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Comments from Management Mr. Ion G. Varouxakis, Chairman and CEO, stated, "We have continued to see low charter rates for all dry bulk segments in the second and third quarters of 2011 due to adverse demand and supply conditions in the dry bulk sector. In this challenging market environment, the operational performance of FreeSeas was negatively affected. The Company has proactively taken the step to reduce its total indebtedness, with total debt reduced from $120.5 million in December 31, 2010 to approximately $88.9 million adjusted to reflect the proceeds from the sale of the M/V Free Lady and the consequent debt pre-payment." Mr. Varouxakis continued, "The effect of such a significant drop of about 26% of total debt is enhanced by the frontloaded reduction of the scheduled loan repayment of our largest loan. From such actions, we expect to be in a better position to navigate in the current lower charter rate environment since our yearly debt service year-over-year starting from June 2011 has been reduced from $14.4 million to $7.8 million. The sale of the M/V Free Lady signifies the Company's intention to focus on Handysize rather than the Handymax/ Supramax segment for the time being. While supply side pressure persists in all drybulk segments, September 2011 has been the first month when the Handysize fleet has actually shrunk in the face of higher scrapping and reduced newbuilding deliveries, as opposed to other drybulk segments which have continued to grow. With a large number of newbuilding vessels delivered to the market in the last two years, it is noteworthy that the last six months have seen a stalling in newbuilding orders, in spite of efforts by shipyards to lure owners with ever attractive offers. As such, we expect supply and demand conditions to improve in the coming 12 to 18 months, leading to healthier time charter rates. In the meanwhile, the fact that the Company has managed to find mutually acceptable accommodations with its largest lender is an encouraging factor in this highly volatile environment." Mr. Alexandros Mylonas, CFO, added, "During the second quarter, we have continued to benefit from our low operating costs, while we still target to lower our costs further without sacrificing our top notch technical and operational management of our vessels. As of June 30, 2011 we were in full compliance with all of our applicable financial covenants and value to loan ratios of our loans. In our condensed consolidated statement of operations for the second quarter of 2011, an impairment charge has been recorded as a result of our decision to sell the M/V Free Lady and the M/V Free Jupiter in July 2011." Second Quarter 2011 Financial Review • Operating revenues for the second quarter of 2011 were $8.7 million compared to $16.5 million reported during the same period of the prior year. The decrease is mainly attributable to the lower average daily TCE rate of $10,559 in the second quarter of 2011 compared to an average daily TCE rate of $17,745 in the second quarter of the prior year, reflecting weak spot charter market rates and to a lesser degree the decrease of the average number of vessels in our fleet to 8.5 vessels for the second quarter of 2011 compared to 10 vessels in the prior year period. • Vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs, for the second quarter of 2011 were $3.9 million as compared to $5.3 million for the same period of the prior year. The decrease of $1.4 million, which is translated to daily operating expenses of $5,065 for the three months ended June 30, 2011 versus $5,876 for the three months ended June 30, 2010, reflects our additional cost cutting initiatives in the fourth quarter of 2010 and the ownership of 8.5 vessels versus 10 during the same period of the prior year. • Net loss for the period was $46.3 million, or $7.28 loss per share based on 6.35 million basic and diluted weighted average number of shares, as compared to net income of $2.0 million, or $0.32 earnings per share based on 6.31 million basic and 6.34 million diluted weighted average number of shares, for the second quarter of 2010. • Adjusted net loss, which excludes (1) vessel impairment loss of $46.5 million, (2) stock-based compensation expense of $57,000, (3) unrealized swap gains of $27,000 and (4) gain on sale of the M/V Free Envoy of $1.56 million for the second quarter of 2011, was $1.3 million, or $0.20 diluted loss per share, as compared to adjusted net income of $2.2 million, or $0.35 diluted earnings per share, for the second quarter of 2010. A table reconciling adjusted net (loss)/ income to net (loss)/ income can be found in footnote (1) to this release. • Adjusted EBITDA for the quarter was $2.6 million compared to $7.7 million in the prior year's quarter. A table reconciling adjusted EBITDA to net (loss)/ income can be found in footnote (2) to this release. Six Month 2011 Financial Review • Operating revenues for the six months ended June 30, 2011 were $17.1 million compared to $32.1 million for the six months ended June 30, 2010. The decrease of $15 million is mainly attributable to the lower average daily TCE rate of $10,460 in the six months ended June 30, 2011 compared to an average daily TCE rate of $17,420 in the six months ended June 30, 2010, reflecting weak spot charter market rates and to a lesser degree the decrease of the average number of vessels in our fleet to 8.7 vessels for the six months ended June 30, 2011 compared to 10 vessels for the six months ended June 30, 2010. • Vessel operating expenses, which include crew cost, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs, totaled $7.9 in the six months ended June 30, 2011, as compared to $10 million in the six months ended June 30, 2010. The decrease of $2.1 million, which is translated to daily operating expenses of $4,985 for the six months ended June 30, 2011 versus $5,544 for the six months ended June 30, 2010, reflects our additional cost cutting initiated in the fourth quarter of 2010 and the ownership of 8.7 vessels versus 10 during the same period of the prior year. • Net loss for the six months ended June 30, 2011 was $49.4 million, or $7.77 loss per share based on 6.35 million basic and diluted weighted average numbers of shares, as compared to net income of $4.7 million, or $0.74 earnings per share based on 6.31 million basic and 6.33 million diluted weighted average number of shares, for the six months ended June 30, 2010. • Adjusted net loss, which excludes (1) vessel impairment loss of $47.3 million, (2) stock-based compensation expense of $125,000, (3) unrealized swap gains of $168,000, (4) gain on sale of M/V Free Envoy of $1.56 million and (5) bad debt provision of $128,000, for the six months ended June 30, 2011 was $3.5 million, or $0.56 diluted loss per share, as compared to adjusted net income of $5.1 million, or $0.81 diluted earnings per share, for the six months ended June 30, 2010. A table reconciling adjusted net (loss)/ income to net (loss)/ income can be found in footnote (1) to this release. • Adjusted EBITDA for the six months ended June 30, 2011 was $4.7 million compared to $15.9 million in the prior year's period. A table reconciling adjusted EBITDA to net (loss)/ income can be found in footnote (2) to this release. Debt Repayment Information As of November 1, 2011, the Company's remaining scheduled principal repayments for 2011 total $1.6 million as adjusted to reflect our agreement with Credit Suisse to reduce upcoming payments, versus $3.6 million previously ($34 million of the short term debt refers to the assumed prepayment from the possible sale of M/V Free Hero, M/V Free Impala and M/V Free Neptune, which were classified as "held for sale" at June 30, 2011). Additionally, the 2012 scheduled principal repayment amounts to $10.6 million pro-forma after the agreement with Credit Suisse versus $14.4 million previously. As of June 30, 2011, the following repayments of principal are required over the next five years and throughout their term for the Company's debt facilities: (In thousands of U.S. Dollars) 
* Includes the assumed prepayment of $9,574 relating to M/V Free Hero and of $24,412 relating to M/V Free Impala and M/V Free Neptune as a result of the possible sale of vessels, which were classified as "held for sale" at June 30, 2011. ** Includes a balloon payment of $16 million due in November 2012. FreeSeas currently intends to refinance the $16 million balloon payment, although there can be no assurances that it will be able to do so. Fleet Employment (as of October 31, 2011) 
About FreeSeas Inc. FreeSeas Inc. is a Marshall Islands corporation with principal offices in Athens, Greece. FreeSeas is engaged in the transportation of drybulk cargoes through the ownership and operation of drybulk carriers. Currently, it has a fleet of Handysize and Handymax vessels. FreeSeas' common stock trades on the NASDAQ Global Market under the symbol FREE. Risks and uncertainties are described in reports filed by FreeSeas Inc. with the U.S. Securities and Exchange Commission, which can be obtained free of charge on the SEC's website at http://www.sec.gov. For more information about FreeSeas Inc., please visit the corporate website, http://www.freeseas.gr. FreeSeas Inc. press release |
FreeSeas Announces Sale of the M/V Free Lady, Reduces its Total Indebtedness by Approximately 26%, Softens its Loan Repayment Schedule and Reports 2011 Second Quarter and Six Month Financial Results