DryShips Reports 2Q Results

DryShips Inc. (NASDAQ: DRYS) announced its unaudited financial and operating results for the second quarter and six month period ended June 30, 2011.
For the second quarter of 2011, the company reported a net loss of $114.1m, or $0.33 basic and diluted loss per share. Included in the second quarter 2011 results are infrequently occurring and non-cash items, totaling $131.5 million, or $0.37 per share which are described below. Excluding infrequently occurring and non-cash items, the Company’s net results would have amounted to a net income of $17.4 million or $0.04 per share. Infrequently occurring and non-cash items included in the second quarter 2011 results are the following:
- Impairment losses from the sale of vessels La Jolla, Conquistador, Samsara, Brisbane and Toro, net of gain from the total loss of the Oliva, amounting to $87.0 million, or $0.25 per share.
- Incremental costs associated with the class survey of Leiv Eiriksson in the second quarter of 2011 of $8.6 million, or $0.02 per share. Next survey is scheduled for 2016.
- Losses incurred on our interest rate swaps, amounting to $35.9 million, or $0.10 per share.
- Basic loss per share for the second quarter of 2011 includes an increase to net loss amounting to $1.4 million relating to the cumulative payment-in-kind dividends on the Series A Convertible Preferred Stock, which reduces the income available to common shareholders.
“We are pleased to report on the progress made on initiatives that have been underway for several months," said George Economou, Chairman and CEO, Dryships. "One of the most significant milestones was the commencement by Ocean Rig UDW on August 26, 2011 of its offer to exchange shares that have been registered with the US SEC for shares that were issued in a private Norwegian offering in 2010. On August 4, 2011, we also announced the partial spin off of Ocean Rig UDW by way of a dividend to our shareholders, this dividend is the first step in delivering value to our shareholders from our investment in the offshore deep water drilling sector. By mid-September we expect these shares will be tradable on a “when issued” basis on the Nasdaq Global Select Market and to begin “regular-way” trading in October under the symbol “ORIG”.
“On July 26th, we also announced a merger agreement with OceanFreight Inc. This transaction provides DryShips with an opportunity to consolidate the fragmented drybulk sector by acquiring a high quality, modern fleet with long-term charters and increase our presence in the Capesize sector. My colleagues at OceanRig have been busy taking delivery of our new drillships from Samsung and putting them to work efficiently. On July 28th we took delivery of the OceanRig Poseidon, two days ahead of schedule. The first three drillships have all been delivered on time or ahead of schedule and sailed immediately upon delivery from the shipyard to the drilling area and commenced operations.
“This was a particular quarter for our drilling segment during which three of our four units commenced new contracts which required mobilization before we were in a position to earn the full contractual daily operating rate. As such, earnings from drilling operations this quarter do not reflect the full earnings capacity of our drilling fleet.”

Recent Company Events
- The company sold the vessels La Jolla, Conquistador, Brisbane, Samsara and Toro for a total sales price of $90.1 million. The vessels La Jolla and Conquistador were delivered on July 20 and July 25, 2011, respectively, the vessel Samsara was delivered on August 24, 2011, while the remaining two vessels are scheduled for delivery in September and October, respectively.
- On July 26, 2011, we entered into a definitive agreement to acquire 100% of the shares of OceanFreight Inc. (“OceanFreight”) a company listed on the Nasdaq Global Select Market under the ticker symbol OCNF with a fleet comprised of four Capesize bulk carriers, two Panamax bulk carriers, and five Very Large Ore Carriers under construction with delivery scheduled in 2012 and 2013. Under the terms of the merger agreement, OceanFreight shareholders will be paid $11.25 per share in cash and they will also receive 0.52326 shares of Ocean Rig UDW Inc. for every share they own of OceanFreight. We will also assume $143 million dollars in debt as a result of this transaction. As a result of the  purchase agreement, on August 24, 2011, we purchased 3,000,856 shares of OceanFreight Inc. from entities controlled by Mr. Anthony Kandylidis, the CEO of OceanFreight, for the same price as will be paid to OceanFreight shareholders in the merger. These shares represent a majority of the outstanding shares of OceanFreight. The merger with OceanFreight is expected to close in the fourth quarter 2011.
- On July 28, 2011 Ocean Rig took delivery of its newbuilding drillship, the Ocean Rig Poseidon, the third of four sixth generation, ultra-deepwater sister drillships being constructed by Samsung. In connection with the delivery of the Ocean Rig Poseidon, the final yard installment of $309.3 million was paid, which was financed with additional drawdowns in July 2011 under the Company’s Deutsche Bank credit facility.
-  On August 1, 2011, as subsequently amended, Ocean Rig UDW, filed with the US Securities and Exchange Commission a Form F-4 registration statement, or the Exchange Offer Registration Statement, relating to the offer to exchange up to 28,571,428 new common shares of Ocean Rig UDW that have been registered under the Securities Act of 1933, as amended (Securities Act), for an equivalent number of common shares of Ocean Rig UDW, previously sold in a private offering made in December 2010 to both non-U.S. persons in Norway in reliance on Regulation S under the Securities Act and to qualified institutional buyers in the United States in reliance on Rule 144A under the Securities Act. On Friday August 26, 2011 the Exchange Offer Registration Statement was declared effective and we commenced the exchange offer.
- On August 4, 2011, our board of directors announced that it approved the partial spin-off of our interest in Ocean Rig UDW. We will distribute approximately 2,967,359 shares of common stock of Ocean Rig UDW, which will reduce our ownership interest in Ocean Rig UDW by approximately 2%. The number of shares of common stock of Ocean Rig UDW to be distributed for each share of common stock of the Company will be determined by dividing 2,967,359 by the aggregate number of issued and outstanding shares of common stock of the Company on September 21, 2011, the record date for the distribution. Ocean Rig UDW has applied to list its common stock on the Nasdaq Global Select Market under the symbol “ORIG”.