Genco Shipping & Trading (GNK) - 2018 Q4 - Annual Report

Environmental Regulations - As of January 1, 2015, ships operating within Emission Control Areas (ECAs) are not permitted to use fuel with sulfur content exceeding 0.1%[72] - The Tier III Nitrogen Oxide (NOx) standards will apply to ships operating in North American and U.S. Caribbean Sea ECAs for vessels constructed on or after January 1, 2016[73] - By 2025, all new ships built will be 30% more energy efficient than those built in 2014 due to mandatory energy efficiency measures[76] - The Ballast Water Management Convention requires ships to manage ballast water to prevent the introduction of invasive species, with compliance costs estimated between $0.5 million to $0.8 million per system[88] - The company is subject to the EU regulations requiring ships over 5,000 gross tonnage to monitor and report carbon dioxide emissions annually[109] - Compliance with the EPA and USCG regulations may require substantial costs for installing ballast water treatment equipment on vessels[107] - Compliance with updated ballast water management systems is expected to involve substantial costs, affecting revenues and profitability[150] - The company is subject to various environmental regulations that could require significant expenditures and impact cash flows and net income[143] Liability and Insurance - The International Convention on Civil Liability for Oil Pollution Damage requires ships over 2,000 tons to maintain insurance covering pollution liability for a single incident[89] - The Bunker Convention imposes strict liability on ship owners for pollution damage caused by discharges of bunker fuel, requiring insurance for ships over 1,000 gross tons[90] - The company maintains pollution liability coverage insurance of $1 billion per incident for each of its vessels[103] - Under OPA, the liability cap for non-tank vessels is set at the greater of $1,100 per gross ton or $939,800, subject to periodic inflation adjustments[101] - CERCLA limits liability for vessels carrying hazardous substances to the greater of $300 per gross ton or $5 million, and for other vessels to the greater of $300 per gross ton or $500,000[97] - The U.S. Clean Water Act imposes strict liability for unauthorized discharges, complementing the remedies available under OPA and CERCLA[105] - The U.S. Coast Guard's financial responsibility regulations require vessel owners to maintain evidence of financial responsibility sufficient to meet maximum liability amounts[100] Financial Performance and Market Conditions - The company experienced declining revenues and negative cash flow in recent years due to a prolonged downturn in the drybulk charter market[128] - The Baltic Dry Index (BDI) showed improvement in 2018 but has since declined, indicating ongoing volatility in freight and charter rates[131] - The drybulk sector typically sees stronger demand in fall and winter months, potentially leading to weaker revenues in the quarters ending June 30 and September 30[123] - The supply of drybulk carriers continues to increase, which may lead to further reductions in freight rates and profitability if demand does not keep pace[137] - The company anticipates that future demand for drybulk carriers will depend on economic growth, particularly in China and India[135] - The company may incur impairment charges due to prolonged declines in freight and charter rates, which could adversely affect its financial condition and ability to continue as a going concern[138] - Economic slowdowns in the Asia Pacific region, particularly in China, India, or Japan, could materially impact the company's business and financial results[140] - Increased trade barriers, especially with China, could adversely affect global economic conditions and the amount of cargo transported on drybulk vessels[141] Operational Risks - The company faces significant operational risks related to delays in cargo delivery, which could result in customer claims and adversely affect financial performance[184] - The company must maintain compliance with collateral maintenance covenants under its credit facilities, which are tested quarterly[132] - The company faces risks related to potential breaches of covenants in its credit facilities if earnings and cash flows decline for an extended period[132] - The company is subject to various security measures under MTSA, SOLAS Convention, and ISPS Code, which could have significant financial impacts[120] - Acts of piracy in regions such as the Gulf of Aden and the South China Sea continue to pose risks that could adversely affect the company's operations[158] - The company may face significant increases in insurance premiums and crew costs due to piracy incidents, which could adversely affect its financial condition[159] - Changes in inspection procedures could impose additional financial and legal obligations, adversely affecting the company's business and results of operations[153] - The company operates 30 vessels on spot market voyage charters, making it vulnerable to fluctuations in fuel prices, which could affect profitability[173] - Seasonal fluctuations in demand may result in quarter-to-quarter volatility in operating results, with potential weaker revenues during certain fiscal quarters[176] Financial Structure and Capital Management - The company refinanced its credit facilities into a $460 million facility and completed a $116 million capital raise in June 2018[129] - The company has a credit facility of $460 million and a $108 million facility, with dividend payments limited to 50% of consolidated net income if certain conditions are met[200] - The company may need to raise additional capital in the future, which could dilute existing shareholders' interests and may not be available on favorable terms[243] - Future issuances of common stock could dilute shareholders' interests, reducing their percentage of ownership and voting power[244] - The creditworthiness of charterers poses a risk, potentially affecting capital acquisition and increasing financing costs[208] Corporate Governance and Compliance - Noncompliance with the ISM Code may lead to increased liability and denial of access to ports, with all vessels currently ISM Code certified[93] - Management's inability to provide effective internal control reports could lead to decreased investor confidence and stock value[209] - As of December 31, 2014, internal controls over financial reporting were deemed ineffective, impacting future reporting requirements[210] - The company may face challenges in enforcing U.S. judgments due to its incorporation in the Republic of the Marshall Islands, complicating legal recourse for U.S. shareholders[251] - Violations of anti-corruption laws could result in civil and criminal penalties, impacting the company's financial results[167] Shareholder and Market Dynamics - As of March 5, 2019, significant shareholders include Centerbridge Partners, L.P. with approximately 25.2%, Apollo Global Management with approximately 13.0%, and Strategic Value Partners, LLC with approximately 24.4% of common stock[237] - The market price of the company's common stock could decline due to large sales by significant shareholders or the perception of such sales[240] - Anti-takeover provisions in the company's articles of incorporation may discourage or delay potential mergers or acquisitions, affecting shareholder interests[246] Tax and Regulatory Considerations - The establishment of Genco Shipping Pte. Ltd. in Singapore allows for a tax exemption on qualifying shipping operations for an initial period of 10 years[226] - Genco Shipping A/S, incorporated in Denmark, is subject to a corporate tax rate of 22%[227] - If Genco does not qualify for the Section 883 exemption, U.S. source shipping income could be subject to a 4% tax[221] - The company may be treated as a "passive foreign investment company," which could have adverse tax consequences for U.S. shareholders[228] - Legislative changes in tax laws could materially affect the company's effective tax rate and cash tax position, with potential significant expenses to preserve its tax position[236] Financial Condition and Assets - Total current assets increased to $270.5 million as of December 31, 2018, compared to $217.2 million in 2017, reflecting a growth of approximately 24.5%[464] - Total assets reached $1.63 billion as of December 31, 2018, up from $1.52 billion in 2017, indicating an increase of about 7.1%[464] - The company reported a retained deficit of $687.3 million as of December 31, 2018, compared to $653.7 million in 2017, representing an increase in the deficit of approximately 5.1%[464] - Long-term debt, net of deferred financing costs, was $468.8 million as of December 31, 2018, down from $490.9 million in 2017, a decrease of about 4.5%[464] - Cash and cash equivalents increased to $197.5 million as of December 31, 2018, compared to $174.5 million in 2017, reflecting a growth of approximately 13.2%[464] - The company did not have any derivative financial instruments as of December 31, 2018[452] - The company incurred certain operating expenses in currencies other than the U.S. Dollar, but the foreign exchange risk associated with these expenses is considered immaterial[453] - A total loss of $2.7 million was recorded as impairment of investment in the Consolidated Statement of Operations for the year ended December 31, 2016[454]