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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934.

 

For the quarterly period ended September 30, 2015

 

OR

 

o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934.

 

For the transition period from to

 

COMMISSION FILE NUMBER

001-34228

 

GENER8 MARITIME, INC.

(Exact name of registrant as specified in its charter)

 

Republic of the Marshall Islands		66-071-6485
(State or other jurisdiction		(I.R.S. Employer
incorporation or organization)		Identification No.)
299 Park Avenue, 2nd Floor, New York, NY		10171
(Address of principal		(Zip Code)
executive offices)

 

Registrant’s telephone number, including area code (212) 763-5600

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o		Accelerated filer o
Non-accelerated filer x		Smaller reporting company o
(Do not check if a smaller reporting company)

 

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court . Yes  x  No  o

 

THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES OF COMMON STOCK, AS OF NOVEMBER 9, 2015:

 

Common Stock, par value $0.01 per share 82,105,376 shares

 

 

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GENER8 MARITIME, INC. AND SUBSIDIARIES

INDEX

 

PART I: FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	4
	Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2015 and December 31, 2014	4
	Condensed Consolidated Statements of Operations (unaudited) for the three months and nine months ended September 30, 2015 and 2014	5
	Condensed Consolidated Statements of Comprehensive Income (loss) (unaudited) for the three and nine months ended September 30, 2015 and 2014	7
	Condensed Consolidated Statement of Shareholders’ Equity (unaudited) for the nine months ended September 30, 2015	9
	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2015 and 2014	10
	Notes to Condensed Consolidated Financial Statements (unaudited)	11
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	38
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	89
ITEM 4.	CONTROLS AND PROCEDURES	90
PART II: OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	II-1
ITEM 1A.	RISK FACTORS	II-1
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	II-2
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	II-2
ITEM 4.	MINE SAFETY DISCLOSURES	II-2
ITEM 5.	OTHER INFORMATION	II-2
ITEM 6.	EXHIBITS	II-3
SIGNATURES

 

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Website Information

 

We intend to use our website, www.gener8maritime.com, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD.  Such disclosures will be included in our website’s Investor Relations section. Accordingly, investors should monitor the Investor Relations portion of our website, in addition to following our press releases, SEC filings, public conference calls, and webcasts. To subscribe to our e-mail alert service, please click the “Investor Alerts” link in the Investor Relations section of our website and submit your email address. The information contained in, or that may be accessed through, our website is not incorporated by reference into or a part of this document or any other report or document we file with or furnish to the SEC, and any references to our website are intended to be inactive textual references only.

 

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PART I: FINANC IAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

 

GENER8 MARITIME, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED B ALANCE SHEETS AS OF
SEPTEMBER 30, 2015 AND DECEMBER 31, 2014
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

		September 30, 2015			December 31, 2014
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	244,598		$	147,303
Restricted cash		—			660
Due from charterers, net		22,502			50,007
Due from Navig8 pools, net		21,371			—
Prepaid expenses and other current assets		19,678			32,692
Total current assets		308,149			230,662
NONCURRENT ASSETS:
Vessels, net of accumulated depreciation of $138,626 and $109,235, respectively		895,414			814,528
Vessels under construction		809,490			257,581
Other fixed assets, net		4,150			2,985
Deferred drydock costs, net		18,401			14,361
Deferred financing costs, net		32,045			1,805
Working capital at Navig8 pools		22,000			—
Restricted cash		1,424			—
Goodwill		27,131			27,131
Other assets		7,044			11,872
Total noncurrent assets		1,817,099			1,130,263
TOTAL ASSETS		$	2,125,248		$	1,360,925
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Long-term debt, current portion		$	121,248		$	—
Accounts payable and accrued expenses		32,642			52,770
Total current liabilities		153,890			52,770
NONCURRENT LIABILITIES:
Long-term debt		669,426			790,835
Other noncurrent liabilities		297			171
Total noncurrent liabilities		669,723			791,006
TOTAL LIABILITIES		823,613			843,776
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
New common stock, $0.01 par value per share; authorized 225,000,000 shares; issued and outstanding 82,105,376 shares at September 30, 2015		821			—
Class A common stock, $0.01 par value per share; authorized 50,000,000 shares; issued and outstanding 11,270,196 shares at December 31, 2014		—			113
Class B common stock, $0.01 par value per share; authorized 30,000,000 shares; issued and outstanding 22,002,998 shares at December 31, 2014		—			220
New preferred stock, $0.01 par value per share; authorized 25,000,000 shares; issued and outstanding 0 shares at September 30, 2015		—			—
Preferred stock, $0.01 par value per share; authorized 5,000,000 shares; issued and outstanding 0 shares at December 31, 2014		—			—
Paid-in capital		1,509,098			809,477
Accumulated deficit		(208,942		)	(292,990		)
Accumulated other comprehensive income		658			329
Total shareholders’ equity		1,301,635			517,149
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	2,125,248		$	1,360,925

 

See notes to condensed consolidated financial statements.

 

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GENER8 MARITIME, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMEN TS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)

 

		For the Three Months Ended September 30,
		2015			2014
VOYAGE REVENUES:
Time charter revenues		$	6,932		$	3,655
Spot charter revenues		26,358			89,318
Navig8 pool revenues		56,001			—
Total voyage revenues		89,291			92,973
OPERATING EXPENSES:
Voyage expenses		10,527			61,186
Direct vessel operating expenses		20,539			20,866
Navig8 charterhire expenses		4,688			—
General and administrative		8,200			5,044
Depreciation and amortization		11,600			11,665
Loss on disposal of vessel equipment		101			274
Closing of Portugal office		146			536
Total operating expenses		55,801			99,571
OPERATING INCOME (LOSS)		33,490			(6,598		)
OTHER EXPENSES:
Interest expense, net		(193		)	(7,816		)
Other income (expense), net		(69		)	132
Total other expenses		(262		)	(7,684		)
NET INCOME (LOSS)		$	33,228		$	(14,282	)
INCOME (LOSS) PER COMMON SHARE:
Basic		$	0.41		$	(0.43	)
Diluted		$	0.40		$	(0.43	)

 

See notes to condensed consolidated financial statements.

 

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GENER8 MARITIME, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)

 

		For the Nine Months Ended September 30,
		2015			2014
VOYAGE REVENUES:
Time charter revenues		$	21,648		$	7,818
Spot charter revenues		245,312			291,762
Navig8 pool revenues		60,213			—
Total voyage revenues		327,173			299,580
OPERATING EXPENSES:
Voyage expenses		93,203			188,061
Direct vessel operating expenses		62,583			64,061
Navig8 charterhire expenses		7,287			—
General and administrative		28,144			16,817
Depreciation and amortization		33,610			34,341
Goodwill impairment		—			1,249
Loss on disposal of vessels and vessel equipment		248			8,309
Closing of Portugal office		507			4,757
Total operating expenses		225,582			317,595
OPERATING INCOME (LOSS)		101,591			(18,015		)
OTHER EXPENSES:
Interest expense, net		(11,133		)	(22,090		)
Other financing costs		(6,040		)	—
Other expense, net		(370		)	—
Total other expenses		(17,543		)	(22,090		)
NET INCOME (LOSS)		$	84,048		$	(40,105	)
INCOME (LOSS) PER COMMON SHARE:
Basic		$	1.50		$	(1.36	)
Diluted		$	1.49		$	(1.36	)

 

See notes to condensed consolidated financial statements.

 

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GENER8 MARITIME, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COM PREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(DOLLARS IN THOUSANDS)
(UNAUDITED)

 

		For the Three Months Ended September 30,
		2015			2014
Net income (loss)		$	33,228		$	(14,282	)
Other comprehensive income (loss):
Foreign currency translation adjustments		39			(156		)
Total other comprehensive income (loss)		39			(156		)
Comprehensive income (loss)		$	33,267		$	(14,438	)

 

See notes to condensed consolidated financial statements.

 

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GENER8 MARITIME, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

(DOLLARS IN THOUSANDS)

(UNAUDITED)

 

		For the Nine Months Ended September 30,
		2015			2014
Net income (loss)		$	84,048		$	(40,105	)
Other comprehensive income:
Foreign currency translation adjustments		329			(26		)
Total other comprehensive income		329			(26		)
Comprehensive income (loss)		$	84,377		$	(40,131	)

 

See notes to condensed consolidated financial statements.

 

 

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GENER8 MARITIME, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEME NT OF SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015
(DOLLARS IN THOUSANDS)
(UNAUDITED)

 

		Common Stock			Preferred Stock			Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Total Shareholders’ Equity
Balance as of January 1, 2015		$	333		$	—		$	809,477		$	(292,990	)	$	329		$	517,149
Net income											84,048						84,048
Foreign currency translation adjustments														329			329
Issuance of 31,465,989 shares of common stock to acquire 2015 Acquired VLCC Newbuildings		314						464,282									464,596
Issuance of 483,970 shares of common stock for share purchase commitment		5						6,035									6,040
Issuance of 15,000,000 shares of common stock for initial public offering		150						189,657									189,807
Issuance of 1,882,223 shares of common stock for exercise of over-allotment option		19						24,619									24,638
Stock based compensation								11,647									11,647
Issuance of 2015 warrants								3,381									3,381
Balance as of September 30, 2015		$	821		$	—		$	1,509,098		$	(208,942	)	$	658		$	1,301,635

 

See notes to condensed consolidated financial statements.

 

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GENER8 MARITIME, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMEN TS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(DOLLARS IN THOUSANDS)
(UNAUDITED)

 

		For the Nine Months Ended September 30,
		2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	84,048		$	(40,105	)
Adjustments to reconcile net income (loss) to net cash provided by (used in)operating activities:
Loss on disposal of vessels and vessel equipment		248			8,309
Goodwill impairment		—			1,249
Payment-in-kind interest expense		3,883			4,533
Depreciation and amortization		33,610			34,341
Amortization of fair value of related-party chartered-in vessel		1,593			—
Amortization of deferred financing costs		946			546
Write-off of commitment premium shares		6,040			—
Stock-based compensation expense		11,647			968
Provision for bad debts		3,116			393
Changes in assets and liabilities:
(Increase) decrease in due from charterers		24,389			(2,763		)
Increase in due from Navig8 pools		(19,494		)	—
Decrease in prepaid expenses and other current and noncurrent assets		21,682			8,210
Increase in working capital at Navig8 pools		(22,000		)	—
Decrease in accounts payable and other current and noncurrent liabilities		(29,683		)	(16,280		)
Increase in deferred voyage revenue		—			623
Deferred drydock costs incurred		(7,577		)	(10,348		)
Net cash provided by (used in) operating activities		112,448			(10,324		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of Acquired VLCC Newbuildings		(187,929		)	(229,562		)
Payment of professional fees for 2015 merger		(10,295		)	—
Payment of capitalized interest		(13,794		)	(4,401		)
Proceeds from sale of vessels		—			22,703
Cash at Navig8 Crude upon merger		28,875			—
Deposit of cash merger consideration		(1,187		)	—
Restricted cash		(764		)	—
Purchase of vessel improvements and other fixed assets		(2,763		)	(4,118		)
Net cash used in investing activities		(187,857		)	(215,378		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Senior Notes		—			125,020
Borrowings under Refinancing Facility		581,000
Borrowings under Korean Export Credit Facility		62,920
Repayments of $508M credit facility		(414,680		)	(21,371		)
Repayments of $273M credit facility		(241,581		)
Proceeds from issuance of common stock		236,351			197,743
Payment of underwriters’ commission		(15,363		)	—
Payment of stock issuance costs		(6,470		)	(1,503		)
Deferred financing costs paid		(29,802		)	(355		)
Net cash provided by financing activities		172,375			299,534
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		329			159
NET INCREASE IN CASH AND CASH EQUIVALENTS		97,295			73,991
CASH AND CASH EQUIVALENTS, beginning of period		147,303			97,707
CASH AND CASH EQUIVALENTS, end of period		$	244,598		$	171,698
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for interest, net of capitalized interest		$	6,456		$	17,362

 

See Note 3 for supplementary information of noncash items.

 

See notes to condensed consolidated financial statements.

 

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GENER8 MARITIME, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT PER DAY, PER SHARE DATA, OR OTHERWISE STATED)

 

1.                                       BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

NATURE OF BUSINESS —Incorporated on August 1, 2008, under the Laws of Republic of the Marshall Islands, Gener8 Maritime, Inc. (formerly named General Maritime Corporation) and its wholly-owned subsidiaries (collectively, the “Company”) provides international transportation services of seaborne crude oil and petroleum products. The Company’s owned fleet at September 30, 2015 consisted of twenty six tankers in operation (eight Very Large Crude Carriers (“VLCCs”), eleven Suezmax tankers, four Aframax tankers, two Panamax tankers, and one Handymax tanker) and 20 newbuilding VLCCs under construction. Additionally, pursuant to a time charter which is currently anticipated to expire in February 2016, the Company has chartered-in a VLCC vessel from a related party. The Company operates its business in one business segment, which is the transportation of international seaborne crude oil and petroleum products.

 

The Company’s vessels are primarily available for charter on a spot voyage or time charter basis and for employment in commercial pools. Under a spot voyage charter, which generally lasts from several days to several months, the owner of a vessel agrees to provide the vessel for the transport of specific goods between specific ports in return for the payment of an agreed-upon freight per ton of cargo or, alternatively, for a specified total amount. All operating and specified voyage costs are paid by the owner of the vessel.

 

A time charter involves placing a vessel at the charterer’s disposal for a set period of time, generally one to three years, during which the charterer may use the vessel in return for the payment by the charterer of a specified daily or monthly hire rate. In time charters, operating costs such as for crews, maintenance and insurance are typically paid by the owner of the vessel and specified voyage costs such as fuel, canal and port charges are paid by the charterer.

 

The Company is party to certain commercial pooling arrangements. Commercial pools are designed to provide for effective chartering and commercial management of similar vessels that are combined into a single fleet to improve customer service, increase vessel utilization and capture cost efficiencies (see Note 13).

 

On May 7, 2015, the Company consummated a merger pursuant to an agreement between Gener8 Maritime Acquisition, Inc., a wholly owned subsidiary of the Company, Navig8 Crude Tankers, Inc. and the equity holders’ representatives named therein. As a result of the merger, Gener8 Maritime Subsidiary Inc. (formerly known as Navig8 Crude Tankers, Inc.) became a wholly owned subsidiary of the Company, and the Company’s name was changed from General Maritime Corporation to Gener8 Maritime, Inc. (see Note 2).

 

BASIS OF PRESENTATION— The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of financial position and operating results, have been included in the financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s financial statements for the year ended December 31, 2014. The results of operations for the nine months ended September 30, 2015 and 2014 are not necessarily indicative of the operating results for the full year. The financial statements of the Company have been prepared on the accrual basis of accounting and presented in United States Dollars (USD or $) which is the functional currency of the Company. A summary of the significant accounting policies followed in the preparation of the accompanying financial statements, which conform to accounting principles generally accepted in the United States of America, is presented below.

 

PRIOR PERIOD RECLASSIFICATION— The Company reclassified 2014 voyage revenues to separately present time charter voyages, spot charter voyages and pool revenues on the face of the statements of operations to conform to the presentation of the current period. There has been no change to total voyage revenues for prior periods.

 

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PRINCIPLES OF CONSOLIDATION —The accompanying condensed consolidated financial statements include the accounts of Gener8 Maritime Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

 

REVENUE AND EXPENSE RECOGNITION— Revenue and expense recognition policies for spot market voyage charters, time charters and pool revenues are as follows:

 

SPOT MARKET VOYAGE CHARTERS.  Spot market voyage revenues are recognized on a pro rata basis based on the relative transit time in each period. The period over which voyage revenues are recognized commences at the time the vessel departs from its last discharge port and ends at the time the discharge of cargo at the next discharge port is completed. The Company does not begin recognizing revenue until a charter has been agreed to by the customer and the Company, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage. The Company does not recognize revenue when a vessel is off hire. Estimated losses on voyages are provided for in full at the time such losses become evident. Voyage expenses primarily include only those specific costs which are borne by the Company in connection with voyage charters which would otherwise have been borne by the charterer under time charter agreements. These expenses principally consist of fuel, canal and port charges which are generally recognized as incurred. Demurrage income represents payments by the charterer to the vessel owner when loading and discharging time exceed the stipulated time in the spot market voyage charter. Demurrage income is measured in accordance with the provisions of the respective charter agreements and the circumstances under which demurrage claims arise and is recognized on a pro rata basis over the length of the voyage to which it pertains. Direct vessel operating expenses are recognized when incurred. At September 30, 2015 and December 31, 2014, the Company has a reserve of approximately $5,113 and $2,100, respectively, against its due from charterers balance associated with voyage revenues, including freight and demurrage revenues.

 

TIME CHARTERS.  Revenue from time charters is recognized on a straight-line basis over the term of the respective time charter agreement. Direct vessel operating expenses are recognized when incurred. Time charter agreements require, among others, that the vessels meet specified speed and bunker consumption standards. The Company believes that there may be unasserted claims relating to its time charters of $380 and $1,455 as of September 30, 2015 and December 31, 2014, respectively, for which the Company has reduced its amounts due from charterers to the extent that there are amounts due from charterers with asserted or unasserted claims or as an accrued expense to the extent the claims exceed amounts due from such charterers.

 

POOL REVENUES. Pool revenue is determined in accordance with the terms specified within each pool agreement. In particular, the pool manager aggregates the revenues and expenses of all of the pool participants and distributes the net earnings to participants based on the following allocation key:

 

·                   The pool points (vessel attributes such as cargo carrying capacity, fuel consumption and construction characteristics are taken into consideration); and

 

·                   The number of days the vessel participated in the pool in the period.

 

Vessels are chartered into the pool and receive net time charter revenue in accordance with the pool agreement. The time charter revenue is variable depending upon the net result of the pool and the pool points and trading days for each vessel. The pool has the right to enter into voyage and time charters with external parties for which it receives freight and related revenue. It also incurs voyage costs such as bunkers, port costs and commissions. At the end of each period, the pool aggregates the revenue and expenses for all the vessels in the pool and distributes net revenue to the participants based on the results of the pool and the allocation key. The Company recognizes net pool revenue on a monthly basis, when the vessel has participated in a pool during the period and the amount of pool revenue for the month can be estimated reliably.

 

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CHARTERHIRE EXPENSE— Charterhire expense is the amount the Company pays the vessel owner for time chartered-in vessel. The amount is usually for a fixed period of time at charter rates that are generally fixed, but may contain a variable component based on inflation, interest rates, profit sharing, or current market rates. The vessel’s owner is responsible for crewing and other vessel operating costs. Charterhire expense is recognized ratably over the charterhire period.

 

VESSELS, NET— Vessels, net is stated at cost, which was adjusted to fair value pursuant to fresh-start reporting when applicable, less accumulated depreciation. Vessels are depreciated on a straight-line basis over their estimated useful lives, determined to be 25 years from date of initial delivery from the shipyard. If regulations place limitations over the ability of a vessel to trade on a worldwide basis, its remaining useful life would be adjusted, if necessary, at the date such regulations are adopted. Depreciation is based on cost, which was adjusted to fair value pursuant to fresh-start reporting when applicable, less the estimated residual scrap value. Depreciation expense of vessel assets for the three months ended September 30, 2015 and 2014 totaled $10,064 and $10,634 respectively. Depreciation expense of vessel assets for the nine months ended September 30, 2015 and 2014 totaled $29,447 and $31,874, respectively. Undepreciated cost of any asset component being replaced is written off as a component of Loss on disposal of vessels and vessel equipment. Expenditures for routine maintenance and repairs are expensed as incurred. Vessel equipment is depreciated over the shorter of 5 years or the remaining life of the vessel.

 

Effective January 1, 2015, the Company increased the estimated residual scrap value of the vessels from $265/LWT (light weight ton) to $325/LWT prospectively based on the 15-year average scrap value of steel. The change in the estimated residual scrap value will result in a decrease in depreciation expense over the remaining lives of the vessel assets. During the three and nine months ended September 30, 2015, the effect of the increase in the estimated residual scrap value was to decrease depreciation expense and to increase net income by approximately $700 and $2,101, respectively, and to increase net income per basic and diluted common share by $0.01 and $0.04, respectively.

 

VESSELS UNDER CONSTRUCTION— Vessels under construction represents the cost of acquiring contracts to build vessels, installments paid to shipyards, certain other payments made to third parties and interest costs incurred during the construction of vessels (until the vessel is substantially complete and ready for its intended use). During the three months ended September 30, 2015 and 2014, the Company capitalized interest expense associated with vessels under construction of $12,457 (of which $6,738 was paid in cash and $5,719 has not been paid) and $3,224, respectively. During the nine months ended September 30, 2015 and 2014, the Company capitalized interest expense associated with vessels under construction of $23,929 (of which $13,794 was paid in cash and $10,135 has not been paid) and $5,615, respectively.

 

GOODWILL— The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350-20-35,  Intangibles—Goodwill and Other . This statement requires that goodwill and intangible assets with indefinite lives be tested for impairment at least annually or when there is a triggering event and written down with a charge to operations when the carrying amount of the reporting unit that includes goodwill exceeds the estimated fair value of the reporting unit. If the carrying value of the goodwill exceeds the reporting unit’s implied goodwill, such excess must be written off. Goodwill as of September 30, 2015 and December 31, 2014 was $27,131. It was determined that there was no indicator of goodwill impairment during the three and nine months ended September 30, 2015 and 2014.

 

IMPAIRMENT OF LONG-LIVED ASSETS —The Company follows FASB ASC 360-10-05, Accounting for the Impairment or Disposal of Long-Lived Assets , which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the asset’s carrying amount. In the evaluation of the future benefits of long-lived assets, the Company performs an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets. If the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to its fair value. The Company estimates fair value primarily through the use of third party valuations performed on an individual vessel basis. Various factors, including the use of trailing 10-year industry average for each vessel class to forecast future charter rates and vessel operating costs, are included in this analysis. It was determined that there was no indicator of impairment for any vessel for the three and nine months ended September 30, 2015 and 2014.

 

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DEFERRED DRYDOCK COSTS, NET —Approximately every thirty to sixty months, the Company’s vessels are required to be dry-docked for major repairs and maintenance, which cannot be performed while the vessels are operating. The Company defers costs associated with the drydocks as they occur and amortizes these costs on a straight-line basis over the estimated period between drydocks. Amortization of drydock costs is included in depreciation and amortization in the condensed consolidated statements of operations. For the three months ended September 30, 2015 and 2014, amortization was $1,355 and $792, respectively. For the nine months ended September 30, 2015 and 2014, amortization was $3,537 and $1,787, respectively. Accumulated amortization as of September 30, 2015 and December 31, 2014 was $7,575 and $4,038, respectively.

 

The Company only includes in deferred drydock costs those direct costs that are incurred as part of the drydock to meet regulatory requirements, or that are expenditures that add economic life to the vessel, increase the vessel’s earnings capacity or improve the vessel’s efficiency. Direct costs include shipyard costs as well as the costs of placing the vessel in the shipyard. Expenditures for normal maintenance and repairs, whether incurred as part of the drydock or not, are expensed as incurred.

 

DEFERRED FINANCING COSTS, NET —Deferred financing costs include bank fees and legal expenses associated with securing new loan facilities. These costs are amortized based upon the effective interest rate method over the life of the related debt, which is included in interest expense. Amortization for the three months ended September 30, 2015 and 2014 was $508 and $191 (out of which $500 and $56 was capitalized), respectively. Amortization for the nine months ended September 30, 2015 and 2014 was $946 and $546 (out of which $734 and $103 was capitalized), respectively. Accumulated amortization as of September 30, 2015 and December 31, 2014 was $1,870 and $924, respectively.

 

ACCOUNTING ESTIMATES— The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

 

WARRANTS— The Company calculates the fair value of warrants utilizing a valuation model to which Monte Carlo simulations and the Black-Scholes option pricing model are applied. The model projects future share prices based on a risk-neutral framework. The parameters used include inception date, share price, subscription price, lifetime, expected volatility (estimated based on historical share prices of similar listed companies) and expected dividends. The amount of share-based compensation recognized during a period is based on the fair value of the award at the time of issuance.

 

SHARE-BASED COMPENSATION — STOCK OPTIONS— The Company calculates the fair value of stock options utilizing the Black-Scholes option pricing model. The parameters used include grant date, share price, exercise price, risk-free interest rate, expected option life, expected volatility (estimated based on historical share prices of similar listed companies) and expected dividends. The amount of share-based compensation recognized during a period is based on the fair value of the award at the time of issuance over the vesting period of the option.

 

NET INTEREST EXPENSE— The Company follows the provisions of FASB ASC 835-20-30, Capitalization of Interest , to capitalize interest cost as part of the historical cost of acquiring certain assets.

 

The amount of interest cost to be capitalized for qualifying assets is intended to be that portion of the interest cost incurred during the assets’ acquisition periods that theoretically could have been avoided (for example, by avoiding additional borrowings or by using the funds expended for the assets to repay existing borrowings) if expenditures for the assets had not been made. The notion of interest on borrowings as an avoidable cost does not require that the practicability of repaying individual borrowings be considered.

 

The amount capitalized in an accounting period is determined by applying the capitalization rate to the average amount of accumulated expenditures for the asset during the period. The capitalization rates used in an accounting period are based on the rates applicable to borrowings outstanding during the period. If an entity’s financing plans associate a specific new borrowing with a qualifying asset, the entity may use the rate on that borrowing as the capitalization rate to be applied to that portion of the average accumulated expenditures for the asset that does not exceed the amount of that borrowing. If average accumulated expenditures for the asset exceed the amounts of specific new borrowings associated with the asset, the capitalization rate to be applied to such excess is a weighted average of the rates applicable to other borrowings of the entity (see Note 6).

 

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NET INCOME (LOSS) PER SHARE— Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised using the treasury stock method.

 

		Three months ended
		September 30, 2015			September 30, 2014
		New Common Stock			Class A			Class B
Basic net income (loss) per share:
Numerator:
Allocation of net income (loss) applicable to common stock		$	33,228		$	(4,837	)	$	(9,445	)
Denominator:
Weighted-average shares outstanding, basic		81,757,574			11,270,196			22,002,998
Basic net income (loss) per share		$	0.41		$	(0.43	)	$	(0.43	)
Diluted net income (loss) per share:
Numerator:
Allocation of net income (loss) applicable to common stock		$	33,228		$	(4,837	)	$	(9,445	)
Reallocation of net loss as a result of assumed conversion of Class B to Class A shares		n/a			(9,445		)	—
Allocation of net income (loss) applicable to common stock		$	33,228		$	(14,282	)	$	(9,445	)
Denominator:
Weighted-average shares outstanding used in basic computation		81,757,574			11,270,196			22,002,998
Add:
Assumed conversion of Class B to Class A shares		n/a			22,002,998			—
Restricted stock units		721,891			—			—
Weighted-average shares outstanding, diluted		82,479,465			33,273,194			22,002,998
Diluted net income (loss) per share:		$	0.40		$	(0.43	)	$	(0.43	)

 

On May 7, 2015, all shares of Class A Common Stock and Class B Common Stock were converted on a one-to-one basis to a single class of common stock. Options to purchase 343,662 shares of Class A Common Stock were excluded from the above calculation for the three months ended September 30, 2015 and 2014, because the impact is anti-dilutive. Warrants to purchase 1,431,520 shares of new common stock and options to purchase 13,420 shares of new common stock were excluded from the above calculation for the three months ended September 30, 2015, because certain market based conditions have not been met. As a result of the conversion in 2015, and that both Class A Common Stock and Class B Common Stock had equal rights to earnings and losses, the 2015 presentation of net income per share combines Class A Common Stock, Class B Common Stock and new common stock.

 

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		Nine months ended
		September 30, 2015			September 30, 2014
		New Common Stock			Class A			Class B
Basic net income (loss) per share:
Numerator:
Allocation of net income (loss) applicable to common stock		$	84,048		$	(15,293	)	$	(24,812	)
Denominator:
Weighted-average shares outstanding, basic		56,206,750			11,270,196			18,285,651
Basic net income (loss) per share		$	1.50		$	(1.36	)	$	(1.36	)
Diluted net income (loss) per share:
Numerator:
Allocation of net income (loss) applicable to common stock		$	84,048		$	(15,293	)	$	(24,812	)
Reallocation of net loss as a result of assumed conversion of Class B to Class A shares		n/a			(24,812		)	—
Allocation of net income (loss) applicable to common stock		$	84,048		$	(40,105	)	$	(24,812	)
Denominator:
Weighted-average shares outstanding used in basic computation		56,206,750			11,270,196			18,285,651
Add:
Assumed conversion of Class B to Class A shares		n/a			18,285,651			—
Restricted stock units		241,350
Weighted-average shares outstanding, diluted		56,448,100			29,555,847			18,285,651
Diluted net income (loss) per share:		$	1.49		$	(1.36	)	$	(1.36	)

 

On May 7, 2015, all shares of Class A Common Stock and Class B Common Stock were converted on a one-to-one basis to a single class of common stock. Options to purchase 343,662 shares of Class A Common Stock were excluded from the above calculation for the nine months ended September 30, 2015 and 2014, because the impact is anti-dilutive. Warrants to purchase 1,431,520 shares of new common stock and options to purchase 13,420 shares of new common stock were excluded from the above calculation for the nine months ended September 30, 2015, because certain market conditions have not been met. As a result of the conversion in 2015, and that both Class A Common Stock and Class B Common Stock had equal rights to earnings and losses, the 2015 presentation of net income per share combines Class A Common Stock, Class B Common Stock and new common stock.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS — With the exception of the Company’s Senior Notes (see Notes 10 and 11), the estimated fair values of the Company’s financial instruments approximate their individual carrying amounts as of September 30, 2015 and December 31, 2014 due to the short-term or variable-rate nature of the respective borrowings.

 

CONCENTRATION OF CREDIT RISK — Financial instruments that potentially subject the Company to concentrations of credit risk are amounts due from charterers. With respect to accounts receivable, the Company limits its credit risk by performing ongoing credit evaluations and, when deemed necessary, requires letters of credit, guarantees or collateral. During the three months ended September 30, 2015 and 2014, the Company earned 44.6% and 15.6%, respectively, of its revenues from one customer. During the nine months ended September 30, 2015, the Company earned 15.7% and 12.5% of its revenues from two customers and during the nine months ended September 30, 2014, the Company earned 17.6% from one customer.

 

The Company maintains substantially all of its cash and cash equivalents with two financial institutions. None of the Company’s cash balances are covered by insurance in the event of default by these financial institutions.

 

FOREIGN CURRENCY TRANSACTIONS — Gains and losses on transactions denominated in foreign currencies are recorded within the condensed consolidated statements of operations as components of general and administrative expenses or other expense depending on the nature of the transactions to which they relate. During the three months ended September 30, 2015 and 2014, transactions denominated in foreign currencies resulted in other (income) expense of $2 and $(155), respectively. During the nine months ended September 30, 2015 and 2014, transactions denominated in foreign currencies resulted in other (income) expense of $232 and $(72), respectively.

 

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TAXES — The Company is incorporated in the Republic of the Marshall Islands. Pursuant to the income tax laws of the Marshall Islands, the Company is not subject to Marshall Islands income tax. Additionally, pursuant to the U.S. Internal Revenue Code of 1986, as amended (the “Code”), the Company is exempt from U.S. income tax on its income attributable to the operation of vessels in international commerce (i.e., voyages that do not begin or end in the U.S.). The Company is generally not subject to state and local income taxation. Pursuant to various tax treaties, the Company’s shipping operations are not subject to foreign income taxes. However, as a result of change in ownership of the Company, effective May 17, 2012, the Company no longer qualifies for an exemption pursuant to Section 883 of the Code, making the Company subject to U.S. federal tax on its shipping income that is derived from U.S. sources retroactive to the beginning of 2012. As such, the Company has recorded gross transportation tax relating to such shipping income as a current liability on the condensed consolidated balance sheet. During the three months ended September 30, 2015 and 2014, the Company recorded gross transportation tax of $(96) (including a credit for 2014 overpayment of $152) and $222, respectively. During the nine months ended September 30, 2015 and 2014, the Company recorded gross transportation tax of $703 (including a credit for 2014 overpayment of $152) and $995, respectively, as a component of voyage expenses on its statements of operations. As a result of its initial public offering, or “IPO”, the Company is evaluating if it will be eligible to become exempt from the U.S. federal tax imposed on its shipping income derived from U.S. sources.

 

RECENT ACCOUNTING PRONOUNCEMENTS — In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, or “ASU 2014-09,” which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the potential impact of this standard update on its condensed consolidated financial statements.

 

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Amendments to the Consolidation Analysis, which focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. This new standard simplifies consolidation accounting by reducing the number of consolidation models and providing incremental benefits to stakeholders. In addition, the new standard places more emphasis on risk of loss when determining a controlling financial interest, reduces the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (a “VIE”), and changes consolidation conclusion for public and private companies in several industries that typically make use of limited partnerships or VIEs. This standard will be effective for annual reporting periods beginning after December 15, 2015 for public companies. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the potential impact of this standard update on its condensed consolidated financial statements.

 

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). The objective of ASU 2015-03 is to simplify the presentation of debt issuance costs by requiring debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03. ASU 2015-03 is effective for public business entities in annual and interim periods beginning after December 15, 2015. Early adoption is permitted. ASU 2015-03 provides for retroactive application, and upon transition, applicable disclosures for a change in an accounting principle would be provided, including the transition method, a description of the prior period information that has been retroactively adjusted, and the effect of the change on the applicable financial statement line items. Upon adoption, the Company’s deferred financing costs will be classified as a contra-liability.

 

In September 2015, the FASB issued Accounting Standards Update No. 2015-16, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 also requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been

 

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completed at the acquisition date. ASU 2015-16 is effective for public business entities for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. ASU 2015-16 should be applied prospectively to adjustments to provisional amounts that occur after its effective date with earlier application permitted for financial statements that have not been issued. The Company does not believe that this standard update will have a material impact on its condensed consolidated financial statements.

 

2.               2015 MERGER

 

On February 24, 2015, the Company entered into an Agreement and Plan of Merger (“2015 merger agreement”) with Gener8 Maritime Acquisition, Inc. (one of its wholly-owned subsidiaries, referred to as “Gener8 Acquisition”), Navig8 Crude Tankers, Inc. (“Navig8 Crude”) and each of the equityholders’ representatives named therein. Pursuant to the 2015 merger agreement, Gener8 Acquisition merged with and into Navig8 Crude, with Navig8 Crude continuing as the surviving corporation and our wholly-owned subsidiary and being renamed Gener8 Maritime Subsidiary Inc. or “Gener8 Subsidiary.” Navig8 Crude’s former shareholders that are determined by the Company, based on certifications received by the Company from such shareholders following the closing of the 2015 merger, to be permitted to receive shares of the Company’s common stock pursuant to the Securities Act under the 2015 merger agreement are entitled to receive 0.8947 shares of our common stock for each common share of Navig8 Crude they owned immediately prior to the consummation of the transactions contemplated under the 2015 merger agreement. Navig8 Crude’s former shareholders that are not determined to be permitted to receive shares of the Company’s common stock pursuant to the Securities Act under the 2015 merger agreement (such as shareholders that are not “accredited investors”) are entitled to receive cash in an amount equal to the number of shares of the Company’s’ common stock such shareholder would have received multiplied by $14.348. The Company refers to the transactions under the 2015 merger agreement as the “2015 merger.” Concurrently with the 2015 merger, the Company filed with the Registrar of Corporations of the Republic of the Marshall Islands its Third Amended and Restated Articles of Incorporation to, among other things, increase the Company’s authorized capital, reclassify the Company’s common stock into a single class of common stock and change the Company’s legal name to “Gener8 Maritime, Inc.”

 

The Company follows the guidance of Financial Accounting Standards Board, or “FASB,” Accounting Standards Codification, or “ASC,” Topic 805, Business Combinations. Pursuant to this, the Company accounted for the 2015 merger as an asset acquisition after considering the following factors:

 

i)                                          Navig8 Crude’s assets at the date of the merger consisted almost exclusively of contracts for 14 VLCC newbuildings under construction and cash. The primary purpose for the merger was to acquire these newbuildings for the Company’s fleet. Delivery of these newbuildings is scheduled to occur over a period beginning in the third quarter of 2015 and ending in the first quarter of 2017, and thus these newbuildings have had no operating history. The sole operating activities of Navig8 Crude since its inception were the chartering in of two vessels from a related party and the chartering out of such vessels to Navig8 Crude’s former sponsor’s VL8 pool. Navig8 Crude does not own the vessels, the vessels are not being acquired as part of the merger, and Navig8 Crude did not perform any of the processes relative to these vessels, as they were commercially managed by the VL8 pool and technical management was the responsibility of the vessels’ owner. One of these charters was a six month charter that terminated on July 9, 2014, well before the merger, and the other will expire in February 2016 with no option to renew. The Company does not consider the prior activity to be significant.

 

ii)                                       No employees, processes or operating vessels: Navig8 Crude has no employees, and the Company intends to outsource the commercial management of the newbuildings to one or more vessel pools once the completed vessels are delivered and will need to provide technical management to the vessels. Navig8 Crude does not have any processes of its own and no employees or operating vessels were transferred as part of the merger. Additionally, as substantially all acquired assets are newbuildings currently under construction, without substantial additional capital to be provided by the Company, such assets are not capable of producing outputs.

 

The assets acquired through the 2015 merger primarily included 14 newbuilding VLCC vessels under construction, one time chartered-in VLCC vessel which is currently anticipated to expire in February 2016, and cash and cash equivalents. These assets were recorded on May 7, 2015 at cost, which approximates fair value, and the common stock issued on such date for the benefit of Navig8 Crude’s former shareholders was recorded based on costs of net assets acquired.

 

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The assets acquired and the liabilities assumed from Navig8 Crude were recorded at cost, which approximates fair value, and included the following:

 

Cash and cash equivalents		$	28,874
Due from Navig8 pools, net		1,877
Prepaid expenses and other current assets		2,435
Vessels under construction		435,417
Other assets (noncurrent)		3,037
Accounts payable and accrued expenses		(5,859		)

 

Pursuant to the 2015 merger agreement, the Company deposited at the closing of the 2015 merger $4,527 and 31,233,170 shares of its common stock into a trust account with Computershare Trust Company, N.A. for the benefit of Navig8 Crude’s shareholders. See Note 18 — Common Stock.

 

Immediately following the consummation of the 2015 merger on May 7, 2015, the Company’s shareholders prior to the 2015 merger owned approximately 34.9 million, or 52.55%, of the shares of its common stock and Navig8 Crude’s shareholders prior to the 2015 merger owned approximately 31.5 million, or 47.45% of the shares of the Company’s common stock.

 

Until twenty-four months following the anniversary of the closing of the 2015 merger, the Company is required, subject to a maximum amount of $75 million and a deductible of $5 million, to indemnify and defend the shareholders of General Maritime or the former shareholders of Navig8 Crude immediately prior to the 2015 merger, in respect of certain losses arising from inaccuracies or breaches in the representations and warranties of, or the breach prior to the closing of the 2015 merger by, Navig8 Crude and General Maritime, respectively. Any amounts payable pursuant to such indemnification obligation shall be satisfied by the issuance of shares of our common stock with a fair market value equal to the amount of the indemnified loss.

 

3.                                       CASH FLOW INFORMATION

 

The Company excluded from cash flows from investing and financing activities in the condensed consolidated statements of cash flows items included in accounts payable and accrued expenses for the purchase of other fixed assets of $0 and $26 as of September 30, 2015 and December 31, 2014, respectively, for unpaid professional fees related to the Company’s IPO of $72 and $766 as of September 30, 2015 and December 31, 2014, respectively. Capitalized interest amounted to $23,929 for the nine months ended September 30, 2015, out of which, $10,135 has not been paid out as of September 30, 2015 ($691 is included in Accounts payable and accrued expenses and $9,444 is included in Long-term debt in the condensed consolidated balance sheet).

 

Also excluded from investing activities are the issuance of 31,465,989 shares of common stock related to the 2015 Acquired VLCC Newbuildings and 483,970 shares of common stock issued as a commitment premium paid to the commitment parties under the equity purchase agreement entered into in connection with the 2015 merger.

 

4.                                       DELIVERY OF VESSEL

 

On September 11, 2015, a wholly-owned subsidiary of the Company took delivery of the Gener8 Neptune , a 299,999 metric tons deadweight 2015-built VLCC newbuilding. The Company acquired this vessel pursuant to a shipbuilding contract with Daewoo Shipbuilding & Marine Engineering Co., Ltd. (“DSME”) (see Note 6, 2014 Acquired VLCC Newbuildings ). The Company has made all shipyard installment payments in respect of the Gener8 Neptune , and there is no outstanding payable balance as of September 30, 2015.

 

5.                                       DISPOSAL OF VESSELS AND VESSEL EQUIPMENT

 

During the three months ended September 30, 2015 and 2014, the Company recorded a loss on disposal of vessel equipment of $101 and $274, respectively. During the nine months ended September 30, 2015, the Company recorded a loss on disposal of vessel equipment of $248. During the nine months ended September 30, 2014, the Company recorded a loss on disposal of vessels and vessel equipment of $8,309, of which $1,490 related to the

 

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disposal of vessel equipment and $6,819 related to the sales of vessels. Losses on disposal of vessels include the cost of fuel consumed to deliver the vessels to their point of sale, as well as legal costs and commissions. The loss on disposal of vessel equipment relates to replacement of steel and vessel equipment.

 

6.                                       VESSELS UNDER CONSTRUCTION

 

Vessels under construction consist of the following:

 

		September 30, 2015			December 31, 2014
2014 Acquired VLCC Newbuildings:
SPV Stock Purchase		$	162,683		$	162,683
Installment payments		203,020			85,030
Drawing approval and site supervision fee		3,208			820
Others (initial agent fee, etc.)		1,143			90
2015 Acquired VLCC Newbuildings:
Vessels		435,417			—
Acquisition-related costs		10,295			—
Installment payments		67,029
Fair value of 2015 Warrant Agreement assumed (Note 17)		3,381			—
Fair value of 2015 Stock Options assumed (Note 17)		39			—
Capitalized interest expense		32,887			8,958
Vessel delivery		(109,612		)	—
Total		$	809,490		$	257,581

 

2014 Acquired VLCC Newbuildings

 

In March 2014, the Company’s wholly-owned subsidiary, Gener8 Maritime Subsidiary V Inc. (formerly known as VLCC Acquisition I Corporation and referred to herein as “Gener8 Maritime Sub V”) entered into an agreement with Scorpio Tankers Inc. (“Scorpio”) and seven of its wholly-owned subsidiaries (“Scorpio Shipbuilding SPVs”) for the purchase of the outstanding common stock of the Scorpio Shipbuilding SPVs for an aggregate price of approximately $162,683 (the “SPV Stock Purchase”).

 

Five of the Scorpio Shipbuilding SPVs were party to a shipbuilding contract with DSME (the “2014 Acquired DSME Shipbuilding Contracts”) and two of the Scorpio Shipbuilding SPVs were party to a shipbuilding contract with Hyundai Samho Heavy Industries Co., Ltd. (the “2014 Acquired Hyundai Shipbuilding Contracts”, and together with the 2014 Acquired DSME Shipbuilding Contracts, the “2014 Acquired VLCC Shipbuilding Contracts”), each for the construction and purchase of a 300,000 DWT Crude Oil Tanker (collectively, the “2014 Acquired VLCC Newbuildings”). As a result of the acquisition of the Scorpio Shipbuilding SPVs, the Company acquired indirect ownership of the 2014 Acquired VLCC Shipbuilding Contracts. The aggregate remaining installment payments under the 2014 Acquired VLCC Shipbuilding Contracts are $369,425 as of September 30, 2015, out of which $80,328 is due in the remaining three months of 2015 and $289,097 is due in 2016.

 

Novation of 2014 Acquired DSME Shipbuilding Contracts

 

On September 2, 2015, five newly formed wholly-owned subsidiaries (the “DSME Shipbuilding SPVs”) of the Company entered into novation agreements providing for the novation (the “DSME Novations”) of the 2014 Acquired DSME Shipbuilding Contracts from the five Scorpio Shipbuilding SPVs party to those Acquired DSME Shipbuilding Contracts which DSME Novations became effective on September 7, 2015.  If for any reason a DSME Shipbuilding SPV fails to make a payment when due, which may result in a default under the applicable 2014 Acquired DSME Shipbuilding Contract, the DSME Shipbuilding SPV could be liable for late payment interest at a rate per annum of six percent (6%) and could be liable for any additional damages under or in connection with such contracts resulting from a breach by the DSME Shipbuilding SPV of the contract terms, including liability for broker’s or supervision fees if DSME chooses to complete and sell, or to sell, the vessel to a third party following any default by the DSME Shipbuilding SPV. The DSME Shipbuilding SPV may also lose any equipment provided to DSME as

 

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buyers’ supplies for installation by DSME on the vessels. One of the 2014 Acquired VLCC Newbuildings was delivered to the Company on September 11, 2015, pursuant to one of the 2014 Acquired DSME Shipbuilding Contracts and all related shipyard installment payments for such newbuilding have been made as of September 30, 2015 (see Note 4).

 

See Note 20—Subsequent Events for a discussion regarding the delivery of the second 2014 Acquired VLCC Newbuilding in October 2015.

 

Replacement of Guarantees Related to 2014 Acquired DSME Shipbuilding Contracts

 

In connection with the original entry by the applicable Scorpio Shipbuilding SPVs into the 2014 Acquired DSME Shipbuilding Contracts in December 2013, the Export-Import Bank of Korea (the “DSME Refund Guarantor”) granted Irrevocable Stand By Letters of Credit in favor of each Scorpio Shipbuilding SPV pursuant to which the DSME Refund Guarantor agreed to guarantee the repayment of the advance payments (e.g., newbuilding installment payments) made to DSME by the applicable Scorpio Shipbuilding SPV together with interest due to Company at the rate of six percent (6%) per annum should the Scorpio Shipbuilding SPV become entitled to demand and DSME fail to make such repayment under the relevant 2014 Acquired DSME Shipbuilding Contract.

 

On September 7, 2015, in connection with the DSME Novations, the Irrevocable Stand By Letters of Credit were amended and supplemented by a supplemental letter agreement issued by the DSME Refund Guarantor in order to provide the DSME Refund Guarantor’s consent to such DSME Novation and to substitute the relevant DSME Shipbuilding SPV in place of the applicable Scorpio Shipbuilding SPV as beneficiary under the relevant Irrevocable Stand By Letter of Credit.

 

In connection with the original entry into the 2014 Acquired DSME Shipbuilding Contracts in December 2013, Scorpio agreed to guarantee (the “Scorpio DSME Guarantees”) the performance of the five Scorpio Shipbuilding SPV under the relevant 2014 Acquired DSME Shipbuilding Contracts. Scorpio also agreed to guarantee the performance of the other two Scorpio Shipbuilding SPVs under the relevant 2014 Acquired Hyundai Shipbuilding Contracts (the “Scorpio Hyundai Guarantees” and together with the Scorpio DSME Guarantees, the “Scorpio Guarantees”). In March 2014, in connection with the Company’s purchase of the Scorpio Shipbuilding SPVs, Gener8 Maritime Sub V and Scorpio entered into an agreement pursuant to which Gener8 Maritime Sub V, among other things, agreed to indemnify Scorpio to the extent that Scorpio was required to perform its obligations under the Scorpio Guarantees. With effect on and from September 7, 2015, in connection with the DSME Novations, the Scorpio DSME Guarantees in respect of the DSME Shipbuilding Contracts were released and discharged and replaced with new guarantees (the “New DSME Guarantees”), dated as of September 2, 2015 and issued by the Company in favor of DSME in substantially the same form as the Scorpio DSME Guarantees.  Pursuant to each New DSME Guarantee, the Company agreed to guarantee the performance of the applicable Scorpio Shipbuilding SPV under the relevant novated 2014 Acquired DSME Shipbuilding Contract. The New DSME Guarantee terminates in respect of each novated 2014 Acquired DSME Shipbuilding Contract upon the delivery of the applicable 2014 Acquired VLCC Newbuilding.

 

See Note 20—Subsequent Events for a discussion regarding the delivery of the second 2014 Acquired VLCC Newbuilding in October 2015.

 

2015 Acquired VLCC Newbuildings

 

The Company is a party to newbuilding contracts for 14 additional VLCC tankers (collectively, the “2015 Acquired VLCC Newbuildings,” and together with the 2014 Acquired VLCC Newbuildings, the “Acquired VLCC Newbuildings”) acquired through the 2015 merger with deliveries scheduled to commence beginning the fourth quarter of 2015. The Company expects each of the 2015 Acquired VLCC Newbuildings to be delivered to a newly formed wholly-owned subsidiary, subject to agreement by the relevant shipyards, which the Company expects to obtain prior to the delivery of the applicable 2015 Acquired VLCC Newbuilding.  As of September 30, 2015, the Company’s estimated commitments associated with these newbuildings through their expected delivery dates were approximately $920,204, of which $117,165, $707,209 and $95,830 is due in the last quarter of 2015, whole year 2016 and 2017, respectively. As the 2015 merger is accounted for as an asset acquisition, acquisition-related costs associated with the 2015 merger amounting to $10,295 were capitalized and included in Vessels under construction as of September 30, 2015.

 

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7.                                       PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets consist of the following:

 

		September 30, 2015			December 31, 2014
Bunkers and lubricants		$	6,072		$	24,285
Insurance claims receivable		5,100			1,156
Prepaid insurance		2,700			1,904
Other		5,806			5,347
Total		$	19,678		$	32,692

 

Insurance claims receivable consist substantially of payments made by the Company for repairs of vessels that the Company expects, pursuant to the terms of the insurance agreements, to recover from the carrier within one year, net of deductibles which have been expensed. As of September 30, 2015 and December 31, 2014, the portion of insurance claims receivable not expected to be collected within one year of $772 and $4,696, respectively, is included in Other assets (non-current) on the condensed consolidated balance sheets.

 

8.                                       OTHER FIXED ASSETS

 

Other fixed assets consist of the following:

 

		September 30, 2015			December 31, 2014
Other fixed assets:
Furniture, fixtures and equipment		$	1,036		$	1,154
Vessel equipment		4,946			3,381
Computer equipment		550			312
Other		87			71
Total cost		6,619			4,918
Less: accumulated depreciation		2,469			1,933
Total		$	4,150		$	2,985

 

Leasehold improvements are depreciated over the shorter of the life of the assets (10 years) or the remaining term of the lease.

 

Depreciation of Other fixed assets for the three months ended September 30, 2015 and 2014 was $188 and $253, respectively. Depreciation of Other fixed assets for the nine months ended September 30, 2015 and 2014 was $626 and $680, respectively.

 

9.                                       ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consist of the following:

 

		September 30, 2015			December 31, 2014
Accounts payable		$	7,902		$	33,747
Accrued operating expenses		19,391			15,707
Accrued administrative expenses		3,658			3,240
Accrued interest		1,691			76
Total		$	32,642		$	52,770

 

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10.                                LONG-TERM DEBT

 

Long-term debt consists of the following:

 

		September 30, 2015			December 31, 2014
$508M Credit Facility		$	—		$	414,680
$273M Credit Facility		—			241,581
Refinancing Facility		581,000			—
Korean Export Credit Facility		62,920			—
Senior Notes		146,754			134,574
Total		790,674			790,835
Less: current portion of long-term debt		(121,248		)	—
Long-term debt		$	669,426		$	790,835

 

Senior Secured Credit Facilities

 

The Senior Secured Credit Facilities (as defined below) were fully repaid in September 2015 using the proceeds of the Refinancing Facility (as defined below) and available cash. For the three months ended September 30, 2015 and 2014, interest expense incurred under the Senior Secured Credit Facilities amounted to $5,124 and $6,899, respectively. For the nine months ended September 30, 2015 and 2014, interest expense incurred under the Senior Secured Credit Facilities amounted to $19,116 (out of which $13,140 was capitalized) and $21,238 (out of which $4,295 was capitalized), respectively.  The “Senior Secured Credit Facilities” consisted of (i) the Third Amended and Restated Credit Agreement, dated as of May 17, 2012 (the “$508M Credit Facility”), among the Company, as parent, Gener8 Maritime Subsidiary IV Inc. (formerly known as General Maritime Subsidiary II Inc.), as borrower, Gener8 Maritime Subsidiary III Inc. (formerly known as Arlington Tankers Ltd.) and Gener8 Maritime Subsidiary II Inc. (formerly known as General Maritime Subsidiary Corporation and referred to herein as “Gener8 Maritime Sub II”), each as a guarantor, certain other subsidiaries of the Company, the lenders party thereto and Nordea Bank Finland PLC, New York Branch and (ii) the Second Amended and Restated Credit Agreement, dated as of May 17, 2012 (the “$273M Credit Facility”), among the Company, as parent, Gener8 Maritime Sub II, as borrower, Gener8 Maritime Subsidiary III Inc. and Gener8 Maritime Subsidiary IV Inc., each as a guarantor, and certain other Subsidiaries of the Company, the lenders party thereto and Nordea Bank Finland, PLC, New York Branch.

 

Refinancing Facility

 

On September 3, 2015, the Company entered into a term loan facility, dated as of September 3, 2015 (the “Refinancing Facility”), by and among the Company’s wholly-owned subsidiary, Gener8 Maritime Sub II, the Company, as parent, the lenders party thereto, and Nordea Bank Finland, PLC, New York Branch as Facility Agent and Collateral Agent in order to refinance the $508M Credit Facility and the $273M Credit Facility. The Refinancing Facility provides for term loans up to the aggregate approximate amount of $581.0 million, which were fully drawn on September 8, 2015. The loans under the Refinancing Facility will mature on September 3, 2020.

 

The Refinancing Facility bears interest at a rate per annum based on LIBOR plus a margin of 3.75% per annum. If there is a failure to pay any amount due on a loan under the Refinancing Facility and related credit documents, interest shall accrue at a rate 2.00% higher than the interest rate that would otherwise have been applied to such amount.

 

The Refinancing Facility is secured on a first lien basis by a pledge of the Company’s interest in Gener8 Maritime Sub II, a pledge by Gener8 Maritime Sub II of its interests in the 25 vessel-owning subsidiaries it owns (the “Gener8 Maritime Sub II Vessel Owning Subsidiaries”) and a pledge by such Gener8 Maritime Sub II Vessel Owning Subsidiaries of substantially all their assets, and is guaranteed by the Company and the Gener8 Maritime Sub II Vessel Owning Subsidiaries.  In addition, the Refinancing Facility is secured by a pledge of certain of the Company’s and Gener8 Maritime Sub II Vessel Owning Subsidiaries’ respective bank accounts. As of the September 30, 2015, the Gener8 Maritime Sub II Vessel Owning Subsidiaries owned 7 VLCCs, 11 Suezmax vessels, 4 Aframax vessels, 2 Panamax vessels and 1 Handymax vessel.

 

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