UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12 (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number: 1-10137
EXCEL MARITIME CARRIERS LTD.
(Exact name of Registrant as specified in its charter)
LIBERIA
(Jurisdiction of incorporation or organization)
c/o Excel Maritime Carriers Ltd.
Par La Ville Place
14 Par La Ville Road
Hamilton HM JX Bermuda
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
------------------------------
Title of each class Name of each exchange on which
registered
- ------------------------------------- ------------------------------
Common shares, par value $0.01 American Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the
Act: None Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: None As of December 31, 2004, there were 13,696,153
shares of Class A common shares and 114,946 Class B common shares of the
registrant outstanding.
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 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
requirement for the past 90 days.
Yes |X| No |_|
Indicate by check mark which financial statement item the Registrant has elected
to follow.
Item 17 |_| Item 18 |X|
TABLE OF CONTENTS
PART I
ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS ....5
ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE...................5
ITEM 3 - KEY INFORMATION...........................................5
ITEM 4 - INFORMATION ON THE COMPANY...............................18
ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS.............28
ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES...............37
ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS........39
ITEM 8 - FINANCIAL INFORMATION....................................40
ITEM 9 - THE OFFER AND LISTING....................................41
ITEM 10 - ADDITIONAL INFORMATION..................................42
ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK..............................................51
ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES...............................................52
PART II
ITEM 13 - DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES..........52
ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS.....................................52
ITEM 15 - CONTROLS AND PROCEDURES..................................52
ITEM 16A- AUDIT COMMITTEE FINANCIAL EXPERT.........................53
ITEM 16B- CODE OF ETHICS...........................................53
ITEM 16C- PRINCIPAL ACCOUNTANT FEES AND RELATED SERVICES...........53
ITEM 16D- EXCEPTION FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEE.............................................53
ITEM 16E- PURCHASES OF EQUITY SECURITIES BY ISSUER AND AFFILIATES..54
PART III
ITEM 17 - FINANCIAL STATEMENTS.....................................54
ITEM 18 - FINANCIAL STATEMENTS.....................................54
ITEM 19 - EXHIBITS...............................................II-1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Matters discussed in this document may constitute forward-looking statements.
The Private Securities Litigation Reform Act of 1995 provides safe harbour
protections for forward-looking statements in order to encourage companies to
provide prospective information about their business. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance, and underlying assumptions and other statements, which
are other than statements of historical facts.
Please note in this annual report, "we", "us", "our", "The Company", and "Excel"
all refer to Excel Maritime Carriers Ltd. and its subsidiaries.
Excel Maritime Carriers Ltd., or the Company, desires to take advantage of the
safe harbour provisions of the Private Securities Litigation Reform Act of 1995
and is including this cautionary statement in connection with this safe harbour
legislation. This document and any other written or oral statements made by us
or on our behalf may include forward-looking statements, which reflect our
current views with respect to future events and financial performance. The words
"believe", "anticipate", "intends", "estimate", "forecast", "project", "plan",
"potential", "will", "may", "should", "expect" and similar expressions identify
forward-looking statements.
The forward-looking statements in this document are based upon various
assumptions, many of which are based, in turn, upon further assumptions,
including without limitation, managements examination of historical operating
trends, data contained in our records and other data available from third
parties. Although we believe that these assumptions were reasonable when made,
because these assumptions are inherently subject to significant uncertainties
and contingencies which are difficult or impossible to predict and are beyond
our control, we cannot assure you that we will achieve or accomplish these
expectations, beliefs or projections.
In addition to these important factors and matters discussed elsewhere herein
and in the documents incorporated by reference herein, important factors that,
in our view, could cause actual results to differ materially from those
discussed in the forward-looking statements include the strength of world
economies and currencies, general market conditions, including fluctuations in
charter hire rates and vessel values, changes in the Company's operating
expenses, including bunker prices, drydocking and insurance costs, changes in
governmental rules and regulations or actions taken by regulatory authorities,
potential liability from pending or future litigation, general domestic and
international political conditions, potential disruption of shipping routes due
to accidents or political events, and other important factors described from
time to time in the reports filed by the Company with the Securities and
Exchange Commission.
PART I
ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable
ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable
ITEM 3 - KEY INFORMATION
Selected Financial Data
The following table sets forth our selected historical consolidated
financial data and other operating information for each of the five years in the
five year period ended December 31, 2004. The following information should be
read in conjunction with "Item 5, Operating and Financial Review and Prospects",
the consolidated financial statements, related notes, and other financial
information included herein. The following selected consolidated financial data
of Excel Maritime Carriers Ltd. in the table below are derived from our
consolidated financial statements and notes thereto which have been prepared in
accordance with U.S. generally accepted accounting principles ("US GAAP") and
have been audited for the years ended December 31, 2002, 2003 and 2004 by Ernst
& Young (Hellas) Certified Auditors Accountants S.A. ("Ernst & Young"),
independent registered public accounting firm, and for the years ended December
31, 2000 and 2001 by Arthur Andersen, independent auditors. On August 31, 2002,
Arthur Andersen LLP, an affiliate of Arthur Andersen, ceased practising before
the SEC. For a discussion of certain risks relating to Arthur Andersen's audit
of our financial statements, see "Risk Factors" below.
Selected Historical Financial Data and Other Operating Information
Excel Maritime Carriers Ltd.
($ in thousands, except per share data Year Ended December 31,
and Average Daily Results)
2000 2001 2002 2003 2004
INCOME STATEMENT DATA
Voyage revenues $32,204 $25,938 $15,602 $26,094 $51,966
Revenues from managing vessels - 584 385 527 637
Investment income 3,300 11,440 - - -
Voyage expenses 11,759 10,956 7,009 7,312 8,100
Vessel operating expenses 9,058 6,849 5,354 6,529 7,518
Depreciation and amortization 932 1,419 1,080 1,548 1,713
($ in thousands, except per share data Year Ended December 31,
and Average Daily Results)
2000 2001 2002 2003 2004
General and administrative expenses 1,347 1,880 1,475 1,974 3,098
Gain/(Loss) on sale of vessels 289 (423) 569 - -
------------- ------------- ------------ ------------- -------------
Operating Income 9,397 16,435 1,638 9,258 32,174
Interest and finance costs, net (2,826) (1,422) (669) (461) (61)
Foreign currency (losses) gains 25 1,165 (44) (58) (39)
Provision for loss on sale of subsidiary - (9,300) - - -
Other, net 162 55 164 (94) (24)
------------- ------------- ------------ ------------- -------------
Net Income (1) $10,058 $6,933 $1,089 $8,645 $32,050
============= ============= ============ ============= =============
Basic and fully diluted earnings per $0.87 $0.60 $0.09 $0.75 $2.75
share (2)
Weighted average basic and diluted shares 11,611,099 11,514,950 11,550,984 11,532,725 11,640,058
outstanding
Dividends per share - - 2.15 - -
BALANCE SHEET DATA
(at period end)
Cash and cash equivalents $1,019 $10,131 $1,949 $3,958 $64,903
Current assets, including cash 5,021 41,908 3,157 5,525 71,376
Total assets 50,826 55,465 21,435 24,083 114,297
Current liabilities, including current 15,241 26,488 5,896 4,121 10,732
portion of long-term debt
Total long-term debt, excluding current 11,754 - 10,090 5,870 5,750
portion
Stockholders' equity 23,831 28,977 5,449 14,092 97,815
($ in thousands, except per share data Year Ended December 31,
and Average Daily Results)
2000 2001 2002 2003 2004
OTHER FINANCIAL DATA
Net cash from (used in) operating $6,204 $9,540 $(260) $8,887 $32,033
activities
Net cash from (used in) investing (22,207) (232) 11,996 - (26,220)
activities
Net cash from (used in) financing 11,121 7 (20,771) (6,878) 55,132
activities
FLEET DATA
Average number of vessels (3) 6.9 5.5 4.2 5.0 5.0
Available days for fleet (4) 2,317 2,008 1,458 1,686 1,793
Calendar days for fleet (5) 2,519 2,008 1,524 1,825 1,830
Fleet utilization (6) 92.0% 100.0% 95.7% 92.4% 98.0%
AVERAGE DAILY RESULTS
Time charter equivalent (7) $8,824 $7,461 $5,894 $11,140 $24,465
Vessel operating expenses(8) 3,596 3,411 3,513 3,578 4,108
General and administrative expenses (9) 535 936 968 1,082 1,692
Total vessel operating expenses (10) 4,131 4,347 4,481 4,660 5,800
(1) In 2001, the Company revised its financial statements previously issued for
the year ended December 31, 2000, to adjust the "Equity on Earnings of an
Affiliate" in order to more accurately reflect such income, as A/S
Dampskilbsselskabet Torm, the affiliated company, prepared, for the first time,
financial statements in conformity with U.S. generally accepted accounting
principles during the last quarter of the year ended December 31, 2001. The
effect of the revision was (a) to decrease "Equity on Earnings of an Affiliate"
by $ 5,117 and net income for the year ended December 31, 2000 by an equal
amount and (b) to decrease "accumulated other comprehensive income" included in
stockholders' equity as of December 31, 2000 by $ 291.
(2) The effect of the above revision on earnings per share for the year ended
December 31, 2000 was $ (0.44) per share.
(3) Average number of vessels is the number of vessels that constituted our
fleet for the relevant period, as measured by the sum of the number of calendar
days each vessel was a part of our fleet during the period divided by the number
of calendar days in that period.
(4) Available days for fleet are the total calendar days the vessels were in our
possession for the relevant period after subtracting for off hire days
associated with major repairs, drydocks or special or intermediate surveys.
(5) Calendar days are the total days we possessed the vessels in our fleet for
the relevant period including off hire days associated with major repairs,
drydockings or special or intermediate surveys.
(6) Fleet utilization is the percentage of time that our vessels were available
for revenue generating available days, and is determined by dividing available
days by fleet calendar days for the relevant period.
(7) Time charter equivalent, or TCE, is a measure of the average daily revenue
performance of a vessel on a per voyage basis. Our method of calculating TCE is
consistent with industry standards and is determined by dividing revenue
generated from time and voyage charters net of voyage expenses by available days
for the relevant time period. Voyage expenses primarily consist of port, canal
and fuel costs that are unique to a particular voyage, which would otherwise be
paid by the charterer under a time charter contract, as well as commissions. TCE
is a standard shipping industry performance measure used primarily to compare
period-to-period changes in a shipping company's performance despite changes in
the mix of charter types (i.e., spot voyage charters, time charters and bareboat
charters) under which the vessels may be employed between the periods.
(8) Daily vessel operating expenses, which includes crew costs, provisions, deck
and engine stores, lubricating oil, insurance, maintenance and repairs is
calculated by dividing vessel operating expenses by fleet calendar days for the
relevant time period.
(9) Daily general and administrative expense is calculated by dividing general
and administrative expense by fleet calendar days for the relevant time period.
(10) Total vessel operating expenses, or TVOE, is a measurement of our total
expenses associated with operating our vessels. TVOE is the sum of vessel
operating expenses and general and administrative expenses. Daily TVOE is
calculated by dividing TVOE by fleet calendar days for the relevant time period.
Capitalization and Indebtedness
Not Applicable.
Reasons For the Offer and Use of Proceeds
Not Applicable.
Risk Factors
The cyclical nature of the shipping industry, freight rates and vessel values
may affect our profitability.
We are an independent shipping company that operates in the dry bulk
markets. The supply of, and demand for, shipping capacity strongly influences
freight rates. Demand for the type of commodities carried and the distance that
those commodities must be moved by sea primarily determine the demand for
shipping capacity. World and regional economic and political conditions
(including developments in international trade, fluctuations in industrial and
agricultural production and armed conflicts), environmental concerns, weather
patterns, changes in seaborne and other transportation costs affect, among other
things, demand for commodities. The size of the existing fleet in a particular
market, the number of new building deliveries, the scrapping of older vessels
and the number of vessels out of active service (i.e. laid-up, dry-docked,
awaiting repairs or otherwise not available for hire), determines the supply of
shipping capacity, which is measured by the amount of suitable tonnage available
to carry cargo. In addition to the prevailing and anticipated freight rates,
factors that affect the rate of newbuilding, scrapping and laying-up include
newbuilding prices, second hand vessel values in relation to scrap prices, costs
of bunkers and other operating costs, costs associated with classification
society surveys, normal maintenance and insurance coverage, the efficiency and
age profile of the existing fleet in the market and government and industry
regulation of maritime transportation practices, particularly environmental
protection laws and regulations. These factors influencing the supply of and
demand for shipping capacity are outside of our control, and we cannot predict
the nature, timing and degree of changes in industry conditions.
We expect the market value of our vessels to fluctuate largely in
relation to existing and anticipated freight rates as well as with changes in
general economic and market conditions. Furthermore, as our vessels grow older
we generally expect their market value to decline.
Risks associated with the purchase and operation of second hand vessels may
affect our results of operations.
We acquired all of our vessels second hand, and we estimate their
useful lives to be 28 years, depending on various market factors and
management's ability to comply with government and industry regulatory
requirements. Part of our business strategy includes the continued acquisition
of second hand vessels when we find attractive opportunities.
In general, expenditures necessary for maintaining a vessel in good
operating condition increase as a vessel ages. Second hand vessels may also
develop unexpected mechanical and operational problems despite adherence to
regular survey schedules and proper maintenance. Cargo insurance rates also tend
to increase with a vessel's age, and older vessels tend to be less
fuel-efficient than newer vessels. While the difference in fuel consumption is
factored into the freight rates that our older vessels earn, if the cost of
bunker fuels were to increase significantly, it could disproportionately affect
our vessels and significantly lower our profits. In addition, changes in
governmental regulations, safety or other equipment standards may require
-- expenditures for alterations to existing equipment;
-- the addition of new equipment, or
-- restrictions on the type of cargo a vessel may transport.
We cannot give assurances that future market conditions will justify
such expenditures or enable us to operate our vessels profitably during the
remainder of their economic lives.
Our recent growth and the termination of our management agreement will impose
significant additional responsibilities on us and Maryville that we may not be
able to meet if we cannot hire and retain qualified personnel
With the recent acquisition of new vessels, we will more than triple
the size of the fleet. This will impose significant additional responsibilities
on our management and staff and, together with the recent termination of our
management agreement with Excel Management Ltd., will impose significant
additional responsibilities on the management and staff of our wholly-owned
subsidiary Maryville Maritime Inc., or Maryville, as well. These events may
necessitate that both we and Maryville increase the number of personnel. There
can be no assurance that we will be able to hire qualified personnel when
needed. Difficulty in hiring and retaining personnel could adversely affect our
performance.
We are partially dependent on spot voyages in the volatile shipping markets
We currently charter our vessels on both spot charter and time charter
bases. Although partial dependence on spot charters is not unusual in the
shipping industry, the spot charter market is highly competitive and spot
charter rates may fluctuate significantly based upon available charters and the
supply of and demand for sea borne shipping capacity. While our focus on the
spot charter market may enable us to benefit if industry conditions strengthen,
we must consistently procure spot charter business. Conversely, such dependence
makes us vulnerable to declining market rates for spot charters. We cannot give
assurances that future available spot charter rates will enable us to operate
our vessels profitably.
We face strong competition
We obtain charters for our vessels in highly competitive markets in
which our market share is insufficient to enforce any degree of pricing
discipline. Although we believe that no single competitor has a dominant
position in the markets in which we compete, we are aware that certain
competitors may be able to devote greater financial and other resources to their
activities than we can, resulting in a significant competitive threat to us.
We cannot give assurances that we will continue to compete
successfully with our competitors or that these factors will not erode our
competitive position in the future.
Risk of loss and insurance may affect our results
Adverse weather conditions, mechanical failures, human error, war,
terrorism, piracy and other circumstances and events create an inherent risk of
catastrophic marine disasters and property loss in the operation of any
ocean-going vessel. In addition, business interruptions due to political
circumstances in foreign countries, hostilities, labour strikes, and boycotts.
Any such event may result in loss of revenues or increased costs.
We carry insurance to protect against most of the accident-related
risks involved in the conduct of our business and we maintain environmental
damage and pollution insurance coverage. We do not carry insurance covering the
loss of revenue resulting from vessel off-hire time. We cannot give assurances
that all covered risks are adequately insured against, that any particular claim
will be paid or that we will be able to procure adequate insurance coverage at
commercially reasonable rates in the future. More stringent environmental
regulations in the past have resulted in increased costs for insurance against
the risk of environmental damage or pollution. In the future, we may be unable
to procure adequate insurance coverage to protect us against environmental
damage or pollution.
A decline in the market value of our vessels could lead to a default under our
loan agreements and the loss of our vessels.
If the market value of our fleet declines, we may not be able to
refinance our debt or obtain future financing. If we are unable to pledge
additional collateral, or obtain waivers from our lenders, our lenders could
accelerate our debt and foreclose on our fleet.
We must dedicate a large part of our cash flow from operations to
paying principal and interest on our indebtedness. These payments limit funds
available for working capital, capital expenditures and other purposes and if we
cannot service our debt, we may lose our vessels.
Due to the fact that the market value of our vessels may fluctuate
significantly, we may incur losses when we sell vessels or we may be required to
write down their carrying value, which may adversely affect our earnings.
The international dry bulk shipping industry is cyclical with
attendant volatility in profitability, charter rates and vessel values. Recent
fluctuations attest to this volatility in the dry bulk carrier industry. In
December 2004, charter rates reached an all-time high, and then subsequently
declined by approximately 30% through early 2005 before recovering and
stabilizing during the remainder of the first quarter of 2005. Because many
factors that may influence the supply of, and demand for, vessel capacity are
unpredictable, the timing, direction and degree of changes in the international
dry bulk shipping industry are also not predictable.
The degree of charter rate volatility among different types of dry
bulk carriers has varied widely. Although our fleet deployment strategy may
limit our exposure, we are nonetheless exposed to changes in spot rates for dry
bulk carriers and such changes may affect our earnings and the value of our
vessels at any given time.
The factors affecting the supply and demand for vessels and dry bulk
charter rates are outside of our control, and the nature, timing and degree of
changes in industry conditions are unpredictable. Factors that influence demand
for vessel capacity include:
o supply and demand for dry bulk products;
o global and regional economic conditions;
o the distance dry bulk cargoes are to be moved by sea; and
o changes in seaborne and other transportation patterns.
The factors that influence the supply of vessel capacity include:
o the number of newbuilding deliveries;
o the scrapping rate of older vessels;
o the level of port congestion;
o changes in environmental and other regulations that may limit the
useful life of vessels;
o the number of vessels that are out of service; and
o changes in global dry bulk commodity production.
If we determine at any time that a vessel's future limited useful life
and earnings requires us to impair its value on our financial statements, that
could result in a charge against our earnings and the reduction of our
stockholders' equity. If for any reason we sell our vessels at a time when
prices have fallen and before an impairment adjustment is made to our financial
statements, the sale price may be less than the vessel's carrying amount on our
financial statements, with the result that we would also incur a loss and a
reduction in earnings.
Our vessels may suffer damage and we may face unexpected drydocking costs which
could affect our cash flow and financial condition
If our vessels suffer damage, they may need to be repaired at a
drydocking facility. The costs of drydock repairs are unpredictable and can be
substantial. We may have to pay drydocking costs that our insurance does not
cover. This would decrease earnings.
Our operations outside the United States expose us to global risks that may
interfere with the operation of our vessels
We are an international company and primarily conduct our operations
outside the United States. Terrorist attacks such as the attacks on the United
States on September 11, 2001 and the United States' continuing response to these
attacks, as well as the threat of future terrorist attacks, continues to cause
uncertainty in the world financial markets which may affect our business,
results of operations and financial condition. Political instability, terrorist
or other attacks, war or international hostilities may contribute to further
economic instability in the global financial markets. These uncertainties could
also adversely affect our ability to obtain additional financing on terms
acceptable to us or at all.
Future terrorist attacks, such as the attack on the m.t. Limburg in
October 2002, may also negatively affect our operations and financial condition
and directly impact our vessels or our customers. Future terrorist attacks could
result in increased volatility of the financial markets in the United States and
globally and could result in an economic recession in the United States or the
world. Any of these occurrences could have a material adverse impact on our
operating results, revenue, and costs.
Maritime claimants could arrest our vessels, which could interrupt our cash flow
Crew members, suppliers of goods and services to a vessel, shippers of
cargo and other parties may be entitled to a maritime lien against a vessel for
unsatisfied debts, claims or damages. In many jurisdictions a maritime
lienholder may enforce its lien by arresting a vessel through foreclosure
proceedings. The arrest or attachment of one or more of our vessels could
interrupt our cash flow and require us to make significant payments to have the
arrest lifted.
In addition, in some jurisdictions, such as South Africa, under the
"sister ship" theory of liability, a claimant may arrest both the vessel which
is subject to the claimant's maritime lien and any "associated" vessel, which is
any vessel owned or controlled by the same owner. Claimants could try to assert
"sister ship" liability against one vessel in our fleet for claims relating to
another of our ships.
Governments could requisition our vessels during a period of war or emergency,
resulting in loss of earnings
A government could requisition for title or seize our vessels.
Requisition for title occurs when a government takes control of a vessel and
becomes her owner. Also, a government could requisition our vessels for hire.
Requisition for hire occurs when a government takes control of a vessel and
effectively becomes her charterer at dictated charter rates. Generally,
requisitions occur during a period of war or emergency. Government requisition
of one or more of our vessels would negatively impact our revenues.
We depend on companies that are affiliated or wholly-owned subsidiaries to
manage our business.
Historically, our fleet has been managed by Excel Management Ltd., or
"Excel Management", an affiliated company controlled by our Chairman of the
Board of Directors, under a five-year management agreement. Under this
agreement, we paid Excel Management a monthly management fee of $15,000 per
month for each of our vessels and an annual fee for general corporate and
clerical management services of $60,000. The agreement provided that both of
these fees would increase annually by five percent. Excel Management had
sub-contracted Maryville Maritime Inc to perform some of these management
services. Maryville became a wholly-owned subsidiary of ours in March 2001.
In order to streamline operations, reduce costs and take control of
the technical and commercial management of our fleet, in early March 2005, with
effect from January 1, 2005, we reached an agreement with Excel Management to
terminate the management agreement, the term of which was scheduled to extend
until April 30, 2008. The technical and commercial management of our fleet was
directly assumed by our wholly-owned subsidiary, Maryville, in order to
eliminate the fees we would have paid to Excel Management for the remaining term
of the management agreement, which would have increased substantially given the
expansion of our fleet from five vessels to 18 vessels through the recent
acquisition of new vessels.
On March 4, 2005, we also entered into a one-year brokering agreement
with Excel Management. Under this brokering agreement, Excel Management will,
pursuant to our instructions, act as our broker with respect to, among other
matters, the employment of our vessels. For its chartering services under the
brokering agreement, Excel Management will receive a commission fee equal to
1.25% of the revenue of our vessels. This agreement extends automatically for
successive one-year terms at the end of its initial term. It may be terminated
by either party upon twelve months prior written notice.
Our obligations to issue shares of Class A common stock to Excel Management
under the terms of our management agreement termination agreement will be
dilutive to our existing shareholders.
As consideration for Excel Management's consent to terminate the
management agreement and forego the fees it would have received under the
management agreement had the agreement remained in effect through its scheduled
expiration in 2008, we have agreed to issue to Excel Management 205,000 shares
of our Class A common stock, which is equal to approximately 1.5% of our Class A
common stock outstanding as of March 2, 2005. We have agreed to issue these
shares to Excel Management by March 2, 2006. Excel Management may not transfer
these shares for a period of two years after their issuance, and the shares will
contain a restrictive legend to that effect.
In addition to the shares to be issued to Excel Management under the
Management Termination Agreement, as part of the consideration for agreeing to
terminate the management agreement, we have also agreed to issue additional
shares to Excel Management in an amount equal to 1.5% of any shares of Class A
common stock issued by us to any third party until December 31, 2008 for any
reason. If any such additional shares are issued, Excel Management may not
transfer these additional shares for a period of two years after their issuance.
In connection with our agreement to issue the 205,000 shares of our
Class A common stock and the anti-dilution issuances described above, Excel
Management has agreed to make a one time cash payment to us in an amount equal
to $2,023,846 upon delivery of such shares. We will not receive any cash payment
or other future consideration in receipt of shares of Class A common stock
issued to Excel Management in connection with any anti-dilution issuances.
Issuances of shares of Class A common stock to Excel Management as a
result of the original issuance and anti-dilution issuances will be dilutive to
our existing shareholders.
We may not be exempt from U.S. taxation on our U.S. source shipping income,
which would reduce our net income and cash flow by the amount of the applicable
tax.
For our taxable years ending on and prior to December 31, 2004, we
believe and take the position that we and our subsidiaries were exempt from tax
under section 883 of the U.S. Internal Revenue Code, or the Code, on the basis
we were a public company, more than 50% of the value of whose stock was
primarily and regularly traded on the American Stock Exchange and on the basis
the final regulations interpreting Code section 883 in a manner contrary to our
position do not become effective until January 1, 2005 for calendar year
taxpayers such as ourselves. We can give no assurance, however, that we would
prevail in our position if challenged. Furthermore, beginning with calendar year
2005, we believe we and our subsidiaries will no longer be able to qualify for
exemption under Code section 883.
If we were not eligible for exemption from tax under Code section 883,
we would be subject to a four percent tax on our U.S. source shipping income,
which is comprised of 50% of our shipping income attributable to the transport
of cargoes to or from United States ports. Based on our calculations to date, we
do not believe our U.S. federal tax liability has been or will be material.
However, we can give no assurance that the trading pattern of our ships will not
change in the future and that as a result, our tax liability could become
material and our net income and cash flow would be reduced by the amount of the
applicable tax.
We may not be exempt from Liberian taxation which would materially reduce our
net income and cash flow by the amount of the applicable tax.
The Republic of Liberia enacted a new income tax law generally
effective as of January 1, 2001, or the New Act, which repealed, in its
entirety, the prior income tax law, or the Prior Law, in effect since 1977
pursuant to which we and our Liberian subsidiaries, as non-resident domestic
corporations, were wholly exempt from Liberian tax.
In 2004, the Liberian Ministry of Finance issued regulations pursuant
to which a non-resident domestic corporation engaged in international shipping
such as ourselves will not be subject to tax under the New Act retroactive to
January 1, 2001 (the "New Regulations"). In addition, the Liberian Ministry of
Justice issued an opinion that the New Regulations were a valid exercise of the
regulatory authority of the Ministry of Finance. Therefore, assuming that the
New Regulations are valid, we and our Liberian subsidiaries will be wholly
exempt from tax as under the Prior Law.
If we were subject to Liberian income tax under the New Act, we and
our Liberian subsidiaries would be subject to tax at a rate of 35% on our
worldwide income. As a result, our net income and cash flow would be materially
reduced by the amount of the applicable tax. In addition, our shareholders would
be subject to Liberian withholding tax on dividends at rates ranging from 15% to
20%.
Because we generate all of our revenues in U.S. dollars but incur a significant
portion of our expenses in other currencies, exchange rate fluctuations could
hurt our results of operations
We generate all of our revenues in U.S. dollars but incur
approximately 30% of our vessel operating expenses in currencies other than U.S.
dollars. This variation in operating revenues and expenses could lead to
fluctuations in net income due to changes in the value of the U.S. dollar
relative to the other currencies, in particular the Japanese yen, the Euro, the
Singapore dollar and the British pound sterling. Expenses incurred in foreign
currencies against which the U.S. dollar falls in value may increase as a result
of these fluctuations, therefore decreasing our net income. We do not hedge
these risks. Our results of operations could suffer as a result.
If we or any of our subsidiaries were treated as a foreign personal holding
company, a U.S. investor in our common shares would be subject to
disadvantageous rules under the U.S. tax laws
We are not aware of any facts which establish that we or any of our
subsidiaries currently meet the requirements for classification as a foreign
personal holding company (an "FPHC") for United States federal income tax
purposes. However, some of the facts relevant to such a determination are
outside of our knowledge and control. Therefore, we are unable to establish
whether we or any of our subsidiaries constitute an FPHC. If we or one of our
subsidiaries were treated as an FPHC, then each United States holder owning,
directly or indirectly, common shares on the last day in the taxable year on
which the FPHC ownership requirement with respect to us or the subsidiary is met
would be required to include currently in taxable income as a dividend a pro
rata share of our or the subsidiary's undistributed FPHC income, which is,
generally, our or the subsidiary's taxable income with certain adjustments and
after reduction for certain dividend payments. Please see "Tax
Considerations--United States federal income tax considerations--Foreign
Personal Holding Company Considerations" herein.
If we were treated as a passive foreign investment company, a U.S. investor in
our common shares would be subject to disadvantageous rules under the U.S. tax
laws
If we were treated as a passive foreign investment company (a "PFIC")
in any year, U.S. holders of our common shares would be subject to unfavourable
U.S. federal income tax treatment. We do not believe that we will be a PFIC in
2005 or in any future year. However, PFIC classification is a factual
determination made annually and we could become a PFIC if the portion of our
income derived from bareboat charters or other passive sources were to increase
substantially. Moreover, the IRS may disagree with our position that time and
voyage charters do not give rise to passive income for purposes of the PFIC
rules. Accordingly, we can provide no assurance that we will not be treated as a
PFIC for 2005 or for any future year. Please see "Tax Considerations--United
States Federal Income Tax Considerations--Passive Foreign Investment Company
Considerations" herein for a description of the PFIC rules.
Dividends we pay with respect to our common shares to United States
holders would not be eligible to be taxed at reduced U.S. tax rates applicable
to qualifying dividends if we were a foreign personal holding company, a passive
foreign investment company or under other circumstances.
A recently enacted U.S. tax law provides that, for taxable years
beginning prior to January 1, 2009, distributions on the common shares of
non-U.S. companies that are treated as dividends for U.S. federal income tax
purposes and are received by individuals generally will be eligible for taxation
at capital gain rates if the common shares with respect to which the dividends
are paid are "readily tradable on an established securities market in the United
States." This treatment will not be available to dividends we pay, however, if
we qualify as an FPHC, a foreign investment company (an "FIC") or a PFIC for the
taxable year of the dividend or the preceding taxable year, or to the extent
that (i) the shareholder does not satisfy a holding period requirement that
generally requires that the shareholder hold the shares on which the dividend is
paid for more than 61 days during the 121-day period that begins 60 days before
the date on which the shares become ex-dividend with respect to such dividend,
(ii) the shareholder is under an obligation to make related payments with
respect to substantially similar or related property or (iii) such dividend is
taken into account as investment income under Section 163(d)(4)(B) of the
Internal Revenue Code. We do not believe that we qualified as a PFIC, FIC or
FPHC for our last taxable year and we do not expect to so qualify for our
current or future taxable years.
Existing shareholders can exert considerable control over us, which may limit
future shareholders' ability to influence our actions
Our Class B common shares have 1,000 votes per share and our Class A
common shares have one vote per share. Existing shareholders, including our
executive officers and directors, together own 100% of our outstanding Class B
common shares, representing approximately 89% of the voting power of our
outstanding capital stock.
Because of the dual class structure of our capital stock, the holders
of Class B common shares have the ability to control and will be able to control
all matters submitted to our stockholders for approval even if they come to own
less than 50% of our outstanding common shares. While the existing shareholders
have no agreement, arrangement or understanding relating to the voting of their
shares of common stock, they will have the power to exert considerable influence
over our actions.
We and our shareholders face certain risks related to our former employment of
Arthur Andersen as our independent auditors
Prior to May 30, 2002, Arthur Andersen served as our independent
auditors. On May 30, 2002, we dismissed Arthur Andersen and retained Ernst &
Young as our independent auditors for the fiscal year ended December 31, 2002.
On August 31, 2002, Arthur Andersen LLP, an affiliate of Arthur Andersen, ceased
practicing before the SEC.
Arthur Andersen did not reissue its audit report with respect to our
consolidated financial statements of fiscal year 2001 or consent to the
inclusion in this report of its audit report. As a result, our investors may
have no effective remedy against Arthur Andersen in connection with a material
misstatement or omission in the financial statements to which its audit report
relates. In addition, even if such investors were able to assert such a claim,
Arthur Andersen may fail or otherwise have insufficient assets to satisfy claims
made by investors that might arise under federal securities laws or otherwise
with respect to its audit report.
Because we are a foreign corporation, you may not have the same rights that a
shareholder in a U.S. corporation may have
We are a Liberian corporation. Our articles of incorporation and
bylaws and the Business Corporation Act of Liberia 1976 govern our affairs.
While the Liberian Business Corporation Act resembles provisions of the
corporation laws of a number of states in the United States, Liberian law does
not as clearly establish your rights and the fiduciary responsibilities of our
directors as do statutes and judicial precedent in some U.S. jurisdictions.
However, while the Liberian courts generally follow U.S. court precedent, there
have been few judicial cases in Liberia interpreting the Liberian Business
Corporation Act. Investors may have more difficulty in protecting their
interests in the face of actions by the management, directors or controlling
shareholders than would shareholders of a corporation incorporated in a U.S.
jurisdiction which has developed a substantial body of case law.
There is no guarantee of a continuing active and liquid public market for our
Class A common stock; and the price of our Class A common stock may be volatile.
The price of our Class A common stock prior to and after an offering
may be volatile, and may fluctuate due to factors such as:
o actual or anticipated fluctuations in quarterly and annual
results;
o mergers and strategic alliances in the shipping industry;
o market conditions in the industry;
o changes in government regulation;
o fluctuations in our quarterly revenues and earnings and those of
our publicly held competitors;
o shortfalls in our operating results from levels forecast by
securities analysts;
o announcements concerning us or our competitors; and
o the general state of the securities market.
Future sales of our Class A common stock may depress our stock price.
The market price of our Class A common stock could decline as a result
of sales of substantial amounts of our Class A common stock in the public market
or the perception that these sales could occur. In addition, these factors could
make it more difficult for us to raise funds through future equity offerings.
Loan agreements may prohibit or impose certain conditions on the payment of
dividends.
Most of our subsidiaries have entered into loan facilities which
contain a number of financial covenants and general covenants that prohibit,
among other things, a subsidiary from paying dividends without the consent of
our lenders until the respective loan facility is paid in full. This prohibition
on paying dividends means that these subsidiaries cannot pay dividends to us
until the respective loan facilities are paid in full or with out the consent of
our lenders, which in turn may affect our ability to make dividend payments to
our shareholders. There can be no assurance that our subsidiaries will pay
dividends to us or that we will make dividend payments to our shareholders even
after all loan facilities are paid in full.
Our substantial level of indebtedness could adversely affect our financial
condition and could have significant adverse consequences to us.
As a result of our vessel acquisitions, we have incurred a substantial
amount of indebtedness, which requires significant principal and interest
payments. We may be unable to generate cash sufficient to pay the principal of,
interest on and other amounts due in respect of our indebtedness when due. In
addition, we may incur additional indebtedness. Our substantial level of
indebtedness could have adverse consequences to us, including the following:
o our ability to obtain additional financing for working capital,
capital expenditures and vessel acquisitions may be impaired;
o a substantial portion of our cash flow from operations may have
to be dedicated to the payment of the principal of and interest
on our indebtedness;
o our leverage may make us more vulnerable to economic downturns
and may limit our ability to withstand competitive pressures;
o if our level of indebtedness is higher than that of some of our
competitors, we may be at a competitive disadvantage and our
flexibility in planning for, or responding to, changing
conditions in our industry, including increased competition or
regulation, may be reduced;
o rising interest rates could have a material adverse effect on us
since a substantial portion of our indebtedness bears interest at
variable rates; and
o if we are unable to service our debt, our creditors could
accelerate our debt and foreclose on our fleet.
We may not be able to finance all of the vessels for which we may in the future
enter into MOAs.
If we enter into a MOA for an additional vessel or vessels, we may
need to obtain a credit facility to finance a portion of the purchase of that
vessel or vessels. We cannot be certain that sufficient financing will be
available on terms that are acceptable to us or at all to finance that portion
of the purchase price of the additional vessels for which we may in the future
enter into an MOA. If we cannot obtain funding for the balance due on an MOA for
one of these vessels we may not have sufficient funds to purchase that vessel,
in which case the deposit for that vessel is subject to forfeiture.
Because most of our employees are covered by industry-wide collective bargaining
agreements, failure of industry groups to renew those agreements may disrupt our
operations and adversely affect our earnings
We employ approximately 133 seafarers and 31 land-based employees in
our Athens office. The employees in Athens are covered by industry-wide
collective bargaining agreements that set basic standards. We cannot assure you
that these agreements will prevent labour interruptions. Any labour
interruptions could disrupt our operations and harm our financial performance.
ITEM 4 - INFORMATION ON THE COMPANY
The Company
We, Excel Maritime Carriers Ltd., are a shipping company specializing
in the world-wide seaborne transportation of dry bulk cargoes. We were
incorporated under the laws of the Republic of Liberia on November 2, 1988 and
our Class A common stock trades on the American Stock Exchange (AMEX) under the
symbol EXM.
We are a provider of worldwide sea borne transportation services for
dry bulk cargo including among others, iron ore, coal and grain, collectively
referred to as "major bulks," and steel products, fertilizers, cement, bauxite,
sugar and scrap metal, collectively referred to as "minor bulks".
The address of our registered office in Bermuda is 14 Par-la- Villa
Road, Hamilton HM JX, Bermuda. We also maintain executive offices at 67 Akti
Miaouli Street, 185 38 Piraeus, Greece. Our telephone number at that address
dialing from the U.S. is (011) 30210-459-8692.
Business Overview
As of December 31, 2004, our fleet consisted of five dry bulk
carriers, comprised of two Capesize bulk carriers, two Handymax bulk carriers
and one Handysize bulk carrier, with a total cargo carrying capacity of 357,947
dwt. All existing vessels were acquired in 1999 except for the one Handymax bulk
carrier, the "Lady" which was acquired in October 2002.
During the last quarter of 2004 we entered into agreements to acquire
two Panamax bulk carriers and three Handymax bulk carriers with a total cargo
carrying capacity of 263,624 dwt tons. All five vessels were delivered by May
2005.
In December 2004, we agreed to sell the oldest vessel of our fleet,
the MV Petalis, a 1975 Handymax bulk carrier. It was delivered to her new owners
on March 7, 2005.
Subsequent to December 31, 2005 we entered into a total of eleven MOAs
to acquire eleven dry bulk carriers, consisting of three Handymaxes with a total
carrying capacity of approximately 126,000 dwt and eight Panamaxes with a total
carrying capacity of approximately 574,200 dwt. All of these vessels have been
delivered except for the Panamax vessel Fortezza which is expected to be
delivered in early July 2005. Furthermore, in May 2005, we entered into
agreements to sell the vessels Fighting Lady and Lucky Lady as further discussed
in the footnotes to the table below. After all acquisitions and disposals are
completed, our fleet will consist of 18 vessels with a total cargo carrying
capacity of 1,112,070 dwt. We financed these acquisitions through a combination
of proceeds from equity offerings, debt financing and operating income.
The following table represents the existing fleet together with the new
acquisitions:
EXISTING FLEET (As of December 31, 2004)
NAME TYPE DWT YEAR COUNTRY BUILT
- ---- ---- --- ---- -------------
Fighting Lady (2) Capesize 146,313 1983 Korea
Almar I Capesize 107,140 1979 Japan
Lady Handymax 41,090 1985 Japan
Petalis (1) Handymax 35,982 1975 Japan
Lucky Lady (3) Handysize 27,422 1975 Japan
Total 357,947
NEW ACQUISITIONS
(Last quarter 2004)
First Endeavour Panamax 69,111 1994 Japan
Isminaki Panamax 74,577 1998 Japan
Swift Handymax 37,687 1984 Japan
Goldmar Handymax 39,697 1984 Japan
Marybelle Handymax 42,552 1987 Japan
Total 263,624
(Early 2005)
Emerald Handymax 45,572 1998 Japan
Princess I Handymax 38,858 1994 Japan
Attractive Handymax 41,524 1985 Japan
Total 125,954
Birthday Panamax 71,504 1993 Japan
Renuar Panamax 70,128 1993 China
Elinakos Panamax 73,751 1997 Japan
Angela Star Panamax 73,798 1998 Japan
Powerful Panamax 70,083 1994 China
Happy Day Panamax 71,694 1997 Japan
Fortezza (4) Panamax 69,634 1993 Japan
Rodon Panamax 73,670 1993 Korea
Total 574,262
Total new acquisitions
(16 vessels) 963,840
Grand Total (18 vessels) 1,112,070
(Without Petalis, Fighting Lady and Lucky Lady)
(1) On December 14, 2004, we entered into an agreement to sell one of our older
vessels, MV Petalis, for $5.1 million. The vessel was delivered to her new
owners on March 7, 2005.
(2)On May 19, 2005, we entered into an agreement to sell MV Fighting Lady, for
$24.85 million. The vessel is expected to be delivered by the latest August 20,
2005.
(3) On May 26, 2005, we entered into an agreement to sell the second of our
older vessels, MV Lucky Lady, for $2.6 million. The vessel was delivered to her
new owners on June 13, 2005.
(4) Fortezza is expected to be delivered at early July 2005.
Competitive Strengths
We believe that we possess a number of competitive strengths in our industry:
o Experienced Management Team. Our management team has significant experience
in operating dry bulk carriers and expertise in all aspects of commercial,
technical, operational and financial areas of our business, promoting a
focused marketing effort, tight quality and cost controls, and effective
operations and safety monitoring.
o Strong Customer Relationships. We have strong relationships with our
customers and charterers that we believe are the result of the quality of
our fleet and our reputation for dependability. Through Maryville Maritime
Inc., our management subsidiary, we have many long-established customer
relationships, and our management believes it is well regarded within the
international shipping community. During the past 15 years, vessels managed
by Maryville have been repeatedly chartered by subsidiaries of major dry
bulk operators. In 2004, we derived approximately 44% of our gross revenues
from 4 charterers.
o Cost Efficient Operations. We historically operated our fleet at
competitive costs by carefully selecting second hand vessels, competitively
commissioning and actively supervising cost efficient shipyards to perform
repair, reconditioning and systems upgrading work, together with a
proactive preventive maintenance program both ashore and at sea, and
employing professional, well trained masters, officers and crews. We
believe that this combination has allowed us to minimize off-hire periods,
effectively manage insurance costs and control overall operating expenses.
Our Business Strategy
Our business strategy includes:
o Timely acquisitions of older second hand vessels. We historically have
acquired and operated older second hand vessels. We believe this strategy
has enabled us to generate higher net revenues than those available from
purchasing and operating younger second hand vessels or newbuildings. Our
ability to effectively operate our second hand fleet is enhanced by our
technical management skills and preventive maintenance programs and our
efficient cost structure.
o Capitalizing on our established reputation. We believe that we have
established a reputation in the international shipping community for
maintaining high standards of performance, reliability and safety. Since
our current management was appointed in 1998, the Company has not suffered
the total loss of a vessel at sea or otherwise. In addition, our
wholly-owned management subsidiary, Maryville, carries the distinction of
being one of the first Greece-based ship management companies to have been
certified ISO 14001 compliant by Bureau Veritas.
o Fleet expansion and reduction in average age. We intend to grow and, over
time, reduce the average age of our fleet through timely and selective
acquisitions of well-maintained second hand dry bulk carriers. Our
acquisition candidates generally are chosen based on selected financial and
technical criteria. We also expect to explore opportunities to sell some of
our older vessels.
o Balanced Fleet Deployment Strategy. Our fleet deployment strategy seeks to
maximize charter revenue throughout industry cycles while maintaining cash
flow stability. We intend to achieve this through a balanced portfolio of
spot and period time charters. To that end, we aim to employ our recent
acquisitions in the period time charter market, while the remainder of our
fleet is deployed in the spot charter markets.
Corporate Structure
We own each of our vessels through separate wholly-owned subsidiaries
incorporated in Liberia and Cyprus. Until December 31, 2004 the operations of
our vessels were managed by Excel Management Ltd., an affiliated Liberian
corporation formed on January 13, 1998, under a management agreement that was
terminated early March 2005 with effect from January 1, 2005. Excel Management
had subcontracted to Maryville Maritime Inc., a wholly-owned subsidiary of ours,
since March 2001, some of the management services. These services are provided
at usual market rates and include technical management, such as managing
day-to-day vessel operations including supervising the crewing, supplying,
maintaining and drydocking of vessels, commercial management regarding
identifying suitable vessel charter and sale/purchase opportunities and certain
accounting services. Effective January 1, 2005 Maryville is directly managing
the operations of our vessels, while Excel Management acts as our broker with
respect to, among other matters, the employment of our vessels under a brokering
agreement concluded on March 4, 2005 and pursuant to our instructions.
The names of our wholly-owned subsidiaries that own vessels and the
vessel each owns are as follows:
Subsidiaries as at 31.12.2004
- -----------------------------
NAME OF COMPANY NAME OF VESSEL
--------------- --------------
Centel Shipping Co. Ltd. Lady
Maldex Shipping Co. Ltd. Almar
Becalm Shipping Co. Ltd. Fighting Lady **
Tortola Shipping Co. Ltd. Lucky Lady **
Storler Shipping Co. Ltd. Petalis (sold)
Snapper Marine Ltd. Marybelle
Pisces Shipholding Ltd. Goldmar
Liegh Jane Navigation S.A. Swift
Teagan Shipholding S.A. First Endeavour
Fianna Navigation S.A. Isminaki
Ingram Limited Emerald Emerald
Whitelaw Enterprises Co. Birthday
Castalia Services Ltd. Princess I
New subsidiaries established after 31.12.2004 *
- -----------------------------------------------
NAME OF COMPANY NAME OF VESSEL
--------------- --------------
Fountain Services Ltd. Powerful
Candy Enterprises Inc. Renuar
Barland Holding Inc. Attractive
Yasmine International Inc. Elinakos
Amanda Enterprises Ltd. Happy Day
Marias Trading Inc. Angela Star
Harvey Development Corp. Fortezza (to be delivered)
Tanaka Services Ltd. Rodon
Magalie Investments Co. -
Melba Management Ltd. -
Minta Holdings S.A. -
Odell International Ltd. -
Naia Development Corp. -
*In order for the company to acquire the new vessels it has established
thirteen new subsidiaries listed above, one company for each new vessel.
** sold subsequent to December 31, 2004
Operations & Ship Management
Historically, our fleet has been managed by Excel Management, Ltd.,
("Excel Management"), an affiliated company controlled by our Chairman of the
Board of Directors, under a five-year management agreement. Under this
agreement, we paid Excel Management a monthly management fee of $15,000 per
month for each of our vessels and an annual fee for general corporate and
clerical management services of $60,000. The agreement provided that both of
these fees would increase annually by five percent. Excel Management had
sub-contracted Maryville Maritime Inc to perform some of these management
services. Maryville subsequently became a wholly-owned subsidiary of ours.
In order to streamline operations, reduce costs and take control of
the technical and commercial management of our fleet, in early March 2005, with
effect from January 1, 2005, we reached an agreement with Excel Management to
terminate the management agreement, the term of which was scheduled to extend
until April 30, 2008. The technical and commercial management of our fleet will
be assumed by our wholly-owned subsidiary, Maryville, in order to eliminate the
fees we would have paid to Excel Management for the remaining term of the
management agreement, which would have increased substantially given the
expansion of our fleet from five vessels to 18 vessels through the recent
acquisition of new vessels. As consideration for Excel Management's consent to
terminate the management agreement and forego the fees it would have received
under the management agreement had the agreement remained in effect through its
scheduled expiration in 2008, we have agreed to issue to Excel Management
205,000 shares of our Class A common stock, which is equal to approximately 1.5%
of our Class A common stock outstanding as of March 2, 2005. We have agreed to
issue these shares to Excel Management by March 2, 2006. Excel Management may
not transfer these shares for a period of two years after their issuance, and
the shares will contain a restrictive legend to that effect. In addition to the
above-mentioned shares, as part of the consideration for agreeing to terminate
the management agreement, we have also agreed to issue additional shares to
Excel Management in an amount equal to 1.5% of any shares of Class A common
stock issued by us to any third party until December 31, 2008 for any reason. If
any such additional shares are issued, Excel Management may not transfer these
additional shares for a period of two years after their issuance.
In connection with our agreement to issue the 205,000 shares of our
Class A common stock and the anti-dilution issuances described above, Excel
Management has agreed to make a one time cash payment to us in an amount equal
to $2,023,846 upon delivery of such shares. We will not receive any cash payment
or other future consideration in receipt of shares of Class A common stock
issued to Excel Management in connection with any anti-dilution issuances.
On March 4, 2005, we also entered into a one-year brokering agreement
with Excel Management. Under this brokering agreement, Excel Management will,
pursuant to our instructions, act as our broker with respect to, among other
matters, the employment of our vessels. For its chartering services under the
brokering agreement, Excel Management will receive a commission fee equal to
1.25% of the revenue of our vessels. This agreement extends automatically for
successive one-year terms at the end of its initial term. It may be terminated
by either party upon twelve months prior written notice.
Regulation
The business of the Company and the operation of its vessels are
materially affected by government regulation in the form of international
conventions, national, state and local laws and regulations in force in the
jurisdictions in which the vessels operate, as well as in the country or
countries of their registration. Because such conventions, laws, and regulations
are often revised, the Company cannot predict the ultimate cost of complying
with such conventions, laws and regulations or the impact thereof on the resale
price or useful life of its vessels. Additional conventions, laws and
regulations may be adopted which could limit the ability of the Company to do
business or increase the cost of its doing business and which may materially
adversely affect the Company's operations. The Company is required by various
governmental and quasi-governmental agencies to obtain certain permits, licenses
and certificates with respect to its operations. Subject to the discussion below
and to the fact that the kinds of permits, licenses and certificates required
for the operations of the vessels owned by the Company will depend upon a number
of factors, the Company believes that it has been and will be able to obtain all
permits, licenses and certificates material to the conduct of its operations.
The Company believes that the heightened environmental and quality
concerns of insurance underwriters, regulators and charterers will impose
greater inspection and safety requirements on all vessels.
Environmental Regulation--International Maritime Organization ("IMO").
The operation of the Company's vessels is also affected by the
requirements set forth in the IMO's International Management Code for the Safe
Operation of Ships and Pollution Prevention (the "ISM Code"). The ISM Code
requires shipowners and bareboat charterers to develop and maintain an extensive
"Safety Management System" that includes the adoption of a safety and
environmental protection policy setting forth instructions and procedures for
safe operation and describing procedures for dealing with emergencies. The
failure of a shipowner or bareboat charterer to comply with the ISM Code may
subject such party to increased liability, may decrease available insurance
coverage for the affected vessels, and may result in a denial of access to, or
detention in, certain ports. Currently, each of the Company's applicable vessels
is ISM code-certified. However, there can be no assurance that such
certification will be maintained indefinitely.
Environmental Regulations--The United States Oil Pollution Act of 1990.
The Unites States Oil Pollution Act of 1990, or OPA, established an
extensive regulatory and liability regime for the protection and cleanup of the
environment from oil spills. OPA affects all owners and operators whose vessels
trade in the United States, its territories and possessions or whose vessels
operate in United States waters, which includes the United States' territorial
sea and its two hundred nautical mile exclusive economic zone.
Under OPA, vessel owners, operators and bareboat charterers are
"responsible parties" and are jointly, severally and strictly liable (unless the
spill results solely from the act or omission of a third party, an act of God or
an act of war) for all containment and clean-up costs and other damages arising
from discharges or threatened discharges of oil from their vessels. OPA defines
these other damages broadly to include:
(i) natural resources damages and the costs of assessment thereof;
(ii) real and personal property damages;
(iii) net loss of taxes, royalties, rents, fees and other lost
revenues;
(iv) lost profits or impairment of earning capacity due to property or
natural resources damage;
(v) net cost of public services necessitated by a spill response,
such as protection from fire, safety or health hazards, and loss
of subsistence use of natural resources.
OPA limits the liability of responsible parties to the greater of $600
per gross ton or $0.5 million per drybulk vessel that is over 300 gross tons
(subject to possible adjustment for inflation). These limits of liability do not
apply if an incident was directly caused by violation of applicable United
States federal safety, construction or operating regulations or by a responsible
party's gross negligence or wilful misconduct, or if the responsible party fails
or refuses to report the incident or to cooperate and assist in connection with
oil removal activities.
We currently maintain for each of our vessel's pollution liability
coverage insurance in the amount of $1 billion per incident. If the damages from
a catastrophic spill exceeded our insurance coverage, it would severely hurt us.
OPA requires owners and operators of vessels to establish and maintain
with the United States Coast Guard evidence of financial responsibility
sufficient to meet their potential liabilities under the OPA. In December 1994,
the Coast Guard implemented regulations requiring evidence of financial
responsibility in the amount of $1,500 per gross ton, which includes the OPA
limitation on liability of $1,200 per gross ton and the U.S. Comprehensive
Environmental Response, Compensation, and Liability Act liability limit of $300
per gross ton. Under the regulations, vessel owners and operators may evidence
their financial responsibility by showing proof of insurance, surety bond,
self-insurance, or guaranty. Under OPA, an owner or operator of a fleet of
tankers is required only to demonstrate evidence of financial responsibility in
an amount sufficient to cover the tanker in the fleet having the greatest
maximum liability under OPA.
The Coast Guard's regulations concerning certificates of financial
responsibility provide, in accordance with OPA, that claimants may bring suit
directly against an insurer or guarantor that furnishes certificates of
financial responsibility. In the event that such insurer or guarantor is sued
directly, it is prohibited from asserting any contractual defence that it may
have had against the responsible party and is limited to asserting those
defences available to the responsible party and the defence that the incident
was caused by the wilful misconduct of the responsible party. Certain
organizations, which had typically provided certificates of financial
responsibility under pre-OPA 90 laws, including the major protection and
indemnity organizations, have declined to furnish evidence of insurance for
vessel owners and operators if they are subject to direct actions or required to
waive insurance policy defences.
The Coast Guard's financial responsibility regulations may also be
satisfied by evidence of surety bond, guaranty or by self-insurance. Under the
self-insurance provisions, the ship owner or operator must have a net worth and
working capital, measured in assets located in the United States against
liabilities located anywhere in the world, that exceeds the applicable amount of
financial responsibility. The Company has complied with the Coast Guard
regulations by providing a financial guaranty from a related company evidencing
sufficient self-insurance.
OPA specifically permits individual states to impose their own
liability regimes with regard to oil pollution incidents occurring within their
boundaries, and some states have enacted legislation providing for unlimited
liability for oil spills. In some cases, states, which have enacted such
legislation, have not yet issued implementing regulations defining tanker
owners' responsibilities under these laws. The Company intends to comply with
all applicable state regulations in the ports where the Company's vessels call.
Environmental Regulation-Other Environmental Initiatives.
The European Union is considering legislation that will affect the
operation of vessels and the liability of owners for oil pollution. It is
difficult to predict what legislation, if any may be promulgated by the European
Union or any other country or authority.
Although the United States is not a party thereto, many countries have
ratified and follow the liability scheme adopted by the IMO and set out in the
International Convention on Civil Liability for Oil Pollution Damage, 1969, as
amended (the "CLC"), and the Convention for the Establishment of an
International Fund for Oil Pollution of 1971, as amended. Under these
conventions, a vessel's registered owner is strictly liable for pollution damage
caused on the territorial waters of a contracting state by discharge of
persistent oil, subject to certain complete defences. Many of the countries that
have ratified the CLC have increased the liability limits through a 1992
Protocol to the CLC. The liability limits in the countries that have ratified
this Protocol are currently approximately $4.0 million plus approximately $566.0
per gross registered tonne above 5,000 gross tonnes with an approximate maximum
of $80.5 million per vessel, with the exact amount tied to a unit of account
which varies according to a basket of currencies. The right to limit liability
is forfeited under the CLC where the spill is caused by the owner's actual fault
or privity and, under the 1992 Protocol, where the spill is caused by the
owner's intentional or reckless conduct. Vessels trading to contracting states
must provide evidence of insurance covering the limited liability of the owner.
In jurisdictions where the CLC has not been adopted, various legislative schemes
or common law govern, and liability is imposed either on the basis of fault or
in a manner similar to the CLC.
The International Dry Bulk Shipping Market
The dry bulk shipping market is the primary provider of global
commodities transportation. Approximately one third of all seaborne trade is dry
bulk related.
During 2004, dry bulk trade growth increased by approximately 5%, more
than twice than the historical average growth. This increase is primarily
attributed to the heavy demand for major bulk commodities, such as iron ore and
coal, from the Far East region and more specifically from China. China's economy
in 2004 continued growing at a record pace of almost 9% due to the country's
rapid industrial growth.
On the supply side, the world fleet grew in 2004 by approximately 6%
in terms of dwt to 327.6 million. Scrapping of vessels for 2004 was at an all
time low at 0.5 million dwt as most of the owners elected to take advantage of
the favorable shipping markets instead of scrapping their vessels.
The increased dry bulk trade growth demand, the constrained supply of
vessels and the heavy port congestions and delays witnessed throughout 2004 in
Australia, Brazil, China and India, drove the dry bulk markets higher with rates
reaching historical all time highs during the last quarter of 2004.
Customers
The Company has many long-established customer relationships, and
management believes it is well regarded within the international shipping
community. During the past 15 years, vessels managed by Maryville have been
repeatedly chartered by subsidiaries of major dry bulk operators. In 2004, we
derived approximately 44% of our gross revenues from four charterers listed
below:
Malissa SCTT 15%
Transfield Er Capeltd BV 12%
NCS North China Shipping Co ltd BVI 10%
Coscobulk of Tianjin P.R.C. 7%
---------------
Total 44%
---------------
The Company's vessels are currently operated on either the spot market
or the short-term time charter markets. The spot charter and short-term time
charter markets are highly competitive and rates within those markets are
subject to volatile fluctuations while longer-term time charters provide income
at pre-determined rates over more extended periods of time. There can be no
assurance that the Company will be successful in keeping all its vessels fully
employed in these short-term markets or that future spot and short-term charter
rates will be sufficient to enable its vessels to be operated profitably.
Inspection by Classification Society
The hull and machinery of every commercial vessel must be classed by a
classification society authorised by its country of registry. The classification
society certifies that a vessel is safe and seaworthy in accordance with the
applicable rules and regulations of the country of registry of the vessel and
the Safety of Life at Sea Convention. The Company's vessels have been certified
as being "in class" by their respective classification societies: Bureau Veritas
("BV"), Lloyd's Register of Shipping and Nippon Kaiji Kyokai Corp. ("NKK").
In addition, our wholly-owned management subsidiary, Maryville
believed in Safety Management and Quality long before they became mandatory by
the relevant institutions. Although the shipping industry was aware that Safety
Management (ISM CODE) would become mandatory as of July 1, 1998, Maryville
Maritime, in conjunction with ISO 9002:1994, commenced operations back in 1995
aiming to voluntarily implement both systems well before the International
Safety Management date.
Maryville was the first ship management company in Greece to receive
simultaneous ISM and ISO Safety and Quality Systems Certifications in February
1996, for the safe operation of dry cargo vessels. Both systems were
successfully implemented in the course of the years, until a new challenge ISO
9001: 2000 and ISO 14001:1996 was set. At the end of 2003, Maryville Maritime's
Management System was among the first five company management systems to have
been successfully audited and found to be in compliance with both management
System Standards mentioned above. Certification to Maryville was issued in early
2004.
A vessel must undergo Annual Surveys, Intermediate Surveys and Special
Surveys. In lieu of a Special Survey, a vessel's machinery may be on a
continuous survey cycle, under which the machinery would be surveyed
periodically over a five-year period. The Company's vessels are on Special
Survey cycles for hull inspection and continuous survey cycles for machinery
inspection. Every vessel is also required to be dry-docked every two to three
years for inspection of the underwater parts of such vessel. Generally, the
Company will make a decision to scrap a vessel or continue operations at the
time of a vessel's fifth Special Survey.
Insurance and Safety
The business of the Company is affected by a number of risks,
including mechanical failure of the vessels, collisions, property loss to the
vessels, cargo loss or damage and business interruption due to political
circumstances in foreign countries, hostilities and labor strikes. In addition,
the operation of any ocean-going vessel is subject to the inherent possibility
of catastrophic marine disaster, including oil spills and other environmental
mishaps, and the liabilities arising from owning and operating vessels in
international trade. OPA, by imposing potentially unlimited liability upon
owners, operators and bareboat charterers for certain oil pollution accidents in
the U.S., has made liability insurance more expensive for ship owners and
operators and has also caused insurers to consider reducing available liability
coverage.
The Company maintains hull and machinery and war risks insurance,
which includes the risk of actual or constructive total loss, and protection and
indemnity insurance with mutual assurance associations. The Company does not
carry insurance covering the loss of revenue resulting from vessel off-hire
time. The Company believes that its insurance coverage is adequate to protect it
against most accident-related risks involved in the conduct of its business and
that it maintains appropriate levels of environmental damage and pollution
insurance coverage. Currently, the available amount of coverage for pollution is
$1.0 billion for dry bulk carriers per vessel per incident. However, there can
be no assurance that all risks are adequately insured against, that any
particular claim will be paid or that the Company will be able to procure
adequate insurance coverage at commercially reasonable rates.
Organizational Structure
We are the parent company (100% owner) of the following wholly-owned
subsidiaries:
Subsidiary Place of Incorporation
---------- ----------------------
Maryville Maritime Inc. Liberia (acquired March 31, 2001)
Point Holdings Ltd. (1) Liberia
(1) As of December 31, 2004, Point Holdings Ltd. is the parent company
(100% owner) of eight Liberian and five Cyprus vessel-owning companies, each of
which owns one vessel. The Liberian companies took delivery of their vessels
subsequent to December 31, 2004. As of June 6, 2005, Point Holdings Ltd. is the
parent company of twenty one Liberian and five Cyprus holding companies. Sixteen
and four of these Liberian and Cyprus holding companies, respectively, each own,
or will own, one vessel, notwithstanding the two pending deliveries of the
vessels Lucky Lady and Fighting Lady ( each owned by separate Cyprus holding
companies) which are expected to be delivered to their acquirers in late June
and August 2005, respectively. See "Corporate Structure" above.
Description of Property
We have no freehold interest in any real estate. During 2001, upon the
purchase of Maryville, Maryville entered into a lease agreement for the rental
of office premises with an unrelated party. The initial term of the lease
agreement was for one year and is renewable in successive one-year increments
through 2010 at Maryville's option after its initial term. Operating lease
payments for 2002, 2003 and 2004 were $49,000, $60,000 and $70,000,
respectively.
ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Recently Issued Accounting Standards
Recent Statements of Financial Accounting Standards ("SFAS") issued by
the Financial Accounting Standards Board ("FASB") are summarized as follows:
FASB Interpretation No. 46R: In December 2003, the FASB issued
Interpretation No. 46R, Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51 (the "Interpretation"), which revised
Interpretation No. 46, issued in January 2003. The Interpretation addresses the
consolidation of business enterprises (variable interest entities) to which the
usual condition (ownership of a majority voting interest) of consolidation does
not apply. The Interpretation focuses on financial interests that indicate
control. It concludes that in the absence of clear control through voting
interests, a company's exposure (variable interest) to the economic risks and
potential rewards from the variable interest entity's assets and activities are
the best evidence of control. Variable interests are rights and obligations that
convey economic gains or losses from changes in the value of the variable
interest entity's assets and liabilities. Variable interests may arise from
financial instruments, service contracts, and other arrangements. If an
enterprise holds a majority of the variable interests of an entity, it would be
considered the primary beneficiary. The primary beneficiary would be required to
include assets, liabilities, and the results of operations of the variable
interest's entity in its financial statements. The Company was required to adopt
the provisions of FIN 46R for entities created prior to February 2003, in 2004.
The adoption of FIN 46R in 2004 did not have any impact on the Company's
consolidated financial position, results of operations or cash flows.
FASB Statement No. 123 (revised 2004): On December 16, 2004, the
Financial Accounting Standards Board (FASB) issued FASB Statement No. 123
(revised 2004), Share-Based Payment, which is a revision of FASB Statement No.
123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB
Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement
123(R) is similar to the approach described in Statement 123. However, Statement
123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on their
fair values. Pro forma disclosure is no longer an alternative.
Statement 123(R) must be adopted no later than January 1, 2006. Early
adoption will be permitted in periods in which financial statements have not yet
been issued. We expect to adopt Statement 123(R) on January 1, 2006. Statement
123(R) permits public companies to adopt its requirements using one of two
methods:
o A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the requirements of
Statement 123(R) for all share based payments granted after the effective date
and (b) based on the requirements of Statement 123 for all awards granted to
employees prior to the effective date of Statement 123(R) that remain unvested
on the effective date.
o A "modified retrospective" method which includes the requirements of
the modified prospective method described above, but also permits entities to
restate based on the amounts previously recognized under Statement 123 for
purposes of pro forma disclosures either (a) all prior periods presented or (b)
prior interim periods of the year of adoption.
The Company plans to adopt Statement 123(R) using the
modified-prospective method. The Company currently applies the fair-value-based
method of accounting for share-based payments in accordance with Statement 123.
Currently, the company uses the Black-Scholes-Merton formula to estimate the
value of stock options granted to employees and expects to continue to use this
acceptable option valuation model upon the required adoption of Statement 123(R)
on January 1, 2006. The Company does not anticipate that adoption of Statement
123(R) will have a material impact on its results of operations, financial
position or cash flows.
Critical Accounting Policies
Our consolidated financial statements are prepared based on the
accounting policies described in note 2 to our consolidated financial
statements, which are included under "Item 18. Financial Statements" in this
Annual Report on Form 20-F. The application of such policies may require
management to make significant estimates and assumptions. We believe that the
following are our more critical accounting estimates used in the preparation of
our consolidated financial statements that involve a higher degree of judgment
and could have a significant impact on our future consolidated results of
operations and financial position:
Impairment of Long-Lived Assets
We use SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-lived Assets", which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. The standard requires that
long-lived assets and certain identifiable intangibles held and used or disposed
of by an entity should be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. When the estimate of undiscounted cash flows, excluding interest
charges, expected to be generated by the use of the asset is less than its
carrying amount plus any unamortized dry-docking or special survey costs, we
should evaluate the asset for an impairment loss. Our estimates are based on
historical industry freight rate averages for each category of vessel taking
into account the age, specifications and likely trading pattern of each vessel.
Actual freight rates may be volatile and estimations may differ considerably
from actual results. If our estimate of undiscounted future cash flows for any
vessel is lower than the vessel's carrying value plus any unamortized
dry-docking or special survey costs, the carrying value is written down to the
fair market value as obtained from independent experts, given that the fair
market value is lower than the vessel's carrying value. As vessel values are
also volatile, the actual market value of a vessel may differ significantly from
estimated values within a short period of time.
In this respect, management regularly reviews the carrying amount of
the vessels in connection with the estimated recoverable amount for each of our
vessels. The review for impairment of each vessel's carrying amount, as of
December 31, 2002, 2003 and 2004, did not result in an indication of an
impairment loss.
Vessels' Depreciation
Depreciation is computed using the straight-line method over the
estimated useful life of the vessels, after considering the estimated salvage
value. Each vessel's salvage value is equal to the product of its lightweight
tonnage and estimated scrap rate. Management estimates the useful life of our
vessels to be 28 years from the date of initial delivery from the shipyard.
Second hand vessels are depreciated from the date of their acquisition through
their remaining estimated useful life. When regulations place limitations over
the ability of a vessel to trade on a worldwide basis, its useful life is
adjusted at the date such regulations become effective.
Accounting for Dry-docking and Special Survey Costs
We follow the deferral method of accounting for dry-docking costs
whereby actual costs incurred are deferred and are amortized on a straight-line
basis over the period through the date the next dry-docking is scheduled to
become due. Unamortized dry-docking costs of vessels that are sold are written
off and included in the calculation of the resulting gain or loss in the year of
the vessel's ale.
Accounting for Revenue and Expenses
Revenues are generated from freight billings and time charter hires.
Time charter revenues are recorded over the term of the charter as service is
provided. Under a voyage charter, the revenues and associated voyage costs are
recognized ratably over the duration of the voyage. The operating results of
voyages in progress at a reporting date are estimated and recognized pro-rata on
a per day basis. Vessel operating expenses are accounted for on an accrual
basis.
Results of Operations
Revenues from Vessels
Gross revenues from vessels consist primarily of (i) hire earned under
time charter contracts, where charterers pay a fixed daily hire or (ii) amounts
earned under voyage charter contracts, where charterers pay a fixed amount per
ton of cargo carried. Gross revenues are also affected by the proportion between
voyage and time charters, since revenues from voyage charters are higher than
equivalent time charter hire revenues, as they cover all costs relating to a
given voyage, including port expenses, canal dues and fuel (bunker) costs.
Accordingly, year-to-year comparisons of gross revenues are not necessarily
indicative of the Trading Fleet's performance. The time charter equivalent per
vessel ("TCE"), which is defined as gross revenue per day less commissions and
voyage costs provides a more accurate measure for comparison.
Voyage Expenses
Voyage expenses consist of all costs relating to a given voyage,
including port expenses, canal dues and fuel (bunker) costs, and commissions.
Under voyage charters, the owner of the vessel pays such expenses whereas under
time charters the charterer pays such expenses. Therefore, voyage expenses can
exhibit significant fluctuations from period to period depending on the type of
charter arrangement.
Vessel Operating Expenses
Vessel operating expenses consist primarily of crewing, repairs and
maintenance, lubricants, victualling, stores and spares and insurance expenses.
The vessel owner is responsible for all vessel operating expenses in voyage and
time charters.
Depreciation
Vessels' acquisition cost and subsequent improvements are depreciated
on a straight-line method over an estimated economic life of 28 years (from the
date of construction of each vessel). In computing vessels' depreciation the
estimated salvage value is also taken into consideration.
Amortization of Dry-docking and Special Survey Costs
Dry-docking and special surveys are carried out approximately every
two and a half years and five years, respectively. Dry-docking and special
surveys costs are deferred and amortized over the period through the date the
next dry-docking or special survey becomes due.
Management Fees
Management fees consist of fixed management fees per vessel per month
charged by Excel Management Ltd. for managing vessels. As of March 2005, with
effect from January 2005, we reached an agreement with Excel Management Ltd to
terminate our management agreement and the technical and commercial management
of our fleet will be assumed by our wholly-owned subsidiary, Maryville.
Results of Operations
Fiscal Year ended December 31, 2004 Compared to Fiscal Year ended December 31,
2003
Revenues from Vessels
Gross revenues (before deduction of broker's commissions and voyage
expenses) increased by $25.9 million, or 99.2 % to $52.0 million for 2004,
compared to $26.1 million for 2003. This increase was a direct result of a
higher drybulk charter market related to the growth in international seaborne
transportation for drybulk cargoes in Asia and China. As a result the average
daily TCE rate increased 119.6% from $11,140 for 2003, to $24,465 for 2004.
Voyage Expenses
Voyage expenses, which primarily consist of port, canal and fuel costs
that are unique to a particular voyage which would otherwise be paid by the
charterer under a time charter contract, as well as commissions, increased $0.8
million, or 11.0 %, to $8.1 million for 2004, compared to $7.3 million for 2003.
This increase is primarily due to the increase in commissions paid as a result
of higher voyage revenues earned.
Vessel Operating Expenses
Vessel operating expenses, which include crew costs, provisions, deck
and engine stores, lubricating oil, insurance, maintenance and repairs,
increased by $1.0 million, or 15.4 %, to $7.5 million for 2004 compared to $6.5
million for 2003. Daily vessel operating expenses per vessel increased by $ 531,
or 14.8 %, to $4,108 for 2004, compared to $3,577 for 2003. This increase is
primarily due to (i) an increase in the cost of repairs and spares due to the
aging of our fleet, (ii) an increase in our crew costs due to the annual pay
increases and (iii) increased insurance costs that resulted from an increase in
rates charged by insurance companies throughout the shipping sector.
Depreciation and Amortization
Depreciation and amortization, which includes depreciation of vessels
as well as amortization of dry docking and special survey costs increased by
$0.2 million, or 13.3% to $1.7 million for 2004 compared to $1.5 million for
2003. This increase is primarily due to an increase in amortization of
dry-docking and special survey expenses as the full impact of last year's
dry-dockings is realized in addition to this year's dry-docking of MV Almar I
during January 2004.
General and Administrative Expenses
General and administrative expenses, increased by $ 1.1 million, or
55.0 %, to $ 3.1 million for 2004 compared to $2.0 million for 2003. The
increase of $1.1 million is attributable to (i) the foreign currency translation
effect from converting the Euro denominated expenses of Maryville to US Dollars,
(ii) an increase in salaries and bonuses paid and (iii) the $0.2 million of
compensation expenses recorded in connection with all stock-based employee
compensation awards.
Interest and finance costs, net
Net interest cost amounted to $0.1 million in 2004, a decrease of $0.4
million, compared to the $0.5 million in 2003. This change is primarily
attributed to (i) the increased cash balances throughout the year that were a
result of our increased profitability in 2004 and (ii) the repayment of a
portion of our existing long-term debt during 2004.
Foreign currency losses
We incurred a $ 0.04 million foreign currency loss for 2004 compared
to a loss of $ 0.06 million for 2003.
Other net
We recognized a loss of $0.02 million during 2004 compared to a loss
of $0.09 million during 2003. The reduction is due to gains realized from the
receipt of amounts received in connection with claims for damages to our vessels
that were in excess of the actual cost associated with the repairs.
Fiscal Year ended December 31, 2003 Compared to Fiscal Year ended December 31,
2002
Revenues from Vessels
Gross revenues (before deduction of broker's commissions and voyage
expenses) were $26.1 million in 2003 compared to $15.6 million in 2002, an
increase of $10.5 million or 67.3%. This increase was primarily attributable to
a 89.0% increase in the average fleet TCE rate from $5,894 in 2002 to $11,140 in
2003, plus an increase of 15.6% in the total number of fleet available days from
1,458 in 2002 to 1,686 in 2003 due to Lady completing a full year's trading
(delivered in October 2002) off-set by a total of 139 days for special survey/
dry-dockings.
Voyage Expenses
Voyage Expenses were $7.3 million in 2003, an increase of $0.3 million
or 4.3% compared to $7.0 million in 2002. This minor increase in Voyage Expenses
in comparison to the large increase in Revenues from Vessels was attributable to
the fleet performing more time charters in 2003 than in 2002.
Vessel Operating Expenses
Vessel Operating Expenses were $6.5 million in 2003 compared to $5.4
million in 2002 an increase of $1.1 million or 20.4%, which was a result of an
increase in the number of operating days from 1,524 in 2002 to 1,825 days in
2003 or a 19.8% increase.
Depreciation and Amortization
The Depreciation and Amortization charge for 2003 was $1.5 million
compared to $1.1 million in 2002. The increase is primarily due to the operation
of the vessel Lady for a full year compared to just 61 days in 2002 (the vessel
Lady was purchased on October 31, 2002).
General and Administrative Expenses
General and Administrative Expenses for 2003 were $2.0 million
compared to $1.5 million in 2002. The increase of $0.5 million reflects mainly
the increased cost of conversion of US$ into Euro to cover Euro administrative
expenses within Maryville Maritime Inc.
Interest and finance costs, net
Net interest cost amounted to $0.5 million in 2003, a decrease of $0.2
million, compared to $0.7 million in 2002. The decrease is primarily due to the
write-off of deferred financing costs in 2002 as result of the disposal of one
of our subsidiaries and the repayment of certain of our loans.
Foreign currency losses
We incurred a $0.06 million foreign currency loss in 2003 compared to
a loss of $0.04 million in 2002.
Other net
We recognized a loss of $0.09 million in 2003 compared to a gain of
$0.16 in 2002. This is primarily due to the gain we realized from the disposal
of a subsidiary in early 2002.
Expected Additional Capital Commitments-Stock Option Compensation Expenses
In October 2004, the Company's Board of Directors approved a Stock
Option Plan providing for granting of 100,000 options to purchase Class A common
shares to the Company's Chief Executive Officer. Prior to October 2004, the
Company had not issued stock-based compensation to its employees. The Company
accounts for employee stock-based compensation in accordance with the provisions
of SFAS No. 123 using the fair value method wherein the fair value of such
awards are determined on the grant date and recognized as compensation expense
in the consolidated statements of income over the vesting period of the options.
Under the terms of the Plan, all stock options granted vest on the
third anniversary of the date upon which the option was granted. The options
expire on the fifth anniversary of the date upon which the option was granted.
The exercise price of the options is the closing price of the Company's common
stock at the grant date, less a discount of 15%.
The weighted average grant-date fair value of options granted during
the year was $27.91. The weighted-average remaining contractual life of options
outstanding at December 31, 2004 is 4.76 years.
Liquidity and Capital Resources
The Company operates in a capital-intensive industry, which requires
extensive investment in revenue-producing assets. The liquidity requirements of
the Company relate to servicing its debt, funding investments in vessels,
funding working capital and maintaining cash reserves. Net cash flow generated
by operations has historically been the main source of liquidity and has been
sufficient to cover all requirements. Additional sources of liquidity also
include proceeds from assets sales, bank indebtedness and sales of equity
securities.
The Company believes that based upon current levels of operation and
cash flows from operations, it will have adequate liquidity to make required
payments of principal and interest on the Company's debt and fund working
capital requirements through January 1, 2006.
Historically our principal source of funds has been equity provided by
our Stockholders, including our offerings of our Class A common stock completed
on December 13, 2004 and March 17, 2005, respectively, operating cash flows and
long-term borrowings. Our principal use of funds has been capital expenditures
to grow our fleet, maintain the quality of our drybulk vessels, comply with
international shipping standards and environmental laws and regulations, fund
working capital requirements, make principal repayments on outstanding loan
facilities, and pay dividends.
Our practice has been to acquire drybulk vessels using a combination
of cash on hand, funds received from equity investors and bank debt secured by
mortgages on our drybulk vessels. Our business is capital intensive and its
future success will depend on our ability to maintain a high-quality fleet
through the acquisition of newer second hand drybulk vessels and the selective
sale of our older drybulk vessels. These acquisitions will be principally
subject to management's expectation of future market conditions as well as our
ability to acquire drybulk vessels on favourable terms.
For legal and economic restrictions on the ability of the company's
subsidiaries to transfer funds to the company in the form of dividends, loans,
or advances and the impact of such restrictions see "Risk factors " above.
Operating Activities
The net cash from operating activities increased by $23.1 million to
$32.0 million during 2004, compared to net cash from operating activities of
$8.9 million during 2003. This increase is primarily attributable to net income
of $32.1 million as a result of the improved trading conditions.
Investing Activities
The net cash used in investing activities was $26.2 million during
2004, which is a result of the advances given for the acquisition of the five
new vessels. Net cash used in investing activities for 2003 was $0.
Financing Activities
The net cash from financing activities was $55.1 million during 2004,
compared to net cash used in financing activities of $6.9 million during 2003.
This is primarily due to the equity offering of 2.2 million shares completed in
December of 2004 that resulted in $51.5 million of net cash proceeds and an
increase of long-term debt by $7.8 million for the financing of the vessel
Goldmar.
As of December 31, 2004, we had three outstanding loans with a
combined outstanding balance of $13.6 million. We expect that during 2005, $5.9
million will be paid for the full repayment of two loans and another $2.0
million will be repaid for the third loan. It is anticipated that the remaining
$5.7 million will be fully repaid by 2008 as shown in the table below.
Summary of Contractual Obligations
The following table sets forth our contractual obligations and their
maturity dates as of December 31, 2004:
Payments due by period
2009 &
Total 2005 2006 2007 2008 Thereafter
----- ---- ---- ---- ---- ---------
Long-term debt 13,620 7,870 1,350 1,350 3,050 0
Vessel Swift
Purchase agreement (1) 10,073* 10,073
Vessel Isminaki
Purchase agreement 33,788* 33,788
Vessel First Endeavor
Purchase agreement 26,562* 26,562
Vessel Marybelle
Purchase agreement (1) 15,912* 15,912
----- ----- ----- ----- ----- -----
99,955 94,205 1,350 1,350 3,050 0
* The amount concerns the MOA purchase price minus advance payments made upon
contract signing.
(1) In January and March, 2005, the Company drew down the amounts of $7.8 and
$11.5 million available under a bank loan agreement signed in December 2004 (see
"Item 18 Financial Statements" note 8c) to partially finance the delivery of the
vessels Swift and Marybelle, respectively .
In 2001, our fully owned subsidiary, Maryville, entered into a lease agreement
for the rental of office premises with an unrelated party. The initial term of
the lease agreement was for one year and is renewable in successive one-year
increments through 2010 at Maryville's option after its initial term. Operating
lease payments for 2002, 2003 and 2004 were $49,000, $60,000 and $70,000,
respectively. Future minimum rentals payable under operating leases for each of
the years ending December 31, 2005 through December 31, 2010, assuming Maryville
exercises its one-year renewal options each year through 2010, will be
approximately $80,000 to $100,000.
Recent Developments
Subsequent to December 31, 2004 the company entered into eleven vessel
purchase contract agreements, totalling $367,875 and payable all in 2005. See
"Item 4, Business Overview".
In early March 2005, with effect from January 1, 2005, we reached an
agreement with Excel Management to terminate the management agreement, the term
of which was scheduled to extend until April 30, 2008. For the consideration
given to Excel Management consent to termination agreement see "Item 4,
Operations & ship management".
On February 16, 2005, a loan agreement was signed between five
shipowning companies (acting jointly and severally), owning the vessels MV
Isminaki, MV First Endeavor, MV Birthday, MV Emerald and MV Princess I, and two
banks, for a new loan facility for an amount up to $95 million for the purpose
of financing the 60% of the purchase price of the vessels. Amounts drawn down
from the loan facility for the acquisition of vessels built between 1993 and
1996 must be repaid in 32 equal quarterly installments, with the first
installment due 3 months after the delivery of the vessel. Amounts drawn down
from the loan facility for the acquisition of vessels built between 1997 and
2004 must be repaid in 40 equal quarterly installments, with the first
installment due 3 months after the delivery of the vessel, and a 20% balloon
payment, to be paid concurrent with the last quarterly installment. The loan
bears interest at LIBOR plus a margin.
On April 22, 2005, a loan agreement was signed between seven
shipowning companies (acting jointly and severally), owning the vessels MV
Powerful, MV Renuar, MV Elinakos, MV Happy Day, MV Angela Star, MV Fortezza and
MV Rodon and HSH NORDBANK AG, for a new loan facility for an amount up to $170
million for the purpose of financing the 60% of the aggregate purchase price of
the vessels, as evidenced in the MOAs in up to seven Drawings, one in respect of
each vessel. The loan bears interest at LIBOR plus a margin.
Finally, on May 3, 2005, we accepted an offer from National Bank of
Greece for a long-term loan of an amount up to $9.3 million to partially finance
the acquisition cost ($15.5 million) of MV Attractive.
The loans are secured as follows:
o First priority mortgage over the Company's vessels.
o Assignments of earnings and insurances of the mortgaged vessels;
o Corporate guarantee.
The loan agreements among others include covenants requiring the
borrowers to obtain the lenders' prior consent in order to incur or issue any
financial indebtedness, additional borrowings, pay shareholders' loans, sell
vessels and assets and change the beneficial ownership or management of the
vessels. Also, the covenants require the borrowers to maintain a minimum hull
value in connection with the vessels' outstanding loans, insurance coverage of
the vessels against all risks and maintenance of bank accounts with minimum
balances. Furthermore, the vessel-owning subsidiaries are not permitted to pay
dividends to Excel Maritime Carriers Ltd. without the lenders' prior consent.
Off Balance Sheet Arrangements
We do not engage in off-balance sheet arrangements.
ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
MANAGEMENT
Executive Officers, Directors and Consultants
The following table sets forth the name, age and position within the
Company of each of its executive Directors and consultants. Consultants are
appointed from time to time, are not executive officers and do not make
decisions for the Company. On 30 December 2002, the Shareholders voted to amend
the Company's Articles of Incorporation to eliminate the classification of the
Company's Directors. Accordingly, all Directors serve for one year terms. The
following table sets forth the name, age and position of each of the executive
officers and directors within the Company.
Name Age Position
Gabriel Panayotides 50 Chairman and Director
Christopher Georgakis 40 President, Chief Executive Officer and
Director
George Agadakis 52 Vice President, Chief Operating Officer and
Director
Christopher J. Thomas 45 Chief Financial Officer and Director (replaced
from 1.1.2005 by
Elefterios A. Papatrifon)
Trevor J. Williams 62 Director
Georgina E. Sousa 55 Secretary
The Board of Directors currently consists of six persons.
Gabriel Panayotides had been the Chairman of the Board since February
1998. Mr. Panayiotides has participated in the ownership and management of ocean
going vessels since 1978. He is also a member of the Greek Committee of Bureau
Veritas, an international classification society. He holds a Bachelors degree
from the Piraeus University of Economics. Mr. Panayotides is a member of the
Board of Directors of D/S Torm.
Christopher J Georgakis was appointed President & Chief Executive
Officer of the Company on 1st November 2004. Mr. Georgakis succeeded Mr. Gabriel
Panayotides, who remains the Company's Chairman of the Board. Mr. Georgakis has
two decades of shipping experience, with a concentration on dry bulk shipping
and joined Excel Maritime following 6 years with privately owned London-based
Sea Challenger Maritime Ltd., a subsidiary of Belmont Shipping Ltd. Mr.
Georgakis holds a B.Sc. in Business Administration, magna cum laude, from United
States International University.
George Agadakis has been Vice President and a Director of the Company
since November 1997. He is the Shipping Director of Maryville and was General
Manager of Maryville from January 1992 to January 2001. From 1983 to 1992 he
served as Insurance and Claims Manager for Maryville. He has held positions as
Insurance and Claims Manager and as a consultant with three other shipping
companies since 1976. He holds diplomas in shipping and Marine Insurance from
the Business Centre of Athens, the London School of Foreign Trade Ltd and the
London Chamber of Commerce.
Christopher J. Thomas joined the Company in September 1999 as Chief
Financial Officer and was also elected as director by the Board of Directors. He
holds a degree in Business Administration from Crawley University, England, and,
prior to joining the Company he was Financial Manager of Cardiff Marine Inc from
1994. Mr. Thomas stepped down as Chief Financial Officer on 1st January 2005,
but maintained his position as Director.
Eleftherios A. Papatrifon, was appointed Chief Financial Officer on
January 1, 2005. Mr. Papatrifon succeeds Christopher Thomas, who has remained as
a Director of Excel Maritime. Mr. Papatrifon has 15 years of experience in
Corporate Finance and Asset Management. He has worked as a Portfolio Manager for
The Prudential Insurance Company of America and has held senior management
positions in the Banking and Financial Services sectors in Greece. Until
recently, Mr. Papatrifon was Head of Investment Banking at Geniki Bank of
Greece, a subsidiary of Societe Generale. Mr. Papatrifon holds undergraduate
(BBA) and graduate (MBA) degrees from Baruch College (CUNY). He is also a member
of the CFA Institute and a CFA charterholder.
Trevor J. Williams has been a Director of the Company since November
1988 and has been principally engaged as President and Director of Consolidated
Services Limited, a Bermuda-based firm providing management services to the
shipping industry since 1985.
Georgina E. Sousa has been Secretary of the Company since February
1998. She joined the Bermuda law firm of Cos & Wilkinson in 1982 as Senior
Company Secretary and served in that capacity until 1993 when she joined
Consolidated Services Limited as Manager of Corporate Administration, a position
she currently holds. From 1976 to 1982, Ms. Sousa was employed as Company
Secretary by the Bermuda law firm of Appleby, Spurling & Kemp. She acts as
Company Secretary of several private companies and of Chemgas Ltd. and Resource
Financing and Investment Ltd.
No family relationships exist among any of the executive officers and
Directors.
Compensation of Directors and Officers
For the year ended December 31, 2004, the Company paid aggregate
Directors fees and secretarial fees of $105,000. The executive officers received
aggregate compensation totalling $337,759 (including pension, taxation, medical
and insurance benefits) from subsidiaries of the Company during the year ended
December 31, 2004. None of the directors or executive officers is entitled to
any termination benefits.
As part of his compensation package, Mr. Georgakis received an option
to purchase 100,000 shares of Class A Common Stock after he has been employed
with the Company for three full years. The exercise price for the shares of
Class A Common stock under this option is the closing price of the Class A
Common Stock on October 4, 2004, less a discount of 15%.
Board Practices
All directors serve until the annual meeting of Shareholders in 2005
and the due nomination, election and qualification of their successors.
The term of office for each director commences from the date of his
election and expires on the date of the next scheduled Annual General Meeting of
Shareholders. The Board does not currently have committees. Accordingly, the
full Board of Directors performs the function of the Audit Committee.
The Company has in the past relied on an exemption from the
shareholder approval requirements of the American Stock Exchange that exempts a
foreign company such as the Company from having to obtain prior shareholder
approval for certain actions, such as an issuance of shares in excess of 20% of
the outstanding shares not beneficially owned by affiliates of the Company,
provided that the Board of Directors of the Company approves such action.
Employees
As of December 31, 2004, we employed 164 employees, consisting of 31
shore-based personnel based in Athens, Greece, and 133 seagoing employees. We
increased the number of shore-based personnel from 25 in 2003 in part as a
result of the increase in the number of vessels in our fleet. Our shore-based
employees are covered by industry-wide collective bargaining agreements that set
basic standards.
Share Ownership
The common shares beneficially owned by our directors and senior
managers are disclosed in "Item 7. Major Shareholders and Related Party
Transactions" below.
ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS OWNERSHIP OF THE
COMPANY
The following table sets forth, as of March 16, 2005, certain
information regarding the current ownership of the Company's outstanding common
securities by each person known by the Company to own more than 5% of such
securities and all the Directors and senior management as a group.
Number of A Class Number of B Class
Common Shares owned Common Shares owned
and percentage and percentage
Name of Shareholder
Argon S.A. (1) 5,022,620 (36.67%) -
* 55,676 (48.44%)
Boston Industries S.A. (2)
Officers & Directors
Christoforos Georgakis (3) - -
George Agadakis - 625 (0.54%)
All Officers & Directors - 625 (0.54%)
* Less than 5%
The Company's major shareholders and Officers and Directors do not
have different rights from other shareholders in the same class.
To our knowledge, there are no arrangements, the operation of which
may, at a subsequent date, result in a change in control.
(1) Argon S.A. is holding these shares pursuant to a trust in favour
of Starling Trading Co, a corporation whose sole shareholder is Ms. Ismini
Panayotides, the adult daughter of the Company's Chairman. Ms Panayotides has no
power of voting or disposition of these shares, and disclaims beneficial
ownership of these shares.
(2) Boston Industries S.A. is controlled by Mrs. Mary Panayotides, the
spouse of the Company's Chairman. Mr. Panayotides has no power of voting or
disposition of these shares and disclaims beneficial ownership of these shares.
(3) Mr. Georgakis, the Company's CEO, has the option to purchase
100,000 A Class shares of Common Stock as part of his compensation package after
he has been employed with the Company for three full years, i.e. after November
1st, 2007. The exercise price under this option is the closing price on October
4, 2004, less a discount of 15%.
Related party transactions
Historically, our fleet has been managed by Excel Management Ltd., or
Excel Management, an affiliated company controlled by our Chairman of the Board
of Directors, under a five-year management agreement. Under this agreement, we
paid Excel Management a monthly management fee of $15,000 per month for each of
our vessels and an annual fee for general corporate and clerical management
services of $60,000. The agreement provided that both of these fees would
increase annually by five percent. Excel Management had sub-contracted Maryville
Maritime Inc to perform some of these management services. Maryville
subsequently became a wholly-owned subsidiary of ours.
In order to streamline operations, reduce costs and take control of
the technical and commercial management of our fleet, in early March 2005, with
effect from January 1, 2005, we reached an agreement with Excel Management to
terminate the management agreement, the term of which was scheduled to extend
until April 30, 2008. The technical and commercial management of our fleet will
be assumed by our wholly-owned subsidiary, Maryville, in order to eliminate the
fees we would have paid to Excel Management for the remaining term of the
management agreement, which would have increased substantially given the
expansion of our fleet from five vessels to 18 vessels through the recent
acquisition of new vessels. As consideration for Excel Management's consent to
terminate the management agreement and forego the fees it would have received
under the management agreement had the agreement remained in effect through its
scheduled expiration in 2008, we have agreed to issue to Excel Management
205,000 shares of our Class A common stock, which is equal to approximately 1.5%
of our Class A common stock outstanding as of March 2, 2005. We have agreed to
issue these shares to Excel Management by March 2, 2006. Excel Management may
not transfer these shares for a period of two years after their issuance, and
the shares will contain a restrictive legend to that effect. In addition to the
above-mentioned shares,as part of the consideration for agreeing to terminate
the management agreement, we have also agreed to issue additional shares to
Excel Management in an amount equal to 1.5% of any shares of Class A common
stock issued by us to any third party until December 31, 2008 for any reason. If
any such additional shares are issued, Excel Management may not transfer these
additional shares for a period of two years after their issuance.
In connection with our agreement to issue the 205,000 shares of our
Class A common stock and the anti-dilution issuances described above, Excel
Management has agreed to make a one time cash payment to us in an amount equal
to $2,023,846 upon delivery of such shares. We will not receive any cash payment
or other future consideration in receipt of shares of Class A common stock
issued to Excel Management in connection with any anti-dilution issuances.
On March 4, 2005, we also entered into a one-year brokering agreement
with Excel Management. Under this brokering agreement, Excel Management will,
pursuant to our instructions, act as our broker with respect to, among other
matters, the employment of our vessels. For its chartering services under the
brokering agreement, Excel Management will receive a commission fee equal to
1.25% of the hire/freight/earnings of our vessels. This agreement extends
automatically for successive one-year terms at the end of its initial term. It
may be terminated by either party upon twelve months prior written notice.
ITEM 8 - FINANCIAL INFORMATION
Consolidated Statements and Other Financial Information
See Item 18.
Significant changes
No significant change occurred except those mentioned in item 4.
Legal Proceedings
The ordinary course of the Company's business exposes it to the risk of lawsuits
for damages or penalties relating to, among other things, personal injury,
property casualty and environmental contamination. In our opinion, the
litigation in which we are currently involved, individually and in the
aggregate, is not material to us.
ITEM 9 - THE OFFER AND LISTING
Our Class A common shares are listed on the American Stock Exchange under the
symbol "EXM." The high and low closing prices for the Class A common shares, by
year, in 2000, 2001, 2002, 2003 and 2004 were as follows:
For The Year Ended AMEX Low (US$) AMEX High (US$)
December 31, 2000 1.3800 2.4400
December 31, 2001 2.1900 3.5400
December 31, 2002 1.0200 3.5000
December 31, 2003 0.9000 6.8000
December 31, 2004 4.0300 59.2500
The high and low closing prices for the Class A common shares, by quarter, in
2003 and 2004 were as follows:
For The Quarter Ended AMEX Low (US$) AMEX High (US$)
March 31, 2003 1.4000 1.7500
June 30, 2003 1.2600 1.7500
September 30, 2003 0.9000 1.6400
December 31, 2003 1.0900 6.8000
March 31, 2004 4.0300 15.7500
June 30, 2004 7.8000 14.9300
September 30, 2004 7.1000 59.2500
December 31, 2004 22.3200 40.1100
The high and low closing prices for the Class A common shares, by month, over
the six months ended December 31, 2004 were as follows:
For The Six Months
Ended AMEX Low (US$) AMEX High (US$)
July 2004 7.1000 7.9500
August 2004 8.4600 26.5000
September 2004 20.9500 59.2500
October 2004 23.3500 40.1100
November 2004 22.3200 36.3200
December 2004 23.0000 39.0000
On December 14, 2004, we completed an offering of 2,200,000 shares of
our Class A common shares at $25 per share. The net proceeds to us were
$51,451,018, which we used for the acquisition of five vessels.
On March 22, 2004, we completed an offering of 5,899,000 shares of our
Class A common stock at $21 per share. The net proceeds to us were $116,755,957,
which we intend to use primarily for the acquisition of additional dry bulk
vessels for our fleet.
On December 31, 2004, the closing price of the Class A common shares
as quoted on the AMEX was $23.75. At that date, there were 13,696,153 Class A
and 114,946 Class B shares of common stock issued and outstanding.
ITEM 10 - ADDITIONAL INFORMATION
Articles of Incorporation
The Company's Amended and Restated Articles of Incorporation provide
that the Company is to engage in any lawful act or activity for which companies
may now or hereafter be organised under the Liberian Business Corporation Act,
as specifically but not exclusively outlined in Article THIRD of the Company's
Articles of Incorporation.
Directors
The Board of Directors of the Company consists of six (6) directors
and it is unclassified. According to the amended Article SIXTH (2)(i) of the
Company the Board shall consist of such number of directors, not less than three
(3) and no more than nine (9), as shall be determined from time to time by the
Board of Directors as provided in the By-Laws or by vote of the Shareholders.
The Board may create classes of Directors any time it deems such an act
appropriate, amend the Bylaws to implement the same and any vacancies created by
such action may be filled by way of a majority vote of the then incumbent
directors until the next succeeding Annual General Meeting of the Company's
Shareholders. Shareholders may change the number of directors or the quorum
requirements for meeting of the Board of Directors by the affirmative vote of
the holders of Common Shares representing at least two thirds of the total
number of votes which may be cast at any meeting of shareholders, as calculated
pursuant to Article FIFTH of the Company entitled to vote thereon. At each
Annual General Meeting of the Shareholders of the Corporation, the successors of
the directors shall be elected to hold office for a term expiring as of the next
succeeding Annual General Meeting.
The Company has both Class A Shares and Class B shares. The holders of
the Class A Shares are entitled to one vote per share on each matter requiring
the approval of the holders of Common Shares of the Company, whether pursuant to
the Articles of Incorporation of the Company, its Bylaws, the Liberian Business
Corporation Act or otherwise. The holders of Class B shares are entitled to one
thousand votes per Class B share on each matter requiring approval of the
holders of the Common Shares of the Company. The Board of Directors shall have
the fullest authority permitted by law to provide by resolution for any voting
powers, designations, preferences and relative, participating, optional or other
rights of and any qualifications, limitations or restrictions on the preferred
stock of the Company.
The Board of Directors is to fix the date and time of the annual
general meeting or other special meeting of shareholders of the Company, after
notice of such meeting is given to each shareholder of record not less than 15
and not more than 60 days before the date of such meeting. The presence in
person or by proxy of shareholders entitled to cast one-third of the total
number of votes shall constitute a quorum for the transaction of business at any
such meeting.
Material Contracts
On February 16, 2005, a loan agreement was signed between five shipowning
companies (acting jointly and severally), owning the vessels MV Isminaki, MV
First Endeavor, MV Birthday, MV Emerald and MV Princess I, and two banks, for a
new loan facility for an amount up to $95 million for the purpose of financing
the 60% of the purchase price of the vessels. On April 22, 2005, a loan
agreement was signed between seven shipowning companies (acting jointly and
severally), owning the vessels MV Powerful, MV Renuar, MV Elinakos, MV Happy
Day, MV Angela Star, MV Fortezza and MV Rodon and HSH NORDBANK AG, for a new
loan facility for an amount up to $170 million for the purpose of financing the
60% of the aggregate purchase price of the vessels, as evidenced in the MOAs in
up to seven Drawings, one in respect of each vessel. These loans are described
in more detail in Item 5, Recent Developments.
Exchange Controls
Under Liberian and Greek law, there are currently no restrictions on
the export or import of capital, including foreign exchange controls, or
restrictions that affect the remittance of dividends, interest or other payments
to non resident holders of our common shares.
Taxation
The Company is incorporated in the Republic of Liberia. The Company is
not subject to income taxation under the laws of the Republic of Liberia. There
is no treaty relating to taxation between the Republic of Liberia and the United
States.
U.S. HOLDERS OF NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX
CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF SHARES, AS
WELL AS ANY APPLICABLE FOREIGN, STATE OR LOCAL TAX LAWS OR ESTATE OR GIFT TAX
CONSIDERATIONS.
Taxation of Excel Maritime Carriers Ltd.
We believe that a significant portion of our income will not be
subject to tax by Liberia, which currently has no corporate income tax, or by
other countries in which we conduct activities or in which our customers are
located, excluding the United States. However, this belief is based upon the
anticipated nature and conduct of our business which may change, and upon our
understanding of our position under the tax laws of the various countries in
which we have assets or conduct activities, which position is subject to review
and possible challenge by taxing authorities and to possible changes in law,
which may have retroactive effect. The extent to which certain taxing
jurisdictions may require us to pay tax or to make payments in lieu of tax
cannot be determined in advance. In addition, payments due to us from our
customers may be subject to withholding tax or other tax claims in amounts that
exceed the taxation that we anticipate based upon our current and anticipated
business practices and the current tax regime.
United States federal income tax considerations
The following is a summary of the material United States federal
income tax considerations that apply to (1) our operations and the operations of
our vessel-operating subsidiaries and (2) the acquisition, ownership and
disposition of common shares by a shareholder that is a United States holder.
This summary is based upon our beliefs and expectations concerning our past,
current and anticipated activities, income and assets and those of our
subsidiaries, the direct, indirect and constructive ownership of our shares, our
organization and that of our subsidiaries and the trading and quotation of our
shares. Should any such beliefs or expectations prove to be incorrect, the
conclusions described herein could be adversely affected. For purposes of this
discussion, a United States holder is a beneficial owner of common shares who or
which is:
o An individual citizen or resident of the United States;
o A corporation, or other entity taxable as a corporation for
United States federal income tax purposes, created or organized
in or under the laws of the United States or any of its political
subdivisions; or
o An estate or trust the income of which is subject to United
States federal income taxation regardless of its source. This
summary deals only with common shares that are held as capital
assets by a United States holder, and does not address tax
considerations applicable to United States holders that may be
subject to special tax rules, such as:
o dealers or traders in securities or currencies;
o Financial institutions;
o Insurance companies;
o Tax-exempt entities;
o United States holders that hold common shares as a part of a
straddle or conversion transaction or other arrangement involving
more than one position;
o United States holders that own, or are deemed for United States
tax purposes to own, ten percent or more of the total combined
voting power of all classes of our voting stock;
o A person subject to United States federal alternative minimum
tax;
o A partnership or other entity classified as a partnership for
United States federal income tax purposes; o United States
holders that have a principal place of business or "tax home"
outside the United States; or
o United States holders whose "functional currency" is not the
United States dollar.
The discussion below is based upon the provisions of the United States
Internal Revenue Code of 1986, as amended, and regulations, administrative
pronouncements and judicial decisions as of the date of this prospectus; any
such authority may be repealed, revoked or modified, perhaps with retroactive
effect, so as to result in federal income tax consequences different from those
discussed below.
Because United States tax consequences may differ from one holder to
the next, the discussion set out below does not purport to describe all of the
tax considerations that may be relevant to you and your particular situation.
Accordingly, you are advised to consult your own tax advisor as to the United
States federal, state, local and other tax consequences of investing in the
common shares.
Taxation of our operations
In General
We believe that none of our transportation income or that of our
vessel-operating subsidiaries will be treated as effectively connected with the
conduct of a trade or business in the United States. Accordingly, we expect that
we and our vessel-operating subsidiaries will not be subject to United States
federal income tax on transportation income from foreign sources. However,
except to the extent that the so-called reciprocal exemption of Section 883 of
the Internal Revenue Code or an income tax convention applies, we and our
vessel-operating subsidiaries generally will be subject to United States federal
income tax on transportation income from United States sources. For this
purpose, "transportation income" includes income derived from or in connection
with the use of vessels or the hiring or leasing of vessels for use on a time or
voyage charter basis or on a bareboat charter basis.
Income attributable to transportation that both begins and ends in the
United States is wholly United States-source income. Fifty percent of income
attributable to other transportation that begins or ends in the United States,
referred to in the remainder of this discussion as "international
transportation," is treated as United States-source income. As discussed below,
United States-source income from the operation of ships in international
transportation may be exempt from United States tax under the reciprocal
exemption. Income attributable to transportation between points outside the
United States is wholly foreign-source income.
Application of Section 883 of the Internal Revenue Code
In General.
In general, under the reciprocal exemption of Section 883 of the
Internal Revenue Code, if a foreign corporation (1) is organized in a country
that grants an equivalent exemption to corporations organized in the United
States and (2) satisfies the requirements of Section 883(c) discussed below,
then such foreign corporation will not be subject to United States federal
income tax on United States-source income attributable to the operation of ships
in international transportation. The determination as to whether a foreign
country has granted an equivalent exemption is made separately for operating
income, for income from time and voyage charters, for income from bareboat
charters and for certain other types of income. We and our vessel-operating
subsidiaries are organized under the laws of Bermuda, Cyprus, Liberia,
Singapore, Panama or Malta, each of which, at present, grants an equivalent
exemption to United States corporations for operating income and for income from
time and voyage charters and bareboat charters.
We anticipate, and it is assumed for purposes of this discussion, that
substantially all of the United States-source income to be derived by us or by
our vessel-operating subsidiaries will be income from the operation of ships in
international transportation that is potentially exempt from United States tax
under the reciprocal exemption. Any item of United States-source income that is
derived by us or by our vessel-operating subsidiaries and that is not treated as
income from the operation of ships in international transportation will not
qualify for the reciprocal exemption and therefore generally will be subject to
United States tax, but we do not anticipate that such income will be a material
portion of the gross income of our group.
The Treasury regulations under Section 883 (the "Section 883
regulations") contain a relatively complex and narrow definition of the income
from the operation of ships in international transportation that may qualify for
the reciprocal exemption. However, even under the provisions of the Section 883
regulations, we anticipate that substantially all of the United States-source
income to be derived by us or by our vessel-operating subsidiaries will qualify
as income from the operation of ships in international transportation.
Under the Section 883 regulations, our stock will be considered to be
primarily and regularly traded on one or more established securities markets in
the United States for any taxable year, if:
o The common shares are listed during the taxable year on one or
more such markets;
o The aggregate number of the common shares traded during the
taxable year on all established o securities markets in the
United States exceeds the aggregate number of shares traded
during that year on all established securities markets located in
any single foreign country; and
o Either (i) the common shares are regularly quoted by dealers that
make a market in the stock or o (ii) trades in our common stock
are effected, other than in de minimis quantities, on an
established securities market in the United States on at least 60
days during the taxable year (or one-sixth of the number of days
in a short taxable year) and the aggregate number of our common
shares traded on such markets during the taxable year equals at
least 10% of the average number of our common shares outstanding
during such year (or a specified lesser percentage, in the case
of a short taxable year).
For purposes of the foregoing, a dealer will be treated as making a
market in our stock only if the dealer regularly and actively offers to, and in
fact does, purchase the stock from, and sell the stock to, customers unrelated
to the dealer in the ordinary course of a trade or business.
However, under the Section 883 regulations, our common shares will not
be considered to be primarily and regularly traded on an established securities
market for a taxable year if, for more than half the number of days during the
taxable year, one or more persons that own, actually or constructively, five
percent or more of our common shares ("five-percent shareholders") own, in the
aggregate, 50 percent or more of our common shares (the "closely-held
exception"), unless we can establish, in accordance with documentation
procedures set forth in the Section 883 regulations, that individuals resident
in qualified foreign countries ("qualified shareholders") own, directly or under
applicable constructive ownership rules, enough of the common shares taken into
account in determining whether the closely-held exception applies to preclude
non-qualified shareholders in the closely-held block of stock from owning 50% or
more of the total value of our common stock for more than half the days of the
taxable year. There can be no assurance that our shareholders will provide us
with the documentation required to avoid the application of the closely-held
exception under these rules. Commencing with our taxable year beginning on
January 1, 2004, for purposes of determining the application of the closely-held
exception, certain related shareholders are treated as a single shareholder and
investment companies registered under the Investment Company Act of 1940, as
amended, are not treated as five percent shareholders.
Commencing with our taxable year beginning January 1, 2005, in
determining that our common shares are not closely-held for purposes of the
closely-held exception, we generally may rely upon certain filings with the
United States Securities and Exchange Commission to identify our five percent
shareholders. Based upon current filings, and our beliefs regarding which of our
shareholders are investment companies registered under the Investment Company
Act of 1940, as amended, we believe that our common shares are not currently
closely-held for purposes of the closely-held exception. There can be no
assurance, however, that the ownership of our common shares will not change in
such a way that we would need to comply with the documentation procedures set
forth in the Section 883 regulations in order to establish that the closely-held
exception did not apply to us. In such circumstances, however, it is possible
that we may be unable to demonstrate that the closely held exception does not
apply to us, as our shareholders may not comply with documentation requirements
or we may not have sufficient qualified shareholders to satisfy the requirements
for avoiding application of the closely-held exception. Accordingly, there can
be no assurance that we will qualify for the reciprocal exemption.
Taxation of Our Operations if the Reciprocal Exemption Is Unavailable
To the extent that the reciprocal exemption is not available to us or
to our vessel-operating subsidiaries, then we and our vessel-operating
subsidiaries generally will be subject to United States federal income tax on
United States-source international transportation income under one of two
alternative systems. Under the first system, we generally will be subject to a
four percent tax on the gross amount of the United States-source international
transportation income derived by us or by a vessel-operating subsidiary that is
not considered to be effectively connected with the conduct of a United States
trade or business. Under the second system, the United States-source
international transportation income that we or a vessel-operating subsidiary
derives that is considered to be effectively connected with the conduct of a
United States trade or business, determined after allowance of allocable
deductions, will be subject to general United States federal income tax at
normal corporate rates, currently at 35 percent. In addition, under the second
system, we or the vessel-operating subsidiary will be subject to a 30 percent
branch-level tax on earnings that are effectively connected with the conduct of
such trade or business, as determined after allowance for certain adjustments,
and on certain interest paid or deemed paid by a United States trade or
business.
At present, we do not expect that any of the United States-source
international transportation income to be derived by us or by our
vessel-operating subsidiaries will be effectively connected with the conduct of
a United States trade or business. Accordingly, we expect that any United
States-source international transportation income that does not qualify for the
reciprocal exemption would be subject to the four percent tax on such gross
income. If the manner in which we conduct our operations were to change, our
international transportation income could come to be treated as effectively
connected with a U.S. trade or business, in which case, if the reciprocal
exemption were not available, it would be subject to tax under the second system
described above, rather than subject to a four percent gross income tax.
Based on the current and projected operations of our vessels, we
believe that less than 30% of the aggregate gross income of our vessel-operating
subsidiaries will be treated as United States-source income subject to the
four-percent tax if our vessel-operating subsidiaries do not qualify for the
benefits of the reciprocal exemption. Changes in the itineraries of our vessels
or other changes in the amount, source or character of our income could affect
the amount of income that would be subject to United States tax in future years.
United States Holders
Distributions
Subject to the discussions below under "--Foreign Personal Holding
Company Considerations" and "--Passive Foreign Investment Company
Considerations," distributions that we make with respect to the common shares,
other than distributions in liquidation and distributions in redemption of stock
that are treated as exchanges, will be taxed to United States holders as
dividend income to the extent that the distributions do not exceed our current
and accumulated earnings and profits (as determined for United States federal
income tax purposes, taking into account undistributed foreign personal holding
company income, if any). Distributions, if any, in excess of our current and
accumulated earnings and profits will constitute a nontaxable return of capital
to a United States holder and will be applied against and reduce the United
States holder's tax basis in its common shares. To the extent that distributions
in excess of our current and accumulated earnings and profits exceed the tax
basis of the United States holder in its common shares, the excess generally
will be treated as capital gain.
Qualifying dividends received by individuals in taxable years
beginning prior to January 1, 2009 are eligible for taxation at capital gains
rates (currently 15% for individuals that are not eligible for a lower rate). We
are a non-United States corporation. Dividends paid by a non-United States
corporation are eligible to be treated as qualifying dividends only if (i) the
non-United States corporation is incorporated in a possession of the United
States, (ii) the non-United States corporation is eligible for the benefits of a
comprehensive income tax treaty with the United States or (iii) the stock with
respect to which the dividends are paid is "readily tradable on an established
securities market in the United States." We will not satisfy either of the
conditions described in clauses (i) and (ii) of the preceding sentence. While we
expect that distributions on our common shares that are treated as dividends
will qualify as dividends on stock that is "readily tradable on an established
securities market in the United States" so long as our common shares are traded
on the New York Stock Exchange, United States taxing authorities have yet to
issue guidance specifying the meaning of the term "readily tradable on an
established securities market in the United States" for this purpose and thus we
cannot be certain of the requirements for being so treated. In addition,
dividends paid by a non-United States corporation will not be treated as
qualifying dividends if the non-United States corporation is a "foreign personal
holding company" (an "FPHC"), a "foreign investment company" (an "FIC") or a
"passive foreign investment company" (a "PFIC") for the taxable year of the
dividend or the prior taxable year. Our potential treatment as an FPHC or a PFIC
is discussed below under the headings "--Foreign Personal Holding Company
Considerations" and "--Passive Foreign Investment Company Considerations." We do
not believe that we were an FIC for our last taxable year and we do not expect
to be an FIC for our current or subsequent taxable years. A dividend will also
not be treated as a qualifying dividend to the extent that (i) the shareholder
does not satisfy a holding period requirement that generally requires that the
shareholder hold the shares on which the dividend is paid for more than 61 days
during the 121-day period that begins on the date which is sixty days before the
date on which the shares become ex-dividend with respect to such dividend, (ii)
the shareholder is under an obligation to make related payments with respect to
substantially similar or related property or (iii) such dividend is taken into
account as investment income under Section 163(d)(4)(B) of the Internal Revenue
Code.
Dividend income derived with respect to the common shares generally
will constitute portfolio income for purposes of the limitation on the use of
passive activity losses, and, therefore, generally may not be offset by passive
activity losses, and, unless treated as qualifying dividends as described above
(for taxable years beginning before January 1, 2009) as investment income for
purposes of the limitation on the deduction of investment interest expense.
Dividends that we pay will not be eligible for the dividends received deduction
generally allowed to United States corporations under Section 243 of the
Internal Revenue Code.
For foreign tax credit purposes, if at least 50 percent of our stock
by voting power or by value is owned, directly, indirectly or by attribution, by
United States persons, then, subject to the limitation described below, a
portion of the dividends that we pay in each taxable year will be treated as
United States-source income, depending in general upon the ratio for that
taxable year of our United States-source earnings and profits to our total
earnings and profits. The remaining portion of our dividends (or all of our
dividends, if we do not meet the 50 percent test described above) will be
treated as foreign-source income and generally will be treated as passive
income, subject to the separate foreign tax credit limitation for passive
income. However, if, in any taxable year, we have earnings and profits and less
than ten percent of those earnings and profits are from United States sources,
then, in general, dividends that we pay from our earnings and profits for that
taxable year will be treated entirely as foreign-source income. Where a United
States holder that is an individual receives a dividend on our shares that is a
qualifying dividend (as described in the second preceding paragraph) in a
taxable year beginning before January 1, 2009, special rules will apply that
will limit the portion of such dividend that will be included in such
individual's foreign source taxable income and overall taxable income for
purposes of calculating such individual's foreign tax credit limitation.
Sale or Exchange
Subject to the discussion below under "--Passive Foreign Investment
Company Considerations," upon a sale or exchange of common shares to a person
other than Excel Maritime Carriers Ltd (or certain related entities), a United
States holder will recognize gain or loss in an amount equal to the difference
between the amount realized on the sale or exchange and the United States
holder's adjusted tax basis in the common shares. Any gain or loss recognized
will be capital gain or loss and will be long-term capital gain or loss if the
United States holder has held the common shares for more than one year.
Gain or loss realized by a United States holder on the sale or
exchange of common shares generally will be treated as United States-source gain
or loss for United States foreign tax credit purposes.
Foreign Personal Holding Company Considerations
We are not aware of any facts which establish that we or any of our
subsidiaries currently meet the requirements for classification as an FPHC for
United States federal income tax purposes or that we or any of our subsidiaries
met the requirements for classification as an FPHC for our most recent taxable
year. However, some of the facts relevant to such a determination are outside of
our knowledge and control. Therefore, we are unable to establish whether we or
any of our subsidiaries constitute or have constituted an FPHC. If we or one of
our subsidiaries were treated as an FPHC, then each United States holder owning,
directly or indirectly, common shares on the last day in the taxable year on
which the ownership requirement (as described in the following paragraph) with
respect to us or the subsidiary is met would be required to include currently in
taxable income as a dividend a pro rata share of our or the subsidiary's
undistributed FPHC income, which is, generally, our or the subsidiary's taxable
income with certain adjustments and after reduction for certain dividend
payments.
Under certain circumstances, a foreign corporation is an FPHC for a
taxable year if at any time during the taxable year more than 50% of its stock
(by vote or value) is owned (directly, indirectly or by attribution) by or for
not more than five individuals who are citizens or residents of the United
States (the "ownership requirement"). Although we know the identity of some of
our current shareholders, we cannot ascertain the identity of all of our
shareholders. If the ownership requirement were to be satisfied, we or any of
our subsidiaries would be an FPHC if at least 60% (50% in certain cases) of our
or the subsidiary's gross income were "passive" income (the "passive income
requirement'). This likely would be the case for us because some or all of the
dividends from our subsidiaries and any net gain we might realize from the sale
of stock or securities (including stock of our subsidiaries) would be passive
income. We believe that none of our shipping subsidiaries currently meets the
passive income requirement and we do not expect that they will meet it in the
future. There can be no assurance, however, that our subsidiaries will not
satisfy the passive income requirement in the future.
Passive Foreign Investment Company Considerations
PFIC Classification.
Special and adverse United States tax rules apply to a United States
holder that holds an interest in a PFIC. In general, a PFIC is any foreign
corporation, if (1) 75 percent or more of the gross income of the corporation
for the taxable year is passive income (the "PFIC income test") or (2) the
average percentage of assets held by the corporation during the taxable year
that produce passive income or that are held for the production of passive
income is at least 50 percent (the "PFIC asset test"). In applying the PFIC
income test and the PFIC asset test, a corporation that owns, directly or
indirectly, at least 25 percent by value of the stock of a second corporation
must take into account its proportionate share of the second corporation's
income and assets.
If a corporation is classified as a PFIC for any year during which a
United States person is a shareholder, then the corporation generally will
continue to be treated as a PFIC with respect to that shareholder in all
succeeding years, regardless of whether the corporation continues to meet the
PFIC income test or the PFIC asset test, subject to elections to recognize gain
that may be available to the shareholder.
To date, we and our subsidiaries have derived most of our income from
time and voyage charters, and we expect to continue to do so. This income should
be treated as services income, which is not treated as passive income for PFIC
purposes. On this basis, we do not believe that, we were treated as a PFIC for
our taxable year beginning January 1, 2004 or that we will be treated as a PFIC
for our taxable year beginning January 1, 2005 or for any future taxable year.
This conclusion is based in part upon our beliefs regarding our past assets and
income and our current projections and expectations as to our future business
activity, including, in particular, our expectation that the proportion of our
income derived from bareboat charters will not materially increase. Moreover,
the IRS may disagree with the conclusion that that time and voyage charters do
not give rise to passive income for purposes of the PFIC income test.
Accordingly, we can provide no assurance that we will not be treated as a PFIC
for our taxable year beginning January 1, 2004 or for any subsequent taxable
year.
Consequences of PFIC Status.
If we are treated as a PFIC for any taxable year during which a United
States holder holds our common shares, then, subject to the discussion of the
qualified electing fund ("QEF") and mark-to-market rules below, the United
States holder will be subject to a special and adverse tax regime in respect of
(1) gains realized on the sale or other disposition of our common shares and (2)
distributions on our common shares to the extent that those distributions are
treated as excess distributions. An excess distribution generally includes
dividends or other distributions received from a PFIC in any taxable year of a
United States holder to the extent that the amount of those distributions
exceeds 125 percent of the average distributions made by the PFIC during a
specified base period. A United States holder that is subject to the PFIC rules
(1) will be required to allocate excess distributions received in respect of our
common shares and gain realized on the sale of common shares to each day during
the United States holder's holding period for the common shares, (2) will be
required to include in income as ordinary income the portion of the excess
distribution or gain that is allocated to the current taxable year and to
certain pre-PFIC years, and (3) will be taxable at the highest rate of taxation
applicable to ordinary income for the prior years, other than pre-PFIC years, to
which the excess distribution or gain is allocable, without regard to the United
States holder's other items of income and loss for such prior taxable years
("deferred tax"). The deferred tax for each prior year will be increased by an
interest charge for the period from the due date for tax returns for the prior
year to the due date for tax returns for the year of the excess distribution or
gain, computed at the rates that apply to underpayments of tax. Pledges of PFIC
shares will be treated as dispositions for purposes of the foregoing rules. In
addition, a United States holder who acquires common shares from a decedent
(other than a decedent that was, for United States federal income tax purposes,
a non resident alien at all times during such decedent's holding period in the
common shares) prior to 2010 generally will not receive a stepped-up basis in
the common shares. Instead, the United States holder will have a tax basis in
the common shares equal to the lower of the fair market value of the common
shares and the decedent's basis.
QEF Election.
In some circumstances, a United States holder may avoid the
unfavorable consequences of the PFIC rules by making a QEF election with respect
to us. A QEF election effectively would require an electing United States holder
to include in income currently its pro rata share of our ordinary earnings and
net capital gain. However, a United States holder cannot make a QEF election
with respect to us unless we comply with certain reporting requirements and we
currently do not intend to provide the required information.
Mark-to-Market Election.
A United States holder that holds "marketable" stock in a PFIC may, in
lieu of making a QEF election, avoid some of the unfavourable consequences of
the PFIC rules by electing to mark the PFIC stock to market as of the close of
each taxable year. Under recently promulgated regulations, the common shares
will be treated as marketable stock for a calendar year if the common shares are
traded on the New York Stock Exchange, in other than de minimis quantities, on
at least 15 days during each calendar quarter of the year. A United States
holder that makes the mark-to-market election generally will be required to
include in income each year as ordinary income an amount equal to the increase
in value of the common shares for that year, regardless of whether the United
States holder actually sells the common shares. The United States holder
generally will be allowed a deduction for the decrease in value of the common
shares for the taxable year, to the extent of the amount of gain previously
included in income under the mark-to-market rules, reduced by prior deductions
under the mark-to-market rules. Any gain from the actual sale of the PFIC stock
will be treated as ordinary income, and any loss will be treated as ordinary
loss to the extent of net mark-to-market gains previously included in income and
not reversed by prior deductions.
You are urged to consult your own tax advisor regarding our possible
classification as a PFIC, as well as the potential tax consequences arising from
the ownership and disposition, directly or indirectly, of interests in a PFIC.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the
United States or through certain US related financial intermediaries generally
are subject to information reporting and backup withholding unless (i) you are a
corporation or other exempt recipient or (ii) in the case of backup withholding,
you provide a correct taxpayer identification number and certify that you are
not subject to backup withholding.
The amount of any backup withholding from a payment to you will be
allowed as a credit against your United States federal income tax liability and
may entitle you to a refund, provided that the required information is furnished
to the Internal Revenue Service.
Documents on Display
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with these requirements we file
reports and other information with the SEC. These materials, including this
annual report and the accompanying exhibits, may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. You may obtain information on the
operation of the public reference room by calling 1 (800) SEC-0330, and you may
obtain copies at prescribed rates from the Public Reference Section of the
Commission at its principal office in Washington, D.C. 20549. The SEC maintains
a website (http://www.sec.gov) that contains reports, proxy and information
statements and other information that we and other registrants have filed
electronically with the SEC. In addition, documents referred to in this annual
report may be inspected at our headquarters at Par La Ville Place, 14 Par La
Ville Road, Hamilton HM JX, Bermuda.
ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
All of the trading fleet's revenues are in U.S. dollars. Approximately
70% of the trading fleet's total expenses are paid in U.S. dollars, with the
remaining 30% being paid in Euros. The Company does not hedge its exposure to
foreign currency fluctuation. For accounting purposes, expenses incurred in
Euros are translated into U.S. dollars at the exchange rate prevailing on the
date of each transaction.
Inflation Risk
Although inflation has had a moderate impact on the trading fleet's
operating and voyage expenses in recent years, management does not consider
inflation to be a significant risk to operating or voyage costs in the current
economic environment. However, in the event that inflation becomes a significant
factor in the global economy, inflationary pressures would result in increased
operating, voyage and financing costs.
Interest Rate Risk
The shipping industry is a capital intensive industry, requiring
significant amounts of investment. Much of this investment is provided in the
form of long-term debt. Our debt usually contains interest rates that fluctuate
with the financial markets. Increasing interest rates could adversely impact
future earnings.
Our interest expense is affected by changes in the general level of
interest rates, particularly LIBOR. As an indication of the extent of our
sensitivity to interest rate changes, an increase of 100 basis points would have
decreased our net income and cash flows in the current year by approximately
$58,100 based upon our debt level during 2004.
The following table sets forth the sensitivity of our long term debt
in U.S. dollars to a 100 basis points increase in LIBOR during the next five
years on the same basis.
Net difference in Earnings and Cash Flows:
Year Amount
---- ------
2005 $96,850
2006 50,750
2007 37,250
2008 15,250
2009 -
ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable
PART II
ITEM 13 - DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None
ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
None
ITEM 15 - CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in alerting them timely to material information
relating to the Company required to be included in the Company's periodic SEC
filings.
(b) Management's Annual Report of Internal Financial Reporting
Controls
Not applicable
(c) Attestation Report of Independent Registered Public Accounting
Firm
Not applicable
(d) Changes in Internal Controls
Management is responsible for the establishing and maintaining
adequate internal control over financial reporting. There have been no
significant changes in our internal controls or in other factors that could have
significantly affected those controls subsequent to the date of our most recent
evaluation of internal controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Although we believe our pre-existing disclosure controls and
procedures and internal controls were adequate to enable us to comply with our
disclosure obligations, as a result of such review we intend to implement
changes, primarily to formalize and document procedures already in place. You
should note that the design and operation of any system of controls and
procedures is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of
how remote.
Item 16A. Audit Committee Financial Expert
In accordance with the rules of the American Stock Exchange, the
Company is not required to have an audit committee until July 31, 2005. The
Company intends to appoint an audit committee in accordance with American Stock
Exchange requirements prior to such deadline. The Board of Directors is
currently acting as the Audit Committee.
Item 16 B. Code of Ethics
The Company has adopted a code of ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer and
persons performing similar functions. A copy of our code of ethics is attached
hereto as exhibit 11. We will also provide a hard copy of our code of ethics
free of charge upon written request of a shareholder. Shareholders may direct
their requests to the attention of Mr. Christopher Georgakis. In addition, our
code of ethics is available on our website at www.excelmaritime.com
Item 16C. Principal Accountant Fees and Related Services
During the past two fiscal years, the Company has paid its auditors,
Ernst & Young, the following fees (in Euro):
2004 2003
---- ----
AUDIT FEES (euro)73,500 (euro)37,800
AUDIT RELATED FEES (euro)43,480 -
TAX FEES - -
ALL OTHER FEES - -
Audit fees relate to the annual audit of our financial statements.
Audit related fees are fees paid to Ernst & Young for our shelf registration and
December 2004 offering of Class A common shares.
Item 16D. Exemption from the listing standards for audit committee
Not applicable.
Item 16E. Purchases of Equity Securities by Issuer and Affiliates
None.
PART III
ITEM 17 - FINANCIAL STATEMENTS
See Item 18
ITEM 18 - FINANCIAL STATEMENTS
See pages F-1 to F-30
EXCEL MARITIME CARRIERS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2004
EXCEL MARITIME CARRIERS LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Ernst & Young, Independent Registered Public
Accounting Firm F-1
Consolidated Balance Sheets as of December 31, 2003 and 2004 F-2
Consolidated Statements of Income for the years ended
December 31 2002, 2003 and 2004 F-3
Consolidated Statements of Stockholders' Equity for the
years ended 31, 2002, 2003 and 2004 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2003 and 2004 F-5
Notes to Consolidated Financial Statements F-6
Schedule I - Condensed Financial Information of Excel
Maritime Carriers Ltd. F-26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders of Excel Maritime Carriers Ltd.
We have audited the accompanying consolidated balance sheets of Excel Maritime
Carriers Ltd. (the "Company"), as of December 31, 2003 and 2004, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 2004. Our audits also
included the condensed financial information listed in the Index as Schedule I.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Excel Maritime
Carriers Ltd. at December 31, 2003 and 2004 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2004, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young (Hellas)
Certified Auditors Accountants S.A.
Athens, Greece
March 4, 2005
EXCEL MARITIME CARRIERS LTD.
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2003 AND 2004
(Expressed in thousands of U.S. Dollars - except for share
and per share data)
<table>
<caption>
ASSETS 2003 2004
- ------ ---- ----
CURRENT ASSETS:
Cash and cash equivalents 3,958 64,903
Restricted cash - 2,493
Accounts receivable - trade, net 678 2,302
Accounts receivable - other 236 158
Inventories (Note 4) 512 558
Prepayments and advances (Note 5) 141 962
---------- ----------
Total current assets 5,525 71,376
FIXED ASSETS:
Advances for vessel acquisition (Notes 5 and 18) - 26,220
Vessels, net (Notes 6 and 8) 15,595 14,615
---------- ----------
Total fixed assets 15,595 40,835
---------- ----------
OTHER NON CURRENT ASSETS:
Goodwill (Note 1) 400 400
Deferred charges, net (Note 7) 1,649 1,686
Restricted cash 914 -
---------- ----------
Total assets 24,083 114,297
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 8) 2,300 7,870
Accounts payable 934 1,262
Accrued liabilities (Note 9) 887 1,600
---------- ----------
Total current liabilities 4,121 10,732
---------- ----------
LONG-TERM DEBT, net of current portion (Note 8) 5,870 5,750
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 10) - -
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.01 par value: 5,000,000 shares
authorized, none issued - -
Common stock, $0.01 par value; 49,000,000 A Class
shares and 1,000,000 B Class shares authorized;
11,496,153 A Class shares and 114,946 B Class
shares issued and outstanding at December 31,
2003; 13,696,153 A Class shares and 114,946 B
Class shares issued and outstanding at December 31,
2004 (Note 11) 116 138
Additional paid-in capital 12,087 63,738
Retained earnings 2,078 34,128
----------
14,281 98,004
Less: Treasury stock, 78,650 A Class shares and 588 B Class
shares at December 31, 2003 and 2004 (Note 11) (189) (189)
---------- ----------
Total stockholders' equity 14,092 97,815
---------- ----------
Total liabilities and stockholders' equity 24,083 114,297
========== ==========
</table>
The accompanying notes are an integral part of these
consolidated statements.
EXCEL MARITIME CARRIERS LTD.
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, , 2002, 2003 AND 2004
(Expressed in thousands of U.S. Dollars - except for share and per share data)
2002 2003 2004
-------------- -------------- --------------
REVENUES:
Voyage revenues 15,602 26,094 51,966
Revenue from managing vessels (Note 1) 385 527 637
-------------- -------------- --------------
15,987 26,621 52,603
-------------- -------------- --------------
EXPENSES:
Voyage expenses (Note 13) 7,009 7,312 8,100
Vessel operating expenses (Note 13) 5,354 6,529 7,518
Vessel depreciation (Note 6) 618 993 980
Amortization of deferred dry-docking costs (Note 7) 462 555 733
Gain on sale of vessels (Note 6) (569) - -
Management fees charged by a related party (Note 3) 225 260 270
General and administrative expenses 1,250 1,714 2,828
-------------- -------------- --------------
Operating income 1,638 9,258 32,174
-------------- -------------- --------------
OTHER INCOME (EXPENSES):
Interest and finance costs (Note 15) (728) (473) (363)
Interest income 59 12 302
Foreign currency losses (44) (58) (39)
Gain on sale of subsidiary 108 - -
Other, net 56 (94) (24)
-------------- -------------- --------------
Total other income (expenses), net (549) (613) (124)
-------------- -------------- --------------
Net Income 1,089 8,645 32,050
============== ============== ==============
Earnings per common share, basic (Note 16) $0.09 $0.75 $2.75
============== ============== ==============
Earnings per common share, diluted (Note 16) $0.09 $0.75 $2.75
============== ============== ==============
Weighted average number of common shares, basic
(Note 16) 11,550,984 11,532,725 11,640,058
============== ============== ==============
Weighted average number of common shares, diluted (Note 16) 11,550,984 11,532,725 11,640,058
============== ============== ==============
The accompanying notes are an integral part of these consolidated statements.
<table>
EXCEL MARITIME CARRIERS LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
(Expressed in thousands of U.S. Dollars - except for share and per share data)
<caption>
Common Stock
-------------------
Accumulated
Comprehensive Additional Other Total
Income # of Par Paid-in Retained Comprehensive Treasury Stockholders'
(Loss) Shares Value Capital Earnings Income (Loss) Total Stock Equity
------ ------ ------ ------- -------- ------------- ----- ----- ------
BALANCE, 11,611,099 116 12,086 18,542 (1,502) 29,242 (186) 29,056
December 31, 2001
Net income 1,089 - - - 1,089 - 1,089 - 1,089
Cumulative
translation
adjustments
relating to
subsidiary
disposed of (1,502) (1,502) 1,502 - - -
Dividends paid
($2.15 per
share) - - - - (24,696) - (24,696) - (24,696)
Issuance of
treasury
stock - - - 1 - - 1 (1) -
-----------
Comprehensive
income (413)
===========
--------- ----- ------- -------- -------- ------- --------- -----------
BALANCE, 11,611,099 116 12,087 (6,567) - 5,636 (187) $ 5,449
December 31, 2002
Net income 8,645 - - - 8,645 - 8,645 - 8,645
Sale of
treasury
stock - - - - - - - (2) (2)
-----------
Comprehensive
income 8,645
===========
-------- ----- ------- -------- -------- ------- -------- -----------
BALANCE, 11,611,099 116 12,087 2,078 - 14,281 (189) $ 14,092
December 31, 2003
Net income 32,050 - - - 32,050 - 32,050 - 32,050
Issuance of
common stock
(Note 11) - 2,200,000 22 54,978 - - 55,000 - 55,000
Expenses
relating to
the issuance
of common
stock - - - (3,549) - - (3,549) - (3,549)
---------
Stock-based
compensation
expense 222 222 222
----------
Comprehensive 32,050
income
==========
--------- ----- ------- -------- -------- ------- --------- -----------
BALANCE, 13,811,099 138 63,738 34,128 - 98,004 (189) 97,815
December 31, 2004
========== ===== ======= ======== ======== ======= ========= ===========
</table>
The accompanying notes are an integral part of these consolidated statements.
<table>
EXCEL MARITIME CARRIERS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
(Expressed in thousands of U.S. Dollars)
<caption>
2002 2003 2004
------------- ------------ --------------
<s>
Cash Flows from (used in) Operating Activities:
Net income 1,089 8,645 32,050
Adjustments to reconcile net income to net cash provided by
operating activities:
Vessel depreciation 618 993 980
Amortization of deferred charges 696 594 772
Gain on sale of vessels (569) - -
Stock-based compensation expense - - 222
(Increase) Decrease in:
Accounts receivable 57 (361) (1,546)
Inventories (266) 60 (46)
Prepayments and other 25 (58) (821)
Increase (Decrease) in:
Accounts payable (1,305) (486) 328
Accrued liabilities (78) 451 638
Unearned revenue (30) - -
Payments for dry-docking (497) (951) (544)
------------- ------------ --------------
Net Cash from (used in) Operating Activities (260) 8,887 32,033
............. ............ ..............
Cash Flows used in Investing Activities:
Advances for vessel acquisition - - (26,220)
Vessel acquisitions (5,934) - -
Proceeds from sale of vessels 1,096 - -
Proceeds from sale of subsidiary 21,200 - -
Disposal of subsidiary, net of cash disposed of (4,666) - -
Loan to related party 300 - -
------------- ------------ --------------
Net Cash from (used in) Investing Activities 11,996 - (26,220)
............. ............ ..............
Cash Flows from (used in) Financing Activities:
Proceeds from long-term debt 18,289 - 7,750
Payments of long-term debt (14,313) (5,960) (2,300)
Issuance of common stock - - 51,451
Treasury stock 79 (2) -
Increase in restricted cash - (914) (1,579)
Dividends paid (24,696) - -
Payment of financing costs (130) (2) (190)
-------------- ------------ --------------
Net Cash from (used in) Financing Activities (20,771) (6,878) 55,132
.............. ............ ..............
Net increase (decrease) in cash and cash equivalents (9,035) 2,009 60,945
Cash and cash equivalents at beginning of year 10.984 1,949 3,958
-------------- ------------ --------------
Cash and cash equivalents at end of year 1,949 3,958 64,903
============== ============ ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest payments 383 480 242
============== ============ ==============
</table>
The accompanying notes are an integral part of these consolidated statements.
EXCEL MARITIME CARRIERS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2003 AND 2004 (Expressed in thousands of United States Dollars--except for
share and per share data, unless otherwise stated)
1. Basis of Presentation and General Information:
The accompanying consolidated financial statements include the accounts of Excel
Maritime Carriers Ltd. and its wholly owned subsidiaries (collectively, the
"Company"). The Company is engaged in the ocean transportation of dry bulk
cargoes worldwide through the ownership and operation of bulk carrier vessels.
Excel Maritime Carriers was formed in 1988, under the laws of the Republic of
Liberia and is the sole owner, directly or indirectly, of the following,
subsidiaries:
(a) Maryville Maritime Inc. ("Maryville"), a ship management company
incorporated in the Republic of Liberia in August 1983.
(b) Point Holdings Ltd. ("Point") a holding company incorporated in the
Republic of Liberia in February 1998.
(c) Belcam Shipping Co. Ltd. ("Belcam"), incorporated in the Republic of Cyprus
in July 1998, owner of the 146,313 DWT, 1983 built, dry bulk carrier vessel
Fighting Lady.
(d) Tortola Shipping Co. Ltd. ("Tortola"), incorporated in the Republic of
Cyprus in July 1998, owner of the 27,422 DWT, 1975 built, dry bulk carrier
vessel Lucky Lady.
(e) Storler Shipping Co. Ltd. ("Storler"), incorporated in the Republic of
Cyprus in August 1998, owner of the 35,982 DWT, 1975 built, dry bulk
carrier vessel Petalis (Note 6).
(f) Madlex Shipping Co. Ltd. ("Madlex"), incorporated in the Republic of Cyprus
in January 1999, owner of the 107,140 DWT, 1979 built, dry bulk carrier
vessel Almar I.
(g) Centel Shipping Co. Ltd.("Centel"), incorporated in the Republic of Cyprus
in May 2002, owner of the 41,090 DWT, 1985 built, dry bulk carrier vessel
Lady.
(h) Snapper Marine Ltd.("Snapper"), incorporated in the Republic of Liberia in
June 2004, owner of the 42,552 DWT, 1987 built, dry bulk carrier vessel
Marybelle (Note 5).
(i) Pisces Shipholding Ltd. ("Pisches"), incorporated in the Republic of
Liberia in June 2004, owner of the 39,697 DWT, 1984 built, dry bulk carrier
vessel Goldmar (Note 5).
(j) Liegh Jane Navigation S.A. ("Liegh"), incorporated in the Republic of
Liberia in July 2004, owner of the 37,687 DWT, 1984 built, dry bulk carrier
vessel Swift (Notes 5 and 18).
1. Basis of Presentation and General Information (continued):
(k) Teagan Shipholding S.A. ("Teagan"), incorporated in the Republic of Liberia
in November 2004, owner of the 69,111 DWT, 1994 built, dry bulk carrier
vessel First Endeavour (Notes 5 and 18).
(l) Fianna Navigation S.A. ("Fianna"), incorporated in the Republic of Liberia
in November 2004, owner of the 74,577 DWT, 1998 built, dry bulk carrier
vessel Isminaki (Notes 5 and 18).
(m) Ingram Limited. ("Ingram"), incorporated in the Republic of Liberia in
November 2004 (Note 18).
(n) Whitelaw Enterprises Co. ("Whitelaw"), incorporated in the Republic of
Liberia in November 2004 (Note 18).
(o) Castalia Services Ltd. ("Castalia"), incorporated in the Republic of
Liberia in November 2004 (Note 18).
The operations of the vessels are managed by Excel Management Ltd. (Note 3), an
affiliated Liberian corporation formed on January 13, 1998, which provides the
Company vessels with a wide range of shipping services, such as technical
support and maintenance, supervision of new buildings, insurance consulting,
chartering, financial and accounting services all provided at a fixed monthly
fee per vessel. Certain of the services provided by Excel Management are
subcontracted to Maryville, the shares of which were acquired by the Company on
March 31, 2001. The Company accounted for the acquisition under the purchase
method of accounting. The consideration totaled $630, of which $230 was
allocated to the fair value of the tangible net assets at the date of
acquisition. The $400 of remaining consideration was allocated to goodwill
arising on the acquisition and is reflected separately in the accompanying
consolidated balance sheets.
In addition, Maryville provides shipping services to non-Company vessels at a
fixed monthly fee per vessel. Such fees for 2002, 2003 and 2004 totaled $385,
$527 and $637 respectively and are separately reflected in the accompanying
consolidated statements of income. The fees charged by Maryville for the
management of the Company's fleet (under a subcontract with Excel Management
Ltd. - Note 3), are eliminated for consolidation purposes in the accompanying
consolidated statements of income.
1. Basis of Presentation and General Information (continued):
During 2002, 2003 and 2004, ten charterers individually accounted for more than
10% of the Company's voyage and time charter revenues as follows:
Charterer 2002 2003 2004
--------- ---- ---- ----
Coeclerici Transport Ltd. 12% - -
ADM Shipping Co. 12% - -
Alfred C. Toepfer 12% - -
Malissa SCTT - 25% 15%
Swissmarine-Geneva - 11% -
Oldendorff Carriers GMBH - 11% -
Noble Shipping Inc.-Hong Kong - 10% -
Transfield Er Capeltd BV - - 12%
NCS North China Shipping Co Ltd BVI - - 10%
Coscobulk of Tianjin P.R.C - - 7%
2. Significant Accounting Policies:
(a) Principles of Consolidation: The accompanying consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States ("US GAAP") and include the
accounts of Excel Maritime Carriers Ltd. and its wholly-owned
subsidiaries referred to in Note 1 above. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) Use of Estimates: The preparation of consolidated financial statements
in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(c) Other Comprehensive Income (Loss): The Company follows the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income", which requires separate presentation
of certain transactions, which are recorded directly as components of
stockholders' equity.
2. Significant Accounting Policies (continued):
(d) Foreign Currency Translation: The functional currency of the Company
is the U.S. Dollar because the Company's vessels operate in
international shipping markets, which utilize the U.S. Dollar as the
functional currency. The Company's books of accounts are maintained in
U.S. Dollars. Transactions involving other currencies during the year
are converted into U.S. Dollars using the exchange rates in effect at
the time of the transactions. At the balance sheet dates, monetary
assets and liabilities, which are denominated in other currencies, are
translated to reflect the current exchange rates. Resulting gains or
losses are reflected separately in the accompanying consolidated
statements of income.
(e) Cash and Cash Equivalents: The Company considers highly liquid
investments such as time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
Restricted cash concerns minimum cash deposits required to be
maintained with a bank for loan compliance purposes and deposits with
certain banks that can only be used for the purposes of loan
repayment.
(f) Accounts Receivable - Trade: The amount shown as accounts receivable,
trade, at each balance sheet date, includes estimated recoveries from
charterers for hire, freight and demurrage billings, net of a
provision for doubtful accounts. At each balance sheet date, all
potentially uncollectible accounts are assessed individually for
purposes of determining the appropriate provision for doubtful
accounts. Provision for doubtful accounts at December 31, 2003 and
2004 totaled to $0 and $25, respectively.
(g) Insurance Claims: Insurance claims are recorded on the accrual basis
and represent the claimable expenses, net of deductibles, incurred
through December 31 of each year, which are expected to be recovered
from insurance companies. Any remaining costs to complete the claims
are included in accrued liabilities.
(h) Inventories: Inventories consist mainly of bunkers and lubricants and
are stated at the lower of cost or market value. Cost is determined by
the first-in, first-out method.
(i) Vessels' Cost: Vessels are stated at cost, which consists of the
contract price and any material expenses incurred upon acquisition
(initial repairs, improvements and delivery expenses). Subsequent
expenditures for conversions and major improvements are also
capitalized when they appreciably extend the useful life, increase the
earning capacity or improve the efficiency or safety of the vessels
otherwise these amounts are charged to expense as incurred.
2. Significant Accounting Policies (continued):
(j) Impairment of Long-Lived Assets: The Company applies SFAS No. 144
"Accounting for the Impairment or Disposal of Long-lived Assets",
which addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. The standard requires that,
long-lived assets and certain identifiable intangibles held and used
or disposed of by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. When the estimate of undiscounted cash
flows, excluding interest charges, expected to be generated by the use
of the asset is less than its carrying amount, the Company should
evaluate the asset for an impairment loss. Measurement of the
impairment loss is based on the fair value of the asset as provided by
third parties. In this respect, management regularly reviews the
carrying amount of the vessels in connection with the estimated
recoverable amount for each of the Company's vessels. The review for
impairment of each vessel's carrying amount as of December 31, 2002,
2003 and 2004, did not result in an indication of an impairment loss.
(k) Vessels' Depreciation: Depreciation is computed using the
straight-line method over the estimated useful life of the vessels,
after considering the estimated salvage value. Each vessel's salvage
value is equal to the product of its lightweight tonnage and estimated
scrap rate. Management estimates the useful life of the Company's
vessels to be 28 years from the date of initial delivery from the
shipyard. Second hand vessels are depreciated from the date of their
acquisition through their remaining estimated useful life. When
regulations place limitations over the ability of a vessel to trade on
a worldwide basis, its useful life is adjusted at the date such
regulations become effective.
(l) Accounting for Dry-docking and Special Survey Costs: The Company
follows the deferral method of accounting for dry-docking costs
whereby actual costs incurred are deferred and are amortized on a
straight-line basis over the period through the date the next
dry-docking is scheduled to become due. Unamortized dry-docking costs
of vessels that are sold are written off and included in the
calculation of the resulting gain or loss in the year of the vessel's
sale.
(m) Financing Costs: Fees incurred for obtaining new loans or refinancing
existing ones are deferred and amortized to interest expense over the
life of the related debt. Unamortized fees relating to loans repaid or
refinanced are expensed in the period the repayment or refinancing is
made.
(n) Accounting for P&I Back Calls: The vessels' Protection and Indemnity
(P&I) Club insurance is subject to additional premiums referred to as
back calls or supplemental calls, and are accounted for on the accrual
basis.
2. Significant Accounting Policies (continued):
(o) Pension and Retirement Benefit Obligations - Crew: The ship-owning
companies included in the consolidation employ vessel crew, under
short-term contracts (usually up to nine months) and accordingly, the
Company is not liable for any pension or post retirement benefits.
(p) Staff leaving Indemnities - Administrative personnel: The Company's
employees are entitled to termination payments in the event of
dismissal or retirement with the amount of payment varying in relation
to the employee's compensation, length of service and manner of
termination (dismissed or retired). Employees who resign, or are
dismissed with cause are not entitled to termination payments. The
Company's liability on an actuarially determined basis, at December
31, 2003 and 2004 amounted to approximately $183 and $237,
respectively.
(q) Accounting for Revenue and Expenses: Revenues are generated from
voyage and time charter agreements. Time charter revenues are recorded
over the term of the charter as service is provided. Under a voyage
charter the revenues and associated voyage costs are recognized on a
pro-rata basis over the duration of the voyage. A voyage is deemed to
commence upon the completion of discharge of the vessel's previous
cargo and is deemed to end upon the completion of discharge of the
current cargo. Demurrage income represents payments by the charterer
to the vessel owner when loading or discharging time exceeded the
stipulated time in the voyage charter and is recognized as incurred.
Vessel operating expenses are accounted for on the accrual basis.
Unearned revenue represents cash received prior to year-end related to
revenue applicable to periods after December 31 of each year.
(r) Repairs and Maintenance: All repair and maintenance expenses including
underwater inspection expenses are expensed in the year incurred and
are included in vessel operating expenses in the accompanying
consolidated statements of income.
(s) Earnings per Share: Basic earnings per common share are computed by
dividing net income available to common stockholders by the weighted
average number of common shares outstanding during the year. Diluted
earnings per common share, reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised.
2. Significant Accounting Policies (continued):
(t) Segmental Reporting: The Company reports financial information and
evaluates its operations by charter revenues and not by the length of
ship employment for its customers, i.e., spot or time charters. The
Company does not have discrete financial information to evaluate the
operating results for each such type of charter. Although revenue can
be identified for these types of charters, management cannot and does
not identify expenses, profitability or other financial information
for these charters. As a result, management, including the chief
operating decision maker, review operating results solely by revenue
per day and operating results of the fleet and thus the Company has
determined that it operates under one reportable segment.
(v) Accounting for Stock-Based Compensation: In October 2004, the
Company's Board of Directors approved a Stock Option Plan providing
for granting of stock options to the Company's Chief Executive
Officer. Prior to October 2004, the Company had not issued stock-based
compensation to its employees. The Company accounts for employee
stock-based compensation in accordance with the provisions of SFAS No.
123 using the fair value method wherein the fair value of such awards
are determined on the grant date and recognized as compensation
expense in the consolidated statements of income over the vesting
period of the options.
(w) Recent Accounting Pronouncements:
FASB Interpretation No. 46R: In December 2003, the FASB issued
Interpretation No. 46R, Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51 (the "Interpretation"), which revised
Interpretation No. 46, issued in January 2003. The Interpretation
addresses the consolidation of business enterprises (variable interest
entities) to which the usual condition (ownership of a majority voting
interest) of consolidation does not apply. The Interpretation focuses
on financial interests that indicate control. It concludes that in the
absence of clear control through voting interests, a company's
exposure (variable interest) to the economic risks and potential
rewards from the variable interest entity's assets and activities are
the best evidence of control. Variable interests are rights and
obligations that convey economic gains or losses from changes in the
value of the variable interest entity's assets and liabilities.
Variable interests may arise from financial instruments, service
contracts, and other arrangements. If an enterprise holds a majority
of the variable interests of an entity, it would be considered the
primary beneficiary. The primary beneficiary would be required to
include assets, liabilities, and the results of operations of the
variable interest's entity in its financial statements. The Company
was required to adopt the provisions of FIN 46R for entities created
prior to February 2003, in 2004. The adoption of FIN 46R in 2004 did
not have any impact on the Company's consolidated financial position,
results of operations or cash flows.
2. Significant Accounting Policies (continued):
FASB Statement No. 123 (revised 2004): On December 16, 2004, the Financial
Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised
2004), Share-Based Payment, which is a revision of FASB Statement No. 123,
Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB
Statement No. 95, Statement of Cash Flows. Generally, the approach in
Statement 123(R) is similar to the approach described in Statement 123.
However, Statement 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an
alternative.
Statement 123(R) must be adopted no later than January 1, 2006. Early
adoption will be permitted in periods in which financial statements have
not yet been issued. We expect to adopt Statement 123(R) on January 1,
2006. Statement 123(R) permits public companies to adopt its requirements
using one of two methods:
o A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the
requirements of Statement 123(R) for all share-based payments granted
after the effective date and (b) based on the requirements of
Statement 123 for all awards granted to employees prior to the
effective date of Statement 123(R) that remain unvested on the
effective date.
o A "modified retrospective" method which includes the requirements of
the modified prospective method described above, but also permits
entities to restate based on the amounts previously recognized under
Statement 123 for purposes of pro forma disclosures either (a) all
prior periods presented or (b) prior interim periods of the year of
adoption.
The Company plans to adopt Statement 123(R) using the modified-prospective
method.
The Company currently applies the fair-value-based method of accounting for
share-based payments in accordance with Statement 123. Currently, the
company uses the Black-Scholes-Merton formula to estimate the value of
stock options granted to employees and expects to continue to use this
acceptable option valuation model upon the required adoption of Statement
123(R) on January 1, 2006. The Company does not anticipate that adoption of
Statement 123(R) will have a material impact on its results of operations,
financial position or cash flows.
2. Significant Accounting Policies (continued):
(x) Reclassifications of Prior Year Balances: Certain minor
reclassifications have been made to the 2002 and 2003 consolidated
financial statements to conform to the presentation in the 2004
consolidated financial statements. An amount of $300, concerning
minimum cash deposits required to be maintained with a bank for loan
compliance purposes, which is now included in restricted cash at
December 31, 2003, was previously classified in cash and cash
equivalents.
3. Transactions With Related Parties:
(a) Excel Management Ltd.: The operations of the vessels (Note 1) are
managed by Excel Management Ltd., a corporation which is controlled by
the Company's Chairman of the Board, Mr. Gabriel Panayiotides. Certain
of the services provided by Excel Management Ltd. are subcontracted to
Maryville. The management agreement with Excel Management Ltd. expires
on April 30, 2008 and provides for annual increase of 5% in management
fees. Such agreement was terminated on March 2, 2005, effective
January 1, 2005 (Note 18). The fees charged by Excel Management Ltd.
in 2002, 2003 and 2004 totaled $225, $260 and $270, respectively and
are separately reflected in the accompanying consolidated statements
of income. The balance with Excel Management Ltd., as of December 31,
2003 and 2004 was $0 and $0, respectively.
(b) Board of Directors Fees: During 2002, 2003 and 2004, the Company paid
Board of Directors' fees of $39, $116 and $105, respectively. Such
fees are included in General and Administrative expenses in the
accompanying consolidated statements of income.
4. Inventories:
The amounts in the accompanying consolidated balance sheets are analyzed as
follows:
2003 2004
----------- ------------
Bunkers 317 346
Lubricants 169 177
Victuals 26 35
----------- ------------
Total 512 558
=========== ============
5. Advances for Vessels Acquisitions and Other Vessel Costs:
The amount shown in the accompanying 2004 consolidated balance sheet
represents advance payments to sellers of vessels and other predelivery
expenses ($103) in accordance with the accounting policy discussed in Note
2(i), as analyzed below:
5. Advances for Vessels Acquisitions and Other Vessel Costs (continued):
Vessel Amount
------ ------
Swift 1,811
Goldmar 11,958
Isminaki 5,974
First Endeavour 4,699
Marybelle 1,778
--------------
Total 26,220
==============
As of December 31, 2004, remaining contracted payments for vessels
acquisitions, all due in 2005, amounted to $86,335.
In October 2004 Liegh entered into a Memorandum of Agreement for the
purchase of the 37,687 DWT, 1984 built, bulk carrier vessel Swift for
$11,850. 15% of the purchase price, or $1,778, was paid in November 2004
and the remaining of $10,072, was paid upon the delivery of the vessel in
January 2005.
In November 2004 Pisces entered into a Memorandum of Agreement for the
purchase of the 39,697 DWT, 1984 built, bulk carrier vessel Goldmar for
$11,920. 10% of the purchase price, or $1,192, was paid in November 2004
and the remaining of $10,728, was paid in late December 2004 as the vessel
was delivered to the Company on January 3, 2005. As of December 31, 2004
that Company had also paid to the sellers $372 representing the cost of
inventories on board the vessel on the delivery date. This amount is
included in Prepayments and advances in the accompanying 2004 consolidated
balance sheet.
In December 2004 Fianna entered into a Memorandum of Agreement, for the
purchase of the 74,577 DWT, 1998 built, bulk carrier vessel Isminaki, for
$39,750. 15% of the purchase price, or $5,963, was paid in December 2004
and the remaining of $33,787 was paid upon the delivery of the vessel in
February 2005.
In December 2004 Teagan entered into a Memorandum of Agreement for the
purchase of the 69,111 DWT, 1994 built, bulk carrier vessel First Endeavour
for $31,250 million. 15% of the purchase price or $4,688 was paid in
December 2004. The expected delivery date of the vessel is April 2005.
In December 2004 Snapper entered into a Memorandum of Agreement for the
purchase of the 42,552 DWT, 1987 built, bulk carrier vessel Marybelle for $
17,680. 10% of the purchase price, or $ 1,768, was paid in December 2004.
The expected delivery date of the vessel is March 2005.
6. Vessels, net:
The amounts in the accompanying consolidated balance sheets are analyzed as
follows:
Vessel Accumulated Net Book
Cost Depreciation Value
---- ------------ -----
Balance, December 31, 2002 18,611 (2,023) 16,588
- Depreciation for the period - (993) (993)
---------- ---------- --------
Balance, December 31, 2003 18,611 (3,016) 15,595
- Depreciation for the period - (980) (980)
---------- ---------- --------
Balance, December 31, 2004 18,611 (3,996) 14,615
========== ========== ========
Vessel cost at December 31, 2003 and 2004, includes $191 of amounts not
included in the contract price of the vessels but which are material
expenses incurred upon acquisition and are capitalized in accordance with
the accounting policy discussed in Note 2(i).
At December 31, 2004, three of the Company's vessels were operating under
short term time charters and the remaining two were operating under voyage
charters.
All Company's vessels, having a total carrying value of $14,615 at December
31, 2004, have been provided as collateral to secure the loans discussed in
Note 8. The vessel Holy Island was sold in January 2002, at a gain of $
569.
No depreciation expense is charged for the vessel Lucky Lady (acquired in
May 1999) as its acquisition cost approximates its estimated salvage value.
As at December 31, 2003, the vessel Petalis was carried at its salvage
value and no depreciation expense was recorded for this vessel in 2004.
In December 2004, Storler entered into a Memorandum of Agreement for the
sale of the vessel Petalis for $5,100. The buyers deposited 15% of the sale
price, or $765, in a joint escrow account in December 2004. The carrying
amount of the vessel Petalis at December 31, 2004 is $1,008. The delivery
of the vessel to the new owners is expected to occur on or about March 7,
2005.
7. Deferred Charges:
The unamortized amounts included in the accompanying consolidated balance
sheets are analyzed as follows:
Dry-docking and Financing
Special Survey Costs Total
-------------- ----- -----
Balance, December 31, 2002 1,179 111 1,290
- Additions 951 2 953
- Amortization for the year (555) (39) (594)
--------- ------ ---------
Balance, December 31, 2003 1,575 74 1,649
- Additions 544 265 809
- Amortization for the year (733) (39) (772)
--------- ------ ---------
Balance, December 31, 2004 1,386 300 1,686
========= ====== =========
The amortization of financing costs is included in interest and finance
costs in the accompanying statements of income.
8. Long-Term Debt:
The amounts in the accompanying consolidated balance sheets are analyzed as
follows:
Borrower(s) 2003 2004
----------- ---- ----
(a) Becalm and Madlex 3,990 2,850
(b) Centel, Tortola and Storler 4,180 3,020
(c) Pisces - 7,750
--------- ------------
Total 8,170 13,620
Less: Current portion (2,300) (7,870)
--------- ------------
Long-term portion 5,870 5,750
========= ============
(a) Bank loan for an amount of $5,700, obtained in June 2002 for working
capital purposes. The outstanding balance of the loan at December 31,
2004 is repayable in three equal consecutive quarterly installments of
$285 each through September 2005, one final installment of $295 in
December 2005 and a balloon payment of $1,700 payable together with
the final installment. The loan bears interest at LIBOR plus a margin
and the interest rate at December 31, 2003 and 2004 was 3.17% and
4.33%, respectively.
(b) Bank loan for an amount of $5,500, obtained in October 2002 to
partially finance the acquisition cost of vessel Lady and for working
capital purposes. The outstanding balance of the loan at December 31,
2004 is repayable in four consecutive quarterly installments of $250
each through December 2005 and a balloon payment of $ 2,020 payable
together with the last installment. The loan bears interest at LIBOR
plus a margin and the interest rate at December 31, 2003 and 2004 was
3.13% and 4.42%, respectively.
(c) In December 2004, Pisces, Liegh and Snapper entered into a bank loan
agreement to partially finance the acquisition cost of vessels
Goldmar, Swift and Marybelle, respectively. The aggregate amount of
the loan facility will not exceed the lower of (a) $27,000 or (b) the
70% of the aggregate market value of the vessels. The outstanding
balance of the loan under the loan agreement at December 31, 2004 was
used for the acquisition of vessel Goldmar on January 3, 2005, and is
repayable in four consecutive quarterly installments of $500 each,
followed by twelve consecutive quarterly installments of $337.5 each
through December 2008, plus a balloon payment of $ 1,700 payable
together with the last installment. The loan bears interest at LIBOR
plus a margin and the interest rate at December 31, 2004 was 4.27%. In
January 2005, an amount of $7,750 was drawn down under the loan
agreement to partially finance the acquisition cost of vessel Swift
(Note 18).
The loans are secured as follows:
o First priority mortgage over the Company's vessels.
o Assignments of earnings and insurances of the mortgaged vessels;
o Corporate guarantee.
8. Long-Term Debt - (continued):
The loan agreements among others include covenants requiring the borrowers
to obtain the lenders' prior consent in order to incur or issue any
financial indebtedness, additional borrowings, pay shareholders' loans,
sell vessels and assets and change the beneficial ownership or management
of the vessels. Also, the covenants require the borrowers to maintain a
minimum hull value in connection with the vessels' outstanding loans,
insurance coverage of the vessels against all risks and maintenance of bank
accounts with minimum balances. Furthermore, the vessel-owning subsidiaries
are not permitted to pay dividends to Excel Maritime Carriers Ltd. without
the lenders' prior consent. The restricted net assets of the vessel-owning
subsidiaries at December 31, 2004 amounted to $54,141. The Company was in
compliance with the covenants at December 31, 2004.
The annual principal payments required to be made after December 31, 2004,
are as follows:
Year Amount
---- ------
2005 7,870
2006 1,350
2007 1,350
2008 3,050
----------
13,620
==========
Interest expense for the years ended December 31, 2002, 2003 and 2004
amounted to $ 449, $395 and $243 respectively, and is included in interest
and finance costs in the accompanying consolidated statements of income.
The weighted average interest rate of the above loans during the years
2002, 2003 and 2004, was 4.02%, 3.20% and 3.44%, respectively
9. Accrued Liabilities:
The amounts in the accompanying consolidated balance sheets are analyzed as
follows:
2003 2004
---- ----
Interest and other finance costs 10 85
Vessels' operating and voyage expenses 628 726
General and administrative expenses 249 789
------- ------------
Total 887 1,600
======= ============
10. Commitments and Contingencies:
Various claims, suits, and complaints, including those involving government
regulations and product liability, arise in the ordinary course of the
shipping business. In addition, losses may arise from disputes with
charterers, agents, insurance and other claims with suppliers relating to
the operations of the Company's vessels. Currently, management is not aware
of any such claims or contingent liabilities, which should be disclosed, or
for which a provision should be established in the accompanying
consolidated financial statements.
The Company accrues for the cost of environmental liabilities when
management becomes aware that a liability is probable and is able to
reasonably estimate the probable exposure. Currently, management is not
aware of any such claims or contingent liabilities, which should be
disclosed, or for which a provision should be established in the
accompanying consolidated financial statements. A minimum of up to $1
billion of the liabilities associated with the individual vessels actions,
mainly for sea pollution, are covered by the Protection and Indemnity (P&I)
Club insurance.
In 2001, Maryville entered into a lease agreement for the rental of office
premises with an unrelated party. The initial term of the lease agreement
was for one year and is renewable in successive one-year increments through
2010 at Maryville's option after its initial term. Operating lease payments
for 2002, 2003 and 2004 were $49, $60 and $70, respectively.
11. Common Stock:
The Company's authorized capital stock consists of (a) 49,000,000 shares
(all in registered form) of common stock, par value $0.01 per share (the
"Class A shares"), (b) 1,000,000 shares (all in registered form) of common
stock, par value $0.01 per share (the "Class B shares") and (c) 5,000,000
shares (all in registered form) of preferred stock, par value $0.01 per
share. The Board of Directors shall have the fullest authority permitted by
law to provide by resolution for any voting powers, designations,
preferences and relative, participating, optional or other rights of, or
any qualifications, limitations or restrictions on, the preferred stock as
a class or any series of the preferred stock. The holders of the Class A
shares and of the Class B shares are entitled to one vote per share and to
1,000 votes per share, respectively, on each matter requiring the approval
of the holders of common stock, however each share of common stock shares
in the earnings of the company on an equal basis.
During 2003, the Company acquired 1,300 Common A and 14 Common B shares
with an average price of $1.15 per share. The aggregate cost of the
treasury shares at December 31, 2003 and 2004 of $189, is reflected
separately in the accompanying balance sheets as treasury stock.
11. Common Stock - (continued):
In December 2004 the Company issued and sold 2,200,000 shares of Class A
common stock, registered under its universal shelf registration statement,
to institutional investors at $25.00 per share. The net proceeds to the
Company totaled $51,451.
12. Stock-Based Compensation:
On October 5, 2004, the Company adopted a Stock Option Plan authorizing the
issuance and immediate grant of 100,000 options to purchase Class A common
shares (the "Plan") to the Company's Chief Executive Officer. Under the
terms of the Plan, all stock options granted vest on the third anniversary
of the date upon which the option was granted. The options expire on the
fifth anniversary of the date upon which the option was granted. The
exercise price of the options is the closing price of the Company's common
stock at the grant date, less a discount of 15%.
A summary of the Company's stock option activity is as follows:
2004
----
Weighted-average
Shares exercise price
------ --------------
Outstanding at beginning of year - -
Granted 100,000 31.79
Exercised - -
Forfeited - -
Expired - -
---------- ----------
Outstanding at end of year 100,000 31.79
========== ==========
Options exercisable at year-end - -
========== ==========
The weighted average grant-date fair value of options granted during the
year was $27.91. The weighted-average remaining contractual life of options
outstanding at December 31, 2004 is 4.76 years.
The fair value of options granted, which is amortized to the expense over
the option's vesting period, is estimated on the grant date using the
Black-Scholes option-pricing model.
The weighted average assumptions used in determining the fair value of
options granted in 2004 were:
Expected life of option (years) 3.5
Risk-Free interest rate 3.08%
Expected volatility of the Company's stock 112.75%
Expected dividend yield on Company's stock 0.0%
In 2004, the Company recorded $222 of compensation expense in connection
with all stock-based employee compensation awards.
13. Voyage and Vessel Operating Expenses:
The amounts in the accompanying consolidated statements of income are
analyzed as follows:
2002 2003 2004
---- ---- ----
Voyage Expenses
Port charges 2,829 1,586 1,703
Bunkers 3,336 4,145 3,381
Commissions 825 1,446 2,923
Others 19 135 93
---------- --------- -------
Total 7,009 7,312 8,100
========== ========= =======
Vessel Operating Expenses
Crew wages and related costs 2,527 3,059 3,220
Insurance 686 966 1,181
Repairs, spares and maintenance 1,208 1,363 1,777
Consumable stores 744 930 1,077
Taxes (Note 14) 31 40 49
Miscellaneous 158 171 214
---------- --------- -------
Total 5,354 6,529 7,518
========== ========= =======
14. Income Taxes:
Cyprus, Malta and Liberia do not impose a tax on international shipping
income. Under the laws of Cyprus, Malta and Liberia, the countries of the
companies' incorporation and vessels' registration, the companies are
subject to registration and tonnage taxes which have been included in
vessels' operating expenses in the accompanying consolidated statements of
income.
Pursuant to the Internal Revenue Code of the United States (the "Code"),
U.S. source income from the international operations of ships is generally
exempt from U.S. tax if the company operating the ships meets both of the
following requirements, (a) the Company is organized in a foreign country
that grants an equivalent exception to corporations organized in the United
States and (b) either (i) more than 50% of the value of the Company's stock
is owned, directly or indirectly, by individuals who are "residents" of the
Company's country of organization or of another foreign country that grants
an "equivalent exemption" to corporations organized in the United States
(50% Ownership Test) or (ii) the Company's stock is "primarily and
regularly traded on an established securities market" in its country of
organization, in another country that grants an "equivalent exemption" to
United States corporations, or in the United States (Publicly-Traded Test).
Under the regulations, Company's stock will be considered to be "regularly
traded" on an established securities market if (i) one or more classes of
the its stock representing 50 percent or more of its outstanding shares, by
voting power and value, is listed on the market and is traded on the
market, other than in minimal quantities, on at least 60 days during the
taxable year; and (ii) the aggregate number of shares of our stock traded
during the taxable year is at least 10% of the average number of shares of
the stock outstanding during the taxable year. Treasury regulations under
the Code were promulgated in final form in August 2003.
14. Income Taxes - (continued):
These regulations apply to taxable years beginning after September 24,
2004. As a result, such regulations will be effective for calendar year
taxpayers, like the Company, beginning with the calendar year 2005. Since
the final regulations only came into force and effect beginning with the
calendar year 2005, the Company believes that for 2004 and prior years
satisfies the publicly traded requirements of the statute on the basis that
more than 50% of the value of its stock, as represented by its Class A
shares, are primarily and regularly traded on the American Stock Exchange
and, therefore, the Company and its subsidiaries were entitled to exemption
from U.S. federal income tax, in respect of their U.S. source shipping
income. Beginning with calendar year 2005, when the final regulations will
be in effect, the Company will not satisfy the Publicly-Traded Test because
of the voting power rights held by its Class B shares and therefore
believes it will not be able to qualify for the Code exemption.
Excel Maritime Carriers Ltd. is not subject to corporate income taxes on
its profits in Liberia because its income is derived from non-Liberian
sources. The Company is not subject to corporate income tax in other
jurisdictions.
15. Interest and Finance Costs:
The amounts in the accompanying consolidated statements of income are
analyzed as follows:
2002 2003 2004
---- ---- ----
Interest on long-term debt 449 395 243
Bank charges 45 39 81
Amortization and write-off of financing fees 234 39 39
---- ------ ------
Total 728 473 363
==== ====== =======
16. Earnings Per Common Share
The computation of basic earnings per share is based on the weighted
average number of common shares outstanding during the year. The components
for the calculation of basic and diluted earnings per share are as follows:
2002 2003 2004
---- ---- ----
Income:
Income available to common
hareholders $ 1,089 $ 8,645 $ 32,050
Basic earnings per share:
Weighted average common shares
outstanding - basic
11,550,984 11,532,725 11,640,058
Diluted earnings per share:
Weighted average common shares
outstanding - diluted
11,550,984 11,532,725 11,640,058
Basic earnings per common share $ 0.09 $ 0.75 $ 2.75
Diluted earnings per common share $ 0.09 $ 0.75 $ 2.75
16. Earnings Per Common Share - (continued):
The 2004 diluted earnings per share calculation exclude stock options that
are convertible into 100,000 Class A common shares for the year ended
December 31, 2004. The exclusion occurs because the exercise price of these
instruments was greater than the average market price of the Company's
common stock and their inclusion would have been anti-dilutive.
17. Financial Instruments:
The principal financial assets of the Company consist of cash on hand and
at banks and accounts receivable due from charterers. The principal
financial liabilities of the Company consist of long-term bank loans and
accounts payable due to suppliers.
(a) Interest rate risk: The Company's interest rates and long-term loan
repayment terms are described in Note 8.
(b) Concentration of credit risk: Financial instruments, which potentially
subject the Company to significant concentrations of credit risk
consist principally of cash and trade accounts receivable. The Company
places its temporary cash investments, consisting mostly of deposits,
with high credit qualified financial institutions. The Company
performs periodic evaluations of the relative credit standing of those
financial institutions with which it places its temporary cash
investments. The Company does not require collateral from customers
from whom amounts are due. Credit risk with respect to trade accounts
receivable is generally diversified due to the large number of
entities comprising the Company's charterer base and their dispersion
across many geographic areas.
(c) Fair value: The carrying amounts reflected in the accompanying
consolidated balance sheets of temporary cash investments and accounts
receivable approximate their respective fair values due to the short
maturities of these amounts. The fair values of long-term bank loans
approximate the recorded values, due to their variable interest rates.
18. Subsequent Events:
(a) Purchases of vessels: On January 24, 2005, Ingram signed a Memorandum
of Agreement for the purchase of the 45,572 DWT, 1998 built, dry bulk
carrier vessel Emerald for an amount of $30,000. The expected delivery
date of the vessel is April 2005. On January 28, 2005 the company made
an advance payment (10% of purchase price) of $3,000 and the remaining
balance is payable on delivery of the vessel.
18. Subsequent Events (continued):
On January 14, 2005, Whitelaw signed a Memorandum of Agreement for the
purchase of the 71,504 DWT, 1993 built, dry bulk carrier vessel Birthday
for an amount of $32,000. The expected delivery date of the vessel is April
2005. On January 28, 2005 the company made an advance payment (10% of
purchase price) of $3,200 and the remaining balance is payable on delivery
of the vessel.
On February 22, 2005, Castalia signed a Memorandum of Agreement for the
purchase of the 38,858 DWT, 1994 built, dry bulk carrier vessel Princess I
for an amount of $25,600. The expected delivery date of the vessel is May
2005. On February 25, 2005 the company made an advance payment (10% of
purchase price) of $2,560 and the remaining balance is payable on delivery
of the vessel.
(b) New Credit Facility: On February 16, 2005, Ingram, Whitelaw, Teagan,
Fianna and Castalia, concluded a credit facility with a bank, the
aggregate amount of which will not exceed the lower of (a) $95,000 or
(b) 60% of the aggregate market value of the vessels owned by Ingram,
Whitelaw, Teagan, Fianna and Castalia. The facility is available until
September 30, 2005 and the interest rate on the amounts drawn will be
at LIBOR plus a margin. The facility is payable in equal quarterly
installments starting three months after the delivery of each vessel,
plus a balloon payment at maturity.
(c) Delivery of vessels and drawdown of loans: On January 3, 2005 the
vessel Goldmar discussed in Note 5 was delivered to Pisces.
On January 24, 2005 the vessel Swift was delivered to Liegh. On January 21,
Leigh drew down $7,750 of the bank loan discussed in Note 8(c) and, on the
same date, the then outstanding balance of the vessel's purchase price of
$10,072 was paid to the sellers.
On February 22, 2005 the vessel Isminaki was delivered to Fianna. On
February 22, 2005 Fianna drew down $23,850 of the credit facility discussed
in (b) above and, on the same date, the then-outstanding balance of the
vessel's purchase price of $33,787 was paid to the sellers.
(d) Newly Established Wholly Owned Subsidiaries: On January 4, 2005, the
Company established Yasmine International Inc. ("Yasmine"). Yasmine
was incorporated in the Republic of Liberia. On February 14, 2005, the
Company established Barland Holdings Inc. ("Barland"), Fountain
Services Ltd. ("Fountain") and Candy Enterprises Inc. ("Candy").
Barland, Fountain and Candy were incorporated in the Republic of
Liberia. The above subsidiaries will become the owners of dry bulk
carrier vessels to be acquired.
18. Subsequent Events (continued):
(e) Termination of the Management Agreement with Excel Management Ltd: On
March 2, 2005 the Company's Board of Directors approved, effective
January 1, 2005, the termination of the management agreement with
Excel Management Ltd. (the "Manager"), which, under the agreement's
original terms, would have expired on April 30, 2008. In this respect
the Company has agreed to sell to the Manager, as compensation for
agreeing to terminate the management agreement and foregoing the fees
it would have received under the management agreement, 1.5% of the
Company's total outstanding Class A common stock as of March 2, 2005
(205,442 shares of Class A Common Stock with a value of $4,957 based
on the March 2, 2005 closing price), subject to dilution protection
and restrictions on transferability, for the amount of $2,024.
(f) Conclusion of Brokering Agreement with Excel Management Ltd.: On March
4, 2005, the Company concluded a brokering agreement with Excel
Management Ltd. under which Excel Management Ltd. is appointed as the
Company's broker to provide services for the employment and chartering
of the Company's vessels, for a commission fee equal to 1.25% of the
revenue of each contract Excel Management Ltd. has brokered. The
agreement is effective January 1, 2005 for an initial period of one
year and will be automatically extended for successive one year
periods, unless written notice by either party is given at least one
year prior to the commencement of the applicable one year extension
period.
(g) Conclusion of a Memorandum of Agreement (Unaudited): On March 7, 2005,
Barland, one of the Company's newly established wholly owned
subsidiaries, signed a Memorandum of Agreement for the purchase of the
41,524 DWT, 1985 built, dry bulk carrier vessel Attractive for an
amount of $15,500.
Schedule I - Condensed Financial Information of Excel Maritime Carriers Ltd.
BALANCE SHEETS DECEMBER 31, 2003 AND 2004
(Expressed in thousands of U.S. Dollars - except share and per share data)
ASSETS 2003 2004
- ------ ---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 1 $51,890
Investments 26,501 58,963
Prepayments and other 1 225
-------- --------
Total assets $26,503 $ 111,078
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Intercompany account $12,197 $ 12,628
Accounts payable 32 323
Accrued liabilities 116 246
-------- -------
12,345 13,197
........ ........
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.01 par value: 5,000,000 shares - -
authorized, none issued Common stock, $0.01 par
value; 49,000,000 A Class shares and 1,000,000 B
Class shares authorized; 11,496,153 A Class shares
and 114,946 B Class shares and outstanding at
December 31, 2003; 13,696,153 A Class shares and
114,946 B Class shares issued and outstanding at
December 31, 2004. 116 138
Additional paid-in capital 12,086 63,737
Retained earnings 2,078 34,128
------- -------
14,280 98,003
Less: Treasury stock, 40,100 A Class shares (122) (122)
------- -------
Total stockholders' equity 14,158 97,881
....... ........
Total liabilities and stockholders' equity $26,503 $ 111,078
======= ========
Schedule I - Condensed Financial Information of Excel Maritime Carriers Ltd.
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
(Expressed in thousands of U.S. Dollars--except for share and per share data)
2002 2003 2004
---- ---- ----
REVENUES:
Equity in net income of subsidiaries 1,139 8,945 32,462
Interest income 30 - 70
Gain on sale of subsidiary 108 - -
EXPENSES:
Foreign exchange losses - - 2
General and administrative expenses 188 300 480
----------- ----------- --------
Net Income 1,089 8,645 32,050
=========== =========== ========
Earnings per common share, basic 0.09 0.75 2.75
=========== =========== ========
Weighted average number of common
shares, basic 11,550,984 11,532,725 11,640,058
=========== =========== ==========
Earnings per common share, diluted 0.09 0.75 2.75
=========== =========== ==========
Weighted average number of common
shares, diluted 11,550,984 11,532,725 11,640,058
========== ========== ==========
<table>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF EXCEL MARITIME CARRIERS LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31 2002,
2003 AND 2004
(Expressed in thousands of U.S. Dollars - except share and per share data)
<caption>
Common Stock
-------------------
Accumulated
Comprehensive Additional Other Total
Income # of Par Paid-in Retained Comprehensive Treasury Stockholders'
(Loss) Shares Value Capital Earnings Income (Loss) Total Stock Equity
------ ------ ------ ------- -------- ------------- ----- ----- ------
BALANCE,
December 31, 2001 11,611,099 116 12,086 18,542 (1,502) 29,242 (122) 29,120
- Net income 1,089 - - - 1,089 - 1,089 - 1,089
-Cumulative
translation
adjustments
relating to
subsidiary
disposed of (1,502) - - - (1,502) 1,502 - - -
- Dividends paid
($2.15 per share) - - - - 24,696) - (24,696) - (24,696)
--------
Comprehensive
income (413)
=========
BALANCE, ---------- ----- --------- --------- ---------- ------- ------- -----------
December 31, 2002 11,611,099 116 12,086 (6,567) - 5,635 (122) 5,513
- Net income 8,645 - - - 8,645 - 8,645 - 8,645
---------
Comprehensive
income 8,645
=========
BALANCE, ---------- ----- --------- --------- ---------- ------- ------- -----------
December 31, 2003 11,611,099 116 12,086 2,078 - 14,280 (122) 14,158
- Net income 32,050 - - - 32,050 - 32,050 - 32,050
- Issuance of
common stock - 2,200,000 22 54,978 - - 55,000 - 55,000
- Expenses
relating to the
issuance of
common stock - - - (3,549) - - (3,549) - (3,549)
- Stock-based
compensation
expense - - 222 - - 222 - 222
---------
Comprehensive 32,050
income
==========
BALANCE, ---------- ----- --------- --------- ---------- ------- ------- -----------
December 31, 2004 13,811,099 138 63,737 34,128 - 98,003 (122) 97,881
========== ===== ========= ========= ========== ======= ======= ===========
</table>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF EXCEL MARITIME CARRIERS LTD.
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 2002, 2003 AND 2004
(Expressed in thousands of U.S. Dollars)
2002 2003 2004
---- ---- ----
Cash Flows from Operating Activities:
Net income $ 1,089 $ 8,645 $ 32,050
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Undistributed earnings of subsidiaries (1,139) (8,945) (32,462)
Stock-based compensation expense - - 222
Increase (Decrease) in:
Prepayments and other (1) - (224)
Intercompany account 4,653 3,777 431
Accounts payable (7) (1) 291
Accrued liabilities 79 - 130
-------- -------- ------
Net Cash from Operating Activities 4,674 3,476 438
........ ........ ......
Cash Flows from Investing Activities:
Proceeds from sale of subsidiary 21,200 - -
Disposal of subsidiary, net of
cash disposed of (4,666) - -
-------- -------- -----
Net Cash from in Investing Activities 16,534 - -
........ ........ ......
Cash Flows from Financing Activities:
Proceeds of long-term debt 7,089
Payments of long-term debt (3,589) (3,500) -
Issuance of common stock - - 51,451
Dividends paid (24,696) - -
------- -------- -------
Net Cash from (used in) Financing Activities (21,196) (3,500) 51,451
........ ........ .......
Net increase (decrease) in cash and
cash equivalent 12 (24) 51,889
Cash and cash equivalents at beginning of year 13 25 1
------- -------- -------
Cash and cash equivalents at end of year $ 25 $ 1 $ 51,890
======== ======= =======
Schedule I - Condensed Financial Information of Excel Maritime Carriers Ltd.
In the Parent Company only financial statements, the Company's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. The Company, during the years ended
December 31, 2002, 2003 and 2004, received cash dividends of $0, $0, $0,
respectively. The Parent Company only financial statements should be read in
conjunction with the Company's consolidated financial statements.
ITEM 19 - EXHIBITS
Exhibit
Number Description
- ------ -----------
11 Code of Ethics
12.1 Certification of Chief Executive Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934,
as amended
12.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended
13.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
13.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
15.1 Consent of Independent Registered Public Accounting Firm.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
Excel Maritime Carriers Ltd.
/s/ Christopher Georgakis
---------------------
Chief Executive Officer
Date June 29, 2005
02545.0001 #582789