Amendment No. 1 to Form 8-K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 8-K/A

Amendment No. 1 to

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported) August 25, 2005

 

Navios Maritime Holdings Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Republic of Marshall Islands

(State or Other Jurisdiction of Incorporation)

 

000-51047   98-0384348
(Commission File Number)   (IRS Employer Identification No.)
67 Notara Street, Piraeus, Greece   185 35
(Address of Principal Executive Offices)   (Zip Code)

 

30-210-4172050

(Registrant’s Telephone Number, Including Area Code)

 

International Shipping Enterprises, Inc., 1225 Franklin Ave., Suite 325, Garden City, New York

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 



On August 25, 2005, pursuant to a Stock Purchase Agreement dated February 28, 2005, as amended, by and among International Shipping Enterprises, Inc. (“ISE”), Navios Maritime Holdings Inc., a Marshall Islands corporation (“Navios”) and all the shareholders of Navios, ISE acquired substantially all of the assets of Navios through the purchase of all of the outstanding shares of stock of Navios. As a result of such acquisition, Navios became a wholly-owned subsidiary of ISE. In addition, on August 25, 2005, simultaneously with the acquisition of Navios, ISE effected a reincorporation from the State of Delaware to the Republic of Marshall Islands through a downstream merger with and into its newly acquired wholly-owned subsidiary, Navios. As a result of the reincorporation, ISE changed its name to Navios Maritime Holdings Inc. to reflect its operations and to assist it in the transition from a shell company to an operating business. The acquisition and reincorporation are further described in the Current Report on Form 8-K dated August 25, 2005 filed by the registrant on August 31, 2005.

 

This Form 8-K/A amends the Current Report on Form 8-K dated August 25, 2005 to include the requirements of Item 9.01(a) Financial Statements of Business Required and Item 9.01(b) Pro Forma Financial Information.

 

2


Item 8.01 Other Events.

 

As previously stated in the Current Report on Form 8-K dated August 25, 2005, as a result of the acquisition and reincorporation, effective immediately following the filing of this Current Report on Form 8-K/A, the registrant will satisfy its reporting obligations under the U.S. Securities Exchange Act of 1934 by filing reports with the SEC on forms available for use by foreign private issuers. Accordingly, the registrant will no longer file its periodic reports with the SEC on Forms 10-K and Form 10-Q, or current reports on Form 8-K. Instead, it will file its future annual reports, beginning with the report for the fiscal year ending December 31, 2005, on Form 20-F, which is available to foreign private issuers filing reports with the SEC. In addition, rather than file quarterly reports on Form 10-Q or current reports on Form 8-K, the registrant will file periodic reports on Form 6-K. The registrant anticipates continuing to disclose its financial results within a comparable timeframe, and with a similar level of disclosure, as it has previously.

 

3


Item 9.01 Financial Statements and Exhibits.

 

(a) Financial Statements of Business Acquired.

 

Included in this filing are the following financial statements of Navios Maritime Holdings Inc.:

 

  (i) Consolidated Balance Sheets as of June 30, 2005 (unaudited) and December 31, 2004;

 

  (ii) Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2005 and 2004;

 

  (iii) Unaudited Consolidated Statements of Cash Flow for the six months ended June 30, 2005 and 2004; and

 

  (iv) Unaudited Consolidated Statements of Stockholder’s Equity for the six months ended June 30, 2005 ; and

 

  (v) Notes to Unaudited Financial Statements

 

  (vi) Report of Independent Auditors

 

  (vii) Audited Consolidated Balance Sheets as of December 31, 2004 and 2003

 

  (viii) Audited Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002;

 

  (ix) Audited Consolidated Statements of Cash Flow for the years ended December 31, 2004, 2003 and 2002;

 

  (x) Audited Consolidated Statements of Stockholder’s Equity for the years ended December 31, 2004, 2003 and 2002; and

 

  (xi) Notes to the Audited Consolidated Financial Statements.

 

(b) Pro Forma Financial Information.

 

Included in this filing are the unaudited consolidated pro forma financial statements giving effect to the acquisition by ISE of Navios. The unaudited pro forma financial statements are presented for illustrative purposes only. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable.

 

The unaudited pro forma consolidated balance sheet combines the historical balance sheets of Navios and ISE as of June 30, 2005, giving effect to the transaction described in the Stock Purchase Agreement dated February 28, 2005 (the “Transaction”) as if it had occurred on June 30, 2005.

 

The unaudited pro forma consolidated statements of operations combine (i) the historical statements of operations of Navios and ISE for the six month period ended June 30, 2005 and (ii) the historical statements of operations of Navios for the year ended December 31, 2004 and ISE for the period from September 17, 2004 (inception) to December 31, 2004, giving effect to the Transaction as if it had occurred on January 1, 2004.

 

The unaudited pro forma condensed consolidated financial statements described above should be read in conjunction with the historical financial statements of Navios and ISE and the related notes thereto. The unaudited pro forma information is not necessarily indicative of the financial position or results of operations that may have actually occurred had the Transaction taken place on the dates noted, or the future financial position or operating results of the combined company.

 

(c) Exhibits.

 

99.1    Financial Statements listed in Item 9.01(a) above
99.2    Pro forma Financial Statements listed in Item 9.01(b) above

 

4


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.

 

NAVIOS MARITIME HOLDINGS INC.

By:

  /s/    ANGELIKI FRANGOU        

Name:

  Angeliki Frangou

Title:

  Chairman and Chief Executive Officer

 

Date: October 5, 2005

 

5

Financial Statements listed in Item 9.01(a)

Exhibit 99.1

 

NAVIOS MARITIME HOLDINGS INC.

[ACQUIRED COMPANY*]

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2005 (UNAUDITED) AND DECEMBER 31, 2004

(in thousands of US Dollars)

 

     Notes

  

June 30,

2005


  

December 31,

2004


          (Unaudited)     
ASSETS                   
Current Assets:                   

Cash and cash equivalents

   3    $ 93,064    $ 46,758

Restricted cash

          2,917      3,513

Accounts receivable - net of allowance for doubtful accounts of $1,411 as at June 30, 2005 and $2,291 as at December 31, 2004

          19,417      15,200

Short term derivative assets

   4      58,922      109,310

Prepaid voyage costs

          8,002      11,120

Prepaid expenses and other current assets

          2,706      2,043
         

  

Total current assets

          185,028      187,944

Vessels, net

          114,046      116,231

Other fixed assets, net

          21,732      21,968

Fixed assets under construction

          5,118      2,794

Long term derivative assets

   4      4,111      708

Deferred financing costs, net

          398      425

Deferred dry dock and special survey costs, net

          311      435

Investment in affiliates

          714      557

Trade name

          1,960      2,004

Goodwill

          226      226
         

  

Total noncurrent assets

          148,616      145,348
         

  

Total Assets

        $ 333,644    $ 333,292
         

  

LIABILITIES AND SHAREHOLDERS’ EQUITY                   
Current Liabilities:                   

Accounts payable

        $ 11,635    $ 14,883

Accrued expenses

          4,993      7,117

Deferred voyage revenue

          11,581      15,135

Short term derivative liability

   4      36,787      65,392

Current portion of long term debt

   5      50,006      1,000
         

  

Total current liabilities

          115,002      103,527

Long term liabilities

          2,818      3,024

Long term derivative liability

   4      3,762      2,444

Long term debt, net of current portion

   5      0      49,506
         

  

Total noncurrent liabilities

          6,580      54,974
         

  

Total liabilities

          121,582      158,501
         

  

Commitments and Contingencies    7      —        —  
Shareholders’ Equity:                   

Common Stock, $0.10 par value - authorized, issued and outstanding, 874,584 shares

          87      87

Additional Paid-in Capital

          60,570      60,570

Legal Reserve (Restricted)

          452      289

Retained earnings

          150,953      113,845
         

  

Total shareholders’ equity

          212,062      174,791
         

  

Total Liabilities and Shareholders’ Equity

        $ 333,644    $ 333,292
         

  


* “Acquired Company” designates the entity acquired by the registrant (International Shipping Enterprises, Inc.). This has been labeled to avoid confusion between the registrant and this entity.

 

See notes to consolidated financial statements.


NAVIOS MARITIME HOLDINGS INC.

[ACQUIRED COMPANY*]

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004

(in thousands of US Dollars)

 

    

Notes

 

  

For the Three Months

Ended June 30,


   

For the Six Months

Ended June 30,


 
          2005

    2004

    2005

    2004

 
          Unaudited     Unaudited     Unaudited     Unaudited  

Revenue

        $ 65,960     $ 71,902     $ 127,326     $ 138,063  

Gain (loss) on Forward Freight Agreements

   4      3,768       5,059       (799 )     38,642  

Time charter, voyage, and port terminal expense

          (38,463 )     (43,994 )     (75,933 )     (93,317 )

Direct vessel expense

          (2,245 )     (2,084 )     (4,354 )     (4,255 )

General and administrative expense

          (3,104 )     (3,239 )     (6,748 )     (6,380 )

Depreciation and amortization

          (1,493 )     (1,476 )     (2,982 )     (2,935 )

Interest income

          559       127       861       200  

Interest expense

          (515 )     (826 )     (990 )     (1,640 )

Other income

          (125 )     350       845       367  

Other expense

          (372 )     836       (595 )     (496 )
         


 


 


 


Income before Equity in net Earnings of Affiliate Companies

          23,970       26,655       36,631       68,249  

Equity in net Earnings of Affiliate Companies

          337       165       640       347  
         


 


 


 


Net income

        $ 24,307     $ 26,820     $ 37,271     $ 68,596  
         


 


 


 



* “Acquired Company” designates the entity acquired by the registrant (International Shipping Enterprises, Inc.). This has been labeled to avoid confusion between the registrant and this entity.

 

See notes to consolidated financial statements.


NAVIOS MARITIME HOLDINGS INC.

[ACQUIRED COMPANY*]

CONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

(in thousands of US Dollars)

 

     Notes

  

For the Six Months

Ended June 30,


 
      2005

    2004

 
          Unaudited     Unaudited  

OPERATING ACTIVITIES:

                     

Net income

        $ 37,271     $ 68,596  

Adjustments to reconcile net income to net cash provided by operating activities:

                     

Depreciation and amortization

          2,982       2,935  

Amortization of deferred financing costs

          27       82  

Amortization of deferred drydock costs

          124       125  

Provision for losses on accounts receivable

          (880 )     (203 )

Unrealized loss on FFA derivatives

   4      25,019       648  

Unrealized loss on foreign exchange contracts

   4      401       167  

Unrealized gain on interest rate swaps

   4      (111 )     (351 )

Earnings in affiliates, net of dividends received

          (157 )     72  

Changes in operating assets and liabilities:

                     

Decrease in restricted cash

          596       40  

(Increase) decrease in accounts receivable

          (3,337 )     637  

Decrease in prepaid voyage costs

          3,118       1,371  

(Increase) decrease in prepaid expenses and other assets

          (663 )     555  

Decrease in accounts payable

          (3,248 )     (5,183 )

(Decrease) increase in accrued expenses

          (2,124 )     697  

Decrease in deferred voyage revenue

          (3,554 )     (895 )

Decrease in long term liabilities

          (206 )     (665 )

Decrease in derivative accounts

   4      (5,611 )     (1,114 )
         


 


Net cash provided by operating activities

          49,647       67,514  
         


 


INVESTING ACTIVITIES:

                     

Purchase of property and equipment

          (2,841 )     (1,519 )
         


 


Net cash used in investing activities

          (2,841 )     (1,519 )
         


 


FINANCING ACTIVITIES:

                     

Principal payments on long term debt

          (500 )     (3,380 )

Acquisition of common stock

          —         (9,000 )

Redemption of preferred stock

          —         (15,189 )
         


 


Net cash used in financing activities

          (500 )     (27,569 )
         


 


Increase in cash and cash equivalents

          46,306       38,427  
         


 


Cash and cash equivalents, beginning of the period

          46,758       26,450  
         


 


Cash and cash equivalents, end of period

        $ 93,064     $ 64,877  
         


 


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

                     

Cash paid during the period for:

                     

Interest

        $ 1,922     $ 2,745  
         


 



* “Acquired Company” designates the entity acquired by the registrant (International Shipping Enterprises, Inc.). This has been labeled to avoid confusion between the registrant and this entity.

 

See notes to consolidated financial statements.


NAVIOS MARITIME HOLDINGS INC.

[ACQUIRED COMPANY*]

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY (Unaudited)

FOR THE SIX MONTHS ENDED JUNE 30, 2005

(in thousands of US Dollars, except number of Common Shares)

 

     Number of
Common
Shares


   Common
Stock


   Additional
Paid-In
Capital


  

Loan

to

Shareholder


   Legal
Reserve
(Restricted)


   Retained
Earnings


    Total
Stockholder’s
Equity


BALANCE, JANUARY 1, 2005

   874,584    $ 87    $ 60,570    $ —      $ 289    $ 113,845     $ 174,791

Net income

   —        —        —        —        —        37,271       37,271

Movement in legal reserve

   —        —        —        —        163      (163 )     —  
    
  

  

  

  

  


 

BALANCE, JUNE 30, 2005

   874,584    $ 87    $ 60,570    $ —      $ 452    $ 150,953     $ 212,062
    
  

  

  

  

  


 


* “Acquired Company” designates the entity acquired by the registrant (International Shipping Enterprises, Inc.). This has been labeled to avoid confusion between the registrant and this entity.

 

See notes to consolidated financial statements.


NAVIOS MARITIME HOLDINGS INC.

[ACQUIRED COMPANY*]

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Expressed in thousands of US Dollars)

 

NOTE 1: DESCRIPTION OF BUSINESS

 

On December 11, 2002, the shareholders of Anemos Maritime Holdings Inc. (“Anemos”) and Navios Corporation (“Navios”) each contributed their respective interests for shares of a newly created entity named Nautilus Maritime Holdings, Inc. (“Nautilus”), a Marshall Islands corporation. For accounting purposes, Anemos was considered the acquirer. During 2003 Nautilus Maritime Holdings, Inc. changed its name to Navios Maritime Holdings Inc. Navios Maritime Holdings Inc. and its wholly owned subsidiaries are collectively referred to as the (“Company”). The purpose of the business combination was to create a leading international maritime enterprise focused on the: (i) transportation and handling of bulk cargoes through the ownership, operation, and trading of vessels, freight, and forward freight agreements (“FFAs”) and (ii) ownership and operation of port and transfer station terminals.

 

The Company operates a fleet of owned ultra handymax vessels and a fleet of time chartered panamax and ultra handymax vessels that are employed to provide worldwide transportation of bulk commodities.

 

The Company actively engages in assessing risk associated with fluctuating future freight rates, fuel prices, foreign exchange and, where appropriate, will actively hedge identified economic risk with appropriate derivative instruments. Such economic hedges do not always qualify for accounting hedge treatment, and, as such, the usage of such derivatives could lead to material fluctuations in the Company’s reported results from operations on a period-to-period basis.

 

The Company also operates a port and transfer facility located in Nueva Palmira, Uruguay. The facility consists of docks, conveyors and silo storage capacity totalling 205,000 tons. During the three months ended June 30, 2005 and 2004, shipments totalled 710,400 and 629,900 tons, respectively, and during the six months ended June 30, 2005 and 2004, shipments totalled 1,044,200 and 1,075,100 tons, respectively.

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION: The interim consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the periods presented. These adjustments consist of normal, recurring items. The results of operations for any interim period are not necessarily indicative of results for the full year. The interim consolidated financial statements and notes are presented as permitted by the requirements for interim financial statements and accordingly, they do not include all of the information and disclosures required under generally accepted accounting principles for complete financial statements. These interim financial statements should be read in conjunction with the Company’s consolidated financial statements and notes for the year ended December 31, 2004 included elsewhere in this Current Report on Form 8-K.

 

RECENT ACCOUNTING PRONOUNCEMENTS:

 

In March 2005 the U.S. Securities and Exchange Commission, or SEC, released Staff Accounting Bulletin 107, “Share-Based Payments,” or SAB 107. The interpretations in SAB 107 express views of the SEC staff, or staff, regarding the interaction between SFAS 123R and certain SEC rules and regulations, and provide the staff’s views regarding the valuation of share-based payment arrangements for public companies. In particular, SAB 107 provides guidance related to share-based payment transactions with non-employees, the transition from nonpublic to public entity status, valuation methods (including assumptions such as expected volatility and expected term), the accounting for certain redeemable financial instruments issued under share-based payment arrangements, the classification of compensation expense, non-GAAP financial measures, first-time adoption of SFAS 123R in an interim period, capitalization of compensation cost related to share-based payment arrangements, the accounting for income tax effects of share-based payment arrangements upon adoption of SFAS 123R, the modification of employee share options prior to adoption of SFAS 123R and disclosures in Management’s Discussion and Analysis subsequent to adoption of SFAS 123R. The adoption of this interpretation will not have an effect on the Company’s statement of financial position or results of operations

 


* “Acquired Company” designates the entity acquired by the registrant (International Shipping Enterprises, Inc.). This has been labeled to avoid confusion between the registrant and this entity.


NAVIOS MARITIME HOLDINGS INC.

[ACQUIRED COMPANY*]

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Expressed in thousands of US Dollars)

 

In March 2005, the FASB issued FIN 47 as an interpretation of FASB Statement No. 143, Accounting for Asset Retirement Obligations (FASB No. 143). This interpretation clarifies that the term conditional asset retirement obligation as used in FASB No. 143, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even through uncertainly exists about the timing and/or method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. This interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The adoption of this interpretation will not have an effect on the Company’s statement of financial position or results of operations.

 

In March 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3. The Statement applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle. Statement No. 154 requires retrospective applications to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. Opinion 20 previously required that most voluntary change in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. Statement No. 154 improves financial reporting because its requirements enhance the consistency of financial information between periods. The Company does not expect this pronouncement to have a significant impact on its financial condition, statement of operations, and cash flows. This statement will be effective for the Company for the fiscal year beginning on January 1, 2006.

 

NOTE 3: CASH AND CASH EQUIVALENTS

 

Cash and cash equivalents consist of the following:

 

    

June 30,

2005


  

December 31,

2004


     (Unaudited)     

Cash in hand and at banks

     5,001    $ 18,647

Short-term deposits and highly liquid funds

     88,063      28,111
    

  

Total cash and cash equivalents

   $ 93,064    $ 46,758
    

  

 

NOTE 4: FINANCIAL INSTRUMENTS

 

Interest rate risk

 

For the three months ended June 30, 2005 and 2004, the gain (loss) on interest rate swaps was $(501) and $1,495, respectively, and for the six months ended June 30, 2005 and 2004, the gain on interest rate swaps was $111 and $351, respectively. As of June 30, 2005 and December 31, 2004, the outstanding liability was $2,138 and $3,103, respectively.

 

The swap agreements have been entered into by subsidiaries. The Royal Bank of Scotland swap agreements have been collateralized by preferred mortgages over the M/V Navios Apollon and M/V Navios Ionian. The Alpha Bank swap agreement has been guaranteed by the Company.

 


* “Acquired Company” designates the entity acquired by the registrant (International Shipping Enterprise, Inc.). This has been labeled to avoid confusion between the registrant and this entity.


NAVIOS MARITIME HOLDINGS INC.

[ACQUIRED COMPANY*]

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Expressed in thousands of US Dollars)

 

Foreign Currency Risk

 

During the three months ended June 30, 2005 and 2004 the Company purchased €0 (2004: €1,000) at an average exchange rate of 0 (2004: 1.184) with a $0 (2004: $1,184) sales value. For the six months ended June 30, 2005 and 2004 the Company purchased €3,000 (2004: €2,000) at an average exchange rate of 1.3076 (2004: 1.2194) with a $3,923 (2004: $2,438) sales value. These contacts mature within twelve months of the balance sheet date for all periods. As of June 30, 2005 and December 31, 2004 the fair value of these contracts were a (loss) gain of $(274) and $126, respectively. The open contracts entered into during 2005 will settle quarterly between September and December 2005. The net gains (loss) from FECs amounted to $(320) and $14 for the three months ended June 30, 2005 and 2004, respectively, and $(525) and $(141) for the six months ended June 30, 2005 and 2004, respectively. The unrealized gain (loss) on forward exchange contracts for the three months ended June 30, 2005 and 2004, was $(204) and $3, respectively, and for the six months ended June 30, 2005 and 2004, was $(401) and $(167), respectively.

 

Forward Freight Agreements (FFAs)

 

At June 30, 2005 and December 31, 2004, none of the ‘mark to market’ positions of open dry bulk FFA contracts qualified for hedge accounting treatment. Dry bulk shipping FFAs traded by the Company that do not qualify for hedge accounting are shown at fair value through the statement of operations. The net gain from FFAs amounted to $3,768 and $5,059 for the three months ended June 30, 2005 and 2004, respectively, and the net (loss) gain from FFAs amounted to $(799) and $38,642 for the six months ended June 30, 2005 and 2004, respectively. During the three months ended June 30, 2005 and 2004, the changes in the balance sheet accounts related to the net unrealized gain (loss) on FFAs were a decrease of $8,114 and $18,840, respectively and for the six months ended June 30, 2005 and 2004, the changes in the balance sheet accounts related to the net unrealized gain (loss) on FFAs were a decrease of $25,019 and $648, respectively.

 

The open dry bulk shipping FFAs at net contracted (strike) rate after consideration of the fair value settlement rates is summarized as follows:

 

Forward Freight Agreements (FFA)


  

June 30,

2005


   

December 31,

2004


 
    
     (Unaudited)        

Short term FFA derivative asset

   $ 56,113     $ 111,131  

Long term FFA derivative asset

     4,111       708  

Short term FFA derivative liability

     (35,466 )     (63,981 )

Long term FFA derivative liability

     (2,671 )     (752 )
    


 


Net fair value on FFA contracts

   $ 22,087     $ 47,106  
    


 


NOS FFA portion of fair value at June 30, 2005 and December 31, 2004 respectively, transferred from /(to) NOS derivative account

   $ 2,809     $ (1,947 )
    


 


 


* “Acquired Company” designates the entity acquired by the registrant (International Shipping Enterprise, Inc.). This has been labeled to avoid confusion between the registrant and this entity.


NAVIOS MARITIME HOLDINGS INC.

[ACQUIRED COMPANY*]

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Expressed in thousands of US Dollars)

 

The open interest rate swaps after consideration of the fair value is summarized as follows:

 

Interest Rate Swaps


  

June 30,

2005


   

December 31,

2004


 
    
     (Unaudited)        

Short term Interest Rate Swap liability

   $ (1,047 )   $ (1,411 )

Long term Interest Rate Swap liability

     (1,091 )     (1,692 )
    


 


Net fair value on Interest Rate Swap contracts

   $ (2,138 )   $ (3,103 )
    


 


 

The open FECs after consideration of the fair value is summarized as follows:

 

Forward Exchange Contracts (FEC)


  

June 30,

2005


   

December 31,

2004


     (Unaudited)      

Short term FEC derivative (liability) asset

   $ (274 )   $ 126
    


 

 

Reconciliation of Balances

 

Total of balances related to derivatives and financial instruments:

 

    

June 30,

2005


   

December 31,

2004


 
     (Unaudited)        

FFAs

   $ 22,087     $ 47,106  

NOS FFA portion of fair value transferred to NOS derivative account

     2,809       (1,947 )

Interest Rate Swaps

     (2,138 )     (3,103 )

FECs

     (274 )     126  
    


 


     $ 22,484     $ 42,182  
    


 


 

Balance Sheet Values

 

    

June 30,

2005


   

December 31,

2004


 
     (Unaudited)        

Total short term derivative asset

   $ 58,922     $ 109,310  

Total long term derivative asset

     4,111       708  

Total short term derivative liability

     (36,787 )     (65,392 )

Total long term derivative liability

     (3,762 )     (2,444 )
    


 


     $ 22,484     $ 42,182  
    


 


 


* “Acquired Company” designates the entity acquired by the registrant (International Shipping Enterprises, Inc.). This has been labeled to avoid confusion between the registrant and this entity.


NAVIOS MARITIME HOLDINGS INC.

[ACQUIRED COMPANY*]

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Expressed in thousands of US Dollars)

 

NOTE 5: BORROWINGS

 

On February 28, 2005, the Company and its shareholders entered into an agreement for the purchase of all of the Company’s common stock by International Shipping Enterprises, Inc. This agreement contained provisions requiring repayment of all of the Company’s borrowings prior to the August 25, 2005 closing date. During June of 2005, the Company entered into negotiations with its lenders and the prospective acquirer regarding the future of these borrowing arrangements. By the end of June, 2005, it was apparent that all of the Company’s outstanding borrowings would have to be repaid prior to the August 25, 2005 closing date. Accordingly, all borrowings are classified as current liabilities on the accompanying balance sheet. (See Note 9: Subsequent Events)

 

NOTE 6: EMPLOYEE BENEFIT PLANS

 

Components of net periodic benefit cost for the three months ended June 30 are:

 

     Pension Benefits

   Other Benefits

     2005

   2004

   2005

   2004

     (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)

Service cost

   $ 1    $ 1    $ —      $ —  

Interest cost

     5      7      10      11

Expected return on plan assets*

     —        —        —        —  

Amortization of prior service cost

     —        —        —        —  

Amortization of net actuarial (gain) loss

     —        —        —        —  
    

  

  

  

Net periodic benefit cost

   $ 6    $ 8    $ 10    $ 11
    

  

  

  


* All of the Company’s plans are unfunded.

 

Components of net periodic benefit cost for the six months ended June 30 are:

 

     Pension Benefits

   Other Benefits

     2005

   2004

   2005

   2004

     (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)

Service cost

   $ 3    $ 3    $ —      $ —  

Interest cost

     9      11      21      20

Expected return on plan assets*

     —        —        —        —  

Amortization of prior service cost

     —        —        —        —  

Amortization of net actuarial (gain) loss

     —        —        —        —  
    

  

  

  

Net periodic benefit cost

   $ 12    $ 14    $ 21    $ 20
    

  

  

  


* All of the Company’s plans are unfunded.

 

NOTE 7: COMMITMENTS AND CONTINGENCIES

 

The Company as of June 30, 2005 had outstanding commitments of approximately $1,400 with Dieste & Montanez S.A. in Uruguay for the construction of a new horizontal silo with ancillary equipment for soybean storage.

 


* “Acquired Company” designates the entity acquired by the registrant (International Shipping Enterprises, Inc.). This has been labeled to avoid confusion between the registrant and this entity.


NAVIOS MARITIME HOLDINGS INC.

[ACQUIRED COMPANY*]

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Expressed in thousands of US Dollars)

 

The Company as of June 30, 2005 was contingently liable for letters of guarantee and letters of credit amounting to $578 issued by various banks in favor of various organizations. These are collateralized by cash deposits which are included as a component of restricted cash.

 

The Company has issued guarantees, amounting to US$1,037 at June 30, 2005 to third parties where the Company irrevocably and unconditionally guarantees subsidiaries obligations under the dry bulk shipping FFAs. The guarantees remain in effect for a period of 6 months following the last trade date which was June 30, 2005.

 

The Company is involved in various disputes and arbitration proceedings arising in the ordinary course of business. Provisions have been recognized in the financial statements for all such proceedings that are deemed by management to be probable, that a liability has been incurred as of June 30 2005, and for which the amounts are reasonably estimable, based upon facts known at the date the financial statements were prepared. In the opinion of management, the ultimate disposition of these matters is insignificant and will not adversely affect the Company’s financial position.

 

The Company, in the normal course of business, entered into contracts to time charter-in vessels for various periods through February 2014.

 

NOTE 8: SEGMENT INFORMATION

 

The Company has two reportable segments from which it derives its revenues: Vessel Operations and Port Terminal. The reportable segments reflect the internal organization of the Company and are strategic businesses that offer different products and services. The Vessel Operations business consists of transportation and handling of bulk cargoes through ownership, operation, and trading of vessels, freight, and FFAs. The Port Terminal business consists of operating a port and transfer station terminal.

 

The Company measures segment performance based on net income. Inter-segment sales and transfers are not significant and have been eliminated and are not included in the following table.

 

Summarized financial information concerning each of the Company’s reportable segments is as follows:

 

Three months ended June 30, 2005 (Unaudited)

 

     Vessel
Operations


   

Port

Terminal


    Total

 

Revenue

   $ 63,054     $ 2,906     $ 65,960  

Gain and loss on forward freight agreements

     3,768       —         3,768  

Interest revenue

     558       1       559  

Interest expense

     (515 )     —         (515 )

Depreciation and amortization

     (1,308 )     (185 )     (1,493 )

Equity in net earnings of affiliate companies

     337       —         337  

Net income

   $ 22781     $ 1,526     $ 24,307  
    


 


 


Total assets

   $ 306,195     $ 27,449     $ 333,644  

Total expenditure for long-lived assets

     77       1,108       1,185  

Investment in affiliates

     714       —         714  
    


 


 



* “Acquired Company” designates the entity acquired by the registrant (International Shipping Enterprise, Inc.). This has been labeled to avoid confusion between the registrant and this entity.


NAVIOS MARITIME HOLDINGS INC.

[ACQUIRED COMPANY*]

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Expressed in thousands of US Dollars)

 

Six months ended June 30, 2005 (Unaudited)

 

    

Vessel

Operations


   

Port

Terminal


    Total

 

Revenue

   $ 123,149     $ 4,177     $ 127,326  

Gain and loss on forward freight agreements

     (799 )     —         (799 )

Interest revenue

     860       1       861  

Interest expense

     (990 )     —         (990 )

Depreciation and amortization

     (2, 613 )     (369 )     (2,982 )

Equity in net earnings of affiliate companies

     640       —         640  

Net income

   $ 35,449     $ 1,822     $ 37,271  
    


 


 


Total assets

   $ 306,195     $ 27,449     $ 333,644  

Total expenditure for long-lived assets

     298       2,543       2,841  

Investment in affiliates

     714       —         714  
    


 


 


 

NOTE 9: SUBSEQUENT EVENTS

 

On August 25, 2005, pursuant to a stock purchase agreement dated February 28, 2005, as amended, by and among International Shipping Enterprises, Inc. (“ISE”), the Company and all of its shareholders, ISE acquired the Company through the purchase of all of the Company’s outstanding shares. As a result of such acquisition, the Company became a wholly-owned subsidiary of ISE. In addition, on August 25, 2005, immediately upon the acquisition of the Company, ISE effected a reincorporation from the State of Delaware to the Republic of Marshall Islands through a downstream merger with and into the Company, being ISE’s newly acquired wholly-owned subsidiary. Contemporaneously with the reincorporation, ISE changed its name to Navios Maritime Holdings Inc. to reflect its operations and to assist it in the transition from a shell company to an operating business. All of the Company’s outstanding borrowings were repaid, without any prepayment charges or penalties, from available cash resources on August 18, 2005 as required by the stock purchase agreement and agreed with the lenders.

 

Subsequent to being acquired, during the first half of September, 2005, ISE as New Owners of the Company gave notice to the lessors of two ultra-handymax vessels of its intention to exercise the options to purchase the vessels for an agreed value of approximately $20 million each. It is anticipated that these vessels will be acquired during the fourth quarter of 2005. The acquisitions are expected to be financed with a new loan facility which will finance 100% of the option price of each vessel.


* “Acquired Company” designates the entity acquired by the registrant (International Shipping Enterprises, Inc.). This has been labeled to avoid confusion between the registrant and this entity.


REPORT OF INDEPENDENT AUDITORS

 

To the Shareholders and the Board of Directors of

Navios Maritime Holdings Inc:

 

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Navios Maritime Holdings Inc and its subsidiaries (the “Company”) at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers

 

Piraeus, Greece

April 19, 2005


NAVIOS MARITIME HOLDINGS INC

 

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2004 AND 2003

(in thousands of US Dollars)

 

     Notes

   2004

   2003

 

ASSETS

                    

Current Assets:

                    

Cash and cash equivalents

   4, 13    $ 46,758    $ 26,450  

Restricted cash

   11      3,513      1,285  

Accounts receivable—net of allowance for doubtful accounts of $2,291 in 2004 and $2,864 in 2003

   5, 13      15,200      17,348  

Short term derivative assets

   13      109,310      116,402  

Prepaid voyage costs

          11,120      15,448  

Prepaid expenses and other current assets

   6      2,043      2,470  
         

  


Total current assets

          187,944      179,403  
         

  


Vessels, net

   7      116,231      120,750  

Other fixed assets, net

   8      21,968      19,605  

Fixed assets under construction

          2,794      1,448  

Long term derivative assets

   13      708      36,073  

Deferred financing costs, net

          425      759  

Deferred dry dock and special survey costs, net

          435      684  

Investment in affiliates

   9, 17      557      493  

Trade name

   3      2,004      2,092  

Goodwill

   3      226      226  
         

  


Total noncurrent assets

          145,348      182,130  
         

  


Total Assets

        $ 333,292    $ 361,533  
         

  


LIABILITIES AND STOCKHOLDERS’ EQUITY

                    

Current Liabilities

                    

Accounts payable

   13    $ 14,883    $ 14,174  

Accrued expenses

   10      7,117      6,927  

Deferred voyage revenue

          15,135      16,968  

Short term derivative liability

   13      65,392      88,387  

Current portion of mandatorily redeemable preferred stock

   12      —        3,686  

Current portion of long term debt

   11      1,000      6,760  
         

  


Total current liabilities

          103,527      136,902  
         

  


Long term liabilities

          3,024      2,875  

Long term derivative liability

   13      2,444      22,533  

Long term debt, net of current portion

   11      49,506      91,428  

Mandatorily redeemable preferred stock, net of current portion

   12      —        11,503  
         

  


Total noncurrent liabilities

          54,974      128,339  
         

  


Total liabilities

          158,501      265,241  
         

  


Commitments and Contingencies

   16                

Shareholders’ Equity:

                    

Common Stock, $0.10 par value—authorized, issued and outstanding, 874,584 shares in 2004 and 978,447 shares in 2003

          87      98  

Additional Paid-in Capital

          60,570      69,559  

Loan to shareholder

   17      —        (367 )

Legal Reserve (Restricted)

   15      289      135  

Retained earnings

          113,845      26,867  
         

  


Total shareholders’ equity

          174,791      96,292  
         

  


Total Liabilities and Shareholders’ Equity

        $ 333,292    $ 361,533  
         

  


 

See notes to consolidated financial statements


NAVIOS MARITIME HOLDINGS INC

 

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

(in thousands of US Dollars)

 

     Notes

   2004

    2003

    2002

 

Revenue

   20    $ 279,184     $ 179,734     $ 26,759  

Gain on Forward Freight Agreements

   13      57,746       51,115       494  

Time charter, voyage and port terminal expense

          (180,026 )     (136,551 )     (6,139 )

Direct vessel expense

          (8,224 )     (10,447 )     (8,192 )

General and administrative expense

          (12,722 )     (11,628 )     (2,263 )

Depreciation and amortization

   7, 8      (5,925 )     (8,857 )     (6,003 )

Gain (loss) on sale of assets

   18      61       (2,367 )     (127 )

Interest income

          789       134       41  

Interest expense

   11      (3,450 )     (5,278 )     (3,950 )

Other income

          374       1,102       72  

Other expense

          (1,438 )     (553 )     (6,070 )
         


 


 


Income (Loss) before Minority Interest

          126,369       56,404       (5,378 )

Minority Interest

   19      0       (1,306 )     (324 )

Equity in net Earnings of Affiliate Companies

   9, 17      763       403       68  
         


 


 


Net Income (Loss)

        $ 127,132     $ 55,501     $ (5,634 )
         


 


 


 

See notes to consolidated financial statements


NAVIOS MARITIME HOLDINGS INC

 

CONSOLIDATED STATEMENTS OF CASH FLOW

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

(in thousands of US Dollars)

 

     Notes

   2004

    2003

    2002

 

OPERATING ACTIVITIES:

                             

Net income

        $ 127,132     $ 55,501       (5,634 )

Adjustments to reconcile net income to net cash provided by operating activities:

                             

Minority interest

   19      0       1,306       324  

Depreciation and amortization

   7, 8      5,925       8,857       6,003  

Amortization of deferred financing costs

          773       565       145  

Amortization of deferred drydock costs

          249       309       327  

Provision for losses on accounts receivable

   5      (573 )     1,021       101  

Loss (gain) on sale of fixed assets

   18      (61 )     2,367       127  

Unrealized gain on FFA derivatives

   13      (599 )     (45,905 )     (848 )

Unrealized (gain) loss on foreign exchange contracts

          44       (170 )     0  

Unrealized loss on interest rate swaps

          301       220       4,059  

Unrealized gain on fuel swaps

          0       0       (113 )

Undistributed earnings in affiliates

   9      (64 )     (325 )     (68 )

Changes in operating assets and liabilities, net of effects from acquisition of businesses:

                             

(Increase) decrease in restricted cash

   11      (281 )     309       (1,464 )

(Increase) decrease in accounts receivable

          2,721       (12,937 )     386  

(Increase) decrease in prepaid voyage costs

          4,328       (7,977 )     (186 )

(Increase) decrease in prepaid expenses and other assets

          427       199       (651 )

Increase (decrease) in accounts payable

          708       10,895       (245 )

Increase (decrease) in accrued expenses

   10      191       1,732       (1,851 )

Increase (decrease) in deferred voyage revenue

          (1,833 )     7,610       1,534  

Increase (decrease) in long term liability

   14      148       198       273  

Increase (decrease) in derivative liabilities

   13      (2,318 )     (2,323 )     0  
         


 


 


Net cash provided by operating activities

          137,218       21,452       2,219  
         


 


 


INVESTING ACTIVITIES:

                             

Purchase of property and equipment

   7, 8      (5,103 )     (36,447 )     (7,654 )

Proceeds from sale of property and equipment

   18      136       63,041       1,036  

Acquisition of businesses, net of cash acquired

          0       0       3,940  

Consolidation of Navimax pool, net of cash

          0       0       429  

Business combination expenses

   3      0       0       (1,433 )
         


 


 


Net cash provided by (used in) investing activities

          (4,967 )     26,594       (3,682 )
         


 


 


FINANCING ACTIVITIES:

                             

Origination fees

          (438 )     (41 )     (143 )

Change in bank overdraft

          0       (1,492 )     418  

Proceeds from long term borrowings

   11      91,506       45,325       2,475  

Principal payments on long term debt and capital lease obligations

   11      (139,189 )     (76,752 )     (8,680 )

Repayment of shareholder’s loan

   17      367       0       0  

Acquisition of common stock

          (9,000 )     (850 )     0  

Issuance of common stock

          0       0       2,154  

Issuance of preferred stock

   12      0       6,440       9,435  

Redemption of preferred stock

   12      (15,189 )     (686 )     0  

Distribution paid to minority interest

   19      0       (1,360 )     (185 )

Dividends paid

          (40,000 )     0       0  
         


 


 


Net cash provided by (used in) financing activities

          (111,943 )     (29,416 )     5,474  
         


 


 


Increase in cash and cash equivalents

          20,308       18,630       4,011  
         


 


 


Cash and cash equivalents, beginning of year

          26,450       7,820       3,809  
         


 


 


Cash and cash equivalents, end of year

        $ 46,758     $ 26,450     $ 7,820  
         


 


 


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

                             

Cash paid during the year for:

                             

Interest

        $ 5,159     $ 6,794     $ 6,069  

NON-CASH TRANSACTIONS:

                             

On December 11,2002 the shareholders of Anemos and Navios each contributed their respective interests for shares of a newly created entity. For accounting purposes, Anemos was considered the acquirer. In conjunction with the acquisition, the following assets and liabilities were assumed:

                             

Fair value of assets acquired

        $ 48,911                  

Liabilities assumed

          (39,025 )                
         


               

Net fair value of assets acquired

        $ 9,886                  
         


               

As a result of the business combination, the Company effectively owned 66.66% of the shares in the Navimax Pool changing the status of the investment from an affiliate to a subsidiary company. The Company recognized the following assets and liabilities:

                             

Assets acquired

        $ 1,763                  

Liabilities assumed

          (2,070 )                
         


               

Net liabilities assumed

        $ (307 )                
         


               

 

See notes to consolidated financial statements


NAVIOS MARITIME HOLDINGS INC

 

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

(in thousands of US Dollars)

 

    Number of
Common
Shares


    Common
Stock


    Additional
Paid-In
Capital


    Loan
to
Shareholder


    Legal
Reserve
(Restricted)


  Retained
Earnings


    Total
Stockholder’s
Equity


 

Balance, January 1, 2002

  534,450     $ 53     $ 59,847     $ —       $ —     $ (22,865 )   37,035  

Issuance of common stock

  157,650       16       2,138       —         —       —       2,154  

Recapitalization (Note 3)

  307,900       31       8,422       —         —       —       8,453  

Loan to shareholder

  —         —         —         (367 )     —       —       (367 )

Net income

  —         —         —         —         —       (5,634 )   (5,634 )

Movement in legal reserve

  —         —         —         —         47     (47 )   —    
   

 


 


 


 

 


 

Balance, December 31, 2002

  1,000,000       100       70,407       (367 )     47     (28,546 )   41,641  

Net income

  —         —         —         —         —       55,501     55,501  

Movement in legal reserve

  —         —         —         —         88     (88 )   —    

Acquisition and cancellation of common stock

  (21,553 )     (2 )     (848 )     —         —       —       (850 )
   

 


 


 


 

 


 

Balance, December 31, 2003

  978,447       98       69,559       (367 )     135     26,867     96,292  

Net income

  —         —         —         —         —       127,132     127,132  

Movement in legal reserve

  —         —         —         —         154     (154 )   —    

Repayment of shareholder loan

  —         —         —         367       —       —       367  

Dividends to Shareholders

  —         —         —         —         —       (40,000 )   (40,000 )

Acquisition and cancellation of common stock

  (103,863 )     (11 )     (8,989 )     —         —       —       (9,000 )
   

 


 


 


 

 


 

Balance, December 31, 2004

  874,584       87       60,570       —         289     113,845     174,791  
   

 


 


 


 

 


 

 

See notes to consolidated financial statements


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of US Dollars)

 

NOTE 1: DESCRIPTION OF BUSINESS

 

On December 11, 2002, the shareholders of Anemos Maritime Holdings Inc. (“Anemos”) and Navios Corporation (“Navios”) each contributed their respective interests for shares of a newly created entity named Nautilus Maritime Holdings, Inc. (“Nautilus”), a Marshall Islands corporation. For accounting purposes, Anemos was considered the acquirer. During 2003 Nautilus Maritime Holdings, Inc. changed its name to Navios Maritime Holdings Inc. Navios Maritime Holdings Inc. and its wholly owned subsidiaries are collectively referred to as the (“Company”). The purpose of the business combination was to create a leading international maritime enterprise focused on the: (i) transportation and handling of bulk cargoes through the ownership, operation, and trading of vessels, freight, and forward freight agreements (“FFAs”) and (ii) ownership and operation of port and transfer station terminals.

 

The Company operates a fleet of owned ultra handymax vessels and a fleet of time chartered panamax and ultra handymax vessels that are employed to provide worldwide transportation of bulk commodities.

 

The Company actively engages in assessing risk associated with fluctuating future freight rates, fuel prices and foreign exchange and, where appropriate, will actively hedge identified economic risk with appropriate derivative instruments. Such economic hedges do not always qualify for accounting hedge treatment, and, as such, the usage of such derivatives could lead to material fluctuations in the Company’s reported results from operations on a period-to-period basis.

 

The Company also operates a port and transfer facility located in Nueva Palmira, Uruguay. The facility consists of docks, conveyors and silo storage capacity totalling 205,000 tons (2003: 165,000 tons; 2002: 165,000 tons). During 2004 shipments totalled 2,027,200 (2003: 1,811,000; 2002: 47,856 tons) of agricultural and other products.

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION: The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP).

 

PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements include the financial statements of Navios Maritime Holdings Inc. and its wholly-owned subsidiaries as of December 31, 2004 and 2003 and for the years ended December 31, 2004, 2003 and 2002. The Company was formed on November 19, 2002 and did not have operations prior to December 11, 2002. Anemos was considered the accounting acquirer in the business combination that resulted in the formation of the new entity; accordingly Anemos is considered the predecessor entity to Navios Maritime Holding, Inc. The financial statements for the year 2002 include the accounts of Anemos and its wholly-owned subsidiaries and the accounts of Navios Corporation from December 11, 2002 through December 31, 2002. All intercompany accounts and transactions have been eliminated on consolidation.

 

Subsidiaries: Subsidiaries are those entities in which the Company has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net tangible and intangible assets acquired and liabilities assumed is recorded as goodwill.

 

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an interpretation of ARB 51.” The primary objectives of this interpretation are to provide guidance on


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(Expressed in thousands of US Dollars)

 

the identification of entities for which control is achieved through means other than through voting rights (“variable interest entities”) and how to determine when and which business enterprise (the “primary beneficiary”) should consolidate the variable interest entity. This new model for consolidation applies to an entity in which either (i) the equity investors (if any) do not have a controlling financial interest; or (ii) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. FIN 46R, Consolidation of Variable Interest Entities, clarifies some of the provisions of FIN 46 and defers the effective date of implementation for certain entities. Application of FIN 46 or FIN 46R is required in financial statements of public entities that have interests in variable interest entities or potential variable interest entities commonly referred to as special-purpose entities for periods ending after December 15, 2003. Application by public entities for all other types of entities is required in financial statements for periods ending after March 15, 2004. The adoption of the provisions applicable to SPEs and all other variable interests obtained after January 31, 2003 did not have an impact on the Company’s financial position or results of operations. The adoption of the provisions of FIN 46R applicable to non-SPEs created prior to February 1, 2003 did not have an impact on the financial position or results of operations.

 

Investments in Affiliates: Affiliates are entities over which the Company generally has between 20% and 50% of the voting rights, or over which the Company has significant influence, but which it does not control. Investments in these entities are accounted for by the equity method of accounting. Under this method the Company records an investment in the stock of an affiliate at cost, and adjusts the carrying amount for its share of the earnings or losses of the affiliate subsequent to the date of investment and reports the recognized earnings or losses in income. Dividends received from an affiliate reduce the carrying amount of the investment. When the Company’s share of losses in an affiliate equals or exceeds its interest in the affiliate, the Company does not recognize further losses, unless the Company has incurred obligations or made payments on behalf of the affiliate.

 

Companies included in the consolidation:

 

Company Name


  Nature/
Vessel Name


  Country of
Incorporation


  Statement of operations

      2004

  2003

  2002

Navios Maritime Holdings Inc.

  Holding Company   Marshall Is.   1/1-12/31   1/1-12/31   12/11-12/31

Subsidiaries

                   

Navios Corporation

  Sub-holding Company   Marshall Is.   1/1-12/31   1/1-12/31   12/11-12/31

Navios International Inc.

  Operating Company   Marshall Is.   1/1-12/31   1/1-12/31   12/11-12/31

Navimax Corporation

  Operating Company   Marshall Is.   1/1-12/31   1/1-12/31   12/11-12/31

Navios Handybulk Inc.

  Operating Company   Marshall Is.   1/1-12/31   1/1-12/31   12/11-12/31

Corporacion Navios S.A.

  Operating Company   Uruguay   1/1-12/31   1/1-12/31   12/11-12/31

Anemos Maritime Holdings Inc.

  Sub-holding Company   Marshall Is.   1/1-12/31   1/1-12/31   1/1-12/31

Ionian Shipping Corporation

  M/V Navios Ionian   Marshall Is.   1/1-12/31   1/1-12/31   1/1-12/31

Apollon Shipping Corporation

  M/V Navios Apollon   Marshall Is.   1/1-12/31   1/1-12/31   1/1-12/31

Herakles Shipping Corporation

  M/V Navios Herakles   Marshall Is.   1/1-12/31   1/1-12/31   1/1-12/31

Achilles Shipping Corporation

  M/V Navios Achilles   Marshall Is.   1/1-12/31   1/1-12/31   1/1-12/31

Kypros Shipping Corporation

  M/V Navios Kypros   Marshall Is.   1/1-12/31   2/28-12/31  

Hios Shipping Corporation

  M/V Navios Hios   Marshall Is.   1/1-12/31   3/20-12/31  

Navios Shipmanagement Inc.

  Management Company   Marshall Is.   1/1-12/31   1/1-12/31   1/1-12/31

 

USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that


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(Expressed in thousands of US Dollars)

 

affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the financial statements and reported amounts of revenues and expenses during the year. On an on-going basis, management evaluates the estimates and judgments, including those related to completed voyages, future drydock dates, the carrying value of investments in affiliates, the selection of useful lives for tangible assets, expected future cash flows from long-lived assets to support impairment tests, provisions necessary for accounts receivables, provisions for legal disputes, pension benefits, and contingencies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

CASH AND CASH EQUIVALENTS: Cash and cash equivalents consists of cash on-hand, deposits held on call with banks, and other short-term highly liquid investments with original maturities of three months or less.

 

RESTRICTED CASH: Restricted cash consists of the restricted portion of derivative base and margin collaterals with NOS ASA, a Norwegian clearing house, and cash retention accounts which are restricted for use as general working capital unless such balances exceed installment and interest payments due to vessels’ lenders.

 

A portion of the amounts on deposit with NOS ASA are held as base and margin collaterals on active trades. As of December 31, 2004 and 2003, the restricted balance with NOS ASA was $2,768 and $0, respectively.

 

Also included in restricted cash as of December 31, 2004 and 2003 are amounts held as security in the form of letters of guarantee or letters of credit totaling $745 and $784, respectively. In addition restricted cash includes amounts held in retention accounts as of December 31, 2004 and 2003 of $0 and $501 respectively.

 

INVENTORIES: Inventories, which are comprised of lubricants and stock of provisions on board the owned vessels, are valued at the lower of cost, as determined on the first-in, first-out basis or market value.

 

VESSELS, NET: Vessels are stated at historical cost, which includes contract costs and other direct costs relating to acquiring and placing the vessel in service. In addition, subsequent expenditures for major improvements and upgrading are capitalized, provided they extend the life or increase the capacity or improve the efficiency or safety of the vessels. Expenditures for routine maintenance and repairs are expensed as incurred.

 

Depreciation is calculated on a straight-line basis by reference to the vessel’s cost, age and scrap value as estimated at the date of acquisition. Depreciation is calculated over the vessel’s estimated useful life, which is assumed to be 25 years from the vessel’s original construction.

 

Amortization expense associated with assets acquired under a capital lease is included with depreciation on owned assets in the statement of operations.

 

OTHER FIXED ASSETS, NET: Other fixed assets are stated at cost and depreciated utilizing the straight-line method to write off the cost of each asset to their residual values over the estimated useful lives.

 

Annual depreciation rates used, which approximate the useful lives of the assets, are:

 

Port and transfer station

   3 to 40 years

Furniture, fixtures and equipment

   3 to 10 years

Computer equipment and software

   5 years


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

The Company amortizes its leasehold improvements over the lesser of the remaining estimated useful life or the life of the related lease. During 2004 the estimated useful lives ranged from 5 years to 10 years.

 

FIXED ASSETS UNDER CONSTRUCTION: This represents amounts paid by the Company in accordance with the terms of the purchase agreements for the construction of long-lived fixed assets and therefore does not represent the cost of construction as at the balance sheet date.

 

Interest costs incurred during the construction (until the asset is substantially complete and ready for its intended use) are capitalized. The amount of interest capitalized for the years ended December 31, 2004, 2003 and 2002 was $0, $100 and $132, respectively.

 

ASSETS HELD FOR SALE: It is the Company’s policy to dispose of vessels and other fixed assets when suitable opportunities occur and not necessarily to keep them until the end of their useful life. The Company classifies assets and disposal groups as being held for sale in accordance with SFAS No. 144, “Accounting for the Impairment or the Disposal of Long-Lived Assets”, when the following criteria are met: management has committed to a plan to sell the asset (disposal group); the asset (disposal group) is available for immediate sale in its present condition; an active program to locate a buyer and other actions required to complete the plan to sell the asset (disposal group) have been initiated; the sale of the asset (disposal group) is probable, and transfer of the asset (disposal group) is expected to qualify for recognition as a completed sale within one year; the asset (disposal group) is being actively marketed for sale at a price that is reasonable in relation to its current fair value and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

 

Long-lived assets or disposal groups classified as held for sale are measured at the lower of their carrying amount or fair value less cost to sell. These assets are not depreciated once they meet the criteria to be held for sale.

 

IMPAIRMENT OF LONG-LIVED ASSETS: Vessels, other fixed assets, and other long-lived assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the projected undiscounted cash flows are less than the carrying amount of the asset, the asset is deemed impaired. An impairment loss is recognized for the amount by which the carrying amount of a long-lived asset exceeds its fair value. For the purposes of assessing impairment, long-lived assets are grouped at the lowest levels for which there are separately identifiable cash flows. No impairment losses were recognized for any of the years presented.

 

DEFERRED DRYDOCK AND SPECIAL SURVEY COSTS, NET: The Company’s vessels are subject to regularly scheduled dry-docking and special surveys. The time period between dry-dock ranges from 30 months to 60 months for regular or special survey maintenance, respectively. The cost of dry-docking and special surveys is deferred and amortized to direct vessel expense over the above periods, accordingly. Furthermore, the portion of the vessels’ capitalized cost that relates to dry-docking and special survey is treated as a separate component of the vessels’ cost and is also deferred and amortized to direct vessel expense on a straight-line basis. This amount is calculated by reference to the estimated economic benefits to be derived until the next scheduled dry-docking and special survey. For the years ended December 31, 2004, 2003 and 2002, amortization was $249, $309 and $327 respectively. Accumulated amortization as of December 31, 2004 and 2003 was $795 and $546, respectively.

 

ASSET RETIREMENT OBLIGATION: The Company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations” as of January 1, 2003. This statement requires entities to record a legal obligation


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

associated with the retirement of a tangible long lived asset in the period in which it is incurred. In connection with the adoption of SFAS 143, the Company recorded assets and liabilities associated with the lease of its port terminal of $31 and $34, respectively, with no material impact on its operations. At December 31, 2004 and 2003, the asset balance was $30 and $30, respectively. At December 31, 2004 and 2003, the liability balance was $40 and $37, respectively.

 

DEFERRED FINANCING COSTS, NET: Deferred financing costs include fees, commissions and legal expenses associated with obtaining loan facilities. These costs are amortized over the life of the related debt using the effective interest rate method, and are included in interest expense. Amortization was $773, $565, and $145 for the years ended December 31, 2004, 2003 and 2002, respectively.

 

GOODWILL AND OTHER INTANGIBLES: Prior to December 11, 2002, the Company did not have any goodwill or other intangible assets. As required by SFAS No. 142 “Goodwill and Other Intangible Assets”, goodwill acquired in a business combination initiated after June 30, 2001 is not to be amortized. Similarly, intangible assets with indefinite lives are not amortized. Rather, SFAS 142 requires that goodwill be tested for impairment at least annually and written down with a charge to operations if the carrying amount exceeds the estimated fair value.

 

The Company evaluates impairment of goodwill using a two-step process. First, the aggregate fair value of the reporting unit is compared to its carrying amount, including goodwill. If the fair value exceeds the carrying amount, no impairment exists. If the carrying amount of the reporting unit exceeds the fair value, then the implied fair value of the reporting unit’s goodwill is compared with its carrying amount. The implied fair value is determined by allocating the fair value of the reporting unit to all the assets and liabilities of that unit, as if the unit had been acquired in a business combination and the fair value of the unit was the purchase price. If the carrying amount of the goodwill exceeds the implied fair value, then goodwill impairment is recognized by writing the goodwill down to the implied fair value. The Company determined that there was no impairment of goodwill during the years ended December 31, 2004, 2003 or 2002.

 

The fair value of the acquired trade name was determined based on the “relief from royalty” method which values the trade name based on the estimated amount that a company would have to pay in an arms length transaction in order to use that trade name. The asset is being amortized under the straight line method over 25 years. Amortization was $88, $87 and $5 for the years ended December 31, 2004, 2003 and 2002, respectively.

 

FOREIGN CURRENCY TRANSLATION: The consolidated financial statements are prepared in US Dollars. The Company engages in worldwide commerce with a variety of entities. Although, its operations may expose it to certain levels of foreign currency risk, its transactions are predominantly US dollar denominated. Additionally, the Company’s wholly owned Uruguayan subsidiary transacts a nominal amount of its operations in Uruguayan pesos, whereas the Company’s wholly-owned vessel subsidiaries and the vessel management subsidiary transacts a nominal amount of their operations in Euros; however, all of the subsidiaries’ primary cash flows are US dollar denominated. Transactions in currencies other than the functional currency are translated at the exchange rate in effect at the date of each transaction. Differences in exchange rates during the period between the date a transaction denominated in a foreign currency is consummated and the date on which it is either settled or translated are recognized in the statement of operations. The foreign currency exchange gain (loss) recognized in the statement of operations for the years ended December 31, 2004, 2003 and 2002 was $197, $431 and $22, respectively.

 

PROVISIONS: The Company, in the ordinary course of business, is subject to various claims, suits and complaints. Management, in consultation with internal and external advisers, will provide for a contingent loss in


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

the financial statements if the contingency had been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. In accordance with (“SFAS”) No. 5, “Accounting for Contingencies”, as interpreted by the (“FASB”) Interpretation No. 14, “Reasonable Estimation of the Amount of a Loss”, if the Company has determined that the reasonable estimate of the loss is a range and that there is no best estimate within the range, the Company will provide the lower amount of the range. See Note 15, “Legal Reserve” and Note 16, “Commitments and Contingencies” for further discussion.

 

The Company participates in Protection and Indemnity (P&I) insurance coverage plans provided by mutual insurance societies known as P&I clubs. Under the terms of these plans, participants may be required to pay additional premiums to fund operating deficits incurred by the clubs (“back calls”). Obligations for back calls are accrued annually based on the information provided by the clubs regarding supplementary calls.

 

Provisions for estimated losses on uncompleted voyages and vessels time chartered to others are provided for in the period in which such losses are determined. At December 31, 2004, the balance for provision for loss making voyages in progress was $1,345 (2003: $390).

 

MANDATORILY REDEEMABLE PREFERRED STOCK: Preferred shares, which are redeemable on a specific date or at the option of the shareholder or which carry non-discretionary dividend obligations, are classified as long-term liabilities. The preferred shares are carried at cost, which approximates fair value. The dividends on these preferred shares were recognized in the statement of operations as interest expense. As of December 31, 2004, all mandatorily redeemable preferred shares had been redeemed.

 

SEGMENT REPORTING: The Company accounts for its segments in accordance with SFAS 131, “Disclosure about Segments of an Enterprise and Related Information.” SFAS 131 requires descriptive information about its reportable operating segments. Operating segments, as defined, are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Based on the Company’s methods of internal reporting and management structure, the Company has two reportable segments: Vessel Operations and Port Terminal.

 

REVENUE AND EXPENSE RECOGNITION:

 

Revenue Recognition: Revenue is recorded when services are rendered, the Company has a signed charter agreement or other evidence of an arrangement, the price is fixed or determinable, and collection is reasonably assured. The Company generates revenue from the following sources, (1) transportation of cargo, (2) time charter of vessels and, (3) port terminal operations in Uruguay. During the period January 1, 2003 to March 11, 2003, and during the period December 11, 2002 to December 31, 2002, the Company also generated revenue from vessels contributed to the Navimax Pool, and a Navimax Pool management fee.

 

Voyage revenues and expenses for the transportation of cargo are recognized ratably over the estimated relative transit time of each voyage. A voyage is deemed to commence when a vessel is available for loading and is deemed to end upon the completion of the discharge of the current cargo. Estimated losses on voyages are provided for in full at the time such losses become evident. Under a voyage charter we agree to provide a vessel for the transportation of specific goods between specific ports in return for payment of an agreed upon freight rate per ton of cargo.

 

Revenues from time chartering of vessels are accounted for as operating leases and are thus recognized on a straight line basis as the average revenue over the rental periods of such charter agreements, as service is performed, except for loss generating time charters, in which case the loss is recognized in the period when such loss is determined. A time charter involves placing a vessel at the charterer’s disposal for a period of time during

 

 


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

which the charterer uses the vessel in return for the payment, by the charterer, of a specified daily hire rate. Short period charters for less than three months are referred to as spot-charters. Charters extending three months to a year are generally referred to as medium term charters. All other charters are considered long term. Under time charters, operating cost such as for crews, maintenance and insurance are typically paid by the owner of the vessel.

 

Revenues from port terminal operations consist of an agreed flat fee per ton and covers the services performed to unload barges (or trucks), transfer the product into the silos for temporary storage and then loading the ocean going vessels. Revenues are recognized upon completion of loading the ocean going vessels. Additionally, fees are charged for vessel dockage and for storage time in excess of contractually specified terms. Dockage revenues are recognized ratably up to completion of loading. Storage fees are assessed and recognized when the product remains in the silo storage beyond the contractually agreed time allowed. Storage fee revenue is recognized ratably over the storage period and ends when the product is loaded onto the ocean going vessel.

 

Revenue from vessels contributed to Navimax Pool was recognized when earned. The Pool ceased operation on March 11, 2003. The Pool, which was managed by a subsidiary of the Company, recognized its revenue on a percentage of completion basis, based on per day estimates and ratably over the period. The Company’s earnings represent its proportionate share of the Pool’s revenue less operating expenses and management fee, determined by a predetermined formula agreed by pool participants.

 

Forward Freight Agreements (FFAs): Realized gains or losses from FFAs are recognized monthly concurrent with cash settlements. In addition, quarterly the FFAs are “marked to market” to determine the fair values which generate unrealized gains or losses. FFA trading generally has not qualified as hedges for accounting purposes, and, as such, the trading of FFAs could lead to material fluctuations in the Company’s reported results from operations on a period to period basis. See note 13

 

Deferred Voyage Revenue: Deferred voyage revenue primarily relates to cash received from charterers prior to it being earned. These amounts are recognized as revenue over the voyage or charter period.

 

Time Charter, Voyage and Port Terminal Expense: Time charter and voyage expenses comprise all expenses related to each particular voyage, including time charter hire paid and voyage freight paid, bunkers, port charges, canal tolls, cargo handling, agency fees and brokerage commissions. Also included in time charter and voyage expenses are charterer’s liability insurances, provision for losses on time charters and voyages in progress at year-end, direct port terminal expenses and other miscellaneous expenses.

 

Direct Vessel Expense: Direct vessel expenses consist of all expenses relating to the operation of vessels, including crewing, repairs and maintenance, insurance, stores and lubricants and miscellaneous expenses such as communications and amortization of dry-docking and special survey costs.

 

Prepaid Voyage Costs: Prepaid voyage costs relates to cash paid in advance for expenses associated with voyages. These amounts are recognized as expense over the voyage or charter period.

 

EMPLOYEE BENEFITS:

 

Pension and retirement obligations-crew: The Company’s ship-owning subsidiary companies employ the crew on board under short-term contracts (usually up to nine months) and, accordingly, they are not liable for any pension or postretirement benefits.

 

Provision for employees’ severance and retirement compensation: The employees in the Company’s office in Greece are protected by Greek labor law. Accordingly, compensation is payable to such employees upon dismissal or retirement. The amount of compensation is based on the number of years of service and the amount of remuneration at the date of dismissal or retirement.


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

If the employees remain in the employment of the Company until normal retirement age, they are entitled to retirement compensation which is equal to 40% of the compensation amount that would be payable if they were dismissed at that time. The number of employees that will remain with the Company until retirement age is not known.

 

The Company is required to annually value the statutory terminations indemnities liability. Management obtains a valuation from independent actuaries to assist in the calculation of the benefits. The Company provides, in full, for the employees’ terminations indemnities liability. This amounted to $74 at December 31, 2004 and $64 at December 31, 2003.

 

U.S.A. Retirement savings plan: The Company sponsors a 401(k) retirement savings plan, which is categorized as a defined contribution plan. The plan is available to full time employees who meet the plan’s eligibility requirements. The plan permits employees to make contributions up to 15% of their annual salary with the Company matching up to the first 6%. The Company makes monthly contributions (matching contributions) to the plan based on amounts contributed by employees. Subsequent to making the matching contributions, the Company has no further obligations. The Company may make an additional discretionary contribution annually if such a contribution is authorized by the Board of Directors. The plan is administered by an independent professional firm that specializes in providing such services. See Note 14.

 

Other post-retirement obligations: The Company has a legacy pension arrangement for certain Bahamian, Uruguayan and former Navios Corporation employees. The entitlement to these benefits is only to these former employees. The expected costs of these benefits are accrued each year, using an accounting methodology similar to that for defined benefit pension plans. These obligations are valued annually by independent actuaries.

 

FINANCIAL INSTRUMENTS:

 

Financial instruments carried on the balance sheet include cash and cash equivalents, trade receivables and payables, other receivables and other liabilities, long-term debt and capital leases. The particular recognition methods applicable to each class of financial instrument are disclosed in the applicable significant policy description of each item, or included below as applicable.

 

Financial risk management: The Company’s activities expose it to a variety of financial risks, including fluctuations in future freight rates, time charter hire rates, and fuel prices, credit and interest rates risk. Risk management is carried out under policies approved by executive management. Guidelines are established for overall risk management, as well as specific areas of operations.

 

Credit risk: The Company closely monitors its exposure to customers and counter-parties for credit risk. The Company has policies in place to ensure that it trades with customers and counterparties with an appropriate credit history. Derivative counter-parties and cash transactions are limited to high quality credit financial institutions.

 

Interest rate risk: The Company is party to interest rate swap agreements. The purpose of the agreements is to reduce exposure to fluctuations in interest rates. Any differential to be paid or received on an interest rate swap agreement is recognized as a component of other income or expense over the period of the agreement. Gains and losses on early termination of interest rate swaps are taken to the consolidated statement of operations.

 

The effective portion of changes in the fair value of interest rate swap agreements that are designated and qualify as cash flow hedges are recognized in equity. The gain or loss relating to the ineffective portion is recognized in the statement of operations.


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

Liquidity risk: Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Company maintains flexibility in funding by keeping committed credit lines available and monitoring cash balances adequately to meet working capital needs.

 

Foreign exchange risk: Foreign currency transactions are translated into the measurement currency rates prevailing at the dates of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of operations.

 

Accounting for derivative financial instruments and hedging activities: The Company enters into dry bulk shipping FFAs as economic hedges relating to identifiable ship and/ or cargo positions and as economic hedges of transactions the Company expects to carry out in the normal course of its shipping business. By utilizing certain derivative instruments, including dry bulk shipping FFAs, the Company manages the financial risk associated with fluctuating market conditions. In entering into these contracts, the Company has assumed the risk that might arise from the possible inability of counterparties to meet the terms of their contracts. See Note 13.

 

The Company also trades dry bulk shipping FFAs with NOS ASA, a Norwegian clearing house. NOS ASA calls for both base and margin collaterals, which are funded by the Company, and which in turn substantially eliminates counterparty risk. Certain portions of these collateral funds may be restricted at any given time as determined by NOS ASA.

 

At the end of each calendar quarter, the fair value of dry bulk shipping FFAs traded over-the-counter are determined from an index published in London, United Kingdom and the fair value of those FFAs traded with NOS ASA are determined from the NOS valuation.

 

Pursuant to SFAS 133, the Company records all its derivative financial instruments and hedges as economic hedges, since they do not qualify as a hedge or meet the criteria of hedge accounting. All gains or losses are reflected in the statement of operations.

 

For the years ended December 31, 2004, 2003 and 2002, none of the FFAs, foreign exchange contracts or interest rate swaps qualify for hedge accounting treatment. Accordingly, all gains or losses have been recorded in statement of operations for the period.

 

INCOME TAXES: The Company and all of its subsidiaries, other than Corporacion Navios S.A. are incorporated in the Marshall Islands, a country which does not impose an income tax on income derived from business activities conducted outside the Marshall Islands. None of the Company or any of its subsidiaries conducts any business activities in the Marshall Islands. Therefore, no provision has been made by the Company for Marshall Islands income tax.

 

Pursuant to Section 883 of the Internal Revenue Code of the United States (“US”), US source income from the international operation of vessels is exempt from US tax, if the company operating the vessels meets certain incorporation and ownership requirements.

 

Certain of the Company’s subsidiaries are registered as Law 89 companies in Greece. These law 89 companies are exempt from Greek income tax on their income derived from certain activities related to shipping. Since all the law 89 companies only conduct business activities that qualify for the exemption from Greek income tax, no provision has been made for Greek income tax with respect to income derived by these law 89 companies from their business operations in Greece.


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

Corporacion Navios S.A is located in a tax free zone in Uruguay and is not subject to income or other tax.

 

DIVIDENDS: Dividends are recorded in the Company’s financial statements in the period in which they are declared.

 

GUARANTEES: The Company accounts for guarantees in accordance with FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” Under FIN 45 a liability for the fair value of the obligation undertaken in issuing the guarantee is recognized. However, this is limited to those guarantees issued or modified after December 31, 2002. The recognition of fair value is not required for certain guarantees such as the parent’s guarantee of a subsidiary’s debt to a third party or guarantees on product warranties. For those guarantees excluded from FIN 45’s fair value recognition provision, financial statement disclosures of their terms are made.

 

RECENT ACCOUNTING PRONOUNCEMENTS: In December 2004, the FASB issued Statement 123(R), Share Based Payment that will require compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. Statement 123(R) replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. This statement is effective for public entities (other than those filing as small business issuers) as of the annual reporting period that begins after June 15, 2005. The adoption of this standard will not have an effect on the Company’s statement of financial position or results of operations.

 

In December 2004, the FASB issued Statement 153, Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29. This statement was a result of a joint effort by the FASB and the IASB to improve financial reporting by eliminating certain narrow differences between their existing accounting standards. One such difference was the exception from fair value measurement in APB Opinion No. 29, Accounting for Nonmonetary Transactions, for nonmonetary exchanges of similar productive assets. Statement 153 replaces this exception with a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement shall be applied prospectively and is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this standard will not have an effect on the Company’s statement of financial position or results of operations.

 

SFAS 151, Inventory Costs, clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and by requiring the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of this standard will not have an effect on the Company’s statement of financial position or results of operations.

 

SFAS 132R, Employers’ Disclosures about Pensions and Other Postretirement Benefits, provides for required disclosures for pensions and other postretirement benefit plans and is designed to improve disclosure transparency in financial statements. The revised standard replaces existing pension disclosure requirements. All new disclosure requirements for the domestic plans of publicly traded entities are effective for years ending after December 15, 2003. Estimated future benefit payments and all other new disclosure requirements for foreign plans are effective for years ending after June 15, 2004. The Company has adopted the disclosure requirements of SFAS 132R.


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

NOTE 3: BUSINESS COMBINATION AND RECAPITALIZATION

 

On December 11, 2002, the shareholders of Anemos and Navios each contributed their respective interests for shares of a newly created entity named Nautilus Maritime Holdings Inc. For accounting purposes, Anemos was considered the acquirer. During 2003, Nautilus changed its name to Navios Maritime Holdings Inc. After the transaction was completed, the former shareholders of Anemos held 69.2% of the shares in the new entity and the former shareholders of Navios held 30.8% of the shares in the new entity. The value of the shares issued was $8,453. Additionally, the Company incurred $1,433 in transaction costs directly related to the acquisition.

 

The acquisition was accounted for using the purchase method, by which the purchase price was allocated to the net assets acquired and liabilities assumed based on their fair values. The Company has not recognized any liabilities in connection with the acquisition for involuntary employee termination benefits or relocation costs under Emerging Issues Task Force 95-3 “Recognition of Liabilities in Connection with a Purchase Business Combination” (“EITF 95-3”).

 

Equity is increased by the amount of purchase price of Navios and is as allocated to the assets and liabilities acquired. Common Stock and Additional Paid-In Capital were increased by like amounts such as the Common Stock is reflective of the par value of the shares outstanding following the transaction. The following is the final allocation of the fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

     December 11,
2002


 

Current assets

   $ 20,301  

Non current assets

     170  

Fixed assets

     25,663  

Shareholder loan

     367  

Trade name

     2,184  

Goodwill

     226  
    


Total assets acquired

     48,911  

Current liabilities

     (20,200 )

Non current liabilities

     (18,825 )
    


Net assets acquired

   $ 9,886  
    


 

$181 of the goodwill was allocated to the Vessel Operations segment and $45 of the goodwill was allocated to the Port Terminal segment. As the Company is not subject to income tax, none of the goodwill will be deductible for income tax purposes.

 

The purpose of the business combination was to create a leading international maritime enterprise focused on the: (i) transportation and handling of bulk cargoes through the ownership, operation, and trading of vessels, freight, and FFAs and (ii) ownership and operation of port and transfer station terminals.

 

The unaudited consolidated results of operations on a pro forma basis as though Navios had been acquired as of the beginning of 2002 are as follows:

 

     2002

 
     (unaudited)  

Revenues

   $ 102,970  

Net Loss

   $ (8,198 )


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

These pro forma results include certain adjustments such as increased depreciation expense as a result of fair value adjustments to “Port and transfer station”. This pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of future operations that would have been achieved had the acquisition taken place at the beginning of 2002.

 

NOTE 4: CASH AND CASH EQUIVALENTS

 

Cash and cash equivalents consist of the following:

 

     December 31
2004


   December 31
2003


Cash in hand and at banks

   $ 18,647    $ 5,711

Short-term deposits and highly liquid funds

     28,111      20,739
    

  

Total cash and cash equivalents

   $ 46,758    $ 26,450
    

  

 

NOTE 5: ACCOUNTS RECEIVABLES

 

Accounts receivables consist of the following:

 

     December 31,
2004


    December 31,
2003


 

Accounts receivables

   $ 17,491     $ 20,212  

Less: Provision for doubtful receivables

     (2,291 )     (2,864 )
    


 


Accounts receivables—net

   $ 15,200     $ 17,348  
    


 


 

The amount shown as Accounts Receivable—net of allowance for doubtful accounts includes a provision for all potentially un-collectable accounts. At each balance sheet date all potentially un-collectable accounts are assessed individually for purposes of determining the appropriate provision for doubtful amounts. The provision for doubtful accounts at December 31, 2004 and 2003 totaled $2,291 and $2,864 respectively.

 

Concentrations of credit risk with respect to accounts receivables are limited due to the Company’s large number of customers, who are internationally dispersed and have a variety of end markets in which they sell. Due to these factors, management believes that no additional credit risk beyond amounts provided for collection losses is inherent in the Company’s trade receivables.

 

Changes to the provisions for doubtful accounts is summarized as follows:

 

Allowance for

doubtful accounts


     Balance at
Beginning of
Period


     Charges to
Costs and
expenses


     Amount
Utilized


     Balance at
End of Period


 

2002

     (1,742 )    (102 )    1      (1,843 )

2003

     (1,843 )    (1,512 )    491      (2,864 )

2004

     (2,864 )    (294 )    867      (2,291 )

 

For the year ended December 31, 2004, one customer from the Vessel Operations segment accounted for approximately 15.92% of the Company’s revenue. For the year ended December, 31 2003, one customer from the Vessels Operation segment accounted for approximately 29.4% of the Company’s revenue. For the year ended December 31, 2002 five customers from the Vessels Operation segment accounted for approximately 91.38% of the Company’s revenue.


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

NOTE 6: PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other assets consist of the following:

 

     December 31,
2004


   December 31,
2003


Receivable claims

   $ 296    $ 163

Advances to agents

     1,492      1,883

Inventories

             

Lubricants

     165      151

Provisions

     90      71

Other

     —        202
    

  

Total prepaid expenses and other current assets

   $ 2,043    $ 2,470
    

  

 

Receivable claims mainly represent claims against vessels’ insurance underwriters in respect of damages arising from accidents or other insured risks. While it is anticipated that receivable claims will be recovered within one year, such claims may not all be recovered within one year due to the attendant process of settlement. Nonetheless, amounts are classified as current as they represent amounts currently due to the Company. All amounts are shown net of applicable deductibles.

 

Advances to agents are made up of funds sent to port agents for expenses for port charges, tolls, canal fees and other expenses related to voyages.

 

NOTE 7: VESSELS

 

Details are as follows:


   Cost of
Vessels


    Accumulated
depreciation


    Net book
value


 

Balance December 31, 2002

   157,593     (10,529 )   147,064  

Transfer amounts from vessels under construction

   12,629     —       12,629  

Additions / Provision for depreciation

   34,381     (7,916 )   26,465  

Disposals

   (73,256 )   7,848     (65,408 )
    

 

 

Balance December 31, 2003

   131,347     (10,597 )   120,750  

Additions / Provision for depreciation

   385     (4,904 )   (4,519 )
    

 

 

Balance December 31, 2004

   131,732     (15,501 )   116,231  
    

 

 

 

NOTE 8: OTHER FIXED ASSETS

 

Details are as follows:


   Cost

    Accumulated
depreciation


    Net
book
value


 

Balance December 31, 2002

   20,447     (431 )   20,016  

Additions / Provision for depreciation

   443     (854 )   (411 )
    

 

 

Balance December 31, 2003

   20,890     (1,285 )   19,605  

Transfer amounts from assets under construction

   1,448     —       1,448  

Additions / Provision for depreciation

   1,923     (933 )   990  

Disposals

   (253 )   178     (75 )
    

 

 

Balance December 31, 2004

   24,008     (2,040 )   21,968  
    

 

 


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

Other fixed assets consist of the following:

 

     December 31,
2004


    December 31,
2003


 

Port and transfer station

   $ 22,200     $ 18,962  

Vessel equipment

     —         229  

Furniture, fixtures and equipment

     1,280       1,210  

Computer equipment and software

     520       481  

Vehicles

     8       8  
    


 


Total costs

     24,008       20,890  

Accumulated depreciation

     (2,040 )     (1,285 )
    


 


Net Other Fixed Assets

   $ 21,968     $ 19,605  
    


 


 

Reconciliation of depreciation and amortization expense

 

     December 31,
2004


    December 31,
2003


    December 31,
2002


 

Vessels

   $ (4,904 )   $ (7,916 )   $ (5,905 )

Other fixed assets

     (933 )     (854 )     (93 )

Trade name

     (88 )     (87 )     (5 )
    


 


 


Total

   $ (5,925 )   $ (8,857 )   $ (6,003 )
    


 


 


 

NOTE 9: INVESTMENT IN AFFILIATES

 

As part of the transaction with Navios that took place on December 11, 2002, the Company acquired a 50% interest in Acropolis Chartering & Shipping, Inc., a brokerage firm for freight and shipping charters. Although Navios owns 50% of the stock, the two shareholders have agreed that the earnings and amounts declared by way of dividends for 2004 and thereafter, will be allocated 35% to the Company (2003: 40% to the Company) with the balance to the other shareholder. As of December 31, 2004 and 2003, the carrying amount of the investment was $557 and $493, respectively. Dividends received for 2004, 2003 and 2002 were $699, $78 and $0, respectively. See Note 17.

 

NOTE 10: ACCRUED EXPENSES

 

Accrued expenses consist of the following:

 

     December 31,
2004


   December 31,
2003


Payroll

   $ 1,312    $ 1,474

Accrued Interest

     260      430

Accrued voyage expenses

     1,442      2,193

Provision for losses on voyages in progress at year end

     1,345      390

Accrued lease liability

     239      —  

Other accrued expenses

     2,519      2,440
    

  

Total accrued expenses

   $ 7,117    $ 6,927
    

  


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

NOTE 11: BORROWINGS

 

Borrowings consist of the following:

 

     December 31,
2004


    December 31,
2003


 

2004 Revolving Credit facilities

   $ 40,506     $ —    

2004 Term Loan

     10,000       —    

Term Loans

     —         98,188  
    


 


Total borrowings

     50,506       98,188  
    


 


Less current portion

     (1,000 )     (6,760 )

Total long term borrowings

   $ 49,506     $ 91,428  
    


 


 

2004 Revolving Credit Facilities: On October 5, 2004, the Company entered into a revolving credit facility of $51,000 collateralized by the vessels M/V Navios Apollon, M/V Navios Herakles and M/V Navios Ionian. The book value of the vessels collateralizing the revolving credit facility was $53,626 at December 31, 2004. On each revolving facility reduction date the maximum revolving facility amount is to be reduced, by $1,700. The “revolving facility date” means each one of the seventeen (17) dates falling at consecutive six (6) monthly intervals after the first advance date, up to, and including, the revolving facility availability termination date. Principal payments are due only when the balance on the facility is greater than or equal to the maximum revolving credit facility amount as determined after the reduction of each of the 17 revolving facility dates mentioned above, which as of December 31, 2004, is determined to be in 2013. The revolving credit facility bears interest at LIBOR plus 1%. The Company must pay a fee of 0.3% per annum on the unused portion of the maximum revolving facility amount on a quarterly basis in arrears. The amount outstanding as of December 31, 2004 was $18,100 (2003: $0).

 

On October 4, 2004 the Company entered into a revolving credit facility of $55,000 collateralized by the vessels M/V Navios Achilles, M/V Navios Hios and M/V Navios Kypros and a guarantee of Navios Maritime Holdings, Inc. The book value of the vessels collateralizing the revolving credit facility was $62,056 at December 31, 2004. On each revolving facility reduction date, the maximum revolving facility amount is to be reduced, by $1,000. The “revolving facility date” means each one of the thirty five (35) dates falling at consecutive three (3) monthly intervals after the first advance date, up to, and including, the revolving facility availability termination date. Principal payments are due only when the balance on the facility is greater than or equal to the maximum revolving credit facility amount as determined after the reduction of each of the 35 revolving facility dates mentioned above, which as of December 31, 2004, are determined to be in 2013. The revolving credit facility bears interest at LIBOR plus 1%. The Company must pay a fee of 0.3% per annum on the unused portion of the maximum revolving facility amount on a quarterly basis in arrears. The amount outstanding as of December 31, 2004 was $22,406 (2003: $0).

 

2004 Term Loan: On October 4, 2004, the Company entered into a $10,000 term loan collateralized by the vessels M/V Navios Achilles, M/V Navios Hios, and M/V Navios Kypros, which is due October 2010. The book value of the vessels collateralizing the term loan was $62,056 at December 31, 2004. The loan is repayable in twenty four consecutive quarterly instalments of $250 with a balloon payment of $4,000 due upon maturity. Interest is payable at an aggregate of the margin of 1.5% over LIBOR. The amount outstanding as of December 31, 2004 was $10,000 (2003: $0).


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

2004 Line of credit: A line of credit of up to $5,000 was made available to the Company in October 2004. The facility is available to be used for the purpose of meeting working capital requirements and for general corporate purposes. Interest is payable at an aggregate of the margin of 2.25% plus “overnight Euro Dollar rate” for the term of each advance. This facility expires in October 2005, is subject to be renewed annually. The amount outstanding as of December 31, 2004 was $0.

 

2003 Revolving credit facility: During October 2003, a revolving credit facility of up to US$5,000 was made available to the Company for working capital requirements. The facility was terminated in 2004 and was replaced by the 2004 line of credit referred to above. Interest was payable at an aggregate of the margin of 2.25% plus “overnight Euro Dollar rate” for the term of each advance. At December 31, 2003 there were no amounts outstanding under this facility.

 

Term Loans: At December 31, 2003, the Company had seven term loans with five different institutions with maturity dates ranging from 2007 to 2013. As of December 31, 2004, the amounts outstanding on these loans have been paid off and replaced with the 2004 Revolving Credit Facilities (See above). During 2004, unamortized deferred costs of $644 related to these term loans were recognized in the statement of operations as a component of interest expense.

 

The weighted average effective interest rate for the years ended December, 31 2004, 2003 and 2002 was 2.3%, 2.7% and 3.1%, respectively.

 

The borrowing agreements also include positive and negative covenants for the Company, the most significant of which are the maintenance of operating accounts, minimum working capital, ownership and control, ISPS compliance and minimum market values. The borrowers are further restricted from incurring additional indebtedness, making loans or investments and distributing dividends without the prior consent of the lenders. In conjunction with maintenance of operating accounts covenants, $0 was included as a component of restricted cash at December 31, 2004, (2003: $501). As of December 31, 2004, the Company was in compliance with all covenants.

 

The aggregate annual principal payments required to be made under all borrowings as of December 31, 2004 are as follows:

2005

   $ 1,000

2006

     1,000

2007

     1,000

2008

     1,000

2009

     1,000

thereafter

     45,506
    

     $ 50,506
    

 

Interest paid, excluding capitalized interest, amounted to $5,159 in 2004, $6,794 in 2003 and $6,069 in 2002.

 

The Company enters into interest rate swaps to manage its exposure to variability of its floating rate debt. See Note 13.


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

NOTE 12: MANDATORILY REDEEMABLE PREFERRED STOCK

 

During 2003 and 2002 the Company issued $6,440 and $9,435 of mandatorily redeemable preferred stock (“Preferred Stock”). Each share of Preferred Stock is participating and non-voting and can be liquidated by the company at face value. The shares are mandatorily redeemable at a fixed date, accordingly such shares are classified as a liability on the related consolidated balance sheet, pursuant to SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, and the related dividends are reflected as interest expense.

 

The shares were issued in three tranches totaling $15,875 as follows: Tranche A $12,000; Tranche B $3,000; and Tranche C $875. Tranche A carried a dividend rate at 3 months LIBOR plus 2.25% plus the discretionary borrowing cost of the lender. Tranche B carried a dividend rate at 6% per annum. Tranche C carried a dividend rate at 6% per annum. Total dividends for the years ended December 31, 2004, 2003 and 2002 were $330, $689 and $0, respectively and are included in total interest expense in the statement of operations. During 2004 and 2003 preferred stock in the amount of $15,189 and $686 respectively, was redeemed.

 

NOTE 13: FINANCIAL INSTRUMENTS

 

Interest rate risk

 

The Company entered into interest rate swap contracts as economic hedges to its exposure to variability in its floating rate long term debt. Under the terms of the interest rate swaps the Company and the bank agreed to exchange, at specified intervals the difference between a paying fixed rate and floating rate interest amount calculated by reference to the agreed principal amounts and maturities. Interest rate swaps allow the Company to convert long-term borrowings issued at floating rates into equivalent fixed rates. Even though the interest rate swaps were entered into for economic hedging purposes, the derivatives described below do not qualify for accounting purposes as fair value hedges, under FASB Statement No. 133, Accounting for derivative instruments and hedging activities, as the Company does not have currently written contemporaneous documentation, identifying the risk being hedged, and both on a prospective and retrospective basis performed an effective test supporting that the hedging relationship is highly effective. Consequently, the Company recognizes the change in fair value of these derivatives in the statement of operations.

 

The principal terms of the interest rate swaps outstanding at December 31, 2004 and 2003 are as follows:

 

   

December 31, 2004


Counterparty

  Royal Bank of Scotland   Royal Bank of Scotland   Royal Bank of Scotland   Alpha Bank

Notional

  USD 12,250 declining 437 at resetting dates until maturity date   USD 14,385 declining 478 at resetting dates until maturity date   USD 11,550 declining 525 at resetting dates until maturity date   USD 11,500 declining 250 at resetting dates until maturity date

Terms

 

Floor 6 months LIBOR 5.55%

Cap 6 months LIBOR 7.5%

 

Floor 6 months LIBOR 5.54%

Cap 6 months LIBOR 7.5%

  6 months LIBOR for 5.57%  

Floor 3 months LIBOR 5.65%

Cap 6 months LIBOR 7.5%

Resets

  April and October   April and October   February and August   Quarterly

Inception

  April 2001   October 2001   June 2001   July 2001

Maturity

  October 2010   October 2006   February 2006   July 2010


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

   

December 31, 2003


Counterparty

  Royal Bank of Scotland   Royal Bank of Scotland   Royal Bank of Scotland   Alpha Bank

Notional

  USD 13,125 declining 437 at each resetting dates until maturity date   USD 15,340 declining 478 at each resetting date until maturity date   USD 12,600 declining 525 at each resetting date until maturity date   USD 12,500 declining 250 at each resetting date until maturity date

Terms

 

Floor 6 months LIBOR 5.55%

Cap 6 months LIBOR 7.5%

 

Floor 6 months LIBOR 5.54%

Cap 6 months LIBOR 7.5%

  6 months LIBOR for 5.57%  

Floor 3 months LIBOR 5.65%

Cap 3 months LIBOR 7.5%

Reset

  April and October   April and October   February and August   Quarterly

Inception

  April 2001   October 2001   June 2001   July 2001

Maturity

  October 2010   October 2006   February 2006   July 2010

 

For the years ended December 31, 2004 and 2003 and 2002, the loss on interest rate swaps was $301, $220, $4,059 respectively. As of December 31, 2004 and 2003, the outstanding liability was $3,103 and $5,121, respectively.

 

The swap agreements have been entered into by subsidiaries. The Royal Bank of Scotland swap agreements have been collateralized by preferred mortgages over the M/V Navios Apollon and M/V Navios Ionian. The Alpha Bank swap agreement has been guaranteed by the Company.

 

Foreign Currency Risk

 

The Company, in the normal course of business, entered into short term forward exchange contracts (FECs) to hedge against the fluctuations of the Euro against the US Dollar.

 

The Company purchased €2,500 (2003: €2,000) at an average rate of 1.32 (2003: 1.16) with a $3,290 (2003: $2,324) sales value. These contacts mature within twelve months of the balance sheet date for all periods. The contracts entered into during 2004 will settle monthly between March and June 2005. As of December 31, 2004 and 2003, the fair value of these contracts was $126 and $170, respectively. The net gains from FECs amounted to $219, $432 and $0 for the years ended December 31, 2004, 2003 and 2002, respectively. For the years ended December 31, 2004, 2003 and 2002, the unrealized gain (loss) on forward exchange contracts was $(44), $170 and $0, respectively.

 

Forward Freight Agreements (FFAs)

 

The Company actively trades in the FFA market with both an objective to utilize them as economic hedging instruments that are highly effective in reducing the risk on specific vessel(s), freight commitments, or to the overall fleet or operations, and to take advantage of short term fluctuations in the market prices. FFA trading generally has not qualified as hedges for accounting purposes, and, as such, the trading of FFAs could lead to material fluctuations in the Company’s reported results from operations on a period to period basis.

 

Dry bulk shipping FFAs generally have the following characteristics: they cover periods from one month to one year; they can be based on time charter rates or freight rates on specific quoted routes; they are executed between two parties and give rise to a certain degree of credit risk depending on the counterparties involved; they are settled monthly based on publicly quoted indices.


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

At December 31, 2004 and 2003, none of the ‘mark to market’ position of open dry bulk FFA contracts qualified for hedge accounting treatment. Dry bulk shipping FFAs traded by the Company that do not qualify for hedge accounting are shown at fair value through the statement of operations. The net gain from FFAs amounted to $57,746, $51,115 and $494 for the years ended December 31, 2004, 2003 and 2002, respectively. The net annual unrealized gain on FFAs amounted to $599, $45,905 and $848 as of December 31, 2004, 2003 and 2002 respectively.

 

The open dry bulk shipping FFAs at net contracted (strike) rate after consideration of the fair value settlement rates is summarized as follows:

 

Forward Freight Agreements (FFA)


   December 31,
2004


    December 31,
2003


 

Short term FFA derivative asset

   $ 111,131     $ 116,232  

Long term FFA derivative asset

     708       36,073  

Short term FFA derivative liability

     (63,981 )     (86,084 )

Long term FFA derivative liability

     (752 )     (19,715 )
    


 


Net fair value on FFA contracts

   $ 47,106     $ 46,506  
    


 


NOS FFA portion of fair value at December 31, 2004 transferred to NOS receivable account

     (1,947 )     0  
    


 


 

The open interest rate swaps after consideration of the fair value is summarized as follows:

 

Interest Rate Swaps


   December
31, 2004


    December
31, 2003


 

Short term Interest Rate Swap liability

   $ (1,411 )   $ (2,303 )

Long term Interest Rate Swap liability

     (1,692 )     (2,818 )
    


 


Net fair value on Interest Rate Swap contracts

   $ (3,103 )   $ (5,121 )
    


 


 

The open FECs after consideration of the fair value is summarized as follows:

 

Forward Exchange Contracts (FEC)


   December 31,
2004


    December 31,
2003


 

Short term FEC derivative asset

   $ 126     $ 170  
    


 


Reconciliation of Derivatives


   December 31,
2004


    December 31,
2003


 

Total short term derivative asset

     109,310       116,402  

Total long term derivative asset

     708       36,073  

Total short term derivative liability

     (65,392 )     (88,387 )

Total long term derivative liability

     (2,444 )     (22,533 )

 

Fair value of financial instruments

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

 

Cash and Cash Equivalents

 

The carrying amount approximates fair value because of the short maturity of these instruments.


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

Forward Contracts

 

The estimated fair value of forward contracts and other assets was determined based on quoted market prices.

 

Long-Term Borrowings

 

The fair value of the Company’s long-term borrowings is estimated based on the current rates offered to the Company for debt of the same remaining maturities with similar collateral requirements.

 

Interest Rate Swaps and Forward Freight Agreements

 

The fair value of derivative instruments is estimated by obtaining quotes from brokers, financial institutions or exchanges.

 

The estimated fair values of the Company’s financial instruments are as follows:

 

     December 31, 2004

    December 31, 2003

 
     Book Value

    Fair Value

    Book Value

    Fair Value

 

Cash and short term investments

   50,271     50,271     27,735     27,735  

Trade Receivables

   15,200     15,200     17,348     17,348  

Accounts Payable

   (14,883 )   (14,883 )   (14,174 )   (14,174 )

Long Term debt

   (50,506 )   (50,506 )   (98,188 )   (98,188 )

Redeemable Preferred Stock

   —       —       (15,189 )   (15,058 )

Interest Rate Swaps

   (3,103 )   (3,103 )   (5,121 )   (5,121 )

Forward Freight Agreements, net

   47,106     47,106     46,506     46,506  

 

NOTE 14: EMPLOYEE BENEFIT PLANS

 

Retirement Savings Plan

 

The Company sponsors an employee savings plan covering all of its employees in the United States. Company contributions to the employee savings plan during the year ended December 31, 2004 were approximately $267 (2003: $273 and 2002: $121), which included a discretionary contribution of $137 (2003: $153 and 2002: $114).

 

Defined Benefit Pension Plan

 

The Company sponsors a legacy, unfunded defined benefit pension plan that covers certain Bahamian and Uruguayan nationals and former Navios Corporation employees. The liability related to the plan is recognized based on actuarial valuations. The current portion of the liability is included in accrued expenses and the non-current portion of the liability is included in other long term liabilities. There are no pension plan assets.

 

Post-employment medical and life insurance benefits

 

The Company also sponsors a legacy post-retirement medical benefit plan that covers certain US retirees of Navios Corporation. The unfunded liability related to post-retirement medical and life insurance is recognized based on actuarial valuations. The current portion of the liability is included in accrued expenses and the non-current portion of the liability is included in other long term liabilities.


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

The Company acquired Navios Corporation on December 11, 2002, including its pension plans and other post-retirement benefit plans.

 

The Greek office employees are protected by Greek labor law. According to the law, the Company is required to pay retirement indemnities to employees on dismissal, or on leaving with an entitlement to a full social security retirement pension. The amount of compensation is based on the number of years of service and the amount of monthly remuneration including regular bonuses at the date of dismissal or retirement up to a maximum of two years salary. If the employees remain in the employment of the Company until normal retirement age, the entitled retirement compensation is equal to 40% of the compensation amount that would be payable if they were dismissed at that time. The number of employees that will remain with the Company until retirement age is not known. The Company considers this plan equivalent to a lump sum defined benefit pension plan and accounts for it under FASB Statement No. 87 Accounting for Pension by Employers.

 

The Company uses December 31 as the measurement date for its plans.

 

Obligations and Funded Status


   Pension Benefits

     Other Benefits

 
     At December 31

 
     2004

     2003

     2004

     2003

 

Change in benefit obligation

   (26 )    17      93      (27 )

Benefit obligation at beginning of year

   393      376      652      679  

Service cost

   7      5      —        —    

Interest cost

   22      23      39      45  

Plan participants’ contributions

   —        —        —        —    

Amendments

   —        —        —        —    

Actuarial (gain) loss

   (5 )    39      88      (42 )

Benefits paid

   (50 )    (50 )    (34 )    (30 )
    

  

  

  

Benefit obligation at end of year

   367      393      745      652  
    

  

  

  

Funded status*

   (367 )    (393 )    (745 )    (652 )

Unrecognized net actuarial loss (gain)

   —        —        —        —    

Unrecognized prior service cost (benefit)

   —        —        —        —    
    

  

  

  

Net amount recognized

   (367 )    (393 )    (745 )    (652 )
    

  

  

  


* All of the Company’s plans are unfunded.

 

Amounts recognized in the balance sheet consist of:

 

       Pension Benefits

     Other Benefits

 
       2004

     2003

     2004

     2003

 

Prepaid benefit cost

     —        —        —        —    

Accrued benefit cost

     (367 )    (393 )    (745 )    (652 )

Intangible assets

     —        —        —        —    

Accumulated other comprehensive income

     —        —        —        —    
      

  

  

  

Net amount recognized

     (367 )    (393 )    (745 )    (652 )
      

  

  

  

 

The accumulated benefit obligation for all defined benefit pension plans, including the Greek indemnity plan was $338 and $363 at December 31, 2004 and 2003, respectively.


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

Components of Net Periodic Benefit Cost

 

     Pension Benefits

   Other Benefits

     2004

    2003

   2002

   2004

   2003

    2002

Service cost

   7     5    2    —      —       —  

Interest cost

   22     23    3    39    45     2

Expected return on plan assets

   —       —      —      —      —       —  

Amortization of prior service cost

   —       —      —      —      —       —  

Amortization of net actuarial (gain) loss

   (5 )   39    9    88    (42 )   —  
    

 
  
  
  

 

Net periodic benefit cost

   24     67    14    127    3     2
    

 
  
  
  

 

 

Assumptions

 

Weighted-average assumptions used to determine benefit obligations at December 31:

 

       Pension Benefits

    Other Benefits

 
       2004

    2003

    2004

    2003

 

Discount rate

     5.75 %   6.25 %   5.75 %   6.25 %

Rate of compensation increase

     4.5 %   4.5 %   n/a     n/a  

 

Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31:

 

     Pension Benefits

    Other Benefits

 
     2004

    2003

    2002

    2004

    2003

    2002

 

Discount rate

   6.25 %   6.75 %   6.75 %   6.25 %   6.75 %   6.75 %

Expected long-term return on plan assets

   n/a     n/a     n/a     n/a     n/a     n/a  

Rate of compensation increase

   4.5 %   4.5 %   4.5 %   —       —       —    

 

Assumed health care cost trend rates at December 31:

 

     2004

    2003

 

Health care cost trend rate assumed for next year

   10.00 %   10.00 %

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

   0.5 %   0.5 %

Year that the rate reaches the ultimate trend rate

   2014     2013  

 

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

 

    

1-Percentage-Point

Increase


  

1-Percentage-Point

Decrease


Effect on total of service and interest cost

   43    36

Effect on post-retirement benefit obligation

   816    683


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

Estimated Future Benefit Payments

 

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

 

(USD Thousands)


   Pension Benefits

   Other Benefits

2005

   $ 53    $ 43

2006

     49      46

2007

     44      49

2008

     40      51

2009

     36      53

Years 2010–2014

     127      297

 

NOTE 15: LEGAL RESERVE

 

The legal reserve was made in accordance with local Uruguayan law N° 16.060 that states that the Company’s Uruguayan subsidiary should create a legal reserve from net income of 5% per year until the amount equals 20% of the paid-in capital. This amount is legally restricted and the subsidiary is restricted from distributing dividends until the reserve equals 20% of paid-in capital. Considering this, with the net income for the 2004 year, the Uruguayan subsidiary shall increase this reserve in the amount of $184 during the next year and increased the legal reserve in 2004 by $154.

 

NOTE 16: COMMITMENTS AND CONTINGENCIES

 

The Company as of December 31, 2004 had outstanding commitments of approximately $3,206 with Dieste & Montanez S.A. in Uruguay for the construction of a new horizontal silo with ancillary equipment for soybean storage.

 

The Company as of December 31, 2004 was contingently liable for letters of guarantee and letters of credit amounting to $745 (2003: $784) issued by various banks in favor of various organizations. These are collateralized by cash deposits which are included as a component of restricted cash.

 

The Company has issued guarantees, amounting to US$71 at December 31, 2004 (2003: $0), to third parties where the Company irrevocably and unconditionally guarantees subsidiaries obligations under the dry bulk shipping FFAs. The guarantees remain in effect for a period of 6 months following the last trade date which was December 21, 2004.

 

The Company is involved in various disputes and arbitration proceedings arising in the ordinary course of business. Provisions have been recognized in the financial statements for all such proceedings including the settlement of the M/V SD Victory litigation (see Note 21) that are deemed by management to be probable that a liability has been incurred as of December 31, 2004, and for which the amounts are reasonably estimable, based upon facts known at the date the financial statements were prepared. In the opinion of management, the ultimate disposition of these matters is insignificant and will not adversely affect the Company’s financial position.

 

The Company, in the normal course of business, entered into contracts to time charter-in vessels for various periods through February 2014.

 

In 2001, the Company entered into a ten-year lease for office facilities in Norwalk USA, that expires in June 2011. During 2003 the Company also entered into a nine-year lease for office facilities in Piraeus, Greece, that


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

expires May 2012. During 2004, the Company entered into two lease agreements for two apartments in Athens, Greece. The first lease is for twenty four months and expires March 2006. The second lease is for four months and expires April 2005.

 

Future minimum lease payments under the non-cancelable operating leases, with terms of one year or more, are as follows at December 31, 2004:

 

     Charter
Hire


   Norwalk
Office


  

Piraeus

Office &
Apartments


2005

   $ 48,574    $ 336    $ 85

2006

     49,285      336      69

2007

     49,182      336      69

2008

     37,205      352      72

2009

     30,713      361      76

Thereafter

     59,745      498      197
    

  

  

     $ 274,704    $ 2,219    $ 568
    

  

  

 

Expense under operating leases was $153,360, $103,029 and $4,617 for the years ended December 31, 2004, 2003 and 2002, respectively.

 

During the year ended December 31, 2004, the Company, in the normal course of business, entered into contracts to sub-time charter-out vessels for various periods through December 2007.

 

Future minimum hire receivables under the non-cancelable sub-time charter agreements, with redelivery periods through December 2007, are as follows as at December 31:

 

     Sub-time
charters
2004


  

Sub-time
charters

2003


2004

     —      $ 107,630

2005

     185,026      44,549

2006

     54,571      12,003

2007

     12,403      2,026
    

  

     $ 252,000    $ 166,208
    

  

 

NOTE 17: RELATED PARTY TRANSACTIONS

 

Purchase of services: The Company utilizes Acropolis Chartering and Shipping, Inc. (“Acropolis”) as a broker. Commissions paid to Acropolis during the years ended December 31, 2004, 2003 and 2002 were $877, $597 and $0, respectively. The Company owns fifty percent of the common stock of Acropolis. During the years ended December 31, 2004, 2003 and 2002, the Company received dividends $699, $78 and $0, respectively. See Note 9.

 

During the year ended December 31, 2003 and 2002, the Company utilized Levant Maritime Company Ltd. as an agent. Agency fees paid to Levant Maritime Company Ltd. amounted to $1,003, and $846, respectively. Levant Maritime Company Ltd. is a company not included in this consolidation. The management of this Agency was carried out by one of the Company’s former directors and shareholder. The Company ceased to use the services of this agency as of December 31, 2003.


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

Loans to shareholders: In November 2002, the Company issued a promissory note for $367 to Kastella Trading, Inc. (“Kastella”), a Marshall Islands corporation. Interest accrued at 4.6% per year and was payable at the note’s due date. Kastella was wholly-owned by one of the Company’s executives. This loan was fully repaid in 2004 and the interest received was $33 and is included in the statement of operations as part of interest received.

 

In January 2002, the Company advanced to one of its shareholders and executives the amount of $70. The outstanding amount as at December 31, 2003 of $65 was fully repaid during the year. The loan bore interest at a variable rate linked to the Company’s investment rate and was secured by the shareholder’s ownership in the Company, which amounts to 1,500 shares. The interest received was $1 (2003: $1) and is included in the statement of operations as part of interest received.

 

In August 2004, the Company advanced to one of its shareholders and executive officers the amount of $50. The full amount was repaid during the year. No interest was calculated for the duration of this loan.

 

Balances due to related parties: An amount of $147 (2003: $185), which is due to Acropolis Chartering and Shipping Inc., was included in the trade account payable at December 31, 2004.

 

NOTE 18: DISPOSAL OF FIXED ASSETS

 

In 2004, the following fixed assets were disposed of:

 

Fixed Asset


   Net Sales
Proceeds


   Net Book
Value


    Gain
on sale


Payloaders (2)

   $ 112    $ (58 )   $ 54

Uniloaders (3)

     24      (17 )     7
    

  


 

     $ 136    $ (75 )   $ 61
    

  


 

 

In 2003, the following vessels were disposed of:

 

Vessel


   Net Sales
Proceeds


   Net Book
Value


    (Loss) / Gain
on sale


 

M/V Navios Pioneer

   $ 6,020    $ (5,805 )   $ 215  

M/V Agios Konstantinos

     18,487      (19,413 )     (926 )

M/V Artemis

     18,538      (21,712 )     (3,174 )

M/V Navios Aegean

     19,996      (18,478 )     1,518  
    

  


 


     $ 63,041    $ (65,408 )   $ (2,367 )
    

  


 


 

During 2002, the following vessel was disposed of:

 

Vessel


   Net Sales
Proceeds


   Net Book
Value


    (Loss) / Gain
on sale


 

MV Chian Sportsman

   $ 1,036    $ (1,163 )   $ (127 )
    

  


 


 

NOTE 19: MINORITY INTERESTS

 

The Navimax Pool, an association of three participants, was created for purposes of trading and operating vessels owned and/or chartered by the Pool’s participants, as well as, to charter and trade with third parties under freight contracts.


NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

As a result of the business combination on December 11, 2002, the Company effectively owned 66.66% of the shares in the Navimax Pool changing the status of the investment from an associate company to a subsidiary company.

 

In 2003 the Company liquidated the third participant’s interest in the Navimax Pool based on mutual agreement. The liquidation was carried out on March 11, 2003 by distributing to the third participant, its remaining monetary value of pool interests as there were no other assets or liabilities.

 

NOTE 20: SEGMENT INFORMATION

 

The Company has two reportable segments from which it derives its revenues: Vessel Operations and Port Terminal. The reportable segments reflect the internal organization of the Company and are strategic businesses that offer different products and services. The Vessel Operations business consists of transportation and handling of bulk cargoes through ownership, operation, and trading of vessels, freight, and FFAs. The Port Terminal business consists of operating a port and transfer station terminal.

 

The basis of measurement and accounting policies of the reportable segments are the same as those described in Note 2, “Significant Accounting Policies.” The Company measures segment performance based on net income. Inter-segment sales and transfers are not significant and have been eliminated and are not included in the following table.

 

Summarized financial information concerning each of the Company’s reportable segments is as follows:

 

     Vessel
Operations


    Port
Terminal


    Total

 

Year ended December 31, 2004

                        

Revenue

   $ 271,536     $ 7,648     $ 279,184  

Gain and loss on forward freight agreements

     57,746       —         57,746  

Interest revenue

     787       2       789  

Interest expense

     (3,140 )     (310 )     (3,450 )

Depreciation and amortization

     (5,258 )     (667 )     (5,925 )

Equity in net earnings of affiliate companies

     763       —         763  

Net income

     123,841       3,291       127,132  
    


 


 


Total assets

     309,022       24,270       333,292  

Total expenditure for long-lived assets

     494       4,609       5,103  

Investment in affiliates

     557       —         557  
    


 


 


 

     Vessel
Operations


    Port
Terminal


    Total

 

Year ended December 31, 2003

                        

Revenue

   $ 172,824     $ 6,910     $ 179,734  

Gain and loss on forward freight agreements

     51,115       —         51,115  

Interest revenue

     132       2       134  

Interest expense

     (4,738 )     (540 )     (5,278 )

Depreciation and amortization

     (8,293 )     (564 )     (8,857 )

Equity in net earnings of affiliate companies

     403       —         403  

Net income

     52,588       2,913       55,501  
    


 


 


Total assets

     340,017       21,516       361,533  

Total expenditure for long-lived assets

     34,894       1,553       36,447  

Investment in affiliates

     493       —         493  
    


 


 



NAVIOS MARITIME HOLDINGS INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of US Dollars)

 

     Vessel
Operations


    Port
Terminal


    Total

 

Year ended December 31, 2002

                        

Revenue

   $ 26,544     $ 215     $ 26,759  

Gain and loss on forward freight agreements

     494       —         494  

Interest revenue

     41       —         41  

Interest expense

     (3,950 )     —         (3,950 )

Depreciation and amortization

     (5,943 )     (60 )     (6,003 )

Equity in net earnings of affiliate companies

     68       —         68  

Net income

     (5,672 )     38       (5,634 )
    


 


 


Total assets

     200,662       14,810       215,472  

Total expenditure for long-lived assets

     7,654       —         7,654  

Investment in affiliates

     1,074       —         1,074  
    


 


 


 

The following table sets out operating revenue by geographic region for the Company’s reportable segments. Vessel Operation and Port Terminal revenue is allocated on the basis of the geographic region in which the customer is located. Dry bulk vessels operate worldwide. Revenues from specific geographic region which contribute over 10% of total revenue are disclosed separately.

 

Revenue By Geographic Region

 

     December 31,
2004


   December 31,
2003


   December 31,
2002


North America

   $ 38,201    $ 30,308    $ 5,597

South America

     7,808      7,055      372

Europe

     119,393      85,533      13,661

Australia

     12,943      10,863      2,851

Asia

     99,356      44,308      3,656

Other

     1,483      1,667      622
    

  

  

Total

   $ 279,184    $ 179,734      26,759
    

  

  

 

The following describes long-lived assets by country for the Company’s reportable segments. Vessels operate on a worldwide basis and are not restricted to specific locations. Accordingly, it is not possible to allocate the assets of these operations to specific countries. The total net book value of long-lived assets for vessels amounted to $116,231 and $120,750 at December 31, 2004 and 2003, respectively. For Port Terminal, all long-lived assets by country are located in Uruguay. The total net book value of long-lived assets for port terminal amounted to $20,909 and $18,338 at December 31, 2004 and 2003, respectively.

 

Long-lived assets include vessels, other fixed assets, and the unamortized portion of capitalized drydock costs.

 

NOTE 21: SUBSEQUENT EVENTS

 

(a) Negotiated settlement on M/V SD Victory arbitration case

 

On February 15, 2005, the Company successfully negotiated a settlement of $705 with the head owners of the M/V SD Victory. This amount had been reserved as of December 31, 2004.

 

(b) International Shipping Enterprises, Inc. (“ISE”) enters into agreement for acquisition of the Company

 

On March 1, 2005, ISE and the Company announced that they entered into a definitive stock purchase agreement, dated February 28, 2005, whereby the Company and its subsidiaries will be acquired by ISE. Under the terms of the agreement, all of the equity of the Company will be purchased for approximately $607.5 million in cash, subject to certain adjustments.

Pro forma Financial Statements listed in Item 9.01(b)

Exhibit 99.2

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The following unaudited pro forma consolidated balance sheet combines the historical balance sheets of Navios Maritime Holdings Inc. and Subsidiaries, (“Navios”) (“Acquired Company”*) and International Shipping Enterprises, Inc. (“ISE”) as of June 30, 2005, giving effect to the transaction described in the Stock Purchase Agreement dated February 28, 2005 (the “Transaction”) as if it had occurred on June 30, 2005.

 

The following unaudited pro forma consolidated statements of operations combine (i) the historical statements of operations of Navios and ISE for the six month period ended June 30, 2005 and (ii) the historical statements of operations of Navios for the year ended December 31, 2004 and ISE for the period from September 17, 2004 (inception) to December 31, 2004, giving effect to the Transaction as if it had occurred on January 1, 2004.

 

The unaudited pro forma condensed consolidated financial statements described above should be read in conjunction with the historical financial statements of Navios and ISE and the related notes thereto. The unaudited pro forma information is not necessarily indicative of the financial position or results of operations that may have actually occurred had the Transaction taken place on the dates noted, or the future financial position or operating results of the combined company.

 


* “Acquired Company” designates the entity acquired by the registrant (International Shipping Enterprises, Inc.). This has been labeled to avoid confusion between the registrant and this entity.


UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

June 30, 2005

(In thousands of US Dollars)

 

    

NAVIOS

[Acquired
Company*]


   ISE

  

Pro Forma

Adjustments


   

Pro Forma

Combined


ASSETS                             

Current Assets:

                            

Cash and cash equivalents

   $ 93,064    $ 172    $ 182,799 (a)   $ 126,277
                     (50,006 )(b)      
                     (591,354 )(c)      
                     (12,051 )(c)      
                     (5,022 )(j)      
                     514,370 (f)      
                     (5,695 )(f)      

Restricted cash

     2,917                     2,917

Investments held in trust

            182,799      (182,799 )(a)     —  

Deferred tax asset

            145              145

Accounts receivable, net of allowance

     19,417             (648 )(i)     18,769

Short term derivative assets

     58,922                     58,922

Prepaid voyage costs

     8,002                     8,002

Prepaid expenses and other current assets

     2,706      64              2,770
    

  

  


 

Total current assets

     185,028      183,180      (150,406 )     217,802
    

  

  


 

Advances held in escrow for acquisitions

            3,016      (3,016 )(c)     —  

Vessels, net

     114,046             97,954 (c)     212,000

Other fixed assets, net

     21,732      9      48,851 (c)     70,592

Fixed Assets under construction

     5,118                     5,118

Long term derivative assets

     4,111                     4,111

Deferred financing costs, net

     398      3,448      (398 )(b)     9,143
                     5,695 (f)      

Deferred acquisition costs

            1,895      (1,895 )(c)     —  

Deferred dry dock and special survey

     311                     311

Investment in affiliates

     714                     714

Tradename

     1,960             98,040 (c)     100,000

Favorable leases/purchase terms

                   128,069 (c)     128,069

Goodwill

     226             23,738 (c)     23,964
    

  

  


 

Total noncurrent assets

     148,616      8,368      397,038       554,022
    

  

  


 

Total Assets

   $ 333,644    $ 191,548    $ 246,632     $ 771,824
    

  

  


 


* “Acquired Company” designates the entity acquired by the registrant (International Shipping Enterprises, Inc.). This has been labeled to avoid confusion between the registrant and this entity.

 

See notes to pro forma condensed consolidated financial statements


UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

June 30, 2005

(In thousands of US Dollars)

 

    

NAVIOS

(Acquired
Company*)


   ISE

   Pro Forma
Adjustments


    Pro Forma
Combined


LIABILITIES AND STOCKHOLDERS’ EQUITY

                            

Current Liabilities:

                            

Accounts payable

   $ 11,635    $ 1,855    $ (648 ) (i)   $ 12,842

Accrued expenses

     4,993                     4,993

Deferred voyage revenue

     11,581                     11,581

Short term derivative liability

     36,787                     36,787

Deferred interest at trust account

            444      (444 )(e)     —  

Notes payable to stockholder

            5,022      (5,022 )(j)     —  

Income taxes payable

            712              712

Current portion of long term debt

     50,006             (50,006 )(b)     173,870
                     173,870 (f)      
    

  

  


 

Total current liabilities

     115,002      8,033      117,750       240,785
    

  

  


 

Long term liabilities

     2,818                     2,818

Long term derivative liability

     3,762                     3,762

Long term debt, net of current portion

                   340,500 (f)     340,500
    

  

  


 

Total noncurrent liabilities

     6,580      —        340,500       347,080
    

  

  


 

Total liabilities

     121,582      8,033      458,250       587,865
    

  

  


 

Commitments and Contingencies

                            

Common stock subject to possible conversion

            36,097      (36,097 )(e)     —  
           

  


 

Stockholder’s Equity

                            

Common stock

     87      4      (87 ) (c)     4

Additional paid in capital

     60,570      146,551      (60,570 )(c)     182,648
                     36,097 (e)      

Legal reserve (Restricted)

     452             (452 ) (c)     —  

Retained earnings

     150,953      863      (398 ) (b)     1,307
                     (150,555 )(c)      
                     444 (e)      
    

  

  


 

Total stockholder’s equity

     212,062      147,418      (175,521 )     183,959
    

  

  


 

Total Liabilities and Stockholder’s Equity

   $ 333,644    $ 191,548    $ 246,632     $ 771,824
    

  

  


 


* “Acquired Company” designates the entity acquired by the registrant (International Shipping Enterprises, Inc.). This has been labeled to avoid confusion between the registrant and this entity.

 

See notes to pro forma condensed consolidated financial statements


UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

Six-months ended June 30, 2005

(In thousands of US Dollars, except per share data)

 

     NAVIOS
[Acquired
Company*]


    ISE

    Pro Forma
Adjustments


    Pro Forma
Combined


 

Revenue

   $ 127,326                     $ 127,326  

Gain (loss) on forward freight agreements

     (799 )                     (799 )

Expenses:

                                

Time charter, voyage and port terminal expense

     (75,933 )                     (75,933 )

Direct vessel expense

     (4,354 )                     (4,354 )

General and administrative

     (6,748 )             (49 )(h)     (6,797 )

Depreciation and Amortization

     (2,982 )             (11,869 )(d)     (14,851 )

Capital based taxes

             (130 )             (130 )

Other operating expense

             (157 )             (157 )

Other income (expenses):

                                

Interest Income

     861       1,708       421 (e)     2,990  

Interest Expense

     (990 )             (14,483 )(g)     (15,473 )

Other Income

     845                       845  

Other expense

     (595 )                     (595 )
    


 


 


 


Income before minority interest

     36,631       1,421       (25,980 )     12,072  

Equity in net earnings of affiliated companies

     640                       640  
    


 


 


 


Income before income taxes

     37,271       1,421