DryShips Inc. Reports Financial and Operating Results for the Fourth Quarter 2010
March 30, 2011, Athens, Greece. DryShips Inc. (NASDAQ: DRYS), or the Company, a
global provider of marine transportation services for drybulk and petroleum cargoes, and
through its majority owned subsidiary, Ocean Rig UDW Inc., of off-shore contract
drilling oil services, today announced its unaudited financial and operating results for the
fourth quarter and year ended December 31, 2010.
Fourth quarter 2010 Financial Highlights
o Included in the fourth quarter 2010 results are non-cash amortization of debt issuance costs, including those relating to our convertible senior notes, totaling $10.2 million, or $0.03 per share.
o Included in the fourth quarter 2010 results are gains incurred on our interest rate swaps, amounting to $26.9 million, or $0.09 per share.
• Basic earnings per share for the fourth quarter of 2010 includes a reduction to net income amounting to $3.8 million relating to the cumulative payment-in-kind dividends on the Series A Convertible Preferred Stock, which reduces the income available to common shareholders.
• The Company reported adjusted EBITDA of $129.3 million for the fourth quarter of 2010.1
George Economou, Chairman and Chief Executive Officer of the Company commented,: “We are pleased to report another solid quarter of operating results and the successful achievement of a number of milestones that were initiated over the last two years. Most of these positive developments stem from the offshore drilling segment as we have successfully concluded two vital financings. The restructuring of the Deutsche Bank led facility for newbuilding drillship Ocean Rig Poseidon allows for immediate drawdown and signifies the support of our bankers and the benefits of our commercial decision to charter the Ocean Rig Poseidon to Petrobras. We were also able to achieve competitive financing terms in a challenging market with the new $800 million facility led by Nordea and ABN-AMRO.
“Giving effect to the drawdown of these two facilities along with cash on hand we will have secured financing for all of our four drillships while the Ocean Rig Mykonos facility also remains available for drawdown. We are now focused on taking delivery of the remaining drillships and ensuring drilling operations start at the earliest. We remain committed to registering the Ocean Rig shares on an exchange at the earliest and to build Ocean Rig into a competitive player in the ultra deepwater sector.
“We are pleased with our decision to make a counter cyclical investment and seize the opportunity to purchase a high specification fleet of sister tankers from a top quality yard. The tanker market has again proved to be as unpredictable as ever due to the fallout of the Libyan conflict. The short term impact has been an increase in tonne-mile demand as longer-haul sources replace Libyan oil in Europe. We remain committed to placing the Company’s tanker interests in a standalone entity at the right time.
“As we move through 2011, we are seeing increasingly attractive opportunities to purchase drybulk carriers and renew and/or grow our fleet. Our strategy remains opportunistic in this sector.”
Financial Review: 2010 Fourth quarter
The Company recorded net income of $99.7 million, or $0.31 basic and $0.29 diluted earnings per share, for the three-month period ended December 31, 2010, as compared to a net income of $9.6 million, or $0.02 basic and diluted earnings per share, for the threemonth period ended December 31, 2009. Adjusted EBITDA, which is defined and reconciled to net income later in this press release, was $129.3 million for the fourth quarter of 2010 as compared to $76.7 million for the same period in 2009.
Included in the fourth quarter 2010 results are various items totaling $16.7 million, or $0.06 per share, which are described at the beginning of this press release. Excluding these items, our adjusted net income would have amounted to $83.0 million, or $0.25 per share.
Basic earnings per share for the fourth quarter of 2010 includes a reduction to net income amounting to $3.8 million relating to the cumulative payment-in-kind dividends on the Series A Convertible Preferred Stock, which reduces the income available to common shareholders.
For the drybulk carrier segment, net voyage revenues (voyage revenues minus voyage expenses) decreased by $5.3 million to $106.7 million for the three-month period ended December 31, 2010, as compared to $112.0 million for the three-month period ended December 31, 2009. For the offshore drilling segment, revenues from drilling contracts increased by $25.2 million to $102.3 million for the three-month period ended December 31, 2010 as compared to $77.1 million for the same period in 2009.
Total vessel and rig operating expenses increased by $6.5 million to $52.0 million for the three-month period ended December 31, 2010, as compared to $45.5 million for the three-month period ended December 31, 2009, while total depreciation and amortization decreased by $3.2 million to $46.9 million for the three-month period ended December 31, 2010 as compared to $50.1 million for the three-month period ended December 31, 2009. Total general and administrative expenses increased to $25.2 million in the fourth quarter of 2010 from $24.5 million during the comparative period in 2009.
Financing Developments
New $800 million Syndicated Secured Term Loan Facility
On March 25, 2011, the Company received signed commitments from all the lenders participating in a new $800 million syndicated secured term loan facility to partially finance the construction costs of the Ocean Rig Corcovado and Olympia. This facility has a 5 year term and 12 year repayment profile, and bears interest at LIBOR plus a margin. This new facility is subject to completion of definitive documentation, which the Company expects to occur in the coming weeks. The Lead Arrangers are Nordea Bank and ABN AMRO. Also participating in this financing is Garanti-Instituttet for Eksportkreditt (GIEK), Norway’s export credit agency, DVB Bank, Deutsche Bank and National Bank of Greece.
The Company intends to use a portion of the new facility to prepay its $325 million Bridge Loan Facility with Deutsche Bank.
Restructuring of $1.1 billion Secured Term Loan Facility
On March 28, 2011, the Company received signed consents from all participating lenders to restructure the $1.1 billion secured term loan facilities led by Deutsche Bank.
The main terms of the restructuring are as follows:
• The maximum amount permitted to be drawn is reduced from $562 million to $495 million under each facility.
• In addition to the Dryships Guarantee, the Company’s majority-owned subsidiary, Ocean Rig UDW Inc., will provide an unlimited recourse guarantee and will be subject to certain financial covenants that will apply quarterly.
• Full draw downs (up to a total of $495 million) will be permitted for the Ocean Rig Poseidon based upon the fixture of the drillship under its drilling contract with Petrobras, and cash collateral deposited for this vessel will be released.
• For the Ocean Rig Mykonos, the Company will have up to one month prior to delivery (scheduled for September 2011) to execute an acceptable drilling contract in order to draw down the loan.
This restructuring is subject to completion of definitive documentation, which the Company expects to occur in the coming weeks.
New $70 million Secured Term Loan Facility
On February 7, 2011, the Company executed definitive documentation for a $70 million secured term loan facility with an international lender to partially finance the construction costs of the newbuilding tankers, Saga and Villamoura. This facility has a 5 year term and a 15 year repayment profile, and bears interest at LIBOR plus a margin. As of March 30, 2011, the Company has drawn the full amount available under this facility.
New $32.3 million Secured Term Loan Facility
On March 30, 2011, the Company received a firm commitment from an international lender for a $32.3 million secured term loan facility to partially finance the construction cost of the newbuilding tanker, Daytona, which is scheduled to be delivered in May 2011. This facility has a 6 year term and a 15 year repayment profile, and bears interest at LIBOR plus a margin. This facility is subject to completion of definitive documentation, which the Company expects to occur in the coming weeks.
Selected Recent Developments
• On November 23, 2010, the Company announced it has entered into an agreement with a major South Korean shipyard for the option to construct up to four ultra deepwater drillships. The new orders would be sisterships of the drillships under construction with further upgrades to the specifications. Each of the four options can be declared within twelve months of the agreement, with deliveries ranging from 2013 until 2014. The total project cost is estimated to be about $600 million per drillship excluding financing costs. The agreement includes a non-refundable slot reservation fee of $24.8 million per drillship that will be applied to the drillship contract price if the options are exercised. The option agreement was novated to Ocean Rig UDW in December 2010 at a cost of $99.0 million.
• In January 2011, the Company entered into firm contracts with Cairn Energy PLC for the Leiv Eiriksson and the Ocean Rig Corcovado, and with Petrobras Tanzania for the Ocean Rig Poseidon.
• On December 21, 2010, Ocean Rig UDW closed its offering by way of a private placement of shares in the Norwegian market with total gross proceeds of $500 million, with DryShips retaining 78% of Ocean Rig UDW. As noted above, as part of this transaction Ocean Rig UDW acquired at cost the drillship options held by DryShips.
• On December 23, 2010, the Company entered into direct agreements with a first class Korean shipyard to purchase twelve high specification newbuilding tankers at a total purchase price of $770 million, including over $3 million per vessel in extra items. The delivery installments for these contracts approximate 70% of each vessel’s price.
• On January 3, 2011, the Company took delivery of its newbuilding drillship Ocean Rig Corcovado (Hull 1837).
• On January 18, 2011, the Company took delivery of its newbuilding Aframax tanker, Saga.
• On March 17, 2011, the Company’s vessel, MV OLIVA, was reported to have run aground in a group of islands in the South Atlantic Ocean. Salvors report that there are no salvage prospects for the vessel or the cargo. We expect that all losses will be covered by insurance.
• On March 23, 2011, the Company took delivery of its newbuilding Suezmax tanker, Vilamoura.
• On March 30, 2011, the Company took delivery of its second newbuilding drillship Ocean Rig Olympia (Hull 1838).
• In March 2011, A U.S. District Court in Maryland resolved a case in which Cardiff, the former manager of the Company’s vessel, M/V Capitola, entered into a comprehensive settlement with the U.S. Department of Justice in connection with an investigation into MARPOL violations involving that vessel. The court applied a fine of approximately $2.5 million and instructed Cardiff to implement an Environmental Compliance Plan, or ECP, which the vessels’ current operator, TMS Bulkers, will carry out.
• Three of the Company’s drybulk carriers are chartered to Korea Lines Corporation (KLC). As of February 16, 2011, KLC entered into a rehabilitation proceeding under the protection of the Korean Courts. The Company reached an agreement with the receivers of KLC to restructure the charters at a base rate plus a profit share component. The agreement requires that a certain portion of outstanding hire be paid in full with the remaining amount to be filed as an unsecured claim, the satisfaction of which will be subject to the rehabilitation proceedings in the Korean Bankruptcy Courts.
Detailed report at: www.dryships.com
About DryShips Inc.
DryShips Inc., based in Greece, is an owner of drybulk carriers and tankers that operate worldwide. Through its majority owned subsidiary, Ocean Rig UDW, Inc., DryShips owns and operates 6 offshore ultra deepwater drilling units, comprising of 2 ultra deepwater semisubmersible drilling rigs and 4 ultra deepwater drillships, 2 of which will be delivered to the company during 2011. As of the day of this release, DryShips owns a fleet of 38 drybulk carriers (including newbuildings), comprising 7 Capesize, 29 Panamax and 2 Supramax, with a combined deadweight tonnage of over 3.4 million tons, and 12 tankers (including newbuildings), comprising 6 Suezmax and 6 Aframax, with a combined deadweight tonnage of over 1.6 million tons.
DryShips Inc.’s common stock is listed on the NASDAQ Global Select Market where it trades under the symbol "DRYS."
Visit the Company’s website at www.dryships.com
DryShips Inc.