TBS International plc Reports Fourth Quarter and Year Ended December 31, 2010 Financial Results
Management Commentary:
Joseph E. Royce, Chairman, Chief Executive Officer and President stated:
"The TBS results for the fourth quarter 2010 reflect the ongoing downward pressure on dry cargo freight rates that have continued into the first quarter of 2011, as evidenced by the Baltic Dry Indices, reports www.megafishnet.com with reference to TBS Group.
"The Baltic Dry Index ('BDI') which was at 2,446 on September 30, 2010 descended to 1,773 on December 24th (the last reporting date in 2010) and was at 1,559 on March 14, 2011. Correspondingly, the Baltic Handysize Index ('BHSI') which was at 1,039 on September 30, 2010 descended to 829 on December 24th and was at 736 on March 14, 2011. A number of factors have contributed to this circumstance. Of most importance is the continued drumbeat of the delivery of new-built vessels in all four of the major vessel sizes -- Capesize, Panamax, Supramax and Handysize.
"While cargo demand generally increased during most of 2010, numerous events over the last several months have interrupted the availability of cargo contributing to both the supply-demand imbalance and the Asia-Americas imbalance. There has been severe flooding in Australia that has interrupted shipments of coal, iron ore and wheat, along with Government imposed reductions of the export of coal from Indonesia and Iron ore from India, thereby causing the deviation of vessels that traditionally carried these cargoes from that region into the Atlantic.
"As a consequence, TBS is operating at freight and charter rates that would cause us to fail to comply with certain financial covenants in our credit facilities, even as recently modified, as soon as June 30, 2011. Ferdinand V. Lepere, our Senior Executive Vice President and Chief Financial Officer, will address this issue and our financial results in greater detail."
Ferdinand V. Lepere, Senior Executive Vice President and Chief Financial Officer, commented:
"As announced on January 31, 2011, we have successfully amended our credit facilities with all our lenders. However, due to the continued decline in freight and charter rates, we are currently operating at rates that would cause us to fail to comply with certain recently amended financial covenants in our credit facilities as soon as June 30, 2011. Should we fail to meet the tests under certain of our financial covenants, we would need to enter into negotiations with our lenders to seek modifications of those financial covenants. Failure to comply with our financial covenants or obtain modifications or waivers of such covenants would raise substantial doubt about our ability to continue as a going concern.
"The continued weakness in freight and charter rates, and the consequent decrease in the market value of our vessels caused us to perform an impairment assessment of our long-lived assets and recognize impairment in the carrying value of our vessels. During the fourth quarter of 2010, we recorded a non-cash impairment loss of $201.7 million, which increased our operating expense for the fourth quarter and the year ended December 31, 2010 by an equal amount. Excluding vessel impairment charges, the Net Loss for the year 2010 would have been $43.6 million, an improvement of 34.9% compared to Net Loss of $67.0 million for the same period in 2009. Despite these challenges, our operating performance in 2010 improved, as indicated by our EBITDA, excluding the impairment charge, which reached $87.7 million for the full year 2010, an increase of 91.1% compared to $45.9 million of EBITDA from the prior year.
"At December 31, 2010, after taking into consideration the impairment charge, our net debt to capitalization ratio was 51.3%. Our cash balance at the end of December 31, 2010 was approximately $19.0 million, excluding $6.7 million of restricted cash of which $6.2 million pertains to our newbuilding program. During 2010, we made scheduled debt principal payments in the amount of $49.0 million.
"Our newbuilding program for the six Roymar Class multipurpose tweendeckers is nearly complete; we have taken delivery of five vessels. The remaining vessel is expected to be delivered in the second quarter of 2011, and we have in place the requisite bank financing for this vessel.
"In the fourth quarter of 2010, we continued our drydocking program and drydocked three vessels for a total of 61 drydocking days."
Fourth Quarter 2010 Results:
For the fourth quarter ended December 31, 2010, total revenues were $100.8 million, an increase of 18.9% compared to total revenues of $84.8 million for the same period in 2009. Net Loss for the fourth quarter 2010 was $217.4 million, an increase of $206.7 million compared to the Net Loss of $10.7 million for the same period in 2009. Loss per ordinary share on a basic and diluted basis were $7.12 in the fourth quarter of 2010, calculated based on 30,521,119 shares, compared to $0.36 for the fourth quarter of 2009, calculated based on 29,865,308 shares.
The increase in Net Loss and Net Loss per share as compared to the same period in 2009 is mainly attributable to a $201.7 million vessel impairment charge. Excluding vessel impairment, Net Loss and Loss per ordinary share for the three months ended December 31, 2010 would have been $15.7 million and $0.51 per ordinary share, respectively.
EBITDA, which is a non-GAAP measure, increased to $20.4 million for the quarter ended December 31, 2010 from $19.4 million in the same period in 2009. EBITDA for the quarter ended December 31, 2010 excludes an impairment charge of $201.7 million. Please see "Non-GAAP Reconciliations - EBITDA" following the financial statements in this press release for a reconciliation of EBITDA to Net Loss.
An average of 48 vessels (excluding off-hire) were operated during the fourth quarter 2010 compared to 44 vessels (excluding off-hire) during the same period in 2009.
Total revenues of $100.8 million for the fourth quarter 2010 include voyage revenues of $75.6 million, time charter revenues of $22.6 million and logistics and other revenues of $2.6 million.
Year ended December 31, 2010 Results:
For the year ended December 31, 2010, total revenues were $411.8 million, an increase of 36.1% compared to the $302.5 million for the year 2009. Net Loss for 2010 increased by $178.3 million, or 266%, to $245.3 million, or $8.12 per share, calculated based on 30,217,210 shares. The increase in Net Loss for the year ended December 31, 2010 as compared to 2009 is mainly attributable to a $201.7 million vessel impairment, partly offset by a slight increase in both cargo volumes and freight rates resulting in higher revenues and Time Charter Equivalent. Excluding vessel impairment, Net loss for the year ended 2010 would have been $43.6 million, a decrease of 34.9% compared to Net Loss of $67.0 million in 2009. Excluding the vessel impairment charge, Net Loss per ordinary share for the year ended December 31, 2010 would have been $1.44 per share, based on 30,217,210 shares, compared to $2.25 Net Loss per share, calculated based on 29,843,566 shares, for the year 2009.
EBITDA, which is a non-GAAP measure, increased by 91.1% to $87.7 million for the year ended December 31, 2010 from $45.9 million in 2009. EBITDA for 2010 excludes an impairment charge of $201.7 million. Please refer to "Non-GAAP Reconciliations - EBITDA" following the financial statements included in this press release for a reconciliation of EBITDA to Net Loss.
Revenues:
Total revenues for 2010 were $411.8 million, an increase of $109.3 million, or 36.1%, from $302.5 million in 2009. Total revenues of $411.8 million for 2010 include voyage revenues of $295.8 million, time charter revenue of $105.8 million and logistics and other revenues of $10.2 million.
An average of 47 vessels (excluding off-hire) were operated during the year 2010 compared to 44 vessels (excluding off-hire) during 2009.
Voyage Revenues:
Voyage revenues for 2010 were $295.8 million, an increase of $47.8 million, or 19.3%, from the $248.0 million in 2009. The increase in voyage revenue during 2010 is primarily attributable to an increase in revenue tons carried and freight rates. Overall average freight rates for all cargoes increased slightly by $0.42 per ton, or 1.5%, to $28.64 during the year 2010 compared to $28.22 per ton in 2009.
Freight rates excluding aggregates increased by $8.94 per ton or, 19.7%, to $54.30 per ton for 2010 from $45.36 per ton during 2009; whereas freight rates for aggregate cargoes decreased $1.10 per ton, or 13.3%, to $7.17 per ton for the year 2010 as compared to $8.27 per ton in 2009. The decrease in average freight rates for aggregates cargoes was mainly due to lower average revenue earned on each voyage caused by decreased port congestion that reduced demurrage revenue.
Revenue tons carried increased 1.5 million tons, or 17.5%, to 10.3 million tons for the year ended December 31, 2010 from 8.8 million revenue tons for 2009. This increase was primarily due to an increase of 1.6 million revenue ton in aggregates carried during 2010 as compared to 2009, which can be attributed to an increase in the number of spot voyages of aggregates in 2010.
Average Daily Voyage Time Charter Equivalent, which is an industry standard metric reflecting the daily net earnings of a voyage after deducting all voyage expenses from voyage revenues, was $13,721 per day for 2010, an increase of 13.7% from $12,069 during 2009.
Time Charter Revenues:
Time charter revenues increased by $54.6 million, or 106.6%, to $105.8 million for the year ended December 31, 2010 from $51.2 million for 2009. The increase was primarily caused by a 68.1% increase in time charter rates and a 22.9% increase in time charter out days.
Average Daily Time Charter Equivalent, which is an industry standard metric reflecting time charter-out revenues during the period reduced by commissions, was $16,958 per day for 2010, an increase of 68.4% from $10,070 during 2009. Average time charter rates for 2010 rebounded from their low point in 2009 during the first half of 2010. Time charter rates were negatively influenced during the second half of 2010 by supply and demand imbalances for ocean freight transportation caused by recent economic events.
Expenses:
Total operating expenses for 2010 increased by $279.2 million, or 79.2%, to $631.7 million from $352.5 million for 2009. The increase in total operating expenses for the year ended December 31, 2010 as compared to the same period for 2009 is mainly attributable to a $201.7 million vessel impairment charge.
Voyage expenses, which include fuel costs, commissions, port call charges and stevedoring, increased by $31.4 million, or 27.8%, to $144.5 million for the year ended December 31, 2010. The increase was principally due to rising fuel expenses as a result of higher average fuel costs partly offset by a decrease in consumption, increased commission expense as a result of higher voyage revenues, as well as higher port call expenses and stevedore and other cargo-related expenses.
Logistics expenses, which represent expenses associated with logistics movements, increased $4.3 million to $6.5 million for the year ended December 31, 2010 from $2.2 million in 2009. Logistics operating margins improved to 31.0% for the year 2010 as compared to 18.4% in 2009, mainly due to the TBS's ability to pass on more logistics expenses to customers.
Vessel expenses, which consist of operating expenses relating to owned and controlled vessels, such as crewing, stores, repairs and maintenance, insurance and charter hire fees for vessels that are chartered-in, increased by $16.8 million, or 16.2%, to $120.8 million for 2010 as compared to $104.0 million for 2009. The increase in the vessel expense in 2010 was principally due to a 17.1% increase in the vessel operating expense, which can be attributed to higher maintenance and crew related expenses as well as higher average number of controlled vessels during 2010 compared to 2009. The addition of the Brazilian-flagged vessels during 2010 also contributed to this increase.
Depreciation and amortization expense increased $7.8 million due to increased vessel improvements and, to a lesser extent, the growth of owned and controlled fleet.
General and administrative expenses increased $12.1 million during the year ended December 31, 2010 as compared to 2009. Salaries and other related expenses increased $8.4 million, primarily due to a $5.9 million non-cash compensation expense recorded during 2010. In 2010, $1.3 million of general and administrative expenses were incurred by Log-Star, our Brazilian joint venture.
The operating expenses for 2010 also include a $5.2 million charge which was recorded as net loss on sale of the vessel M/V Savannah Belle.
Credit Facilities Amendments:
Effective January 28, 2010, TBS entered into amendments to its credit facilities with all of its lenders, including AIG Commercial Equipment, Commerzbank AG, Berenberg Bank and Credit Suisse and syndicates led by Bank of America, N.A., The Royal Bank of Scotland plc and DVB Group Merchant Bank (the "Credit Facilities"). The amendments restructured the Company's debt obligations by revising the principal repayment schedules under the Credit Facilities; waiving any defaults existing at January 28, 2011; revising the financial covenants, including covenants related to the Company's consolidated leverage ratio, consolidated interest coverage ratio and minimum cash balance; and modifying other terms of the Credit Facilities.
As a condition to the restructuring of our credit facilities, three significant shareholders who also are key members of TBS' management agreed on January 25, 2011 to provide up to $10 million of new equity in the form of Series B Preference Shares and deposited funds in an escrow account to facilitate satisfaction of this obligation. In partial satisfaction of this obligation, on January 28, 2011, these significant shareholders purchased an aggregate of 30,000 of our Series B Preference Shares at $100 per share directly from TBS in a private placement.
Fleet Developments:
The TBS program to construct six "Roymar Class" 34,000 dwt multipurpose tweendecker vessels, proceeded with the delivery of three vessels between September 2009 and December 2010. On January 5, 2011 and February 22, 2011, TBS took delivery of the M/V Omaha Belle and the M/V Comanche Maiden, respectively, the fourth and fifth vessels in the series for a purchase price of $35.4 million each. The Company expects to take delivery of the sixth vessel in the second quarter of 2011.
With the delivery of these vessels, TBS's operational fleet expanded to 51 vessels with an aggregate of 1.55 million dwt, consisting of 29 tweendeckers and 22 handymax / handysize bulk carriers.
TBS previously entered into a $150 million term loan credit agreement with a syndicate of lenders led by The Royal Bank of Scotland to finance the building and purchase of these six new vessels. As of December 31, 2010, the Company made cumulative payments of $84.0 million to the Shipyard towards the purchase of the fourth, fifth and sixth vessels.
Drydock Program and Vessel Upgrade Program:
For the year 2010, TBS drydocked 15 vessels for approximately 399 drydocking days with steel renewal of about 1,571 metric tons at a total cost of approximately $15.1 million. This calculation includes two vessels that entered into drydocking during the fourth quarter of 2009.
During the fourth quarter of 2010, three vessels entered into drydocking for 61 days, requiring about 605 metric tons of steel.
For 2011, TBS' plan is to drydock 17 vessels for approximately 502 days with a steel renewal of about 1,765 metric tons at a total cost of approximately $17.5 million. This estimate includes one vessel that entered into drydocking during the fourth quarter of 2010.