Attached files
file | filename |
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EX-10.1 - EXHIBIT 10.1 - United Maritime Group, LLC | c05007exv10w1.htm |
EX-31.1 - EXHIBIT 31.1 - United Maritime Group, LLC | c05007exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - United Maritime Group, LLC | c05007exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - United Maritime Group, LLC | c05007exv31w2.htm |
EX-32.2 - EXHIBIT 32.2 - United Maritime Group, LLC | c05007exv32w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
or
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 333-165796
UNITED MARITIME GROUP, LLC
(Exact name of registrant as specified in its charter)
FLORIDA (State or other jurisdiction of incorporation or organization) |
59-2147756 (I.R.S. Employer Identification No.) |
601 S. Harbour Island Blvd., Suite 230
Tampa, FL 33602
(Address of principal executive offices)
Tampa, FL 33602
(Address of principal executive offices)
(813) 209-4200
(Companys telephone number, including area code)
(Companys telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes o No þ
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 whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definition of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | 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 þ
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
N/A
TABLE OF CONTENTS
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36 | ||||||||
Exhibit 10.1 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
- 2 -
Table of Contents
PART I
ITEM 1. FINANCIAL STATEMENTS
United Maritime Group, LLC and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss
(Dollars in thousands)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenue |
||||||||||||||||
Revenue |
$ | 77,514 | $ | 64,443 | $ | 154,378 | $ | 141,440 | ||||||||
Operating expenses |
||||||||||||||||
Operating expenses |
47,415 | 37,704 | 96,176 | 82,311 | ||||||||||||
Maintenance and repairs |
9,251 | 5,008 | 14,599 | 10,342 | ||||||||||||
Administrative and general |
8,784 | 8,876 | 17,393 | 16,649 | ||||||||||||
Depreciation |
10,958 | 10,313 | 21,567 | 20,310 | ||||||||||||
Amortization of intangible assets |
659 | 659 | 1,318 | 1,318 | ||||||||||||
Asset retirement obligation accretion expense |
50 | 46 | 98 | 92 | ||||||||||||
(Gain) loss on sale of assets |
18 | (10 | ) | (66 | ) | 5 | ||||||||||
Total operating expenses |
77,135 | 62,596 | 151,085 | 131,027 | ||||||||||||
Operating income |
379 | 1,847 | 3,293 | 10,413 | ||||||||||||
Other income |
64 | 147 | 100 | 26 | ||||||||||||
Loss on derivative instruments |
| (1,860 | ) | | (3,722 | ) | ||||||||||
Equity in (loss) earnings of
unconsolidated affiliate |
5 | (84 | ) | (127 | ) | (78 | ) | |||||||||
Interest charges: |
||||||||||||||||
Interest expense |
6,693 | 5,778 | 13,407 | 11,753 | ||||||||||||
Interest income |
| (1 | ) | (1 | ) | (2 | ) | |||||||||
Amortization of deferred financing costs |
535 | 483 | 1,067 | 965 | ||||||||||||
Tax provision |
| 18 | | 18 | ||||||||||||
Net loss |
(6,780 | ) | (6,228 | ) | (11,207 | ) | (6,095 | ) | ||||||||
Other comprehensive loss |
||||||||||||||||
Change in net unrealized loss on
cash flow hedges |
(939 | ) | (5,094 | ) | (808 | ) | (5,260 | ) | ||||||||
Comprehensive loss |
$ | (7,719 | ) | $ | (11,322 | ) | $ | (12,015 | ) | $ | (11,355 | ) | ||||
The accompanying notes are an integral part of these consolidated financial statements.
- 3 -
Table of Contents
United Maritime Group, LLC and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash |
$ | 2,490 | $ | 11,631 | ||||
Accounts receivable trade, net of allowances for doubtful accounts of $446
and $573, respectively |
27,676 | 32,641 | ||||||
Materials and supplies |
16,549 | 15,501 | ||||||
Prepaid expenses and other current assets |
7,782 | 5,136 | ||||||
Total current assets |
54,497 | 64,909 | ||||||
Property and equipment |
451,609 | 444,615 | ||||||
Work in progress |
4,910 | 3,284 | ||||||
Accumulated depreciation |
(105,371 | ) | (84,343 | ) | ||||
Property and equipment, net |
351,148 | 363,556 | ||||||
Other assets: |
||||||||
Deferred financing costs, net of amortization of $1,067
and $0, respectively |
9,337 | 10,312 | ||||||
Intangible assets, net of amortization of $6,962
and $5,644, respectively |
22,746 | 24,064 | ||||||
Deferred drydocking costs, net |
4,965 | 4,606 | ||||||
Investment in unconsolidated affiliate |
| 452 | ||||||
Total other assets |
37,048 | 39,434 | ||||||
Total assets |
$ | 442,693 | $ | 467,899 | ||||
Liabilities and members equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 26,384 | $ | 18,962 | ||||
Accrued expenses |
3,285 | 2,096 | ||||||
Current derivative liability |
574 | 187 | ||||||
Total current liabilities |
30,243 | 21,245 | ||||||
Asset retirement obligation |
2,779 | 2,681 | ||||||
Other liabilities |
9,635 | 8,953 | ||||||
Long-term debt, net of current maturities |
257,000 | 280,125 | ||||||
Total liabilities |
299,657 | 313,004 | ||||||
Members equity |
143,036 | 154,895 | ||||||
Total liabilities and members equity |
$ | 442,693 | $ | 467,899 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
- 4 -
Table of Contents
United Maritime Group, LLC and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
Six Months Ended June 30, | ||||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
Operating activities |
||||||||
Net loss |
$ | (11,207 | ) | $ | (6,095 | ) | ||
Adjustments to reconcile net loss to net
cash from operating activities: |
||||||||
Depreciation |
21,567 | 20,310 | ||||||
Amortization of intangible assets |
1,318 | 1,318 | ||||||
Amortization of deferred financing costs |
1,067 | 965 | ||||||
Amortization of deferred drydocking assets |
2,027 | 1,075 | ||||||
Accretion expense |
98 | 92 | ||||||
Stock-based compensation |
156 | 267 | ||||||
Deferred drydocking expenditures |
(2,386 | ) | (1,298 | ) | ||||
Loss on derivative |
| 3,722 | ||||||
Loss on equity investment of
unconsolidated affiliate |
127 | 78 | ||||||
(Gain) loss on sale of assets |
(66 | ) | 5 | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
6,473 | 19,005 | ||||||
Materials and supplies |
(1,048 | ) | (159 | ) | ||||
Prepaid expenses and other assets |
(4,485 | ) | (3,818 | ) | ||||
Other deferred liabilities |
682 | (1,624 | ) | |||||
Accounts payable and accrued expenses |
8,522 | (5.836 | ) | |||||
Net cash provided by operating activities |
22,845 | 28,007 | ||||||
Investing activities |
||||||||
Additions to property and equipment |
(9,324 | ) | (9,396 | ) | ||||
Proceeds from sale of assets |
230 | 70 | ||||||
Distributions from unconsolidated affiliate |
325 | 200 | ||||||
Net cash used in investing activities |
(8,769 | ) | (9,126 | ) | ||||
Financing activities |
||||||||
Repayment of debt |
(43,125 | ) | (6,664 | ) | ||||
Issuance of debt |
20,000 | | ||||||
Payment of deferred financing costs |
(92 | ) | | |||||
Net cash used in financing activities |
(23,217 | ) | (6,664 | ) | ||||
Net change in cash |
(9,141 | ) | 12,217 | |||||
Cash at beginning of period |
11,631 | 11,616 | ||||||
Cash at end of period |
$ | 2,490 | $ | 23,833 | ||||
Supplemental disclosure of cash flow information |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 14,016 | $ | 12,795 |
The accompanying notes are an integral part of these consolidated financial statements.
- 5 -
Table of Contents
United Maritime Group, LLC and Subsidiaries
Consolidated Statement of Changes in Members Equity
(Dollars in thousands, except share amounts)
Accumulated | ||||||||||||||||||||||||
Common Interests | Additional | Other | Total | |||||||||||||||||||||
Common | Paid-in | Comprehensive | Retained | Members | ||||||||||||||||||||
Interests | Amount | Capital | Loss | Earnings | Equity | |||||||||||||||||||
Balance at December 31, 2009 |
100 | $ | 173,000 | $ | 2,304 | $ | 308 | $ | (20,717 | ) | $ | 154,895 | ||||||||||||
Net loss |
| | | | (11,207 | ) | (11,207 | ) | ||||||||||||||||
Change in fair value of derivative |
| | | (808 | ) | | (808 | ) | ||||||||||||||||
Stock-based compensation |
| | 156 | | | 156 | ||||||||||||||||||
Balance at June 30, 2010 |
100 | $ | 173,000 | $ | 2,460 | $ | (500 | ) | $ | (31,924 | ) | $ | 143,036 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
- 6 -
Table of Contents
UNITED MARITIME GROUP, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
1. The Company and Nature of Business
In this quarterly report, unless the context otherwise requires, or unless specifically stated
otherwise, references to the terms we, our, us and the Company refer to United Maritime
Group, LLC, United Maritime Group Finance Corp. (Finance Corp.) and all of their subsidiaries
that are consolidated under U.S. generally accepted accounting principles (GAAP).
Nature of Business and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with GAAP.
Subsequent events have been evaluated through August 16, 2010.
The accompanying unaudited consolidated financial statements should be read in conjunction with our
December 31, 2009 audited consolidated financial statements and the notes thereto included in the
Companys Registration Statement on Form S-4 (Registration No. 333-165796) (the Registration
Statement). In the opinion of management, the accompanying unaudited consolidated financial
statements include all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of results of the Company for the periods covered thereby. The accompanying
unaudited consolidated financial statements include the accounts of United Maritime Group, LLC
(United Maritime) and its wholly owned subsidiaries (U.S. United Ocean Services, LLC, U.S. United
Bulk Terminal, LLC, U.S. United Barge Line, LLC, U.S. United Bulk Logistics, LLC, UMG Towing
Company, LLC and U.S. United Inland Services, LLC). United Maritime is a wholly owned subsidiary
of GS Maritime Intermediate Holding LLC, a Delaware limited liability company (GS Intermediate).
GS Intermediate is a wholly owned subsidiary of GS Maritime Holding LLC, a Delaware limited
liability company (GS Maritime). The Companys principal operations are to provide
transportation services by barges or ocean-going vessels and materials handling and storage for
water-based transportation. All intercompany balances and transactions have been eliminated in
consolidation.
The members liability of United Maritime is limited by all protection available under Florida
limited liability company law. The life of United Maritime is indefinite.
2. Significant Accounting Policies
In June 2009, the Financial Accounting Standards Board (FASB) issued SFAS No. 168, The FASB
Accounting Standards Codification (ASC) and the Hierarchy of Generally Accepted Accounting
Principles, as codified in FASB ASC Topic 105, Generally Accepted Accounting Principles. This
standard establishes only two levels of GAAP, authoritative and non-authoritative. The FASB
ASC became the source of authoritative, non-governmental GAAP, except for rules and interpretive
releases of the Securities and Exchange Commission (the SEC), which are sources of authoritative
GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included
in the Codification became non-authoritative. This standard is effective for financial statements
for interim or annual reporting periods ending after September 15, 2009. As the ASC was not
intended to change or alter existing GAAP, the adoption of SFAS No. 168 on July 1, 2009, did not
have any impact on the Companys financial statements other than to change the numbering system
prescribed by the FASB ASC when referring to GAAP.
Accounting Estimates
The preparation of financial statements in conformity with GAAP requires the Company to make
estimates and assumptions that affect the amounts reported in the financial statements and the
disclosures made in the accompanying notes. Despite the intention to establish accurate estimates
and use reasonable assumptions, actual results could differ from the Companys estimates
and such differences could be material.
Comprehensive Income (Loss)
Accounting Standards Codification (ASC), Comprehensive Income (ASC 220), established
standards for the reporting and the display of comprehensive income (loss) and its components in a
full set of general purpose financial statements. ASC 220 requires that all items that are required
to be recognized under accounting standards as components of comprehensive income (loss) be
reported in a financial statement that is displayed with the same prominence as other financial
statements. The Company has reported other comprehensive gains and losses in its unaudited
consolidated statements of changes in members equity.
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Table of Contents
Inventory Costs
Materials and supplies, including fuel costs, are stated at the lower of cost or market using
the average cost method.
Revenue
Revenue is primarily derived from coal, phosphate, and grain transportation
(among other cargoes), and transfer and storage services to unaffiliated entities. Revenues from
transportation and transfer services are recognized as services are rendered. Revenue from certain
transportation services are recognized using the percentage of completion method, which includes
estimates of the distance traveled or time elapsed compared to the total estimated contract.
Storage revenue is recognized monthly based on the volumes held at the storage facility over the
contract grace period.
In 2008, the Company entered into an agreement with Tampa Electric Company that began on
January 1, 2009, and extends through 2014. The new agreement provides for the provision of
transportation, transfer, and blending services for coal, which totals will decline over the life
of the contract as a result of Tampa Electric Companys diversification of transportation modes,
particularly to rail. Tampa Electric Company is a wholly owned subsidiary of TECO Energy Inc.
(TECO Energy).
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using the straight-line
method over the estimated useful lives of the related assets. Additions, replacements and
betterments are capitalized; maintenance and repairs are charged to expense as incurred. Items sold
or retired are removed from the assets and accumulated depreciation accounts and any resulting
gains or losses are properly included in the consolidated statements of operations and
comprehensive loss.
Planned Major Maintenance
In accordance with the guidance for planned major maintenance activities, expenditures
incurred during a drydocking are deferred and amortized on a straight-line basis over the period
until the next scheduled drydocking, generally two and a half years. The Company only includes in
deferred drydocking costs those direct costs that are incurred as part of the vessels maintenance
that is required by the Coast Guard and/or vessel classification society regulation. Direct costs
include shipyard costs as well as the costs of placing the vessel in the shipyard. Expenditures for
routine maintenance and repairs, whether incurred as part of the drydocking or not, are expensed
as incurred.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of credit risk
consist principally of cash and trade receivables. The Company places its cash with high credit
quality financial institutions. During the normal course of business, the Company extends credit
to customers primarily in North America conducting business in the utility, metallurgical,
phosphate and grain industries. The Company performs ongoing credit evaluations of its customers
and does not generally require collateral. The customers financial condition and payment history have been
considered in determining the allowance for doubtful accounts. The Company assesses the risk of
non-performance of the derivatives in determining the fair value of the derivative instruments in
accordance with ASC No. 820 (ASC 820), Fair Value Measurements.
Asset Impairment
The Company periodically assesses whether there has been a permanent impairment of its
long-lived assets and certain intangibles held and used by the Company, in accordance with ASC No.
360 (ASC 360), Property, Plant, and Equipment and ASC No. 205 Presentation of Financial
Statements. ASC 360 establishes standards for determining when impairment losses on long-lived
assets have occurred and how impairment losses should be measured. The Company is required to
review long-lived assets and certain intangibles, to be held and used, for impairment whenever
events or circumstances indicate that the carrying value of such assets may not be recoverable. In
performing such a review for recoverability, the Company is required to compare the expected future
cash flows to the carrying value of long-lived assets and finite-lived intangibles. If the sum of
the expected future undiscounted cash flows is less than the carrying amount of such assets and
intangibles, the assets are impaired and the assets must be written down to their estimated fair
market value. There were no impairments during the six months ended June 30, 2010 or June 30,
2009.
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Table of Contents
Derivative Instruments and Hedging Activities
In March 2008, the FASB issued guidance requiring entities to provide greater transparency
about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for and related interpretations, and (c) how derivative
instruments and related hedged items affect an entitys financial position, results of operations
and cash flows. The provisions of this guidance require expanded disclosures concerning where
derivatives are recorded on the consolidated balance sheet and where gains or losses are recognized
in the consolidated results of operations. The Company has adopted the disclosure provisions as of
January 1, 2009.
Furthermore, in January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-6,
Improving Disclosures about Fair Value Measurements, which requires interim disclosures regarding
significant transfers in and out of Level 1 and Level 2 fair value measurements. Additionally, this
ASU requires disclosure for each class of assets and liabilities and disclosures about the
valuation techniques and inputs used to measure fair value for both recurring and non-recurring
fair value measurements. These disclosures are required for fair value measurements that fall in
either Level 2 or Level 3. Further, the ASU requires separate presentation of Level 3 activity for
the fair value measurements. We adopted the interim disclosure requirements under this Topic with
the exception of the separate presentation in the Level 3 activity rollforward, which is not
effective until fiscal years beginning after December 15, 2010 and for interim periods within those
fiscal years.
The Company applies the provisions of ASC No. 815, Derivatives and Hedging. These standards
require companies to recognize derivatives as either assets or liabilities in the financial
statements, to measure those instruments at fair value, and to reflect the changes in the fair
values of those instruments as either components of other comprehensive income (OCI) or in net
income, depending on the designation of those instruments. The changes in fair value that are
recorded in OCI are not immediately recognized in current net income. As the underlying hedged
transaction matures or the physical commodity is delivered, the deferred gain or loss on the
related hedging instrument must be reclassified from OCI to earnings based on its value at the time
of its reclassification. For effective hedge transactions, the amount reclassified from OCI to
earnings is offset in net income by the amount paid or received on the underlying transaction.
In December 2007, the Company entered into a derivative contract to limit the exposure to
interest rate fluctuations associated with its variable rate debt instruments. The derivative
contract was designated as a cash flow hedge. The hedge was for three years and would have expired
on December 31, 2010. In December 2009, the Company retired its debt obligations and the
derivative contract was paid in full. As of December 31, 2009, the interest hedge liability
balance was $0 with the balance of the interest hedge charged to interest expense as of December
31, 2009.
The Company entered into derivative contracts to limit the exposure to
price fluctuations for physical purchases of diesel fuel which were designated as cash flow hedges
for the forecasted purchases of fuel oil. The hedges are contracted to expire by December 31,
2012, and settle monthly. As of June 30, 2010, the current asset portion of the hedge was valued
at $0.1 million and recorded as a current asset, offset by the current liability portion of the
hedge valued at $(0.6) million recorded in other liabilities. As of December 31, 2009 the current
portion of the hedge valued at $0.3 million was recorded in current assets. During the six month
period ended June 30, 2010, the Company recognized an expense of $0.04 million, and for the six
month period ended June 30, 2009, the Company recognized a reduction in expense of $0.2 million.
We previously had fuel hedges that were out of the money, but these were terminated early in
December 2008. However, due to accounting requirements, we amortized those hedges through the end
of December 2009 for which we recorded $3.7 million for the six month period ended June 30, 2009.
ASC 820 requires disclosure about how fair value is determined for assets and liabilities and
establishes a hierarchy for which of these assets and liabilities must be grouped based on significant
levels of inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in the
valuation methodologies is as follows:
Level 1 Quoted prices for identical assets and liabilities in active markets.
Level 2 Observable inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets and liabilities in markets that are not active, or other inputs that are observable or can
be corroborated by observable market data.
Level 3 Unobservable inputs for the assets or liabilities.
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As of June 30, 2010, the Company held certain items that are required to be measured at fair
value on a recurring basis including fuel hedge agreements. Cash are reflected
in the consolidated financial statements at their carrying value, which approximates their fair value
due to their short maturity.
The carrying values of the Companys long-term debt approximate fair value due either to the
length to maturity or the existence of interest rates that approximate prevailing market rates as
disclosed in these unaudited consolidated financial statements.
The following items are measured at fair value on a recurring basis subject to the disclosure
requirements of ASC 820 as of June 30, 2010 and December 31, 2009.
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
June 30, 2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Other assets: |
||||||||||||||||
Fuel hedge |
$ | 73 | $ | | $ | 73 | $ | | ||||||||
Total |
$ | 73 | $ | | $ | 73 | $ | | ||||||||
Other liabilities: |
||||||||||||||||
Fuel hedge |
$ | 574 | $ | | $ | 574 | $ | | ||||||||
Total |
$ | 574 | $ | | $ | 574 | $ | | ||||||||
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
December 31, 2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Other assets: |
||||||||||||||||
Fuel hedge |
$ | 308 | $ | | $ | 308 | $ | | ||||||||
Total |
$ | 308 | $ | | $ | 308 | $ | | ||||||||
Asset Retirement Obligations
The Company has recognized liabilities for retirement obligations associated with certain
long-lived assets, in accordance with ASC No. 410, Asset Retirement and Environmental Obligations.
An asset retirement obligation for a long-lived asset is recognized at fair value at inception of
the obligation, if there is a legal obligation under an existing or enacted law or statute, a
written or oral contract, or by legal construction under the doctrine of promissory estoppels.
Retirement obligations are recognized only if the legal obligation exists in connection with or as
a result of the permanent retirement, abandonment, or sale of a long-lived asset.
When the liability is initially recorded, the carrying amount of the related long-lived asset
is correspondingly increased. Over time, the liability is accreted to its future value. The
corresponding amount capitalized at inception is depreciated over the remaining useful life of the
asset. The liability must be revalued each period based on current market prices.
The Company recognized accretion expense associated with asset retirement obligations for each
of the six month periods ended June 30, 2010 and 2009 of $0.1 million. During these periods, no
new retirement obligations were incurred and no significant revision to estimated cash flows used
in determining the recognized asset retirement obligations were necessary.
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Deferred Financing Costs
On December 4, 2007 (the Acquisition Date), the Company incurred deferred financing costs of
$10.2 million in connection with the incurrence of indebtedness that was used to finance the
acquisition of the Company (the Acquisition). These costs were being amortized over the life of the debt using the
straight line method which closely approximated the effective interest method and were classified
as interest expense. In December 2009, the Company refinanced all of the indebtedness that was
incurred in connection with the Acquisition and the unamortized deferred
financing costs of $6.4 million associated with such indebtedness were written off. In addition,
the Company incurred $10.3 million in financing costs in connection with the issuance of $200
million of senior secured notes due June 15, 2010 (the Senior Secured Notes) and the entry into a
new asset based loan facility (the ABL), each of which occurred in December 2009. Such financing
costs were deferred and are classified as deferred financing costs at December 31, 2009 and June
30, 2010. During each of the six month periods ended June 30, 2010 and 2009, the Company amortized
$1.1 million and $1.0 million, respectively.
3. Long-Term Debt
In
connection with the Acquisition, the Company incurred $305 million of debt. A first lien
credit agreement provided for a $205 million term loan. A second lien credit agreement provided
for an additional $100 million of indebtedness. In December 2009, this indebtedness was refinanced
and retired with the proceeds received from the issuance of the Senior Secured Notes and borrowings
under the ABL. As of June 30, 2010, the aggregate principal amount of indebtedness outstanding
under the ABL was $57.0 million.
Interest on the Senior Secured Notes is payable semi-annually, commencing June 15, 2010. The
Senior Secured Notes mature and are due on June 15, 2015. The interest rate on the Senior Secured
Notes is fixed at 11.75% per annum. No principal payments are due until maturity, subject to early required
mandatory prepayment provisions set forth in the indenture governing the Senior Secured Notes.
The interest on the ABL is payable monthly, commencing December 31, 2009. No principal
payments are due until maturity on December 22, 2013, subject to early required mandatory
prepayment provisions set forth in the credit agreement for the ABL. The interest rate under the
ABL as of June 30, 2010 was 4.125%, which reflects a rate of LIBOR plus the applicable margin of
3.75%.
The following is a schedule by year of approximate future minimum debt payments as of June 30,
2010:
(In millions of dollars) | ||||
2013 |
$ | 57.0 | ||
2014 |
| |||
2015 |
200.0 | |||
Total |
$ | 257.0 | ||
The Companys debt agreements contain various restrictive covenants, including the maintenance of
certain financial ratios, limitations on the ability to pay dividends, incur debt or subject assets
to liens. At June 30, 2010, the Company was in compliance in all material respects with all
applicable covenants set forth in the indenture governing the Senior Secured Notes and the credit
agreement governing the ABL.
4. Members Equity
In December 2007, our management team partnered with Greenstreet Equity Partners, LLC,
Jefferies Capital Partners, AMCI Capital L.P. and an affiliate of First Reserve Corporation to
acquire the Company from TECO Energy. We refer to the foregoing entities collectively as the
Equity Sponsors.
On December 4, 2007, GS Maritime issued 100,000 Class A Membership Units to the Equity
Sponsors and certain members of our management team. The total member contribution for the Class A
Membership Units was $173 million. In connection with the
closing of the Acquisition, GS Maritime also issued 9,890 Profit Units for the benefit of directors and employees of
the Company. On August 14, 2008, an additional 1,649 Profit Units were issued, bringing the total
number of issued and outstanding Profit Units to 11,539. An aggregate of 1,838 Profit Units were
forfeited in connection with the departure of certain employees of the Company.
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The GS Maritime Profit Units are issued to certain Company employees, certain members of the
Board of Directors, and others at the discretion of GS Maritimes Board of Directors. GS
Maritimes Board of Directors has the discretion to issue units at any time, including Profit
Units. The Profit Units granted to employees are divided into time-based and performance-based
vesting. The time-based units vest over 60 months. Assuming continued employment of the employee
with the Company, 20% vest on the first
anniversary of the grant date, and the remaining 80% vest in four equal installments on the
second, third, fourth, and fifth anniversaries of the grant date. The performance-based units vest
based on certain performance conditions being met or achieved and, in all cases, assuming continued
employment. The performance conditions relate to holders of Class A Membership Units receiving a
specified multiple on their investment upon a liquidation event. If an employee is terminated, GS
Maritime may repurchase the employees vested Profit Units.
For purposes of determining the compensation expense associated with Profit Unit grants,
management valued the business enterprise using a variety of widely accepted valuation techniques
which considered a number of factors such as the financial performance of the Company, the values
of comparable companies and the lack of marketability of the Companys equity. The Company then
used the binomial option pricing model to determine the fair value of these units at the time of
grant using valuation assumptions consisting of the expected term in which the units will be
realized; a risk-free interest rate equal to the U.S. federal treasury bond rate consistent with
the term assumption; expected dividend yield, for which there is none; and expected volatility
based on the historical data of equity instruments of comparable companies.
For the grant of Profit Units made in December 2007, the Company used the following valuation
assumptions: a term of 5 years, which is based on the expected term in which the units will be
realized, a risk free interest rate of 3.28%, which is the five-year U.S federal treasury bond rate
consistent with the term assumptions, and expected volatility of 40.5%, which is based on the
historical data of equity instruments of comparable companies. The estimated fair value of the
units, less an assumed forfeiture rate of 5%, will be recognized in expense in the Companys
financials statements on an accelerated recognition basis over the requisite service periods of the
awards.
For the grant of Profit Units made in August 2008, the Company used the following valuation
assumptions: a term of five years, which is based on the expected term in which the units will be
realized, a risk-free interest rate of 3.00%, which is the five-year U.S federal treasury bond rate
consistent with the term assumptions, and expected volatility of 48.5%, which is based on the
historical data of equity instruments of comparable companies. The estimated fair value of the
units, less an assumed forfeiture rate of 10%, will be recognized in expense in the Companys
financials statements on an accelerated recognition basis over the requisite service periods of the
awards.
In accordance with ASC No. 718, Compensation Stock Compensation, the Company recorded
stock-based compensation expense for the six months ended June 30, 2010 and 2009 of $0.2 million
and $0.3 million, respectively, which is included in administrative and general expense in the
consolidated statements of operations and comprehensive loss. The activity under the plan for the
six months ended June 30, 2010 is presented below.
Weighted Average | ||||||||
Profit Units | Grant Date | |||||||
Outstanding | Fair Value | |||||||
Non-vested balance at end of period December 31, 2009 |
7,374 | $ | 311.52 | |||||
Units granted |
| | ||||||
Units forfeited |
(321 | ) | $ | 388.93 | ||||
Vested |
| | ||||||
Non-vested balance at end of period June 30, 2010 |
7,053 | $ | 315.86 | |||||
As of June 30, 2010, there was approximately $1.4 million of total unrecognized compensation
expense related to the Profit Units. These costs are expected to be recognized over a weighted
average period of 3 years.
5. Intangible Assets and Sale-Leasebacks
The Company has assessed all acquired operating leases in order to determine whether the lease
terms were favorable or unfavorable given market conditions on the Acquisition Date. As a result,
the Company recorded a favorable lease intangible asset for $11.9 million. Also in connection
with the Acquisition, an acquired intangible asset of $22.0 million was assigned to
customer relationships, which are subject to amortization with a weighted average useful life of
approximately 10 years.
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Amortization of intangible assets is charged to expense on a straight-line basis in the
accompanying consolidated statements of operations and comprehensive loss. If impairment events
occur, the Company could accelerate the timing of purchased intangible asset charges. For each of
the six month periods ended June 30, 2010 and 2009, amortization expense related to the intangible
assets acquired and the intangible liability assumed was $1.3 million.
A summary of intangible assets at June 30, 2010 and 2009 follows (dollars in thousands):
December 31, | June 30, | |||||||||||||||
2009 | 2010 | |||||||||||||||
Asset Life | Balance | Amortization | Balance | |||||||||||||
Favorable Lease Barges |
13.5 years | $ | 1,498 | $ | 54 | $ | 1,444 | |||||||||
Favorable Lease Ocean Vessels |
6 years | 13,426 | 439 | 12,987 | ||||||||||||
Favorable Lease Davant facility |
21 years | 998 | 17 | 981 | ||||||||||||
Unfavorable Lease Davant facility |
22 years | (7,240 | ) | (115 | ) | (7,125 | ) | |||||||||
Customer Relationship (Contracts) |
10 years | 15,382 | 923 | 14,459 | ||||||||||||
Total |
$ | 24,064 | $ | 1,318 | $ | 22,746 | ||||||||||
December 31, | June 30, | |||||||||||||||
2008 | 2009 | |||||||||||||||
Asset Life | Balance | Amortization | Balance | |||||||||||||
Favorable Lease Barges |
13.5 years | $ | 1,605 | $ | 54 | $ | 1,551 | |||||||||
Favorable Lease Ocean Vessels |
6 years | 14,305 | 439 | 13,866 | ||||||||||||
Favorable Lease Davant facility |
21 years | 1,032 | 17 | 1,015 | ||||||||||||
Unfavorable Lease Davant facility |
22 years | (7,469 | ) | (115 | ) | (7,354 | ) | |||||||||
Customer Relationship (Contracts) |
10 years | 17,227 | 923 | 16,304 | ||||||||||||
Total |
$ | 26,700 | $ | 1,318 | $ | 25,382 | ||||||||||
Estimated future amortization expense is as follows at June 30, 2010:
(Dollars in thousands) | ||||
2010 |
$ | 1,318 | ||
2011 |
2,636 | |||
2012 |
2,636 | |||
2013 |
12,548 | |||
2014 |
1,758 | |||
Thereafter |
1,849 |
In April 2008, the FASB issued guidance amending the factors that must be considered in
developing renewal or extension assumptions used to determine the useful life over which to
amortize the cost of a recognized intangible asset. This guidance requires an entity to consider
its own assumptions about renewal or extension of the term of the arrangement, consistent with its
expected use of the asset, and is an attempt to improve consistency between the useful life of a
recognized intangible asset and the period of expected cash flows used to measure the fair value of
the asset. The Company adopted this guidance on January 1, 2009 and has applied it
prospectively to intangible assets acquired after the effective date.
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6. Property and Equipment
Property and equipment consists of the following (dollars in thousands):
Average | ||||||||||||
Useful Lives | June 30, | December 31, | ||||||||||
in Years | 2010 | 2009 | ||||||||||
(unaudited) | ||||||||||||
Land |
$ | 7,025 | $ | 7,025 | ||||||||
Buildings |
1 30 | 4,468 | 4,446 | |||||||||
Vessels |
1 28 | 364,833 | 361,344 | |||||||||
Terminals |
1 35 | 55,532 | 54,102 | |||||||||
Machinery |
1 20 | 11,095 | 10,086 | |||||||||
Other |
1 20 | 8,656 | 7,612 | |||||||||
Work in progress |
4,910 | 3,284 | ||||||||||
Total costs |
456,519 | 447,899 | ||||||||||
Accumulated depreciation |
(105,371 | ) | (84,343 | ) | ||||||||
Property and equipment, net |
$ | 351,148 | $ | 363,556 | ||||||||
7. Employee Postretirement Benefits
401(k) Savings Plan
The Company has a 401(k) savings plan covering substantially all employees of the Company that
enables participants to save a portion of their compensation up to the limits allowed by IRS
guidelines. Effective December 4, 2007, the Company and its subsidiaries employer matching
contributions were 100% of up to 6% of eligible participant contributions. For the six months
ended June 30, 2009, the Company recognized $0.8 million in expense. These expenses are reflected
in the administrative and general expense financial statement line item in the Companys
consolidated statements of operations and comprehensive loss. Effective May 5, 2009, the
Company discontinued the employer contribution to this plan until further notice. Effective July
1, 2010, the Company reinstated the employer matching contribution of 50% of up to 6% of eligible
participant compensation.
Defined Contribution Plan
On December 4, 2007, the Company established a defined contribution plan. The plan is funded
entirely by the Company. Funding levels per employee are determined by the employees service time
with the Company and the employees age. The funding levels per year are discretionary and range
from 0.0% to 5%. Employees are vested after being with the Company three years. Effective January
1, 2009 the Company discontinued the employer contribution to this plan until further notice and
incurred no expense related to the plan for the six month periods ended June 30, 2010 and 2009.
8. Income Taxes
At the Acquisition Date, United Maritime and all of its subsidiaries were converted from
corporations into limited liability companies (each treated as a partnership for federal income tax
purposes). As of December 4, 2007, the Company is no longer subject to federal income tax. State
income taxes are immaterial in the periods presented.
9. Related Parties
The Company and its subsidiaries enter into certain transactions, in the ordinary course of
business, with entities in which directors of the Company or the Equity Sponsors have interests.
In addition, the Company is party to a financial consulting and management services agreement with
the Equity Sponsors. For each of the six month periods ended June 30, 2010 and 2009, the Company
incurred management fees under the financial consulting and management services agreement of $0.8
million, which is classified as administrative and general expense in the Companys unaudited
consolidated statements of operations and comprehensive loss. In addition, approximately $0.4
million of expenses were incurred for each of the six month periods ended June 30, 2010 and 2009,
in the normal course of business for legal services, regulatory compliance, and other services that
are with related party vendors.
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Table of Contents
10. Commitments and Contingencies
Litigation
The Company is involved in various legal proceedings that have arisen in the ordinary course
of business. In the opinion of the Companys management, all such proceedings are adequately
covered by insurance or, if not so covered, should not result in any liability which would have a
material adverse effect on the consolidated financial position or consolidated operations of the
Company.
Operating Leases
The Company rents real property, boats and barges under certain non-cancelable operating
leases expiring at various dates through 2029, excluding renewal options. Certain of the leases
require the lessee to pay property taxes or are subject to escalating rent
clauses. In addition, one lease requires contingent rental payments based on tonnage shipped.
This contingent rental, as well as the related minimum rental payment, fluctuates with the
Producers Price Index and the Consumer Price Index.
Rental expense for the six months ended June 30, 2010 and 2009 amounted to approximately $8.4
million and $8.0 million, respectively. Rental expense is included in the operating expenses
financial statement line item in the unaudited consolidated statements of operations and
comprehensive loss. The following is a schedule by year of approximate future minimum rental
payments required under operating leases that have initial or remaining non-cancelable lease terms
in excess of one year as of June 30, 2010 (dollars in thousands):
2010 |
$ | 6,691 | ||
2011 |
11,722 | |||
2012 |
11,546 | |||
2013 |
10,052 | |||
2014 |
5,349 | |||
Thereafter |
46,101 | |||
Total minimum lease payments |
$ | 91,461 | ||
Other
As of June 30, 2010, certain financial institutions had issued letters of credit on behalf of the
Company with an aggregate face amount of approximately $3.7 million, none of which had been drawn
as of June 30, 2010.
11. Business Segments
United Maritime has three reportable business segments: United Bulk Terminal,
United Ocean Services, and United Barge Line. United Maritime records the corporate activity
under the caption Other. The United Bulk Terminal segment includes barge and vessel unloading and
loading, and fleeting and shifting. The United Ocean Services segment
provides transportation services on domestic and international voyages.
The United Barge Line segment includes transporting, fleeting, shifting, and repair
services along the Inland Waterways
consisting of the Mississippi River, the Ohio River, the Illinois River and their tributaries (collectively
known as Inland Waterways).
Management evaluates performance based on segment earnings, which is defined as operating
income. The accounting policies of the reportable segments are consistent with those described in
the summary of significant accounting policies.
Intercompany sales are eliminated upon consolidation.
Reportable segments are business units that offer different products or services. The
reportable segments are managed separately because they provide distinct products and services to
internal and external customers.
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Table of Contents
Reportable Segments | ||||||||||||||||||||||||
United Bulk | United Ocean | United Barge | Intersegment | |||||||||||||||||||||
Terminal | Services | Line | Other(1) | Eliminations | Total | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Three months ended June 30, 2010 |
||||||||||||||||||||||||
Total revenue |
$ | 10,027 | $ | 33,927 | $ | 33,849 | $ | 3,098 | $ | | $ | 80,901 | ||||||||||||
Intersegment revenues |
| | | | (3,387 | ) | (3,387 | ) | ||||||||||||||||
Revenue from external customers |
10,027 | 33,927 | 33,849 | 3,098 | (3,387 | ) | 77,514 | |||||||||||||||||
Operating expense |
||||||||||||||||||||||||
Operating expenses |
4,356 | 19,526 | 23,821 | | (288 | ) | 47,415 | |||||||||||||||||
Maintenance and repairs |
2,189 | 5,987 | 1,075 | | | 9,251 | ||||||||||||||||||
Depreciation and amortization |
1,323 | 5,352 | 4,953 | 39 | | 11,667 | ||||||||||||||||||
Loss (gain) on disposition of equipment |
72 | 1 | (55 | ) | | | 18 | |||||||||||||||||
Administrative and general |
2,024 | 3,265 | 3,496 | 3,098 | (3,099 | ) | 8,784 | |||||||||||||||||
Total operating expenses |
9,964 | 34,131 | 33,290 | 3,137 | (3,387 | ) | 77,135 | |||||||||||||||||
Operating income (loss) |
$ | 63 | $ | (204 | ) | $ | 559 | $ | (39 | ) | $ | | $ | 379 | ||||||||||
Total assets |
$ | 72,792 | $ | 183,669 | $ | 181,278 | $ | 416,740 | $ | (411,786 | ) | $ | 442,693 | |||||||||||
Total capital expenditures |
$ | 2,824 | $ | 3,190 | $ | 1,402 | $ | 50 | $ | | $ | 7,466 |
(1) | Other items (including corporate costs) are shown for purposes of reconciling to the Companys consolidated totals as shown in the table above. |
Reportable Segments | ||||||||||||||||||||||||
United Bulk | United Ocean | United Barge | Intersegment | |||||||||||||||||||||
Terminal | Services | Line | Other(1) | Eliminations | Total | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Three months ended June 30, 2009 |
||||||||||||||||||||||||
Total revenue |
$ | 7,018 | $ | 32,648 | $ | 25,542 | $ | 2,640 | $ | | $ | 67,848 | ||||||||||||
Intersegment revenues |
| | | | (3,405 | ) | (3,405 | ) | ||||||||||||||||
Revenue from external customers |
7,018 | 32,648 | 25,542 | 2,640 | (3,405 | ) | 64,443 | |||||||||||||||||
Operating expense |
||||||||||||||||||||||||
Operating expenses |
3,036 | 16,756 | 18,629 | | (717 | ) | 37,704 | |||||||||||||||||
Maintenance and repairs |
1,320 | 2,858 | 830 | | | 5,008 | ||||||||||||||||||
Depreciation and amortization |
1,199 | 4,909 | 4,910 | | | 11,018 | ||||||||||||||||||
Loss (gain) on disposition of equipment |
| | (10 | ) | | | (10 | ) | ||||||||||||||||
Administrative and general |
1,679 | 3,348 | 3,897 | 2,640 | (2,688 | ) | 8,876 | |||||||||||||||||
Total operating expenses |
7,234 | 27,871 | 28,256 | 2,640 | (3,405 | ) | 62,596 | |||||||||||||||||
Operating income (loss) |
$ | (216 | ) | $ | 4,777 | $ | (2,714 | ) | $ | | $ | | $ | 1,847 | ||||||||||
Total assets |
$ | 86,430 | $ | 250,014 | $ | 291,772 | $ | 602,221 | $ | (742,275 | ) | $ | 488,162 | |||||||||||
Total capital expenditures |
$ | 2,851 | $ | 491 | $ | 1,452 | $ | 40 | $ | | $ | 4,834 |
(1) | Other items (including corporate costs) are shown for purposes of reconciling to the Companys consolidated totals as shown in the table above. |
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Reportable Segments | ||||||||||||||||||||||||
United Bulk | United Ocean | United Barge | Intersegment | |||||||||||||||||||||
Terminal | Services | Line | Other(1) | Eliminations | Total | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Six months ended June 30, 2010 |
||||||||||||||||||||||||
Total revenue |
$ | 20,409 | $ | 71,280 | $ | 63,294 | $ | 6,241 | $ | | $ | 161,224 | ||||||||||||
Intersegment revenues |
| | | | (6,846 | ) | (6,846 | ) | ||||||||||||||||
Revenue from external customers |
20,409 | 71,280 | 63,294 | 6,241 | (6,846 | ) | 154,378 | |||||||||||||||||
Operating expense |
||||||||||||||||||||||||
Operating expenses |
8,524 | 42,127 | 46,129 | | (604 | ) | 96,176 | |||||||||||||||||
Maintenance and repairs |
3,792 | 8,697 | 2,110 | | | 14,599 | ||||||||||||||||||
Depreciation and amortization |
2,523 | 10,516 | 9,867 | 77 | | 22,983 | ||||||||||||||||||
Loss (gain) on disposition of equipment |
72 | 1 | (139 | ) | | | (66 | ) | ||||||||||||||||
Administrative and general |
4,060 | 6,446 | 6,881 | 6,241 | (6,235 | ) | 17,393 | |||||||||||||||||
Total operating expenses |
18,971 | 67,787 | 64,848 | 6,318 | (6,839 | ) | 151,085 | |||||||||||||||||
Operating income (loss) |
$ | 1,438 | $ | 3,493 | $ | (1,554 | ) | $ | (77 | ) | $ | (7 | ) | $ | 3,293 | |||||||||
Total assets |
$ | 72,792 | $ | 183,669 | $ | 181,278 | $ | 416,740 | $ | (411,786 | ) | $ | 442,693 | |||||||||||
Total capital expenditures |
$ | 3,413 | $ | 4,375 | $ | 1,486 | $ | 50 | $ | | $ | 9,324 |
(1) | Other items (including corporate costs) are shown for purposes of reconciling to the Companys consolidated totals as shown in the table above. |
Reportable Segments | ||||||||||||||||||||||||
United Bulk | United Ocean | United Barge | Intersegment | |||||||||||||||||||||
Terminal | Services | Line | Other(1) | Eliminations | Total | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Six months ended June 30, 2009 |
||||||||||||||||||||||||
Total revenue |
$ | 16,429 | $ | 72,734 | $ | 53,778 | $ | 5,315 | $ | | $ | 148,256 | ||||||||||||
Intersegment revenues |
| | | | (6,816 | ) | (6,816 | ) | ||||||||||||||||
Revenue from external customers |
16,429 | 72,734 | 53,778 | 5,315 | (6,816 | ) | 141,440 | |||||||||||||||||
Operating expense |
||||||||||||||||||||||||
Operating expenses |
7,021 | 38,225 | 38,567 | | (1,502 | ) | 82,311 | |||||||||||||||||
Maintenance and repairs |
2,757 | 5,231 | 2,354 | | | 10,342 | ||||||||||||||||||
Depreciation and amortization |
2,385 | 9,544 | 9,791 | | | 21,720 | ||||||||||||||||||
Loss (gain) on disposition of equipment |
| | 5 | | | 5 | ||||||||||||||||||
Administrative and general |
3,407 | 6,612 | 6,630 | 5,315 | (5,315 | ) | 16,649 | |||||||||||||||||
Total operating expenses |
15,570 | 59,612 | 57,347 | 5,315 | (6,817 | ) | 131,027 | |||||||||||||||||
Operating income (loss) |
$ | 859 | $ | 13,122 | $ | (3,569 | ) | $ | | $ | 1 | $ | 10,413 | |||||||||||
Total assets |
$ | 86,430 | $ | 250,014 | $ | 291,772 | $ | 602,221 | $ | (742,275 | ) | $ | 488,162 | |||||||||||
Total capital expenditures |
$ | 1,271 | $ | 7,278 | $ | 837 | $ | 10 | $ | | $ | 9,396 |
(1) | Other items (including corporate costs) are shown for purposes of reconciling to the Companys consolidated totals as shown in the table above. |
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12. Debtor Guarantor Financial Statements
Condensed Consolidating Balance Sheet as of June 30, 2010
Unaudited
(Dollars in thousands)
Unaudited
(Dollars in thousands)
Guarantor | Consolidated | |||||||||||||||
Parent | Subsidiaries | Eliminations | Totals | |||||||||||||
ASSETS |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash |
$ | 2,111 | $ | 379 | $ | | $ | 2,490 | ||||||||
Accounts receivable trade, net of allowance for
doubtful accounts |
240,918 | 35,221 | (248,463 | ) | 27,676 | |||||||||||
Materials and supplies |
| 16,549 | | 16,549 | ||||||||||||
Prepaid expenses and other current assets |
622 | 7,160 | | 7,782 | ||||||||||||
Total current assets |
243,651 | 59,309 | (248,463 | ) | 54,497 | |||||||||||
Property and equipment, net |
429 | 350,719 | | 351,148 | ||||||||||||
Investment in subsidiaries |
163,323 | | (163,323 | ) | | |||||||||||
Deferred financing costs, net of amortization |
9,337 | | | 9,337 | ||||||||||||
Other assets |
| 4,965 | | 4,965 | ||||||||||||
Intangible asset, net of amortization |
| 22,746 | | 22,746 | ||||||||||||
Total |
$ | 416,740 | $ | 437,739 | $ | (411,786 | ) | $ | 442,693 | |||||||
LIABILITIES AND MEMBERS EQUITY |
||||||||||||||||
Current liabilities |
||||||||||||||||
Accounts payable |
$ | 7,450 | $ | 267,397 | $ | (248,463 | ) | $ | 26,384 | |||||||
Accrued expenses and other current liabilities |
1,170 | 2,689 | | 3,859 | ||||||||||||
Total current liabilities |
8,620 | 270,086 | (248,463 | ) | 30,243 | |||||||||||
Other deferred liabilities |
| 12,414 | | 12,414 | ||||||||||||
Notes payable long term debt |
257,000 | | | 257,000 | ||||||||||||
Members equity |
151,120 | 155,239 | (163,323 | ) | 143,036 | |||||||||||
Total |
$ | 416,740 | $ | 437,739 | $ | (411,786 | ) | $ | 442,693 | |||||||
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Condensed Consolidating Balance Sheet as of December 31, 2009
Unaudited
(Dollars in thousands)
Unaudited
(Dollars in thousands)
Guarantor | Consolidated | |||||||||||||||
Parent | Subsidiaries | Eliminations | Totals | |||||||||||||
ASSETS |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash |
$ | 11,261 | $ | 370 | $ | | $ | 11,631 | ||||||||
Accounts receivable trade, net of allowance for
doubtful accounts |
448,997 | 264,040 | (680,396 | ) | 32,641 | |||||||||||
Materials and supplies |
| 15,501 | | 15,501 | ||||||||||||
Prepaid expenses and other current assets |
578 | 4,558 | | 5,136 | ||||||||||||
Total current assets |
460,836 | 284,469 | (680,396 | ) | 64,909 | |||||||||||
Property and equipment, net |
456 | 363,100 | | 363,556 | ||||||||||||
Investment in subsidiaries |
163,323 | | (163,323 | ) | | |||||||||||
Deferred financing fees |
10,312 | | | 10,312 | ||||||||||||
Other assets |
| 5,058 | | 5,058 | ||||||||||||
Intangible asset |
| 24,064 | | 24,064 | ||||||||||||
Total |
$ | 634,927 | $ | 676,691 | $ | (843,719 | ) | $ | 467,899 | |||||||
LIABILITIES AND MEMBERS EQUITY |
||||||||||||||||
Current liabilities |
||||||||||||||||
Accounts payable |
$ | 188,583 | $ | 510,775 | $ | (680,396 | ) | $ | 18,962 | |||||||
Accrued expenses and other current liabilities |
704 | 1,579 | | 2,283 | ||||||||||||
Total current liabilities |
189,287 | 512,354 | (680,396 | ) | 21,245 | |||||||||||
Other deferred liabilities |
| 11,634 | | 11,634 | ||||||||||||
Notes payable long term debt |
280,125 | | | 280,125 | ||||||||||||
Members equity |
165,515 | 152,703 | (163,323 | ) | 154,895 | |||||||||||
Total |
$ | 634,927 | $ | 676,691 | $ | (843,719 | ) | $ | 467,899 | |||||||
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2010
Unaudited
(Dollars in thousands)
For the Three Months Ended June 30, 2010
Unaudited
(Dollars in thousands)
Guarantor | Consolidated | |||||||||||||||
Parent | Subsidiaries | Eliminations | Totals | |||||||||||||
Revenue |
$ | 3,098 | $ | 77,803 | $ | (3,387 | ) | $ | 77,514 | |||||||
Operating expenses |
| 56,954 | (288 | ) | 56,666 | |||||||||||
Administrative and general |
3,098 | 8,785 | (3,099 | ) | 8,784 | |||||||||||
Depreciation and amortization |
39 | 11,628 | | 11,667 | ||||||||||||
(Gain) loss on sale of assets |
| 18 | | 18 | ||||||||||||
Operating income (loss) |
(39 | ) | 418 | | 379 | |||||||||||
Interest expense, net |
7,228 | | | 7,228 | ||||||||||||
Other (income) expense, net |
| (69 | ) | | (69 | ) | ||||||||||
Net income (loss) |
$ | (7,267 | ) | $ | 487 | $ | | $ | (6,780 | ) | ||||||
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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2009
Unaudited
(Dollars in thousands)
For the Three Months Ended June 30, 2009
Unaudited
(Dollars in thousands)
Guarantor | Consolidated | |||||||||||||||
Parent | Subsidiaries | Eliminations | Totals | |||||||||||||
Revenue |
$ | 2,640 | $ | 65,208 | $ | (3,405 | ) | $ | 64,443 | |||||||
Operating expenses |
| 43,429 | (717 | ) | 42,712 | |||||||||||
Administrative and general |
2,640 | 8,924 | (2,688 | ) | 8,876 | |||||||||||
Depreciation and amortization |
| 11,018 | | 11,018 | ||||||||||||
(Gain) loss on sale of assets |
| (10 | ) | | (10 | ) | ||||||||||
Operating income |
| 1,847 | | 1,847 | ||||||||||||
Interest expense, net |
| 6,260 | | 6,260 | ||||||||||||
Other (income) expense, net |
| 1,797 | | 1,797 | ||||||||||||
Loss before tax provision |
| (6,210 | ) | | (6,210 | ) | ||||||||||
Tax provision |
| 18 | | 18 | ||||||||||||
Net income (loss) |
$ | | $ | (6,228 | ) | $ | | $ | (6,228 | ) | ||||||
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2010
Unaudited
(Dollars in thousands)
For the Six Months Ended June 30, 2010
Unaudited
(Dollars in thousands)
Guarantor | Consolidated | |||||||||||||||
Parent | Subsidiaries | Eliminations | Totals | |||||||||||||
Revenue |
$ | 6,241 | $ | 154,983 | $ | (6,846 | ) | $ | 154,378 | |||||||
Operating expenses |
| 111,379 | (604 | ) | 110,775 | |||||||||||
Administrative and general |
6,241 | 17,387 | (6,235 | ) | 17,393 | |||||||||||
Depreciation and amortization |
77 | 22,906 | | 22,983 | ||||||||||||
(Gain) loss on sale of assets |
| (66 | ) | | (66 | ) | ||||||||||
Operating income (loss) |
(77 | ) | 3,377 | (7 | ) | 3,293 | ||||||||||
Interest expense, net |
14,473 | | | 14,473 | ||||||||||||
Other (income) expense, net |
| 27 | | 27 | ||||||||||||
Net income (loss) |
$ | (14,550 | ) | $ | 3,350 | $ | (7 | ) | $ | (11,207 | ) | |||||
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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2009
Unaudited
(Dollars in thousands)
For the Six Months Ended June 30, 2009
Unaudited
(Dollars in thousands)
Guarantor | Consolidated | |||||||||||||||
Parent | Subsidiaries | Eliminations | Totals | |||||||||||||
Revenue |
$ | 5,315 | $ | 142,941 | $ | (6,816 | ) | $ | 141,440 | |||||||
Operating expenses |
| 94,155 | (1,502 | ) | 92,653 | |||||||||||
Administrative and general |
5,315 | 16,649 | (5,315 | ) | 16,649 | |||||||||||
Depreciation and amortization |
| 21,720 | | 21,720 | ||||||||||||
(Gain) loss on sale of assets |
| 5 | | 5 | ||||||||||||
Operating income |
| 10,412 | 1 | 10,413 | ||||||||||||
Interest expense, net |
| 12,716 | | 12,716 | ||||||||||||
Other (income) expense, net |
| 3,774 | | 3,774 | ||||||||||||
Loss before tax provision |
| (6,078 | ) | 1 | (6,077 | ) | ||||||||||
Tax provision |
| 18 | | 18 | ||||||||||||
Net income (loss) |
$ | | $ | (6,096 | ) | $ | 1 | $ | (6,095 | ) | ||||||
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2010
(Dollars in thousands)
For the Six Months Ended June 30, 2010
(Dollars in thousands)
Guarantor | Consolidated | |||||||||||||||
Parent | Subsidiaries | Eliminations | Totals | |||||||||||||
Operating activities: |
||||||||||||||||
Net cash provided by operating activities |
$ | 14,117 | $ | 8,728 | $ | | $ | 22,845 | ||||||||
Investing activities: |
||||||||||||||||
Capital expenditures |
(50 | ) | (9,274 | ) | | (9,324 | ) | |||||||||
Other investing activities |
| 555 | | 555 | ||||||||||||
Net cash used in investing activities |
(50 | ) | (8,719 | ) | | (8,769 | ) | |||||||||
Financing activities: |
||||||||||||||||
Net change in debt |
(23,125 | ) | | | (23,125 | ) | ||||||||||
Other financing activities |
(92 | ) | | | (92 | ) | ||||||||||
Net cash used in financing activities |
(23,217 | ) | | | (23,217 | ) | ||||||||||
Net (decrease) increase in cash |
(9,150 | ) | 9 | | (9,141 | ) | ||||||||||
Cash, beginning of period |
11,261 | 370 | | 11,631 | ||||||||||||
Cash, end of period |
$ | 2,111 | $ | 379 | $ | | $ | 2,490 | ||||||||
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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2009
(Dollars in thousands)
For the Six Months Ended June 30, 2009
(Dollars in thousands)
Guarantor | Consolidated | |||||||||||||||
Parent | Subsidiaries | Eliminations | Totals | |||||||||||||
Operating activities: |
||||||||||||||||
Net cash provided by operating activities |
$ | 12,508 | $ | 15,499 | $ | | $ | 28,007 | ||||||||
Investing activities: |
||||||||||||||||
Capital expenditures |
(10 | ) | (9,386 | ) | | (9,396 | ) | |||||||||
Other investing activities |
| 270 | | 270 | ||||||||||||
Net cash used in investing activities |
(10 | ) | (9,116 | ) | | (9,126 | ) | |||||||||
Financing activities: |
||||||||||||||||
New cash used in financing activities |
(281 | ) | (6,383 | ) | | (6,664 | ) | |||||||||
Net increase in cash |
12,217 | | | 12,217 | ||||||||||||
Cash, beginning of period |
11,285 | 331 | | 11,616 | ||||||||||||
Cash, end of period |
$ | 23,502 | $ | 331 | $ | | $ | 23,833 | ||||||||
13. Subsequent Events
Subsequent events and transactions have been evaluated through August 16, 2010, the date these
statements were filed with the SEC.
The Mosaic Company
(“Mosaic”) is a leading producer and marketer of concentrated
phosphate rock and potash crop nutrients, from which we derived approximately
10% of our revenue for each of the fiscal year ended December 31, 2009 and
the six-month period ended June 30, 2010. Based on publicly available
information, we understand that the United States District Court for the Middle
District of Florida entered a preliminary injunction on July 30, 2010
which impacts Mosaic’s federal wetlands permit for its South Fort Meade
phosphate mine. On August 9, 2010, we received a letter from Mosaic
claiming that, as a result of the preliminary injunction affecting the South
Fort Meade phosphate mine, a “force majeure” event had occurred
under our contract, which Mosaic indicated may cause it to curtail or suspend
future shipments under our contract. Mosaic has filed a notice of appeal of the
ruling and has filed a motion for a stay of injunction. We are currently
evaluating the circumstances and events surrounding the preliminary injunction
to assess whether a force majeure event has in fact occurred and, if so, what
the impact, if any, will be under the terms of the contract with Mosaic and on
our business and operations.
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ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Managements Discussion and Analysis of Financial Condition and Results of Operations
This quarterly report contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements can be identified by the use of
forward-looking terminology such as believes, expects, may, estimates, will, should,
plans or anticipates or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. Readers are cautioned that any such forward-looking
statements are not guarantees of future performance and may involve significant risks and
uncertainties, and that actual results may vary materially from those in the forward-looking
statements as a result of various factors. These forward-looking statements involve a number of
risks and uncertainties that could cause actual results to differ materially from those suggested
by the forward-looking statements. Forward-looking statements should, therefore, be considered in
light of various factors, including those set forth under Forward-Looking Statements and Risk
Factors in the Companys Registration Statement, all of which are incorporated herein by reference. Moreover, we caution you not to place undue
reliance on these forward-looking statements, which speak only as of the date they were made. We
do not undertake any obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date of this quarterly report or to reflect
the occurrence of unanticipated events.
The following discussion should be read in conjunction with the Companys audited and
unaudited consolidated financial statements and related notes thereto in Item 1, FINANCIAL
STATEMENTS in this quarterly report and the Companys audited Consolidated Financial Statements for the
year ended December 31, 2009 and related Notes that are contained in the Companys Registration Statement.
General
We are a leading independent provider of dry bulk marine transportation services in the
U.S.-flag coastwise, U.S. Government cargo preference and inland barge markets. We also own and
operate the largest coal and petcoke terminal in the Gulf of Mexico, which is strategically located
as the first inbound dry bulk terminal on the Mississippi River. We operate in three business
segments: United Ocean Services, United Barge Line and United Bulk Terminal.
United Ocean Services (UOS)
UOS provides transportation services on domestic and international voyages. These services
are contracted under single or consecutive voyage charters on a spot basis, or long-term contracts
ranging from one to ten years. Most of the international voyages are performed under cargo
preference programs, the most significant of which is Public Law 480 (PL-480). We charge for
these services either on a per ton or per day basis. Under a per ton contract, we are generally
responsible for all expenses including fuel. Revenues under these contracts are based on a per ton
rate. We bear the risk of time lost due to weather, maintenance, and delay at docks which are not
covered by demurrage. Demurrage is compensation due from the customer when there are delays at the
dock that prevent the vessel from loading or unloading within the contract terms. Our contracts
have fuel price mechanisms that limit our exposure to changes in fuel price. We also time charter
our vessels, such that the customer has exclusive use of a particular vessel for a specified time
period and rates are on a per day basis. We pay expenses related to the vessels maintenance and
operation and the charterer is responsible for all voyage costs, including port charges and fuel.
Rates for UOS movements are based on the amount of freight demand relative to the availability
of vessels to meet that demand. In the coastwise market, a significant portion of the movements
are based on long-term contractual relationships. Vessels are often customized or particularly
suited for individual customers, cargoes or trades. There has been a reduction in new movements
and spot opportunities due to the economic downturn. Rates in the cargo preference trade are based
on funding for such programs and the availability of U.S.-flag vessels. While cargoes transported
have remained relatively steady, capacity in the cargo preference market has increased as charter
rates in the international dry bulk market have declined, and as coastwise petroleum product
movements have been reduced due to declining U.S. gasoline demand. As such, a number of dry bulk
vessels and single-hulled product tankers capable of carrying limited grain cargoes have bid for
preference cargoes. The single-hulled product tankers are unable to secure petroleum product
movements due to customer preference and availability of double-hulled product tankers. These
vessels are subject to the Oil Pollution Act of 1990 which, among other requirements, mandates the
phase-out dates of single-hulled tank vessels from the petroleum product trade. We anticipate
capacity in the cargo preference trade to diminish going forward as certain of the single-hulled
product tankers are likely to leave the trade due to insufficient margins, as their specifications
make transporting bulk cargoes generally more costly and operationally difficult, and as they are
phased out of the petroleum product trade.
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If customer requirements for movements of cargoes are reduced or spot employment is not
available as a vessel completes its last movement, the vessel may be idle and not generate revenue.
If this situation exists for an extended period of time, we may place a vessel in lay up status.
While in lay up, all machinery is shut down, the crew is removed and the vessel is secured. Lay up
minimizes the costs associated with the vessel, particularly fuel and crew costs. Due to
diminished employment opportunities, we placed one tug-barge unit in lay up beginning in March 2009
and one tug-barge unit in lay up beginning in October 2009. This latter unit underwent required
drydocking and maintenance and returned to service in the second quarter of 2010. An additional
tug-barge unit was idled beginning in March 2010. We will monitor market conditions to determine
if and when these units will be returned to service. Restoring a vessel back to active service may
require time to hire crews and perform dry-docking or other maintenance required to ensure the
vessel is fully compliant with Class and Coast Guard regulations.
Operating costs for UOS consist primarily of crewing, insurance, maintenance, lease, fuel and
voyage-specific port and direct costs. Maintenance costs materially fluctuate in relation to the
number and extent of regulatory drydockings in any given period. The cost associated with the U.S.
Coast Guard and classification society mandated drydocking of vessels are accounted for as follows:
(i) regulatory maintenance expenses are recorded as deferred costs and amortized over the period
until the next scheduled dry-docking, (ii) routine maintenance expenses, such as inspections,
docking costs and other normal expenditures, are expensed as incurred and (iii) costs relating to
major steelwork, coatings or any other work that extends the life of the vessel are capitalized.
Due to the age of our fleet and the nature of marine transportation, we have spent significant time
and capital maintaining our vessels to ensure they are operating efficiently and safely.
United Barge Line (UBL)
UBL provides inland towboat and barge transportation services. UBL primarily performs these
services under affreightment contracts, under which our customers engage us to move cargo for a per
ton rate from an origin point to a destination point along the Inland Waterways on our barges,
pushed primarily by our towboats. Affreightment contracts include both term and spot market
arrangements.
Operating costs for UBL consist primarily of crewing, insurance, port costs, lease,
maintenance and repairs, and fuel. Most of our term contracts have fuel price mechanisms which
limit our exposure to changes in fuel price. However, our spot contracts do not have this
mechanism and we therefore bear the risk of fuel price increases. In order to limit our exposure,
we currently hedge 50% to 75% of our expected fuel exposure over the next twelve month period.
We primarily utilize our owned fleet of towboats for transporting our barges. To the extent
one or more of our towboats has unused capacity, we use the vessel to provide outside towing
services. Outside towing revenue is earned by moving barges for third party affreightment carriers
at a specific rate per barge per mile moved. These barges are typically added to our existing
tows. On limited occasions, we have contracted for the use of third party towboats.
Rates for inland dry cargo transportation are based on the amount of freight relative to the
demand for barges available to load freight. Due to the impact of the current economic downturn on
our customers shipments of commodities, the industry has experienced declines in both the amount
of commodities shipped and rates. This has impacted the movement of coal and petcoke throughout
our business and has reduced the northbound transport of raw steel, finished steel and other
commodities at UBL.
United Bulk Terminal (UBT)
UBT provides transfer, storage and blending services. Contract types for UBT are primarily
based on transfer of cargo (i) from barge to storage to vessel or (ii) from barge directly to
vessel. These contracts include a storage allowance and rate structure for storage charges. They
include a transfer rate that may contain annual escalation clauses. Within most of its contracts,
UBT provides production guarantees to its customers. Production guarantees relate to the tons per
hour rate that UBT will guarantee to load or unload their vessels. If they are not met, UBT owes
demurrage to the customer; if they are met, UBT earns despatch, which is compensation for loading
and unloading faster than the guaranteed rate. The majority of UBT revenue is generated from the
transfer of cargoes.
Operating costs for UBT consist primarily of leases related to the property, power
consumption, employee costs, and maintenance and repairs of facility equipment.
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Business Segment Selected Financial Data
The following table sets forth, for the periods indicated, amounts derived from our unaudited
consolidated financial statements:
Three Months | Three Months | Six Months | Six Months | |||||||||||||
Ended June 30, | Ended June 30, | Ended June 30, | Ended June 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Statement of Operations: |
||||||||||||||||
Revenue: |
||||||||||||||||
UOS |
$ | 33,927 | $ | 32,648 | $ | 71,280 | $ | 72,734 | ||||||||
UBL |
33,849 | 25,542 | 63,294 | 53,778 | ||||||||||||
UBT |
10,027 | 7,018 | 20,409 | 16,429 | ||||||||||||
Other and eliminations |
(289 | ) | (765 | ) | (605 | ) | (1,501 | ) | ||||||||
Total |
$ | 77,514 | $ | 64,443 | $ | 154,378 | $ | 141,440 | ||||||||
Operating expenses: (1) |
||||||||||||||||
UOS |
$ | 25,513 | $ | 19,614 | $ | 50,824 | $ | 43,456 | ||||||||
UBL |
24,896 | 19,460 | 48,239 | 40,921 | ||||||||||||
UBT |
6,545 | 4,356 | 12,316 | 9,778 | ||||||||||||
Other and eliminations |
(288 | ) | (718 | ) | (604 | ) | (1,502 | ) | ||||||||
Total |
$ | 56,666 | $ | 42,712 | $ | 110,775 | $ | 92,653 | ||||||||
Operating income: |
||||||||||||||||
UOS |
$ | (204 | ) | $ | 4,777 | $ | 3,493 | $ | 13,122 | |||||||
UBL |
559 | (2,714 | ) | (1,554 | ) | (3,569 | ) | |||||||||
UBT |
63 | (216 | ) | 1,438 | 859 | |||||||||||
Other and eliminations |
(39 | ) | | (84 | ) | 1 | ||||||||||
Total |
$ | 379 | $ | 1,847 | $ | 3,293 | $ | 10,413 | ||||||||
Balance Sheet (at end of period): |
||||||||||||||||
Total assets: |
||||||||||||||||
UOS |
$ | 183,669 | $ | 250,014 | $ | 183,669 | $ | 250,014 | ||||||||
UBL |
181,278 | 291,772 | 181,278 | 291,772 | ||||||||||||
UBT |
72,792 | 86,430 | 72,792 | 86,430 | ||||||||||||
Other and eliminations |
4,954 | (140,054 | ) | 4,954 | (140,054 | ) | ||||||||||
Total |
$ | 442,693 | $ | 488,162 | $ | 442,693 | $ | 488,162 | ||||||||
(1) | Excludes administrative and general expenses, depreciation and amortization, and gain (loss) on sale of assets. |
History and Transactions
We began operations in 1959 to provide waterborne transportation services for the coal
purchased as fuel for Tampa Electric Companys power generation facilities. We were part of Tampa
Electric Company until 1980, when we became a wholly owned subsidiary as part of TECO Energys
broader diversification. In December 2007, our management team partnered with the Equity Sponsors
to acquire the Company from TECO Energy.
Basis of Presentation
The accompanying unaudited consolidated financial statements include the consolidated accounts
of the Company for the periods prescribed for this reporting period.
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These statements have been prepared using our basis in the assets and liabilities acquired in
the purchase transaction. The acquisition was treated as a purchase and the assets so acquired
were valued on our books at our assessments of their fair market value, as described below.
The unaudited consolidated financial statements included in this quarterly report may not
necessarily reflect the consolidated financial position, operating results, changes in members
equity and cash flows of the Company in the future.
Critical Accounting Policies
Preparation of our financial statements requires us to make estimates and assumptions that
affect the reported amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of our financial statements, and the reported amounts of sales and expenses
during the reporting period. Our critical accounting policies, including the assumptions and
judgments underlying them, are disclosed in Item 1 of this quarterly report under the caption
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2: Significant Accounting Policies. The
accompanying consolidated financial statements have been prepared on a going concern basis, which
assumes continuity of operations and realization of assets and settlement of liabilities in the
ordinary course of business. Critical accounting estimates that affect the reported amounts of
assets and liabilities on a going concern basis include amounts recorded as reserves for doubtful
accounts, insurance claims and related receivable amounts, revenues and expenses on vessels using
the percentage-of-completion method, valuation of fuel hedges, estimates of future cash flows used
in impairment evaluations, liabilities for unbilled barge and boat maintenance, liabilities for
unbilled harbor and towing services, and depreciable lives of long-lived assets. Estimates have
varied from actual results due to specific events occurring that were unknown at the time of the
estimate. Those events include items such as acquiring a back haul trip when it was not planned,
unplanned vessel maintenance required and medical and property insurance claims.
Accounts Receivable
We maintain an allowance for doubtful accounts for estimated losses from the inability of our
customers to make required payments, which is provided for in bad debt expense. We determine the
adequacy of this allowance by regularly reviewing our accounts receivable aging and evaluating
individual customers receivables, considering customers financial condition, credit history and
other current economic conditions. If a customers financial condition were to deteriorate which
might impact its ability to make payment, then additional allowances may be required.
Revenue Recognition
Revenue is primarily derived from coal, phosphate and grain transportation
(among other cargoes), and transfer and storage services to unaffiliated entities. Revenues from
transportation and transfer services are recognized as services are rendered. Revenue from certain
transportation services are recognized using the percentage of completion method, which includes
estimates of the distance traveled and/or time elapsed compared to the total estimated contract.
Storage revenue is recognized monthly based on the volumes held at the storage facility over the
contract grace period. We believe that our procedures for estimating such amounts are reasonable
and historically have not resulted in material adjustments in subsequent periods when the estimates
are reconciled to the actual amounts. If the global market were to unexpectedly deteriorate, our
future revenue would be adversely affected.
Inventories
Materials and supplies, including fuel costs, are stated at the lower of cost or market using
the average cost method. We regularly review inventory on hand and record provisions based on
those reviews. Our term contracts contain provisions that allow us to pass through a significant
portion of any fuel expense increase to our customer, thereby reducing, but not eliminating, our
fuel price risk. We cannot predict the occurrence of market fluctuations that may significantly
increase the costs of materials and supplies.
- 26 -
Table of Contents
Property and Equipment
Property and equipment are stated at cost. As a result of the acquisition and the related
application of purchase accounting to the acquired assets and liabilities, there is a new basis of
property and equipment subsequent to the Acquisition Date. There are items that could affect this
basis, which include assumptions that there is responsible ownership and management, competent
crewing and ongoing maintenance, there are no significant potential environmental hazards
associated with the equipment and the vessels are in compliance with all applicable international,
federal, state or local regulations. Management is not aware of any impending events or situations
that would negatively affect in any material respect the key assumptions used in the analysis.
Planned Major Maintenance
Expenditures incurred during a dry-docking are deferred and amortized on a straight-line basis
over the period until the next scheduled dry-docking, generally two and a half years. The Company
only includes in deferred dry-docking costs those direct costs that are incurred as part of the
vessels maintenance that is required by the Coast Guard and/or classification society regulations.
Direct costs include shipyard costs as well as the costs of placing the vessel in the shipyard.
Expenditures for routine maintenance and repairs, whether incurred as part of the dry-docking or
not, are expensed as incurred. If unforeseen maintenance issues were discovered during the
dry-docking process, expenditures could be higher than anticipated.
Asset Retirement Obligations
An asset retirement obligation for a long-lived asset is recognized at fair value at inception
of the obligation, if there is a legal obligation under an existing or enacted law or statute, a
written or oral contract, or by legal construction under the doctrine of promissory estoppels.
Retirement obligations are recognized only if the legal obligation exists in connection with or as
a result of the permanent retirement, abandonment, or sale of a long-lived asset.
When the liability is initially recorded, the carrying amount of the related long-lived asset
is correspondingly increased. Over time, the liability is accreted to its future value. The
corresponding amount capitalized at inception is depreciated over the remaining useful life of the
asset. The liability must be revalued each period based on current market prices.
No new retirement obligations were incurred and no significant revision to estimated cash
flows used in determining the recognized asset retirement obligations
were necessary for the six months ended June 30, 2010. Unforeseen
or unknown conditions of future long-lived assets or new governmental regulations applicable to
such assets may result in unexpected retirement obligation costs.
Derivative Instruments and Hedging Activities
The Derivative and Hedging Topic of the FASB Codification requires companies to provide users
of financial statements with an enhanced understanding of: (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged items are accounted for,
and (c) how derivative instruments and related hedged items affect an entitys financial position,
financial performance, and cash flows. This Topic also requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about the fair value of
and gains and losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative instruments.
As required by the Derivative and Hedging Topic of the FASB Codification, we record all
derivatives on the balance sheet at fair value. The accounting for changes in the fair value of
derivatives depends on the intended use of the derivative, whether we have elected to designate a
derivative in a hedging relationship and apply hedge accounting and whether the hedging
relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated
and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or
firm commitment attributable to a particular risk, such as interest rate risk, are considered fair
value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in
expected future cash flows, or other types of forecasted transactions, are considered cash flow
hedges. Hedge accounting generally provides for the matching of the timing of gain or loss
recognition on the hedging instrument with the recognition of the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the
earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into
derivative contracts that are intended to economically hedge certain of our risk, even though hedge
accounting does not apply or we elect not to apply hedge accounting. If, due to unexpected market
changes, the hedge product is not sufficient to cover our usage and price fluctuations, our
expenses may be significantly impacted.
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Long-lived Assets
The Company reviews long-lived assets for impairment annually or whenever events or changes in
business circumstances indicate that the carrying amount of the assets may not be fully
recoverable. The Company performs undiscounted operating cash flow analyses to determine if
impairment exists. If impairment is determined to exist, any related impairment loss is calculated
based on the assets fair value and the discounted cash flow. There were no indications of
impairment during the six months ended June 30, 2010 or June 30, 2009. An unexpected change in
vessel market value could create an impairment, thereby resulting in an undetermined loss on the
vessel.
Results of Operations
Three Months Ended June 30, 2010 Compared With Three Months Ended June 30, 2009
Revenue. Revenue increased to $77.5 million for the three months ended June 30, 2010 compared
to $64.4 million for the three months ended June 30, 2009, an increase of $13.1 million or 20%.
UOS total revenue increased to $33.9 million for the three months ended June 30, 2010 from
$32.6 million for the three months ended June 30, 2009, an increase of $1.3 million or 4%. UOS
revenue from long-term contracts decreased to $17.9 million for the three months ended June 30,
2010 from $24.0 for the three months ended June 30, 2009, a decrease of $6.1 million or 25% due
primarily to a decrease in contracted revenue. The combined UOS revenues from PL-480, spot and time
charter increased to $15.3 million for the three months ended June 30, 2010 from $7.1 million for
the three months ended June 30, 2009, an increase of $8.2 million, or 115%, due to higher specific
voyage delivery expenses passed through to customers as additional revenue. Other UOS revenue
decreased to $0.8 million for the three months ended June 30, 2010 from $1.5 million for the three
months ended June 30, 2009, a decrease of $0.7 million, or 47%, due to demurrage and deadfreight
revenue earned in the prior period. Deadfreight is a charge payable to us when a customer does not
ship contracted minimum tons.
UBL total revenue increased to $33.8 million for the three months ended June 30, 2010 from
$25.5 million for the three months ended June 30, 2009, an increase of $8.3 million or 33%. UBL
revenue from open freight, which is generally coal and petcoke, increased to $11.6 million for the
three months ended June 30, 2010 from $8.2 million for the three months ended June 30, 2009, an
increase of $3.4 million or 41% due to more loaded ton-miles and higher southbound rates in 2010
than in 2009. Approximately $3 million of the increase was due to coal and petcoke volume being
delivered to our UBT terminal. UBL revenue from covered freight, which is generally
weather-sensitive cargoes such as grain and fertilizers, increased to $7.0 million for the three
months ended June 30, 2010 from $5.3 million for the three months ended June 30, 2009, an increase
of $1.7 million or 32% due to increases in volumes. Additionally, we moved some coal and petcoke
in covered barges (after stacking covers), and this activity is booked in covered freight revenue
accounts. UBL outside towing revenue earned by moving barges for other barge owners increased to
$4.0 million for the three months ended June 30, 2010 from $2.9 million for the three months ended
June 30, 2009, an increase of $1.1 million or 38%. UBL other revenue increased to $3.1 million for
the three months ended June 30, 2010 from $1.7 million for the three months ended June 30, 2009, an
increase of $1.4 million or 82% and is primarily due to increased fleeting services.
UBT total revenue increased to $10.0 million for the three months ended June 30, 2010 from
$7.0 million for the three months ended June 30, 2009, an increase of $3.0 million or 43% due to
increases in both volumes and rates obtained over the comparative periods, as well as an increase
in storage revenues. Demurrage charges, which are recorded as a contra-revenue, also increased due
to increasing barge delays at the terminal.
Operating Expenses. Operating expenses increased to $56.7 million for the three months ended
June 30, 2010 from $42.7 million for the three months ended June 30, 2009, an increase of $14.0
million or 33%. Operating expenses for the three months ended June 30, 2010 were 73% of operating
revenue, and for the three months ended June 30, 2009, were 66% of revenue. The increase was
attributable to higher fuel costs, port costs and maintenance costs which impacted direct costs by
$12.5 million.
Operating expenses for UOS increased to $25.5 million for the three months ended June 30, 2010
from $19.6 million for the three months ended June 30, 2009, an increase of $5.9 million or 30%.
The increase in UBL operating expenses for the three months ended June 30, 2010 was primarily attributable to
higher fuel costs and maintenance costs which impacted direct costs by $5.4 million.
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Operating expenses for UBL increased to $24.9 million for the three months ended June 30, 2010
from $19.5 million for the three months ended June 30, 2009, an increase of $5.4 million or 28%.
The largest increase in UBL operating expenses for the three months ended June 30, 2010 was
attributable to higher fuel costs, which impacted direct costs by $4.0 million.
Operating expenses for UBT increased to $6.5 million for the three months ended June 30, 2010
from $4.4 million for the three months ended June 30, 2009, an increase of $2.1 million or 48%.
The increase in UBT operating expenses for the three months ended June 30, 2010 was primarily
driven by higher repairs and maintenance costs, as well as increased labor and port costs due to
higher volumes handled.
Administrative and general. Administrative and general costs decreased to $8.8 million for
the three months ended June 30, 2010 from $8.9 million for the three months ended June 30, 2009, a
decrease of $0.1 million, or 1%. The decrease was primarily attributable to lower self-insurance
costs.
Depreciation and Amortization. Depreciation and amortization increased to $11.7 million for
the three months ended June 30, 2010 from $11.0 million for the three months ended June 30, 2009,
an increase of $0.7 million or 6%. Substantially all of the increase is due to depreciation and
amortization of capitalized improvements to UOS vessels undertaken in 2009 and 2010.
Other Income. Other income increased to a gain of $0.05 million for the three months ended
June 30, 2010 from a loss of $1.8 million for the three months ended June 30, 2009, an increase of
$1.85 million or 103%. The loss in 2009 was primarily attributable to the amortization of a loss
on the early termination of fuel hedges at the end of 2008, which were being amortized through
December 31, 2009. There is no similar loss being amortized in 2010.
Interest Expense. Interest expense increased to $7.2 million for the three months ended June
30, 2010 from $6.2 million for the three months ended June 30, 2009, an increase of $1.0 million or
16%. This increase was due primarily to the increase in interest on the Senior Secured Notes and
ABL compared with the indebtedness that was retired in December 2009, offset by the expense
recognized on the interest hedges in 2009.
Income Taxes. The Company is a limited liability company and is treated as a partnership for
federal income tax purposes. Therefore it records no income tax provision.
Six Months Ended June 30, 2010 Compared With Six Months Ended June 30, 2009
Revenue. Revenue increased to $154.4 million for the six months ended June 30, 2010 compared
to $141.4 million for the six months ended June 30, 2009, an increase of $12.9 million or 9%.
UOS total revenue decreased to $71.3 million for the six months ended June 30, 2010 from $72.7
million for the six months ended June 30, 2009, a decrease of $1.4 million or 2%. UOS revenue from
long-term contracts decreased to $34.9 million for the six months ended June 30, 2010 from $43.5
for the six months ended June 30, 2009, a decrease of $8.6 million or 20% due to a decrease in
contracted volumes. The combined UOS revenues from PL-480, spot and time charter increased to $35.1
million for the six months ended June 30, 2010 from $25.2 million for the six months ended June 30,
2009, an increase of $9.9 million, or 39%, due to higher specific voyage delivery expenses passed
through to customers as additional revenue. Other UOS revenue decreased to $1.3 million for the
six months ended June 30, 2010 from $4.0 million for the six months ended June 30, 2009, a decrease
of $2.7 million, or 68%, due to demurrage and deadfreight revenue earned in the prior period.
Deadfreight is a charge payable to us when a customer does not ship contracted minimum tons.
UBL total revenue increased to $63.3 million for the six months ended June 30, 2010 from $53.8
million for the six months ended June 30, 2009, an increase of $9.5 million or 18%. UBL revenue
from open freight, which is generally coal and petcoke, increased to $22.1 million for the six
months ended June 30, 2010 from $15.7 million for the six months ended June 30, 2009, an increase
of $6.4 million or 41% due to $6.3 million in higher south bound volumes of coal and petcoke being
delivered to our UBT terminal. UBL revenue from covered freight, which is generally
weather-sensitive cargoes such as grain and fertilizers, increased to $13.2 million for the six
months ended June 30, 2010 from $11.0 million for the six months ended June 30, 2009, an increase
of $2.2 million or 20% due to increases in volumes. We
transported coal and petcoke in covered
barges (after stacking covers), and this activity is booked in covered freight revenue accounts.
UBL outside towing revenue earned by moving barges for other barge owners increased to $7.5 million
for the six months ended June 30, 2010 from $5.8 million for the six months ended June 30, 2009, an
increase of $1.7 million or 29%. UBL other revenue increased to $5.9 million for the six months
ended June 30, 2010 from $3.7 million for the six months ended June 30, 2009, an increase of $2.2
million or 59% due primarily to increased fleeting services.
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UBT total revenue increased to $20.4 million for the six months ended June 30, 2010 from $16.4
million for the six months ended June 30, 2009, an increase of $4.0 million or 24% due to increases
in both volumes and rates obtained over the comparative periods, as well as an increase in storage
revenues. Demurrage charges, which are recorded as a contra-revenue, also increased due to
increasing barge delays at the terminal.
Operating Expenses. Operating expenses increased to $110.8 million for the six months ended
June 30, 2010 from $92.7 million for the six months ended June 30, 2009, an increase of $18.1
million or 20%. Operating expenses for the six months ended June 30,
2010 were 72% of operating revenue, and for the six months ended June 30, 2009, were 65% of
revenue. The increase was attributable to higher fuel costs, port costs and maintenance costs
which impacted direct costs by $18.1 million.
Operating expenses for UOS increased to $50.8 million for the six months ended June 30, 2010
from $43.5 million for the six months ended June 30, 2009, an increase of $7.3 million or 17%. The
increase in UOS operating expenses for the six months ended June 30, 2010 was driven by higher
fuel, port costs and repairs and maintenance costs of $8.9 million offset by lower labor costs of
$1.4 million.
Operating expenses for UBL increased to $48.2 million for the six months ended June 30, 2010
from $40.9 million for the six months ended June 30, 2009, an increase of $7.3 million or 18%. The
increase in UBL operating expenses for the six months ended June 30, 2010 was primarily attributable to
higher fuel costs, which impacted direct costs by $6.2 million.
Operating expenses for UBT increased to $12.3 million for the six months ended June 30, 2010
from $9.8 million for the six months ended June 30, 2009, an increase of $2.5 million or 26%. The
increase in UBT operating expenses for the six months ended June 30, 2010 was primarily driven by
higher repairs and maintenance costs, as well as increased labor and port costs due to higher
volumes handled.
Administrative and general. Administrative and general costs increased to $17.4 million for
the six months ended June 30, 2010 from $16.6 million for the six months ended June 30, 2009, an
increase of $0.8 million, or 5%. The increase was primarily attributable to outside professional
services related to additional reporting and registration requirements of the financing completed
in December 2009.
Depreciation and Amortization. Depreciation and amortization increased to $23.0 million for
the six months ended June 30, 2010 from $21.7 million for the six months ended June 30, 2009, an
increase of $1.3 million or 6%. Substantially all of the increase is due to depreciation and
amortization of capitalized improvements to UOS vessels undertaken in 2009 and 2010.
Other Income. Other income increased to $0.04 million for the six months ended June 30, 2010
from a loss of $3.78 million for the six months ended June 30, 2009, an increase of $3.82 million
or 101%. The loss in 2009 was primarily attributable to the amortization of a loss on the early
termination of fuel hedges at the end of 2008, which were being amortized through December 31,
2009. There is no similar loss being amortized in 2010.
Interest Expense. Interest expense increased to $14.5 million for the six months ended June
30, 2010 from $12.7 million for the six months ended June 30, 2009, an increase of $1.8 million or
14%. This increase was due primarily to the increase in interest on the Senior Secured Notes and ABL compared with the indebtedness, offset by the expense recognized on the interest hedges in 2009.
Income Taxes. The Company is a limited liability company and is treated as a partnership for
federal income tax purposes. Therefore it records no income tax provision.
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Liquidity and Capital Resources
Our funding requirements include (i) maintenance of our marine fleet and terminal facility,
(ii) interest payments and (iii) other working capital requirements. We do not currently
anticipate any significant purchases of additional ocean-going vessels or inland towboats or
barges. Our primary sources of liquidity are cash generated from operations and borrowings
under the ABL.
We believe that our operating cash flow and amounts available for borrowing under the ABL will
be adequate to fund our capital expenditures and working capital requirements for the next twelve
months.
The following were the net changes in operating, investing and financing activities for the periods
presented:
Six months Ended June 30, | ||||||||
2010 | 2009 | |||||||
(Dollars in thousands) | ||||||||
Cash flows provided by (used in): |
||||||||
Operating activities |
$ | 22,845 | $ | 28,007 | ||||
Investing activities |
(8,769 | ) | (9,126 | ) | ||||
Financing activities |
(23,217 | ) | (6,664 | ) | ||||
Net increase (decrease) in cash |
$ | (9,141 | ) | $ | 12,217 | |||
Cash Flows Provided by Operating Activities
Net cash provided by operating activities was $22.8 million for the six months ended June 30,
2010 as compared to $28.0 million for the six months ended June 30, 2009, a decrease of $5.2
million. The decrease in cash from operating activities was the result of higher operating loss
before depreciation, amortization, loss on deferred financing costs upon retirement of the related debt obligation and other non-cash
items.
Cash Flows Provided by Investing Activities
Net cash used in investing activities was $(8.8) million for the six months ended June 30,
2010 as compared to net cash used in investing activities of $(9.1) million for the six months
ended June 30, 2009, a decrease in cash used of $0.3 million. The decrease in cash used in
investing activities was primarily attributable to higher proceeds from sale of assets and
distributions from an unconsolidated affiliate.
Cash Flows Provided by Financing Activities
Net cash used in financing activities was $(23.2) million for the six months ended June 30,
2010 as compared to net cash used in financing activities of $(6.7) million for the six months
ended June 30, 2009, an increase in cash used of $16.5 million.
The increase in cash used in financing activities was primarily attributable to the
refinancing of our outstanding indebtedness in December 2009. As a result of the
refinancing, the Company has determined to maintain a smaller cash balance in 2010
than was maintained in 2009 and to borrow under the ABL on an as needed basis.
Capital Expenditures
In 2010, we expect capital expenditures for maintenance and improvement of our vessel fleet,
terminal and general capital equipment to be between $16.5 million and $22.5 million based on the
timing of certain drydockings for UOS units. During the six months ended June 30, 2010, we
incurred $9.3 million in capital expenditures.
Dry-dock expenditures for our ocean-going vessels are driven by Coast Guard and vessel
classification society regulations and managements own strict maintenance guidelines and
associated dry-docking schedules, which require vessel dry-docking twice every five years.
Management expects five of our vessels to dry-dock in 2010 and four in 2011. Although actual costs
cannot presently be estimated with certainty, management also expects that future overhauls of both
ocean-going and inland vessels in the next three to five years may require significantly higher
capital expenditures due to new and anticipated environmental regulations that would require
upgrades for reduced air emissions upon the remanufacture of marine diesel engines and the
installation of ballast water management systems.
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Contractual Obligations
The following is a tabular summary of our future contractual obligations as of June 30, 2010
for the categories set forth below, assuming only scheduled amortizations and repayment at
maturity:
After | Total | |||||||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 | 2014 | 2014 | Obligations | ||||||||||||||||||||||
(In millions of dollars) | ||||||||||||||||||||||||||||
Senior Secured Notes |
$ | | $ | | $ | | $ | | $ | | $ | 200.0 | $ | 200.0 | ||||||||||||||
Interest on
Secured Notes (1) |
11.8 | 23.5 | 23.5 | 23.5 | 23.5 | 11.8 | $ | 117.6 | ||||||||||||||||||||
Asset Based Loan |
| | | 57.0 | | | 57.0 | |||||||||||||||||||||
Interest on ABL (2) |
1.4 | 2.9 | 2.9 | 2.9 | | | 10.1 | |||||||||||||||||||||
Operating Leases |
6.7 | 11.7 | 11.5 | 10.1 | 5.3 | 46.1 | 91.4 | |||||||||||||||||||||
Total |
$ | 19.9 | $ | 38.1 | $ | 37.9 | $ | 93.5 | $ | 28.8 | $ | 257.9 | $ | 476.1 | ||||||||||||||
(1) | Interest is calculated based on a fixed per annum rate of 11.75%. | |
(2) | The contractual obligations related to the ABL are calculated based on the level of borrowings at June 30, 2010, and the interest rate at that time of 4.125% and 0.75% calculated on the unused commitment line. |
Off Balance Sheet, Pension and Other Post-Employment Benefit Liabilities
We do not have any off balance sheet liabilities or any pension or other post-employment
benefit liabilities. See the notes to the financial statements in Item 1, Note 7 for new
accounting policies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market Risk
Fuel Hedging Policy
We are exposed to various market risks, including changes in fuel prices. As of June 30,
2010, we had hedged a quantity of 1.8 million gallons, 3.5 million gallons and 1.0 million gallons
in 2010, 2011, and 2012 respectively. These amounts represent 59% of our estimated 2010 UBL fuel
exposure, 59% of our expected 2011 UBL fuel exposure, and 17% of our expected 2012 UBL fuel
exposure. Our average heating oil swap price as of June 30, 2010 is $2.10 for 2010, $2.32 for
2011, and $2.32 for 2012.
Derivative Instruments and Hedging Activities
In March 2008, the FASB issued guidance requiring entities to provide greater transparency
about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entitys financial position, results of operations
and cash flows. The provisions of this guidance require expanded disclosures concerning where
derivatives are recorded on the consolidated balance sheet and where gains and losses are
recognized in the consolidated results of operations. The Company has adopted the disclosure
provisions as of January 1, 2009.
The Company applies the provisions of ASC No. 815, Derivatives and Hedging. These standards
require companies to recognize derivatives as either assets or liabilities in the financial
statements, to measure those instruments at fair value, and to reflect the changes in the fair
values of those instruments as either components of other comprehensive income (OCI) or in net
income, depending on the designation of those instruments. The changes in fair value that are
recorded in OCI are not immediately recognized in current net income. As the underlying hedged
transaction matures or the physical commodity is delivered, the deferred gain or loss on the
related hedging instrument must be reclassified from OCI to earnings based on its value at the time
of its reclassification. For effective hedge transactions, the amount reclassified from OCI to
earnings is offset in net income by the amount paid or received on the underlying transaction.
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In December 2007, the Company entered into a derivative contract to limit the exposure to
interest rate fluctuations associated with its variable rate debt instruments. The derivative
contract was designated as a cash flow hedge. The hedge was for three years and would have expired
on December 31, 2010. In December 2009, the Company refinanced its debt obligations and the
derivative contract was paid in full. As of December 31, 2009, the hedge liability balance was $0.
The Company entered into derivative contracts during 2009 and 2010 to limit the exposure to
price fluctuations for physical purchases of diesel fuel which were designated as cash flow hedges
for the forecasted purchases of fuel oil. The hedges are contracted to expire by December 31,
2012, and settle monthly. As of June 30, 2010, the current asset portion of the hedge was valued
at $0.1 million and recorded as a current asset, offset by the current liability portion of the
hedge valued at $(0.6) million recorded in other liabilities. As of December 31, 2009 the current
portion of the hedge valued at $0.3 million was recorded in current assets. During the six month
period ended June 30, 2010, the Company recognized an expense of $0.04 million, and for the six
month period ended June 30, 2009, the Company recognized a reduction in expense of $0.2 million.
We previously had fuel hedges that were out of the
money, but these were terminated early in December 2008. However, due to accounting
requirements, we amortized those hedges through the end of December 2009 for which we recorded $3.7
million for the six month period ended June 30, 2009.
ASC 820, Fair Value Measurements, requires disclosure about how fair value is determined for
assets and liabilities and establishes a hierarchy for which of these assets and liabilities must be
grouped based on significant levels of inputs. The three-tier value hierarchy, which prioritizes
the inputs used in the valuation methodologies, is as follows:
Level 1 Quoted prices for identical assets and liabilities in active markets.
Level 2 Observable inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets and liabilities in markets that are not active or other inputs that are observable or can be
corroborated by observable market data.
Level 3 Unobservable inputs for the assets or liability.
As of June 30, 2010, the Company held certain items that are required to be measured at fair
value on a recurring basis including fuel hedge agreements. Cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses are reflected in the financial statements at
their carrying value, which approximates their fair value due to their short maturity.
The carrying values of the Companys long-term debt approximate fair value due either to the
length to maturity or the existence of interest rates that approximate prevailing market rates as
disclosed in these unaudited consolidated financial statements.
The following items are measured at fair value on a recurring basis subject to the disclosure
requirements of ASC 820 as of June 30, 2010 and December 31, 2009.
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
June 30, 2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Other assets: |
||||||||||||||||
Fuel hedge |
$ | 73 | $ | | $ | 73 | $ | | ||||||||
Total |
$ | 73 | $ | | $ | 73 | $ | | ||||||||
Other liabilities: |
||||||||||||||||
Fuel hedge |
$ | 574 | $ | | $ | 574 | $ | | ||||||||
Total |
$ | 574 | $ | | $ | 574 | $ | | ||||||||
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Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
December 31, 2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Other assets: |
||||||||||||||||
Fuel hedge |
$ | 308 | $ | | $ | 308 | $ | | ||||||||
Total |
$ | 308 | $ | | $ | 308 | $ | | ||||||||
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of credit risk
consist principally of cash and trade receivables. The Company places its cash with high credit
quality financial institutions. During the normal course of business, the
Company extends credit to customers primarily in North America conducting business in the
utility, metallurgical, phosphate and grain industries. The Company performs ongoing credit
evaluations of its customers and does not generally require collateral. The customers financial
condition and payment history have been considered in determining the allowance for doubtful
accounts. The Company assesses the risk of nonperformance of the derivatives in determining the
fair value of the derivatives instruments in accordance with ASC No. 820, Fair Value Measurements.
ITEM 4. CONTROLS AND PROCEDURES.
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for
timely decisions regarding required disclosure. In designing and evaluating the disclosure controls
and procedures, management recognizes that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control objectives,
and management is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
As required by SEC Rule 15d-15(b), we carried out an evaluation, under the supervision and
with the participation of our management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure controls and procedures
as of the end of the period covered by this report. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
effective as of June 30, 2010.
This quarterly report does not include a report of managements assessment regarding internal
control over financial reporting or an attestation report of the companys registered public
accounting firm due to a transition period established by rules of
the SEC for new filers.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is involved in various legal proceedings that have arisen in
the ordinary course of business. In the opinion of the Company’s
management, all such proceedings are adequately covered by insurance or, if not
so covered, should not result in any liability which would have a material
adverse effect on the consolidated financial position or consolidated
operations of the Company.
ITEM 1A. RISK FACTORS.
There have not been any material changes in our risk factors as previously disclosed in our
Registration Statement on Form S-4 (Registration No. 333-165796).
ITEM 5. OTHER INFORMATION.
Effective
July 26, 2010, Walter Bromfield transitoned from his position as Chief Financial
Officer (CFO) of United Maritime. Mr. Bromfield will remain with the
Company as Senior Vice President, Finance, focusing on strategic planning processes, the
improvement of internal financial literacy, and the transitioning of the new CFO.
Effective
July 26, 2010, Jason Grant, age 38, became CFO and Executive Vice
President of the Company. Prior to his employment with the Company, Mr. Grant served as the CFO
and Senior Vice President of Atlas Air Worldwide Holdings. Prior to joining Atlas Air in 2002, Mr.
Grant was a manager of the Financial Planning and Financial Analysis groups for American Airlines.
Mr. Grant holds a Bachelors degree in Business Administration from Wilfrid Laurier University and a
Masters degree in Business Administration from Simon Fraser University in Canada.
ITEM 6. EXHIBITS.
The exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit
Index, which is attached hereto and incorporated by reference herein.
ITEMS 2, 3 AND 4 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, United Maritime Group,
LLC has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNITED MARITIME GROUP, LLC |
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By: | /s/ Sal Litrico | |||
Sal Litrico | ||||
Chief Executive Officer (duly authorized signatory and principal executive officer of the Company) |
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UNITED MARITIME GROUP, LLC |
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By: | /s/ Jason Grant | |||
Jason Grant | ||||
Chief Financial Officer (duly authorized signatory, principal financial officer of the Company) |
Date: August 16, 2010
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EXHIBIT INDEX
Exhibit No. | Description | |||
10.1 | Employment Agreement for Jason Grant. |
|||
31.1 | Certificate of the Principal Executive Officer of the Company, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. |
|||
31.2 | Certificate of the Principal Financial Officer of the Company, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. |
|||
32.1 | Written Statement of Sal Litrico, Chief Executive Officer of the Company pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.2 | Written Statement of Jason Grant, Chief Financial Officer of the Company pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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