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
For the month of September, 2011
Commission File Number 001-31236
TSAKOS ENERGY NAVIGATION LIMITED
(Translation of registrants name into English)
367 Syngrou Avenue, 175 64 P. Faliro, Athens, Greece
(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-T Rule 101(b)(1): ¨
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): ¨
Indicate by check mark whether the registrant by furnishing the information contained in the 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- .
TSAKOS ENERGY NAVIGATION LIMITED
FORM 6-K
This report on Form 6-K is hereby incorporated by reference into the following Registration Statements of the Company:
| Registration Statement on Form F-3 (No. 333-159218) initially filed with the SEC on May 13, 2009; |
| Registration Statement on Form F-3 (No. 333-111615) filed with the SEC on December 30, 2003; |
| Registration Statement on Form S-8 (No. 333-134306) initially filed with the SEC on May 19, 2006, as amended; |
| Registration Statement on Form S-8 (No. 333-134306) filed with the SEC on May 19, 2006; |
| Registration Statement on Form S-8 (No. 333-104062) filed with the SEC on March 27, 2003; and |
| Registration Statement on Form S-8 (No. 333-102860) filed with the SEC on January 31, 2003. |
EXHIBIT INDEX
99.1 | Consolidated Financial Statements (Unaudited), June 30, 2011 | |
99.2 | Managements Discussion and Analysis of Financial Condition and Results of Operations |
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: September 15, 2011
TSAKOS ENERGY NAVIGATION LIMITED | ||
By: | /s/ Paul Durham | |
Paul Durham | ||
Chief Financial Officer |
Exhibit 99.1
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2011 AND DECEMBER 31, 2010
(Expressed in thousands of U.S. Dollars - except share and per share data)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: |
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Cash and cash equivalents |
$ | 227,472 | $ | 276,637 | ||||
Restricted cash |
7,136 | 6,291 | ||||||
Marketable Securities |
2,544 | | ||||||
Accounts receivable, net |
21,319 | 24,417 | ||||||
Insurance claims |
4,587 | 5,018 | ||||||
Due from related companies (Note 2) |
2,539 | 2,977 | ||||||
Advances and other |
9,089 | 4,789 | ||||||
Vessels held for sale |
| 26,986 | ||||||
Inventories |
18,878 | 14,011 | ||||||
Prepaid insurance and other |
2,555 | 2,949 | ||||||
Current portion of financial instruments-Fair value (Note 7) |
4,056 | 3,378 | ||||||
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Total current assets |
300,175 | 367,453 | ||||||
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INVESTMENTS |
1,000 | 1,000 | ||||||
FINANCIAL INSTRUMENTS - FAIR VALUE, net of current portion (Note 7) |
959 | 498 | ||||||
FIXED ASSETS (Notes 4) |
||||||||
Advances for vessels under construction |
77,101 | 81,882 | ||||||
Vessels |
2,704,861 | 2,638,550 | ||||||
Accumulated depreciation |
(452,528 | ) | (403,485 | ) | ||||
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Vessels Net Book Value |
2,252,333 | 2,235,065 | ||||||
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Total fixed assets |
2,329,434 | 2,316,947 | ||||||
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DEFERRED CHARGES, net (Note 5) |
17,236 | 16,362 | ||||||
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Total assets |
$ | 2,648,804 | $ | 2,702,260 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
CURRENT LIABILITIES: |
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Current portion of long-term debt (Note 6) |
$ | 120,218 | $ | 133,819 | ||||
Payables |
25,887 | 23,914 | ||||||
Due to related companies (Note 2) |
3,147 | 779 | ||||||
Accrued liabilities |
16,950 | 10,576 | ||||||
Accrued bank interest |
6,866 | 6,481 | ||||||
Unearned revenue |
5,115 | 9,189 | ||||||
Current portion of financial instruments - Fair value (Note 7) |
32,434 | 32,486 | ||||||
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Total current liabilities |
210,617 | 217,244 | ||||||
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LONG-TERM DEBT, net of current portion (Note 6) |
1,406,905 | 1,428,648 | ||||||
FINANCIAL INSTRUMENTS - FAIR VALUE, net of current portion (Note 7) |
25,546 | 36,438 | ||||||
STOCKHOLDERS EQUITY: |
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Common stock, $ 1.00 par value; 100,000,000 shares authorized; 46,153,987 issued and outstanding at June 30, 2011 and 46,081,487 issued at December 31, 2010. |
46,154 | 46,081 | ||||||
Additional paid-in capital |
351,501 | 350,946 | ||||||
Retained earnings |
648,815 | 671,480 | ||||||
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1,046,470 | 1,068,507 | |||||||
Accumulated other comprehensive loss |
(42,537 | ) | (52,329 | ) | ||||
Noncontrolling interest |
1,803 | 3,752 | ||||||
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Total stockholders equity |
1,005,736 | 1,019,930 | ||||||
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Total liabilities and stockholders equity |
$ | 2,648,804 | $ | 2,702,260 | ||||
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The accompanying notes are an integral part of these interim consolidated financial statements
1
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars - except share and per share data)
Three months ended June 30 |
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2011 | 2010 | |||||||
VOYAGE REVENUES: |
$ | 101,309 | $ | 112,847 | ||||
EXPENSES: |
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Commissions |
3,718 | 4,103 | ||||||
Voyage expenses |
33,707 | 25,475 | ||||||
Charter hire expense (Note 4) |
| 1,389 | ||||||
Vessel operating expenses |
33,139 | 29,387 | ||||||
Depreciation |
24,851 | 22,323 | ||||||
Amortization of deferred dry-docking costs |
1,194 | 1,097 | ||||||
Management fees (Note 2(a)) |
3,933 | 3,249 | ||||||
General and administrative expenses |
1,054 | 790 | ||||||
Stock compensation expense (Note 9) |
329 | 367 | ||||||
Foreign currency losses |
240 | 402 | ||||||
Loss/(Gain) on sale of vessels |
801 | (5,844 | ) | |||||
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Total expenses |
102,966 | 82,738 | ||||||
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Operating (loss)/income |
(1,657 | ) | 30,109 | |||||
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OTHER INCOME (EXPENSES): |
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Interest and finance costs, net (Note 7) |
(16,945 | ) | (21,548 | ) | ||||
Interest income |
598 | 683 | ||||||
Other, net |
(10 | ) | (71 | ) | ||||
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Total other expenses, net |
(16,357 | ) | (20,936 | ) | ||||
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Net (loss)/ income |
(18,014 | ) | 9,173 | |||||
Less: Net income attributable to the noncontrolling interest |
(113 | ) | (707 | ) | ||||
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Net (loss)/income attributable to Tsakos Energy Navigation Limited |
$ | (18,127 | ) | $ | 8,466 | |||
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(Loss)/Earnings per share, basic attributable to Tsakos Energy Navigation Limited common shareholders |
$ | (0.39 | ) | $ | 0.22 | |||
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(Loss)/Earnings per share, diluted attributable to Tsakos Energy Navigation Limited common shareholders |
$ | (0.39 | ) | $ | 0.22 | |||
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Weighted average number of shares, basic |
46,082,284 | 38,018,711 | ||||||
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Weighted average number of shares, diluted |
46,082,284 | 38,299,288 | ||||||
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The accompanying notes are an integral part of these interim consolidated financial statements
2
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars - except share and per share data)
Six months ended June 30 |
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2011 | 2010 | |||||||
VOYAGE REVENUES: |
$ | 200,505 | $ | 217,521 | ||||
EXPENSES: |
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Commissions |
7,073 | 8,055 | ||||||
Voyage expenses |
57,240 | 44,924 | ||||||
Charter hire expense (Note 4) |
| 1,905 | ||||||
Vessel operating expenses |
64,735 | 63,929 | ||||||
Depreciation |
49,086 | 43,898 | ||||||
Amortization of deferred dry-docking costs |
2,302 | 2,450 | ||||||
Management fees (Note 2(a)) |
7,818 | 6,597 | ||||||
General and administrative expenses |
2,193 | 1,791 | ||||||
Stock compensation expense (Note 9) |
701 | 793 | ||||||
Foreign currency losses |
637 | 213 | ||||||
Net gain on sale of vessels |
(5,001 | ) | (20,190 | ) | ||||
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Total expenses |
186,784 | 154,365 | ||||||
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Operating income |
13,721 | 63,156 | ||||||
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OTHER INCOME (EXPENSES): |
||||||||
Interest and finance costs, net (Note 7) |
(23,370 | ) | (35,593 | ) | ||||
Interest income |
1,188 | 1,328 | ||||||
Other, net |
(131 | ) | (59 | ) | ||||
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Total other expenses, net |
(22,313 | ) | (34,324 | ) | ||||
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Net (loss)/income |
(8,592 | ) | 28,832 | |||||
Less: Net income attributable to the noncontrolling interest |
(250 | ) | (911 | ) | ||||
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Net (loss)/income attributable to Tsakos Energy Navigation Limited |
$ | (8,842 | ) | $ | 27,921 | |||
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(Loss)/Earnings per share, basic attributable to Tsakos Energy Navigation Limited common shareholders |
$ | (0.19 | ) | $ | 0.74 | |||
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(Loss)/Earnings per share, diluted attributable to Tsakos Energy Navigation Limited common shareholders |
$ | (0.19 | ) | $ | 0.73 | |||
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Weighted average number of shares, basic |
46,081,888 | 37,734,368 | ||||||
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Weighted average number of shares, diluted |
46,081,888 | 38,068,876 | ||||||
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The accompanying notes are an integral part of these interim consolidated financial statements
3
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars - except share and per share data)
Additional | Treasury Stock | Accumulated Other |
Tsakos Energy |
|||||||||||||||||||||||||||||||||||||
Comprehensive Income (Loss) |
Common Stock |
Paid-in Capital |
Retained Earnings |
Shares | Amount | Comprehensive Income (Loss) |
Navigation Limited |
Noncontrolling Interest |
Total | |||||||||||||||||||||||||||||||
BALANCE, January 1, 2010 |
$ | 37,671 | $ | 266,706 | $ | 679,597 | 754,706 | $ | (17,863 | ) | $ | (57,731 | ) | $ | 908,380 | $ | 5,947 | $ | 914,327 | |||||||||||||||||||||
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Net income |
$ | 28,832 | 27,921 | 27,921 | 911 | 28,832 | ||||||||||||||||||||||||||||||||||
- Proceeds from Stock Issuance Program |
(132 | ) | (5,036 | ) | (754,706 | ) | 17,863 | 12,695 | 12,695 | |||||||||||||||||||||||||||||||
- Issuance of 67,050 shares of restricted share units |
67 | (67 | ) | | | |||||||||||||||||||||||||||||||||||
- Issuance of common stock (445,127 shares) |
446 | 6,600 | 7,046 | 7,046 | ||||||||||||||||||||||||||||||||||||
- Cash dividends paid ($0.30 per share) |
(11,394 | ) | (11,394 | ) | (11,394 | ) | ||||||||||||||||||||||||||||||||||
- Cash dividends declared ($0.15 per share) |
(5,728 | ) | (5,728 | ) | (5,728 | ) | ||||||||||||||||||||||||||||||||||
- Distribution from Subsidiary to non controlling interest |
| (3,462 | ) | (3,462 | ) | |||||||||||||||||||||||||||||||||||
- Fair value of financial instruments |
(2,561 | ) | (2,561 | ) | (2,561 | ) | (2,561 | ) | ||||||||||||||||||||||||||||||||
- Amortization of restricted share units |
793 | 793 | 793 | |||||||||||||||||||||||||||||||||||||
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Comprehensive income |
$ | 26,271 | ||||||||||||||||||||||||||||||||||||||
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BALANCE, June 30, 2010 |
$ | 38,184 | $ | 273,900 | $ | 685,360 | | $ | | $ | (60,292 | ) | $ | 937,152 | $ | 3,396 | $ | 940,548 | ||||||||||||||||||||||
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BALANCE, January 1, 2011 |
$ | 46,081 | $ | 350,946 | $ | 671,480 | | $ | | $ | (52,329 | ) | $ | 1,016,178 | $ | 3,752 | $ | 1,019,930 | ||||||||||||||||||||||
Net income/(loss) |
$ | (8,592 | ) | (8,842 | ) | (8,842 | ) | 250 | (8,592 | ) | ||||||||||||||||||||||||||||||
- Expenses of 2010 common stock-offering |
(73 | ) | (73 | ) | (73 | ) | ||||||||||||||||||||||||||||||||||
- Issuance of 72,500 shares of restricted share units |
73 | (73 | ) | | | |||||||||||||||||||||||||||||||||||
- Cash dividends paid ($0.30 per share) |
(13,823 | ) | (13,823 | ) | (13,823 | ) | ||||||||||||||||||||||||||||||||||
- Distribution from Subsidiary to non controlling interest |
| (2,199 | ) | (2,199 | ) | |||||||||||||||||||||||||||||||||||
- Fair value of financial instruments |
9,748 | 9,748 | 9,748 | 9,748 | ||||||||||||||||||||||||||||||||||||
- Fair value of marketable securities |
44 | 44 | 44 | 44 | ||||||||||||||||||||||||||||||||||||
- Amortization of restricted share units |
701 | 701 | 701 | |||||||||||||||||||||||||||||||||||||
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Comprehensive income |
$ | 1,200 | ||||||||||||||||||||||||||||||||||||||
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BALANCE June 30, 2011 |
$ | 46,154 | $ | 351,501 | $ | 648,815 | | $ | | $ | (42,537 | ) | $ | 1,003,933 | $ | 1,803 | $ | 1,005,736 | ||||||||||||||||||||||
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The accompanying notes are an integral part of these interim consolidated financial statements
4
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars)
Six months ended June 30 |
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2011 | 2010 | |||||||
Cash Flows from Operating Activities: |
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Net (loss)/ income |
$ | (8,592 | ) | $ | 28,832 | |||
Adjustments to reconcile net (loss)/income to net cash provided by operating activities: |
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Depreciation |
49,086 | 43,898 | ||||||
Amortization of deferred dry-docking costs |
2,302 | 2,450 | ||||||
Amortization of loan fees |
482 | 607 | ||||||
Stock compensation expense |
701 | 793 | ||||||
Change in fair value of derivative instruments |
(2,292 | ) | 8,454 | |||||
Change in fair value of marketable securities |
(44 | ) | | |||||
Net gain on sale of vessels |
(5,001 | ) | (20,190 | ) | ||||
Payments for dry-docking |
(3,243 | ) | (3,019 | ) | ||||
(Increase) Decrease in: |
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Receivables |
(333 | ) | (17,752 | ) | ||||
Inventories |
(4,867 | ) | 2,557 | |||||
Prepaid insurance and other |
394 | (1,784 | ) | |||||
Increase (Decrease) in: |
||||||||
Payables |
4,341 | 4,892 | ||||||
Accrued liabilities |
6,759 | 1,952 | ||||||
Unearned revenue |
(4,074 | ) | (7,192 | ) | ||||
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Net Cash provided by Operating Activities |
35,619 | 44,498 | ||||||
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Cash Flows from Investing Activities: |
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Advances for vessels under construction and acquisitions |
(41,713 | ) | (93,478 | ) | ||||
Vessel acquisitions and/or improvements |
(30,362 | ) | (44,065 | ) | ||||
Purchase of marketable securities |
(2,500 | ) | | |||||
Proceeds from the sale of vessels |
42,489 | 134,112 | ||||||
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Net Cash used in Investing Activities |
(32,086 | ) | (3,431 | ) | ||||
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Cash Flows from Financing Activities: |
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Proceeds from long-term debt |
48,000 | 79,000 | ||||||
Financing costs |
(486 | ) | (641 | ) | ||||
Payments of long-term debt |
(83,345 | ) | (114,545 | ) | ||||
Decrease in restricted cash |
(845 | ) | (480 | ) | ||||
Proceeds from stock issuance program, net |
| 19,873 | ||||||
Cash dividend |
(13,823 | ) | (11,394 | ) | ||||
Distribution from subsidiary to noncontrolling interest owners |
(2,199 | ) | (3,462 | ) | ||||
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Net Cash used in Financing Activities |
(52,698 | ) | (31,649 | ) | ||||
Net (decrease)/increase in cash and cash equivalents |
(49,165 | ) | 9,418 | |||||
Cash and cash equivalents at beginning of period |
276,637 | 296,181 | ||||||
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Cash and cash equivalents at end of period |
$ | 227,472 | $ | 305,599 | ||||
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The accompanying notes are an integral part of these interim consolidated financial statements
5
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars, except for share and per share data, unless otherwise stated)
1. | Basis of Presentation |
The accompanying unaudited consolidated financial statements of Tsakos Energy Navigation Limited (the Holding Company) and subsidiaries (collectively, the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 6-K and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.
The consolidated balance sheet as of December 31, 2010 has been derived from the audited financial statements at that date, but does not include all of the footnotes required by generally accepted accounting principles for complete financial statements.
A discussion of the Companys significant accounting policies can be found in the Companys Consolidated Financial Statements included in the Annual Report on Form 20-F for the year ended December 31, 2010. In June 2011, the FASB updated its guidance with regards to the presentation of Comprehensive income revising the manner in which entities present comprehensive income in their financial statements. The updated guidance eliminates the current option used by the Company to report other comprehensive income and its components in the statement of changes in equity. Instead, upon adoption, an entity can elect to present items of net income and other comprehensive income in one continuous statement-referred to as the statement of comprehensive income or in two separate but consecutive statements. The updated guidance should be applied retrospectively, and is effective for fiscal years and interim periods within those years beginning after December 15, 2011. Early adoption is permitted. The updated guidance will be adopted by the Company on January 1, 2012, and is not expected to have an effect on the Companys consolidated statement of financial position, results of operations or cash flows.
2. | Transactions with Related Parties |
The following amounts were charged by related parties for services rendered:
Three months ended June 30, |
Six months ended June 30, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Tsakos Shipping and Trading S.A. (commissions) |
1,370 | 1,789 | 3,023 | 3,436 | ||||||||||||
Tsakos Energy Management Limited (management fees) |
3,858 | 3,156 | 7,668 | 6,412 | ||||||||||||
Tsakos Columbia Shipmanagement S.A. |
301 | | 597 | | ||||||||||||
Argosy Insurance Company Limited |
2,533 | 2,068 | 4,987 | 4,512 | ||||||||||||
AirMania Travel S.A. |
601 | 102 | 859 | 223 | ||||||||||||
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Total expenses with related parties |
8,663 | 7,115 | 17,134 | 14,583 | ||||||||||||
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6
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars, except for share and per share data, unless otherwise stated)
2. | Transactions with Related Parties (continued) |
Balances due from and due to related parties are as follows:
June 30, 2011 |
December 31, 2010 |
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Due from related parties |
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Tsakos Shipping and Trading S.A. |
2,300 | 2,977 | ||||||
Tsakos Columbia Shipmanagement S.A. |
239 | | ||||||
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Total due from related parties |
2,539 | 2,977 | ||||||
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Due to related parties |
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Tsakos Energy Management Limited |
110 | 75 | ||||||
Tsakos Columbia Shipmanagement S.A. |
| 56 | ||||||
Argosy Insurance Company Limited |
2,816 | 612 | ||||||
AirMania Travel S.A. |
221 | 36 | ||||||
|
|
|
|
|||||
Total due to related parties |
3,147 | 779 | ||||||
|
|
|
|
(a) | Tsakos Energy Management Limited (the Management Company): The Holding Company has a Management Agreement (Management Agreement) with the Management Company, a Liberian corporation, to provide overall executive and commercial management of its affairs for a monthly fee. Per the Management Agreement of March 8, 2007, effective from January 1, 2008, there is a prorated adjustment if at beginning of each year the Euro has appreciated by 10% or more against the U.S. Dollar since January 1, 2007. In addition, there is an increase each year by a percentage figure reflecting 12 month Euribor, if both parties agree. As a consequence, from January 1, 2010, monthly management fees for operating vessels were $24.0 per owned vessel and $17.7 for chartered-in vessels or for owned vessels chartered out on a bare-boat basis. From July 1, 2010, the monthly management fees for operating vessels increased to $27.0 per owned vessel except for the LNG carrier which bears a monthly fee of $32.0 of which $7.0 is paid to the Management Company and $25.0 to a third party manager. The monthly management fees for chartered-in vessels or for owned vessels chartered out on a bare-boat basis increased to $20.0. It was agreed that no further increase would be implemented at the beginning of 2011. |
The Holding Company and the Management Company have certain officers and directors in common. The President, who is also the Chief Executive Officer and a Director of the Holding Company, is also the sole stockholder of the Management Company. The Management Company may unilaterally terminate its Management Agreement with the Holding Company at any time upon one years notice. In addition, if even one director was elected to the Holding Companys Board of Directors without having been recommended by the existing board, the Management Company would have the right to terminate the Management Agreement on ten days notice, and the Holding Company would be obligated as at June 30, 2011 to pay the Management Company an amount of approximately $140,257 calculated in accordance with the terms of the Management Agreement. Under the terms of the Management Agreement between the Holding Company and the Management Company, the Holding Company may terminate the Management Agreement only under specific circumstances, without the prior approval of the Holding Companys Board of Directors.
7
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars, except for share and per share data, unless otherwise stated)
2. | Transactions with Related Parties (continued) |
(a) | Tsakos Energy Management Limited (continued)): Estimated future management fees payable over the next ten years under the Management Agreement, exclusive of any incentive awards and based on existing vessels and known vessels as at June 30, 2011, scheduled for future delivery are: |
Year |
Amount | |||
July to December 2011 |
7,847 | |||
2012 |
15,648 | |||
2013 |
15,876 | |||
2014 |
15,960 | |||
2015 |
15,960 | |||
2016 to 2021 |
85,863 | |||
|
|
|||
157,154 | ||||
|
|
Management fees for vessels are included in the accompanying Consolidated Statements of Income. Also, under the terms of the Management Agreement, the Management Company provides supervisory services for the construction of new vessels for a monthly fee of $17.7 per vessel in the first half of 2010 and $20.0 from July 1, 2010 onwards. These fees in total amounted to $327, and $380 during the six months ended June 30, 2011 and 2010, respectively, and are either accounted for as part of construction costs for delivered vessels or are included in Advances for vessels under construction.
(b) | Tsakos Columbia Shipmanagement S.A. (TCM): The Management Company appointed TCM to provide technical management to the Companys vessels from July 1, 2010. TCM is owned jointly and in equal part by related party interests and by a private German Group. TCM, at the consent of the Holding Company, may subcontract all or part of the technical management of any vessel to an alternative unrelated technical manager. |
Effective July 1, 2010, the Management Company, at its own expense, pays technical management fees to TCM, and the Company bears and pays directly to TCM most of its operating expenses, including repairs and maintenance, provisioning and crewing of the Companys vessels, as well as certain charges which are capitalized or deferred, including reimbursement of the costs of TCM personnel sent overseas to supervise repairs and perform inspections on Company vessels.
(c) | Tsakos Shipping and Trading S.A. (Tsakos Shipping): Until June 30, 2010, the Management Company had appointed Tsakos Shipping to provide technical management to the Companys vessels. From July 1, 2010 onwards, such technical management is performed by TCM, while Tsakos Shipping continues to provide services to the Companys vessels as described below. Certain members of the Tsakos family are involved in the decision-making processes of Tsakos Shipping and of the Management Company, and are also shareholders of the Holding Company. |
8
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars, except for share and per share data, unless otherwise stated)
2. | Transactions with Related Parties (continued) |
(c) | Tsakos Shipping and Trading S.A. (continued): Tsakos Shipping provides chartering services for the Companys vessels by communicating with third party brokers to solicit, research and propose charters. For this service, the Company pays to Tsakos Shipping a chartering commission of approximately 1.25% on all freights, hires and demurrages. Such commissions are included in Commissions in the accompanying Consolidated Statements of Income. Tsakos Shipping also provides sale and purchase of vessels brokerage service. For this service, Tsakos Shipping may charge brokerage commission. In 2011 and 2010, this commission was approximately 1% of the sale price of a vessel. Tsakos Shipping may also charge a fee of $200 (or such other sum as may be agreed) on delivery of each new-building vessel in payment for the cost of design and supervision of the new-building by Tsakos Shipping. In April 2011, $1,800 has been charged for nine vessels delivered between 2007 and June 2011. This amount was added to the cost of the vessels concerned and is being amortised over the remaining life of the vessels. |
Up to June 30, 2010, the Management Company, at its own expense, paid technical management fees to Tsakos Shipping, and the Company paid directly to Tsakos Shipping most of its operating expenses, including repairs and maintenance, provisioning and crewing of the Companys vessels, as well as certain charges which are capitalized or deferred, including reimbursement of the costs of Tsakos Shipping personnel sent overseas to supervise repairs and perform inspections on Company vessels. Commissions due to Tsakos Shipping by the Company have been offset against amounts due from Tsakos Shipping for advances made, and the net amount is included in Due from related Companies.
(d) | Argosy Insurance Company Limited (Argosy): The Company places its hull and machinery insurance, increased value insurance and war risk and certain other insurance through Argosy, a captive insurance company affiliated with Tsakos Shipping. |
(e) | AirMania Travel S.A. (AirMania): Apart from third-party agents, the Company also uses an affiliated company, AirMania, for travel services. |
3. | Marketable Securities |
In March 2011, the Company placed $2,500 in highly liquid, low risk marketable securities which are considered to be available-for-sale for reporting purposes. The fair value of these marketable securities as of June 30, 2011 was $2,544, and the change in fair value amounting to $44 (positive) is included in Accumulated other comprehensive loss.
4. | Vessels |
Acquisitions
On May 12, 2011, the newly constructed vessel Spyros K was delivered at a total cost of $73,956 of which $27,462 was paid within 2011. In the first six months of 2010, the Company acquired the newbuilding Sapporo Princess at a total cost of $64,328.
9
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars, except for share and per share data, unless otherwise stated)
4. | Vessels (continued) |
Under Construction
As at June 30, 2011, the Company had under construction one conventional suezmax tanker and two DP2 suezmax shuttle tankers. The total contracted amount for this one conventional suezmax vessel under construction, plus the extra costs agreed as at June 30, 2011, was $70,190 of which $34,000 was paid until December 31, 2010 and $21,600 during the six-month period ended June 30, 2011. The vessel was delivered on August 2, 2011.
On March 21, 2011, the Company signed contracts for the construction of two DP2 suezmax shuttle tankers with a major Korean shipyard at a total cost of $184,000 with expected delivery in the fourth quarter of 2012 and in the first quarter of 2013, respectively. During the six months period ended June 30, 2011, the Company paid $18,400 as new building advances for the construction of these vessels.
Sales
In the first six months of 2011, the Company sold the aframax tankers Opal Queen for $34,000 realizing a gain of $5,802 and Vergina II for $10,925 realizing a loss of $801, which is separately reflected in the accompanying Consolidated Statements of Income. During the first six months of 2010, the Company sold four vessels, the suezmax Decathlon, the aframaxes Parthenon and Marathon and the panamax Hesnes realizing total gains of $20,190.
Held for Sale
There were no vessels held for sale at June 30, 2011, while at December 31, 2010, the aframax tanker Opal Queen was classified as held for sale.
Charters-out
The future minimum revenues of vessels in operation at June 30, 2011, before reduction for brokerage commissions, expected to be recognized on non-cancelable time charters are as follows:
Year | Amount | |||
July to December 2011 |
79,412 | |||
2012 |
99,146 | |||
2013 |
60,937 | |||
2014 |
38,215 | |||
2015 to 2022 |
93,794 | |||
|
|
|||
Net minimum charter payments |
371,504 | |||
|
|
These amounts do not assume any off-hire.
On December 9, 2010, the Company signed two charter-party agreements with the same charterer, each for the charter of a DP 2 suezmax shuttle tanker for a period of fifteen years to commence on delivery of the vessels, expected in the fourth quarter of 2012 and in the first quarter of 2013 respectively. On May 6, 2011, the Company entered into a long-term charter with fixed minimum hire plus profit-share for the suezmax Dimitris P, delivered on August 2, 2011. The revenue to be generated by the three vessels not delivered as at June 30, 2011 has not been included in the above table.
10
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars, except for share and per share data, unless otherwise stated)
5. | Deferred Charges |
Deferred charges, consisted of dry-docking and special survey costs, net of accumulated amortization, amounted to $13,163 and $12,221, at June 30, 2011 and December 31, 2010, respectively, and loan fees, net of accumulated amortization, amounted to $4,073 and $4,141 at June 30, 2011 and December 31, 2010, respectively. Amortization of deferred dry-docking costs is separately reflected in the accompanying Consolidated Statements of Income, while amortization of loan fees is included in Interest and finance costs, net.
6. | Long Term Debt |
Facility | June 30, 2011 |
December 31, 2010 |
||||||
(a) Credit Facilities |
1,074,757 | 1,127,925 | ||||||
(b) Term Bank Loans |
452,366 | 434,542 | ||||||
|
|
|
|
|||||
Total |
1,527,123 | 1,562,467 | ||||||
Less current portion |
(120,218 | ) | (133,819 | ) | ||||
|
|
|
|
|||||
Long-term portion |
1,406,905 | 1,428,648 | ||||||
|
|
|
|
(a) Credit facilities
As at June 30, 2011, the Company had seven open reducing revolving credit facilities, all of which are reduced in semi-annual installments, and two open facilities which have both a reducing revolving credit component and a term bank loan component. Interest is payable at a rate based on LIBOR plus a spread. At June 30, 2011, interest on these facilities ranged from 0.95% to 5.19%.
(b) Term bank loans
Term loan balances outstanding at June 30, 2011 amounted to $452,366. These bank loans are payable in U.S. Dollars in semi-annual installments with balloon payments due at maturity between October 2016 and April 2022. Interest rates on the outstanding loans as at June 30, 2011, are based on LIBOR plus a spread.
At June 30, 2011, interest on these term bank loans ranged from 0.93% to 2.96%.
The weighted-average interest rates on the above executed loans for the applicable periods were:
Three months ended June 30, 2011 |
1.65 | % | ||
Three months ended June 30, 2010 |
1.53 | % | ||
Six months ended June 30, 2011 |
1.64 | % | ||
Six months ended June 30, 2010 |
1.55 | % |
The above revolving credit facilities and term bank loans are secured by first priority mortgages on all vessels, and to assignments of earnings and insurances of the respectively mortgaged vessels, and by corporate guarantees of the relevant ship-owning subsidiaries.
11
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars, except for share and per share data, unless otherwise stated)
6. | Long Term Debt (continued) |
The loan agreements include, among other covenants, covenants requiring the Company to obtain the lenders prior consent in order to incur or issue any financial indebtedness, additional borrowings, pay dividends in an amount more than 50% of cumulative net income (as defined in the related agreements), sell vessels and assets, and change the beneficial ownership or management of the vessels. Also, the covenants require the Company to maintain a minimum liquidity, a minimum hull value in connection with the vessels outstanding loans, insurance coverage of the vessels against all customary risks and maintenance of operating bank accounts with minimum balances.
The annual principal payments required to be made after June 30, 2011, including balloon payments totaling $756,833 due through April 2022, are as follows:
Period/Year |
Amount | |||
July to December 2011 |
60,109 | |||
2012 |
120,218 | |||
2013 |
152,745 | |||
2014 |
111,367 | |||
2015 |
240,511 | |||
2016 |
217,731 | |||
2016 and thereafter |
624,442 | |||
|
|
|||
1,527,123 | ||||
|
|
7. | Interest and Finance Costs, net |
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest expense |
15,767 | 15,463 | 29,830 | 29,000 | ||||||||||||
Less: Interest capitalized |
(927 | ) | (725 | ) | (1,825 | ) | (1,183 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Interest expense, net |
14,840 | 14,738 | 28,005 | 27,817 | ||||||||||||
Bunkers swap cash settlements |
(1,665 | ) | (685 | ) | (2,914 | ) | (1,418 | ) | ||||||||
Amortization of loan fees |
246 | 319 | 482 | 607 | ||||||||||||
Bank charges |
106 | 89 | 132 | 133 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-total |
13,527 | 14,461 | 25,705 | 27,139 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Amortization of deferred loss on termination of financial instruments |
873 | 443 | 1,278 | 904 | ||||||||||||
Change in fair value of non-hedging financial instruments |
2,545 | 6,644 | (3,613 | ) | 7,550 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sub-total |
3,418 | 7,087 | (2,335 | ) | 8,454 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net total |
16,945 | 21,548 | 23,370 | 35,593 | ||||||||||||
|
|
|
|
|
|
|
|
At June 30, 2011, the Company was committed to thirteen floating-to-fixed interest rate swaps with major financial institutions covering notional amounts aggregating to $824,821 on which it pays fixed rates averaging 4.59% and receives floating rates based on the six-month London interbank offered rate (LIBOR) (Note 11).
12
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars, except for share and per share data, unless otherwise stated)
7. | Interest and Finance Costs, net (continued) |
At June 30, 2011, the Company held ten of the thirteen interest rate swap agreements in order to hedge its exposure to interest rate fluctuations associated with its debt covering notional amounts aggregating to $590,227. The fair value of such financial instruments as of June 30, 2011 and December 31, 2010 in aggregate amounted to $38,638 (negative) and $47,105 (negative), respectively.
At June 30, 2011 and 2010, the Company held three interest rate swaps that did not meet hedge accounting criteria. As such, the changes in their fair values during the first half of 2011 and 2010 have been included in change in fair value of non-hedging financial instruments in the table above, and amounted to $2,477 (positive) and $4,144 (negative), respectively. In March 2010, one of these swaps that previously met hedge accounting criteria was de-designated as a hedging swap and the remaining loss included in Accumulated other comprehensive loss, and for which the associated future cash flows are deemed probable of occurring ($3,946 at June 30, 2011), is being amortized to income over the term of the original hedge provided that the variable-rate interest obligations continue. The amount of such loss amortized during the first half of 2011 and 2010 was $772 and $477, respectively and for the next year up to June 30, 2012, amortization is expected to be $1,475. In addition, in June 2011, a vessel financed by the loan previously hedged by the de-designated swap, was sold and the loss within Accumulated other comprehensive loss of $506 that was considered to be directly associated with future cash flows, which were not probable of occurring was immediately reclassified to income. At the de-designation date of the swap in March 2010, a loss of $428, was reclassified to income for the same reasons.
During the first half of 2011 and 2010, the Company held five and seven bunker swap agreements, respectively, in order to hedge its exposure to bunker price fluctuations associated with the consumption of bunkers by its vessels. The fair value of these financial instruments as of June 30, 2011 and 2010 was $5,015 (positive) and $3,182 (positive), respectively.
The changes in their fair values during the first half of 2011 and 2010 amounting to $1,139 (positive) and $3,264 (negative) respectively have been included in Change in fair value of non-hedging financial instruments in the table above, as such agreements do not meet the hedging criteria.
8. | Stockholders Equity |
During the six-month period ended June 30, 2011 the Company declared dividends of $13,823 in aggregate of which $6,912 were paid on February 1, 2011 and $6,911 were paid on April 28, 2011.
In the first half of 2011, Accumulated other comprehensive loss decreased with unrealized gains of $9,792 of which $8,467 (gain) resulted from changes in fair value of financial instruments, $506 of losses were reclassified to income on the sale of a vessel and $772 related to losses which were amortized to income on the de-designation of one interest rate swap. Also in the above gains are included $44 which resulted from changes in the fair value of marketable securities. In the first half of 2010, Accumulated other comprehensive loss increased with unrealized losses of $2,561 of which $3,465 (loss) resulted from changes in the fair value of financial instruments, $428 of losses were reclassified to income on sale of vessels and $477 related to losses which were amortized to income on the de-designation of one interest rate swap.
13
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars, except for share and per share data, unless otherwise stated)
9. | Earnings per Common Share |
The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share assumes the foregoing and the exercise of all RSUs using the treasury stock method.
Three months
ended June 30, |
Six months
ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net (loss)/income available to common stockholders |
$ | (18,127 | ) | $ | 8,466 | $ | (8,842 | ) | $ | 27,921 | ||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares outstanding |
46,082,284 | 38,018,711 | 46,081,888 | 37,734,368 | ||||||||||||
Dilutive effect of RSUs |
| 280,577 | | 334,508 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares diluted |
46,082,284 | 38,299,288 | 46,081,888 | 38,068,876 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic (loss)/earnings per common share |
$ | (0.39 | ) | $ | $0.22 | $ | (0.19 | ) | $ | 0.74 | ||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted (loss)/earnings per common share |
$ | (0.39 | ) | $ | $0.22 | $ | (0.19 | ) | $ | 0.73 | ||||||
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2011, the RSUs are considered anti-dilutive due to the loss from continuing operations which have resulted in their exclusion from the computation of diluted earnings per common share. For the three and six months ended June 30, 2010, there were no RSUs considered anti-dilutive which would have resulted in their exclusion from the computation of diluted earnings per common share.
10. | Commitments and Contingencies |
As at June 30, 2011, the Company had under construction one suezmax tanker and two DP2 suezmax shuttle tankers. The total contracted amount remaining to be paid for the three vessels under construction, plus the extra costs agreed as at June 30, 2011 was $180,190. Scheduled remaining payments as of June 30, 2011 were $32,990 from July to December 2011, $101,200 in 2012 and $46,000 in 2013.
In the ordinary course of the shipping business, various claims and losses may arise from disputes with charterers, agents and other suppliers relating to the operations of the Companys vessels. Management believes that all such matters are either adequately covered by insurance or are not expected to have a material adverse effect on the Companys results from operations or financial condition.
11. | Financial Instruments |
(a) | Interest rate risk: The Companys interest rates and loan repayment terms are described in Notes 6 and 7. |
(b) | Concentration of credit risk: Financial Instruments consist principally of cash, trade accounts receivable, marketable securities, investments, and derivatives. The Company places its temporary cash investments, consisting mostly of deposits, and its marketable securities primarily with high credit qualified financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions that are considered in the Companys investment strategy. The Company limits its credit risk with accounts receivable by performing ongoing |
14
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars, except for share and per share data, unless otherwise stated)
11. | Financial Instruments (continued) |
(b) | Concentration of credit risk (continued): credit evaluations of its customers financial condition and generally does not require collateral for its accounts receivable and does not have any agreements to mitigate credit risk. The Company limits the exposure of non-performance by counterparties to derivative instruments by diversifying among counterparties with high credit ratings, and performing periodic evaluations of the relative credit standing of the counterparties. |
(c) | Fair value: The carrying amounts reflected in the accompanying Consolidated Balance Sheet of financial assets and accounts payable approximate their respective fair values due to the short maturity of these instruments. The fair value of long-term bank loans with variable interest rates approximate the recorded values, generally due to their variable interest rates. The present value of the future cash flows of the portion of one long-term bank loan with a fixed interest rate is estimated to be approximately $73,986 as compared to its carrying amount of $79,631 (Note 6). The fair value of the investment equates to the amount that would be received by the Company in the event of sale of that investment. The fair values of the marketable securities are determined through Level 1 of the fair value hierarchy as defined in FASB guidance for Fair Value Measurements, while the fair values of the one long-term bank loan with a fixed interest rate and the interest rate swap agreements and bunker swap agreements discussed in Note 7 above are determined through Level 2 of the fair value hierarchy as defined in FASB guidance for Fair Value Measurements and are derived principally from or corroborated by observable market data, interest rates, yield curves and other items that allow value to be determined. The fair value of the investment is determined through Level 3 of the fair value hierarchy as defined in FASB guidance for Fair Value Measurements and is determined by the Companys own data. |
The fair value of the vessel held for sale at December 31, 2010 (Opal Queen) was determined through Level 1 based on the sales price per the Memorandum of Agreement.
The estimated fair values of the Companys financial instruments, other than derivatives at June 30, 2011 and December 31, 2010. are as follows:
Carrying Amount June 30, 2011 |
Fair Value June 30, 2011 |
Carrying Amount December 31, 2010 |
Fair Value December 31, 2010 |
|||||||||||||
Financial assets/(liabilities) |
||||||||||||||||
Cash and cash equivalents |
227,472 | 227,472 | 276,637 | 276,637 | ||||||||||||
Restricted cash |
7,136 | 7,136 | 6,291 | 6,291 | ||||||||||||
Marketable securities |
2,544 | 2,544 | | | ||||||||||||
Investments |
1,000 | 1,000 | 1,000 | 1,000 | ||||||||||||
Debt |
(1,527,123 | ) | (1,521,476 | ) | (1,562,467 | ) | (1,555,374 | ) |
Tabular Disclosure of Derivatives Location
Derivatives are recorded in the balance sheet on a net basis by counterparty when a legal right of setoff exists. The following tables present information with respect to the fair values of derivatives reflected in the balance sheet on a gross basis by transaction.
15
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars, except for share and per share data, unless otherwise stated)
11. | Financial Instruments (continued) |
(c) | Fair value (continued): The tables also present information with respect to gains and losses on derivative positions reflected in the statement of operations or in the balance sheet, as a component of Accumulated other comprehensive loss. |
Fair Value of Derivative Instruments
Asset Derivatives | Liability Derivatives | |||||||||||||||||
June 30, 2011 |
December 31, 2010 |
June 30, 2011 |
December 31, 2010 |
|||||||||||||||
Derivative |
Balance Sheet Location |
Fair Value | Fair Value | Fair Value | Fair Value | |||||||||||||
Derivatives designated as hedging instruments |
||||||||||||||||||
Interest rate swaps |
Current portion of financial instruments - Fair value | | | 23,292 | 23,053 | |||||||||||||
FINANCIAL INSTRUMENTS - FAIR VALUE, net of current portion | | | 15,346 | 24,052 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Subtotal |
| | 38,638 | 47,105 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Derivatives not designated as hedging instruments
|
| |||||||||||||||||
Interest rate swaps |
Current portion of financial instruments - Fair value | | | 9,142 | 9,433 | |||||||||||||
FINANCIAL INSTRUMENTS - FAIR VALUE, net of current portion | | | 10,200 | 12,386 | ||||||||||||||
Bunker swaps |
Current portion of financial instruments-Fair value | 4,056 | 3,378 | | | |||||||||||||
FINANCIAL INSTRUMENTS - FAIR VALUE, net of current portion | 959 | 498 | | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Subtotal |
5,015 | 3,876 | 19,342 | 21,819 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total derivatives |
5,015 | 3,876 | 57,980 | 68,924 | ||||||||||||||
|
|
|
|
|
|
|
|
16
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars, except for share and per share data, unless otherwise stated)
11. | Financial Instruments (continued) |
(c) | Fair value: (continued) |
The Effect of Derivative Instruments on the Statement of Financial Performance for the three and six month periods ended June 30, 2011, and 2010
Derivatives in Cash Flow Hedging Relationships
Gain (Loss) Recognized in Accumulated OCI on Derivative (Effective Portion)
Derivative | Amount Three months ended |
Amount Six months ended June 30, |
||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest rate swaps |
4,544 | (184 | ) | 8,467 | (3,465 | ) | ||||||||||
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|
|
|
|
|
|
|||||||||
Total |
4,544 | (184 | ) | 8,467 | (3,465 | ) | ||||||||||
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|
|
|
Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
Derivative | Location | Amount Three months ended |
Amount Six months ended |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||
Interest rate swaps |
Interest and finance costs, net | (873 | ) | (443 | ) | (1,278 | ) | (904 | ) | |||||||||
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|
|
|
|
|
|||||||||||
Total |
(873 | ) | (443 | ) | (1278 | ) | (904 | ) | ||||||||||
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Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
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| |||||||||||||||||
Derivative | Location | Amount Three months ended |
Amount Six months ended |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||
Interest rate swaps |
Interest and finance costs, net | | | | (143 | ) | ||||||||||||
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|
|
|
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|||||||||||
Total |
| | | (143 | ) | |||||||||||||
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17
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2011 AND 2010
(Expressed in thousands of U.S. Dollars, except for share and per share data, unless otherwise stated)
11. | Financial Instruments (continued) |
(c) | Fair value: (continued) |
Derivatives Not Designated as Hedging Instruments
Gain (Loss) Recognized on Derivative
Derivative | Location | Amount Three months ended |
Amount Six months ended |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||
Interest rate swaps |
Interest and finance costs, net | (2,039 | ) | (5,101 | ) | (1,897 | ) | 6,355 | ||||||||||
Bunker swaps |
Interest and finance costs, net | 177 | (1,861 | ) | 4,052 | (1,846 | ) | |||||||||||
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|
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Total |
(1,862 | ) | (6,962 | ) | 2,155 | 4,509 | ||||||||||||
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|
The following table summarizes the fair values for assets and liabilities measured on a recurring basis as of June 30, 2011:
Recurring measurements | June 30, 2010 |
Quoted Prices in Assets/(Liabilities) (Level 1) |
Significant Other (Level 2) |
Unobservable (Level 3) |
||||||||||||
Interest rate swaps |
(57,980 | ) | | (57,980 | ) | | ||||||||||
Marketable Securities |
2,544 | 2,544 | | |||||||||||||
Bunker swaps |
5,015 | | 5,015 | | ||||||||||||
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|
|||||||||
(50,421 | ) | 2,544 | (52,965 | ) | | |||||||||||
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12. | Subsequent Events |
(a) | On July 19, 2011, the Company announced a quarterly dividend of $0.15 per share which was paid on August 10, 2011. |
(b) | On August 2, 2011, the Company took delivery of the suezmax tanker Dimitris P and drew down $48,650 on a new 9 year term loan arranged on July 25, 2011. The term loan will be repaid in 18 consecutive semi-annual installments of $1,622 and a balloon of $19,460 payable together with the last installment. |
(c) | On July 28, 2011, the Company entered into a new swap agreement to hedge its exposure to interest rate fluctuations with regards to the newly arranged debt for the financing of Dimitris P. The swap will be effective on May 9, 2013. |
(d) | On August 11, 2011, the Company announced the authorization of a new share buy back program allocating up to $20,000 for purchases in the open market and in other transactions. |
18
Exhibit 99.2
TSAKOS ENERGY NAVIGATION LIMITED
THREE AND SIX MONTHS ENDED JUNE 30, 2011
Results of operations management discussion & analysis
(Percentage calculations are based on the actual amounts shown in the accompanying financial statements)
Voyage revenues
Voyage revenue earned for the three months ended June 30, 2011 and 2010:
2011 | 2010 | |||||||||||||||
$ million |
% of total |
$ million |
% of total |
|||||||||||||
Time charter-fixed rate |
14.7 | 15 | % | 16.9 | 15 | % | ||||||||||
Time charter-variable rate (profit-share) |
30.2 | 30 | % | 44.2 | 39 | % | ||||||||||
Time charter-bareboat |
2.3 | 2 | % | 2.3 | 2 | % | ||||||||||
Voyage charter-spot market |
41.4 | 41 | % | 36.3 | 32 | % | ||||||||||
Voyage charter-contract of affreightment |
5.3 | 5 | % | 10.1 | 9 | % | ||||||||||
Pool arrangement |
7.4 | 7 | % | 3.0 | 3 | % | ||||||||||
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|
|||||||||
Total voyage revenue |
101.3 | 100 | % | 112.8 | 100 | % | ||||||||||
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|
|
Voyage revenue earned for the six months ended June 30, 2011 and 2010:
2011 | 2010 | |||||||||||||||
$ million |
% of total |
$ million |
% of total |
|||||||||||||
Time charter-fixed rate |
29.7 | 15 | % | 38.4 | 18 | % | ||||||||||
Time charter-variable rate |
68.4 | 34 | % | 87.2 | 40 | % | ||||||||||
Time charter-bareboat |
4.6 | 2 | % | 4.6 | 2 | % | ||||||||||
Voyage charter-spot market |
71.3 | 36 | % | 59.0 | 27 | % | ||||||||||
Voyage charter-contract of affreightment |
11.9 | 6 | % | 21.9 | 10 | % | ||||||||||
Pool arrangement |
14.6 | 7 | % | 6.4 | 3 | % | ||||||||||
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Total voyage revenue |
200.5 | 100 | % | 217.5 | 100 | % | ||||||||||
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Voyage revenue earned during the three months ended June 30, 2011 was $101.3 million, or 10.2% less than in the three months ended June 30, 2010. The decrease was partly due to the fact that two VLCCs came off time charter at the end of the first quarter into a severely depressed VLCC market and taking into account repositioning voyages, contributed to almost a third of the total loss suffered in the second quarter, and partly because average rates achieved for most vessel categories, apart from the smaller handysize and handymax tankers, were down (as indicated in the table below) due to the difficult freight market resulting from global tanker fleet overcapacity.
During the second quarter, the Company operated on average 47.5 vessels compared to 45.0 in the second quarter of 2010. Total utilization (total days that the vessels were actually employed as a percentage of total days in the period that we owned or controlled the vessels) achieved by the fleet in the second quarter of 2011 was 96.6%, compared to 97.8% in the second quarter of 2010. The days lost in the second quarter of 2011 primarily relate to the dry-docking of Alaska and Promitheas, off-hire on Vergina II en route for delivery to its new owners which took place on June 24, 2011, and off hire days for Sapporo Princess, Asahi Princess, Maria Princess, La Prudencia and La Madrina and also Nippon Princess
1
en route to replace Vergina II. In the second quarter of 2010, days lost included dry-docking of Eurochampion and La Prudencia.
Operating days on pure time-charter without profit share increased by 146 days or 22.0% between the two second quarters, although the amount of revenue earned fell by 13%. This change arose as a result of the renewal of two time charters at lower rates and the expiration of another two time-charters within 2010, which also were replaced with charters at lower rates. There was an 8% decrease in the number of days utilized in profit-share arrangements which totaled 1,676 compared to 1,823 in the second quarter of 2010, while revenue earned in profit sharing arrangements decreased by 30%. The decline in revenue earned was less than in the previous second quarter due to reduced profit for sharing. The number of days in the second quarter 2011 that vessels were employed on spot, contract of affreightment and pool voyages increased to 1,684 from 1,514 in the second quarter of 2010, with a commensurate increase in total revenue earned for these three categories.
As a consequence of the weak market due to overcapacity, especially in the crude carriers, average revenue earned per vessel within the second quarter of 2011 was lower than the previous years second quarter, despite better handysize and handymax rates achieved. The LNG carrier came off a profitable time-charter since the second quarter of 2010, and from August 2010 secured a one-year charter at a lower rate. The earnings of the smaller product carriers on profit-sharing arrangements were only at the fixed minimum rate, which helped protect the overall income stream as actual market rates were often considerably below the fixed minimums. The suezmaxes and aframaxes earned on average significantly lower TCE rate in the second quarter of 2011 as all suezmaxes were under profit sharing arrangements earning minimal if any profit in the quarter whereas in the second quarter 2010 average suezmax rates were boosted by certain vessels earning profit share during a stronger market. Panamax average rates earned were slightly lower, most of these vessels being on a minimum charter with profit-share, but actually earning no profit, while in the second quarter of 2010, some profit was earned. This was offset by the disposal of the two older panamaxes, Hesnes and Victory III, which had poor earnings in 2010.
During the six months ended June 30, 2011, voyage revenue decreased by $17.0 million, or 8%, compared to revenue achieved in the six months ended June 30, 2010. The decrease was primarily due to a generally softer freight market compared to the previous years equivalent period caused by the slowdown of trading activity exacerbated by increasing vessel supply. For the six months of 2011, on average 47.7 vessels were operated compared to 45.8 in the first six months of 2010. Since the end of the second quarter of 2010 to June 30, 2011, the Company has taken delivery of the aframax Uraga Princess, the panamaxes World Harmony, Chantal, Selini and Salamina and the suezmax Spyros K and sold the panamax Victory III and the aframaxes Opal Queen and Vergina II. For the six month periods the utilization achieved was 97.7% in 2011 and 98.5% in 2010. Apart from the lost days of the second quarter, the six month period of 2011 also includes more lost days on the dry-docking of Archangel which started in the first quarter of 2011 and off-hire on La Madrina.
The average daily revenue per vessel for the quarter, after deducting voyage expenses (time charter equivalent or TCE, see definition below) was $16,426 per day compared to $22,059 for the previous years second quarter. Average daily TCE rate earned for the three and six month periods ended June 30, 2011 and 2010 were:
2
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
LNG carrier |
22,991 | 27,378 | 22,996 | 37,788 | ||||||||||||
VLCC |
19,739 | 43,549 | 22,820 | 36,857 | ||||||||||||
Suezmax |
23,221 | 29,570 | 24,147 | 28,880 | ||||||||||||
Aframax |
13,263 | 25,543 | 15,739 | 23,627 | ||||||||||||
Panamax |
15,609 | 16,918 | 16,064 | 15,719 | ||||||||||||
Handymax |
13,161 | 10,361 | 12,213 | 10,877 | ||||||||||||
Handysize |
14,955 | 13,796 | 14,708 | 14,941 |
TCE is calculated by taking voyage revenue less voyage costs divided by the number of operating days. We do not deduct commission, as commission is payable on all types of charter. In the case of the bare-boat charter, we add an estimate of operating expenses of $10,000 per day in order to render the bare-boat charter comparable to a time-charter.
Time charter equivalent revenue and TCE rate are not measures of financial performance under U.S. GAAP and may not be comparable to similarly titled measures of other companies. However, TCE is a standard shipping industry performance measure used primarily to compare period-to-period changes in shipping performance despite changes in the mix of charter types (i.e. spot voyage charters, time charters and bareboat charters) under which the vessels may be employed between the periods. The following table reflects the calculation of our TCE rate for the period presented (amount in thousands of U.S. dollars, except for TCE rate, which is expressed in U.S. dollars and available days):
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Voyage revenues |
$ | 101,309 | $ | 112,847 | $ | 200,505 | $ | 217,521 | ||||||||
Less: Voyage Expenses |
(33,707 | ) | (25,475 | ) | (57,240 | ) | (44,924 | ) | ||||||||
Add: Representative operating expenses for bareboat charter ($10,000 daily) |
910 | 910 | 1,810 | 1,810 | ||||||||||||
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Time charter equivalent revenues |
$ | 68,512 | $ | 88,282 | $ | 145,075 | $ | 174,407 | ||||||||
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Divided by: net earnings (operating) days |
4,171 | 4,002 | 8,433 | 8,161 | ||||||||||||
Average TCE per vessel per day |
$ | 16,426 | $ | 22,059 | $ | 17,203 | $ | 21,371 |
Commissions
Commissions amounted to $3.7 million, or 3.7% of voyage revenue from vessels, during the quarter ended June 30, 2011, compared to $4.1 million, or 3.6% of voyage revenue, for the quarter ended June 30, 2010. For the six month period, commissions amounted to $7.1 million or 3.5% of voyage revenue in 2011, compared to $8.1 million, or 3.7% of voyage revenue in 2010. The overall decrease in both periods was primarily due to reduced revenues. Changes in the employment of several vessels, especially to pool arrangements for the six month period, on which lower commission was charged, also contributed.
3
Voyage expenses
Voyage expenses include costs that are directly related to a voyage, such as port charges, agency fees, canal dues and bunker (fuel) costs. They are borne by the Company unless the vessel is on time-charter or operating in a pool, in which case they are borne by the charterer or by the pool operators.
Voyage expenses for the three months ended June 30, 2011 and 2010:
Voyage expenses | Average daily voyage expenses per relevant vessel |
|||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||
$ million |
$ million |
increase/ (decrease) |
$ | $ | increase/ (decrease) |
|||||||||||||||||||
Bunker expenses |
25.5 | 17.5 | 45.5 | % | 19,819 | 14,563 | 36.1 | % | ||||||||||||||||
Port and other expenses |
8.2 | 8.0 | 3.2 | % | 6,371 | 6,596 | (3.4 | )% | ||||||||||||||||
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Total |
33.7 | 25.5 | 32.3 | % | 26,190 | 21,159 | 23.8 | % | ||||||||||||||||
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|
Voyage expenses for the six months ended June 30, 2011 and 2010:
Voyage expenses | Average daily voyage expenses per relevant vessel |
|||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||
$ million |
$ million |
increase/ (decrease) |
$ | $ | increase/ (decrease) |
|||||||||||||||||||
Bunker expenses |
41.0 | 29.0 | 41.7 | % | 16,989 | 14,275 | 19.0 | % | ||||||||||||||||
Port and other expenses |
16.2 | 15.9 | 1.4 | % | 6,683 | 7,849 | (14.9 | )% | ||||||||||||||||
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Total |
57.2 | 44.9 | 27.4 | % | 23,672 | 22,124 | 7.0 | % | ||||||||||||||||
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The amount of voyage expenses is highly dependent on the voyage patterns followed and part of the change between quarters may usually be explained by changes in the total operating days the fleet operated on spot charter and contract of affreightment. Voyage expenses were $33.7 million during the quarter ended June 30, 2011, compared to $25.5 million during the prior years second quarter, a 32.3% increase. The number of days that the vessels were employed on spot and contract of affreightment in the second quarter of 2011 were 1,138 compared to 1,115 in the prior years second quarter, only a 2.1% increase. In the first six months of 2011, there was a 16.4% increase, from 1,908 days in the first six months of 2010 to 2,220 days in the first six months of 2011. The increase in bunkering expenses is mostly due to the increase in the average price of bunkers by approximately 32% between the quarters and the six month periods and partly because in the second quarter of 2011 the two VLCCs La Prudencia and La Madrina were trading in the spot market having been obliged to perform long repositioning voyages, therefore increasing the volume of bunkers by 20% compared to prior year second quarter. Port and other expenses have increased by 3.3% between the three month periods and by 1.4% between the six month periods, but their average daily cost decreased by 12.9% between the two six month periods.
4
Charter hire expense
In the three and six months periods ended June 30, 2011, there were no chartered-in vessels. For the second quarter of 2010, charter-hire expense amounted to $1.4 million, relating to the suezmax Decathlon which was sold in March 2010 to a third-party and time-chartered back at market rate until redelivery in mid-June 2010. For the first half of 2010, the charter-hire expense amounted to $1.9 million primarily relating to such vessel.
Vessel operating expenses
Operating expenses for the three months ending June 30, 2011 and 2010:
Operating expenses | Average daily operating expenses per vessel |
|||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||
$ million |
$ million |
increase/ (decrease) |
$ | $ | increase/ (decrease) |
|||||||||||||||||||
Crew expenses |
18.9 | 17.9 | 5.7 | % | 4,462 | 4,463 | 0.0 | % | ||||||||||||||||
Insurances |
4.2 | 3.6 | 16.0 | % | 989 | 902 | 9.6 | % | ||||||||||||||||
Repairs and maintenance, and spares |
4.3 | 2.6 | 69.3 | % | 1,014 | 634 | 59.9 | % | ||||||||||||||||
Stores |
1.5 | 1.8 | (17.0 | )% | 359 | 456 | (21.3 | )% | ||||||||||||||||
Lubricants |
1.6 | 1.2 | 29.5 | % | 374 | 305 | 22.6 | % | ||||||||||||||||
Other (quality and safety, taxes, registration fees, communications) |
2.6 | 2.3 | 14.0 | % | 628 | 582 | 7.9 | % | ||||||||||||||||
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Total |
33.1 | 29.4 | 12.7 | % | 7,826 | 7,342 | 6.6 | % | ||||||||||||||||
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|
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Earnings capacity days excluding vessel on bare-boat charter |
|
4,229 | 4,000 |
Operating expenses for the six months ending June 30, 2011 and 2010:
Operating expenses | Average daily operating expenses per vessel |
|||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||
$ million |
$ million |
increase/ (decrease) |
$ | $ | increase/ (decrease) |
|||||||||||||||||||
Crew expenses |
38.1 | 37.4 | 2.0 | % | 4,513 | 4,613 | (2.2 | )% | ||||||||||||||||
Insurances |
7.9 | 7.4 | 6.5 | % | 935 | 915 | 2.2 | % | ||||||||||||||||
Repairs and maintenance, and spares |
6.9 | 6.8 | 1.8 | % | 813 | 834 | (2.5 | )% | ||||||||||||||||
Stores |
3.4 | 4.0 | (13.7 | )% | 408 | 493 | (17.2 | )% | ||||||||||||||||
Lubricants |
2.9 | 3.0 | (1.7 | )% | 346 | 367 | (5.7 | )% | ||||||||||||||||
Other (quality and safety, taxes, registration fees, communications) |
5.4 | 5.3 | 0.3 | % | 639 | 663 | (3.6 | )% | ||||||||||||||||
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|
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Total operating expenses |
64.6 | 63.9 | 1.2 | % | 7,654 | 7,885 | (2.9 | )% | ||||||||||||||||
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|
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Earnings capacity days excluding vessel on bare-boat charter |
|
8,450 | 8,103 |
5
Vessel operating expenses include crew expenses, insurances, repairs and maintenance, spares, stores, lubricants, and other expenses such as quality and safety, tonnage tax, registration fees and communications costs. They are borne by the Company for all vessels of the fleet except for the one vessel on bare-boat charter (Millennium).
Earnings capacity days for the three months period ended June 30, 2011, excluding Millennium, increased by 229 days, or an average of 2.5 vessels more. For the six months period ended June 30, 2010 earnings capacity days, excluding Millennium, increased by 347 days or 1.9 vessels.
Repairs, spares and maintenance expenses also increased in the second quarter of 2011 over the prior years second quarter, as three vessels (Archangel, Alaska and Promitheas) performed dry-docking in European yards occurring non-deferrable repair costs.
There was a 13.1% weakening of the U.S. dollar, in the second quarter of 2011 compared to the second quarter of 2010, and a 5.8% weakening of the U.S. dollar between the equivalent six months periods. This depreciation mainly impacted crew costs offsetting savings achieved by changes in crew composition on several vessels. Over 50% of crew expenses, relating mainly to Greek officers, are paid in Euro. The depreciation of U.S. dollar also impacted repairs, spares, stores and maintenance expenses as approximately a third of those expenses was paid in Euro.
At June 30, 2011 exactly one year had passed since the jointly created new ship management company known as Tsakos Columbia ShipManagement S.A. (TCM) commenced operations on July 1, 2010 and started to manage virtually all the vessels owned by TEN. Even since January 1, 2010, there was cooperation between the joint owners of TCM (Tsakos interests and those of a private German company) in procurement of supplies and parts for vessels. As a result, operating expenses per vessel have fallen from an average of $8,677 for the year 2009 to $7,654 for the six months ending June 30, 2011. A large part of the decline is contributable to TCM in using its purchasing power to obtain better prices in the categories of repairs and maintenance, spares, stores, and lubricants.
Depreciation
Depreciation was $24.9 million during the quarter ended June 30, 2011 compared to $22.3 million during the quarter ended June 30, 2010, an increase of 11.3%. For the first six months of 2011, depreciation was $49.1 million compared to $43.9 million in the prior year first six months, an 11.8% increase. The increase in the depreciation expense was due to the addition of six new vessels since the second quarter of 2010, while for the six month period, five vessels which were sold in 2010 bore no depreciation in 2010 as they were held for sale at the end of 2009.
Amortization of deferred charges
During the quarter ended June 30, 2011, amortization of deferred dry-docking charges was $1.2 million compared to $1.1 million during the quarter ended June 30, 2010. For the most part the total quarterly charge for the respective quarters relate to the same charges for the same vessels. The difference between the quarters is primarily the difference between new quarterly amortization for more recent dry-dockings and the amortization relating to earlier dry-dockings where the deferred charges have been totally amortized in the intervening period.
6
Impairment
Our tests do not indicate that an impairment charge is required for any particular vessel at June 30, 2011. At December 31, 2010, it was determined that the carrying value of the aframax tanker Vergina II was in excess of its estimated fair market value and that the vessel would not generate adequate cash flow over its expected remaining life in excess of its carrying value. As a result, the carrying value was reduced to fair market value at December 31, 2010. In the first quarter 2011, plans were activated to sell the vessel before its next dry-docking, scheduled for July 2011, and the vessel was accounted for as held-for-sale at March 31, 2010. The vessel was sold in June 2011 prior to dry-docking. The current poor market conditions in the tanker market have negatively affected vessel valuations. Should existing market conditions continue, the possibility will increase that both the market value of the older vessels and the future cash flow they are likely to earn over their remaining lives will be less than their carrying values and an impairment loss will occur.
Management fees
Management fees totaled $3.9 million during the quarter ended June 30, 2011, compared to $3.2 million for the quarter ended June 30, 2010, a 21.1% increase. For the six months ended June 30, 2011, management fees were $7.8 million compared to $6.6 million in the previous first half year, an 18.5% increase. Apart from the growth in fleet number, the main reason was the fee increase in fees on July 1, 2010. There has been no further increase since then.
The Company pays to Tsakos Energy Management Ltd. fixed fees per vessel under a management agreement between the companies. The fee pays for services that cover both the management of the individual vessels and of the enterprise as a whole. From July 1, 2010, vessel monthly fees were increased by $3,000 to $27,000 for owned operating vessels or approximately $99 per day per vessel, and to $32,000 in the case of the LNG carrier.
General and administrative expenses
General and administrative expenses consist primarily of professional fees, office supplies, investor relations, advertising costs, directors liability insurance, directors fees and travel-related expenses. General and administrative expenses were $1.1 million during the quarter ended June 30, 2011 compared to $0.8 million during the previous years second quarter, an increase of 33.4% mainly due to new project costs and IT expenses relating to new SEC XBRL requirements and upgrading of the Companys reporting system. For the six months to June 30, 2011, general and administrative expenses were $2.2 million compared to $1.8 million during the previous years first six months, an increase of 22.4% mainly due to the same reasons as the three month periods.
General and administrative expenses plus the management fees and the stock compensation expense (see below) represent the overhead of the Company. On a per vessel basis, the daily overhead was $1,231 for the second quarter of 2011, compared to $1,077 in the second quarter of 2010. The increase is due to the increased management fees and general and administrative expenses. For the respective sixth month periods, the daily overhead per vessel was $1,241 and $1,108.
Stock compensation expense
The stock compensation expense represents the amortization of restricted share units (RSUs) for the second quarter of 2011. The charge amounted to $0.3 million compared to
7
$0.4 million in the second quarter of 2010. For the first half of 2011 and 2010 respectively, the charge was $0.7 million and $0.8 million. In the second quarter of 2011, 72,500 RSUs vested and a further 12,000 RSUs were granted to non-executive directors. As at June 30, 2011, the number of outstanding RSUs was 139,250, of which 54,750 will vest at December 31, 2011 and the remaining 84,500 RSUs will vest at June 30, 2012. The amortization charge for RSUs awarded to directors and officers is based on their fair value which is based on the Companys share price on the grant date of the RSUs. For non-employees, the amortization rate is based on the share price at the vesting date and therefore the valuation is adjusted quarterly in line with movements in the share price until the vesting date.
Gain/(loss) on sale of vessels
The aframax tanker Vergina II was sold in the second quarter of 2011 for $10.9 million, realizing a capital loss of $0.8 million due to expenses on its sale. During the first quarter of 2011, the Company sold the aframax Opal Queen for $34.0 million realizing a gain of $5.8 million. During the second quarter of 2010, the Company sold the aframax Marathon for $38.5 million realizing a gain of $5.8 million and the panamax Hesnes for $7.4 million realizing a minimal gain. During the first quarter of 2010, the Company sold the aframax Parthenon for $39.5 million realizing a gain of $8.4 million, and the suezmax Decathlon for $51.5 million realizing a gain of $5.9 million.
Operating income/(loss)
Loss from vessel operations was $1.7 million (including loss on the sale of a vessel amounting to $0.8 million) during the second quarter of 2011, compared to income of $30.1 million income (including gains on the sale of vessels amounting to $5.8 million) during the second quarter 2010, representing a 105.5% decrease. During the first half of 2011, income from vessel operations was $13.7 million (including gains on the sale of vessels amounting to $5.0 million), compared to $63.2 million (including gains on the sale of vessels amounting to $20.2 million) during the first six months of 2010, representing a 78.3% decrease.
Interest and finance costs
Three months ended June 30, |
Six months ended June 30, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Loan interest expense |
6.4 | 5.6 | 12.7 | 11.4 | ||||||||||||
Swap interest expense |
9.4 | 9.9 | 17.1 | 17.6 | ||||||||||||
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Less: Interest capitalized |
(0.9 | ) | (0.7 | ) | (1.8 | ) | (1.2 | ) | ||||||||
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Interest expense, net |
14.9 | 14.8 | 28.0 | 27.8 | ||||||||||||
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Bunkers swap cash settlements |
(1.7 | ) | (0.7 | ) | (2.9 | ) | (1.4 | ) | ||||||||
Change in fair value of non-hedging bunker swaps |
1.5 | 2.5 | (1.1 | ) | 3.3 | |||||||||||
Amortization of deferred loss on de-designated interest rate swap |
0.4 | 0.4 | 0.8 | 0.5 | ||||||||||||
Expense of portion of accumulated negative valuation of de-designated interest rate swap |
0.5 | | 0.5 | 0.4 | ||||||||||||
Change in fair value of non-hedging interest rate swaps |
1.0 | 4.1 | (2.5 | ) | 4.3 | |||||||||||
Amortization of loan fees |
0.2 | 0.3 | 0.5 | 0.6 | ||||||||||||
Bank charges |
0.1 | 0.1 | 0.1 | 0.1 | ||||||||||||
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Net total |
16.9 | 21.5 | 23.4 | 35.6 | ||||||||||||
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Interest and finance costs were $16.9 million for the second quarter of 2011, compared to $21.5 million for the quarter ended June 30, 2010, a 21.4% decrease. Loan interest (excluding the impact of interest rate swaps) in the second quarter 2011 increased by 14% to $6.4 million from $5.6 million in the second quarter of 2010. The average balance of outstanding debt was approximately $1,529 million for the second quarter of 2011 compared to $1,448 million for the previous years second quarter and the average loan interest rate increased to 1.7%. However, the average all-in loan finance cost in the second quarter of 2011, taking account of net swap interest paid, was 4.1% compared to 4.2% in the previous years second quarter. Interest paid on swaps amounted to $9.4 million in the second quarter 2011 compared to $9.9 million in the second quarter of 2010, mainly due to the slight increase in variable interest rates and the drop of notional swap amounts.
For the six months to June 30, 2011, interest and finance costs were $23.4 million compared to $35.6 million, a 34.3% decrease. Loan interest increased to $12.7 million from $11.4 million due to an 11% increase in interest rates and a 5% increase in average loans outstanding. However, interest paid on swaps decreased to $17.1 million from $17.6 million in the prior years first six months.
There was a non-cash negative net movement of $1.0 million in the fair value (mark-to-market) of the non-hedging interest rate swaps in the second quarter of 2011, compared to a negative movement of $4.1 million in the second quarter of 2010. In the six months to June 30, 2011, there was a positive movement of $2.5 million compared to a negative movement of $4.3 million for the first six months of 2010.
In the second quarter of 2011, one vessel, previously hedged by a swap de-designated in 2010, was sold and as a result a part of the accumulated negative valuation relating to this swap amounting to $0.5 million was transferred from other comprehensive loss to the income statement. In the first half of 2010, on the de-designation of the swap, an amount of $0.4 million was transferred from other comprehensive loss to the income statement. In addition, the remaining part of the accumulated negative valuation relating to this interest rate swap amounting to $3.9 million at June 30, 2011, is being amortized to earnings over the remaining life of the swap to 2014. The total amount amortized in the first six months of 2011 (not including the transfer to income statement referred to above) was $0.8 million and $0.5 million in the first six months of 2010.
Also in the second quarter of 2011, there was a negative non-cash movement of $1.5 million on bunkers swaps entered into in March 2009, which do not qualify as hedging instruments and an actual receipt of $1.7 million on these swaps. In the second quarter of 2010, there was a negative movement of $2.5 million on these swaps and $0.7 million cash was received. For the six months to June 30, 2011, cash received amounted to $2.9 million ($1.4 million in the prior period) and valuation movements amounted to a positive $1.1 million compared to a negative $3.3 million in the prior year first six months.
Capitalized interest is based on expenditure incurred to date on vessels under construction. In the second quarter of 2011, capitalized interest was $0.9 million compared to $0.7 million in the previous years second quarter, the increase being due to the large installments made on the two suezmaxes under construction, Spyros K and Dimitris P, which were delivered in the second and third quarter of 2011. For the first six months of 2011 and 2010, capitalized interest was $1.8 million and $1.2 million, respectively.
Amortization of loan expenses amounted to $0.2 million in the second quarter of 2011 and $0.3 million in the second quarter of 2010.
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Interest income
Total income derived from bank deposits was $0.6 million during the second quarter of 2011 and $0.7 million during the quarter ended June 30, 2010. For the six month periods, 2011 and 2010, $1.2 million and $1.3 million were earned respectively, the decreases being mainly due to the drop in average cash balances between the relevant periods.
Net income attributable to the non-controlling interest
A third-party company has a non-controlling interest of 49% in our subsidiary Mare Success S.A., which owns 100% of each of the companies that own the panamax vessels Maya and Inca. Income attributable to the non-controlling interest in the second quarter 2011 amounted to $0.1 million compared to $0.7 million in the second quarter 2010. For the six months to June 30, 2011, the income attributable to the non-controlling interest amounted to $0.3 million compared to $0.9 million in the first six months of 2010. The decrease for both periods was primarily due to the settlement of a prior year claim in the second quarter of 2010.
Net income/loss attributable to Tsakos Energy Navigation Limited
As a result of the foregoing, the net loss attributable to Tsakos Energy Navigation Limited for the quarter ended June 30, 2011 was $18.1 million, or $0.39 per diluted share versus net income of $8.5 million, or $0.22 per diluted share for the quarter ended June 30, 2010. Net loss attributable to Tsakos Energy Navigation Limited for the six months ended June 30, 2011 was $8.8 million, or $0.19 per diluted share versus $27.9 million net income, or $0.73 per diluted share for the six months ended June 30, 2010.
Liquidity and capital resources
Liquidity requirements relate to servicing debt, funding the equity portion of investments in vessels, funding working capital and controlling fluctuations in cash flow. In addition, our newbuilding program and dry-docking schedule requires us to expend cash. Net cash flow generated by continuing operations is the main source of liquidity. Additional sources, apart from raising equity, include proceeds from asset sales and borrowings, although all borrowing arrangements to date have specifically related to the acquisition of vessels.
Given our non-restricted cash holdings as at June 30, 2011 of $227.5 million, and the number of vessels we have on time charter, we believe that even if there is a further major and sustained downturn in market conditions, our financial resources are sufficient to meet our liquidity needs through January 1, 2012, taking into account both our existing capital commitments and the minimum debt service requirements.
Working capital (non-restricted net current assets) amounted to $82.4 million at June 30, 2011, compared to $161.9 million as at June 30, 2010. Non-restricted cash balances at June 30, 2011 were $227.5 million compared to $305.6 million at June 30, 2010.
Net cash provided by operating activities was $7.9 million in the quarter ended June 30, 2011, compared to $24.5 million in the previous years second quarter. For the six month respective periods, net cash from operating activities was $35.6 million in 2011, compared to $44.5 million in the first six months of 2010 due to lower net income in the first six months of 2011.
Expenditure incurred for dry-dockings for survey purposes, which are deferred and amortized to expense over the period from the dry-docking to the date of the next scheduled
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dry-docking, is deducted from net income to calculate cash generated by operating activities. In the second quarter of 2011, an amount of $3.2 million was paid on the dry-docking of Archangel, Alaska and Promitheas, while payments of $2.6 million were made on the dry-dockings of La Prudencia and Eurochampion in the second quarter of 2010. For the six months periods, $3.2 million was paid in 2011 compared to $3.0 million in the previous years first six months.
Net cash used in investing activities was $39.0 million for the quarter ended June 30, 2011, and $53.4 million for the quarter ended June 30, 2010. In the second quarter of 2011, net funds for acquisitions and improvements on existing vessels amounted to $30.0 million, relating to the acquisition of Spyros K while $44.0 million was paid in the prior second quarter for the acquisition of Sapporo Princess. In the second quarter of 2011, the vessel Vergina II was sold generating net sales proceeds of $9.7 million. For the six month period, vessel net sales proceeds generated $42.5 million. In the first six months of 2010, vessel net sale proceeds generated $134.1 million.
In the second quarter of 2011, advances for vessels under construction amounted to $30.3 million compared to $54.2 million in the second quarter of 2010. For the six month period, such advances amounted to $41.7 million in 2011 and $93.5 million in 2010. There were three vessels on order as at June 30, 2011 and three on order as at June 30, 2010. The suezmax Spyros K was delivered in May 2011 and the second suezmax, Dimitris P, was delivered in August 2011. The final two vessels under construction are suezmax DP2 shuttle tankers, their construction contracts signed on March 21, 2011 with Sungdong Yard of South Korea at a contract price of $92 million each, the first to be delivered at the end of 2012 and the second at the beginning of 2013. In total, $180.2 million was remaining to be paid on vessel installments at June 30, 2011. An amount of $14.6 million was paid in July 2011 being the last installment for Dimitris P, and $18.4 million is payable in the second half of 2011 relating to the two shuttle tankers. A further $101.2 million will be paid in 2012 for the two shuttle tankers and a final $46 million in 2013. We are in discussion with banks as to the partial financing of these two vessels
Net cash used in financing activities was $1.1 million in the quarter ended June 30, 2011, compared to $11.0 million provided by financing activities during the quarter ended June 30, 2010. Net cash used in financing activities was $52.7 million in the six months ended June 30, 2011, compared to $31.6 million during the six months ended June 30, 2010. In the second quarter of 2011, $48.0 million new debt was drawn down for the acquisition of the suezmax, Spyros K. In the second quarter of 2010, $79.0 million new debt was drawn down for the delivery of Sapporo Princess and Uraga Princess. In the second quarter of 2011 there were scheduled loan repayments of $30.5 million and an $8.6 million pre-payment on the sale of Vergina II, compared to $28.8 million scheduled repayments and prepayments of $34.6 million in the second quarter of 2010.
Total debt outstanding decreased from $1,548 million at the beginning of the second quarter 2011 to $1,529 million by the quarter end. The debt to capital (equity plus debt) ratio was 60.3% at June 30, 2011 (or 56.2% on a net of cash basis). No new interest rate swaps were arranged during the second quarter, although one new swap with a notional amount of $41.6 million was arranged in July 2011 with an effective date in May 2013. Interest rate swap coverage on outstanding loans at June 30, 2011 was approximately 54%.
The more significant of the financial covenants included in the bank loan agreements are the requirements to maintain an agreed upon minimum liquidity, a minimum hull value per vessel as compared with the outstanding loan of such vessel and to maintain a (leverage) ratio of debt to net assets (adjusted by the fair value of vessels) less than 70%. Non-compliance
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with any of these covenants could result in a default under our credit agreements, requiring the Company to prepay the amount required to redress the default. The most significant risk in the current economic environment has been the decline in vessel values. If values were to further decline again to lower levels than witnessed in recent months, it could eventually lead to non-compliance in respect of the minimum hull value to loan requirement and the leverage ratio on one or more of our loans. At June 30, 2011, the Company was compliant with the financial covenants included in all of the bank loan agreements.
In the second quarter of 2011, 72,500 new shares were issued on vesting of RSUs granted on July 1, 2010. In the second quarter of 2010, all remaining Treasury Stock totaling 94,500 shares at March 31, 2010 were issued and 445,127 new shares were issued and sold, raising a total of $8.5 million, as part of the at-the-market equity offering program which was initiated in December 2009 and terminated in May 2010.
Quarterly dividends of $0.15 each were paid on February 2, April 28 and August 10, 2011 and amounted to $6.9 million for each distribution. The dividend policy of the Company was amended in May 2010 to pay dividends on a quarterly basis, but still depending on cash availability and requirements, and with a target of between 25% and 50% of the net income in any given year, although even in the absence of adequate net income, a dividend is still payable given the level of retained earnings. In the second quarter of 2010 a final dividend for the year 2009 was paid in April 29, 2010, and a first quarterly dividend of $0.15 was paid on July 15, 2010.
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