Form 6-K

 

 

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: May 3, 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 May 2, 2017 of Global Ship Lease, Inc. (the “Company”) reporting the Company’s financial results for the three months ended March 31, 2017. Attached hereto as Exhibit II are the Company’s interim unaudited consolidated financial statements for the three months ended March 31, 2017.

 

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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: May 3, 2017     By:  

/s/ Ian J. Webber

      Ian J. Webber
      Chief Executive Officer

 

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EXHIBIT I

Investor and Media Contacts:

The IGB Group

Bryan Degnan

646-673-9701

or

Leon Berman

212-477-8438

Global Ship Lease Reports Results for the First Quarter of 2017

LONDON, ENGLAND — May 2, 2017 - Global Ship Lease, Inc. (NYSE:GSL) (the “Company”), a containership charter owner, announced today its unaudited results for the three months ended March 31, 2017.

First Quarter Highlights

- Reported operating revenues of $39.6 million for the first quarter 2017

- Reported net income for common shareholders for the first quarter 2017 of $6.8 million; normalized net income was also $6.8 million

- Generated $28.0 million of Adjusted EBITDA(1) for the first quarter 2017

Ian Webber, Chief Executive Officer of Global Ship Lease, stated, “During the first quarter of 2017, we continued to execute our core strategy, maximizing the value of our long-term time charters with high-quality counterparties, maintaining high levels of vessel utilization and closely controlling costs. Our success in this regard has enabled us to continue generating strong, stable cashflows.”

Mr. Webber continued, “With high levels of scrapping and minimal vessel ordering in the year-to-date, we have seen significant improvement in spot market charter rates in the last few weeks. This trend has been particularly pronounced for the mid-sized and smaller vessel classes where we focus. While most of our vessels continue on their current charters for multiple years, we are encouraged by the improvement in the spot market, which, if sustained, will benefit those vessels that are due to become open later this year and early next. We believe that our established relationships with strong counterparties, consistent cashflows, and ongoing deleveraging of our balance sheet position Global Ship Lease to benefit from market improvement.”

SELECTED FINANCIAL DATA – UNAUDITED

(thousands of U.S. dollars)

 

     Three
months
ended
March 31,
     Three
months
ended
March 31,
 
     2017      2016  

Operating Revenues

     39,642        42,610  

Operating Income

     18,434        18,385  

Net Income for common shareholders

     6,794        4,557  

Adjusted EBITDA(1)

     28,034        29,319  

Normalized Net Income(1)

     6,794        5,429  


(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 most directly comparable US GAAP measure are provided in this Earnings Release.

Operating Revenues and Utilization

The fleet generated operating revenues from fixed-rate time charters of $39.6 million in the three months ended March 31, 2017, down $3.0 million or 7.0% on operating revenues of $42.6 million for the comparative quarter in 2016. The reduction in revenue is mainly due to 68 fewer operating days, mainly as a result of three dry-dockings in the quarter, compared to none in the prior period, and to the prior period being a leap year, together with the effect of the amendments to the charters of Marie Delmas and Kumasi, effective August 1, 2016, whereby the previous charter rate of $18,465 per day was reduced to $13,000 per day against the granting of options in our favor to extend the charters at $9,800 per day in three periods, potentially to end 2020. There were 1,620 ownership days in the quarter, down on 1,638 ownership days in the comparative quarter, due to the leap year. In the first quarter 2017, there were 50 days offhire, 47 of which were for three scheduled dry-dockings, giving an overall utilization of 96.9%. There was no offhire in the first quarter 2016, and consequently utilization was 100.0%.

The table below shows fleet utilization for the three months ended March 31, 2017 and 2016, and for the years ended December 31, 2016, 2015, 2014, 2013 and 2012.

 

     Three months ended     Year ended                    
     Mar 31,     Mar 31,     Dec 31,     Dec 31,     Dec 31,     Dec 31,     Dec 31,  

Days

   2017     2016     2016     2015     2014     2013     2012  

Ownership days

     1,620       1,638       6,588       6,893       6,270       6,205       6,222  

Planned offhire - scheduled drydock

     (47     0       (100     (9     (48     (21     (82

Unplanned offhire

     (3     0       (3     (7     (12     (7     (16

Idle time

     0       0       0       (13     (64     0       0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating days

     1,570       1,638       6,485       6,864       6,146       6,177       6,124  

Utilization

     96.9     100.0     98.4     99.6     98.0     99.5     98.4

There were three regulatory dry-dockings in the three months ended March 31, 2017; a total of five regulatory dry-dockings are planned for the year. There were six regulatory drydockings in 2016.

Vessel Operating Expenses

Vessel operating expenses, which include costs of crew, lubricating oil, spares and insurance, were $10.4 million for the three months ended March 31, 2017, down 8.7% from $11.4 million for the three months ended March 31, 2016. The average cost per ownership day fell $535 per day, or 7.7%, from $6,961 in the three months ended March 31, 2016 to $6,426 for the three months ended March 31, 2017. The reduction is due to lower lubricating oil costs from unit price reductions and fewer steaming days, and to lower repairs and maintenance, in part due to the timing of purchases.

 

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Depreciation

Depreciation for the three months ended March 31, 2017 was $9.6 million, compared to $10.9 million in the three months ended March 31, 2016, with the reduction due to the effect of lower book values for a number of vessels following impairment write downs in 2016.

General and Administrative Costs

General and administrative costs incurred were $1.2 million in the three months ended March 31, 2017, compared to $2.0 million in the three months ended March 31, 2016. The reduction is mainly due to lower legal and other professional fees.

Other Operating Income

Other operating income in the three months ended March 31, 2017 was $42,000, compared to $81,000 for the three months ended March 31, 2016.

Adjusted EBITDA

As a result of the above, Adjusted EBITDA was $28.0 million for the three months ended March 31, 2017, down from $29.3 million for the three months ended March 31, 2016.

Interest Expense

Debt at March 31, 2017 comprises amounts outstanding on our 10% Notes, the revolving credit facility which was drawn March 11, 2015, and the secured term loan which was drawn September 10, 2015.

Interest expense for the three months ended March 31, 2017, was $11.0 million, down $2.1 million on the interest expense for the three months ended March 31, 2016 of $13.1 million. The reduction is mainly due to a lower principal amount outstanding on the Notes, following the 2015 excess cashflow and sale proceeds tender offer (relating to the sales of two vessels in late 2015) which closed in March 2016 and open market purchases of Notes between April 1, 2016 and December 31, 2016, which in aggregate retired $53.9 million principal amount of the Notes. Further, the three months ended March 31, 2016 included $0.9 million aggregate charge for the premium paid in March 2016 in relation to the tender offer and accelerated write off of the portion of the original issue discount and deferred financing costs attributable to the Notes which were retired.

The tender offer for 2016 excess cashflow closed in April 2017, resulting in $19.5 million principal amount of the Notes being purchased, at a purchase price of 102% plus accrued interest, and subsequently retired.

Interest income for the three months ended March 31, 2017 and 2016 was not material.

Taxation

Taxation for the three months ended March 31, 2017 and 2016 was not material.

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 March 31, 2017 was $0.8 million.

Net Income Available to Common Shareholders and Normalized Net Income

Net income available to common shareholders for the three months ended March 31, 2017 was $6.8 million. For the three months ended March 31, 2016, net income was $4.6 million. This year-over-year increase is mainly due to reduced interest expense, depreciation and operating costs, partially offset by lower operating revenues.

 

Page 3


Normalized net income for the three months ended March 31, 2017 was the same as that reported.

Normalized net income for the three months ended March 31, 2016, which excludes the charges associated with the excess cash flow tender offer completed in the quarter, was $5.4 million.

Fleet

The following table provides information about the on-the-water fleet of 18 vessels as at March 31, 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    2.75   Sept 21, 2019     15,300  

CMA CGM Utrillo

     2,262        1999      Dec 2007    2.75   Sept 11, 2019     15,300  

Delmas Keta

     2,207        2003      Dec 2007    0.75   Sept 20, 2017     18,465  

Julie Delmas

     2,207        2002      Dec 2007    0.75   Sept 11, 2017     18,465  

Kumasi(3)

     2,207        2002      Dec 2007    0.75-3.75(3)   August 6, 2017(3)     13,000 (3) 

Marie Delmas(3)

     2,207        2002      Dec 2007    0.75-3.75(3)   July 31, 2017(3)     13,000 (3) 

CMA CGM La Tour

     2,272        2001      Dec 2007    2.75   Sept 20, 2019     15,300  

CMA CGM Manet

     2,272        2001      Dec 2007    2.75   Sept 7, 2019     15,300  

CMA CGM Alcazar

     5,089        2007      Jan 2008    3.75   Oct 18, 2020     33,750  

CMA CGM Château d’If

     5,089        2007      Jan 2008    3.75   Oct 11, 2020     33,750  

CMA CGM Thalassa

     11,040        2008      Dec 2008    8.75   Oct 1, 2025     47,200  

CMA CGM Jamaica

     4,298        2006      Dec 2008    5.75   Sept 17, 2022     25,350  

CMA CGM Sambhar

     4,045        2006      Dec 2008    5.75   Sept 16, 2022     25,350  

CMA CGM America

     4,045        2006      Dec 2008    5.75   Sept 19, 2022     25,350  

CMA CGM Berlioz

     6,621        2001      Aug 2009    4.50   May 28, 2021     34,000  

OOCL Tianjin

     8,063        2005      Oct 2014    0.75   Oct 28, 2017     34,500  

OOCL Qingdao

     8,063        2004      Mar 2015    1.00   Mar 11, 2018     34,500  

OOCL Ningbo

     8,063        2004      Sep 2015    1.50   Sep 17, 2018     34,500  

 

(1) Twenty-foot Equivalent Units.
(2) As at March 31, 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 earliest possible re-delivery date is shown in the table. However, the Company may exercise three consecutive options to extend the charters, at $9,800 per day, which 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 March 31, 2017 today, Tuesday, May 2, 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: 6809621.

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

 

Page 4


If you are unable to participate at this time, a replay of the call will be available through Thursday, May 18, 2017 at (855) 859-2056 or (404) 537-3406. Enter the code 6809621 to access the audio replay. The webcast will also be archived on the Company’s website: http://www.globalshiplease.com.

Annual Report on Form 20-F

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 8006.

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 long-term, fixed rate charters to top tier container liner companies.

At March 31, 2017, Global Ship Lease owned 18 vessels with a total capacity of 82,312 TEU and an average age, weighted by TEU capacity, of 12.3 years. All vessels are currently fixed on time charters, 15 with CMA CGM. The average remaining term of the charters is 3.4 years or 3.7 years on a weighted basis.

Reconciliation of Non-U.S. GAAP Financial Measure

A. ADJUSTED EBITDA

Adjusted EBITDA represents net income before interest income and expense including amortization of deferred finance costs, earnings allocated to preferred shares, income taxes, depreciation, amortization and impairment. 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. Our use of Adjusted EBITDA may vary from the use of similarly titled measures by others in our industry.

ADJUSTED EBITDA - UNAUDITED

 

(thousands of U.S. dollars)  
          Three
months
ended
Mar 31,
2017
     Three
months
ended
Mar 31,
2016
 

Net income available to common shareholders

     6,794        4,557  

Adjust:

   Depreciation      9,600        10,934  
   Interest income      (93      (44
   Interest expense      10,957        13,100  
   Income tax      10        6  
   Earnings allocated to preferred shares      766        766  
     

 

 

    

 

 

 

Adjusted EBITDA

     28,034        29,319  
  

 

 

    

 

 

 

 

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B. Normalized net income

Normalized net income represents net income adjusted for the premium paid on the tender offer for the Notes and the gain made on open market purchases of the Notes, together with the related accelerated amortization of deferred financing costs and original issue discount, and for impairment charges. 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. Our use of Normalized net income may vary from the use of similarly titled measures by others in our industry.

NORMALIZED NET INCOME - UNAUDITED

 

(thousands of U.S. dollars)  
          Three
months
ended
Mar 31,
2017
     Three
months
ended
Mar 31,
2016
 

Net income available to common shareholders

     6,794        4,557  

Adjust:

   Premium paid on tender offer for bonds      —          533  
   Accelerated write off of deferred financing costs related to tender offer      —          80  
   Accelerated write off of original issue discount related to tender offer      —          259  
     

 

 

    

 

 

 

Normalized net income

     6,794        5,429  
  

 

 

    

 

 

 

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 6


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 revenues) 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, drydocking 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 7


EXHIBIT II

GLOBAL SHIP LEASE, INC.

INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2017


Global Ship Lease, Inc.

Interim Unaudited Consolidated Balance Sheets

(Expressed in thousands of U.S. dollars except share data)

 

         

March 31,

2017

   

December 31,

2016

 
     Note             

Assets

       

Cash and cash equivalents

      $ 57,017     $ 54,243  

Accounts receivable

        38       29  

Due from related party

   6      1,271       906  

Prepaid expenses

        1,480       1,146  

Other receivables

        72       52  

Inventory

        601       553  
     

 

 

   

 

 

 

Total current assets

        60,479       56,929  
     

 

 

   

 

 

 

Vessels in operation

   4      712,695       719,110  

Other fixed assets

        6       7  

Intangible assets

        14       16  

Other long term assets

   5      168       195  
     

 

 

   

 

 

 

Total non-current assets

        712,883       719,328  
     

 

 

   

 

 

 

Total Assets

      $ 773,362     $ 776,257  
     

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

       

Liabilities

       

Current portion of long term debt

   5    $ 29,269     $ 31,026  

Intangible liability – charter agreements

        1,797       1,807  

Deferred revenue

        2,368       1,940  

Accounts payable

        1,277       963  

Due to related party

   6      2,758       1,315  

Accrued expenses

        2,023       11,664  
     

 

 

   

 

 

 

Total current liabilities

        39,492       48,715  
     

 

 

   

 

 

 

Long term debt

   5      388,824       388,847  

Intangible liability – charter agreements

        9,340       9,782  

Deferred tax liability

        19       20  
     

 

 

   

 

 

 

Total long-term liabilities

        398,183       398,649  
     

 

 

   

 

 

 

Total Liabilities

      $ 437,675     $ 447,364  
     

 

 

   

 

 

 

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 a $0.01 par value;
14,000 shares issued and outstanding (2016 – 14,000)

   8      —         —    

Additional paid in capital

        386,708       386,708  

(Accumulated deficit)

        (51,571     (58,365
     

 

 

   

 

 

 

Total Stockholders’ Equity

        335,687       328,893  
     

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

      $ 773,362     $ 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

March 31,

 
          2017     2016  
     Note             

Operating Revenues

       

Time charter revenue

      $ 9,238     $ 9,338  

Time charter revenue – related party

   6      30,404       33,272  
     

 

 

   

 

 

 
        39,642       42,610  
     

 

 

   

 

 

 

Operating Expenses

       

Vessel operating expenses

        10,010       11,002  

Vessel operating expenses – related party

   6      400       400  

Depreciation

   4      9,600       10,934  

General and administrative

        1,240       1,970  

Other operating income

        (42     (81
     

 

 

   

 

 

 

Total operating expenses

        21,208       24,225  
     

 

 

   

 

 

 

Operating Income

        18,434       18,385  

Non Operating Income (Expense)

       

Interest income

        93       44  

Interest expense

        (10,957     (13,100
     

 

 

   

 

 

 

Income before Income Taxes

        7,570       5,329  

Income taxes

        (10     (6
     

 

 

   

 

 

 

Net Income

      $ 7,560     $ 5,323  

Earnings allocated to Series B Preferred Shares

   8      (766     (766
     

 

 

   

 

 

 

Net Income available to Common Shareholders

      $ 6,794     $ 4,557  
     

 

 

   

 

 

 

Earnings per Share

       

Weighted average number of Class A common shares outstanding

       

Basic (including RSUs without service conditions)

Diluted

   10

10

    

47,975,609

47,975,609

 

 

   

47,841,578

47,841,578

 

 

Net income per Class A common share

       

Basic (including RSUs without service conditions)

   10    $ 0.14     $ 0.10  

Diluted

   10    $ 0.14     $ 0.10  

Weighted average number of Class B common shares outstanding

       

Basic and diluted

   10      7,405,956       7,405,956  

Net income per Class B common share

       

Basic and diluted

   10    $ nil     $ nil  

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

March 31,

 
          2017     2016  
     Note             

Cash Flows from Operating Activities

       

Net income

      $ 7,560     $ 5,323  

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities

       

Depreciation

   4      9,600       10,934  

Amortization of deferred financing costs

   5      890       952  

Amortization of original issue discount

   5      282       582  

Amortization of intangible liability

        (452     (529

Share based compensation

   9      —         33  

Increase in accounts receivable and other assets

        (581     (549

(Increase) decrease in inventory

        (48     34  

Decrease in accounts payable and other liabilities

        (9,548     (10,182

Increase (decrease) in unearned revenue

        428       (104

Increase in related party balances

   6      48       716  

Unrealized foreign exchange loss

        6       32  
     

 

 

   

 

 

 

Net Cash Provided by Operating Activities

        8,185       7,242  
     

 

 

   

 

 

 

Cash Flows from Investing Activities

       

Costs paid in respect of sale of vessels

        —         (157

Cash paid for other assets

        —         (1

Cash paid for drydockings

        (1,720     —    
     

 

 

   

 

 

 

Net Cash Used in Investing Activities

        (1,720     (158
     

 

 

   

 

 

 

Cash Flows from Financing Activities

       

Repurchase of secured notes

   5      —         (26,662

Repayment of credit facilities

   5      (2,925     (2,725

Series B Preferred Shares – dividends paid

   8      (766     (766
     

 

 

   

 

 

 

Net Cash (Used in) Provided by Financing Activities

        (3,691     (30,153
     

 

 

   

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

        2,774       (23,069

Cash and Cash Equivalents at Start of Period

        54,243       53,591  
     

 

 

   

 

 

 

Cash and Cash Equivalents at End of Period

      $ 57,017     $ 30,522  
     

 

 

   

 

 

 

Supplemental information

       

Total interest paid

      $ 18,932     $ 21,507  

Income tax paid

      $ 14     $ 16  
     

 

 

   

 

 

 

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
     Retained
Earnings
    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

     —          —          —          —          —          7,560       7,560  

Series B Preferred Shares dividend (note 8)

     —          —          —          —          —          (766     (766
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Balance at March 31, 2017

     54,981,565        14,000      $ 550      $ —        $ 386,708      $ (51,571   $ 335,687  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

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 March 31, 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 0.75 to 8.75 years.

The following table provides information about the 18 vessels owned as at March 31, 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      2.75      $ 15.300  

CMA CGM Utrillo

     2,262        1999      December 2007    CMA CGM      2.75      $ 15.300  

Delmas Keta

     2,207        2003      December 2007    CMA CGM      0.75      $ 18.465  

Julie Delmas

     2,207        2002      December 2007    CMA CGM      0.75      $ 18.465  

Kumasi (3)

     2,207        2002      December 2007    CMA CGM      3.75      $ 13.000  

Marie Delmas (3)

     2,207        2002      December 2007    CMA CGM      3.75      $ 13.000  

CMA CGM La Tour

     2,272        2001      December 2007    CMA CGM      2.75      $ 15.300  

CMA CGM Manet

     2,272        2001      December 2007    CMA CGM      2.75      $ 15.300  

CMA CGM Alcazar

     5,089        2007      January 2008    CMA CGM      3.75      $ 33.750  

CMA CGM Château d’lf

     5,089        2007      January 2008    CMA CGM      3.75      $ 33.750  

CMA CGM Thalassa

     11,040        2008      December 2008    CMA CGM      8.75      $ 47.200  

CMA CGM Jamaica

     4,298        2006      December 2008    CMA CGM      5.75      $ 25.350  

CMA CGM Sambhar

     4,045        2006      December 2008    CMA CGM      5.75      $ 25.350  

CMA CGM America

     4,045        2006      December 2008    CMA CGM      5.75      $ 25.350  

CMA CGM Berlioz

     6,621        2001      August 2009    CMA CGM      4.50      $ 34.000  

OOCL Tianjin

     8,063        2005      October 2014    OOCL      0.75      $ 34.500  

OOCL Qingdao

     8,063        2004      March 2015    OOCL      1.00      $ 34.500  

OOCL Ningbo

     8,063        2004      September 2015    OOCL      1.50      $ 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, (ii) January 1, 2019 to December 31, 2019 and (iii) January 1, 2020 to December 31, 2020.

 

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

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 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

Due to continuing poor industry conditions, impairment tests were performed on a vessel by vessel basis as at December 31, 2016. Based on the assumptions made, an impairment charge on four vessels, totalling $63,065, was recognised in the financial statements for the three months ended December 31, 2016.

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 and (v) estimated useful life which is assessed as a total of 30 years. 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

There have been no applicable accounting standards or updates issued since December 31, 2016.

Management do 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

 

    

March 31,

2017

     December 31,
2016
 

Cost

   $ 1,003,140      $ 1,095,275  

Accumulated depreciation

     (290,445      (283,743

Vessel impairment

     —          (92,422
  

 

 

    

 

 

 

Net book value

   $ 712,695      $ 719,110  
  

 

 

    

 

 

 

Due to continuing poor industry conditions, impairment tests were performed on a vessel by vessel basis as at December 31, 2016 (see note 3), 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

 

    

March 31,

2017

     December 31,
2016
 

2019 Notes

   $ 420,000      $ 420,000  

Less repurchase of Notes (note 5(a))

     (54,212      (54,212

Less original issue discount

     (6,300      (6,300

Amortization of original issue discount

     4,192        3,910  
  

 

 

    

 

 

 

2019 Notes (note 5(a))

     363,680        363,398  

Revolving Credit Facility (note 5(b))

     39,200        39,200  

Secured Term Loan (note 5(c))

     21,450        24,375  

Less: Deferred financing costs (note 5(e))

     (6,237      (7,100
  

 

 

    

 

 

 

Balance

     418,093        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))

     (9,768      (11,525
  

 

 

    

 

 

 

Non-current portion of Long-Term Debt

     388,824        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 March 31, 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 (see note 4) secured to the 2019 Notes in November and December 2015, the Company was required to offer the net sale proceeds, less a proportion to be used to repay part of the Revolving Credit Facility (see note 5(c)), 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 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 (see note 4) 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)

 

5. Long-Term Debt (continued)

(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 April 1, 2017 the long term debt will be reduced in each of the relevant periods as follows:

 

Year ending March 31,       

2018

   $ 29,269  

2019

     390,160  

2020

     4,673  

2021

     2,336  

Less: amortization of original issue discount

     (2,108

Less: amortization of deferred financing costs

     (6,237
  

 

 

 
   $ 418,093  
  

 

 

 

 

Page 9


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)

(e) Deferred financing costs

 

    

March 31,

2017

     December 31,
2016
 

Opening balance

   $ 7,100      $ 10,611  

Amortization included within interest expense

     (863      (3,511
  

 

 

    

 

 

 

Closing balance

   $ 6,237      $ 7,100  
  

 

 

    

 

 

 

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.

 

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 March 31, 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 March 31, 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 March 31, 2017 of between 0.75 and 8.75 years (see note 2(a)). Of the $597,814 maximum contracted future charter hire receivable (including all periods at the Company’s option) for the fleet set out in note 7, $555,449 relates to the 15 vessels that were chartered to CMA CGM as at March 31, 2017. Revenues generated from charters to CMA CGM are shown separately in the Consolidated Statements of Income.

Ship Management Agreements

At March 31, 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.

 

Page 10


Global Ship Lease, Inc.

Notes to the Interim Unaudited Consolidated Financial Statements (continued)

(Expressed in thousands of U.S. dollars)

 

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 as at March 31, 2017, and assuming the owner’s options included in the charters for Kumasi and Marie Delmas are exercised, is as follows:

 

Year ending March 31,       

2018

     156,196  

2019

     119,840  

2020

     105,176  

2021

     82,209  

2022

     49,996  

Thereafter

     84,397  
  

 

 

 
   $ 597,814  
  

 

 

 

 

8. Share Capital

At March 31, 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.

 

Page 11


Global Ship Lease, Inc.

Notes to the Interim Unaudited Consolidated Financial Statements (continued)

(Expressed in thousands of U.S. dollars)

 

8. Share Capital (continued)

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 March 10, 2017 for the first quarter 2017.

 

9. Share-Based Compensation

Share based awards since January 1, 2016, are summarized as follows:

 

     Restricted Stock Units  
     Number of
Units
     Weighted
Average
Fair Value
on Grant
Date
     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        —    
  

 

 

    

 

 

    

 

 

 

Unvested as at December 31, 2016

     500,000      $ 2.42        n/a  
  

 

 

    

 

 

    

 

 

 

Unvested as at March 31, 2017

     500,000      $ 2.42        n/a  
  

 

 

    

 

 

    

 

 

 

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 three months ended March 31, 2017, the Company recognized no (2016: $33) share based compensation cost. As at March 31, 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.

 

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Global Ship Lease, Inc.

Notes to the Interim Unaudited Consolidated Financial Statements (continued)

(Expressed in thousands of U.S. dollars)

 

9. Share-Based Compensation (continued)

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.

 

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 March 31, 2017, there were 500,000 restricted stock units granted and unvested as part of management’s equity incentive plan. As of March 31, 2017 only Class A and B common shares are participating securities.

For the three months ended March 31, 2017 and 2016, 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.

 

Page 13


Global Ship Lease, Inc.

Notes to the Interim Unaudited Consolidated Financial Statements (continued)

(Expressed in thousands of U.S. dollars)

 

10. Earnings per Share (continued)

 

(In thousands, except share data)   

Three months ended

March 31,

 
     2017      2016  

Class A common shares

     

Basic weighted average number of common shares outstanding (B)

     47,575,609        47,541,578  

Weighted average number of RSU’s without service conditions (note 9,10) (B)

     400,000        300,000  

Dilutive effect of share-based incentive awards

     —          —    
  

 

 

    

 

 

 

Common shares and common share equivalents (F)

     47,975,609        47,841,578  
  

 

 

    

 

 

 

Class B common shares

     

Basic weighted average number of common shares

outstanding (D)

     7,405,956        7,405,956  

Dilutive effect of share-based incentive awards

     —          —    
  

 

 

    

 

 

 

Common shares (H)

     7,405,956        7,405,956  
  

 

 

    

 

 

 

Basic Earnings per Share

     

Net income available to common shareholders

   $ 6,794      $ 4,557  

Available to:

     

- Class A shareholders for period

   $ 6,794      $ 4,557  

- 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)

   $ 6,794      $ 4,557  

Net income available for Class B (C)

     —          —    

Basic Earnings per share:

     

Class A (A/B)

   $ 0.14      $ 0.10  

Class B (C/D)

     —          —    

Diluted Earnings per Share

     

Net income available to common shareholders

   $ 6,794      $ 4,557  

Available to:

     

- Class A shareholders for period

   $ 6,794      $ 4,557  

- 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)

   $ 6,794      $ 4,557  

Net income available for Class B (G)

     —          —    

Diluted Earnings per share:

     

Class A (E/F)

   $ 0.14      $ 0.10  

Class B (G/H)

     —          —    

 

11. Subsequent Events

There are no subsequent events other than those disclosed elsewhere in the consolidated financial statements.

 

Page 14