GENCO SHIPPING & TRADING LTD, 10-K filed on 3/1/2013
Annual Report
Document and Entity Information (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Mar. 1, 2013
Jun. 30, 2012
Document and Entity Information
 
 
 
Entity Registrant Name
GENCO SHIPPING & TRADING LTD 
 
 
Entity Central Index Key
0001326200 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2012 
 
 
Amendment Flag
false 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Entity Public Float
 
 
$ 113.6 
Entity Common Stock, Shares Outstanding
 
44,270,273 
 
Document Fiscal Year Focus
2012 
 
 
Document Fiscal Period Focus
FY 
 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Current assets:
 
 
Cash and cash equivalents
$ 72,600 
$ 227,968 
Due from charterers, net
11,714 
13,688 
Prepaid expenses and other current assets
18,146 
17,709 
Total current assets
102,460 
259,365 
Noncurrent assets:
 
 
Vessels, net of accumulated depreciation of $597,214 and $464,518, respectively
2,662,403 
2,794,860 
Deferred drydock, net of accumulated amortization of $8,086 and $11,111, respectively
12,037 
6,934 
Other assets, net of accumulated amortization of $13,162 and $7,749, respectively
29,561 
17,795 
Fixed assets, net of accumulated depreciation and amortization of $3,311and $2,422, respectively
5,258 
5,591 
Other noncurrent assets
514 
514 
Restricted cash
10,150 
9,750 
Investments
20,988 
24,468 
Total noncurrent assets
2,740,911 
2,859,912 
Total assets
2,843,371 
3,119,277 
Current liabilities:
 
 
Accounts payable and accrued expenses
23,667 
30,712 
Current portion of long-term debt
 
185,077 
Deferred revenue
1,324 
4,227 
Current portion of lease obligations
682 
 
Fair value of derivative instruments
1,686 
Total current liabilities
25,680 
221,702 
Noncurrent liabilities:
 
 
Long-term lease obligations
2,465 
1,823 
Time charters acquired
418 
1,164 
Fair value of derivative instruments
16,045 
23,654 
Convertible senior note payable
110,918 
106,381 
Long-term interest payable
13,199 
 
Long-term debt
1,413,439 
1,402,935 
Total noncurrent liabilities
1,556,484 
1,535,957 
Total liabilities
1,582,164 
1,757,659 
Commitments and contingencies
   
   
Genco Shipping & Trading Limited shareholders' equity:
 
 
Common stock, par value $0.01; 100,000,000 shares authorized; issued and outstanding 44,270,273 and 36,307,598 shares at December 31, 2012 and December 31, 2011, respectively
443 
363 
Additional paid-in capital
863,303 
809,443 
Accumulated other comprehensive loss
(11,841)
(17,549)
Retained earnings
214,391 
359,349 
Total Genco Shipping & Trading Limited shareholders' equity
1,066,296 
1,151,606 
Noncontrolling interest
194,911 
210,012 
Total equity
1,261,207 
1,361,618 
Total liabilities and equity
$ 2,843,371 
$ 3,119,277 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Consolidated Balance Sheets
 
 
Vessels, accumulated depreciation
$ 597,214 
$ 464,518 
Deferred drydock, accumulated amortization
8,086 
11,111 
Other assets, accumulated amortization
13,162 
7,749 
Fixed assets, accumulated depreciation and amortization
$ 3,311 
$ 2,422 
Common stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common stock, shares authorized (in shares)
100,000,000 
100,000,000 
Common stock, shares issued (in shares)
44,270,273 
36,307,598 
Common stock, shares outstanding (in shares)
44,270,273 
36,307,598 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Revenues:
 
 
 
Voyage revenues
$ 223,159 
$ 388,929 
$ 447,438 
Service revenues
3,294 
3,285 
1,249 
Total revenues
226,453 
392,214 
448,687 
Operating expenses:
 
 
 
Voyage expenses
7,009 
4,457 
4,467 
Vessel operating expenses
114,318 
105,514 
78,976 
General, administrative and management fees
35,673 
33,928 
29,081 
Depreciation and amortization
139,063 
136,203 
115,663 
Other operating income
(265)
(527)
(791)
Total operating expenses
295,798 
279,575 
227,396 
Operating (loss) income
(69,345)
112,639 
221,291 
Other (expense) income:
 
 
 
Other expense
(29)
(80)
(77)
Interest income
378 
616 
685 
Interest expense
(87,558)
(86,722)
(72,650)
Other expense
(87,209)
(86,186)
(72,042)
(Loss) income before income taxes
(156,554)
26,453 
149,249 
Income tax expense
(1,222)
(1,385)
(1,840)
Net (loss) income
(157,776)
25,068 
147,409 
Less: Net (loss) income attributable to noncontrolling interest
(12,848)
(318)
6,166 
Net (loss) income attributable to Genco Shipping & Trading Limited
$ (144,928)
$ 25,386 
$ 141,243 
Net (loss) income per share-basic (in dollars per share)
$ (3.47)
$ 0.72 
$ 4.28 
Net (loss) income per share-diluted (in dollars per share)
$ (3.47)
$ 0.72 
$ 4.07 
Weighted average common shares outstanding-basic (in shares)
41,727,075 
35,179,244 
32,987,449 
Weighted average common shares outstanding-diluted (in shares)
41,727,075 
35,258,205 
35,891,373 
Dividends declared per share (in dollars per share)
$ 0.00 
 
 
Consolidated Statements of Comprehensive (Loss) Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Consolidated Statements of Comprehensive (Loss) Income
 
 
 
Net (loss) income
$ (157,776)
$ 25,068 
$ 147,409 
Change in unrealized gain on investments
(3,480)
(30,246)
(17,466)
Unrealized gain (loss) on cash flow hedges, net
9,188 
17,907 
(1,333)
Other comprehensive income (loss)
5,708 
(12,339)
(18,799)
Comprehensive (loss) income
(152,068)
12,729 
128,610 
Less: Comprehensive (loss) income attributable to noncontrolling interests
(12,848)
(318)
6,166 
Comprehensive (loss) income attributable to Genco Shipping & Trading Limited
$ (139,220)
$ 13,047 
$ 122,444 
Consolidated Statements of Equity (USD $)
In Thousands, unless otherwise specified
Total
Genco Shipping & Trading Limited Shareholders' Equity
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive (Loss) Income
Retained Earnings
Noncontrolling Interest
Balance at Dec. 31, 2009
$ 928,925 
$ 928,925 
$ 318 
$ 722,198 
$ 13,589 
$ 192,820 
 
Increase (Decrease) in Shareholders' Equity
 
 
 
 
 
 
 
Net income (loss)
147,409 
141,243 
 
 
 
141,243 
6,166 
Change in unrealized gain on investments
(17,466)
(17,466)
 
 
(17,466)
 
 
Unrealized gain (loss) on cash flow hedges, net
(1,333)
(1,333)
 
 
(1,333)
 
 
Issuance of 7,500,000 and 3,593,750 shares of common stock for the year ended December 31, 2012 and 2010, respectively
54,882 
54,882 
36 
54,846 
 
 
 
Issuance of convertible senior notes
23,457 
23,457 
 
23,457 
 
 
 
Issuance of 464,175 and 357,500 shares of nonvested stock, less forfeitures of 1,500 and 1,100 shares for the year ended 2012 and 2011, respectively and 514,650 shares of nonvested stock for the year ended 2010
 
 
(5)
 
 
 
Nonvested stock amortization
7,219 
4,327 
 
4,327 
 
 
2,892 
Cash dividends paid by Baltic Trading Limited
(5,370)
(41)
 
 
 
(41)
(5,329)
Issuance of common stock of Baltic Trading Limited
210,430 
(1,045)
 
(1,045)
 
 
211,475 
Balance at Dec. 31, 2010
1,348,153 
1,132,949 
359 
803,778 
(5,210)
334,022 
215,204 
Increase (Decrease) in Shareholders' Equity
 
 
 
 
 
 
 
Net income (loss)
25,068 
25,386 
 
 
 
25,386 
(318)
Change in unrealized gain on investments
(30,246)
(30,246)
 
 
(30,246)
 
 
Unrealized gain (loss) on cash flow hedges, net
17,907 
17,907 
 
 
17,907 
 
 
Issuance of 464,175 and 357,500 shares of nonvested stock, less forfeitures of 1,500 and 1,100 shares for the year ended 2012 and 2011, respectively and 514,650 shares of nonvested stock for the year ended 2010
 
 
(4)
 
 
 
Nonvested stock amortization
8,338 
5,574 
 
5,574 
 
 
2,764 
Cash dividends paid by Baltic Trading Limited
(7,602)
(59)
 
 
 
(59)
(7,543)
Vesting of restricted shares issued by Baltic Trading Limited
 
95 
 
95 
 
 
(95)
Balance at Dec. 31, 2011
1,361,618 
1,151,606 
363 
809,443 
(17,549)
359,349 
210,012 
Increase (Decrease) in Shareholders' Equity
 
 
 
 
 
 
 
Net income (loss)
(157,776)
(144,928)
 
 
 
(144,928)
(12,848)
Change in unrealized gain on investments
(3,480)
(3,480)
 
 
(3,480)
 
 
Unrealized gain (loss) on cash flow hedges, net
9,188 
9,188 
 
 
9,188 
 
 
Issuance of 7,500,000 and 3,593,750 shares of common stock for the year ended December 31, 2012 and 2010, respectively
49,874 
49,874 
75 
49,799 
 
 
 
Issuance of 464,175 and 357,500 shares of nonvested stock, less forfeitures of 1,500 and 1,100 shares for the year ended 2012 and 2011, respectively and 514,650 shares of nonvested stock for the year ended 2010
 
 
(5)
 
 
 
Nonvested stock amortization
5,864 
4,087 
 
4,087 
 
 
1,777 
Cash dividends paid by Baltic Trading Limited
(4,081)
(30)
 
 
 
(30)
(4,051)
Vesting of restricted shares issued by Baltic Trading Limited
 
(21)
 
(21)
 
 
21 
Balance at Dec. 31, 2012
$ 1,261,207 
$ 1,066,296 
$ 443 
$ 863,303 
$ (11,841)
$ 214,391 
$ 194,911 
Consolidated Statements of Equity (Parenthetical)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Consolidated Statements of Equity
 
 
 
Issuance of common stock
7,500,000 
 
3,593,750 
Issuance of shares of nonvested stock
464,175 
357,500 
514,650 
Issuance of shares of nonvested stock, forfeitures
1,500 
1,100 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Cash flows from operating activities:
 
 
 
Net (loss) income
$ (157,776)
$ 25,068 
$ 147,409 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
139,063 
136,203 
115,663 
Amortization of deferred financing costs
5,413 
3,188 
1,967 
Amortization of time charters acquired
(746)
(1,611)
(4,560)
Amortization of discount on Convertible Senior Notes
4,537 
4,072 
1,684 
Unrealized gain on derivative instruments
(100)
(51)
(66)
Amortization of nonvested stock compensation expense
5,864 
8,338 
7,219 
Change in assets and liabilities:
 
 
 
Decrease (increase) in due from charterers
1,974 
(4,894)
(6,677)
Increase in prepaid expenses and other current assets
(437)
(3,721)
(3,804)
Increase in other noncurrent assets
 
(514)
 
(Decrease) increase in accounts payable and accrued expenses
(4,880)
1,091 
10,048 
Decrease in deferred revenue
(2,903)
(6,139)
(2,465)
Increase (decrease) in lease obligations
1,324 
1,166 
(30)
Deferred drydock costs incurred
(10,167)
(4,013)
(3,708)
Net cash (used in) provided by operating activities
(18,834)
158,183 
262,680 
Cash flows from investing activities:
 
 
 
Purchase of vessels
(1,155)
(130,328)
(971,203)
Deposits on vessels
 
 
(13,702)
Changes in deposits of restricted cash
(400)
(750)
8,500 
Proceeds from sale of vessels
 
 
106,555 
Purchase of other fixed assets
(2,114)
(2,289)
(380)
Net cash used in investing activities
(3,669)
(133,367)
(870,230)
Cash flows from financing activities:
 
 
 
Repayments on the 2007 Credit Facility
(118,588)
(102,500)
(50,000)
Proceeds from the Baltic Trading 2010 Credit Facility
 
 
101,250 
Proceeds from issuance of common stock
50,721 
 
55,200 
Payment of common stock issuance costs
(847)
 
(318)
Proceeds from issuance of Convertible Senior Notes
 
 
125,000 
Payment of Convertible Senior Notes issuance costs
 
(51)
(867)
Proceeds from issuance of common stock by subsidiary
 
 
214,508 
Payment of subsidiary common stock issuance costs
 
 
(3,721)
Payment of dividend by subsidiary
(4,081)
(7,603)
(5,369)
Payment of deferred financing costs
(4,085)
(4,144)
(11,212)
Net cash (used in) provided by financing activities
(132,865)
(67,725)
690,160 
Net (decrease) increase in cash and cash equivalents
(155,368)
(42,909)
82,610 
Cash and cash equivalents at beginning of year
227,968 
270,877 
188,267 
Cash and cash equivalents at end of year
72,600 
227,968 
270,877 
$100 Million Term Loan Facility
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from Term Loan Facility
 
60,000 
40,000 
Repayments on Term Loan Facility
(15,385)
(8,011)
(1,120)
$253 Million Term Loan Facility
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from Term Loan Facility
 
21,500 
231,500 
Repayments on Term Loan Facility
$ (40,600)
$ (26,916)
$ (4,691)
Consolidated Statements of Cash Flows (Parenthetical) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
$100 Million Term Loan Facility
 
Term Loan Facility
 
Term Loan Facility
$ 100,000 
$253 Million Term Loan Facility
 
Term Loan Facility
 
Term Loan Facility
$ 253,000 
GENERAL INFORMATION
GENERAL INFORMATION

1 - GENERAL INFORMATION

 

The accompanying consolidated financial statements include the accounts of Genco Shipping & Trading Limited (“GS&T”), its wholly-owned subsidiaries, and its subsidiary, Baltic Trading Limited (collectively, the “Company”).  The Company is engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels.  GS&T is incorporated under the laws of the Marshall Islands and as of December 31, 2012 is the sole owner of all of the outstanding shares of the following subsidiaries: Genco Ship Management LLC; Genco Investments LLC; Genco Management (USA) Limited; Genco RE Investments LLC; and the ship-owning subsidiaries as set forth below.

 

At December 31, 2012, 2011 and 2010, GS&T’s fleet consisted of 53, 53 and 49 vessels, respectively.

 

Below is the list of GS&T’s wholly owned ship-owning subsidiaries as of December 31, 2012:

 

Wholly Owned Subsidiaries

 

Vessel

 

Dwt

 

Date Delivered

 

Year Built

 

 

 

 

 

 

 

 

 

 

 

Genco Reliance Limited

 

Genco Reliance

 

29,952

 

12/6/04

 

1999

 

Genco Vigour Limited

 

Genco Vigour

 

73,941

 

12/15/04

 

1999

 

Genco Explorer Limited

 

Genco Explorer

 

29,952

 

12/17/04

 

1999

 

Genco Carrier Limited

 

Genco Carrier

 

47,180

 

12/28/04

 

1998

 

Genco Sugar Limited

 

Genco Sugar

 

29,952

 

12/30/04

 

1998

 

Genco Pioneer Limited

 

Genco Pioneer

 

29,952

 

1/4/05

 

1999

 

Genco Progress Limited

 

Genco Progress

 

29,952

 

1/12/05

 

1999

 

Genco Wisdom Limited

 

Genco Wisdom

 

47,180

 

1/13/05

 

1997

 

Genco Success Limited

 

Genco Success

 

47,186

 

1/31/05

 

1997

 

Genco Beauty Limited

 

Genco Beauty

 

73,941

 

2/7/05

 

1999

 

Genco Knight Limited

 

Genco Knight

 

73,941

 

2/16/05

 

1999

 

Genco Leader Limited

 

Genco Leader

 

73,941

 

2/16/05

 

1999

 

Genco Marine Limited

 

Genco Marine

 

45,222

 

3/29/05

 

1996

 

Genco Prosperity Limited

 

Genco Prosperity

 

47,180

 

4/4/05

 

1997

 

Genco Muse Limited

 

Genco Muse

 

48,913

 

10/14/05

 

2001

 

Genco Acheron Limited

 

Genco Acheron

 

72,495

 

11/7/06

 

1999

 

Genco Surprise Limited

 

Genco Surprise

 

72,495

 

11/17/06

 

1998

 

Genco Augustus Limited

 

Genco Augustus

 

180,151

 

8/17/07

 

2007

 

Genco Tiberius Limited

 

Genco Tiberius

 

175,874

 

8/28/07

 

2007

 

Genco London Limited

 

Genco London

 

177,833

 

9/28/07

 

2007

 

Genco Titus Limited

 

Genco Titus

 

177,729

 

11/15/07

 

2007

 

Genco Challenger Limited

 

Genco Challenger

 

28,428

 

12/14/07

 

2003

 

Genco Charger Limited

 

Genco Charger

 

28,398

 

12/14/07

 

2005

 

Genco Warrior Limited

 

Genco Warrior

 

55,435

 

12/17/07

 

2005

 

Genco Predator Limited

 

Genco Predator

 

55,407

 

12/20/07

 

2005

 

Genco Hunter Limited

 

Genco Hunter

 

58,729

 

12/20/07

 

2007

 

Genco Champion Limited

 

Genco Champion

 

28,445

 

1/2/08

 

2006

 

Genco Constantine Limited

 

Genco Constantine

 

180,183

 

2/21/08

 

2008

 

Genco Raptor LLC

 

Genco Raptor

 

76,499

 

6/23/08

 

2007

 

Genco Cavalier LLC

 

Genco Cavalier

 

53,617

 

7/17/08

 

2007

 

Genco Thunder LLC

 

Genco Thunder

 

76,588

 

9/25/08

 

2007

 

Genco Hadrian Limited

 

Genco Hadrian

 

169,694

 

12/29/08

 

2008

 

Genco Commodus Limited

 

Genco Commodus

 

169,025

 

7/22/09

 

2009

 

Genco Maximus Limited

 

Genco Maximus

 

169,025

 

9/18/09

 

2009

 

Genco Claudius Limited

 

Genco Claudius

 

169,025

 

12/30/09

 

2010

 

Genco Bay Limited

 

Genco Bay

 

34,296

 

8/24/10

 

2010

 

Genco Ocean Limited

 

Genco Ocean

 

34,409

 

7/26/10

 

2010

 

Genco Avra Limited

 

Genco Avra

 

34,391

 

5/12/2011

 

2011

 

Genco Mare Limited

 

Genco Mare

 

34,428

 

7/20/2011

 

2011

 

Genco Spirit Limited

 

Genco Spirit

 

34,432

 

11/10/2011

 

2011

 

Genco Aquitaine Limited

 

Genco Aquitaine

 

57,981

 

8/18/10

 

2009

 

Genco Ardennes Limited

 

Genco Ardennes

 

57,981

 

8/31/10

 

2009

 

Genco Auvergne Limited

 

Genco Auvergne

 

57,981

 

8/16/10

 

2009

 

Genco Bourgogne Limited

 

Genco Bourgogne

 

57,981

 

8/24/10

 

2010

 

Genco Brittany Limited

 

Genco Brittany

 

57,981

 

9/23/10

 

2010

 

Genco Languedoc Limited

 

Genco Languedoc

 

57,981

 

9/29/10

 

2010

 

Genco Loire Limited

 

Genco Loire

 

53,416

 

8/4/10

 

2009

 

Genco Lorraine Limited

 

Genco Lorraine

 

53,416

 

7/29/10

 

2009

 

Genco Normandy Limited

 

Genco Normandy

 

53,596

 

8/10/10

 

2007

 

Genco Picardy Limited

 

Genco Picardy

 

55,257

 

8/16/10

 

2005

 

Genco Provence Limited

 

Genco Provence

 

55,317

 

8/23/10

 

2004

 

Genco Pyrenees Limited

 

Genco Pyrenees

 

57,981

 

8/10/10

 

2010

 

Genco Rhone Limited

 

Genco Rhone

 

58,018

 

3/29/2011

 

2011

 

 

Baltic Trading Limited (“Baltic Trading”) was a wholly-owned indirect subsidiary of GS&T until Baltic Trading completed its initial public offering, or IPO, on March 15, 2010.  As of December 31, 2012 and 2011, Genco Investments LLC owned 5,699,088 shares of Baltic Trading’s Class B Stock, which represented a 24.78% and 25.11% ownership interest in Baltic Trading, respectively, and 83.17% and 83.41% of the aggregate voting power of Baltic Trading’s outstanding shares of voting stock, respectively.  Additionally, pursuant to the subscription agreement between Genco Investments LLC and Baltic Trading, for so long as GS&T directly or indirectly holds at least 10% of the aggregate number of outstanding shares of Baltic Trading’s common stock and Class B stock, Genco Investments LLC will be entitled to receive an additional number of shares of Baltic Trading’s Class B stock equal to 2% of the number of common shares issued in the future, other than shares issued under Baltic Trading’s 2010 Equity Incentive Plan.

 

Below is the list of Baltic Trading’s wholly owned ship-owning subsidiaries as of December 31, 2012:

 

Baltic Trading’s Wholly Owned
Subsidiaries

 

Vessel

 

Dwt

 

Delivery Date

 

Year
Built

 

 

 

 

 

 

 

 

 

 

 

Baltic Leopard Limited

 

Baltic Leopard

 

53,447

 

4/8/10

 

2009

 

Baltic Panther Limited

 

Baltic Panther

 

53,351

 

4/29/10

 

2009

 

Baltic Cougar Limited

 

Baltic Cougar

 

53,432

 

5/28/10

 

2009

 

Baltic Jaguar Limited

 

Baltic Jaguar

 

53,474

 

5/14/10

 

2009

 

Baltic Bear Limited

 

Baltic Bear

 

177,717

 

5/14/10

 

2010

 

Baltic Wolf Limited

 

Baltic Wolf

 

177,752

 

10/14/10

 

2010

 

Baltic Wind Limited

 

Baltic Wind

 

34,409

 

8/4/10

 

2009

 

Baltic Cove Limited

 

Baltic Cove

 

34,403

 

8/23/10

 

2010

 

Baltic Breeze Limited

 

Baltic Breeze

 

34,386

 

10/12/10

 

2010

 

 

The Company provides technical services for drybulk vessels purchased by Maritime Equity Partners (“MEP”). Peter C. Georgiopoulos, Chairman of the Board of Directors of GS&T, controls and has a minority interest in MEP.  These services include oversight of crew management, insurance, drydocking, ship operations and financial statement preparation, but do not include chartering services.  The services are provided for a fee of $750 per ship per day plus reimbursement of out-of-pocket costs and will be provided for an initial term of one year.  MEP has the right to cancel provision of services on 60 days’ notice with payment of a one-year termination fee upon a change in control of the Company.  The Company may terminate provision of the services at any time on 60 days’ notice.  Peter C. Georgiopoulos, the Company’s Chairman of the Board, is a minority investor in MEP.

 

On February 28, 2012, the Company closed on an equity offering of 7,500,000 shares of common stock at an offering price of $7.10 per share.  The Company received net proceeds of $49,874 after deducting underwriters’ fees and expenses.

 

On July 27, 2010, the Company closed on an equity offering of 3,593,750 shares of common stock (with the exercise of the underwriters’ over-allotment option) at an offering price of $16.00 per share.  The Company received net proceeds of $54,882 after deducting underwriters’ fees and expenses.  This offering was done concurrently with the issuance of $125,000 aggregate principal amount (with the exercise of the underwriters’ over-allotment option) of the 5.00% Convertible Senior Notes due August 15, 2015. Refer to Note 10 — Convertible Senior Notes for further information.

 

Mr. Georgiopoulos is the sole member of the Management Committee of Fleet Acquisition LLC, which currently retains 443,606 shares of the Company’s common stock of which Mr. Georgiopoulos may be deemed to be the beneficial owner.  As a result of the foregoing transaction in addition to grants of nonvested shares made to Mr. Georgiopoulos, Mr. Georgiopoulos may be deemed to beneficially own 10.63% of the Company’s common stock (including shares held through Fleet Acquisition LLC) at December 31, 2012.

 

Given the current drybulk rate environment, the Company may be unable to make required payments under its credit facilities commencing during the quarter ending March 31, 2014.  Moreover, if the current prolonged weakness in drybulk shipping rates does not abate, the Company may not be in compliance with the maximum leverage ratio and minimum permitted consolidated interest ratio covenants under our credit facilities once current waivers expire and are re-measured at March 31, 2014.  The Company is also subject to minimum cash covenants for which compliance is measured at the end of every fiscal quarter.  These covenants have not been waived and it is possible that the Company will not be in compliance with such covenants at or after March 31, 2014, or earlier in the event of sustained weakness in the drybulk shipping sector.  The Company’s debt facilities are described further in Note 9 - Long-Term Debt.

 

The Company may seek further waivers or modifications to its credit agreements, which may be subject to conditions, and may also seek to refinance indebtedness or raise additional capital through equity or debt offerings or selling assets (including vessels).  Absent such waivers or modifications, if the Company does not comply with such payment obligations or these covenants and fail to cure such non-compliance following applicable notice and expiration of applicable cure periods, the Company may be in default of one or more of its credit facilities. If such a default occurs, the Company may also be in default under the Indenture for the 5.00% Convertible Senior Notes (discussed in Note 10 — Convertible Senior Notes). As a result, some or all of the Company’s  indebtedness could be declared immediately due and payable and alternative sources of financing would need to be sought on terms that may not be favorable to the Company.

 

In addition, notwithstanding the waiver of certain covenants as described above, for purposes of preparing financial statements in each future fiscal quarter, the Company is required to test compliance with the original covenants at all quarterly measurement dates in accordance with GAAP. Under the Company’s credit facilities, March 31, 2014 is the first date following expiration of the waivers on which compliance with the original covenants will be measured.  If the Company would not have been in compliance with the original covenants absent the waivers received and it is probable the Company would not be in compliance at measurement dates within the following twelve months, indebtedness under this facility would be required to be reclassified as a current liability in such quarter.  Any such reclassification would not affect the existing waivers.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of consolidation

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which include the accounts of GS&T, its wholly-owned subsidiaries and Baltic Trading, a subsidiary in which the Company owns a majority of the voting interests and exercises control.  All intercompany accounts and transactions have been eliminated in consolidation.

 

Business geographics

 

The Company’s vessels regularly move between countries in international waters, over hundreds of trade routes and, as a result, the disclosure of geographic information is impracticable.

 

Vessel acquisitions

 

When the Company enters into an acquisition transaction, it determines whether the acquisition transaction was the purchase of an asset or a business based on the facts and circumstances of the transaction.  As is customary in the shipping industry, the purchase of a vessel is normally treated as a purchase of an asset as the historical operating data for the vessel is not reviewed nor is material to the Company’s decision to make such acquisition.

 

When a vessel is acquired with an existing time charter, the Company allocates the purchase price to the vessel and the time charter based on, among other things, vessel market valuations and the present value (using an interest rate which reflects the risks associated with the acquired charters) of the difference between (i) the contractual amounts to be paid pursuant to the charter terms and (ii) management’s estimate of the fair market charter rate, measured over a period equal to the remaining term of the charter.  The capitalized above-market (assets) and below-market (liabilities) charters are amortized as a reduction or increase, respectively, to revenues over the remaining term of the charter.

 

Segment reporting

 

The Company has two reportable segments, GS&T and Baltic Trading, which are both engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels.  Refer to Note 3 — Segment Information for further information.

 

Revenue and voyage expense recognition

 

Since the Company’s inception, revenues have been generated from time charter agreements, pool agreements and spot market-related time charters.  A time charter involves placing a vessel at the charterer’s disposal for a set period of time during which the charterer may use the vessel in return for the payment by the charterer of a specified daily hire rate, including any ballast bonus payments received pursuant to the time charter agreement.  Spot market-related time charters are the same as other time charter agreements, except the time charter rates are variable and are based on a percentage of the average daily rates as published by the Baltic Dry Index (“BDI”).  Voyage revenues also include the sale of bunkers consumed during short-term time charters pursuant to the terms of the time charter agreement.

 

In time charters, spot market-related time charters and pool agreements, operating costs including crews, maintenance and insurance are typically paid by the owner of the vessel and specified voyage costs such as fuel and port charges are paid by the charterer.  There are certain other non-specified voyage expenses such as commissions which are typically borne by the Company.  At the inception of a time charter, the Company records the difference between the cost of bunker fuel delivered by the terminating charterer and the bunker fuel sold to the new charterer as a gain or loss within voyage expenses.  These differences in bunkers resulted in net gains of $1,714, $2,653 and $1,743 during the years ended December 31, 2012, 2011 and 2010, respectively.  Additionally, voyage expenses include the cost of bunkers consumed during short-term time charters pursuant to the terms of the time charter agreement.

 

The Company records time charter revenues over the term of the charter as service is provided.  Revenues are recognized on a straight-line basis as the average revenue over the term of the respective time charter agreement.  The Company recognizes voyage expenses when incurred.

 

Two of the Company’s vessels, the Genco Constantine and Genco Hadrian, were chartered under time charters which included a profit-sharing element.  These time charters ended during August 2012 and October 2012, respectively.  Under these charter agreements, the Company received a fixed rate of $53 and $65 per day, respectively, and an additional profit-sharing payment.  The profit-sharing between the Company and the respective charterer for each 15-day period was calculated by taking the average over that period of the published Baltic Cape Index of the four time charter routes as reflected in daily reports.  If such average was more than the base rate payable under the charter, the excess amount was allocable 50% to the Company and 50% to the charterer.  The profit sharing amount due to the Company was net of a 3.75% commission.  Profit sharing revenue was recorded when the average of the published Baltic Capesize Index for the four time charter routes was available for the entire 15-day period, which is when the profit sharing revenue was fixed and determinable.

 

Four of the Company’s vessels, the Genco Ocean, Genco Bay, Genco Avra and Genco Spirit, are chartered under spot market-related time charters which include a profit-sharing element.  Under these charter agreements, the rate for the spot market-related time charter is linked with a floor of $9 and a ceiling of $14 daily with a 50% profit sharing arrangement to apply to any amount above the ceiling.  The rate is based on 115% of the average of the daily rates reflected in the daily reports of the Baltic Handysize Index.

 

At December 31, 2012 and 2011, five of the Company’s vessels were in vessel pools.  The Genco Explorer, Genco Pioneer, Genco Progress, Genco Reliance and Genco Sugar entered the Lauritzen Pool during August 2009.  Vessel pools, such as the Lauritzen Pool, provide cost-effective commercial management activities for a group of similar class vessels.  The pool arrangement provides the benefits of a large-scale operation, and chartering efficiencies that might not be available to smaller fleets.  Under the pool arrangement, the vessels operate under a time charter agreement whereby the cost of bunkers and port expenses are borne by the pool and operating costs including crews, maintenance and insurance are typically paid by the owner of the vessel.  Since the members of the pool share in the revenue less voyage expenses generated by the entire group of vessels in the pool, and the pool operates in the spot market, the revenue earned by these vessels is subject to the fluctuations of the spot market.  The Company recognizes revenue from these pool arrangements based on its portion of the net distributions reported by the relevant pool, which represents the net voyage revenue of the pool after voyage expenses and pool manager fees.

 

Other operating income

 

During the years ended December 31, 2012, 2011 and 2010, the Company recorded other operating income of $265, $527 and $791 respectively.  Other operating income recorded during the years ended December 31, 2012, 2011 and 2010 consists of $263, $527 and $585, respectively, related to the first three installments due on December 30, 2012, 2011 and 2010, respectively, from Samsun Logix Corporation (“Samsun”) pursuant to the rehabilitation plan which was approved by the South Korean courts.  Other operating income during the year ended December 31, 2012 also included $2 related to the first installment due on December 30, 2012 from Korea Line Corporation (“KLC”) pursuant to the rehabilitation plan which was approved by the South Korean courts.  Refer to Note 19 — Commitments and Contingencies for further information regarding the bankruptcy settlements with Samsun and KLC.  Additionally, other operating income during the year ended December 31, 2010 consists of $206 related to a payment received from the seller of the Baltic Cougar as a result of the late delivery of the vessel to Baltic Trading.

 

Due from charterers, net

 

Due from charterers, net includes accounts receivable from charters, net of the provision for doubtful accounts.  At each balance sheet date, the Company records the provision based on a review of all outstanding charter receivables.  Included in the standard time charter contracts with the Company’s customers are certain performance parameters which, if not met, can result in customer claims.  As of December 31, 2012 and 2011, the Company had a reserve of $488 and $906, respectively, against the due from charterers balance and an additional accrual of $407 and $762, respectively, in deferred revenue, each of which is primarily associated with estimated customer claims against the Company including vessel performance issues under time charter agreements.

 

Revenue is based on contracted charterparties.  However, there is always the possibility of dispute over terms and payment of hires and freights.  In particular, disagreements may arise concerning the responsibility of lost time and revenue.  Accordingly, the Company periodically assesses the recoverability of amounts outstanding and estimates a provision if there is a possibility of non-recoverability.  The Company believes its provisions to be reasonable based on information available.

 

Vessel operating expenses

 

Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, and other miscellaneous expenses.  Vessel operating expenses are recognized when incurred.

 

Vessels, net

 

Vessels, net is stated at cost less accumulated depreciation.  Included in vessel costs are acquisition costs directly attributable to the acquisition of a vessel and expenditures made to prepare the vessel for its initial voyage.  The Company also capitalizes interest costs for a vessel under construction as a cost which is directly attributable to the acquisition of a vessel.  Vessels are depreciated on a straight-line basis over their estimated useful lives, determined to be 25 years from the date of initial delivery from the shipyard.  Depreciation expense for vessels for the years ended December 31, 2012, 2011 and 2010 was $133,111, $130,080, and $109,839, respectively.

 

Depreciation expense is calculated based on cost less the estimated residual scrap value.  The costs of significant replacements, renewals and betterments are capitalized and depreciated over the shorter of the vessel’s remaining estimated useful life or the estimated life of the renewal or betterment.  Undepreciated cost of any asset component being replaced that was acquired after the initial vessel purchase is written off as a component of vessel operating expense.  Expenditures for routine maintenance and repairs are expensed as incurred.  Scrap value is estimated by the Company by taking the cost of steel times the weight of the ship noted in lightweight tons (lwt).  Effective January 1, 2011, the Company increased the estimated scrap value of the vessels from $175/lwt to $245/lwt prospectively based on the 15-year average scrap value of steel.  The change in the estimated scrap value will result in a decrease in depreciation expense over the remaining life of the vessel assets.  During the years ended December 31, 2012 and 2011, the increase in the estimated scrap value resulted in a decrease in depreciation expense of $2,476 and $2,479, respectively. The decrease in depreciation expense resulted in a $0.06 and $0.07 change to the basic and diluted net (loss) income per share during the years ended December 31, 2012 and 2011, respectively.  The basic and diluted net (loss) income per share would have been ($3.53) and $0.65 per share, respectively, if there had been no change in the estimated scrap value.

 

Fixed assets, net

 

Fixed assets, net are stated at cost less accumulated depreciation and amortization.  Depreciation and amortization are based on a straight line basis over the estimated useful life of the specific asset placed in service.  The following table is used in determining the typical estimated useful lives:

 

Description

 

Useful lives

 

 

 

 

 

Leasehold improvements

 

Lesser of the estimated useful life of the asset or life of the lease

 

Furniture, fixtures & other equipment

 

5 years

 

Vessel equipment

 

2-15 years

 

Computer equipment

 

3 years

 

 

Depreciation and amortization expense for fixed assets for the years ended December 31, 2012, 2011 and 2010 was $888, $507 and $501, respectively.

 

Deferred drydocking costs

 

The Company’s vessels are required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessels are operating.  The Company defers the costs associated with the drydockings as they occur and amortizes these costs on a straight-line basis over the period between drydockings.  Costs deferred as part of a vessel’s drydocking include actual costs incurred at the drydocking yard; cost of travel, lodging and subsistence of personnel sent to the drydocking site to supervise; and the cost of hiring a third party to oversee the drydocking.  If the vessel is drydocked earlier than originally anticipated, any remaining deferred drydock costs that have not been amortized are expensed at the beginning of the next drydock.  Amortization expense for drydocking for the years ended December 31, 2012, 2011 and 2010 was $5,064, $5,617, and $5,324, respectively.  All other costs incurred during drydocking are expensed as incurred.

 

Impairment of long-lived assets

 

The Company follows Accounting Standards Codification (“ASC”) Subtopic 360-10, “Property, Plant and Equipment” (“ASC 360-10”), which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts.  If indicators of impairment are present, the Company performs an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets.  If the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to its fair value.  Various factors including anticipated future charter rates, estimated scrap values, future drydocking costs and estimated vessel operating costs are included in this analysis.

 

For the years ended December 31, 2012, 2011 and 2010, no impairment charges were recorded on the Company’s long-lived assets.

 

Deferred financing costs

 

Deferred financing costs, included in other assets, consist of fees, commissions and legal expenses associated with obtaining loan facilities and amending existing loan facilities.  These costs are amortized over the life of the related debt and are included in interest expense.

 

Cash and cash equivalents

 

The Company considers highly liquid investments such as money market funds and certificates of deposit with an original maturity of three months or less to be cash equivalents.

 

Investments

 

The Company holds an investment in the capital stock of Jinhui Shipping and Transportation Limited (“Jinhui”).  Jinhui is a drybulk shipping owner and operator focused on the Supramax segment of drybulk shipping.  This investment is designated as Available For Sale (“AFS”) and is reported at fair value, with unrealized gains and losses recorded in shareholders’ equity as a component of accumulated other comprehensive (loss) income (“AOCI”).  The Company classifies the investment as a current or noncurrent asset based on the Company’s intent to hold the investment at each reporting date.

 

Investments are reviewed quarterly to identify possible other-than-temporary impairment in accordance with ASC Subtopic 320-10, “Investments — Debt and Equity Securities” (“ASC 320-10”).  When evaluating its investments, the Company reviews factors such as the length of time and extent to which fair value has been below the cost basis, the financial condition of the issuer, the underlying net asset value of the issuers assets and liabilities, and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery in market value.  Should the decline in the value of any investment be deemed to be other-than-temporary, the investment basis would be written down to fair market value, and the write-down would be recorded to earnings as a loss.  Refer to Note 6 — Investments.

 

Income taxes

 

Pursuant to Section 883 of the U.S. Internal Revenue Code of 1986 as amended (the “Code”), qualified income derived from the international operations of ships is excluded from gross income and exempt from U.S. federal income tax if a company engaged in the international operation of ships meets certain requirements.  Among other things, in order to qualify, the Company must be incorporated in a country that grants an equivalent exemption to U.S. corporations and must satisfy certain qualified ownership requirements.

 

GS&T is incorporated in the Marshall Islands.  Pursuant to the income tax laws of the Marshall Islands, GS&T is not subject to Marshall Islands income tax.  The Marshall Islands has been officially recognized by the Internal Revenue Service as a qualified foreign country that currently grants the requisite equivalent exemption from tax.  GS&T is not taxable in any other jurisdiction, with the exception of Genco Management (USA) Limited as noted below.

 

Based on the publicly traded requirement of the Section 883 regulations, GS&T believes that it qualified for exemption from income tax on income derived from the international operations of ships for 2012, 2011 and 2010.  In order to meet the publicly traded requirement, GS&T’s stock must be treated as being primarily and regularly traded for more than half the days of any such year.  Under the Section 883 regulations, GS&T’s qualification for the publicly traded requirement may be jeopardized if shareholders of the Company’s common stock that own five percent or more of the Company’s stock (“5% shareholders”) own, in the aggregate, 50% or more of the Company’s common stock for more than half the days of the year.  Management believes that during 2012, 2011 and 2010, the combined ownership of its 5% shareholders did not equal 50% or more of its common stock for more than half the days of 2012, 2011 and 2010, as applicable.

 

If GS&T does not qualify for the exemption from tax under Section 883, it would be subject to a 4% tax on the gross “shipping income” (without the allowance for any deductions) that is treated as derived from sources within the United States or “United States source shipping income.” For these purposes, “shipping income” means any income that is derived from the use of vessels, from the hiring or leasing of vessels for use, or from the performance of services directly related to those uses; and “United States source shipping income” includes 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.

 

Baltic Trading is also incorporated in the Marshall Islands.  However, Baltic Trading did not qualify for an exemption under Section 883 upon consummation of its IPO because it did not satisfy the publicly traded requirement as described above.  Since Baltic Trading’s IPO was completed on March 15, 2010, the Company has indirectly owned shares of Baltic Trading’s Class B Stock which has provided the Company with over 50% of the combined voting power of all classes of Baltic Trading’s voting stock during 2012, 2011 and 2010.  As such, Baltic Trading is subject to income tax on its United States source income.  During the years ended December 31, 2012, 2011 and 2010, Baltic Trading had United States operations which resulted in United States source income of $1,379, $3,062 and $2,541.  Baltic Trading’s United States income tax expense for the years ended December 31, 2012, 2011 and 2010 was $28, $34 and $78, respectively.

 

Pursuant to certain agreements, GS&T technically and commercially manages vessels for Baltic Trading, as well as provides technical management of vessels for MEP in exchange for specified fees for these services provided.  These services are performed by Genco Management (USA) Limited (“Genco (USA)”), which has elected to be taxed as a corporation for United States federal income tax purposes.  As such, Genco (USA) is subject to United States federal income tax on its worldwide net income, including the net income derived from providing these services.  Genco (USA) has entered into a cost-sharing agreement with the Company and Genco Ship Management LLC, collectively Manco, pursuant to which Genco (USA) agrees to reimburse Manco for the costs incurred by Genco (USA) for the use of Manco’s personnel and services in connection with the provision of the services for both Baltic Trading and MEP’s vessels.

 

Total revenue earned for these services during the years ended December 31, 2012, 2011 and 2010 was $6,110, $6,309 and $6,739, respectively, of which $2,816, $3,024 and $5,490, respectively, eliminated upon consolidation.  After allocation of certain expenses, there was taxable income of $2,655 associated with these activities for the year ended December 31, 2012.  This resulted in estimated tax expense of $1,194 for the year ended December 31, 2012.  After allocation of certain expenses, there was taxable income of $2,787 associated with these activities for the year ended December 31, 2011.  This resulted in estimated tax expense of $1,351 for the year ended December 31, 2011.  After allocation of certain expenses, there was taxable income of $3,913 associated with these activities for the year ended December 31, 2010.  This resulted in estimated tax expense of $1,762 for the year ended December 31, 2010.

 

Deferred revenue

 

Deferred revenue primarily relates to cash received from charterers prior to it being earned.  These amounts are recognized as income when earned.  Additionally, deferred revenue includes estimated customer claims mainly due to time charter performance issues.  Refer to “Revenue and voyage expense recognition” above for description of the Company’s revenue recognition policy.

 

Comprehensive income

 

The Company follows ASC Subtopic 220-10, “Comprehensive Income” (“ASC 220-10”), which establishes standards for reporting and displaying comprehensive income and its components in financial statements.  Comprehensive income is comprised of net income and amounts related to the Company’s interest rate swaps accounted for as hedges, as well as unrealized gains or losses associated with the Company’s investments.

 

Nonvested stock awards

 

The Company follows ASC Subtopic 718-10, “Compensation — Stock Compensation” (“ASC 718-10”), for nonvested stock issued under its equity incentive plans.  Stock-based compensation costs from nonvested stock have been classified as a component of additional paid-in capital.

 

Accounting estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant estimates include vessel valuations, the valuation of amounts due from charterers, performance claims, residual value of vessels, useful life of vessels and the fair value of derivative instruments.  Actual results could differ from those estimates.

 

Concentration of credit risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk are amounts due from charterers, cash and cash equivalents, deposits on vessels and interest rate swap agreements.  With respect to amounts due from charterers, the Company attempts to limit its credit risk by performing ongoing credit evaluations and, when deemed necessary, requires letters of credit, guarantees or collateral.  The Company earned 100% of revenues from 43 customers in 2012, 32 customers in 2011 and 33 customers in 2010.  Management does not believe significant risk exists in connection with the Company’s concentrations of credit at December 31, 2012 and 2011.

 

For the year ended December 31, 2012, there was one customer that individually accounted for more than 10% of voyage revenues, Cargill International S.A., which represented 31.27% of voyage revenues.  For the year ended December 31, 2011 there were two customers that individually accounted for more than 10% of voyage revenues, Cargill International S.A. and Swissmarine Services S.A., which represented 30.00% and 12.23% of voyage revenues, respectively.  For the year ended December 31, 2010 there were two customers that individually accounted for more than 10% of voyage revenues, Cargill International S.A. and Pacific Basin Chartering Ltd., which represented 29.26% and 11.43% of voyage revenues, respectively.

 

At December 31, 2012 and 2011, the Company maintains all of its cash and cash equivalents with four and five financial institutions, respectively.  None of the Company’s cash and cash equivalent balances is covered by insurance in the event of default by these financial institutions.

 

At December 31, 2012 and 2011, the Company has five and eight interest rate swap agreements, respectively, with DnB NOR Bank ASA to manage interest costs and the risk associated with changing interest rates related to the 2007 Credit Facility.  None of the interest rate swap agreements are covered by insurance in the event of default by this financial institution.

 

Fair value of financial instruments

 

The estimated fair values of the Company’s financial instruments such as amounts due to / due from charterers, accounts payable and long-term debt approximate their individual carrying amounts as of December 31, 2012 and 2011 due to their short-term maturity or the variable-rate nature of the respective borrowings under the credit facilities.

 

The fair value of the interest rate swaps is the estimated amount the Company would receive or have to pay in order to terminate these agreements at the reporting date, taking into account current interest rates and the creditworthiness of the counterparty for assets and creditworthiness of the Company for liabilities.  See Note 13 - Fair Value of Financial Instruments for additional disclosure on the fair values of long term debt, convertible senior notes, derivative instruments, and AFS securities.

 

Derivative financial instruments

 

Interest rate risk management

 

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 its earnings and cash flow in relation to borrowings primarily for the purpose of acquiring drybulk vessels.  These borrowings are subject to a variable borrowing rate.  The Company uses pay-fixed receive-variable interest rate swaps to manage future interest costs and the risk associated with changing interest rate obligations.  These swaps are designated as cash flow hedges of future variable rate interest payments and are tested for effectiveness on a quarterly basis.  Refer to Note 11 — Interest Rate Swap Agreements for further information regarding the interest rate swaps held by the Company.

 

The differential to be paid or received for the effectively hedged portion of any swap agreement is recognized as an adjustment to interest expense as incurred.  Additionally, the changes in value for the portion of the swaps that are effectively hedging future interest payments are reflected as a component of AOCI.

 

For the interest rate swaps that are not designated as an effective hedge, the change in the value and the rate differential to be paid or received is recognized as other expense and is listed as a component of other (expense) income in the Consolidated Statements of Operations.

 

Recent accounting pronouncements

 

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”) to improve the transparency of changes in other comprehensive income (“OCI”) and items reclassified out of AOCI.  The amendments in ASU 2013-02 are required to be applied retrospectively and are effective for reporting periods beginning after December 15, 2012.  The adoption of ASU 2013-02 will not have any impact on the Company’s consolidated financial statements other than separately disclosing in the footnotes to the consolidated financial statements amounts reclassified out of AOCI and the individual line items in the consolidated Statement of Operations that are affected.

 

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820) — Fair Value Measurement” (“ASU 2011-04”) to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards.  ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements, particularly for Level 3 fair value measurements.  This standard was effective for interim and annual periods beginning after December 15, 2011 and is applied on a prospective basis.  The Company has adopted ASU 2011-04 and the impact of adoption was not material to the Company’s consolidated financial statements.

 

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Comprehensive Income (Topic 220), Presentation of Comprehensive Income” (“ASU 2011-05”) to require an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity.  The standard does not change the items that must be reported for other comprehensive income, how such items are measured or when they must be reclassified to net income.  This standard was effective for interim and annual periods beginning after December 15, 2011 was to be applied retrospectively.  The FASB has deferred the requirement to present reclassification adjustments for each component of AOCI in both net income and other comprehensive income.  Companies are required to either present amounts reclassified out of other comprehensive income on the face of the financial statements or disclose those amounts in the notes to the financial statements.  During the deferral period, there is no requirement to separately present or disclose the reclassification adjustments into net income.  The effective date of this deferral will be consistent with the effective date of ASU 2011-05.  The Company has adopted ASU 2011-05 and disclosed comprehensive income in our consolidated statements of comprehensive (loss) income. This guidance only affects financial statement presentation and has no impact on the Company’s consolidated results of operations, financial position and cash flows.

SEGMENT INFORMATION
SEGMENT INFORMATION

3 - SEGMENT INFORMATION

 

The Company determines its reportable segments based on the information utilized by the chief operating decision maker to assess performance.  Based on this information, the Company has reportable operating segments, GS&T and Baltic Trading.  Both GS&T and Baltic Trading are engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels.  GS&T seeks to deploy its vessels on time charters, spot market-related time charters or in vessel pools trading in the spot market and Baltic Trading seeks to deploy its vessel charters in the spot market, which represents immediate chartering of a vessel, usually for single voyages, or employing vessels on spot market-related time charters.  Segment results are evaluated based on net income.  The accounting policies applied to the reportable segments are the same as those used in the preparation of the Company’s consolidated financial statements.  Information about the Company’s reportable segments for the years ended December 31, 2012, 2011 and 2010 are as follows:

 

The following table presents a reconciliation of total voyage revenue from external (third party) customers for the Company’s two operating segments to total consolidated voyage revenue from external customers for the Company for the years ended December 31, 2012, 2011 and 2010.

 

 

 

For the years ended December 31,

 

 

 

2012

 

2011

 

2010

 

Voyage Revenue from External Customers

 

 

 

 

 

 

 

GS&T

 

$

195,855

 

$

345,437

 

$

414,879

 

Baltic Trading

 

27,304

 

43,492

 

32,559

 

Total operating segments

 

223,159

 

388,929

 

447,438

 

Eliminating revenue

 

 

 

 

Total consolidated voyage revenue from external customers

 

$

223,159

 

$

388,929

 

$

447,438

 

 

The following table presents a reconciliation of total intersegment revenue, which eliminates upon consolidation, for the Company’s two operating segments for the years ended December 31, 2012, 2011 and 2010.  The intersegment revenue noted in the following table represents revenue earned by GS&T pursuant to the management agreement entered into with Baltic Trading, which includes commercial service fees, technical service fees and sale and purchase fees, if any.

 

 

 

For the years ended December 31,

 

 

 

2012

 

2011

 

2010

 

Intersegment revenue

 

 

 

 

 

 

 

GS&T

 

$

2,816

 

$

3,024

 

$

5,490

 

Baltic Trading

 

 

 

 

Total operating segments

 

2,816

 

3,024

 

5,490

 

Eliminating revenue

 

(2,816

)

(3,024

)

(5,490

)

Total consolidated intersegment revenue

 

$

 

$

 

$

 

 

The following table presents a reconciliation of total depreciation and amortization expense for the Company’s two operating segments to total consolidated depreciation and amortization expense for the years ended December 31, 2012, 2011 and 2010.  The eliminating depreciation and amortization expense noted in the following table consists of the elimination of intercompany transactions resulting from the depreciation expense associated with the 1% purchase fee due to GS&T from Baltic Trading pursuant to the Management Agreement.  The 1% purchase fee is capitalized as part of vessel assets by Baltic Trading and is depreciated over the remaining life of the vessel and therefore, the associated depreciation expense is eliminated upon consolidation.

 

 

 

For the years ended December 31,

 

 

 

2012

 

2011

 

2010

 

Depreciation and amortization

 

 

 

 

 

 

 

GS&T

 

$

124,405

 

$

121,590

 

$

108,381

 

Baltic Trading

 

14,814

 

14,769

 

7,359

 

Total operating segments

 

139,219

 

136,359

 

115,740

 

Eliminating depreciation and amortization

 

(156

)

(156

)

(77

)

Total consolidated depreciation and amortization

 

$

139,063

 

$

136,203

 

$

115,663

 

 

The following table presents a reconciliation of total interest expense for the Company’s two operating segments to total consolidated interest expense for the years ended December 31, 2012, 2011 and 2010.  There is no eliminating interest expense as the interest incurred by each operating segment is related to each operating segment’s own debt facilities.

 

 

 

For the years ended December 31,

 

 

 

2012

 

2011

 

2010

 

Interest expense

 

 

 

 

 

 

 

GS&T

 

$

83,306

 

$

82,300

 

$

70,495

 

Baltic Trading

 

4,252

 

4,422

 

2,155

 

Total operating segments

 

87,558

 

86,722

 

72,650

 

Eliminating interest expense

 

 

 

 

Total consolidated interest expense

 

$

87,558

 

$

86,722

 

$

72,650

 

 

The following table presents a reconciliation of total net (loss) income for the Company’s two operating segments to total consolidated net (loss) income for the years ended December 31, 2012, 2011 and 2010.  The eliminating net (loss) income noted in the following table consists of the elimination of intercompany transactions between GS&T and Baltic Trading as well as dividends received by GS&T from Baltic Trading for its Class B shares of Baltic Trading.

 

 

 

For the years ended December 31,

 

 

 

2012

 

2011

 

2010

 

Net (loss) income

 

 

 

 

 

 

 

GS&T

 

$

(139,295

)

$

27,908

 

$

144,679

 

Baltic Trading

 

(17,270

)

(430

)

8,322

 

Total operating segments

 

(156,565

)

27,478

 

153,001

 

Eliminating net income

 

1,211

 

2,410

 

5,592

 

Total consolidated net (loss) income

 

$

(157,776

)

$

25,068

 

$

147,409

 

 

The following table presents a reconciliation of total assets for the Company’s two operating segments to total consolidated net assets as of December 31, 2012 and December 31, 2011. The eliminating assets noted in the following table consist of the elimination of intercompany transactions resulting from the capitalization of fees paid to GS&T by Baltic Trading as vessel assets, including related accumulated depreciation, as well as the outstanding receivable balance due to GS&T from Baltic Trading as of December 31, 2012 and 2011.

 

 

 

December 31,
2012

 

December 31,
2011

 

Total assets

 

 

 

 

 

GS&T

 

$

2,482,486

 

$

2,737,988

 

Baltic Trading

 

364,370

 

384,955

 

Total operating segments

 

2,846,856

 

3,122,943

 

Eliminating assets

 

(3,485

)

(3,666

)

Total consolidated assets

 

$

2,843,371

 

$

3,119,277

 

 

The following table presents a reconciliation of total expenditures for vessel purchases, including vessel deposits, for the Company’s two operating segments to total consolidated expenditures for vessel purchases, including vessel deposits, for the years ended December 31, 2012, 2011 and 2010.  The eliminating expenditures for vessels noted in the following table consists primarily of the elimination of the 1% purchase fees due to GS&T from Baltic Trading pursuant to the Management Agreement which were paid by Baltic Trading to GS&T during the years ended December 31, 2011 and 2010.

 

 

 

For the years ended December 31,

 

 

 

2012

 

2011

 

2010

 

Expenditures for vessels

 

 

 

 

 

 

 

GS&T

 

$

1,155

 

$

128,836

 

$

597,908

 

Baltic Trading

 

 

2,570

 

389,758

 

Total operating segments

 

1,155

 

131,406

 

987,666

 

Eliminating expenditures for vessels

 

 

(1,078

)

(2,761

)

Total consolidated expenditures for vessels

 

$

1,155

 

$

130,328

 

$

984,905

 

CASH FLOW INFORMATION
CASH FLOW INFORMATION

4 - CASH FLOW INFORMATION

 

As of December 31, 2012 and 2011, the Company had five and eight interest rate swaps, respectively, which are described and discussed in Note 11 — Interest Rate Swap Agreements.  The fair value of all five of the swaps is in a liability position of $16,052, $7 of which was classified within current liabilities, as of December 31, 2012.  The fair value of the eight swaps at December 31, 2011 is in a liability position of $25,340, $1,686 of which was classified within current liabilities.

 

For the year ended December 31, 2012, the Company had non-cash financing activities not included in the Consolidated Statement of Cash Flows for items included in long-term interest payable consisting of $13,199 associated with deferred financing fees.

 

For the year ended December 31, 2011, the Company had non-cash investing activities not included in the Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $501 for the purchase of vessels and $1,559 for the purchase of other fixed assets.  Additionally, for the year ended December 31, 2011, the Company had non-cash financing activities not included in the Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $105 associated with deferred financing fees.

 

For the year ended December 31, 2010, the Company had non-cash investing activities not included in the Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $3,979 for the purchase of vessels, $38 associated with deposits on vessels and $60 for the purchase of other fixed assets.  Additionally, for the year ended December 31, 2010, the Company had non-cash financing activities not included in the Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $204 associated with deferred financing fees, $51 associated with issuance costs related to the concurrent stock offering and issuance of Convertible Senior Notes completed on July 27, 2010 and  $1 associated with dividend payments due to Peter Georgiopoulos, Chairman of the Board of Directors.  Also, for the year ended December 31, 2010, the Company had non-cash investing activities not included in the Consolidated Statement of Cash Flows for items included in prepaid expenses and other current assets as of December 31, 2010 consisting of $22 of interest receivable associated with deposits on vessels.

 

For the year ended December 31, 2011, the Company made a reclassification of $13,718 from deposits on vessels to vessels, net of accumulated depreciation, due to the completion of the purchase of the Genco Rhone, Genco Avra, Genco Mare and Genco Spirit.  No such reclassifications were made during the years ended December 31, 2012 and 2010.

 

During the years ended December 31, 2012, 2011 and 2010, cash paid for interest, net of amounts capitalized and including bond coupon interest paid, was $79,373, $81,256 and $64,281 respectively.

 

During the years ended December 31, 2012, 2011 and 2010, cash paid for estimated income taxes was $1,216, $1,120 and $1,995 respectively.

 

On May 17, 2012, November 7, 2012 and December 13, 2012, the Company made grants of nonvested common stock in the amount of 15,000, 2,500 and 52,500 shares, respectively, to directors of the Company.  The grant date fair value of such nonvested stock was $53, $7 and $141, respectively.  On December 13, 2012, the Board of Directors approved a grant of 100,000 shares of nonvested common stock to Peter Georgiopoulos, Chairman of the Board, which had a grant date fair value of $268.  Lastly, on December 13, 2012, the Company granted 294,175 shares of nonvested stock to certain employees.  The grant date fair value of such nonvested stock was $788.  These grants were made under the Genco Shipping & Trading Limited 2005 and 2012 Equity Incentive Plans.

 

On May 12, 2011, the Company made grants of nonvested common stock in the amount of 15,000 shares in the aggregate to directors of the Company.  The grant date fair value of such nonvested stock was $120.  These shares vested on May 17, 2012.  On December 28, 2011, the Board of Directors approved a grant of 100,000 shares of nonvested common stock to Peter Georgiopoulos, which had a grant date fair value of $639.  Lastly, on December 28, 2011, the Company granted 242,500 shares of nonvested stock to certain employees.  The grant date fair value of such nonvested stock was $1,550.  These grants were made under the Genco Shipping & Trading Limited 2005 Equity Incentive Plan.

 

On March 5, 2010 and December 21, 2010, the Board of Directors approved grants of 75,000 and 200,000 shares, respectively, of nonvested common stock to Peter Georgiopoulos.  The fair value of such nonvested stock was $1,718 and $2,930, respectively.  Additionally, on May 13, 2010, the Company made grants of nonvested common stock in the amount of 15,000 shares to directors of the Company.  The grant date fair value of such nonvested stock was $331.  These shares vested on May 12, 2011.  Lastly, on December 21, 2010, the Company granted 224,650 shares of nonvested stock to certain employees.  The grant date fair value of such nonvested stock was $3,291.  These grants were made under the Genco Shipping & Trading Limited 2005 Equity Incentive Plan.

 

On May 17, 2012 and December 13, 2012, Baltic Trading made grants of nonvested common stock in the amount of 12,500 and 37,500 shares, respectively, to directors of Baltic Trading.  The grant date fair value of such nonvested stock was $48 and $113, respectively.  Additionally, on December 13, 2012, 166,666 and 83,333 shares of Baltic Trading’s nonvested common stock were granted to Peter Georgiopoulos, Chairman of the Board, and John Wobensmith, Baltic Trading’s President and Chief Financial Officer, respectively.  The grant date fair value of such nonvested stock was $750.

 

On May 12, 2011, Baltic Trading made grants of nonvested common stock in the amount of 12,500 shares to directors of Baltic Trading.  The grant date fair value of such nonvested stock was $87.  These shares vested on May 17, 2012.  Additionally, on December 21, 2011, 80,000 and 25,000 shares of Baltic Trading’s nonvested common stock were granted to Peter Georgiopoulos and John Wobensmith, respectively.  The grant date fair value of such nonvested stock was $515.

 

On March 10, 2010, 358,000 and 108,000 shares of Baltic Trading’s nonvested common stock were granted to Peter Georgiopoulos and John Wobensmith, respectively, which were approved by the Board of Directors on such date.  The grant date fair value of such nonvested stock was $6,524 based on the IPO price of $14.00 per share.  Both of these grants of nonvested common stock will vest ratably in four annual installments commencing on the first anniversary of the closing of the Baltic Trading’s IPO, March 15, 2010.  Additionally, on March 15, 2010, Baltic Trading made grants of nonvested common stock in the amount of 12,500 shares to directors of Baltic Trading.  The grant date fair value of such nonvested stock was $175 based on the IPO price of $14.00 per share.  These grants vested on March 15, 2011.  Lastly, on December 24, 2010, 80,000 and 25,000 shares of nonvested common stock were granted to Peter Georgiopoulos and John Wobensmith, respectively, which were approved by the Baltic Trading’s Board of Directors on such date.  The grant date fair value of such nonvested stock was $1,118.  Both of these grants of nonvested common stock vest ratably on each of the four anniversaries of November 15, 2011.  All of the aforementioned grants of nonvested common stock were made under the Baltic Trading Limited 2010 Equity Incentive Plan.

VESSEL ACQUISITIONS AND DISPOSITIONS
VESSEL ACQUISITIONS AND DISPOSITIONS

5 - VESSEL ACQUISITIONS AND DISPOSITIONS

 

On June 24, 2010, GS&T executed a Master Agreement with Bourbon SA (“Bourbon”) under which GS&T purchased 16 drybulk vessels, including two newbuildings, for an aggregate price of $545,000.  Total vessel deposits of $54,500 were made during the second quarter of 2010.  Additionally, upon the delivery of each vessel, GS&T recorded a commission due to its financial advisor equivalent to 1% of the purchase price of the vessel and which is included as a component of the vessel asset.  GS&T retained 13 of the 16 vessels, 12 of which were delivered to GS&T in the third quarter of 2010 and one of which was delivered in the first quarter of 2011.  GS&T elected not to retain three of the 16 vessels, including one newbuilding.  Therefore, upon delivery of these vessels during the year ended December 31, 2010, GS&T immediately resold them upon delivery based on GS&T’s aggregate purchase price of approximately $106,555 to MEP, a related party, including the 1% commission fee noted above.  GS&T entered into definitive agreements with MEP for this purpose.  One of the vessels was sold to MEP during the third quarter of 2010 for $36,562 and two of the vessels were sold to MEP during the fourth quarter of 2010 for a total of $69,993, each of which included the 1% commission fee noted above.  GS&T has financed the acquisition of these vessels, excluding the MEP vessels, using bank debt for approximately 60% of the purchase price, cash on hand, and proceeds from its concurrent offerings of common stock and 5.00% Convertible Senior Notes due August 15, 2015, which were completed on July 27, 2010.  Refer to Note 10 — Convertible Senior Notes for further details.

 

On June 3, 2010, GS&T entered into an agreement to purchase five Handysize drybulk vessels, including four newbuildings, from companies within the Metrostar Management Corporation group of companies (“Metrostar”) for an aggregate purchase price of $166,250.  Total vessel deposits of $16,625 were made during the second quarter of 2010.  Two of the vessels were delivered during the third quarter of 2010 and three of the vessels were delivered during 2011. Four of the five vessels are secured on long term time charters, each of which includes a minimum and maximum base rate as well as profit-sharing components, with Cargill International S.A.  The remaining vessel is secured on a spot market-related time charter with Cargill International S.A. at a rate based on 115% of the average of the daily rates of the Baltic Handysize Index (“BHSI”), an index published by The Baltic Dry Index.  GS&T financed the acquisition of the remaining vessels using operating cash as well as the $100,000 secured term loan facility which was entered into on August 12, 2010 and proceeds from its recent concurrent offerings of common stock and convertible notes.  Refer to Note 10 — Convertible Senior Notes.

 

On June 3, 2010, Baltic Trading entered into an agreement to purchase three Handysize drybulk vessels, including one newbuilding, from Metrostar for an aggregate purchase price of $99,750.  Total vessel deposits of $9,975 were made during the second quarter of 2010. Two of the vessels were delivered during August 2010 and the remaining vessel was delivered during October 2010.  All three vessels are secured on spot market-related time charters with Cargill International S.A. at a rate based on 115% of the average of the daily rates of the BHSI.

 

On February 19, 2010, Baltic Trading entered into agreements with subsidiaries of an unaffiliated third-party seller to purchase four 2009 built Supramax drybulk vessels for an aggregate price of $140,000.  Total vessel deposits of $14,000 were made during the first quarter of 2010 and the remaining payment of $126,000 was made upon delivery of the vessels during the second quarter of 2010.  These four vessels, the Baltic Leopard, Baltic Panther, Baltic Cougar, and Baltic Jaguar, were delivered during the second quarter of 2010.

 

On February 22, 2010, Baltic Trading also entered into agreements with subsidiaries of another unaffiliated third-party seller to purchase two Capesize drybulk vessels for an aggregate price of $144,200.  The Baltic Wolf was delivered on October 14, 2010 and the Baltic Bear was delivered on May 14, 2010.  Total vessel deposits of $21,540 were made during the first quarter of 2010 and the remaining payment for the Baltic Bear of $65,700 and the Baltic Wolf of $56,960 were made upon delivery of the vessels during the second quarter and fourth quarter of 2010, respectively.

 

Refer to Note 1 — General Information for a listing of the vessel delivery dates for the vessel acquisitions discussed herein.

 

Two of the Handysize vessels acquired from Metrostar during the year ended December 31, 2011 by GS&T had existing below market time charters at the time of the acquisitions. Two of the Supramax vessels acquired from Bourbon and two of the Handysize vessels acquired from Metrostar during the year ended December 31, 2010 by GS&T had existing below market time charters at the time of the acquisitions.  During the years ended December 31, 2011 and 2010, GS&T recorded a liability for time charters acquired of $578 and $2,146, respectively, which are being amortized as an increase to voyage revenues during the remaining term of each respective time charter.  There were no vessels acquired during the year ended December 31, 2012.  Below market time charters, including those acquired during previous years, were amortized as an increase in revenue in the amount of $746, $1,611 and $4,560 for the years ended December 31, 2012, 2011 and 2010, respectively.  The remaining unamortized fair market value of time charter acquired at December 31, 2012 and December 31, 2011 is $418 and $1,164, respectively.  This balance will be amortized into revenue over a weighted-average period of 1.12 years and will be amortized as follows: $334 for 2013 and $84 for 2014.

 

Capitalized interest expense associated with newbuilding contracts for the years ended December 31, 2012, 2011 and 2010 was $0, $179 and $446, respectively.

INVESTMENTS
INVESTMENTS

6 —INVESTMENTS

 

The Company holds an investment in the capital stock of Jinhui.  Jinhui is a drybulk shipping owner and operator focused on the Supramax segment of drybulk shipping.  This investment is designated as AFS and is reported at fair value, with unrealized gains and losses recorded in shareholders’ equity as a component of AOCI.  At December 31, 2012 and December 31, 2011, the Company held 16,335,100 shares of Jinhui capital stock which is recorded at its fair value of $20,988 and $24,468, respectively, based on the closing price on December 28, 2012 and December 30, 2011.

 

During the fourth quarter of 2008, the Company reviewed the investment in Jinhui for indicators of other-than-temporary impairment in accordance with ASC 320-10.  Based on this review, the Company deemed the investment in Jinhui to be other-than-temporarily impaired as of December 31, 2008 due to the severity of the decline in its market value versus its cost basis.  As a result of the other-than-temporary impairment, the new cost basis of this investment is approximately $1.03 per share, the value of the investment at December 31, 2008.  The Company reviews the investment in Jinhui for impairment on a quarterly basis.  There were no impairment charges recognized during the years ended December 31, 2012, 2011 and 2010.

 

The unrealized gain for the Jinhui capital stock subsequent to the impairment is accounted for as a component of AOCI since this investment is designated as an AFS security.

 

Refer to Note 12 — Accumulated Other Comprehensive Loss for a breakdown of the components of AOCI.

EARNINGS PER SHARE
EARNINGS PER SHARE

7 - EARNINGS PER SHARE

 

The computation of basic net (loss) income per share is based on the weighted-average number of common shares outstanding during the year.  The computation of diluted net (loss) income per share assumes the vesting of nonvested stock awards (refer to Note 21 — Nonvested Stock Awards), for which the assumed proceeds upon vesting are deemed to be the amount of compensation cost attributable to future services and are not yet recognized using the treasury stock method, to the extent dilutive.  Of the 1,108,762 nonvested shares outstanding at December 31, 2012 (refer to Note 21 — Nonvested Stock Awards), all are anti-dilutive.  The Company’s diluted earnings per share will also reflect the assumed conversion under the Company’s convertible debt if the impact is dilutive under the “if converted” method. The impact of the shares convertible under the Company’s convertible notes is excluded from the computation of diluted earnings per share when interest expense per common share obtainable upon conversion is greater than basic earnings per share.

 

The components of the denominator for the calculation of basic net (loss) income per share and diluted net (loss) income per share are as follows:

 

 

 

Years Ended December 31,

 

 

 

2012

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Common shares outstanding, basic:

 

 

 

 

 

 

 

Weighted-average common shares outstanding, basic

 

41,727,075

 

35,179,244

 

32,987,449

 

 

 

 

 

 

 

 

 

Common shares outstanding, diluted:

 

 

 

 

 

 

 

Weighted-average common shares outstanding, basic

 

41,727,075

 

35,179,244

 

32,987,449

 

 

 

 

 

 

 

 

 

Dilutive effect of convertible notes

 

 

 

2,760,693

 

 

 

 

 

 

 

 

 

Dilutive effect of restricted stock awards

 

 

78,961

 

143,231

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding, diluted

 

41,727,075

 

35,258,205

 

35,891,373

 

 

The following table sets forth a reconciliation of the net (loss) income attributable to GS&T and the net (loss) income attributable to GS&T for diluted net (loss) income per share under the “if-converted” method:

 

 

 

Years Ended December 31,

 

 

 

2012

 

2011

 

2010

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to GS&T

 

$

(144,928

)

$

25,386

 

$

141,243

 

 

 

 

 

 

 

 

 

Interest expense related to convertible notes, if dilutive

 

 

 

4,657

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to GS&T for the computation of diluted net (loss) income per share

 

$

(144,928

)

$

25,386

 

$

145,900

 

RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS

8 - RELATED PARTY TRANSACTIONS

 

The following represent related party transactions reflected in these consolidated financial statements:

 

The Company makes available employees performing internal audit services to General Maritime Corporation (“GMC”), where the Company’s Chairman, Peter C. Georgiopoulos, also serves as Chairman of the Board.  For the years ended December 31, 2012, 2011 and 2010, the Company invoiced $175, $241 and $200, respectively, to GMC which includes time associated with such internal audit services and other expenditures.  Additionally, during the years ended December 31, 2012, 2011 and 2010, the Company incurred travel and other office related expenditures totaling $87, $179 and $336, respectively, reimbursable to GMC or its service provider.  At December 31, 2012, the amount due to GMC from the Company was $12.  At December 31, 2011, the amount due to the Company from GMC was $114, of which $90 was reserved for pursuant to GMC’s bankruptcy proceedings.

 

During the years ended December 31, 2012, 2011 and 2010, the Company incurred legal services (primarily in connection with vessel acquisitions) aggregating $11, $54, and $390, respectively, from Constantine Georgiopoulos, the father of Peter C. Georgiopoulos, Chairman of the Board.  At December 31, 2012 and 2011, $0 and $29, respectively, was outstanding to Constantine Georgiopoulos.

 

During the years ended December 31, 2012, 2011 and 2010, the Company utilized the services of North Star Maritime, Inc. (“NSM”) which is owned and operated by one of GS&T’s directors, Rear Admiral Robert C. North, USCG (ret.).  NSM, a marine industry consulting firm, specializes in international and domestic maritime safety, security and environmental protection issues.  NSM billed $0, $2 and $12 for services rendered during the years ended December 31, 2012, 2011 and 2010, respectively.   There are no amounts due to NSM at December 31, 2012 and 2011.

 

GS&T and Baltic Trading have entered into agreements with Aegean Marine Petroleum Network, Inc. (“Aegean”) to purchase lubricating oils for certain vessels in the their fleets.  Peter C. Georgiopoulos, Chairman of the Board of the Company, is Chairman of the Board of Aegean.  During the years ended December 31, 2012, 2011 and 2010, Aegean supplied lubricating oils to the Company’s vessels aggregating $1,517, $1,908 and $1,457, respectively.  At December 31, 2012 and 2011, $278 and $408 remained outstanding, respectively.

 

During the years ended December 31, 2012, 2011 and 2010, the Company invoiced MEP for technical services provided and expenses paid on MEP’s behalf aggregating $3,396, $3,364 and $108,982, respectively.  The billings incurred during the year ended December 31, 2010 also included the purchase of three Bourbon vessels on MEP’s behalf (Refer to Note 5 — Vessel Acquisitions and Dispositions).  MEP is managed by a company owned by Peter C. Georgiopoulos, Chairman of the Board.  At December 31, 2012 and 2011, $5 and $7, respectively, was due to the Company from MEP.  Total service revenue earned by the Company for technical services provided to MEP for the years ended December 31, 2012, 2011 and 2010 was $3,294, $3,285 and $1,249, respectively.

LONG-TERM DEBT
LONG-TERM DEBT

9 - LONG-TERM DEBT

 

Long-term debt consists of the following:

 

 

 

December 31, 2012

 

December 31, 2011

 

 

 

 

 

 

 

2007 Credit Facility

 

$

1,055,912

 

$

1,174,500

 

$ 100 Million Term Loan Facility

 

75,484

 

90,869

 

$ 253 Million Term Loan Facility

 

180,793

 

221,393

 

2010 Baltic Trading Credit Facility

 

101,250

 

101,250

 

Less: Current portion

 

 

(185,077

)

 

 

 

 

 

 

Long-term debt

 

$

1,413,439

 

$

1,402,935

 

 

August 2012 Credit Facility Agreements

 

On August 1, 2012, the Company entered into agreements (the “August 2012 Agreements”) to amend or waive certain provisions of the agreements for the 2007 Credit Facility, $100 Million Term Loan Facility and the $253 Million Term Loan Facility (as defined below).  The agreements implemented, among other things, the following:

 

·                  The waiver of the Company’s compliance with its existing maximum leverage ratio covenant and minimum permitted consolidated interest ratio covenant that commenced on October 1, 2011 and ends on and includes March 31, 2013 was extended to end on and include December 31, 2013 (which we refer to as the extended waiver period).

 

·                  The gross interest-bearing debt to total capital covenant which originally ended on and included March 31, 2013 was extended to end on and include December 31, 2013.  This covenant limits the ratio of the Company’s interest-bearing indebtedness to the sum of its interest-bearing indebtedness and its consolidated net worth in accordance with GAAP to 62.5% on the last day of any fiscal quarter during the waiver period.

 

·                  Scheduled amortization payments through and including the quarter ending December 31, 2013 were deferred until the final payment at maturity under the 2007 Credit Facility and prepaid under the other two credit facilities.  The next scheduled amortization payments under these facilities will be due in the first quarter of 2014 in the aggregate principal amount of $55,193.

 

·                  Commencing September 30, 2012, the Company is to repay the 2007 Credit Facility on a quarterly basis using excess cash, defined as the balance over $100,000 in the Company’s and certain of its subsidiaries’ accounts pledged under the 2007 Credit Facility.  Of such repayments, 25% will be allocated to the final payment at maturity, and 75% will be applied entirely against each successive scheduled mandatory principal repayment beginning with the payment due March 31, 2014.  Certain other mandatory repayments under the existing terms of this facility as well as voluntary prepayments will be applied in the same manner.  These obligations continue until the later of December 31, 2013 and the date on which the appraised value of certain mortgaged vessels is equal to at least 100% of the aggregate principal amount of the Company’s loans, letters of credit and certain hedge obligations under the 2007 Credit Facility.

 

·                  The Company and its subsidiaries (other than Baltic Trading and its subsidiaries) will not increase the amount of principal indebtedness currently outstanding under each of its three credit agreements or change their maturity dates.

 

·                  Indebtedness that the Company and its subsidiaries (other than Baltic Trading and its subsidiaries) may incur in connection with vessel acquisitions will be limited to 60% of the lesser of the vessel’s acquisition cost and fair market value.  Any newly acquired vessel will subject to a security interest under the 2007 Credit Facility.

 

·                  The Applicable Margin over LIBOR payable on the principal amount outstanding under the 2007 Credit Facility increased from 2.0% to 3.0% per annum.

 

·                  The minimum cash balance required under the 2007 Credit Facility increased from $500 to $750 per vessel mortgaged under the 2007 Credit Facility.

 

·                  The Company agreed to grant additional security for its obligations under the 2007 Credit Facility, consisting of a pledge of the Class B Stock of Baltic Trading held by Genco Investments LLC and a second priority security interest in vessels pledged under its other two credit facilities or in connection with any new indebtedness (excluding in each case vessels owned by Baltic Trading and its subsidiaries).

 

·                  Consenting lenders under each of the three credit facilities received an upfront fee of 0.25% on the amount of outstanding loans.

 

As required under the August 2012 Agreements, the Company prepaid $57,893 under its 2007 Credit Facility, $30,450 under its $253 Million Term Loan Facility, and $11,538 under its $100 Million Term Loan Facility on August 1, 2012.  The prepayment under the 2007 Credit Facility was applied to the final payment due under the facility.  The prepayments under the other two facilities were applied in order of maturity and fulfilled all scheduled amortization payments through December 31, 2013 under these facilities.  In addition, lenders under the 2007 Credit Facility will receive a fee equal to 1.25% of the principal amount outstanding following such prepayment, or $13,199, on the earlier date of the maturity date of this facility or the date on which all obligations under this facility have been paid in full.  The $13,199 has been recorded in the consolidated balance sheet at December 31, 2012 as Long-term interest payable.

 

December 2011 Credit Facility Agreements

 

On December 21, 2011, the Company entered into agreements (the “December 2011 Agreements”) to amend or waive provisions of the 2007 Credit Facility, the $100 Million Term Loan Facility and the $253 Million Term Loan Facility.  The aforementioned credit facilities are explained in further detail below.  The agreements implemented, among other things, the following:

 

·                  The Company’s compliance with its existing maximum leverage ratio covenant was waived for a period starting on October 1, 2011 and ending on (and including) March 31, 2013, or the waiver period. This covenant governs the ratio of the Company’s net debt to EBITDA (as such term is defined in the credit agreements).

 

·                  The Company’s compliance with its existing minimum permitted consolidated interest ratio covenant is also waived for the waiver period. This covenant governs the ratio of the Company’s EBITDA to consolidated interest expense.

 

·                  A new gross interest-bearing debt to total capital covenant applies to the Company for the duration of the waiver period. This covenant limits the ratio of the Company’s interest-bearing indebtedness to the sum of its interest-bearing indebtedness and its consolidated net worth in accordance with GAAP to 62.5% on the last day of any fiscal quarter during the waiver period.

 

·                  Consenting lenders under the facilities received an upfront fee of 0.25% of the amount of outstanding loans.

 

As contemplated under these agreements, the Company prepaid $52,500 under its 2007 Credit Facility, $7,000 under its $253 Million Term Loan Facility, and $3,000 under its $100 Million Term Loan Facility. All such prepayments were applied in inverse order of maturity under each credit facility. In addition, the 2007 Credit Facility is subject to a facility fee of 2.0% per annum on the average daily outstanding principal amount of the loans thereunder, payable quarterly in arrears, which was reduced to 1.0% on February 28, 2012 when the Company completed an equity offering of 7,500,000 shares of common stock, refer to Note 1 — General Information.  The other two credit facilities were not subject to a facility fee.

 

2007 Credit Facility

 

On July 20, 2007, the Company entered into the 2007 Credit Facility with DnB Nor Bank ASA for the purpose of acquiring nine Capesize vessels and refinancing the Company’s existing 2005 Credit Facility and Short-Term Line.  DnB Nor Bank ASA is also Mandated Lead Arranger, Bookrunner, and Administrative Agent.  The Company has used borrowings under the 2007 Credit Facility to repay amounts outstanding under the 2005 Credit Facility and the Short-Term Line, and these two facilities have accordingly been terminated.  During the years ended December 31, 2012 and 2011, total repayments of $118,588 and $102,500 were made, respectively.  The $118,588 of repayments made during 2012 includes the $57,893 of repayments made during 2012 pursuant to the August 2012 Agreements, as noted in the “August 2012 Credit Facility Agreements” section hereof.  The $102,500 of repayments made during 2011 includes the $52,500 prepayment of debt made during 2011 pursuant to the December 2011 Agreements, as noted in the “December 2011 Credit Facility Amendments” section herein.  As of December 31, 2012 and 2011, $1,055,912 and $1,174,500 was outstanding under the 2007 Credit Facility.  As of December 31, 2012, the Company has utilized its maximum borrowing capacity under the 2007 Credit Facility.

 

On January 26, 2009, the Company entered into an amendment to the 2007 Credit Facility (the “2009 Amendment”) which implemented the following modifications to the terms of the 2007 Credit Facility:

 

·                        Compliance with the existing collateral maintenance financial covenant was waived effective for the year ended December 31, 2008 and until the Company can represent that it is in compliance with all of its financial covenants and is otherwise able to pay a dividend and purchase or redeem shares of common stock under the terms of the Credit Facility in effect before the 2009 Amendment.  The Company’s cash dividends and share repurchases were suspended until the Company can represent that it is in a position to again satisfy the collateral maintenance covenant.

 

·                        The total amount of the 2007 Credit Facility is subject to quarterly reductions of $12,500 beginning March 31, 2009 through March 31, 2012 and quarterly reductions of $48,195 beginning June 30, 2012 and thereafter until the maturity date.  After the prepayment of $52,500 and $57,893 made during December 2011 and August 2012 pursuant to the December 2011 Agreements and August 2012 Agreements, respectively, a final payment of $381,182 will be due on the maturity date.

 

·                        The Applicable Margin to be added to the London Interbank Offered Rate to calculate the rate at which the Company’s borrowings bear interest is 2.00% per annum.  This was increased to 3.00% per annum pursuant to the August 2012 Agreements as noted above.

 

·                        The commitment commission paid to each lender is 0.70% per annum of the daily average unutilized commitment of such lender.

 

Amounts repaid under the 2007 Credit Facility may not be reborrowed.  The 2007 Credit Facility has a maturity date of July 20, 2017.

 

Loans made under the 2007 Credit Facility may be and have been used for the following:

 

·                  up to 100% of the en bloc purchase price of $1,111,000 for nine modern drybulk Capesize vessels, which the Company has agreed to purchase from Metrostar;

 

·                  repayment of amounts previously outstanding under the Company’s 2005 Credit Facility, or $206,233;

 

·                  the repayment of amounts previously outstanding under the Company’s Short-Term Line, or $77,000;

 

·                      possible acquisitions of additional drybulk carriers between 25,000 and 180,000 dwt that are up to ten years of age at the time of delivery and not more than 18 years of age at the time of maturity of the credit facility;

 

·                      up to $50,000 of working capital, if available; and

 

·                       the issuance of up to $50,000 of standby letters of credit.  At December 31, 2012 and 2011, there were no letters of credit issued under the 2007 Credit Facility.

 

All amounts owing under the 2007 Credit Facility are secured by the following:

 

·                       cross-collateralized first priority mortgages on 35 of the Company’s existing vessels and any new vessels financed with the 2007 Credit Facility;

 

·                       an assignment of any and all earnings of the mortgaged vessels;

 

·                       an assignment of all insurances on the mortgaged vessels;

 

·                       a first priority perfected security interest in all of the shares of Jinhui owned by the Company;

 

·                       an assignment of the shipbuilding contracts and an assignment of the shipbuilder’s refund guarantees meeting the Administrative Agent’s criteria for any additional newbuildings financed under the 2007 Credit Facility; and

 

·                       a first priority pledge of the Company’s ownership interests in each subsidiary guarantor.

 

The Company has completed a pledge of its ownership interests in the subsidiary guarantors that own the nine Capesize vessels acquired.  The other collateral described above was pledged, as required, within 30 days of the effective date of the 2007 Credit Facility.

 

The Company’s borrowings under the 2007 Credit Facility bear interest at the London Interbank Offered Rate (“LIBOR”) for an interest period elected by the Company of one, three, or six months, or longer if available, plus the Applicable Margin which was 0.85% per annum.  Effective January 26, 2009, due to the 2009 Amendment, the Applicable Margin increased to 2.00%.  Additionally, effective August 1, 2012, due to the August 2012 Agreements, the Applicable Margin increased to 3.00%.  In addition to other fees payable by the Company in connection with the 2007 Credit Facility, the Company paid a commitment fee at a rate of 0.20% per annum of the daily average unutilized commitment of each lender under the facility until September 30, 2007, and 0.25% thereafter.  Effective January 26, 2009, due to the 2009 Amendment, the rate increased to 0.70% per annum of the daily average unutilized commitment of such lender.  Refer to “December 2011 Credit Facility Agreements” above for the facility fee that the Company is subject to pursuant to the December 2011 Agreements.

 

The 2007 Credit Facility includes the following financial covenants which apply to the Company and its subsidiaries on a consolidated basis and are measured at the end of each fiscal quarter beginning with June 30, 2007:

 

·                        The leverage covenant requires the maximum average net debt to EBITDA ratio to be no greater than 5.5:1.0.  As per the December 2011 Agreements and the August 2012 Agreements, this covenant has been waived for a period beginning on October 1, 2011 and ending on (and including) December 31, 2013.

 

·                        Cash and cash equivalents must not be less than $750 per mortgaged vessel.  This was increased from $500 per mortgaged vessel effective August 1, 2012 pursuant to the August 2012 Agreements.

 

·                        The ratio of EBITDA to interest expense, on a rolling last four-quarter basis, must be no less than 2.0:1.0.  As per the December 2011 Agreements and the August 2012 Agreements, this covenant has been waived for a period beginning on October 1, 2011 and ending on (and including) December 31, 2013.

 

·                        After July 20, 2007, consolidated net worth, as defined in the 2007 Credit Facility, must be no less than $263,300 plus 80% of the value of the any new equity issuances of the Company from June 30, 2007.  Based on the equity offerings completed in October 2007, May 2008, July 2010 and February 2012, consolidated net worth must be no less than $674,555.

 

·                        The aggregate fair market value of the mortgaged vessels must at all times be at least 130% of the aggregate outstanding principal amount under the credit facility plus all letters of credit outstanding; the Company has a 30 day remedy period to post additional collateral or reduce the amount of the revolving loans and/or letters of credit outstanding.  This covenant was waived effective for the year ended December 31, 2008 and indefinitely until the Company can represent that it is in compliance with all of its financial covenants as per the 2009 Amendment as described above.

 

As of December 31, 2012, the Company believes it is in compliance with all of the financial covenants under its 2007 Credit Facility, as amended.

 

The following table sets forth the repayment of the outstanding debt of $1,055,912 at December 31, 2012 under the 2007 Credit Facility, as amended:

 

Year Ending December 31,

 

Total

 

 

 

 

 

2013

 

$

 

2014

 

192,780

 

2015

 

192,780

 

2016

 

144,585

 

2017

 

525,767

 

Total debt

 

$

1,055,912

 

 

$100 Million Term Loan Facility

 

On August 12, 2010, the Company entered into the $100 Million Term Loan Facility with Crédit Agricole Corporate and Investment Bank, which is also acting as Agent and Security Trustee; and Crédit Industriel et Commercial; and Skandinaviska Enskilda Banken AB (publ) are the lenders under the facility.  The Company has used the $100 Million Term Loan Facility to fund or refund to the Company a portion of the purchase price of the acquisition of five vessels from Metrostar (Refer to Note 5 — Vessel Acquisitions and Dispositions).  Under the terms of the facility, the $100 Million Term Loan Facility was drawn down in five equal tranches of $20,000 each, with one tranche per vessel.  The $100 Million Term Loan Facility has a final maturity date of seven years from the date of the first drawdown, or August 17, 2017, and borrowings under the facility bear interest at LIBOR for an interest period of one, three or six months (as elected by the Company), plus 3.00% per annum.  A commitment fee of 1.35% is payable on the undrawn committed amount of the $100 Million Term Loan Facility, which began accruing on August 12, 2010.  Borrowings are to be repaid quarterly, with the outstanding principal amortized on a 13-year profile, with any outstanding amount under the $100 Million Term Loan Facility to be paid in full on the final maturity date.  Repaid amounts are no longer available and cannot be reborrowed.  Borrowings under the $100 Million Term Loan Facility are secured by liens on the five Metrostar vessels purchased by GS&T and other related assets.  Certain of the Company’s wholly-owned ship-owning subsidiaries, each of which own one of the five Metrostar vessels, will act as guarantors under the $100 Million Term Loan Facility.

 

During the year ended December 31, 2011, three drawdowns of $20,000 each were made by the Company for the deliveries of the Genco Avra, Genco Mare and Genco Spirit.  During the year ended December 31, 2010, two drawdowns of $20,000 were made by the Company for the deliveries of the Genco Ocean and Genco Bay.  During the years ended December 31, 2012 and 2011, total repayments of $15,385 and $8,011 were made, respectively.  The $15,385 of repayments made during 2012 includes the $11,538 prepayment of debt made during 2012 pursuant to the August 2012 Agreements, as noted in the “August 2012 Credit Facility Agreements” section herein.  The $8,011 of repayments made during 2011 includes the $3,000 prepayment of debt made during 2011 pursuant to the December 2011 Agreements, as noted in the “December 2011 Credit Facility Agreements” section herein.  As of December 31, 2012, the Company has utilized its maximum borrowing capacity under the $100 Million Term Loan Facility.

 

The $100 Million Term Loan Facility requires the Company to comply with a number of covenants, including financial covenants related to leverage, consolidated net worth, interest coverage and dividends; minimum working capital requirements; collateral maintenance requirements; and other covenants, most of which are in principle and calculation similar to the Company’s covenants under the existing 2007 Credit Facility.  The $100 Million Term Loan Facility includes usual and customary events of default and remedies for facilities of this nature.  Refer to the “August 2012 Credit Facility Agreements” and “December 2011 Credit Facility Agreements” section herein for waivers obtained for specific covenants under this credit facility.

 

As of December 31, 2012, the Company believes it is in compliance with all of the financial covenants under the $100 Million Term Loan Facility, as amended.

 

The following table sets forth the repayment of the outstanding debt of $75,484 at December 31, 2012 under the $100 Million Term Loan Facility:

 

Year Ending December 31,

 

Total

 

 

 

 

 

2013

 

$

 

2014

 

7,692

 

2015

 

7,692

 

2016

 

7,692

 

2017

 

52,408

 

Total debt

 

$

75,484

 

 

$253 Million Term Loan Facility

 

On August 20, 2010, the Company entered into the $253 Million Term Loan Facility.  BNP Paribas; Crédit Agricole Corporate and Investment Bank; DVB Bank SE; Deutsche Bank AG Filiale Deutschlandgeschäft, which is also acting as Security Agent and Bookrunner; and Skandinaviska Enskilda Banken AB (publ) are Lenders and Mandated Lead Arrangers under the facility.  Deutsche Bank Luxembourg S.A. is acting as Agent under the facility, and Deutsche Bank AG and all of the Lenders other than Deutsche Bank AG Filiale Deutschlandgeschäft are acting as Swap Providers under the facility.  The Company has used the $253 Million Term Loan Facility to fund a portion of the purchase price of the acquisition of 13 vessels from affiliates of Bourbon.  Under the terms of the facility, the $253 Million Term Loan Facility was drawn down in 13 tranches in amounts based on the particular vessel being acquired, with one tranche per vessel.  The $253 Million Term Loan Facility has a maturity date of August 15, 2015 and borrowings under the $253 Million Term Loan Facility bear interest, as elected by the Company, at LIBOR for an interest period of three or six months, plus 3.00% per annum.  A commitment fee of 1.25% is payable on the undrawn committed amount of the $253 Million Term Loan Facility, which began accruing on August 20, 2010.  Borrowings are to be repaid quarterly with outstanding principal amortized on a per vessel basis and any outstanding amount under the $253 Million Term Loan Facility to be paid in full on the maturity date.  Repaid amounts are no longer available and cannot be reborrowed.  Borrowings under the $253 Million Term Loan Facility are secured by liens on the Bourbon vessels and other related assets.  Certain of the Company’s wholly-owned ship-owning subsidiaries, each of which owns one of the Bourbon vessels, will act as guarantors under the credit facility.

 

As of December 31, 2012, total drawdowns of $253,000 have been made under the $253 Million Term Loan Facility to fund or refund to the Company a portion of the purchase price of the 12 Bourbon vessels delivered during the third quarter of 2010 and the Bourbon vessel delivered during the first quarter of 2011.  Refer to Note 5 — Vessel Acquisitions and Dispositions for a listing of the vessels delivered.  Total required debt repayments of $40,600 and $26,916 were made during the years ended December 31, 2012 and 2011.  The $40,600 of repayments made during 2012 includes the $30,450 prepayment of debt made during 2012 pursuant to the August 2012 Credit Facility Agreements, as noted in the “August 2012 Credit Facility Agreements” section herein.  The $26,916 of repayments made during 2011 includes the $7,000 prepayment of debt made during 2011 pursuant to the December 2011 Agreements, as noted in the “December 2011 Credit Facility Agreements” section herein. As of December 31, 2012, the Company has utilized its maximum borrowing capacity under the $253 Million Term Loan Facility.

 

The $253 Million Term Loan Facility requires the Company to comply with a number of covenants, including financial covenants related to leverage, consolidated net worth, liquidity and interest coverage; dividends; collateral maintenance requirements; and other covenants, most of which are in principle and calculation similar to our covenants under the existing 2007 Credit Facility.  As of December 31, 2012 and 2011, the Company had deposited $9,750 that has been reflected as restricted cash.  Restricted cash will be released only if the underlying collateral is sold or disposed of.  The $253 Million Term Loan Facility includes usual and customary events of default and remedies for facilities of this nature.  Refer to the “December 2011 Credit Facility Agreements” section herein for waivers obtained for specific covenants under this credit facility.

 

As of December 31, 2012, the Company believes it is in compliance with all of the financial covenants under the $253 Million Term Loan Facility, as amended.

 

The following table sets forth the repayment of the outstanding debt of $180,793 at December 31, 2012 under the $253 Million Term Loan Facility:

 

Year Ending December 31,

 

Total

 

 

 

 

 

2013

 

$

 

2014

 

20,300

 

2015

 

160,493

 

Total debt

 

$

180,793

 

 

2010 Baltic Trading Credit Facility

 

On April 16, 2010, Baltic Trading entered into a $100,000 senior secured revolving credit facility with Nordea Bank Finland plc, acting through its New York branch (as amended, the “2010 Baltic Trading Credit Facility”).  An amendment to the 2010 Baltic Trading Credit Facility was entered into by Baltic Trading effective November 30, 2010.  This amendment increased the commitment amount of the 2010 Baltic Trading Credit Facility from $100,000 to $150,000 and amounts borrowed bear interest at LIBOR plus a margin of 3.00% as compared to 3.25% under the original facility.  The term of the 2010 Baltic Trading Credit Facility was extended to six years from the previous 3.5 years and will now mature on November 30, 2016 as compared to April 16, 2014 previously.  A commitment fee of 1.25% per annum is payable on the unused daily portion of the 2010 Baltic Trading Credit Facility, which began accruing on March 18, 2010 under the terms of the commitment letter entered into on February 25, 2010.  In connection with the commitment letter entered on February 25, 2010, Baltic Trading paid an upfront fee of $313.  Additionally, upon executing the original 2010 Baltic Trading Credit Facility, Baltic Trading paid the remaining upfront fee of $937, for total fees of $1,250.  In connection with the amendment to the 2010 Credit Facility effective November 30, 2010, Baltic Trading paid an upfront fee of $1,350.  Of the total facility amount of $150,000, $25,000 is available for working capital purposes.  As of December 31, 2012, total available working capital borrowings were $23,500 as $1,500 was drawn down during the year ended December 31, 2010 for working capital purposes.  As of December 31, 2012, $28,750 remained available under the 2010 Credit Facility as the total commitment was reduced to $130,000 on November 30, 2012.  Refer to Note 5 — Vessel Acquisitions and Dispositions for further information regarding these vessel deposits and acquisitions.

 

Pursuant to the amended 2010 Baltic Trading Credit Facility, the total commitment of $150,000 will be reduced in 11 consecutive semi-annual reductions of $5,000 which commenced on the six month anniversary of the effective date, or May 31, 2011.  On the maturity date, November 30, 2016, the total commitment will reduce to zero and all borrowing must be repaid in full by Baltic Trading.

 

Borrowings under the 2010 Baltic Trading Credit Facility are secured by liens on Baltic Trading’s initial vessels and other related assets.  Borrowings under the facility are subject to the delivery of security documents with respect to Baltic Trading’s initial vessels.  Baltic Trading’s subsidiaries owning the initial vessels act as guarantors under the 2010 Baltic Trading Credit Facility.

 

All amounts owing under the 2010 Baltic Trading Credit Facility are also secured by the following:

 

·                        cross-collateralized first priority mortgages of each of Baltic Trading’s initial vessels;

 

·                        an assignment of any and all earnings of Baltic Trading’s initial vessels; and

 

·                        an assignment of all insurance on the mortgaged vessels.

 

The 2010 Baltic Trading Credit Facility requires Baltic Trading to comply with a number of covenants, including financial covenants related to liquidity, consolidated net worth, and collateral maintenance; delivery of quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws (including environmental); compliance with ERISA; maintenance of flag and class of Baltic Trading’s initial vessels; restrictions on consolidations, mergers or sales of assets; restrictions on changes in the Manager of Baltic Trading’s initial vessels (or acceptable replacement vessels); limitations on changes to the Management Agreement between Baltic Trading and GS&T; limitations on liens; limitations on additional indebtedness; restrictions on paying dividends; restrictions on transactions with affiliates; and other customary covenants.

 

The amended 2010 Baltic Trading Credit Facility includes the following financial covenants which apply to Baltic Trading and its subsidiaries on a consolidated basis and are measured at the end of each fiscal quarter:

 

·                        Cash and cash equivalents plus the undrawn amount available for working capital under the facility must not be less than $5,000 during the first year following the amendment, or until November 30, 2011.  Beginning December 1, 2010, cash and cash equivalents plus the undrawn amount available for working capital under the facility must not be less than $750 per vessel for all vessels in Baltic Trading’s fleet.

 

·                        Consolidated net worth must not be less than (i) $232,796 plus (ii) 50% of the value of any subsequent primary equity offerings of Baltic Trading.

 

·                        The aggregate fair market value of the mortgaged vessels must at all times be at least 140% of the aggregate outstanding principal amount under the 2010 Baltic Trading Credit Facility.

 

Under the 2010 Baltic Trading Credit Facility, Baltic Trading is not permitted to make loans to GS&T or Genco Investments LLC if an event of default existed at the time of the loan or could be reasonably expected to result there from.  In addition, Baltic Trading would not be permitted under the facility to declare or pay dividends to its shareholders (including Genco Investments LLC) if an event of default existed at the time of payment or would be caused thereby.  As of December 31, 2012, to remain in compliance with a net worth covenant in the facility, Baltic Trading needs to maintain a net worth of $232,796 after the payment of any dividends.

 

The Company believes it is in compliance with all of the financial covenants under the 2010 Baltic Trading Credit Facility as of December 31, 2012.

 

The following table sets forth the repayment of the outstanding debt of $101,250 at December 31, 2012 under the 2010 Baltic Trading Credit Facility:

 

Year Ending December 31,

 

Total

 

 

 

 

 

2013

 

$

 

2014

 

 

2015

 

1,250

 

2016

 

100,000

 

Total debt

 

$

101,250

 

 

Interest rates

 

The following table sets forth the effective interest rate associated with the interest expense for the Company’s debt facilities noted above, including the rate differential between the pay fixed receive variable rate on the interest rate swap agreements that were in effect (refer to Note 11 — Interest Rate Swap Agreements), combined, and the cost associated with unused commitment fees as well as the facility fee for the 2007 Credit Facility which was reduced from 2.0% to 1.0% on February 28, 2012 as noted above. Additionally, it includes the range of interest rates on the debt, excluding the impact of swaps and unused commitment fees:

 

 

 

Year ended December 31,

 

 

 

2012

 

2011

 

2010

 

Effective Interest rate

 

4.68

%

4.42

%

4.64

%

Range of Interest Rates (excluding impact of swaps and unused commitment fees)

 

3.21% to 4.63

%

2.19% to 3.52

%

2.25% to 3.60

%

 

Letter of credit

 

In conjunction with the Company entering into a long-term office space lease (See Note 19 - Commitments and Contingencies), the Company was required to provide a letter of credit to the landlord in lieu of a security deposit.  As of September 21, 2005, the Company obtained an annually renewable unsecured letter of credit with DnB NOR Bank.  The letter of credit outstanding was $300 as of December 31, 2012 and 2011 at a fee of 1% per annum.  The letter of credit is cancelable on each renewal date provided the landlord is given 150 days minimum notice.  This letter of credit has been securitized by $300 that was paid by the Company to DnB NOR Bank during the year ended December 31, 2012.  This has been recorded as restricted cash in the consolidated balance sheet.

CONVERTIBLE SENIOR NOTES
CONVERTIBLE SENIOR NOTES

10 — CONVERTIBLE SENIOR NOTES

 

The Company issued $125,000 of 5.0% Convertible Senior Notes on July 27, 2010 (the “2010 Notes”).  The 2010 Notes mature on August 15, 2015 and are convertible into shares of the Company’s common stock at a conversion rate of approximately 51.0204 shares of common stock per (in whole dollars) $1,000 principal amount of the 2010 Notes (equivalent to an initial conversion price of $19.60 per share, representing a 22.5% conversion premium over the concurrent offering price of $16.00 per share of the Company’s common stock on July 21, 2010), subject to adjustment, based on the occurrence of certain events, including, but not limited to, (i) the issuance of certain dividends on our common stock, (ii) the issuance of certain rights, options or warrants, (iii) the effectuation of share splits or combinations, (iv) certain distributions of property and (v) certain issuer tender or exchange offers as described in the Indenture, with the amount due on conversion payable in shares, cash, or a combination thereof at the Company’s discretion.  The total underlying shares of the 2010 Notes are 6,377,551 shares of common stock.  Since the Company can settle a conversion of the 2010 Notes with shares, cash, or a combination thereof at its discretion, the Company allocated the convertible debt proceeds between the liability component and the embedded conversion option (i.e., the equity component). The liability component of the debt instrument is being accreted to par value using the effective interest method over the remaining life of the debt. This accretion is reported as a component of interest expense. The equity component is not subsequently revalued as long as it continues to qualify for equity treatment.

 

Upon issuance, the Company estimated the fair value of the liability component of the 2010 Notes, assuming a 10% non-convertible borrowing rate, to be $100,625 and the fair value of the conversion option to be $24,375. This amount was recorded as a debt discount and as an increase to additional paid-in capital as of the issuance date and the Company proportionately allocated approximately $918 of issuance costs against this equity component. The issuance costs allocated to the liability component of $3,637 along with the debt discount is being amortized to interest expense over the approximate 5-year period to the maturity of the 2010 Notes on August 15, 2015 resulting in additional interest expense in future periods.  The issuance cost allocated to the liability component has been recorded as deferred financing costs; refer to Note 15 — Other Assets, Net.

 

The 2010 Notes were issued pursuant to an indenture, dated as of July 27, 2010 (the “Base Indenture”), by and between the Company and The Bank of New York Mellon, as trustee (the “Trustee”), supplemented by the First Supplemental Indenture dated as of June 27, 2010, by and between the Company and the Trustee (the “Supplemental Indenture,” and together with the Base Indenture, the “Indenture”).  The 2010 Notes are represented by a global security, executed by the Company, in the form attached to the Supplemental Indenture.  Interest is payable semi-annually in arrears on February 15 and August 15 of each year, which began on February 15, 2011. The 2010 Notes will mature on August 15, 2015, subject to earlier repurchase or conversion upon the occurrence of certain events. Holders may convert their 2010 Notes before February 15, 2015, only in certain circumstances determined by (i) the market price of the Company’s common stock, (ii) the trading price of the 2010 Notes, or (iii) the occurrence of specified corporate events.  The 2010 Notes are subject to repurchase by the Company at the option of the holders following a fundamental change, as defined in the Indenture, including, but not limited to, (i) certain ownership changes, (ii) certain recapitalizations, mergers and dispositions, (iii) approval of any plan or proposal for the liquidation, or dissolution of the Company, and (iv) the Company’s common stock ceasing to be listed on any of the New York Stock Exchange or the Nasdaq Global Select Market, any of their respective successors or any other U.S. national securities exchange, at a price equal to 100% of the principal amount of the 2010 Notes plus accrued and unpaid interest up to the fundamental change repurchase date.  After February 15, 2015, holders may convert their 2010 Notes at any time thereafter until the second scheduled trading day preceding maturity.

 

The Indenture includes customary agreements and covenants by the Company, including with respect to events of default.

 

The following tables provide additional information about the Company’s 2010 Notes.

 

 

 

December 31, 2012

 

December 31,2011

 

Carrying amount of the equity component (additional paid-in capital)

 

$

24,375

 

$

24,375

 

Principal amount of the 2010 Notes

 

125,000

 

125,000

 

Unamortized discount of the liability component

 

14,082

 

18,619

 

Net carrying amount of the liability component

 

110,918

 

106,381

 

 

 

 

Years Ended December 31,

 

 

 

2012

 

2011

 

2010

 

Effective interest rate on liability component

 

10.0

%

10.0

%

10.0

%

Cash interest expense recognized

 

$

6,263

 

$

6,231

 

$

2,662

 

Non-cash interest expense recognized

 

4,537

 

4,072

 

1,684

 

Non-cash deferred financing amortization costs included in interest expense

 

722

 

720

 

311

 

 

The remaining period over which the unamortized discount will be recognized is 2.6 years. As of December 31, 2012, the if-converted value of the 2010 Notes does not exceed their principal amount.

 

Due to the 2015 maturity of the 2010 Notes and the Company’s intent to hold the 2010 Notes until maturity, the 2010 Notes have been classified as a noncurrent liability in the consolidated balance sheets as of December 31, 2012 and 2011.

INTEREST RATE SWAP AGREEMENTS
INTEREST RATE SWAP AGREEMENTS

11 - INTEREST RATE SWAP AGREEMENTS

 

The Company had five and eight interest rate swap agreements with DnB NOR Bank ASA to manage interest costs and the risk associated with variable interest rates related to the Company’s 2007 Credit Facility, which were outstanding at December 31, 2012 and 2011, respectively.  The total notional principal amount of the swaps at December 31, 2012 and 2011 is $356,233 and $606,233, respectively, and the swaps have specified rates and durations.

 

The following table summarizes the interest rate swaps designated as cash flow hedges that are in place as of December 31, 2012 and 2011:

 

Interest Rate Swap Detail

 

December 31,
2012

 

December 31,
2011

 

Trade
Date

 

Fixed
Rate

 

Start Date
of Swap

 

End date
of Swap

 

Notional
Amount
Outstanding

 

Notional
Amount
Outstanding

 

9/6/05

 

4.485

%

9/14/05

 

7/29/15

 

$

106,233

 

$

106,233

 

3/29/06

 

5.25

%

1/2/07

 

1/1/14

 

50,000

 

50,000

 

3/24/06

 

5.075

%

1/2/08

 

1/2/13

 

50,000

 

50,000

 

8/9/07

 

5.07

%

1/2/08

 

1/3/12

 

 

100,000

 

8/16/07

 

4.985

%

3/31/08

 

3/31/12

 

 

50,000

 

8/16/07

 

5.04

%

3/31/08

 

3/31/12

 

 

100,000

 

1/9/09

 

2.05

%

1/22/09

 

1/22/14

 

100,000

 

100,000

 

2/11/09

 

2.45

%

2/23/09

 

2/23/14

 

50,000

 

50,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

356,233

 

$

606,233

 

 

The differentials to be paid or received for these swap agreements are recognized as an adjustment to interest expense as incurred.  The Company is currently utilizing cash flow hedge accounting for these swaps whereby the effective portion of the change in value of the swaps is reflected as a component of AOCI.  The ineffective portion is recognized as other expense, which is a component of other (expense) income.

 

The interest expense pertaining to the interest rate swaps for the years ended December 31, 2012, 2011 and 2010 was $13,440, $28,854 and $30,204, respectively.

 

The swap agreements, with effective dates prior to December 31, 2012, synthetically convert variable rate debt to fixed rate debt at the fixed interest rate of the swap plus the Applicable Margin, as defined in the “2007 Credit Facility” section above in Note 9 — Long-Term Debt.

 

The following table summarizes the derivative asset and liability balances at December 31, 2012 and 2011:

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance

 

Fair Value

 

Balance

 

Fair Value

 

 

 

Sheet
Location

 

December 31,
2012

 

December
31, 2011

 

Sheet
Location

 

December 31,
2012

 

December
31, 2011

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Fair value of derivative instruments (Current Assets)

 

$

 

$

 

Fair value of derivative instruments (Current Liabilities)

 

$

7

 

$

1,686

 

Interest rate contracts

 

Fair value of derivative instruments (Noncurrent Assets)

 

 

 

Fair value of derivative instruments (Noncurrent Liabilities)

 

16,045

 

23,654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives designated as hedging instruments

 

 

 

$

 

$

 

 

 

$

16,052

 

$

25,340