and one owned by the joint venture
discussed in Note 5 above in which the Company participates. Of these amounts,
the Company will contribute $105.0 million in the year ending December 31, 2010.
The above table does not reflect the purchase price of $310.8 million ($155.4
million of which represents the Company's participation in the joint ventures)
for the construction of four Capesize vessels of the joint ventures for which no
refund guarantee has been provided by the shipyard and the construction of these
vessels has not commenced yet. Therefore, these vessels may be delivered late or
not delivered at all. Until the refund guarantee is received, no instalments
will be made and therefore the commitments under the agreements have not been
incorporated into the table above.
(4)
Maryville (Note 1) has a lease agreement for the rental of office
premises until February 2015 with an unrelated party. Under the current terms of
the lease, the monthly rental fee is approximately $0.06 million. Operating
lease payments for 2007, 2008 and 2009 amounted to approximately $0.5 million,
$0.8 million and $0.8 million, respectively and are included in General and
Administrative expenses in the accompanying consolidated statements of
operations. Rent increases annually at a rate of 1.5% above
inflation.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
17. Income
Taxes:
Under the
laws of Marshall Islands, Liberia, Bahamas, Malta and Cyprus, (the countries of
the companies' incorporation and vessels' registration), the companies are
subject to registration and tonnage taxes (Note 18), which have been included in
Vessels' operating expenses in the accompanying consolidated statements of
operations.
Taxation on U.S.
Source Income: Pursuant to Section 883 of the Internal Revenue Code of
the United States (the "Code"), U.S. source income from the international
operation of ships is generally exempt from U.S. tax if the company operating
the ships meets both of the following requirements: (a) the Company is organized
in a foreign country that grants an equivalent exception to corporations
organized in the United States and (b) either (i) more than 50% of the value of
the Company's stock is owned, directly or indirectly, by individuals who are
"residents" of the Company's country of organization or of another foreign
country that grants an "equivalent exemption" to corporations organized in the
United States (the "50% Ownership Test") or (ii) the Company's stock is
"primarily and regularly traded on an established securities market" in its
country of organization, in another country that grants an "equivalent
exemption" to United States corporations, or in the United States (the
"Publicly-Traded Test"). Under U.S. Treasury regulations, a Company's
stock will be considered to be "regularly traded" on an established securities
market if (i) one or more classes of its stock representing 50 percent or more
of its outstanding shares, by voting power and value, is listed on the market
and is traded on the market, other than in minimal quantities, on at least 60
days during the taxable year; and (ii) the aggregate number of shares of stock
traded during the taxable year is at least 10% of the average number of shares
of the stock outstanding during the taxable year.
Treasury
regulations interpreting Section 883 were promulgated in final form in August
2003 and were applied to taxable years beginning after September 24, 2004. As a
result, such regulations became effective for calendar year taxpayers, like the
Company, beginning with the calendar year 2005. Marshall Islands, Liberia and
Cyprus, the jurisdictions where the Company and its ship-owning subsidiaries are
incorporated, grant an "equivalent exemption" to United States corporations.
Therefore, the Company is exempt from United States federal income taxation with
respect to U.S.-source shipping income if either the 50% Ownership Test or the
Publicly-Traded Test is met.
For the
years ended December 31, 2007, 2008 and 2009, the Company determined that it
does not satisfy the Publicly-Traded Test on the basis that its shares are not
"regularly traded" because of the voting power held by its Class B shares. In
addition, the Company does not satisfy the 50% Ownership Test because it is
unable to substantiate certain requirements regarding the identity of its
shareholders.
Since the
Company does not qualify for exemption under section 883 of the Code its United
States source shipping income is subject to a 4% tax. For taxation purposes,
United States source shipping income is defined as 50% of shipping income that
is attributable to transportation that begins or ends, but that does not both
begin and end, in the United States. Shipping income from each voyage
is equal to the product of (i) the number of days in each voyage and (ii) the
daily charter rate paid to the Company by the Charterer.
For
calculating taxable shipping income, days spent loading and unloading cargo in
the port were not included in the number of days in the voyage. As a result,
taxes of approximately $0.5 million, $0.8 million and $0.7 million for the years
ended December 31, 2007, 2008 and 2009, respectively were recognized in the
accompanying consolidated statements of operations.
The
Company believes that its position of excluding days spent loading and unloading
cargo in the port meets the more likely than not criterion to be sustained upon
a future tax examination; however, there can be no assurance that the Internal
Revenue Service would agree with the Company's position. Had the
Company included the days spent loading and unloading cargo in the port, a tax
reserve of approximately $1,015 and $817 would have recorded set up as of
December 31, 2009 and 2008 respectively and additional taxes of $226, $329 and
$198 would have been recognized in the accompanying consolidated statements of
operations for the years ended December 31, 2007, 2008 and 2009,
respectively.
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
18. Voyage
and Vessel Operating expenses:
The
amounts in the accompanying consolidated statements of operations are analyzed
as follows:
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
Voyage
expenses
|
|
|
|
|
|
|
|
|
|
Port
Charges and other
|
|
$ |
848 |
|
|
$ |
1,769 |
|
|
$ |
1,732 |
|
Bunkers
|
|
|
220 |
|
|
|
2,927 |
|
|
|
(630 |
) |
Commissions
charged by third parties
|
|
|
10,009 |
|
|
|
23,449 |
|
|
|
18,215 |
|
|
|
|
11,077 |
|
|
|
28,145 |
|
|
|
19,317 |
|
Commissions
charged by a related party
|
|
|
2,204 |
|
|
|
3,620 |
|
|
|
2,260 |
|
|
|
$ |
13,281 |
|
|
$ |
31,765 |
|
|
$ |
21,577 |
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
Vessel
Operating expenses
|
|
|
|
|
|
|
|
|
|
Crew
wages and related costs
|
|
$ |
14,700 |
|
|
$ |
33,120 |
|
|
$ |
39,558 |
|
Insurance
|
|
|
3,197 |
|
|
|
8,260 |
|
|
|
9,617 |
|
Repairs,
spares and maintenance
|
|
|
9,460 |
|
|
|
14,693 |
|
|
|
16,923 |
|
Consumable
stores
|
|
|
5,728 |
|
|
|
11,174 |
|
|
|
14,113 |
|
Tonnage
taxes
|
|
|
121 |
|
|
|
359 |
|
|
|
476 |
|
Miscellaneous
|
|
|
431 |
|
|
|
2,078 |
|
|
|
2,510 |
|
|
|
$ |
33,637 |
|
|
$ |
69,684 |
|
|
$ |
83,197 |
|
19. Interest
and Finance Costs:
The
amounts in the accompanying consolidated statements of operations are analyzed
as follows:
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
Interest
on long-term debt
|
|
$ |
13,877 |
|
|
$ |
53,310 |
|
|
$ |
44,905 |
|
Imputed
and capitalized interest
|
|
|
- |
|
|
|
(3,325 |
) |
|
|
(1,563 |
) |
Amortization
and write-off of financing costs
|
|
|
437 |
|
|
|
4,270 |
|
|
|
3,823 |
|
Amortization
of convertible notes debt discount
|
|
|
1,134 |
|
|
|
5,628 |
|
|
|
6,154 |
|
Bank
charges and finance costs
|
|
|
148 |
|
|
|
2,059 |
|
|
|
3,777 |
|
|
|
$ |
15,596 |
|
|
$ |
61,942 |
|
|
$ |
57,096 |
|
20. Subsequent
Events:
a)
|
Loan payments:
Subsequent to December 31, 2009, the Company paid regular loan
installments amounting to $22.5 million in
total.
|
b)
|
Fortis Loan: On February
11, 2010, Hope Shipco entered into a loan agreement for the financing of
Hope in the amount of maximum $42.0 million but in any event not more than
75% of the fair value of the vessel upon delivery. The loan will be drawn
down in various installments following the vessel construction progress
through November 2010. The first drawdown, amounting to $13.9 million,
took place on March 9, 2010 to partly finance the second payment
installment to the shipyard upon the steel cutting has taken place as
provided in the relevant shipbuilding contract. The loan is repayable in
twenty quarterly installments and a balloon payment through January 2016.
The first installment will commence three months from the vessel
delivery.
|
EXCEL
MARITIME CARRIERS LTD.
Notes
to Consolidated Financial Statements
December
31, 2009
(Expressed
in thousands of United States Dollars – except for share and per share data,
unless otherwise stated)
20. Subsequent
Events-continued
A first
priority assignment of the refund guarantee and the shipbuilding contract in
addition to other customary securities have been provided for the vessel
pre-delivery period and a first priority mortgage, as well as a first assignment
of vessel insurances and earnings have been provided as security for the vessel
post delivery period. A second priority mortgage and a second priority
assignment of the vessel insurances and earnings have been provided as security
for one of the swap agreements discussed in Note 10 above.
The loan
financial covenants are in line with the covenants applicable to Company under
the remaining credit facilities. However, the additional security clause in
respect with the hull cover ratio stands at 115% whereas the remaining credit
facilities provide for a hull cover ratio at 65% up to January 1, 2011 when this
will be increased to 135%.
c)
|
Payments to shipyards and loan
drawdowns: On March 8, 2010, an amount of $7.3 million representing
Christine Shipco's scheduled installment to the shipyard was paid. The
installment was financed through the final drawdown of $5.1 million of the
company's borrowing facility and $1.1 million contribution made by each
joint venture partner.
|
On March
9, 2010, Hope Shipco paid $15.6 million to the shipyard, representing the second
installment due on the steel cutting.
On March
9, 2010, Hope Shipco repaid its then-outstanding debt under its RBS credit
facility amounting to $10.9 million.
1.1
|
Articles
of Incorporation of the Company, incorporated by reference to Exhibit 3.1
of the Company's Registration Statement on Form F-1, Registration No.
33-8712 filed on May 6, 1998.
|
1.2
|
Amended
and Restated Articles of Incorporation of the Company, adopted April 1,
2008, incorporated by reference to Exhibit 1.0 of the Company's Form 6-K
submitted to the SEC on April 11, 2008.
|
1.3
|
Amended
and Restated By-Laws of the Company adopted on January 10, 2000,
incorporated by reference to Exhibit 1.0 of the Company's Form 6-K
submitted on September 5, 2007.
|
2.1
|
Specimen
Class A Common Stock Certificate, incorporated by reference to Exhibit 4.2
of the Company's Registration Statement on Form F-1, Registration No.
33-8712 filed on May 6, 1998.
|
2.2
|
Specimen
Class B Common Stock Certificate, incorporated by reference to the
Company's Form 20-F filed on June 29, 2006.
|
2.3
|
Form
of Indenture, incorporated by reference to Exhibit 4.3 of the Company's
Registration Statement on Form F-3, Registration No. 333-120259, filed on
November 5, 2004.
|
2.4
|
Form
of Indenture – Convertible Senior Notes, incorporated by reference to the
Company's Form 20-F filed on May 27, 2008.
|
4.1
|
Credit
facility in the amount of $27.0 million, dated December 23, 2004,
incorporated by reference to the Company's Form 6-K submitted on March 8,
2005.
|
4.2
|
Management
Agreement Termination Agreement and Addendum No. 1 to Management Agreement
Termination Agreement, incorporated by reference to Exhibits 99.1 and
99.2, respectively, to the Company's Form 6-K submitted on March 14,
2005.
|
4.3
|
Credit
facility in the amount of $95.0 million, dated February 16, 2005,
incorporated by reference to the Company's Form 6-K submitted on March 16,
2005.
|
4.4
|
Brokering
Agreement between the Company and Excel Management, dated March 4, 2005,
incorporated by reference to the Company's Form 6-K submitted on March 18,
2005.
|
4.5
|
Registration
Rights Agreement between Oceanaut, Inc. and the Investors listed therein,
incorporated by reference to Exhibit 10.7 to Oceanaut, Inc.'s Form F-1
(Registration Statement 333-140646) filed on February 13,
2007.
|
4.6
|
Insider
Unit and Warrant Purchase Agreement between the Company and Oceanaut,
Inc., incorporated by reference to Exhibit 10.8 to Oceanaut, Inc.'s Form
F-1 (Registration Statement 333-140646) filed on February 13,
2007.
|
4.7
|
Insider
Letter from the Company to Oceanaut, Inc., incorporated by reference to
Exhibit 10.2 to Oceanaut, Inc.'s Form F-1/A (Registration Statement
333-140646) filed on February 28, 2007.
|
4.8
|
Right
of First Refusal between the Company and Oceanaut, Inc. dated February 28,
2007, incorporated by reference to Exhibit 10.15 to Oceanaut, Inc.'s Form
F-1/A (Registration Statement 333-140646) filed on February 28,
2007.
|
4.9
|
Guarantee
between the Company and Fortis Bank, dated April 15, 2008, incorporated by
reference to the Company's Form 20-F filed on May 27, 2008.
|
4.10
|
Agreement
and Plan of Merger dated as of January 29, 2008, among the Company, Bird
Acquisition Corp. and Quintana Maritime Limited, incorporated by reference
to Exhibit 2.1 to the Company's Form F-4/A filed on March 10,
2008.
|
4.11
|
Senior
secured credit facility in the amount of $1.4 billion, dated April 15,
2008, incorporated by reference to the Company's Form 20-F filed on May
27, 2008.
|
4.12
|
Right
of First Refusal and Corporate Opportunities Agreement between the Company
and Oceanaut, Inc. dated September 5, 2008, incorporated by reference to
Exhibit 10.5 to Oceanaut, Inc.'s Form 6-K submitted on September 9,
2008.
|
4.13
|
Subordination
Agreement between the Company and Oceanaut, Inc. dated September 5, 2008,
incorporated by reference to Exhibit 10.6 to Oceanaut, Inc.'s Form 6-K
submitted on September 9, 2008.
|
4.14
|
Series
A Preferred Stock Purchase Agreement between the Company and Oceanaut,
Inc. dated September 5, 2008, incorporated by reference to Exhibit 10.7 to
Oceanaut, Inc.'s Form 6-K submitted on September 9, 2008.
|
4.15
|
Commercial
Management Agreement between the Company and Oceanaut, Inc. dated
September 5, 2008, incorporated by reference to Exhibit 10.9 to Oceanaut,
Inc.'s Form 6-K submitted on September 9, 2008.
|
4.16
|
Technical
Management Agreement between Maryville and Oceanaut, Inc. dated September
5, 2008, incorporated by reference to Exhibit 10.10 to Oceanaut, Inc.'s
Form 6-K submitted on September 9, 2008.
|
4.17
|
Stock
Purchase Agreement by and among Excel Maritime Carriers Ltd., Lhada
Holdings Inc. and Tanew Holdings Inc., dated as of March 2,
2009.
|
4.18
|
Amendment
No. 1 to Stock Purchase Agreement by and among Excel Maritime Carriers
Ltd., Lhada Holdings Inc. and Tanew Holdings Inc., dated as of March 30,
2009.
|
4.19
|
Amendment
No. 1 to senior secured credit facility in the amount of $1.4 billion
dated April 15, 2008, dated as of March 31, 2009.
|
4.20 |
Membership
Interest Transfer Agreement between AMCIC Cape Holdings LLC and Bird
Acquisition Corp., dated October 6, 2009, for the transfer of membership
interests in Christine Shipco LLC. |
|
|
4.21 |
Membership
Interest Transfer Agreement between AMCIC Cape Holdings LLC and Bird
Acquisition Corp., dated October 6, 2009, for the transfer of
membership interests in Lillie Shipco LLC and Hope Shipco
LLC. |
|
|
8.1
|
Subsidiaries
of the Company.
|
11.1
|
Code
of Ethics, incorporated by reference to the Company's Form 20-F filed on
May 27, 2008.
|
12.1
|
Certificate
of Chief Executive pursuant to Rule 13a-14(a) of the Exchange
Act.
|
12.2
|
Certificate
of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange
Act.
|
13.1
|
Certificate
of Chief Executive pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|
13.2
|
Certificate
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
15.1
|
Consent
of Independent Registered Public Accounting
Firm.
|
SIGNATURES
The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this registration statement on its behalf.
|
EXCEL
MARITIME CARRIERS LTD. |
|
|
|
|
|
|
|
By: |
/s/
Gabriel
Panayotides |
|
Name: |
Gabriel
Panayotides
|
|
Title: |
President
|
March 10,
2010
SK 02545 0001 1064872
v4