Eagle Bulk Shipping Inc. yesterday announced its results for the first quarter ended March 31, 2012. For the First Quarter: • Net reported loss of $17.4 million or $0.28 per share (based on a weighted average of 63,003,286 diluted shares outstanding for the quarter), compared to net loss of $5.8 million, or $0.09 per share, for the comparable quarter in 2011. • Net revenues of $52.6 million, compared to $86.7 million for the comparable quarter in 2011. Gross time charter and freight revenues of $54.8 million, compared to $90.4 million for the comparable quarter in 2011.
• EBITDA, as adjusted for exceptional items under the terms of the Company's credit agreement, was $13.8 million for the first quarter of 2012, compared to $24.1 million for the comparable quarter in 2011.
• Fleet utilization rate of 98.7%.
Subsequent Event
• As previously announced on November 17, 2011, Eagle Bulk shareholders granted authority for the Company's Board of Directors to effect a reverse stock split of the Company's common stock. Accordingly, Eagle Bulk today announced a 1 for 4 reverse stock split, expected to be effective on May 22, 2012. Eagle Bulk's common stock is expected to begin trading on NASDAQ on a split-adjusted basis when the market opens on May 23, 2012.
Sophocles N. Zoullas, Chairman and CEO, commented, "Eagle Bulk's first quarter results reflect ongoing weakness in the dry bulk markets, which have been characterized by elevated vessel supply continuing to weigh heavily on otherwise stable trade growth. In this environment, we are focused on three, key objectives: a flexible, opportunistic chartering strategy to capture market upside, a diversified cargo mix that stabilizes earnings, and operational excellence and efficiency. Our success in these areas will, we believe, enable us to persevere through the current challenging market and capitalize when conditions normalize."
Results of Operations for the three-month period ended March 31, 2012 and 2011
For the first quarter of 2012, the Company reported a net loss of $17,433,529 or $0.28 per share, based on a weighted average of 63,003,286 diluted shares outstanding. In the comparable first quarter of 2011, the Company reported net income of $5,810,281 or $0.09 per share, based on a weighted average of 62,560,436 diluted shares outstanding.
The Company's revenues were earned from time and voyage charters. Gross time and voyage charter revenues in the quarter ended March 31, 2012 were $54,823,130, compared with $90,382,988 recorded in the comparable quarter in 2011. Gross revenues recorded in the quarters ended March 31, 2012 and 2011 include an amount of $1,228,764 and $1,294,519, respectively, relating to the non-cash amortization of fair value below contract value of time charters acquired. Brokerage commissions incurred on revenues earned in the quarter ended March 31, 2012 and 2011 were $2,206,730 and $3,690,213, respectively. Net revenues during the quarter ended March 31, 2012 and 2011, were $52,616,400 and $86,692,775, respectively.
Total operating expenses for the quarter ended March 31, 2012 were $60,118,356 compared with $82,274,862 recorded in the first quarter of 2011. The Company operated 45 vessels in the first quarter of 2012 compared with 40 vessels in the corresponding quarter in 2011. The decrease in operating expenses was primarily due to reduction in voyage expenses and charter hire expenses. General and administrative expenses include allowance for bad debt of $6,586,900 in the quarter ended March 31, 2011, related to amounts receivable from KLC, which has filed for protective receivership and have received South Korean court approval for rehabilitation, compared to allowance for bad debt of $3,438,145 in the quarter ended March 31, 2012.
EBITDA, adjusted for exceptional items under the terms of the Company's credit agreement, decreased to $13,813,999 for the first quarter of 2012, compared with $24,127,569 for the first quarter of 2011. (Please see below for a reconciliation of EBITDA to net income).
Legal Proceedings
We evaluated the KLC matter to make a determination as to the impact, if any, on our business, liquidity, results of operations, financial condition and cash flows, and recorded an initial allowance for bad debt in the first quarter of 2011 of $6,586,900, which was updated in the fourth quarter of 2011 to reflect the settlement on November 24, 2011. Accordingly, in the fourth quarter of 2011 we adjusted the allowance to $1,811,320, which reflects our recovery of $1,269,070 and write off of $3,506,510. As of March 31, 2012, KLC is not performing in accordance with the $17,000 per vessel per day shortfall arrangement. That revenue
does not meet our revenue recognition policy and approximately $12.4 million is not included in our financial statements. We will recognize that revenue and any future revenue from KLC when collectability is assured.
Liquidity and Capital Resources
Net cash provided by operating activities during the three-month periods ended March 31, 2012 and 2011 was $2,653,413 and $13,792,518, respectively. The decrease was primarily due to lower rates on charter renewals offset by operation of a larger fleet.
Net cash provided by investing activities during the three-month period ended March 31, 2012 was $338,400, compared to net cash used in by investing activities of $42,865,432 during the corresponding three-month period ended March 31, 2011. Investing activities during the three-month period ended March 31, 2011 related primarily to making progress payments and incurring related vessel construction expenses for the newbuilding vessels.
Net cash used by financing activities during the three-month period ended March 31, 2012, was none, compared to $2,333,435 during the corresponding three-month period ended March 31, 2011.
As of March 31, 2012, our cash balance was $28,067,016, compared to a cash balance of $25,075,203 at December 31, 2011. Also recorded in Restricted Cash is an amount of $276,056, which is collateralizing letters of credit relating to our office leases.
At March 31, 2012, the Company's debt consisted of $1,129,478,741 in borrowings under the amended Revolving Credit Facility.
On August 4, 2009, the Company entered into a Third Amendatory Agreement to its revolving credit facility dated October 19, 2007. See the section in the Company's 2011 Annual Report on Form 10-K filed with the SEC on March 15, 2012 entitled "Revolving Credit Facility" for a description of the facility and its amendments. The facility also provides us with the ability to borrow up to $20,000,000 for working capital purposes.
On September 26, 2011, we entered into the Sixth Amendment to the Third Amended and Restated Credit Agreement dated October 19, 2007; most of the provisions of which, unless amended, originally expired on April 30, 2012. On April 27, 2012, the Company and the Lenders extended the expiration date of the Sixth Amendment to May 31, 2012. Among other provisions, the Sixth Amendment suspends the Company's compliance with the Minimum Adjusted Net Worth covenant until May 31, 2012 for the accounting periods ended March 31, 2011, June 30, 2011, September 30, 2011, December 31, 2011, and March 31, 2012, and suspended compliance with the Minimum Liquidity covenant until January 30, 2012. From January 31, 2012 until March 30, 2012, the Minimum Liquidity covenant was reduced to $500,000 multiplied by the number of vessels owned by the Company, from March 31 until April 29, 2012, the Company was required to maintain cash and cash equivalents in the amount of $27,000,000 and from April 30, 2012 until May 31, 2012, the Company is required to maintain cash and cash equivalents in the amount of $36,000,000. Until May 31, 2012, the calculation of the Minimum Liquidity covenant includes undrawn facility amounts as cash and cash equivalents. As of March 31, 2012 the undrawn amount under the facility was $21,875,735. The Sixth Amendment also requires the Company to obtain the Lenders' consent for additional vessel dispositions during the commercial framework period, and to make reasonable efforts to meet certain reporting requirements to the Lenders. The Company was in compliance with all of the covenants related to this Sixth Amendment as of March 31, 2012 and expects to be in compliance with all covenants in effect through the expiration of the Sixth Amendment on May 31, 2012.
At the end of the commercial framework period we will provide to our Lenders with the compliance certificates for the deferred periods. As described in Note 4 to our consolidated financial statements in included in Item 1 to this Quarterly Report, on August 4, 2009, we entered into a third amendatory agreement to our revolving credit facility. Among other things, the third amendatory agreement reduced the facility to $1.2 billion and changed the applicable interest rate to 2.5% over LIBOR. In addition, among other changes, the third amendatory agreement amended the facility's net worth covenant from a market value to book value measurement with respect to the value of our fleet and reduced the facility's EBITDA to interest coverage ratio, with these changes to stay in effect until we were in compliance with the facility's original covenants for two consecutive accounting periods. Based on information which we provided in 2010 to the Lenders under the revolving credit facility, the agent for the Lenders notified us that according to its interpretation we were in compliance with the original covenants for the second and third quarters during 2010, and, therefore, our original collateral covenants have been reinstated. We disagree with the interpretation of the original covenant calculation being used by the agent and have advised the agent that we were not in compliance with the original covenants for these two consecutive quarters, and, therefore, the amended collateral covenants should remain in place. Under the agent's interpretation of the covenant, we were in compliance both with the original collateral covenants and the amended collateral covenants during the accounting period ended December 31, 2010. We have remained in compliance with the amended collateral covenants during the accounting periods ended March 31, 2011, June 30, 2011, September 30, 2011, December 31, 2011, and March 31, 2012, but would not have been in compliance with the covenants for these periods under the agent's interpretation of the original collateral covenants. We believe that our interpretation of the facility agreement's covenant calculation is correct, that the reinstatement of the original loan covenant has not occurred, and that we remain in compliance with all covenants in effect at March 31, 2012. However, if the agent's interpretation is determined to be correct, we would not be in compliance with the original covenants for the periods ending March 31, 2011, June 30, 2011, September 30, 2011, December 31, 2011, and March 31, 2012, which would constitute a default under the facility agreement and would result in the classification as current of the amounts due under the facility agreement and would lead to substantial doubt about our ability to continue as a going concern, if we are unable to agree on satisfactory alternative terms or obtain a waiver from the Lenders. We are in discussions with our Lenders as part of the Sixth Amendment to either amend the facility's amortization schedule or the covenants then in effect. Although there is no assurance that we will be successful in doing so, we continue to seek a satisfactory agreement with our lenders.
Source: Eagle Bulk Shipping Inc.