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EX-32.2 - CERTIFICATE - GENCO SHIPPING & TRADING LTDkl11009_ex32-2.htm
EX-10.1 - FORM OF DIRECTOR RESTRICTED STOCK GRANT AGREEMENT - GENCO SHIPPING & TRADING LTDkl11009_ex10-1.htm
EX-31.1 - CERTIFICATE - GENCO SHIPPING & TRADING LTDkl11009_ex31-1.htm
EX-31.2 - CERTIFICATE - GENCO SHIPPING & TRADING LTDkl11009_ex31-2.htm
EX-32.1 - CERTIFICATE - GENCO SHIPPING & TRADING LTDkl11009_ex32-1.htm
 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2009
 
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________________________ to _________________________
 
Commission file number 000-51442
 
                          
GENCO SHIPPING & TRADING LIMITED
(Exact name of registrant as specified in its charter)
 
Republic of the Marshall Islands
(State or other jurisdiction of
incorporation or organization)
 
98-043-9758
(I.R.S. Employer
Identification No.)
     
299 Park Avenue, 20th Floor, New York, New York 10171
(Address of principal executive offices)           (Zip Code)
 
(646) 443-8550
(Registrant’s telephone number, including area code)
                           
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes  ý    No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes  ý    No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
 

 
 
Large accelerated filer ý                                                                                          Accelerated filer  o
Non-accelerated filer   (Do not check if a smaller reporting company)                                    Smaller reporting company  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes  o   No    ý
 
The number of shares outstanding of each of the issuer’s classes of common stock, as of November 9, 2009:
Common stock, $0.01 per share — 31,724,548 shares.
 

 

 
 

 

Genco Shipping & Trading Limited
 
         
Page
 
PART I — FINANCIAL INFORMATION
 
 
Item 1.
Financial Statements
 
 
a)
Consolidated Balance Sheets -
 
             September 30, 2009 and December 31, 2008
4
 
 
b)
Consolidated Statements of Operations -
 
             For the three and nine months ended September 30, 2009 and 2008
5
 
 
c)
Consolidated Statements of Shareholders’ Equity and Comprehensive Income -
 
             For the nine months ended September 30, 2009
6
 
 
d)
Consolidated Statements of Cash Flows -
 
             For the nine months ended September 30, 2009 and 2008
7
 
 
e)
Notes to Consolidated Financial Statements
             For the three and nine months ended September 30, 2009 and 2008
8
 
 
 
Item 2.
Management’s Discussion and Analysis of
 
              Financial Condition and Results of Operations
24
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
40
 
 
Item 4.
Controls and Procedures
42
 
PART II      OTHER INFORMATION
 
 
Item 1.
Legal Proceedings
42

 
Item 1A.
Risk Factors
43

 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
43

 
Item 5.
Other Information
44

 
Item 6.
Exhibits
45




3

 
Genco Shipping & Trading Limited
Consolidated Balance Sheets as of September 30, 2009
and December 31, 2008
(U.S. Dollars in thousands, except for share data)
 
   
September 30,
2009
   
December 31, 2008
 
   
(unaudited)
       
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 243,757     $ 124,956  
Restricted cash
    17,000        
Due from charterers, net of a reserve of $80 and $244, respectively
    1,413       2,297  
Prepaid expenses and other current assets
    12,955       13,495  
Total current assets
    275,125       140,748  
                 
Noncurrent assets:
               
Vessels, net of accumulated depreciation of $201,892 and $140,388, respectively
    1,919,161       1,726,273  
Deposits on vessels
    30,608       90,555  
Deferred drydock, net of accumulated depreciation of $3,350 and $2,868, respectively
    10,533       8,972  
Other assets, net of accumulated amortization of $2,315 and $1,548, respectively
    7,759       4,974  
Fixed assets, net of accumulated depreciation and amortization of $1,439 and $1,140, respectively
    2,389       1,712  
Fair value of derivative instruments
    1,327        
Investments
    49,238       16,772  
Total noncurrent assets
    2,021,015       1,849,258  
                 
Total assets
  $ 2,296,140     $ 1,990,006  
                 
Liabilities and Shareholders’ Equity
               
Current liabilities:
               
Accounts payable and accrued expenses
  $ 21,175     $ 17,345  
Current portion of long term debt
    50,000        
Deferred revenue
    10,073       10,356  
Fair value of derivative instruments
    815       2,491  
Total current liabilities
    82,063       30,192  
                 
Noncurrent liabilities:
               
Deferred revenue
    2,427       2,298  
Deferred rent credit
    692       706  
Fair market value of time charters acquired
    9,304       23,586  
Fair value of derivative instruments
    50,094       63,446  
Long-term debt
    1,289,500       1,173,300  
Total noncurrent liabilities
    1,352,017       1,263,336  
                 
Total liabilities
    1,434,080       1,293,528  
                 
Commitments and contingencies
               
                 
Shareholders’ equity:
               
Common stock, par value $0.01; 100,000,000 shares authorized; issued and outstanding
31,724,548 and 31,709,548 shares at September 30, 2009 and December 31, 2008, respectively
    317       317  
Paid-in capital
    721,334       717,979  
Accumulated other comprehensive deficit
    (16,918 )     (66,014 )
Retained earnings
    157,327       44,196  
Total shareholders’ equity
    862,060       696,478  
                 
Total liabilities and shareholders’ equity
  $ 2,296,140     $ 1,990,006  
See accompanying notes to consolidated financial statements.
 
 
 
 
4

 

Genco Shipping & Trading Limited
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008
(U.S. Dollars in Thousands, Except for Earnings per Share and Share Data)
(Unaudited)

   
For the Three Months
Ended September 30,
   
For the Nine Months
Ended September 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Revenues
  $ 92,949     $ 107,557     $ 283,301     $ 303,798  
                                 
Operating expenses:
                               
Voyage expenses
    1,002       1,748       3,866       3,216  
Vessel operating expenses
    14,766       11,509       42,235       33,615  
General and administrative expenses
    3,782       4,133       11,775       12,975  
Management fees
    878       712       2,620       2,050  
Depreciation and amortization
    22,297       18,840       64,179       51,453  
Gain on sale of vessel
    -       -       -       (26,227 )
                                 
Total operating expenses
    42,725       36,942       124,675       77,082  
                                 
Operating income
    50,224       70,615       158,626       226,716  
                                 
Other (expense) income:
                               
Other expense
    (15 )     (629 )     (298 )     (2,009 )
Interest income
    104       634       169       1,609  
Interest expense
    (16,042 )     (12,031 )     (45,366 )     (35,433 )
Income from investments
    -       4,410       -       7,001  
                                 
Other expense
    (15,953 )     (7,616 )     (45,495 )     (28,832 )
                                 
Net income
  $ 34,271     $ 62,999     $ 113,131     $ 197,884  
                                 
Earnings per share-basic
  $ 1.10     $ 2.00     $ 3.62     $ 6.60  
Earnings per share-diluted
  $ 1.09     $ 1.99     $ 3.60     $ 6.56  
Weighted average common shares outstanding-basic
    31,295,916       31,423,483       31,275,061       29,974,547  
Weighted average common shares outstanding-diluted
    31,473,369       31,610,262       31,420,304       30,166,060  
Dividends declared per share
  $ -     $ 1.00     $ -     $ 2.85  
                                 
See accompanying notes to consolidated financial statements.
 



 
5

 
Genco Shipping & Trading Limited
Consolidated Statement of Shareholders’ Equity and Comprehensive Income (Unaudited)
For the Nine Months Ended September 30, 2009
(U.S. Dollars in Thousands Except for Per Share and Share Data)

   
Common
Stock
   
Paid in
Capital
   
Retained
Earnings
   
Accumulated Other Comprehensive Deficit
   
Comprehensive Income
   
Total
 
Balance – January 1, 2009
  $ 317     $ 717,979     $ 44,196     $ (66,014 )         $ 696,478  
                                               
Net income
                    113,131             $ 113,131       113,131  
                                                 
Unrealized gain on investments
                            24,102       24,102       24,102  
                                                 
Unrealized gain on currency translation on investments
                            8,364       8,364       8,364  
                                                 
Unrealized gain on cash flow hedges
                            16,630       16,630       16,630  
                                                 
Comprehensive income
                                  $ 162,227          
                                                 
Issuance of 15,000 shares of nonvested stock
                                         
                                                 
Nonvested stock amortization
            3,355                               3,355  
                                                 
Balance – September 30, 2009
  $ 317     $ 721,334     $ 157,327     $ (16,918 )           $ 862,060  
                                                 
 

See accompanying notes to consolidated financial statements.
 

 

 
6

 

Genco Shipping & Trading Limited
Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2009 and 2008
(U.S. Dollars in Thousands)
(Unaudited)
 
   
For the Nine Months
Ended September 30,
 
   
2009
   
2008
 
Cash flows from operating activities:
           
Net income
  $ 113,131     $ 197,884  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    64,179       51,453  
Amortization of deferred financing costs
    767       556  
Amortization of fair market value of time charterers acquired
    (14,282 )     (16,545 )
Realized gain on forward currency contracts
    -       (3,382 )
Unrealized loss on derivative instruments
    275       57  
Unrealized loss on hedged investment
 
    -       8,848  
Unrealized gain on forward currency contracts
    -       (3,375 )
Realized income on investment
    -       (7,001 )
Amortization of nonvested stock compensation expense
    3,355       4,671  
Gain on sale of vessel
    -       (26,227 )
Change in assets and liabilities:
               
Decrease in due from charterers
    884       828  
Increase in prepaid expenses and other current assets
    (1,683 )     (3,118 )
Increase in accounts payable and accrued expenses
    3,760       3,749  
(Decrease) increase in deferred revenue
    (154 )     3,369  
Decrease in deferred rent credit
    (14 )     (14 )
Deferred drydock costs incurred
    (3,938 )     (4,327 )
                 
Net cash provided by operating activities
    166,280       207,426  
                 
Cash flows from investing activities:
               
Purchase of vessels
    (191,541 )     (411,968 )
Deposits on vessels
    (908 )     (57,408 )
Purchase of investments
    -       (10,251 )
Proceeds from forward currency contracts, net
    -       3,426  
Realized income on investment
    -       7,001  
Deposits of restricted cash
    (17,000 )     -  
Proceeds from sale of vessels
    -       43,084  
Purchase of other fixed assets
    (678 )     (162 )
                 
Net cash used in investing activities
    (210,127 )     (426,278 )
                 
Cash flows from financing activities:
               
Proceeds from 2007 Credit Facility
    166,200       461,500  
Repayments on the 2007 Credit Facility
    -       (268,000 )
Cash dividends paid
    -       (85,590 )
Net proceeds from issuance of common stock
    -       195,554  
Payments to acquire and retire common stock
            (10,040 )
Payment of deferred financing costs
    (3,552 )     (3,613 )
                 
Net cash provided by financing activities
    162,648       289,811  
                 
Net increase in cash and cash equivalents
    118,801       70,959  
                 
Cash and cash equivalents at beginning of period
    124,956       71,496  
                 
Cash and cash equivalents at end of period
  $ 243,757     $ 142,455  
   
See accompanying notes to consolidated financial statements.
 
 
 

 
 
7

 

Genco Shipping & Trading Limited
 (U.S. Dollars in Thousands Except Per Share and Share Data)
 
Notes to Consolidated Financial Statements for the Three and Nine Months Ended September 30, 2009 and 2008 (unaudited)
 
1 - GENERAL INFORMATION
 
The accompanying consolidated financial statements include the accounts of Genco Shipping & Trading Limited (“GS&T”) and its wholly owned subsidiaries (collectively, the “Company,” “we” or “us”). The Company is engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels. GS&T was incorporated on September 27, 2004 under the laws of the Marshall Islands and as of September 30, 2009, is the sole owner of all of the outstanding shares of the following subsidiaries: Genco Ship Management LLC; Genco Investments LLC; and the ship-owning subsidiaries as set forth below.
 
Below is the list of the Company’s wholly owned ship-owning subsidiaries as of September 30, 2009:
 
Wholly Owned
Subsidiaries
Vessels
Acquired
Dwt
Date
Delivered
Year
Built
 
           
Genco Reliance Limited.........................
Genco Reliance
29,952
12/6/04
1999
 
Genco Vigour Limited............................
Genco Vigour
73,941
12/15/04
1999
 
Genco Explorer Limited..........................
Genco Explorer
29,952
12/17/04
1999
 
Genco Carrier Limited.............................
Genco Carrier
47,180
12/28/04
1998
 
Genco Sugar Limited..............................
Genco Sugar
29,952
12/30/04
1998
 
Genco Pioneer Limited...........................
Genco Pioneer
29,952
1/4/05
1999
 
Genco Progress Limited.........................
Genco Progress
29,952
1/12/05
1999
 
Genco Wisdom Limited.........................
Genco Wisdom
47,180
1/13/05
1997
 
Genco Success Limited.........................
Genco Success
47,186
1/31/05
1997
 
Genco Beauty Limited...........................
Genco Beauty
73,941
2/7/05
1999
 
Genco Knight Limited............................
Genco Knight
73,941
2/16/05
1999
 
Genco Leader Limited............................
Genco Leader
73,941
2/16/05
1999
 
Genco Marine Limited...........................
Genco Marine
45,222
3/29/05
1996
 
Genco Prosperity Limited.....................
Genco Prosperity
47,180
4/4/05
1997
 
Genco Muse Limited …………………
Genco Muse
48,913
10/14/05
2001
 
Genco Acheron Limited ……………..
Genco Acheron
72,495
11/7/06
1999
 
Genco Surprise Limited ……………...
Genco Surprise
72,495
11/17/06
1998
 
Genco Augustus Limited …………....
Genco Augustus
180,151
8/17/07
2007
 
Genco Tiberius Limited ……………...
Genco Tiberius
175,874
8/28/07
2007
 
Genco London Limited ………………
Genco London
177,833
9/28/07
2007
 
Genco Titus Limited ……………........
Genco Titus
177,729
11/15/07
2007
 
Genco Challenger Limited …………..
Genco Challenger
28,428
12/14/07
2003
 
Genco Charger Limited ……………...
Genco Charger
28,398
12/14/07
2005
 
Genco Warrior Limited ……………...
Genco Warrior
55,435
12/17/07
2005
 
Genco Predator Limited ……………..
Genco Predator
55,407
12/20/07
2005
 
Genco Hunter Limited ……………….
Genco Hunter
58,729
12/20/07
2007
 
Genco Champion Limited …………...
Genco Champion
28,445
1/2/08
2006
 
Genco Constantine Limited …………
Genco Constantine
180,183
2/21/08
2008
 
Genco Raptor LLC…………………....
Genco Raptor
76,499
6/23/08
2007
 
Genco Cavalier LLC………………….
Genco Cavalier
53,617
7/17/08
2007
 
Genco Thunder LLC…………………
Genco Thunder
76,499
9/25/08
2007
 
Genco Hadrian Limited ……………..
Genco Hadrian
169,694
12/29/08
2008
 
Genco Commodus Limited ………….
Genco Commodus
169,025
7/22/09
2009
 
Genco Maximus Limited …………….
Genco Maximus
169,025
9/18/09
2009
 
Genco Claudius Limited ……………..
Genco Claudius
170,500
Q4 2009 (1)
2009 (2)
 
           
     
 
 
8

 
 
(1) Dates for vessels being delivered in the future are estimates based on guidance received from the sellers and/or the    respective shipyards.
(2) Built dates for vessels delivering in the future are estimates based on guidance received from the sellers and respective shipyards.
 
 
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 
Principles of consolidation
 
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which include the accounts of Genco Shipping & Trading Limited and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
 
Basis of Presentation

               The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and the rules and regulation of the Securities and Exchange Commission (the “SEC”).  In the opinion of management of the Company, all adjustments necessary for a fair presentation of financial position and operating results have been included in the statements. Interim results are not necessarily indicative of results for a full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements included in the Annual Report on our Form 10-K for the year ended December 31, 2008 (the “2008 10-K”).

Fixed assets, net
 
Fixed assets, net are stated at cost less accumulated depreciation and amortization.  Depreciation and amortization are based on a straight line basis over the estimated useful life of the specific asset placed in service.  The following table is used to determine the typical estimated useful lives:
 
Description                                  Useful lives
 
Leasehold improvements                                    15 years
Furniture, fixtures & other equipment                 5 years
Vessel equipment                                                 2-15 years
Computer equipment                                              3 years

Depreciation and amortization expense for fixed assets for the three months ended September 30, 2009 and 2008 was $115 and $105, respectively.  Depreciation and amortization expense for fixed assets for the nine months ended September 30, 2009 and 2008 was $299 and $308, respectively.
 
Deferred revenue
 
Deferred revenue primarily relates to cash received from charterers prior to it being earned. These amounts are recognized as income when earned.  Additionally, deferred revenue includes estimated customer claims mainly due to time charter performance issues.  As of September 30, 2009 and December 31, 2008, the Company had a reserve of $1,616 and $1,350, respectively, related to these estimated customer claims.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk are amounts due from charterers and cash and cash equivalents. With respect to amounts due from charterers, the Company attempts to limit its credit risk by performing ongoing credit evaluations and, when deemed necessary, requiring letters of credit, guarantees or collateral.  During the three months ended September 30, 2009 and 2008, the Company earned
 
 
9

 
 
100% of its revenues from eighteen and nineteen customers, respectively.  Additionally, the Company earned 100% of its revenues from twenty-two and twenty customers for the nine months ended September 30, 2009 and 2008, respectively.  Management does not believe significant risk exists in connection with the Company’s concentrations of credit at September 30, 2009 and December 31, 2008.

For the three months ended September 30, 2009, there are two customers that individually accounted for more than 10% of revenues, Cargill International S.A. and Pacific Basin Chartering Ltd., which represented 30.43% and 12.40% of revenues, respectively.  For the three months ended September 30, 2008, there were two customers that individually accounted for more than 10% of revenues, Cargill International S.A. and Pacific Basin Chartering Ltd., which represented 27.53% and 12.60% of revenues, respectively.

For the nine months ended September 30, 2009, there are two customers that individually accounted for more than 10% of revenues, Cargill International S.A. and Pacific Basin Chartering Ltd.,, which represented 30.41% and 14.33% of revenues, respectively.  For the nine months ended September 30, 2008, there were two customers that individually accounted for more than 10% of revenues, Cargill International S.A. and Pacific Basin Chartering Ltd., which represented 29.36% and 14.52% of revenues, respectively.

The Company maintains all of its cash and cash equivalents with three financial institutions.  None of the Company's cash and cash equivalent balances are covered by insurance in the event of default by these financial institutions.

Derivative financial instruments
 
Interest rate risk management
 
The Company is exposed to interest rate risk due to fluctuations in variable interest rates.  The Company’s objective is to manage the impact of interest rate changes on its earnings and cash flow in relation to borrowings primarily for the purpose of acquiring drybulk vessels.  These borrowings are subject to a variable borrowing rate.  The Company uses pay-fixed receive-variable interest rate swaps to manage future interest costs and the risk associated with changing interest rate obligations.  These swaps are designated as cash flow hedges of future variable rate interest payments and are tested for effectiveness on a quarterly basis.
 
The differential to be paid or received for any swap agreement designated as a cash flow hedge is recognized as an adjustment to interest expense as incurred.  Additionally, the changes in value for the portion of the swaps that are effectively hedging future interest payments are reflected as a component of other comprehensive deficit (“OCI”).

For the portion of the forward interest rate swaps that are not effectively hedged, the change in the value and the rate differential to be paid or received is recognized as income or (expense) from derivative instruments and is listed as a component of other (expense) income until such time the Company has obligations against which the swap is designated and is an effective hedge.

New accounting pronouncements

In June 2009, the Financial Accounting Standards Board (the “FASB”) issued the FASB Accounting Standard Codification and the Hierarchy U.S. GAAP (the “Codification”), which replaced prior guidance and modified the U.S. GAAP hierarchy to include only two levels of U.S. GAAP:  authoritative and nonauthoritative (formerly SFAS No. 168, “The FASB Accounting Standard Codification and the hierarchy of Generally Accepted Accounting Principles”).  The Codification became the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities.  Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants.  On the effective date of the Codification, it superseded all then-existing non-SEC accounting and reporting standards.  All other nongrandfathered non-SEC accounting literature not included in the Codification became nonauthoritative.  The Codification is effective for fiscal years and interim periods ending after September 15, 2009.  The adoption of the Codification in the current quarter did not have a material impact on the Company’s consolidated interim financial statements.
 
 
10


 
In May 2009, the FASB issued additional guidance related to subsequent events (formerly SFAS No. 165, “Subsequent Events”) .  This guidance is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  Specifically, it sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.  This guidance is effective for fiscal years and interim periods ended after June 15, 2009 and is applied prospectively.  The adoption of this guidance during the quarter ended June 30, 2009 did not have a material impact on the Company’s consolidated interim financial statements.

In April 2009, the FASB issued guidance related to interim disclosures about fair value of financial instruments which requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements (formerly FASB Staff Position 107-1 and Accounting Principles Board 28-1, “Interim Disclosures about Fair Value of Financial Instruments”).  This guidance is effective for interim reporting periods ended after June 15, 2009, with early adoption permitted for periods ended after March 15, 2009.  The adoption of this guidance in the quarter ended June 30, 2009 did not have an impact on the Company’s consolidated interim financial statements.  See Note 10 – Fair Value of Financial Instruments for the Company’s disclosures about the fair value of financial instruments.

In February 2008, the FASB issued guidance delaying the effective date of fair value measurement guidance to fiscal years beginning after November 15, 2008 and interim periods with those fiscal years for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) until January 1, 2009 for calendar year end entities (formerly FASB Staff Position 157-2, “Effective Date of FASB Statement No. 157”). The Company has already adopted this fair value measurement guidance except as it applies to nonfinancial assets and liabilities. The adoption of this guidance did not have a material impact on the Company’s consolidated interim financial statements.

In December 2007, the FASB issued guidance that will significantly change the accounting for business combinations (formerly SFAS No. 141 (Revised 2007), “Business Combinations”).  Under this guidance, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with limited exceptions. This guidance also includes a substantial number of new disclosure requirements and applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted this guidance effective January 1, 2009.  As these provisions are applied prospectively, the impact to the Company cannot be determined until any such transactions occur.

In March 2008, the FASB issued guidance related to disclosures about derivative instruments and hedging activities, which amends previous guidance (formerly SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement 133”). The new guidance is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, results of operations and cash flows. The new standard also improves transparency about how and why a company uses derivative instruments and how derivative instruments and related hedged items are accounted for under previous hedging guidance. It is effective for financial statements issued for fiscal years and interim periods which began November 15, 2008, with early application encouraged.  The Company adopted the provisions of this guidance effective January 1, 2009.  See Note 8 – Long-Term Debt and Note 2 – Summary of Significant Accounting Policies, for the Company’s disclosures about its derivative instruments and hedging activities.

3 - CASH FLOW INFORMATION
 
The Company currently has eleven interest rate swaps, and these swaps are described and discussed in Note 8 – Long-Term Debt. The fair value of ten of the swaps is in a liability position of $50,909 and one of the swaps is in an asset position of $1,327 as of September 30, 2009.  At December 31, 2008, nine swaps were in a liability position of $65,937.
 
 
 
11


 
For the nine months ended September 30, 2009, the Company had non-cash investing activities not included in the Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses as of September 30, 2009 consisting of $513 for the purchase of vessels, $70 associated with deposits on vessels and $297 for the purchase of other fixed assets.  Additionally, for the nine months ended September 30, 2009, the Company had non-cash investing activities not included in the Consolidated Statement of Cash Flows for items included in prepaid expenses and other current assets as of September 30, 2009 consisting of $130 associated with deposits on vessels. For the nine months ended September 30, 2008, the Company had non-cash investing activities not included in the Consolidated Statement of Cash Flows for items included in accounts payable and accrued expenses as of September 30, 2008 consisting of $407 for the purchase of vessels, $483 associated with deposits on vessels, $25 for the purchase of other fixed assets and $51 for the purchase of investments.  For the nine months ended September 30, 2008, the Company also had non-cash financing activities not included in the Consolidated Statement of Cash Flows for items in accounts payable and accrued expenses as of September 30, 2008 consisting of $160 associated with deferred financing costs and $1,460 associated with share repurchases, which are reflected as share repurchases at September 30, 2008.  Additionally, for the nine months ended September 30, 2008, the Company had non-cash investing activities not included in the Consolidated Statement of Cash Flows for items included in prepaid expenses and other current assets as of September 30, 2008 consisting of $4,455 associated with deposits on vessels.

For the nine months ended September 30, 2009, the Company made a non-cash reclassification of $60,454 from deposits on vessels to vessels, net of accumulated depreciation, due to the completion of the purchase of the Genco Commodus and Genco Maximus.

During the nine months ended September 30, 2009 and 2008, cash paid for interest, net of amounts capitalized, was $42,101 and $34,859 respectively.

On January 10, 2008, the Board of Directors approved a grant of 100,000 shares of nonvested common stock to Peter Georgiopoulos, Chairman of the Board.  The fair value of such nonvested stock was $4,191 on the grant date and was recorded in equity.  Additionally, on February 13, 2008 and July 24, 2008, the Company made grants of nonvested common stock under the Genco Shipping and Trading Limited 2005 Equity Incentive Plan in the amount of 12,500 and 15,000 shares, respectively, to directors of the Company.  The fair value of such nonvested stock was $689 and $938, respectively, on the grant dates and was recorded in equity.

On July 24, 2009, the Company made grants of nonvested common stock under the Genco Shipping and Trading Limited 2005 Equity Incentive Plan in the amount of 15,000 shares to directors of the Company.  The fair value of such nonvested stock was $374 on the grant date and was recorded in equity.

4 - VESSEL ACQUISITIONS AND DISPOSITIONS
 
Below market time charters acquired were amortized as a net increase to revenue in the amount of $4,813 and $4,935 for the three months ended September 30, 2009 and 2008, respectively.  Below market time charters acquired were amortized as a net increase to revenue in the amounts of $14,282 and $16,545, respectively, for the nine months ended September 30, 2009 and 2008.

Capitalized interest expense associated with newbuilding contracts for the three months ended September 30, 2009 and 2008 was $331 and $1,543, respectively.  Capitalized interest expense associated with newbuilding contracts for the nine months ended September 30, 2009 and 2008 was $1,317 and $4,328, respectively.

5 –INVESTMENTS

The Company holds an investment in the capital stock of Jinhui Shipping and Transportation Limited (“Jinhui”).  Jinhui is a drybulk shipping owner and operator focused on the Supramax segment of drybulk shipping.  This investment is designated as Available For Sale (“AFS”) and is reported at fair value, with unrealized gains and losses recorded in shareholders’ equity as a component of OCI.  At September 30, 2009 and December 31, 2008, the Company held 16,335,100 shares of Jinhui capital stock which is recorded at its fair value of $49,238 and $16,772, respectively based on the closing price on September 30, 2009 and December 31, 2008 of 17.40 NOK and 7.14 NOK, respectively.
 
 
12

 
 
During the fourth quarter of 2008, the Company reviewed the investment in Jinhui for indicators of other-than-temporary impairment in accordance with Accounting Standards Codification 320-10, Investments – Debt and Equity Securities (“ASC 320-10”) (formerly FSP 115-1, “Recognition and Presentation of Other-Than-Temporary Impairments”).  Based on this review, the Company deemed the investment in Jinhui to be other-than-temporarily impaired as of December 31, 2008 due to the severity of the decline in its market value versus our cost basis.  As a result, during the fourth quarter of 2008, the Company recorded a $103,892 impairment charge.  As a result of the other-than-temporary impairment, the new cost basis of this investment is 7.14 NOK per share, the value of the investment at December 31, 2008.  The Company reviews the investment in Jinhui for impairment on a quarterly basis.  There were no impairment charges recognized for the three and nine month periods ended September 30, 2009 and 2008, respectively.
 
The unrealized currency translation gain for the Jinhui capital stock remains a component of OCI since this investment is designated as an AFS security.  For the three and nine months ended September 30, 2008, the hedged portion of the currency translation (loss)/gain has been reclassed to the income statement as a component of other (expense) income.
 
Refer to Note 9 – Accumulated Other Comprehensive Deficit for a breakdown of the components of accumulated OCI.
 
Effective on August 16, 2007, the Company elected to utilize hedge accounting for forward contracts hedging the currency risk associated with the Norwegian Kroner cost basis in the Jinhui stock.  The hedge was limited to the lower of the cost basis or the market value at time of the designation.  The unrealized appreciation in the stock and the currency translation gain above the cost basis was recorded as a component of OCI.  Realized gains and losses on the sale of these securities will be reflected in the Consolidated Statement of Operations in other (expense) income once sold.  Time value of the forward contracts was excluded from effectiveness testing and recognized in income.  For the three and nine months ended September 30, 2008, an immaterial amount was recognized in other income or (expense) associated with excluded time value and ineffectiveness.  For the three and nine months ended September 30, 2009, no hedges were utilized.
 
               At September 30, 2009 and December 31, 2008, the Company did not have a short-term forward currency contract to hedge the Company’s exposure to the Norwegian Kroner related to the cost basis of Jinhui stock as described above.  The Company elected to discontinue the forward currency contract and hedge due to the underlying market value of Jinhui in October 2008.  The gain (loss) associated with these short-term forward currency contracts held during the three and nine months ended September 30, 2008 is included as a component of other income (expense) and is offset by a reclassification from OCI for the hedged portion of the currency gain (loss) on investment.

The following table sets forth the net loss, realized and unrealized, related to the forward currency contracts and to the hedged translation on the cost basis of the Jinhui stock.  These are included as a component of other  income (expense).

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
Net (loss), realized and unrealized
  $     $ (765 )   $     $ (2,047 )
                                 
 
6 - EARNINGS PER COMMON SHARE
 
The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the year. The computation of diluted earnings per share assumes the vesting of nonvested stock awards (see Note 18 – Nonvested Stock Awards), for which the assumed proceeds upon vesting are deemed to be the amount of compensation cost attributable to future services and not yet recognized using the treasury stock method, to the extent dilutive.
 
 
13


 
The components of the denominator for the calculation of basic earnings per share and diluted earnings per share are as follows:
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Common shares outstanding, basic:
                       
Weighted average common shares outstanding, basic
    31,295,916       31,423,483       31,275,061       29,974,547  
                                 
Common shares outstanding, diluted:
                               
Weighted average common shares outstanding, basic
    31,295,916       31,423,483       31,275,061       29,974,547  
                                 
Dilutive effect of restricted stock awards
    177,453       186,779       145,243       191,513  
                                 
Weighted average common shares outstanding, diluted
    31,473,369       31,610,262       31,420,304       30,166,060  
 
7 - RELATED PARTY TRANSACTIONS
 
The following are related party transactions not disclosed elsewhere in these financial statements:
 
The Company makes an employee performing internal audit services available to General Maritime Corporation (“GMC”), where the Company’s Chairman, Peter C. Georgiopoulos, also serves as Chairman of the Board.   For the nine months ended September 30, 2009 and 2008, the Company invoiced $98 and $100, respectively, to GMC which includes time associated with such internal audit services of $94 as well as $4 of office expenses.  Additionally, during the nine months ended September 30, 2009 and 2008, the Company incurred travel and other related expenditures totaling $124 and $252, respectively, reimbursable to GMC or its service provider.   At September 30, 2009 and December 31, 2008, the amount due to the Company from GMC is $15 and $62, respectively.
 
During the nine months ended September 30, 2009 and 2008, the Company incurred legal services aggregating $37 and $87, respectively, from Constantine Georgiopoulos, father of Peter C. Georgiopoulos, Chairman of the Board. At September 30, 2009 and December 31, 2008, $37 and $1, respectively, was outstanding to Constantine Georgiopoulos.
 
8 - LONG-TERM DEBT
 
Long-term debt consists of the following:
 
   
September 30, 2009
   
December 31, 2008
 
             
Outstanding total debt
  $ 1,339,500     $ 1,173,300  
Less: Current portion
    (50,000 )      
                 
Long-term debt
  $ 1,289,500     $ 1,173,300  
 
2007 Credit Facility

On July 20, 2007, the Company entered into a credit facility with DnB Nor Bank ASA (the “2007 Credit Facility”) for the purpose of acquiring nine new Capesize vessels and refinancing the Company’s prior credit facility
 
 
14

 
 
which it had entered into as of July 29, 2005 (the “2005 Credit Facility”) and short-term line of credit facility entered into as of May 3, 2007 (the “Short-Term Line”).  DnB Nor Bank ASA is also Mandated Lead Arranger, Bookrunner, and Administrative Agent. The Company has used borrowings under the 2007 Credit Facility to repay amounts outstanding under the Company’s previous credit facilities, which have been terminated.  The maximum amount that may be borrowed under the 2007 Credit Facility at September 30, 2009 is $1,339,500.  As of September 30, 2009, the Company has utilized its maximum borrowing capacity under the 2007 Credit Facility.
 
On January 26, 2009, the Company entered into an amendment to the 2007 Credit Facility (the “2009 Amendment”) which implemented the following modifications to the terms of the 2007 Credit Facility:

·  
Compliance with the existing collateral maintenance financial covenant was waived effective for the year ended December 31, 2008 and until the Company can represent that it is in compliance with all of its financial covenants and is otherwise able to pay a dividend and purchase or redeem shares of common stock under the terms of the Credit Facility in effect before the 2009 Amendment.  The Company’s cash dividends and share repurchases were suspended until the Company can represent that it is in a position to again satisfy the collateral maintenance covenant.

·  
The total amount of the 2007 Credit Facility is subject to quarterly reductions of $12,500 beginning March 31, 2009 through March 31, 2012 and $48,195 of the total facility amount thereafter until the maturity date.  A final payment of $250,600 will be due on the maturity date.

·  
The applicable margin to be added to the London Interbank Offered Rate to calculate the rate at which the Company’s borrowings bear interest is 2.00% per annum (the “Applicable Margin”).

·  
The commitment commission payable to each lender is 0.70% per annum of the daily average unutilized commitment of such lender.

The significant covenants in the 2007 Credit Facility have been disclosed in the 2008 10-K.  As of September 30, 2009, the Company believes it is in compliance with all of the financial covenants under its 2007 Credit Facility, as amended.

The Company has recorded $17,000 of restricted cash, or $500 per vessel, as a current asset at September 30, 2009.  Since the Company has utilized its maximum borrowing capacity under the 2007 Credit Facility at September 30, 2009, the Company was required to hold this balance at September 30, 2009 to comply with the minimum cash balance covenant under its 2007 Credit Facility, as amended.

At September 30, 2009, there were no letters of credit issued under the 2007 Credit Facility.

 The following table sets forth the repayment of the outstanding debt of $1,339,500 at September 30, 2009 under the 2007 Credit Facility, as amended:
 
       
Period Ending December 31,
 
Total
 
       
2009 (October 1, 2009 – December 31, 2009)
  $ 12,500  
2010
    50,000  
2011
    50,000  
2012
    108,890  
2013
    192,780  
Thereafter
    925,330  
         
Total long-term debt
  $ 1,339,500  
         
 
 
15

 
 
Interest rates

The following tables sets forth the effective interest rate associated with the interest expense for the 2007 Credit Facility, as amended, including the rate differential between the pay fixed receive variable rate on the swaps that were in effect, combined, and the cost associated with unused commitment fees.  Additionally, it includes the range of interest rates on the debt, excluding the unused commitment fees:

   
Three months ended September 30,
   
Nine Months Ended September 30,
 
   
2009
   
2008
   
2009
   
2008
 
Effective Interest Rate
    5.13 %     5.27 %     5.23 %     5.27 %
Range of Interest Rates (excluding impact of swaps)
 
2.25% to 3.25
%  
3.35% to 4.66
%  
1.23% to 5.56
%  
2.98% to 6.10
%
                                 


Interest rate swap agreements
 
The Company has entered into eleven interest rate swap agreements with DnB NOR Bank to manage interest costs and the risk associated with changing interest rates related to our 2007 Credit Facility. The total notional principal amount of the swaps at September 30, 2009 is $831,233 and the swaps have specified rates and durations.

The following table summarizes the interest rate swaps designated as cash flow hedges that are in place as of September 30, 2009 and December 31, 2008:

Interest Rate Swap Detail
 
September 30,
2009
   
December 31, 2008
 
Trade
Date
 
Fixed
Rate
 
Start Date
of Swap
End date
of Swap
 
Notional
Amount
Outstanding
   
Notional
Amount
Outstanding
 
9/6/05
    4.485 %
9/14/05
7/29/15
  $ 106,233     $ 106,233  
3/29/06
    5.25 %
1/2/07
1/1/14
    50,000       50,000  
3/24/06
    5.075 %
1/2/08
1/2/13
    50,000       50,000  
9/7/07
    4.56 %
10/1/07
12/31/09
    75,000       75,000  
7/31/07
    5.115 %
11/30/07
11/30/11
    100,000       100,000  
8/9/07
    5.07 %
1/2/08
1/3/12
    100,000       100,000  
8/16/07
    4.985 %
3/31/08
3/31/12
    50,000       50,000  
8/16/07
    5.04 %
3/31/08
3/31/12
    100,000       100,000  
1/22/08
    2.89 %
2/1/08
2/1/11
    50,000       50,000  
1/9/09
    2.05 %
1/22/09
1/22/14
    100,000        
2/11/09
    2.45 %
2/23/09
2/23/14
    50,000        
                             
                $ 831,233     $ 681,233  

The following table summarizes the derivative asset and liability balances at September 30, 2009:

 
 
16


 
 
Asset Derivatives
 
Liability Derivatives
 
As of September 30
2009
 
2009
 
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
 
Derivatives designated as hedging instruments under Statement 133
               
   Interest rate contracts
Fair value of derivative instruments (Current Assets)
  $  –  
Fair value of derivative instruments (Current Liabilities)
  $ 815  
   Interest rate contracts
Fair value of derivative instruments (Noncurrent Assets)
    1,327  
Fair value of derivative instruments (Noncurrent Liabilities)
      50,094  
                     
Total derivatives designated as hedging instruments under Statement 133
    $   1,327       $   50,909  
                     
Total Derivatives
    $ 1,327       $ 50,909  
                     

The following tables present the impact of derivative instruments and their location within the unaudited Consolidated Statement of Operations:

The Effect of Derivative Instruments on the Consolidated Statement of Operations
 
For the Three Month Period Ended September 30, 2009
 
 
 
 
 
 
 
 
 
 
Derivatives in
Statement 133 Cash
Flow Hedging
Relationships
 
 
Amount of
Gain or
(Loss)
Recognized
in
Accumulated
OCI on
Derivative
(Effective
Portion)
 
 
 
 
 
Location of
Gain or (Loss)
Reclassified
from
Accumulated
OCI into
income
(Effective
Portion)
 
 
Amount of
Gain or (Loss) Reclassified
from
Accumulated
OCI into
income
(Effective
Portion)
 
 
 
 
 
 
 
Location of
Gain or (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion)
 
 
 
 
 
Amount of
Gain or (Loss) Recognized in Income on Derivative (Ineffective
Portion)
 
 
2009
   
2009
   
2009
 
                       
 
Interest rate contracts
  $ (13,123 )
 
Interest Expense
  $ (7,850 )
Other Income (Expense)
  $ (14 )
                             




17

 

The Effect of Derivative Instruments on the Consolidated Statement of Operations
For the Nine Month Period Ended September 30, 2009
 
Derivatives in
Statement 133 Cash
Flow Hedging
Relationships
Amount of
Gain or
(Loss)
Recognized
in
Accumulated
OCI on
Derivative
(Effective
Portion)
Location of
Gain or (Loss)
 Reclassified
from
Accumulated
OCI into
income
(Effective
Portion)
Amount of
Gain or (Loss)
Reclassified
from
Accumulated
OCI into
income
(Effective
Portion)
Location of
Gain or (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion)
Amount of
Gain or (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion)
2009
2009
2009
           
 
Interest rate contracts
 
($3,482)
 
Interest Expense
 
($20,112)
Other Income (Expense)
 
($275)
           

The liability associated with the swaps at December 31, 2008 was $65,937, which was presented as the fair value of derivatives on the balance sheet.  Hedge ineffectiveness associated with the interest rate swaps resulted in other income (expense) of $14 and ($7) for the three and nine months ended September 30, 2008.

At September 30, 2009, ($28,410) of OCI is expected to be reclassified into interest expense over the next 12 months associated with interest rate derivatives.

The Company is required to provide collateral in the form of vessel assets to support the interest rate swap agreements.  Each of the Company’s thirty-four vessels serves as collateral in the aggregate amount of $100,000.

9 – ACCUMULATED OTHER COMPREHENSIVE DEFICIT
 
The components of accumulated other comprehensive deficit included in the accompanying consolidated balance sheets consist of net unrealized gain (loss) on cash flow hedges, net unrealized gain (loss) from investments, and cumulative translation adjustments on the investment in Jinhui stock as of September 30, 2009 and December 31, 2008.

   
Accumulated OCI
   
Unrealized Gain (loss) on Cash Flow Hedges
   
Unrealized Gain on Investments
   
Currency Translation Gain on Investments
 
OCI – January 1, 2009
  $ ( 66,014 )   $ ( 66,014 )   $     $  
Unrealized gain on investments
    24,102               24,102          
Translation gain on investments
    8,364                       8,364  
Unrealized gain on cash flow hedges
    16,630       16,630                  
OCI – September 30, 2009
  $ (16,918 )   $ (49,384 )   $ 24,102     $ 8,364  

10 - FAIR VALUE OF FINANCIAL INSTRUMENTS
 
The estimated fair values of the Company’s financial instruments are as follows:
 
   
September 30,
 2009
   
December 31, 2008
 
Cash and cash equivalents
  $ 243,757     $ 124,956  
Restricted cash
    17,000        
Investments
    49,238       16,772  
                 
 
 
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Floating rate debt
    1,339,500       1,173,300  
Derivative instruments –
asset position
    1,327        
Derivative instruments – liability position
    50,909       65,937  
                 
 
The fair value of the investments is based on quoted market rates.  The fair value of the revolving credit facility is estimated based on current rates offered to the Company for similar debt of the same remaining maturities.  Additionally, the Company considers its creditworthiness in determining the fair value of the revolving credit facility.  The carrying value approximates the fair market value for the floating rate loans.  The fair value of the interest rate swaps is the estimated amount the Company would receive to terminate the swap agreements at the reporting date, taking into account current interest rates and the creditworthiness of both the swap counterparty and the Company.
 
The Accounting Standards Codification subtopic 820-10, Fair Value Measurements & Disclosures (“ASC 820-10”) (formerly SFAS No. 157, “Fair Value Measurements”) applies to all assets and liabilities that are being measured and reported on a fair value basis.  This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.

The following table summarizes the valuation of our investments and financial instruments by the above ASC 820-10 pricing levels as of the valuation dates listed:

   
September 30, 2009
 
   
Total
   
Quoted market prices in active markets
(Level 1)
   
Significant Other Observable Inputs
(Level 2)
 
Cash Equivalents
  $ 75,033     $ 75,033        
Investments
    49,238       49,238        
Derivative instruments –
asset position
    1,327               1,327  
Derivative instruments – liability position
    50,909               50,909  
                         
 
The Company had an investment of $75,033 in the JPMorgan US Dollar Liquidity Fund Institutional at September 30, 2009.  The JPMorgan US Dollar Liquidity Fund Institutional is a money market fund which invests its assets in high quality transferable short term USD-denominated fixed and floating rate debt securities and has a portfolio with a weighted average investment maturity that will not exceed sixty days.  The value of this fund is publicly available and is considered a Level 1 item.  The Company holds an investment in the capital stock of Jinhui, which is classified as a long-term investment.  The stock of Jinhui is publicly traded on the Oslo Stock Exchange and is considered a Level 1 item.  The Company’s interest rate derivative instruments are pay-fixed, receive-variable interest rate swaps based on LIBOR.  The Company has elected to use the income approach to value the derivatives, using observable Level 2 market inputs at measurement date and standard valuation techniques to convert future
 
 
 
19

 
 
amounts to a single present amount assuming that participants are motivated, but not compelled to transact.  Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR for the first two years) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates and credit risk at commonly quoted intervals).  Mid-market pricing is used as a practical expedient for fair value measurements.  Refer to Note 8 – Long-Term Debt for further information regarding the Company’s interest rate swap agreements.  ASC 820-10 states that the fair value measurement of an asset or liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of the counterparty’s creditworthiness when in an asset position and the Company’s creditworthiness when in a liability position has also been factored into the fair value measurement of the derivative instruments in an asset or liability position and did not have a material impact on the fair value of these derivative instruments.  As of September 30, 2009, both the counterparty and the Company are expected to continue to perform under the contractual terms of the instruments.
 
11 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
 

 
Prepaid expenses and other current assets consist of the following:
   
September
30, 2009
   
December 
31, 2008
 
Lubricant inventory and other stores
  $ 4,166     $ 3,772  
Prepaid items
    3,079       2,581  
Insurance receivable
    1,521       2,345  
Interest receivable on deposits for vessels to be acquired
    1,324       3,547  
Other
    2,865       1,250  
Total
  $ 12,955     $ 13,495  
 
12 – OTHER ASSETS, NET
 
Other assets consist of deferred financing costs which include fees, commissions and legal expenses associated with securing loan facilities. These costs are amortized over the life of the related debt, and are included in interest expense. The Company has unamortized deferred financing costs of $7,759 and $4,974, respectively, at September 30, 2009 and December 31, 2008 associated with the 2007 Credit Facility. Accumulated amortization of deferred financing costs as of September 30, 2009 and December 31, 2008 was $2,315 and $1,548, respectively.  Amortization expense for deferred financing costs for the three months ended September 30, 2009 and 2008 was $270 and $214, respectively.  Amortization expense for deferred financing costs for the nine months ended September 30, 2009 and 2008 was $767 and $556, respectively.
 
13 - FIXED ASSETS
 
 
Fixed assets consist of the following:
 
   
September
30, 2009
   
December
31, 2008
 
Fixed assets:
           
Vessel equipment
  $ 1,934     $ 958  
Leasehold improvements
    1,146       1,146  
Furniture and fixtures
    347       347  
Computer equipment
    401       401  
Total cost
    3,828       2,852  
Less: accumulated depreciation and amortization
    1,439       1,140  
Total
  $ 2,389     $ 1,712  
 
14 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 
 
Accounts payable and accrued expenses consist of the following:
 
 
 
20

 
 
   
September
30, 2009
   
December
31, 2008
 
Accounts payable
  $ 3,946     $ 4,371  
Accrued general and administrative expenses
    10,021       5,937  
Accrued vessel operating expenses
    7,208       7,037  
                 
Total
  $ 21,175     $ 17,345  
 
15 - REVENUE FROM TIME CHARTERS
 
Total revenue earned on time charters, including revenue earned in vessel pools, for the three months ended September 30, 2009 and 2008 was $92,949 and $107,557, respectively, and for the nine months ended September 30, 2009 and 2008 was $283,301 and $303,798. Included in revenues for the three months ended September 30, 2009 and 2008 was $524 and $6,358 of profit sharing revenue, respectively, and for the nine months ended September 30, 2009 and 2008, profit sharing revenue was $1,647 and $22,829.  Future minimum time charter revenue, based on vessels committed to noncancelable time charter contracts as of October 28, 2009 is expected to be $84,828 for the remaining quarter of 2009, $224,392 during 2010, $98,234 during 2011 and $35,563 during 2012, assuming off-hire due to any scheduled drydocking and that no additional off-hire time is incurred.  For most drydockings, we assume twenty days of offhire; however, for certain drydockings where limited procedures are to be performed, we assume ten days of offhire.  Future minimum revenue excludes the future acquisition of the remaining one Capesize vessel, which is to be delivered to Genco in the future, since estimated delivery dates are not firm.  Additionally, future minimum revenue excludes revenue earned for the six vessels currently in pool arrangements, namely the Genco Predator, Genco Explorer, Genco Pioneer, Genco Progress, Genco Reliance, and Genco Sugar, as pool rates cannot be estimated.
 
16 - LEASE PAYMENTS
 
In September 2005, the Company entered into a 15-year lease for office space in New York, New York for which there was a free rental period from September 1, 2005 to July 31, 2006.  The monthly straight-line rental expense from September 1, 2005 to August 31, 2020 is $39.  As a result of the straight-line rent calculation generated by the free rent period and the tenant work credit, the Company has a deferred rent credit at September 30, 2009 and December 31, 2008 of $692 and $706, respectively.  Rent expense for the three months ended September 30, 2009 and 2008, was $117 for each respective period.  Rent expense for the nine months ended September 30, 2009 and 2008, was $350 for each of the respective periods.

Future minimum rental payments on the above lease for the next five years and thereafter are as follows: $121 for the remainder of 2009, $496 for 2010, $518 for 2011 through 2013 and a total of $3,614 for the remaining term of the lease.

17 - SAVINGS PLAN
 
In August 2005, the Company established a 401(k) plan which is available to full-time employees who meet the plan’s eligibility requirements.  This 401(k) plan is a defined contribution plan, which permits employees to make contributions up to maximum percentage and dollar limits allowable by IRS Code Sections 401(k), 402(g), 404 and 415 with the Company matching up to the first six percent of each employee’s salary on a dollar-for-dollar basis.  The matching contribution vests immediately.  For three months ended September 30, 2009 and 2008, the Company’s matching contribution to the Plan was $31 and $24, respectively, and for the nine months ended September 30, 2009 and 2008, the Company’s matching contribution to the Plan was $116 and $112.
 
18- NONVESTED STOCK AWARDS
 
On July 12, 2005, the Company’s board of directors approved the Genco Shipping and Trading Limited 2005 Equity Incentive Plan (the “Plan”).  Under this plan, the Company’s board of directors, the compensation committee, or another designated committee of the board of directors may grant a variety of stock-based incentive awards to employees, directors and consultants whom the compensation committee (or other committee or the board
 
 
21

 
 
of directors) believes are key to the Company’s success.  Awards may consist of incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, nonvested stock, unrestricted stock and performance shares.  The aggregate number of shares of common stock available for award under the Plan is 2,000,000 shares.
 
Grants of nonvested common stock to executives and employees vest ratably on each of the four anniversaries of the determined vesting date.  Grants of nonvested common stock to directors vest the earlier of the first anniversary of the grant date or the date of the next annual shareholders’ meeting, which are typically held during May.  Grants of nonvested common stock to the Company’s Chairman, Peter C. Georgiopoulos which are not granted as part of grants made to all directors vest ratably on each of the ten anniversaries of the vesting date.

The following table presents a summary of the Company’s nonvested stock awards for the nine months ended September 30, 2009:
 
   
Number of
Shares
   
Weighted
Average Grant
Date Price
 
Outstanding at January 1, 2009
    449,066     $ 27.96  
Granted
    15,000       24.93  
Vested
    (41,478 )     33.11  
Forfeited
           
                 
Outstanding at September 30, 2009
    422,588     $ 27.35  
 
For the three and nine months ended September 30, 2009 and 2008, the Company recognized nonvested stock amortization expense, which is included in general and administrative expenses, as follows:

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2009
   
2008
   
2009
   
2008
 
General and administrative expenses
  $ 1,032     $ 1,477     $ 3,355     $ 4,671  
                                 


The fair value of nonvested stock at the grant date is equal to the closing stock price on that date.  The Company is amortizing these grants over the applicable vesting periods, net of anticipated forfeitures.  As of September 30, 2009, unrecognized compensation cost related to nonvested stock will be recognized over a weighted average period of 4.72 years.




22

 

19 – SHARE REPURCHASE PROGRAM

On February 13, 2008, our board of directors approved a share repurchase program for up to a total of $50,000 of the Company's common stock.  Share repurchases will be made from time to time for cash in open market transactions at prevailing market prices or in privately negotiated transactions.  The timing and amount of purchases under the program will be determined by management based upon market conditions and other factors.  Purchases may be made pursuant to a program adopted under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  The program does not require the Company to purchase any specific number or amount of shares and may be suspended or reinstated at any time in the Company's discretion and without notice.  Repurchases will be subject to restrictions under the 2007 Credit Facility.  The 2007 Credit Facility was amended as of February 13, 2008 to permit the share repurchase program and provide that the dollar amount of shares repurchased is counted toward the maximum dollar amount of dividends that may be paid in any fiscal quarter.  Subsequently, on January 26, 2009, the Company entered into the 2009 Amendment which amended the 2007 Credit Facility to require the Company to suspend all share repurchases until the Company can represent that it is in a position to again satisfy the collateral maintenance covenant.  Refer to Note 8 – Long-Term Debt.

Since the inception of the share repurchase program through September 30, 2009, the Company repurchased and retired 278,300 shares of its common stock for $11,500.  An additional 3,130 shares of common stock were repurchased from employees for $41 during 2008 pursuant to the Company’s Equity Incentive Plan rather than the share repurchase program.  No repurchases were made during the three and nine months ended September 30, 2009.

20 - LEGAL PROCEEDINGS

From time to time the Company may be subject to legal proceedings and claims in the ordinary course of its business, principally personal injury and property casualty claims. Such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.  The Company is not aware of any legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on the Company, its financial condition, results of operations or cash flows.
 
21 – SUBSEQUENT EVENTS
 
Subsequent events have been evaluated through November 9, 2009, the date of issuance of the financial statements herein.
 
On October 14, 2009, we announced the proposed initial public offering of our subsidiary, Baltic Trading Limited (“Baltic”), which intends to conduct a drybulk shipping business focused on the spot market.  We intend to make a $75,000 capital contribution to Baltic prior to Baltic’s initial public offering, which Baltic would use along with proceeds from its initial public offering to acquire its initial fleet.




23

 

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning in connection with a discussion of potential future events, circumstances or future operating or financial performance.  These forward-looking statements are based on management’s current expectations and observations. Included among the factors that, in our view, could cause actual results to differ materially from the forward looking statements contained in this report are the following: (i) changes in demand or rates in the drybulk shipping industry; (ii) changes in the supply of or demand for drybulk products, generally or in particular regions; (iii) changes in the supply of drybulk carriers including newbuilding of vessels or lower than anticipated scrapping of older vessels; (iv) changes in rules and regulations applicable to the cargo industry, including, without limitation, legislation adopted by international organizations or by individual countries and actions taken by regulatory authorities; (v) increases in costs and expenses including but not limited to: crew wages, insurance, provisions, repairs, maintenance and general and administrative expenses; (vi) the adequacy of our insurance arrangements; (vii) changes in general domestic and international political conditions; (viii) changes in the condition of the our vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated drydocking or maintenance and repair costs) and unanticipated drydock expenditures; (ix) the number of offhire days needed to complete repairs on vessels and the timing and amount of any reimbursement by our insurance carriers for insurance claims including offhire days; (x) our acquisition or disposition of vessels; (xi) the fulfillment of the closing conditions under, or the execution of customary additional documentation for, our  agreement to acquire one drybulk vessel; (xii) the completion of definitive documentation with respect to time charters; (xiii) charterers’ compliance with the terms of their charters in the current market environment; and other factors listed from time to time in our filings with the Securities and Exchange Commission, including, without limitation, our Annual Report on Form 10-K for the year ended December 31, 2008 and subsequent reports on Form 8-K and Form 10-Q.
 
The following management’s discussion and analysis should be read in conjunction with our historical consolidated financial statements and the related notes included in this Form 10-Q.
 
General
 
We are a Marshall Islands company incorporated on September 27, 2004 to transport iron ore, coal, grain, steel products and other drybulk cargoes along worldwide shipping routes through the ownership and operation of drybulk carrier vessels. As of October 28, 2009, our fleet consisted of eight Capesize, eight Panamax, four Supramax, six Handymax and eight Handysize drybulk carriers, with an aggregate carrying capacity of approximately 2,734,000 dwt, and the average age of our fleet was approximately 6.9 years, as compared to the average age for the world fleet of approximately 15 years for the drybulk shipping segments in which we compete. We seek to deploy our vessels on time charters, or in vessel pools trading in the spot market, to reputable charterers, including Lauritzen Bulkers A/S, Cargill International S.A., Pacific Basin Chartering Ltd., COSCO Bulk Carriers Co., Ltd., and Hyundai Merchant Marine Co. Ltd.  The majority of the vessels in our current fleet are presently engaged under time charter contracts that expire (assuming the option periods in the time charters are not exercised) between November 2009 and October 2012.
 
See pages 30-31 for a table of all vessels currently in our fleet or expected to be delivered to us.

 We intend to continue to grow our fleet through timely and selective acquisitions of vessels in a manner that is accretive to our cash flow. In connection with the acquisitions and deliveries made in 2007, 2008 and 2009 and our growth strategy, we negotiated the 2007 Credit Facility that we have used to acquire vessels.

Our management team and our other employees are responsible for the commercial and strategic management of our fleet. Commercial management includes the negotiation of charters for vessels, managing the mix of various types of charters, such as time charters and voyage charters, and monitoring the performance of our vessels under their charters. Strategic management includes locating, purchasing, financing and selling vessels. We
 
 
24

 
 
currently contract with two independent technical managers to provide technical management of our fleet at a lower cost than we believe would be possible in-house. Technical management involves the day-to-day management of vessels, including performing routine maintenance, attending to vessel operations and arranging for crews and supplies. Members of our New York City-based management team oversee the activities of our independent technical managers.

From time to time in the current global economic environment, our charterers with long-term time charters may request to renegotiate the terms of our charters with them.  As a general matter, we do not agree to make changes to the terms of our charters in response to such requests.  The failure of any charterer to meet its obligations under our long-term time charters could have an adverse effect on our results of operations.

On October 14, 2009, we announced the proposed initial public offering of our subsidiary, Baltic Trading Limited (“Baltic”), which intends to conduct a drybulk shipping business focused on the spot market.  We intend to make a $75 million capital contribution to Baltic prior to Baltic’s initial public offering, which Baltic would use along with proceeds from its initial public offering to acquire its initial fleet.

Factors Affecting Our Results of Operations
 
 We believe that the following table reflects important measures for analyzing trends in our results of operations.  The table reflects our ownership days, available days, operating days, fleet utilization, TCE rates and daily vessel operating expenses for the three and nine months ended September 30, 2009 and 2008.
 
   
For the three months ended September 30,
   
Increase
       
   
2009
   
2008
   
(Decrease)
   
% Change
 
Fleet Data:
                       
Ownership days (1)
                       
Capesize
    635.3       460.0       175.3       38.1 %
Panamax
    736.0       649.5       86.5       13.3 %
Supramax
    368.0       351.5       16.5       4.7 %
Handymax
    552.0       552.0              
Handysize
    736.0       736.0              
                                 
Total
    3,027.3       2,749.0       278.3       10.1 %
                                 
Available days (2)
                               
Capesize
    634.1       460.0       174.1       37.8 %
Panamax
    724.3       608.1       116.2       19.1 %
Supramax
    355.8       349.6       6.2       1.8 %
Handymax
    552.0       552.0              
Handysize
    724.6       719.3       5.3       0.7 %
                                 
Total
    2,990.8       2,689.0       301.8       11.2 %
                                 
Operating days (3)
                               
Capesize
    629.1       459.7       169.4       36.9 %
Panamax
    722.9       603.0       119.9       19.9 %
Supramax
    350.4       325.3       25.1       7.7 %
Handymax
    549.8       549.5       0.3       0.1 %
Handysize
    723.9       718.7       5.2       0.7 %
                                 
Total
    2,976.1       2,656.2       319.9       12.0 %
                                 
Fleet utilization (4)
                               
Capesize
    99.2 %     99.9 %     (0.7 %)     (0.7 %)
Panamax
    99.8 %     99.2 %     0.6 %     0.6 %
Supramax
    98.5 %     93.1 %     5.4 %     5.8 %
Handymax
    99.6 %     99.5 %     0.1 %     0.1 %
                                 
 
 
 
25

 
 
Handysize
    99.9 %     99.9 %            
Fleet average
    99.5 %     98.8 %     0.7 %     0.7 %
                                 
 
   
For the three months ended September 30,
   
Increase
       
   
2009
   
2008
   
(Decrease)
   
% Change
 
   
(U.S. dollars)
             
Average Daily Results:
                       
Time Charter Equivalent (5)
                       
Capesize
  $ 55,402     $ 70,772     $ (15,370