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EX-31.1 - EX-31.1 - General Maritime Corp / MIa09-35898_2ex31d1.htm
EX-23.1 - EX-23.1 - General Maritime Corp / MIa09-35898_2ex23d1.htm
EX-31.2 - EX-31.2 - General Maritime Corp / MIa09-35898_2ex31d2.htm
EX-32.1 - EX-32.1 - General Maritime Corp / MIa09-35898_2ex32d1.htm
EX-32.2 - EX-32.2 - General Maritime Corp / MIa09-35898_2ex32d2.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

Amendment No. 1

 

x      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2009

 

o         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 001-34228

 

GENERAL MARITIME CORPORATION

(Exact name of registrant as specified in its charter)

 

Republic of the Marshall Islands

 

66-0716485

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

299 Park Avenue, New York, New York

 

10171

(Address of principal executive office)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (212) 763-5600

 

Securities of the Registrant registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Common Stock, par value $.01 per share

 

Name of Each Exchange on Which Registered

New York Stock Exchange

 

Securities of the Registrant registered pursuant to Section 12(g) of the Act:  None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  

Yes  o  No  x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. 

Yes  o  No  x

 

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  x  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 o No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):

 

Large Accelerated Filer x

 

Accelerated Filer o

Non-Accelerated Filer o

 

Smaller Reporting Company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes o No x

 

The aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant as of June 30, 2009 was approximately $508.2 million, based on the closing price of $9.89 per share.

 

The number of shares outstanding of the registrant’s common stock as of February 26, 2010 was 58,248,189 shares.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Proxy Statement for the 2009 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2009, is incorporated by reference in Part III herein.

 

 

 



 

PART I

 

EXPLANATORY NOTE

 

General Maritime Corporation (the “Company”) is filing this Amendment No. 1 to its Annual Report on Form 10-K for the year ended December 31, 2009, originally filed on March 1, 2010 (the “Original Filing”) to amend and restate our consolidated financial statements for the year ended December 31, 2009 and to make minor clarifying and conforming changes.  Subsequent to the issuance of our financial statements for the year ended December 31, 2009, our management identified a classification error within the components of Shareholders’ Equity and therefore our 2009 consolidated financial statements require restatement.  Refer to Note 1 to the consolidated financial statements included in Part II, Item 8 for further discussion of the restatement.

 

Except as described above, this Form 10-K/A does not amend or update any other information contained in the Original Filing.  This Form 10-K/A speaks as of the date of the Original Filing and does not reflect events that may have occurred subsequent to the date of the Original Filing.

 

ITEM 1.  BUSINESS

 

OVERVIEW

 

We believe that we are a leading provider of international seaborne crude oil transportation services.  We also provide transportation services for refined petroleum products.  As of February 26, 2010, our fleet consists of 31 wholly owned vessels:  two VLCCs, 11 Suezmax vessels, 12 Aframax vessels, two Panamax vessels and four Handymax vessels.  The weighted average age of our fleet as of December 31, 2009 was 9.6 years.  These vessels have a total of 3.9 million dwt carrying capacity on a combined basis and all are double-hulled.  Many of the vessels in our fleet are “sister ships”, which provide us with operational and scheduling flexibility, as well as economies of scale in their operation and maintenance.  Our customers include major international oil companies and vessel owners such as Chevron Corporation, CITGO Petroleum Corp., ConocoPhillips, Exxon Mobil Corporation, Hess Corporation, Lukoil Oil Company, Stena AB and Sun International Ltd.

 

On December 16, 2008, pursuant to an Agreement and Plan of Merger and Amalgamation, dated as of August 5, 2008, by and among the General Maritime Corporation (the “Company”), Arlington Tankers Ltd. (“Arlington”), Archer Amalgamation Limited (“Amalgamation Sub”), Galileo Merger Corporation (“Merger Sub”) and General Maritime Subsidiary Corporation (formerly General Maritime Corporation) (“General Maritime Subsidiary”), Merger Sub merged with and into General Maritime Subsidiary, with General Maritime Subsidiary continuing as the surviving entity (the “Merger”), and Amalgamation Sub amalgamated with Arlington (the “Amalgamation” and, together with the Merger, collectively, the “Arlington Acquisition”).  As a result of the Arlington Acquisition, General Maritime Subsidiary and Arlington each became a wholly-owned subsidiary of the Company and General Maritime Subsidiary changed its name to General Maritime Subsidiary Corporation.  In addition, upon the consummation of the Arlington Acquisition, the Company exchanged 1.34 shares of its common stock for each share of common stock held by shareholders of General Maritime Subsidiary and exchanged one share of its common stock for each share held by shareholders of Arlington.  We acquired our two VLCCs, two Panamax vessels and four Handymax vessels (the “Arlington Vessels”) pursuant to the Arlington Acquisition.  We refer to the 11 Suezmax vessels and 12 Aframax vessels which we owned prior to such acquisition as the General Maritime Subsidiary Vessels.

 

General Maritime Subsidiary is the predecessor of the Company for purposes of U.S. securities regulations governing financial statement filing.  The Arlington Acquisition is accounted for as an acquisition by General Maritime Subsidiary of Arlington.  Therefore, the disclosures throughout this Annual Report on Form 10-K and the accompanying Consolidated Financial Statements, unless otherwise noted,  reflect the results of operations of General Maritime Subsidiary for the year ended December 31, 2007 and the period January 1, 2008 through December 15, 2008.  The Company had separate operations for the period beginning December 16, 2008, the effective date of the Arlington Acquisition, and disclosures and references to amounts for periods after that date relate to the Company unless otherwise noted.  Arlington’s results have been included in the disclosures throughout this Annual Report on Form 10-K and the accompanying Consolidated Statements of Operations, unless otherwise noted, from the effective date of acquisition and thereafter (see “Arlington Acquisition” in Note 2 to the Consolidated Financial Statements).

 

All share and per share amounts presented throughout this Annual Report on Form 10-K, unless otherwise noted, have been adjusted to reflect the exchange of 1.34 shares of our common stock for each share of common stock held by shareholders of General Maritime Subsidiary in connection with the Arlington Acquisition.

 

We employ one of the largest fleets in the Atlantic basin. Vessels owned by us operate in ports in the Caribbean, South and Central America, the United States, West Africa, the Mediterranean, Europe and the North Sea. We have focused our operations in the Atlantic because we believe that our stringent operating and safety standards represent a potential competitive advantage. Transportation of crude oil to the U.S. Gulf Coast and other refining centers in the United States requires vessel owners and operators to meet more stringent environmental regulations than in other regions of the world. Although the majority of our vessels operate in the Atlantic, we also currently operate vessels in the Black Sea and in other regions. We believe this enables us to take advantage of market opportunities and helps us to position our vessels in anticipation of drydockings.

 

We actively monitor market conditions and changes in charter rates, and manage the deployment of our vessels between spot market voyage charters, which generally last from several days to several weeks, and time charters, which generally last one to three years.  Our strategy is intended to provide greater cash flow stability through the use of time charters for part of our fleet, while maintaining the flexibility to benefit from improvements in market rates by deploying the balance of our vessels in the spot market.

 

Our net voyage revenues, which are voyage revenues minus voyage expenses, have grown from $12.0 million in 1997 to $291.6 million in 2009.  Net voyage revenues increased by $19.9 million, or 7.4% to $291.6 million for the year ended December 31, 2009 compared to $271.7 million for the year ended December 31, 2008 primarily due to our operation of a larger fleet including the Arlington Vessels for the entire fiscal year of 2009. During the fourth quarter of 2008, General Maritime Subsidiary took delivery of two Aframax vessels.  During December 2008, pursuant to the Arlington Acquisition, we acquired the Arlington Vessels and their results are included in our net voyage revenues for 2009.  As a result, we believe that our fleet profile has become more attractive to

 

2



 

our customers.  We have also generated additional capital which we have used to repay indebtedness and pay dividends and which we may use to support potential future growth or other transactions that we believe would create value for our shareholders.

 

AVAILABLE INFORMATION

 

We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission, or the SEC, under the Securities Exchange Act of 1934, or the Exchange Act.  The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, NW, Washington, DC 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.  The public can obtain any documents that we file with the SEC at www.sec.gov.

 

In addition, our company website can be found on the Internet at www.generalmaritimecorp.com.  The website contains information about us and our operations.  Copies of each of our filings with the SEC on Form 10-K, Form 10-Q and Form 8-K, and all amendments to those reports, can be viewed and downloaded free of charge as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC.  To view the reports, access www.generalmaritimecorp.com, click on Press Releases, and then SEC Filings.

 

Any of the above documents can also be obtained in print by any shareholder upon request to our Investor Relations Department at the following address:

 

Corporate Investor Relations
General Maritime Corporation
299 Park Avenue
New York, NY 10171

 

BUSINESS STRATEGY

 

Our strategy is to employ our existing competitive strengths to enhance our position within the industry and maximize long-term cash flow.  Our strategic initiatives include:

 

·                  Managing our fleet in a disciplined manner. We have been an industry consolidator focused on opportunistically acquiring high-quality mid-sized vessels or newbuilding contracts for such vessels. We are continuously and actively monitoring the market in an effort to take advantage of expansion and growth opportunities. We completed the stock-for-stock acquisition of Arlington in December 2008, which resulted in our acquisition of eight vessels. We also evaluate opportunities to monetize our investment in vessels by selling them when conditions are favorable and have a track record of vessel acquisitions and divestitures. From our founding in 1997, our fleet size increased to 47 vessels in 2004. Between 2005 and 2006, we sold 26 vessels when we believed asset values were favorable to do so and modernized our fleet. As tanker rates eased and economic fundamentals softened beginning at the end of 2006, we entered into contracts for long term revenue through time charters. Other than the Arlington Acquisition, we have not contracted to acquire any vessels since May 2008 in an effort to preserve liquidity and to position us for future vessel acquisition opportunities.

 

·                  Balancing vessel deployment to maximize fleet utilization and cash flows. We actively manage the deployment of our fleet between time charters and spot market voyage charters. Our vessel deployment strategy is designed to provide greater cash flow stability through the use of time charters for part of our fleet, while maintaining the flexibility to benefit from improvements in market rates by deploying the balance of our vessels in the spot market. Our goal is to be the first choice of our customers for the transportation of crude oil and refined petroleum products. We constantly monitor the market and seek to anticipate our customers’ transportation needs and to respond quickly when we recognize attractive chartering opportunities. Part of our deployment strategy centers around the use of “sister ships” within our fleet. Sister ships enhance our revenue generating potential by providing operational and scheduling flexibility. The uniform nature of many vessels in our fleet also provides us with cost efficiencies in maintaining, supplying and crewing our tankers.

 

·                  Managing environmentally safe, yet cost efficient operations. We aggressively manage our operating and maintenance costs. At the same time, our fleet has a strong safety and environmental record that we maintain through acquisitions of high-quality vessels and regular maintenance and inspection of our fleet. We maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with U.S. and international environmental and safety regulations. Our in-house safety staff oversees many of these services. In addition, we periodically outsource various aspects of our technical management operations to ensure that we are performing at the highest standards.  We believe the age and quality of the vessels in our fleet, coupled with our safety and environmental record, position us favorably within the sector with our customers and for future business opportunities.

 

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·                  Maintaining a Prudent Capital Structure.  We are committed to maintaining prudent financial policies aimed at preserving financial stability and appropriate leverage and increasing long-term cash flow.  As of December 31, 2009, our debt to capitalization ratio was 71.5%.  As of December 31, 2009 we had the ability to draw down an additional $18.8 million on our 2005 Credit Facility.

 

OUR FLEET

 

Our current fleet consists of 31 vessels and is comprised of two VLCCs, 12 Aframax vessels, 11 Suezmax vessels, two Panamax vessels and four Handymax vessels.  The following chart provides information regarding our 31 vessels.

 

Vessel

 

Yard

 

Year
built

 

Year
acquired

 

DWT

 

Current
employment
status

 

Flat

 

Sister
ships(2)

 

Crude Tankers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

V-Max VLCC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stena Victory

 

Hyundai H.I. Co Ltd., Korea

 

2001

 

2008

 

314,000

 

Spot

 

Bermuda

 

A

 

Stena Vision

 

Hyundai H.I. Co Ltd., Korea

 

2001

 

2008

 

314,000

 

Spot

 

Bermuda

 

A

 

 

 

 

 

 

 

 

 

628,000

 

 

 

 

 

 

 

Suezmax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Genmar St. Nikolas(1)

 

TSU

 

2008

 

2008

 

149,876

 

TC

 

Marshall Islands

 

B

 

Genmar George T(1)

 

TSU

 

2007

 

2007

 

149,847

 

TC

 

Marshall Islands

 

B

 

Genmar Kara G(1)

 

TSU

 

2007

 

2007

 

150,296

 

TC

 

Liberia

 

C

 

Genmar Harriet G(1)

 

TSU

 

2006

 

2006

 

150,205

 

TC

 

Liberia

 

C

 

Genmar Orion(1)

 

Samsung

 

2002

 

2003

 

159,992

 

TC

 

Marshall Islands

 

 

 

Genmar Argus(1)

 

Hyundai

 

2000

 

2003

 

164,097

 

Spot

 

Marshall Islands

 

D

 

Genmar Spyridon(1)

 

Hyundai

 

2000

 

2003

 

153,972

 

Spot

 

Marshall Islands

 

D

 

Genmar Hope(1)

 

Daewoo

 

1999

 

2003

 

153,919

 

Spot

 

Marshall Islands

 

E

 

Genmar Horn(1)

 

Daewoo

 

1999

 

2003

 

159,475

 

Spot

 

Marshall Islands

 

E

 

Genmar Phoenix(1)

 

Halla

 

1999

 

2003

 

149,999

 

Spot

 

Marshall Islands

 

 

 

Genmar Gulf(1)

 

Daewoo

 

1991

 

2003

 

149,803

 

Spot

 

Marshall Islands

 

 

 

 

 

 

 

 

 

 

 

1,691,481

 

 

 

 

 

 

 

Aframax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Genmar Strength(1)

 

Sumitomo

 

2003

 

2004

 

105,674

 

TC

 

Liberia

 

F

 

Genmar Daphne(1)

 

Tsuneishi

 

2002

 

2008

 

106,560

 

TC

 

Marshall Islands

 

G

 

Genmar Defiance(1)

 

Sumitomo

 

2002

 

2004

 

105,538

 

Spot

 

Liberia

 

F

 

Genmar Ajax(1)

 

Samsung

 

1996

 

1998

 

96,183

 

TC

 

Liberia

 

H

 

Genmar Agamemnon(1)

 

Samsung

 

1995

 

1998

 

96,214

 

TC

 

Liberia

 

H

 

Genmar Minotaur(1)

 

Samsung

 

1995

 

1998

 

96,226

 

Spot

 

Liberia

 

H

 

Genmar Revenge(1)

 

Samsung

 

1994

 

2004

 

96,755

 

Spot

 

Liberia

 

 

 

Genmar Constantine(1)

 

S. Kurushima

 

1992

 

1998

 

102,335

 

Spot

 

Liberia

 

I

 

Genmar Alexandra(1)

 

S. Kurushima

 

1992

 

2001

 

102,262

 

Spot

 

Marshall Islands

 

I

 

Genmar Princess(1)

 

Sumitomo

 

1991

 

2003

 

96,648

 

Spot

 

Liberia

 

J

 

Genmar Progress(1)

 

Sumitomo

 

1991

 

2003

 

96,765

 

Spot

 

Liberia

 

J

 

Genmar Elektra(1)

 

Tsuneishi

 

2002

 

2008

 

106,548

 

TC

 

Marshall Islands

 

G

 

 

 

 

 

 

 

 

 

1,207,708

 

 

 

 

 

 

 

Panamax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stena Companion(1)

 

Dalian Shipyard Ltd., China

 

2004

 

2008

 

72,750

 

Spot

 

Bermuda

 

K

 

Stena Compatriot(1)

 

Dalian Shipyard Ltd., China

 

2004

 

2008

 

72,750

 

TC

 

Bermuda

 

K

 

 

 

 

 

 

 

 

 

145,500

 

 

 

 

 

 

 

Product tankers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Handymax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stena Concept

 

Uljanik Brodogradiliste, Croatia

 

2005

 

2008

 

47,400

 

TC

 

Bermuda

 

L

 

Stena Contest

 

Uljanik Brodogradiliste, Croatia

 

2005

 

2008

 

47,400

 

TC

 

Bermuda

 

L

 

Stena Concord

 

Uljanik Brodogradiliste, Croatia

 

2004

 

2008

 

47,400

 

TC

 

Bermuda

 

L

 

Stena Consul(1)

 

Uljanik Brodogradiliste, Croatia

 

2004

 

2008

 

47,400

 

TC

 

Bermuda

 

L

 

 

 

 

 

 

 

 

 

189,600

 

 

 

 

 

 

 

 

 

 

 

 

 

Total DWT

 

3,862,289

 

 

 

 

 

 

 

 

TC = Time Chartered (see “—Our Charters”)

 

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(1)   Vessel is currently collateral for our 2005 Credit Facility.

 

(2)   Each vessel with the same letter is a “sister ship” of each other vessel with the same letter.

 

During April 2004 and July 2004, we acquired nine vessels, consisting of three Aframax vessels, two Suezmax vessels and four Suezmax newbuilding contracts, and a technical management company from Soponata SA, an unaffiliated entity, for an aggregate purchase price of $248.1 million in cash.  These four newbuilding Suezmax vessels were delivered between March 2006 and February 2008.  The acquisitions were financed through the use of cash and borrowings under our revolving credit facilities.

 

During December 2008, pursuant to the Arlington Acquisition, we acquired two VLCCs, two Panamax vessels and four Handymax vessels along with Arlington’s other assets and liabilities in exchange for 15.5 million shares of our common stock.

 

All of our vessels in our current fleet are double-hull.

 

Commercial management for our vessels is provided through our wholly-owned subsidiary, General Maritime Management LLC.

 

FLEET DEPLOYMENT

 

We strive to optimize the financial performance of our fleet by deploying our vessels on time charters and in the spot market.  We believe that our fleet deployment strategy provides us with the ability to benefit from increases in tanker rates while at the same time maintaining a measure of stability through cycles in the industry.  The following table details the percentage of our fleet operating on time charters and in the spot market during the past three years.

 

 

 

TIME CHARTER VS.SPOT MIX (as % of operating days)
YEAR ENDED DECEMBER 31,

 

 

 

2009

 

2008

 

2007

 

Percent in Time Charter Days

 

73.8

%

74.9

%

70.3

%

Percent in Spot Days

 

26.2

%

25.1

%

29.7

%

Total Vessel Operating Days

 

10,681

 

7,568

 

6,599

 

 

Vessels operating on time charters may be chartered for several months or years whereas vessels operating in the spot market typically are chartered for a single voyage that may last up to several weeks.  Vessels operating in the spot market may generate increased profit margins during improvements in tanker rates, while vessels operating on time charters generally provide more predictable cash flows.  Accordingly, we actively monitor macroeconomic trends and governmental rules and regulations that may affect tanker rates in an attempt to optimize the deployment of our fleet.

 

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OUR CHARTERS

 

As of December 31, 2009, our fleet of 31 vessels has 15 vessels on time charter contracts expiring on dates between January 2010 and July 2011 shown as follows:

 

Vessel

 

Vessel Type

 

Expiration Date

 

Daily Rate (1)

 

 

 

 

 

 

 

 

 

Genmar Agamemnon

 

Aframax

 

March 3, 2010

 

$

13,750

 

Genmar Ajax

 

Aframax

 

October 23, 2010

 

$

17,500

 

Genmar Daphne

 

Aframax

 

March 28, 2010

 

$

18,461

 

Genmar Elektra

 

Aframax

 

February 28, 2010

 

$

17,950

 

Genmar George T.

 

Suezmax

 

August 28, 2010

 

$

39,000

 

Genmar Harriet G.

 

Suezmax

 

June 1, 2010

 

$

38,000

 

Genmar Kara G.

 

Suezmax

 

June 1, 2010

 

$

38,000

 

Genmar Orion

 

Suezmax

 

June 1, 2010

 

$

38,000

 

Genmar St. Nikolas

 

Suezmax

 

February 7, 2011

 

$

39,000

 

Genmar Strength

 

Aframax

 

August 29, 2010

 

$

18,500

 

Stena Compatriot

 

Panamax

 

November 10, 2010 (2)

 

$

18,639

 

Stena Concept

 

Product carriers

 

July 4, 2011 (2)

 

$

17,942

(3)

Stena Concord

 

Product carriers

 

January 19, 2010

 

$

16,642

 

Stena Consul

 

Product carriers

 

November 10, 2010 (2)

 

$

16,642

 

Stena Contest

 

Product carriers

 

July 4, 2011 (2)

 

$

17,942

(3)

 


(1)                    Before brokers’ commissions.

 

(2)                    Charter end date excludes periods that are at the option of the charterer.  See below for descriptions of these option periods.

 

(3)                    Rate adjusts as follows: $18,264 per day from January 5, 2010 through January 4, 2011 and $18,603 per day from January 5, 2011 through July 4, 2011.

 

Our time charters on our vessels are for fixed rates per day with no additional hire earned, except for time charters on one Panamax vessel (Stena Compatriot) and three Handymax vessels (Stena Consul, Stena Concept and Stena Contest), the terms of which are described below.

 

Our time charters on the Stena Compatriot, Stena Consul, Stena Concept and Stena Contest are for fixed rates per day and also have the potential to earn additional hire.  Under these charters, we are required to keep the vessels seaworthy, and to crew and maintain them.  Northern Marine performs those duties for us under the ship management agreements described below.  If a structural change or new equipment is required due to changes in law, classification society or regulatory requirements, the charterers will be required to pay for such changes if the cost is less than $100,000 per year per vessel. Otherwise the cost of any such improvement or change will be shared between us and the charterer of the vessel based on the remaining charter period and the remaining depreciation period of the vessel.  The charterers are not obligated to pay us charter hire for off-hire days of fewer than five days per vessel per year, which include days a vessel is unable to be in service due to, among other things, repairs or drydockings.  Each charter also provides that the Basic Hire will be reduced if the vessel does not achieve the performance specifications set forth in the charter.  However, under the ship management agreements described below, Northern Marine will reimburse us for any loss of or reduction in Basic Hire, in excess of five days during any twelve-month period following the date the vessels are delivered to us, net of any proceeds we receive from our off-hire insurance.

 

The terms of the charters do not provide the charterers with an option to terminate the charter before the end of its term except in the event of the total loss or constructive total loss of a vessel.  In addition, each charter provides that we may not sell the related vessel without the charterer’s consent, which consent may be withheld in the charterer’s sole discretion.

 

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The following table sets forth the daily Basic Hire and base operating costs for two vessels- the Stena Compatriot, a Panamax vessel, and the Stena Consul, a Handymax vessel:

 

 

 

Stena Compatriot

 

Stena Consul

 

Period

 

Basic Hire
(1)

 

Base Operating
Costs

 

Basic Hire
(1)

 

Base Operating
Costs

 

Nov. 11, 2009 - Nov. 10, 2010

 

$

18,989

 

$

7,339

 

$

16,964

 

$

6,764

 

Nov. 11, 2010 - Nov. 10, 2011 (2)

 

19,356

 

7,706

 

17,303

 

7,103

 

Nov. 11, 2011 - Nov. 10, 2012 (2)

 

19,741

 

8,091

 

17,658

 

7,458

 

Nov. 11, 2012 - Nov. 10, 2013 (2)

 

20,145

 

8,495

 

18,031

 

7,831

 

 


(1)          Each vessel is entitled to receive Additional Hire, the methodology for its calculation is described below.  However, to the extent the charterer has subchartered the vessel, the amount on which additional hire is calculated is based on the subcharter rate.  The Stena Compatriot is subchartered at a daily rate of $27,000 through January 8, 2010.  Additional hire for periods in which this subcharter is in effect is fixed at $3,499 per day through January 8, 2010.

 

(2)          Represents options for the charterer to extend the charter for additional one year periods.  There can be no assurance that the charterer will exercise any of these options.

 

The following table sets forth the daily Basic Hire and base operating costs for two Handymax vessels- the Stena Concept and the Stena Contest:

 

Period

 

Basic Hire
(1)

 

Base Operating
Costs

 

Jan. 5, 2009 - Jan. 4, 2010

 

$

17,942

 

$

6,442

 

Jan. 5, 2010 - Jan. 4, 2011

 

18,264

 

6,764

 

Jan. 5, 2011 - July 4, 2011

 

18,603

 

7,103

 

July 5, 2011 - July 4, 2012 (2)

 

21,158

 

7,458

 

July 5, 2012 - July 4, 2013 (2)

 

21,531

 

7,831

 

 


(1)          Through July 4, 2011, each vessel is entitled to receive Additional Hire, the methodology for its calculation is described below.  However, to the extent the charterer has subchartered the vessel, the amount on which additional hire is calculated is based on the subcharter rate.

 

(2)          Represents options for the charterer to extend the charter for additional one year periods.  There will be no Additional Hire for these option periods. There can be no assurance that the charterer will exercise any of these options.

 

Additional Hire Under Certain Charters for our Arlington Vessels

 

Under the charters for four of our Arlington Vessels, the Stena Compatriot, Stena Consul, Stena Concept and Stena Contest, in addition to the fixed rate basic hire, each vessel has the possibility of receiving Additional Hire from the charterers through profit sharing arrangements related to the performance of the tanker markets on specified geographic routes, or from actual time charter rates.  The Additional Hire, if any, is payable on the 25th day following the end of each calendar quarter. Additional Hire is not guaranteed under our charters.

 

The Additional Hire, if any, for any calendar quarter is an amount equal to 50% of the weighted average hire, calculated as described below, for the quarter after deduction of the Basic Hire in effect for that quarter.  The weighted average hire is a daily rate equal to the weighted average of the following amounts:

 

·                  a weighted average of the time charter hire per day received by the Charterer for any periods during the calculation period, determined as described below, that the vessel is sub-chartered by the Charterer under a time charter, less ship broker commissions paid by the Charterer in an amount not to exceed 2.5% of such time charter hire and commercial management fees paid by the Charterer in an amount not to exceed 1.25% of such time charter hire; and

 

·                  the time charter equivalent hire for any periods during the calculation period that the vessel is not sub-chartered by the charterer under a time charter.

 

The calculation period is the 12-month period ending on the last day of each calendar quarter, except that in the case of the first three full calendar quarters following the date of commencement of a charter, the calculation period is the three, six and nine month periods,

 

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respectively, ending on the last day of such calendar quarter and the first calendar quarter also includes the period from the date of the commencement of our charters to the commencement of the first full calendar quarter.

 

The Time Charter Equivalent Hire referred to above is a weighted average of day rates calculated using the parameters set forth below, which we call the Daily Value.  The Daily Value is calculated using average spot rates expressed in Worldscale Points determined by a shipbrokers panel for the routes specified below which are the routes on which our vessel types generally trade.  We refer to these rates as the Average Spot Rates and we refer to these routes as the Notional Routes.  Daily Value is determined as follows:

 

·                  multiplying the Average Spot Rate expressed in Worldscale Points by the applicable Worldscale flat rate and multiplying that product by the cargo size for each vessel type to calculate freight income;

 

·                  subtracting voyage costs consisting of brokerage commissions of 2.5% and commercial management fees of 1.25%, bunker costs and port charges to calculate voyage income; and

 

·                  dividing voyage income by voyage duration, including time in port, to calculate the Daily Value.

 

The shipbrokers panel, which we call the Brokers Panel, is the Association of Shipbrokers and Agents Tanker Broker Panel.  We can change the panel of brokers to a new panel mutually acceptable to us and the Charterer.  On the last day of each calendar quarter and on the expiration date of the Charter, we and the Charterer will instruct the Brokers Panel to determine for each Notional Route the Average Spot Rate over any periods during the Calculation Period that a Vessel is not sub-chartered by the Charterer under a time charter.  If Worldscale ceases to be published, the Brokers Panel will use its best judgment in determining the nearest alternative method of assessing the market rates on the specified voyages.

 

We instruct the Brokers Panel to deliver their determination of the Average Spot Rates no later than the fifth business day following the instruction to make such determination.  The costs of the Brokers Panel are shared equally between us and the Charterer.  For each Calculation Period, the Charterer will calculate the amount of Time Charter Equivalent Hire and the amount of Additional Hire payable, if any, and deliver such calculation to us no later than the fifth business day following the date on which the Charterer receives the determination of Average Spot Rates from the Brokers Panel.  These determinations of the Brokers Panel are binding on us and the Charterer.

 

The Notional Routes and the weighting to be applied to each route in calculating the Time Charter Equivalent Hire is as follows:

 

Handymax vessels:

 

Rotterdam to New York with 37,000 tons clean (40% weight) Curacao to New York with 38,000 tons clean (60% weight)

 

 

 

Panamax vessel:

 

Curacao to New York with 50,000 tons dirty (50% weight) Augusta to Houston with 50,000 tons dirty (50% weight)

 

Additional terms used in the calculation of Time Charter Equivalent Hire are as follows:

 

 

 

·      Calculation of freight income. The freight income for each Notional Route is calculated by multiplying the Average Spot Rate for such route, as supplied by the Brokers Panel, by the Worldscale flat rate for such route as set forth in the New Worldwide Tanker Nominal Freight Scale issued by the Worldscale Association and current for the relevant period and then multiplying such product by the cargo size for such route.

 

 

 

·      Calculation of voyage income. The voyage income for each Notional Route is calculated by deducting from the freight income for such route ship broker commissions equal to 2.5% of the freight income, commercial management fees equal to 1.25% of the freight income, the port charges and bunker costs (equal to the bunkers used multiplied by the bunkers prices) specified below for each Vessel. Bunkers used are determined based on speed, distance and consumption of bunkers at sea and in port.

 

 

 

·      Calculation of voyage duration. The voyage duration for each Notional Route is calculated using the distance, speed and time in port specified below for each Vessel.

 

 

 

·      Data used in calculations. The following data is used by the Charterer in the above calculations:

 

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· Bunkers in port

 

 

 

 

For Handymax vessels: 40 tons per voyage all-inclusive loading and discharging ports.

 

 

 

 

 

For Panamax vessels: 65 tons per port call all-inclusive loading and discharging ports.

 

 

 

· Bunker prices

 

 

 

 

For Product tankers and Panamax tankers: the mean of the average prices during the quarter for Marine Fuel Oil grade IFO 380 CST prevailing at Houston, New York and Curacao as published by Platts Bunkerwire, or similar publication, plus barge delivery charges in amount equal to the average barge delivery charges in the applicable port over the prior twelve-month period.

 

 

 

· Port charges

 

 

 

 

The port charges for loading and discharging ports on each Notional Route are equal to the published tariffs and exchange rates in effect on the last calendar day of the quarter and include all vessel costs for port calls.

· Time in port

 

 

 

 

For Handymax vessels and Panamax vessels: 5.5 days, which are split 2 days loading, 2 days discharging and the balance of the time idling.

 

 

 

· Distance

 

 

 

 

The distance for each Notional Route is determined according to the “World-Wide Marine Distance Tables” published by Veson Nautical Distance Tables.

 

The Notional Routes are intended to represent routes on which Handymax and Panamax vessels are typically used.  If during the term of the charter, in the charterer’s reasonable opinion, these routes cease to be used by Handymax or Panamax vessels, or the assumptions regarding bunkering ports for purposes of determining bunker prices cease to be applicable, the charterer may, with our consent, which we may not unreasonably withhold, instruct the Brokers Panel to substitute alternative notional routes and bunkering ports that most closely match the routes and bunkering ports typically used by Product tankers or Panamax tankers and to apply appropriate weights to such routes.

 

If in the charterer’s reasonable opinion it becomes impractical or dangerous, due to war, hostilities, warlike operations, civil war, civil commotion, revolution or terrorism for Handymax and Panamax vessels to operate on the Notional Routes, the charterer may request our agreement, which we may not unreasonably refuse, for the Daily Value to be determined during the period of such danger or restriction of trading using Average Spot Rates determined by the Brokers Panel for alternative notional routes proposed by the Charterer that reasonably reflect realistic alternative round voyage trade for Handymax  and Panamax vessels during the period of such danger or restriction of trading.  In such event, the Time Charter Equivalent Hire will be calculated using the Daily Value for such alternative routes and applying such weights as determined by the charterer.

 

OPERATIONS AND SHIP MANAGEMENT

 

General Maritime Subsidiary Managed Vessels

 

We employ experienced management in all functions critical to our operations, aiming to provide a focused marketing effort, tight quality and cost controls and effective operations and safety monitoring.  Through our wholly owned subsidiaries, General Maritime Management LLC and General Maritime Management (Portugal) Lda, we currently provide the commercial and technical management necessary for the operations of our General Maritime Subsidiary Vessels, which include ship maintenance, officer staffing, crewing, technical support, shipyard supervision, and risk management services through our wholly owned subsidiaries.

 

Our crews inspect our vessels and perform ordinary course maintenance, both at sea and in port.  We regularly inspect our vessels.  We examine each vessel and make specific notations and recommendations for improvements to the overall condition of the vessel, maintenance of the vessel and safety and welfare of the crew.  We have an in-house safety staff to oversee these functions and retain Admiral Robert North (Ret.), formerly of the U.S. Coast Guard, as a safety and security consultant.

 

9



 

The following services are performed by General Maritime Management LLC and General Maritime Management (Portugal) Lda with respect to our General Maritime Subsidiary Vessels:

 

·                  supervision of routine maintenance and repair of the vessel required to keep each vessel in good and efficient condition, including the preparation of comprehensive drydocking specifications and the supervision of each drydocking;

 

·                  oversight of maritime and environmental compliance with applicable regulations, including licensing and certification requirements, and the required inspections of each vessel to ensure that it meets the standards set forth by classification societies and applicable legal jurisdictions as well as our internal corporate requirements and the standards required by our customers;

 

·                  engagement and provision of qualified crews (masters, officers, cadets and ratings) and attendance to all matters regarding discipline, wages and labor relations;

 

·                  arrangement to supply the necessary stores and equipment for each vessel; and

 

·                  continual monitoring of fleet performance and the initiation of necessary remedial actions to ensure that financial and operating targets are met.

 

Our chartering staff, which is located in New York City, monitors fleet operations, vessel positions and spot market voyage charter rates worldwide with respect to our General Maritime Subsidiary Vessels.  We believe that monitoring this information is critical to making informed bids on competitive brokered charters.

 

Third-Party Managed Vessels

 

Our Arlington Vessels are party to technical management agreements with third parties.

 

One Panamax vessel (Stena Compatriot) and three Handymax vessels (Stena Consul, Stena Concept and Stena Contest) are party to fixed-rate ship management agreements with Northern Marine.  The Stena Victory, Stena Vision, Stena Companion and Stena Concord were party to similar agreements with Northern Marine which expired in October and November 2009. Under the ship management agreements, Northern Marine is responsible for all technical management of the vessels, including crewing, maintenance, repair, drydockings, vessel taxes and other vessel operating and voyage expenses.  Northern Marine has outsourced some of these services to third-party providers.  We have agreed to guarantee the obligations of each of our vessel subsidiaries under the ship management agreements.

 

Additionally, under the terms of the ship management agreements, all drydockings during the term of the ship management agreements are to be at the sole cost and expense of Northern Marine.  In addition, Northern Marine agreed to conduct at least one mid-period drydocking for each Handymax vessel and Panamax vessel prior to redelivery of such vessels.  Under the terms of the ship management agreements, the cost of these intermediate and special surveys is covered by the management fees that we pay to Northern Marine.  Upon redelivery of the vessels to us at the expiration of the ship management agreements, Northern Marine has agreed to repay to us any drydocking provision accrued, but not used, from the completion of the last drydocking during the term of the applicable Ship Management Agreement (or if no drydocking occurs during the term of such agreement, from the date of commencement of such agreement), to the date of redelivery at the daily rates specified in the ship management agreements.

 

Under the ship management agreements, Northern Marine has agreed to return these four vessels in-class and in the same good order and condition as when delivered, except for ordinary wear and tear.

 

Northern Marine is also obligated under the ship management agreements to maintain insurance for each of these four Arlington Vessels, including marine hull and machinery insurance, protection and indemnity insurance (including pollution risks and crew insurances), war risk insurance and off-hire insurance.  Under the ship management agreements, we pay Northern Marine a fixed fee per day per Arlington Vessel for all of the above services, which increases 5% per year, for so long as the relevant charter is in place.  Under the ship management agreements, Northern Marine has agreed to indemnify us for the loss of the Basic Hire for each of these Arlington Vessels in the event, for circumstances specified under the charters, the Arlington Vessel is off-hire or receiving reduced hire for more than five days during any twelve-month period, net of amounts received by us from off-hire insurance.  Stena has agreed to guarantee this indemnification by Northern Marine.  Both we and Northern Marine have the right to terminate any of the ship management agreements if the relevant charter has been terminated.  Tables setting forth the daily base operating costs for each of these four Arlington Vessels can be found above in the section entitled “Our Charters.”

 

10



 

We have also agreed to pay to Northern Marine an incentive fee for each day an Arlington Vessel is on hire for over 360 days during any twelve-month period following the date the applicable Arlington Vessel was delivered to us in amount equal to the daily Basic Hire for such Arlington Vessel.  If we terminate the ship management agreements with Northern Marine because Northern Marine has failed to perform its obligations under such agreements, Stena has agreed to provide a replacement ship manager to perform the obligations set forth in the ship management agreements on the same terms and for the same fixed amounts payable to Northern Marine.

 

We recently signed new ship management agreements with Northern Marine for Stena Victory and Stena Vision and with Anglo Eastern for Stena Companion and Stena Concord after the expiration of the time charters to which they were party when we acquired them and the termination of the related fixed-rate management agreements for these vessels. These new agreements began on a mutually-agreed date after the expiration of the ship management agreements and have renewable terms of two years with respect to the new agreements with Northern Marine. The terms of each of these four new agreements are substantially different from those of the prior management agreements for these vessels, including the removal of certain provisions relating to coverage of costs for drydocking, return of vessels in-class, incentive fees, indemnification and insurance mentioned above.

 

CREWING AND EMPLOYEES

 

As of December 31, 2009, we employed approximately 97 office personnel. Approximately 45 of these employees manage the commercial operations of our business, and are located in New York City.  We have 40 employees located in Lisbon, Portugal, who manage the technical operations of our business, and are subject to a local company employment collective bargaining agreement which covers the main terms and conditions of their employment.  We have 11 employees who procure crews for most of our vessels, three of which are located in Novorossiysk, Russia and eight of which are located in Mumbai, India.  We also have one employee located in Piraeus, Greece who is subject to Greece’s national employment collective bargaining agreement which covers the terms and conditions of her employment.

 

As of December 31, 2009, we employed approximately 1,035 seaborne personnel to crew our General Maritime Subsidiary Vessels who are staffed by our offices in India, Russia and Portugal.  Crews for our Arlington Vessels are provided by Northern Marine as described above.

 

We place great emphasis on attracting qualified crew members for employment on our vessels.  Recruiting qualified senior officers has become an increasingly difficult task for vessel operators.  We pay competitive salaries and provide competitive benefits to our personnel.  We believe that the well-maintained quarters and equipment on our vessels help to attract and retain motivated and qualified seamen and officers.  Our crew management services contractors have collective bargaining agreements that cover all the junior officers and seamen whom they provide to us.

 

CUSTOMERS

 

Our customers include most oil companies, as well as oil producers, oil traders, vessel owners and others.  During the year ended December 31, 2009, Eiger Shipping, S.A., a subsidiary of Lukoil accounted for 35.8% of our voyage revenues and we expect Eiger Shipping, S.A. to account for a significant portion of our voyage revenues in the future.  Five of our 15 time charters are with Eiger Shipping, S.A.  We also derive a significant portion of our voyage revenues from time charters by subsidiaries of Concordia and Stena.  During the year ended December 31, 2009, these customers accounted for 22.0% of our voyage revenues.  Four of our Arlington Vessels are on time charters with the Concordia and Stena subsidiaries.  Our revenues other than from Eiger Shipping, S.A revenues, Concordia and Stena, are also derived from a limited number of customers.

 

COMPETITION

 

International seaborne transportation of crude oil and other petroleum products is provided by two main types of operators: fleets owned by independent companies and fleets operated by oil companies (both private and state-owned).  Many oil companies and other oil trading companies, the primary charterers of the vessels we own, also operate their own vessels and transport oil for themselves and third party charterers in direct competition with independent owners and operators.  Competition for charters is intense and is based upon price, vessel location, the size, age, condition and acceptability of the vessel, and the quality and reputation of the vessel’s operator.

 

Other significant operators of vessels carrying crude oil and other petroleum products include American Eagle Tankers Inc. Limited, Frontline, Ltd., Overseas Shipholding Group, Inc., Teekay Shipping Corporation and Tsakos Energy Navigation.  There are also numerous, smaller vessel operators.

 

11



 

INSURANCE

 

The operation of any ocean-going vessel carries an inherent risk of catastrophic marine disasters and property losses caused by adverse weather conditions, mechanical failures, human error, war, terrorism and other circumstances or events.  In addition, the transportation of crude oil is subject to the risk of spills, and business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts.  The U.S. Oil Pollution Act of 1990, or OPA has made liability insurance more expensive for ship owners and operators imposing potentially unlimited liability upon owners, operators and bareboat charterers for oil pollution incidents in the territorial waters of the United States.  We believe that our current insurance coverage is adequate to protect us against the principal accident-related risks that we face in the conduct of our business.

 

Our protection and indemnity insurance, or P&I insurance, covers, subject to customary deductibles, policy limits and extensions, third-party liabilities and other related expenses from, among other things, injury or death of crew, passengers and other third parties, claims arising from collisions, damage to cargo and other third-party property and pollution arising from oil or other substances.  Our current P&I insurance coverage for pollution is the maximum commercially available amount of $1.0 billion per tanker per incident and is provided by mutual protection and indemnity associations.  Our current P&I Insurance coverage for non-pollution losses is $3.05 billion.  Each of the vessels currently in our fleet is entered in a protection and indemnity association which is a member of the International Group of Protection and Indemnity Mutual Assurance Associations.  The 13 protection and indemnity associations that comprise the International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each association’s liabilities.  Each protection and indemnity association has capped its exposure to this pooling agreement at $4.3 billion.  As a member of protection and indemnity associations, which are, in turn, members of the International Group, we are subject to calls payable to the associations based on its claim records as well as the claim records of all other members of the individual associations and members of the pool of protection and indemnity associations comprising the International Group.

 

Our hull and machinery insurance covers actual or constructive total loss from covered risks of collision, fire, heavy weather, grounding and engine failure or damages from same.  Our war risk insurance covers risks of confiscation, seizure, capture, vandalism, sabotage and other war-related risks.  Our loss-of-hire insurance covers loss of revenue for up to 90 days resulting from vessel off hire for each of our vessels, with a 20 day deductible.

 

ENVIRONMENTAL REGULATION AND OTHER REGULATIONS

 

Government regulations and laws significantly affect the ownership and operation of our vessels. We are subject to international conventions, national, state and local laws and regulations in force in the countries in which our vessels may operate or are registered and compliance with such laws, regulations and other requirements may entail significant expense.

 

Our vessels are subject to both scheduled and unscheduled inspections by a variety of government, quasi-governmental and private organizations, including local port authorities, national authorities, harbor masters or equivalent, classification societies, flag state administrations (countries of registry) and charterers. Our failure to maintain permits, licenses, certificates or other approvals required by some of these entities could require us to incur substantial costs or temporarily suspend operation of one or more of our vessels.

 

We believe that the heightened levels of environmental and quality concerns among insurance underwriters, regulators and charterers have led to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for vessels that conform to stricter environmental standards.  We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations; however, because such laws and regulations are frequently changed and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition additional legislation or regulation applicable to the operation of our vessels that may be implemented in the future could negatively affect our profitability.

 

International Maritime Organization

 

The International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution by ships, or the IMO, has adopted several international conventions that regulate the international shipping industry, including the International Convention on Civil Liability for Oil Pollution Damage, the International Convention on Civil Liability for Bunker Oil Pollution Damage, and the International Convention for the Prevention of Pollution from Ships, or the MARPOL Convention. The MARPOL Convention establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms.

 

12



 

The operation of our vessels is also affected by the requirements contained in the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, promulgated by the IMO under the International Convention for the Safety of Life at Sea, or SOLAS. The ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We intend to rely upon the safety management system that we have developed.

 

Noncompliance with the ISM Code or with other IMO regulations may subject a shipowner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports, including United States and European Union Ports.

 

United States

 

The U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act

 

The U.S. Oil Pollution Act of 1990, or OPA, is an extensive regulatory and liability regime for environmental protection and cleanup of oil spills. OPA affects all owners and operators whose vessels trade with the United States or its territories or possessions, or whose vessels operate in the waters of the United States, which include the U.S. territorial sea and the 200 nautical mile exclusive economic zone around the United States. The Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, imposes liability for cleanup and natural resource damage from the release of hazardous substances (other than oil) whether on land or at sea. Both OPA and CERCLA impact our operations.

 

Under OPA, vessel owners, operators and bareboat charterers are responsible parties who are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from oil spills from their vessels.

 

OPA limits the liability of responsible parties with respect to tankers over 3,000 gross tons to the greater of $2,000 per gross ton or $17.088 million per double hull tanker, and permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries.  Some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters, however, in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining tanker owners’ responsibilities under these laws.  CERCLA, which applies to owners and operators of vessels, contains a similar liability regime and provides for cleanup, removal and natural resource damages.  Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $0.5 million for any other vessel.

 

These limits of liability do not apply, however, where the incident is caused by violation of applicable U.S. federal safety, construction or operating regulations, or by the responsible party’s gross negligence or willful misconduct. These limits also do not apply if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the substance removal activities. OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. We believe that we are in substantial compliance with OPA, CERCLA and all applicable state regulations in the ports where our vessels call.

 

OPA also requires owners and operators of vessels to establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet the limit of their potential strict liability under the act.  Under the regulations, evidence of financial responsibility may be demonstrated by insurance, surety bond, self-insurance or guaranty.  Under OPA regulations, an owner or operator of more than one tanker is required to demonstrate evidence of financial responsibility for the entire fleet in an amount equal only to the financial responsibility requirement of the tanker having the greatest maximum strict liability under OPA and CERCLA.  We have provided such evidence and received certificates of financial responsibility from the U.S. Coast Guard for each of our vessels required to have one.

 

Other U.S. Environmental Initiatives

 

The U.S. Clean Water Act, or CWA, prohibits the discharge of oil, hazardous substances, and ballast water in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. Furthermore, most U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law.

 

13



 

The U.S. Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and 1990, or the CAA, requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. Our vessels that operate in such port areas with restricted cargoes are equipped with vapor recovery systems that satisfy these requirements. The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in primarily major metropolitan and/or industrial areas. Several SIPs regulate emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment. As indicated above, our vessels operating in covered port areas are already equipped with vapor recovery systems that satisfy these existing requirements.

 

European Union

 

The European Union has adopted legislation that would: (1) ban manifestly sub-standard vessels (defined as those over 15 years old that have been detained by port authorities at least twice in a six month period) from European waters and create an obligation of port states to inspect vessels posing a high risk to maritime safety or the marine environment; and (2) provide the European Union with greater authority and control over classification societies, including the ability to seek to suspend or revoke the authority of negligent societies.

 

Greenhouse Gas Regulation

 

The IMO is evaluating various mandatory measures to reduce greenhouse gas emissions from international shipping, which may include market-based instruments or a carbon tax.  Any passage of climate control legislation or other regulatory initiatives by the IMO, EU, the U.S. or other countries where we operate that restrict emissions of greenhouse gases could require us to make significant financial expenditures that we cannot predict with certainty at this time.

 

Vessel Security Regulations

 

Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security, including the U.S. Maritime Transportation Security Act of 2002, or MTSA, amendments to SOLAS, and a requirement that any vessel trading internationally obtain an International Ship Security Certificate from a recognized security organization approved by the vessel’s flag state. We believe that our fleet is currently in compliance with applicable security requirements.

 

Inspection by Classification Societies

 

Every oceangoing vessel must be “classed” by a classification society. The classification society certifies that the vessel is “in-class,” signifying that the vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the vessel’s country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.

 

Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in-class” by a classification society which is a member of the International Association of Classification Societies. All our vessels are certified as being “in-class” by a recognized classification society.

 

Glossary

 

The following are abbreviations and definitions of certain terms commonly used in the shipping industry and this annual report. The terms are taken from the Marine Encyclopedic Dictionary (Fifth Edition) published by Lloyd’s of London Press Ltd. and other sources, including information supplied by us.

 

Aframax tanker. Tanker ranging in size from 80,000 dwt to 120,000 dwt.

 

American Bureau of Shipping. American classification society.

 

Annual survey. The inspection of a vessel pursuant to international conventions, by a classification society surveyor, on behalf of the flag state, that takes place every year.

 

Bareboat charter. Contract or hire of a vessel under which the shipowner is usually paid a fixed amount for a certain period of time during which the charterer is responsible for the complete operation and maintenance of the vessel, including crewing.

 

Bunker Fuel. Fuel supplied to ships and aircraft in international transportation, irrespective of the flag of the carrier, consisting primarily of residual fuel oil for ships and distillate and jet fuel oils for aircraft.

 

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Charter. The hire of a vessel for a specified period of time or to carry a cargo from a loading port to a discharging port. A vessel is “chartered in” by an end user and “chartered out” by the provider of the vessel.

 

Charterer. The individual or company hiring a vessel.

 

Charterhire. A sum of money paid to the shipowner by a charterer under a charter for the use of a vessel.

 

Classification society. A private, self-regulatory organization which has as its purpose the supervision of vessels during their construction and afterward, in respect to their seaworthiness and upkeep, and the placing of vessels in grades or “classes” according to the society’s rules for each particular type of vessel.

 

Demurrage. The delaying of a vessel caused by a voyage charterer’s failure to load, unload, etc. before the time of scheduled departure. The term is also used to describe the payment owed by the voyage charterer for such delay.

 

Det Norske Veritas. Norwegian classification society.

 

Double-hull. Hull construction design in which a vessel has an inner and outer side and bottom separated by void space, usually several feet in width.

 

Double-sided. Hull construction design in which a vessel has watertight protective spaces that do not carry any oil and which separate the sides of tanks that hold any oil within the cargo tank length from the outer skin of the vessel.

 

Drydock. Large basin where all the fresh/sea water is pumped out to allow a vessel to dock in order to carry out cleaning and repairing of those parts of a vessel which are below the water line.

 

Dwt. Deadweight ton. A unit of a vessel’s capacity, for cargo, fuel oil, stores and crew, measured in metric tons of 1,000 kilograms. A vessel’s dwt or total deadweight is the total weight the vessel can carry when loaded to a particular load line.

 

Gross ton. Unit of 100 cubic feet or 2.831 cubic meters.

 

Handymax tanker. Tanker ranging in size from 40,000 dwt to 60,000 dwt.

 

Hull. Shell or body of a vessel.

 

IMO. International Maritime Organization, a United Nations agency that sets international standards for shipping.

 

Intermediate survey. The inspection of a vessel by a classification society surveyor which takes place approximately two and half years before and after each special survey. This survey is more rigorous than the annual survey and is meant to ensure that the vessel meets the standards of the classification society.

 

Lightering. To put cargo in a lighter to partially discharge a vessel or to reduce her draft. A lighter is a small vessel used to transport cargo from a vessel anchored offshore.

 

Net voyage revenues. Voyage revenues minus voyage expenses.

 

Newbuilding. A new vessel under construction or just completed.

 

Off hire. The period a vessel is unable to perform the services for which it is immediately required under its contract. Off hire periods include days spent on repairs, drydockings, special surveys and vessel upgrades. Off hire may be scheduled or unscheduled, depending on the circumstances.

 

Panamax tanker. Tanker ranging in size from 60,000 dwt to 80,000 dwt.

 

P&I Insurance. Third party indemnity insurance obtained through a mutual association, or P&I Club, formed by shipowners to provide protection from third-party liability claims against large financial loss to one member by contribution towards that loss by all members.

 

Scrapping. The disposal of old vessel tonnage by way of sale as scrap metal.

 

Single-hull. Hull construction design in which a vessel has only one hull.

 

Sister ship.  Ship built to same design and specifications as another.

 

Special survey. The inspection of a vessel by a classification society surveyor that takes place every four to five years.

 

Spot market. The market for immediate chartering of a vessel, usually on voyage charters.

 

Suezmax tanker. Tanker ranging in size from 120,000 dwt to 200,000 dwt.

 

Tanker. Vessel designed for the carriage of liquid cargoes in bulk with cargo space consisting of many tanks. Tankers carry a variety of products including crude oil, refined products, liquid chemicals and liquid gas. Tankers load their cargo by gravity from the shore or by shore pumps and discharge using their own pumps.

 

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TCE. Time charter equivalent. TCE is a measure of the average daily revenue performance of a vessel on a per voyage basis determined by dividing net voyage revenue by voyage days for the applicable time period.

 

Time charter. Contract for hire of a vessel under which the shipowner is paid charterhire on a per day basis for a certain period of time. The shipowner is responsible for providing the crew and paying operating costs while the charterer is responsible for paying the voyage expenses. Any delays at port or during the voyages.

 

VLCC. Acronym for Very Large Crude Carrier, or a tanker ranging in size from 200,000 dwt to 320,000 dwt.

 

Worldscale. Industry name for the Worldwide Tanker Nominal Freight Scale published annually by the Worldscale Association as a rate reference for shipping companies, brokers, and their customers engaged in the bulk shipping of oil in the international markets. Worldscale is a list of calculated rates for specific voyage itineraries for a standard vessel, as defined, using defined voyage cost assumptions such as vessel speed, fuel consumption and port costs. Actual market rates for voyage charters are usually quoted in terms of a percentage of Worldscale.

 

ITEM 1A.  RISK FACTORS

 

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

 

This annual report on Form 10-K contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  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 annual report on Form 10-K are the following: (i) loss or reduction in business from our significant customers; (ii) the failure of our significant customers to perform their obligations owed to us; (iii) changes in demand; (iv) a material decline or prolonged weakness in rates in the tanker market; (v) changes in production of or demand for oil and petroleum products, generally or in particular regions; (vi) greater than anticipated levels of tanker newbuilding orders or lower than anticipated rates of tanker scrapping; (vii) changes in rules and regulations applicable to the tanker industry, including, without limitation, legislation adopted by international organizations such as the International Maritime Organization and the European Union or by individual countries; (viii) actions taken by regulatory authorities; (ix) actions by the courts, the U.S. Coast Guard, the U.S. Department of Justice or other governmental authorities and the results of the legal proceedings to which we or any of our vessels may be subject; (x) changes in trading patterns significantly impacting overall tanker tonnage requirements; (xi) changes in the typical seasonal variations in tanker charter rates; (xii) changes in the cost of other modes of oil transportation; (xiii) changes in oil transportation technology; (xiv) increases in costs including without limitation: crew wages, insurance, provisions, repairs and maintenance; (xv) changes in general domestic and international political conditions; (xvi) changes in the condition of our vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated drydocking or maintenance and repair costs); (xvii) changes in the itineraries of the our vessels; (xviii) adverse changes in foreign currency exchange rates affecting our expenses; and (xiv) other factors listed from time to time in our filings with the Securities and Exchange Commission.

 

Our ability to pay dividends in any period will depend upon factors including applicable provisions of Marshall Islands law, restrictions under the Company’s existing Credit Facility and indenture governing the Company’s Senior Notes and the final determination by our Board of Directors each quarter after its review of our financial performance.  The timing and amount of dividends, if any, could also be affected by factors affecting cash flows, results of operations, required capital expenditures, or reserves.  As a result, the amount of dividends actually paid may vary.

 

We face a variety of risks that are substantial and inherent in our business, including market, financial, operational, legal and regulatory risks.  Below, we have described certain important risks that could affect our business.  These risks and other information included in this report should be carefully considered.  If any of these risks occur, our business, financial condition, operating results and cash flows could be materially adversely affected and the trading price of our common stock could decline.

 

RISK FACTORS RELATED TO OUR BUSINESS & OPERATIONS

 

We may incur adverse consequences in connection with our executive transition.

 

As we previously announced, on October 24, 2008, in connection with the Arlington Acquisition, we entered into a new letter agreement with Peter Georgiopoulos.  Pursuant to its terms, the new letter agreement became effective as of December 16, 2008, the date on which the effective time of the Arlington Acquisition occurred, the Effective Date.  This letter agreement provided that, among other things:  the employment letter agreement, dated April 5, 2005, between General Maritime Subsidiary and Peter Georgiopoulos terminated on the Effective Date (and Peter Georgiopoulos stepped down as President and CEO); and Peter Georgiopoulos will serve as Chairman of the Board of Directors of the new combined company for three years following the Effective Date, or earlier if he is not nominated to such position or if our shareholders decline to re-elect him to, or remove him from, our Board

 

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of Directors.  On the Effective Date, John Tavlarios, CEO of our management subsidiary, became President of the Company.  The loss of Peter Georgiopoulos’ full-time service could have an adverse effect on our operations.

 

The current global economic turndown may negatively impact our business.

 

In recent years, there has been a significant adverse shift in the global economy, with operating businesses facing tightening credit, weakening demand for goods and services, deteriorating international liquidity conditions, and declining markets.  Lower demand for tanker cargoes as well as diminished trade credit available for the delivery of such cargoes may create downward pressure on charter rates.  If the current global economic environment persists or worsens, we may be negatively affected in the following ways:

 

·                  We may not be able to employ our vessels at charter rates as favorable to us as historical rates or operate our vessels profitably.

 

·                  The market value of our vessels could decrease significantly, which may cause us to recognize losses if any of our vessels are sold or if their values are impaired.  In addition,  such a decline in the market value of our vessels could prevent us from borrowing under our credit facilities or trigger a default under their covenants.

 

·                  Charterers could seek to renegotiate the terms of their charterers with us or have difficulty meeting their payment obligations to us.

 

If the contraction of the global credit markets and the resulting volatility in the financial markets continues or worsens that could have a material adverse impact on our results of operations, financial condition and cash flows, and could cause the market price of our common shares to decline.

 

The cyclical nature of the tanker industry may lead to volatility in charter rates and vessel values which may adversely affect our earnings.

 

If the tanker market, which has historically been cyclical, is depressed in the future, our earnings and available cash flow may decrease.  Our ability to employ our vessels profitably will depend upon, among other things, economic conditions in the tanker market.  Fluctuations in charter rates and tanker values result from changes in the supply and demand for tanker capacity and changes in the supply and demand for petroleum and petroleum products.

 

The factors affecting the supply and demand for tankers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.  The current global financial crisis has intensified this unpredictability.

 

The factors that influence demand for tanker capacity include:

 

·                  demand for and supply of petroleum and petroleum products,

 

·                  regional availability of refining capacity,

 

·                  environmental and other regulatory developments,

 

·                  global and regional economic conditions,

 

·                  the distance petroleum and petroleum products are to be moved by sea,

 

·                  changes in seaborne and other transportation patterns, and

 

·                  competition from alternative sources of energy.

 

The factors that influence the supply of tanker capacity include:

 

·                  the number of newbuilding deliveries,

 

·                  the scrapping rate of older vessels,

 

·                  conversion of tankers to other uses,

 

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·                  the price of steel,

 

·                  the number of vessels that are out of service, and

 

·                  environmental concerns and regulations.

 

Historically, the tanker markets have been volatile as a result of the many conditions and factors that can affect the price, supply and demand for tanker capacity.  The recent global economic crisis may further reduce demand for transportation of oil over long distances and supply of tankers that carry oil, which may materially affect our revenues, profitability and cash flows.

 

Charter rates for vessels may decrease in the future, which may adversely affect our earnings and ability to pay dividends and/or principal, premium, if any, and interest on our Senior Notes.

 

We anticipate that future demand for our vessels, and in turn our future charter rates, will be affected by the rate of economic growth in the world’s economy as well as seasonal and regional changes in demand and changes in the capacity of the world’s fleet. Seven of our 15 current time charter contracts will expire prior to June 30, 2010. If the tanker industry, which has been highly cyclical, continues to be depressed in the future when our charters expire or at a time when we may want to sell a vessel, our earnings and available cash flow may be adversely affected. We cannot assure you that we will be able to successfully charter our vessels in the future or renew our existing charters at rates sufficient to allow us to operate our business profitably, meet our obligations including payment of debt service to our other lenders, pay dividends to our shareholders, and/or pay principal, premium, if any, and interest on our 12% senior notes due 2017, which we refer to as our “Senior Notes”. Our ability to renew the charters on our vessels on the expiration or termination of our current charters, the charter rates payable under any replacement charters and vessel values will depend upon, among other things, economic conditions in the tanker industry at that time, changes in the supply and demand for vessel capacity and changes in the supply and demand for the seaborne transportation of crude oil. A general global economic downturn or international financial uncertainty may result in a weakening of charter rates. This could reduce the charter rates for our vessels not then subject to long-term charters and, thereby, negatively impact our results of operations.

 

In addition, four of the Arlington Vessels are currently chartered to subsidiaries of Stena and Concordia Maritime AB, or Concordia, a significant shareholder of Arlington prior to the Arlington Acquisition. We receive a fixed minimum daily base charter rate, or basic hire, under these charters and may also receive additional hire based on a formula of notional voyages and expenses on routes agreed to with these charterers. There is no obligation to pay additional hire during any period when the obligation to pay basic hire is suspended under the charter if the vessel is off-hire due to technical reasons. These charterers have options which they may exercise in their sole discretion to extend the terms of the charters for each of the Arlington Vessels, four of which options were exercised in May 2008. The charterers for the four other vessels declined to exercise their options to extend the terms of their charters, during the fourth quarter of 2009.  Three of these vessels have been rechartered on time charters and one has been deployed on the spot market.  Notice that the charterer is exercising its option to extend the term of a charter is required to be delivered no later than six months prior to the expiration of the charter period in effect at that time. Although we periodically evaluates the probability that these option periods will be exercised, we cannot predict whether the charterers will exercise any additional extension options under one or more of the charters. If these charterers decide not to extend their current charters, we may not be able to re-charter the Arlington Vessels with terms similar to the terms of the current charters, or at all. We may also directly employ these vessels on the spot charter market, which is subject to greater rate fluctuation than the time charter market.

 

An over supply of new vessels may adversely affect charter rates and vessel values.

 

If the number of new ships delivered exceeds the number of tankers being scrapped and lost, tanker capacity will increase.  In addition, we believe that the total newbuilding order books for Suezmax vessels and Aframax vessels scheduled to enter the fleet through 2012 currently are a substantial portion of the existing fleets and we cannot assure you that the order books will not increase further in proportion to the existing fleets.  If the supply of tanker capacity increases and the demand for tanker capacity does not increase correspondingly, charter rates could materially decline and the value of our vessels could be adversely affected.

 

Our revenues may be adversely affected if we do not successfully employ our vessels.

 

We seek to deploy our vessels between spot market voyage charters and time charters in a manner that maximizes long-term cash flow. Currently, 15 of our vessels are contractually committed to time charters, with the remaining terms of these charters expiring on dates between March 2010 and July 2011.  Although these time charters generally provide stable revenues, they also limit the portion of our fleet available for spot market voyages during an upswing in the tanker industry cycle, when spot market voyages might be more profitable.

 

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We earned approximately 11.8% of our net voyage revenue from spot charters for the year ended December 31, 2009. The spot charter market is highly competitive, and spot market voyage charter rates may fluctuate dramatically based primarily on the worldwide supply of tankers available in the market for the transportation of oil and the worldwide demand for the transportation of oil by tanker. Factors affecting the volatility of spot market voyage charter rates include the quantity of oil produced globally, shifts in locations where oil is produced or consumed, actions by OPEC, the general level of worldwide economic activity and the development and use of alternative energy sources. We cannot assure you that future spot market voyage charters will be available at rates that will allow us to operate our vessels that are not under time charter profitably.

 

We receive a significant portion of our revenues from a single customer, and any decrease in the amount of business it or any other significant customer transacts with us could materially and adversely affect our cash flows and profitability.

 

We derive a significant portion of our revenues from our largest customer, Lukoil Oil Company.  During 2009, Lukoil accounted for  35.8%  of our voyage revenues and we expect Lukoil to account for a significant portion of our voyage revenues in the future.  Five of our 15 time charters are with Lukoil.  We also derive a significant portion of our voyage revenues from time charters with subsidiaries of Concordia and Stena.  During 2009, these customers accounted for 22.0% of our voyage revenues and we expect these customers to account for a significant portion of our voyage revenues in the future.  As of December 31, 2009, four Arlington Vessels are on time charters with the Concordia and Stena subsidiaries.  Our revenues, other than those received from Lukoil, Concordia and Stena are also derived from a limited number of customers.

 

If Lukoil or one of the Concordia and Stena subsidiaries breaches or terminates these time charters or renegotiates or renews them on terms less favorable than those currently in effect, or if any significant customer decreases the amount of business it transacts with us or if we lose any of our customers or a significant portion of our revenues, our operating results, cash flows and profitability could be materially adversely affected.

 

The failure of our counterparties to meet their obligations under our time charter agreements could cause us to suffer losses or otherwise adversely affect our business.

 

We employ 15 vessels under time charters with an average remaining duration of approximately eight months as of December 31, 2009. The ability of each of our charterers to perform its obligations under a charter will depend on a number of factors that are beyond our control.  These factors may include general economic conditions, the condition of the tanker industry, the charter rates received for specific types of vessels and various operating expenses.  The costs and delays associated with the default by a charterer under a charter of a vessel may be considerable and this may negatively impact our business.

 

In addition, in depressed market conditions, our charterers and customers may no longer need a vessel that is currently under charter or contract or may be able to obtain a comparable vessel at lower rates. As a result, charterers and customers may seek to renegotiate the terms of their existing charter agreements or avoid their obligations under those contracts. Should a counterparty fail to honor its obligations under agreements with us, we could sustain significant losses.

 

If our charterers attempt to renegotiate their charters or default on their charters, this may adversely affect our business, results of operations, cash flows and financial condition and our available cash.

 

A decline in demand for crude oil or a shift in oil transport patterns could materially and adversely affect our revenues.

 

The demand for tanker capacity to transport crude oil depends upon world and regional oil markets.  A number of factors influence these markets, including:

 

·                  global and regional economic conditions;

 

·                  increases and decreases in production of and demand for crude oil;

 

·                  developments in international trade;

 

·                  changes in seaborne and other transportation patterns;

 

·                  environmental concerns and regulations; and

 

·                  weather.

 

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Historically, the crude oil markets have been volatile as a result of the many conditions and events that can affect the price, demand, production and transport of oil, including competition from alternative energy sources.  Decreased demand for oil transportation may have a material adverse effect on our revenues, cash flows and profitability.

 

The market for crude oil transportation services is highly competitive and we may not be able to effectively compete.

 

Our vessels are employed in a highly competitive market.  Our competitors include the owners of other Aframax and Suezmax tankers and, to a lesser degree, owners of other size tankers.  Both groups include independent oil tanker companies as well as oil companies.  We do not control a sufficiently large share of the market to influence the market price charged for crude oil transportation services.

 

Our market share may decrease in the future.  We may not be able to compete profitably as we expand our business into new geographic regions or provide new services.  New markets may require different skills, knowledge or strategies than we use in our current markets, and the competitors in those new markets may have greater financial strength and capital resources than we do.

 

The market value of our vessels may fluctuate significantly, and we may incur losses when we sell vessels following a decline in their market value.

 

We believe that the fair market value of our vessels may have declined recently, and may increase and decrease depending on a number of factors including:

 

·                  general economic and market conditions affecting the shipping industry;

 

·                  competition from other shipping companies;

 

·                  supply and demand for tankers and the types and sizes of tankers we own;

 

·                  alternative modes of transportation;

 

·                  cost of newbuildings;

 

·                  governmental or other regulations;

 

·                  prevailing level of charter rates; and

 

·                  technological advances.

 

Declines in charter rates and other market deterioration could cause the market value of our vessels to decrease significantly.  We evaluate the carrying amounts of our vessels to determine if events have occurred that would require an impairment of their carrying amounts. The recoverable amount of vessels is reviewed based on events and changes in circumstances that would indicate that the carrying amount of the assets might not be recovered. The review for potential impairment indicators and projection of future cash flows related to the vessels is complex and requires us to make various estimates including future freight rates, earnings from the vessels and discount rates. All of these items have been historically volatile.

 

We evaluate the recoverable amount as the higher of fair value less costs to sell and value in use.  If the recoverable amount is less than the carrying amount of the vessel, the vessel is deemed impaired. The carrying values of our vessels may not represent their fair market value at any point in time because the new market prices of secondhand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings.  Any impairment charges incurred as a result of further declines in charter rates could negatively affect our business, financial condition, operating results or the trading price of our common shares.

 

We may not be able to grow or to effectively manage our growth.

 

A principal focus of our strategy is to continue to grow by taking advantage of changing market conditions, which may include expanding our business in the Atlantic basin, the primary geographic area and market where we operate, expanding into other regions, or increasing the number of vessels in our fleet.  Our future growth will depend upon a number of factors, some of which we can control and some of which we cannot.  These factors include our ability to:

 

·                  identify businesses engaged in managing, operating or owning vessels for acquisitions or joint ventures;

 

·                  identify vessels and/or shipping companies for acquisitions;

 

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·                  integrate any acquired businesses or vessels successfully with our existing operations;

 

·                  hire, train and retain qualified personnel to manage and operate our growing business and fleet;

 

·                  identify additional new markets outside of the Atlantic basin;

 

·                  improve our operating and financial systems and controls; and

 

·                  obtain required financing for our existing and new operations.

 

Our ability to grow is in part dependent on our ability to expand our fleet through acquisitions of suitable double-hull vessels.  We may not be able to acquire newbuildings or secondhand double-hull tankers on favorable terms, which could impede our growth and negatively impact our financial condition and ability to pay dividends.  We may not be able to contract for newbuildings or locate suitable secondhand double-hull vessels or negotiate acceptable construction or purchase contracts with shipyards and owners, or obtain financing for such acquisitions on economically acceptable terms.

 

The failure to effectively identify, purchase, develop and integrate any vessels or businesses could adversely affect our business, financial condition and results of operations.

 

Our operating results may fluctuate seasonally.

 

We operate our vessels in markets that have historically exhibited seasonal variations in tanker demand and, as a result, in charter rates.  Tanker markets are typically stronger in the fall and winter months (the fourth and first quarters of the calendar year) in anticipation of increased oil consumption in the Northern Hemisphere during the winter months.  Unpredictable weather patterns and variations in oil reserves disrupt vessel scheduling and could impact charter rates.

 

Because we generate all of our revenues in U.S. Dollars but incur a significant portion of our expenses in other currencies, exchange rate fluctuations could have an adverse impact on our results of operations.

 

We generate all of our revenues in U.S. Dollars but we incur a significant portion of our expenses, particularly crew and maintenance costs, in currencies other than the U.S. Dollar.  This difference could lead to fluctuations in net income due to changes in the value of the U.S. Dollars relative to the other currencies, in particular the Euro.  A decline in the value of the U.S. Dollar could lead to higher expenses payable by us.

 

There may be risks associated with the purchase and operation of secondhand vessels.

 

Our current business strategy includes additional growth through the acquisition of additional secondhand vessels.  Although we inspect secondhand vessels prior to purchase, this does not normally provide us with the same knowledge about their condition that we would have had if such vessels had been built for and operated exclusively by us.  Therefore, our future operating results could be negatively affected if some of the vessels do not perform as we expect.  Also, we generally do not receive the benefit of warranties from the builders if the vessels we buy are older than one year.

 

Delays or defaults by the shipyards in the construction of any new vessels that we may order could increase our expenses and diminish our net income and cash flows.

 

Our business strategy may include additional growth through constructing new vessels or acquiring newbuilding contracts.  Any such projects would be subject to the risk of delay or defaults by shipyards caused by, among other things, unforeseen quality or engineering problems, work stoppages, weather interference, unanticipated cost increases, delays in receipt of necessary equipment, and inability to obtain the requisite permits or approvals.  In accordance with industry practice, in the event any such shipyards are unable or unwilling to deliver the vessels ordered, we may not have substantial remedies.  Failure to construct or deliver vessels by the shipyards or any significant delays could increase our expenses and diminish our net income and cash flows.

 

An increase in costs could materially and adversely affect our financial performance.

 

Our vessel operating expenses are comprised of a variety of costs including crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs, many of which are beyond our control and affect the entire shipping industry.  Also, costs such as insurance and security are still increasing.  If costs continue to rise, that could materially and adversely affect our cash flows and profitability.

 

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Fuel, or bunkers, is a significant, if not the largest, expense for our vessels that will be employed in the spot market. With respect to our vessels that will be employed on time charter, the charterer is generally responsible for the cost of fuel, however such cost may affect the charter rates we are able to negotiate for our vessels.  Changes in the price of fuel may adversely affect our profitability.  The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns.  Further, fuel may become much more expensive in the future, which may reduce the profitability and competitiveness of our business versus other forms of transportation, such as truck or rail.

 

We may face unexpected repair costs for our vessels.

 

Repairs and maintenance costs are difficult to predict with certainty and may be substantial.  Many of these expenses are not covered by our insurance.  Large repair expenses could decrease our cash flow and profitability and reduce our liquidity.

 

Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad weather, business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy and other circumstances or events. Changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts. These hazards may result in death or injury to persons, loss of revenues or property, environmental damage, higher insurance rates, damage to our customer relationships, market disruptions, delay or rerouting.  In addition, the operation of tankers has unique operational risks associated with the transportation of oil. An oil spill may cause significant environmental damage, and the associated costs could exceed the insurance coverage available to us.  Compared to other types of vessels, tankers are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due to the high flammability and high volume of the oil transported in tankers.

 

If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover in full. The loss of revenues while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, may adversely affect our business and financial condition. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced to travel to a drydocking facility that is not conveniently located to our vessels’ positions. The loss of earnings while these vessels are forced to wait for space or to travel to more distant drydocking facilities may adversely affect our business and financial condition.  Further, the total loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator.  If we are unable to adequately maintain or safeguard our vessels, we may be unable to prevent any such damage, costs, or loss which could negatively impact our business, financial condition, results of operations and available cash.

 

Compliance with safety and other vessel requirements imposed by classification societies may be very costly and may adversely affect our business.

 

The hull and machinery of every commercial tanker must be classed by a classification society authorized by its country of registry.  The classification society certifies that a tanker is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the tanker and the Safety of Life at Sea Convention.  All of our vessels are certified as being “in-class” by Det Norske Veritas or the American Bureau of Shipping.  These classification societies are members of the International Association of Classification Societies.

 

A vessel must undergo annual surveys, intermediate surveys and special surveys.  In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period.  Our vessels are on special survey cycles for hull inspection and on special survey or continuous survey cycles for machinery inspection.  Every vessel is also required to be drydocked every two to five years for inspection of the underwater parts of such vessel.

 

If a vessel in our fleet does not maintain its class and/or fails any annual survey, intermediate survey or special survey, it will be unemployable and unable to trade between ports.  This would negatively impact our results of operations.

 

We depend on our key personnel and may have difficulty attracting and retaining skilled employees.

 

The loss of the services of any of our key personnel or our inability to successfully attract and retain qualified personnel in the future could have a material adverse effect on our business, financial condition and operating results. Our future success depends particularly on the continued service of John Tavlarios, our President, and our ability to attract a suitable replacement, if necessary.

 

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Our success also depends in large part on our ability to attract and retain highly skilled and qualified ship officers and crew. In crewing our vessels, we require technically skilled employees with specialized training who can perform physically demanding work. Competition to attract and retain qualified crew members is intense. We expect crew costs to increase slightly in 2010. If we are not able to increase our rates to compensate for any crew cost increases, our financial condition and results of operations may be adversely affected. Any inability we experience in the future to hire, train and retain a sufficient number of qualified employees could impair our ability to manage, maintain and grow our business.

 

Our vessel-owning subsidiaries and third-party technical management companies employ masters, officers and crews to man our vessels. If not resolved in a timely and cost-effective manner, industrial action or other labor unrest could prevent or hinder our operations from being carried out as we expect and could have a material adverse effect on our business, results of operations, cash flows, financial condition and available cash.

 

Shipping is an inherently risky business and our insurance may not be adequate.

 

Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad weather, mechanical failures, human error, war, terrorism, piracy and other circumstances or events. In addition, transporting crude oil creates a risk of business interruptions due to political, economic or regulatory circumstances in foreign countries, hostilities, labor strikes and boycotts.  Any of these events may result in loss of revenues, increased costs and decreased cash flows.  Future hostilities or other political instability could affect our trade patterns and adversely affect our operations and our revenues, cash flows and profitability.

 

We carry insurance to protect against most of the accident-related risks involved in the conduct of our business.  We currently maintain $1 billion in coverage for each of our vessels for liability for spillage or leakage of oil or pollution.  We also carry insurance covering lost revenue resulting from vessel off-hire for all of our vessels.  Nonetheless, risks may arise against which we are not adequately insured.  For example, a catastrophic spill could exceed our insurance coverage and have a material adverse effect on our financial condition.  In addition, we may not be able to procure adequate insurance coverage at commercially reasonable rates in the future and we cannot guarantee that any particular claim will be paid.  In the past, new and stricter environmental regulations have led to higher costs for insurance covering environmental damage or pollution, and new regulations could lead to similar increases or even make this type of insurance unavailable.  Furthermore, even if insurance coverage is adequate to cover our losses, we may not be able to timely obtain a replacement ship in the event of a loss.  We may also be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations through which we receive indemnity insurance coverage for tort liability.  In addition, our protection and indemnity associations may not have enough resources to cover claims made against them. Our payment of these calls could result in significant expenses to us which could reduce our cash flows and place strains on our liquidity and capital resources.

 

The risks associated with older vessels could adversely affect our operations.

 

In general, the costs to maintain a vessel in good operating condition increase as the vessel ages. As of December 31, 2009, the weighted average age of the 31 vessels in our fleet was 9.6 years, compared to an average age of 8.6 years as of December 31, 2008. Due to improvements in engine technology, older vessels typically are less fuel-efficient than more recently constructed vessels. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers.

 

Governmental regulations, safety or other equipment standards related to the age of tankers may require expenditures for alterations or the addition of new equipment to our vessels, and may restrict the type of activities in which our vessels may engage. We cannot assure you that, as our vessels age, market conditions will justify any required expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.

 

If we do not set aside funds and are unable to borrow or raise funds for vessel replacement, we will be unable to replace the vessels in our fleet upon the expiration of their remaining useful lives of 25 years. Our cash flows and income are dependent on the revenues earned by the chartering of our vessels. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our revenue will decline and our business, results of operations, financial condition, and available cash per share would be adversely affected. Any funds set aside for vessel replacement will reduce available cash.

 

Acts of piracy on ocean-going vessels have recently increased in frequency, which could adversely affect our business.

 

Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea and in the Gulf of Aden off the coast of Somalia.  Throughout 2008 and 2009, the frequency of piracy incidents has increased significantly, particularly in the Gulf of Aden off the coast of Somalia.  For example, in November 2008, the M/V Sirius Star, a tanker vessel not affiliated with us, was captured by pirates in the Indian Ocean while carrying crude oil estimated to be worth $100 million. If these piracy attacks result in regions in which our vessels are deployed being characterized by insurers as “war risk” zones, as the Gulf of Aden temporarily was in May 2008, or Joint War Committee (JWC) “war and strikes” listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain.  In addition, crew costs, including

 

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costs which may be incurred to the extent we employ onboard security guards, could increase in such circumstances.  We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us.  In addition, detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could have a material adverse impact on our business, financial condition and results of operations.

 

Terrorist attacks, increased hostilities or war could lead to further economic instability, increased costs and disruption of our business.

 

Terrorist attacks, and the current conflicts in Iraq and Afghanistan and other current and future conflicts, may adversely affect our business, operating results, financial condition, ability to raise capital and future growth. Continuing hostilities in the Middle East may lead to additional armed conflicts or to further acts of terrorism and civil disturbance in the United States or elsewhere, which may contribute further to economic instability.

 

In addition, oil facilities, shipyards, vessels, pipelines and oil and gas fields could be targets of future terrorist attacks.  Any such attacks could lead to, among other things, bodily injury or loss of life, vessel or other property damage, increased vessel operational costs, including insurance costs, and the inability to transport oil and other refined products to or from certain locations.  Terrorist attacks, war or other events beyond our control that adversely affect the distribution, production or transportation of oil and other refined products to be shipped by us could entitle our customers to terminate our charter contracts, which would harm our cash flow and our business.

 

Compliance with safety, environmental and other governmental requirements and related costs may adversely affect our operations.

 

The shipping industry in general, our business and the operation of our vessels in particular, are affected by a variety of governmental regulations in the form of numerous international conventions, national, state and local laws and national and international regulations in force in the jurisdictions in which such tankers operate, as well as in the country or countries in which such tankers are registered. These regulations include:

 

·             the U.S. Oil Pollution Act of 1990, or OPA, which imposes strict liability for the discharge of oil into the 200-mile United States exclusive economic zone, the obligation to obtain certificates of financial responsibility for vessels trading in United States waters and the requirement that newly constructed tankers that trade in United States waters be constructed with double-hulls;

 

·             the International Convention on Civil Liability for Oil Pollution Damage of 1969 entered into by many countries (other than the United States) which imposes strict liability for pollution damage caused by the discharge of oil;

 

·             the International Convention for the Prevention of Pollution from Ships adopted and implemented under the auspices of the International Maritime Organization, or IMO, with respect to strict technical and operational requirements for tankers;

 

·             the IMO International Convention for the Safety of Life at Sea of 1974, or SOLAS, which imposes crew and passenger safety requirements;

 

·             the International Ship and Port Facilities Securities Code, or the ISPS Code, which became effective in 2004;

 

·             the International Convention on Load Lines of 1966 which imposes requirements relating to the safeguarding of life and property through limitations on load capability for vessels on international voyages; and

 

·             the U.S. Maritime Transportation Security Act of 2002 which imposes security requirements for tankers entering U.S. ports.

 

More stringent maritime safety rules have been imposed in the European Union and further rules may be imposed as a result of the oil spill in November 2002 relating to the loss of the M.T. Prestige, a 26-year old single-hull tanker owned by a company not affiliated with us. Additional laws and regulations may also be adopted that could limit our ability to do business or increase the cost of our doing business and that could have a material adverse effect on our operations. In addition, we are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our operations. We believe our vessels are maintained in good condition in compliance with present regulatory requirements, are operated in compliance with applicable safety and environmental laws and regulations and are insured against usual risks for such amounts as our management deems appropriate. The vessels’ operating certificates and licenses are renewed periodically during each vessel’s required annual

 

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survey. However, government regulation of tankers, particularly in the areas of safety and environmental impact may change in the future and require us to incur significant capital expenditures with respect to our ships to keep them in compliance.

 

Increased inspection procedures and tighter import and export controls could increase costs and disrupt our business.

 

International shipping is subject to various security and customs inspections and related procedures in countries of origin and destination.  Inspection procedures can result in the seizure of contents of our vessels, delays in the loading, offloading or delivery and the levying of customs, duties, fines and other penalties against us.

 

It is possible that changes to inspection procedures could impose additional financial and legal obligations on us.  Furthermore, changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo impractical.  Any such changes or developments may have a material adverse effect on our business, financial condition, results of operations and our ability to pay dividends.

 

Our vessels may be requisitioned by governments without adequate compensation.

 

A government could requisition for title or seize our vessels.  In the case of a requisition for title, a government takes control of a vessel and becomes its owner.  Also, a government could requisition our vessels for hire.  Under requisition for hire, a government takes control of a vessel and effectively becomes its charterer at dictated charter rates.  Generally, requisitions occur during a period of war or emergency. Although we, as owner, would be entitled to compensation in the event of a requisition, the amount and timing of payment would be uncertain.

 

Increases in tonnage taxes on our vessels would increase the costs of our operations.

 

Our vessels are currently registered under the flags of the Republic of Liberia, the Republic of the Marshall Islands and Bermuda.  These jurisdictions impose taxes based on the tonnage capacity of each of the vessels registered under their flag.  The tonnage taxes imposed by these countries could increase, which would cause the costs of our operations to increase.

 

Arrests of our vessels by maritime claimants could cause a significant loss of earnings for the related off hire period.

 

Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages.  In many jurisdictions, a maritime lienholder may enforce its lien by “arresting” or “attaching” a vessel through foreclosure proceedings.  The arrest or attachment of one or more of our vessels could result in a significant loss of earnings for the related off-hire period.

 

In addition, in jurisdictions where the “sister ship” theory of liability applies, a claimant may arrest both the vessel which is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner.  In countries with “sister ship” liability laws, claims might be asserted against us, any of our subsidiaries or our vessels for liabilities of other vessels that we own.

 

Proceedings involving General Maritime, our vessel-operating subsidiary and two General Maritime vessel officers could negatively impact our business.

 

On November 25, 2008, a jury in the Southern District of Texas found General Maritime Management (Portugal) L.D.A., a subsidiary of ours, or GMM Portugal, and two vessel officers of the Genmar Defiance guilty of violating the Act to Prevent Pollution from Ships and 18 USC 1001. The conviction resulted from charges based on alleged incidents occurring on board the Genmar Defiance arising from potential failures by shipboard staff to properly record discharges of bilge waste during the period of November 24, 2007 through November 26, 2007.  Pursuant to the sentence imposed by the Court on March 13, 2009, GMM Portugal paid a $1 million fine in April 2009 and is subject to a probationary period of five years. During this period, a court-appointed monitor will monitor and audit GMM Portugal’s compliance with its environmental compliance plan, and GMM Portugal is required to designate a responsible corporate officer to submit monthly reports to, and respond to inquiries from, the court’s probation department. The court stated that, should GMM Portugal engage in future conduct in violation of its probation, it may, under appropriate circumstances, ban certain of our vessels from calling on U.S. ports. We have also written off approximately $3.3 million of insurance claims related to this matter.

 

On or about August 29, 2007, an oil sheen was discovered by shipboard personnel of the Genmar Progress in Guayanilla Bay, Puerto Rico in the vicinity of the vessel. We understand the federal and Puerto Rico authorities are conducting civil investigations into an oil pollution incident which occurred during this time period on the southwest coast of Puerto Rico including Guayanilla Bay. The extent to which oil discharged from the Genmar Progress is responsible for this incident is currently the subject of investigation. The

 

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U.S. Coast Guard has designated the Genmar Progress as a potential source of discharged oil. Under the Oil Pollution Act of 1990, the source of the discharge is liable, regardless of fault, for damages and oil spill remediation as a result of the discharge.

 

On January 19, 2009, we received a demand from the U.S. National Pollution Fund for $5.8 million for the U.S. Coast Guard’s response costs and certain costs of the Departamento de Recursos Naturales y Ambientales of Puerto Rico in connection with the alleged damage to the environment caused by the spill. We are reviewing the demand and have requested additional information from the U.S. National Pollution Fund relating to the demand. We and General Maritime Management LLC recently received grand jury subpoenas, dated October 5, 2009 and September 21, 2009, respectively, from U.S. Department of Justice requesting additional information and records pertaining to the operations of the Genmar Progress and our business. Currently, no charges have been made and no other fines or penalties have been levied against us. We have been cooperating in these investigations and have posted a surety bond to cover potential fines or penalties that may be imposed in connection with the matter.

 

This matter, including the demand from the U.S. National Pollution Fund, has been reported to our protection and indemnity insurance underwriters. We have not accrued reserves for this incident because the amount of any costs that may be incurred by us is not estimable at this time. Any uninsured or underinsured loss could harm our business and financial condition.

 

We may have to pay U.S. tax on U.S. source income, which would reduce our net income and cash flows.

 

If we do not qualify for an exemption pursuant to Section 883 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, which we refer to as Section 883, then we will be subject to U.S. federal income tax on our shipping income that is derived from U.S. sources.  If we are subject to such tax, our net income and cash flows would be reduced by the amount of such tax.

 

We will qualify for exemption under Section 883 if, among other things, our stock is treated as primarily and regularly traded on an established securities market in the United States.  Under applicable Treasury regulations, we may not satisfy this publicly traded requirement in any taxable year in which 50% or more of our stock is owned for more than half the days in such year by persons who actually or constructively own 5% or more of our stock, which we sometimes refer to as 5% shareholders.

 

We believe that, based on the ownership of our stock in 2009, we satisfied the publicly traded requirement for 2009.  However, if 5% shareholders were to own more than 50% of our common stock for more than half the days of any future taxable year, we may not be eligible to claim exemption from tax under Section 883 for such taxable year.  We can provide no assurance that changes and shifts in the ownership of our stock by 5% shareholders will not preclude us from qualifying for exemption from tax in 2010 or in future years.

 

If we do not qualify for the Section 883 exemption, our shipping income derived from U.S. sources, or 50% of our gross shipping income attributable to transportation beginning or ending in the United States, would be subject to a 4% tax without allowance for deductions.

 

Legislative action relating to taxation could materially and adversely affect us.

 

Our tax position could be adversely impacted by changes in tax laws, tax treaties or tax regulations or the interpretation or enforcement thereof by any tax authority. For example, legislative proposals have been introduced in the U.S. Congress which, if enacted, could change the circumstances under which we would be treated as a U.S. person for U.S. federal income tax purposes, which could materially and adversely affect our effective tax rate and cash tax position and require us to take action, at potentially significant expense, to seek to preserve our effective tax rate and cash tax position. We cannot predict the outcome of any specific legislative proposals.

 

U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders.

 

A foreign corporation generally will be treated as a “passive foreign investment company,” which we sometimes refer to as a PFIC, for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of “passive income” or (2) at least 50% of its assets (averaged over the year and generally determined based upon value) produce or are held for the production of “passive income.” U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to distributions they receive from the PFIC and gain, if any, they derive from the sale or other disposition of their stock in the PFIC.

 

For purposes of these tests, “passive income” generally includes dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business, as defined in applicable Treasury regulations.

 

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For purposes of these tests, income derived from the performance of services does not constitute “passive income.” By contrast, rental income would generally constitute passive income unless we were treated under specific rules as deriving our rental income in the active conduct of a trade or business. We do not believe that our past or existing operations or the past operations of General Maritime Subsidiary or Arlington would cause us, or would have caused General Maritime Subsidiary or Arlington, to be deemed a PFIC with respect to any taxable year. In this regard, we treat the gross income we derive or are deemed to derive from our time and spot chartering activities as services income, rather than rental income. Accordingly, we believe that (1) our income from our time and spot chartering activities does not constitute passive income and (2) the assets that we own and operate in connection with the production of that income do not constitute passive assets.

 

While there is no direct legal authority under the PFIC rules addressing our method of operation, there is legal authority supporting this position consisting of case law and pronouncements by the United States Internal Revenue Service, which we sometimes refer to as the IRS, pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes.  However, it should be noted that there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes.  Accordingly, no assurance can be given that the IRS or a court of law will accept our position, and there is a risk that the IRS or a court of law could determine that we are a PFIC.  Moreover, because there are uncertainties in the application of the PFIC rules, because the PFIC test is an annual test, and because, although we intend to manage our business so as to avoid PFIC status to the extent consistent with our other business goals, there could be changes in the nature and extent of our operations in future years, there can be no assurance that we will not become a PFIC in any taxable year.

 

If we were to be treated as a PFIC for any taxable year (and regardless of whether we remain a PFIC for subsequent taxable years), our U.S. shareholders would face adverse U.S. tax consequences. These adverse tax consequences to shareholders could negatively impact our ability to issue additional equity in order to raise the capital necessary for our business operations.

 

The international nature of our operations may make the outcome of any bankruptcy proceedings difficult to predict.

 

We are incorporated under the laws of the Republic of the Marshall Islands and our subsidiaries are also incorporated under the laws of the Marshall Islands, Liberia, Bermuda and certain other countries besides the United States, and we conduct operations in countries around the world. Consequently, in the event of any bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding involving us or any of our subsidiaries, bankruptcy laws other than those of the United States could apply. We have limited operations in the United States. If we become a debtor under U.S. bankruptcy laws, bankruptcy courts in the United States may seek to assert jurisdiction over all of our assets, wherever located, including property situated in other countries. There can be no assurance, however, that we would become a debtor in the United States, or that a U.S. bankruptcy court would be entitled to, or accept, jurisdiction over such a bankruptcy case, or that courts in other countries that have jurisdiction over us and our operations would recognize a U.S. bankruptcy court’s jurisdiction if any other bankruptcy court would determine it had jurisdiction.

 

RISK FACTORS RELATED TO OUR FINANCINGS

 

We have incurred significant indebtedness which could affect our ability to finance our operations, pursue desirable business opportunities and successfully run our business in the future, and therefore make it more difficult for us to fulfill our obligations under the Senior Notes.

 

We have incurred substantial debt. As of December 31, 2009, we had $1,019 million of indebtedness outstanding and shareholders’ equity of $364.9 million. Our substantial indebtedness and interest expense could have important consequences to our company, including:

 

·                  limiting our ability to use a substantial portion of our cash flow from operations in other areas of our business, including for working capital, capital expenditures and other general business activities, because we must dedicate a substantial portion of these funds to service our debt;

 

·                  requiring us to seek to incur further indebtedness in order to make the capital expenditures and other expenses or investments planned by us to the extent our future cash flows are insufficient;

 

·                  limiting our ability to obtain additional financing in the future for working capital, capital expenditures, debt service requirements, acquisitions and the execution of our growth strategy, and other expenses or investments planned by us;

 

·                  limiting our flexibility and our ability to capitalize on business opportunities and to react to competitive pressures and adverse changes in government regulation, our business and our industry;

 

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·                  limiting our ability to satisfy our obligations under our indebtedness (which could result in an event of default if we fail to comply with the requirements of our indebtedness);

 

·                  increasing our vulnerability to a downturn in our business and to adverse economic and industry conditions generally;

 

·                  placing us at a competitive disadvantage as compared to our competitors that are less leveraged;

 

·                  limiting our ability, or increasing the costs, to refinance indebtedness; and

 

·                  limiting our ability to enter into hedging transactions by reducing the number of counterparties with whom we can enter into such transactions as well as the volume of those transactions.

 

Our 2005 Credit Facility began to amortize in February 2009. Our ability to secure additional financing, if needed, may be substantially restricted by the existing level of our indebtedness and the restrictions contained in our debt instruments. When our 2005 Credit Facility matures in 2012, if we are unable to refinance it, we will be required to dedicate a substantial portion of our cash flow to the payment of such debt, which will reduce the amount of funds available for operations, capital expenditures and future business opportunities.

 

The occurrence of any one of the events described above could have a material adverse effect on our business, financial condition, results of operations, prospects, and ability to satisfy our obligations under our indebtedness.

 

We may incur significantly more indebtedness, which could further increase the risks associated with our indebtedness and prevent us from fulfilling our obligations under the Senior Notes.

 

Despite our current level of indebtedness, our 2005 Credit Facility and the indenture governing the Senior Notes permit us to incur significant additional indebtedness in the future, subject to specified limitations. Although our 2005 Credit Facility and the indenture governing the Senior Notes restrict our and our subsidiaries’ ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and, under specified circumstances, the indebtedness incurred in compliance with such restrictions could be substantial. If new indebtedness is added to our and our subsidiaries’ current debt levels, the related risks that we and they face would be increased, and we may not be able to meet all our debt obligations, in whole or in part.

 

We may not be able to generate sufficient cash to service all of our indebtedness.

 

We expect our earnings and cash flow to vary significantly from year to year due to the cyclical nature of our industry. As a result, the amount of debt that we can manage in some periods may not be appropriate for us in other periods. Additionally, our future cash flow may be insufficient to meet our debt obligations and commitments. Any insufficiency could negatively impact our business. A range of economic, competitive, financial, business, industry and other factors will affect our future financial performance, and, as a result, our ability to generate cash flow from operations and to pay our debt. Many of these factors, such as charter rates, economic and financial conditions in our industry and the global economy or competitive initiatives of our competitors, are beyond our control. If we do not generate sufficient cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as:

 

·                  refinancing or restructuring our debt;

 

·                  selling tankers or other assets;

 

·                  reducing or delaying investments and capital expenditures; or

 

·                  seeking to raise additional capital.

 

However, we cannot assure you that undertaking alternative financing plans, if necessary, would be successful in allowing us to meet our debt obligations. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

 

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Our inability to generate sufficient cash flow to satisfy our debt obligations, or to obtain alternative financing, could materially and adversely affect our business, financial condition, results of operations and prospects.

 

The indenture for the Senior Notes and our 2005 Credit Facility impose significant operating and financial restrictions that may limit our ability to operate our business.

 

The indenture for the Senior Notes and our 2005 Credit Facility will impose significant operating and financial restrictions on us and our restricted subsidiaries. These restrictions will limit our ability and the ability of our restricted subsidiaries to, among other things, as applicable:

 

·                  incur additional debt and provide additional guarantees;

 

·                  pay dividends or make other restricted payments, including certain investments;

 

·                  create or permit certain liens;

 

·                  sell tankers or other assets;

 

·                  create or permit restrictions on the ability of our restricted subsidiaries to pay dividends or make other distributions to us;

 

·                  engage in certain transactions with affiliates; and

 

·                  consolidate or merge with or into other companies, or transfer all or substantially all of our assets or the assets of our restricted subsidiaries.

 

These restrictions could limit our ability to finance our future operations or capital needs, make acquisitions or pursue available business opportunities.

 

In addition, our 2005 Credit Facility requires us to maintain specified financial ratios and satisfy financial covenants. Among other things, we are required to maintain the aggregate fair market value of all mortgaged vessels under the credit facility at or above 125% of the total commitment amount under the credit facility, and as a result we have pledged 11 of our Suezmax, 12 of our Aframax vessels, 2 of our Panamax vessels and 1 Handymax vessels as security to the lenders under the 2005 Credit Facility. We are currently required to maintain a net debt to Adjusted EBITDA ratio of no more than 6.5:1.0 on the last day of any fiscal quarter. Such ratio will lower to 6.0:1.0 from December 31, 2010 until September 30, 2011 and 5.5:1.0 thereafter.  Additionally, we are not permitted to allow the sum of (A) unrestricted cash and cash equivalents plus (B) the lesser of (1) the total available unutilized commitment under the 2005 Credit Facility and (2) $25 million to be less than $50 million. Under the 2005 Credit Facility, we are permitted to pay quarterly cash dividends limited to $0.125 per share.  We may be required to take action to reduce our debt or to act in a manner contrary to our business objectives to meet these ratios and satisfy these covenants. Events beyond our control, including changes in the economic and business conditions in the markets in which we operate, may affect our ability to comply with these covenants. We cannot assure you that we will meet these ratios or satisfy these covenants or that our lenders will waive any failure to do so. A breach of any of the covenants in, or our inability to maintain the required financial ratios under, our 2005 Credit Facility would prevent us from borrowing additional money under the 2005 Credit Facility and could result in a default under it. If a default occurs under our 2005 Credit Facility, the lenders could elect to declare that debt, together with accrued interest and other fees, to be immediately due and payable and proceed against the collateral securing that debt, which constitutes all or substantially all of our assets, including our rights in the mortgaged vessels and their charters. Moreover, if the lenders under our 2005 Credit Facility were to accelerate the debt outstanding under that facility, it could result in a default under our other debt obligations that may exist at such time, and if all or any part of our debt were to be accelerated, we may not have or be able to obtain sufficient funds available to repay it or to repay our other indebtedness.

 

Fluctuations in the market value of our fleet may adversely affect our liquidity and may result in breaches under our financing arrangements and sales of vessels at a loss.

 

The market value of vessels fluctuates depending upon general economic and market conditions affecting the tanker industry, the number of tankers in the world fleet, the price of constructing new tankers, or newbuildings, types and sizes of tankers, and the cost of other modes of transportation. The market value of our fleet may decline as a result of a downswing in the historically cyclical shipping industry or as a result of the aging of our fleet. Declining tanker values could affect our ability to raise cash by limiting our ability to refinance vessels and thereby adversely impact our liquidity. In addition, declining vessel values could result in the reduction

 

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in lending commitments, the requirement to repay outstanding amounts or a breach of loan covenants, which could give rise to an event of default under our 2005 Credit Facility.

 

Our 2005 Credit Facility requires us to comply with a collateral maintenance covenant under which the market value of our vessels must remain at or above 125% of the total commitment amount under the credit facility. If we are unable to maintain this required collateral maintenance ratio, we may be prevented from borrowing additional money under our credit facility, or we may default under our credit facility. If a default occurs, the lenders could elect to declare the debt, together with accrued interest and other fees, to be immediately due and payable and proceed against the collateral securing the debt, which constitutes a majority of our assets. Moreover, if the lenders were to accelerate the debt outstanding, it could result in a default under our other debt obligations that may exist at such time.

 

Due to the cyclical nature of the tanker market, the market value of one or more of our vessels may at various times be lower than their book value, and sales of those vessels during those times would result in losses. If we determine at any time that a vessel’s future limited useful life and earnings require us to impair its value on our financial statements, that could result in a charge against our earnings and the reduction of our shareholders’ equity. If for any reason we sell vessels at a time when vessel prices have fallen, the sale may be at less than the vessel’s carrying amount on our financial statements, with the result that we would also incur a loss and a reduction in earnings. The 26 vessels which are currently collateralizing in part our 2005 Credit Facility had an aggregate carrying value of $935.9 million as of December 31, 2009.

 

If we default on our obligations to pay any of our indebtedness, we may be subject to restrictions on the payment of our other debt obligations or cause a cross-default or cross-acceleration.

 

Any default under the agreements governing our indebtedness that is not waived by the required lenders or holders of such indebtedness, and the remedies sought by the holders of such indebtedness, could prevent us from paying principal, premium, if any, and interest on the Senior Notes and substantially decrease the market value of such debt instruments. If we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants in any agreement governing our indebtedness, we would be in default under the terms of the agreements governing such indebtedness. In the event of such default:

 

·                  the lenders or holders of such indebtedness could elect to terminate their commitments thereunder, declare all the funds borrowed thereunder to be due and payable and, if not promptly paid, institute foreclosure proceedings against our assets;

 

·                  even if those lenders or holders do not declare a default, they may be able to cause all of our available cash to be used to repay the indebtedness owed to them; and

 

·                  such default could cause a cross-default or cross-acceleration under our other indebtedness.

 

As a result of such default and any actions the lenders may take in response thereto, we could be forced into bankruptcy or liquidation.

 

An increase in interest rates would increase the cost of servicing our debt and could reduce our profitability.

 

Our debt under our 2005 Credit Facility bears interest at a variable rate of LIBOR plus 250 basis points. We may also incur indebtedness in the future with variable interest rates. As a result, an increase in market interest rates would increase the cost of servicing our debt and could materially reduce our profitability and cash flows. The impact of such an increase would be more significant for us than it would be for some other companies because of our substantial debt.

 

LIBOR rates have recently been volatile, with the spread between those rates and prime lending rates widening significantly at times.  These conditions are the result of the recent disruptions in the international credit markets.  Because the interest rates borne by amounts that we may drawdown under our credit facilities fluctuate with changes in the LIBOR rates, if this volatility were to continue, it would affect the amount of interest payable on amounts that we were to drawdown from our credit facility, which in turn, would have an adverse effect on our profitability, earnings and cash flow.

 

Our ability to obtain additional debt financing may be dependent on the performance of our then existing charters and the creditworthiness of our charterers.

 

The actual or perceived credit quality of our charterers, and any defaults by them, may materially affect our ability to obtain the additional capital resources that we will require to purchase additional vessels or may significantly increase our costs of obtaining

 

30



 

such capital.  Our inability to obtain additional financing at all or at a higher than anticipated cost may materially affect our results of operation and our ability to implement our business strategy.

 

The derivative contracts we have entered into to hedge our exposure to fluctuations in interest rates could result in higher than market interest rates and charges against our income.

 

We have entered into five interest rate swaps for purposes of managing our exposure to fluctuations in interest rates applicable to indebtedness under our 2005 Credit Facility which was advanced at a floating rate based on LIBOR. Our hedging strategies, however, may not be effective and we may incur substantial losses if interest rates move materially differently from our expectations. Since our existing interest rate swaps do not, and future derivative contracts may not, qualify for treatment as hedges for accounting purposes we recognize fluctuations in the fair value of such contracts in our income statement. In addition, our financial condition could be materially adversely affected to the extent we do not hedge our exposure to interest rate fluctuations under our financing arrangements.

 

Any hedging activities we engage in may not effectively manage our interest rate exposure or have the desired impact on our financial conditions or results of operations. At December 31, 2009, the fair value of our interest rate swaps was a net liability of $21.9 million.

 

RISK FACTORS RELATED TO OUR COMMON STOCK

 

Anti-takeover provisions in our financing agreements and organizational documents could have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of our common stock.

 

Several of our existing financing agreements impose restrictions on changes of control of our company and our ship-owning subsidiaries. These include requirements that we obtain the lenders’ consent prior to any change of control and that we make an offer to redeem certain indebtedness before a change of control can take place.

 

Several provisions of our amended and restated articles of incorporation and our by-laws could discourage, delay or prevent a merger or acquisition that shareholders may consider favorable. These provisions include:

 

·                  authorizing our Board of Directors to issue “blank check” preferred stock without shareholder approval;

 

·                  providing for a classified board of directors with staggered, three-year terms;

 

·                  prohibiting us from engaging in a “business combination” with an “interested shareholder” for a period of three years after the date of the transaction in which the person became an interested shareholder unless certain provisions are met;

 

·                  prohibiting cumulative voting in the election of directors;

 

·                  authorizing the removal of directors only for cause and only upon the affirmative vote of the holders of at least 80% of the outstanding shares of our common stock entitled to vote for the directors;

 

·                  prohibiting shareholder action by written consent unless the written consent is signed by all shareholders entitled to vote on the action;

 

·                  limiting the persons who may call special meetings of shareholders; and

 

·                  establishing advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted on by shareholders at shareholder meetings.

 

We cannot assure you that we will pay any dividends.

 

On December 16, 2008, following the consummation of the Arlington Acquisition, our Board of Directors adopted a cash dividend policy. The actual declaration of future cash dividends, and the establishment of record and payment dates, is subject to final determination by our Board of Directors each quarter after its review of our financial performance. Our ability to pay dividends in any period will depend upon factors including satisfying the requirements under our 2005 Credit Facility and the indenture for our Senior Notes and applicable provisions of Marshall Islands law.

 

31



 

The timing and amount of dividends, if any, could be affected by factors affecting cash flows, results of operations, required capital expenditures, or reserves. Maintaining the dividend policy will depend on our cash earnings, financial condition and cash requirements and could be affected by factors, including the loss of a vessel, required capital expenditures, reserves established by the Board of Directors, increased or unanticipated expenses, additional borrowings or future issuances of securities, which may be beyond our control. The declaration and payment of dividends is subject to certain conditions and limitations under our 2005 Credit Facility and the indenture for our Senior Notes.

 

Under Marshall Islands law, a company may not declare or pay dividends if it is currently insolvent or would thereby be made insolvent. Marshall Islands law also provides that a company may declare dividends only to the extent of its surplus, or if there is no surplus, out of its net profits for the then current and/or immediately preceding fiscal years.

 

Our dividend policy may be changed at any time, and from time to time, by our Board of Directors.

 

Future sales of our common stock could cause the market price of our common stock to decline.

 

The market price of our common stock could decline due to sales of a large number of shares in the market, including sales of shares by our large shareholders, or the perception that these sales could occur. These sales could also make it more difficult or impossible for us to sell equity securities in the future at a time and price that we deem appropriate to raise funds through future offerings of common stock. We have entered into registration rights agreements with the securityholders who received shares for the sale of vessels to Arlington in connection with its initial public offering in November 2004, which were exchanged for shares of our common stock as a result of the Arlington Acquisition. These registration rights agreements entitle them to have an aggregate of 2,787,772 shares registered for sale in the public market. We have also agreed with Peter C. Georgiopoulos that we will enter into a new registration rights agreement granting Mr. Georgiopoulos registration rights with respect to 2,938,343 shares of our common stock which he received in connection with the Arlington Acquisition in exchange for shares of General Maritime Subsidiary issued to him in connection with the recapitalization of General Maritime Subsidiary in June 2001 and that such registration rights agreement would become effective within a reasonable time after the effective date of the Arlington Acquisition. We also registered on Form S-8 an aggregate of 1,624,347 shares issuable upon exercise of options we have granted to purchase common stock or reserved for issuance under our equity compensation plans.  We have also registered on Form S-3 an aggregate of 8,128,612 shares of our common stock, which include the 5,726,115 shares covered under the registration rights agreements mentioned above.

 

Our incorporation under the laws of the Republic of the Marshall Islands may limit the ability of our shareholders to protect their interests.

 

Our corporate affairs are governed by our amended and restated articles of incorporation and by-laws and by the Republic of the Marshall Islands Business Corporations Act. The provisions of the Republic of the Marshall Islands Business Corporations Act resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Republic of the Marshall Islands interpreting the Republic of the Marshall Islands Business Corporations Act. For example, the rights and fiduciary responsibilities of directors under the laws of the Republic of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain U.S. jurisdictions. Although the Republic of the Marshall Islands Business Corporations Act does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, our public shareholders may have more difficulty in protecting their interests in the face of actions by management, directors or controlling shareholders than would shareholders of a corporation incorporated in a U.S. jurisdiction.

 

It may not be possible for our investors to enforce U.S. judgments against us.

 

We are incorporated in the Republic of the Marshall Islands and most of our subsidiaries are organized in the Republic of Liberia and the Republic of the Marshall Islands. Substantially all of our assets and those of our subsidiaries are located outside the United States. As a result, it may be difficult or impossible for U.S. investors to serve process within the United States upon us or to enforce judgment upon us for civil liabilities in U.S. courts. In addition, you should not assume that courts in the countries in which we or our subsidiaries are incorporated or where our assets or the assets of our subsidiaries are located (1) would enforce judgments of U.S. courts obtained in actions against us or our subsidiaries based upon the civil liability provisions of applicable U.S. federal and state securities laws or (2) would enforce, in original actions, liabilities against us or our subsidiaries based upon these laws.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

32



 

ITEM 2. PROPERTIES

 

We lease six properties, all of which house offices used in the administration of our operations: a property of approximately 24,000 square feet in New York, New York, a property of approximately 12,500 square feet in Lisbon, Portugal, a property of approximately 2,000 square feet in Piraeus, Greece, a property of approximately 3,400 square feet in Mumbai, India and a property of approximately 750 square feet in Novorossiysk, Russia. We do not own or lease any production facilities, plants, mines or similar real properties.

 

ITEM 3. LEGAL PROCEEDINGS

 

On or about August 29, 2007, an oil sheen was discovered by shipboard personnel of the Genmar Progress in Guayanilla Bay, Puerto Rico in the vicinity of the vessel. The vessel crew took prompt action pursuant to the vessel response plan. Our subsidiary which operates the vessel promptly reported this incident to the U.S. Coast Guard and has subsequently accepted responsibility  under the Oil Pollution Act of 1990 for any damage or loss resulting from the accidental discharge of bunker fuel determined to have been discharged from the vessel. We understand the federal and Puerto Rico authorities are conducting civil investigations into an oil pollution incident which occurred during this time period on the southwest coast of Puerto Rico including Guayanilla Bay. The extent to which oil discharged from the Genmar Progress is responsible for this incident is currently the subject of investigation. The U.S. Coast Guard has designated the Genmar Progress as a potential source of discharged oil. Under the Oil Pollution Act of 1990, the source of the discharge is liable, regardless of fault, for damages and oil spill remediation as a result of the discharge.

 

On January 13, 2009, we received a demand from the U.S. National Pollution Fund for $5.8 million for the U.S. Coast Guard’s response costs and certain costs of the Departamento de Recursos Naturales y Ambientales of Puerto Rico in connection with the alleged damage to the environment caused by the spill. We are reviewing the demand and have requested additional information from the U.S. National Pollution Fund relating to the demand. We and General Maritime Management LLC recently received grand jury subpoenas, dated October 5, 2009 and September 21, 2009, respectively, from U.S. Department of Justice requesting additional information and records pertaining to the operations of the Genmar Progress and our business. Currently, no charges have been made and no other fines or penalties have been levied against us. We have been cooperating in these investigations and have posted a surety bond to cover potential fines or penalties that may be imposed in connection with the matter.

 

This matter, including the demand from the U.S. National Pollution Fund, has been reported to our protection and indemnity insurance underwriters, and we believe that any such liabilities will be covered by its insurance, less a deductible. We have not accrued reserves for this incident because the amount of any costs that may be incurred by us is not estimable at this time.

 

ITEM 4. RESERVED

 

33



 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

MARKET INFORMATION, HOLDERS AND DIVIDENDS

 

Our common stock is traded on the New York Stock Exchange under the symbol “GMR”. The following table sets forth for the periods indicated the high and low intra-day trading prices for our common stock as reported on the New York Stock Exchange:

 

FISCAL YEAR ENDED DECEMBER 31, 2009

 

HIGH

 

LOW

 

1st Quarter

 

$

12.24

 

$

6.40

 

2nd Quarter

 

$

12.66

 

$

6.87

 

3rd Quarter

 

$

10.07

 

$

7.22

 

4th Quarter

 

$

8.95

 

$

6.70

 

 

FISCAL YEAR ENDED DECEMBER 31, 2008

 

HIGH

 

LOW

 

1st Quarter

 

$

20.72

 

$

14.78

 

2nd Quarter

 

$

23.13

 

$

17.31

 

3rd Quarter

 

$

20.52

 

$

13.60

 

4th Quarter

 

$

14.59

 

$

6.51

 

 

As of February 23, 2010, there were approximately 175 holders of record of our common stock.

 

All share and per share amounts presented throughout this Annual Report on Form 10-K, unless otherwise noted, have been adjusted to reflect the exchange of 1.34 shares of our common stock for each share of common stock held by shareholders of General Maritime Subsidiary in connection with the Arlington Acquisition.

 

On February 21, 2007 the Board of Directors of General Maritime Subsidiary changed its quarterly dividend policy by adopting a fixed target amount of $0.37 per share per quarter or $1.49 per share each year, starting with the first quarter of 2007.

 

On February 21, 2007, General Maritime Subsidiary also announced that the Board of Directors of General Maritime Subsidiary declared a special, one-time cash dividend of $11.19 per share. The dividend was paid on or about March 23, 2007 to shareholders of record as of March 9, 2007.

 

On December 16, 2008, our Board of Directors adopted a quarterly dividend policy with a fixed target amount of $0.50 per share per quarter or $2.00 per share each year. We announced on July 29, 2009 that out Board of Directors changed our quarterly dividend policy by adopting a fixed target amount of $0.125 per share per quarter or $0.50 per share each year, starting with the third quarter of 2009.

 

During the year ended December 31, 2008, General Maritime Subsidiary repurchased 953,142 shares of its common stock for $16.4 million (an average per share purchase price of $17.18) pursuant to its share repurchase program described in “Share Repurchase Program” under the heading “LIQUIDITY AND CAPITAL RESOURCES” in Item 7.

 

34



 

ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

 

Set forth below are selected historical consolidated and other data of General Maritime Corporation at the dates and for the fiscal years shown.

 

 

 

Year Ended December 31,

 

 

 

2009

 

2008

 

2007

 

2006

 

2005

 

INCOME STATEMENT DATA
(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Voyage revenues

 

$

350,520

 

$

326,068

 

$

255,015

 

$

325,984

 

$

567,901

 

Voyage expenses

 

58,876

 

54,404

 

38,069

 

80,400

 

137,203

 

Direct vessel operating expenses

 

95,573

 

63,556

 

48,213

 

47,472

 

86,681

 

Other expense

 

 

 

 

2,430

 

 

General and administrative expenses

 

40,339

 

80,285

 

46,920

 

44,787

 

43,989

 

Goodwill impairment

 

40,872

 

 

 

 

 

Loss (gain) on sale of vessels and equipment

 

2,051

 

804

 

417

 

(46,022

)

(91,235

)

Depreciation and amortization

 

88,024

 

58,037

 

49,671

 

42,395

 

97,320

 

Operating income

 

24,785

 

68,982

 

71,725

 

154,522

 

293,943

 

Net interest (income) expense

 

37,215

 

28,289

 

23,059

 

(1,455

)

28,918

 

Other (income) expense

 

(435

)

10,886

 

4,127

 

(854

)

52,668

 

Net income (loss)

 

$

(11,995

)

$

29,807

 

$

44,539

 

$

156,831

 

$

212,357

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.22

)

$

0.76

 

$

1.09

 

$

3.72

 

$

4.26

 

Diluted

 

$

(0.22

)

$

0.73

 

$

1.06

 

$

3.63

 

$

4.19

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

1.49

 

$

1.49

 

$

12.78

 

$

3.58

 

$

2.13

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic shares outstanding, thousands:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

54,651

 

39,463

 

40,740

 

42,172

 

49,800

 

Diluted

 

54,651

 

40,562

 

41,825

 

43,171

 

50,751

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET DATA, at end of period
(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

52,651

 

$

104,146

 

$

44,526

 

$

107,460

 

$

96,976

 

Current assets, including cash

 

108,528

 

141,703

 

82,494

 

137,865

 

471,324

 

Total assets

 

1,445,257

 

1,577,225

 

835,035

 

843,690

 

1,146,126

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities, including current portion of long-term debt

 

56,194

 

88,392

 

35,502

 

27,147

 

32,906

 

Current portion of long-term debt

 

 

 

 

 

 

Total long-term debt, including current portion

 

1,018,609

 

990,500

 

565,000

 

50,000

 

135,020

 

Shareholders' equity

 

364,909

 

455,799

 

228,657

 

763,913

 

976,125

 

 

35



 

OTHER FINANCIAL DATA
(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

47,518

 

$

114,415

 

$

95,833

 

$

189,717

 

$

249,614

 

Net cash provided (used) by investing activities

 

(24,632

)

(171,082

)

(84,516

)

285,264

 

318,169

 

Net cash (used) provided by financing activities

 

(74,085

)

115,476

 

(74,251

)

(464,497

)

(517,728

)

Capital expenditures

 

 

 

 

 

 

 

 

 

 

 

Vessel sales (purchases), gross including deposits

 

 

(173,447

)

(80,061

)

290,299

 

324,087

 

Drydocking or capitalized survey or improvement costs

 

(18,921

)

(9,787

)

(11,815

)

(11,929

)

(38,039

)

Weighted average long-term debt, including current portion

 

959,935

 

653,154

 

414,137

 

93,085

 

410,794

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER DATA
(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

EBITDA (1)

 

113,244

 

$

116,133

 

$

117,269

 

$

197,771

 

$

338,595

 

 

 

 

 

 

 

 

 

 

 

 

 

FLEET DATA

 

 

 

 

 

 

 

 

 

 

 

Total number of vessels at end of period

 

31.0

 

31.0

 

20.0

 

18.0

 

30.0

 

Average number of vessels (2)

 

31.0

 

21.5

 

19.3

 

20.6

 

41.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Total voyage days for fleet (3)

 

10,681

 

7,568

 

6,599

 

7,121

 

14,073

 

Total time charter days for fleet

 

7,878

 

5,665

 

4,641

 

2,300

 

3,983

 

Total spot market days for fleet

 

2,803

 

1,903

 

1,958

 

4,821

 

10,090

 

Total calendar days for fleet (4)

 

11,315

 

7,881

 

7,045

 

7,534

 

15,311

 

Fleet utilization (5)

 

94.4

%

96.0

%

93.7

%

94.5

%

91.9

%

AVERAGE DAILY RESULTS

 

 

 

 

 

 

 

 

 

 

 

Time charter equivalent (6)

 

$

27,305

 

$

35,896

 

$

32,876

 

$

34,487

 

$

30,605

 

Direct vessel operating expenses (7)

 

8,447

 

8,064

 

6,844

 

6,301

 

5,661

 

General and administrative expenses (8)

 

3,565

 

10,187

 

6,660

 

5,945

 

2,873

 

Total vessel operating expenses (9)

 

12,012

 

18,252

 

13,504

 

12,246

 

8,534

 

 

 

 

Year Ended December 31,

 

 

 

2009

 

2008

 

2007

 

2006

 

2005

 

EBITDA Reconciliation
(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

(11,995

)

$

29,807

 

$

44,539

 

$

156,831

 

$

212,357

 

+ Net interest expense

 

37,215

 

28,289

 

23,059

 

(1,455

)

28,918

 

+ Depreciation and amortization

 

88,024

 

58,037

 

49,671

 

42,395

 

97,320

 

EBITDA

 

$

113,244

 

$

116,133

 

$

117,269

 

$

197,771

 

$

338,595

 

 


(1)                                  EBITDA represents net income plus net interest expense and depreciation and amortization. EBITDA is included because it is used by management and certain investors as a measure of operating performance. EBITDA is used by analysts in the shipping industry as a common performance measure to compare results across peers. Management of the Company uses EBITDA as a performance measure in consolidating quarterly and annual internal financial statements and is presented for review at our board meetings. The Company believes that EBITDA is useful to investors as the shipping industry is capital intensive which often brings significant cost of financing. EBITDA is not an item recognized by accounting principles generally accepted in the United States of America (GAAP), and should not be considered as an alternative to net income, operating income or any other indicator of a company’s operating performance required by GAAP. The definition of EBITDA used here may not be comparable to that used by other companies.

 

(2)                                  Average number of vessels is the number of vessels that constituted our fleet for the relevant period, as measured by the sum of the number of days each vessel was part of our fleet during the period divided by the number of calendar days in that period.

 

(3)                                  Voyage days for fleet are the total days our vessels were in our possession for the relevant period net of off hire days associated with major repairs, drydockings or special or intermediate surveys.

 

(4)                                  Calendar days are the total days the vessels were in our possession for the relevant period including off hire days associated with major repairs, drydockings or special or intermediate surveys.

 

(5)                                  Fleet utilization is the percentage of time that our vessels were available for revenue generating voyage days, and is determined by dividing voyage days by calendar days for the relevant period.

 

36



 

(6)                                  Time Charter Equivalent, or TCE, is a measure of the average daily revenue performance of a vessel on a per voyage basis. Our method of calculating TCE is consistent with industry standards and is determined by dividing net voyage revenue by voyage days for the relevant time period. The period over which voyage revenues are recognized commences at the time the vessel arrives at the load port for a voyage and ends at the time that discharge of cargo is completed.  Net voyage revenues are voyage revenues minus voyage expenses. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by the charterer under a time charter contract.

 

(7)                                  Daily direct vessel operating expenses, or DVOE, is calculated by dividing DVOE, which includes crew costs, provisions, deck and engine stores, lubricating oil, insurance and maintenance and repairs, by calendar days for the relevant time period.

 

(8)                                  Daily general and administrative expense is calculated by dividing general and administrative expenses by calendar days for the relevant time period.

 

(9)                                  Total Vessel Operating Expenses, or TVOE, is a measurement of our total expenses associated with operating our vessels. Daily TVOE is the sum of daily direct vessel operating expenses, or DVOE, and daily general and administrative expenses.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

General

 

The following is a discussion of our financial condition at December 31, 2009 and 2008 and our results of operations comparing the years ended December 31, 2009 and 2008 and the years ended December 31, 2008 and 2007. You should read this section together with the consolidated financial statements including the notes to those financial statements for the years mentioned above.

 

We are a leading provider of international seaborne crude oil transportation services. We also provide transportation services for refined petroleum, products.  As of December 31, 2009, our fleet consisted of 31 vessels (12 Aframax vessels, 11 Suezmax vessels, two VLCCs, two Panamax vessels and four Handymax vessels) with a total cargo carrying capacity of 3.9 million deadweight tons.

 

General Maritime Subsidiary is the predecessor of the Company for purposes of U.S. securities regulations governing financial statement filing. The Arlington Acquisition is accounted for as an acquisition by General Maritime Subsidiary of Arlington. Therefore, the disclosures throughout this Annual Report on Form 10-K and the accompanying Consolidated Financial Statements, unless otherwise noted, reflect the results of operations of General Maritime Subsidiary for period January 1, 2008 through December 15, 2008 and the years ended December 31, 2007 and 2006 and the financial position of General Maritime Subsidiary as of December 31, 2007. The Company had separate operations for the period beginning December 16, 2008, the effective date of the Arlington Acquisition, and disclosures and references to amounts for periods after that date relate to the Company unless otherwise noted. Arlington’s results have been included in the disclosures throughout this Annual Report on Form 10-K and the accompanying Consolidated Statements of Operations, unless otherwise noted, from the effective date of acquisition and thereafter (see “Arlington Acquisition” in Note 2 to the Consolidated Financial Statements).

 

All share and per share amounts presented throughout this Annual Report on Form 10-K, unless otherwise noted, have been adjusted to reflect the exchange of 1.34 shares of our common stock for each share of common stock held by shareholders of General Maritime Subsidiary in connection with the Arlington Acquisition.

 

Spot and Time Charter Deployment

 

We actively manage the deployment of our fleet between spot market voyage charters, which generally last from several days to several weeks, and time charters, which can last up to several years. A spot market voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for an agreed upon total amount. Under spot market voyage charters, we pay voyage expenses such as port, canal and fuel costs. A time charter is generally a contract to charter a vessel for a fixed period of time at a set daily rate. Under time charters, the charterer pays voyage expenses such as port, canal and fuel costs.

 

Vessels operating on time charters provide more predictable cash flows, but can yield lower profit margins than vessels operating in the spot market during periods characterized by favorable market conditions. Vessels operating in the spot market generate revenues that are less predictable but may enable us to capture increased profit margins during periods of improvements in tanker rates although we are exposed to the risk of declining tanker rates. We are constantly evaluating opportunities to increase the number of our vessels deployed on time charters, but only expect to enter into additional time charters if we can obtain contract terms that satisfy our criteria.

 

37



 

Net Voyage Revenues as Performance Measure

 

For discussion and analysis purposes only, we evaluate performance using net voyage revenues.  Net voyage revenues are voyage revenues minus voyage expenses.  Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by a charterer under a time charter.  We believe that presenting voyage revenues, net of voyage expenses, neutralizes the variability created by unique costs associated with particular voyages or the deployment of vessels on time charter or on the spot market and presents a more accurate representation of the revenues generated by our vessels.

 

Our voyage revenues are recognized ratably over the duration of the spot market voyages and the lives of the charters, while direct vessel expenses are recognized when incurred.  We recognize the revenues of time charters that contain rate escalation schedules at the average rate during the life of the contract.  We calculate time charter equivalent, or TCE, rates by dividing net voyage revenue by voyage days for the relevant time period.  We also generate demurrage revenue, which represents fees charged to charterers associated with our spot market voyages when the charterer exceeds the agreed upon time required to load or discharge a cargo.  We calculate daily direct vessel operating expenses and daily general and administrative expenses for the relevant period by dividing the total expenses by the aggregate number of calendar days that we owned each vessel for the period.

 

RESULTS OF OPERATIONS

 

Margin analysis for the indicated items as a percentage of net voyage revenues for the years ended December 31, 2009, 2008 and 2007 are set forth in the table below.

 

INCOME STATEMENT MARGIN ANALYSIS
(% OF NET VOYAGE REVENUES)

 

 

 

YEAR ENDED DECEMBER 31,

 

 

 

2009

 

2008

 

2007

 

INCOME STATEMENT DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net voyage revenues (1)

 

100

%

100.0

%

100.0

%

Direct vessel expenses

 

32.8

%

23.4

%

22.2

%

General and administrative expenses

 

13.8

%

29.6

%

21.6

%

Depreciation and amortization

 

30.2

%

21.4

%

22.9

%

Goodwill impairment

 

14.0

%

0.0

%

0.0

%

Loss on disposal of vessel equipment

 

0.7

%

0.3

%

0.2

%

Operating income

 

8.5

%

25.3

%

33.1

%

Net interest expense

 

12.8

%

10.4

%

10.6

%

Other (income) expense

 

-0.1

%

4.0

%

1.9

%

Net (loss) income

 

-4.2

%

10.9

%

20.6

%

 


(1)           INCOME STATEMENT DATA

 

 

 

YEAR ENDED DECEMBER 31,

 

(Dollars in thousands, except share data)

 

2009

 

2008

 

2007

 

 

 

 

 

 

 

 

 

Voyage revenues

 

$

350,520

 

$

326,068

 

$

255,015

 

Voyage expenses

 

$

(58,876

)

$

(54,404

)

$

(38,069

)

Net voyage revenues

 

$

291,644

 

$

271,664

 

$

216,946

 

 

YEAR ENDED DECEMBER 31, 2009 COMPARED TO THE YEAR ENDED DECEMBER 31, 2008

 

VOYAGE REVENUES- Voyage revenues increased by $24.4 million, or 7.5%, to $350.5 million for the year ended December 31, 2009 compared to $326.1 million for the prior year.  This increase is primarily attributable to a significant increase in the size of our fleet, which increased vessel operating days by 41.1% to 10,681 days during the year ended December 31, 2009 compared to 7,568 days in the prior year.  The average size of our fleet increased by 44.2% to 31.0 vessels (12.0 Aframax, 11.0 Suezmax, 2.0 VLCC, 2.0 Panamax, 4.0 Handymax) for the year ended December 31, 2009 compared to 21.5 vessels (10.3 Aframax, 10.9 Suezmax, 0.1 VLCC,

 

38



 

0.1 Panamax, 0.1 Handymax) for the prior year.   This increase in fleet size is attributable to the completion of construction of a Suezmax tanker in February 2008, the acquisitions during the fourth quarter of 2008 of two Aframax vessels, and the acquisition of two VLCCs, two Panamaxes, and four Handymaxes as part of the Arlington Acquisition.  Also, included in this increase in voyage revenues is $16.4 million associated with the acceleration of the amortization of a net liability associated with four time charter contracts.  These contracts were recorded as a liability when the vessels to which the time charters relate were acquired by the Company pursuant to the Arlington Acquisition.  This recorded liability was being amortized over the remaining time charter period, including the option periods.  The Company accelerated the amortization on four of these time charters, having been informed by the charterer that the options would not be exercised. Accordingly, the Company accelerated the amortization on these contracts such that the net liability would be fully amortized by the earlier of November 10, 2009 (the end of the charter period) or the redelivery date indicated by the charterer on two of the vessels.  This additional revenue is nonrecurring and was noncash.  This increase is partially offset by a significant reduction in rates, especially with respect to vessels under spot voyage and, to a lesser extent time charters, as well as decreased utilization rates relating to drydocking and repositioning of vessels, during the year ended December 31, 2009 as compared to the prior year period.

 

Voyage revenues are expected to remain relatively flat during 2010 as compared to 2009.  Decreases associated with expected lower spot rates during 2010 as compared to 2009 are expected to be offset by a greater number of vessels expected to be on the spot market during 2010 compared to 2009.  Because spot voyage charters require the vessel owner to pay voyage-related expenses such as fuel and port costs, which costs are borne by the charterer under a time charter contract, spot voyage charters typically earn significantly higher revenues to recoup these expenses.  In addition, $16.4 million of voyage revenue recognized in 2009 associated with the acceleration of a net liability associated with four time charter contracts described above will not recur in 2010.

 

VOYAGE EXPENSES- Voyage expenses increased $4.5 million, or 8.2%, to $58.9 million for the year ended December 31, 2009 compared to $54.4 million for the prior year.  Substantially all of our voyage expenses relate to spot charter voyages, under which the vessel owner is responsible for voyage expenses such as fuel and port costs.  This increase in voyage expenses is primarily attributable to an increase in the number of days our vessels operated under spot charters.  During the year ended December 31, 2009, the number of days our vessels operated under spot charters increased by 47.3% to 2,803 days (2,188 days for our Aframax vessels, 428 days for our Suezmax vessels, 151 days for our VLCCs, and 36 days for our Panamax vessels) from 1,903 days (1,549 days for our Aframax vessels and 354 days for our Suezmax vessels, the only vessels on spot charter during 2008) during the prior year.  This increase is partially offset by lower fuel cost incurred during 2009.  Although this increase in spot vessel days increased fuel cost by $2.8 million, or 8.7%, to $35.3 million during the year ended December 31, 2009 compared to $32.5 million during the prior year, fuel cost per spot voyage day decreased 24% during the year ended December 31, 2009 compared to the prior year period as a result of lower bunker fuel prices.

 

Voyage expenses are expected to increase during 2010 as compared to 2009 as a result of a greater number of vessels expected to be on the spot market during 2010 compared to 2009.  Under spot voyage charters, the vessel owner pays for the voyage expenses.

 

NET VOYAGE REVENUES- Net voyage revenues, which are voyage revenues minus voyage expenses, increased by $19.9 million, or 7.4%, to $291.6 million for the year ended December 31, 2009 compared to $271.7 million for the prior year. This increase is primarily attributable to the increase in the average size of our fleet, which increased 44.2% to 31.0 vessels (12.0 Aframax, 11.0 Suezmax, 2.0 VLCC, 2.0 Panamax, 4.0 Handymax vessel) for the year ended December 31, 2009 compared to 21.5 vessels (10.3 Aframax, 10.9 Suezmax, 0.1 VLCC, 0.1 Panamax, 0.1 Handymax vessel) for the prior year.  Partially offsetting this increase in net voyage revenue are significantly weaker overall daily TCE rates for our vessels during the year ended December 31, 2009 compared to the prior year.  Our average TCE rates decreased 23.9% to $27,305 during the year ended December 31, 2009 compared to $35,896 during the year ended December 31, 2008. This decrease reflects a significant decline in spot charter TCE rates which decreased to $12,291 during the year ended December 31, 2009 compared to $37,377 for the prior year.  Partially offsetting this decrease in overall spot rates is $16.4 million of voyage revenue associated with the acceleration of the amortization of a net liability associated with four time charter contracts.  These contracts were assigned a liability when the vessels to which the time charters relate were acquired by the Company pursuant to the Arlington Acquisition.  This additional revenue, which is nonrecurring and noncash, had the effect of increasing (decreasing) time charter TCE on VLCCs, Panamaxes and Handymaxes by $27,848, $1,507 and $(353), respectively.  This $16.4 million of voyage revenue also had the effect of increasing combined overall time charter TCE and overall TCE and by $2,087 and $1,539, respectively.

 

Net voyage revenues are expected to decrease during 2010 compared to 2009 for reasons discussed above relating to voyage revenues and voyage expenses.

 

39



 

The following is additional data pertaining to net voyage revenues:

 

 

 

Year ended December 31,

 

Increase

 

 

 

 

 

2009

 

2008

 

(Decrease)

 

% Change

 

 

 

 

 

 

 

 

 

 

 

Net voyage revenue (in thousands):

 

 

 

 

 

 

 

 

 

Time charter:

 

 

 

 

 

 

 

 

 

Aframax

 

$

49,850

 

$

62,969

 

$

(13,119

)

-20.8

%

Suezmax

 

124,308

 

134,430

 

(10,122

)

-7.5

%

VLCC (A)

 

42,629

 

1,454

 

41,175

 

2831.8

%

Panamax (A)

 

16,716

 

696

 

16,020

 

2301.7

%

Handymax (A)

 

23,690

 

986

 

22,704

 

2302.6

%

Total

 

257,193

 

200,535

 

56,658

 

28.3

%

 

 

 

 

 

 

 

 

 

 

Spot charter:

 

 

 

 

 

 

 

 

 

Aframax

 

26,714

 

56,126

 

(29,412

)

-52.4

%

Suezmax

 

4,718

 

15,003

 

(10,285

)

-68.6

%

VLCC

 

3,321

 

 

3,321

 

n/a

 

Panamax

 

(302

)

 

(302

)

n/a

 

Total

 

34,451

 

71,129

 

(36,678

)

-51.6

%

TOTAL NET VOYAGE REVENUE

 

$

291,644

 

$

271,664

 

$

19,980

 

7.4

%

 

 

 

 

 

 

 

 

 

 

Vessel operating days:

 

 

 

 

 

 

 

 

 

Time charter:

 

 

 

 

 

 

 

 

 

Aframax

 

1,797

 

1,941

 

(144

)

-7.4

%

Suezmax

 

3,369

 

3,604

 

(235

)

-6.5

%

VLCC (A)

 

572

 

30

 

542

 

1806.7

%

Panamax (A)

 

680

 

30

 

650

 

2166.7

%

Handymax (A)

 

1,460

 

60

 

1,400

 

2333.3

%

Total

 

7,878

 

5,665

 

2,213

 

39.1

%

 

 

 

 

 

 

 

 

 

 

Spot charter:

 

 

 

 

 

 

 

 

 

Aframax

 

2,188

 

1,549

 

639

 

41.3

%

Suezmax

 

428

 

354

 

74

 

20.9

%

VLCC (A)

 

151

 

 

151

 

n/a

 

Panamax (A)

 

36

 

 

36

 

n/a

 

Total

 

2,803

 

1,903

 

900

 

47.3

%

TOTAL VESSEL OPERATING DAYS

 

10,681

 

7,568

 

3,113

 

41.1

%

 

 

 

 

 

 

 

 

 

 

AVERAGE NUMBER OF VESSELS

 

31.0

 

21.5

 

9.5

 

44.2

%

 

 

 

 

 

 

 

 

 

 

Time Charter Equivalent (TCE):

 

 

 

 

 

 

 

 

 

Time charter:

 

 

 

 

 

 

 

 

 

Aframax

 

$

27,741

 

$

32,441

 

$

(4,700

)

-14.5

%

Suezmax

 

$

36,898

 

$

37,300

 

$

(402

)

-1.1

%

VLCC (A)

 

$

74,526

 

$

48,479

 

$

26,047

 

53.7

%

Panamax (A)

 

$

24,583

 

$

23,202

 

$

1,381

 

6.0

%

Handymax (A)

 

$

16,226

 

$

16,426

 

$

(200

)

-1.2

%

Combined

 

$

32,647

 

$

35,399

 

$

(2,752

)

-7.8

%