from previous guidance under U.S. GAAP. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. In July 2018, the FASB issued amended guidance to provide entities with relief from the cost of implementing certain aspects of the new leasing guidance. Entities may elect not to recast comparative periods presented when transitioning to the new leasing guidance and, furthermore, lessors may elect not to separate
lease and nonlease components when certain conditions are met. We adopted the amended guidance effective April 1, 2019 and applied the modified retrospective approach. Comparative information has not been restated and continues to be reported under the accounting guidance in effect for those periods. The adoption did not have a material effect on our unaudited condensed consolidated statements of operations or cash flows. We recognized operating lease right-of-use assets and operating lease liabilities related to our office leases described below on our unaudited condensed consolidated balance sheet of approximately $1.1 million as of June 30, 2019. Refer to Note 11 for a description of our operating lease expenses for the three months ended June 30, 2019 and 2018 and commitments related to our leases as of June 30, 2019.
We did not enter into any operating leases greater than 12 months during the three months ended June 30, 2019. In relation to our time chartered-in VLGC described below, the adoption of the new guidance had no impact on our financial statements since the length of the time charter is not more than 12 months.
Time charter-out contracts
Our time charter revenues are generated from our vessels being hired by a third-party charterer for a specified period. The charterer has the full discretion over the ports subject to compliance with applicable sanction laws. In a time charter contract, we are responsible for all the costs incurred for running the vessel such as crew costs, vessel insurance, repairs and maintenance, and lubricants. The charterer bears the voyage related costs such as bunker expenses, port charges and canal tolls during the hire period. The performance obligations in a time charter contract are satisfied over the term of the contract beginning when the vessel is delivered to the charterer until it is redelivered back to us. The charterer generally pays the charter hire in advance of the upcoming contract period. We determined that our time charter contracts are considered operating leases and therefore fall under the scope of the amended guidance because (i) the vessel is an identifiable asset, (ii) we do not have substantive substitution rights, and (iii) the charterer has the right to control the use of the vessel during the term of the contract and derives the economic benefits from such use. Under the amended guidance, we elected the practical expedients available to lessors to not separate the lease and non-lease components included in the time charter revenue because the pattern of revenue recognition for the lease and non-lease components is the same as it is earned by the passage of time. The adoption of the amended guidance did not impact our accounting for time charter out contracts.
Time charter-in contracts
We elected the practical expedient of the amended guidance that allows for contracts with an initial lease term of 12 months or less to be excluded from the operating lease right-of-use assets and lease liabilities recognized on our unaudited condensed consolidated balance sheets. The duration of our only time charter-in contract at the time of adoption of the amended guidance was 12 months.
Office leases
We currently have operating leases for our offices in Stamford, Connecticut, USA; London, United Kingdom; Copenhagen, Denmark; and Athens, Greece, which we determined to be operating leases and record the lease expense as part of general and administrative expenses in our unaudited condensed consolidated statements of operations. We carried forward our historical assessments of (1) whether contracts are or contain leases, (2) lease classifications, and (3) initial direct costs. For leases with terms greater than 12 months, we record the related right-of-use asset and lease liability as the present value of fixed lease payments over the lease term. For leases that do not provide a readily determinable discount rate, we use our incremental borrowing rate to discount lease payments to present value. The discount rate used ranged from 5.37% to 5.85%. The weighted average discount rate used to calculate the lease liability was 5.47%. The weighted average remaining lease term on our office leases as of June 30, 2019 is 38.2 months.
Our operating lease right-of-use asset and lease liabilities as of June 30, 2019 are as follows:
|
|
|
|
|
|
Description
|
|
Location on Balance Sheet
|
|
June 30, 2019
|
Assets:
|
|
|
|
|
|
Current
|
|
|
|
|
|
Office Leases
|
|
Other non-current assets
|
|
$
|
1,064,844
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Current
|
|
|
|
|
|
Office Leases
|
|
Current portion of long-term operating leases
|
|
$
|
309,813
|
|
|
|
|
|
|
Long-term
|
|
|
|
|
|
Office Leases
|
|
Other long-term liabilities
|
|
$
|
755,031
|
3. Transactions with Related Parties
Dorian (Hellas), S.A.
Dorian (Hellas) S.A. (“DHSA”) formerly provided technical, crew, commercial management, insurance and accounting services to our vessels and had agreements to outsource certain of these services to Eagle Ocean Transport Inc. (“Eagle Ocean Transport”), which is 100% owned by Mr. John C. Hadjipateras, our Chairman, President and Chief Executive Officer.
Dorian LPG (USA) LLC and its subsidiaries entered into an agreement with DHSA, retroactive to July 2014 and superseding an agreement between Dorian LPG (UK) Ltd. and DHSA, for the provision by Dorian LPG (USA) LLC and its subsidiaries of certain chartering and marine operation services to DHSA, for which income was earned and included in “Other income-related parties” totaling $0.1 million for both the three months ended June 30, 2019 and 2018, respectively
.
As of June 30, 2019, $1.2 million was due from DHSA and included in “Due from related parties” in the unaudited interim condensed consolidated balance sheets included herein. As of March 31, 2019, $1.2 million was due from DHSA and included in “Due from related parties” in the audited consolidated balance sheets.
Eagle Ocean Transport incurs office-related costs on behalf of us, for which we reimbursed Eagle Ocean Transport less than $0.1 million for the three months ended June 30, 2019 and 2018, respectively
. Such expenses are reimbursed based on their actual cost
.
Helios LPG Pool LLC
On April 1, 2015, Dorian and Phoenix began operations of the Helios Pool, which entered into pool participation agreements for the purpose of establishing and operating, as charterer, under variable rate time charters to be entered into with owners or disponent owners of VLGCs, a commercial pool of VLGCs whereby revenues and expenses are shared. We hold a 50% interest in the Helios Pool as a joint venture with Phoenix and all significant rights and obligations are equally shared by both parties. All profits of the Helios Pool are distributed to the pool participants based on pool points assigned to each vessel as variable charter hire and, as a result, there are no profits available to the equity investors as a share of equity. We have determined that the Helios Pool is a variable interest entity as it does not have sufficient equity at risk. We do not consolidate the Helios Pool because we are not the primary beneficiary and do not have a controlling financial interest. In consideration of Accounting Standards Codification (“ASC”) 810-10-50-4e, the significant factors considered and judgments made in determining that the power to direct the activities of the Helios Pool that most significantly impact the entity’s economic performance are shared, in that all significant performance activities which relate to approval of pool policies and strategies related to pool customers and the marketing of the pool for the procurement of customers for the pool vessels, addition of new pool vessels and the pool cost management, require unanimous board consent from a board consisting of two members from each joint venture investor. Further, in accordance with the guidance in ASC 810-10-25-38D, the Company and Phoenix are not related parties as defined in ASC 850 nor are they de facto agents pursuant to ASC 810-10, the power over the significant activities of the Helios Pool is shared, and no party is the
primary beneficiary in the Helios Pool, or has a controlling financial interest. As of June 30, 2019, the Helios Pool operated twenty-eight VLGCs, including nineteen vessels from our fleet (including one vessel time chartered-in from an unrelated party), four Phoenix vessels, and five other vessels.
As of June 30, 2019, we had receivables from the Helios Pool of $83.5 million, including $20.9 million of working capital contributed for the operation of our vessels in the pool. As of March 31, 2019, we had receivables from the Helios Pool of $62.5 million (net of an amount due to Helios Pool of $0.5 million which is reflected under “Due to related Parties”), including $19.8 million of working capital contributed for the operation of our vessels in the pool. Our maximum exposure to losses from the pool as of June 30, 2019 is limited to the receivables from the pool. The Helios Pool does not have any third-party debt obligations. The Helios Pool has entered into commercial management agreements with each of Dorian LPG (UK) Ltd. and Phoenix as commercial managers and has appointed both commercial managers as the exclusive commercial managers of pool vessels. Fees for commercial management services provided by Dorian LPG (UK) Ltd. are included in “Other income-related parties” in the unaudited interim condensed consolidated statement of operations included herein and were $0.6 million for both the three months ended June 30, 2019 and 2018. Additionally, we receive a fixed reimbursement of expenses such as costs for security guards and war risk insurance for vessels operating in high risk areas from the Helios Pool, for which we earned $0.1 million for both the three months ended June 30, 2019, and 2018, and are included in “Other revenues, net” in the unaudited interim condensed consolidated statements of operations included herein.
Through our vessel owning subsidiaries, we have chartered vessels to the Helios Pool during the three months ended June 30, 2019 and 2018. The time charter revenue from the Helios Pool is variable depending upon the net results of the pool, operating days and pool points for each vessel. The Helios Pool enters into voyage and time charters with external parties and receives freight and related revenue and, where applicable, incurs voyage costs such as bunkers, port costs and commissions. At the end of each month, the Helios Pool calculates net pool revenues using gross revenues, less voyage expenses of all pool vessels, less fixed time charter hire for any chartered-in vessels, less the general and administrative expenses of the pool. Net pool revenues, less any amounts required for working capital of the Helios Pool, are distributed, to the extent they have been collected from third-party customers of the Helios Pool, as variable rate time charter hire for the relevant vessel to participants based on pool points (vessel attributes such as cargo carrying capacity, fuel consumption, and speed are taken into consideration) and number of days the vessel participated in the pool in the period. We recognize net pool revenues on a monthly basis, when each relevant vessel has participated in the pool during the period and the amount of net pool revenues for the month can be estimated reliably. Revenue earned from the Helios Pool is presented in Note 8.
4. Deferred Charges, Net
The analysis and movement of deferred charges is presented in the table below:
|
|
|
|
|
|
|
Drydocking
|
|
|
|
costs
|
|
Balance, April 1, 2019
|
|
$
|
2,000,794
|
|
Additions
|
|
|
415,056
|
|
Amortization
|
|
|
(148,821)
|
|
Balance, June 30, 2019
|
|
$
|
2,267,029
|
|
5. Vessels, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cost
|
|
depreciation
|
|
Net book Value
|
|
Balance, April 1, 2019
|
|
$
|
1,732,993,810
|
|
$
|
(254,473,496)
|
|
$
|
1,478,520,314
|
|
Other additions
|
|
|
1,414,195
|
|
|
—
|
|
|
1,414,195
|
|
Depreciation
|
|
|
—
|
|
|
(16,106,726)
|
|
|
(16,106,726)
|
|
Balance, June 30, 2019
|
|
$
|
1,734,408,005
|
|
$
|
(270,580,222)
|
|
$
|
1,463,827,783
|
|
Additions to vessels, net mainly consisted of the first installment on the purchase of scrubbers for ten of our VLGCs during the three months ended June 30, 2019. Our vessels, with a total carrying value of $1,463.8 million and
$1,478.5 million as of June 30, 2019 and March 31, 2019, respectively, are first‑priority mortgaged as collateral for our long-term debt (refer to Note 6 below). No impairment loss was recorded for the periods presented.
6. Long-term Debt
2015 Debt Facility
Refer to Note 9 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2019 for information on our $758 million debt financing facility that we entered into in March 2015 with a group of banks and financial institutions (the “2015 Debt Facility”).
Corsair Japanese Financing
Refer to Note 9 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2019 for information on the refinancing of our 2014-built VLGC, the
Corsair
, pursuant to a memorandum of agreement and a bareboat charter agreement (the “Corsair Japanese Financing”)
.
Concorde Japanese Financing
Refer to Note 9 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2019 for information on the refinancing of our
2015-built VLGC, the
Concorde
, pursuant to a memorandum of agreement and a bareboat charter agreement (the “Concorde Japanese Financing”).
Corvette Japanese Financing
Refer to Note 9 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2019 for information on the refinancing of our
2015-built VLGC, the
Corvette
, pursuant to a memorandum of agreement and a bareboat charter agreement (the “Corvette Japanese Financing”).
CJNP Japanese Financing
Refer to Note 9 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2019 for information on the refinancing
our 2007-built VLGC, the
Captain John NP
, pursuant to a memorandum of agreement and a bareboat charter agreement (the “CJNP Japanese Financing”).
CMNL Japanese Financing
Refer to Note 9 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2019 for information on the refinancing
our 2006-built VLGC, the
Captain Markos NL
, pursuant to a memorandum of agreement and a bareboat charter agreement (the “CMNL Japanese Financing”).
12. Professional and Legal Fees Related to the BW Proposal
BW made an unsolicited proposal to acquire all of our outstanding common stock and, along with its affiliates, commenced a proxy contest to replace three members of our board of directors with nominees proposed by BW. BW’s unsolicited proposal and proxy contest were subsequently withdrawn on October 8, 2018. During the three months ended June 30, 2018, significant costs for professional and legal services incurred in connection with BW’s unsolicited acquisition proposal and proxy contest totaled $0.5 million. No such costs were incurred during the three months ended June 30, 2019.
13. Subsequent Events
Amendment to the 2015 Debt Facility
On July 23, 2019, we entered into an agreement to amend the 2015 Debt Facility (the “Amendment”), whose key provisions include:
|
1)
|
|
a modification to the definition of consolidated EBITDA to exclude expenses incurred in connection with the BW Proposal;
|
|
2)
|
|
the following financial covenant modification:
|
|
·
|
|
Minimum interest coverage ratio of consolidated EBITDA, as defined in the 2015 Debt Facility, to consolidated net interest expense must be maintained greater than or equal to (i) 2.00 at all times from June 30, 2019 through March 31, 2020 and (ii) 2.50 from April 1, 2020 and at all times thereafter; and
|
|
3)
|
|
the following modification to the definition of consolidated liquidity:
|
|
·
|
|
if the minimum interest coverage ratio of consolidated EBITDA to consolidated net interest expense is less than 2.50 at any time or times during the period beginning on and including June 30, 2019 and ending on and including March 31, 2020, consolidated liquidity shall at such time or times be maintained in an amount at least equal to $47,500,000.
|
Stock Repurchase Program
On August 5, 2019, our Board of Directors authorized the repurchase of up to $50 million of our common stock through the period ended December 31, 2020.
Restricted Stock and Restricted Stock Unit Awards
On August 5, 2019, we granted an aggregate of 175,200 shares of restricted stock and 22,500 restricted stock units to certain of our officers and employees. One-fourth of the shares of restricted stock vested on the grant date and one-fourth will vest equally on the first, second and third anniversaries of the grant date. One-third of restricted stock units will vest equally on the first, second, and third anniversaries of the grant date. The shares of restricted stock and restricted stock units were valued at their grant date fair market value and expensed on a straight-line basis over the respective vesting periods
.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSI
S OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward
‑
looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Item 1A. Risk Factors” herein and in our Annual Report on Form 10-K for the year ended March 31, 2019, our actual results may differ materially from those anticipated in these forward
‑
looking statements. Please also see the section “Forward-Looking Statements” included in this quarterly report.
Overview
We are a Marshall Islands corporation headquartered in the United States and primarily focused on owning and operating VLGCs, each with a cargo‑carrying capacity of greater than 80,000 cbm, in the LPG shipping industry. Our fleet currently consists of twenty-two VLGC carriers, including nineteen fuel-efficient 84,000 cbm ECO-VLGCs, three 82,000 cbm VLGCs, and one time chartered-in VLGC. Two of our ECO-VLGCs are fitted with scrubbers to reduce sulfur emissions and we have entered into contracts for an additional ten of our VLGCs to be fitted with scrubbers as of August 1, 2019.
Our nineteen ECO-VLGCs, which incorporate fuel efficiency, emission-reducing technologies, and certain custom features, were acquired by us for an aggregate purchase price of $1.4 billion and delivered to us between July 2014 and February 2016, seventeen of which were delivered during calendar year 2015 or later.
On April 1, 2015, Dorian and Phoenix began operations of the Helios Pool, which entered into pool participation agreements for the purpose of establishing and operating, as charterer, under a variable rate time charter to be entered into with owners or disponent owners of VLGCs, a commercial pool of VLGCs whereby revenues and expenses are shared. The vessels entered into the Helios Pool may operate either in the spot market, pursuant to contracts of affreightment, or COAs, or on time charters of two years' duration or less. As of August 1, 2019, nineteen of our twenty-three VLGCs were employed in the Helios Pool, including our time chartered-in VLGC.
Our customers, either directly or through the Helios Pool, include or have included global energy companies such as Exxon Mobil Corp., China International United Petroleum & Chemicals Co., Ltd., Royal Dutch Shell plc, Equinor ASA, Total S.A., and Sunoco LP, commodity traders such as Geogas Trading S.A., Glencore plc, Itochu Corporation and the Vitol Group and importers such as E1 Corp., Indian Oil Corporation, SK Gas Co. Ltd. Astomos Energy Corporation, and Oriental Energy Company Ltd.
We continue to pursue a balanced chartering strategy by employing our vessels on a mix of multi-year time charters, some of which may include a profit-sharing component, shorter-term time charters, spot market voyages and COAs. Currently, four of our VLGCs are on fixed-rate time charters outside of the Helios Pool. See “Our Fleet” below for more information and the definition of Pool-TCO.
Recent Developments
On July 23, 2019, we entered into an agreement to amend the 2015 Debt Facility as further described in Note 13 to our unaudited interim condensed consolidated financial statements.
On August 5, 2019, our Board of Directors authorized the repurchase of up to $50 million of our common stock through the period ended December 31, 2020.
On August 5, 2019, we granted an aggregate of 175,200 shares of restricted stock and 22,500 restricted stock units to certain of our officers and employees
as further described in Note 13 to our unaudited interim condensed consolidated financial statements
.
Selected Financial Data
The following table presents our selected financial data and other information for the three months ended June 30, 2019 and 2018, and as of June 30, 2019 and March 31, 2019, and should be read in conjunction with our
unaudited interim condensed consolidated financial statements
and other financial information included in this quarterly report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in U.S. dollars, except fleet data)
|
|
Three months ended
|
|
Statement of Operations Data
|
|
June 30, 2019
|
|
June 30, 2018
|
|
Revenues
|
|
$
|
61,165,546
|
|
$
|
27,644,282
|
|
Expenses
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
339,114
|
|
|
100,173
|
|
Charter hire expenses
|
|
|
2,055,000
|
|
|
—
|
|
Vessel operating expenses
|
|
|
16,119,953
|
|
|
16,685,457
|
|
Depreciation and amortization
|
|
|
16,266,421
|
|
|
16,265,056
|
|
General and administrative expenses
|
|
|
6,735,835
|
|
|
7,920,286
|
|
Professional and legal fees related to the BW Proposal
|
|
|
—
|
|
|
483,000
|
|
Total expenses
|
|
|
41,516,323
|
|
|
41,453,972
|
|
Other income—related parties
|
|
|
623,283
|
|
|
644,517
|
|
Operating income/(loss)
|
|
|
20,272,506
|
|
|
(13,165,173)
|
|
Other income/(expenses)
|
|
|
|
|
|
|
|
Interest and finance costs
|
|
|
(9,697,282)
|
|
|
(10,374,281)
|
|
Interest income
|
|
|
362,036
|
|
|
460,973
|
|
Unrealized gain/(loss) on derivatives
|
|
|
(6,070,789)
|
|
|
1,707,616
|
|
Realized gain on derivatives
|
|
|
1,032,995
|
|
|
782,565
|
|
Other gain/(loss), net
|
|
|
175,593
|
|
|
(8,258)
|
|
Total other income/(expenses), net
|
|
|
(14,197,447)
|
|
|
(7,431,385)
|
|
Net income/(loss)
|
|
$
|
6,075,059
|
|
$
|
(20,596,558)
|
|
Earnings/(loss) per common share—basic
|
|
$
|
0.11
|
|
$
|
(0.38)
|
|
Earnings/(loss) per common share—diluted
|
|
$
|
0.11
|
|
$
|
(0.38)
|
|
Other Financial Data
|
|
|
|
|
|
|
|
Adjusted EBITDA
(1)
|
|
$
|
38,382,383
|
|
$
|
5,185,136
|
|
Fleet Data
|
|
|
|
|
|
|
|
Calendar days
(2)
|
|
|
2,002
|
|
|
2,002
|
|
Time chartered-in days
(3)
|
|
|
91
|
|
|
—
|
|
Available days
(4)
|
|
|
2,083
|
|
|
1,991
|
|
Operating days
(5)(8)
|
|
|
2,050
|
|
|
1,664
|
|
Fleet utilization
(6)(8)
|
|
|
98.4
|
%
|
|
83.6
|
%
|
Average Daily Results
|
|
|
|
|
|
|
|
Time charter equivalent rate
(7)(8)
|
|
$
|
29,671
|
|
$
|
16,553
|
|
Daily vessel operating expenses
(9)
|
|
$
|
8,052
|
|
$
|
8,334
|
|
|
|
|
|
|
|
|
|
|
(in U.S. dollars)
|
|
As of
|
|
As of
|
|
|
Balance Sheet Data
|
|
June 30, 2019
|
|
March 31, 2019
|
|
|
Cash and cash equivalents
|
|
$
|
21,717,046
|
|
$
|
30,838,684
|
|
|
Restricted cash—non-current
|
|
|
35,633,962
|
|
|
35,633,962
|
|
|
Total assets
|
|
|
1,619,105,623
|
|
|
1,625,370,017
|
|
|
Current portion of long-term debt
|
|
|
63,968,414
|
|
|
63,968,414
|
|
|
Long-term debt—net of current portion and deferred financing fees
(10)
|
|
|
616,874,541
|
|
|
632,122,372
|
|
|
Total liabilities
|
|
|
700,025,761
|
|
|
712,687,459
|
|
|
Total shareholders’ equity
|
|
$
|
919,079,862
|
|
$
|
912,682,558
|
|
|
|
(1)
|
|
Adjusted EBITDA is an unaudited non-U.S. GAAP financial measure and represents net income/(loss) before interest and finance costs, unrealized (gain)/loss on derivatives, realized (gain)/loss on derivatives, gain on early extinguishment of debt, stock-based compensation expense, impairment, and depreciation and amortization and is used as a supplemental financial measure by management to assess our financial and operating performance. We believe that adjusted EBITDA assists our management and investors by increasing the comparability of our performance from period to period. This increased comparability is achieved by excluding the potentially disparate effects between periods of derivatives, interest and finance costs, gain on early extinguishment of debt, stock-based compensation expense, impairment, and depreciation and amortization expense, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect net income/(loss) between periods. We believe that including adjusted EBITDA as a financial and operating measure benefits investors in selecting between investing in us and other investment alternatives.
|
Adjusted EBITDA has certain limitations in use and should not be considered an alternative to net income/(loss), operating income, cash flow from operating activities or any other measure of financial performance presented in accordance with U.S. GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income/(loss). Adjusted EBITDA as presented
below may not be computed consistently with similarly titled measures of other companies and, therefore, might not be comparable with other companies.
The following table sets forth a reconciliation of net income/(loss) to Adjusted EBITDA (unaudited) for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in U.S. dollars)
|
|
June 30, 2019
|
|
June 30, 2018
|
|
Net income/(loss)
|
|
$
|
6,075,059
|
|
$
|
(20,596,558)
|
|
Interest and finance costs
|
|
|
9,697,282
|
|
|
10,374,281
|
|
Unrealized (gain)/loss on derivatives
|
|
|
6,070,789
|
|
|
(1,707,616)
|
|
Realized gain on derivatives
|
|
|
(1,032,995)
|
|
|
(782,565)
|
|
Stock-based compensation expense
|
|
|
1,305,827
|
|
|
1,632,538
|
|
Depreciation and amortization
|
|
|
16,266,421
|
|
|
16,265,056
|
|
Adjusted EBITDA
|
|
$
|
38,382,383
|
|
$
|
5,185,136
|
|
|
(2)
|
|
We define calendar days as the total number of days in a period during which each vessel in our fleet was owned or operated pursuant to a bareboat charter. Calendar days are an indicator of the size of the fleet over a period and affect both the amount of revenues and the amount of expenses that are recorded during that period.
|
|
(3)
|
|
We define time chartered-in days as the aggregate number of days in a period during which we time chartered-in vessels.
|
|
(4)
|
|
We define available days as the sum of calendar days and time chartered-in days (collectively representing our commercially-managed vessels) less aggregate off hire days associated with scheduled maintenance, which include major repairs, drydockings, vessel upgrades or special or intermediate surveys. We use available days to measure the aggregate number of days in a period that our vessels should be capable of generating revenues.
|
|
(5)
|
|
We define operating days as available days less the aggregate number of days that the commercially-managed vessels in our fleet are off‑hire for any reason other than scheduled maintenance. We use operating days to measure the number of days in a period that our operating vessels are on hire (refer to 8 below).
|
|
(6)
|
|
We calculate fleet utilization by dividing the number of operating days during a period by the number of available days during that period. An increase in non
‑
scheduled off
‑
hire days would reduce our operating days, and, therefore, our fleet utilization. We use fleet utilization to measure our ability to efficiently find suitable employment for our vessels.
|
|
(7)
|
|
Time charter equivalent rate, or TCE rate, is a non-U.S. GAAP measure of the average daily revenue performance of a vessel. TCE rate is a shipping industry performance measure used primarily to compare period
‑
to
‑
period changes in a shipping company’s performance despite changes in the mix of charter types (such as time charters, voyage charters) under which the vessels may be employed between the periods. Our method of calculating TCE rate is to divide revenue net of voyage expenses by operating days for the relevant time period, which may not be calculated the same by other companies.
|
The following table sets forth a reconciliation of revenues to TCE rate (unaudited) for the periods presented:
|
|
|
|
|
|
|
|
(in U.S. dollars, except operating days)
|
|
|
|
|
|
|
|
Numerator:
|
|
June 30, 2019
|
|
June 30, 2018
|
|
Revenues
|
|
$
|
61,165,546
|
|
$
|
27,644,282
|
|
Voyage expenses
|
|
|
(339,114)
|
|
|
(100,173)
|
|
Time charter equivalent
|
|
$
|
60,826,432
|
|
$
|
27,544,109
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Operating days
|
|
|
2,050
|
|
|
1,664
|
|
TCE rate:
|
|
|
|
|
|
|
|
Time charter equivalent rate
|
|
$
|
29,671
|
|
$
|
16,553
|
|
|
(8)
|
|
We determine operating days for each vessel based on the underlying vessel employment, including our vessels in the Helios Pool, or the Company Methodology. If we were to calculate operating days for each vessel within the Helios Pool as a variable rate time charter, or the Alternate Methodology, our operating days and fleet utilization would be increased with a corresponding reduction to our TCE rate. Operating data using both methodologies is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Company Methodology:
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
Operating Days
|
|
|
2,050
|
|
|
|
1,664
|
|
|
Fleet Utilization
|
|
|
98.4
|
%
|
|
|
83.6
|
%
|
|
Time charter equivalent
|
|
$
|
29,671
|
|
|
$
|
16,553
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternate Methodology:
|
|
|
|
|
|
|
|
|
|
Operating Days
|
|
|
2,083
|
|
|
|
1,990
|
|
|
Fleet Utilization
|
|
|
100.0
|
%
|
|
|
99.9
|
%
|
|
Time charter equivalent
|
|
$
|
29,201
|
|
|
$
|
13,841
|
|
|
We believe that the Company Methodology using the underlying vessel employment provides more meaningful insight into market conditions and the performance of our vessels.
|
(9)
|
|
Daily vessel operating expenses are calculated by dividing vessel operating expenses by calendar days for the relevant time period.
|
|
(10)
|
|
Long-term debt is net of deferred financing fees of $13.3 million and $14.0 million as of June 30, 2019 and March 31, 2019, respectively.
|
Our Fleet
The following table sets forth certain information regarding our fleet as of August 1, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capacity
|
|
|
|
|
|
ECO
|
|
|
|
Charter
|
|
|
|
(Cbm)
|
|
Shipyard
|
|
Year Built
|
|
Vessel
(1)
|
|
Employment
|
|
Expiration
(2)
|
|
Dorian VLGCs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Captain Markos NL
(3)
|
|
82,000
|
|
Hyundai
|
|
2006
|
|
—
|
|
Time Charter
(5)
|
|
Q4 2019
|
|
Captain John NP
(3)
|
|
82,000
|
|
Hyundai
|
|
2007
|
|
—
|
|
Pool-TCO
(6)
|
|
Q1 2020
|
|
Captain Nicholas ML
(3)
|
|
82,000
|
|
Hyundai
|
|
2008
|
|
—
|
|
Pool
(7)
|
|
—
|
|
Comet
|
|
84,000
|
|
Hyundai
|
|
2014
|
|
X
|
|
Time Charter
(8)
|
|
Q3 2019
|
|
Corsair
(3)
|
|
84,000
|
|
Hyundai
|
|
2014
|
|
X
|
|
Pool
(7)
|
|
—
|
|
Corvette
(3)(4)
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(7)
|
|
—
|
|
Cougar
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(7)
|
|
—
|
|
Concorde
(3)(4)
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Time Charter
(9)
|
|
Q1 2022
|
|
Cobra
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(7)
|
|
—
|
|
Continental
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(7)
|
|
—
|
|
Constitution
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(7)
|
|
—
|
|
Commodore
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(7)
|
|
—
|
|
Cresques
|
|
84,000
|
|
Daewoo
|
|
2015
|
|
X
|
|
Pool
(7)
|
|
—
|
|
Constellation
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(7)
|
|
—
|
|
Cheyenne
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(7)
|
|
—
|
|
Clermont
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool
(7)
|
|
—
|
|
Cratis
|
|
84,000
|
|
Daewoo
|
|
2015
|
|
X
|
|
Pool
(7)
|
|
—
|
|
Chaparral
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool-TCO
(6)
|
|
Q4 2019
|
|
Copernicus
|
|
84,000
|
|
Daewoo
|
|
2015
|
|
X
|
|
Pool
(7)
|
|
—
|
|
Commander
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Time Charter
(10)
|
|
Q4 2020
|
|
Challenger
|
|
84,000
|
|
Hyundai
|
|
2015
|
|
X
|
|
Pool-TCO
(6)
|
|
Q4 2020
|
|
Caravelle
|
|
84,000
|
|
Hyundai
|
|
2016
|
|
X
|
|
Pool
(7)
|
|
—
|
|
Total
|
|
1,842,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time chartered-in VLGC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laurel Prime
(11)
|
|
83,305
|
|
Mitsubishi
|
|
2018
|
|
X
|
|
Pool
(7)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents vessels with very low revolutions per minute, long
‑
stroke, electronically controlled engines, larger propellers, advanced hull design, and low friction paint.
|
|
(2)
|
|
Represents calendar year quarters.
|
|
(3)
|
|
Operated pursuant to a bareboat chartering agreement. See Note 6 to our unaudited condensed consolidated financial statements included herein.
|
|
(4)
|
|
VLGC fitted with scrubber.
|
|
(5)
|
|
Currently on time charter with an oil major that began in December 2014.
|
|
(6)
|
|
“Pool-TCO” indicates that the vessel is operated in the Helios Pool on a time charter out to a third party and receives as charter hire a portion of the net revenues of the pool calculated according to a formula based on the vessel’s pro rata performance in the pool
|
|
(7)
|
|
“Pool” indicates that the vessel operates in the Helios Pool on a voyage charter with a third party and receives as charter hire a portion of the net revenues of the pool calculated according to a formula based on the vessel’s pro rata performance in the pool.
|
|
(8)
|
|
Currently on time charter with an oil major that began in July 2014.
|
|
(9)
|
|
Currently on time charter with a major oil company that began in March 2019.
|
|
(10)
|
|
Currently on time charter with a major oil company that began in November 2015.
|
|
(11)
|
|
Currently time chartered-in with an expiration during the first calendar quarter of 2020.
|
Results of Operations – For the three months ended June 30, 2019 as compared to the three months ended June 30, 2018
Revenues
The following table compares our Revenues for the three months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
Percent
|
|
|
|
2019
|
|
2018
|
|
(Decrease)
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pool revenues—related party
|
|
$
|
50,092,137
|
|
$
|
16,106,401
|
|
$
|
33,985,736
|
|
211.0
|
%
|
Time charter revenues
|
|
|
10,982,031
|
|
|
11,467,881
|
|
|
(485,850)
|
|
(4.2)
|
%
|
Other revenues, net
|
|
|
91,378
|
|
|
70,000
|
|
|
21,378
|
|
30.5
|
%
|
Total
|
|
$
|
61,165,546
|
|
$
|
27,644,282
|
|
$
|
33,521,264
|
|
121.3
|
%
|
Revenues, which represent net pool revenues—
related party
, time charters, voyage charters and other revenues earned by our vessels, were $61.2 million for the three months ended June 30, 2019, an increase of $33.6 million, or 121.3%, from $27.6 million for the three months ended June 30, 2018. The increase is primarily attributable to an increase in average TCE rates and fleet utilization. Average TCE rates increased from $16,553 for the three months ended June 30, 2018 to $29,671 for the three months ended June 30, 2019, primarily as a result of higher spot market rates during the three months ended June 30, 2019 as compared to the three months ended June 30, 2018 along with a reduction in bunker prices. The Baltic Exchange Liquid Petroleum Gas Index, an index published daily by the Baltic Exchange for the spot market rate for the benchmark Ras Tanura-Chiba route (expressed as U.S. dollars per metric ton), averaged $62.337 during the three months ended June 30, 2019 compared to an average of $26.390 for the three months ended June 30, 2018. The average price of heavy fuel oil (expressed as U.S. dollars per metric tonnes) from Singapore and Fujairah decreased from $433 during the three months ended June 30, 2018 to $414 during the three months ended June 30, 2019. Our fleet utilization increased from 83.6% during the three months ended June 30, 2018 to 98.4% during the three months ended June 30, 2019.
Charter Hire Expenses
Charter hire expenses for the vessel that we charter in from a third party were $2.1 million for the three months ended June 30, 2019. No such costs were incurred during the three months ended June 30, 2018.
Vessel Operating Expenses
Vessel operating expenses were $16.1 million during the three months ended June 30, 2019, or $8,052 per vessel per calendar day, which is calculated by dividing vessel operating expenses by calendar days for the relevant time-period for the vessels that were in our fleet. This was
a decrease of $0.6 million, or 3.4%, from $16.7 million for the three months ended June 30, 2018. Vessel operating expenses per vessel per calendar day decreased by $282 from $8,334 for the three months ended June 30, 2018 to $8,052 for the three months ended June 30, 2019. The decrease in vessel operating expenses
for the three months ended June 30, 2019, when compared with the three months ended June 30, 2018
, was primarily the result of a $0.5 million, or $255 per vessel per calendar day, decrease in repairs and maintenance costs.
General and Administrative Expenses
General and administrative expenses were $6.7 million for the three months ended June 30, 2019,
a decrease of $1.2 million, or 15.0%, from $7.9 million for the three months ended
June 30, 2018
.
The decrease was due to reductions of $0.8 million in cash bonuses to certain employees, $0.3 million in stock-based compensation, and $0.1 million in other general and administrative expenses. The reduction in cash bonuses to certain employees was due to a shift in the timing of approvals during the three months ended June 30, 2019 compared to the prior year period.
Professional and Legal Fees Related to the BW Proposal
In 2018, BW made an unsolicited proposal to acquire all of our outstanding common stock and, along with its affiliates, commenced a proxy contest to replace three members of our board of directors with nominees proposed by BW. BW’s unsolicited proposal and proxy contest were subsequently withdrawn on October 8, 2018. Professional (including investment banking fees) and legal fees related to the BW Proposal were $0.5 million for the three months ended June 30, 2018. No such costs were incurred during the three months ended June 30, 2019.
Interest and Finance Costs
Interest and finance costs amounted to $9.7 million for the
three months ended June 30, 2019
, a decrease of $0.7 million, or 6.5%, from $10.4 million for the
three months ended June 30, 2018
. The decrease of $0.7 million during this period was due to a decrease of $0.6 million in interest incurred on our long-term debt, primarily resulting from a decrease in average indebtedness, and a reduction of $0.1 million in amortization of deferred financing fees. Average indebtedness, excluding deferred financing fees, decreased from $768.8 million for the three months ended June 30, 2018 to $707.9 million for the three months ended
June 30, 2019
. As of June 30, 2019, the outstanding balance of our long-term debt, net of deferred financing fees of $13.3 million, was $680.8 million.
Unrealized Gain/(Loss) on Derivatives
Unrealized loss on derivatives was approximately $6.1 million for the three months ended June 30, 2019
, compared to an unrealized gain of $1.7 million for the three months ended June 30, 2018
. The unfavorable $7.8 million change is attributable to changes in the fair value of our interest rate swaps caused by changes in forward LIBOR yield curves and reductions in notional amounts.
Realized Gain on Derivatives
Realized gain on derivatives was approximately $1.0 million for the three months ended June 30, 2019
, compared to $0.8 million for the three months ended June 30, 2018
. The favorable $0.2 million change is attributable to increases in floating LIBOR resulting in realized gains on interest rate swaps related to the 2015 Debt Facility.
Liquidity and Capital Resources
Our business is capital intensive, and our future success depends on our ability to maintain a high
‑
quality fleet. As of
June 30, 2019
, we had cash and cash equivalents of $21.7 million and restricted cash—non-current of $35.6 million.
Our primary sources of capital during the three months ended
June 30, 2019
was $8.7 million in cash generated from operations. As of
June 30, 2019
, the outstanding balance of our long-term debt, net of deferred financing fees of $13.3 million, was $680.8 million including $64.0 million of principal on our long-term debt scheduled to be repaid within the next twelve months.
On July 23, 2019, we entered into an agreement to amend the 2015 Debt Facility as further described in Note 13 to our unaudited interim condensed consolidated financial statements.
Operating expenses, including expenses to maintain the quality of our vessels in order to comply with international shipping standards and environmental laws and regulations, the funding of working capital requirements, long-term debt repayments, financing costs, and contractual commitments to purchase scrubbers on ten of our VLGCs represent our short‑term, medium‑term and long‑term liquidity needs as of June 30, 2019. We anticipate satisfying our liquidity needs for at least the next twelve months with cash on hand and cash from operations. We may also seek additional liquidity through alternative sources of debt financings and/or through equity financings by way of private or public offerings. However, if these sources are insufficient to satisfy our short-term liquidity needs, or to satisfy our future medium-term or long-term liquidity needs, we may need to seek alternative sources of financing and/or modifications of our existing credit facility and financing arrangements. There is no assurance that we will be able to obtain any such financing or modifications to our existing credit facility and financing arrangements on terms acceptable to us, or at all.
Our dividend policy will also impact our future liquidity position. Marshall Islands law generally prohibits the payment of dividends other than from surplus or while a company is insolvent or would be rendered insolvent by the payment of such a dividend.
As part of our growth strategy, we will continue to consider strategic opportunities, including the acquisition of additional vessels. We may choose to pursue such opportunities through internal growth or joint ventures or business acquisitions. We expect to finance the purchase price of any future acquisitions either through internally generated funds, public or private debt financings, public or private issuances of additional equity securities or a combination of these forms of financing.
Cash Flows
The following table summarizes our cash and cash equivalents provided by/(used in) operating, financing and investing activities for the three months ended June 30:
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Net cash provided by/(used in) operating activities
|
$
|
8,693,979
|
|
$
|
(10,559,285)
|
|
Net cash used in investing activities
|
|
(1,547,034)
|
|
|
(60,320)
|
|
Net cash used in financing activities
|
|
(16,261,490)
|
|
|
(17,713,359)
|
|
Net decrease in cash, cash equivalents, and restricted cash
|
$
|
(9,121,638)
|
|
$
|
(28,440,096)
|
|
Operating Cash Flows.
Net cash provided by operating activities for the three months ended June 30, 2019 was $8.7 million, compared with net cash used in operating activities of $10.6 million for the three months ended June 30, 2018. The favorable change in cash generated from operations of $19.3 million is primarily related to an increase in operating income, partially offset by changes in working capital, mainly from amounts due from the Helios Pool as distributions from the Helios Pool are impacted by the timing of the completion of voyages and spot market rates.
Net cash flow from operating activities depends upon our overall profitability, market rates for vessels employed on voyage charters, charter rates agreed to for time charters, the timing and amount of payments for drydocking expenditures and unscheduled repairs and maintenance, fluctuations in working capital balances and bunker costs.
Investing Cash Flows.
Net cash used in investing activities was $1.5 million for the three months ended June 30, 2019 compared with net cash used in investing activities of $0.1 million for the three months ended June 30, 2018. For the three months ended June 30, 2019 and 2018, net cash used in investing activities was primarily comprised of our capital expenditures of $1.5 million and $0.1 million, respectively.
Financing Cash Flows.
Net cash used in financing activities was $16.3 million for the three months ended June 30, 2019, compared with $17.7 million for the three months ended June 30, 2018. For the three months ended June 30, 2019, net cash used in financing activities consisted of repayments of long-term debt of $16.0 million and payments for treasury stock repurchases of $0.3 million. Net cash used in financing activities for the three months ended June 30, 2018 consisted of repayments of long-term debt of $82.2 million, payments for treasury stock repurchases of $0.5 million, and payment of debt financing costs of $0.2 million, partially offset by long-term debt borrowings of $65.1 million related to the CJNP Japanese Financing, CMNL Japanese Financing, and CNML Japanese Financing.
Capital Expenditures.
LPG transportation is a capital
‑
intensive business, requiring significant investment to maintain an efficient fleet and to stay in regulatory compliance.
We are generally required to complete a special survey for a vessel once every five years unless an extension of the drydocking to seven and one-half years is granted by the classification society and the vessel is not older than 20 years of age. Intermediate surveys are performed every two and one-half years after the first special survey. Drydocking each vessel takes approximately 10 to 20 days, excluding any additional time for capital improvements. We spend significant amounts for scheduled drydocking (including the cost of classification society surveys) for each of our vessels.
As our vessels age and our fleet expands, our drydocking expenses will increase. We estimate the current cash outlay for a VLGC special survey to be approximately $1.0 million per vessel (excluding any capital improvements, such as scrubbers and ballast water management systems, to the vessel that may be made during such drydockings) and the cost of an intermediate survey to be between $100,000 and $200,000 per vessel. Ongoing costs for compliance with environmental regulations are primarily included as part of our drydocking and classification society survey costs. Additionally, ballast water management systems are expected to be installed on six VLGCs between July 2019 and July 2023 for approximately $0.8 million per vessel. We have entered into contracts to purchase ballast water management systems on two of our VLGCs. Further, in October 2016, the International Maritime Organization (the “IMO”) set January 1, 2020 as the implementation date for vessels to comply with its low sulfur fuel oil requirement, which cuts sulfur levels from 3.5% to 0.5%. We may comply with this regulation by (i) consuming compliant fuels on board (0.5% sulfur), which is likely to be more readily available globally by 2020, but likely at a higher cost; (ii) continuing to consume high-sulfur fuel oil by installing scrubbers for cleaning of the exhaust gases to levels at or below compliance with regulations (0.5% sulfur); or (iii) by retrofitting vessels to be powered by liquefied natural gas or LPG, which may be a viable option subject to the relative pricing of compliant low-sulfur fuel (0.5% sulfur) and LPG. Such costs of compliance with the IMO’s low sulfur fuel oil requirement may be significant. Currently, two of our VLGCs are equipped with scrubbers and we have entered into contracts to purchase scrubbers on ten of our VLGCs, in which we have $10.0 million in remaining contractual commitments as of June 30, 2019. We are not aware of any other future regulatory changes or environmental laws that we expect to have a material impact on our current or future results of operations that we have not already considered. Please see “Item 1A. Risk Factors—Risks Relating to Our Company—We are subject to regulation and liability, including environmental laws, which could require significant expenditures and adversely affect our financial conditions and results of operations” and “Item 1A. Risk Factors—Risks Relating to Our Company—We may incur increasing costs for the drydocking, maintenance or replacement of our vessels as they age, and, as our vessels age, the risks associated with older vessels could adversely affect our ability to obtain profitable charters” in our Annual Report on Form 10-K for the year ended March 31, 2019
.
Debt Agreements
For information relating to our secured term loan facilities, refer to Notes 9 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2019
and Note 6 to our
unaudited interim condensed consolidated financial statements for
the three months ended June 30, 2019 included herein
.
Off-Balance Sheet Arrangements
We currently do not have any off
‑
balance sheet arrangements.
Critical Accounting Policies and Estimates
The following is an update to the Critical Accounting Estimates set forth in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended March 31, 2019.
Impairment of long-lived assets.
We review our vessels and other fixed assets for impairment when events or circumstances indicate the carrying amount of the asset may not be recoverable. In addition, we compare independent appraisals to our carrying value for indicators of impairment to our vessels. When such indicators are present, an asset is tested for recoverability by comparing the estimate of future undiscounted net operating cash flows expected to be generated by the use of the asset over its remaining useful life and its eventual disposition to its carrying amount. An impairment charge is recognized if the carrying value is in excess of the estimated future undiscounted net operating cash flows. The impairment loss is measured based on the excess of the carrying amount over the fair market value of the asset. The new lower cost basis would result in a lower annual depreciation than before the impairment.
Our estimates of fair market value assume that our vessels are all in good and seaworthy condition without need for repair and if inspected would be certified in class without notations of any kind. Our estimates are based on information available from various industry sources, including:
|
·
|
|
reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values;
|
|
·
|
|
news and industry reports of similar vessel sales;
|
|
·
|
|
approximate market values for our vessels or similar vessels that we have received from shipbrokers, whether solicited or unsolicited, or that shipbrokers have generally disseminated;
|
|
·
|
|
offers that we may have received from potential purchasers of our vessels; and
|
|
·
|
|
vessel sale prices and values of which we are aware through both formal and informal communications with shipowners, shipbrokers, industry analysts and various other shipping industry participants and observers.
|
As we obtain information from various industry and other sources, our estimates of fair market value are inherently uncertain. In addition, vessel values are highly volatile; as such, our estimates may not be indicative of the current or future fair market value of our vessels or prices that we could achieve if we were to sell them.
As of June 30, 2019, independent appraisals of our VLGC fleet had indicators of impairment on eighteen of our VLGCs in accordance with ASC 360 Property, Plant, and Equipment. We determined estimated net operating cash flows for our VLGCs by applying various assumptions regarding future time charter equivalent revenues net of commissions, operating expenses, scheduled drydockings, expected offhire and scrap values. These assumptions were based on historical data as well as future expectations. We estimated spot market rates by obtaining the trailing 10-year historical average spot market rates, as published by maritime industry researchers. Estimated outflows for operating expenses and drydocking expenses were based on historical and budgeted costs and were adjusted for assumed inflation. Utilization was based on our historical levels achieved in the spot market and estimates of a residual value consistent with scrap rates used in management's evaluation of scrap value. Such estimates and assumptions regarding expected net operating cash flows require considerable judgment and were based upon historical experience, financial forecasts and industry trends and conditions. Therefore, based on this analysis, we concluded that no impairment charge was necessary because we believe the vessel carrying values are recoverable. No impairment charges were recognized for the three months ended June 30, 2019.
In addition, we performed a sensitivity analysis as of June 30, 2019 to determine the effect on recoverability of changes in TCE rates. The sensitivity analysis suggests that we would not incur an impairment charge on any of our VLGCs if daily TCE rates based on the 10-year historical average spot market rates were reduced by 30%. An impairment charge of approximately $31.9 million on eighteen of our VLGCs would be triggered by a reduction of 40% in the 10-year historical average spot market rates. The amount, if any, and timing of any impairment charges we may recognize in the future will depend upon the then current and expected future charter rates and vessel values, which may differ materially from those used in our estimates as of June 30, 2019.
Recent Accounting Pronouncements
Refer to Note 2 to our unaudited interim condensed consolidated financial statements included herein for a discussion of recent accounting pronouncements.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE
S ABOUT MARKET RISK
For additional discussion of our exposure to market risk, refer to “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” included in our Annual Report on Form 10-K for the year ended March 31, 2019.
Interest Rate Risk
The LPG shipping industry is capital intensive, requiring significant amounts of investment. Much of this investment is provided in the form of long-term debt. Our 2015 Debt Facility agreement contains interest rates that fluctuate with LIBOR. We have entered into interest rate swap agreements to hedge a majority of our exposure to fluctuations of interest rate risk associated with our 2015 Debt Facility. We have hedged $250 million of non-amortizing principal and $184.8 million of amortizing principal of the 2015 Debt Facility as of June 30, 2019 and thus increasing interest rates could adversely impact our future earnings due to additional interest expense on our unhedged debt. For the 12 months following June 30, 2019, a hypothetical increase or decrease of 20 basis points in the underlying LIBOR rates would result in an increase or decrease of our interest expense on all of our non-hedged interest-bearing debt by approximately $0.1 million assuming all other variables are held constant.
ITEM 4.
CONTROLS AND PROCEDURE
S
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of June 30, 2019. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those internal control systems determined to be effective can provide only a level of reasonable assurance with respect to financial statement preparation and presentation.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the three months ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.