ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, our management may make forward looking statements to analysts, investors, representatives of the media and others. These forward-looking statements are not historical facts and are based on our management’s current beliefs, expectations, estimates and projections about future events, many of which, by their nature, are inherently uncertain and beyond our control. Actual results may differ materially from those currently anticipated and expressed in such forward-looking statements due to a number of factors, including: (i) loss or reduction in business from our significant customers or the significant customers of the commercial pools in which we participate; (ii) changes in the values of our vessels, newbuildings or other assets; (iii) the failure of our significant customers, shipyards, pool managers or technical managers to perform their obligations owed to us; (iv) the loss or material downtime of significant vendors and service providers; (v) our failure, or the failure of the commercial pools in which we participate, to successfully implement a profitable chartering strategy; (vi) termination or change in the nature of our relationship with any of the commercial pools in which we participate; (vii) changes in demand for our services; (viii) a material decline or prolonged weakness in rates in the tanker market; (ix) changes in production of or demand for oil and petroleum products, generally or in particular regions; (x) greater than anticipated levels of tanker newbuilding orders or lower than anticipated rates of tanker scrapping; (xi) adverse weather and natural disasters, acts of piracy, terrorist attacks and international hostilities and instability; (xii) changes in rules and regulations applicable to the tanker industry, including, without limitation, legislation adopted by international organizations such as the International Maritime Organization and the European Union or by individual countries; (xiii) actions taken by regulatory authorities; (xiv) actions by the courts, the U.S. Coast Guard, the U.S. Department of Justice or other governmental authorities and the results of the legal proceedings to which we or any of our vessels may be subject; (xv) changes in trading patterns significantly impacting overall tanker tonnage requirements; (xvi) any non-compliance with the U.S. Foreign Corrupt Practices Act of 1977 or other applicable regulations relating to bribery; (xvii) the highly cyclical nature of our industry; (xviii) changes in the typical seasonal variations in tanker charter rates; (xix) changes in the cost of other modes of oil transportation; (xx) changes in oil transportation technology; (xxi) increases in costs including without limitation: crew wages, fuel, insurance, provisions, repairs and maintenance; (xxii) the adequacy of insurance to cover our losses, including in connection with maritime accidents or spill events; (xxiii) changes in general political conditions; (xxiv) changes in the condition of our vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated drydocking or maintenance and repair costs); (xxv) changes in the itineraries of our vessels; (xxvi) adverse changes in foreign currency exchange rates affecting our expenses; (xxvii) the fulfillment of the closing conditions under, or the execution of customary additional documentation for, our agreements to acquire vessels and borrow under our existing financing arrangements; (xxviii) the effect of our indebtedness on our ability to finance operations, pursue desirable business operations and successfully run our business in the future; (xxix) financial market conditions; (xxx) sourcing, completion and funding of financing on acceptable terms; (xxxi) our ability to generate sufficient cash to service our indebtedness and comply with the covenants and conditions under our debt obligations; (xxxii) the impact of electing to take advantage of certain exemptions applicable to emerging growth companies; and (xxxiii) other factors listed from time to time in our filings with the Securities and Exchange Commission, or the “SEC,” including without limitation, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, or our “2016 Annual Report on Form 10-K,” and our subsequent reports on Form 10-Q and Form 8-K. Accordingly, you are cautioned not to place undue reliance on forward looking statements, which speak only as of the date on which they are made. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
The following is a discussion of our financial condition and results of operations for the three and nine months ended September 30, 2017 and 2016. You should consider the foregoing when reviewing our financial condition and results of operations and this discussion. In addition, you should read the following discussion together with the condensed consolidated financial statements including the notes to those financial statements for the periods mentioned above.
General
We are Gener8 Maritime, Inc., a leading U.S.-based provider of international seaborne crude oil transportation services, resulting from a transformative merger in 2015 between General Maritime Corporation, a well-known tanker
owner, and Navig8 Crude Tankers Inc., a company sponsored by the Navig8 Group, an independent vessel pool manager, which we refer to as the “2015 merger.” As of September 30, 2017, we owned a fleet of 34 tankers, including 33 vessels on the water, consisting of 22 VLCC vessels, 7 Suezmax vessels, 2 Aframax vessels and 2 Panamax vessels, with an aggregate carrying capacity of 8.1mm DWT, which includes 18 “eco” VLCC newbuildings delivered from 2015 through 2017 equipped with advanced, fuel-saving technology, that were constructed at highly reputable shipyards.
In March 2014 and February 2015, we acquired a total of 21 “eco” newbuilding VLCCs, which we refer to as our “VLCC newbuildings.” During the nine months ended September 30, 2017, we took delivery of two VLCC newbuildings, and one additional VLCC newbuilding was delivered on October 9, 2017. These three vessels entered the VL8 Pool upon delivery to us.
On September 26, 2017, Gener8 Maritime Subsidiary Inc. (formerly known as Navig8 Crude Tankers Inc.), which became our subsidiary as a result of the 2015 merger, entered into (i) an Amendment Agreement with the Builder related to the Building Contract in relation to the construction of the
Gener8 Nestor
and (ii) an Outstanding Works Agreement with the Builder. The Amendment Agreement and the Outstanding Works Agreement provide that the Builder is obligated to physically deliver the
Gener8 Nestor
on October 9, 2017 and, notwithstanding delivery, complete any outstanding works relating to the
Gener8 Nestor
required to meet the specifications and requirements of the Building Contract. The Amendment Agreement further provides for a reduction in the contract price payable under the Building Contract, including liquidated damages due to the Company relating to the late delivery of the
Gener8 Nestor
by the Builder.
For the three and nine months ended September 30, 2017, we recorded a loss of $36.9 million and $114.6 million, respectively, as Loss on disposal of vessels, net, in the condensed consolidated statement of operations, primarily related to the sale and the expected sale of the vessels listed below.
On October 25, 2017, we entered into an agreements for the sale of the 2010-built VLCC tanker the
Gener8 Zeus
for gross proceeds of $53.0 million. On November 7, 2017, the sale was finalized. We used the net proceeds to repay $34.3 million of the related portion of the senior secured debt outstanding under the Refinancing Facility associated with the vessel.
On October 4, 2017, we entered into an agreement for the sale of the 2002-built VLCC tanker the
Gener8 Poseidon
for gross proceeds of $21.5 million. As a result, we recorded a net loss of $12.9 million, as Loss on vessel disposal of vessels, net, on the condensed consolidated statement of operations for the three and nine months ended September 30, 2017. The sale is expected to be finalized during 2017. We intend to use the net proceeds to repay approximately $14.1 million of the related portion of the senior secured debt outstanding under the Refinancing Facility associated with the vessel. The sale of the vessel is subject to risks outside of our control and therefore may not be consummated.
On August 21, 2017, we entered into an agreement for the sale of the 2003-built Aframax tanker the
Gener8 Pericles
for gross proceeds of $11.0 million. On October 18, 2017, the sale was finalized and the Company recorded a net loss of $6.6 million, as Loss on vessel disposal of vessels, net, on the condensed consolidated statement of operations for the three and nine months ended September 30, 2017. We used the net proceeds to repay $7.8 million of the related portion of the senior secured debt outstanding under the Refinancing Facility associated with the vessel.
On July 27, 2017, we entered into an agreement for the sale of the 2002-built Aframax tanker the
Gener8 Elektra
for gross proceeds of $10.5 million. On August 15, 2017, the sale was finalized and we recorded a net loss of $1.0 million and $5.9 million, as Loss on vessel disposal of vessels, net, on the condensed consolidated statement of operations for the three and nine months ended September 30, 2017, respectively. We used the net proceeds from the sale to repay $7.6 million of the related portion of the senior secured debt outstanding under the Refinancing Facility associated with the vessel.
On July 20, 2017 we entered into an agreement for the disposition, demolition and scrapping of the 1999-built Suezmax tankers the
Gener8 Phoenix
and
Gener8 Horn
for $7.8 million and $8.0 million, respectively, in gross proceeds. During the third quarter of 2017, the disposition of the
Gener8 Phoenix
and
Gener8 Horn
was finalized and we recorded a net loss of $8.2 million and $8.0 million, respectively, as Loss on vessel disposal of vessels, net, on the
condensed consolidated statement of operations for the three and nine months ended September 30, 2017. We used the net proceeds, along with available cash, to repay $7.6 million and $8.2 million, respectively, of the related portion of the senior secured debt outstanding under the Refinancing Facility associated with these vessels.
On May 25, 2017, the Company entered into an agreement for the sale of the 2002-built Suezmax tanker
Gener8 Orion
for gross proceeds of $13.0 million. On June 13, 2017, the sale was finalized and we recorded a net loss of $10.1 million, as Loss on vessel disposal of vessels, net, on the condensed consolidated statement of operations for the nine months ended September 30, 2017. We used the net proceeds to repay $11.1 million of the related portion of the senior secured debt outstanding under the Refinancing Facility associated with the vessel.
On May 2, 2017, we entered into an agreement for the sale of the 2016-built VLCC tanker the
Gener8 Theseus
for $81.0 million in gross proceeds. As a result of the sale, we recorded a loss of $31.9 million as Loss on disposal of vessels, net, on the condensed consolidated statement of operations for the nine months ended September 30, 2017. On August 7, 2017, the sale of the
Gener8 Theseus
was finalized. We used the net proceeds to repay $50.1 million of the related portion of the senior secured debt outstanding under the Korean Export Credit Facility associated with the vessel.
On May 2, 2017, we entered into an agreement for the sale of the 2016-built VLCC tanker the
Gener8 Noble
for $81.0 million in gross proceeds. As a result of the sale, we recorded a loss of $25.4 million as Loss on disposal of vessels, net, on the condensed consolidated statement of operations for the nine months ended September 30, 2017. On September 15, 2017, the sale of the
Gener8 Noble
was finalized. We used the net proceeds to repay $50.4 million of the related portion of the senior secured debt outstanding under the Korean Export Credit Facility associated with the vessel.
As of December 31, 2016, we classified the
Gener8 Ulysses
as Current assets - held for sale, in the condensed consolidated balance sheet, as all the criteria of ASC 360-10 have been met and the transaction was qualified as assets held for sale. This vessel was written down to its fair value, less cost to sell, of $30.2 million on the condensed consolidated balance sheet. As a result of the expected sale in 2017, we recorded a loss of $6.9 million as Loss on disposal of vessels, net, on the condensed consolidated statement of operations for the year ended December 31, 2016. The
Gener8 Ulysses
vessel was sold during the first quarter of 2017.
We have a significant amount of outstanding indebtedness under our Refinancing Facility, the Korean Export Credit Facility, and the Sinosure Credit Facility, which we refer to collectively as our “senior secured credit facilities,” and our senior notes. As of September 30, 2017, we owed an aggregate outstanding principal amount of $1.4 billion under our senior secured credit facilities and our senior notes. As of September 30, 2017, no additional amounts may be borrowed under our Refinancing Facility or our Sinosure Credit Facility. Under the Korean Export Credit Facility, the remaining available borrowings were drawn down in connection with the delivery of the
Gener8 Nestor
. See “
Management’s Discussion and Analysis of Financial Condition and Results of Operations
—
Liquidity and Capital Resources—Debt Financings—Korean Export Credit Facility
”, for additional information regarding borrowings under the Korean Export Credit Facility for the delivery of this vessel.
On April 10, 2017, the Company modified the interest rate swaps agreements, initially entered into on May 2, 2016
.
During the second quarter of 2017 and in connection with the modifications, the
Company
received payments totaling
$18.2 million
from the swap counterparties
. See
Note 11,
Financial InstrumentS
, to the condensed consolidated financial statements for the three and nine months ended September 30, 2017 and 2016 included in Part I, Item 1 of this Quarterly Report for more information regarding these swap transactions for more details. We may from time to time enter into additional interest rate swaps, caps or similar agreements for all or a significant portion of our remaining variable rate debt under the refinancing facility, the Korean Export Credit Facility and the Sinosure Credit Facility.
For further description of our businesses, see the “Business” section found in our 2016 Annual Report on Form 10-K. You should read the following discussion in conjunction with our financial statements and related Notes included elsewhere in this Quarterly Report and in our 2016 Annual Report on Form 10-K, including the information under the heading “
Management’s Discussion and Analysis of Financial Condition and Results of Operations
” in our 2016 Annual Report on Form 10-K.
Pool, Spot and Time Charter Deployment
We seek to employ our vessels in a manner that maximizes fleet utilization and earnings upside through our chartering strategy in line with our goal of maximizing shareholder value and returning capital to shareholders when appropriate, taking into account fluctuations in freight rates in the market and our own views on the direction of those rates in the future. As of September 30, 2017, all of our owned and operating vessels were employed in the spot market (either directly or through spot market focused pools), given our expectation of continued favorable near term charter rates.
A spot market voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for an agreed upon freight per ton of cargo or a specified total amount. Under spot market voyage charters, we pay voyage expenses such as port and fuel costs. A time charter is generally a contract to charter a vessel for a fixed period of time at a set daily or monthly rate. Under time charters, the charterer pays voyage expenses such as port and fuel costs. Vessels operating on time charters provide more predictable cash flows, but can yield lower profit margins than vessels operating in the spot market during periods characterized by favorable market conditions. Vessels operating in the spot market generate revenues that are less predictable but may enable us to capture increased profit margins during periods of improvements in tanker rates although we are exposed to the risk of declining tanker rates and lower utilization. Pools generally consist of a number of vessels which may be owned by a number of different ship owners which operate as a single marketing entity in an effort to produce freight efficiencies. Pools typically employ experienced commercial charterers and operators who have close working relationships with customers and brokers while technical management is typically the responsibility of each ship owner. Under pool arrangements, vessels typically enter the pool under a time charter agreement whereby the cost of bunkers and port expenses are borne by the charterer (i.e., the pool) and operating costs, including crews, maintenance and insurance are typically paid by the owner of the vessel. Pools, in return, typically negotiate charters with customers primarily in the spot market. Since the members of a pool typically share in the revenue generated by the entire group of vessels in the pool, and since pools operate primarily in the spot market, including the pools in which we participate, the revenue earned by vessels placed in spot market related pools is subject to the fluctuations of the spot market and the ability of the pool manager to effectively charter its fleet. We believe that vessel pools can provide cost‑effective commercial management activities for a group of similar class vessels and potentially result in lower waiting times.
As of September 30, 2017, we employed all of our VLCCs, Suezmax and one Aframax vessels on the water, in Navig8 Group commercial crude tanker pools, including the VL8 Pool, the Suez8 Pool and the V8 Pool. We refer to the VL8 Pool, the Suez8 Pool and the V8 Pool as the “Navig8 pools.” Our newbuilding and VLCC, Suezmax and Aframax owning subsidiaries have entered into pool agreements regarding the deployment of our vessels into the VL8 Pool, the Suez8 Pool and V8 Pool, respectively. VL8 Pool Inc. acts as the time charterer of the pool vessels in the VL8 Pool, and V8 Pool Inc. acts as the time charterer of the pool vessels in the Suez8 Pool and the V8 Pool, and in each case enters the pool vessels into employment contracts such as voyage charters. VL8 Pool Inc. and V8 Pool Inc. allocate the revenue of VL8 Pool, Suez8 Pool and V8 Pool vessels, as applicable, between all the pool participants based on pool results and a pre-determined allocation method. All of the vessels deployed in the Navig8 pools during the three and nine months ended September 30, 2017 were deployed on spot market voyages. See “
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Party Transactions—Related Party Transactions of Navig8 Crude Tankers, Inc
.” in our 2016 Annual Report on Form 10-K for further information regarding these pool agreements.
Additionally, one chartered-in VLCC vessel (the
Nave Quasar
), which we had the right to operate at a gross rate of $26,397 per day pursuant to a time charter that expired in March 2016 and under which we had agreed to share 50% of net pool earnings received in respect of such vessel over $30,000 per day, was also deployed in the VL8 Pool between May 2015 and March 2016, the month in which the time charter expired, and the vessel was returned to its owner.
As of September 30, 2017, we have taken delivery of 20 of our VLCC newbuildings which we deployed in the VL8 Pool in spot market voyages. On October 9, 2017, our remaining VLCC newbuilding was delivered and was deployed in the VL8 Pool in spot market voyages.
We are constantly evaluating opportunities to increase the number of our vessels deployed on time charters, but only expect to enter into additional time charters if we can obtain contract terms that satisfy our criteria. We may also consider deploying our vessels on time charter for customers to use as floating storage. We believe that historically, during certain periods of higher charter rates, we benefited from greater cash flow stability through the use of time charters for part of our fleet, while maintaining the flexibility to benefit from improvements in market rates by deploying the balance of our vessels in the spot market. We may utilize a similar strategy to the extent that time charter rates rise and market conditions become favorable. We may also utilize time charters to lock in contracted rates when we believe the rate environment could weaken or decline in the future.
Non-U.S. operations accounted for a majority of our revenues and results of operations. Vessels regularly move between countries in international waters, over hundreds of trade routes. It is therefore impractical to assign revenues, earnings or assets from the transportation of international seaborne crude oil and petroleum products by geographical area. Each of our vessels serves the same type of customer, has similar operations and maintenance requirements, operates in the same regulatory environment, and is subject to similar economic characteristics. Based on this, we have determined that we operate in one reportable segment, the transportation of crude oil and petroleum products with our fleet of vessels.
Net Voyage Revenues as Performance Measure
We evaluate performance using net voyage revenues. Net voyage revenues are voyage revenues minus voyage expenses. Voyage expenses primarily consist of port and fuel costs that are unique to a particular voyage. Consequently, spot charter rates are generally higher than time charter rates to allow spot charter vessel owners the ability to recoup voyage expenses. Voyage expenses typically are paid by the charterer when a vessel is under a time charter and by the vessel owner when a vessel is under a spot charter. We believe that utilizing net voyage revenues neutralizes the variability created by unique costs associated with particular voyages or the manner in which vessels are deployed and presents a more accurate representation of the revenues generated by our vessels on a comparable basis whether on spot or time charters.
Our voyage revenues are recognized ratably over the duration of the spot market voyages and the lives of the time charters, while direct vessel operating expenses are recognized when incurred. We recognize the revenues of time charters that contain rate escalation schedules at the average rate during the life of the contract.
As of September 30, 2017, all of our vessels, with the exception of three vessels (the
Gener8 Companion, Gener8 Compatriot
and
Gener8 Defiance
) that remained in the spot market, were deployed in the Navig8 pools, and all of our vessels in the Navig8 pools have been chartered on the spot voyage market. The pool operators of the Navig8 pools act as the time charterer of the pool vessels, and enter the pool vessels into employment contracts. We generally recognize revenue from the Navig8 pools based on our portion of the net distributions reported by the relevant pool, which represents the net voyage revenue of the pool after pool manager fees. See
Note 14
,
RELATED PARTY TRANSACTIONS
, to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for more information on the Navig8 pools.
The following table shows the calculation of net voyage revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
|
|
Ended September 30,
|
|
Ended September 30,
|
|
|
(dollars in thousands)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
$
|
51,026
|
|
$
|
72,259
|
|
$
|
248,987
|
|
$
|
302,261
|
|
|
Voyage expenses
|
|
|
(3,133)
|
|
|
(3,159)
|
|
|
(6,987)
|
|
|
(9,710)
|
|
|
Net voyage revenues
|
|
$
|
47,893
|
|
$
|
69,100
|
|
$
|
242,000
|
|
$
|
292,551
|
|
|
As used in this Quarterly Report, we refer to charter hire rates as a measure of the average daily revenue performance of a vessel on a per voyage basis, determined by dividing voyage revenue by total operating days for the applicable fleet.
We calculate time charter equivalent, or “TCE,” rates by dividing net voyage revenue by total operating days for fleet for the relevant time period. Total operating days for fleet are the total number of days our vessels are in our possession for the relevant period net of off hire days associated with major repairs, drydocking and special or intermediate surveys. We also generate demurrage revenue, which represents fees charged to charterers associated with our spot market voyages when the charterer exceeds the agreed upon time required to load or discharge a cargo. We calculate daily direct vessel operating expenses, or “DVOE,” and daily general and administrative expenses for the relevant period by dividing the total expenses by the aggregate number of calendar days that the vessels are in our possession for the period including offhire days associated with major repairs, drydockings and special or intermediate surveys.
Seasonality
We operate our vessels in markets that have historically exhibited seasonal variations in tanker demand and, as a result, in charter rates. Tanker markets are typically stronger in the fall and winter months (the fourth and first quarters of the calendar year) in anticipation of increased oil consumption in the Northern Hemisphere during the winter months. Unpredictable weather patterns and variations in oil reserves disrupt vessel scheduling and could adversely impact charter rates.
Results of Operations
Set forth below are selected historical consolidated financial and other data of Gener8 Maritime, Inc. at the dates and for the periods shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months ended
|
|
|
September 30,
|
|
September 30,
|
(dollars and shares in thousands, except per share data)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
$
|
51,026
|
|
$
|
72,259
|
|
$
|
248,987
|
|
$
|
302,261
|
Voyage expenses
|
|
|
3,133
|
|
|
3,159
|
|
|
6,987
|
|
|
9,710
|
Direct vessel operating expenses
|
|
|
26,324
|
|
|
26,980
|
|
|
83,225
|
|
|
77,041
|
Navig8 charterhire expenses
|
|
|
6
|
|
|
19
|
|
|
6
|
|
|
3,240
|
General and administrative expenses
|
|
|
6,936
|
|
|
7,128
|
|
|
24,988
|
|
|
22,240
|
Depreciation and amortization
|
|
|
25,653
|
|
|
23,118
|
|
|
80,127
|
|
|
60,622
|
Goodwill impairment
|
|
|
—
|
|
|
26,291
|
|
|
—
|
|
|
26,291
|
Loss on disposal of vessels, net
|
|
|
36,941
|
|
|
10,756
|
|
|
114,644
|
|
|
10,177
|
Total operating expenses
|
|
|
98,993
|
|
|
97,451
|
|
|
309,977
|
|
|
209,321
|
OPERATING (LOSS) / INCOME
|
|
|
(47,967)
|
|
|
(25,192)
|
|
|
(60,990)
|
|
|
92,940
|
Interest expense, net
|
|
|
(22,542)
|
|
|
(13,699)
|
|
|
(63,040)
|
|
|
(31,355)
|
Other financing costs
|
|
|
—
|
|
|
(2)
|
|
|
(55)
|
|
|
(8)
|
Other income (expense), net
|
|
|
3,041
|
|
|
1,542
|
|
|
936
|
|
|
(75)
|
Total other expenses
|
|
|
(19,501)
|
|
|
(12,159)
|
|
|
(62,159)
|
|
|
(31,438)
|
NET (LOSS) / INCOME
|
|
$
|
(67,468)
|
|
$
|
(37,351)
|
|
$
|
(123,149)
|
|
$
|
61,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) / INCOME PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.81)
|
|
$
|
(0.45)
|
|
$
|
(1.48)
|
|
$
|
0.74
|
Diluted
|
|
$
|
(0.81)
|
|
$
|
(0.45)
|
|
$
|
(1.48)
|
|
$
|
0.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding—basic
|
|
|
82,989
|
|
|
82,682
|
|
|
82,976
|
|
|
82,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding—diluted
|
|
|
82,989
|
|
|
82,682
|
|
|
82,976
|
|
|
82,681
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
(dollars in thousands)
|
|
2017
|
|
2016
|
Balance Sheet Data, at end of year / period:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
184,677
|
|
$
|
94,681
|
Total current assets
|
|
|
274,050
|
|
|
215,285
|
Vessels, net of accumulated depreciation
|
|
|
2,322,111
|
|
|
2,523,710
|
Vessels under construction
|
|
|
62,537
|
|
|
177,133
|
Total assets
|
|
|
2,704,944
|
|
|
2,992,669
|
Current liabilities (including current portion of long-term debt)
|
|
|
168,687
|
|
|
216,566
|
Total long-term debt less unamortized discount and debt financing costs
|
|
|
1,222,243
|
|
|
1,337,782
|
Total liabilities
|
|
|
1,392,206
|
|
|
1,555,258
|
Shareholders’ equity
|
|
|
1,312,738
|
|
|
1,437,411
|
|
|
|
|
|
|
|
|
|
|
For the Period Ended
|
|
|
|
September 30,
|
|
(dollars in thousands)
|
|
2017
|
|
2016
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
142,873
|
|
$
|
237,118
|
|
Net cash provided by (used in) investing activities
|
|
|
132,169
|
|
|
(751,447)
|
|
Net cash (used in) provided by financing activities
|
|
|
(185,046)
|
|
|
456,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
(dollars in thousands except fleet data and daily results)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Fleet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of owned vessels at end of period
|
|
|
33
|
|
|
37
|
|
|
33
|
|
|
37
|
|
Average number of vessels (1)
|
|
|
35.5
|
|
|
35.2
|
|
|
38.1
|
|
|
33.1
|
|
Average number of owned and chartered-in vessels (1)
|
|
|
35.5
|
|
|
35.2
|
|
|
38.1
|
|
|
33.4
|
|
Total operating days for fleet (2)
|
|
|
3,039
|
|
|
3,157
|
|
|
9,901
|
|
|
8,823
|
|
Total time charter days for fleet
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
218
|
|
Total spot market days for fleet
|
|
|
186
|
|
|
213
|
|
|
538
|
|
|
692
|
|
Total Navig8 pool days for fleet
|
|
|
2,853
|
|
|
2,944
|
|
|
9,363
|
|
|
7,913
|
|
Total calendar days for fleet (3)
|
|
|
3,266
|
|
|
3,242
|
|
|
10,396
|
|
|
9,072
|
|
Fleet utilization (4)
|
|
|
93.1
|
%
|
|
97.4
|
%
|
|
95.2
|
%
|
|
97.3
|
%
|
Average Daily Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time charter equivalent (5)
|
|
$
|
15,757
|
|
$
|
21,887
|
|
$
|
24,441
|
|
$
|
33,159
|
|
VLCC
|
|
|
19,063
|
|
|
27,493
|
|
|
29,762
|
|
|
42,047
|
|
Suezmax
|
|
|
10,615
|
|
|
18,281
|
|
|
17,640
|
|
|
28,880
|
|
Aframax
|
|
|
5,712
|
|
|
12,549
|
|
|
11,654
|
|
|
19,332
|
|
Panamax
|
|
|
(907)
|
|
|
11,259
|
|
|
8,094
|
|
|
15,222
|
|
Handymax
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily direct vessel operating expenses (6)
|
|
$
|
8,060
|
|
$
|
8,322
|
|
$
|
8,005
|
|
$
|
8,492
|
|
Daily general and administrative expenses (7)
|
|
|
2,124
|
|
|
2,199
|
|
|
2,404
|
|
|
1,666
|
|
Total daily vessel operating expenses (8)
|
|
$
|
10,184
|
|
$
|
10,521
|
|
$
|
10,409
|
|
$
|
10,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (9)
|
|
$
|
(19,273)
|
|
$
|
(534)
|
|
$
|
20,018
|
|
$
|
153,479
|
|
Adjusted EBITDA (9)
|
|
$
|
15,933
|
|
$
|
34,895
|
|
$
|
140,246
|
|
$
|
192,192
|
|
|
(1)
|
|
Average number of vessels is the number of vessels that constituted our fleet for the relevant period, as measured by the sum of the number of days each vessel was part of our fleet during the period divided by the number of calendar days in that period. Total number and average number of vessels exclude our VLCC newbuildings prior to delivery.
|
Number of owned and chartered-in vessels includes the
Nave Quasar
chartered-in from Navig8 Inc. for the period from May 8, 2015 to March 8, 2016.
|
|
(2)
|
|
Total operating days for fleet are the total days our vessels were in our possession for the relevant period net of off hire days associated with major repairs, drydockings or special or intermediate surveys.
|
|
(3)
|
|
Total calendar days for owned fleet are the total days the vessels were in our possession for the relevant period including off hire days associated with major repairs, drydockings or special or intermediate surveys.
|
|
(4)
|
|
Fleet utilization is the percentage of time that our vessels were available for revenue generating voyages, and is determined by dividing total operating days for fleet by total calendar days for fleet for the relevant period.
|
|
(5)
|
|
Time Charter Equivalent, or “TCE,” is a measure of the average daily revenue performance of a vessel. We calculate TCE by dividing net voyage revenue by total operating days for fleet. Net voyage revenues are voyage revenues minus voyage expenses. We evaluate our performance using net voyage revenues. We believe that presenting voyage revenues, net of voyage expenses, neutralizes the variability created by unique costs associated with particular voyages or deployment of vessels on time charter or on the spot market and presents a more accurate representation of the revenues generated by our vessels.
|
|
(6)
|
|
Direct vessel operating expenses, which is also referred to as “direct vessel expenses” or “DVOE,” include crew costs, provisions, deck and engine stores, lubricating oil, insurance and maintenance and repairs incurred during the relevant period. Daily DVOE is calculated by dividing DVOE by the total calendar days for owned fleet for the relevant period.
|
|
(7)
|
|
Daily general and administrative expense is calculated by dividing general and administrative expenses by total calendar days for owned fleet for the relevant time period.
|
|
(8)
|
|
Total Vessel Operating Expenses, or “TVOE,” is a measurement of our total expenses associated with operating our vessels. Daily TVOE is the sum of daily direct vessel operating expenses, and daily general and administrative expenses.
|
|
(9)
|
|
See the EBITDA and Adjusted EBITDA reconciliation section below.
|
EBITDA and Adjusted EBITDA Reconciliation
EBITDA represents net income (loss) plus net interest expense and depreciation and amortization. Adjusted EBITDA represents EBITDA adjusted to exclude the items set forth in the table below, which represent certain non-cash, one-time and other items that we believe are not indicative of the ongoing performance of our core operations. EBITDA and Adjusted EBITDA are used by
analysts in the shipping industry as common performance measures
to compare results across peers. EBITDA and Adjusted EBITDA are not items recognized by accounting principles generally accepted in the United States of America (“GAAP”), and should not be considered in isolation or used as alternatives to net income, operating income, cash flow from operating activity or any other indicator of our operating performance or liquidity required by GAAP. Our presentation of EBITDA and Adjusted EBITDA is intended to supplement investors’ understanding of our operating performance by providing information regarding our ongoing performance that exclude items we believe do not directly affect our core operations and enhancing the comparability of our ongoing performance across periods. We present Adjusted EBITDA in addition to EBITDA because Adjusted EBITDA eliminates the impact of additional non-cash, one-time and other items not associated with the ongoing performance of our core operations, including charges associated with stock-based compensation, gains and losses on the sale of vessels and costs associated with our financing activities, that we believe further reduce the comparability of the ongoing performance of our core operations across periods. Our management considers EBITDA and Adjusted EBITDA to be useful to investors because such performance measures provide information regarding the profitability of our core operations and facilitate comparison of our operating performance to the operating performance of our peers. Additionally, our management uses EBITDA and Adjusted EBITDA as performance measures and they are also presented for review at our board meetings. While we believe these measures are useful to investors, the definitions of EBITDA and Adjusted EBITDA used by us may not be comparable to similar measures used by other companies. In addition, these definitions are also not the same as the definitions of EBITDA and Adjusted EBITDA used in the financial covenants in our debt instruments. See
Note 16, COMMITMENTS AND CONTINGENCIES
to the condensed consolidated financial statements in Item 1 for more information relating to the Atlas charter dispute.
Set forth below is the EBITDA and Adjusted EBITDA reconciliation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
(dollars in thousands)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Net (loss) / income
|
|
$
|
(67,468)
|
|
$
|
(37,351)
|
|
$
|
(123,149)
|
|
$
|
61,502
|
|
Interest expense, net
|
|
|
22,542
|
|
|
13,699
|
|
|
63,040
|
|
|
31,355
|
|
Depreciation and amortization
|
|
|
25,653
|
|
|
23,118
|
|
|
80,127
|
|
|
60,622
|
|
EBITDA
|
|
|
(19,273)
|
|
|
(534)
|
|
|
20,018
|
|
|
153,479
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
—
|
|
|
26,291
|
|
|
—
|
|
|
26,291
|
|
Stock-based compensation
|
|
|
772
|
|
|
1,444
|
|
|
3,607
|
|
|
4,299
|
|
Loss on disposal of vessels, net
|
|
|
36,941
|
|
|
10,756
|
|
|
114,644
|
|
|
10,177
|
|
Other financing costs
|
|
|
—
|
|
|
2
|
|
|
55
|
|
|
8
|
|
Professional fees related to interest rate swaps
|
|
|
—
|
|
|
—
|
|
|
260
|
|
|
327
|
|
Impact of interest rate swaps fair value
|
|
|
(2,639)
|
|
|
(1,560)
|
|
|
(530)
|
|
|
—
|
|
Loss on litigation
|
|
|
—
|
|
|
—
|
|
|
400
|
|
|
—
|
|
Non-cash G&A expenses, excluding stock-based compensation expense (1)
|
|
|
132
|
|
|
(1,504)
|
|
|
1,792
|
|
|
(2,389)
|
|
Adjusted EBITDA
|
|
$
|
15,933
|
|
$
|
34,895
|
|
$
|
140,246
|
|
$
|
192,192
|
|
|
(1)
|
|
Non-cash G&A expenses, excluding stock-based compensation expense, include all accounts receivable reserves (including revenue offsets), amortization of lease assets that were recorded in connection with fresh start accounting and amortization of straight line rent expense.
|
Three and Nine Months Ended September 30, 2017 Compared to the Three and Nine Months Ended September 30, 2016
Total voyage revenues.
Total voyage revenues decreased by $21.3 million, or 29.4%, to $51.0 million for the three months ended September 30, 2017, compared to $72.3 million for the prior year period, and decreased by $53.3 million, or 17.6%, to $249.0 million for the nine months ended September 30, 2017, compared to $302.3 million for the prior year period. The decreases were primarily attributable to decreases in Navig8 pool revenues of $17.6 million for the three months ended September 30, 2017 and $32.4 million for the nine months ended September 30, 2017 compared to the respective prior year periods, decreases in spot charter revenues of $3.6 million for the three months ended September 30, 2017 and $11.6 million for the nine months ended September 30, 2017 compared to the respective prior year periods, and decreases in time charter revenues of $9.3 million for the nine months ended September 30, 2017 compared to the respective prior year periods.
During the three and nine months ended September 30, 2017, we finalized the sale of five and eight vessels, respectively. Additionally, we contracted to sell four additional vessels, which have been or are expected to be sold subsequent to September 30, 2017. These vessel sales and expected vessel sales had the effect and are expected to have the effect of decreasing the size of our fleet. We expect this to have a corresponding effect of decreasing our revenues and associated expenses for the remainder of the year.
Navig8 pool revenues.
Our Navig8 pool revenues (which are distributed on a net basis after deduction of voyage expenses, which are the responsibility of the pool, and certain administrative expenses) decreased by $17.6 million, or 26.9%, to $47.9 million for the three months ended September 30, 2017, compared to $65.5 million during the prior year period. The decrease was primarily the result of a decline in our average daily Navig8 pool charter hire rates, which decreased by $5,470, or 24.6%, to $16,785 for the three months ended September 30, 2017 compared to $22,255 for the prior year period, primarily due to a decrease in rates in the spot charter market. The decline in our average daily Navig8 pool charter hire rates resulted in decreases in Navig8 pool revenues of approximately $16.1 million for the three months ended September 30, 2017, compared to the prior year period. Our Navig8 pool revenues were also negatively impacted by the declines in our vessel operating days in Navig8 pool of 91, or 3.1% to 2,853 days for the three months ended September 30, 2017, compared to 2,944 days during the prior year period. The decrease in our vessel operating days was primarily the result of drydocks and intermediate surveys during the three months ended September 30, 2017, compared to the prior year period. The decreases in vessel operating days resulted in decreases in Navig8 pool revenues of approximately $1.5 million during the three months ended September 30, 2017, compared to the prior year period.
Our Navig8 pool revenues decreased by $32.4 million, or 11.9%, to $238.6 million for the nine months ended September 30, 2017, compared to $271.0 million during the prior year period. The decrease was primarily the result of a decline in our average daily Navig8 pool charter hire rates, which decreased by $8,765, or 25.6%, to $25,479 for the nine months ended September 30, 2017 compared to $34,244 for the prior year period, primarily due to a decrease in rates in the spot charter market. The decline in our average daily Navig8 pool charter hire rates resulted in decreases in Navig8 pool revenues of approximately $69.4 million for the nine months ended September 30, 2017, compared to the prior year period. The decline in our average daily Navig8 pool charter hire rates were partially offset by an increases in our vessel operating days in Navig8 pool of 1,450 to 9,363 days for the nine months ended September 30, 2017, compared to 7,913 days during the prior year period. The increases in our vessel operating days were primarily the result of the deployment of five additional VLCC newbuilding vessels since the end of prior year period. The increases in vessel operating days resulted in increases in Navig8 pool revenues of approximately $37.0 million during the nine months ended September 30, 2017, compared to the respective prior year period.
Time charter revenues.
We had no time charter revenues for the three and nine months ended September 30, 2017 compared to $0 and $9.3 million, for the respective prior year periods. The decrease was the result of the sale of our two vessels that were previously operated on time charters (the
Genmar Victory
and
Genmar Vision
) in August 2016. During the three and nine months ended September 30, 2017, we did not operate vessels on time charter outside of the Navig8 pool.
Spot charter revenues.
Spot charter revenues decreased by $3.6 million, or 53.4%, to $3.1 million for the three months ended September 30, 2017 compared to $6.7 million for the prior year period. Spot charter revenues decreased by $11.6 million, or 52.7%, to $10.4 million for the nine months ended September 30, 2017 compared to $22.0 million
for the prior year period. The decreases in spot charter revenues in both periods were primarily the result of decreases in our average daily spot charter hire rates, which decreased by $14,785, or 46.7% to $16,860 for the three months ended September 30, 2017 compared to $31,645 for the prior year period, and decreased by $12,468, or 39.2% to $19,353 for the nine months ended September 30, 2017 compared to $31,821 for the prior year period, primarily due to decreases in rates in the spot charter market. The decreases in our average daily spot charter hire rates resulted in decreases in spot charter revenues of approximately $3.1 million and $8.6 million, during the three and nine months ended September 30, 2017, respectively, compared to the respective prior year periods. Spot charter revenues in both periods were also negatively impacted by decreases in our spot market days of 27 days, or 12.5%, to 186 days for the three months ended September 30, 2017 compared to 213 days for the prior year period, and of 154 days, or 22.2%, to 538 days for the nine months ended September 30, 2017 compared to 692 days for the prior year period, in each case primarily due to vessel drydocking during 2017 and the transition of our vessels from the spot market into the Navig8 pools. The decreases in our spot market days resulted in decreases in our spot charter revenues of approximately $0.4 million and $3.0 million for the three and nine months ended September 30, 2017, respectively, compared to the respective prior year periods.
Voyage expenses.
Substantially all of our voyage expenses relate to spot charter voyages, under which the vessel owner is responsible for voyage expenses such as fuel and port costs. No material voyage expenses were associated with our vessels deployed in the Navig8 pools as Navig8 pool revenues are presented on a net basis after deduction of voyage expenses, as such expenses are the responsibility of the pool. Voyage expenses was $3.1 million for the three months ended September 30, 2017, substantially flat as compared to $3.2 million for the prior year period and decreased by $2.7 million, or 28.0%, to $7.0 million for the nine months ended September 30, 2017 compared to $9.7 million for the prior year period. The decreases in voyage expenses in the nine months ended September 30, 2017 was primarily the result of lower port costs. Port costs, which can vary depending on the geographic regions in which the vessels operate and their trading patterns, decreased by $0.8 million, or 32.9%, to $1.7 million for the nine months ended September 30, 2017 compared to $2.5 million for the prior year period. The decrease in port costs was primarily due to the decrease in our spot market days discussed above during the nine months ended September 30, 2017 as compared to the prior year period. Also contributing to the decrease in port costs were vessel drydocking during 2017 and differences in the ports visited during the nine months ended September 30, 2017 as compared to the respective prior year period.
Net voyage revenues.
Net voyage revenues, which are voyage revenues minus voyage expenses, decreased by $21.2 million, or 30.7%, to $47.9 million for the three months ended September 30, 2017 compared to $69.1 million for the prior year period. Net voyage revenues, decreased by $50.6 million, or 17.3%, to $242.0 million for the nine months ended September 30, 2017 compared to $292.6 million for the prior year period. The decrease in net voyage revenues in each period was primarily attributable to the decrease in our average daily fleet TCE rate of $6,130, or 28.0%, to $15,757 for the three months ended September 30, 2017 compared to $21,887 for the prior year period, and decrease in our average daily fleet TCE rate of $8,718, or 26.3%, to $24,441 for the nine months ended September 30, 2017 compared to $33,159 for the prior year period, in each case primarily due to a decrease in rates in the spot charter market. The decreases in our average daily fleet TCE rate resulted in decreases in net voyage revenue of approximately $19.4 million and $76.9 million during the three and nine months ended September 30, 2017, respectively, compared to the respective prior year periods. The decrease in net voyage revenues during the nine months ended September 30, 2017 was partially offset by an increase in our vessel operating days of 1,078 days, or 12.2%, to 9,901 days, for the nine months ended September 30, 2017 compared to 8,823 days for prior year period, as a result of the deployment of our VLCC newbuildings discussed above. The increases in our vessel operating days resulted in increases in net voyage revenue of approximately $26.4 million, during the nine months ended September 30, 2017, compared to the prior year period.
The following is additional data pertaining to net voyage revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Net voyage revenue
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time charter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCC
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
9,278
|
|
Total
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,278
|
|
Spot charter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCC
|
|
|
(102)
|
|
|
1,502
|
|
|
(99)
|
|
|
3,152
|
|
Suezmax
|
|
|
(154)
|
|
|
57
|
|
|
(394)
|
|
|
1,194
|
|
Aframax
|
|
|
206
|
|
|
(43)
|
|
|
396
|
|
|
(521)
|
|
Panamax
|
|
|
(107)
|
|
|
2,072
|
|
|
3,362
|
|
|
8,296
|
|
Handymax
|
|
|
162
|
|
|
(16)
|
|
|
162
|
|
|
192
|
|
Total
|
|
|
5
|
|
|
3,572
|
|
|
3,427
|
|
|
12,313
|
|
Navig8 pools:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCC
|
|
|
39,846
|
|
|
42,583
|
|
|
186,834
|
|
|
167,581
|
|
Suezmax
|
|
|
7,333
|
|
|
18,357
|
|
|
42,569
|
|
|
82,290
|
|
Aframax
|
|
|
708
|
|
|
4,588
|
|
|
9,170
|
|
|
21,089
|
|
Total
|
|
|
47,887
|
|
|
65,528
|
|
|
238,573
|
|
|
270,960
|
|
Total Net Voyage Revenue
|
|
$
|
47,892
|
|
$
|
69,100
|
|
$
|
242,000
|
|
$
|
292,551
|
|
Vessel operating days:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time charter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCC
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
218
|
|
Total
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
218
|
|
Spot charter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCC
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
105
|
|
Aframax
|
|
|
68
|
|
|
—
|
|
|
123
|
|
|
—
|
|
Panamax
|
|
|
118
|
|
|
184
|
|
|
415
|
|
|
545
|
|
Handymax
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42
|
|
Total
|
|
|
186
|
|
|
213
|
|
|
538
|
|
|
692
|
|
Navig8 pools:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCC
|
|
|
2,085
|
|
|
1,575
|
|
|
6,274
|
|
|
3,958
|
|
Suezmax
|
|
|
676
|
|
|
1,007
|
|
|
2,391
|
|
|
2,891
|
|
Aframax
|
|
|
92
|
|
|
362
|
|
|
698
|
|
|
1,064
|
|
Total
|
|
|
2,853
|
|
|
2,944
|
|
|
9,363
|
|
|
7,913
|
|
Total Operating Days for Fleet
|
|
|
3,039
|
|
|
3,157
|
|
|
9,901
|
|
|
8,823
|
|
Total Calendar Days for Fleet
|
|
|
3,266
|
|
|
3,242
|
|
|
10,396
|
|
|
9,139
|
|
Fleet Utilization
|
|
|
93.1
|
%
|
|
97.4
|
%
|
|
95.2
|
%
|
|
96.5
|
%
|
Average Number of Owned Vessels
|
|
|
35.5
|
|
|
35.2
|
|
|
38.1
|
|
|
33.1
|
|
Average Number of Owned and Chartered-in Vessels
|
|
|
35.5
|
|
|
35.2
|
|
|
38.1
|
|
|
33.4
|
|
Time Charter Equivalent (TCE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time charter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCC
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
42,563
|
|
Combined
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42,563
|
|
Spot charter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aframax
|
|
|
3,025
|
|
|
—
|
|
|
3,228
|
|
|
—
|
|
VLCC
|
|
|
—
|
|
|
52,361
|
|
|
—
|
|
|
29,927
|
|
Panamax
|
|
|
(907)
|
|
|
11,259
|
|
|
8,094
|
|
|
15,222
|
|
Handymax
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,603
|
|
Combined
|
|
|
29
|
|
|
16,795
|
|
|
6,367
|
|
|
17,792
|
|
Navig8 pools:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VLCC
|
|
|
19,112
|
|
|
27,040
|
|
|
29,777
|
|
|
42,341
|
|
Suezmax
|
|
|
10,842
|
|
|
18,223
|
|
|
17,805
|
|
|
28,467
|
|
Aframax
|
|
|
7,706
|
|
|
12,668
|
|
|
13,135
|
|
|
19,822
|
|
Combined
|
|
|
16,784
|
|
|
22,255
|
|
|
25,479
|
|
|
34,244
|
|
Fleet TCE
|
|
$
|
15,757
|
|
$
|
21,887
|
|
$
|
24,441
|
|
$
|
33,159
|
|
Direct Vessel Operating Expenses.
Direct vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs for owned vessels were $26.3 million for the three months ended September 30, 2017, substantially flat as compared to the prior year period. Direct vessel operating expenses increased by $6.2 million, or 8.0%, to $83.2 million for the nine months ended September 30, 2017 compared to $77.0 million for the prior year period. The increase was primarily due to increases in our average fleet size to 38.8 vessels for the nine months ended September 30, 2017 from 33.1 vessels for the prior year period, and associated increases in crew costs and other costs, associated with our newly delivered vessels.
Crew costs increased by $4.9 million, or 12.4%, to $44.5 million for the nine months ended September 30, 2017, compared to $39.6 million for the prior year period.
The increase in direct vessel operating expenses was partially offset by a decrease in daily direct vessel operating expenses per vessel of $425, or 5.0%, to $8,005 per day for the nine months ended September 30, 2017 compared to $8,430 per day for the prior year period, primarily as a result of lower operating costs, including crew cost, repair and maintenance, insurance and other costs, associated with our newly delivered vessels. We estimate that this decrease in daily direct vessel operating expenses per vessel resulted in a decrease in direct vessel operating expenses of approximately $3.9 million for the nine months ended September 30, 2017, compared to prior year period.
Navig8 charterhire expenses.
Navig8 charterhire expenses during the three and nine months ended September 30, 2017 included profit share adjustments related to the profit share plan for the
Nave Quasar
. Navig8 charterhire expenses were $3.2 million for the nine months ended September 30, 2016. These charterhire expenses were related to the
Nave Quasar
, a vessel chartered-in by Gener8 Maritime Subsidiary Inc. (formerly known as Navig8 Crude Tankers, Inc.), which became our subsidiary as a result of the 2015 merger. The time charter under which this vessel had been chartered-in expired, and the vessel was redelivered to its owner, in March 2016.
General and Administrative Expenses.
General and administrative expenses of $6.9 million for the three months ended September 30, 2017, substantially flat as compared to $7.1 million in the prior year period and increased by $2.8 million, or 11.0%, to $25.0 million for the nine months ended September 30, 2017, compared to $22.2 million in the prior year period. During the nine months ended September 30, 2017, we recorded as general and administrative expenses a write-off of assets of $1.5 million and litigation loss of $0.4 million, both of which are related to the Atlas charter dispute. On May 9, 2017, the arbitration tribunal before which the dispute is being heard ruled that GMR Atlas LLC (one of our subsidiaries) had been in breach of certain customer eligibility requirements as claimed by the Atlas claimant. See
Note 16, COMMITMENTS AND CONTINGENCIES
to the condensed consolidated financial statements in Item 1 for more information relating to the Atlas charter dispute.
Depreciation and Amortization.
Depreciation and amortization, which includes depreciation of vessels as well as amortization of drydock and special survey costs, increased by $2.5 million, or 11.0%, to $25.6 million for the three months ended September 30, 2017 compared to $23.1 million for the prior year period. Depreciation and amortization increased by $19.5 million, or 32.2%, to $80.1 million for the nine months ended September 30, 2017 compared to $60.6 million for the prior year period. The increases in depreciation and amortization in both periods were primarily due to increases in vessel depreciation of $2.9 million, or 14.0%, to $23.7 million for the three months ended September 30, 2017 compared to $20.8 million in the prior year period and increase of $20.3 million, or 37.1%, to $74.7 million for the nine months ended September 30, 2017 compared to $54.4 million in the prior year period. The increases in vessel depreciation in both periods were primarily due to increases in depreciation related to new vessel deliveries, partially offset by a decrease due to sale of older vessels since September 30, 2016.
Goodwill Impairment.
For the three and nine months ended September 30, 2016, we recorded a goodwill impairment of $23.3 million. Additionally, during the three and nine months ended September 30, 2016, in connection with the sale of the
Genmar Victory
and
Genmar Vision
, we wrote-off $3.0 million of related goodwill.
Loss on Disposal of Vessels, Net.
Loss on disposal of vessels, net, which includes losses associated with the disposal of vessels and certain vessel equipment, increased by $26.1 million to $36.9 million, for the three months ended September 30, 2017 compared to $10.8 million for the prior year period, primarily related to the sale of the
Gener8 Horn, Gener8 Phoenix,
Gener8 Pericles
and the expected sales of the
Gener8 Poseidon
. Loss on disposal of vessels, net increased by $104.4 million, to $114.6 million, for the nine months ended September 30, 2017 compared to $10.2
million for the prior year period, primarily related to the sale of the
Gener8 Horn, Gener8 Phoenix, Gener8 Elektra, Gener8 Daphne, Gener8 Theseus, Gener8 Noble, Gener8 Orion,
Gener8 Pericles
and the expected sales of the
Gener8 Poseidon.
During the three and nine months ended September 30, 2016, we recorded losses associated with the disposal of vessels and certain vessel equipment of $10.8 million in each period, primarily related to the sale of the
Genmar Victory
and
Genmar Vision
. Additionally, during the nine months ended September 30, 2016, following the liquidation of foreign subsidiaries, we recorded a $0.7 million gain related to the write-off of the accumulated translation adjustment component of equity.
Interest Expense, Net.
Interest expense, net increased by $8.8 million, or 64.6%, to $22.5 million for the three months ended September 30, 2017 compared to $13.7 million for the prior year period and increased by $31.7 million to $63.0 million for the nine months ended September 30, 2017 compared to $31.3 million for the prior year period.
The increases in interest expense, net, in the three and nine months ended September 30, 2017, were primarily attributable to the decrease in capitalized interest of $5.8 million, or 86.3%, to $0.9 million for the three months ended September 30, 2017 compared to $6.7 million in the prior year period, and a decrease of $21.1 million, or 87.0%, to $3.2 million for the nine months ended September 30, 2017 compared to $24.3 million, in the prior year period, in each case related to the capitalization of interest expense associated with vessels under construction as a result of the funding of the acquisition of our VLCC newbuildings. Capitalized interest results in a reduction of interest expense, net.
We do not capitalize interest expense associated with the funding of our VLCC newbuildings after delivery of the vessels.
Also contributing to the increases in interest expense, net during the three and nine months ended September 30, 2017, was an increase of $2.6 million in amortization of deferred financing costs, primarily related to the write-off of deferred financing costs associated with the recent sales of the
Gener8 Noble
and
Gener8 Theseus
.
Other income (expense), net.
Other income (expense), net increased by $1.5 million, or 97.4%, to $3.0 million for the three months ended September 30, 2017 compared to $1.5 million for the prior year period. Other income (expense), net increased by $1.0 million, to $0.9 million for the nine months ended September 30, 2017 compared to an income of $0.1 million for the prior year period. Other income (expense), net primarily included the impact of our interest rate swap agreements. During the three and nine months ended September 30, 2017, we recognized in earnings $2.6 million and $0.5 million, respectively, as other income (expense), net, related to the impact of our interest rate swap agreements. During the three and nine months ended September 30, 2016, we recognized in earnings $1.5 million and $0, respectively, as other income (expenses), net related to the interest rate swaps.
Liquidity and Capital Resources
Sources and Uses of Funds; Cash Management
Since 2012, our principal sources of funds have been cash flow from operations, equity financings, issuance of long‑term debt, long‑term bank borrowings and sales of our older vessels. Our principal uses of funds have been capital expenditures for vessel acquisitions and construction, maintenance of the quality of our vessels, compliance with international shipping standards and environmental laws and regulations, funding working capital requirements and repayments on outstanding indebtedness. Our practice has been to acquire vessels or newbuilding contracts using a combination of available cash, issuances of equity securities, bank debt secured by mortgages on our vessels and long‑term debt securities.
Under our senior secured credit facilities, we are subject to collateral maintenance covenants pursuant to which the aggregate appraised value of vessels pledged as collateral under each senior secured credit facility may not be less than certain specified amounts. Under the Sinosure Credit Facility, the appraised value of pledged vessels may not be less than 135% of the aggregate principal amount of outstanding loans under the credit facility. As of September 30, 2017, we are in compliance with our collateral maintenance covenants. We estimate that we would not have been in compliance with the collateral maintenance covenant as of that date if the valuation of our collateral under the Sinosure Credit Facility from November 2017 appraisals were to decline by approximately 4.2%.
In the event of continued weakness in vessel values, if the current market environment declines further or does not recover sufficiently, there is a possibility that we may not comply with this covenant as early as the fourth quarter of 2017 absent waivers or amendments to the Sinosure Facility. To address this issue, we may pursue alternatives which may include waivers or amendments from our lenders, reduction of the debt outstanding under the Sinosure Facility, and/or other options. Any such actions may be subject to conditions. If market or other conditions are not favorable, we may be unable to take any such actions or obtain waivers or amendments from our lenders on acceptable terms or at all.
Absent such waivers or amendments, if we do not comply with this covenant and fail to cure our non-compliance following applicable notice and expiration of applicable cure periods, we would be in default of one or more of our senior secured credit facilities. If such a default occurs, we may also be in default under our unsecured senior notes. Each of our current debt facilities contain cross default provisions that could be triggered by our failure to comply with this covenant. As a result, some or all of our indebtedness could be declared immediately due and payable. We may not have sufficient assets available to satisfy our obligations. Substantially all of our assets are pledged as collateral to our lenders, and our lenders may seek to foreclose on their collateral if a default occurs. We may have to seek alternative sources of financing on terms that may not be favorable to us or that may not be available at all. Therefore, we could experience a material adverse effect on our business, financial condition, results of operations and cash flows.
We believe that our current cash balance and operating cash flows will be sufficient to meet our liquidity needs for the next year.
Our business is capital intensive and our future success will depend on our ability to maintain a high‑quality fleet through the acquisition of newer vessels and the selective sale of older vessels. These acquisitions will be principally subject to management’s expectation of future market conditions as well as our ability to acquire vessels on favorable terms. In the future, we may engage in additional debt or equity financing transactions to fund such acquisitions or raise funds for other corporate purposes. However, there is no assurance that we will be able to obtain any such financing on terms acceptable to us, or at all.
Debt Financings
The following description is a summary of our various debt financings. See “
Management’s Discussion and Analysis of Financial Condition and Results of Operations
—
Liquidity and Capital Resources—Debt Financings
” in our 2016 Annual Report on Form 10-K for further information regarding our debt financings.
Refinancing Facility
.
On September 3, 2015, we entered into the Refinancing Facility to refinance our former senior secured credit facilities. As of September 30, 2017, $273.1 million of borrowings were outstanding under the Refinancing Facility, and no further borrowings were available under this facility. The loans under the Refinancing Facility will mature on September 3, 2020.
The Refinancing Facility bears interest at a rate per annum based on LIBOR plus a margin of 3.75% per annum. If there is a failure to pay any amount due on a loan under the Refinancing Facility, interest accrues at a rate 2.00% higher than the interest rate that would otherwise have been applied to such amount. The Refinancing Facility is secured on a first lien basis by a pledge of various assets, including, as of September 30, 2017, four VLCCs, seven Suezmax vessels, two Aframax vessels and two Panamax vessels.
We are obligated to repay the Refinancing Facility in 20 consecutive quarterly installments, which commenced on December 31, 2015. We are also required to prepay the Refinancing Facility upon the occurrence of certain events, such as a sale or total loss of a vessel pledged as collateral under the Refinancing Facility.
We are also subject to various collateral maintenance, financial and other covenants, restrictions on payments of dividends, events of default and remedies under the Refinancing Facility. See “
Management’s Discussion and Analysis of Financial Condition and Results of Operations
—
Liquidity and Capital Resources—Debt Financings—Refinancing Facility
” in our 2016 Annual Report on Form 10-K for further information regarding the Refinancing Facility.
Korean Export Credit Facility
.
On September 3, 2015, we entered into the Korean Export Credit Facility to fund a portion of the remaining installment payments due under shipbuilding contracts for 15 VLCC newbuildings built
at Korean shipyards. The Korean Export Credit Facility provides for term loans up to the aggregate approximate amount of $963.7 million, which is comprised of a tranche of term loans from a syndicate of commercial lenders up to the aggregate approximate amount of $282.0 million, which we refer to as the “commercial tranche,” a tranche of term loans fully guaranteed by the Export-Import Bank of Korea, which we refer to as “KEXIM” up to the aggregate approximate amount of $139.7 million, which we refer to as the “KEXIM guaranteed tranche,” a tranche of term loans from KEXIM up to the aggregate approximate amount of $197.4 million, which we refer to as the “KEXIM funded tranche” and a tranche of term loans insured by Korea Trade Insurance Corporation, which we refer to as “K-Sure” up to the aggregate approximate amount of $344.6 million, which we refer to as the “K-Sure tranche.”
Borrowings under each term loan will be available to be drawn at or around the time of delivery of each VLCC newbuilding funded by the Korean Export Credit Facility in an amount equal to the lowest of (i) 65% of the final contract price of such VLCC newbuilding, (ii) 65% of the maximum contract price of such VLCC newbuilding and (iii) 60% of the fair market value of such VLCC newbuilding tested at or around the time of delivery of such VLCC newbuilding. Our ability to utilize these funds is subject to the actual delivery of the vessel and other borrowing conditions. As of September 30, 2017, $627.9 million of borrowings were outstanding under the Korean Export Credit Facility, and up to $63.0 million of borrowings were available (subject to borrowing limits and conditions) to fund the delivery of one vessel, which has an aggregate of $48.2 million (which was subsequently reduced to $29.0 million) of remaining installment payments due prior to the delivery of the vessel. Each loan will mature, in respect of the commercial tranche, on the date falling 60 months from the date of borrowing of that loan and, in respect of the other tranches, on the date falling 144 months from the date of borrowing of that loan. See
Note 17, SUBSEQUENT EVENTS
, to the condensed consolidated financial statements for the three and nine months ended September 30, 2017 and 2016 included in Part I, Item 1 of this Quarterly Report for more information regarding amendment of the
Gener8 Nestor
contract.
The Korean Export Credit Facility bears interest at a rate per annum based on LIBOR plus a margin of, in relation to the commercial tranche, 2.75% per annum, in relation to the KEXIM guaranteed tranche, 1.50% per annum, in relation to the KEXIM funded tranche, 2.60% per annum and in relation to the K-Sure tranche, 1.70% per annum. If there is a failure to pay any amount due, interest accrues at a rate 2.00% higher than the interest rate that would otherwise have been applied to such amount. The Korean Export Credit Facility is secured on a first lien basis by a pledge of various assets, including, as of September 30, 2017, 12 VLCC vessels.
We are obligated to repay the commercial tranche of each loan in 20 equal consecutive quarterly installments (excluding a final balloon payment equal to 2/3 of the applicable loan) of such loan and are obligated to repay the other tranches of each loan in 48 equal consecutive quarterly installments. We are also required to prepay loans upon the occurrence of certain events, including a default under a shipbuilding contract, a sale or total loss of a vessel, and upon election by the majority lenders, upon a change of control of us.
On March 24, 2017, we amended the Korean Export Credit Facility to revise the dates on which amortization payments are due on April 15, July 15, October 15 and January 15. Prior to entry into this amendment, the payment dates were March 31, June 30, September 30 and December 31.
On June 1, 2017, we amended the Korean Export Credit Facility to extend the date by which we are permitted to borrow for the delivery of the
Gener8 Nestor
from June 30, 2017 to September 30, 2017. The amendment also provides that the Commercial Tranche must be repaid no later than June 30, 2022.
On October 9, 2017, the Company borrowed $48.0 under the Korean Export Credit Facility, in connection with the delivery of the
Gener8 Nestor
. which had previously been pre-positioned on September 29, 2017 at the Korea Development Bank for the benefit of HHIC in order to satisfy the final installment payment for the
Gener8 Nestor.
$29.0 million of the pre-positioned funds was
released to HHIC on October 9, 2017 upon delivery of the
Gener8 Nestor
, and the balance was released to the Company.
We are also subject to various collateral maintenance, financial and other covenants, restrictions on payments of dividends, events of default and remedies under the Korean Export Credit Facility. See “
Management’s Discussion and Analysis of Financial Condition and Results of Operations
—
Liquidity and Capital Resources—Debt Financings—Korean
Export Credit Facility
” in our 2016 Annual Report on Form 10-K for further information regarding the Korean Export Credit Facility.
Sinosure Credit Facility
.
On December 1, 2015, we entered into the Sinosure Credit Facility to fund a portion of the remaining installment payments due under shipbuilding contracts for three VLCC newbuildings built at Chinese shipyards and to refinance a credit facility. On June 29, 2016, we amended the Sinosure Credit Facility. As of September 30, 2017, $322.8 million of borrowings were outstanding under the Sinosure Credit Facility, and no further borrowings were available under this facility. Each loan will mature on the date falling 144 months from the date of borrowing of that loan.
The Sinosure Credit Facility bears interest at a rate per annum based on LIBOR plus a margin of 2.00% per annum. If there is a failure to pay any amount due on a loan, interest accrues at a rate 2.00% higher than the interest rate that would otherwise have been applied to such amount. The Sinosure Credit Facility is secured on a first lien basis by a pledge of various assets, including, as of September 30, 2017, six VLCC vessels.
We are obligated to repay each loan in equal consecutive quarterly installments (excluding a final balloon payment equal to 20% of the applicable loan), each in an amount equal to 1 2/3% of such loan, until the loan’s maturity date. On the respective maturity date, we are obligated to repay the remaining amount that is outstanding under each loan. We are also required to prepay loans upon the occurrence of certain events, including a default under a shipbuilding contract, a sale or total loss of a vessel and, upon election by The Export-Import Bank of China and one other lender, upon a change of control of us.
We are also subject to various collateral maintenance, financial and other covenants, restrictions on payments of dividends, events of default and remedies under the Sinosure Credit Facility. See “
Management’s Discussion and Analysis of Financial Condition and Results of Operations
—
Liquidity and Capital Resources—Debt Financings—Sinosure Credit Facility
” in our 2016 Annual Report on Form 10-K for further information regarding the Sinosure Credit Facility.
Senior Notes.
On May 13, 2014, we issued senior unsecured notes due 2020 in the aggregate principal amount of $131.6 million for proceeds of approximately $125 million (before fees and expenses), after giving effect to original issue discount. We refer to these notes as the “senior notes.” Interest on the senior notes accrues at the rate of 11.0% per annum in the form of an automatic increase in the principal amount of each outstanding senior note.
If we at any time irrevocably elect to pay interest in cash for the remainder of the life of the senior notes, interest on the senior notes will thereafter accrue at the rate of 10.0% per annum. We are also subject to various financial and other covenants, restrictions on payments of dividends, events of default and remedies under the senior notes. See “
Management’s Discussion and Analysis of Financial Condition and Results of Operations
—
Liquidity and Capital Resources—Debt Financings—
Senior Notes
” in our 2016 Annual Report on Form 10-K for information regarding the senior notes.
Interest Rate Swap Agreements
In May 2016, we entered into six interest rate swap transactions, which are intended to be cash flow hedges that effectively fix the interest rates for the Refinancing Facility, the Korean Export Credit Facility and the Sinosure Credit Facility. The interest rate swap transactions were each confirmed under an ISDA Master Agreement, as published by the International Swaps and Derivatives Associations, Inc. (“ISDA”), including the Schedule thereto and related documentation containing customary representations, warranties and covenants. We may modify or terminate any of the foregoing interest rate swap transactions or enter into additional swap transactions in accordance with their terms in the future from time to time.
In December 2016, the principal and interest repayment dates under the Refinancing Facility were modified and the payment dates on the two related swap agreements were similarly modified.
On April 10, 2017, the Company modified the interest rate swaps agreements, initially entered into on May 2, 2016. In this connection, all six of the swap agreements were monetized (the current fair market value of $18.2 million was received from the swap counterparties) and dedesignated. See
Note 11,
Financial InstrumentS
, to the condensed consolidated financial statements for the three and nine months ended September 30, 2017 and 2016 included in Part I, Item 1 of this Quarterly Report for more information regarding these swap transactions for more details.
Dividend Policy
We have not declared or paid any dividends since the fourth quarter of 2010. In order to pay dividends, we will be required to satisfy certain financial and other requirements under our debt instruments.
While we currently intend to retain future earnings, if any, for use in the operation and expansion of our business, we will evaluate the option to adopt a policy to pay cash dividends from time to time. However, any future dividend policy is subject to the discretion of our board of directors, and restrictions under our debt instruments and under Marshall Islands law. Any determination to pay or not pay cash dividends will also depend upon then-existing conditions, including our results of operations, financial condition, capital requirements, investment opportunities, statutory and contractual restrictions on our ability to pay dividends and other factors our board of directors may deem relevant. Any such determination will also be subject to review, modification or termination at any time and from time to time. In addition, Marshall Islands law generally prohibits the payment of dividends other than from surplus (retained earnings and the excess of consideration received for the sale of shares above the par value of the shares), when a company is insolvent or if the payment of the dividend would render the company insolvent.
Cash and Working Capital
Our cash and cash equivalents increased by $90.0 million to $184.7 million as of September 30, 2017 from $94.7 million as of December 31, 2016. This increase was primarily due to $142.9 million of net cash provided by operating activities, $238.8 million of proceeds from the sale of the
Gener8 Ulysses
,
Gener8 Daphne, Gener8 Orion, Gener8 Noble, Gener8 Theseus, Gener8 Horn, Gener8 Phoenix
and
Gener8 Elektra
, partially offset by the payments in respect of the VLCC newbuildings, including capitalized interest, of $99.2 million, the net debt payments of $183.6 million and the payment of $7.4 million and $1.4 million for purchases of vessel improvement and deferred financing costs, respectively, during the nine months ended September 30, 2017.
Working capital is current assets minus current liabilities.
Our working capital increased by $106.6 million to $105.3 million as of September 30, 2017 from $(1.3) million as of December 31, 2016. This increase was primarily due to an increase in cash and cash equivalents, which was net cash proceeds of $238.8 million, as a result of the sale of eight vessels, and a decrease of $42.7 million in Long-term debt, current portion as a result of the paydown of the related debt, partially offset by $32.8 million decrease in Due from Navig8 pools, net as a result of lower charter hire rates during the nine months ended September 30, 2017.
Cash Flows from Operating Activities.
Net cash provided by operating activities was $142.9 million for the nine months ended September 30, 2017 which resulted from net loss of $123.1 million, plus non-cash charges to operations of $242.3 million, including $114.6 million from the loss on disposal of vessels, net as a result of the recent and expected sale of vessels, and a change in various assets and liabilities balances (adjusted to exclude non-cash or non-operating activities) of $23.7 million, including a decrease in Due from Navig8 pools and in Working capital at Navig8 pools as a result of the recent sale of vessels.
Net cash provided by operating activities was $237.1 million for the nine months ended September 30, 2016 which resulted from net income of $61.5 million, plus non-cash charges to operations of $120.7 million, including $26.3 million of goodwill impairment, and a change in various assets and liabilities balances (adjusted to exclude non-cash or non-operating activities) of $54.8 million, including a decrease in due from charterers and in accounts payable and other current and non-current liabilities.
Cash Flows from Investing Activities.
Net cash provided by investing activities was $132.2 million for the nine months ended September 30, 2017, which primarily consisted of $238.8 million net proceeds from the sale of the
Gener8 Ulysses
,
Gener8 Daphne, Gener8 Theseus, Gener8 Noble, Gener8 Elektra, Gener8 Horn, Gener8 Phoenix
and
Gener8 Orion,
during the nine months ended September 30, 2017, partially offset by capital spending on the VLCC newbuildings (including payments of capitalized interest) of $99.2 million and $7.4 million of purchase of vessel improvements and other fixed assets.
Net cash used in investing activities was $751.4 million for the nine months ended September 30, 2016, which primarily consisted of capital spending on the VLCC newbuildings (including payments of capitalized interest) of
$816.1 million, partially offset by $72.5 million net proceeds from the sale of the
Gener8 Consul, Genmar Victory
and
Genmar Vision
during the nine months ended September 30, 2016.
Cash Flows from Financing Activities.
Net cash used in financing activities was $185.0 million for the nine months ended September 30, 2017, which primarily consisted of net debt payments of $183.6 million and the payment of deferred financing costs of $1.4 million related to the Sinosure Credit Facility and the Korean Export Credit Facility.
Net cash provided by financing activities was $456.8 million for the nine months ended September 30, 2016, which primarily consisted of net proceeds from borrowings of $477.6 million and the payment of deferred financing costs of $20.7 million related to the Sinosure Credit Facility and the Korean Export Credit Facility.
Capital Expenditures and Drydocking
Drydocking.
We incur expenditures to fund our drydock program of regularly scheduled in-water surveys or drydocking necessary to preserve the quality of our vessels as well as to comply with international shipping standards and environmental laws and regulations. Management anticipates that vessels which are younger than 15 years are required to undergo in-water surveys approximately 2.5 years after a drydock and that vessels are to be drydocked approximately every five years, while vessels 15 years or older are to be drydocked approximately every 2.5 years in which case the additional drydocks take the place of these in-water surveys.
During the three months ended September 30, 2017 and 2016, we incurred $1.8 million and $2.0 million, respectively, of drydock related costs. During the nine months ended September 30, 2017 and 2016, we incurred $5.0 million and $5.4 million, respectively, of drydock related costs. Accumulated amortization as of September 30, 2017 and December 31, 2016 was $11.5 million and $13.9 million, respectively.
As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016, we previously anticipated that the expenditures to complete drydocks of vessels during 2017 would aggregate approximately $37.4 million, and that such vessels will be off-hire for approximately 574 days in 2017 to effect these drydocks. As a result of our recent vessel sales, we currently anticipate that the expenditures to complete drydocks of vessels during 2017 will aggregate approximately $18.9 million, and that such vessels will be off-hire for approximately 280 days in 2017 to effect these drydocks.
For information regarding certain anticipated drydocking expenditures for the year ended December 31, 2017, see “
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Expenditures and Drydocking—Drydocking
” in our 2016 Annual Report on Form 10-K.
Capital Improvements.
During the nine months ended September 30, 2017 and the year ended December 31, 2016, we capitalized $8.6 million and $9.3 million, respectively, relating to capital projects including environmental compliance equipment upgrades, satisfying requirements of oil majors and vessel upgrades.
Certain vessels in our fleet will require the installation of a Ballast Water Management System to meet regulatory requirements. In July 2017, at its 71st session, the International Maritime Organization’s Marine Environment Protection Committee (“MEPC”) discussed draft amendments it approved, and expects to adopt at the next MEPC Session. These amendments extend the date of compliance with certain ballast water standards until the first International Oil Pollution Prevention renewal survey following entry into force of the Ballast Water Management Convention on September 8, 2017, which will be conducted after September 8, 2019 for our applicable vessels. Such surveys typically take place every five years.
In December 2016, the United States Coast Guard (“USCG”) first approved technology for ballast water treatment. The USCG previously provided waivers to vessels that could not install the as-yet unapproved technology and vessels now requiring a waiver will need to show why they cannot install the approved technology. Our capital improvements budget for the year ending December 31, 2017 mentioned below includes $6.1 million for purchase of Ballast Water Management Systems equipment.
For information regarding our capital improvements budget for the year ended December 31, 2017 and other capital improvements, see “
Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Liquidity and Capital Resources—Capital Expenditures and Drydocking—Capital Improvements
” in our 2016 Annual Report on Form 10-K.
Vessel Acquisitions and Disposals.
During the three months ended September 30, 2017, we completed the sale of five vessels (the
Gener8 Theseus, Gener8 Noble, Gener8 Elektra, Gener8 Horn
and
Gener8 Phoenix
)
for an aggregate amount of $187.8 million, in gross proceeds. We used the net proceeds from the sales to repay an aggregate of $23.5 million and $100.5 million of borrowings under the Refinancing Facility and the Korean Export Credit Facility, respectively, which represents the portion of the secured debt outstanding under those credit facilities and associated with these vessels. During the nine months ended September 30, 2017, we completed the sale of eight vessels (the
Gener8 Ulysses
,
Gener8 Daphne, Gener8 Theseus, Gener8 Noble, Gener8 Elektra, Gener8 Horn, Gener8 Phoenix
and
Gener8 Orion
)
for an aggregate amount of $242.3 million, in gross proceeds. We used the net proceeds from the sales to repay an aggregate of $163.2 million, which represents the portion of the secured debt outstanding under the credit facilities associated with these vessels.
Other Commitments.
In July 2015, we entered into an amendment to such lease, which, among other things, extended the term of the lease for an additional 5-year period (from October 1, 2020 through September 30, 2025). The monthly rental is $0.1 million per month from October 1, 2016 to September 30, 2020; and $0.2 million per month from October 1, 2020 to September 30, 2025. The monthly straight-line rental expense is approximately $0.2 million, including amortization of the lease asset recorded on May 17, 2012 associated with fresh-start accounting, for the period from May 18, 2012 to September 30, 2025. We recorded expenses associated with this lease of approximately $0.5 million and $1.5 million during the three and nine months ended September 30, 2017 and 2016, respectively.
The following is a tabular summary of our future contractual obligations as of September 30, 2017 for the categories set forth below:
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Total
|
|
2017 (6)
|
|
2018-2019
|
|
2020-2021
|
|
Thereafter
|
Refinancing facility
|
|
$
|
273,082
|
|
$
|
21,006
|
|
$
|
105,032
|
|
$
|
147,044
|
|
$
|
—
|
Korean Export Credit Facility
|
|
|
627,893
|
|
|
13,581
|
|
|
108,650
|
|
|
178,305
|
|
|
327,357
|
Sinosure Credit Facility
|
|
|
322,758
|
|
|
5,894
|
|
|
47,158
|
|
|
47,158
|
|
|
222,548
|
Interest expenses, except for senior notes (1)
|
|
|
255,940
|
|
|
12,970
|
|
|
94,093
|
|
|
67,697
|
|
|
81,180
|
Senior notes
|
|
|
131,600
|
|
|
—
|
|
|
—
|
|
|
131,600
|
|
|
—
|
Interest expense of senior notes (1)
|
|
|
115,450
|
|
|
—
|
|
|
—
|
|
|
115,450
|
|
|
—
|
Shipbuilding contracts
|
|
|
28,987
|
|
|
28,987
|
|
|
—
|
|
|
—
|
|
|
—
|
Supervision Agreements (2)
|
|
|
250
|
|
|
250
|
|
|
—
|
|
|
—
|
|
|
—
|
Senior officer compensation agreements (3)
|
|
|
9,669
|
|
|
569
|
|
|
4,550
|
|
|
4,550
|
|
|
—
|
Office Leases (4)
|
|
|
15,513
|
|
|
384
|
|
|
3,072
|
|
|
3,878
|
|
|
8,179
|
Corporate Administration Agreement (5)
|
|
|
32
|
|
|
32
|
|
|
—
|
|
|
—
|
|
|
—
|
Total commitments
|
|
$
|
1,781,174
|
|
$
|
83,673
|
|
$
|
362,555
|
|
$
|
695,682
|
|
$
|
639,264
|
|
(1)
|
|
Future interest payments on our Refinancing Facility are based on our outstanding balance using a borrowing LIBOR rate of 1.66
%
as of September 30, 2017, plus the applicable margin of 3.75
%
. Future interest payments on our Korean Export Credit Facility are based on our outstanding balance using a borrowing LIBOR rate of 1.84
%
as of September 30, 2017, plus the applicable blended margin of 2.08
%
. Future interest payments on our Sinosure Credit Facility are based on our outstanding balance using a borrowing LIBOR rate of 2.04
%
as of September 30, 2017, plus the applicable margin of 2.0
%
. Interest on the senior notes accrues at the rate of 11.0% per annum in the form of additional senior notes and the balloon repayment is due 2020, except that if we at any time irrevocably elect to pay interest in cash for the remainder of the life of the senior notes, interest on the senior notes will thereafter accrue at the rate of 10.0% per annum. The amount of senior notes listed above represents its face value upon issuance. The interest expense of senior notes listed above assumes the balloon repayment in 2020 and accordingly includes the payment-in-kind interest of $57.6 million which has accrued as of September 30, 2017. Interest expense for the Refinancing Facility, Korean Export Credit Facility, and Sinosure Credit Facility include estimated effects related to our interest rate swaps.
|
|
(2)
|
|
Refers to supervision agreements of each of our VLCC newbuilding owning subsidiaries with Navig8 Shipmanagement Pte Ltd.
|
|
(3)
|
|
Senior officer employment agreements are evergreen and renew for subsequent terms of one year. This table excludes future renewal periods.
|
|
(4)
|
|
Reflects the July 2015 amendment to the lease for our office space in New York, New York. See “
Other Commitments”
above for further information regarding this amendment.
|
|
(5)
|
|
Assumes termination of the Corporate Administration Agreement upon delivery of the last of our VLCC newbuilding in the remainder of 2017. Amounts are estimates and may vary based on actual delivery.
|
|
(6)
|
|
Represents the remaining period in 2017.
|
Related Party Transactions
For information about transactions with our related parties see “
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Party Transactions”
and
Note 18,
Related party transactions
, to the consolidated financial statements in Item 8 of our 2016 Annual Report on Form 10-K, and
Note 14,
Related party transactions
, to the condensed consolidated financial statements in Item 1 of this Quarterly Report.
Off-Balance-Sheet Arrangements
As of September 30, 2017, other than as described above, we did not have any material off-balance-sheet arrangements as defined in Item 303(a)(4) of SEC Regulation S-K.
Effects of Inflation
We do not consider inflation to be a significant risk to the cost of doing business in the current or foreseeable future. Inflation has a moderate impact on operating expenses, drydocking expenses and corporate overhead.
Critical Accounting Policies
Our condensed consolidated financial statements have been prepared in accordance with GAAP. Preparation of these statements requires management to make judgments and estimates. Some accounting policies have a significant impact on amounts reported in these condensed consolidated financial statements. Our critical accounting policies have not changed from those reported in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2016 Annual Report on Form 10-K.
Vessels Carrying Value
The carrying value of each of our vessels does not represent the fair market value of such vessel or the amount we could obtain if we were to sell any of our vessels, which could be more or less. Under U.S. GAAP, we would not record a loss if the fair market value of a vessel (excluding its charter) is below our carrying value unless and until we determine to sell that vessel or the vessel is impaired.
Pursuant to our senior secured credit facilities, we regularly submit to the lenders valuations of our vessels on an individual charter free basis in order to calculate our compliance with the collateral maintenance covenants. Such a valuation is not necessarily the same as the amount any vessel may bring upon sale, which may be more or less, and should not be relied upon as such. In the chart below, we list each of our vessels, the year it was built, the year we acquired it, and its carrying value at September 30, 2017. All of our vessels had valuations for covenant compliance purposes under such facilities as of the most recent compliance testing date lower than their carrying values at September 30, 2017. The most recent compliance testing date was November 1, 2017 under such facilities for the three months ended September 30, 2017. The amount by which the carrying value at September 30, 2017 of these vessels exceeded the valuation of such vessels ranged, on an individual vessel basis, from $3.8 million to $30.8 million per vessel, with an average of $18.1 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
Vessels
(1)
|
|
Year Built
|
|
Acquired
|
|
Carrying Value
|
|
|
|
|
|
|
(in thousands)
|
Gener8 Defiance
|
|
2002
|
|
2004
|
|
|
14,720
|
Gener8 Compatriot
|
|
2004
|
|
2008
|
|
|
15,665
|
Gener8 Companion
|
|
2004
|
|
2008
|
|
|
15,011
|
Gener8 Harriet G
|
|
2006
|
|
2006
|
|
|
33,341
|
Gener8 Kara G
|
|
2007
|
|
2007
|
|
|
36,295
|
Gener8 George T
|
|
2007
|
|
2007
|
|
|
35,622
|
Gener8 Hercules
|
|
2007
|
|
2010
|
|
|
52,760
|
Gener8 Atlas
|
|
2007
|
|
2010
|
|
|
52,485
|
Gener8 St. Nikolas
|
|
2008
|
|
2008
|
|
|
37,585
|
Gener8 Maniate
|
|
2010
|
|
2010
|
|
|
44,669
|
Gener8 Spartiate
|
|
2011
|
|
2011
|
|
|
48,628
|
Gener8 Neptune
|
|
2015
|
|
2015
|
|
|
102,217
|
Gener8 Athena
|
|
2015
|
|
2015
|
|
|
102,980
|
Gener8 Strength
|
|
2015
|
|
2015
|
|
|
100,863
|
Gener8 Apollo
|
|
2016
|
|
2016
|
|
|
104,054
|
Gener8 Ares
|
|
2016
|
|
2016
|
|
|
104,254
|
Gener8 Hera
|
|
2016
|
|
2016
|
|
|
104,730
|
Gener8 Supreme
|
|
2016
|
|
2016
|
|
|
101,777
|
Gener8 Success
|
|
2016
|
|
2016
|
|
|
96,987
|
Gener8 Constantine
|
|
2016
|
|
2016
|
|
|
108,894
|
Gener8 Nautilus
|
|
2016
|
|
2016
|
|
|
100,109
|
Gener8 Andriotis
|
|
2016
|
|
2016
|
|
|
97,729
|
Gener8 Chiotis
|
|
2016
|
|
2016
|
|
|
99,259
|
Gener8 Macedon
|
|
2016
|
|
2016
|
|
|
102,388
|
Gener8 Perseus
|
|
2016
|
|
2016
|
|
|
108,419
|
Gener8 Oceanus
|
|
2016
|
|
2016
|
|
|
110,339
|
Gener8 Miltiades
|
|
2016
|
|
2016
|
|
|
101,164
|
Gener8 Ethos
|
|
2017
|
|
2017
|
|
|
105,716
|
Gener8 Hector
|
|
2017
|
|
2017
|
|
|
99,818
|
|
(1)
|
|
Excludes assets held for sale.
|
Recent Accounting Pronouncements
For information regarding recently adopted and recently issued accounting standards applicable to us, see
Note 1,
basis of presentation and summary of significant accounting policies,
to the condensed consolidated financial statements in Item 1 of this Quarterly Report.
JOBS Act
In April 2012, the Jumpstart Our Business Startups Act of 2012, or the “JOBS Act,” was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
Glossary Of Shipping Terms
The following are abbreviations and definitions of certain terms commonly used in the shipping industry and this Quarterly Report. The terms are taken from the
Marine Encyclopedic Dictionary
(Ninth Edition) published by Lloyd’s of London Press Ltd. and other sources, including information supplied by us.
Aframax tanker.
Tanker ranging in size from 80,000 DWT to 120,000 DWT.
American Bureau of Shipping.
American classification society.
Annual survey.
The inspection of a vessel pursuant to international conventions, by a classification society surveyor, on behalf of the flag state, that takes place every year.
Bareboat charter.
Contract or hire of a vessel under which the shipowner is usually paid a fixed amount for a certain period of time during which the charterer is responsible for the complete operation and maintenance of the vessel, including crewing.
Bunker Fuel.
Fuel supplied to ships and aircraft in international transportation, irrespective of the flag of the carrier, consisting primarily of residual fuel oil for ships and distillate and jet fuel oils for aircraft.
Cabotage.
The transport of cargo by sea between ports in the same country, sometimes reserved for national flag vessels.
CAGR.
Compound average growth rate.
Charter.
The hire of a vessel for a specified period of time or to carry a cargo from a loading port to a discharging port. A vessel is “chartered in” by an end user and “chartered out” by the provider of the vessel.
Charterer.
The individual or company hiring a vessel.
Charterhire.
A sum of money paid to the shipowner by a charterer under a charter for the use of a vessel.
Classification society.
A private, self-regulatory organization which has as its purpose the supervision of vessels during their construction and afterward, in respect to their seaworthiness and upkeep, and the placing of vessels in grades or “classes” according to the society’s rules for each particular type of vessel.
Daewoo.
Daewoo Shipbuilding & Marine Engineering Co., Ltd.
Demurrage.
The delaying of a vessel caused by a voyage charterer’s failure to load, unload, etc. before the time of scheduled departure. The term is also used to describe the payment owed by the voyage charterer for such delay.
DNV GL.
Norwegian classification society.
Double-hull.
Hull construction design in which a vessel has an inner and outer side and bottom separated by void space, usually several feet in width.
Double-sided.
Hull construction design in which a vessel has watertight protective spaces that do not carry any oil and which separate the sides of tanks that hold any oil within the cargo tank length from the outer skin of the vessel.
Drydock.
Large basin where all the fresh/sea water is pumped out to allow a vessel to dock in order to carry out cleaning and repairing of those parts of a vessel which are below the water line.
DWT.
Deadweight ton. A unit of a vessel’s capacity, for cargo, fuel oil, stores and crew, measured in metric tons of 1,000 kilograms. A vessel’s DWT or total deadweight is the total weight the vessel can carry when loaded to a particular load line.
Gross ton.
Unit of 100 cubic feet or 2.831 cubic meters.
Handymax tanker.
Tanker ranging in size from 40,000 DWT to 60,000 DWT.
HHI.
Hyundai Heavy Industries Co., Ltd.
HHIC Phil Inc.
Hanjin Heavy Industries (Philippines).
HSHI.
Hyundai Samho Heavy Industries
Hull.
Shell or body of a vessel.
IMO.
International Maritime Organization, a United Nations agency that sets international standards for shipping.
Intermediate survey.
The inspection of a vessel by a classification society surveyor which takes place approximately two and half years before and after each special survey. This survey is more rigorous than the annual survey and is meant to ensure that the vessel meets the standards of the classification society.
Lightering.
To put cargo in a lighter to partially discharge a vessel or to reduce her draft. A lighter is a small vessel used to transport cargo from a vessel anchored offshore.
LWT.
Lightweight tons.
Net voyage revenues.
Voyage revenues minus voyage expenses.
Newbuilding.
A new vessel under construction or just completed.
OECD.
Organization for Economic Co-operation and Development.
Off hire.
The period a vessel is unable to perform the services for which it is immediately required under its contract. Off hire periods include days spent on repairs, drydockings, special surveys and vessel upgrades. Off hire may be scheduled or unscheduled, depending on the circumstances.
Panamax tanker.
Tanker ranging in size from 60,000 DWT to 80,000 DWT.
P&I Insurance.
Third-party indemnity insurance obtained through a mutual association, or P&I Club, formed by shipowners to provide protection from third-party liability claims against large financial loss to one member by contribution towards that loss by all members.
Scrapping.
The disposal of old vessel tonnage by way of sale as scrap metal.
SIRE discharge reports.
A hydrocarbon discharge ship inspection report carried out under the Ship Inspection Report Program (SIRE) of the Oil Companies International Marine Forum, a voluntary association of oil companies (including all the oil majors) having an interest in the shipment of crude oil and oil products and the operation of terminals.
Sister ship.
Ship built to same design and specifications as another.
Special survey.
The inspection of a vessel by a classification society surveyor that takes place every four to five years.
Spot market.
The market for immediate chartering of a vessel, usually on voyage charters.
Suezmax tanker.
Tanker ranging in size from 120,000 DWT to 200,000 DWT.
SWS.
China’s Shanghai Waigaoqiao Shipbuilding
Tanker.
Vessel designed for the carriage of liquid cargoes in bulk with cargo space consisting of many tanks. Tankers carry a variety of products including crude oil, refined products, liquid chemicals and liquid gas. Tankers load their cargo by gravity from the shore or by shore pumps and discharge using their own pumps.
TCE.
Time charter equivalent. TCE is a measure of the average daily revenue performance of a vessel on a per voyage basis determined by dividing net voyage revenue by total operating days for fleet.
Time charter.
Contract for hire of a vessel under which the shipowner is paid charterhire on a per day basis for a certain period of time. The shipowner is responsible for providing the crew and paying operating costs while the charterer is responsible for paying the voyage expenses.
VLCC.
Acronym for Very Large Crude Carrier, or a tanker ranging in size from 200,000 DWT to 320,000 DWT.
Voyage charter.
A Charter under which a customer pays a transportation charge for the movement of a specific cargo between two or more specified ports. The shipowner pays all voyage expenses, and all vessel expenses, unless the vessel to which the Charter relates has been time chartered in. The customer is liable for demurrage, if incurred.
Worldscale.
Industry name for the Worldwide Tanker Nominal Freight Scale published annually by the Worldscale Association as a rate reference for shipping companies, brokers, and their customers engaged in the bulk shipping of oil in the international markets. Worldscale is a list of calculated rates for specific voyage itineraries for a standard vessel, as defined, using defined voyage cost assumptions such as vessel speed, fuel consumption and port costs. Actual market rates for voyage charters are usually quoted in terms of a percentage of Worldscale.