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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES AND EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES AND EXCHANGE ACT OF 1934.
FOR THE PERIOD FROM ________ TO __________
COMMISSION FILE NUMBER
001-16531
GENERAL MARITIME CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
REPUBLIC OF THE MARSHALL ISLANDS 06-159-7083
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
35 WEST 56TH STREET NEW YORK, NY 10019
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (212) 763-5600
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF NOVEMBER 13, 2001:
Common Stock, par value $0.01 per share 37,000,000 shares
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GENERAL MARITIME CORPORATION AND SUBSIDIARIES
<Table>
<Caption>
INDEX
PART I: FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 2001
(unaudited) and December 31, 2000 3
Consolidated Statements of Operations
(unaudited) for the three months and nine months
ended September 30, 2001 and 2000. 4
Consolidated Statement of Shareholders' Equity
for the (unaudited) nine months ended September 30, 2001 5
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 2001 and 2000 6
Notes to Consolidated Financial Statements (unaudited) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 23
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 24
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 26
ITEM 5. OTHER INFORMATION 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 26
SIGNATURES 29
</Table>
2
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ITEM 1. FINANCIAL STATEMENTS
GENERAL MARITIME CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
-------------- --------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 16,610 $ 23,523
Restricted cash -- 149
Due from charterers 24,219 9,601
Prepaid expenses and other current assets 9,793 4,657
-------------- --------------
Total current assets 50,622 37,930
-------------- --------------
NONCURRENT ASSETS:
Vessels, net of accumulated depreciation
of $85,304 and $59,884, respectively 801,697 392,230
Other fixed assets, net 1,040 974
Deferred drydock costs 7,476 5,416
Deferred financing costs 5,652 1,651
Due from charterers 822 721
Goodwill 5,906 --
-------------- --------------
Total noncurrent assets 822,593 400,992
-------------- --------------
TOTAL ASSETS $873,215 $438,922
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 11,081 $ 6,701
Accrued interest 516 2,129
Current portion of long-term debt 73,000 33,050
-------------- --------------
Total current liabilities 84,597 41,880
-------------- --------------
NONCURRENT LIABILITIES:
Deferred voyage revenue 2,604 1,397
Long-term debt 294,850 208,735
-------------- --------------
Total noncurrent liabilities 297,454 210,132
-------------- --------------
Total liabilities 382,051 252,012
-------------- --------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value per share Authorized 75,000,000; Issued and
outstanding 37,000,000 and 21,432,056 shares at September 30, 2001
and December 31, 2000, respectively 370 215
Paid-in capital 421,269 157,584
Retained earnings 71,422 29,111
Accumulated other comprehensive income (1,897) --
-------------- --------------
Total shareholders' equity 491,164 186,910
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 873,215 $ 438,922
============== ==============
</Table>
See notes to consolidated financial statements.
3
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GENERAL MARITIME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<Table>
<Caption>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------------- -------------------------------
2001 2000 2001 2000
------------ ------------- -------------- --------------
VOYAGE REVENUES:
Voyage revenues $ 61,932 $ 37,674 $ 150,812 $ 85,963
OPERATING EXPENSES:
Voyage expenses 17,506 6,800 32,877 16,750
Direct vessel expenses 13,285 6,682 27,200 16,762
General and administrative 2,534 1,422 5,670 3,643
Depreciation and amortization 13,618 6,853 28,007 17,865
------------ ------------- -------------- --------------
Total operating expenses 46,943 21,757 93,754 55,020
------------ ------------- -------------- --------------
OPERATING INCOME 14,989 15,917 57,058 30,943
------------ ------------- -------------- --------------
OTHER EXPENSE:
Interest expense-net 4,231 5,253 11,741 14,060
Other-net - - 1,822 -
------------ ------------- -------------- --------------
Net other expense 4,231 5,253 13,563 14,060
------------ ------------- -------------- --------------
Income before extraordinary expense 10,758 10,664 43,495 16,883
Extraordinary expense - - 1,184 -
------------ ------------- -------------- --------------
Net income $ 10,758 $ 10,664 $ 42,311 $ 16,883
============ ============= ============== ==============
Basic and diluted earnings per common share:
Income before extraordinary expense $ 0.29 $ 0.50 $ 1.57 $ 0.89
Net income $ 0.29 $ 0.50 $ 1.53 $ 0.89
Weighted average shares outstanding 37,000,000 21,452,056 27,718,451 18,869,557
</Table>
See notes to consolidated financial statements.
4
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GENERAL MARITIME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR
THE (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
<Table>
<Caption>
ACCUMULATED
OTHER COMPREHENSIVE
COMMON PAID-IN RETAINED COMPREHENSIVE INCOME
STOCK CAPITAL EARNINGS LOSS (LOSS) TOTAL
-------- ----------- ---------- ------------- ------------ ----------
Balance as of December 31, 2000 $ 215 $ 157,584 $ 29,111 $ 0 $ 0 $ 186,910
Comprehensive income:
Net income 42,311 0 42,311 42,311
Cumulative effect of change in
Accounting principle (SFAS 133) (662) (662) (662)
Unrealized derivative losses on cash flow hedge (1,235) (1,235) (1,235)
-------------
Comprehensive income $ 40,414
-------------
Sale of common stock 80 127,896 127,976
Common stock issued to acquire assets 75 135,789 135,864
-------- ----------- ---------- ------------- ----------
Balance at September 30, 2001 (unaudited) $ 370 $ 421,269 $ 71,422 $ (1,897) $ 491,164
======== =========== ========== ============ ==========
</Table>
See notes to consolidated financial statements.
5
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GENERAL MARITIME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------------
2001 2000
-------------- --------------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 42,311 $ 16,883
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary expense 1,184 -
Depreciation and amortization 28,007 17,865
Noncash interest expense contributed to capital - 250
Changes in assets and liabilities:
Increase in due from charterers (12,848) (2,821)
Increase in prepaid expenses and other assets (3,219) (1,553)
(Decrease) increase in accounts payable and accrued expenses (861) 459
Increase in deferred voyage revenue 1,207 3,195
Deferred drydock costs incurred (3,783) (3,261)
-------------- --------------
Net cash provided by operating activities 51,998 31,017
-------------- --------------
CASH FLOWS USED BY INVESTING ACTIVITIES:
Purchase of vessels (255,751) (85,500)
Purchase of other fixed assets (200) (342)
Acquisition of business net of cash received (5,392) -
-------------- --------------
Net cash used by investing activities (261,343) (85,842)
-------------- --------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Capital contributions from shareholders - 15,500
Decrease in restricted cash 149 1,153
Long-term debt borrowings 386,100 70,459
Principal payments on long- term debt (305,899) (22,550)
Increase in deferred financing costs (5,894) (818)
Proceeds from issuance of common stock 127,976 -
Increase in loan with shareholder - (311)
-------------- --------------
Net cash provided by financing activities 202,432 63,433
-------------- --------------
Net (decrease) increase in cash (6,913) 8,608
Cash, beginning of year 23,523 6,842
-------------- --------------
Cash, end of period $ 16,610 $ 15,450
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 14,247 $ 14,796
============== ==============
Supplemental schedule of noncash financing activities:
Note payable and interest payable to shareholder
Contributed to capital $ - $ 15,250
============== ==============
</Table>
See notes to consolidated financial statements.
6
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GENERAL MARITIME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS -- General Maritime Corporation (the "Company") is a provider
of international transportation services of seaborne crude oil principally
within the Atlantic basin. The Company's fleet is comprised of both Aframax and
Suezmax tankers. Most of the Company's vessels are currently operating in the
Atlantic basin, which consists primarily of ports in the Caribbean, South and
Central America, the United States, Western Africa and the North Sea. The
Company operates its business in one business segment, which is the
transportation of international seaborne crude oil.
RECAPITALIZATION PLAN -- The Company's recapitalization was completed as to 14
vessels on June 12, 2001 and is described below. These 14 vessels were owned
directly or indirectly by various limited partnerships. The managing general
partners of the limited partnerships were various companies wholly owned by
Peter C. Georgiopoulos, Chairman and Chief Executive Officer of the Company. The
commercial operations for all of these vessels were conducted by the old General
Maritime Corporation, a Subchapter S Corporation also wholly owned by Peter C.
Georgiopoulos.
As part of the Company's recapitalization, Peter C. Georgiopoulos transferred
the equity interests in the old General Maritime Corporation to the Company
along with the general partnership interests in the vessel owning limited
partnerships in exchange for equity interests in the Company.
In addition, each vessel owner entered into an agreement with the Company with
respect to the recapitalization. Pursuant to these agreements, the vessel owners
delivered the entire equity interest in each vessel to the Company. In exchange,
the Company issued to each vessel owner shares of common stock of the Company.
Accordingly, the financial statements have been prepared as if the
recapitalization had occurred at February 1, 1997, representing the commencement
of operations of the old General Maritime Corporation. It is accounted for in a
manner similar to a pooling of interests as all of the equity interests
delivered in the recapitalization are under common control. The financial
information included herein does not necessarily reflect the consolidated
results of operations, financial position, changes in shareholders' equity and
cash flows of the Company as if the Company operated as a legal consolidated
entity for the periods presented.
For the purposes of determining the number of shares outstanding with respect to
the accompanying financial statements, the Company used the initial public
offering price of $18.00 per share. Under the terms of the Recapitalization Plan
there are certain provisions, which may require a post-closing reallocation of
issued shares between the respective limited partners. This potential
post-closing reallocation is not expected to result in a material change to the
outstanding shares in any of the periods presented.
BASIS OF PRESENTATION -- The accompanying unaudited consolidated financial
statements have been prepared in accordance with the instructions to Form 10-Q
and, therefore, do not include all information and footnotes necessary for a
fair presentation of financial position, results of operations and cash flows in
conformity with accounting principles generally accepted in the United States of
America. However, in the opinion of the management of the Company, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of financial position and operating results have been included in
the statements. Interim results are not necessarily indicative of results for a
full year. Reference is made to the December 31, 2000 consolidated financial
statements of General Maritime Corporation contained in the Registration
Statement on Form S-1 filed on November 13, 2000, as amended for additional
information. Certain reclassifications have been made for consistent
presentation.
BUSINESS GEOGRAPHICS -- Non-U.S. operations, which are defined as voyages that
either begin and / or end outside the U.S., accounted for 100% of revenues and
net income. Vessels regularly move between countries in international waters,
primarily the Atlantic Basin, over hundreds of trade routes. It is therefore
impractical to assign revenues or earnings from the transportation of
international seaborne crude oil products by geographical area.
7
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PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of General Maritime Corporation and its wholly
owned subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
VOYAGE CHARTERS -- Voyage revenues and voyage expenses relating to time or spot
market charters are recognized on a pro rata basis based on the relative transit
time in each period. Voyage expenses primarily include only those specific costs
which are borne by the Company in connection with spot charters which would
otherwise have been borne by the charterer under time charter agreements. These
expenses principally consist of fuel and port charges. Direct vessel expenses
are recognized when incurred. Demurrage income represents payments by the
charterer to the vessel owner when loading and discharging time exceed the
stipulated time in the spot charter. Demurrage income is recognized in
accordance with the provisions of the respective charter agreements and the
circumstances under which demurrage claims arise. Demurrage income was not
material in any of the periods presented.
TIME CHARTERS -- Revenue from time charters, which may include escalation
clauses, are recognized on a straight-line basis over the term of the respective
time charter agreement. Direct vessel expenses are recognized when incurred.
EARNINGS PER SHARE -- Basic earnings per share are computed by dividing net
income by the weighted average number of common shares outstanding at the end of
the cumulative period. Diluted income per share reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised. Options to purchase common stock have been excluded from the
calculation of earnings per share because the application of the treasury stock
method would make their inclusion antidilutive.
INTEREST RATE RISK MANAGEMENT -- The Company is exposed to the impact of
interest rate changes. The Company's objective is to manage the impact of
interest rate changes on earnings and cash flows of its borrowings. The Company
may use interest rate swaps to manage net exposure to interest rate changes
related to its borrowings and to lower its overall borrowing costs. Significant
interest rate risk management instruments held by the Company during the nine
months ended September 30, 2001 and 2000 included pay-fixed swaps. As of
September 30, 2001, the Company is party to a pay-fixed interest rate swap
agreement that expires in 2006 which effectively converts floating rate
obligations to fixed rate instruments.
RECENT ACCOUNTING PRONOUNCEMENTS -- Effective January 1, 2001, the Company
adopted Statement of Financial Standards ("SFAS") No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"), and its
corresponding amendments under SFAS No. 138. SFAS 133 requires the Company to
measure all derivatives, including certain derivatives embedded in other
contracts, at fair value and to recognize them in the Consolidated Balance Sheet
as an asset or liability, depending on the Company's rights or obligations under
the applicable derivative contract. For derivatives designated as fair value
hedges in the fair value of both the derivative instrument and the hedged item
are recorded in earnings. For derivatives designated as cash flow hedges, the
effective portions of changes in fair value of the derivative are reported in
the other comprehensive income ("OCI") and are subsequently reclassified into
earnings when the hedged item affects earnings. Changes in fair value of
derivative instruments not designated as hedging instruments and ineffective
portions of hedges are recognized in earnings in the current period. The
adoption of SFAS 133 as of January 1, 2001 did not have a material impact on the
Company's results of operations or financial position. The Company recognized a
charge to OCI of $662 as a result of cumulative effect in accounting change in
relation to the adoption of SFAS No. 133. During June 2001, the Company
terminated its interest rate swap agreements, which resulted in the reversal of
the entire OCI balance. Pursuant to the termination of these interest rate swap
agreements, the Company made an aggregate cash payment of approximately $1,822
to counterparties. This amount is included in the statement of operations as a
component of other expense. In August 2001, the Company entered into an interest
rate swap agreement (see Note 3). During the three months and nine months ended
September 30, 2001, the Company recognized a charge to OCI of $1,897 and $1,897,
respectively. The total liability in connection with the Company's cash flow
hedges as of September 30, 2001 was $1,897 and is presented as a component of
accounts payable and accrued expenses.
During July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets."
8
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SFAS No. 141 requires the use of the purchase method of accounting for all
business combinations initiated after June 30, 2001. Additionally, this
statement further clarifies the criteria for recognition of intangible assets
separately from goodwill for all business combinations completed after June 30,
2001, as well as requires additional disclosures for business combinations.
SFAS No. 142 requires that goodwill and certain intangible assets acquired after
June 30, 2001 no longer be subject to amortization over their estimated useful
lives. Beginning on January 1, 2002, amortization of all other goodwill and
certain intangible assets will no longer be permitted and the Company will be
required to assess these assets for impairment annually, or more frequently if
circumstances indicate a potential impairment. Furthermore, this statement
provides specific guidance for testing goodwill and certain intangible assets
for impairment. Transition-related impairment losses, if any, which result from
the initial assessment of goodwill and certain intangible assets would be
recognized by the Company as a cumulative effect of accounting change on January
1, 2002. The Company is currently evaluating the impact of the adoption of this
standard on its financial position and results of operations.
SFAS No. 143, "Accounting for Asset Retirement Obligations" was issued in June
2001. This statement addresses financial accounting and reporting for the
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement is effective for financial
statements issued for fiscal years beginning after June 15, 2002. The Company
has not yet determined the impact, if any, that the adoption of this statement
will have on its results of operations or financial position.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
was issued in October 2001. SFAS No. 144 replaces SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." SFAS No. 144 requires that long-lived assets whose carrying amount is not
recoverable from its undiscounted cash flows be measured at the lower of
carrying amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. Therefore, discontinued operations
will no longer be measured at net realizable or include amounts for operating
losses that have not yet occurred.
SFAS No. 144 also broadens the reporting of discontinued operations to include
all components of an entity with operations that can be distinguished from the
rest of the entity and that will be eliminated from the ongoing operations of
the entity in a disposal transaction. The provisions of SFAS No. 144 are
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and are to be applied prospectively. The Company has not yet
determined the impact, if any, that the adoption of this statement will have on
its results of operations or financial position.
2. ACQUISITIONS
As part of the Company's recapitalization, the Company acquired United Overseas
Tankers, Ltd. ("UOT"), a Greek company providing technical management services
exclusively to the Company, for $6,032, subject to adjustment. The purchase
price was comprised of cash of $5,429 and a payable to sellers of $603. The
Company recorded goodwill of $6,007, which reflected the excess of purchase
price over fair value of net assets acquired. Goodwill is being amortized over a
15 year period. The acquisition was accounted for as a purchase and results of
operations have been included in the consolidated financial statements from the
date of acquisition. Pro forma net assets and results of operations of this
acquisition had the acquisition occurred at the beginning of 2001 are not
material and accordingly, have not been provided. Results of UOT's operations
for the period from January 1, 2001 through June 12, 2001 are not significant to
the Company's operations for the nine months ended September 30, 2001.
Prior to the acquisition, the Company paid management fees to UOT of $547 and
$173 for the nine-month periods ended September 30, 2001 and 2000, respectively.
On June 15, 2001, in accordance with the Company's recapitalization, the Company
purchased five vessels for an aggregate purchase price of approximately $147,600
and also purchased certain other assets. Consideration in this transaction
consisted of approximately 5,805,000 shares of common stock at an initial public
offering price of $18.00 per share, subject to post closing adjustment, and the
assumption of indebtedness.
From June 27, 2001 through August 24, 2001, the Company acquired ten vessels for
an aggregate purchase price of approximately $285,000. Included in this purchase
price are 1,742,770 shares of common stock at an initial public offering price
of $18.00 per share, subject to post closing adjustment, valued at $31,370.
9
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3. LONG-TERM DEBT
<Table>
<Caption>
-----------------------------------------------------------------------------------------------
Long-term debt consists of the following September 30, 2001 December 31, 2000
(unaudited)
-----------------------------------------------------------------------------------------------
Senior Loans $ - $ 223,437
Junior Loans - 18,348
First Credit Facility
Term Loan 188,500 -
Revolving Credit Facility 21,100 -
Second Credit Facility
Term Loan 108,250 -
Revolving Credit Facility 50,000 -
----------- ----------
Total $ 367,850 $ 241,785
Less: Current portion of long term debt 73,000 33,050
----------- ----------
Long term debt $ 294,850 $ 208,735
----------------------------------------------------------------------------------------------
</Table>
At the time of the Company's recapitalization on June 12, 2001, the Company's
subsidiaries were party to 12 loan facilities, which consisted of senior and
junior facilities, with aggregate outstanding principal balances of
approximately $217,850. Interest rates under these loan facilities were adjusted
quarterly and ranged from 1.125% to 3.0% above the London Interbank Offered Rate
("LIBOR"). Interest rates during the nine months ended September 30, 2000 ranged
from 7.2% to 8.7% and 9.1% to 10.0% under the senior and junior loan facilities,
respectively.
The Company had entered into interest rate swap agreements to manage interest
costs and the risk associated with changing interest rates. The Company had
outstanding ten interest rate swap agreements with foreign banks at December 31,
2000. These agreements effectively fixed the Company's interest rate exposure on
its senior and junior loan facilities, which are based on LIBOR to fixed rates
ranging from 6.2% to 7.0%. The differential to be paid or received was
recognized as an adjustment to interest expense as incurred.
On June 15, 2001, all 12 loan facilities were fully repaid, $70,100 from the
proceeds of the Company's Initial Public Offering and the remainder with
borrowings made under a new credit facility (the "First Credit Facility"). The
Company wrote off the unamortized deferred loan costs aggregating $1,184
associated with those facilities as an extraordinary expense. In June 2001, the
Company terminated all of its interest rate swap agreements by paying the
counterparties an aggregate amount of $1,822. This termination has been recorded
in the statement of operations as other expense.
In June 2001 the Company entered into two new credit facilities. The First
Credit Facility is comprised of a $200,000 term loan and a $100,000 revolving
loan. The First Credit Facility matures on June 15, 2006. The term loan is
repayable in quarterly installments. The principal of the revolving loan is
payable at maturity. The First
10
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Credit Facility bears interest at LIBOR plus 1.5%. The Company must pay a fee of
0.625% per annum on the unused portion of the revolving loan on a quarterly
basis. As of September 30, 2001, the Company had $188,500 outstanding on the
term loan and $21,100 outstanding on the revolving loan. The Company's
obligations under the First Credit Facility are secured by 20 vessels, with an
aggregate carrying value of $528,779 at September 30, 2001.
On June 27, 2001, the Company entered into an additional credit facility (the
"Second Credit Facility") consisting of a $115,000 term loan and a $50,000
revolving loan. The Second Credit Facility maturity date is June 27, 2006. The
term loan is repayable in quarterly installments. The principal of the revolving
loan is payable at maturity. The Second Credit Facility bears interest at LIBOR
plus 1.5%. The Company must pay a fee of 0.625% per annum on the unused portion
of the revolving loan on a quarterly basis. As of September 30, 2001, the
Company had $108,250 outstanding on the term loan and $50,000 outstanding on the
revolving loan. The Company's obligations under the Second Credit facility
agreements are secured by nine vessels with a carrying value of approximately
$272,918 at September 30, 2001.
In August 2001, the Company entered into an interest rate swap agreement with a
foreign bank to manage interest costs and the risk associated with changing
interest rates. This swap had a notional principal amount of $100,000 and fixed
interest rate exposure on 50% of its First Credit Facility, described below, to
a fixed rate of 6.25%. The differential to be paid or received is recognized as
an adjustment to interest expense as incurred from the interest rate swap's
effective date of September 15, 2001. The swap agreement terminates on June 15,
2006. As of September 30, 2001, the outstanding notional principal amount on
this swap agreement is $94,250.
Interest expense under all of the Company's credit facilities was $4,704 and
$5,489 for the three months ended September 30 2001 and 2000, respectively; for
the nine months ended September 30, 2001 and 2000, interest expense was $13,032
and $14,635, respectively.
The terms and conditions of the First and Second Credit Facilities require
compliance with certain restrictive covenants, which the Company feels are
consistent with loan facilities incurred by other shipping companies. Under the
credit facilities, the Company is required to maintain certain ratios such as:
vessel market value to loan outstanding, EBITDA to net interest expense and to
maintain minimum levels of working capital.
Interest expense pertaining to interest rate swaps for the nine months ended
September 30, 2001 and 2000 was $355 and $(67), respectively.
Based on borrowings as of September 30, 2001 aggregate maturities without any
mandatory prepayments under the First Credit Facility and Second Credit Facility
are the following:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------------
Year Ending December 31: First Credit Facility Second Credit Facility Total
- --------------------------------------------------------------------------------------------------------------------
Revolving Revolving
Credit Credit
Term Loan Facility Term Loan Facility
2001 (October 1, 2001 - December 31, 2001) $ 11,500 $ - $ 6,750 $ - $ 18,250
2002 46,000 - 27,000 - 73,000
2003 41,000 - 21,500 - 62,500
2004 36,000 - 16,000 - 52,000
2005 36,000 - 16,000 - 52,000
2006 18,000 21,100 21,000 50,000 110,100
---------- ------------ ----------- ------------ ----------
Total $ 188,500 $ 21,100 $ 108,250 $ 50,000 $ 367,850
---------- ------------ ----------- ------------ ----------
- --------------------------------------------------------------------------------------------------------------------
</Table>
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4. SUBSEQUENT EVENTS
On October 24, 2001, the Company entered into an interest rate swap agreement
with a foreign bank to manage interest costs and the risk associated with
changing interest rates. This swap had a notional principal amount of $54,125
and effectively fixes interest rate exposure on 50% of its Second Credit
Facility to a fixed rate of 5.485%. The differential to be paid or received is
recognized as an adjustment to interest expense as incurred from the interest
rate swap's effective date of October 29, 2001. The swap agreement terminates on
June 27, 2006.
12
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
forward looking statements are based on management's current expectations and
observations. Included among the factors that, in the Company's view, could
cause actual results to differ materially from the forward looking statements
contained in this report are the following: changes in demand in the tanker
market, including, without limitation, changes in production of or demand for
oil and petroleum products, generally or in particular regions, greater than
anticipated levels of tanker newbuilding orders or lower than anticipated rates
of tanker scrapping; changes in rules and regulations applicable to the tanker
industry, including, without limitation, legislation adopted by international
organizations such as the International Maritime Organization and the European
Union or by individual countries; actions taken by regulatory authorities;
changes in trading patterns significantly impacting overall tanker tonnage
requirements; changes in the typical seasonal variations in tanker charter
rates; changes in the cost of other modes of oil transportation; changes in oil
transportation technology; changes in general domestic and international
political conditions; changes in the condition of the Company's vessels or
applicable maintenance or regulatory standards (which may affect, among other
things, our anticipated dry docking costs); and other factors listed from time
to time in its filings with the Securities and Exchange Commission, including,
without limitation, its Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on November 13, 2000, as amended.
The following is a discussion of the Company's financial condition and results
of operations for the three months ended September 30, 2001 and 2000, and for
the nine months ended September 30, 2001 and 2000. You should consider the
foregoing when reviewing the consolidated financial statements and this
discussion. You should read this section together with the consolidated
financial statements including the notes to those financial statements for the
periods mentioned above.
13
<Page>
RESULTS OF OPERATIONS
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
INCOME STATEMENT DATA
(Dollars in thousands, except per share data)
VOYAGE REVENUES
Voyage revenues $ 61,932 $ 37,674 $ 150,812 $ 85,963
OPERATING EXPENSES
Voyage expenses 17,506 6,800 32,877 16,750
Direct vessel expenses 13,285 6,682 27,200 16,762
General and administrative expenses 2,534 1,422 5,670 3,643
Depreciation and amortization 13,618 6,853 28,007 17,865
----------- ----------- ----------- -----------
Total operating expenses 46,943 21,757 93,754 55,020
----------- ----------- ----------- -----------
Operating income 14,989 15,917 57,058 30,943
----------- ----------- ----------- -----------
Net interest expense 4,231 5,253 11,741 14,060
Other expense - -- 1,822 --
----------- ----------- ----------- -----------
Income before extraordinary expense 10,758 10,664 43,495 16,883
Extraordinary expense - -- 1,184 --
----------- ----------- ----------- -----------
NET INCOME $ 10,758 $ 10,664 $ 42,311 $ 16,883
=========== =========== =========== ===========
Basic and diluted earnings per share:
Income before extraordinary expense $ 0.29 $ 0.50 $ 1.57 $ 0.89
Extraordinary expense $ - $ -- $ (0.04) $ --
----------- ----------- ----------- -----------
Net income $ 0.29 $ 0.50 $ 1.53 $ 0.89
=========== =========== =========== ===========
Weighted average shares outstanding 37,000,000 21,452,056 27,718,451 18,869,557
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
BALANCE SHEET DATA at end of period
(Dollars in thousands)
Cash $ 16,610 $ 23,523
Total assets 873,215 438,922
Total long-term debt 367,850 241,785
Shareholders' equity 491,164 186,910
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER30,
--------------------------- ---------------------------
2001 2000 2001 2000
------------ ------------ ---------- -------------
OTHER FINANCIAL DATA
(Dollars in thousands)
Adjusted EBITDA (1) $ 28,607 $ 22,770 $ 85,066 $ 48,808
Net cash provided by operating activities 5,292 15,237 51,999 31,017
Net cash used in investing activities (200,389) (19,954) (261,343) (85,842)
Net cash provided by financing activities 137,436 3,970 202,431 63,433
Capital expenditures
Vessel purchases, including deposits (224,541) (28,500) (255,751) (85,500)
Drydocking (200) (2,214) (3,783) (3,261)
Weighted average long-term debt 324,050 233,010 259,077 230,074
</Table>
(1) Adjusted EBITDA represents net voyage revenues less direct vessel expenses
and general and administrative expenses. Adjusted EBITDA is included
because it is used by certain investors to measure a company's financial
performance. Adjusted EBITDA is not an item recognized by GAAP, and should
not be considered as an alternative to net income or any other indicator of
the Company's performance required by GAAP. The definition of Adjusted
EBITDA used here may not be comparable to that used by other companies.
14
<Page>
For discussion and analysis purposes only, the Company evaluates performance
using net voyage revenues. Net voyage revenues are voyage revenues minus voyage
expenses. Voyage expenses primarily consist of commissions and port, canal and
fuel costs that are unique to a particular voyage, which would otherwise be paid
by a charterer under a time charter. The Company believes that presenting voyage
revenues, net of voyage expenses, neutralizes the variability created by unique
costs associated with particular voyages or the deployment of vessels on time
charter or on the spot market and presents a more accurate representation of the
revenues generated by our vessels.
The Company actively manages the deployment of its fleet between spot charters,
which generally last from several days to several weeks, and time charters,
which can last up to several years. A spot charter is generally a contract to
carry a specific cargo from a load port to a discharge port for a fixed daily
rate. A time charter is generally a contract to charter a vessel for a fixed
period of time at a set daily rate. The Company primarily operates in the
Atlantic basin, which includes ports in the Caribbean, South and Central
America, the United States, Western Africa and the North Sea. The Company also
currently operates three vessels in the Black Sea which it believes enables it
to take advantage of opportunities in that market.
Margin analysis for the indicated items as a percentage of net voyage revenues
for three months ended September 30, 2001 and 2000, and the nine months ended
September 30, 2001 and 2000 is set forth in the table below.
INCOME STATEMENT MARGIN ANALYSIS
(% of Net Voyage Revenues)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
2001 2000 2001 2000
-------- ---------- ------- ------
Net voyage revenues (1) 100% 100% 100% 100%
Operating expenses
Direct vessel expenses 29.9% 21.6% 23.1% 24.2%
General and administrative expenses 5.7% 4.6% 4.8% 5.3%
Depreciation and amortization 30.7% 22.2% 23.7% 25.8%
------- ------- ------- -------
Total operating expenses 66.3% 48.4% 51.6% 44.7%
------- ------- ------- -------
Operating income 33.7% 51.6% 48.4% 55.3%
Net interest expense 9.5% 17.0% 10.0% 20.3%
Other expense 0.0% 0.0% 1.5% 0.0%
Income before extraordinary expense 24.2% 31.4% 36.9% 35.0%
Extraordinary expense 0.0% 0.0% 1.0% 0.0%
------- ------- ------- -------
Net income 24.2% 31.4% 35.9% 35.0%
======= ======= ======= =======
Adjusted EBITDA (2) 64.4% 73.8% 72.1% 70.5%
</Table>
(1) Net voyage revenues are voyage revenues minus voyage expenses. Voyage
expenses primarily consist of commissions and port, canal and fuel costs
that are unique to a particular voyage, which would otherwise be paid by a
charterer under a time charter.
<Table>
<Caption>
---------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 20, September 30,
---------------------------------------------------------------------------------------------------
2001 2000 2001 2000
Voyage Revenues $ 61,932 $ 37,674 $ 150,812 $ 85,963
Voyage Expenses (17,506) (6,800) (32,877) (16,750)
------------------------------------------------------
NET VOYAGE REVENUES $ 44,426 $ 30,874 $ 117,925 $ 69,213
---------------------------------------------------------------------------------------------------
</Table>
(2) Adjusted EBITDA represents net voyage revenues less direct vessel expenses
and general and administrative expenses. Adjusted EBITDA is included
because it is used by certain investors to measure a company's financial
performance. Adjusted EBITDA is not an item recognized by GAAP, and should
not be considered as an alternative to net income or any other indicator of
the Company's performance required by GAAP. The definition of Adjusted
EBITDA used here may not be comparable to that used by other companies.
Corporate income and expenses, which include general and administrative and net
interest expenses are allocated to vessels on a pro rata basis based on the
number of months that a vessel was owned.
15
<Page>
"Same Fleet" data consists of financial and operational data only from those
vessels that were part of the Company's fleet for both complete periods under
comparison. Management believes that this presentation facilitates a more
accurate analysis of operational and financial performance of vessels after they
have been completely integrated into the Company's operations. Same Fleet data
is provided for comparison of the periods for the three months ended September
30, 2001 and 2000, and the nine months ended September 30, 2001 and 2000. The
vessels which comprise the Same Fleet for periods not directly compared are not
necessarily the same. As a result, comparison of Same Fleet data provided for
periods which are not directly compared in the table below will not yield
meaningful results.
SAME FLEET ANALYSIS
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2001 2000 2001 2000
-------- -------- -------- --------
INCOME STATEMENT DATA
(dollars in thousands)
Net voyage revenues 23,929 28,653 74,819 60,821
Direct vessel expenses 7,147 6,403 16,438 15,298
INCOME STATEMENT MARGIN ANALYSIS
(% of net voyage revenues)
Direct vessel expenses 29.9% 22.3% 22.0% 25.2%
Adjusted EBITDA 65.2% 73.0% 73.7% 69.5%
OTHER FINANCIAL DATA
(dollars in thousands)
Adjusted EBITDA 15,606 20,929 55,155 42,274
FLEET DATA
Weighted average number of vessels 13.0 13.0 11.0 11.0
Total calendar days for fleet 1,196 1,196 3,003 3,014
Total voyage days for fleet 1,146 1,126 2,866 2,921
Total time charter days for fleet 336 580 1,222 1,547
Total spot market days for fleet 810 546 1,644 1,374
Capacity utilization 95.8% 94.1% 95.4% 96.9%
AVERAGE DAILY RESULTS
TCE 20,880 25,446 26,106 20,822
Direct vessel expenses 5,976 5,354 5,474 5,076
Adjusted EBITDA 13,048 17,499 18,367 14,026
</Table>
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2000
VOYAGE REVENUES -- Voyage revenues increased by approximately $24.2 million, or
64.4%, to approximately $61.9 million for the three months ended September 30,
2001 compared to approximately $37.7 million for the three months ended
September 30, 2000. This increase is primarily due to the increase in the number
of vessels in the fleet. The rates for the three months ended September 30, 2001
were lower than those for the three months ended September 30, 2000 and June 30,
2001. Rates during October 2001 improved relative to those realized during
the three months ended September 30, 2001 but were lower than the average rates
realized during the nine months ended September 30, 2001.
VOYAGE EXPENSES -- Voyage expenses increased approximately $10.7 million, or
157%, to approximately $17.5 million for the three months ended September 30,
2001 compared to approximately $6.8 million for the three months ended September
30, 2000. This increase is primarily due to the increase in the number of
vessels in the fleet as well as the mix of deployment of vessels operating on
time charter contracts or in the spot market.
NET VOYAGE REVENUES -- Net voyage revenues, which are voyage revenues minus
voyage expenses, increased by approximately $13.5 million, or 43.9%, to
approximately $44.4 million for the three months ended September 30,
16
<Page>
2001 compared to approximately $30.9 million for the three months ended
September 30, 2000. The total increase in net voyage revenues of approximately
$13.5 million resulted from a decrease of approximately $4.7 million in our Same
Fleet revenues, and approximately $18.2 million from the acquisition of 15
vessels subsequent to September 30, 2000. The Company acquired the Genmar
Alexandra, Genmar Hector, Genmar Pericles, West Virginia, Kentucky, and Genmar
Spirit in June 2001, the Genmar Prince, Genmar Nestor, Genmar Star, Genmar
Trust, Genmar Champion and Genmar Leonidas in July 2001, and the Genmar Trader,
Genmar Endurance and Genmar Challenger in August 2001. The weighted average
number of vessels in the Company's fleet increased 95.4% to 27.0 vessels for the
three months ended September 30, 2001 compared to 13.8 vessels for the three
months ended September 30, 2000.
On an Overall Fleet Basis:
- Average daily time charter equivalent rate per vessel decreased by
approximately $6,213, or 24.2%, to approximately $19,494 for the three
months ended September 30, 2001 ($18,834 Aframax, $22,365 Suezmax)
compared to approximately $25,707 for the three months ended September
30, 2000 ($24,975 Aframax, $27,088 Suezmax).
- Approximately $10.6 million, or 23.8%, of net voyage revenue was
generated by time charter contracts ($10.6 million Aframax, $0.0
Suezmax) and approximately $33.8 million, or 76.2%, was generated in the
spot market ($24.3 million Aframax, $9.5 million Suezmax) for the three
months ended September 30, 2001, compared to approximately $10.0
million, or 32.4%, of our net voyage revenue generated by time charter
contracts ($6.4 million Aframax, $3.6 million Suezmax), and
approximately $20.9 million, or 67.6%, generated in the spot market
($13.2 million Aframax, $7.7 million Suezmax) for the three months ended
September 30, 2000.
- Vessels operated an aggregate of 463 days, or 20.3%, on time charter
contracts (463 days Aframax, 0 days Suezmax) and 1,816 days, or 79.7%,
in the spot market (1,390 days Aframax, 426 days Suezmax) for the three
months ended September 30, 2001, compared to 580 days, or 48.3%, on time
charter contracts (414 days Aframax, 166 days Suezmax) and 621 days, or
51.7%, in the spot market (371 days Aframax, 250 days Suezmax) for the
three months ended September 30, 2000.
- Average daily time charter rates were approximately $22,800 for the
three months ended September 30, 2001 ($22,800 Aframax, $0 Suezmax)
compared to average daily time charter rates of approximately $17,267
for the three months ended September 30, 2000 ($15,486 Aframax, $21,709
Suezmax). This increase is due to the expiration of some time charter
contracts and the introduction of new contracts that reflect the time
charter rates prevalent at that time.
- Average daily spot rates were approximately $18,650 for the three months
ended September 30, 2001 ($17,500 Aframax, $22,350 Suezmax), compared to
average daily spot rates of approximately $33,589 for the three months
ended September 30, 2000 ($35,566 Aframax, $30,655 Suezmax). This
decrease is the result of an overall decline in tanker rates for the
three months ended September 30, 2001 compared to the tanker market for
the three months ended September 30, 2000.
The following summarizes the portion of the Company's fleet that was on time
charter as of September 30, 2001:
<Table>
<Caption>
------------------------------------------------------------------
Vessel Expiration Date Daily Rate**
------------------------------------------------------------------
Genmar Ajax* August 12, 2003 $ 23,000
Genmar George* May 24, 2003 $ 19,276
Genmar Commander* February 20, 2002 $ 24,300
Genmar Sun* February 20, 2002 $ 23,900***
Genmar Boss* September 24, 2002 ****
Genmar Prince January 12, 2002 $ 23,500
------------------------------------------------------------------
</Table>
17
<Page>
* "Same Fleet" vessel
** Includes commissions of 1.25%
*** The charter provides for a floating rate based on weekly spot market
related rates, which can be no less than $23,900 per day.
**** The charter provides for a floating rate based on weekly spot market
related rates.
Three of the Company's vessels are currently on time charters which expire prior
to March 31, 2002. The Company has not determined whether to deploy these
vessels on new time charters or in the spot market upon expiration of these time
charters. It intends evaluate this question as these expiration dates approach
in light of market conditions at the time.
Of the Company's net voyage revenues for the three months ended September 30,
2001 of approximately $44.4 million, approximately $23.9 million was
attributable to its Same Fleet. Same Fleet for the three months ended September
30, 2001 and 2000 consisted of 13 vessels, nine Aframax vessels and four Suezmax
vessels. Same Fleet net voyage revenues decreased by approximately $4.7 million,
or 16.5%, to approximately $23.9 million for the three months ended September
30, 2001 compared to approximately $28.6 million for the three months ended
September 30, 2000, attributable to a decrease in revenues from both time
charter contracts and spot market. The decrease in revenues from time charter
contracts for the three months ended September 30, 2001 compared to the three
months ended September 30, 2000 occurred notwithstanding the increase in Same
Fleet average daily time charter rates as Same Fleet vessels operated for fewer
days on time charter contracts during the three months ended September 30, 2001.
On a Same Fleet Basis:
- Average daily time charter equivalent rate per vessel decreased by
approximately $4,600, or 17.9%, to approximately $20,900 for the three
months ended September 30, 2001 ($20,050 Aframax, $22,850 Suezmax)
compared to approximately $25,446 for the three months ended September
30, 2000 ($24,975 Aframax, $26,532 Suezmax).
- Approximately $7.6 million, or 31.7%, of net voyage revenue was
generated by time charter contracts ($7.6 million Aframax, $0 Suezmax)
and approximately $16.3 million, or 68.3%, was generated in the spot
market ($8.7 million Aframax, $7.6 million Suezmax) for the three months
ended September 30, 2001, compared to approximately $10.0 million, or
35%, of our net voyage revenue generated by time charter contracts ($6.4
million Aframax, $3.6 million Suezmax), and approximately $18.6 million,
or 65%, generated in the spot market ($13.2 million Aframax, $5.4
million Suezmax) for the three months ended September 30, 2000.
- Vessels operated an aggregate of 336 days, or 29.3%, on time charter
contracts (336 days Aframax, 0 days Suezmax) and 810 days or 70.7%, in
the spot market (476 days Aframax, 334 days Suezmax) for the three
months ended September 30, 2001, compared to 580 days, or 51.5%, on time
charter contracts (414 days Aframax, 166 days Suezmax) and 546 days, or
48.5%, in the spot market (371 days Aframax, 175 days Suezmax) for the
three months ended September 30, 2000.
- Average daily time charter rates were approximately $22,580 for the
three months ended September 30, 2001 ($22,580 Aframax, $0 Suezmax)
compared to average daily time charter rates of approximately $17,267
for the three months ended September 30, 2000 ($15,486 Aframax, $21,709
Suezmax). This increase is due to the expiration of some time charter
contracts and the introduction of new contracts that reflect the time
charter rates prevalent at that time.
- Average daily spot rates were approximately $20,176 for the three months
ended September 30, 2001 ($18,298 Aframax, $22,851 Suezmax), compared to
average daily spot rates of approximately $34,136 for the three months
ended September 30, 2000 ($35,566 Aframax, $31,104 Suezmax). This
decrease is the result of an overall decline in tanker rates for the
three months ended September 30, 2001 compared to the tanker market for
the three months ended September 30, 2000.
18
<Page>
DIRECT VESSEL EXPENSES -- Direct vessel expenses, which include crew costs,
provisions, deck and engine stores, lubricating oil, insurance, maintenance and
repairs increased by approximately $6.6 million, or 98.8% to approximately $13.3
million for the three months ended September 30, 2001 compared to approximately
$6.7 million for the three months ended September 30, 2000. This increase is
primarily due to the growth of the fleet. On a daily basis, direct vessel
expenses per vessel increased by approximately $315 to approximately $5,572 for
the three months ended September 30, 2001 ($5,200 Aframax, $7,132 Suezmax)
compared to approximately $5,257 for the three months ended September 30, 2000
($5,158 Aframax, $5,442 Suezmax). Same Fleet direct vessel expenses increased
$0.7 million, or 11.6%, to approximately $7.1 million for the three months ended
September 30, 2001 compared to $6.4 million the three months ended September 30,
2000. This increase is primarily the result of UOT restocking provisions and
stores of these vessels upon assuming of technical management from an unrelated
third party management company. On a daily basis, Same Fleet direct vessel
expenses per vessel increased approximately $622 to approximately $5,976 ($5,670
Aframax, $6,663 Suezmax) compared to approximately $5,354 ($5,158 Aframax,
$5,794 Suezmax) for the three months ended September 30, 2000.
GENERAL AND ADMINISTRATIVE EXPENSES -- General and administrative expenses
increased by approximately $1.1 million, or 78.2%, to approximately $2.5 million
for the three months ended September 30, 2001 compared to approximately $1.4
million for the three months ended September 30, 2000. This increase is
primarily due to an increase in payroll expenses reflecting the increase in the
number of personnel in connection with the growth of the fleet for three months
ended September 30, 2001 compared to the three months ended September 30, 2000.
Daily general and administrative expenses decreased approximately $56 or 5.0% to
$1,063 for the three months ended September 30, 2001 compared to $1,119 for the
three months ended September 30, 2000.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization, which includes
depreciation of vessels as well as amortization of dry docking and special
survey costs and loan fees, increased by approximately $6.7 million, or 98.7%,
to $13.6 million for the three months ended September 30, 2001 compared to
approximately $6.9 million for the three months ended September 30, 2000. This
increase is primarily due to the growth of the fleet for the three months ended
September 30, 2001 compared to the three months ended September 30, 2000.
NET INTEREST EXPENSE -- Net interest expense decreased by approximately $1.1
million, or 19.5%, to approximately $4.2 million for the three months ended
September 30, 2001 compared to approximately $5.3 million for the three months
ended September 30, 2000. This decrease is primarily the result of lower
interest rates associated with the Company's variable interest rate debt.
NET INCOME -- Net income was approximately $10.8 million for the three months
ended September 30, 2001 compared to a net income of approximately $10.7 million
for the three months ended September 30, 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 2000
VOYAGE REVENUES -- Voyage revenues increased by approximately $64.8 million, or
75.4%, to approximately $150.8 million for the nine months ended September 30,
2001 compared to approximately $86.0 million for the nine months ended September
30, 2000. This increase is primarily due to the increase in the number of
vessels in the fleet.
VOYAGE EXPENSES -- Voyage expenses increased approximately $16.1 million, or
96.3%, to approximately $32.9 million for the nine months ended September 30,
2001 compared to approximately $16.8 million for the nine months ended
September 30, 2000. This increase is primarily due to the increase in the
number of vessels in the fleet as well as the mix of deployment of vessels
operating on time charter contracts or in the spot market.
NET VOYAGE REVENUES -- Net voyage revenues, which are voyage revenues minus
voyage expenses, increased by approximately $48.7 million, or 70.4%, to
approximately $117.9 million for the nine months ended September 30, 2001
compared to approximately $69.2 million for the nine months ended September 30,
2000. The total increase in net voyage revenues of approximately $48.7 million
resulted from an increase of approximately $14.0 million in Same Fleet revenues,
approximately $14.6 million from vessels that were part of the fleet during a
portion of the nine months ended September 30, 2000 and as a result were not
considered Same Fleet, and approximately $20.1 million from vessels acquired
subsequent to September 30, 2000. The Company acquired the Genmar Zoe in May
2000, the Genmar Macedon in June 2000, the Genmar Spartiate in July 2000, the
Genmar Alexandra, Genmar Hector, Genmar Pericles, West Virginia, Kentucky, and
Genmar Spirit in June 2001, the Genmar Prince, Genmar Nestor, Genmar Star,
Genmar Trust, Genmar Champion and Genmar Leonidas in July 2001, and the Genmar
Trader,
19
<Page>
Genmar Endurance and Genmar Challenger in August 2001. The weighted average
number of vessels in the Company's fleet increased 95.4% to 27.0 vessels for the
nine months ended September 30, 2001 compared to 13.8 vessels for the nine
months ended September 30, 2000.
On an Overall Fleet Basis:
- Average daily time charter equivalent rate per vessel increased by
approximately $3,338, or 15.4%, to approximately $24,960 for the nine
months ended September 30, 2001 ($23,541 Aframax, $29,063 Suezmax)
compared to approximately $21,622 for the nine months ended September
30, 2000 ($20,572 Aframax, $24,893 Suezmax).
- Approximately $34.0 million, or 28.8%, of net voyage revenue was
generated by time charter contracts ($31.5 million Aframax, $2.4
Suezmax) and approximately $84.0 million, or 71.2%, was generated in the
spot market ($51.1 million Aframax, $32.9 million Suezmax) for the nine
months ended September 30, 2001, compared to approximately $26.5
million, or 38.2%, of net voyage revenue generated by time charter
contracts ($16.7 million Aframax, $9.8 million Suezmax), and
approximately $42.7 million, or 61.8%, generated in the spot market
($33.1 million Aframax, $9.6 million Suezmax) for the nine months ended
September 30, 2000.
- Vessels operated an aggregate of 1,364 days, or 28.9%, on time charter
contracts (1,267 days Aframax, 97 days Suezmax) and 3,361 days or 71.1%,
in the spot market (2,244 days Aframax, 1,117 days Suezmax) for the nine
months ended September 30, 2001, compared to 1,547 days, or 48.3%, on
time charter contracts (1,090 days Aframax, 457 days Suezmax) and 1,654
days, or 51.7%, in the spot market (1,333 days Aframax, 321 days
Suezmax) for the nine months ended September 30, 2000.
- Average daily time charter rates were approximately $24,890 for the nine
months ended September 30, 2001 ($24,893 Aframax, $24,851 Suezmax)
compared to average daily time charter rates of approximately $17,103
for the nine months ended September 30, 2000 ($15,327 Aframax, $21,340
Suezmax). This increase is due to the expiration of some time charter
contracts and the introduction of new contracts that reflect the time
charter rates prevalent at that time.
- Average daily spot rates were approximately $24,988 for the nine months
ended September 30, 2001 ($22,777 Aframax, $29,429 Suezmax), compared to
average daily spot rates of approximately $25,849 for the nine months
ended September 30, 2000 ($24,861 Aframax, $29,952 Suezmax).
Of the Company's net voyage revenues of approximately $117.9 million,
approximately $74.8 million was attributable to the Same Fleet. Our Same Fleet
for the nine months ending September 30, 2001 and 2000 consisted of 11 vessels,
nine Aframax vessels and two Suezmax vessels. Same Fleet net voyage revenues
increased by approximately $14.0 million, or 23%, to approximately $74.8 million
for the nine months ended September 30, 2001 compared to approximately $60.8
million for the nine months ended September 30, 2000. This increase is
attributable to increases in spot and time charter tanker rates for the nine
months ended September 30, 2001 compared to those for the nine months ended
September 30, 2000.
On a Same Fleet Basis:
- Average daily time charter equivalent rate per vessel increased by
approximately $5,284, or 25.4%, to approximately $26,106 for the nine
months ended September 30, 2001 ($26,154 Aframax, $25,862 Suezmax)
compared to approximately $20,822 for the nine months ended September
30, 2000 ($20,572 Aframax, $22,039 Suezmax).
- Approximately $30.7 million, or 41.0%, of net voyage revenue was
generated by time charter contracts ($28.3 million Aframax, $2.4
Suezmax) and approximately $44.2 million, or 59.0%, was generated in the
spot market ($34.3 million Aframax, $9.9 million Suezmax) for the nine
months ended September 30, 2001, compared to approximately $26.5
million, or 43.6%, of net voyage revenue generated by time charter
contracts ($16.7 million Aframax, $9.8 million Suezmax), and
approximately $34.3 million, or 56.4%, generated in the spot market
($33.1 million Aframax, $1.2 million Suezmax) for the nine months ended
September 30, 2000.
- Vessels operated an aggregate of 1,222 days, or 42.6%, on time charter
contracts (1,125 days Aframax, 97 days Suezmax) and 1,644 days or 57.4%,
in the spot market (1,266 days Aframax, 378 days Suezmax)
20
<Page>
for the nine months ended September 30, 2001, compared to 1,547 days, or
53%, on time charter contracts (1090 days Aframax, 457 days Suezmax) and
1,374 days, or 47%, in the spot market (1,333 days Aframax, 41 days
Suezmax) for the nine months ended September 30, 2000.
- Average daily time charter rates were approximately $25,091 for the nine
months ended September 30, 2001 ($25,111 Aframax, $24,851 Suezmax)
compared to average daily time charter rates of approximately $17,103
for the nine months ended September 30, 2000 ($15,327 Aframax, $21,340
Suezmax). This increase is due to the expiration of some time charter
contracts and the introduction of new contracts that reflect the time
charter rates prevalent at that time.
- Average daily spot rates were approximately $26,860 for the nine months
ended September 30, 2001 ($27,081 Aframax, $26,121 Suezmax), compared to
average daily spot rates of approximately $25,009 for the nine months
ended September 30, 2000 ($24,861 Aframax, $29,824 Suezmax).
DIRECT VESSEL EXPENSES -- Direct vessel expenses, which include crew costs,
provisions, deck and engine stores, lubricating oil, insurance, maintenance and
repairs increased by approximately $10.4 million, or 62.3% to approximately
$27.2million for the nine months ended September 30, 2001 compared to
approximately $16.8 million for the nine months ended September 30, 2000. This
increase is primarily due to the growth of the fleet as well as providing newly
acquired vessels with initial provisions and stores and restoring the
inventories of provisions and stores of "Same Fleet" vessels newly managed by
UOT. On a daily basis, direct vessel expenses per vessel per day increased by
approximately $381 to approximately $5,444 for the nine months ended September
30, 2001 ($5,110 Aframax, $6,333 Suezmax) compared to approximately $5,063 for
the nine months ended September 30, 2000 ($4,826 Aframax, $5,753 Suezmax). Same
Fleet direct vessel expenses increased $1.1 million, or 7.4%, to approximately
$16.4 million for the nine months ended September 30, 2001 compared to $15.3
million the nine months ended September 30, 2000. This increase is primarily the
result of UOT restoring the inventory of provisions and stores of these vessels
to a more appropriate level, upon assuming of technical management of these
vessels from an unrelated third party management company. On a daily basis Same
Fleet direct vessel expenses per vessel per day increased approximately $398 to
approximately $5,474 ($5,300 Aframax, $6,250 Suezmax) compared to approximately
$5,076 ($4,826 Aframax, $6,200 Suezmax) for the nine months ended September 30,
2000.
GENERAL AND ADMINISTRATIVE EXPENSES -- General and administrative expenses
increased by approximately $2.1 million, or 55.6%, to approximately $5.7 million
for the nine months ended September 30, 2001 compared to approximately $3.6
million for the nine months ended September 30, 2000. This increase is primarily
due to an increase in payroll expenses reflecting the increase in the number of
our personnel in connection with the growth of the fleet for nine months ended
September 30, 2001 compared to the nine months ended September 30, 2000. Daily
general and administrative expenses increased approximately $35 or 3% to $1,135
for the nine months ended September 30, 2001 compared to approximately $1,100
for the nine months ended September 30, 2000.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization, which includes
depreciation of vessels as well as amortization of dry docking and special
survey costs and loan fees and goodwill associated with the Company's
acquisition of UOT, increased by approximately $10.1million, or 56.8%, to $28.0
million for the nine months ended September 30, 2001 compared to approximately
$17.9 million for the nine months ended September 30, 2000.
NET INTEREST EXPENSE -- Net interest expense decreased by approximately $2.4
million, or 16.5%, to approximately $11.7 million for the nine months ended
September 30, 2001 compared to approximately $14.1 million for the nine months
ended September 30, 2000. This decrease is primarily the result of lower
interest rates associated with the Company's variable interest rate debt.
OTHER EXPENSE - The Company incurred a non-recurring expense of approximately
$1.8 million relating to the termination of interest rate swap agreements
associated with certain prior loans during the nine months ended September 30,
2001. No such expense occurred during the nine months ended September 30, 2000.
EXTRAORDINARY EXPENSE - The Company incurred an extraordinary expense of
approximately $1.2 million related to the write off of remaining capitalized
loan costs associated with existing loans to the Company, which were refinanced
during the nine months ended September 30, 2001. No such expense occurred during
the nine months ended September 30, 2000.
21
<Page>
NET INCOME -- Net income was approximately $42.3 million for the nine months
ended September 30, 2001 compared to a net income of approximately $16.9 million
for the nine months ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Since the Company's formation, the principal source of funds has been equity
financings, cash flows from operating activities and long-term borrowings. The
principal use of funds has been capital expenditures to establish and grow the
fleet, maintain the quality of vessels, comply with international shipping
standards and environmental laws and regulations, fund working capital
requirements and make principal repayments on outstanding loan facilities. The
Company expects to rely upon operating cash flows as well as long-term
borrowings, and future offerings to implement the Company's growth plan. The
Company believes that its cash flows from operating activities and long-term
borrowings will be sufficient to meet its liquidity needs for the next 12
months. On June 12, 2001, the Company completed its initial public offering,
which resulted in net proceeds of approximately $128.0 million. These proceeds
were primarily used to partially repay existing indebtedness of approximately
$70.1 million and to partially finance certain vessel acquisitions of
approximately $47.5 million.
The Company's practice has been to acquire vessels using a combination of funds
received from equity investors and bank debt secured by mortgages on the
vessels, as well as shares of the Company's common stock. From its inception in
February 1997 through December 31, 2000, the Company acquired 14 vessels for an
aggregate amount of approximately $452.1 million, which was financed by
approximately $327.6 million in bank debt with the balance financed through
equity contributions. Subsequent to the initial public offering, the Company
acquired 15 vessels for cash and shares of the Company's common stock. The
Company's business is capital intensive and its future success will depend on
its ability to maintain a high-quality fleet through the acquisition of newer
vessels and the selective sale of older vessels. These acquisitions will be
principally subject to management's expectation of future market conditions as
well as its ability to acquire vessels on favorable terms.
Cash decreased to approximately $16.6 million as of September 30, 2001 compared
to approximately $23.5 million as of December 31, 2000. Working capital is
current assets minus current liabilities, including the current portion of
long-term debt. Working capital deficit was approximately $34.0 million as of
September 30, 2001, compared to a working capital deficit of approximately $4.0
million as of December 31, 2000. The current portion of long-term debt included
in our current liabilities was $73.0 million as of September 30, 2001 and
approximately $33.1 million as of December 31, 2000. We believe that our future
cash flows will satisfy our working capital needs.
Adjusted EBITDA, as defined in note 2 to the "Income Statement Margin Analysis"
table above increased by approximately $36.3 million, or 74.4%, to approximately
$85.1 million for the nine months ended September 30, 2001 from approximately
$48.8 million for the nine months ended September 30, 2000, this increase is
primarily due to the growth of the fleet as well as improvements in tanker rates
for the nine months ended September 30, 2001 compared to the nine months ended
September 30, 2000. On a daily basis, Adjusted EBITDA per vessel increased by
approximately $2,286, or 15.5%, to approximately $17,027 for the nine months
ended September 30, 2001 from approximately $14,741 for the nine months ended
September 30, 2000. Same Fleet Adjusted EBITDA increased by approximately $12.9
million, or 30.5%, to approximately $55.2 million for the nine months ended
September 30, 2001 from approximately $42.3 million for the nine months ended
September 30, 2000. Same Fleet daily Adjusted EBITDA increased to approximately
$18,367 from approximately $14,026 for the same periods.
In June 2001, the Company closed on two credit facilities, the first ("First")
on June 15, 2001 and the second ("Second") on June 27, 2001. A portion of each
of the facilities was used to refinance existing debt, pay transaction costs or
acquire vessels. The Company anticipates that a portion of the remaining
available funds under the two facilities will be used for future acquisitions
and general corporate purposes. Each loan facility is comprised of a term loan
and a revolving loan. The terms and conditions of the credit facilities require
compliance with certain restrictive covenants. Under the financial covenants of
each of the credit facilities, the Company is required to maintain certain
ratios such as: vessel market value to loans outstanding, EBITDA to net interest
expense and to maintain minimum levels of working capital. Under the general
covenants, subject to certain exceptions, the Company and its subsidiaries are
not permitted to pay dividends.
The First credit facility is a $300 million facility, comprised of a $200
million term loan and a $100 million revolving loan, which has a five-year
maturity and is to be secured by 20 vessels. The Second facility is a $165
million facility comprised of a $115 million term loan and a $50 million
revolving loan, which has a five-year maturity and is secured by nine vessels.
Each term loan requires quarterly principal repayments. The principal of
22
<Page>
each revolving loan is payable upon maturity. Both the term loans and the
revolving loans bear interest at a rate of 1.5% over LIBOR payable on the
outstanding principal amount. The Company is required to pay a fee for the
unused portion of each of the revolving loans on a quarterly basis. The Company
uses interest rate swaps to manage the impact of interest rate changes on
earnings and cash flows (See Item 3.)
Our scheduled principal repayments for each of the term loans under our First
and Second credit facilities are as follows:
<Table>
<Caption>
PRINCIPAL PAYMENTS (DOLLARS IN MILLIONS)
- ------------------------------------------------------------------------------------------------
TOTAL
FIRST SECOND PRINCIPAL
YEAR FACILITY FACILITY REPAYMENTS
- ------------------------------------------------------------------------------------------------
Fourth Quarter 2001 11.5 6.8 18.3
2002 46.0 27.0 73.0
2003 41.0 21.5 62.5
2004 36.0 16.0 52.0
2005 36.0 16.0 52.0
2006 18.0 21.0 39.0
- ------------------------------------------------------------------------------------------------
</Table>
In addition to vessel acquisition, other major capital expenditures include
funding the Company's maintenance program of regularly scheduled dry docking
necessary to preserve the quality of our vessels as well as to comply with
international shipping standards and environmental laws and regulations.
Although the Company has some flexibility regarding the timing of its dry
docking, the costs are relatively predictable. Management anticipates that
vessels that are younger than 15 years are to be dry docked every five years,
while vessels 15 years or older are to be dry docked every 2.5 years. The
estimated dry docking costs for the Company's 29-vessel fleet through 2005 are
as follows.
<Table>
<Caption>
ESTIMATED DRY DOCKING COSTS (DOLLARS IN MILLIONS)
-----------------------------------------------------
29
VESSEL
YEAR FLEET
-----------------------------------------------------
2001 3.8
2002 7.3
2003 6.3
2004 8.2
2005 8.9
-----------------------------------------------------
</Table>
The table below indicates the estimated dry docking schedule through 2005 for
the Company's 29 vessel fleet. Each dry docking is estimated to require
approximately 30 days. In addition to the incurrence of costs described above, a
dry docking results in off hire time for a vessel. Off hire time includes the
actual time the vessel is in the shipyard as well as ballast time to the ship
yard from the port of last discharge.
<Table>
<Caption>
--------------------------- -------------------------
29 VESSEL
FLEET
--------------------------- -------------------------
2001
Aframax 2
Suezmax 2
2002
Aframax 11
Suezmax 1
2003
Aframax 5
Suezmax 2
2004
Aframax 10
Suezmax 3
</Table>
23
<Page>
<Table>
2005
Aframax 10
Suezmax 2
--------------------------- -------------------------
</Table>
The ability to meet this maintenance schedule will depend on the Company's
ability to generate sufficient cash flows from operations or to secure
additional financing.
Net cash provided by operating activities increased 67.6% to approximately $52.0
million for the nine months ended September 30, 2001, compared to approximately
$31.0 million for the nine months ended September 30, 2000. This increase is
primarily attributable to the increase in net income.
Net cash used in investing activities increased to approximately $261.3 million
for the nine months ended September 30, 2001 compared to approximately $85.8
million for the nine months ended September 30, 2000. This increase is primarily
due to the use of cash for the purchase of 10 vessels during the nine months
ended September 30, 2001 compared to the purchase of three vessels during the
nine months ended September 30, 2000.
Net cash provided by financing activities was approximately $202.4 million for
the nine months ended September 30, 2001 compared to approximately $63.4 million
provided by financing activities for the nine months ended September 30, 2000.
The increase in cash provided by financing activity relates to the following:
- Net proceeds from borrowings under long-term debt were approximately
$386.1 million for the nine months ended September 30, 2000, compared to
$70.5 million during the nine months ended September 30, 2001.
- Principal repayments of long-term debt were approximately $305.9 million
for the nine months ended September 30, 2001 compared to approximately
$22.6 million for the nine months ended September 30, 2000. This change
is the result of refinancing the Company's prior loans as well as the
repayment of loans associated with five vessels, which the Company
acquired.
- Proceeds from the issuance of common stock in the Company's initial
public offering were $128.0 million during the nine months ended
September 30, 2001, compared to capital contributions from shareholders
of approximately $15.5 million during the nine months ended September
30, 2000.
The Company's operation of ocean-going vessels carries an inherent risk
of catastrophic marine disasters and property losses caused by adverse severe
weather conditions, mechanical failures, human error, war, terrorism and other
circumstances or events. In addition, the transportation of crude oil is subject
to business interruptions due to political circumstances, hostilities among
nations, labor strikes and boycotts. The Company's current insurance coverage
includes (i) protection and indemnity insurance coverage for tort liability,
which is provided by mutual protection and indemnity associations, (ii) hull and
machinery insurance for actual or constructive loss from collision, fire,
grounding and engine breakdown, (iii) war risk insurance for confiscation,
seizure, capture, vandalism, sabotage and other war-related risks and (iv) loss
of hire insurance for loss of revenue for up to 90 or 120 days resulting from
vessel off-hire for all of our vessels. In light of overall economic conditions
as well as recent international events and the related risks with respect to
the operation of ocean-going vessels and transportation of crude oil, the
Company expects that it will be required to pay higher premiums with respect
to its insurance coverage in 2002 and will be subject to increased
supplemental calls with respect to its protection and indemnity insurance
coverage payable to protection and indemnity associations in amounts based on
its own claim records as well as the claim records of the other members of
the protection and indemnity associations related to prior years of
operations. The Company believes that the increase in insurance premiums and
supplemental calls is industry wide and does not believe that it will have a
material adverse impact on vessel operations or overall financial
performance. To the extent such costs cannot be passed along to the
Company's customers, such costs will reduce the Company's operating income.
24
<Page>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
INTEREST RATE RISK
The Company is exposed to various market risks, including changes in interest
rates. The exposure to interest rate risk relates primarily to the Company's
debt. At September 30, 2001, the Company had $367.9 million of floating rate
debt with a margin over LIBOR of 1.5% compared to $241.8 million at December 31,
2000 of floating rate debt with margins over LIBOR ranging from 1.125% to 3.00%.
The Company uses interest rate swaps to manage the impact of interest rate
changes on earnings and cash flows. The differential to be paid or received
under these swap agreements is accrued as interest rates change and are
recognized as an adjustment to interest expense. As of December 31, 2000, the
Company was party to interest rate swap agreements having an aggregate notional
amount of $85.5 million, which effectively fixed LIBOR on a like amount of
principal at rates ranging from 6.2% to 7.0%. In June 2001, the Company
terminated these existing interest rate swap agreements in connection with its
refinancing. In August 2001, the Company entered into a new interest rate swap
agreement, which effectively fixed LIBOR on a portion of its floating rate debt
at 4.75%. As of September 30, 2001, the outstanding notional principal amount on
this swap agreement is $94.25 million. If the Company terminates this swap
agreement prior to its maturity, it may be required to pay or receive an amount
upon termination based on the prevailing interest rate, time to maturity and
outstanding notional principal amount at the time of termination. As of
September 30, 2001 the fair value of the swap was a liability to the Company of
$1.9 million.
A one percent increase in LIBOR would increase interest expense on the portion
of the Company's $273.6 million outstanding floating rate indebtedness that is
not hedged by approximately $2.7 million per year from September 30, 2001.
FOREIGN EXCHANGE RATE RISK
The international tanker industry's functional currency is the U.S. dollar. As
virtually all of our revenues and most of our operating costs are in U.S.
dollars, we believe that our exposure to foreign exchange risk is insignificant.
25
<Page>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is involved in the legal proceedings described below,
descriptions of which were provided by the Company under Item 1 of Part II of
its Quarterly Report on Form 10-Q for the period ended June 30, 2001. From
time to time the Company may be subject to legal proceedings and claims in
the ordinary course of business, principally personal injury and property
casualty claims. Those claims, even if lacking merit, could result in the
expenditure of significant financial and managerial resources.
The Company time chartered one of its vessels, the HARRIET, to an affiliate of
OMI Corporation in September 1997, for a period of four years plus or minus 30
days. Under the charter, the Company had the right to cancel the balance of the
charter at any time after its second anniversary date upon 90 days' written
notice with a payment of $1.0 million to the charterer, which payment has been
made by the Company. On October 2, 2000, the Company gave notice to the
charterer that this option was being exercised. Subsequently, it was calculated
that redelivery was to take place on February 2, 2001. In January 2001, the
charterer indicated that it was not possible to complete a laden voyage by such
date. The charterer asserted that the vessel would not have to be redelivered
until February 24, 2001, which would permit it time to conduct an additional
voyage. The charterer demanded arbitration and, under protest, redelivered the
vessel to the Company on January 14, 2001. The charterer has alleged that it is
entitled to damages in the amount of $1,942,533, exclusive of interest and
costs, as a result of its inability to commence and complete another voyage. The
Company's position is that pursuant to the terms of the charter and the existing
law, the charterer was not entitled to commence another voyage if the vessel
could not reasonably be redelivered prior to the redelivery date. The Company
believes that the charterer's anticipatory breach of the charter has damaged it.
The parties agreed to arbitration in the State of New York and nominated a sole
arbitrator. The parties have exchanged correspondence expressing differing views
of the law and the facts of the matter and have made various settlement offers.
At a hearing held before the arbitrator on October 3, 2001, the charterer
presented witnesses and other evidence in support of its claim. A tentative
hearing date has been set for November 20, 2001, for the Company to present
witnesses and other evidence in response to the charterer's presentation.
On March 14, 2001, the GENMAR HECTOR experienced severe weather while unloading
at the BP Amoco Co. terminal in Texas City, Texas. As a result of heavy winds,
the vessel became separated from the terminal. The terminal's loading arms were
damaged and there was a discharge of approximately 200 to 300 barrels of oil.
The U.S. Coast Guard has determined that this oil originated from the terminal
and that BP Amoco is the responsible party for the discharge under the Oil
Pollution Act of 1990, although BP Amoco retains a right of contribution against
the vessel. The protection and indemnity association for this vessel, which
provides insurance coverage for such incidents, issued a letter to BP Amoco Co.
guaranteeing the payment of up to $1.5 million for any damages for which this
vessel may be found liable. On or around August 2, 2001, Valero Refining
Company-Texas and Valero Marketing & Supply Co., co-lessors with BP Amoco of the
BP Amoco terminal, intervened in the lawsuit, asserting claims against the
Company and BP Amoco in the aggregate amount of approximately $3.2 million. On
or around September 28, 2001, BP Amoco amended its complaint to increase the
aggregate amount of its claims against the Company from approximately $1.5
million to approximately $3.2 million. BP Amoco asserted that such increase is
due to subsequent demurrage claims made against BP Amoco by other vessels whose
voyages were delayed or otherwise affected by the incident. The Company believes
that the claims asserted by BP Amoco are generally the same as those asserted by
Valero Refining Company-Texas and Valero Marketing & Supply Co. and that, as a
result, the aggregate amount of such claims taken together will be approximately
$3.2 million. Additional claims have been asserted for damage resulting from the
spill, but these claims are well within insurance limits and the Company does
not expect any additional claims to approach those limits. Accordingly, the
Company believes that this incident will have no material effect on the value of
the GENMAR HECTOR or on its results of operations following the acquisition of
this vessel.
26
<Page>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) CHANGES IN SECURITIES.
None
(b) USE OF PROCEEDS. Pursuant to a Registration Statement on Form S-1
(Registration No. 333-49814) that was declared effective by the Securities and
Exchange Commission on June 12, 2001, 8,000,000 shares of the Company's common
stock, par value $0.01 per share, which were sold in connection with the
Company's initial public offering, were registered under the Securities Act of
1933, as amended. Information regarding the proceeds of this offering was
provided by the Company under Item 2(b) of Part II of its Quarterly Report on
Form 10-Q for the period ended June 30, 2001. During the three months ended
September 30, 2001, approximately $17.5 million of the remaining net proceeds
were used to acquire the nine vessels purchased in the three months ended
September 30, 2001 and approximately $1.5 million of the remaining net proceeds
the Company received in connection with the initial public offering was used for
general corporate purposes. The Company currently anticipates using
approximately $0.8 million of the remaining net proceeds as payment for the
remaining portion of the purchase price of United Overseas Tankers Ltd., a
technical management corporation located in Piraeus, Greece. The Company
currently intends to use the remainder of the net proceeds for general corporate
purposes.
(c) WORKING CAPITAL RESTRICTIONS. A description of working capital
restrictions and other limitations on payment of dividends are set forth in Item
2 of Part I of this Form 10-Q.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
27
<Page>
ITEM 5. OTHER INFORMATION.
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
2.1 Plan of Recapitalization. (1)
2.2 Contribution Agreement, dated May 25, 2001, among General Maritime
Ship Holdings Ltd., Ajax Limited Partnership, the limited partners
of Ajax Limited Partnership, Genmar Ajax Ltd., Peter C.
Georgiopoulos, Genmar Ajax Corporation and GMC Administration Ltd.
(2)
2.3 Contribution Agreement, dated May 25, 2001, among General Maritime
Ship Holdings, Ltd., Ajax II, L.P., the limited partners of Ajax
II, L.P., Ajax II LLC, Peter C. Georgiopoulos, Genmar Ajax II
Corporation and GMC Administration Ltd. (2)
2.4 Contribution Agreement, dated May 25, 2001, among General Maritime
Ship Holdings Ltd., Ajax II, L.P., the limited partners of Boss,
L.P., Genmar Boss Ltd., Peter C. Georgiopoulos, Genmar Boss
Corporation and GMC Administration Ltd. (2)
2.5 Contribution Agreement, dated May 25, 2001, among General Maritime
Ship Holdings Ltd., General Maritime I, L.P., the limited partners
of General Maritime I, L.P., General Maritime I Corporation, Peter
C. Georgiopoulos, Genmar Maritime I Corporation and GMC
Administration Ltd., and amendment thereto. (1)
2.6 Contribution Agreement, dated May 25, 2001, among General Maritime
Ship Holdings Ltd., General Maritime II, L.P., the limited
partners of General Maritime II, L.P., General Maritime II
Corporation, Peter C. Georgiopoulos, Genmar Maritime II
Corporation and GMC Administration Ltd. (2)
2.7 Contribution Agreement, dated May 25, 2001, among General Maritime
Ship Holdings Ltd., Harriet, L.P., the limited partners of
Harriet, L.P., General Maritime III Corporation, Peter C.
Georgiopoulos, Genmar Harriet Corporation and GMC Administration
Ltd. (2)
2.8 Contribution Agreement, dated May 25, 2001, among General Maritime
Ship Holdings Ltd., and Pacific Tankship, L.P., the limited
partners of Pacific Tankship, L.P., Genmar Pacific Ltd., Peter C.
Georgiopoulos, Genmar Pacific Corporation and GMC Administration
Ltd. (2)
2.9 Contribution Agreement, dated May 25, 2001, among General Maritime
Ship Holdings Ltd., Genmar Alexandra, LLC Genmar II, LLC, Equili
Company, L.P., Equili Company, LLC, Equili Company II, L.P. and
Equili Company II, LLC. (2)
2.10 Vessel Contribution Agreement, dated April 26, 2001, between
General Maritime Ship Holdings Ltd. and Blystad Shipholding Inc.,
Liberia. (2)
2.11 Memorandum of Agreement, dated April 26, 2001, between Blystad
Shipholding Inc., Liberia and General Maritime Ship Holdings Ltd.
(2)
2.12 Memorandum of Agreement, dated April 26, 2001, between Blystad
Shipholding Inc., Liberia and General Maritime Ship Holdings Ltd.
(2)
2.13 Vessel Contribution Agreement, dated May 25, 2001, between General
Maritime Ship Holdings Ltd. and KS Stavanger Prince. (2)
2.14 Memorandum of Agreement, dated May 4, 2001, between KS Stavanger
Prince and General Maritime Ship Holdings Ltd. (2)
2.15 Letter Agreement, dated May 25, 2001, between General Maritime
Ship Holdings, Ltd. and Peter C. Georgiopoulos relating to the
acquisition of the old Maritime Corporation. (2)
3.1 Amended and Restated Articles of Incorporation of General Maritime
Ship Holdings Ltd. (1)
28
<Page>
3.2 Articles of Amendment to Amended and Restated Articles of
Incorporation, changing name from General Maritime Ship Holdings
Ltd. to General Maritime Corporation. (1)
3.3 Amended and Restated By-Laws of General Maritime Ship Holdings
Ltd. (1)
- ---------------------
(1) Incorporated by reference to Amendment No. 5 to the Company's Registration
Statement on Form S-1, filed with the Securities and Exchange Commission on June
12, 2001.
(2) Incorporated by reference to Amendment No. 3 to the Company's Registration
Statement on Form S-1, filed with the Securities and Exchange Commission on May
25, 2001.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months ended
September 30, 2001.
29
<Page>
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, its duly authorized officer and principal financial officer.
GENERAL MARITIME CORPORATION
(Registrant)
Date: NOVEMBER 14, 2001 By: /S/ Peter C. Georgiopoulos
---------------- --------------------------------
Peter C. Georgiopoulos
Chairman and Chief Executive Officer
(Duly Authorized Officer)
Date: NOVEMBER 14, 2001 By: /S/ James C. Christodoulou
---------------- ------------------------------------
James C. Christodoulou
Vice President, Chief Financial
Officer and Secretary
(Principal Financial Officer)
30
<Page>
INDEX TO EXHIBITS
<Table>
<Caption>
(A) EXHIBIT DESCRIPTION
NUMBER
- --- ------- --------------------------------------------------------------------------------------------
2.1 Plan of Recapitalization. (1)
2.2 Contribution Agreement, dated May 25, 2001, among General Maritime Ship Holdings Ltd., Ajax
Limited Partnership, the limited partners of Ajax Limited Partnership, Genmar Ajax Ltd.,
Peter C. Georgiopoulos, Genmar Ajax Corporation and GMC Administration Ltd. (2)
2.3 Contribution Agreement, dated May 25, 2001, among General Maritime Ship Holdings, Ltd.,
Ajax II, L.P., the limited partners of Ajax II, L.P., Ajax II LLC, Peter C. Georgiopoulos,
Genmar Ajax II Corporation and GMC Administration Ltd. (2)
2.4 Contribution Agreement, dated May 25, 2001, among General Maritime Ship Holdings Ltd.,
Ajax II, L.P., the limited partners of Boss, L.P., Genmar Boss Ltd., Peter C.
Georgiopoulos, Genmar Boss Corporation and GMC Administration Ltd. (2)
2.5 Contribution Agreement, dated May 25, 2001, among General Maritime Ship Holdings Ltd.,
General Maritime I, L.P., the limited partners of General Maritime I, L.P., General
Maritime I Corporation, Peter C. Georgiopoulos, Genmar Maritime I Corporation and GMC
Administration Ltd., and amendment thereto. (1)
2.6 Contribution Agreement, dated May 25, 2001, among General Maritime Ship Holdings Ltd.,
General Maritime II, L.P., the limited partners of General Maritime II, L.P., General
Maritime II Corporation, Peter C. Georgiopoulos, Genmar Maritime II Corporation and GMC
Administration Ltd. (1)
2.7 Contribution Agreement, dated May 25, 2001, among General Maritime Ship Holdings Ltd.,
Harriet, L.P., the limited partners of Harriet, L.P., General Maritime III Corporation,
Peter C. Georgiopoulos, Genmar Harriet Corporation and GMC Administration Ltd. (2)
2.8 Contribution Agreement, dated May 25, 2001, among General Maritime Ship Holdings Ltd., and
Pacific Tankship, L.P., the limited partners of Pacific Tankship, L.P., Genmar Pacific
Ltd., Peter C. Georgiopoulos, Genmar Pacific Corporation and GMC Administration Ltd. (2)
2.9 Contribution Agreement, dated May 25, 2001, among General Maritime Ship Holdings Ltd.,
Genmar Alexandra, LLC Genmar II, LLC, Equili Company, L.P., Equili Company, LLC, Equili
Company II, L.P. and Equili Company II, LLC. (2)
2.10 Vessel Contribution Agreement, dated April 26, 2001, between General Maritime Ship Holdings
Ltd. and Blystad Shipholding Inc., Liberia. (2)
2.11 Memorandum of Agreement, dated April 26, 2001, between Blystad Shipholding Inc., Liberia
and General Maritime Ship Holdings Ltd. (2)
2.12 Memorandum of Agreement, dated April 26, 2001, between Blystad Shipholding Inc., Liberia
and General Maritime Ship Holdings Ltd. (2)
2.13 Vessel Contribution Agreement, dated May 25, 2001, between General Maritime Ship Holdings
Ltd. and KS Stavanger Prince. (2)
2.14 Memorandum of Agreement, dated May 4, 2001, between KS Stavanger Prince and General
Maritime Ship Holdings Ltd. (2)
2.15 Letter Agreement, dated May 25, 2001, between General Maritime Ship Holdings, Ltd. and
Peter C. Georgiopoulos relating to the acquisition of the old Maritime Corporation. (2)
3.1 Amended and Restated Articles of Incorporation of General Maritime Ship Holdings Ltd. (1)
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3.2 Articles of Amendment to Amended and Restated Articles of Incorporation, changing name from
General Maritime Ship Holdings Ltd. to General Maritime Corporation. (1)
3.3 Amended and Restated By-Laws of General Maritime Ship Holdings Ltd. (1)
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(1) Incorporated by reference to Amendment No. 5 to the Company's Registration
Statement on Form S-1, filed with the Securities and Exchange Commission on
June 12, 2001.
(2) Incorporated by reference to Amendment No. 3 to the Company's Registration
Statement on Form S-1, filed with the Securities and Exchange Commission on
May 25, 2001.