UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
OF THE SECURITIES EXCHANGE ACT OF 1934
Dated: August 20, 2015
Commission File No. 333-179250
NAVIOS SOUTH AMERICAN LOGISTICS INC.
Aguada Park Free Zone
Paraguay 2141, Of. 1603
Montevideo, Uruguay
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F:
Form 20-F x Form 40-F ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes ¨ No x
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes ¨ No x
Operating and Financial Review and Prospects
The following is a discussion of the financial condition and results of operations of Navios South American Logistics Inc. (“Navios Logistics” or the “Company”) for each of the three and six month periods ended June 30, 2015 and 2014. All of these financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). You should read this section together with the consolidated financial statements and the accompanying notes included in Navios Logistics’ 2014 annual report filed on Form 20-F with the Securities and Exchange Commission (the “2014 Form 20-F”) and the condensed consolidated financial statements and the accompanying notes included in this Form 6-K.
This report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Reform Act of 1995. These forward-looking statements are based on Navios Logistics’ current expectations and observations. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, changes in the demand for our vessels and port facilities, and the supply and demand for the commodities which they transport, process and store, other competitive factors in the market in which Navios Logistics operates, risks associated with operations outside the United States, and other factors listed from time to time in the Navios Logistics’ filings with the Securities and Exchange Commission.
Recent Developments
On June 30, 2015, Navios Logistics agreed to extend the repayment period of its capital leases for the vessels Ferni H and San San H for four years up to January 2020 and April 2020, respectively. As a result, Navios Logistics deferred its obligation to purchase the two vessels from 2016 to 2020.
Overview
General
Navios Logistics was incorporated under the laws of the Republic of the Marshall Islands on December 17, 2007. We are one of the largest logistics companies in the Hidrovia region river system, the main navigable river system in the region, and on the cabotage trades along the eastern coast of South America. We serve our customers in the Hidrovia region through our two port storage and transfer facilities, one for agricultural, forest and mineral-related exports located in Uruguay and the other for refined petroleum products located in Paraguay. We complement our two port terminals with a diverse fleet of 362 barges and pushboats (including three pushboats to be delivered) and two small inland oil tankers that operate in our barge business and nine vessels, including six oceangoing tankers, two self-propelled barges and one bunker vessel, which operate in our cabotage business. We provide transportation for dry cargo (cereals, cotton pellets, soybeans, wheat, limestone (clinker), mineral iron, and rolling stones) and liquid cargo (hydrocarbons such as crude oil, gas oil, naphtha, fuel oil and vegetable oils) and liquefied cargo (liquefied petroleum gas or “LPG”).
Ports
Navios Logistics owns two port storage and transfer facilities, one for agricultural, forest and mineral-related exports in Nueva Palmira, Uruguay and the other for refined petroleum products in San Antonio, Paraguay. Navios Logistics’ port facility in Nueva Palmira has a total storage capacity of 460,000 metric tons. Its port facility in San Antonio has a total storage capacity of 45,660 cubic meters.
Fleet
Navios Logistics’ current core fleet consists of a total of 373 vessels, barges and pushboats of which 368 are owned and five are chartered-in. Of the 368 owned vessels, barges and pushboats, three pushboats are expected to be delivered in the first quarter of 2016.
Five tank barges in its current core fleet are chartered-in under long-term charter-in contracts with an average remaining duration of approximately 0.8 years. Charter-in contracts with duration of more than one year at inception are considered to be long-term.
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The following is the current core fleet as of August 20, 2015:
Navios Logistics Fleet Summary (owned and chartered-in)
Pushboats/ Barges/ Inland Oil Tankers Fleet | Number of Vessels | Capacity/Brake Horsepower (BHP) | Description | |||
Pushboat fleet(1) | 27 | 95,920 BHP | Various Sizes and Horsepower | |||
Dry Barges | 295 | 512,600 DWT | Dry Cargo | |||
Tank Barges(2) | 37 | 117,875 m3 | Liquid Cargo | |||
LPG Barges | 3 | 4,752 m3 | LPG | |||
Self-propelled Tank Barges (3) | 2 | 11,600 m3 | Liquid Cargo | |||
Inland Oil Tankers | 2 | 3,900 DWT | Liquid Cargo | |||
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Total | 366 | |||||
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Product Tanker Fleet | Year Built | DWT | Description | |||
Estefania H | 2008 | 12,000 | Double-hulled Product Tanker | |||
Malva H | 2008 | 8,974 | Double-hulled Product Tanker | |||
Makenita H | 2009 | 17,508 | Double-hulled Product Tanker | |||
Sara H | 2009 | 9,000 | Double-hulled Product Tanker | |||
San San H(4) | 2010 | 16,871 | Double-hulled Product Tanker | |||
Ferni H(4) | 2010 | 16,871 | Double-hulled Product Tanker | |||
Heman H | 2012 | 1,693 | Double-hulled Product Tanker | |||
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Total | 82,917 | |||||
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(1) | Three pushboats are expected to be delivered in the first quarter of 2016. |
(2) | Five tank barges are chartered-in with total capacity of 12,466 m3. |
(3) | These vessels serve the Argentine cabotage business. |
(4) | The Ferni H and the San San H are chartered-in for a ten-year period, and Navios Logistics has the obligation to purchase the vessels immediately upon the expiration of their charter periods in January 2020 and April 2020, respectively, at a purchase price of $5.3 million and $5.2 million, respectively. |
Chartering Arrangements
Navios Logistics continually monitors developments in the shipping industry and makes decisions based on an individual vessel and segment basis, as well as on its view of overall market conditions, in order to implement its overall business strategy. In the Barge Business, Navios Logistics typically operates under a mix of time charters and contracts of affreightment (“CoAs”) with durations of one to five years (some of which have minimum guaranteed volumes) and spot contracts. In the Cabotage Business, Navios Logistics typically operates under time charters with durations in excess of one year. Some of Navios Logistics’ charters provide fixed pricing, labor cost, minimum volume requirements and fuel price adjustment formulas.
Factors Affecting Navios Logistics’ Results of Operations
Contract Rates
The shipping and logistics industry has been highly volatile in the recent past. In order to have full utilization of its fleet and storage capacity, the Company must be able to renew the contracts on its fleet and ports upon the expiration or termination of current contracts. This ability depends upon economic conditions in the sectors in which the vessels, barges and pushboats operate, changes in the supply and demand for vessels, barges and pushboats and changes in the supply and demand for the transportation and storage of commodities.
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Weather Conditions
As Navios Logistics specializes in the transportation and storage of liquid cargoes and dry bulk cargoes along the Hidrovia, any changes adversely affecting the region, such as low water levels, could reduce or limit Navios Logistics’ ability to effectively transport cargo.
Droughts and other adverse weather conditions, including any possible effects of climate change, could result in a decline in production of the agricultural products Navios Logistics transports and stores, and this could result in a reduction in demand for its services.
Foreign Currency Transactions
Navios Logistics’ operating results, which are reported in U.S. dollars, may be affected by fluctuations in the exchange rate between the U.S. dollar and other currencies. Navios Logistics uses the U.S. dollar as its functional and reporting currency. Therefore, revenue and expense accounts are translated into U.S. dollars at the exchange rate in effect at the date of each transaction. The balance sheets of the foreign operations are translated using the exchange rate at the balance sheet date except for property and equipment and equity, which are translated at historical rates.
Navios Logistics’ subsidiaries in Uruguay, Argentina, Brazil and Paraguay transact some of their operations in Uruguayan pesos, Argentinean pesos, Brazilian reales and Paraguayan guaranies, respectively; however, all of the subsidiaries’ primary cash flows are U.S. dollar-denominated. Transactions in currencies other than the functional currency are translated at the exchange rate in effect at the date of each transaction. Differences in exchange rates during the period between the date a transaction denominated in a foreign currency is consummated and the date on which it is either settled or translated are recognized in the statement of operations.
Inflation and Fuel Price Increases
The impact of inflation and the resulting pressure on prices in the South American countries in which Navios Logistics operates may not be fully neutralized by equivalent adjustments in the rate of exchange between the local currencies and the U.S. dollar. Specifically, for Navios Logistics’ vessel, barge and pushboat business, Navios Logistics has negotiated, and will continue to negotiate, crew cost adjustment and fuel price adjustment clauses; however, in some cases, the prices that Navios Logistics pays for fuel and crew costs are temporarily not aligned with the adjustments that Navios Logistics obtains under its freight contracts.
Seasonality
Certain of our businesses have seasonality aspects, and seasonality affects the results of our operations and revenues, particularly in the first and last quarters of each year. Generally, the high season for the barge business is the period between February and July as a result of the South American harvest and higher river levels. Expected growth in soybean and minerals production and transportation may offset part of this seasonality. During the South American late spring and summer, mainly from November to January, the low level of water in the northern Hidrovia could adversely affect Navios Logistics’ operations because the water level is not high enough to accommodate the draft of a heavily laden vessel. Such low levels also adversely impact Navios Logistics’ ability to employ convoys as the water level towards the banks of the river may be too low to permit vessel traffic even if the middle of the river is deep enough to permit passage. With respect to dry port terminal operations in Uruguay, the high season is mainly from April to September, linked with the arrival of the first barges down river and with the oceangoing vessels’ logistics operations. Navios Logistics’ liquid port terminal operations in Paraguay and its cabotage business are not significantly affected by seasonality as the operations of the port and cabotage business are primarily linked to refined petroleum products.
Statement of Operations Breakdown by Segments
Navios Logistics reports its operations based on three reportable segments: the Port Terminal Business, the Barge Business and the Cabotage Business. The Port Terminal Business segment includes the dry and liquid port terminal operations, the Barge Business segment includes Navios Logistics’ river fleet and the Cabotage Business segment includes the product tankers and the two self-propelled barges.
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Period over Period Comparisons
The following table presents consolidated revenue and expense information for the three and six month periods ended June 30, 2015 and 2014. This information was derived from the unaudited condensed consolidated financial statements for the respective periods.
(Expressed in thousands of U.S. dollars) | Three Month Period ended June 30, 2015 (unaudited) | Three Month Period ended June 30, 2014 (unaudited) | Six Month Period ended June 30, 2015 (unaudited) | Six Month Period ended June 30, 2014 (unaudited) | ||||||||||||
Time charter, voyage and port terminal revenues | $ | 57,613 | $ | 57,523 | $ | 104,528 | $ | 100,463 | ||||||||
Sales of products | 8,643 | 12,445 | 26,790 | 15,103 | ||||||||||||
Time charter, voyage and port terminal expenses | (7,749 | ) | (12,631 | ) | (17,140 | ) | (22,875 | ) | ||||||||
Direct vessel expenses | (22,860 | ) | (19,978 | ) | (40,955 | ) | (35,636 | ) | ||||||||
Cost of products sold | (7,311 | ) | (11,796 | ) | (24,919 | ) | (14,349 | ) | ||||||||
Depreciation and amortization | (6,591 | ) | (5,982 | ) | (13,058 | ) | (12,049 | ) | ||||||||
General and administrative expenses | (3,911 | ) | (3,351 | ) | (7,517 | ) | (6,759 | ) | ||||||||
Interest expense and finance cost, net | (6,735 | ) | (7,446 | ) | (13,548 | ) | (14,162 | ) | ||||||||
Loss on bond extinguishment | — | (27,281 | ) | — | (27,281 | ) | ||||||||||
Other expense, net | (3,454 | ) | (2,180 | ) | (5,928 | ) | (3,109 | ) | ||||||||
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Income/(loss) before income taxes | 7,645 | (20,677 | ) | $ | 8,253 | (20,654 | ) | |||||||||
Income tax benefit/(expense) | 1,767 | (758 | ) | 1,985 | (958 | ) | ||||||||||
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Net income/(loss) | 9,412 | (21,435 | ) | $ | 10,238 | (21,612 | ) | |||||||||
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Other Operating Data | ||||||||||||||||
Dry Port—dry cargo tons moved | 1,397,700 | 1,318,900 | 2,253,000 | 2,062,200 | ||||||||||||
Liquid Port—cubic meters of stored liquid cargos | 49,609 | 40,017 | 108,859 | 82,682 | ||||||||||||
Liquid Port—cubic meters of sales of products | 10,721 | 11,633 | 36,865 | 14,306 | ||||||||||||
Barge—cubic meters of liquid cargos | 75,508 | 173,742 | 125,442 | 339,233 | ||||||||||||
Barge—dry cargo tons | 261,927 | 557,562 | 601,510 | 926,090 | ||||||||||||
Cabotage—cubic meters of liquid cargos | 607,633 | 675,898 | 895,247 | 1,094,671 | ||||||||||||
Cabotage—available days | 784 | 720 | 1,490 | 1,376 | ||||||||||||
Cabotage—operating days | 644 | 625 | 1,198 | 1,126 | ||||||||||||
Revenues per Segment | ||||||||||||||||
Port Business | $ | 21,247 | $ | 24,596 | $ | 47,777 | $ | 34,123 | ||||||||
Revenue—dry port | $ | 11,843 | $ | 11,334 | $ | 19,379 | $ | 17,619 | ||||||||
Revenue—liquid port | $ | 761 | $ | 817 | $ | 1,608 | $ | 1,401 | ||||||||
Sales of products—liquid port | $ | 8,643 | $ | 12,445 | $ | 26,790 | $ | 15,103 | ||||||||
Barge Business | $ | 26,549 | $ | 28,326 | $ | 51,232 | $ | 50,978 | ||||||||
Cabotage Business | $ | 18,460 | $ | 17,046 | $ | 32,310 | $ | 30,465 |
For the three month period ended June 30, 2015 compared to the three month period ended June 30, 2014
Time Charter, Voyage and Port Terminal Revenues:For the three month period ended June 30, 2015, Navios Logistics’ time charter, voyage and port terminal revenues increased by $0.1 million or 0.2% to $57.6 million, as compared to $57.5 million for the same period during 2014. Revenue from the port terminal business increased by $0.4 million or 3.7% to $12.6 million for the three month period ended June 30, 2015, as compared to $12.2 million for the same period during 2014. The increase was mainly attributable to an increase of products transported and rates charged in the dry port terminal. Revenue from the cabotage business increased by $1.5 million or 8.3% to $18.5 million for the three month period ended June 30, 2015, as compared to $17.0 million for the same period during 2014. This increase was mainly attributable to an increase in the cabotage fleet’s operating days and time-charter rates achieved. The overall increase was partially offset by a decrease in the revenue from the barge business of $1.8 million or 6.3% to $26.5 million for the three month period ended June 30, 2015, as compared to $28.3 million for the same period during 2014. This decrease was mainly attributable to a decrease in the volume of liquid cargo transported.
Sales of Products:For the three month period ended June 30, 2015, Navios Logistics’ sales of products decreased by $3.8 million or 30.6% to $8.6 million, as compared to $12.4 million for the same period during 2014. This decrease was attributable to the decrease in the Paraguayan liquid port’s volume and price of products sold.
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Time Charter, Voyage and Port Terminal Expenses:For the three month period ended June 30, 2015, time charter, voyage and port terminal expenses decreased by $4.9 million or 38.7% to $7.7 million as compared to $12.6 million for the same period during 2014. Time charter and voyage expenses of the barge business for the three month period ended June 30, 2015 decreased by $5.3 million or 56.7% to $4.1 million, as compared to $9.4 million for the same period during 2014. This was mainly attributable to a decrease in fuel expense due to the lower number of voyages performed under CoA contracts. Port terminal expenses decreased by $0.1 million or 3.6% to $2.8 million for the three month period ended June 30, 2015 as compared to $2.9 million for the same period in 2014. The overall decrease was partially mitigated by an increase in the time charter and voyage expenses of the cabotage business of $0.5 million or 192.8% to $0.8 million for the three month period ended June 30, 2015 as compared to $0.3 million for the same period in 2014. This was mainly attributable to an increase in voyage expense related to the cabotage fleet’s time charter contracts.
Direct Vessel Expenses:Direct vessel expenses increased by $2.9 million or 14.4% to $22.9 million for the three month period ended June 30, 2015, as compared to $20.0 million for the same period in 2014. Direct vessel expenses of the cabotage business increased by $5.3 million or 60.5% to $13.9 million for the three month period ended June 30, 2015, as compared to $8.6 million for the same period in 2014. This increase was mainly attributable to an increase in the cabotage fleet’s available days and an increase in crew costs. Direct vessel expenses of the barge business decreased by $2.4 million or 20.7% to $9.0 million for the three month period ended June 30, 2015, as compared to $11.4 million for the same period in 2014. The decrease resulted primarily from a decrease in repairs and maintenance costs. Direct vessel expenses include crew costs, victual costs, dockage expenses, lubricants, spares, insurance, maintenance and repairs.
Cost of Products Sold:For the three month period ended June 30, 2015, Navios Logistics’ cost of products sold decreased by $4.5 million or 38.0% to $7.3 million, as compared to $11.8 million for the same period during 2014. This decrease was mainly attributable to a decrease in the Paraguayan liquid port’s volume of products sold.
Depreciation and Amortization:Depreciation and amortization expense increased by $0.6 million or 10.2% to 6.6 million for the three month period ended June 30, 2015, as compared to $6.0 million for the same period in 2014. The depreciation of tangible assets and the amortization of intangible assets for the three month period ended June 30, 2015 amounted to $5.6 million and $1.0 million, respectively, as compared to the depreciation of tangible assets and the amortization of intangible assets for the same period in 2014 which amounted to $5.0 million and $1.0 million, respectively. Depreciation and amortization in the barge business increased by $0.6 million or 14.6% to $4.8 million for the three month period ended June 30, 2015, as compared to $4.2 million for the same period during 2014, mainly due to the depreciation of the three new pushboats and of the 72 new dry barges acquired in 2014. Depreciation and amortization in the cabotage and in the port terminal businesses remained the same, amounting to $0.7 million and $1.1 million, respectively, for both periods.
General and Administrative Expenses:General and administrative expenses increased by $0.5 million or 16.7% to $3.9 million for the three month period ended June 30, 2015, as compared to $3.4 million for the same period during 2014, mainly due to an increase in personnel expenses due to indemnification costs.
Interest Expense and Finance Cost, Net:Interest expense and finance cost, net decreased by $0.7 million or 9.5% to $6.7 million for the three month period ended June 30, 2015, as compared to $7.4 million for the same period of 2014. For the three month period ended June 30, 2015, interest expense amounted to $6.6 million, other finance costs amounted to $0.2 million and interest income amounted to $0.1 million. For the three month period ended June 30, 2014, interest expense amounted to $7.4 million, other finance costs amounted to $0.1 million and interest income amounted to $0.1 million. The decrease was mainly attributable to the interest expense generated by the Tender Offer (as defined herein) related to the redemption of the 2019 Senior Notes (as defined herein) in April 2014.
Loss on Bond Extinguishment:In April 2011, Navios Logistics issued $200.0 million in aggregate principal amount of senior notes at a fixed rate of 9.25% due on April 15, 2019 (the “Existing 2019 Notes”). In April 2013, Navios Logistics issued $90.0 million in aggregate principal amount of 9.25% senior notes due April 15, 2019 (the “Additional 2019 Notes” and together with the Existing 2019 Senior Notes, the “2019 Senior Notes”). On April 22, 2014, Navios Logistics completed the sale of $375.0 million in aggregate principal amount of 7.25% senior notes due 2022 (the “2022 Senior Notes”). The net proceeds from the sale of the 2022 Senior Notes were used in connection with the tender offer (the “Tender Offer”) for the 2019 Senior Notes, to redeem the remaining 2019 Senior Notes after the Tender Offer and pay related transaction fees and expenses and for general corporate purposes. As a result of such transaction, Navios Logistics recorded a loss on bond extinguishment of $27.3 million.
Other Expense, Net:Other expense, net increased by $1.3 million to $3.5 million for the three month period ended June 30, 2015, as compared to $2.2 million for the same period of 2014. Other expense, net in the barge business increased by $1.3 million to $2.2 million for the three month period ended June 30, 2015, as compared to $0.9 million for the same period during 2014, mainly due to an increase in taxes other than income taxes. Other expense, net in the port business increased by $0.4 million to $0.1 million of
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expense for the three month period ended June 30, 2015, as compared to $0.3 million of income for the same period during 2014, mainly due to foreign exchange differences. The overall increase was partially offset by a decrease in other expense, net in the cabotage business of $0.4 million to $1.2 million for the three month period ended June 30, 2015, as compared to $1.6 million for the same period during 2014, mainly due to a decrease in taxes other than income taxes.
Income Tax Benefit/(Expense):Income tax benefit increased by $2.6 million to $1.8 million of benefit for the three month period ended June 30, 2015, as compared to $0.8 million of expense for the same period of 2014. The barge business had an increase of $2.6 million to a $2.3 million benefit for the three month period ended June 30, 2015 as compared to a $0.3 million expense for the same period in 2014. This increase was mainly due to pretax losses of certain subsidiaries of the barge business. Income tax expense of the cabotage business decreased by $0.3 million to $0.5 million for the three month period ended June 30, 2015 as compared to $0.8 million for the same period in 2014. The overall increase was partially mitigated by a $0.3 million decrease in the income tax benefit of the port terminal business during the three month period ended June 30, 2015, as compared to a $0.3 benefit for the same period in 2014.
For the six month period ended June 30, 2015 compared to the six month period ended June 30, 2014
Time Charter, Voyage and Port Terminal Revenues: For the six month period ended June 30, 2015, Navios Logistics’ revenue increased by $4.0 million or 4.0% to $104.5 million, as compared to $100.5 million for the same period during 2014. Revenue from the port terminal business increased by $2.0 million or 10.3% to $21.0 million for the six month period ended June 30, 2015, as compared to $19.0 million for the same period during 2014. The increase was mainly attributable to an increase in products transported and rates charged in both the dry and the liquid port terminals. Revenue from the cabotage business increased by $1.8 million or 6.1% to $32.3 million for the six month period ended June 30, 2015, as compared to $30.5 million for the same period during 2014. This increase was mainly attributable to an increase in the cabotage fleet’s operating days and the higher time-charter rates achieved. Revenue from the barge business increased by $0.2 million or 0.5% to $51.2 million for the six month period ended June 30, 2015, as compared to $51.0 million for the same period during 2014. This increase was mainly attributable to the commencement of operations of three new dry cargo convoys under time charter contracts during the second quarter of 2014, partially offset by a decrease in the volume of liquid cargo transported in the six months ended June 30, 2015.
Sales of Products: For the six month period ended June 30, 2015, Navios Logistics’ sales of products increased by $11.7 million or 77.4% to $26.8 million, as compared to $15.1 million for the same period during 2014. This increase was attributable to the increase in the Paraguayan liquid port’s volume of products sold.
Time Charter, Voyage and Port Terminal Expenses: Time charter, voyage and port terminal expenses decreased by $5.8 million or 25.1% to $17.1 million for the six month period ended June 30, 2015, as compared to $22.9 million for the same period during 2014. This decrease was mainly attributable to a $7.2 million or 42.2% decrease in time charter and voyage expenses of the barge business to $9.6 million for the six month period ended June 30, 2015, as compared to $16.8 million for the same period in 2014, mainly attributable to lower fuel expense as a result of the lower number of voyages performed under CoA contracts. The overall decrease was partially mitigated by an increase in port terminal expenses by $0.3 million or 5.2% to $5.7 million for the six month period ended June 30, 2015, as compared to $5.4 million for the same period during 2014. This increase was mainly attributable to an increase in volumes transported through Navios Logistics’ dry and liquid port facilities. Time charter and voyage expenses of the cabotage business were also increased by $1.1 million or 141.8% to $1.8 million for the six month period ended June 30, 2015, as compared to $0.7 million for the same period during 2014. This increase was mainly attributable to increased voyage expense related to the cabotage fleet’s time charter contracts.
Direct Vessel Expenses: Direct vessel expenses increased by $5.4 million or 14.9% to $41.0 million for the six month period ended June 30, 2015, as compared to $35.6 million for the same period in 2014. Direct vessel expenses of the cabotage business increased by $7.2 million or 46.4% to $22.6 million for the six month period ended June 30, 2015, as compared to $15.4 million for the same period in 2014. This increase was mainly attributable to an increase in the cabotage fleet’s available days and an increase in crew costs. This increase was partially offset by a decrease in the direct vessel expenses of the barge business of $1.8 million or 9.1% to $18.4 million for the six month period ended June 30, 2015, as compared to $20.2 million for the same period in 2014. This decrease resulted primarily from a decrease in repairs and maintenance costs. Direct vessel expenses include crew costs, victual costs, dockage expenses, lubricants, spares, insurance, maintenance and repairs.
Cost of Products Sold: For the six month period ended June 30, 2015, Navios Logistics’ cost of products sold increased by $10.6 million or 73.7% to $24.9 million, as compared to $14.3 million for the same period during 2014. This increase was mainly attributable to an increase in the Paraguayan liquid port’s volume of products sold.
Depreciation and Amortization: Depreciation and amortization increased by $1.1 million or 8.4% to $13.1 million for the six month period ended June 30, 2015, as compared to $12.0 million for the same period of 2014. The depreciation of tangible assets and the amortization of intangible assets for the six month period ended June 30, 2015 amounted to $11.2 million and $1.9 million, respectively. Depreciation of tangible assets and amortization of intangible assets for the six month period ended June 30, 2014 amounted to $10.1 million and $1.9 million, respectively.
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Depreciation and amortization in the barge business increased by $1.1 million or 11.4% to $9.6 million for the six month period ended June 30, 2015, as compared to $8.5 million for the same period during 2014, mainly due to the depreciation of the three new pushboats and of the 72 new dry barges acquired in 2014. Depreciation and amortization in the cabotage and in the port terminal businesses remained the same for both the six month periods ended June 30, 2015 and 2014, amounting to $1.3 million and $2.2 million, respectively.
General and Administrative Expenses: General and administrative expenses increased by $0.7 million or 11.2% to $7.5 million for the six month period ended June 30, 2015, as compared to $6.8 million for the same period during 2014. This increase was mainly attributable to increased personnel expenses due to indemnification costs.
Interest Expense and Finance Cost, Net: Interest expense and finance cost, net decreased by $0.7 million or 4.3% to $13.5 million for the six month period ended June 30, 2015, as compared to $14.2 million for the same period of 2014. For the six month period ended June 30, 2015, interest expense amounted to $13.3 million, other finance costs amounted to $0.4 million and interest income amounted to $0.2 million. For the six month period ended June 30, 2014, interest expense amounted to $14.1 million, other finance costs amounted to $0.2 million and interest income amounted to $0.1 million. The decrease was mainly attributable to the interest expense generated by the Tender Offer related to the redemption of the 2019 Senior Notes in April 2014.
Other Expense, Net: Other expense, net increased by $2.8 million or 90.7% to $5.9 million for the six month period ended June 30, 2015, as compared to $3.1 million for the same period of 2014. Other expense, net for the barge business increased by $2.0 million or 188.9% to $3.1 million for the six month period ended June 30, 2015, as compared to $1.1 million for the same period in 2014. This increase was mainly attributable to an increase in taxes other than income taxes. Other expense, net for the port terminal business increased by $0.7 million to $0.2 million of expense for the six month period ended June 30, 2015, as compared to $0.5 million of income for the same period in 2014, mainly due to a $0.4 million decrease in other income and to foreign exchange differences. Other expense, net for the cabotage business increased by $0.1 million or 3.2% to $2.6 million for the six month period ended June 30, 2015, as compared to $2.5 million for the same period in 2014.
Income Tax Benefit/(Expense): Income tax benefit increased by $3.0 million to $2.0 million of benefit for the six month period ended June 30, 2015, as compared to $1.0 million of expense for the same period in 2014. The barge business had an increase of $2.9 million to $3.0 million of benefit for the six month period ended June 30, 2015 as compared to $0.1 million of benefit for the same period in 2014. This increase was mainly the effect of the pretax losses of certain subsidiaries of the barge business. Income tax expense of the cabotage business decreased by $0.3 million to $1.0 million for the six month period ended June 30, 2015 as compared to $1.3 million for the same period in 2014. The overall increase was partially mitigated by a $0.2 million decrease in the income tax benefit of the port terminal business during the six month period ended June 30, 2015, as compared to a $0.2 million income tax benefit during the same period in 2014.
Liquidity and Capital Resources
Navios Logistics has historically financed its capital requirements with cash flows from operations, equity contributions from stockholders, borrowings under its credit facilities and issuance of other debt. Main uses of funds have been capital expenditures for the acquisition of new vessels, new construction and upgrades at the port terminals, expenditures incurred in connection with ensuring that the owned vessels comply with international and regulatory standards and repayments of credit facilities. Navios Logistics anticipates that cash on hand, internally generated cash flows, borrowings under future credit facilities and issuance of other debt will be sufficient to fund its operations, including working capital requirements. In addition, we regularly review opportunities for acquisitions of businesses and additional vessels, development of new facilities and infrastructure, joint ventures and other corporate transactions that may be material to us. In connection with any such transactions, we may need to raise significant amounts of capital, including debt. We do not have any material contractual arrangements for such transactions at this time. See “Working Capital Position,” “Capital Expenditures,” “Contractual Obligations” and “Long-term Debt Obligations and Credit Arrangements” for further discussion of Navios Logistics’ working capital position.
The following table presents cash flow information derived from the unaudited condensed consolidated statements of cash flows of Navios Logistics for the six month periods ended June 30, 2015 and 2014.
(Expressed in thousands of U.S. dollars) | Six Month Period ended June 30, 2015 (unaudited) | Six Month Period ended June 30, 2014 (unaudited) | ||||||
Net cash provided by/(used in) operating activities | $ | 9,759 | $ | (6,575 | ) | |||
Net cash used in investing activities | (8,926 | ) | (38,741 | ) | ||||
Net cash (used in)/provided by financing activities | (744 | ) | 75,133 | |||||
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Increase in cash and cash equivalents | 89 | 29,817 | ||||||
Cash and cash equivalents, beginning of the period | 71,931 | 86,569 | ||||||
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Cash and cash equivalents, end of period | $ | 72,020 | $ | 116,386 | ||||
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Cash provided by operating activities for the six month period ended June 30, 2015 as compared to cash used in operating activities for the six month period ended June 30, 2014
Net cash from operating activities increased by $16.4 million to $9.8 million of cash provided by operating activities for the six month period ended June 30, 2015, as compared to $6.6 million cash used in operating activities for the same period in 2014. In determining net cash from operating activities, net income/(loss) is adjusted for the effect of certain non-cash items including depreciation and amortization and income taxes, which are analyzed in detail as follows:
(Expressed in thousands of U.S. dollars) | Six Month Period ended June 30, 2015 (unaudited) | Six Month Period ended June 30, 2014 (unaudited) | ||||||
Net income/(loss) | $ | 10,238 | $ | (21,612 | ) | |||
Depreciation of vessels, port terminals and other fixed assets, net | 11,145 | 10,156 | ||||||
Amortization of intangible assets and liabilities, net | 1,913 | 1,893 | ||||||
Amortization of deferred financing costs | 453 | 154 | ||||||
Amortization of deferred drydock costs | 3,463 | 2,550 | ||||||
Provision for losses on accounts receivable | (51 | ) | 110 | |||||
Loss on bond extinguishment | — | 4,785 | ||||||
Income tax (benefit)/expense | (1,985 | ) | 958 | |||||
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Net income/(loss) adjusted for non-cash items | $ | 25,176 | $ | (1,006 | ) | |||
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Net income/(loss) is also adjusted for changes in operating assets and liabilities in order to determine net cash provided by/(used in) operating activities.
The negative change in operating assets and liabilities of $15.4 million for the six month period ended June 30, 2015 resulted from a $7.7 million increase in accounts receivable, a $1.4 million increase in prepaid expenses and other current assets, a $6.4 million increase in deferred dry dock costs, a $3.4 million decrease in accounts payable, a $2.2 million decrease in amounts due to affiliates, a $1.8 decrease in deferred income and a $0.1 million increase in long term assets. The negative change in operating assets and liabilities was partially offset by a $6.4 million decrease in inventories and a $1.2 million increase in accrued expenses.
The negative change in operating assets and liabilities of $5.6 million for the six month period ended June 30, 2014 resulted from a $13.2 million increase in accounts receivable, a $7.6 million increase in inventories, a $0.6 million increase in long term assets, a $3.3 million increase in deferred dry dock costs and a $0.1 million decrease in long term liabilities. The negative change in operating assets and liabilities was partially offset by a $12.7 million increase in accounts payable, a $1.7 million decrease in prepaid expenses and other current assets, a $2.5 million increase in deferred income, a $1.7 million increase in accrued expenses and a $0.6 million increase in amounts due to affiliates.
Cash used in investing activities for the six month period ended June 30, 2015 as compared to the six month period ended June 30, 2014:
Net cash used in investing activities decreased by $29.8 million to $8.9 million for the six month period ended June 30, 2015, from $38.7 million for the same period in 2014.
8
Cash used in investing activities for the six month period ended June 30, 2015 was mainly the result of (a) $1.0 million in payments for the transportation and other acquisition costs of the Company’s new dry barges, (b) $2.0 million in payments for the expansion of the Company’s dry port terminal, (c) $2.8 million in payments for the construction of the Company’s three new pushboats and (d) $3.1 million in payments for the purchase of other fixed assets.
Cash used in investing activities for the six month period ended June 30, 2014 was mainly the result of (a) $0.8 million in payments for the construction of a new conveyor belt in Nueva Palmira, (b) $4.4 million in payments for the construction of three new pushboats, (c) $3.6 million in payments for the acquisition and transport of three pushboats which were delivered in the first quarter of 2014, (d) $27.4 million in payments for the construction of new dry barges and (e) $2.5 million in payments for the purchase of other fixed assets.
Cash used in financing activities for the six month period ended June 30, 2015 as compared to cash provided by financing activities for the six month period ended June 30, 2014:
Net cash used in financing activities increased by $75.8 million to $0.7 million cash used in financing activities for the six month period ended June 30, 2015, as compared to $75.1 million of cash provided by financing activities for the same period of 2014.
Cash used in financing activities for the six month period ended June 30, 2015 was mainly due to $0.7 million in payments for obligations under capital leases in connection with the product tanker vessels, the San San H and the Ferni H.
Cash provided by financing activities for the six month period ended June 30, 2014 was mainly due to the $375.0 million proceeds from the issuance of the 2022 Senior Notes. This was partially offset by (a) the $290.0 million repayment of the 2019 Senior Notes, (b) $0.6 million in payments for obligations under capital leases in connection with the San San H and the Ferni H and (c) $9.3 million in payments of deferred financing costs following the issuance of the 2022 Senior Notes.
Adjusted EBITDA Reconciliation to Net Income/(loss)
Adjusted EBITDA: EBITDA represents net income/(loss) plus interest and finance costs plus depreciation and amortization and income taxes. Adjusted EBITDA in this document represents EBITDA before loss on bond extinguishment. Adjusted EBITDA is presented because it is used by certain investors to measure a company’s operating performance.
Adjusted EBITDA is a “non-GAAP financial measure” 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. While Adjusted EBITDA is frequently used as a measure of operating performance, the definition of Adjusted EBITDA used here may not be comparable to that used by other companies due to differences in methods of calculation.
Three Month Period Ended June 30, 2015
(Expressed in thousands of U.S. dollars) | Port Terminal Business (unaudited) | Cabotage Business (unaudited) | Barge Business (unaudited) | Unallocated Interest (unaudited) | Total | |||||||||||||||
Net income/(loss) | $ | 8,612 | $ | (377 | ) | $ | 2,208 | $ | (1,031 | ) | $ | 9,412 | ||||||||
Depreciation and amortization | 1,101 | 649 | 4,841 | — | 6,591 | |||||||||||||||
Amortization of deferred drydock and special survey costs | — | 1,098 | 654 | — | 1,752 | |||||||||||||||
Interest expense and finance cost, net | 455 | 1,334 | 3,915 | 1,031 | 6,735 | |||||||||||||||
Income tax expense/(benefit) | — | �� | 524 | (2,291 | ) | — | (1,767 | ) | ||||||||||||
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Adjusted EBITDA | $ | 10,168 | $ | 3,228 | $ | 9,327 | $ | — | $ | 22,723 | ||||||||||
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Three Month Period Ended June 30, 2014
(Expressed in thousands of U.S. dollars) | Port Terminal Business (unaudited) | Cabotage Business (unaudited) | Barge Business (unaudited) | Unallocated Interest (unaudited) | Total | |||||||||||||||
Net income/(loss) | $ | 8,868 | $ | (1,461 | ) | $ | (28,391 | ) | $ | (451 | ) | $ | (21,435 | ) | ||||||
Loss on bond extinguishment | — | 5,000 | 22,281 | — | 27,281 | |||||||||||||||
Depreciation and amortization | 1,093 | 664 | 4,225 | — | 5,982 | |||||||||||||||
Amortization of deferred drydock and special survey costs | — | 764 | 630 | — | 1,394 | |||||||||||||||
Interest (income)/expense and finance cost, net | (11 | ) | 1,329 | 5,677 | 451 | 7,446 | ||||||||||||||
Income tax (benefit)/expense | (334 | ) | 750 | 342 | — | 758 | ||||||||||||||
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Adjusted EBITDA | $ | 9,616 | $ | 7,046 | $ | 4,764 | $ | — | $ | 21,426 | ||||||||||
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Adjusted EBITDA increased by $1.3 million to $22.7 million for the three month period ended June 30, 2015, as compared to $21.4 million for the same period of 2014. This increase was mainly due to (a) a $4.9 million decrease in time charter, voyage and port terminal expenses of which $5.3 million was attributable to the barge business and $0.1 million was attributable to the port terminal business, partially mitigated by a $0.5 million increase in the cabotage business, (b) a $4.5 million decrease in cost of products sold in the port terminal business and (c) a $0.1 million increase time charter, voyage and port terminal revenues of which $1.5 million was attributable to cabotage business and $0.4 million was attributable to the port terminal business, partially mitigated by a $1.8 million decrease in the barge business. This increase was partially offset by (a) a $3.8 million decrease in sales of products of the port terminal business, (b) a $2.6 million increase in direct vessel expenses (excluding the amortization of deferred drydock and special survey costs), out of which $5.0 million was attributable to the cabotage business, partially mitigated by a $2.4 million decrease in the barge business, (c) a $0.5 million increase in general and administrative expenses, out of which $0.2 million was attributable to the cabotage business, $0.2 million was attributable to the port terminal business and $0.1 million was attributable to the barge business and (d) a $1.3 million increase in other expense, net resulting from a $1.3 increase in the barge business and a $0.4 million increase in the port terminal business, partially mitigated by a $0.4 million decrease in the cabotage business.
Six Month Period Ended June 30, 2015
(Expressed in thousands of U.S. dollars) | Port Terminal Business (unaudited) | Cabotage Business (unaudited) | Barge Business (unaudited) | Unallocated Interest (unaudited) | Total | |||||||||||||||
Net income/(loss) | $ | 12,496 | $ | (320 | ) | $ | 134 | $ | (2,072 | ) | $ | 10,238 | ||||||||
Depreciation and amortization | 2,203 | 1,333 | 9,522 | — | 13,058 | |||||||||||||||
Amortization of deferred drydock and special survey costs | — | 2,235 | 1,228 | — | 3,463 | |||||||||||||||
Interest expense and finance cost, net | 923 | 2,698 | 7,855 | 2,072 | 13,548 | |||||||||||||||
Income tax expense/(benefit) | — | 1,021 | (3,006 | ) | — | (1,985 | ) | |||||||||||||
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Adjusted EBITDA | $ | 15,622 | $ | 6,967 | $ | 15,733 | $ | — | $ | 38,322 | ||||||||||
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Six Month Period Ended June 30, 2014
(Expressed in thousands of U.S. dollars) | Port Terminal Business (unaudited) | Cabotage Business (unaudited) | Barge Business (unaudited) | Unallocated Interest (unaudited) | Total | |||||||||||||||
Net income/(loss) | $ | 11,806 | $ | 813 | $ | (33,067 | ) | $ | (1,164 | ) | $ | (21,612 | ) | |||||||
Loss on bond extinguishment | — | 5,000 | 22,281 | — | 27,281 | |||||||||||||||
Depreciation and amortization | 2,177 | 1,328 | 8,544 | — | 12,049 | |||||||||||||||
Amortization of deferred drydock and special survey costs | — | 1,413 | 1,137 | — | 2,550 | |||||||||||||||
Interest (income)/expense and finance cost, net | (23 | ) | 2,923 | 10,098 | 1,164 | 14,162 | ||||||||||||||
Income tax (benefit)/expense | (168 | ) | 1,324 | (198 | ) | — | 958 | |||||||||||||
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Adjusted EBITDA | $ | 13,792 | $ | 12,801 | $ | 8,795 | $ | — | $ | 35,388 | ||||||||||
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Adjusted EBITDA increased by $2.9 million to $38.3 million for the six month period ended June 30, 2015, as compared to $35.4 million for the same period of 2014. This increase was mainly due to (a) a $4.0 million increase in time charter, voyage and port terminal revenues, of which $2.0 million was attributable to the port terminal business, $1.8 million was attributable to the cabotage business and $0.2 million was attributable to the barge business, (b) a $11.7 million increase in sales of products sold in the port terminal business and (c) a $5.8 million decrease in time charter, voyage and port terminal expenses, of which $7.2 million was attributable to the barge business, partially mitigated by a $1.1 million increase in the cabotage business and a $0.3 million increase in the port terminal business. This increase was partially offset by (a) $10.6 million increase in cost of products sold in the port terminal business, (b) a $4.5million increase in direct vessel expenses (excluding the amortization of deferred drydock and special survey costs), attributable to a $6.4 million increase in the cabotage business, partially mitigated by a $1.9 million decrease in the barge business, (c) a $0.7 million increase in the general and administrative expenses, of which $0.3 million was attributable to the port terminal business, $0.2 million was attributable to the cabotage business and $0.2 million was attributable to the barge business and (d) a $2.8 million increase in other expense, net resulting from a $2.0 million increase in the barge business, a $0.1 million increase in the cabotage business and a $0.7 million increase in the port terminal business.
Long-term Debt Obligations and Credit Arrangements
Senior Notes
On April 22, 2014, Navios Logistics and its wholly owned subsidiary Navios Logistics Finance (US) Inc. (“Logistics Finance” and together with Navios Logistics, the “Co-Issuers”) issued $375.0 million in aggregate principal amount of Senior Notes due on May 1, 2022 (the “2022 Senior Notes”), at a fixed rate of 7.25%. The net proceeds from the sale of the 2022 Senior Notes were partially used to redeem any and all of Navios Logistics then-outstanding 9.25% Senior Notes due 2019 and pay related transaction fees and expenses. The 2022 Senior Notes are unregistered and are fully and unconditionally guaranteed, jointly and severally, by all of Navios Logistics’ direct and indirect subsidiaries except for Horamar do Brasil Navegação Ltda (“Horamar do Brasil”) and Naviera Alto Parana S.A. (“Naviera Alto Parana”), which are deemed to be immaterial, and Logistics Finance, which is the co-issuer of the 2022 Senior Notes. The subsidiary guarantees are “full and unconditional,” except that the indenture provides for an individual subsidiary’s guarantee to be automatically released in certain customary circumstances, such as in connection with a sale or other disposition of all or substantially all of the assets of the subsidiary, in connection with the sale of a majority of the capital stock of the subsidiary, if the subsidiary is designated as an “unrestricted subsidiary” in accordance with the indenture, upon liquidation or dissolution of the subsidiary or upon legal or covenant defeasance or satisfaction and discharge of the 2022 Senior Notes.
The Co-Issuers have the option to redeem the 2022 Senior Notes in whole or in part, at their option, at any time (i) before May 1, 2017, at a redemption price equal to 100% of the principal amount plus the applicable make-whole premium plus accrued and unpaid interest, if any, to the redemption date and (ii) on or after May 1, 2017, at a fixed price of 105.438%, which price declines ratably until it reaches par in 2020. At any time before May 1, 2017, the Co-Issuers may redeem up to 35% of the aggregate principal amount of the 2022 Senior Notes with the net proceeds of an equity offering at 107.250% of the principal amount of the 2022 Senior Notes, plus accrued and unpaid interest, if any, to the redemption date so long as at least 65% of the originally issued aggregate principal amount of the 2022 Senior Notes remains outstanding after such redemption. In addition, upon the occurrence of certain change of control events, the holders of the 2022 Senior Notes will have the right to require the Co-Issuers to repurchase some or all of the 2022 Senior Notes at 101% of their face amount, plus accrued and unpaid interest to the repurchase date.
The indenture contains covenants which, among other things, limit the incurrence of additional indebtedness, issuance of certain preferred stock, the payment of dividends in excess of 6% per annum of the net proceeds received by or contributed to Navios Logistics in or from any public offering, redemption or repurchase of capital stock or making restricted payments and investments, creation of certain liens, transfer or sale of assets, entering into transactions with affiliates, merging or consolidating or selling all or substantially all of Navios Logistics’ properties and assets and creation or designation of restricted subsidiaries.
The 2022 Senior Notes include customary events of default, including failure to pay principal and interest on the 2022 Senior Notes, a failure to comply with covenants, a failure by Navios Logistics or any significant subsidiary or any group of our restricted subsidiaries that, taken together, would constitute a significant subsidiary to pay material judgments or indebtedness and bankruptcy and insolvency events with respect to us or any significant subsidiary or any group of our restricted subsidiaries that, taken together, would constitute a significant subsidiary.
As of June 30, 2015, all subsidiaries, including Logistics Finance, Horamar do Brasil and Naviera Alto Parana are 100% owned. Logistics Finance, Horamar do Brasil and Naviera Alto Parana do not have any independent assets or operations. In addition, there are no significant restrictions on (i) the ability of the parent company, any issuer (or co-issuer) or any guarantor subsidiaries of the 2022 Senior Notes to obtain funds by dividend or loan from any of their subsidiaries or (ii) the ability of any subsidiaries to transfer funds to the issuer (or co-issuer) or any guarantor subsidiaries.
11
Other Indebtedness
In connection with the acquisition of Hidronave South American Logistics S.A. (“Hidronave S.A.”), on October 29, 2009, Navios Logistics assumed a $0.8 million loan facility that was entered into by Hidronave S.A. in 2001 in order to finance the construction of the pushboat Nazira.
As of June 30, 2015, the outstanding loan balance was $0.4 million. The loan facility bears a fixed interest rate of 600 basis points. The loan will be repaid in monthly installments and the final repayment date must occur prior to August 10, 2021.
We were in compliance with all the covenants as of June 30, 2015.
The maturity table below reflects the principal payments for the next five years and thereafter on all credit facilities outstanding as of June 30, 2015, based on the repayment schedule of the respective loan facilities (as described above).
Payment due by period | June 30, 2015 (Amounts in millions of U.S. dollars) | |||
June 30, 2016 | 0.1 | |||
June 30, 2017 | 0.1 | |||
June 30, 2018 | 0.1 | |||
June 30, 2019 | 0.1 | |||
June 30, 2020 | 0.1 | |||
June 30, 2021 and thereafter | 375.0 | |||
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Total long-term borrowings | $ | 375.5 | ||
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Contractual Obligations
The following table summarizes Navios Logistics’ contractual obligations as of June 30, 2015:
Contractual Obligations (Amounts in millions of U.S. dollars) | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | |||||||||||||||
Long-term debt obligations(1) | $ | 0.1 | $ | 0.2 | $ | 0.2 | $ | 375.0 | $ | 375.5 | ||||||||||
Operating lease obligations (pushboats and barges) | 0.2 | — | — | — | 0.2 | |||||||||||||||
Capital lease obligations(2) | 2.9 | 4.8 | 13.8 | — | 21.5 | |||||||||||||||
Acquisition of three pushboats(3) | 13.8 | — | — | — | 13.8 | |||||||||||||||
Acquisition of chartered-in fleet obligations(4) | 5.7 | — | — | — | 5.7 | |||||||||||||||
Acquisition of Edolmix and Cartisur(5) | 6.8 | — | — | — | 6.8 | |||||||||||||||
Design works in the dry port facility | 1.2 | — | — | — | 1.2 | |||||||||||||||
Rent obligations(6) | 0.9 | 1.2 | 0.2 | — | 2.3 | |||||||||||||||
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Total | $ | 31.6 | $ | 6.2 | $ | 14.2 | $ | 375.0 | $ | 427.0 | ||||||||||
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(1) | Represents principal payments on amounts drawn on our outstanding credit facilities that bear interest at fixed interest rates. The amounts in the table exclude fixed interest payments of $27.2 million (less than 1 year), $54.4 million (1-3 years), $54.4 million (3-5 years) and $54.4 million (more than 5 years). Interest payments are based on the terms of the outstanding debt obligations. |
(2) | Future remaining contractual payments for the two of our cabotage vessels under capital lease, the Ferni H and the San San H. |
(3) | Future remaining contractual payments for the acquisition of three pushboats. |
(4) | Future remaining contractual payments for the acquisition of one pushboat and three liquid barges. |
(5) | Future remaining contractual obligations that represent deferred considerations for the acquisition of Edolmix and Cartisur. |
(6) | Navios Logistics has several lease agreements with respect to its various operating offices. For a detailed discussion of Navios Logistics’ lease agreements, refer to “Item 4.D. Property Plants and Equipment”, included in the 2014 Form 20-F. |
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Working Capital Position
On June 30, 2015, Navios Logistics’ current assets totaled $126.4 million, while current liabilities totaled $66.2 million, resulting in a positive working capital position of $60.2 million. Navios Logistics’ cash forecast indicates that Navios Logistics will generate sufficient cash for at least the next 12 months to make the required principal and interest payments on Navios Logistics’ indebtedness, provide for the normal working capital requirements of the business and remain in a positive cash position.
Navios Logistics’ Argentine subsidiaries could be prevented from transferring funds outside of Argentina. While projections indicate that existing cash balances and operating cash flows will be sufficient to service the existing indebtedness, Navios Logistics continues to review its cash flows with a view toward increasing working capital.
Capital Expenditures
On June 30, 2015, the Company entered into an agreement for the restructuring of its capital leases for the Ferni H and the San San H, by extending their duration until January 2020 and April 2020, respectively, and amending the purchase price obligation to $5.3 million and $5.2 million, respectively, each at the end of the extended period. As of June 30, 2015, the obligations for these vessels were accounted for as capital leases and the lease payments during the six month period ended June 30, 2015 were $0.7 million.
On February 11, 2014, the Company entered into an agreement for the construction of three newbuilding pushboats with a purchase price of $7.6 million for each pushboat. As of June 30, 2015, the Company had paid $9.4 million for the construction of the new pushboats which are expected to be delivered in the first quarter of 2016.
As of June 30, 2015, Navios Logistics had paid $18.3 million relating to the expansion of its dry port terminal in Uruguay.
Dividend Policy
The payment of dividends is at the discretion of Navios Logistics’ board of directors. Navios Logistics anticipates retaining most of its future earnings, if any, for use in its operations and the expansion of its business. Any determination as to dividend policy will be made by Navios Logistics’ board of directors and will depend on a number of factors, including the requirements of Marshall Islands law, Navios Logistics’ future earnings, capital requirements, financial condition and future prospects and such other factors as Navios Logistics’ board of directors may deem relevant. Marshall Islands law generally prohibits the payment of dividends other than from surplus, when a company is insolvent or if the payment of the dividend would render the company insolvent.
Navios Logistics’ ability to pay dividends is also restricted by the terms of the indenture governing its 2022 Senior Notes.
Because Navios Logistics is a holding company with no material assets other than the stock of its subsidiaries, its ability to pay dividends is dependent upon the earnings and cash flow of its subsidiaries and their ability to pay dividends to Navios Logistics. If there is a substantial decline in any of the markets in which Navios Logistics participates, its earnings will be negatively affected, thereby limiting its ability to pay dividends.
Concentration of Credit Risk
Accounts Receivable
Concentration of credit risk with respect to accounts receivables are limited due to Navios Logistics large number of customers, who are established international operators and have an appropriate credit history. Due to these factors, management believes that no additional credit risk beyond amounts provided for collection losses is inherent in the Company’s trade receivables. For the six month period ended June 30, 2015, two customers, Vale and Cammesa, accounted for 27.6% and 15.2% of Navios Logistics’ revenues, respectively. For the six month period ended June 30, 2014, three customers, Vale, Cammessa and Axion Energy, accounted for 20.9%, 14.2% and 10.1% of Navios Logistics’ revenues, respectively.
Cash Deposits with Financial Institutions
Cash deposits in excess of amounts covered by government-provided insurance are exposed to loss in the event of non-performance by financial institutions. Although Navios Logistics maintains cash deposits in excess of government-provided insurance limits, Navios Logistics minimizes its exposure to credit risk by dealing with a diversified group of major financial institutions.
13
Off-Balance Sheet Arrangements
Charter hire payments to third parties for chartered-in barges and pushboats are treated as operating leases for accounting purposes. Navios Logistics is also committed to making rental payments under various operating leases for office and other premises.
The Company issued a guarantee and indemnity letter that guarantees the performance by Petrolera San Antonio S.A. of all its obligations to Vitol S.A. up to $12.0 million. This guarantee expires on March 1, 2016.
Legal Proceedings
The Company is subject to legal proceedings, claims and contingencies arising in the ordinary course of business. When such amounts can be estimated and the contingency is probable, management accrues the corresponding liability. While the ultimate outcome of lawsuits or other proceedings against the Company cannot be predicted with certainty, management does not believe the costs, individually or in aggregate, of such actions will have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
Related Party Transactions
Balance due to affiliates as of June 30, 2015 amounted to $1.3 million ($1.8 million as of December 31, 2014) which includes the current amounts due to Navios Holdings.
General and administrative expenses: On April 12, 2011, Navios Logistics entered into an administrative services agreement for a term of five years, with Navios Holdings, pursuant to which Navios Holdings provides certain administrative management services to Navios Logistics. Such services include bookkeeping, audit and accounting services, legal and insurance services, administrative and clerical services, banking and financial services, advisory services, client and investor relations and other services. Navios Holdings is reimbursed for reasonable costs and expenses incurred in connection with the provision of these services. Total general and administrative fees charged for the three and six month periods ended June 30, 2015 amounted to $0.2 million and $0.4 million, respectively ($0.2 million and $0.4 million for the three and six month periods ended June 30, 2014, respectively).
Due to related parties, net: During the second half of 2012, Navios Logistics acquired one pushboat and three liquid barges, which were previously chartered-in by Navios Logistics, from Holdux Maritima Leasing Corp., a Panamanian company owned by members of the family of Mr. Horacio Alfredo Lopez, the father of Mr. Claudio Pablo Lopez, Navios Logistics’ Chief Executive Officer and Vice Chairman, Mr. Carlos Augusto Lopez, Navios Logistics’ Chief Commercial Officer—Shipping Division and Mr. Horacio Enrique Lopez Navios Logistics’ Chief Operating Officer—Shipping Division. The total consideration for the acquisition was $13.4 million to be paid in one initial payment and seven semiannual installments with the final installment payable on June 30, 2016. As of June 30, 2015, the Company had paid $7.7 million and the remaining balance was $5.7 million.
Lodging and travel services:Navios Logistics obtains lodging and travel services from Empresa Hotelera Argentina S.A./(NH Lancaster) and Pit Jet S.A., both owned by members of the Lopez family, including Claudio Pablo Lopez, Navios Logistics’ Chief Executive Officer and Vice Chairman and Carlos Augusto Lopez, Navios Logistics’ Chief Commercial Officer—Shipping Division, each of whom has no controlling interest in those companies. Total charges were less than $0.1 million for both the three and six month periods ended June 30, 2015 and 2014 and amounts payable amounted to less than $0.1 million both as of June 30, 2015 and as of December 31, 2014.
Navios Logistics believes that the transactions discussed above were made on terms no less favorable to the Company than would have been obtained from unaffiliated third parties.
Quantitative and Qualitative Disclosures about Market Risks
Navios Logistics is exposed to certain risks related to interest rates, foreign currency and time charter hire rate fluctuation. Risk management is carried out under policies approved by executive management.
Interest Rate Risk:
Debt Instruments—Both as of June 30, 2015 and December 31, 2014, Navios Logistics had a total of $375.5 million in long-term indebtedness. The debt is U.S dollar-denominated and bears interest at a fixed rate.
Interest rates on the loan facility of Hidronave S.A. and the 2022 Senior Notes are fixed and, therefore, changes in interest rates affect their fair value which as of June 30, 2015 was $0.4 million and $361.4 million, respectively, but do not affect the related interest expense.
14
For a detailed discussion of Navios Logistics’ debt instruments refer to section “Long-term Debt Obligations and Credit Arrangements” included elsewhere in this document.
Foreign Currency Transactions:
For the six month periods ended June 30, 2015 and 2014 approximately 50.9% and 53.8%, respectively, of Navios Logistics’ expenses were incurred in currencies other than U.S dollars. A change in exchange rates between the U.S. dollar and each of the foreign currencies the Company transacts by 1.00% would change Navios Logistics’ net income for the six month period ended June 30, 2015 by $0.4 million. See also “Factors Affecting Navios Logistics’ Results of Operations.”
Inflation and Fuel Price Increases
See “Factors Affecting Navios Logistics’ Results of Operations.”
Recent accounting pronouncements
In July 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-11, “Simplifying the measurement of inventory”. Topic 330—Inventory, currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments in this ASU require an entity to measure inventory at the lower of cost and net realizable value. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in this ASU should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of this new standard is not expected to have a material impact on Navios Logistics’ results of operations, financial position or cash flows.
In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810)—Amendments to the Consolidation Analysis”, which amends the criteria for determining which entities are considered variable interest entities (“VIEs”), amends the criteria for determining if a service provider possesses a variable interest in a VIE and ends the deferral granted to investment companies for application of the VIE consolidation model. The ASU is effective for interim and annual periods beginning after December 15, 2015. Early application is permitted. We do not expect the adoption of this ASU to have a material impact on the Company’s results of operations, financial position or cash flows, except if Navios Logistics were to enter into new arrangements in 2015 that fall into the scope prior to adoption of this standard.
In January 2015, the FASB issued ASU 2015-01, Income Statement Extraordinary and Unusual Items. This standard eliminates the concept of extraordinary and unusual items from U.S. GAAP. The new standard is effective for annual and interim periods after December 15, 2015. Early adoption is permitted. Navios Logistics plans to adopt this standard effective January 1, 2016. The adoption of the new standard is not expected to have a material impact on Navios Logistics’ results of operations, financial position or cash flows.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This standard requires management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. Before this new standard, no accounting guidance existed for management on when and how to assess or disclose going concern uncertainties. The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted. We plan to adopt this standard effective January 1, 2017. The adoption of the new standard is not expected to have a material impact on Navios Logistics’ results of operations, financial position or cash flows.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, clarifying the method used to determine the timing and requirements for revenue recognition on the statements of income. Under the new standard, an entity must identify the performance obligations in a contract, the transaction price and allocate the price to specific performance obligations to recognize the revenue when the obligation is completed. The amendments in this update also require disclosure of sufficient information to allow users to understand the nature, amount, timing and uncertainty of revenue and cash flow arising from contracts. The new accounting guidance was originally effective for interim and annual periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14 to defer the effective date of ASU 2014-09 for all entities by one year. The standard will be effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. Navios Logistics is currently reviewing the effect of ASU No. 2014-09 on its revenue recognition.
15
Critical Accounting Policies
The Navios Logistics’ interim consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires Navios Logistics to make estimates in the application of its accounting policies based on the best assumptions, judgments and opinions of management.
The Company’s most critical accounting policies and estimates are those that involve subjective decisions or assessments and are included in the Company’s 2014 Form 20-F.
16
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
NAVIOS SOUTH AMERICAN LOGISTICS INC. | ||||
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AS AT JUNE 30, 2015 AND DECEMBER 31, 2014 | F-2 | |||
F-3 | ||||
F-4 | ||||
F-5 | ||||
CONDENSED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | F-6 |
F-1
NAVIOS SOUTH AMERICAN LOGISTICS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of U.S. dollars—except share data)
Notes | June 30, 2015 (unaudited) | December 31, 2014 (unaudited) | ||||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 72,020 | $ | 71,931 | ||||||||
Accounts receivable, net | 37,086 | 29,317 | ||||||||||
Prepaid expenses and other current assets | 11,261 | 10,618 | ||||||||||
Inventories | 6,052 | 12,435 | ||||||||||
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Total current assets | 126,419 | 124,301 | ||||||||||
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Deposits for vessels, port terminals and other fixed assets | 3 | 27,700 | 23,225 | |||||||||
Vessels, port terminals and other fixed assets, net | 3 | 437,934 | 443,625 | |||||||||
Intangible assets other than goodwill | 4 | 68,984 | 70,897 | |||||||||
Goodwill | 104,096 | 104,096 | ||||||||||
Other long term-assets | 23,112 | 19,989 | ||||||||||
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Total non-current assets | 661,826 | 661,832 | ||||||||||
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Total assets | $ | 788,245 | $ | 786,133 | ||||||||
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LIABILITIES AND EQUITY | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable | $ | 26,012 | $ | 29,378 | ||||||||
Due to affiliate companies | 7 | 1,264 | 1,783 | |||||||||
Accrued expenses | 19,177 | 18,058 | ||||||||||
Deferred income | 4,355 | 6,182 | ||||||||||
Due to related parties, net | 5,625 | 5,469 | ||||||||||
Other current liabilities | 6,800 | 6,800 | ||||||||||
Current portion of capital lease obligations | 3 | 2,886 | 1,449 | |||||||||
Current portion of long-term debt | 5 | 69 | 69 | |||||||||
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Total current liabilities | $ | 66,188 | 69,188 | |||||||||
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Senior notes, net | 5 | 366,703 | 366,250 | |||||||||
Due to related parties, net | — | 1,896 | ||||||||||
Long term-debt, net of current portion | 5 | 356 | 390 | |||||||||
Capital lease obligations, net of current portion | 3 | 18,555 | 20,911 | |||||||||
Deferred tax liability | 11,364 | 12,735 | ||||||||||
Other long-term liabilities | 1,066 | 988 | ||||||||||
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Total non-current liabilities | $ | 398,044 | 403,170 | |||||||||
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Total liabilities | $ | 464,232 | 472,358 | |||||||||
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Commitments and contingencies | 6 | — | — | |||||||||
STOCKHOLDERS’ EQUITY | ||||||||||||
Common stock—$1.00 par value: 50,000,000 authorized shares; 20,000 shares issued and outstanding for both, June 30, 2015 and December 31, 2014 | 20 | 20 | ||||||||||
Additional paid-in capital | 303,441 | 303,441 | ||||||||||
Retained earnings | 20,552 | 10,314 | ||||||||||
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Total stockholders’ equity | 324,013 | 313,775 | ||||||||||
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Total liabilities and stockholders’ equity | $ | 788,245 | $ | 786,133 | ||||||||
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2
NAVIOS SOUTH AMERICAN LOGISTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in thousands of U.S. dollars—except share data)
Notes | Three Month Period Ended June 30, 2015 (unaudited) | Three Month Period Ended June 30, 2014 (unaudited) | Six Month Period Ended June 30, 2015 (unaudited) | Six Month Period Ended June 30, 2014 (unaudited) | ||||||||||||||||
Time charter, voyage and port terminal revenues | $ | 57,613 | $ | 57,523 | $ | 104,528 | $ | 100,463 | ||||||||||||
Sales of products | 8,643 | 12,445 | 26,790 | 15,103 | ||||||||||||||||
Time charter, voyage and port terminal expenses | (7,749 | ) | (12,631 | ) | (17,140 | ) | (22,875 | ) | ||||||||||||
Direct vessel expenses | (22,860 | ) | (19,978 | ) | (40,955 | ) | (35,636 | ) | ||||||||||||
Cost of products sold | (7,311 | ) | (11,796 | ) | (24,919 | ) | (14,349 | ) | ||||||||||||
Depreciation and amortization | 3,4 | (6,591 | ) | (5,982 | ) | (13,058 | ) | (12,049 | ) | |||||||||||
General and administrative expenses | (3,911 | ) | (3,351 | ) | (7,517 | ) | (6,759 | ) | ||||||||||||
Interest expense and finance cost, net | (6,735 | ) | (7,446 | ) | (13,548 | ) | (14,162 | ) | ||||||||||||
Loss on bond extinguishment | 5 | — | (27,281 | ) | — | (27,281 | ) | |||||||||||||
Other expense, net | (3,454 | ) | (2,180 | ) | (5,928 | ) | (3,109 | ) | ||||||||||||
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Income/(loss) before income taxes | $ | 7,645 | $ | (20,677 | ) | $ | 8,253 | $ | (20,654 | ) | ||||||||||
Income tax benefit/(expense) | 1,767 | (758 | ) | 1,985 | (958 | ) | ||||||||||||||
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Net income/(loss) | $ | 9,412 | $ | (21,435 | ) | $ | 10,238 | $ | (21,612 | ) | ||||||||||
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Basic and diluted net earnings/(loss) | 8 | $ | 0.47 | $ | (1.08 | ) | $ | 0.51 | $ | (1.08 | ) | |||||||||
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Weighted average number of shares, basic and diluted | 20,000 | 20,000 | 20,000 | 20,000 | ||||||||||||||||
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-3
NAVIOS SOUTH AMERICAN LOGISTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of U.S. dollars)
Notes | Six Month Period Ended June 30, 2015 (unaudited) | Six Month Period Ended June 30, 2014 (unaudited) | ||||||||||
OPERATING ACTIVITIES: | ||||||||||||
Net income/(loss) | $ | 10,238 | $ | (21,612 | ) | |||||||
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities: | ||||||||||||
Non-cash adjustments | 14,938 | 20,606 | ||||||||||
Increase in operating assets | (2,841 | ) | (19,764 | ) | ||||||||
(Decrease)/increase in operating liabilities | (6,214 | ) | 17,495 | |||||||||
Payments for drydock and special survey costs | (6,362 | ) | (3,300 | ) | ||||||||
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Net cash provided by/(used in) operating activities | 9,759 | (6,575 | ) | |||||||||
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INVESTING ACTIVITIES: | ||||||||||||
Acquisition of vessels, port terminals and other fixed assets | (4,451 | ) | (29,183 | ) | ||||||||
Deposits for vessels, port terminals and other fixed assets | (4,475 | ) | (9,558 | ) | ||||||||
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Net cash used in investing activities | (8,926 | ) | (38,741 | ) | ||||||||
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FINANCING ACTIVITIES: | ||||||||||||
Proceeds on issuance of 2022 Senior Notes | 5 | — | 375,000 | |||||||||
Repayment of 2019 Senior Notes | 5 | — | (290,000 | ) | ||||||||
Repayments of long-term debt | 5 | (34 | ) | (34 | ) | |||||||
Payments of obligations under capital leases | (710 | ) | (565 | ) | ||||||||
Debt issuance costs | 5 | — | (9,268 | ) | ||||||||
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Net cash (used in)/provided by financing activities | (744 | ) | 75,133 | |||||||||
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Net increase in cash and cash equivalents | 89 | 29,817 | ||||||||||
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Cash and cash equivalents, beginning of period | 71,931 | 86,569 | ||||||||||
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Cash and cash equivalents, end of period | $ | 72,020 | $ | 116,386 | ||||||||
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||
Cash paid for interest, net of capitalized interest | $ | 13,028 | $ | 13,231 | ||||||||
Cash paid for income taxes | $ | — | $ | 381 | ||||||||
Non cash investing and financing activities: | ||||||||||||
Revaluation of vessels due to restructuring of capital lease obligation | $ | 210 | $ | — | ||||||||
Decrease in capital lease obligation due to restructuring | $ | (210 | ) | $ | — | |||||||
Acquisition of vessels, port terminals and other fixed assets, net | $ | (1,213 | ) | $ | (950 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-4
NAVIOS SOUTH AMERICAN LOGISTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Expressed in thousands of U.S. dollars—except share data)
Number of shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||
Balance December 31, 2013 | 20,000 | $ | 20 | $ | 303,441 | $ | 27,018 | $ | 330,479 | |||||||||||
Net loss | — | — | — | (21,612 | ) | (21,612 | ) | |||||||||||||
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Balance June 30, 2014 (unaudited) | 20,000 | $ | 20 | $ | 303,441 | $ | 5,406 | $ | 308,867 | |||||||||||
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Balance December 31, 2014 | 20,000 | $ | 20 | $ | 303,441 | $ | 10,314 | $ | 313,775 | |||||||||||
Net income | — | — | — | 10,238 | 10,238 | |||||||||||||||
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Balance June 30, 2015 (unaudited) | 20,000 | $ | 20 | $ | 303,441 | $ | 20,552 | $ | 324,013 | |||||||||||
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-5
NAVIOS SOUTH AMERICAN LOGISTICS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars—except share data)
NOTE 1: DESCRIPTION OF BUSINESS
Navios South American Logistics Inc. (“Navios Logistics” or the “Company”) is one of the largest logistics companies in the Hidrovia region of South America, focusing on the Hidrovia river system, the main navigable river system in the region, and on cabotage trades along the eastern coast of South America. Navios Logistics is focused on providing its customers integrated transportation, storage and related services through its port facilities, its large, versatile fleet of dry and liquid cargo barges and its product tankers. Navios Logistics serves the needs of a number of growing South American industries, including mineral and grain commodity providers as well as users of refined petroleum products.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of Presentation:
The accompanying interim condensed consolidated financial statements are unaudited, but, in the opinion of management, reflect all adjustments for a fair statement of Navios Logistics’ consolidated financial positions, statement of changes in equity, statements of operations and cash flows for the periods presented. Adjustments consist of normal, recurring entries. The results of operations for the interim periods are not necessarily indicative of results for the full year. The footnotes are condensed as permitted by the requirements for interim financial statements and, accordingly, do not include information and disclosures required under United States generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes included in Navios Logistics’ 2014 annual report filed on Form 20-F with the Securities and Exchange Commission (“SEC”).
Change in Accounting Principle
The Company historically presented deferred debt issuance costs, or fees related to directly issuing debt, as long-term assets on the consolidated balance sheets. During the first quarter of 2015, the Company adopted guidance codified in ASU 2015-03 Interest -Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). The guidance simplifies the presentation of debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs is not affected. Therefore, these costs will continue to be amortized as interest expense using the effective interest method pursuant to ASC 835-30-35-2 through 35-3. The Company elected to early adopt the requirements of ASU 2015-03 effective beginning from the first quarter ended March 31, 2015 and applied this guidance retrospectively to all prior periods presented in the Company’s financial statements.
The reclassification does not impact net income as previously reported or any prior amounts reported on the statements of operations, or the consolidated statements of cash flows. The effect of the retrospective application of this change in accounting principle on the Company’s consolidated balance sheets as of December 31, 2014 resulted in a reduction of Total non-current assets and Total assets in the amount of $8,750, with a corresponding decrease of $8,750 in Senior notes, net and Total non-current liabilities.
(b) Principles of Consolidation:
The accompanying interim condensed consolidated financial statements include the accounts of Navios Logistics and its subsidiaries, both majority and wholly-owned. All significant intercompany balances and transactions between these entities have been eliminated in the consolidated statements.
Subsidiaries Included in the Consolidation:
Subsidiaries are those entities in which the Company has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies. The acquisition method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition. The excess of the cost of acquisition over the fair value of the net assets acquired and liabilities assumed is recorded as goodwill.
F-6
NAVIOS SOUTH AMERICAN LOGISTICS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars—except share data)
Statement of Operations | ||||||||||
Country of | Nature | Percentage of | Period Ended June 30, | |||||||
Company Name | Incorporation | Ownership | 2015 | 2014 | ||||||
Corporacion Navios S.A. | Uruguay | Operating Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
Energias Renovables del Sur S.A. | Uruguay | Port-Terminal Rights Owning Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
Nauticler S.A. | Uruguay | Sub-Holding Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
Compania Naviera Horamar S.A. | Argentina | Vessel-Operating Management Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
Compania de Transporte Fluvial International S.A. | Uruguay | Sub-Holding Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
Ponte Rio S.A. | Uruguay | Operating Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
HS Tankers Inc. | Panama | Tanker-Owning Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
HS Navigation Inc. | Panama | Tanker-Owning Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
HS Shipping Ltd. Inc. | Panama | Tanker-Owning Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
HS South Inc. | Panama | Tanker-Owning Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
Petrovia Internacional S.A. | Uruguay | Land-Owning Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
Mercopar S.A. | Paraguay | Operating/Barge-Owning Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
Petrolera San Antonio S.A. | Paraguay | Port Facility-Owning Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
Stability Oceanways S.A. | Panama | Barge and Pushboat-Owning Operating Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
Hidronave South American Logistics S.A. | Brazil | Pushboat-Owning Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
Horamar do Brasil Navegação Ltda | Brazil | Non-Operating Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
Navarra Shipping Corporation | Marshall Is. | Tanker-Owning Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
Pelayo Shipping Corporation | Marshall Is. | Tanker-Owning Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
Navios Logistics Finance (US) Inc. | Delaware | Operating Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
Varena Maritime Services S.A. | Panama | Barge and Pushboat-Owning Operating Company | 100% | 1/1-6/30 | 1/1-6/30 | |||||
Honey Bunkering S.A. | Panama | Tanker-Owning Company | 100% | 1/1-6/30 | — | |||||
Naviera Alto Parana S.A. | Paraguay | Non-Operating Company | 100% | 1/1-6/30 | — | |||||
Edolmix S.A. | Uruguay | Port-Terminal Rights Owning Company | 100% | 1/1-6/30 | — | |||||
Cartisur S.A. | Uruguay | Port-Terminal Rights Owning Company | 100% | 1/1-6/30 | — | |||||
NP Trading S.A. | British Virgin Islands | Sub-Holding Company | 100% | 1/1-6/30 | — | |||||
Ruswe International S.A. | Uruguay | Barge-Operating Company | 100% | 1/1-6/30 | — |
F-7
NAVIOS SOUTH AMERICAN LOGISTICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars—except share data)
(c) Use of Estimates:
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an on-going basis, management evaluates the estimates and judgments, including those related to uncompleted voyages, future drydock dates, the selection of useful lives for tangible and intangible assets, expected future cash flows from long-lived assets to support impairment tests, impairment testing for goodwill, provisions necessary for losses on accounts receivable and demurrages, provisions for legal disputes, and contingencies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions and/or conditions.
(d) Recent accounting pronouncements:
In July 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-11, “Simplifying the measurement of inventory”. Topic 330—Inventory, currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments in this ASU require an entity to measure inventory at the lower of cost and net realizable value. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in this ASU should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of this new standard is not expected to have a material impact on Navios Logistics’ results of operations, financial position or cash flows.
In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810)—Amendments to the Consolidation Analysis”, which amends the criteria for determining which entities are considered variable interest entities (“VIEs”), amends the criteria for determining if a service provider possesses a variable interest in a VIE and ends the deferral granted to investment companies for application of the VIE consolidation model. The ASU is effective for interim and annual periods beginning after December 15, 2015. Early application is permitted. We do not expect the adoption of this ASU to have a material impact on the Company’s results of operations, financial position or cash flows, except if Navios Logistics were to enter into new arrangements in 2015 that fall into the scope prior to adoption of this standard.
In January 2015, the FASB issued ASU 2015-01, Income Statement Extraordinary and Unusual Items. This standard eliminates the concept of extraordinary and unusual items from U.S. GAAP. The new standard is effective for annual and interim periods after December 15, 2015. Early adoption is permitted. Navios Logistics plans to adopt this standard effective January 1, 2016. The adoption of the new standard is not expected to have a material impact on Navios Logistics’ results of operations, financial position or cash flows.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This standard requires management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. Before this new standard, no accounting guidance existed for management on when and how to assess or disclose going concern uncertainties. The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted. We plan to adopt this standard effective January 1, 2017. The adoption of the new standard is not expected to have a material impact on Navios Logistics’ results of operations, financial position or cash flows.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, clarifying the method used to determine the timing and requirements for revenue recognition on the statements of income. Under the new standard, an entity must identify the performance obligations in a contract, the transaction price and allocate the price to specific performance obligations to recognize the revenue when the obligation is completed. The amendments in this update also require disclosure of sufficient information to allow users to understand the nature, amount, timing and uncertainty of revenue and cash flow arising from contracts. The new accounting guidance was originally effective for interim and annual periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14 to defer the effective date of ASU 2014-09 for all entities by one year. The standard will be effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. Navios Logistics is currently reviewing the effect of ASU No. 2014-09 on its revenue recognition.
F-8
NAVIOS SOUTH AMERICAN LOGISTICS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars—except share data)
NOTE 3: VESSELS, PORT TERMINALS AND OTHER FIXED ASSETS, NET
Vessels, port terminals and other fixed assets, net consisted of the following:
Tanker Vessels, Barges and Pushboats | Cost | Accumulated Depreciation | Net Book Value | |||||||||
Balance December 31, 2014 | $ | 464,968 | $ | (111,139 | ) | $ | 353,829 | |||||
Additions | 3,979 | (9,092 | ) | (5,113 | ) | |||||||
Restructuring of capital lease | (210 | ) | — | (210 | ) | |||||||
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|
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|
|
| |||||||
Balance June 30, 2015 | $ | 468,737 | $ | (120,231 | ) | $ | 348,506 | |||||
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| |||||||
Dry Port Terminal | Cost | Accumulated Depreciation | Net Book Value | |||||||||
Balance December 31, 2014 | $ | 78,385 | $ | (11,446 | ) | $ | 66,939 | |||||
Additions | 1,531 | (1,070 | ) | 461 | ||||||||
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|
| |||||||
Balance June 30, 2015 | $ | 79,916 | $ | (12,516 | ) | $ | 67,400 | |||||
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| |||||||
Oil Storage Plant and Port Facilities for Liquid Cargoes | Cost | Accumulated Depreciation | Net Book Value | |||||||||
Balance December 31, 2014 | $ | 28,014 | $ | (9,021 | ) | $ | 18,993 | |||||
Additions | 37 | (628 | ) | (591 | ) | |||||||
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Balance June 30, 2015 | $ | 28,051 | $ | (9,649 | ) | $ | 18,402 | |||||
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Other Fixed Assets | Cost | Accumulated Depreciation | Net Book Value | |||||||||
Balance December 31, 2014 | $ | 5,735 | $ | (1,871 | ) | $ | 3,864 | |||||
Additions | 117 | (355 | ) | (238 | ) | |||||||
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| |||||||
Balance June 30, 2015 | $ | 5,852 | $ | (2,226 | ) | $ | 3,626 | |||||
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Total | Cost | Accumulated Depreciation | Net Book Value | |||||||||
Balance December 31, 2014 | $ | 577,102 | $ | (133,477 | ) | $ | 443,625 | |||||
Additions | 5,664 | (11,145 | ) | (5,481 | ) | |||||||
Restructuring of capital lease | (210 | ) | — | (210 | ) | |||||||
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Balance June 30, 2015 | $ | 582,556 | $ | (144,622 | ) | $ | 437,934 | |||||
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Certain assets of the Company have been pledged as collateral for a loan facility. As of June 30, 2015 and December 31, 2014, the net book value of such assets was $760 and $831, respectively.
On June 30, 2015, Navios Logistics entered into an agreement for the restructuring of its capital leases for the Ferni H and the San San H, by extending their duration until January 2020 and April 2020, respectively, and amending the purchase price obligation to $5,325 and $5,150, respectively, each at the end of the extended period. As of June 30, 2015, the obligations for these vessels were accounted for as capital leases and the lease payments during the six months ended June 30, 2015 and 2014 for both vessels were $710 and $565, respectively.
F-9
NAVIOS SOUTH AMERICAN LOGISTICS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars—except share data)
On October 8, 2013, the Company exercised the option for the construction of 36 dry barges. These barges were delivered in the third quarter of 2014. During the six month period ended June 30, 2015, the Company paid $800, representing transportation and other acquisition costs.
Deposits for vessels, port terminals and other fixed assets
On February 11, 2014, Navios Logistics entered into an agreement for the construction of three new pushboats with a purchase price of $7,552 for each pushboat. As of June 30, 2015 and December 31, 2014, Navios Logistics had paid $9,376 and $6,920, respectively, for the construction of the new pushboats which are expected to be delivered in the first quarter of 2016.
As of June 30, 2015 and December 31, 2014, Navios Logistics had paid $18,324 and $16,305, respectively, for the expansion of its dry port in Uruguay, which is currently an asset under construction.
Capitalized interest included in deposits for vessels, port terminals and other fixed assets amounted to $1,641 and $693 as of June 30, 2015 and December 31, 2014, respectively.
The following is an analysis of the leased property under capital leases:
Vessels | June 30, 2015 | |||
San San H and Ferni H | $ | 32,674 | ||
Less: Accumulated amortization | (3,286 | ) | ||
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| |||
Net book value | $ | 29,388 | ||
|
|
Future minimum lease payments under capital leases together with the present value of the future minimum lease payments as of June 30, 2015, are as follows:
Payment Due by Period | June 30, 2015 | |||
June 30, 2016 | $ | 3,489 | ||
June 30, 2017 | 3,517 | |||
June 30, 2018 | 2,190 | |||
June 30, 2019 | 2,190 | |||
June 30, 2020 | 12,235 | |||
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| |||
Total future minimum lease payments (1) | 23,621 | |||
Less: amount representing interest (2) | (2,180 | ) | ||
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| |||
Present value of future minimum lease payments (3) | $ | 21,441 | ||
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|
(1) | There are no minimum sublease rentals to be reduced by minimum payments. |
(2) | Amount necessary to reduce net minimum lease payments to present value calculated at the Company’s incremental borrowing rate at the inception of the lease. |
(3) | Reflected in the balance sheet as obligations under capital leases. |
F-10
NAVIOS SOUTH AMERICAN LOGISTICS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars—except share data)
NOTE 4: INTANGIBLE ASSETS OTHER THAN GOODWILL
Intangible assets as of June 30, 2015 and December 31, 2014 consisted of the following:
June 30, 2015 | Acquisition Cost | Accumulated Amortization | Net Book Value June 30, 2015 | |||||||||
Trade name | $ | 10,420 | $ | (7,815 | ) | $ | 2,605 | |||||
Port terminal operating rights | 53,152 | (8,954 | ) | 44,198 | ||||||||
Customer relationships | 36,120 | (13,939 | ) | 22,181 | ||||||||
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| |||||||
Total intangible assets | $ | 99,692 | $ | (30,708 | ) | $ | 68,984 | |||||
|
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|
|
December 31, 2014 | Acquisition Cost | Additions | Accumulated Amortization | Net Book Value December 31, 2014 | ||||||||||||
Trade name | $ | 10,420 | $ | — | $ | (7,294 | ) | $ | 3,126 | |||||||
Port terminal operating rights | 36,152 | 17,000 | (8,450 | ) | 44,702 | |||||||||||
Customer relationships | 36,120 | — | (13,051 | ) | 23,069 | |||||||||||
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| |||||||||
Total intangible assets | $ | 82,692 | $ | 17,000 | $ | (28,795 | ) | $ | 70,897 | |||||||
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On December 15, 2014, Navios Logistics acquired two companies for a total consideration of $17,000. These companies, as free zone direct users, hold the right to occupy approximately 53 acres of undeveloped riverfront land located in the Nueva Palmira free zone in Uruguay, adjacent to Navios Logistics’ existing port. As of June 30, 2015, Navios Logistics had paid $10,200 of the purchase price and the remaining balance will be paid in full during the third quarter of 2015.
Amortization expense, net for the three and six month periods ended June 30, 2015 amounted to $952 and $1,913, respectively ($946 and $1,893, respectively, for the three and six month periods ended June 30, 2014).
The aggregate amortization of intangibles will be as follows:
Description | Within One Year | Year Two | Year Three | Year Four | Year Five | Thereafter | Total | |||||||||||||||||||||
Trade name | $ | (1,042 | ) | $ | (1,042 | ) | $ | (521 | ) | $ | — | $ | — | $ | — | $ | (2,605 | ) | ||||||||||
Port terminal operating rights | (987 | ) | (1,224 | ) | (1,464 | ) | (1,464 | ) | (1,464 | ) | (37,595 | ) | (44,198 | ) | ||||||||||||||
Customer relationships | (1,775 | ) | (1,775 | ) | (1,775 | ) | (1,775 | ) | (1,775 | ) | (13,306 | ) | (22,181 | ) | ||||||||||||||
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| |||||||||||||||
Total | $ | (3,804 | ) | $ | (4,041 | ) | $ | (3,760 | ) | $ | (3,239 | ) | $ | (3,239 | ) | $ | (50,901 | ) | $ | (68,984 | ) | |||||||
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NOTE 5: BORROWINGS
Borrowings consisted of the following:
June 30, 2015 | December 31, 2014 | |||||||
Senior notes | $ | 375,000 | $ | 375,000 | ||||
Loan for Nazira | 425 | 459 | ||||||
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| |||||
Total borrowings | 375,425 | 375,459 | ||||||
Less: current portion | (69 | ) | (69 | ) | ||||
Less: deferred financing costs, net | (8,297 | ) | (8,750 | ) | ||||
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| |||||
Total long-term borrowings | $ | 367,059 | $ | 366,640 | ||||
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F-11
NAVIOS SOUTH AMERICAN LOGISTICS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars—except share data)
Senior Notes
On April 22, 2014, Navios Logistics and its wholly owned subsidiary Navios Logistics Finance (US) Inc. (“Logistics Finance” and together with Navios Logistics, the “Co-Issuers”) issued $375,000 in aggregate principal amount of Senior Notes due on May 1, 2022 (the “2022 Senior Notes”), at a fixed rate of 7.25%. The net proceeds from the sale of the 2022 Senior Notes were partially used to redeem any and all of Navios Logistics then-outstanding 9.25% Senior Notes due 2019 and pay related transaction fees and expenses. The 2022 Senior Notes are unregistered and are fully and unconditionally guaranteed, jointly and severally, by all of Navios Logistics’ direct and indirect subsidiaries except for Horamar do Brasil Navegação Ltda (“Horamar do Brasil”) and Naviera Alto Parana S.A. (“Naviera Alto Parana”), which are deemed to be immaterial, and Logistics Finance, which is the co-issuer of the 2022 Senior Notes. The subsidiary guarantees are “full and unconditional,” except that the indenture provides for an individual subsidiary’s guarantee to be automatically released in certain customary circumstances, such as in connection with a sale or other disposition of all or substantially all of the assets of the subsidiary, in connection with the sale of a majority of the capital stock of the subsidiary, if the subsidiary is designated as an “unrestricted subsidiary” in accordance with the indenture, upon liquidation or dissolution of the subsidiary or upon legal or covenant defeasance or satisfaction and discharge of the 2022 Senior Notes.
The Co-Issuers have the option to redeem the 2022 Senior Notes in whole or in part, at their option, at any time (i) before May 1, 2017, at a redemption price equal to 100% of the principal amount plus the applicable make-whole premium plus accrued and unpaid interest, if any, to the redemption date and (ii) on or after May 1, 2017, at a fixed price of 105.438%, which price declines ratably until it reaches par in 2020. At any time before May 1, 2017, the Co-Issuers may redeem up to 35% of the aggregate principal amount of the 2022 Senior Notes with the net proceeds of an equity offering at 107.250% of the principal amount of the 2022 Senior Notes, plus accrued and unpaid interest, if any, to the redemption date so long as at least 65% of the originally issued aggregate principal amount of the 2022 Senior Notes remains outstanding after such redemption. In addition, upon the occurrence of certain change of control events, the holders of the 2022 Senior Notes will have the right to require the Co-Issuers to repurchase some or all of the 2022 Senior Notes at 101% of their face amount, plus accrued and unpaid interest to the repurchase date.
As of June 30, 2015 and December 31, 2014, deferred financing costs associated with the 2022 Senior Notes amounted to $8,297 and $8,750, respectively. Interest expense associated with the senior notes amounted to $6,797 and $13,594 for the three and six month periods ended June 30, 2015, respectively, ($6,902 and $13,608 for the three and six month periods ended June 30, 2014, respectively).
The indenture contains covenants which, among other things, limit the incurrence of additional indebtedness, issuance of certain preferred stock, the payment of dividends in excess of 6% per annum of the net proceeds received by or contributed to Navios Logistics in or from any public offering, redemption or repurchase of capital stock or making restricted payments and investments, creation of certain liens, transfer or sale of assets, entering into transactions with affiliates, merging or consolidating or selling all or substantially all of Navios Logistics’ properties and assets and creation or designation of restricted subsidiaries.
The 2022 Senior Notes include customary events of default, including failure to pay principal and interest on the 2022 Senior Notes, a failure to comply with covenants, a failure by Navios Logistics or any significant subsidiary or any group of our restricted subsidiaries that, taken together, would constitute a significant subsidiary to pay material judgments or indebtedness and bankruptcy and insolvency events with respect to us or any significant subsidiary or any group of our restricted subsidiaries that, taken together, would constitute a significant subsidiary.
As of June 30, 2015, all subsidiaries, including Logistics Finance, Horamar do Brasil and Naviera Alto Parana are 100% owned. Logistics Finance, Horamar do Brasil and Naviera Alto Parana do not have any independent assets or operations. In addition, there are no significant restrictions on (i) the ability of the parent company, any issuer (or co-issuer) or any guarantor subsidiaries of the 2022 Senior Notes to obtain funds by dividend or loan from any of their subsidiaries or (ii) the ability of any subsidiaries to transfer funds to the issuer (or co-issuer) or any guarantor subsidiaries.
Other Indebtedness
In connection with the acquisition of Hidronave S.A. on October 29, 2009, Navios Logistics assumed a $817 loan facility that was entered into by Hidronave S.A. in 2001, in order to finance the construction of the pushboat Nazira. As of June 30, 2015, the outstanding loan balance was $425 ($459 as of December 31, 2014). The loan facility bears interest at a fixed rate of 600 basis points. The loan is repayable in monthly installments of $6 each and the final repayment must occur prior to August 10, 2021.
F-12
NAVIOS SOUTH AMERICAN LOGISTICS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars—except share data)
In connection with the loan and other long term liabilities, the Company is subject to certain covenants and commitments and certain of its assets are restricted as collateral.
The Company was in compliance with all the covenants as of June 30, 2015.
The maturity table below reflects future payments of the long-term debt outstanding as of June 30, 2015, for the next five years and thereafter.
Year | Amount in thousands of U.S. dollars | |||
June 30, 2016 | $ | 69 | ||
June 30, 2017 | 69 | |||
June 30, 2018 | 69 | |||
June 30, 2019 | 69 | |||
June 30, 2020 | 69 | |||
June 30, 2021 and thereafter | 375,080 | |||
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| |||
Total | $ | 375,425 | ||
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|
NOTE 6: COMMITMENTS AND CONTINGENCIES
As of June 30, 2015, the Company had operating lease obligations related to chartered-in barges amounting to $171 until June 2016. As of June 30, 2015, the Company had obligations related to the acquisition of three new pushboats, the payment of the deferred considerations for the acquisition of two companies, who hold the right to occupy approximately 53 acres of land located in the Nueva Palmira free zone in Uruguay, the payment for design works in its dry port facility and the remaining installments for the acquisition of the chartered-in fleet, consisting of one pushboat and three liquid barges, (see Notes 3, 4) of $13,777, $6,800, $1,160 and $5,681, respectively, until June 30, 2016.
Navios Logistics has issued a guarantee and indemnity letter that guarantees the performance by Petrolera San Antonio S.A. of all its obligations to Vitol S.A. up to $12,000. This guarantee expires on March 1, 2016.
The Company is subject to legal proceedings, claims and contingencies arising in the ordinary course of business. When such amounts can be estimated and the contingency is probable, management accrues the corresponding liability. While the ultimate outcome of lawsuits or other proceedings against the Company cannot be predicted with certainty, management does not believe the costs, individually or in aggregate of such actions will have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
NOTE 7: TRANSACTIONS WITH RELATED PARTIES
At June 30, 2015 and December 31, 2014, the amounts due to affiliate companies were as follows:
June 30, 2015 | December 31, 2014 | |||||||
Navios Holdings | $ | 1,264 | $ | 1,783 |
Amounts due to affiliate companies do not accrue interest and do not have a specific due date for their settlement.
General and administrative expenses: On April 12, 2011, Navios Logistics entered into an administrative services agreement for a term of five years, with Navios Holdings, pursuant to which Navios Holdings provides certain administrative management services to Navios Logistics. Such services include bookkeeping, audit and accounting services, legal and insurance services, administrative and clerical services, banking and financial services, advisory services, client and investor relations and other services. Navios Holdings is reimbursed for reasonable costs and expenses incurred in connection with the provision of these services. Total general and administrative fees charged for the three and six month periods ended June 30, 2015 amounted to $190 and $380, respectively ($190 and $380 for the three and six month periods ended June 30, 2014, respectively).
F-13
NAVIOS SOUTH AMERICAN LOGISTICS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars—except share data)
Due to related parties, net: During the second half of 2012, Navios Logistics acquired one pushboat and three liquid barges, which were previously chartered-in by Navios Logistics, from Holdux Maritima Leasing Corp., a Panamanian company owned by members of the family of Mr. Horacio Alfredo Lopez, the father of Mr. Claudio Pablo Lopez, Navios Logistics’ Chief Executive Officer and Vice Chairman, Mr. Carlos Augusto Lopez, Navios Logistics’ Chief Commercial Officer—Shipping Division and Mr. Horacio Enrique Lopez, Navios Logistics’ Chief Operating Officer—Shipping Division. The total consideration for the acquisition was $13,443 to be paid in one initial payment and seven semiannual installments with the final installment payable on June 30, 2016. As of June 30, 2015, the Company had paid $7,762 and the remaining balance was $5,681.
Lodging and travel services:Navios Logistics obtains lodging and travel services from Empresa Hotelera Argentina S.A./(NH Lancaster) and Pit Jet S.A., both owned by members of the Lopez family, including Claudio Pablo Lopez, Navios Logistics’ Chief Executive Officer and Vice Chairman and Carlos Augusto Lopez, Navios Logistics’ Chief Commercial Officer—Shipping Division, each of whom has no controlling interest in those companies. Total charges were $7 and $13 for the three and six month periods ended June 30, 2015, respectively, ($2 and $14, respectively, for the three and six month periods ended June 30, 2014) and amounts payable amounted to $10 as of June 30, 2015 and $20 as of December 31, 2014.
The Company believes that the transactions discussed above were made on terms no less favorable to the Company than would have been obtained from unaffiliated third parties.
NOTE 8: SHARE CAPITAL
Common shares and shareholders
On August 4, 2010, the Company amended its articles of incorporation, increasing its authorized share capital to 50,000,000 shares of common stock with a par value of $0.01 per share.
As of June 30, 2015 and December 31, 2014, the Company has issued 20,000 shares of common stock, $1.00 par value.
Holders of each share of common stock have one vote for each share held of record on all matters submitted to a vote of shareholders. Dividends on shares of common stock may be declared and paid from funds available to the Company.
NOTE 9: SEGMENT INFORMATION
Current accounting guidance establishes standards for reporting information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial reports issued to shareholders. Operating segments are components of a company of which separate financial information is available that is regularly evaluated by the chief operating decision makers in deciding how to allocate resources and assess performance. Chief operating decision makers use net income attributable to common stockholders to evaluate operating performance of each segment. The guidance also establishes standards for related disclosures about a company’s products and services, geographical areas and major customers. The Company has determined that its reportable segments are those that are based on the Company’s method of internal reporting. Navios Logistics has three reportable segments: Port Terminal Business, Barge Business and Cabotage Business. The Port Terminal Business includes the dry port terminal operations and the liquid port terminal operations. A general description of each segment follows:
The Port Terminal Business segment
This segment includes the operating results of Navios Logistics’ dry port terminal and liquid port terminal operations.
(i) Dry port terminal operations
Navios Logistics owns and operates the largest independent bulk transfer and storage port terminal in Uruguay based on throughputs. Its dry port terminal is located in an international tax-free trade zone in the port of Nueva Palmira, Uruguay, at the convergence of the Parana and Uruguay rivers.
F-14
NAVIOS SOUTH AMERICAN LOGISTICS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars—except share data)
(ii) Liquid port terminal operations
Navios Logistics owns and operates an up-river port terminal with tank storage for refined petroleum products, oil and gas in San Antonio, Paraguay, approximately 17 miles by river from the capital of Asuncion. Its port terminal is one of the largest independent storage facilities for crude and petroleum products in Paraguay based on storage capacity.
The Barge Business segment
Navios Logistics services the Argentine, Bolivian, Brazilian, Paraguayan and Uruguayan river transportation markets through its fleet. Navios Logistics operates different types of pushboats and wet and dry barges for delivering a wide range of dry and liquid products between ports in the Parana, Paraguay and Uruguay River systems in South America (the Hidrovia or the “waterway”). Navios Logistics contracts its vessels either on a time charter basis or on a Contract of Affreightment (“CoA”) basis.
The Cabotage Business segment
Navios Logistics owns and operates oceangoing vessels to support the transportation needs of its customers in the South American coastal trade business. Its fleet consists of six oceangoing product tanker vessels, two self-propelled barges and a bunker vessel. Navios Logistics contracts its vessels either on a time charter basis or on a CoA basis.
Unallocated interest
This reconciling item represents the interest expense resulting from the senior notes, which has not yet been fully allocated to the segments due to the fact that the amount received had been maintained at the corporate level and not utilized by an operating segment as of both June 30, 2015 and 2014.
Inter-segment transactions, if any, are accounted for at current market prices.
The following table describes the results of operations of the three segments, the Port Terminal Business segment, the Barge Business segment and the Cabotage Business segment for the three and six month periods ended June 30, 2015 and 2014:
Port Terminal Business Segment for the Three Month Period Ended June 30, 2015 | Cabotage Business Segment for the Three Month Period Ended June 30, 2015 | Barge Business Segment for the Three Month Period Ended June 30, 2015 | Unallocated Interest for the Three Month Period Ended June 30, 2015 | Total | ||||||||||||||||
Time charter, voyage and port terminal revenues | $ | 12,604 | $ | 18,460 | $ | 26,549 | $ | — | $ | 57,613 | ||||||||||
Sales of products | 8,643 | — | — | — | 8,643 | |||||||||||||||
Time charter, voyage and port terminal expenses | (2,826 | ) | (849 | ) | (4,074 | ) | — | (7,749 | ) | |||||||||||
Direct vessel expenses | — | (13,857 | ) | (9,003 | ) | — | (22,860 | ) | ||||||||||||
Cost of products sold | (7,311 | ) | — | — | — | (7,311 | ) | |||||||||||||
Depreciation and amortization | (1,101 | ) | (649 | ) | (4,841 | ) | — | (6,591 | ) | |||||||||||
General and administrative expenses | (830 | ) | (395 | ) | (2,686 | ) | — | (3,911 | ) | |||||||||||
Interest expense and finance cost, net | (455 | ) | (1,334 | ) | (3,915 | ) | (1,031 | ) | (6,735 | ) | ||||||||||
Other expense, net | (112 | ) | (1,229 | ) | (2,113 | ) | — | (3,454 | ) | |||||||||||
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Income/(loss) before income taxes | 8,612 | 147 | (83 | ) | (1,031 | ) | 7,645 | |||||||||||||
Income tax (expense)/benefit | — | (524 | ) | 2,291 | — | 1,767 | ||||||||||||||
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Net income/(loss) | $ | 8,612 | $ | (377 | ) | $ | 2,208 | $ | (1,031 | ) | $ | 9,412 | ||||||||
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F-15
NAVIOS SOUTH AMERICAN LOGISTICS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars—except share data)
Port Terminal Business Segment for the Three Month Period Ended June 30, 2014 | Cabotage Business Segment for the Three Month Period Ended June 30, 2014 | Barge Business Segment for the Three Month Period Ended June 30, 2014 | Unallocated Interest for the Three Month Period Ended June 30, 2014 | Total | ||||||||||||||||
Time charter, voyage and port terminal revenues | $ | 12,151 | $ | 17,046 | $ | 28,326 | $ | — | $ | 57,523 | ||||||||||
Sales of products | 12,445 | — | — | — | 12,445 | |||||||||||||||
Time charter, voyage and port terminal expenses | (2,931 | ) | (290 | ) | (9,410 | ) | — | (12,631 | ) | |||||||||||
Direct vessel expenses | — | (8,632 | ) | (11,346 | ) | — | (19,978 | ) | ||||||||||||
Cost of products sold | (11,796 | ) | — | — | — | (11,796 | ) | |||||||||||||
Depreciation and amortization | (1,093 | ) | (664 | ) | (4,225 | ) | — | (5,982 | ) | |||||||||||
General and administrative expenses | (558 | ) | (195 | ) | (2,598 | ) | — | (3,351 | ) | |||||||||||
Interest income/(expense) and finance cost, net | 11 | (1,329 | ) | (5,677 | ) | (451 | ) | (7,446 | ) | |||||||||||
Loss on bond extinguishment | — | (5,000 | ) | (22,281 | ) | — | (27,281 | ) | ||||||||||||
Other income/(expense), net | 305 | (1,647 | ) | (838 | ) | — | (2,180 | ) | ||||||||||||
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Income/(loss) before income taxes | 8,534 | (711 | ) | (28,049 | ) | (451 | ) | (20,677 | ) | |||||||||||
Income tax benefit/(expense) | 334 | (750 | ) | (342 | ) | — | (758 | ) | ||||||||||||
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Net income/(loss) | $ | 8,868 | $ | (1,461 | ) | $ | (28,391 | ) | $ | (451 | ) | $ | (21,435 | ) | ||||||
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Port Terminal Business Segment for the Six Month Period Ended June 30, 2015 | Cabotage Business Segment for the Six Month Period Ended June 30, 2015 | Barge Business Segment for the Six Month Period Ended June 30, 2015 | Unallocated Interest for the Six Month Period Ended June 30, 2015 | Total | ||||||||||||||||
Time charter, voyage and port terminal revenues | $ | 20,987 | $ | 32,309 | $ | 51,232 | $ | — | $ | 104,528 | ||||||||||
Sales of products | 26,790 | — | — | — | 26,790 | |||||||||||||||
Time charter, voyage and port terminal expenses | (5,655 | ) | (1,804 | ) | (9,681 | ) | — | (17,140 | ) | |||||||||||
Direct vessel expenses | — | (22,559 | ) | (18,396 | ) | — | (40,955 | ) | ||||||||||||
Cost of products sold | (24,919 | ) | — | — | — | (24,919 | ) | |||||||||||||
Depreciation and amortization | (2,203 | ) | (1,333 | ) | (9,522 | ) | — | (13,058 | ) | |||||||||||
General and administrative expenses | (1,431 | ) | (605 | ) | (5,481 | ) | — | (7,517 | ) | |||||||||||
Interest expense and finance cost, net | (923 | ) | (2,698 | ) | (7,855 | ) | (2,072 | ) | (13,548 | ) | ||||||||||
Other expense, net | (150 | ) | (2,609 | ) | (3,169 | ) | — | (5,928 | ) | |||||||||||
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Income/(loss) before income taxes | 12,496 | 701 | (2,872 | ) | (2,072 | ) | 8,253 | |||||||||||||
Income tax (expense)/benefit | — | (1,021 | ) | 3,006 | — | 1,985 | ||||||||||||||
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Net income/(loss) | $ | 12,496 | $ | (320 | ) | $ | 134 | $ | (2,072 | ) | $ | 10,238 | ||||||||
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F-16
NAVIOS SOUTH AMERICAN LOGISTICS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars—except share data)
Port Terminal Business Segment for the Six Month Period Ended June 30, 2014 | Cabotage Business Segment for the Six Month Period Ended June 30, 2014 | Barge Business Segment for the Six Month Period Ended June 30, 2014 | Unallocated Interest for the Six Month Period Ended June 30, 2014 | Total | ||||||||||||||||
Time charter, voyage and port terminal revenues | $ | 19,020 | $ | 30,465 | $ | 50,978 | $ | — | $ | 100,463 | ||||||||||
Sales of products | 15,103 | — | — | — | 15,103 | |||||||||||||||
Time charter, voyage and port terminal expenses | (5,373 | ) | (746 | ) | (16,756 | ) | — | (22,875 | ) | |||||||||||
Direct vessel expenses | — | (15,409 | ) | (20,227 | ) | — | (35,636 | ) | ||||||||||||
Cost of products sold | (14,349 | ) | — | — | — | (14,349 | ) | |||||||||||||
Depreciation and amortization | (2,177 | ) | (1,328 | ) | (8,544 | ) | — | (12,049 | ) | |||||||||||
General and administrative expenses | (1,126 | ) | (393 | ) | (5,240 | ) | — | (6,759 | ) | |||||||||||
Interest income/(expense) and finance cost, net | 23 | (2,923 | ) | (10,098 | ) | (1,164 | ) | (14,162 | ) | |||||||||||
Loss on bond extinguishment | — | (5,000 | ) | (22,281 | ) | — | (27,281 | ) | ||||||||||||
Other income/(expense), net | 517 | (2,529 | ) | (1,097 | ) | — | (3,109 | ) | ||||||||||||
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Income/(loss) before income taxes | 11,638 | 2,137 | (33,265 | ) | (1,164 | ) | (20,654 | ) | ||||||||||||
Income tax benefit/(expense) | 168 | (1,324 | ) | 198 | — | (958 | ) | |||||||||||||
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Net income/(loss) | $ | 11,806 | $ | 813 | $ | (33,067 | ) | $ | (1,164 | ) | $ | (21,612 | ) | |||||||
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For the Barge Business segment and for the Cabotage Business segment, the Company’s vessels operate on a regional basis and are not restricted to specific locations. Accordingly, it is not possible to allocate the assets of these operations to specific locations. The total net book value of long-lived assets for vessels, including deposits for pushboats under construction, amounted to $357,882 and $360,750 as of June 30, 2015 and December 31, 2014, respectively.
All of the assets related to the Port Terminal Business segment are located in Uruguay and in Paraguay. The total net book value of long-lived assets for the Port Terminal Business segment, including constructions in progress, amounted to $104,126 and $102,236 as of June 30, 2015 and December 31, 2014, respectively.
In addition, the net book value of intangible assets other than goodwill allocated to the Barge Business segment and to the Cabotage Business segment, collectively, amounted to $24,786 and $26,195 as of June 30, 2015 and December 31, 2014, respectively, while the net book value of intangible assets allocated to the Port Terminal segment amounted to $44,198 and $44,702 as of June 30, 2015 and December 31, 2014, respectively.
As of June 30, 2015 and December 31, 2014, goodwill totaling to $22,142, $40,868 and $41,086 has been allocated to the three segments, the Port Terminal Business, the Barge Business and the Cabotage Business, respectively.
NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash and cash equivalents: The carrying amounts reported in the consolidated balance sheets for interest bearing deposits approximate their fair value because of the short maturity of these investments.
Borrowings:The book value of the senior notes is presented net of deferred financing costs. The senior notes are fixed rate borrowings and their fair value was determined based on quoted market prices, excluding the effect of any deferred finance costs.
Capital leases: The capital leases are fixed rate obligations and their carrying amounts approximate their fair value as indicated in the table below.
F-17
NAVIOS SOUTH AMERICAN LOGISTICS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of U.S. dollars—except share data)
The estimated fair values of the Company’s financial instruments are as follows:
June 30, 2015 | December 31, 2014 | |||||||||||||||
Book Value | Fair Value | Book Value | Fair Value | |||||||||||||
Cash and cash equivalents | $ | 72,020 | $ | 72,020 | $ | 71,931 | $ | 71,931 | ||||||||
Senior notes | $ | (366,703 | ) | $ | (361,406 | ) | $ | (366,250 | ) | $ | (378,049 | ) | ||||
Capital lease obligations, including current portion | $ | (21,441 | ) | $ | (21,441 | ) | $ | (22,360 | ) | $ | (22,360 | ) | ||||
Long-term debt, including current portion | $ | (425 | ) | $ | (425 | ) | $ | (459 | ) | $ | (459 | ) |
Fair Value Measurements
The estimated fair value of our financial instruments that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows:
Level I: Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.
Level II: Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.
Level III: Inputs that are unobservable.
Fair Value Measurements at June 30, 2015 | ||||||||||||||||
Total | Level I | Level II | Level III | |||||||||||||
Cash and cash equivalents | $ | 72,020 | $ | 72,020 | $ | — | $ | — | ||||||||
Senior notes | $ | (361,406 | ) | $ | (361,406 | ) | $ | — | $ | — | ||||||
Capital lease obligations(1) | $ | (21,441 | ) | $ | — | $ | (21,441 | ) | $ | — | ||||||
Long-term debt(1) | $ | (425 | ) | $ | — | $ | (425 | ) | $ | — | ||||||
Fair Value Measurements at December 31, 2014 | ||||||||||||||||
Total | Level I | Level II | Level III | |||||||||||||
Cash and cash equivalents | $ | 71,931 | $ | 71,931 | $ | — | $ | — | ||||||||
Senior notes | $ | (378,049 | ) | $ | (378,049 | ) | $ | — | $ | — | ||||||
Capital lease obligations(1) | $ | (22,360 | ) | $ | — | $ | (22,360 | ) | $ | — | ||||||
Long-term debt(1) | $ | (459 | ) | $ | — | $ | (459 | ) | $ | — |
(1) | The fair value of the Company’s debt is estimated based on currently available debt with similar contract terms, interest rates and remaining maturities as well as taking into account our creditworthiness. |
F-18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 20, 2015 | NAVIOS SOUTH AMERICAN LOGISTICS INC. | |||||
By: | /s/ Claudio Pablo Lopez | |||||
Claudio Pablo Lopez | ||||||
Chief Executive Officer |