Genco Shipping & Trading Q2 2010 Results

Wednesday, August 11, 2010

Genco Shipping & Trading Limited (NYSE:GNK) reported its financial results for the three and six months ended June 30, 2010. The following financial review discusses the results for the three and six months ended June 30, 2010 and June 30, 2009.

Second Quarter 2010 and Year-to-Date Highlights:
  --  Recorded net income attributable to Genco's shareholders for the second quarter of $36.8 million, or $1.17 basic and $1.16 diluted earnings per share;
  --  Agreed to acquire five Handysize vessels from companies within the Metrostar Management Corporation for an aggregate purchase price of $166.25 million;
  --  Agreed to acquire 13 Supramax vessels from affiliates of Bourbon SA for an aggregate purchase price of approximately $440 million;
  --  Entered into a commitment letter for a $100 million senior secured term loan facility to finance a portion of the Metrostar acquisition;
:portion of the Bourbon acquisition;
  --  Completed the closing of a concurrent $125 million convertible offering and $57.5 million follow-on offering including over-allotment options exercised by the underwriters;
  --  Fixed three of the Bourbon acquisition Supramax vessels on long term time charters; and
  --  Maintained short term time charter strategy for Capesize vessels up for renewal due to seasonal weak rate environment.

Financial Review: 2010 Second Quarter:
The company recorded net income attributable to Genco shareholders for the second quarter of 2010 of $36.8 million, or $1.17 basic and $1.16 diluted earnings per share. Comparatively, for the three months ended June 30, 2009, our net income attributable to Genco shareholders was $37.6 million or $1.20 basic and diluted earnings per share.

EBITDA was $79.3 million for the three months ended June 30, 2010 versus $73.9 million for the three months ended June 30, 2009.

Robert Gerald Buchanan, President, commented, "During the second quarter, Genco posted strong operating results by drawing upon the company's significant time charter coverage while further expanding its modern fleet. As we maintained our focus on executing our time charter strategy, we also agreed to acquire 18 drybulk vessels and have already taken delivery of three of these vessels. With 15 additional vessels expected to be delivered in 2010 and 2011, Genco remains well positioned to further enhance the age profile of its fleet and continue to provide multinational charterers with high-quality tonnage."

Genco's revenues increased 12.4% to $105.3 million for the three months ended June 30, 2010 versus $93.7 million for the three months ended June 30, 2009 mainly due to the increase in the size of our fleet and consolidated revenues from Baltic Trading Limited offset by lower charter rates for some of our vessels.

The average daily time charter equivalent, or TCE, rates obtained by the company's fleet decreased 5.7% to $30,405 per day for the three months ended June 30, 2010 compared to $32,245 per day for the three months ended June 30, 2009. The decrease in TCE rates resulted from lower charter rates in the second quarter of 2010 versus the second quarter of 2009 for 17 of the vessels in our fleet offset by higher charter rates for 14 of the vessels in our fleet.

Total operating expenses increased to $50.4 million for the three months ended June 30, 2010 from $40.4 million for the three month period ended June 30, 2009. Higher vessel operating expenses, general, administrative and management fees and depreciation and amortization were recorded in the 2010 period as a result of the operation of a larger fleet. Vessel operating expenses were $16.2 million for the second quarter of 2010 compared to $13.3 million for the same period last year. The increase in vessel operating expenses was due to the operation of a larger fleet, the consolidated expenses of Baltic Trading Limited's fleet and slightly higher expenses related to the timing of repairs for the second quarter of 2010 versus the same period last year.

Depreciation and amortization expenses increased to $26.3 million for the second quarter of 2010 from $20.9 million for the second quarter of 2009 as a result of the growth of our fleet. General, administrative and management fees increased to $7.2 million from $5.0 million during the comparative periods due to the addition of personnel as the fleet expanded, costs associated with Baltic Trading Limited as well as higher third-party management fees.

Daily vessel operating expenses, or DVOE, increased to $4,671 per vessel per day during the second quarter of 2010 from $4,556 for the same quarter last year due to higher repair costs as well as stores and spares costs offset by lower insurance costs. Daily vessel operating expenses year to date have been below budget due to the timing of purchases of spare parts, as well as lower than anticipated crew, lubricants and insurance costs offset by the timing of repair costs. We believe daily vessel operating expenses are best measured for comparative purposes over a 12month period in order to take into account all of the expenses that each vessel in our fleet will incur over a full year of operation. Based on estimates provided by our technical managers and management's expectations, we expect DVOE for the second half of 2010 to be $5,100 per vessel per day on a weighted average basis.

John C. Wobensmith, Chief Financial Officer, commented, "Our strong results for the second quarter highlight the sizeable cash flows generated by our large and modern fleet. Complementing our success, management solidified Genco's position as a bellwether in the drybulk industry with the acquisition of 13 Supramax vessels and five Handysize vessels at compelling valuations. With these acquisitions, which adhere to our strict return criteria, Genco is poised to expand its world-class fleet by 31% on a deadweight tonnage basis and increase its future earnings potential. In support of our robust growth, we recently completed $182.5 million in capital markets financing and entered into $353 million in new credit facilities, significantly increasing our financial flexibility. We intend to utilize the combined $535.5 million in new financing as well as cash on hand to fund our current acquisitions. Building upon our extensive consolidation experience, we will work diligently to ensure the seamless integration of our newly acquired vessels into our existing infrastructure for the benefit of the Company and its shareholders."

Financial Review: First Half 2010
Net income attributable to Genco was $70.2 million or $2.24 basic and $2.23 diluted earnings per share for the six months ended June 30, 20010, compared to $78.9 million or $2.52 basic and $2.51 diluted earnings per share for the six months ended June 30, 2009. Revenues increased to $200.0 million for the six months ended June 30, 2010 compared to $190.4 million for the six months ended June 30, 2009. EBITDA was $152.9 million for the six months ended June 30, 2010 versus $150.0 for the six months ended June 30, 2009. TCE rates obtained by the company decreased to $30,326 per day for the six months ended June 30, 2010 from $32,724 for the same period in 2009 mainly due to lower rates achieved for our vessels in the first six months of 2010 as opposed to the same period last year. Total operating expenses were $96.7 million for the six months ended June 30, 2010 compared to $82.0 million for the six months ended June 30, 2009, and daily vessel operating expenses per vessel were $4,697 versus $4,743 for the comparative periods.

Liquidity and Capital Resources:

Cash Flow
Net cash provided by operating activities for the six months ended June 30, 2010 and 2009 was $118.0 million and $109.8 million, respectively. The increase in cash provided by operating activities was primarily due to higher depreciation and amortization expenses related to the operation of a larger fleet as well as a reduction in net income and the amount of time charter amortization.

Net cash used in investing activities for the six months ended June 30, 2010 and 2009 was $304.6 million and $2.4 million, respectively. The increase was primarily due to cash used for purchase of Baltic Trading's five initial vessels and deposits made for the acquisition of 21 vessels during the second quarter of 2010. For the six months ended June 30, 2010, cash used in investing activities primarily related to the purchase of vessels in the amount of $214.4 million and the deposit on vessels in the amount of $84.9 million. For the six months ended June 30, 2009, cash used in investing activities primarily related to deposits on vessels to be acquired of $1.4 million.

Net cash provided by (used in) financing activities was $194.4 million during the six months ended June 30, 2010 as compared to $(3.6) million during the six months ended June 30, 2009. The $198.0 million increase in net cash provided by financing activities was primarily due to the proceeds from the issuance of common stock in the amount of $214.5 million from the initial public offering for Baltic Trading Limited that was completed on March 15, 2010 as well as the drawdown of $10.0 million under the Baltic Trading Credit facility. Cash provided by financing activities was also offset by the $25.0 million repayment of debt under the 2007 Credit Facility, $3.7 million for payments of common stock issuance costs, and $1.3 million of deferred financing costs. For the same period last year, net cash used in financing activities consisted of a $3.6 million payment of deferred financing costs.

Capital Expenditures
We make capital expenditures from time to time in connection with vessel acquisitions. Excluding Baltic Trading Limited's vessels, and assuming deliveries of the vessels we recently agreed to acquire, we will own a fleet of 53 drybulk vessels, consisting of nine Capesize, eight Panamax, 17 Supramax, six Handymax and 13 Handysize vessels, with an aggregate carrying capacity of approximately 3,812,000 dwt. In addition, our subsidiary Baltic Trading Limited, assuming deliveries of the vessels it recently agreed to acquire, will own a fleet of nine drybulk vessels, consisting of two Capesize, four Supramax, and three Handysize vessels with an aggregate carrying capacity of approximately 672,000 dwt.

In addition to acquisitions that we may undertake in future periods, we will incur additional expenditures due to special surveys and drydockings for our fleet. We estimate that one vessel will be drydocked in the third quarter of 2010 and one additional vessel will be drydocked in the remainder of 2010.

The Genco Charger and Tiberius completed their drydockings during the second quarter of 2010 at a cumulative cost of approximately $1.0 million. The vessels were on planned offhire for an aggregate of 21 days in connection with their scheduled drydockings.

Summary Consolidated Financial and Other Data:
The following table summarizes Genco Shipping & Trading Limited's selected consolidated financial and other data for the periods indicated below.

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