The following management's discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and accompanying notes included elsewhere in this report. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth in "Item 3. Key Information—Risk Factors."
Factors Affecting Our Results of Operations—Drybulk Carrier Segment
We charter our drybulk carriers to customers primarily pursuant to time charters. Under our time charters, the charterer typically pays us a fixed daily charterhire rate and bears all voyage expenses, including the cost of bunkers (fuel oil) and port and canal charges. We remain responsible for paying the chartered vessel's operating expenses, including the cost of crewing, insuring, repairing and maintaining the vessel, the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses, and we also pay commissions to one or more unaffiliated ship brokers and to in-house brokers associated with the charterer for the arrangement of the relevant charter. We believe that the important measures for analyzing trends in the results of our operations consist of the following:
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●
|
Calendar days
. We define calendar days as the total number of days in a period during which each vessel in our fleet was in our possession including off-hire days associated with major repairs, drydockings or special or intermediate surveys. Calendar days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during that period.
|
|
●
|
Voyage days
. We define voyage days as the total number of days in a period during which each vessel in our fleet was in our possession net of off-hire days associated with drydockings or special or intermediate surveys. The shipping industry uses voyage days (also referred to as available days) to measure the number of days in a period during which vessels are available to generate revenues.
|
|
●
|
Fleet utilization
. We calculate fleet utilization by dividing the number of our voyage days during a period by the number of our calendar days during that period. We use fleet utilization to measure a company's efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons such as scheduled repairs, vessel upgrades, drydockings or special or intermediate surveys.
|
|
●
|
Spot charter rates
. Spot charter rates are volatile and fluctuate on a seasonal and year to year basis. Fluctuations are caused by imbalances in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes.
|
|
●
|
TCE rates
. We define TCE rates as our voyage and time charter revenues less voyage expenses during a period divided by the number of our available days during the period, which is consistent with industry standards. TCE rate, a non-U.S. GAAP measure, provides additional meaningful information in conjunction with revenues from our drybulk carriers, the most directly comparable U.S. GAAP measure, because it assists Company management in making decisions regarding the deployment and use of its vessels and in evaluating their financial performance. TCE rate is also a standard shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charterhire rates for vessels on voyage charters are generally not expressed in per day amounts while charterhire rates for vessels on time charters generally are expressed in such amounts.
|
The following table reflects our voyage days, calendar days, fleet utilization and TCE rates for our drybulk carrier segment for the periods indicated.
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of vessels
|
|
|
35.80
|
|
|
|
35.67
|
|
|
|
37.15
|
|
|
|
38.69
|
|
|
|
35.78
|
|
Total voyage days for fleet
|
|
|
12,831
|
|
|
|
13,027
|
|
|
|
13,442
|
|
|
|
13,889
|
|
|
|
12,562
|
|
Total calendar days for fleet
|
|
|
13,068
|
|
|
|
13,056
|
|
|
|
13,560
|
|
|
|
14,122
|
|
|
|
13,060
|
|
Fleet Utilization
|
|
|
98.19
|
%
|
|
|
99.78
|
%
|
|
|
99.13
|
%
|
|
|
98.35
|
%
|
|
|
96,19
|
%
|
Time charter equivalent
|
|
$
|
26,912
|
|
|
$
|
15,896
|
|
|
$
|
12,062
|
|
|
$
|
12,354
|
|
|
$
|
9,171
|
|
Voyage Revenues
Our voyage revenues are driven primarily by the number of vessels in our fleet, the number of voyage days during which our vessels generate revenues and the amount of daily charterhire that our vessels earn under charters, which, in turn, are affected by a number of factors, including our decisions relating to vessel acquisitions and disposals, the amount of time that we spend positioning our vessels, the amount of time that our vessels spend in drydock undergoing repairs, maintenance and upgrade work, the age, condition and specifications of our vessels, levels of supply and demand in the drybulk transportation market and other factors affecting spot market charter rates for drybulk carriers.
Vessels operating on period time charters provide more predictable cash flows, but can yield lower profit margins than vessels operating in the short-term, or spot, charter market during periods characterized by favorable market conditions. Vessels operating in the spot charter market generate revenues that are less predictable but may enable us to capture increased profit margins during periods of improvements in charter rates although we are exposed to the risk of declining charter rates, which may have a materially adverse impact on our financial performance. If we employ vessels on period time charters, future spot market rates may be higher or lower than the rates at which we have employed our vessels on period time charters.
Voyage Expenses and Voyage Expenses—Related Party
Voyage expenses and voyage expenses—related party primarily consists of commissions, bunkers and port expenses.
Vessel Operating Expenses
Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Our vessel operating expenses, which generally represent fixed costs, have historically increased as a result of the increase in the size of our fleet. Other factors beyond our control, some of which may affect the shipping industry in general, including, for instance, developments relating to market prices for insurance, may also cause these expenses to increase.
Depreciation
We depreciate our vessels on a straight-line basis over their estimated useful lives determined to be 25 years from the date of their initial delivery from the shipyard. Depreciation is based on cost less the estimated residual value.
Management Fees—Related Party
Management Agreements
Effective January 1, 2011, we entered into new management agreements, with TMS Bulkers, a related party, that replaced our previous management agreements, on the same terms as our previous management agreements.
For more information on the agreements discussed above, see "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements with Cardiff, TMS Bulkers, TMS Tankers and TMS Offshore Services —Management Agreements—Drybulk Vessels."
Consultancy Agreement—Drybulk carrier, offshore drilling and tanker segments
We have entered into consultancy agreements with Vivid Finance Limited, or Vivid Finance, a company controlled by our Chairman, President and Chief Executive Officer, Mr. George Economou, pursuant to which Vivid Finance provides consulting services relating to (i) the identification, sourcing, negotiation and arrangement of new loan and credit facilities, interest swap agreements, foreign currency contracts and forward exchange contracts; (ii) the raising of equity or debt in the public capital markets; and (iii) the renegotiation of existing loan facilities and other debt instruments. See "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Consultancy Agreements."
General and Administrative Expenses
Our general and administrative expenses mainly include salaries, legal expenses, as well as executive compensation and the fees paid to Fabiana Services S.A., or Fabiana, a related party entity incorporated in the Marshall Islands. Fabiana provides the services relating to our Chief Executive Officer and is beneficially owned by our Chief Executive Officer.
Interest and finance costs
We have historically incurred interest expense and financing costs in connection with our debt agreements. However, we intend to limit the amount of these expenses and costs by repaying our outstanding indebtedness.
Inflation—Drybulk Carrier Segment
Inflation has not had a material effect on our expenses given the current economic conditions. In the event that significant global inflationary pressures appear, these pressures could increase our operating, voyage, administrative and financing costs.
Our Offshore Drilling Segment - consolidated
up to June 8, 2015
From June 8, 2015, Ocean Rig has been considered as an affiliated entity and not as our controlled subsidiary. As a result, Ocean Rig has been accounted for under the equity method and its operating results are consolidated in our consolidated statement of operations only up to June 8, 2015.
Factors Affecting Our Results of Operations—Offshore Drilling Segment
We chartered our drilling units to customers primarily pursuant to long-term drilling contracts. Under the drilling contracts, the customer typically paid us a fixed daily rate, depending on the activity and up-time of the drilling unit. The customer bore all fuel costs and logistics costs related to transport to and from the unit. We remained responsible for paying the unit's operating expenses, including the cost of crewing, catering, insuring, repairing and maintaining the unit, the costs of spares and consumable stores and other miscellaneous expenses.
We believe that the most important measures for analyzing trends in the results of our operations consisted of the following:
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●
|
Employment Days
:
We defined employment days as the total number of days the drilling units were employed on a drilling contract.
|
|
●
|
Dayrates or maximum dayrates
:
Unless otherwise stated, we defined drilling dayrates as the maximum rate in U.S. Dollars possible to earn for drilling services for one 24 hour day at 100% efficiency under the drilling contract. Such dayrate might be measured by quarter-hour, half-hour or hourly basis and might be reduced depending on the activity performed according to the drilling contract.
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|
●
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Earnings efficiency:
We measured our revenue earning performance over a period as a percentage of the maximum revenues that we could earn under our drilling contracts in such period. More specifically, all drilling contracts provided for an operating or base rate that applied for the period during which the drilling unit was operational and at the client's drilling location. Furthermore, drilling contracts generally provided for a general repair allowance for preventive maintenance or repair of equipment; such allowance varied from contract to contract, and we might be compensated at the full operating dayrate or at a reduced operating day rate for such general repair allowance. In addition, drilling contracts typically provided for situations where the drilling units would operate at reduced operating dayrates, such as, among other things: a standby rate, where the drilling unit was prevented from commencing operations for reasons such as bad weather, waiting for customer orders, waiting on other contractors; a moving rate, where the drilling unit was in transit between locations; a reduced performance rate in the event of major equipment failure; or a force majeure rate in the event of a force majeure that causes the suspension of operations. At these instances we were compensated with a portion of the base rate. In addition there were circumstances that due to equipment failure or other events defined in our drilling contracts, we did not earn the base rate.
|
|
●
|
Mobilization / demobilization fees
:
In connection with drilling contracts, we might receive revenues for preparation and mobilization of equipment and personnel or for capital improvements to the drilling units, dayrate or fixed price mobilization and demobilization fees.
|
|
●
|
Revenue
:
For each contract, we determined whether the contract, for accounting purposes, was a multiple element arrangement, meaning it contained both a lease element and a drilling services element, and, if so, identified all deliverables (elements). For each element we determined how and when to recognize revenue.
|
Term contracts
:
These are contracts pursuant to which we agreed to operate the unit for a specified period of time. For these types of contracts, we determined whether the arrangement was a multiple element arrangement. For revenues derived from contracts that contained a lease, the lease elements were recognized as "Leasing revenues" in the statement of operations on a basis approximating straight line over the lease period. The drilling services element was recognized as "Service revenues" in the period in which the services were rendered at fair value rates.
Revenues related to the drilling element of mobilization and direct incremental expenses of drilling services were deferred and recognized over the estimated duration of the drilling period.
Well contracts
:
These are contracts pursuant to which we agreed to drill a certain number of wells. Revenue from dayrate based compensation for drilling operations were recognized in the period during which the services were rendered at the rates established in the contracts. All mobilization revenues, direct incremental expenses of mobilization and contributions from customers for capital improvements were initially deferred and recognized as revenues over the estimated duration of the drilling period.
Revenue from Drilling Contracts
Our drilling revenues were driven primarily by the number of drilling units in our fleet, the contractual dayrates and the utilization of the drilling units. This, in turn, was affected by a number of factors, including the amount of time that our drilling units spend on planned off-hire class work, unplanned off-hire maintenance and repair, off-hire upgrade and modification work, reduced dayrates due to reduced efficiency or non-productive time, the age, condition and specifications of our drilling units, levels of supply and demand in the rig market, the price of oil and other factors affecting the market dayrates for drilling units. Historically, industry participants have increased supply of drilling units in periods of high utilization and dayrates. This has resulted in an oversupply and caused a decline in utilization dayrates. Therefore, dayrates have historically been very cyclical.
Drilling units operating expenses
Drilling units operating expenses included crew wages and related costs, catering, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, shore based costs and other miscellaneous expenses. Our drilling units operating expenses, which generally represented fixed costs, have historically increased as a result of the business climate in the offshore drilling sector. Specifically, wages and vendor supplied spares, parts and services had experienced a significant price increase over the previous two to three years. Other factors beyond our control, some of which might affect the offshore drilling industry in general, including developments relating to market prices for insurance, might also cause these expenses to increase. In addition, these drilling unit operating expenses were higher when operating in harsh environments, though an increase in expenses was typically offset by the higher dayrates we received when operating in these conditions.
Depreciation
We depreciated our drilling units on a straight-line basis over their estimated useful lives. Specifically, we depreciated bare-decks over 30 years and other asset parts over five to 15 years. We expensed the costs associated with a five-year periodic class work.
Management Fees of the Drilling units
Ocean Rig Management Inc., Ocean Rig's wholly owned subsidiary, provides supervisory management services including onshore management to the operating drilling units and drilling units under construction, pursuant to separate management agreements entered/to be entered with each of the drilling unit-owning subsidiaries. Under the terms of these management agreements, Ocean Rig Management Inc, through its affiliates, is responsible for, among other things, (i) assisting in construction contract technical negotiations, (ii) securing contracts for the future employment of the drilling units, and (iii) providing commercial, technical and operational management for the drilling units.
In addition, Ocean Rig has engaged Cardiff Drilling Inc. a company controlled by our Chairman, President and Chief Executive Officer Mr. George Economou, to provide Ocean Rig with consulting and other services with respect to the agreement of employment and relating to the purchase and sale of drilling units. See "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions.
General and Administrative Expenses
Our general and administrative expenses mainly included the costs of our offices, including salary and related costs for members of senior management and our shore-side employees.
Interest and finance cost
As of December 31, 2015 and due to the deconsolidation of Ocean Rig at June 8, 2015, Ocean Rig's long term debt is not consolidated in our balance sheet.
As of December 31, 2014, we had total indebtedness of $4.5 billion. We capitalized our interest on the debt we have incurred in connection with our drilling units under construction.
Our Tanker Segment
During 2015, we entered into
sales agreements with entities controlled by our Chairman and Chief Executive Officer, Mr. George Economou, to sell our tanker fleet comprised of four Suezmax tankers and six Aframax tankers. Also during 2015, all our tanker vessels were delivered to their new owners.
Prior to their sale, the successful operation of our tanker vessels in spot market-related vessel pools was depended on, among other things, the age, dwt, carrying capacity, speed and fuel consumption of our vessels, which determined the pool points we received. The number of pool points we received, together with, among other things, each of our vessels' operating days during the month determined our share of the pool's net revenue. Our pool points for our vessels were calculated at the time that each respective vessel is entered into the pool and adjusted every six months. Our pool points could have been reduced if certain pool requirements were not met, including if we did not maintain a minimum number of oil major approvals and if we failed to provide for ship inspection reports at least every six months.
Factors Affected our Results of Operations—Tanker Segment
We believe that the most important measures for analyzing trends in the results of our operations consisted of the following:
|
●
|
Vessel Revenues:
Vessel revenues primarily included revenues from spot and pool revenues. Vessel revenues were affected by spot rates and the number of days a vessel operated. Vessel revenues were also affected by the mix of business between vessels on spot and vessels in pools. Revenues from vessels in pools were more volatile, as they were typically tied to prevailing market rates.
|
|
●
|
Voyage related and vessel operating costs:
Voyage expenses, primarily consisted of commissions, port, canal and bunker expenses that are unique to a particular charter, were paid for by us under voyage charter arrangements, except for commissions, which were either paid for by us or were deducted from the freight revenue. All voyage and vessel operating expenses were expensed as incurred, except for commissions. Commissions were deferred and amortized over the related voyage charter period to the extent revenue had been deferred since commissions were earned as our revenues were earned.
|
|
●
|
Depreciation:
Depreciation expense typically consisted of charges related to the depreciation of the historical cost of our fleet (less an estimated residual value) over the estimated useful lives of the vessels.
|
|
●
|
Drydocking:
We drydocked periodically each of our vessels for inspection, repairs and maintenance and any modifications to comply with industry certification or governmental requirements. Generally, each vessel was required to be drydocked every 30 months. We directly expensed costs incurred during drydocking and costs for routine repairs and maintenance performed during drydocking that did not improve or extend the useful lives of the assets. The number of drydockings undertaken in a given period and the nature of the work performed determined the level of drydocking expenditures.
|
|
●
|
Time Charter Equivalent Rates:
Time charter equivalent, or TCE, rates, were a standard industry measure of the average daily revenue performance of a vessel. The TCE rate achieved on a given voyage was expressed in U.S. dollars/day and was generally calculated by subtracting voyage expenses, including bunkers and port charges, from voyage revenue and dividing the net amount (time charter equivalent revenues) by the number of days in the period.
|
|
●
|
Revenue Days:
Revenue days were the total number of calendar days our vessels were in our possession during a period, less the total number of off-hire days during the period associated with major repairs or drydockings. Consequently, revenue days represented the total number of days available for the vessel to earn revenue. Idle days, which were days when a vessel was available to earn revenue, yet was not employed, were included in revenue days. We used revenue days to show changes in net voyage revenues between periods.
|
|
●
|
Average Number of Vessels:
Historical average number of vessels consisted of the average number of vessels that were in our possession during a period. We used average number of vessels primarily to highlight changes in vessel operating costs and depreciation and amortization.
|
|
●
|
Commercial Pools:
To increase vessel utilization to gain economies of scale and thereby revenues, we participated in commercial pools with other shipowners of similar modern, well-maintained vessels. By operating a large number of vessels as an integrated transportation system, commercial pools offer customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools employ experienced commercial charterers and operators who have close working relationships with customers and brokers, while technical management is performed by each shipowner. Pools negotiate charters with customers primarily in the spot market. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and COAs, thus generating higher effective TCE revenues than otherwise might be obtainable in the spot market while providing a higher level of service offerings to customers.
|
Management Fees to Related Party
Since January 1, 2011, TMS Tankers, a company controlled by our Chairman, President and Chief Executive Officer, Mr. George Economou, provided the commercial and technical management functions of our tankers, including technical supervision, while our tankers were under construction, pursuant to separate management agreements entered into with TMS Tankers for each of our tankers. See "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements with Cardiff, TMS Bulkers, TMS Tankers and TMS Offshore Services —Management Agreements—Tankers."
General and Administrative Expenses
Our general and administrative expenses mainly included salaries, legal expenses, as well as executive compensation and the fees paid to Fabiana, a related party entity incorporated in the Marshall Islands. Fabiana provided the services of our Chief Executive Officer and is beneficially owned by our Chief Executive Officer.
Interest and finance costs
We have historically incurred interest expense and financing costs in connection with our debt agreements.
Our Offshore Support Segment
On October 21, 2015, the Company acquired Nautilus, which indirectly through its subsidiaries owns six Offshore Supply Vessels.
Factors Affecting Our Results of Operations— Offshore Support Segment
We charter our offshore support vessels to customers primarily pursuant to time charters. Under our time charters, the charterer typically pays us a fixed daily charterhire rate and bears all voyage expenses, including the cost of bunkers (fuel oil) and port and canal charges. We remain responsible for paying the chartered vessel's operating expenses, including the cost of crewing, insuring, repairing and maintaining the vessel, the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses, and we also pay commissions to one or more unaffiliated ship brokers and to in-house brokers associated with the charterer for the arrangement of the relevant charter. The vessels in our fleet are currently employed on long term time charters. We believe that the important measures for analyzing trends in the results of our operations consist of the following:
|
●
|
Calendar days
. We define calendar days as the total number of days in a period during which each vessel in our fleet was in our possession including off-hire days associated with major repairs, drydockings or special or intermediate surveys. Calendar days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during that period.
|
|
●
|
Voyage days
. We define voyage days as the total number of days in a period during which each vessel in our fleet was in our possession net of off-hire days associated with drydockings or special or intermediate surveys. The shipping industry uses voyage days (also referred to as available days) to measure the number of days in a period during which vessels are available to generate revenues.
|
|
●
|
Fleet utilization
. We calculate fleet utilization by dividing the number of our voyage days during a period by the number of our calendar days during that period. The shipping industry uses fleet utilization to measure a company's efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons such as scheduled repairs, vessel upgrades, drydockings or special or intermediate surveys.
|
|
●
|
TCE rates
. We define TCE rates as our time charter revenues less voyage expenses during a period divided by the number of our available days during the period, which is consistent with industry standards. TCE rate, a non-U.S. GAAP measure, provides additional meaningful information in conjunction with revenues from our offshore supply vessels, the most directly comparable U.S. GAAP measure, because it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance. TCE rate is also a standard shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charterhire rates for vessels on voyage charters are generally not expressed in per day amounts while charterhire rates for vessels on time charters generally are expressed in such amounts.
|
The following table reflects our voyage days, calendar days, fleet utilization and TCE rates for our offshore support segment for the periods indicated.
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of vessels
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6.0
|
|
Total voyage days for fleet
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
426
|
|
Total calendar days for fleet
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
426
|
|
Fleet Utilization
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
%
|
Time charter equivalent
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
18,460
|
|
Voyage Revenues
Our voyage revenues are driven primarily by the number of vessels in our fleet, the number of voyage days during which our vessels generate revenues and the amount of daily charterhire that our vessels earn under charters, which, in turn, are affected by a number of factors, including our decisions relating to vessel acquisitions and disposals, the amount of time that we spend positioning our vessels, the amount of time that our vessels spend in drydock undergoing repairs, maintenance and upgrade work, the age, condition and specifications of our vessels, levels of supply and demand in the offshore support market and other factors affecting spot market charter rates for offshore support vessels.
Vessels operating on period time charters provide more predictable cash flows, but can yield lower profit margins than vessels operating in the short-term, or spot, charter market during periods characterized by favorable market conditions. Vessels operating in the spot charter market generate revenues that are less predictable but may enable us to capture increased profit margins during periods of improvements in charter rates although we are exposed to the risk of declining charter rates, which may have a materially adverse impact on our financial performance. If we employ vessels on period time charters, future spot market rates may be higher or lower than the rates at which we have employed our vessels on period time charters.
Voyage Expenses and Voyage Expenses—Related Party
Voyage expenses and voyage expenses—related party primarily consists of commissions paid.
Vessel Operating Expenses
Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Factors beyond our control, some of which may affect the shipping industry in general, including, for instance, developments relating to market prices for insurance, may cause these expenses to increase.
Depreciation
We depreciate our vessels on a straight-line basis over their estimated useful lives determined to be 30 years from the date of their initial delivery from the shipyard. Depreciation is based on cost less the estimated residual value.
Management Fees—Related Party
Management Agreements
Our vessels are managed by TMS Offshore Services Ltd., an entity controlled by our
Chairman, President and
Chief Executive Officer, Mr. George Economou.
Our offshore support vessel–owning subsidiaries, have management agreements with TMS Offshore Services, pursuant to which TMS Offshore Services provides overall technical and crew management of our Platform Supply and Oil Spill Recovery vessels.
For more information on the agreements discussed above, see "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements with Cardiff, TMS Bulkers, TMS Tankers and TMS Offshore Services—Management Agreements—Offshore Support Vessels."
Consultancy Agreements
On November 16, 2015, we entered into a consultancy agreement, for the provision of the services of our Vice President, Mr. Prokopios Tsirigakis of Offshore support segment. The duration of this agreement shall be three years.
General and Administrative Expenses
Our general and administrative expenses mainly include fees under the consultancy agreement with our Vice President, Mr. Prokopios Tsirigakis of Offshore support segment.
Lack of Historical Operating Data for Vessels Before Their Acquisition
Although vessels are generally acquired free of charter, we have acquired (and may in the future acquire) some vessels with time charters. Where a vessel has been under a voyage charter, the vessel is usually delivered to the buyer free of charter. It is rare in the shipping industry for the last charterer of the vessel in the hands of the seller to continue as the first charterer of the vessel in the hands of the buyer. In most cases, when a vessel is under time charter and the buyer wishes to assume that charter, the vessel cannot be acquired without the charterer's consent and the buyer entering into a separate direct agreement (called a novation agreement) with the charterer to assume the charter. The purchase of a vessel itself does not transfer the charter because it is a separate service agreement between the vessel owner and the charterer.
Where we identify any intangible assets or liabilities associated with the acquisition of a vessel, we record all identified tangible and intangible assets or liabilities at fair value. Fair value is determined by reference to market data and the discounted amount of expected future cash flows. Where we have assumed an existing charter obligation or entered into a time charter with the existing charterer in connection with the purchase of a vessel at charter rates that are less than market charter rates, we record a liability, based on the difference between the assumed charter rate and the market charter rate for an equivalent vessel to the extent the vessel's capitalized cost would not exceed its fair value without a time charter. Conversely, where we assume an existing charter obligation or enter into a time charter with the existing charterer in connection with the purchase of a vessel at charter rates that are above market charter rates, we record an asset, based on the difference between the market charter rate for an equivalent vessel and the contracted charter rate. This determination is made at the time the vessel is delivered to us, and such assets and liabilities are amortized to revenue over the remaining period of the charter.
During 2015, we acquired Nautilus Offshore Services Inc, which indirectly owns six Offshore Supply Vessels, all of which were on time charters to Petrobras. During 2014 and 2013, we did not acquire any vessels that were under existing bareboat or time charter contracts.
When we purchase a vessel and assume or renegotiate a related time charter, we must take the following steps before the vessel will be ready to commence operations:
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●
|
obtain the charterer's consent to us as the new owner;
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|
●
|
obtain the charterer's consent to a new technical manager;
|
|
●
|
in some cases, obtain the charterer's consent to a new flag for the vessel;
|
|
●
|
arrange for a new crew for the vessel, and where the vessel is on charter, in some cases, the crew must be approved by the charterer;
|
|
●
|
replace all hired equipment on board, such as gas cylinders and communication equipment;
|
|
●
|
negotiate and enter into new insurance contracts for the vessel through our own insurance brokers;
|
|
●
|
register the vessel under a flag state and perform the related inspections in order to obtain new trading certificates from the flag state;
|
|
●
|
implement a new planned maintenance program for the vessel; and
|
|
●
|
ensure that the new technical manager obtains new certificates for compliance with the safety and vessel security regulations of the flag state.
|
The following discussion is intended to help you understand how acquisitions of vessels affect our business and results of operations.
Our business is comprised of the following main elements:
|
●
|
employment and operation of our drybulk and offshore support vessels; and
|
|
●
|
management of the financial, general and administrative elements involved in the conduct of our business and ownership of our drybulk and tanker vessels and drilling units.
|
The employment and operation of our vessels require the following main components:
|
●
|
vessel maintenance and repair;
|
|
●
|
crew selection and training;
|
|
●
|
vessel spares and stores supply;
|
|
●
|
contingency response planning;
|
|
●
|
onboard safety procedures auditing;
|
|
●
|
vessel insurance arrangement;
|
|
●
|
vessel security training and security response plans (ISPS);
|
|
●
|
obtain ISM certification and audit for each vessel within the six months of taking over a vessel;
|
|
●
|
vessel hire management;
|
|
●
|
vessel performance monitoring.
|
The management of financial, general and administrative elements involved in the conduct of our business and ownership of our vessels requires the following main components:
|
●
|
management of our financial resources, including banking relationships, i.e., administration of bank loans and bank accounts;
|
|
●
|
management of our accounting system and records and financial reporting;
|
|
●
|
administration of the legal and regulatory requirements affecting our business and assets; and
|
|
●
|
management of the relationships with our service providers and customers.
|
The principal factors that affect our profitability, cash flows and shareholders' return on investment include:
|
●
|
Charter rates and periods of charterhire for our drybulk and offshore support vessels;
|
|
●
|
levels of drybulk and offshore support vessels operating expenses;
|
|
●
|
depreciation and amortization expenses;
|
|
●
|
fluctuations in foreign exchange rates.
|
Our Fleet—Illustrative Comparison of Possible Excess of Carrying Value Over Estimated Charter-Free Market Value of Certain Vessels
In "—Critical Accounting Policies—Impairment of Long Lived Assets," we discuss our policy for impairing the carrying values of our vessels. Historically, the market values of vessels have experienced volatility, which from time to time may be substantial. As a result, the charter-free market value, or basic market value, of certain of our vessels may have declined below those vessels' carrying value, even though we would not impair those vessels' carrying value under our accounting impairment policy, due to our belief that future undiscounted cash flows expected to be earned by such vessels over their operating lives would exceed such vessels' carrying amounts.
As of December 31, 2015, we have classified our entire drybulk fleet as held for sale as all criteria for classification were met. As a result, the carrying amount of our drybulk vessels has been reduced to their fair value as of December 31, 2015 and at each reporting date, is monitored for possible further reductions. In addition, based on: (i) the carrying value of each of our offshore support vessels as of December 31, 2015 and (ii) what we believe was the charter free market value of each of our offshore support vessels as of December 31, 2015, the aggregate carrying value of the offshore support vessels in our fleet as of December 31, 2015 exceeded their aggregate charter-free market value by approximately $13.4 million, as noted in the table below.
Based on: (i) the carrying value of each of our vessels as of December 31, 2014 and (ii) what we believe was the charter free market value of each of our vessels as of December 31, 2014, the aggregate carrying value of the vessels in our fleet as of December 31, 2014 exceeded their aggregate charter-free market value by approximately $750.6 million, as noted in the table below.
This aggregate difference between (i) the carrying value of each of our vessels and (ii) what we believe was the charter free market value of our vessels as of the relevant balance sheet date represents the approximate analysis of the amount by which we believe we would have to reduce our net income if we sold all of such vessels at December 31, 2015 and 2014, respectively, on industry standard terms, in cash transactions, and to a willing buyer where we were not under any compulsion to sell, and where the buyer was not under any compulsion to buy. For purposes of this calculation, we have assumed that these vessels would be sold at a price that reflects our estimate of their charter-free market values as of December 31, 2015 and 2014, respectively.
Our estimates of charter-free market value assume that our vessels are all in good and seaworthy condition without need for repair and if inspected would be certified in class without notations of any kind. Our estimates are based on information available from various industry sources, including:
|
●
|
reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values;
|
|
●
|
news and industry reports of similar vessel sales;
|
|
●
|
news and industry reports of sales of vessels that are not similar to our vessels where we have made certain adjustments in an attempt to derive information that can be used as part of our estimates;
|
|
●
|
approximate market values for our vessels or similar vessels that we have received from shipbrokers, whether solicited or unsolicited, or that shipbrokers have generally disseminated;
|
|
●
|
offers that we may have received from potential purchasers of our vessels; and
|
|
●
|
vessel sale prices and values of which we are aware through both formal and informal communications with shipowners, shipbrokers, industry analysts and various other shipping industry participants and observers.
|
As we obtain information from various industry and other sources, our estimates of basic market value are inherently uncertain. In addition, vessel values are highly volatile; as such, our estimates may not be indicative of the current or future charter-free market value of our vessels or prices that we could achieve if we were to sell them. We also refer you to the risk factor in "Item 3. Key Information—D. Risk Factors— Risk Factors Relating to the Drybulk Shipping Industry and Offshore Support Vessel Industry —The market values of our vessels may decrease, which could limit the amount of funds that we can borrow or cause us to continue to breach certain covenants in some of our credit facilities and we
may incur a loss if we sell vessels following a decline in their market value" and the discussion included in "Item 4. Information on the Company—B. Business Overview—Our Drybulk Operations—Vessel Prices."
Drybulk Vessels
|
|
Dwt
|
|
Year Built
|
|
Carrying Value December 31, 2014
(in millions)
|
|
Carrying Value December 31, 2015
(in millions)
|
Montecristo
|
|
|
180,263
|
|
|
|
2005
|
|
|
|
32.2
|
**
|
|
|
-
|
|
Cohiba
|
|
|
174,234
|
|
|
|
2006
|
|
|
|
32.7
|
**
|
|
|
-
|
|
Robusto
|
|
|
173,949
|
|
|
|
2006
|
|
|
|
32.7
|
**
|
|
|
-
|
|
Partagas
|
|
|
173,880
|
|
|
|
2004
|
|
|
|
28.7
|
**
|
|
|
-
|
|
Capri
|
|
|
172,579
|
|
|
|
2001
|
|
|
|
99.9
|
**
|
|
|
-
|
|
Manasota
|
|
|
171,061
|
|
|
|
2004
|
|
|
|
52.6
|
**
|
|
|
-
|
|
Alameda
|
|
|
170,662
|
|
|
|
2001
|
|
|
|
44.0
|
**
|
|
|
-
|
|
Mystic
|
|
|
170,040
|
|
|
|
2008
|
|
|
|
112.1
|
**
|
|
|
-
|
|
Flecha
|
|
|
170,012
|
|
|
|
2004
|
|
|
|
112.3
|
**
|
|
|
-
|
|
Sorrento
|
|
|
76,633
|
|
|
|
2004
|
|
|
|
61.8
|
**
|
|
|
6.9
|
**
|
Mendocino
|
|
|
76,623
|
|
|
|
2002
|
|
|
|
27.5
|
**
|
|
|
5.4
|
**
|
Maganari
|
|
|
75,941
|
|
|
|
2001
|
|
|
|
19.5
|
**
|
|
|
5.0
|
**
|
Saldanha
|
|
|
75,707
|
|
|
|
2004
|
|
|
|
51.1
|
**
|
|
|
-
|
|
Coronado
|
|
|
75,706
|
|
|
|
2000
|
|
|
|
24.2
|
**
|
|
|
4.5
|
**
|
Ligari
|
|
|
75,583
|
|
|
|
2004
|
|
|
|
29.7
|
**
|
|
|
6.9
|
**
|
Rapallo
|
|
|
75,123
|
|
|
|
2009
|
|
|
|
28.0
|
**
|
|
|
9.4
|
**
|
Amalfi
|
|
|
75,206
|
|
|
|
2009
|
|
|
|
36.2
|
**
|
|
|
9.4
|
**
|
Bargara
|
|
|
74,832
|
|
|
|
2002
|
|
|
|
31.2
|
**
|
|
|
4.7
|
**
|
Samatan
|
|
|
74,823
|
|
|
|
2001
|
|
|
|
44.5
|
**
|
|
|
4.2
|
**
|
Capitola
|
|
|
74,816
|
|
|
|
2001
|
|
|
|
31.2
|
**
|
|
|
4.2
|
**
|
Sonoma
|
|
|
74,786
|
|
|
|
2001
|
|
|
|
25.1
|
**
|
|
|
4.2
|
**
|
Majorca
|
|
|
74,477
|
|
|
|
2005
|
|
|
|
36.8
|
**
|
|
|
6.6
|
**
|
Redondo
|
|
|
74,716
|
|
|
|
2000
|
|
|
|
24.5
|
**
|
|
|
3.7
|
**
|
Topeka
|
|
|
74,716
|
|
|
|
2000
|
|
|
|
15.9
|
**
|
|
|
-
|
|
Catalina
|
|
|
74,432
|
|
|
|
2005
|
|
|
|
33.2
|
**
|
|
|
6.6
|
**
|
Oregon
|
|
|
74,204
|
|
|
|
2002
|
|
|
|
43.7
|
**
|
|
|
5.4
|
**
|
Levanto
|
|
|
73,925
|
|
|
|
2001
|
|
|
|
32.7
|
**
|
|
|
4.2
|
**
|
Ecola
|
|
|
73,931
|
|
|
|
2001
|
|
|
|
25.2
|
**
|
|
|
4.2
|
**
|
Helena
|
|
|
73,744
|
|
|
|
1999
|
|
|
|
14.6
|
**
|
|
|
-
|
|
Ocean Crystal
|
|
|
73,688
|
|
|
|
1999
|
|
|
|
17.9
|
**
|
|
|
4.0
|
**
|
Marbella
|
|
|
72,561
|
|
|
|
2000
|
|
|
|
28.0
|
**
|
|
|
4.4
|
**
|
Galveston
|
|
|
51,201
|
|
|
|
2002
|
|
|
|
10.5
|
**
|
|
|
-
|
|
Byron
|
|
|
51,118
|
|
|
|
2003
|
|
|
|
40.9
|
**
|
|
|
-
|
|
Wooloomooloo
|
|
|
76,064
|
|
|
|
2012
|
|
|
|
31.5
|
**
|
|
|
-
|
|
Raraka
|
|
|
76,037
|
|
|
|
2012
|
|
|
|
31.5
|
**
|
|
|
11.9
|
**
|
Fakarava
|
|
|
206,152
|
|
|
|
2012
|
|
|
|
48.1
|
**
|
|
|
29.5
|
**
|
Rangiroa
|
|
|
206,026
|
|
|
|
2013
|
|
|
|
52.2
|
**
|
|
|
31.4
|
**
|
Negonego
|
|
|
206,097
|
|
|
|
2013
|
|
|
|
51.2
|
**
|
|
|
31.4
|
**
|
Raiatea
|
|
|
179,078
|
|
|
|
2011
|
|
|
|
53.2
|
|
|
|
|
|
Total for drybulk vessels
|
|
|
4,254,626
|
|
|
|
|
|
|
|
$ 1,548.8
|
|
|
|
$ 208.1
|
|
Offshore support vessels
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vega Corona
|
|
|
1,430
|
|
|
|
2012
|
|
|
|
-
|
|
|
|
12.9
|
***
|
Crescendo
|
|
|
1,457
|
|
|
|
2012
|
|
|
|
-
|
|
|
|
12.9
|
***
|
Jubilee
|
|
|
1,317
|
|
|
|
2012
|
|
|
|
-
|
|
|
|
17.6
|
***
|
Vega Emtoli
|
|
|
1,363
|
|
|
|
2012
|
|
|
|
-
|
|
|
|
17.6
|
***
|
Vega Jaanca
|
|
|
1,393
|
|
|
|
2012
|
|
|
|
-
|
|
|
|
17.7
|
***
|
Vega Inruda
|
|
|
1,393
|
|
|
|
2013
|
|
|
|
-
|
|
|
|
17.7
|
***
|
Total for offshore support vessels
|
|
|
8,353
|
|
|
|
|
|
|
|
$ -
|
|
|
|
$96.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tanker vessels
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vilamoura
|
|
|
158,622
|
|
|
|
2011
|
|
|
|
61.5
|
*
|
|
|
-
|
|
Saga
|
|
|
115,738
|
|
|
|
2011
|
|
|
|
51.4
|
*
|
|
|
-
|
|
Daytona
|
|
|
115,896
|
|
|
|
2011
|
|
|
|
52.5
|
*
|
|
|
-
|
|
Belmar
|
|
|
115,904
|
|
|
|
2011
|
|
|
|
54.1
|
*
|
|
|
-
|
|
Calida
|
|
|
115,812
|
|
|
|
2012
|
|
|
|
55.2
|
*
|
|
|
-
|
|
Lipari
|
|
|
158,425
|
|
|
|
2012
|
|
|
|
65.7
|
*
|
|
|
-
|
|
Petalidi
|
|
|
158,532
|
|
|
|
2012
|
|
|
|
66.2
|
*
|
|
|
-
|
|
Bordeira
|
|
|
158,513
|
|
|
|
2013
|
|
|
|
68.5
|
*
|
|
|
-
|
|
Alicante
|
|
|
115,708
|
|
|
|
2013
|
|
|
|
59.3
|
*
|
|
|
-
|
|
Mareta
|
|
|
115,796
|
|
|
|
2013
|
|
|
|
58.4
|
*
|
|
|
-
|
|
Total for tanker vessels
|
|
|
1,328,946
|
|
|
|
|
|
|
|
$ 592.8
|
|
|
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,591,925
|
|
|
|
|
|
|
|
$ 2,141.6
|
|
|
|
$ 304.5
|
|
*
Indicates tanker vessels for which we believe, as of December 31, 2014, the basic charter-free market value was lower than the vessel's carrying value. We believe that the aggregate carrying value of these vessels exceeds their aggregate basic charter-free market value by approximately $14.7 million. During 2015, we sold our entire tanker fleet.
**
Indicates drybulk carriers for which we believe, as of December 31, 2014, the basic charter-free market value was lower than the vessel's carrying value. We believe that the aggregate carrying value of these vessels exceeds their aggregate basic charter-free market value by approximately $735.9 million. As of December 31, 2015 our entire drybulk fleet is stated at its fair value less costs to sell, due to the classification of all drybulk vessels as held for sale.
***
Indicates offshore support vessels for which we believe, as of December 31, 2015, the basic charter-free market value is lower than the vessel's carrying value. We believe that the aggregate carrying value of these vessels exceeds their aggregate basic charter-free market value by approximately $13.4 million.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of those consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions. On an ongoing basis, we evaluate our estimates, including those related to bad debts, investments, property and equipment, intangible assets and goodwill, income taxes and share based compensation. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have described below what we believe are our most critical accounting policies that involve a high degree of judgment and the methods of their application. For a description of all of the Company's significant accounting policies, see Note 2 to the Company's consolidated financial statements.
Vessels' Depreciation
We record the value of our vessels at their cost, which consists of the contract price and any material expenses incurred upon acquisition, initial repairs, improvements, delivery expenses and other expenditures to prepare the vessel for its initial voyage. Subsequent expenditures for major improvements are also capitalized when they appreciably extend the useful life, increase the earning capacity or improve the efficiency or safety of the vessels. Depreciation begins when the vessel is ready for its intended use, on a straight-line basis over the vessel's remaining economic useful life, after considering the estimated residual value (vessel's residual value is equal to the product of its lightweight tonnage and estimated scrap rate). Secondhand vessels are depreciated from the date of their acquisition through their remaining estimated useful life. We estimate the useful life of our Drybulk vessels to be 25 years and the useful life of offshore support vessels to be 30 years from the date of initial delivery from the shipyard and the residual value of our vessels to be $250 per lightweight ton. A decrease in the useful life of a vessel or in its residual value would have the effect of increasing the annual depreciation charge. When regulations place limitations over the ability of a vessel to trade on a worldwide basis, its remaining useful life is adjusted at the date such regulations become effective.
We depreciate our vessels on a straight-line basis over their estimated useful lives, after considering their estimated residual values, based on the assumed value of the scrap steel available for recycling after demolition, while when our vessels are classified as held for sale we no longer calculate depreciation.
Drilling unit machinery and equipment, net (June 8, 2015 up to the deconsolidation date)
Drilling units were stated at historical cost less accumulated depreciation. Such costs included the cost of adding or replacing parts of drilling unit machinery and equipment when that cost was incurred, if the recognition criteria were met. The recognition criteria required that the cost incurred extends the useful life of a drilling unit. The carrying amounts of those parts that were replaced were written off and the cost of the new parts was capitalized. Depreciation was calculated on a straight- line basis over the useful life of the assets as follows: bare-deck, 30 years and other asset parts, five to 15 years. The residual values of the drilling units were estimated at $35 million and $50 million, respectively.
Long lived assets held for sale
We classify long lived assets and disposal groups as being held for sale in accordance with ASC 360, "Property, Plant and Equipment", when: (i) management has committed to a plan to sell the long lived assets; (ii) the long lived assets are available for immediate sale in their present condition; (iii) an active program to locate a buyer and other actions required to complete the plan to sell the long lived assets have been initiated; (iv) the sale of the long lived assets is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year; and (v) the long lived assets are being actively marketed for sale at a price that is reasonable in relation to its current fair value and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Long lived assets classified as held for sale are measured at the lower of their carrying amount or fair value less cost to sell. These long lived assets are not depreciated once they meet the criteria to be classified as held for sale.
When we conclude a Memorandum of Agreement for the disposal of a vessel
which has yet to complete a time charter, it is considered that the held for sale criteria discussed in guidance are not met until the time charter has been completed as the vessel
is not available for immediate sale. As a result, such vessels
are not classified as held for sale.
When we conclude a Memorandum of Agreement for the disposal of a vessel
which has no time charter to complete or a contract that is transferable to a buyer, it is considered that the held for sale criteria discussed in the guidance are met. As a result such vessels
are classified as held for sale. Furthermore, in the period a long-lived asset meets the held for sale criteria, a loss is recognized for any reduction of the long-lived asset's carrying amount to its fair value less cost to sell. No such adjustments were identified for the years ended December 31, 2013 and 2014. For the year ended December 31, 2015 and due to our decision to sell certain vessels and vessel owning companies and classify the remaining vessels in the fleet as held for sale, a charge of $854.1 million was recognized.
In addition, the impairment review performed prior to the entering into the agreements for the sale of our vessels and vessel owning companies, has indicated that the carrying amount of one of our drybulk vessels was not recoverable and, therefore, a charge of $83.9 million was recognized. Finally during 2015, an additional charge of $113.0 million was recognized due to the reduction of the vessels' held for sale carrying amount to their fair value less cost to sell.
Impairment of Long Lived Assets
We review for impairment long-lived assets and intangible long-lived assets held and used whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In this respect, we review our assets for impairment on an asset by asset basis. When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, we evaluate the asset for impairment loss. The impairment loss is determined by the difference between the carrying amount of the asset and the fair value of the asset. We evaluate the carrying amounts of our vessels, by obtaining vessel independent appraisals to determine if events have occurred that would require modification to their carrying values or useful lives. In evaluating useful lives and carrying values of long-lived assets, we review certain indicators of potential impairment, such as undiscounted projected operating cash flows, vessel sales and purchases, business plans and overall market conditions. In developing estimates of future undiscounted cash flows, we make assumptions and estimates about the vessels' future performance, with the significant assumptions being related to charter rates, fleet utilization, operating expenses, capital expenditures, residual value and the estimated remaining useful life of each vessel. The assumptions used to develop estimates of future undiscounted cash flows are based on historical trends as well as future expectations. To the extent impairment indicators are present, we determine undiscounted projected net operating cash flows for each vessel and compare them to their carrying value. The projected net operating cash flows are determined by considering the charter revenues from existing time charters for the fixed fleet days and an estimated daily time charter equivalent for the unfixed days. We estimate the daily time charter equivalent for the unfixed days of our drybulk vessels based on the most recent ten year historical average for similar vessels and utilizing available market data for time charter and spot market rates and forward freight agreements and for our offshore support vessels based on available market data, over the remaining estimated life of the vessel, assumed to be 25 years for drybulk vessels and 30 years for offshore support vessels from the delivery of the vessel from the shipyard, net of brokerage commissions, expected outflows for vessels' maintenance and vessel operating expenses (including planned drydocking and special survey expenditures), assuming an average annual inflation rate of 2% and fleet utilization of 98% and 99% for our Drybulk and offshore support vessels, respectively. The salvage value used in the impairment test is estimated to be $250 per light weight ton (LWT) for vessels, in accordance with our vessels' depreciation policy. If our estimate of undiscounted future cash flows for any vessel is lower than the vessel's carrying value, the carrying value is written down, by recording a charge to operations, to the vessel's fair market value if the fair market value is lower than the vessel's carrying value.
Our analysis for our vessels held for use, for the year ended December 31, 2015, which also involved sensitivity tests on the time charter rates and fleet utilization (being the most sensitive inputs to variances), allowing for variances ranging from 97.5% to 92.5% depending on vessel type on time charter rates, did not indicate any impairment loss for any of the vessels held for use. Although we believe that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective.
As a result of the impairment review, we determined that the carrying amounts of our assets held for use were recoverable, and therefore, concluded that no impairment loss was necessary for 2013,however, due to our decision to sell certain vessels during the year and based on the agreed-upon sales price, an impairment charge of $43.5 million, for the year ended December 31, 2013, was recognized, while for 2014 we determined that the carrying amount of one of our assets was not recoverable and, therefore, an impairment loss of $38.1 million was recognized. As of December 31, 2015, we determined that the carrying amounts of our assets held for use were recoverable, and therefore, concluded that no impairment loss was necessary to be recorded. However, during 2015 and as a result of the impairment review performed, prior to the entering into agreements for the sale of our vessels and vessel owning companies it was determined that the carrying amount of one of our assets was not recoverable and, therefore, an impairment loss of $83.9 million was recognized. In addition, due to our decision to sell certain vessels and vessel owning companies and based on the agreed-upon sales price, as well as due to the reduction of the vessels' held for sale carrying amount to their fair value less cost to sell, an impairment charge of $967.1 million was recognized, for the year ended December 31, 2015.
Any impairment charges incurred as a result of declines in charter rates and other market deterioration could negatively affect our business, financial condition or operating results or the trading price of our common shares.
There can be no assurance as to how long charter rates and vessel values will remain at their currently low levels or whether they will improve by any significant degree. Charter rates may remain at depressed levels for some time which could adversely affect our revenue and profitability, and future assessments of vessel impairment.
Above market acquired time charters
In connection with vessels acquired already chartered with contracts including fixed day rates that are above day rates available as of the acquisition date, we determine the aggregate fair values of these time-chartered contracts as of the acquisition date and record the respective contract fair values on the consolidated balance sheet as non-current assets under "Fair value of above market acquired time charters". These are then amortized into revenues using the straight-line method over the respective contract periods (based on the respective contracts).
Revenue and Related Expenses
(i) Drybulk Carrier, Tanker and Offshore support vessels:
Time and bareboat charters:
We generate our revenues from charterers for the charterhire of our vessels, which are considered to be operating lease arrangements. For vessels chartered using time and bareboat charters and where a contract exists, the price is fixed, service is provided and collection of the related revenue is reasonably assured, revenue is recognized as it is earned ratably on a straight-line basis over the duration of the period of each time charter as adjusted for the off-hire days that the vessel spends undergoing repairs, maintenance and upgrade work depending on the condition and specification of the vessel.
Pooling Arrangements:
For vessels operating in pooling arrangements, we earn a portion of total revenues generated by the pool, net of expenses incurred by the pool. The amount allocated to each pool participant vessel, including our vessels, is determined in accordance with an agreed-upon formula, which is determined by points awarded to each vessel in the pool based on the vessel's age, design and other performance characteristics. Revenue under pooling arrangements is accounted for on the accrual basis and is recognized when an agreement with the pool exists, price is fixed, service is provided and the collectability is reasonably assured. The allocation of such net revenue may be subject to future adjustments by the pool however, historically, such changes have not been material.
Voyage charters:
Voyage charter is a charter where a contract is made in the spot market for the use of a vessel for a specific voyage for a specified freight rate per ton. If a charter agreement exists and collection of the related revenue is reasonably assured, revenue is recognized as it is earned ratably during the duration of the period of each voyage, when a voyage agreement is in place, a voyage is deemed to commence upon the completion of discharge of the vessel's previous cargo and is deemed to end upon the completion of discharge of the current cargo. Demurrage income represents payments by a charterer to a vessel owner when loading or discharging time exceeds the stipulated time in the voyage charter and is recognized ratably as earned during the related voyage charter's duration period.
Mobilization fees:
As far as our offshore support segment is concerned, we are also entitled to mobilization fees. All mobilization revenues and direct incremental expenses of mobilization are initially deferred and recognized as revenues and expenses, over the duration of the time charter agreements, and to the extent that expenses exceed revenues to be recognized, they are expensed as incurred.
Voyage related and vessel operating costs:
Under a time charter, specified voyage costs, such as fuel and port charges are paid by the charterer and other non-specified voyage expenses, such as commissions, are paid by the Company. Vessel operating costs including crews, maintenance and insurance are paid by the Company. Under voyage charter arrangements, voyage expenses, primarily consisting of commissions, port, canal and bunker expenses that are unique to a particular charter, are paid for by us, except for commissions, which are either paid for by us or are deducted from the freight revenue. All voyage and vessel operating expenses are expensed as incurred, except for commissions. Commissions are deferred and amortized over the related voyage charter period to the extent revenue has been deferred since commissions are earned as the Company's revenues are earned. Under a bareboat charter, the charterer assumes responsibility for all voyage and vessel operating expenses and risk of operation.
Deferred Voyage Revenue:
Deferred voyage revenue primarily relates to cash advances received from charterers. These amounts are recognized as revenue over the voyage or charter period.
(ii) Drilling Units included up to June 8, 2015 (date of deconsolidation):
Revenues:
Our services and deliverables are generally sold based upon contracts with its customers that include fixed or determinable prices. We recognize revenue when delivery occurs, as directed by our customer and collectability is reasonably assured. We evaluate if there are multiple deliverables within the contracts and whether the agreement conveys the right to use the drilling units for a stated period of time and meets the criteria for lease accounting, in addition to providing a drilling services element, which are generally compensated for by day rates. In connection with drilling contracts, we may also receive revenues for preparation and mobilization of equipment and personnel or for capital improvements to the drilling units and dayrate or fixed price mobilization and demobilization fees. Revenues are recorded net of agents' commissions. There are two types of drilling contracts: well contracts and term contracts.
(a) Well contracts:
Well contracts are contracts under which the assignment is to drill a certain number of wells. Revenue from day-rate based compensation for drilling operations is recognized in the period during which the services are rendered at the rates established in the contracts. All mobilization revenues, direct incremental expenses of mobilization and contributions from customers for capital improvements are initially deferred and recognized as revenues over the estimated duration of the drilling period. To the extent that expenses exceed revenue to be recognized, they are expensed as incurred. Demobilization revenues and expenses are recognized over the demobilization period. All revenues for well contracts are recognized as "Service revenue" in the statement of operations.
(b) Term contracts:
Term Contracts are contracts under which the assignment is to operate the unit for a specified period of time. For these types of contracts we determine whether the arrangement is a multiple element arrangement containing both a lease element and drilling services element. For revenues derived from contracts that contain a lease, the lease elements are recognized as "leasing revenues" in the statement of operations on a basis approximating straight line over the lease period. The drilling services element is recognized as "service revenues" in the period in which the services are rendered at estimated fair value. Revenues related to the drilling element of mobilization and direct incremental expenses of drilling services are deferred and recognized over the estimated duration of the drilling period. To the extent that expenses exceed revenue to be recognized, they are expensed as incurred. Demobilization fees and expenses are recognized over the demobilization period. Contributions from customers for capital improvements are initially deferred and recognized as revenues over the estimated duration of the drilling contract.
Business combinations
We use the acquisition method of accounting under the authoritative guidance on business combinations, which requires an acquirer in a business combination to recognize the assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at their fair values at the acquisition date. The costs of the acquisition and any related restructuring costs are to be recognized separately in the Consolidated Statements of Operations. The acquired company's operating results are included in our consolidated financial statements starting on the date of acquisition.
The purchase price is equivalent to the fair value of the consideration transferred and liabilities incurred, including liabilities related to contingent consideration. Tangible and identifiable intangible assets acquired and liabilities assumed as of the date of acquisition are recorded at the acquisition date fair value. Goodwill is recognized for the excess of the purchase price over the net fair value of assets acquired and liabilities assumed. When the fair value of net assets acquired exceeds the fair value of consideration transferred plus any non-controlling interest in the acquiree, the excess is recognized as a gain.
Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value of net assets acquired. Goodwill is reviewed for impairment whenever events or circumstances indicate possible impairment in accordance with Accounting Standard Codification ("ASC") 350 "Goodwill and Other Intangible Assets". This standard requires that goodwill and other intangible assets with an indefinite life not be amortized but instead tested for impairment at least annually. We test goodwill for impairment each year on December 31. We test goodwill at the reporting unit level, which is defined as an operating segment or a component of an operating segment that constitutes a business for which financial information is available and is regularly reviewed by management. The impairment of goodwill is tested by comparing the reporting unit's carrying amount, including goodwill, to the fair value of the reporting unit. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of the impairment loss, if any. For the year ended December 31, 2015, we concluded that the goodwill relating to our offshore support reporting unit was not impaired. To determine the fair value of each reporting unit, we use a combination of generally accepted valuation methodologies, including both income and market approaches. For our offshore support reporting unit, we estimate the fair market value using estimated discounted cash flows and publicly traded company multiples. We discount projected cash flows using a long-term weighted average cost of capital, which is based on our estimate of the investment returns that market participants would require for each of our reporting units. To develop the projected cash flows associated with our offshore support reporting unit, which are based on estimated future utilization and dayrates, we consider key factors that include assumptions regarding future commodity prices, credit market uncertainties and the effect these factors may have on our operations and the capital expenditure budgets of our customers. We derive publicly traded company multiples for companies with operations similar to our reporting units using information on shares traded on stock exchanges and, when they are available, from analyses of recent acquisitions in the marketplace. For our offshore reporting unit, we estimate fair market value using estimated discounted cash flows based on assumptions for future commodity prices, projected demand for its services, vessels' availability and dayrates.
Investments in Affiliates
Affiliates are entities over which we generally have between 20% and 50% of the voting rights, or over which we have significant influence, but over which we do not exercise control. Investments in these entities are accounted for by the equity method of accounting. Under this method we record an investment in the stock of an affiliate at cost or at fair value in case of a retained investment in the common stock of an investee in a deconsolidation transaction, and adjust the carrying amount for our share of the earnings or losses of the affiliate subsequent to the date of investment and report the recognized earnings or losses in income. Dividends received from an affiliate reduce the carrying amount of the investment. When our share of losses in an affiliate equals or exceeds our interest in the affiliate, we do not recognize further losses, unless we have incurred obligations or made payments on behalf of the affiliate.
Selected Financial Data
Following our entry into the construction contracts for our 12 newbuilding tankers in 2010 and our acquisition of Ocean Rig ASA in 2008 and entry into the construction contracts for our four operating drilling units in 2008 and 2009, we had three reportable segments, the drybulk carrier segment, tanker segment and the offshore drilling segment. We commenced consolidation of Ocean Rig ASA on May 15, 2008.
During 2015, we sold our entire tanker fleet. In addition, o
n June 8, 2015, following an equity offering of Ocean Rig, we lost our controlling financial interest and deconsolidated Ocean Rig from our financial statements. Finally, on October 21, 2015 we acquired the majority of the issued and outstanding share capital of Nautilus, which indirectly through its subsidiaries owns six offshore supply vessels. As a result of the above transactions, on December 31, 2015, we had two
reportable segments, the drybulk carrier segment and the offshore support segment.
The table below reflects our voyage days, calendar days, fleet utilization and TCE rates for our Drybulk, tanker and offshore support vessels for the periods indicated. Please see "Item 3. Key Information—A. Selected Financial Data" for information concerning the calculation of TCE rates.
Drybulk carrier segment
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
Average number of vessels
|
|
|
37.15
|
|
|
|
38.69
|
|
|
|
35.78
|
|
Total voyage days for fleet
|
|
|
13,442
|
|
|
|
13,889
|
|
|
|
12,562
|
|
Total calendar days for fleet
|
|
|
13,560
|
|
|
|
14,122
|
|
|
|
13,060
|
|
Fleet Utilization
|
|
|
99.13
|
%
|
|
|
98.35
|
%
|
|
|
96.19
|
%
|
Time charter equivalent
|
|
$
|
12,062
|
|
|
$
|
12,354
|
|
|
$
|
9,171
|
|
Tanker segment
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
Average number of vessels
|
|
|
9.86
|
|
|
|
10.00
|
|
|
|
6.21
|
|
Total voyage days for fleet
|
|
|
3,598
|
|
|
|
3,650
|
|
|
|
2,168
|
|
Total calendar days for fleet
|
|
|
3,598
|
|
|
|
3,650
|
|
|
|
2,267
|
|
Fleet Utilization
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
95.63
|
%
|
Time charter equivalent
|
|
$
|
12,900
|
|
|
$
|
21,835
|
|
|
$
|
36,389
|
|
Offshore support segment
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
Average number of vessels
|
|
|
-
|
|
|
|
-
|
|
|
|
6.0
|
|
Total voyage days for fleet
|
|
|
-
|
|
|
|
-
|
|
|
|
426
|
|
Total calendar days for fleet
|
|
|
-
|
|
|
|
-
|
|
|
|
426
|
|
Fleet Utilization
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
%
|
Time charter equivalent
|
|
|
-
|
|
|
|
-
|
|
|
$
|
18,460
|
|
Year ended December 31, 2015 compared to the year ended December 31, 2014
(Expressed in thousands of U.S. Dollars)
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
2015
|
|
|
Change
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,185,524
|
|
|
$
|
969,825
|
|
|
$
|
(1,215,699
|
)
|
|
|
(55.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
117,165
|
|
|
|
65,286
|
|
|
|
(51,879
|
)
|
|
|
(44.3
|
)%
|
Vessels and drilling units operating expenses
|
|
|
844,260
|
|
|
|
371,074
|
|
|
|
(473,186
|
)
|
|
|
(56.0
|
)%
|
Depreciation and amortization
|
|
|
449,792
|
|
|
|
227,652
|
|
|
|
(222,140
|
)
|
|
|
(49.4
|
)%
|
Loss on contract cancellation
|
|
|
1,307
|
|
|
|
28,241
|
|
|
|
26,934
|
|
|
|
2,060.7
|
%
|
Impairment loss and loss from sale of vessels and vessel owning companies
|
|
|
38,148
|
|
|
|
1,057,116
|
|
|
|
1,018,968
|
|
|
|
2,671.1
|
%
|
General and administrative expenses
|
|
|
193,686
|
|
|
|
104,912
|
|
|
|
(88,774
|
)
|
|
|
(45.8
|
)%
|
Legal settlements and other, net
|
|
|
(2,013
|
)
|
|
|
(2,948
|
)
|
|
|
(935
|
)
|
|
|
46.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)
|
|
|
543,179
|
|
|
|
(881,508
|
)
|
|
|
(1,424,687
|
)
|
|
|
(262.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME /(EXPENSES):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and finance costs
|
|
|
(411,021
|
)
|
|
|
(172,132
|
)
|
|
|
238,889
|
|
|
|
(58.1
|
)%
|
Interest income
|
|
|
12,146
|
|
|
|
527
|
|
|
|
(11,619
|
)
|
|
|
(95.7
|
)%
|
Loss on interest rate swaps
|
|
|
(15,528
|
)
|
|
|
(11,601
|
)
|
|
|
3,927
|
|
|
|
(25.3
|
)%
|
Other, net
|
|
|
7,067
|
|
|
|
(9,275
|
)
|
|
|
(16,342
|
)
|
|
|
(231.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net
|
|
|
(407,336
|
)
|
|
|
(192,481
|
)
|
|
|
214,855
|
|
|
|
(52.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME/(LOSS) BEFORE INCOME TAXES AND EARNINGS OF AFFILIATED COMPANIES
|
|
|
135,843
|
|
|
|
(1,073,989
|
)
|
|
|
(1,209,832
|
)
|
|
|
(890.6
|
)%
|
Loss due to deconsolidation of Ocean Rig
|
|
|
-
|
|
|
|
(1,347,106
|
)
|
|
|
(1,347,106
|
)
|
|
|
-
|
|
Income taxes
|
|
|
(77,823
|
)
|
|
|
(37,119
|
)
|
|
|
40,704
|
|
|
|
(52.3
|
)%
|
Equity in net losses of Ocean Rig
|
|
|
-
|
|
|
|
(349,872
|
)
|
|
|
(349,872
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME/(LOSS)
|
|
|
58,020
|
|
|
|
(2,808,086
|
)
|
|
|
(2,866,106
|
)
|
|
|
(4,939.9
|
)%
|
Less: Net (income)
attributable to non-controlling interests
|
|
|
(105,532
|
)
|
|
|
(38,975
|
)
|
|
|
66,557
|
|
|
|
(63.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO DRYSHIPS INC.
|
|
$
|
(47,512
|
)
|
|
$
|
(2,847,061
|
)
|
|
$
|
(2,799,549
|
)
|
|
|
5,892.3
|
%
|
Revenues
Drybulk Carrier segment
Voyage revenues decreased by $90.0 million, or 43.8%, to $115.6 million for the year ended December 31, 2015, as compared to $205.6 million for the year ended December 31, 2014. A decrease of $59.2 million, or 28.8%, is attributable to lower hire rates during the year ended December 31, 2015, as compared to the relevant period in 2014, while a decrease of $16.5 million, or 8.0% relates to the write-off in overdue receivables. Moreover, an additional decrease of $20.4 million, or 9.9%, is attributable to the decrease in the total voyage days by 1,327 days, from 13,889 days to 12,562 days, during the year ended December 31, 2015, as compared to the year ended December 31, 2014, mainly due to the sale of 16 vessels of our fleet. The decrease was partly offset by the amortization of above market acquired time charters which decreased by $6.1 million, or 3.0%, during the year ended December 31, 2015, as compared to the relevant period in 2014.
Tanker segment
Voyage revenues decreased by $42.5 million, or 26.1%, to $120.3 million for year ended December 31, 2015, as compared to $162.8 million for year ended December 31, 2014. A decrease of $66.1 million or 40.6% is attributable to the decrease in total voyage days by 1,482, from 3,650 days to 2,168 days, during the year ended December 31, 2015, as compared to the relevant period in 2014,
due to the sale of our tanker fleet during the
year ended December 31, 2015. The decrease was partly offset by an increase of $23.6 million, or 14.5%, which is attributable to higher hire rates during the year ended December 31, 2015, as compared to the relevant period in 2014.
Offshore support segment
From October 21, 2015, we entered into the offshore support business segment through the acquisition of Nautilus Offshore Services Inc. which owns six Offshore Supply Vessels of which four are oil spill recovery vessels (OSRVs) and two are platform supply vessels (PSVs). As a result, revenues from the Offshore support business segment amounted to $8.1 million for the year ended December 31, 2015.
Offshore Drilling segment- included up to June 8, 2015 (date of deconsolidation)
Revenues from drilling contracts decreased by $1,091.3 million, or 60.1%, to $725.8 million for the year ended December 31, 2015, as compared to $1,817.1 million for the year ended December 31, 2014. From June 8, 2015, Ocean Rig has been considered as an affiliated entity and not as a controlled subsidiary of the Company. As a result, Ocean Rig has been accounted for under the equity method and revenues are consolidated in the Company's statement of income for the period up to June 8, 2015. Therefore the decrease in revenues is mainly due to the deconsolidation of the drilling segment on June 8, 2015, which resulted in less days in 2015 for our drilling fleet. More specifically,
revenues from drilling contracts decreased due to the decreased revenues contributed from the
Ocean Rig Olympia
and the
Ocean Rig Skyros
amounting to $66.3 million, as compared to $410.0 million during the same period in 2014, the operations of the
Eirik Raude
and the
Leiv Eiriksson
, which contributed $165.3 million during the year ended December 31, 2015, as compared to $427.7 million during the same period in 2014 and
the operations of the
Ocean Rig Mylos
, the
Ocean Rig Poseidon,
the
Ocean Rig Mykonos,
the
Ocean Rig Corcovado
and the
Ocean Rig Athena
which contributed $462.4 million revenues during the year ended December 31, 2015, as compared to $978.9 million during the same period in 2014. The decrease was partly offset by an increase in the operations of the
Ocean Rig Apollo
that was added to the fleet during the first quarter of 2015, resulting in additional revenues of $31.3 million.
Voyage expenses
Drybulk Carrier segment
Voyage expenses decreased by $10.4 million or 30.6%, to $23.6 million for the year ended December 31, 2015, as compared to $34.0 million for the year ended December 31, 2014. The decrease in voyage expenses is mainly due to the decrease in address and brokerage commissions which relates to the respective decrease in voyage revenues and the decrease in bunker expenses for the year ended December 31, 2015.
Tanker segment
Voyage expenses decreased by $41.8 million, or 50.2%, to $41.4 million for the year ended December 31, 2015, as compared to $83.2 million for the year ended December 31, 2014. The decrease is due to the sale of our tanker fleet during the year ended December 31, 2015.
Offshore support segment
From October 21, 2015, we entered into offshore support business segment through the acquisition of Nautilus Offshore Services Inc. which owns six Offshore Supply Vessels. As a result, voyage expenses from the Offshore support business segment amounted to $0.3 million for the year ended December 31, 2015.
Offshore Drilling segment- included up to June 8, 2015 (date of deconsolidation)
The Offshore Drilling segment did not incur any voyage expenses during the relevant periods.
Vessels and drilling units operating expenses
Drybulk Carrier segment
Drybulk vessels operating expenses decreased by $2.7 million, or 2.99%, to $87.7 million for the year ended December 31, 2015, as compared to $90.4 million for the year ended December 31, 2014. The decrease is mainly due to the sale of 16 of our Drybulk vessels during the year ended December 31, 2015. The decrease was partly offset by increased drydocking expenses recognized during the year ended December 31, 2015 amounting to $19.1 million.
Tanker segment
Tanker vessels operating expenses decreased by $6.3 million, or 24.1%, to $19.8 million for the year ended December 31, 2015, as compared to $26.1 million for the year ended December 31, 2014. Operating expenses for the tankers segment decreased due to the sale of our tanker fleet
during
the year ended December 31, 2015 however the decrease was partly offset by an increase due to increased dry-docking expenses of $4.6 million recognized during the year ended December 31, 2015, as compared to the same period in 2014.
Offshore support segment
From October 21, 2015 we entered into offshore support business segment through the acquisition of Nautilus Offshore Services Inc. which owns six Offshore Supply Vessels. As a result, vessels operating expenses from Offshore support business segment amounted to $4.0 million for the year ended December 31, 2015.
Offshore Drilling segment- included up to June 8, 2015 (date of deconsolidation)
Drilling units operating expenses decreased by $468.2 million, or 64.3%, to $259.6 million for the year ended December 31, 2015, compared to $727.8 million for the year ended December 31, 2014. From June 8, 2015, Ocean Rig has been considered as an affiliated entity and not as a controlled subsidiary of the Company. As a result, Ocean Rig has been accounted for under the equity method, and operating expenses are consolidated in the Company's statement of income for the period up to June 8, 2015. Drilling units operating expenses decreased by $474.8 million due to the decrease in operating expenses of the
Leiv Eiriksson,
the
Eirik Raude
, the
Ocean Rig Olympia
, the
Ocean Rig Poseidon,
the
Ocean Rig Mykonos,
the
Ocean Rig Corcovado,
the
Ocean Rig Mylos,
the
Ocean Rig Skyro
and the
Ocean Rig Athena
. This decrease was partly offset by the operations of the
Ocean Rig Apollo
, that was added to the fleet during the first quarter of 2015, resulting in higher operating expenses in the year ended December 31, 2015, amounting to $6.6 million.
Depreciation and amortization expense
Drybulk Carrier segment
Depreciation and amortization expense decreased by $34.1 million, or 34.2%, to $65.6 million for the year ended December 31, 2015, as compared to $99.7 million for the year ended December 31, 2014. The decreased depreciation charge for the drybulk fleet for the year ended December 31, 2015, as compared to the same period in 2014, is due to the fact that no depreciation charge was recorded for our dry bulk carriers after their classification as held for sale on September 9, 2015.
Tanker segment
Depreciation and amortization expense decreased by $18.4 million, or 75.4%, to $6.0 million for the year ended December 31, 2015, as compared to $24.4 million for the year ended December 31, 2014. The decrease is due to the fact that no depreciation charge was recorded for these vessels after the classification of the tanker fleet as held for sale on March 30, 2015. As of December 31, 2015 all tanker vessels have been delivered to their new owners.
Offshore support segment
From October 21, 2015, we entered into the offshore support business segment through the acquisition of Nautilus Offshore Services Inc. which owns six Offshore Supply Vessels. As a result, depreciation and amortization expenses from the Offshore support business segment amounted to $0.7 million for the year ended December 31, 2015.
Offshore Drilling segment- included up to June 8, 2015 (date of deconsolidation)
Depreciation and amortization expense for the drilling units decreased by $170.3 million, or 52.3%, to $155.4 million for the year ended December 31, 2015, as compared to $325.7 million for the year ended December 31, 2014. From June 8, 2015, Ocean Rig has been considered as an affiliated entity and not as a controlled subsidiary of the Company. As a result, Ocean Rig has been accounted for under the equity method and the depreciation charge is consolidated in the Company's statement of income for the period up to June 8, 2015. Depreciation and amortization expense decreased due to a decrease of $177.2 million in depreciation expense charged for the
Leiv Eiriksson, the
Eirik Raude, the
Ocean Rig Corcovado,
the
Ocean Rig Olympia,
the
Ocean Rig Poseidon,
the
Ocean Rig Mykonos,
the
Ocean Rig Mylos,
the
Ocean Rig Skyros
and the
Ocean Rig Athena.
These decreases were partly offset by an increase due to the operation of the
Ocean Rig Apollo,
which was added to the fleet during the first quarter of 2015, amounting to $8.0 million.
Impairment loss and loss from sale of vessels and vessel owning companies
Drybulk Carrier segment
During the year ended December 31, 2015, we recorded an impairment loss and loss from sale of vessels and vessel owning companies of $1.0 billion. A loss of $83.9 million was recorded as a result of the impairment review performed, prior to the entering into agreements for the sale of our vessels and vessel owning companies. Furthermore, following the sales agreements for 14 vessel owning companies and three of our dry bulk vessels and the classification of the remaining 22 vessels of our dry bulk fleet as held for sale, we incurred an additional charge of $797.5 million included in "Impairment loss and loss from sale of vessels and vessel owning companies". In addition and as a result of the further deterioration of the market values of the vessels held for sale an additional charge of $113.0 million was recorded during the three months ended December 31, 2015 and included in "Impairment loss and loss from sale of vessels and vessel owning companies". Finally, a charge of $6.0 million was recognized due to the sale of the vessels Byron and Galveston. During the year ended December 31, 2014, we recorded an impairment loss of $38.1 million as a result of the impairment analysis performed for our Drybulk carriers.
Tanker segment
During the year ended December 31, 2015 and following the ten Memoranda of Agreement for the sale of our tanker vessels we recorded a charge of $56.6 million as a result of the reduction of the vessels' carrying amount to their fair value less cost to sell. No such loss was recorded during the relevant period in 2014.
Offshore support segment
The Offshore support segment did not incur any impairment loss during the relevant period.
Offshore Drilling segment- included up to June 8, 2015 (date of deconsolidation)
The Offshore Drilling segment did not incur any impairment loss during the relevant periods.
Loss on contract cancellation
Drybulk Carrier segment
During the year ended December 31, 2015, we incurred $28.2 million loss on contract cancellation, due to an agreement that we concluded with one of our charterers to write-off overdue receivables in exchange of amending certain terms of the respective time charter contracts. During the year ended December 31, 2014, we recorded a loss on contract cancellation of $1.3 million related to the cancellation of the construction of our four newbuildings.
Tanker segment
The Tanker segment did not incur any loss on contract cancellation during the relevant periods.
Offshore support segment
The Offshore support segment did not incur any loss on contract cancellation during the relevant period.
Offshore Drilling segment- included up to June 8, 2015 (date of deconsolidation)
The Offshore Drilling segment did not incur any loss on contract cancellation during the relevant periods.
General and administrative expenses
Drybulk Carrier segment
General and administrative expenses decreased by $3.9 million, or 8.1%, to $44.5 million for the year ended December 31, 2015, compared to $48.4 million for the year ended December 31, 2014. General and administrative expenses decreased mainly due to the decrease in management fees due to the sale of 16 of our Drybulk carriers.
Tanker segment
General and administrative expenses decreased by $3.0 million, or 22.2%, to $10.5 million for the year ended December 31, 2015, compared to $13.5 million for the year ended December 31, 2014. General and administrative expenses decreased mainly due to the decrease in management fees due to the sale of our tanker fleet within 2015.
Offshore support segment
From October 21, 2015 we entered into the offshore support business segment through the acquisition of Nautilus Offshore Services Inc. which owns six Offshore Supply Vessels. As a result, general and administrative expenses from the Offshore support business segment amounted to $2.9 million for the year ended December 31, 2015.
Offshore Drilling segment- included up to June 8, 2015 (date of deconsolidation)
General and administrative expenses decreased by $84.7 million, or 64.3%, to $47.0 million for the year ended December 31, 2015, as compared to $131.7 million for year ended December 31, 2014. From June 8, 2015, Ocean Rig has been considered as an affiliated entity and not as a controlled subsidiary of the Company. As a result, Ocean Rig has been accounted for under the equity method and general and administrative expenses are consolidated in the Company's statement of income for the period up to June 8, 2015. General and administrative expenses decreased during the year ended December 31, 2015, due to the decreased cost for the operation of the offices in Angola and Athens and decreased consultancy fees.
Legal settlements and other, net
Drybulk Carrier segment
Legal settlements and other, net amounted to a gain of $1.0 million for the year ended December 31, 2015,
as compared to a gain of $1.3 million in the relevant period in 2014.
Tanker segment
The Tanker segment did not incur any such gains or losses during the relevant periods.
Offshore support segment
The offshore support segment did not incur any significant gains or losses during the relevant period.
Offshore Drilling segment- included up to June 8, 2015 (date of deconsolidation)
Legal settlements and other, net increased by $1.3 million, or 185.7%, to a gain of $2.0 million for the year ended December 31, 2015, as compared to a gain of $0.7 million, for the year ended December 31, 2014. From June 8, 2015, Ocean Rig has been considered as an affiliated entity and not as a controlled subsidiary of the Company. As a result, Ocean Rig has been accounted for under the equity method, and legal settlements and other net are consolidated in the Company's statement of income for the period up to June 8, 2015. The gain during the year ended December 31, 2015, concerns an insurance claim for
Ocean Rig Mylos
, as compared to
the gain of $0.7 million recorded during the year ended December 31, 2014, which relates to write off of claims from a major shipyard in Korea, cancellation fees and credit notes received.
Interest and finance costs
Drybulk Carrier segment
Interest and finance costs decreased by $61.9 million, or 60.9%, to $39.8 million for the year ended December 31, 2015, as compared to $101.7 million for the year ended December 31, 2014.
The decrease is mainly
due to the repayment of our Convertible Senior Notes during November 2014 and the repayments and transfers of the loans associated with the vessels and vessel owning companies sold during 2015 and was partly offset by the cancellation fees and write-off of financing fees of the loans associated with the sale of our vessels and vessel owning companies, during the year ended December 31, 2015.
Tanker segment
Interest and finance costs decreased by $1.7 million, or 16.2% to $8.8 million for the year ended December 31, 2015, as compared to $10.5 for the year ended December 31, 2014.
The
decrease
is mainly due
to repayments of the loans associated with the vessels sold during the year ended December 31, 2015
.
Offshore support segment
From October 21, 2015, we entered into the offshore support business segment through the acquisition of Nautilus Offshore Services Inc. which owns six Offshore Supply Vessels. As a result, interest and finance costs from the Offshore support business segment amounted to $0.1 million for the year ended December 31, 2015.
Offshore Drilling segment- included up to June 8, 2015 (date of deconsolidation)
Interest and finance costs decreased by $175.3 million, or 58.7%, to $123.5 million for year ended December 31, 2015, compared to $298.8 million for the year ended December 31, 2014. From June 8, 2015, Ocean Rig has been considered as an affiliated entity and not as a controlled subsidiary of the Company. As a result, Ocean Rig has been accounted for under the equity method and interest and finance costs are consolidated in the Company's statement of income for the period up to June 8, 2015. The decrease is also associated with the non-cash write-offs and redemption costs associated with the full refinancing of Ocean Rig's $500.0 million 9.5% senior unsecured notes due 2016, totaling $32.6 million, during the year ended December 31, 2014, which were partly offset by the higher level of debt during the year ended December 31, 2015.
Interest income
Drybulk Carrier segment
Interest income decreased by $0.9 million, or 90%, to $0.1 million for the year ended December 31, 2015, as compared to $1.0 million for the year ended December 31, 2014. The decrease was mainly due to a decrease in bank interest rates in time deposits during the year ended December 31, 2015, as compared to the relevant period in 2014.
Tanker segment
The Tanker segment did not earn any significant interest income during the relevant periods.
Offshore support segment
The offshore support segment did not earn any significant interest income during the relevant period.
Offshore Drilling segment- included up to June 8, 2015 (date of deconsolidation)
Interest income decreased by $10.7 million, or 96.4%, to $0.4 million for the year ended December 31, 2015, compared to $11.1 million for the year ended December 31, 2014.
From June 8, 2015, Ocean Rig has been considered as an affiliated entity and not as a controlled subsidiary of the Company. As a result, Ocean Rig has been accounted for under the equity method and interest income is consolidated in the Company's statement of income for the period up to June 8, 2015. The decrease was also due to the decreased interest rates on our deposits during the year ended December 31, 2015, as compared to the relevant period in 2014.
Loss on interest rate swaps
Drybulk Carrier segment
Losses on interest rate swaps decreased by $0.5 million, or 45.5%, to $0.6 million for the year ended December 31, 2015, as compared to $1.1 million for the year ended December 31, 2014, due to the termination of the swaps associated with the vessels and vessel owning companies sold as well as mark to market losses of outstanding swap positions.
Tanker segment
Losses on interest rate
swaps decreased by $0.3 million or 17.6% to a loss
on interest rate swaps
of $1.4
million for the year ended December 31, 2015, as compared to a loss of $1.7 million for the year ended December 31, 2014. The loss for the year ended December 31, 2015, was mainly due to mark to market losses of outstanding swap positions.
Offshore support segment
The offshore support segment did not incur any gains or losses on interest rate swaps during the relevant period.
Offshore Drilling segment- included up to June 8, 2015 (date of deconsolidation)
For the year ended December 31, 2015, the drilling segment incurred losses on interest rate swaps of $9.6 million, as compared to losses of $12.7 million for year ended December 31, 2014. From June 8, 2015, Ocean Rig has been considered as an affiliated entity and not as a controlled subsidiary of the Company. As a result, Ocean Rig has been accounted for under the equity method and loss on interest rate swaps is consolidated in the Company's statement of income for the period up to June 8, 2015. The loss for the year ended December 31, 2015, was mainly due to mark to market losses of outstanding swap positions.
Other, net
Drybulk carrier segment
Other, net amounted to a loss of $0.7 million for the year ended December 31, 2015, compared to a gain of $1.6 million for the year ended December 31, 2014. The loss is mainly due to foreign currency exchange rate differences.
Tanker segment
Other, net amounted to a gain of $0.4 million for the year ended December 31, 2015, as compared to a gain of $1.2 million for the year ended December 31, 2014. The gain is mainly due to foreign currency exchange rate differences.
Offshore support segment
From October 21, 2015, we entered into the offshore support business segment through the acquisition of Nautilus Offshore Services Inc. which owns six Offshore Supply Vessels. As a result, other, net from the Offshore support business segment amounted to $2.8 million for the year ended December 31, 2015.
Offshore Drilling segment- included up to June 8, 2015 (date of deconsolidation)
Other, net amounted to a loss of $6.3 million for the year ended December 31, 2015, compared to a gain of $4.3 million for the year ended December 31, 2014. From June 8, 2015, Ocean Rig has been considered as an affiliated entity and not as a controlled subsidiary of the Company. As a result, Ocean Rig has been accounted for under the equity method and other, net are consolidated in the Company's statement of income for the period up to June 8, 2015. The loss recognized is due to foreign currency exchange rate differences.
Loss due to deconsolidation of Ocean Rig
During the year ended December 31, 2015 and following an equity offering of Ocean Rig on June 8, 2015, we lost our controlling financial interest and deconsolidated Ocean Rig from our financial statements. As a result of the above transaction, we incurred a loss due to deconsolidation of $1.3 billion.
Income taxes
Drybulk Carrier segment
We did not incur any income taxes on international shipping income in our Drybulk Carrier segment for the relevant periods.
Tanker segment
We did not incur any income taxes on international shipping income in our Tanker segment for the relevant periods.
Offshore support segment
From October 21, 2015, we entered into the offshore support business segment through the acquisition of Nautilus Offshore Services Inc. which owns six Offshore Supply Vessels. As a result, income taxes from the Offshore support business segment amounted to $0.2 million for the year ended December 31, 2015.
Offshore Drilling segment- included up to June 8, 2015 (date of deconsolidation)
Income taxes decreased by $40.9 million, or 52.6%, to $36.9 million for year ended December 31, 2015, compared to $77.8 million for the year ended December 31, 2014.
From June 8, 2015, Ocean Rig has been considered as an affiliated entity and not as a controlled subsidiary of the Company. As a result, Ocean Rig has been accounted for under the equity method and income taxes are consolidated in the Company's statement of income for the period up to June 8, 2015. As Ocean Rig's drilling units operate around the world, they may become subject to taxation in many different jurisdictions. The basis for such taxation depends on the relevant regulation in the countries in which we operate. Consequently, there is no expected relationship between the income tax expense or benefit for the period and the income or loss before taxes.
Equity in net losses of affiliated company
During the year ended December 31, 2015 and following an equity offering of Ocean Rig on June 8, 2015, we lost our controlling financial interest and deconsolidated Ocean Rig from our financial statements. As a result of the above transaction, we presented our share of losses from Ocean Rig amounting to $349.9 million,
including $310.5 of impairment in Ocean Rig investment,
as a single amount in the consolidated statements of operations.
Net income attribute to
non-controlling interests
Net income attributed to non-controlling interests amounted to $39.0 million for the year ended December 31, 2015, as compared to $105.5 million for the year ended December 31, 2014. This represents the amount of consolidated income that was not attributable to DryShips Inc F
ollowing an equity offering of Ocean Rig on June 8, 2015, we lost our controlling financial interest and deconsolidated Ocean Rig from our financial statements
.
Year ended December 31, 2014 compared to the year ended December 31, 2013
(Expressed in thousands of U.S. Dollars)
|
|
Year ended December 31,
|
|
|
|
|
|
|
2013
|
|
|
2014
|
|
|
Change
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,492,014
|
|
|
$
|
2,185,524
|
|
|
$
|
693,510
|
|
|
|
46.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
103,211
|
|
|
|
117,165
|
|
|
|
13,954
|
|
|
|
13.5
|
%
|
Vessels and drilling units operating expenses
|
|
|
609,765
|
|
|
|
844,260
|
|
|
|
234,495
|
|
|
|
38.5
|
%
|
Depreciation and amortization
|
|
|
357,372
|
|
|
|
449,792
|
|
|
|
92,420
|
|
|
|
25.9
|
%
|
Loss on sale of assets, net
|
|
|
-
|
|
|
|
1,307
|
|
|
|
1,307
|
|
|
|
-
|
%
|
Vessel impairment charge
|
|
|
43,490
|
|
|
|
38,148
|
|
|
|
(5,342
|
)
|
|
|
(12.3
|
)%
|
Contract termination fees and Other
|
|
|
33,293
|
|
|
|
-
|
|
|
|
(33,293
|
)
|
|
|
(100
|
)%
|
General and administrative expenses
|
|
|
184,722
|
|
|
|
193,686
|
|
|
|
8,964
|
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal settlements and other, net
|
|
|
4,585
|
|
|
|
(2,013
|
)
|
|
|
(6,598
|
)
|
|
|
(143.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
155,576
|
|
|
|
543,179
|
|
|
|
387,603
|
|
|
|
249.1
|
%
|
OTHER INCOME /(EXPENSES):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and finance costs
|
|
|
(332,129
|
)
|
|
|
(411,021
|
)
|
|
|
(78,892
|
)
|
|
|
23.8
|
%
|
Interest income
|
|
|
12,498
|
|
|
|
12,146
|
|
|
|
(352
|
)
|
|
|
(2.8
|
)%
|
Gain/(loss) on interest rate swaps
|
|
|
8,373
|
|
|
|
(15,528
|
)
|
|
|
(23,901
|
)
|
|
|
(285.5
|
)%
|
Other, net
|
|
|
2,245
|
|
|
|
7,067
|
|
|
|
4,822
|
|
|
|
214.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net
|
|
|
(309,013
|
)
|
|
|
(407,336
|
)
|
|
|
(98,323
|
)
|
|
|
31.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME/(LOSS) BEFORE INCOME TAXES
|
|
|
(153,437
|
)
|
|
|
135,843
|
|
|
|
289,280
|
|
|
|
(188.5
|
)%
|
Income taxes
|
|
|
(44,591
|
)
|
|
|
(77,823
|
)
|
|
|
(33,232
|
)
|
|
|
74.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME/(LOSS)
|
|
|
(198,028
|
)
|
|
|
58,020
|
|
|
|
256,048
|
|
|
|
(129.3
|
)%
|
Less: Net (income)/loss attributable to non-controlling interests
|
|
|
(25,065
|
)
|
|
|
(105,532
|
)
|
|
|
(80,467
|
)
|
|
|
321.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO DRYSHIPS INC.
|
|
$
|
(223,093
|
)
|
|
$
|
(47,512
|
)
|
|
$
|
175,581
|
|
|
|
(78.7
|
)%
|
Revenues
Drybulk Carrier segment
Voyage revenues increased by $14.6 million, or 7.6%, to $205.6 million for the year ended December 31, 2014, as compared to $191.0 million for the year ended December 31, 2013. An increase of $4.6 million, or 2.4%, is attributable to higher hire charter rates during the year ended December 31, 2014, as compared to the relevant period in 2013. Moreover, an additional increase of $6.7 million, or 3.5%, is attributable to the increase in the average number of vessels by 1.5 vessels, with total voyage days increasing by 447 days, from 13,442 days to 13,889 days, during the year ended December 31, 2014, as compared to the year ended December 31, 2013, Amortization of above market acquired time charters decreased by $3.3 million, or 1.7%, during the year ended December 31, 2014, as compared to the relevant period in 2013.
Tanker segment
Voyage revenues increased by $42.1 million, or 34.9%, to $162.8 million for year ended December 31, 2014, as compared to $120.7 million for year ended December 31, 2013. An increase of $40.3 million, or 33.4%, is attributable to higher hire rates during the year ended December 31, 2014, as compared to the relevant period in 2013. Moreover, an additional increase of $1.8 million or 1.5% is attributable to the increase in voyage days by 52, from 3,598 days to 3,650 days, during the year ended December 31, 2014, as compared to the year ended December 31, 2013.
Offshore Drilling segment
Revenues from drilling contracts increased by $636.8 million, or 54.0%, to $1,817.1 million for the year ended December 31, 2014, as compared to $1,180.3 million for the year ended December 31, 2013. The increase is primarily attributable to the increased revenues from the
Ocean Rig Mylos
and the
Ocean Rig Skyros
, which were added to the current fleet in the third and fourth quarter of 2013, amounting to $424.2 million in aggregate, the revenue from the
Ocean Rig Athena
, which was added to the current fleet in the first quarter of 2014, amounting to $144.3 million and the revenue of the
Ocean Rig Apollo
, which contributed $0.5 million due to recharges while under construction as agreed under contract terms. Furthermore, there was an increase in revenues earned by the
Ocean Rig Corcovado,
the
Ocean Rig Poseidon
and the
Leiv Eiriksson
which contributed an additional $110.4 million in revenues during the year ended December 31, 2014, as compared to the same period in 2013. This increase was partly offset by the decreased revenues earned by the
Ocean Rig Olympia,
the
Ocean Rig Mykonos
and the
Eirik Raude,
which contributed $42.5 million less in revenues for the year ended December 31, 2014, as compared to the same period in 2013.
Voyage expenses
Drybulk Carrier segment
Voyage expenses increased by $5.1 million or 17.6%, to $34.0 million for the year ended December 31, 2014, as compared to $28.9 million for the year ended December 31, 2013. The increase in voyage expenses is mainly due to the increased average number of vessels by approximately two as well as an increase in address and brokerage commissions and bunkers expenses for the year ended December 31, 2014.
Tanker segment
Voyage expenses increased by $8.9 million, or 12.0%, to $83.2 million for the year ended December 31, 2014, as compared to $74.3 million for the year ended December 31, 2013. The increase relates to the respective increase in voyage revenues.
Offshore Drilling segment
The Offshore Drilling segment did not incur any voyage expenses during the relevant periods.
Vessels and drilling units operating expenses
Drybulk Carrier segment
Vessels operating expenses increased by $11.8 million, or 15.0%, to $90.4 million for the year ended December 31, 2014, as compared to $78.6 million for the year ended December 31, 2013. The increase is mainly due to increased drydocking expenses of $8.8 million recognized during the year ended December 31, 2014. The increase is also attributable to the increase in the average number of vessels by approximately two, the increase in various crew expenses, repairs and stores and the greek tax voluntary contribution recognized for the year ended December 31, 2014, as compared to the year ended December 31, 2013.
Tanker segment
Vessels operating expenses slightly decreased by $0.1 million, or 0.4%, to $26.1 million for the year ended December 31, 2014, as compared to $26.2 million for the year ended December 31, 2013. The decrease is mainly due to the increased initial expenses incurred during the year ended December 31, 2013, for the delivery of the vessels Alicante, Mareta, Bordeira.
Offshore Drilling segment
Drilling units operating expenses increased by $222.8 million, or 44.1%, to $727.8 million for the year ended December 31, 2014, compared to $505.0 million for the year ended December 31, 2013. The increase in operating expenses was mainly due to the addition of the
Ocean Rig Athena
to the current fleet, resulting to operating expenses amounting to $46.9
million. Additionally, the significant increase is also due to the
Ocean Rig Skyros
and the
Ocean Rig Mylos
which were added to the
current fleet in the second and third quarter of 2013, amounting to $165.2 million. Furthermore, the
Ocean Rig Olympia
, the
Ocean Rig Mykonos
the
Ocean Rig Corcovado
and the
Leiv Eiriksson
resulted to increased operating expenses amounting to
$27.9 million. The total increase was partly offset by the decrease in operating expenses of the
Eirik Raude
which amounted to
$15.0 million in aggregate, whereas the operating expenses of the
Ocean Rig Poseidon
remained approximately the same for the
years ended 2013 and 2014.
Depreciation and amortization expense
Drybulk Carrier segment
Depreciation and amortization expense increased by $3.1 million, or 3.2%, to $99.7 million for the year ended December 31, 2014, as compared to $96.6 million for the year ended December 31, 2013. The increase is mainly attributable to the increase in the number of vessels owned by approximately two or 4.0% vessels on average during the year ended December 31, 2014, as compared to the relevant period in 2013.
Tanker segment
Depreciation and amortization expense slightly increased by $0.3 million, or 1.2%, to $24.4 million for the year ended December 31, 2014, as compared to $24.1 million for the year ended December 31, 2013.
Offshore Drilling segment
Depreciation and amortization expense for the drilling units increased by $89.0 million, or 37.6%, to $325.7 million for the year ended December 31, 2014, as compared to $236.7 million for the year ended December 31, 2013. The increase in depreciation and amortization expense was mainly attributable to the depreciation expense of the
Ocean Rig Athena
which was added to the current fleet, amounting to $24.0 million as well as the increased depreciation of the Ocean Rig Mylos and Ocean Rig Skyros which were added to the fleet in the third and fourth quarter of 2013, amounting to $51.5 million. Furthermore, the
Ocean Rig Mykonos
, the
Ocean Rig Corcovado
and the
Leiv Eiriksson
resulted to increased depreciation expense amounting to $15.0 million in aggregate. This increase was partly offset by the decrease in depreciation expense of $1.5 million in aggregate of the
Eirik Raude
and the offices. The depreciation expense charged for the
Ocean Rig Poseidon
and
Ocean Rig Olympia
, remained approximately the same for the year ended December 31, 2014, as compared to the corresponding period in 2013.
Loss on contract cancellation
Drybulk Carrier segment
During the year ended December 31, 2014, we recorded a loss on contract cancellation of $1.3 million related to the cancellation of the construction of our four newbuildings. No such loss was recorded during the relevant period in 2013.
Tanker segment
The Tanker segment did not incur any loss on contract cancellation during the relevant periods.
Offshore Drilling segment
The Offshore Drilling segment did not incur any loss on contract cancellation during the relevant periods.
Vessel impairment charge
Drybulk Carrier segment
During the year ended December 31, 2014, we recorded an impairment loss of $38.1 million as a result of the impairment analysis performed. During the year ended December 31, 2013, we recorded an aggregate impairment loss of $43.5 million related to the sale of four of our newbuildings (Hulls 1239, 1240, 1241 & 1242).
Tanker segment
The Tanker segment did not incur any impairment loss during the relevant periods.
Offshore Drilling segment
The Offshore Drilling segment did not incur any impairment loss during the relevant periods.
Contract termination fees and other
Drybulk Carrier segment
During the year ended December 31, 2013, contract termination fees and other were $33.3 million related to the sale of four of our newbuildings (Hulls 1239, 1240, 1241 & 1242). No such fees were recorded during the relevant period in 2014.
Tanker segment
During the year ended December 31, 2013, contract termination fees were $1.0 million related to the sale agreement of two of our newbuildings tankers. No such fees were recorded during the relevant period in 2014.
Offshore Drilling segment
The Offshore Drilling segment did not incur any contract termination fees during the relevant periods.
General and administrative expenses
Drybulk Carrier segment
General and administrative expenses increased by $3.6 million, or 8.0%, to $48.4 million for the year ended December 31, 2014, compared to $44.8 million for the year ended December 31, 2013. This increase was mainly due to the increase in management fees due to the increase in the number of vessels owned by approximately two and the increase in consultancy fees.
Tanker segment
General and administrative expenses slightly increased by $0.5 million, or 3.8%, to $13.5 million for the year ended December 31, 2014, compared to $13.0 million for the year ended December 31, 2013.
Offshore Drilling segment
General and administrative expenses increased by $4.8 million, or 3.8%, to $131.7 million for the year ended December 31, 2014, as compared to $126.9 million for year ended December 31, 2013. This increase is mainly due to increased costs for the operation of the offices in Athens and increased consultancy fees.
Legal settlements and other, net
Drybulk Carrier segment
Legal settlements and other net slightly decreased by $0.1 million, or 7.1%, to a gain of $1.3 million for the year ended December 31, 2014, compared to a gain of $1.4 million for the year ended December 31, 2013.
Tanker segment
The Tanker segment did not incur such gains or losses during the relevant periods.
Offshore Drilling segment
A gain of $0.7 million was realized for the year ended December 31, 2014, as compared to a loss of $6.0 million during the year ended December 31, 2013, resulting to an increase of $6.7 million or 111.7%. The amount of $6.0 million (loss) in legal settlements for 2013 is mainly related to a claim settlement related to revenue under dispute of the operation of the
Ocean Rig Corcovado
in Greenland during 2011.The amount of $0.7 million relates to write off of claims from a major shipyard in Korea, cancellation fees and credit notes received during the year ended 2014.
Interest and finance costs
Drybulk Carrier segment
Interest and finance costs decreased by $1.0 million, or 1.0%, to $101.7 million for the year ended December 31, 2014, as compared to $102.7 million for the year ended December 31, 2013. The decrease is mainly due to the decrease in the bond amortization for the year ended December 31, 2014 compared to the corresponding period in 2013.
Excludes intercompany interest expense of $1.2 million.
Tanker segment
Interest and finance costs slightly decreased by $0.6 million, or 5.4% to $10.5 million for the year ended December 31, 2014, as compared to $11.1 for the year ended December 31, 2013.
Offshore Drilling segment
Interest and finance costs increased by $80.4 million, or 36.8%, to $298.8 million for year ended December 31, 2014, compared to $218.4 million for the year ended December 31, 2013. The increase is mainly due to the non- cash write offs and breakage cost fees resulting from the full repayment of the $1.35 billion senior secured credit facility totaling $22.0 million and write offs and redemption costs associated with the full refinancing of the Company's $500.0 million 9.5% senior unsecured notes due 2016 totaling to $32.6 million as well as the higher level of debt and interest rate during the year ended December 31, 2014.
Interest income
Drybulk Carrier segment
Interest income decreased by $1.9 million, or 65.5%, to $1.0 million for the year ended December 31, 2014, as compared to $2.9 million for the year ended December 31, 2013. The decrease was mainly due to a decrease in bank interest rates in time deposits during the year ended December 31, 2014, as compared to the relevant period in 2013.
Tanker segment
The Tanker segment did not earn any significant interest income during the relevant periods.
Offshore Drilling segment
Interest income increased by $1.5 million, or 15.6%, to $11.1 million for the year ended December 31, 2014, compared to $9.6 million for the year ended December 31, 2013. The increase was mainly due to higher interest rates on our deposits and the duration of our time deposits during 2014 as compared to 2013.
Excludes intercompany interest income of $1.2 million.
Gain/(Loss) on interest rate swaps
Drybulk Carrier segment
Losses on interest rate swaps slightly decreased by $0.1 million, or 8.3%, to $1.1 million for the year ended December 31, 2014, as compared to $1.2 million for the year ended December 31, 2013, due to mark to market losses of outstanding swap positions.
Tanker segment
A loss on interest rate swaps of $1.7 million was realized for the year ended December 31, 2014, as compared to a gain of $1.0 million for the year ended December 31, 2014. The loss for the year ended December 31, 2014, was mainly due to the adverse movement of interest rates during 2014.
Offshore Drilling segment
For the year ended December 31, 2014, the drilling segment incurred losses on interest rate swaps of $12.7 million, as compared to gains of $8.6 million for the year ended December 31, 2013. The losses for the year ended December 31, 2014 was mainly due to payments of swap's interest.
Other, net
Drybulk carrier segment
Other, net amounted to a gain of $1.6 million for the year ended December 31, 2014, compared to a loss of $0.8 million for the year ended December 31, 2013. The increase is mainly due to foreign currency exchange rate differences and an amount recovered under protection and indemnity insurance policy.
Tanker segment
Other, net amounted to a gain of $1.2 million for the year ended December 31, 2014, as compared to a loss of $0.3 million for the year ended December 31, 2013. The increase is mainly due to foreign currency exchange rate differences.
Offshore Drilling segment
Other, net increased by $1.0 million, or 30.3% to a gain of $4.3 million for year ended December 31, 2014, compared to a gain of $3.3 million for the year ended December 31, 2013. The increase is mainly due to foreign currency exchange rate differences.
Income taxes
Drybulk Carrier segment
We did not incur any income taxes on international shipping income in our Drybulk Carrier segment for the relevant periods.
Tanker segment
We did not incur any income taxes on international shipping income in our Tanker segment for the relevant periods.
Offshore Drilling segment
Income taxes increased by $33.2 million, or 74.4%, to $77.8 million for year ended December 31, 2014, compared to $44.6 million for the year ended December 31, 2013. As our drilling units operate around the world, they may become subject to taxation in many different jurisdictions. The basis for such taxation depends on the relevant regulation in the countries in which we operate. Consequently, there is no expected relationship between the income tax expense or benefit for the period and the income or loss before taxes.
Net (income)/loss attribute to
non-controlling interests
Net (income)/
loss attributed to non-controlling interests amounted to gain of $105.5 million for the year ended December 31, 2014, as compared to gain of $ 25.1 million for the year ended December 31, 2013. This represents the amount of consolidated income or loss that is not attributable to DryShips Inc.
Recent Accounting Pronouncements
A discussion of the recent accounting pronouncement can be found in our consolidated financial statements in Note 2.
B.
Liquidity and Capital Resources
Historically our principal source of funds has been equity provided by our shareholders through equity offerings, operating cash flows and long term borrowings. Our principal use of funds has been capital expenditures to establish, grow and maintain the quality of our fleet, comply with international shipping standards and environmental laws and regulations, fund working capital requirements, make principal repayments and interest payments on outstanding debt facilities, and pay dividends. Our board of directors determined to suspend the payment of cash dividends beginning in the fourth quarter of 2008.
Our internally generated cash flow is directly related to our business and the market sectors in which we operate. Should the markets in which we operate deteriorate or worsen, or should we experience poor results in our operations, cash flow from operations may be reduced. Given the prolonged market downturn in the drybulk segment and the continued depressed outlook on freight rates and vessels' market values, cash expected to be generated from operations or proceeds from the sale of vessels, assuming that current market charter hire rates would prevail in the twelve-month period ending December 31, 2016, will not be sufficient to cover our working capital deficit. Our access to debt and equity markets may be reduced or closed due to a variety of events, including a credit crisis, credit rating agency downgrades of our debt, industry conditions, general economic conditions, market conditions and market perceptions of us and our industry.
As of December 31, 2015, our cash balances (including restricted cash) amounted to $15.0 million. Our cash and cash equivalents decreased by $566.2 million, or 100%, to nil as of December 31, 2015, compared to $566.2 million as of December 31, 2014.
The decrease in our cash and cash equivalents was mainly due to the deconsolidation of Ocean Rig, which resulted into a cash decrease of $621.6 million. On June 8, 2015, following an equity offering of Ocean Rig, our ownership decreased to 47.2% and, accordingly, we lost our controlling financial interest and deconsolidated Ocean Rig from our financial statements. The decrease is also attributable to the acquisition of Nautilus which had a cash outflow of $78.2 million. In addition the decrease was due to loan repayments of $782.4 million, dividends paid amounting to $20.5 million, fixed asset additions amounting to $505.7 million and the payments of financing fees of $5.4 million, which were partly offset by loan proceeds of $492.0 million and the proceeds from the sale of our vessels and vessel owning companies amounting to $673.9 million, the decrease in our restricted cash amounting to $65.9 million and cash flows provided by operating activities of $215.7 million. The above figures include the results of Ocean Rig up to its deconsolidation on June 8, 2015.
As of December 31, 2015, we had total indebtedness of $341.9 million, including $103.7 million classified as "Liabilities held for sale" due to the sale of the respective vessel owning companies. Our total indebtedness decreased by $5.3 billion, or 93.9%, to $341.9 million as of December 31, 2015, from $5.6 billion as of December 31, 2014, mainly due to the deconsolidation of Ocean Rug on June 8, 2015 and the loan repayments and transfers made during 2015 associated with the vessels and vessel owning companies sold. As of December 31, 2015, we were not in compliance with certain financial covenants.
Three of our bank facilities have matured and we have not made the final balloon installment. For the remaining bank facilities, we have elected to suspend principal repayments to preserve cash liquidity.
Working capital is equal to current assets minus current liabilities, including the current portion of long-term debt. Our working capital deficit was $85.6 million as of December 31, 2015, compared to a working capital deficit of $394.5 million as of December 31, 2014. The deficit decrease is mainly due to the deconsolidation of Ocean Rig on June 8, 2015 and the classification of all vessels sold and the assets of the vessel owning companies sold as held for sale.
Our practice has been to acquire our assets using a combination of funds received from equity investors and bank debt secured by mortgages on our assets. These acquisitions will be principally subject to management's expectation of future market conditions as well as our ability to acquire vessels on favorable terms.
As of December 31, 2015, we had $30.0 million available borrowing capacity under our credit facility with Sifnos Shareholders Inc. a company controlled by Mr. Economou.
Covenants under Secured Credit Facilities
Our secured credit facilities impose operating and negative covenants on us and our subsidiaries. These covenants may limit our and our subsidiaries' ability to, among other things, without the relevant lenders' prior consent (i) pay dividends; (ii) incur additional indebtedness; (iii) change the flag, class or management of the vessel mortgaged under such facility, (iv) create or permit to exist liens on our assets, (v) make loans, (vi) make investments or capital expenditures, (vii) undergo a change in ownership or control; (viii) enter into transactions with affiliates; and (ix) sell our assets.
Certain of our secured credit facilities also subject us to certain financial covenants. In general, these financial covenants require us to maintain, among other things, (i) a minimum amount of liquidity; (ii) a minimum market adjusted equity ratio; (iii) a minimum interest coverage ratio; (iv) a minimum market adjusted net worth; (v) a minimum working capital level; (vi) maximum funded debt to capitalization ratio; (vii) a minimum tangible net worth level and (viii) a maximum ratio of total net debt to income before interest, taxes, depreciation and amortization.
Furthermore, our secured credit facilities also require certain of our subsidiaries to maintain specified financial ratios and satisfy financial covenants, mainly to ensure that the market value of the vessel mortgaged under the applicable credit facility, determined in accordance with the terms of that facility, does not fall below a certain percentage of the outstanding amount of the loan, which we refer to as a value maintenance clause or the loan-to-value ratio.
Breach of Covenants under Secured Credit Facilities
Events beyond our control, including changes in the economic and business conditions in the international markets in which we operate, may affect our ability to comply with the financial covenants and loan-to-value ratios required by our credit facilities. Our ability to maintain compliance with such requirements also depends substantially on the value of our assets, our charter-hire and day-rates, our ability to obtain charter contracts, our success at keeping our costs low and our ability to successfully implement our overall business strategy.
A violation of any of the financial covenants in our credit facilities, absent a waiver of the breach from our lenders, or a violation of the loan-to-value ratios in our credit facilities, if not waived by our lenders or cured by providing additional collateral or prepaying the amount of outstanding indebtedness required to eliminate the shortfall, could result in an event of default under our credit facilities that would allow all amounts outstanding thereunder to be declared immediately due and payable. In addition, all of our credit facilities contain cross-acceleration or cross-default provisions that may be triggered by a default under one of our other credit facilities. If the amounts outstanding under our indebtedness were to become accelerated or were to become the subject of foreclosure actions, we cannot assure you that our assets would be sufficient to repay in full the money owed to the lenders or to our other debt holders.
As of December 31, 2015, we were in breach of certain financial covenants while three bank facilities have matured and we have not made the final balloon installments. Accordingly, these three lenders have declared an event of default. For the remaining bank facilities, we have elected to suspend principal repayments. These events of default may result in the lenders requiring immediate repayment of the loans. As a result of this and of the cross default provisions contained in all bank loan agreements, we have classified the bank loans amounting to $218.2 million, as current liabilities, while the remaining loan balances in breach of $103.7 million are classified as "Liabilities held for sale" due to the sale of the respective vessel owning companies. See Note 3 to our consolidated financial statements included in this annual report.
We are currently in negotiations with our lenders to obtain debt maturity extension or restructuring of our debt facilities. We cannot guarantee that we will be able to obtain our lenders consent with respect to the aforementioned noncompliance under our credit facilities or any non-compliance with specified financial ratios or financial covenants under future financial obligations we may enter into, or that we will be able to refinance or restructure any such indebtedness. If we fail to remedy, or obtain a waiver of, the breaches of the covenants discussed above, our lenders may accelerate our indebtedness under the relevant credit facilities, which could trigger the cross-acceleration or cross-default provisions contained in our other credit facilities, under which a total of $341.9 million, including $103.7 million classified as "Liabilities held for sale" in the consolidated balance sheet as of December 31, 2015 included in this annual report, due to the sale of the respective vessels, was outstanding as of December 31, 2015. If our indebtedness is accelerated, it will be very difficult in the current financing environment for us to refinance our debt or obtain additional financing and we could lose our vessels if our lenders foreclose their liens. In addition, if the value of our vessels deteriorates significantly from their currently depressed levels, we may have to record further impairment adjustments to our financial statements, which would adversely affect our financial results and further hinder our ability to raise capital.
Moreover, in connection with any additional amendments to our credit facilities, that we obtain, or if we enter into any future credit agreements or debt instruments, our lenders may impose additional operating and financial restrictions on us. These restrictions may further restrict our ability to, among other things, fund our operations or capital needs, make acquisitions or pursue available business opportunities, which in turn may adversely affect our financial condition. In addition, our lenders may require the payment of additional fees, require prepayment of a portion of our indebtedness to them, accelerate the amortization schedule for our indebtedness and increase the margin and lending rates they charge us on our outstanding indebtedness.
We expect that our lenders could demand payment of the loans under which we are in breach of certain financial and loan-to-value ratio covenants before their maturity, especially those loans where we are not paying scheduled loan installments as they fall due. We plan to pay loan interest with cash expected to be generated from operations. We do not expect that cash on hand and cash expected to be generated from operations will be sufficient to repay our loans relating to our drybulk and offshore support fleet with cross-default provisions which amounted to approximately $341.9 million, including $103.7 million classified as "Liabilities held for sale" in the consolidated balance sheet as at December 31, 2015, included in this annual report, due to the sale of the respective vessels, in the aggregate as of December 31, 2015, if such debt is accelerated by our lenders, as discussed above. In such a scenario, we would have to seek to access the capital markets or other fund sources to fund the mandatory payments.
Notes
Convertible Senior Notes
In November 2009, we issued $460.0 million aggregate principal amount of 5% convertible unsecured senior notes, referred to as the Convertible Senior Notes, which were due December 1, 2014, resulting in aggregate net proceeds of approximately $447.8 million after deducting underwriting commissions.
In April 2010, we issued $220.0 million aggregate principal amount of additional Convertible Senior Notes under the indenture, as supplemented by a supplemental indenture, pursuant to which the Company previously issued $460.0 million aggregate principal amount of Convertible Senior Notes in November 2009. The terms of the Convertible Senior Notes offered in April, other than their issue date, are identical to the Notes issued in November 2009.
The full over allotment option granted was exercised and an additional $20.0 million aggregate principal amount of Convertible Senior Notes were purchased. Accordingly, $240.0 million in aggregate principal amount of Convertible Senior Notes were sold, resulting in aggregate net proceeds of approximately $237.2 million after the underwriter commissions.
In conjunction with the offering of our Convertible Senior Notes described above, we also entered into a share lending agreement with an affiliate of the underwriter of the offering, or the share borrower, pursuant to which we loaned the share borrower approximately 36.1 million of our common shares. Under the share lending agreement, the share borrower was required to return the borrowed shares when the Convertible Senior Notes were no longer outstanding. We did not receive any proceeds from the sale of the borrowed shares by the share borrower, but we did receive a nominal lending fee of $0.01 per share from the share borrower for the use of the borrowed shares.
As of December 31, 2014, the share borrower had returned the loaned shares that it borrowed pursuant to the share lending agreements discussed above. The returned loaned shares were not retired and are included as treasury stock in the Company's financial statements as of December 31, 2014 and 2015 included elsewhere in this annual report.
On the day of the Convertible Senior Notes issuance, the fair value of the share lending agreement was determined to be $14.5 million for the Convertible Senior Notes, based on a 5.5% interest rate of the Convertible Senior Notes without the share lending agreement and was recorded as debt issuance cost. Amortization of the issuance costs associated with the share lending agreement recorded as interest expense during the year ended December 31, 2014 and 2015, was $2.8 million and $0 million, respectively.
The total interest expense related to the Convertible Senior Notes in our consolidated statement of operations for the years ended December 31, 2014 and 2015, was $76.7 million and $0 million, respectively, of which $45.3 million and $0 million was non-cash amortization of the discount on the liability component, respectively, and $31.4 million and $0 million was the contractual interest to be paid semi-annually at a coupon rate of 5% per year, respectively.
The Company's interest expense associated with the $460.0 million aggregate principal amount and $240.0 million aggregate principal amount of Convertible Senior Notes is accretive based on an effective interest rate of 12% and 14%, respectively.
During November 2014, we repurchased on the open market and cancelled $191.1 million principal amount of our 5% convertible notes. On November 24, 2014 we repaid the remaining amount of our 5% convertible notes, amounted to $508.9 million.
Ocean Rig's Loans and Notes
From June 8, 2015, Ocean Rig has been considered as an affiliated entity and not as a controlled subsidiary. As a result, Ocean Rig has been accounted for under the equity method and its long term debt is not consolidated in our balance sheet as of December 31, 2015 and, consequently, additional disclosures for Ocean Rig's loans and notes for 2015 have not been included.
Existing Credit Facilities/ Term Loans
Credit Facilities relating to Our Drybulk Segment
$103.2 million secured term loan facility, dated June 20, 2008, as amended
We entered into this facility to partially finance the acquisition costs of the drybulk vessels
Sorrento
and
Iguana
. This loan bears interest at LIBOR plus a margin. The portion of the loan facility relating to the drybulk vessel
Sorrento
is repayable in 32 quarterly installments, plus a balloon payment payable together with the last installment in July 2016. The portion of the loan facility relating to the drybulk vessel
Iguana
was repaid following the sale of the vessel during 2010. On April 14, 2014, we obtained a waiver letter to amend certain financial covenants. On November 12, 2014, we signed a supplemental agreement for relaxation of certain financial covenants.
As of December 31, 2015 and 2014, we had outstanding borrowings in the amount of $18.3 million and $21.3 million under this loan facility, respectively.
$130.0 million secured term loan facility, dated March 13, 2008, as amended
We entered into this facility for working capital and general corporate purposes. The drybulk vessels
Toro
and
Delray
were initially mortgaged as collateral under this loan facility.
On November 29, 2010, we signed an amended and restated agreement for the substitution of the drybulk vessels
Delray
and
Toro
for the drybulk vessel
Amalfi
. The vessel
Delray
was sold in February 2010, whereas the vessel
Toro
was released as security for the loan facility and was replaced by the vessel
Amalfi
.
On August 1, 2013, the Company entered into a supplemental agreement to amend certain terms and cure a shortfall in the security cover ratio, and pledged an aggregate of 1,800,000 of its shares of Ocean Rig as additional security under the loans. The share pledge expired on December 31, 2013.
On December 23, 2014, we entered into an agreement to, among other things, waive certain financial covenants until December 31, 2014 and relax other financial covenants until maturity. We have agreed to provide a pledge over 2,356,705 Ocean Rig shares owned by us until December 31, 2014.
The loan bears interest at LIBOR plus a margin and is repayable in two quarterly installments plus a balloon payment, payable together with the last installment in March 2015. On August 21, 2015, we entered into a supplemental agreement to this loan agreement
, to extend the maturity of the loan to October 13, 2015. The maturity of the loan has since lapsed and we have not made the last balloon installment.
As of December 31, 2015 and 2014, we had outstanding borrowings in the amount of $27.6 million and $28.9 million under this loan facility, respectively.
$47.0 million secured term loan facility, dated November 16, 2007, as amended
We entered into this facility to partially finance the acquisition cost of the secondhand drybulk vessel
Oregon
. The loan bears interest at LIBOR plus a margin, and is repayable in 32 quarterly installments, with a balloon payment, payable together with the last installment in December 2015.
The maturity of the loan has since lapsed and we have not made the last balloon installment.
As of December 31, 2015 and 2014, we had outstanding borrowings in the amount of $12.5
million and $14.0 million under this loan facility, respectively.
$90.0 million secured term loan facility, dated October 5, 2007, as amended
We entered into this facility to partially finance the acquisition cost of the secondhand drybulk vessels
Samatan
and
Galveston
(ex
VOC Galaxy)
. The loan bears interest at LIBOR plus a margin depending on corporate leverage, and is repayable in 32 quarterly installments beginning in the first quarter of 2008, with a balloon payment, payable together with the last installment in November, 2015.
The maturity of the loan has since lapsed and we have not made the last balloon installment.
On August 1, 2013, the Company entered into a supplemental agreement to amend certain terms and cure a shortfall in the security cover ratio, and pledged an aggregate of 3,650,000 of its shares of Ocean Rig as additional security under the loans. The share pledge expired on December 31, 2013.
On December 23, 2014, we entered into an agreement to, among other things, waive certain financial covenants until December 31, 2014 and relax other financial covenants until maturity. We have agreed to provide a pledge over 6,418,350 Ocean Rig shares owned by us until December 31, 2014.
On November 25, 2015 we made a prepayment of $5.3 million under this loan agreement related to the sale of the vessel Galveston, on November 30, 2015.
As of December 31, 2015 and 2014, we had outstanding borrowings in the amount of $43.7
million and $53.0 million under this loan facility.
$518.8 million senior loan facilities and $110.0 junior loan facilities, each dated March 31, 2006, as amended
We entered into these facilities to provide us with working capital, and to partially finance the acquisition cost of certain vessels. These facilities are comprised of (i) term loan and short-term credit facilities (senior loan facility) and (ii) term loan and short-term credit facilities (junior loan facility).
The senior loan facility bears interest at LIBOR plus a margin. The term loan facility is repayable in 37 quarterly installments, with a balloon payment, payable together with the last installment on May 31, 2016. Each advance from the short term credit facility is repayable in quarterly installments with the next term loan facility installment. As of December 31, 2015 and 2014, we had outstanding borrowings in the amount of $84.6 million and $145.1 million under this loan facility, respectively.
The junior loan facility bears interest at LIBOR plus a margin. The term loan facility is repayable in 37 quarterly installments, with a balloon payment, payable together with the last installment on May 31, 2016. Each advance from the short term credit facility is repayable in quarterly installments with the next term loan facility installment. As of December 31, 2015 and 2014, we had outstanding borrowings in the amount of $17.0 million and $29.3 million under this loan facility, respectively.
On September 27, 2012, we entered into two additional supplemental agreements under our senior and junior facilities to provide additional security in connection with a shortfall in the security cover ratio required to be maintained under the facilities and pledged 7,800,000 of our shares of Ocean Rig as additional security under the facilities. On November 22, 2013, the 7,800,000 shares of Ocean Rig were released back to the Company.
On November 18, 2013, the Company signed a Supplemental Agreement with HSH Nordbank, as Agent, for an amendment of certain terms under the Company's $628.8 million credit facility dated March 31, 2006, as amended. Under the terms of this agreement on November 21, 2013, the lending syndicate led by HSH applied our previously pledged restricted cash of $55,000 against the next five quarterly installments. In addition, the lending syndicate has agreed to relax various financial covenants through the end of 2014.
On October 1 and December 11, 2015 and associated the sale of the vessels
Manasota
and
Alameda
, respectively we made prepayments of $19.2 million and $12.4 million under this loan agreement, respectively.
$87.7 million secured term loan facility, dated March 19, 2012
In March 2012, we entered into an $87.7 million secured term loan facility to partially finance the construction costs of our Panamax drybulk vessel under construction,
Raraka
, delivered in March, 2012, and two Capesize drybulk vessels under construction, scheduled for delivery in the second quarter of 2013, which were sold in March 2013, prior to delivery and the relevant available portion of the loan was terminated. The facility bears interest at LIBOR plus a margin and is repayable in
32
quarterly installments plus a balloon payment payable together with the last installment. On March 28, 2014, we entered into a supplemental agreement to amend certain financial covenants.
As of December 31, 2015 and 2014, we had outstanding borrowings amounting to $14.6 million and $15.8 million, under this loan facility, respectively.
Repaid credit facilities
Credit facilities relating to our Drybulk and Tanker Segments
$126.4 million secured term loan facility, dated July 23, 2008, as amended
We entered into a $126.4 million term loan facility to partially finance the acquisition of the drybulk vessel
Flecha
. In January 2012, we entered into a supplemental agreement with respect to this facility, according to which the vessel
Woolloomooloo
was pledged as collateral to secure the loan.
This loan bore interest at LIBOR plus a margin, and was repayable in 40 quarterly installments, plus a balloon payment payable together with the last installment in July 2018.
As of December 31, 2014, we had outstanding borrowings in the amount of $42.6
million under this term loan facility. On July 29, 2015, we repaid in full the outstanding amount of $37.3 million under that Secured Term Loan facility.
$125.0 million secured term loan facility, dated May 13, 2008, as amended
We entered into this facility to partially finance the acquisition cost of the drybulk vessels
Capri
and
Positano
. The loan bore interest at LIBOR plus a margin and was repayable in thirty-two quarterly installments, plus a balloon payment payable together with the last installment in June 2016.
As of December 31, 2014, we had outstanding borrowings in the amount of $15.7
million under this loan facility. On August 21, 2015 we repaid in full the outstanding amount of $12.8 million under this loan facility.
$90.0 million secured term loan facility, dated May 5, 2008, as amended
We entered into this facility to partially finance the acquisition cost of the drybulk vessel
Mystic
.
The loan bore interest at LIBOR plus a margin, and was repayable in 15 semi-annual installments, with a balloon payment, payable together with the last installment in December 2015.
As of December 31, 2014, we had outstanding borrowings in the amount of $30.0 million under this loan facility. On August 21, 2015 we repaid in full the outstanding amount of $27.0 million under this loan facility.
$35.0 million secured term loan facility, dated October 2, 2007, as amended
We entered into this facility to partially finance the acquisition cost of the secondhand drybulk vessel
Byron
(ex
Clipper Gemini)
. The loan bore interest at LIBOR plus a margin, and was repayable in 36 quarterly installments beginning in the first quarter of 2008, with a balloon payment, payable together with the last installment in October 2016. On July 7, 2014, we entered into an agreement and agreed to make a cash prepayment of $2.7 million to avoid a loan-to-value covenant breach.
As of December 31, 2014, we had outstanding borrowings in the amount of $12.8 million under this loan facility.
On August 20, 2015, we repaid in full the outstanding amount of $12.8 million under this loan facility.
$70.0 million secured term loan facility, dated February 7, 2011
We entered into this facility to partially finance the construction and acquisition costs of our newbuilding Aframax and Suezmax tankers,
Saga
and
Vilamoura
, which were delivered on January 18, 2011 and March 23, 2011, respectively, and for financing general corporate and working capital purposes. The loan bore interest at LIBOR plus a margin and was repayable in 20 quarterly installments, with a balloon payment payable together with the last installment on February 15, 2016.
As of December 31, 2014, we had outstanding borrowings in the amount of $52.5 million under this loan facility. On August 6 and August 19, 2015 and due to the sale of the vessels Saga and Vilamoura, respectively, we repaid in full the respective tranches amounted to $22.9 million and $27.2 million, respectively.
$32.3 million secured term loan facility, dated April 20, 2011
We entered into this facility to partially finance the construction cost of our newbuilding Aframax tanker
Daytona
, which was delivered to us on April 29, 2011. The loan bore interest at LIBOR plus a margin and was repayable in 24 quarterly installments of $538,500, plus a balloon payment of $19.4 million payable concurrently with the last installment.
As of December 31, 2014, we had outstanding borrowings in the amount of $24.8 million under this loan facility. On September 9, 2015 and due to the sale of the vessel Daytona, we repaid in full the then outstanding amount of $23.2 million.
$141.4 million secured term loan facility, dated October 26, 2011
We entered into this facility to partially finance the construction costs of the newbuilding tankers
Belmar
,
Calida
,
Lipari
and
Petalidi
. The loan bore interest at LIBOR plus a margin and was repayable (i) in 28 installments ranging from $32,500 to $37,500, plus a balloon payment ranging from $7.9 million to $9.5 million, payable together with the last installment, with respect to advances by all of the commercial lenders except one and (ii) in 40 installments ranging from $587,500 to $697,500 with respect to advances by one of the lenders.
On July 17, 2014, we signed a supplemental agreement for a waiver of a certain financial covenant until December 31, 2014.
As of December 31, 2014, we had outstanding borrowings in the amount of $112.4 million under this loan facility. On July 16, July 24, July 27 and August 25, 2015 and due to the sale of the vessels
Petalidi, Lipari,
Belmar
and
Calida
, respectively, we repaid in full the respective tranches amounted to $29.5 million, $28.8 million, $23.6 million and $23.6 million, respectively.
$107.7 million secured loan agreement, dated October 24, 2012
In October 2012, we entered into a $107.7 million secured loan agreement to partially finance the construction costs of our two newbuilding Aframax tankers
Alicante
and
Mareta
,
delivered in January 2013, and our Suezmax tanker
Bordeira
, delivered in January 2013. This loan agreement, which was available in three tranches, bore interest at LIBOR plus a margin and was repayable in 24 equal, semi-annual installments.
As of December 31, 2014, we had outstanding borrowings in the amount of $88.2 million, under this loan facility. On July 21, August 7, and October 29, 2015, and due to the sale of the vessels
Bordeira,
Mareta
and
Alicante,
respectively, we repaid in full the respective tranches amounted to $33.4 million, $24.0 million and $24.0 million, respectively.
$12.5 million Sellers Credit dated March 15, 2013
On March 15, 2013, we reached an agreement with a far eastern shipyard for a $12.5 million sellers credit to us. This credit was repayable to the yard in one bullet repayment two years after date of drawdown and it bore interest at LIBOR plus 300 basis points per annum. We agreed to provide a pledge of 1,602,500 shares in Ocean Rig that we owned, which pledge would be automatically released upon repayment of credit.
On January 8, 2015, this credit was repaid in full, we were released from our obligations and 1,602,500 shares of Ocean Rig pledged by us to the shipyard were released and returned to us.
$170.0 million Senior Credit Facility dated October 29, 2014
On October 29, 2014, we entered into a senior secured credit facility with Nordea Bank for up to $170.0 million to refinance the existing indebtedness under the Company's $325.0 million Senior Credit Facility, which had a balance of $50.0 million as of October 31, 2014. This facility had a five-year term, bore interest at LIBOR plus a margin, was repayable in quarterly installments and was secured by the six vessels that secured the $325.0 million Senior Credit Facility, as well as three other vessels.
As of December 31, 2014, we had outstanding borrowings amounting to $167.1 million, under this loan facility.
On May 26, 2015 and July 10, 2015, we made two prepayments of $15.0 million and $10.0 million, respectively, under this loan agreement. On August 18, 2015 we also entered into a supplemental agreement to amend certain terms of the aforementioned loan.
On October 13, 2015
the vessels
Raiatea, Robusto, Cohiba, Montecristo, Flecha, Partagas, Woolloomooloo, Saldanha, Topeka
and
Helena
were
delivered to their new owner who also assumed in full the respective outstanding amount of the above mentioned loan agreement, which had a balance of $130.9 million.
$200.0 million Secured Bridge Credit Facility dated November 14, 2014
On November 14, 2014, we entered into a facility agreement with ABN AMRO, for a secured bridge credit facility in an amount of $200.0 million. The loan is repayable through a single repayment installment. In connection with the ABN AMRO facility, on November 18, 2014, as required by that facility, Ocean Rig filed a prospectus supplement covering up to 78,301,755 of its common shares held by DryShips or its pledgees. Of the shares registered, 45,129,069 Ocean Rig shares were initially pledged by us to ABN AMRO under the terms of the ABN AMRO facility which requires collateral coverage based on the prevailing 30 day Volume Weighted Average Price ("VWAP") at draw down. On January 9, 2015 and March 19, 2015, respectively, we provided additional security in relation to the ABN AMRO facility in the form of 8,000,000 and 12,500,000 Ocean Rig shares owned by us.
During the year ended December 31, 2015, we made various prepayments and finally repaid in full the loan agreement on October 16, 2015. Following the repayment of the loan, all Ocean Rig shares pledged by us to ABN AMRO were released and returned.
$122.6 million secured credit facility, dated February 14, 2012
We entered into this facility to partially finance the construction costs relating to the vessel
Fakarava
, which was delivered to us in
September, 2012, and the vessels
Negonego
and
Rangiroa
delivered to us in 2013 and 2013, respectively. The facility bears interest at LIBOR plus a margin and is repayable in 48 installments. The facility is secured with guarantees from Cardiff and us. We have drawn down an amount of $38.0 million related to the vessel Fakarava and an aggregate of $81.7 million related for the vessels
Negonego
and
Rangiroa
. On May 29, 2014, we entered into a supplemental agreement to amend certain definitions.
As of December 31, 2015 and 2014, we had outstanding borrowings in the amount of $103.7 million and $109.8 million, under this loan facility, respectively.
On March 24, 2016, we concluded a new sales agreement
with entities controlled by Mr. George Economou, our Chairman and Chief Executive officer, for the sale of our Capesize vessels (
Rangiroa, Negonego, Fakarava)
, along with the associated debt, which had an outstanding balance of $102.1 million at March 24, 2016. On March 30, 2016, we
received the lender's consent for the sale of the vessels and
made a prepayment of $15.0 million, under the respective loan agreement. On March 31, 2016 the shares of the vessel owning companies were delivered to their new owners.
Credit Facilities relating to Our Offshore Support Segment
$23.0 million Secured Credit Facility dated July 29, 2013
On October 21, 2015, and due to the acquisition of Nautilus, we assumed $17.8 million under this credit facility. On November 6, 2015, the outstanding amount of $17.8 million was fully repaid.
$38.2 million Secured Credit Facility dated November 23, 2012
On October 21, 2015, and due to the acquisition of Nautilus, we assumed $27.7 million under this credit facility. On November 6, 2015, the outstanding amount of $27.7 million was fully repaid.
Credit Facilities relating to Our Offshore Drilling Segment
From June 8, 2015, Ocean Rig has been considered as an affiliated entity and not as a controlled subsidiary. As a result, Ocean Rig has been accounted for under the equity method and its long term debt is not consolidated in our balance sheet as of December 31, 2015 and, consequently, additional disclosures for Ocean Rig's loans and notes for 2015 have not been included.
Cash Flows
Year ended December 31, 2015 compared to year ended December 31, 2014
Our cash and cash equivalents including restricted cash decreased to $15.0 as of December 31, 2015, compared to $658.9 million as of December 31, 2014, primarily due to the deconsolidation of Ocean Rig, the acquisition of Nautilus, payments for drilling units improvements and repayments of loans. Working capital is equal to current assets minus current liabilities, including the current portion of long-term debt. Our working capital deficit was $85.6
million as of December 31, 2015, compared to working capital deficit of $394.5 million as of December 31, 2014.
Net Cash Provided By Operating Activities
Net cash provided by operating activities decreased by $259.4 million, or 54.6%, to $215.7 million for the year ended December 31, 2015, compared to $475.1 million for the year ended December 31, 2014. This decrease is primarily attributable to the deconsolidation of Ocean Rig.
Net Cash Used In Investing Activities
Net cash used in investing activities was $465.7 million for the year ended December 31, 2015, mainly due to the deconsolidation of Ocean Rig which resulted into a charge of $621.6 million and the outflows for acquisition of Nautilus amounted to $78.2 million. The Company made also payments of $505.7 million for fixed assets additions. These cash outflows were partly offset by the decrease of $65.9 million in the amount of cash deposits required by our lenders and $673.9 million of proceeds from sale of vessels and vessel owning companies.
Net cash used in investing activities was $754.7 million for the year ended December 31, 2014. The Company made payments of $296.3 million for advances for vessels and drilling units under construction and $510.3 million for vessels and drilling units acquisitions and improvements. These cash outflows were offset by the decrease of $51.5 million in the amount of cash deposits required by our lenders and a decrease of 0.4 million for short term investments.
Net Cash Provided By/(Used in) Financing Activities
Net cash used in financing activities was $316.3 million for the year ended December 31, 2015, consisting mainly of $782.4 million repayments under our long-term credit facilities, $5.4 million in payments for financing costs and $20.5 million in payments for dividends. The outflows were partly offset by the borrowings of $492.0 million under our long term credit facilities.
Net cash provided by financing activities was $250.7 million for the year ended December 31, 2014, consisting mainly of the borrowings of $2.6 billion under our long term credit facilities and the net proceeds of $421.9 million in connection with the sale of our common shares, which were offset by $48.9 million in payments for financing costs, payments for dividends of $30.6 million and repayments of debt totaling $2.0 billion under our long-term credit facilities and convertible notes amounting $700 million.
Year ended December 31, 2014 compared to year ended December 31, 2013
Our cash and cash equivalents decreased to $566.2 million as of December 31, 2014, compared to $595.1 million as of December 31, 2013, primarily due to payments for vessels, drilling units' improvements and advances for drilling units under construction. Working capital is equal to current assets minus current liabilities, including the current portion of long-term debt. Our working capital deficit was $394.5
million as of December 31, 2014, compared to working capital deficit of $987.5 million as of December 31, 2013.
Net Cash Provided By Operating Activities
Net cash provided by operating activities increased by $229.1 million, or 93.1%, to $475.1 million for the year ended December 31, 2014, compared to $246.0 million for the year ended December 31, 2013. This increase is primarily attributable to the increased revenue from the drilling segment.
Net Cash Used In Investing Activities
Net cash used in investing activities was $754.7 million for the year ended December 31, 2014. The Company made payments of $296.3 million for advances for vessels and drilling units under construction and $510.3 million for vessels and drilling units' acquisitions and improvements. These cash outflows were offset by the decrease of $51.5 million in the amount of cash deposits required by our lenders and a decrease of 0.4 million for short term investments.
Net cash used in investing activities was $1.2 billion for the year ended December 31, 2013. The Company made payments of $235.3 million for advances for vessels and drilling units under construction, $1.2 billion for vessels and drilling units' acquisitions and improvements and $0.4 million for short term investments. These cash outflows were offset by the decrease of $234.3 million in the amount of cash deposits required by our lenders.
Net Cash Provided By Financing Activities
Net cash provided by financing activities was $250.7 million for the year ended December 31, 2014, consisting mainly of the borrowings of $2.6 billion under our long term credit facilities and the net proceeds of $421.9 million in connection with the sale of our common shares, which were offset by $48.9 million in payments for financing costs, payments for dividends of $30.6 million and repayments of debt totaling $2.0 billion under our long-term credit facilities and convertible notes amounting $700 million.
Net cash provided by financing activities was $1.2 billion for the year ended December 31, 2013, consisting mainly of the borrowings of $3.0 billion under our long term credit facilities, the net proceeds of $123.0 million in connection with the sale of common shares of Ocean Rig owned by us, the net proceeds of $23.4 million in connection with the sale of our common shares and the refund of financing costs of $5.9 million, which were offset by $89.9 million in payments for financing costs and repayments of debt totaling $1.8 billion under our long-term credit facilities.
C. Research and Development, Patents and Licenses etc.
Not applicable.
D. Trend Information
See other discussions within "Item 5. Operating and Financial Review and Prospects" and "Item 4. Information on the Company—B. Business overview."
E. Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
F. Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations and their maturity dates as of December 31, 2015:
|
Payments due by period
|
|
Obligations
|
Total
|
|
Less than 1
year
|
|
(In thousands of Dollars)
|
|
|
|
|
Long-term debt (1)
|
|
$
|
341,865
|
|
|
$
|
341,865
|
|
Interest and borrowing fees (2)
|
|
|
4,133
|
|
|
|
4,133
|
|
Total
|
|
$
|
345,998
|
|
|
$
|
345,998
|
|
(1)
|
As further discussed in Note 4, 7 and 11 to our consolidated financial statements, the outstanding balance of our long-term debt at December 31, 2015, was $218.2 million (gross of unamortized deferred financing fees of $0.6 million), included in current liabilities, $103.7 million included in "Liabilities held for sale" due to the sale of the respective vessel
owning
companies and $20.0 million included in "Due to related parties", in the consolidated balance sheet included in this annual report. The above amounts were used to partially finance the expansion of our fleet. The loans bear interest at LIBOR plus a margin. The amounts in the table under "Long Term Debt" do not include any projected interest payments.
|
As a supplement to our contractual obligations table, the following schedule sets forth our loan repayment obligations as required under our loan facilities as of December 31, 2015. Note that the amount of our bank debt has been classified as "Less than 1 year" in the contractual obligations table to be consistent with the classification of the debt as current liability within our consolidated financial statements. Debt amounting to $218.2 million is classified as a current liability as the debt may be called for payment by the lenders at any time, while the remaining loan balances of $103.7 million are classified as "Liabilities held for sale" due to the classification as held for sale of the respective vessel
owning
companies.
Loan repayments as per original terms of loan agreements
|
Payments due by period
|
|
|
Total
|
|
Less than 1
year
|
|
1-3 years
|
|
3-5 years
|
|
More than
5 years
|
|
(In thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (1)
|
|
$
|
341,865
|
|
|
$
|
211,400
|
|
|
$
|
37,023
|
|
|
$
|
28,232
|
|
|
$
|
65,210
|
|
Interest and borrowing fees (2)
|
|
|
62,826
|
|
|
|
13,828
|
|
|
|
23,368
|
|
|
|
12,930
|
|
|
|
12,700
|
|
Total
|
|
$
|
404,691
|
|
|
$
|
225,228
|
|
|
$
|
60,391
|
|
|
$
|
41,162
|
|
|
$
|
77,910
|
|
(2)
|
A portion of our long-term debt outstanding as of December 31, 2015 bears variable interest at margin over LIBOR, but such variable interest is fixed by our existing interest rate swaps. The calculation of interest payments is based on interest rates ranging from 3.11% to 8.41%, including part of interest rate swap payments for the floating rates (LIBOR).
|
G. Safe Harbor
See the section entitled "Forward looking statements" at the beginning of this annual report.