GENCO SHIPPING & TRADING LTD, 10-Q filed on 5/10/2013
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2013
May 10, 2013
Document and Entity Information
 
 
Entity Registrant Name
GENCO SHIPPING & TRADING LTD 
 
Entity Central Index Key
0001326200 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2013 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
44,263,523 
Document Fiscal Year Focus
2013 
 
Document Fiscal Period Focus
Q1 
 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Current assets:
 
 
Cash and cash equivalents
$ 55,049 
$ 72,600 
Restricted cash
9,850 
 
Due from charterers, net of a reserve of $484 and $488, respectively
12,141 
11,714 
Prepaid expenses and other current assets
20,327 
18,146 
Total current assets
97,367 
102,460 
Noncurrent assets:
 
 
Vessels, net of accumulated depreciation of $629,953 and $597,214, respectively
2,629,691 
2,662,403 
Deferred drydock, net of accumulated amortization of $9,010 and $8,086, respectively
11,909 
12,037 
Other assets, net of accumulated amortization of $14,997 and $13,162, respectively
27,726 
29,561 
Fixed assets, net of accumulated depreciation and amortization of $3,539 and $3,311, respectively
5,092 
5,258 
Other noncurrent assets
514 
514 
Restricted cash
300 
10,150 
Investments
30,591 
20,988 
Total noncurrent assets
2,705,823 
2,740,911 
Total assets
2,803,190 
2,843,371 
Current liabilities:
 
 
Accounts payable and accrued expenses
23,833 
23,667 
Current portion of long-term debt
1,312,189 
 
Current interest payable
13,199 
 
Convertible senior note payable
112,097 
 
Deferred revenue
1,088 
1,324 
Current portion of lease obligations
614 
682 
Fair value of derivative instruments
13,754 
Total current liabilities
1,476,774 
25,680 
Noncurrent liabilities:
 
 
Long-term lease obligations
2,658 
2,465 
Time charters acquired
286 
418 
Fair value of derivative instruments
 
16,045 
Convertible senior note payable
 
110,918 
Long-term interest payable
 
13,199 
Long-term debt
101,250 
1,413,439 
Total noncurrent liabilities
104,194 
1,556,484 
Total liabilities
1,580,968 
1,582,164 
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 shares at March 31, 2013 and December 31, 2012
443 
443 
Additional paid-in capital
864,120 
863,303 
Accumulated other comprehensive income (loss)
63 
(11,841)
Retained earnings
166,226 
214,391 
Total Genco Shipping & Trading Limited shareholders' equity
1,030,852 
1,066,296 
Noncontrolling interest
191,370 
194,911 
Total equity
1,222,222 
1,261,207 
Total liabilities and equity
$ 2,803,190 
$ 2,843,371 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Condensed Consolidated Balance Sheets
 
 
Due from charterers, reserve
$ 484 
$ 488 
Vessels, accumulated depreciation
629,953 
597,214 
Deferred drydock, accumulated amortization
9,010 
8,086 
Other assets, accumulated amortization
14,997 
13,162 
Fixed assets, accumulated depreciation and amortization
$ 3,539 
$ 3,311 
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 
44,270,273 
Common stock, shares outstanding (in shares)
44,270,273 
44,270,273 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Revenues:
 
 
Voyage revenues
$ 39,676 
$ 59,025 
Service revenues
810 
819 
Total revenues
40,486 
59,844 
Operating expenses:
 
 
Voyage expenses
1,272 
1,410 
Vessel operating expenses
27,119 
27,834 
General, administrative, and management fees
8,191 
8,696 
Depreciation and amortization
34,378 
34,425 
Total operating expenses
70,960 
72,365 
Operating loss
(30,474)
(12,521)
Other (expense) income:
 
 
Other income (expense)
19 
(16)
Interest income
18 
155 
Interest expense
(21,289)
(23,730)
Other expense
(21,252)
(23,591)
Loss before income taxes
(51,726)
(36,112)
Income tax expense
(224)
(271)
Net loss
(51,950)
(36,383)
Less: Net loss attributable to noncontrolling interest
(3,787)
(3,312)
Net loss attributable to Genco Shipping & Trading Limited
$ (48,163)
$ (33,071)
Net loss per share-basic (in dollars per share)
$ (1.12)
$ (0.87)
Net loss per share-diluted (in dollars per share)
$ (1.12)
$ (0.87)
Weighted average common shares outstanding-basic (in shares)
43,161,510 
38,090,590 
Weighted average common shares outstanding-diluted (in shares)
43,161,510 
38,090,590 
Dividends declared per share (in dollars per share)
$ 0 
 
Condensed Consolidated Statements of Comprehensive Loss (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Condensed Consolidated Statements of Comprehensive Loss
 
 
Net loss
$ (51,950)
$ (36,383)
Change in unrealized gain on investments
9,603 
7,814 
Unrealized gain on cash flow hedges, net
2,301 
2,753 
Other Comprehensive income
11,904 
10,567 
Comprehensive loss
(40,046)
(25,816)
Less: Comprehensive loss attributable to noncontrolling interest
(3,787)
(3,312)
Comprehensive loss attributable to Genco Shipping & Trading Limited
$ (36,259)
$ (22,504)
Condensed 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, 2011
$ 1,361,618 
$ 1,151,606 
$ 363 
$ 809,443 
$ (17,549)
$ 359,349 
$ 210,012 
Increase (Decrease) in Shareholders' Equity
 
 
 
 
 
 
 
Net loss
(36,383)
(33,071)
 
 
 
(33,071)
(3,312)
Change in unrealized gain on investments
7,814 
7,814 
 
 
7,814 
 
 
Unrealized gain on cash flow hedges, net
2,753 
2,753 
 
 
2,753 
 
 
Issuance of 7,500,000 shares of common stock
49,870 
49,870 
75 
49,795 
 
 
 
Nonvested stock amortization
1,650 
1,078 
 
1,078 
 
 
572 
Cash dividends paid by Baltic Trading Limited
(2,212)
(20)
 
 
 
(20)
(2,192)
Vesting of restricted shares issued by Baltic Trading Limited
 
49 
 
49 
 
 
(49)
Balance at Mar. 31, 2012
1,385,110 
1,180,079 
438 
860,365 
(6,982)
326,258 
205,031 
Balance at Dec. 31, 2012
1,261,207 
1,066,296 
443 
863,303 
(11,841)
214,391 
194,911 
Increase (Decrease) in Shareholders' Equity
 
 
 
 
 
 
 
Net loss
(51,950)
(48,163)
 
 
 
(48,163)
(3,787)
Change in unrealized gain on investments
9,603 
9,603 
 
 
9,603 
 
 
Unrealized gain on cash flow hedges, net
2,301 
2,301 
 
 
2,301 
 
 
Forfeiture of 6,750 shares of nonvested stock
 
 
 
 
 
 
Nonvested stock amortization
1,233 
769 
 
769 
 
 
464 
Cash dividends paid by Baltic Trading Limited
(172)
(2)
 
 
 
(2)
(170)
Vesting of restricted shares issued by Baltic Trading Limited
 
48 
 
48 
 
 
(48)
Balance at Mar. 31, 2013
$ 1,222,222 
$ 1,030,852 
$ 443 
$ 864,120 
$ 63 
$ 166,226 
$ 191,370 
Condensed Consolidated Statements of Equity (Parenthetical)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Condensed Consolidated Statements of Equity
 
 
Issuance of common stock
 
7,500,000 
Forfeiture of shares of nonvested stock
6,750 
 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Cash flows from operating activities:
 
 
Net loss
$ (51,950)
$ (36,383)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
Depreciation and amortization
34,378 
34,425 
Amortization of deferred financing costs
1,835 
980 
Amortization of time charters acquired
(132)
(186)
Amortization of discount on Convertible Senior Notes
1,179 
1,090 
Unrealized loss (gain) on derivative instruments
(27)
Amortization of nonvested stock compensation expense
1,233 
1,650 
Change in assets and liabilities:
 
 
(Increase) decrease in due from charterers
(427)
2,449 
Increase in prepaid expenses and other current assets
(2,181)
(2,878)
Increase (decrease) in accounts payable and accrued expenses
89 
(4,987)
Decrease in deferred revenue
(236)
(534)
Increase in lease obligations
125 
398 
Deferred drydock costs incurred
(1,283)
(3,966)
Net cash used in operating activities
(17,366)
(7,969)
Cash flows from investing activities:
 
 
Purchase of vessels
 
(319)
Purchase of other fixed assets
(13)
(1,228)
Net cash used in investing activities
(13)
(1,547)
Cash flows from financing activities:
 
 
Repayments on the 2007 Credit Facility
 
(12,500)
Proceeds from issuance of common stock
 
50,721 
Payment of common stock issuance costs
 
(632)
Payment of dividend by subsidiary
(172)
(2,212)
Payment of deferred financing costs
 
(147)
Net cash (used in) provided by financing activities
(172)
28,231 
Net (decrease) increase in cash and cash equivalents
(17,551)
18,715 
Cash and cash equivalents at beginning of period
72,600 
227,968 
Cash and cash equivalents at end of period
55,049 
246,683 
$100 Million Term Loan Facility
 
 
Cash flows from financing activities:
 
 
Repayments on Term Loan Facility
 
(1,924)
$253 Million Term Loan Facility
 
 
Cash flows from financing activities:
 
 
Repayments on Term Loan Facility
 
$ (5,075)
Condensed Consolidated Statements of Cash Flows (Parenthetical) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Mar. 31, 2012
$100 Million Term Loan Facility
 
 
 
Term Loan Facility
 
 
 
Term Loan Facility
$ 100,000 
$ 100,000 
$ 100,000 
$253 Million Term Loan Facility
 
 
 
Term Loan Facility
 
 
 
Term Loan Facility
$ 253,000 
$ 253,000 
$ 253,000 
GENERAL INFORMATION
GENERAL INFORMATION

1 - GENERAL INFORMATION

 

The accompanying condensed 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 March 31, 2013, 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.

 

Below is the list of GS&T’s wholly owned ship-owning subsidiaries as of March 31, 2013:

 

Wholly Owned Subsidiaries

 

Vessel Acquired

 

Dwt

 

Delivery Date

 

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

 

5/12/11

 

2011

Genco Mare Limited

 

Genco Mare

 

34,428

 

7/20/11

 

2011

Genco Spirit Limited

 

Genco Spirit

 

34,432

 

11/10/11

 

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

 

3/29/11

 

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 March 31, 2013 and December 31, 2012, Genco Investments LLC owned 5,699,088 shares of Baltic Trading’s Class B Stock, which represented a 24.78% ownership interest in Baltic Trading and 83.17% of the aggregate voting power of Baltic Trading’s outstanding shares of voting stock.  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 March 31, 2013:

 

Baltic Trading’s Wholly Owned
Subsidiaries

 

Vessel Acquired

 

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 LLC (“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.

 

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, once current waivers expire and are re-measured at March 31, 2014, the Company believes it is probable that the Company will not be in compliance with the maximum leverage ratio covenants under its credit facilities, and the Company may also not be in compliance with its minimum permitted consolidated interest ratio covenants under its credit facilities.  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 the Company believes it is probable that the Company will not be in compliance with such covenants at or after March 31, 2014, and the Company may not be in compliance earlier in the event of sustained weakness in the drybulk shipping sector.  The Company’s debt facilities are described further in Note 9 - Debt.

 

The Company is in discussions with its lenders and expects to seek waivers or modifications to its credit agreements, which may be subject to conditions, and may also seek to refinance indebtedness, raise additional capital through equity or debt offerings or selling assets (including vessels), reduce or delay capital expenditures, or pursue other restructuring options.  Absent such waivers or modifications, if the Company does not comply with such payment obligations or these covenants and fails to cure such non-compliance following applicable notice and expiration of applicable cure periods, the Company would 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, or the 2010 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 accordance with GAAP, the Company is required to assess future compliance with the original covenants at all quarterly measurement dates within twelve months from March 31, 2013. As discussed above, the Company believes it is probable that the Company will not be in compliance with certain covenants at measurement dates within twelve months of March 31, 2013.  Accordingly, the outstanding debt as of March 31, 2013 under the 2007 Credit Facility, the $253 Million Term Loan Facility and the $100 Million Term Loan Facility (as defined in Note 9 — Debt) has been reclassified as a current liability in the condensed consolidated balance sheet as of March 31, 2013.  This reclassification does not affect the existing waivers, although there can be no assurance that the Company could obtain further waivers upon their expiration.  If the Company fails to comply with its covenants under its credit facilities, the Company may also be in default under the Indenture for the 2010 Notes and its interest rate swaps.   Accordingly, the 2010 Notes and one swap previously classified as a long-term liability have likewise been reclassified as current liabilities in the condensed consolidated balance sheet as of March 31, 2013.

 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of consolidation

 

The accompanying condensed 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.

 

Basis of presentation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).  In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and operating results have been included in the statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.  These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2012 (the “2012 10-K”).  The results of operations for the period ended March 31, 2013 and 2012 are not necessarily indicative of the operating results for the full year.

 

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 three months ended March 31, 2013 and 2012 was $32,739 and $33,091, 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 estimated scrap value of $245/lwt times the weight of the ship in lightweight tons (lwt).

 

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. As of March 31, 2013 and December 31, 2012, the Company had an accrual of $318 and $407, respectively, related to these estimated customer claims.

 

Voyage expense recognition

 

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 $364 and $720 during the three months ended March 31, 2013 and 2012, respectively.  Additionally, voyage expenses include the cost of bunkers consumed during short-term time charters pursuant to the terms of the time charter agreement.

 

Noncontrolling interest

 

Net loss attributable to noncontrolling interest during the three months ended March 31, 2013 and 2012 reflects the noncontrolling interest’s share of the net loss of Baltic Trading, a subsidiary of the Company, which owns and employs drybulk vessels in the spot market or on spot market-related time charters.  The spot market represents immediate chartering of a vessel, usually for single voyages.  At March 31, 2013 and December 31, 2012, the noncontrolling interest held a 75.22% economic interest in Baltic Trading while only holding 16.83% of the voting power.

 

Income taxes

 

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 three months ended March 31, 2013 and 2012 was $1,490 and $1,514, respectively, of which $680 and $695, respectively, eliminated upon consolidation.  After allocation of certain expenses, there was taxable income of $592 associated with these activities for the three months ended March 31, 2013.  This resulted in estimated tax expense of $224 for the three months ended March 31, 2013.  After allocation of certain expenses, there was taxable income of $593 associated with these activities for the three months ended March 31, 2012.  This resulted in income tax expense of $264 for the three months ended March 31, 2012.

 

Baltic Trading is subject to income tax on its United States source income.  During the three months ended March 31, 2013, Baltic Trading did not earn any United States source income, therefore there was no income tax expense for the three months ended March 31, 2013.  During the three months ended March 31, 2012, Baltic Trading had United States operations which resulted in United States source income of $366.  Baltic Trading’s United States income tax expense for the three months ended March 31, 2012 was $7.

 

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 (loss) (“OCI”) and items reclassified out of accumulated other income (loss) (“AOCI”).  The amendments in ASU 2013-02 are required to be applied prospectively 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.  The Company has adopted ASU 2013-02 and the impact of adoption is not material to the Company’s condensed consolidated financial statements.  Refer to Note 12 — Other Comprehensive Income (Loss) for additional disclosure.

 

SEGMENT INFORMATION
SEGMENT INFORMATION

3 - SEGMENT INFORMATION

 

The Company determines its operating 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 for 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 condensed consolidated financial statements.

 

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 three months ended March 31, 2013 and 2012.

 

 

 

For the Three Months Ended
March 31,

 

 

 

2013

 

2012

 

Voyage Revenue from External Customers

 

 

 

 

 

GS&T

 

$

33,690

 

$

52,731

 

Baltic Trading

 

5,986

 

6,294

 

Total operating segments

 

39,676

 

59,025

 

Eliminating revenue

 

 

 

Total consolidated voyage revenue from external customers

 

$

39,676

 

$

59,025

 

 

The following table presents a reconciliation of total intersegment revenue, which eliminates upon consolidation, for the Company’s two operating segments for the three months ended March 31, 2013 and 2012. 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 Three Months Ended
March 31,

 

 

 

2012

 

2011

 

Intersegment revenue

 

 

 

 

 

GS&T

 

$

680

 

$

695

 

Baltic Trading

 

 

 

Total operating segments

 

680

 

695

 

Eliminating revenue

 

(680

)

(695

)

Total consolidated intersegment revenue

 

$

 

$

 

 

The following table presents a reconciliation of total net loss for the Company’s two operating segments to total consolidated net loss for the three months ended March 31, 2013 and 2012. The eliminating net loss 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 Three Months Ended
March 31,

 

 

 

2012

 

2011

 

Net loss

 

 

 

 

 

GS&T

 

$

(46,848

)

$

(31,224

)

Baltic Trading

 

(5,083

)

(4,456

)

Total operating segments

 

(51,931

)

(35,680

)

Eliminating net loss

 

19

 

703

 

Total consolidated net loss

 

$

(51,950

)

$

(36,383

)

 

The following table presents a reconciliation of total assets for the Company’s two operating segments to total consolidated assets as of March 31, 2013 and December 31, 2012. 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 March 31, 2013 and December 31, 2012.

 

 

 

March 31, 2013

 

December 31,
2012

 

Total assets

 

 

 

 

 

GS&T

 

$

2,447,215

 

$

2,482,486

 

Baltic Trading

 

359,431

 

364,370

 

Total operating segments

 

2,806,646

 

2,846,856

 

Eliminating assets

 

(3,456

)

(3,485

)

Total consolidated assets

 

$

2,803,190

 

$

2,843,371

 

 

CASH FLOW INFORMATION
CASH FLOW INFORMATION

4 - CASH FLOW INFORMATION

 

As of March 31, 2013 and December 31, 2012, the Company had four and five interest rate swaps, respectively, which are described and discussed in Note 11 — Interest Rate Swap Agreements. At March 31, 2013, the fair values of the four swaps are in a liability position of $13,754, all of which was classified within current liabilities.  At December 31, 2012, the five swaps were in a liability position of $16,052, $7 of which was classified within current liabilities.

 

For the three months ended March 31, 2013, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $27 for the purchase of vessel related equipment and $48 for the purchase of other fixed assets.  For the three months ended March 31, 2013, the Company had non-cash financing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in current interest payable consisting of $13,199 associated with deferred financing fees.

 

For the three months ended March 31, 2012, the Company had non-cash investing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $226 for the purchase of vessel related equipment and $428 for the purchase of other fixed assets.  Additionally, for the three months ended March 31, 2012, the Company had non-cash financing activities not included in the Condensed Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses consisting of $30 associated with deferred financing fees and $219 associated with common stock issuance costs related to the equity offering completed on February 28, 2012.

 

During the three months ended March 31, 2013 and 2012, cash paid for interest,  including bond coupon interest paid, was $20,795 and $25,559, respectively.

 

During the three months ended March 31, 2013 and 2012, cash paid for estimated income taxes was $103 and $134, respectively.

 

VESSEL ACQUISITIONS AND DISPOSITIONS
VESSEL ACQUISITIONS AND DISPOSITIONS

5 - VESSEL ACQUISITIONS AND DISPOSITIONS

 

Refer to Note 1 — General Information for a listing of the vessel delivery dates for the vessels in the Company’s fleet.

 

Below market time charters, including those acquired during previous periods, were amortized as an increase to voyage revenue in the amount of $132 and $186 for the three months ended March 31, 2013 and 2012, respectively.

 

INVESTMENTS
INVESTMENTS

6 - 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 AOCI.  At March 31, 2013 and December 31, 2012, the Company held 16,335,100 shares of Jinhui capital stock which is recorded at its fair value of $30,591 and $20,988, respectively, based on the last closing price during each respective quarter on March 27, 2013 and December 28, 2012, respectively.

 

The Company reviews the investment in Jinhui for other than temporary impairment on a quarterly basis.  There were no impairment charges recognized for the three months ended March 31, 2013 and 2012.

 

The unrealized gain on the Jinhui capital stock remains a component of AOCI, since this investment is designated as an AFS security.

 

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

 

NET LOSS PER COMMON SHARE
NET LOSS PER COMMON SHARE

7 — NET LOSS PER COMMON SHARE

 

The computation of basic net loss per share is based on the weighted-average number of common shares outstanding during the year. The computation of diluted net loss per share assumes the vesting of nonvested stock awards (refer to Note 20 — 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 1,102,012 nonvested shares outstanding at March 31, 2013 (refer to Note 20 — Nonvested Stock Awards), all are anti-dilutive.  The Company’s diluted net loss 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 per share and diluted net loss per share are as follows:

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

Common shares outstanding, basic:

 

 

 

 

 

Weighted-average common shares outstanding, basic

 

43,161,510

 

38,090,590

 

 

 

 

 

 

 

Common shares outstanding, diluted:

 

 

 

 

 

Weighted-average common shares outstanding, basic

 

43,161,510

 

38,090,590

 

 

 

 

 

 

 

Dilutive effect of convertible notes

 

 

 

 

 

 

 

 

 

Dilutive effect of restricted stock awards

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding, diluted

 

43,161,510

 

38,090,590

 

 

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

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

Net loss attributable to GS&T

 

$

(48,163

)

$

(33,071

)

 

 

 

 

 

 

Interest expense related to convertible notes, if dilutive

 

 

 

 

 

 

 

 

 

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

 

$

(48,163

)

$

(33,071

)

 

RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS

8 - RELATED PARTY TRANSACTIONS

 

The following represent related party transactions reflected in these condensed 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 three months ended March 31, 2013 and 2012, the Company invoiced $35 and $48, respectively, to GMC, which includes time associated with such internal audit services and other expenditures.  Additionally, during the three months ended March 31, 2013 and 2012, the Company incurred travel and other office related expenditures totaling $27 and $4, respectively, reimbursable to GMC or its service provider.  At March 31, 2013 and December 31, 2012, the amount due to GMC from the Company was $4 and $12, respectively.

 

During the three months ended March 31, 2013 and 2012, the Company incurred legal services aggregating $0 and $3, respectively, from Constantine Georgiopoulos, the father of Peter C. Georgiopoulos, Chairman of the Board.  There are no amounts due to Constantine Georgiopoulos at March 31, 2013 and December 31, 2012.

 

GS&T and Baltic Trading have entered into agreements with Aegean Marine Petroleum Network, Inc. (“Aegean”) to purchase lubricating oils for certain vessels in their fleets.  Peter C. Georgiopoulos, Chairman of the Board of the Company, is Chairman of the Board of Aegean.  During the three months ended March 31, 2013 and 2012, Aegean supplied lubricating oils to the Company’s vessels aggregating $565 and $499, respectively.  At March 31, 2013 and December 31, 2012, $216 and $278 remained outstanding, respectively.

 

During the three months ended March 31, 2013 and 2012, the Company invoiced MEP for technical services provided and expenses paid on MEP’s behalf aggregating $832 and $846, respectively.  Peter C. Georgiopoulos, Chairman of the Board, controls and has a minority interest in MEP.  At March 31, 2013 and December 31, 2012, $13 and $5, respectively, was due to the Company from MEP.  Total service revenue earned by the Company for technical service provided to MEP for the three months ended March 31, 2013 and 2012 was $810 and $819, respectively.

 

DEBT
DEBT

9 - DEBT

 

Long-term debt consists of the following:

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

 

 

 

 

2007 Credit Facility

 

$

1,055,912

 

$

1,055,912

 

$100 Million Term Loan Facility

 

75,484

 

75,484

 

$253 Million Term Loan Facility

 

180,793

 

180,793

 

2010 Baltic Trading Credit Facility

 

101,250

 

101,250

 

Less: Current portion

 

(1,312,189

)

 

 

 

 

 

 

 

Long-term debt

 

$

101,250

 

$

1,413,439

 

 

2007 Credit Facility

 

On July 20, 2007, the Company entered into a credit facility with DnB NOR Bank ASA (as amended, the “2007 Credit Facility”). The maximum amount that may be borrowed under the 2007 Credit Facility at March 31, 2013 is $1,055,912.  As of March 31, 2013, the Company has utilized its maximum borrowing capacity under the 2007 Credit Facility.

 

The collateral maintenance financial covenant, maximum leverage ratio covenant and minimum permitted consolidated interest ratio covenants are currently waived for the periods ending on and including December 31, 2013 pursuant to the August 1, 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 “August 2012 Agreements”).  The Company’s cash dividends and share repurchases have been suspended until the collateral maintenance financial covenant can be satisfied.

 

The gross interest-bearing debt to total capital covenant end during the period ending on and including December 31, 2013 pursuant to the August 2012 Agreements.   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.

 

Additionally, pursuant to the August 2012 Agreements, the total applicable margin over LIBOR payable on the principal amount of debt outstanding increased from 2.0% to 3.0% per annum.  The minimum cash balance required was also increased from $500 to $750 per vessel mortgaged under this facility pursuant to the August 2012 Agreements.

 

Pursuant to the amendment to the 2007 Credit Facility which was entered into on December 21, 2011, the Company was subject to a facility fee of 2.0% per annum on the average daily outstanding principal amount of the loans outstanding, payable quarterly in arrears, which was subject to a reduction to 1.0% if the Company consummated an equity offering resulting in an aggregate amount of $50,000 of gross proceeds.  On February 28, 2012, the Company completed an equity offering of 7,500,000 shares which resulted in gross proceeds of $53,250.  As such, effective February 28, 2012, the facility fee was reduced to 1.0%.

 

As of March 31, 2013, the Company believes it is in compliance with all of the financial covenants under its 2007 Credit Facility, as amended.  However, as of March 31, 2013, the Company believes it is probable that the Company will not be in compliance with certain covenants at measurement dates within the next twelve months.  As such, the debt outstanding under this facility of $1,055,912 has been classified as a current liability.

 

At March 31, 2013, there were no letters of credit issued under the 2007 Credit Facility.

 

$100 Million Term Loan Facility

 

On August 12, 2010, the Company entered into the $100,000 secured term loan facility (“$100 Million Term Loan Facility”). As of March 31, 2013, the Company has utilized its maximum borrowing capacity as $100,000 of drawdowns have been made. The Company has used the $100 Million Term Loan Facility to fund or refund the Company a portion of the purchase price of the acquisition of five vessels from companies within the Metrostar group of companies.  As of March 31, 2013, there was no availability under the $100 Million Term Loan Facility.

 

Pursuant to the amendments to the $100 Million Term Loan Facility that were entered into on December 21, 2011 and the August 2012 Agreements, the maximum leverage ratio covenant and the minimum permitted consolidated interest ratio covenant are currently waived for the periods ending on and including December 31, 2013.

 

As of March 31, 2013, the Company believes it is in compliance with all of the financial covenants under the $100 Million Term Loan Facility, as amended.  However, as of March 31, 2013, the Company believes it is probable that the Company will not be in compliance with certain covenants at measurement dates within the next twelve months.  As such, the debt outstanding under this facility of $75,484 has been classified as a current liability.

 

$253 Million Term Loan Facility

 

On August 20, 2010, the Company entered into the $253,000 senior secured term loan facility (“$253 Million Term Loan Facility”).  As of March 31, 2013, the company has utilized its maximum borrowing capacity as $253,000 of drawdowns have been made to fund or refund to the Company a portion of the purchase price of the 13 vessels purchased from Bourbon SA during the third quarter of 2010 and first quarter of 2011.  As of March 31, 2013, there was no availability under the $253 Million Term Loan Facility.

 

Pursuant to the amendment to the $253 Million Term Loan Facility that was entered into on December 21, 2011 and August 1, 2012, the maximum leverage ratio covenant and the minimum permitted consolidated interest ratio covenant are currently waived for the periods ending on and including December 31, 2013.

 

As of March 31, 2013 and December 31, 2012, the Company has 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.

 

As of March 31, 2013, the Company believes it is in compliance with all of the financial covenants under the $253 Million Term Loan Facility, as amended.  However, as of March 31, 2013, the Company believes it is probable that the Company will not be in compliance with certain covenants at measurement dates within the next twelve months.  As such, the debt outstanding under this facility of $180,793 has been classified as a current liability and the restricted cash related to this facility has been classified as a current asset.

 

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.  Among other things, this amendment increased the commitment amount of the 2010 Baltic Trading Credit Facility from $100,000 to $150,000.  As of March 31, 2013, total available working capital borrowings were $23,500 as $1,500 was drawn down during 2010 for working capital purposes.  The total available working capital borrowings is subject to the total remaining availability under the 2010 Baltic Trading Credit Facility.  On May 9, 2013, Baltic Trading drew down an additional $1,000 for working capital purposes.   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.  As of March 31, 2013, $28,750 remained available under the 2010 Credit Facility as the total commitment was reduced to $130,000 on November 30, 2012.

 

As of March 31, 2013, the Company believes Baltic Trading is in compliance with all of the financial covenants under the 2010 Baltic Trading Credit Facility.

 

Interest payable

 

As required under the August 2012 Agreements, 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 condensed consolidated balance sheet at March 31, 2013 as a current liability, consistent with the classification of the principal amount of the 2007 Credit Facility.

 

Interest rates

 

The following tables 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, 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:

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

Effective Interest Rate

 

4.73

%

5.05

%

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

 

3.20% to 4.38

%

3.24% to 4.63

%

 

CONVERTIBLE SENIOR NOTES
CONVERTIBLE SENIOR NOTES

10 — CONVERTIBLE SENIOR NOTES

 

The Company issued $125,000 of the 2010 Notes on July 27, 2010.  The Indenture for the 2010 Notes 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:

 

 

 

March 31, 2013

 

December 31,
2012

 

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

 

12,903

 

14,082

 

Net carrying amount of the liability component

 

112,097

 

110,918

 

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

Effective interest rate on liability component

 

10.0

%

10.0

%

Cash interest expense recognized

 

$

1,541

 

$

1,562

 

Non-cash interest expense recognized

 

1,179

 

1,091

 

Non-cash deferred financing amortization costs included in interest expense

 

177

 

179

 

 

The remaining period over which the unamortized discount will be recognized is 2.38 years. As of March 31, 2013, the if-converted value of the 2010 Notes does not exceed their principal amount.

 

As of March 31, 2013, the Company believes it is probable that the Company will not be in compliance with certain covenants under its credit facilities at measurement dates within the next twelve months.  If such a default occurs, the Company may also be in default under the Indenture for the 2010 Notes.  A default would occur under the Indenture, following applicable notice and expiration of applicable cure periods, if the Company fails to pay indebtedness in excess of $50 million at final maturity (or when otherwise due) or if such indebtedness is accelerated.  As such, the 2010 Notes have been classified as a current liability in the condensed consolidated balance sheet as of March 31, 2013.

INTEREST RATE SWAP AGREEMENTS
INTEREST RATE SWAP AGREEMENTS

11 - INTEREST RATE SWAP AGREEMENTS

 

As of March 31, 2013 and December 31, 2012, the Company had four and five interest rate swap agreements outstanding, respectively, 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. The total notional principal amount of the swaps at March 31, 2013 and December 31, 2012 was $306,233 and $356,233, respectively, and the swaps have specified rates and durations.

 

The following table summarizes the interest rate swaps designated as cash flow hedges that were in place as of March 31, 2013 and December 31, 2012:

 

 

 

 

 

 

 

 

 

March 31, 2013

 

December 31,
2012

 

Interest Rate Swap Detail

 

Notional

 

Notional

 

Trade

 

Fixed

 

Start Date

 

End date

 

Amount

 

Amount

 

Date

 

Rate

 

of Swap

 

of Swap

 

Outstanding

 

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

306,233

 

$

356,233

 

 

The following table summarizes the derivative asset and liability balances at March 31, 2013 and December 31, 2012:

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance

 

Fair Value

 

Balance

 

Fair Value

 

 

 

Sheet
Location

 

March 31,
2013

 

December
31, 2012

 

Sheet
Location

 

March 31,
2013

 

December
31, 2012

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Fair value of derivative instruments (Current Assets)

 

$

 

$

 

Fair value of derivative instruments (Current Liabilities)

 

$

13,754

 

$

7

 

Interest rate contracts

 

Fair value of derivative instruments (Noncurrent Assets)

 

 

 

Fair value of derivative instruments (Noncurrent Liabilities)

 

 

16,045

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives designated as hedging instruments

 

 

 

 

 

 

 

13,754

 

16,052

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Derivatives

 

 

 

$

 

$

 

 

 

$

13,754

 

$

16,052

 

 

As of March 31, 2013, the Company believes it is probable that the Company will not be in compliance with certain covenants under its credit facilities at measurement dates within the next twelve months.  If such a default occurs, the Company may also be in default under the terms of the interest rate swap agreements.  Accordingly, one swap previously classified as a long-term liability has been reclassified as a current liability in the condensed consolidated balance sheet as of March 31, 2013.

 

The following tables present the impact of derivative instruments and their location within the Condensed Consolidated Statement of Operations:

 

The Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations

For the Three-Month Period Ended March 31, 2013

 

Derivatives in Cash
Flow Hedging

 

Amount of
Gain (Loss)
Recognized
in AOCI on
Derivative
(Effective
Portion)

 

Location of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective

 

Amount of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective
Portion)

 

Location of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective

 

Amount of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion)

 

Relationships

 

2013

 

Portion)

 

2013

 

Portion)

 

2013

 

Interest rate contracts

 

$

(138

)

Interest Expense

 

$

(2,439

)

Other Income (Expense)

 

$

(4

)

 

The Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations

For the Three-Month Period Ended March 31, 2012

 

Derivatives in Cash
Flow Hedging

 

Amount of
Gain (Loss)
Recognized
in AOCI on
Derivative
(Effective
Portion)

 

Location of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective

 

Amount of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective
Portion)

 

Location of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective

 

Amount of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion)

 

Relationships

 

2012

 

Portion)

 

2012

 

Portion)

 

2012

 

Interest rate contracts

 

$

(1,779

)

Interest Expense

 

$

(4,532

)

Other Income (Expense)

 

$

27

 

 

At March 31, 2013, ($8,502) of AOCI is expected to be reclassified into interest expense over the next 12 months associated with interest rate derivatives.

 

The Company is required to provide collateral in the form of vessel assets to support the interest rate swap agreements, excluding vessel assets of Baltic Trading.  At March 31, 2013, the Company’s 35 vessels mortgaged under the 2007 Credit Facility served as collateral in the aggregate amount of $100,000.

 

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

12 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

 

The components of AOCI included in the accompanying condensed consolidated balance sheets consist of net unrealized gain (loss) on cash flow hedges and net unrealized gain on investments in Jinhui stock as of March 31, 2013 and December 31, 2012.

 

Changes in AOCI by Component

For the Three-Month Period Ended March 31, 2013

 

 

 

Net Unrealized
Gain (Loss) on
Cash Flow
Hedges

 

Net Unrealized
Gain
on
Investments

 

Total

 

AOCI — January 1, 2013

 

$

(16,057

)

$

4,216

 

$

(11,841

)

 

 

 

 

 

 

 

 

OCI before reclassifications

 

4,740

 

9,603

 

14,343

 

Amounts reclassified from AOCI

 

(2,439

)

 

(2,439

)

Net current-period OCI

 

2,301

 

9,603

 

11,904

 

 

 

 

 

 

 

 

 

AOCI — March 31, 2013

 

$

(13,756

)

$

13,819

 

$

63

 

 

Reclassifications Out of AOCI

For the Three-Month Period Ended March 31, 2013

 

Details about AOCI Components

 

Amount
Reclassified from
AOCI

 

Affected Line Item in
the Statement Where
Net Loss is Presented

 

Gains and losses on cash flow hedges

 

 

 

 

 

Interest rate contracts

 

$

2,439

 

Interest expense

 

 

 

 

 

 

 

Total reclassifications for the period

 

$

2,439

 

 

 

 

FAIR VALUE OF FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS

13 - FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The fair values and carrying values of the Company’s financial instruments at March 31, 2013 and December 31, 2012 which are required to be disclosed at fair value, but not recorded at fair value, are noted below.

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

Carrying
Value

 

Fair Value

 

Carrying
Value

 

Fair Value

 

Cash and cash equivalents

 

$

55,049

 

$

55,049

 

$

72,600

 

$

72,600

 

Restricted cash

 

10,150

 

10,150

 

10,150

 

10,150

 

Floating rate debt

 

1,413,439

 

1,413,439

 

1,413,439

 

1,413,439

 

2010 Notes

 

112,097

 

42,500

 

110,918

 

44,375

 

 

The fair value of the floating rate debt under the 2007 Credit Facility, $100 Million Term Loan Facility and $253 Million Term Loan Facility are based on management’s estimate utilizing rates the Company obtained on  August 1, 2012 when the Company entered into agreements to amend or waive certain provisions of these credit facilities.  The fair value of the 2010 Baltic Trading Credit Facility is based on management’s estimates of rates it could obtain.   Additionally, the Company considers its creditworthiness in determining the fair value of floating rate debt under the credit facilities.  The carrying value approximates the fair market value for these floating rate loans.  The fair value of the convertible senior notes payable represents the market value based on recent transactions of the 2010 Notes at March 31, 2013 and December 31, 2012 without bifurcating the value of the conversion option.  The fair value of the interest rate swaps is the estimated amount the Company would receive to terminate the swap agreements at the reporting date, taking into account current interest rates and the creditworthiness of both the swap counterparty and the Company.  The carrying amounts of the Company’s other financial instruments at March 31, 2013 and December 31, 2012 (principally Due from charterers and Accounts payable and accrued expenses), approximate fair values because of the relatively short maturity of these instruments.

 

The Accounting Standards Codification Subtopic 820-10, “Fair Value Measurements & Disclosures” (“ASC 820-10”), applies to all assets and liabilities that are being measured and reported on a fair value basis.  This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumption (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

 

·                  Level 1—Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment.

 

·                  Level 2—Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

 

·                  Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

As of March 31, 2013 and December 31, 2012, the fair values of the Company’s financial assets and liabilities are categorized as follows:

 

 

 

March 31, 2013

 

 

 

Total

 

Quoted
Market
Prices in
Active
Markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Investments

 

$

30,591

 

$

30,591

 

$

 

Derivative instruments — liability position

 

13,754

 

 

13,754

 

 

 

 

December 31, 2012

 

 

 

Total

 

Quoted
Market
Prices in
Active
Markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Investments

 

$

20,988

 

$

20,988

 

$

 

Derivative instruments — liability position

 

16,052

 

 

16,052

 

 

The Company holds an investment in the capital stock of Jinhui, which is classified as a long-term investment.  The stock of Jinhui is publicly traded on the Oslo Stock Exchange and is considered a Level 1 item.  The Company’s interest rate derivative instruments are pay-fixed, receive-variable interest rate swaps based on LIBOR.  The Company has elected to use the income approach to value the derivatives, using observable Level 2 market inputs at measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact.  Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR for the first two years) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates and credit risk at commonly quoted intervals).  Mid-market pricing is used as a practical expedient for fair value measurements.  Refer to Note 11 — Interest Rate Swap Agreements for further information regarding the Company’s interest rate swap agreements.  ASC 820-10 states that the fair value measurement of an asset or liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of the counterparty’s creditworthiness when in an asset position and the Company’s creditworthiness when in a liability position have also been factored into the fair value measurement of the derivative instruments.  This credit valuation adjustment did not have a material impact on the fair value measurement of the derivative instruments.   As of March 31, 2013, both the counterparty and the Company are expected to continue to perform under the contractual terms of the instruments. Cash and cash equivalents and restricted cash are considered Level 1 items as they represent liquid assets with short-term maturities. Floating rate debt is considered to be a Level 2 item as the Company considers the estimate of rates it could obtain for similar debt or based upon transaction amongst third parties. The 2010 Notes are publicly traded in the over-the-counter market; however they are not considered to be actively traded. As such, the 2010 Notes are considered to be a Level 2 item.

 

PREPAID EXPENSES AND OTHER CURRENT AND NONCURRENT ASSETS
PREPAID EXPENSES AND OTHER CURRENT AND NONCURRENT ASSETS

14 - PREPAID EXPENSES AND OTHER CURRENT AND NONCURRENT ASSETS

 

Prepaid expenses and other current assets consist of the following:

 

 

 

March 31, 2013

 

December
31, 2012

 

Lubricant inventory, fuel oil and diesel oil inventory and other stores

 

$

10,497

 

$

10,322

 

Prepaid items

 

6,547

 

5,067

 

Insurance receivable

 

1,708

 

1,817

 

Other

 

1,575

 

940

 

Total prepaid expenses and other current assets

 

$

20,327

 

$

18,146

 

 

Other noncurrent assets in the amount of $514 at March 31, 2013 and December 31, 2012 represents the security deposit related to the operating lease entered into effective April 4, 2011. Refer to Note 19 — Commitments and Contingencies for further information related to the lease agreement.

 

OTHER ASSETS, NET
OTHER ASSETS, NET

15 - OTHER ASSETS, NET

 

Other assets consist of deferred financing costs, which include fees, commissions and legal expenses associated with securing loan facilities and other debt offerings and amending existing loan facilities. Total net deferred financing costs consist of the following as of March 31, 2013 and December 31, 2012:

 

 

 

March 31, 2013

 

December
31, 2012

 

 

 

 

 

 

 

2007 Credit Facility

 

$

29,568

 

$

29,568

 

$100 Million Term Loan Facility

 

1,783

 

1,783

 

$253 Million Term Loan Facility

 

4,708

 

4,708

 

2010 Notes

 

3,637

 

3,637

 

2010 Baltic Trading Credit Facility

 

3,027

 

3,027

 

Total deferred financing costs

 

42,723

 

42,723

 

Less: accumulated amortization

 

14,997

 

13,162

 

Total

 

$

27,726

 

$

29,561

 

 

Amortization expense for deferred financing costs for the three months ended March 31, 2013 and 2012 was $1,835 and $980, respectively.  This amortization expense is recorded as a component of interest expense in the Condensed Consolidated Statements of Operations.

 

FIXED ASSETS
FIXED ASSETS

16 - FIXED ASSETS

 

Fixed assets consist of the following:

 

 

 

March 31, 2013

 

December
31, 2012

 

Fixed assets, at cost:

 

 

 

 

 

Vessel equipment

 

$

3,105

 

$

3,043

 

Leasehold improvements

 

3,823

 

3,823

 

Furniture and fixtures

 

997

 

997

 

Computer equipment

 

706

 

706

 

Total costs

 

8,631

 

8,569

 

Less: accumulated depreciation and amortization

 

3,539

 

3,311

 

Total

 

$

5,092

 

$

5,258

 

 

Depreciation and amortization expense for fixed assets for the three months ended March 31, 2013 and 2012 was $228 and $198, respectively.

 

ACCOUNTS PAYABLE AND ACCRUED EXPENSES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES

17 — ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consist of the following:

 

 

 

March 31, 2013

 

December
31, 2012

 

Accounts payable

 

$

5,330

 

$

4,477

 

Accrued general and administrative expenses

 

7,630

 

8,803

 

Accrued vessel operating expenses

 

10,873

 

10,387

 

Total

 

$

23,833

 

$

23,667

 

 

REVENUE FROM TIME CHARTERS
REVENUE FROM TIME CHARTERS

18 - REVENUE FROM TIME CHARTERS

 

Total voyage revenue earned on time charters, including revenue earned in vessel pools and spot market-related time charters, as well as the sale of bunkers consumed during short-term time charters, for the three months ended March 31, 2013 and 2012 was $39,676 and $59,025, respectively.  There was no profit sharing revenue earned during the three months ended March 31, 2013 and 2012.  Future minimum time charter revenue, based on vessels committed to noncancelable time charter contracts as of May 1, 2013 is expected to be $14,645 for the remainder of 2013 and $3,512 during 2014, assuming off-hire due to any scheduled drydocking and that no additional off-hire time is incurred.  For most drydockings, the Company assumes twenty days of offhire.  Future minimum revenue excludes revenue earned for the five vessels currently in pool arrangements, vessels that are currently on or will be on spot market-related time charters, as spot rates cannot be estimated, as well as profit sharing revenue.

 

COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES

19 - COMMITMENTS AND CONTINGENCIES

 

In September 2005, the Company entered into a 15-year lease for office space in New York, New York for which there was a free rental period from September 1, 2005 to July 31, 2006.  On January 6, 2012, the Company ceased the use of this space and has recorded net rent expense of $109 and $399 during the three months ended March 31, 2013 and 2012, respectively, representing the present value of the Company’s estimated remaining rent expense for the duration of the lease after taking into account estimated future sublease income and deferred rent on the facility.  The current lease obligations related to this lease agreement as of March 31, 2013 and December 31, 2012 of $614 and $682, respectively, are recorded in the condensed consolidated balance sheet in Current portion of lease obligations.  The long-term lease obligations related to this lease agreement as of March 31, 2013 and December 31, 2012 of $720 and $672, respectively, are recorded in the condensed consolidated balance sheet in Long-term lease obligations.

 

Future minimum rental payments on the above lease for the next five years and thereafter are as follows: $388 for the remainder of 2013, $518 annually for 2014 through 2015, $529 for 2016, $550 for 2017 and a total of $1,972 for the remaining term of the lease.

 

Effective April 4, 2011, the Company entered into a seven-year sub-sublease agreement for additional office space in New York, New York.  The term of the sub-sublease commenced June 1, 2011, with a free base rental period until October 31, 2011. Following the expiration of the free base rental period, the monthly base rental payments will be $82 per month until May 31, 2015 and thereafter will be $90 per month until the end of the seven-year term.  Pursuant to the sub-sublease agreement, the sublessor is obligated to contribute $472 toward the cost of the Company’s alterations to the sub-subleased office space.  The Company has also entered into a direct lease with the over-landlord of such office space that will commence immediately upon the expiration of such sub-sublease agreement, for a term covering the period from May 1, 2018 to September 30, 2025; the direct lease provides for a free base rental period from May 1, 2018 to September 30, 2018.  Following the expiration of the free base rental period, the monthly base rental payments will be $186 per month from October 1, 2018 to April 30, 2023 and $204 per month from May 1, 2023 to September 30, 2025.  For accounting purposes, the sub-sublease agreement and direct lease agreement with the landlord constitutes one lease agreement.  As a result of the straight-line rent calculation generated by the free rent period and the tenant work credit, the monthly straight-line rental expense for the term of the entire lease from June 1, 2011 to September 30, 2025 will be $130.  The Company had a long-term lease obligation at March 31, 2013 and December 31, 2012 of $1,938 and $1,793, respectively.  Rent expense pertaining to this lease for the three months ended March 31, 2013 and 2012 was $389 and $390, respectively.

 

Future minimum rental payments on the above lease for the next five years and thereafter are as follows: $736 for the remainder of 2013, $982 for 2014, $1,037 for 2015, $1,076 annually for 2016 and 2017 and a total of $16,506 for the remaining term of the lease.

 

NONVESTED STOCK AWARDS
NONVESTED STOCK AWARDS

20 - NONVESTED STOCK AWARDS

 

The table below summarizes the Company’s nonvested stock awards for the three months ended March 31, 2013 under the Genco Shipping & Trading Limited 2005 and 2012 Equity Incentive Plans (the “GS&T Plans”):

 

 

 

Number of
Shares

 

Weighted
Average Grant
Date Price

 

Outstanding at January 1, 2013

 

1,108,762

 

$

9.47

 

Granted

 

 

 

Vested

 

 

 

Forfeited

 

(6,750

)

7.02

 

 

 

 

 

 

 

Outstanding at March 31, 2013

 

1,102,012

 

$

9.48

 

 

There were no shares that vested under the GS&T Plans during the three months ended March 31, 2013 and 2012.

 

For the three months ended March 31, 2013 and 2012, the Company recognized nonvested stock amortization expense for the GS&T Plans, which is included in general, administrative and management fees, as follows:

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

General, administrative and management fees

 

$

769

 

$

1,078

 

 

The fair value of nonvested stock at the grant date is equal to the closing stock price on that date.  The Company is amortizing these grants over the applicable vesting periods, net of anticipated forfeitures.  As of March 31, 2013, unrecognized compensation cost of $4,314 related to nonvested stock will be recognized over a weighted-average period of 2.98 years.

 

The following table presents a summary of Baltic Trading’s nonvested stock awards for the three months ended March 31, 2013 under the Baltic Trading Limited 2010 Equity Incentive Plan (the “Baltic Trading Plan”):

 

 

 

Number of Baltic
Trading
Common
Shares

 

Weighted
Average Grant
Date Price

 

Outstanding at January 1, 2013

 

664,249

 

$

7.70

 

Granted

 

 

 

Vested

 

(116,500

)

14.00

 

Forfeited

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2013

 

547,749

 

$

6.37

 

 

The total fair value of shares that vested under the Baltic Trading Plan during the three months ended March 31, 2013 and 2012 was $454 and $457, respectively.  The total fair value is calculated as the number of shares vested during the period multiplied by the fair value on the vesting date.

 

For the three months ended March 31, 2013 and 2012, the Company recognized nonvested stock amortization expense for the Baltic Trading Plan, which is included in general, administrative and management fees, as follows:

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

General, administrative and management fees

 

$

464

 

$

572

 

 

The Company is amortizing Baltic Trading’s grants over the applicable vesting periods, net of anticipated forfeitures.  As of March 31, 2013, unrecognized compensation cost of $1,431 related to nonvested stock will be recognized over a weighted-average period of 2.41 years.

SHARE REPURCHASE PROGRAM
SHARE REPURCHASE PROGRAM

21 - SHARE REPURCHASE PROGRAM

 

Since the inception of its share repurchase program through March 31, 2013, the Company has repurchased and retired 278,300 shares of its common stock for $11,500.  Currently, the terms of the 2007 Credit Facility require the Company to suspend all share repurchases until the Company can represent that it is in a position to again satisfy the collateral maintenance covenant.  No share repurchases were made during the three months ended March 31, 2013 and 2012.

 

LEGAL PROCEEDINGS
LEGAL PROCEEDINGS

22 - LEGAL PROCEEDINGS

 

From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of its business, principally personal injury and property casualty claims. Such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.  The Company is not aware of any legal proceedings or claims that it believes will have, individually or in the aggregate, a material effect on the Company, its financial condition, results of operations or cash flows.

SUBSEQUENT EVENTS
SUBSEQUENT EVENTS

23 - SUBSEQUENT EVENTS

 

On April 30, 2013, Baltic Trading declared a dividend of $0.01 per share to be paid on or about May 20, 2013 to shareholders of record as of May 13, 2013.  The aggregate amount of the dividend is expected to be approximately $230, of which approximately $173 will be paid to minority shareholders, which Baltic Trading anticipates will be funded from cash on hand at the time payment is to be made.

 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

Principles of consolidation

 

The accompanying condensed 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.

 

Basis of presentation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).  In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and operating results have been included in the statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.  These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2012 (the “2012 10-K”).  The results of operations for the period ended March 31, 2013 and 2012 are not necessarily indicative of the operating results for the full year.

 

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 three months ended March 31, 2013 and 2012 was $32,739 and $33,091, 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 estimated scrap value of $245/lwt times the weight of the ship in lightweight tons (lwt).

 

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. As of March 31, 2013 and December 31, 2012, the Company had an accrual of $318 and $407, respectively, related to these estimated customer claims.

 

Voyage expense recognition

 

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 $364 and $720 during the three months ended March 31, 2013 and 2012, respectively.  Additionally, voyage expenses include the cost of bunkers consumed during short-term time charters pursuant to the terms of the time charter agreement.

 

Noncontrolling interest

 

Net loss attributable to noncontrolling interest during the three months ended March 31, 2013 and 2012 reflects the noncontrolling interest’s share of the net loss of Baltic Trading, a subsidiary of the Company, which owns and employs drybulk vessels in the spot market or on spot market-related time charters.  The spot market represents immediate chartering of a vessel, usually for single voyages.  At March 31, 2013 and December 31, 2012, the noncontrolling interest held a 75.22% economic interest in Baltic Trading while only holding 16.83% of the voting power.

 

Income taxes

 

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 three months ended March 31, 2013 and 2012 was $1,490 and $1,514, respectively, of which $680 and $695, respectively, eliminated upon consolidation.  After allocation of certain expenses, there was taxable income of $592 associated with these activities for the three months ended March 31, 2013.  This resulted in estimated tax expense of $224 for the three months ended March 31, 2013.  After allocation of certain expenses, there was taxable income of $593 associated with these activities for the three months ended March 31, 2012.  This resulted in income tax expense of $264 for the three months ended March 31, 2012.

 

Baltic Trading is subject to income tax on its United States source income.  During the three months ended March 31, 2013, Baltic Trading did not earn any United States source income, therefore there was no income tax expense for the three months ended March 31, 2013.  During the three months ended March 31, 2012, Baltic Trading had United States operations which resulted in United States source income of $366.  Baltic Trading’s United States income tax expense for the three months ended March 31, 2012 was $7.

 

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 (loss) (“OCI”) and items reclassified out of accumulated other income (loss) (“AOCI”).  The amendments in ASU 2013-02 are required to be applied prospectively 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.  The Company has adopted ASU 2013-02 and the impact of adoption is not material to the Company’s condensed consolidated financial statements.  Refer to Note 12 — Other Comprehensive Income (Loss) for additional disclosure.

 

GENERAL INFORMATION (Tables)

 

 

Wholly Owned Subsidiaries

 

Vessel Acquired

 

Dwt

 

Delivery Date

 

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

 

5/12/11

 

2011

Genco Mare Limited

 

Genco Mare

 

34,428

 

7/20/11

 

2011

Genco Spirit Limited

 

Genco Spirit

 

34,432

 

11/10/11

 

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

 

3/29/11

 

2011

 

 

 

Baltic Trading’s Wholly Owned
Subsidiaries

 

Vessel Acquired

 

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

 

<