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Eagle Bulk Shipping Inc. Reports First Quarter 2011 Results

NEW YORK, May 9, 2011 (GLOBE NEWSWIRE) -- Eagle Bulk Shipping Inc. (Nasdaq:EGLE) today announced its results for the first quarter ended March 31, 2011.
/ Source: GlobeNewswire

NEW YORK, May 9, 2011 (GLOBE NEWSWIRE) -- Eagle Bulk Shipping Inc. (Nasdaq:EGLE) today announced its results for the first quarter ended March 31, 2011.

For the First Quarter:

  • Net income of $0.8 million, or $0.01 per share, before allowance for bad debts for Korea Line Corporation of $6.6 million.
  • Net reported loss of $5.8 million or $0.09 per share (based on a weighted average of 62,560,436 diluted shares outstanding for the quarter), compared to net income of $4.6 million, or $0.07 per share, for the comparable quarter in 2010.
  • Net revenues of $86.7 million, an increase of 60% compared to $54.2 million for the comparable quarter in 2010. Gross time charter and freight revenues also increased 58%, to $90.4 million, compared to only time charter revenues of $57.4 million for the comparable quarter in 2010.
  • EBITDA, as adjusted for exceptional items under the terms of the Company's credit agreement, was $24.1 million for the first quarter of 2011, a 27% decrease compared to $32.9 million for the comparable quarter in 2010.
  • Fleet utilization rate of 99.0%.
  • Took delivery of two newbuilding vessels, Thrush and Nighthawk. The Thrush immediately entered its time charter and the Nighthawk          was employed on a voyage charter.

Sophocles N. Zoullas, Chairman and Chief Executive Officer, commented, "Eagle Bulk's first quarter results reflect a unique convergence of adverse events for the dry bulk market. Most notably for Eagle Bulk, this included the Korea Lines restructuring, which we successfully resolved by re-chartering all impacted vessels beginning in mid-February on short-periods.

 "Going forward, we are confident that a steady focus on operating excellence, backed by the versatility and durability of our Supramax vessels, will secure stability through a challenging market." 

Legal Proceedings

On January 25, 2011, Korea Line Corporation ("KLC"), one of our charterers, filed for protective receivership in Seoul, South Korea. On February 15, 2011, the Korean courts approved this request. For the period February 15, 2011 through March 15, 2011, the Company took over the employment of the majority of the affected chartered vessels and re-chartered out all affected vessels on the spot and short term time charter markets. Earnings during this interim period were used to offset the charter hire otherwise due from KLC.

On March 15, 2011, the Company reached a comprehensive agreement with the receivers of KLC regarding twelve time-chartered vessels impacted by KLC's decision to file for protective receivership earlier this year. The main points of this agreement were:

 

 

 

 

 

 

We evaluated the KLC matter to make a determination as to the impact, if any, on our business, liquidity, results of operations, financial condition or cash flows and have recorded $6,586,900 as allowance for bad debt.

Long-term Debt

On August 4, 2009, we entered into a third amendatory agreement to our revolving credit facility. Among other changes, the third amendatory agreement amended the facility's net worth covenant from a market value to book value measurement with respect to the value of our fleet and reduced the facility's EBITDA to interest coverage ratio, with these changes to stay in effect until we were in compliance with the facility's original covenants for two consecutive accounting periods.

Based on information which we provided in 2010 to the lenders under the revolving credit facility, the agent for the lenders has only recently notified us that according to its interpretation we were in compliance with the original covenants for the second and third quarters during 2010, and, therefore, our original collateral covenants have been reinstated.

We disagree with the interpretation of the original covenant calculation being used by the agent and have advised the agent that we were not in compliance with the original covenants for these two consecutive quarters, and, therefore, the amended collateral covenants should remain in place. Under the agent's interpretation of the covenant, we were in compliance both with the original collateral covenants and the amended collateral covenants during the accounting period ended December 31, 2010.  However, while we have remained in compliance with the amended collateral covenants during the accounting period ended March 31, 2011, we would not be in compliance for that period under the agent's interpretation of the original collateral covenants.

Under the facility agreement, the effectiveness of the determination of compliance for an accounting period is as of the date that we supply a compliance certificate (the "Compliance Certificate Date") to the agent.  The current Compliance Certificate Date for the accounting period ended March 31, 2011 is no later than May 30, 2011.  

We believe that our interpretation of the facility agreement's covenant calculation is correct, that the reinstatement of the original loan covenant was not valid, and that we remain in compliance with all covenants in effect at March 31, 2011.  We are in active discussions with the agent to resolve this technical matter.  However, if the agent's interpretation is determined to be correct, we would not be in compliance with the original covenants for the period ending March 31, 2011, which could lead to a default under the facility agreement effective as of the Compliance Certificate Date for that period and, would result in the classification as current of amounts due under the facility agreement and could lead to substantial doubt about our ability to continue as a going concern, if we are unable to agree on satisfactory terms or obtain a waiver from the agent.  We continue to seek to reach a satisfactory agreement with the agent, but there can be no assurance that we will be successful in doing so.

Results of Operations for the three-month period ended March 31, 2011 and 2010

For the first quarter of 2011, the Company reported a net loss of $5,810,281 or $0.09 per share, based on a weighted average of 62,560,436 diluted shares outstanding. In the comparable first quarter of 2010, the Company reported net income of $4,573,634 or $0.07 per share, based on a weighted average of 62,282,017 diluted shares outstanding.

In the first quarter of 2011, the Company's revenues were earned from time and voyage charters. Gross revenues in the quarter ended March 31, 2011 were $90,382,988, compared with $57,362,935 recorded in the comparable quarter in 2010. Net revenues during the quarter ended March 31, 2011 increased 60% to $86,692,775 from $54,243,725 in the quarter ended March 31, 2010. Net revenues recorded in the 2011 quarter include non-cash amortization of the fair value below contract value of time charters acquired of $1,294,519, compared with $864,628 recorded in the 2010 quarter. Brokerage commissions incurred on gross revenues earned were $3,690,213 and $3,119,210 in the first quarters of 2011 and 2010, respectively.

Total operating expenses for the quarter ended March 31, 2011 were $82,274,862 compared with $38,556,526 recorded in the first quarter of 2010. The Company operated 40 vessels in the first quarter of 2011 compared with 33 vessels in the corresponding quarter in 2010. The increase in operating expenses was primarily due to operating a larger fleet and includes increases in vessels crew cost, insurance cost, general and administrative expenses and vessel depreciation expense. General and administrative expenses include a $6,586,900 allowance for bad debts related to amounts receivable from Korea Lines Corporation who have filed for protective receivership and have received South Korea court approval for rehabilitation.

EBITDA, adjusted for exceptional items under the terms of the Company's credit agreement, decreased to $24,127,569 for the first quarter of 2011, compared with $32,938,490 for the first quarter of 2010. (Please see below for a reconciliation of EBITDA to net income).

Newbuilding Program

The Company has entered into vessel newbuilding contracts with shipyards in Japan and China. Since the inception of the program to March 31, 2011, the Company has taken delivery of 21 newbuild vessels, and has 6 vessels to be constructed and delivered during 2011. As of March 31, 2011, the Company has recorded advances of $139,300,009 towards the construction cost of these 6 vessels. These costs include progress payments to the shipyards, capitalized interest on debt drawn for the progress payments, insurance, legal, and technical supervision costs. (Table below provides anticipated delivery dates on the newbuilding fleet).

Liquidity and Capital Resources

Net cash provided by operating activities during the three-month periods ended March 31, 2011 and 2010, was $13,792,518 and $30,920,496, respectively. The decrease was primarily due to lower rates on charter renewals, provision for accounts receivable of $6,586,900 offset by operation of a larger fleet.

Net cash used in investing activities during the three-month period ended March 31, 2011, was $42,865,432, compared to $117,084,424 during the corresponding three-month period ended March 31, 2010. Investing activities during the three-month period ended March 31, 2011 and 2010 related primarily to making progress payments and incurring related vessel construction expenses for the newbuilding vessels.

Net cash used by financing activities during the three-month period ended March 31, 2011, was $2,333,435, compared to net cash provided by financing activities of $98,972,546 during the corresponding three-month period ended March 31, 2010. Financing activities during the three-month period ended March 31, 2010, primarily involved borrowings of $101,972,546 from our revolving credit facility. 

As of March 31, 2011, our cash balance was $97,715,331, compared to a cash balance of $129,121,680 at December 31, 2010. In addition, $20,000,000 in cash deposits are maintained with our lender for loan compliance purposes and this amount is recorded in Restricted cash in our financial statements as of March 31, 2011. Also recorded in Restricted Cash is an amount of $276,056, which is collateralizing a letters of credit relating to our office leases and $637,543 which collateralize for our FFAs position as of March 31, 2011.

At March 31, 2011, we are fully borrowed on the amended Revolving Credit Facility with aggregated amount of $1,151,354,476 in net borrowings. These borrowings consisted of $1,046,662,222 for the 40 vessels currently in operation and $104,692,254 to fund the Company's newbuilding program.

On August 4, 2009, the Company entered into a third Amendatory Agreement to its revolving credit facility dated October 19, 2007 (See section in the Company's 2010 Annual Report on Form 10-K entitled "Revolving Credit Facility" for a description of the facility and its amendments). The facility also provides us with the ability to borrow up to $20,000,000 for working capital purposes.

We are in disagreement with the interpretation of the original covenant calculation being used by the agent of our lender, as described above in the Long-term Debt section.

We anticipate that our current financial resources, together with cash generated from operations will be sufficient to fund the operations of our fleet, including our working capital requirements, for the next twelve months. We will rely on operating cash flows and possible additional equity and debt financing alternatives to fund our long term capital requirements for vessel construction and implement future growth plans.

Our loan agreements for our borrowings are secured by liens on our vessels and contain various financial covenants. The covenants relate to our financial position, operating performance and liquidity. The market value of dry bulk vessels is sensitive, among other things, to changes in the dry bulk charter market. The recent general decline in the dry bulk carrier charter market has resulted in lower charter rates for vessels in the dry bulk market. The decline in charter rates in the dry bulk market coupled with the prevailing difficulty in obtaining financing for vessel purchases have adversely affected dry bulk vessel values. A continuation of these conditions, could lead to a significant decline in the fair market values of our vessels, which could impact our compliance with these loan covenants. The recent developments in the credit markets and related impact on the dry bulk charter market have also resulted in additional risks. The occurrence of one or more of these risk factors could adversely affect our results of operations or financial condition. Please refer to the section entitled "Risk Factors" in Part II of this document which should be read in conjunction with the risk factors included in the Company's 2010 Annual Report on Form 10-K.

It is our intention to fund our future acquisition related capital requirements through borrowings under the amended revolving credit facility and to repay all or a portion of such borrowings from time to time with cash generated from operations and from net proceeds of issuances of securities.  The Company has a shelf registration filed on Form S-3 in March 2, 2009, subsequently amended, which would enable the Company to issue such securities.

Disclosure of Non-GAAP Financial Measures

EBITDA represents operating earnings before extraordinary items, depreciation and amortization, interest expense, and income taxes, if any. EBITDA is included because it is used by certain investors to measure a company's financial performance. EBITDA is not an item recognized by GAAP and should not be considered a substitute for net income, cash flow from operating activities and other operations or cash flow statement data prepared in accordance with accounting principles generally accepted in the United States or as a measure of profitability or liquidity. EBITDA is presented to provide additional information with respect to the Company's ability to satisfy its obligations including debt service, capital expenditures, and working capital requirements. While EBITDA is frequently used as a measure of operating results and the ability to meet debt service requirements, the definition of EBITDA used here may not be comparable to that used by other companies due to differences in methods of calculation.

Our revolving credit facility permits us to pay dividends, subject to certain limitations, in amounts up to our cumulative free cash flows which is our earnings before extraordinary or exceptional items, interest, taxes, depreciation and amortization (Credit Agreement EBITDA), less the aggregate amount of interest incurred and net amounts payable under interest rate hedging agreements during the relevant period and an agreed upon reserve for dry-docking. Therefore, we believe that this non-GAAP measure is important for our investors as it reflects our ability to pay dividends. The following table is a reconciliation of net income, as reflected in the consolidated statements of operations, to the Credit Agreement EBITDA:

 

 

Capital Expenditures and Drydocking

Our capital expenditures relate to the purchase of vessels and capital improvements to our vessels which are expected to enhance the revenue earning capabilities and safety of these vessels.

We make capital expenditures from time to time in connection with our vessel acquisitions. As of March 31, 2011, our fleet consists of 40 vessels which are currently operational and 6 newbuilding vessels which have been contracted for construction. 

In addition to acquisitions that we may undertake in future periods, the Company's other major capital expenditures include funding the Company's maintenance program of regularly scheduled drydocking necessary to preserve the quality of our vessels as well as to comply with international shipping standards and environmental laws and regulations. Although the Company has some flexibility regarding the timing of its dry docking, the costs are relatively predictable. Management anticipates that vessels are to be drydocked every two and a half years. Funding of these requirements is anticipated to be met with cash from operations. We anticipate that this process of recertification will require us to reposition these vessels from a discharge port to shipyard facilities, which will reduce our available days and operating days during that period.

Drydocking costs incurred are amortized to expense on a straight-line basis over the period through the date the next drydocking for those vessels are scheduled to occur. One vessel was drydocked in the three months ended March 31, 2011. The following table represents certain information about the estimated costs for anticipated vessel drydockings in the next four quarters, along with the anticipated off-hire days:

 

Summary Consolidated Financial and Other Data:

The following table summarizes the Company's selected consolidated financial and other data for the periods indicated below.

 

 

 

Commercial and strategic management of the fleet is carried out by a wholly‑owned subsidiary of the Company, Eagle Shipping International (USA) LLC, a Marshall Islands limited liability company with offices in New York City.

We have employed all of our vessels in our operating fleet on time and voyage charters. During the three months ended March 31, 2011, we took delivery of two newbuilding vessels, Thrush and Nighthawk, which promptly entered into their respective charters. The following table represents certain information about the Company's revenue earning charters on its operating fleet:

 

 

The following table, as of March 31, 2011, represents certain information about the Company's newbuilding vessels being constructed and their expected employment upon delivery:

 

Glossary of Terms:

Ownership days: The Company defines ownership days as the aggregate number of days in a period during which each vessel in its fleet has been owned. Ownership days are an indicator of the size of the fleet over a period and affect both the amount of revenues and the amount of expenses that is recorded during a period.

Chartered-in under operating lease days:  The Company defines chartered-in under operating lease days as the aggregate number of days in a period during which the Company chartered-in vessels. The Company started to charter-in vessels on a spot basis during the fourth quarter of 2010. 

Available days: The Company defines available days as the number of ownership days less the aggregate number of days that its vessels are off-hire due to vessel familiarization upon acquisition, scheduled repairs or repairs under guarantee, vessel upgrades or special surveys and the aggregate amount of time that we spend positioning our vessels. The shipping industry uses available days to measure the number of days in a period during which vessels should be capable of generating revenues.

Operating days: The Company defines operating days as the number of its available days in a period less the aggregate number of days that the vessels are off-hire due to any reason, including unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues.

Fleet utilization: The Company calculates fleet utilization by dividing the number of our operating days during a period by the number of our available days during the period. The shipping industry uses fleet utilization to measure a company's efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee, vessel upgrades, special surveys or vessel positioning. Our fleet continues to perform at very high utilization rates.

TCE rates: The Company defines TCE rates as our voyage and time charter revenues less voyage expenses during a period divided by the number of our available days during the period, which is consistent with industry standards. TCE rate is a standard shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charter hire rates for vessels on voyage charters are generally not expressed in per day amounts while charter hire rates for vessels on time charters generally are expressed in such amounts.

Conference Call Information

As previously announced, members of Eagle Bulk's senior management team will host a teleconference and webcast at 8:30 a.m. ET on Tuesday May 10th, to discuss these results.

To participate in the teleconference, investors and analysts are invited to call 800-510-0178 in the U.S., or 617-614-3450 outside of the U.S., and reference participant code 45795794. A simultaneous webcast of the call, including a slide presentation for interested investors and others, may be accessed by visiting http://www.eagleships.com.

A replay will be available following the call until 11:59 PM ET on May 17th, 2011. To access the replay, call 888-286-8010 in the U.S., or 617-801-6888 outside of the U.S., and reference passcode 12542187.

About Eagle Bulk Shipping Inc.

Eagle Bulk Shipping Inc. is a Marshall Islands corporation headquartered in New York. The Company is a leading global owner of Supramax dry bulk vessels that range in size from 50,000 to 60,000 deadweight tons and transport a broad range of major and minor bulk cargoes, including iron ore, coal, grain, cement and fertilizer, along worldwide shipping routes.

Forward-Looking Statements

Matters discussed in this release may constitute forward-looking statements. Forward-looking statements reflect our current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.

The forward-looking statements in this release are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties. Although Eagle Bulk Shipping Inc. believes that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, Eagle Bulk Shipping Inc. cannot assure you that it will achieve or accomplish these expectations, beliefs or projections.

Important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the strength of world economies and currencies, general market conditions, including changes in charter hire rates and vessel values, changes in demand that may affect attitudes of time charterers to scheduled and unscheduled drydocking, changes in our vessel operating expenses, including dry-docking and insurance costs, or actions taken by regulatory authorities, potential liability from future litigation, domestic and international political conditions, potential disruption of shipping routes due to accidents and political events or acts by terrorists.

Risks and uncertainties are further described in reports filed by Eagle Bulk Shipping Inc. with the US Securities and Exchange Commission.

Visit our website at www.eagleships.com

CONTACT: Company Contact: Alan Ginsberg Chief Financial Officer Eagle Bulk Shipping Inc. Tel. +1 212-785-2500 Investor Relations / Media: Jonathan Morgan Perry Street Communications, New York Tel. +1 212-741-0014