lpg_Current_Folio_10Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

FORM 10-Q 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________   to __________ 

Commission File Number: 001-36437 

 

W:\Word Team jobs\Bridge\2015\11 November\26\Dorian LPG, LTD\8K Earnings Release\Wip\image00001.jpg

Dorian LPG Ltd.

(Exact name of registrant as specified in its charter) 

 

 

 

 

Marshall Islands

 

66-0818228

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

c/o Dorian LPG (USA) LLC

 

06902

27 Signal Road, Stamford, CT

 

 

(Address of principal executive offices)

 

(Zip Code)

 

Registrant's telephone number, including area code: (203) 674-9900

Former name, former address and former fiscal year, if changed since last report: Not Applicable

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No 

 

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

 

 

 

 

 

Large accelerated filer

Accelerated filer  

Non-accelerated filer

 

Smaller reporting company

Emerging growth company  

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

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

As of October 24, 2018, there were 55,166,775 shares of the registrant’s common stock outstanding.

 

 


 

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FORWARD‑LOOKING STATEMENTS

 

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including analyses and other information based on forecasts of future results and estimates of amounts not yet determinable and statements relating to our future prospects, developments and business strategies. Forward-looking statements are generally identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” and similar terms and phrases, including references to assumptions. Forward-looking statements involve risks and uncertainties that may cause actual future activities and results of operations to be materially different from those suggested or described in this quarterly report.

 

These risks include the risks that are identified in the “Risk Factors” section of this quarterly report and of our Annual Report on Form 10-K for the fiscal year ended March 31, 2018, and also include, among others, risks associated with the following:

 

·

our future operating or financial results;

 

·

our acquisitions, business strategy and expected capital spending or operating expenses;

 

·

shipping trends, including changes in charter rates, scrapping rates and vessel and other asset values;

 

·

factors affecting supply of and demand for liquefied petroleum gas, or LPG, shipping;

 

·

changes in trading patterns that impact tonnage requirements;

 

·

potential costs and continuing uncertainty relating to the unsolicited proposal of BW LPG Limited to acquire the Company and the dissident director slate proposal by BW LPG Limited and its affiliates, following the withdrawal of those proposals on October 8, 2018;

 

·

changes in rules and regulations applicable to the LPG shipping industry, including, without limitation, legislation adopted by international organizations such as the International Maritime Organization and the European Union or by individual countries;

 

·

general economic conditions and specific economic conditions in the oil and natural gas industry and the countries and regions where LPG is produced and consumed;

 

·

the supply of and demand for LPG, which is affected by the production levels and price of oil, refined petroleum products and natural gas, including production from U.S. shale fields;

 

·

completion of infrastructure projects to support marine transportation of LPG, including export terminals and pipelines;

 

·

changes to the supply and demand for LPG vessels as a result of the expansion of the Panama Canal;

 

·

oversupply of or limited demand for LPG vessels comparable to ours or higher specification vessels;

 

·

competition in the LPG shipping industry;

 

·

our ability to profitably employ our vessels, including vessels participating in the Helios Pool (defined below);

 

·

the failure of our or the Helios Pool’s significant customers to perform their obligations to us or to the Helios Pool;

 


 

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·

the performance of the Helios Pool;

 

·

the loss or reduction in business from our or the Helios Pool’s significant customers;

 

·

our financial condition and liquidity, including our ability to obtain financing in the future to fund capital expenditures, acquisitions and other general corporate purposes, the terms of such financing and our ability to comply with covenants set forth in our existing and future financing arrangements;

 

·

our costs, including crew wages, insurance, provisions, repairs and maintenance, and general and administrative expenses;

 

·

our dependence on key personnel;

 

·

the availability of skilled workers and the related labor costs;

 

·

the effects of new products and new technology in our industry;

 

·

operating hazards in the maritime transportation industry, including piracy;

 

·

the adequacy of our insurance coverage in the event of a catastrophic event;

 

·

compliance with and changes to governmental, tax, environmental and safety laws and regulations;

 

·

changes in domestic and international political and geopolitical conditions, including the imposition of tariffs or otherwise on LPG or LPG products;

 

·

compliance with the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act 2010, or other applicable regulations relating to bribery; and

 

·

the volatility of the price of our common shares.

 

 

Actual results could differ materially from expectations expressed in the forward-looking statements in this quarterly report if one or more of the underlying assumptions or expectations proves to be inaccurate or is not realized. You should thoroughly read this quarterly report with the understanding that our actual future results may be materially different from and worse than what we expect. Other sections of this quarterly report include additional factors that could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the forward-looking statements by these cautionary statements.

 

We caution readers of this quarterly report not to place undue reliance on forward-looking statements. Any forward-looking statements contained herein are made only as of the date of this report, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

As used in this quarterly report and unless otherwise indicated, references to “Dorian,” the “Company,” “we,” “our,” “us,” or similar terms refer to Dorian LPG Ltd. and its subsidiaries.

 


 

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Dorian LPG Ltd.

 

TABLE OF CONTENTS

 

 

 

 

 

PART I. 

FINANCIAL INFORMATION

 

 

 

 

ITEM 1. 

FINANCIAL STATEMENTS

 

 

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2018 and March 31, 2018

1

 

Unaudited Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2018 and September 30, 2017 

2

 

Unaudited Condensed Consolidated Statements of Shareholders' Equity for the six months ended September 30, 2018 and September 30, 2017

3

 

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2018 and September 30, 2017

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

 

 

 

ITEM 2. 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

17

ITEM 3. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

29

ITEM 4. 

CONTROLS AND PROCEDURES

29

 

 

 

 

 

 

PART II. 

OTHER INFORMATION

 

 

 

 

ITEM 1. 

LEGAL PROCEEDINGS

30

ITEM 1A. 

RISK FACTORS

30

ITEM 6. 

EXHIBITS

30

 

 

 

EXHIBIT INDEX 

 

31

SIGNATURES 

 

32

 

 

 

 

 

 

 


 

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PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

Dorian LPG Ltd.

Unaudited Condensed Consolidated Balance Sheets

(Expressed in United States Dollars, except for share data)

 

 

 

 

 

 

 

 

 

 

    

As of

    

As of

 

 

 

September 30, 2018

 

March 31, 2018

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

48,244,169

 

$

103,505,676

 

Trade receivables, net and accrued revenues

 

 

8,203

 

 

336,162

 

Prepaid expenses and other receivables

 

 

2,758,407

 

 

2,471,415

 

Due from related parties

 

 

42,375,930

 

 

26,880,720

 

Inventories

 

 

2,146,835

 

 

2,012,907

 

Total current assets

 

 

95,533,544

 

 

135,206,880

 

Fixed assets

 

 

 

 

 

 

 

Vessels, net

 

 

1,507,941,555

 

 

1,539,111,833

 

Other fixed assets, net

 

 

155,637

 

 

203,678

 

Total fixed assets

 

 

1,508,097,192

 

 

1,539,315,511

 

Other non-current assets

 

 

 

 

 

 

 

Deferred charges, net

 

 

1,880,556

 

 

1,574,522

 

Derivative instruments

 

 

17,023,975

 

 

14,264,899

 

Due from related parties—non-current

 

 

20,900,000

 

 

19,800,000

 

Restricted cash—non-current

 

 

35,636,008

 

 

25,862,704

 

Other non-current assets

 

 

89,619

 

 

85,640

 

Total assets

 

$

1,679,160,894

 

$

1,736,110,156

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Trade accounts payable

 

$

7,721,058

 

$

6,329,193

 

Accrued expenses

 

 

6,512,098

 

 

4,702,808

 

Due to related parties

 

 

11,162

 

 

345,515

 

Deferred income

 

 

4,724,985

 

 

5,564,557

 

Current portion of long-term debt

 

 

63,968,414

 

 

65,067,569

 

Total current liabilities

 

 

82,937,717

 

 

82,009,642

 

Long-term liabilities

 

 

 

 

 

 

 

Long-term debt—net of current portion and deferred financing fees

 

 

662,567,722

 

 

694,035,583

 

Other long-term liabilities

 

 

1,191,390

 

 

651,569

 

Total long-term liabilities

 

 

663,759,112

 

 

694,687,152

 

Total liabilities

 

 

746,696,829

 

 

776,696,794

 

Commitments and contingencies

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued nor outstanding

 

 

 

 

 

Common stock, $0.01 par value, 450,000,000 shares authorized, 58,859,295 and 58,640,161 shares issued, 55,166,775 and 55,090,165 shares outstanding (net of treasury stock), as of September 30, 2018 and March 31, 2018, respectively

 

 

588,595

 

 

586,402

 

Additional paid-in-capital

 

 

861,065,088

 

 

858,109,882

 

Treasury stock, at cost; 3,692,520 and 3,549,996 shares as of September 30, 2018 and March 31, 2018, respectively

 

 

(36,356,446)

 

 

(35,223,428)

 

Retained earnings

 

 

107,166,828

 

 

135,940,506

 

Total shareholders’ equity

 

 

932,464,065

 

 

959,413,362

 

Total liabilities and shareholders’ equity

 

$

1,679,160,894

 

$

1,736,110,156

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

1


 

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Dorian LPG Ltd.

Unaudited Condensed Consolidated Statements of Operations  

(Expressed in United States Dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Six months ended

 

 

    

September 30, 2018

    

September 30, 2017

    

September 30, 2018

    

September 30, 2017

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Net pool revenues—related party

 

$

32,027,042

 

$

20,468,380

 

$

48,133,443

 

$

48,943,739

 

Time charter revenues

 

 

8,640,000

 

 

12,507,394

 

 

20,107,881

 

 

25,072,049

 

Voyage charter revenues

 

 

 —

 

 

1,733,247

 

 

 —

 

 

1,733,247

 

Other revenues, net

 

 

140,500

 

 

20,000

 

 

210,500

 

 

5,458

 

Total revenues

 

 

40,807,542

 

 

34,729,021

 

 

68,451,824

 

 

75,754,493

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Voyage expenses

 

 

435,224

 

 

1,275,521

 

 

535,397

 

 

1,514,966

 

Vessel operating expenses

 

 

17,375,273

 

 

15,740,438

 

 

34,060,730

 

 

32,625,727

 

Depreciation and amortization

 

 

16,437,653

 

 

16,464,707

 

 

32,702,709

 

 

32,757,865

 

General and administrative expenses

 

 

7,462,726

 

 

5,421,145

 

 

15,866,012

 

 

13,956,054

 

Total expenses

 

 

41,710,876

 

 

38,901,811

 

 

83,164,848

 

 

80,854,612

 

Other income—related parties

 

 

584,632

 

 

638,070

 

 

1,229,149

 

 

1,271,953

 

Operating loss

 

 

(318,702)

 

 

(3,534,720)

 

 

(13,483,875)

 

 

(3,828,166)

 

Other income/(expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and finance costs

 

 

(10,152,672)

 

 

(8,602,430)

 

 

(20,526,953)

 

 

(16,080,164)

 

Interest income

 

 

451,923

 

 

28,226

 

 

912,896

 

 

44,042

 

Unrealized gain/(loss) on derivatives

 

 

1,051,460

 

 

652,160

 

 

2,759,076

 

 

(1,718,031)

 

Realized gain/(loss) on derivatives

 

 

830,991

 

 

(435,920)

 

 

1,613,556

 

 

(1,048,783)

 

Gain on early extinguishment of debt

 

 

 —

 

 

 —

 

 

 —

 

 

4,117,364

 

Foreign currency loss, net

 

 

(40,120)

 

 

(22,452)

 

 

(48,378)

 

 

(91,368)

 

Total other income/(expenses), net

 

 

(7,858,418)

 

 

(8,380,416)

 

 

(15,289,803)

 

 

(14,776,940)

 

Net loss

 

$

(8,177,120)

 

$

(11,915,136)

 

$

(28,773,678)

 

$

(18,605,106)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

54,431,820

 

 

54,076,271

 

 

54,313,255

 

 

53,976,330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share—basic and diluted

 

$

(0.15)

 

$

(0.22)

 

$

(0.53)

 

$

(0.34)

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

2


 

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Dorian LPG Ltd.

Unaudited Condensed Consolidated Statements of Shareholders’ Equity

(Expressed in United States Dollars, except for number of shares)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

                           

 

Additional

 

                           

 

 

 

 

 

 

common

 

Common

 

Treasury

 

paid-in

 

Retained

 

 

 

 

 

    

shares

    

stock

    

stock

    

capital

    

Earnings

    

Total

 

Balance, April 1, 2017

 

58,342,201

 

$

583,422

 

$

(33,897,269)

 

$

852,974,373

 

$

156,341,192

 

$

976,001,718

 

Net loss for the period      

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(18,605,106)

 

 

(18,605,106)

 

Restricted share award issuances

 

278,526

 

 

2,785

 

 

 —

 

 

(2,785)

 

 

 —

 

 

 —

 

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

2,699,788

 

 

 —

 

 

2,699,788

 

Purchase of treasury stock

 

 —

 

 

 —

 

 

(1,084,902)

 

 

 —

 

 

 —

 

 

(1,084,902)

 

Balance, September 30, 2017

 

58,620,727

 

$

586,207

 

$

(34,982,171)

 

$

855,671,376

 

$

137,736,086

 

$

959,011,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

common

 

Common

 

Treasury

 

paid-in

 

Retained

 

 

 

 

 

    

shares

    

stock

    

stock

    

capital

    

Earnings

    

Total

 

Balance, April 1, 2018

 

58,640,161

 

$

586,402

 

$

(35,223,428)

 

$

858,109,882

 

$

135,940,506

 

$

959,413,362

 

Net loss for the period      

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(28,773,678)

 

 

(28,773,678)

 

Restricted share award issuances

 

219,134

 

 

2,193

 

 

 —

 

 

(2,193)

 

 

 —

 

 

 —

 

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

2,957,399

 

 

 —

 

 

2,957,399

 

Purchase of treasury stock

 

 —

 

 

 —

 

 

(1,133,018)

 

 

 —

 

 

 —

 

 

(1,133,018)

 

Balance, September 30, 2018

 

58,859,295

 

$

588,595

 

$

(36,356,446)

 

$

861,065,088

 

$

107,166,828

 

$

932,464,065

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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Dorian LPG Ltd.

Unaudited Condensed Consolidated Statements of Cash Flows

(Expressed in United States Dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

Six months ended

 

 

 

 

September 30, 2018

 

September 30, 2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

 

$

(28,773,678)

 

$

(18,605,106)

 

Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

32,702,709

 

 

32,757,865

 

Amortization of financing costs

 

 

 

1,597,214

 

 

2,898,375

 

Unrealized (gain)/loss on derivatives

 

 

 

(2,759,076)

 

 

1,718,031

 

Stock-based compensation expense

 

 

 

2,957,399

 

 

2,699,788

 

Gain on early extinguishment of debt

 

 

 

 —

 

 

(4,117,364)

 

Unrealized foreign currency (gain)/loss, net

 

 

 

160,216

 

 

(201,649)

 

Other non-cash items

 

 

 

46,576

 

 

31,920

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Trade receivables, net and accrued revenue

 

 

 

327,959

 

 

(195,912)

 

Prepaid expenses and other receivables

 

 

 

(270,499)

 

 

(117,328)

 

Due from related parties

 

 

 

(16,595,210)

 

 

15,654,791

 

Inventories

 

 

 

(133,928)

 

 

38,252

 

Other non-current assets

 

 

 

(3,979)

 

 

(6,147)

 

Trade accounts payable

 

 

 

1,025,472

 

 

(1,011,069)

 

Accrued expenses and other liabilities

 

 

 

1,085,801

 

 

384,106

 

Due to related parties

 

 

 

(334,353)

 

 

812,324

 

Payments for drydocking costs

 

 

 

(281,366)

 

 

(419,958)

 

Net cash provided by/(used in) operating activities

 

 

 

(9,248,743)

 

 

32,320,919

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Vessel-related capital expenditures

 

 

 

(1,144,400)

 

 

(297,534)

 

Payments to acquire other fixed assets

 

 

 

(15,183)

 

 

(88,447)

 

Net cash used in investing activities

 

 

 

(1,159,583)

 

 

(385,981)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from long-term debt borrowings

 

 

 

65,137,500

 

 

97,000,000

 

Repayment of long-term debt borrowings

 

 

 

(98,220,882)

 

 

(124,121,733)

 

Purchase of treasury stock

 

 

 

(1,238,642)

 

 

(1,084,902)

 

Financing costs paid

 

 

 

(628,144)

 

 

(2,832,856)

 

Payments relating to issuance costs

 

 

 

 —

 

 

(10,710)

 

Net cash used in financing activities

 

 

 

(34,950,168)

 

 

(31,050,201)

 

Effects of exchange rates on cash and cash equivalents

 

 

 

(129,709)

 

 

149,322

 

Net increase/(decrease) in cash, cash equivalents, and restricted cash

 

 

 

(45,488,203)

 

 

1,034,059

 

Cash, cash equivalents, and restricted cash at the beginning of the period

 

 

 

129,368,380

 

 

67,892,698

 

Cash, cash equivalents, and restricted cash at the end of the period

 

 

$

83,880,177

 

$

68,926,757

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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Dorian LPG Ltd.

Notes to Unaudited Condensed Consolidated Financial Statements

(Expressed in United States Dollars)

1.  Basis of Presentation and General Information

 

Dorian LPG Ltd. (“Dorian”) was incorporated on July 1, 2013 under the laws of the Republic of the Marshall Islands, is headquartered in the United States and is engaged in the transportation of liquefied petroleum gas (“LPG”) worldwide. Specifically, Dorian and its subsidiaries (together “we”, “us”, “our”, or the “Company”) are focused on owning and operating very large gas carriers (“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 VLGCs, including nineteen fuel-efficient 84,000 cbm ECO-design VLGCs (“ECO VLGCs”) and three 82,000 cbm VLGCs. Two of our ECO VLGCs are fitted with exhaust gas cleaning systems (commonly referred to as “scrubbers”) to reduce sulfur emissions. We have entered into a contract for an additional seven of our ECO VLGCs to be fitted with scrubbers, including options on three of our VLGCs, which were exercised in October 2018.  

 

On April 1, 2015, Dorian and Phoenix Tankers Pte. Ltd. (“Phoenix”) began operations of Helios LPG Pool LLC (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. Refer to Note 3 below for further description of the Helios Pool.

 

The accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and related Securities and Exchange Commission (“SEC”) rules for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In our opinion, all adjustments, consisting of normal recurring items, necessary for a fair presentation of financial position, operating results and cash flows have been included in the accompanying unaudited interim condensed consolidated financial statements and related notes. The accompanying unaudited interim condensed consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes for the year ended March 31, 2018 included in our Annual Report on Form 10-K filed with the SEC on June 27, 2018.

 

Our interim results are subject to seasonal and other fluctuations, and the operating results for any quarter are therefore not necessarily indicative of results that may be otherwise expected for the entire year.

 

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Our subsidiaries as of September 30, 2018, which are all wholly-owned and are incorporated in the Republic of the Marshall Islands (unless otherwise noted), are listed below.

 

Vessel Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

    

Type of

    

 

    

 

    

 

 

Subsidiary

 

vessel

 

Vessel’s name

 

Built

 

CBM(1)

 

CMNL LPG Transport LLC

 

VLGC

 

Captain Markos NL(2)

 

2006

 

82,000

 

CJNP LPG Transport LLC

 

VLGC

 

Captain John NP(2)

 

2007

 

82,000

 

CNML LPG Transport LLC

 

VLGC

 

Captain Nicholas ML(2)

 

2008

 

82,000

 

Comet LPG Transport LLC

 

VLGC

 

Comet

 

2014

 

84,000

 

Corsair LPG Transport LLC

 

VLGC

 

Corsair(2)

 

2014

 

84,000

 

Corvette LPG Transport LLC

 

VLGC

 

Corvette(2)

 

2015

 

84,000

 

Dorian Shanghai LPG Transport LLC

 

VLGC

 

Cougar

 

2015

 

84,000

 

Concorde LPG Transport LLC

 

VLGC

 

Concorde(2)

 

2015

 

84,000

 

Dorian Houston LPG Transport LLC

 

VLGC

 

Cobra

 

2015

 

84,000

 

Dorian Sao Paulo LPG Transport LLC

 

VLGC

 

Continental

 

2015

 

84,000

 

Dorian Ulsan LPG Transport LLC

 

VLGC

 

Constitution

 

2015

 

84,000

 

Dorian Amsterdam LPG Transport LLC

 

VLGC

 

Commodore

 

2015

 

84,000

 

Dorian Dubai LPG Transport LLC

 

VLGC

 

Cresques

 

2015

 

84,000

 

Constellation LPG Transport LLC

 

VLGC

 

Constellation

 

2015

 

84,000

 

Dorian Monaco LPG Transport LLC

 

VLGC

 

Cheyenne

 

2015

 

84,000

 

Dorian Barcelona LPG Transport LLC

 

VLGC

 

Clermont

 

2015

 

84,000

 

Dorian Geneva LPG Transport LLC

 

VLGC

 

Cratis

 

2015

 

84,000

 

Dorian Cape Town LPG Transport LLC

 

VLGC

 

Chaparral

 

2015

 

84,000

 

Dorian Tokyo LPG Transport LLC

 

VLGC

 

Copernicus

 

2015

 

84,000

 

Commander LPG Transport LLC

 

VLGC

 

Commander

 

2015

 

84,000

 

Dorian Explorer LPG Transport LLC

 

VLGC

 

Challenger

 

2015

 

84,000

 

Dorian Exporter LPG Transport LLC

 

VLGC

 

Caravelle

 

2016

 

84,000

 

 

 Management Subsidiaries

 

 

 

 

Subsidiary

 

Dorian LPG Management Corp.

 

Dorian LPG (USA) LLC (incorporated in USA)

 

Dorian LPG (UK) Ltd. (incorporated in UK)

 

Dorian LPG Finance LLC

 

Occident River Trading Limited (incorporated in UK)

 

Dorian LPG (DK) ApS (incorporated in Denmark)

 

 

Dormant Subsidiaries

 

 

 

 

Subsidiary

 

SeaCor LPG I LLC

 

SeaCor LPG II LLC

 

Capricorn LPG Transport LLC

 

Constitution LPG Transport LLC

 

Grendon Tanker LLC

 


(1)

CBM: Cubic meters, a standard measure for LPG tanker capacity

(2)

Operated pursuant to a bareboat charter agreement. Refer to Note 6 below for further information.

 

 

 

 

2.  Significant Accounting Policies

 

The same accounting policies have been followed in these unaudited interim condensed consolidated financial statements as were applied in the preparation of our audited financial statements for the year ended March 31, 2018 (refer to Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2018), except as discussed herein.

 

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Accounting Pronouncements Adopted During the Six Months Ended September 30, 2018

 

In November 2016, the Financial Accounting Standards Board (the “FASB”) issued accounting guidance to require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The pronouncement is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and are applied using a retrospective transition method to each period presented. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2018

 

March 31, 2018

 

September 30, 2017

 

March 31, 2017

 

Cash and cash equivalents

 

$

48,244,169

 

$

103,505,676

 

$

50,844,921

 

$

17,018,552

 

Restricted cash—non-current

 

 

35,636,008

 

 

25,862,704

 

 

18,081,836

 

 

50,874,146

 

Total cash, cash equivalents, and restricted cash

 

$

83,880,177

 

$

129,368,380

 

$

68,926,757

 

$

67,892,698

 

 

In August 2016, the FASB issued accounting guidance addressing specific cash flow statement issues with the objective of reducing the existing diversity in practice. The pronouncement is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The implementation of this guidance did not have a material effect on our condensed consolidated financial statements.

 

In May 2014, the FASB amended its accounting guidance for revenue recognition. The fundamental principles of the new guidance are that companies should recognize revenue in a manner that reflects the timing of the transfer of services to customers and consideration that a company expects to receive for the services provided. The amended guidance introduces a five-step process to achieve the fundamental principles and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. It also provides further guidance on applying collectability criterion to assess whether a contract is valid and represents a substantive transaction on the basis of whether a customer has the ability and intention to pay the promised consideration. The amended guidance requires additional disclosures necessary for the financial statement users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB voted to defer the effective date by one year for fiscal years beginning on or after December 15, 2017 and interim periods within that reporting period and permit early adoption of the standard, but not before the beginning of 2017. The amended guidance shall be applied either retrospectively to each period presented or as a cumulative effect adjustment as of the date of adoption. Under the amended guidance, voyage charter revenues are recognized based on load-to-discharge basis as compared to the previously used discharge-to-discharge basis, provided an agreed non-cancellable charter between the Company and the charterer is in existence, the charter rate is fixed and determinable, and collectability is reasonably assured. Additionally, voyage expenses related to voyage charters, including bunkers and port expenses, are deferred until load port and expensed on a load-to-discharge basis under the amended guidance. There is no modifications under the amended guidance for our method of recognizing net pool revenues—related party and time charter revenues. We adopted the amended guidance beginning April 1, 2018. The adoption of the amended guidance did not have any material impact on our condensed consolidated financial statements for the six months ended September 30, 2018 or for prior periods, but may impact the timing with which voyage charter revenues will be recognized in future periods.

 

Accounting Pronouncements Not Yet Adopted

 

In February 2016, the FASB issued accounting guidance to update the requirements of financial accounting and reporting for lessees and lessors. The updated guidance, for lease terms of more than 12 months, will require a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize a straight-line total lease expense. Lessor accounting remains largely unchanged from current U.S. GAAP. We expect that our time charter arrangements will be subject to the requirements of the new lease guidance as we will be regarded as the lessor under these arrangements. 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

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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. The pronouncement is effective prospectively for public business entities for annual periods beginning after December 15, 2018, and interim periods within that reporting period. Early adoption is permitted for all entities. We intend to adopt the new guidance on its required effective date of April 1, 2019 and are currently assessing the impact the amended guidance will have on our condensed consolidated financial statements.

 

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 September 30, 2018 and 2017, respectively, $0.1 million for the six months ended September 30, 2018 and $0.2 million for the six months ended September 30, 2017.

 

As of September 30, 2018, $1.1 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, 2018, $0.9 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 September 30, 2018 and 2017, respectively, less than $0.1 million for the six months ended September 30, 2018, and $0.1 million for the six months ended September 30, 2017. 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 September 30, 2018, the Helios Pool operated twenty-nine VLGCs, including nineteen of our vessels, five Phoenix vessels, and five other vessels.

 

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As of September 30, 2018, we had receivables from the Helios Pool of $62.2 million, including $20.9 million of working capital contributed for the operation of our vessels in the pool. As of March 31, 2018, we had receivables from the Helios Pool of $45.4 million (net of an amount due to Helios Pool of $0.3 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 September 30, 2018 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 and $0.5 million for the three months ended September 30, 2018 and 2017, respectively, and $1.1 million for both the six months ended September 30, 2018 and 2017. 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 and less than $0.1 million for the three months ended September 30, 2018, and 2017, respectively and $0.2 million and less than $0.1 million for the six months ended September 30, 2018 and 2017, respectively, and are included in “Other revenues, net” in the unaudited interim condensed consolidated statement of operations included herein.

 

Through our vessel owning subsidiaries, we have chartered vessels to the Helios Pool during the six months ended September 30, 2018 and 2017. 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 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, 2018

 

$

1,574,522

 

Additions

 

 

578,537

 

Amortization

 

 

(272,503)

 

Balance, September 30, 2018

 

$

1,880,556

 

 

 

 

5.  Vessels, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Accumulated

    

 

 

 

 

 

Cost

 

depreciation

 

Net book Value

 

Balance, April 1, 2018

 

$

1,728,987,980

 

$

(189,876,147)

 

$

1,539,111,833

 

Other additions

 

 

1,213,621

 

 

 —

 

 

1,213,621

 

Depreciation

 

 

 —

 

 

(32,383,899)

 

 

(32,383,899)

 

Balance, September 30, 2018

 

$

1,730,201,601

 

$

(222,260,046)

 

$

1,507,941,555

 

 

Additions to vessels, net were largely due to capital improvements made to eight of our VLGCs during the six months ended September 30, 2018 and mainly consisted of the first installment on the purchase of scrubbers for four of our ECO VLGCs. Our vessels, with a total carrying value of $1,507.9 million and $1,539.1 million as of September 30, 2018 and March 31, 2018, 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.

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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, 2018 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”).

 

2017 Bridge Loan

 

Refer to Note 9 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2018 for information on our $97.0 million bridge loan agreement (the “2017 Bridge Loan”) with DNB Capital LLC that we entered into on June 8, 2017. On June 4, 2018, we prepaid $22.3 million of the 2017 Bridge Loan’s then outstanding principal using cash on hand prior to the closing of the CJNP Japanese Financing (defined below). On June 20, 2018, we prepaid the remaining 2017 Bridge Loan’s outstanding principal of $44.6 million ($23.4 million related to the Captain Nicholas ML and $21.2 million related to the Captain Markos NL) using cash on hand prior to the closing of the CMNL Japanese Financing (defined below) and the CNML Japanese Financing (defined below).

 

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, 2018 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, 2018 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, 2018 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

 

On June 11, 2018, we refinanced our 2007-built VLGC, the Captain John NP, pursuant to a memorandum of agreement and a bareboat charter agreement (the “CJNP Japanese Financing”). In connection therewith, we transferred the Captain John NP to the buyer for $48.3 million and, as part of the agreement, CJNP LPG Transport LLC, our wholly-owned subsidiary, bareboat chartered the vessel back for a period of 6 years, with purchase options from the end of year 2 through a mandatory buyout by 2024. We continue to technically manage, commercially charter, and operate the Captain John NP. We received $21.7 million, which increased our unrestricted cash, as part of the transaction with $26.6 million to be retained by the buyer as a deposit (the “CJNP Deposit”), which can be used by us towards the repurchase of the vessel either pursuant to an early buyout option or at the end of the 6-year bareboat charter term. This transaction is treated as a financing transaction and the Captain John NP continues to be recorded as an asset on our balance sheet. This debt financing has a fixed interest rate of 6.0%, not including estimated financing costs of $0.1 million, monthly broker commission fees of 1.25% over the 6-year term on interest and principal payments made, broker commission fees of 1.0% payable on the repurchase of the Captain John NP excluding the CJNP Deposit, and a monthly fixed straight-line principal obligation of approximately $0.1 million over the 6-year term with a balloon payment of $13.0 million.

 

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CMNL Japanese Financing

 

On June 25, 2018, we refinanced our 2006-built VLGC, the Captain Markos NL, pursuant to a memorandum of agreement and a bareboat charter agreement (the “CMNL Japanese Financing”). In connection therewith, we transferred the Captain Markos NL to the buyer for $45.8 million and, as part of the agreement, CMNL LPG Transport LLC, our wholly-owned subsidiary, bareboat chartered the vessel back for a period of 7 years, with purchase options from the end of year 2 through a mandatory buyout by 2025. We continue to technically manage, commercially charter, and operate the Captain Markos NL. We received $20.6 million, which increased our unrestricted cash, as part of the transaction with $25.2 million to be retained by the buyer as a deposit (the “CMNL Deposit”), which can be used by us towards the repurchase of the vessel either pursuant to an early buyout option or at the end of the 7-year bareboat charter term. This transaction is treated as a financing transaction and the Captain Markos NL continues to be recorded as an asset on our balance sheet. This debt financing has a fixed interest rate of 6.0%, not including estimated financing costs of $0.1 million, monthly broker commission fees of 1.25% over the 7-year term on interest and principal payments made, broker commission fees of 1.0%. payable on the repurchase of the Captain Markos NL excluding the CMNL Deposit, and a monthly fixed straight-line principal obligation of approximately $0.1 million over the 7-year term with a balloon payment of $11.0 million.

 

CNML Japanese Financing

 

On June 26, 2018, we refinanced our 2008-built VLGC, the Captain Nicholas ML, pursuant to a memorandum of agreement and a bareboat charter agreement (the “CNML Japanese Financing”). In connection therewith, we transferred the Captain Nicholas ML to the buyer for $50.8 million and, as part of the agreement, CNML LPG Transport LLC, our wholly-owned subsidiary, bareboat chartered the vessel back for a period of 7 years, with purchase options from the end of year 2 through a mandatory buyout by 2025. We continue to technically manage, commercially charter, and operate the Captain Nicholas ML. We received $22.9 million, which increased our unrestricted cash, as part of the transaction with $27.9 million to be retained by the buyer as a deposit (the “CNML Deposit”), which can be used by us towards the repurchase of the vessel either pursuant to an early buyout option or at the end of the 7-year bareboat charter term. This transaction is treated as a financing transaction and the Captain Nicholas ML continues to be recorded as an asset on our balance sheet. This debt financing has a fixed interest rate of 6.0%, not including estimated financing costs of $0.1 million, monthly broker commission fees of 1.25% over the 7-year term on interest and principal payments made, broker commission fees of 1.0%, payable on the repurchase of the Captain Nicholas ML, and a monthly fixed straight-line principal obligation of approximately $0.1 million over the 7-year term with a balloon payment of $13.0 million.

 

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Debt Obligations

 

The table below presents our debt obligations:

 

 

 

 

 

 

 

 

 

 

    

September 30, 2018

    

March 31, 2018

 

2015 Debt Facility

 

 

 

 

 

 

 

Commercial Financing

 

$

181,838,421

 

$

187,989,229

 

KEXIM Direct Financing

 

 

133,432,153

 

 

141,004,162

 

KEXIM Guaranteed

 

 

137,857,316

 

 

145,348,064

 

K-sure Insured

 

 

68,509,793

 

 

72,313,416

 

Total 2015 Debt Facility

 

$

521,637,683

 

$

546,654,871

 

 

 

 

 

 

 

 

 

Japanese Financings

 

 

 

 

 

 

 

Corsair Japanese Financing

 

$

49,020,833

 

$

50,645,833

 

Concorde Japanese Financing

 

 

53,576,923

 

 

55,192,308

 

Corvette Japanese Financing

 

 

54,115,385

 

 

55,730,769

 

CJNP Japanese Financing

 

 

21,230,000

 

 

 —

 

CMNL Japanese Financing

 

 

20,130,942

 

 

 —

 

CNML Japanese Financing

 

 

22,369,038

 

 

 —

 

Total Japanese Financings

 

$

220,443,121

 

$

161,568,910

 

 

 

 

 

 

 

 

 

2017 Bridge Loan

 

$

 —

 

$

66,940,405

 

 

 

 

 

 

 

 

 

Total debt obligations

 

$

742,080,804

 

$

775,164,186

 

Less: deferred financing fees

 

 

15,544,668

 

 

16,061,034

 

Debt obligations—net of deferred financing fees

 

$

726,536,136

 

$

759,103,152

 

 

 

 

 

 

 

 

 

Presented as follows:

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

63,968,414

 

$

65,067,569

 

Long-term debt—net of current portion and deferred financing fees

 

 

662,567,722

 

 

694,035,583

 

Total

 

$

726,536,136

 

$

759,103,152

 

 

Deferred Financing Fees

The analysis and movement of deferred financing fees is presented in the table below:

 

 

 

 

 

 

 

    

Financing

 

 

 

costs

 

Balance, April 1, 2018

 

$

16,061,034

 

Additions

 

 

1,080,848

 

Amortization

 

 

(1,597,214)

 

Balance, September 30, 2018

 

$

15,544,668

 

 

 

 

7.  Stock-Based Compensation Plans

 

Our stock-based compensation expense is included within general and administrative expenses in the unaudited interim condensed consolidated statements of operations and was $1.3 million and $1.2 million for the three months ended September 30, 2018 and 2017, respectively and $3.0 million and $2.7 million for the six months ended  September 30, 2018 and 2017, respectively. Unrecognized compensation cost was $5.3 million as of September 30, 2018 and will be recognized over a remaining weighted average life of 1.41 years. For more information on our equity incentive plan, refer to Note 11 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2018.

 

In June 2018, we granted 200,000 shares of restricted stock to certain of our officers and employees. One-fourth of these restricted shares vested immediately on the grant date, one-fourth will vest one year after grant date, one-fourth will vest two years after grant date, and one-fourth will vest three years after grant date. The restricted shares were valued at their grant date fair market value and are expensed on a straight-line basis over the vesting periods. 

 

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In June 2018 and September 2018, we granted 7,960 and 7,985 shares of stock, respectively, to our non-executive directors, which were valued and expensed at their grant date fair market value.

 

In June 2018 and September 2018, we granted 1,592 and 1,597 shares of stock, respectively, to a non-employee consultant, which were valued and expensed at their grant date fair market value.

 

A summary of the activity of restricted shares awarded under our equity incentive plan as of September 30, 2018 and changes during the six months ended September 30, 2018, is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Weighted-Average

 

 

 

 

 

Grant-Date

 

Incentive Share Awards

 

Numbers of Shares

 

Fair Value

 

Unvested as of April 1, 2018

 

918,344

 

$

15.67

 

Granted

 

219,134

 

 

8.31

 

Vested

 

(411,793)

 

 

15.85

 

Unvested as of September 30, 2018

 

725,685

 

$

13.34

 

 

 

8.  Revenues

 

Revenues comprise the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three months ended 

    

Six months ended

 

 

 

September 30, 2018

    

September 30, 2017

 

September 30, 2018

    

September 30, 2017

 

Net pool revenues—related party

 

$

32,027,042

 

$

20,468,380

 

$

48,133,443

 

$

48,943,739

 

Time charter revenues

 

 

8,640,000

 

 

12,507,394

 

 

20,107,881

 

 

25,072,049

 

Voyage charter revenues

 

 

 —

 

 

1,733,247

 

 

 —

 

 

1,733,247

 

Other revenues, net

 

 

140,500

 

 

20,000

 

 

210,500

 

 

5,458

 

Total revenues

 

$

40,807,542

 

$

34,729,021

 

$

68,451,824

 

$

75,754,493

 

 

Net pool revenues—related party depend upon the net results of the Helios Pool, and the operating days and pool points for each vessel. Refer to Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2018.

 

Other revenues, net represent income from charterers relating to reimbursement of voyage expenses such as costs for security guards and war risk insurance.

 

9.  Financial Instruments and Fair Value Disclosures

 

Our principal financial assets consist of cash and cash equivalents, restricted cash amounts due from related parties, trade accounts receivable and derivative instruments. Our principal financial liabilities consist of long term debt, accounts payable, amounts due to related parties and accrued liabilities.

 

(a)

Concentration of credit risk:  Financial instruments, which may subject us to significant concentrations of credit risk, consist principally of amounts due from our charterers, including the receivables from Helios Pool, cash and cash equivalents, and restricted cash. We limit our credit risk with amounts due from our charterers, including those through the Helios Pool, by performing ongoing credit evaluations of our charterers’ financial condition and generally do not require collateral from our charterers. We limit our credit risk with our cash and cash equivalents and restricted cash by placing it with highly-rated financial institutions.

 

(b)

Interest rate risk:  Our long‑term bank loans are based on the London Interbank Offered Rate (“LIBOR”) and hence we are exposed to movements thereto. We entered into interest rate swap agreements in order to hedge a majority of our variable interest rate exposure related to our 2015 Debt Facility. Refer to Note 18 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2018 for information on our interest rate swap agreements related to the 2015 Debt Facility.  

 

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(c)

Fair value measurements: Interest rate swaps are stated at fair value, which is determined using a discounted cash flow approach based on marketbased LIBOR swap yield rates. LIBOR swap rates are observable at commonly quoted intervals for the full terms of the swaps and, therefore, are considered Level 2 items in accordance with the fair value hierarchy. The fair value of the interest rate swap agreements approximates the amount that we would have to pay or receive for the early termination of the agreements. The following table summarizes the location on the balance sheet of the financial assets and liabilities that are carried at fair value on a recurring basis, which comprise our financial derivatives all of which are considered Level 2 items in accordance with the fair value hierarchy:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2018

 

 

March 31, 2018

 

 

 

Other non-current assets

 

Long-term liabilities

 

Other non-current assets

 

Long-term liabilities

 

Derivatives not designated as hedging instruments

    

Derivative instruments

    

Derivative instruments

    

Derivative instruments

    

Derivative instruments

 

Interest rate swap agreements

 

$

17,023,975

 

$

 —

 

$

14,264,899

 

$

 —

 

 

The effect of derivative instruments within the unaudited interim condensed consolidated statements of operations included herein for the periods presented is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Derivatives not designated as hedging instruments

    

Location of gain/(loss) recognized

    

September 30, 2018

    

September 30, 2017

 

Interest Rate Swap—Change in fair value

 

Unrealized gain/(loss) on derivatives

 

$

1,051,460

 

$

652,160

 

Interest Rate Swap—Realized gain/(loss)

 

Realized gain/(loss) on derivatives

 

 

830,991

 

 

(435,920)

 

Gain/(loss) on derivatives, net

 

 

 

$

1,882,451

 

$

216,240

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Six months ended

 

Derivatives not designated as hedging instruments

    

Location of gain/(loss) recognized

    

September 30, 2018

    

September 30, 2017

 

Interest Rate Swap—Change in fair value

 

Unrealized gain/(loss) on derivatives

 

$

2,759,076

 

$

(1,718,031)

 

Interest Rate Swap—Realized gain/(loss)

 

Realized gain/(loss) on derivatives

 

 

1,613,556

 

 

(1,048,783)

 

Gain/(loss) on derivatives, net

 

 

 

$

4,372,632

 

$

(2,766,814)

 

 

As of September 30, 2018 and March 31, 2018, no fair value measurements for assets or liabilities under Level 1 or Level 3 were recognized in the accompanying consolidated balance sheets. We did not have any other assets or liabilities measured at fair value on a non-recurring basis during the three and six months ended September 30, 2018 and 2017.

 

(d)

Book values and fair values of financial instruments:   In addition to the derivatives that we are required to record at fair value on our balance sheet (see (c) above), we have other financial instruments that are carried at historical cost. These financial instruments include trade accounts receivable, amounts due from related parties, cash and cash equivalents, restricted cash, accounts payable, amounts due to related parties and accrued liabilities for which the historical carrying value approximates the fair value due to the short-term nature of these financial instruments. Cash and cash equivalents and restricted cash are considered Level 1 items. We have long-term bank debt for which we believe the carrying value approximates their fair value as the loans bear interest at variable interest rates, being LIBOR, which is observable at commonly quoted intervals for the full terms of the loans, and hence are considered as Level 2 items in accordance with the fair value hierarchy. We also have long-term debt related to the Corsair Japanese Financing, Concorde Japanese Financing, Corvette Japanese Financing, CJNP Japanese Financing, CMNL Japanese Financing, and CNML Japanese Financing (collectively the “Japanese Financings”) that incur interest at a fixed-rate with the initial principal amount amortized to the purchase obligation price of each vessel. The Japanese Financings are considered Level 2 items in accordance with the fair value hierarchy and the fair value of each is based on a discounted cash flow analysis using current observable interest rates. The following table summarizes the carrying value and estimated fair value of the Japanese Financings as of:

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September 30, 2018

 

 

March 31, 2018

 

 

    

Carrying Value

    

Fair Value

 

    

Carrying Value

    

Fair Value

 

Corsair Japanese Financing

 

$

49,020,833

 

$

45,410,069

 

 

$

50,645,833

 

$

50,645,833

 

Concorde Japanese Financing

 

 

53,576,923

 

 

49,330,698

 

 

 

55,192,308

 

 

55,192,308

 

Corvette Japanese Financing

 

 

54,115,385

 

 

49,792,999

 

 

 

55,730,769

 

 

55,730,769

 

CJNP Japanese Financing

 

 

21,230,000

 

 

20,993,639

 

 

 

 —

 

 

 —

 

CMNL Japanese Financing

 

 

20,130,942

 

 

19,894,012

 

 

 

 —

 

 

 —

 

CNML Japanese Financing

 

$

22,369,038

 

$

22,098,229

 

 

$

 —

 

$

 —

 

 

 

10.  Earnings/(Loss) Per Share (“EPS”)

 

Basic EPS represents net income/(loss) attributable to common shareholders divided by the weighted average number of common shares outstanding during the measurement period. Our restricted stock shares include rights to receive dividends that are subject to the risk of forfeiture if service requirements are not satisfied, and as a result, these shares are not considered participating securities and are excluded from the basic weighted-average shares outstanding calculation. Diluted EPS represent net income/(loss) attributable to common shareholders divided by the weighted average number of common shares outstanding during the measurement period while also giving effect to all potentially dilutive common shares that were outstanding during the period.

 

The calculations of basic and diluted EPS for the periods presented are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Six months ended

 

(In U.S. dollars except share data)

 

September 30, 2018

 

September 30, 2017

 

September 30, 2018

 

September 30, 2017

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(8,177,120)

 

$

(11,915,136)

 

$

(28,773,678)

 

$

(18,605,106)

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average number of common shares outstanding

 

 

54,431,820

 

 

54,076,271

 

 

54,313,255

 

 

53,976,330

 

EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.15)

 

$

(0.22)

 

$

(0.53)

 

$

(0.34)

 

 

For the three and six months ended September 30, 2018, there were 725,685 shares of unvested restricted stock and for the three and six months ended September 30, 2017, there were 1,029,266 shares of unvested restricted stock, which were excluded from the calculation of diluted EPS because the effect of their inclusion would be anti-dilutive.

 

11.  Commitments and Contingencies

 

Commitments under Contracts for Scrubber Purchases

 

During the three months ended September 30, 2018, we entered into a  contract to purchase scrubbers to reduce sulfur emissions. We had the following contractual commitments related to the scrubbers purchases:

 

 

 

 

 

 

 

 

September 30, 2018

 

Less than one year

 

$

3,024,231

 

One to three years

 

 

2,387,551

 

Total

 

$

5,411,782

 

 

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Operating Leases

 

Operating lease rent expense was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Six months ended

 

 

 

September 30, 2018

 

September 30, 2017

 

September 30, 2018

 

September 30, 2017

 

Operating lease rent expense

 

$

106,117

 

$

108,358

 

$

233,599

 

$

214,550

 

 

We had the following commitments as a lessee under operating leases relating to our United States, Greece, United Kingdom, and Denmark offices:

 

 

 

 

 

 

 

 

September 30, 2018

 

Less than one year

 

$

422,421

 

One to three years

 

 

473,247

 

Three to five years

 

 

329,217

 

Total

 

$

1,224,885

 

 

Fixed Time Charter Contracts

 

We had the following future minimum fixed time charter hire receipts based on non-cancelable long-term fixed time charter contracts:

 

 

 

 

 

 

 

 

September 30, 2018

 

Less than one year

 

$

29,578,114

 

One to three years

 

 

12,431,365

 

Total

 

$

42,009,479

 

 

Other

 

From time to time we expect to be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. Such claims, even if lacking in merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any claim that is reasonably possible and should be disclosed or probable and for which a provision should be established in the accompanying unaudited interim condensed consolidated financial statements.

 

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion contains forwardlooking 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, 2018, our actual results may differ materially from those anticipated in these forwardlooking 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 cargocarrying 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 and three 82,000 cbm VLGCs. Two of our ECO VLGCs are fitted with scrubbers to reduce sulfur emissions. We have entered into a contract for an additional seven of our ECO VLGCs to be fitted with scrubbers as of October 24, 2018.

 

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 October 24, 2018, nineteen of our twenty-two VLGCs were employed in the Helios Pool.

 

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, and Oriental Energy Company Ltd., commodity traders such as Itochu Corporation and the Vitol Group and importers such as E1 Corp., SK Gas Co. Ltd. and Indian Oil Corporation.

 

We 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, three of our VLGCs are on fixed-rate time charters outside of the Helios Pool and three of our VLGCs are on Pool-TCO within the Helios Pool. See “Our Fleet” below for more information and the definition of Pool-TCO.

 

 

 

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Selected Financial Data

 

The following table presents our selected financial data and other information for the three and six months ended September 30, 2018 and 2017, and as of September 30, 2018 and March 31, 2018, and should be read in conjunction with our unaudited interim condensed consolidated financial statements and other financial information included in this quarterly report. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Six months ended

 

(in U.S. dollars, except fleet data)

 

September 30, 2018

    

September 30, 2017

    

September 30, 2018

    

September 30, 2017

 

Statement of Operations Data

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

40,807,542

 

$

34,729,021

 

$

68,451,824

 

$

75,754,493

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Voyage expenses

 

 

435,224

 

 

1,275,521

 

 

535,397

 

 

1,514,966

 

Vessel operating expenses

 

 

17,375,273

 

 

15,740,438

 

 

34,060,730

 

 

32,625,727

 

Depreciation and amortization

 

 

16,437,653

 

 

16,464,707

 

 

32,702,709

 

 

32,757,865

 

General and administrative expenses

 

 

7,462,726

 

 

5,421,145

 

 

15,866,012

 

 

13,956,054

 

Total expenses

 

 

41,710,876

 

 

38,901,811

 

 

83,164,848

 

 

80,854,612

 

Other income—related parties

 

 

584,632

 

 

638,070

 

 

1,229,149

 

 

1,271,953

 

Operating loss

 

 

(318,702)

 

 

(3,534,720)

 

 

(13,483,875)

 

 

(3,828,166)

 

Other income/(expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and finance costs

 

 

(10,152,672)

 

 

(8,602,430)

 

 

(20,526,953)

 

 

(16,080,164)

 

Interest income

 

 

451,923

 

 

28,226

 

 

912,896

 

 

44,042

 

Unrealized gain/(loss) on derivatives

 

 

1,051,460

 

 

652,160

 

 

2,759,076

 

 

(1,718,031)

 

Realized gain/(loss) on derivatives

 

 

830,991

 

 

(435,920)

 

 

1,613,556

 

 

(1,048,783)

 

Gain on early extinguishment of debt

 

 

 —

 

 

 —

 

 

 —

 

 

4,117,364

 

Foreign currency loss, net

 

 

(40,120)

 

 

(22,452)

 

 

(48,378)

 

 

(91,368)

 

Total other income/(expenses), net

 

 

(7,858,418)

 

 

(8,380,416)

 

 

(15,289,803)

 

 

(14,776,940)

 

Net loss

 

$

(8,177,120)

 

$

(11,915,136)

 

$

(28,773,678)

 

$

(18,605,106)

 

Loss per common share—basic and diluted

 

$

(0.15)

 

$

(0.22)

 

$

(0.53)

 

$

(0.34)

 

Other Financial Data

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA(1)

 

$

17,855,615

 

$

14,111,332

 

$

23,040,751

 

$

31,582,161

 

Fleet Data

 

 

 

 

 

 

 

 

 

 

 

 

 

Calendar days(2)

 

 

2,024

 

 

2,024

 

 

4,026

 

 

4,026

 

Available days(3)

 

 

2,010

 

 

2,023

 

 

4,001

 

 

4,025

 

Operating days(4)(7)

 

 

1,925

 

 

1,857

 

 

3,589

 

 

3,651

 

Fleet utilization(5)(7)

 

 

95.8

%  

 

91.8

%  

 

89.7

%  

 

90.7

%

Average Daily Results

 

 

 

 

 

 

 

 

 

 

 

 

 

Time charter equivalent rate(6)(7)

 

$

20,973

 

$

18,015

 

$

18,923

 

$

20,334

 

Daily vessel operating expenses(8)

 

$

8,585

 

$

7,777

 

$

8,460

 

$

8,104

 

 

 

 

 

 

 

 

 

 

 

    

Dorian LPG Ltd.

 

 

 

As of

    

As of

    

(in U.S. dollars)

 

September 30, 2018

 

March 31, 2018

 

Balance Sheet Data

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

48,244,169

 

$

103,505,676

 

Restricted cash—non-current

 

 

35,636,008

 

 

25,862,704

 

Total assets

 

 

1,679,160,894

 

 

1,736,110,156

 

Current portion of long-term debt

 

 

63,968,414

 

 

65,067,569

 

Long-term debt—net of current portion and deferred financing fees(9)

 

 

662,567,722

 

 

694,035,583

 

Total liabilities

 

 

746,696,829

 

 

776,696,794

 

Total shareholders’ equity

 

$

932,464,065

 

$

959,413,362

 


(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

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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 loss to Adjusted EBITDA (unaudited) for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Six months ended

 

 

    

September 30, 2018

    

September 30, 2017

    

September 30, 2018

    

September 30, 2017

 

(in U.S. dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(8,177,120)

 

$

(11,915,136)

 

$

(28,773,678)

 

$

(18,605,106)

 

Interest and finance costs

 

 

10,152,672

 

 

8,602,430

 

 

20,526,953

 

 

16,080,164

 

Unrealized (gain)/loss on derivatives

 

 

(1,051,460)

 

 

(652,160)

 

 

(2,759,076)

 

 

1,718,031

 

Realized (gain)/loss on derivatives

 

 

(830,991)

 

 

435,920

 

 

(1,613,556)

 

 

1,048,783

 

Gain on early extinguishment of debt

 

 

 —

 

 

 —

 

 

 —

 

 

(4,117,364)

 

Stock-based compensation expense

 

 

1,324,861

 

 

1,175,571

 

 

2,957,399

 

 

2,699,788

 

Depreciation and amortization

 

 

16,437,653

 

 

16,464,707

 

 

32,702,709

 

 

32,757,865

 

Adjusted EBITDA

 

$

17,855,615

 

$

14,111,332

 

$

23,040,751

 

$

31,582,161

 

 

(2)

We define calendar days as the total number of days in a period during which each vessel in our fleet was commercially managed. 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 available days as calendar days 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.

 

(4)

We define operating days as available days less the aggregate number of days that the commercially-managed vessels in our fleet are offhire 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 7 below).

 

(5)

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 nonscheduled offhire 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.

 

(6)

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 periodtoperiod 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.

 

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Table of Contents

The following table sets forth a reconciliation of revenues to TCE rate (unaudited) for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Six months ended

 

(in U.S. dollars, except operating days)

 

September 30, 2018

    

September 30, 2017

    

September 30, 2018

    

September 30, 2017

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

40,807,542

 

$

34,729,021

 

$

68,451,824

 

$

75,754,493

 

Voyage expenses

 

 

(435,224)

 

 

(1,275,521)

 

 

(535,397)

 

 

(1,514,966)

 

Time charter equivalent

 

$

40,372,318

 

$

33,453,500

 

$

67,916,427

 

$

74,239,527

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating days

 

 

1,925

 

 

1,857

 

 

3,589

 

 

3,651

 

TCE rate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Time charter equivalent rate

 

$

20,973

 

$

18,015

 

$

18,923

 

$

20,334

 

 

(7)

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 since the inception of the Helios Pool is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

Six months ended

 

 

 

 

September 30, 2018

 

 

September 30, 2017

 

 

September 30, 2018

 

 

September 30, 2017

 

 

Company Methodology:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Days

 

 

1,925

 

 

 

1,857

 

 

 

3,589

 

 

 

3,651

 

 

Fleet Utilization

 

 

95.8

%

 

 

91.8

%

 

 

89.7

%

 

 

90.7

%

 

Time charter equivalent

 

$

20,973

 

 

$

18,015

 

 

$

18,923

 

 

$

20,334

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alternate Methodology:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Days

 

 

2,010

 

 

 

2,005

 

 

 

4,000

 

 

 

4,007

 

 

Fleet Utilization

 

 

100.0

%

 

 

99.1

%

 

 

100.0

%

 

 

99.6

%

 

Time charter equivalent

 

$

20,086

 

 

$

16,685

 

 

$

16,979

 

 

$

18,527

 

 

 

We believe that the Company Methodology using the underlying vessel employment provides more meaningful insight into market conditions and the performance of our vessels.

 

(8)

Daily vessel operating expenses are calculated by dividing vessel operating expenses by calendar days for the relevant time period.

 

(9)

Long-term debt is net of deferred financing fees of $15.5 million and, $16.1 million as of September 30, 2018 and March 31, 2018, respectively.

 

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Table of Contents

Our Fleet

 

The following table sets forth certain information regarding our fleet as of October 24, 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

 

    

 

    

 

    

 

 

 

 

Capacity

 

 

 

 

 

ECO

 

 

 

Charter

 

 

 

(Cbm)

 

Shipyard

 

Year Built

 

Vessel(1)

 

Employment

 

Expiration(2)

 

VLGCs

 

 

 

 

 

 

 

 

 

 

 

 

 

Captain Markos NL(3)

 

82,000

 

Hyundai

 

2006

 

 

Time Charter(4)

 

Q4 2019

 

Captain John NP(3)

 

82,000

 

Hyundai

 

2007

 

 

Pool(5)

 

 

Captain Nicholas ML(3)

 

82,000

 

Hyundai

 

2008

 

 

Pool(5)

 

 

Comet

 

84,000

 

Hyundai

 

2014

 

X

 

Time Charter(6)

 

Q3 2019

 

Corsair(3)

 

84,000

 

Hyundai

 

2014

 

X

 

Pool(5)

 

 

Corvette(3)

 

84,000

 

Hyundai

 

2015

 

X

 

Pool(5)

 

 

Cougar

 

84,000

 

Hyundai

 

2015

 

X

 

Pool(5)

 

 

Concorde(3)

 

84,000

 

Hyundai

 

2015

 

X

 

Pool-TCO(7)

 

Q1 2019

 

Cobra

 

84,000

 

Hyundai

 

2015

 

X

 

Pool-TCO(7)

 

Q4 2018

 

Continental

 

84,000

 

Hyundai

 

2015

 

X

 

Pool-TCO(7)

 

Q4 2018

 

Constitution

 

84,000

 

Hyundai

 

2015

 

X

 

Pool(5)

 

 

Commodore

 

84,000

 

Hyundai

 

2015

 

X

 

Pool(5)

 

 

Cresques

 

84,000

 

Daewoo

 

2015

 

X

 

Pool(5)

 

 

Constellation

 

84,000

 

Hyundai

 

2015

 

X

 

Pool(5)

 

 

Cheyenne

 

84,000

 

Hyundai

 

2015

 

X

 

Pool(5)

 

 

Clermont

 

84,000

 

Hyundai

 

2015

 

X

 

Pool(5)

 

 

Cratis

 

84,000

 

Daewoo

 

2015

 

X

 

Pool(5)

 

 

Chaparral

 

84,000

 

Hyundai

 

2015

 

X

 

Pool(5)

 

 

Copernicus

 

84,000

 

Daewoo

 

2015

 

X

 

Pool(5)

 

 

Commander

 

84,000

 

Hyundai

 

2015

 

X

 

Time Charter(8)

 

Q4 2020

 

Challenger

 

84,000

 

Hyundai

 

2015

 

X

 

Pool(5)

 

 

Caravelle

 

84,000

 

Hyundai

 

2016

 

X

 

Pool(5)

 

 

Total

 

1,842,000

 

 

 

 

 

 

 

 

 

 

 

 


(1)

Represents vessels with very low revolutions per minute, longstroke, 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)

Currently on time charter with an oil major that began in December 2014.

 

(5)

“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.

 

(6)

Currently on time charter with an oil major that began in July 2014.

 

(7)

“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.

 

(8)

Currently on time charter with a major oil company that began in November 2015.

 

 

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Results of Operations – For the three months ended September 30, 2018 as compared to the three months ended September 30, 2017

 

Revenues

 

The following table compares our Revenues for the three months ended September 30:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase /

 

Percent

 

 

    

2018

    

2017

    

(Decrease)

    

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net pool revenues—related party

 

$

32,027,042

 

$

20,468,380

 

$

11,558,662

 

56.5

%

Time charter revenues

 

 

8,640,000

 

 

12,507,394

 

 

(3,867,394)

 

(30.9)

%

Voyage charter revenues

 

 

 —

 

 

1,733,247

 

 

(1,733,247)

 

NM

 

Other revenues, net

 

 

140,500

 

 

20,000

 

 

120,500

 

602.5

%

Total

 

$

40,807,542

 

$

34,729,021

 

$

6,078,521

 

17.5

%

 

Revenues, which represent net pool revenues—related party, time charters, voyage charters and other revenues earned by our vessels, were $40.8 million for the three months ended September 30, 2018, an increase of $6.1 million, or 17.5%, from $34.7 million for the three months ended September 30, 2017. The increase is primarily attributable to an increase in average TCE rates and fleet utilization. Average TCE rates increased from $18,015 for the three months ended September 30, 2017 to $20,973 for the three months ended September 30, 2018, primarily as a result of higher spot market rates during the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. 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 $40.245 during the three months ended September 30, 2018 compared to an average of $22.171 for the three months ended September 30, 2017. Our fleet utilization increased from 91.8% during the three months ended September 30, 2017 to 95.8% during the three months ended September 30, 2018.

 

Vessel Operating Expenses

 

Vessel operating expenses were $17.4 million during the three months ended September 30, 2018, or $8,585 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 an increase of $1.7 million, or 10.4%, from $15.7 million for the three months ended September 30, 2017. Vessel operating expenses per vessel per calendar day increased by $808 from $7,777 for the three months ended September 30, 2017 to $8,585 for the three months ended September 30, 2018. The increase in vessel operating expenses for the three months ended September 30, 2018, when compared with the three months ended September 30, 2017, was primarily the result of a $1.6 million, or $787 per vessel per calendar day, increase in spares, stores, and repairs and maintenance costs largely due to our regular preventive maintenance programs, and a $0.3 million purchase of coolant for one of our VLGCs coming off drydock in July 2018 resulting in an increase of $160 per vessel per calendar day. The increase in spares, stores, and repairs and maintenance costs were mainly due to having a VLGC in drydock during the three months ended September 30, 2018, which was not the case during the three months ended September 30, 2017. Non-capitalized expenses related to the drydock for the three months ended September 30, 2018 totaled $0.3 million, or $153 per vessel per calendar day. Partially offsetting the increases was a reduction of crew wages and related costs of $0.2 million, or $114 per vessel per calendar day.  

 

General and Administrative Expenses

 

General and administrative expenses were $7.5 million for the three months ended September 30, 2018, an increase of $2.1 million, or 37.7%, from $5.4 million for the three months ended September 30, 2017. The increase was mainly due to an increase in professional and legal fees resulting from $1.7 million of expenses incurred related to the unsolicited proposal by BW LPG Limited (“BW”) to combine with us in an all-stock transaction, and a proxy contest commenced by BW, along with its affiliates, to replace three members of our board of directors with BW nominees, which proposal and proxy contest were subsequently withdrawn on October 8, 2018. Additionally, the increase in general and administrative expenses was due to increases of $0.2 million in stock-based compensation and $0.2 million in other general and administrative expenses.

 

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Interest and Finance Costs

 

Interest and finance costs amounted to $10.2 million for the three months ended September 30, 2018, an increase of $1.6 million, or 18.0%, from $8.6 million for the three months ended September 30, 2017. The increase of $1.6 million during this period was due to an increase of $2.5 million in interest incurred on our long-term debt, primarily resulting from an increase in LIBOR and an increase in average indebtedness, partially offset by a reduction of $0.9 million in amortization of deferred financing fees and loan expenses. Average indebtedness, excluding deferred financing fees, increased from $742.3 million for the three months ended September 30, 2017 to $756.1 million for the three months ended September 30, 2018. As of September 30, 2018, the outstanding balance of our long-term debt, net of deferred financing fees of $15.5 million, was $726.5 million.

 

Unrealized Gain/(Loss) on Derivatives

 

Unrealized gain on derivatives was approximately $1.1 million for the three months ended September 30, 2018, compared to an unrealized gain of $0.7 million for the three months ended September 30, 2017. The favorable $0.4 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/(Loss) on Derivatives

 

Realized gain on derivatives was approximately $0.8 million for the three months ended September 30, 2018, compared to a realized loss of $0.4 million for the three months ended September 30, 2017. The favorable $1.2 million change is attributable to increases in floating LIBOR resulting in realized gains on interest rate swaps related to the 2015 Debt Facility.

 

 

Results of Operations – For the six months ended September 30, 2018 as compared to the six months ended September 30, 2017

 

Revenues

 

The following table compares our Revenues for the six months ended September 30:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase /

 

Percent

 

 

    

2018

    

2017

    

(Decrease)

    

Change

 

Net pool revenues—related party

 

$

48,133,443

 

$

48,943,739

 

$

(810,296)

 

(1.7)

%

Time charter revenues

 

 

20,107,881

 

 

25,072,049

 

 

(4,964,168)

 

(19.8)

%

Voyage charter revenues

 

 

 —

 

 

1,733,247

 

 

(1,733,247)

 

NM

 

Other revenues, net

 

 

210,500

 

 

5,458

 

 

205,042

 

3,756.7

%

Total

 

$

68,451,824

 

$

75,754,493

 

$

(7,302,669)

 

(9.6)

%

 

Revenues, which represent net pool revenues—related party, time charters, voyage charters and other revenues earned by our vessels, were $68.5 million for the six months ended September 30, 2018, a decrease of $7.3 million, or 9.6%, from $75.8 million for the six months ended September 30, 2017. The decrease is primarily attributable to a decrease in average TCE rates and a slight reduction in fleet utilization. Average TCE rates decreased from $20,334 for the six months ended September 30, 2017 to $18,923 for the six months ended September 30, 2018, primarily as a result of higher bunker prices, partially offset by increased spot market rates during the six months ended September 30, 2018 as compared to the six months ended September 30, 2017. The average price of heavy fuel oil (expressed as U.S. dollars per metric tonnes) from Singapore and Fujairah increased from $313 during the six months ended September 30, 2017 to $466 during the six months ended September 30, 2018. 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 $33.484 during the six months ended September 30, 2018 compared to an average of $25.412 for the six months ended September 30, 2017. Our fleet utilization decreased slightly from 90.7% during the six months ended September 30, 2017 to 89.7% during the six months ended September 30, 2018.

 

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Vessel Operating Expenses

 

Vessel operating expenses were $34.1 million during the six months ended September 30, 2018, or $8,460 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 an increase of $1.5 million, or 4.4%, from $32.6 million for the six months ended September 30, 2017. Vessel operating expenses per vessel per calendar day increased by $356 from $8,104 for the six months ended September 30, 2017 to $8,460 for the six months ended September 30, 2018. The increase in vessel operating expenses for the six months ended September 30, 2018, when compared with the six months ended September 30, 2017, was primarily the result of a $2.3 million, or $563 per vessel per calendar day, increase in spares, stores, and repairs and maintenance costs largely due to our regular preventive maintenance programs, and a $0.3 million purchase of coolant for one of our VLGCs coming off drydock in July 2018 resulting in an increase of $80 per vessel per calendar day. The increase in spares, stores, and repairs and maintenance costs were mainly due to having a VLGC in drydock during the three months ended September 30, 2018, which was not the case during the three months ended September 30, 2017. Non-capitalized expenses related to the drydock for the six months ended September 30, 2018 totaled $0.4 million, or $102 per vessel per calendar day. Partially offsetting the increases was a reduction of crew wages and related costs of $1.1 million, or $263 per vessel per calendar day.

 

General and Administrative Expenses

 

General and administrative expenses were $15.9 million for the six months ended September 30, 2018, an increase of $1.9 million, or 13.7%, from $14.0 million for the six months ended September 30, 2017. The increase was mainly due to an increase of $1.8 million in professional and legal fees resulting from $2.1 million of expenses incurred related to the unsolicited proposal by BW to combine with us in an all-stock transaction, and a proxy contest commenced by BW, along with its affiliates, to replace three members of our board of directors with BW nominees, which proposal and proxy contest were subsequently withdrawn on October 8, 2018. Additionally, the increase in general and administrative expenses was due to an increase of $0.3 million in stock-based compensation, partially offset by a reduction of $0.2 million in other general and administrative expenses.

 

 

Interest and Finance Costs

 

Interest and finance costs amounted to $20.5 million for the six months ended September 30, 2018, an increase of $4.4 million, or 27.7%, from $16.1 million for the six months ended September 30, 2017. The increase of $4.4 million during this period was due to an increase of $5.6 million in interest incurred on our long-term debt, primarily resulting from (i) an increase in LIBOR, (ii) an increase in margin on the 2017 Bridge Loan that we repaid in June 2018 and (iii) an increase in average indebtedness, partially offset by a reduction of $1.2 million in amortization of deferred financing fees and loan expenses. Average indebtedness, excluding deferred financing fees, increased from $750.9 million for the six months ended September 30, 2017 to $762.4 million for the six months ended September 30, 2018. As of September 30, 2018, the outstanding balance of our long-term debt, net of deferred financing fees of $15.5 million, was $726.5 million.

 

Unrealized Gain/(Loss) on Derivatives

 

Unrealized gain on derivatives was approximately $2.8 million for the six months ended September 30, 2018, compared to an unrealized loss of $1.7 million for the six months ended September 30, 2017. The favorable $4.5 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/(Loss) on Derivatives

 

Realized gain on derivatives was approximately $1.6 million for the six months ended September 30, 2018, compared to a realized loss of $1.0 million for the six months ended September 30, 2017. The favorable $2.6 million change is attributable to increases in floating LIBOR resulting in realized gains on interest rate swaps related to the 2015 Debt Facility.

 

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Table of Contents

Gain on Early Extinguishment of Debt

 

Gain on early extinguishment of debt amounted to $4.1 million for the six months ended September 30, 2017 and was attributable to the repayment of our loan facility with the Royal Bank of Scotland, net of deferred financing fees. There was no gain on early extinguishment of debt for the six months ended September 30, 2018.

 

Liquidity and Capital Resources

 

Our business is capital intensive, and our future success depends on our ability to maintain a highquality fleet. As of September 30, 2018, we had cash and cash equivalents of $48.2 million and restricted cash—non-current of $35.6 million.

 

Our primary sources of capital during the six months ended September 30, 2018 were (i) $22.9 million in proceeds from the refinancing of the Captain Nicholas ML, (ii) $21.7 million in proceeds from the refinancing of the Captain John NP, and (iii) $20.6 million in proceeds from the refinancing of the Captain Markos NL. Proceeds from the refinancings of the Captain John NP,  Captain Markos ML, and Captain Nicholas ML were used to prepay the 2017 Bridge Loan.

 

On June 4, 2018, we prepaid $22.3 million of the 2017 Bridge Loan’s then outstanding principal using cash on hand prior to the closing of the CJNP Japanese Financing. Refer to Note 6 to our unaudited interim condensed consolidated financial statements included herein for further details on the prepayment of the 2017 Bridge Loan.

 

On June 11, 2018, we entered into the CJNP Japanese Financing. The refinancing proceeds of $21.7 million increased our unrestricted cash after we prepaid $22.3 million of the 2017 Bridge Loan on June 4, 2018 using cash on hand prior to the closing of the CJNP Japanese Financing. Refer to Note 6 to our unaudited interim condensed consolidated financial statements included herein for further details on the refinancing of the Captain John NP.

 

On June 20, 2018, we prepaid the remaining 2017 Bridge Loan’s outstanding principal of $44.6 million (related to the Captain Nicholas ML and the Captain Markos NL) using cash on hand prior to the closing of the CMNL Japanese Financing and the CNML Japanese Financing. Refer to Note 6 to our unaudited interim condensed consolidated financial statements included herein for further details on the prepayment of the 2017 Bridge Loan.

 

On June 25, 2018, we entered into the CMNL Japanese Financing. The refinancing proceeds of $20.6 million increased our unrestricted cash after we prepaid $21.2 million of the 2017 Bridge Loan on June 20, 2018 using cash on hand prior to the closing of the CMNL Japanese Financing. Refer to Note 6 to our unaudited interim condensed consolidated financial statements included herein for further details on the refinancing of the Captain Markos NL.

 

On June 26, 2018, we entered into the CNML Japanese Financing. The refinancing proceeds of $22.9 million increased our unrestricted cash after we prepaid $23.4 million of the 2017 Bridge Loan on June 20, 2018 using cash on hand prior to the closing of the CNML Japanese Financing. Refer to Note 6 to our unaudited interim condensed consolidated financial statements included herein for further details on the refinancing of the Captain Nicholas ML.

 

As of September 30, 2018, the outstanding balance of our long-term debt, net of deferred financing fees of $15.5 million, was $726.5 million including $64.0 million of principal on our long-term debt scheduled to be repaid within the next twelve months. 

 

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 four of our VLGCs represent our shortterm, mediumterm and longterm liquidity needs as of September 30, 2018. 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

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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. In addition, under the terms of our credit facilities, we may only declare or pay any dividends from our free cash flow and may not do so if an event of default is occurring or the payment of such dividend would result in an event of default. Further, under the 2015 Debt Facility, we are temporarily restricted from paying dividends and repurchasing shares of our common stock until the earlier of (i) when we complete common stock offerings with net proceeds of at least $50.0 million and (ii) May 31, 2019.

 

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 six months ended September 30:

 

 

 

 

 

 

 

 

 

2018

 

2017

 

Net cash provided by/(used in) operating activities

$

(9,248,743)

 

$

32,320,919

 

Net cash used in investing activities

 

(1,159,583)

 

 

(385,981)

 

Net cash used in financing activities

 

(34,950,168)

 

 

(31,050,201)

 

Net increase/(decrease) in cash, cash equivalents, and restricted cash

$

(45,488,203)

 

$

1,034,059

 

 

Operating Cash Flows.  Net cash used in operating activities for the six months ended September 30, 2018 was $9.2 million, compared with net cash provided by operating activities of $32.3 million for the six months ended September 30, 2017. The decrease of $41.5 million is primarily related to an increased operating loss and 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 $1.2 million for the six months ended September 30, 2018 compared with net cash used in investing activities of $0.4 million for the six months ended September 30, 2017. For the six months ended September 30, 2018 and 2017, net cash used in investing activities was comprised of our capital expenditures.

 

Financing Cash Flows.  Net cash used in financing activities was $35.0 million for the six months ended September 30, 2018, compared with $31.1 million for the six months ended September 30, 2017. For the six months ended September 30, 2018, net cash used in financing activities consisted of repayments of long-term debt of $98.2 million, payments for treasury stock repurchases of $1.2 million, and payment of debt financing costs of $0.6 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. Net cash used in financing activities for the six months ended September 30, 2017 consisted of repayments of long-term debt of $124.1 million, debt financing costs of $2.8 million, and treasury stock repurchases of $1.1 million, partially offset by a borrowing of $97.0 million related to the 2017 Bridge Loan.

 

Capital Expenditures.  LPG transportation is a capitalintensive business, requiring significant investment to maintain an efficient fleet and to stay in regulatory compliance.

 

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We are required to complete a special survey for a vessel once every five years until 15 years of age and thereafter every 2.5 years and an intermediate survey every 2.5 years after the first special survey. Drydocking each vessel takes approximately 1020 days. 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 cost of a VLGC special survey to be approximately $1.0 million per vessel (excluding any capital improvements to the vessel that may be made during such drydockings) and the cost of an intermediate survey to be approximately $100,000 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. 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 pricing of compliant low-sulfur fuel (0.5% sulfur). 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 seven of our VLGCs. 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, 2018.

 

Debt Agreements

 

For information relating to our secured term loan facilities, refer to Notes 9 and 23 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2018 and Note 6 to our unaudited interim condensed consolidated financial statements for the three and six months ended September 30, 2018 included herein.  

 

Off-Balance Sheet Arrangements

 

We currently do not have any offbalance 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, 2018.

 

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.

 

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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 September 30, 2018, independent appraisals of our VLGC fleet had indicators of impairment on twenty-one 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 and six months ended September 30, 2018.

 

In addition, we performed a sensitivity analysis as of September 30, 2018 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 25%. An impairment charge of approximately $38.3 million on seven of our VLGCs would be triggered by a reduction of 30% 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 September 30, 2018.

 

Recent Accounting Pronouncements

 

Refer to Note 2 to our unaudited interim condensed consolidated financial statements included herein for a discussion of recent accounting pronouncements.

 

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES 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, 2018.

 

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 $214.1 million of amortizing principal of the 2015 Debt Facility as of September 30, 2018 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 September 30, 2018, 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 PROCEDURES

 

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 September 30, 2018. 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 and six months ended September 30, 2018that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS

 

From time to time, we expect to be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. Such claims, even if lacking in merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any claim that is reasonably possible and should be disclosed or probable and for which a provision should be established in the accompanying unaudited interim condensed consolidated financial statements.

 

ITEM 1A.RISK FACTORS

 

Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. The following is an update to the risk factors that may cause actual results to differ materially from those anticipated as set forth in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended March 31, 2018.

 

We were subject to a disruptive unsolicited acquisition proposal and proxy contest.

BW has made an unsolicited proposal to acquire all of our outstanding common stock and has, along with its affiliates, commenced a proxy contest to replace three members of our board of directors with BW nominees. BW’s unsolicited proposal and proxy contest were subsequently withdrawn on October 8, 2018. Significant costs incurred in connection with BW’s unsolicited acquisition proposal and proxy contest may accrue even following the withdrawal of such unsolicited proposal and proxy contest. Continued uncertainty arising out of BW’s unsolicited acquisition proposal and proxy contest may disrupt our business and operations by potentially causing the loss of current and prospective employees, counterparties, and other constituencies important to our success, which could negatively impact our business and financial results. The price of our common stock may be volatile and could be subject to price fluctuations due to such continued uncertainty.

 

 

 

ITEM 6.EXHIBITS

 

See accompanying Exhibit Index for a list of exhibits filed or furnished with this report.

 

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EXHIBIT INDEX

 

 

 

 

Exhibit Number

 

Description

31.1

 

Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32.1†

 

Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 

 

 

 

32.2†

 

Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 

 

 

 

101.INS

 

XBRL Document 

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema

 

 

 

101.CAL

 

XBRL Taxonomy Extension Schema Calculation Linkbase

 

 

 

101.DEF

 

XBRL Taxonomy Extension Schema Definition Linkbase

 

 

 

101.LAB

 

XBRL Taxonomy Extension Schema Label Linkbase

 

 

 

101.PRE

 

XBRL Taxonomy Extension Schema Presentation Linkbase


This certification is deemed not filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended.

 

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

Dorian LPG Ltd.

 

(Registrant)

 

 

Date: October 30, 2018

/s/ John C. Hadjipateras

 

John C. Hadjipateras

 

President and Chief Executive Officer

 

(Principal Executive Officer)

 

 

 

 

Date: October 30, 2018

/s/ Theodore B. Young

 

Theodore B. Young

 

Chief Financial Officer

 

(Principal Financial Officer and Principal Accounting Officer)

 

 

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