d993735_10-q.htm
 
 
 

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
________________
 
FORM 10-Q
 
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2009
 
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 001–33831
 
EAGLE BULK SHIPPING INC.
(Exact name of Registrant as specified in its charter)
 

Republic of the Marshall Islands
 
98–0453513
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

477 Madison Avenue
Suite 1405
New York, New York 10022
Address of Principal Executive Offices

Registrant's telephone number, including area code: (212) 785–2500

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    X                NO          

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES                     NO          

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

Large accelerated Filer     X       Accelerated Filer             Non-accelerated Filer            Smaller reporting company         

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

   YES                       NO     X    
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common Stock, par value $0.01 per share, 47,031,300 shares outstanding as of May 6, 2009.
 
 
 

 
1

 





TABLE OF CONTENTS
     
   
Page
PART I
FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
 
Consolidated Balance Sheets as of March 31, 2009 (unaudited) and
December 31, 2008                                                                                                          
3
     
 
Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2009 and 2008
4
     
 
Consolidated Statement of Stockholders' Equity (unaudited) for the three months ended March 31, 2009
5
     
 
Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2009 and 2008 
6
     
 
      Notes to Consolidated Financial Statements (unaudited)
7
     
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations                                                                                                          
14
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risks
25
     
Item 4.
Controls and Procedures
25
     
PART II
OTHER INFORMATION
 
Item 1.
Legal Proceedings
26
Item 1A.
Risk Factors
26
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
26
Item 3.
Defaults upon Senior Securities
26
Item 4.
Submission of Matters to a Vote of Security Holders
26
Item 5.
Other Information
26
Item 6.
Exhibits
26
 
Signatures
27



 
2

 

Part 1 : FINANCIAL INFORMATION
Item 1 : Financial Statements
 
EAGLE BULK SHIPPING INC.
CONSOLIDATED BALANCE SHEETS
 
   
March 31, 2009
   
December 31, 2008
 
ASSETS:
           
Current assets:
         
 
 Cash and cash equivalents    $ 18,896,758       $ 9,208,862   
 Accounts receivable     5,242,161        4,357,837   
 Prepaid expenses     3,377,755        3,297,801   
 Other assets     3,549,732        —   
  Total current assets
    31,066,406       16,864,500  
 
Noncurrent assets:
               
 Vessels and vessel improvements, at cost, net of accumulated
depreciation of $93,807,957 and $84,113,047, respectively
    938,418,488       874,674,636  
Advances for vessel construction
    381,815,260       411,063,011  
Restricted cash
    12,776,056       11,776,056  
Deferred drydock costs, net of accumulated amortization of
   $5,618,655 and $5,022,649, respectively
    3,228,074       3,737,386  
Deferred financing costs
    23,827,797       24,270,060  
Fair value above contract value of time charters acquired
    4,531,115       4,531,115  
Fair value of derivative instruments and other assets
    6,173,340       15,258,780  
  Total noncurrent assets
    1,370,770,130       1,345,311,044  
Total assets
  $ 1,401,836,536     $ 1,362,175,544  
 
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
               
Accounts payable
  $ 3,423,635     $ 2,037,060  
Accrued interest
    6,651,391       7,523,057  
Other accrued liabilities
    4,844,379       3,021,975  
Deferred revenue and fair value below contract value of time charters acquired
    16,724,194       2,863,184  
Unearned charter hire revenue
    5,696,640       5,958,833  
  Total current liabilities
    37,340,239       21,404,109  
Noncurrent liabilities:
               
Long-term debt
    802,476,403       789,601,403  
Fair value below contract value of time charters acquired
    28,007,433       29,205,196  
Fair value of derivative instruments
    49,525,089       50,538,060  
  Total noncurrent liabilities
    880,008,925       869,344,659  
Total liabilities
    917,349,164       890,748,768  
Commitment and contingencies
               
Stockholders' equity:
               
Preferred stock, $.01 par value, 25,000,000 shares authorized, none issued
           
Common shares, $.01 par value, 100,000,000 shares authorized, 47,031,300 shares issued and outstanding
    470,313       470,313  
Additional paid-in capital
    618,137,930       614,241,646  
Retained earnings (net of dividends declared of $262,188,388)
    (90,549,877 )     (107,786,658 )
Accumulated other comprehensive loss
    (43,570,994 )     (35,498,525 )
   Total stockholders' equity
    484,487,372       471,426,776  
Total liabilities and stockholders' equity
  $ 1,401,836,536     $ 1,362,175,544  
                 
                 
                 
 
________________
The accompanying notes are an integral part of these Consolidated Financial Statements.
 
 
3


 
EAGLE BULK SHIPPING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

   
Three Months Ended
 
   
March 31, 2009
   
March 31, 2008
 
             
             
Revenues, net of commissions
  $ 55,977,666     $ 36,686,016  
                 
Vessel expenses
    13,071,197       7,991,261  
Depreciation and amortization
    10,290,916       7,336,039  
General and administrative expenses
    8,903,028       5,049,159  
                 
    Total operating expenses
    32,265,141       20,376,459  
                 
                 
Operating income
    23,712,525       16,309,557  
                 
Interest expense
    6,486,317       3,350,253  
Interest income
    (10,573 )     (1,386,506 )
                 
    Net interest expense
    6,475,744       1,963,747  
                 
                 
Net income
  $ 17,236,781     $ 14,345,810  
                 
 
Weighted average shares outstanding :
               
                 
Basic
    47,031,300       46,752,538  
Diluted
    47,031,300       46,925,494  
 
Per share amounts:
               
                 
Basic net income
  $ 0.37     $ 0.31  
Diluted net income
  $ 0.37     $ 0.31  
Cash dividends declared and paid
        $ 0.50  
                 
                 

 
________________
The accompanying notes are an integral part of these Consolidated Financial Statements.

 
4

 


EAGLE BULK SHIPPING INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2009



                                         
 
Common
Shares
   
Common
Shares
Amount
   
Additional
Paid-In
Capital
   
 
Net Income
   
Accumulated Deficit
   
Other Comprehensive Income (Loss
   
Total Stockholders' Equity
 
                                         
Balance at December 31, 2008
47,031,300     $ 470,313     $ 614,241,646           $ (107,786,658 )   $ (35,498,525 )   $ 471,426,776  
Comprehensive income :
                                                 
   Net income
                $ 17,236,781       17,236,781             17,236,781  
   Net unrealized losses on derivatives
                              (8,072,469 )     (8,072,469 )
Comprehensive income
                                    9,164,312  
Non-cash compensation
            3,896,284                         3,896,284  
                                                     
Balance at March 31, 2009
47,031,300     $ 470,313     $ 618,137,930             $ (90,549,877 )   $ (43,570,994 )   $ 484,487,372  
                                                     
 
 
________________
The accompanying notes are an integral part of these Consolidated Financial Statements.

 
5

 

EAGLE BULK SHIPPING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
Three Months Ended
 
   
March 31, 2009
   
March 31, 2008
 
Cash flows from operating activities:
           
Net income
  $ 17,236,781     $ 14,345,810  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Items included in net income not affecting cash flows:
               
Depreciation
    9,694,910       6,708,415  
Amortization of deferred drydocking costs
    596,006       627,624  
Amortization of deferred financing costs
    240,057       61,907  
Amortization of fair value below contract value of time charter acquired
    (649,731 )      
Non-cash compensation expense
    3,896,284       2,515,703  
Changes in operating assets and liabilities:
               
Accounts receivable
    (884,324 )     113,078  
Other assets
    (3,549,732 )      
Prepaid expenses
    (79,954 )     (141,700 )
Accounts payable
    1,386,575       (1,476,295 )
Accrued interest
    350,812       3,106,074  
Accrued expenses
    1,822,404       (46,930 )
Drydocking expenditures
    (86,694 )     (65,851 )
Deferred revenue
    13,312,978        
Unearned charter hire revenue
    (262,193 )     706,527  
                 
Net cash provided by operating activities
    43,024,179       26,454,362  
                 
  Cash flows from investing activities:
               
Vessels and vessel improvements and advances for vessel construction
    (44,271,329 )     (13,399,474 )
                 
Net cash used in investing activities
    (44,271,329 )     (13,399,474 )
                 
Cash flows from financing activities:
               
Bank borrowings
    12,875,000       6,630,000  
Changes in restricted cash
    (1,000,000 )     (151,440 )
Deferred financing costs
    (939,954 )     (545,140 )
Cash dividends
          (23,378,577 )
                 
Net cash provided by/(used in) financing activities
    10,935,046       (17,445,157 )
                 
Net increase/(decrease) in cash
    9,687,896       (4,390,269 )
Cash at beginning of period
    9,208,862       152,903,692  
                 
Cash at end of period
  $ 18,896,758     $ 148,513,423  
 
 
 
________________
The accompanying notes are an integral part of these Consolidated Financial Statements.


 
6

 


EAGLE BULK SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1.  Basis of Presentation and General Information

The accompanying consolidated financial statements include the accounts of Eagle Bulk Shipping Inc. and its wholly-owned subsidiaries (collectively, the "Company", "we" or "our"). The Company is engaged in the ocean transportation of dry bulk cargoes worldwide through the ownership and operation of dry bulk vessels. The Company's fleet is comprised of Supramax and Handymax bulk carriers and the Company operates its business in one business segment.
 
The Company is a holding company incorporated in 2005, under the laws of the Republic of the Marshall Islands and is the sole owner of all of the outstanding shares of its wholly-owned subsidiaries incorporated in the Republic of the Marshall Islands. The primary activity of each of the subsidiaries is the ownership of a vessel. The operations of the vessels are managed by a wholly-owned subsidiary of the Company, Eagle Shipping International (USA) LLC, a Republic of the Marshall Islands limited liability company.
 
As of March 31, 2009, the Company's operating fleet consisted of 25 vessels. The Company has an extensive vessel newbuilding program and as of March 31, 2009 had contracts for the construction of 22 vessels. The following tables present certain information concerning the Company's fleet as of March 31, 2009:

 
 
No. of Vessels
 
Dwt
Vessel
Type
 
Delivery
 
Employment
       
Vessels in Operation
     
25 Vessels
1,296,917
22 Supramax
 
Time Charter
   
3 Handymax
 
Time Charter
         
Vessels to be delivered
     
3 Vessels
159,300
 
53,100 dwt series Supramax
2009-2010
 
2 Vessels on Time Charter and 1 Vessel Charter Free
 
2 Vessels
112,000
 
56,000 dwt series Supramax
2010
2 Vessels Charter Free
 
17 Vessels
986,000
 
58,000 dwt series Supramax
2009-2011
 
17 Vessels on Time Charter
         
 

The following table represents certain information about the Company's charterers which individually accounted for more than 10% of the Company's gross time charter revenue during the periods indicated:
 
Charterer
% of Consolidated time charter revenue
 
Three Months Ended March 31,
 
 2009
 
 2008
       
Charterer B
20.3%
 
26.2%
Charterer H
12.0%
 
15.4%
Charterer J
7.0%
 
10.7%
Charterer L
16.0%
 
19.5%
Charterer M
18.2%
 
11.6%
 
 

 
7


The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, and the rules and regulations of the SEC ("Securities and Exchange Commission") which apply to interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes normally included in consolidated financial statements prepared in conformity with generally accepted accounting principles in the United States. They should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2008 Annual Report on Form 10-K.
 
The accompanying unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) that management considers necessary for a fair presentation of its consolidated financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year.
 
Note 2.  New Accounting Pronouncements
 
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments." This FASB Staff Position ("FSP") amends Statement of Financial Accounting Standard ("SFAS") No. 107, "Disclosures About Fair Value of Financial Instruments," to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, "Interim Financial Reporting," to require those disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. We do not expect the changes associated with adoption of this FSP will have a material effect on the determination or reporting of our financial results.
 
Note 3.  Vessels
 
a. Vessel and Vessel Improvements
 
At March 31, 2009, the Company's operating fleet consisted of 25 dry bulk vessels. In January and March 2009, the Company took delivery of the Crested Eagle and Stellar Eagle.
 
Vessel and vessel improvements consist of the following:
 
       
Vessels and Vessel Improvements, at December 31, 2008
  $ 874,674,636  
   Purchase of Vessel and Vessel Improvements
    1,529,318  
   Delivery of Newbuild Vessels
    71,909,444  
   Depreciation Expense
    (9,694,910 )
         
Vessels and Vessel Improvements, at March 31, 2009
  $ 938,418,488  
         

b. Advances for Vessel Construction
 
The Company took delivery of the Crested Eagle and Stellar Eagle, two Japanese built vessels in January and March 2009, respectively. In 2008, the Company took delivery of two Chinese built vessels and one Japanese built vessel.
 
As of March 31, 2009, the total contract cost of the remaining two Supramax vessels under construction in Japan was approximately $67,108,584. These vessels construction contracts are Japanese yen based and as of March 31, 2009, the Company had advanced an equivalent of $24,798,118 in progress payments towards these contracts. The remaining two vessels are expected to be delivered in 2010. The Company will incur additional associated costs relating to the construction of these vessels, including capitalized interest, insurance, legal, and technical supervision costs.
 
 
8

 
As of March 31, 2009, the Company had twenty Supramax vessels under construction at the shipyard in China. The total contract cost of the construction project in China is approximately $859,098,055, of which the Company has advanced $310,668,055 in payments towards the construction of these vessels. These vessels are expected to be delivered between 2009 and 2011. The Company will incur additional costs relating to the construction of these vessels, including capitalized interest, insurance, legal, and technical supervision costs.
 
Advances for Vessel Construction consist of the following:
 
       
Advances for Vessel Construction, at December 31, 2008
  $ 411,063,011  
Progress Payments
    34,435,997  
Capitalized Interest
    6,779,318  
Legal and Technical Supervision Costs
    1,446,378  
Delivery of Newbuild Vessels
    (71,909,444 )
Advances for Vessel Construction, at March 31, 2009
  $ 381,815,260  
         


Note 4.  Long-Term Debt
 
At March 31, 2009, the Company's debt consisted of $802,476,403 in net borrowings under the amended revolving credit facility. These borrowings consisted of $424,721,218 for the 25 vessels currently in operation and $377,755,185 to fund the Company's newbuilding program.
 
On December 17, 2008, the Company entered into a second amendatory agreement to its $1,600,000,000 revolving credit facility. Among other things, the agreement reduces the amount of the credit facility to $1,350,000,000, amends the minimum security cover definition in the credit facility to include the installment payments on its newbuilding contracts and reduces the minimum security value clause of the credit facility from 130% to 100% of the aggregate principal amount of debt outstanding under the credit facility. The agreement also provides, however, that future dividend payments will be based on maintaining a minimum security value of 130%. In addition, it increases the interest margin to 1.75% over LIBOR, but also reduces the minimum net worth clause of the credit facility from $300,000,000 to $75,000,000 for 2009, subject to annual review thereafter.
 
The revolving credit facility also requires us, among other things, to ensure that we maintain with the lender $500,000 per delivered vessel. As of March 31, 2009, the Company has recorded $12,500,000 as restricted cash in the accompanying balance sheets. As of March 31, 2009, $547,523,597 is available for additional borrowings under the credit facility. The facility is available in full until July 2012 when availability will begin to reduce in 10 semi-annual reductions of $63,281,250 with a full repayment of $717,187,500 in July 2017. The Company will also pay on a quarterly basis a commitment fee of 0.3% per annum on the undrawn portion of the facility.
 
For the three months ended March 31, 2009, interest rates on the outstanding debt ranged from 2.84% to 6.99%, including a margin of 0.80% to 1.75% over LIBOR applicable under the terms of the amended revolving credit facility. The weighted average effective interest rate was 6.08%. The Company incurred a commitment fee ranging from 0.25% to 0.30% on the undrawn portion of the revolving credit facility. Interest costs on borrowings used to fund the Company's newbuilding program are capitalized until the vessels are delivered.
 
 
9

 
Interest Expense, exclusive of capitalized interest, consists of:
   
Three Months Ended
 
   
March 31, 2009
   
March 31, 2008
 
Loan Interest
  $ 6,243,274     $ 3,273,413  
Commitment Fees
    2,986       14,933  
Amortization of Deferred Financing Costs
    240,057       61,907  
Total Interest Expense
  $ 6,486,317     $ 3,350,253  
                 

Interest paid, exclusive of capitalized interest, in the three month periods ended March 31, 2009 and 2008 amounted to $5,895,446 and $2,721,992, respectively.
 
Interest-Rate Swaps

The Company has entered into interest rate swaps to effectively convert a portion of its debt from a floating to a fixed-rate basis. Under these swap contracts, exclusive of applicable margins, the Company will pay fixed rate interest and receive floating-rate interest amounts based on three-month LIBOR settings. The swaps are designated and qualify as cash flow hedges. The following table summarizes the interest rate swaps in place as of March 31, 2009 and December 31, 2008.
 
Notional Amount
Outstanding –
March 31, 2009
 
Notional Amount
Outstanding –
December 31, 2008
 
 
Fixed Rate
 
 
Maturity
$     84,800,000
 
$     84,800,000
 
5.240%
 
09/2009*
   25,776,443
 
   25,776,443
 
4.900%
 
03/2010
   10,995,000
 
   10,995,000
 
4.980%
 
08/2010
        202,340,000
 
        202,340,000
 
5.040%
 
08/2010
 100,000,000
 
 100,000,000
 
4.220%
 
09/2010
  30,000,000
 
  30,000,000
 
4.538%
 
09/2010
  25,048,118
 
  25,048,118
 
4.740%
 
12/2011
  36,752,038
 
  36,752,038
 
5.225%
 
08/2012
  81,500,000
 
  81,500,000
 
3.895%
 
01/2013
144,700,000
 
144,700,000
 
3.580%
 
10/2011
9,162,500
 
9,162,500
 
3.515%
 
10/2011
3,405,174
 
3,405,174
 
3.550%
 
10/2011
  17,050,000
 
  17,050,000
 
3.160%
 
11/2011
$  771,529,273
 
$  771,529,273
       
 
*Upon maturity of the $84,800,000 swap in September 2009, a swap with the same notional amount will commence with a fixed interest rate of 3.90% that matures in September 2013.
 
The Company records the fair value of the interest rate swaps as an asset or liability on its balance sheet. The effective portion of the swap is recorded in accumulated other comprehensive income. Accordingly, liabilities of $49,525,089 and $50,538,060 have been recorded in Fair value of derivative instruments in the Company's balance sheets as of March 31, 2009 and December 31, 2008, respectively.
 
Foreign Currency swaps

The Company has entered into foreign exchange swap transactions to hedge foreign currency risks on its capital asset transactions (vessel newbuildings). The swaps are designated and qualified as cash flow hedges.
 
At December 31, 2008, the Company had outstanding foreign currency swap contracts for notional amounts aggregating 8.6 billion Japanese yen swapped into the equivalent of $80,378,030. In February 2009, the Company fixed the gain on its outstanding foreign currency swaps contracts. This gain will be recognized upon delivery of the remaining vessels. During the quarter ended March 31, 2009, the Company recognized a foreign currency gain of $7,684,225 which offset the cost of Stellar Eagle and Crested Eagle upon their delivery. The remaining gain as of March 31, 2009 aggregating $5,954,095 will offset the cost of the remaining two vessels upon their delivery in January, 2010 and February 2010, respectively.
 
 
10

 
The Company records the fair value of the currency swaps as an asset or liability in its financial statements. The effective portion of the currency swap is recorded in accumulated other comprehensive income. Accordingly, an amount of $5,954,095 and $15,039,535 have been recorded in Fair value of derivative instruments and other assets in the accompanying balance sheets as of March 31, 2009, and December 31, 2008, respectively.
 
Note  5.  Fair Value Measurements
 
Effective January 1, 2008, the Company adopted SFAS 157, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  The fair value hierarchy for disclosure of fair value measurements under SFAS 157 is as follows:
 
Level 1 – Quoted prices in active markets for identical assets or liabilities
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 – Inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
 
The following table summarizes assets and liabilities measured at fair value on a recurring basis at March 31, 2009, as required by SFAS 157:
   
Level 1
 Level 2
Level 3
Assets
       
 
Foreign currency contracts
$5,954,095
         
         
Liabilities
Interest rate contracts
$49,525,089
         

The fair value of the interest rate and foreign currency swap contracts are based on quoted market prices for a similar contract and can be validated through external sources.
 
Note  6.  Commitments and Contingencies

Vessel Technical Management Contracts

The Company has technical management agreements for each of its vessels with independent technical managers. The Company paid average monthly technical management fees of $9,173 and $9,623 per vessel during the three months ended March 31, 2009 and 2008, respectively.
 
Note 7.  Earnings Per Common Share

The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the period. Diluted net income per share gives effect to stock options and restricted stock units using the treasury stock method, unless the impact is anti-dilutive. Diluted net income per share as of March 31, 2009, does not include 1,466,013 restricted stock units and 756,541 stock options as their effect was anti-dilutive.


   
Three Months Ended
 
   
March 31, 2009
   
March 31, 2008
 
Net Income
  $ 17,236,781     $ 14,345,810  
Weighted Average Shares – Basic
    47,031,300       46,752,538  
Dilutive effect of stock options and restricted stock units
    0       172,956  
Weighted Average Shares – Diluted
    47,031,300       46,925,494  
Basic Earnings Per Share
  $ 0.37     $ 0.31  
Diluted Earnings Per Share
  $ 0.37     $ 0.31  
 
 
11


 
Note 8.  Capital Stock

Dividends
 
Payment of dividends is in the discretion of the board of directors and is limited by the terms of certain agreements to which the Company and its subsidiaries are parties to and provisions of Marshall Islands law. The Company's revolving credit facility permits it to pay quarterly dividends in amounts up to its cumulative free cash flows, which is our earnings before extraordinary or exceptional items, interest, taxes, depreciation and amortization (Credit Agreement EBITDA), less the aggregate amount of interest incurred and net amounts payable under interest rate hedging agreements during the relevant period and an agreed upon reserve for dry-docking for the period, provided that there is not a default or breach of a loan covenant under the credit facility and the payment of the dividends would not result in a default or breach of a loan covenant. Depending on market conditions in the dry bulk shipping industry and acquisition opportunities that may arise, the Company may be required to obtain additional debt or equity financing which could affect its dividend policy. In this connection, the drybulk market has recently declined substantially. In December 2008, the Company's board of directors has determined to suspend the payment of dividends to stockholders in order to increase cash flow, optimize financial flexibility and enhance internal growth.  In the future, the declaration and payment of dividends, if any, will always be subject to the discretion of the board of directors, restrictions contained in the credit facility and the requirements of Marshall Islands law. The timing and amount of any dividends declared will depend on, among other things, the Company's earnings, financial condition and cash requirements and availability, the ability to obtain debt and equity financing on acceptable terms as contemplated by the Company's growth strategy, the terms of its outstanding indebtedness and the ability of the Company's subsidiaries to distribute funds to it.
 
Note 9.  2005 Stock Incentive Plan

The Company adopted the 2005 Stock Incentive Plan for the purpose of affording an incentive to eligible persons. The 2005 Stock Incentive Plan provides for the grant of equity-based awards, including stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses, dividend equivalents and other awards based on or relating to the Company's common shares to eligible non-employee directors, selected officers and other employees and independent contractors. The plan is administered by a committee of the Company's board of directors. An aggregate of 2.6 million shares of the Company's common stock has been authorized for issuance under the plan.
 
In 2007 and 2008, the Company granted restricted stock units ("RSUs") to members of its management which vest ratably between three to five years. As of March 31, 2009, RSUs covering a total of 1,466,013 of the Company's shares are outstanding. These RSUs also entitle the participant to receive a dividend equivalent payment on the unvested portion of the underlying shares granted under the award, each time the Company pays a dividend to the Company's shareholders. The dividend equivalent rights on the unvested RSU are forfeited upon termination of employment. The Company is amortizing to non-cash compensation expense the fair value of the non-vested restricted stock at the grant date. For the three months ended March 31, 2009 and 2008, the amortization charge was $3,270,064 and $1,826,046, respectively. The remaining expense for each of the years ending 2009, 2010, and 2011 will be $9,810,191, $12,410,365, and $5,450,402, respectively, and $7,126,803 thereafter.
 
As of December 31, 2008, options covering 590,668 of the Company's common shares were outstanding.  These options were awarded to members of its management and its independent non-employee directors. On January 23, 2009, the Company granted options to purchase 222,815 of the Company's common shares to its independent non-employee directors. These options vested and became exercisable on the grant date at an exercise price of $5.00 per share and expire six years from the date of grant. For purposes of determining the non-cash compensation cost for the Company's stock option plans using the fair value method of FAS 123(R), the fair value of the options granted of $550,851 was estimated on the date of grant using the Black-Scholes option pricing model. The weighted average assumptions used for the 2009 grant included a risk free interest rate of 2.2%, and an expected stock price volatility factor of 74%.  For the three months ended March 31, 2009 and 2008, the Company has recorded a non-cash compensation charge of $626,220 and $81,257, respectively. As of March 31, 2009, options covering 813,483 of the Company's common shares are outstanding with exercise prices ranging from $5.00 to $21.88 per share (the market prices at dates of grants). The options granted to the directors vested and became exercisable on the grant dates. The options granted to members of its management vest and become exercisable over three years. All options expire between six to ten years from the date of grant.
 
 
12

 
On January 15, 2008, the Company granted 30,000 shares of its common stock, which vested on the grant date, to its independent non-employee directors. The fair value of the stock at the grant date was equal to the closing stock price on that date and a total amount of $608,400 has been recorded in non-cash compensation expense for the three months ended March 31, 2008.
 
The non-cash compensation expenses recorded by the Company and included in General and Administrative Expenses are as follows:

   
Three Months Ended March 31,
 
   
2009
   
2008
 
Stock Option Plans
  $ 626,220     $ 81,257  
Restricted Stock Grants
    3,270,064       1,826,046  
Stock Grants
          608,400  
Total Non-cash compensation expense
  $ 3,896,284     $ 2,515,703  
 
In 2006 and 2007, the Company granted Dividend Equivalent Rights Awards ("DERs") to its independent non-employee directors and members of its management. These DERs entitle the participant to receive a dividend equivalent payment each time the Company pays a dividend to the Company's shareholders. As of March 31, 2009, DERs equivalent to 574,000 of the Company's common shares are outstanding. For the three months ended March 31, 2009 and 2008, the Company has recorded in General and Administrative Expense cash compensation expenses of $0 and $632,334, respectively.
 

 
13

 


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
The following is a discussion of the Company's financial condition and results of operation for the three-month periods ended March 31, 2009 and 2008. This section should be read in conjunction with the consolidated financial statements included elsewhere in this report and the notes to those financial statements.
 
This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended and the Private Securities Litigation Reform Act of 1995, and are intended to be covered by the safe harbor provided for under these sections.  These statements may include words such as "believe," "estimate," "project," "intend," "expect," "plan," "anticipate," and similar expressions in connection with any discussion of the timing or nature of future operating or financial performance or other events. Forward looking statements reflect management's current expectations and observations with respect to future events and financial performance. Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis.  However, our forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed, projected, or implied by those forward-looking statements. The principal factors that affect our financial position, results of operations and cash flows include, charter market rates, which have recently declined significantly from historic highs, periods of charter hire, vessel operating expenses and voyage costs, which are incurred primarily in U.S. dollars, depreciation expenses, which are a function of the cost of our vessels, significant vessel improvement costs and our vessels' estimated useful lives, and financing costs related to our indebtedness. Our actual results may differ materially from those anticipated in these forward looking statements as a result of certain factors which could include the following: (i) changes in demand in the dry bulk market, including, without limitation, changes in production of, or demand for, commodities and bulk cargoes, generally or in particular regions; (ii) greater than anticipated levels of dry bulk vessel new building orders or lower than anticipated rates of dry bulk vessel scrapping; (iii) changes in rules and regulations applicable to the dry bulk industry, including, without limitation, legislation adopted by international bodies or organizations such as the International Maritime Organization and the European Union or by individual countries; (iv) actions taken by regulatory authorities; (v) changes in trading patterns significantly impacting overall dry bulk tonnage requirements; (vi) changes in the typical seasonal variations in dry bulk charter rates; (vii) changes in the cost of other modes of bulk commodity transportation; (viii) changes in general domestic and international political conditions; (ix) changes in the condition of the Company's vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated drydocking costs); (x) and other factors listed from time to time in our filings with the Securities and Exchange Commission. This discussion also includes statistical data regarding world dry bulk fleet and orderbook and fleet age. We generated some of this data internally, and some were obtained from independent industry publications and reports that we believe to be reliable sources. We have not independently verified this data nor sought the consent of any organizations to refer to their reports in this quarterly report. We disclaim any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
 
Overview
 
We are Eagle Bulk Shipping Inc., a Republic of Marshall Islands corporation headquartered in New York City. We own one of the largest fleets of Supramax dry bulk vessels in the world. Supramax dry bulk vessels range in size from 50,000 to 60,000 dwt. We transport a broad range of major and minor bulk cargoes, including iron ore, coal, grain, cement and fertilizer, along worldwide shipping routes. As of March 31, 2009, we own and operate a modern fleet of 25 Handymax dry bulk vessels, 22 of which are of the Supramax class. We also have a Supramax newbuilding program for the construction of vessels in Japan and China. As of March 31, 2009, we have taken delivery of five vessels and an additional 22 vessels will be constructed and are expected to be delivered into our fleet through 2011, upon which our total fleet will consist of 47 vessels with a combined carrying capacity of 2.55 million dwt.
 
We are focused on maintaining a high quality fleet that is concentrated primarily in one vessel type – Handymax dry bulk carriers and its sub-category of Supramax vessels which are Handymax vessels ranging in size from 50,000 to 60,000 dwt. These vessels have the cargo loading and unloading flexibility of on-board cranes while offering cargo carrying capacities approaching that of Panamax dry bulk vessels, which range in size from 60,000 to 100,000 dwt and rely on port facilities to load and offload their cargoes. We believe that the cargo handling flexibility and cargo carrying capacity of the Supramax class vessels make them attractive to cargo interests and vessel charterers. The 25 vessels in our operating fleet, with an aggregate carrying capacity of 1,296,917 deadweight tons, have an average age of only six years compared to an average age for the world Handymax dry dulk fleet of over 15 years.
 
 
14

 
Each of our vessels is owned by us through a separate wholly owned Republic of the Marshall Islands limited liability company.
 
We maintain our principal executive offices at 477 Madison Avenue, New York, New York 10022. Our telephone number at that address is (212) 785-2500. Our website address is www.eagleships.com. Information contained on our website does not constitute part of this quarterly report.
 
Our financial performance since inception is based on the following key elements of our business strategy:
 
 
(1)
concentration in one vessel category: Supramax class of Handymax dry bulk vessels, which we believe offer size, operational and geographical advantages (over Panamax and Capesize vessels),
 
 
(2)
our strategy is to charter our vessels primarily pursuant to one- to three-year time charters to allow us to take advantage of the stable cash flow and high utilization rates that are associated with medium to long-term time charters. Reliance on the spot market contributes to fluctuations in revenue, cash flow, and net income. On the other hand, time charters provide a shipping company with a predictable level of revenues. We have entered into time charters for all of our vessels in our operating fleet which range in length from approximately one to three years, and in the case of many of our newbuilding vessels for periods up to December 2018. Our time charters provide for fixed semi-monthly payments in advance. We believe this strategy is effective in strong and weak dry bulk markets, giving us security and predictability of cashflows when we look at the volatility of the shipping markets,
 
 
(3)
maintain high quality vessels and improve standards of operation through improved environmental procedures, crew training and maintenance and repair procedures, and
 
 
(4)
maintain a balance between purchasing vessels as market conditions and opportunities arise and maintaining prudent financial ratios (e.g. leverage ratio).
 
We have employed all of our vessels in our operating fleet on time charters. During the three months ended March 31, 2009, we took delivery of two newbuilding vessels, CRESTED EAGLE and STELLAR EAGLE, which promptly entered into their respective charters. The following table represents certain information about the Company's revenue earning charters on its operating fleet:
 
 
Vessel
Year
Built
Dwt
Time Charter Expiration (1)
Daily Time
Charter Hire Rate
Cardinal (2)
2004
55,362
June to September 2009
$12,000
Condor
2001
50,296
May to July 2010
$22,000
Falcon (3)
2001
51,268
April to June 2010
$39,500
Griffon (4)
1995
46,635
February 2010 to May 2010
$9,500
Harrier (5)
2001
50,296
June 2009 to September 2009
$24,000
Hawk I (6)
2001
50,296
May 2009 to June 2009
$12,800
Heron (7)
2001
52,827
January 2011 to May 2011
$26,375
Jaeger (8)
2004
52,248
October 2009 to January 2010
$10,100
Kestrel I (9)
2004
50,326
March 2010 to July 2010
$11,500
Kite (10)
1997
47,195
September 2009 to January 2010
$9,500
Merlin (11)
2001
50,296
December 2010 to March 2011
$25,000
Osprey I (12)
2002
50,206
October 2009 to December 2009
$25,000
Peregrine (13)
2001
50,913
December 2009 to March 2010
$8,500
Sparrow (14)
2000
48,225
February 2010 to May 2010
$10,000
Tern (15)
2003
50,200
December 2009 to March 2010
$8,500
Shrike
2003
53,343
April 2009 to July 2009
$24,600
     
May 2010 to Aug 2010
$25,600
Skua
2003
53,350
May 2009 to August 2009
$24,200
Kittiwake
2002
53,146
July 2009 to September 2009
$56,250
Goldeneye
2002
52,421
May 2009 to July 2009
$61,000
Wren (16)
2008
53,349
Feb 2012
Feb 2012 to Dec 2018/Apr 2019
$24,750
$18,000 (with
profit share)
Redwing
2007
53,411
August 2009 to October 2009
$50,000
         
Woodstar (17)
2008
53,390
Jan 2014
Jan 2014 to Dec 2018/Apr 2019
$18,300
$18,000 (with
profit share)
Crowned Eagle
2008
55,940
September 2009 – December 2009
$16,000
Crested Eagle (18)
2009
55,989
December 2009 – March 2010
$10,500
Stellar Eagle
2009
55,989
February 2010 – May 2010
$12,000
         
 
 
15

 
 

 
(1)
The date range provided represents the earliest and latest date on which the charterer may redeliver the vessel to the Company upon the termination of the charter. The time charter hire rates presented are gross daily charter rates before brokerage commissions, ranging from 1.25% to 6.25%, to third party ship brokers.
 
 
(2)
In March 2009, the charterer of the CARDINAL paid in advance for the duration of the charter an amount equal to the difference between the prevailing daily charter rate of $62,000 and a new rate of $12,000 per day. This amount has been recorded in Deferred Revenue in the Company's financial statements and is being recognized into revenue ratably over the charter period such that the daily charter rate remains effectively $62,000 per day. The cash payment received by the Company has been adjusted by a present value interest rate factor of 3%.
 
 
(3)
The charterer of the FALCON has an option to extend the charter period by 11 to 13 months at a daily time charter rate of $41,000.
 
 
(4)
In March 2009, upon completion of the previous time charter, the GRIFFON commenced a new short term charter at $10,500 per day. Upon completion of this charter, the vessel will enter a new charter for 11 to 13 months at a rate of $9,500 per day
 
 
(5)
The daily rate for the HARRIER is $27,000 for the first year and $21,000 for the second year. Revenue recognition is based on an average daily rate of $24,000.
 
 
(6)
In March 2009, upon completion of the previous time charter, the HAWK commenced a new short term charter at $12,800 per day
 
 
(7)
The charterer of the HERON has an option to extend the charter period by 11 to 13 months at a time charter rate of $27,375 per day. The charterer has a second option for a further 11 to 13 months at a time charter rate of $28,375 per day.
 
 
(8)
In December 2008, the JAEGER commenced a charter for one year at an average daily rate of approximately $10,100 based on a charter rate of $5,000 per day for the first 50 days and $11,000 per day for the balance of the year.
 
 
(9)
In January 2009, upon completion of the previous time charter, the KESTREL entered into two short term positioning charters prior to its scheduled drydocking in April 2009. The vessel first earned $8,500 per day in February 2009 and then earned $18,000 per day for the remainder of the quarter. Upon completion of the drydocking survey, the vessel will enter a new charter for 11 to 13 months at a rate of $11,500 per day
 
 
(10)
In March 2009, the charterer of the KITE paid in advance for the duration of the charter an amount equal to the difference between the prevailing daily charter rate of $21,000 and a new rate of $9,500 per day. This amount has been recorded in Deferred Revenue in the Company's financial statements and is being recognized into revenue ratably over the charter period such that the daily charter rate remains effectively $21,000 per day. The cash payment received by the Company has been adjusted by a present value interest rate factor of 3%.
 
 
(11)
The daily rate for the MERLIN is $27,000 for the first year, $25,000 for the second year and $23,000 for the third year. Revenue recognition is based on an average daily rate of $25,000.
 
 
(12)
The charterer of the OSPREY has an option to extend the charter period by 11 to 13 months at a time charter rate of $25,000 per day.
 
 
(13)
In January 2009, upon completion of the previous time charter, the PEREGRINE commenced a new charter at $8,500 per day.
 
 
(14)
In March 2009, the charterer of the SPARROW paid in advance for the duration of the charter an amount equal to the difference between the prevailing daily charter rate of $34,500 and a new rate of $10,000 per day. This amount has been recorded in Deferred Revenue in the Company's financial statements and is being recognized into revenue ratably over the charter period such that the daily charter rate remains effectively $34,500 per day. The cash payment received by the Company has been adjusted by a present value interest rate factor of 3%.
 
 
(15)
In January 2009, upon completion of the previous time charter, the TERN commenced a new charter at $8,500 per day.
 
 
(16)
The WREN has entered into a long-term charter. The charter rate until February 2012 is $24,750 per day. Subsequently, the charter until redelivery in December 2018 to April 2019 will be profit share based. The base charter rate will be $18,000 with a 50% profit share for earned rates over $22,000 per day. Revenue recognition for the base rate from commencement of the charter is based on an average daily base rate of $20,306.
 
 
(17)
The WOODSTAR has entered into a long-term charter. The charter rate until January 2014 is $18,300 per day. Subsequently, the charter until redelivery in December 2018 to April 2019 will be profit share based. The base charter rate will be $18,000 with a 50% profit share for earned rates over $22,000 per day. Revenue recognition for the base rate from commencement of the charter is based on an average daily base rate of $18,152.
 
 
(18)
The charterer of the CRESTED EAGLE has an option to extend the charter period by 11 to 13 months at a base time charter rate of $11,500 plus 50% of the difference between the base rate and the BSI time charter average (provided the BSI TC average is greater than the base rate). The profit share to be calculated each month based on the trailing BSI TC average for the month.
 
The following table, as of March 31, 2009, represents certain information about the Company's newbuilding vessels being constructed and their employment upon delivery:
 
 
16

 
 
           
Vessel
Dwt
Year Built - Expected Delivery (1)
Time Charter Employment Expiration (2)
Daily Time Charter Hire Rate (3)
 
Profit Share
Thrasher 
53,100
Nov 2009
Feb 2016
$18,400
     
Feb 2016 to Dec 2018/Apr 2019
$18,000
50% over $22,000
Avocet 
53,100
Dec 2009
Mar 2016
$18,400
     
Mar 2016 to Dec 2018/Apr 2019
$18,000
50% over $22,000
Bittern
58,000
Sep 2009
Dec 2014 
$18,850
     
Dec 2014 to Dec 2018/Apr 2019
$18,000
50% over $22,000
Canary 
58,000
Oct 2009
Jan 2015
$18,850
     
Jan 2015 to Dec 2018/Apr 2019
$18,000
50% over $22,000
Crane
58,000
Nov 2009
Feb 2015
$18,850
     
Feb 2015 to Dec 2018/Apr 2019
$18,000
50% over $22,000
Egret (4)  
58,000
Dec 2009
Sep 2012 to Jan 2013
$17,650
50% over $20,000
Golden Eagle
56,000
Jan 2010
Charter Free
Gannet (4)  
58,000
Jan 2010
Oct 2012 to Feb 2013
$17,650
50% over $20,000
Grebe(4)
58,000
Feb 2010
Nov 2012 to Mar 2013
$17,650
50% over $20,000
Imperial Eagle
56,000
Feb 2010
Charter Free
Ibis (4)
58,000
Mar 2010
Dec 2012 to Apr 2013
$17,650
50% over $20,000
Jay 
58,000
Apr 2010
Sep 2015
$18,500
50% over $21,500
     
Sep 2015 to Dec 2018/Apr 2019
$18,000
50% over $22,000
Kingfisher
58,000
May 2010
Oct 2015
$18,500
50% over $21,500
     
Oct 2015 to Dec 2018/Apr 2019
$18,000
50% over $22,000
Martin
58,000
Jun 2010
Dec 2016 to Dec 2017
$18,400
Thrush 
53,100
Nov 2010
Charter Free
Nighthawk 
58,000
Mar 2011
Sep 2017 to Sep 2018
$18,400
Oriole
58,000
Jul 2011
Jan 2018 to Jan 2019
$18,400
Owl 
58,000
Aug 2011
Feb 2018 to Feb 2019
$18,400
Petrel (4)
58,000
Sep 2011
Jun 2014 to Oct 2014
$17,650
50% over $20,000
Puffin (4)
58,000
Oct 2011
Jul 2014 to Nov 2014
$17,650
50% over $20,000
Roadrunner (4)
58,000
Nov 2011
Aug 2014 to Dec 2014
$17,650
50% over $20,000
Sandpiper (4)
58,000
Dec 2011
Sep 2014 to Jan 2015
$17,650
50% over $20,000
           
CONVERTED INTO OPTIONS
 
Snipe (6)
58,000
Jan 2012
Charter Free
Swift (6
58,000
Feb 2012
Charter Free
Raptor (6)
58,000
Mar 2012
Charter Free
Saker (6)
58,000
Apr 2012
Charter Free
Besra (5,6)
58,000
 
Oct 2011
Charter Free
Cernicalo (5,6)
58,000
Jan 2011
Charter Free
Fulmar (5,6)
58,000
 
Jul 2011
Charter Free
Goshawk (5,6)
58,000
Sep 2011
Charter Free
           
 
(1)
Vessel build and delivery dates are estimates based on guidance received from shipyard.
 
 
(2)
The date range represents the earliest and latest date on which the charterer may redeliver the vessel to the Company upon the termination of the charter.
 
 
(3)
The time charter hire rate presented are gross daily charter rates before brokerage commissions ranging from 1.25% to 6.25% to third party ship brokers.
 
 
(4)
The charterer has an option to extend the charter by 2 periods of 11 to 13 months each.
 
 
(5)
 Options for construction declared on December 27, 2007.
 
 
(6)
Firm contracts converted to options in December 2008.
 
 
17

 
Fleet Management

The management of our fleet includes the following functions:
 
 
·
Strategic management. We locate, obtain financing and insurance for, purchase and sell vessels.
 
·
Commercial management. We obtain employment for our vessels and manage our relationships with charterers.
 
·
Technical management. The technical manager performs day-to-day operations and maintenance of our vessels.

Commercial and Strategic Management

We carry out the commercial and strategic management of our fleet through our wholly owned subsidiary, Eagle Shipping International (USA) LLC, a Republic of the Marshall Islands limited liability company that maintains its principal executive offices in New York City. We currently have a total of twenty seven shore based personnel, including our senior management team and our office staff, who either directly or through this subsidiary, provides the following services:
 
 
·
commercial operations and technical supervision;
 
 
·
safety monitoring;
 
 
·
vessel acquisition; and
 
 
·
financial, accounting and information technology services.
 
Technical Management

The technical management of our fleet is provided by our unaffiliated third party technical managers, V.Ships, Wilhelmsen Ship Management, and Anglo Eastern International Ltd., that we believe are three of the world's largest providers of independent ship management and related services. In conjunction with our management, V. Ships, Wilhelmsen, and Anglo Eastern International Ltd., we have established an operating expense budget for each vessel. All deviations from the budgeted amounts are for our account. We review the performance of our technical managers on an ongoing basis and may add or change technical managers.
 
Our technical managers are paid a fixed management fee for each vessel in our operating fleet for the technical management services provided. For the three-month periods ended March 31, 2009 and 2008, the technical management fee averaged $9,173 and $9,623 per vessel per month, respectively. Management fees paid to our technical managers are recorded under Vessel Expenses.
 
Value of Assets and Cash Requirements

The replacement costs of comparable new vessels may be above or below the book value of our fleet. The market value of our fleet may be below book value when market conditions are weak and exceed book value when markets conditions are strong. Customary with industry practice, we may consider asset redeployment which at times may include the sale of vessels at less than their book value.
 
The Company's results of operations and cash flow may be significantly affected by future charter markets.
 
Critical Accounting Policies
 
The discussion and analysis of our financial condition and results of operations is based upon our interim, unaudited, consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, and the rules and regulations of the SEC which apply to interim financial statements. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions and conditions.
 
Critical accounting policies are those that reflect significant judgments of uncertainties and potentially result in materially different results under different assumptions and conditions. As the discussion and analysis of our financial condition and results of operations is based upon our interim, unaudited, consolidated financial statements, they do not include all of the information on critical accounting policies normally included in consolidated financial statements. Accordingly, a detailed description of these critical accounting policies should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Reports on Form 10-K. There have been no material changes from the "Critical Accounting Policies" previously disclosed in our Form 10-K for the year ended December 31, 2008.
 
 
18

 
Results of Operations for the three month periods ended March 31, 2009 and 2008:
 
Fleet Data
 
We believe that the measures for analyzing future trends in our results of operations consist of the following:
 
 
Three Months Ended
 
March 31, 2009
March 31, 2008
     
Ownership Days
2,138
1,638
Available Days
2,137
1,638
Operating Days
2,128
1,633
Fleet Utilization
99.6%
99.7%
 
·           Ownership days:  We define ownership days as the aggregate number of days in a period during which each vessel in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during a period.  Ownership days for the three month period ended March 31, 2009, increased 31% from the corresponding period in 2008 as we operated 25 vessels in the first quarter of 2009 compared to 18 vessels in the corresponding period in 2008.
 
·           Available days:  We define available days as the number of our ownership days less the aggregate number of days that our vessels are off-hire due to vessel familiarization upon acquisition, scheduled repairs or repairs under guarantee, vessel upgrades or special surveys and the aggregate amount of time that we spend positioning our vessels. The shipping industry uses available days to measure the number of days in a period during which vessels should be capable of generating revenues.  During the three-month period ended March 31, 2009, the Company did not drydock any vessels, but incurred a total of one day of off-hire for vessel familiarization upon delivery of the Crested Eagle and Stellar Eagle which joined the fleet in January and March 2009, respectively.
 
·           Operating days:  We define operating days as the number of our available days in a period less the aggregate number of days that our vessels are off-hire due to any reason, including unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues.
 
·           Fleet utilization:  We calculate fleet utilization by dividing the number of our operating days during a period by the number of our available days during the period. The shipping industry uses fleet utilization to measure a company's efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee, vessel upgrades, special surveys or vessel positioning. Our fleet continues to perform at high utilization rates.
 
Revenues
 
All of our vessels are employed on time charters. Our time charter equivalent ("TCE") rate is equal to the time charter rate. As is common in the shipping industry, we pay commissions ranging from 1.25% to 6.25% of the total daily charter hire rate of each charter to unaffiliated ship brokers and in-house brokers associated with the charterers, depending on the number of brokers involved with arranging the charter.
 
Gross time charter revenues in the quarter ended March 31, 2009 were $58,621,700, an increase of 52% from $38,610,921 recorded in the comparable quarter in 2008, primarily due to the operation of a larger fleet and higher daily time charter rates. Gross revenues recorded in the 2009 quarter include an amount of $649,731 relating to the non-cash amortization of fair value below contract value of time charters acquired. Brokerage commissions incurred on revenues earned in the first quarters of 2009 and 2008 were $2,644,034 and $1,924,905, respectively. Net revenues during the quarter ended March 31, 2009, increased 53% to $55,977,666 from $36,686,016 in the comparable quarter in 2008.
 
 
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Vessel Expenses
 
Vessel expenses for the three month period ended March 31, 2009, were $13,071,197 compared to $7,991,261 in the comparable quarter in 2008. The increase in vessel expense is attributable to a larger fleet size in operation for the first quarter of 2009, higher insurance costs, and the timing of purchases of consumable stores and spares. Vessel expenses for the three month period ended March 31, 2009, included $12,428,975 in vessel operating costs and $642,222 in technical management fees. Vessel expenses for the comparable period in 2008 included $7,439,959 in vessel operating costs and $551,302 in technical management fees.
 
Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores and related inventory, tonnage taxes, pre-operating costs associated with the delivery of acquired vessels including providing the newly acquired vessels with initial provisions and stores, other miscellaneous expenses, and technical management fees paid to our third party managers.
 
Our vessel expenses will increase with the enlargement of our fleet. Other factors beyond our control, some of which may affect the shipping industry in general, may also cause these expenses to increase, including, for instance, developments relating to market prices for crew, insurance and petroleum-based lubricants and supplies.
 
Depreciation and Amortization
 
For the three-month periods ended March 31, 2009 and 2008, total depreciation and amortization expense were $10,290,916 and $7,336,039, respectively. Total depreciation and amortization expense for the three-month period ended March 31, 2009 includes $9,694,910 of vessel depreciation and $596,006 relating to the amortization of deferred drydocking costs. Comparable amounts for the three-month period ended March 31, 2008 were $6,708,415 of vessel depreciation and $627,624 of amortization of deferred drydocking costs.
 
The cost of our vessels is depreciated on a straight-line basis over the expected useful life of each vessel. Depreciation is based on the cost of the vessel less its estimated residual value. We estimate the useful life of our vessels to be 28 years from the date of initial delivery from the shipyard to the original owner. Furthermore, we estimate the residual values of our vessels to be $150 per lightweight ton, which we believe is common in the dry bulk shipping industry. Our depreciation charges will increase as our fleet is enlarged. Drydocking relates to our regularly scheduled maintenance program necessary to preserve the quality of our vessels as well as to comply with international shipping standards and environmental laws and regulations. Management anticipates that vessels are to be drydocked every two and a half years and, accordingly, these expenses are deferred and amortized over that period.
 
Amortization of deferred financing costs which relate to the vessels on the water is included in interest expense. These financing costs relate to costs associated with our revolving credit facility and these are amortized over the life of the facility. For the three-month periods ended March 31, 2009 and 2008, the amortization of deferred financing costs allocated to the vessels on the water was $240,057 and $61,907, respectively.
 
General and Administrative Expenses
 
Our general and administrative expenses include onshore vessel administration related expenses such as legal and professional expenses and administrative and other expenses including payroll and expenses relating to our executive officers and office staff, office rent and expenses, directors fees, and directors and officers insurance. General and administrative expenses also include non-cash compensation expenses.
 
General and administrative expenses for the three month periods ended March 31, 2009 and 2008 were $8,903,028 and $5,049,159, respectively. These general and administrative expenses include a non-cash compensation component of $3,896,284 and $2,515,703, respectively. The increase in general and administrative expenses for the three-month period ended March 31, 2009, is primarily attributable to expenses, including accruals of compensation expense (performance-based compensation and amortization of restricted stock awards and stock option compensation), and by administrative costs associated with operating a larger fleet and the extensive newbuilding program.
 
 
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Capitalized Interest
 
At March 31, 2009, we had contracts for the construction of 22 newbuilding vessels which are expected to be delivered through 2011. Interest costs on borrowings used to fund the Company's newbuilding program are capitalized as part of the cost of the newbuilding vessels until the vessels are delivered.
 
For the three-month period ended March 31, 2009, capitalized interest amounted to $6,779,318 ($6,322,705 in interest and $456,613 in amortization of deferred financing costs)and this amount has been recorded and included in Advances for Vessel Construction in the financial statements. For the corresponding three months period in 2008, capitalized interest amounted to $6,123,115 ($5,711,682 in interest and $411,433 in amortization of deferred financing costs).
 
EBITDA
 
EBITDA represents operating earnings before extraordinary items, depreciation and amortization, interest expense, and income taxes, if any. EBITDA is included because it is used by certain investors to measure a company's financial performance. EBITDA is not an item recognized by GAAP and should not be considered a substitute for net income, cash flow from operating activities and other operations or cash flow statement data prepared in accordance with accounting principles generally accepted in the United States or as a measure of profitability or liquidity. EBITDA is presented to provide additional information with respect to the Company's ability to satisfy its obligations including debt service, capital expenditures, and working capital requirements. While EBITDA is frequently used as a measure of operating results and the ability to meet debt service requirements, the definition of EBITDA used here may not be comparable to that used by other companies due to differences in methods of calculation.
 
Our revolving credit facility permits us to pay dividends in amounts up to our cumulative free cash flows which is our earnings before extraordinary or exceptional items, interest, taxes, depreciation and amortization (Credit Agreement EBITDA), less the aggregate amount of interest incurred and net amounts payable under interest rate hedging agreements during the relevant period and an agreed upon reserve for dry-docking. Therefore, we believe that this non-GAAP measure is important for our investors as it reflects our ability to pay dividends. The following table is a reconciliation of net income, as reflected in the consolidated statements of operations, to the Credit Agreement EBITDA:
 
   
Three Months Ended
 
   
March 31, 2009
   
March 31, 2008
 
Net Income
  $ 17,236,781     $ 14,345,810  
Interest Expense
    6,486,317       3,350,253  
Depreciation and Amortization
    10,290,916       7,336,039  
Amortization of fair value (below) above market of time charter acquired
    (649,731 )      
EBITDA
    33,364,283       25,032,102  
Adjustments for Exceptional Items:
               
Non-cash Compensation Expense (1)
    3,896,284       2,515,703  
Credit Agreement EBITDA
  $ 37,260,567     $ 27,547,805  
                 

 
 (1)  Stock based compensation related to stock options and  restricted stock units (see Notes to our financial statements).
 
 
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Effects of Inflation
 
We do not believe that inflation has had or is likely, in the foreseeable future, to have a significant impact on vessel operating expenses, drydocking expenses or general and administrative expenses.
 
Liquidity and Capital Resources
 
Net cash provided by operating activities during the three month periods ended March 31, 2009 and 2008, was $43,024,179 and $26,454,362, respectively. The increase was primarily due to cash generated from the operation of the fleet for 2,138 days in the three month period ended March 31, 2009, compared to 1,638 days during the same period in 2008, and $13,312,978 relating to deferred revenue advances from a charterer.
 
Net cash used in investing activities during the three month period ended March 31, 2009, was $44,271,329, compared to $13,399,474 during the corresponding three month period ended March 31, 2008. Investing activities during the three month period ended March 31, 2009 related primarily to making progress payments for the newbuilding vessels and incurring related vessel construction expenses.
 
Net cash used by financing activities during the three month period ended March 31, 2009, was $10,935,046, compared to net cash provided by financing activities of $17,445,157 during the corresponding three month period ended March 31, 2008. Financing activities during the three month period ended March 31, 2009, primarily involved borrowings of $12,875,000 from our revolving credit facility.  Financing activities during the three month period ended March 31, 2008, primarily involved borrowings of $6,630,000 and payment of $23,378,577 in dividends.
 
As of March 31, 2009, our cash balance was $18,896,758, compared to a cash balance of $9,208,862 at December 31, 2008. In addition, $12,500,000 in cash deposits are maintained with our lender for loan compliance purposes and this amount is recorded in Restricted cash in our financial statements as of March 31, 2009. Also recorded in Restricted Cash is an amount of $276,056, which is collateralizing a letters of credit relating to our office leases.
 
In December 2008, our revolving credit facility was amended to $1,350,000,000 (See section in the Company's 2008 Annual Report on Form 10-K entitled "Revolving Credit Facility" for a description of the facility and its amendments). As of March 31, 2009, borrowings under this facility aggregated $802,476,403. The facility also provides us with the ability to borrow up to $20,000,000 for working capital purposes. We were in compliance with all of the covenants contained in our debt agreements as of March 31, 2009. We anticipate that our current financial resources, together with cash generated from operations and, if necessary, borrowings under our revolving credit facility will be sufficient to fund the operations of our fleet, including our working capital requirements, for the foreseeable future. We will rely on operating cash flows as well as our revolving credit facility and possible additional equity and debt financing alternatives to fund our long term capital requirements for vessel construction and implement future growth plans.
 
On December 17, 2008, the Company entered into a second amendatory agreement to its $1,600,000,000 revolving credit facility. Among other things, the agreement reduces the amount of the credit facility to $1,350,000,000, amends the minimum security cover definition in the credit facility to include the installment payments on its newbuilding contracts and reduces the minimum security value clause of the credit facility from 130% to 100% of the aggregate principal amount of debt outstanding under the credit facility. The agreement also provides, however, that future dividend payments will be based on maintaining a minimum security value of 130%. In addition, it increases the interest margin to 1.75% over LIBOR, but also reduces the minimum net worth clause of the credit facility from $300,000,000 to $75,000,000 for 2009, subject to annual review thereafter. The Company intends to work with its lenders to obtain additional modifications to the agreement during 2009. Depending on developments in the market, failure to achieve such modifications could result in non compliance with one or more covenants, which could cause the lenders to accelerate repayment of the facility and exercise their lien on our vessels, earnings and insurance. Such modifications could also result in additional fees and costs.
 
Our loan agreements for our borrowings are secured by liens on our vessels and contain various financial covenants. The covenants relate to our financial position, operating performance and liquidity. The market value of drybulk vessels is sensitive, among other things, to changes in the drybulk charter market. The recent general decline in the drybulk carrier charter market has resulted in lower charter rates for vessels in the drybulk market. The decline in charter rates in the drybulk market coupled with the prevailing difficulty in obtaining financing for vessel purchases have adversely affected drybulk vessel values. A continuation of these conditions,
 
 
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could lead to a significant decline in the fair market values of our vessels, which could impact our compliance with these loan covenants. The recent developments in the credit markets and related impact on the drybulk charter market and have also resulted in additional risks. The occurrence of one or more of these risk factors could adversely affect our results of operations or financial condition. Please refer to the section entitled "Risk Factors" in Part II of this document which should be read in conjunction with the risk factors included in the Company's 2008 Annual Report on Form 10-K.
 
Dividends
 
Our amended revolving credit facility permits us to pay quarterly dividends in amounts up to cumulative free cash flows which is our quarterly earnings before extraordinary or exceptional items, interest, taxes, depreciation and amortization (Credit Agreement EBITDA), less the aggregate amount of interest incurred and net amounts payable under interest rate hedging agreements during the relevant period and an agreed upon reserve for drydocking for the period, provided that there is not a default or breach of loan covenant under the credit facility and the payment of the dividends would not result in a default or breach of a loan covenant. Depending on market conditions in the dry bulk shipping industry and acquisition opportunities that may arise, we may be required to obtain additional debt or equity financing which could affect our dividend policy. In this connection, the drybulk market has recently declined substantially. In December 2008, commencing with the fourth quarter of 2008, the Company's board of directors  determined to suspend the payment of dividends to stockholders in order to increase cash flow, optimize financial flexibility and enhance internal growth.  In the future, the declaration and payment of dividends, if any, will always be subject to the discretion of the board of directors, restrictions contained in the amended credit facility and the requirements of Marshall Islands law. The timing and amount of any dividends declared will depend on, among other things, the Company's earnings, financial condition and cash requirements and availability, the ability to obtain debt and equity financing on acceptable terms as contemplated by the Company's growth strategy, the terms of its outstanding indebtedness and the ability of the Company's subsidiaries to distribute funds to it.
 
The Company did not make any dividend payments in the first quarter of 2009. In the comparable quarter in 2008, the Company paid a cash dividend for the fourth quarter of 2007 of $0.50 per share. The aggregate amount of this cash dividend was $23,378,577 and was paid on March 18, 2008 to all shareholders of record as of March 13, 2008.
 
Contractual Obligations
 
The following table sets forth our expected contractual obligations and their maturity dates as of March 31, 2009:
 
(in thousands of U.S. dollars)
 
Within
One Year
   
One to
Three Years
   
Three to
Five Years
   
More than
Five years
   
Total
 
                               
Vessels (1) 
  $ 308,978     $ 281,763                 $ 590,741  
Bank Loans  
                    $ 802,476       802,476  
Interest and borrowing fees (2) 
    51,881       103,904       103,620       168,862       428,267  
Office lease (3)
    649       1,484       1,670       3,480       7,283  
                                         
Total
  $ 361,508     $ 387,151     $ 105,290     $ 974,818     $ 1,828,767  
                                         

 
(1)
The balance of the contract price in US dollars for the 22 newbuilding vessels which are to be constructed and delivered between 2009 and 2011. Two of the newbuilding vessels are priced in Japanese yen.
 
(2)
The Company is a party to floating-to-fixed interest rate swaps covering aggregate notional amount of $771,529,273. Interest and borrowing fees includes capitalized interest for the newbuilding vessels.
 
(3)
Remainder of the lease on the office space which we occupy.
 
 
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Capital Expenditures
 
Our capital expenditures relate to the purchase of vessels and capital improvements to our vessels which are expected to enhance the revenue earning capabilities and safety of these vessels.
 
We make capital expenditures from time to time in connection with our vessel acquisitions. As of March 31, 2009, our fleet consists of 25 vessels which are currently operational and 22 newbuilding vessels which have been contracted for construction.
 
In addition to acquisitions that we may undertake in future periods, the Company's other major capital expenditures include funding the Company's maintenance program of regularly scheduled drydocking necessary to preserve the quality of our vessels as well as to comply with international shipping standards and environmental laws and regulations. Although the Company has some flexibility regarding the timing of its dry docking, the costs are relatively predictable. Management anticipates that vessels are to be drydocked every two and a half years. Funding of these requirements is anticipated to be met with cash from operations. We anticipate that this process of recertification will require us to reposition these vessels from a discharge port to shipyard facilities, which will reduce our available days and operating days during that period.
 
Drydocking costs incurred are amortized to expense on a straight-line basis over the period through the date the next drydocking for those vessels are scheduled to occur. We did not drydock any vessels in the three months ended March 31, 2009. The following table represents certain information about the estimated costs for anticipated vessel drydockings in the next four quarters, along with the anticipated off-hire days:
 
Quarter Ending
Off-hire Days(1)
Projected Costs(2)
June 30, 2009
44
$1.00 million
September 30, 2009
44
$1.00 million
December 31, 2009
44
$1.00 million
March 31, 2010
44
$1.00 million
     
(1)Actual duration of drydocking will vary based on the condition of the vessel, yard schedules and other
    factors.
(2)Actual costs will vary based on various factors, including where the drydockings are actually performed.

 
Off-balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements.
 

 
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
Interest Rate Risk
 
There have been no material changes from the "Interest Rate Risk" previously disclosed in our Form 10-K for the year ended December 31, 2008.
 
Currency and Exchange Rates
 
There have been no material changes from the "Currency and Exchange Rates" risk previously disclosed in our Form 10-K for the year ended December 31, 2008.
 
Item 4. Controls and Procedures
 
Disclosure Controls and Procedures
 
Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the "Exchange Act")) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.
 
Internal Control Over Financial Reporting
 
There have been no changes in our internal control over financial reporting during the period covered by this report that 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
 
We are not aware of any legal proceedings or claims to which we or our subsidiaries are party or of which our property is subject. From time to time in the future, we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. Those claims, even if lacking merit, could result in the expenditure by us of significant financial and managerial resources.
 
Item 1A – Risk Factors
 
There have been no material changes from the "Risk Factors" previously disclosed in our Form 10-K for the year ended December 31, 2008.
 
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
 
Item 3 - Defaults upon Senior Securities
 
None.
 
Item 4 - Submission of Matters to a Vote of Security Holders
 
None.
 
Item 5 - Other Information
 
None.
 
Item 6 – Exhibits
 
 
EXHIBIT INDEX
 
3.1
Amended and Restated Articles of Incorporation of the Company 1
3.2
Amended and Restated Bylaws of the Company 1
3.3
Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock  2
4.1
Form of Share Certificate of the Company 1
4.2
Form of Senior Indenture 3
4.3
Form of Subordinated Indenture 3
4.4
Rights Agreement 2
10.1
Amended and Restated Employment Agreement of Mr. Sophocles N. Zoullas, dated as of June 19, 2008 4,6
10.2
Amendatory Agreement, dated as of July 3, 2008, among the Company and certain of its subsidiaries and the banks and financial institutions party thereto and the Royal Bank of Scotland plc, as mandated lead arranger 5
 
 
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10.3
Second Amendatory Agreement, dated as of December 17, 2008, among the Company and certain of its subsidiaries and the banks and financial institutions party thereto and the Royal Bank of Scotland plc, as mandated lead arranger 7
31.1
Rule 13a-14(d) / 15d-14(a)_Certification of CEO
31.2
Rule 13a-14(d) / 15d-14(a)_Certification of CFO
32.1
Section 1350 Certification of CEO
32.2
Section 1350 Certification of CFO
   
 
1 Incorporated by reference to Amendment No.4 to the Company's Registration Statement on Form S-1, Registration No. 333-123817, filed on June 22, 2005.
2 Incorporated by reference to the Company's Registration Statement on Form 8-A filed on November 13, 2007.
3 Incorporated by reference to the Company's Registration Statement on Form S-3, Registration No. 333-139745,  filed on December 29, 2007.
4 Incorporated by reference to the Company's Current Report on Form 8-K filed on June 20, 2008.
5 Incorporated by reference to the Company's Current Report on Form 8-K filed on July 7, 2008.
6 Management contract or compensating plan.
7 Incorporated by reference to Exhibit 4.9 to the Company's registration statement on Form S-3POSASR, Registration No. 333-148417 filed on March 2, 2009

 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
EAGLE BULK SHIPPING INC.
 
By:    /s/ Sophocles N. Zoullas
Sophocles N. Zoullas
Chairman of the Board and
Chief Executive Officer
Date: May 7, 2009
 

 
By:    /s/ Alan S. Ginsberg
Alan S. Ginsberg
Chief Financial Officer
and Principal Accounting Officer
Date: May 7, 2009
 

 
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