Aegean Marine Petroleum Network Inc. is a Marshall Islands holding company incorporated on June 6, 2005 under the BCA. On December 13, 2006, we consummated our initial public offering of 14,375,000 shares of our common stock. On January 27, 2010, we completed a public offering of an additional 4,491,900 shares of our common stock. On May 19, 2010, we acquired from Leveret International Inc., or Leveret, in a private transaction 1,000,000 shares of our common stock. On October 23, 2013, we issued and sold $86.3 million aggregate principal amount of our 4.00% Convertible Unsecured Senior Notes due 2018, and on January 16, 2015, we sold an additional $48.3 million of our 4.00% Convertible Unsecured Senior Notes due 2018. On September 15, 2016, we repurchased 11,303,031 of our common shares that were beneficially owned by our then founder and head of corporate development, Mr. Dimitris Melisanidis. On December 19, 2016 and January 11, 2017, we issued and sold $150.0 million and $22.5 million, respectively, of our aggregate principal amount of our 4.25% Convertible Unsecured Senior Notes due 2021.
For more information on the development of our business, see "—B. Business Overview" below.
We maintain our principal marketing and operating offices at 10, Akti Kondili, 185 45 Piraeus, Greece. Our telephone number at that address is +30 (210) 458-6200. We also have an executive office to oversee our financial and other reporting functions in the United States at 299 Park Avenue, 2nd Floor, New York, New York, 10171. Our telephone number at that address is (212) 430-1098.
We are an international marine fuel logistics company that markets and physically supplies refined marine fuel and lubricants to vessels in port, at sea and on rivers and currently have a global presence in 29 markets. As a physical supplier, we procure marine fuel from refineries, major oil producers and other sources and resell and deliver these fuels from our bunkering vessels to a broad base of end users. With service centers in Northern Europe, the United Arab Emirates, the U.S. East and West Coasts, Singapore, Gibraltar, the Canary Islands, Greece, Morocco, Canada, Jamaica, Trinidad and Tobago, Gulf of Mexico, Germany, and South Africa, we believe that we are one of a limited number of independent physical suppliers that owns and operates a fleet of bunkering vessels and conducts physical supply operations in multiple jurisdictions. As of the date of this annual report, we own and operate a fleet of 45 bunkering vessels, all of which are constructed with double hulls and one single hull special purpose vehicle, and we charter-in 15 bunkering vessels, all of which are constructed with double hulls, with an aggregate carrying capacity of approximately 292,400 dwt.
In some markets, we have deployed floating storage facilities which enable us to maintain more efficient refueling operations, have more reliable access to a supply of bunker fuel and deliver a higher quality service to our customers. We own and operate one single hull special purpose vessel, the
Aegean Orion
, a 550 dwt tanker, which is based in Greece and operate two vessels as floating storage facilities with a cargo carrying capacity of approximately 86,800 dwt.
We also operate 10 land-based storage facilities, of which we own one and have exclusive use of one, with an aggregate storage capacity of approximately 1,075,000 cubic meters. We operate land-based storage facilities in the United States, Morocco, Canary Islands, and Germany, where we store marine fuel in terminals with storage capacity of approximately 293,000, 218,000, 79,000, and 20,000 cubic meters, respectively. In addition, we, through our wholly owned subsidiary, Aegean Oil Terminal Corporation, own and operate a land-based storage facility in Fujairah, United Arab Emirates, with storage capacity of 465,000 cubic meters, representing 43.3% of our aggregate storage capacity. We may also consider the construction of land-based storage facilities in other areas depending on market prospects and availability of financing.
We provide fueling services to virtually all types of ocean-going and many types of coastal vessels, such as oil tankers, containerships, drybulk carriers, cruise ships, reefers, LNG/LPG carriers, car carriers and ferries. Our customers include a diverse group of ocean-going and coastal ship operators and marine fuel traders, brokers and other end-users of marine fuel and lubricants.
We provide our customers with services that require sophisticated logistical operations designed to meet their strict fuel quality and delivery scheduling needs. We believe that our extensive experience, management systems and software systems allow us to meet our customers' specific requirements when they purchase and take delivery of marine fuels and lubricants around the world. This, together with the capital-intensive nature of our industry and the limited available shipyard capacity for new vessel construction, represents a significant barrier to the entry of competitors. We have devoted our efforts to building a global brand and believe that our customers recognize our brand as representing high quality service and products at each of our locations around the world. We perform our technical ship operations in-house, which helps us maintain high levels of customer service.
Throughout our history, we have expanded our business and marine fuel delivery capabilities through strategic alliances, select business and vessel acquisitions, and the establishment of new service centers. In December 2013, we acquired the U.S. East Coast bunkering business of Hess, including 238,000 cubic meters of leased tank storage in the ports of New York, Philadelphia, Baltimore, Norfolk and Charleston. This acquisition marked our entrance into supplying U.S. customers and has increased our exposure to U.S. clients worldwide, including leading cruise lines.
In December 2014, we entered into an agreement to acquire 28,567 metric tons of marine fuel and assume a storage contract for approximately 55,000 cubic meters with Vopak Terminal in Los Angeles, California at an auction of the assets of O.W. Bunker. This acquisition has given us access to the ports of Los Angeles, Long Beach and San Diego, key trade hubs between North America and Asia. Also in December 2014, we commenced fuel supply operations in the Gulf of Mexico
(in U.S. territorial waters)
.
In January 2015, we launched physical supply operations in Hamburg, Germany and assumed time charter in contracts for two modern bunkering barges that were previously under charter to O.W. Bunker, together with approximately 20,000 cubic meters of onshore storage capacity, and commenced marketing operations in Russia dedicated to sales and marketing of marine petroleum products across all Russian ports.
In January 2016, we commenced bunker trading operations in South America from our new office in Rio de Janeiro, Brazil. In March 2016, we commenced physical supply operations in South Africa's Algoa Bay.
In January 2017, we launched a new service center in Rostock, Germany to serve German Baltic Sea ports and Southern Scandinavian ports.
We currently have a global presence in 29 markets and over 60 ports, including Northern Europe and the Antwerp-Rotterdam-Amsterdam region, or the ARA region, the United Arab Emirates, the U.S. East and West Coasts, Singapore, Gibraltar, the Canary Islands, Greece, Morocco, Canada, Jamaica, Trinidad and Tobago, Gulf of Mexico (in U.S. territorial waters), Germany, Russia, South America, and South Africa. We plan to continue to grow our business during the next several years and to pursue select expansion opportunities as a means of expanding our service.
In addition to our bunkering operations described above, we market and distribute marine lubricants under the Alfa Marine Lubricants brand. Alfa Marine Lubricants are currently available in most of our markets. We view this business as complementary to our business of marketing and delivering marine fuel. We plan to expand the distribution of marine lubricants throughout our service centers and other bunkering ports worldwide.
The following discussion provides an overview of the markets in which we conduct our physical supply operations and trading activities.
We currently service our customers in Greece through our related company, Aegean Oil, in Piraeus, Patras, and other parts of Greece. We currently operate six double hull tankers, one single hull special purpose vessel, the
Aegean Orion
, a 550 dwt tanker, and a floating storage facility, the
Mediterranean
, a double hull barge, in Greece.
Aegean Oil has a license, which we, as a non-Greek company, are not qualified to obtain, to operate as a physical supplier of refined marine petroleum products in Greece. Aegean Oil's license to operate as a physical supplier of refined marine petroleum products allows it to operate not only in Piraeus and Patras but in all ports in Greece, including Thessaloniki and Crete. We purchase our fuel mainly from Hellenic Refinery (ELPE) and Motor Oil Hellas. We store fuel in our floating storage facility, the
Mediterranean
. As we expand our business, we may elect to service our customers in other Greek ports and seek a larger share of the total Greek market for supply of marine petroleum products. We support our operations in Greece from our office in Piraeus, which we lease.
We possess a license issued by the Bunkering Superintendent of the Port of Gibraltar to act as a physical supplier of marine petroleum products in Gibraltar. We currently operate six double hull bunkering tankers in Gibraltar. We purchase our fuel in Gibraltar from a variety of different suppliers, including Preem Tupras Co., Glencore plc and Galp Energia SGPS S.A. We store our fuel in a leased storage facility in Tangiers, near the port of Tanger-Med. We support our bunkering operations from our office in Gibraltar, which we lease.
We possess a license issued by Sharjah Economic Development Department to act as a physical supplier of marine petroleum products in the port area of Fujairah. We purchase our fuel in Fujairah from a variety of different suppliers including the Vitol Group and the Bahrain Petroleum Company (Bapco).
We have a 25-year lease agreement with the Municipality of Fujairah, which may be automatically renewed for an additional 25 years, pursuant to which we built a land-based storage facility with capacity of 465,000 cubic meters, which was completed in the fourth quarter of 2014. We currently operate four double hull bunkering tankers in this region, which we service using our Fujairah Storage Facility. We currently lease to third parties over 300,000 cubic meters of this facility. We support our bunkering operations from two offices in Fujairah, Dubai and Khor Fakkan, which we lease.
We are authorized by the Port Authority of Jamaica to act as a physical supplier of marine petroleum products in Jamaica. We service our customers in the ports of Kingston, Montego Bay and Ocho Rios, Jamaica, and may elect to service our customers in other locations in Jamaica. We operate two double hull tankers in Jamaica. We have entered into a long-term supply contract to purchase fuel from the state refinery, Petrojam Limited. We support our bunkering operations from our office in Kingston, which we lease. We also own property, which we may use to construct a land-based storage facility of approximately 80,000 cubic meters.
We possess a license issued by the Maritime and Port Authority of Singapore to act as a physical supplier of marine petroleum products in the port of Singapore. We currently operate two double hull bunkering tankers in Singapore and we also have short-term chartering agreements with third-parties for some of these vessels. We purchase our fuel in Singapore from a variety of different suppliers, including Petrochina Ltd, BP Singapore Pte. Ltd., Shell Singapore and Exxon Mobil Corporation. We support our bunkering operations from our office in Singapore, which we lease.
We possess a license issued by the Belgian Federal Ministry of Finance to trade and supply marine petroleum products offshore and in ports. We deliver fuel offshore and service over 45 ports located throughout Northern Europe, including the North and Irish Sea, the French Atlantic, the English Channel and the St. George Channel. Aegean North West Europe NV, or ANWE, also services the ports of Antwerp, Rotterdam and Amsterdam and also the surrounding ports of Ghent, Zeebruges, Flushing, Terneuzen and Sluiskil, Moerdijk and Ijmuiden. We currently operate 16 double hull bunkering tankers in Northern Europe and the ARA region. We purchase our fuel in Northern Europe from a variety of different suppliers. We support our bunkering operations in Northern Europe from our office near Antwerp, which we own.
We possess a license issued by the City of Vancouver. We trade and supply marine petroleum products off the coast and in the port of Vancouver. We operate two double hull non self-propelled bunkering barges in the port of Vancouver. We purchase our fuel in Vancouver from a variety of different suppliers, including Esso (Imperial Oil), which also engages in supply operations in the port. We support our bunkering operations in this region from our office in Vancouver, which we lease.
We possess a license issued by the Republic of Trinidad and Tobago to act as a physical supplier of marine petroleum products in the area of Port of Spain in Trinidad and Tobago. We currently operate two double hull bunkering tankers in Trinidad and Tobago. We purchase our fuel in Trinidad and Tobago from a major supplier, Petrotrin Company. We support our bunkering operations here from our office in Port of Spain, which we lease.
We possess a license issued by the Agence Spéciale Tanger-Mediterranée to act as a physical supplier of marine petroleum products off the coast of Morocco and in the port of Tanger-Med. We currently serve this service center with our Gibraltar-based bunkering tankers and operate a land-based storage facility in Tangiers, near the port of Tanger-Med, with approximately 218,000 cubic meters capacity. We purchase our fuel in Morocco mainly from Preem Tupras Co., Glencore plc and Galp Energia SGPS S.A. We were selected by Horizon Tangiers Terminal S.A., a special purpose consortium, as the exclusive bunkering company for the new port in Tanger-Med. Since July 2012, we store our fuel at the leased tanks in the Tanger-Med area under this appointment, the duration of which is 25 years. We currently support our bunkering operations here from our office in Gibraltar, which we lease.
In June 2010, we acquired the assets and operations of the Shell Las Palmas terminal in the Canary Islands. The Shell Las Palmas terminal occupies an area of approximately 20,000 square meters, providing bunkering services for a diverse group of ship operators primarily along major trans-Atlantic seaborne trade routes. The terminal includes a lubricants plant, dedicated land-based storage facilities with approximately 65,000 metric tons capacity as well as on-site blending facilities to mix all grades of fuel oils and distillates. In addition, we lease approximately 16,000 cubic meters capacity from BP España S.A.U. in its adjacent terminal. In June 2011, we also commenced physical supply of operations in Tenerife, which we support from our Las Palmas service center.
We possess a license issued by the Canary Islands Ministry of Development to act as a physical supplier of marine petroleum products offshore and in the ports of Las Palmas and Tenerife. We currently operate two double hull bunkering tankers in Las Palmas. We purchase our fuel from a variety of different suppliers, including Preem Tupras Co., Galaxy Oil Ltd and Galp Energia SGPS S.A. We support our operations in the Canary Islands from our office in Las Palmas, which we lease.
We currently do not have any vessels operating in Panama; however, we may conduct fuel trading in the area. We support our operations in Panama from our offices in New York.
In August 2012, we signed a definitive agreement with Meroil, a Barcelona-based oil and energy logistics company which operates the largest Spanish coastline terminal for petroleum products in the Port of Barcelona, Spain, to secure onshore fuel oil storage capacity in that terminal. From April 2013 until November 2016, we conducted physical supply operations in Barcelona.
From August 2013 until June 2016, we also conducted physical supply operations in Algeciras, Spain. We still have a license from the Port Authority of Algeciras to act as a physical supplier of marine petroleum products in the port.
U.S. East Coast
In December 2013, upon our acquisition of the U.S. East Coast bunkering business from Hess, we commenced operations in the U.S. East Coast. We conduct bunkering operations in this region, and have approximately 238,000 cubic meters of leased tank storage. We supply the heavily trafficked ports of New York, Philadelphia, Baltimore, Norfolk and Charleston. We have a license from the states in the U.S. where we operate. We use third-party barges to deliver our products in the area. We purchase our fuel in the region from a variety of different suppliers, including PMI Trading Ltd, or PMI Trading. We support our U.S. East Coast operations from our office in New York, which we lease.
U.S. West Coast
In December 2014, we assumed the contracts for two ocean-going bunkering tankers previously under charter to O.W. Bunker. With these specialized tankers and their highly trained personnel in place, we service the specific needs of vessels transiting the Gulf of Mexico (in U.S. territorial waters). We have a license from the states in the U.S. in which we operate and we purchase our fuel in the region from NuStar Supply and Trading LLC. We support our Gulf of Mexico operations from our office in Piraeus, which we lease.
In February 2015, we launched bunker trading operations in St. Petersburg, Russia. We support our operations in this region from our office in St. Petersburg, Russia, which we lease.
In January 2016, we launched bunker trading operations in South America. We support our operations in this region from our office in Rio de Janeiro, Brazil, which we lease.
We also have significant trading activity in Greece, China, Singapore, Korea and other worldwide areas and we support our services from our offices in Piraeus, Greece, and Singapore, which we lease.
Most of our marketing, sales, ship-management and other related functions are performed at our main offices in Piraeus, Greece. We also market products and services from our offices in New York (the United States), Vancouver (Canada), Singapore, Antwerp (Belgium), St. Petersburg (Russia), Hamburg (Germany) and Rio de Janeiro (Brazil). Our sales force interacts with our established customers and markets our fuel sales and services to large commercial shipping companies and foreign governments. We believe our level of customer service, years of experience in the industry, and reputation for reliability are significant factors in retaining our customers and attracting new customers. Our sales and marketing approach is designed to create awareness of the benefits and advantages of our fuel sales and services. We are active in industry trade shows and other available public forums.
We maintain an administrative office in Cyprus, which we lease. Our office in Cyprus is responsible for, among other things, certain invoicing functions of our principal operating subsidiary, Aegean Marine Petroleum S.A., or AMP.
We maintain an executive office in New York, United States to oversee our financial and other reporting functions.
We market marine fuel and related services to a broad and diversified base of customers. During the years ended December 31, 2016, 2015 and 2014, none of our customers accounted for more than 10% of our total revenues. Our customers serviced during the past three years include Greek-owned commercial shipping companies, such as Blue Star Ferries, Neptune Line Shipping and ENESEL S.A., other international shipping companies, such as A.P. Moller and Royal Caribbean Cruises Ltd., fuel traders and brokers, such as World Fuel Services Corporation, and oil majors, such as Exxon Mobil Corporation.
We purchase our marine fuel and lubricants from refineries, oil majors or other select suppliers around the world. In the years ended December 31, 2016, 2015 and 2014, we purchased marine petroleum products of approximately $63.9 million, $136.7 million, and $348.6 million, respectively, or approximately 2% to 7% of our total purchases of marine petroleum products, from our related companies, Aegean Oil and Melco S.A., or Melco. The majority of our cost of marine petroleum products during the years ended December 31, 2016, 2015 and 2014 were made from unrelated third-party suppliers and totaled $3,606.7 million, $3,716.7 million and $5,937.9 million, respectively, or approximately 93% to 98% of our total cost of marine petroleum products. Our cost of fuel is generally tied to spot pricing, market-based formulas or is governmentally controlled. We are usually extended trade credit from our suppliers for our fuel purchases, which are generally required to be secured by standby letters of credit or letters of guarantee.
We compete with marine fuel traders and brokers, such as World Fuel Services Corporation and Chemoil Corporation, and major oil producers, such as BP Marine Limited, Royal Dutch Shell plc, Marine Products Corp. and ExxonMobil Marine Fuel, for services and end customers. We also compete with physical suppliers of marine fuel products, such as CEPSA (Gibraltar) Ltd. and Fujairah National Bunkering Co. LLC, for business from traders and brokers as well as end customers. Our competitors include both large corporations and small, specialized firms. Some of our competitors are larger than we are and have substantially greater financial and other resources than we do. Some of our suppliers also compete against us.
Government regulations and laws significantly affect the ownership and operation of our tankers and marine fuel facilities. We are subject to various international conventions, laws and regulations in force in the countries in which our fuel facilities are located, and where our vessels may operate or are registered. Compliance with such laws, regulations and other requirements entails expenses, including vessel modification and implementation of certain operating procedures.
A variety of governments, quasi-governmental and private organizations subject our tankers to both scheduled and unscheduled inspections. These organizations include the local port authorities, national authorities, harbor masters or equivalent, classification societies, flag state and charterers, particularly terminal operators and oil companies. Some of these entities require us to obtain permits, licenses and certificates and approvals for the operation of our tankers and marine fuel facilities. Our failure to maintain necessary permits, licenses, certificates or approvals could require us to incur substantial costs or temporarily suspend operation of our marine fuel terminal or one or more of the vessels in our fleet.
We believe that the heightened levels of environmental and quality concerns among insurance underwriters, regulators and charterers have led to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for tankers that conform to the stricter environmental standards. We are required to maintain operating standards for all of our vessels emphasizing operational safety, quality maintenance, continuous training of our officers and crews and compliance with applicable local, national and international environmental laws and regulations. We believe that the operation of our vessels will be in substantial compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations; however changes in such laws and regulations, such as the 2010
Deepwater Horizon
oil spill or future serious marine incidents, may impact our resale value or useful lives of our tankers. In addition, a future serious marine incident that results in significant oil pollution, release of hazardous substances, loss of life, or otherwise causes significant adverse environmental impact could result in additional legislation, regulation, or other requirements that could negatively affect our profitability.
The IMO has adopted the International Convention for the Prevention of Marine Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto, collectively referred to as MARPOL 73/78 and herein as MARPOL. MARPOL entered into force on October 2, 1983. It has been adopted by over 150 nations, including many of the jurisdictions in which our vessels operate. MARPOL sets forth pollution-prevention requirements applicable to drybulk carriers, among other vessels, and is broken into six Annexes, each of which regulates a different source of pollution. Annex I relates to oil leakage or spilling; Annexes II and III relate to harmful substances carried, in bulk, in liquid or packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and Annex VI, lastly, relates to air emissions. Annex VI was separately adopted by the IMO in September of 1997.
Our vessels are subject to regulatory requirements imposed by the IMO, including the phase-out of single hull tankers.
In 1992, MARPOL was amended to make it mandatory for tankers of 5,000 dwt and more ordered after July 6, 1993 to be fitted with double hulls, or an alternative design approved by the IMO. Following the Erika incident off the coast of France in December 1999, the IMO took steps to accelerate the phase-out of single hull tankers. In April 2001, the IMO adopted a revised phase-out schedule for single hull tankers, which became effective in September 2003.
Under the revised regulations, a flag state may permit continued operation of certain Category 2 or 3 tankers beyond the phase-out date set forth above. The regulations also enable a flag state to allow for some newer single hull oil tankers registered in its country that conform to certain technical specifications to continue operating until the earlier of the anniversary of the date of delivery of the vessel in 2015 or the date on which the vessel reaches 25 years after the date of its delivery. As described below, certain Category 2 and 3 tankers fitted only with double bottoms or double sides may also be allowed by the flag state to continue operations until their 25th anniversary of delivery. Port states are however permitted to deny entry to such tankers, if the tankers are also operating beyond the anniversary of the date of their delivery in 2015.
The December 2003 amendments to Annex I of the MARPOL convention, discussed above, adopted regulation 21 on the prevention of oil pollution from oil tankers carrying heavy grade oil as cargo, or HGO, which includes most grades of marine fuel. The new regulation requires, with certain limited exceptions, that single hull oil tankers of 5,000 dwt and above comply with regulation 13F of Annex 1 (setting out a number of requirements aimed at the prevention of oil pollution in the event of collision or stranding) after April 5, 2005, and that single hull oil tankers of 600 dwt and above but less than 5,000 dwt comply with regulation 13F(7)(a) of Annex 1 (requiring certain modifications to smaller tankers in order to prevent pollution in the event of collision or stranding) no later than the anniversary of their delivery in 2008.
Under regulation 21, the flag state may allow continued operation of oil tankers of 5,000 dwt and above, carrying crude oil with a density at 15°C higher than 900 kg/m3 but lower than 945 kg/m3, that conform to certain technical specifications and where, in the opinion of such flag state, the ship is fit to continue such operation, having regard to the size, age, operational area and structural conditions of the ship and provided that the continued operation shall not go beyond the date on which the ship reaches 25 years after the date of its delivery.
The flag state may also allow continued operation of a single hull oil tanker of 600 dwt and above but less than 5,000 dwt, carrying HGO as cargo, if, in the opinion of such flag state, the ship is fit to continue such operation, having regard to the size, age, operational area and structural conditions of the ship, provided that the operation shall not go beyond the date on which the ship reaches 25 years after the date of its delivery.
The flag state may also exempt an oil tanker of 600 dwt and above carrying HGO as cargo if the ship is either engaged in voyages exclusively within an area under the flag state's jurisdiction, or if the ship is engaged in voyages exclusively within an area under the jurisdiction of another party to the MARPOL Convention, provided that party agrees. The same applies to vessels operating as floating storage units of HGO.
Any port state, however, can deny entry of single hull tankers carrying HGO which have been allowed to continue operation under the exemptions mentioned above, into the ports or offshore terminals under the port state's jurisdiction, or deny ship-to-ship transfer of HGO in areas under its jurisdiction except when such transfer is necessary for the purpose of securing the safety of a ship or saving life at sea.
In October 2004, the MEPC adopted a unified interpretation of regulation 13G that clarified the delivery date for converted tankers. Under the interpretation, where an oil tanker has undergone a major conversion that has resulted in the replacement of the forebody, including the entire cargo carrying section, the major conversion completion date shall be deemed to be the date of delivery of the ship, provided that:
Revised Annex I to the MARPOL Convention entered into force in January 2007 and has undergone various minor amendments since then. Revised Annex I incorporates various amendments adopted since the MARPOL Convention entered into force in 1983, including the amendments to regulation 13G (regulation 20) and newly adopted regulation 13H (regulation 21). Revised Annex I also imposes construction requirements for oil tankers delivered on or after January 1, 2010. A further amendment to revised Annex I includes an amendment to the definition of HGO that will broaden the scope of regulation 21. On August 1, 2007 regulation 12A (an amendment to Annex I) came into force requiring fuel oil tanks to be located inside the double hull in all ships with an aggregate oil fuel capacity of 600m3 and above which are delivered on or after August 1, 2010, including ships for which the building contract is entered into on or after August 1, 2007 or, in the absence of a contract, for which the keel is laid on or after February 1, 2008. Non-compliance with the ISM Code or with other IMO regulations may subject a shipowner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in denial of access to, or detention in, some ports including United States and E.U. ports.
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution. Effective May 2005, Annex VI sets limits on nitrogen oxide emissions from ships whose diesel engines were constructed (or underwent major conversions) on or after January 1, 2000. It also prohibits "deliberate emissions" of "ozone depleting substances," defined to include certain halons and chlorofluorocarbons. "Deliberate emissions" are not limited to times when the ship is at sea; they can for example include discharges occurring in the course of the ship's repair and maintenance. Emissions of "volatile organic compounds" from certain tankers, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls) are also prohibited. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulphur emissions, known as Emission Control Areas, or ECAs (see below).
Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulphur contained in any fuel oil used on board ships. As of January 1, 2012, the amended Annex VI requires that fuel oil contain no more than 3.50% sulfur. On October 27, 2016, at MEPC's 70th session, or MEPC 70, MEPC announced its decisions concerning the implementation of regulations mandating a reduction in sulfur emissions from the current 3.50% to 0.50% as of the beginning of 2020 rather than pushing the deadline back to 2025. By 2020 ships will now have to either remove sulfur from emissions through the use of emission scrubbers or buy fuel with low sulfur content. Our vessels consume a regulated amount of bunker fuels sulphur content as per IMO Annex VI and EU Directive requirements. In addition, as per EU Directive 2005/33/EC, we have established a plan to modify and upgrade our vessels' machinery to ensure operation on low-sulphur fuels.
Sulfur content standards are even stricter within certain ECAs. As of January 1, 2015, all vessels operating within ECAs worldwide, which includes the North Sea, the Baltic Sea, and the English Channel, must comply with 0.10% sulfur requirements. Amended Annex VI establishes procedures for designating new ECAs. The Baltic Sea and the North Sea have been so designated. On August 1, 2012, certain coastal areas of North America were designated ECAs, and effective January 1, 2014, the applicable areas of the United States Caribbean Sea were designated ECAs. Ocean-going vessels in these areas will be subject to stringent emissions controls and may cause us to incur additional costs. If other ECAs are approved by the IMO or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the U.S. Environmental Protection Agency, or the EPA, or the states where we operate, compliance with these regulations could entail significant capital expenditures, or operational changes, or otherwise increase the costs of our operations.
As of January 1, 2013, all ships must comply with mandatory requirements by MEPC in July 2011 related to greenhouse gas emissions. Under those measures, by 2025 all new ships built will be 30% more energy efficient than those built in 2014. All ships are required to follow the Ship Energy Efficiency Management Plan. Now the minimum energy efficiency levels per capacity mile, outlined in the Energy Efficiency Design Index, apply to all new ships. These requirements could cause us to incur additional compliance costs.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation. At MEPC 70, MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen oxides, effective January 1, 2021. It is expected that these areas will be formally designated after draft amendments are presented at MEPC's next session. The EPA promulgated equivalent (and in some senses stricter) emissions standards in late 2009.
With effect from January 1, 2010, the Directive 2005/33/EC of the European Parliament and of the Council of July 6, 2005, amending Directive 1999/32/EC came into force. The objective of the directive is to reduce emission of sulfur dioxide and particulate matter caused by the combustion of certain petroleum derived fuels. The directive imposes limits on the sulfur content of such fuels as a condition of their use within a Member State territory. The maximum sulfur content for marine fuels used by inland waterway vessels and ships at berth in ports in EU countries after January 1, 2010, is 0.10% by mass.
The IMO also adopted the International Convention for the Safety of Life at Sea, or the SOLAS Convention, and the International Convention on Load Lines, or the LL Convention, which impose a variety of standards that regulate the design and operational features of ships. The IMO periodically revises the SOLAS Convention and LL Convention standards. The May 2012 SOLAS Convention amendments entered into force as of January 1, 2014. Additionally, the May 2013 SOLAS Convention amendments, pertaining to emergency drills, entered into force in January 2015. The Convention on Limitation for Maritime Claims of 1976, as amended, had amendments that went into effect on June 8, 2015. The amendments alter the limits of liability for a loss of life or personal injury claim and a property claim against ship owners.
The operation of our ships is also affected by the requirements set forth in Chapter IX of the SOLAS Convention, which sets forth the IMO's International Management Code for the Safe Operation of Ships and Pollution Prevention, or the ISM Code. The ISM Code requires ship owners and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies.
The ISM Code requires that vessel operators obtain a safety management certificate, or SMC, for each vessel they operate. This certificate evidences compliance by a vessel's operators with the ISM Code requirements for a safety management system, or SMS. No vessel can obtain an SMC under the ISM Code unless its manager has been awarded a document of compliance, or DOC, issued in most instances by the vessel's flag state. We believe that we have all material requisite documents of compliance for our offices and safety management certificates for vessels in our fleet for which the certificates are required by the IMO. We renew these documents of compliance and safety management certificates as required.
Non-compliance with the ISM Code and other IMO regulations may subject the shipowner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports.
The IMO has negotiated international conventions that impose liability for oil pollution in international waters and a signatory's territorial waters. Additional or new conventions, laws and regulations may be adopted which could limit our ability to do business and which could have a material adverse effect on our business and results of operations.
For example, the IMO has adopted the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by different Protocol in 1976, 1984, and 1992, and amended in 2000, or the CLC. Under the CLC and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel's registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain exceptions. The 1992 Protocol changed certain limits on liability, expressed using the International Monetary Fund currency unit of Special Drawing Rights. The limits on liability have since been amended so that compensation limits on liability were raised. The right to limit liability is forfeited under the CLC where the spill is caused by the shipowner's personal fault and under the 1992 Protocol where the spill is caused by the shipowner's personal act or omission by intentional or reckless conduct where the shipowner knew pollution damage would probably result. The CLC requires ships covered by it to maintain insurance covering the liability of the owner in a sum equivalent to an owner's liability for a single incident. We believe that our insurance will cover the liability under the plan adopted by the IMO.
The IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage, or the Bunker Convention, to impose strict liability on shipowners for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker Convention requires registered owners of ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the Convention on Limitation of Liability for Maritime Claims of 1976, as amended). With respect to non-ratifying states, liability for spills or releases of oil carried as fuel in ship's bunkers typically is determined by the national or other domestic laws in the jurisdiction where the events or damages occur.
In addition, the IMO adopted an International Convention for the Control and Management of Ships' Ballast Water and Sediments, or the BWM Convention, in February 2004. The BWM Convention's implementing regulations call for a phased introduction of mandatory ballast water exchange requirements to be replaced in time with mandatory concentration limits. All ships will also have to carry a ballast water record book and an International Ballast Water Management Certificate. The BWM Convention enters into force 12 months after the date on which no less than 30 states, and the combined merchant fleets of which constitute no less than 35% of the gross tonnage of the world's merchant shipping, have either signed it without reservation as to ratification, acceptance or approval, or have deposited the requisite instruments of ratification, acceptance, approval or accession. The process to verify global tonnage figures to assess the BWM Convention's entry into force has been completed. On September 8, 2016, this threshold was met (with 52 countries making up 35.14%). Thus, the BWM Convention enters into force on September 8, 2017. Many of the implementation dates originally written into the BWM Convention have already passed, so that once the BWM Convention enters into force, the period for installation of mandatory ballast water exchange requirements would be extremely short, with several thousand ships a year needing to install ballast water management systems, or BWMS. For this reason, on December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM Convention so that they are triggered by the entry into force date and not the original dates in the BWM Convention. This in effect makes all vessels constructed before the entry into force date 'existing' vessels, and allows for the installation of a BWMS on such vessels at the first renewal survey following entry into force. The MEPC adopted updated "guidelines for approval of ballast water management systems (G8)" at MEPC 70. Upon entry into force of the BWM Convention, mid-ocean ballast water exchange would become mandatory for our vessels. The USCG recently approved certain ballast water treatment systems. Given this fact, the cost of compliance for ocean carriers could be significant and the costs of ballast water treatments may be material. However, many countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges. The United States, for example, requires vessels entering its waters from another country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements. Given the USCG's recent approval of certain ballast water treatment systems, it is difficult to predict the overall impact on compliance and on our operations.
The IMO continues to review and introduce new regulations. It is difficult to accurately predict what additional regulations, if any, may be passed by the IMO in the future and what effect, if any, such regulations might have on our operations.
In October 2009, the E.U. amended directive 2005/33/EC to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. Member States were required to enact laws or regulations to comply with the directive by the end of 2010. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims.
The E.U. has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as determined by type, age, and flag as well as the number of times the ship has been detained. The E.U. also adopted and then extended a ban on substandard ships and enacted a minimum ban period and a definitive ban for repeated offenses. The regulation also provided the E.U. with greater authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply.
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions. The 2015 United Nations Convention on Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on November 4, 2016. The Paris Agreement does not directly limit greenhouse gas emissions from ships.
As of January 1, 2013, all new ships must comply with two new sets of mandatory requirements, which were adopted by MEPC in July 2011, in part to address greenhouse gas emissions from ships. Currently operating ships will be required to develop Ship Energy Efficiency Management Plans, and minimum energy efficiency levels per capacity mile will apply to new ships. Our vessels comply with these requirements, and we have regular inspections performed by our personnel to ensure continued compliance. The MEPC is also considering market-based mechanisms to reduce greenhouse gas emissions from ships. The E.U. has proposed legislation that would require the monitoring and reporting of greenhouse gas emissions from marine vessels. In April 2013, the European Parliament rejected proposed changes to the E.U. Emissions Law regarding carbon trading. In April 2015, a regulation was adopted requiring that large ships (over 5,000 gross tons) calling at European ports from January 2018 collect and publish data on carbon dioxide omissions. In June 2013 the European Commission developed a strategy to integrate maritime emissions into the overall E.U. strategy to reduced greenhouse gas emissions. For 2020, the E.U. made a unilateral commitment to reduce overall greenhouse gas emissions from its member states by 20% of 1990 levels. The E.U. also committed to reduce its emissions by 20% under the Kyoto Protocol's second period, from 2013 to 2020. In December 2013, the E.U. environmental ministers discussed draft rules to implement monitoring and reporting of carbon dioxide emissions from ships.
In the United States, the EPA has issued a finding that greenhouse gases endanger the public health and safety and has adopted regulations to limit greenhouse gas emissions from certain mobile sources and proposed regulations to limit greenhouse gases from large stationary sources. Although the mobile source emissions regulations do not apply to greenhouse gas emissions from vessels, such regulation of vessels is foreseeable, and the EPA has received petitions from the California Attorney General and various environmental groups seeking such regulation. Moreover, in the U.S. individual states can also enact environmental regulations. For example, California introduced caps for greenhouse gas emissions and, in the end of 2016, signaled it may take additional actions regarding climate change. Any passage of climate control legislation or other regulatory initiatives by the IMO, the E.U., the U.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol or Paris Agreement, that restrict emissions of greenhouse gases could require us to make significant financial expenditures, including capital expenditures to upgrade our vessels, which we cannot predict with certainty at this time.
The International Labour Organization, or the ILO, is a specialized agency of the United Nations with headquarters in Geneva, Switzerland. The ILO has adopted the Maritime Labor Convention 2006, or MLC 2006. A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance will be required to ensure compliance with the MLC 2006 for all ships above 500 gross tons in international trade. The MLC 2006 entered into force on August 20, 2013. Amendments to the MLC 2006 were adopted in 2014 and 2016. MLC 2006 requires us to develop new procedures to ensure full compliance with its requirements.
The U.S. Oil Pollution Act of 1990 and Comprehensive Environmental Response, Compensation and Liability Act
The U.S. Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all "owners and operators" whose vessels trade in the United States, its territories and possessions or whose vessels operate in United States waters, which includes the United States' territorial sea and its 200 nautical mile exclusive economic zone. The United States has also enacted the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, which applies to the discharge of hazardous substances other than oil, except in limited circumstances, whether on land or at sea. OPA and CERCLA both define "owner and operator" "in the case of a vessel, as any person owning, operating or chartering by demise, the vessel." Although OPA is primarily directed at oil tankers, it also applies to non-tanker ships with respect to the fuel oil, or bunkers, used to power such ships. CERCLA also applies to our operations.
Under OPA, vessel owners and operators are "responsible parties" and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels. OPA defines these other damages broadly to include:
OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. Effective December 21, 2015, the U.S. Coast Guard has adjusted the limits of OPA liability for non-tanker vessels to the greater of $1,100 per gross ton or $939,800. OPA limits the liability depending on the structure and size of the vessel; but for all tankers, other than single-hull tank vessels, over 3,000 gross tons liability is limited to the greater of $2,200 per gross ton or $18,796,800. These limits are subject to periodic adjustment for inflation. These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship), or a responsible party's gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident where the responsibility party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damage for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.
OPA and CERCLA both require owners and operators of vessels to establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We plan to comply with the U.S. Coast Guard's financial responsibility regulations by providing a certificate of responsibility evidencing sufficient self-insurance.
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, provided they accept, at a minimum, the levels of liability established under OPA. Some states have enacted legislation providing for unlimited liability for oil spills. In some cases, states, which have enacted such legislation, have not yet issued implementing regulations defining vessels owners' responsibilities under these laws. We intend to comply with all applicable state regulations in the ports where our vessels call. We believe that we are in substantial compliance with all applicable existing state requirements. In addition, we intend to comply with all future applicable state regulations in the ports where our vessels call.
The U.S. Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. In addition, many U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law. The EPA and USCG have enacted rules relating to ballast water discharge, compliance with which requires the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost, or otherwise restrict our vessels from entering United States waters.
The EPA regulates the discharge of ballast and bilge water and other substances in United States waters under the CWA. The EPA regulations require vessels 79 feet in length or longer (other than commercial fishing vessels and recreational vessels) comply with a permit that regulates ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters—the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels, or VGP. For a new vessel delivered to an owner or operator after September 19, 2009 to be covered by the VGP, the owner must submit a Notice of Intent at least 30 days before the vessel operates in United States waters. In March 2013, the EPA re-issued the VGP for another five years, and the new VGP took effect in December 2013. The 2013 VGP focuses on authorizing discharges incidental to operations of commercial vessels and the contains ballast water discharge limits for most vessels to reduce the risk of invasive species in United States waters, more stringent requirements for exhaust gas scrubbers and the use of environmentally acceptable lubricants.
U.S. Coast Guard regulations adopted and proposed for adoption under the U.S. National Invasive Species Act, or NISA, also impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering or operating in United States waters, which require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures, or otherwise restrict our vessels from entering United States waters. The U.S. Coast Guard must approve any technology before it is placed on a vessel.
However, as of January 1, 2014, vessels became technically subject to the phasing-in of these standards. The USCG approved first approved this technology in 2016. The USCG has previously provided waivers to vessels that could not install the as-yet unapproved technology and vessels now requiring a waiver will need to show that they cannot install approved technology. The EPA, on the other hand, has taken a different approach to enforcing ballast discharge standards under the VGP. In December 2013, the EPA issued an enforcement response policy in connection with the new VGP in which the EPA indicated that it would take into account the reasons why vessels do not have the requisite technology installed, but will not grant any waivers.
It should also be noted that in October 2015, the Second Circuit Court of Appeals issued a ruling that directed the EPA to redraft the sections of the 2013 VGP that address ballast water. However, the Second Circuit stated that 2013 VGP will remains in effect until the EPA issues a new VGP. In the fall of 2016, sources reported that the EPA indicated it was working on a new VGP. It presently remains unclear how the ballast water requirements set forth by the EPA, the USCG, and BWM Convention, some of which are in effect and some which are pending, will co-exist.
The U.S. Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and 1990, or the CAA, requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. Our vessels that operate in such port areas with restricted cargoes are equipped with vapor recovery systems that satisfy these requirements. The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in primarily major metropolitan and/or industrial areas. Several SIPs regulate emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment. As indicated above, our vessels operating in covered port areas are already equipped with vapor recovery systems that satisfy these existing requirements.
However, compliance with future EPA and U.S. Coast Guard regulations could require the installation of certain engineering equipment and water treatment systems to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost, or may otherwise restrict our vessels from entering U.S. waters.
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. In December 2002, amendments to the SOLAS Convention created a new chapter of the convention dealing specifically with maritime security. The new Chapter XI-2 became effective in July 2004 and imposes various detailed security obligations on vessels and port authorities, and mandates compliance with the ISPS Code. The ISPS Code is designed to enhance the security of ports and ships against terrorism.
To trade internationally, a vessel must attain an International Ship Security Certificate, or ISSC, from a recognized security organization approved by the vessel's flag state. The following are among the various requirements, some of which are found in SOLAS:
Ships operating without a valid certificate may be detained at port until it obtains an ISSC, or it may be expelled from port, or refused entry at port.
Our tankers have been certified as being "in-class" by Lloyds Register of DNV-GL, American Bureau of Shipping, and Bureau Veritas, all of which are members of the International Association of Classification Societies, or the IACS. In December 2013, the IACS adopted new harmonized Common Structure Rules that align with IMO goal standards, which apply to oil tankers and bulk carriers constructed on or after July 1, 2015. Generally, the regulations of vessel registries accepted by international lenders in the shipping industry require that an ocean-going vessel's hull and machinery be evaluated by a classification society authorized by the country of registry. The classification society certifies that the vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the vessel's country of registry and the international conventions of which that country is a member. Each vessel is inspected by a surveyor of the classification society in three surveys of varying frequency and thoroughness: every year for the annual survey, every two to three years for intermediate surveys and every four to five years for special surveys. Should any defects be found, the classification surveyor generally issues a notation or recommendation for appropriate repairs, which have to be made by the shipowner within the time limit prescribed. Vessels may be required, as part of the annual and intermediate survey process, to be drydocked for inspection of the underwater portions of the vessel and for necessary repair stemming from the inspection. Special surveys always require drydocking.
The operation of any tanker vessel involves risks such as mechanical failure, physical damage, collision, property loss, inventory loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. While we believe that our present insurance coverage is adequate, not all risks can be insured against, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.
We have obtained marine hull and machinery and war risk insurance policies, which provide coverage for the risk of actual or constructive total loss, for all our vessels. Each of our vessels is covered for at least its fair market value.
We have also obtained increased value insurance policies for all of our vessels. Under the increased value insurance, we will be able to recover the sum insured under the policy in addition to the sum insured under our hull and machinery policy in the event of the total loss of the vessel.
Protection and indemnity insurance policies, which cover our third-party liabilities in connection with our shipping activities, are provided by mutual protection and indemnity associations, or P&I Associations. These insurance policies cover third-party liability and other related expenses of injury or death of crew, passengers and other third-parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances, and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance policies are a form of mutual indemnity insurance policies, extended by protection and indemnity mutual associations, or "clubs." Subject to the "capping" of exposure discussed below, our coverage, except for pollution, is unlimited.
Our current protection and indemnity insurance coverage for pollution is up to $1.0 billion per vessel per incident. The P&I Associations that compose the International Group insure approximately 90% of the world's commercial tonnage and have entered into a pooling agreement to reinsure each association's liabilities. As a member of a P&I Association that is a member of the International Group, we are subject to calls payable to the associations based on our claim records as well as the claim records of all other members of the individual associations, and members of the International Group.
We have entered into a trademark license agreement with Aegean Oil pursuant to which Aegean Oil has granted us a non-transferable, non-exclusive, perpetual (subject to termination for material breach), world-wide, royalty-free right and license to use certain trademarks related to the Aegean logo and "Aegean Marine Petroleum" in connection with marine fuel supply services.
Aegean Marine Petroleum Network Inc. is a Marshall Islands holding company and we transact our bunkering business primarily through AMP, a wholly-owned subsidiary incorporated in Liberia, and operate in various markets through Aegean Bunkering Gibraltar Ltd., Aegean Bunkering Jamaica Ltd., Aegean Bunkering (Singapore) Pte. Ltd., Aegean North West Europe NV, ICS Petroleum Ltd., Aegean Bunkering Combustibles Las Palmas S.A., Aegean Bunkering (Morocco) SRL, Aegean Bunkering Trinidad Ltd.,, Aegean Bunkering (USA) LLC, Aegean Bunkering Germany and Aegean Petroleum BD&M GmbH, Aegean BD&M Neva, Aegean Petroleo Ltd. separate wholly-owned subsidiaries incorporated in Gibraltar, Jamaica, Singapore, Belgium, British Columbia (Canada), Canary Islands, Morocco, Trinidad and Tobago, the United States, Germany, Russia, South America, respectively, and Aegean Marine Petroleum LLC, a controlled subsidiary incorporated in the United Arab Emirates, which is 51% owned by a local nominee. Aegean Bunkering Marine Services Pty Ltd is incorporated in South Africa and is a 74% owned and controlled subsidiary. We provide the management of our bunkering tankers through Aegean Bunkering Services Inc., or ABS, a wholly-owned subsidiary incorporated in the Marshall Islands, and Aegean Management Services M.C., a wholly owned-subsidiary incorporated in Greece. We provide the marketing and administrative services for our operations through Aegean Oil (USA), LLC and AMPN USA, LLC, our wholly-owned subsidiaries formed in Delaware and the United States. We hold certain of our subsidiaries through Aegean Holdings S.A. and Aegean Investments S.A., our wholly-owned subsidiaries incorporated in the Marshall Islands, and we hold our vessel-owning subsidiaries through Aegean Shipholdings Inc., a wholly-owned subsidiary incorporated in the Marshall Islands. Our wholly-owned subsidiaries, AMPNI Investments Ltd. and AMPNI Holdings Ltd., are incorporated in Cyprus and hold our acquisitions in Belgium, Las Palmas, U.S.A., Germany and Russia.
Currently, we own our vessels through separate wholly-owned subsidiaries listed in the following table:
Real Property
The following table presents certain information relating to our leased and owned properties as of May 12, 2017. We consider our properties to be suitable and adequate for our present needs.
Location
|
Principal Use
|
Leased or Owned
|
Lease Expiration Date
|
Piraeus, Greece
|
Business coordination center and ship-management office
|
Leased
|
March 2023
|
Fujairah, U.A.E.
|
Administrative and operations office
|
Leased
|
October 2058
|
Dubai, U.A.E.
|
Administrative and operations office
|
Leased
|
July 2017
|
Khor Fakkan, U.A.E.
|
Administrative and operations office
|
Leased
|
December 2018
|
Gibraltar
|
Administrative and operations office
|
Leased
|
April 2040
|
Kingston, Jamaica
|
Administrative office and land
|
Owned
|
-
|
Singapore
|
Administrative and operations office
|
Leased
|
June 2017
|
Antwerp, Belgium
|
Administrative and operations office
|
Owned
|
-
|
Edgewater, New Jersey, U.S.A.
|
Property leased to third-party
|
Owned
|
-
|
New York, New York, U.S.A.
|
Administrative and operations office
|
Leased
|
December 2017
|
Connecticut, New York, U.S.A.
|
Administrative and operations office
|
Leased
|
January 2018
|
Nicosia, Cyprus
|
Administrative office
|
Leased
|
June 2017
|
Vancouver, Canada
|
Administrative and operations office
|
Leased
|
June 2017
|
Port of Spain, Trinidad
|
Administrative and operations office
|
Leased
|
March 2018
|
Las Palmas, Canary Islands
|
Administrative and operations office and storage facility
|
Leased
|
December 2027
|
Tangiers, Morocco
|
Storage facility
|
Leased
|
November 2031
|
Fujairah, United Arab Emirates
|
Storage facility
|
Leased
|
October 2058
|
Los Angeles, California, U.S.A.
|
Storage facility
|
Leased
|
April 2021
|
Hamburg, Germany
|
Storage facility and operations office
|
Leased
|
December 2019
|
Rostock, Germany
|
Administrative and operations office
|
Leased
|
June 2021
|
St. Petersburg, Russia
|
Administrative and operations office
|
Leased
|
June 2017
|
Rio de Janeiro, Brazil
|
Administrative and operations office
|
Leased
|
August 2018
|
Port Elizabeth, South Africa
|
Administrative and operations office
|
Leased
|
June 2018
|
Our Fleet
The following table lists our fleet as of May 12, 2017.
Name
|
Double Hull
|
Flag
|
Build
|
Dwt
|
|
Bunkering Tankers:
|
|
|
|
|
|
Symi
|
Yes
|
Liberia
|
2012
|
|
6,270
|
|
Halki
|
Yes
|
Gibraltar
|
2011
|
|
6,256
|
|
Sikinos
|
Yes
|
Malta
|
2011
|
|
4,595
|
|
Anafi
|
Yes
|
Gibraltar
|
2011
|
|
4,584
|
|
Tilos
|
Yes
|
Singapore
|
2011
|
|
6,263
|
|
Eva Schulte*
|
Yes
|
Singapore
|
2010
|
|
16,621
|
|
Dilos
|
Yes
|
Liberia
|
2010
|
|
4,593
|
|
Ios I
|
Yes
|
Malta
|
2010
|
|
4,620
|
|
Kythira
|
Yes
|
Liberia
|
2010
|
|
6,314
|
|
Nisyros
|
Yes
|
Gibraltar
|
2010
|
|
6,312
|
|
Karpathos
|
Yes
|
Greece
|
2010
|
|
6,247
|
|
Leros
|
Yes
|
Panama
|
2010
|
|
6,311
|
|
Kassos
|
Yes
|
Gibraltar
|
2010
|
|
6,256
|
|
Lefkas
|
Yes
|
South Africa
|
2010
|
|
6,321
|
|
Andros
|
Yes
|
Gibraltar
|
2010
|
|
4,605
|
|
Zakynthos
|
Yes
|
Gibraltar
|
2010
|
|
6,303
|
|
Naxos
|
Yes
|
Greece
|
2009
|
|
4,626
|
|
Kerkyra
|
Yes
|
Panama
|
2009
|
|
6,290
|
|
Paxoi
|
Yes
|
Liberia
|
2009
|
|
6,310
|
|
Kalymnos
|
Yes
|
Liberia
|
2009
|
|
6,283
|
|
Kefalonia
|
Yes
|
Liberia
|
2009
|
|
6,272
|
|
Ithaki
|
Yes
|
Liberia
|
2009
|
|
6,272
|
|
Syros
|
Yes
|
Greece
|
2008
|
|
4,596
|
|
Patmos
|
Yes
|
Liberia
|
2008
|
|
6,262
|
|
Paros I
|
Yes
|
Liberia
|
2008
|
|
4,629
|
|
Mykonos
|
Yes
|
Gibraltar
|
2008
|
|
4,626
|
|
Santorini
|
Yes
|
Gibraltar
|
2008
|
|
4,629
|
|
Kimolos
|
Yes
|
Liberia
|
2008
|
|
4,664
|
|
Bonaire Trader*
|
Yes
|
Liberia
|
2007
|
|
11,255
|
|
Kithnos
|
Yes
|
Malta
|
2007
|
|
4,626
|
|
Amorgos
|
Yes
|
Gibraltar
|
2007
|
|
4,664
|
|
Serifos
|
Yes
|
Singapore
|
2007
|
|
4,664
|
|
Milos
|
Yes
|
Singapore
|
2007
|
|
4,626
|
|
Aegean Tiffany
|
Yes
|
Greece
|
2004
|
|
2,747
|
|
Aegean Breeze I
|
Yes
|
Greece
|
2004
|
|
2,747
|
|
Aegean Ace
|
Yes
|
Greece
|
1992
|
|
1,615
|
|
Aegean III
|
Yes
|
Greece
|
1990
|
|
2,973
|
|
Aegean VIII
|
Yes
|
Greece
|
1990
|
|
2,973
|
|
Aegean Rose
|
Yes
|
Greece
|
1988
|
|
4,935
|
|
Antonie*
|
Yes
|
Netherlands
|
1988
|
|
2,237
|
|
David Fanning*
|
Yes
|
U.S.A.
|
2008
|
|
5,369
|
|
Webb Moffett*
|
Yes
|
U.S.A.
|
2009
|
|
8,864
|
|
Annika*
|
Yes
|
Germany
|
2012
|
|
1,646
|
|
In-Land Waterway Bunkering Tankers:
|
|
|
|
|
|
|
Pascale*
|
Yes
|
Belgium
|
2015
|
|
|
2,200
|
|
Strauss*
|
Yes
|
Belgium
|
2014
|
|
|
4,050
|
|
Beryl*
|
Yes
|
Luxemburg
|
2014
|
|
|
2,468
|
|
Florida
|
Yes
|
Belgium
|
2011
|
|
|
1,533
|
|
Montana
|
Yes
|
Belgium
|
2011
|
|
|
4,319
|
|
Mozart*
|
Yes
|
Belgium
|
2011
|
|
|
2,799
|
|
Alaska*
|
Yes
|
Netherlands
|
2010
|
|
|
3,778
|
|
Onyx*
|
Yes
|
Luxemburg
|
2010
|
|
|
2,979
|
|
Willem Sr.
|
Yes
|
Netherlands
|
2006
|
|
|
3,180
|
|
New Jersey
|
Yes
|
Belgium
|
2006
|
|
|
4,100
|
|
Alexia*
|
Yes
|
Belgium
|
2005
|
|
|
3,550
|
|
Beethoven*
|
Yes
|
Belgium
|
2005
|
|
|
3,179
|
|
Tanzanite*
|
Yes
|
Belgium
|
2004
|
|
|
4,068
|
|
Colorado
|
Yes
|
Belgium
|
2004
|
|
|
5,578
|
|
Texas
|
Yes
|
Belgium
|
2003
|
|
|
4,165
|
|
|
|
|
|
|
|
|
|
Bunkering Barges:
|
|
|
|
|
|
|
|
PT40
|
Yes
|
Canada
|
2014
|
|
|
4,222
|
|
PT22
|
Yes
|
Canada
|
2001
|
|
|
2,315
|
|
|
|
|
|
|
|
|
|
Special Purpose Vessel:
|
|
|
|
|
|
|
|
Aegean Orion
|
No
|
Greece
|
1991
|
|
|
550
|
|
|
|
|
|
|
|
|
|
Floating Storage Facility:
|
|
|
|
|
|
|
|
Umnenga
|
Yes
|
Liberia
|
1993
|
|
|
66,895
|
|
Mediterranean
|
Yes
|
Greece
|
1982
|
|
|
19,894
|
|
*Chartered in by us from a third party.
We have positioned our bunkering tankers across our existing service centers and review vessel positioning on a periodic basis and reposition our vessels among our existing or new service centers to optimize their deployment. Our vessels operate within or outside the territorial waters of each geographical location and, under international law, usually fall under the jurisdiction of the country of the flag they carry. Generally, our bunkering tankers, unlike our bunkering barges, are not permanently located within any particular territorial waters and we are free to use all of our bunkering tankers in any geographical location. We have positioned one of our bunkering tankers in Greece, which we use as a floating storage facility, and we have positioned our 550 dwt tanker, the
Aegean Orion
, as a special purpose vessel in Greece.
In addition, we operate land-based storage facilities in the United States, Morocco, Canary Islands, and Germany, where we store marine fuel in terminals with storage capacity of approximately 293,000, 218,000, 79,000, and 20,000 cubic meters, respectively. In addition, we, through our wholly owned subsidiary, Aegean Oil Terminal Corporation, own and operate a land-based storage facility in Fujairah, United Arab Emirates, with storage capacity of 465,000 cubic meters, representing 43.3% of our aggregate storage capacity. We may also consider the construction of land-based storage facilities in other areas depending on market prospects and the availability of financing.
ITEM 4A.
UNRESOLVED STAFF COMMENTS
None.
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following management's discussion and analysis of the results of our operations and financial condition should be read in conjunction with the consolidated financial statements and the notes to those statements included elsewhere in this annual report. This discussion includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, such as those set forth in "Item 3. Key Information—D. Risk Factors" and elsewhere in this report.
General
We are an international marine fuel logistics company that markets and physically supplies refined marine fuel and lubricants to vessels in port, at sea and on rivers. As a physical supplier, we purchase marine fuel from refineries, major oil producers and other sources and resell and deliver such fuel, using our bunkering tankers, to a broad base of end users of marine fuels and lubricants.
We sell marine petroleum products to customers primarily at a margin over PLATTS prices (benchmark market prices). PLATTS prices are quoted daily by region and by terms of delivery. We have not had a significant number of long-term written agreements with customers. Under a typical sales contract, a customer requests that we quote a fixed price per metric ton for the sale and delivery of a specified volume and classification of marine fuel on a given date. The customer requests a quotation several days prior to the delivery date. We generally do not quote prices for periods in excess of one week. Once an agreement has been made with a customer, we are deemed to be bound to deliver the specified quantity and classification of marine fuel at the quoted fixed price on the specified delivery date to an identified vessel at a named location. We remain responsible for securing the supply of marine fuel from the supplier and delivering the marine fuel to the customer's vessel.
We purchase marine petroleum products from reputable suppliers under either long-term supply contracts or on the spot markets at a margin over PLATTS prices. Except for our service centers in Gibraltar, the United Arab Emirates, Las Palmas, the U.S. East and West Coasts, Germany, and South Africa, we generally take deliveries of the products on the day of, or a few days prior to, the delivery of the products to our customer's vessel. In Gibraltar, the United Arab Emirates, Las Palmas, the U.S. East and West Coasts, Germany, and South Africa, we utilize our owned or leased storage facilities to generally take deliveries of products more than one but less than two weeks prior to delivery of the products to our customers. The cost of our marine fuel purchases is generally fixed at the date of our agreement, which is prior to the loading from the supplier's premises. Generally, under our long-term supply contracts, the supplier undertakes to supply us with a minimum quantity of marine fuel per month, subject to the agreed quantity as per our contract. Price calculations vary from supplier to supplier in terms of the supplier's margins, the referenced PLATTS prices and the calculation of the average PLATTS price. Depending on the agreement with each supplier, the referenced PLATTS price could be the spot price or an average price over a specified period.
We deliver marine petroleum products to our customers mainly through our bunkering vessels. We are responsible for paying our tankers' operating expenses, including the cost of crewing, insuring, repairing and maintaining the vessel, spares and consumable stores, tonnage taxes and other vessel-related expenses. Our bunkering tankers are not used for the transportation of petroleum products across oceans. Accordingly, a significant portion of our vessel operating expenses are fixed or semi-variable (
e.g.
, a bunkering tanker's insurance costs, crew wages and certain other costs are incurred irrespective of the number of sales deliveries it makes during a period) and, as a group, represent the most significant operating expense for us other than the cost of the marine petroleum products to be sold to our customers.
We incur overhead costs to support our operations. In general, the logistics of purchasing marine fuel from suppliers and selling and delivering the fuel to customers are managed and coordinated by employees at our marketing and operating office in Greece, employees at our local service centers and the crews of our bunkering tankers.
Factors Affecting Our Results of Operations
We believe that the important measures for analyzing trends in our results of operations consist of the following:
|
·
|
Sales volume of marine fuel
. We define the sales volume of marine fuel as the volume of sales of various classifications of MFO, MDO, and MGO, for the relevant period, measured in metric tons. The sales volume of marine fuel is an indicator of the size of our operations as it affects both the sales and the cost of marine petroleum products recorded during a given period. Sales volume of marine fuel does not include the sales volume of lubricants due to insignificant volumes for all periods presented.
|
|
·
|
Gross spread on marine petroleum products and gross spread per metric ton of marine fuel sold.
Gross spread on marine petroleum products represents the margin that we generate on sales of marine fuel and lubricants. Gross spread on marine fuel represents the margin that we generate on sales of various classifications of MFO or MGO. Gross spread on lubricants represents the margin that we generate on sales of lubricants. We calculate the gross spreads by subtracting from the sales of the respective marine petroleum product the cost of the marine petroleum product sold. For arrangements in which we physically supply marine petroleum products using our bunkering tankers, costs of marine petroleum products sold represent amounts paid by us for marine petroleum products sold in the relevant reporting period. For arrangements in which marine petroleum products are purchased from our related company, Aegean Oil, cost of marine petroleum products sold represents the total amount paid by us to the physical supplier for marine petroleum products and their delivery to our customers. Gross spread per metric ton of marine fuel sold represents the margins we generate per metric ton of marine fuel sold. We calculate gross spread per metric ton of marine fuel sold by dividing the gross spread on marine fuel by the sales volume of marine fuel. Marine fuel sales do not include sales of lubricants. For arrangements in which we purchase cargos for our floating storage facilities, cargo transportation costs are either included in the purchase price of marine fuels that we paid to the supplier or to a third-party transportation provider.
|
The following table reflects the calculation of gross spread per metric ton of marine fuel sold for the periods presented:
|
For the Year Ended
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
in thousands of U.S. dollars, unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of marine petroleum products
|
|
|
3,996,642
|
|
|
|
4,155,502
|
|
|
|
6,590,998
|
|
|
|
6,282,466
|
|
|
|
7,208,440
|
|
Less: Cost of marine petroleum products sold
|
|
|
3,670,542
|
|
|
|
3,853,450
|
|
|
|
6,286,453
|
|
|
|
6,025,742
|
|
|
|
6,939,636
|
|
Gross spread on marine petroleum products
|
|
|
326,100
|
|
|
|
302,052
|
|
|
|
304,545
|
|
|
|
256,724
|
|
|
|
268,804
|
|
Less: Gross spread on lubricants
|
|
|
3,671
|
|
|
|
5,210
|
|
|
|
2,948
|
|
|
|
3,914
|
|
|
|
3,077
|
|
Gross spread on marine fuel
|
|
|
322,429
|
|
|
|
296,842
|
|
|
|
301,597
|
|
|
|
252,810
|
|
|
|
265,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales volume of marine fuel (metric tons)
|
|
|
16,519,079
|
|
|
|
13,482,478
|
|
|
|
11,332,385
|
|
|
|
9,941,061
|
|
|
|
10,620,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross spread per metric ton of marine fuel sold (in U.S. dollars)
|
|
|
19.5
|
|
|
|
22.0
|
|
|
|
26.6
|
|
|
|
25.4
|
|
|
|
25.0
|
|
The following table reconciles our gross spread on marine petroleum products sold to the most directly comparable U.S. GAAP measure, gross profit, for all periods presented:
|
For the Year Ended
December 31,
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
in thousands of U.S. dollars, unless otherwise stated)
|
|
Gross spread on marine petroleum products
|
|
|
326,100
|
|
|
|
302,052
|
|
|
|
304,545
|
|
|
|
256,724
|
|
|
|
268,804
|
|
Add: Voyage revenues
|
|
|
26,870
|
|
|
|
28,780
|
|
|
|
30,410
|
|
|
|
25,049
|
|
|
|
22,726
|
|
Add: Other revenues
|
|
|
52,707
|
|
|
|
47,372
|
|
|
|
40,393
|
|
|
|
27,214
|
|
|
|
27,794
|
|
Less: Cost of voyage revenues
|
|
|
14,974
|
|
|
|
14,827
|
|
|
|
14,729
|
|
|
|
16,202
|
|
|
|
15,136
|
|
Less: Cost of other revenues
|
|
|
37,219
|
|
|
|
31,548
|
|
|
|
23,525
|
|
|
|
6,793
|
|
|
|
1,539
|
|
Gross profit
|
|
|
353,484
|
|
|
|
331,829
|
|
|
|
337,094
|
|
|
|
285,992
|
|
|
|
302,649
|
|
The amount that we have to pay for marine petroleum products to fulfill a customer order has been the primary variable in determining the prices quoted to customers. Therefore, we evaluate gross spread per metric ton of marine fuel sold and gross spread on marine petroleum products in pricing individual transactions and in long-term strategic pricing decisions. We actively monitor our pricing and sourcing strategies in order to optimize our gross spread on marine petroleum products.
Gross spread on marine petroleum products (including gross spread on marine fuel sold and gross spread on lubricants) and gross spread per metric ton of marine fuel sold should not be considered as alternatives to gross profit, operating income, net income or other U.S. GAAP measures and may not be comparable to similarly titled measures of other companies. Gross spread on marine petroleum products and gross spread per metric ton of marine fuel sold do not reflect certain direct and indirect costs of delivering marine petroleum products to our customers (such as crew salaries, vessel depreciation, storage costs, hire charges, other vessel operating expenses and overhead costs) or other costs of doing business.
For all the periods presented, we purchased marine petroleum products in Greece from our related company, Aegean Oil, which is a physical supplier in Greece. The cost of these marine petroleum products was contractually calculated based on Aegean Oil's actual cost of these products plus a margin. For further discussion on our relationship with Aegean Oil, please refer to "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Aegean Oil S.A."
|
·
|
EBITDA
represents net income before interest, taxes, depreciation and amortization. EBITDA does not represent and should not be considered as an alternative to net income, operating income or any other indicator of the Company's performance, as determined by U.S. GAAP, and our calculation of EBITDA may not be comparable to that reported by other companies. EBITDA is included herein because it is a basis upon which we assess our performance. The following table reconciles net income, the most directly comparable U.S. GAAP measure, to EBITDA for the periods presented:
|
|
|
For the Year Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
(
in thousands of U.S. dollars, unless otherwise stated)
|
|
Net income attributable to AMPNI shareholders
|
|
|
51,871
|
|
|
|
34,841
|
|
|
|
16,090
|
|
|
|
24,963
|
|
|
|
20,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Net financing cost
|
|
|
36,248
|
|
|
|
37,556
|
|
|
|
33,781
|
|
|
|
27,998
|
|
|
|
31,069
|
|
Add: Income taxes
(1)
|
|
|
4,358
|
|
|
|
4,485
|
|
|
|
1,964
|
|
|
|
1,122
|
|
|
|
4,122
|
|
Add: Depreciation and amortization
|
|
|
33,133
|
|
|
|
33,924
|
|
|
|
30,184
|
|
|
|
29,148
|
|
|
|
31,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
125,610
|
|
|
|
110,806
|
|
|
|
82,019
|
|
|
|
83,231
|
|
|
|
86,448
|
|
(1)
The amount has been revised to account for a provision for withholding taxes, related to income tax. Refer to Note 1 to the consolidated financial statements included herein.
|
·
|
Number of markets served
.
The number of markets served is an indicator of the geographical distribution of our operations and affects both the amount of revenues and expenses that we record during a given period. The number of markets served includes our operations in the Greece (Piraeus and Patra), Gibraltar, United Arab Emirates (Fujairah, Khor Fakkan, and Dubai), Northern Europe (the ARA region and Belgium), Jamaica, Singapore, Canada (Vancouver, and Montreal until January 2017), United Kingdom (Portland until September 2015 and French Atlantic), Southern Caribbean (Trinidad and Tobago), Morocco (Tanger-Med), Canary Islands (Las Palmas and Tenerife beginning in June 2011), Panama (until June 2014), Hong Kong (from September 2012 until June 2013), Spain (Barcelona, beginning in April 2013 until November 2016, and Algeciras, beginning in August 2013 until June 2016), the U.S. East and West Coasts (beginning in December 2013 and December 2014, respectively), the Gulf of Mexico (beginning in December 2014), Germany (beginning in Hamburg in January 2015 and Rostock in January 2017), Russia (beginning in February 2015), South America (beginning in January 2016) and South Africa (beginning in March 2016).
|
|
·
|
Average number of operating bunkering vessels
. Average number of operating bunkering vessels is the number of operating bunkering vessels in our fleet for the relevant period, as measured by the sum of the number of days each bunkering vessel was used as a part of our fleet during the period divided by the cumulative number of calendar days in the period multiplied by the number of operating bunkering vessels at the end of the period. This figure does not take into account non-operating days due to either scheduled or unscheduled maintenance. The average number of operating bunkering vessels is an indicator of the size of our fleet and operations and affects both the amount of revenues and expenses that we record during a given period.
|
The following table reflects our sales volume of marine fuel, gross spread on marine petroleum products, gross spread per metric ton of marine fuel sold, number of service centers and average number of operating bunkering vessels for the periods indicated:
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
Sales volume of marine fuel (metric tons)
|
|
|
16,519,079
|
|
|
|
13,482,478
|
|
|
|
11,332,385
|
|
Gross spread on marine petroleum products (in thousands of U.S. dollars)
|
|
|
326,100
|
|
|
|
302,052
|
|
|
|
304,545
|
|
Gross spread per metric ton of marine fuel sold (in U.S. dollars)
|
|
|
19.5
|
|
|
|
22.0
|
|
|
|
26.6
|
|
Number of markets served, end of year
|
|
|
28
|
|
|
|
31
|
|
|
|
29.0
|
|
Average number of owned and operated bunkering vessels
|
|
|
47.1
|
|
|
|
48.8
|
|
|
|
50.2
|
|
Sales of Marine Petroleum Products and Gross Spread on Marine Petroleum Products
Our sales of marine petroleum products and gross spread on marine petroleum products consist of the sales revenue and gross spread that we generate on sales of marine fuel and lubricants.
Our sales of marine petroleum products are driven primarily by the number of our service centers, the number of operating bunkering tankers in our fleet, our sales prices and our credit terms and credit control process. The cost of marine petroleum products sold is driven primarily by availability of marine petroleum products, our purchasing methods, supplier cost prices and credit terms and our internal quality control processes. These drivers, in turn, are affected by a number of factors, including:
|
·
|
our entrance into new markets;
|
|
·
|
our purchasing methods of marine petroleum products;
|
|
·
|
our marketing strategy;
|
|
·
|
our vessel acquisitions and disposals;
|
|
·
|
conditions in the international shipping and the marine fuel supply industries;
|
|
·
|
regulation of the marine fuel supply industry;
|
|
·
|
regulation of the tanker industry;
|
|
·
|
levels of supply of and demand for marine petroleum products;
|
|
·
|
levels of competition; and
|
|
·
|
other factors affecting our industry.
|
We sell and deliver marine petroleum products to a broad and diversified customer base, including international commercial shipping companies, governments and marine fuel traders and brokers. For the years ended December 31, 2016, 2015 and 2014, none of our customers accounted for more than 10% of our total revenues.
The commercial shipping industry generally purchases marine fuel on a spot basis and historically we have not had any long-term sales volume contracts with customers. On March 1, 2006, however, we entered into a long-term contract to supply minimum quantities of fuel at fixed prices to a commercial customer in Jamaica, which is scheduled to expire on December 31, 2018. As we expand our global network and increase our geographical coverage, we expect some of our customers to enter into long-term sales volume contracts.
In addition to our physical supply operations, from time to time, we may act as a trader, generally in locations where we do not have service centers. This business involves activities whereby we contract with third-party physical suppliers to sell us marine fuel and deliver the marine fuel to a customer in the relevant location. Accordingly, our trading activities do not involve our physical possession of marine fuel and require less complex logistical operations and infrastructure. As such, we typically earn a significantly lower gross spread from our trading activities than from our physical supply activities.
We purchase and take delivery of marine petroleum products from various suppliers under long-term volume contracts or on the spot market. Long-term supply contracts from third-parties allow us to minimize our exposure to supply shortages. In general, at each of our service centers except for Gibraltar, Morocco, the United Arab Emirates, the Canary Islands, the U.S. East and West Coasts, Germany and South Africa, we purchase from local supply sources.
Our cost of marine petroleum products includes purchases from related companies. In Greece, we purchase marine petroleum products from our related company Aegean Oil, which charges us its actual cost of the marine petroleum products plus a margin, pursuant to a supply contract that currently expires on December 31, 2016 and is renewable annually. For further discussion of our marine petroleum products purchases from Aegean Oil, please refer to the section of this annual report entitled "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Aegean Oil S.A."
The following table reflects our cost of marine petroleum products sold, including the cargo transportation cost, incurred from third-party suppliers and from our related company suppliers for the periods indicated.
|
Year Ended December 31,
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
(in thousands of U.S. dollars)
|
|
Third-party suppliers
|
|
|
3,606,668
|
|
|
|
3,716,726
|
|
|
|
5,934,927
|
|
Related company suppliers
|
|
|
63,874
|
|
|
|
136,724
|
|
|
|
351,526
|
|
Total
|
|
|
3,670,542
|
|
|
|
3,853,450
|
|
|
|
6,286,453
|
|
We seek to increase our sales of marine petroleum products and our gross spread on marine petroleum products on an integrated basis, through expansion into new markets, acquisitions of double hull bunkering tankers and the diversification and further optimization of purchasing methods. Our gross spread on marine petroleum products differs for each of our service centers, reflecting the different competitive conditions that exist in the markets served by them. Factors affecting competitive conditions in a market that we service include customer demand, availability of supplies and the strength and number of competitors that operate in the market. We believe that for any new service centers that we may establish, gross spread on marine petroleum products may be lower than for our existing service centers. We also believe that the competitive conditions in the markets served by our existing service centers may generally be more favorable to us than those in other markets that we may consider for future expansion.
Voyage Revenues
Our voyage revenues, included in our total revenues, are primarily derived from the employment of our vessels the
Naxos
and the
Karpathos
, under contracts with Aegean VIII, a company owned and controlled by relatives of Mr. Dimitris Melisanidis, our founder, former head of corporate development and former major shareholder. During the years ended December 31, 2016, 2015, and 2014, we recorded revenue of $5.3 million, $5.3 million, and $3.4 million, respectively, in aggregate under these contracts.
Four of our vessels, the
Aegean III
, the
Aegean VIII
, the
Aegean Tiffany
, and the
Aegean Breeze
I,
are employed under a contract with an unaffiliated third-party for the distribution of refined marine petroleum products to Greek ports. During the years ended December 31, 2016, 2015 and 2014, we recognized $2.2 million, $2.3 million and $2.7 million, respectively, of revenue under this contract.
Two of our vessels, the
Amorgos
and the
Karpathos
, were employed under contracts with Aegean V, a company owned and controlled by relatives of Mr. Melisanidis. During the years ended December 31, 2016, 2015 and 2014, we recorded revenue of $0, $0, and $1.8 million, respectively, under these contracts, which expired during 2014.
During the year ended December 31, 2016, 2015, and 2014, several of our vessels were employed under contracts with Aegean Oil, a company owned and controlled by relatives of Mr. Melisanidis. During the years ended December 31, 2016, 2015, and 2014, we recorded aggregate revenue of $5.9 million, $2.7 million, and $0, respectively, under these contracts.
During the years ended December 31, 2016, 2015 and 2014, the
Aegean III
, the
Aegean VIII
, the
Aegean Tiffany
, and the
Aegean Breeze
I
, were employed under contracts with Hellenic Environmental Center, a company owned and controlled by relatives of Mr. Melisanidis and recorded revenue of $0.1 million, $0.1 million and $0.1 million, respectively.
Our voyage revenues are also derived from the employment of our vessels under charter agreements and the employment of our bunkering tankers under contracts with other unaffiliated third parties. During the years ended December 31, 2016, 2015 and 2014, we recorded revenue of $13.4 million, $18.4 million and $22.4 million, respectively, under these contracts.
Please also refer to the table in Note 16 to our consolidated financial statements included herein for more information.
Other Revenues
Other revenues, included in our total revenues, consist of brokerage and agency fees, throughput fees, demurrages and storage fees. These revenues are recognized when services are performed and collectability is reasonably assured. Please also refer to the table in Note 16 to our consolidated financial statements included herein.
Cost of Revenues
Cost of marine petroleum products consists of purchase costs of marine petroleum products and direct receiving costs of marine petroleum products, as described above. Cost of voyage revenues consists of voyage expenses and vessel operating expenses attributable to the voyage revenue we earn from the chartering out of our vessels. These costs include salaries and wages of the crew, depreciation and other operating expenses of the vessels such as repairs, maintenance, stores, spare parts, insurance, consumables and bunkers consumption. Cost of other revenues consists of direct costs of incurring other revenues.
Selling and Distribution expenses
We separately present the selling and distribution expenses due to its individual significance to perform our operations. These expenses generally represent indirect expenses incurred for selling and distribution and related to the delivery of the products and services to the customers.
The selling and distribution expenses mainly consist of the following:
|
·
|
salaries of our traders and shoreside personnel responsible for operation of our vessels and the distribution and supervision of our marine petroleum products and lubricant products;
|
|
·
|
salaries and wages of the shipboard personnel, mainly under short-term contracts, of the owned vessels used for the delivery of the marine petroleum products to the end customer using these vessels;
|
|
·
|
depreciation and amortization of dry-docking costs and other operating expenses of the owned vessels (such as repair, maintenance, stores, spare parts, insurance, consumables) and bunkers consumption of the owned vessels used for the delivery of the marine petroleum products to the end customer using these vessels;
|
|
·
|
vessel hire charges related to the hiring of third-party vessels used for the delivery of the marine petroleum products to the end customer;
|
|
·
|
storage costs, which mainly consist of the expenses of our floating storage facilities and our owned and leased on-land storage facilities;
|
|
·
|
bad debt provision, which has remained low in the past several years due to our effective credit control process and we expect it will remain at low levels; and
|
|
·
|
other costs, which mainly consist of port expenses, brokerage fees, laboratory analysis expenses, advertising expenses, supervising, inspections and survey costs.
|
We employ salaried employees at our offices in Greece, New York, Belgium, Singapore and Germany, where most of our sales and marketing, operations and technical departments are located, and at each of our service centers. We maintain a minimal number of salaried employees at our service centers, where we typically employ a local operations manager and staff to support the logistical aspects of our operations.
The cost of our vessels depreciates on a straight-line basis over the expected useful life of each vessel. We follow the deferral method of accounting for drydocking costs under which actual costs incurred are deferred and amortized on a straight-line basis over the period through the date the next drydocking is scheduled.
Our selling and distribution costs have been reduced over the past three years by selling our older or single hull vessels, which we assessed to be non-essential for our business. During the year ended December 31, 2016, our selling and distribution costs decreased due to the effects of the decrease in marine fuel prices on our bunker consumption.
General and administrative expenses
We separately present the general and administrative expenses, which mainly consist of the salaries and wages of the management and the general directors, the office administrative, legal, accounting and finance personnel, the depreciation of the office property, equipment and other fixed assets and the general office expenses, legal, auditing and professional fees, communal charges, travel expenses, maintenance of our property, rent and utilities. During the year ended December 31, 2016, our general and administrative expenses have increased due to the expansion of our business into new service centers.
Interest and Finance Costs
We have historically incurred interest expense and financing costs in connection with long-term debt to partially finance the acquisitions of our vessels and other non-current assets and in connection with short-term bank borrowings obtained for working capital purposes and business acquisitions. We capitalize interest incurred during the construction periods for financing our investments in bunkering vessels and storage facilities We have incurred and expect to continue incurring interest expense and financing costs under our existing credit facilities used to finance the construction of our bunkering tankers and our other senior secured credit facilities and convertible senior notes. We expect that interest and finance costs will increase further due to increased drawdowns under our credit facilities to finance our operations and capital expenditures.
Income Taxes
We are incorporated in the Marshall Islands. Under Marshall Islands law, we are not subject to tax on income or capital gains. Under the laws of the countries of incorporation of our vessel-owning subsidiaries and our subsidiaries that operate service centers and the laws of the countries of our vessels' registration, our vessel-owning companies are generally not subject to tax on our income that is characterized as shipping income.
Income taxes have been provided for based upon the tax laws and rates in effect in the countries in which our operations are conducted and income is earned. There is no expected relationship between the provision for/or benefit from income taxes and income or loss before income taxes because the countries in which we operate have taxation regimes that vary not only with respect to the nominal rate, but also in terms of the availability of deductions, credits and other benefits. Variations also arise because income earned and taxed in any particular country or countries may fluctuate from year to year. Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of our assets and liabilities using the applicable jurisdictional tax rates in effect at the year end. A valuation allowance for deferred tax assets is recorded when it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized.
Our corporate income tax exposure is in taxable jurisdictions, such as Gibraltar, Jamaica, Singapore, Belgium, the United States, Canada and Germany.
Our business is affected by taxes imposed on the purchase and sale of marine petroleum products in various jurisdictions in which we operate from time to time. These taxes include income, sales, excise, goods and services taxes, value-added taxes and other taxes. Other than in the United States, Canada and Belgium, we do not pay a material amount of tax in any jurisdiction in which we operate. For the years ended December 31, 2016, 2015, and 2014, our income tax amounted to $4.4 million, $4.5 million, and $2.0 million. The income tax amounts are mainly attributable to our United States, Canadian and Belgian operations.
Results of Operations
Year ended December 31, 2016 compared to the year ended December 31, 2015
The following table compares our results of operations for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(
in thousands of U.S. dollars unless otherwise stated)
|
|
2016
|
|
|
2015
|
|
|
Increase /(Decrease)
|
|
|
Percent Change
|
|
Sales of marine petroleum products
|
|
$
|
3,996,642
|
|
|
$
|
4,155,502
|
|
|
$
|
(158,860
|
)
|
|
|
3.8
|
%
|
Cost of sales of marine petroleum products
|
|
|
3,670,542
|
|
|
|
3,853,450
|
|
|
|
(182,908
|
)
|
|
|
4.7
|
%
|
Gross spread on marine petroleum products
|
|
|
326,100
|
|
|
|
302,052
|
|
|
|
24,048
|
|
|
|
7.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
|
26,870
|
|
|
|
28,780
|
|
|
|
(1,910
|
)
|
|
|
(6.6
|
)%
|
Cost of voyage revenues
|
|
|
14,974
|
|
|
|
14,827
|
|
|
|
147
|
|
|
|
1.0
|
%
|
Gross profit from voyage revenues
|
|
|
11,896
|
|
|
|
13,953
|
|
|
|
(2,057
|
)
|
|
|
(14.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
52,707
|
|
|
|
47,372
|
|
|
|
5,335
|
|
|
|
11.2
|
%
|
Cost of other revenues
|
|
|
37,219
|
|
|
|
31,548
|
|
|
|
5,671
|
|
|
|
18.0
|
%
|
Gross profit from other revenues
|
|
|
15,488
|
|
|
|
15,824
|
|
|
|
(336
|
)
|
|
|
(2.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
353,484
|
|
|
|
331,829
|
|
|
|
21,655
|
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution
|
|
|
202,266
|
|
|
|
205,078
|
|
|
|
(2,812
|
)
|
|
|
(1.4
|
)%
|
General and administrative
|
|
|
49,757
|
|
|
|
43,318
|
|
|
|
6,439
|
|
|
|
14.9
|
%
|
Interest and finance costs
|
|
|
36,499
|
|
|
|
37,608
|
|
|
|
(1,109
|
)
|
|
|
(2.9
|
)%
|
Income taxes
(1)
|
|
|
4,358
|
|
|
|
4,485
|
|
|
|
(127
|
)
|
|
|
(2.8
|
)%
|
(2)
The amounts have been revised to account for a provision for withholding taxes related to income tax for the year ended December 31, 2015. Refer to Note 1 to the consolidated financial statements
Sales of Marine Petroleum Products
. Sales of marine petroleum products decreased by $158.9 million, or 3.8%, to $3,996.6 million for the year ended December 31, 2016, compared to $4,155.5 million for the year ended December 31, 2015. The decrease was primarily attributable to a decrease of $877.0 million related to a drop in the price of marine fuel and a decrease of $9.4 million in lubricants sales, which was partially offset by an increase of $727.5 million attributable to an increase in marine fuel sales volume. Sales volume of marine fuel increased by 3,036,601 metric tons, or 22.5%, to 16,519,079 metric tons for the year ended December 31, 2016, compared to 13,482,478 metric tons for the year ended December 31, 2015, due to our expansion into new markets.
Voyage Revenues.
Voyage revenues decreased by $1.9 million, or 6.6%, to $26.9 million for the year ended December 31, 2016, compared to $28.8 million for the year ended December 31, 2015. The decrease was attributable to the expiration of the charter out of our leased vessel, the
Charleston
.
Other Revenues.
Other revenues increased by $5.3 million, or 11.2%, to $52.7 million for the year ended December 31, 2016, compared to $47.4 million for the year ended December 31, 2015. The increase in other revenues for the year ended December 31, 2016, was attributable to the storage revenue we received from our facility in Fujairah.
Revenues from related companies.
Revenues from related companies included in the sales of marine petroleum products and voyage revenues for the year ended December 31, 2016 were $9.2 million and $11.3 million, respectively, compared to $11.7 million and $8.2 million, respectively, for the year ended December 31, 2015. Voyage revenues from related companies increased mainly due to revenues of $4.8 million under the 2015 contract with Aegean Oil that is effective since July 2015.
Cost of revenue
. The cost of sales of marine petroleum products decreased by $183.0 million, or 4.7%, to $3,670.5 million for the year ended December 31, 2016, compared to $3,853.5 million for the year ended December 31, 2015. The decrease in the cost of marine petroleum products was attributable to the decrease in the price of marine fuel. The cost of purchases from related parties included in the cost of sales of marine petroleum products decreased by $72.8 million, or 53.3%, to $63.9 million for the year ended December 31, 2016 due to the price decline, compared to $136.7 million for the year ended December 31, 2015. The cost of voyage and other revenues for the year ended December 31, 2016 increased by $5.8 million, or 12.5%, to $52.2 million for the year ended December 31, 2016 due to costs related to our storage facility in Fujairah, compared to $46.4 million for the year ended December 31, 2015.
Gross Profit and Gross Spread on Marine Petroleum Products.
Gross spread on marine petroleum products increased by $24.0 million, or 7.9%, to $326.1 million for the year ended December 31, 2016, compared to $302.1 million for the year ended December 31, 2015. The contribution of the gross profit on voyage and other revenues for the year ended December 31, 2016 was $11.9 million and $15.5 million, respectively, compared to $14.0 million and $15.8 million respectively, for the year ended December 31, 2015. Our gross spread per metric ton of marine fuel sold during the year ended December 31, 2016 decreased by $2.5, or 11.4%, to $19.5, compared to $22.0 for the year ended December 31, 2015. Gross spreads per metric ton do not generally increase or decrease proportionately with the price of marine fuel. Accordingly, gross spread on marine petroleum products, as a percentage of total revenues, for the year ended December 31, 2016, increased to 8.0%, from 7.1%, for the year ended December 31, 2015. Gross spread on marine petroleum products and gross spread per metric ton of marine fuel sold are non-U.S. GAAP measures and should not be considered as alternatives to operating income, net income or other U.S. GAAP measures and may not be comparable to similarly titled measures of other companies. Please see "—Factors Affecting Our Results of Operations" for a reconciliation of gross spread on marine petroleum products to the most directly comparable U.S. GAAP measure.
Selling and Distribution
. Selling and distribution expenses decreased by $2.8 million, or 1.4%, to $202.3 million for the year ended December 31, 2016, compared to $205.1 million for the year ended December 31, 2015. This decrease was mainly due to the drop in our bunkers consumption after the decrease in marine fuel prices.
General and Administrative
. General and administrative expenses increased by $6.5 million, or 15.0%, to $49.8 million for the year ended December 31, 2016, compared to $43.3 million for the year ended December 31, 2015. This increase derives from the accelerated vesting of the shares of Mr. Dimitris Melisanidis, our founder and former head of corporate development.
Interest and Finance Costs
. Interest and finance costs decreased by $1.1 million, or 2.9%, to $36.5 million for the year ended December 31, 2016, compared to $37.6 million for the year ended December 31, 2015, mainly due to the gain arising from our interest rate swaps.
Income taxes
. Income tax expense decreased by $0.1 million, or 2.2%, to $4.4 million for the year ended December 31, 2016, compared to $4.5 million for the year ended December 31, 2015.
Year ended December 31, 2015 compared to the year ended December 31, 2014
The following table compares our results of operations for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(
in thousands of U.S. dollars unless otherwise stated)
|
|
2015
|
|
|
2014
|
|
|
Increase / (Decrease)
|
|
|
Percent Change
|
|
Sales of marine petroleum products
|
|
$
|
4,155,502
|
|
|
$
|
6,590,998
|
|
|
$
|
(2,435,496
|
)
|
|
|
(37.0
|
)%
|
Cost of sales of marine petroleum products
|
|
|
3,853,450
|
|
|
|
6,286,453
|
|
|
|
(2,433,003
|
)
|
|
|
(38.7
|
)%
|
Gross spread on marine petroleum products
|
|
|
302,052
|
|
|
|
304,545
|
|
|
|
(2,493
|
)
|
|
|
(0.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
|
28,780
|
|
|
|
30,410
|
|
|
|
(1,630
|
)
|
|
|
(5.3
|
)%
|
Cost of voyage revenues
|
|
|
14,827
|
|
|
|
14,729
|
|
|
|
98
|
|
|
|
0.1
|
%
|
Gross profit from voyage revenues
|
|
|
13,953
|
|
|
|
15,681
|
|
|
|
(1,728
|
)
|
|
|
(11.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
47,372
|
|
|
|
40,393
|
|
|
|
6,979
|
|
|
|
17.3
|
%
|
Cost of other revenues
|
|
|
31,548
|
|
|
|
23,525
|
|
|
|
8,023
|
|
|
|
34.1
|
%
|
Gross profit from other revenues
|
|
|
15,824
|
|
|
|
16,868
|
|
|
|
(1,044
|
)
|
|
|
(6.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
331,829
|
|
|
|
337,094
|
|
|
|
(5,265
|
)
|
|
|
(1.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution
|
|
|
205,078
|
|
|
|
220,830
|
|
|
|
(15,752
|
)
|
|
|
(7.1
|
)%
|
General and administrative
|
|
|
43,318
|
|
|
|
38,099
|
|
|
|
5,219
|
|
|
|
13.6
|
%
|
Interest and finance costs
|
|
|
37,608
|
|
|
|
33,898
|
|
|
|
3,710
|
|
|
|
10.9
|
%
|
Income taxes
(1)
|
|
|
4,485
|
|
|
|
1,964
|
|
|
|
2,521
|
|
|
|
128.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
The amounts have been revised to account for a provision for withholding taxes related to income tax for the years ended December 31, 2015 and 2014. Refer to Note 1 to the consolidated financial statements
Sales of Marine Petroleum Products.
Sales of marine petroleum products decreased by $2,435.5 million, or 37.0%, to $4,155.5 million for the year ended December 31, 2015, compared to $6,591.0 million for the year ended December 31, 2014. The decrease was primarily attributable to a decrease of $3,083.9 million related to a decrease in the price of marine fuel and a decrease of $6.6 million related to a decrease in lubricants sales, which was partially offset by an increase of $655.0 million which was attributable to an increase in marine fuel sales volume. Sales volume of marine fuel increased by 2,150,093 metric tons, or 19.0%, to 13,482,478 metric tons for the year ended December 31, 2015, compared to 11,332,385 metric tons for the year ended December 31, 2014, due to our expansion into new markets.
Voyage Revenues.
Voyage revenues decreased by $1.6 million, or 5.3%, to $28.8 million for the year ended December 31, 2015, compared to $30.4 million for the year ended December 31, 2014. The decrease was attributable to the expiration of the charter out of our leased vessel, the
Charleston
.
Other Revenues.
Other revenues increased by $7.0 million, or 17.3%, to $47.4 million for the year ended December 31, 2015, compared to $40.4 million for the year ended December 31, 2014. The increase in other revenues for the year ended December 31, 2015, was attributable to the storage revenue we received from our facility in Fujairah.
Revenues from related companies.
Revenues from related companies included in the sales of marine petroleum products and voyage revenues for the year ended December 31, 2015 were $11.7 million and $8.2 million, respectively, compared to $31.2 million and $5.3 million, respectively, for the year ended December 31, 2014. Voyage revenues from related companies increased mainly due to revenues of $2.7 million under our new contract with Aegean Oil.
Cost of revenue
. The cost of sales of marine petroleum products decreased by $2,433.0 million, or 38.7%, to $3,853.5 million for the year ended December 31, 2015, compared to $6,286.5 million for the year ended December 31, 2014. The decrease in the cost of marine petroleum products was attributable to the decrease in the price of marine fuel. The cost of purchases from related parties included in the cost of sales of marine petroleum products decreased by $214.8 million, or 61.1%, to $136.7 million for the year ended December 31, 2015 due to the price decline of approximately 50%, compared to $351.5 million for the year ended December 31, 2014. The cost of voyage and other revenues for the year ended December 31, 2015 increased by $8.1 million, or 21.1%, to $46.4 million for the year ended December 31, 2015 due to costs related to our storage facility in Fujairah, compared to $38.3 million for the year ended December 31, 2014.
Gross Profit and Gross Spread on Marine Petroleum Products.
Gross spread on marine petroleum products decreased slightly by $2.4 million, or 0.8%, to $302.1 million for the year ended December 31, 2015, compared to $304.5 million for the year ended December 31, 2014. The contribution of the gross profit on voyage and other revenues for the year ended December 31, 2015 was $14.0 million and $15.8 million, respectively, compared to 15.7 million and $16.9 million respectively, for the year ended December 31, 2014. Our gross spread per metric ton of marine fuel sold during the year ended December 31, 2015 decreased by $4.2, or 15.8%, to $22.0, compared to $26.6 for the year ended December 31, 2014. Gross spreads per metric ton do not generally increase or decrease proportionately with the price of marine fuel. Accordingly, gross spread on marine petroleum products, as a percentage of total revenues, for the year ended December 31, 2015, increased to 7.1%, from 4.6%, for the year ended December 31, 2014. Gross spread on marine petroleum products and gross spread per metric ton of marine fuel sold are non-U.S. GAAP measures and should not be considered as alternatives to operating income, net income or other U.S. GAAP measures and may not be comparable to similarly titled measures of other companies. Please see "—Factors Affecting Our Results of Operations" for a reconciliation of gross spread on marine petroleum products to the most directly comparable U.S. GAAP measure.
Selling and Distribution.
Selling and distribution expenses decreased by $15.7 million, or 7.1%, to $205.1 million for the year ended December 31, 2015, compared to $220.8 million for the year ended December 31, 2014. This decrease was mainly due to the drop in our bunkers consumption after the decrease in marine fuel prices.
General and Administrative.
General and administrative expenses increased by $5.2 million, or 13.6%, to $43.3 million for the year ended December 31, 2015, compared to $38.1 million for the year ended December 31, 2014. This increase derives from the new offices we established during the year as a result of our expansion into new markets.
Interest and Finance Costs.
Interest and finance costs increased by $3.7 million, or 10.9%, to $37.6 million for the year ended December 31, 2015, compared to $33.9 million for the year ended December 31, 2014, mainly due to the end of the interest capitalization period.
Income taxes.
Income tax expense increased by $2.5 million, or 128.4%, to $4.5 million for the year ended December 31, 2015, compared to $2.0 million for the year ended December 31, 2014, mainly due to the provision for a withholding tax related to income tax.
Inflation
Inflation has had only a moderate effect on our expenses given recent economic conditions. In the event that significant global inflationary pressures appear, these pressures would increase our operating costs.
Critical Accounting Policies and Recent Accounting Pronouncements
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 such financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements. Historically our estimates have been fairly accurate; however, actual results may differ from these estimates under different assumptions and conditions.
Critical accounting policies are those that reflect significant judgments of uncertainties and potentially result in materially different results under different assumptions and conditions. We 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. These estimates would change in the future if they constantly deviate from the actual results or if the financial circumstances change. We have described below what we believe to be our most critical accounting policies, because they generally involve a comparatively higher degree of judgment in their application. For a description of all our significant accounting policies and recent accounting pronouncements, see Note 2 to our consolidated financial statements included herein.
Trade Receivables and Allowance for Doubtful Accounts
We extend credit on an unsecured basis to many of our customers. There is uncertainty over the level of collectability of customer accounts. Our management is responsible for approving credit limits above certain amounts, setting and maintaining credit standards, and managing the overall quality of our credit portfolio. We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current credit worthiness. Accounts receivable are deemed past due based on contractual terms agreed with our customers.
We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience with our customers, current market and industry conditions of our customers and any specific customer collection issues that we have identified.
We transfer ownership of eligible trade accounts receivable to a third-party purchaser without recourse in exchange of cash. The factoring of trade accounts receivable under the agreement is accounted for as a sale. Proceeds from the transfer reflect the face value of the account less a discount. The receivables sold pursuant to this factoring agreement are excluded from trade accounts receivable on our consolidated balance sheets and are reflected as cash provided by operating activities on our consolidated statements of cash flows. We do not record a servicing asset or liability on our consolidated balance sheets because we estimate that the fee we receive is at fair value. Servicing fees are recorded in the interest and finance costs in the accompanying consolidated statements of income. We continue to service, administer and collect the receivables sold under this program. The third-party purchaser has no recourse to our assets for failure of debtors to pay when due.
Accounts and notes receivable are reduced by an allowance for amounts that may become uncollectible in the future. At the end of each reporting period, we calculate an allowance for doubtful accounts based on an aging schedule where we apply set percentages to categories of overdue trade receivables. These set percentages are based on historical experience and currently available management information on customer accounts. Furthermore, we provide appropriate allowances for any specific customer collection issue we identify which allowance is calculated on a case-by-case basis. Trade receivables are written off when it becomes apparent based upon age or customer circumstances that such amounts will not be collected.
We believe the level of our allowance for doubtful accounts is reasonable based on our experience and our analysis of the net realizable value of our trade receivables during each reporting period. The estimates driving the calculation of our allowance for doubtful accounts have not changed in the past periods and we do not expect these estimates to change in the foreseeable future because they have resulted and we believe that they will continue to result in accurate calculations of our allowance for doubtful accounts. We cannot guarantee that we will continue to experience the same credit loss rates that we have experienced in the past, since adverse changes in the marine industry or changes in the liquidity or financial position of our customers could have a material adverse effect on the collectability of our trade receivables and our future operating results. If credit losses exceed established allowances, our results of operations and financial condition may be adversely affected.
Vessel Depreciation
We record the value of our vessels at their cost (which includes acquisition costs directly attributable to the vessel, capitalized interest and expenditures made to prepare the vessel for its initial voyage) less accumulated depreciation and impairment, if any. We depreciate our vessels on a straight-line basis over their estimated useful lives. Depreciation is based on cost less the estimated residual scrap value.
We estimate the useful lives for our bunkering and in-land waterway tankers to be 30 years and 45 years, respectively, from the date of initial delivery to us from the shipyard. Furthermore, we estimate the useful life of our floating storage facilities to be 30 years from the date of acquisition. Secondhand vessels are depreciated from the date of their acquisition through their remaining estimated useful lives. However, when regulations place limitations on the ability of a vessel to trade, its useful life is adjusted to end at the date such regulations become effective. We estimate the residual scrap values of our vessels to be $175 per light-weight ton. We form these estimates based on our experience and the prevailing practices of other companies in the bunkering and shipping industries.
An increase in the estimated useful life of a tanker or in its estimated residual value would have the effect of decreasing the annual depreciation charge and extending it into later periods. A decrease in the estimated useful life of a tanker or in its estimated residual value would have the effect of increasing the annual depreciation charge and may result in an impairment charge. A 20% decrease in the remaining estimated useful lives of our vessels would increase our depreciation charge for the year ended December 31, 2016 by $4.1 million.
Our estimates of the useful lives of our vessels and of the residual scrap values of our vessels have not changed in the past periods.
Impairment of Long-lived Assets
We evaluate the carrying amounts of our long-lived assets to determine if events have occurred which would require modification to their carrying values. In evaluating useful lives and carrying values of long-lived assets, we review certain indicators of potential impairment, such as vessel sale and purchase prices in the marketplace, business plans and overall market conditions. If an indicator of impairment exists, we determine undiscounted projected net operating cash flow for each vessel or group of vessels and compare it to the relevant carrying value. In developing estimates of future cash flows, we rely upon estimates made by management with regard to our vessels, including future deliveries, operating expenses, and the estimated remaining useful lives of the vessels. These assumptions are based on historical trends as well as future expectations and are consistent with the plans and forecasts used by management to conduct its business. The variability of these factors depends on a number of conditions, including uncertainty about future events and general economic conditions; therefore, our accounting estimates might change from period to period. As a consequence, our estimates of undiscounted cash flows involve sensitivity tests on the sales volume, average inflation rate, and gross spread. In the event that undiscounted projected net operating cash flows were less than carrying value, we would estimate the fair value of the related asset and record a charge to operations calculated by comparing the asset's carrying value to the estimated fair value.
The fair market value of the vessels that we currently own or may acquire in the future may increase or decrease depending on a number of factors, including general economic and market conditions affecting the international marine fuel supply industry, supply and demand for bunkering tankers, costs of newbuildings and governmental or other regulations. If we sell any vessel when vessel prices have fallen and before we have recorded impairment adjustment to our financial statements, the sale may be at less than the vessel's carrying amount on our financial statements, resulting in a loss. Such loss could adversely affect our financial condition, results of operations and our ability to pay dividends to our shareholders.
Goodwill and intangible assets
Intangible assets consist of concession agreements in the United Kingdom (until September 2015), Canary Islands and Panama, a non-compete covenant in Belgium (until September 2016), an acquired time chartering agreement in the United States (until September 2014) and goodwill derived from the Company's acquisitions in Belgium, Canada and United States. In connection with the acquisitions of Portland Bunkers International Limited, Las Palmas Business and Panama, we recorded identifiable intangible assets and concession agreements which convey to an exclusive right to perform bunkering operations in the port of Portland, Las Palmas and Panama over a specified period of time. In September 2015, we ceased our operations in the Portland terminal and we wrote off the unamortized value of the intangible asset associated with the concession agreement we were granted by the Portland Port Authorities. These assets are being amortized over their useful life. In connection with our acquisition of the U.S. East Coast business, we acquired an agreement for the chartering-in of a barging vessel. We recorded the estimated fair value of this acquired agreement, which includes a fixed day rate that is below the day rate available as of the acquisition date, and we amortized it over the duration of the contract. Goodwill derived from our acquisitions is not amortized, but reviewed as of December 31 of each year for impairment. We also evaluate goodwill for impairment at any time that events occur or circumstances change indicating a possible impairment. The Company tests for goodwill impairment using the two-step process. The first step is a screen for potential impairment, while the second step measures the amount of impairment. Fair values are derived using discounted cash flow analysis.
We calculated the fair value of the reporting unit using the discounted cash flow method, and determined that the fair value of the reporting unit exceeded its book value, including the goodwill. The discounted cash flows calculation is subject to historical data and to management judgment related to revenue growth, capacity utilization, the weighted average cost of capital and the future price of marine fuel products. Although we believe that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are subjective. We perform sensitivity tests on our sale volume, gross spread, net operating cash flows, average inflation and growth rate. No impairment loss was recorded for any of the periods presented.
Deferred Drydock Cost
Our vessels are generally required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessels are operating. We capitalize the costs associated with drydockings as they occur and amortize these costs on a straight-line basis over the period between drydockings. Costs capitalized as part of the drydocking include actual costs incurred at the drydock yard and parts used in making such repairs that are reasonably made in anticipation of reducing the duration or cost of the drydocking; cost of travel, lodging and subsistence of our personnel sent to the drydocking site to supervise; and the cost of hiring a third-party to oversee a drydocking. We believe that these types of capitalized costs are consistent with practice among other companies in our industry that apply this method of accounting and that our policy of capitalization reflects the economics and market values of the vessels.
Recent Developments
In January 2017, we launched a new service center in Rostock, Germany that services German Baltic Sea ports and Scandinavian ports through the acquisition of OBAST, a physical bunker supplier and cargo oil trader.
In January 2017, the full overallotment option was exercised and an additional $22.5 million of our 4.25% Convertible Unsecured Senior Notes due 2021 were purchased by the underwriters
.
On April 20, 2017, OBAST signed an agreement for a short term credit facility of up to $25 million for the purposes of financing its German commercial business.
B.
|
Liquidity and Capital Resources
|
Our treasury activities are controlled centrally by our treasury department, which is located at our offices in Greece. Our treasury department administers our working capital resources, including our current accounts, time deposits, overdrafts and bank loans. Our liquidity objective is to maintain an optimum daily net cash position, which takes into consideration immediate working capital and operational requirements, as well as short- to medium-term capital expenditure requirements, but which would not result in an unnecessary net cash surplus. In this way, we seek to maximize available cash to reinvest in our business. Our policy is to minimize the use of time deposits, financial instruments or other forms of investments, which we believe generate lower levels of return than the return on our invested capital.
Our cash is primarily denominated in U.S. dollars because our sales of marine petroleum products are denominated in U.S. dollars. Our service centers pay their operating expenses in various currencies, primarily the Euro, the United Arab Emirates dirham, the Canadian dollar, the Jamaican dollar, the Singapore dollar, the Russian ruble, the South African rand, and the Brazilian real. Our treasury department transfers cash to our service centers monthly on an as-needed basis and, accordingly, we maintain low levels of foreign currency at our service centers.
Under the laws of jurisdictions where our subsidiaries are located, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that materially affect the remittance of dividends, loans, interest or other payments. Most of our vessel-owning subsidiaries have long-term bank loans outstanding that were obtained to partially finance the acquisition cost of their vessels. Most of these vessel-owning companies are not permitted to pay any dividends without the lender's prior consent. However, these vessel-owning companies generally do not generate third-party revenues and do not possess material amounts of excess cash. Therefore, these restrictions on our vessel-owning companies' ability to pay dividends to us should not materially impact our ability to meet our cash obligations. Accordingly, there are no significant restrictions on our ability to access and mobilize our capital resources located around the world.
We have funded our business primarily through: (i) cash generated from operations, (ii) equity capital and convertible notes issuances, (iii) short-term borrowings from banks, (iv) long-term bank debt and (v) trade receivables purchase agreements. We believe that our working capital resources are sufficient for our present requirements.
We have revolving credit facilities that provide for borrowings up to certain amounts for working capital purposes as well as a sublimit for the issuance of standby letters of credit. Furthermore, we have long-term debt facilities with several banks used to partially finance the acquisition costs of several of our vessels or land-based storage facilities. The credit agreements for the long-term debt facilities are secured with first priority mortgages over certain of our vessels or land-based storage facilities.
Borrowings
As of December 31, 2016 and 2015, we had the following outstanding borrowings:
|
|
Outstanding balance as of December 31, 2016
|
|
|
Outstanding balance as of December 31, 2015
|
|
Credit Facilities
|
Original Date of Facility
|
|
(in millions of U.S. dollars)
|
|
2016 Related Party Loan Agreement
|
October 24, 2016
|
|
$
|
$20.0
|
|
|
$
|
-
|
|
2016 South Africa Credit Facility
|
March 21, 2016
|
|
$
|
7.1
|
|
|
$
|
-
|
|
2015 Fujairah Credit Facility
|
October 7, 2015
|
|
$
|
112.3
|
|
|
$
|
119.8
|
|
2014 Long Term Loan Agreement
|
March 21, 2014
|
|
$
|
3.2
|
|
|
$
|
3.8
|
|
2014 Uncommitted Working Capital Facility
|
December 17, 2013
|
|
$
|
85.0
|
|
|
$
|
80.0
|
|
2013 Secured Multicurrency Revolving Credit Facility
|
September 19, 2013
|
|
$
|
251.2
|
|
|
$
|
239.2
|
|
2011 Overdraft Facility
|
March 30, 2011
|
|
$
|
-
|
|
|
$
|
5.4
|
|
2010 Newbuilding Secured Loan Facility
|
April 1, 2010
|
|
$
|
3.7
|
|
|
$
|
4.2
|
|
2010 Newbuilding ANWE Loan Facility
|
April 1, 2010
|
|
$
|
0.7
|
|
|
$
|
1.0
|
|
2008 Secured Term Loan
|
July 8, 2008
|
|
$
|
-
|
|
|
$
|
0.3
|
|
2008 Newbuilding Secured Term Loan
|
April 24, 2008
|
|
$
|
21.7
|
|
|
$
|
23.6
|
|
2007 Newbuilding Secured Term Loan
|
July 5, 2007
|
|
$
|
16.9
|
|
|
$
|
21.1
|
|
First 2006 Newbuilding Secured Term Loan
|
December 19, 2006
|
|
$
|
8.6
|
|
|
$
|
11.4
|
|
2006 Newbuilding Secured Syndicated Term Loan
|
October 30, 2006
|
|
$
|
39.1
|
|
|
$
|
42.5
|
|
Second 2006 Newbuilding Secured Term Loan
|
October 27, 2006
|
|
$
|
8.7
|
|
|
$
|
9.9
|
|
Third 2006 Newbuilding Secured Term Loan
|
October 25, 2006
|
|
$
|
14.6
|
|
|
$
|
16.1
|
|
2005 Newbuilding Secured Syndicated Term Loan
|
August 30, 2005
|
|
$
|
15.5
|
|
|
$
|
17.8
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Bond
|
|
|
|
|
|
|
|
|
|
4.00% 2013 Convertible Unsecured Senior Notes due 2018
|
October 23, 2013 and January 16, 2015
|
|
$
|
87.9
|
|
|
$
|
120.6
|
|
4.25% 2016 Convertible Unsecured Senior Notes due 2021
|
December 19, 2016
|
|
$
|
130.4
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
-
|
|
Less: Deferred Financing Costs
|
|
|
$
|
(9.0
|
)
|
|
|
(6.7
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
817.6
|
|
|
$
|
710.0
|
|
Credit Facilities
OBAST Credit Facility
.
On April 20, 2017, OBAST, our wholly-owned subsidiary, entered into a credit facility with HSH Nordbank AG for up to $25 million. The Company also agreed to act as guarantor under the facility for up to $25 million. The credit facility has primarily two tranches: the overdraft facility and a fixed interest rate loan and can be drawn down in Euros or U.S. dollars. The facility bears interest based on the federal funds rate, the Euro Overnight Index Average, LIBOR and EURIBOR, as applicable depending on the tranche and currency denomination, plus margins ranging from 1.75% to 2.05%. The credit fa
cility matures on January 15, 2018.
2016 Related Party Loan Agreement
. On October 24, 2016, AMP, our wholly-owned subsidiary, entered into a loan agreement with Grady Properties Corporation SA, a company owned by relatives of Mr. Dimitris Melisanidis, for up to $25 million. The loan bears interest at 6%. As of December 31, 2016, the outstanding balance under this credit facility was $20 million.
2016 South Africa Credit Facility
.
On March 21, 2016, our subsidiary, Aegean Bunkering Services Inc., entered into a secured credit facility for $13 million to finance the purchase price of the vessel
Umnenga
and to repay the 2011 Overdraft Facility. The loan is to be repaid in twelve quarterly installments and bears interest at LIBOR plus a margin of 4.50%. As of December 31, 2016, the outstanding balance under this credit facility was $7.1 million.
2015 Fujairah Credit Facility
. On October 7, 2015, our subsidiary, Aegean Oil Terminal Corporation, entered into a secured credit facility for AED440 million (US$119.7 million) with an international bank. The facility will be repaid in quarterly installments, matures on September 30, 2023, bears interest at EIBOR plus a margin of 3.0% and has an interest floor rate of 5.50%. The proceeds were used to repay our 2013 Fujairah Credit Facility and for working capital. As of December 31, 2016 and December 31, 2015, the outstanding balance under this facility was $112.3 million and $119.8 million, respectively.
2014 Long Term Loan Agreement.
On March 21, 2014, we entered into a long-term loan agreement for $4.5 million to partly finance our acquisition of the
New Jersey
. The loan will be repaid in forty quarterly installments and bears interest at a rate of LIBOR plus a margin of 2.80%. As of December 31, 2016 and 2015, the outstanding balance under this facility was $3.2 million and $3.8 million, respectively.
2014 Uncommitted Working Capital Facility.
On December 17, 2013, Aegean Bunkering (USA) LLC, our wholly-owned subsidiary which assumed the U.S. East Coast bunkering business of Hess following our acquisition, entered into a $150.0 million uncommitted facility, which was renewed on August 22, 2014 for one year and for an amount up to $250.0 million. We used a portion of the proceeds of this facility to fund the purchase of inventories pursuant to the acquisition from Hess and to fund our expansion into the U.S. market. The facility was thereafter renewed on August 12, 2015 and August 9, 2016, and currently matures on August 8, 2017. The facility bears interest at LIBOR plus a margin of 2.0%. As of December 31, 2016 and December 31, 2015, the outstanding balance under this facility was $85.0 million and $80.0 million, respectively.
2013 Secured Multicurrency Revolving Credit Facility
.
On September 19, 2013, AMP, Aegean Petroleum International Inc. and Aegean NWE N.V., our wholly-owned subsidiaries, entered into a $1 billion Secured Multicurrency Revolving Credit Facility with a syndicate of commercial lenders, which we and these subsidiaries have guaranteed. The facility is comprised of three tranches, consisting of Tranche A of $155 million initially for a one year tenor, Tranche B of $75.0 million initially for two-year tenor and Tranche C of $770 million for an uncommitted tenor. On September 18, 2014, our wholly-owned subsidiaries renewed the facility for a two-year period. On September 16, 2015, our wholly-owned subsidiaries, including Aegean Bunkering Germany BD&M, renewed the facility and extended the terms of Tranche A and Tranche B, each for an additional one year period. On September 16, 2016, our wholly-owned subsidiaries again renewed the facility and extended the terms of Tranche A and Tranche B, each for an additional one year period. Outstanding amounts under Tranche A and Tranche B bear interest at LIBOR, plus a margin of 2.1% and 2.5%, respectively, and outstanding amounts under Tranche C bear interest at a rate determined by the relevant lender that represents its cost of funds, plus a margin of 2.0%. The facility imposes certain operating and financial restrictions on us, which, among other things, restrict our ability to incur debt, change our legal and beneficial ownership, merge or consolidate, acquire or incorporate companies and change our business activities. As of December 31, 2016 and December 31, 2015, the outstanding balance on this facility was $251.2 million and $239.2 million, respectively.
2011 Overdraft Facility
. On March 30, 2011, our subsidiary Aegean Bunkering Services Inc. entered into an overdraft facility for an amount of $10.0 million. Thereafter, we renewed and amended this facility several times to reduce the amount available for borrowing to up to $7.0 million. This facility bore interest at LIBOR plus 6.0%. This facility was repaid in full on March 22, 2016, using a portion of the proceeds we received from our 2016 South Africa Credit Facility. As of December 31, 2016 and December 31, 2015, we had $0 and $5.4 million outstanding under this facility, respectively.
2010 Newbuilding Secured Loan Facility
.
On April 1, 2010, we assumed a loan agreement with an international bank that was entered into on October 6, 2009 by ANWE and a third-party in an amount of €5.7 million to finance the new building
Montana
. The facility bears interest at EURIBOR plus 1.26% and is repayable in quarterly installments of approximately €0.1 million. As of December 31, 2016 and December 31, 2015, the outstanding balance under this facility was $3.7 million and $4.2 million (or €3.5 million and €3.9 million), respectively.
2010 Newbuilding ANWE Loan Facility
. On April 1, 2010, in connection with our acquisition of ANWE, we assumed a loan agreement with a Belgian bank in an aggregate amount of €3.7 million to finance the construction of our double hull bunkering vessel, the
Texas
. This facility bears interest at a rate of 4.36%. This facility matures on July 1, 2019. As of December 31, 2016 and December 31, 2015, the outstanding balance under this facility was $0.7 million and $1.0 million (or €0.7 million and €0.9 million), respectively.
2008 Secured Term Loan
. On July 8, 2008, our subsidiary Aegean Bunkering Services Inc. entered into a collateralized term loan facility with a bank for an amount of $15.0 million, which was amended on June 29, 2012. On July 11, 2013, the facility was amended to extend the repayments up to and including January 8, 2016. This facility bore interest at LIBOR plus 5.25%. This facility was repaid upon its maturity in January 2016. As of December 31, 2016 and December 31, 2015, we had $0 and $0.3 million outstanding under this facility, respectively.
2008 Newbuilding Secured Term Loan
. On April 24, 2008, four of our vessel-owning subsidiaries, Kassos Navigation S.A., Tilos Navigation S.A., Halki Navigation S.A. and Symi Navigation S.A., as co-borrowers, jointly and severally, entered into a syndicated collateralized term loan with an international bank for an amount of $38.8 million to partially finance the construction costs of the vessels
Kassos
,
Tilos
,
Halki
and
Symi
. This loan bears interest at LIBOR plus 1.40%. As of December 31, 2016 and December 31, 2015, we had $21.7 million and $23.6 million outstanding under this facility, respectively.
2007 Newbuilding Secured Term Loan
.
On July 5, 2007, as thereafter amended and supplemented, five of our vessel-owning subsidiaries, Andros Marine Inc., Dilos Marine Inc., Ios Marine Inc. (subsequently replaced by Ios Shipping Ltd), Sifnos Marine Inc. and Tinos Marine Inc. (subsequently replaced by Aegean VII Shipping Ltd.), as co-borrowers, jointly and severally, entered into a collateralized credit facility for an aggregate amount of $37.6 million with an international commercial bank to partially finance the construction of five bunkering tankers,
Andros
,
Dilos
,
Ios
,
Anafi
and
Sikinos
, respectively. On September 12, 2008, we amended this facility and increased the loan amount to $43.2 million. This loan bears interest at LIBOR plus 1.0% for the Andros Tranche, the Dilos Tranche and the Ios Tranche (plus additional compliance costs), and LIBOR plus 2.0% for the Sifnos Tranche and the Tinos Tranche (plus additional compliance costs). As of December 31, 2016 and December 31, 2015, the outstanding balance under this facility was $16.9 million and $21.1 million, respectively.
First 2006 Newbuilding Secured Term Loan
.
On February 10, 2006, five of our vessel-owning subsidiaries, Milos Maritime Inc., Amorgos Maritime Inc., Kimolos Maritime Inc., Mykonos Maritime Inc. and Syros Maritime Inc., as co-borrowers, jointly and severally entered into a collateralized term loan with an international commercial bank for an aggregate amount of $33.4 million to partially finance the construction costs of five double hull tankers,
Milos
,
Amorgos
,
Kimolos
,
Mykonos
and
Syros
, respectively. This loan was collateralized by a first priority mortgage over each of the vessels. On December 19, 2006, this facility was refinanced as part of the term loan component of the facility agreement for a term loan, overdraft and guarantee facility with the same bank, with the Company and AMP serving as joint and several borrowers. The term loan component of the facility agreement for a term loan, overdraft and guarantee facility bears interest at LIBOR plus 1.15% plus additional compliance costs. As of December 31, 2016 and December 31, 2015, we had $8.6 million and $11.4 million outstanding under this facility, respectively.
2006 Newbuilding Secured Syndicated Term Loan
.
On October 30, 2006, seven of our vessel-owning subsidiaries, Kerkyra Marine S.A., Ithaki Marine S.A., Cephallonia Marine S.A., Paxoi Marine S.A., Zakynthos Marine S.A., Lefkas Marine S.A. (subsequently replaced by Ios Marine Inc.) and Kythira Marine S.A., as co-borrowers, jointly and severally entered into a syndicated secured term loan for an aggregate amount of $64.8 million with an international commercial bank to partially finance the construction of seven double hull oil tankers, the
Kerkyra
,
Ithaki
,
Kefalonia
,
Paxoi
,
Zakynthos
,
Lefkas
and
Kythira
, respectively. This loan bears interest at LIBOR plus 1.30%. As of December 31, 2016 and December 31, 2015, the outstanding balance under this facility was $39.1 million and $42.5 million, respectively.
Second 2006 Newbuilding Secured Term Loan
.
On October 27, 2006, two of our vessel-owning subsidiaries, Tasman Seaways Inc. and Santon Limited, as co-borrowers, jointly and severally, entered into a loan agreement with an international commercial bank for a term loan facility in an aggregate amount of $17.6 million to partially finance the construction costs of two double hull tankers,
Kalymnos
and
Leros
, respectively. The facility bears interest at LIBOR plus 1.15% on 70% of the principal amount and at LIBOR plus 1.25% on 30% of the principal amount. As of December 31, 2016 and December 31, 2015, the outstanding balance under this facility was $8.7 million and $9.9 million, respectively.
Third 2006 Newbuilding Secured Term Loan
.
On October 25, 2006, three of our vessel-owning subsidiaries, Eton Marine Ltd., Benmore Services S.A. and Ingram Enterprises Co., as co-borrowers, jointly and severally entered into a syndicated secured term loan for an aggregate amount of $26.3 million to partially finance the construction costs of three double hull tankers the
Patmos, Nisyros
and
Karpathos
, respectively. This facility bears interest at LIBOR plus 1.30%. As of December 31, 2016 and December 31, 2015, the outstanding balance under this facility was $14.6 million and $16.1 million, respectively.
2005 Newbuilding Secured Syndicated Term Loan
.
On August 30, 2005, as amended, five of our vessel-owning subsidiaries, Kithnos Maritime Inc., Naxos Maritime Inc. (subsequently replaced by Lefkas Marine S.A.), Paros Maritime Inc., Santorini I Maritime Limited (formerly known as Santorini Maritime I Inc.) and Serifos Maritime Inc. ((subsequently replaced by Serifos Shipping (Pte.) Ltd.), as co-borrowers, jointly and severally, entered into a syndicated secured credit facility for an aggregate amount of $35.5 million with an international commercial bank to finance the construction of five bunkering tankers
Kithnos
,
Naxos
,
Paros
,
Santorini
and
Serifos
, respectively. The loan bears interest at LIBOR plus 1.55%. As of December 31, 2016 and December 31, 2015, the outstanding balance under this facility was $15.5 million and $17.8 million, respectively.
Convertible Bond
4.00% Convertible Unsecured Senior Notes due 2018
. On October 23, 2013, we issued $75.0 million aggregate principal amount of 4.00% Convertible Unsecured Senior Notes, or the 2013 Convertible Unsecured Senior Notes due 2018, which are due November 1, 2018. The full overallotment option granted was exercised and an additional $11.3 million 2013 Convertible Unsecured Senior Notes due 2018 were purchased by the underwriters. Accordingly, $86.3 million in aggregate principal amount of the 2013 Convertible Unsecured Senior Notes due 2018 was sold, resulting in aggregate net proceeds of approximately $83.4 million after the underwriters' commissions. We have bifurcated, at the issuance date, the $86.3 million principal amount of the 2013 Convertible Unsecured Senior Notes due 2018 into liability and equity components of $72.7 million and $13.6 million, respectively, by first determining the carrying amount of the liability component of the 2013 Convertible Unsecured Senior Notes due 2018 by measuring the fair value of a similar liability that does not have an associated equity component. The equity component was calculated by deducting the fair value of the liability component from the total proceeds received at issuance.
On January 16, 2015, we issued an additional $48.3 million aggregate principal amount of the 2013 Convertible Unsecured Senior Notes due 2018, or the 2015 Convertible Unsecured Senior Notes due 2018, and together with the 2013 Convertible Unsecured Senior Notes due 2018, the Convertible Unsecured Senior Notes due 2018, including the full exercise by the underwriters of the overallotment option, resulting in aggregate net proceeds of approximately $52.2 million after the underwriters' commissions and before expenses. The 2015 Convertible Unsecured Senior Notes due 2018 have the same terms (other than issue date and public offering price) as the 2013 Convertible Unsecured Senior Notes due 2018 and rank pari passu with, and vote together with, the holders of the 2013 Convertible Unsecured Senior Notes due 2018. The 2015 Convertible Unsecured Senior Notes due 2018 also have the same CUSIP number and ISIN as the 2013 Convertible Unsecured Senior Notes due 2018 and are fungible with the 2013 Convertible Unsecured Senior Notes due 2018 for trading purposes.
As of December 31, 2016 and December 31, 2015, the aggregate outstanding liability under the Convertible Unsecured Senior Notes due 2018 was $87.9 million and $120.6 million, respectively.
4.25% Convertible Unsecured Senior Notes due 2021
. On December 19, 2016, we issued $150.0 million aggregate principal amount of 4.25% Convertible Unsecured Senior Notes, or the Convertible Unsecured Senior Notes due 2021, which are due December 15, 2021. The full overallotment option granted was exercised in January 2017 and an additional $22.5 million Convertible Unsecured Senior Notes due 2021 were purchased by the underwriters. Accordingly, $172.5 million in aggregate principal amount of the Convertible Unsecured Senior Notes due 2021 was sold, resulting in aggregate net proceeds of approximately $166.6 million after the underwriters' commissions. We used the net proceeds (i) to repay approximately $40 million of the outstanding short-term indebtedness under our 2013 Secured Multicurrency Revolving Credit Facility, (ii) to repurchase approximately $40 million of the net proceeds to in the open market, in negotiated transactions or otherwise, a portion of our outstanding Convertible Unsecured Senior Notes due 2018, and (iii) for general corporate purposes and working capital. As of December 31, 2016, the aggregate outstanding liability under the Convertible Unsecured Senior Notes due 2021 was $130.4 million.
Trade Receivables Purchase Agreement
On October 17 2011, AMP entered into a factoring agreement for up to $102.5 million pursuant to which we transfer ownership of eligible trade accounts receivables to a third-party purchaser without recourse in exchange for cash.
Proceeds from the transfer reflect the face value of the account less a discount.
The receivables sold pursuant to this factoring agreement are included in the trade receivables on the consolidated balance sheets and are reflected as cash provided by operating activities on the consolidated statements of cash flows. The third-party purchaser has no recourse to our assets for failure of debtors to pay when due. We renewed the agreement on November 12, 2012, on October 2, 2013, November 12, 2013, and November 13, 2014. On November 13, 2015, the factoring agreement was amended and restated to, among other things, reduce the purchase limit to up to $56.2 million. We renewed the amended and restated agreement on November 14, 2016 until November 17, 2017 (unless terminated earlier in accordance with the terms of the agreement). As of December 31, 2016 and 2015, we sold $106.4 million and $178.5 million trade accounts receivables, respectively, pursuant to this agreement.
Covenants
Our credit facilities generally contain financial covenants, which require us to maintain, among other things:
|
·
|
minimum net equity of between $175.0 million to $250.0 million, depending on the applicable credit facility;
|
|
·
|
consolidated net tangible net worth of $410.0 million;
|
|
·
|
minimum market value adjusted net worth or book net worth of between $175.0 million and $410.0 million;
|
|
·
|
minimum solvency ratio on the statutory financial statements of our subsidiary ANWE of 20%;
|
|
·
|
minimum working capital of $125 million;
|
|
·
|
minimum interest coverage ratio of at least 1.9-to-one;
|
|
·
|
minimum current ratio of 1.15-to-one;
|
|
·
|
aggregate minimum liquidity of between $25.0 million and $30.0 million and minimum liquidity ratio of more than 0.50-to-one;
|
|
·
|
maximum ratio of total liabilities to total assets of between 0.70-to-one and 0.75-to-one; and
|
|
·
|
minimum consolidated leverage ratio of 0.75-to-one.
|
The agreements governing our indebtedness also contain restrictions and undertakings, including, among other things:
|
·
|
the requirement to maintain the listing of our shares of common stock on the NYSE;
|
|
·
|
restrictions on our payment of dividends and distribution of assets;
|
|
·
|
restrictions on our incurrence of debt;
|
|
·
|
the requirement to maintain a minimum value of collateral;
|
|
·
|
restrictions on our ability to merge or consolidate;
|
|
·
|
restrictions on our ability to acquire additional vessels;
|
|
·
|
restrictions on changes in our business activities; and
|
|
·
|
change of control restrictions.
|
Our secured credit facilities are generally secured by, among other things:
|
·
|
a first priority mortgage over each of the applicable pledged vessels or storage facility in favor of each of our lenders;
|
|
·
|
assignments of earnings, insurances and requisition of compensation of each of the mortgaged vessels; and
|
A violation of any of the financial covenants contained in our credit facilities described above may constitute an event of default under our credit facilities, which, unless cured within the grace period set forth under the credit facility, if applicable, or waived or modified by our lenders, provides our lenders with the right to, among other things, require us to post additional collateral, enhance our equity and liquidity, increase our interest payments, pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet, reclassify our indebtedness as current liabilities and accelerate our indebtedness and foreclose their liens on our vessels and the other assets securing the credit facilities, which would impair our ability to continue to conduct our business.
Furthermore, certain of our credit facilities contain a cross-default provision that may be triggered by a default under one of our other credit facilities. A cross-default provision means that a default on one loan would result in a default on certain of our other loans. Because of the presence of cross-default provisions in certain of our credit facilities, the refusal of any one lender under our credit facilities to grant or extend a waiver could result in certain of our indebtedness being accelerated, even if our other lenders under our credit facilities have waived covenant defaults under the respective credit facilities. If our secured indebtedness is accelerated in full or in part, it would be very difficult in the current financing environment for us to refinance our debt or obtain additional financing and we could lose our vessels and other assets securing our credit facilities if our lenders foreclose their liens, which would adversely affect our ability to conduct our business.
Moreover, in connection with any waivers of or amendments to our credit facilities that we have obtained, or may obtain in the future, our lenders may impose additional operating and financial restrictions on us or modify the terms of our existing credit facilities. These restrictions may further restrict our ability to, among other things, pay dividends, make capital expenditures or incur additional indebtedness, including through the issuance of guarantees. 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 interest rates they charge us on our outstanding indebtedness.
As of December 31, 2016, we were in compliance with all of the financial covenants contained in our credit facilities.
Liquidity and Uses of Cash
Cash and cash equivalents as of December 31, 2016 and 2015, amounted $93.8 million and $139.3 million, respectively. The table below illustrates our working capital and working capital excluding cash and debt as of December 31, 2016 and 2015. Working capital is defined as current assets less current liabilities.
The marine fuel supply industry is capital intensive. The timing and levels of operational cash flows are important aspects of our business. Our periodic cash flows from operations are mainly dependent on our periodic working capital, excluding cash and debt. Accordingly, we use working capital excluding cash and debt to monitor changes in our operational working capital accounts such as trade receivables, inventories and trade payables, and to assess the current strength and to predict the future state of our cash flows from operations. Our periodic working capital excluding cash and debt is partly driven by our sales volume growth rates for the relevant periods. As a result, the higher the sales volume growth rates are, the larger the working capital investment needed to purchase and sell the increased quantities of fuel. A larger working capital investment decreases our operational cash flows for the relevant periods. Furthermore, significant period-on-period movement in the average outstanding days of our trade receivables, inventories and trade payables considerably impacts our periodic working capital excluding cash and debt positions and our operational cash flows. Finally, significant fluctuations in marine fuel prices materially affect our periodic working capital excluding cash and debt. A period-on-period increase in marine fuel prices increases the level of working capital investment needed to purchase the same quantity of marine fuel. Accordingly, we would have to increase our working capital investment at a multiple of the increase in marine fuel prices in order to increase our sales volumes.
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
|
|
|
|
Working capital
|
|
|
411,540
|
|
|
|
337,202
|
|
Working capital excluding cash and debt
|
|
|
629,370
|
|
|
|
472,955
|
|
Our working capital, excluding cash (and restricted cash) and debt, increased to $629.4 million as of December 31, 2016 from $473.0 million as of December 31, 2015. Our working capital position increased to $411.5 million as of December 31, 2016 from $337.2 million as of December 31, 2015.
As of December 31, 2016, we had $1,007.1 million in available liquidity, which includes unrestricted cash and cash equivalents of $93.8 million and available undrawn amounts under our working capital facilities of $913.3 million to finance working capital requirements.
We primarily use our cash to fund marine petroleum product purchases for resale to our customers. Except for transactions with our related company, Aegean Oil, in which we usually have extended unsecured trade credit, we obtain secured trade credit from our suppliers against a standby letter of credit. In certain cases, we purchase quality marine petroleum products from certain suppliers at discounted prices with cash on or near delivery. Our ability to fund marine petroleum product purchases, obtain trade credit from our suppliers and provide standby letters of credit is critical to the success of our business. Increases in oil prices negatively impact our liquidity by increasing the amount of cash needed to fund marine petroleum product purchases as well as reducing the volume of marine petroleum products which can be purchased on a secured credit basis from our suppliers.
We also use our cash to fund the acquisition or construction costs of vessels and our land-based storage terminal in Fujairah, as well as to fund the maintenance cost of our vessels. The following table illustrates the cash paid for the acquisition and construction of vessels, the construction of the Fujairah terminal and the cash paid for drydocking of our vessels for the years ended December 31, 2016, 2015 and 2014.
|
Year Ended December 31,
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
(in thousands of U.S. dollars)
|
|
Payments for vessel acquisitions
|
|
|
8,667
|
|
|
|
-
|
|
|
|
7,786
|
|
Payments for vessel construction
|
|
|
-
|
|
|
|
2,979
|
|
|
|
2,730
|
|
Payments for drydocking
|
|
|
4,683
|
|
|
|
9,502
|
|
|
|
10,304
|
|
Payments for other fixed assets under construction
|
|
|
2,587
|
|
|
|
5,391
|
|
|
|
61,405
|
|
Payments for other fixed assets
|
|
|
177
|
|
|
|
771
|
|
|
|
7,955
|
|
We do not anticipate any payments for vessel construction in the coming years due to the completion of our newbuilding vessels. Currently, we have no bunkering tankers on order.
Currently, we intend to purchase only secondhand double hull bunkering tankers, which are generally more costly than secondhand single hull bunkering tankers. Payments for drydocking are expected to remain the same during the year 2017.
We intend to fund our growth strategy, which may include further acquisitions of additional vessels or investments in other energy-related projects using either cash on hand and cash flow from operations or new long-term bank debt.
We anticipate that, assuming market conditions are consistent with our historical experience, cash on hand, internally generated cash flow and borrowings under our credit facilities will be sufficient to fund our future expansion and our working capital requirements.
In the future we may consider raising funds through additional equity or debt offerings, depending on our future business plans.
Our beliefs, intentions, plans and expectations concerning liquidity and our ability to obtain financing are based on currently available information. To the extent this information proves to be inaccurate, or if circumstances change, future availability of trade credit or other sources of financing may be reduced and our liquidity would be adversely affected. Factors that may affect the availability of trade credit, or other financing, include our performance, the state of worldwide credit markets, and our levels of outstanding debt. In addition, we may decide to raise additional funds to respond to competitive pressures or changes in market conditions, to fund future growth, or to acquire vessels. We cannot guarantee that financing will be available when needed or desired, or on terms favorable to us.
Cash Flow
Net Cash Used In/Provided By Operating Activities
Net cash used in operating activities was $47.6 million for the year ended December 31, 2016, compared to $49.7 million provided by operating activities for the same period in 2015. This decrease was mainly attributable to the fuel price increase at the closing of the period.
Net cash provided by operating activities was $49.7 million for the year ended December 31, 2015, compared to $182.2 million for the same period in 2014. This decrease was mainly attributable to the drop in fuel prices towards the end of the year ended December 31, 2015 and the prepayments to oil suppliers.
Net Cash Used In Investing Activities
Net cash used in investing activities was $3.8 million for the year ended December 31, 2016, compared to $7.6 million for the same period in 2015.
During 2016, we paid $8.7 million in connection with the acquisition of our bunkering tanker, the
Umnenga
. Furthermore, we received net cash consideration of $8.5 million for the sale of our tankers, the
Aegean Champion
, the
Sara
and the
Aegean Princess
, our bunkering barge, the
Supporter 2
, and our non-self-propelled bunkering barge, the
PT25
.
Please refer to the table in Note 7 to our consolidated financial statements included herein for more information.
Net cash used in investing activities was $7.6 million for the year ended December 31, 2015, compared to $59.5 million for the same period in 2014. During 2015, we paid $3.0 million for the construction of our non-self-propelled tanker barge, the
PT40
, and $5.4 million in connection with the construction of our storage facility in Fujairah. Furthermore, $1.5 million of restricted cash was released due to revocation of letters of guarantees from port authorities.
Net Cash Provided By/Used In Financing Activities
Net cash provided by financing activities was $5.8 million for the year ended December 31, 2016, compared to $28.3 million used in financing activities for the same period in 2015. This increase was mainly attributable to the issuance of our 4.25% Convertible Unsecured Senior Notes due 2021. During 2016, we paid $99.6 million to repurchase common stock from Mr. Melisanidis. See "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Share Repurchase" for more information. Furthermore, during the year ended December 31, 2016, we paid financing costs of $8.1 million, and declared and paid dividends of $3.8 million to our shareholders.
Net cash used in financing activities was $28.3 million for the year ended December 31, 2015, compared to $50.3 million for the same period in 2014. This decrease was mainly due to our 4.00% Convertible Unsecured Senior Notes due 2018 and our new long term loan agreement that partly financed our working capital requirements. Furthermore, during the year ended December 31, 2015, we paid financing costs of $9.0 million, while we declared and paid dividends of $3.9 million to our shareholders.
C.
|
Research and development, patents and licenses, etc.
|
Not applicable.
Declines in commodity and energy prices, together with slow economic growth globally, continue to impact the shipping markets, adversely affecting our business. These macroeconomic trends are complex and present both opportunities and risks for our business. Sustained low fuel prices as compared to previous years and limited volatility result in decreased per unit margins. We expect that adverse conditions, specifically those in shipping markets, will continue into 2017.
During the year ended December 31, 2016, our sales volume of marine fuel increased by 22.5%, as compared to the prior year, which was mainly due to increases in our trading sales, our operations in U.S. and our new service center in South Africa.
We plan to continue to expand our operations into new markets during 2017 and further diversify revenue and enhance flexibility.
In addition to our bunkering operations, we market and distribute marine lubricants under the Alfa Marine Lubricants brand. Since 2011, we have built up an extensive production and distributing network in major and minor worldwide ports for our brand. Within 2017, we expect to continue expanding our branded supply and we expect our sales volumes to increase, as we expand our market share.
Our success in attracting business has been due, in part, to our willingness to extend trade credit on an unsecured basis to our customers after suitable credit analysis of them. Adverse changes in world credit markets may adversely affect our ability to do business with customers whose creditworthiness may no longer meet our criteria. Volatility in the price of marine fuel and lubricants may also affect our working capital requirements.
E.
|
Off-balance sheet arrangements.
|
We do not have any off-balance sheet arrangements.
F.
|
Tabular disclosure of contractual obligations.
|
Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2016:
|
|
Within
One Year
|
|
|
One to
Three Years
|
|
|
Three to
Five Years
|
|
|
More than Five Years
|
|
|
Total
|
|
|
|
(in millions of U.S. dollars)
|
|
Long-term debt (excluding interest)
|
|
|
-
|
|
|
|
94.6
|
|
|
|
150.0
|
|
|
|
-
|
|
|
|
244.6
|
|
Long-term debt secured (excluding interest)
|
|
|
33.5
|
|
|
|
198.4
|
|
|
|
60.9
|
|
|
|
34.1
|
|
|
|
326.9
|
|
Operating lease commitments
|
|
|
39.1
|
|
|
|
35.5
|
|
|
|
21.4
|
|
|
|
124.7
|
|
|
|
220.7
|
|
Interest on long-term bank debt
(1)
|
|
|
20.7
|
|
|
|
27.3
|
|
|
|
13.4
|
|
|
|
1.5
|
|
|
|
62.9
|
|
Minimum purchase commitments
(2)
|
|
|
45.4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
138.7
|
|
|
|
355.8
|
|
|
|
245.7
|
|
|
|
160.3
|
|
|
|
900.5
|
|
(1)
|
Our long-term bank debt outstanding as of December 31, 2016 bears variable interest at margin over LIBOR. The calculation of variable rate interest payments is based on an actual weighted average rate of 3.83% for the year ended December 31, 2016, adjusted upward by 10 basis points for each year thereafter.
|
(2)
|
In the normal course of business, we have entered into long-term contracts with reputable suppliers, such as government refineries or major oil producers. The contractual commitments set forth in the above table include the minimum purchase requirements in our contract with Aegean Oil. The minimum purchase requirements provided for in our contract with Aegean Oil have been calculated by multiplying the minimum monthly volumes of marine fuel specified in the contract by an indicative market price based on quoted PLATTS prices as of December 31, 2016.
|
Forward-looking information discussed in this Item 5 includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as "forward-looking statements." We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material. Please see the section entitled "Cautionary Statement Regarding Forward-Looking Statements" in this annual report.
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
|
Directors and Senior Management
|
Set forth below are the names, ages and positions of our current directors and executive officers. Our board of directors is elected annually on a staggered basis, and each director holds office until his successor has been duly elected, except in the event of his death, resignation, removal or the earlier termination of his office. The business address of each of our executive officers and directors is 10 Akti Kondili, 185 45 Piraeus, Greece.
Name
|
|
Age
|
|
Position
|
Peter C. Georgiopoulos
|
|
|
55
|
|
Chairman of the Board, Class B Director
|
Yiannis N. Papanicolaou
|
|
|
65
|
|
Class A Director
|
Konstantinos D. Koutsomitopoulos
|
|
|
49
|
|
Class A Director
|
John P. Tavlarios
|
|
|
55
|
|
Class B Director
|
Spyridon Fokas
|
|
|
62
|
|
General Counsel and Corporate Secretary, Class B Director
|
George Konomos
|
|
|
78
|
|
Class C Director
|
E. Nikolas Tavlarios
|
|
|
54
|
|
President and Principal Executive Officer
|
Spyros Gianniotis
|
|
|
56
|
|
Chief Financial Officer
|
Certain biographical information about each of these individuals is set forth below.
Peter C. Georgiopoulos
has been the chairman of our board of directors since December 2006. Since 1997, Mr. Georgiopoulos has served as the chairman of the board of directors of General Maritime, a crude oil tanker company. Upon the completion of General Maritime's merger with Navig8 Crude Tankers, Inc in May 2015, Mr. Georgiopoulos became the Chairman of the board of directors and Chief Executive Officer of Gener8, the surviving company. From 1991 to 1997, Mr. Georgiopoulos was the principal of Maritime Equity Management, a vessel-owning and investment company that he founded in 1991. Mr. Georgiopoulos is a member of the American Bureau of Shipping. Mr. Georgiopoulos holds a master's degree in business administration from the Tuck School of Business at Dartmouth College and he is a member of the Board of Overseers of the Tuck School.
Yiannis N. Papanicolaou
has served as a member of our board of directors since December 2006. Mr. Papanicolaou serves as the chairman of our compensation committee and a member of our audit and nominating and corporate governance committees. Since 2004, Mr. Papanicolaou has been an independent consultant to various companies. From 1998 to 2004, Mr. Papanicolaou served as Director General of the International Center for Black Sea Studies and from 1997 to 2005 as Alternate Governor of Greece at the Black Sea Trade and Development Bank. Between 1989 and 1996, Mr. Papanicolaou was employed as an independent consultant to various companies. Prior to that, Mr. Papanicolaou had a career in government where he served, among other positions, as Chief Economic Advisor to the Prime Minister of Greece, Chairman of the Council of Economic Advisors to the Ministry of National Economy and Special Advisor to the Minister of Foreign Affairs of the Hellenic Republic. Mr. Papanicolaou has studied economics at the National University of Athens, the London School of Economics and the London Graduate School for Business Studies.
Konstantinos D. Koutsomitopoulos
has served as a member of our board of directors since May 2008. Mr. Koutsomitopoulos also serves as chairman of our nominating and corporate governance committee and a member of our audit and compensation committees. Mr. Koutsomitopoulos currently serves as an independent consultant to various companies. From October 2004 to May 2007, Mr. Koutsomitopoulos was employed at Diana Shipping Inc. (NYSE:DSX). While at Diana Shipping, he served as President and Head of Corporate Development from March 2006 to May 2007, and as Chief Financial Officer and Treasurer from February 2005 to March 2006. Mr. Koutsomitopoulos joined Pegasus Shipping Inc. in 1992 and from 1997 to 2003 was responsible for chartering, sales and purchasing, and assisting in financing activities of the company, holding the positions of Chief Executive Officer and, subsequently, Director. Mr. Koutsomitopoulos holds a bachelor's degree in economics from the University of Athens and a master's degree in shipping, trade and finance from City University Business School in London.
John P. Tavlarios
has served as a member of our board of directors since December 2006. Mr. Tavlarios is currently the chief operating officer of Gener8. Prior to the merger between General Maritime and Navig8, Mr. Tavlarios served as General Maritime's chief executive officer from July 2011 until May 2015 and its president and director from December 2008 until July 2011. Mr. Tavlarios has also served as executive vice president of General Maritime from its inception in 1997 until January 2000, and president and chief operating officer of the company from May 2001 until December 31, 2002. Following an internal reorganization of General Maritime, which took effect at the close of business on December 31, 2002 through December 2008, Mr. Tavlarios was chief executive officer of its tanker operating subsidiary, General Maritime Management LLC. From 1995 to 1997, Mr. Tavlarios was affiliated with Maritime Equity Management, a vessel-owning and investment company, where he served as director of marine operations. From 1992 to 1995, Mr. Tavlarios was president and founder of Halcyon Trading Company, a consulting firm specializing in international business development with a particular emphasis on the international oil industry. From 1984 to 1992, Mr. Tavlarios was employed by Mobil Oil Corporation, spending most of his tenure in the marine operations and the marketing and refining divisions. Prior to 1984, Mr. Tavlarios was involved in his family's shipping business, assisting in marine operations. Mr. Tavlarios is a member of the American Bureau of Shipping, the Det Norske Veritas North American Committee, the Skuld board of directors, the Directors Committee and the North American Panel of INTERTANKO, the organization of independent tank owners and on the Board of Trustees of the Seaman's Church Institute. Mr. Tavlarios holds a master's degree in business administration from St. John's University. Mr. Tavlarios is the brother of Mr. E. Nikolas Tavlarios, our President and Principal Executive Officer.
Spyridon Fokas
has been a member of our board of directors since June 2005. Mr. Fokas has also served as our General Counsel and as our Corporate Secretary since June 2005. Mr. Fokas currently is an attorney at S. Fokas – B. Koumbiadou Law Offices. Mr. Fokas has been practicing maritime law since 1982 and has represented the Company since 1998. Mr. Fokas is a member of the Greek Maritime Law Association and the Hellenic Society of Maritime Lawyers. Mr. Fokas holds a law degree from the University of Athens School of Law and has undertaken post-graduate studies in shipping law at the University College London.
George Konomos
has served as a member of our board of directors and as the chairman of our audit committee since November 2008. Mr. Konomos is also a member of our compensation and our nominating and corporate governance committee. Currently, Mr. Konomos is a Senior Advisor with Latigo Partners L.P., an alternative asset manager, which he joined in 2005. From 2000 to 2005, Mr. Konomos was the Co-Portfolio Manager at Mellon-HBV Rediscovered Opportunities Fund. Mr. Konomos' experience prior to joining Mellon-HBV includes 11 years as an Investment Manager at Baker Nye Investments, service as a senior advisor to the World Bank on privatizations and financial restructurings of state-owned companies and a 14-year career in investment banking at Lehman Brothers and Samuel Montague & Co. Mr. Konomos also served as a director of General Maritime until May 2012. Mr. Konomos holds a bachelor's degree in economics from the University of Arizona, a master's degree in economics from American University and a juris doctor degree from George Washington University Law School.
E. Nikolas Tavlarios
has served as our President and Principal Executive Officer since December 2006. From 2003 to 2006, Mr. Tavlarios served as Vice President of General Maritime Management LLC, a tanker operating subsidiary of Gener8, where he oversaw business development and maintained relationships with commercial representatives of major oil companies. From 2000 to 2003, Mr. Tavlarios was Vice President of Sales and Administration at Universal Services Group. From 1998 to 2000, Mr. Tavlarios served as Executive Director of Rockefeller Center for Tishman Speyer Properties. Prior to 1998, Mr. Tavlarios was a Surveyor for the American Bureau of Shipping. Mr. Tavlarios is a member of the American Bureau of Shipping and of the Det Norske Veritas (DNV) North American committee. Mr. Tavlarios holds a bachelor's degree in marine transportation from State University of New York Maritime College and a master's degree in business administration from St. John's University. Mr. Tavlarios is the brother of John P. Tavlarios.
Spyros Gianniotis
has served as our Chief Financial Officer since September 2008. Prior to joining our Company, Mr. Gianniotis served as the Head of Shipping at Piraeus Bank SA, holding the title of Assistant General Manager. From 2001 to 2005, Mr. Gianniotis served on the board of Capes Investment Corporation, a privately-owned drybulk company. Between 1989 and 2001, Mr. Gianniotis held a number of positions, both in New York and Athens, within corporate and shipping finance at Citigroup. He holds a bachelor's degree in economics and sociology from Queens College (CUNY), a master's degrees in transportation management from Maritime College (SUNY) and in business administration from Wagner College, New York, and an executive certificate from Pace University.
The aggregate annual compensation paid to our executive officers for the year ended December 31, 2016 was $1.8 million. We also paid $0.3 million to our non-executive directors during the year ended December 31, 2016. Furthermore, our executive officers and directors received an aggregate of 1,110,000 nonvested shares pursuant to our equity incentive plan during the year ended December 31, 2016. In addition, each director is reimbursed for out-of-pocket expenses incurred attending any meeting of the board of directors or any committee of the board of directors. We do not maintain a medical, dental or retirement plan for our directors. Officers who also serve as directors do not receive additional compensation for their services as directors.
Our board of directors is comprised of the six directors named above. Our board of directors is divided into three classes, Class A, Class B and Class C, as nearly equal in number as possible, with each director serving a three-year term and one class being elected at each year's annual meeting of shareholders. The term of our Class B directors expires in 2017, the term of our Class C director expires in 2018 and the term of our Class A directors expires in 2019.
We do not maintain a service contracts with any of our directors providing for benefits upon termination of employment
.
Committees of the Board of Directors
The standing committees of our board of directors consist of an audit committee, a compensation committee and a nominating and corporate governance committee. Each of our standing committees is comprised of independent members of our board of directors. In addition, special committees may be established under the direction of our board of directors when necessary to address specific issues.
Audit Committee
Our audit committee is comprised of three independent members of our board of directors. The committee is responsible for, among other things, (i)
the appointment, replacement, compensation, evaluation and oversight of the work of the independent auditors to be retained to audit our annual consolidated financial statements and review our quarterly consolidated financial statements, (ii) reviewing the annual audit consolidated financial statements and quarterly consolidated financial statements and discussing them with management and the independent auditors; and (iii) providing oversight to our accounting and financial reporting principles, policies, controls, procedures and practices
. Our audit committee is comprised of Messrs. Konomos, Koutsomitopoulos and Papanicolaou. Mr. Konomos serves as the chairman of the audit committee.
Compensation Committee
Our compensation committee is comprised of three independent members of our board of directors. The committee is responsible for, among other things, determining compensation for our executive officers and administering our 2015 Equity Incentive Plan. Our compensation committee is comprised of Messrs. Papanicolaou, Koutsomitopoulos and Konomos. Mr. Papanicolaou serves as the chairman of the compensation committee.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee is comprised of three independent members of our board of directors. The committee is responsible for, among other things, identifying and recommending qualified candidates for board membership to our board of directors. Our nominating and corporate governance committee is comprised of Messrs. Koutsomitopoulos, Konomos and Papanicolaou. Mr. Koutsomitopoulos serves as the chairman of the nominating and corporate governance committee.
The following table reflects the number of our crews and salaried employees for the periods indicated.
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
Shipboard personnel
|
|
|
612
|
|
|
|
645
|
|
|
|
646
|
|
Shoreside personnel
|
|
|
379
|
|
|
|
332
|
|
|
|
314
|
|
Total
|
|
|
991
|
|
|
|
977
|
|
|
|
960
|
|
Our Greek, United States, Spanish and Belgian shoreside employees are subject to national collective bargaining agreements, which set minimum standards of their employment. Our Greek shipboard personnel are also subject to these standards. Our Filipino, Russian, Singapore and Romanian crew members are subject to a collective bargaining agreement with the Philippine, Russian, Singapore and Romanian governments, respectively, that sets their minimum standards of employment. We consider our employee relations to be satisfactory.
Our full-time Greek, United States, Spanish and Belgian shoreside employees are covered by state-sponsored pension funds for which we are required to contribute a portion of the monthly salary of these employees. Upon retirement of these employees, the state-sponsored pension funds are responsible for paying the employee's retirement benefits and we have no obligation to pay these benefits. However, under Greek labor legislation, we are required to pay a lump sum as a retirement benefit, based on the salary and the years of employment, for certain of our Greek employees. Our crew members are employed under short-term contracts and we are not liable for any of their pension or post-retirement benefits.
The common shares beneficially owned by our directors and senior managers are disclosed in "Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders" below.
Equity Incentive Plan
In March 2015, we adopted an equity incentive plan, which we refer to as the 2015 Equity Incentive Plan, which replaced in full our previous 2006 Amended and Restated Equity Incentive Plan. We have reserved a total of 5,091,402 shares of common stock for issuance under the 2015 Equity Incentive Plan, consisting of 91,402 common shares that remained unissued under the 2006 Equity Amended and Restated Incentive Plan plus an additional 5,000,000 common shares. The compensation committee of our board of directors administers the 2015 Equity Incentive Plan. Under the terms of the 2015 Equity Incentive Plan, the compensation committee may grant new options exercisable at a price per common share to be determined by our board of directors but in no event less than fair market value as of the date of grant. The 2015 Equity Incentive Plan also permits our compensation committee to award restricted stock, restricted stock units, non-qualified stock options, stock appreciation rights, dividend equivalent rights, unrestricted stock, and performance shares. The 2015 Equity Incentive Plan expires in March 2025, or ten years from its adoption. As of the date of this annual report, we have issued an aggregate of 1,753,000 restricted shares pursuant to the 2015 Equity Incentive Plan, subject to applicable vesting restrictions.
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
The following table presents certain information regarding (1) the beneficial owner of more than 5% of the shares of common stock and (2) the total amount of common stock beneficially owned by all of our directors and executive officers, other than Mr. Georgiopoulos, as a group in each case as of May 12, 2017.
|
|
Number
|
|
|
Percentage*
|
|
Peter C. Georgiopoulos
|
|
|
5,420,250
|
|
|
|
13.7
|
%
|
Senvest Management, LLC
(1)
|
|
|
4,713,135
|
|
|
|
11.9
|
%
|
Towle & Co.
(2)
|
|
|
2,226,678
|
|
|
|
5.6
|
%
|
Other directors and executive officers as a group**
|
|
|
1,164,953
|
|
|
|
3.0
|
%
|
_________________
*
|
Based on 39,446,322 shares outstanding as of May 12, 2017.
|
**
|
Individually own less than 1% of our outstanding common shares.
|
(1)
|
The beneficial ownership is based on the latest available filing made with the SEC on Schedule 13G/A on February 13, 2017, which reported shared voting and dispositive power over the shares with Richard Mashaal. The business addresses of Senvest Management, LLC and Richard Mashaal, as reported on the Schedule 13G/A filed with the SEC on February 13, 2017, is 540 Madison Avenue, 32nd Floor, New York, New York 10022 and c/o Senvest Management, LLC, 540 Madison Avenue, 32nd Floor, New York, New York 10022, respectively.
|
(2)
|
The beneficial ownership is based on the latest available filing made with the SEC on Schedule 13G/A on February 14, 2017. The business addresses of Twole & Co., as reported on the Schedule 13G/A filed with the SEC on February 14, 2017, is 1610 Des Peres Road, Suite 250, St. Louis, MO 63131.
|
On September 15, 2016, we repurchased 11,303,031 of our common shares that were beneficially owned by our then founder and head of corporate development, Mr. Dimitris Melisanidis
(individually and through Leskira Holdings Co. Limited, or Leskira)
. The transaction was approved by an independent committee of our board of directors.
The total repurchase represented approximately 22% of our common shares then outstanding. Additionally, 12 West Capital Management, LLC, which previously reported on Schedule 13G as being the beneficial owner of 4,445,127 of our common shares as of December 31, 2015, reported on Schedule 13G/A filed with the SEC on February 14, 2017 that it no longer beneficially owned any of our common shares as of December 31, 2016.
Our principal shareholders will have the same voting rights as other holders of our shares of common stock.
As of May 12, 2017, we had 99 shareholders of record, 19 of which were located in the United States and held an aggregate of 38,570,825 shares of our common stock, representing approximately 98% of our outstanding shares of common stock. However, one of the U.S. shareholders of record is Cede & Co., a nominee of The Depository Trust Company, which held 36,686,950 shares of our common stock, as of May 12, 2017. Accordingly, we believe that the shares held by Cede & Co. include shares of common stock beneficially owned by both holders in the United States and non-U.S. beneficial owners. We are not aware of any arrangements the operation of which may at a subsequent date result in our change of control.
B.
|
Related party transactions.
|
Share Repurchase
On September 15, 2016, we repurchased 11,303,031 of our common shares that were beneficially owned by our then founder and head of corporate development, Mr. Dimitris Melisanidis. The transaction was approved by an independent committee of our board of directors.
As of the same date, Mr. Melisanidis stepped down from his role as head of corporate development. Under the terms of the transaction, we repurchased the shares at a price of $8.81 per share, based on the close of trading on August 16, 2016. The total repurchase represented approximately 22% of our shares then outstanding.
Aegean Oil S.A.
Marine Fuel Supply Service Agreement
. On April 1, 2005, we entered into a marine fuel supply service agreement with Aegean Oil, a related company owned and controlled by members of the family of Mr. Melisanidis, our founder, former head of corporate development and former major shareholder. Aegean Oil is engaged in the downstream gasoline market in Greece and is licensed as a trader and physical supplier of marine petroleum products in Greece. Aegean Oil is managed by a full-time executive team and has no common management with us. Under the terms of this agreement, Aegean Oil sells and delivers marine petroleum products to our customers within Greek territorial waters. Under the agreement, as amended and supplemented, we must purchase a minimum, and Aegean Oil must sell up to a maximum, quantity of marine petroleum products. Aegean Oil sells the marine petroleum products at an amount equal to its purchase costs from selected Greek refineries plus a margin. Payments are made within 30 calendar days from the date of receipt of the invoices, with a penalty of 10% imposed on late payments. Under this agreement, we are required to provide security by way of a standby letter of credit or other mutually acceptable guarantee in relation to any outstanding balance. This agreement was renewed until December 31, 2017, unless any of the following situations occur prior to the termination date: (i) Aegean Oil's petroleum trading license terminates or is revoked by the Greek authorities, in which case Aegean Oil may elect to terminate the agreement; (ii) upon the breach by any party in the performance of any of its obligations, as defined in the agreement, in which case the non-breaching party may elect to terminate the agreement; or (iii) upon the liquidation or bankruptcy of any party, in which case the agreement terminates automatically.
During the years ended December 31, 2016, 2015, and 2014, we purchased marine petroleum products from Aegean Oil in the amount of $63.8 million, $134.0 million, and $342.7 million respectively.
Additionally, during the years ended December 31, 2016, 2015 and 2014, we purchased marine petroleum products of $0.2 million, $0.2 million and $1.4 million, respectively, that were consumed in connection with our voyage revenues and are included "cost of voyage revenues - related companies" in the accompanying consolidated statements of income. During the years ended December 31, 2016, 2015, and 2014, purchases of marine petroleum products of amounts $0.7 million, $0.8 million, and $1.7, respectively, were included in the selling and distribution expenses in the accompanying consolidated statements of income.
Voyage Revenues:
During the year ended December 31, 2016, several of our vessels were employed under contracts with Aegean Oil and we recorded revenue of $5.9 million in aggregate under these contracts.
License Agreement.
On December 8, 2006, we entered into a trademark license agreement with Aegean Oil pursuant to which Aegean Oil granted us a non-transferable, non-exclusive, perpetual (subject to termination for material breach), world-wide, royalty-free right and license to use certain trademarks related to the Aegean logo and "Aegean Marine Petroleum" in connection with marine fuel supply services.
Aegean Shipping Management S.A.
We conduct transactions with Aegean Shipping Management and certain vessel-owning companies, or collectively Aegean Shipping, which are related companies owned and controlled by members of Mr. Melisanidis' family. Aegean Shipping is the owner and operator of an international shipping of fleet tankers which are chartered out in the international spot markets. Aegean Shipping is managed by a full-time executive team and has no common management with us. Aegean Shipping purchases marine fuel and lubricants from us. Our sales of marine petroleum products to Aegean Shipping for the years ended December 31, 2016, 2015 and 2014 amounted to $1.5 million, $1.7 million and $7.7 million, respectively. We also incurred hire charges related to cargo transportation from Aegean Shipping for the years ended December 31, 2016, 2015, and 2014 in the of amounts of $0, $0 million and $1.4 million, respectively.
Leveret International Inc. and AMPNInvest LLC
Registration Rights Agreement.
On December 13, 2006, we entered into a registration rights agreement with Leveret and AMPNInvest LLC, our then-existing shareholders, pursuant to which we granted Leveret and AMPNInvest LLC, and certain of its transferees, the right, under certain circumstances and subject to certain restrictions, including restrictions included in the lock-up agreements, to require us an aggregate of three times to register under the Securities Act shares of our common stock held by Leveret (which no longer has any registrable shares) and Messrs. Georgiopoulos and John Tavlarios, AMPNInvest LLC's successors-in-interest. Under the registration rights agreement, Messrs. Georgiopoulos and John Tavlarios have the right to request us an aggregate of three times to register the sale of shares held by each of them on their behalf and may require us to make available shelf registration statements permitting sales of shares into the market from time to time over an extended period. In addition, Messrs. Georgiopoulos and Tavlarios have the ability to exercise certain piggyback registration rights. All expenses relating to registration will be borne by the Company.
Aegean V
Bunkering Agreement
. In 2011, we entered into separate contracts with Aegean V, which is owned and controlled by relatives of Mr. Dimitris Melisanidis, pursuant to which two of our vessels, the
Amorgos
and the
Karpathos
, provide freight services to Aegean V. Under these agreements, we earned revenue based on the distance our vessels travel and the volumes they transport. For the years ended December 31, 2016, 2015, and 2014, our aggregate revenue under these contracts was $0, $0 million and $1.8 million, respectively.
Aegean VIII
Bunkering Agreement
. During the years ended December 31, 2016 and 2015, we employed two of our vessels, the
Naxos
and the
Karpathos
, under agreements with Aegean VIII, which is owned and controlled by relatives of Mr. Dimitris Melisanidis.
During the year ended December 31, 2014, we employed three of our vessels, the
Amorgos
, the
Naxos
and the
Karpathos
, under agreements with Aegean VIII.
Under these agreements, we earn revenue based on the distance our vessels travel and the volumes they transport. For the years ended December 31, 2016, 2015 and 2014, our aggregate revenue under these contracts was $5.3 million, $5.3 million, and $3.4 million, respectively.
Gener8 Maritime, Inc. (formerly, General Maritime Corporation)
Sale of Marine Petroleum Products to Gener8 Maritime, Inc. (formerly, General Maritime Corporation).
Gener8, a tanker company, purchases marine fuel and lubricants from us. Mr. Georgiopoulos, the Chairman of our board of directors and our shareholder, serves as Chairman of the board of directors and Chief Executive Officer of Gener8 and Mr. John Tavlarios, our director and shareholder, is the Chief Operating Officer of Gener8. Our sales of marine petroleum products to Gener8 for the years ended December 31, 2016, 2015, and 2014 amounted to $6.1 million, $7.6 million and $7.2 million, respectively. We also use Gener8 vessels for transportation of our cargo and incurred hire charges from Gener8 for the years ended December 31, 2016, 2015, and 2014 amounting to $0, $0.2 million and $1.5 million, respectively.
Unique Tankers
Sale of Marine Petroleum Products to Unique Tankers.
Unique Tankers, a tanker pool, purchases marine fuel and lubricants from us. Unique Tankers is a fully owned subsidiary of Gener8.
During 2015, Gener8 transitioned the employment of all of its vessels out of the Unique Tanker pool.
Our sales of marine petroleum products to Unique Tankers for the years ended December 31, 2016, 2015, and 2014 amounted to $0 million, $1.2 million and $9.9 million, respectively.
Melco S.A.
During the year ended December 31, 2016, 2015 and 2014, we sold to Melco, a company owned and controlled by members of Mr. Melisanidis' family, marine petroleum products in the amount of $0, $0, and $3.7 million, respectively. During the years ended December 31, 2016, 2015 and 2014, we also purchased from Melco marine petroleum products of amount $0.1 million, $2.7 million and $5.9 million, respectively.
Grady Properties Corporation SA
On October 24, 2016, AMP, our wholly-owned subsidiary, entered into a loan agreement with Grady Properties Corporation SA, a company owned by relatives of Mr. Dimitris Melisanidis, for an amount up to $25 million. Please see "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Credit Facilities" for more information.
Other Companies
The amounts due from other companies affiliated with Mr. Peter C. Georgiopoulos were $0 million, $0.19 million, and $0.23 million as of December 31, 2016, 2015, and 2014, respectively.
The amounts due from other companies owned by Mr. Dimitris Melisanidis or his relatives were $1.34 million, $0.61 million, and $0.47 million as of December 31, 2016, 2015, and 2014, respectively.
The amounts due to other companies owned by Mr. Dimitris Melisanidis or his relatives were $1.29 million, $1.16 million, and $0.76 million as of December 31, 2016, 2015, and 2014, respectively.
Sales of marine petroleum products to other companies of Mr. Peter C. Georgiopoulos were $0.63 million, $1.01 million, and $2.84 million for the years ended December 31, 2016, 2015, and 2014, respectively.
Sales of marine petroleum products to other companies of Mr. Dimitris Melisanidis or his relatives were $0.31 million, $0.19 million, $0 for the years ended December 31, 2016, 2015, and 2014, respectively.
Voyage and other revenues from other companies owned by Mr. Dimitris Melisanidis or his relatives were $0.10 million, $0.10 million and $0.11 million as of December 31, 2016, 2015 and 2014, respectively.
Other Related Party Transactions
Office Lease.
We lease our head offices at 10, Akti Kondili, Piraeus, 18545 from Aegean Warehouse,
which is owned and controlled by members of the family of Mr. Dimitris Melisanidis. Mr. Melisanidis may also be deemed a control person of Aegean Warehouse for U.S. securities law purposes, but Mr. Melisanidis disclaims such control. We pay a monthly rate of approximately $60,000 under the rental agreement, which expires on March 2023. During the year ended December 31, 2016, 2015 and 2014, we paid approximately $0.6 million, $0.6 million and $0.7 million under the agreement.
We also lease an office at 299 Park Avenue, New York, New York 10171, from Gener8 (formerly, General Maritime), which expires in on December 2017. We pay an average monthly rental, which includes services that Gener8 provides for us, of approximately $16,500.
During the years ended December 31, 2016, 2015 and 2014, we paid approximately $0.2 million, $0 million and $0 million, respectively under the agreement.
Legal Services.
We have retained Mr. Spyridon Fokas, our director, general counsel and corporate secretary, to provide legal services from time to time. The legal services rendered by Mr. Fokas' firm included advice on general corporate formation matters as well as ship and corporate financings.
Fujairah in-land storage facility:
In July 2010, Mr. Melisanidis, our founder, former head of corporate development and former major shareholder, transferred to us, for no consideration, all of the shares of Aegean Oil Terminal Corporation, a company that possesses a 25-year terminal lease agreement with the Municipality of Fujairah. The lease agreement may be automatically renewed for an additional 25 years. We completed the construction of the new facility in the fourth quarter of 2014. We have paid $205.3 million, net of capitalized interest, for construction and other related costs during the construction period.
Vessel disposals.
On September 9, 2016, we sold the vessel
Aegean Princess
to a related company owned by relatives of Mr. Dimitris Melisanidis. The loss on the sale of this vessel of $3.9 million is included under the loss on sale of vessels, net in our consolidated statements of income. As of December 31, 2016, the amount due from the sale was $0.4 million and is included in the other receivables from related parties.
C.
|
Interests of experts and counsel.
|
Not applicable.
ITEM 8.
FINANCIAL INFORMATION
A.
|
Consolidated Statements and Other Financial Information
|
See "Item 18. Financial Statements."
Legal Proceedings
In the ordinary course of business, we may be subject to legal proceedings and claims for damages or penalties relating to, among other things, personal injury, property casualty and environmental contamination. We expect that these claims will be covered by our insurance policies, subject to customary deductibles. While these claims (even if lacking merit), could result in the expenditure of significant financial and managerial resources. In the opinion of management, our liability (if any) under any pending litigation or administrative proceedings (other than as set forth below), even if determined adversely, would not materially affect our financial condition, results of operations or cash flows.
In November 2005, an unrelated party filed a declaratory action against one of our subsidiaries before the First Instance Court of Piraeus, Greece. The plaintiff asserted that he was instrumental in the negotiation of our eight-year fuel purchase agreement with a government refinery in Jamaica and sought a judicial affirmation of his alleged contractual right to receive a commission of $0.01 per metric ton of marine fuel over the term of the contract. In December 2008, the First Instance Court of Piraeus dismissed the plaintiff's action as vague and inadmissible, however we appealed that decision on the grounds that there was no contract between the Company and the plaintiff and that the court lacked jurisdiction. While the action was pending in Greece, the plaintiff commenced a new action involving the same cause of action before the Commercial Court of Paris, France, which dismissed that action in June 2009. The plaintiff's appeal of the dismissal was denied by the Paris Court of Appeal in February 2010. In January 2012, the plaintiff commenced a new action relating to the same allegations before the Commercial Court of Paris, which was dismissed on June 27, 2012 in favor of the competence and jurisdiction of the Greek courts. In July 2012, the plaintiff filed a "contredit," an appeal procedure under French law. In November 2013, the Court held that there is no matter pending in Greece that would allow the French courts to decline jurisdiction to the benefit of the Greek proceedings. As a result, the case is to return to the Commercial Court of Paris which should have to examine the admissibility of plaintiff's claim in France. The relevant pleadings were issued on December 18, 2015. According to its decision the French Court held that the plaintiff is entitled to a part compensation based on a half of its claim fee of $0.01 per metric ton sold but limited to the amount of $0.7 million with respect to the years 2005 to 2008. The Judgement is enforceable subject to the submission by the plaintiff to AMP of a bank guarantee as counter-security covering the reimbursement to AMP of the said sum plus interest. Until now the plaintiff has been unable to submit a properly worded bank guarantee. Both AMP and the plaintiff have also filed contrary appeals of the decision issued. Both parties have now submitted their respective pleadings, but the relevant pleading has not yet been scheduled. We believe that this claim lacks in merit and that the outcome of this lawsuit will not have a material effect on the Company.
On December 18, 2014, we and Aegean Bunkering (USA) LLC, or the Aegean Parties, filed a one-count complaint for breach of contract against Hess Corporation, or Hess, in New York Supreme Court, New York County (653887/2014), alleging that Hess breached certain express representations and warranties in representing its financial condition in an agreement pursuant to which Hess sold its bunker oil business to Aegean Bunkering (USA) LLC, or the Agreement. In the complaint, the Aegean Parties sought approximately $28 million in compensatory damages, exclusive of interest and costs. On February 9, 2015, Hess filed an answer to the complaint. During the course of discovery, through co-counsel Boies Schiller & Flexner LLP, the Aegean Parties filed a motion for leave to amend the complaint on December 15, 2015. The proposed amended complaint added a claim for fraud and fraudulent inducement in connection with the Agreement, seeking approximately $127 million in compensatory damages, exclusive of interest and costs, and punitive damages in an amount to be determined at trial. On Hess's consent, the Aegean Parties' motion to amend the complaint was granted on January 15, 2016. On February 3, 2016, Hess filed a motion to dismiss the amended complaint in part, specifically, the fraud and fraudulent inducement claim and portions of the contract claim. The Aegean Parties' responded to the motion to dismiss on March 4, 2016, and Hess submitted its reply thereafter.
On March 31, 2017, the Aegean Parties have filed with the Court a Notice of Issue to request a trial date.
The parties have continued with discovery and await a decision from the Court. We are not in a position to comment further on this matter at this time.
We have supplied bunkers through agreements with various entities of the O.W. Bunker, which filed for bankruptcy in November 2014. We issued notice to members of the O.W. Bunker for the request of payment for the value of the bunkers supplied. Our exposure for these supplies amounts to $5.0 million, of which $2.9 million is recorded as a provision for doubtful accounts in our consolidated balance sheets. We believe that the respective members of the O.W. Bunker were never the rightful owners of the bunkers and are currently trying to work out escrow or other practical solutions with the end users. We expect to recover the amount of at least $2.0 million.
Our subsidiary, Aegean Oil Terminal Corporation, or AOTC, has provided storage facilities through agreements to Alco Shipping Services LLC, or Alco Shipping, Alco Fuel Trading LLC or Alco Trading, House of Gas Trading DMCC, or House of Gas, and SeaCrest Refined Oil Products Trading LLC, or SeaCrest. In breach of their obligations under their agreements, Alco Shipping, Alco Trading, House of Gas and SeaCrest failed to deliver any products to the terminal and to pay the invoices in the principal sum of $2.0 million. Following various demands for payment and in the absence of payments, AOTC has terminated the agreements and commenced legal proceedings against Alco Trading, Alco Shipping and House of Gas in the High Court of London. Sea Crest has issued and delivered to AOTC checks as security of payment of the outstanding invoices but since these bounced due to lack of funds, AOTC has filed criminal charges against the company. We have recorded in our books a provision for the full amount due by the above companies.
Various claims, suits, and complaints, including those involving government regulations, arise in the ordinary course of business. In addition, losses may arise from disputes with charterers, agents, insurance carriers and other claims with suppliers relating to the operations of our vessels. Currently, management is not aware of any such claims or contingent liabilities for which a provision should be established in the accompanying consolidated financial statements.
Dividend Policy
Our policy is to pay regular cash dividends on a quarterly basis on shares of our common stock so long as we have sufficient capital or earnings to do so. While we cannot assure you that we will continue to do so in the future, and subject to, among other things, legal requirements, our ability to obtain financing on terms acceptable to us and our ability to satisfy financial covenants contained in our financing arrangements, we paid dividends of $0.02 per share with respect to the first, second, third and fourth quarters of 2016 and 2015, respectively. We anticipate retaining most of our future earnings, if any, for use in our operations and the expansion of our business. Any further determination as to dividend policy will be made by our board of directors and will depend on a number of factors, including the requirements of Marshall Islands law, our future earnings, capital requirements, financial condition and future prospects and such other factors as our board of directors may deem relevant.
Marshall Islands law generally prohibits the payment of dividends other than from surplus, when a company is insolvent or if the payment of the dividend would render the company insolvent.
In addition, we may incur expenses or liabilities, including extraordinary expenses, which could include costs of claims and related litigation expenses, or be subject to other circumstances in the future that reduce or eliminate the amount of cash that we have available for distribution as dividends or for which our board of directors may determine requires the establishment of reserves. Our board of directors may determine to finance our growth with cash from operations, which would reduce or even eliminate the amount of cash available for the payment of dividends.
Our ability to pay dividends is also subject to our ability to satisfy financial covenants contained in our financing arrangements. See "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Credit Facilities."
There have been no significant changes since the date of the annual consolidated financial statements included in this report.
ITEM 9.
OFFER AND THE LISTING
A.
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Offer and Listing Details.
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Shares of our common stock commenced trading on the NYSE on December 8, 2006 under the symbol "ANW."
The following table sets forth the high and low closing prices of our shares of common stock on the NYSE for the periods indicated below.
For the Fiscal Year Ended
|
|
High
|
|
|
Low
|
|
December 31, 2012
|
|
$
|
7.85
|
|
|
$
|
4.30
|
|
December 31, 2013
|
|
$
|
12.62
|
|
|
$
|
5.73
|
|
December 31, 2014
|
|
$
|
14.02
|
|
|
$
|
7.29
|
|
December 31, 2015
|
|
$
|
15.53
|
|
|
$
|
6.54
|
|
December 31, 2016
|
|
$
|
12.45
|
|
|
$
|
5.21
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
|
|
|
|
|
|
March 31, 2015
|
|
$
|
14.99
|
|
|
$
|
13.19
|
|
June 30, 2015
|
|
$
|
15.53
|
|
|
$
|
12.35
|
|
September 30, 2015
|
|
$
|
12.56
|
|
|
$
|
6.54
|
|
December 31, 2015
|
|
$
|
9.53
|
|
|
$
|
6.73
|
|
March 31, 2016
|
|
$
|
8.29
|
|
|
$
|
6.19
|
|
June 30, 2016
|
|
$
|
8.40
|
|
|
$
|
5.50
|
|
September 30, 2016
|
|
$
|
10.78
|
|
|
$
|
5.21
|
|
December 31, 2016
|
|
$
|
12.45
|
|
|
$
|
8.15
|
|
March 31, 2017
|
|
$
|
12.05
|
|
|
$
|
9.80
|
|
|
|
|
|
|
|
|
|
|
For the Month:
|
|
|
|
|
|
|
|
|
November 2016
|
|
$
|
11.25
|
|
|
$
|
8.15
|
|
December 2016
|
|
$
|
12.45
|
|
|
$
|
10.05
|
|
January 2017
|
|
$
|
11.40
|
|
|
$
|
10.30
|
|
February 2017
|
|
$
|
11.30
|
|
|
$
|
9.80
|
|
March 2017
|
|
$
|
12.05
|
|
|
$
|
10.40
|
|
April 2017
|
|
$
|
12.95
|
|
|
$
|
11.15
|
|
May (through May 12, 2017)
|
|
$
|
11.30
|
|
|
$
|
10.20
|
|
Not applicable
Shares of our common stock are trading on the NYSE under the symbol "ANW."
Not applicable.
Not applicable.
Not applicable.
ITEM 10.
ADDITIONAL INFORMATION
Not applicable.
B.
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Memorandum and Articles of Association.
|
Our amended and restated articles of incorporation have been filed as exhibit 3.1 to the Registration Statement on Form F-1 (Registration No. 333-129768) with the SEC on November 17, 2005. Our second amended and restated bylaws have been filed as exhibit 1.3 to our Annual Report on Form 20-F for the year ended December 31, 2015 with the SEC on April 28, 2016. The information contained in these exhibits is incorporated by reference herein.
Below is a summary of the description of our capital stock, including the rights, preferences and restrictions attaching to each class of stock. Because the following is a summary, it does not contain all information that you may find useful. For more complete information, you should read our amended and restated articles of incorporation and amended and restated bylaws, which are incorporated by reference herein.
Purpose
Our purpose, as stated in our amended and restated articles of incorporation, is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the BCA. Our amended and restated articles of incorporation and second amended and restated bylaws do not impose any limitations on the ownership rights of our shareholders.
Authorized Capitalization
Under our amended and restated articles of incorporation, our authorized capital stock consists of 100,000,000 shares of common shares, par value $0.01 per share, of which 39,446,322 shares were issued and outstanding as of May 12, 2017 and 25,000,000 preferred shares, par value $0.01 per share, of which no shares are issued and outstanding.
Description of Common Shares
Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders. Subject to preferences that may be applicable to any outstanding shares of preferred shares, holders of shares of common shares are entitled to receive ratably all dividends, if any, declared by our board of directors out of funds legally available for dividends. Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full of all amounts required to be paid to creditors and to the holders of shares of our preferred shares having liquidation preferences, if any, the holders of our shares of common shares will be entitled to receive pro rata our remaining assets available for distribution. Holders of our shares of common shares do not have conversion, redemption or preemptive rights to subscribe to any of our securities. The rights, preferences and privileges of holders of shares of common shares are subject to the rights of the holders of any preferred shares that we may issue in the future.
Description of Preferred Shares
Our amended and restated articles of incorporation authorize our board of directors to establish one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including the designation of the series, the number of shares of the series, the preferences and relative, participating, option or other special rights, if any, and any qualifications, limitations or restrictions of such series, and the voting rights, if any, of the holders of the series.
We have designated 100,000 preferred shares as Series A Participating Preferred Stock in connection with the adoption of our Stockholders Rights Agreement. See "—Stockholders Rights Agreement" below.
Directors
Our directors are elected by a majority of the votes cast by shareholders entitled to vote. There is no provision for cumulative voting.
Our board of directors must consist of at least three members. Shareholders may change the number of directors only by amending the bylaws, which requires the affirmative vote of holders of 70% or more of the outstanding shares of capital stock entitled to vote. The board of directors may change the number of directors only by a vote of not less than 66 2/3% of the entire board of directors. At each annual meeting of shareholders, directors to replace those directors whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting of shareholders. Each director shall serve his respective term of office until his successor shall have been duly elected and qualified, except in the event of his death, resignation, removal, or the earlier termination of his term of office. Our board of directors has the authority to fix the amounts that shall be payable to the members of the board of directors for attendance at any meeting or for services rendered to us.
Interested Transactions
Our second amended and restated bylaws provide that a contract or transaction between us and one or more of our directors or officers, or between us and any other corporation, partnership, association or other organization in which one or more of its directors or officers are our directors or officers, or have a financial interest, will not be void or voidable, if (i) the material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known to our board of directors or its committee and the board of directors or the committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of disinterested directors, or, if the votes of the disinterested directors are insufficient to constitute an act of the board of directors as provided in the BCA, by unanimous vote of the disinterested directors; or (ii) the material facts as to the relationship or interest are disclosed to the shareholders, and the contract or transaction is specifically approved in good faith by the vote of the shareholders; or (iii) the contract or transaction is fair to us as of the time it is authorized, approved or ratified, by the board of directors, its committee or the shareholders.
Shareholder Meetings
Under our second amended and restated bylaws, annual shareholder meetings will be held at a time and place selected by our board of directors. The meetings may be held in or outside of the Marshall Islands. Special shareholder meetings may be called at any time by our board of directors, the chairman of the board, or the president. No business may be conducted at the special meeting other than the business brought before the special meeting by our board of directors, the chairman of the board, or the president. Our board of directors may set a record date between 15 and 60 days before the date of any meeting to determine the shareholders that will be eligible to receive notice and vote at the meeting. One or more shareholders representing at least one-third of the total voting rights of our total issued and outstanding shares present in person or by proxy at a shareholder meeting shall constitute a quorum for the purposes of the meeting.
Dissenters' Rights of Appraisal and Payment
Under the BCA, our shareholders have the right to dissent from various corporate actions, and receive payment of the fair market value of their shares. In the event of any further amendment of our amended and restated articles of incorporation, a shareholder also has the right to dissent and receive payment for his or her shares if the amendment alters certain rights in respect of those shares. The dissenting shareholder must follow the procedures set forth in the BCA to receive payment. In the event that we and any dissenting shareholder fail to agree on a price for the shares, the BCA procedures involve, among other things, the institution of proceedings in the high court of the Republic of the Marshall Islands or in any appropriate court in any jurisdiction in which our shares are primarily traded on a local or national securities exchange.
Shareholders' Derivative Actions
Under the BCA, any of our shareholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the shareholder bringing the action is a holder of our common shares both at the time the derivative action is commenced and at the time of the transaction to which the action relates.
Limitations on Liability and Indemnification of Officers and Directors
The BCA authorizes corporations to limit or eliminate the personal liability of officers and directors to corporations and their shareholders for monetary damages for breaches of directors' fiduciary duties. Our amended and restated articles of incorporation include a provision that eliminates the personal liability of directors for monetary damages for actions taken as a director to the fullest extent permitted by law.
Our amended and restated articles of incorporation and second amended and restated bylaws provide that we must indemnify our officers and directors to the fullest extent authorized by law if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. We are also expressly authorized to advance certain expenses (including attorneys' fees and disbursements and court costs) to our directors and officers and carry directors' and officers' insurance policies providing indemnification for our directors, officers and certain employees for some liabilities. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive officers.
The limitation of liability and indemnification provisions in our amended and restated articles of incorporation and second amended and restated bylaws may discourage shareholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our shareholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
Anti-Takeover Effect of Certain Provisions of our Articles of Incorporation and Bylaws
Several provisions of our amended and restated articles of incorporation and second amended and restated bylaws, which are summarized below, may have anti-takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our board of directors to maximize shareholder value in connection with any unsolicited offer to acquire us. However, these anti-takeover provisions, which are summarized below, could also discourage, delay or prevent (1) the merger or acquisition of our Company by means of a tender offer, a proxy contest or otherwise that a shareholder may consider in its best interest and (2) the removal of incumbent officers and directors.
Classified Board of Directors
Our amended and restated articles of incorporation provide for the division of our board of directors into three classes of directors, with each class as nearly equal in number as possible, serving staggered, three year terms. Approximately one-third of our board of directors will be elected each year. This classified board provision could discourage a third party from making a tender offer for our common shares or attempting to obtain control of us. It could also delay shareholders who do not agree with the policies of our board of directors from removing a majority of our board of directors for two years.
Blank Check Preferred Stock
Under the terms of our amended and restated articles of incorporation, our board of directors has authority, without any further vote or action by our shareholders, to issue up to 25 million shares of blank check preferred shares. Our board of directors may issue preferred shares on terms calculated to discourage, delay or prevent a change of control of us or the removal of our management.
Election and Removal of Directors
Our amended and restated articles of incorporation prohibit cumulative voting in the election of directors. Our amended and restated articles of incorporation and second amended and restated bylaws require parties other than the board of directors to give advance written notice of nominations for the election of directors. Our amended and restated articles of incorporation and second amended and restated bylaws also provide that our directors may be removed only for cause and only upon the affirmative vote of the holders of 70% or more of the outstanding shares of our capital stock entitled to vote generally in the election of directors. These provisions may discourage, delay or prevent the removal of incumbent officers and directors.
Business Combinations
Although the BCA does not contain specific provisions regarding "business combinations" between corporations organized under the laws of the Republic of Marshall Islands and "interested shareholders," we have included these provisions in our amended and restated articles of incorporation. Our amended and restated articles of incorporation contain provisions which prohibit us from engaging in a business combination with an interested shareholder for a period of three years after the date of the transaction in which the person became an interested shareholder, unless:
|
·
|
prior to the date of the transaction that resulted in the shareholder becoming an interested shareholder, our board of directors approved either the business combination or the transaction that resulted in the shareholder becoming an interested shareholder;
|
|
·
|
upon consummation of the transaction that resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer;
|
|
·
|
at or subsequent to the date of the transaction that resulted in the shareholder becoming an interested shareholder, the business combination is approved by the board of directors and authorized at an annual or special meeting of shareholders, and not by written consent, by the affirmative vote of at least 70% of the outstanding voting stock that is not owned by the interested shareholder; or
|
|
·
|
the shareholder became an interested shareholder prior to the consummation of the initial public offering of our common shares under the Securities Act.
|
For purposes of these provisions, a "business combination" includes mergers, consolidations, exchanges, asset sales, leases and other transactions resulting in a financial benefit to the interested shareholder and an "interested shareholder" is any person or entity that beneficially owns 20% or more of the shares of our outstanding voting stock and any person or entity affiliated with or controlling or controlled by that person or entity.
Limited Actions by Shareholders
Our second amended and restated bylaws provide that any action required or permitted to be taken by our shareholders must be effected at an annual or special meeting of shareholders or by the unanimous written consent of our shareholders. Our second amended and restated bylaws also provide that our board of directors, the chairman of the board, or the president may call special meetings of our shareholders and the business transacted at the special meeting is limited to business brought before the special meeting by our board of directors, chairman or president. Accordingly, shareholders are prevented from calling a special meeting for shareholder consideration of a proposal over the opposition of our board of directors and shareholder consideration of a proposal may be delayed until the next annual meeting.
Supermajority Provisions
The BCA generally provides that the affirmative vote of a majority of the outstanding shares entitled to vote at a meeting of shareholders is required to amend a corporation's articles of incorporation, unless the articles of incorporation requires a greater percentage. Our amended and restated articles of incorporation provide that the following provisions in the articles may be amended only by an affirmative vote of 70% or more of the outstanding shares of our capital stock entitled to vote:
|
·
|
the board of directors shall be divided into three classes;
|
|
·
|
directors may only be removed for cause and by an affirmative vote of the holders of 70% or more of the outstanding shares of our capital stock entitled to vote generally in the election of directors;
|
|
·
|
the shareholders are authorized to alter, amend or repeal our bylaws by an affirmative vote of 70% or more of the outstanding shares of our capital stock entitled to vote generally in the election of directors;
|
|
·
|
the Company may not engage in any business combination with any interested shareholder for a period of three years following the transaction in which the person became an interested shareholder; and
|
|
·
|
the Company shall indemnify directors and officers to the full extent permitted by law, and the company shall advance certain expenses (including attorneys' fees and disbursements and court costs) to the directors and officers.
|
Advance Notice Requirements for Shareholders Proposals and Director Nominations
Our amended and restated articles of incorporation and second amended and restated bylaws provide that shareholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate secretary. Generally, to be timely, a shareholder's notice must be received at our principal executive offices not less than 120 days nor more than 180 days prior to the one year anniversary of the immediately preceding year's annual meeting of shareholders. Our amended and restated articles of incorporation and second amended and restated bylaws also specify requirements as to the form and content of a shareholder's notice. These provisions may impede a shareholder's ability to bring matters before an annual meeting of shareholders or make nominations for directors at an annual meeting of shareholders.
Stockholders Rights Agreement
We entered into a Stockholders Rights Agreement, or the Agreement, with Computershare Trust Company, N.A., as Rights Agent, as of August 14, 2009. Under the Agreement, we declared a dividend payable of one preferred stock purchase right, or Right, for each outstanding share of our common stock, to our stockholders of record at the close of business on August 14, 2009. Each Right entitles the registered holder to purchase from us a unit consisting of one one-thousandth of a share of our Series A Participating Preferred Stock, par value $0.01 per share. The Rights will separate from the common stock and become exercisable after the earlier of (1) the 10th day (or such later date as determined by our board of directors) after public announcement that a person or group acquires ownership of 15% or more of shares of our common stock or (2) the 10th business day (or such later date as determined by our board of directors) after a person or group announces a tender or exchange offer, which would result in that person or group holding 15% or more of shares of our common stock. On the distribution date, each holder of a Right will be entitled to purchase for $100, or the Exercise Price, a fraction (1/1000th) of one share of our Series A Participating Preferred Stock, which has similar economic terms as one share of our common stock.
If an acquiring person, or an Acquiring Person, acquires more than 15% of the shares of our common stock, then each holder of a Right (except that Acquiring Person) will be entitled to buy at the Exercise Price, a number of shares of our common stock which has a market value of twice the Exercise Price. Any time after the date an Acquiring Person obtains more than 15% of shares of our common stock and before that Acquiring Person acquires more than 50% of outstanding shares of our common stock, we may exchange each Right owned by all other Rights holders, in whole or in part, for one share of our common stock. The Rights expire on the earliest of (i) August 14, 2019 or (ii) the redemption of the Rights by us or (iii) the exchange of the Rights as described above. We can redeem the Rights at any time on or prior to the earlier of the tenth business day following the public announcement that a person has acquired ownership of 15% or more of shares of our common stock, or August 14, 2019. The terms of the Rights and the Agreement may be amended to make changes that do not adversely affect the rights of the Rights holders (other than the Acquiring Person). The Rights do not have any voting rights. The Rights have the benefit of certain customary anti-dilution protections.
We refer you to "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Credit Facilities," "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions" and "Item 10. Additional Information—B. Memorandum and Articles of Association" for a discussion of our material agreements that we have entered into outside the ordinary course of our business during the two-year period immediately preceding the date of this annual report.
Other than as set forth above, there were no material contracts, other than contracts entered into in the ordinary course of business, to which we were a party during the two year period immediately preceding the date of this annual report.
Under Marshall Islands, Greek law and the law of jurisdictions where our service centers and marketing offices are located, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that materially affect the remittance of dividends, interest or other payments to non-resident holders of our common stock.
The following is a discussion of the material Greek, Marshall Islands, Liberian, Belgium, Canadian, German and U.S. federal income tax consequences to our Company and to a "U.S. Holder" and a "Non-U.S. Holder," as each term is defined below. This discussion does not purport to deal with the tax consequences of owning common stock to all categories of investors, some of which, such as dealers in securities, investors whose functional currency is not the U.S. dollar and investors that own, actually or under applicable constructive ownership rules, 10% or more of our common stock, may be subject to special rules. This discussion deals only with shareholders who own the common stock as a capital asset. Moreover, this discussion is based upon laws, regulations and other authorities in effect as of the date hereof, all of which are subject to change, possibly with retroactive effect. You are encouraged to consult your own tax advisors concerning the overall tax consequences arising in your own particular situation under U.S. federal, state, local and foreign law of the ownership of shares of our common stock.
Greek Tax Considerations
AMP has established an office in Greece which provides services to AMP and AMP's office in Cyprus. Under the laws of Greece, and in particular under Greek Law 3427/2005, the income of AMP's Greek office is calculated on a cost plus basis on expenses incurred by that office. This determination is subject to periodic review every five years. The profit margin set by the Greek Ministry of Economy and Finance for the period 2011 to 2015 is 5.42%. With respect to the period of 2016 to 2020, the Greek Ministry of Economy and Finance has set a profit margin of 5%. The relevant study is pending for approval and once confirmed it will apply retroactively from January 1, 2016. AMP's income, as calculated by applying the applicable profit margin, is subject to Greek corporate income tax at the rate of 29%, 29%, and 26%, respectively, for the fiscal years 2016, 2015 and 2014. All expenses to which the profit margin applies are deducted from gross income for Greek corporate income tax purposes. Accordingly, under Greek Law 3427/2005, as currently applied to us, we expect that AMP will continue to have no liability for any material amount of Greek income tax.
Additionally, according to tax legislation ratified on January 11, 2013, all vessels with a non-Greek flag, which are managed by Greek or foreign ship management companies established in Greece, bear tonnage tax on the basis of the gross tonnage and age of the vessel. Our vessels did not incur material tax liabilities as a result of this new legislation.
Marshall Islands Tax Considerations
In the opinion of Seward & Kissel LLP, our Marshall Islands counsel, the following are the material Marshall Islands tax consequences to us of our activities and to our shareholders of the ownership of our common stock. We are incorporated in the Marshall Islands. Under current Marshall Islands law, we are not subject to tax on income or capital gains, and no Marshall Islands withholding tax or income tax will be imposed upon payments of dividends by us to our shareholders or proceeds from the disposition of our common stock, provided such shareholders are not residents of the Marshall Islands. There is no income tax treaty between the United States and the Republic of the Marshall Islands.
Liberian Tax Considerations
Under the Consolidated Tax Amendments Act of 2010, nonresident Liberian corporations are wholly exempted from Liberia taxation effective as of 1977. Therefore, our Liberian subsidiaries will be wholly exempt from Liberian income taxation.
Belgium Tax Considerations
Our operations in Belgium, through our subsidiaries Aegean Bunkers at Sea NV, or ABAS, and ANWE, are subject to Belgium income taxation. For the year ended December 31, 2016, our operations in Belgium were taxed at a rate of 33.99%. Please see Note 23 to our consolidated financial statements included herein for further discussion on our tax liability in Belgium.
Canada Tax Considerations
Our operations in Canada, through our subsidiary ICS Petroleum Ltd., are subject to Canada income taxation. For the year ended December 31, 2016, our operations in Montreal were taxed at a rate of 26.9% and our operations in Vancouver were taxed at a rate of 26. Please see Note 23 to our consolidated financial statements included herein for further discussion on our tax liability in Canada.
U.S. Federal Income Tax Considerations
In the opinion of Seward & Kissel LLP, our U.S. counsel, the following are the material U.S. federal income tax consequences to us of our activities and to U.S. Holders and Non-U.S. Holders, as defined below, of investing in our common stock. The following discussion of U.S. federal income tax matters is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the U.S. Department of the Treasury, or the Treasury Regulations, all of which are subject to change, possibly with retroactive effect. References in the following discussion to "we" and "us" are to Aegean Marine Petroleum Network Inc. and its subsidiaries on a consolidated basis.
U.S. Federal Income Taxation of Our Company
We conduct business in the United States through certain subsidiaries. These subsidiaries will generally be subject to U.S. federal income tax at a rate of 35% as well as U.S. state and local income tax in the jurisdictions in which they operate. Dividends paid by our U.S. subsidiaries are generally subject to U.S. federal withholding tax at a rate of 30%.
A foreign corporation is subject to U.S. federal income tax on a net basis only if it is engaged in a trade or business in the United States. A foreign corporation which is engaged in a trade or business in the United States will be subject to U.S. federal income tax and branch profits tax at a combined rate of up to 54.5% on its income which is effectively connected with its U.S. trade or business, or Effectively Connected Income.
Income from the sale of inventory property outside of the United States by a foreign corporation will be treated as Effectively Connected Income if the corporation has a fixed place of business in the United States to which such income is attributable, unless (1) the property is sold for use, consumption or disposition outside of the United States, and (2) the foreign corporation has a fixed place of business in a foreign country which materially participates in the sale.
While we or certain of our foreign subsidiaries may have a place of business in the United States, we believe that none of their income from the sale of inventory property would be treated as Effectively Connected Income under the rules discussed above. Specifically, we anticipate that (1) all of our sales of petroleum products will occur outside the United States; (2) such products will be sold for use, consumption or disposition outside the United States, and (3) one of our foreign offices will materially participate in such sales. Therefore, we anticipate that none of our income from the sale of inventory property will be subject to U.S. federal income tax on a net basis.
If any portion of our income is treated as Effectively Connected Income, then such income will be subject to U.S. federal income tax and branch profits tax at a combined rate of up to 54.5%.
U.S. Federal Income Taxation of U.S. Holders
As used herein, the term "U.S. Holder" means a beneficial owner of our common stock that is a U.S. citizen or resident, U.S. corporation or other U.S. entity taxable as a corporation, an estate the income of which is subject to U.S. federal income tax regardless of its source, or a trust if a court within the U.S. is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.
If a partnership holds our common stock, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our common stock, you are encouraged to consult your tax advisor.
Distributions
Subject to the discussion below under the heading "Passive Foreign Investment Company," any distributions made by us with respect to our common stock to a U.S. Holder will generally constitute dividends, which may be taxable as ordinary income or "qualified dividend income" as described in more detail below, to the extent of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of our earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holder's tax basis in our common stock on a dollar-for-dollar basis, and thereafter as capital gain. Because we are not a U.S. corporation, U.S. Holders that are corporations will not be entitled to claim a dividends received deduction with respect to any distributions they receive from us. Dividends paid with respect to our common stock will generally be treated as "passive category income" or, in the case of certain types of U.S. Holders, "general category income" for purposes of computing allowable foreign tax credits for U.S. foreign tax credit purposes.
Dividends paid on our common stock to a U.S. Holder who is an individual, trust or estate, or a U.S. Individual Holder, will generally be treated as "qualified dividend income" that is taxable to such U.S. Individual Holder at preferential tax rates provided that: (1) the common stock is readily tradable on an established securities market in the United States (such as the NYSE on which our common stock is traded); (2) we are not a "passive foreign investment company" for the taxable year during which the dividend is paid or the immediately preceding taxable year (which we do not believe we are, have been or will be); (3) the U.S. Individual Holder has owned the common stock for more than 60 days in the 121-day period beginning 60 days before the date on which the common stock becomes ex-dividend; and (4) the U.S. Individual Holder is not under an obligation to make related payments with respect to positions in substantially similar or related property. There is no assurance that any dividends paid on our common stock will be eligible for these preferential rates in the hands of a U.S. Individual Holder. Any dividends paid by us that are not eligible for these preferential rates (including dividends paid to U.S. Holders other than U.S. Individual Holders) will be taxed as ordinary income.
Special rules may apply to any "extraordinary dividend," generally a dividend in an amount which is equal to or in excess of ten percent of a shareholder's adjusted tax basis (or fair market value in certain circumstances) in its common stock. If we pay an "extraordinary dividend" on our common stock that is treated as "qualified dividend income," then any loss derived by a U.S. Individual Holder from the sale or exchange of such common stock will be treated as long-term capital loss to the extent of such dividend.
Sale, Exchange or Other Disposition of Common Stock
A U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common stock in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder's tax basis in such common stock. Subject to the discussion under the heading "Passive Foreign Investment Company" below, such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder's holding period of the common stock is greater than one year at the time of the sale, exchange or other disposition; otherwise it will be treated as short-term capital gain or loss. Long-term capital gains of a U.S. Individual Holder are taxable at preferential tax rates under current law. Such capital gain or loss will generally be treated as U.S. source income or loss, as applicable, for U.S. foreign tax credit purposes. A U.S. Holder's ability to deduct capital losses is subject to certain limitations.
3.8% Tax on Net Investment Income
For taxable years beginning after December 31, 2012, a U.S. Holder that is an individual, estate, or, in certain cases, a trust, will generally be subject to a 3.8% tax on the lesser of (1) the U.S. Holder's net investment income for the taxable year and (2) the excess of the U.S. Holder's modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals is between $125,000 and $250,000). A U.S. Holder's net investment income will generally include distributions made by us which constitute a dividend for U.S. federal income tax purposes and gain realized from the sale, exchange or other disposition of our common stock. This tax is in addition to any income taxes due on such investment income.
If you are a U.S. Holder that is an individual, estate or trust, you are encouraged to consult your tax advisors regarding the applicability of the 3.8% tax on net investment income to the ownership and disposition of our common stock.
Passive Foreign Investment Company
A foreign corporation will be treated as a "passive foreign investment company," or a PFIC, for U.S. federal income tax purposes if 75% or more of its gross income consists of certain types of "passive income" or 50% or more of its assets produce or are held for the production of such "passive income." If a corporation owns at least 25% (by value) of the shares of another corporation, it is treated for purposes of these tests as owning a proportionate share of the assets of the other corporation and as receiving directly a proportionate share of the other corporation's income. "Passive income," for this purpose, generally includes dividends, interest, royalties, rents and gains from commodities and securities transactions. We presently believe that we are not a PFIC and do not anticipate becoming a PFIC. This is, however, a factual determination made on an annual basis based on our activities, income and assets, among other factors, and is subject to change.
If we are classified as a PFIC, a U.S. Holder of our common stock could be subject to increased U.S. federal income tax liability upon the sale or other disposition of our common stock or upon the receipt of amounts treated as "excess distributions." Under these rules, the excess distribution and any gain upon a sale of our common stock would be allocated ratably over the U.S. Holder's holding period for the common stock, and the amount allocated to the current taxable year and any taxable year prior to the first taxable year in which we were a PFIC would be taxed as ordinary income in the current taxable year. The amounts allocated to each of the other taxable years would be subject to tax at the highest marginal rates on ordinary income in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed tax deferral benefit would be imposed on the resulting tax liability as if such tax liability had been due with respect to each such other taxable year. In addition, shareholders of a PFIC may not receive a "step-up" in tax basis on common stock acquired from a decedent. In addition, a U.S. Holder would be required to file annual information returns with the U.S. Internal Revenue Service, or the IRS, if we were to be classified as a PFIC. U.S. Holders should consult with their own U.S. tax advisors with respect to the U.S. tax consequences of investing in our common stock as well as the specific application of the "excess distribution" rule and other rules discussed in this paragraph.
The effect of the PFIC rules on a U.S. Holder may be mitigated if a U.S. Holder makes a valid and timely "mark-to-market" election or "qualified electing fund" election. We will notify U.S. Holders in the event we conclude that we will be treated as a PFIC for any taxable year. U.S. Holders are encouraged to consult their tax advisors regarding the application of the PFIC rules, including eligibility for, and the manner and advisability of, making certain elections with respect to our common stock in the case that we are determined to be a PFIC.
U.S. Federal Income Taxation of Non-U.S. Holders
A beneficial owner of common stock that is not a U.S. Holder (other than a partnership) is referred to herein as a "Non-U.S. Holder."
Dividends on Common Stock
Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax on dividends received from us with respect to our common stock, unless such dividend is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of a U.S. income tax treaty with respect to those dividends, that income is subject to U.S. federal income tax only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.
Sale, Exchange or Other Disposition of Common Stock
Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax on any gain realized upon the sale, exchange or other disposition of our common stock, unless:
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·
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the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met; or
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·
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the gain is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of a U.S. income tax treaty with respect to that gain, that gain is subject to U.S. federal income tax only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.
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If a Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax purposes, the income from the common stock, including dividends and the gain from the sale, exchange or other disposition of the common stock that is effectively connected with the conduct of that U.S. trade or business will generally be subject to U.S. federal income tax in the same manner as discussed in the previous section relating to the taxation of U.S. Holders. In addition, earnings and profits of a corporate Non-U.S. Holder that are attributable to such effectively connected income, subject to certain adjustments, may be subject to an additional U.S. federal branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable U.S. income tax treaty.
Information Reporting
Individuals who are U.S. Holders (and to the extent specified in the applicable Treasury Regulations, certain individuals who are non-U.S. Holders and certain U.S. entities) who hold "specified foreign financial assets" (as defined in section 6038D of the Code and the applicable Treasury Regulations) are required to file IRS Form 8938 (Statement of Specified Foreign Financial Assets) with information relating to each such asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year. Specified foreign financial assets would include, among other assets, our common stock, unless the common stock were held through an account maintained with a U.S. financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, the statute of limitations on the assessment and collection of U.S. federal income tax with respect to a taxable year for which the filing of IRS Form 8938 is required may not close until three years after the date on which IRS Form 8938 is filed. U.S. Holders (including U.S. entities) and Non-U.S. Holders are encouraged to consult their own tax advisors regarding their reporting obligations under section 6038D of the Code.
Other Taxes
In addition to the tax consequences discussed above, we may be subject to tax in one or more other jurisdictions where we conduct activities. Although we currently do not pay a material amount of tax in any jurisdiction in which we operate, there can be no assurance that this will not change.
F.
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Dividends and paying agents.
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Not applicable.
Not applicable.
We are subject to the informational requirements of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act. In accordance with these requirements, we file reports and other information with the SEC. These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330, and you may obtain copies at prescribed rates from the Public Reference Section of the SEC at its principal office in Washington, D.C. 20549. The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information that we and other registrants have filed electronically with the SEC. Our filings are also available on our website at
www.ampni.com
. This web address is provided as an inactive textual reference only. Information contained on our website does not constitute part of this annual report.
Shareholders may also request a copy of our filings at no cost, by writing or telephoning us at the following address:
Aegean Marine Petroleum Network Inc.
10 Akti Kondili 18545 Piraeus, Greece
Telephone: +30 (210) 458-6200
I.
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Subsidiary Information
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Not applicable.
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Price Risk
Our price risk has been minimal because we have generally purchased inventory for which we have already had a binding sales contract in place. We generally do not fix future prices for delivery of fuel in excess of one week and our suppliers generally use average PLATTS pricing in their calculation of cost prices to us. Accordingly, our exposure to price risk has covered a period of only a few days. For the year ended December 31, 2016, we imported and stored cargos of marine fuel prior to resale to our customers. Accordingly, in some regions, we purchased fuel before entering into a binding sales contract with a customer. We believe that our exposure to price risk in these locations covers a period of one to two weeks. From time to time, we take positions in fuel pricing contracts. Our policy is to not use fuel related derivative financial instruments for speculative purposes. Generally, fuel pricing contracts may be used to hedge exposure to changes in the net cost of marine fuel purchases. Upon settlement, if the contracted net price of marine fuel purchased is less than the settlement price, the seller of the fuel pricing contract is required to pay the buyer an amount equal to the difference between the contracted price and the settlement price. Conversely, if the contracted price is greater than the settlement price, the buyer is required to pay the seller the settlement sum. If we take positions in fuel pricing contracts or other derivative instruments, we could suffer losses in the settling or termination of these agreements. This could adversely affect our results of operation and cash flow.
During the years ended December 31, 2016 and 2015, we entered into fuel pricing contracts for 29,562,250 and 14,553,635 metric tons, respectively. These derivatives are intended to serve as an approximate hedge for the net cost of fuel purchases. Our fuel pricing contracts do not qualify as cash flow hedges for accounting purposes and therefore gains or losses are recognized in the accompanying consolidated statements of income. Fuel pricing contracts are settled on a monthly basis using quoted market prices of the underlying commodity. The fair value of these instruments as of December 31, 2016 was a liability of $12.4 million. The fair value of these instruments as of December 31, 2015 was an asset of $22.4 million. During the years ended December 31, 2016 and 2015, we recognized a loss of $70.2 million and a gain of $45.8 million, respectively. In the future, we may enter into long-term fixed price sales commitments, which fix the prices of future fuel sales. Furthermore, we may use cargo storage in our other service centers or we might import larger cargos of fuel for storage, which would increase our oil price risk. Furthermore, in the future, we might execute cargo trading transactions to arbitrage the price of marine fuel, which method would increase our oil price risk. Finally, we may enter into derivative contracts in the forms of swaps or futures in order to mitigate the risk of market price fluctuations in marine fuel. Please refer to Note 14 to our consolidated financial statements included at the end of this annual report which provides additional information on our derivatives as of December 31, 2016 and 2015.
Interest Rate Risk
We are subject to market risks relating to changes in interest rates as we have significant amounts of floating rate long-term debt and short-term borrowings outstanding. During the year ended December 31, 2016, we paid interest on this debt mainly based on LIBOR plus an average spread of 2.34% on our bank loans. A one percent increase in LIBOR would have increased our interest expense for the year ended December 31, 2016 from $24.8 million to $30.8 million. We expect to repay our borrowings on a periodic basis using cash flows from operations.
We enter into interest rate swap agreements from time to time in order to economically hedge our exposure to variability in our floating rate long-term debt. As of December 31, 2016, we had four interest rate swap agreement in place. The total notional principal amount of these swaps as of December 31, 2016 and 2015 was $228.7 million and $4.2 million, respectively. These swaps have specified rates and duration. Please refer to the table in Note 14 of our consolidated financial statements included at the end of this annual report for a summary of the terms of this interest rate.
Under our interest rate swap transactions, the bank makes quarterly floating-rate payments to us for the relevant amount based on the floating interest rate and we make quarterly payments to the bank on the relevant amount at the respective fixed rates.
Our interest rate swap does not meet hedge accounting criteria under accounting guidance relating to hedge accounting. Although we are exposed to credit-related losses in the event of non-performance in connection with such swap agreement, because the counterparty is rated A or better at the time of the transaction, we consider the risk of loss due to its nonperformance to be minimal. Through this swap transaction, we effectively hedged the interest rate exposure of our 2010 Newbuilding Secured Loan Facility and our debt exposure related to our working capital.
Exchange Rate Risk
We have conducted the vast majority of our business transactions in U.S. dollars. We have purchased marine petroleum products in the international oil and gas markets and our vessels have operated in international shipping markets; both these international markets transact business primarily in U.S. dollars. Accordingly, our total revenues have been fully denominated in U.S. dollars and our cost of marine petroleum products, which, for the year ended December 31, 2016, comprised approximately 92% of our total operating expenses, have been denominated in U.S. dollars. Our balance sheet is mainly comprised of dollar-denominated assets including trade receivables, inventories and the cost of vessels, and liabilities including trade payables, short-term borrowings and long-term loans. Our foreign exchange losses in recent periods have mainly arisen from the translation of assets and liabilities of our service centers that are denominated in local currency. Accordingly, the impact of foreign exchange fluctuations on our consolidated statements of income has been minimal.
Should we enter certain markets where payments and receipts are denominated in local currency or should either the international oil and gas markets or the international shipping markets change their base currency from the U.S. dollar to another international currency such as the Euro, the impact on our dollar-denominated consolidated statements of income may be significant.
Due to the minimal historic impact of foreign exchange fluctuations on our operations, it is our policy to not enter into hedging arrangements in respect of our foreign currency exposures related to our sales and purchases. However, we currently hedge our exposure on loan repayments denominated in foreign currency.
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14.
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MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
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Material Modifications to the Rights of Security Holders
We have adopted a stockholders' rights agreement, pursuant to which each share of our common stock includes one preferred stock purchase right that entitles the holder to purchase from us a unit consisting of one-thousandth of a share of our Series A Participating Preferred Stock if any third-party seeks to acquire control of a substantial block of our common stock without the approval of our board of directors. See "Item 10. Additional Information—B. Memorandum and Articles of Association—Stockholders Rights Agreement" included in this annual report for a description of our stockholders rights agreement.
ITEM 15.
CONTROLS AND PROCEDURES
(a)
Disclosure controls and procedures.
Our President and Principal Executive Officer and Chief Financial Officer evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2016. Based on that evaluation, our President and the Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
(b)
Management's annual report on internal control over financial reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) promulgated under the Exchange Act and for the assessment of the effectiveness of internal control over financial reporting.
Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our President and Principal Executive Officer and Chief Financial Officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
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●
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Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
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●
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Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
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●
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Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted the evaluation of the effectiveness of the internal control over financial reporting using the control criteria framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) published in its report entitled Internal Control-Integrated 2013 Framework.
Management, with the participation of our President and Principal Executive Officer and Chief Financial Officer, assessed the effectiveness of the design and operation of our internal control over financial reporting pursuant to Rule 13a-15 of the Exchange Act as of December 31, 2016. B
ased upon that evaluation, our President
and Principal Executive Officer
and Chief Financial Officer concluded that our internal controls over financial reporting were effective as of December 31, 2016.
The effectiveness of our internal control over financial reporting, as of December 31, 2016 has been audited by PricewaterhouseCoopers S.A., an independent registered public accounting firm. Their audit report on the effectiveness of internal control over financial reporting is presented in "Item 18. Financial Statements."
(c)
Attestation report of the registered public accounting firm.
The registered public accounting firm that audited the consolidated financial statements, PricewaterhouseCoopers S.A., has issued an attestation report on our internal control over financial reporting, appearing on page F-
2
of the consolidated financial statements filed as a part of this annual report.
(d)
Changes in internal control over financial reporting.
There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
In accordance with the rules of the NYSE, the exchange on which our common stock is listed, we have appointed an audit committee whose members as of December 31, 2016 are Messrs. Konomos, Papanicolaou and Koutsomitopoulos, and Mr. Konomos has been determined to be a financial expert by our board of directors and independent, as that term is defined in the listing standards of the NYSE.
ITEM 16B.
CODE OF ETHICS
We have adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. A copy of our code of ethics has been filed as an exhibit to our annual report on Form 20-F for the fiscal year ended December 31, 2006 and is also available on our website at www.ampni.com. We will also provide a hard copy of our code of ethics free of charge upon written request of a shareholder.
Shareholders may also request a copy of our code of ethics at no cost, by writing or telephoning us at the following address:
Aegean Marine Petroleum Network Inc.
10 Akti Kondili
185 45, Piraeus, Greece
Telephone: +30 (210) 458-6200
ITEM 16C.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Our former principal accountants, Deloitte Certified Public Accountants S.A. (formerly known as Deloitte Hadjipavlou Sofianos & Cambanis S.A.), an independent registered public accounting firm and member of Deloitte Touche Tohmatsu Limited, have billed us for audit, audit-related and non-audit services as follows:
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Year Ended December 31,
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2016
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2015
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(in millions of U.S. dollars)
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Audit fees
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-
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0.9
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Audit-related fees
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-
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-
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Tax- relates fees
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-
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-
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All other fees
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0.1
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0.1
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Total fees
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0.1
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1.0
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Our current principal accountants, PricewaterhouseCoopers S.A., an independent registered public accounting firm, have billed us for audit, audit-related and non-audit services as follows:
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Year Ended December 31,
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2016
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(in millions of U.S. dollars)
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Audit fees
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0.9
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Audit-related fees
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0.1
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Tax- relates fees
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-
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All other fees
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-
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Total fees
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1.0
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Audit fees represent compensation for professional services rendered for (i) the audit of our consolidated financial statements included herein; (ii) the review of our quarterly financial information; and (iii) services provided in connection with public or private offerings effectuated or withdrawn and any other services performed for the SEC or other regulatory filings by us or our subsidiaries.
The audit committee charter sets forth our policy regarding retention of the independent auditors, giving the audit committee responsibility for the appointment, replacement, compensation, evaluation and oversight of the work of the independent auditors. As part of this responsibility, our audit committee pre-approves the audit and non-audit services performed by our independent auditors in order to assure that they do not impair the auditor's independence from the Company. The audit committee has adopted a policy which sets forth the procedures and the conditions pursuant to which services proposed to be performed by the independent auditors may be pre-approved.
ITEM 16D.
EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES
Period
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Total Number of Shares Purchased
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Average Price Paid per Share
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Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
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Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
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August 2016
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11,303,031
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*
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$
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8.81
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—
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—
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* On September 15, 2016, we repurchased 11,303,031 of our common shares that were beneficially owned by our then founder and head of corporate development, Mr. Dimitris Melisanidis. The transaction was approved by an independent committee of our board of directors. In connection with the repurchase, Mr. Melisanidis stepped down from his role as head of corporate development at the Company. The total repurchase represented approximately 22% of our shares then outstanding.
ITEM 16F.
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
On June 20, 2016, we appointed PricewaterhouseCoopers S.A. as the Company's independent auditor for the fiscal year ending December 31, 2016, and dismissed Deloitte Certified Public Accountants S.A. as our independent auditor. Our appointment of PricewaterhouseCoopers S.A. and dismissal of Deloitte Certified Public Accountants S.A. was approved by our audit committee.
The information required to be disclosed pursuant to this Item 16F was previously reported on Form 6-K, filed with the SEC on June 24, 2016.
ITEM 16G.
CORPORATE GOVERNANCE
Pursuant to an exception for foreign private issuers, we, as a Marshall Islands company, are not required to comply with the corporate governance practices followed by U.S. companies under the NYSE listing standards. We believe that our established practices in the area of corporate governance are in line with the spirit of the NYSE standards and provide adequate protection to our shareholders. In this respect, we have voluntarily adopted NYSE required practices, such as (a) establishing audit, compensation and nominating committees and (b) adopting a Code of Ethics.
There are three significant differences between our corporate governance practices and the practices required by the NYSE. The NYSE requires that a majority of the board of directors be independent. The NYSE also requires that non-management directors meet regularly in executive sessions without management and that all independent directors meet in an executive session at least once a year. As permitted under Marshall Islands law and our bylaws, three out of six members of our board of directors are independent, and our non-management directors do not regularly hold executive sessions without management and we do not expect them to do so in the future.
The NYSE requires companies to adopt and disclose corporate governance guidelines. The guidelines must address, among other things: director qualification standards, director responsibilities, director access to management and independent advisers, director compensation, director orientation and continuing education, management succession and an annual performance evaluation. We are not required to adopt such guidelines under Marshall Islands law and we have not adopted such guidelines.
Further, in lieu of obtaining shareholder approval prior to the issuance of designated securities, we will comply with provisions of the BCA, which allows our board of directors to approve share issuances.
Information about our corporate governance practices may also be found on our website, http://www.ampni.com, under "Investor Relations—Corporate Governance."
ITEM 16H.
MINE SAFETY DISCLOSURE
Not applicable.
PART III