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: November 10, 2009

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 SW1E 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     x         Form 40-F     ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-I Rule 101 (b)(1).

Yes     ¨         No     x

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     x

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes     ¨         No     x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-                    .

 

 

 


Information Contained in this Form 6-K Report

Attached hereto as Exhibit I is a press release dated November 10, 2009 of Global Ship Lease, Inc. (the “Company”) reporting the Company’s financial results for the Third Quarter 2009. Attached hereto as Exhibit II are the Company’s interim unaudited combined financial statements for the three and nine months ended September 30, 2009.

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.

 

 

Date: November 10, 2009     GLOBAL SHIP LEASE, INC.
    By:   /s/ Ian J. Webber
    Name:   Ian J. Webber
    Title:   Chief Executive Officer


EXHIBIT I

LOGO

Investor and Media Contacts:

The IGB Group

Michael Cimini

212-477-8261

Global Ship Lease Reports Results for the Third Quarter of 2009

LONDON, ENGLAND—November 10, 2009 - Global Ship Lease, Inc. (NYSE:GSL, GSL.U and GSL.WS), a containership charter owner, announced today its unaudited results for the three months ended September 30, 2009.

Third Quarter and Year-to-Date 2009 Highlights

- Generated $15.4 million of cash in the third quarter of 2009 and $45.5 million in the nine months ended September 30, 2009

- Reported revenue of $37.6 million for the third quarter of 2009, up 57% on $23.9 million for the third quarter 2008 due to the purchase of four additional vessels in December 2008 and one additional vessel in August 2009 and $108.8 million for the nine months ended September 30, 2009 up 58% on $68.7 million for the nine months ended September 30, 2008

- Reported normalized net earnings of $6.2 million, or $0.12 per share, for the third quarter of 2009, excluding a $8.1 million non-cash interest rate derivative mark-to-market charge and $2.0 million deferred financing costs written off on an accelerated basis. For the nine months ended September 30, 2009 normalized net earnings was $19.4 million, or $0.36 per share, excluding $12.8 million non-cash mark-to-market gain and $2.2 million deferred financing costs written off on an accelerated basis

- Including the non-cash mark-to-market and deferred financing costs items, reported net loss was $3.9 million, or $(0.07) loss per share, for the third quarter of 2009 and net gain was $30.0 million, or $0.56 per share, for the nine months ended September 30, 2009

- Purchased CMA CGM Berlioz, a 2001-built 6,627 TEU container vessel, in August 2009 for $82 million. The vessel is chartered to CMA CGM for 12 years.

- Amended the credit facility in August 2009 to suspend loan-to-value tests effectively until second quarter 2011. The amendment also allowed further borrowings to finance the purchase of CMA CGM Berlioz, cancelled all undrawn commitments and requires prepayments based on free cash flow. No common dividends can be declared or paid until the later of November 30, 2010 or when loan-to-value falls to 75% or below

 

Page 1


Ian Webber, Chief Executive Officer of Global Ship Lease, stated, “During the third quarter, Global Ship Lease’s entire fleet remained secured on long-term contracts and the business model continued to perform as expected. Our contracted revenue and capped operating cost agreements enabled the Company to once again record strong and consistent revenue and cash flow. Complementing our operating performance, we grew our fleet and contracted revenue with the purchase of the CMA CGM Berlioz in August 2009. As anticipated, we also finalized an amendment to our credit facility during August.”

Results for Three And Nine months ended September 30, 2009

Comparative financial information for the three and nine months ended September 30, 2008 is prepared under predecessor accounting rules and includes the results of operations of two of the Company’s vessels for part of January 2008 when they were owned by CMA CGM, a privately owned French container shipping company, and operated in CMA CGM’s business of earning revenue from carrying containerized cargo. Global Ship Lease commenced its business of time chartering out vessels in December 2007 when it purchased 10 container vessels from CMA CGM. The Company purchased the two additional vessels from CMA CGM in January 2008 and has subsequently purchase an additional five vessels. The predecessor and Global Ship Lease business models are not comparable.

Further, there were significant changes to the Company’s legal and capital structure arising from the merger on August 14, 2008, which resulted in the Company becoming listed on the New York Stock Exchange. Accordingly, selected comparative information is presented.

SELECTED FINANCIAL DATA – UNAUDITED

(thousands of U.S. dollars except per share data)

 

     Three
months
ended
Sept 30,
2009
    Three
months
ended
Sept 30,
2008 (4)
    Nine
months
ended
Sept 30,
2009
   Nine
months
ended
Sept 30,
2008 (4)

Revenue (1)

   37,623      23,912      108,824    68,673

Operating Income (1)

   16,132      9,414      43,855    28,948

Net (Loss) Income (1)

   (3,893   (1,221   30,026    9,204

Earnings per A and B share (2)

   (0.07   —        0.56    —  

Normalised net earnings (2) (3)

   6,249      —        19,383    —  

Normalised earnings per A and B share (2) (3)

   0.12      —        0.56    —  

Adjusted Cash From Operations (2) (3)

   15,383      —        45,485    —  

 

(1) Comparative data for the three and nine months ended September 30, 2008 relates to the Company’s time charter business only and therefore excludes the results from containerized transportation undertaken by the predecessor group

 

(2) Comparative data is not presented due to the significant changes to the legal and capital structure arising from the merger on August 14, 2008 resulting in the Company being listed on the New York Stock Exchange

 

(3) Normalized net earnings, normalized earnings per share, and adjusted cash from operations are non-US Generally Accepted Accounting Principles (US GAAP) measures, as explained further in this press release, and reconciliations are provided to the interim unaudited financial information

 

Page 2


(4) Based on the combination of time charter activity for Predecessor and Successor periods

Revenue and Utilization

Global Ship Lease owned sixteen vessels up to August 26, 2009 when CMA CGM Berlioz was purchased. The fleet generated revenue from fixed rate long-term time charters of $37.6 million in the three months ended September 30, 2009, up 57% on revenue of $23.9 million for the comparative period in 2008 due to the purchase of four additional ships in December 2008 and one in August 2009. These five vessels have an average daily charter rate of $31,450 compared to an average daily charter rate of $22,685 for the previous fleet of 12 vessels. During the three months ended September 30, 2009 there were 1,508 ownership days, up 404 or 37% on 1,104 ownership days in the comparable period. CMA CGM Matisse was dry-docked, at a cost of $0.9 million, for 16 days in the quarter and there were four unplanned off-hire days in the three months ended September 30, 2009 giving utilization of 98.7%. In the comparable period of 2008, there were 18 unplanned off-hire days, giving utilization of 98.4%.

For the nine months ended September 30, 2009 revenue was $108.8 million, an increase of 58% compared to time charter revenue of $68.7 million in the comparative period. Ownership days at 4,404 were up 1,141, or 35%, on 3,263 in the comparative period. Utilization in the nine months ended September 30, 2009 was 98.7% up slightly on 98.6% in the comparative period.

Vessel Operating Expenses

Vessel operating expenses, which include costs of crew, lubricating oil, spares and insurance, were $10.3 million for the three months ended September 30, 2009. The average cost per ownership day was $6,820 down 5% from the average daily cost of $7,217 for the previous quarter due to an insurance related credit arising in the three months ended September 30, 2009 and due to the previous quarter including approximately $400,000 of spend on crane jib improvements and replacing radars and turbo charger grids, and down 5% from the average daily cost of $7,145 for the comparative period in 2008.

Vessel operating expenses were $31.5 million for the nine months ended September 30, 2009 or $7,156 per ownership day. This compares to $21.9 million vessel operating expenses associated with the time charter business in the comparative period or $6,703 per ownership day. The increase over 2008 is due mainly to increases in crew costs in the intervening period and the impact of the four vessels delivered in December 2008 which are on average larger than the previous vessels and are thus more expensive to operate.

Vessel operating expenses are at less than the capped amounts included in Global Ship Lease’s ship management agreements.

Depreciation

Depreciation was $9.5 million for the three months ended September 30, 2009, including the effect of the purchase of four additional vessels in December 2008 and one in August 2009, compared to $5.2 million for the comparative period. In the nine months to September 30, 2009 depreciation was $27.2 million, up from $14.7 million for the time charter business in the comparative period in 2008.

General and Administrative Costs

General and administrative costs incurred were $2.0 million in the three months ended September 30, 2009, including $0.6 million non-cash charge for stock based incentives, compared to $1.5 million for the time charter business in the comparable period in 2008 when for half of the quarter the Company was a wholly-owned subsidiary of CMA CGM. In the nine months ended September 30, 2009 general and administrative costs were $6.6 million, including $2.2 million non-cash charge for stock based incentives, compared to $3.3 million in the comparative period.

 

Page 3


Interest Expense

Interest expense, excluding the effect of interest rate derivatives which do not qualify for hedge accounting, for the three months ended September 30, 2009 was $7.9 million. This includes a non recurring write off of a portion of brought forward unamortized deferred financing costs of $2.0 million as a result of reduced borrowing capacity following the amendment to the credit facility agreed in August 2009. The Company’s borrowings under its credit facility averaged approximately $564.4 million in the three months ended September 30, 2009 and there were $48.0 million preferred shares throughout the period. Interest expense in the comparative period in 2008 was $4.2 million based on average borrowings of $453.4 million in the quarter.

For the nine months ended September 30, 2009 net interest expense was $18.1 million including $2.2 million write off of deferred financing costs and based on average borrowings, including the preferred shares, of $597.6 million compared to $18.8 million net interest expense for the comparative period in 2008 based on average borrowings including the preferred shares of $536.0 million in the comparative period.

Change in Fair Value of Financial Instruments

The Company hedges the majority of its interest rate exposure by entering into derivatives that swap floating rate debt for fixed rate debt to provide long-term stability and predictability to cash flows. As these hedges do not qualify for hedge accounting under US GAAP, the outstanding hedges are marked to market at each period end with any change in the fair value being booked to the income and expenditure account. The Company’s derivative hedging instruments led to a $12.0 million loss in the three months ended September 30, 2009, reflecting primarily movements in the forward curve for interest rates. Of this amount, $3.9 million was realized for settlements of swaps in the period and $8.1 million was unrealized for revaluation of the balance sheet position. This compares to a $6.7 million loss in the three months ended September 30, 2008 of which $0.3 million was realized and $6.4 million was unrealized. For the nine months ended September 30, 2009 the reported gain was $4.1 million comprising $8.7 million realized charge and $12.8 million unrealized gain. For the nine months ended September 30, 2008 the reported loss was $1.5 million of which $0.4 million was realized and $1.1 million was unrealized.

At September 30, 2009 the total mark-to-market unrealized loss recognized as a liability was $34.2 million.

Unrealized mark-to-market adjustments have no impact on operating performance or cash generation.

Net Earnings

Normalized net earnings was $6.2 million, or $0.12 per Class A and B common share, for the three months ended September 30, 2009 excluding the $8.1million non-cash interest rate derivative mark-to-market loss and $2.0 million write off of deferred financing costs following the reduction in the company’s borrowing capacity. Including the mark-to-market loss and the deferred financing costs written off, the net loss was $3.9 million or $(0.07) loss per Class A and B common share.

Normalized net earnings was $19.4 million, or $0.36 per Class A and B common share, for the nine months ended September 30, 2009 excluding the $12.8 million non-cash interest rate derivative mark-to-market gain and $2.2 million deferred financing costs written off. Including these items, net income was $30.0 million or $0.56 per Class A and B common share.

Normalized net earnings and normalized earnings per share are non-US GAAP measures and are reconciled to the financial information included in this press release. We believe that they are useful measures with which to assess the Company’s financial performance as they adjust for non-cash items that do not affect the Company’s ability to generate cash.

 

Page 4


Credit Facility

On August 20, 2009, the Company entered into an amendment to its credit facility, whereby the loan-to-value covenant has been waived up to and including November 30, 2010 with the next loan-to-value test scheduled for April 30, 2011. Further, Global Ship Lease was able to borrow sufficient funds under the credit facility to allow the purchase of the CMA CGM Berlioz in August 2009. Amounts borrowed under the amended credit facility bear interest at LIBOR plus a fixed interest margin of 3.50% up to November 30, 2010. Thereafter, the margin will be between 2.50% and 3.50% depending on the loan-to-value ratio.

In connection with the amended credit facility, all undrawn commitments of approximately $200 million were cancelled and Global Ship Lease may not pay dividends to common shareholders, instead using its cash flow to prepay borrowings under the credit facility. Global Ship Lease will be able to resume dividends after November 30, 2010 and once the loan-to-value is at or below 75%, when the prepayment of borrowings becomes fixed at $10 million per quarter. As part of the amendment, CMA CGM has agreed to defer redemption of the $48 million preferred shares it holds until after the final maturity of the credit facility in August 2016 and retain its current holding of approximately 24.4 million common shares at least until November 30, 2010.

Dividend

Global Ship Lease has agreed with its lenders that it will not declare or pay any dividend to common shareholders until the later of November 30, 2010 and when loan-to-value is at or below 75%. The board of directors will review the dividend policy when appropriate.

Adjusted Cash From Operations

Adjusted cash from operations was $15.4 million for the three months ended September 30, 2009 and was $45.5 million for the nine months then ended. Adjusted cash from operations is a non-US GAAP measure and is reconciled to the financial information further in this press release. The Company believes that it is a useful measure with which to assess the Company’s operating performance as it adjusts for the effects of non-cash items.

Fleet Utilization

The table below shows fleet utilization for the three and nine months to September 30, 2009 and 2008. Unplanned offhire in the nine months ended September 30, 2009 includes 18 days in first quarter for drydock and associated repairs following a grounding and a seven day deviation to land a sick crew member.

 

     Three months ended     Nine months ended  

Days

   Sept 30,
2009
    Sept 30,
2008
    Increase     Sept 30,
2009
    Sept 30,
2008
    Increase  

Ownership days

   1,508      1,104      37   4,404      3,263      35

Planned offhire - scheduled drydock

   (16   —          (16   (15  

Unplanned offhire - other

   (4   (18     (42   (30  
                            

Operating days

   1,488      1,086      37   4,346      3,218      35

Utilization

   98.7   98.4     98.7   98.6  

 

Page 5


Fleet

The following table provides information about the on-the-water fleet of 17 vessels chartered to CMA CGM.

 

Vessel Name

   Capacity
in TEUs (1)
   Year
Built
   Purchase Date
by GSL
   Charter
Remaining
Duration
(years)
   Daily
Charter
Rate ($)
    

Ville d’Orion

   4,113    1997    December 2007    3.25    $ 28,500   

Ville d’Aquarius

   4,113    1996    December 2007    3.25    $ 28,500   

CMA CGM Matisse

   2,262    1999    December 2007    7.25    $ 18,465   

CMA CGM Utrillo

   2,262    1999    December 2007    7.25    $ 18,465   

Delmas Keta

   2,207    2003    December 2007    8.25    $ 18,465   

Julie Delmas

   2,207    2002    December 2007    8.25    $ 18,465   

Kumasi

   2,207    2002    December 2007    8.25    $ 18,465   

Marie Delmas

   2,207    2002    December 2007    8.25    $ 18,465   

CMA CGM La Tour

   2,272    2001    December 2007    7.25    $ 18,465   

CMA CGM Manet

   2,272    2001    December 2007    7.25    $ 18,465   

CMA CGM Alcazar

   5,100    2007    January 2008    11.25    $ 33,750   

CMA CGM Château d’If

   5,100    2007    January 2008    11.25    $ 33,750   

CMA CGM Thalassa

   10,960    2008    December 2008    16.25    $ 47,200   

CMA CGM Jamaica

   4,298    2006    December 2008    13.25    $ 25,350   

CMA CGM Sambhar

   4,045    2006    December 2008    13.25    $ 25,350   

CMA CGM America

   4,045    2006    December 2008    13.25    $ 25,350   

CMA CGM Berlioz

   6,627    2001    August 2009    12.00    $ 34,000    12
  (1) Twenty-foot Equivalent Units.

The following table provides information about the contracted fleet.

 

Vessel Name

   Capacity
in TEUs
(1)
   Year
Built
   Estimated Delivery
Date
   Charterer    Charter
Duration
(years)
    Daily
Charter
Rate ($)

Hull 789 (2)

   4,250    2010    October 2010    ZIM    7-8  (3)    $ 28,000

Hull 790 (2)

   4,250    2010    December 2010    ZIM    7-8  (3)    $ 28,000

 

  (1) Twenty-foot Equivalent Units.
  (2) Contracted to be purchased from German interests.
  (3) Seven-year charter that could be extended to eight years at charterer’s option.

Conference Call and Webcast

Global Ship Lease will hold a conference call to discuss the Company’s results for the three months ended September 30, 2009 today, Tuesday, November 10, 2009 at 10:30 a.m. Eastern Time. There are two ways to access the conference call:

 

(1) Dial-in: (800) 289-0546 or (913) 312-0692; Passcode: 2534512

 

Page 6


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 Tuesday, November 24, 2009 at (888) 203-1112 or (719) 457-0820. Enter the code 2534512 to access the audio replay. The webcast will also be archived on the Company’s website: http://www.globalshiplease.com.

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 world class container liner companies.

Global Ship Lease currently owns 17 vessels with a total capacity of 66,297 TEU with a weighted average age at September 30, 2009 of 5.6 years. All of the current vessels are fixed on long-term charters to CMA CGM with an average remaining term of 9.3 years. The Company has contracts in place to purchase two 4,250 TEU newbuildings from German interests for approximately $77 million each that are scheduled to be delivered in the fourth quarter of 2010. The Company has agreements to charter out these newbuildings to Zim Integrated Shipping Services Limited for seven to eight years.

Reconciliation of Non-U.S. GAAP Financial Measures

A. Adjusted Cash From Operations

Adjusted cash from operations is a non-US GAAP measure and is reconciled to the financial information below. It represents net earnings adjusted for non-cash items including depreciation, amortization of deferred financing charges, accretion of earnings for intangible liabilities, charge for equity based incentive awards and change in fair value of derivatives. We also deduct an allowance for the cost of future drydockings, which due to their substantial and periodic nature could otherwise distort quarterly cashflow available for common dividends. Adjusted cash from operations is a non-US GAAP quantitative measure used to assist in the assessment of the Company’s ability to generate cash. Adjusted cash from operations is not defined in accounting principles generally accepted in the United States and should not be considered to be an alternate to net earnings or any other financial metric required by such accounting principles. We believe that adjusted cash from operations is a useful measure with which to assess the Company’s operating performance as it adjusts for the effects of non-cash items.

ADJUSTED CASH FROM OPERATIONS - UNAUDITED

(thousands of U.S. dollars)

 

     Three
months
ended
Sept 30, 2009
    Nine
months
ended
Sept 30, 2009
 
Net (loss) income    (3,893   30,026   
Add:    Depreciation    9,469      27,241   
   Charge for equity incentive awards    575      2,154   
   Amortization of deferred financing fees    2,261      2,886   
Less:    Change in value of derivatives    8,127      (12,834
   Allowance for future dry-docks    (930   (2,730
   Revenue accretion for intangible liabilities    (397   (1,019
   Deferred taxation    171      (239
               
Adjusted cash from operations    15,383      45,485   
               

 

Page 7


B. Normalized net earnings

Normalized net earnings is a non-US GAAP measure and is reconciled to the financial information below. It represents net earnings adjusted for the change in fair value of derivatives and the accelerated write off of a portion of deferred financing costs. Normalized net earnings is a non-GAAP quantitative measure which we believe will assist investors and analysts who often adjust reported net earnings for non-operating items such as change in fair value of derivatives to eliminate the effect of non cash non-operating items that do not affect operating performance or cash generated. Normalized net earnings is not defined in accounting principles generally accepted in the United States and should not be considered to be an alternate to net earnings or any other financial metric required by such accounting principles. Normalized net earnings per share is calculated based on normalized net earnings and the weighted average number of shares in the relevant period.

NORMALIZED NET EARNINGS - UNAUDITED

(thousands of U.S. dollars except share and per share data)

 

          Three
months
ended

Sept 30, 2009
    Nine
months
ended

Sept 30, 2009
 
Net (loss) income as reported    (3,893   30,026   
Adjust:    Change in value of derivatives    8,127      (12,834
   Deferred financing costs written off (1)    2,015      2,191   
               
Normalized net earnings    6,249      19,383   
               
Weighted average number of Class A and B common shares outstanding (2)     
  

Basic

   53,805,878      53,792,798   
  

Diluted

   53,805,878      54,024,166   
Net (loss) income per share on reported earnings     
  

Basic

   (0.07   0.56   
  

Diluted

   (0.07   0.56   
Normalized net income per share     
  

Basic

   0.12      0.36   
  

Diluted

   0.12      0.36   

 

(1) Following reductions in the company’s borrowing capacity under its credit facility, a proportion of unamortized deferred financing costs were written off.

 

(2) The weighted average number of shares (basic and diluted) for the three months ended September 30, 2009 excludes the effect of outstanding warrants and stock based incentive awards as these were anti dilutive. For the nine months ended September 30, 2009 the diluted weighted average number of shares includes the effect of outstanding stock based incentive awards but excludes the effect of outstanding warrants as these were anti dilutive.

 

Page 8


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

The risks and uncertainties include, but are not limited to:

- future operating or financial results;

- general market conditions and shipping industry trends, including charter rates and factors affecting supply and demand;

- the financial condition of CMA CGM, the Company’s sole charterer and sole source of operating revenue, and its ability to pay charterhire in accordance with the charters;

- the continued performance of existing long-term, fixed rate-time charters;

- Global Ship Lease’s ability to meet its financial covenants and repay its credit facility;

- Global Ship Lease’s financial condition and liquidity, including its ability to obtain additional waivers which might be necessary under its existing credit facility or obtain additional financing to fund capital expenditures, contracted and yet to be contracted vessel acquisitions including the two newbuildings to be purchased from German interests in the fourth quarter 2010 and other general corporate activities;

- expectations regarding the future growth of the container shipping industry, including the rate of annual demand and supply growth;

- future payments of dividends and the availability of cash for payment of dividends;

- Global Ship Lease’s expectations relating to dividend payments and its ability to make such payments including the impact of constraints under its credit facility;

- future acquisitions, business strategy and expected capital spending;

- operating expenses, availability of crew, number of off-hire days, drydocking and survey requirements and insurance costs;

- assumptions regarding interest rates and inflation;

 

Page 9


- 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 including total loss or constructive total loss;

- estimated future capital expenditures needed to preserve its capital base;

- Global Ship Lease’s expectations about the availability of ships to purchase, the time that it may take to construct new ships, or the useful lives of its ships;

- Global Ship Lease’s continued ability to enter into or renew long-term, fixed-rate charters;

- Global Ship Lease’s ability to capitalize on its management team’s and board of 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 including taxation; 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 10


Global Ship Lease, Inc.

Interim Unaudited Combined Statements of Income

The interim unaudited combined financial statements up to September 30, 2009 include two distinct reporting periods (i) before August 15, 2008 (“Predecessor”) and (ii) from August 15, 2008 (“Successor”), which relate to the period preceding the merger referred to in note 1 and the period succeeding the merger, respectively.

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

 

     Three months ended September 30,     Nine months ended September 30,  
     2009     2008     2009     2008  
     Successor     Successor           Predecessor     Successor     Successor           Predecessor  
           August 15 to
September 30
          July 1 to
August 14
          August 15 to
September 30
          January 1 to
August 14
 

Operating Revenues

                      

Voyage revenue

   $ —        $ —             $ —        $ —        $ —             $ 2,072   

Time charter revenue

     37,623        12,790             11,122        108,824        12,790             55,883   
                                                          
   
     37,623        12,790             11,122        108,824        12,790             57,955   
                                                          
   

Operating Expenses

                      

Voyage expenses

     —          —               —          —          —               1,944   

Vessel operating expenses

     10,285        3,980             3,908        31,517        3,980             18,074   

Depreciation

     9,469        2,848             2,330        27,241        2,848             12,163   

General and administrative

     1,981        1,026             496        6,561        1,026             3,814   

Other operating (income) expense

     (244     (43          (35     (350     (43          93   
                                                          
   

Total operating expenses

     21,491        7,811             6,699        64,969        7,811             36,088   
                                                          
   

Operating Income

     16,132        4,979             4,423        43,855        4,979             21,867   
   

Non Operating Income (Expense)

                      

Interest income

     178        218             85        483        218             424   

Interest expense

     (7,909     (1,195          (3,022     (18,117     (1,195          (17,600

Realized and unrealized (loss) gain on interest rate derivatives

     (12,043     (4,307          (2,404     4,104        (4,307          2,749   
                                                          
   

(Loss) Income before Income Taxes

     (3,642     (305          (918     30,325        (305          7,440   
   

Income taxes

     (251     (10          —          (299     (10          (23
                                                          
   

Net (Loss) Income

   $ (3,893   $ (315        $ (918   $ 30,026      $ (315        $ 7,417   
                                                          
   

Weighted average number of common shares outstanding basic and diluted

     n.a.        n.a.             100        n.a.        n.a.             100   
   

Net income (loss) per share in $ per share basic and diluted

     n.a.        n.a.           $ (9,180     n.a.        n.a.           $ 74,170   
   

Weighted average number of Class A common shares outstanding

                      

Basic

     46,399,922        33,474,499             n.a.        46,386,842        33,474,499             n.a.   

Diluted

     46,399,922        40,047,367             n.a.        46,618,210        40,047,367             n.a.   
   

Net (loss) income in $ per share amount

                      

Basic

   $ (0.08   $ (0.01          n.a.      $ 0.65      $ (0.01          n.a.   

Diluted

   $ (0.08   $ (0.01          n.a.      $ 0.64      $ (0.01          n.a.   
   

Weighted average number of Class B common shares outstanding

                      

Basic and diluted

     7,405,956        7,405,956             n.a.        7,405,956        7,405,956             n.a.   
   

Net income (loss) in $ per share amount

   $ nil      $ nil             n.a.      $ nil      $ nil             n.a.   

 

Page 11


Global Ship Lease, Inc.

Interim Unaudited Combined Balance Sheets

The interim unaudited combined financial statements up to September 30, 2009 include two distinct reporting periods (i) before August 15, 2008 (“Predecessor”) and (ii) from August 15, 2008 (“Successor”), which relate to the period preceding the merger referred to in note 1 and the period succeeding the merger, respectively.

(Expressed in thousands of U.S. dollars)

 

     September 30,
2009
Successor
   December 31,
2008
Successor

Assets

     

Cash and cash equivalents

   $ 29,542    $ 26,363

Restricted cash

     3,026      3,026

Accounts receivable

     755      638

Prepaid expenses

     1,220      734

Other receivables

     186      1,420

Deferred tax asset

     400      176

Deferred financing costs

     938      526
             

Total current assets

     36,067      32,883
             

Vessels in operation

     970,647      906,896

Vessel deposits

     16,087      15,720

Other fixed assets

     12      21

Intangible assets – purchase agreement

     —        7,840

Deferred tax asset

     132      117

Deferred financing costs

     5,256      3,131
             

Total non-current assets

     992,134      933,725
             

Total Assets

   $ 1,028,201    $ 966,608
             

Liabilities and Stockholders’ Equity

     

Liabilities

     

Intangible liability – charter agreements

   $ 2,118    $ 1,608

Current portion of long term debt

     60,600      —  

Accounts payable

     334      36

Accrued expenses

     4,777      6,436

Derivative instruments

     17,642      10,940
             

Total current liabilities

     85,471      19,020
             

Long term debt

     538,500      542,100

Preferred shares

     48,000      48,000

Intangible liability – charter agreements

     24,818      26,348

Derivative instruments

     16,564      36,101
             

Total long-term liabilities

     627,882      652,549
             

Total Liabilities

   $ 713,353    $ 671,569
             

Commitments and contingencies

     —        —  

 

Page 12


Global Ship Lease, Inc.

Interim Unaudited Combined Balance Sheets (continued)

The interim unaudited combined financial statements up to September 30, 2009 include two distinct reporting periods (i) before August 15, 2008 (“Predecessor”) and (ii) from August 15, 2008 (“Successor”), which relate to the period preceding the merger referred to in note 1 and the period succeeding the merger, respectively.

(Expressed in thousands of U.S. dollars)

 

     September 30,
2009
Successor
    December 31,
2008
Successor
 

Stockholders’ Equity

    

Class A Common stock - authorized 214,000,000 shares with a $.01 par value; 46,575,194 shares issued and outstanding

     466        339   

Class B Common stock - authorized 20,000,000 shares with a $.01 par value; 7,405,956 shares issued and outstanding

     74        74   

Class C Common stock - authorized 15,000,000 shares with a $.01 par value; 12,375,000 shares issued, converted to Class A common shares on January 1, 2009

     —          124   

Retained earnings (deficit)

     (65,679     (9,338

Net income (loss) for the period

     30,026        (43,970

Additional paid in capital

     349,961        347,810   
                

Total Stockholders’ Equity

     314,848        295,039   
                

Total Liabilities and Stockholders’ Equity

   $ 1,028,201      $ 966,608   
                

 

Page 13


Global Ship Lease, Inc.

Interim Unaudited Combined Statements of Cash Flows

The interim unaudited combined financial statements up to September 30, 2009 include two distinct reporting periods (i) before August 15, 2008 (“Predecessor”) and (ii) from August 15, 2008 (“Successor”), which relate to the period preceding the merger referred to in note 1 and the period succeeding the merger, respectively.

(Expressed in thousands of U.S. dollars)

 

     Three months ended September 30,     Nine months ended September 30,  
     2009     2008     2009     2008  
     Successor     Successor           Predecessor     Successor     Successor           Predecessor  
           August 15 to
September 30
          July 1 to
August 14
          August 15 to
September 30
          January 1 to
August 14
 

Cash Flows from Operating Activities

                      

Net (loss) income

   $ (3,893   $ (315        $ (918   $ 30,026      $ (315        $ 7,417   
   

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

                      

Unrealized foreign exchange

     (22     —               —          22        —               —     

Depreciation

     9,469        2,848             2,330        27,241        2,848             12,164   
   

Amortization of deferred financing costs

     2,261        66             94        2,886        66             491   

Change in fair value of certain financial derivative instruments

     8,127        4,176             2,260        (12,834     4,176             (3,081

Amortization of intangible liability

     (397     (14          —          (1,019     (14          —     

Settlements of hedges which do not qualify for hedge accounting

     3,916        282             —          8,731        282             141   

Share based compensation

     575        355             —          2,154        355             —     

Decrease (increase) in other receivables and other assets

     478        704             137        363        704             (980

Increase (decrease) in accounts payable and other liabilities

     271        (9,343          2,905        (1,203     (9,343          4,420   

Decrease in inventories

     —          —               —          —          —               1,613   

Costs relating to drydocks

     (909     —               —          (909     —               (1,459
                                                          
   

Net Cash Provided by (Used in) Operating Activities

     19,876        (1,241          6,808        55,458        (1,241          20,726   
                                                          
   

Cash Flows from Investing Activities

                      

Settlements of hedges which do not qualify for hedge accounting

     (3,916     (282          —          (8,731     (282          (4,871

Acquisition of Global Ship Lease, Inc., net of cash acquired

     —          (5,563          —          —          (5,563          —     

Release of Trust Account

     —          317,446             —          —          317,446             —     

Cash paid for purchases of vessels, vessel prepayments and vessel deposits

     (82,328     (15,477          —          (83,062     (15,477          —     
                                                          
   

Net Cash (Used in) Provided by Investing Activities

     (86,244     296,124             —          (91,793     296,124             (4,871
                                                          
   

Cash Flows from Financing Activities

                      

Proceeds (Repayments) of debt

     57,000        (115,000          —          57,000        (115,000          —     

Variation in restricted cash

     —          —               —          —          —               188,000   

Issuance costs of debt

     (1,822     (3,852          —          (5,115     (3,852          (276

Buyback of shares

     —          (147,052          —          —          (147,052          —     

Dividend payments

     —          —               —          (12,371     —               —     

(Decrease) in amount due to CMA CGM

     —          —               —          —          —               (188,713

Deemed distribution to CMA CGM

     —          —               —          —          —               (505
                                                          
   

Net Cash Provided by (Used in) Financing Activities

     55,178        (265,904          —          39,514        (265,904          (1,494
                                                          
   

Net (Decrease) Increase in Cash and Cash Equivalents

     (11,190     28,979             6,808        3,179        28,979             14,361   

Cash and Cash Equivalents at start of Period

     40,732        605             9,444        26,363        605             1,891   
                                                          
   

Cash and Cash Equivalents at end of Period

   $ 29,542      $ 29,584           $ 16,252      $ 29,542      $ 29,584           $ 16,252   
                                                          

 

Page 14


Global Ship Lease, Inc.

Interim Unaudited Operating Segments

Segment information reported below has been prepared on the same basis that it is reported internally to the Company’s chief operating decision maker. The Company operated under two business models from which it derives its revenues reported within these interim unaudited combined financial statements: (i) the provision of vessels by the Company under time charters to container shipping companies and (ii) freight revenues generated by the containerized transportation of a broad range of industrial and consumer goods by the predecessor group. There are no transactions between reportable segments. Following the delivery of the initial 12 vessels in December 2007 and January 2008, the activity consists solely of the ownership and provision of vessels for container shipping under time charters.

The “Adjustment” columns in the tables below include (i) the elimination of the containerized transportation activity performed by the Predecessor up to August 14, 2008, and (ii) the IPO and merger costs expensed by the Predecessor.

During the three and nine months ended September 30, 2009 and 2008 the activities can be analyzed as follows:

 

     Three months ended September 30,  
     2009           2008  
     Successor     Successor           Predecessor  
     Time Charter     Time Charter           Time Charter     Adjustment     Total  
 

Operating revenues

   $ 37,623      $ 12,790           $ 11,122      $ —        $ 11,122   
 

Operating expenses

               

Voyage expenses

     —          —               —          —          —     

Vessel operating expenses

     10,285        3,980             3,908        —          3,908   

Depreciation

     9,469        2,848             2,330        —          2,330   

General and administrative

     1,981        1,026             484        12        496   

Other operating (income)

     (244     (43          (35     —          (35
                                             
 

Total operating expenses

     21,491        7,811             6,687        12        6,699   
 

Operating income (loss)

     16,132        4,979             4,435        (12     4,423   
 

Interest income

     178        218             85        —          85   
 

Interest expense

     (7,909     (1,195          (3,022     —          (3,022

Realized and unrealized (loss) on derivatives

     (12,043     (4,307          (2,404     —          (2,404
                                             
 

(Loss) before income taxes

     (3,642     (305          (906     (12     (918
 

Income taxes

     (251     (10          —          —          —     
                                             
 

Net (loss)

   $ (3,893   $ (315        $ (906   $ (12   $ (918
                                             

 

Page 15


     Nine months ended September 30,  
     2009           2008  
     Successor     Successor           Predecessor  
     Time Charter     Time Charter           Time Charter     Adjustment     Total  
 

Operating revenues

   $ 108,824      $ 12,790           $ 55,883      $ 2,072      $ 57,955   
 

Operating expenses

               

Voyage expenses

     —          —               —          1,944        1,944   

Vessel operating expenses

     31,517        3,980             17,893        181        18,074   

Depreciation

     27,241        2,848             11,902        261        12,163   

General and administrative

     6,561        1,026             2,306        1,508        3,814   

Other operating (income) expense

     (350     (43          (187     280        93   
                                             
 

Total operating expenses

     64,969        7,811             31,914        4,174        36,088   
 

Operating income (loss)

     43,855        4,979             23,969        (2,102     21,867   
 

Interest income

     483        218             424        —          424   
 

Interest expense

     (18,117     (1,195          (17,600     —          (17,600

Realized and unrealized gain (loss) on derivatives

     4,104        (4,307          2,749        —          2,749   
                                             
 

Income (loss) before income taxes

     30,325        (305          9,542        (2,102     7,440   
 

Income taxes

     (299     (10          (23     —          (23
                                             
 

Net income (loss)

   $ 30,026      $ (315        $ 9,519      $ (2,102   $ 7,417   
                                             

 

Page 16


EXHIBIT II

GLOBAL SHIP LEASE, INC.

INTERIM UNAUDITED COMBINED FINANCIAL STATEMENTS

THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2009

 

Page 1


Global Ship Lease, Inc.

Interim Unaudited Combined Balance Sheets

The interim unaudited combined financial statements up to September 30, 2009 include two distinct reporting periods (i) before August 15, 2008 (“Predecessor”) and (ii) from August 15, 2008 (“Successor”), which relate to the period preceding the merger referred to in note 1 and the period succeeding the merger, respectively.

(Expressed in thousands of U.S. dollars)

 

     Note    September 30,
2009
Successor
   December 31,
2008
Successor

Assets

        

Cash and cash equivalents

      $ 29,542    $ 26,363

Restricted cash

        3,026      3,026

Accounts receivable

        755      638

Prepaid expenses

        1,220      734

Other receivables

        186      1,420

Deferred tax asset

        400      176

Deferred financing costs

        938      526
                

Total current assets

        36,067      32,883
                

Vessels in operation

   5      970,647      906,896

Vessel deposits

        16,087      15,720

Other fixed assets

        12      21

Intangible assets – purchase agreement

        —        7,840

Deferred tax asset

        132      117

Deferred financing costs

        5,256      3,131
                

Total non-current assets

        992,134      933,725
                

Total Assets

      $ 1,028,201    $ 966,608
                

Liabilities and Stockholders’ Equity

        

Liabilities

        

Intangible liability – charter agreements

      $ 2,118    $ 1,608

Current portion of long term debt

   6      60,600      —  

Accounts payable

        334      36

Accrued expenses

        4,777      6,436

Derivative instruments

   11      17,642      10,940
                

Total current liabilities

        85,471      19,020
                

Long term debt

   6      538,500      542,100

Preferred shares

   10      48,000      48,000

Intangible liability - charter agreements

        24,818      26,348

Derivative instruments

   11      16,564      36,101
                

Total long-term liabilities

        627,882      652,549
                

Total Liabilities

      $ 713,353    $ 671,569
                

Commitments and contingencies

   8      —        —  

See accompanying notes to interim unaudited combined financial statements

 

Page 2


Global Ship Lease, Inc.

Interim Unaudited Combined Balance Sheets (continued)

The interim unaudited combined financial statements up to September 30, 2009 include two distinct reporting periods (i) before August 15, 2008 (“Predecessor”) and (ii) from August 15, 2008 (“Successor”), which relate to the period preceding the merger referred to in note 1 and the period succeeding the merger, respectively.

 

(Expressed in thousands of U.S. dollars)

 

     Note    September 30,
2009
Successor
    December 31,
2008
Successor
 

Stockholders’ Equity

       

Class A Common stock - authorized 214,000,000 shares with a $.01 par value; 46,575,194 shares issued and outstanding

   10      466        339   

Class B Common stock - authorized 20,000,000 shares with a $.01 par value; 7,405,956 shares issued and outstanding

   10      74        74   

Class C Common stock - authorized 15,000,000 shares with a $.01 par value; 12,375,000 shares issued, converted to class A common shares on January 1, 2009

   10      —          124   

Retained earnings (deficit)

        (65,679     (9,338

Net income (loss) for the period

        30,026        (43,970

Additional paid in capital

        349,961        347,810   
                   

Total Stockholders’ Equity

        314,848        295,039   
                   

Total Liabilities and Stockholders’ Equity

      $ 1,028,201      $ 966,608   
                   

See accompanying notes to interim unaudited combined financial statements

 

Page 3


Global Ship Lease, Inc.

Interim Unaudited Combined Statements of Income

The interim unaudited combined financial statements up to September 30, 2009 include two distinct reporting periods (i) before August 15, 2008 (“Predecessor”) and (ii) from August 15, 2008 (“Successor”), which relate to the period preceding the merger referred to in note 1 and the period succeeding the merger, respectively.

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

 

          Three months ended September 30,     Nine months ended September 30,  
          2009     2008     2009     2008  
     Note    Successor     Successor           Predecessor     Successor     Successor           Predecessor  
                August 15 to
September 30
          July 1 to
August 14
          August 15 to
September 30
          January 1 to
August 14
 

Operating Revenues

                         

Voyage revenue

      $ —        $ —             $ —        $ —        $ —             $ 2,072   

Time charter revenue

        37,623        12,790             11,122        108,824        12,790             55,883   
                                                             
   
        37,623        12,790             11,122        108,824        12,790             57,955   
                                                             
   

Operating Expenses

                         

Voyage expenses

        —          —               —          —          —               1,944   

Vessel operating expenses

        10,285        3,980             3,908        31,517        3,980             18,074   

Depreciation

   5      9,469        2,848             2,330        27,241        2,848             12,163   

General and administrative

        1,981        1,026             496        6,561        1,026             3,814   

Other operating (income) expense

        (244     (43          (35     (350     (43          93   
                                                             
   

Total operating expenses

        21,491        7,811             6,699        64,969        7,811             36,088   
                                                             
   

Operating Income

        16,132        4,979             4,423        43,855        4,979             21,867   
   

Non Operating Income (Expense)

                         

Interest income

        178        218             85        483        218             424   

Interest expense

        (7,909     (1,195          (3,022     (18,117     (1,195          (17,600

Realized and unrealized (loss) gain on interest rate derivatives

   11      (12,043     (4,307          (2,404     4,104        (4,307          2,749   
                                                             
   

(Loss) Income before Income Taxes

        (3,642     (305          (918     30,325        (305          7,440   
   

Income taxes

        (251     (10          —          (299     (10          (23
                                                             
   

Net (Loss) Income

      $ (3,893   $ (315        $ (918   $ 30,026      $ (315        $ 7,417   
                                                             

See accompanying notes to interim unaudited combined financial statements

 

Page 4


Global Ship Lease, Inc.

Interim Unaudited Combined Statements of Income (continued)

The interim unaudited combined financial statements up to September 30, 2009 include two distinct reporting periods (i) before August 15, 2008 (“Predecessor”) and (ii) from August 15, 2008 (“Successor”), which relate to the period preceding the merger referred to in note 1 and the period succeeding the merger, respectively.

 

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

 

          Three months ended September 30,     Nine months ended September 30,
          2009     2008     2009    2008
     Note    Successor     Successor           Predecessor     Successor    Successor           Predecessor
                August 15 to
September 30
          July 1 to
August 14
         August 15 to
September 30
          January 1 to
August 14
   

Weighted average number of common shares outstanding basic and diluted

        n.a.        n.a.             100        n.a.      n.a.             100
   

Net income (loss) per share in $ per share basic and diluted

        n.a.        n.a.           $ (9,180     n.a.      n.a.           $ 74,170
   

Weighted average number of Class A common shares outstanding

                          

Basic

Diluted

   13

13

    

 

46,399,922

46,399,922

  

  

   

 

33,474,499

40,047,367

  

  

        

 

n.a.

n.a.

  

  

   
 
46,386,842
46,618,210
    

 

33,474,499

40,047,367

  

  

        

 

n.a.

n.a.

   

Net (loss) income in $ per share amount

                          

Basic

Diluted

   13

13

   $

$

(0.08

(0.08


  $

$

(0.01

(0.01


        

 

n.a.

n.a.

  

  

  $

$

0.65

0.64

   $

$

(0.01

(0.01


        

 

n.a.

n.a.

   

Weighted average number of Class B common shares outstanding

                          

Basic and diluted

   13      7,405,956        7,405,956             n.a.        7,405,956      7,405,956             n.a.
   

Net income (loss) in $ per share amount

   13    $ nil      $ nil             n.a.      $ nil    $ nil             n.a.

See accompanying notes to interim unaudited combined financial statements

 

Page 5


Global Ship Lease, Inc.

Interim Unaudited Combined Statements of Cash Flows

The interim unaudited combined financial statements up to September 30, 2009 include two distinct reporting periods (i) before August 15, 2008 (“Predecessor”) and (ii) from August 15, 2008 (“Successor”), which relate to the period preceding the merger referred to in note 1 and the period succeeding the merger, respectively.

(Expressed in thousands of U.S. dollars)

 

          Three months ended September 30,     Nine months ended September 30,  
          2009     2008     2009     2008  
          Successor     Successor           Predecessor     Successor     Successor           Predecessor  
                August 15 to
September 30
          July 1 to
August 14
          August 15 to
September 30
          January 1 to
August 14
 

Cash Flows from Operating Activities

                         

Net (loss) income

      $ (3,893   $ (315        $ (918   $ 30,026      $ (315        $ 7,417   
   

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

                         

Unrealized foreign exchange

        (22     —               —          22        —               —     

Depreciation

   5      9,469        2,848             2,330        27,241        2,848             12,164   
   

Amortization of deferred financing costs

        2,261        66             94        2,886        66             491   

Change in fair value of certain financial derivative instruments

   11      8,127        4,176             2,260        (12,834     4,176             (3,081

Amortization of intangible liability

        (397     (14          —          (1,019     (14          —     

Settlements of hedges which do not qualify for hedge accounting

   11      3,916        282             —          8,731        282             141   

Share based compensation

   12      575        355             —          2,154        355             —     

Decrease (increase) in other receivables and other assets

        478        704             137        363        704             (980

Increase (decrease) in accounts payable and other liabilities

        271        (9,343          2,905        (1,203     (9,343          4,420   

Decrease in inventories

        —          —               —          —          —               1,613   

Costs relating to drydocks

        (909     —               —          (909     —               (1,459
                                                             
   

Net Cash Provided by (Used in) Operating Activities

        19,876        (1,241          6,808        55,458        (1,241          20,726   
                                                             
   

Cash Flows from Investing Activities

                         

Settlements of hedges which do not qualify for hedge accounting

   11      (3,916     (282          —          (8,731     (282          (4,871

Acquisition of Global Ship Lease, Inc., net of cash acquired

        —          (5,563          —          —          (5,563          —     

Release of Trust Account

        —          317,446             —          —          317,446             —     

Cash paid for purchases of vessels, vessel prepayments and vessel deposits

        (82,328     (15,477          —          (83,062     (15,477          —     
                                                             
   

Net Cash (Used in) Provided by Investing Activities

        (86,244     296,124             —          (91,793     296,124             (4,871
                                                             
   

Cash Flows from Financing Activities

                         

Proceeds (Repayments) of debt

        57,000        (115,000          —          57,000        (115,000          —     

Variation in restricted cash

        —          —               —          —          —               188,000   

Issuance costs of debt

        (1,822     (3,852          —          (5,115     (3,852          (276

Buyback of shares

        —          (147,052          —          —          (147,052          —     

Dividend payments

   10      —          —               —          (12,371     —               —     

(Decrease) in amount due to CMA CGM

        —          —               —          —          —               (188,713

Deemed distribution to CMA CGM

        —          —               —          —          —               (505
                                                             
   

Net Cash Provided by (Used in) Financing Activities

        55,178        (265,904          —          39,514        (265,904          (1,494
                                                             
   

Net (Decrease) Increase in Cash and Cash Equivalents

        (11,190     28,979             6,808        3,179        28,979             14,361   

Cash and Cash Equivalents at start of Period

        40,732        605             9,444        26,363        605             1,891   
                                                             
   

Cash and Cash Equivalents at end of Period

      $ 29,542      $ 29,584           $ 16,252      $ 29,542      $ 29,584          $ 16,252   
                                                             

See accompanying notes to interim unaudited combined financial statements

 

Page 6


Global Ship Lease, Inc.

Interim Unaudited Combined Statements of Cash Flows (continued)

The interim unaudited combined financial statements up to September 30, 2009 include two distinct reporting periods (i) before August 15, 2008 (“Predecessor”) and (ii) from August 15, 2008 (“Successor”), which relate to the period preceding the merger referred to in note 1 and the period succeeding the merger, respectively.

 

(Expressed in thousands of U.S. dollars)

 

         Three months ended September 30,    Nine months ended September 30,
         2009    2008    2009    2008
    Note    Successor    Successor          Predecessor    Successor    Successor          Predecessor
              August 15 to
September 30
         July 1 to
August 14
        August 15 to
September 30
         January 1 to
August 14

Supplemental information

                             
   

Non cash investing and financing activities

                             
   

Issuance of shares and preferred shares for the acquisition of GSL

     $ —      $ 216,730         $ —      $ —      $ 216,730         $ —  

Dividend declared

     $ —      $ 7,812         $ —      $ 12,371    $ 7,812         $ —  

Total interest paid during period

     $ 5,384    $ 2,188         $ 1,097    $ 14,117    $ 2,188         $ 10,782
   

Income tax paid

     $ 62    $ —           $ —      $ 139    $ —           $ —  
                                                     

See accompanying notes to interim unaudited combined financial statements

 

Page 7


Global Ship Lease, Inc.

Interim Unaudited Combined Statements of Stockholders’ Equity

The interim unaudited combined financial statements up to September 30, 2009 include two distinct reporting periods (i) before August 15, 2008 (“Predecessor”) and (ii) from August 15, 2008 (“Successor”), which relate to the period preceding the merger referred to in note 1 and the period succeeding the merger, respectively.

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

 

     Number of
Common
Stock at $0.01

Par value
    Common
Stock
    Accumulated
Earnings
(Deficit)
    Net
Income
    Due to
CMA CGM
    Accumulated
Other
Comprehensive
Income
    Additional
Paid

in Capital
    Stockholders’
Equity
 

Balance at December 31, 2007 (Predecessor)

   100      $ —        $ (96,925   $ 16,776      $ 162,885      $ 4,739      $ —        $ 87,475   

Change in amount due from CMA CGM

   —          —          —          —          (188,716     —          —          (188,716

Allocation of prior year net income

   —          —          (4,967     (16,776     21,743        —          —          —     

Other effect of the transfer of two vessels in 2008

   —          —          —          651        4,088        (4,739     —          —     

Deemed distribution to CMA CGM

   —          —          (505     —          —          —          —          (505

Net income for the period

   —          —          —          7,417        —          —          —          7,417   

Allocation of net income

         8,068        (8,068     —          —          —          —     
                                                              

Balance at August 14, 2008 (Predecessor)

   100        —          (94,329     —          —          —          —          (94,329

Elimination of historical stockholders’ equity

   (100     —          94,329        —          —          —          —          94,329   

Recognition of GSL Holdings, Inc. stockholders’ equity pre-merger

   26,685,209        266        6,286        —          —          —          175,375        181,927   

Issuance of shares and warrants in connection with the merger (note 1)

                

Class A

   6,778,650        68        —          —          —          —          51,672        51,740   

Class B

   7,405,956        74        —          —          —          —          26,043        26,117   

Class C

   12,375,000        124        —          —          —          —          89,348        89,472   

Warrants

   —          —          —          —          —          —          1,184        1,184   

Warrants exercised into Class A shares (note 10)

   504,502        5        —          —          —          —          3,021        3,026   

Restricted Stock Units (note 12)

   —          —          —          —          —          —          1,167        1,167   

Net (loss) for the period

   —          —          —          (43,970     —          —          —          (43,970

Dividends declared

   —          —          (15,624     —          —          —          —          (15,624
                                                              

Balance at December 31, 2008 (Successor)

   53,749,317        537        (9,338     (43,970     —          —          347,810        295,039   

Allocation of prior year net (loss)

   —          —          (43,970     43,970        —          —          —          —     

Class C shares converted to Class A

                

Class C

   (12,375,000     (124     —          —          —          —          —          (124

Class A

   12,375,000        124        —          —          —          —          —          124   

Restricted Stock Units (note 12)

   —          —          —          —          —          —          2,154        2,154   

Shares issued (note 10)

   231,833        3        —          —          —          —          (3     —     

Net income for the period

   —          —          —          30,026        —          —          —          30,026   

Dividends declared (note 10)

   —          —          (12,371     —          —          —          —          (12,371
                                                              

Balance at September 30, 2009 (Successor)

   53,981,150      $ 540      $ (65,679   $ 30,026      $ —        $ —        $ 349,961      $ 314,848   
                                                              

See accompanying notes to interim unaudited combined financial statements

 

Page 8


Global Ship Lease, Inc.

Notes to the Interim Unaudited Combined Financial Statements

(Expressed in thousands of U.S. dollars)

 

1. General

On August 14, 2008, Global Ship Lease, Inc. (the “Company”) 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. The period preceding the merger is referred to as “Predecessor” and after the merger as “Successor”.

The interim unaudited combined financial statements for the three months and nine months ended September 30, 2009 are wholly “Successor”, reflecting results of the combined operations following the merger. The results for the period August 15, 2008 to September 30, 2008 (labeled “Successor”) and those for the period January 1, 2008 to August 14, 2008 (labeled “Predecessor”) reflect results of the operations as historically reported for Global Ship Lease, Inc. prior to the merger. Under Predecessor accounting rules, the period January 1, 2008 to August 14, 2008 includes for a few days of January 2008 the results of two vessels when they were owned and operated by CMA CGM (rather than Global Ship Lease, Inc.) in its business of carrying containerized cargo prior to their sale to the Company (see Note 9).

As the merger was consummated on August 14, 2008, the balance sheets as of September 30, 2009 and December 31, 2008 (both labeled “Successor”) reflect the acquisition under the purchase method of accounting of all the identified assets and assumed liabilities of Global Ship Lease, Inc.

The term “Company” refers to both Successor and Predecessor periods.

 

2. Nature of Operations

The Company has a business of owning and chartering out containerships under long term time charters. It contracted under an asset purchase agreement dated December 5, 2007, subject to certain conditions, to acquire 17 containerships from CMA CGM. Of these, 10 were purchased by the Company during December 2007, two in January 2008, four in December 2008 and one in August 2009. All vessels are time chartered to CMA CGM for remaining terms as at September 30, 2009 ranging from 3.25 to 16.25 years. The Company has also entered into an agreement with German interests to acquire in the fourth quarter of 2010 two newbuildings for approximately $77 million per vessel. The Company has an agreement to charter out these vessels to ZIM Integrated Shipping Services Limited (“ZIM”) for a period of seven years that could be extended to eight years at ZIM’s option.

 

Page 9


Global Ship Lease, Inc.

Notes to the Interim Unaudited Combined Financial Statements (continued)

(Expressed in thousands of U.S. dollars except Daily Charter Rate)

 

2. Nature of Operations (continued)

 

Fleet

The following table provides information about the 17 vessels chartered to CMA CGM which are reflected in these unaudited combined financial statements:

 

Vessel Name

   Capacity
in TEUs (1)
   Year Built   

Purchase Date

by GSL(2)

   Charter
Remaining
Duration (years)
   Daily
Charter
Rate

Ville d’Orion

   4,113    1997    December 2007    3.25    $ 28,500

Ville d’Aquarius

   4,113    1996    December 2007    3.25    $ 28,500

CMA CGM Matisse

   2,262    1999    December 2007    7.25    $ 18,465

CMA CGM Utrillo

   2,262    1999    December 2007    7.25    $ 18,465

Delmas Keta

   2,207    2003    December 2007    8.25    $ 18,465

Julie Delmas

   2,207    2002    December 2007    8.25    $ 18,465

Kumasi

   2,207    2002    December 2007    8.25    $ 18,465

Marie Delmas

   2,207    2002    December 2007    8.25    $ 18,465

CMA CGM La Tour

   2,272    2001    December 2007    7.25    $ 18,465

CMA CGM Manet

   2,272    2001    December 2007    7.25    $ 18,465

CMA CGM Alcazar

   5,100    2007    January 2008    11.25    $ 33,750

CMA CGM Château d’lf

   5,100    2007    January 2008    11.25    $ 33,750

CMA CGM Thalassa

   10,960    2008    December 2008    16.25    $ 47,200

CMA CGM Jamaica

   4,298    2006    December 2008    13.25    $ 25,350

CMA CGM Sambhar

   4,045    2006    December 2008    13.25    $ 25,350

CMA CGM America

   4,045    2006    December 2008    13.25    $ 25,350

CMA CGM Berlioz (3)

   6,627    2001    August 2009    12.00    $ 34,000

 

(1) Twenty-foot Equivalent Units.
(2) The table shows purchase dates of vessels related to the Company’s time charter business, which occurred during both the Predecessor and Successor periods.
(3) The vessel, CMA CGM Berlioz, is a second hand vessel acquired during the quarter.

The following table provides information about the contracted fleet not reflected in these unaudited combined financial statements, other than deposits paid on Hull 789 and Hull 790:

 

Vessel Name

   Capacity
in
TEUs (1)
   Year
Built
   Estimated
Delivery Date
to GSL
   Charterer    Charter
Duration
(years)
    Daily
Charter
Rate

Hull 789 (2)

   4,250    2010    October 2010    ZIM    7-8  (3)    $ 28,000

Hull 790 (2)

   4,250    2010    December 2010    ZIM    7-8  (3)    $ 28,000

 

(1) Twenty-foot Equivalent Units.
(2) Contracted to be purchased from German interests (note 8).
(3) Seven years charter that could be extended to eight years at Charterer’s option.

 

Page 10


Global Ship Lease, Inc.

Notes to the Interim Unaudited Combined Financial Statements (continued)

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

 

3. Unaudited Supplemental Pro Forma Information

The following pro forma information for the three and nine months ended September 30, 2008 assumes that the merger with Marathon took place at the beginning of the reporting periods being presented.

 

     Three months ended
September 30,
2008
    Nine months ended
September 30,
2008

Operating revenue

   $ 24,718      $ 73,810

Net (loss) income

   $ (43   $ 16,820

Pro forma net income per share in $

    

Weighted average number of Class A common shares outstanding

    

Basic

     33,469,295        33,465,684

Diluted

     41,968,943        43,517,487

Net income per share amount

    

Basic

   $ —        $ 0.50

Diluted

   $ —        $ 0.39

Weighted average number of Class B common shares outstanding

    

Basic

     7,405,956        7,405,956

Diluted

     7,405,956        7,405,956

Net income per share amount

    

Basic

   $ —        $ —  

Diluted

   $ —        $ —  

Weighted average number of Class C common shares outstanding

    

Basic

     12,375,000        12,375,000

Diluted

     12,375,000        12,375,000

Net income per share amount

    

Basic

   $ —        $ —  

Diluted

   $ —        $ —  

 

4. Significant Accounting Policies

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 presentation of results for the interim periods presented. They do not include all disclosures required under United States Generally Accepted Accounting Principles (“U.S. GAAP”) for annual financial statements. These interim unaudited combined financial statements should be read in conjunction with the Company’s financial statements as of December 31, 2008 filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 20-F.

Recently issued accounting standards

The FASB “Accounting Standards Codification” (the Codification) became effective on July 1, 2009, officially becoming the single source of authoritative non-governmental U.S. generally accepted accounting principles (GAAP), superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF), and related accounting literature. Only one level of authoritative GAAP now exists and it is termed Accounting Standards Codification (“ASC”). All other accounting literature is considered non-authoritative. The Codification reorganizes GAAP pronouncements into accounting topics and displays them using a consistent structure. Also included in the Codification is relevant Securities and Exchange Commission (SEC) guidance organized using the same topical structure in separate sections within the Codification. This has impacted the Company’s financial statements as all references to authoritative accounting literature has now been referenced in accordance with the Codification.

 

Page 11


Global Ship Lease, Inc.

Notes to the Interim Unaudited Combined Financial Statements (continued)

(Expressed in thousands of U.S. dollars)

 

4. Significant Accounting Policies (continued)

 

Recently issued accounting standards (continued)

 

On April 9, 2009, the Financial Accounting Standards Board (“FASB”) issued guidance now codified as ASC Topic 825, “Interim Disclosures about Fair Value of Financial Instruments.” This pronouncement requires disclosures of fair value for any financial instruments not currently reflected at fair value on the balance sheet for all interim periods. This pronouncement is effective for interim and annual periods ending after June 15, 2009 and is applied prospectively. The adoption of this pronouncement did not have a material impact on the unaudited combined financial statements of the Company.

On April 9, 2009 the FASB issued guidance now codified as ASC Topic 320, “Recognition and Presentation of Other Than Temporary Impairments.” This pronouncement is intended to bring greater consistency to the timing of impairment recognition, and provide greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. This pronouncement also requires increased and more timely disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. This pronouncement is effective for interim and annual periods ending after June 15, 2009 and is applied prospectively. The adoption of this pronouncement did not have a material impact on the unaudited combined financial statements of the Company.

In May 2009, the FASB issued guidance now codified as ASC Topic 855, “Subsequent Events,” which establishes general standards of accounting for, and requires disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company adopted this pronouncement and has evaluated for disclosure subsequent events that have occurred up to November 9, 2009, the date of issuance of the unaudited combined financial statements of the Company.

Management do not believe that any other recently issued, but not yet effective accounting pronouncements, if currently adopted, would have a material impact on the unaudited combined financial statements of the Company.

 

5. Vessels in Operation, less Accumulated Depreciation

 

     September 30,
2009

Successor
    December 31,
2008

Successor
 

Cost

   $ 1,006,497      $ 915,627   

Accumulated Depreciation

     (35,850     (8,731
                

Net Book Value

   $ 970,647      $ 906,896   
                

In August 2009, the Company took delivery of the CMA CGM Berlioz, the final vessel in its contracted fleet with CMA CGM. The book value of the CMA CGM Berlioz includes the transfer of $7,840 from the intangible asset recognized at the time of the merger, and which arose from the comparison of the acquisition prices per the asset purchase agreement and the estimated fair value at the merger date of the vessels yet to be purchased.

 

Page 12


Global Ship Lease, Inc.

Notes to the Interim Unaudited Combined Financial Statements (continued)

(Expressed in thousands of U.S. dollars)

 

6. Long-Term Debt

In December 2007 the Company entered into an $800,000 senior secured credit facility with Fortis Bank, Citibank, HSH Nordbank, Sumitomo Mitsui, KFW and DnB Nor Bank. Subsequently, Bank of Scotland joined the syndicate.

On February 10, 2009 the Company announced it had amended the terms of the original agreement in response to significant decreases in market values of containerships and the consequent implications on the loan to value covenant in the credit facility. The amended agreement increased temporarily the permitted maximum loan to value to 100% (previously 75%) applicable for test dates up to and including April 30, 2010. The margin applicable on interest payable under the credit facility varied from 1.25% to 2.75% over LIBOR depending on the loan to value ratio, which is the ratio of the balance outstanding on the credit facility to the aggregate charter free market value of the secured vessels, determined in April and November each year. The Company also paid a commitment fee of 0.50% per annum based on the undrawn portion of the credit facility (0.25% per annum up to February 10, 2009). During this period, the Company had no restrictions on its ability to distribute dividends unless the loan to value ratio exceeded 90%, at which point the Company would have been required to place 50% of its quarterly cash available for distribution in a pledged account. The pledged account would be released back to the Company if loan to value fell back below 90% during a subsequent valuation period. If the loan to value ratio exceeded 100%, the Company may have been required to prepay the loan or provide additional security to reduce the loan to value ratio to below 100%. The credit facility amount of $800,000 would be reduced by 19 equal quarterly installments, based on the market value weighted average age of the secured vessels compared to 18 years, commencing in December 2011. The final maturity date of the credit facility is August 14, 2016 at which point any remaining outstanding balance must be repaid.

On April 29, 2009, the Company agreed with the lenders that no loan to value tests would be performed pending agreement of a further amendment to the credit facility in response to further deterioration in market values of containerships. The margin applicable during this waiver period was 2.75% and the Company agreed that no dividends would be declared or paid on common shares during this time. The waiver period was extended on June 25, 2009 and again on July 30, 2009 through until August 31, 2009.

On August 20, 2009, the Company further amended the terms of the credit facility. Under the revised terms of the credit facility, the loan to value covenant has been waived up to and including November 30, 2010 with the next loan to value test scheduled for April 30, 2011. Further, the amendment enabled the Company to borrow $57,000 under the credit facility including a $15,000 newly created Over Advance Portion (“OAP Loan”) to allow the purchase of the CMA CGM Berlioz on August 26, 2009. The balance of the $82,000 vessel purchase price was funded by cash. Amounts borrowed under the amended credit facility bear interest at Libor plus a fixed margin of 3.50% up to November 30, 2010. Thereafter, the margin will be between 2.50% and 3.50% depending on the loan to value ratio, to be determined at the end of April and November each year.

Under the amendment, all undrawn commitments of $200,900 were cancelled after the delivery of the CMA CGM Berlioz. No further commitment fees are payable subsequent to the cancellation of the undrawn commitments. The commitment fee in the nine months ended September 30, 2009 amounted to $779. The Company may not declare or pay dividends to common shareholders during the period up to November 30, 2010 or thereafter until the loan to value ratio is at or below 75%.

The first repayment of the OAP Loan is due in November 2009 in an amount equal to free cash in excess of $20,000 determined as at the end of October 2009. The second repayment is due in February 2010 on the same basis, with free cash determined as at the end of January 2010. The OAP Loan must be repaid in full by June 30, 2010.

The balance of borrowings under the credit facility are to be repaid quarterly commencing June 30, 2010 in an amount equal to free cash in excess of $20,000 determined as at the previous month end subject to a minimum of $40,000 repayment a year on a rolling 12 month trailing basis. Once loan to value is at or below 75%, repayment of borrowings will become fixed at $10,000 per quarter. The final maturity date of the credit facility remains August 14, 2016 at which point any remaining outstanding balance must be repaid.

 

Page 13


Global Ship Lease, Inc.

Notes to the Interim Unaudited Combined Financial Statements (continued)

(Expressed in thousands of U.S. dollars)

 

6. Long-Term Debt (continued)

 

As part of the August 20, 2009 amendment, CMA CGM has agreed to defer redemption of the $48,000 preferred shares it holds until after the final maturity of the credit facility in August 2016, subject to any earlier redemption from proceeds from the exercise of warrants (see Note 10), and also to retain its current holding of approximately 24.4 million common shares in the Company until at least November 30, 2010.

The credit facility is secured by, inter alia, first priority mortgages on each of the vessels in the security package, a pledge of shares of the vessel owning subsidiaries as well as assignments of earnings and insurances. The financial covenants in the credit facility are: a) a minimum cash balance of the lower of $15,000 or six months net interest expense; b) net debt to total capitalization ratio not to exceed 75%; c) EBITDA to debt service, on a trailing four-quarter basis, to be no less than 1.10 to 1; and d) a minimum net worth of $200,000 (with all terms as defined in the credit facility).

As the borrowing capacity was reduced by the amendment dated February 10, 2009 a portion of the unamortized deferred financing costs at the date of the amendment was written off in proportion to the decrease in the borrowing capacity. This amounted to $176. The remaining unamortized deferred financing costs existing at the date of the amendment together with the additional $3,293 fees and related costs for the February 10, 2009 amendment are deferred and amortized over the remaining term of the credit agreement.

The borrowing capacity was further reduced by the amendment dated August 20, 2009. An additional amount of $2,015 has been written off in proportion to the further decrease in borrowing capacity. The remaining unamortized deferred financing costs at the date of this amendment and the $2,130 paid in fees and related costs paid for the August 20, 2009 amendment are deferred and amortized over the remaining term of the credit agreement.

Long-term debt is summarized as follows:

 

    

September 30,

2009

   

December 31,

2008

     Successor     Successor

Credit facility, at Libor USD + 2.5% to 3.5%

   $ 599,100      $ 542,100

Less current installments of long-term debt

     (60,600     —  
              
   $ 538,500      $ 542,100
              

As described above, outstanding borrowings under the credit facility are to be repaid quarterly in an amount equal to free cash in excess of $20,000 determined at the month end prior to the scheduled repayment. Repayments become fixed at $10,000 per quarter once loan to value is at or below 75% which, for the purposes of the following table, is assumed to be as at April 30, 2011, the next scheduled test date. Based on management’s reasonable estimates of excess cashflow, as at September 30, 2009 the estimated repayments in each of the 12 month periods ending September 30 in respect of the credit facility are as follows:

 

     September 30,
2009
Successor
   December 31,
2008
Successor

2010

   $ 60,600    $ —  

2011

     49,700      —  

2012

     40,000      —  

2013

     40,000      —  

Thereafter

     408,800      542,100
             
   $ 599,100    $ 542,100
             

The amount of excess cash generated may vary significantly from management’s estimates and consequently the repayment profile of outstanding debt may be significantly different from that presented. Further, loan to value may not be at or below 75% as at April 30, 2011 in which case, assuming a continuation of the current waiver, prepayments will continue to be based on excess cash.

 

Page 14


Global Ship Lease, Inc.

Notes to the Interim Unaudited Combined Financial Statements (continued)

(Expressed in thousands of U.S. dollars)

 

7. Related Party Transactions

CMA CGM is presented as a related party as it was, until the merger, the parent company of Global Ship Lease, Inc. and at September 30, 2009 is a significant shareholder of the Company, owning Class A and Class B common shares representing a 45% voting interest in the Company.

Amounts due to and from CMA CGM companies are summarized as follows:

 

     September 30,
2009
Successor
   December 31,
2008
Successor

Current account (below)

   $ 257    $ 1,040
             

Amounts due to CMA CGM companies presented within liabilities

   $ 257    $ 1,040
             

Current account (below)

   $ 755    $ 958
             

Amounts due from CMA CGM companies presented within assets

   $ 755    $ 958
             

CMA CGM charters all of the Company’s vessels and one of its subsidiaries provides the Company with ship management services. The current account balances at September 30, 2009 and December 31, 2008 relate to amounts payable to or recoverable from CMA CGM group companies.

CMA CGM holds all of the Series A preferred shares of the Company. During the nine months to September 30, 2009, the Company paid CMA CGM dividends of $1,990 (2008: $nil) of which $848 related to the year ended December 31, 2008.

Time Charter Agreements

All of the Company’s vessels are time chartered to CMA CGM. Under each of the time charters, hire is paid in advance and the daily rate is fixed for the duration of the charter. The charters are for remaining periods as at September 30, 2009 of between 3.25 and 16.25 years. Of the $1,699,314 maximum future charter hire receivable for the total fleet set out in note 8 (including for two vessels scheduled to be purchased in fourth quarter 2010 and to be chartered to ZIM, a company not related to CMA CGM), $1,556,122 relates to the 17 ships currently chartered to CMA CGM.

On August 26, 2009, the Company took delivery of the CMA CGM Berlioz, a 2001-built 6,627 TEU container vessel and the last vessel of its contracted fleet with CMA CGM. The vessel was purchased for $82,000 and was funded by drawings under the credit facility and available cash (see note 6). The CMA CGM Berlioz is on a non-cancellable, 12-year time charter to CMA CGM at a daily rate of $34.

Ship Management Agreements

The Company outsources day to day technical management of its vessels to a ship manager, CMA Ships Ltd, a wholly owned subsidiary of CMA CGM. The Company pays CMA Ships Ltd an annual management fee of $114 per vessel and reimburses costs incurred on its behalf, mainly being for the provision of crew, lubricating oils and routine maintenance. Such reimbursement is subject to a cap of between $5.4 and $8.8 per day per vessel depending on the vessel. The impact of the cap is determined quarterly and for the fleet as a whole. Ship management fees expensed for the three months ended September 30, 2009 amounted to $467 (2008: Successor $171 and Predecessor $171) and for the nine months ended September 30, 2009 amounted to $1,379 (2008: Successor $171 and Predecessor $848).

Except for transactions with CMA CGM, the Company did not enter into any related party transactions.

 

Page 15


Global Ship Lease, Inc.

Notes to the Interim Unaudited Combined Financial Statements (continued)

(Expressed in thousands of U.S. dollars)

 

8. Commitments and Contingencies

Contracted Vessel Purchases

As reported in note 2, the Company has agreed to purchase two vessels from German interests in the fourth quarter of 2010 for approximately $77,000 each. A deposit of 10% has been paid for these two vessels. The remaining purchase obligations are currently unfunded.

Charter Hire Receivable

The Company has entered into long term time charters for its vessels owned at September 30, 2009. The charter hire (including that relating to vessels due for delivery in 2010), is payable in advance and the daily rate is fixed for the duration of the charter. The charters were originally for periods of between five and 17 years and the maximum annual charter hire receivable for the fleet of 17 vessels as at September 30, 2009 and for the total contracted fleet of 19 vessels, taking account of actual or anticipated delivery dates and before allowance for any off-hire periods, is as follows:

 

Year ending September 30

   Fleet operated as at
September 30, 2009
   Total fleet to be
operated

2010

   $ 156,757    $ 156,757

2011

     156,756      174,200

2012

     157,186      177,682

2013

     140,512      160,952

Thereafter

     944,911      1,029,723
             
   $ 1,556,122    $ 1,699,314
             

 

9. Operating Segments

Segment information reported below has been prepared on the same basis that it is reported internally to the Company’s chief operating decision maker. The Company operated under two business models from which it derives its revenues reported within these interim unaudited combined financial statements: (i) the provision of vessels by the Company under time charters to container shipping companies and (ii) freight revenues generated by the containerized transportation of a broad range of industrial and consumer goods by the predecessor group. There are no transactions between reportable segments. Following the delivery of the initial 12 vessels in December 2007 and January 2008, the activity consists solely of the ownership and provision of vessels for container shipping under time charters.

The “Adjustment” columns in the tables below include (i) the elimination of the containerized transportation activity performed by the Predecessor up to August 14, 2008, and (ii) the IPO and merger costs expensed by the Predecessor.

 

Page 16


Global Ship Lease, Inc.

Notes to the Interim Unaudited Combined Financial Statements (continued)

(Expressed in thousands of U.S. dollars)

 

9. Operating Segments (continued)

 

During the three and nine months ended September 30, 2009 and 2008 the activities can be analyzed as follows:

 

     Three months ended September 30,  
     2009     2008  
     Successor     Successor           Predecessor  
     Time Charter     Time Charter           Time Charter     Adjustment     Total  
 

Operating revenues

   $ 37,623      $ 12,790           $ 11,122      $ —        $ 11,122   
 

Operating expenses

               

Voyage expenses

     —          —               —          —          —     

Vessel operating expenses

     10,285        3,980             3,908        —          3,908   

Depreciation

     9,469        2,848             2,330        —          2,330   

General and administrative

     1,981        1,026             484        12        496   

Other operating (income)

     (244     (43          (35     —          (35
                                             
 

Total operating expenses

     21,491        7,811             6,687        12        6,699   
 

Operating income (loss)

     16,132        4,979             4,435        (12     4,423   
 

Interest income

     178        218             85        —          85   
 

Interest expense

     (7,909     (1,195          (3,022     —          (3,022

Realized and unrealized (loss) on derivatives

     (12,043     (4,307          (2,404     —          (2,404
 
                                             
 

(Loss) before income taxes

     (3,642     (305          (906     (12     (918
 

Income taxes

     (251     (10          —          —          —     
                                             
 

Net (loss)

   $ (3,893   $ (315        $ (906   $ (12   $ (918
                                             
     Nine months ended September 30,  
     2009     2008  
     Successor     Successor           Predecessor  
     Time Charter     Time Charter           Time Charter     Adjustment     Total  
 

Operating revenues

   $ 108,824      $ 12,790           $ 55,883      $ 2,072      $ 57,955   
 

Operating expenses

               

Voyage expenses

     —          —               —          1,944        1,944   

Vessel operating expenses

     31,517        3,980             17,893        181        18,074   

Depreciation

     27,241        2,848             11,902        261        12,163   

General and administrative

     6,561        1,026             2,306        1,508        3,814   

Other operating (income) expense

     (350     (43          (187     280        93   
                                             
 

Total operating expenses

     64,969        7,811             31,914        4,174        36,088   
 

Operating income (loss)

     43,855        4,979             23,969        (2,102     21,867   
 

Interest income

     483        218             424        —          424   
 

Interest expense

     (18,117     (1,195          (17,600     —          (17,600

Realized and unrealized gain (loss) on derivatives

     4,104        (4,307          2,749        —          2,749   
 
                                             
 

Income (loss) before income taxes

     30,325        (305          9,542        (2,102     7,440   
 

Income taxes

     (299     (10          (23     —          (23
                                             
 

Net income (loss)

   $ 30,026      $ (315        $ 9,519      $ (2,102   $ 7,417   
                                             

 

Page 17


Global Ship Lease, Inc.

Notes to the Interim Unaudited Combined Financial Statements (continued)

(Expressed in thousands of U.S. dollars)

 

10. Share Capital

At September 30, 2009 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 until at least the third quarter of 2011. Until January 1, 2009 the Company had three classes of common shares but on that date the 12,375,000 Class C common shares were converted into Class A common shares on a one-for-one basis.

The restricted stock units granted to the Directors in November 2008 as part of their compensation for service during 2008 vested on January 1, 2009, and subsequently 36,833 shares were issued to the Directors. A proportion of the restricted stock units granted to management in August and November 2008 as part of their compensation arrangements vested in September 2009, and subsequently 195,000 Class A common shares were issued.

The Series A preferred shares rank senior to the common shares and are mandatorily redeemable in 12 quarterly installments commencing on August 31, 2016 and are required to be redeemed earlier using the proceeds of any exercise of Public Warrants. The preferred shares are redeemed each time that proceeds from the exercise of warrants reach $5,000. As at September 30, 2009 total proceeds received from the exercise of warrants, classified in the balance sheet as restricted cash, were $3,026 and therefore none of the preferred shares have been redeemed. Series A preferred shares are classified as a liability. The dividend that preferred shares holders are entitled to receive quarterly is presented as part of interest expense.

In addition to the Class A, and B common shares and the Series A Preferred shares, there are 39,531 Public Warrants which have an expiry of August 14, 2010 and give the holder the right to purchase one Class A common share at a price of $6 per share and 5,500 Sponsor Warrants which have similar terms to the Public Warrants except that the exercise must be on a cashless basis. Further, there are 6,188 Class A Warrants which expire on September 1, 2011 and give the holders the right to purchase one Class A common share at a price of $9.25 per share.

On February 10, 2009, the Company announced a fourth quarter 2008 dividend of $0.23 per Class A common share, unit and Class B share which was paid on March 5, 2009 to Class A common shareholders and unit holders and Class B shareholders of record as of February 20, 2009.

 

11. Interest Rate Derivatives and Fair Value Measurements

The Company is exposed to the impact of interest rate changes on its variable rate debt. Accordingly, the Company enters into interest rate swap agreements to manage the exposure to interest rate variability. As of September 30, 2009 a total of $580,000 of debt has been swapped into fixed rate debt at a weighted average rate of 3.59%. None of the Company’s interest rate agreements qualify for hedge accounting, therefore, the net changes in the fair value of the interest rate derivative assets and liabilities at each reporting period are reflected in the current period operations as unrealized gains and losses on derivatives. Cash flows related to interest rate derivatives (initial payments of derivatives and periodic cash settlements) are included within cash flows from investing activities in the combined statement of cash flows.

Realized gains or losses from interest rate derivatives are recognized in the statement of income concurrent with cash settlements. In addition, the interest rate derivatives are “marked to market” each reporting period to determine the fair values which generate unrealized gains or losses. The unrealized loss on interest rate derivatives for the three months ended September 30, 2009 was $8,127 (2008: $6,436). The unrealized gain on interest rate derivatives for the nine months ended September 30, 2009 was $12,834 (2008: loss $1,095).

Derivative instruments held by the Company are categorized as level 2 under ASC Topi