UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: August 1, 2017
Commission File Number 001-34153
GLOBAL SHIP LEASE, INC.
(Exact name of Registrant as specified in its Charter)
c/o Portland House,
Stag Place,
London SWIE 5RS,
United Kingdom
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1). Yes ☐ No ☒
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7). Yes ☐ No ☒
Information Contained in this Form 6-K Report
Attached hereto as Exhibit I is a press release dated July 31, 2017 of Global Ship Lease, Inc. (the “Company”) reporting the Company’s financial results for the three and six months ended June 30, 2017. Attached hereto as Exhibit II are the Company’s interim unaudited consolidated financial statements for the three and six months ended June 30, 2017.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| GLOBAL SHIP LEASE, INC. | ||||
| Date: August 1, 2017 |
By: | /s/ Ian J. Webber | ||
| Ian J. Webber | ||||
| Chief Executive Officer | ||||
Page 2
Exhibit I
Investor and Media Contacts:
The IGB Group
Leon Berman
212-477-8438
Global Ship Lease Reports Results for the Second Quarter of 2017
LONDON, ENGLAND—July 31, 2017 - Global Ship Lease, Inc. (NYSE:GSL), a containership charter owner, announced today its unaudited results for the three months and six months ended June 30, 2017.
Second Quarter and Year To Date Highlights
- Reported operating revenues of $40.3 million for the second quarter 2017. Revenue for the six months ended June 30, 2017 was $79.9 million
- Reported net income available to common shareholders of $6.8 million for the second quarter 2017. For the six months ended June 30, 2017, net income was $13.6 million
- Generated $28.1 million of Adjusted EBITDA(1) for the second quarter 2017. Adjusted EBITDA for the six months ended June 30, 2017 was $56.1 million
- Normalized net income(1) was $7.3 million for second quarter 2017. Normalized net income was $14.1 million for the six months ended June 30, 2017
- Purchased and cancelled on April 21, 2017, $19.5 million principal amount 10.0% First Priority Secured Notes due 2019. Net debt to last 12 months Adjusted EBITDA was 3.1 times at June 30, 2017, down from 3.3 times at December 31, 2016
Ian Webber, Chief Executive Officer of Global Ship Lease, stated, “During the second quarter of 2017, we remained focused on generating strong cashflows from stable, fixed-rate contracts with industry-leading counterparties. The value and consistency of this core strategy was once again evident in our financial results for the quarter.”
Mr. Webber added, “Looking forward, we expect continued firming in the charter market over time, driven by discipline in the placement of new orders, an orderbook heavily skewed towards the largest vessels, elevated scrapping consisting almost entirely of the mid-sized and smaller vessel classes where we focus, and better than expected demand growth. We remain encouraged by the upward movement of the spot charter market throughout 2017 and believe that this should benefit those of our vessels due to become open later this year and early next. By continuing to maximize vessel utilization with top-tier counterparties, actively manage costs, and opportunistically pursue further deleveraging of our stable balance sheet, we believe that Global Ship Lease is well positioned to create long-term value for our shareholders amidst an improving market environment.”
Page 1
SELECTED FINANCIAL DATA – UNAUDITED
| (thousands of U.S. dollars) | ||||||||||||||||
| Three months ended June 30, |
Three months ended June 30, |
Six months ended June 30, |
Six months ended June 30, |
|||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenue |
40,259 | 41,333 | 79,901 | 83,943 | ||||||||||||
| Operating Income |
18,531 | 17,921 | 36,965 | 36,306 | ||||||||||||
| Net Income for Common Shareholders |
6,824 | 6,043 | 13,618 | 10,600 | ||||||||||||
| Adjusted EBITDA (1) |
28,072 | 28,798 | 56,106 | 58,118 | ||||||||||||
| Normalized Net Income (1) |
7,344 | 5,632 | 14,138 | 11,061 | ||||||||||||
| (1) | Adjusted EBITDA and Normalized net income are non-US Generally Accepted Accounting Principles (US GAAP) measures, as explained further in this press release, and are considered by Global Ship Lease to be useful measures of its performance. Reconciliations of such non-GAAP measures to the interim unaudited financial information are provided in this Earnings Release. |
Revenue and Utilization
The 18-vessel fleet generated revenue from fixed-rate, mainly long-term time, charters of $40.3 million in the three months ended June 30, 2017, down $1.0 million (or 2.6%) on revenue of $41.3 million for the comparative period in 2016, due mainly to reduced revenue as a consequence of the amendments to the charters of Marie Delmas and Kumasi effective August 1, 2016, offset by an overall reduction in offhire from a total of 53 days in the three months ended June 30, 2016 to 42 days in the 2017 period. There were 1,638 ownership days in the quarter, the same as in the comparative period in 2016. The 42 days of offhire in the three months ended June 30, 2017 were attributable to 15 days for scheduled dry-dockings and 27 days unplanned offhire, primarily related to a vessel grounding in late March, giving an overall utilization of 97.4%. The affected vessel underwent repairs and was successfully returned to service. In the comparative period of 2016, there were 51 days of planned offhire for scheduled dry-dockings and two days of unplanned offhire, giving a utilization of 96.8%.
For the six months ended June 30, 2017, revenue was $79.9 million, down $4.0 million (or 4.8%) on revenue of $83.9 million in the comparative period, mainly due to the amendments to the charters of Marie Delmas and Kumasi effective August 1, 2016 and an increase in offhire to a total of 92 days in the six months ended June 30, 2017 from 53 in the comparative period.
The table below shows fleet utilization for the three and six months ended June 30, 2017 and 2016, and for the years ended December 31, 2016, 2015, 2014 and 2013.
| Three months ended | Six months ended | |||||||||||||||||||||||||||||||
| Days |
June 30, 2017 |
June 30, 2016 |
June 30, 2017 |
June 30, 2016 |
Dec 31, 2016 |
Dec 31, 2015 |
Dec 31, 2014 |
Dec 31, 2013 |
||||||||||||||||||||||||
| Ownership days |
1,638 | 1,638 | 3,258 | 3,276 | 6,588 | 6,893 | 6,270 | 6,205 | ||||||||||||||||||||||||
| Planned offhire - scheduled dry-dock |
(15 | ) | (51 | ) | (62 | ) | (51 | ) | (100 | ) | (9 | ) | (48 | ) | (21 | ) | ||||||||||||||||
| Unplanned offhire |
(27 | ) | (2 | ) | (30 | ) | (2 | ) | (3 | ) | (7 | ) | (12 | ) | (7 | ) | ||||||||||||||||
| Idle time |
0 | 0 | 0 | 0 | 0 | (13 | ) | (64 | ) | 0 | ||||||||||||||||||||||
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| Operating days |
1,596 | 1,585 | 3,166 | 3,223 | 6,485 | 6,864 | 6,146 | 6,177 | ||||||||||||||||||||||||
| Utilization |
97.4% | 96.8% | 97.2% | 98.4% | 98.4% | 99.6% | 98.0% | 99.5% | ||||||||||||||||||||||||
Page 2
In the three months ended June 30, 2017, we completed one regulatory dry-docking. There have been a total of four regulatory dry-dockings year to date. One further regulatory dry-docking is scheduled in 2017. Two dry-dockings were completed in the three months ended June 30, 2016, and one further dry-docking was substantially completed. There were a total of six dry-dockings in 2016.
Vessel Operating Expenses
Vessel operating expenses, which include costs of crew, lubricating oil, spares and insurance, as well as bunker fuel when a vessel is offhire or without a charter, were $10.9 million for the three months ended June 30, 2017. The average cost per ownership day in the quarter was $6,635, compared to $6,909 for the comparative period, down $274 or 4.0%. The reductions occurred across several cost categories, most prominently from lower consumption of lubricating oil, reduced insurance costs on renewals and lower expenditure on repairs and maintenance.
For the six months ended June 30, 2017, vessel operating expenses were $21.3 million, or an average of $6,531 per day, compared to $22.7 million in the comparative period, or $6,935 per day.
Depreciation
Depreciation for the three months ended June 30, 2017 was $9.5 million, compared to $10.9 million in the second quarter 2016, with the reduction being due to the effect of lower book values for a number of vessels following impairment write downs taken in the third and fourth quarters 2016.
Depreciation for the six months ended June 30, 2017 was $19.1 million, compared to $21.8 million in the comparative period, with the reduction being due to the reason noted above.
General and Administrative Costs
General and administrative costs were $1.3 million in the three months ended June 30, 2017, the same as in the second quarter of 2016.
For the six months ended June 30, 2017, general and administrative costs were $2.6 million, compared to $3.3 million in the comparative period in 2016, which includes higher legal and professional fees in the three months ended March 31, 2016.
Other Operating Income
Other operating income in the three months ended June 30, 2017 was $6,000, compared to $63,000 in the second quarter of 2016.
For the six months ended June 30, 2017, other operating income was $48,000, compared to $144,000 in the comparative period.
Adjusted EBITDA
As a result of the above, Adjusted EBITDA was $28.1 million for the three months ended June 30, 2017, down from $28.8 million for the three months ended June 30, 2016.
Adjusted EBITDA for the six months ended June 30, 2017 was $56.1 million, compared to $58.1 million for the comparative period.
Page 3
Interest Expense
Debt at June 30, 2017 comprised amounts outstanding on our Notes, the revolving credit facility and the secured term loan.
Interest expense for the three months ended June 30, 2017, was $11.0 million, compared to $11.1 million for the three months ended June 30, 2016. The reduction of $1.0 million interest paid on our 10.0% Notes on lower amounts outstanding was offset by $0.5 million charges, including premium paid, associated with the excess cashflow offer which retired $19.5 million principal amount of our 10% Notes on April 21, 2017, whereas second quarter 2016 included a $0.5 million gain realized in May 2016 on the purchase in the open market of $4.2 million principal amount of the Notes.
For the six months ended June 30, 2017, interest expense was $22.0 million, compared to $24.2 million for the six months ended June 30, 2016. The reduction is mainly due to lower interest on the lower amount outstanding of our 10% Notes.
Interest income for the three months ended June 30, 2017 was $0.1 million, compared to $38,000 in the comparative quarter in 2016.
Interest income for the six months ended June 30, 2017 was $0.2 million, compared to $0.1 million in the comparative period in 2016.
Taxation
Taxation for the three months ended June 30, 2017 was $6,000, compared to $9,000 in the second quarter of 2016.
Taxation for the six months ended June 30, 2017 was $16,000, compared to $15,000 for the comparative period in 2016.
Earnings Allocated to Preferred Shares
The Series B preferred shares, issued on August 20, 2014, carry a coupon of 8.75%, the cost of which for the three months ended June 30, 2017 was $0.8 million, the same as in the comparative period. The cost was $1.5 million in the six months ended June 30, 2017, again the same as in the comparative period.
Net Income Available to Common Shareholders
Net income available to common shareholders for the three months ended June 30, 2017 was $6.8 million, compared to $6.0 million in the second quarter 2016.
Normalized net income, which excludes the premium paid on the purchase of our 10% Notes in April 2017 under the excess cashflow offer and associated charges, was $7.3 million for the three months ended June 30, 2017, compared to $5.6 million in the second quarter of 2016.
Net income available to common shareholders was $13.6 million for the six months ended June 30, 2017, compared to $10.6 million in the comparative period. Normalized net income for the six months ended June 30, 2017, was $14.1 million. Normalized net income for the six months ended June 30, 2016 which excludes the gain on the purchase of 10% Notes in May 2016 and the premium associated with the tender offer for 10% Notes completed in March 2016, and associated charges, was $11.1 million.
Page 4
Fleet
The following table provides information about the on-the-water fleet of 18 vessels as at June 30, 2017. 15 vessels are chartered to CMA CGM, and three are chartered to OOCL.
| Vessel Name |
Capacity in TEUs (1) |
Year Built |
Purchase by GSL |
Remaining Charter Term (2) (years) |
Earliest Charter Expiry Date |
Daily Charter Rate $ |
||||||||||||
| CMA CGM Matisse |
2,262 | 1999 | Dec 2007 | 2.50 | Sept 21, 2019 | 15,300 | ||||||||||||
| CMA CGM Utrillo |
2,262 | 1999 | Dec 2007 | 2.50 | Sept 11, 2019 | 15,300 | ||||||||||||
| Delmas Keta |
2,207 | 2003 | Dec 2007 | 0.50 | Sept 20, 2017 | 18,465 | ||||||||||||
| Julie Delmas |
2,207 | 2002 | Dec 2007 | 0.50 | Sept 11, 2017 | 18,465 | ||||||||||||
| Kumasi |
2,207 | 2002 | Dec 2007 | 1.50 - 3.50(3) | Nov 16, 2018 | 13,000 | (3) | |||||||||||
| Marie Delmas |
2,207 | 2002 | Dec 2007 | 1.50 - 3.50(3) | Nov 16, 2018 | 13,000 | (3) | |||||||||||
| CMA CGM La Tour |
2,272 | 2001 | Dec 2007 | 2.50 | Sept 20, 2019 | 15,300 | ||||||||||||
| CMA CGM Manet |
2,272 | 2001 | Dec 2007 | 2.50 | Sept 7, 2019 | 15,300 | ||||||||||||
| CMA CGM Alcazar |
5,089 | 2007 | Jan 2008 | 3.50 | Oct 18, 2020 | 33,750 | ||||||||||||
| CMA CGM Château d’If |
5,089 | 2007 | Jan 2008 | 3.50 | Oct 11, 2020 | 33,750 | ||||||||||||
| CMA CGM Thalassa |
11,040 | 2008 | Dec 2008 | 8.50 | Oct 1, 2025 | 47,200 | ||||||||||||
| CMA CGM Jamaica |
4,298 | 2006 | Dec 2008 | 5.50 | Sept 17, 2022 | 25,350 | ||||||||||||
| CMA CGM Sambhar |
4,045 | 2006 | Dec 2008 | 5.50 | Sept 16, 2022 | 25,350 | ||||||||||||
| CMA CGM America |
4,045 | 2006 | Dec 2008 | 5.50 | Sept 19, 2022 | 25,350 | ||||||||||||
| CMA CGM Berlioz |
6,621 | 2001 | Aug 2009 | 4.25 | May 28, 2021 | 34,000 | ||||||||||||
| OOCL Tianjin |
8,063 | 2005 | Oct 2014 | 0.50 | Oct 28, 2017 | 34,500 | ||||||||||||
| OOCL Qingdao |
8,063 | 2004 | Mar 2015 | 0.75 | Mar 11, 2018 | 34,500 | ||||||||||||
| OOCL Ningbo |
8,063 | 2004 | Sep 2015 | 1.25 | Sep 17, 2018 | 34,500 | ||||||||||||
| (1) | Twenty-foot Equivalent Units. |
| (2) | As at June 30, 2017. Plus or minus 90 days, other than (i) OOCL Tianjin which is between October 28, 2017 and January 28, 2018, (ii) OOCL Qingdao which is between March 11, 2018 and June 11, 2018, and (iii) OOCL Ningbo which is between September 17, 2018 and December 17, 2018, all at charterer’s option. |
| (3) | The charters for Kumasi and Marie Delmas were amended in July 2016. The charter rate is $13,000 per day until September 14, 2017 for Marie Delmas and September 21, 2017 for Kumasi. Thereafter, the daily rate is $9,800. The earliest possible re-delivery date is shown in the table, taking account of the Company exercising its option to extend the charters through December 31, 2018 plus or minus 45 days. The Company has two further consecutive options to extend the charters, at $9,800 per day, which, if exercised, would extend the earliest re-delivery date to October 2, 2020. |
Conference Call and Webcast
Global Ship Lease will hold a conference call to discuss the Company’s results for the three months ended June 30, 2017 today, Monday July 31, 2017 at 10:30 a.m. Eastern Time. There are two ways to access the conference call:
(1) Dial-in: (877) 445-2556 or (908) 982-4670; Passcode: 56081709
Please dial in at least 10 minutes prior to 10:30 a.m. Eastern Time to ensure a prompt start to the call.
(2) Live Internet webcast and slide presentation: http://www.globalshiplease.com
If you are unable to participate at this time, a replay of the call will be available through Wednesday, August 16, 2017 at (855) 859-2056 or (404) 537-3406. Enter the code 56081709 to access the audio replay. The webcast will also be archived on the Company’s website: http://www.globalshiplease.com.
Page 5
Annual Report on Form 20F
Global Ship Lease, Inc has filed its Annual Report for 2016 with the Securities and Exchange Commission. A copy of the report can be found under the Investor Relations section (Annual Reports) of the Company’s website at http://www.globalshiplease.com Shareholders may request a hard copy of the audited financial statements free of charge by contacting the Company at info@globalshiplease.com or by writing to Global Ship Lease, Inc, care of Global Ship Lease Services Limited, Portland House, Stag Place, London SW1E 5RS or by telephoning +44 (0) 207 869 8806.
About Global Ship Lease
Global Ship Lease is a containership charter owner. Incorporated in the Marshall Islands, Global Ship Lease commenced operations in December 2007 with a business of owning and chartering out containerships under mainly long-term, fixed-rate charters to top tier container liner companies.
Global Ship Lease owns 18 vessels with a total capacity of 82,312 TEU and an average age, weighted by TEU capacity, at June 30, 2017 of 12.5 years. All 18 vessels are currently fixed on time charters, 15 of which are with CMA CGM. The average remaining term of the charters at June 30, 2017 is 3.1 years or 3.5 years on a weighted basis.
Reconciliation of Non-U.S. GAAP Financial Measures
A. Adjusted EBITDA
Adjusted EBITDA represents net income before interest income and expense including amortization of deferred finance costs, realized and unrealized gain (loss) on derivatives, income taxes, depreciation and amortization. Adjusted EBITDA is a non-US GAAP quantitative measure used to assist in the assessment of the Company’s ability to generate cash from its operations. We believe that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Adjusted EBITDA is not defined in US GAAP and should not be considered to be an alternate to Net income or any other financial metric required by such accounting principles.
ADJUSTED EBITDA - UNAUDITED
(thousands of U.S. dollars)
| Three months ended June 30, 2017 |
Three months ended June 30, 2016 |
Six months ended June 30, 2017 |
Six months ended June 30, 2016 |
|||||||||||||||
| Net income available to Common Shareholders |
6,824 | 6,043 | 13,618 | 10,600 | ||||||||||||||
| Adjust: |
Depreciation | 9,541 | 10,877 | 19,141 | 21,812 | |||||||||||||
| Interest income |
(90 | ) | (38 | ) | (183 | ) | (82 | ) | ||||||||||
| Interest expense |
11,026 | 11,142 | 21,983 | 24,242 | ||||||||||||||
| Income tax |
6 | 9 | 16 | 15 | ||||||||||||||
| Earnings allocated to preferred shares |
765 | 765 | 1,531 | 1,531 | ||||||||||||||
| Adjusted EBITDA |
28,072 | 28,798 | 56,106 | 58,118 | ||||||||||||||
Page 6
B. Normalized net income
Normalized net income represents net income adjusted for the premium paid on the tender offer together with the related accelerated amortization of deferred financing costs and original issue discount. Normalized net income is a non-GAAP quantitative measure which we believe will assist investors and analysts who often adjust reported net income for non-operating items that do not affect operating performance or operating cash generated. Normalized net income is not defined in US GAAP and should not be considered to be an alternate to net income or any other financial metric required by such accounting principles.
NORMALIZED NET INCOME - UNAUDITED
(thousands of U.S. dollars)
| Three months ended June 30, 2017 |
Three months ended June 30, 2016 |
Six months ended June 30, 2017 |
Six months ended June 30, 2016 |
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| Net income available to Common Shareholders |
6,824 | 6,043 | 13,618 | 10,600 | ||||||||||||||
| Adjust: |
Gain on purchase of Notes |
— | (452 | ) | — | (452 | ) | |||||||||||
| Premium paid on tender offer for Notes |
390 | — | 390 | 533 | ||||||||||||||
| Accelerated write off of deferred financing charges related to purchase and tender offer |
61 | 10 | 61 | 90 | ||||||||||||||
| Accelerated write off of original issue discount related to purchase and tender offer |
69 | 31 | 69 | 290 | ||||||||||||||
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| Normalized net income |
7,344 | 5,632 | 14,138 | 11,061 | ||||||||||||||
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Safe Harbor Statement
This communication contains forward-looking statements. Forward-looking statements provide Global Ship Lease’s current expectations or forecasts of future events. Forward-looking statements include statements about Global Ship Lease’s expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “will” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements are based on assumptions that may be incorrect, and Global Ship Lease cannot assure you that these projections included in these forward-looking statements will come to pass. Actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors.
Page 7
The risks and uncertainties include, but are not limited to:
| • | future operating or financial results; |
| • | expectations regarding the strength of future growth of the container shipping industry, including the rates of annual demand and supply growth; |
| • | the financial condition of CMA CGM (the company’s principal charterer and main source of operating revenue) and other charterers and their ability to pay charterhire in accordance with the charters; |
| • | the overall health and condition of the U.S. and global financial markets; |
| • | Global Ship Lease’s financial condition and liquidity, including its ability to obtain additional financing to fund capital expenditures, vessel acquisitions and for other general corporate purposes and its ability to meet its financial covenants and repay its borrowings; |
| • | Global Ship Lease’s expectations relating to dividend payments and forecasts of its ability to make such payments including the availability of cash and the impact of constraints under its first priority secured notes; |
| • | future acquisitions, business strategy and expected capital spending; |
| • | operating expenses, availability of key employees, crew, number of off-hire days, dry-docking and survey requirements, costs of regulatory compliance, insurance costs and general and administrative costs; |
| • | general market conditions and shipping industry trends, including charter rates and factors affecting supply and demand; |
| • | assumptions regarding interest rates and inflation; |
| • | change in the rate of growth of global and various regional economies; |
| • | risks incidental to vessel operation, including piracy, discharge of pollutants and vessel accidents and damage including total or constructive total loss; |
| • | estimated future capital expenditures needed to preserve Global Ship Lease’s capital base; |
| • | Global Ship Lease’s expectations about the availability of vessels to purchase, the time that it may take to construct new vessels, or the useful lives of its vessels; |
| • | Global Ship Lease’s continued ability to enter into or renew charters including the re-chartering of vessels on the expiry of existing charters, or to secure profitable employment for its vessels in the spot market; |
| • | the continued performance of existing charters; |
| • | Global Ship Lease’s ability to capitalize on management’s and directors’ relationships and reputations in the containership industry to its advantage; |
| • | changes in governmental and classification societies’ rules and regulations or actions taken by regulatory authorities; |
| • | expectations about the availability of insurance on commercially reasonable terms; |
| • | unanticipated changes in laws and regulations; and |
| • | potential liability from future litigation. |
Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Global Ship Lease’s actual results could differ materially from those anticipated in forward-looking statements for many reasons specifically as described in Global Ship Lease’s filings with the SEC. Accordingly, you should not unduly rely on these forward-looking statements, which speak only as of the date of this communication. Global Ship Lease undertakes no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this communication or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks Global Ship Lease describes in the reports it will file from time to time with the SEC after the date of this communication.
Page 8
Exhibit II
GLOBAL SHIP LEASE, INC.
INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2017
Global Ship Lease, Inc.
Interim Unaudited Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars)
| June 30, 2017 |
December 31, 2016 |
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| Note | ||||||||||||
| Assets |
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| Cash and cash equivalents |
$ | 59,432 | $ | 54,243 | ||||||||
| Accounts receivable |
15 | 29 | ||||||||||
| Due from related party |
6 | 862 | 906 | |||||||||
| Prepaid expenses |
1,098 | 1,146 | ||||||||||
| Other receivables |
182 | 52 | ||||||||||
| Inventory |
674 | 553 | ||||||||||
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| Total current assets |
62,263 | 56,929 | ||||||||||
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| Vessels in operation |
4 | 703,993 | 719,110 | |||||||||
| Other fixed assets |
13 | 7 | ||||||||||
| Intangible assets |
11 | 16 | ||||||||||
| Other long term assets |
5 | 140 | 195 | |||||||||
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| Total non-current assets |
704,157 | 719,328 | ||||||||||
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| Total Assets |
$ | 766,420 | $ | 776,257 | ||||||||
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| Liabilities and Stockholders’ Equity |
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| Liabilities |
||||||||||||
| Current portion of long term debt |
5 | 27,512 | 31,026 | |||||||||
| Intangible liability – charter agreements |
1,788 | 1,807 | ||||||||||
| Deferred revenue |
2,698 | 1,940 | ||||||||||
| Accounts payable |
791 | 963 | ||||||||||
| Due to related party |
6 | 1,817 | 1,315 | |||||||||
| Accrued expenses |
11,034 | 11,664 | ||||||||||
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| Total current liabilities |
45,640 | 48,715 | ||||||||||
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| Long term debt |
5 | 369,355 | 388,847 | |||||||||
| Intangible liability – charter agreements |
8,897 | 9,782 | ||||||||||
| Deferred tax liability |
17 | 20 | ||||||||||
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| Total long term liabilities |
378,269 | 398,649 | ||||||||||
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| Total Liabilities |
$ | 423,909 | $ | 447,364 | ||||||||
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|
|
|||||||||
| Commitments and contingencies |
7 | — | — | |||||||||
| Stockholders’ Equity |
||||||||||||
| Class A Common stock – authorized 214,000,000 shares with a $0.01 par value; 47,575,609 shares issued and outstanding (2016 – 47,575,609) |
8 | $ | 476 | $ | 476 | |||||||
| Class B Common stock – authorized 20,000,000 shares with a $0.01 par value; 7,405,956 shares issued and outstanding (2016 – 7,405,956) |
8 | 74 | 74 | |||||||||
| Series B Preferred shares – authorized 16,100 shares with $0.01 par value; 14,000 shares issued and outstanding (2016 – 14,000) |
8 | — | — | |||||||||
| Additional paid in capital |
386,708 | 386,708 | ||||||||||
| (Accumulated deficit) |
(44,747 | ) | (58,365 | ) | ||||||||
|
|
|
|
|
|||||||||
| Total Stockholders’ Equity |
342,511 | 328,893 | ||||||||||
|
|
|
|
|
|||||||||
| Total Liabilities and Stockholders’ Equity |
$ | 766,420 | $ | 776,257 | ||||||||
|
|
|
|
|
|||||||||
See accompanying notes to interim unaudited consolidated financial statements
Page 1
Global Ship Lease, Inc.
Interim Unaudited Consolidated Statements of Income
(Expressed in thousands of U.S. dollars except share data)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||||||
| Note | ||||||||||||||||||||
| Operating Revenues |
||||||||||||||||||||
| Time charter revenue |
$ | 9,341 | $ | 9,341 | $ | 18,578 | $ | 18,678 | ||||||||||||
| Time charter revenue – related party |
6 | 30,918 | 31,992 | 61,323 | 65,265 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| 40,259 | 41,333 | 79,901 | 83,943 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating Expenses |
||||||||||||||||||||
| Vessel operating expenses |
10,468 | 10,917 | 20,478 | 21,919 | ||||||||||||||||
| Vessel operating expenses – related party |
6 | 400 | 400 | 800 | 800 | |||||||||||||||
| Depreciation |
4 | 9,541 | 10,877 | 19,141 | 21,812 | |||||||||||||||
| General and administrative |
1,325 | 1,281 | 2,565 | 3,250 | ||||||||||||||||
| Other operating income |
(6 | ) | (63 | ) | (48 | ) | (144 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total operating expenses |
21,728 | 23,412 | 42,936 | 47,637 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating Income |
18,531 | 17,921 | 36,965 | 36,306 | ||||||||||||||||
| Non Operating Income (Expense) |
||||||||||||||||||||
| Interest income |
90 | 38 | 183 | 82 | ||||||||||||||||
| Interest expense |
(11,026 | ) | (11,142 | ) | (21,983 | ) | (24,242 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income before Income Taxes |
7,595 | 6,817 | 15,165 | 12,146 | ||||||||||||||||
| Income taxes |
(6 | ) | (9 | ) | (16 | ) | (15 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Income |
$ | 7,589 | $ | 6,808 | $ | 15,149 | $ | 12,131 | ||||||||||||
| Earnings allocated to Series B Preferred Shares |
8 | (765 | ) | (765 | ) | (1,531 | ) | (1,531 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Income available to Common Shareholders |
$ | 6,824 | $ | 6,043 | $ | 13,618 | $ | 10,600 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Earnings per Share |
||||||||||||||||||||
| Weighted average number of Class A common shares outstanding |
||||||||||||||||||||
| Basic (including RSUs without service conditions) |
10 | 47,975,609 | 47,850,107 | 47,975,609 | 47,845,842 | |||||||||||||||
| Diluted |
10 | 47,975,609 | 47,956,959 | 47,975,609 | 47,888,279 | |||||||||||||||
| Net income per Class A common share |
||||||||||||||||||||
| Basic (including RSUs without service conditions) |
10 | $ | 0.14 | $ | 0.13 | $ | 0.28 | $ | 0.22 | |||||||||||
| Diluted |
10 | $ | 0.14 | $ | 0.13 | $ | 0.28 | $ | 0.22 | |||||||||||
| Weighted average number of Class B common shares outstanding Basic and diluted |
10 | 7,405,956 | 7,405,956 | 7,405,956 | 7,405,956 | |||||||||||||||
| Net income per Class B common share Basic and diluted |
10 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | |||||||||||
See accompanying notes to interim unaudited consolidated financial statements
Page 2
Global Ship Lease, Inc.
Interim Unaudited Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||||||
| Note | ||||||||||||||||||||
| Cash Flows from Operating Activities |
||||||||||||||||||||
| Net income |
$ | 7,589 | $ | 6,808 | $ | 15,149 | $ | 12,131 | ||||||||||||
| Adjustments to Reconcile Net income to Net Cash Provided by Operating Activities |
||||||||||||||||||||
| Depreciation |
4 | 9,541 | 10,877 | 19,141 | 21,812 | |||||||||||||||
| Amortization of deferred financing costs |
5 | 885 | 820 | 1,775 | 1,772 | |||||||||||||||
| Amortization of original issue discount |
5 | 343 | 334 | 625 | 916 | |||||||||||||||
| Amortization of intangible liability |
(452 | ) | (530 | ) | (904 | ) | (1,059 | ) | ||||||||||||
| Share based compensation |
9 | — | 82 | — | 115 | |||||||||||||||
| Gain on repurchase of secured notes |
5 | — | (452 | ) | — | (452 | ) | |||||||||||||
| Decrease (increase) in accounts receivable and other assets |
382 | 151 | (199 | ) | (398 | ) | ||||||||||||||
| Decrease (increase) in inventory |
(73 | ) | 40 | (121 | ) | 74 | ||||||||||||||
| Increase (decrease) in accounts payable and other liabilities |
8,800 | 8,896 | (748 | ) | (1,285 | ) | ||||||||||||||
| (Decrease) increase in unearned revenue |
330 | (104 | ) | 758 | (208 | ) | ||||||||||||||
| Increase in related party balances |
6 | 580 | 347 | 628 | 1,063 | |||||||||||||||
| Unrealized foreign exchange (gain) loss |
— | (58 | ) | 6 | (28 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Cash Provided by Operating Activities |
27,925 | 27,211 | 36,110 | 34,453 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash Flows from Investing Activities |
||||||||||||||||||||
| Cash paid for vessel improvements |
(100 | ) | — | (100 | ) | — | ||||||||||||||
| Cash paid in respect of sale of vessels |
— | (97 | ) | — | (254 | ) | ||||||||||||||
| Cash paid for other assets |
(8 | ) | — | (8 | ) | (1 | ) | |||||||||||||
| Cash paid for drydockings |
(2,211 | ) | (948 | ) | (3,931 | ) | (948 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Cash Used in Investing Activities |
(2,319 | ) | (1,045 | ) | (4,039 | ) | (1,203 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash Flows from Financing Activities |
||||||||||||||||||||
| Repurchase of secured notes |
5 | (19,501 | ) | (3,748 | ) | (19,501 | ) | (30,410 | ) | |||||||||||
| Proceeds from drawdown of revolving credit facility |
5 | — | — | — | — | |||||||||||||||
| Deferred financing costs incurred |
5 | — | — | — | — | |||||||||||||||
| Repayment of credit facilities |
5 | (2,925 | ) | (1,925 | ) | (5,850 | ) | (4,650 | ) | |||||||||||
| Series B Preferred Shares – dividends paid |
8 | (765 | ) | (765 | ) | (1,531 | ) | (1,531 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Cash Used in Financing Activities |
(23,191 | ) | (6,438 | ) | (26,882 | ) | (36,591 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Increase (decrease) in Cash and Cash Equivalents |
2,415 | 19,728 | 5,189 | (3,341 | ) | |||||||||||||||
| Cash and Cash Equivalents at Start of Period |
57,017 | 30,522 | 54,243 | 53,591 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash and Cash Equivalents at End of Period |
$ | 59,432 | $ | 50,250 | $ | 59,432 | $ | 50,250 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Supplemental information |
||||||||||||||||||||
| Total interest paid |
$ | 746 | $ | 725 | $ | 19,678 | $ | 22,232 | ||||||||||||
| Income tax paid |
$ | 10 | $ | 10 | $ | 24 | $ | 26 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
See accompanying notes to interim unaudited consolidated financial statements
Page 3
Global Ship Lease, Inc.
Interim Unaudited Consolidated Statements of Changes in Stockholders’ Equity
(Expressed in thousands of U.S. dollars except share data)
| Number of Common Stock at $0.01 Par value |
Number of Series B Preferred Shares at $0.01 Par value |
Common Stock |
Series B Preferred Shares |
Additional Paid in Capital |
Accumulated Deficit |
Stockholders’ Equity |
||||||||||||||||||||||
| Balance at January 1, 2016 |
54,947,440 | 14,000 | $ | 549 | $ | — | $ | 386,425 | $ | 9,792 | $ | 396,766 | ||||||||||||||||
| Restricted Stock Units (note 9) |
— | — | — | — | 283 | — | 283 | |||||||||||||||||||||
| Class A common shares issued (note 8) |
34,125 | — | 1 | — | — | — | 1 | |||||||||||||||||||||
| Net loss for the period |
— | — | — | — | — | (65,095 | ) | (65,095 | ) | |||||||||||||||||||
| Series B Preferred Shares dividend (note 8) |
— | — | — | — | — | (3,062 | ) | (3,062 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance at December 31, 2016 |
54,981,565 | 14,000 | $ | 550 | $ | — | $ | 386,708 | $ | (58,365 | ) | $ | 328,893 | |||||||||||||||
| Net income for the period |
— | — | — | — | — | 15,149 | 15,149 | |||||||||||||||||||||
| Series B Preferred Shares dividend (note 8) |
— | — | — | — | — | (1,531 | ) | (1,531 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance at June 30, 2017 |
54,981,565 | 14,000 | $ | 550 | $ | — | $ | 386,708 | $ | (44,747 | ) | $ | 342,511 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
See accompanying notes to interim unaudited consolidated financial statements
Page 4
Global Ship Lease, Inc.
Notes to the Interim Unaudited Consolidated Financial Statements
(Expressed in thousands of U.S. dollars)
| 1. | General |
On August 14, 2008, Global Ship Lease, Inc. (the “Company” or “GSL”) merged indirectly with Marathon Acquisition Corp. (“Marathon”), a company then listed on The American Stock Exchange. Following the merger, the Company became listed on the New York Stock Exchange on August 15, 2008.
| 2. | Nature of Operations and Basis of Preparation |
| (a) | Nature of Operations |
The Global Ship Lease group owns and charters out containerships. As of June 30, 2017, the group owned 18 vessels; 15 were time chartered to CMA CGM and three to Orient Overseas Container Lines with remaining charter periods ranging from 0.50 to 8.50 years.
The following table provides information about the 18 vessels owned as at June 30, 2017:
| Vessel Name |
Capacity in TEUs (1) |
Year Built |
Purchase Date by GSL |
Charterer | Charter Remaining Duration (years) (2) |
Daily Charter Rate |
||||||||||||||||||
| CMA CGM Matisse |
2,262 | 1999 | December 2007 | CMA CGM | 2.50 | $ | 15.300 | |||||||||||||||||
| CMA CGM Utrillo |
2,262 | 1999 | December 2007 | CMA CGM | 2.50 | $ | 15.300 | |||||||||||||||||
| Delmas Keta |
2,207 | 2003 | December 2007 | CMA CGM | 0.50 | $ | 18.465 | |||||||||||||||||
| Julie Delmas |
2,207 | 2002 | December 2007 | CMA CGM | 0.50 | $ | 18.465 | |||||||||||||||||
| Kumasi (3) |
2,207 | 2002 | December 2007 | CMA CGM | 3.50 | $ | 13.000 | |||||||||||||||||
| Marie Delmas (3) |
2,207 | 2002 | December 2007 | CMA CGM | 3.50 | $ | 13.000 | |||||||||||||||||
| CMA CGM La Tour |
2,272 | 2001 | December 2007 | CMA CGM | 2.50 | $ | 15.300 | |||||||||||||||||
| CMA CGM Manet |
2,272 | 2001 | December 2007 | CMA CGM | 2.50 | $ | 15.300 | |||||||||||||||||
| CMA CGM Alcazar |
5,089 | 2007 | January 2008 | CMA CGM | 3.50 | $ | 33.750 | |||||||||||||||||
| CMA CGM Château d’lf |
5,089 | 2007 | January 2008 | CMA CGM | 3.50 | $ | 33.750 | |||||||||||||||||
| CMA CGM Thalassa |
11,040 | 2008 | December 2008 | CMA CGM | 8.50 | $ | 47.200 | |||||||||||||||||
| CMA CGM Jamaica |
4,298 | 2006 | December 2008 | CMA CGM | 5.50 | $ | 25.350 | |||||||||||||||||
| CMA CGM Sambhar |
4,045 | 2006 | December 2008 | CMA CGM | 5.50 | $ | 25.350 | |||||||||||||||||
| CMA CGM America |
4,045 | 2006 | December 2008 | CMA CGM | 5.50 | $ | 25.350 | |||||||||||||||||
| CMA CGM Berlioz |
6,621 | 2001 | August 2009 | CMA CGM | 4.25 | $ | 34.000 | |||||||||||||||||
| OOCL Tianjin |
8,063 | 2005 | October 2014 | OOCL | 0.50 | $ | 34.500 | |||||||||||||||||
| OOCL Qingdao |
8,063 | 2004 | March 2015 | OOCL | 0.75 | $ | 34.500 | |||||||||||||||||
| OOCL Ningbo |
8,063 | 2004 | September 2015 | OOCL | 1.25 | $ | 34.500 | |||||||||||||||||
| (1) | Twenty-foot Equivalent Units. |
| (2) | Plus or minus 90 days, other than (i) OOCL Tianjin which is between October 28, 2017 and January 28, 2018, (ii) OOCL Qingdao which is between March 11, 2018 and June 11, 2018, and (iii) OOCL Ningbo which is between September 17, 2018 and December 17, 2018, all at charterer’s option. |
| (3) | The charters on these two vessels were amended in July 2016 to provide for a revised charter rate of $13,000 per day with effect from August 1, 2016 until September 14, 2017 for Marie Delmas and September 21, 2017 for Kumasi, and to provide for three option periods, all at the Company’s option, at a charter rate of $9,800 per day. The option periods are (i) September 15 or 22, 2017 for Marie Delmas and Kumasi respectively to December 31, 2018, plus or minus 45 days (ii) January 1, 2019 to December 31, 2019 plus or minus 45 days and (iii) January 1, 2020 to December 31, 2020 plus or minus 90 days. The first such option has been exercised. |
Page 5
Global Ship Lease, Inc.
Notes to the Interim Unaudited Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars)
| 2. | Nature of Operations and Basis of Preparation (continued) |
| (b) | Basis of Preparation |
Counterparty risk
The majority of the Company’s revenues are derived from charters of vessels to CMA CGM. The Company is consequently highly dependent on the performance by CMA CGM of its obligations under these charters. The container shipping industry is volatile and has been experiencing a sustained cyclical downturn. Many container shipping companies have reported financial losses.
If CMA CGM ceases doing business or fails to perform its obligations under the charters, the Company’s business, financial position and results of operations would be materially adversely affected as it is probable that, even if the Company was able to find replacement charters, such replacement charters would be at significantly lower daily rates and for shorter durations. If such events occur, there would be significant uncertainty about the Company’s ability to continue as a going concern.
These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, nor to the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern.
| 3. | Accounting Policies and Disclosure |
The accompanying financial information is unaudited and reflects all adjustments, consisting solely of normal recurring adjustments, which, in the opinion of management, are necessary for a fair statement of financial position and results of operations for the interim periods presented. The financial information does not include all disclosures required under United States Generally Accepted Accounting Principles (“US GAAP”) for annual financial statements. These interim unaudited consolidated financial statements should be read in conjunction with the Company’s financial statements as of December 31, 2016 filed with the Securities and Exchange Commission on April 12, 2017 in the Company’s Annual Report on Form 20-F.
Impairment Testing
The assumptions used involve a considerable degree of estimation. Actual conditions may differ significantly from the assumptions and thus actual cash flows may be significantly different to those expected with a material effect on the recoverability of each vessel’s carrying amount. The most significant assumptions made for the determination of expected cash flows are (i) charter rates on expiry of existing charters, which are based on forecast charter rates, where relevant, for the four years from the date of the impairment test and a reversion to the historical mean for each vessel thereafter (ii) off-hire days, which are based on actual off-hire statistics for the Company’s fleet (iii) operating costs, based on current levels escalated over time based on long term trends (iv) dry docking frequency, duration and cost, (v) estimated useful life which is assessed as a total of 30 years and (vi) the residual value. In the case of an indication of impairment, the results of a recoverability test would also be sensitive to the discount rate applied.
Page 6
Global Ship Lease, Inc.
Notes to the Interim Unaudited Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars)
| 3. | Accounting Policies and Disclosure (continued) |
Recently issued accounting standards
In May 2017, FASB issued an accounting standards update in respect of “Compensation – Stock Compensation (Topic 718) – Scope of Modification Accounting”. The amendments are intended to clarify the accounting treatment as well as reduce the cost and complexity when applying the guidance to the modification of the terms and conditions of share-based payments. The amendments are effective for annual periods beginning after December 15, 2017, although early application is permitted. The Company is currently assessing the impact of adopting this update on its financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. This update was originally to be effective January 1, 2017. However, the FASB issued ASU 2015-14 in August 2015, which deferred the effective date by one year to January 1, 2018. The adoption of this standard is not expected to have a material impact on the revenue recognized for our vessels, as our charters qualify as operating leases and therefore are not within the scope of Topic 606. Currently we have no material contracts which fall within the scope of Topic 606.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the interim unaudited consolidated financial statements of the Company.
| 4. | Vessels in Operation, less Accumulated Depreciation |
| June 30, 2017 |
December 31, 2016 |
|||||||
| Cost less impairment brought forward |
$ | 1,003,198 | $ | 1,095,275 | ||||
| Accumulated Depreciation |
(299,205 | ) | (283,743 | ) | ||||
| Vessel impairment during period |
— | (92,422 | ) | |||||
|
|
|
|
|
|||||
| Net book value |
$ | 703,993 | $ | 719,110 | ||||
|
|
|
|
|
|||||
Due to continuing poor industry conditions, impairment tests were performed on a vessel by vessel basis as at December 31, 2016, which resulted in an impairment charge on four vessels, totalling $63,065, being recognised in the three months ended December 31, 2016.
Impairment tests were performed on two of the group’s vessels as at July 31, 2016, following amendments to the terms of their charters, which resulted in an impairment charge of $29,357 being recognised in the three months ended September 30, 2016.
| 5. | Long-Term Debt |
| June 30, 2017 |
December 31, 2016 |
|||||||
| 2019 Notes |
$ | 420,000 | $ | 420,000 | ||||
| Less repurchase of Notes (note 5(a)) |
(73,713 | ) | (54,212 | ) | ||||
| Less original issue discount |
(6,300 | ) | (6,300 | ) | ||||
| Amortization of original issue discount |
4,535 | 3,910 | ||||||
|
|
|
|
|
|||||
| 2019 Notes (note 5(a)) |
344,522 | 363,398 | ||||||
| Revolving Credit Facility (note 5(b)) |
39,200 | 39,200 | ||||||
| Secured Term Loan (note 5(c)) |
18,525 | 24,375 | ||||||
| Less: Deferred financing costs (note 5(e)) |
(5,380 | ) | (7,100 | ) | ||||
|
|
|
|
|
|||||
| Balance |
396,867 | 419,873 | ||||||
| Less: Current portion of 2019 Notes (note 5(a)) |
(19,501 | ) | (19,501 | ) | ||||
| Less: Current portion of Secured Term Loan (note 5(c)) |
(8,011 | ) | (11,525 | ) | ||||
|
|
|
|
|
|||||
| Non-current portion of Long-Term Debt |
$ | 369,355 | $ | 388,847 | ||||
|
|
|
|
|
|||||
Page 7
Global Ship Lease, Inc.
Notes to the Interim Unaudited Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars)
| 5. | Long-Term Debt (continued) |
| a) | 10.0% First Priority Secured Notes Due 2019 |
On March 19, 2014 the Company completed the sale of $420,000 of 10.0% First Priority Secured Notes which mature on April 1, 2019 (the “2019 Notes”). Proceeds after the deduction of the original issue discount, but before expenses, amounted to $413,700.
Interest on the 2019 Notes is payable semi-annually on April 1 and October 1 of each year. As at June 30, 2017, the 2019 Notes were secured by first priority ship mortgages on 16 of the Company’s 18 vessels (the “Mortgaged Vessels”) and by assignments of earnings and insurances, a pledge over certain bank accounts, as well as share pledges over each subsidiary owning a Mortgaged Vessel. In addition, the 2019 Notes are fully and unconditionally guaranteed, jointly and severally, by the Company’s 18 vessel owning subsidiaries and Global Ship Lease Services Limited.
The original issue discount is being amortised on an effective interest rate basis over the life of the 2019 Notes.
Under the terms of the 2019 Notes the Company is required within 120 days following the end of each financial year, in which the Company has at least $1,000 of Excess Cash Flow, as defined, to offer to purchase up to a maximum offer amount of $20,000, such amount being the aggregate of 102% of the principal amount plus any accrued and unpaid interest thereon, up to, but not including, the purchase date. The first such offer, for 2014, in the maximum amount of $20,000, was launched on April 21, 2015. At the close of this offer, $350 nominal amount of 2019 Notes was tendered and accepted.
Following the sale of two vessels secured to the 2019 Notes in November and December 2015, the Company was required to offer the net sale proceeds, less a proportion used to repay part of the Revolving Credit Facility (see note 5(b)), to Noteholders (“Collateral Sale Offer”) within 90 days of receipt of the sale proceeds. The terms of the Collateral Sale Offer are the same as those of the annual Excess Cash Flow Offer. Consequently, on February 2, 2016, the Company launched a combined Excess Cash Flow Offer for 2015 and the Collateral Sale Offer in an aggregate amount of $28,417 (“Maximum Offer Amount”), at a purchase price of 102% of the aggregate principal amount plus any accrued and unpaid interest thereon, up to, but not including, the purchase date. At the close of this offer, the nominal amount of 2019 Notes tendered exceeded the Maximum Offer Amount and $26,662 nominal amount of the 2019 Notes was accepted on a pro rata basis.
The third Excess Cash Flow offer, for 2016, in the maximum amount of $20,000, was launched on March 22, 2017. At the close of this offer on April 19,2017, the 2019 Notes tendered exceeded the Maximum Offer Amount and $19,501 nominal amount of the 2019 Notes was accepted on a pro rata basis.
In May, August and November, 2016, the Company purchased $4,200, $5,000 and $18,000 nominal amount of the 2019 Notes respectively, in the open market. This gave rise to gains of $452, $475 and $1,938, which were included within Interest Expense in the Consolidated Statements of Income. These 2019 Notes were subsequently cancelled.
| b) | Revolving Credit Facility |
On March 19, 2014, and in connection with the 2019 Notes, the Company entered into a $40,000 senior secured revolving credit facility with Citibank N.A. (the “Revolving Credit Facility”). This facility matures on October 1, 2018. The interest rate under the facility is USD LIBOR plus a margin of 3.25% and is payable at least quarterly. A commitment fee of 1.30% per annum is due quarterly on undrawn amounts.
The collateral provided to the 2019 Notes also secures, on a super senior first priority basis, the Revolving Credit Facility. Up to and including December 31, 2015, the Company was required to have had a minimum cash balance of $15,000 on each test date, being June 30 and December 31 in each year. After this date, the minimum cash balance on each test date increased to $20,000.
Amounts outstanding under this facility can be prepaid without penalty, other than breakage costs in certain circumstances. During the quarter ended March 31, 2015, $40,000 was drawn down under the Revolving Credit Facility to assist with the purchase of OOCL Qingdao on March 11, 2015. Following the sale of two secured vessels in November and December 2015, $800 of the net sale proceeds was applied to reduce amounts outstanding under the facility.
Page 8
Global Ship Lease, Inc.
Notes to the Interim Unaudited Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars)
| c) | Secured Term Loan |
On July 29, 2015, the Company entered into a $35,000 secured term loan with DVB Bank SE (the “Secured Term Loan”). This facility matures five years after drawdown, with early repayment, inter alia, if the 2019 Notes are not refinanced by November 30, 2018, or if the secured vessel ceases to be employed on a charter for a period in excess of 90 days. The interest rate under the loan is USD LIBOR plus a margin of 2.75%, until November 30, 2018 and 3.25% thereafter, and is payable at least quarterly.
The Secured Term Loan is secured by a first priority ship mortgage on OOCL Tianjin and by assignment of earnings and insurances for the same vessel.
The Secured Term Loan is repayable in 20 equal quarterly instalments, commencing three months after drawdown. $35,000 was drawn down under the Secured Term Loan on September 10, 2015. The loan agreement requires an additional $1,400 to be repaid over eight equal quarterly instalments to provide a reserve for potential enhancement expenditure on the secured vessel ahead of the expiry of the initial charter to OOCL. These additional instalments reduce the debt balance and can be redrawn to fund the enhancement work, or utilized to permanently reduce the quarterly instalments for the remainder of the term of the loan if no such work is required.
The Secured Term Loan has the same Cash Balance financial covenant as that in the Revolving Credit Facility. In addition, there is a minimum Shareholders Equity covenant of $200,000, also to be tested semi-annually on June 30 and December 31. The Secured Term Loan was amended on November 30, 2016 to exclude from the definition of Shareholders Equity the effect of any impairment charges recognised after July 1, 2016. The amendment also provided for accelerated amortization totalling $5.0 million to be paid equally in five quarterly instalments, commencing fourth quarter 2016. Repayments otherwise payable from March 2018 are reduced pro rata for the accelerated amortization.
| d) | Repayment Schedule |
Based on scheduled and estimated repayments from July 1, 2017 the long term debt will be reduced in each of the relevant periods as follows:
| Year ending June 30, | ||||
| 2018 |
$ | 27,512 | ||
| 2019 |
370,659 | |||
| 2020 |
4,673 | |||
| 2021 |
1,168 | |||
| Less: amortization of original issue discount |
(1,765 | ) | ||
| Less: amortization of deferred financing costs |
(5,380 | ) | ||
|
|
|
|||
| $ | 396,867 | |||
|
|
|
|||
| e) | Deferred financing costs |
| June 30, 2017 |
December 31, 2016 |
|||||||
| Opening balance |
$ | 7,100 | $ | 10,611 | ||||
| Amortization included within interest expense |
(1,720 | ) | (3,511 | ) | ||||
|
|
|
|
|
|||||
| Closing balance |
$ | 5,380 | $ | 7,100 | ||||
|
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|
|
|
|||||
Deferred financing costs are amortized on an effective interest rate basis over the life of the financings for which they were incurred.
The Company has adopted the accounting standards update issued by FASB in April 2015 “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”. Effective December 31, 2015, debt issuance costs, other than the up-front arrangement fee for the Revolving Credit Facility, related to our recognized debt liabilities are presented as a direct deduction from the carrying amount of that debt. The arrangement fee for the Revolving Credit Facility is presented as Other Long Term Assets.
Page 9
Global Ship Lease, Inc.
Notes to the Interim Unaudited Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars)
| 6. | Related Party Transactions |
CMA CGM is presented as a related party as it was, until the merger referred to in note 1, the parent company of Global Ship Lease, Inc. and at June 30, 2017, is a significant shareholder of the Company, owning Class A and Class B common shares representing a 44.4% voting interest in the Company.
Amounts due to and from CMA CGM companies are shown in the Consolidated Balance Sheets. The current account balances at June 30, 2017 and December 31, 2016 relate to amounts payable to or recoverable from CMA CGM group companies. The majority of the Company’s charter arrangements are with CMA CGM and one of its subsidiaries provides the Company with ship management services on the majority of its vessels.
Time Charter Agreements
The majority of the Company’s time charter arrangements are with CMA CGM. Under these time charters, hire is payable in advance and the daily rate is fixed for the duration of the charter. The charters are for remaining periods as at June 30, 2017 of between 0.50 and 8.50 years (see note 2(a)). Of the $556,649 maximum contracted future charter hire receivable (including all periods at the Company’s option) for the fleet set out in note 7, $523,701 relates to the 15 vessels that were chartered to CMA CGM as at June 30, 2017. Revenues generated from charters to CMA CGM are shown separately in the Consolidated Statements of Income.
Ship Management Agreements
At June 30, 2017, the Company outsourced day to day technical management of 13 of its vessels to CMA Ships Limited (“CMA Ships”), a wholly owned subsidiary of CMA CGM. The Company pays CMA Ships an annual management fee of $123 per vessel (2016: $123) and reimburses costs incurred by CMA Ships on its behalf, mainly being for the provision of crew, lubricating oils and routine maintenance. Such reimbursement is subject to a cap per day per vessel, depending on the vessel. The impact of the cap is determined annually on a vessel by vessel basis for so long as the initial charter remains in place; no claims have been made under the cap agreement. Ship management fees related to CMA Ships are shown separately in the Consolidated Statements of Income.
Except for transactions with CMA CGM companies, the Company did not enter into any other related party transactions.
| 7. | Commitments and Contingencies |
Charter Hire Receivable
The Company has entered into time charters for its vessels. The charter hire is fixed for the duration of the charter. The maximum contracted annual future charter hire receivable (not allowing for any offhire and assuming expiry at the mid-point between the earliest and latest possible end dates) for the 18 vessels subject to charters as at June 30, 2017 is as follows:
| Year ending June 30, | ||||
| 2018 |
146,837 | |||
| 2019 |
115,838 | |||
| 2020 |
99,607 | |||
| 2021 |
74,283 | |||
| 2022 |
46,902 | |||
| Thereafter |
73,182 | |||
|
|
|
|||
| $ | 556,649 | |||
|
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|
|||
Page 10
Global Ship Lease, Inc.
Notes to the Interim Unaudited Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except per share data)
| 8. | Share Capital |
At June 30, 2017 the Company had two classes of common shares. The rights of holders of Class B common shares are identical to those of holders of Class A common shares, except that the dividend rights of holders of Class B common shares are subordinated to those of holders of Class A common shares. Dividends, when declared, must be paid as follows:
| • | firstly, to all Class A common shares at the applicable rate for the quarter; |
| • | secondly, to all Class A common shares until they have received payment for all preceding quarters at the rate of $0.23 per share per quarter; |
| • | thirdly, to all Class B common shares at the applicable rate for the quarter; |
| • | then, to all Class A and B common shares as if they were a single class. |
The Class B common shares remain subordinated until the Company has paid a dividend at least equal to $0.23 per quarter per share on both the Class A and Class B common shares for the immediately preceding four-quarter period. Due to the requirements described above, Class B common shares cannot receive any dividend until all Class A common shares have received dividends representing $0.23 per share per quarter for all preceding quarters. Should the notional arrearages of dividend on the Class A common shares be made up and a dividend at the rate of $0.23 per share be paid for four consecutive quarters, the Class B common shares convert to Class A common shares on a one-for-one basis. Also, each Class B common share will convert into a Class A common share on a change of control of the Company.
A dividend of $0.10 per Class A common share was paid on August 24, 2015 and on November 24, 2015. Prior to these, the last quarter for which a dividend was paid was the fourth quarter 2008 at $0.23 per Class A common share.
Restricted stock units have been granted from time to time to the Directors and management, under the Company’s Equity Incentive Plans, as part of their compensation arrangements (see note 9). On March 31, June 30, September 30 and December 30, 2016, 8,529, 8,534, 8,534 and 8,528 shares respectively, were issued under Equity Incentive Plan, representing 20% of directors’ base fee for the quarters ended March 31, June 30, September 30, and December 31, 2016. The number of shares issued was determined on the basis of a notional value per share of $4.00 rather than market values.
On August 20, 2014, the Company issued 1,400,000 depositary shares, each of which represents 1/100th of one share of the Company’s 8.75% Series B Cumulative Redeemable Perpetual Preferred Shares (the “Series B Preferred Shares”). Dividends are payable at 8.75% per annum in arrears on a quarterly basis. At any time after August 20, 2019 (or within 180 days after the occurrence of a fundamental change), the Series B Preferred Shares may be redeemed, at the discretion of the Company, in whole or in part, at a redemption price of $2,500.00 per share (equivalent to $25.00 per depositary share). The net proceeds from the offering were $33,497. These shares are classified as Equity in the Consolidated Balance Sheets. The dividends payable on the Series B Preferred Shares are presented as a reduction of Retained Earnings in the Consolidated Statements of Equity, when and if declared by the Board of Directors. An initial dividend was declared on September 22, 2014 for the third quarter 2014. Subsequent quarterly dividends have been declared, the last of which was on June 12, 2017 for the second quarter 2017.
Page 11
Global Ship Lease, Inc.
Notes to the Interim Unaudited Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except per share data)
| 9. | Share-Based Compensation |
Share based awards since January 1, 2016, are summarized as follows:
| Restricted Stock Units | ||||||||||||
| Number of Units |
Weighted on Grant |
Actual Fair Value on Vesting Date |
||||||||||
| Unvested as at January 1, 2016 |
300,000 | $ | 3.25 | n/a | ||||||||
| Granted March 3, 2016 |
200,000 | $ | 1.18 | — | ||||||||
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|||||||
| Unvested as at December 31, 2016 |
500,000 | $ | 2.42 | n/a | ||||||||
|
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|
|||||||
| Unvested as at June 30, 2017 |
500,000 | $ | 2.42 | n/a | ||||||||
|
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|
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Using the graded vesting method of expensing the restricted stock unit grants, the calculated weighted average fair value of the stock units is recognized as compensation cost in the Consolidated Statements of Income over the vesting period. During the six months ended June 30, 2017, the Company recognized no (2016: $33) share based compensation cost. As at June 30, 2017, there was no unrecognized compensation cost relating to the above share based awards (December 31, 2016: $ nil).
Restricted stock units granted to four members of management on September 2, 2011 were to vest over two years; half during September and October 2012 and the remaining half during September and October 2013. In March 2012, these grants were amended and restated to provide that vesting would occur only when the individual leaves employment, for whatever reason, provided that this was after September 30, 2012 in respect of half of the grant and after September 30, 2013 for the other half of the grant. Restricted stock units granted to management on March 13, 2012 are expected to vest when the individual leaves employment, provided that this is after September 30, 2014 and is not as a result of resignation or termination for cause. Restricted stock units granted to management on March 7, 2013 are expected to vest when the individual leaves employment, provided that this is after September 30, 2015 and is not as a result of resignation or termination for cause.
On August 28, 2015, the Company adopted the 2015 Equity Incentive Plan which allows the Board of Directors to grant employees, consultants and directors of the Company and its subsidiaries, options, stock appreciation rights, stock grants, stock units and dividend equivalents on substantially the same terms as the 2008 Plan, which was closed for further awards. The 2015 Plan permits a maximum issuance of 1,500,000 shares.
Under the 2015 Plan, restricted stock units granted to four members of management on March 3, 2016 were divided into two tranches. The first tranche (100,000 restricted stock units)) will vest when the individual leaves employment, provided that this is after December 31, 2016 and is not for cause. The second tranche (100,000 restricted stock units) also vests after December 31, 2016 on the same terms, but, in addition, only if and when the stock price has been at or above $5.00 for 20 consecutive trading days and provided that this has occurred before December 31, 2019.
During the year ended December 31, 2016, 34,125 shares were issued under the 2015 Plan, representing 20% of directors’ base fee for 2016. The number of shares issued was determined on the basis of a notional value per share of $4.00 rather than market values.
Page 12
Global Ship Lease, Inc.
Notes to the Interim Unaudited Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except per share data)
| 10. | Earnings per Share |
Basic earnings per common share is presented under the two-class method and is computed by dividing the earnings applicable to common stockholders by the weighted average number of common shares outstanding for the period.
Under the two class method, net income available to common stockholders, if any, is first reduced by the amount of dividends declared in respect of common shares for the current period, if any, and the remaining earnings are allocated to common shares and participating securities to the extent that each security can share the earnings assuming all earnings for the period are distributed. The Class B common shareholders’ dividend rights are subordinated to those of holders of Class A common shares (see note 8). Net income for the relevant period is allocated based on the contractual rights of each class of security and as there was insufficient net income to allow any dividend on the Class B common shares no earnings were allocated to Class B common shares.
Losses are only allocated to participating securities in a period of net loss if, based on the contractual terms, the relevant common shareholders have an obligation to participate in such losses. No such obligation exists for Class B common shareholders and, accordingly, losses would only be allocated to the Class A common shareholders.
At June 30, 2017, there were 500,000 restricted stock units granted and unvested as part of management’s equity incentive plan. As of June 30, 2017 only Class A and B common shares are participating securities.
For the three and six months ended June 30, 2017, the diluted weighted average number of Class A common shares outstanding is the same as the basic weighted average number of shares outstanding, including the RSU’s without service conditions. The diluted weighted average number of shares excludes any outstanding share-based incentive awards as these would have had an antidilutive effect. For the three and six months ended June 30, 2016, the diluted weighted average number of shares includes the incremental effect of outstanding stock based incentive awards.
Page 13
Global Ship Lease, Inc.
Notes to the Interim Unaudited Consolidated Financial Statements (continued)
(Expressed in thousands of U.S. dollars except per share data)
| 10. | Earnings per Share (continued) |
| (In thousands, except share data) | Three months ended June 30, |
Six months ended June 30, |
||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Class A common shares |
||||||||||||||||
| Weighted average number of common shares outstanding (B) |
47,575,609 | 47,550,107 | 47,575,609 | 47,545,842 | ||||||||||||
| Weighted average number of RSUs without service conditions (note 9) (B) |
400,000 | 300,000 | 400,000 | 300,000 | ||||||||||||
| Dilutive effect of share-based awards |
— | 106,852 | — | 42,437 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Common shares and common share equivalents (F) |
47,975,609 | 47,956,959 | 47,975,609 | 47,888,279 | ||||||||||||
|
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|||||||||
| Class B common shares |
||||||||||||||||
| Basic weighted average number of common shares outstanding (D) |
7,405,956 | 7,405,956 | 7,405,956 | 7,405,956 | ||||||||||||
| Dilutive effect of share-based incentive awards |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Common shares (H) |
7,405,956 | 7,405,956 | 7,405,956 | 7,405,956 | ||||||||||||
|
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|
|
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|
|
|
|||||||||
| Basic Earnings per Share |
||||||||||||||||
| Net income available to shareholders |
$ | 6,824 | $ | 6,043 | $ | 13,618 | $ | 10,600 | ||||||||
| Available to: |
||||||||||||||||
| - Class A shareholders for period |
$ | 6,824 | $ | 6,043 | $ | 13,618 | $ | 10,600 | ||||||||
| - Class A shareholders for arrears |
— | — | — | — | ||||||||||||
| - Class B shareholders for period |
— | — | — | — | ||||||||||||
| - allocate pro-rata between Class A and B |
— | — | — | — | ||||||||||||
| Net income available for Class A (A) |
$ | 6,824 | $ | 6,043 | $ | 13,618 | $ | 10,600 | ||||||||
| Net income available for Class B (C) |
— | — | — | — | ||||||||||||
| Basic Earnings per share: |
||||||||||||||||
| Class A (A/B) |
$ | 0.14 | $ | 0.13 | $ | 0.28 | $ | 0.22 | ||||||||
| Class B (C/D) |
— | — | — | — | ||||||||||||
| Diluted Earnings per Share |
||||||||||||||||
| Net income available to common shareholders |
$ | 6,824 | $ | 6,043 | $ | 13,618 | $ | 10,600 | ||||||||
| Available to: |
||||||||||||||||
| - Class A shareholders for period |
$ | 6,824 | $ | 6,043 | $ | 13,618 | $ | 10,600 | ||||||||
| - Class A shareholders for arrears |
— | — | — | — | ||||||||||||
| - Class B shareholders for period |
— | — | — | — | ||||||||||||
| - allocate pro rata between Class A and B |
— | — | — | — | ||||||||||||
| Net income available for Class A (E) |
$ | 6,824 | $ | 6,043 | $ | 13,618 | $ | 10,600 | ||||||||
| Net income available for Class B (G) |
— | — | — | — | ||||||||||||
| Diluted Earnings per share: |
||||||||||||||||
| Class A (E/F) |
$ | 0.14 | $ | 0.13 | $ | 0.28 | $ | 0.22 | ||||||||
| Class B (G/H) |
— | — | — | — | ||||||||||||
| 11. | Subsequent Events |
There are no subsequent events other than those disclosed elsewhere in the consolidated financial statements.
Page 14