Genco Shipping & Trading Limited — FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The consolidated results include Baltic Trading, in which Genco held 25.11% of the economic interest but 83.41% of voting power at year-end. Genco operates drybulk carriers transporting commodities worldwide.
Business context and results
At year-end, Genco had 53 vessels with approximately 3.81 million dwt; Baltic Trading had nine vessels with approximately 672,000 dwt. The fleet expanded during 2011, while weak drybulk charter markets reduced earnings. By February 21, 2012, 33 Genco vessels were on spot-market-related time charters, five were in a spot-exposed pool, and 15 were on fixed-rate time charters.
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Total revenue | $392.2 million | $448.7 million | -12.6% |
| Operating income | $112.6 million | $221.3 million | -49.1% |
| Net income attributable to Genco | $25.4 million | $141.2 million | -82.0% |
| Basic / diluted EPS | $0.72 / $0.72 | $4.28 / $4.07 | Down |
| EBITDA (non-GAAP) | $249.1 million | $330.7 million | -24.7% |
| Operating cash flow | $158.2 million | $262.7 million | -39.8% |
| Cash and cash equivalents | $228.0 million | $270.9 million | -15.8% |
| Total debt, including notes payable | $1,694.4 million | $1,746.2 million | -3.0% |
Operating margin was approximately 28.7% versus 49.3% in 2010; net margin was approximately 6.4% versus 32.8%. These are calculated from reported revenue and income. Year-end current assets were $259.4 million and current liabilities $221.7 million; restricted cash of $9.8 million was separately reported. Shareholders’ equity totaled $1,361.6 million.
For fourth-quarter 2011, revenue was $97.1 million, operating income $23.9 million, consolidated net income $1.7 million, and net income attributable to Genco $0.3 million. Fourth-quarter 2010 figures were $130.6 million, $60.1 million, $37.5 million, and $34.8 million, respectively.
Drivers and material changes
- Average fleet TCE fell 35.7%, to $17,644 per available day from $27,419. The decline in charter rates more than offset fleet growth; utilization remained high at 99.2%, versus 99.1%.
- Vessel operating expenses rose 33.6% to $105.5 million, primarily because of the larger fleet and a full year of Baltic Trading operations. Average daily vessel operating expense edged down to $4,819 from $4,852.
- Depreciation and amortization increased 17.8% to $136.2 million, largely with fleet expansion. A prospective increase in estimated vessel scrap value reduced 2011 depreciation by about $2.5 million, or $0.07 per share.
- Net interest expense rose 19.6% to $86.1 million, mainly due to higher borrowings. Investing cash outflow declined to $133.4 million from $870.2 million, as vessel purchases were lower; financing cash flow shifted to a $67.7 million outflow from a $690.2 million inflow in 2010.
Debt, liquidity, outlook and risks
- Year-end debt comprised $1,588.0 million under credit facilities and $125.0 million principal on 5% convertible notes due August 2015; the notes’ balance-sheet carrying amount was $106.4 million. Contractual obligations totaled $2,018.1 million, including estimated interest and borrowing fees. The credit-facility portion due within one year was $185.1 million.
- December 2011 lender agreements waived specified leverage and interest-coverage covenants through March 31, 2013, while imposing a 62.5% debt-to-total-capital limit during the waiver period. Genco reported covenant compliance at December 31, 2011. The 2007 facility’s collateral-maintenance covenant remained waived subject to conditions. The company’s credit facilities restrict dividends; Genco had paid none since 2008 and was prohibited from paying through March 31, 2013 under the 2011 agreements.
- Management expected 2012 average daily vessel operating expense of about $5,200 for Genco’s fleet, excluding Baltic Trading, and $5,300 for Baltic Trading. Estimated drydocking costs were $10.7 million in 2012 and $4.3 million in 2013, with 340 and 120 estimated off-hire days, respectively.
- Management warned that the early-2012 charter-rate downturn would adversely affect first-quarter 2012 revenue and results, and could reduce net current assets and equity. The BDI fell to 660 on February 7, 2012 after ending 2011 at 1,773. The filing cites weak global demand, vessel oversupply and newbuilding deliveries as key market risks. Most spot-linked vessels expose earnings to rate volatility; two charterers, Cargill and Swissmarine, generated 42.2% of 2011 voyage revenue.
- Jinhui investment fair value fell to $24.5 million from $54.7 million, producing a $30.2 million unrealized loss in other comprehensive income; no 2011 impairment was recorded. The company had previously recognized a $103.9 million impairment in 2008. A $0.5 million Samsun settlement installment was recorded as other operating income in 2011. A $0.5 million insurance settlement was received in February 2012 and recognized in 2012, not 2011.
- Other principal risks include vessel-value declines, possible impairment, covenant and refinancing risk, charterer defaults, fuel and operating-cost increases, environmental and safety regulation, piracy, and uninsured marine losses. No material pending legal proceeding was reported. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Debt maturities, collateral valuations, covenant headroom and the terms and expiry conditions of the lender waivers.
- Current charter coverage, actual rates on renewals, spot-market exposure, and the effect of low freight rates on cash generation.
- Liquidity after scheduled debt payments, drydock costs and any further vessel-value or Jinhui investment declines.
- Charterer concentration and the collectibility of the Samsun settlement and the approximately $0.9 million KLC claim.
- The status of dividend restrictions, and whether subsequent-period results or market conditions alter management’s stated outlook.