EXHIBIT 1
KNIGHTSBRIDGE TANKERS LIMITED
As used herein, “we,” “us,” “our” and “the Company” all refer to Knightsbridge Tankers Limited and its consolidated subsidiaries. This management’s discussion and analysis of financial condition and results of operations should be read together with the discussion included in the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2012 filed with the Securities and Exchange Commission on April 15, 2013.
Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three and Six Months Ended June 30, 2013
General
We were incorporated in Bermuda in September 1996 and were originally founded for the purpose of owning and operating an initial fleet of five very large crude carriers, or VLCCs. In December 2007, one of these vessels was sold and we subsequently expanded the scope of our activities and acquired two Capesize newbuilding dry bulk vessels in 2009 and two 2010-built Capesize dry bulk vessels in 2010. In 2012, three VLCCs were sold and the last remaining VLCC was sold in March 2013. Our shares are listed on the Nasdaq Global Select Market under the symbol “VLCCF.”
Our dry bulk carriers are managed by Golden Ocean Management (Bermuda) Ltd., or the Dry Bulk Manager, a wholly-owned subsidiary of Golden Ocean Group Limited, a Bermuda based dry bulk shipping company whose shares are listed on the Oslo Stock Exchange and the Singapore Stock Exchange under the symbol “GOGL.” Our tankers were managed by ICB Shipping (Bermuda) Limited, or the General Manager, a wholly-owned subsidiary of Frontline Ltd., or Frontline, a Bermuda based shipping company whose shares are listed on the New York Stock Exchange, the Oslo Stock Exchange and the London Stock Exchange under the symbol “FRO”. The General Manager continues to provide us with general administrative and technical services.
Following the sale of three VLCCs during 2012 and the classification of the remaining VLCC as “held for sale” at December 31, 2012, the results of the VLCCs have been recorded as discontinued operations. Amounts included in the statement of operations for the three and six months ended June 30, 2012 have been reclassified in order to conform to the presentation resulting from discontinued operations.
The Company owns four Capesize dry bulk vessels. As of June 30, 2013, three of the Capesize dry bulk vessels were operating on time charters, while one was operating in the spot market. TheGolden Futureis on a time charter, which commenced in January 2013 for a minimum period of 11 months and a maximum period of 13 months at a market index based daily rate. TheBelgravia is on time charter until August 2014 at a rate of $46,412 per day less a 2.5% commission. The Golden Zhejiang is on time charter earning a rate of $9,500 per day less a 6.25% commission and the charterer has the option to return the vessel to us between October 2013 and January 2014. The Battersea was redelivered to the Company in April 2013 and is currently trading in the spot market.
Results of Operations
Amounts included in the following discussion are derived from our unaudited condensed consolidated financial statements for the three months and six months ended June 30, 2013 and June 30, 2012.
Total Operating revenues and voyage expenses commissions
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (in thousands of $) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Time charter revenues | 5,788 | 3,905 | 12,257 | 17,543 | ||||||||||||
Voyage charter revenues | 1,872 | — | 1,872 | — | ||||||||||||
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Total operating revenues | 7,660 | 3,905 | 14,129 | 17,543 | ||||||||||||
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Voyage expenses and commissions | 1,519 | 612 | 1,652 | 1,303 | ||||||||||||
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Time charter revenues increased in the three months ended June 30, 2013 compared to the three months ended June 30, 2012 primarily due to the results of theGolden Zhejiang. This vessel had negative revenues of $4.3 million in the three months ended June 30, 2012 after unamortized costs of $2.1 million relating to the time charter taken over upon the acquisition of theGolden Zhejiang, accrued income of $3.4 million and unpaid charter hire of $1.5 million were written off following default by the charterer of theGolden Zhejiang compared with revenues of $0.9 million in the three months ended June 30, 2013. This was partially offset by;
| • | A decrease in revenues of $1.0 million from theBattersea, which commenced trading in the spot market upon redelivery from time charter in April 2013. |
| • | A decrease of $2.4 million inGolden Future revenues as a result of the reduced daily rate of the new time charter, which commenced in January 2013. |
Voyage charter revenues increased in the three and six months ended June 30, 2013 and June 30, 2012 due to theBattersea, which commenced trading in the spot market upon redelivery from time charter in April 2013.
Voyage expenses and commissions increased in the three months ended June 30, 2013 compared to the three months ended June 30, 2012 primarily due toBattersea, which commenced trading in the spot market upon redelivery from time charter in April 2013.
Time charter revenues decreased in the six months ended June 30, 2013 compared to the six months ended June 30, 2012 primarily due to the following reasons;
| • | A decrease in revenues of $3.9 million from theBattersea, which commenced trading in the spot market upon redelivery from time charter in April 2013. |
| • | A decrease of $0.4 million inBelgravia revenues as a result of the daily rate reduction in March 2012 from $52,670 to $46,412 per day. |
| • | A decrease of $4.5 million inGolden Future revenues as a result of the reduced daily rate of the new time charter, which commenced in January 2013. |
This was partially offset by an improvement in the results from theGolden Zhejiang. This vessel had negative revenues of $1.9 million in the six months ended June 30, 2012 after unamortized costs of $2.1 million relating to the time charter taken over upon the acquisition of theGolden Zhejiang, accrued income of $3.4 million and unpaid charter hire of $1.5 million were written off following default by the charterer of theGolden Zhejiang compared with revenues of $1.7 million in the six months ended June 30, 2013.
Voyage expenses and commissions increased in the six months ended June 30, 2013 compared to the six months ended June 30, 2012 primarily due toBattersea, which commenced trading in the spot market upon redelivery from time charter in April 2013.
Ship operating expenses
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (in thousands of $) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Ship operating expenses | 1,859 | 1,867 | 3,832 | 3,609 | ||||||||||||
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Ship operating expenses are the direct costs associated with running a vessel and include crew costs, vessel supplies, repairs and maintenance, lubricating oils and insurance.
Administrative expenses
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (in thousands of $) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Administrative expenses | 1,345 | 1,125 | 2,415 | 2,110 | ||||||||||||
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Administrative expenses increased in the three and six months ended June 30, 2013 compared to the three and six months ended June 30, 2012 primarily due to an increase in legal fees incurred in connection with the Company’s claims against certain charterers.
2
Depreciation
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (in thousands of $) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Depreciation | 2,750 | 2,762 | 5,494 | 5,530 | ||||||||||||
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Depreciation in the three and six months ended June 30, 2013 is consistent with the comparable periods in 2012 and relates to the same four Capesize vessels.
Interest income
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (in thousands of $) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Interest income | 9 | 17 | 29 | 21 | ||||||||||||
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Interest income in the three months and six months ended June 30, 2013 and June 30, 2012 relates solely to interest received on bank deposits.
Interest expense
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (in thousands of $) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Interest expense | (708 | ) | (939 | ) | (1,553 | ) | (1,894 | ) | ||||||||
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Interest expense decreased in the three months ended June 30, 2013 compared to the three months ended June 30, 2012 primarily due to a reduction in the debt outstanding as a result of repayments and the capitalization of interest on newbuildings of $121,000 in the three months ended June 30, 2013 (2012: nil).
Interest expense decreased in the six months ended June 30, 2013 compared to the six months ended June 30, 2012 primarily due to a reduction in the debt outstanding as a result of repayments and the capitalization of interest on newbuildings of $136,000 in the six months ended June 30, 2013 (2012: nil).
Other Financial Items
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (in thousands of $) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Other financial items | (116 | ) | (101 | ) | (266 | ) | (228 | ) | ||||||||
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Losses related to other financial items increased in the three and six months ended June 30, 2013 compared to the three and six months ended June 30, 2012 primarily due to foreign exchange losses.
Net (loss) income from discontinued operations
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (in thousands of $) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Net (loss) income from discontinued operations | (356 | ) | 202 | (6,868 | ) | 962 | ||||||||||
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Net (loss) income from discontinued operations relates to the operations of the Company’s VLCCs.
The net loss in the three and six months ended June 30, 2013 relates to the Company’s final VLCC, theMayfair, which was sold in March 2013 and delivered to its new owner in April 2013. This vessel did not generate any revenues in 2013. An impairment loss of $5.3 million was recorded in connection with this vessel in the first quarter of 2013. Operating expenses and interest expense were also incurred in the three and six months ended June 30, 2013.
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The net income in the three and six months ended June 30, 2012 relate to the trading operations of four VLCCs; theHampstead, theMayfair, theTitan Venus and theKensington.
Liquidity and Capital Resources
During the six months ended June 30, 2013, the Company paid $15.4 million in connection with its two newbuilding contracts and received net proceeds of $16.9 million from the sale of the VLCCMayfair. The Company also repaid the remaining balance of $12.4 million on the $58.2 million credit facility upon the sale of the VLCCMayfair and paid cash distributions of $8.6 million.
The $175.0 million loan facility was amended in May 2013 such that the $75.0 million revolving credit facility was reduced to $40.0 million. We were in compliance with all of the financial covenants contained in our loan agreement as of June 30, 2013.
As of June 30, 2013, the Company was committed to make newbuilding installments of $87.0 million with expected payments of $2.6 million in 2014 and $84.4 million in 2015.
On August 14, 2013, the Board of Directors declared a cash distribution of $0.175 per share. The record date was August 28, 2013 and the cash distribution in the aggregate amount of $4.3 million was paid on September 10, 2013.
On September 13, 2013, the Company signed a letter of intent with a Korean shipyard, which the Company expects to result in the delivery of two 180,000 dwt bulk carriers in 2015 and 2016.
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INDEX TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012 (unaudited) | 7 | |||
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5
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2013, and June 30, 2012 (unaudited)
(in thousands of $, except per share data)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
Operating revenues | ||||||||||||||||
Time charter revenues | 5,788 | 3,905 | 12,257 | 17,543 | ||||||||||||
Voyage charter revenues | 1,872 | — | 1,872 | — | ||||||||||||
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Total operating revenues | 7,660 | 3,905 | 14,129 | 17,543 | ||||||||||||
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Operating expenses | ||||||||||||||||
Voyage expenses and commission | 1,519 | 612 | 1,652 | 1,303 | ||||||||||||
Ship operating expenses | 1,859 | 1,867 | 3,832 | 3,609 | ||||||||||||
Administrative expenses | 1,345 | 1,125 | 2,415 | 2,110 | ||||||||||||
Depreciation | 2,750 | 2,762 | 5,494 | 5,530 | ||||||||||||
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Total operating expenses | 7,473 | 6,366 | 13,393 | 12,552 | ||||||||||||
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Net operating income (loss) | 187 | (2,461 | ) | 736 | 4,991 | |||||||||||
Other income (expenses) | ||||||||||||||||
Interest income | 9 | 17 | 29 | 21 | ||||||||||||
Interest expense | (708 | ) | (939 | ) | (1,553 | ) | (1,894 | ) | ||||||||
Other financial items | (116 | ) | (101 | ) | (266 | ) | (228 | ) | ||||||||
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Net other expenses | (815 | ) | (1,023 | ) | (1,790 | ) | (2,101 | ) | ||||||||
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Net (loss) income from continuing operations | (628 | ) | (3,484 | ) | (1,054 | ) | 2,890 | |||||||||
Net (loss) income from discontinued operations | (356 | ) | 202 | (6,868 | ) | 962 | ||||||||||
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Net (loss) income | (984 | ) | (3,282 | ) | (7,922 | ) | 3,852 | |||||||||
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Per share information: | ||||||||||||||||
(Loss) earnings per share from continuing operations: basic and diluted | $ | (0.03 | ) | $ | (0.14 | ) | $ | (0.04 | ) | $ | 0.12 | |||||
(Loss) earnings per share from discontinued operations: basic and diluted | $ | (0.01 | ) | $ | 0.01 | $ | (0.28 | ) | $ | 0.04 | ||||||
(Loss) earnings per share: basic and diluted | $ | (0.04 | ) | $ | (0.13 | ) | $ | (0.32 | ) | $ | 0.16 | |||||
Cash dividends per share declared | $ | 0.175 | $ | 0.35 | $ | 0.35 | $ | 0.85 | ||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
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Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012 (unaudited)
(in thousands of $)
| 2013 | 2012 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | 58,003 | 79,259 | ||||||
Trade accounts receivable, net | 1,111 | 2,102 | ||||||
Other receivables | 699 | 2,691 | ||||||
Inventories | 2,278 | 1,181 | ||||||
Voyage in progress | 648 | — | ||||||
Prepaid expenses and accrued income | 496 | 616 | ||||||
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Total current assets | 63,235 | 85,849 | ||||||
Restricted cash | 15,000 | 15,000 | ||||||
Vessels, net | 268,332 | 273,826 | ||||||
Vessel held for sale | — | 21,523 | ||||||
Newbuildings | 15,343 | — | ||||||
Deferred charges | 900 | 1,222 | ||||||
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Total assets | 362,810 | 397,420 | ||||||
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LIABILITIES AND EQUITY | ||||||||
Current liabilities | ||||||||
Current portion of long-term debt | — | 4,700 | ||||||
Trade accounts payable | 1,984 | 1,277 | ||||||
Accrued expenses | 1,497 | 2,501 | ||||||
Deferred charter revenue | 2,523 | 3,020 | ||||||
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Total current liabilities | 6,004 | 11,498 | ||||||
Long-term liabilities | ||||||||
Long-term debt | 95,000 | 106,978 | ||||||
Deferred charter revenue | 250 | 1,250 | ||||||
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Total liabilities | 101,254 | 119,726 | ||||||
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Commitments and contingencies | ||||||||
Equity | ||||||||
Share capital (24,472,061 shares outstanding, par value $0.01 (2012: 24,437,000)) | 245 | 244 | ||||||
Additional paid in capital | 132,115 | 131,766 | ||||||
Contributed capital surplus | 141,134 | 149,700 | ||||||
Retained deficit | (11,938 | ) | (4,016 | ) | ||||
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Total equity | 261,556 | 277,694 | ||||||
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Total liabilities and equity | 362,810 | 397,420 | ||||||
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The accompanying notes are an integral part of these consolidated financial statements.
7
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and June 30, 2012 (unaudited)
(in thousands of $)
| 2013 | 2012 | |||||||
Net cash provided by operating activities | 2,479 | 24,488 | ||||||
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Additions to newbuildings | (15,343 | ) | — | |||||
Proceeds from sale of vessel | 16,852 | — | ||||||
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Net cash provided by in investing activities | 1,509 | — | ||||||
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Repayment of long-term debt | (16,678 | ) | (1,800 | ) | ||||
Distributions to shareholders | (8,566 | ) | (20,766 | ) | ||||
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Net cash used in financing activities | (25,244 | ) | (22,566 | ) | ||||
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Net (decrease) increase in cash and cash equivalents | (21,256 | ) | 1,922 | |||||
Cash and cash equivalents at start of period | 79,259 | 46,848 | ||||||
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Cash and cash equivalents at end of period | 58,003 | 48,770 | ||||||
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The accompanying notes are an integral part of these consolidated financial statements.
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Condensed Consolidated Statements of Changes in Equity for the six months ended June 30, 2013 and June 30, 2012 (unaudited)
(in thousands of $, except number of shares)
| 2013 | 2012 | |||||||
Number of shares outstanding | ||||||||
Balance at beginning of period | 24,437,000 | 24,425,699 | ||||||
Shares issued | 35,061 | 11,301 | ||||||
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Balance at end of period | 24,472,061 | 24,437,000 | ||||||
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Share capital | ||||||||
Balance at beginning of period | 244 | 244 | ||||||
Shares issued | 1 | — | ||||||
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Balance at end of period | 245 | 244 | ||||||
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Additional paid in capital | ||||||||
Balance at beginning of period | 131,766 | 131,256 | ||||||
Shares issued | — | — | ||||||
Restricted stock unit expense | 349 | 288 | ||||||
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Balance at end of period | 132,115 | 131,544 | ||||||
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Contributed capital surplus | ||||||||
Balance at beginning of period | 149,700 | 179,019 | ||||||
Distributions to shareholders | (8,566 | ) | (20,766 | ) | ||||
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Balance at end of period | 141,134 | 158,253 | ||||||
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Retained (deficit) earnings | ||||||||
Balance at beginning of period | (4,016 | ) | 49,413 | |||||
Net (loss) income | (7,922 | ) | 3,852 | |||||
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Balance at end of period | (11,938 | ) | 53,265 | |||||
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Total equity | 261,556 | 343,306 | ||||||
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The accompanying notes are an integral part of these consolidated financial statements.
9
Notes to Consolidated Financial Statements
| 1. | INTERIM FINANCIAL DATA |
The unaudited condensed interim financial statements of Knightsbridge Tankers Limited (“KTL” or the “Company”) have been prepared on the same basis as the Company’s audited financial statements and, in the opinion of management, include all material adjustments, consisting only of normal recurring adjustments considered necessary for a fair statement of the Company’s financial statements, in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The accompanying unaudited condensed interim financial statements should be read in conjunction with the annual financial statements and notes included in the Annual Report on Form 20-F for the year ended December 31, 2012, filed with the Securities and Exchange Commission on April 15, 2013. The results of operations for the interim period ended June 30, 2013 are not necessarily indicative of the results for the entire year ending December 31, 2013.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of presentation
The consolidated financial statements are prepared in accordance with US GAAP. The consolidated financial statements include the assets and liabilities of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.
The condensed consolidated financial statements are prepared in accordance with the accounting policies described in the Company Annual Report on Form 20-F for the year ended December 31, 2012.
Interest is capitalized on all qualifying assets that require a period of time to get them ready for their intended use. Qualifying assets consist of vessels constructed for the Company’s own use.
| 3. | DISCONTINUED OPERATIONS |
In March 2013, the VLCCMayfair was sold for net proceeds of $16.9 million. The vessel was delivered to its new owner in April 2013. The Company recorded an impairment loss of $5.3 million in the three months ended March 31, 2013 and a gain on sale of $31,000 in the three months ended June 30, 2013 in connection with this vessel. The impairment loss is equal to the difference between the carrying value and the estimated fair value of the vessel. Amounts recorded in respect of discontinued operations in the three and six months ended June 30, 2013 and June 30, 2012 are as follows;
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (in thousands of $) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Operating revenues | — | 9,053 | — | 18,639 | ||||||||||||
Net gain on sale of vessel | 31 | — | 31 | — | ||||||||||||
Impairment loss on vessel | — | — | (5,342 | ) | — | |||||||||||
Net (loss) income | (356 | ) | 202 | (6,868 | ) | 962 | ||||||||||
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| 4. | EARNINGS PER SHARE |
The computation of basic earnings per share is based on net (loss) income and the weighted average number of shares outstanding during the period. The restricted stock units (“RSUs”) based on the treasury stock method were anti-dilutive for all periods presented, except for the six months ended June 30, 2012. 176,316 RSUs were excluded from the denominator in each calculation for the three and six months ended June 30, 2013 and 132,618 RSUs were excluded from the denominator for the three months ended June 30, 2012. 132,618 RSUs were included in the denominator for the six months ended June 30, 2012
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The components of the numerator for the calculation of basic EPS and diluted EPS for net (loss) income from continuing operations, net (loss) income from discontinued operations and net (loss) income are as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(in thousands of $) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Net (loss) income from continuing operations | (628 | ) | (3,484 | ) | (1,054 | ) | 2,890 | |||||||||
Net (loss) income from discontinued operations | (356 | ) | 202 | (6,868 | ) | 962 | ||||||||||
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Net (loss) income | (984 | ) | (3,282 | ) | (7,922 | ) | 3,852 | |||||||||
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The components of the denominator for the calculation of basic EPS and diluted EPS are as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(in thousands) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Weighted average number of shares outstanding - basic | 24,472 | 24,430 | 24,467 | 24,428 | ||||||||||||
Weighted average number of shares outstanding - diluted | 24,472 | 24,430 | 24,467 | 24,560 | ||||||||||||
| 5. | VESSEL HELD FOR SALE |
The balance at December 31, 2012 represented the VLCCMayfair. This vessel was sold in March 2013 and was delivered to its buyer in April 2013.
| 6. | NEWBUILDINGS |
In March 2013, the Company concluded two newbuilding contracts for 182,000 dwt Capesize bulk carriers with Japan Marine United Corporation in Japan. The vessels are expected to be delivered during 2015. Interest of $136,000 has been capitalized in the six months ended June 30, 2013.
| 7. | DEBT |
The $58.2 million DnB loan was repaid in April 2013. Loan payments of $16.7 million in the six months ended June 30, 2013 included $12.4 million that was repaid upon the sale of VLCCMayfair.
The $175.0 million loan facility was amended in May 2013 such that the $75.0 million revolving credit facility was reduced to $40.0 million. We were in compliance with all of the financial covenants contained in our loan agreement as of June 30, 2013.
| 8. | RESTRICTED STOCK UNITS |
In January 2013, the Company issued 35,061 common shares and paid $181,610 to members of the Board of Directors and to the General Manger and the Dry Bulk Manager in settlement of the first and second tranches of the RSUs granted in December 2011 and December 2010, respectively, which vested on December 29, 2012. These settlements represent 50% of the value in common shares and 50% of the value in cash for each of the directors and each of the two management companies.
On January 24, 2013, the Board of Directors granted a total of 94,476 RSUs pursuant to the 2010 Equity Plan to members of the Board and the two management companies. These RSUs will vest over three years at a rate of 1/3 of the number of RSUs granted on each anniversary of the date of grant.
Total RSUs outstanding at June 30, 2013 is 176,316. As of December 31, 2012, total RSUs outstanding were 132,618.
| 9. | FINANCIAL INSTRUMENTS |
Foreign currency risk
The majority of the Company’s transactions, assets and liabilities are denominated in United States dollars, the functional currency of the Company. There is no significant risk that currency fluctuations will have a negative effect on the value of the Company’s cash flows.
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Fair values
The carrying value and estimated fair value of the Company’s financial instruments at June 30, 2013 and December 31, 2012 are as follows:
| 2013 | 2013 | 2012 | 2012 | |||||||||||||
| (in thousands of $) | Fair Value | Carrying Value | Fair Value | Carrying Value | ||||||||||||
Cash and cash equivalents | 58,003 | 58,003 | 79,259 | 79,259 | ||||||||||||
Restricted cash | 15,000 | 15,000 | 15,000 | 15,000 | ||||||||||||
Floating rate debt | 95,000 | 95,000 | 111,678 | 111,678 | ||||||||||||
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The carrying value of cash and cash equivalents, and restricted cash, is a reasonable estimate of fair value.
The estimated fair value for floating rate long-term debt is considered to be equal to the carrying value since it bears variable interest rates, which are reset on a quarterly basis.
Assets Measured at Fair Value on a Nonrecurring Basis
One of the Company’s VLCCs was classified as ‘held for sale’ at December 31, 2012. This vessel was measured at an estimated fair value of $21.5 million at December 31, 2012, which was determined using level two inputs being the average of three broker values for a vessel of a similar age and type to be sold as a trading vessel less estimated selling costs. The sale of this vessel as a trading vessel was considered the principal market as of December 31, 2012. The Company recorded an impairment loss of $5.3 million in discontinued operations in the three months ended March 31, 2013 on the sale of this vessel for scrap.
Concentrations of risk
There is a concentration of credit risk with respect to cash and cash equivalents to the extent that substantially all of the amounts are carried with Skandinaviska Enskilda Banken AB, DnB ASA and Nordea Bank Norge ASA. The Company does not require collateral or other security to support financial instruments subject to credit risk.
| 10. | COMMITMENTS AND CONTINGENCIES |
The General Manager procures insurance on the legal liability risks for the Company’s shipping activities with Assuranceforeningen SKULD and Assuranceforeningen Gard Gjensidig, both mutual protection and indemnity associations. The Company is subject to calls payable to the associations based on the Company’s claims record in addition to the claims records of all other members of the associations. A contingent liability exists to the extent that the claims records of the members of the associations in the aggregate show significant deterioration, which result in additional calls on the members.
As of June 30, 2013, the Company was committed to make newbuilding installments of $87.0 million with expected payments of $2.6 million in 2014 and $84.4 million in 2015.
The Company has claims for unpaid charter hire owed by (i) Hong Xiang with respect to its time charter of theGolden Zhejiang, and (ii) Titan Petrochemicals Limited with respect to its bareboat charters of theTitan Venus andMayfair. The Company is also seeking recovery of damages for the remaining periods of these charter contracts. The aggregate amount of these claims is approximately $54 million. The Company is unable to predict the outcome of these cases at this time.
Except as described above, to the best of the Company’s knowledge, there are no legal or arbitration proceedings existing or pending which have had or may have significant effects on the Company’s financial position or profitability and no such proceedings are pending or known to be contemplated.
| 11. | SUBSEQUENT EVENTS |
On August 14, 2013, the Board of Directors declared a cash distribution of $0.175 per share. The record date was August 28, 2013 and the cash distribution was paid on September 10, 2013.
On September 13, 2013, the Company signed a letter of intent with a Korean shipyard, which the Company expects to result in the delivery of two 180,000 dwt bulk carriers in 2015 and 2016.
In October 2013, the Company agreed to a settlement with Sanko Steamship Co., Ltd, or Sanko, whereby Sanko will pay the Company $756,000 with respect to unpaid charter hire and claims of theBattersea, which was redelivered by Sanko in July 2012 prior to the expiration of the minimum period of the charter. This settlement agreement is subject to court approval in Japan. This amount will be recorded as income when payment is received.
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