Global Ship Lease, Inc (NYSE:GSL, GSL.U and GSL.WS), a rapidly
growing containership charter owner, announced today its unaudited
results for the three and nine months ended September 30, 2008.
Third Quarter 2008 and Year-to-Date Highlights
- Paid a starting dividend of $0.23 per share on October 14,
2008 to all Class A common shareholders and unit holders of record
as of October 2, 2008
- Declared a third quarter dividend of $0.23 per share to be
paid on November 28 to Class A common shareholders and unit holders
of record as of November 21, 2008
- Generated $12.1 million pro forma cash available for
distribution in the third quarter and $34.8 million in the nine
months ended September 30, 2008
- Reported combined revenue of $23.9 million for the third
quarter and $68.7 million for the nine months ended September 30,
2008
- Reported normalized pro forma net earnings of $6.4 million, or
$0.19 per share, for the third quarter of 2008 and $17.9 million,
or $0.54 per share, for the nine months ended September 30, 2008,
excluding a $6.4 million non-cash interest rate derivative
mark-to-market charge for the third quarter and a $1.1 million
charge for the nine months ended September 30, 2008
- Including non-cash charges, reported pro forma net earnings of
$0.0 million, or $0.00 per share, for the third quarter and
earnings of $16.8 million, or $0.50 per share, for the nine months
ended September 30, 2008
- Acquired two 4,250 TEU containership newbuildings with
charters in place to ZIM Integrated Shipping Services Limited, or
ZISS, for seven to eight years which are expected to be delivered
in the fourth quarter of 2010
- Listed on the New York Stock Exchange on August 15, 2008
Ian Webber, Chief Executive Officer of Global Ship Lease,
stated, "During the third quarter of 2008, Global Ship Lease
achieved significant milestones that position the Company well over
the long term. Specifically, Global Ship Lease merged with Marathon
Acquisition Corp, listed on the New York Stock Exchange, signed an
agreement to acquire two containership newbuildings, and achieved
strong operational results based on our time charter strategy. We
also drew upon our contracted revenue and cash flow streams to both
pay a starting dividend of $0.23 per share and declare our first
quarterly distribution of $0.23 per share. Despite the current
slowdown in demand for containerized goods, container shipping
remains well positioned for long-term growth. Further, we believe
that Global Ship Lease's business model mitigates the effect of any
near-term industry volatility as all of our vessels are fixed on
charters with an average remaining duration of 10 years with
leading and well established liner operators. Our first charter
renewals, are not until the fourth quarter of 2012 and are on only
two vessels in the fleet. In addition, we have an $800 million
credit facility in place to fund the purchase of our seven
contracted vessels which will double our capacity."
Results for Three and Nine Months Ended September 30, 2008
Comparative financial information for 2007 is not included
herein because under predecessor accounting, this information
pertains mainly to operations of the vessels when they were owned
by CMA CGM, a privately owned French container shipping company,
and operated in CMA CGM's business of earning revenue from carrying
cargo. Global Ship Lease commenced its business of time chartering
out vessels in December 2007. The two business models are therefore
not comparable.
For the same reasons mentioned above with respect to 2007
comparatives, financial information relating to operations for the
nine months ended September 30, 2008 commented upon herein relates
to earnings from the provision of vessels under time charters and
excludes the results of two vessels prior to their acquisition date
in January 2008 because they had been previously operated by CMA
CGM. The unaudited interim combined financial statements also
differ from the information commented upon herein as they reflect
the reporting period both before and after the merger on August 14,
2008, as a result of which the capital structure of the Company
changed significantly. Full unaudited interim combined financial
statements are included in this press release.
The revenue for the three months ended September 30, 2008, as
reported in our unaudited interim combined financial statements,
was $12.8 million for the Successor (post-merger) and $11.1 million
for the Predecessor (pre-merger). Revenue for the nine months ended
September 30, 2008 was $12.8 million for the Successor and $58.9
million for the Predecessor. For the three months ended September
30, 2008, we also reported a net loss of $0.3 million for the
Successor and $0.9 million for the Predecessor. For the nine months
ended September 30, 2008 the net loss was $0.3 million for the
Successor and net income was $7.4million for the Predecessor.
3 months ended 9 months ended
(in thousands of U.S. dollars 30 September, 30 September,
except per share data) 2008 2008
---------------------------------------------------------------------
(unaudited) (unaudited)
Combined revenue (1) / (2) 23,912 68,673
Combined operating income (1) / (2) 9,414 28,948
Pro forma net (loss) earnings (2) (43) 16,820
Pro forma net earnings per share (2) $0.00 $0.50
Normalised pro forma net earnings (2) 6,393 17,915
Normalised pro forma earnings per share (2) $0.19 $0.54
Pro forma cash available for
distribution (2) 12,052 34,771
(1) Information on a combined basis for the Successor and
Predecessor period as reported in the segment information in
footnote 10 to interim unaudited combined financial statements.
(2) Combined revenue, combined operating income, pro forma net
earnings, pro forma earnings per share, normalised pro forma
earnings, normalised pro forma earnings per share and pro forma
cash available for distribution are non-US Generally Accepted
Accounting Principles (US GAAP) measures, as explained further in
this release and a reconciliation is provided to the interim
unaudited financial statements.
Combined Revenue and Utilization
Global Ship Lease owned twelve vessels throughout the three
months ended September 30, 2008, generating time charter revenue
from fixed rate long-term time charters of $23.9 million. During
this period, there were 18 off-hire days, including 14 for
unplanned dry-docking in July to repair bottom damage to a vessel
following a grounding, out of 1,104 ownership days, representing
utilization of over 98%. Two of the twelve vessels were purchased
in January 2008 and there were 3,263 ownership days in the nine
months ended September 30, 2008. Revenue for the nine months ended
September 30, 2008 was $68.7m which includes 15 planned off-hire
days for a scheduled dry-docking in the First Quarter and 29
unplanned days, representing less than 1.5% ownership days.
Combined Vessel Operating Expenses
Vessel operating expenses, which include crew costs, lubricating
oil, spares and insurance, were $7.9 million, for the three months
ended September 30, 2008, an average of $7,146 per ownership day.
Vessel operating expenses for the nine months ending September 30,
2008 were $21.9 million, representing $6,704 per ownership day.
Vessel operating costs during the quarter and the nine months ended
September 30, 2008 were affected by increasing crew and lubricating
oil costs. Vessel operating expenses include regular ship operating
costs under Global Ship Lease's ship management agreements at less
than the capped amounts included in these agreements.
Combined Depreciation
Depreciation was $5.2 million and $14.8 million for the three
and nine months ended September 30, 2008 respectively. The
depreciation costs for the three and nine months periods reflect
the addition of two ships in January 2008 and impact of fair
valuing the vessels from the merger.
Combined General and Administrative Costs
General and administrative costs incurred by Global Ship Lease
were $1.5 million and $3.3 million in the three and nine months
ended September 30, 2008 respectively. General and administrative
costs during the quarter were affected by an increasing cost base
from the merger date as an independent public company.
Combined Interest
Interest expense for the three months ended September 30, 2008
was $4.2 million based on the Company's indebtedness of
approximately $578 million from July 1, 2008 through the
consummation of the merger on August 14, 2008 and borrowings of
approximately $286 million after August 14, 2008 as approximately
$292 million of debt was cancelled or repaid upon consummation of
the merger. Interest charged until August 14, 2008 on this element
of debt was approximately $1.3 million. Interest expense in the
nine months ended September 30, 2008 was $18.8 million, based on
borrowings of approximately $578 million before August 14, 2008 and
$286 million after such date. Interest charged during the nine
months on the debt cancelled or repaid on August 14, 2008 was
approximately $7.1 million. The dividend on $48 million of
preferred shares is also included from August 14, 2008.
Change in Fair Value of Financial Instruments
The Company hedges the majority of its interest rate exposure by
entering into derivatives that swap floating rate debt to fixed
rate debt to provide long-term stability and predictability to cash
flows. As these hedges do not qualify for hedge accounting under US
GAAP, the outstanding hedges are marked to market each period end
with any change in the fair value being booked to the income and
expenditure account. The change in the fair value was $6.4 million
loss in the three months ended September 30, 2008 reflecting
movements in the forward curve for interest rates. The change in
the fair value in the nine months ended September 30, 2008 was $1.1
million loss. Mark-to-market adjustments have no impact on
operating performance or cash generation and do not affect the
Company's ability to make distributions to shareholders.
Pro Forma Net Earnings
Normalized pro forma net earnings were $6.4 million, or $0.19
per share, for the third quarter of 2008 and $17.9 million, or
$0.54 per share, for the nine months period ended September 30,
2008, excluding a $6.4 million non-cash interest rate derivative
mark-to-market charge for the third quarter and $1.1 million charge
for the nine months period.
Including non-cash charges, the Company reported a pro forma net
income of $0.0 million for the third quarter and pro forma net
income of $16.8 million for the nine months ended September 30,
2008.
Normalized pro forma net earnings, normalized pro forma earnings
per share and pro forma net income are non-US GAAP measures and are
reconciled to the financial statements further in this release. We
believe that they are useful measures with which to assess the
Company's financial performance as they adjust for the effects of
non-cash and other items that do not affect the Company's ability
to make distributions on common shares.
Pro Forma Cash Available for Common Dividends
Pro forma cash available for distribution to common shareholders
as dividends was $12.1 million for the three months ended September
30, 2008 and $34.8 million for the nine months ended September 30,
2008. Pro forma cash available for common dividends is a non-US
GAAP measure and is reconciled to the financial statements further
in this release. We believe that it is a useful measure with which
to assess the Company's operating performance as it adjusts for the
effects of non-cash items that do not affect the Company's ability
to make distributions on common shares.
Dividend
A dividend of $0.23 per Class A common share has been declared
for the quarter ended September 30, 2008 which will absorb a total
of approximately $7.8 million. Class B and Class C common shares
are not entitled to dividend for the quarter ended September 30,
2008. The units will receive the same dividend as the Class A
common shares. The dividend will be paid on November 28, 2008 to
shareholders of record as of November 21, 2008.
Mr Webber, commented, "We are pleased to have achieved another
important objective and declared our first regular quarterly
distribution of $0.23 per share. Following the completion of our
merger on August 14, 2008, we have now declared two dividends for a
total of $0.46 per share. Going forward, we intend to build upon
this success and remain committed to distributing sizeable and
consistent dividends while pursuing additional opportunities that
create long-term shareholder value."
Fleet Utilization
The table below shows vessel utilization for each of the
quarters in 2008. Global Ship Lease commenced its business of time
chartering out vessels in mid December 2007 and consequently
comparative figures for 2007 are not presented.
Three Three Three Nine
months months months months
ended ended ended ended
Sept 30, June 30, Mar 31, Sept 30,
Days 2008 2008 2008 2008
------------------------------------------------------------------------
Ownership days 1,104 1,092 1,067 3,263
Planned offhire -
scheduled drydock - - (15) (15)
Unplanned offhire -
bottom damage (14) (4) - (18)
Unplanned offhire - other (4) (3) (5) (11)
------------------------------------------------------------------------
Operating days 1,087 1,085 1,047 3,219
Utilization 98.4% 99.4% 98.1% 98.6%
Fleet
The following table provides information about the initial fleet
chartered to CMA CGM.
Charter
Purchase Remaining Daily
Vessel Capacity in Year Date Duration Charter
Name TEUs (1) Built by GSL (years) Rate ($)
-----------------------------------------------------------------------
Ville d'Orion 4,113 1997 December 2007 4 $28,500
Ville d'Aquarius 4,113 1996 December 2007 4 $28,500
CMA CGM Matisse 2,262 1999 December 2007 8 $18,465
CMA CGM Utrillo 2,262 1999 December 2007 8 $18,465
MOL Rainbow 2,207 2003 December 2007 9 $18,465
Julie Delmas 2,207 2002 December 2007 9 $18,465
Kumasi 2,207 2002 December 2007 9 $18,465
Marie Delmas 2,207 2002 December 2007 9 $18,465
CMA CGM La Tour 2,272 2001 December 2007 8 $18,465
CMA CGM Manet 2,272 2001 December 2007 8 $18,465
CMA CGM Alcazar 5,100 2007 January 2008 12 $33,750
CMA CGM Chateau d'lf 5,100 2007 January 2008 12 $33,750
-----------------------------------------------------------------------
(1) Twenty-foot Equivalent Units.
The following table provides information about the contracted
fleet.
Estimated
Delivery Charter Daily
Vessel Capacity in Year Date Duration Charter
Name TEUs (1) Built to GSL Charterer (years) Rate ($)
-------------------------------------------------------------------------
December
CMA CGM Thalassa 10,960 2008 2008 CMA CGM 17 $47,200
December
CMA CGM Jamaica 4,298 2006 2008 CMA CGM 14 $25,350
December
CMA CGM Sambhar 4,045 2006 2008 CMA CGM 14 $25,350
December
CMA CGM America 4,045 2006 2008 CMA CGM 14 $25,350
CMA CGM Berlioz 6,627 2001 July 2009 CMA CGM 12 $25,350
October
Hull 789 4,250 2010 2010 ZISS 7-8 $34,000
December
Hull 790 4,250 2010 2010 ZISS 7-8 $28,000
-------------------------------------------------------------------------
(1) Twenty-foot Equivalent Units
Conference Call and Webcast
Global Ship Lease will hold a conference call to discuss the
Company's results for the third quarter of 2008 today, Thursday,
November 13, 2008 at 11:00 a.m. Eastern Time. There are two ways to
access the conference call:
(1) Dial-in: (866) 550-6338 or (347) 284-6930; Passcode: 1342187
Please dial in at least 10 minutes prior to 11:00 a.m. Eastern
Time to ensure a prompt start to the call.
(2) Live Internet webcast and slide presentation:
http://www.globalshiplease.com
If you are unable to participate at this time, a replay of the
call will be available through Thursday, November 27, 2008 at (888)
203-1112 or (719) 457-0820. Enter the code 4612868 to access the
audio replay. The webcast will also be archived on the Company's
website: http://www.globalshiplease.com.
About Global Ship Lease
Global Ship Lease is a rapidly growing containership charter
owner. Incorporated in the Marshall Islands, Global Ship Lease
commenced operations in December 2007 with a business of owning and
chartering out containerships under long-term, fixed rate charters
to world class container liner companies.
Global Ship Lease currently owns 12 vessels and has contracts in
place to purchase an additional seven vessels. The Company has
contracted to purchase five vessels for $437 million from CMA CGM,
four of which are expected to be delivered in December 2008 and one
in July 2009. The Company also has contracts in place to purchase
two newbuildings from German interests for approximately $77
million each which are expected to be delivered in the fourth
quarter of 2010.
Once all of the contracted vessels have been delivered, Global
Ship Lease will have a 19 vessel fleet with total capacity of
74,797 TEU and a weighted average age of 5.9 years. All of the
vessels including those contracted for future delivery are under
long-term charters with an average remaining charter term of
approximately 10 years.
Reconciliation of Non-US GAAP Financial Measures
A. Combination of Successor and Predecessor financial
information
The combination of Successor and Predecessor financial
information is a non-US GAAP measure and is reconciled to the
financial statements below. The combination of Successor and
Predecessor financial information is a non-GAAP quantitative
measure which we believe will assist investors and analysts to
assess our performance on periods presented. The combination of
Successor and Predecessor financial information is not defined in
accounting principles generally accepted in the United States and
should not be considered to be an alternate to net earnings or any
other financial metric required by such accounting principles.
Three months ended Nine months ended
ended September 30,2008 ended September 30,2008
--------------------------------------------------------------------------
Succes- Prede- Succes- Prede-
sor cessor Combined sor cessor Combined
Operating revenues 12,790 11,122 23,912 12,790 55,883 68,673
--------------------------------------------------------------------------
Operating expenses
Voyage expenses - - - - - -
Vessel operating
expenses 3,980 3,908 7,888 3,980 17,893 21,873
Depreciation 2,848 2,330 5,178 2,848 11,902 14,750
General and
administrative 1,026 484 1,510 1,026 2,306 3,332
Other operating
(income)
Expense (43) (35) (78) (43) (187) (230)
--------------------------------------------------------------------------
Total operating
expenses 7,811 6,687 14,498 7,811 31,914 39,725
--------------------------------------------------------------------------
Operating income
(expense) 4,979 4,435 9,414 4,979 23,969 28,948
Interest income 218 85 303 218 424 642
Interest expense (1,195) (3,022) (4,217) (1,195) (17,600) (18,795)
Realised and
unrealised gain
on derivatives (4,307) (2,404) (6,711) (4,307) 2,749 (1,558)
--------------------------------------------------------------------------
Income (expense)
before income taxes (305) (906) (1,211) (305) 9,542 9,237
Taxes on Income (10) - (10) (10) (23) (33)
--------------------------------------------------------------------------
Net income (expense) (315) (906) (1,221) (315) 9,519 9,204
--------------------------------------------------------------------------
B. Pro forma Cash Available for Common Dividends
Pro forma cash available for common dividends is a non-US GAAP
measure and is reconciled to the financial statements below. It
represents net earnings adjusted for non-cash items including
depreciation, amortization of deferred financing charges, accretion
of earnings for intangible liabilities, charge for equity based
incentive awards and change in fair value of derivatives. We also
deduct an allowance for the cost of future drydockings which due to
their substantial and periodic nature could otherwise distort
quarterly cashflow available for common dividends. Further, in
order to more appropriately reflect the Company's ability to
generate cash based on its present operations and capital
structure, we have based the determination of pro forma cash
available for common dividends upon pro forma financial information
prepared in accordance with SFAS No 141, Business Combination (FAS
141) and disclosed in the interim unaudited combined financial
statements for the three and nine months periods ended September
30, 2008 which assumes that the merger had taken place at the
beginning of each period presented. Pro forma cash available for
common dividends is a non-US GAAP quantitative measure used to
assist in the assessment of the Company's ability to pay common
dividends. Pro forma cash available for common dividends is not
defined in accounting principles generally accepted in the United
States and should not be considered to be an alternate to net
earnings or any other financial metric required by such accounting
principles. We believe that cash available for common dividends is
a useful measure with which to assess the Company's operating
performance as it adjusts for the effects of non-cash items that do
not affect the Company's ability to make distributions on common
shares.
Pro forma cash available for common dividends is not presented
for periods prior to January 1, 2008 due to the different business
model of the predecessor group.
Three Nine
months months
ended ended
Sept 30, Sept 30,
(in thousands of U.S. dollars) 2008 2008
(unaudited) (unaudited)
------------------------------------------------------------------
Pro forma net (loss) income (43) 16,820
Add: Pro forma depreciation 5,559 16,555
Pro forma charge for equity
incentive awards 687 2,062
Pro forma amortization of
deferred financing fees 137 411
Change in value of derivatives 6,436 1,095
Less: Allowance for future dry-docks (700) (2,100)
Pro forma revenue accretion for
intangible liabilities (24) (72)
------------------------------------------------------------------
Pro forma cash from operations available
for common dividends 12,052 34,771
------------------------------------------------------------------
------------------------------------------------------------------
C. Pro forma normalized net earnings
Pro forma normalized net earnings is a non-US GAAP measure and
is reconciled to the financial statements below. It represents net
earnings adjusted for the change in fair value of derivatives.
Further, in order to more appropriately reflect the Company's
ability to generate cash based on its present operations and
capital structure, we have based the determination of cash
available for common dividends upon pro forma financial information
prepared in accordance with FAS 141 and disclosed in the interim
unaudited combined financial statements for the three and nine
months periods ended September 30, 2008 which assumes that the
merger had taken place at the beginning of each period presented.
Pro forma normalized net earnings is a non-GAAP quantitative
measure which we believe will assist investors and analysts who
often adjust reported net earnings for non-operating items such as
change in fair value of derivatives to eliminate the effect of non
cash non-operating items that do not affect operating performance
or cash for distribution as dividends. Pro forma normalized net
earnings is not defined in accounting principles generally accepted
in the United States and should not be considered to be an
alternate to net earnings or any other financial metric required by
such accounting principles. Pro forma normalized net earnings per
share is calculated based on normalized net earnings and the actual
or pro forma weighted average number of shares in the relevant
period.
Pro forma normalized net earnings is not presented for periods
prior to January 1, 2008 due to the different business model of the
predecessor group.
Three Nine
months months
ended ended
Sept 30, Sept 30,
(in thousands of U.S. dollars 2008 2008
except share and per share data) (unaudited) (unaudited)
------------------------------------------------------------------
Pro forma net (loss) earnings (43) 16,820
Adjust: Change in value of derivatives 6,436 1,095
------------------------------------------------------------------
Pro forma normalized net earnings 6,393 17,915
------------------------------------------------------------------
------------------------------------------------------------------
Pro forma weighted average number of Class
A common shares outstanding (1)
Basic 33,469,295 33,465,684
Diluted 41,968,943 43,517,487
Net income(loss) per share on reported
pro forma earnings
Basic (0.00) 0.50
Diluted (0.00) 0.39
Net income(loss) per share on reported
normalized pro forma earnings
Basic 0.19 0.54
Diluted 0.15 0.41
(1) The weighted average number of shares basic and diluted is
pro forma as if the merger had taken place at the beginning
of the period.
Safe Harbor Statement
This communication contains forward-looking statements.
Forward-looking statements provide Global Ship Lease's current
expectations or forecasts of future events. Forward-looking
statements include statements about Global Ship Lease's
expectations, beliefs, plans, objectives, intentions, assumptions
and other statements that are not historical facts. Words or
phrases such as "anticipate," "believe," "continue," "estimate,"
"expect," "intend," "may," "ongoing," "plan," "potential,"
"predict," "project," "will" or similar words or phrases, or the
negatives of those words or phrases, may identify forward-looking
statements, but the absence of these words does not necessarily
mean that a statement is not forward-looking. These forward-looking
statements are based on assumptions that may be incorrect, and
Global Ship Lease cannot assure you that these projections included
in these forward-looking statements will come to pass. Actual
results could differ materially from those expressed or implied by
the forward-looking statements as a result of various factors
The risks and uncertainties include, but are not limited to:
- future operating or financial results;
- expectations regarding the strength of the future growth of
the shipping industry, including the rate of annual demand growth
in the international containership industry;
- future payments of dividends and the availability of cash for
payment of dividends;
- Global Ship Lease's expectations relating to dividend payments
and forecasts of its ability to make such payments;
- future acquisitions, business strategy and expected capital
spending;
- operating expenses, availability of crew, number of off-hire
days, drydocking and survey requirements and insurance costs;
- general market conditions and shipping industry trends,
including charter rates and factors affecting supply and
demand;
- Global Ship Lease's ability to repay its credit facility and
grow using the available funds under its credit facility;
- assumptions regarding interest rates and inflation;
- change in the rate of growth of global and various regional
economies;
- risks incidental to vessel operation, including discharge of
pollutants and vessel collisions;
- Global Ship Lease's financial condition and liquidity,
including its ability to obtain additional financing in the future
to fund capital expenditures, acquisitions and other general
corporate activities;
- estimated future capital expenditures needed to preserve its
capital base;
- Global Ship Lease's expectations about the availability of
ships to purchase, the time that it may take to construct new
ships, or the useful lives of its ships;
- Global Ship Lease's continued ability to enter into long-term,
fixed-rate charters;
- Global Ship Lease's ability to capitalize on its management
team's and board of directors' relationships and reputations in the
containership industry to its advantage;
- changes in governmental and classification societies' rules
and regulations or actions taken by regulatory authorities;
- expectations about the availability of insurance on
commercially reasonable terms;
- unanticipated changes in laws and regulations; and
- potential liability from future litigation.
Forward-looking statements are subject to known and unknown
risks and uncertainties and are based on potentially inaccurate
assumptions that could cause actual results to differ materially
from those expected or implied by the forward-looking statements.
Global Ship Lease's actual results could differ materially from
those anticipated in forward-looking statements for many reasons
specifically as described in Global Ship Lease's filings with the
SEC. Accordingly, you should not unduly rely on these
forward-looking statements, which speak only as of the date of this
communication. Global Ship Lease undertakes no obligation to
publicly revise any forward-looking statement to reflect
circumstances or events after the date of this communication or to
reflect the occurrence of unanticipated events. You should,
however, review the factors and risks Global Ship Lease describes
in the reports it will file from time to time with the SEC after
the date of this communication.
GLOBAL SHIP LEASE, INC.
INTERIM UNAUDITED COMBINED FINANCIAL STATEMENTS
THREE AND NINE MONTHS PERIODS ENDED
SEPTEMBER 30, 2008
Global Ship Lease, Inc.
Unaudited Combined Statements of Income
The interim unaudited combined financial statements for the
three and nine months ended September 30, 2008 include two distinct
reporting periods (i) up to August 14, 2008 ("Predecessor") and
(ii) August 15, 2008 through September 30, 2008 ("Successor"),
which relate to the period preceding the merger and the period
succeeding the merger, respectively. The Company derives virtually
all of its revenue in 2008 from chartering out its vessels under
long-term fixed rate time charters whereas, in 2007, it earned
virtually all of its revenue from carrying containerized cargo. The
interim unaudited combined financial statements for the Successor
period reflect the acquisition of Global Ship Lease, Inc. under the
purchase method of accounting. The results of the Successor are not
comparable to the results of the Predecessor due to the difference
in the basis of presentation of purchase accounting as compared to
historical cost. Further, the results for the periods after January
1, 2008 are not comparable to results prior to that date due to the
different nature of the business.
(Expressed in thousands of U.S. dollars except share data)
Three months ended September 30
Note 2008 2007
------------------------------------------------------------------------
Successor Predecessor Predecessor
August 15 to July 1 to
September 30 August 14
Operating Revenues
Voyage revenue $- $- $81,903
Time charter revenue 12,790 11,122 -
------------------------------------------------------------------------
12,790 11,122 81,903
------------------------------------------------------------------------
Operating Expenses
Voyage expenses - - 69,916
Vessel operating expenses 3,980 3,908 6,502
Depreciation 5 2,848 2,330 3,866
General and
administrative 1,026 496 3,563
Other operating (income)
expense (43) (35) (4,139)
------------------------------------------------------------------------
Total operating expenses 7,811 6,699 79,708
------------------------------------------------------------------------
Operating Income 4,979 4,423 2,195
Non Operating Income
(Expense)
Interest income 218 85 -
Interest expense (1,195) (3,022) (3,712)
Realized and unrealized
(loss) gain on
interest rate
derivatives 12 (4,307) (2,404) -
------------------------------------------------------------------------
Income (Loss) before
Income Taxes (305) (918) (1,517)
Income taxes (10) - -
------------------------------------------------------------------------
Net Income (Loss) $(315) $(918) $(1,517)
------------------------------------------------------------------------
------------------------------------------------------------------------
Weighted average number
of common shares
outstanding
basic and diluted n.a. 100 100
Net income (loss) per
share in $
per share basic and n.a.
diluted $ (9,180) $ (15,170)
Weighted average number
of Class A common shares
outstanding
Basic 33,474,499 n.a. n.a.
Diluted 40,047,367 n.a. n.a.
Net income (loss) in $
per share amount
Basic $(0.01) n.a. n.a.
Diluted $(0.01) n.a. n.a.
Nine months ended September 30,
2008 2007
------------------------------------------------------------------------
Successor Predecessor Predecessor
August 15 to January 1 to
September 30 August 14
Operating Revenues
Voyage revenue $- $2,072 $253,838
Time charter revenue 12,790 55,883 -
------------------------------------------------------------------------
12,790 57,955 253,838
------------------------------------------------------------------------
Operating Expenses
Voyage expenses - 1,944 189,284
Vessel operating expenses 3,980 18,074 18,245
Depreciation 2,848 12,163 11,200
General and administrative 1,026 3,814 9,237
Other operating (income)
expense (43) 93 (6,740)
------------------------------------------------------------------------
Total operating expenses 7,811 36,088 221,226
------------------------------------------------------------------------
Operating Income 4,979 21,867 32,612
Non Operating Income
(Expense)
Interest income 218 424 -
Interest expense (1,195) (17,600) (8,766)
Realized and unrealized (loss)
gain on interest rate
derivatives (4,307) 2,749 -
------------------------------------------------------------------------
Income (Loss) before Income (305) 7,440 23,846
Taxes
Income taxes (10) (23) -
------------------------------------------------------------------------
Net Income (Loss) $(315) $7,417 $23,846
------------------------------------------------------------------------
------------------------------------------------------------------------
Weighted average number of
common shares outstanding
basic and diluted n.a. 100 100
Net income (loss) per share
in $ per share basic
and diluted n.a. $74,170 $238,460
Weighted average number of
Class A common shares
outstanding
Basic 33,474,499 n.a. n.a.
Diluted 40,047,367 n.a. n.a.
Net income (loss) in $
per share amount
Basic $(0.01) n.a. n.a.
Diluted $(0.01) n.a. n.a.
See accompanying notes to interim unaudited combined financial
statements
Global Ship Lease, Inc.
Unaudited Combined Balance Sheets
The interim unaudited combined financial statements for the
three and nine months ended September 30, 2008 include two distinct
reporting periods (i) up to August 14, 2008 ("Predecessor") and
(ii) August 15, 2008 through September 30, 2008 ("Successor"),
which relate to the period preceding the merger and the period
succeeding the merger, respectively. The Company derives virtually
all of its revenue in 2008 from chartering out its vessels under
long-term fixed rate time charters whereas, in 2007, it earned
virtually all of its revenue from carrying containerized cargo. The
interim unaudited combined financial statements for the Successor
period reflect the acquisition of Global Ship Lease, Inc. under the
purchase method of accounting. The results of the Successor are not
comparable to the results of the Predecessor due to the difference
in the basis of presentation of purchase accounting as compared to
historical cost. Further, the results for the periods after January
1, 2008 are not comparable to results prior to that date due to the
different nature of the business.
(Expressed in thousands of U.S. dollars)
September 30, December 31,
Note 2008 2007
Successor Predecessor
--------------------------------------------------------------------------
Assets
Cash and cash equivalents $29,584 $1,891
Restricted cash - 188,000
Trade accounts receivable - 185
Inventories - 1,613
Prepaid expenses and other
receivables 5,115 425
Deferred financing costs 547 752
--------------------------------------------------------------------------
Total current assets 35,246 192,866
--------------------------------------------------------------------------
Vessels in operation 5 520,459 475,299
Vessel deposits 6 115,079 -
Other fixed assets 24 33
Intangible assets - purchase
agreement 42,659 -
Derivative instruments 3,634 1,297
Deferred financing costs 3,238 5,130
--------------------------------------------------------------------------
Total non-current assets 685,093 481,759
--------------------------------------------------------------------------
Total Assets $720,339 $674,625
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Liabilities and Stockholders'
Equity
Liabilities
Current installments of long
term debt 8 $- $401,100
Amounts due to group companies 7 - 1,389
Intangible liability - charter
agreements 1,033 -
Accounts payable 619 502
Dividend payable 7,812 -
Accrued expenses and other liabilities 4,074 6,098
--------------------------------------------------------------------------
Total current liabilities 13,538 409,089
--------------------------------------------------------------------------
Long term debt 286,100 -
Amounts due to group companies 7 - 176,875
Preferred stock 48,000 -
Intangible liability - charter
agreements 26,976 -
Other liabilities - 1,186
--------------------------------------------------------------------------
Total long-term liabilities 361,076 178,061
--------------------------------------------------------------------------
Total Liabilities $374,614 $587,150
--------------------------------------------------------------------------
Commitments and contingencies 9 - -
Global Ship Lease, Inc.
Unaudited Combined Balance Sheets
The interim unaudited combined financial statements for the
three and nine months ended September 30, 2008 include two distinct
reporting periods (i) up to August 14, 2008 ("Predecessor") and
(ii) August 15, 2008 through September 30, 2008 ("Successor"),
which relate to the period preceding the merger and the period
succeeding the merger, respectively. The Company derives virtually
all of its revenue in 2008 from chartering out its vessels under
long-term fixed rate time charters whereas, in 2007, it earned
virtually all of its revenue from carrying containerized cargo. The
interim unaudited combined financial statements for the Successor
period reflect the acquisition of Global Ship Lease, Inc. under the
purchase method of accounting. The results of the Successor are not
comparable to the results of the Predecessor due to the difference
in the basis of presentation of purchase accounting as compared to
historical cost. Further, the results for the periods after January
1, 2008 are not comparable to results prior to that date due to the
different nature of the business.
(Expressed in thousands of U.S. dollars)
September 30, December 31,
Note 2008 2007
Successor Predecessor
--------------------------------------------------------------------------
Stockholders' Equity
Common stock - authorized
100 shares $.01 par value; 100
shares issued and outstanding - -
Class A Common stock - authorized
214,000,000 shares with a $.01
par value; 33,963,961 shares
issued and outstanding 339 -
Class B Common stock - authorized
20,000,000 shares with a $.01
par value; 7,405,956 shares
issued and outstanding 74 -
Class C Common stock - authorized
15,000,000 shares with a $.01
par value; 12,375,000 shares
issued and outstanding 124 -
Retained earnings (deficit) (1,469) (96,925)
Net income(loss) for the period (315) 16,776
Due to CMA CGM - 162,885
Accumulated other comprehensive
income - 4,739
Additional paid in capital 346,972 -
--------------------------------------------------------------------------
Total Stockholders' Equity 345,725 87,475
--------------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity $720,339 $674,625
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Unaudited Combined Statements of Cash Flows
The interim unaudited combined financial statements for the
three and nine months ended September 30, 2008 include two distinct
reporting periods (i) up to August 14, 2008 ("Predecessor") and
(ii) August 15, 2008 through September 30, 2008 ("Successor"),
which relate to the period preceding the merger and the period
succeeding the merger, respectively. The Company derives virtually
all of its revenue in 2008 from chartering out its vessels under
long-term fixed rate time charters whereas, in 2007, it earned
virtually all of its revenue from carrying containerized cargo. The
interim unaudited combined financial statements for the Successor
period reflect the acquisition of Global Ship Lease, Inc. under the
purchase method of accounting. The results of the Successor are not
comparable to the results of the Predecessor due to the difference
in the basis of presentation of purchase accounting as compared to
historical cost. Further, the results for the periods after January
1, 2008 are not comparable to results prior to that date due to the
different nature of the business.
(Expressed in thousands of U.S. dollars)
Three months ended September 30
Note 2008 2007
--------------------------------------------------------------------------
Successor Predecessor Predecessor
August 15 to July 1 to
September 30 August 14
Cash Flows from Operating
Activities
Net income (loss) $ (315) $ (918) $ (1,517)
Adjustments to Reconcile
Net Income
to Net Cash Provided
by Operating Activities
Depreciation 5 2,848 2,330 3,866
Amortization of deferred
financing costs 66 94 584
Change in fair value of
certain financial
derivative instruments 12 4,176 2,260 (7,315)
Intangible liability
accretion (14) - -
Settlements of hedge which
do not
qualify for hedge
accounting 12 282 - 3,227
Share-based compensation 13 355 - -
Decrease (increase) in
other
receivables and prepaid
expenses 704 137 (646)
Decrease (increase) in
inventories - - 726
(Decrease) increase in
accounts
payable and other
liabilities (9,343) 2,905 2,199
Periodic costs relating to
drydocks - - (378)
--------------------------------------------------------------------------
Net Cash Provided (Used) by
Operating Activities (1,241) 6,808 746
--------------------------------------------------------------------------
Cash Flows from Investing
Activities
Settlements of hedge which
do not
qualify for hedge
accounting 12 (282) - (3,227)
Acquisition of Global Ship
Lease Inc,
net of cash acquired 3 (5,563) - -
Release of Trust Account 317,446 - -
Cash paid for purchases of
vessels (15,477) - -
--------------------------------------------------------------------------
Net Cash Provided (Used) in
Investing 296,124 - (3,227)
Activities
--------------------------------------------------------------------------
Cash Flows from Financing
Activities
Repayments of debt (115,000) - -
Variation in restricted
cash - - -
Issuance costs of debt (3,852) - -
Buyback of shares (147,053) - -
Increase (Decrease) in
amount due to
CMA CGM - - 2,481
Deemed distribution - - -
--------------------------------------------------------------------------
Net Cash Provided (Used) by
Financing Activities (265,904) - 2,481
--------------------------------------------------------------------------
Net Increase in Cash and
Cash Equivalents 28,979 6,808 -
Cash and Cash Equivalents
at start of
Period 605 9,444 -
--------------------------------------------------------------------------
Cash and Cash Equivalents
at end of Period $29,584 $16,252 $-
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Nine months ended September 30,
2008 2007
--------------------------------------------------------------------------
Successor Predecessor Predecessor
August 15 to January 1 to
September 30 August 14
Cash Flows from Operating
Activities
Net income (loss) $(315) $7,417 $23,846
Adjustments to Reconcile Net
Income to Net Cash Provided
by Operating Activities
Depreciation 2,848 12,163 11,200
Amortization of deferred
financing costs 66 491 1,409
Change in fair value of certain
financial derivative instruments 4,176 (3,081) (1,307)
Intangible liability accretion (14) - -
Settlements of hedge which do
not qualify for hedge accounting 282 141 (1,125)
Share-based compensation 355 - -
Decrease (increase) in other
receivables and prepaid
expenses 704 (980) (4,240)
Decrease (increase) in
inventories - 1,613 (3,332)
(Decrease) increase in accounts
payable and other liabilities (9,343) 4,420 6,918
Periodic costs relating to
drydocks - (1,459) (1,613)
--------------------------------------------------------------------------
Net Cash Provided (Used) by
Operating Activities (1,241) 20,726 31,756
--------------------------------------------------------------------------
Cash Flows from Investing
Activities
Settlements of hedge which do
not qualify for hedge accounting (282) (4,871) 1,126
Acquisition of Global Ship Lease
Inc, net of cash acquired (5,563) - -
Release of Trust Account 317,446 - -
Cash paid for purchases of
vessels (15,477) - (37,120)
--------------------------------------------------------------------------
Net Cash Provided (Used) in
Investing Activities 296,124 (4,871) (35,994)
--------------------------------------------------------------------------
Cash Flows from Financing
Activities
Repayments of debt (115,000) - -
Variation in restricted cash - 188,000 -
Issuance costs of debt (3,852) (276) -
Buyback of shares (147,053) - -
Increase (Decrease) in amount
due to CMA CGM - (188,713) 4,238
Deemed distribution - (505) -
--------------------------------------------------------------------------
Net Cash Provided (Used) by
Financing Activities (265,904) (1,494) 4,238
--------------------------------------------------------------------------
Net Increase in Cash and Cash
Equivalents 28,979 14,361 -
Cash and Cash Equivalents at
start of Period 605 1,891 -
--------------------------------------------------------------------------
Cash and Cash Equivalents at end
of Period $29,584 $16,252 $-
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to interim unaudited combined financial statements.
Global Ship Lease, Inc.
Unaudited Combined Statements of Cash Flows
The interim unaudited combined financial statements for the
three and nine months ended September 30, 2008 include two distinct
reporting periods (i) up to August 14, 2008 ("Predecessor") and
(ii) August 15, 2008 through September 30, 2008 ("Successor"),
which relate to the period preceding the merger and the period
succeeding the merger, respectively. The Company derives virtually
all of its revenue in 2008 from chartering out its vessels under
long-term fixed rate time charters whereas, in 2007, it earned
virtually all of its revenue from carrying containerized cargo. The
interim unaudited combined financial statements for the Successor
period reflect the acquisition of Global Ship Lease, Inc. under the
purchase method of accounting. The results of the Successor are not
comparable to the results of the Predecessor due to the difference
in the basis of presentation of purchase accounting as compared to
historical cost. Further, the results for the periods after January
1, 2008 are not comparable to results prior to that date due to the
different nature of the business.
(Expressed in thousands of U.S. dollars)
Three months ended September 30
Note 2008 2007
--------------------------------------------------------------------------
Successor Predecessor Predecessor
August 15 to July 1 to
September 30 August 14
Supplemental Information
Non cash investing and
financing activities
Issuance of shares and
preferred shares for
the acquisition of GSL $216,730 $- $-
Dividend declared $7,812 $- $-
Total interest paid during
period $2,188 $1,097 $2,535
Total tonnage tax and income
tax paid $- $- $74
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Nine months ended September 30,
2008 2007
--------------------------------------------------------------------------
Successor Predecessor Predecessor
August 15 to January 1 to
September 30 August 14
Supplemental Information
Non cash investing and financing
activities
Issuance of shares and
preferred shares for the
acquisition of GSL $216,730 $- $-
Dividend declared $7,812 $- $-
Total interest paid during period $2,188 $10,782 $7,357
Total tonnage tax and income tax
paid $- $- $220
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to interim unaudited combined financial statements.
Global Ship Lease, Inc.
Unaudited Combined Statements of Stockholder's Equity
The interim unaudited combined financial statements for the
three and nine months ended September 30, 2008 include two distinct
reporting periods (i) up to August 14, 2008 ("Predecessor") and
(ii) August 15, 2008 through September 30, 2008 ("Successor"),
which relate to the period preceding the merger and the period
succeeding the merger, respectively. The Company derives virtually
all of its revenue in 2008 from chartering out its vessels under
long-term fixed rate time charters whereas, in 2007, it earned
virtually all of its revenue from carrying containerized cargo. The
interim unaudited combined financial statements for the Successor
period reflect the acquisition of Global Ship Lease, Inc. under the
purchase method of accounting. The results of the Successor are not
comparable to the results of the Predecessor due to the difference
in the basis of presentation of purchase accounting as compared to
historical cost. Further, the results for the periods after January
1, 2008 are not comparable to results prior to that date due to the
different nature of the business.
(Expressed in thousands of U.S. dollars, except share and
warrant data)
Number of
Common Stock Accumulated
at $0.01 Common Earnings Net
Par value Stock (Deficit) Income
--------------------------------------------------------------------------
Balance at December 31, 2006
(Predecessor) - $ - $ - $ 32,677
Incorporation of Global Ship
Lease, Inc. 100 - - -
Change in amount due from CMA
CGM - - - -
Allocation of prior year net
income - - - (32,677)
Net income for the period - - - 16,776
Effect of derivative
instruments - - - -
Effect of currency translation
adjustment - - - -
Other effect of the transfer
of the initial ten vessels
in 2007 - - - -
Deemed distribution to CMA CGM - - (96,925) -
--------------------------------------------------------------------------
Balance at December 31, 2007
(Predecessor) 100 - (96,925) 16,776
Change in amount due from CMA
CGM - - - -
Allocation of prior year net
income - - (4,967) (16,776)
Other effect of the transfer
of the
two vessels in 2008 - - - 651
Deemed distribution to CMA CGM - - (505) -
Net income for the period - - - 7,417
Allocation of net income 8,068 (8,068)
--------------------------------------------------------------------------
Balance at August 14, 2008
(Predecessor) 100 - (94,329) -
Elimination of historical
stockholder's equity (100) - 94,329 -
Recognition of GSL Holdings
stockholder's equity
pre-merger 26,685,209 266 6,343 -
Issuance of shares and
warrants in connection
with the merger (Note 3)
Class A 6,778,650 68 - -
Class B 7,405,956 74 - -
Class C 12,375,000 124 - -
Warrants - - - -
Warrants exercised into Class
A shares (Note 11) 500,102 5
Restricted Stock (Note 11) - - - -
Net income (loss) for the
period - - - (315)
Dividend declared (Note 11) (7,812)
--------------------------------------------------------------------------
Balance at September 30, 2008
(Successor) 53,744,917 $537 $(1,469) $(315)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Accumulated
Other Additional
Due to Comprehensive paid in Stockholder's
CGA CGM Income Capital Equity
--------------------------------------------------------------------------
Balance at
December 31, 2006
(Predecessor) $115,350 $21,969 $- $169,996
Incorporation of
Global Ship
Lease, Inc. - - - -
Change in amount
due from CMA CGM (11,881) - - (11,881)
Allocation of
prior year net
income 32,677 - - -
Net income for the
period - - - 16,776
Effect of
derivative
instruments - (211) - (211)
Effect of currency
translation
adjustment - 9,509 - 9,509
Other effect of the
transfer of the
initial ten
vessels in 2007 26,739 (26,528) - 211
Deemed distribution
to CMA CGM - - - (96,925)
--------------------------------------------------------------------------
Balance at
December 31, 2007
(Predecessor) 162,885 4,739 - 87,475
Change in amount
due from CMA CGM (188,716) - - (188,716)
Allocation of prior
year net income 21,743 - - -
Other effect of the
transfer of the
two vessels in
2008 4,088 (4,739) - -
Deemed distribution
to CMA CGM - - - (505)
Net income for the
period - - - 7,417
Allocation of net
income - - - -
--------------------------------------------------------------------------
Balance at
August 14, 2008
(Predecessor) - - - (94,329)
Elimination of
historical
stockholder's
equity - - - 94,329
Recognition of GSL
Holdings
stockholder's
equity pre-merger - - 175,375 181,984
Issuance of shares
and warrants
in connection with
the merger (Note 3)
Class A - - 51,672 51,740
Class B - - 26,043 26,117
Class C - - 89,348 89,472
Warrants - - 1,184 1,184
Warrants exercised
into Class A
shares (Note 11) 2,995 3,000
Restricted Stock
(Note 11) - - 355 355
Net income (loss)
for the period - - - (315)
Dividend declared
(Note 11) (7,812)
--------------------------------------------------------------------------
Balance at
September 30, 2008
(Successor) $- $- $346,972 $345,725
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to interim unaudited combined financial
statements
Global Ship Lease, Inc.
Notes to the Interim Unaudited Combined Financial Statements
(Expressed in thousands of U.S. dollars)
1. General
On August 14, 2008, Global Ship Lease, Inc. (the "Company")
merged indirectly with Marathon Acquisition Corp. ("Marathon"), a
company then listed on The American Stock Exchange, pursuant to an
agreement and plan of merger dated March 21, 2008 as amended, which
we refer to as the merger agreement. Following the merger, the
Company became listed on the New York Stock Exchange on August 15,
2008 (Note 10). As of the closing of the merger, the Company has an
independent board with no representation by CMA CGM S.A. ("CMA
CGM"), its previous 100% parent company.
Under the merger agreement, Marathon, a U.S. corporation, first
merged with its 100% owned Marshall Islands subsidiary, GSL
Holdings, Inc., with GSL Holdings, Inc. continuing as the surviving
company. GSL Holdings, Inc. and Global Ship Lease, Inc., at that
time a subsidiary of CMA CGM, then merged, with GSL Holdings, Inc.
again being the surviving company. GSL Holdings, Inc. was renamed
Global Ship Lease, Inc. and became listed on the New York Stock
Exchange.
In accordance with SFAS No. 141, "Business Combinations" (FAS
141), Marathon Acquisition Corp. (through its subsidiary GSL
Holdings, Inc.) was treated as the accounting acquirer and Global
Ship Lease, Inc. was treated as the acquiree. Under the purchase
method of accounting, the assets and liabilities of Global Ship
Lease, Inc were recorded at their estimated fair values as of the
acquisition date. The excess of the fair value of the net acquired
assets over the purchase price has been recorded as a pro rata
reduction of identified intangible assets, vessels in operation and
other fixed assets. Because the activities of Marathon Acquisition
Corp. were insignificant prior to the acquisition, Global Ship
Lease, Inc. (the acquiree), was determined to be the Predecessor
for the purpose of reporting historical financial information.
The unaudited interim financial statements are for the periods
August 15, 2008 to September 30, 2008 (period titled "Successor"
reflecting results of the combined operations following the
merger,), January 1, 2008 to August 14, 2008 (period labeled
"Predecessor", reflecting the results of operations as historically
reported of Global Ship Lease, Inc. prior to the merger), and the
three and nine months period ended September 30, 2007 (also labeled
"Predecessor"). Under Predecessor accounting rules, the financial
statements of the Predecessor period also include the results of
the vessels as they were operated by CMA CGM in its business of
carrying containerized cargo prior to their sale to the
Company.
As the merger was consummated on August 14, 2008, the unaudited
balance sheets as of September 30, 2008 (labeled "Successor")
reflects the acquisition under the purchase method of accounting of
all the assets and liabilities of Global Ship Lease, Inc. The
balance sheet as of December 31, 2007 (labeled "Predecessor")
reflects the historical balance sheet of Global Ship Lease, Inc. as
previously reported.
The term "Company" refers to both Successor and Predecessor
periods.
2. Nature of Operations and Basis of Preparation
The Company has a business of owning and chartering out
containerships under long term time charters. It contracted under
an asset purchase agreement dated December 5, 2007, subject to
certain conditions, to acquire 17 containerships from CMA CGM. Of
these, ten were purchased by the Company during December 2007, and
two in January 2008. Four of the remaining vessels are anticipated
to be purchased in December 2008 and the last vessel in July 2009.
All vessels are, or will be, time chartered to CMA CGM for terms
ranging from five to seventeen years. The Company has also entered
into an agreement with German interests to acquire two 4,250 TEU
newbuildings for approximately $77 million per vessel. These
vessels will be chartered to ZIM Integrated Shipping Services
Limited ("ZISS"), a top 20 global liner operator, for a period of
seven to eight years.
During the period covered by these interim unaudited combined
financial statements, the Company operated under two business
models. During the period up to the delivery of the two ships in
January 2008 (i.e. the entire nine months ended September 30, 2007
and, for two ships of the fleet, for a few days of January 2008
included in the nine months ended September 30, 2008), operations
involved earning freight revenues from the containerized
transportation of a broad range of industrial and consumer goods
whilst the vessels were owned by CMA CGM. Following the purchase by
the Company of ten of the vessels in December 2007 and the further
two vessels in January 2008, the activities changed and consisted
solely of ownership and provision of vessels to container shipping
companies under time charters.
Fleet
The following table provides information about the initial fleet
chartered to CMA CGM and reflected in these interim unaudited
combined financial statements:
Charter Daily
Capacity Purchase Remaining Charter
in TEUs (1) Year Date Duration Rate ($)
Vessel Name Built by GSL (years)
--------------------------------------------------------------------------
Ville d'Orion 4,113 1997 December 2007 4 $28,500
Ville d'Aquarius 4,113 1996 December 2007 4 $28,500
CMA CGM Matisse 2,262 1999 December 2007 8 $18,465
CMA CGM Utrillo 2,262 1999 December 2007 8 $18,465
MOL Rainbow 2,207 2003 December 2007 9 $18,465
Julie Delmas 2,207 2002 December 2007 9 $18,465
Kumasi 2,207 2002 December 2007 9 $18,465
Marie Delmas 2,207 2002 December 2007 9 $18,465
CMA CGM La Tour 2,272 2001 December 2007 8 $18,465
CMA CGM Manet 2,272 2001 December 2007 8 $18,465
CMA CGM Alcazar 5,100 2007 January 2008 12 $33,750
CMA CGM Chateau d'lf 5,100 2007 January 2008 12 $33,750
(1) Twenty-foot Equivalent Units.
The following table provides information about the contracted fleet not
reflected in these interim unaudited combined financial statements:
Estimated Charter Daily
Capacity in Year Delivery Date Duration Charter
Vessel Name TEUs (1) Built to GSL Charterer (years) Rate ($)
--------------------------------------------------------------------------
CMA CGM Thalassa 10,960 2008 December 2008 CMA CGM 17 $47,200
CMA CGM Jamaica 4,298 2006 December 2008 CMA CGM 14 $25,350
CMA CGM Sambhar 4,045 2006 December 2008 CMA CGM 14 $25,350
CMA CGM America 4,045 2006 December 2008 CMA CGM 14 $25,350
CMA CGM Berlioz 6,627 2001 July 2009 CMA CGM 12 $25,350
Hull 789 4,250 2010 October 2010 ZISS 7-8 $34,000
Hull 790 4,250 2010 December 2010 ZISS 7-8 $28,000
(1) Twenty-foot Equivalent Units.
3. Accounting for merger
On August 14, 2008, pursuant to the terms of the merger
agreement, the Company acquired all of Global Ship Lease, Inc.
outstanding capital stock for approximately $249,175, funded by the
issue to CMA CGM of 6,778,650 Class A common shares, 3,934,050
Class B common shares, 12,375,000 Class C common shares, warrants
to acquire 3,131,900 Class A common shares with an exercise price
of $9.25 and 1,000 Series A preferred shares with a nominal value
of $48,000 and $18,570 in cash. The rights of the different classes
of shares are set out in Note 11.
The Company accounted for the business combination under the
purchase method. Under the purchase method, the assets acquired and
liabilities assumed were recorded at their fair values as of the
acquisition date. Any excess of the fair value of the net acquired
assets over the purchase price was recorded as a pro rata reduction
of identified intangible assets, vessels in operation and other
fixed assets. The following table shows the adjusted fair values,
as of the date of these unaudited interim financial statements, of
the assets purchased and liabilities assumed in the
transaction.
Calculation of Allocable Purchase Price:
Number of
Investment Fair Value
--------------------------------------------------------------------------
Cash payment $18,570
Class A common stock 6,778,650 51,992
Class B common stock 3,934,050 26,083
Class C common stock 12,375,000 89,471
Warrants 3,131,900 1,184
Mandatory redeemable preferred stock 1,000 48,000
--------------------------------------------------------------------------
235,300
Transaction related expenses 13,875
--------------------------------------------------------------------------
Total allocable purchase price $249,175
--------------------------------------------------------------------------
Equity instruments issued in connection with the merger were
assessed at their respective fair value reflecting specific
features of each instrument at the date of the announcement of the
definitive terms of the merger on July 24, 2008.
The following table shows the fair value of assets acquired and
liabilities assumed at the merger date:
Fair Value of Adjustments Purchase
net assets for negative Price
acquired goodwill Allocation
--------------------------------------------------------------------------
Cash and cash equivalents $16,252 $- $16,252
Prepaid expenses and other
receivables 2,894 - 2,894
Derivative instruments 7,811 - 7,811
Vessels in operation 635,000 (111,554) 523,446
Vessel deposit 99,000 - 99,000
Other fixed assets 26 (5) 21
Intangible assets - purchase
agreement 51,750 (9,091) 42,659
Debt (401,100) - (401,100)
Accounts payable (1,181) - (1,181)
Accrued expenses and other liabilities (12,604) - (12,604)
Intangible liabilities - charter
agreements (28,023) - (28,023)
Negative Goodwill (120,650) 120,650 -
--------------------------------------------------------------------------
Total allocable purchase price $249,175 $- $249,175
--------------------------------------------------------------------------
The fair value of the acquired assets and liabilities has been
reduced by $120,650 which equals the estimated excess of the fair
value of the net acquired assets over the purchase price.
Accordingly, three asset classes were reduced pro rate: (i)
identified intangible assets of $51,750 to $42,659, (ii) other
fixed assets from $26 to $21 and (iii) the fair value of the
vessels in operation from $635,000 to $523,446.
Derivative instruments were solely comprised of interest rate
financial instruments that were recognized at their estimated fair
value. Vessels in operation were written up to their estimated fair
market value at the merger date. The intangible asset recognized in
connection with CMA CGM contracted fleet purchase agreements was
valued through a comparison of the acquisition prices as per the
agreement and the vessel estimated fair market values. The
intangible liability recognized in connection with charter
agreements was valued using a method of the market approach wherein
the Company's actual charter agreements were compared to
market-based agreements.
Unaudited Supplemental Pro Forma Information under FAS 141
The following pro forma unaudited information for the three and
nine months ended September 30, 2008 and 2007 assume that the
acquisition of the Company occurred at the beginning of each of the
periods being presented.
Three months ended Nine months ended
September, 30 September, 30
2008 2007 2008 2007
--------------------------------------------------------------------------
Operating revenue $24,718 $18,166 $73,810 $54,846
Net income (loss) $(43) $2,521 $16,820 $9,466
Pro forma net income per
share in $
Weighted average number of
Class A common shares
outstanding
Basic 33,469,295 33,463,859 33,465,684 33,463,859
Diluted 41,968,943 44,808,229 43,517,487 43,935,037
Net income per share amount
Basic $- $0.08 $0.50 $0.28
Diluted $- $0.06 $0.39 $0.22
Weighted average number of
Class B common shares
outstanding
Basic 7,405,956 7,405,956 7,405,956 7,405,956
Diluted 7,405,956 7,405,956 7,405,956 7,405,956
Net income per share amount
Basic $- $- $- $-
Diluted $- $- $- $-
Weighted average number of
Class C common shares
outstanding
Basic 12,375,000 12,375,000 12,375,000 12,375,000
Diluted 12,375,000 12,375,000 12,375,000 12,375,000
Net income per share amount
Basic $- $- $- $-
Diluted $- $- $- $-
4. Significant Accounting Policies
The accompanying financial information is unaudited and reflects
all adjustments, consisting solely of normal recurring adjustments,
which, in the opinion of management, are necessary for a fair value
presentation of results for the interim periods presented. They do
not include all disclosures required under United States Generally
Accepted Accounting Principles ("GAAP") for annual financial
statements. These interim unaudited combined financial statements
should be read in conjunction with the Company's Predecessor
financial statements as of December 31, 2007 filed with the
Securities and Exchange Commission as part of the filing of the
Registration Statement on Form F-1 by Global Ship Lease, Inc.,
dated September 23, 2008.
(a) Intangible assets - purchase agreement
In connection with the merger (Note 1), the Company recognised
an intangible asset arising from the comparison of the acquisition
prices per the agreement to purchase vessels and the vessels
estimated fair value. This intangible asset is not amortized and
will be transferred to the appropriate vessel on delivery.
Intangible assets are tested for impairment annually or more
frequently due to events or changes in circumstances that indicate
that the asset might be impaired. If the estimated cash flows from
the use of the asset and its eventual disposition are below the
asset's net book value, then the asset is deemed to be impaired and
written down to its fair value
(b) Intangible liabilities - charter agreements
In connection with the merger (Note 1), the Company recognised
an intangible liability using the market approach wherein the
Company's actual charter agreements were compared to market-based
agreements.
These intangible lease liabilities are amortized as an increase
of time charter revenue over the remaining term of the charter.
� Earnings per share
In accordance with SFAS No 128 "Earnings Per Share", basic
earnings per common share is based on income available to common
shareholders divided by the weighted-average number of common
shares outstanding during the period excluding non-vested
restricted stock units. Diluted earnings per common share is
calculated by applying the treasury stock method. All outstanding
warrants and non-vested restricted stock units that have a dilutive
effect are included in the calculation. The basic and diluted
Earnings Per Share for the Successor period is presented under the
two-class method.
(d) Interest rate hedging activities
During the second and third quarters of 2008, the Company
entered into certain hedging agreements in connection with its
credit facility agreement (Note 12).
Derivatives are initially recognized at fair value on the date a
derivative contract is entered into and are subsequently
re-measured at their fair value. The method of recognizing the
resulting gain or loss depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the
item being hedged.
Company's interest rate derivative instruments do not qualify
for hedge accounting. Changes in the fair value as well as cash
settlements of these interest rate derivative instruments are
recognized immediately in the statement of income within "Realized
and unrealized gain on interest rate derivatives".
5. Vessels in Operation, less Accumulated Depreciation
September 30, December 31,
2008 2007
Successor Predecessor
-------------------------------------------------------------------------
Cost $523,307 $539,350
Accumulated Depreciation (2,848) (64,051)
-------------------------------------------------------------------------
Net Book Value $520,459 $475,299
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Variations in net book value of vessels including drydocking, are presented
below:
September 30, December 31,
2008 2007
Successor Predecessor
--------------------------------------------------------------------------
Opening balance $475,299 $286,229
Depreciation expense (Predecessor) (12,163) (16,119)
Additions in the period 1,459 188,463
Purchase price adjustment 58,712 -
Depreciation expense (Successor) (2,848) -
Foreign currency translation adjustment - 16,726
-------------------------------------------------------------------------
Closing balance $520,459 $475,299
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As of September 30, 2008 all 12 of the vessels of the initial
fleet were pledged as securities under the credit facility
agreement.
At September 30, 2008 under the asset purchase agreement with
CMA CGM the Company was committed to purchasing a further five
vessels for an aggregate price of $437,000 estimated to be payable
in December 2008 and in July 2009. In addition, the Company is
committed to purchasing a further two vessels from German interests
in the fourth quarter of 2010 for approximately $77,000 each (Note
6).
6. Vessel Deposits
September 30, December 31,
2008 2007
Successor Predecessor
-------------------------------------------------------------------------
Prepayment for the five contracted
vessels from CMA CGM $99,000 $-
Additions in the period 15,477 -
Capitalised interest 602 -
-------------------------------------------------------------------------
$115,079 $-
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The deposit included in the purchase price relates to a
prepayment for the five vessels contracted to be purchased from CMA
CGM. If the vessels are not delivered, CMA CGM must refund the
deposit.
The additions during the period relate to deposits paid for two
4,250 TEU newbuildings the Company has agreed to acquire from
German interests for approximately $77 million per vessel. The
purchase is subject to the completion of customary additional
documentation and closing conditions.
The two vessels are scheduled to be delivered in the fourth
quarter of 2010. Both vessels will be chartered to ZISS for a term
of seven to eight years at a net rate of $28,000 per vessel per
day.
7. Related party transactions
CMA CGM is presented as a related party as it was, until the
merger, the parent company of Global Ship Lease, Inc. and is
currently a significant shareholder of the Company.
Amounts due to CMA CGM Companies are summarized as follows:
September 30, December 31,
2008 2007
Successor Predecessor
-------------------------------------------------------------------------
Shareholders' Loan - 5.25% per annum
((a) below) $- $176,875
Accrued related party expenses - 1,191
Current account ((b) below) - 1,389
-------------------------------------------------------------------------
Amounts due to CMA CGM Companies
presented within liabilities $- $179,455
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(a) Under a shareholder's loan agreement dated December 11,
2007, CMA CGM provided to the Predecessor a credit facility of
$250,000. The amount of the loan outstanding on August 14, 2008 was
cancelled upon completion of the merger. The loan was unsecured and
bore interest at 5.25% per annum.
(b) CMA CGM Group provides Global Ship Lease, Inc. and
subsidiaries with certain ship management services related to the
operation of the Company's fleet. The current account at December
31, 2007 related to amounts paid by CMA CGM, on behalf of the
Company, to be reimbursed.
Asset purchase agreement
As reported in Note 2, the Company entered into an asset
purchase agreement with CMA CGM on December 5, 2007. Pursuant to
this agreement, during December 2007, the Company purchased 10
secondhand vessels for a total price of $385,000 and in January
2008, the Company purchased two newly built vessels for a total
price of $188,000.
Under the asset purchase agreement, the Company is committed to
purchasing a further five vessels from CMA CGM for an aggregate
price of $437,000, of which $99,000 is prepaid by virtue of the
12,375,000 Class C common shares in the Company issued to CMA CGM
in the merger (Note 3).
Time Charter Agreements
All twelve vessels operated during the period were time
chartered to CMA CGM. Of the seven vessels due to be delivered
during 2008 to 2010, five have been chartered to CMA CGM. Under the
time charters (including the five vessels due for delivery later in
2008 through to 2010 from CMA CGM), hire is paid in advance and the
daily rate is fixed for the duration of the charter. The charters
are for periods of between five and seventeen years. Of the
$1,843,748 maximum future charter hire receivable for the total
fleet set out in Note 9, $1,700,667 relates to the 17 ships to be
operated by CMA CGM (including the five vessels due for
delivery).
Ship Management Agreement
The Company outsources day to day technical management of its
vessels to a ship manager that is closely supervised by the
Company's own staff. The ship manager for the initial and
contracted fleet (excluding the two vessels to be purchased from
German interests) is CMA Ships, a wholly owned subsidiary of CMA
CGM. CMA CGM guarantees the performance of all services and any
payment due to the Company by the ship manager pursuant to the ship
management agreements. The ship management agreements are for a
period of three years from the date of delivery of the vessels to
Global Ship Lease, Inc. and its subsidiaries, although they can be
terminated by the Company in certain circumstances.
The Company pays CMA Ships an annual management fee of $114 per
vessel and reimburses costs incurred on their behalf mainly being
for the provision of crew and lubricating oils and routine
maintenance. Such reimbursement is subject to a cap of between $5.4
and $8.8 per day depending on the vessel. Ship management fees
expensed for the three and nine months ended September 30, 2008
amounted to $171 for the Successor and Predecessor periods and $171
for the Successor and $848 for the Predecessor periods,
respectively (nil for both the three and nine months ended
September 30, 2007).
Except for transactions with CMA CGM, the Company did not enter
into any other related party transactions.
8. Long-term debt
September 30, December 31,
2008 2007
Successor Predecessor
-------------------------------------------------------------------------
Debt payable to banks, at Libor USD +
0.75% to 1.10% (below) $286,100 $401,100
Less current instalments of long-term debt - (401,100)
-------------------------------------------------------------------------
$286,100 $-
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The credit facility is secured by, inter alia, first priority
mortgages on each of the vessels in the security package, a pledge
of shares of the vessel owning subsidiaries as well as assignments
of earnings and insurances. In addition, CMA CGM provided a
corporate guarantee on the amounts outstanding up until the merger.
At the time of the merger, the guarantee was cancelled and the
financial covenants within the Company's credit facility became
applicable. These are: a) a minimum cash balance of the lower of
$15 million or six months net interest expense; b) net debt to
total capitalization ratio shall not exceed 75%; c) EBITDA to debt
service, on a trailing four-quarter basis, shall be no less than
1.10 to 1; and d) the Company maintains a minimum net worth of $200
million (with all terms as defined in the credit facility).
During the second and third quarters of 2008, the Company
entered into certain derivative interest rate agreements to fix the
interest rate on debt drawn or anticipated to be drawn under its
credit facility. A total of $530,000 of anticipated core debt has
been swapped into fixed rate debt at an average rate of 3.62%, with
details as follows:
Start Date Maturity Date Notional Amount Fixed Rate %
-------------------------------------------------------------------------
May 12, 2008 March 17, 2013 $60,000 3.40
May 19, 2008 March 17, 2013 60,000 3.40
May 20, 2008 March 17, 2013 68,000 3.40
December 17, 2008 March 17, 2013 20,000 3.40
December 17, 2008 December 17, 2016 60,000 3.69 (1)
December 17, 2008 December 17, 2016 60,000 3.80 (1)
December 17, 2008 March 17, 2013 45,000 3.40
December 17, 2008 December 17, 2016 71,000 3.70 (1)
July 15, 2009 June 17, 2014 41,000 3.80
October 29, 2010 October 29, 2015 45,000 4.25
-------------------------------------------------------------------------
Total / Weighted
average rate: $530,000 3.62%
-------------------------------------------------------------------------
(1) The swap counterparty has a onetime option to cancel the swap as of
March 17, 2013.
9. Commitments and Contingencies
Contracted Vessel Purchases
As reported in Note 2, the Company has contracted to purchase a
further five vessels from CMA CGM with an aggregate cost of
$437,000. Of this amount, $99,000 is prepaid by virtue of the
issuance of the Class C Common shares to CMA CGM on the merger. In
addition, the Company is committed to purchasing a further two
vessels from German interests in the fourth quarter of 2010 for
approximately $77,000 each. A deposit of 10% has been paid.
Charter Hire Receivable
The Company has entered into long term charters for its vessels
owned at September 30, 2008. The charter hire (including those
relating to vessels due for delivery later in 2008 through 2010),
is paid in advance and the daily rate is fixed for the duration of
the charter. The charters are for periods of between five and 17
years and the maximum annual charter hire receivable for the fleet
of 12 vessels as at September 30, 2008 and for the total contracted
fleet of 19 vessels, taking account of actual or anticipated
delivery dates and before allowance for any off-hire periods, is as
follows:
Fleet operated as Total fleet to be
Year ending September 30 at Sept 30, 2008 operated
--------------------------------------------------------------------------
2009 $99,360 $134,852
2010 99,360 159,392
2011 99,360 174,201
2012 99,633 177,682
2013 and thereafter 462,707 1,197,621
--------------------------------------------------------------------------
$860,420 $1,843,748
--------------------------------------------------------------------------
10. Operating Segments
Segment information reported below has been prepared on the same
basis that it is reported internally to the Company's chief
operating decision maker. The Company operated under two business
models from which it derives its revenues reported within these
interim unaudited combined financial statements: (i) the provision
of vessels by the Company under time charters to container shipping
companies and (ii) freight revenues generated by the containerized
transportation of a broad range of industrial and consumer goods by
the Predecessor group. There are no transactions between reportable
segments. Following the delivery of the initial 12 vessels in
December 2007 and January 2008, the activity consists solely of the
ownership and provision of vessels for container shipping under
time charters.
The "Adjustment" column in the table below includes (i) the
elimination of the Containerized Transportation Containerized
Transportation activity performed by the Predecessor up to August
14, 2008 and (ii) the IPO and merger costs expensed by the
Predecessor.
During the three and nine months ended September 30, 2008 and
2007 the activities can be analysed as follows:
Three months period ended September 30,
--------------------------------------------------------------------------
2008 2007
--------------------------------------------------------------------------
Successor Predecessor Predecessor
Time Time Containerized
Charter Charter Adjustment Total Transportation
--------------------------------------------------------------------------
Operating revenue 12,790 11,122 - 11,122 81,903
--------------------------------------------------------------------------
Operating expenses
Voyage expenses - - - - 69,916
Vessel operating
expenses 3,980 3,908 - 3,908 6,502
Depreciation 2,848 2,330 - 2,330 3,866
General and
administrative 1,026 484 12 496 3,563
Other operating
(income)Expense (43) (35) - (35) (4,139)
--------------------------------------------------------------------------
Total operating
expenses 7,811 6,687 12 6,699 79,708
--------------------------------------------------------------------------
Operating income
(expense) 4,979 4,435 (12) 4,423 2,195
Interest income 218 85 - 85 -
Interest expense (1,195) (3,022) - (3,022) (3,712)
Realised and unrealised
gain on derivatives (4,307) (2,404) - (2,404) -
--------------------------------------------------------------------------
Income (expense)
before income taxes (305) (906) (12) (918) (1,517)
Taxes on Income (10) - - - -
--------------------------------------------------------------------------
Net income (expense) (315) (906) (12) (918) (1,517)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Nine months period ended September 30,
--------------------------------------------------------------------------
2008 2007
--------------------------------------------------------------------------
Successor Predecessor Predecessor
Time Time Containerized
Charter Charter Adjustment Total Transportation
--------------------------------------------------------------------------
Operating revenues 12,790 55,883 2,072 57,955 253,838
--------------------------------------------------------------------------
Operating expenses
Voyage expenses - - 1,944 1,944 189,284
Vessel operating
expenses 3,980 17,893 181 18,074 18,245
Depreciation 2,848 11,902 261 12,163 11,200
General and
administrative 1,026 2,306 1,508 3,814 9,237
Other operating
(income)Expense (43) (187) 280 93 (6,740)
--------------------------------------------------------------------------
Total operating
expenses 7,811 31,914 4,174 36,088 221,226
--------------------------------------------------------------------------
Operating income
(expense) 4,979 23,969 (2,102) 21,867 32,612
Interest income 218 424 - 424 -
Interest expense (1,195) (17,600) - (17,600) (8,766)
Realised and unrealised
gain on derivatives (4,307) 2,749 - 2,749 -
--------------------------------------------------------------------------
Income (expense) before
income taxes (305) 9,542 (2,102) 7,440 23,846
Taxes on Income (10) (23) - (23) -
--------------------------------------------------------------------------
Net income (expense) (315) 9,519 (2,102) 7,417 23,846
--------------------------------------------------------------------------
--------------------------------------------------------------------------
11. Share Capital
The Company has 3 classes of common shares. The rights of
holders of Class B common shares are identical to those of holders
of Class A common shares, except that the holders of Class B common
shares are not entitled to receive any dividends with respect to
any quarter prior to the fourth quarter of 2008 and their dividend
rights will be subordinated to those of holders of Class A common
shares until at least the third quarter of 2011. The rights of
holders of Class C common shares are identical to those of holders
of Class A common shares, except that holders of Class C common
shares are not entitled to receive any dividends and the Class C
common shares will convert into Class A common shares on a
one-for-one basis on January 1, 2009.
The Series A preferred shares rank senior to the common shares
and are mandatorily redeemable on August 14, 2011 and are required
to be redeemed earlier using the proceeds of the exercise of any
warrants. Series A preferred shares are classified as a liability.
The dividend that preferred shares holders are entitled to receive
quarterly is presented as part of interest expense.
In addition to the Class A, B and C common shares and the Series
A Preferred shares, there are 39,536 Public Warrants which have an
expiry of August 14, 2010 and give the holder the right to purchase
one Class A common share at a price of $6 per share and 5,500
Sponsor Warrants which have similar terms to the Public Warrants
except that the exercise must be on a cashless basis. Further,
there are 6,139 Class A Warrants which expire on September 1, 2011
and give the holders the right to purchase one Class A common share
at a price of $9.25 per share.
On September 30, 2008 500,102 Public Warrants were exercised at
a price of $6 each and Class A common shares issued.
On September 22, 2008 the Company's Board declared a starting
dividend of $0.23 per Class A common share. The dividend, accrued
in the balance sheet as of September 30, 2008, was paid on October
14, 2008 to Class A common shareholders of record on October 2,
2008.
12. Interest Rate Derivatives and Fair Value Measurements
The Company is exposed to the impact of interest rate changes on
its variable rate debt. Accordingly, the Company enters into
interest rate swap agreements to manage the exposure to interest
rate variability and details of existing interest rate derivatives
are set out in Note 8. None of the Company's interest rate
agreements qualify for hedge accounting, therefore, the net changes
in the fair value of the interest rate derivative assets and
liabilities at each reporting period are reflected in the current
period operations as unrealized gains and losses on derivatives.
Cash flows related to interest rate derivatives (initial payments
of derivatives and periodic cash settlements) are included within
cash flows from investing activities in the combined statement of
cash flows. During the nine months ended September 30, 2008,
initial payments on derivatives of $4,730 were made.
Realized gains or losses from interest rate derivatives are
recognized in the statement of income concurrent with cash
settlements. In addition, the interest rate derivatives are "marked
to market" each reporting period to determine the fair values which
generate unrealized gains or losses. The unrealized loss on
interest rate derivatives for the three and nine months ended
September 30, 2008 was $6,436 and $1,095 respectively.
Effective January 1, 2008, the Company adopted SFAS No. 157,
"Fair Value Measurements" ("SFAS No. 157"). The fair value
hierarchy under SFAS No. 157 has three levels based on the
reliability of the inputs used to determine fair value as
follows:
Level 1. Observable inputs such as quoted prices in active
markets;
Level 2. Inputs, other than the quoted prices in active markets,
that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no
market data, which require the reporting entity to develop its own
assumptions.
The Company has determined that the only derivative instruments
that are measured at fair value on a recurring basis and
categorised using the fair value hierarchy are its interest rate
swap agreements. These are all categorised as Level 2 and at June
30, 2008 were an asset of $3,634. The fair value of the Company's
derivative instruments is the estimated amount that the Company
would receive or pay to terminate the agreements at the reporting
date, taking into account interest rates at that date.
13. Share-based compensation
In August 2008, the Company's Board adopted the 2008 Equity
Incentive Plan (the "Plan"), which entitles employees, consultants
and directors of the Company and its subsidiaries to receive
options, stock appreciation rights, stock grants, stock units and
dividend equivalents.
The Company granted on August 14, 2008 a total of 780,000
restricted share units under the Plan to the Chief Executive
Officer, Chief Financial Officer and Chief Commercial Officer. The
shares vest over a period of three years; one third on the first
anniversary of the merger, one third on the second anniversary and
one third on the third anniversary. The fair value of the
restricted share units is calculated by multiplying the number of
share units by the share value at the grant date, which is
discounted for dividends forfeited over the vesting period.
There were no other awards granted by the Company during this
period. There were no share based compensation schemes in place in
the predecessor periods, and therefore no comparatives are
provided.
Share based awards are summarized as follows:
Restricted Stock Units
--------------------------------------------------------------------------
Number of Weighted Average
Shares Fair Value
As at December 31, 2007 - -
Granted - August 14, 2008 780,000 $7.37
Vested - -
--------------------------------------------------------------------------
--------------------------------------------------------------------------
As at September 30, 2008 780,000 $7.37
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The fair value at the grant date is $7.37, which is the average
closing price for the common stock on and surrounding the merger
close date of August 14, 2008. The share value is discounted by
10.75% (the same rate used to discount the Class C shares in the
purchase price allocation) for the estimated $0.23 quarterly
dividend over the vesting period. Using the graded vesting method
of expensing the restricted stock unit grants, the weighted average
fair value of the shares calculated thereon is recognized as
compensation costs in the income statement over the vesting period.
During the period August 14, 2008 to September 30, 2008, the
Company recognized a total of $355 share based compensation costs
(2007: Nil). As at September 30, 2008, there was a total of $3,937
unrecognized compensation costs relating to the above share based
awards (2007: Nil). The remaining costs are expected to be
recognized over a period of 34 months.
14. Subsequent events
The dividend declared by the Company's Board on September 22,
2008 was paid on October 14, 2008 to Class A common shareholders of
record on October 2, 2008.
Contacts: The IGB Group Investor and Media Contact: Tyler Wilson
646-673-9701
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