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Commission File No.
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of August, 2000
ENTERPRISES SHIPHOLDING CORPORATION
(Translation of registrant's name into English)
c/o Enterprises Shipping or Trading S.A.
Poseidonos Avenue 11
Elliniko GR-16777
Athens, Greece
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will
file annual reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
Indicate by check mark whether the registrant by furnishing
the information contained in this Form is also thereby furnishing
the information to the commission pursuant to Rule 12g3-2(b)
under the Securities Exchange Act of 1934.
Yes No X
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Item 1. INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Attached hereto is a copy of Enterprises Shipholding
Corporation's (the "Company") quarterly report for the period
ended June 30, 2000 containing (1) a letter to noteholders of the
Company and (2) a Management's Discussion and Analysis of
Financial Condition and Results of Operation for the period ended
June 30, 2000.
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LOGO ENTERPRISES SHIPHOLDING
Athens 28th August 2000
TO THE NOTEHOLDERS OF ENTERPRISES SHIPHOLDING CORPORATION:
Enclosed is the unaudited financial information accompanied by a
Management's Discussion and Analysis of Financial Condition and
Results of Operations for the period ended June 30, 2000.
The first six months of 2000 showed no real surprises with rates
in line with expectations. However bunkers were higher than
expected making the net result to the owner very poor. Tonnage
started to move to lay up as early as April, which is
unprecedented since April was considered as one of the months of
the high season.
By late April to mid May some 60 ships had been already been laid
up and in conjunction with a large volume of citrus to be moved
from South Africa caused the market rates to increase to the high
twenties for old tonnage and high thirties for newer tonnage. The
result of this spike was that a number of ships that were
scheduled for lay up postponed their plans thus resulted in the
rates again falling but this time well below the 20 cent level.
The oversupply of tonnage has been a major concern however other
factors have also affected the reefer market such as the strong
dollar and the lack of fruit sales. Both factors have caused
reduced volumes of fruits to move into the Markets.
As of the end of June, 77 ships have entered lay up, compared to
100 vessels during the first half of 1999 totaling 24.86 million
cubic feet. This is not sufficient to push the market rates up
again. We need to see at least another 30 ships taken out of the
market before we can expect to see any improvement in rates.
As of the time of writing 5 million cubic feet has been sold for
scrap, which has been replaced by a total of 4.4 million cubic
feet coming into the market via newbuildings. The balance of the
year we will see an additional 1.6 million cubic feet being
delivered in the 3rd and 4th quarters of 2000. The order books
shows that there is scheduled a further 2.15 million cubic feet
to be delivered in 2001 out of which 1.16 million cubic feet is
the tonnage that will be delivered to Enterprises.
In the first half of 2000 10 vessels were trading in the spot
market contributing $4.6 million of EBITDA or 46% of the total
EBITDA compared to the first half of 1999 where 12 vessels were
trading in the spot market contributing $4.1 million of EBITDA or
28% of the total EBITDA. The outlook of the spot market during
the third and fourth quarter remains very static and in line of
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what we did in 1999 and in 1998, we have decided to lay-up all
our vessels with no period employment to avoid trading in the
spot market due to uneconomic freight levels. The remaining 10
vessels are on a period time charter up to each vessel's existing
charter expiration.
The newbuilding program continues uninterrupted and the third
vessel was delivered to us on 26/4/00 and has been chartered at
market rates from a major charterer. The Company sold two
newbuildings contracts via its subsidiaries to allow it to take
delivery of the remaining reefer newbuildings and meet its
ongoing obligations without a negative impact on its financial
ratios.
For the six months ending June 30, 2000, the Company's revenues
were $27 million, EBITDA was $10 million and net income was a
loss of $(7.4) million. We had anticipated lower figures from
last year's results due to market conditions, laid up of vessels
and increased financing cost.
A conference call has been scheduled for Thursday 31st August
2000 at 9:30 am New York time to discuss the second quarter
results.
To participate in the conference call please dial the number
(212) 271 4737
We are pleased to answer any questions that you might have. Our
investor relations contact is: Kostas Koutsoubelis at: Tel:
Int+301+8910170 and Fax: Int+301+8983595
Sincerely yours,
Victor Restis
President and
Chief Executive Officer
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company is one of the world's leading independent owners
and operators of reefer vessels with a fleet of 24 vessels,
including 19 reefer vessels and two high reefer intake container
vessels, and three 2205 TEU geared container vessels and has on
order two combined container reefer vessels. The following
discussion presents financial information for the Company and its
subsidiaries on a consolidated basis for all periods presented.
The Company acquired such subsidiaries in October 1997 (the
"Combination") in an exchange of stock transaction. Subsequent to
the Combination, the financial statements of the Company were
restated to reflect the consolidation of all companies.
The Company's fleet currently consists of 24 vessels: (i) 19
reefer vessels ranging in size from approximately 200,000 to
600,000 cu.ft. of cargo capacity; and (ii) two reefers container
vessels, each with a cargo capacity of 324 TEU and three geared
container vessels with a cargo capacity of 2205 TEU. The
following table sets forth changes in the Company's fleet from
December 31, 1995 through June 30, 2000.
Year Ended December 31, June 30
1995 1996 1997 1998 1999 2000
Fleet owned at beginning of
period 17 20 24 26 26 23
Newbuildings and other
acquisitions during period 3 4 2 0 1 1
Sales and dispositions during
period 0 0 0 0 5 0
Fleet owned at end of period 20 24 26 26 22 23
Newbuildings on order 0 0 0 7 6 5
Reefer Cargo Capacity
(at end of period)
(millions cft.) 8.8 10.3 10.3 10.3 8.5 8.5
TEU Capacity (at end of
period) 0 0 0 648 2,853 7,263
Reefer shipping is a highly specialized segment of the global
shipping industry that provides seaborne transportation of
perishable commodities, such as bananas, other fruits, meat,
seafood, vegetables and dairy products, in a temperature
controlled environment. The reefer industry is comprised of
approximately 20 leading participants and numerous medium to
small reefer fleet owners and operators.
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Reefer vessels are employed under time charters, voyage
charters, contracts of affreightment ("COAs"), and bareboat (or
demise) charters. Reefer vessels that operate in a pool are
generally time chartered to the pool by the owner and the pools
secure employment for the vessels they control through a
combination of COAs, voyage charters and time charters with other
operators or end-users.
The reefer vessel industry is characterized by cyclical
changes in supply and demand, resulting in wide swings in charter
rates and vessel utilization and, consequently, in profitability
for reefer vessel owners and operators. The supply of reefer
vessel cargo carrying capacity is a function of the number and
size of new vessels built and older vessels scrapped. The demand
for reefer vessel capacity reflects several variables, including
the size of fruit harvests, import quotas, the impact of general
economic conditions on consumer demand, and trends in worldwide
consumption and prices for reefer commodities. When growth in
demand exceeds the current or anticipated carrying capacity of
worldwide supply, charter rates generally increase. When charter
rates reach sufficiently high levels, the scrapping rate of older
vessels declines and orders for newbuildings increase. Once
commissioned, a newbuilding generally takes 18 months to 24
months to be built.
Recent trends in reefer vessel charter rates are as follows:
The average time charter rate for quality, midsize, pallet-
friendly reefer vessels more than doubled from $0.41 per cu.ft.
in 1985 to $0.85 per cu.ft. in 1991. The steady increase in
freight rates resulted in relatively heavy investment in cargo
capacity during this period, with worldwide reefer capacity (over
100,000 cu.ft.) growing by approximately 34% between 1986 and
1993. By 1993, reefer vessel cargo carrying capacity had
increased at a greater rate than reefer vessel shipping volumes.
Shipping volumes were adversely affected in late 1992 and 1993 by
the size of various fruit harvests, the European Union quota on
"dollar" bananas grown in Central America, and recessionary
conditions in various importing countries. Accordingly, time
charter rates for older, pallet-friendly vessels declined to
approximately $0.50 in 1993, a 41.2% decline from the peak in
1991. As a result of the decline in freight rates, scrapping of
older vessels increased and the construction of newbuildings
decreased, thereby causing a decline in the supply of cargo
carrying capacity. Charter rates began to improve in 1994 as a
result of the decline in supply capacity along with the increased
cargo shipping demand. According to industry sources average
rates for older, pallet-friendly vessels increased to
approximately $0.53 in 1994, $0.60 in 1995 and to $0.67 in 1996,
but declined to $0.65 in 1997 and 1998 to reach $0.60 in 1999.
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Results of Operations
The following table sets forth, for the periods indicated,
selected operating data as a percent of net revenue:
Year Ended December 31, June 30
1995 1996 1997 1998 1999 2000
Revenue from vessels, net 100% 100% 100% 100% 100% 100%
Voyage and running expenses 39.4 41.6 40.0 37.5 48.6 53.8
Depreciation and amortization 20.4 16.8 18.3 20.7 28.0 31.0
General and administrative expenses 4.1 3.9 4.3 7.4 10.1 9.1
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Income from operations 36.1 37.7 37.4 34.4 13.3 6.1
Interest expense, net 3.9 4.2 3.5 13.5 20.4 27.2
Other expenses (income) 0.6 (0.7) (2.2) 0.0 (2.7) 6.5
Net income (loss) 31.6 34.2 44.1 21.9 (18.8) (27.5)
Revenue from vessels, net. Revenues are generated primarily
from U.S. Dollar denominated charter hire payments under time
charters, COAs or voyage charters to independent reefer
operators, reefer pool operators and integrated multinational
fruit companies. Revenues from vessels are presented net of
shipbrokers' commissions. Historically, substantially all of the
Company's time charters have been for periods of 12 months or
more. During the past three years, revenues from time charters of
12 months or longer represented 86% of the Company's net revenues
while for 1998 revenues from time charters represented 92% of the
Company's net revenues compared to 84% during 1997. Depending on
market conditions, the Company also charters out its vessels on
COAs, and in the spot market on voyage charters. In 1996 and
1997, the Company derived 22% and 16% of its net revenues from
COAs and spot market voyage charters, respectively. For 1998, the
Company's share of revenues from spot charters was only 8% due to
shortfall in spot market demand resulting from the effects of the
El Nino phenomenon and the financial crisis in various countries.
In the first half of 2000 revenues from time charter represented
63% of the Company's revenues compared to 74% of the same period
last year.
The Company's aggregate revenues are a function of the
average freight rate that it earns per vessel per day and the
total number of vessel days the fleet is in operation. The
following table summarizes the Company's average revenue per
vessel per day and total operating days:
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Year Ended December 31,
June 30
1995 1996 1997 1998 1999 2000
Average revenue per
vessel per day $8,418 $10,086 $10,555 $ 9,319 $ 8,522 $ 9,456
Percentage increase
(decrease) 3.0% 19.8% 4.7% (11.7)% (8.6)% 10.9%
Total operating days 6,037 7,777 7,492 7,666 6,054 2,841
Percentage increase 7.3% 28.8% (3.7)% %2.3% (21.0)% NA
Voyage and running expenses(VAR). Voyage and running expenses
include costs of crewing, spares and stores, insurance premiums,
lubricants, repairs and maintenance, and victualling. The time
charterer, subject to certain adjustments pays bunkers and port
expenses for vessels under time charters. Bunkers and port
expenses for vessels under voyage charters and COAs are paid by
the vessel owner and are included in voyage expenses. The
following table sets forth the Company's average voyage and
running expenses per vessel per day:
Year Ended December 31,
June 30
1995 1996 1997 1998 1999 2000
Average VAR expenses per
vessel per day $3,002 $3,989 $3,437 $2,824 $3,059 $3,344
Percentage increase
(decrease) 7.5% 32.9% (13.8)%(17.8)% 8.3% 9.3%
General and administrative expenses. General and
administrative expenses include management fees of $500 per day
per vessel paid to EST for technical management, headquarters
expense, office staff and the expense of administrative, legal,
quality assurance, information systems and centralized accounting
support functions. Such fees are reduced to $300 per day per
vessel when the vessel is in lay-up condition.
Depreciation and amortization. The Company depreciates its
vessels on a straight-line basis over an estimated useful life of
25 years. For secondhand vessels, the Company depreciates vessel
acquisition costs on a straight-line basis over the balance of
such vessel's useful life of 25 years. Amortization includes dry
docking costs of the vessels, which are carried out approximately
every two and one-half years. These costs are deferred and
amortized through the next dry docking period. Legal costs and
financing fees incurred in connection with the financing of a
vessel are also deferred and amortized over the loans' repayment
period. Costs relating to loans that are repaid are expensed in
the period of repayment.
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Six Months Ended June 30, 2000, compared with Six Months Ended
June 30, 1999
Revenue from vessels, net. Revenue from vessels, net,
decreased $4.9 million to $26.9 million in the first half of
2000, compared to $31.9 million in the first half of 1999,
representing a 15.5 % decrease. Average daily revenue per vessel
increased to $9,456 in the first six months of 2000 from $9,135
in the first six months of 1999, representing a 3.5 % increase.
Operating days decreased to 2841 days in the first half of 2000
from 3484 days in the first half of 1999, representing a 22.6%
decrease. The reason for the decrease in revenues was that the
vessels operating in the spot market were directly affected by
the low spot rates and fewer voyage days due to increased idle
time. Containers generated $ 5 million or 19% of total revenues.
Consequently, revenues from time charters in the first half of
2000 were $17 million and $9.8 million from the voyage charters
compared to $22.8 million and $8.1 million respectively for the
first half of 1999.
Voyage and running expenses. Voyage and running expenses
remained at the same level of $14.4 million in the first half of
2000 and $14.6 million in the first half of 1999. As a
percentage of revenues, voyage and running expenses increased to
53.8% in the first half of 2000 compared to 47.3% in the first
six months of 1999. Even though total voyage and running
expenses remained at the same level voyage expenses has been
increased by $2.5 million mainly due to the fact that more
vessels operated under voyage charters which meant that bunkers,
port dues and other expenses were paid by us, while running
expenses decreased due to fewer vessels in operation and the
acquisition of new vessels which are more cost efficient. Voyage
expenses were $5.4 million and $2.9 million in the first six
months of 2000 and 1999, respectively.
General and administrative expenses. General and
administrative expenses decreased by $0.3 million to $2.5 million
in the first six months of 2000 compared to $2.8 million in the
first half of 1999. This decrease was mainly due to fewer
vessels and also vessels being in lay up condition thus the
management fees charged was $300 per day instead of $500 as per
the management agreement.
Depreciation and amortization. Depreciation and amortization
increased by $0.9 million to $8.3 million in the first six months
of 2000 from $7.5 million in the first half of 1999. This
increase was mainly due to the new vessels that were delivered to
the company during the first half of 2000.
Interest expense, net. Interest expense, net, increased by
$2.1 million, to $7.3 million in the first half of 2000 from $5.2
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million in the first half of 1999. This increase was primarily
due to the capitalization of interest in the first half of 1999
for the vessels delivered during the fourth quarter of 1999 and
first half of 2000. Interest income in the first half of 2000 and
in 1999 was $0.4 million and $1.1 million, respectively.
Net income. Net income decreased by $8.2 million, to $(7.4)
million in the first half of 2000 from $0.8 million in the first
half of 1999. As a percentage of revenues, net income decreased
to (27.5)% in the first half of 2000 from (2.7)% in the first
half of 1999. This decrease of $8.2 million was mainly due to the
decrease of net revenues by $4.9 million due to the low spot
market freight rates and lower income days, increase in the
Company's net interest expense by $2.1 million due to the higher
interest cost of the Senior Notes and by $1.7 million of other
income which includes the compensation received by the yard, due
to late delivery and the sale loss of subsidiaries.
Year Ended December 31, 1999, compared with Year Ended
December 31, 1998
Revenue from vessels, net. Revenue from vessels, net,
decreased $19.9 million to $ 51.6 million in 1999, compared to
$71.4 million in 1998, representing a 27.7% decrease. Average
daily revenue per vessel decreased to $8,522 in 1999 from $9,319
in 1998, representing an 8.6% decrease. Operating days decreased
to 6,054 days in 1999 from 7,666 days in 1998, representing a
21.0% decrease. The reason for the decrease in revenues was that
fewer vessels were on time charter in 1999 and the remaining
vessels operated in the spot market were directly affected by
lower spot rates and by the lack of additional cargoes, as banana
crops were destroyed by heavy rainfalls and floods caused by the
El Nino phenomenon during 1998. An other indication of the market
conditions and the lack of cargoes is that operating days
decreased in 1999 compared to 1998 by 21% or by 1,612 days which
means that the vessels that were in the spot market had to wait
for longer periods between voyages during the first six months of
1999 while during the third and fourth quarter of 1999 they were
in lay-up. Consequently, revenues from time charters in 1999
were $42.3 million and $9.3 million from the voyage charters. On
November 29, 1999 the Company took delivery of the first 2205 TEU
geared container which was chartered to a major charterer for 5
months. The revenues from the reefer fleet were $51.3 million
while the container vessel fleet contributed only $0.3 million in
1999.
Voyage and running expenses. Voyage and running expenses
decreased by $1.7 million, to $25.0 million in 1999 from $26.8
million in 1998. As a percentage of revenues, voyage and running
expenses increased to 48.6% in 1999 compared to 37.5% in 1998.
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The decrease of $1.7 million was partially due to the fact that
the vessels in voyage charters operated fewer days and thus
concluded fewer voyages, while during the second half of the year
were in lay up, which meant that bunkers, port dues and other
expenses were reduced significantly even though more vessels
operated in the spot market compared to 1998. Voyage expenses
were $3.7 million and $2.7 million in 1999 and 1998,
respectively. Due to the continuous preventive maintenance that
the Company is implementing in its vessels and due to the days
that the vessels were in lay up, running expenses decreased by
$2.7 million in 1999.
General and administrative expenses. General and
administrative expenses remained at virtually the same level of
$5.2 million in 1999 compared to $5.3 million in 1998. These
expenses consisted of the management fee of $500 per day per
vessel paid to EST effective as of January 1, 1998, and
compensation to the Company's directors, effective from September
1, 1998. The management fees to EST are reduced to $300 per day
per vessel when a vessel is in lay-up.
Depreciation and amortization. Depreciation and amortization
decreased by $0.4 million to $14.4 million in 1999 from $14.8
million in 1998. This decrease was due to the sale for scrapping
of five vessels during the first nine months of 1999.
Interest expense, net. Interest expense, net, increased by
$0.9 million, to $10.5 million in 1999 from $9.6 million in 1998.
This increase was primarily due to the Company's paying interest
on the Senior Notes for the whole of 1999 as opposed to a portion
of 1998. The amount of $3.4 million in interest expense was
capitalized because the proceeds from the Senior Notes were used
for the acquisition of the first newbuilding. Interest expense in
1999 and in 1998 was $12.1 million and $12.0 million,
respectively. Interest income in 1999 and in 1998 was $2.1
million and $2.8 million, respectively.
Net income. Net income decreased by $25.3 million, to a loss
of $9.7 million in 1999 from a profit of $15.6 million in 1998.
As a percentage of revenues, net income decreased to (18.8)% in
1999 from 21.9% in 1998. This decrease of $25.3, was mainly due
to the decrease of net revenues by $19.9 million due to spot
market conditions, by $6.3 million due to the Company's
reimbursement of its P&I Association for a litigation claim and
decreased voyage and running expenses of $1.7 million resulting
from fewer spot voyages and efficient management of the Company's
vessels.
Liquidity and Capital Resources
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The Company operates in a capital-intensive industry
requiring extensive investment in revenue producing assets. The
liquidity requirements of the Company relate to servicing its
debt, funding investments in vessels, funding working capital and
maintaining cash reserves. Net cash flow generated from
operations is the main source of liquidity for the Company. Net
cash provided by operating activities was $3.9 million in the
first half of 2000 versus $11.9 million for the same period in
1999. Additional sources of liquidity include proceeds from asset
sales and borrowings generally secured by one or more of the
Company's vessels, together with the proceeds of the Company's
offering of Senior Notes.
Net cash provided by operating activities decreased to $3.9
million in the first half of 2000 from $11.9 million in the first
half of 1999, primarily due to the lower net income for the
period, and increase of the net working capital. Net cash
provided by operating activities consists of the Company's net
income, increased by non-cash expenses such as depreciation and
amortization of deferred charges, and adjusted by changes in
working capital.
Net cash used in investing activities was $42.6 million out of
which $9.5 million has been paid to the shipyard in Taiwan for
the installments of the vessels under construction. The sale
proceeds from the sale of the two companies was $11.7 million
while the delivery payments for the vessels that was delivered to
the company was $44.6. million. The remaining installments within
2000 amounts to $8.0 million. The Company's principal uses of
cash in investing activities have been vessel acquisitions and
improvements, and purchases of equipment, as well as installment
payments for vessels under construction.
Net cash provided by financing activities in the first half
of 2000 was $40.0 million, which was the secured loans received
by the banks to finance the delivery payment of the vessels which
was delivered to the Company on 25/2/00 and 26/4/00. Thus, cash
and cash equivalents at June 30, 2000 were increased to $15.2
million. The Company expects to fund the remaining $8.0 million
for the acquisition of the newbuildings vessels during 2000 from
its existing cash together with the cash generated by operations.
The Senior Notes Indenture contains certain covenants that,
among other things, limit the ability of the Company and its
Restricted Subsidiaries to: (i) incur additional indebtedness;
(ii) make restricted payments; (iii) allow restrictions on
distributions from subsidiaries; (iv) incur liens; (v) enter into
certain transactions with affiliates; (vi) sell, assign,
transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company; (vii) enter into
sale and leaseback transactions; (viii) issue capital stock of
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its subsidiaries; (ix) enter into certain business activities;
and (x) merge or consolidate with any other person. Events of
default under the Senior Notes Indenture include (i) failure to
pay principal or interest when due; (ii) failure to comply with
certain restrictions on mergers, consolidations and transfers of
assets, (iii) failure to comply with certain agreements and
covenants in the Senior Notes Indenture; (iv) certain events of
default on other indebtedness; (v) certain events of bankruptcy,
and (vi) the breach of any representation or warranty.
The Company believes that, based on current levels of
operating performance and expected market conditions, its cash
flow from operations, and other available sources of funds, will
be adequate to make the required payments of the installments due
to the shipyard, to pay the interest on the Senior Notes which is
due on 1st November 2000, to fund the working capital
requirements for the foreseeable future and finally to
participate to the consolidation of the reefer industry through
opportunistic mergers and acquisitions.
Inflation
Although inflation had a moderate impact on operating
expenses, dry docking expenses and corporate overhead, management
does not consider inflation to be a significant risk to direct
costs in the current and foreseeable economic environment.
However, in the event that inflation becomes a significant factor
in the world economy, inflationary pressures would result in
increased operating and financing costs.
Foreign Exchange Rate Fluctuation
The international reefer industry's functional currency is
the U.S. Dollar and, as a result, virtually all of the Company's
revenues are in U.S. Dollars. Historically, general and
administrative expenses are incurred in Greek Drachmae, while a
significant portion of the cost of revenues is incurred in U.S.
Dollars and, to a much lesser extent, other currencies. The
Company has a policy of continuously monitoring and managing its
foreign exchange exposure, but the Company currently does not
have any, and does not believe that it has any current need to
enter into, foreign currency hedging transactions.
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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.
ENTERPRISES SHIPHOLDING CORPORATION
(registrant)
Dated: August 28, 2000 By: /s/ Victor Restis
___________________________
Victor Restis
President and Chief
Executive Officer
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