Eagle Bulk Shipping Inc. - Annual Report: 2011 (Form 10-K)

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Republic of the Marshall Islands		98–0453513
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

477 Madison Avenue
New York, New York		10022
(Address of principal executive offices)		(Zip Code)

 

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

 

 

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Strategic management. We locate, obtain financing and insurance for, purchase and sell, vessels.

 

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Commercial management. We obtain employment for our vessels and manage our relationships with charterers.

 

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Technical management. Our unaffiliated technical managers or our in-house technical manager performs day-to-day operations and maintenance of our vessels.

 

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A fleet of Supramax dry bulk vessels. We specialize in the Supramax class of the Handymax sector of the dry bulk industry. Our operating fleet of 45 vessels at December 31, 2011 makes us one of the world's largest fleets of vessels in the sector. We view Handymax vessels, especially the Supramax class of vessels, as a highly attractive sector of the dry bulk shipping industry relative to larger vessel sectors due to their:

 

-  reduced volatility in charter rates;

-  increased operating flexibility;

-  ability to access more ports;

-  ability to carry a more diverse range of cargoes; and

-  broader customer base.

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A modern, high quality fleet. The 45 Handymax vessels in our operating fleet at December 31, 2011 had an average age of approximately five years compared to an average age for the world Handymax dry bulk fleet of over 12 years. In 2011, we completed our Supramax vessel newbuilding program and have taken delivery of 27 Supramax newbuilding vessels. We believe that owning a modern, high quality fleet reduces operating costs, improves safety and provides us with a competitive advantage in securing employment for our vessels. Our fleet was built to high standards and all of our vessels were built at leading Japanese and Chinese shipyards, including Mitsui Engineering and Shipbuilding Co., Ltd., and Oshima Shipbuilding Co., Ltd. The newbuilding vessels were built at premier shipyards in Japan, IHI Marine United, and China, Yangzhou Dayang Shipbuilding Co. Ltd.

 

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A fleet of sister and similar ships allows us to maintain low cost, highly efficient operations. Our current operating fleet of 45 vessels includes 8 identical sister ships built at the Mitsui shipyard based upon the same design specifications, two sets of 5 and 17 identical sister ships built at Dayang shipyard, 5 identical sister ships built at IHI Marine United shipyard, and 3 similar ships built at the Oshima shipyard that use many of the same parts and equipment. Operating sister and similar ships provides us with operational and scheduling flexibility, efficiencies in employee training and lower inventory and maintenance expenses. We believe that this should allow us both to increase revenue and lower operating costs. We intend to actively monitor and control vessel operating expenses while maintaining the high quality of our fleet through regular inspection and maintenance programs. We also intend to take advantage of savings that result from the economies of scale that the third party technical managers provide us through access to bulk purchasing of supplies, quality crew members and a global service network of engineers, naval architects and port captains.

 

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Balanced charter program. Our strategy is to balance between long-term time charters and revenues generated by short-term time charters and voyage charters to maximize our financial performance throughout shipping cycles. We have entered into time and voyage charter employment contracts for all the vessels in our operating fleet and a substantial portion of our newbuilding fleet. We charter some of our vessels pursuant to one- to three-year time charters to allow us to take advantage of the stable cash flow and high utilization rates that are associated with medium to long-term time charters. The vessels that are on charters whose revenues are linked to the Baltic Supramax index generally have durations of one-year or less. These index linked charters and voyage charters provide us with the revenue upside as the market improves. We believe that this structure provides significant visibility to our future financial results and allows us to take advantage of the stable cash flows and high utilization rates that are associated with medium- to long-term time charters, while at the same time providing us with the revenue upside potential from the index linked or short-term time charters or voyage charters. All the charters provide for fixed semi-monthly payments in advance. While we remain focused on securing charters with fixed base rates, we have also entered into contracts with fixed minimum rates and profit sharing arrangements, enabling us to benefit from an increasing rate environment while still minimizing downside risk. We regularly monitor the dry bulk shipping market and based on market conditions we may consider taking advantage of short-term charter rates.

 

 

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Expand our fleet through selective acquisitions of dry bulk vessels. Depending on market conditions, we intend to acquire additional modern, high-quality vessels through timely and selective acquisitions in a manner that is accretive to our cash flows. We expect to focus primarily in the Handymax sector of the dry bulk shipping industry, and in particular on Supramax class vessels. We may also consider acquisitions of other sizes of dry bulk vessels, but not tankers.

 

 

 

 

 

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Commercial Operations, which involve chartering and operating a vessel; and

 

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Technical Operations, which involve maintaining, crewing and insuring a vessel.

 

 

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commercial operations and technical supervision;

 

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safety monitoring;

 

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vessel acquisition; and

 

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financial, accounting and information technology services.

 

 

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Identifying, purchasing, and selling vessels. We believe that our commercial management team has longstanding relationships in the dry bulk industry, which provides us access to an extensive network of ship brokers and vessel owners that we believe will provide us with an advantage in future transactions.

 

 

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Obtaining insurance coverage for our vessels. We have well-established relationships with reputable marine underwriters in all the major insurance markets around the world that helps insure our fleet with insurance at competitive rates.

 

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Supervising our third party technical managers. We regularly monitor the expenditures, crewing, and maintenance of our vessels by our technical managers, V.Ships and Anglo Eastern International Ltd. We set up our own in-house technical management capability in order to establish a vessel management bench-mark with our external technical managers. Our management team has direct experience with vessel operations, repairs, drydockings and vessel construction.

 

 

International Maritime Organization

 

Pollution Control and Liability Requirements

Compliance Enforcement

 

 

(i)

injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;

(ii)

injury to, or economic losses resulting from, the destruction of real and personal property;

         

(iii)

net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources;

(iv)

loss of subsistence use of natural resources that are injured, destroyed or lost;

 

(v)

lost profits or impairment of earning capacity due to injury, destruction or loss of real orpersonal property or natural resources; and

 

(vi)

net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources.

 

 
 

 

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on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship’s identity, position, course, speed and navigational status;

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on-board installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on shore;

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the development of vessel security plans;

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ship identification number to be permanently marked on a vessel’s hull;

 

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a continuous synopsis record kept onboard showing a vessel’s history including the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship’s identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and

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compliance with flag state security certification requirements.

 

 

General

 

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the Company has, or is considered to have, a fixed place of business in the United States involved in the earning of United States source shipping income; and

 

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substantially all of the Company's United States source shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States.

 

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at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business); or

 

 

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at least 50% of the average value of our assets during such taxable year produce, or are held for the production of, passive income.

 

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the excess distribution or gain would be allocated ratably over the Non-Electing Holder's aggregate holding period for the common stock;

 

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the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which the Company was a passive foreign investment company, would be taxed as ordinary income and would not be ''qualified dividend income''; and

 

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the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.

 

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the gain is effectively connected with the Non-United States Holder's conduct of a trade or business in the United States (and, if the Non-United States Holder is entitled to the benefits of an income tax treaty with respect to that gain, that gain is attributable to a permanent establishment maintained by the Non-United States Holder in the United States); or

 

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the Non-United States Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met.

 

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fail to provide an accurate taxpayer identification number;

 

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are notified by the IRS that you have failed to report all interest or dividends required to be shown on your federal income tax returns; or

 

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in certain circumstances, fail to comply with applicable certification requirements.

 

Ton—A metric ton.

 

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supply and demand for energy resources, commodities and industrial products;

 

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changes in the exploration or production of energy resources, commodities, consumer and industrial products;

 

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the location of regional and global exploration, production and manufacturing facilities;

 

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the location of consuming regions for energy resources, commodities, semi-finished and finished consumer and industrial products;

 

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the globalization of production and manufacturing;

 

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global and regional economic and political conditions, including armed conflicts and terrorist activities; embargoes and strikes;

 

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developments in international trade;

 

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changes in seaborne and other transportation patterns, including the distance cargo is transported by sea;

 

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environmental and other regulatory developments;

 

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currency exchange rates; and

 

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weather.

 

 

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the number of newbuilding deliveries;

 

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port and canal congestion;

 

 

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the scrapping of older vessels;

 

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vessel casualties; and

 

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the number of vessels that are out of service, namely those that are laid-up, drydocked, awaiting repairs or otherwise not available for hire.

 

 

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an absence of financing for vessels;

 

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a further decrease in the market value of our vessels and no active second-hand market for the sale of vessels;

 

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low charter rates, particularly for vessels employed in the spot market;

 

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widespread loan covenant defaults; and

 

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declaration of bankruptcy by some operators and shipowners, as well as charterers.

 

 

 

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prevailing level of charter rates;

 

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general economic and market conditions affecting the shipping industry;

 

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types, sizes and ages of vessels;

 

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supply of and demand for vessels;

 

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other modes of transportation;

 

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cost of newbuildings;

 

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governmental or other regulations;

 

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the need to upgrade secondhand and previously owned vessels as a result of charterer requirements, technological advances in vessel design or equipment or otherwise; and

 

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technological advances.

 

 

 

 

 

 

 

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pay dividends in the future in amounts exceeding our 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 drydockings;

 

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change our Chief Executive Officer without the approval of our lender;

 

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incur additional indebtedness;

 

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change the flag, class or management of our vessels;

 

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create liens on our assets;

 

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sell our vessels;

 

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merge or consolidate with, or transfer all or substantially all our assets to, another person;

 

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enter into a new line of business; and

 

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enter into a time charter or consecutive voyage charters that has a term that exceeds, or which by virtue of any optional extensions may exceed, thirteen months.

 

 

 

 

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locating and acquiring suitable vessels;

 

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obtaining required financing on acceptable terms;

 

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identifying and consummating acquisitions or joint ventures;

 

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enhancing our customer base; and

 

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managing our expansion.

 

 

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marine disaster;

 

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environmental accidents;

 

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cargo and property losses or damage;

 

 

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business interruptions caused by mechanical failure, human error, war, terrorism, political action in various countries, labor strikes or adverse weather conditions; and

 

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piracy.

 

 

 

 

 

 

 

 

 

 

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actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry;

 

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announcements by us or our competitors of significant contracts, acquisitions or capital commitments;

 

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mergers and strategic alliances in the shipping industry;

 

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terrorist acts;

 

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future sales of our common shares or other securities;

 

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market conditions in the shipping industry;

 

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economic and regulatory trends;

 

 

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shortfalls in our operating results from levels forecast by securities analysts;

 

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announcements concerning us or our competitors;

 

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the general state of the securities market; and

 

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investors’ perception of us and the dry bulk shipping industry.

 

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authorizing our board of directors to issue "blank check" preferred stock without stockholder approval;

 

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

 

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authorizing vacancies on our board of directors to be filled only by a vote of the majority of directors then in office and specifically denying our stockholders the right to fill vacancies on the board;

 

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establishing certain advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings;

 

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prohibiting cumulative voting in the election of directors;

 

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limiting the persons who may call special meetings of stockholders;

 

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authorizing the removal of directors only for cause and only upon the affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote for the directors;

 

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prohibiting stockholder action by written consent; and

 

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establishing supermajority voting provisions with respect to amendments to certain provisions of our amended and restated articles of incorporation and bylaws.

 

 

 

 

 

 

 

 

 

For the period:	High			Low
January 1, 2011 to March 31, 2011	$	5.06		$	3.62
April 1, 2011 to June 30, 2011	$	3.80		$	2.30
July 1, 2011 to September 30, 2011	$	2.72		$	1.57
October 1, 2011 to December 31, 2011	$	1.70		$	0.89
January 1, 2010 to March 31, 2010	$	5.99		$	4.76
April 1, 2010 to June 30, 2010	$	5.91		$	4.22
July 1, 2010 to September 30, 2010	$	5.28		$	3.96
October 1, 2010 to December 31, 2010	$	5.71		$	4.86

 

 

 

 

 

(Dollar amounts in thousands except Per Share amounts and Fleet Data)	2011				2010				2009				2008				2007
Income Statement Data
Revenues, net of commissions		$	313,432			$	265,036			$	192,574			$	185,425			$	124,815
Voyage expenses			44,346				3,727				—				—				—
Vessel expenses			85,050				72,984				50,161				36,270				27,144
Charter hire expenses			41,216				9,983				—				—				—
Depreciation and Amortization			73,084				62,945				44,329				33,949				26,436
General and Administrative Expenses			37,559				40,029				32,714				34,567				11,776
Loss (gain) on Sale of Vessel			509				(291	)			—				—				(873	)
Write-off of advances for vessel construction			—				—				—				3,883				—
Total Operating Expenses			281,764				189,377				127,204				108,669				64,483
Interest Expense, Net			46,640				48,516				28,700				13,033				8,088
Write-off of deferred financing costs			—				—				3,383				2,090				—
Other expenses (income)			(152	)			298				—				—				—
Net Income (loss)		$	(14,820	)		$	26,845			$	33,287			$	61,633			$	52,244