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, 2005
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
OR
[_] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report: Not applicable
EXCEL MARITIME CARRIERS LTD.
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(Exact name of Registrant as specified in its charter)
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(Translation of Registrant's name into English)
LIBERIA
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(Jurisdiction of incorporation or organization)
c/o Excel Maritime Carriers Ltd.
Par La Ville Place
14 Par La Ville Road
Hamilton HM JX Bermuda
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which registered
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Common shares, par value $0.01 New York 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
Indicate the number of outstanding shares of each of the
issuer's classes of capital or common stock as
of the close of the period covered by the annual report:
As of December 31, 2005, there were 19,595,153 shares of Class A common
shares and 114,946 Class B common shares of the registrant outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
|_| Yes |X| No
If this report is an annual report or transition report, indicate by check mark
if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.
|_| Yes |X| No
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
requirements for the past 90 days.
|X| Yes |_| No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
Large accelerated filer |_| Accelerated filer |X| Non-accelerated filer |_|
Indicate by check mark which financial statement item the registrant has elected
to follow.
|_| Item 17 |X| Item 18
If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
|_| Yes |X| No
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 harbor
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, changes in income tax legislation 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
A. 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, 2005. 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, 2004 and 2005 by
Ernst & Young (Hellas) Certified Auditors Accountants S.A. ("Ernst & Young"),
independent registered public accounting firm, and for the year ended December
31, 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
($ in thousands, except per share data Year Ended December 31,
and Average Daily Results)
2001 2002 2003 2004 2005
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INCOME STATEMENT DATA
Voyage revenues 25,938 15,602 26,094 51,966 118,082
Revenues from managing related party 584 385 527 637 522
vessels
Investment income 11,440 - - - -
Voyage expenses (10,956) (7,009) (7,312) (8,100) (11,693)
Voyage Expenses - related Party - - - - (1,412)
Vessel operating expenses (6,849) (5,354) (6,529) (7,518) (24,215)
Depreciation and amortization (1,419) (1,080) (1,548) (1,713) (20,714)
Management Fees - related party (788) (225) (260) (270) -
General and administrative expenses 73 (1,294) (1,772) (2,867) (6,520)
Gain/(Loss) on sale of vessels (423) 569 - - 26,795
Contract Termination Expense - - - - (4,963)
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Operating Income 17,600 1,594 9,200 32,135 75,882
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Interest and finance costs, net (1,422) (669) (461) (61) (7,878)
Provision for loss on sale of subsidiary (9,300) - - - -
Other, net 55 164 (94) (24) 66
US Source Income Taxes - - - - (311)
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Net Income 6,933 1,089 8,645 32,050 67,759
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Basic and fully diluted earnings per share 0.60 0.09 0.75 2.75 3.64
Weighted average basic and diluted
shares outstanding 11,514,950 11,550,984 11,532,725 11,640,058 18,599,876
Dividends per share - 2.15 - - -
BALANCE SHEET DATA
Cash and cash equivalents 10,131 1,949 3,958 64,903 58,492
Current assets, including cash 41,908 3,157 5,525 71,376 70,547
Total assets 55,465 21,435 24,083 113,997 561,025
Current liabilities, including current
portion of long-term debt 26,488 5,896 4,121 10,566 51,450
Total long-term debt, excluding current portion - 10,090 5,870 5,616 221,586
Stockholders' equity 28,977 5,449 14,092 97,815 287,989
($ in thousands, except per share data Year Ended December 31,
and Average Daily Results)
2001 2002 2003 2004 2005
OTHER FINANCIAL DATA
Net cash from (used in) operating activities 9,540 (260) 8,887 32,033 73,639
Net cash from (used in) investing activities (232) 11,996 - (26,220) (417,743)
Net cash from (used in) financing activities 7 (20,771) (6,878) 55,132 337,693
FLEET DATA
Average number of vessels (1) 5.5 4.2 5.0 5.0 14.4
Available days for fleet (2) 2,008 1,458 1,686 1,793 5,070
Calendar days for fleet (3) 2,008 1,524 1,825 1,830 5,269
Fleet utilization (4) 100.0% 95.7% 92.4% 98.0% 96.2%
AVERAGE DAILY RESULTS
Time charter equivalent (5) 7,461 5,894 11,140 24,465 20,705
Vessel operating expenses(6) 3,411 3,513 3,578 4,108 4,596
General and administrative expenses (7) 936 968 1,082 1,692 1,260
Total vessel operating expenses (8) 4,347 4,481 4,660 5,800 5,856
(1) 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.
(2) 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, dry-dockings or special or intermediate
surveys.
(3) 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,
dry-dockings or special or intermediate surveys.
(4) 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.
(5) 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
voyage revenues (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. The following table reflects the calculation
of our TCE rates for the periods presented.
$ in thousands, except per for TCE rates, Year Ended December 31,
which are expresses in $, and voyage days
2001 2002 2003 2004 2005
---- ---- ---- ---- ----
Voyage revenues 25,938 15,602 26,094 51,966 118,082
Voyage expenses (10,956) (7,009) (7,312) (8,100) (13,105)
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Time charter equivalent revenue 14,982 8,593 18,782 43,866 104,977
============= ============= ============ ============= =============
Available days for fleet 2,008 1,458 1,686 1,793 5,070
Time charter equivalent (TCE) rate 7,461 5,894 11,140 24,465 20,705
(6) 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.
(7) Daily general and administrative expense is calculated by dividing general
and administrative expense by fleet calendar days for the relevant time
period.
(8) 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.
B. Capitalization and Indebtedness
Not Applicable.
C. Reasons For the Offer and Use of Proceeds
Not Applicable.
D. Risk Factors
Some of the following risks relate principally to the industry in which we
operate and our business in general. The risks and uncertainties described below
are not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial also may impair our business
operations. If any of the following risks occur, our business, financial
condition, operating results and cash flows could be materially adversely
affected and the trading price of our securities could decline.
The cyclical nature of the shipping industry may lead to volatile changes in
freight rates and vessel values which may adversely affect our earnings.
We are an independent shipping company that operates in the dry bulk
shipping markets. One of the factors that impacts our profitability is the
freight rates we are able to charge. The dry bulk shipping industry is cyclical
with attendant volatility in charter hire rates and profitability. The degree of
charter hire rate volatility among different types of dry bulk vessels has
varied widely, and charter hire rates for dry bulk vessels have recently
declined from historically high levels. Fluctuations in charter rates result
from changes in the supply and demand for vessel capacity and changes in the
supply and demand for the major commodities carried by sea internationally.
Because the factors affecting the supply and demand for vessels are outside of
our control and are unpredictable, the nature, timing, direction and degree of
changes in industry conditions are also 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 vessel casualties;
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.
We anticipate that the future demand for our dry bulk vessels will be
dependent upon continued economic growth in the world's economies, including
China and India, seasonal and regional changes in demand, changes in the
capacity of the global dry bulk fleet and the sources and supply of dry bulk
cargo to be transported by sea. The capacity of the global dry bulk carrier
fleet seems likely to increase and there can be no assurance that economic
growth will continue. Adverse economic, political, social or other developments
could have a material adverse effect on our business and operating results.
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 fair market values of our vessels have generally experienced high
volatility. Market prices for second-hand dry bulk vessels have recently been at
historically high levels. You should expect the market values of our vessels to
fluctuate depending on general economic and market conditions affecting the
shipping industry and prevailing charter hire rates, competition from other
shipping companies and other modes of transportation, the types, sizes and ages
of our vessels, applicable governmental regulations and the cost of
new-buildings.
If a determination is made that a vessel's future useful life is limited or
its future earnings capacity is reduced, it could result in an impairment of its
value on our financial statements that would result in a charge against our
earnings and the reduction of our shareholder's equity. If for any reason we
sell our vessels at a time when prices have fallen, the sale may be less than
the vessel's carrying amount on our financial statements, and we would incur a
loss and a reduction in earnings.
Rising fuel prices.
Fuel is a significant, if not the largest, expense in our shipping
operations when vessels are not under period charter. Changes in the price of
fuel may adversely affect our profitability. The price and supply of fuel is
unpredictable and fluctuates based on events outside our control, including
geopolitical developments, supply and demand for oil and gas, actions by OPEC
and other oil and gas producers, war and unrest in oil producing countries and
regions, regional production patterns and environmental concerns. Further, fuel
may become much more expensive in the future, which may reduce the profitability
and competitiveness of our business versus other forms of transportation.
If we violate environmental laws or regulations, the resulting liability may
adversely affect our earnings and financial condition.
Our business and the operation of our 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, we 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 our
vessels. Additional conventions, laws and regulations may be adopted which could
limit our ability to do business or increase the cost of our doing business and
which may materially adversely affect our operations. We are required by various
governmental and quasi-governmental agencies to obtain certain permits, licenses
and certificates with respect to our operations.
The operation of our vessels is affected by the requirements set forth in
the IMO's International Management Code for the Safe Operation of Ships and
Pollution Prevention or 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 invalidate existing insurance or 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 our applicable
vessels is ISM code-certified by Bureau Veritas, and we expect that each other
vessel that we agree to purchase will be ISM code-certified, when delivered to
us. Bureau Veritas has also awarded ISM certification to Maryville Maritime Inc.
or "Maryville", our vessel management company. However, there can be no
assurance that such certification will be maintained indefinitely.
We are subject to inspection by a 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 are currently
enrolled with Bureau Veritas, or BV, Nippon Kaiji Kyokai or NKK, Det Norske
Veritas or DNV and Lloyd's Register of Shipping or LRS.
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. Our 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, we will make a decision to
scrap a vessel or continue operations at the time of a vessel's fifth Special
Survey.
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.
World events outside our control may negatively affect the shipping industry,
which could adversely affect our operations and financial condition.
Terrorist attacks like those in New York on September 11, 2001 and London
on July 7, 2005 and the United States' continuing response to these attacks, as
well as the threat of future terrorist attacks, continue to cause uncertainty in
the world financial markets and may affect our business, results of operations
and financial condition. The continuing conflicts in Iraq and elsewhere may lead
to additional acts of terrorism and armed conflict around the world. In the
past, political conflicts resulted in attacks on vessels, mining of waterways
and other efforts to disrupt international shipping. For example, in October
2002, the VLCC Limburg was attacked by terrorists in Yemen. Acts of terrorism
and piracy have also affected vessels trading in regions such as the South China
Sea. 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. These uncertainties could
adversely affect our ability to obtain additional financing on terms acceptable
to us or at all. In addition, future hostilities or other political instability
in regions where our vessels trade could affect our trade patterns. Any of these
occurrences could have a material adverse impact on our operating results,
revenue, and costs.
We are dependent on voyage charters in the spot market and short-term time
charters in the time charter market, which are volatile.
We currently charter some of our vessels on a voyage charter, which are
charters for one specific voyage, and short-term time charter basis. A
short-term time charter is a charter with a term of less than six months.
Although dependence on voyage charters and short-term time charters is not
unusual in the shipping industry, the voyage charter and short-term time charter
markets are highly competitive and rates within those markets may fluctuate
significantly based upon available charters and the supply of and demand for sea
borne shipping capacity. While our focus on the voyage and short-term time
charter markets may enable us to benefit if industry conditions strengthen, we
must consistently procure this type of charter business to obtain these
benefits. Conversely, such dependence makes us vulnerable to declining market
rates for this type of charters.
Moreover, to the extent our vessels are employed in the voyage charter
market our voyage expenses will be more significantly impacted by increases in
the cost of bunkers (fuel). Unlike time charters in which the charterer bears
all of the bunker costs, in voyage charters we bear the bunker costs, port
charges and canal dues. As a result, increases in fuel costs in any given period
could have a material adverse effect on our cash flow and results of operations
for the period in which the increase occurs.
There can be no assurance that we will be successful in keeping all our
vessels fully employed in these short-term markets or that future spot and
short-term charter rates will be sufficient to enable our vessels to be operated
profitably.
A drop in spot charter rates may provide an incentive for some charterers to
default on their time charters.
When we enter into a time charter, charter rates under that time charter
are fixed for the term of the charter. If the spot charter rates in the drybulk
shipping industry become significantly lower than the time charter rates that
some of our charterers are obligated to pay us under our existing time charters,
the charterers may have incentive to default under that time charter or attempt
to renegotiate the time charter, which may adversely affect our operating
results and cash flows by reducing our revenues.
We depend upon a few significant customers for a large part of our revenues. The
loss of one or more of these customers could adversely affect our financial
performance.
We have historically derived a significant part of our revenue from a small
number of charterers. During 2004, we derived approximately 44% of our gross
revenues from four charterers, and during 2005, we derived approximately 41% of
our gross revenues from five charterers.
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.
A decline in the market value of our vessels could lead to a default under our
loan agreements and the loss of our vessels.
When the market value of a vessel declines, it reduces our ability to
refinance the outstanding debt or obtain future financing. Also, declining
vessel values could cause us to breach of some of the covenants under our
financing agreements. In such an event, if we are unable to pledge additional
collateral, or obtain waivers from the lenders, the lenders could accelerate the
debt and in general, if we are unable to service such accelerated debt, we may
have vessels repossessed by our lenders.
Loan agreements may prohibit or impose certain conditions on the payment of
dividends.
Certain of our subsidiaries have entered into a loan facility 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.
We are a holding company, and we depend on the ability of our subsidiaries to
distribute funds to us in order to satisfy our financial obligations.
We are a holding company and our subsidiaries conduct all of our operations
and own all of our operating assets. We have no significant assets other than
the equity interests in our subsidiaries. As a result, our ability to satisfy
our financial obligations depends on our subsidiaries and their ability to
distribute funds to us. The ability of a subsidiary to make these distributions
could be affected by a claim or other action by a third party, including a
creditor, or by the law of the jurisdiction of their incorporation, which
regulates the payment of dividends by companies.
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.
Our ability to successfully implement our business plans depends on our ability
to obtain additional financing, which may affect the value of your investment in
the Company.
We will require substantial additional financing to fund the acquisition of
additional vessels and to implement our business plans. We cannot be certain
that sufficient financing will be available on terms that are acceptable to us
or at all. If we cannot raise the financing we need in a timely manner and on
acceptable terms, we may not be able to acquire the vessels necessary to
implement our business plans and consequently you may lose some or all of your
investment in the company.
While we expect that a significant portion of the financing resources
needed to acquire vessels will be through long term debt financing, we may raise
additional funds through additional equity offerings. New equity investors may
dilute the percentage of the ownership interest of existing shareholders in the
company. Sales or the possibility of sales of substantial amounts of shares of
our common stock in the public markets could adversely affect the market price
of our common stock.
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 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.
Risk of loss and lack of adequate 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 may occur due to
political circumstances in foreign countries, hostilities, labour strikes, and
boycotts. Any such event may result in loss of revenues or increased costs.
Our business is affected by a number of risks, including mechanical failure
of our 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. The United
States Oil Pollution Act of 1990, or 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.
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 believe that our insurance
coverage is adequate to protect us against most accident-related risks involved
in the conduct of our business and that we maintain 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 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.
Our recent growth will impose significant additional responsibilities on us that
we may not be able to meet if we cannot hire and retain qualified personnel.
With our recent acquisitions, we have more than tripled the size of our
fleet. This has imposed significant additional responsibilities on our
management and staff, and, together with the recent termination of our
management agreement with Excel Management Ltd., has imposed significant
additional responsibilities on the management and staff of our wholly-owned
subsidiary Maryville's Maritime Inc. Although we believe that our current
staffing levels are adequate, future events that we cannot predict may require
both us and Maryville to 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 qualified personnel could adversely affect
our results of operations.
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 430 seafarers and 57 land-based employees in our
Athens office. The 57 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.
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.
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, (the "New Act"), which repealed, in its entirety, the prior
income tax law, (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%.
Our obligations to issue shares of Class A common stock to Excel Management
under the terms of our management termination agreement are dilutive to our
other investors.
In the management termination agreement that we entered into in early March
2005 with Excel Management, we agreed to issue to Excel Management 205,442
shares of our Class A common stock, which is approximately 1.5% of the total
number of shares of our Class A common stock outstanding on March 2, 2005. We
further agreed to issue to Excel Management, at any time at which we issue
additional shares of our Class A common stock to any third party for any reason,
such number of additional shares of Class A common stock which, together with
the shares of Class A common stock issued to Excel Management in the original
issuance, equals 1.5% of our total outstanding Class A common stock after taking
into account the third-party issuance and the shares to be issued to Excel
Management under the anti-dilution provisions of the agreement. We will not
receive any consideration from Excel Management for any shares of Class A common
stock issued by us to Excel Management pursuant to an anti-dilution issuance
other than that already received. Our obligation with respect to anti-dilution
issuances ends on December 31, 2008. 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 shareholders.
Issuance of preferred stock may adversely affect the voting power of the our
shareholders and have the effect of discouraging, delaying or preventing a
merger or acquisition, which could adversely affect the market price of our
common stock.
Our articles of incorporation currently authorize our board of directors to
issue preferred shares in one or more series and to determine the rights,
preferences, privileges and restrictions, with respect to, among other things,
dividends, conversion, voting, redemption, liquidation and the number of shares
constituting any series without shareholder approval. If our board of directors
determines to issue preferred shares, such issuance may discourage, delay or
prevent a merger or acquisition that shareholders may consider favorable. The
issuance of preferred shares with voting and conversion rights may also
adversely affect the voting power of the holders of common shares. This could
substantially impede the ability of public shareholders to benefit from a change
in control and, as a result, may adversely affect the market price of our common
stock and your ability to realize any potential change of control premium.
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 85% 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. Even though we are not aware of
any agreement, arrangement or understanding by the holders of our Class B common
shares relating to the voting of their shares of common stock, the holders of
our Class B common shares have the power to exert considerable influence over
our actions.
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.
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.
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.
ITEM 4 - INFORMATION ON THE COMPANY
A. History and development of 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 as of September 15, 2005 on the New York Stock Exchange
(NYSE) under the symbol "EXM". Prior to that date our Class A common stock was
trading on the American Stock Exchange (AMEX) under the same symbol.
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 17th km National
Road Athens-Lamia & Finikos Str., 145 64, Nea Kifisia, Athens, Greece. Our
telephone number at that address dialing from the U.S. is (011) 30210 818 7000.
B. Business Overview
As of December 31, 2005, our fleet consisted of 17 dry bulk carriers,
comprised of ten Panamax and seven Handymax vessels, representing a carrying
capacity of approximately 1,005,000 dwt. The average age of our vessels as of
December 2005 was 12.8 years. Our vessels carry iron ore, coal and grains,
collectively referred to as "major bulks", and steel products, fertilizers,
cement, bauxite, sugar and scrap metal, collectively referred to as "minor
bulks".
Our fleet is managed by Maryville Maritime Inc., one of our wholly-owned
subsidiaries.
Our Fleet
The following is a list of the vessels in our fleet, all of which are dry
bulk carriers:
Vessel Name DWT Year Built Type
- ----------- --- ---------- ----
Isminaki 74,577 1998 Panamax
Angela Star 73,798 1998 Panamax
Elinakos 73,751 1997 Panamax
Rodon 73,670 1993 Panamax
Happy Day 71,694 1997 Panamax
Birthday 71,504 1993 Panamax
Renuar 70,128 1993 Panamax
Powerful 70,083 1994 Panamax
Fortezza 69,634 1993 Panamax
First Endeavour 69,111 1994 Panamax
Emerald 45,572 1998 Handymax
Marybelle 42,552 1987 Handymax
Attractive 41,524 1985 Handymax
Lady 41,090 1985 Handymax
Goldmar 39,697 1984 Handymax
Princess I 38,858 1994 Handymax
Swift 37,687 1984 Handymax
Total 1,004,930 dwt
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
economic 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.
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
2005, we derived approximately 41% of our gross revenues from five
charterers (out of which 12% was derived from one charterer).
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.
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. Our
brokering agreement with Excel Management is discussed in more detail in
Operations & Ship Management below.
The names of our wholly-owned subsidiaries that own vessels and the vessel
each owns are as follows:
Subsidiaries as of December 31, 2005
Subsidiary Vessel
- ---------- ------
Fianna Navigation S.A. Isminaki
Marias Trading Inc. Angela Star
Yasmine International Inc. Elinakos
Tanaka Services Ltd. Rodon
Amanda Enterprises Ltd. Happy Day
Whitelaw Enterprises Co. Birthday
Candy Enterprises Inc. Renuar
Fountain Services Ltd. Powerful
Teagan Shipholding S.A. First Endeavor
Harvey Development Corp. Fortezza
Ingram Limited Emerald
Snapper Marine Ltd. Marybelle
Barland Holding Inc. Attractive
Centel Shipping Co. Ltd. Lady
Pisces Shipholding Ltd. Goldmar
Castalia Services Ltd. Princess I
Liegh Jane Navigation S.A. Swift
We have also established the following companies to acquire vessels:
Country of
Company incorporation Date of incorporation
- ------- ------------- ---------------------
Magalie Investments Corp. Liberia March 2005
Melba Management Ltd. Liberia April 2005
Minta Holdings S.A. Liberia April 2005
Odell International Ltd. Liberia April 2005
Naia Development Corp. Liberia April 2005
The names of our wholly owned subsidiaries that owned vessels which were
sold during 2005 are as follows:
Subsidiary Vessel
- ---------- ------
Tortola Shipping Company Limited Lucky Lady
Storler Shipping Company Limited Petalis
Becalm Shipping Company Limited Fighting Lady
Madlex Shipping Company Limited Almar I
Operations and 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 became a
wholly-owned subsidiary of ours on March 31, 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 has
been 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 17 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
205,442 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 initially
agreed to issue these shares to Excel Management by March 2, 2006. On March 6,
2006, we reached an agreement with Excel Management to extend the issuance of
such shares by March 2, 2007. 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
agreed to issue to Excel Management, at any time at which we issue additional
shares of our Class A common stock to any third party until December 31, 2008
for any reason, such number of additional shares of Class A common stock which,
together with the shares of Class A common stock issued to Excel Management in
the original issuance, equals 1.5% of our total outstanding Class A common stock
after taking into account the third-party issuance and the shares to be issued
to Excel Management under the anti-dilution provisions of the agreement. 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 205,442 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 $2.0
million 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. To date,
these shares have not been issued and we have not received the related payment
from Excel Management. The fair value of the 205,442 Class A common shares to be
issued under the termination agreement and the fair value of the anti-dilution
provisions totalled $7.0 million.
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). Under a recently proposed
legislation OPA liability limits will be increased, when such legislation is
enacted, to the greater of $950.0 per gross tonne or $0.8 million per dry bulk
carrier that is over 300 gross tonnes (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 have a material
adverse effect on our business.
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 $6.5 million plus approximately $913.0
per gross registered tonne above 5,000 gross tonnes with an approximate maximum
of $129.9 million per vessel, with the exact amount tied to a unit of account
which varies according to a basket of currencies, based on currency exchange
rates on March 20, 2006. 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 2005, dry bulk trade growth increased by approximately 4%. 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 2005 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 2005 by approximately 7% in
terms of dwt to 345 million. Scrapping of vessels for 2005 was again at a low
level at 1 million dwt as most of the owners elected to take advantage of the
favorable shipping markets instead of scrapping their vessels.
After three consecutive years in which demand for seaborne trade has grown
faster than new-building supply, the situation was reversed in 2005. While
demand growth slowed, a new all-time high for new-building deliveries, together
with minimal scraping, resulted in a weaker market in 2005.
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 2005, we
derived approximately 41% of our gross revenues from five charterers listed
below:
Daeyang Shipping Co., Ltd 12%
Bunge Global Markets SpA 8%
Fratelli D'Amato SpA 8%
Korea Line Corporation 7%
F.H. Bertling Reederei GmbH 6%
---------------
Total 41%
---------------
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.
C. Organizational Structure
We are the parent company of the following subsidiaries:
Subsidiary Place of Incorporation Percentage of Ownership
- ---------- ---------------------- -----------------------
Maryville Maritime Inc. Liberia 100%
Point Holdings Ltd. (1) Liberia 100%
(1) As of December 31, 2005, Point Holdings Ltd. is the parent company
(100% owner) of one Cyprus vessel owning company, twenty one Liberian vessel
owning companies and four Cyprus former vessel owning companies
D. Property, plant and equipment
We do not own any real estate property. Our management agreement with our
wholly-owned subsidiary Maryville Maritime Inc includes terms under which we and
our subsidiaries are being offered office space, equipment and secretarial
services at the 17th km National Road Athens-Lamia & Finikos Str., Nea Kifisia,
Athens, Greece. Maryville has a rental agreement for the rental of these office
premises with an unrelated party.
ITEM 4A - UNRESOLVED STAFF COMMENTS
None.
ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following management's discussion and analysis of the results of our
operations and our financial condition should be read in conjunction with the
financial statements and the notes to those statements included elsewhere in
this report. This discussion includes forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of many factors,
such as those set forth in the "Risk Factors" section and elsewhere in this
report.
A. Operating Results
Factors Affecting Our Results of Operations
Voyage 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 and related party voyage expenses
Voyage expenses and related party 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 1st 2005, we reached an agreement with Excel Management Ltd
to terminate our management agreement and the technical and commercial
management of our fleet was assumed by our wholly-owned subsidiary, Maryville.
Results of Operations
Fiscal Year ended December 31, 2005 Compared to Fiscal Year ended December 31,
2004
Voyage Revenues
Voyage revenues increased by $66.1 million or 127.1%, to $118.1 million for
the year ended December 31, 2005 compared to $52.0 million for the same period
in 2004. This increase was primarily attributed to the increase of the total
available days for the fleet to 5,070 for 2005 from 1,793 in 2004. The increase
in total available days was a direct result of the expansion of our fleet from 5
vessels in early 2005, to 17 vessels at the end of 2005.
Voyage Expenses and related party voyage expenses
Voyage expenses and related party 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 by $5.0 million, or 61.7 %, to $13.1 million for 2005,
compared to $8.1 million for 2004. This increase is primarily due to the
increase in commissions paid as a result of higher voyage revenues earned in
2005 as compared to 2004.
Vessel Operating Expenses
Vessel operating expenses, which include crew costs, provisions, deck and
engine stores, lubricating oil, insurance, maintenance and repairs, increased by
$16.7 million, or 222.7%, to $24.2 million for 2005 compared to $7.5 million for
2004. This increase is primarily due to the increase in the vessels of our fleet
from 5 at the end of 2004 to 17 at the end of 2005 and the corresponding
increase in the calendar days of the fleet from 1,830 in 2004 to 5,269 in 2005.
Daily vessel operating expenses per vessel increased by $488, or 11.9 %, to
$4,596 for 2005, compared to $4,108 for 2004. This increase is primarily due to
the increase in the cost of repairs and spares and to the increase in our crew
costs due to the annual pay increases.
Depreciation and Amortization
Depreciation and amortization, which includes depreciation of vessels as
well as amortization of dry docking and special survey costs increased by $19.0
million, or 1,117.6.2% to $20.7 million for 2005 compared to $1.7 million for
2004. This increase is primarily due to the increase of our fleet and calendar
days of our fleet, as described above, and also reflect the partial impact of
the dry-dockings that were performed on the MV Lady and MV Marybelle during
2005.
General and Administrative Expenses
General and administrative expenses, increased by $ 3.5 million, or 112.9%,
to $ 6.6 million for 2005 compared to $3.1 million for 2004. This increase is
primarily due to the increase in salary costs due to (i) the increase in the
number of our shore based staff from 31 at the end of 2004 to 57 at the end of
2005, to (ii) the increase in the overall level of salaries and bonuses paid in
2005 as compared to 2004 and to (iii) the $0.9 million of compensation expenses
recorded in connection with all stock-based employee compensation awards, which
in 2004 it had only accrued for one quarter.
Management fees-related party
As a result of the termination of the management agreement between Excel
Maritime Carriers Ltd and Excel Management (discussed in more detail under the
"Operations and Ship Management" section of this report) in effect from January
1, 2005, no related party management fees were paid in 2005. For 2004, the
related party management fees amounted to $0.3 million.
Gain on sale of vessels
During 2005, the vessels Petalis, Lucky Lady, Fighting Lady and Almar I
were sold for a total consideration of $37.0 million, resulting in a gain of
$26.8 million. No vessel sales had been made in 2004.
Contract Termination Expense
As a result of the termination of the management agreement between Excel
Maritime Carriers Ltd and Excel Management (discussed in more detail under the
"Operations and Ship Management" section of this report), the Company incurred
an expense of approximately $5.0 million representing the excess of the fair
value of the 205,442 Class A shares to be issued and the fair value of the
anti-dilution provisions over the cash consideration of $2.0 million upon
delivery of the shares.
Interest and finance costs, net
Net interest cost amounted to $7.9 million in 2005, an increase of $7.8
million, compared to the $0.06 million in 2004. This change is primarily
attributed to the increased debt of approximately $250.9 million that was put on
our balance sheet as a result of the expansion of our fleet in 2005.
U.S source income taxes
US Source income taxes amounted to $0.3 million for 2005 as against $0 in
2004. For all years prior to 2004, the company had claimed exclusions from the
payment of this tax.
Fiscal Year ended December 31, 2004 Compared to Fiscal Year ended December 31,
2003
Voyage Revenues
Voyage revenues 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 and related party voyage expenses
Voyage expenses and related party 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 $3,578 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.
Management fees-related party
The management fees charged by Excel Management Ltd., a related party, for
the operation of the Company's vessels amounted to $0.3 million both for 2003
and 2004.
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.
B. 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 and proceeds from assets sales, bank indebtedness and sales of
equity securities have historically been the main source of liquidity and have
been sufficient to cover all requirements.
The Company believes that based upon current levels of vessels' employment
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 at least through to December 31st, 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
Net cash from operating activities increased by $41.6 million, to $73.6
million during 2005, compared to net cash from operating activities of $32.0
million during 2004. This increase is mainly attributable to increased cash
flows that resulted from the enlargement of our fleet during 2005.
Investing Activities
The net cash used for investing activities for 2005 amounted to $417.7
million, an increase of $391.5 million from 2004. This increase was primarily
affected by the cash paid for the acquisition of 16 vessels net of proceeds
received from the disposal of four vessels during 2005.
Financing Activities
The net cash from financing activities was $337.7 million during 2005,
compared to net cash from financing activities of $55.1 million during 2004, an
increase of $282.6 million. This increase was primarily attributed to: (i) an
increase of $245.4 million in our net long term debt partially offset by an
increase in restricted cash of $26.2 million and (ii) net proceeds from issuance
of common stock of $116.5 million compared to $51.5 million of such proceeds in
2004.
Summary of Contractual Obligations
The following table sets forth our contractual obligations and their
maturity dates as of December 31, 2005:
Payments due by period
2010 &
Total 2006 2007 2008 2009 Thereafter
----- ---- ---- ---- ---- ----------
Amounts in thousands of U.S Dollars
Long-term debt(1) 264,506 41,685 31,937 28,881 27,112 134,891
Interest Expenses(2) 79,517 16,501 13,997 11,919 10,005 27,095
Rental Payments(3) 1,719 371 430 456 462 -
(1) As of December 31, 2005, the outstanding balance of our long-term debt, net
of deferred financing fees comprised of four credit facilities:
(a) Bank loan for an amount of $27.0 million, concluded in December 2004
to partially finance the acquisition cost of vessels Goldmar, Swift
and Marybelle. The amount outstanding at December 31, 2005 of $21.6
million is repayable in 46 variable instalments from January 2006
through March 2011 plus three balloon payments totalling $4.7 payable
together with each tranche's last instalment.
(b) Bank loan for an amount of $95.0 million, concluded in February 2005
to partially finance the acquisition cost of vessels Isminaki,
Birthday, Emerald, First Endeavour and Princess I. The amount
outstanding at December 31, 2005 of $88.3 million is repayable in 164
variable instalments from February 2006 through May 2015 plus two
balloon payments totalling $8.4 million payable together with the last
instalment of vessels Isminaki and Emerald.
(c) Bank loan for an amount of $170.0 million, concluded in April 2005 to
partially finance the acquisition cost of vessels Elinakos, Happy Day,
Powerful, Renuar, Angela Star, Rodon and Fortezza. The amount
outstanding at December 31, 2005 of $144.5 million is repayable in 233
variable instalments from January 2006 through June 2016 plus seven
balloon payments totalling $34.5 million payable together with each
tranche's last instalment.
(d) Bank loan for an amount of $9.3 million, concluded in June 2005 to
partially finance the acquisition cost of vessel Attractive. The
amount outstanding at December 31, 2005, of $8.4 million is repayable
in 14 equal consecutive quarterly instalments, from February 2006
through May 2009 plus a balloon instalment of $1.9 million payable
together with the last instalment.
(2) Our credit facilities bear interest at LIBOR plus a margin. The average
interest rate (including the margin) at December 31, 2005 was 6.35% for
loan (a), 5.74% for loan (b), 5.66% for loan (c) and 5.87% for loan (d).
For years 2006 and going forward a constant rate of 5.5% plus the
applicable margin has been used, for purposes of presentation of
contractual obligations in the above table.
(3) In 2005, Maryville entered into a lease agreement (further amended in
February 2006), for the rental of new office premises with an unrelated
party. Based on the amended lease agreement, the term of the lease will be
for three years effective February 9, 2006 and the monthly rental will be
approximately $32,000 (Euro 27,000) adjusted annually for inflation
increase plus an additional 1.5%.
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
most 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 evaluate the carrying amounts of vessels to determine if events have
occurred which would require modification to their carrying values. In
evaluating carrying values of vessels, we review certain indicators of potential
impairment, such as undiscounted projected operating cash flows, vessel sales
and purchases, business plans and overall market conditions. We determine
undiscounted projected net operating cash flows for each vessel and compare it
to the vessel's carrying value. If our estimate of undiscounted future cash
flows for any vessel is lower than the vessel's carrying value plus any
unamortized drydocking costs, the carrying value is written down, by recording a
charge to operations, to the vessel's fair market value if the fair market value
is lower than the vessel's carrying value.. We estimate fair market value
primarily through the use of third party valuations performed on an individual
vessel basis.
Vessels' Depreciation
Depreciation begins when the vessel is ready for its intended use, on a
straight-line basis over the vessel's remaining economic useful life, after
considering the estimated residual value (vessel's residual 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. However, when regulations place
limitations over the ability of a vessel to trade on a worldwide basis, its
remaining 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 and special
survey 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 and
special survey are scheduled to become due. Unamortized dry-docking and special
survey 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
Vessels are chartered using either voyage charters, where a contract is
made in the spot market for the use of a vessel for a specific voyage for a
specified charter rate, or time charters, where a contract is entered into for
the use of a vessel for a specific period of time and a specified daily
charterhire rate. If a charter agreement exists and collection of the related
revenue is reasonably assured, revenue is recognized, as it is earned ratably
over the duration of the period of each voyage or time charter. 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 it is earned ratably over the duration of the
period of each voyage charter.
Voyage expenses, primarily consisting of port, canal and bunker expenses
that are unique to a particular charter, are paid for by the charterer under the
time charter arrangements or by us under voyage charter arrangements, except for
commissions, which are always paid for by us, regardless of charter type. All
voyage and vessel operating expenses are expensed as incurred, except for
commissions. Commissions paid to brokers are deferred and amortized over the
related voyage charter period to the extent revenue has been deferred since
commissions are earned as our revenues are earned.
Recently Issued Accounting Standards
Recent Statements of Financial Accounting Standards ("SFAS") issued by the
Financial Accounting Standards Board ("FASB") are summarized as follows:
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 adoption of Statement 123(R) is not expected to have a material
impact on our results of operations, financial position or cash flows.
In May 2005, the FASB issued FASB Statement No. 154, "Accounting Changes
and Error Corrections" (SFAS No. 154). SFAS No. 154 is a replacement of APB
Opinion No. 20, "Accounting Changes" (APB 20) and FASB Statement No. 3,
"Reporting Accounting Changes in Interim Financial Statements" (SFAS No. 3).
SFAS No. 154 provides guidance on the accounting for and reporting of accounting
changes and error corrections. It establishes retrospective application as the
required method for reporting a voluntary change in accounting principle. APB 20
previously required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the change the cumulative
effect of changing to the new accounting principle. SFAS No. 154 provides
guidance for determining whether retrospective application of a change in
accounting principle is impracticable and for reporting a change when
retrospective application is impracticable. SFAS No. 154 also requires that a
change in method of depreciation, amortization, or depletion for long-lived,
nonfinancial assets be accounted for as a change in accounting estimate that is
effected by a change in accounting principle. APB 20 previously required that
such a change be reported as a change in accounting principle. SFAS No. 154
carries forward many provisions of APB 20 without change, including the
provisions related to the reporting of a change in accounting estimate, a change
in the reporting entity, and the correction of an error. SFAS No. 154 also
carries forward the provisions of SFAS No. 3 that govern reporting accounting
changes in interim financial statements. SFAS No. 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 31, 2005. The Company will adopt this pronouncement beginning in
fiscal year 2006.
Recent Developments
- -------------------
On February 9, 2006, the Company's Board of Directors granted the Chairman
of the Board 20,380 Class A or Class B shares at his option. The market value of
Class A shares on the grant date was $11.04 per share. The Chairman requested
and obtained an extension until May 15, 2006 to declare his election. On May 15,
2006, the Company's Board of Directors granted an additional extension to the
Chairman of the Board until November 15, 2006 to declare his election. Such
granting was subject to the consent of the majority of Class B shareholders who
held more than 1,000 Class B shares each. The Company has duly notified the
appropriate Class B shareholders and the required consent has been granted.
On March 2, 2006 based on an addendum to the original Management
Termination agreement concluded between the Company and Excel Management, it was
agreed that the period for the issuance of the shares would be extended until
March 2, 2007.
C. Research and development, Patents and Licenses
Not applicable.
D. Trend Information
Not applicable.
E. Off Balance Sheet Arrangements
We do not engage in off-balance sheet arrangements.
ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth the name, age and position within the
Company of each of its Executive Officers and Directors. On December 30, 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, executive and non-executive
directors within the Company.
Name Age Position
- ---- --- --------
Gabriel Panayotides 51 Chairman and Director
Christopher Georgakis 41 President, Chief Executive
Officer and Director
George Agadakis 52 Vice President, Chief Operating
Officer and Director
Eleftherios Papatrifon 36 Chief Financial Officer
Frithjof Platou 69 Independent Non - Executive Director
Evangelos Macris 55 Independent Non - Executive Director
Apostolos Kontoyannis 55 Independent Non - Executive Director
Trevor J. Williams 62 Independent Non - Executive Director
Georgina E. Sousa 56 Secretary
Biographical information with respect to each of our directors and executive
officers is set forth below.
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 November 1, 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.
Eleftherios Papatrifon, was appointed Chief Financial Officer on January 1,
2005. 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.
Frithjof Platou, a Norwegian citizen, has broad experience in shipping and
project finance, ship broking, ship agency and trading and has served on the
Boards of several companies in the U.K. and Norway. Since 1984, he manages his
own financial consulting and advisory company, Stoud & Co Limited, specialising
in corporate and project finance for the shipping, offshore oil & gas and
various other industries. He was head of the shipping and offshore departments
at Den Norske Creditbank and Nordic Bank as well as at American Express Bank.
Mr. Platou holds a degree in Business Administration from the University of
Geneva, speaks and writes fluent Norwegian, English, French and German, has a
reasonable knowledge of Spanish and a basic understanding of Japanese.
Evangelos Macris is a member of the Bar Association of Athens and is the
founding partner of Evangelos S. Macris Law Office, a Piraeus based office
specializing in Shipping Law. He holds a degree in Economics and Political
Science from the Pantion University in Athens and a Law Degree from the
University of Athens, as well as a post graduate degree in Shipping Law from the
University of London, University College.
Apostolos Kontoyannis is the Chairman of Investments and Finance Ltd., a
financial consultancy firm he founded in 1987, that specializes in financial and
structuring issues relating to the Greek maritime industry, with offices in
Piraeus and London. Previously, he was employed by Chase Manhattan Bank N.A. in
Frankfurt (Corporate Bank), London (Head of Shipping Finance South Western
European Region) and Piraeus (Manager, Ship Finance Group) from 1975 to 1987.
Mr. Kontoyannis holds a bachelors degree in Finance and Marketing and an M.B.A.
in Finance from Boston University.
Trevor 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 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.
B. Compensation
For the year ended December 31, 2005, the Company paid aggregate Directors
fees and secretarial fees of $0.075 million. For the year ended December 31,
2005, the executive officers received aggregate compensation totalling $1.38
million inclusive of annual bonuses as approved by the Compensation Committee.
During 2005 none of the directors or executive officers was entitled to any
termination benefits.
Stock Option Plan
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.
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%.
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, 2005 is 3.76
years.
C. Board Practices
All directors serve until the annual meeting of Shareholders in 2006 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 Company has in the past relied on an exemption from the corporate
governance requirements of the American Stock Exchange that require a listed
company such as the Company 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. The same exemption holds
for the New York Stock Exchange.
The Board and the Company's management have engaged in an ongoing review of
our corporate governance practices in order to oversee our compliance with the
applicable corporate governance rules of the New York Stock Exchange and the
U.S. Securities and Exchange Commission (the "SEC").
The Company has adopted a number of key documents that are the foundation of its
corporate governance, including:
o A Code of Ethics;
o An Audit Committee Charter;
o A Nominating and Corporate Governance Committee Charter.
These documents and other important information on our corporate
governance, including the Board's Corporate Governance Guidelines, are posted in
the "Investor Relations" section of our website, and may be viewed at
http://www.excelmaritime.com. We will also provide any of these documents upon
the written request of a shareholder.
The Board is committed to sound and effective corporate governance practices.
The Board's Corporate Governance Guidelines address a number of important
governance issues such as:
o Selection and monitoring of the performance of the Company's senior
management;
o Succession planning for the Company's senior management;
o Qualification for membership on the Board;
o Functioning of the Board, including the requirement for meetings of
the independent directors; and
o Standards and procedures for determining the independence of
directors.
The Board believes that the Corporate Governance Guidelines and other governance
documents meet current requirements and reflect a very high standard of
corporate governance.
Committees of the Board
The Board has established an Audit Committee, a Compensation Committee and a
Nomination Committee.
Audit Committee
The members of the Audit Committee are Messrs Apostolos Kontoyannis, Frithjof
Platou and Evangelos Macris, each of whom is an independent Director. Mr
Kontoyannis was elected Chairman of the Audit Committee following the July 29,
2005 Board of Directors Meeting. The Audit Committee is governed by a written
charter, which is approved and reviewed by the Board. The Board has determined
that the members of the Audit Committee meet the applicable independence
requirements of the SEC, the American Stock Exchange and the New York Stock
Exchange, that all members of the Audit Committee fulfill the requirement of
being financially literate and that Messrs Apostolos Kontoyanis and Frithjof
Platou are audit committee financial experts as defined under current SEC and
New York Stock Exchange regulations. The Audit Committee is responsible for,
among other things:
o Engaging the Company's external and internal auditors;
o Approving in advance all audit and non-audit services provided by the
auditors;
o Approving all fees paid to the auditors;
o Reviewing the qualification and independence of the Company's external
auditors;
o Reviewing the Company's relationship with external auditors, including
considering audit fees which should be paid as well as any other fees
which are payable to auditors in respect of non-audit activities,
discussing with the external auditors such issues as compliance with
accounting principles and any proposals which the external auditors
have made vis-a-vis the Company's accounting principles and standards
and auditing standards;
o Overseeing the Company's financial reporting and internal control
functions;
o Overseeing the Company's whistleblower's process and protection; and
o Overseeing general compliance with related regulatory requirements.
Compensation Committee
The members of the Compensation Committee are Messrs. Frithjof Platou, Apostolos
Kontoyannis, and Evangelos Macris, each of whom is an independent Director. Mr
Platou is Chairman of the Committee. The Compensation Committee is appointed by
the Board and is responsible for:
o Reviewing and approving corporate goals and objectives relevant to CEO
compensation, evaluate the CEO's performance in light of those goals
and objectives, and recommend to the Board the CEO's overall
compensation.
o Reviewing and approving the composition, the annual base salaries and
the annual incentive opportunities of the Senior Management Team. In
addition, periodically and as and when appropriate, the Compensation
Committee shall review and approve the following as they affect the
CEO and the Senior Executives: (a) all other incentive awards and
opportunities, including both cash-based and equity-based awards and
opportunities; (b) any employment agreements and severance
arrangements;
o Producing a Compensation Committee report on executive officer
compensation as required by the SEC.
o Monitoring the Company's compliance with the requirements under the
Sarbanes-Oxley Act of 2002 relating to retirement plans and loans to
directors and officers and with all other applicable laws affecting
employee compensation and benefits;
o Overseeing the Company's compliance with the requirement under NYSE
rules that shareholders approve equity compensation plans, with
limited exceptions;
Nomination and Corporate Governance Committee
The members of the Nomination Committee are Messrs Evangelos Macris, Apostolos
Kontoyannis and Trevor Williams. Mr Macris is Chairman of the Committee. The
Nomination Committee is appointed by the Board and is responsible for: o
assisting the Board by identifying individuals qualified to become Board
members, consistent with criteria approved by the Board and to recommend to the
Board the director nominees for the next annual meeting of shareholders;
o recommending to the Board the corporate governance guidelines
applicable to the Company;
o leading the Board in its annual review of the Board's performance; and
o recommending the structure and membership of the Board's committees to
the Board.
D. Employees
As of December 31, 2005, we employed 487 employees, consisting of 57
shore-based personnel based in Athens, Greece, and 430 seagoing employees. This
represents an increase of about 84% due to the increase of vessels in our fleet
from five as of December 31, 2004 to 17 as of December 31, 2005. Our shore-based
employees are covered by industry-wide collective bargaining agreements that set
basic standards of employment.
E. 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
A. Major Shareholders
The following table sets forth, as of February 16, 2006, certain information
regarding the 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 and percentage of Number and percentage of
Class A Common Shares owned Class B Common Shares owned
--------------------------- ---------------------------
Name of Shareholder
Argon S.A. (1) 5,022,620 (25.6%) -
* 55,676 (48.44%)
Boston Industries S.A. (2)
Officers & Directors
Gabriel Panayotides (3) - -
Christopher Georgakis(4) * -
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.
The shares owned by Boston Industries S.A. represent approximately 41.4% of the
total votes represented by all of our shares (both Class A and Class B common
shares) outstanding as of December 31, 2005.
(3) The Chairman of the Board was granted 20,380 Class A or Class B shares
at his option as bonus. The market value of Class A shares on the grant date was
$11.04 per share. The Chairman requested and obtained an extension until May 15,
2006 to declare his election. On May 15, 2006, the Company's Board of Directors
granted a further extension to the Chairman of the Board until November 15, 2006
to declare his election. Such granting was subject to the consent of the
majority of Class B common shareholders who held more than 1,000 Class B common
shares each. The Company has duly notified the appropriate Class B common
shareholders and the required consent has been granted.
(4) Mr. Georgakis, the Company's CEO, has the option to purchase 100,000 A
Class shares of our 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 became a
wholly-owned subsidiary of ours on March 31, 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 has
been assumed by our wholly-owned subsidiary, Maryville, eliminating 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 17 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 205,442 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 initially agreed to issue these
shares to Excel Management by March 2, 2006, but have agreed with Excel
Management to extent this deadline to March 2, 2007. 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, we agreed to issue to Excel Management, at any time at
which we issue additional shares of our Class A common stock to any third party
until December 31, 2008 for any reason, such number of additional shares of
Class A common stock which, together with the shares of Class A common stock
issued to Excel Management in the original issuance, equals 1.5% of our total
outstanding Class A common stock after taking into account the third-party
issuance and the shares to be issued to Excel Management under the anti-dilution
provisions of the agreement.
In connection with our agreement to issue the 205,442 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 $2.0
million 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. To date,
these shares have not been issued and we have not received the related payment
from Excel Management. The fair value of the 205,442 Class A common shares to be
issued under the termination agreement and the fair value of the anti-dilution
provisions totalled $7.0 million.
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.
Our wholly owned subsidiary Maryville provides shipping services to three
related ship-owning companies at a fixed monthly fee per vessel. Such companies
are affiliated with the Chairman of our Board of Directors and the revenues
earned for the years ended December 31, 2003, 2004 and 2005 totalled $527,000,
$637,000 and $522,000, respectively.
C. Interest of Experts and Counsel
Not applicable.
ITEM 8 - FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
See Item 18.
Legal Proceedings
The ordinary course of the Company's business exposes it to the risk of lawsuits
for damages or penalties relating to, among other things, personal injury,
property casualty and environmental contamination. In our opinion, the
litigation in which we are currently involved, individually and in the
aggregate, is not material to us.
B. Significant changes
No significant change occurred except for those mentioned in item 4.
ITEM 9 - THE OFFER AND LISTING
Our Class A common stock trades since September 15, 2005 on the New York
Stock Exchange (NYSE) under the symbol "EXM". Prior to that date our Class A
common stock was trading on the American Stock Exchange (AMEX) under the same
symbol.
The high and low closing prices for the Class A common shares, by year, in
2001, 2002, 2003, 2004 and 2005 were as follows:
For The Year Ended AMEX Low/NYSE Low (US$) AMEX High/NYSE High (US$)
December 31, 2001 2.1900 3.5400
December 31, 2002 1.0200 3.5000
December 31, 2003 0.9000 6.8000
December 31, 2004 4.0300 59.2500
December 31, 2005 11.3000 28.4700
The high and low closing prices for the Class A common shares, by quarter, in
2004 and 2005 were as follows:
For The Quarter Ended AMEX Low/NYSE Low (US$) AMEX High/NYSE High (US$)
March 31, 2004 4.0300 15.7500
June 30, 2004 7.8000 14.9300
September 30, 2004 7.1000 59.2500
December 31, 2004 22.3200 40.1100
March 31, 2005 17.5500 28.4700
June 30, 2005 13.5800 18.1400
September 30, 2005 12.1000 16.2300
December 31, 2005 11.3000 16.6500
The high and low closing prices for the Class A common shares, by month, over
the six months ended December 31, 2005 were as follows:
For The Six Months
Ended AMEX Low/NYSE Low (US$) AMEX High/NYSE High (US$)
July 2005 12.8600 14.9500
August 2005 12.1000 14.6400
September 2005 14.3100 16.2300
October 2005 14.7500 16.6500
November 2005 12.6900 15.4200
December 2005 11.3000 13.9300
On March 17, 2005, 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 $116.7
million, which we have used primarily for the acquisition of additional dry bulk
vessels for our fleet.
On December 30, 2005, the closing price of the Class A common shares as
quoted on the NYSE was $11.45. At that date, there were 19,595,153 Class A and
114,946 Class B shares of common stock issued and outstanding.
ITEM 10 - ADDITIONAL INFORMATION
A. Share Capital
Not applicable
B. Memorandum and articles of association
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 seven (7) 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.
Shareholders meetings
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.
C. Material Contracts
As of December 31, 2005 we had long term debt obligations under four credit
facilities. For a full description of our credit facilities see "Summary of
Contractual Obligations" above. In addition, for any related party transactions
we refer you to the relevant subsection of Item 7.
Other than as described above, there were no material contracts, other than
contracts entered into in the ordinary course of business, to which the Company
or any member of the group was a party during the two year period immediately
preceding the date of this report.
D. 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.
E. Taxation
Tax Considerations
Liberian Tax Considerations
The Company is incorporated in the Republic of Liberia. It has recently
become aware that the Republic of Liberia enacted a new income tax generally act
effective as of January 1, 2001 ("New Act"). In contrast to the income tax law
previously in effect since 1977 ("Prior Law"), which the New Act repealed in its
entirety, the New Act does not distinguish between the taxation of non-resident
Liberian corporations such as ourselves and our Liberian subsidiaries, who
conduct no business in Liberia and were wholly exempted from tax under Prior
Law, and the taxation of ordinary resident Liberian corporations.
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 Liberian income tax as under 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%.
United States Federal Income Tax Considerations
The following discussion of United States federal income tax and Liberian
income tax matters is based on the Code, judicial decisions, administrative
pronouncements, and existing and proposed regulations issued by the United
States Department of the Treasury, all of which are subject to change, possibly
with retroactive effect. In addition, the discussion is based, in part, on the
description of our business as described in "Business" above and assumes that we
conduct our business as described in that section. Except as otherwise noted,
this discussion is based on the assumption that we will not maintain an office
or other fixed place of business within the United States. We have not
maintained, and do not intend to maintain, an office or other fixed place of
business in the United States. Reference in the following discussion to "we" and
"us" are to Excel Maritime Carriers, Ltd. and its subsidiaries on a consolidated
basis.
United States Federal Income Taxation Of Our Company
Taxation Of Operating Income: In General
Unless exempt from United States federal income taxation under Code section
883, a foreign corporation is subject to United States federal income taxation
in respect of any income that is derived from the use of vessels, from the
hiring or leasing of vessels for use on a time, voyage or bareboat charter
basis, or from the performance of services directly related to those uses, which
we refer to as "shipping income", to the extent that the shipping income is
derived from sources within the United States. For these purposes, 50% of
shipping income that is attributable to transportation that begins or ends, but
that does not both begin and end, in the United States constitutes income from
sources within the United States, which we refer to as "U.S.-source shipping
income."
Shipping income attributable to transportation that both begins and ends in
the United States is considered to be 100% from sources within the United
States. We do not expect to engage in transportation that produces income which
is considered to be 100% from sources within the United States.
Section 883
Under section 883 of the Code, a foreign corporation may be exempt from
United States federal income taxation on its U.S.-source shipping income.
Under section 883 of the Code, a foreign corporation is exempt from United
States federal income taxation on its U.S.-source shipping income, if both
(1) it is organized in a foreign country (its "country of organization")
that grants an "equivalent exemption" to corporations organized in the United
States, and
(2) either
(A) more than 50% of the value of its stock is owned, directly or
indirectly, by individuals who are "residents" of its country of
organization or of another foreign country that grants an "equivalent
exemption" to corporations organized in the United States, which we will
refer to as the "50% Ownership Test" or
(B) its 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, which we will refer to as the "Publicly-Traded Test."
Liberia, the jurisdiction where we and certain of our ship-owning
subsidiaries are incorporated, has been formally recognized by the Internal
Revenue Service, or the IRS, as a foreign country that grants an "equivalent
exemption" to United States corporations based on a Diplomatic Exchange of Notes
entered into with the United States in 1988. It is not clear whether the IRS
will still recognize Liberia as an "equivalent exemption" jurisdiction as a
result of the New Act, which on its face does not grant the requisite equivalent
exemption to United States corporations. If the IRS does not so recognize
Liberia as an "equivalent exemption" jurisdiction, we and our subsidiaries will
not qualify for exemption under Code section 883 and would not have so qualified
for 2002 and subsequent years. Assuming, however, that the New Act does not
nullify the effectiveness of the Diplomatic Exchange of Notes, the IRS will
continue to recognize Liberia as an equivalent exemption jurisdiction and we
will be exempt from United States federal income taxation with respect to our
U.S.-source shipping income if either the 50% Ownership Test or the
Publicly-Traded Test is met. Because our Class A common shares are publicly
traded, it may be difficult to establish that the 50% Ownership Test will be
satisfied.
Treasury regulations under Code section 883 were promulgated by the IRS, in
final form in August 2003. These regulations apply to taxable years beginning
after September 24, 2004. As a result, such regulations will be effective for
calendar year taxpayers, like us, beginning with the calendar year 2005.
These regulations provide, in pertinent part, that stock of a foreign
corporation will be considered to be "primarily traded" on an established
securities market if the number of shares that are traded during any taxable
year on that market exceeds the number of shares traded during that year on any
other established securities market. Our Class A common shares are "primarily"
traded on the New York Stock Exchange.
Under the regulations, stock of a foreign corporation is considered to be
"regularly traded" on an established securities market if (i) one or more
classes of 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 its stock traded during the taxable
year is at least 10% of the average number of shares of the stock outstanding
during the taxable year. Our shares are not "regularly traded" within the
meaning of the regulations test because of the voting power held by our Class B
common shares. As a result, we do not satisfy the Publicly-Traded Test under the
regulations.
Under the regulations, if we do not satisfy the Publicly-Traded Test and
therefore are subject to the 50% Ownership Test, we would have to satisfy
certain substantiation requirements regarding the identity of our shareholders
in order to qualify for the Code section 883 exemption. We do not satisfy these
requirements. Beginning with calendar year 2005, when the final regulations
became effective, we did not satisfy the Publicly-Traded Test and we do not
satisfy the 50% Ownership Test. Therefore, we do not qualify for the section 883
exemption.
Section 887
Since we do not qualify for exemption under section 883 of the Code for
taxable years beginning on or after January 1, 2005, our U.S. source shipping
income, to the extent not considered to be "effectively connected" with the
conduct of a U.S. trade or business, as discussed below, is subject to a 4% tax
imposed by section 887 of the Code on a gross basis, without the benefit of
deductions. Since under the sourcing rules described above, no more than 50% of
our shipping income is treated as being derived from U.S. sources, the maximum
effective rate of U.S. federal income tax on our shipping income will never
exceed 2% under the 4% gross basis tax regime. This tax was estimated to be $0.3
million for the tax year 2005 and was recorded as an expense in the income
statement for the year ended December 31, 2005.
Effectively Connected Income
To the extent our U.S. source shipping income is considered to be
"effectively connected" with the conduct of a U.S. trade or business, as
described below, any such "effectively connected" U.S. source shipping income,
net of applicable deductions, would be subject to the U.S. federal corporate
income tax currently imposed at rates of up to 35%. In addition, we may be
subject to the 30% "branch profits" tax on earnings 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 attributable to the
conduct of its U.S. trade or business.
Our U.S. source shipping income would be considered "effectively connected"
with the conduct of a U.S. trade or business only if:
o We have, or are considered to have, a fixed place of business in the
United States involved in the earning of shipping income; and
o Substantially all of our U.S. source shipping income is attributable
to regularly scheduled transportation, such as the operation of a
vessel that follows a published schedule with repeated sailings at
regular intervals between the same points for voyages that begin or
end in the United States.
We do not intend to have, or permit circumstances that would result in
having any vessel operating to the United States on a regularly scheduled basis.
Based on the foregoing and on the expected mode of our shipping operations and
other activities, we believe that none of our U.S. source shipping income will
be "effectively connected" with the conduct of a U.S. trade or business.
United States Taxation of Gain on Sale of Vessels
We will not be subject to United States federal income taxation with
respect to gain realized on a sale of a vessel, provided the sale is considered
to occur outside of the United States under United States federal income tax
principles. In general, a sale of a vessel will be considered to occur outside
of the United States for this purpose if title to the vessel, and risk of loss
with respect to the vessel, pass to the buyer outside of the United States. It
is expected that any sale of a vessel by us will be considered to occur outside
of the United States.
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.
F. Dividends and paying agents
Not applicable.
G. Statement by experts
Not applicable.
H. 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 100 F Street, N.E., Room
1580, 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. Our filings are also available on our website at www.excelmaritime.com.
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.
I. Subsidiary Information
Not applicable.
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
$1.9 million based upon our debt level during 2005.
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 (in $ millions):
Year Amount
------ ----------
2006 2.4
2007 2.1
2008 1.8
2009 1.5
2010 1.2
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 a system of controls and procedures, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the controls
are met.
Item 16A. Audit Committee Financial Expert
In accordance with the rules of the American Stock Exchange, the exchange
at which the Company's stock was listed at the time, the Company was not
required to have an audit committee until July 31, 2005. The Company appointed
an audit committee in accordance with American Stock Exchange and NYSE
requirements prior to such deadline. The Board has determined that Messrs.
Apostolos Kontoyanis and Platou, each an independent member of the Board, are
audit committee financial experts.
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
Our principal Accountants for the years ended December 31, 2004 and 2005
were Ernst & Young (Hellas), Certified Auditors Accountants S.A. For the audit
of the years ended December 31, 2004 and 2005 they billed us Euro 116,980 and
Euro 188,090, respectively. There were no tax, audit-related, or other fees
billed in 2004 and 2005.
Item 16D. Exemption from the listing standards for Audit committees
Not applicable.
Item 16E. Purchases of Equity Securities by Issuer and Affiliated purchases
None.
PART III
ITEM 17 - FINANCIAL STATEMENTS
See Item 18
ITEM 18 - FINANCIAL STATEMENTS
The following financial statements, together with the report of Ernst & Young
(Hellas) Certified Auditors Accountants S.A. thereon, are filed listed below are
set forth on pages F-1 through F-20 and are filed as a part of this annual
report.
ITEM 19 - EXHIBITS
1.1 Articles of Incorporation of the Company, incorporated by reference to
Exhibit 3.1 of the Company's Registration Statement on Form F-1,
Registration No. 33-8712 filed on May 6, 1998 (the "Registration
Statement").
1.2 Restated Articles of Incorporation of the Company, adopted November 8,
1999 filed on Form 6-K with the Commission on November 19, 1999.
1.3 Amended and Restated By-Laws of the Company adopted on January 10,
2000, incorporated by reference to Exhibit 1.0 of Form 6-K filed on
January 20, 2000.
2.1 Specimen Class A Common Stock Certificate, incorporated by reference
to Exhibit 4.2 of the Registration Statement.
2.2 Specimen Class B Common Stock Certificate.
2.3 Form of Indenture, incorporated by reference to Exhibit 4.3 of the
Company's Registration Statement on Form F-3, Registration No.
333-120259, filed on November 5, 2004.
4.1 Memoranda of Agreement for two vessels, incorporated by reference to
the Company's Form 6-K filed on March 7, 2005.
4.2 Credit facility in the amount of $27 million, dated December 23, 2004,
incorporated by reference to the Company's Form 6-K filed on March 8,
2005.
4.3 Memorandum of Agreement for one vessel, incorporated by reference to
the Company's Form 6-K filed on March 8, 2005.
4.4 Management Agreement Termination Agreement and Addendum No. 1 to
Management Agreement Termination Agreeement, incorporated by reference
to Exhibit 99.1 and 99.2, respectively, to the Company's Form 6-K
filed on March 14, 2005.
4.5 Memorandum of Agreement for one vessel, incorporated by reference to
the Company's Form 6-K filed on March 16, 2005.
4.6 Credit facility in the amount of $95 million, dated February 16, 2005,
incorporated by reference to the Company's Form 6-K filed on March 16,
2005.
4.7 Brokering Agreement between the Company and Excel Management Ltd.,
dated March 4, 2005, incorporated by reference to the Company's Form
6-K filed on March 18, 2005.
8.1 Subsidiaries of the Company.
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.
23.1 Consent of Independent Registered Public Accounting Firm.
EXCEL MARITIME CARRIERS LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2004 and 2005 F-3
Consolidated Statements of Income for the years ended
December 31, 2003, 2004 and 2005 F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2003, 2004 and 2005 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 2003, 2004 and 2005 F-6
Notes to Consolidated Financial Statements F-7
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, 2004 and 2005 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 2005. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audits
included 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 also 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, 2004 and 2005 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2005 in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young (Hellas) Certified Auditors Accountants S.A.
Athens, Greece,
April 19, 2006
EXCEL MARITIME CARRIERS LTD.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2005
(Expressed in thousands of U.S. Dollars - except for share and per share data)
ASSETS 2004 2005
- ------ ---- ----
CURRENT ASSETS:
Cash and cash equivalents 64,903 58,492
Restricted cash 2,493 7,988
Accounts receivable trade, net 2,302 1,185
Accounts receivable, other 158 799
Due from related parties (Note 3) - 255
Inventories (Note 4) 558 1,094
Prepayments and advances 962 734
---------- ---------
Total current assets 71,376 70,547
---------- ---------
FIXED ASSETS:
Advances for vessels acquisition (Note 5) 26,220 -
Vessels, net (Note 6) 14,615 465,668
Office furniture and equipment - 524
---------- ---------
Total fixed assets, net 40,835 466,192
---------- ---------
OTHER NON CURRENT ASSETS:
Goodwill 400 400
Deferred charges, net (Note 7) 1,386 1,604
Restricted cash - 22,282
---------- ---------
Total assets 113,997 561,025
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt, net of
deferred financing fees (Note 8) 7,704 41,230
Accounts payable 1,262 3,307
Deferred revenue - 1,893
Accrued liabilities 1,600 5,020
---------- ---------
Total current liabilities 10,566 51,450
---------- ---------
LONG-TERM DEBT, net of current portion and net
of deferred financing fees (Note 8) 5,616 221,586
---------- ---------
COMMITMENTS AND CONTINGENCIES (Note 11) - -
---------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.1 par value:
5,000,000 shares authorized, none issued - -
Common stock, $0.01 par value; 49,000,000
Class A shares and 1,000,000 Class B
shares authorized; 13,696,153 Class A shares
and 114,946 Class B shares, issued
and outstanding at December 31, 2004; 19,595,153
Class A shares and 114,946 Class B shares issued
and outstanding at December 31, 2005 (Note 9) 138 197
Additional paid-in capital (Note 9) 63,738 181,265
Shares to be issued (298,403 Class A shares) (Note 3) - 6,853
Due from a related party (Note 3) - (2,024)
Retained earnings 34,128 101,887
---------- ---------
98,004 288,178
Less: Treasury stock, 78,650 Class A shares and
588 Class B shares at December 31, 2004 and
December 31, 2005 (189) (189)
---------- ---------
Total stockholders' equity 97,815 287,989
---------- ---------
Total liabilities and stockholders' equity 113,997 561,025
========== =========
The accompanying notes are an integral part of these consolidated statements.
EXCEL MARITIME CARRIERS LTD.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(Expressed in thousands of U.S Dollars-except for share and per share data)
2003 2004 2005
------------- ------------- --------------
REVENUES:
Voyage revenues (Note 1) 26,094 51,966 118,082
Revenue from managing related party vessels (Note 3) 527 637 522
------------- ------------- --------------
26,621 52,603 118,604
------------- ------------- --------------
EXPENSES:
Voyage expenses (Note 13) 7,312 8,100 11,693
Voyage expenses - related party (Note 13) - - 1,412
Vessel operating expenses (Note 13) 6,529 7,518 24,215
Vessel Depreciation (Note 6) 993 980 20,092
Amortization of deferred dry-docking and special
survey costs (Note 7) 555 733 622
Contract termination expense - related party
(Note 3) - - 4,963
Management fees - related party (Note 3) 260 270 -
General and administrative expenses 1,772 2,867 6,520
------------- ------------- --------------
17,421 20,468 69,517
------------- ------------- --------------
GAIN ON SALE OF VESSELS (Note 6) - - 26,795
Operating income 9,200 32,135 75,882
OTHER INCOME (EXPENSES):
Interest and finance costs (Notes 8 and 14) (473) (363) (10,259)
Interest income 12 302 2,381
Other, net (94) (24) 66
------------- ------------- --------------
Total other income (expenses), net (555) (85) (7,812)
------------- ------------- --------------
Net income, before taxes 8,645 32,050 68,070
------------- ------------- --------------
U.S. Source Income taxes (Note 12) - - (311)
------------- ------------- --------------
Net income, after taxes 8,645 32,050 67,759
============= ============= ==============
Earnings per common share, basic and diluted 0.75 2.75 3.64
============= ============= ==============
Weighted average number of shares, basic and diluted 11,532,725 11,640,058 18,599,876
============= ============= ==============
The accompanying notes are an integral part of these consolidated statements.
EXCEL MARITIME CARRIERS LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31,
2003, 2004 and 2005 (Expressed in thousands of U.S. Dollars - except for share data)
Common Stock
------------------------
Additional Shares
Comprehensive # of Par Paid-in Retained to be
Income Shares Value Capital Earnings Issued
------------- ----------- -------- --------- ---------- --------
BALANCE, December 31, 2002 11,611,099 116 12,087 (6,567) -
- - Net income 8,645 - - - 8,645 -
- - Sale of treasury stock - - - - -
-----------
Comprehensive income 8,645
----------- ------------ --------- --------- ---------- ---------
BALANCE, December 31, 2003 11,611,099 116 12,087 2,078 -
- - Net income 32,050 - - - 32,050 -
- - Issuance of common stock 2,200,000 22 54,978 - -
- - Expenses relating to the issuance
of common stock - - (3,549) - -
- - Stock based compensation expense - - 222 - -
-----------
Comprehensive income 32,050
----------- ------------ --------- --------- ---------- ---------
BALANCE, December 31, 2004 13,811,099 138 63,738 34,128 -
- - Net income 67,759 - - - 67,759 -
- - Issuance of common stock 5,899,000 59 123,820 - -
- - Expenses relating to the issuance
of common stock - - (7,375) - -
- - Stock based compensation expense - - 948 - -
-----------
Comprehensive income 67,759
===========
- - Contract Termination - - 134 - 6,853
- - Due from a related party - - - - -
------------ --------- --------- ---------- ---------
BALANCE, December 31, 2005 19,710,099 197 181,265 101,887 6,853
============ ========= ========= ========= ==========
Total
Due from a Treasury Stockholders'
related party Total Stock Equity
-------------- -------- --------- ------------
BALANCE, December 31, 2002 - 5,636 (187) 5,449
- - Net income - 8,645 - 8,645
- - Sale of treasury stock - - (2) (2)
Comprehensive income
---------- --------- -------- ----------
BALANCE, December 31, 2003 - 14,281 (189) 14,092
- - Net income - 32,050 - 32,050
- - Issuance of common stock - 55,000 - 55,000
- - Expenses relating to the issuance
of common stock - (3,549) - (3,549)
- - Stock based compensation expense - 222 - 222
---------- --------- -------- ----------
Comprehensive income
BALANCE, December 31, 2004 - 98,004 (189) 97,815
- - Net income - 67,759 - 67,759
- - Issuance of common stock - 123,879 - 123,879
- - Expenses relating to the issuance
of common stock - (7,375) - (7,375)
- - Stock based compensation expense - 948 - 948
Comprehensive income
- - Contract Termination - 6,987 - 6,987
- - Due from a related party (2,024) (2,024) - (2,024)
---------- --------- -------- ----------
BALANCE, December 31, 2005 (2,024) 288,178 (189) 287,989
========= ========= ======== ==========
The accompanying notes are an integral part of these consolidated statements.
EXCEL MARITIME CARRIERS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
(Expressed in thousands of U.S Dollars)
2003 2004 2005
---- ---- ----
Cash Flows from Operating Activities:
Net income, after taxes 8,645 32,050 67,759
Adjustments to reconcile net income to net cash
provided by operating activities:
Vessel Depreciation 993 980 20,092
Amortization of deferred dry-docking and
special survey costs 555 733 622
Amortization and write-off of deferred
financing costs 39 39 526
Gain on sale of vessels - - (26,795)
Contract termination expense - - 4,963
Stock-based compensation expense - 222 948
Changes in operating assets and liabilities:
Accounts receivable (361) (1,546) 221
Inventories 60 (46) (536)
Prepayments and advances (58) (821) 228
Accounts payable (486) 328 2,045
Accrued liabilities 451 638 3,420
Deferred revenue - - 1,893
Payments for dry-docking and special survey (951) (544) (1,747)
-------------- --------------- -----------
Net Cash provided by Operating Activities 8,887 32,033 73,639
-------------- --------------- -----------
Cash Flows from Investing Activities:
Advances for vessels acquisitions - (26,220) -
Additions to vessel cost - - (454,241)
Proceeds from sale of vessels - - 37,022
Office, furniture and equipment - - (524)
-------------- --------------- -----------
Net Cash used in Investing Activities - (26,220) (417,743)
-------------- --------------- -----------
Cash Flows from Financing Activities:
Increase in restricted cash (914) (1,579) (27,777)
Proceeds from long-term debt - 7,750 282,415
Principal payments of long-term debt (5,960) (2,300) (31,530)
Treasury stock (2) - -
Issuance of common stock, net of related
issuance costs - 51,451 116,504
Payment of financing costs (2) (190) (1,919)
-------------- --------------- -----------
Net Cash provided by (used in) Financing Activities (6,878) 55,132 337,693
-------------- --------------- -----------
Net increase (decrease) in cash and cash equivalents 2,009 60,945 (6,411)
Cash and cash equivalents at beginning of year 1,949 3,958 64,903
-------------- --------------- -----------
Cash and cash equivalents at end of year 3,958 64,903 58,492
============== =============== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest payments 480 242 8,872
============== =============== ===========
The accompanying notes are an integral part of these consolidated statements.
EXCEL MARITIME CARRIERS LTD.
Notes to the Consolidated Financial Statements
(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" or "Excel"). Excel was formed in 1988, under
the laws of the Republic of Liberia. On March 21, 2005 the Company issued
and sold 5,899,000 shares of Class A common stock, registered under its
shelf registration statement, to institutional investors (Note 9). The net
proceeds totaled $116,504 and were used to partly finance the acquisition
cost of sixteen second hand vessels which were delivered to the Company
through December 31, 2005.
The Company is engaged in the ocean transportation of dry bulk cargoes
worldwide through the ownership and operation of bulk carrier vessels and
is the sole owner of all outstanding shares of the following subsidiaries:
Ship-owning companies with vessels in operation at December 31, 2005
Company Country of incorporation Date of incorporation Vessel-owned
-------- ------------------------ --------------------- ------------
1. Centel Shipping Co. Ltd. ("Centel") Cyprus May 2002 Lady
2. Snapper Marine Ltd. ("Snapper") Liberia June 2004 Marybelle
3. Pisces Shipholding Ltd. ("Pisces") Liberia June 2004 Goldmar
4. Liegh Jane Navigation S.A. ("Liegh") Liberia July 2004 Swift
5. Teagan Shipholding S.A. ("Teagan") Liberia November 2004 First Endeavour
6. Fianna Navigation S.A. ("Fianna") Liberia November 2004 Isminaki
7. Ingram Limited ("Ingram") Liberia November 2004 Emerald
8. Whitelaw Enterprises Co. ("Whitelaw") Liberia November 2004 Birthday
9. Castalia Services Ltd. ("Castalia") Liberia November 2004 Princess I
10. Yasmine International Inc. ("Yasmine") Liberia January 2005 Elinakos
11. Candy Enterprises Inc. ("Candy") Liberia February 2005 Renuar
12. Barland Holdings Inc. ("Barland") Liberia February 2005 Attractive
13. Fountain Services Ltd. ("Fountain") Liberia February 2005 Powerful
14. Amanda Enterprises Ltd. ("Amanda") Liberia March 2005 Happy Day
15. Marias Trading Inc. ("Marias") Liberia March 2005 Angela Star
16. Tanaka Services Ltd. ("Tanaka") Liberia March 2005 Rodon
17. Harvey Development Corp. ("Harvey") Liberia March 2005 Fortezza
Ship-owning companies with vessels sold during the year ended December 31, 2005
Company Country of incorporation Date of incorporation Vessel-owned
-------- ------------------------ --------------------- ------------
18. Becalm Shipping Co. Ltd. ("Becalm") Cyprus July 1998 Fighting Lady
19. Tortola Shipping Co. Ltd. ("Tortola") Cyprus July 1998 Lucky Lady
20. Storler Shipping Co. Ltd. ("Storler") Cyprus August 1998 Petalis
21. Madlex Shipping Co. Ltd. ("Madlex") Cyprus January 1999 Almar I
Companies established to acquire vessels
Company Country of incorporation Date of incorporation
-------- ------------------------ ---------------------
22. Magalie Investments Corp.("Magalie") Liberia March 2005 -
23. Melba Management Ltd. ("Melba") Liberia April 2005 -
24. Minta Holdings S.A. ("Minta") Liberia April 2005 -
25. Odell International Ltd. ("Odell") Liberia April 2005 -
26. Naia Development Corp. ("Naia") Liberia April 2005 -
Other group companies
Company Country of incorporation Date of incorporation Activity
Management
27. Maryville Maritime Inc. ("Maryville") Liberia August 1983 company
Holding company
28. Point Holdings Ltd. ("Point") Liberia February 1998
Effective January 1, 2005 and following the termination of an agreement
with Excel Management Ltd, an affiliated corporation (Note 3), the
operations of the vessels are directly managed by Maryville which provides
the vessels with a wide range of shipping management services, such as
technical support and maintenance, supervision of new buildings, insurance
consulting, chartering, financial and accounting services. The fees charged
by Maryville for the management of the Company's fleet, are eliminated for
consolidation purposes in the accompanying consolidated statements of
income.
Charterers individually accounting for more than 10% of the Company's
voyage revenues during the years ended December 31, 2003, 2004 and 2005,
are as follows:
Charterer 2003 2004 2005
---------- ----- ------ -----
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% -
Daeyang Shipping Co Ltd. - - 12%
2. Significant Accounting Policies:
(a) Principles of Consolidation: The accompanying consolidated financial
statements have been prepared in accordance with U.S. generally
accepted accounting principles and include the accounts and operating
results of Excel Maritime Carriers Ltd. and its wholly-owned
subsidiaries referred to in Note 1 above. All significant
inter-company 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: 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. The Company has no such transactions which
affect comprehensive income and, accordingly, comprehensive income
equals net income for all periods presented.
(d) Concentration of Credit Risk: Financial instruments, which potentially
subject the Company to significant concentrations of credit risk,
consist principally of cash and cash equivalents and trade accounts
receivable. The Company places its cash and cash equivalents,
consisting mostly of deposits, with high credit qualified financial
institutions. The Company performs periodic evaluations of the
relative credit standing of those financial institutions. The Company
limits its credit risk with accounts receivable by performing ongoing
credit evaluations of its customers' financial condition. The Company
does not obtain rights to collateral to reduce its credit risk.
(e) Foreign Currency Translation: The functional currency of the Company
is the U.S. Dollar because the Company's vessels operate in
international shipping markets, and therefore primarily transact
business in U.S. Dollars. 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 into U.S. Dollars at the year-end exchange
rates. Resulting gains or losses are included in general and
administrative expenses in the accompanying consolidated statements of
income.
(f) Cash and Cash Equivalents: The Company considers highly liquid
investments such as time deposits and certificates of deposit with an
original maturity of three months or less to be cash equivalents.
(g) Restricted Cash: Restricted cash includes bank deposits that are
required under the Company's borrowing arrangements which are used to
fund the loan installments coming due. The funds can only be used for
the purposes of loan repayment. In addition, restricted cash also
includes minimum cash deposits required to be maintained with certain
banks under the Company's borrowing arrangements.
(h) Accounts Receivable-Trade, net: The amount shown as accounts
receivable-trade, net at each balance sheet date, includes receivables
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. The provision for doubtful accounts at December 31, 2004 and
2005 was $25 and $274, respectively.
(i) Insurance Claims: The Company records insurance claim recoveries for
insured losses incurred on damage to fixed assets. Insurance claim
recoveries are recorded, net of any deductible amounts, at the time
the Company's fixed assets suffer insured damages and the Company can
make an estimate of the amount to be reimbursed following the
insurance claim.
(j) Inventories: Inventories consist of consumable bunkers, lubricants and
victualling stores, which are stated at the lower of cost or market
value. Cost is determined by the first in, first out method.
(k) Vessels, net: Vessels are stated at cost, which consists of the
contract price and any material expenses incurred upon acquisition
(initial repairs, improvements, delivery expenses and other
expenditures to prepare the vessel for her initial voyage). Subsequent
expenditures for conversions and major improvements are also
capitalized when they appreciably extend the life, increase the
earning capacity or improve the efficiency or safety of the vessels.
Otherwise these amounts are charged to expense as incurred.
The cost of each of the Company's vessels is depreciated beginning
when the vessel is ready for its intended use, on a straight-line
basis over the vessel's remaining economic useful life, after
considering the estimated residual value (vessel's residual 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.
However, when regulations place limitations over the ability of a
vessel to trade on a worldwide basis, its remaining useful life is
adjusted at the date such regulations become effective.
(l) Prepaid/Deferred charter revenue: Where the Company identifies any
assets or liabilities associated with the acquisition of a vessel, the
Company records all such identified assets or liabilities at fair
value. Fair value is determined by reference to market data. The
Company values any asset or liability arising from the market value of
the time charters assumed when a vessel is acquired. The amount to be
recorded as an asset or liability at the date of vessel delivery is
based on the difference between the current fair value of a charter
with similar characteristics as the time charter assumed and the net
present value of future contractual cash flows from the time charter
contract assumed. When the present value of the time charter assumed
is greater than the current fair value of such charter, the difference
is recorded as prepaid charter revenue. When the opposite situation
occurs, the difference is recorded as deferred revenue. Such assets
and liabilities, respectively, are amortized as a reduction of, or an
increase in, revenue over the period of the time charter assumed.
(m) Impairment of Long-Lived Assets: The Company uses SFAS 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. An impairment loss for an asset held for use should be
recognized 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. Measurement of the impairment loss is
based on the fair value of the asset as provided by independent marine
valuers. 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. Furthermore, in the period a
long-lived asset meets the "held for sale" criteria of SFAS No. 144, a
loss is recognized for any reduction of the long-lived asset's
carrying amount to its fair value less cost to sell. No impairment
loss was recorded in the years ended December 31, 2003, 2004 and 2005.
(n) Accounting for Dry-Docking and Special Survey Costs: The Company
follows the deferral method of accounting for dry-docking and special
survey 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 and special survey are scheduled to become due.
Unamortized dry-docking and special survey costs of vessels that are
sold are written off at the time of the respective vessels' sale and
are included in the calculation of the resulting gain or loss from
such sale.
(o) Financing Costs: Fees paid to lenders for obtaining loans are recorded
as a contra to debt. Such fees are deferred and amortized to interest
and finance costs over the life of the related debt using the
effective interest method. Unamortized fees relating to loans repaid
or refinanced are expensed as interest and finance costs in the period
the repayment or refinancing is made.
(p) Accounting for Revenues and Related Expenses: The Company generates
its revenues from charterers for the charterhire of its vessels.
Vessels are chartered using either voyage charters, where a contract
is made in the spot market for the use of a vessel for a specific
voyage for a specified charter rate, or time charters, where a
contract is entered into for the use of a vessel for a specific period
of time and a specified daily charterhire rate. If a charter agreement
exists and collection of the related revenue is reasonably assured,
revenue is recognized, as it is earned ratably over the duration of
the period of each voyage or time charter. 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 it is earned ratably over the
duration of the period of each voyage charter.
Deferred revenue includes cash received prior to the balance sheet
date and is related to revenue earned after such date. Voyage
expenses, primarily consisting of port, canal and bunker expenses that
are unique to a particular charter, are paid for by the charterer
under the time charter arrangements or by the Company under voyage
charter arrangements, except for commissions, which are always paid
for by the Company, regardless of charter type. All voyage and vessel
operating expenses are expensed as incurred, except for commissions.
Commissions paid to brokers are deferred and amortized over the
related voyage charter period to the extent revenue has been deferred
since commissions are earned as the Company's revenues are earned.
(q) 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.
(r) 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, 2004 and 2005 amounted to approximately $237 and $249,
respectively.
(s) Earnings per Common 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. The Company had no dilutive securities
during the years ended December 31, 2003, 2004 and 2005.
(t) Segment 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 use 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, reviews 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. Furthermore,
when the Company charters a vessel to a charterer, the charterer is
free to trade the vessel worldwide and, as a result, the disclosure of
geographic information is impracticable.
(u) Variable Interest Entities: 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 and
2005 did not have any impact on the Company's consolidated financial
position, results of operations or cash flows.
(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:
SFAS No. 123(R): On December 16, 2004, the Financial Accounting
Standards Board (FASB) issued FASB Statement No. 123 (revised 2004),
"Share-Based Payment" (SFAS No. 123(R)), which is a revision of FASB
Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS No.
123). SFAS No. 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 SFAS No. 123(R)
is similar to the approach described in SFAS No. 123. However, SFAS
No. 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. SFAS No. 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. The Company expects to
adopt SFAS No. 123(R) on January 1, 2006. SFAS No. 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 SFAS No. 123(R) for all share based payments
granted after the effective date and (b) based on the
requirements of SFAS No. 123 for all awards granted to employees
prior to the effective date of SFAS No. 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 SFAS No. 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 SFAS No. 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 SFAS No. 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 SFAS No. 123(R)
on January 1, 2006. The Company does not anticipate that adoption of
SFAS No. 123(R) will have a material impact on its results of
operations, financial position or cash flows.
SFAS No. 154: In May 2005, the FASB issued FASB Statement No. 154,
"Accounting Changes and Error Corrections" (SFAS No. 154). SFAS No.
154 is a replacement of APB Opinion No. 20, "Accounting Changes" (APB
20) and FASB Statement No. 3, "Reporting Accounting Changes in Interim
Financial Statements" (SFAS No. 3). SFAS No. 154 provides guidance on
the accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application as the required
method for reporting a voluntary change in accounting principle. APB
20 previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period of
the change the cumulative effect of changing to the new accounting
principle. SFAS No. 154 provides guidance for determining whether
retrospective application of a change in accounting principle is
impracticable and for reporting a change when retrospective
application is impracticable. SFAS No. 154 also requires that a change
in method of depreciation, amortization, or depletion for long-lived,
nonfinancial assets be accounted for as a change in accounting
estimate that is effected by a change in accounting principle. APB 20
previously required that such a change be reported as a change in
accounting principle. SFAS No. 154 carries forward many provisions of
APB 20 without change, including the provisions related to the
reporting of a change in accounting estimate, a change in the
reporting entity, and the correction of an error. SFAS No. 154 also
carries forward the provisions of SFAS No. 3 that govern reporting
accounting changes in interim financial statements. SFAS No. 154 is
effective for accounting changes and corrections of errors made in
fiscal years beginning after December 31, 2005. The Company will adopt
this pronouncement beginning in fiscal year 2006.
(x) Reclassification of prior year balances: Certain minor
reclassifications have been made to the 2004 consolidated financial
statements to conform to the presentation in the 2005 consolidated
financial statements. An amount of $ 300, concerning deferred
financial expenses net of amortization, is now included in current
portion of long-term debt and long-term debt, previously included in
Deferred charges, net.
3. Transactions with Related Parties:
(a) Excel Management Ltd.: As of December 31, 2004, the operations of the
Company's vessels were managed by Excel Management Ltd., a corporation
which is controlled by the Company's Chairman of the Board of
Directors, Mr. Gabriel Panayiotides. Certain of the services provided
by Excel Management Ltd. were subcontracted to Maryville. The
management fees charged by Excel Management Ltd. during the years
ended December 31, 2003 and 2004 amounted to $260 and $270,
respectively and are separately reflected in the accompanying
consolidated statements of income for the years ended December 31,
2003 and 2004. The management agreement with Excel Management Ltd. was
initially due to expire on April 30, 2008 was terminated on March 2,
2005 with effect from January 1, 2005.
In exchange for terminating the management agreement mentioned above
and in exchange for a one time cash payment of $ 2,024, the Company
agreed to issue 205,442 shares no later than March 2, 2006 of its
Class A common stock to Excel Management Ltd. and to issue to Excel
Management Ltd additional shares at any time before January 1, 2009 if
the Company issues additional shares of Class A common stock to any
other party for any reason, such that the number of additional Class A
common stock to be issued to Excel Management Ltd. together with the
205,442 shares of Class A common stock to be issued to Excel
Management Ltd., in the aggregate, equal 1.5% of the Company's total
outstanding Class A common stock after taking into account the third
party issuance and the shares to be issued to Excel Management Ltd. To
date, the Company has not yet issued any shares to Excel Management
Ltd., neither the initial 205,442 shares nor the 92,961 anti-dilution
shares required to be issued as a result of the March 21, 2005 share
issuance to other third parties discussed in Note 9 (Note 15).
Furthermore, the Company has not yet received the one-time cash
payment from Excel Management Ltd. which is reflected as a reduction
of stockholders' equity in the accompanying 2005 consolidated balance
sheet. All shares to be issued will be subject to a two-year lock-up
from their date of issuance.
The fair value of the 205,442 Class A shares to be issued under the
termination agreement and the fair value of the anti-dilution
provisions (based on an independent valuation), totaled $ 6,987 which
has been credited to stockholders' equity. The excess of the fair
value of such shares over the cash consideration of $2,024 amounted to
$4,963 and is reflected as Contract termination expense in the
accompanying 2005 consolidated statement of income.
On March 4, 2005, the Company concluded a brokering agreement with
Excel Management Ltd. under which Excel Management Ltd. was 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 was 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. Commissions charged by Excel Management Ltd. during
the year 2005, amounted to $1,412 and are separately reflected in the
consolidated 2005 statement of income.
(b) Vessels under management: Maryville (Note 1) provides shipping
services to three related ship-owning companies at a fixed monthly fee
per vessel. Such companies are affiliated with the Chairman of our
Board of Directors and the revenues earned for the years ended
December 31, 2003, 2004 and 2005 totaled $527, $637 and $522,
respectively and are separately reflected in the accompanying
consolidated statements of income.
4. Inventories:
The amounts shown in the accompanying consolidated balance sheets are
analyzed as follows:
2004 2005
----------- --------
Bunkers 346 135
Lubricants 177 821
Victualling stores 35 138
----------- --------
558 1,094
=========== ========
5. Advances for vessels acquisitions:
The amount shown in the accompanying 2004 consolidated balance sheet
represents advance payments to the sellers of vessels Swift, Goldmar,
Isminaki, First Endeavour and Marybelle, due in accordance with the related
Memoranda of Agreement to acquire these vessels, which were concluded
during the last quarter of 2004. As of December 31, 2004, remaining
contracted payments for the above mentioned vessels, all due in 2005,
amounted to $86,335.
6. Vessels, net:
Vessel Accumulated Net Book
Cost Depreciation Value
-------- ------------- ----------
Balance, December 31, 2002 18,611 (2,023) 16,588
- Depreciation - (993) (993)
-------- --------- --------
Balance, December 31, 2003 18,611 (3,016) 15,595
- Depreciation - (980) (980)
-------- --------- --------
Balance, December 31, 2004 18,611 (3,996) 14,615
- Transfer from advances
for vessel acquisitions 26,220 - 26,220
- Vessels acquisitions 454,241 - 454,241
- Depreciation - (20,092) (20,092)
- Disposal due to sale (12,677) 3,361 (9,316)
-------- --------- --------
Balance, December 31, 2005 486,395 (20,727) 465,668
======== ========= ========
The Company's vessels, having total carrying value of $465,668 at December
31, 2005, have been provided as collateral to secure the bank loans
discussed in Note 8.
During the year ended December 31, 2005, the Company acquired sixteen dry
bulk carrier vessels for an aggregate consideration of $480,461. One
(vessel Powerful) of the above vessels, acquired for cash consideration of
$35,300, was under an existing time charter contract which the Company
agreed to assume through arrangement with the respective charterer. The
Company upon delivery of the above vessel and in accordance with its
accounting policy described in Note 2(l) evaluated the charter contract
assumed and concluded that the charter party was already carried at fair
value.
In addition, during the year ended December 31, 2005, vessels Petalis,
Lucky Lady, Fighting Lady and Almar I were sold for a total consideration
of $37,022, resulting in a gain of $26,795 (net of $907 of unamortized
dry-docking costs and $4 of unamortized financing costs written-off as at
the date of sale) which is separately reflected in the accompanying 2005
consolidated statement of income.
7. Deferred Charges, net:
The unamortized amounts included in the accompanying consolidated balance
sheets represent dry-docking and special survey costs, and are analyzed as
follows:
Balance, December 31, 2002 1,179
- Additions 951
- Amortization (555)
----------
Balance, December 31, 2003 1,575
- Additions 544
- Amortization (733)
----------
Balance, December 31, 2004 1,386
- Additions 1,747
- Amortization (622)
- Disposal due to sale (907)
----------
Balance, December 31, 2005 1,604
==========
8. Long-term Debt, net of deferred financing fees:
The amounts in the accompanying consolidated balance sheets are analyzed as
follows:
Borrower(s) 2004 2005
------- ------
(a) Becalm and Madlex 2,837 -
(b) Centel, Tortola and Storler 2,902 -
(c) Pisces, Liegh and Snapper 7,581 21,633
(d) Fianna, Whitelaw, Ingram, Teagan and Castalia - 88,312
(e) Fountain, Candy, Yasmine, Amanda, Marias,
Tanaka and Harvey - 144,540
(f) Barland - 8,331
-------- --------
Total 13,320 262,816
Less- current portion (7,704) (41,230)
-------- --------
Long-term portion 5,616 221,586
======== ========
Loan (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 was fully repaid as of December 2005. Further to the principal
installments paid during the year, an amount of $1,488 was repaid in July
2005 due to the sale of the vessel Fighting Lady.
Loan (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
was fully repaid by October 2005, while earlier in March 2005 the balloon
installment amounting to $2,020 was paid from the sale proceeds of the
vessels Lucky Lady and Petalis.
Loan (c): Bank loan for an amount of $27,000, concluded in December 2004 to
partially finance the acquisition cost of vessels Goldmar, Swift and
Marybelle. The loan was drawn down in three tranches from December 2004
through March 2005. The amount outstanding at December 31, 2005 of $21,633
is repayable in 46 variable installments from January 2006 through March
2011 plus three balloon payments totaling $4,670 payable together with each
tranche's last installment. The loan bears interest at LIBOR plus a margin
and the average interest rate (including the margin) at December 31, 2005
was 6.35%.
Loan (d): Bank loan for an amount of $95,000, concluded in February 2005 to
partially finance the acquisition cost of vessels Isminaki, Birthday,
Emerald, First Endeavour and Princess I. The loan was drawn down in five
tranches from February 2005 through June 2005. The amount outstanding at
December 31, 2005 of $88,312 is repayable in 164 variable installments from
February 2006 through May 2015 plus two balloon payments totaling $8,370
payable together with the last installment of vessels Isminaki and Emerald
tranches. The loan bears interest at LIBOR plus a margin and the average
interest rate (including the margin) at December 31, 2005 was 5.74%.
Loan (e): Bank loan for an amount of $170,000, concluded in April 2005 to
partially finance the acquisition cost of vessels Elinakos, Happy Day,
Powerful, Renuar, Angela Star, Rodon and Fortezza. The loan was drawn down
in seven tranches from April 2005 through July 2005. The amount outstanding
at December 31, 2005 of $144,540 is repayable in 233 variable installments
from January 2006 through June 2016 plus seven balloon payments totaling
$34,480 payable together with the with each tranche's last installment. The
loan bears interest at LIBOR plus a margin and the average interest rate
(including the margin) at December 31, 2005 was 5.66%. An amount of $11,135
remained undrawn with an option to be draw down which expired as of
December 31, 2005.
Loan (f): Bank loan for an amount of $9,300, concluded in June 2005 to
partially finance the acquisition cost of vessel Attractive. The amount
outstanding at December 31, 2005, of $8,331 is repayable in 14 equal
consecutive quarterly installments, from February 2006 through May 2009
plus a balloon installment of $1,860 payable together with the last
installment. The loan bears interest at LIBOR plus a margin and the
interest rate (including the margin) at December 31, 2005 was 5.87%.
The loans are secured as follows:
o First priority mortgages over the borrowers vessels;
o First priority assignment of all insurances and earnings of the
mortgaged vessels;
o Pledge over the Company's bank accounts where payments for charters
are deposited by the charterers;
o Corporate guarantee of Excel Maritime Carriers Ltd.
The loans, among others, contain financial covenants requiring the Company
to ensure that the aggregate market value of the mortgaged vessels at all
times exceed 135% of the aggregate outstanding principal amount under the
loans, that total assets minus total debt will not, at any time, be less
than $150,000 and to maintain liquid funds of at least 10% of total debt.
As a result, restricted cash included in the accompanying 2005 consolidated
balance sheet represents bank deposits that are required under the loans
and are used to fund the loan installments falling due, as well as minimum
cash deposits required to be maintained with certain banks in accordance
with loan covenants. The Company is permitted to pay dividends under
certain conditions and for amounts as defined in the related loan
agreements.
Interest expense for the years ended December 31, 2003, 2004 and 2005
amounted to $395, $243 and $9,538, respectively and is included in interest
expense and finance costs in the accompanying consolidated statements of
income.
The annual principal payments required to be made after December 31, 2005,
are as follows:
2006 41,685
2007 31,937
2008 28,881
2009 27,112
2010 22,531
2011 and thereafter 112,360
--------------
264,506
Less- Financing fees (1,690)
--------------
262,816
==============
9. Common Stock and Additional Paid-In Capital:
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 $0.1 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.
In December 2004, the Company issued and sold 2,200,000 shares of Class A
common stock, registered under its shelf registration statement to
institutional investors at $25.00 per share. The net proceeds to the
Company totaled $51,451.
On March 21, 2005 the Company issued and sold 5,899,000 shares of Class A
common stock, registered under its shelf registration statement, to
institutional investors at $21.00 per share. The net proceeds to the
Company totaled $116,504.
Effective September 15, 2005, the Company's Class A shares are listed on
the New York Stock Exchange under the symbol "EXM".
10. 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:
Weighted-average
Shares exercise price
----------- ----------------
Outstanding at January 1, 2004 - -
Granted 100,000 31.79
Exercised - -
Forfeited - -
Expired - -
---------- ----------
Outstanding at December 31, 2004 100,000 31.79
========== ==========
Exercisable at December 31, 2004 - -
========== ==========
Weighted-average
Shares exercise price
----------- ----------------
Outstanding at January 1, 2005 100,000 31.79
Granted - -
Exercised - -
Forfeited - -
Expired - -
---------- ----------
Outstanding at December 31, 2005 100,000 31.79
========== ==========
Exercisable at December 31, 2005 - -
========== ==========
The weighted average grant-date fair value of the options granted was
$27.91. The weighted-average remaining contractual life of options
outstanding at December 31, 2005, is 3.76 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 the Company's stock 0.0%
During the years ended December 31, 2004 and 2005, the compensation expense
in connection with all stock-based employee compensation awards amounted to
$222 and $948, respectively and is included in General and administrative
expenses in the accompanying consolidated income statements for the years
ended December 31, 2004 and 2005.
11. 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 was renewable in successive one-year increments
through 2010 at Maryville's option after its initial term. In 2005,
Maryville entered into a new lease agreement (further amended in February
2006), for the rental of new office premises with an unrelated party. In
February 2006, the relocation of Maryville to its new offices was completed
and the 2001 lease agreement for the rental of the previous premises was
terminated. Based on the amended lease agreement, the term of the lease
will be for three years effective February 9, 2006 and the monthly rental
will be approximately $32 (Euro 27,000) adjusted annually for inflation
increase plus an additional 1.5%. Operating lease payments for the years
ended December 31, 2003, 2004 and 2005 amounted to $60, $70 and $107 and
are included in General and administrative expenses in the accompanying
consolidated statements of income.
12. Income Taxes:
Taxation on Liberian and Cyprus registered companies:
Under the laws of Liberia and Cyprus, (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.
Cyprus does not impose a tax on international shipping income. With effect
from January 1, 2001 the Republic of Liberia enacted a new general income
tax act ("New Act"). In contrast to the income tax law previously in effect
since 1977 ("Prior Law"), which the New Act repealed in its entirety, the
New Act does not distinguish between the taxation of income of non-resident
Liberian corporations such as the Company and its Liberian subsidiaries,
who conduct no business in Liberia and were wholly exempted from tax under
Prior Law, and the taxation of ordinary resident Liberian corporations.
In 2004, the Liberian Ministry of Finance issued regulations pursuant to
which a non-resident domestic corporation engaged in international shipping
such as the Company will not be subject to tax under the New Act with
retroactive effect from 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, if the New Regulations are enacted as law,
the Company believes that it and its Liberian subsidiaries will be wholly
exempt from Liberian income tax as under Prior Law and accordingly no
Liberian income tax charge has been provided in the Company's consolidated
income statement for the years presented.
Taxation on US source income:
Pursuant to Section 883 of the Internal Revenue Code of the United States
(the "Code"), U.S. source income from the international operation 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 (the "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 (the "Publicly-Traded Test"). Under
U.S. Treasury regulations, a Company's stock will be considered to be
"regularly traded" on an established securities market if (i) one or more
classes of 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 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 interpreting Section 883 were promulgated in final
form in August 2003. These regulations apply to taxable years beginning
after September 24, 2004. As a result, such regulations became effective
for calendar year taxpayers, like the Company, beginning with the calendar
year 2005. Liberia and Cyprus, the jurisdictions where the Company and its
ship-owning subsidiaries are incorporated, grant an "equivalent exemption"
to United States corporations. Therefore, the Company is exempt from United
States federal income taxation with respect to U.S.-source shipping income
if either the 50% Ownership Test or the Publicly-Traded Test is met.
For the year ended December 31, 2005, the Company determined that it does
not satisfy the Publicly-Traded Test on the basis that its shares are not
"regularly traded" because of the voting power held by its Class B shares.
In addition, the Company does not satisfy the 50% Ownership Test because it
is unable to substantiate certain requirements regarding the identity of
its shareholders. Since the Company does not qualify for exemption under
section 883 of the Code for taxable years beginning on or after January 1,
2005, its United States source shipping income will be subject to a 4% tax.
For taxation purposes, United States source shipping income is defined as
50% of shipping income that is attributable to transportation that begins
or ends, but that does not both begin and end, in the United States. As a
result, an amount of $311 was recognized in the accompanying 2005
consolidated income statement.
13. Voyage and Vessel Operating Expenses:
The amounts in the accompanying consolidated statements of income are
analyzed as follows:
Voyage expenses 2003 2004 2005
-------- -------- --------
Port charges 1,721 1,796 1,330
Bunkers 4,145 3,381 3,793
Commissions charged by third parties 1,446 2,923 6,570
-------- -------- --------
7,312 8,100 11,693
Commissions charged by a related party - - 1,412
-------- -------- --------
7,312 8,100 13,105
======== ======== ========
Vessel Operating Expenses 2003 2004 2005
-------- -------- --------
Crew wages and related costs 3,059 3,220 9,682
Insurance 966 1,181 3,003
Repairs, spares and maintenance 1,363 1,777 6,306
Consumable stores 930 1,077 4,615
Taxes 40 49 113
Miscellaneous 171 214 496
-------- -------- --------
6,529 7,518 24,215
======== ======== ========
14. Interest and Finance Costs:
The amounts in the accompanying consolidated statements of income are
analyzed as follows:
2003 2004 2005
--------- -------- --------
Interest on long term debt 395 243 9,538
Amortization and write-off of
financing costs 39 39 622
Bank Charges 39 81 99
--------- -------- --------
473 363 10,259
========= ======== ========
15. Subsequent Events:
(a) On February 9, 2006, the Company's Board of Directors granted the
Chairman of the Board 20,380 Class A or Class B shares at his option.
The market value of Class A shares on the grant date was $11.04 per
share. The Chairman requested and obtained an extension until May 15,
2006 to declare his election. Such granting was subject to the consent
of the majority of Class B shareholders who held more than 1,000 Class
B shares each. The company has duly notified the appropriate Class B
shareholders and the required consent has been granted.
(b) On March 2, 2006 based on an addendum to the original Management
Termination agreement concluded between the Company and Excel
Management, it was agreed that the period for the issuance of the
shares described in Note 3 is extended until March 2, 2007.
(c) On May 15, 2006, the Company's Board of Directors granted an
additional extension to the Chairman of the Board until November 15,
2006 to declare his election as discussed in (a) above (unaudited).
SIGNATURES
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.
Dated: June 29, 2006 By: /s/ Christopher Georgakis
------------------------------
Christopher Georgakis
Chief Executive Officer