UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date of event requiring this shell company report
Commission file number: 001-36202
NAVIGATOR HOLDINGS LTD.
(Exact Name of Registrant as Specified in Its Charter)
Republic of the Marshall Islands
(Jurisdiction of Incorporation or Organization)
21 Palmer Street
London, SW1H 0AD, United Kingdom
Telephone: +44 20 7340 4850
(Address of Principal Executive Offices)
Niall Nolan
Chief Financial Officer
21 Palmer Street
London, SW1H 0AD, United Kingdom
+44 20 7340 4850
Telephone: +44 20 7340 4852
Facsimile: +44 20 7340 4858
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on which Registered
Common Stock
New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
55,363,467 Shares of Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
International Financial Reporting Standards as Issued
by the International Accounting Standards Board
Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Item 17 Item 18
NAVIGATOR HOLDINGS LTD.
INDEX TO REPORT ON FORM 20-F
PART I
Item 1.
Item 2.
Item 3.
Identity of Directors, Senior Management and Advisers
Offer Statistics and Expected Timetable
Key Information
A. Selected Financial Data
B. Capitalization and Indebtedness
C. Reasons for the Offer and Use of Proceeds
D. Risk Factors
Item 4.
Information on the Company
Item 4A.
Item 5.
A. History and Development of the Company
B. Business Overview
C. Organizational Structure
D. Property, Plant and Equipment
Unresolved Staff Comments
Operating and Financial Review and Prospects
A. Operating Results
B. Liquidity and Capital Resources
C. Research and Development Patents and Licenses etc.
D. Trend Information
E. Off-Balance Sheet Arrangements
F. Tabular Disclosure of Contractual Obligations
G. Safe Harbor
H. Critical Accounting Estimates
Item 6.
Directors, Senior Management and Employees
A. Directors and Senior Management
B. Compensation
C. Board Practices
D. Employees
E. Share Ownership
Item 7.
Major Shareholders and Related Party Transactions
A. Major Shareholders
B. Related Party Transactions
C. Interests of Experts and Counsel
Item 8.
Financial Information
A. Consolidated Statements and Other Financial Information
B. Significant Changes
Item 9.
The Offer and Listing
A. Offer and Listing Details
B. Plan of distribution
C. Markets
Item 10.
Additional Information
A. Share Capital
B. Memorandum and Articles of Association
C. Material Contracts
D. Exchange Controls
E. Taxation
F. Dividends and Paying Agents
G. Statements by Experts
H. Documents on Display
I. Subsidiary Information
Item 11.
Item 12.
Quantitative and Qualitative Disclosures About Market Risk
Description of Securities Other than Equity Securities
1
1
1
1
1
3
3
3
21
21
21
41
41
41
42
42
50
54
55
55
55
55
56
57
57
59
61
62
62
62
62
63
64
64
64
64
65
65
65
65
65
65
65
65
66
66
71
71
71
71
71
72
Defaults, Dividend Arrearages and Delinquencies
Material Modifications to the Rights of Security Holders and Use of Proceeds
Controls and Procedures
Principal Accountant Fees and Services
PART II
Item 13.
Item 14.
Item 15.
Item 16A. Audit Committee Financial Expert
B. Code of Ethics
C.
D. Exemptions from the Listing Standards for Audit Committees
E.
F. Change in Registrant’s Certifying Accountant
G. Corporate Governance
H. Mine Safety Disclosure
PART III
Item 17.
Item 18.
Item 19.
Financial Statements
Financial Statements
Exhibits
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
73
73
73
73
73
74
74
74
74
74
75
75
76
76
76
76
Presentation of Information in this Annual Report
This annual report on Form 20-F for the year ended December 31, 2015, or the “annual report,” should be read in conjunction with our
consolidated financial statements and notes thereto included in this annual report. All references in this annual report to “Navigator
Holdings,” “our,” “we,” “us” and the “Company” refer to Navigator Holdings PLC, an Isle of Man corporation, with regard to all
periods prior to its redomiciliation in the Republic of the Marshall Islands, and to Navigator Holdings Ltd., a Marshall Islands
corporation, with regard to all periods after its redomiciliation in the Republic of the Marshall Islands. All references in this annual
report to our wholly-owned subsidiary “Navigator Gas L.L.C.” refer to Navigator Gas Transport PLC, an Isle of Man corporation,
with regard to all periods prior to its redomiciliation in the Republic of the Marshall Islands, and to Navigator Gas L.L.C., a Marshall
Islands limited liability company, with regard to all periods after its redomiciliation in the Republic of the Marshall Islands. As used in
this annual report, unless the context indicates or otherwise requires, references to “our fleet” or “our vessels” include (i) 29 vessels
we owned and operated as of December 31, 2015 and one newbuilding delivered to us from Jiangnan Shipyard (Group) Co. Ltd. in
China, or “Jiangnan,” on January 15, 2016 (ii) four newbuildings expected to be delivered from Jiangnan between April, 2016 and
November of 2016, or the “2016 newbuildings,” and (iii) one newbuilding expected to be delivered from Jiangnan and three
newbuildings expected to be delivered from Hyundai Mipo Dockyard Co. Ltd, in South Korea, or “HMD,” between January and July
2017, or the “2017 newbuildings”. As used in the annual report, (i) “WLR” refers to WL Ross & Co. LLC and (ii) the “WLR Group”
refers to WLR and certain of its affiliated investment funds owning shares of our common stock, collectively.
Cautionary Statement Regarding Forward Looking Statements
Statements included in this annual report concerning plans and objectives of management for future operations or economic
performance, or assumptions related thereto, including our financial forecast, contain forward-looking statements. In addition, we and
our representatives may from time to time make other oral or written statements that are also forward-looking statements. Such
statements include, in particular, statements about our plans, strategies, business prospects, changes and trends in our business and the
markets in which we operate as described in this annual report. In some cases, you can identify the forward-looking statements by the
use of words such as “may,” “could,” “should,” “would,” “expect,” “plan,” “anticipate,” “intend,” “forecast,” “believe,” “estimate,”
“predict,” “propose,” “potential,” “continue,” or the negative of these terms or other comparable terminology. Forward-looking
statements appear in a number of places in this annual report. These risks and uncertainties include, but are not limited to:
•
future operating or financial results;
pending acquisitions, business strategy and expected capital spending;
•
• operating expenses, availability of crew, number of off-hire days, drydocking requirements and insurance costs;
• general market conditions and shipping market trends, including charter rates and factors affecting supply and demand;
• our financial condition and liquidity, including our ability to obtain additional financing in the future to fund capital
expenditures, acquisitions and other corporate activities;
estimated future capital expenditures needed to preserve our capital base;
•
• our expectations about the receipt of our eight newbuildings, and the timing of the receipt thereof;
• our expectations about the availability of vessels to purchase, the time that it may take to construct new vessels, or the
useful lives of our vessels;
• our continued ability to enter into long-term, fixed-rate time charters with our customers;
changes in governmental rules and regulations or actions taken by regulatory authorities;
potential liability from future litigation;
•
•
• our expectations relating to the payment of dividends;
•
•
our expectation that in 2016 we will begin providing in-house technical management for one or more vessels in our fleet;
and
other factors discussed in Item 3—Risk Factors of this annual report.
We expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events,
new information, a change in our views or expectations, or otherwise. We make no prediction or statement about the performance of
our common stock.
i
Identity of Directors, Senior Management and Advisers
Item 1.
Not applicable.
PART I
Offer Statistics and Expected Timetable
Item 2.
Not applicable.
Item 3. Key Information
A.
Selected Financial Data
The following table presents selected historical financial data for the years ended December 31, 2011, 2012, 2013, 2014 and 2015
which has been derived from our audited consolidated financial statements included elsewhere in this annual report, and should be
read together with and qualified in its entirety by reference to such audited consolidated financial statements.
In connection with the preparation of our consolidated financial statements for the year ended December 31, 2015, we identified an
immaterial error in the treatment of interest costs in relation to vessel newbuildings. Certain amounts recorded as an interest expense
should have been capitalized, rather than expensed. The error resulted in a prior overstatement of interest expense and an
understatement of net income, book values of vessels under construction and vessels in operation, retained earnings and total
stockholders’ equity for the years ended December 31, 2012, 2013 and 2014 and the interim periods within the years, as well as the
first three quarters of 2015, in the related financial statements. We have amended the financial statements to correct such items, and
the following selected financial data as of and for the years ended December 31, 2012, 2013 and 2014 has been revised accordingly in
accordance with accounting guidance presented in ASC 250, SEC Staff Accounting Bulletin No. 99 Materiality and Staff Accounting
Bulletin 108 considering the effects of prior year misstatements when quantifying misstatements in current year financial statements.
We assessed the materiality of the error and concluded that it was not material to any of our previously issued financial statements
taken as a whole. Please read Note 2 (Summary of Significant Accounting Policies) to the audited historical consolidated financial
statements.
The following table should be read together with “Item 5—Operating and Financial Review and Prospects.” The selected historical
financial data reflects the earnings per share and dividends per share impact of our 3-for-1 stock split that was effected in the form of a
stock dividend on October 29, 2013.
Navigator Holdings
Year Ended December 31,
2011
2012
2013
2014
2015
(in thousands, except per share data, fleet data and
average daily results)
$
88,875
$
146,716
$
238,338
$
304,875
$
315,223
Income Statement Data:
Revenue
Operating expenses:
Address and brokerage commissions
Voyage expenses
Costs of cargo sold
Charter-in costs
Vessel operating expenses
Depreciation and amortization
General and administrative costs
Other corporate expenses
Profit on sale of vessel
Vessel write down following collision
Insurance recoverable from vessel repairs
Total operating expenses
2,664
17,661
—
344
22,939
18,678
4,232
1,166
—
—
—
67,684
4,234
27,791
—
11,288
32,826
24,180
5,273
1,402
—
—
—
5,473
49,336
4,255
6,834
56,030
36,608
6,147
3,496
—
—
—
6,697
45,003
—
9,111
70,198
45,809
10,335
2,260
—
—
—
6,995
33,687
—
—
78,842
53,453
11,011
2,553
(550)
10,500
(9,892)
106,994
168,179
189,413
186,599
1
Operating income
Net interest expense
Income before income taxes
Income taxes
Net income
Earnings per share:
Basic
Diluted
Dividends per share:
Basic and diluted
EBITDA(1)
Balance Sheet Data (at end of period):
Cash and cash equivalents
Total assets
Total liabilities
Total shareholders’ equity
Cash Flows Data:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Fleet Data:
Weighted average number of vessels(2)
Ownership days(3)
Available days(4)
Operating days(5)
Fleet utilization(6)
Average Daily Results:
Time charter equivalent rate(7)
Daily vessel operating expenses(8)
Navigator Holdings
Year Ended December 31,
2011
2012
2013
2014
2015
$
21,191
$
$
2,433
18,758
108
$
(in thousands, except per share data, fleet data and
average daily results)
$
70,159
$
39,722
115,462
$
128,624
8,312
31,410
515
$
27,464
42,695
506
$
26,821
88,641
904
$
29,730
98,894
800
$
18,650
$
30,895
$
42,189
$
87,737
$
98,094
$
$
$
$
$
$
0.60
0.60
0.31
39,869
$
$
$
$
0.83
0.83
0.06
63,902
26,734
524,793
152,765
372,028
$ 140,870
832,613
384,431
448,182
44,982
(85,577)
51,086
$
55,321
(203,148)
261,963
$
$
$
$
$
$
0.92
0.92
—
106,767
194,740
1,326,790
604,574
722,216
80,015
(457,503)
431,358
$
$
$
$
$
$
1.59
1.58
—
161,271
62,526
1,375,290
564,726
810,564
133,114
(231,874)
(33,454)
$
$
$
$
$
$
1.77
1.76
—
182,077
87,779
1,570,644
660,553
910,091
149,554
(205,856)
81,555
8.3
3,033
3,033
2,955
97.4%
12.7
4,663
4,663
4,641
19.6
7,168
7,044
6,544
99.5%
92.9%
24.8
9,051
8,906
8,666
97.3%
27.8
10,135
9,865
9,298
94.3%
$
$
24,098
7,632
$
$
25,627
7,916
$
$
28,262
8,115
$
$
29,988
8,068
$
$
30,280
7,779
(1) EBITDA represents net income before net interest expense, income taxes and depreciation and amortization. EBITDA does not
represent and should not be considered as an alternative to consolidated net income or cash generated from operations, as
determined by U.S. GAAP, and our calculation of EBITDA may not be comparable to that reported by other companies.
EBITDA is not a recognized measurement under U.S. GAAP.
EBITDA is included herein because it is a basis upon which we assess our financial performance and because we believe that it
presents useful information to investors regarding a company’s ability to service and/or incur indebtedness and it is frequently
used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.
EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our
results as reported under U.S. GAAP. Some of these limitations are:
• EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual
commitments;
• EBITDA does not recognize the interest expense or the cash requirements necessary to service interest or principal
payments on our debt;
• EBITDA ignores changes in, or cash requirements for, our working capital needs; and
• other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a
comparative measure.
2
Because of these limitations, EBITDA should not be considered a measure of discretionary cash available to us to invest in the
growth of our business.
The following table sets forth a reconciliation of net income to EBITDA for the periods presented:
Net income
Net interest expense
Income taxes
Depreciation and amortization
Navigator Holdings
Year Ended December 31,
2011
2012
2013
2014
2015
(in thousands)
$
18,650 $
2,433
108
18,678
30,895 $
8,312
515
24,180
42,189 $
27,464
506
36,608
87,737 $
26,821
904
45,809
98,094
29,730
800
53,453
EBITDA
$
39,869 $
63,902 $
106,767 $
161,271 $
182,077
(2) We calculate the weighted average number of vessels during a period by dividing the number of total ownership days during
that period by the number of calendar days during that period.
(3) We define ownership days as the aggregate number of days in a period that each vessel in our fleet has been owned by us.
Ownership days are an indicator of the size of our fleet over a period and affect both the amount of revenue and the amount of
expenses that we record during a period.
(4) We define available days as ownership days less aggregate off-hire days associated with scheduled maintenance, which includes
drydockings, vessel upgrades or special or intermediate surveys. We use available days to measure the aggregate number of
days in a period that our vessels should be capable of generating revenues.
(5) We define operating days as available days less the aggregate number of days that our vessels are off-hire for any reason other
than scheduled maintenance. We use operating days to measure the aggregate number of days in a period that our vessels
actually generate revenues.
(6) We calculate fleet utilization by dividing the number of operating days during a period by the number of available days during
that period. An increase in non-scheduled off-hire days would reduce our operating days, and therefore, our fleet utilization. We
use fleet utilization to measure our ability to efficiently find suitable employment for our vessels.
(7) Time charter equivalent rate, or “TCE rate,” is a measure of the average daily revenue performance of a vessel. TCE rate is a
shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s
performance despite changes in the mix of charter types (i.e., time charters, voyage charters and contracts of affreightment, or
“COAs”) under which the vessels may be employed between the periods. Our method of calculating TCE rate is to divide
operating revenue (net of voyage expenses) by operating days for the relevant time period.
(8) Daily vessel operating expenses are calculated by dividing vessel operating expenses by ownership days (excluding ownership
days for chartered-in vessels) for the relevant time period.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
You should carefully consider the following risk factors together with all of the other information included in this annual report in
evaluating an investment in our common stock. If any of the following risks were actually to occur, our business, financial condition,
results of operations and cash flows could be materially adversely affected. In that case, the trading price of our common stock could
decline, and you could lose all or part of your investment.
3
Risks Related to Our Business
Charter rates for liquefied gas carriers are cyclical in nature.
The international liquefied gas carrier market is cyclical with attendant volatility in terms of profitability, charter rates and vessel
values. The degree of charter rate volatility among different types of liquefied gas carriers has varied widely. Because many factors
influencing the supply of, and demand for, vessel capacity are unpredictable, the timing, direction and degree of changes in the
international liquefied gas carrier market are also unpredictable.
Future growth in the demand for our services will depend on changes in supply and demand, economic growth in the world
economy and demand for liquefied gas product transportation relative to changes in worldwide fleet capacity. Adverse economic,
political, social or other developments, including the return of the turmoil in the global financial system and economic crisis, could
have a material adverse effect on world economic growth and thus on our business and results of operations.
The charter rates we receive will be dependent upon, among other things:
•
changes in the supply of vessel capacity for the seaborne transportation of liquefied gases, which is influenced by the
following factors:
•
•
•
•
the number of newbuilding deliveries and the ability of shipyards to deliver newbuildings by contracted delivery
dates and capacity levels of shipyards;
the scrapping rate of older vessels;
port and canal congestion; and
the number of vessels that are out of service, including due to vessel casualties, repairs and drydockings.
•
changes in the level of demand for seaborne transportation of liquefied gases, which is influenced by the following
factors:
•
•
•
•
•
the level of production of liquefied gases in net export regions such as Russia, North America, the Middle East and
Africa;
the level of demand for liquefied gases in net import regions such as Asia, Europe, Latin America and India;
the level of internal demand for petrochemicals to supply integrated petrochemical facilities in net export regions;
a reduction in global or general industrial activity specifically in the plastics and chemical industry;
the prices of alternative fuels;
changes in the cost of petroleum and natural gas from which liquefied gases are derived;
•
• prevailing global and regional economic conditions;
•
political changes and armed conflicts in the regions traveled by our vessels and the regions where the cargoes we
carry are produced or consumed that interrupt production, trade routes or consumption of liquefied gases and the
products made therefrom;
• developments in international trade;
•
•
•
•
•
•
the distances between exporting and importing regions over which liquefied gases are to be moved by sea;
infrastructure to support seaborne liquefied gases, including pipelines, railways and terminals;
the availability of alternative transportation means;
changes in seaborne and other transportation patterns;
changes in liquefied gas carrier prices; and
changes in environmental and other regulations that may limit the production or consumption of liquefied gases or
the useful lives of vessels.
Adverse changes in any of the foregoing factors could have an adverse effect on our revenues, profitability, liquidity, cash flow and
financial position.
4
We are partially dependent on voyage charters in the spot market, and any decrease in spot charter rates in the future may
adversely affect our earnings.
We currently own and operate a fleet of 30 vessels. Of those, 12 vessels are employed in the spot market, exposing us to fluctuations
in spot market charter rates.
We may employ additional vessels that we may charter-in or acquire in the future in the spot market, including the eight newbuildings
we expect will be delivered to us by July 2017. Although spot chartering is common in our industry, the spot market may fluctuate
significantly. The successful operation of our vessels in the competitive spot market depends upon, among other things, obtaining
profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling in ballast and to
pick up cargo. If future spot charter rates decline, we may be unable to operate our vessels trading in the spot market profitably or
meet our obligations, including payments on indebtedness. Furthermore, as charter rates for spot charters are fixed for a single voyage
which may last up to several weeks, during periods in which spot charter rates are rising, we will generally experience delays in
realizing the benefits from such increases.
We may be unable to charter our vessels at attractive rates, which would have an adverse impact on our business, financial
condition and operating results.
Payments under our charters represent substantially all of our operating cash flow. Our time charters expire on a regular basis.
Furthermore, we anticipate receiving at least eight newbuildings by July 2017 as a result of our acquisition of the newbuildings, of
which four are not currently subject to charters. If demand for liquefied gas carriers has declined at the time that our charters expire or
vessels are received, we may not be able to charter our vessels at favorable rates or at all. If more vessels are added to the overall fleet
through newbuilding programmes, charter rates may reduce. In addition, while longer-term charters would become more attractive to
us at a time when charter rates are declining, our customers may not want to enter into longer-term charters in such an environment.
As a result, if our charters expire or vessels are received at a time when charter rates are declining, we may have to accept charters
with lower rates or shorter terms than would be desirable. Furthermore, we may be unable to charter our vessels immediately after the
expiration of their charters or after their receipt, resulting in periods of non-utilization for our vessels. Our inability to charter our
vessels at favorable rates or terms or at all would adversely impact our business, financial condition and operating results. Please read
“Item 4—Information on the Company—Business Overview—Our Fleet.”
If the demand for liquefied gases and the seaborne transportation of liquefied gases does not continue to grow, our business,
financial condition and operating results could be adversely affected.
Our growth depends on continued growth in world and regional demand for liquefied gases and the seaborne transportation of
liquefied gases, each of which could be adversely affected by a number of factors, such as:
•
increases in the demand for industrial and residential natural gas in areas linked by pipelines to producing areas, or the
conversion of existing non-gas pipelines to natural gas pipelines in those markets;
increases in demand for chemical feedstock’s in net exporting regions;
•
• decreases in the consumption of petrochemical gases;
•
•
decreases in the consumption of liquefied petroleum gas, or “LPG,” due to increases in its price relative to other energy
sources or other factors making consumption of liquefied gas less attractive;
the availability of competing, alternative energy sources, transportation fuels or propulsion systems;
• decreases in demand for liquefied gases resulting from changes in feedstock capabilities of petrochemical plants in net
importing regions;
changes in the relative values of hydrocarbon and liquefied gases;
•
•
•
•
a reduction in global industrial activity, especially in the plastics and petrochemical industries, particularly in regions with
high demand growth for liquefied gas, such as Asia;
adverse global or regional economic or political conditions, particularly in liquefied gas exporting or importing regions,
which could reduce liquefied gas shipping or energy consumption;
changes in governmental regulations, such as the elimination of economic incentives or initiatives designed to encourage
the use of liquefied gases over other fuel sources; or
• decreases in the capacity of petrochemical plants and crude oil refineries worldwide or the failure of anticipated new
capacity to come online.
5
Reduced demand for liquefied gases and the seaborne transportation of liquefied gases would have a material adverse effect on our
future growth and could adversely affect our business, financial condition and operating results.
The expected growth in the supply of petrochemical gases, including ethane and ethylene, available for seaborne transport may not
materialize, which would deprive us of the opportunity to obtain premium charters for petrochemical cargoes.
Charter rates for petrochemical gas cargoes are often higher than those for LPG, with charter rates for ethylene historically
commanding an additional premium. While we believe that growth in production at petrochemical production facilities and regional
supply and pricing imbalances will create opportunities for us to transport petrochemical gas cargoes, including ethane and ethylene,
factors that are beyond our control may cause the supply of petrochemical gases available for seaborne transport to remain constant or
even decline. For example, a significant portion of any increased production of petrochemicals in export regions may be used to
supply local facilities that use petrochemicals as a feedstock rather than exported via seaborne trade. If the supply of petrochemical
gases available for seaborne transport does not increase, we will not have the opportunity to obtain the premium charter rates
associated with petrochemical gas cargoes, including ethane and ethylene, and our expectations regarding the growth of our business
may not be met.
The market values of our vessels may fluctuate significantly. This could cause us to incur a loss, which could adversely affect our
business, financial condition and operating results.
The market value of liquefied gas carriers fluctuates. While the market values of our vessels have increased since the recent economic
slowdown, they still remain below the historic high levels prior to the economic slowdown. In addition, they are subject to the
potential significant fluctuations depending on a number of factors including, among other things: general economic and market
conditions affecting the shipping industry, shipyard capacity and the cost of newbuildings, prevailing charter rates, competition from
other shipping companies, other modes of transportation, other types, sizes and age of vessels and applicable governmental
regulations.
In addition, when vessel prices are considered to be low, companies not usually involved in shipping may make speculative vessel
orders, thereby increasing the supply of vessel capacity, satisfying demand sooner and potentially suppressing charter rates.
Also, if the book value of a vessel is impaired due to unfavorable market conditions or a vessel is sold at a price below its book value,
we would incur a loss that could have a material adverse effect on our business, financial condition and operating results.
Furthermore each of our loan agreements and bond agreement have covenants relating to asset values, whereby if vessel values were
to reduce to below those set out in the covenants, a breach would occur and cause the loan amounts to be immediately repayable. This
could have a material adverse effect on our business, financial condition and operating results.
Over the long term, we will be required to make substantial capital expenditures to preserve the operating capacity of, and to grow,
our fleet.
We must make substantial capital expenditures over the long term to maintain the operating capacity and expansion of our fleet in
order to preserve our capital base.
We estimate that drydocking expenditures can cost up to $2.0 million per vessel per drydocking, although these expenditures could
vary significantly from quarter to quarter and year to year and could increase as a result of changes in:
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•
•
•
•
•
•
•
•
the location and required repositioning of the vessel;
the cost of labor and materials;
customer requirements;
the size of our fleet;
the cost of replacement vessels;
the length of charters;
the age of our fleet;
governmental regulations and maritime self-regulatory organization standards relating to safety, security or the
environment; and
competitive standards.
6
Furthermore, we intend to make substantial capital expenditures to increase the size of our fleet. Following the delivery of the
newbuilding Navigator Ceto in January 2016, we have eight newbuildings, expected to be delivered by July 2017, for an aggregate of
$509.2 million, comprised of one 22,000 cbm 2016 newbuilding from Jiangnan Shipyard, China for $43.9 million, three 2016 and one
2017 35,000 cbm newbuildings from Jiangnan for an average of $78.2 million per vessel, two 22,000 cbm 2017 newbuildings from
HMD for $51.0 million per vessel and one 38,000 cbm 2017 newbuilding from HMD for $50.5 million.
We have fully financed the construction of Navigator Ceto and the 22,000 cbm and 35,000 cbm 2016 and 2017 newbuildings with
debt financing. We plan to use cash on hand, together with future credit facilities, to fund the construction of the 38,000 cbm 2017
newbuilding.
Our ability to obtain bank financing or to access the capital markets for future debt or equity offerings in order to finance the
expansion of our fleet may be limited by our financial condition at the time of any such financing or offering as well as by adverse
market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are
beyond our control. Our failure to obtain the funds for future capital expenditures could limit our ability to expand our fleet. Even if
we are successful in obtaining necessary funds, the terms of such financings may significantly increase our interest expense and
financial leverage and issuing additional equity securities may result in significant shareholder dilution. Please read “Item 5—
Operating and Financial Review and Prospects—Liquidity and Capital Resources—Liquidity and Cash Needs.”
We may be unable to make, or realize the expected benefits from, acquisitions and the failure to successfully implement our growth
strategy through acquisitions could adversely affect our business, financial condition and operating results.
Our growth strategy includes newbuildings or selectively acquiring existing liquefied gas carriers and investing in complementary
assets. Factors such as competition from other companies, many of which have significantly greater financial resources than we do,
could reduce our acquisition and investment opportunities or cause us to pay higher prices.
Any existing vessel or newbuilding we acquire (including the 2016 newbuildings and the 2017 newbuildings, of which four are not
currently subject to charters) may not be profitable at or after the time of acquisition or delivery and may not generate cash flow
sufficient to cover the cost of acquisition. Market conditions at the time of delivery of any newbuildings may be such that charter rates
are not favorable and the revenue generated by such vessels is not sufficient to cover their purchase prices.
In addition, our acquisition and investment growth strategy exposes us to risks that could adversely affect our business, financial
condition and operating results, including risks that we may:
fail to realize anticipated benefits of acquisitions, such as new customer relationships, cost savings or increased cash flow;
•
• not be able to obtain charters at favorable rates or at all;
• be unable to hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and
fleet or engage a third-party technical manager to do the same;
•
fail to integrate investments of complementary assets or vessels in capacity ranges outside our current operations in a
profitable manner;
• not have adequate operating and financial systems in place as we implement our expansion plan;
• decrease our liquidity through the use of a significant portion of available cash or borrowing capacity to finance
acquisitions;
significantly increase our interest expense or financial leverage if we incur additional debt to finance acquisitions;
incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired; or
incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or
restructuring charges.
•
•
•
Unlike newbuildings, existing vessels typically do not carry warranties as to their condition. While we inspect existing vessels prior to
purchase, such an inspection would normally not provide us with as much knowledge of a vessel’s condition as we would possess if it
had been built for us and operated by us during its life. Repairs and maintenance costs for existing vessels are difficult to predict and
may be substantially higher than for vessels we have operated since they were built. These costs could decrease our cash flow and
reduce our liquidity.
7
From time to time, we may selectively pursue new strategic acquisitions or ventures we believe complementary to our seaborne
transportation services and any strategic transactions that are a departure from our historical operations could present unforeseen
challenges and result in a competitive disadvantage relative to our more-established competitors.
We may pursue strategic acquisitions or investment opportunities we believe complementary to our core business of owning and
operating handysize liquefied gas carriers and the transportation of LPG, petrochemical gases and ammonia. Such ventures may
include, but are not limited to operating liquefied gas carriers in different size categories, expanding the types of cargo we carry and/or
ventures involved in the distribution, mixing and/or storage of liquefied gas cargoes. While we have general knowledge and
experience in the seaborne transportation services industry, we have no meaningful operating history outside of the ownership and
operation of handysize liquefied gas carriers and the transportation of LPG, petrochemical gases and ammonia.
Any investments we pursue outside of our historical provision of seaborne transportation services could result in unforeseen operating
difficulties and may require significant financial and managerial resources that would otherwise be available for the ongoing operation
and growth of our fleet.
We may face several factors that could impair our ability to successfully execute these acquisitions or investments including, among
others, the following:
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•
•
delays in obtaining regulatory approvals, licenses or permits from different governmental or regulatory authorities,
including environmental permits;
unexpected cost increases or shortages in the equipment, materials or labor required for the venture, which could cause the
venture to become economically unfeasible; and
unforeseen engineering, design or environmental problems.
Any of these factors could delay any such acquisitions or investment opportunities and could increase our projected capital costs. If
we are unable to successfully integrate acquisitions or investments into our historical business, any costs incurred in connection with
these projects may not be recoverable. If we experience delays, cost overruns, or changes in market circumstances, we may not be able
to demonstrate the commercial viability of such acquisitions or investment opportunities or achieve the intended economic benefits,
which would materially and adversely affect our business, financial condition and results of operations.
Operations outside of the United States expose us to political, governmental and economic instability, which could adversely affect
our business, financial condition and operating results.
Because our operations are primarily conducted outside of the United States, we may be affected by economic, political and
governmental conditions in the countries where we engage in business or where our vessels are registered. Any disruption caused by
these conditions could adversely affect our business, financial condition and operating results. We derive some of our revenues from
transporting gas cargoes from, to and within politically unstable regions. Conflicts in these regions have included attacks on ships and
other efforts to disrupt shipping. In addition, vessels operating in some of these regions have been subject to piracy. Hostilities or other
political instability in regions where we operate or may operate could have a material adverse effect on our business, financial
condition and operating results. In addition, tariffs, trade embargoes and other economic sanctions by the United States or other
countries against countries where we engage in business as a result of terrorist attacks, hostilities or other events may limit trading
activities with those countries, which could also harm our business. Finally, a government could requisition one or more of our
vessels, which is most likely during a war or national emergency. Any such requisition would cause a loss of the vessel and would
harm our business, financial condition and operating results.
The geopolitical risks associated with chartering vessels to Indonesian and Venezuelan state-owned corporations are significant
and could have an adverse impact on our business, financial condition and operating results.
Petróleos de Venezuela S.A., or “PDVSA,” is a state-owned corporation of the Bolivarian Republic of Venezuela. PDVSA currently
employs three of our vessels. PT Pertamina (Persero), or “Pertamina,” is a state-owned corporation of the Republic of Indonesia.
Pertamina also currently employs three of our vessels. Collectively, our charters with PDVSA and Pertamina generated approximately
20.0% of our revenues for the year ended December 31, 2015. Our vessels that are chartered to Pertamina and PDVSA are subject to
various risks, including (i) loss of revenue, property or equipment as a result of expropriation, nationalization, changes in laws,
exchange controls, war, insurrection, civil unrest, strikes or other political risks, (ii) being subject to foreign laws and legal systems
and the exclusive jurisdiction of Venezuelan or Indonesian courts or tribunals and (iii) the unilateral renegotiation of contracts and
changes in laws and policies governing the operations of foreign companies in Venezuela or Indonesia. In addition, if a contract
dispute arises it may be difficult for us to enforce our contractual rights against either Pertamina or PDVSA, as it may claim sovereign
immunity against judgments from foreign courts. As a result, we are subject to significant economic uncertainty associated with doing
business with state-owned corporations. We cannot predict how government policies may change under the current or any future
Venezuelan or Indonesian administration, and future government policies could have a substantial adverse impact on our business,
financial condition and operating results.
8
We depend to a significant degree upon third-party managers to provide technical management services for our fleet.
We subcontract the majority of the technical management of our fleet, including crewing, maintenance and repair, to third-party
technical managers, Bernhard Schulte Ship Management, or “BSSM,” Northern Marine Management Ltd., or “NMM,” and Thome
Ship Management Pte Ltd, or “Thome.” Our technical managers, in turn, contract with one or more manning agents for the provision
of crews for our vessels. Although we have subcontracted the technical management of portions of our fleet to BSSM since 2001,
NMM since 2009 and Thome since 2015, our agreements with them are subject to annual renewal and may be terminated by us or our
technical managers with three months’ notice. The loss of services of one or all of our technical managers or a failure to perform their
obligations could have an adverse effect on our business, financial condition and operating results. Although we may have rights
against our technical managers if they were to default on their obligations, shareholders will have no recourse against our technical
managers. In addition, if we were to lose the services of one or all of our technical managers, we cannot guarantee that we will be able
to find replacement technical managers on terms as favorable as those currently in place.
The ability of our technical managers to continue providing services for our benefit will depend in part on their financial strength.
Circumstances beyond our control could impair our technical managers’ financial strength. Because our technical managers are
privately held, it is unlikely that information about their financial strength will be available. As a result, we might have little advance
warning of problems that affect our technical managers, even though those problems could have a material adverse effect on us. Our
inability to replace our technical managers or to successfully take over and perform the technical management of the vessels being
managed by our technical managers would materially and adversely affect our business, financial condition and operating results.
We expect that in 2016 we will begin providing in-house technical management, for the first time, for at least one vessel in our fleet
We have not in the past provided in-house technical management for any vessel in our fleet. Providing in-house technical management
for any vessel in our fleet may impose significant additional responsibilities on our management and staff. Further, because we have
no prior experience providing technical management in-house, our technical managers may encounter challenges as we establish and
refine our technical management system.
Some charterers may not charter our vessels if they do not accept our in-house technical managers as qualified technical managers or
if they require the technical management of vessels to be performed by third party technical managers. Furthermore, some charterers
may require technical managers to have a minimum of two years of experience with managing a vessel’s on-board safety management
systems. We will provide in-house technical management for a vessel in our fleet only if the charterer so agrees. Similarly, certain
ports may not allow our vessels that are managed by technical in-house managers into their terminals to load or discharge cargoes. If
we are not successful with respect to any vessel for which we may provide technical management in-house, our reputation and ability
to charter vessels may be negatively impacted, which could materially and adversely affect our business, financial condition and
operating results.
A fluctuation in fuel prices may adversely affect our charter rates for time charters and our cost structure for voyage charters and
COAs.
The price and supply of bunker fuel are unpredictable and fluctuate based on events outside our control, including geopolitical
developments, supply and demand for oil, actions by members of the Organization of the Petroleum Exporting Countries and other oil
and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns
and regulations. A significant portion of our revenues are generated by time charters, the terms of which require our customers to
incur the cost of bunker fuel. During 2015 fuel prices declined to their lowest levels since 2005. Bunker fuel prices have continued to
decline in 2016. However, if the fuel price increases our customers may be less willing in the future to enter into charters under which
they bear the full risk of price increases or may shorten the periods for which they are willing to make such commitments. Under
voyage charters and COAs, we bear the cost of bunker fuel used to power our vessels. In the future, we may experience an increase in
bunker fuel prices that would correspondingly increase our voyage expenses under each of our voyages charters and COAs, which
would adversely affect our profitability.
The required drydocking of our vessels could have a more significant adverse impact on our revenues than we anticipate, which
would adversely affect our business, financial condition and operating results.
The drydocking of our vessels requires significant capital expenditures and results in loss of revenue while our vessels are off-hire.
Any significant increase in the number of days of off-hire due to such drydocking or in the costs of any repairs could have a material
adverse effect on our financial condition. Although we attempt to ensure that no more than one vessel will be out of service at any
given time, this may not always be possible because we may underestimate the time required to drydock our vessels, or unanticipated
problems may arise.
9
Our operating costs are likely to increase in the future as our vessels age, which would adversely affect our business, financial
condition and operating results.
In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. As our vessels age, we
will incur increased costs. Older vessels are typically less fuel-efficient and more costly to maintain than newer vessels due to
improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to
charterers. Governmental regulations, including environmental, safety or other equipment standards related to the age of vessels may
also require expenditures for alterations, or the addition of new equipment, to our vessels to comply. These laws or regulations may
also restrict the type of activities in which our vessels may engage or limit their operation in certain geographic regions. We cannot
assure you that, as our vessels age, market conditions will justify those expenditures or enable us to operate our vessels profitably
during the remainder of their expected useful lives.
The loss or inability to operate any of our vessels would result in a significant loss of revenues and cash flow which would
adversely affect our business, financial condition and operating results.
We do not carry loss of hire insurance. If, at any time, we cannot operate any of our vessels due to loss of the vessel, mechanical
problems, lack of seafarers to crew a vessel, prolonged drydocking periods, loss of certification, the loss of any charter or otherwise,
our business, financial condition and operating results will be materially adversely affected. In the worst case, we may not receive any
revenues because of the inability to operate any of our vessels, but we may be required to pay expenses necessary to maintain the
vessel in proper operating condition.
An economic downturn could have a material adverse effect on our business, financial condition and operating results.
Future adverse economic conditions may lead to a decline in our customers’ operations or ability to pay for our services, which could
result in decreased demand for our vessels. There has historically been a strong link between the development of the world economy
and demand for energy, including liquefied gases. The world economy is currently facing a number of challenges. Concerns persist
regarding the debt burden of certain Eurozone countries and their ability to meet future financial obligations and the overall stability of
the euro. An extended period of adverse development in the outlook for European countries could reduce the overall demand for
liquefied gases and have a negative impact on our customers. These potential developments, or market perceptions concerning these
and related issues, could affect our business, financial condition and operating results.
Furthermore, a future economic slowdown could have an impact on our customers and/or suppliers including, among other things,
causing them to fail to meet their obligations to us. Similarly, a future economic slowdown could affect lenders participating in our
secured term loan and revolving credit facilities, making them unable to fulfill their commitments and obligations to us. Any
reductions in activity owing to such conditions or failure by our customers, suppliers or lenders to meet their contractual obligations to
us could adversely affect our business, financial condition and operating results.
Due to our lack of diversification, adverse developments in the seaborne liquefied gas transportation business could adversely
affect our business, financial condition and operating results.
We rely exclusively on the cash flow generated from vessels that operate in the seaborne liquefied gas transportation business. Unlike
many other shipping companies, which have vessels that can carry drybulk, crude oil and oil products, we depend exclusively on the
transport of LPG, petrochemicals and ammonia. Due to our lack of diversification, an adverse development in the international
liquefied gas shipping industry would have a significantly greater impact on our business, financial condition and operating results
than it would if we maintained more diverse assets or lines of business.
Maritime claimants could arrest our vessels, which could interrupt our cash flow.
Crew members, suppliers of goods and services to a vessel, shippers of cargo, cargo receivers and other parties may be entitled to a
maritime lien against that vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lienholder may enforce its
lien by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our
cash flow and require us to pay large sums to have the arrest lifted.
In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel
that is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner.
Claimants could try to assert “sister ship” liability against all of the vessels in our fleet for claims relating to only one of our ships. The
arrest of any of our vessels would adversely affect our business, financial condition and operating results.
10
We may experience operational problems with vessels that reduce revenue and increase costs.
Liquefied gas carriers are complex vessels and their operation is technically challenging. Marine transportation operations are subject
to mechanical risks and problems. Operational problems may lead to loss of revenue or higher than anticipated operating expenses or
require additional capital expenditures. Any of these results could adversely affect our business, financial condition and operating
results.
A shortage of qualified officers makes it more difficult to crew our vessels and increases our operating costs. If a shortage were to
develop, it could impair our ability to operate and have an adverse effect on our business, financial condition and operating
results.
Our liquefied gas carriers require technically skilled officer staff with specialized training. As the world liquefied gas carrier fleet and
the liquefied natural gas, or “LNG,” carrier fleet continue to grow, the demand for such technically skilled officers has increased and
could lead to a shortage of such personnel. If our technical managers were to be unable to employ such technically skilled officers,
they would not be able to adequately staff our vessels and effectively train crews. The development of a deficit in the supply of
technically skilled officers or an inability of our technical managers to attract and retain such qualified officers could impair our ability
to operate and increase the cost of crewing our vessels and, thus, materially adversely affect our business, financial condition and
operating results. Please read “Item 4—Information on the Company—Business Overview—Crewing and Staff.”
Compliance with safety and other vessel requirements imposed by classification societies may be very costly and could adversely
affect our business, financial condition and operating results.
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry.
The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the
country of registry of the vessel and the Safety of Life at Sea Convention. Our vessels are currently enrolled with, Lloyd’s Register or
DNV GL Group AS. All of our vessels have been awarded International Safety Management certification.
As part of the certification process, a vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a
special survey, a vessel’s machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically
over a five-year period. Seven of the vessels in our existing fleet are on a planned maintenance system, or “PMS,” approval, and as
such the classification society attends on-board once every year to verify that the maintenance of the on-board equipment is done
correctly. The remaining ships are operating continuous management surveys. All of the vessels in our fleet have been qualified within
its respective classification society for drydocking once every five years, subject to an intermediate underwater survey done using an
approved diving company in the presence of a surveyor from the classification society. When gas carriers reach an age of 15 years,
they must undergo hull / bottom surveys twice in each five-year cycle, with a maximum of 30 months between each underwater
survey.
If any vessel does not maintain its class and/or fails any annual survey, intermediate survey or special survey, the vessel will be unable
to trade between ports and will be unemployable. This would adversely affect our business, financial condition and operating results.
Our fleet includes sets of sister ships, which have identical specifications. As a result, any latent design or equipment defect
discovered in one of our sister ships will likely affect all of the other vessels.
Our vessels consist of a number of sets of sister ships, ranging from two vessels to six vessels, and our newbuildings also consist of
sets of sister ships. The vessels in each set of sister ships were or will be built based on standard designs and are uniform in all
material respects. Any latent design defects in one of the sister ships would likely affect all of its respective sister ships. We cannot
assure you that latent defects will not be discovered in any of these vessels. In addition, all vessels that are sister ships have the same
or similar equipment as all other such vessels. As a result, any equipment defect discovered in one vessel may affect one or all of the
vessels that are sister ships with that vessel. Any disruptions in the operation of the vessels in our fleet, resulting from any such defects
could adversely affect our business, financial condition and operating results.
Delays in deliveries of newbuildings or acquired vessels, or deliveries of vessels with significant defects, could harm our operating
results and lead to the termination of any related charters that may be entered into prior to their delivery.
The delivery of any of the newbuildings we have ordered or may order or of any vessels we agree to acquire in the future could be
delayed, which would delay our receipt of revenues under any future charters we enter into for the vessels. In addition, under some of
the charters we may enter into for these newbuildings, if our delivery of a vessel to the customer is delayed, we may be required to pay
liquidated damages in amounts equal to or, under some charters, almost double the hire rate during the delay. For prolonged delays,
the customer may terminate the time charter, resulting in loss of revenues. The delivery of any newbuilding with substantial defects
could have similar consequences.
11
Our receipt of newbuildings could be delayed because of many factors, including:
• quality or engineering problems;
•
changes in governmental regulations or maritime self-regulatory organization standards;
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• work stoppages or other labor disturbances at the shipyard;
bankruptcy or other financial crisis of the shipbuilder;
a backlog of orders at the shipyard;
political or economic disturbances in the locations where the vessels are being built;
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• weather interference or catastrophic event, such as a major earthquake or fire;
• our requests for changes to the original vessel specifications;
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shortages of, or delays in the receipt of necessary construction materials, such as steel;
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• our inability to finance the purchase of the vessels; or
our inability to obtain requisite permits or approvals.
•
We do not carry delay of delivery insurance to cover any losses that are not covered by delay penalties in our construction contracts.
As a result, if delivery of a vessel is materially delayed, it could adversely affect our business, financial condition and operating
results.
Our growth depends on our ability to expand relationships with existing customers and obtain new customers, for which we will
face substantial competition.
The process of obtaining new charters is highly competitive, generally involves an intensive screening process and competitive bids,
and often extends for several months. Contracts are awarded based upon a variety of factors, including:
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the operator’s industry relationships, experience and reputation for customer service, quality operations and safety;
the quality, experience and technical capability of the crew;
the operator’s relationships with shipyards and the ability to get suitable berths;
the operator’s construction management experience, including the ability to obtain on-time delivery of new vessels
according to customer specifications;
the operator’s willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter
for force majeure events; and
the competitiveness of the bid in terms of overall price.
Our ability to obtain new customers will depend upon a number of factors, including our ability to:
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successfully manage our liquidity and obtain the necessary financing to fund our growth;
attract, hire, train and retain qualified personnel and ship management companies to manage and operate our fleet;
identify and consummate desirable acquisitions, joint ventures or strategic alliances; and
identify and capitalize on opportunities in new markets.
We expect substantial competition for providing transportation services from a number of experienced companies. As a result, we may
be unable to expand our relationships with existing customers or to obtain new customers on a profitable basis, if at all, which would
have a material adverse effect on our business, financial condition and operating results.
The marine transportation industry is subject to substantial environmental and other regulations, which may limit our operations
and increase our expenses.
Our operations are affected by extensive and changing environmental protection laws and other regulations and international treaties
and conventions, including those relating to equipping and operating vessels and vessel safety. These regulations include the U.S. Oil
Pollution Act of 1990, or “OPA 90,” the U.S. Clean Water Act, the U.S. Maritime Transportation Security Act of 2002 and regulations
of the International Maritime Organization, or “IMO,” including the International Convention on Civil Liability for Oil Pollution
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Damage of 1969, as from time to time amended and generally referred to as the CLC, the IMO International Convention for the
Prevention of Pollution from Ships of 1975, as from time to time amended and generally referred to as MARPOL, the International
Convention for the Prevention of Marine Pollution of 1973, the IMO International Convention for the Safety of Life at Sea of 1974, as
from time to time amended and generally referred to as SOLAS, the IMO International Convention on Load Lines of 1966, as from
time to time amended, the International Management Code for the Safe Operation of Ships and for Pollution Prevention, or the “ISM
Code,” the International Convention on Civil Liability for Bunker Oil Pollution Damage, generally referred to as the Bunker
Convention, and the European Union 2015 Regulation on the monitoring, reporting, and verification of carbon dioxide emissions from
maritime transport. We have incurred, and expect to continue to incur, substantial expenses in complying with these laws and
regulations, including expenses for vessel modifications and changes in operating procedures. Additional laws and regulations may be
adopted that could limit our ability to do business or further increase costs, which could harm our business. In addition, failure to
comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or
termination of operations. We may become subject to additional laws and regulations if we enter into new markets or trades.
In addition, we believe that the heightened environmental, quality and security concerns of the public, regulators, insurance
underwriters and charterers will generally lead to additional regulatory requirements, including enhanced risk assessment and security
requirements, greater inspection and safety requirements on all vessels in the marine transportation markets and possibly restrictions
on the emissions of greenhouse gases from the operation of vessels. These requirements are likely to add incremental costs to our
operations and the failure to comply with these requirements may affect the ability of our vessels to obtain and, possibly, collect on
insurance or to obtain the required certificates for entry into the different ports where we operate.
Please read “Item 4—Information on the Company—Business Overview—Environmental and Other Regulation” for a more detailed
discussion on these topics.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
Due to concern over the risk of climate change, a number of countries and the IMO have adopted, or are considering the adoption of,
regulatory frameworks to reduce greenhouse gas emission from vessel emissions. These regulatory measures may include, among
others, adoption of cap and trade regimes, carbon taxes, increased efficiency standards and incentives or mandates for renewable
energy. Additionally, a treaty may be adopted in the future that includes restrictions on shipping emissions. Compliance with changes
in laws and regulations relating to climate change could increase our costs of operating and maintaining our vessels and could require
us to make significant financial expenditures that we cannot predict with certainty at this time.
Adverse effects upon the oil and gas industry relating to climate change, including growing public concern about the environmental
impact of climate change, may also have an effect on demand for our services. For example, increased regulation of greenhouse gases
or other concerns relating to climate change may reduce the demand for oil and gas in the future or create greater incentives for use of
alternative energy sources. Any long-term material adverse effect on the oil and gas industry could have a significant financial and
operational adverse impact on our business that we cannot predict with certainty at this time.
Marine transportation is inherently risky. An incident involving significant loss of product or environmental contamination by any
of our vessels could adversely affect our reputation, business, financial condition and operating results.
Our vessels and their cargoes and the LPG and petrochemical production and terminal facilities that we service are at risk of being
damaged or lost because of events such as:
• marine disasters;
bad weather;
•
• mechanical failures;
grounding, capsizing, fire, explosions and collisions;
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• piracy;
human error; and
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• war and terrorism.
An accident involving any of our vessels could result in any of the following:
• death or injury to persons, loss of property or damage to the environment and natural resources;
• delays in the delivery of cargo;
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loss of revenues from time charters;
liabilities or costs to recover any spilled cargo and to restore the ecosystem where the spill occurred;
•
• governmental fines, penalties or restrictions on conducting business;
• higher insurance rates; and
•
damage to our reputation and customer relationships generally.
Any of these results could have a material adverse effect on our business, financial condition and operating results.
Our operating results are subject to seasonal fluctuations.
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charter rates. The
liquefied gas carrier market is typically stronger in the fall and winter months in anticipation of increased consumption of propane and
butane for heating during the winter months in the Northern Hemisphere. In addition, unpredictable weather patterns in these months
tend to disrupt vessel scheduling and supplies of certain commodities. While our time charters typically provide a uniform monthly fee
over the term of the charter, to the extent any of our time charters expires during the relatively weaker fiscal quarters ending June 30
and September 30, we may have difficultly re-chartering those vessels at similar rates or at all.
Competition from more technologically advanced liquefied gas carriers could reduce our charter hire income and the value of our
vessels.
The charter rates and the value and operational life of a vessel are determined by a number of factors including the vessel’s efficiency,
operational flexibility and physical life. Efficiency includes fuel economy, speed and the ability to be loaded and unloaded quickly.
Flexibility includes the ability to enter ports, utilize related docking facilities and pass through canals and straits. Physical life is
related to the original design and construction, maintenance and the impact of the stress of operations. If new liquefied gas carriers are
built that are more efficient or flexible or have longer physical lives than our vessels, competition from these more technologically
advanced liquefied gas carriers could adversely affect the charter rates we receive for our vessels once their current charters are
terminated and the resale value of our vessels. As a result, our business, financial condition and operating results could be adversely
affected.
Acts of piracy on any of our vessels or on ocean going vessels could adversely affect our business, financial condition and results
of operations.
Acts of piracy have historically affected ocean going vessels trading in regions of the world such as the South China Sea, the Gulf of
Aden off the coast of Somalia, and West Africa. If such piracy attacks result in regions in which our vessels are deployed being named
on the Joint War Committee Listed Areas, war-risk insurance premiums payable for such coverage could increase significantly and
such insurance coverage might become more difficult to obtain. In addition, crew costs, including costs that may be incurred to the
extent we employ on-board security guards, could increase in such circumstances. We may not be adequately insured to cover losses
from these incidents, which could have a material adverse effect on us. In addition, hijacking as a result of an act of piracy against our
vessels, or an increase in cost or unavailability of insurance for our vessels, could have a material adverse impact on our business,
financial condition and results of operations.
Terrorist attacks, increased hostilities, piracy or war could lead to further economic instability, increased costs and disruption of
business.
Terrorist attacks may adversely affect our business, operating results, financial condition, ability to raise capital and future growth.
Continuing hostilities in the Middle East may lead to additional armed conflicts or to further acts of terrorism and civil disturbance in
the United States or elsewhere, which may contribute further to economic instability and disruption of production and distribution of
LPG, petrochemical gases and ammonia, which could result in reduced demand for our services.
In addition, petrochemical production and terminal facilities and vessels that transport petrochemical products could be targets of
future terrorist attacks. Any such attacks could lead to, among other things, bodily injury or loss of life, vessel or other property
damage, increased vessel operational costs, including insurance costs, and the inability to transport gases to or from certain locations.
Terrorist attacks, piracy, war or other events beyond our control that adversely affect the distribution, production or transportation of
gases to be shipped by us could entitle customers to terminate our charters, which would harm our cash flow and business. In addition,
the loss of a vessel as a result of terrorism or piracy would have a material adverse effect on our business, financial condition and
operating results.
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Our insurance may be insufficient to cover losses that may occur to our vessels or result from our operations.
The operation of liquefied gas carriers is inherently risky. We may not be able to adequately insure against all risks, and any particular
claim may not be paid by insurance. None of our vessels are insured against loss of revenues resulting from vessel off-hire time.
Certain insurance coverage is maintained through mutual protection and indemnity associations, and as a member of such associations
we may be required to make additional payments over and above budgeted premiums if the member claims exceed association
reserves.
We may be unable to procure adequate insurance coverage at commercially reasonable rates in the future. For example, more stringent
environmental regulations have led in the past to increased costs for, and in the future may result in the lack of availability of,
insurance against risks of environmental damage or pollution. The costs arising from a catastrophic spill or marine disaster could
exceed the insurance coverage. Changes in the insurance markets attributable to terrorist attacks or piracy may also make certain types
of insurance more expensive or more difficult to obtain. In addition, the insurance may be voidable by the insurers as a result of
certain actions, such as vessels failing to maintain certification with applicable maritime self-regulatory organizations. Any uninsured
or underinsured loss could have a material adverse effect on our business, financial condition and operating results.
Restrictive covenants in our secured term loan facilities and revolving credit facility impose, and any future debt facilities will
impose, financial and other restrictions on us.
The secured term loan facilities and revolving credit facility impose, and any future debt facility will impose, operating and financial
restrictions on us. The restrictions in the existing secured term loan facilities and revolving credit facility may limit our ability to,
among other things:
•
•
•
pay dividends out of operating revenues generated by the vessels securing indebtedness under the facility, redeem any
shares or make any other payment to our equity holders, if there is a default under any secured term loan facility or
revolving credit facility;
incur additional indebtedness, including through the issuance of guarantees;
create liens on our assets;
sell our vessels;
•
• merge or consolidate with, or transfer all or substantially all our assets to, another person;
•
•
change the flag, class or management of our vessels; and
enter into a new line of business.
The secured term loan facilities and revolving credit facility require us to maintain various financial ratios. These include requirements
that we maintain specified maximum ratios of net debt to total capitalization, that we maintain specified minimum levels of cash and
cash equivalents (including undrawn lines of credit with maturities greater than 12 months), that we maintain specified minimum
ratios of consolidated earnings before interest, taxes, depreciation and amortization (consolidated EBITDA), to consolidated interest
expense and that we maintain specified minimum levels of collateral coverage. Under our secured term loan facilities, if at any time
the aggregate fair market value of (i) the vessels subject to a mortgage in favor of our lenders and (ii) the value of any additional
collateral we grant to the lenders is less than 135% of the outstanding principal amount under the secured term loan facilities and any
commitments to borrow additional funds, our lenders may require us to provide additional collateral. Upon notice from our lenders
that additional collateral is required, we will have 30 days to either provide collateral that is acceptable to the lenders, cancel
remaining commitments to lend and/or prepay outstanding debt in an amount to maintain the minimum collateral coverage ratio. See
“Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Secured Term Loan Facilities and
Revolving Credit Facility—Financial Covenants.” The failure to comply with such covenants would cause an event of default that
could materially adversely affect our business, financial condition and operating results.
Because of these covenants, we may need to seek permission from our lenders in order to engage in some corporate actions. Our
lenders’ interests may be different from ours, and we may not be able to obtain our lenders’ permission when needed. This may limit
our ability to finance our future operations and make acquisitions or pursue business opportunities. See “Item 5—Operating and
Financial Review and Prospects—Liquidity and Capital Resources—Secured Term Loan Facilities and Revolving Credit Facility.”
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The secured term loan facilities are reducing facilities. The required repayments under the secured term loan facilities may
adversely affect our business, financial condition and operating results.
Loans under the secured term loan facilities are subject to quarterly repayments beginning three months after the initial borrowing date
or delivery dates of the newbuildings, as applicable. If at such time we have not made alternative financing arrangements or generate
substantial cash flows, any such repayments and our declining borrowing availability could have a material adverse effect on our
business, financial condition and operating results.
We may not be able to borrow further amounts under the secured term loan facilities, which we may need to fund the acquisition
of the remaining newbuildings that we have agreed to purchase.
Our ability to borrow further amounts under the secured term loan facilities will be subject to satisfaction of certain customary
conditions precedent and compliance with terms and conditions included in the loan documents. To the extent that we are not able to
satisfy these requirements, including as a result of a decline in the value of our vessels, we may be required to repay a portion of our
existing debt or provide additional collateral and we may not be able to borrow further amounts under the secured term loan facilities.
If we are unable to borrow further amounts under the secured term loan facilities, we may be unable to fund the acquisition of the
newbuildings that we have agreed to purchase, which would adversely affect our business, financial condition and operating results.
The derivative contracts we may enter into to hedge our exposure to fluctuations in interest rates could result in higher than
market interest rates and reductions in our shareholders’ equity, as well as charges against our income.
We may enter into interest rate swaps for purposes of managing our exposure to fluctuations in interest rates applicable to
indebtedness under our secured term loan facilities and revolving credit facility which were advanced at floating rates based on
LIBOR. Our hedging strategies, however, may not be effective and we may incur substantial losses if interest rates move materially
differently from our expectations.
To the extent our future derivative contracts may not qualify for treatment as hedges for accounting purposes, we will recognize
fluctuations in the fair value of such contracts in our statement of income. In addition, changes in the fair value of future derivative
contracts, even those that qualify for treatment as hedges, will be recognized in “Other Comprehensive Income” on our balance sheet,
and can affect compliance with the net worth covenant requirements in our secured term loan facilities. Our financial condition could
also be materially adversely affected to the extent we do not hedge our exposure to interest rate fluctuations under our financing
arrangements under which loans have been advanced at a floating rate based on LIBOR.
Any hedging activities we engage in may not effectively manage our interest rate exposure or have the desired impact on our financial
conditions or results of operations.
Our business depends upon certain key employees.
Our future success depends to a significant extent upon our senior management, including our chairman, president and chief executive
officer, David J. Butters. Mr. Butters has substantial experience in the shipping industry and he and others are crucial to the
development of our business strategy and to the growth and development of our business. The loss of any of these individuals could
adversely affect our business, financial condition and operating results.
Our major shareholder may exert considerable influence on the outcome of matters on which our shareholders will be entitled to
vote, and its interests may be different from yours.
The WLR Group, our principal shareholder, owned approximately 39.5% of our common stock, as of December 31, 2015. The WLR
Group may exert considerable influence on the outcome of matters on which our shareholders are entitled to vote, including the
election of our directors to our board of directors and other significant corporate actions. The interests of the WLR Group may be
different from your interests.
We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our
financial obligations.
We are a holding company and our subsidiaries conduct all of our operations and own all of our operating assets. We have no
significant assets other than the equity interests in our subsidiaries. As a result, our ability to satisfy our financial obligations depends
on our subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected
by a claim or other action by a third party, including a creditor, or by the Republic of the Marshall Islands law, which regulates the
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payment of dividends by companies. In addition, under the secured term loan facilities, Navigator Gas L.L.C., our wholly-owned
subsidiary, and our vessel-owning subsidiaries that are parties to the secured term loan facilities and revolving credit facility may not
make distributions to us out of operating revenues from vessels securing indebtedness thereunder, redeem any shares or make any
other payment to our shareholders if an event of default has occurred and is continuing. Please read “Item 5—Operating and Financial
Review and Prospects—Liquidity and Capital Resources—Secured Term Loan Facilities and Revolving Credit Facility.” The inability
of our subsidiaries to make distributions to us would have an adverse effect on our business, financial condition and operating results.
Risks Relating to Our Common Stock
We may issue additional equity securities without your approval, which would dilute your ownership interests.
We may issue additional shares of common stock or other equity or equity-linked securities without the approval of our shareholders,
subject to certain limited approval requirements of the NYSE. In particular, we may finance all or a portion of the acquisition price of
future vessels, including newbuildings, that we agree to purchase through the issuance of additional shares of common stock. Our
amended and restated articles of incorporation, which became effective on November 5, 2013, authorize us to issue up to 400,000,000
shares of common stock, of which 55,363,467 shares were outstanding as of December 31, 2015. The issuance by us of additional
shares of common stock or other equity or equity-linked securities of equal or senior rank will have the following effects:
•
•
•
our shareholders’ proportionate ownership interest in us will decrease;
the relative voting strength of each previously outstanding share may be diminished; and
the market price of the common stock may decline.
Future sales of our common stock could cause the market price of our common stock to decline.
Sales of a substantial number of our shares of common stock in the public market, or the perception that these sales could occur, may
depress the market price for our common stock. These sales could also impair our ability to raise additional capital through the sale of
our equity securities in the future. The WLR Group, our principal shareholder, owned approximately 39.5% of our common stock, as
of December 31, 2015. In the future, the WLR Group may elect to sell large numbers of shares from time to time.
We have no current plans to pay dividends on our common stock. Consequently, your only opportunity to achieve a return on your
investment is if the price of our common stock appreciates.
We have no current plans to declare dividends on our common stock in the foreseeable future. Consequently, your only opportunity to
achieve a return on your investment in us will be if you sell your shares of common stock at a price greater than you paid for it. There
is no guarantee that the market price of our common stock will ever exceed the price that you pay.
The obligations associated with being a public company requires significant resources and management attention.
As a public company in the United States, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended, or the “Exchange Act,” and the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” the listing requirements of the
NYSE and other applicable securities rules and regulations. As we are no longer an “emerging growth company” under the Jumpstart
Our Business Act, or the “JOBS Act,” there are additional compliance and regulations that have increased our legal and financial
compliance costs, made some activities more difficult, time-consuming or costly and placed greater demand on our systems and
resources. The Exchange Act requires that we file annual and current reports with respect to our business, financial condition and
results of operations. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls
and procedures for financial reporting. We have made, and will continue to make, changes to our internal controls and procedures for
financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we continue
to take may not be sufficient to satisfy our obligations as a public company.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty
for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws,
regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their
application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in
continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance
practices. We intend to continue to invest resources to comply with evolving laws, regulations and standards, and this investment may
result in increased general and administrative costs and a diversion of management’s time and attention from revenue-generating
activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended
by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal
proceedings against us and our business, financial condition, results of operations and cash flow could be adversely affected.
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Our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial
reporting pursuant to Section 404 of the Sarbanes-Oxley Act. Even if our management concludes that our internal controls over
financial reporting are effective, our independent registered public accounting firm may issue an adverse report on the effectiveness of
our internal control over financial reporting. Failure to comply with Section 404 could subject us to regulatory scrutiny and sanctions,
impair our ability to raise capital, cause investors to lose confidence in the accuracy and completeness of our financial reports and
negatively affect our share price.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
We are a “foreign private issuer,” as such term is defined in Rule 405 under the Securities Act of 1933, as amended, and therefore, we
are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act and related rules
and regulations. Under Rule 405, the determination of foreign private issuer status is made annually on the last business day of an
issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on
June 30, 2016.
In the future, we would lose our foreign private issuer status if a majority of our shareholders, directors or management are U.S.
citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. The regulatory
and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign
private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the U.S.
Securities and Exchange Commission, or the “SEC,” which are more detailed and extensive than the forms available to a foreign
private issuer. For example, the annual report on Form 10-K requires domestic issuers to disclose executive compensation information
on an individual basis with specific disclosure regarding the domestic compensation philosophy, objectives, annual total compensation
(base salary, bonus, equity compensation) and potential payments in connection with change in control, retirement, death or disability,
while the annual report on Form 20-F, including this annual report, permits foreign private issuers to disclose compensation
information on an aggregate basis. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers,
directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of
the Exchange Act. We may also be required to modify certain of our policies to comply with good governance practices associated
with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to
rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private
issuers.
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law.
Our corporate affairs are governed by our articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act,
or the “BCA.” The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States.
However, there have been few judicial cases in the Republic of the Marshall Islands interpreting the BCA. The rights and fiduciary
responsibilities of directors under the Republic of the Marshall Islands law are not as clearly established as the rights and fiduciary
responsibilities of directors under statutes or judicial precedent in existence in certain U.S. jurisdictions. Shareholder rights may differ
as well. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other
states with substantially similar legislative provisions, our public shareholders may have more difficulty in protecting their interests in
the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in
a U.S. jurisdiction.
Because we are a Marshall Islands corporation, it may be difficult to serve us with legal process or enforce judgments against us,
our directors or our management.
We are a Marshall Islands corporation, and substantially all of our assets are located outside of the United States. A majority of our
directors and officers are non-residents of the United States, and all or a substantial portion of the assets of these non-residents are
located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these
individuals in the United States if you believe that your rights have been infringed under securities laws or otherwise. Even if you are
successful in bringing an action of this kind, the laws of the Republic of the Marshall Islands and of other jurisdictions may prevent or
restrict you from enforcing a judgment against our assets or the assets of our directors and officers.
There is substantial doubt that the courts of the Republic of the Marshall Islands would (1) enter judgments in original actions brought
in those courts predicated on U.S. federal or state securities laws; or (2) recognize or enforce against us or any of our officers,
directors or experts, judgments of courts of the United States predicated on U.S. federal or state securities laws.
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We are a Marshall Islands corporation, have limited operations in the United States and maintain limited assets in the United States.
Consequently, in the event of any bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding involving us,
bankruptcy laws other than those of the United States could apply. The Republic of the Marshall Islands does not have a bankruptcy
statute or general statutory mechanism for insolvency proceedings. If we become a debtor under U.S. bankruptcy law, bankruptcy
courts in the United States may seek to assert jurisdiction over all of our assets, wherever located, including property situated in other
countries. There can be no assurance, however, that we would become a debtor in the United States, or that a U.S. bankruptcy court
would be entitled to, or accept, jurisdiction over such a bankruptcy case, or that courts in other countries that have jurisdiction over us
and our operations would recognize a U.S. bankruptcy court’s jurisdiction if any other bankruptcy court would determine it had
jurisdiction. These factors may delay or prevent us from entering bankruptcy in the United States and may affect the ability of our
shareholders to receive any recovery following our bankruptcy.
Provisions of our articles of incorporation and bylaws may have anti-takeover effects.
Several provisions of our articles of incorporation, which are summarized below, may have anti-takeover effects. These provisions are
intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our board of
directors to maximize shareholder value in connection with any unsolicited offer to acquire our company. However, these anti-
takeover provisions could also discourage, delay or prevent the merger or acquisition of our company by means of a tender offer, a
proxy contest or otherwise that a shareholder may consider in its best interest and the removal of incumbent officers and directors.
Blank Check Preferred Stock. Under the terms of our articles of incorporation our board of directors has the authority, without any
further vote or action by our shareholders, to issue up to 40,000,000 shares of “blank check” preferred stock. Our board could
authorize the issuance of preferred stock with voting or conversion rights that could dilute the voting power or rights of the holders of
our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of us or the
removal of our management and may harm the market price of our common stock.
Election of Directors. Our articles of incorporation provide that directors will be elected at each annual meeting of shareholders to
serve until the next annual meeting of shareholders and until his or her successor shall have been duly elected and qualified, except in
the event of his or her death, resignation, removal or the earlier termination of his or her term of office. Our articles of incorporation
do not provide for cumulative voting in the election of directors. Our bylaws require shareholders to provide advance written notice of
nominations for the election of directors. These provisions may discourage, delay or prevent the removal of incumbent officers and
directors.
Advance Notice Requirements for Shareholder Proposals and Director Nominations. Our bylaws provide that, with a few exceptions,
shareholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of shareholders
must provide timely notice of their proposal in writing to the corporate secretary. Generally, to be timely, a shareholder’s notice must
be received at our principal executive office not less than 90 days or more than 120 days prior to the first anniversary date of the
immediately preceding annual meeting of shareholders. Our bylaws also specify requirements as to the form and content of a
shareholder’s notice. These provisions may impede a shareholder’s ability to bring matters before an annual meeting of shareholders
or make nominations for directors at an annual meeting of shareholders.
Limited Actions by Shareholders. Our bylaws provide that only the board of directors may call special meetings of our shareholders
and the business transacted at the special meeting is limited to the purposes stated in the notice.
Tax Risks
In addition to the following risk factors, please read “Item 4—Information on the Company—Business Overview—Taxation of the
Company” and “Item 10—Additional Information—Taxation” for a more complete discussion of the expected material U.S. federal
and non-U.S. income tax considerations relating to us and the ownership and disposition of our common stock.
We will be subject to taxes.
We and our subsidiaries will be subject to tax in the jurisdictions in which we are organized or operate. In computing our tax
obligations in these jurisdictions, we are required to take various tax accounting and reporting positions on matters that are not entirely
free from doubt and for which we have not received rulings from the governing authorities. Upon review of these positions the
applicable authorities may disagree with our positions. A successful challenge by a tax authority could result in additional tax imposed
on us or our subsidiaries. In addition, changes in our operations or ownership could result in additional tax being imposed on us or our
subsidiaries in jurisdictions in which operations are conducted.
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U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax
consequences to U.S. shareholders.
A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will be treated as a “passive foreign investment
company,” or “PFIC,” for U.S. federal income tax purposes if at least 75.0% of its gross income for any taxable year consists of
“passive income” or at least 50.0% of the average value of its assets produce, or are held for the production of, “passive income.” For
purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment property, and
rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a
trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income.”
U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the
PFIC, the distributions they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their interests
in the PFIC.
Based on our current and projected method of operation we believe that we were not a PFIC for any taxable year, and we expect that
we will not be treated as a PFIC for the current or any future taxable year. We believe that more than 25.0% of our gross income for
each taxable year was or will be non-passive income, and more than 50.0% of the average value of our assets for each such year was
or will be held for the production of such non-passive income. This belief is based on certain valuations and projections regarding our
assets, income and charters, and its validity is conditioned on the accuracy of such valuations and projections. While we believe such
valuations and projections to be accurate, the shipping market is volatile and no assurance can be given that our assumptions and
conclusions will continue to be accurate at any time in the future.
Moreover, there are legal uncertainties involved in determining whether the income derived from our time-chartering activities
constitutes rental income or income derived from the performance of services. In Tidewater Inc. v. United States, 565 F.3d 299 (5th
Cir. 2009), the United States Court of Appeals for the Fifth Circuit, or the “Fifth Circuit,” held that income derived from certain time-
chartering activities should be treated as rental income rather than services income for purposes of a provision of the Internal Revenue
Code of 1986, as amended, or the “Code,” relating to foreign sales corporations. In that case, the Fifth Circuit did not address the
definition of passive income or the PFIC rules; however, the reasoning of the case could have implications as to how the income from
a time charter would be classified under such rules. If the reasoning of the case were extended to the PFIC context, the gross income
we derive from our time-chartering activities may be treated as rental income, and we would likely be treated as a PFIC. In published
guidance, the Internal Revenue Service, or “IRS,” stated that it disagreed with the holding in Tidewater, and specified that time
charters similar to those at issue in that case should be treated as service contracts. We have not sought, and we do not expect to seek,
an IRS ruling on the treatment of income generated from our time-chartering activities. As a result, the IRS or a court could disagree
with our position. No assurance can be given that this result will not occur. In addition, although we intend to conduct our affairs in a
manner to avoid being classified as a PFIC with respect to each taxable year, we cannot assure shareholders that the nature of our
operations will not change in the future and that we will not become a PFIC in the future. If the IRS were to determine that we are or
have been a PFIC for any taxable year (and regardless of whether we remain a PFIC for subsequent taxable years), our U.S.
shareholders would face adverse U.S. federal income tax consequences. Please read “Item 10—Additional Information—Taxation—
Material U.S. Federal Income Tax Consequences—U.S. Federal Income Taxation of U.S. Holders and—Distributions—PFIC Status
and Significant Tax Consequences” for a more detailed discussion of the U.S. federal income tax consequences to U.S. shareholders if
we are treated as a PFIC.
We may have to pay tax on U.S. source income, which would reduce our cash flow.
Under the Code, “U.S. source gross transportation income” (as defined below) generally is subject to a 4.0% U.S. federal income tax
without allowance for deduction of expenses, unless an exemption from tax applies under a tax treaty or Section 883 of the Code and
the Treasury Regulations promulgated thereunder. U.S. source gross transportation income consists of 50.0% of the gross
transportation income of a vessel owning or chartering corporation, such as ourselves that is attributable to transportation that either
begins or ends, but that does not both begin and end, in the United States.
If a non-U.S. corporation satisfies the requirements of Section 883 of the Code and the Treasury Regulations thereunder, it will not be
subject to the 4.0% U.S. federal income tax referenced above on its U.S. source gross transportation income. The Section 883
exemption does not apply to income attributable to transportation that both begins and ends in the United States.
We believe that we satisfied the requirements to qualify for an exemption from U.S. tax on our U.S. source gross transportation
income imposed by Section 883 of the Code for 2014 and 2015, and that we will be able to satisfy those requirements for 2016 and
future taxable years provided that our common stock satisfies certain listing and trading requirements and not more than 50.0% of our
common stock is owned, or is deemed to be owned by operation of certain attribution rules, for more than half of the days of such
year, by 5.0% shareholders. The composition of owners of our common stock, including the quantity a shareholder may purchase in a
given year, and the trading volumes of our common stock, are beyond our control. As a result, there can be no assurance that we can
satisfy this stock ownership requirement for the current or any future year, in which case we would likely not qualify for an exemption
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under Section 883 for such year. If we fail to qualify for this exemption in any taxable year, U.S. source gross transportation income
earned by us and our subsidiaries will generally be subject to a 4.0% U.S. federal income tax. For a more detailed discussion of
Section 883 of the Code, the rules relating to exemptions under Section 883 and our ability to qualify for an exemption, please read
Item 4B “Business—Taxation of the Company—U.S. Taxation.”
The vessels in our fleet do not currently engage in transportation that begins and ends in the United States, and we do not expect that
we or our subsidiaries will in the future earn income from such transportation. If, notwithstanding this expectation, our subsidiaries
earn income in the future from transportation that begins and ends in the United States, that income would be subject to a 35% net
income tax in the United States.
Item 4.
Information on the Company
A. History and Development of the Company
General
Navigator Holdings Ltd. was formed in 1997 as an Isle of Man public limited company for the purpose of building and operating a
fleet of five semi-refrigerated, ethylene-capable liquefied gas carriers. In January 2003, the previous owners and management filed
voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of New York. On August 9, 2006, the Company emerged from bankruptcy. As part of the plan of reorganization, the
bondholders received all of the equity interests in the Company. Lehman Brothers Inc. became our principal shareholder, holding an
approximate 44.1% ownership interest (subsequently reduced to 33.0%). In October 2012, the ownership interests held by Lehman
Brothers Holdings Inc. were acquired by our principal shareholder, the WLR Group, which currently owns 39.5% of our common
stock. Please see “Item 7—Major Shareholders and Related Party Transactions.”
In November 2013, we completed our initial public offering of 13,800,000 shares of our common stock at $19.00 per share, including
the full exercise by the underwriters of their option to purchase an additional 1,800,000 shares of common stock from the selling
stockholders. We offered 9,030,000 shares of common stock and certain selling shareholders offered 4,770,000 shares of common
stock. We received net proceeds of approximately $156.4 million, after deducting underwriting discounts and expenses, from our sale
of 9,030,000 shares in the offering.
Our shares of common stock are traded on the New York Stock Exchange under the ticker symbol “NVGS.”
In March 2008, we redomiciled in the Republic of the Marshall Islands and maintain our principal executive offices at 21 Palmer
Street, London, SW1H 0AD, United Kingdom. Our telephone number at that address is +44 20 7340 4850. Our agent for service of
process in the United States is CT Corporation System and its address is 111 Eighth Avenue, 13th floor, New York, New York 10103.
B. Business Overview
We are the owner and operator of the world’s largest fleet of handysize liquefied gas carriers. We provide international and regional
seaborne transportation services of liquefied petroleum gas, or “LPG,” petrochemical gases and ammonia for energy companies,
industrial users and commodity traders. These gases are transported in liquefied form, by applying cooling and/or pressure, reduce
volume by up to 900 times depending on the cargo, making their transportation more efficient and economical. Vessels in our fleet are
capable of loading, discharging and carrying cargoes across a range of temperatures from ambient to minus 104° Celsius and pressures
from 1 bar to 6.4 bar.
Our fleet consists of 38 vessels, including eight newbuilding vessels scheduled for delivery by July 2017. Of the 38 vessels, 33 are
semi- or fully-refrigerated liquefied handysize gas carriers, four are midsize 35,000 cbm ethylene capable semi-refrigerated liquefied
gas carrier newbuilding expected to be delivered by January 2017 and one is a 38,000 cbm fully refrigerated gas carrier newbuilding
expected to be delivered by July 2017. We define handysize as liquefied gas carriers between 15,000 and 24,999 cbm, including three
of our newbuilding vessels expected to be delivered by March 2017. Our handysize liquefied gas carriers can accommodate medium-
and long-haul routes that may be uneconomical for smaller vessels and can call at ports that are unable to support larger vessels due to
limited onshore capacity, absence of fully-refrigerated loading infrastructure and/or vessel size restrictions.
We entered into agreements with Jiangnan in China to construct four 22,000 cbm semi-refrigerated liquefied gas carriers—two of
which were delivered during 2015 and one in January 2016 and four 35,000 cbm semi-refrigerated ethylene-capable liquefied gas
carriers. We also entered into agreements with HMD, in South Korea to build two 22,000 cbm semi-refrigerated liquefied gas carriers
for delivery between January and March 2017 and one 38,000 cbm fully refrigerated liquefied gas carrier for delivery in July 2017.
We have fully financed the construction of seven of our eight newbuildings through a combination of debt and equity financings. We
plan to use cash on hand together with future credit facilities to fund the construction of the 38,000 cbm 2017 newbuilding.
21
Three 2016 newbuildings and one 2017 newbuilding, will have a capacity of 35,000 cbm and will be among the largest
ethane/ethylene carriers in the world. One of these vessels is on a ten-year fixed rate charter from delivery to carry ethane exports
from the United States to Sweden for Borealis, a leading producer of polyolefins, base chemicals and fertilizers. The 38,000 cbm 2017
newbuilding, is on a ten-year fixed rate charter upon its anticipated delivery in July 2017 to carry ammonia for a leading producer of
fertilizer.
We carry LPG for major international energy companies, state-owned utilities and reputable commodities traders. LPG, which
consists of propane and butane, is a relatively clean alternative energy source with more than 1,000 applications, including as a
heating, cooking and transportation fuel and as a petrochemical and refinery feedstock. LPG is a by-product of oil refining and gas
extraction, the availability of which has historically been limited by the flaring of natural gas at the wellhead.
We also carry petrochemical gases for numerous industrial users. Petrochemical gases, including ethylene, propylene, butadiene and
vinyl chloride monomer, are derived from the cracking of petroleum feedstock’s such as ethane, LPG and naphtha and are primarily
used as raw materials in various industrial processes, like the manufacture of plastics, vinyl and rubber, with a wide application of end
uses.
Our vessels also carry ammonia for both ammonia traders and producers of fertilizers, a main use of ammonia for the agricultural
industry.
Our Business Strategies
Our objective is to enhance shareholder value by executing the following business strategies:
• Capitalize on the increasing demand for seaborne transportation of LPG and petrochemicals, including U.S. ethane
and ethylene. We intend to use our vessels to further pursue the anticipated increases in liquefied gas transportation
opportunities globally, and in particular, LPG and ethane and ethylene that we expect will result directly and indirectly
from the growth in U.S. shale oil and gas production and associated liquids.
• Maintain a flexible, customer-driven chartering strategy. We will seek to enhance our returns through a flexible vessel
employment strategy that combines a base of time charters and COAs with more opportunistic, high-rate voyage charters.
In addition, we will seek to further strengthen our relationships with existing customers and expand our client base by
providing companies with liquefied gas transportation solutions in the form and duration they require.
• Capitalize on backhaul and triangulation opportunities in the petrochemical market. We believe that the versatility of
our fleet, in particular our ethylene-capable and semi-refrigerated vessels, enhances our ability to pursue current and
emerging backhaul and triangulation opportunities as new trade routes develop, thereby maximizing utilization and
enhancing profitability. To further capitalize on such opportunities, we are seeking to expand our leading ethylene-capable
liquefied gas carrier position through the acquisition of our six semi-refrigerated newbuildings, four of which will be
midsize ethylene-capable vessels. This represents an upsizing from our strategy of owning and operating only handysize
liquefied gas carriers. We intend to seek opportunities to improve our financial results and maximize the utilization of our
vessels by transporting both LPG and petrochemicals during vessel repositioning voyages and between time charters.
• Maintain reputation for operational excellence. We believe we have established a track record in the industry of
operational excellence based on our significant experience in the operation and ownership of high-specification liquefied
gas carriers. We will endeavor to adhere to the highest standards with regard to reliability, safety and operational
excellence.
•
Selectively grow and expand our operations. We intend to maintain our market position by growing our fleet through
newbuildings and selective acquisitions of modern, high-quality vessels, as well as opportunistically expanding our
business through the investment in complementary assets, including ventures that expand the types of cargo we carry
and/or involve receiving, storing, partially mixing and distributing liquefied gas cargoes, should such opportunities arise.
• Maintain a strong balance sheet with moderate leverage. We will seek to maintain modest leverage in the future by
financing our growth with a balanced mix of cash from operations, debt financings and proceeds from future equity
offerings. Notwithstanding the foregoing, based on prevailing conditions and our outlook for the liquefied gas carrier
market, we are likely to consider incurring further indebtedness in the future.
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Our Fleet
The following table sets forth our vessels:
Operating Vessel
Semi-refrigerated
Navigator Magellan
Navigator Mars
Navigator Neptune
Navigator Pluto
Navigator Saturn
Navigator Venus
Navigator Aries
Navigator Capricorn
Navigator Gemini
Navigator Pegasus
Navigator Phoenix
Navigator Scorpio
Navigator Taurus
Navigator Virgo
Navigator Leo
Navigator Libra
Navigator Atlas
Navigator Europa
Navigator Oberon
Navigator Triton
Navigator Umbrio
Navigator Centauri
Navigator Ceres
Navigator Ceto*
Fully-refrigerated
Navigator Glory
Navigator Grace
Navigator Galaxy
Navigator Genesis
Navigator Global
Navigator Gusto
Year
Built
Vessel Size
(CBM)
Ethylene
Capable
Employment
Status
Charter
Expiration Date
1998
2000
2000
2000
2000
2000
2008
2008
2009
2009
2009
2009
2009
2009
2011
2012
2014
2014
2014
2015
20,700
22,085
22,085
22,085
22,085
22,085
20,750
20,750
20,750
22,200
22,200
20,750
20,750
20,750
20,600
20,600
21,000
21,000
21,000
21,000
2015
21,000
2015
2015
2015
2010
2010
2011
2011
2011
2011
21,000
21,000
21,000
22,500
22,500
22,500
22,500
22,500
22,500
Time charter
Spot market
Spot market
Time charter
Spot market
Spot market
Spot market
Time charter
Spot market
Spot market
Spot market
Time charter
Time charter
Time charter
Time charter
Time charter
Spot market
Contract of
affreightment
Spot market
Contract of
affreightment
Contract of
affreightment
Spot market
Time charter
Spot market
Time charter
Time charter
Time charter
Time charter
Time charter
Time charter
September 2016
—
—
March 2017
—
—
—
May 2016
—
—
—
March 2016
March 2016
April 2016
December 2023
December 2023
—
December 2016
—
December 2016
December 2016
—
December 2017
—
December 2016
March 2016
January 2017
February 2017
November 2016
September 2016
*
Vessel delivered on January 15, 2016.
The following table presents certain information concerning our newbuildings:
Newbuilding Vessel
Semi-refrigerated
Navigator Copernico
Navigator Aurora
Navigator Eclipse
Navigator Nova
Navigator Prominence
Navigator Yauza
Navigator Luga
H8234
Year
Built
Vessel Size
(CBM)
Ethylene Capable
Anticipated
Delivery
22,000
35,000
35,000
35,000
35,000
22,000
22,000
38,000
April 2016
June 2016
September 2016
October 2016
January 2017
January 2017
March 2017
July 2017
2016
2016
2016
2016
2016
2017
2017
2017
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Our operations in Indonesia are subject, among other things, to the Indonesian Shipping Act. That law generally provides that in order
for certain vessels involved in Indonesian cabotage to obtain the requested licenses, the owners must either be wholly Indonesian
owned or have a majority Indonesian shareholding. Navigator Pluto, Navigator Aries and Navigator Global, which are chartered to
Pertamina, the Indonesian state-owned producer of hydrocarbons, are owned by PT Navigator Khatulistiwa, an Indonesian limited
liability company, or “PTNK.” PTNK is a joint venture of which 49% of the voting and dividend rights are owned by a subsidiary
though ultimately controlled at the shareholder level by a subsidiary of Navigator Holdings, and 51% of such rights are owned by
Indonesian limited liability companies. The joint venture agreement for PTNK provides that certain actions relating to the joint
venture or the vessels require the prior written approval of Navigator Holdings’ subsidiary, which may be withheld only on reasonable
grounds and in good faith. PTNK is accounted for as a consolidated subsidiary in our financial statements.
As of December 31, 2015, the average monthly time charter rate for our 19 vessels, operating under time charters was approximately
$888,474 per calendar month. Our current monthly charter rates range from approximately $779,000 to approximately $1,085,000.
These time charter rates are the gross monthly charter rates before payment of address and brokerage commissions to charterers and
their shipbrokers. Address and brokerage commissions typically range between 1.0% and 5.0% of the gross monthly charter rate. On
average, we pay a 2.5% address and brokerage commission with respect to our current time charters.
Our Customers
We provide seaborne transportation and distribution services for LPG, ethylene, petrochemical gases and ammonia to:
• Oil and Gas Companies, such as Shell, Statoil and Total SA, leading oil and gas companies; Petróleos de Venezuela
S.A., or “PDVSA,” the Venezuelan state-owned integrated oil and petrochemical company; PT Pertamina (Persero), or
“Pertamina,” the Indonesian state-owned producer of hydrocarbons and petrochemicals; Sibur, a Russian gas processing
and petrochemicals company and Sonatrach, the national oil and gas company of Algeria;
• Chemical Companies, such as BASF, a multi-national chemicals manufacturing corporation; Sunoco an American
petroleum and petrochemical manufacturer and Dow an American leading multinational chemical corporation; and
• Energy Trading Companies, such as BGN an international commodity trading company; Mitsubishi International
Corporation, a leading trade, commodities, finance and investment company; Geogas, a leading LPG trading company;
Trafigura Limited, an international commodities trading and logistics company; and the Vitol Group, an independent
energy trading company.
In 2015, an aggregate of 51.4% of our revenues were derived from time charters with PDVSA, Pertamina, Sibur, Trafigura, and from
voyage charters with BGN. The following table sets forth the percentage of our total revenues derived from our customers for the
years ended December 31, 2014 and 2015:
Customer
Trafigura
PDVSA
Sibur
Pertamina
BGN
Other customers
Vessel Employment
Percentage of Total Revenues
Year Ended December 31,
2014
2015
8.9%
10.7%
5.3%
10.3%
8.3%
56.5%
14.0%
11.7%
9.1%
8.3%
8.3%
48.6%
Our chartering strategy is to combine a base of time charters and COAs with voyage charters. We currently operate a total of 30
vessels, of which 15 are employed under time charters, 12 are employed in the spot market and three under contracts of affreightment.
As of December 31, 2015, we operated a total of 29 vessels, of which 19 were employed under time charters, nine were employed in
the spot market and one was undergoing repairs.
Our voyage charters during 2015 included significant seaborne transportation of petrochemicals. Our semi-refrigerated vessels are
highly versatile in that they, unlike fully-refrigerated vessels, can accommodate LPG, petrochemicals and ammonia at ambient as well
as fully-refrigerated temperatures. LPG transported on spot voyage contracts during the 12 months of 2015 amounted to 685,299
metric tons, and petrochemicals carried, including ethylene, propylene and butadiene, totaled 211,076 metric tons. Typical routes for
petrochemical voyages are longer in duration than those carrying LPG and during 2015 were from the Middle East to Northwest
Europe and from the Mediterranean and Northwest Europe to Asia.
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Time Charter
A time charter is a contract under which a vessel is chartered for a defined period of time at a fixed daily or monthly rate. Under time
charters, we are responsible for providing crewing and other vessel operating services, the cost of which is intended to be covered by
the fixed rate, while the customer is responsible for substantially all of the voyage expenses, including any bunker fuel consumption,
port expenses and canal tolls.
Initial Term. The initial term for a time charter commences upon the vessel’s delivery to the customer. Under the terms of our
charters, the customer may redeliver the vessel to us up to 15 to 30 days earlier or up to 15 to 30 days later than the respective charter
expiration dates, upon advance notice to us.
Hire Rate. The hire rate refers to the basic payment by the customer for the use of the vessel. Under our time charters, the hire
rate is payable monthly in advance, in U.S. Dollars, as specified in the charter.
Hire payments may be reduced if the vessel does not perform to certain of its specifications, such as if the average vessel speed falls
below a guaranteed speed or the amount of fuel consumed to power the vessel under normal circumstances exceeds a guaranteed
amount.
Off-hire. Under our time charters, when the vessel is “off-hire” (or not available for service), the customer generally is not
required to pay the hire rate, and the shipowner is responsible for all costs. Prolonged off-hire may lead to vessel substitution or
termination of the time charter. A vessel generally will be deemed off-hire if there is a loss of time due to, among other things:
•
•
operational deficiencies; drydocking for repairs, maintenance or inspection; equipment breakdowns; or delays due to
accidents, strikes, certain vessel detentions or similar problems; or
our failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required
crew.
Management and Maintenance. Under our time charters, we are responsible for providing for the technical management of the
vessel and for maintaining the vessel, periodic drydocking, cleaning and painting and performing work required by regulations.
Currently, we work together with our technical managers, BSSM, NMM and Thome, to arrange for these services to be provided for
all of our vessels. Please read “—Technical Management of the Fleet” for a description of the material terms of the technical
management agreements with BSSM, NMM and Thome.
Termination. Each of our time charters terminates automatically in the event of loss of the applicable vessel. In addition, we are
generally entitled to suspend performance (but with the continuing accrual to our benefit of hire payments and default interest) under
most of the time charters if the customer defaults in its payment obligations. Under most of the time charters, either party may also
terminate the charter in the event of war in specified countries or in locations that would significantly disrupt the free trade of the
vessel.
Voyage Charter/ Contract of Affreightment
A voyage charter is a contract, typically for shorter intervals, for transportation of a specified cargo between two or more designated
ports. A COA essentially constitutes a number of voyage charters to carry a specified amount of cargo during a specified time period.
A voyage charter is priced on a current or “spot” market rate, typically on a price per ton of product carried rather than a daily or
monthly rate. Under voyage charters, we are responsible for all of the voyage expenses in addition to providing the crewing and other
vessel operating services.
Term. Our voyage charters are typically for periods ranging from 10 days to three months.
Freight Rate. The freight rate refers to the basic payment by the customer for the use of the vessel or movement of cargo. Under
our voyage charters, the freight rate is payable upon discharge, in U.S. Dollars, as specified in the charter.
Management, Maintenance and Voyage Expenses. Under our voyage charters, we are responsible for providing for the
technical management of the vessel and for maintaining the vessel, periodic drydocking, cleaning and painting and performing work
required by regulations. Currently, we work together with our technical managers, BSSM, NMM and Thome , to arrange for these
services to be provided for all of our vessels. Please read “—Technical Management of the Fleet” for a description of the material
terms of the technical management agreements with BSSM, NMM and Thome .
25
We are also responsible for all expenses unique to a particular voyage, including any bunker fuel consumption, port expenses and
canal tolls.
Termination. Each of our voyage charters terminates automatically upon the discharge of the cargo at the discharge port.
Classification and Inspections
Every seagoing vessel must be “classed” by a classification society. The classification society certifies that the vessel is “in class,”
signifying that the vessel has been built and maintained in accordance with the rules of the classification society and complies with
applicable rules and regulations of the vessel’s country of registry and the international conventions of which that country is a
member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state,
the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.
The classification society also undertakes on request other surveys and inspections that are required by the regulations and
requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the regulations of the
country concerned.
For maintenance of the class, regular and extraordinary surveys of hull and machinery, including the electrical plant, and any special
equipment classed are required to be performed as follows:
Annual Surveys. For seagoing ships, annual surveys are conducted for the hull and machinery, including the electrical plant,
and where applicable, on special equipment classed at intervals of 12 months from the date of commencement of the class period
indicated in the certificate.
Intermediate Surveys. Extended annual surveys are referred to as intermediate surveys and typically are conducted two and one-
half years after commissioning and each class renewal. Intermediate surveys may be carried out on the occasion of the second or third
annual survey.
Class Renewal Surveys. Class renewal surveys, also known as special surveys, are carried out on the ship’s hull and machinery,
including the electrical plant, and on any special equipment classed at the intervals indicated by the character of classification for the
hull. During the special survey, the vessel is thoroughly examined, including audio-gauging to determine the thickness of the steel
structures. Should the thickness be found to be less than class requirements, the classification society would prescribe steel renewals.
On vessels which are over 15 years old, substantial amounts of funds may have to be spent for steel renewals to pass a special survey
if the vessel experiences excessive wear and tear. In lieu of the special survey, a shipowner has the option of arranging with the
classification society for the vessel’s hull or machinery to be on a continuous survey cycle, in which every part of the vessel would be
surveyed within a five-year cycle. At an owner’s application, the surveys required for class renewal may be split according to an
agreed schedule to extend over the entire period of class. This process is referred to as continuous class renewal.
Commercial Management of the Fleet
We perform commercial management of our vessels in-house through our wholly-owned subsidiary, Navigator Gas L.L.C., under the
terms of 30 individual management contracts between Navigator Gas L.L.C. and each of our vessel-owning subsidiaries. Commercial
management includes the chartering of vessels and accounting services. Navigator Gas L.L.C. in turn has appointed its wholly-owned
subsidiary, NGT Services (UK) Limited, as its agent. As of December 31, 2015, NGT Services (UK) Limited had an in-house staff of
33 personnel, which we believe is sufficient to manage the commercial and administrative operations of our current fleet.
Technical Management of the Fleet
General
We currently outsource the technical management of our vessels to BSSM, NMM and Thome, third-party technical management
companies, under the terms of standard ship management agreements, or the “technical management agreements.” We refer to BSSM,
NMM and Thome herein as our “technical managers.”
BSSM was formed in 2008 through the combination of four ship management companies owned by the Schulte Group into one
integrated maritime services company. NMM is a wholly-owned subsidiary of Stena AB Gothenburg, formed in 1983 and located in
Clydebank, Scotland. Thome Ship Management was formed in 1976, and is a wholly owned subsidiary of Thome Group located in
Singapore. Each of our technical managers involved in the management of a wide range of vessels, with BSSM having over 600
vessels under management NMM having over 100 vessels under management and Thome over 300 vessels under management. Our
26
technical managers have fully-owned crew recruitment agencies in major crew recruitment countries, are active in all aspects of
technical, marine and crewing activities, and are each accredited to ISO 9001 and ISO 14001 standards. We believe our technical
managers manage all of their vessels in a safe and proper manner in accordance with owners’ requirements, design parameters, flag
state and class requirements, charter party requirements and the international safety management code.
In 2016, we expect to begin providing in-house technical management, for the first time, for at least one of the vessels in our fleet. As
we grow, we intend to seek opportunities to gain greater control over the management of our vessels and enhance customer service,
reliability and our relationship with our charterers. We have not in the past provided in-house technical management for any vessel in
our fleet. Providing in-house technical management for any vessel in our fleet may impose significant additional responsibilities on
our management and staff. Please see “Item 3—Key Information—Risk Factors—Risks Related to Our Business—We expect that in
2016 we will begin providing in-house technical management, for the first time, for at least one vessel in our fleet.”
We believe our vessels are operated in a manner intended to protect the safety and health of employees, the general public and the
environment. We actively manage the risks inherent in our business and are committed to eliminating incidents that threaten safety
and the integrity of the vessels, such as groundings, fires, collisions and petroleum spills. We are also committed to reducing
emissions and waste generation.
Technical Management Services
Under the terms of our ship management agreements with our technical managers, and under our supervision, our technical managers
are responsible for the day-to-day activities of our fleet and are required to, among other things:
• provide competent personnel to supervise the maintenance and general efficiency of our vessels;
•
•
•
arrange and supervise the maintenance, drydockings, repairs, alterations and upkeep of our vessels to the standards
required by us and in accordance with all requirements and recommendations of our vessels’ classification society and
applicable national and international regulations;
ensure that our vessels comply with the law of their flag state;
arrange the supply of necessary stores, spares and lubricating oil for our vessels;
appoint such surveyors and technical consultants as they may consider from time to time necessary;
•
• operate the vessels in accordance with the ISM Code and the ISPS Code;
• develop, implement and maintain a safety management system in accordance with the ISM Code;
•
•
arrange the sampling and testing of bunkers; and
install plan maintenance system software on-board our vessels.
In the event that our technical managers pay certain expenses attributable to us, we have agreed to indemnify our technical managers
against such expenses. In the event that our technical managers (or any of their related companies) are sued as a result of a breach or
alleged breach of an obligation of ours to a third party, we have agreed to defend our technical managers (or their related companies)
and indemnify our technical managers (and their related companies) against certain expenses incurred in their defense.
Fees and Expenses
As consideration for providing us with both technical and crewing management for our fleet, our managers currently receive a
management fee of approximately $0.2 million per vessel per year, payable in equal monthly installments in advance. We pay for any
expenses incurred in connection with purchasing spare parts for our vessels.
We carry insurance coverage consistent with industry standards for certain matters, but we cannot assure you that our insurance will
be adequate to cover all extraordinary costs and expenses. Please read “—Insurance and Risk Management.”
Notwithstanding the foregoing, if any costs and expenses are caused solely by our technical managers’ negligence or willful default,
our technical managers will be responsible for them subject to certain limitations. Our technical managers are insured against claims
of errors and omissions by third parties.
27
Term and Termination Rights
The ship management agreements automatically renew on their termination dates unless terminated by either party with three months’
prior written notice. Our technical managers may also terminate any of the ship management agreements immediately upon written
termination notice to us if:
•
•
they do not receive amounts payable by us under the agreement within the time period specified for payment thereof, or if
the vessels are repossessed by any vessel mortgagees; or
after notice to us of the default and a reasonable amount of time to remedy, we fail to:
•
•
comply with our obligation to indemnify them for any expenses attributable to us or defend them (and their related
companies) against any third party claims based on a breach or alleged breach of an obligation of ours to a third
party; or
cease the employment of our vessels in the transportation of contraband, blockage running, or in an unlawful trade,
or on a voyage that in their reasonable opinion is unduly hazardous or improper.
If, for any reason under our technical managers’ control, our technical managers fail to provide the services agreed upon under the
terms of the management agreements or they fail to provide for the satisfaction of all requirements of the law of the vessels’ flag state
or the ISM Code, we may terminate the agreements immediately upon written notice of termination to our technical managers, as
applicable, if, after notice to our technical managers of the default and a reasonable amount of time to remedy, they fail to remedy the
default to our satisfaction.
The technical management agreements will automatically terminate (i) if the vessels are sold, are requisitioned, become a total loss or
are declared as a constructive, compromised or arranged total loss, (ii) in the event of our winding up, dissolution, bankruptcy or the
appointment of a receiver, or (iii) if we suspend payments, cease to carry on business or make any special arrangement with our
creditors.
Under the terms of the BSSM ship management agreement, either we or BSSM may terminate the BSSM ship management agreement
by giving three months’ notice. Under the terms of the NMM and Thome ship management agreement, in the event that the technical
management agreement is terminated for any reason other than by reason of default by either technical manager or the loss, sale or
other disposition of the vessels, we are obligated to continue to pay the management fee for three calendar months from the
termination date.
Crewing and Staff
We have entered into crew management agreements with our technical managers for each of our vessels. Under the terms of the crew
management agreements, our technical managers are responsible for arranging crews for our fleet and are required to, among other
things:
select and supply a suitably qualified crew for each vessel in our fleet;
•
• pay all crew wages and salaries;
•
•
•
ensure that the applicable requirements of the laws of our vessels’ flag states are satisfied in respect of the rank,
qualification and certification of the crew;
pay the costs of obtaining all documentation necessary for the crew’s employment, such as vaccination certificates,
passports, visas and licenses; and
pay all costs and expenses of transportation of the crews to and from the vessels while traveling.
Unless two months’ prior written notice of termination is given, the agreements are automatically extended. Crewing costs could be
higher due to increased demand for qualified officers as a result of the high number of newbuildings we expect to become operational
over the next five years. Please read “Item 3—Key Information—Risk Factors—Risks Related to Our Business—A shortage of
qualified officers makes it more difficult to crew our vessels and increases our operating costs. If a shortage were to develop, it could
impair our ability to operate and have an adverse effect on our business, financial condition and operating results.”
We believe that the crewing arrangements ensure that our vessels are crewed with qualified seamen that have the licenses required by
international regulations and conventions. As of December 31, 2015, we had approximately 1,250 seagoing staff.
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Insurance and Risk Management
The operation of any ocean going vessel carries an inherent risk of catastrophic marine disasters, death or injury of persons and
property losses caused by adverse weather conditions, mechanical failures, human error, war, terrorism, piracy and other
circumstances or events. The occurrence of any of these events may result in loss of revenues or increased costs. While we believe that
our present insurance coverage is adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be
paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.
Hull and Machinery
We carry “hull and machinery” insurance for each of our vessels, which insures against the risk of actual or constructive total loss of
our vessels. Hull and machinery insurance also covers damage to mechanical equipment on board and loss of, or damage to a vessel
due to marine perils such as collisions, grounding and weather. Each vessel in our existing fleet is covered for up to $80.0 million,
with deductibles of $0.1 million.
War Risks Insurance
We also carry insurance policies covering war risks (including piracy and terrorism). Each vessel in our existing fleet is covered for up
to $80 million, with no deductible. When our vessels travel into certain hostile regions, we are required to notify our war risk
insurance carrier, and may incur an additional premium of approximately $2,000 per breach, generally up to seven days. These
additional premiums are typically paid by the charterers pursuant to the terms of our time charter agreements and are paid by us under
the terms of our voyage charter and COA agreements.
Protection and Indemnity Insurance Associations
We also carry “protection and indemnity” insurance for each of the vessels in our existing fleet to protect against most of the accident-
related risks involved in the conduct of our business. Protection and indemnity insurance is provided by mutual protection and
indemnity associations, or “P&I Associations,” and covers our third-party liabilities in connection with our shipping activities. This
includes third-party liability and other related expenses of injury or death of crew, passengers and other third parties, loss of or
damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or
other substances, and salvage, towing and other related costs, including wreck removal. Each of the vessels in our existing fleet is
entered in the Standard Steamship Owners’ Protection & Indemnity Association (Bermuda) Limited, or “The Standard Club,” or the
Britannia Steam Ship Insurance Association Limited, or “Britannia,” both P&I Associations which are members of The International
Group of P&I Clubs, or “The International Group.”
The Standard Club and Britannia each insure approximately 110 million gross tons of shipping from all parts of the world and from all
sectors of the shipping industry. The Standard Club and Britannia each have entered into pooling agreements to reinsure the respective
association’s liabilities. Each International Group P&I Association currently bears the first $9.0 million of each claim. The excess of
each claim over $9.0 million up to $80.0 million is shared by the P&I Associations under the pooling agreement. The excess of each
claim over $80.0 million is shared by the members of The International Group under a reinsurance contract, which provides coverage
of up to $3.1 billion per claim. Claims which exceed $3.1 billion are pooled between The International Group by way of “overspill”
up to approximately $5.5 billion, which represents the current coverage limit per vessel per incident. Our current protection and
indemnity insurance coverage for pollution is limited to $1.0 billion per vessel per incident, with the following per vessel per incident
deductibles: $22,000 for fixed and floating objects claims, $50,000 for collisions, $5,500 to $6,500 for crew claims, $8,500 to $10,000
for cargo damage and $5,000 to $5,500 for all other incidents. As a member of both The Standard Club and Britannia, each of which is
a member of The International Group, we are subject to calls payable to the associations based on our claim records as well as the
claim records of all other members of the individual associations, and members of the pool of P&I Associations comprising The
International Group.
Risk Management
Together with our technical managers, we use in our operations a risk management program that includes, among other things,
computer-aided risk analysis tools, root cause analysis programs, maintenance and condition-based assessment programs, a seafarers
competence training program, seafarers workshops and seminars, as well as membership in emergency response organizations.
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Environmental and Other Regulation
General
Governmental and international agencies extensively regulate the ownership and operation of our vessels. These regulations include
international conventions and national, state and local laws and regulations in the countries where our vessels now or, in the future,
will operate or where our vessels are registered. We cannot predict the ultimate cost of complying with these regulations, or the impact
that these regulations will have on the resale value or useful lives of our vessels. Various governmental and quasi-governmental
agencies require us to obtain permits, licenses and certificates for the operation of our vessels.
Although we believe that we are substantially in compliance with applicable environmental laws and regulations and have all permits,
licenses and certificates required for our vessels, future non-compliance or failure to maintain necessary permits or approvals could
require us to incur substantial costs or temporarily suspend operation of one or more of our vessels. A variety of governmental and
private entities inspect our vessels on both a scheduled and unscheduled basis. These entities, each of which may have unique
requirements and each of which conducts frequent inspections, include local port authorities, such as the U.S. Coast Guard, harbor
master or equivalent, classification societies, flag state, or the administration of the country of registry and charterers. We expect that
our vessels will also be subject to inspection by these governmental and private entities on both a scheduled and unscheduled basis.
We believe that the heightened levels of environmental and quality concerns among insurance underwriters, regulators and charterers
have led to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the
industry. Increasing environmental concerns have created a demand for tankers that conform to the stricter environmental standards.
We will be required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance,
continuous training of our officers and crews and compliance with applicable local, national and international environmental laws and
regulations. We intend to assure that the operation of our vessels will be in substantial compliance with applicable environmental laws
and regulations and that our vessels will have all material permits, licenses, certificates or other authorizations necessary for the
conduct of our operations. However, because such laws and regulations are frequently changed and may impose increasingly stricter
requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the
resale value or useful lives of our vessels. In addition, a future serious marine incident that results in significant oil pollution or
otherwise causes significant adverse environmental impact could result in additional legislation or regulation that could negatively
affect our results of operations or financial condition.
NMM holds the International Standards Organization, or “ISO,” Environmental Standard for the management of the significant
environmental aspects associated with the ownership and operation of a fleet of drybulk carriers and vessels. NMM, BSSM and
Thome have received their ISO 9001 certification (quality management systems), the ISO 14001 Environmental Standard, and NMM
the ISO 50001 (energy efficiency). In summary terms, the ISO 14001 certification requires that we commit managerial resources to
act on our environmental policy through an effective management system.
International Maritime Regulations
The IMO is the United Nations’ agency that provides international regulations governing shipping and international maritime trade.
The requirements contained in the ISM Code, promulgated by the IMO, govern our operations. Among other requirements, the ISM
Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among
other things, the adoption of a policy for safety and environmental protection policy setting forth instructions and procedures for
operating its vessels safely and also describing procedures for responding to emergencies. Our ship managers each hold a Document
of Compliance under the ISM Code for operation of Gas Carriers.
Vessels that transport gas, including vessels, are also subject to regulation under the International Gas Carrier Code, or the “IGC
Code,” published by the IMO. The IGC Code provides a standard for the safe carriage of LNG and certain other liquid gases by
prescribing the design and construction standards of vessels involved in such carriage. Compliance with the IGC Code must be
evidenced by a Certificate of Fitness for the Carriage of Liquefied Gases of Bulk. Each of our vessels is in compliance with the IGC
Code and each of our newbuilding/conversion contracts requires that the vessel receive certification that it is in compliance with
applicable regulations before it is delivered. Non-compliance with the IGC Code or other applicable IMO regulations may subject a
shipowner or a bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and
may result in the denial of access to, or detention in, some ports.
The IMO also promulgates ongoing amendments to the international convention for the Safety of Life at Sea 1974 and its protocol of
1988, otherwise known as “SOLAS.” SOLAS provides rules for the construction of and equipment required for commercial vessels
and includes regulations for safe operation. It requires the provision of lifeboats and other life-saving appliances, requires the use of
the Global Maritime Distress and Safety System which is an international radio equipment and watchkeeping standard, afloat and at
shore stations, and relates to the Treaty on the Standards of Training and Certification of Watchkeeping Officers, or “STCW,” also
promulgated by the IMO. Flag states that have ratified SOLAS and STCW generally employ the classification societies, which have
incorporated SOLAS and STCW requirements into their class rules, to undertake surveys to confirm compliance.
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SOLAS and other IMO regulations concerning safety, including those relating to treaties on training of shipboard personnel, lifesaving
appliances, radio equipment and the global maritime distress and safety system, are applicable to our operations. Non-compliance with
these types of IMO regulations may subject us to increased liability or penalties, may lead to decreases in available insurance coverage
for affected vessels and may result in the denial of access to or detention in some ports. For example, the U.S. Coast Guard and
European Union authorities have indicated that vessels not in compliance with the ISM Code will be prohibited from trading in U.S.
and European Union ports, respectively.
In January 2016, additional amendments became effective to the International Code for the Construction of Equipment of Ships
Carrying Dangerous Chemicals in Bulk (IBC Code) that was adopted in May 2014. The provisions of the IBC Code are mandatory
under MARPOL and SOLAS. These amendments, which entered into force in June 2014, pertain to revised international certificates
of fitness for the carriage of dangerous chemicals in bulk and identifying new products that fall under the IBC Code.
In the wake of increased worldwide security concerns, the IMO amended SOLAS and added “The International Security Code for
Ports and Ships,” or the “ISPS Code,” as a new chapter to that convention. The objective of the ISPS Code, which came into effect on
July 1, 2004, is to detect security threats and take preventive measures against security incidents affecting ships or port facilities.
NMM has developed Security Plans, appointed and trained Ship and Office Security Officers and all of our vessels have been certified
to meet the ISPS Code. See “—Vessel Security Regulations” for a more detailed discussion about these requirements.
The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be
passed by the IMO and what effect, if any, such regulation may have on our operations.
Air Emissions
The International Convention for the Prevention of Marine Pollution from Ships, or “MARPOL,” is the principal international
convention negotiated by the IMO governing marine pollution prevention and response. MARPOL imposes environmental standards
on the shipping industry relating to oil spills, management of garbage, the handling and disposal of noxious liquids, sewage and air
emissions. MARPOL 73/78 Annex VI “Regulations for the prevention of Air Pollution,” or “Annex VI,” entered into force on
May 19, 2005, and applies to all ships, fixed and floating drilling rigs and other floating platforms. Annex VI sets limits on sulfur
oxide and nitrogen oxide emissions from ship exhausts, emissions of volatile compounds from cargo tanks, incineration of specific
substances, and prohibits deliberate emissions of ozone depleting substances. Annex VI also includes a global cap on sulfur content of
fuel oil and allows for emission control areas (“ECAs”) to be established with more stringent controls on sulfur emissions. The
certification requirements for Annex VI depend on size of the vessel and time of periodical classification survey. Ships weighing more
than 400 gross tons and engaged in international voyages involving countries that have ratified the conventions, or ships flying the
flag of those countries, are required to have an International Air Pollution Certificate, or an “IAPP Certificate.” Annex VI came into
force in the United States on January 8, 2009. As of December 31, 2015, all our ships delivered or drydocked since May 19, 2005,
have all been issued with IAPP Certificates.
In March 2006, the IMO amended Annex I to MARPOL, including a new regulation relating to oil fuel tank protection, which became
effective August 1, 2007. The new regulation applies to various ships delivered on or after August 1, 2010. It includes requirements
for the protected location of the fuel tanks, performance standards for accidental oil fuel outflow, a tank capacity limit and certain
other maintenance, inspection and engineering standards. IMO regulations also require owners and operators of vessels to adopt Ship
Oil Pollution Emergency Plans. Periodic training and drills for response personnel and for vessels and their crews are required.
On July 1, 2010, amendments to Annex VI proposed by the United States, Norway and other IMO member states took effect that
require progressively stricter reductions in sulfur emissions from ships. Beginning on January 1, 2012, fuel used to power ships in all
seas may contain no more than 3.5% sulfur. This cap will decrease progressively. For fuels used in Emission Control Areas (ECA),
the cap settled at .1% in January 2015. For fuels used in all seas, the cap will settle at 0.5% on January 1, 2020. The amendments also
establish new tiers of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation. The
European directive 2005/33/EU, which is effective from January 1, 2010, bans the use of fuel oils containing more than 0.1% sulfur
by mass by any merchant vessel while at berth in any EU country. In 2011, the European Commission adopted a proposal to amend
directive 2005/33/EU to bring it into alignment with the latest IMO provisions on the sulfur content of marine fuels. Review of the
directive under this amendment is ongoing. Our vessels have achieved compliance, where necessary, by purchasing and utilizing fuel
that meets the low-sulfur requirements.
As of January 2015, the limitations on sulfur emissions from ships operating within all Emission Control Areas (ECA) require that
fuels contain no more than 0.1% sulfur. Additionally, more stringent emission standards for sulfur and nitrogen oxide apply in United
States and Canadian coastal areas designated by the IMO’s Marine Environment Protection Committee, as discussed in “—Clean Air
Act” below. On March 26, 2010, the IMO designated waters off North American coasts as an ECA in which stringent emission
standards would apply. The first-phase fuel standard for sulfur in the North American ECA went into effect in 2012, and the second
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phase began in 2015. Further, on July 15, 2011, the IMO designated waters around Puerto Rico and the U.S. Virgin Islands as an
ECA. The first-phase fuel standard for sulfur in the U.S. Caribbean ECA went into effect in 2014, and the second phase began in
2015. Beginning in 2016, stringent engine standards for nitrogen oxide will become effective in both the North American ECA and the
U.S. Caribbean ECA. Finally, U.S. air emissions standards have incorporated these amended Annex VI requirements, and once these
amendments become fully effective, we may incur costs to comply with these revised standards. Additional or new conventions, laws
and regulations may be adopted that could require the installation of expensive emission control systems.
Ballast Water Management Convention
The IMO has negotiated international conventions that impose liability for oil pollution in international waters and the territorial
waters of the signatories to such conventions. For example, the IMO adopted an International Convention for the Control and
Management of Ships’ Ballast Water and Sediments, or the “BWM Convention,” in February 2004. The BWM Convention’s
implementing regulations call for a phased introduction of mandatory ballast water exchange requirements (beginning in 2009), to be
replaced in time with a requirement for mandatory ballast water treatment. The BWM Convention will not become effective until 12
months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage
of the world’s merchant shipping. Though this has not occurred to date, the IMO has passed a resolution encouraging the ratification
of the BWM Convention and calling upon those countries that have already ratified to encourage the installation of ballast water
management systems on new ships. As referenced below, the U.S. Coast Guard issued new ballast water management rules on
March 23, 2012, and the U.S. Environmental Protection Agency, or “EPA,” issued a new Vessel General Permit in March 2013 that
contains numeric technology-based ballast water effluent limitations. Under the requirements of the convention for units with ballast
water capacity more than 5,000 cubic meters that were constructed in 2011 or before, ballast water management exchange or treatment
will be accepted until 2016. From 2016 (or not later than the first intermediate or renewal survey after 2016), only ballast water
treatment will be accepted by the BWM Convention. Installation of ballast water treatments systems will be needed on all our vessels
to comply with the BWM Convention and U.S. regulations discussed below. We will begin implementing the ballast water treatment
system on vessels at an additional cost of $0.4 million per vessel in 2016.
Bunker Convention/CLC State Certificate
The International Convention on Civil Liability for Bunker Oil Pollution 2001, or the “Bunker Convention,” entered into force in State
Parties to the Convention on November 21, 2008. The Bunker Convention provides a liability, compensation and compulsory
insurance system for the victims of oil pollution damage caused by spills of bunker oil. The Bunker Convention requires the ship
owner liable to pay compensation for pollution damage (including the cost of preventive measures) caused in the territory, including
the territorial sea of a State Party, as well as its economic zone or equivalent area. Registered owners of any sea going vessel and
seaborne craft over 1,000 gross tonnage, of any type whatsoever, and registered in a State Party, or entering or leaving a port in the
territory of a State Party, will be required to maintain insurance which meets the requirements of the Bunker Convention and to obtain
a certificate issued by a State Party attesting that such insurance is in force. The State issued certificate must be carried on-board at all
times.
Although the United States is not a party to these conventions, many countries have ratified and follow the liability plan adopted by
the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended in 2000, or the
“CLC.” Under this convention and depending on whether the country in which the damage results is a party to the 1992 Protocol to
the CLC, a vessel’s registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by
discharge of persistent oil, subject to certain complete defenses. The limited liability protections are forfeited under the CLC where the
spill is caused by the owner’s actual fault and under the 1992 Protocol where the spill is caused by the owner’s intentional or reckless
conduct. Vessels trading to states that are parties to these conventions must provide evidence of insurance covering the liability of the
owner. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law govern, and liability is
imposed either on the basis of fault or on a strict-liability basis
P&I Clubs in the International Group issue the required Bunkers Convention “Blue Cards” to provide evidence that there is in place
insurance meeting the liability requirements. All of our vessels have received “Blue Cards” from their P&I Club and are in possession
of a CLC State-issued certificate attesting that the required insurance coverage is in force.
Anti-Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti-fouling Systems on Ships, or the “Anti-fouling
Convention.” The Anti-fouling Convention, which entered into force on September 17, 2008, prohibits the use of organotin compound
coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels after September 1, 2003. Vessels of over 400
gross tons engaged in international voyages must obtain an International Anti-fouling System Certificate and undergo a survey before
the vessel is put into service or when the anti-fouling systems are altered or replaced. Our managers have obtained Anti-fouling
System Certificates for all of our vessels and we do not believe that maintaining such certificates will have an adverse financial impact
on the operation of our vessels.
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Compliance Enforcement
The flag state, as defined by the United Nations Convention on Law of the Sea, has overall responsibility for the implementation and
enforcement of international maritime regulations for all ships granted the right to fly its flag. The “Shipping Industry Guidelines on
Flag State Performance” evaluates flag states based on factors such as sufficiency of infrastructure, ratification of international
maritime treaties, implementation and enforcement of international maritime regulations, supervision of surveys, casualty
investigations, and participation at IMO meetings. As of January 2016, auditing of flag states that are parties to the SOLAS
convention is mandatory and will be conducted under the IMO Instruments Implementation Code (III Code), which provides guidance
on implementation and enforcement of IMO policies by flag states. These audits may lead the various flag states to be more aggressive
in their enforcement, which may in turn lead us to incur additional costs.
Non-compliance with the ISM Code and other IMO regulations may subject the vessel owner or bareboat charterer to increased
liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or
detention in, some ports. The U.S. Coast Guard and European Union authorities have indicated that vessels not in compliance with the
ISM Code by the applicable deadlines will be prohibited from trading in U.S. and European Union ports, respectively.
The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be
passed by the IMO and what effect, if any, such regulations might have on our operations.
U.S. Environmental Regulation of Our Vessels
Our vessels operating in U.S. waters now or in the future will be subject to various federal, state and local laws and regulations
relating to protection of the environment. In some cases, these laws and regulations require us to obtain governmental permits and
authorizations before we may conduct certain activities. These environmental laws and regulations may impose substantial penalties
for noncompliance and substantial liabilities for pollution. Failure to comply with these laws and regulations may result in substantial
civil and criminal fines and penalties. As with the industry generally, our operations will entail risks in these areas, and compliance
with these laws and regulations, which may be subject to frequent revisions and reinterpretation, increases our overall cost of business.
Oil Pollution Act of 1990
The U.S. Oil Pollution Act of 1990, or “OPA 90,” established an extensive regulatory and liability regime for environmental
protection and cleanup of oil spills. OPA 90 affects all owners and operators whose vessels trade with the United States or its
territories or possessions, or whose vessels operate in the waters of the United States, which include the U.S. territorial waters and the
two hundred nautical mile exclusive economic zone of the United States. OPA 90 may affect us because we carry oil as fuel and
lubricants for our engines, and the discharge of these could cause an environmental hazard. Under OPA 90, vessel operators, including
vessel owners, managers and bareboat or “demise” charterers, are “responsible parties” who are all liable regardless of fault,
individually and as a group, for all containment and clean-up costs and other damages arising from oil spills from their vessels. These
“responsible parties” would not be liable if the spill results solely from the act or omission of a third party, an act of God or an act of
war. The other damages aside from clean-up and containment costs are defined broadly to include:
•
•
natural resource damages and related assessment costs;
real and personal property damages;
net loss of taxes, royalties, rents, profits or earnings capacity;
•
• net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards; and
•
loss of subsistence use of natural resources.
Effective July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability to the greater of $2,000 per gross ton or $17.088
million for any double-hull tanker that is over 3,000 gross tons (subject to possible adjustment for inflation) (relevant to the Alma
Maritime carriers). These limits of liability do not apply, however, where the incident is caused by violation of applicable U.S. federal
safety, construction or operating regulations, or by the responsible party’s gross negligence or willful misconduct. These limits
likewise do not apply if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the
substance removal activities. This limit is subject to possible adjustment for inflation. OPA 90 specifically permits individual states to
impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have
enacted legislation providing for unlimited liability for discharge of pollutants within their waters. In some cases, states, which have
enacted their own legislation, have not yet issued implementing regulations defining shipowners’ responsibilities under these laws. We
believe that we are in substantial compliance with OPA 90 and all applicable state regulations in the ports where our vessels call.
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OPA 90 requires owners and operators of vessels to establish and maintain with the U.S. Coast Guard evidence of financial
responsibility sufficient to meet the limit of their potential strict liability under OPA 90. Under the regulations, evidence of financial
responsibility may be demonstrated by insurance, surety bond, self-insurance or guaranty. Under OPA 90 regulations, an owner or
operator of more than one vessel is required to demonstrate evidence of financial responsibility for the entire fleet in an amount equal
only to the financial responsibility requirement of the vessel having the greatest maximum liability under OPA 90. Each of our ship-
owning subsidiaries that has vessels trading in U.S. waters has applied for, and obtained from the U.S. Coast Guard National Pollution
Funds Center, three-year certificates of financial responsibility, or “COFRs,” supported by guarantees which we purchased from an
insurance based provider. We believe that we will be able to continue to obtain the requisite guarantees and that we will continue to be
granted COFRs from the U.S. Coast Guard for each of our vessels that is required to have one.
In response to the 2010 BP Deepwater Horizon oil spill, the U.S. Congress has considered a number of bills that could potentially
increase or even eliminate the limits of liability under OPA 90. Compliance with any new requirements of OPA 90 may substantially
impact our cost of operations or require us to incur additional expenses to comply with any new regulatory initiatives or statutes.
Additional legislation or regulation applicable to the operation of our vessels that may be implemented in the future as a result of the
2010 BP Deepwater Horizon oil spill in the Gulf of Mexico could adversely affect our business and ability to make distributions to our
shareholders.
Clean Water Act
The United States Clean Water Act, or “CWA,” prohibits the discharge of oil or hazardous substances in United States navigable
waters unless authorized by a permit or exemption, and imposes strict liability in the form of penalties for unauthorized discharges.
The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies
available under OPA and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The EPA has
enacted rules governing the regulation of ballast water discharges and other discharges incidental to the normal operation of vessels
within U.S. waters. The rules require commercial vessels 79 feet in length or longer (other than commercial fishing vessels), or
“Regulated Vessels,” to obtain a CWA permit regulating and authorizing such normal discharges. This permit, which the EPA has
designated as the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels, or “VGP,” incorporates the
current U.S. Coast Guard requirements for ballast water management as well as supplemental ballast water requirements, and includes
limits applicable to 26 specific discharge streams, such as deck runoff, bilge water and gray water.
The VGP was updated in 2013 to incorporate numeric effluent limits for ballast water expressed as the maximum concentration of
living organisms in ballast water, as opposed to the prior non-numeric requirements. These requirements correspond with the IMO’s
requirements under the BWM Convention, as discussed above. The permit also contains maximum discharge limitations for biocides
and residuals. The numeric effluent limits in the new VGP will not apply to all vessels. Those that will be required to comply with the
numeric limits will do so under a staggered implementation schedule. Certain existing vessels must achieve the numeric effluent limits
for ballast water by the first drydocking after January 1, 2014 or January 1, 2016, depending on the vessel size. Newbuild vessels are
subject to the numeric limits upon the effective date of the new permit. Vessels that have deferred deadlines for meeting the numeric
standards must meet Best Management Practices, or BMPs, which are substantially similar to the requirements under the previous
VGP.
The new VGP includes a tiered requirement for obtaining coverage based on the size of the vessel and the amount of ballast water
carried. Vessels that are 300 gross tons or larger and have the capacity to carry more than eight cubic meters of ballast water must
submit notices of intent (NOIs) to receive permit coverage between six and nine months after the permit’s issuance date. Vessels that
do not need to submit NOIs are automatically authorized under the permit.
The VGP imposes additional requirements on certain Regulated Vessel types that emit discharges unique to those vessels.
Administrative provisions, such as inspection, monitoring, recordkeeping and reporting requirements, are also included for all
Regulated Vessels.
National Invasive Species Act
In March 2012, the U.S. Coast Guard issued a final rule establishing standards for the allowable concentration of living organisms in
ballast water discharged in U.S. waters and requiring the phase-in of Coast Guard approved BWM Systems. The rule went into effect
in June 2012, and adopts ballast water discharge standards for vessels calling on U.S. ports and intending to discharge ballast water
equivalent to those set in IMO’s BWM Convention. The final rule requires that ballast water discharge have fewer than 10 living
organisms per milliliter for organisms between 10 and 50 micrometers in size. For organisms larger than 50 micrometers, the
discharge must have fewer than10 living organisms per cubic meter of discharge. The U.S. Coast Guard will review the practicability
of implementing a more stringent ballast water discharge standard and publish the results. The rule requires installation of Coast
Guard approved BWM Systems by new vessels constructed on or after December 1, 2013, and existing vessels as of their first
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drydocking after January 1, 2016. If Coast Guard type approved technologies are not available by a vessel’s compliance date, the
vessel may request an extension to the deadline from the U.S. Coast Guard. While the 2013 rule imposes consistent numeric effluent
limits for living organisms in ballast water discharges, it does not provide for compliance date extensions if Coast Guard-approved
treatment technologies are not available.
Clean Air Act
The U.S. Clean Air Act of 1970, as amended, or the “CAA,” requires the EPA to promulgate standards applicable to emissions of
volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain
cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas and emission standards
for so-called “Category 3” marine diesel engines operating in U.S. waters. The marine diesel engine emission standards are currently
limited to new engines beginning with the 2004 model year. On April 30, 2010, the EPA promulgated final emission standards for
Category 3 marine diesel engines equivalent to those adopted in the amendments to Annex VI to MARPOL. The emission standards
apply in two stages: near-term standards for newly-built engines will apply from 2011, and long-term standards requiring an 80%
reduction in nitrogen dioxides will apply from 2016. In February 2015, the EPA amended its marine diesel engine requirements to
temporarily allow marine equipment manufacturers to use allowances if a compliant marine engine is not available. Compliance with
these standards may cause us to incur costs to install control equipment on our vessels in the future.
European Union Regulations
The European Union has also adopted legislation that would: (1) ban manifestly sub-standard vessels (defined as those over 15 years
old that have been detained by port authorities at least twice in a six month period) from European waters and create an obligation of
port states to inspect vessels posing a high risk to maritime safety or the marine environment; and (2) provide the European Union
with greater authority and control over classification societies, including the ability to seek to suspend or revoke the authority of
negligent societies.
The European Union has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary
engines. The EU Directive 2005/EC/33 (amending Directive 1999/32/EC) introduced parallel requirements in the European Union to
those in MARPOL Annex VI in respect of the sulfur content of marine fuels. In addition, it has introduced a 0.1% maximum sulfur
requirement for fuel used by ships at berth in EU ports, effective January 1, 2010. In 2011, the European Commission adopted a
proposal to amend directive 2005/33/EU to bring it into alignment with the latest IMO provisions on the sulfur content of marine
fuels. Review of the directive under this amendment is ongoing.
In 2005, the European Union adopted a directive on ship-source pollution, imposing criminal sanctions for intentional, reckless or
negligent pollution discharges by ships. The directive could result in criminal liability for pollution from vessels in waters of European
countries that adopt implementing legislation. Criminal liability for pollution may result in substantial penalties or fines and increased
civil liability claims. We cannot predict what regulations, if any, may be adopted by the European Union or any other country or
authority.
Regulation of Greenhouse Gas Emissions
Currently, the emissions of greenhouse gases from ships involved in international transport are not subject to the Kyoto Protocol,
which entered into force in 2005 and which countries have relied on to produce national plans to reduce greenhouse gas emissions.
The Paris Agreement, which was announced by the Parties to the United Nations Framework Convention on Climate Change in
December 2015, similarly does not cover international shipping, however the IMO has subsequently reaffirmed its strong commitment
to continue to work to address greenhouse gas emissions from ships engaged in international trade. The IMO is evaluating various
mandatory measures to reduce greenhouse gas emissions from international shipping, which may include market-based instruments or
a carbon tax. In June 2013, the European Commission developed a strategy to integrate maritime emissions into the overall European
Union strategy to reduce greenhouse gas emissions. In accordance with this strategy, in April 2015 the European Parliament and
Council adopted regulations requiring large vessels using European Union ports to monitor, report and verify their carbon dioxide
emissions beginning in January 2018. In December 2013 the European Union environmental ministers discussed draft rules to
implement monitoring and reporting of carbon dioxide emissions from ships.
As of January 1, 2013 all new ships must comply with mandatory requirements adopted by the Marine Environment Protection
Committee (MEPC) of IMO in July 2011 in part to address greenhouse gas emission. These requirements add energy efficiency
standards through an Energy Efficiency Design Index (EEDI). IMO’s Greenhouse Gas Working Group agreed on these guidelines to
require all ships to develop and implement a Ship Energy Efficiency Plan (SEEMP). The regulations apply to all ships of 400 gross
tonnage and above. These new rules will likely affect the operations of vessels that are registered in countries that are signatories to
MARPOL Annex VI or vessels that call upon ports located within such countries.
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In the United States, the EPA issued a final finding that greenhouse gases threaten public health and safety, and has promulgated
regulations under the Clean Air Act that control the emission of greenhouse gases from mobile sources, but not from marine shipping
vessels and their engines and fuels. The EPA may decide in the future to regulate greenhouse gas emissions from these sources. The
Agency has already been petitioned by the California Attorney General to regulate greenhouse gas emissions from oceangoing vessels.
Other federal and state regulations relating to the control of greenhouse gas emissions may follow, including climate change initiatives
that have recently been considered by the U.S. Congress and by individual states.
Any passage of further climate control legislation or other regulatory initiatives by the IMO, the European Union, the United States, or
other countries where we operate, or any treaty adopted at the international level, that restrict emissions of greenhouse gases could
require us to make significant financial expenditures that we cannot predict with certainty at this time.
Safety Requirements
The IMO has adopted the International Convention for the Safety of Life at Sea, or “SOLAS Convention,” and the International
Convention on Load Lines, 1966, or “LL Convention,” which impose a variety of standards to regulate design and operational features
of ships. SOLAS Convention and LL Convention standards are revised periodically. All of our vessels are in compliance with SOLAS
Convention and LL Convention standards.
Chapter IX of SOLAS, the requirements contained in the ISM Code, promulgated by the IMO, also affects our operations. The ISM
Code requires the party with operational control of a vessel to develop and maintain an extensive safety management system that
includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for
operating its vessels safely and describing procedures for responding to emergencies.
The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate
evidences compliance by a vessel’s management with code requirements for a safety management system. No vessel can obtain a
certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. NMM has
obtained documents of compliance and safety management certificates for all of our vessels for which certificates are required by the
IMO.
The International Labour Organization, or “ILO,” is a specialized agency of the United Nations with headquarters in Geneva,
Switzerland. The ILO has adopted the Maritime Labor Convention 2006, or “MLC 2006,” to improve safety on-board merchant
vessels. A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance is required to ensure compliance with the
MLC 2006 for all ships above 500 gross tons in international trade. On August 20, 2012, the required number of countries ratified the
MCL 2006 and it came into force on August 20, 2013. MLC 2006 requires us to develop new procedures to ensure full compliance
with its requirements.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On
November 25, 2002, the Maritime Transportation Act of 2002, or “MTSA,” came into effect. To implement certain portions of the
MTSA, in July 2003, the U.S. Coast Guard issued regulations requiring the implementation of certain security requirements aboard
vessels operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002, amendments to SOLAS
created a new chapter of the convention dealing specifically with maritime security. The new chapter became effective in July 2004
and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the ISPS Code. The
ISPS Code is designed to protect ports and international shipping against terrorism. After July 1, 2004, to trade internationally, a
vessel must attain an International Ship Security Certificate from a recognized security organization approved by the vessel’s flag
state.
Among the various requirements are:
•
on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-
related information from among similarly equipped ships and shore stations, including information on a ship’s identity,
position, course, speed and navigational status;
• on-board installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on
shore;
the development of vessel security plans;
ship identification number to be permanently marked on a vessel’s hull;
•
•
36
•
•
a continuous synopsis record kept on-board showing a vessel’s history including, the name of the ship and of the state
whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship’s identification
number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and
compliance with flag state security certification requirements.
The U.S. Coast Guard regulations, intended to align with international maritime security standards, exempt non-U.S. vessels from
obtaining U.S. Coast Guard-approved MTSA vessel security plans provided such vessels have on-board an International Ship Security
Certificate, or “ISSC,” that attests to the vessel’s compliance with SOLAS security requirements and the ISPS Code.
Our vessel managers have developed Security Plans, appointed and trained Ship and Office Security Officers and each of our vessels
in our fleet complies with the requirements of the ISPS Code, SOLAS and the MTSA.
Other Regulation
Our vessels may also become subject to the International Convention on Liability and Compensation for Damage in Connection with
the Carriage of Hazardous and Noxious Substances by Sea, 1996 as amended by the Protocol to the HNS Convention, adopted in
April 2010, or the “2010 HNS Protocol,” and collectively, the “2010 HNS Convention,” if it is entered into force. The Convention
creates a regime of liability and compensation for damage from hazardous and noxious substances, or “HNS.” The 2010 HNS
Convention sets up a two-tier system of compensation composed of compulsory insurance taken out by shipowners and an HNS Fund
which comes into play when the insurance is insufficient to satisfy a claim or does not cover the incident. Under the 2010 HNS
Convention, if damage is caused by bulk HNS, claims for compensation will first be sought from the shipowner up to a maximum of
100 million Special Drawing Rights, or “SDR,” which was equivalent to $138 million U.S. dollars as of January 31, 2016. SDRs are
supplementary, foreign exchange reserve assets created and maintained by the International Monetary Fund, or “IMF,” based upon a
basket of currencies (consisting of the euro, Japanese yen, pound sterling and U.S. dollar). SDRs are not a currency, but instead
represent a claim to currency held by IMF member countries for which SDRs may be exchanged. Monetary values and limits in many
international maritime treaties are expressed in terms of SDRs. As of January 31, 2016, the exchange rate was 1 SDR equal to 1.37618
U.S. dollars. If the damage is caused by packaged HNS or by both bulk and packaged HNS, the maximum liability is 115 million SDR
(equivalent to $158 million U.S. dollars as of January 31, 2016). Once the limit is reached, compensation will be paid from the HNS
Fund up to a maximum of 250 million SDR (equivalent to $344 million U.S. dollars as of January 31, 2016). The 2010 HNS
Convention has not been ratified by a sufficient number of countries to enter into force, and we cannot estimate the costs that may be
needed to comply with any such requirements that may be adopted with any certainty at this time.
In-House Inspections
NMM, BSSM and Thome carry out inspections of the ships on a regular basis; both at sea and while the vessels are in port, while we
carry out inspection and ship audits to verify conformity with managers’ reports. The results of these inspections, which are conducted
both in port and underway, result in a report containing recommendations for improvements to the overall condition of the vessel,
maintenance, safety and crew welfare. Based in part on these evaluations, we create and implement a program of continual
maintenance for our vessels and their systems.
Competition
The process of obtaining new charters is highly competitive, generally involves an intensive screening process and competitive bids,
and often extends for several months.
While the majority of the existing handysize liquefied gas carrier world fleet is employed on 12-month charters, there is competition
for the employment of vessels when these charters expire and for the employment of those vessels which trade on the spot market.
Competition for mid- or longer-term charters is based primarily on industry relationships, experience and reputation for customer
service, quality operations and safety, the experience and technical capability of the crews, the vessel’s efficiency, operational
flexibility and physical life, and the competitiveness of the bid in terms of overall price.
Our existing fleet had an average age of 6.6 years as of December 31, 2015, which is significantly less than the average age of the
world-wide fleet of handysize liquefied gas carriers. We believe that our relatively young fleet positions us well to compete in terms of
our vessels meeting the operational needs of charterers. We own and operate the largest fleet in our size segment, which, in our view,
enhances our position relative to our competitors. While there are some barriers to entry, including the complexity of operating semi-
refrigerated gas carriers that constantly require switching between a myriad of cargo types, crew expertise and the cost of liquefied gas
carriers, new entrants have entered the market over the last five years.
37
We believe that the market for obtaining new charters will continue to be highly competitive for the foreseeable future. However, we
believe that our relationships, the experience of the crews that service our vessels and the age and technical ability of our existing
fleet, as well as our eight newbuildings expected to be delivered by July 2017, will provide us with a competitive advantage, both
within the handysize segment and across the broader liquefied gas carrier industry.
Properties
Other than our vessels, we do not own any material property. We lease office space for our representative offices in London and New
York. The lease term for our representative office in London is for a period of 10 years with a mutual break option in March 2017,
which is the fifth anniversary from the lease commencement date. The gross rent per year is approximately $480,000, although we
sublease part of the space, thus recouping approximately $180,000 per year. The initial lease term for our representative office in New
York is five years ending June 30, 2017. The total rent per year is approximately $231,000.
Seasonality
Liquefied gases are primarily used for industrial and domestic heating, as a chemical and refinery feedstock, as a transportation fuel
and in agriculture. The liquefied gas carrier market is typically stronger in the fall and winter months in anticipation of increased
consumption of propane and butane for heating during the winter months. In addition, unpredictable weather patterns in these months
tend to disrupt vessel scheduling and the supply of certain commodities. As a result, demand for our vessels may be stronger in our
fiscal quarters ending December 31 and March 31 and relatively weaker during our fiscal quarters ending June 30 and September 30,
although 12-month time charter rates tend to smooth these short-term fluctuations. To the extent any of our time charters expire during
the relatively weaker fiscal quarters ending June 30 and September 30, it may not be possible to re-charter our vessels at similar rates.
As a result, we may have to accept lesser rates or experience off-hire time for our vessels, which may adversely impact our business,
financial condition and operating results.
Employees
We had 37 employees as of December 31, 2015. We consider our employee relations to be good. Our crewing and technical managers
provide crews for our vessels under separate crew management agreements.
Legal Proceedings
We expect that in the future we will be subject to legal proceedings and claims in the ordinary course of business, principally personal
injury and property casualty claims. These claims, even if lacking merit, could result in the expenditure of significant financial and
managerial resources. We are not aware of any legal proceedings or claims that we believe will have, individually or in the aggregate,
a material adverse effect on us.
Exchange Controls
Under the Republic of the Marshall Islands law, there are currently no restrictions on the export or import of capital, including foreign
exchange controls or restrictions that affect the remittance of distributions, interest or other payments to non-resident shareholders.
Taxation of the Company
Certain of our subsidiaries are subject to taxation in the jurisdictions in which they are organized, conduct business or own assets. We
intend that our business and the business of our subsidiaries will be conducted and operated in a manner designed to minimize the tax
imposed on us and our subsidiaries. However, we cannot assure this result as tax laws in these or other jurisdictions may change or we
may enter into new business transactions relating to such jurisdictions, which could affect our tax liability.
U.S. Taxation
The following is a discussion of the material U.S. federal income tax considerations applicable to us. This discussion is based upon
provisions of the Code, final and temporary regulations thereunder, or “Treasury Regulations,” and administrative rulings and court
decisions, all as in effect as of the date hereof and all of which are subject to change or differing interpretation, possibly with
retroactive effect. Changes in these authorities may cause the tax consequences to vary substantially from the consequences described
below. The following discussion is for general information purposes only and does not purport to be a comprehensive description of
all of the U.S. federal income tax considerations applicable to us.
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Status as a Corporation. We are treated as a corporation for U.S. federal income tax purposes. As such, we are subject to U.S.
federal income tax on our income to the extent it is from U.S. sources or is effectively connected with the conduct of a trade or
business in the United States as discussed below, unless such income is exempt from tax under Section 883 of the Code.
Taxation of Operating Income. Substantially all of our gross income is, and we expect that substantially all of our gross income
will be, attributable to the transportation of LPGs and petrochemicals and related products. Gross income that is attributable to
transportation that either begins or ends, but that does not both begin and end, in the United States, or “U.S. Source International
Transportation Income,” is considered to be 50.0% derived from sources within the United States and may be subject to U.S. federal
income tax as described below. Gross income attributable to transportation that both begins and ends in the United States, or “U.S.
Source Domestic Transportation Income,” is considered to be 100.0% derived from sources within the United States and generally is
subject to U.S. federal income tax. Gross income attributable to transportation exclusively between non-U.S. destinations is
considered to be 100.0% derived from sources outside the United States and generally is not subject to U.S. federal income tax. We
are not permitted by law to engage in transportation that gives rise to U.S. Source Domestic Transportation Income. However, certain
of our activities give rise to U.S. Source International Transportation Income, and we may in the future increase our operations in the
United States, which would result in an increase in the amount of our U.S. Source International Transportation Income, all of which
would be subject to U.S. federal income taxation unless the exemption from U.S. taxation under Section 883 of the Code, or the
“Section 883 Exemption,” applies.
The Section 883 Exemption. In general, the Section 883 Exemption provides that if a non-U.S. corporation satisfies the
requirements of Section 883 of the Code and the Treasury Regulations thereunder, or the “Section 883 Regulations,” it will not be
subject to the net basis and branch profits taxes or the 4.0% gross basis tax described below on its U.S. Source International
Transportation Income. The Section 883 Exemption applies only to U.S. Source International Transportation Income and does not
apply to U.S. Source Domestic Transportation Income.
We will qualify for the Section 883 Exemption if, among other things, we meet the following three requirements:
• we are organized in a jurisdiction outside the United States that grants an equivalent exemption from tax to corporations
organized in the United States with respect to the types of U.S. Source International Transportation Income that we earn,
or an “Equivalent Exemption”;
• we satisfy the Publicly Traded Test (as described below); and
• we meet certain substantiation, reporting and other requirements (or the Substantiation Requirement).
In order for a non-U.S. corporation to meet the Publicly Traded Test, its equity interests must be “primarily traded” and “regularly
traded” on an established securities market either in the United States or in a jurisdiction outside the United States that grants an
Equivalent Exemption. The Section 883 Regulations provide, in pertinent part, that equity interests in a non-U.S. corporation will be
considered to be “primarily traded” on an established securities market in a given country if, with respect to the class or classes of
equity relied upon to meet the “regularly traded” requirement described below, the number of shares of each such class that are traded
during any taxable year on all established securities markets in that country exceeds the number of shares in such class that are traded
during that year on established securities markets in any other single country.
Equity interests in a non-U.S. corporation will be considered to be “regularly traded” on an established securities market under the
Section 883 Regulations if one or more classes of such equity interests that, in the aggregate, represent more than 50.0% of the
combined vote and value of all outstanding equity interests in the non-U.S. corporation satisfy certain listing and trading volume
requirements. These listing and trading volume requirements will be satisfied with respect to a class of equity interests if trades in such
class are effected, other than in de minimis quantities, on an established securities market on at least 60 days during the taxable year
and the aggregate number of shares in such class that are traded on an established securities market during the taxable year is at least
10.0% of the average number of shares outstanding in that class during the taxable year (with special rules for short taxable years). In
addition, a class of equity interests will be considered to satisfy these listing and trading volume requirements if the equity interests in
such class are traded during the taxable year on an established securities market in the United States and are “regularly quoted by
dealers making a market” in such class (within the meaning of the Section 883 Regulations).
39
Even if a class of equity satisfies the foregoing requirements, and thus generally would be treated as “regularly traded” on an
established securities market, an exception may apply to cause the class to fail the regularly traded test if, for more than half of the
number of days during the taxable year, one or more 5.0% shareholders (i.e., shareholders owning, actually or constructively, at least
5.0% of the vote and value of that class) own in the aggregate 50.0% or more of the vote and value of the class (which we refer to as
the “Closely Held Block Exception”). For purposes of identifying its 5.0% shareholders, a corporation is entitled to rely on Schedule
13D and Schedule 13G filings made with the SEC. The Closely Held Block Exception does not apply, however, in the event the
corporation can establish that a sufficient proportion of such 5.0% shareholders are Qualified Shareholders (as defined below) so as to
preclude other persons who are 5.0% shareholders from owning 50.0% or more of the value of that class for more than half the days
during the taxable year. Qualified Shareholders include:
•
individual residents of jurisdictions that grant an Equivalent Exemption;
• non-U.S. corporations organized in jurisdictions that grant an Equivalent Exemption and that meet the Publicly Traded
Test; and
certain other qualified persons described in the Section 883 Regulations.
•
We are organized under the laws of the Republic of the Marshall Islands, which is a jurisdiction that the U.S. Treasury Department has
recognized as granting an Equivalent Exemption with respect to the type of U.S. Source International Transportation Income we earn.
Provided we satisfy the Substantiation Requirement, which we believe we will be able to satisfy, our U.S. Source International
Transportation Income (including for this purpose, any such income earned by our subsidiaries) will be exempt from U.S. federal
income taxation provided we meet the Publicly Traded Test.
We did not satisfy the requirements for the Section 883 exemption for our 2013 taxable year because our common stock was not
traded on an established securities market for most of the year and therefore we did not satisfy the “regularly traded” requirement of
the Publicly Traded Test. However, for 2014 and 2015, we believe that we satisfied the requirements of Section 883 exemption and
therefore we were not subject to U.S. federal income taxation on our U.S. Source International Transportation Income. For 2016 and
future taxable years, we believe we will be able to satisfy the Publicly Traded Test, provided we satisfy the listing and trading volume
requirements described previously and the Closely Held Block Exception does not apply for such year. Our common stock, which is
our only class of equity outstanding, represents more than 50.0% of the total combined voting power and value of all classes of our
equity interests entitled to vote. In addition, because our common stock is traded only on the NYSE, which is considered to be an
established securities market, our equity interests are “primarily traded” on an established securities market for purposes of the
Publicly Traded Test. Further, we anticipate that our common stock will meet the “regularly traded” requirement of the Publicly
Traded Test.
According to Schedule 13D and Schedule 13G filings with the SEC, 5.0% shareholders currently own, in the aggregate, less
than 50.0% of the total vote and value of our common stock. Provided that in each of the current and future taxable years, 5.0%
shareholders own, in the aggregate, less than 50.0% of the total vote and value of our common stock for more than half the days of
such taxable year, and we continue to satisfy the listing and trading volume requirements described previously, we believe that we will
satisfy the Publicly Traded Test for such year. However, additional persons that are not Qualified Shareholders may become 5.0%
shareholders at any time. If more than 50.0% of our common stock were held by 5.0% shareholders (other than Qualified
Shareholders) for more than half of the days of the current or any future year, we would likely not qualify for an exemption under
Section 883 for such taxable year, due to the Closely Held Block Exception. Because qualification for the Section 883 Exception
depends upon factual matters that are subject to change and are outside of our control, there can be no assurance that we will be able to
satisfy the Publicly Traded Test for the current or any future taxable year. Please see “—The Net Basis Tax and Branch Profits Tax”
and “—The 4.0% Gross Basis Tax” below for a discussion of the consequences in the event we do not satisfy the Publicly Traded Test
or otherwise fail to qualify for the Section 883 Exemption.
The Net Basis Tax and Branch Profits Tax. If we earn U.S. Source International Transportation Income, and, the Section 883
Exemption does not apply, the U.S. source portion of such income may be treated as effectively connected with the conduct of a trade
or business in the United States, or “Effectively Connected Income,” if (1) we have a fixed place of business in the United States
involved in the earning of U.S. Source International Transportation Income and (2) substantially all of our U.S. Source International
Transportation Income is attributable to regularly scheduled transportation or, in the case of vessel leasing income, is attributable to a
fixed place of business in the United States. In addition, if we earn other types of income within the territorial seas of the United
States, such income may be treated as Effectively Connected Income.
Based on our current and projected methods of operation, we do not believe that any of our U.S. Source International Transportation
Income will be treated as Effectively Connected Income for any taxable year. However, there is no assurance that we will not earn
substantial amounts of income from regularly scheduled transportation or bareboat charters attributable to a fixed place of business in
the United States (or earn income from other activities within the territorial seas of the United States) in the future, which would result
in such income being treated as Effectively Connected Income.
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Any income we earn that is treated as Effectively Connected Income, net of applicable deductions, would be subject to U.S. federal
corporate income tax (generally at a rate of 35.0%). In addition, a 30.0% branch profits tax could be imposed on any income we earn
that is treated as Effectively Connected Income, as determined after allowance for certain adjustments, and on certain interest paid or
deemed paid by us in connection with the conduct of our U.S. trade or business.
On the sale of a vessel that has produced Effectively Connected Income, we could be subject to the net basis U.S. federal corporate
income tax as well as branch profits tax with respect to the gain recognized up to the amount of certain prior deductions for
depreciation that reduced Effectively Connected Income. Otherwise, we would not be subject to U.S. federal income tax with respect
to gain realized on the sale of a vessel, provided the sale is considered to occur outside of the United States under U.S. federal income
tax principles. In general, the sale of a vessel will be considered to occur outside of the United States for this purpose if title to the
vessel, and risk of loss with respect to the vessel, pass to the buyer outside the United States. It is expected that any sale of a vessel by
us will be considered to occur outside the United States.
The 4.0% Gross Basis Tax. If the Section 883 Exemption does not apply and the net basis tax does not apply, we will be subject to a
4.0% U.S. federal income tax on the U.S. source portion of our gross U.S. Source International Transportation Income, without benefit
of deductions. Under the sourcing rules described above under “—U.S. Taxation—Taxation of Operating Income,” 50.0% of our U.S.
Source International Transportation Income would be treated as being derived from U.S. sources.
Republic of the Marshall Islands Taxation
We believe that because we and our controlled affiliates do not, and do not expect to, conduct business or operations in the Republic
of the Marshall Islands, neither we nor our controlled affiliates will be subject to income, capital gains, profits or other taxation under
current Republic of the Marshall Islands law. As a result, distributions by our controlled affiliates to us will not be subject to Republic
of the Marshall Islands taxation.
U.K. Taxation
NGT Services (UK) Limited and Navigator Gas Invest Limited, as U.K. incorporated companies, are subject to U.K. corporation tax
on all their profits wherever arising. If we and any of our controlled affiliates not incorporated in the United Kingdom ensure that our
central management and control is exercised outside of the United Kingdom, and we do not otherwise create a U.K. permanent
establishment by carrying on business in the United Kingdom, we should not become subject to U.K. corporation tax. Where a
company’s central management and control is exercised is a question of fact to be decided in accordance with the particular
circumstances of each company. Any distributions paid to us by NGT Services (UK) Limited will not be subject to U.K. taxation.
Singapore Taxation
Falcon Funding PTE Ltd is a Singaporean service company and is subject to Singaporean tax on all its profits wherever arising.
Indonesia Taxation
PT Navigator Khatulistiwa “PTNK” is a joint venture of which 49% of the voting and dividend rights are owned by a subsidiary
though ultimately controlled at the shareholder level by a subsidiary of Navigator Holdings, and 51% of such rights are owned by
Indonesian limited liability companies. PTNK is subject to Indonesia tax on its profits wherever arising.
Poland Taxation
NGT Services (Poland) Sp. Z O.O. is a Polish service company and is subject to Polish tax on all its profits wherever arising.
C. Organizational Structure
Not applicable.
D. Property, Plant and Equipment
Other than our vessels mentioned above, we do not have any material property.
Item 4A. Unresolved Staff Comments
Not applicable.
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Item 5. Operating and Financial Review and Prospects
A. Operating Results
You should read the following discussion of our financial condition and results of operations in conjunction with our audited and
related notes included elsewhere in this annual report. Among other things, those financial statements include more detailed
information regarding the basis of presentation for the following information. The financial statements have been prepared in
accordance with U.S. generally accepted accounting principles, or “U.S. GAAP,” and are presented in U.S. Dollars unless otherwise
indicated. Any amounts converted from another non-U.S. currency to U.S. Dollars in this annual report were converted at the rate
applicable at the relevant date, or the average rate during the applicable period.
In connection with the preparation of our consolidated financial statements for the year ended December 31, 2015, we identified
an immaterial error in the treatment of interest costs in relation to vessel newbuildings. Certain amounts recorded as an interest
expense should have been capitalized, rather than expensed. The error resulted in a prior overstatement of interest expense and an
understatement of net income, book values of vessels under construction and vessels in operation, retained earnings and total
stockholders’ equity for the years ended December 31, 2012, 2013 and 2014, in the related financial statements. We have amended the
financial statements to correct such items. The following discussion of our financial condition and results of operations includes
revised financial data for the years ended December 31, 2013 and 2014.
Overview
We are the owner and operator of the world’s largest fleet of handysize liquefied gas carriers. We provide international and regional
seaborne transportation services of liquefied petroleum gas, or “LPG,” petrochemical gases and ammonia for energy companies,
industrial users and commodity traders. These gases are transported in liquefied form, by applying cooling and/or pressure, to reduce
volume by up to 900 times depending on the cargo, making their transportation more efficient and economical.
We employ our vessels through a combination of time charters, voyage charters and COAs. Our fleet consists of 38 vessels, including
eight newbuilding vessels scheduled for delivery by July 2017. Of the 38 vessels, 33 of these are semi- or fully-refrigerated liquefied
handysize gas carriers. Four of the vessels are midsize 35,000 cbm ethylene capable semi-refrigerated liquefied gas carriers and one is
a 38,000 cbm fully refrigerated liquefied gas carrier, which are due for delivery by July 2017. We define handysize as liquefied gas
carriers between 15,000 and 24,999 cbm.
We currently own and operate a total of 30 vessels, of which 15 are employed under time charters, three under contracts of
affreightment and 12 are employed in the spot market. As of December 31, 2015, we owned and operated 29 vessels with nine
newbuildings on order for delivery by approximately July 2017. Of the 29 vessels we operated as of December 31, 2015, 19 were
employed under time charters, nine were employed in the spot market and one was undergoing repairs. Our operated vessels earned an
average time charter equivalent rate of approximately $921,014 per vessel per calendar month ($30,280 per day) during the year ended
December 31, 2015, compared to approximately $912,124 per vessel per calendar month ($29,998 per day) for the year ended
December 31, 2014.
Our largest customers by revenue for the year ended December 31, 2015, include five companies that currently time charter and
voyage charter a total of 12 of our 29 operated vessels: Bayegan (BGN) International, an international commodities and trading
company, Petróleos de Venezuela S.A.; the Venezuelan state-owned integrated oil and petrochemical company; PT Pertamina
(Persero), the Indonesian state-owned producer of hydrocarbons; Sibur, the Russian gas processing and petrochemicals company;
Trafigura, an international commodities trading and logistics company;. For the year ended December 31, 2015, these customers
accounted for approximately 51.4% of our revenue in the aggregate. In the past, we have chartered vessels to a range of trading,
shipping and other customers on both time charter and voyage charter bases, ENI S.p.A, or “ENI” a leading oil and gas company;
Mitsubishi International Corporation, a leading trade, commodities, finance and investment company; Sunoco Inc., an American
petroleum and petrochemical manufacturer; Total SA, a leading oil and gas company; and the Vitol Group, an independent energy
trading company.
Vessel Contracts
We generate revenue by providing seaborne transportation services to customers pursuant to the following three types of contractual
relationships:
Time Charters. A time charter is a contract under which a vessel is chartered for a defined period of time at a fixed daily or
monthly rate. Under time charters, we are responsible for providing crewing and other vessel operating services, the cost of which is
intended to be covered by the fixed rate, while the customer is responsible for substantially all of the voyage expenses, including any
bunker fuel consumption, port expenses and canal tolls. LPG is typically transported under a time charter arrangement, generally with
a term of 12 months. However, three of our current 15 time charters are for long terms charters exceeding 12 months. For the year
ended December 31, 2015, approximately 61.5% of our revenue was generated pursuant to time charters, compared to the
approximately 59.7% for the year ended December 31, 2014.
42
Voyage Charters. A voyage charter is a contract, typically for shorter intervals, for transportation of a specified cargo between
two or more designated ports. This type of charter is priced on a current or “spot” market rate, typically on a price per ton of product
carried rather than a daily or monthly rate. Under voyage charters, we are responsible for all of the voyage expenses in addition to
providing the crewing and other vessel operating services. Petrochemical gases have typically been transported pursuant to voyage
charters, as the seaborne transportation requirements of petrochemical product traders have historically resulted from a particular
product arbitrage at a point in time. For the year ended December 31, 2015, approximately 31.4% of our revenue was generated
pursuant to voyage charters, compared to approximately 32.1% for the year ended December 31, 2014.
Contracts of Affreightment. A COA is a contract to carry specified quantities of cargo, usually over prescribed shipping routes,
at a fixed price per ton basis (often subject to fuel price or other adjustments) over a defined period of time. As such, a COA
essentially consists of a number of voyage charters to carry a specified amount of cargo over a specified time period (i.e., the term of
the COA), which can span for months to potentially years. Similar to a voyage charter, we are typically responsible for all voyage
expenses in addition to providing all crewing and other vessel operating services when trading under a COA. Three of our vessels are
currently operating under a contract of affreightment. For the year ended December 31, 2015, approximately 7.1% of our revenue was
generated pursuant COAs, compared to approximately 8.2% for the year ended December 31, 2014.
Vessels operating on time charters and longer-term COAs provide more predictable cash flows, but can potentially yield lower profit
margins than vessels operating in the spot charter market during periods of favorable market conditions. Accordingly, as a result of a
portion of our fleet being committed on time charters and COAs, we will be unable to take full advantage of improving charter rates to
the same extent as we would if our liquefied gas carriers were employed only on spot charters. Conversely, vessels operating in the
spot charter market generate revenue that is less predictable, but they may enable us to capture increased profit margins during periods
of improving charter rates. However, operating in the spot charter market exposes us to the risks of declining liquefied gas carrier
charter rates and relatively lower utilization rates as compared to time charters and certain COAs, which may have a materially
adverse impact on our financial performance. Notwithstanding these risks, we believe that providing liquefied gas transportation
services in the spot charter market is important to us, as it provides us with greater insight into market trends and opportunities.
We believe that the size and versatility of our fleet, which enables us to carry the broadest set of liquefied gases subject to seaborne
transportation across a diverse range of conditions and geographies, together with our track record of operational excellence, positions
us as the partner of choice for many companies requiring handysize liquefied gas transportation and distribution solutions. In addition,
we believe that the versatility of our fleet affords us with backhaul and triangulation opportunities not available to many of our
competitors, thereby providing us with opportunities to increase utilization and profitability. We seek to enhance our returns through a
flexible, customer-driven chartering strategy that combines a base of time charters and COAs with more opportunistic, higher-rate
voyage charters.
Important Financial and Operational Terms and Concepts
We use a variety of financial and operational terms and concepts in the evaluation of our business and operations. These include the
following:
Operating Revenue. Our operating revenue includes revenue from time charters, voyage charters and COAs. Operating revenue
is affected by charter rates and the number of days a vessel operates. Rates for voyage charters are more volatile as they are typically
tied to prevailing market rates at the time of the voyage. Historically, voyage charters have usually represented a minority of our
annual operating revenue, which is consistent with our vessel employment strategy for the near future.
Address and Brokerage Commissions. Address and brokerage commissions are costs remitted to either the shipping brokers or
charterers for placing business with our vessels and are calculated as a percentage of chartering income.
Voyage Expenses. Voyage expenses are all expenses unique to a particular voyage, including any bunker fuel consumption, port
expenses and canal tolls. Voyage expenses are typically paid by the shipowner under voyage charters and COAs and by the charterer
under time charters. Accordingly, we generally only incur voyage expenses when performing voyage charters and COAs or during
repositioning voyages between time charters for which no cargo is available. The gross revenue received by the shipowner under
voyage charters and COAs are generally higher than those received under comparable time charters so as to compensate the shipowner
for bearing all voyage expenses. As a result, our operating revenue and voyage expenses may vary significantly depending on our mix
of time charters, voyage charters and COAs.
Charter-in Costs. Charter-in costs represent charter hire costs incurred by us for non-owned vessels that we charter into our
fleet. While it is not a focus of our operational strategy, we may opportunistically charter-in vessels if we either have a need for a
vessel to perform a specific undertaking or consider the charter rate requested by a vessel owner to be sufficiently attractive.
43
Vessel Operating Expenses. Vessel operating expenses are expenses that are not unique to a specific voyage. Vessel operating
expenses are typically paid by the shipowner under each of our charter types. Vessel operating expenses include crew wages and
related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, tonnage
taxes and other miscellaneous expenses. Our vessel operating expenses will increase with the expansion of our fleet. Other factors that
are beyond our control may also cause these expenses to increase, including developments relating to market prices for insurance and
crewing costs.
In connection with providing us with technical management for our fleet, NMM, BSSM and Thome currently receive crewing and
technical management fees of approximately $0.2 million per vessel per year in the aggregate, which fees are considered to be vessel
operating expenses. Our technical and crew management agreements have terms through December 2016, and thereafter continue until
terminated on at least three months’ notice by either party, subject to certain exceptions. In 2016, we expect to begin providing in-
house technical management, for the first time, for at least one of the vessels in our fleet . See “Item 4—Information on the
Company—Business Overview—Technical Management of the Fleet.”
Depreciation and Amortization. Depreciation and amortization expense consists of:
•
•
charges related to the depreciation of the historical cost of our fleet (or the revalued amount), less the estimated residual
value of our vessels, calculated on a straight-line basis over their useful life, which is estimated to be 30 years; and
charges related to the amortization of capitalized drydocking expenditures relating to our fleet over the period between
drydockings.
General Administration Costs. General administration costs principally consist of the costs incurred in operating our London
representative office, which manages our chartering, operations, accounting and administrative functions and oversees the technical
management of our vessels; our New York representative office; and certain costs and expenses attributable to our board of directors.
Please read “Item 4—Information on the Company—Business Overview—Commercial Management of the Fleet.” We incur
additional expenses as a result of being a publicly-traded corporation, including costs associated with annual reports to shareholders
and SEC filings, investor relations and NYSE annual listing fees. We may also grant equity compensation that would result in an
expense to us, which may result in an increase in expenses. Please read “Item 6—Directors, Senior Management and Employees—
Compensation—Equity Compensation Plans—2013 Long-Term Incentive Plan.”
Other Corporation Expenses. Other corporation expenses consist of our advisors’ services, including ongoing audit, taxation,
legal and corporate services.
Drydocking . We must periodically drydock each of our vessels for any major repairs and maintenance, for inspection of the
underwater parts of the vessel, that cannot be performed while the vessels are operating and for any modifications to comply with
industry certification or governmental requirements. We are required to drydock a vessel once every five years until it reaches 15
years of age, after which we are required to drydock the applicable vessel every two and one-half to three years.
We capitalize costs associated with the drydockings as “built in overhauls” in accordance with U.S. GAAP and amortize these costs
on a straight-line basis over the period between drydockings. Costs incurred during the drydocking period which relate to routine
repairs and maintenance are expensed as incurred. The number of drydockings undertaken in a given period and the nature of the work
performed determine the level of drydocking expenditures.
Ownership Days. We define ownership days as the aggregate number of days in a period that each vessel in our fleet has been
owned by us. Ownership days include the number of days in a period in which we have possession of a chartered-in vessel. Ownership
days are an indicator of the size of our fleet over a period and affect both the amount of revenue and the amount of expenses that we
record during a period.
Available Days. We define available days as ownership days less aggregate off-hire days associated with major scheduled
maintenance, which principally include drydockings, special or intermediate surveys, vessel upgrades or major repairs. We use
available days to measure the number of days in a period that our operated vessels should be capable of generating revenues.
Operating Days. We define operating days as available days less the aggregate number of days that our operated vessels are not
generating revenue, which includes idle days and off-hire days for any reason other than major scheduled maintenance. We use
operating days to measure the aggregate number of days in a period that our operated vessels actually generate revenues.
Fleet Utilization. We define fleet utilization as the total number of operating days in a period divided by the total number of
available days during that period.
44
Time Charter Equivalent Rate. Time charter equivalent rate, or “TCE rate,” is a measure which converts voyage charter and
COA revenues to a time charter comparable, by deducting voyage expenses (which are incurred by the charterer in the case of time
charters) from voyage revenue. TCE rate is a standard shipping industry performance measure used primarily to compare the
performance of different charter types (i.e., time charters, voyage charters and COAs) and to enable a period-to-period comparison in
performance despite changes in the mix of charter types under which the vessels may be employed between the periods. Our method
of calculating TCE rate is to divide operating revenue for a voyage charter or COA (net of voyage expenses) by the relevant time
period of that charter.
Daily Vessel Operating Expenses. Daily vessel operating expenses are calculated by dividing vessel operating expenses by
ownership days (excluding ownership days attributable to chartered-in vessels) for the relevant time period.
Results of Operations
Factors Affecting Comparability
You should consider the following factors when evaluating our historical financial performance and assessing our future prospects:
•
•
•
We have been and are significantly increasing our fleet size. Our historical financial performance and future
prospects have been and will be significantly impacted by the increasing size of our fleet.
Historical Fleet Size. Our historical financial statements for the year ended December 31, 2014 reflect the results
of operations of a weighted average fleet size of 24.8 vessels, with 26 vessels owned at the year end. During 2015
we took delivery of Navigator Triton in January 2015, Navigator Umbrio in April 2015, Navigator Centauri in
August 2015 and Navigator Ceres in October 2015, and we sold Navigator Mariner in August 2015, bringing our
total fleet size to 29 vessels as of December 31, 2015, with a weighted average of 27.8 vessels during the 2015
year.
Future Fleet Size. On January 15, 2016, we took delivery of the newbuilding Navigator Ceto. In addition, we
expect to take delivery of eight newbuilding liquefied gas carriers, one handysize and three midsize vessels in
2016, and two midsize and two handysize vessels in 2017.
Given the variability in operating vessels in our fleet, our historical financial statements reflect, and in the future will reflect,
significantly different levels of ownership and operating days as well as different levels of voyage expenses, vessel operating
expenses, interest expense and other related costs.
•
•
We incur additional general administration costs and other corporation expenses. We will continue to incur
additional costs as a result of being a publicly-traded corporation, including costs associated with annual reports to
shareholders establishment and maintenance of effective internal controls under the Sarbanes-Oxley Act and SEC
filings, investor relations and NYSE annual listing fees. We may also grant equity compensation that would result
in an expense to us, which may result in an increase in expenses. Please read “Item 6—Directors, Senior
Management and Employees—Compensation—Equity Compensation Plans—2013 Long-Term Incentive Plan.”
We will have different financing arrangements. We have entered into secured term loan facilities and a revolving
credit facility and issued senior unsecured notes to finance the acquisitions of vessels and the construction of
newbuildings. Please read “—Secured Term Loan Facilities and Revolving Credit Facility” and “—Senior
Unsecured Bonds.”
45
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
The following table compares our operating results for the years ended December 31, 2014 and 2015:
Operating revenue
Operating expenses:
Year Ended
December 31,
2014
Year Ended
December 31,
2015
Percentage
Change
(in thousands, except percentages)
$
304,875
$
315,223
3.4%
Address and brokerage commissions
Voyage expenses
Cost of cargo sold
Charter-in costs
Vessel operating expenses
Depreciation and amortization
General administration costs
Other corporate expenses
Profit on sale of vessel
Vessel write down following collision
Insurance recoverable from vessel repairs
6,697
45,003
—
9,111
70,198
45,809
10,335
2,260
—
—
—
Total operating expenses
Operating income
Interest expense
Write off deferred finance costs
Interest income
Income before income taxes
Income taxes
Net income
$
$
$
$
$
$
189,413
115,462
(27,051)
—
230
88,641
904
$
87,737
$
6,995
33,687
—
—
78,842
53,453
11,011
2,553
(550)
10,500
(9,892)
186,599
128,624
(28,085)
(1,797)
152
98,894
800
98,094
4.4%
(25.1)%
— %
— %
12.3%
16.7%
6.5%
13.0%
— %
— %
— %
(1.5)%
11.4%
3.8%
— %
(33.9)%
11.6%
(11.5)%
11.8%
Operating Revenue. Operating revenue increased by 3.4% to $315.2 million for the year ended December 31, 2015, from
$304.9 million for the year ended December 31, 2014. This increase was primarily due to:
•
•
•
an increase in operating revenue of approximately $28.0 million attributable to an increase in the weighted average
number of vessels from 24.8 to 27.8 or 12.1%, for the year ended December 2015, and a corresponding increase in vessel
ownership days from 9,051 to 10,135, or 12.0%, for the year ended December 31, 2015, as compared to the year ended
December 31, 2014;
an increase in operating revenue of approximately $2.8 million attributable to an improved monthly charter rate, which
rose to an average of approximately $921,014 per vessel per calendar month ($30,280 per day) for the year ended
December 31, 2015, as compared to an average of approximately $912,124 per vessel per calendar month ($29,988 per
day) for the year ended December 31, 2014;
a decrease in operating revenue of approximately $9.1 million attributable to a decrease in fleet utilization from 97.3%
during the year ended December 31, 2014 to 94.3% during the year ended December 31, 2015 primarily as a result of
Navigator Aries being off hire for the repair of damage sustained as a result of the collision in June 2015, a number of
vessels ballasting to various destinations either to take up time charters or following delivery of newbuilding vessels; and
•
a decrease in operating revenue of approximately $11.4 million relating to a relative decrease in the proportion of voyage
charters to time charters, for the year ended December 31, 2015, as compared to the year ended December 31, 2014.
46
The following table presents selected operating data for the years ended December 31, 2014 and 2015, which we believe are useful in
understanding our operating revenue:
Fleet Data:
Weighted average number of vessels
Ownership days
Available days
Operating days
Fleet utilization
Average daily time charter equivalent rate
Year Ended
December 31, 2014
Year Ended
December 31, 2015
24.8
9,051
8,906
8,666
97.3%
$
29,988
27.8
10,135
9,865
9,298
94.3%
30,280
$
Address and Brokerage Commissions. Address and brokerage commissions increased by 4.4% to $7.0 million for the year
ended December 31, 2015, from $6.7 million for the year ended December 31, 2014 as the number of vessels, and consequently
operating revenue on which it is based, increased.
Voyage Expenses. Voyage expenses decreased by 25.1% to $33.7 million for the year ended December 31, 2015, from $45.0
million for the year ended December 31, 2014. This decrease was primarily due to the decrease in the proportion of voyage charters to
time charters and the reduction in bunker prices during the year, despite the increase in our fleet size.
Charter-in Costs. Charter-in costs reduced to nil for the year ended December 31, 2015 compared to $9.1 million for the year
ended December 31, 2014. This decrease was due to no vessels being chartered-in during 2015.
Vessel Operating Expenses. Vessel operating expenses as a whole increased by 12.3% to $78.8 million for the year ended
December 31, 2015, from $70.2 million for the year ended December 31, 2014. Individual vessel operating expenses decreased by
$289 per day, or 3.6%, to $7,779 per vessel per day for the year ended December 31, 2015, compared to $8,068 per vessel per day for
the year ended December 31, 2014. The overall increase was due to an increase in fleet size whereas the individual vessel operating
costs decrease was primarily due to our additional newly acquired vessels being younger, and therefore less expensive to maintain,
than our vessels owned in 2014.
Depreciation and Amortization. Depreciation and amortization expense increased by 16.7% to $53.5 million for the year ended
December 31, 2015, from $45.8 million for the year ended December 31, 2014. This increase was primarily due to an increase in our
fleet size. Depreciation and amortization expense included amortization of capitalized drydocking costs of $5.6 million for the year
ended December 31, 2015, and $3.9 million for the year ended December 31, 2014.
Other Operating Results
General and Administration Costs. General and administration costs increased by 6.5% to $11.0 million for the year ended
December 31, 2015, from $10.3 million for the year ended December 31, 2014, primarily due to additional costs attributable to an
increased number of staff associated with the fleet expansion.
Other Corporate Expenses. Other corporate expenses increased by 13.0% to $2.6 million for the year ended December 31,
2015, from $2.3 million for the year ended December 31, 2014. The increase was due to a foreign exchange loss on Indonesia Rupiah
to US Dollar.
Profit on Sale of Vessel. We aim to maintain a young fleet and take the opportunity where it arises to sell older vessels. In
August 2015, we sold the Navigator Mariner to PT Kermas Sejahtera Lestari for a profit of $0.6 million after all sale costs. The vessel
was held at a carrying amount of $31.4 million and had a total of $8.8 million in debt in relation to the secured debt facility that was
used to fund the purchase of the vessel that was repaid prior to the sale. No vessels were sold in 2014.
Vessel write down following collision. The Navigator Aries was involved in a collision with a container vessel near Surabaya,
Indonesia causing significant damage to Navigator Aries and to one of its cargo tanks, on June 28, 2015. The collision caused a fire on
the main deck area of Navigator Aries that was quickly extinguished by the crew and three firefighting tugs. None of our crew
members were injured and no pollution was reported. The vessel was released from Keppel Shipyard on January 27, 2016 after having
undergone extensive repairs. We recognised a write down of $10.5 million relating to the extent of the damage and using the relative
replacement cost for a similar vessel.
47
Insurance recoverable from vessel repairs. A total of $9.9 million has been recognised as an insurance recoverable relating to
the repair costs for Navigator Aries following the June 2015 collision. All repair costs are expected to be recovered by our Hull &
Machinery insurance, subject to a $0.1 million deductible. However, we do not have loss of hire insurance and, therefore, the income
lost from the Navigator Aries charter with Pertamina may not be recoverable for the duration of the repairs.
Interest Expense. Interest expense increased by 3.8% to $28.1 million for the year ended December 31, 2015, from $27.1
million for the year ended December 31, 2014. This increase was primarily due to the increase in total borrowings following the
drawdowns from the secured term loan facilities for the vessel newbuilding deliveries.
Write off Deferred Finance Costs. The write off of deferred financing costs of $1.8 million for the year ended December 31,
2015 related to costs associated with one of our previous secured term loan facilities that was refinanced in January 2015. No loan
refinancing occurred in the year ended December 31, 2014.
Interest Income. Interest income decreased by 33.9% to $151,876 for the year ended December 31, 2015, from $230,223 for the
year ended December 31, 2014. The decrease in interest income for the year ended December 31, 2015, was primarily due to lower
levels of working capital available as cash was used to fund newbuilding requirements.
Income Taxes. Income tax relates to taxes on our subsidiaries incorporated in the United Kingdom, Poland and Singapore. Our
United Kingdom subsidiary earns management and other fees from fellow subsidiary companies, our Polish subsidiary earns
management and other fees from fellow subsidiary companies and our Singaporean subsidiary earned interest payments from our
Indonesian joint venture, where the main corporate tax rates are 21%, 19% and 17%, respectively. For the year ended December 31,
2015, we incurred taxes of $799,977 as compared to taxes for the year ended December 31, 2014 of $903,526.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
The following table compares our operating results for the years ended December 31, 2013 and 2014:
Operating revenue
Other cargo revenue
Operating expenses:
Address and brokerage commissions
Voyage expenses
Cost of cargo sold
Charter-in costs
Vessel operating expenses
Depreciation and amortization
General administration costs
Other corporate expenses
Total operating expenses
Operating income
Interest expense
Interest income
Income before income taxes
Income taxes
Net income
Year Ended
December 31,
2013
Year Ended
December 31,
2014
Percentage
Change
(in thousands, except percentages)
$
$
234,287
4,051
238,338
$
$
304,875
—
304,875
5,473
49,336
4,255
6,834
56,030
36,608
6,147
3,496
168,179
70,159
(27,563)
99
42,695
506
42,189
$
$
$
$
6,697
45,003
—
9,111
70,198
45,809
10,335
2,260
189,413
115,462
(27,051)
230
88,641
904
87,737
$
$
$
$
30.1%
(100.0)%
27.9%
22.4%
(8.8)%
(100.0)%
33.3%
25.3%
25.1%
68.1%
(35.4)%
12.6%
64.6%
1.9%
132.3%
107.6%
78.7%
108.0%
Operating Revenue. Operating revenue increased by 30.1% to $304.9 million for the year ended December 31, 2014, from
$234.3 million for the year ended December 31, 2013. This increase was primarily due to:
•
an increase in operating revenue of approximately $48.9 million attributable to an increase in the weighted average
number of vessels from 19.6 to 24.8 or 26.5%, for the year ended December 2014, and a corresponding increase in vessel
ownership days from 7,168 to 9,051, or 26.3%, for the year ended December 31, 2014, as compared to the year ended
December 31, 2013;
48
•
•
an increase in operating revenue of approximately $14.3 million attributable to an improved monthly charter rate, which
rose to an average of approximately $912,124 per vessel per calendar month ($29,988 per day) for the year ended
December 31, 2014, as compared to an average of approximately $859,600 per vessel per calendar month ($28,262 per
day) for the year ended December 31, 2013;
an increase in operating revenue of approximately $11.7 million attributable to an increase in fleet utilization from 92.9%
during the year ended December 31, 2013 to 97.3% during the year ended December 31, 2014 primarily as a result of
decreased idle time and less ballasting to take up charters. In 2013, we had to reposition the 11 vessels entering our fleet
from AP Møller and suffered an engine room fire on Navigator Capricorn (resulting in 45 days off-hire); and
•
a decrease in operating revenue of approximately $4.3 million relating to a relative decrease in the proportion of voyage
charters to time charters, for the year ended December 31, 2014, as compared to the year ended December 31, 2013.
Other Cargo Revenue. During 2013, other cargo revenue related to the sale of a cargo of butane gas on-board Navigator
Capricorn at the time of a fire in the engine room. This cargo was bought by us and later sold following the completion of repairs to
the vessel. No such incident or activity occurred in the year ended December 31, 2014.
The following table presents selected operating data for the years ended December 31, 2013 and 2014, which we believe are useful in
understanding our operating revenue:
Fleet Data:
Weighted average number of vessels
Ownership days
Available days
Operating days
Fleet utilization
Average daily time charter equivalent rate
Year Ended
December 31, 2013
Year Ended
December 31, 2014
19.6
7,168
7,044
6,544
$
92.9%
28,262
$
24.8
9,051
8,906
8,666
97.3%
29,988
Address and Brokerage Commissions. Address and brokerage commissions increased by 22.4% to $6.7 million for the year
ended December 31, 2014, from $5.5 million for the year ended December 31, 2013 as the number of vessels, and consequently
operating revenue on which it is based, increased.
Voyage Expenses. Voyage expenses decreased by 8.8% to $45.0 million for the year ended December 31, 2014, from $49.3
million for the year ended December 31, 2013. This decrease was primarily due to the decrease in the proportion of voyage charters to
time charters and the reduction in bunker prices during last two quarters of the year, despite the increase in our fleet size.
Cost of Cargo sold. Cost of cargo sold in 2013 related to the purchase of a partial cargo of butane gas loaded on Navigator
Capricorn at the time of a breakout of a fire in the engine room of that vessel. This cargo was bought by us from the charterer and
later sold following the completion of repairs to the vessel. No such incident or cargo purchases were made in the year ended
December 31, 2014.
Charter-in Costs. Charter-in costs increased by 33.3% to $9.1 million for the year ended December 31, 2014, from $6.8 million
for the year ended December 31, 2013. This increase was primarily related to an increase in the chartered-in rate and chartering-in an
additional vessel during December 2014, compared to only one vessel for the year ended December 31, 2013.
Vessel Operating Expenses. Vessel operating expenses as a whole increased by 25.3% to $70.2 million for the year ended
December 31, 2014, from $56.0 million for the year ended December 31, 2013. Individual vessel operating expenses decreased by $47
per day, or 0.6%, to $8,068 per vessel per day for the year ended December 31, 2014, compared to $8,115 per vessel per day for the
year ended December 31, 2013. The overall increase was due to an increase in fleet size whereas the individual vessel operating costs
decrease was primarily due to our additional newly acquired vessels being younger, and therefore less expensive to maintain, than our
vessels owned in 2013.
Depreciation and Amortization. Depreciation and amortization expense increased by 25.1% to $45.8 million for the year ended
December 31, 2014, from $36.6 million for the year ended December 31, 2013. This increase was primarily due to an increase in our
fleet size. Depreciation and amortization expense included amortization of capitalized drydocking costs of $3.9 million for the year
ended December 31, 2014, and $3.1 million for the year ended December 31, 2013.
49
Other Operating Results
General and Administration Costs. General and administration costs increased by 68.1% to $10.3 million for the year ended
December 31, 2014, from $6.1 million for the year ended December 31, 2013, primarily due to additional costs attributable to an
increased number of staff associated with the fleet expansion.
Other Corporate Expenses. Other corporate expenses decreased by 35.4% to $2.3 million for the year ended December 31,
2014, from $3.5 million for the year ended December 31, 2013. This decrease was primarily due to project feasibility costs incurred in
2013 associated with the evaluation of a terminal development opportunity, complementary to our core activities, whereas no such
cost were incurred in 2014, and was partially offset by an increase in costs associated with the establishment and maintenance of
effective internal controls under the Sarbanes-Oxley Act.
Interest Expense. Interest expense decreased by 1.9% to $27.1 million for the year ended December 31, 2014, from $27.6
million for the year ended December 31, 2013. This decrease was primarily due to capitalized interest costs.
Interest Income. Interest income increased by 132.3% to $230,233 for the year ended December 31, 2014, from $98,775 for the
year ended December 31, 2013. The increase in interest income for the year ended December 31, 2013, was primarily due to
maintaining an increased working capital cash balance associated with a larger fleet size and as required to comply with minimum
liquidity covenants under our debt instruments.
Income Taxes. Income tax relates to taxes on our subsidiaries incorporated in the United Kingdom and Singapore. Our United
Kingdom subsidiary earns management and other fees from fellow subsidiary companies, and our Singaporean subsidiary earned
interest payments from our Indonesian joint venture, where the main corporate tax rates are 21% and 17%, respectively. For the year
ended December 31, 2014, we incurred taxes of $903,526 as compared to taxes for the year ended December 31, 2013 of $506,253.
B. Liquidity and Capital Resources
Liquidity and Cash Needs
Our primary uses of funds have been capital expenditures for the acquisition and construction of vessels, voyage expenses, vessel
operating expenses, general and administrative costs, expenditures incurred in connection with ensuring that our vessels comply with
international and regulatory standards, financing expenses and repayments of bank loans. Our primary sources of funds have been
cash from operations, proceeds from our initial public offering, equity investments from existing shareholders, bank borrowings and a
bond placement. We are required to maintain certain minimum liquidity amounts in order to comply with our various debt
instruments. Please see “—Secured Term Loan Facilities.”
In addition to operating expenses, our medium-term and long-term liquidity needs primarily relate to potential future acquisitions.
We expect to take delivery by July 2017 of eight newbuildings for an aggregate price of $509.2 million, comprised of one 22,000 cbm
2016 newbuilding from Jiangnan Shipyard, China for $43.9 million, three 2016 and one 2017 35,000 cbm newbuildings from
Jiangnan for an average of $78.2 million per vessel, two 22,000 cbm 2017 newbuildings from HMD for $51.0 million per vessel and
one 38,000 cbm 2017 newbuilding from HMD for $50.5 million.
We have financed the remaining purchase prices of the 22,000 cbm and 35,000 cbm 2016 and 2017 newbuildings through our current
senior term loan facilities and revolving credit facility. We expect to finance the purchase price of the 2017 fully refrigerated midsize
newbuilding, and any additional future acquisitions either through internally generated funds, debt financings, the issuance of
additional equity securities or a combination of these forms of financing. We anticipate that our primary sources of funds for our long-
term liquidity needs will be from cash from operations and/or debt or equity financings. We believe that these sources of funds will be
sufficient to meet our liquidity needs for the foreseeable future.
Ongoing Capital Expenditures
Liquefied gas transportation is a capital-intensive business, requiring significant investment to maintain an efficient fleet and to stay in
regulatory compliance.
We are required to drydock a vessel once every five years until it reaches 15 years of age, after which we are required to drydock the
applicable vessel every two and one-half to three years. Drydocking each vessel takes approximately 20-30 days. Drydocking days
generally include approximately 5-10 days of travel time to and from the drydocking shipyard and approximately 15-20 days of actual
drydocking time.
50
We spend significant amounts for scheduled drydocking (including the cost of classification society surveys) of each of our vessels.
As our vessels age and our fleet expands, our drydocking expenses will increase. We estimate the current cost of the five-year
drydocking of one of our vessels is approximately $0.8 million, the ten-year drydocking cost is approximately $1.2 million, the 15 and
17 year drydocking costs are approximately $1.5 million. Ongoing costs for compliance with environmental regulations are primarily
included as part of our drydocking and classification society survey costs, with a balance included as a component of our operating
expenses. We are not aware of any regulatory changes or environmental liabilities that we expect to have a material impact on our
current or future results of operations. Please see “Item 3—Key Information—Risk Factors—Risks Related to Our Business—Over
the long term, we will be required to make substantial capital expenditures to preserve the operating capacity of, and to grow, our
fleet.”
Cash Flows
The following table summarizes our cash and cash equivalents provided by (used in) operating, financing and investing activities for
the periods presented:
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash provided (used in) by financing activities
Net increase / (decrease) in cash and cash equivalents
Year Ended December 31,
2013
2014
2015
$
80,015
(457,503)
431,358
53,870
$
(in thousands)
133,114
(231,874)
(33,454)
(132,214)
$
149,554
(205,856)
81,555
25,253
Operating Cash Flows. Net cash provided by operating activities for the year ended December 31, 2015, increased to $149.6
million, from $133.1 million for the year ended December 31, 2014, an increase of 12.4%. This $16.5 million increase in net cash
provided by operating activities for the year ended December 31, 2015, was primarily due to increases in net revenue referred to above
and by movements in working capital.
Net cash provided by operating activities for the year ended December 31, 2014, increased to $133.1 million, from $80.0 million for
the year ended December 31, 2013, an increase of 66.4%. This $53.1 million increase in net cash provided by operating activities for
the year ended December 31, 2014, was primarily due to increases in net revenue referred to above and by movements in working
capital.
Net cash flow from operating activities depends upon repairs and maintenance activity, acquisitions and dispositions, foreign currency
rates, changes in interest rates, fluctuations in working capital balances and spot market charter rates.
Investing Cash Flows. Net cash used in investing activities of $(205.9) million for the year ended December 31, 2015, primarily
represents $205.1 million for payment to Jiangnan shipyard representing the final installment for the 2015 newbuildings, an additional
payment on the five 2016 and one 2017 newbuildings. A total of $30.4 million for payment to HMD was made representing the
second installment for the 2017 handysize newbuildings and initial payment for the 38,000 cbm 2017 newbuilding, as well as $4.5
million being recognised in relation to capitalised interest costs for the newbuildings. This was offset by $34.1 million of proceeds
from the sale of Navigator Mariner, insurance claim for the fire on Navigator Capricorn and receipt of penalties for the delay in
shipyard deliveries.
Net cash used in investing activities of $(231.9) million for the year ended December 31, 2014, primarily represents $206.4
million for payment to Jiangnan shipyard representing the final installment for the 2014 newbuildings and an additional payment on
the four 2015 newbuildings, and an initial first installment on the six 2016 newbuildings. An initial $20.4 million for payment to HMD
was made representing the first installment for the 2017 newbuildings, $3.6 million was paid for acquisition costs relating to the A.P.
Møller vessels acquired in 2013, and $3.3 million in relation to capitalised interest costs. This was offset by $1.8 million of proceeds
from the settling of the insurance claim for the fire on Navigator Capricorn.
Net cash used in investing activities of $(457.5) million for the year ended December 31, 2013, primarily represents $426.1 million for
the acquisition of the 11 A.P. Møller vessels and an additional payment to Jiangnan shipyard of $40.2 million, representing the second
installment on the four 2014 newbuildings, $1.2 million in relation to capitalised interest costs, and an initial installment payment on
each of the four 2015 newbuildings, offset by a net $10.0 million release of short-term investments.
51
Financing Cash Flows. Net cash provided by financing activities was $81.6 million for the year ended December 31, 2015,
consisting of $157.7 million from the secured term loan facilities, offset by $70.3 million in loan repayments, $5.8 million in costs
associated with financing the cost of debt.
Net cash used by financing activities was $(33.5) million for the year ended December 31, 2014, consisting of $150.0 million from the
secured term loan facilities, offset by $182.6 million in loan repayments, $0.5 million in costs associated with financing the cost of
debt and $0.4 million in costs associated with common stock issued to the WLR Group and others.
Net cash provided by financing activities was $431.4 million for the year ended December 31, 2013, consisting of $243.0 million from
the acquisition secured loan facility, $171.6 million from our initial public offering, $75.0 million from the issuance of common stock
to the WLR Group and unrelated shareholders, partially offset by $35.7 million in loan repayments, $7.0 million in costs associated
with the acquisition and newbuilding secured loan facilities, $0.3 million in costs associated with common stock issued to the WLR
Group and others, and $15.2 million in costs associated with our initial public offering.
Secured Term Loan Facilities and Revolving Credit Facility
General. Navigator Gas L.L.C., our wholly-owned subsidiary, and certain of our vessel-owning subsidiaries have entered into a
series of secured term loan facilities beginning in April 2011, or the “April 2011 secured term loan facility,” in April 2012, or the
“April 2012 secured term loan facility,” in February 2013, or the “February 2013 secured term loan facility,” and in January 2015, or
the “January 2015 secured term loan facility.” In December 2015, we entered into a secured revolving credit facility, or the
“December 2015 revolving credit facility.” Collectively, we refer to the debt thereunder as our “secured facilities.” Proceeds of the
loans under our secured facilities may be used to finance newbuildings, acquisitions and for general corporate purposes. The full
commitment amounts have been drawn under the April 2011 secured term loan facility, the April 2012 secured term loan facility and
the February 2013 secured term loan facility. Following the drawdown of $90.0 million to partially finance the delivery of the
newbuildings Navigator Atlas, Navigator Europa and Navigator Oberon in 2014, there was $30.0 million under the April 2013
secured term loan facility available to be drawn to fund the delivery of newbuildings. In January 2015, the “April 2013 secured term
loan facility” was refinanced with a new secured term loan facility, or the “January 2015 secured term loan facility,” under which we
borrowed $278.1 million to finance or re-finance the purchase of the three vessels constructed in 2014, the four vessels constructed in
2015, and the two 2016 newbuildings. In December 2015, we entered into the “December 2015 secured revolving credit facility”,
under which we borrowed $290.0 million on a revolver basis to finance three 35,000 cbm 2016 newbuildings, one 35,000 cbm 2017
newbuilding and two 22,000 cbm 2017 newbuildings. We are the guarantor under each of the secured term loan facilities and the
revolving credit facility.
Fees and Interest. We paid arrangement and agency fees at the time of the closing of our secured term loan facilities. Agency
fees are due annually. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus a bank margin, for interest periods of one,
three or six months or longer if agreed by all lenders.
Term and Facility Limits
April 2011. Secured Term Loan Facility. The April 2011 secured term loan facility has a term of six years with a maximum
principal amount of $80.0 million. The April 2011 secured term loan facility is a delayed draw facility with an availability period that
ended December 27, 2012. The aggregate fair market value of the collateral vessels must be no less than 130% of the aggregate
outstanding borrowings under the facility. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 300 basis points per
annum.
April 2012 Secured Term Loan Facility. The April 2012 secured term loan facility has a term of five years with a maximum
principal amount of up to $180.0 million. The April 2012 secured term loan facility is a delayed draw facility with an availability
period that ended December 31, 2012. The aggregate fair market value of the collateral vessels must be no less than 135% of the
aggregate outstanding borrowings under the facility. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 337.5 basis
points per annum.
February 2013 Secured Term Loan Facility. The February 2013 secured term loan facility has a term of five years with a
maximum principal amount of up to the lesser of (i) $270.0 million and (ii) 60% of the fair market value of the collateral vessels. The
February 2013 secured term loan facility is a delayed draw facility with an availability period that ended December 31, 2013.
Advances under the facility were upon the delivery of the A.P. Møller vessels. The aggregate fair market value of the collateral vessels
must be no less than 135% of the aggregate outstanding borrowings under the facility. Interest on amounts drawn is payable at a rate
of U.S. LIBOR plus 350 basis points per annum.
52
On June 30, 2014, we entered into a Supplemental Agreement to our February 2013 $270.0 million secured term loan facility, which,
among other things, (i) allows us to prepay $120.0 million outstanding under such term loan facility, (ii) revises the terms of the loan
facility to include a quasi-revolving facility where funds can be drawn over the course of the facility period in four tranches of $30.0
million each and (iii) provides that such term loan facility be amended and restated to reflect the foregoing. On July 7, 2014, we
prepaid $120.0 million outstanding under such term loan facility from excess cash following the IPO in November 2013. We made an
aggregate of $90.0 million of drawdowns ($30.0 million on each of November 6, 2014, December 30, 2014 and April 30, 2015), to
fund instalments for the vessel newbuildings. The availability under this facility as of December 31, 2015 was $30.0 million.
January 2015 Secured Term Loan Facility. The January 2015 secured term loan facility was entered into to refinance the April
2013 secured term loan facility, as well as to provide financing for an additional five existing newbuildings. The January 2015 secured
term loan facility has a term of up to seven years from the loan drawdown date with a maximum principal amount of up to $278.1
million. Following the combined drawdowns of $215.8 million to partially finance the delivery of the newbuildings Navigator Atlas,
Navigator Europa, Navigator Oberon, Navigator Triton, Navigator Umbrio, Navigator Centauri, and Navigator Ceres, there was
$62.3 million as at December 31, 2015 under the January 2015 secured term loan facility available to be drawn to fund the future
deliveries of Navigator Ceto which was delivered in January 2016 and Navigator Copernico which is expected to be delivered in April
2016. The aggregate fair market value of the collateral vessels must be no less than 135% of the aggregate outstanding borrowings
under the facility. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 270 basis points per annum.
December 2015 Secured Revolving Credit Facility. The December 2015 secured revolving credit facility has a term of seven
years from the loan arrangement date (and will expire in December 2022) with a maximum principal amount of up to $290.0 million
available on a revolving basis. No drawdowns were made before December 31, 2015. The aggregate fair market value of the collateral
vessels must be no less than 125% of the aggregate outstanding borrowings under the facility. Interest on amounts drawn is payable at
a rate of U.S. LIBOR plus 210 basis points per annum.
Prepayments/Repayments . The borrowers may voluntarily prepay indebtedness under our secured term loan facilities at any
time, without premium or penalty, in whole or in part upon prior written notice to the facility agent, subject to customary
compensation for LIBOR breakage costs. For the February 2013 secured term loan facility referred to above, the borrowers may not
reborrow any amount that has been so prepaid. For the December 2015 secured revolving credit facility, the borrowers may re-borrow
and prepay amounts.
The loans will be subject to quarterly amortization repayments beginning three months after the initial borrowing date or delivery
dates of the newbuildings or delivered ships, as applicable. Any remaining outstanding principal amount must be repaid on the
expiration date of the facilities.
The borrowers are also required to deliver semi-annual compliance certificates, which include valuations of the vessels securing the
applicable facility from an independent ship broker. Upon delivery of the valuation, if the market value of the collateral vessels is less
than 130% of the outstanding indebtedness under the April 2011 facility or 135% of the outstanding indebtedness under the other
facilities, the borrowers must either provide additional collateral or repay any amount in excess of 130% or 135% of the market value
of the collateral vessels, as applicable.
Financial Covenants. The secured term loan facilities and revolving credit facility contain financial covenants requiring the
borrowers, among other things, to ensure that:
•
•
•
•
•
the ratio of Net Debt to Total Capitalization (each as defined in the applicable secured term loan facility) is no greater than
0.6 to 1;
the borrowers have liquidity (including undrawn available lines of credit with a maturity exceeding 12 months) of no less
than (i) between $10.0 million and $25.0 million, as applicable, or (ii) not less than $25.0 million, or (ii) 5% of Net Debt
or total debt, as applicable, whichever is greater;
the ratio of EBITDA to Interest Expense (each as defined in the applicable secured term loan facility), on a trailing four
quarter basis, is no less than 3 to 1;
the borrower must maintain a minimum ratio of shareholder equity to total assets of 30%; and
the current assets of the borrower must exceed the current liabilities (excluding current liabilities attributable to the senior
unsecured bonds or the senior term loans) at all times.
Restrictive Covenants. The secured term loan facilities provide that the borrowers may not pay dividends to us out of operating
revenues generated by the vessels securing the indebtedness if an event of default has occurred or is continuing. The secured term loan
facilities and revolving credit facility also limit the borrowers from, among other things, incurring indebtedness or entering into
mergers and divestitures. The secured term loan facilities also contain general covenants that will require the borrowers to maintain
53
adequate insurance coverage and to maintain their vessels. In addition, the secured term loan facilities and revolving credit facility
include customary events of default, including those relating to a failure to pay principal or interest, a breach of covenant,
representation and warranty, a cross-default to other indebtedness and non-compliance with security documents.
As of December 31, 2014 and 2015, we were in compliance with all covenants under the secured term loan facilities and revolving
credit facility, including with respect to the aggregate fair market value of our collateral vessels.
Senior Unsecured Bonds
General. On December 18, 2012, we issued senior unsecured bonds in an aggregate principal amount of $125.0 million with
Norsk Tillitsmann ASA as the bond trustee. The proceeds of the senior unsecured bonds were used (i) in part to finance the acquisition
of the A.P. Møller vessels and (ii) for general corporate purposes. The senior unsecured bonds are governed by Norwegian law and
listed on the Nordic ABM which is operated and organized by Oslo Børs ASA.
Interest . Interest on the senior unsecured bonds is payable at a fixed rate of 9.0% per annum, calculated on a 360-day year
basis. Interest is payable semi-annually on June 18 and December 18 of each year.
Maturity. The senior unsecured bonds mature in full on December 18, 2017.
Optional Redemption. We may redeem the senior unsecured bonds, in whole or in part. Senior unsecured bonds redeemed up
until December 17, 2016, shall be redeemed at 104% of par, senior unsecured bonds redeemed from December 18, 2016 to June 17,
2017, shall be redeemed at 102% of par and senior unsecured bonds redeemed from June 18, 2017, to the day prior to the maturity
date, shall be redeemed at 101% of par.
Additionally, upon the occurrence of a “Change of Control Event” (as defined in the senior unsecured bond agreement), the holders of
senior unsecured bonds have an option to force the issuer to repay such holder’s outstanding bonds at 101% of par.
Financial Covenants. The senior unsecured bond agreement contains financial covenants requiring us, among other things, to
ensure that:
• we and our subsidiaries maintain a minimum liquidity of no less than the greater of (i) $12.5 million and (ii) 5% of Total
Interest-Bearing Debt (as defined in the senior unsecured bond agreement);
• we and our subsidiaries maintain a positive working capital amount;
• we and our subsidiaries maintain an Interest Coverage Ratio (as defined in the senior unsecured bond agreement) of not less
than 3.0;
• we and our subsidiaries maintain an Equity Ratio (as defined in the senior unsecured bond agreement) of at least 30%; and
• we and our subsidiaries ensure that the sum of the market value of (i) our vessels plus (ii) any amounts in any escrow account in
favor of the bond trustee are at least 120% of the Total Interest-Bearing Debt.
Our compliance with the covenants listed above is measured as of the end of each fiscal quarter, except for the final ratio, which is
measured semi-annually on June 30 of each year.
Restrictive Covenants. The senior unsecured bond agreement provides that we may not declare any dividends or other
distributions to our equity holders until after December 31, 2013, except for payments in respect of services rendered or transactions in
the ordinary course in an amount not to exceed $2.0 million. Following December 31, 2013, we may declare dividends so long as such
dividends do not exceed 50% of our consolidated net profits after taxes and we have an Equity Ratio of 35% after giving pro forma
effect to such distribution. The senior unsecured bond agreement also limits us and our subsidiaries from, among other things,
incurring additional indebtedness, entering into mergers and divestitures, engaging in transactions with affiliates or incurring any
additional liens. In addition, the senior unsecured bond agreement includes customary events of default, including those relating to a
failure to pay principal or interest, a breach of covenant, false representation and warranty, a cross-default to other indebtedness, the
occurrence of a material adverse effect, or our insolvency or dissolution.
As of December 31, 2015, we were in compliance with all covenants under our senior unsecured bond agreement.
C. Research and Development Patents and Licenses etc.
We do not undertake any significant expenditure on research and development, and have no significant interests in patents or licenses.
54
D. Trend Information
The demand for seaborne transportation of LPG, petrochemical gases and ammonia is expected to continue to grow due to evolving
energy and petrochemical market dynamics, as seaborne transportation is often the only, or the most cost effective, way to transport
liquefied gases between major exporting and importing markets. The arbitrage between oil-based products and LPG has narrowed due
to the current decline in the price of oil. As OPEC continues to pump oil at record levels it is anticipated that the price of oil will not
rise over the next few months. This is forcing oil and gas exploration companies to reduce investments in new projects and consider
the closure of drilling projects with high costs of extraction. However, as LPG is a supply driven product, and due to limited storage
facilities, companies extracting oil and gas are still expected to produce it as a byproduct and price it accordingly to clear the market.
The expansion of existing LNG facilities and the construction of new LNG production facilities around the world have added to LPG
production and trade volumes, following a period of project delays and stalled start-ups due to the global economic downturn. U.S.
based shale plays have been developing rapidly over the last few years, increasing LNG production, which consists of among others,
propane, butane and ethane molecules. Terminal operators have responded to the surge in LNG supply and have de-bottlenecked
existing facilities and constructed new export terminals to facilitate international trade. Several new export locations have therefore
been commissioned both on the U.S. East coast and U.S. Gulf coast.
Charter rates and vessel values are influenced by the supply and demand for seaborne gas cargo carrying capacity and are
consequently volatile. The supply of gas carrier capacity is primarily a function of the size of the existing world fleet, the number of
newbuildings being delivered and the scrapping of older vessels. The world fleet of liquefied gas carriers has increased steadily over
the past ten years and the size of the order book reached an initial peak in 2007 and 2008 but declined in the second half of 2008 and
2009 as a result of the slowdown in the world economy. The order book for handysize liquefied gas carriers has increased significantly
since late 2010 and now has the largest number of newbuildings, all of which are due to be delivered over the next two years.
However these are split between a number of new entrants, with none of these set to obtain a dominant share of the market from their
newbuilding programs. Demolition or scrapping is largely a function of vessel age and the state of the freight market, as all ships have
finite lives. There was a marked increase in scrapping activity from 2007 through 2011, which largely coincided with the downturn in
the freight market. However, demolition levels declined significantly since 2012.
E. Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements.
F. Tabular Disclosure of Contractual Obligations
The contractual obligations schedule set forth below summarizes our contractual obligations as of December 31, 2015.
Vessels under construction
Secured term loan facilities and revolving
credit facility and 9% senior unsecured
bond issue
Office operating leases
Total contractual obligations
2016
2017
2018
2019
2020
Thereafter
Total
230,248 160,620
(in thousands)
390,868
61,979 296,002 120,989 16,978 75,104
477
630,294
3,330
$ 292,936 $ 457,215 $ 121,466 $ 17,455 $ 75,581 $ 59,839 $ 1,024,492
59,242
597
477
709
593
477
As part of our growth strategy, we will continue to consider strategic opportunities, including the acquisition of additional
vessels. We may choose to pursue such opportunities through internal growth or joint ventures or business acquisitions. We intend to
finance any future acquisitions through various sources of capital, including credit facilities, debt borrowings and the issuance of
additional shares of common stock.
G.
Safe Harbor
See “Cautionary Statement Regarding Forward Looking Statements” at the beginning of this annual report.
55
H. Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make estimates in the
application of our accounting policies based on our best assumptions, judgments and opinions. On a regular basis, management
reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are
presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with
certainty, actual results could differ from our assumptions and estimates, and such differences could be material. For a description of
our material accounting policies, please read Note 2 (Summary of Significant Accounting Policies) to the audited historical
consolidated financial statements.
Revenue Recognition. We employ our vessels under time charters, voyage charters or COAs. With time charters, we receive a
fixed charter rate per on-hire day and revenue is recognized on an accrual basis and is recorded over the term of the charter as service
is provided. In the case of voyage charters, the vessel is contracted for a voyage between two or several ports, and we are paid for the
cargo transported. Revenue from COAs is recognized on the same basis as revenue from voyage charters, as they are essentially a
series of consecutive voyage charters.
We recognize revenue on a discharge-to-discharge basis in determining percentage of completion for all voyage charters, but do not
begin recognizing revenue until a charter has been agreed to by the customer and us, even if the vessel has discharged its cargo and is
sailing to the anticipated load port for its next voyage.
Vessels in Operation. The cost of our vessels (excluding the estimated initial built-in overhaul cost) less their estimated residual
value is depreciated on a straight-line basis over the vessels’ estimated useful lives. We estimate the useful life of each of our vessels
to be 30 years from the date the vessel was originally delivered from the shipyard. The actual life of a vessel, however, may be
different, with a life less than 30 years resulting in an increase in the quarterly depreciation and potentially resulting in an impairment
loss. The estimated residual value is based on the steel value of the tonnage for each vessel.
Impairment of Vessels. We review our vessels for impairment when events or circumstances indicate the carrying amount of the
vessel may not be recoverable. We may recognize an impairment loss when the sum of the expected future cash flows (undiscounted
and without interest) of a vessel over its estimated remaining useful life is less than its carrying amount. If we determine that a vessel’s
undiscounted cash flows are less than its carrying value, we record an impairment loss equal to the amount by which its carrying
amount exceeds its fair value. The new lower cost basis would result in a lower annual depreciation than before the impairment.
Considerations in making such an impairment evaluation include comparison of current carrying value to anticipated future operating
cash flows, expectations with respect to future operations and other relevant factors. The estimates and assumptions regarding
expected cash flows require considerable judgment and are based upon historical experience, financial forecasts and industry trends
and conditions. We are not aware of any indicators of impairment nor any regulatory changes or environmental liabilities that we
anticipate will have a material impact on our current or future operations.
Vessel Market Values. In “—Impairment of Vessels,” we discuss our policy for assessing impairment of the carrying values of
our vessels. The charter-free market value (i.e., disregarding the charter contracts attached to each of the vessels) of certain vessels in
many segments of the worldwide oceangoing vessel fleet have experienced volatility over the past several years. Therefore, there is a
risk that the sale value of certain of our vessels could decline below those vessels’ carrying value, even though we would not impair
those vessels’ carrying value under our accounting impairment policy, due to our belief that future undiscounted cash flows expected
to be earned by such vessels over their operating lives would exceed such vessels’ carrying amounts.
However, with respect to the class of vessels we own, we believe that relative to the worldwide oceangoing vessel fleet, the market for
the sale of our vessels is particularly illiquid, difficult to observe and, therefore, speculative, given the extremely limited secondary
sales data. We obtain shipbroker appraisals of our vessels principally for the purposes of covenant compliance (e.g., loan to value
ratio). These appraisals are generally performed without examination of the vessel and without an attempt to market a vessel, and no
consideration is given to whether a group of vessels could be sold for higher valuation than on an individual basis. Given the lack of
secondary sales data available for our vessels, these appraisals have been used by us as an approximation of our vessels’ market
values. However, because these appraisals are primarily prepared for the purposes of valuing collateral and the lack of comparable
market transactions, they are prepared on a charter-free basis predominantly based on depreciated replacement cost, which, we believe
significantly discounts the value of our vessels. As a result, we believe that the ultimate value that could be obtained from the sale of
any one of our vessels to a willing third party would likely, and in many cases meaningfully, exceed the vessel’s appraised value,
especially if we were given adequate time to market the vessel.
56
Drydocking Costs and Vessel Damage. Each of our vessels is required to be drydocked every five years until it reaches 15 years
of age, after which each vessel is required to be drydocked every two and one-half to three years for any major repairs and
maintenance and for inspection of the underwater parts of the vessel, which cannot be performed while the vessel is operating. We
capitalize costs associated with the drydockings as “built in overhauls” in accordance with U.S. GAAP and amortize these costs on a
straight-line basis over the period between drydockings.
We expense estimated costs to repair minor vessel damage that exists at the balance sheet date.
Amortization of capitalized drydocking expenditures requires us to estimate the period until the next drydocking. While we typically
drydock each vessel every two and one-half to five years, we may drydock the vessels on a more frequent basis. If we change our
estimate of the next drydock date, we will adjust our annual amortization of drydocking expenditures. Amortization of drydockings is
included in our depreciation and amortization expense.
Foreign Currency Transactions. Substantially all of our cash receipts are in U.S. Dollars. Our disbursements, however, are in
the currency invoiced by the supplier. We remit funds in the various currencies invoiced. We convert the non-U.S. Dollar invoices
received and their subsequent payments into U.S. Dollars when the transactions occur. The movement in exchange rates between these
two dates is transferred to an exchange difference account and is expensed each month.
Our payments due to our technical managers pursuant to our crewing management agreements are denominated in U.S. Dollars,
subject to adjustment based on the U.S. Dollar/Euro exchange rate. A significant portion of the payments we make to our technical
managers are used by them to pay the officers on-board our vessels.
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
Directors
Set forth below are the names, ages and positions of our directors.
Name
David J. Butters
Dr. Heiko Fischer
David Kenwright
Spiros Milonas
Alexander Oetker
Wendy Teramoto
Florian Weidinger
Position
Age
75 Chairman of the Board of Directors
48 Director
68 Director
87 Director
41 Director
41 Director
34 Director
Our board of directors are elected annually. Each director holds office until his successor shall have been duly elected and qualified,
except in the event of his death, resignation, removal or the earlier termination of his term of office. Officers are elected from time to
time by vote of our board of directors and hold office until a successor is elected.
Biographical information with respect to each of our directors and our executive officers is set forth below. The business address for
our directors and executive officers is 399 Park Avenue, 38th Floor, New York, New York 10022.
David J. Butters. David J. Butters has served as president, chief executive officer and chairman of the Board since September
2008. Prior to September 2008, Mr. Butters served as a managing director of Lehman Brothers Inc., a subsidiary of Lehman Brothers
Holdings Inc., where he had been employed for more than 37 years. Mr. Butters is currently chairman of the board of directors and
chairman of the compensation committee of GulfMark Offshore, Inc., a provider of marine support and transportation services to the
oil and gas industry and a director of Weatherford International Ltd., an oilfield services company.
Dr. Heiko Fischer. Dr. Heiko Fischer has been a member of the Board since December 2011. Dr. Fischer has been Chief
Executive Officer and Chairman of the Management Board of VTG Aktiengesellschaft, a German railroad logistics company traded
on the Frankfurt Stock Exchange, since May 1, 2004. He was a member of the Supervisory Board of Hapag-Lloyd AG, a German
container shipping company. He is the Chairman of the Supervising Board of TRANSWAGGON-Gruppe and a member of the
Supervising Board of Brueckenhaus Grundstueckgesellschaft m.b.h., Kommanditgesellschaft Brueckenhaus Grundstuecksgesellschaft
m.b.h. & Co., TRANSWAGGON AG and Waggon Holding AG. Dr. Fischer graduated from the University of Albany with an MBA
in 1992, and from Julius-Maximilian University in Wuerzburg, Germany with a PhD in Economic Sciences in 1995.
57
David Kenwright. David Kenwright has been a member of the Board since March 2007. Mr. Kenwright is a managing director
of Achater Offshore Ltd. and chairman of the U.K. Emergency Response and Rescue Vessel Association Ltd., and previously a
managing director of Gulf Offshore N.S. Ltd. for seven years. Mr. Kenwright is a Chartered Engineer and a Fellow of the Institute of
Marine Engineering, Science and Technology.
Spiros Milonas. Spiros Milonas has been a member of the Board since August 2006. He is chairman and president of Ionian
Management Inc., which oversees the Ionian Group, with interests in shipping, oil and gas and real estate. Mr. Milonas is a director of
the New York Shipping Cooperation Committee, a member of Leadership 100, a member of the Board of Advisors of Atlantic Bank,
and a recipient of the Ellis Island Medal of Honor Award. Mr. Milonas graduated from Athens University, School of Economics.
Alexander Oetker. Alexander Oetker has been a member of the Board since September 2006. Mr. Oetker is the founder and
chief executive officer of AO Schiffahrt GmbH & Co., a bulk and container shipping company based in Hamburg, Germany. Before
founding AO Schiffahrt, Mr. Oetker was employed as chartering manager of Hamburg Sud and was employed by Hutchinson Port
Holdings in Hong Kong.
Wendy Teramoto. Wendy L. Teramoto has been a member of the Board since November 2014. Ms. Teramoto is a Managing
Director of WL Ross & Co. LLC, a private equity firm, and is a member of its Investment Committee. Ms. Teramoto is currently a
director of The Greenbrier Companies, a supplier of transportation equipment and services to the railroad industry, Diamond S
Shipping Group Inc., an energy focused global shipping company and Nautical Bulk Holdings Ltd, a dry bulk shipping company.
Prior to WL Ross & Co. LLC, Ms. Teramoto worked in the restructuring advisory group at Rothschild Inc. Ms. Teramoto holds a B.S.
in Accounting from the University of Colorado at Boulder.
Florian Weidinger. Florian Weidinger has been a member of the Board since March 2007. Mr. Weidinger previously worked as
a vice president at Lehman Brothers’ principal investment division, Global Trading Strategies in London prior to becoming chief
executive officer of Hansabay, a Singapore based fund management business. Mr. Weidinger holds a BSc from Cass Business School,
City University, London, an MBA from the Stanford Graduate School of Business and an MS in Environment and Resources from
Stanford University.
Executive Officers
The following table provides information about our executive officers. NGT Services (UK) Limited, our wholly-owned subsidiary and
commercial manager, will provide us with certain of our officers, including our chief financial officer and our chief commercial
officer. All references in this annual report to “our officers” refer to our president and chief executive officer and those officers of
NGT Services (UK) Limited who perform executive officer functions for our benefit.
Name
David J. Butters
Niall Nolan
Oeyvind Lindeman
Paul Flaherty
Tommy Hjalmas
Position
Age
75 Chairman of the Board of Directors
52 Chief Financial Officer
37 Chief Commercial Officer
51 Director of Fleet & Technical Operations
48 Director of Newbuildings and Special Projects
David J. Butters. David J. Butters was appointed president and chief executive officer of Navigator Holdings Ltd. in September
2008.
Niall Nolan. Niall Nolan was appointed chief financial officer of NGT Services (UK) Limited in August 2006. Prior to his
appointment as chief financial officer, Mr. Nolan worked for Navigator Holdings as representative of the creditors committee during
Navigator Holdings’ bankruptcy proceedings. Prior to that, Mr. Nolan was group finance director of Simon Group PLC, a U.K. public
company. Mr. Nolan is a fellow of the Association of Chartered Certified Accountants.
Oeyvind Lindeman. Oeyvind Lindeman was appointed Chartering Manager of the Company in November 2007, before being
appointed chief commercial officer in January 2014. Prior to this, Mr. Lindeman was employed for five years at A.P. Møller Maersk, a
gas transport company as charterer. Mr. Lindeman holds a BA with honors from the University of Strathclyde and an Executive MBA
with distinction from Cass Business School.
Paul Flaherty. Paul Flaherty was appointed Director of Fleet and Technical Operations in December 2014. Prior to this, he was
employed by JP Morgan Global Maritime as VP, Asset Management. Previously, he spent 17 years with BP Shipping Ltd as a Fleet
and Technical Manager for both Oil and Gas vessels. Mr. Flaherty is a Chartered Engineer and a Fellow of the Institute of Marine
Engineers & Science Technicians (IMarEST).
58
Tommy Hjalmas. Tommy Hjalmas, who was chief operating officer of NGT Services (UK) Limited from November 2006 to
December 2014, was appointed Director of Newbuildings and Special Projects of the Company in December 2014. Mr. Hjalmas
joined NGT Services (UK) Limited in November 2006. Prior to this, Mr. Hjalmas was employed for five years at Dorchester Maritime
Limited, now known as BSSM, our technical manager. Mr. Hjalmas received his BSc in marine engineering from the University of
Chalmers.
B. Compensation
Compensation of Management
Our officers receive compensation for the services they provide to us. Four of our five officers (Messrs. Nolan, Lindeman, Flaherty
and Hjalmas) are remunerated in pounds sterling, while Mr. Butters is remunerated in U.S. dollars. For purposes of this annual report,
all forms of compensation paid to our officers have been converted to U.S. dollars. For the year ended December 31, 2015, the
aggregate cash compensation paid to all officers as a group was approximately $2,844,740. The cash compensation for each officer is
comprised of base salary and bonus. Our officers are eligible to receive a discretionary annual cash bonus based on certain
performance criteria determined by the compensation committee of our Board, or the “Compensation Committee,” and approved by
our Board. Regardless of performance, the annual cash bonuses are paid at the sole discretion of the Compensation Committee, subject
to approval by our Board.
For the year ended December 31, 2015, we granted a total of 122,155 shares subject to stock option awards to officers of the company
under the Navigator Holdings Ltd. 2013 Long-Term Incentive Plan, or the “LTIP” (as described in further detail below under “—2013
Long-Term Incentive Plan”), which such awards shall vest and become exercisable on the third anniversary of the grant date. Once
vested and exercisable, the awards may be exercised up to the tenth anniversary of the grant date, subject to an officer’s continued
employment by us.
Messrs. Nolan, Lindeman, Flaherty and Hjalmas are eligible to participate in certain welfare benefit programs we offer, including life
insurance, permanent health insurance, and private medical insurance. For the year ended December 31, 2015, the aggregate cost of
the benefits described in the preceding sentence provided to Messrs. Nolan, Lindeman, Flaherty and Hjalmas was approximately
$12,015. While Mr. Butters is not eligible to participate in the same welfare benefit programs as our other officers, he is entitled to
reimbursement by us for the Medicare portion of the FICA tax withheld from his compensation. For the year ended December 31,
2015, we paid Mr. Butters an amount of $26,899 as Medicare reimbursement. Messrs. Nolan, Lindeman, Flaherty and Hjalmas are
also eligible to participate in a personal pension plan, described below under “—Benefit Plans and Programs.”
Compensation of Directors
Officers who also serve as members of our Board do not receive additional compensation for their services as directors. Each non-
employee director who serves as a member of our Board receives a fee of $100,000, of which $50,000 is paid in cash and $50,000 in
shares of restricted stock granted under the LTIP which vest on the first anniversary of the grant date. In addition, the Audit
Committee chairman and Compensation Committee chairman each receive an additional amount of $5,000 per annum while members
of each committee receive a meeting fee of $1,500 for each committee meeting.
For the year ended December 31, 2015, we also granted a total of 16,854 shares of restricted stock pursuant to awards under the LTIP
to non-employee directors of the company, which such awards vest on the first anniversary of the grant date.
Each director will be fully indemnified by us for actions associated with being a director to the extent permitted under Marshall
Islands law.
Equity Compensation Plans
2013 Long-Term Incentive Plan
In connection with our initial public offering, we adopted the Navigator Holdings Ltd. 2013 Long-Term Incentive Plan, or the “LTIP,”
for our and our affiliates’ employees and directors as well as consultants who perform services for us. The LTIP provides for the
award of restricted stock, stock options, performance awards, annual incentive awards, restricted stock units, bonus stock awards,
stock appreciation rights, dividend equivalents, and other share-based awards.
Administration . The LTIP is administered by the Compensation Committee, or the “Plan Administrator,” with certain decisions
subject to approval of our Board. The Plan Administrator will have the authority to, among other things, designate participants under
the LTIP, determine the type or types of awards to be granted to a participant, determine the number of shares of our common stock to
be covered by awards, determine the terms and conditions applicable to awards and interpret and administer the LTIP. The Plan
59
Administrator may terminate or amend the LTIP at any time with respect to any shares of our common stock for which a grant has not
yet been made. The Plan Administrator also has the right to alter or amend the LTIP or any part of the plan from time to time,
including increasing the number of shares of our common stock that may be granted, subject to shareholder approval as required by
the exchange upon which our common stock is listed at that time. However, no change in any outstanding grant may be made that
would materially reduce the benefits of the participant without the consent of the participant.
Number of Shares. Subject to adjustment in the event of any distribution, recapitalization, split, merger, consolidation or similar
corporate event, the number of shares available for delivery pursuant to awards granted under the LTIP is 3,000,000 shares. There is
no limit on the number of awards that may be granted and paid in cash. Shares subject to an award under the LTIP that are canceled,
forfeited, exchanged, settled in cash or otherwise terminated, including withheld to satisfy exercise prices or tax withholding
obligations, are available for delivery pursuant to other awards. The shares of our common stock to be delivered under the LTIP will
be made available from authorized but unissued shares, shares held in treasury, or previously issued shares reacquired by us, including
by purchase on the open market.
Restricted Shares. A restricted share grant is an award of common stock that vests over a period of time and that during such time is
subject to forfeiture. The Plan Administrator may determine to make grants of restricted shares under the plan to participants
containing such terms as the Plan Administrator shall determine. The Plan Administrator will determine the period over which
restricted shares granted to participants will vest. The Plan Administrator, in its discretion, may base its determination upon the
achievement of specified financial objectives. Dividends made on restricted shares may or may not be subjected to the same vesting
provisions as the restricted shares.
Share Options. A share option is a right to purchase shares at a specified price during specified time periods. The LTIP permits the
grant of options covering our common stock. The Plan Administrator may make grants under the plan to participants containing such
terms as the Plan Administrator shall determine. Share options will have an exercise price that may not be less than the fair market
value of our common stock on the date of grant. Share options granted under the LTIP can be either incentive share options (within the
meaning of section 422 of the Code), which have certain tax advantages for recipients, or non-qualified share options. Share options
granted will become exercisable over a period determined by the Plan Administrator. No share option will have a term that exceeds
ten years. The availability of share options is intended to furnish additional compensation to plan participants and to align their
economic interests with those of common shareholders.
Performance Award. A performance award is a right to receive all or part of an award granted under the LTIP based upon
performance criteria specified by the Plan Administrator. The Plan Administrator will determine the period over which certain
specified company or individual goals or objectives must be met. The performance award may be paid in cash, shares of our common
stock or other awards or property, in the discretion of the Plan Administrator.
Annual Incentive Award. An annual incentive award is a conditional right to receive a cash payment, shares or other award unless
otherwise determined by the Plan Administrator, after the end of a specified year. The amount potentially payable will be based upon
the achievement of performance goals established by the Plan Administrator.
Restricted Share Unit. A restricted share unit is a notional share that entitles the grantee to receive a share of common stock upon the
vesting of the restricted share unit or, in the discretion of the Plan Administrator, cash equivalent to the value of a share of common
stock. The Plan Administrator may determine to make grants of restricted share units under the plan to participants containing such
terms as the Plan Administrator shall determine. The Plan Administrator will determine the period over which restricted share units
granted to participants will vest.
The Plan Administrator, in its discretion, may grant tandem dividend equivalent rights with respect to restricted share units that entitle
the holder to receive cash equal to any cash dividends made on our common stock while the restricted share units are outstanding.
Bonus Shares. The Plan Administrator, in its discretion, may also grant to participants shares of common stock that are not subject to
forfeiture. The Plan Administrator can grant bonus shares without requiring that the recipient pay any remuneration for the shares.
Share Appreciation Rights. The LTIP permits the grant of share appreciation rights. A share appreciation right is an award that, upon
exercise, entitles participants to receive the excess of the fair market value of our common stock on the exercise date over the grant
price established for the share appreciation right on the date of grant. Such excess will be paid in cash or common stock. The Plan
Administrator may determine to make grants of share appreciation rights under the plan to participants containing such terms as the
Plan Administrator shall determine. Share appreciation rights will have a grant price that may not be less than the fair market value of
our common stock on the date of grant. In general, share appreciation rights granted will become exercisable over a period determined
by the Plan Administrator.
60
Other Share-Based Awards. The Plan Administrator, in its discretion, may also grant to participants an award denominated or payable
in, referenced to, or otherwise based on or related to the value of our common stock.
Tax Withholding. At our discretion, and subject to conditions that the Plan Administrator may impose, a participant’s minimum
statutory tax withholding with respect to an award may be satisfied by withholding from any payment related to an award or by the
withholding of shares issuable pursuant to the award based on the fair market value of the shares.
Anti-Dilution Adjustments. If any “equity restructuring” event occurs that could result in an additional compensation expense under
Financial Accounting Standards Board Accounting Standards Codification Topic 718, or “FASB ASC Topic 718,” if adjustments to
awards with respect to such event were discretionary, the Plan Administrator will equitably adjust the number and type of shares
covered by each outstanding award and the terms and conditions of such award to equitably reflect the restructuring event, and the
Plan Administrator will adjust the number and type of shares with respect to which future awards may be granted. With respect to a
similar event that would not result in a FASB ASC Topic 718 accounting charge if adjustment to awards were discretionary, the Plan
Administrator shall have complete discretion to adjust awards in the manner it deems appropriate. In the event the Plan Administrator
makes any adjustment in accordance with the foregoing provisions, a corresponding and proportionate adjustment shall be made with
respect to the maximum number of shares available under the LTIP and the kind of shares or other securities available for grant under
the LTIP. Furthermore, in the case of (i) a subdivision or consolidation of the common stock (by reclassification, split or reverse split
or otherwise), (ii) a recapitalization, reclassification, or other change in our capital structure or (iii) any other reorganization, merger,
combination, exchange or other relevant change in capitalization of our equity, then a corresponding and proportionate adjustment
shall be made in accordance with the terms of the LTIP, as appropriate, with respect to the maximum number of shares available under
the LTIP, the number of shares that may be acquired with respect to an award, and, if applicable, the exercise price of an award, in
order to prevent dilution or enlargement of awards as a result of such events.
Change in Control. Upon a “change of control” (as defined in the LTIP), the Plan Administrator may, in its discretion, (i) remove any
forfeiture restrictions applicable to an award, (ii) accelerate the time of exercisability or vesting of an award, (iii) require awards to be
surrendered in exchange for a cash payment, (iv) cancel unvested awards without payment or (v) make adjustments to awards as the
Plan Administrator deems appropriate to reflect the change of control.
Termination of Employment or Service. The consequences of the termination of a grantee’s employment, consulting arrangement, or
membership on the board of directors will be determined by the Plan Administrator in the terms of the relevant award agreement.
As described above under “—Compensation of Management” and “—Compensation of Directors,” during the year ended
December 31, 2015, we granted a total of (i) 122,155 shares subject to stock option awards under the LTIP to our officers and
(ii) 16,854 shares of restricted stock under the LTIP to our non-employee directors. The stock option awards have an exercise price of
$17.80 per share, vest and become exercisable on the third anniversary of the date of grant and thereafter and may be exercised up to
the tenth anniversary of the grant date, subject to an officer’s continued employment by the company The awards of restricted stock
will be settled in shares of our common stock and will all vest on the third anniversary of the applicable grant date.
Benefit Plans and Programs
We sponsor a money purchase defined contribution plan, which we refer to as a personal pension plan, for all employees located in the
U.K., including Messrs. Nolan, Lindeman, Flaherty and Hjalmas. Each employee is eligible to contribute up to 100% of his annual
salary to their personal pension plan and we will match any such contribution up to 10% of the employee’s annual salary. For the year
ended December 31, 2015, we paid approximately $97,263 in matching contributions to the personal pension plan for Messrs. Nolan,
Lindeman, Flaherty and Hjalmas.
C. Board Practices
While we are not subject to a number of the NYSE’s corporate governance standards as a foreign private issuer, we intend to comply
voluntarily with a number of those rules. For example, we have a board of directors that is comprised of a majority of independent
directors.
Committees of the Board of Directors
We have an audit committee and a compensation committee comprised entirely of independent directors. In addition, our board of
directors may, from time to time, designate one or more additional committees, which shall have the duties and powers granted to it by
our board of directors.
61
Audit Committee
Our audit committee consists of Messrs. Weidinger, Kenwright and Oetker, with Mr. Weidinger as chairman. Our board of directors
has determined that Messrs. Weidinger, Kenwright and Oetker satisfy the independence standards established by the NYSE and that
each qualifies as an “audit committee financial expert,” as such term is defined in Regulation S-K promulgated by the SEC. The audit
committee is responsible for, among other things, the hiring or termination of independent auditors; approving any non-audit work
performed by such auditor; and assisting the board in monitoring the integrity of our financial statements, the independent
accountant’s qualifications and independence, the performance of the independent accountants and our compliance with legal and
regulatory requirements.
Compensation Committee
Our compensation committee consists of Messrs. Kenwright, Fischer, Oetker and Weidinger, with Mr. Kenwright as chairman. The
compensation committee is responsible for, among other things, developing and recommending to the board of directors compensation
for board members; and overseeing compliance with any applicable compensation reporting requirements of the SEC and the NYSE.
D. Employees
We had 37 employees as of December 31, 2015 compared to 29 employees as of December 31, 2014 and 22 at December 31, 2013.
We consider our employee relations to be good. Our crewing and technical managers provide crews for our vessels under separate
crew management agreements.
E.
Share Ownership
See “Item 7—Major Shareholders and Related Party Transactions—Major Shareholders.”
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table sets forth certain information regarding the beneficial ownership of our common stock as of March 3, 2016:
•
•
•
•
each person known by us to be a beneficial owner of more than 5.0% of our common stock;
each of our directors;
each of our named executive officers; and
all directors and executive officers as a group.
The data set forth below is based on information filed with the SEC and information provided to us prior to March 3, 2016. Except as
otherwise indicated, the person or entities listed below have sole voting and investment power with respect to all of our shares of
common stock beneficially owned by them, subject to community property laws where applicable.
Name of Beneficial Owner
WLR Group(2)
David J. Butters(3)
Spiros Milonas(4)
Alexander Oetker
David Kenwright
Florian Weidinger
Dr. Heiko Fischer(5)
Wendy Teramoto(6)
Niall Nolan
Oeyvind Lindeman
Paul Flaherty
Tommy Hjalmas
All executive officers and directors as a group (11 persons)
*
Less than 1%.
62
Common Stock
Beneficially Owned
Shares(1)
21,863,874
1,964,949
1,555,257
2,809
18,458
14,958
39,867
7,809
117,807
4,989
3,509
9,846
3,685,258
Percent
39.5%
3.5%
2.8%
*
*
*
*
*
*
*
*
*
6.8%
(1) Unless otherwise indicated, all shares of common stock are owned directly by the named holder and such holder has sole power
to vote and dispose of such shares. Unless otherwise noted, the address for each beneficial owner named above is: 399 Park
Avenue, 38th Floor, New York, New York 10022.
(2) Represents 13,058,516 shares of common stock held directly by WLR Recovery Fund IV DSS AIV, L.P., 4,422,528 shares of
common stock held directly by WLR Recovery Fund V DSS AIV, L.P., 4,288,484 shares of common stock held directly by
WLR Select Co-Investment, L.P., 52,727 shares of common stock held directly by WLR IV Parallel ESC, L.P. and 41,619
shares of common stock held directly by WLR V Parallel ESC, L.P. (collectively, the “WLR Investors”). Wilbur L. Ross, Jr. is
the chairman and chief executive officer of WLR, the chairman and president of Invesco Private Capital, Inc. and a director and
shareholder of WLR Recovery Associates IV DSS AIV GP, Ltd., WLR Recovery Associates V DSS AIV GP, Ltd. and WLR
Select Associates DSS GP, Ltd. Invesco Private Capital, Inc. is the managing member of Invesco WLR IV Associates LLC,
which in turn is the general partner of WLR IV Parallel ESC, L.P. Invesco Private Capital, Inc. is also the managing member of
Invesco WLR V Associates LLC, which in turn is the general partner of WLR V Parallel ESC, L.P. WLR Select Associates
DSS GP, Ltd. is the general partner of WLR Select Associates DSS, L.P., which in turn is the general partner of WLR Select
Co-Investment, L.P. WLR Recovery Associates IV DSS AIV GP, Ltd. is the general partner of WLR Recovery Associates IV
DSS AIV, L.P., which in turn is the general partner of WLR Recovery Fund IV DSS AIV, L.P. WLR Recovery Associates V
DSS AIV GP, Ltd. is the general partner of WLR Recovery Associates V DSS AIV, L.P., which in turn is the general partner of
WLR Recovery Fund V DSS AIV, L.P. Mr. Ross is a member of the investment committee of each WLR Investors’ general
partner, which has investment and voting control over the shares held or controlled by each of the WLR Investors. Mr. Ross
disclaims beneficial ownership of all of the shares of common stock held or controlled by each of the WLR Investors except for
his pecuniary interest therein. With the exception of Mr. Ross, whose address is 328 El Vedado Road, Palm Beach, Florida
33401, the address of each of the entities and persons identified in this note is c/o WL Ross & Co. LLC, 1166 Avenue of the
Americas, New York, NY 10036.
Includes 150,000 shares of common stock that are owned by the spouse of Mr. Butters, for which he disclaims beneficial
ownership.
Includes 120,000 shares of common stock held in joint tenancy with right of survivorship with Antonia K Milonas.
(4)
(5) Represents shares of common stock held directly by Dr. Fischer. Dr. Fischer is a Board designee of WLR. Dr. Fischer disclaims
(3)
beneficial ownership over the shares held or controlled by the WLR Group.
(6) Represents shares of common stock held directly by Ms. Teramoto. Ms. Teramoto is a Managing Director of WL Ross & Co.
LLC. Ms. Teramoto disclaims beneficial ownership over the shares held or controlled by the WLR Group.
B. Related Party Transactions
From time to time we have entered into agreements and have consummated transactions with certain related parties. We may enter
into related party transactions from time to time in the future. In connection with our initial public offering, we established an audit
committee upon the closing of our initial public offering in order to, among other things, conduct an appropriate review of all related
party transactions for potential conflict of interest situations on an ongoing basis and to approve all such transactions. See “Item 6—
Directors, Senior Management and Employees—Board Practices—Committees of the Board of Directors.”
Investment Agreements
On November 10, 2011, we entered into a certain investment agreement with the WLR Group. Under the investment agreement, we
agreed to issue and sell up to 7,500,000 shares of common stock in the aggregate at $8.33 per share (on a post-split basis). Pursuant to
the investment agreement, on December 12, 2011, the WLR Group purchased 1,875,000 shares of common stock (on a post-split
basis) and, on March 30, 2012, the WLR Group purchased 5,625,000 shares of common stock (on a post-split basis).
On February 15, 2013, we entered into a certain investment agreement with, among others, the WLR Group and David J. Butters.
Under the investment agreement, we agreed to issue and sell up to 7,500,000 shares of common stock in the aggregate at $10.00 per
share (on a post-split basis). Pursuant to the investment agreement, on February 25, 2013, the WLR Group, Mr. Butters and an
unrelated third party purchased 6,499,998, 500,001 and 500,001 shares of our common stock, respectively (on a post-split basis).
Investor Rights Agreement
On November 5, 2013, we amended and restated our existing investor rights agreement with the WLR Group. Under the investor
rights agreement, subject to certain exceptions, the WLR Group has the right to designate two individuals to be nominated to our
Board. If the WLR Group collectively owns less than 3,750,000 shares of common stock (on a post-split basis), the WLR Group will
be entitled to designate only one individual, and if the WLR Group collectively owns less than 937,500 shares of common stock (on a
post-split basis), the right to designate an individual to be nominated to our Board will terminate. Ms. Teramoto and Dr. Fischer are
the designees of the WLR Group.
63
Investor Restrictions Agreement
On August 9, 2012, we entered into an investor restrictions agreement with the WLR Group, pursuant to which the WLR Group
agreed, not to, among other things, acquire additional shares of common stock, subject to certain exceptions, or publicly propose to
effect any tender offer or other transaction in which the common stock would be purchased or exchanged into cash or other property
without the prior approval of our Board. The transactions contemplated by the investment agreement described above received the
requisite approval of our Board under the investor restrictions agreement for all purposes. This agreement expired on October 16,
2015.
Interests of Experts and Counsel
C.
Not applicable.
Item 8.
Financial Information
A. Consolidated Statements and Other Financial Information
Please see Item 18—Financial Statements below for additional information required to be disclosed under this item.
Legal Proceedings
We expect that in the future we will be subject to legal proceedings and claims in the ordinary course of business, principally personal
injury and property casualty claims. These claims, even if lacking merit, could result in the expenditure of significant financial and
managerial resources. We are not aware of any legal proceedings or claims that we believe will have, individually or in the aggregate,
a material adverse effect on the consolidated financial statements.
Dividend Policy
We do not anticipate declaring or paying any cash dividends to holders of our common stock in the near term. We currently intend to
retain future earnings, if any, to finance the growth of our business. We may, however, adopt in the future a policy to make cash
dividends. Our future dividend policy is within the discretion of our board of directors. Any determination to pay or not pay cash
dividends will depend upon then-existing conditions, including our results of operations, financial condition, capital requirements,
investment opportunities, statutory and contractual restrictions on our ability to pay dividends and other factors our board of directors
may deem relevant.
B. Significant Changes
Not applicable.
64
Item 9.
The Offer and Listing
A. Offer and Listing Details
The high and low market prices for our shares of common stock on the NYSE, for the years, quarters and months indicated, are as
follows:
For the Year Ended
December 31, 2015
December 31, 2014
Quarter Ended
December 31, 2015
September 30, 2015
June 30, 2015
March 31, 2015
December 31, 2014
September 30, 2014
June 30, 2014
March 31, 2014
Most recent six months
February 2015
January 2016
December 2015
November 2015
October 2015
September 2015
Plan of distribution
B.
Not applicable.
C. Markets
High
22.31 $
31.90 $
High
16.07 $
19.72 $
22.31 $
21.20 $
27.70 $
31.90 $
30.46 $
28.85 $
Low
11.62
15.26
Low
11.62
12.98
18.20
15.95
15.00
26.26
22.40
21.37
High
Low
15.97 $
13.85 $
14.36 $
14.75 $
16.07 $
16.78 $
12.96
10.24
11.62
12.71
13.07
12.98
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Our common stock started trading on the New York Stock Exchange under the symbol “NVGS” on November 21, 2013.
Item 10. Additional Information
Share Capital
A.
Not applicable.
B. Memorandum and Articles of Association
The information required to be disclosed under Item 10B is incorporated by reference to our Registration Statement on Form 8-A filed
with the SEC on November 15, 2013.
C. Material Contracts
The following is a summary of each material contract, other than material contracts entered into in the ordinary course of business, to
which we or any of our subsidiaries is a party, for the two years immediately preceding the date of this annual report, each of which is
included in the list of exhibits in Item 19:
(1) Supplemental Deed, dated February 13, 2014, among PT Navigator Khatulistiwa, PT Persona Sentra Utama, PT
Mahameru Kencana Abadi, Navigator Gas Invest Limited, Falcon Funding Ptd. Ltd. and Navigator Gas L.L.C. On
February 13, 2014, PTNK, PT Persona Sentra Utama, PT Mahameru Kencana Abadi, Navigator Gas Invest Limited,
Falcon Funding Pte. Ltd and Navigator Gas L.L.C. entered into a Supplemental Deed under which the JV Agreement was
amended to include Navigator Global, which is currently chartered to Pertamina, along with Navigator Pluto and
Navigator Aries.
65
(2)
(3)
(4)
$120.0 million Supplemental Agreement, dated June 30, 2014, between Navigator Holdings Ltd. and Nordea. This is a
Supplemental Agreement to our February 2013 $270.0 million secured term loan facility, which, among other things,
(i) allows the us to prepay $120.0 million outstanding under such term loan facility, (ii) revises the terms of the such term
loan facility to include a quasi revolving facility where funds can be drawn over the course of the facility period in four
tranches of $30.0 million each and (iii) provides that such term loan facility be amended and restated to reflect the
foregoing.
$278.1 million Facility Agreement, by and among Navigator Atlas L.L.C, Navigator Europa L.L.C., Navigator Oberon
L.L.C., Navigator Triton L.L.C., Navigator Umbrio L.L.C., Navigator Centauri L.L.C., Navigator Ceres L.L.C., Navigator
Ceto L.L.C. and Navigator Copernico L.L.C, Navigator Holdings Ltd. and Navigator Gas L.L.C., Credit Agricole
Corporate and Investment Bank, HSH Nordbank Ag and NIBC Bank N.V. as the arrangers and Credit Agricole as agent,
and a group of financial institutions as lenders, dated as of January 27, 2015.
$290.0 million Facility Agreement, by and among Navigator Gas L.L.C., Nordea Bank AB, ABN Amro Bank N.V.,
Danmarks Skibskredit A/S, National Australia Bank Limited, ING Bank N.V. and Credit Agricole Corporate and
Investment Bank as the arrangers and Nordea Bank AB and ABN Amro Bank N.V as agent and a group of financial
institutions as lenders, dated as of December 21, 2015.
D. Exchange Controls
We are not aware of any governmental laws, decrees or regulations, including foreign exchange controls, in the Republic of the
Marshall Islands that restrict the export or import of capital, or that affect the remittance of dividends, interest or other payments to
non-resident holders of our securities.
We are not aware of any limitations on the right of non-resident or foreign owners to hold or vote our securities imposed by the laws
of the Republic of the Marshall Islands or our operating agreement.
E. Taxation
Material U.S. Federal Income Tax Consequences
The following is a discussion of the material U.S. federal income tax considerations that may be relevant to our shareholders. This
discussion is based upon provisions of the Code, Treasury Regulations, and administrative rulings and court decisions, all as in effect
as of the date hereof and all of which are subject to change, possibly with retroactive effect. Changes in these authorities may cause
the tax consequences of holding our common stock to vary substantially from the consequences described below. Unless the context
otherwise requires, references in this section to “we,” “our” or “us” are references to Navigator Holdings Ltd.
The following discussion applies only to beneficial owners of our common stock that own shares of common stock as “capital assets”
within the meaning of Section 1221 of the Code (i.e., generally for investment purposes) and is not intended to be applicable to all
categories of investors, such as shareholders subject to special tax rules (e.g., financial institutions, insurance companies, broker-
dealers, tax-exempt organizations, retirement plans or individual retirement accounts, or former citizens or long-term residents of the
United States), to persons that hold the shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction
for U.S. federal income tax purposes, to partnerships or their partners, or to persons that have a functional currency other than the
U.S. Dollar, all of whom may be subject to tax rules that differ significantly from those summarized below. If a partnership or other
entity classified as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of its partners
generally will depend upon the status of the partner and the activities of the partnership. If you are a partner in a partnership holding
our common stock, we encourage you to consult your own tax advisor regarding the tax consequences to you of the partnership’s
ownership of our common stock.
No ruling has been or will be requested from the IRS regarding any matter affecting us or our shareholders. The statements made
herein may be challenged by the IRS and, if so challenged, may not be sustained upon review in a court.
This discussion does not contain information regarding any U.S. state or local, estate, gift or alternative minimum tax considerations
concerning the ownership or disposition of our common stock. This discussion does not comment on all aspects of U.S. federal
income taxation that may be important to particular shareholders in light of their individual circumstances, and each prospective
shareholder is urged to consult its own tax advisor regarding the U.S. federal, state, local, and other tax consequences of the ownership
or disposition of our common stock.
66
Election to be Treated as a Corporation
We are treated as a corporation for U.S. federal income tax purposes. As a result, U.S. Holders (as defined below) will not be directly
subject to U.S. federal income tax on our income, but rather will be subject to U.S. federal income tax on distributions received from
us and dispositions of shares as described below.
U.S. Federal Income Taxation of U.S. Holders
As used herein, the term “U.S. Holder” means a beneficial owner of our common stock that owns (actually or constructively) less than
10.0% of our equity and that is:
•
•
•
•
an individual U.S. citizen or resident (as determined for U.S. federal income tax purposes);
a corporation (or other entity that is classified as a corporation for U.S. federal income tax purposes) organized under the laws of
the United States or its political subdivisions;
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust if (i) a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one
or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) the trust has a valid election in
effect to be treated as a U.S. person for U.S. federal income tax purposes.
Distributions
Subject to the discussion below of the rules applicable to PFICs, any distributions to a U.S. Holder made by us with respect to our
common stock generally will constitute dividends to the extent of our current or accumulated earnings and profits, as determined
under U.S. federal income tax principles. Distributions in excess of our earnings and profits will be treated first as a nontaxable return
of capital to the extent of the U.S. Holder’s tax basis in its common stock and thereafter as capital gain. U.S. Holders that are
corporations generally will not be entitled to claim a dividends received deduction with respect to distributions they receive from us
because we are not a U.S. corporation. Dividends received with respect to our common stock generally will be treated as “passive
category income” for purposes of computing allowable foreign tax credits for U.S. federal income tax purposes.
Dividends received with respect to our common stock by a U.S. Holder that is an individual, trust or estate, or a “U.S. Individual
Holder,” generally will be treated as “qualified dividend income,” which is taxable to such U.S. Individual Holder at preferential tax
rates provided that: (i) our common stock is readily tradable on an established securities market in the United States (such as the New
York Stock Exchange on which our common stock is listed); (ii) we are not a PFIC for the taxable year during which the dividend is
paid or the immediately preceding taxable year (which we do not believe we are, have been or will be, as discussed below under
“PFIC Status and Significant Tax Consequences”); (iii) the U.S. Individual Holder has owned the common stock for more than 60
days during the 121-day period beginning 60 days before the date on which the common stock become ex-dividend (and has not
entered into certain risk limiting transactions with respect to such common stock); and (iv) the U.S. Individual Holder is not under an
obligation to make related payments with respect to positions in substantially similar or related property. Because of the uncertainty of
these matters, including whether we are or will be a PFIC, there is no assurance that any dividends paid on our common stock will be
eligible for these preferential rates in the hands of a U.S. Individual Holder, and any dividends paid on our common stock that are not
eligible for these preferential rates will be taxed as ordinary income to a U.S. Individual Holder.
Special rules may apply to any amounts received in respect of our common stock that are treated as “extraordinary dividends.” In
general, an extraordinary dividend is a dividend with respect to a share of our common stock that is equal to or in excess of 10.0% of a
shareholder’s adjusted tax basis (or fair market value upon the shareholder’s election) in such share. In addition, extraordinary
dividends include dividends received within a one-year period that, in the aggregate, equal or exceed 20.0% of a shareholder’s
adjusted tax basis (or fair market value). If we pay an “extraordinary dividend” on shares of our common stock that is treated as
“qualified dividend income,” then any loss recognized by a U.S. Individual Holder from the sale or exchange of such shares will be
treated as long-term capital loss to the extent of the amount of such dividend.
Sale, Exchange or other Disposition of Common Stock
Subject to the discussion of PFICs below, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other
disposition of shares of our common stock in an amount equal to the difference between the amount realized by the U.S. Holder from
such sale, exchange or other disposition and the U.S. Holder’s adjusted tax basis in such shares. The U.S. Holder’s initial tax basis in
its common stock generally will be the U.S. Holder’s purchase price for the shares of common stock and that tax basis will be reduced
(but not below zero) by the amount of any distributions on the shares that are treated as non-taxable returns of capital (as discussed
above under “—Distributions”). Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder’s holding period
is greater than one year at the time of the sale, exchange or other disposition. Certain U.S. Holders (including individuals) may be
eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. A U.S. Holder’s ability to deduct capital
losses is subject to limitations. Such capital gain or loss generally will be treated as U.S.-source income or loss, as applicable, for U.S.
foreign tax credit purposes.
67
PFIC Status and Significant Tax Consequences
Adverse U.S. federal income tax rules apply to a U.S. Holder that owns an equity interest in a non-U.S. corporation that is classified as
a PFIC for U.S. federal income tax purposes. In general, we will be treated as a PFIC with respect to a U.S. Holder if, for any taxable
year in which the holder held our common stock, either:
•
•
at least 75.0% of our gross income (including the gross income of our vessel-owning subsidiaries) for such taxable year consists
of passive income (e.g., dividends, interest, capital gains from the sale or exchange of investment property and rents derived
other than in the active conduct of a rental business), or
at least 50.0% of the average value of the assets held by us (including the assets of our vessel-owning subsidiaries) during such
taxable year produce, or are held for the production of, passive income.
Income earned, or treated as earned (for U.S. federal income tax purposes), by us in connection with the performance of services
should not constitute passive income for PFIC purposes. By contrast, rental income generally would constitute passive income unless
we were treated as deriving our rental income in the active conduct of a trade or business under the applicable rules.
Based on our current and projected method of operation we believe that we were not a PFIC for any taxable year, and we expect that
we will not be treated as a PFIC for the current or any future taxable year. We believe that more than 25.0% of our gross income for
each taxable year was or will be non-passive income, and more than 50.0% of the average value of our assets for each such year was
or will be held for the production of such non-passive income. This belief is based on certain valuations and projections regarding our
assets, income and charters, and its validity is conditioned on the accuracy of such valuations and projections. While we believe such
valuations and projections to be accurate, the shipping market is volatile and no assurance can be given that our assumptions and
conclusions will continue to be accurate at any time in the future.
Moreover, there are legal uncertainties involved in determining whether the income derived from our time-chartering activities
constitutes rental income or income derived from the performance of services. In Tidewater Inc. v. United States, 565 F.3d 299 (5th
Cir. 2009), the Fifth Circuit held that income derived from certain time-chartering activities should be treated as rental income rather
than services income for purposes of a provision of the Code relating to foreign sales corporations. In that case, the Fifth Circuit did
not address the definition of passive income or the PFIC rules; however, the reasoning of the case could have implications as to how
the income from a time charter would be classified under such rules. If the reasoning of the case were extended to the PFIC context,
the gross income we derive from our time-chartering activities may be treated as rental income, and we would likely be treated as a
PFIC. In published guidance, the IRS stated that it disagreed with the holding in Tidewater, and specified that time charters similar to
those at issue in this case should be treated as service contracts.
Distinguishing between arrangements treated as generating rental income and those treated as generating services income involves
weighing and balancing competing factual considerations, and there is no legal authority under the PFIC rules addressing our specific
method of operation. Conclusions in this area therefore remain matters of interpretation. We are not seeking a ruling from the IRS on
the treatment of income generated by our time-chartering operations. It is possible that the IRS or a court could disagree with our
position. In addition, although we intend to conduct our affairs in a manner to avoid being classified as a PFIC with respect to any
taxable year, we cannot assure shareholders that the nature of our operations will not change in the future, notwithstanding our present
expectations, and that we will not become a PFIC in any future taxable year.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year (and regardless of whether we remain a PFIC
for subsequent taxable years), a U.S. Holder would be subject to different taxation rules depending on whether the U.S. Holder makes
an election to treat us as a “Qualified Electing Fund,” which we refer to as a “QEF election.” As an alternative to making a QEF
election, a U.S. Holder should be able to make a “mark-to-market” election with respect to our common stock, as discussed below. In
addition, if a U.S. Holder owns our common stock during any taxable year that we are a PFIC, such holder must file an annual report
with the IRS.
Taxation of U.S. Holders Making a Timely QEF Election
A U.S. Holder that makes a timely QEF election, or an “Electing Holder,” must report for U.S. federal income tax purposes his pro
rata share of our ordinary earnings and net capital gain, if any, for our taxable years that end with or within his taxable year, regardless
of whether or not the Electing Holder received distributions from us in that year. The Electing Holder’s adjusted tax basis in its shares
of our common stock will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that
were previously taxed will result in a corresponding reduction in the Electing Holder’s adjusted tax basis in its shares of common
stock and will not be taxed again once distributed. An Electing Holder generally will recognize capital gain or loss on the sale,
exchange or other disposition of our common stock. A U.S. Holder makes a QEF election with respect to any year that we are a PFIC
by filing IRS Form 8621 with his U.S. federal income tax return. If, contrary to our expectations, we determine that we are treated as a
PFIC for any taxable year, we will provide each U.S. Holder with the information necessary to make the QEF election described
above. Although the QEF election is available with respect to subsidiaries, in the event we acquire or own a subsidiary in the future
that is treated as a PFIC, no assurances can be made that we will be able to provide U.S. Holders with the necessary information to
make the QEF election with respect to such subsidiary.
68
Taxation of U.S. Holders Making a “Mark-to-Market” Election
If we were to be treated as a PFIC for any taxable year and, as we anticipate, our common stock was treated as “marketable stock,”
then, as an alternative to making a QEF election, a U.S. Holder would be allowed to make a “mark-to-market” election with respect to
our common stock, provided the U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and
related Treasury Regulations. If that election is made, the U.S. Holder generally would include as ordinary income in each taxable
year the excess, if any, of the fair market value of the U.S. Holder’s shares of common stock at the end of the taxable year over the
holder’s adjusted tax basis in its shares of common stock. The U.S. Holder also would be permitted an ordinary loss in respect of the
excess, if any, of the U.S. Holder’s adjusted tax basis in its shares over the fair market value thereof at the end of the taxable year, but
only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder’s tax
basis in its shares of common stock would be adjusted to reflect any such income or loss recognized. Gain recognized on the sale,
exchange or other disposition of our common stock would be treated as ordinary income, and any loss recognized on the sale,
exchange or other disposition of the common stock would be treated as ordinary loss to the extent that such loss does not exceed the
net mark-to-market gains previously included in income by the U.S. Holder. Because the mark-to-market election only applies to
marketable stock, however, it would not apply to a U.S. Holder’s indirect interest in any of our subsidiaries that were determined to be
PFICs.
Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
If we were to be treated as a PFIC for any taxable year, a U.S. Holder who does not make either a QEF election or a “mark-to-market”
election for that year, or a “Non-Electing Holder,” would be subject to special rules resulting in increased liability with respect to
(i) any excess distribution (i.e., the portion of any distributions received by the Non-Electing Holder on our common stock in a taxable
year in excess of 125.0% of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years,
or, if shorter, the Non-Electing Holder’s holding period for the shares), and (ii) any gain realized on the sale, exchange or other
disposition of the shares. Under these special rules:
•
•
•
the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s aggregate holding period for the
common stock;
the amount allocated to the current taxable year and any taxable year prior to the taxable year we were first treated as a PFIC
with respect to the Non-Electing Holder would be taxed as ordinary income; and
the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the
applicable class of taxpayers for that year, and an interest charge for the deemed deferral benefit would be imposed with respect
to the resulting tax attributable to each such year.
These penalties would not apply to a qualified pension, profit sharing or other retirement trust or other tax-exempt organization that
did not borrow money or otherwise utilize leverage in connection with its acquisition of our common stock. If we were treated as a
PFIC for any taxable year and a Non-Electing Holder who is an individual dies while owning our common stock, such holder’s
successor generally would not receive a step-up in tax basis with respect to the common stock.
Medicare Tax on Net Investment Income
Certain U.S. Holders, including individuals, estates and trusts, will be subject to an additional 3.8% Medicare tax on, among other
things, dividends and capital gains from the sale or other disposition of equity interests. For individuals, the additional Medicare tax
applies to the lesser of (i) “net investment income” or (ii) the excess of “modified adjusted gross income” over $200,000 ($250,000 if
married and filing jointly or $125,000 if married and filing separately). “Net investment income” generally equals the taxpayer’s gross
investment income reduced by deductions that are allocable to such income. Shareholders should consult their tax advisors regarding
the implications of the additional Medicare tax resulting from their ownership and disposition of our common stock.
U.S. Federal Income Taxation of Non-U.S. Holders
A beneficial owner of our common stock (other than a partnership or an entity or arrangement treated as a partnership for U.S. federal
income tax purposes) that is not a U.S. Holder is referred to as a Non-U.S. Holder. If you are a partner in a partnership (or an entity or
arrangement treated as a partnership for U.S. federal income tax purposes) holding our common stock, you should consult your own
tax advisor regarding the tax consequences to you of the partnership’s ownership of our common stock.
69
Distributions
Distributions we pay to a Non-U.S. Holder will not be subject to U.S. federal income tax or withholding tax if the Non-U.S. Holder is
not engaged in a U.S. trade or business. If the Non-U.S. Holder is engaged in a U.S. trade or business, our distributions will be subject
to U.S. federal income tax to the extent they constitute income effectively connected with the Non-U.S. Holder’s U.S. trade or
business. However, distributions paid to a Non-U.S. Holder that is engaged in a U.S. trade or business may be exempt from taxation
under an income tax treaty if the income arising from the distribution is not attributable to a U.S. permanent establishment or fixed
base maintained by the Non-U.S. Holder.
Disposition of Shares
In general, a Non-U.S. Holder is not subject to U.S. federal income tax or withholding tax on any gain resulting from the disposition
of our common stock provided the Non-U.S. Holder is not engaged in a U.S. trade or business. A Non-U.S. Holder that is engaged in a
U.S. trade or business will be subject to U.S. federal income tax in the event the gain from the disposition of shares is effectively
connected with the conduct of such U.S. trade or business (provided, in the case of a Non-U.S. Holder entitled to the benefits of an
income tax treaty with the United States, such gain also is attributable to a U.S. permanent establishment or fixed base maintained by
the Non-U.S. Holder). However, even if not engaged in a U.S. trade or business, individual Non-U.S. Holders may be subject to tax on
gain resulting from the disposition of our common stock if they are present in the United States for 183 days or more during the
taxable year in which those shares are disposed and meet certain other requirements.
Backup Withholding and Information Reporting
In general, payments to a non-corporate U.S. Holder of distributions or the proceeds of a disposition of common stock will be subject
to information reporting. These payments to a non-corporate U.S. Holder also may be subject to backup withholding if the non-
corporate U.S. Holder:
•
•
•
fails to provide an accurate taxpayer identification number;
is notified by the IRS that he has failed to report all interest or corporate distributions required to be reported on his U.S. federal
income tax returns; or
in certain circumstances, fails to comply with applicable certification requirements.
Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding by certifying their
status on IRS Form W-8BEN, W-8BEN-E, W-8ECI or W-8IMY, as applicable.
Backup withholding is not an additional tax. Rather, a shareholder generally may obtain a credit for any amount withheld against its
liability for U.S. federal income tax (and obtain a refund of any amounts withheld in excess of such liability) by timely filing a U.S.
federal income tax return with the IRS.
In addition, individual citizens or residents of the United States holding certain “foreign financial assets” (which generally includes
stock and other securities issued by a foreign person unless held in an account maintained by certain financial institutions) that exceed
certain thresholds (the lowest being holding foreign financial assets with an aggregate value in excess of: (1) $50,000 on the last day
of the tax year or (2) $75,000 at any time during the tax year) are required to report information relating to such assets. Significant
penalties may apply for failure to satisfy the reporting obligations described above. Our shareholders should consult their tax advisors
regarding their reporting obligations, if any, that would result from their purchase, ownership or disposition of our common stock.
Non-U.S. Tax Considerations
Republic of the Marshall Islands Tax Consequences
The following is applicable to persons who do not reside in, maintain offices in or engage in business in the Republic of the Marshall
Islands.
Because we and our subsidiaries do not and do not expect to conduct business or operations in the Republic of the Marshall Islands,
under current Republic of the Marshall Islands law you will not be subject to Republic of the Marshall Islands taxation or withholding
on distributions we make to you as a shareholder. In addition, you will not be subject to Republic of the Marshall Islands stamp,
capital gains or other taxes on the purchase, ownership or disposition of common stock, and you will not be required by the Republic
of the Marshall Islands to file a tax return relating to your ownership of common stock.
70
EACH SHAREHOLDER IS URGED TO CONSULT HIS OWN TAX COUNSEL OR OTHER ADVISOR WITH REGARD TO
THE LEGAL AND TAX CONSEQUENCES OF SHARE OWNERSHIP IN HIS PARTICULAR CIRCUMSTANCES. FURTHER,
IT IS THE RESPONSIBILITY OF EACH SHAREHOLDER TO FILE ALL STATE, LOCAL AND NON-U.S., AS WELL AS U.S.
FEDERAL INCOME TAX RETURNS, WHICH THE SHAREHOLDER IS REQUIRED TO FILE.
F. Dividends and Paying Agents
Not applicable.
Statements by Experts
G.
Not applicable.
H. Documents on Display
Documents concerning us that are referred to herein may be inspected at our principal executive offices at 21 Palmer Street, London,
SW1H 0AD, United Kingdom. Those documents electronically filed via the SEC’s Electronic Data Gathering, Analysis, and Retrieval
(or EDGAR) system may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. Copies of these materials can also be obtained upon written request from the Public Reference Section of the
SEC at 100 F Street, N.E, Washington, D.C. 20549, at prescribed rates or from the SEC’s website on the Internet at www.sec.gov free
of charge. Please call the SEC at 1-800-SEC-0330 for further information on public reference room.
Subsidiary Information
I.
Not applicable.
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates and foreign currency fluctuations, as well as inflation. We may in the
future use interest rate swaps to manage interest rate risks, but will not use these financial instruments for trading or speculative
purposes.
Interest Rate Risk
Historically, we have been subject to limited market risks relating to changes in interest rates because we did not have significant
amounts of floating rate debt outstanding. Navigator Gas L.L.C., our wholly-owned subsidiary, and certain of our vessel-owning
subsidiaries are parties to secured term loan facilities that bear interest at an interest rate of LIBOR plus 210 to 350 basis points. A
variation in LIBOR of 100 basis points would result in a variation of $10,000 in annual interest paid on each $1.0 million of
indebtedness outstanding under the secured term loan facilities. See “—Secured Term Loan Facilities.”
We invest our cash and marketable securities in financial instruments with original maturities of no more than six months within the
parameters of our investment policy and guidelines.
We do not currently use interest rate swaps to manage the impact of interest rate changes on earnings and cash flows, but we may elect
to do so in the future.
Foreign Currency Exchange Rate Risk
Our primary economic environment is the international shipping market. This market utilizes the U.S. Dollar as its functional
currency. Consequently, virtually all of our revenues are in U.S. Dollars. Our expenses, however, are in the currency invoiced by each
supplier, and we remit funds in the various currencies invoiced. We incur some vessel operating expenses and general and
administrative costs in foreign currencies. During the fiscal years ended December 31, 2014 and 2015, approximately $14.3 million,
or 17.8%, and $15.8 million, or 17.3%, respectively, of vessel operating costs and general and administrative costs were denominated
in non-U.S. Dollar currency, principally the British Pound Sterling and the Euro. A hypothetical 10% decrease in the value of the
U.S. Dollar relative to the values of the British Pound Sterling and the Euro realized during the year ended December 31, 2015, would
have increased our vessel operating costs during the fiscal year ended December 31, 2015, by approximately $0.9 million, and our
general and administrative costs by $0.7 million. We have not entered into any hedging transactions to mitigate our exposure to
foreign currency exchange rate risk.
71
Inflation
Certain of our operating expenses, including crewing, insurance and drydocking costs, are subject to fluctuations as a result of market
forces. Crewing costs in particular have risen over the past number of years as a result of a shortage of trained crews. Inflationary
pressures on bunker (fuel and oil) costs could have a material effect on our future operations if the number of vessel employment
contracts for voyage charters or COAs increases. In the case of the 15 of our 30 vessels that are currently time-chartered to third
parties, it is the charterers who pay for the fuel. If our vessels are employed under voyage charters or COAs, freight rates are generally
sensitive to the price of fuel. However, a sharp rise in bunker prices may have a temporary negative effect on our results since freight
rates generally adjust only after prices settle at a higher level.
Item 12.
Not applicable.
Description of Securities Other than Equity Securities
72
Item 13.
Defaults, Dividend Arrearages and Delinquencies
PART II
Neither Navigator Holdings nor any of its subsidiaries have been subject to a material default in the payment of principal, interest, a
sinking fund or purchase fund installment or any other material delinquency that was not cured within 30 days.
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
On November 20, 2013, the Form F-1 relating to our initial public offering, or the “Registration Statement,” was declared effective.
On November 26, 2013, we closed our initial public offering. Jefferies LLC and Morgan Stanley & Co. LLC acted as joint book-
running managers for our initial public offering. In connection with our initial public offering, we issued and sold 9,030,000 shares of
common stock to the public at a price of $19.00 per share, raising gross proceeds of $171.6 million. Net proceeds from our initial
public offering were $156.4 million, after deducting underwriting discounts and commissions of $12.0 million and offering expenses
of $3.2 million. We used the net proceeds from the initial public offering to fund the equity portion, or approximately $75.1 million
due under our purchase obligations for the 2015 newbuildings and intend to use the remainder for part of the 2016 newbuildings and
general corporate purposes. The remaining $112.6 million of the 2015 newbuildings was financed under secured loan term facilities.
Item 15.
Disclosure Controls and Procedures
Controls and Procedures
Our Principal Executive Officer and our Principal Financial and Accounting Officer, after evaluating the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of December 31, 2015, have concluded that,
as of such date, our disclosure controls and procedures were effective.
Management’s Report on Internal Control over Financial Reporting
In accordance with Rule 13a-15(f) of the Securities Exchange Act of 1934, our management, including the CEO and CFO, is
responsible for the establishment and maintenance of adequate internal controls over financial reporting for the Company. Internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The
Company’s system of internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material
effect on the financial statements.
Management has performed an assessment of the effectiveness of the Company’s internal controls over financial reporting as of
December 31, 2015 based on the provisions of Internal Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon that evaluation, our management, with the
participation of our principal executive officer and principal financial and accounting officer, concluded that our internal controls over
financial reporting are effective as of December 31, 2015.
The Company’s internal control over financial reporting, at December 31, 2015, has been audited by KPMG LLP, an independent
registered public accounting firm, who also audited the Company’s consolidated financial statements for that year. Their audit report
on the effectiveness of internal control over financial reporting is presented in Item 18- Financial Statements.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16A.
Audit Committee Financial Expert
Our board of directors has determined that Messrs. Weidinger, Kenwright and Oetker satisfy the independence standards established
by the NYSE and that each qualifies as an “audit committee financial expert,” as such term is defined in Regulation S-K promulgated
by the SEC.
73
Item 16B.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all entities controlled by the Company and its employees,
directors, officers and agents of the Company. We will provide any person, free of charge, a copy of our Code of Ethics upon written
request to our registered office.
Principal Accountant Fees and Services
Item 16C.
Our principal accountant for 2014 and 2015 was KPMG LLP.
Fees Incurred by the Company for KPMG LLP’s Services
In 2014 and 2015, the fees rendered by the auditors were as follows:
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
2014
(in thousands)
2015
(in thousands)
$
$
508
—
55
155
718
$
$
458
—
55
—
513
Audit Fees
Audit fees incurred in 2015 include $458,548 and $507,769 in 2014 relating to aggregate fees billed for professional services rendered
by the principal accountant for the audit of the Company’s annual financial statements and quarterly reviews.
Audit-Related Fees
There were no audit related fees incurred in 2014 and 2015.
Tax Fees
Tax fees incurred in 2015 include $54,811 and $54,892 in 2014 relating to services provided by the principal accountant in connection
with our tax.
All Other Fees
There were no fees incurred by the company for KPMG LLP services relating to other fees in 2015. All other fees in 2014 include
$155,418 relating to professional services comprising of work in connection with our initial public offering in November 2013.
The audit committee has the authority to pre-approve permissible audit-related and non-audit services not prohibited by law to be
performed by our independent auditors and associated fees. Engagements for proposed services either may be separately pre-approved
by the audit committee or entered into pursuant to detailed pre-approval policies and procedures established by the audit committee, as
long as the audit committee is informed on a timely basis of any engagement entered into on that basis. The audit committee
separately pre-approved all engagements and fees paid to our principal accountant for all periods in 2015.
Item 16D.
Not applicable.
Item 16E.
Not applicable.
Item 16F.
Not applicable.
Exemptions from the Listing Standards for Audit Committees
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Change in Registrant’s Certifying Accountant
74
Item 16G.
Overview
Corporate Governance
While we are not subject to a number of the NYSE’s corporate governance standards as a foreign private issuer, we intend to comply
voluntarily with a number of those rules. For example, we have a board of directors that is comprised of a majority of independent
directors. However, pursuant to Section 303.A.11 of the NYSE Listed Company Manual, we are required to state any significant
differences between our corporate governance practices and the practices required by the NYSE for U.S. companies. The significant
differences between our corporate governance practices and the NYSE standards applicable to listed U.S. companies are set forth
below.
Executive Sessions
The NYSE requires that non-management directors meet regularly in executive sessions without management. The NYSE also
requires that all independent directors meet in an executive session at least once a year. As permitted under Marshall Islands law, our
non-management directors do not regularly hold executive sessions without management and we do not expect them to do so in the
future.
Nominating/Corporate Governance Committee
The NYSE requires that a listed U.S. company have a nominating/corporate governance committee of independent directors and a
committee charter specifying the purpose, duties and evaluation procedures of the committee. As permitted under Marshall Islands
law and our bylaws, we do not currently have a nominating or corporate governance committee.
Corporate Governance Guidelines
The NYSE requires U.S. companies to adopt and disclose corporate governance guidelines. The guidelines must address, among other
things: director qualification standards, director responsibilities, director access to management and independent advisers, director
compensation, director orientation and continuing education, management succession and an annual performance evaluation. We are
not required to adopt such guidelines under Marshall Islands law and we have not adopted such guidelines.
We believe that our established corporate governance practices satisfy the NYSE listing standards.
Item 16H.
Not applicable.
Mine Safety Disclosure
75
PART III
Item 17.
See Item 18.
Financial Statements
Item 18.
Financial Statements
The following financial statements listed below and set forth on pages F-3 through F-20, together with the related report of KPMG
LLP, Independent Registered Public Accounting Firm thereon, are filed as part of this annual report:
Consolidated Balance Sheets as of December 31, 2014 and 2015
Consolidated Statements of Income for the years ended December 31, 2013, 2014 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2014 and 2015
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2013, 2014 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2014 and 2015
Notes to Consolidated Financial Statements
F-4
F-5
F-6
F-7
F-8
F-9
Item 19.
The following exhibits are filed as part of this annual report:
Exhibits
Exhibit
Number
Description
1.1
1.2
2.1
2.2
2.3
2.4
2.5
4.1
4.2
4.3
4.4
Amended and Restated Articles of Incorporation of Navigator Holdings Ltd. (incorporated by reference to Exhibit 3.1
to the registrant’s Registration Statement on Form F-1 (File No. 333-191784), filed on November 6, 2013).
Second Amended and Restated Bylaws of Navigator Holdings Ltd. (incorporated by reference to Exhibit 3.2 to the
registrant’s Registration Statement on Form F-1 (File No. 333-191784), filed on November 4, 2013).
Investment Agreement, dated November 10, 2011, among Navigator Holdings Ltd., WL Ross & Co. LLC and certain
of its affiliates named therein (incorporated by reference to Exhibit 4.1 to the registrant’s Registration Statement on
Form F-1 (File No. 333-191784), filed on November 4, 2013).
Investment Agreement, dated February 15, 2013, among Navigator Holdings Ltd., WL Ross & Co. LLC and certain of
its affiliates and unrelated third-party investors named therein (incorporated by reference to Exhibit 4.2 to the
registrant’s Registration Statement on Form F-1 (File No. 333-191784), filed on November 4, 2013).
Investor Rights Agreement, dated November 5, 2013, among Navigator Holdings Ltd., WL Ross & Co. LLC and
certain of its affiliates named therein (incorporated by reference to Exhibit 4.3 to the registrant’s Registration
Statement on Form F-1 (File No. 333-191784), filed on November 6, 2013).
Investor Restrictions Agreement, dated August 9, 2012, among Navigator Holdings Ltd., WL Ross & Co. LLC and
certain of its affiliates named therein (incorporated by reference to Exhibit 4.4 to the registrant’s Registration
Statement on Form F-1 (File No. 333-191784), filed on November 4, 2013).
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.5 to the registrant’s Registration Statement
on Form F-1 (File No. 333-191784), filed on November 15, 2013).
Navigator Holdings Ltd. 2013 Long-Term Incentive Plan, effective as of October 22, 2013 (incorporated by reference
to Exhibit 10.1 to the registrant’s Registration Statement on Form F-1 (File No. 333-191784), filed on November 6,
2013).
Navigator Holdings Ltd. 2008 Restricted Stock Plan, effective as of September 16, 2008 (incorporated by reference to
Exhibit 10.3 to the registrant’s Registration Statement on Form F-1 (File No. 333-191784), filed on October 17, 2013).
$80.0 million Secured term loan facility by and among Navigator Gas L.L.C., Navigator Leo L.L.C., Navigator Libra
L.L.C., Nordea Bank Finland Plc, acting through its New York branch, and Skandinaviska Enskilda Banken AB
(Publ), as the Lead Arrangers, Bookrunner, Facility Agent and Security Trustee, dated as of April 1, 2011
(incorporated by reference to Exhibit 10.3 to the registrant’s Registration Statement on Form F-1 (File No. 333-
191784), filed on October 17, 2013).
$180.0 million Secured term loan facility by and among Navigator Gas L.L.C., Navigator Pegasus, L.L.C., Navigator
Phoenix L.L.C., Nordea Bank Finland Plc, Skandinaviska Enskilda Banken AB and DVB Bank Se Nordic Branch,
dated as of April 18, 2012 (incorporated by reference to Exhibit 10.4 to the registrant’s Registration Statement on
Form F-1 (File No. 333-191784), filed on October 17, 2013).
76
Exhibit
Number
4.5
4.6
4.7
4.8
4.9
4.10
4.11
8.1*
12.1*
12.2*
13.1*
13.2*
15.1*
Description
$270.0 million Secured term loan facility by and among Navigator Gas L.L.C., Navigator Holdings Ltd., Nordea Bank
Finland Plc, Skandinaviska Enskilda Banken AB, DVB Bank Se Nordic Branch, ABN Amro Bank N.V. and HSH
Nordbank AG, as mandated lead arrangers, dated as of February 12, 2013 (incorporated by reference to Exhibit 10.5
to the registrant’s Registration Statement on Form F-1 (File No. 333-191784), filed on October 17, 2013).
$278.1 million Secured Facility Agreement, dated January 27, 2015, by and among Navigator Atlas L.L.C., Navigator
Europa L.L.C., Navigator Oberon L.L.C., Navigator Triton L.L.C., Navigator Umbrio L.L.C., Navigator Centauri
L.L.C., Navigator Ceres L.L.C., Navigator Ceto L.L.C. and Navigator Copernico L.L.C., as borrowers, Navigator
Holdings Ltd., Navigator Gas L.L.C and Credit Agricole Corporate and Investment Bank, HSH Nordbank AG and
NIBC Bank N.V., as arrangers and Credit Agricole Corporate and Investment Bank, as agent, and the lenders party
thereto (incorporated by reference to Exhibit 10.1 to the registrant’s Report on Form 6-K (File No. 001-36202), filed
on February 4, 2015).
$290.0 million Secured Facility Agreement, dated December 21, 2015, by and among Navigator Gas L.L.C., as
borrower, Nordea Bank AB, ABN Amro Bank N.V., Danmarks Skibskredit A/S, National Australia Bank Limited,
ING Bank N.V. and Credit Agricole Corporate and Investment Bank as arrangers and Nordea Bank AB and ABN
Amro Bank N.V as agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the registrant’s
Report on Form 6-K (File No. 001-36202), filed on December 23, 2015).
Bond Agreement between Navigator Holdings Ltd. and Norsk Tillitsmann ASA on behalf of the Bondholders in the
bond issue of 9% Navigator Holdings Ltd. Senior Unsecured Callable Bonds dated December 14, 2012 (incorporated
by reference to Exhibit 10.7 to the registrant’s Registration Statement on Form F-1 (File No. 333-191784), filed on
November 6, 2013).
Joint Venture Agreement, dated August 4, 2010, among PT Persona Sentra Utama, PT Mahameru Kencana Abadi,
Navigator Gas Invest Limited and PT Navigator Khatulistiwa (incorporated by reference to Exhibit 10.8 to the
registrant’s Registration Statement on Form F-1 (File No. 333-191784), filed on November 4, 2013).
Supplemental Deed, dated February 13, 2014, among PT Navigator Khatulistiwa, PT Persona Sentra Utama, PT
Mahameru Kencana Abadi, Navigator Gas Invest Limited, Falcon Funding Ptd. Ltd. and Navigator Gas L.L.C.
(incorporated by reference to Exhibit 4.9 to the registrant’s Annual Report on Form 20-F (File No. 001-36202), filed
on March 17, 2014).
Supplemental Agreement, dated June 30, 2014, relating to the $270.0 Secured term loan facility by and among
Navigator Gas L.L.C., Navigator Holdings Ltd., Nordea Bank Finland Plc, Skandinaviska Enskilda Banken AB, DVB
Bank Se Nordic Branch, ABN Amro Bank N.V. and HSH Nordbank AG, as mandated lead arrangers, dated as of
February 12, 2013 (incorporated by reference to Exhibit 10.1 to the registrant’s Report on Form 6-K (File No. 001-
36202), filed on July 9, 2014).
List of Subsidiaries of Navigator Holdings Ltd.
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial and Accounting Officer.
Certification under Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer.
Certification under Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Financial and Accounting Officer.
Consent of Independent Registered Public Accounting Firm, KPMG LLP
101. INS* XBRL Instance Document
101. SCH* XBRL Taxonomy Extension Schema
101. CAL* XBRL Taxonomy Extension Schema Calculation Linkbase
101. DEF* XBRL Taxonomy Extension Schema Definition Linkbase
101. LAB* XBRL Taxonomy Extension Schema Label Linkbase
101. PRE* XBRL Taxonomy Extension Schema Presentation Linkbase
*
Filed herewith.
77
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this Annual Report on its behalf.
SIGNATURES
Date: March 3, 2016
NAVIGATOR HOLDINGS LTD.
/s/ Niall Nolan
By:
Name: Niall Nolan
Title: Chief Financial Officer
78
INDEX TO FINANCIAL STATEMENTS
NAVIGATOR HOLDINGS LTD.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2015
Consolidated Statements of Income for the years ended December 31, 2013, 2014 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2014 and 2015
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2013, 2014 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2014 and 2015
Notes to Consolidated Financial Statements
F-2, F-3
F-4
F-5
F-6
F-7
F-8
F-9
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Navigator Holdings Ltd.:
We have audited the accompanying consolidated balance sheets of Navigator Holdings Ltd. and subsidiaries as of December 31, 2015
and 2014, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of
the years in the three-year period ended December 31, 2015. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Navigator Holdings Ltd. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Navigator Holdings Ltd. internal control over financial reporting as of December 31, 2015, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated March 3, 2016 expressed an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
KPMG LLP
London, United Kingdom
March 3, 2016
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Navigator Holdings Ltd:
We have audited Navigator Holdings Ltd’s internal control over financial reporting as of December 31, 2015, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Navigator Holdings Ltd’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Navigator Holdings Ltd maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Navigator Holdings Ltd. and subsidiaries as of December 31, 2015 and 2014, and the related
consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year
period ended December 31, 2015, and our report dated March 3, 2016 expressed an unqualified opinion on those consolidated
financial statements.
KPMG LLP
London, United Kingdom
March 3, 2016
F-3
Navigator Holdings Ltd.
Consolidated Balance Sheets
Assets
Current assets
Cash and cash equivalents
Accounts receivable, net
Accrued income
Prepaid expenses and other current assets
Inventories
Insurance recoverable
Total current assets
Non-current assets
Long-term accounts receivable
Vessels in operation, net
Vessels under construction
Property, plant and equipment, net
Deferred finance costs, net
Total assets
Liabilities and stockholders’ equity
Current liabilities
Current portion of long-term debt
Accounts payable
Accrued expenses and other liabilities
Accrued interest
Deferred income
Total current liabilities
Non-current Liabilities
Secured term loan facilities, net of current portion
Senior unsecured bond
Total non-current liabilities
Total Liabilities
Commitments and contingencies (see note 12)
Stockholders’ equity
Common stock – $.01 par value per share; 400,000,000 shares authorized; 55,363,467 shares
issued and outstanding, (2014: 55,346,613)
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31, 2014
December 31, 2015
(in thousands, except per share data)
$
$
$
62,526 $
7,195
3,642
6,323
4,811
—
84,497
198
1,146,999
134,246
284
9,066
87,779
9,050
5,647
8,754
3,480
10,289
124,999
—
1,264,451
170,776
279
10,139
1,375,290 $
1,570,644
58,350 $
6,448
5,312
3,012
7,095
80,217
359,509
125,000
484,509
564,726
553
584,808
(254)
225,457
810,564
61,979
11,471
9,065
3,117
6,606
92,238
443,315
125,000
568,315
660,553
554
586,451
(465)
323,551
910,091
$
1,375,290 $
1,570,644
See accompanying notes to consolidated financial statements.
F-4
Navigator Holdings Ltd.
Consolidated Statements of Income
Revenues
Operating revenue
Other cargo revenue
Expenses
Address and brokerage commissions
Voyage expenses
Cost of cargo sold
Charter-in costs
Vessel operating expenses
Depreciation and amortization
General and administrative costs
Other corporate expenses
Profit from sale of vessel
Vessel write down following collision
Insurance recoverable from vessel repairs
Total operating expenses
Operating income
Other income/(expense)
Interest expense
Write off deferred finance costs
Interest income
Income before income taxes
Income taxes
Net income
Earnings per share:
Basic:
Diluted:
Weighted average number of shares outstanding:
Basic:
Diluted:
Dividends per share:
Basic and diluted:
Year ended
December 31,
2013
Year ended
December 31,
2014
Year ended
December 31,
2015
(in thousands, except per share data)
$
$
234,287
4,051
238,338
$
304,875
—
304,875
315,223
—
315,223
5,473
49,336
4,255
6,834
56,030
36,608
6,147
3,496
—
—
—
168,179
70,159
(27,563)
—
99
42,695
(506)
42,189
6,697
45,003
—
9,111
70,198
45,809
10,335
2,260
—
—
—
189,413
115,462
(27,051)
—
230
88,641
(904)
87,737
6,995
33,687
—
—
78,842
53,453
11,011
2,553
(550)
10,500
(9,892)
186,599
128,624
(28,085)
(1,797)
152
98,894
(800)
98,094
0.92
0.92
$
$
1.59
1.58
$
$
1.77
1.76
46,031,386
46,031,386
55,336,402
55,483,478
55,360,004
55,706,104
$
$
$
$
—
$
—
$
—
See accompanying notes to consolidated financial statements.
F-5
Navigator Holdings Ltd.
Consolidated Statements of Comprehensive Income
Net income
Other comprehensive income / (loss):
Foreign currency translation (loss) / gain
Total comprehensive income
Year ended
December 31,
2013
(in thousands)
Year ended
December 31,
2014
(in thousands)
Year ended
December 31,
2015
(in thousands)
$
42,189
$
87,737
$
98,094
27
(166)
(211)
$
42,216
$
87,571
$
97,883
See accompanying notes to consolidated financial statements.
F-6
Navigator Holdings Ltd.
Consolidated Statements of Stockholders’ Equity
(in thousands, except per share data)
Common stock
Number of
shares(1)
(Note 11)
Amount 0.01
par value(1)
(Note 11)
Additional
Paid-in Capital(1)
(Note 11)
Accumulated
Other
Comprehensive
Income (Loss)
January 1, 2013
Issuance of common stock
Restricted shares issued March 31, 2013
Restricted shares issued April 7, 2013
Restricted shares issued April 11, 2013
Net income
Foreign currency translation
Share-based compensation plan
December 31, 2013
Issuance of common stock, net of issuance
costs
Restricted shares issued April 14, 2014
Restricted shares issued November 21, 2014
Restricted shares issued December 1, 2014
Net income
Foreign currency translation
Share-based compensation plan
38,694,648
16,530,000
60,000
27,117
15,000
—
—
—
55,326,765
—
12,348
5,000
2,500
—
—
—
387
165
1
—
—
—
—
—
553
—
—
—
—
—
—
—
352,379
230,924
—
—
—
—
—
728
584,031
(345)
—
—
—
—
—
1,122
December 31, 2014
Restricted shares issued March 17, 2015
Net income
Foreign currency translation
Share-based compensation plan
55,346,613 $
16,854
—
—
—
553 $
1
—
—
—
584,808 $
—
—
—
1,643
Retained
Earnings
Total
95,531 448,182
— 231,089
1
—
—
—
—
—
42,189 42,189
27
728
—
—
(115)
—
—
—
—
—
27
—
(88)
137,720 722,216
—
—
—
—
—
(166)
—
—
—
—
(345)
—
—
—
87,737 87,737
(166)
1,122
—
—
—
(254) $ 225,457 $ 810,564
—
1
98,094 98,094
—
(211)
(211)
1,643
—
—
—
December 31, 2015
55,363,467 $
554 $
586,451 $
(465) $ 323,551 $ 910,091
(1) All share amounts (except par value per share amounts) have been retroactively restated for 2012 to reflect the Company’s 3-
for-1 stock split on October 29, 2013 as described in Note 10—Common Stock to these consolidated financial statements.
See accompanying notes to consolidated financial statements.
F-7
Navigator Holdings Ltd.
Consolidated Statements of Cash Flows
Cash provided by (used in) operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization
Payment of drydocking costs
Share-based compensation
Amortization of deferred financing costs
Profit from sale of vessel
Vessel write down following collision
Insurance recoverable from vessel repairs
Unrealized foreign exchange
Changes in operating assets and liabilities
Accounts receivable (decrease) / increase
Inventories increase / (decrease)
Prepaid expenses and other current assets (decrease) / increase
Accounts payable and other liabilities increase / (decrease)
Long-term accounts receivable increase / (decrease)
Net cash provided by (used in) operating activities
Cash provided by (used in) investing activities
Payment to acquire vessels
Payment for vessels under construction
Purchase of other property, plant and equipment
Release of short-term investments
Placement of short-term investments
Receipt of shipyard penalty payments
Insurance recoveries
Proceeds from sale of vessel net of costs
Net cash used in investing activities
Cash provided by (used in) financing activities
Proceeds from secured term loan facilities and revolving credit facility
Direct financing costs of secured term loan facilities and revolving credit facility
Repayment of secured term loan facilities and revolving credit facility
Issuance costs of 9% senior unsecured bond
Proceeds from issuance of stock
Issuance costs of stock
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Year ended
December 31,
2013
(in thousands)
Year ended
December 31,
2014
(in thousands)
Year ended
December 31,
2015
(in thousands)
$
42,189 $
87,737 $
98,094
36,608
(2,923)
728
2,155
—
—
—
24
(7,964)
(1,103)
(2,276)
12,894
(317)
80,015
(426,119)
(41,291)
(93)
20,000
(10,000)
—
—
—
45,809
(5,320)
1,122
2,853
—
—
—
(155)
4,642
1,114
2,417
(7,224)
119
53,453
(11,558)
1,643
4,806
(550)
10,500
(10,289)
(205)
(1,855)
1,331
(4,408)
8,394
198
133,114
149,554
(3,503)
(230,066)
(108)
—
—
—
1,803
—
(3,348)
(236,648)
(142)
—
—
1,933
391
31,958
(457,503)
(231,874)
(205,856)
243,000
(6,867)
(35,751)
(114)
246,570
(15,480)
431,358
53,870
140,870
150,000
(483)
(182,626)
—
—
(345)
(33,454)
(132,214)
194,740
157,700
(5,879)
(70,266)
—
—
—
81,555
25,253
62,526
Cash and cash equivalents at end of year
$
194,740 $
62,526 $
87,779
Supplemental Information
Total interest paid during the year, net of amounts capitalised
Total tax paid during the year
$
$
23,038 $
25,449 $
24,427
171 $
560 $
632
See accompanying notes to consolidated financial statements.
F-8
Navigator Holdings Ltd.
Notes to the Consolidated Financial Statements
December 31, 2013, 2014 and 2015
1. Description of Business
Navigator Holdings Ltd. (“the Company”), the ultimate parent company of the Navigator Group of companies, is registered in the
Republic of the Marshall Islands. The Company has a business of owning and operating a fleet of gas carriers. At December 31, 2015,
the Company owned and operated 29 gas carriers (the “Vessels”) having a cargo capacity of between 20,500 cbm and 22,500 cbm, of
which 23 were semi-refrigerated and of those, ten were capable of transporting ethylene. The remaining six are fully-refrigerated
vessels.
2. Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America. The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries (See
Note 7) and a Variable Interest Entity (“VIE”). All intercompany accounts and transactions have been eliminated in consolidation.
Certain prior period amounts in the consolidated financial statements and notes thereto, have been reclassified to conform to the
current period’s presentation.
As of December 31, 2015, the Company consolidated 100% of its VIE, PT Navigator Khatulistiwa, for which the Company is deemed
to be the primary beneficiary, i.e. it has a controlling financial interest in this entity. The Company owns 49% of the VIE’s common
stock, all of its secured debt and has voting control. All economic interests in the residual net assets reside with the Company.
A VIE is an entity that in general does not have equity investors with voting rights or that has equity investors that do not provide
sufficient financial resources for the entity to support its activities. A controlling financial interest in a VIE is present when a company
has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and has the right to
residual gains or the obligation to absorb losses that could potentially be significant to the VIE.
Amendment of Prior Year Financial Information to Correct an Immaterial Error:
In connection with the preparation of the Company’s consolidated financial statements for the year ended December 31, 2015, the
Company identified an immaterial error in the treatment of capitalized interest costs in relation to vessel newbuildings. Certain
amounts recorded as an interest expense should have been capitalized, rather than expensed. The error resulted in a prior
overstatement of interest expense and an understatement of net income, book values of vessels under construction and vessels in
operation, retained earnings and total stockholders’ equity for the years ended December 31, 2012, 2013 and 2014 and the interim
periods within the years, as well as the first three quarters of 2015, in the related Consolidated Balance Sheets, Consolidated
Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Stockholders’
Equity and Consolidated Statements of Cash Flows. We have amended the financial statements to correct such items in accordance
with accounting guidance presented in ASC 250, SEC Staff Accounting Bulletin No. 99 Materiality and Staff Accounting Bulletin 108
considering the effects of prior years misstatements when quantifying misstatements in current financial statements. The Company
assessed the materiality of the error and concluded that it was not material to any of the Company’s previously issued financial
statements taken as a whole.
F-9
The following tables present the effects of such revisions on the Company’s previously reported financial statements as of and for the
years ended December 31, 2014 and 2013:
Amendment of 2014:
Year ended December 31, 2014
(in thousands, except per share data)
As reported
Adjustment
As amended
Consolidated Balance Sheet (at period end)
At period end:
Vessels in operation, net ..................................................................................................
Vessels under construction, net........................................................................................
Total Assets ...................................................................................................................
Retained earnings ............................................................................................................
Total Stockholders’ equity ............................................................................................
Consolidated Statements of Income
Interest expense ..............................................................................................................
Income before income taxes ............................................................................................
Net income .....................................................................................................................
EPS:
Basic ..............................................................................................................................
Diluted............................................................................................................................
Consolidated Statements of Comprehensive Income
Net income .....................................................................................................................
Total comprehensive income ...........................................................................................
Consolidated Statements of Stockholders’ Equity
Net income .....................................................................................................................
Retained earnings ............................................................................................................
Total Stockholders’ equity...............................................................................................
Consolidated Statements of Cash Flows
Net income .....................................................................................................................
Net cash provided by (used in) operating activities ..........................................................
Payments for vessels under construction ..........................................................................
Net cash used in investing activities.................................................................................
Vessels in Operation
Cost:
Transfer in from vessels under construction (Vessel) .......................................................
Transfer in from vessels under construction (Total)..........................................................
At December 31, 2014 (Vessel) .......................................................................................
At December 31, 2014 (Total) .........................................................................................
NBV:
Net book value December 31, 2014 (Vessel) ...................................................................
Net book value December 31, 2014 (Total) ......................................................................
Vessels Under Construction
Vessels under construction at January 1, 2014 .................................................................
Other payments including stores, capitalized interest and site costs ..................................
Transfer into vessels in operation ....................................................................................
Vessels under construction at December 31, 2014 ............................................................
1,145,066
131,345
1,370,456
220,623
805,730
(30,321)
85,371
84,467
1.53
1.52
84,467
84,301
84,467
220,623
805,730
84,467
129,844
(226,796)
(228,604)
153,699
155,648
1,305,080
1,324,752
1,134,632
1,145,066
1,933
2,901
4,834
4,834
4,834
3,270
3,270
3,270
0.06
0.06
3,270
3,270
3,270
4,834
4,834
3,270
3,270
(3,270)
(3,270)
1,146,999
134,246
1,375,290
225,457
810,564
(27,051)
88,641
87,737
1.59
1.58
87,737
87,571
87,737
225,457
810,564
87,737
133,114
(230,066)
(231,874)
1,933
1,933
1,933
1,933
155,632
157,581
1,307,013
1,326,685
1,933
1,933
1,136,565
1,146,999
60,197
4,472
(155,648)
131,345
1,564
3,270
(1,933)
2,901
61,761
7,742
(157,581)
134,246
F-10
Amendment of 2013:
Year ended December 31, 2013
(in thousands, except per share data)
As reported
Adjustment
As amended
(28,768)
41,490
40,984
Consolidated Balance Sheet (at period end)
Vessels under construction, net.....................................................................................
60,197
Total Assets ................................................................................................................ 1,325,226
Retained earnings .........................................................................................................
136,156
Total Stockholders’ equity .........................................................................................
720,652
Consolidated Statements of Income
Interest expense ...........................................................................................................
Income before income taxes .........................................................................................
Net income ..................................................................................................................
EPS
Basic ...........................................................................................................................
Diluted.........................................................................................................................
Consolidated Statements of Comprehensive Income
Net income ..................................................................................................................
Total comprehensive income ........................................................................................
Consolidated Statements of Stockholders’ Equity
Net income ..................................................................................................................
Retained earnings .........................................................................................................
Total Stockholders’ equity............................................................................................
Consolidated Statements of Cash Flows
Net income ..................................................................................................................
Net cash provided by (used in) operating activities .......................................................
Payments for vessels under construction .......................................................................
Net cash used in investing activities..............................................................................
Vessels Under Construction
Vessels under construction at January 1, 2013 ..............................................................
Other payments including stores, capitalized interest and site costs ...............................
Vessels under construction at December 31, 2013 .........................................................
40,984
78,810
(40,086)
(456,298)
40,984
136,156
720,652
20,111
1,963
60,197
40,984
41,010
0.89
0.89
1,564
1,564
1,564
1,564
1,205
1,205
1,205
0.03
0.03
1,205
1,205
1,205
1,564
1,564
1,205
1,205
(1,205)
(1,205)
359
1,205
1,564
61,761
1,326,790
137,720
722,216
(27,563)
42,695
42,189
0.92
0.92
42,189
42,215
42,189
137,720
722,216
42,189
80,015
(41,291)
(457,503)
20,470
3,168
61,761
We have increased the retained earnings opening balance by $0.4 million for 2013 due to the amendment for capitalization of interest
cost.
(b) Vessels in Operation
The cost of the vessels (excluding the estimated initial drydocking cost) less their estimated residual value is depreciated on a straight-
line basis over the vessel’s estimated economic life. Management estimates the useful life of each of the Company’s vessels to be 30
years from the date of its original construction.
(c) Vessels Under Construction
Vessels under construction are stated at cost, which includes the cost of construction and other direct costs attributable to the
construction. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed
and put into use.
(d) Impairment of Vessels
The Company reviews the carrying value of its vessels for impairment whenever events and circumstances indicate that the carrying
value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition.
In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an
amount by which the carrying value exceeds the fair value of assets.
F-11
(e) Dry Docking Costs
Each vessel is required to be dry-docked every 30 to 60 months for classification society surveys and inspections of, among other
things, the underwater parts of the vessel. These works include, but are not limited to hull coatings, seawater valves, steelworks and
piping works, propeller servicing and anchor chain winch calibrations, all of which cannot be performed while the vessels are
operating. The Company capitalizes costs associated with the dry-dockings in accordance with ASC Topic 360 “Fixed Assets” and
amortizes these costs on a straight-line basis over the period to the next expected dry-docking. Amortization of dry-docking costs is
included in depreciation and amortization in the Consolidated Statements of Income. Costs incurred during the dry-docking period
which relate to routine repairs and maintenance are expensed.
(f) Cash and Cash Equivalents
The Company considers highly liquid investments, such as time deposits and certificates of deposit, with an original maturity of three
months or less when purchased, to be cash equivalents. The Company has cash in a U.S. financial institution which is insured by the
Federal Deposit Insurance Corporation (“FDIC”) for up to $0.3 million. At December 31, 2015 and 2014 and for the years then ended,
the Company had balances in this financial institution in excess of the insured amount. The Company also maintains cash balances in
foreign financial institutions which are not covered by the FDIC.
(g) Short-Term Investments
Short-term investments represent funds deposited in money market funds with an original maturity of more than three months when
purchased. The Company records its short-term investments at fair value. Fair value is a market-based measurement that is determined
based on assumptions that market participants would use in pricing an asset or a liability. The fair value accounting standard
establishes a three tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Include other inputs that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs which are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. The Company’s short-term investments are classified within Level 1 of the fair value hierarchy.
(h) Accounts Receivable
The Company carries its accounts receivable at cost less an allowance for doubtful accounts. At December 31, 2015 and 2014, the
Company evaluated its accounts receivable and established an allowance for doubtful accounts, based on a history of past write-offs,
collections and current credit conditions. The Company does not generally charge interest on past-due accounts (unless the accounts
are subject to legal action), and accounts are written off as uncollectible when all reasonable collection efforts have failed. Accounts
are deemed past-due based on contractual terms.
(i) Inventories
Inventories include bunkers (fuel), for those vessels under voyage charter, and lubricants. Under a time charter, the cost of bunkers is
borne by and remains the property of the charterer. Inventories are accounted for on a first in, first out basis and are valued at the
lower of cost and market value.
(j) Deferred Finance Costs
Costs incurred in connection with obtaining secured term loan facilities, a revolving credit facility and bonds are recorded as deferred
financing costs and are amortized to interest expense over the estimated duration of the related debt. Such costs include fees paid to
the lenders or on the lenders’ behalf and associated legal and other professional fees. Under the Accounting Standards Update (ASU)
2015- 03, Interest—Imputation of Interest the Company will adopt the accounting standard in 2016 (Subtopic 835-30)—simplifying
the presentation of debt issuance cost. In the future, the Company will present the unamortized debt issuance costs, excluding up front
commitment fees, as a direct reduction of the carrying value of the debt.
F-12
(k) Deferred Income
Deferred income is the balance of cash received in excess of revenue earned under a time charter or voyage charter arrangement as of
the balance sheet date.
(l) Revenue Recognition
The Company employs its vessels on time charters or voyage charters. With time charters, the Company receives a fixed charter hire
per on-hire day and revenue is recognized on an accrual basis and is recorded over the term of the charter as service is provided. In the
case of voyage charters, the vessel is contracted for a voyage between two or more ports and the Company is paid for the cargo
transported.
On April 1, 2013, the Company changed its method of accounting for revenue recognition on voyage charters. Previously, the
Company determined that a voyage commenced with loading and completed at the point of discharge. The Company now recognizes
revenue on a discharge-to-discharge basis in determining percentage of completion for all voyage charters, but does not begin
recognizing revenue until a charter has been agreed to by the customer and the Company, even if the vessel has discharged its cargo
and is sailing to the anticipated load port for its next voyage. The Company has adopted this new policy as it considers the decision to
undertake a specific voyage is highly dependent on the location of the vessel’s prior discharge port and the part of the voyage to the
load port is a necessary part of the overall profitability of that voyage. Management believes that given the significant increase in the
number of vessels in operation and consequently the number of voyage charters undertaken, the results of the Company could be
materially distorted by excluding the proportion of the revenue in sailing to the next load port. The adoption of this new accounting
policy has not resulted in a retrospective adjustment as of or for the year ended December 31, 2012, as the impact is not considered
material.
In May 2014, the Financial Accounting Standards Board (or FASB) issued Accounting Standards Update 2014-09, Revenue from
Contracts with Customers, (or ASU 2014-09). ASU 2014-09 will require companies to recognize revenue when it transfers promised
goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange
for those goods or services. This update creates a five-step model that requires companies to exercise judgment when considering the
terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance
obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance
obligations, and (v) recognizing revenue when each performance obligation is satisfied. The amendments are effective for annual an
interim periods in fiscal years beginning after December 15, 2017, with early application permitted as of annual and interim reporting
periods in fiscal years beginning after December 15, 2016. The Company is evaluating the effect of adopting this new accounting
guidance.
(m) Other Comprehensive Income / (Loss)
The Company follows the provisions of ASC Topic 220 “Comprehensive Income,” which requires separate presentation of certain
transactions, which are recorded directly as components of stockholders’ equity. Comprehensive income is comprised of net income
and foreign currency translation gains and losses.
(n) Voyage Expenses and Vessel Operating Expenses
When the Company employs its vessels on time charter, it is responsible for all the operating expenses of the vessels, such as crew
costs, stores, insurance, repairs and maintenance. In the case of voyage charters, the vessel is contracted only for a voyage between
two or more ports, and the Company pays for all voyage expenses in addition to the vessel operating expenses. Voyage expenses
consist mainly of in port expenses and bunker (fuel) consumption and are recognized as incurred.
(o) Repairs and Maintenance
All expenditures relating to routine maintenance and repairs are expensed when incurred.
(p) Insurance
The Company maintains hull and machinery insurance, war risk insurance, protection and indemnity insurance coverage, increased
value insurance, demurrage and defense insurance coverage in amounts considered prudent to cover normal risks in the ordinary
course of its operations. Premiums paid in advance to insurance companies are recognized as prepaid expenses and recorded as a
vessel operating expense over the period covered by the insurance contract. In addition the Company maintains Directors and Officers
insurance.
F-13
(q) Share-Based Compensation
The Company records as an expense in its financial statements the fair value of all equity-settled stock-based compensation awards.
The terms and vesting schedules for share-based awards vary by type of grant. Generally, the awards vest subject to time-based
(immediate to five years) service conditions. Compensation expense is recognized ratably over the service period.
(r) Critical Accounting Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from these estimates.
(s) Foreign Currency Transactions
Substantially all of the Company’s cash receipts are in U.S. Dollars. The Company’s disbursements, however, are in the currency
invoiced by the supplier. The Company remits funds in the various currencies invoiced. The non U.S. Dollar invoices received, and
their subsequent payments, are converted into U.S. Dollars when the transactions occur. The movement in exchange rates between
these two dates is transferred to an exchange difference account and is expensed each month. The exchange risk resulting from these
transactions is not material.
(t) Income Taxes
Navigator Holdings Ltd. and some of its Marshall Islands subsidiaries are currently not required to pay income taxes in the Marshall
Islands on ordinary income or capital gains as they qualify as exempt companies.
The Company has two subsidiaries incorporated in the United Kingdom where the base tax rate is 20% (21% for the year ended
December 31, 2014) One UK subsidiary earns management and other fees from fellow subsidiary companies, and for the year ended
December 31, 2015, the estimated tax charge was $378,194 (2014: $405,956). The second UK subsidiary also holds a time charter
with one of our charterers. The estimated tax charge for the year ended December 31, 2015 is $5,288 (2014: $40,401).
The company has a subsidiary in Poland where the base tax rate is 19% for the year ended December 31, 2015 (19% for the year
ended December 31, 2014). The Polish subsidiary has an estimated tax charge for the year ended December 31, 2015 of $(21,290).
The Company has a subsidiary incorporated in Singapore where the base tax rate is 17% for the year ended December 31, 2014 and
2015. The subsidiary earns management and other fees and receives interest from its VIE, PT Navigator Khatulistiwa, and for the year
ended December 31, 2015, the estimated tax charge was $437,785 (2014: $457,169).
Tax charge UK subsidiaries
Tax charge Poland subsidiary
Tax charge Singapore subsidiary
Total Tax charge
2014
(in thousands)
2015
(in thousands)
$
$
$
447
—
457
904
$
$
$
$
383
(21)
438
800
The Company considered the income tax disclosure requirements of ASC Topic 740 “Income Taxes,” in regards to disclosing material
unrecognized tax benefits; none were identified. The Company’s policy is to recognize accrued interest and penalties for unrecognized
tax benefits as a component of tax expense. At December 31, 2015 and 2014, there were no accrued interest and penalties for
unrecognized tax benefits.
(u) Earnings Per Share
Basic earnings per common share (“Basic EPS”) is computed by dividing the net income available to common stockholders by the
weighted-average number of shares outstanding. Diluted earnings per common share (“Diluted EPS”) are computed by dividing the
net income available to common stockholders by the weighted average number of common shares and dilutive common share
equivalents then outstanding.
Shares granted pursuant to the 2008 Restricted Stock Plan are the only dilutive shares, and these shares have been considered as
outstanding since their respective grant dates for purposes of computing diluted earnings per share.
F-14
(v) Segment Reporting
Although separate vessel financial information is available, Management internally evaluates the performance of the enterprise as a
whole and not on the basis of separate business units or different types of charters. As a result, the Company has determined that it
operates as one reportable segment. Since the Company’s vessels regularly move between countries in international waters over many
trade routes, it is impractical to assign revenues or earnings from the transportation of international LPG products by geographic area.
(w) Recent Accounting Pronouncements
The following accounting standards issued as of December 31, 2015, may affect the future financial reporting by Navigator Holdings
Ltd:
In January 2015, the FASB issued ASU 2015-01, which eliminates the concept of extraordinary items from U.S. GAAP as part of its
simplification initiative. The ASU does not affect disclosure guidance for events or transactions that are unusual in nature or
infrequent in their occurrence. The ASU is effective for fiscal years and, interim periods within those fiscal years, beginning after
December 15, 2015. The ASU allows prospective or retrospective application. Early adoption is permitted if applied from the
beginning of the fiscal year of adoption. The effective date is the same for both public entities and all other entities.
In April 2015, the FASB issued ASU 2015-03, which intends to simplify the presentation of debt issuance costs. This ASU is effective
for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. It is
effective for all other entities for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning
after December 15, 2016. Early adoption is permitted.
In July 2015, the FASB issued ASU 2015-11, which, for entities that do not measure inventory using the last-in, first-out (LIFO) or
retail inventory method, changes the measurement principle for inventory from the lower of cost or market to lower of cost and net
realizable value. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an
approximately normal profit margin when measuring inventory.
This ASU is effective for public business entities in fiscal years beginning after December 15, 2016, including interim periods within
those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15,
2016, and interim periods within fiscal years beginning after December 15, 2017. This ASU is to be applied prospectively. Early
adoption is permitted as of the beginning of an interim or annual period.
In November 2015, the FASB issued ASU 2015-17, which requires entities with a classified balance sheet to present all deferred tax
assets and liabilities as noncurrent. The ASU is effective for public business entities for interim and annual periods in fiscal years
beginning after December 15, 2016. All other entities must apply the new requirements for annual periods in fiscal years beginning
after December 15, 2017, and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted.
In February 2015, the FASB issued ASU 2015-02, which changes the way reporting enterprises evaluate whether (a) they should
consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a
variable interest entity (VIE), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting
enterprise to consolidate the VIE. It also eliminates the VIE consolidation model based on majority exposure to variability that applied
to certain investment companies and similar entities. The new guidance excludes money market funds that are required to comply with
Rule 2a-7 of the Investment Company Act of 1940 and similar entities from the U.S. GAAP consolidation requirements. The new
consolidation guidance is effective for public business entities for annual and interim periods in fiscal years beginning after December
15, 2015.
3. Fair Value of Financial Instruments Not Accounted For at Fair Value
The principal financial assets of the Company at December 31, 2015 and 2014 consist of cash and cash equivalents, short-term
investments and accounts receivable. The principal financial liabilities of the Company consist of accounts payable, accrued expenses
and other liabilities, secured term loan facilities, a revolving credit facility and the 9% senior unsecured bond issue.
The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities are
reasonable estimates of their fair value due to the short-term nature or liquidity of these financial instruments.
The 9% unsecured bond issue is classified as a level two investment and the secured term loan facilities and revolving credit facility
are classified as a level three facility in the fair value hierarchy.
F-15
The following table includes the estimated fair value and carrying value of those assets and liabilities.
Fair Value Hierarchy Level
December 31, 2014
December 31, 2015
Fair
Value
Hierarchy
Level
Carrying
Amount
Asset
(Liability)
Fair Value
Asset
(Liability)
Carrying
Amount
Asset
(Liability)
Fair Value
Asset
(Liability)
Cash and cash equivalents .....................................................................
Senior unsecured bond (note 9) .............................................................
Secured term loan facilities and revolving credit facility (Note 8) ...........
Level 1
Level 2
Level 3
62,526
(125,000)
(417,859)
(in thousands)
62,526
(132,500)
(381,783)
87,779
87,779
(125,000) (128,100)
(505,294) (453,689)
4. Accounts Receivable, Net
It is a condition of time charter parties that payments of hire are received monthly in advance. Voyage charter contracts require
payment upon completion of each discharge, with subsequent demurrage claims payable on submission of invoices. At December 31,
2015, management has provided a provision for doubtful accounts of $0.1 million relating to outstanding demurrage claims (2014:
$0.4 million).
5. Vessels in Operation
Cost
December 31, 2013
Transfer in from vessels under construction
Additions
Disposals
December 31, 2014
Additions
Transfer in from vessels under construction
Disposals
Reduction in contract cost of newbuild vessels
Vessel write down following collision
December 31, 2015
Accumulated Depreciation
December 31, 2013
Charge for the period
Disposals for the period
December 31, 2014
Charge for the period
Disposals for the period
December 31, 2015
Net Book Value
December 31, 2013
December 31, 2014
December 31, 2015
Vessel
(in thousands)
Drydocking
(in thousands)
Total
(in thousands)
$
$
$
$
$
$
$
1,147,878
155,632
3,503
—
1,307,013
3,348
197,518
(32,893)
(2,350)
(10,500)
1,462,136
128,760
41,688
—
170,448
47,698
(3,122)
215,024
1,019,118
1,136,565
1,247,112
$
$
$
$
$
$
$
14,086
1,949
5,320
(1,683)
19,672
11,558
2,600
(7,101)
—
—
26,729
6,977
3,944
(1,683)
9,238
5,616
(5,464)
9,390
7,109
10,434
17,339
$
$
$
$
$
$
$
1,161,964
157,581
8,823
(1,683)
1,326,685
14,906
200,118
(39,994)
(2,350)
(10,500)
1,488,865
135,737
45,632
(1,683)
179,686
53,314
(8,586)
224,414
1,026,227
1,146,999
1,264,451
During 2015, the Company took delivery of four semi-refrigerated handysized liquefied gas carriers from Jiangnan shipyard for a
contract prices of $187.7 million. During 2014, the Company took delivery of three semi-refrigerated handysized liquefied gas carriers
from Jiangnan shipyard for a contract prices of $149.6 million.
On July 8, 2015, Navigator Mariner L.L.C. entered into a Memorandum of Agreement with PT Kemas Sejahtera Lestari to sell the
vessel Navigator Mariner for $32.6 million. Closing of the sale occurred on August 3, 2015.
F-16
On June 28, 2015, Navigator Aries was involved in a collision with a container vessel near Surabaya, Indonesia causing significant
damage to Navigator Aries including to one of its cargo tanks. As at December 31, 2015 the Company has recognised a write down of
$10.5 million relating to the best estimate of the extent of the damage and relative replacement cost.
The vessel left the repair yard on January 27, 2016 after having incurred repair costs of $10.0 million. A total of $9.9 million in
insurance recoverable has been recognised at December 31, 2015, net of the $0.1 million deductible, which will be recoverable by our
hull and machinery insurance. The Company does not have loss of hire insurance and, therefore, the income lost from the Navigator
Aries charter with Pertamina may not be recoverable for the duration of the repairs.
The net book value of vessels that serve as collateral for the Company’s bank loans (Note 8) was $1,146.5 million at December 31,
2015.
The Company has amended the balances for previously issued financial statements in relation to an error in the treatment of
capitalized interest cost.
6. Vessels Under Construction
Vessels under construction at January 1
Payments to shipyard
Other payments including initial stores, capitalized interest and site
$
costs
Transfer to vessels in operation
2014
(in thousands)
2015
(in thousands)
61,761 $
222,324
134,246
222,835
7,742
(157,581)
13,813
(200,118)
Vessels under construction at December 31
$
134,246 $
170,776
At December 31, 2015, the Company had committed to construct two 22,000 cbm semi-refrigerated gas carriers; and four 35,000 cbm
ethane capable gas carrier, at Jiangnan Shipyard (Group) Co. Ltd (“Jiangnan”) in China, two 22,000 cbm semi-refrigerated gas
carriers, and one 38,000 cbm fully refrigerated gas carrier at Hyundai Mipo Dockyard Co. Ltd (Hyundai Mipo) in South Korea, all for
delivery between January 2016 and July 2017. For the year ended December 31, 2015, the Company paid installments of $70.5
million (2014: $101.1 million) to the shipyards towards the nine vessels under construction.
The Company has amended the balances for previously issued financial statements in relation to an error in the treatment of
capitalized interest cost.
F-17
7. Group Subsidiaries
At December 31, 2015 and 2014, the company had the following significant subsidiaries:
Corporation Name
- Navigator Gas US L.L.C.
- Navigator Gas L.L.C.
~ Navigator Atlas L.L.C.
~ Navigator Aurora L.L.C.
~ Navigator Centauri L.L.C.
~ Navigator Ceres L.L.C.
~ Navigator Ceto L.L.C.
~ Navigator Copernico L.L.C.
~ Navigator Capricorn L.L.C.
~ Navigator Eclipse L.L.C.
~ Navigator Europa L.L.C.
~ Navigator Galaxy L.L.C.
~ Navigator Gemini L.L.C.
~ Navigator Genesis L.L.C.
~ Navigator Global L.L.C.
~ Navigator Glory L.L.C.
~ Navigator Grace L.L.C.
~ Navigator Gusto L.L.C.
~ Navigator Leo L.L.C.
~ Navigator Libra L.L.C.
~ Navigator Luga L.L.C.
~ Navigator Magellan L.L.C.
~ Navigator Mariner L.L.C.
~ Navigator Mars L.L.C.
~ Navigator Neptune L.L.C.
~ Navigator Nova L.L.C.
~ Navigator Oberon L.L.C.
~ Navigator Pegasus L.L.C.
~ Navigator Phoenix L.L.C.
~ Navigator Prominence L.L.C.
~ Navigator Saturn L.L.C.
~ Navigator Scorpio L.L.C.
~ Navigator Taurus L.L.C.
~ Navigator Triton L.L.C.
~ Navigator Umbrio L.L.C.
~ Navigator Venus L.L.C.
~ Navigator Virgo L.L.C.
~ Navigator Yauza L.L.C.
~ NGT Services (UK) Ltd
~ NGT Services (Poland) Sp. Z O.O
~ Navigator Gas Ship Management Ltd.
~ Falcon Funding PTE Ltd
~ Navigator Gas Invest Ltd
- PT Navigator Khatulistiwa
Percentage Ownership
as of December 31,
2014
2015
Country of
Incorporation
Subsidiary of Limited
Liability Company
100%
100%
100%
n/a*
100%
100%*
100%
100%
100%
n/a*
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
n/a*
100%
100%
100%
100%
n/a*
100%
100%
100%
n/a*
100%
100%
100%
100%
100%
100%
100%
n/a*
100%
n/a*
n/a*
100%
100%
49%
Service company
Holding company
100% Delaware (USA)
100% Marshall Islands
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100% Marshall Islands Vessel-owning company
100%
100%
100%
100%
100%
49%
Service company
Service company
Service company
Service company
Investment company
Vessel-owning company
England
Poland
England
Singapore
England
Indonesia
* Entities formed during 2015.
The VIE, PT Navigator Khatulistiwa, had total assets and liabilities, as of December 31, 2015, of $142.3 million (2014: $150.9
million) and $85.7 million (2014: $100.4 million) respectively.
F-18
8. Secured Term Loan Facilities and Revolving Credit Facility
The table below represents the annual principal payments to be made under our term loans and revolving credit facility after
December 31, 2015:
Due within one year
Due in two years
Due in three years
Due in four years
Due in five years
Due in more than five years
Total secured term loan facilities and revolving credit facility
Less: current portion
Secured term loan facilities and revolving credit facility, non-
current portion
December 31,
2014
(in thousands)
December 31,
2015
(in thousands)
$
$
58,350 $
58,350
161,524
81,510
7,500
50,625
417,859 $
58,350
61,979
171,002
120,989
16,979
75,103
59,242
505,294
61,979
$
359,509 $
443,315
April 2011. Secured Term Loan Facility. The Company has an $80.0 million secured term loan facility with Skandinaviska
Enskilda Banken AB and Nordea Bank Finland Plc dated April 1, 2011. Interest is payable under the loan facility at USD LIBOR plus
a margin of 3% per annum, payable quarterly. The Company also paid a commitment fee of 1.05% per annum based on any undrawn
portion of the facility. The facility is divided into three parts; Tranche A of $16.0 million; Tranche B and Tranche C at $32.0 million
each. The loan was fully drawn in February 2012 when the balance of Tranche C was drawn down to finance the delivery installment
of Navigator Libra and partly for general corporate purposes. At December 31, 2015, the total outstanding amount of the loan was
$56.9 million of which Tranche A is repayable by five quarterly amounts of $0.6 million followed by a final payment of $4.5 million;
Tranche B is repayable by four quarterly amounts of $0.4 million followed by a final payment of $22.7 million and Tranche C is
repayable by five quarterly amounts of $0.4 million followed by a final payment of $23.1 million.
This term loan facility is secured by first priority mortgages on each of; Navigator Saturn, Navigator Leo and Navigator Libra as well
as assignments of earnings and insurances on these secured vessels. The financial covenants each as defined within the credit facility
are: a) the maintenance at all times of cash and cash equivalents (including undrawn available lines of credit with a maturity exceeding
12 months) in an amount equal to or greater than (i) $10.0 million and (ii) 5 % of the total indebtedness; b) net debt to total
capitalization ratio not to exceed 60%; c) EBITDA to interest expense, on a trailing four-quarter basis, to be no less than 3:1; and d) a
loan to value maintenance of no less than 130%. At December 31, 2015, the Company was in compliance with all covenants contained
in this term loan. Pursuant to the terms of the term loan facility, the Company may not declare any dividends, redeem its shares or
make any other payment to its shareholders other than a dividend of up to fifty percent (50%) of the Company’s consolidated net
income may be declared or paid on a quarterly basis so long as the Company is in compliance with the financial covenants on a pro
forma basis after declaring or paying such dividend and no event of default has occurred or will occur after declaration or payment of
the dividend.
April 2012 Secured Term Loan Facility. The Company has a $180.0 million loan facility with Nordea Bank Finland Plc,
Skandinaviska Enskilda Banken AB and DVB Bank SE dated April 18, 2012, for the purpose of refinancing a $150.0 million secured
revolving credit facility dated July 31, 2008, as well as providing finance for the acquisition of two vessels from within our operating
segment, Navigator Pegasus and Navigator Phoenix, and for general corporate purposes. The deferred finance costs associated with
the extinguishment of the previous $150.0 million facility were written off in full.
Interest is payable under the loan facility at three-month USD LIBOR plus a margin of 3.375% per annum, payable on a quarterly
basis. The Company paid a commitment fee of 1.35% per annum based on any undrawn portion of the loan facility. The loan facility
is comprised of two tranches being Tranche A for $120.0 million and Tranche B for $60.0 million. Tranche A is repayable in quarterly
installments of $4.2 million commencing on July 18, 2012 and Tranche B is repayable in quarterly installments of $1.1 million
commencing on July 27, 2012. Quarterly installments are payable until the maturity date of the loan which is April 18, 2017 when the
loan becomes fully repayable. At December 31, 2015, the total outstanding amount of the loan was $105.8 million which is repayable
by six quarterly installments each of Tranche A and Tranche B followed by a final combined repayment of $74.0 million on April 18,
2017.
F-19
This loan facility is secured by first priority mortgages on each of; Navigator Gemini, Navigator Mars, Navigator Neptune, Navigator
Pegasus, Navigator Phoenix, Navigator Taurus and Navigator Venus as well as assignments of earnings and insurances on these
secured vessels. The financial covenants each as defined within the credit facility are: a) the maintenance at all times of cash and cash
equivalents in an amount equal to or greater than (i) $12.5 million and (ii) 5 % of the total indebtedness; b) a ratio of EBITDA to
interest expense of not less than 3:1; c) maintain consolidated working capital of not less than $0 and d) maintain a ratio of total
stockholders’ equity to total assets of not less than 30 per cent. At December 31, 2015, the Company was in compliance with all
covenants contained in this credit facility.
February 2013 Secured Term Loan Facility. A loan facility for $270.0 million was entered into on February 12, 2013 between
Navigator Gas L.L.C. and Nordea Bank Finland Plc London branch, Skandinaviska Enskilda Banken AB (Publ) Nordic branch, DVB
Bank SE, ABN Amro Bank N.V. and HSH Nordbank AG. The facility is to assist in the purchase of the fleet of 11 semi-refrigerated
and fully-refrigerated handysize liquefied gas carriers from A.P. Møller Mærsk for a total purchase price of $470.0 million. Interest is
payable under the loan facility at USD LIBOR plus 3.5%, payable on a quarterly basis. The Company also paid a commitment fee of
1.40% per annum based on any undrawn portion of the facility. This term loan facility is a delayed draw facility with an availability
period that ended December 31, 2013, and a term of five years. Advances under the term loan facility were contingent upon the
delivery of the A.P. Møller vessels, provided that no advance may occur after the end of the availability period. At December 31, 2015
the total amount drawn under the facility was $243.0 million and the amount still outstanding at December 31, 2015 was $50.3
million. At December 31, 2015, the vessel advances are repayable over nine combined quarterly instalments of $4.5 million with the
final combined repayment of $9.8 million on January 31, 2018.
On June 30, 2014, the company entered into a Supplemental Agreement to our February 2013 $270.0 million secured term loan
facility, which, among other things, (i) allows the company to prepay $120.0 million outstanding under such term loan facility,
(ii) revises the terms of the such term loan facility to include a quasi revolving facility where funds can be drawn over the course of
the facility period in four tranches of $30.0 million each and (iii) provides that such term loan facility be amended and restated to
reflect the foregoing. On July 7, 2014, the company prepaid $120.0 million outstanding under such term loan facility from excess cash
following the IPO in November 2013. At December 31, 2015, the company had redrawn a total of $90.0 million with a remaining
$30.0 million available to re-draw in one tranche, with the final drawdown date of January 31, 2018.
This loan facility is secured by first priority mortgages on each of; Navigator Capricorn, Navigator Galaxy, Navigator Genesis,
Navigator Glory, Navigator Grace, Navigator Gusto, Navigator Magellan, Navigator Scorpio and Navigator Virgo as well as
assignments of earnings and insurances on these secured vessels. On August 3, 2015 Navigator Mariner a vessel included in the
original loan facility was sold with the remaining loan amount of $8.8 million being repaid. The financial covenants each as defined
within the credit facility are: a) the maintenance at all times of cash and cash equivalents in an amount equal to or greater than
(i) $25.0 million and (ii) 5 % of the total indebtedness; b) a ratio of EBITDA to interest expense of not less than 3:1; c) maintain
consolidated working capital of not less than $0 and d) maintain a ratio of total stockholders’ equity to total assets of not less than
30 per cent. At December 31, 2015, the Company was in compliance with all covenants contained in this credit facility.
January 2015 Secured Term Loan Facility. On January 27, 2015 the Company entered into a secured term loan facility with
Credit Agricole Corporate and Investment Bank to refinance the April 2013 $120.0 million secured term loan facility, as well as to
provide financing for an additional five existing newbuildings. The January 2015 secured term loan facility has a term of up to seven
years from the loan drawdown date with a maximum principal amount of up to $278.1 million. Following the combined drawdowns of
$215.8 million to partially finance the delivery of the newbuildings Navigator Atlas, Navigator Europa, Navigator Oberon, Navigator
Triton, Navigator Umbrio, Navigator Centauri, and Navigator Ceres there was $62.3 million as at December 31, 2015 under the
January 2015 secured term loan facility available to be drawn to fund the future deliveries of Navigator Ceto which was delivered in
January 2016 and Navigator Copernico which is expected to be delivered in April 2016. Interest on amounts drawn is payable at a rate
of U.S. LIBOR plus 270 basis points per annum. The deferred finance costs associated with the extinguishment of the previous $120.0
million facility were written off in full.
This loan facility is secured by first priority mortgages on each of; Navigator Atlas, Navigator Europa, Navigator Oberon, Navigator
Triton, Navigator Umbrio, Navigator Centauri, Navigator Ceres and Navigator Copernico as well as assignments of earnings and
insurances on these secured vessels. The financial covenants each as defined within the credit facility are: a) the maintenance at all
times of cash and cash equivalents in an amount equal to or greater than (i) $25.0 million and (ii) 5% of the total indebtedness; b) a
ratio of EBITDA to interest expense of not less than 3:1; and c) maintain a ratio of total stockholders’ equity to total assets of not less
than 30%. At December 31, 2015, the Company was in compliance with all covenants contained in this credit facility.
December 2015 Secured Revolving Credit Facility. On December 21, 2015 the company entered into a secured revolving credit
facility with Nordea Bank AB and ABN Amro Bank N.V as agents, to provide financing for six of the eight newbuildings expected to
be delivered by July 2017. The December 2015 secured revolving credit facility has a term of seven years from the loan arrangement
F-20
date (expiring in December 2020) with a maximum principal amount of up to $290.0 million. No drawdowns were made on or before
December 31, 2015. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 210 basis points per annum. The aggregate fair
market value of the collateral vessels must be no less than 125% of the aggregate outstanding borrowing under the facility.
This loan facility is secured by first priority mortgages on each of; Navigator Aurora, Navigator Eclipse, Navigator Nova, Navigator
Prominence, Navigator Luga and Navigator Yauza as well as assignments of earnings and insurances on these secured vessels. The
financial covenants each as defined within the credit facility are: a) the maintenance at all times of cash and cash equivalents in an
amount equal to or greater than (i) $25.0 million and (ii) 5 per cent of the total indebtedness; b) a ratio of EBITDA to interest expense
of not less than 3:1; and c) maintain a ratio of total stockholders’ equity to total assets of not less than 30%. The Company also paid a
commitment fee of 0.74% per annum based on any undrawn portion of the facility. At December 31, 2015, the Company was in
compliance with all covenants contained in this credit facility.
9. Senior Unsecured Bond
On December 18, 2012, the Company issued a $125.0 million 9% Senior Unsecured Bond on the Oslo Markets to finance part of the
acquisition of the AP Møller-Mærsk 11 vessels. The bond will mature in full five years after the settlement date, on December 18,
2017. The bond may be redeemed between the third anniversary and final maturity at a premium. Interest is payable semi-annually in
arrears on June 18 and December 18.
The financial covenants each as defined within the bond agreement are: (a) The issuer shall ensure that the Group (meaning “the
Company and its subsidiaries”) maintains a minimum liquidity of the greater of (i) $12.5 million and (ii) 5 per cent of total interest
bearing debt; b) the Group to maintain a positive working capital; (c) to maintain an interest coverage ratio of not less than 3:1;
(d) maintain a Group equity ratio of minimum 30%; and (e) the issuer shall ensure that the aggregate market value of the Group’s
vessels is at least 120% of the total interest bearing debt of the Group. Pursuant to the terms of the senior unsecured bonds, following
December 31, 2013, the Company may declare or pay a dividend of up to fifty percent (50%) of the Company’s consolidated net
profits after taxes may be declared or paid on a quarterly basis so long as the Company is in compliance with an equity ratio of 35%
after giving effect to the dividend. At December 31, 2015, the Company was in compliance with all covenants contained in this credit
facility.
10. Common Stock
On February 15, 2013, the Company entered into an agreement with affiliates of WL Ross & Co L.L.C., Mr. David Butters, Chief
Executive Officer of the Company, and a third party to subscribe for shares of common stock to the value of $75.0 million.
7,500,000 million shares were issued, and funds were received by the Company on February 25, 2013.
The number of shares of common stock outstanding reflects a 3-for-1 stock split that was effected on October 29, 2013. All references
in these consolidated financial statements to the number of common shares, price per share and weighted average number of common
shares outstanding prior to the 3-for-1 stock split have been adjusted to reflect this stock split on a retroactive basis, unless otherwise
noted.
On November 26, 2013, the Company completed its initial public offering of 13,800,000 shares of its common stock at $19.00 per
share, including the full exercise by the underwriters of their option to purchase an additional 1,800,000 shares of common stock from
the selling stockholders. Navigator offered 9.0 million shares of common stock and certain selling shareholders offered 4.8 million
shares of common stock. Net proceeds received by the company from the sale of 9,030,000 shares of its common stock were
approximately $156.4 million after deducting underwriting discounts and expenses.
The calculation of both basic and diluted number of weighted average outstanding shares of:
Basic weighted average number of shares
Effect of dilutive potential share options:
Diluted weighted average number of shares
December 31,
2014
55,336,402
147,076
55,483,478
December 31,
2015
55,360,004
346,100
55,706,104
The shares of the Company’s common stock began trading on the New York Stock Exchange on November 21, 2013, under the ticker
symbol “NVGS.”
F-21
11. Share-Based Compensation
During 2008, the Company’s Board adopted the 2008 Restricted Stock Plan (the “2008 Plan”), which entitled officers, employees,
consultants and directors of the Company to receive grants of restricted stock of the Company’s common stock. This 2008 Plan is
administered by the Board or a committee of the Board. A holder of restricted stock, awarded under the Plan, shall have the same
voting and dividend rights as the Company’s other common stockholders in relation to those shares.
Prior to closing of the Company’s initial public offering in November 2013, this Plan was frozen such that new awards will no longer
be issued thereunder. However, any outstanding awards issued prior to the Plan being frozen shall continue to remain outstanding and
extend beyond the date the Plan was frozen. Any future equity incentive awards will be granted under the new 2013 Long Term
Incentive Plan entered into prior to the closing of the Company’s initial public offering.
During the year to December 31, 2014, 61,350 shares of those previously awarded under the 2008 Plan vested with a total fair value of
$1,802,463. An additional 50,298 shares awarded under the 2008 Plan vested during the year to December 31, 2015 at a fair value of
$856,575.
The 2013 Plan is administered by the Compensation Committee with certain decisions subject to approval of our Board. The
maximum aggregate number of common shares that may be delivered pursuant to options or restricted stock awards granted under the
Plan is 3,000,000 shares of common stock. A holder of restricted stock, awarded under the Plan, shall have the same voting and
dividend rights as the Company’s other common stockholders in relation to those shares.
On April 14, 2014, the Company granted 12,348 shares under the 2013 Plan, with a value of $24.29 per share to certain members of
The Board of Directors which vested during the year to December 31, 2015 at a fair value of $254,986. On November 21, 2014 a
further 5,000 shares were granted to a member of the Board of Directors with a weighted average value of $23.50 which vested during
the year to December 31, 2015 at a fair value of $65,000.
On December 1, 2014 the Company granted 2,500 shares under the 2013 Plan to officers and management of the Company with a
weighted average value of $19.59 per share. These shares vest on the third anniversary of the grant date.
On March 17, 2015 the Company granted 16,854 shares under the 2013 Plan to members of the Board of Directors with a weighted
average value of $17.80 per share. These shares vest on the first anniversary of the grant date.
Restricted share grant activity for the year ended December 31, 2014 and 2015 was as follows:
Balance as of January 1, 2014
Granted
Vested
Balance as of December 31, 2014
Granted
Vested
Balance as of December 31, 2015
Number of non-
vested
restricted
shares
Weighted
average grant
date fair value
Weighted
average
remaining
contractual
term
Aggregate
intrinsic value
$
$
213,765
19,848
(61,350)
172,263
16,854
(67,646)
121,471
8.40
23.50
6.39
10.85
17.80
11.81
11.28
1.53 years
$
5,758,829
0.88 years
$
3,627,859
0.29 years
$
1,658,079
Using the straight-line method of expensing the restricted stock grants, the weighted average estimated value of the shares calculated
at the date of grant is recognized as compensation cost in the Statement of Income over the period to the vesting date.
During the year ended December 31, 2015, the Company recognized $806,730 in share-based compensation costs relating to share
grants (year ended December 31, 2014: $728,616). As of December 31, 2015, there was a total of $179,440 unrecognized
compensation costs relating to the expected future vesting of share-based awards (December 31, 2014: $686,170) which are expected
to be recognized over a weighted average period of 0.29 years (December 31, 2014: 0.88 years).
F-22
On April 14, 2014 the Company granted 197,055 share options at a strike price of $24.29 under the 2013 Plan, with a weighted
average value of $7.45 per share to officers and employees of the Company. On October 14, 2014 the Company granted 30,000 share
options at a strike price of $23.18 under the 2013 Plan, with a weighted average value of $6.23 per share to officers and employees of
the Company.
On March 17, 2015 the Company granted 158,885 share options at a strike price of $17.80 under the 2013 Plan, with a weighted
average value of $7.90 per share to officers and employees of the Company.
All options are not exercisable until the third anniversary of the grant date and can be exercised up to the tenth anniversary of the date
of grant. The fair value of each option is calculated on the date of grant based on the Black-Scholes valuation model using the
assumptions listed in the table below. Expected volatilities are based on the historic volatility of the Company’s stock price and other
factors. The Company does not currently pay dividends and it is assumed this will not change. The expected term of the options
granted is anticipated to occur in the range between 4 and 6.5 years. The risk free rate is the rate adopted from the U.S. Government
Zero Coupon Bond.
Assumptions used to determine the fair value of options granted during the year ended December 31, 2015 were as follows:
Grant Date
Expected volatility
Expected dividend yield
Expected term (in years)
Risk free rate
April 14, 2014
October 14, 2014
March 17, 2015
25.0%
0.0%
6.5
2.17%
35.0%
0.0%
4 - 6.5
39.0%
0.0%
4 - 6.5
1.25% - 1.74%
1.52% - 1.84%
Options granted during the years ended December 31, 2014 and 2015 were as follows:
Options
Balance as of January 1, 2014
Granted April 14, 2014
Granted October 14, 2014
Forfeited during the year
Vested
Balance as of December 31, 2014
Granted March 17, 2015
Forfeited during the period
Vested
Balance as of December 31, 2015
Number of non-
vested
options
Weighted
average exercise
price per share
Weighted
average
remaining
contractual
term years
Aggregate
intrinsic value
—
197,055 $
30,000
(4,000)
—
223,055 $
158,885
(3,500)
—
378,440
—
24.29
23.18
23.18
—
24.16
17.80
20.87
—
21.52
—
8.29
8.79
—
—
8.35
9.22
—
—
8.71 $
—
—
—
—
—
—
—
—
—
During the year ended December 31, 2015, the Company recognized $835,893 in share-based compensation costs relating to options
granted under the 2013 Plan, recognized in general and administrative costs (year ended December 31, 2014 $393,689). At
December 31, 2015, there was $1,652,126 of total unrecognized compensation costs related to non-vested options under the 2013 Plan
(year ended December 31, 2014 $1,271,473). This cost is expected to be recognized over a weighted average period of 1.7 years (year
ended December 31, 2014 2.35 years).
12. Commitments and Contingencies
The Company occupies office space in London, the lease for which was entered into on March 30, 2012, for a period of ten years, with
a mutual break clause after five years, and paying approximately $0.5 million (£0.3 million) per calendar year. The Company also
occupies office space in New York under a lease that was renewed during 2012 for which the yearly rent is approximately $0.2
million per year. The renewed lease is for a period of five years ending June 30, 2017.
On July 18, 2013, the Company entered into agreements to construct one further 21,000 cubic meter semi-refrigerated ethylene
capable gas carrier and two 22,000 cubic meter semi-refrigerated liquefied gas carriers for a combined price of approximately $138.0
million , plus options to build two further 22,000 cubic meter semi-refrigerated liquefied gas carriers, at a construction price of $44.0
million. These options were subsequently exercised. At December the 31, 2015, three of the five vessels have been delivered, with
Navigator Ceto delivered on January 15, 2016 and Navigator Copernico scheduled to be delivered in April 2016.
F-23
On December 20, 2013, the Company entered into a contract to construct a 35,000 cubic meter semi-refrigerated ethane capable gas
carrier at a purchase price of $77.4 million at Jiangnan for delivery in April 2016 with an option to construct three further ethane-
capable vessels for $78.4 million each. This option was exercised in April 2014. These three vessels are scheduled to be delivered
between June 2016 and January 2017.
On November 3, 2014, the Company entered into two contracts, each to construct a 22,000 cubic meter semi-refrigerated liquefied gas
carrier, with Hyundai Mipo Dockyard in South Korea at a construction cost of $51.0 million each. The vessels are scheduled to be
delivered in January and March 2017, respectively.
On November 11, 2015, the Company entered into a contract to construct a 38,000 cubic meter fully refrigerated liquefied gas carrier,
with Hyundai Mipo Dockyard in South Korea at a construction cost of $50.5 million. The vessel is scheduled to be delivered in July
2017.
13. Concentration of Credit Risks
The Company’s vessels are chartered under either a time charter arrangement or voyage charter arrangement. Under a time charter
arrangement, no security is provided for the payment of charter hire. However, payment is usually required monthly in advance.
Under a voyage charter arrangement, a lien may sometimes be placed on the cargo to secure the payment of the accounts receivable,
as permitted by the prevailing charter party agreement.
At December 31, 2015, 19 of the Company’s 29 operated vessels, were subject to time charters, 15 of which will expire within one
year, two which will expire within one to two years, and two which will expire within eight years. The committed charter income is as
follows:
2016:
2017:
2018:
2019:
2020:
(in thousands)
110,888
68,934
62,545
62,545
62,545
$
$
$
$
$
During 2015, five charterers contributed 51.4% of the operating revenue, comprising 14.0%, 11.7%, 9.1%, 8.3% and 8.3% (2014: five
charterers contributed 46.8% of the operating revenue, comprising 10.7%, 10.3%, 8.9%, 8.6% and 8.3%).
At December 31, 2015 and 2014, all of the Company’s cash and cash equivalents and short-term investments were held by large
financial institutions, highly rated by a recognized rating agency.
14. Subsequent Events
On January 15, 2016, Navigator Ceto, a 21,000 cubic meter semi-refrigerated gas carrier was delivered from Jiangnan shipyard in
China.
On January, 27, 2016, Navigator Aries left Keppel Shipyard following the completion of repairs from the collision it was involved in
near Surabaya, Indonesia in June 2015.
F-24
Subsidiaries of Navigator Holdings Ltd
Exhibit 8.1
Corporation Name
- Navigator Gas US L.L.C.
- Navigator Gas L.L.C.
~ Navigator Atlas L.L.C.
~ Navigator Aurora L.L.C.
~ Navigator Centauri L.L.C.
~ Navigator Ceres L.L.C.
~ Navigator Ceto L.L.C.
~ Navigator Copernico L.L.C.
~ Navigator Capricorn L.L.C.
~ Navigator Eclipse L.L.C.
~ Navigator Europa L.L.C.
~ Navigator Galaxy L.L.C.
~ Navigator Gemini L.L.C.
~ Navigator Genesis L.L.C.
~ Navigator Global L.L.C.
~ Navigator Glory L.L.C.
~ Navigator Grace L.L.C.
~ Navigator Gusto L.L.C.
~ Navigator Leo L.L.C.
~ Navigator Libra L.L.C.
~ Navigator Luga L.L.C.
~ Navigator Magellan L.L.C.
~ Navigator Mariner L.L.C.
~ Navigator Mars L.L.C.
~ Navigator Neptune L.L.C.
~ Navigator Nova L.L.C.
~ Navigator Oberon L.L.C.
~ Navigator Pegasus L.L.C.
~ Navigator Phoenix L.L.C.
~ Navigator Prominence L.L.C.
~ Navigator Saturn L.L.C.
~ Navigator Scorpio L.L.C.
~ Navigator Taurus L.L.C.
~ Navigator Triton L.L.C.
~ Navigator Umbrio L.L.C.
~ Navigator Venus L.L.C.
~ Navigator Virgo L.L.C.
~ Navigator Yauza L.L.C.
~ NGT Services (UK) Ltd
~ NGT Services (Poland) Sp. Z O.O
~ Navigator Gas Ship Management Ltd.
~ Falcon Funding PTE Ltd
~ Navigator Gas Invest Ltd
- PT Navigator Khatulistiwa
Country of
Incorporation
Corporation Type
Service company
Holding company
Delaware (USA)
Marshall Islands
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
Marshall Islands Vessel-owning company
England
Poland
England
Singapore
England
Indonesia
Service company
Service company
Service company
Service company
Investment company
Vessel-owning company
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, David J. Butters, Principal Executive Officer, certify that:
I have reviewed this annual report on Form 20-F of Navigator Holdings Ltd. (the “company”);
Exhibit 12.1
1.
2.
3.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods
presented in this report;
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during
the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the
company’s internal control over financial reporting; and
4.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the company’s internal control over financial reporting.
Date: March 3, 2016
By:
/s/ David J. Butters
Name: David J. Butters
Title: Chief Executive Officer of Navigator
Holdings Ltd.
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Niall Nolan, Principal Financial and Accounting Officer, certify that:
I have reviewed this annual report on Form 20-F of Navigator Holdings Ltd. (the “company”);
Exhibit 12.2
1.
2.
3.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods
presented in this report;
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during
the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the
company’s internal control over financial reporting; and
4.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the company’s internal control over financial reporting.
Date: March 3, 2016
By:
/s/ Niall Nolan
Name: Niall Nolan
Title: Chief Financial Officer of Navigator Holdings
Ltd.
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United
States Code), the undersigned officer of Navigator Holdings Ltd., a Marshall Islands company (the “Company”), hereby certifies that:
The Annual Report on Form 20-F for the year ended December 31, 2015 (the “Report”) of the Company fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents,
in all material respects, the financial condition and results of operations of the Company.
Dated: March 3, 2016
Exhibit 13.1
By:
/s/ David J. Butters
Name: David J. Butters
Title: Chief Executive Officer of Navigator
Holdings Ltd.
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United
States Code), the undersigned officer of Navigator Holdings Ltd., a Marshall Islands company (the “Company”), hereby certifies that:
The Annual Report on Form 20-F for the year ended December 31, 2015 (the “Report”) of the Company fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents,
in all material respects, the financial condition and results of operations of the Company.
Dated: March 3, 2016
Exhibit 13.2
By:
/s/ Niall Nolan
Name: Niall Nolan
Title: Chief Financial Officer of Navigator Holdings
Ltd.
Consent of Independent Registered Public Accounting Firm
Exhibit 15.1
The Board of Directors
Navigator Holdings Ltd.:
We consent to the incorporation by reference in the registration statement (No. 333-197321) on Form S-8 of Navigator Holdings Ltd
of our reports dated March 3, 2016, with respect to the consolidated balance sheets of Navigator Holdings Ltd. as of December 31,
2015 and 2014, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for
each of the years in the three-year period ended December 31, 2015, and the effectiveness of internal control over financial reporting
as of December 31, 2015, which reports appear in the December 31, 2015 annual report on Form 20-F of Navigator Holdings Ltd.
/s/ KPMG LLP
KPMG LLP
London, United Kingdom
March 3, 2016