ANNUAL REPORT 2017
Corporate Profile
Diana Shipping Inc. (NYSE: DSX) is a global provider of shipping transportation services. We
specialize in the ownership of dry bulk vessels. As of March 16, 2018 our fleet consists of
50 dry bulk vessels (4 Newcastlemax, 14 Capesize, 5 Post-Panamax, 5 Kamsarmax and 22
Panamax). As of the same date, the combined carrying capacity of our fleet is approximately
5.8 million dwt with a weighted average age of 8.56 years.
Our fleet is managed by our wholly-owned subsidiary Diana Shipping Services S.A. and our
established 50/50 joint venture with Wilhelmsen Ship Management named Diana Wilhelmsen
Management Limited in Cyprus.
Among the distinguishing strengths that we believe provide us with a competitive advantage
in the dry bulk shipping industry are the following:
• We own a modern, high quality fleet of dry bulk carriers.
• Our fleet includes groups of sister ships, providing operational and scheduling flexibility, as
well as cost efficiencies.
• We have an experienced management team.
• We benefit from the experience and reputation of Diana Shipping Services S.A. and the
relationship with Wilhelmsen Ship Management through the Diana Wilhelmsen Management
Limited joint venture.
• We benefit from strong relationships with members of the shipping and financial industries.
• We have a strong balance sheet and a low level of indebtedness.
Our main objective is to manage and expand our fleet in a manner that will enable us to enhance
shareholder value. To accomplish this objective, we intend to pursue highly focused business
strategies, including: maintaining a high quality fleet; strategically expanding the size of our
fleet; pursuing an appropriate balance of short-term and long-term time charters; maintaining
a strong balance sheet; and maintaining low cost, highly efficient operations. In addition, we
intend to capitalize on our reputation for high standards of performance, reliability and safety to
establish and maintain relationships with major international charterers and financial institutions.
ANNUAL REPORT 2017
Diana Shipping Inc. Fleet List
Panamax Gearless Bulk Carriers
Name of Vessel
Danae
Dione
Nirefs
Alcyon
Triton
Oceanis
Thetis
Protefs
Calipso
Clio
Naias
Arethusa
Erato
Coronis
Melia
Artemis
Leto
Selina
Maera
Ismene
Crystalia
Atalandi
Kamsarmax Bulk Carriers
Name of Vessel
Maia
Myrsini
Medusa
Myrto
Astarte
Post-Panamax Bulk Carriers
Name of Vessel
Alcmene
Amphitrite
Polymnia
Electra
Phaidra
Capesize Bulk Carriers
Name of Vessel
Norfolk
Aliki
Baltimore
Salt Lake City
Sideris GS
Semirio
Boston
Houston
New York
Seattle
P. S. Palios
G. P. Zafirakis
Santa Barbara
New Orleans
Newcastlemax Bulk Carriers
Name of Vessel
Los Angeles
Philadelphia
San Francisco
Newport News
Size (deadweight tons)
75.106
75.172
75.311
75.247
75.336
75.211
73.583
73.630
73.691
73.691
73.546
73.593
74.444
74.381
76.225
76.942
81.297
75.700
75.403
77.901
77.525
77.529
Size (deadweight tons)
82.193
82.117
82.194
82.131
81.513
Size (deadweight tons)
93.193
98.697
98.704
87.150
87.146
Size (deadweight tons)
164.218
180.235
177.243
171.810
174.186
174.261
177.828
177.729
177.773
179.362
179.134
179.492
179.426
180.960
Size (deadweight tons)
206.104
206.040
208.006
208.021
Year Built
2001
2001
2001
2001
2001
2001
2004
2004
2005
2005
2006
2007
2004
2006
2005
2006
2010
2010
2013
2013
2014
2014
Year Built
2009
2010
2010
2013
2013
Year Built
2010
2012
2012
2013
2013
Year Built
2002
2005
2005
2005
2006
2007
2007
2009
2010
2011
2013
2014
2015
2015
Year Built
2012
2012
2017
2017
Builder
Samho Heavy Industries Co., Ltd.
Samho Heavy Industries Co., Ltd.
Samho Heavy Industries Co., Ltd.
Samho Heavy Industries Co., Ltd.
Samho Heavy Industries Co., Ltd.
Samho Heavy Industries Co., Ltd.
Jiangnan Shipyard (Group) Co., Ltd.
Jiangnan Shipyard (Group) Co., Ltd.
Jiangnan Shipyard (Group) Co., Ltd.
Jiangnan Shipyard (Group) Co., Ltd.
Jiangnan Shipyard (Group) Co., Ltd.
Jiangnan Shipyard (Group) Co., Ltd.
Hudong-Zhongua Shipbuilding (Group) Co., Ltd.
Hudong-Zhongua Shipbuilding (Group) Co., Ltd.
Tsuneishi Corp., Tadotsu
Namura Shipbuilding Co., Ltd.
Universal Shipbuilding Corp.
Jiangnan Shipyard (Group) Co., Ltd.
Jiangnan Shipyard (Group) Co., Ltd.
Jiangnan Shipyard (Group) Co., Ltd.
Jiangnan Shipyard (Group) Co., Ltd.
Jiangnan Shipyard (Group) Co., Ltd.
Classification Society
Det Norske Veritas - Germanischer Lloyd
Lloyd’s Register
Lloyd’s Register
Det Norske Veritas - Germanischer Lloyd
Det Norske Veritas - Germanischer Lloyd
Det Norske Veritas - Germanischer Lloyd
Bureau Veritas
Det Norske Veritas - Germanischer Lloyd
Det Norske Veritas - Germanischer Lloyd
Bureau Veritas
Bureau Veritas
Bureau Veritas
Bureau Veritas
Bureau Veritas
Nippon Kaiji Kyokai
Nippon Kaiji Kyokai
American Bureau of Shipping
Bureau Veritas
Bureau Veritas
Det Norske Veritas - Germanischer Lloyd
Det Norske Veritas - Germanischer Lloyd /China Classification Society
Det Norske Veritas - Germanischer Lloyd/China Classification Society
Builder
Tsuneishi Shipbuilding Co., Ltd.
Tsuneishi Shipbuilding Co., Ltd.
Tsuneishi Shipbuilding Co., Ltd.
Tsuneishi Shipbuilding Co., Ltd.
Daewoo Shipbuilding & Marine Engineering Co. Ltd.
Classification Society
Nippon Kaiji Kyokai
Rina
Nippon Kaiji Kyokai
Nippon Kaiji Kyokai
American Bureau of Shipping
Builder
Jiangsu New Yangzi Shipbuilding Co. Ltd.
Tsuneishi Group (Zhoushan) Shipbuilding Inc.
Tsuneishi Group (Zhoushan) Shipbuilding Inc.
Hudong-Zhongua Shipbuilding (Group) Co., Ltd.
Hudong-Zhongua Shipbuilding (Group) Co., Ltd.
Builder
China Shipbuilding Corp., Kaohsiung Yard
Imabari Shipbuilding, Saijo Shipyard
Namura Shipbuilding Co., Ltd.
Daewoo Shipbuilding & Marine Engineering Co. Ltd.
Shanghai Waigaoqiao Shipbuilding Co., Ltd.
Shanghai Waigaoqiao Shipbuilding Co., Ltd.
Shanghai Waigaoqiao Shipbuilding Co., Ltd.
Shanghai Waigaoqiao Shipbuilding Co., Ltd.*
Shanghai Waigaoqiao Shipbuilding Co., Ltd.
Hyundai Heavy Industries Co., Ltd.
Hyundai Heavy Industries Co., Ltd.
Qingdao Beihai Shipbuilding Heavy Industry Co., Ltd.
Qingdao Beihai Shipbuilding Heavy Industry Co., Ltd.
Shanghai Waigaoqiao Shipbuilding Co., Ltd.
Classification Society
Bureau Veritas
Nippon Kaiji Kyokai
Nippon Kaiji Kyokai
American Bureau of Shipping
American Bureau of Shipping
Classification Society
Bureau Veritas
Nippon Kaiji Kyokai
Nippon Kaiji Kyokai
Bureau Veritas
Bureau Veritas
Bureau Veritas
Bureau Veritas
Bureau Veritas
Bureau Veritas
Nippon Kaiji Kyokai
Bureau Veritas
Lloyd’s Register
Lloyd’s Register
American Bureau of Shipping
Builder
Shanghai Jiangnan-Changxing Shipbuilding Co., Ltd.
Shanghai Jiangnan-Changxing Shipbuilding Co., Ltd.
Jiangnan Shipyard (Group) Co., Ltd.
Jiangnan Shipyard (Group) Co., Ltd.
Classification Society
Bureau Veritas/China Classification Society
Bureau Veritas/China Classification Society
Bureau Veritas/China Classification Society
Bureau Veritas/China Classification Society
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ANNUAL REPORT 2017 ■ 1
DIANA SHIPPING INC. - 2017 ANNUAL REPORT
2 ■ ANNUAL REPORT 2017
DIANA SHIPPING INC. - 2017 ANNUAL REPORT
LETTER TO SHAREHOLDERS
ANNUAL REPORT 2017 ■ 3
To Our Shareholders:
At this writing, there are a number of favorable developments in the dry bulk marketplace that
provide some cause for optimism about the industry’s prospects. The world economy is in
a reasonably healthy state, leading to improving demand for bulk commodities. Newbuilding
orders have moderated, while the scrapping trend of recent years has taken some excess
capacity out of the market. Generally speaking, the supply-demand dynamic between vessel
tonnage and cargo volumes appears more balanced than at any time in recent years. While
we are not in the business of predicting the future, we believe that our policies of building a
modern fleet while maintaining a solid balance sheet have placed Diana Shipping Inc. in a
position to benefit from any upcoming improvement in industry conditions.
Financial Performance The Company’s time charter revenues rose significantly to $161.9
million for 2017, compared to $114.3 million for 2016. This was largely due to increased average
time charter rates achieved for our vessels during the year, as well as to the enlargement of our fleet.
For the year 2017, net loss and net loss attributed to common stockholders amounted to
$511.7 million and $517.5 million, respectively, including impairment losses (net of insurance
recoveries) totalling $431.4 million. The net loss and net loss attributed to common stockholders
for the year 2016 were $164.2 million and $170.0 million, respectively.
Solid Balance Sheet Diana Shipping has continued to focus on maintaining a strong balance
sheet. Our cash and cash equivalents, including restricted cash balances, totaled $65.8 million at
December 31, 2017. Long-term debt net of deferred financing costs, including the current portion,
was $601.4 million at 2017 year-end, and stockholders’ equity was $624.8 million.
4 ■ ANNUAL REPORT 2017
Fleet Management Strategy As we have noted in prior years, the Company has pursued
a strategy of taking advantage of our financial capacity and prevailing market conditions to
selectively expand and diversify our fleet.
Vessel purchases during the past year included two 2013-built Post-Panamax dry bulk vessels,
the Electra and Phaidra, and one 2013-built Kamsarmax dry bulk vessel, the Astarte, all of which
were delivered in May 2017. Including these acquisitions, as well as the sale of a vessel that
sustained hull damage due to grounding, our fleet at December 31, 2017 consisted of 50 dry bulk
vessels. We continue to manage the fleet in a prudent manner that seeks to promote a balance of
time charter maturities and the flexibility to benefit from future charter rate increases.
Maintaining a Sound Position As we have noted, after a long period of challenging industry
conditions, there appear to be signs of a consistent recovery trend in the dry bulk carrier market.
There are reasons to believe that the sector may have reached a more optimal balance between
supply and demand, which may produce the long sought-after improvement in earnings of bulk
carrier vessels in the coming year. We believe that our strategic focus on maintaining our financial
strength and managing our fleet in a prudent manner have positioned the Company well for the
opportunities that we expect to materialize in the next phase of the dry bulk cycle. As always, we
deeply appreciate your interest and support of Diana Shipping Inc., and we remain committed to
building shareholder value.
Sincerely,
Simeon Palios
Chairman and Chief Executive Officer
ANNUAL REPORT 2017 ■ 5
This 2017 Annual Report of Diana Shipping Inc. (the “Company”) is substantially derived
from the Company’s 2017 Annual Report filed on Form 20-F with the U.S. Securities and
Exchange Commission (the “SEC”) on March 16, 2018, which is available on the SEC’s
website at www.sec.gov. Additional information, including documents filed as exhibits to
the Company’s Form 20-F, is also available on the SEC’s website.
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
PART I
Item 1.
Item 2.
Item 3.
Item 4.
Identity of Directors, Senior Management and Advisers
Offer Statistics and Expected Timetable
Key Information
Information on the Company
Item 4A.
Unresolved Staff Comments
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Item 10.
Item 11.
Item 12.
PART II
Item 13.
Item 14.
Operating and Financial Review and Prospects
Directors, Senior Management and Employees
Major Shareholders and Related Party Transactions
Financial Information
The Offer and Listing
Additional Information
Quantitative and Qualitative Disclosures about Market Risk
Description of Securities Other than Equity Securities
Defaults, Dividend Arrearages and Delinquencies
Material Modifications to the Rights of Security Holders and Use of
Proceeds
Item 15.
Controls and Procedures
Item 16A.
Audit Committee Financial Expert
Item 16B.
Code of Ethics
Item 16C.
Principal Accountant Fees and Services
Item 16D.
Exemptions from the Listing Standards for Audit Committees
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F.
Change in Registrant’s Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Financial Statements
4
7
7
7
39
64
64
84
89
92
94
96
106
107
107
107
107
108
108
109
109
109
110
110
111
F-1
6 ■ ANNUAL REPORT 2017
FORWARD-LOOKING STATEMENTS
Diana Shipping Inc., or the Company, desires to take advantage of the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in
connection with this safe harbor legislation. This document and any other written or oral statements
made by us or on our behalf may include forward-looking statements, which reflect our current
views with respect to future events and financial performance. The words “believe”, “except,”
“anticipate,” “intends,” “estimate,” “forecast,” “project,” “plan,” “potential,” “may,” “should,” “expect”
and similar expressions identify forward-looking statements.
Please note in this annual report, “we”, “us”, “our” and “the Company” all refer to Diana Shipping
Inc. and its subsidiaries, unless otherwise indicated.
The forward-looking statements in this document are based upon various assumptions, many
of which are based, in turn, upon further assumptions, including without limitation, management’s
examination of historical operating trends, data contained in our records and other data available
from third parties. Although we believe that these assumptions were reasonable when made,
because these assumptions are inherently subject to significant uncertainties and contingencies
which are difficult or impossible to predict and are beyond our control, we cannot assure you that
we will achieve or accomplish these expectations, beliefs or projections.
In addition to these important factors and matters discussed elsewhere herein, including
under the heading “Item 3. Key Information—D. Risk Factors,” important factors that, in our
view, could cause actual results to differ materially from those discussed in the forward-looking
statements include the strength of world economies, fluctuations in currencies and interest
rates, general market conditions, including fluctuations in charter hire rates and vessel values,
changes in demand in the dry-bulk shipping industry, changes in the supply of vessels, changes
in the Company’s operating expenses, including bunker prices, crew costs, drydocking and
insurance costs, changes in governmental rules and regulations or actions taken by regulatory
authorities, potential liability from pending or future litigation, general domestic and international
political conditions or labor disruptions, potential disruption of shipping routes due to accidents or
political events, and other important factors described from time to time in the reports filed by the
Company with the Securities and Exchange Commission, or the SEC, and the New York Stock
Exchange, or the NYSE. We caution readers of this annual report not to place undue reliance on
these forward-looking statements, which speak only as of their dates. We undertake no obligation
to update or revise any forward-looking statements.
ANNUAL REPORT 2017 ■ 7
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not Applicable.
Item 2. Offer Statistics and Expected Timetable
Not Applicable.
Item 3. Key Information
A. Selected Financial Data
The following tables set forth our selected consolidated financial data and other operating data.
The selected consolidated financial data in the tables as of and for the years ended December 31,
2017, 2016, 2015, 2014 and 2013 are derived from our audited consolidated financial statements
and notes thereto which have been prepared in accordance with U.S. generally accepted
accounting principles, or U.S. GAAP. The following data should be read in conjunction with “Item
5. Operating and Financial Review and Prospects”, the consolidated financial statements, related
notes and other financial information included elsewhere in this annual report.
As of and for the
Year Ended December 31,
2017
2016
2015
2014
2013
(in thousands of U.S. dollars,
except for share and per share data, fleet data and average
daily results)
Statement of Operations Data:
Time charter revenues
$ 161,897
$ 114,259
$ 157,712
$ 175,576
$ 164,005
Impairment loss
Operating loss
Net loss
442,274
-
(483,987)
(88,321)
(511,714)
(164,237)
Dividends on series B preferred shares
(5,769)
(5,769)
Loss attributed to common stockholders
(517,483)
(170,006)
-
(47,177)
(64,713)
(5,769)
(70,482)
-
(18,204)
(10,268)
(5,080)
(15,348)
-
(8,653)
(21,205)
-
(21,205)
Loss per common share, basic and
diluted
Weighted average number of common
shares, basic and diluted
Balance Sheet Data:
Total assets
Total current liabilities
Capital stock
Long-term debt (including current
portion), net of deferred financing costs
(5.41)
(2.11)
(0.89)
(0.19)
(0.26)
95,731,093
80,441,517
79,518,009
81,292,290
81,328,390
$ 1,246,722
$ 1,668,663
$ 1,836,965
$ 1,787,122
$ 1,701,981
80,441
78,225
58,889
1,071,587
986,044
977,731
98,092
972,125
62,297
927,032
601,384
598,181
600,071
484,256
431,557
Total stockholders’ equity
624,758
1,056,589
1,218,366
1,282,226
1,253,392
8 ■ ANNUAL REPORT 2017
Year Ended December 31,
2017
2016
2015
2014
2013
(in thousands of U.S. dollars, except for share and per share data and
average daily results)
$
23,413 $ (20,998) $
23,945 $
44,910 $
67,400
(152,333)
(41,619)
(155,637)
(152,513)
(245,156)
73,587
(9,459)
106,009
85,871
(28,235)
Cash Flow Data:
Net cash provided by/(used in)
operating activities
Net cash used in investing
activities
Net cash provided by/(used in)
financing activities*
* Comparative amounts have been reclassified due to current presentation of restricted cash following the early adoption of ASU No. 2016-
18 – Statement of Cash Flows – Restricted Cash.
Fleet Data:
Average number of vessels (1)
49.6
45.2
40.8
37.9
33.0
Number of vessels at year-end
50.0
46.0
43.0
39.0
36.0
Weighted average age of vessels at year-end (in years)
8.4
8.2
7.4
7.1
6.6
Ownership days (2)
Available days (3)
Operating days (4)
Fleet utilization (5)
Average Daily Results:
18,119
16,542
14,900
13,822
12,049
17,890
16,447
14,600
13,650
12,029
17,566
16,354
14,492
13,564
11,944
98.2 % 99.4 %
99.3 % 99.4 % 99.3 %
Time charter equivalent (TCE) rate (6)
$ 8,568 $ 6,106 $ 9,739 $ 12,081 $ 12,959
Daily vessel operating expenses (7)
4,987
5,196
5,924
6,289
6,408
(1) Average number of vessels is the number of vessels that constituted our fleet for the
relevant period, as measured by the sum of the number of days each vessel was a part of our
fleet during the period divided by the number of calendar days in the period.
(2) Ownership days are the aggregate number of days in a period during which 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 revenues and the amount of expenses that we record during a period.
(3) Available days are the number of our ownership days less the aggregate number of days
that our vessels are off-hire due to scheduled repairs or repairs under guarantee, vessel upgrades
or special surveys and the aggregate amount of time that we spend positioning our vessels for
such events. The shipping industry uses available days to measure the number of days in a period
during which vessels should be capable of generating revenues.
(4) Operating days are the number of available days in a period less the aggregate number
of days that our vessels are off-hire due to any reason, including unforeseen circumstances. The
shipping industry uses operating days to measure the aggregate number of days in a period during
which vessels actually generate revenues.
ANNUAL REPORT 2017 ■ 9
(5) We calculate fleet utilization by dividing the number of our operating days during a period
by the number of our available days during the period. The shipping industry uses fleet utilization
to measure a company’s efficiency in finding suitable employment for its vessels and minimizing
the amount of days that its vessels are off-hire for reasons other than scheduled repairs or repairs
under guarantee, vessel upgrades, special surveys or vessel positioning for such events.
(6) Time charter equivalent rates, or TCE rates, are defined as our time charter revenues
less voyage expenses during a period divided by the number of our available days during the
period, which is consistent with industry standards. Voyage expenses include port charges,
bunker (fuel) expenses, canal charges and commissions. TCE rate is a non-GAAP measure,
and management believes it is useful to investors because it is a standard shipping industry
performance measure used primarily to compare daily earnings generated by vessels on
time charters with daily earnings generated by vessels on voyage charters, because charter
hire rates for vessels on voyage charters are generally not expressed in per day amounts
while charter hire rates for vessels on time charters are generally expressed in such amounts.
The following table reflects the calculation of our TCE rates for the periods presented.
Time charter revenues
Less: voyage expenses
Time charter equivalent
revenues
Available days
Time charter equivalent
(TCE) rate
$
161,897 $
(8,617)
114,259 $
(13,826)
157,712 $
(15,528)
175,576 $
(10,665)
164,005
(8,119)
$
153,280 $
100,433 $
142,184 $
164,911 $
155,886
17,890
16,447
14,600
13,650
12,029
$
8,568 $
6,106 $
9,739 $
12,081 $
12,959
(7) Daily vessel operating expenses, which include crew wages and related costs, the cost of
insurance, expenses relating to repairs and maintenance, the costs of spares and consumable
stores, tonnage taxes and other miscellaneous expenses, are calculated by dividing vessel
operating expenses by ownership days for the relevant period.
B. Capitalization and Indebtedness
Not Applicable.
C. Reasons for the Offer and Use of Proceeds
Not Applicable.
D. Risk Factors
Some of the following risks relate principally to the industry in which we operate and our business
in general. Other risks relate principally to the securities market and ownership of our securities,
including our common stock, Series B Preferred Shares, and 8.5% Senior Notes due 2020, which we
refer to as our Notes. The occurrence of any of the events described in this section could significantly
and negatively affect our business, financial condition, operating results, cash available for the
payment of dividends on our shares and interest on our Notes, or the trading price of our securities.
10 ■ ANNUAL REPORT 2017
Industry Specific Risk Factors
Charter hire rates for dry bulk carriers may remain at low levels or decrease in the future,
which may adversely affect our earnings.
The dry bulk shipping industry is cyclical with attendant volatility in charter hire rates and
profitability. The degree of charter hire rate volatility among different types of dry bulk carriers has
varied widely, and charter hire rates for Panamax and Capesize dry bulk carriers have declined
significantly from historically high levels. Because we charter some of our vessels pursuant to
short-term time charters, we are exposed to changes in spot market and short-term charter
rates for dry bulk carriers and such changes may affect our earnings and the value of our dry bulk
carriers at any given time. In addition, more than half of our vessels are scheduled to come off of
their current charters in 2018, based on their earliest redelivery date, for which we may be seeking
new employment. We cannot assure you that we will be able to successfully charter our vessels in
the future or renew existing charters at rates sufficient to allow us to meet our obligations or pay
any dividends in the future. Fluctuations in charter rates result from changes in the supply of and
demand for vessel capacity and changes in the supply of and demand for the major commodities
carried by water internationally. Because the factors affecting the supply of and demand for
vessels are outside of our control and are unpredictable, the nature, timing, direction and degree
of changes in industry conditions are also unpredictable.
Factors that influence demand for dry bulk vessel capacity include:
> supply of and demand for energy resources, commodities, semi-finished and finished consumer
and industrial products;
> changes in the exploration or production of energy resources, commodities, semi-finished and
finished consumer and industrial products;
> the location of regional and global exploration, production and manufacturing facilities;
> the location of consuming regions for energy resources, commodities, semi-finished and finished
consumer and industrial products;
> the globalization of production and manufacturing;
> global and regional economic and political conditions, including armed conflicts and terrorist
activities; embargoes and strikes;
> natural disasters and other disruptions in international trade;
> developments in international trade;
> changes in seaborne and other transportation patterns, including the distance cargo is
transported by sea;
> environmental and other regulatory developments;
> currency exchange rates; and
> weather.
ANNUAL REPORT 2017 ■ 11
Factors that influence the supply of dry bulk vessel capacity include:
> the number of newbuilding orders and deliveries, including slippage in deliveries;
> the number of shipyards and ability of shipyards to deliver vessels;
> port and canal congestion;
> the scrapping rate of older vessels;
> vessel casualties; and
> the number of vessels that are out of service, namely those that are laid-up, drydocked, awaiting
repairs or otherwise not available for hire.
In addition to the prevailing and anticipated freight rates, factors that affect the rate of
newbuilding, scrapping and laying-up include newbuilding prices, secondhand vessel values
in relation to scrap prices, costs of bunkers and other operating costs, costs associated with
classification society surveys, normal maintenance and insurance coverage, the efficiency and
age profile of the existing dry bulk fleet in the market and government and industry regulation
of maritime transportation practices, particularly environmental protection laws and regulations.
These factors influencing the supply of and demand for shipping capacity are outside of our
control, and we may not be able to correctly assess the nature, timing and degree of changes in
industry conditions.
We anticipate that the future demand for our dry bulk carriers will be dependent upon economic
growth in the world’s economies, including China and India, seasonal and regional changes in
demand, changes in the capacity of the global dry bulk carrier fleet and the sources and supply
of dry bulk cargo transported by sea. While there has been a general decrease in new dry bulk
carrier ordering since 2014, the capacity of the global dry bulk carrier fleet could increase and
economic growth may not resume in areas that have experienced a recession or continue in other
areas. Adverse economic, political, social or other developments could have a material adverse
effect on our business and operating results.
The dry bulk carrier charter market remains significantly below its high in 2008, which has
had and may continue to have an adverse effect on our revenues, earnings and profitability,
and may affect our ability to comply with our loan covenants.
The abrupt and dramatic downturn in the dry bulk charter market, from which we derive
substantially all of our revenues, has severely affected the dry bulk shipping industry and has
adversely affected our business. The Baltic Dry Index, or the BDI, a daily average of charter
rates for key dry bulk routes published by the Baltic Exchange Limited, has long been viewed as
the main benchmark to monitor the movements of the dry bulk vessel charter market and the
performance of the entire dry bulk shipping market. The BDI declined 94% in 2008 from a peak
of 11,793 in May 2008 to a low of 663 in December 2008 and has remained volatile since then,
reaching a record low of 290 in February 2016. While the BDI showed improvement in 2017,
ranging from a low of 685 in February to a high of 1,743 in December, it remains at low levels
compared to historical highs and there can be no assurance that the dry bulk charter market will
not decline further. The decline and volatility in charter rates is due to various factors, including
the lack of trade financing for purchases of commodities carried by sea, which has resulted in
a significant decline in cargo shipments, and the excess supply of iron ore in China, which has
resulted in falling iron ore prices and increased stockpiles in Chinese ports. The decline and
12 ■ ANNUAL REPORT 2017
volatility in charter rates in the dry bulk market also affects the value of our dry bulk vessels, which
follows the trends of dry bulk charter rates, and earnings on our charters, and similarly, affects
our cash flows, liquidity and compliance with the covenants contained in our loan agreements.
The decline in the dry bulk carrier charter market has had and may continue to have additional
adverse consequences for our industry, including an absence of financing for vessels, no active
secondhand market for the sale of vessels, charterers seeking to renegotiate the rates for
existing time charters, and widespread loan covenant defaults in the dry bulk shipping industry.
Accordingly, the value of our common shares could be substantially reduced or eliminated.
If economic conditions throughout the world decline, in particular in the EU, in China and
the rest of the Asia-Pacific region, it could negatively affect our earnings, financial condition
and cash flows and may further adversely affect the market price of our common shares.
Negative trends in the global economy that emerged in 2008 continue to adversely affect
global economic conditions. In addition, the world economy continues to face a number of
new challenges, including continuing economic weakness in the European Union, or the EU.
Deterioration in the global economy has caused, and could in the future cause, a decrease in
worldwide demand for certain goods and, thus, shipping. Moreover, we operate in a sector of the
economy that is likely to be adversely impacted by the effects of political conflicts, including the
current political instability in the Middle East and other geographic countries and areas, geopolitical
events such as Brexit, terrorist or other attacks, and war (or threatened war) or international
hostilities, such as those between the United States and North Korea.
The EU and other parts of the world have recently been or are currently in a recession and
continue to exhibit weak economic trends. Moreover, concerns persist regarding the debt burden
of certain Eurozone countries, such as Greece, Spain, Portugal, and Italy, and their ability to
meet future financial obligations and the overall stability of the euro. Partly as a result, the credit
markets in the United States and Europe have experienced significant contraction, deleveraging
and reduced liquidity, and the U.S. federal and state governments and European authorities have
implemented a broad variety of governmental action and new regulation of the financial markets
and may implement additional regulations in the future. As a result, global economic conditions
and global financial markets have been, and continue to be, volatile. Further, credit markets and
the debt and equity capital markets have been distressed and the uncertainty surrounding the
future of the global credit markets has resulted in reduced access to credit worldwide.
Economic slowdown in the Asia Pacific region, particularly in China, may have a materially
adverse effect on us, as we anticipate a significant number of the port calls made by our vessels
will continue to involve the loading or discharging of dry bulk commodities in ports in the Asia
Pacific region. Before the global economic financial crisis that began in 2008, China had one of
the world’s fastest growing economies in terms of gross domestic product, or GDP, which had
a significant impact on shipping demand. The growth rate of China’s GDP is estimated to be
approximately 6.8% for the year ended December 31, 2017, which is 0.1% higher than the growth
rate for the year ended December 31, 2016, China’s slowest growth rate in 25 years. Our earnings
and ability to grow our fleet would likely be impeded by an economic downturn in China or other
countries in the Asia Pacific region.
A decrease in the level of China’s export of goods or an increase in trade protectionism
could have a material adverse impact on our charterers’ business and, in turn, could cause
a material adverse impact on our earnings, financial condition and cash flows.
Our vessels may be deployed on routes involving trade in and out of emerging markets, and
ANNUAL REPORT 2017 ■ 13
our charterers’ shipping and business revenue may be derived from the shipment of goods from
the Asia Pacific region to various overseas export markets including the United States and Europe.
Any reduction in or hindrance to the output of China-based exporters could have a material
adverse effect on the growth rate of China’s exports and on our charterers’ business.
For instance, the government of China has implemented economic policies aimed at increasing
domestic consumption of Chinese-made goods and restricting currency exchanges within China.
This may have the effect of reducing the supply of goods available for export and may, in turn,
result in a decrease of demand for shipping. Additionally, though in China there is an increasing
level of autonomy and a gradual shift in emphasis to a “market economy” and enterprise reform,
many of the reforms, particularly some limited price reforms that result in the prices for certain
commodities being principally determined by market forces, are unprecedented or experimental
and may be subject to revision, change or abolition. The level of imports to and exports from China
could be adversely affected by changes to these economic reforms by the Chinese government,
as well as by changes in political, economic and social conditions or other relevant policies of the
Chinese government.
In addition, leaders in the United States have indicated the United States may seek to implement
more protective trade measures. The current U.S. president was elected on a platform promoting
trade protectionism and his election has created uncertainty about the future relationship between
the United States and China and other exporting countries, including with respect to trade policies,
treaties, government regulations and tariffs. On January 23, 2017, the U.S. President signed an
executive order withdrawing the United States from the Trans-Pacific Partnership, a global trade
agreement intended to include the United States, Canada, Mexico, Peru and a number of Asian
countries. Additionally, in March 2018, the U.S. President announced tariffs on imported steel and
aluminum into the United States that could have a negative impact on international trade generally
and dry bulk shipping specifically.
Our operations expose us to the risk that increased trade protectionism will adversely affect
our business. If the continuing global recovery is undermined by downside risks and the recent
economic downturn is prolonged, governments may turn to trade barriers to protect their domestic
industries against foreign imports, thereby depressing the demand for shipping. Specifically,
increasing trade protectionism in the markets that our charterers serve has caused and may
continue to cause an increase in: (i) the cost of goods exported from China, (ii) the length of time
required to deliver goods from China and (iii) the risks associated with exporting goods from China,
as well as a decrease in the quantity of goods to be shipped.
Any increased trade barriers or restrictions on trade, especially trade with China, would have
an adverse impact on our charterers’ business, operating results and financial condition and
could thereby affect their ability to make timely charter hire payments to us and to renew and
increase the number of their time charters with us. This could have a material adverse effect on
our business, financial condition and earnings.
A decline in the state of global financial markets and economic conditions may adversely
impact our ability to obtain additional financing or refinance our existing loan and credit
facilities on acceptable terms which may hinder or prevent us from expanding our business.
Recent volatility in global financial markets and economic conditions has negatively affected
the general willingness of banks and other financial institutions to extend credit, particularly in the
shipping industry, due to the historically volatile asset values of vessels. As the shipping industry
is highly dependent on the availability of credit to finance and expand operations, it has been, and
may continue to be negatively affected by a decline in lending. Furthermore, a decline in global
14 ■ ANNUAL REPORT 2017
financial markets may adversely impact our ability to issue additional equity at prices that are not
dilutive to our existing shareholders or preclude us from issuing equity at all.
Also, as a result of any renewed concerns about the stability of financial markets generally and
the solvency of counterparties specifically, the cost of obtaining money from the credit markets
may increase as lenders may increase interest rates, enact tighter lending standards, refuse
to refinance existing debt at all or on terms similar to current debt and reduce, and in some
cases cease to provide funding to borrowers. Due to these factors, we cannot be certain that
additional financing will be available if needed and to the extent required, or that we will be able
to refinance our existing loan and credit facilities, on acceptable terms or at all. If additional
financing or refinancing is not available when needed, or is available only on unfavorable terms,
we may be unable to meet our obligations as they come due or we may be unable to enhance
our existing business, complete additional vessel acquisitions or otherwise take advantage of
business opportunities as they arise.
An over-supply of dry bulk carrier capacity may prolong or further depress the current low
charter rates and, in turn, adversely affect our profitability.
The market supply of dry bulk carriers has increased materially since 2009 due to a high level of
new deliveries in the last few years. Although dry bulk newbuilding deliveries have tapered off since
2014, newbuildings continued to be delivered in significant numbers through the end of 2017.
While vessel supply will continue to be affected by the delivery of new vessels and the removal of
vessels from the global fleet, either through scrapping or accidental losses, an over-supply of dry
bulk carrier capacity could prolong the period during which low charter rates prevail. Currently,
more than half of our vessels are scheduled to come off of their current charters in 2018, based
on their earliest redelivery date, for which we may be seeking new employment.
Risks associated with operating ocean-going vessels could affect our business and
reputation, which could adversely affect our revenues and stock price.
The operation of ocean-going vessels carries inherent risks. These risks include the possibility of:
> marine disaster;
> terrorism;
> environmental accidents;
> cargo and property losses or damage;
> business interruptions caused by mechanical failure, human error, war, terrorism, political action
in various countries, labor strikes or adverse weather conditions; and
> piracy.
These hazards may result in death or injury to persons, loss of revenues or property, environmental
damage, higher insurance rates, damage to our customer relationships, delay or rerouting. If our
vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock
repairs are unpredictable and may be substantial. We may have to pay drydocking costs that our
insurance does not cover in full. The loss of earnings while these vessels are being repaired and
repositioned, as well as the actual cost of these repairs, would decrease our earnings. In addition,
space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently
ANNUAL REPORT 2017 ■ 15
located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced
to travel to a drydocking facility that is not conveniently located to our vessels’ positions. The loss
of earnings while these vessels are forced to wait for space or to steam to more distant drydocking
facilities would decrease our earnings. The involvement of our vessels in an environmental disaster
may also harm our reputation as a safe and reliable vessel owner and operator.
World events could affect our earnings and financial condition.
Continuing conflicts and recent developments in the Middle East, Ukraine and other geographic
countries and areas, geopolitical events such as Brexit, terrorist or other attacks, and war (or
threatened war) or international hostilities, such as those between the United States and North
Korea, may lead to armed conflict or acts of terrorism around the world, which may contribute
to further economic instability in the global financial markets. These uncertainties could also
adversely affect our ability to obtain additional financing on terms acceptable to us or at all. In the
past, political conflicts have also resulted in attacks on vessels, mining of waterways and other
efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism
and piracy have also affected vessels trading in regions such as the South China Sea, the Gulf
of Aden off the coast of Somalia and the Gulf of Guinea. Any of these occurrences could have a
material adverse impact on our operating results.
Acts of piracy on ocean-going vessels could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world
such as the South China Sea, the Indian Ocean and in the Gulf of Aden off the coast of Somalia.
Although the frequency of sea piracy worldwide has generally decreased since 2013, sea piracy
incidents continue to occur. Acts of piracy could result in harm or danger to the crews that man
our vessels. In addition, if these piracy attacks occur in regions in which our vessels are deployed
that insurers characterized as “war risk” zones or Joint War Committee “war and strikes” listed
areas, premiums payable for such coverage could increase significantly and such insurance
coverage may be more difficult to obtain. In addition, crew costs, including due to employing
onboard security guards, could increase in such circumstances. Furthermore, while we believe the
charterer remains liable for charter payments when a vessel is seized by pirates, the charterer may
dispute this and withhold charterhire until the vessel is released. A charterer may also claim that
a vessel seized by pirates was not “on-hire” for a certain number of days and is therefore entitled
to cancel the charter party, a claim that we would dispute. We may not be adequately insured to
cover losses from these incidents, which could have a material adverse effect on us. In addition,
any detention 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 earnings.
Our operating results are subject to seasonal fluctuations, which could affect our operating results.
We operate our vessels in markets that have historically exhibited seasonal variations in
demand and, as a result, in charter hire rates. This seasonality may result in quarter-to-quarter
volatility in our operating results. The dry bulk carrier market is typically stronger in the fall and
winter months in anticipation of increased consumption of coal and other raw materials in the
northern hemisphere during the winter months. In addition, unpredictable weather patterns in
these months tend to disrupt vessel scheduling and supplies of certain commodities. As a result,
our revenues may be weaker during the fiscal quarters ended June 30 and September 30, and,
conversely, our revenues may be stronger in fiscal quarters ended December 31 and March 31.
While this seasonality will not directly affect our operating results, it could materially affect our
operating results to the extent our vessels are employed in the spot market in the future.
16 ■ ANNUAL REPORT 2017
An increase in the price of fuel, or bunkers, may adversely affect profits.
While we generally will not bear the cost of fuel, or bunkers, for vessels operating on time
charters, fuel is a significant factor in negotiating charter rates. As a result, an increase in the
price of fuel beyond our expectations may adversely affect our profitability at the time of charter
negotiation. Fuel is also a significant, if not the largest, expense in our shipping operations when
vessels are under voyage charter. The price and supply of fuel is unpredictable and fluctuates
based on events outside our control, including geopolitical developments, supply of and demand
for oil and gas, actions by the Organization of 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. Fuel may become much more expensive in the future,
including as a result of the imposition of sulfur oxide emissions limits in 2020 under new regulations
adopted by the International Maritime Organization, or the IMO, which may reduce the profitability
and competitiveness of our business versus other forms of transportation, such as truck or rail.
We are subject to complex laws and regulations, including environmental regulations that
can adversely affect the cost, manner or feasibility of doing business.
Our business and the operations of our vessels are materially affected by environmental
regulation in the form of international conventions, national, state and local laws and regulations in
force in the jurisdictions in which our vessels operate, as well as in the country or countries of their
registration, including those governing the management and disposal of hazardous substances
and wastes, the cleanup of oil spills and other contamination, air emissions (including greenhouse
gases), water discharges and ballast water management. These regulations include, but are
not limited to, European Union regulations, the U.S. Oil Pollution Act of 1990, requirements of
the U.S. Coast Guard, or USCG and the U.S. Environmental Protection Agency, the U.S. Clean
Air Act of 1970 (including its amendments of 1977 and 1990) , the U.S. Clean Water Act, and
the U.S. Maritime Transportation Security Act of 2002, and regulations of the IMO, including
the International Convention on Civil Liability for Oil Pollution Damage of 1969, the International
Convention for the Prevention of Pollution from Ships of 1973, as modified by the Protocol of 1978,
collectively referred to as MARPOL 73/78 or MARPOL, including designations of Emission Control
Areas, thereunder, SOLAS, the International Convention on Load Lines of 1966, the International
Convention of Civil Liability for Bunker Oil Pollution Damage, and the ISM Code. Because such
conventions, laws, and regulations are often revised, we cannot predict the ultimate cost of
complying with such requirements or the impact thereof on the re-sale price or useful life of any
vessel that we own or will acquire. Additional conventions, laws and regulations may be adopted
that could limit our ability to do business or increase the cost of our doing business and which
may materially adversely affect our operations. Government regulation of vessels, particularly in
the areas of safety and environmental requirements, continue to change, requiring us to incur
significant capital expenditures on our vessels to keep them in compliance, or even to scrap or sell
certain vessels altogether. In addition, we may incur significant costs in meeting new maintenance
and inspection requirements, in developing contingency arrangements for potential environmental
violations and in obtaining insurance coverage.
In addition, we are required by various governmental and quasi-governmental agencies to
obtain certain permits, licenses, certificates, approvals and financial assurances with respect to our
operations. Our failure to maintain necessary permits, licenses, certificates, approvals or financial
assurances could require us to incur substantial costs or temporarily suspend operation of one or
more of the vessels in our fleet, or lead to the invalidation or reduction of our insurance coverage.
Environmental requirements can also affect the resale value or useful lives of our vessels,
require a reduction in cargo capacity, ship modifications or operational changes or restrictions,
ANNUAL REPORT 2017 ■ 17
lead to decreased availability of insurance coverage for environmental matters or result in the
denial of access to certain jurisdictional waters or ports, or detention in certain ports. Under local,
national and foreign laws, as well as international treaties and conventions, we could incur material
liabilities, including for cleanup obligations and natural resource damages, in the event that there
is a release of petroleum or hazardous substances from our vessels or otherwise in connection
with our operations. We could also become subject to personal injury or property damage claims
relating to the release of hazardous substances associated with our existing or historic operations.
Violations of, or liabilities under, environmental requirements can result in substantial penalties,
fines and other sanctions, including in certain instances, seizure or detention of our vessels.
Increased inspection procedures, tighter import and export controls and new security
regulations could increase costs and disrupt our business.
International shipping is subject to various security and customs inspection and related
procedures in countries of origin, destination and trans-shipment points. These security procedures
may result in cargo seizure, delays in the loading, offloading, trans-shipment or delivery and the
levying of customs duties, fines or other penalties against us.
It is possible that changes to inspection procedures could impose additional financial and
legal obligations on us. Changes to inspection procedures could also impose additional costs
and obligations on our customers and may, in certain cases, render the shipment of certain types
of cargo uneconomical or impractical. Any such changes or developments may have a material
adverse effect on our business, financial condition and earnings.
The operation of dry bulk carriers has certain unique operational risks which could affect
our earnings and cash flow.
The international shipping industry is an inherently risky business involving global operations.
Our vessels and their cargoes are at risk of being damaged or lost because of events such as
marine disasters, bad weather, mechanical failures, human error, environmental accidents, war,
terrorism, piracy and other circumstances or events. In addition, transporting cargoes across a
wide variety of international jurisdictions creates a risk of business interruptions due to political
circumstances in foreign countries, hostilities, labor strikes and boycotts, the potential for changes
in tax rates or policies, and the potential for government expropriation of our vessels. Any of
these events may result in loss of revenues, increased costs and decreased cash flows to our
customers, which could impair their ability to make payments to us under our charters.
Furthermore, the operation of vessels, such as dry bulk carriers, has certain unique risks.
With a dry bulk carrier, the cargo itself and its interaction with the vessel can be an operational
risk. By their nature, dry bulk cargoes are often heavy, dense, easily shifted, and react badly to
water exposure. In addition, dry bulk carriers are often subjected to battering treatment during
unloading operations with grabs, jackhammers (to pry encrusted cargoes out of the hold) and small
bulldozers. This treatment may cause damage to the vessel. Vessels damaged due to treatment
during unloading procedures may be more susceptible to breach to the sea. Hull breaches in dry
bulk carriers may lead to the flooding of the vessels’ holds. If a dry bulk carrier suffers flooding
in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure
may buckle the vessel’s bulkheads leading to the loss of a vessel. If we are unable to adequately
repair our vessels after such damages, we may be unable to prevent these events. Any of these
circumstances or events could negatively impact our business, financial condition, earnings, and
ability to pay dividends, if any, in the future, and interest on our Notes. In addition, the loss of any
of our vessels could harm our reputation as a safe and reliable vessel owner and operator.
18 ■ ANNUAL REPORT 2017
We cannot assure you that we will be adequately insured against all risks or that we will be able
to obtain adequate insurance coverage at reasonable rates for our vessels in the future. For example,
in the past more stringent environmental regulations have led to increased costs for, and in the future
may result in the lack of availability of, insurance against risks of environmental damage or pollution.
Additionally, our insurers may refuse to pay particular claims. Any significant loss or liability for which
we are not insured could have a material adverse effect on our financial condition.
Our vessels may call on ports located in countries that are subject to sanctions and
embargoes imposed by the U.S. or other governments, which could adversely affect our
reputation and the market for our common stock.
From time to time on charterers’ instructions, our vessels may call on ports located in countries
subject to countrywide U.S. sanctions, including Iran, North Korea and Syria. Since July 11, 2011,
none of our vessels have called on ports in North Korea or Syria. The U.S. sanctions and embargo
laws and regulations vary in their application, as they do not all apply to the same covered
persons or proscribe the same activities, and such sanctions and embargo laws and regulations
may be amended or strengthened over time. With effect from July 1, 2010, the U.S. enacted the
Comprehensive Iran Sanctions Accountability and Divestment Act, or CISADA, which expanded
the scope of the Iran Sanctions Act. Among other things, CISADA expands the application of
the prohibitions to companies such as ours and introduces limits on the ability of companies and
persons to do business or trade with Iran when such activities relate to the investment, supply or
export of refined petroleum or petroleum products. In addition, on May 1, 2012, President Obama
signed Executive Order 13608 which prohibits foreign persons from violating or attempting to
violate, or causing a violation of any sanctions in effect against Iran or facilitating any deceptive
transactions for or on behalf of any person subject to U.S. sanctions. Any persons found to be
in violation of Executive Order 13608 will be deemed a foreign sanctions evader and will be
banned from all contacts with the United States, including conducting business in U.S. dollars.
Any persons found to be in violation of Executive Order 13608 will be deemed a foreign sanctions
evader, and U.S. persons are generally prohibited from all transactions or dealings with such
persons, whether direct or indirect. Among other things, foreign sanctions evaders are unable to
transact in U.S. dollars.
Also in 2012, President Obama signed into law the Iran Threat Reduction and Syria Human
Rights Act of 2012, or the Iran Threat Reduction Act, which created new sanctions and
strengthened existing sanctions. Among other things, the Iran Threat Reduction Act intensifies
existing sanctions regarding the provision of goods, services, infrastructure or technology to
Iran’s petroleum or petrochemical sector. The Iran Threat Reduction Act also includes a provision
requiring the President of the United States to impose five or more sanctions from Section 6(a)
of the Iran Sanctions Act, as amended, on a person the President determines is a controlling
beneficial owner of, or otherwise owns, operates, or controls or insures a vessel that was used
to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial
owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the
person otherwise owns, operates, or controls, or insures the vessel, the person knew or should
have known the vessel was so used. Such a person could be subject to a variety of sanctions,
including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S.
jurisdiction, and exclusion of that person’s vessels from U.S. ports for up to two years.
On November 24, 2013, the P5+1 (the United States, United Kingdom, Germany, France,
Russia and China) entered into an interim agreement with Iran entitled the Joint Plan of Action,
or the JPOA. Under the JPOA it was agreed that, in exchange for Iran taking certain voluntary
measures to ensure that its nuclear program is used only for peaceful purposes, the United States
and European Union would voluntarily suspend certain sanctions for a period of six months.
ANNUAL REPORT 2017 ■ 19
On January 20, 2014, the United States and European Union indicated that they would begin
implementing the temporary relief measures provided for under the JPOA. These measures
included, among other things, the suspension of certain sanctions on the Iranian petrochemicals,
precious metals, and automotive industries from January 20, 2014 until July 20, 2014. The JPOA
was subsequently extended twice.
On July 14, 2015, the P5+1 and the European Union announced that they reached a landmark
agreement with Iran titled the Joint Comprehensive Plan of Action Regarding the Islamic Republic
of Iran’s Nuclear Program, or the JCPOA, which is intended to significantly restrict Iran’s ability
to develop and produce nuclear weapons for 10 years while simultaneously easing sanctions
directed toward non-U.S. persons for conduct involving Iran, but taking place outside of U.S.
jurisdiction and does not involve U.S. persons. On January 16, 2016, or Implementation Day, the
United States joined the European Union and the United Nations in lifting a significant number
of their nuclear-related sanctions on Iran following an announcement by the International Atomic
Energy Agency, or IAEA, that Iran had satisfied its respective obligations under the JCPOA.
U.S. sanctions prohibiting certain conduct that is now permitted under the JCPOA have not
actually been repealed or permanently terminated at this time. Rather, the U.S. government
has implemented changes to the sanctions regime by: (1) issuing waivers of certain statutory
sanctions provisions; (2) committing to refrain from exercising certain discretionary sanctions
authorities; (3) removing certain individuals and entities from OFAC’s sanctions lists; and (4)
revoking certain Executive Orders and specified sections of Executive Orders. These sanctions will
not be permanently “lifted” until the earlier of “Transition Day,” set to occur on October 20, 2023,
or upon a report from the IAEA stating that all nuclear material in Iran is being used for peaceful
activities. On October 13, 2017, the U.S. President announced that he would not certify Iran’s
compliance with the JCPOA. This did not withdraw the United States from the JCPOA or reinstate
any sanctions. However, the U.S. President must periodically renew sanctions waivers and his
refusal to do so could result in the reinstatement of certain sanctions currently suspended under
the JCPOA. Although it is our intention to comply with the provisions of the JCPOA, there can be
no assurance that we will be in compliance in the future as such regulations and U.S. Sanctions
may be amended over time, and the U.S. retains the authority to revoke the aforementioned relief
if Iran fails to meet its commitments under the JCPOA, as noted above.
Current or future counterparties of ours may be affiliated with persons or entities that are or
may be in the future the subject of sanctions imposed by the Obama administration, the European
Union and/or other international bodies as a result of the annexation of Crimea by Russia in March
2014. If we determine that such sanctions require us to terminate existing or future contracts
to which we or our subsidiaries are party or if we are found to be in violation of such applicable
sanctions, our results of operations may be adversely affected or we may suffer reputational harm.
Currently, we do not believe that any of our existing counterparties are affiliated with persons or
entities that are subject to such sanctions.
Although we believe that we have been in compliance with all applicable sanctions and embargo
laws and regulations, and intend to maintain such compliance, there can be no assurance that we
will be in compliance in the future, particularly as the scope of certain laws may be unclear and may
be subject to changing interpretations. Any such violation could result in fines, penalties or other
sanctions that could severely impact our ability to access U.S. capital markets and conduct our
business, and could result in some investors deciding, or being required, to divest their interest,
or not to invest, in us. In addition, certain institutional investors may have investment policies
or restrictions that prevent them from holding securities of companies that have contracts with
countries identified by the U.S. government as state sponsors of terrorism. The determination by
these investors not to invest in, or to divest from, our common stock may adversely affect the price
20 ■ ANNUAL REPORT 2017
at which our common stock trades. Moreover, our charterers may violate applicable sanctions
and embargo laws and regulations as a result of actions that do not involve us or our vessels,
and those violations could in turn negatively affect our reputation. In addition, our reputation and
the market for our securities may be adversely affected if we engage in certain other activities,
such as entering into charters with individuals or entities in countries subject to U.S. sanctions
and embargo laws that are not controlled by the governments of those countries, or engaging
in operations associated with those countries pursuant to contracts with third parties that are
unrelated to those countries or entities controlled by their governments. Investor perception of the
value of our common stock may be adversely affected by the consequences of war, the effects of
terrorism, civil unrest and governmental actions in these and surrounding countries.
Maritime claimants could arrest or attach one or more of our vessels, which could interrupt
our cash flows.
Crew members, suppliers of goods and services to a vessel, shippers of cargo, lenders, and
other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or
damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting or attaching
a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels
could interrupt our cash flows and require us to pay large sums of money to have the arrest or
attachment 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 attempt to assert “sister ship” liability against one vessel in our fleet for claims
relating to another of our vessels.
We conduct business in China, where the legal system is not fully developed and has
inherent uncertainties that could limit the legal protections available to us.
Some of our vessels may be chartered to Chinese customers and from time to time on our
charterers’ instructions, our vessels may call on Chinese ports. Such charters and voyages may
be subject to regulations in China that may require us to incur new or additional compliance or
other administrative costs and may require that we pay to the Chinese government new taxes or
other fees. Applicable laws and regulations in China may not be well publicized and may not be
known to us or to our charterers in advance of us or our charterers becoming subject to them,
and the implementation of such laws and regulations may be inconsistent. Changes in Chinese
laws and regulations, including with regards to tax matters, or changes in their implementation by
local authorities could affect our vessels if chartered to Chinese customers as well as our vessels
calling to Chinese ports and could have a material adverse impact on our business, financial
condition and results of operations.
Governments could requisition our vessels during a period of war or emergency, resulting
in a loss of earnings.
A government could requisition one or more of our vessels for title or for hire. Requisition for title
occurs when a government takes control of a vessel and becomes her owner, while requisition for
hire occurs when a government takes control of a vessel and effectively becomes her charterer at
dictated charter rates. Generally, requisitions occur during periods of war or emergency, although
governments may elect to requisition vessels in other circumstances. Although we would be
entitled to compensation in the event of a requisition of one or more of our vessels, the amount
and timing of payment would be uncertain. Government requisition of one or more of our vessels
may negatively impact our revenues and reduce the amount of cash we may have available for
distribution as dividends to our shareholders, if any such dividends are declared.
ANNUAL REPORT 2017 ■ 21
Failure to comply with the U.S. Foreign Corrupt Practices Act could result in fines, criminal
penalties and an adverse effect on our business.
We may operate in a number of countries throughout the world, including countries known
to have a reputation for corruption. We are committed to doing business in accordance with
applicable anti-corruption laws and have adopted a code of business conduct and ethics which is
consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA.
We are subject, however, to the risk that we, our affiliated entities or our or their respective officers,
directors, employees and agents may take actions determined to be in violation of such anti-
corruption laws, including the FCPA. Any such violation could result in substantial fines, sanctions,
civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely
affect our business, earnings or financial condition. In addition, actual or alleged violations could
damage our reputation and ability to do business. Furthermore, detecting, investigating, and
resolving actual or alleged violations is expensive and can consume significant time and attention
of our senior management.
Changing laws and evolving reporting requirements could have an adverse effect on our
business.
Changing laws, regulations and standards relating to reporting requirements, including the
European Union General Data Protection Regulation, or GDPR, may create additional compliance
requirements for us.
GDPR broadens the scope of personal privacy laws to protect the rights of European Union
citizens and requires organizations to report on data breaches within 72 hours and be bound by
more stringent rules for obtaining the consent of individuals on how their data can be used. GDPR
will become enforceable on May 25, 2018 and non-compliance may expose entities to significant
fines or other regulatory claims which could have an adverse effect on our business, financial
condition, and operations.
Company Specific Risk Factors
The market values of our vessels have declined in recent years and may further decline,
which could limit the amount of funds that we can borrow and could trigger breaches of
certain financial covenants contained in our loan facilities, which could adversely affect
our operating results, and we may incur a loss if we sell vessels following a decline in their
market values.
The market values of our vessels, which are related to prevailing freight charter rates, have
declined significantly in recent years. While the market values of vessels and the freight charter
market have a very close relationship as the charter market moves from trough to peak, the time
lag between the effect of charter rates on market values of ships can vary.
The market values of our vessels have generally experienced high volatility, and you should
expect the market values of our vessels to fluctuate depending on a number of factors including:
> the prevailing level of charter hire rates;
> general economic and market conditions affecting the shipping industry;
> competition from other shipping companies and other modes of transportation;
22 ■ ANNUAL REPORT 2017
> the types, sizes and ages of vessels;
> the supply of and demand for vessels;
> applicable governmental or other regulations;
> technological advances; and
> the cost of newbuildings.
The market values of our vessels are at low levels compared to historical averages and if the
market values of our vessels decline further, we may not be in compliance with certain covenants
contained in our current and future loan facilities and we may not be able to refinance our debt or
obtain additional financing or incur debt on terms that are acceptable to us or at all. On November
30, 2016, we received a letter from the agent under one of our loan facilities, advising us that we
were not in compliance with the loan to value covenant contained in the facility. Additionally, in
January 2017, we received a letter from another bank, which offered us a lower loan to value rate
until June 30, 2017. As at December 31, 2017, we were in compliance with all of the covenants
in our loan facilities. If we are not able to comply with the covenants in our loan facilities or are
unable to obtain waivers or amendments or otherwise remedy the relevant breach, our lenders
could accelerate our debt and foreclose on our vessels.
Furthermore, if we sell any of our owned vessels at a time when prices are depressed, our
business, results of operations, cash flow and financial condition could be adversely affected.
Moreover, if we sell a vessel at a time when vessel prices have fallen and before we have recorded
an impairment adjustment to our financial statements, the sale may be at less than the vessel’s
carrying amount in our financial statements, resulting in a loss and a reduction in earnings.
In addition, if vessel values persist or decline further, we may have to record an impairment
adjustment in our financial statements which could adversely affect our financial results. For
example, in 2017, we recorded $422.5 million of impairment charges for 20 vessels in our fleet,
as our impairment test exercise indicated that their carrying values were not recoverable.
We charter some of our vessels on short-term time charters in a volatile shipping industry
and a decline in charter hire rates could affect our results of operations and our ability to
pay dividends.
Although significant exposure to short-term time charters is not unusual in the dry bulk shipping
industry, the short-term time charter market is highly competitive and spot market charter hire
rates (which affect time charter rates) may fluctuate significantly based upon available charters
and the supply of, and demand for, seaborne shipping capacity. While the short-term time charter
market may enable us to benefit in periods of increasing charter hire rates, we must consistently
renew our charters and this dependence makes us vulnerable to declining charter rates. As a
result of the volatility in the dry bulk carrier charter market, we may not be able to employ our
vessels upon the termination of their existing charters at their current charter hire rates or at all.
The dry bulk carrier charter market is volatile, and in the recent past, short-term time charter and
spot market charter rates for some dry bulk carriers declined below the operating costs of those
vessels before rising. We cannot assure you that future charter hire rates will enable us to operate
our vessels profitably, or to pay dividends.
Rising crew costs could adversely affect our results of operations.
Due to an increase in the size of the global shipping fleet, the limited supply of and increased
ANNUAL REPORT 2017 ■ 23
demand for crew has created upward pressure on crew costs. Continued higher crew costs or
further increases in crew costs could adversely affect our results of operations.
Our involvement with Diana Containerships Inc. may expose us to risks which may adversely
affect our financial condition.
As at December 31, 2017, we had a $82.6 million outstanding balance of a loan facility plus
an unrecorded $5 million interest bearing discount premium and owned 100 shares of Series C
Preferred Stock of Diana Containerships Inc. (NASDAQ:DCIX), or Diana Containerships, which
operates in the containership market. Through our involvement with Diana Containerships, we may
be exposed to risks which may require us to recognize losses and/or write off part or the entire
amount due from Diana Containerships under our loan facility.
Our investment in Diana Wilhelmsen Management Limited may expose us to additional risks.
During 2015 we invested in a 50/50 joint venture with Wilhelmsen Ship Management to provide
management services to a limited number of vessels in our fleet, but our eventual goal is to provide
fleet management services to unaffiliated third party vessel operators. While this joint venture may
provide us in the future with a potential revenue source, it may also expose us to risks such as
low customer satisfaction, increased operating costs compared to those we would achieve for
our vessels, and inability to adequately staff our vessels with crew that meets our expectations
or to maintain our vessels according to our standards, which would adversely affect our financial
condition.
The effects of the recent Greek crisis could adversely affect the operations of our fleet
manager, which has offices in Greece.
As a result of the recent economic slump in Greece and the capital controls imposed by the
Greek government in June 2015, Diana Shipping Services S.A., our manager which has offices
in Greece, may be subjected to new regulations that may require us to incur new or additional
compliance or other administrative costs and may require that we pay to the Greek government
new taxes or other fees. Although the Greek economy showed signs of improvement in 2017,
conditions may worsen in the future, which may adversely affect the operations of our manager
located in Greece. We also face the risk that enhanced capital controls, strikes, work stoppages,
civil unrest and violence within Greece may disrupt the operations of our manager located in
Greece.
A cyber-attack could materially disrupt our business.
We rely on information technology systems and networks in our operations and administration
of our business. Our business operations could be targeted by individuals or groups seeking
to sabotage or disrupt our information technology systems and networks, or to steal data. A
successful cyber-attack could materially disrupt our operations, including the safety of our
operations, or lead to unauthorized release of information or alteration of information in our
systems. Any such attack or other breach of our information technology systems could have a
material adverse effect on our business and results of operations.
The Public Company Accounting Oversight Board inspection of our independent
accounting firm, could lead to findings in our auditors’ reports and challenge the accuracy
of our published audited consolidated financial statements.
Auditors of U.S. public companies are required by law to undergo periodic Public Company
24 ■ ANNUAL REPORT 2017
Accounting Oversight Board, or PCAOB, inspections that assess their compliance with U.S. law
and professional standards in connection with performance of audits of financial statements filed
with the SEC. For several years certain European Union countries, including Greece, did not permit
the PCAOB to conduct inspections of accounting firms established and operating in such European
Union countries, even if they were part of major international firms. Accordingly, unlike for most
U.S. public companies, the PCAOB was prevented from evaluating our auditor’s performance of
audits and its quality control procedures, and, unlike stockholders of most U.S. public companies,
we and our stockholders were deprived of the possible benefits of such inspections. During
2015, Greece agreed to allow the PCAOB to conduct inspections of accounting firms operating
in Greece. In the future, such PCAOB inspections could result in findings in our auditors’ quality
control procedures, question the validity of the auditor’s reports on our published consolidated
financial statements and the effectiveness of our internal control over financial reporting, and cast
doubt upon the accuracy of our published audited financial statements.
Our earnings may be adversely affected if we are not able to take advantage of favorable
charter rates.
We charter our dry bulk carriers to customers pursuant to short, medium or long-term time
charters. However, as part of our business strategy, the majority of our vessels are currently
fixed on short to medium-term time charters. We may extend the charter periods for additional
vessels in our fleet, including additional dry bulk carriers that we may purchase in the future, to
take advantage of the relatively stable cash flow and high utilization rates that are associated with
long-term time charters. While we believe that long-term charters provide us with relatively stable
cash flows and higher utilization rates than shorter-term charters, our vessels that are committed
to long-term charters may not be available for employment on short-term charters during periods
of increasing short-term charter hire rates when these charters may be more profitable than long-
term charters.
Investment in derivative instruments such as forward freight agreements could result in
losses.
From time to time, we may take positions in derivative instruments including forward freight
agreements, or FFAs. FFAs and other derivative instruments may be used to hedge a vessel
owner’s exposure to the charter market by providing for the sale of a contracted charter rate along
a specified route and period of time. Upon settlement, if the contracted charter rate is less than
the average of the rates, as reported by an identified index, for the specified route and period,
the seller of the FFA is required to pay the buyer an amount equal to the difference between the
contracted rate and the settlement rate, multiplied by the number of days in the specified period.
Conversely, if the contracted rate is greater than the settlement rate, the buyer is required to pay
the seller the settlement sum. If we take positions in FFAs or other derivative instruments and
do not correctly anticipate charter rate movements over the specified route and time period, we
could suffer losses in the settling or termination of the FFA. This could adversely affect our results
of operations and cash flows.
We may have difficulty effectively managing any further growth, which may adversely affect
our earnings.
Since the completion of our initial public offering in March 2005, we have increased our fleet
to 50 vessels in operation, as of the date of this annual report. The significant increase in the size
of our fleet has imposed significant additional responsibilities on our management and staff. We
may grow our fleet further in the future and this may require us to increase the number of our
personnel. We may also have to increase our customer base to provide continued employment
ANNUAL REPORT 2017 ■ 25
for the new vessels.
Any future growth will primarily depend on our ability to:
> locate and acquire suitable vessels;
> identify and consummate acquisitions or joint ventures;
> enhance our customer base;
> manage our expansion; and
> obtain required financing on acceptable terms.
Growing any business by acquisition presents numerous risks, such as undisclosed liabilities
and obligations, the possibility that indemnification agreements will be unenforceable or insufficient
to cover potential losses and difficulties associated with imposing common standards, controls,
procedures and policies, obtaining additional qualified personnel, managing relationships with
customers and integrating newly acquired assets and operations into existing infrastructure. We
cannot give any assurance that we will be successful in executing our growth plans or that we will
not incur significant expenses and losses in connection with our future growth.
We cannot assure you that we will be able to borrow amounts under our loan facilities and
restrictive covenants in our loan facilities impose financial and other restrictions on us.
Since February 2005 we have entered into several loan agreements to finance vessel
acquisitions and the construction of newbuildings. As of December 31, 2017, we had $604.8
million outstanding under our facilities and our Notes. Our ability to borrow amounts under our
facilities is subject to the execution of customary documentation relating to the facility, including
security documents, satisfaction of certain customary conditions precedent and compliance with
terms and conditions included in the loan documents. Prior to each drawdown, we are required,
among other things, to provide the lender with acceptable valuations of the vessels in our fleet
confirming that the vessels in our fleet have a minimum value and that the vessels in our fleet that
secure our obligations under the facilities are sufficient to satisfy minimum security requirements.
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 not be able to draw down the full amount under the facilities
without obtaining a waiver or consent from the lender. We will also not be permitted to borrow
amounts under the facilities if we experience a change of control.
The loan facilities also impose operating and financial restrictions on us. These restrictions may
limit our ability to, among other things:
> pay dividends if we do not repay amounts drawn under our loan facilities, if there is a default
under the loan facilities or if the payment of the dividend would result in a default or breach of
a loan covenant;
> incur additional indebtedness, including through the issuance of guarantees;
> change the flag, class or management of our vessels;
> create liens on our assets;
26 ■ ANNUAL REPORT 2017
> sell our vessels;
> enter into a time charter or consecutive voyage charters that have a term that exceeds, or which
by virtue of any optional extensions may exceed a certain period;
> merge or consolidate with, or transfer all or substantially all our assets to, another person; and
> enter into a new line of business.
Therefore, 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 cannot guarantee that
we will be able to obtain our lenders’ permission when needed. This may limit our ability to finance
our future operations, make acquisitions or pursue business opportunities.
We cannot assure you that we will be able to refinance indebtedness incurred under our
loan facilities.
We cannot assure you that we will be able to refinance our indebtedness with equity offerings
or otherwise, on terms that are acceptable to us or at all. If we are not able to refinance these
amounts with the net proceeds of equity offerings or otherwise, on terms acceptable to us or at
all, we will have to dedicate a greater portion of our cash flow from operations to pay the principal
and interest of this indebtedness than if we were able to refinance such amounts. If we are not able
to satisfy these obligations, we may have to undertake alternative financing plans. The actual or
perceived credit quality of our charterers, any defaults by them, and the market value of our fleet,
among other things, may materially affect our ability to obtain alternative financing. In addition,
debt service payments under our loan facilities or alternative financing may limit funds otherwise
available for working capital, capital expenditures and other purposes. If we are unable to meet
our debt obligations, or if we otherwise default under our loan facilities or an alternative financing
arrangement, our lenders could declare the debt, together with accrued interest and fees, to be
immediately due and payable and foreclose on our fleet, which could result in the acceleration of
other indebtedness that we may have at such time and the commencement of similar foreclosure
proceedings by other lenders.
Purchasing and operating secondhand vessels may result in increased operating costs and
reduced operating days, which may adversely affect our earnings.
While we have the right to inspect previously owned vessels prior to our purchase of them and
we usually inspect secondhand vessels that we acquire, such inspections do not provide us with the
same knowledge about their condition that we would have if these vessels had been built for, and
operated exclusively by, us. A secondhand vessel may have conditions or defects that we were not
aware of when we bought the vessel and which may require us to incur costly repairs to the vessel.
These repairs may require us to put a vessel into drydock, which would reduce our operating days.
Furthermore, we usually do not receive the benefit of warranties on secondhand vessels.
We are subject to certain risks with respect to our counterparties on contracts, and failure
of such counterparties to meet their obligations could cause us to suffer losses or otherwise
adversely affect our business.
We enter into, among other things, charter parties with our customers. Such agreements
subject us to counterparty risks. The ability and willingness of each of our counterparties to
perform its obligations under a contract with us will depend on a number of factors that are
beyond our control and may include, among other things, general economic conditions, the
ANNUAL REPORT 2017 ■ 27
condition of the maritime and offshore industries, the overall financial condition of the counterparty,
charter rates received for specific types of vessels, and various expenses. Should a counterparty
fail to honor its obligations under agreements with us, we could sustain significant losses, which
could have a material adverse effect on our business, financial condition, results of operations
and cash flows.
In addition, in depressed market conditions, our charterers may no longer need a vessel that
is currently under charter or may be able to obtain a comparable vessel at lower rates. As a result,
charterers may seek to renegotiate the terms of their existing charter agreements or avoid their
obligations under those contracts. If our charterers fail to meet their obligations to us or attempt
to renegotiate our charter agreements, it may be difficult to secure substitute employment for
such vessels, and any new charter arrangements we secure may be at lower rates. As a result,
we could sustain significant losses, which could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
In the highly competitive international shipping industry, we may not be able to compete
for charters with new entrants or established companies with greater resources, and as a
result, we may be unable to employ our vessels profitably.
We employ our vessels in a highly competitive market that is capital intensive and highly
fragmented. Competition arises primarily from other vessel owners, some of whom have
substantially greater resources than we do. Competition for the transportation of dry bulk cargo
by sea is intense and depends on price, location, size, age, condition and the acceptability of the
vessel and its operators to the charterers. Due in part to the highly fragmented market, competitors
with greater resources than us could enter the dry bulk shipping industry and operate larger fleets
through consolidations or acquisitions and may be able to offer lower charter rates and higher
quality vessels than we are able to offer. If we are unable to successfully compete with other dry
bulk shipping companies, our results of operations may be adversely impacted.
We may be unable to attract and retain key management personnel and other employees in
the shipping industry, which may negatively impact the effectiveness of our management
and results of operations.
Our success depends to a significant extent upon the abilities and efforts of our management
team. We have entered into employment contracts with our Chief Executive Officer and Chairman
of the Board, Mr. Simeon Palios; our President, Mr. Anastasios Margaronis; our Chief Financial
Officer, Mr. Andreas Michalopoulos; and our Chief Operating Officer, Mr. Ioannis Zafirakis. Our
success will depend upon our ability to retain key members of our management team and to hire
new members as may be necessary. The loss of any of these individuals could adversely affect our
business prospects and financial condition. Difficulty in hiring and retaining replacement personnel
could have a similar effect. We do not currently, nor do we intend to, maintain “key man” life
insurance on any of our officers or other members of our management team.
The fiduciary duties of our officers and directors may conflict with those of the officers and
directors of Diana Containerships.
Certain of our officers and directors are officers and directors of Diana Containerships and
have fiduciary duties to manage our business in a manner beneficial to us and our shareholders,
as well as a duty to the shareholders of Diana Containerships. Consequently, these officers and
directors may encounter situations in which their fiduciary obligations to Diana Containerships
and to us are in conflict. The resolution of these conflicts may not always be in our best interest
28 ■ ANNUAL REPORT 2017
or that of our shareholders and could have a material adverse effect on our business, results of
operations, cash flows and financial condition.
We may not have adequate insurance to compensate us if we lose our vessels or to
compensate third parties.
We procure insurance for our fleet against risks commonly insured against by vessel owners
and operators. Our current insurance includes hull and machinery insurance, war risks insurance
and protection and indemnity insurance (which includes environmental damage and pollution
insurance). We can give no assurance that we are adequately insured against all risks or that our
insurers will pay a particular claim. Even if our insurance coverage is adequate to cover our losses,
we may not be able to timely obtain a replacement vessel in the event of a loss. Furthermore, in the
future, we may not be able to obtain adequate insurance coverage at reasonable rates for our fleet.
We may also be subject to calls, or premiums, in amounts based not only on our own claim records
but also the claim records of all other members of the protection and indemnity associations
through which we receive indemnity insurance coverage for tort liability. Our insurance policies
also contain deductibles, limitations and exclusions which, although we believe are standard in
the shipping industry, may nevertheless increase our costs.
Our vessels may suffer damage and we may face unexpected drydocking costs, which
could adversely affect our cash flow and financial condition.
If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs
of drydock repairs are unpredictable and can be substantial. The loss of earnings while a vessel
is being repaired and repositioned, as well as the actual cost of these repairs not covered by our
insurance, would decrease our earnings and available cash. For example, in July 2017, one of our
vessels, the m/v Melite, which was subsequently sold in October 2017, suffered damage due to a
grounding incident at Pulau Laut, Indonesia, which resulted in a $19.8 million non-cash impairment
loss. We may not have insurance that is sufficient to cover all or any of the costs or losses for
damages to our vessels and may have to pay drydocking costs not covered by our insurance.
The aging of our fleet may result in increased operating costs in the future, which could
adversely affect our earnings.
In general, the cost of maintaining a vessel in good operating condition increases with the age
of the vessel. Currently, our fleet consists of 50 vessels in operation, having a combined carrying
capacity of 5.8 million dead weight tons, or dwt, and a weighted average age of 8.6 years as of the
date of this report. As our fleet ages, we will incur increased costs. Older vessels are typically less fuel
efficient and more costly to maintain than more recently constructed 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 and 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 and may restrict the type of activities in which our vessels may engage.
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 useful lives.
We are exposed to U.S. dollar and foreign currency fluctuations and devaluations that could
harm our reported revenue and results of operations.
We generate all of our revenues in U.S. dollars but incur around half of our operating expenses
and our general and administrative expenses in currencies other than the U.S. dollar, primarily
the Euro. Because a significant portion of our expenses is incurred in currencies other than the
ANNUAL REPORT 2017 ■ 29
U.S. dollar, our expenses may from time to time increase relative to our revenues as a result of
fluctuations in exchange rates, particularly between the U.S. dollar and the Euro, which could
affect the amount of net income that we report in future periods. While we historically have
not mitigated the risk associated with exchange rate fluctuations through the use of financial
derivatives, we may employ such instruments from time to time in the future in order to minimize
this risk. Our use of financial derivatives would involve certain risks, including the risk that losses on
a hedged position could exceed the nominal amount invested in the instrument and the risk that
the counterparty to the derivative transaction may be unable or unwilling to satisfy its contractual
obligations, which could have an adverse effect on our results.
Volatility in the London Interbank Offered Rate, or LIBOR, could affect our profitability,
earnings and cash flow.
LIBOR may be volatile, with the spread between LIBOR and the prime lending rate widening
significantly at times. These conditions are the result of disruptions in the international markets.
Because the interest rates borne by our outstanding loan facilities fluctuate with changes in LIBOR,
it would affect the amount of interest payable on our debt, which, in turn, could have an adverse
effect on our profitability, earnings and cash flow.
We depend upon a few significant customers for a large part of our revenues and the loss
of one or more of these customers could adversely affect our financial performance.
We have historically derived a significant part of our revenues from a small number of charterers.
During 2017, 2016, and 2015, approximately 43%, 54% and 66%, respectively, of our revenues
were derived from three, four and four charterers, respectively. If one or more of our charterers
chooses not to charter our vessels or is unable to perform under one or more charters with us
and we are not able to find a replacement charter, we could suffer a loss of revenues that could
adversely affect our financial condition and results of operations.
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. If we are unable to obtain funds from our subsidiaries, we may not
be able to satisfy our financial obligations.
Because we are organized under the laws of the Marshall Islands, it may be difficult to serve
us with legal process or enforce judgments against us, our directors or our management.
We are organized under the laws of the Marshall Islands, and substantially all of our assets are
located outside of the United States. In addition, the 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 the United States. As a result, it may be difficult or impossible for someone to
bring an action against us or against these individuals in the United States if they believe that their
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 Marshall Islands and of other jurisdictions may prevent or
restrict them from enforcing a judgment against our assets or the assets of our directors or officers.
The international nature of our operations may make the outcome of any bankruptcy
proceedings difficult to predict.
30 ■ ANNUAL REPORT 2017
We are incorporated under the laws of the Republic of the Marshall Islands and we conduct
operations in countries around the world. Consequently, in the event of any bankruptcy, insolvency,
liquidation, dissolution, reorganization or similar proceeding involving us or any of our subsidiaries,
bankruptcy laws other than those of the United States could apply. 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.
If we expand our business further, we may need to improve our operating and financial
systems and will need to recruit suitable employees and crew for our vessels.
Our current operating and financial systems may not be adequate if we further expand the size
of our fleet and our attempts to improve those systems may be ineffective. In addition, if we expand
our fleet further, we will need to recruit suitable additional seafarers and shoreside administrative
and management personnel. while we have not experienced any difficulty in recruiting to date,
we cannot guarantee that we will be able to continue to hire suitable employees if we expand our
fleet. If we or our crewing agents encounter business or financial difficulties, we may not be able
to adequately staff our vessels. If we are unable to grow our financial and operating systems or
to recruit suitable employees should we determine to expand our fleet, our financial performance
may be adversely affected, among other things.
We may have to pay tax on U.S. source income, which would reduce our earnings.
Under the U.S. Internal Revenue Code of 1986, as amended, or the Code, 50% of the
gross shipping income of a vessel-owning or chartering corporation, such as ourselves and our
subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin
and end, in the United States is characterized as U.S. source shipping income and such income
is generally subject to a 4% U.S. federal income tax without allowance for deductions, unless
that corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury
Regulations promulgated thereunder.
We expect that we and each of our subsidiaries qualify for this statutory tax exemption for
the 2017 taxable year and we will take this position for U.S. federal income tax return reporting
purposes. However, there are factual circumstances beyond our control that could cause us to
lose the benefit of this tax exemption in future years and thereby become subject to U.S. federal
income tax on our U.S. source shipping income. For example, in certain circumstances we may no
longer qualify for exemption under Code Section 883 for a particular taxable year if shareholders,
other than “qualified shareholders”, with a five percent or greater interest in our common shares
owned, in the aggregate, 50% or more of our outstanding common shares for more than half
the days during the taxable year. Due to the factual nature of the issues involved, we can give no
assurances on our tax-exempt status or that of any of our subsidiaries.
If we or our subsidiaries are not entitled to this exemption under Section 883 of the Code for any
taxable year, we or our subsidiaries would be subject for those years to a 4% U.S. federal income tax
on our gross U.S.-source shipping income. The imposition of this taxation could have a negative effect
on our business and would result in decreased earnings available for distribution to our shareholders,
although, for the 2017 taxable year, we estimate our maximum U.S. federal income tax liability to be
immaterial if we were subject to this U.S. federal income tax. See “Item 10. Additional Information—E.
Taxation” for a more comprehensive discussion of U.S. federal income tax considerations.
ANNUAL REPORT 2017 ■ 31
U.S. federal 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 foreign corporation will be treated as a “passive foreign investment company”, or PFIC, for
U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable
year consists of certain types of “passive income” or (2) at least 50% of the average value of the
corporation’s assets produce or are held for the production of those types 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 which 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 shares in the PFIC.
Based on our current and proposed method of operation, we do not believe that we will be a PFIC
with respect to any taxable year. In this regard, we intend to treat the gross income we derive or are
deemed to derive from our time chartering activities as services income, rather than rental income.
Accordingly, we believe that our income from our time chartering activities does not constitute “passive
income,” and the assets that we own and operate in connection with the production of that income do
not constitute assets that produce or are held for the production of “passive income”.
There is substantial legal authority supporting this position consisting of case law and U.S.
Internal Revenue Service, or “IRS”, pronouncements concerning the characterization of income
derived from time charters and voyage charters as services income for other tax purposes. However,
it should be noted that there is also authority which characterizes time charter income as rental
income rather than services income for other tax purposes. Accordingly, no assurance can be given
that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of
law could determine that we are a PFIC. Moreover, no assurance can be given that we would not
constitute a PFIC for any future taxable year if the nature and extent of our operations changed.
If the IRS or a court of law were to find that we are or have been a PFIC for any taxable year,
our U.S. shareholders would face adverse U.S. federal income tax consequences. Under the PFIC
rules, unless those shareholders make an election available under the Code (which election could
itself have adverse consequences for such shareholders), such shareholders would be subject
to U.S. federal income tax at the then prevailing U.S. federal income tax rates on ordinary income
plus interest upon excess distributions and upon any gain from the disposition of our common
stock, as if the excess distribution or gain had been recognized ratably over the shareholder’s
holding period of our common stock. See “Item 10. Additional Information—E. Taxation–United
States Taxation of U.S. Holders–PFIC Status and Significant Tax Consequences” for a more
comprehensive discussion of the U.S. federal income tax consequences to U.S. holders of our
common stock if we are or were to be treated as a PFIC
Risks Relating to Our Common Stock
Our board of directors has suspended the payment of cash dividends on our common
stock. We cannot assure you that our board of directors will reinstate dividend payments
in the future, or when such reinstatement might occur.
In order to position us to take advantage of market opportunities in a then-deteriorating market,
our board of directors, beginning with the fourth quarter of 2008, suspended our common stock
dividend. Our dividend policy will be assessed by our board of directors from time to time. We
32 ■ ANNUAL REPORT 2017
believe that this suspension has enhanced our flexibility by permitting cash flow that would have
been devoted to dividends to be used for opportunities that have arisen, and may continue to
arise in the marketplace, such as funding our operations, acquiring vessels and servicing our debt
Our policy, historically, was to declare quarterly distributions to shareholders by each February,
May, August and November substantially equal to our available cash from operations during the
previous quarter after accounting for cash expenses and reserves for scheduled drydockings,
intermediate and special surveys and other purposes as our board of directors may from time to
time determine are required, and after taking into account contingent liabilities, the terms of our
loan facilities, our growth strategy and other cash needs and the requirements of Marshall Islands
law. The declaration and payment of dividends, if any, will always be subject to the discretion of
our board of directors. The timing and amount of any dividends declared will depend on, among
other things, our earnings, financial condition and cash requirements and availability, our ability to
obtain debt and equity financing on acceptable terms as contemplated by our growth strategy and
provisions of Marshall Islands law affecting the payment of dividends. In addition, other external
factors, such as our lenders imposing restrictions on our ability to pay dividends under the terms
of our loan facilities, may limit our ability to pay dividends. Further, under the terms of our loan
agreements, we may not be permitted to pay dividends that would result in an event of default or
if an event of default has occurred and is continuing.
Our growth strategy contemplates that we will finance the acquisition of additional vessels
through a combination of debt and equity financing on terms acceptable to us. If financing is not
available to us on acceptable terms, our board of directors may determine to finance or refinance
acquisitions with cash from operations, which could also reduce or even eliminate the amount of
cash available for the payment of dividends.
Marshall Islands law generally prohibits the payment of dividends other than from surplus
(retained earnings and the excess of consideration received for the sale of shares above the par
value of the shares) or while a company is insolvent or would be rendered insolvent by the payment
of such a dividend. We may not have sufficient surplus in the future to pay dividends. We can give no
assurance that we will reinstate our dividends in the future or when such reinstatement might occur.
In addition, our ability to pay dividends to holders of our common shares will be subject to the
rights of holders of our Series B Preferred Shares, which rank prior to our common shares with
respect to dividends, distributions and payments upon liquidation. No cash dividend may be paid on
our common stock unless full cumulative dividends have been or contemporaneously are being paid
or provided for on all outstanding Series B Preferred Shares for all prior and the then-ending dividend
periods. Cumulative dividends on our Series B Preferred Shares accrue at a rate of 8.875% per
annum per $25.00 stated liquidation preference per Series B Preferred Share, subject to increase
upon the occurrence of certain events, and are payable, as and if declared by our board of directors,
on January 15, April 15, July 15 and October 15 of each year, or, if any such dividend payment date
otherwise would fall on a date that is not a business day, the immediately succeeding business
day. For additional information about our Series B Preferred Shares, please see the section entitled
“Description of Registrant’s Securities to be Registered” of our registration statement on Form 8-A
filed with the SEC on February 13, 2014 and incorporated by reference herein.
The market price of our common stock has fluctuated widely and may fluctuate widely
in the future, and there is no guarantee that there will continue to be an active and liquid
public market for you to resell our common stock in the future.
The market price of our common stock is volatile and has fluctuated widely since our common
stock began trading on the NYSE, and may continue to fluctuate due to factors such as:
ANNUAL REPORT 2017 ■ 33
> actual or anticipated fluctuations in our quarterly and annual results and those of other public
companies in our industry;
> mergers and strategic alliances in the dry bulk shipping industry;
> market conditions in the dry bulk shipping industry;
> changes in government regulation;
> shortfalls in our operating results from levels forecast by securities analysts;
> announcements concerning us or our competitors; and
> the general state of the securities market.
The dry bulk shipping industry has been highly unpredictable and volatile. The market for
common stock in this industry may be equally volatile. Therefore, we cannot assure you that you
will be able to sell any of our common stock you may have purchased at a price greater than or
equal to its original purchase price, or that you will be able to sell our common stock at all.
Since we are incorporated in the Marshall Islands, which does not have a well-developed
body of corporate law, you may have more difficulty protecting your interests than
shareholders of a U.S. corporation.
Our corporate affairs are governed by our amended and restated 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 Marshall Islands interpreting the BCA. The
rights and fiduciary responsibilities of directors under the laws of the Marshall Islands are not as
clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial
precedent in existence in the United States. The rights of shareholders of the Marshall Islands
may differ from the rights of shareholders of companies incorporated in the United States. While
the BCA provides that it is to be interpreted according to the laws of the State of Delaware and
other states with substantially similar legislative provisions, there have been few, if any, court cases
interpreting the BCA in the Marshall Islands and we cannot predict whether Marshall Islands courts
would reach the same conclusions as U.S. courts. Thus, you may have more difficulty in protecting
your 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 which has developed a
relatively more substantial body of case law.
Certain existing shareholders will be able to exert considerable control over matters on
which our shareholders are entitled to vote.
As of the date of this annual report, Mr. Simeon Palios, our Chief Executive Officer and
Chairman of the Board, beneficially owns 24,914,107 shares, or approximately 23.1% of our
outstanding common stock, which is held indirectly through entities over which he exercises
sole voting power. Please see “Item 7. Major Shareholders and Related Party Transactions—A.
Major Shareholders.” While Mr. Palios and the non-voting shareholders of these entities have no
agreement, arrangement or understanding relating to the voting of their shares of our common
stock, they are able to influence the outcome of matters on which our shareholders are entitled
to vote, including the election of directors and other significant corporate actions. The interests of
these shareholders may be different from your interests.
34 ■ ANNUAL REPORT 2017
Future sales of our common stock could cause the market price of our common stock to
decline.
Our amended and restated articles of incorporation authorize us to issue up to 200,000,000
shares of common stock, of which as of December 31, 2017, 106,131,017 shares were
outstanding. The number of shares of common stock available for sale in the public market is
limited by restrictions applicable under securities laws and agreements that we and our executive
officers, directors and principal shareholders have entered into.
Sales of a substantial number of shares of our 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.
Anti-takeover provisions in our organizational documents could make it difficult for our
shareholders to replace or remove our current board of directors or have the effect of
discouraging, delaying or preventing a merger or acquisition, which could adversely affect
the market price of our common stock.
Several provisions of our amended and restated articles of incorporation and bylaws could
make it difficult for our shareholders to change the composition of our board of directors in
any one year, preventing them from changing the composition of management. In addition, the
same provisions may discourage, delay or prevent a merger or acquisition that shareholders may
consider favorable.
These provisions include:
> authorizing our board of directors to issue “blank check” preferred stock without shareholder
approval;
> providing for a classified board of directors with staggered, three-year terms;
> prohibiting cumulative voting in the election of directors;
> authorizing the removal of directors only for cause and only upon the affirmative vote of the
holders of a majority of the outstanding shares of our common stock entitled to vote for the
directors;
> prohibiting shareholder action by written consent;
> limiting the persons who may call special meetings of shareholders; and
> establishing advance notice requirements for nominations for election to our board of directors
or for proposing matters that can be acted on by shareholders at shareholder meetings.
In addition, we have adopted a Stockholders Rights Agreement, dated January 15, 2016,
pursuant to which our board of directors may cause the substantial dilution of any person that
attempts to acquire us without the approval of our board of directors.
These anti-takeover provisions, including provisions of our Stockholders Rights Agreement,
could substantially impede the ability of public shareholders to benefit from a change in control
and, as a result, may adversely affect the market price of our common stock and your ability to
ANNUAL REPORT 2017 ■ 35
realize any potential change of control premium.
Our Series B Preferred Shares are senior obligations of ours and rank prior to our common
shares with respect to dividends, distributions and payments upon liquidation, which could
have an adverse effect on the value of our common shares.
The rights of the holders of our Series B Preferred Shares rank senior to the obligations to
holders of our common shares. Upon our liquidation, the holders of Series B Preferred Shares
will be entitled to receive a liquidation preference of $25.00 per share, plus all accrued but unpaid
dividends, prior and in preference to any distribution to the holders of any other class of our equity
securities, including our common shares. The existence of the Series B Preferred Shares could
have an adverse effect on the value of our common shares.
Risks Relating to Our Series B Preferred Stock
We may not have sufficient cash from our operations to enable us to pay dividends on our
Series B Preferred Shares following the payment of expenses and the establishment of
any reserves.
We pay quarterly dividends on our Series B Preferred Shares only from funds legally available
for such purpose when, as and if declared by our board of directors. We may not have sufficient
cash available each quarter to pay dividends. The amount of dividends we can pay on our Series B
Preferred Shares depends upon the amount of cash we generate from and use in our operations,
which may fluctuate.
The amount of cash we have available for dividends on our Series B Preferred Shares will not
depend solely on our profitability. The actual amount of cash we have available to pay dividends
on our Series B Preferred Shares depends on many factors, including the following:
> changes in our operating cash flow, capital expenditure requirements, working capital
requirements and other cash needs;
> restrictions under our existing or future credit facilities or any future debt securities on our ability
to pay dividends if an event of default has occurred and is continuing or if the payment of the
dividend would result in an event of default, or under certain facilities if it would result in the
breach of certain financial covenants;
> the amount of any cash reserves established by our board of directors; and
> restrictions under Marshall Islands law, which generally prohibits the payment of dividends other
than from surplus (retained earnings and the excess of consideration received for the sale of
shares above the par value of the shares) or while a company is insolvent or would be rendered
insolvent by the payment of such a dividend.
The amount of cash we generate from our operations may differ materially from our net income
or loss for the period, which is affected by non-cash items, and our board of directors in its
discretion may elect not to declare any dividends. As a result of these and the other factors
mentioned above, we may pay dividends during periods when we record losses and may not pay
dividends during periods when we record net income.
The Series B Preferred Shares represent perpetual equity interests.
36 ■ ANNUAL REPORT 2017
The Series B Preferred Shares represent perpetual equity interests in us and, unlike our
indebtedness, will not give rise to a claim for payment of a principal amount at a particular date. As
a result, holders of the Series B Preferred Shares may be required to bear the financial risks of an
investment in the Series B Preferred Shares for an indefinite period of time. In addition, the Series B
Preferred Shares will rank junior to all our indebtedness and other liabilities, and to any other senior
securities we may issue in the future with respect to assets available to satisfy claims against us.
Our Series B Preferred Shares are subordinate to our indebtedness, and your interests
could be diluted by the issuance of additional preferred shares, including additional Series
B Preferred Shares, and by other transactions.
Our Series B Preferred Shares are subordinated to all of our existing and future indebtedness.
Therefore, our ability to pay dividends on, redeem or pay the liquidation preference on our Series B
Preferred Shares in liquidation or otherwise may be subject to prior payments due to the holders
of our indebtedness. Our existing indebtedness restricts, and our future indebtedness may include
restrictions on, our ability to pay dividends on or redeem preferred shares. Our amended and restated
articles of incorporation currently authorize the issuance of up to 25,000,000 preferred shares, par
value $0.01 per share. Of these preferred shares, 1,000,000 shares have been designated Series A
Participating Preferred Stock and 5,000,000 shares have been designated Series B Preferred Shares.
The Series B Preferred Shares are senior in rank to the Series A Participating Preferred Shares. The
issuance of additional Series B Preferred Shares or other preferred shares on a parity with or senior
to the Series B Preferred Shares would dilute the interests of holders of our Series B Preferred
Shares, and any issuance of preferred shares senior to our Series B Preferred Shares or of additional
indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on
our Series B Preferred Shares. The Series B Preferred Shares do not contain any provisions affording
the holders of our Series B Preferred Shares protection in the event of a highly leveraged or other
transaction, including a merger or the sale, lease or conveyance of all or substantially all our assets or
business, which might adversely affect the holders of our Series B Preferred Shares, so long as the
rights of our Series B Preferred Shares are not directly materially and adversely affected.
We may redeem the Series B Preferred Shares, and you may not be able to reinvest the
redemption price you receive in a similar security.
On or after February 14, 2019, we may, at our option, redeem Series B Preferred Shares, in
whole or in part, at any time or from time to time. We may have an incentive to redeem Series B
Preferred Shares voluntarily if market conditions allow us to issue other preferred shares or debt
securities at a rate that is lower than the dividend on the Series B Preferred Shares. If we redeem
Series B Preferred Shares, then from and after the redemption date, your dividends will cease
to accrue on your Series B Preferred Shares, your Series B Preferred Shares shall no longer be
deemed outstanding and all your rights as a holder of those shares will terminate, except the right
to receive the redemption price plus accumulated and unpaid dividends, if any, payable upon
redemption. If we redeem the Series B Preferred Shares for any reason, you may not be able to
reinvest the redemption price you receive in a similar security.
Market interest rates may adversely affect the value of our Series B Preferred Shares.
One of the factors that may influence the price of our Series B Preferred Shares is the dividend
yield on the Series B Preferred Shares (as a percentage of the price of our Series B Preferred Shares)
relative to market interest rates. An increase in market interest rates, which are currently at low levels
relative to historical rates, may lead prospective purchasers of our Series B Preferred Shares to
expect a higher dividend yield, and higher interest rates would likely increase our borrowing costs
and potentially decrease funds available for distribution. Accordingly, higher market interest rates
ANNUAL REPORT 2017 ■ 37
could cause the market price of our Series B Preferred Shares to decrease.
As a holder of Series B Preferred Shares you have extremely limited voting rights.
Your voting rights as a holder of Series B Preferred Shares are extremely limited. Our common
shares are the only outstanding class or series of our shares carrying full voting rights. Holders of Series
B Preferred Shares have no voting rights other than the ability, subject to certain exceptions, to elect
one director if dividends for six quarterly dividend periods (whether or not consecutive) payable on our
Series B Preferred Shares are in arrears and certain other limited protective voting rights.
Our ability to pay dividends on and to redeem our Series B Preferred Shares is limited by
the requirements of Marshall Islands law.
Marshall Islands law provides that we may pay dividends on and redeem the Series B Preferred
Shares only to the extent that assets are legally available for such purposes. Legally available
assets generally are limited to our surplus, which essentially represents our retained earnings and
the excess of consideration received by us for the sale of shares above the par value of the shares.
In addition, under Marshall Islands law we may not pay dividends on or redeem Series B Preferred
Shares if we are insolvent or would be rendered insolvent by the payment of such a dividend or
the making of such redemption.
The amount of your liquidation preference is fixed and you will have no right to receive any
greater payment regardless of the circumstances.
The payment due upon a liquidation is fixed at the redemption preference of $25.00 per share
plus accumulated and unpaid dividends to the date of liquidation. If, in the case of our liquidation,
there are remaining assets to be distributed after payment of this amount, you will have no right
to receive or to participate in these amounts. Furthermore, if the market price for your Series B
Preferred Shares is greater than the liquidation preference, you will have no right to receive the
market price from us upon our liquidation.
Risks Relating to our Notes
The investment in our Notes is subject to our credit risk.
Our Notes are unsubordinated unsecured general obligations of ours and are not, either
directly or indirectly, an obligation of any third party. Our Notes will rank equally with any senior and
unsubordinated debt obligations that we may enter into in the future, except as such obligations
may be preferred by operation of law. Any payment to be made on our Notes, including the return
of the principal amount at maturity or any redemption date, as applicable, depends on our ability
to satisfy our obligations as they come due. As a result, our actual and perceived creditworthiness
may affect the market value of our Notes and, in the event we were to default on our obligations,
holders of our Notes may not receive the amounts owed to them under the terms of our Notes.
Our subsidiaries conduct the substantial majority of our operations and own our operating
assets, and the right to receive payments on our Notes is structurally subordinated to the
rights of the lenders of our subsidiaries.
Our subsidiaries conduct the substantial majority of our operations and own our operating
assets. As a result, our ability to make required payments on our Notes depends in part on the
operations of our subsidiaries and our subsidiaries’ ability to distribute funds to us. To the extent
our subsidiaries are unable to distribute, or are restricted from distributing, funds to us, we may
38 ■ ANNUAL REPORT 2017
be unable to fulfill our obligations under our Notes. Our subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay amounts due on our Notes or to
make funds available for that purpose. Our Notes are not guaranteed by any of our subsidiaries
or any other person.
The rights of holders of our Notes are structurally subordinated to the rights of our subsidiaries’
lenders. A default by a subsidiary under its debt obligations would result in a block on distributions
from the affected subsidiary to us. Our Notes will be effectively junior to all existing and future
liabilities of our subsidiaries. In the event of a bankruptcy, liquidation or reorganization of any of
our subsidiaries, creditors of our subsidiaries will generally be entitled to payment of their claims
from the assets of those subsidiaries before any assets are made available for distribution to us.
Our Notes are unsecured obligations and are subordinated to our secured debt.
Our Notes are unsecured and therefore are effectively subordinated to any secured debt we
maintain or may incur to the extent of the value of the assets securing the debt. In the event of a
bankruptcy or similar proceeding involving us, the assets that serve as collateral will be available
to satisfy the obligations under any secured debt before any payments are made on our Notes.
We will continue to have the ability to incur additional secured debt, subject to limitations in our
loan facilities and the indenture relating to our Notes.
We may not have the ability to raise the funds necessary to purchase our Notes as required
upon a change of control, and our existing and future debt may contain limitations on our
ability to purchase our Notes.
Following a change of control, holders of Notes will have the right to require us to purchase their
Notes for cash. A change of control may also constitute an event of default or prepayment under,
and result in the acceleration of the maturity of, our then existing indebtedness. We may not have
sufficient financial resources, or be able to arrange financing, to pay the change of control purchase
price in cash with respect to any Notes surrendered by holders for purchase upon a change of
control. In addition, restrictions in our then existing loan facilities or other indebtedness, if any, may
not allow us to purchase the Notes upon a change of control. Our failure to purchase the Notes upon
a change of control when required would result in an event of default with respect to the Notes which
could, in turn, constitute a default under the terms of our other indebtedness, if any. If the repayment
of the related indebtedness were to be accelerated after any applicable notice or grace periods, we
may not have sufficient funds to repay the indebtedness and purchase the Notes.
Some significant restructuring transactions may not constitute a change of control, in
which case we would not be obligated to offer to purchase the Notes.
The change of control provisions contained in the indenture governing our Notes will not afford
protection to holders of Notes in the event of certain transactions that could adversely affect
our Notes. For example, transactions such as leveraged recapitalizations, refinancing or certain
restructurings would not constitute a change of control requiring us to repurchase the Notes. In
the event of any such transaction, holders of the Notes would not have the right to require us to
purchase their Notes, even though each of these transactions could increase the amount of our
indebtedness, or otherwise adversely affect our capital structure or any credit ratings, thereby
adversely affecting holders of the Notes.
Our Notes have not been rated, and ratings of any of our other securities may affect the
trading price of our Notes.
ANNUAL REPORT 2017 ■ 39
We have not sought to obtain a rating for our Notes, and our Notes may never be rated. It
is possible, however, that one or more credit rating agencies might independently determine to
assign a rating to our Notes or that we may elect to obtain a rating of our Notes in the future. In
addition, we may elect to issue other securities for which we may seek to obtain a rating. If any
ratings are assigned to our Notes in the future or if we issue other securities with a rating, such
ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, or
if ratings for such other securities would imply a lower relative value for our Notes, could adversely
affect the market for, or the market value of, our Notes. Ratings only reflect the views of the
issuing rating agency or agencies and such ratings could at any time be revised downward or
withdrawn entirely at the discretion of the issuing rating agency. A rating is not a recommendation
to purchase, sell or hold any particular security, including our Notes. Ratings do not reflect market
prices or suitability of a security for a particular investor and any future rating of our Notes may
not reflect all risks related to us and our business, or the structure or market value of our Notes.
We may redeem the Notes, at our option, in whole or in part.
Effective May 15, 2017, we may redeem the Notes, at our option, in whole or in part, at a
redemption price equal to 100% of the principal amount to be redeemed, plus accrued and unpaid
interest to the date of redemption. In the event we choose to redeem the Notes, the holders of our
Notes may not be able to reinvest the redemption proceeds in a comparable security at an effective
interest rate as high as the interest rate on our Notes. Our redemption right also may adversely impact
the holders’ ability to sell our Notes as the optional redemption date or period approaches.
Item 4. Information on the Company
A. History and development of the Company
Diana Shipping Inc. is a holding company incorporated under the laws of Liberia in March 1999
as Diana Shipping Investments Corp. In February 2005, the Company’s articles of incorporation
were amended. Under the amended and restated articles of incorporation, the Company was
renamed Diana Shipping Inc. and was re-domiciled from the Republic of Liberia to the Republic
of the Marshall Islands. Our executive offices are located at Pendelis 16, 175 64 Palaio Faliro,
Athens, Greece. Our telephone number at this address is +30-210-947-0100. Our agent and
authorized representative in the United States is our wholly-owned subsidiary, Bulk Carriers (USA)
LLC, established in September 2006, in the State of Delaware, which is located at 2711 Centerville
Road, Suite 400, Wilmington, Delaware 19808.
Business Development and Capital Expenditures and Divestitures
On May 22, 2014, our Board of Directors authorized a share repurchase plan for up to $100
million of our common shares of which, up to January 30, 2015, we repurchased and retired a
total of 3,259,353 shares at the aggregate cost of $28.0 million and an average price of $8.6 per
share. We have not repurchased any other shares since January 30, 2015.
In January 2015, we took delivery of m/v Santa Barbara, a new-building Capesize dry bulk
vessel, which we acquired from an unrelated third party for $50.0 million.
In March 2015, we prepaid the outstanding indebtedness under a loan agreement with
Deutsche Bank Aktiengesellschaft Filiale Deutschlandgeschäft, or Deutsche Bank, for Myrto and
Maia, of $15.8 million.
In March 2015, we entered into a term loan facility of up to $110.0 million with Nordea Bank
40 ■ ANNUAL REPORT 2017
AB, London Branch, or Nordea, to refinance the existing agreements we had with the bank for
working capital and general corporate purposes. We completed the drawdown of $93.1 million
on March 19, 2015 and we fully repaid all outstanding indebtedness with the bank at that date.
In March 2015, we entered into a loan agreement with ABN AMRO Bank N.V. for up to $53.0
million to refinance part of the acquisition cost of the vessels New York, Myrto and Maia. On March
30, 2015, we drew down the amount of $50.16 million under the loan facility.
In April 2015, we acquired from unrelated third parties a new-building Capesize dry bulk vessel,
named New Orleans, for $43.0 million and a Kamsarmax dry bulk vessel, renamed to Medusa,
for $18.05 million. The vessels were delivered in November 2015 and June 2015, respectively.
During the same month, we also entered into a loan agreement with Danish Ship Finance A/S
for a loan facility of $30.0 million, drawn on April 30, 2015 to partly finance the acquisition cost of
the Santa Barbara.
In May 2015, our wholly owned subsidiary Diana Ship Management Inc. and Wilhelmsen
Ship Management Holding Limited, an unaffiliated third party, established Diana Wilhelmsen
Management Limited, or DWM, a 50/50 joint venture, with the purpose of providing management
services to a number of vessels in our fleet. The DWM office is located in Limassol, Cyprus and
currently it provides services to ten of our vessels.
In May 2015, we offered $63.3 million aggregate principal amount of 8.5% Senior Notes
due 2020 (the “Notes”), including an overallotment, at the price of $25.0 per Note. As part of
the offering, the underwriters sold $12.8 million aggregate principal amount of the Notes to, or
to entities affiliated with, the Company’s chief executive officer, Mr. Simeon Palios, and other
executive officers and certain directors of the Company at the public offering price. As of May
29, 2015, the Notes are trading on the NYSE under the ticker symbol “DSXN”. The Notes bear
interest from May 28, 2015 at a rate of 8.5% per year and will mature on May 15, 2020. Interest
is payable quarterly in arrears on the 15th day of February, May, August and November of each
year, commencing on August 15, 2015. Effective May 15, 2017, the Company may redeem the
Notes at its option, in whole or in part, at a redemption price equal to 100% of the principal amount
to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. The
Notes include financial and other covenants, including maximum net borrowings and minimum
tangible net worth.
In July 2015, we entered into a loan agreement with BNP Paribas for a loan of $165.0 million,
drawn on July 24, 2015 to refinance the revolving credit facility with the Royal Bank of Scotland.
In this respect, the revolving credit facility, having an outstanding balance of $195.0 million, was
voluntarily prepaid in full and the related agreement was terminated.
In September 2015, we entered into a term loan agreement with ING Bank N.V. for a loan of
up to $39.7 million, drawn in two tranches to finance part of the acquisition cost of the Medusa
and the New Orleans, delivered in June and November 2015, respectively.
In September 2015, we also amended our $50.0 million loan agreement with Diana
Containerships, dated May 20, 2013, pursuant to which the loan matured on March 15, 2022;
bore interest at LIBOR plus a margin of 3% per annum; the accrued back-end fee was paid and
replaced by a fee of $200,000 payable by the borrower on the maturity date. In addition, the
borrowers agreed to repay the principal amount of the loan on the last day of each interest period
in amounts of $5.0 million per annum, but not to exceed $32.5 million in the aggregate. The loan
was subordinated to Diana Containerships’ loan with the Royal Bank of Scotland.
ANNUAL REPORT 2017 ■ 41
In November 2015, we acquired a Capesize dry bulk vessel, named Seattle, for $28.5 million,
which was delivered in November 2015.
In January 2016, we entered into a loan agreement with the China Export Import Bank, or
CEXIM Bank for a loan of up to $75.7 million to finance part of the construction cost of San
Francisco, Newport News and Hull DY6006. On January 4, 2017, we drew down $57.24 million.
On February 6, 2017, we signed a Deed of Release with the bank, pursuant to which, the owner
of Hull DY6006 was released from all of its obligations under the loan agreement as a borrower
as a result of the cancellation of its shipbuilding contract with the yards.
In February 2016, we acquired from a related party three Panamax vessels for an aggregate
price of $39.3 million. Two of the vessels, the Selina and the Ismene, were delivered in March
2016 and the third vessel, the Maera, was delivered in May 2016. The Company had agreed
to acquire the vessels from entities affiliated with Mrs. Semiramis Paliou and Mrs. Aliki Paliou,
each of whom is a family member of the Company’s Chief Executive Officer and Chairman of the
Board. Mrs. Semiramis Paliou is also a director of the Company. The transaction was approved
unanimously by a committee of the Board of Directors established for the purpose of considering
the transaction and consisting of the Company’s independent directors and each of its executive
directors other than Mrs. Semiramis Paliou and Mr. Simeon Palios. The agreed upon purchase
price of the vessels was based, among other factors, on independent third party broker valuations
obtained by the Company.
In March 2016, we entered into a term loan agreement with ABN AMRO Bank N.V. for a loan
of $25.755 million, drawn on March 30, 2016, to finance the acquisition cost of the Selina and
the Ismene.
On May 10, 2016, we entered into a term loan agreement with DNB Bank ASA and the CEXIM
Bank for a loan of $13.51 million, drawn on the same date, to finance the acquisition cost of the
Maera.
In September 2016, we entered into an amendment to the loan agreement with Diana
Containerships, pursuant to which the repayment of all outstanding principal amounts was
deferred until the later of (i) the repayment or prepayment in full by Diana Containerships of a
deferred amount under its loan agreement with The Royal Bank of Scotland plc, whose repayment
was scheduled to commence on March 15, 2019 and to be completed not later than June 15,
2021, and (ii) September 15, 2018. The amendment also changed the borrower under the loan
to another wholly-owned subsidiary of Diana Containerships and provided for an increase of the
interest rate for the period between September 12, 2016 (the effective date of the amendment)
and December 31, 2018 to 3.35% per annum over LIBOR.
In October 2016, we provided a notice of cancellation of the shipbuilding contract, dated
January 2014 for the construction of Hull DY6006 for a contract price of $28.8 million, pursuant to
our right under the contract to cancel the contract due to a delay in delivery of 150 days after the
original delivery date and to claim a refund of the pre-delivery installment payments together with
interest at a rate of 5% per annum, amounting to $9.4 million, which was received in December
2016.
In December 2016, one of our wholly-owned subsidiaries, upon signing a settlement
agreement with a former charterer, received an amount of $5.5 million as partial payment pursuant
to an arbitration award. The partial payment of the arbitration award is without prejudice, and we
intend to seek the recovery of the balance of the award.
42 ■ ANNUAL REPORT 2017
In January 2017, we took delivery of two Newcastlemax dry bulk vessels, Hull H2548, named
San Francisco, and Hull H2549, named Newport News, which were under construction at China
Shipbuilding Trading Company, Limited and Jiangnan Shipyard (Group) Co., Ltd. for a contract
price of $47.7 million each.
In April 2017, we issued a total 20,125,000 common shares, at a price of $4.00 per share, in
a public offering. As part of the offering, entities affiliated with Simeon Palios, our Chief Executive
Officer and Chairman, executive officers and certain directors, purchased an aggregate of
5,500,000 common shares at the public offering price. The net proceeds from the offering after
deducting underwriting discounts and other offering expenses were approximately $77.3 million.
Substantially all of the net proceeds of the offering were used to fund the acquisition costs of the
three dry bulk vessels delivered to us in May 2017 described below.
In April 2017, we acquired from unaffiliated third party sellers two 2013-built Post-Panamax
vessels, the Electra and the Phaidra, for a purchase price of $22.25 million per vessel and a
2013-built Kamsarmax dry bulk carrier, the Astarte, for a purchase price of $22.75 million. All three
vessels were delivered in May 2017.
In May 2017, we acquired 100 shares of newly-designated Series C Preferred Stock, par
value $0.01 per share, of Diana Containerships, in exchange for a reduction of $3.0 million in
the principal amount of our loan to Diana Containerships dated May 20, 2013, as amended. The
Series C Preferred Stock has no dividend or liquidation rights. The Series C Preferred Stock votes
with the common shares of Diana Containerships, and each share of the Series C Preferred Stock
entitles the holder thereof to up to 250,000 votes, subject to a cap such that the aggregate voting
power of any holder of Series C Preferred Stock together with its affiliates does not exceed 49.0%,
on all matters submitted to a vote of the stockholders of Diana Containerships. The acquisition
of shares of Series C Preferred Stock was approved by an Independent Committee of our Board
of Directors.
In June 2017, we refinanced our unsecured loan facility with Diana Containerships with a
new secured loan facility of $82.6 million, which includes the $42.4 million outstanding principal
balance as of June 30, 2017, increased by the flat fee of $0.2 million payable at maturity, plus an
additional loan amount to Diana Containerships of $40.0 million. The loan also has an additional
$5.0 million interest-bearing amount, which is classified as discount premium. The loan matures
on December 31, 2018, and bears interest at the rate of 6% per annum for the first twelve (12)
months of the loan, scaled to 9% for the next three (3) months, and further scaled to 12% for the
remaining three (3) months of the loan. The loan facility includes financial and other covenants.
Additionally, Diana Containerships is required to prepay the loan with any proceeds received from
equity offerings, loan refinancings and vessel sales, according to the terms of the loan agreement.
As of the date of this annual report, the amount due from Diana Containerships under our loan
agreement was $74.2 million, following a prepayment of $8.4 million in March 2018. See “Item 7.
Major Shareholders and Related Party Transactions—B. Related Party Transactions.”
In July 2017, the Melite run aground at Pulau Laut, Indonesia, following which, the vessel was
considered a constructive total loss. In October 2017, the vessel was sold to an unrelated third party
for demolition, on an “as is where is” basis, for approximately $2.5 million, before commissions. As
a result of this sale, the outstanding balance of the loan assigned to the vessel amounting to $5.8
million was also prepaid. On November 14, 2017, the Company also received the balance of the
insured value (net of the price sold and commissions), amounting to $11.5 million.
Please see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital
Resources” for a discussion of our loan facilities.
ANNUAL REPORT 2017 ■ 43
B. Business overview
We are a global provider of shipping transportation services. We specialize in the ownership of
dry bulk vessels. As of December 31, 2017 and the date of this report, our operating fleet consists
of 50 dry bulk carriers, of which 22 are Panamax, five are Kamsarmax, five are Post-Panamax,
14 are Capesize and four are Newcastlemax vessels, having a combined carrying capacity of
approximately 5.8 million dwt.
As of December 31, 2016, our fleet consisted of 46 vessels of which 23 were Panamax, four
were Kamsarmax, three were Post-Panamax, 14 were Capesize and two were Newcastlemax
vessels, having a combined carrying capacity of approximately 5.2 million dwt, and a weighted
average age of 8.2 years. In addition, we had two vessels under construction which were delivered
in January 2017.
As of December 31, 2015, our fleet consisted of 43 vessels of which 20 were Panamax, four
were Kamsarmax, three were Post-Panamax, 14 were Capesize and two were Newcastlemax
vessels, having a combined carrying capacity of approximately 5.0 million dwt, and a weighted
average age of 7.4 years. In addition, we had three vessels under construction with expected
delivery in 2016.
During 2017, 2016 and 2015, we had a fleet utilization of 98.2%, 99.4% and 99.3%, respectively,
our vessels achieved daily time charter equivalent rates of $8,568, $6,106 and $9,739, respectively,
and we generated revenues of $161.9 million, $114.3 million and $157.7 million, respectively.
The following table presents certain information concerning the dry bulk carriers in our fleet, as
of March 14, 2018.
Vessel
1
2
3
4
5
6
7
BUILT DWT
DANAE
2001
DIONE
75,106
2001
75,172
NIREFS
2001
75,311
ALCYON
2001
75,247
TRITON
2001
75,336
OCEANIS
2001
75,211
THETIS
2004
73,583
Sister
Ships*
Gross
Rate
(USD Per
Day)
Com**
Charterers
22 Panamax Bulk Carriers
Delivery
Date to
Charterers***
Redelivery Date to
Owners****
Notes
A
A
A
A
A
A
B
$10,000
5.00%
Phaethon International
Company AG
22-Dec-17
22-Jan-19 - 7-May-19
$ 7,050
5.00%
$ 10,350
5.00%
Caravel Shipping
Limited, Hong Kong
Ausca Shipping
Limited, Hong Kong
3-Feb-17
23-Jan-18
1
23-Jan-18
23-Mar-19 - 8-Jul-19
$ 9,400
5.00%
Jaldhi Overseas Pte.
Ltd., Singapore
5-May-17
5-Jun-18 - 5-Sep-18
$ 8,800
5.00%
Hudson Shipping Lines
Incorporated
20-Jul-17
20-Jul-18 - 20-Oct-18
$ 6,500
5.00%
Ausca Shipping
Limited, Hong Kong
8-Jun-17
8-Jul-18 - 23-Oct-18
$ 7,000
5.00%
Ausca Shipping
Limited, Hong Kong
30-May-17
30-Jul-18 - 14-Nov-18
$ 8,350
5.00%
Ausca Shipping
Limited, Hong Kong
14-Jul-17
14-Jul-18 - 14-Oct-18
44 ■ ANNUAL REPORT 2017
8
9
PROTEFS
2004
73,630
CALIPSO
2005
73,691
10
CLIO
2005
73,691
11 NAIAS
2006
73,546
12
ARETHUSA
2007
73,593
13
ERATO
2004
74,444
14 CORONIS
2006
74,381
15 MELIA
2005
76,225
16
ARTEMIS
2006
76,942
17
LETO
2010
81,297
18
SELINA
2010
75,700
19 MAERA
2013
75,403
20
ISMENE
2013
77,901
21
CRYSTALIA
2014
77,525
22
ATALANDI
2014
77,529
23 MAIA
2009
82,193
B
B
B
B
B
C
C
D
D
E
E
$ 7,900
5.00%
Hudson Shipping Lines
Incorporated
24-Jun-17
24-Jun-18 - 9-Oct-18
$ 9,000
5.00%
$ 12,200
5.00%
Transgrain Shipping
B.V., Rotterdam
Glencore Agriculture
B.V., Rotterdam
14-Mar-17
2-Mar-18
2
12-Mar-18
28-May-19 - 12-Sep-19
$ 8,550
5.00%
Phaethon International
Company AG
9-Jul-17
9-Aug-18 - 9-Nov-18
$ 10,000
5.00%
$ 7,200
5.00%
$ 10,500
5.00%
Phaethon International
Company AG
Noble Resources
International Pte. Ltd.,
Singapore
Phaethon International
Company AG
26-Nov-17
11-Feb-19 - 26-May-19
23-Jan-17
20-Mar-18 - 27-Apr-18
3,4
30-Dec-17
2-Mar-19 - 30-May-19
$ 9,000
5.00%
Narina Maritime Ltd
16-May-17
16-Apr-18 - 16-Jul-18
$ 9,500
5.00%
Nidera S.P.A., Roma
19-Mar-17
25-Mar-18 - 4-May-18
3,5
$ 9,000
5.00%
Ausca Shipping
Limited, Hong Kong
8-Jul-17
8-Jul-18 - 8-Oct-18
$ 7,750
5.00%
$ 12,500
5.00%
$ 7,100
5.00%
$ 12,250
5.00%
$ 11,900
5.00%
$ 12,000
5.00%
$ 11,100
5.00%
Glencore Agriculture
B.V., Rotterdam
BG Shipping Co.,
Limited, Hong Kong
Unico Logistics Co.,
Ltd., Seoul
DHL Project &
Chartering Limited,
Hong Kong
Glencore Agriculture
B.V., Rotterdam
29-Dec-16
10-Jan-18
10-Jan-18
10-May-19 - 25-Aug-19
24-Jan-17
6-Feb-18
6-Feb-18
6-Jun-19 - 6-Sep-19
6
19-Sep-17
19-Jun-18 - 19-Aug-18
16-Sep-17
16-Sep-18 - 16-Dec-18
3-Oct-17
3-Oct-18 - 18-Jan-19
$ 5,300
5.00%
Glencore Grain B.V.,
Rotterdam
26-Mar-16
23-Mar-18 - 26-Apr-18
5 Kamsarmax Bulk Carriers
F
$ 10,125
5.00%
Glencore Agriculture
B.V., Rotterdam
27-Jul-17
27-Jul-18 - 27-Oct-18
ANNUAL REPORT 2017 ■ 45
24 MYRSINI
2010
82,117
25 MEDUSA
2010
82,194
26 MYRTO
2013
82,131
27
ASTARTE
2013
81,513
28
ALCMENE
2010
93,193
29
AMPHITRITE
2012
98,697
30
POLYMNIA
2012
98,704
31
ELECTRA
2013
87,150
32
PHAIDRA
2013
87,146
33
NORFOLK
2002
164,218
34
ALIKI
2005
180,235
35
BALTIMORE
2005
177,243
36
SALT LAKE CITY
2005
171,810
37
SIDERIS GS
2006
174,186
38
SEMIRIO
2007
174,261
F
F
F
G
G
H
H
I
I
$8,650
5.00%
RWE Supply & Trad-
ing GmbH, Essen
8-Jun-17
31-Aug-18 - 31-Dec-18
$10,000
4.75%
Cargill International
S.A., Geneva
6-Jul-17
6-Jul-18 - 6-Oct-18
$8,000
4.75%
Cargill International
S.A., Geneva
17-Jan-17
24-Mar-18 - 17-Apr-18
3,7
$9,000
5.00%
Glencore Agriculture
B.V., Rotterdam
12-Jun-17
12-Aug-18 - 12-Nov-18
5 Post-Panamax Bulk Carriers
$8,000
4.75%
Cargill International
S.A., Geneva
8-Jun-17
8-Jul-18 - 23-Oct-18
$11,150
4.75%
Cargill International
S.A., Geneva
28-Sep-17
28-Oct-18 - 28-Jan-19
$10,100
4.75%
Cargill International
S.A., Geneva
15-Mar-17
31-Mar-18 - 15-Jul-18
$8,000
5.00%
$7,750
5.00%
$12,700
5.00%
Uniper Global
Commodities SE,
Düsseldorf
Jera Trading
Singapore Pte. Ltd.
Uniper Global
Commodities SE,
Düsseldorf
14 Capesize Bulk Carriers
$13,250
5.00%
$10,300
5.00%
$11,300
4.75%
$9,000
5.00%
$13,000
5.00%
SwissMarine
Services S.A.,
Geneva
SwissMarine
Services S.A.,
Geneva
Cargill International
S.A., Geneva
Uniper Global
Commodities SE,
Düsseldorf
Rio Tinto Shipping
(Asia) Pte., Ltd.,
Singapore
11-Jun-17
11-Jul-18 - 11-Nov-18
19-May-17
13-Jan-18
8
13-Jan-18
13-Jan-19 - 13-Apr-19
1-Dec-17
1-Sep-19 - 1-Dec-19
14-Feb-17
23-Mar-18 - 14-Apr-18
16-Feb-17
28-Mar-18 - 1-Jul-18
20-Jan-17
28-Mar-18 - 20-May-18
21-Jun-17
21-Jul-18 - 21-Nov-18
3
3
3
$14,150
5.00%
Koch Shipping Pte.
Ltd., Singapore
21-May-17
21-May-18 - 21-Sep-18
46 ■ ANNUAL REPORT 2017
39
BOSTON
2007
177,828
40
HOUSTON
2009
177,729
41
NEW YORK
2010
177,773
42
SEATTLE
2011
179,362
43
P. S. PALIOS
2013
179,134
44 G. P. ZAFIRAKIS
2014
179,492
45
SANTA BARBARA
2015
179,426
46
NEW ORLEANS
2015
180,960
47
LOS ANGELES
2012
206,104
48
PHILADELPHIA
2012
206,040
49
SAN FRANCISCO
2017
208,006
50
NEWPORT NEWS
2017
208,021
I
I
I
J
J
K
K
L
L
$17,000
5.00%
$10,000
5.00%
$14,450
5.00%
$16,000
5.00%
$11,700
5.00%
EGPN Bulk Carrier
Co., Limited, Hong
Kong
SwissMarine
Services S.A.,
Geneva
Koch Shipping Pte.
Ltd., Singapore
DHL Project &
Chartering Limited,
Hong Kong
Koch Shipping Pte.
Ltd., Singapore
6-Dec-17
6-Apr-19 - 6-Jul-19
17-Feb-17
27-Mar-18 - 17-May-18
3,9
23-Apr-17
2-Feb-18
10
2-Feb-18
2-Jun-19 - 2-Sep-19
8-Feb-17
8-Apr-18 - 23-Jul-18
$10,550
5.00%
Koch Shipping Pte.
Ltd., Singapore
27-Jan-17
26-Mar-18 - 11-Jun-18
3
$15,000
5.00%
RWE Supply &
Trading GmbH,
Essen
14-Aug-17
29-Sep-18 - 14-Jan-19
$12,000
4.75%
Cargill International
S.A., Geneva
24-Jan-17
25-Mar-18 - 24-Apr-18
$11,250
5.00%
Koch Shipping Pte.
Ltd., Singapore
10-Dec-16
22-Mar-18 - 10-Apr-18
4 Newcastlemax Bulk Carriers
BCI_2014
5TCs AVG
+ 14%
5.00%
SwissMarine
Services S.A.,
Geneva
22-Jan-17
22-Mar-18 - 22-Apr-18
$15,500
5.00%
Koch Shipping Pte.
Ltd., Singapore
14-Mar-17
24-Mar-18 - 29-Apr-18
M
$11,750
5.00%
Koch Shipping Pte.
Ltd., Singapore
5-Jan-17
26-Mar-18 - 20-May-18
M
BCI_2014
5TCs AVG
+ 24%
5.00%
SwissMarine
Services S.A.,
Geneva
10-Jan-17
10-Nov-18 - 10-Mar-19
3
3
3
3
3
* Each dry bulk carrier is a “sister ship”, or closely similar, to other dry bulk carriers that have the same letter.
** Total commission percentage paid to third parties.
*** In case of newly acquired vessel with time charter attached, this date refers to the expected/actual date of delivery
of the vessel to the Company.
**** Range of redelivery dates, with the actual date of redelivery being at the Charterers’ option, but subject to the
terms, conditions, and exceptions of the particular charterparty.
1 The charter rate was US$7,200 for the first ninety (90) days of the charter period.
2 Vessel on scheduled drydocking from March 4, 2018 to March 12, 2018.
3 Based on latest information.
ANNUAL REPORT 2017 ■ 47
4 Vessel off-hire for drydocking from January 23, 2018 to February 27, 2018.
5 Since September 17, 2017, Charterers have changed to COFCO Agri Freight SA.
6 The charter rate was US$4,500 for the first thirty (30) days of the charter period.
7 Vessel off-hire for drydocking from December 24, 2017 to January 12, 2018.
8 Charterers have agreed to pay the weighted average of the 4 T/C routes, as published
by the Baltic Exchange on January 3, 2018 plus 12%, for the excess period commencing
from January 3, 2018.
9 The charter rate was US$5,150 for the first fifteen (15) days of the charter period.
10 Charterers have agreed to pay the weighted average of the 5 T/C routes, as published
by the Baltic Exchange on January 2, 2018 plus 10%, for the excess period commencing
from December 29, 2017.
Each of our vessels is owned through a separate wholly-owned subsidiary.
Management of Our Fleet
The business of Diana Shipping Inc. is the ownership of dry bulk vessels. The parent holding
company wholly owns the subsidiaries which own the vessels that comprise our fleet. The holding
company sets general overall direction for the company and interfaces with various financial markets.
The commercial and technical management of our fleet, as well as the provision of administrative
services relating to the fleet’s operations, are carried out by our wholly-owned subsidiary, Diana
Shipping Services S.A., which we refer to as DSS, and Diana Wilhelmsen Management Limited, a
50/50 joint venture with Wilhelmsen Ship Management, which we refer to as DWM. In exchange
for providing us with commercial and technical services, personnel and office space, we pay DSS
a commission, which is a percentage of the managed vessels’ gross revenues, a fixed monthly
fee per managed vessel and an additional monthly fee for the administrative services provided to
Diana Shipping Inc. Such services may include budgeting, reporting, monitoring of bank accounts,
compliance with banks, payroll services and any other possible service that Diana Shipping Inc.
would require to perform its operations. Similarly, in exchange for providing us with commercial and
technical services, we pay DWM a commission which is a percentage of the managed vessels’
gross revenues and a fixed management monthly fee for each managed vessel. The amounts
deriving from the agreements with DSS are considered inter-company transactions and, therefore,
are eliminated from our consolidated financial statements. The management fees deriving from the
agreements with DWM are included in our statement of operations as “Management fees to related
party”, whereas commercial fees are included in “Voyage expenses”.
Since June 1, 2010, Diana Enterprises Inc., renamed to Steamship Shipbroking Enterprises Inc.,
or Steamship, a related party controlled by our Chief Executive Officer and Chairman of the Board,
Mr. Simeon Palios, provides brokerage services to us. Brokerage fees are included in “General and
Administrative expenses” in our statement of operations. The terms of this relationship are currently
governed by a Brokerage Services Agreement dated April 1, 2017.
Our Customers
Our customers include national, regional and international companies, such as Cargill International
S.A., Glencore Grain B.V., EDF Trading Ltd, RWE Supply and Trading Gmbh, Clearlake Shipping
Pte Ltd, Koch Shipping Pte Ltd and Swissmarine Services S.A. During 2017, three of our charterers
accounted for 43% of our revenues: Koch (17%), Swissmarine (14%), and Cargill (12%). During
2016, four of our charterers accounted for 54% of our revenues: RWE Supply (19%), Swissmarine
(15%), Cargill (10%) and Glencore (10%). During 2015, four of our charterers accounted for 66% of
our revenues: EDF Trading (10%), Glencore (20%), RWE Supply (24%) and Clearlake (12%).
48 ■ ANNUAL REPORT 2017
We charter our dry bulk carriers to customers pursuant to time charters. Under our time charters,
the charterer typically pays us a fixed daily charter hire rate and bears all voyage expenses, including
the cost of bunkers (fuel oil) and canal and port charges. We remain responsible for paying the
chartered vessel’s operating expenses, including the cost of crewing, insuring, repairing and
maintaining the vessel. In 2017, we paid commissions that ranged from 4.75% to 5.0% of the total
daily charter hire rate of each charter to unaffiliated ship brokers and to in-house brokers associated
with the charterer, depending on the number of brokers involved with arranging the charter.
We strategically monitor developments in the dry bulk shipping industry on a regular basis and,
subject to market demand, seek to adjust the charter hire periods for our vessels according to
prevailing market conditions. In order to take advantage of relatively stable cash flow and high
utilization rates, we fix some of our vessels on long-term time charters. Currently, the majority of our
vessels are employed on short to medium-term time charters, which provides us with flexibility in
responding to market developments. We continuously evaluate our balance of short- and long-term
charters and extend or reduce the charter hire periods of the vessels in our fleet according to the
developments in the dry bulk shipping industry.
The Dry Bulk Shipping Industry
The global dry bulk carrier fleet could be divided into seven categories based on a vessel’s
carrying capacity. These categories consist of:
> Very Large Ore Carriers. Very large ore carriers, or VLOCs, have a carrying capacity of more
than 200,000 dwt and are a comparatively new sector of the dry bulk carrier fleet. VLOCs are
built to exploit economies of scale on long-haul iron ore routes.
> Capesize. Capesize vessels have a carrying capacity of 110,000-199,999 dwt. Only the
largest ports around the world possess the infrastructure to accommodate vessels of this size.
Capesize vessels are primarily used to transport iron ore or coal and, to a much lesser extent,
grains, primarily on long-haul routes.
> Post-Panamax. Post-Panamax vessels have a carrying capacity of 80,000-109,999 dwt. These
vessels tend to have a shallower draft and larger beam than a standard Panamax vessel with
a higher cargo capacity. These vessels have been designed specifically for loading high cubic
cargoes from draught restricted ports, although they cannot transit the Panama Canal.
> Panamax. Panamax vessels have a carrying capacity of 60,000-79,999 dwt. These vessels
carry coal, iron ore, grains, and, to a lesser extent, minor bulks, including steel products, cement
and fertilizers. Panamax vessels are able to pass through the Panama Canal, making them more
versatile than larger vessels with regard to accessing different trade routes. Most Panamax
and Post-Panamax vessels are “gearless,” and therefore must be served by shore-based
cargo handling equipment. However, there are a small number of geared vessels with onboard
cranes, a feature that enhances trading flexibility and enables operation in ports which have poor
infrastructure in terms of loading and unloading facilities.
> Handymax/Supramax. Handymax vessels have a carrying capacity of 40,000-59,999 dwt.
These vessels operate in a large number of geographically dispersed global trade routes, carrying
primarily grains and minor bulks. Within the Handymax category there is also a sub-sector known
as Supramax. Supramax bulk carriers are ships between 50,000 to 59,999 dwt, normally offering
cargo loading and unloading flexibility with on-board cranes, or “gear,” while at the same time
possessing the cargo carrying capability approaching conventional Panamax bulk carriers.
ANNUAL REPORT 2017 ■ 49
> Handysize. Handysize vessels have a carrying capacity of up to 39,999 dwt. These vessels are
primarily involved in carrying minor bulk cargoes. Increasingly, ships of this type operate within
regional trading routes, and may serve as trans-shipment feeders for larger vessels. Handysize
vessels are well suited for small ports with length and draft restrictions. Their cargo gear enables
them to service ports lacking the infrastructure for cargo loading and unloading.
Other size categories occur in regional trade, such as Kamsarmax, with a maximum length of
229 meters, the maximum length that can load in the port of Kamsar in the Republic of Guinea.
Other terms such as Seawaymax, Setouchmax, Dunkirkmax, and Newcastlemax also appear in
regional trade.
The supply of dry bulk carriers is dependent on the delivery of new vessels and the removal
of vessels from the global fleet, either through scrapping or loss. The level of scrapping activity
is generally a function of scrapping prices in relation to current and prospective charter market
conditions, as well as operating, repair and survey costs. The average age at which a vessel is
scrapped was 25 years in 2017, 23 years in 2016 and 25 years in 2015.
The demand for dry bulk carrier capacity is determined by the underlying demand for commodities
transported in dry bulk carriers, which in turn is influenced by trends in the global economy. Demand
for dry bulk carrier capacity is also affected by the operating efficiency of the global fleet, along
with port congestion, which has been a feature of the market since 2004, absorbing tonnage and
therefore leading to a tighter balance between supply and demand. In evaluating demand factors
for dry bulk carrier capacity, the Company believes that dry bulk carriers can be the most versatile
element of the global shipping fleets in terms of employment alternatives.
Charter Hire Rates
Charter hire rates fluctuate by varying degrees among dry bulk carrier size categories. The
volume and pattern of trade in a small number of commodities (major bulks) affect demand for
larger vessels. Therefore, charter rates and vessel values of larger vessels often show greater
volatility. Conversely, trade in a greater number of commodities (minor bulks) drives demand for
smaller dry bulk carriers. Accordingly, charter rates and vessel values for those vessels are usually
subject to less volatility.
Charter hire rates paid for dry bulk carriers are primarily a function of the underlying balance
between vessel supply and demand, although at times other factors may play a role. Furthermore,
the pattern seen in charter rates is broadly mirrored across the different charter types and the
different dry bulk carrier categories. In the time charter market, rates vary depending on the length
of the charter period and vessel-specific factors such as age, speed and fuel consumption.
In the voyage charter market, rates are, among other things, influenced by cargo size,
commodity, port dues and canal transit fees, as well as commencement and termination regions.
In general, a larger cargo size is quoted at a lower rate per ton than a smaller cargo size. Routes
with costly ports or canals generally command higher rates than routes with low port dues and
no canals to transit. Voyages with a load port within a region that includes ports where vessels
usually discharge cargo or a discharge port within a region with ports where vessels load cargo
also are generally quoted at lower rates, because such voyages generally increase vessel utilization
by reducing the unloaded portion (or ballast leg) that is included in the calculation of the return
charter to a loading area.
Within the dry bulk shipping industry, the charter hire rate references most likely to be monitored are
the freight rate indices issued by the Baltic Exchange. These references are based on actual charter
50 ■ ANNUAL REPORT 2017
hire rates under charters entered into by market participants as well as daily assessments provided
to the Baltic Exchange by a panel of major shipbrokers. The Baltic Panamax Index is the index with
the longest history. The Baltic Capesize Index and Baltic Handymax Index are of more recent origin.
The Baltic Dry Index, or BDI, a daily average of charter rates in 20 shipping routes measured
on a time charter and voyage basis and covering Capesize, Panamax, Supramax, and Handysize
dry bulk carriers declined from a high of 11,793 in May 2008 to a low of 663 in December 2008.
In 2015, the BDI ranged from a high of 1,222 in August to a low of 471 in December. In 2016, the
BDI ranged from a record low of 290 in February to a high of 1,257 in November. In 2017, the BDI
ranged from a low of 685 in February to a high of 1,743 in December.
Vessel Prices
Dry bulk vessel values increased in 2017 as compared to 2016 and 2015. Consistent with
these trends, the market value of our dry bulk carriers had also increased. As charter rates and
vessel values remain at relatively low levels, there can be no assurance as to how long charter
rates and vessel values will remain at their current levels or whether they will decrease or improve
to any significant degree in the near future.
Competition
Our business fluctuates in line with the main patterns of trade of the major dry bulk cargoes and
varies according to changes in the supply and demand for these items. We operate in markets that
are highly competitive and based primarily on supply and demand. We compete for charters on the
basis of price, vessel location, size, age and condition of the vessel, as well as on our reputation
as an owner and operator. We compete with other owners of dry bulk carriers in the Panamax,
Post-Panamax and smaller class sectors and with owners of Capesize and Newcastlemax dry
bulk carriers. Ownership of dry bulk carriers is highly fragmented.
We believe that we possess a number of strengths that provide us with a competitive
advantage in the dry bulk shipping industry:
> We own a modern, high quality fleet of dry bulk carriers. We believe that owning a modern,
high quality fleet reduces operating costs, improves safety and provides us with a competitive
advantage in securing favorable time charters. We maintain the quality of our vessels by
carrying out regular inspections, both while in port and at sea, and adopting a comprehensive
maintenance program for each vessel.
> Our fleet includes thirteen groups of sister ships. We believe that maintaining a fleet that
includes sister ships enhances the revenue generating potential of our fleet by providing us
with operational and scheduling flexibility. The uniform nature of sister ships also improves our
operating efficiency by allowing our fleet manager to apply the technical knowledge of one
vessel to all vessels of the same series and creates economies of scale that enable us to realize
cost savings when maintaining, supplying and crewing our vessels.
> We have an experienced management team. Our management team consists of experienced
executives who have, on average, more than 30 years of operating experience in the shipping
industry and has demonstrated ability in managing the commercial, technical and financial areas
of our business. Our management team is led by Mr. Simeon Palios, a qualified naval architect
and engineer who has more than 40 years of experience in the shipping industry.
> We benefit from the experience and reputation of Diana Shipping Services S.A. and the
ANNUAL REPORT 2017 ■ 51
relationship with Wilhelmsen Ship Management through the Diana Wilhelmsen Management
Limited joint venture.
> We benefit from strong relationships with members of the shipping and financial industries.
We have developed strong relationships with major international charterers, shipbuilders and
financial institutions that we believe are the result of the quality of our operations, the strength
of our management team and our reputation for dependability.
> We have a strong balance sheet and a relatively low level of indebtedness. We believe that
our strong balance sheet and relatively low level of indebtedness provide us with the flexibility
to increase the amount of funds that we may draw under our loan facilities in connection with
any future acquisitions or otherwise and enable us to use cash flow that would otherwise be
dedicated to debt service for other purposes.
Permits and Authorizations
We are required by various governmental and quasi-governmental agencies to obtain certain
permits, licenses and certificates with respect to our vessels. The kinds of permits, licenses
and certificates required depend upon several factors, including the commodity transported, the
waters in which the vessel operates the nationality of the vessel’s crew and the age of a vessel.
We have been able to obtain all permits, licenses and certificates currently required to permit our
vessels to operate. Additional laws and regulations, environmental or otherwise, may be adopted
which could limit our ability to do business or increase the cost of us doing business.
Disclosure Pursuant to Section 219 of the Iran Threat Reduction And Syrian
Human Rights Act
Section 219 of the U.S. Iran Threat Reduction and Syria Human Rights Act of 2012, or the
ITRA, added new Section 13(r) to the U.S. Securities Exchange Act of 1934, as amended, or the
Exchange Act, requiring each SEC reporting issuer to disclose in its annual and, if applicable,
quarterly reports whether it or any of its affiliates have knowingly engaged in certain activities,
transactions or dealings relating to Iran or with the Government of Iran or certain designated
natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction
during the period covered by the report.
Pursuant to Section 13(r) of the Exchange Act, we note that for the period covered by this
annual report, one of our vessels made one port call to Iran in 2017.
The vessel Thetis made a call to the port of Bandar Imam Khomeini on February 25, 2017,
discharging corn, and remained in the port of Bandar Imam Khomeini during 2017 for seven days.
During this time the Thetis was on time charter to Transgrain Shipping B.V., Rotterdam at a gross
rate of $5,150 per day.
The aggregate gross revenue attributable to these seven days that our vessel remained in the
port of Bandar Imam Khomeini was $36,050. As we do not attribute profits to specific voyages
under a time charter, we have not attributed any profits to the voyages which included this port
call. Our charter party agreements for our vessels restrict the charterers from calling in Iran in
violation of U.S. sanctions, or carrying any cargo to Iran which is subject to U.S. sanctions.
However, there can be no assurance that the vessel referenced above or another of our vessels
will not, from time to time in the future on charterer’s instructions, perform voyages which would
require disclosure pursuant to Exchange Act Section 13(r).
52 ■ ANNUAL REPORT 2017
Environmental and Other Regulations in the Shipping Industry
Government regulation and laws significantly affect the ownership and operation of our fleet. We
are subject to international conventions and treaties, national, state and local laws and regulations
in force in the countries in which our vessels may operate or are registered relating to safety and
health and environmental protection including the storage, handling, emission, transportation
and discharge of hazardous and non-hazardous materials, and the remediation of contamination
and liability for damage to natural resources. Compliance with such laws, regulations and other
requirements entails significant expense, including vessel modifications and implementation of
certain operating procedures.
A variety of government and private entities subject our vessels to both scheduled and
unscheduled inspections. These entities include the local port authorities (applicable national
authorities such as the United States Coast Guard, or the USCG, harbor master or equivalent),
classification societies, flag state administrations (countries of registry) and charterers, particularly
terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and
other authorizations for the operation of our vessels. Failure to maintain necessary permits or
approvals could require us to incur substantial costs or result in the temporary suspension of the
operation of one or more of our vessels.
We believe that the heightened level of environmental and quality concerns among insurance
underwriters, regulators and charterers is leading 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 vessels that conform to the stricter
environmental standards. We are 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 U.S. and international regulations. We believe that the operation of
our vessels is in substantial compliance with applicable environmental laws and regulations and
that our vessels 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 causes
significant adverse environmental impact could result in additional legislation or regulation that
could negatively affect our profitability.
It should be noted that the United States is currently experiencing changes in its environmental
policy, the results of which have yet to be fully determined. For example, in April 2017, the U.S.
President signed an executive order regarding environmental regulations, specifically targeting the
U.S. offshore energy strategy, which may affect parts of the maritime industry and our operations.
Furthermore, recent action by the IMO’s Maritime Safety Committee and U.S. agencies indicate
that cybersecurity regulations for the maritime industry are likely to be further developed in the
near future in an attempt to combat cybersecurity threats. For example, cyber-risk management
systems must be incorporated by ship owners and managers by 2021. This might cause
companies to cultivate additional procedures for monitoring cybersecurity, which could require
additional expenses and/or capital expenditures. However, the impact of such regulations is hard
to predict at this time.
International Maritime Organization (IMO)
The International Maritime Organization, the United Nations agency for maritime safety and
the prevention of pollution by vessels, or the IMO, has adopted the International Convention for
ANNUAL REPORT 2017 ■ 53
the Prevention of Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto,
collectively referred to as MARPOL 73/78 and herein as MARPOL, adopted the International
Convention for the Safety of Life at Sea of 1974, or the SOLAS Convention, and the International
Convention on Load Lines of 1966, or the LL Convention. MARPOL establishes environmental
standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling
and disposal of noxious liquids and the handling of harmful substances in packaged forms.
MARPOL is applicable to drybulk, tanker and LPG carriers, among other vessels, and is broken
into six Annexes, each of which regulates a different source of pollution. Annex I relates to oil
leakage or spilling; Annexes II and III relate to harmful substances carried in bulk in liquid or in
packaged form, respectively; Annexes IV and V relate to sewage and garbage management,
respectively; and Annex VI, lastly, relates to air emissions. Annex VI was separately adopted by
the IMO in September of 1997.
Air Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution from
vessels. Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from
all commercial vessel exhausts and prohibits “deliberate emissions” of ozone depleting substances
(such as halons and chlorofluorocarbons), emissions of volatile compounds from cargo tanks,
and the shipboard incineration of specific substances. Annex VI also includes a global cap on the
sulfur content of fuel oil and allows for special areas to be established with more stringent controls
on sulfur emissions, as explained below. Emissions of “volatile organic compounds” from certain
tankers, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain
substances (such as polychlorinated biphenyls, or PCBs) are also prohibited. We believe that all
our vessels are currently compliant in all material respects with these regulations.
The IMO’s Marine Environmental Protection Committee, or MEPC, adopted amendments
to Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and ozone
depleting substances, which entered into force on July 1, 2010. The amended Annex VI seeks to
further reduce air pollution by, among other things, implementing a progressive reduction of the
amount of sulfur contained in any fuel oil used on board ships. On October 27, 2016, at its 70th
session, the MEPC agreed to implement a global 0.5% m/m sulfur oxide emissions limit (reduced
from the current 3.50%) starting from January 1, 2020. This limitation can be met by using low-
sulfur complaint fuel oil, alternative fuels, or certain exhaust gas cleaning systems. Once the cap
becomes effective, ships will be required to obtain bunker delivery notes and International Air
Pollution Prevention, or IAPP, Certificates from their flag states that specify sulfur content. This
subjects ocean-going vessels in these areas to stringent emissions controls, and may cause us
to incur additional costs.
Sulfur content standards are even stricter within certain “Emission Control Areas,” or ECAs.
As of January 1, 2015, ships operating within an ECA were not permitted to use fuel with sulfur
content in excess of 0.1%. Amended Annex VI establishes procedures for designating new ECAs.
Currently, the IMO has designated four ECAs, including specified portions of the Baltic Sea area,
North Sea area, North American area and United States Caribbean area. Ocean-going vessels
in these areas will be subject to stringent emission controls and may cause us to incur additional
costs. If other ECAs are approved by the IMO, or other new or more stringent requirements relating
to emissions from marine diesel engines or port operations by vessels are adopted by the U.S
Environmental Protection Agency, or the EPA, or the states where we operate, compliance with
these regulations could entail significant capital expenditures or otherwise increase the costs of
our operations.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards
54 ■ ANNUAL REPORT 2017
for marine diesel engines, depending on their date of installation. At the MEPC meeting held from
March to April 2014, amendments to Annex VI were adopted which address the date on which
Tier III Nitrogen Oxide (NOx) standards in ECAs will go into effect. Under the amendments, Tier III
NOx standards apply to ships that operate in the North American and U.S. Caribbean Sea ECAs
designed for the control of NOx with a marine diesel engine installed and constructed on or after
January 1, 2016. Tier III requirements could apply to areas that will be designated for Tier III NOx
in the future. At MEPC 70 and MEPC 71, the MEPC approved the North Sea and Baltic Sea as
ECAs for nitrogen oxide for ships built after January 1, 2021. The U.S. Environmental Protection
Agency promulgated equivalent (and in some senses stricter) emissions standards in late 2009. As
a result of these designations or similar future designations, we may be required to incur additional
operating or other costs.
As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI is effective on
March 1, 2018 and requires ships above 5,000 gross tonnage to collect and report annual data
on fuel oil consumption to an IMO database, with the first year of data collection commencing on
January 1, 2019.
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy
efficiency for ships. All ships are now required to develop and implement Ship Energy Efficiency
Management Plans, or SEEMPS, and new ships must be designed in compliance with minimum
energy efficiency levels per capacity mile as defined by the Energy Efficiency Design Index. Under
these measures, by 2025, all new ships built will be 30% more energy efficient than those built
in 2014.
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 and could adversely affect our business, results of operations, cash flows and
financial condition.
Safety Management System Requirements
The SOLAS Convention was amended to address the safe manning of vessels and emergency
training drills. The Convention of Limitation of Liability for Maritime Claims, or the LLMC, sets
limitations of liability for a loss of life or personal injury claim or a property claim against ship
owners. We believe that all of our vessels are in substantial compliance with SOLAS and LL
Convention standards. Under Chapter IX of the SOLAS Convention, or the International Safety
Management Code for the Safe Operation of Ships and for Pollution Prevention, or the ISM Code,
our operations are also subject to environmental standards and 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 safety and environmental protection
policy setting forth instructions and procedures for operating its vessels safely and describing
procedures for responding to emergencies. We rely upon the safety management system that
we and our technical management team have developed for compliance with the ISM Code. The
failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such
party to increased liability, may decrease available insurance coverage for the affected vessels
and may result in a denial of access to, or detention in, certain ports.
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 the ISM
Code requirements for a safety management system. No vessel can obtain a safety management
certificate unless its manager has been awarded a document of compliance, issued by each
flag state, under the ISM Code. We have obtained documents of compliance for our offices and
ANNUAL REPORT 2017 ■ 55
safety management certificates for all of our vessels for which the certificates are required by the
IMO. The document of compliance and safety management certificate are renewed as required.
Regulation II-1/3-10 of the SOLAS Convention governs ship construction and stipulates that
ships over 150 meters in length must have adequate strength, integrity and stability to minimize
risk of loss or pollution. Goal-based standards amendments in SOLAS regulation II-1/3-10 entered
into force in 2012, with July 1, 2016 set for application to new oil tankers and bulk carriers.
The SOLAS Convention regulation II-1/3-10 on goal-based ship construction standards for bulk
carriers and oil tankers, which entered into force on January 1, 2012, requires that all oil tankers
and bulk carriers of 150 meters in length and above, for which the building contract is placed
on or after July 1, 2016, satisfy applicable structural requirements conforming to the functional
requirements of the International Goal-based Ship Construction Standards for Bulk Carriers and
Oil Tankers (GBS Standards).
Amendments to the SOLAS Convention Chapter VII apply to vessels transporting dangerous
goods and require those vessels be in compliance with the International Maritime Dangerous
Goods Code, or the IMDG Code. Effective January 1, 2018, the IMDG Code includes (1) updates
to the provisions for radioactive material, reflecting the latest provisions from the International
Atomic Energy Agency, (2) new marking, packing and classification requirements for dangerous
goods, and (3) new mandatory training requirements.
The IMO has also adopted the International Convention on Standards of Training, Certification
and Watchkeeping for Seafarers, or the STCW. As of February 2017, all seafarers are required
to meet the STCW standards and be fully certified in accordance with the revised STCW
amendments. 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.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose liability for 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 2004. The BWM Convention entered into force on
September 9, 2017. The BWM Convention requires ships to manage their ballast water to remove,
render harmless, or avoid the uptake or discharge of new or invasive aquatic organisms and
pathogens within ballast water and sediments. The BWM Convention’s implementing regulations
call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in
time with mandatory concentration limits, and require all ships to carry a ballast water record book
and an international ballast Water management certificate.
On December 4, 2013, the IMO Assembly passed a resolution revising the application dates
of BWM Convention so that the dates are triggered by the entry into force date and not the dates
originally in the BWM Convention. This, in effect, makes all vessels delivered before the entry into
force date “existing vessels” and allows for the installation of ballast water management systems
on such vessels at the first International Oil Pollution Prevention, or IOPP, renewal survey following
entry into force of the convention. The MEPC adopted updated guidelines for approval of ballast
water management systems (G8) at MEPC 70. At MEPC 71, the schedule regarding the BWM
Convention’s implementation dates was also discussed and amendments were introduced to extend
the date existing vessels are subject to certain ballast water standards. Ships over 400 gross tons
generally must comply with a “D-1 standard,” requiring the exchange of ballast water only in open
seas and away from coastal waters. The “D-2 standard” specifies the maximum amount of viable
56 ■ ANNUAL REPORT 2017
organisms allowed to be discharged, and compliance dates vary depending on the IOPP renewal
dates. Depending on the date of the IOPP renewal survey, existing vessels must comply with the
D2 standard on or after September 8, 2019. For most ships, compliance with the D2 standard will
involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Costs
of compliance may be substantial.
Once mid-ocean ballast or exchange ballast water treatment requirements become mandatory
under the BWM Convention, the cost of compliance could increase for ocean carriers and may
be material. However, many countries already regulate the discharge of ballast water carried by
vessels from country to country to prevent the introduction of invasive and harmful species via such
discharges. The United States, for example, requires vessels entering its waters from another country
to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply
with certain reporting requirements. The costs of compliance with a mandatory mid-ocean ballast
exchange could be material, and it is difficult to predict the overall impact of such a requirement on
our operations.
Compliance Enforcement
Noncompliance with the ISM Code or other IMO regulations may subject the ship 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
USCG 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. As of the date of this report, each of our vessels is ISM Code certified. However, there
can be no assurance that such certificates will be maintained in the future. 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. Regulations
The U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response,
Compensation and Liability Act
The U.S. Oil Pollution Act of 1990, or the OPA, established an extensive regulatory and
liability regime for the protection and cleanup of the environment from oil spills. OPA affects all
“owners and operators” whose vessels trade or operate with the United States, its territories and
possessions or whose vessels operate in U.S. waters, which includes the United States’ territorial
sea and its 200 nautical mile exclusive economic zone around the United States. The United
States has also enacted the Comprehensive Environmental Response, Compensation and Liability
Act, or CERCLA, which applies to the discharge of hazardous substances other than oil, except
in limited circumstances, whether on land or at sea. OPA and CERCLA both define “owner and
operator” in the case of a vessel as any person owning, operating or chartering by demise, the
vessel. Both OPA and CERCLA impact our operations.
Under OPA, vessel owners and operators are “responsible parties” and are jointly, severally
and strictly liable (unless the spill results solely from the act or omission of a third party, an act
of God or an act of war) for all containment and clean-up costs and other damages arising from
discharges or threatened discharges of oil from their vessels, including bunkers (fuel). OPA defines
these other damages broadly to include:
(i) injury to, destruction or loss of, or loss of use of, natural resources and related assessment
costs;
ANNUAL REPORT 2017 ■ 57
(ii) injury to, or economic losses resulting from, the destruction of real and personal property;
(iii) loss of subsistence use of natural resources that are injured, destroyed or lost;
(iv) net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction
or loss of real or personal property, or natural resources;
(v) lost profits or impairment of earning capacity due to injury, destruction or loss of real or
personal property or natural resources; and
(vi) net cost of increased or additional public services necessitated by removal activities
following a discharge of oil, such as protection from fire, safety or health hazards, and loss
of subsistence use of natural resources.
OPA contains statutory caps on liability and damages; such caps do not apply to direct
cleanup costs. Effective December 21, 2015, the USCG adjusted the limits of OPA liability for non-
tank vessels, edible oil tank vessels, and any oil spill response vessels, to the greater of $1,100
per gross ton or $939,800 (subject to periodic adjustment for inflation). These limits of liability
do not apply if an incident was proximately caused by the violation of an applicable U.S. federal
safety, construction or operating regulation by a responsible party (or its agent, employee or a
person acting pursuant to a contractual relationship), or a responsible party’s gross negligence or
willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or
refuses to (i) report the incident where the responsibility party knows or has reason to know of the
incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities;
or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act
(Section 311 (c), (e)) or the Intervention on the High Seas Act.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable
for cleanup, removal and remedial costs, as well as damages for injury to, or destruction or
loss of, natural resources, including the reasonable costs associated with assessing same, and
health assessments or health effects studies. There is no liability if the discharge of a hazardous
substance results solely from the act or omission of a third party, an act of God or an act of war.
Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels
carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000
for any other vessel. These limits do not apply (rendering the responsible person liable for the
total cost of response and damages) if the release or threat of release of a hazardous substance
resulted from willful misconduct or negligence, or the primary cause of the release was a violation
of applicable safety, construction or operating standards or regulations. The limitation on liability
also does not apply if the responsible person fails or refused to provide all reasonable cooperation
and assistance as requested in connection with response activities where the vessel is subject
to OPA.
OPA and CERCLA each preserve the right to recover damages under existing law, including
maritime tort law. OPA and CERCLA both require owners and operators of vessels to establish
and maintain with the USCG evidence of financial responsibility sufficient to meet the maximum
amount of liability to which the particular responsible person may be subject. Vessel owners and
operators may satisfy their financial responsibility obligations by providing a proof of insurance,
a surety bond, qualification as a self-insurer or a guarantee. We plan to comply with the USCG’s
financial responsibility regulations by providing a certificate of responsibility evidencing sufficient
self-insurance.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico resulted in additional regulatory
58 ■ ANNUAL REPORT 2017
initiatives or statutes, including the raising of liability caps under OPA, new regulations regarding
offshore oil and gas drilling, and a pilot inspection program for offshore facilities. However, the
status of several of these initiatives and regulations is currently in flux. For example, the U.S. Bureau
of Safety and Environmental Enforcement, or the BSEE, announced a new Well Control Rule in
April 2016, but pursuant to orders by the U.S. President in early 2017, the BSEE announced in
August 2017 that this rule would be revised. In January 2018, the U.S. President proposed leasing
new sections of U.S. waters to oil and gas companies for offshore drilling, vastly expanding the
U.S. waters that are available for such activity over the next five years. The effects of the proposal
are currently unknown. Compliance with any new requirements of OPA 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 regulations applicable to the operation of our vessels
that may be implemented in the future could adversely affect our business.
OPA specifically permits individual states to impose their own liability regimes with regard to
oil pollution incidents occurring within their boundaries, provided they accept, at a minimum, the
levels of liability established under OPA and some states have enacted legislation providing for
unlimited liability for oil spills. Many U.S. states that border a navigable waterway have enacted
environmental pollution laws that impose strict liability on a person for removal costs and damages
resulting from a discharge of oil or a release of a hazardous substance. These laws may be
more stringent than U.S. federal law. Moreover, some states have enacted legislation providing
for unlimited liability for discharge of pollutants within their waters, although in some cases,
states which have enacted this type of legislation have not yet issued implementing regulations
defining tanker owners’ responsibilities under these laws. The Company intends to comply with
all applicable state regulations in the ports where the Company’s vessels call.
We currently maintain pollution liability coverage insurance in the amount of $1 billion per
incident for each of our vessels. If the damages from a catastrophic spill were to exceed our
insurance coverage it could have an adverse effect on our business and results of operation.
Other United States Environmental Initiatives
The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990), or the CAA,
requires the EPA to promulgate standards applicable to emissions of volatile organic compounds
and other air contaminants. The CAA requires states to adopt State Implementation Plans, or
SIPs, some of which regulate emissions resulting from vessel loading and unloading operations
which may affect our vessels.
The U.S. Clean Water Act, or the CWA, prohibits the discharge of oil, hazardous substances
and ballast water in U.S. navigable waters unless authorized by a duly-issued permit or exemption,
and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also
imposes substantial liability for the costs of removal, remediation and damages and complements
the remedies available under OPA and CERCLA.
The EPA and the USCG have also enacted rules relating to ballast water discharge, compliance
with which requires the installation of equipment on our vessels to treat ballast water before it is
discharged or the implementation of other port facility disposal arrangements or procedures at
potentially substantial costs, and/or otherwise restrict our vessels from entering U.S. Waters. The
EPA requires a permit regulating ballast water discharges and other discharges incidental to the
normal operation of certain vessels within United States waters under the Vessel General Permit
for Discharges Incidental to the Normal Operation of Vessels, or the VGP. On March 28, 2013,
the EPA re-issued the VGP for another five years from the effective date of December 19, 2013.
The 2013 VGP focuses on authorizing discharges incidental to operations of commercial vessels,
ANNUAL REPORT 2017 ■ 59
and contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive
species in U.S. waters, stringent requirements for exhaust gas scrubbers, and requirements for the
use of environmentally acceptable lubricants. For a new vessel delivered to an owner or operator
after December 19, 2013 to be covered by the VGP, the owner must submit a Notice of Intent,
or NOI, at least 30 days (or 7 days for eNOIs) before the vessel operates in United States waters.
We have submitted NOIs for our vessels where required.
The USCG regulations adopted under the U.S. National Invasive Species Act, or NISA, impose
mandatory ballast water management practices for all vessels equipped with ballast water tanks
entering or operating in U.S. waters, which require the installation of certain engineering equipment
and water treatment systems to treat ballast water or the implementation of other port facility
disposal arrangements or procedures, and/or may otherwise restrict our vessels from entering
U.S. waters. The USCG has implemented revised regulations on ballast water management
by establishing standards on the allowable concentration of living organisms in ballast water
discharged from ships in U.S. waters. As of January 1, 2014, vessels were technically subject
to the phasing-in of these standards, and the USCG must approve any technology before it is
placed on a vessel. The USCG first approved said technology in December 2016, and continues
to review ballast water management systems. The USCG has set up requirements for ships
constructed before December 1, 2013 with ballast tanks trading with exclusive economic zones of
the U.S. to install water ballast treatment systems as follows: (1) ballast capacity 1,500-5,000m3—
first scheduled drydock after January 1, 2014; and (2) ballast capacity above 5,000m3—first
scheduled drydock after January 1, 2016. All of our vessels have ballast capacities over 5,000m3,
and those of our vessels trading in the U.S. will have to install water ballast treatment plants at their
first drydock after January 1, 2016, unless an extension is granted by the USCG.
The EPA, on the other hand, has taken a different approach to enforcing ballast discharge
standards under the VGP. On December 27, 2013, the EPA issued an enforcement response policy
in connection with the new VGP in which the EPA indicated that it would take into account the
reasons why vessels do not have the requisite technology installed, but will not grant any waivers.
In addition, through the CWA certification provisions that allow U.S. states to place additional
conditions on the use of the VGP within state waters, a number of states have proposed or
implemented a variety of stricter ballast requirements including, in some states, specific treatment
standards. Compliance with the EPA, USCG and state regulations could require the installation
of equipment on our vessels to treat ballast water before it is discharged or the implementation
of other port facility disposal arrangements or procedures at potentially substantial cost, or may
otherwise restrict our vessels from entering U.S. waters.
Two recent United States court decisions should be noted. First, in October 2015, the Second
Circuit Court of Appeals issued a ruling that directed the EPA to redraft the sections of the 2013
VGP that address ballast water. However, the Second Circuit stated that 2013 VGP will remains
in effect until the EPA issues a new VGP. The effect of such redrafting remains unknown. Second,
on October 9, 2015, the Sixth Circuit Court of Appeals stayed the Waters of the United State, or
WOTUS, rule, which aimed to expand the regulatory definition of “waters of the United States,”
pending further action of the court. In response, regulations have continued to be implemented as
they were prior to the stay on a case-by-case basis. In February 2017, the U.S. President issued
an executive order directing the EPA and U.S. Army Corps of Engineers publish a proposed rule
rescinding or revising the WOTUS rule. In January 2018, the EPA and Army Corps of Engineers
issued a final rule pursuant to the President’s order, under which the Agencies will interpret the
term “waters of the United States” to mean waters covered by the regulations, as they are currently
being implemented, within the context of the Supreme Court decisions and agency guidance
documents, until February 6, 2020. Litigation regarding the status of the WOTUS rule is currently
60 ■ ANNUAL REPORT 2017
underway, and the effect of future actions in these cases upon our operations is unknown.
European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for
illicit ship-source discharges of polluting substances, including minor discharges, if committed with
intent, recklessly or with serious negligence and the discharges individually or in the aggregate
result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting
substance may also lead to criminal penalties. The directive applies to all types of vessels,
irrespective of their flag, but certain exceptions apply to warships or where human safety or that
of the ship is in danger. Criminal liability for pollution may result in substantial penalties or fines
and increased civil liability claims. Regulation (EU) 2015/757 of the European Parliament and
of the Council of 29 April 2015 (amending EU Directive 2009/16/EC) governs the monitoring,
reporting and verification of carbon dioxide emissions from maritime transport, and, subject to
some exclusions, requires companies with ships over 5,000 gross tonnage to monitor and report
carbon dioxide emissions annually starting on January 1, 2018, which may cause us to incur
additional expenses.
The European Union has adopted several regulations and directives requiring, among other
things, more frequent inspections of high-risk ships, as determined by type, age, and flag as
well as the number of times the ship has been detained. The European Union also adopted and
extended a ban on substandard ships and enacted a minimum ban period and a definitive ban
for repeated offenses. The regulation also provided the European Union with greater authority and
control over classification societies, by imposing more requirements on classification societies and
providing for fines or penalty payments for organizations that failed to comply. Furthermore, the
European Union has implemented regulations requiring vessels to use reduced sulfur content fuel
for their main and auxiliary engines. The EU Directive 2005/33/EC (amending Directive 1999/32/
EC) introduced requirements parallel to those in Annex VI relating to the sulfur content of marine
fuels. In addition, the European Union imposed a 0.1% maximum sulfur requirement for fuel used
by ships at berth in European Union ports.
International Labour Organization
The International Labor Organization, or the ILO, is a specialized agency of the United Nations
that has adopted the Maritime Labor Convention 2006, or the MLC 2006. 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. We believe that all of our
vessels are in substantial compliance with and are certified to meet MLC 2006.
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from international shipping are not subject to the
Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered
into force in 2005 and pursuant to which adopting countries have been required to implement
national programs to reduce greenhouse gas emissions with targets extended through 2020.
International negotiations are continuing with respect to a successor to the Kyoto Protocol, and
restrictions on shipping emissions may be included in any new treaty. In December 2009, more
than 27 nations, including the U.S. and China, signed the Copenhagen Accord, which includes
a non-binding commitment to reduce greenhouse gas emissions. The 2015 United Nations
Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on
November 4, 2016 and does not directly limit greenhouse gas emissions from ships. On June 1,
ANNUAL REPORT 2017 ■ 61
2017, the U.S. president announced that it is withdrawing from the Paris Agreement. The timing
and effect of such action has yet to be determined.
At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a
comprehensive IMO strategy on reduction of greenhouse gas emissions from ships was approved.
In accordance with this roadmap, initial IMO strategy for reduction of greenhouse gas emissions
is expected to be adopted at MEPC 72 in April 2018. The IMO may implement market-based
mechanisms to reduce greenhouse gas emissions from ships at the upcoming MEPC session.
The European Union made a unilateral commitment to reduce overall greenhouse gas
emissions from its member states from 20% of 1990 levels by 2020. The European Union also
committed to reduce its emissions by 20% under the Kyoto Protocol’s second period from 2013
to 2020. Starting in January 2018, large ships calling at European Union ports are required to
collect and publish data on carbon dioxide emissions and other information.
In the United States, the EPA issued a finding that greenhouse gases endanger the public
health and safety, adopted regulations to limit greenhouse gas emissions from certain mobile
sources, and proposed regulations to limit greenhouse gas emissions from large stationary
sources. However, in March 2017, the U.S. President signed an executive order to review and
possibly eliminate the EPA’s plan to cut greenhouse gas emissions. The outcome of this order is
not yet known. Although the mobile source emissions regulations do not apply to greenhouse gas
emissions from vessels, the EPA or individual U.S. states could enact environmental regulations
that would affect our operations. For example, California has introduced a cap-and-trade program
for greenhouse gas emissions, aiming to reduce emissions 40% by 2030.
Any passage of 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 to succeed the Kyoto Protocol or Paris Agreement, that restricts emissions
of greenhouse gases could require us to make significant financial expenditures which we cannot
predict with certainty at this time. Even in the absence of climate control legislation, our business
may be indirectly affected to the extent that climate change may result in sea level changes or
more intense weather events.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001 in the United States, there have been a
variety of initiatives intended to enhance vessel security such as the U.S. Maritime Transportation
Security Act of 2002, or MTSA. To implement certain portions of the MTSA, the USCG issued
regulations requiring the implementation of certain security requirements aboard vessels operating
in waters subject to the jurisdiction of the United States and at certain ports and facilities, some
of which are regulated by the EPA.
Similarly, Chapter XI-2 of the SOLAS Convention imposes detailed security obligations on
vessels and port authorities and mandates compliance with the International Ship and Port
Facilities Security Code, or the ISPS Code. The ISPS Code is designed to enhance the security of
ports and ships against terrorism. To trade internationally, a vessel must attain an International Ship
Security Certificate, or ISSC, from a recognized security organization approved by the vessel’s
flag state. Ships operating without a valid certificate may be detained, expelled from, or refused
entry at port until they obtain an ISSC. The following are among the various requirements, some
of which are found in the SOLAS Convention:
> on-board installation of automatic identification systems to provide a means for the automatic
62 ■ ANNUAL REPORT 2017
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;
> a continuous synopsis record kept onboard showing a vessel’s history including the name of the
ship, 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 USCG regulations, intended to be aligned with international maritime security standards,
exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels have on
board a valid ISSC that attests to the vessel’s compliance with the SOLAS Convention security
requirements and the ISPS Code. Future security measures could have a significant financial
impact on us. We intend to comply with the various security measures addressed by MTSA, the
SOLAS Convention and the ISPS Code.
Inspection by Classification Societies
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 SOLAS. Most insurance underwriters make it a condition for insurance coverage and
lending that a vessel be certified “in class” by a classification society which is a member of the
International Association of Classification Societies, the IACS. The IACS has adopted harmonized
Common Structural Rules, or the Rules, which apply to oil tankers and bulk carriers constructed on
or after July 1, 2015. The Rules attempt to create a level of consistency between IACS Societies.
All of our vessels are certified as being “in class” by all the major Classification Societies (e.g.,
American Bureau of Shipping, Lloyd’s Register of Shipping).
A vessel must undergo annual surveys, intermediate surveys, drydockings 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. Every vessel is also required
to be drydocked every 30 to 36 months for inspection of the underwater parts of the vessel. If any
vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or
special survey, the vessel will be unable to carry cargo between ports and will be unemployable and
uninsurable which could cause us to be in violation of certain covenants in our loan agreements.
Any such inability to carry cargo or be employed, or any such violation of covenants, could have a
material adverse impact on our financial condition and results of operations.
Risk of Loss and Liability Insurance
General
ANNUAL REPORT 2017 ■ 63
The operation of any dry bulk vessel includes risks such as mechanical failure, collision, property
loss, cargo loss or damage, and business interruption due to political circumstances in foreign
countries, hostilities and labor strikes. In addition, there is always an inherent possibility of marine
disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning
and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon
owners, operators and demise charterers of vessels trading in the United States exclusive economic
zone for certain oil pollution accidents in the United States, has made liability insurance more
expensive for ship owners and operators trading in the U.S. market.
While we maintain hull and machinery insurance, war risks insurance, protection and indemnity
cover and freight, demurrage and defense cover for our operating fleet in amounts that we believe
to be prudent to cover normal risks in our operations, we may not be able to achieve or maintain
this level of coverage throughout a vessel’s useful life. Furthermore, 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 & Machinery and War Risks Insurance
We maintain marine hull and machinery and war risks insurance, which cover, among other
marine risks, the risk of actual or constructive total loss, for all of our vessels. Our vessels are
each covered up to at least fair market value with deductibles ranging to a maximum of $100,000
per vessel per incident for Panamax, Kamsarmax and Post-Panamax vessels and $150,000 per
vessel per incident for Capesize and Newcastlemax vessels.
Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection and indemnity
associations, or P&I Associations, which insure our third party liabilities in connection with our
shipping activities. This includes third-party liability and other related expenses resulting from
the injury or death of crew, passengers and other third parties, the loss 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. Protection and indemnity insurance is a form of mutual indemnity insurance, extended
by protection and indemnity mutual associations, or “clubs.”
Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per
incident. The 13 P&I Associations that comprise the International Group insure approximately 90%
of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each
association’s liabilities. As a member of a P&I Association, which is a member of the International
Group, we are subject to calls payable to the associations based on the group’s 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. Our vessels may be subject to
supplemental calls which are based on estimates of premium income and anticipated and paid
claims. Such estimates are adjusted each year by the Board of Directors of the P&I Association
until the closing of the relevant policy year, which generally occurs within three years from the
end of the policy year. Supplemental calls, if any, are expensed when they are announced and
according to the period they relate to.
64 ■ ANNUAL REPORT 2017
C. Organizational structure
Diana Shipping Inc. is the sole owner of all of the issued and outstanding shares of the
subsidiaries listed in exhibit 8.1 to this annual report.
D. Property, plants and equipment
Since October 8, 2010, DSS owns the land and the building where we have our principal
offices in Athens, Greece and in December 2014, DSS acquired a plot of land jointly with two
other related entities from unrelated individuals. Other than this interest in real property, our only
material properties are the vessels in our fleet.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
The following management’s discussion and analysis should be read in conjunction with our
historical consolidated financial statements and their notes included elsewhere in this annual
report. This discussion contains forward-looking statements that reflect our current views with
respect to future events and financial performance. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain factors, such as those
set forth in the section entitled “Risk Factors” and elsewhere in this annual report.
A. Operating results
We charter our vessels to customers pursuant to short-term, medium-term and long-term
time charters. Currently, the majority of our vessels are employed on short-term and medium-
term time charters. Under our time charters, the charterer typically pays us a fixed daily charter
hire rate and bears all voyage expenses, including the cost of bunkers (fuel oil) and port and
canal charges. However, our voyage results may be affected by differences in bunker prices.
We remain responsible for paying the chartered vessel’s operating expenses, including the cost
of crewing, insuring, repairing and maintaining the vessel, the costs of spares and consumable
stores, tonnage taxes and other miscellaneous expenses, and we also pay commissions to one
or more unaffiliated ship brokers and to in-house brokers associated with the charterer for the
arrangement of the relevant charter.
Factors Affecting Our Results of Operations
We believe that the important measures for analyzing trends in our results of operations consist
of the following:
> Ownership days. We define ownership days as the aggregate number of days in a period
during which 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 revenues and the amount of
expenses that we record during a period.
> Available days. We define available days as the number of our ownership days less the aggregate
number of days that our vessels are off-hire due to scheduled repairs or repairs under guarantee,
vessel upgrades or special surveys and the aggregate amount of time that we spend positioning
ANNUAL REPORT 2017 ■ 65
our vessels for such events. The shipping industry uses available days to measure the number
of days in a period during which vessels should be capable of generating revenues.
> Operating days. We define operating days as the number of our available days in a period
less the aggregate number of days that our vessels are off-hire due to any reason, including
unforeseen circumstances. The shipping industry uses operating days to measure the aggregate
number of days in a period during which vessels actually generate revenues.
> Fleet utilization. We calculate fleet utilization by dividing the number of our operating days during
a period by the number of our available days during the period. The shipping industry uses fleet
utilization to measure a company’s efficiency in finding suitable employment for its vessels and
minimizing the amount of days that its vessels are off-hire for reasons other than scheduled
repairs or repairs under guarantee, vessel upgrades, special surveys or vessel positioning for
such events.
> TCE rates. We define Time Charter Equivalent, or TCE rates as our time charter revenues less
voyage expenses during a period divided by the number of our available days during the period,
which is consistent with industry standards. TCE rate is a non-GAAP measure and is a standard
shipping industry performance measure used primarily to compare daily earnings generated by
vessels on time charters with daily earnings generated by vessels on voyage charters, because
charter hire rates for vessels on voyage charters are generally not expressed in per day amounts
while charter hire rates for vessels on time charters generally are expressed in such amounts.
The following table reflects our ownership days, available days, operating days, fleet utilization
and TCE rates for the periods indicated.
Ownership days
Available days
Operating days
Fleet utilization
Year Ended December 31,
2017
2016
2015
18,119
16,542
14,900
17,890
16,447
14,600
17,566
16,354
14,492
98.2%
99.4%
99.3%
Time charter equivalent (TCE) rate (1)
$ 8,568
$ 6,106
$ 9,739
(1) Please see “Item 3. Key Information—A. Selected Financial Data” for a reconciliation of TCE
to GAAP measures.
Lack of Historical Operating Data for Vessels before Their Acquisition
Although vessels are generally acquired free of charter, we have acquired (and may in the future
acquire) some vessels with time charters. Where a vessel has been under a voyage charter, the
vessel is usually delivered to the buyer free of charter. It is rare in the shipping industry for the last
charterer of the vessel in the hands of the seller to continue as the first charterer of the vessel in
the hands of the buyer. In most cases, when a vessel is under time charter and the buyer wishes
to assume that charter, the vessel cannot be acquired without the charterer’s consent and the
buyer entering into a separate direct agreement (called a “novation agreement”) with the charterer
to assume the charter. The purchase of a vessel itself does not transfer the charter because it is
a separate service agreement between the vessel owner and the charterer.
66 ■ ANNUAL REPORT 2017
Where we identify any intangible assets or liabilities associated with the acquisition of a vessel,
we record all identified assets or liabilities at fair value. Fair value is determined by reference to
market data. We value any asset or liability arising from the market value of the time charters
assumed when a vessel is acquired. The amount to be recorded as an asset or liability at the date
of vessel delivery is based on the difference between the current fair market value of the charter
and the net present value of future contractual cash flows. When the present value of the time
charter assumed is greater than the current fair market value of such charter, the difference is
recorded as prepaid charter revenue. When the opposite situation occurs, any difference, capped
to the vessel’s fair value on a charter-free basis, is recorded as deferred revenue. Such assets and
liabilities, respectively, are amortized as a reduction of, or an increase in, revenue over the period
of the time charter assumed.
When we purchase a vessel and assume or renegotiate a related time charter, among others,
we must take the following steps before the vessel will be ready to commence operations:
> obtain the charterer’s consent to us as the new owner;
> obtain the charterer’s consent to a new technical manager;
> in some cases, obtain the charterer’s consent to a new flag for the vessel;
> arrange for a new crew for the vessel, and where the vessel is on charter, in some cases, the
crew must be approved by the charterer;
> replace all hired equipment on board, such as gas cylinders and communication equipment;
> negotiate and enter into new insurance contracts for the vessel through our own insurance
brokers;
> register the vessel under a flag state and perform the related inspections in order to obtain new
trading certificates from the flag state;
> implement a new planned maintenance program for the vessel; and
> ensure that the new technical manager obtains new certificates for compliance with the safety
and vessel security regulations of the flag state.
When we charter a vessel pursuant to a long-term time charter agreement with varying rates,
we recognize revenue on a straight line basis, equal to the average revenue during the term of
the charter.
The following discussion is intended to help you understand how acquisitions of vessels affect
our business and results of operations.
Our business is mainly comprised of the following elements:
> employment and operation of our vessels; and
> management of the financial, general and administrative elements involved in the conduct of our
business and ownership of our vessels.
The employment and operation of our vessels mainly require the following components:
ANNUAL REPORT 2017 ■ 67
> vessel maintenance and repair;
> crew selection and training;
> vessel spares and stores supply;
> contingency response planning;
> onboard safety procedures auditing;
> accounting;
> vessel insurance arrangement;
> vessel chartering;
> vessel security training and security response plans (ISPS);
> obtaining of ISM certification and audit for each vessel within the six months of taking over a
vessel;
> vessel hiring management;
> vessel surveying; and
> vessel performance monitoring.
The management of financial, general and administrative elements involved in the conduct of
our business and ownership of our vessels mainly requires the following components:
> management of our financial resources, including banking relationships, i.e., administration of
bank loans and bank accounts;
> management of our accounting system and records and financial reporting;
> administration of the legal and regulatory requirements affecting our business and assets; and
> management of the relationships with our service providers and customers.
The principal factors that affect our profitability, cash flows and shareholders’ return on
investment include:
> rates and periods of charter hire;
> levels of vessel operating expenses;
> depreciation expenses;
> financing costs; and
> fluctuations in foreign exchange rates.
68 ■ ANNUAL REPORT 2017
Time Charter Revenues
Our revenues are driven primarily by the number of vessels in our fleet, the number of days
during which our vessels operate and the amount of daily charter hire rates that our vessels earn
under charters, which, in turn, are affected by a number of factors, including:
> the duration of our charters;
> our decisions relating to vessel acquisitions and disposals;
> the amount of time that we spend positioning our vessels;
> the amount of time that our vessels spend in drydock undergoing repairs;
> maintenance and upgrade work;
> the age, condition and specifications of our vessels;
> levels of supply and demand in the dry bulk shipping industry; and
> other factors affecting spot market charter rates for dry bulk carriers.
Vessels operating on time charters for a certain period of time provide more predictable cash
flows over that period of time, but can yield lower profit margins than vessels operating in the spot
charter market during periods characterized by favorable market conditions. Vessels operating in
the spot charter market generate revenues that are less predictable but may enable their owners
to capture increased profit margins during periods of improvements in charter rates although
their owners would be exposed to the risk of declining charter rates, which may have a materially
adverse impact on financial performance. As we employ vessels on period charters, future spot
charter rates may be higher or lower than the rates at which we have employed our vessels on
period charters. Our time charter agreements subject us to counterparty risk. In depressed market
conditions, charterers may seek to renegotiate the terms of their existing charter parties or avoid
their obligations under those contracts. Should a counterparty fail to honor their obligations under
agreements with us, we could sustain significant losses which could have a material adverse effect
on our business, financial condition, results of operations and cash flows. For 2018, we expect our
revenues to increase compared to 2017, mainly due to better charter rates expected.
Voyage Expenses
We incur voyage expenses that mainly include commissions because all of our vessels are
employed under time charters that require the charterer to bear voyage expenses such as bunkers
(fuel oil), port and canal charges. Although the charterer bears the cost of bunkers, we also
have bunker expenses or income deriving from the price differences of bunkers. When a vessel
is delivered to a charterer, bunkers are purchased by the charterer and sold back to us on the
redelivery of the vessel. Bunker expenses, or income, result when a vessel is redelivered by her
charterer and delivered to the next charterer at different bunker prices, or quantities.
We currently pay commissions ranging from 4.75% to 5.00% of the total daily charter hire
rate of each charter to unaffiliated ship brokers, in-house brokers associated with the charterers,
depending on the number of brokers involved with arranging the charter. In addition we pay a
commission to DWM and to DSS for those vessels for which they provide commercial management
ANNUAL REPORT 2017 ■ 69
services. The commissions paid to DSS are eliminated from our consolidated financial statements
as intercompany transactions. For 2018, we expect our voyage expenses to increase compared
to 2017, following the expected increase in revenues.
Vessel Operating Expenses
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, environmental plan costs and other operating expenses. Our vessel operating expenses,
which generally represent fixed costs, have historically increased as a result of the enlargement of
our fleet with the exception of 2016 when operating expenses decreased despite the enlargement
of our fleet, as a result of our efforts to decrease costs without compromising the quality and
seaworthiness of our vessels. For 2018, we expect our operating expenses to remain at the same
levels as in 2017 despite an average increase expected in the ownership days, as a result of our
continuous effort to keep expenses at low levels.
Vessel Depreciation
The cost of our vessels is depreciated on a straight-line basis over the estimated useful life of
each vessel. Depreciation is based on the cost of the vessel less its estimated salvage value. We
estimate the useful life of our dry bulk vessels to be 25 years from the date of initial delivery from the
shipyard, which we believe is common in the dry bulk shipping industry. Furthermore, we estimate
the salvage values of our vessels based on historical average prices of the cost of the light-weight
ton of vessels being scrapped. The salvage value of all of our vessels is $250 per lightweight ton.
Our depreciation charges have increased in recent periods due to the enlargement of our fleet. For
2018, we expect depreciation expense to decrease by about 40% compared to 2017, as a result
of the impairment recorded in 2017 for 20 vessels in our fleet.
General and Administrative Expenses
We incur general and administrative expenses which include our onshore related expenses such
as payroll expenses of employees, executive officers, directors and consultants, compensation cost
of restricted stock awarded to senior management and non-executive directors, traveling, promotional
and other expenses of the public company, such as legal and professional expenses and other general
expenses. For 2018, we expect our general and administrative expenses to remain at current levels.
Interest and Finance Costs
We have historically incurred interest expense and financing costs in connection with vessel-
specific debt and since May 2015 in connection with our Notes. As at December 31, 2017 our
debt amounted to $604.8 million, including our Notes issued in May 2015 at a fixed rate of 8.5%.
We expect to manage any exposure in interest rates through our regular operating and financing
activities and, when deemed appropriate, through the use of derivative financial instruments.
For 2018, we expect interest and finance expenses to remain at current levels, as a result of
decreasing indebtedness but increased interest rates.
Our Fleet – Illustrative Comparison of Possible Excess of Carrying Value
Over Estimated Charter-Free Market Value of Certain Vessels
In “Critical Accounting Policies – Impairment of long-lived assets,” we discuss our policy
for impairing the carrying values of our vessels. Historically, the market values of vessels have
70 ■ ANNUAL REPORT 2017
experienced volatility, which from time to time may be substantial. As a result, the charter-free
market value of certain of our vessels may have declined below those vessels’ carrying value,
even though we would not impair those vessels’ carrying value under our accounting impairment
policy. In 2017, we recorded impairment charges for 20 vessels in our fleet, as our impairment
test exercise indicated that their carrying values were not recoverable.
Based on: (i) the carrying value of each of our vessels as of December 31, 2017 and 2016,
consisting of the net book value of the vessels and the unamortized value of deferred dry-dock
and special surveys cost and (ii) what we believe the charter-free market value of each of our
vessels was as of December 31, 2017 and 2016, the aggregate carrying value of 22 and 43 of the
vessels in our fleet as of December 31, 2017 and 2016, respectively, exceeded their aggregate
charter-free market value by approximately $114 million and $728 million, respectively, as noted
in the table below. This aggregate difference represents the approximate analysis of the amount
by which we believe we would have to increase our loss or reduce our net income if we sold all
of such vessels at December 31, 2017 and 2016, on a charter-free basis, on industry standard
terms, in cash transactions, and to a willing buyer where we were not under any compulsion to sell,
and where the buyer was not under any compulsion to buy. For purposes of this calculation, we
have assumed that these 22 and 43 vessels would be sold at a price that reflects our estimate of
their charter-free market values as of December 31, 2017 and 2016, respectively. As of December
31, 2017 and as of the date of this annual report, we were not and are not holding any of our
vessels for sale.
Our estimates of charter-free market value assume that our vessels were all in good and
seaworthy condition without need for repair and if inspected would be certified in class without
notations of any kind. Our estimates are based on information available from various industry
sources, including:
> reports by industry analysts and data providers that focus on our industry and related dynamics
affecting vessel values;
> news and industry reports of similar vessel sales;
> news and industry reports of sales of vessels that are not similar to our vessels where we have
made certain adjustments in an attempt to derive information that can be used as part of our
estimates;
> approximate market values for our vessels or similar vessels that we have received from
shipbrokers, whether solicited or unsolicited, or that shipbrokers have generally disseminated;
> offers that we may have received from potential purchasers of our vessels; and
> vessel sale prices and values of which we are aware through both formal and informal
communications with shipowners, shipbrokers, industry analysts and various other shipping
industry participants and observers.
As we obtain information from various industry and other sources, our estimates of charter-free
market value are inherently uncertain. In addition, vessel values are highly volatile; as such, our
estimates may not be indicative of the current or future charter-free market value of our vessels or
prices that we could achieve if we were to sell them. We also refer you to the risk factor in “Item 3.
Key Information—D. Risk Factors” entitled “The market values of our vessels have declined and
may further decline, which could limit the amount of funds that we can borrow and could trigger
ANNUAL REPORT 2017 ■ 71
breaches of certain financial covenants contained in our current and future loan facilities, which
could adversely affect our operating results, and we may incur a loss if we sell vessels following a
decline in their market values” and the discussion under the heading “Item 4. Information on the
Company—B. Business Overview–Vessel Prices.”
Vessel
Dwt
Year Built
Carrying Value
(in millions of US dollars)
1 Alcmene
2 Alcyon
3 Aliki
4 Amphitrite
5 Arethusa
6 Artemis
7 Astarte
8 Atalandi
9 Baltimore
10 Boston
11 Calipso
12 Clio
13 Coronis
14 Crystalia
15 Danae
16 Dione
17 Electra
18 Erato
19 G.P. Zafirakis
20 Houston
21 Ismene
22 Leto
23 Los Angeles
24 Maera
25 Maia
26 Medusa
27 Melia
28 Melite (**)
29 Myrsini
30 Myrto
31 Naias
32 New Orleans
33 New York
34 Newport News
35 Nirefs
36 Norfolk
37 Oceanis
38 P.S. Palios
93,193
75,247
180,235
98,697
73,593
76,942
81,513
77,529
177,243
177,828
73,691
73,691
74,381
77,525
75,106
75,172
87,150
74,444
179,492
177,729
77,901
81,297
206,104
75,403
82,193
82,194
76,225
82,117
82,131
73,546
180,960
177,773
208,021
75,311
164,218
75,211
179,134
2010
2001
2005
2012
2007
2006
2013
2014
2005
2007
2005
2005
2006
2014
2001
2001
2017
2004
2014
2009
2013
2010
2012
2013
2009
2010
2005
2004
2010
2013
2006
2015
2010
2017
2001
2002
2001
2013
2017
15.5
8.3
17.1
19.6
11.4
16.2 *
22.7 *
20.8
21.8 *
20.4
11.6 *
11.9 *
10.6
20.5
9.6 *
9.5 *
18.6
9.6
51.4 *
24.1
13.2
17.4
47.7 *
13.3
16.6
16.3
15.0 *
19.0 *
22.2 *
10.9
40.2 *
45.0 *
50.6 *
8.3
12.0
8.7 *
44.7 *
2016
31.6 *
9.1 *
65.5 *
21.3 *
23.1 *
17.3 *
28.4 *
23.2 *
71.8 *
12.4 *
12.6 *
25.0 *
28.0 *
10.6 *
10.5 *
22.0 *
53.4 *
46.3 *
13.7
26.1 *
49.5 *
13.3
17.4 *
17.0 *
16.1 *
23.6 *
20.0 *
23.0 *
24.4 *
41.7 *
47.4 *
9.1 *
76.2 *
9.7 *
46.3 *
72 ■ ANNUAL REPORT 2017
39 Phaidra
40 Philadelphia
41 Polymnia
42 Protefs
43 Salt Lake City
44 San Francisco
45 Santa Barbara
46 Seattle
47 Selina
48 Semirio
49 Sideris GS
50 Thetis
51 Triton
Total
87,146
206,040
98,704
73,630
171,810
208,006
179,426
179,362
75,700
174,261
174,186
73,583
75,336
5,837,330
2013
2012
2012
2004
2005
2017
2015
2011
2010
2007
2006
2004
2001
18.3
48.5 *
19.9
11.5 *
17.3
50.7 *
45.0 *
26.4
11.1
19.3
18.3
9.5
8.5 *
1,056
50.3 *
21.2 *
12.0 *
101.9 *
46.8 *
27.8 *
11.5 *
62.5 *
56.9 *
21.8 *
9.3 *
1,409
(**) Melite was sold for scrap in October 2017 after a grounding incident
*Indicates dry bulk vessels for which we believe, as of December 31, 2017 and 2016, the charter-free
market value was lower than the vessel’s carrying value. We believe that the aggregate carrying value
of these vessels exceeded their aggregate charter-free market value by approximately $114 million
and $728 million, respectively.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon
our consolidated financial statements, which have been prepared in accordance with U.S. GAAP.
The preparation of those financial statements requires us to make estimates and judgments that
affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure
of contingent assets and liabilities at the date of our financial statements. Actual results may differ
from these estimates under different assumptions and conditions.
Critical accounting policies are those that reflect significant judgments of uncertainties and
potentially result in materially different results under different assumptions and conditions. We have
described below what we believe are our most critical accounting policies, because they generally
involve a comparatively higher degree of judgment in their application. For a description of all our
significant accounting policies, see Note 2 to our consolidated financial statements included in
this annual report.
Accounting for Revenues and Expenses
Revenues are generated from time charter agreements and are usually paid 15 days in
advance. Time charter agreements with the same charterer are accounted for as separate
agreements according to the terms and conditions of each agreement. Time charter revenues
are recorded over the term of the charter as service is provided when they become fixed and
determinable. Revenues from time charter agreements providing for varying annual rates over their
term are accounted for on a straight line basis. Income representing ballast bonus payments and
compensation paid by the charterer due to earlier than agreed redelivery of the vessel to the owner
are recognized in the period earned. Deferred revenue includes cash received prior to the balance
sheet date for which all criteria for recognition as revenue have not been met. Deferred revenue
ANNUAL REPORT 2017 ■ 73
may also include deferred revenue resulting from charter agreements providing for varying annual
rates, which are accounted for on a straight line basis, or the unamortized balance of the liability
associated with the acquisition of second-hand vessels with time charters attached which were
acquired at values below fair market value at the date the acquisition agreement is consummated.
Voyage expenses, primarily consisting of commissions, are deferred over the related voyage
charter period to the extent revenue has been deferred since commissions are due as the
Company’s revenues are earned. All vessel operating expenses are expensed as incurred.
Loan Receivable from Related Parties
Our loan receivable from related parties is with Diana Containerships and is presented net of
any provision for credit losses. Interest income and fees deriving from the agreement are recorded
as incurred. At each balance sheet date, amounts due under the receivable loan agreement
are assessed for purposes of determining the appropriate provision for credit losses. We have
assessed the ability of Diana Containerships to meet its obligations under the loan agreement
by taking into consideration existing economic conditions, the current financial condition of
Diana Containerships, equity offerings, sale plans, historical losses, and other risks/factors that
may affect its future financial condition and its ability to meet its obligations. As a result of this
assessment, we did not record any provision for credit losses, as we determined that Diana
Containerships will be able to meet its obligations under the loan in the near future.
Impairment of Long-lived Assets
Long-lived assets (vessels, land, and building) held and used by an entity are reviewed for
impairment whenever events or changes in circumstances (such as market conditions, obsolesce
or damage to the asset, potential sales and other business plans) indicate that the carrying amount
of the assets may not be recoverable or that their useful lives require modification. When the
estimate of undiscounted projected net operating cash flows, excluding interest charges, expected
to be generated by the use of the asset over its remaining useful life and its eventual disposition is
less than its carrying amount, we should evaluate the asset for an impairment loss. Measurement
of the impairment loss is based on the fair value of the asset. We determine the fair value of our
assets based on management estimates and assumptions and by making use of available market
data and taking into consideration third party valuations.
With respect to our vessels, the current conditions in the dry bulk market with low charter rates
and vessel market values are conditions that the Company considers indicators of a potential
impairment. We determine undiscounted projected net operating cash flows for each vessel and
compare it to the vessel’s carrying value. The projected net operating cash flows are determined by
considering the historical and estimated vessels’ performance and utilization, by considering future
revenues, expected outflows for scheduled vessels’ maintenance, vessel operating expenses and
fleet utilization. The average annual inflation rate applied on vessels’ maintenance and operating
costs approximates current projections for global inflation rate for the remaining useful life of our
vessels. Effective fleet utilization assumed is in line with the Company’s historical performance
and our expectations for future fleet utilization under our current fleet deployment strategy. We
calculate future revenues for the fixed days, using the fixed charter rate of each vessel from existing
time charters. With respect to the unfixed days, we calculate the estimated revenues by reference
to the most recent ten-year blended average one-year time charter rates available for each type of
vessel over the remaining estimated life of each vessel, net of brokerage commissions. Historical
ten-year blended average one-year time charter rates used in our impairment test exercise are
in line with our overall chartering strategy, especially in periods/years of depressed charter rates;
they reflect the full operating history of vessels of the same type and particulars with our operating
74 ■ ANNUAL REPORT 2017
fleet (Panamax/Post-Panamax/Kamsarmax and Capesize/Newcastlemax vessels) and they cover
at least a full business cycle. During the fourth quarter of 2017, we reassessed our method to
estimate future revenues for the unfixed days and decided to exclude from the ten-year blended
average one-year time charter rates three years for which the rates were well above the average.
We determined that the expectations, following positive signs and gradual increase in charter rates
since the second quarter of 2017, for recovery of the market in the last quarter of 2017 at levels
close to the ten-year blended average one-year time charter rates, were not eventually verified
and that the market had stabilized to lower levels. We estimate that currently-present factors such
as worldwide demand for drybulk products, supply of tonnage and order book indicate that the
charter rates for the years 2008-2010, which were removed from the calculation following our
reassessment, were considered exceptional. Following this reassessment, our test of cash flows
resulted in an impairment of $422.5 million recorded in the fourth quarter of 2017.
A comparison of the average estimated daily time charter equivalent rate used in our impairment
analysis with the average “break even rate” for each major class of vessels is presented below:
Average estimated daily time
charter equivalent rate used
Average break even rate
Panamax/Kamsarmax/Post-Panamax
Capesize/Newcastlemax
$
$
10,144 $
14,226 $
9,170
11,894
Our impairment test exercise is sensitive to variances in the time charter rates and fleet effective
utilization. Our current analysis, which also involved a sensitivity analysis by assigning possible
alternative values to these two significant inputs, indicated that with only a minimal reduction in time
charter rates or only 1% of off hire days (other than for dry docking and special surveys) would result
to an impairment of individual long lived assets. However, there can be no assurance as to how long
charter rates and vessel values will remain at their current low levels or whether they will improve
by any significant degree. Charter rates may remain at depressed levels for some time which could
adversely affect our revenue and profitability, and future assessments of vessel impairment.
For the purpose of presenting our investors with additional information to determine how the
Company’s future results of operations may be impacted in the event that daily time charter rates
do not improve from their current levels in future periods, we set forth below an analysis that shows
the 1-year, 3-year and 5-year average blended rates and the effect of the use of each of these rates
would have on the Company’s impairment analysis.
Panamax/Kamsarmax/
Post-Panamax
1-year
(period)
$ 10,665
Capesize/Newcastlemax $ 13,996
Impairment
charge (in
USD million)
-
37
3-year
(period)
$ 8,140
$ 10,462
Impairment
charge (in
USD million)
18
96
5-year
(period)
$ 9,311
$ 13,779
Impairment
charge (in USD
million)
10
63
Results of Operations
Year ended December 31, 2017 compared to the year ended December 31, 2016
Time Charter Revenues. Time charter revenues increased by $47.6 million, or 42%, to $161.9
million in 2017, compared to $114.3 million in 2016. The increase was due to increased time
charter rates which resulted in a 40% increase in our average charter rates from $6,106 in 2016 to
ANNUAL REPORT 2017 ■ 75
$8,568 in 2017. This increase was also due to increased revenues due to a 10% increase of our
ownership days resulting from the delivery of the Ismene and the Selina in March 2016; the Maera
in May 2016; the San Francisco and Newport News in January 2017; and the Electra, Phaidra
and Astarte in May 2017. This increase was partly offset by decreased revenues due to increased
drydock and off hire days in 2017 compared to 2016, for which our vessels did not earn revenue.
In 2017 we had total operating days of 17,566 and fleet utilization of 98.2%, compared to 16,354
total operating days and a fleet utilization of 99.4% in 2016.
Voyage Expenses. Voyage expenses decreased by $5.2 million, or 38%, to $8.6 million
in 2017 compared to $13.8 million in 2016. This decrease in voyage expenses is primarily
attributable to bunkers which resulted in gain of $0.2 million compared to loss of $7.5 million in
2016. This decrease was partly offset by increased commissions in 2017 compared to 2016 due
to the increase in revenues.
Vessel Operating Expenses. Vessel operating expenses increased by $4.4 million, or 5%, to
$90.4 million in 2017 compared to $86.0 million in 2016. The increase in operating expenses is
primarily attributable to the 10% increase in ownership days resulting from the delivery of the new
vessels to our fleet in 2017 and to increased expenses for repairs and maintenance. This increase
was partly offset by decreased costs in all other operating expense categories. Daily operating
expenses were $4,987 in 2017 compared to $5,196 in 2016, representing a 4% decrease.
Depreciation and Amortization of Deferred Charges. Depreciation and amortization of
deferred charges increased by $5.4 million, or 7%, to $87.0 million in 2017, compared to $81.6
million in 2016. This increase was due to the enlargement of our fleet. Additionally, the increase
in depreciation and amortization was due to increased amortization of deferred drydocking costs
in 2017 compared to 2016.
General and Administrative Expenses. General and Administrative Expenses increased by
$0.8 million, or 3%, to $26.3 million in 2017 compared to $25.5 million in 2016. The increase is
mainly attributable to increased payroll cost and was partly offset by decreased legal fees and
board of directors’ expenses.
Management fees to related party. Management fees to a related party amounted to $1.9
million in 2017 compared to $1.5 million in 2016. The increase is attributable to the increased
average number of vessels managed by DWM in 2017 compared to 2016.
Impairment loss. Impairment loss includes $422.5 million non-cash impairment recorded for
20 vessels in our fleet whose carrying value was written down to their market value. Impairment
loss also includes $19.8 million non-cash impairment in the cost of the Melite, which was grounded
in July 2017, resulting in the total loss of the vessel.
Insurance recoveries, net of other loss. Insurance recoveries, net of other loss includes the
proceeds received by the Hull and Machinery insurers of the Melite, after her grounding in July
2017, decreased by other costs incurred due to the grounding of the vessel and sale expenses.
Interest and finance costs. Interest and finance costs increased by $4.7 million, or 21%, to
$26.6 million in 2017 compared to $21.9 million in 2016. The increase is primarily attributable to
higher average interest rates, and to increased average long term debt outstanding during 2017
compared to 2016. Interest expense in 2017 amounted to $25.0 million compared to $19.5 million
2016.
Interest and other income. Interest and other income increased by $2.1 million, or 88%, to
76 ■ ANNUAL REPORT 2017
$4.5 million in 2017 compared to $2.4 million in 2016. The increase is attributable to increased
interest income from our loan agreement with Diana Containerships, resulting from the increase
in interest rates and average debt.
Loss from equity method investments. Loss from equity method investments is mainly
attributable to loss from our investment in Diana Containerships amounting to $5.7 million in
2017. This amount included an impairment charge of $3.1 million and $0.8 million loss from the
sale of the investment. This compared to a loss of $56.5 million in 2016, which included a $17.6
million impairment. This loss also includes a minor gain in 2017 from DWM, our 50% owned joint
venture established in 2015, and a $0.1 million gain in 2016.
Year ended December 31, 2016 compared to the year ended December 31, 2015
Time Charter Revenues. Time charter revenues decreased by $43.4 million, or 28%, to
$114.3 million in 2016, compared to $157.7 million in 2015. The decrease was due to decreased
time charter rates which resulted in a 37% decrease of our average charter rates from $9,739 in
2015 to $6,106 in 2016. This decrease was partly offset by increased revenues due to an 11%
increase of our ownership days resulting from the delivery of the Santa Barbara in January 2015;
the Medusa in June 2015; the New Orleans and the Seattle in November 2015; the Ismene and
the Selina in March 2016 and the Maera in May 2016; and the decreased drydock days, for which
our vessels did not earn revenue as they were not available for charter, compared to last year. In
2016 we had total operating days of 16,354 and fleet utilization of 99.4%, compared to 14,492
total operating days and a fleet utilization of 99.3% in 2015.
Voyage Expenses. Voyage expenses decreased by $1.7 million, or 11%, to $13.8 million
in 2016 compared to $15.5 million in 2015. This decrease in voyage expenses is primarily
attributable to the decrease in commissions due to the decrease in revenues.
Vessel Operating Expenses. Vessel operating expenses decreased by $2.3 million, or 3%, to
$86.0 million in 2016 compared to $88.3 million in 2015. The decrease in operating expenses is
primarily attributable to decreased operating expenses for insurances, stores and spares, repairs
and environmental costs and was a result of our efforts to minimize costs due to the depressed
market conditions without compromising the vessels’ operations and safety. This decrease was
partly offset by increased costs due to the 11% increase in ownership days resulting from the
delivery of the new vessels to our fleet in 2016. The increase was also due to increased tonnage
taxes and other operating expenses. Daily operating expenses were $5,196 in 2016 compared
to $5,924 in 2015, representing a 12% decrease.
Depreciation and Amortization of Deferred Charges. Depreciation and amortization of deferred
charges increased by $5.3 million, or 7%, to $81.6 million in 2016, compared to $76.3 million in 2015.
This increase was due to the enlargement of our fleet. Additionally, the increase in depreciation and
amortization was due to increased amortization of deferred drydocking costs compared to 2015.
General and Administrative Expenses. General and Administrative Expenses increased by
$0.2 million, or 1%, to $25.5 million in 2016 compared to $25.3 million in 2015. The increase is
mainly attributable to increased payroll taxes which increased payroll cost and was partly offset
by decreased professional fees.
Management fees to related party. Management fees to a related party amounted to $1.5
million compared to $0.4 million in 2015 and represent management fees paid to DWM for the
technical management of six vessels gradually transferred to DWM from DSS after August 2015
ANNUAL REPORT 2017 ■ 77
until November 2016 and seven thereafter.
Gain on contract termination. Gain on contract termination represented an amount received
during the year by former charterers as partial reimbursement for early redelivery during 2013 of
one of our vessels.
Interest and Finance Costs. Interest and finance costs increased by $6.3 million, or 40%, to
$21.9 million in 2016 compared to $15.6 million in 2015. The increase is primarily attributable to
higher average interest rates, especially after the issuance of our Notes in May 2015 at a fixed rate
of 8.5% and on increased average long term debt outstanding during 2016 compared to 2015.
Interest expense in 2016 amounted to $19.5 million compared to $13.9 million 2015.
Interest and Other Income. Interest and other income decreased by $0.8 million, or 25%, to
$2.4 million in 2016 compared to $3.2 million in 2015. The decrease is attributable to decreased
interest income which derived from our loan agreement with Diana Containerships, dated May 20,
2013, and as amended on July 28, 2014, September 9, 2015, December 3, 2015 and September
12, 2016, since after the September 9, 2015 amendment the interest rate was reduced from 5%
over LIBOR to 3% over LIBOR and there were principal repayments of $5.0 million per annum,
while, after the September 12, 2016 amendment, the interest rate increased to 3.35% as the
annual repayments were deferred.
Gain / (Loss) from Equity Method Investments. Loss from our investment in Diana Containerships
amounted to $56.5 million in 2016 and was due to loss incurred by Diana Containerships, our
dilution from the decrease in our share ownership from 26.08% as at December 31, 2015 to
25.73% as at December 31, 2016 and an impairment charge of $17.6 million recognized on
September 30, 2016 calculated on the fair value of the investment on that date. This compared to
a loss of $5.0 million in 2015. Additionally, loss from equity method investments was partly offset
by a $0.1 million gain from DWM, our 50% owned joint venture established in 2015.
Inflation
Inflation does not have a material effect on our expenses given current economic conditions.
In the event that significant global inflationary pressures appear, these pressures would increase
our operating, voyage, administrative and financing costs.
B. Liquidity and Capital Resources
We have historically financed our capital requirements with cash flow from operations, equity
contributions from shareholders, long-term bank debt and since May 2015 with our Notes.
Our main uses of funds have been capital expenditures for the acquisition and construction of
new vessels, expenditures incurred in connection with ensuring that our vessels comply with
international and regulatory standards and repayments of bank loans. We will require capital to
fund ongoing operations, vessel improvements to meet requirements under new regulations,
debt service and the payment of our preferred dividends. As at December 31, 2017 and 2016,
working capital, which is current assets minus current liabilities, including the current portion of
long-term debt, amounted to $58.3 million and $37.1 million, respectively. The increase in working
capital was mainly due to the loan due from Diana Containerships, which became current and the
increase of operating cash flows in 2017, compared to 2016 when we had an operating loss. For
2018, we believe that anticipated improved charter rates will result in internally generated cash
flows along with cash on hand which will be sufficient to fund our capital requirements. However,
we may also incur additional debt or issue additional equity, if deemed necessary to fund our
capital requirements in the next twelve months.
78 ■ ANNUAL REPORT 2017
Cash Flow
Cash and cash equivalents, including restricted cash, was $65.8 million as at December 31,
2017 and $121.1 million as at December 31, 2016. Restricted cash mainly consists of the amount
kept against the Company’s loan facilities. As at December 31, 2017 and 2016, restricted cash
amounted to $25.6 million and $23.0 million, respectively and in 2017 also included $0.6 million of
pledged cash provided as guarantee to third parties. We consider highly liquid investments such
as time deposits and certificates of deposit with an original maturity of three months or less to be
cash equivalents. Cash and cash equivalents are primarily held in U.S. dollars.
Net Cash Provided By / (Used In) Operating Activities
Net cash provided by operating activities increased by $44.4 million to $23.4 million in 2017
compared to $21.0 million net cash used in operating activities in 2016. This increase in cash from
operating activities was mainly attributable to the increase in charter rates during the year, partly
offset by increased drydocking costs.
Net cash used in operating activities was $21.0 million in 2016 compared to net cash provided
by operating activities of $23.9 million in 2015. The decrease was mainly attributable to the
decrease in charter rates during the year.
Net Cash Used In Investing Activities
Net cash used in investing activities was $152.3 million for 2017, which consists of $125.8
million paid on delivery of our vessels under construction and the acquisition of three vessels
during the year; $2.0 million of proceeds from the sale of the Melite and $11.4 million of additional
proceeds received by the H&M insurers of the vessel, net of other expenses; $0.2 million of
proceeds received from the sale of the Diana Containerships shares; $40.0 million loan provided
to Diana Containerships and $0.1 million relating to the acquisition of property and equipment.
Net cash used in investing activities was $41.6 million for 2016, which consists of $50.9 million
paid for predelivery installments for our vessels under construction and the acquisition of three
vessels during the year; $9.4 million of proceeds received due to the cancellation of a shipbuilding
contract consisting of predelivery installments paid until then and interest; $0.1 million of dividends
received from Diana Containerships during the year; and $0.2 million relating to the acquisition of
property and equipment.
Net cash used in investing activities was $155.6 million for 2015, which consists of $155.4
million paid for predelivery installments for our three vessels under construction, the balance price
for the acquisition of the Santa Barbara, delivered in January 2015 and the acquisition of three
vessels during the year; $0.2 million of dividends received from Diana Containerships during the
year; a $0.3 million investment in DWM; and $0.2 million relating to the acquisition of property
and equipment.
Net Cash Provided By / (Used In) Financing Activities
Net cash provided by financing activities was $73.6 million for 2017, which consists of
$57.2 million of proceeds drawn under our new loan facility with CEXIM Bank; $55.2 million of
indebtedness that we repaid; $5.8 million of dividends paid on our Series B Preferred Shares; and
$77.3 million of proceeds from the issuance of 20,125,000 of additional common stock in 2017.
Net cash used in financing activities was $9.5 million for 2016, which consists of $39.3 million
ANNUAL REPORT 2017 ■ 79
of proceeds drawn under new loan facilities; $42.5 million of indebtedness that we repaid; $0.5
million of financing costs we paid relating to our new loan agreements; $5.8 million of dividends
paid on our Series B Preferred Shares.
Net cash provided by financing activities was $106.0 million for 2015, which consists of $441.2
million of proceeds drawn under new loan facilities and our Notes; $321.2 million of indebtedness
that we repaid; $5.5 million of financing costs we paid relating to our new loan agreements and our
Notes; $5.8 million of dividends paid on our Series B Preferred Shares; $2.7 million of payments
to repurchase common stock.
Net cash provided by/used in financing activities for the years ended December 31, 2016
and 2015 have been adjusted to reflect the change in presentation of cash, cash equivalents and
restricted cash, following our adoption of ASU 2016-18 Statements of cash flows – Restricted
cash.
Loan Facilities and Senior Unsecured Notes
As at December 31, 2017, we had $604.8 million of long term debt outstanding under our
facilities and Notes, which as of the date of this annual report was $594.0 million, and consists of
the agreements described below.
Secured Term Loans:
On October 22, 2009, our wholly-owned subsidiary Gala Properties Inc. entered into a $40.0
million loan agreement with Bremer Landesbank (“Bremer”) to partly finance the acquisition cost
of the Houston. The loan is repayable in 40 quarterly installments of $0.9 million plus one balloon
installment of $4.0 million to be paid together with the last installment on November 12, 2019.
The loan bears interest at LIBOR plus a margin of 2.15% per annum.
On October 2, 2010, our wholly-owned subsidiaries Lae Shipping Company Inc. (“Lae”) and
Namu Shipping Company Inc., (“Namu”) entered into a loan agreement with Export-Import Bank
of China (“CEXIM Bank”) and DnB NOR Bank ASA (“DnB”) to finance part of the construction
cost of the Los Angeles, and the Philadelphia, for an amount of up to $82.6 million, of which
$72.1 million was drawn, being 70% of the vessels’ market value on delivery. The Lae advance
is repayable in 40 quarterly installments of approximately $0.6 million and a balloon of $12.3
million payable together with the last installment on February 15, 2022. The Namu advance is
repayable in 40 quarterly installments of approximately $0.6 million and a balloon of $11.4 million
payable together with the last installment on May 18, 2022. Pursuant to an amendment of the loan
agreement dated May 18, 2017, each of the individual banks are allowed to demand repayment
in full of such bank’s contribution in any or all advances on August 16, 2019. If one or more banks
(acting through the agent) exercise such right in respect of an advance, the borrowers shall be
obliged to repay each such bank’s contribution in that advance in full on such date. The loan bears
interest at LIBOR plus a margin of 2.50% per annum.
On September 13, 2011, our wholly-owned subsidiary Bikar Shipping Company Inc. (“Bikar”)
entered into a loan agreement with Emporiki Bank of Greece S.A. (“Emporiki”) for a loan of up to
$15.0 million to refinance part of the acquisition cost of the Arethusa. On December 13, 2012,
Bikar, the Company, DSS and Credit Agricole Corporate and Investment Bank (“Credit Agricole”)
entered into a supplemental loan agreement to transfer the outstanding loan balance, the ISDA
master swap agreement and the existing security documents from Emporiki to Credit Agricole.
The loan is repayable in 20 equal semiannual installments of $0.5 million each and a balloon
payment of $5.0 million to be paid together with the last installment on September 15, 2021. The
80 ■ ANNUAL REPORT 2017
loan bears interest at LIBOR plus a margin of 2.5% per annum, or 1% for such loan amount that
is equivalently secured by cash pledge in favor of the bank.
On May 24, 2013, our wholly-owned subsidiaries Erikub Shipping Company Inc. (“Erikub”)
and Wotho Shipping Company Inc. (“Wotho”) entered into a loan agreement with CEXIM Bank
and DnB to finance part of the construction cost of Crystalia and Atalandi for an amount of up to
$15.0 million for each vessel, drawn on May 22, 2014. Each advance is repayable in 19 quarterly
installments of $250,000 and a balloon of $10.3 million payable together with the last installment
on February 22, 2019. The loan bears interest at LIBOR plus a margin of 3.0% per annum.
On January 9, 2014, our wholly-owned subsidiaries Taka Shipping Company Inc. and Fayo
Shipping Company Inc. entered into a loan agreement with Commonwealth Bank of Australia,
London Branch, for a loan facility of up to $18.0 million to finance part of the acquisition cost of
the Melite and Artemis. The loan bears interest at LIBOR plus a margin of 2.25%. The loan was
drawn in two tranches, one of $8.5 million assigned to Melite and one of $9.5 million assigned to
Artemis. Tranche A is repayable in 24 equal consecutive quarterly installments of $195,833 each;
and a balloon of $3.8 million payable on January 13, 2020. Tranche B is repayable in 32 equal
consecutive quarterly installments of $156,250 each and a balloon of $4.5 million payable on
January 13, 2022. As a result of the grounding incident of the Melite and the subsequent sale of
the vessel, Tranche A was repaid in full in October 2017.
On December 18, 2014, our wholly-owned subsidiaries Weno Shipping Company Inc. (“Weno”)
and Pulap Shipping Company Inc. (“Pulap”) entered into a loan agreement with BNP Paribas
(“BNP”), for a loan facility of up to $55.0 million to finance part of the acquisition cost of the G. P.
Zafirakis and the P. S. Palios, of which $53.5 million was drawn. The loan bears interest at LIBOR
plus a margin of 2%, and is repayable in 14 equal semi-annual installments of approximately $1.6
million and a balloon of $31.5 million, payable on November 30, 2021.
On March 17, 2015, eight of our wholly-owned subsidiaries entered into a loan facility with
Nordea to refinance the existing agreements with the bank and to add additional vessels. On
March 19, 2015, after repaying in full all outstanding indebtedness with the bank, we drew down
the amount of $93.1 million. The loan is repayable in 24 equal consecutive quarterly installments of
approximately $1.9 million and a balloon of $48.4 million payable together with the last installment
on March 19, 2021. The loan bears interest plus a margin of 2.1% of LIBOR.
On March 26, 2015, three of our wholly-owned subsidiaries entered into a loan agreement with
ABN AMRO Bank N.V. for a secured term loan facility of up to $53.0 million, to refinance part of
the acquisition cost of the vessels New York, Myrto and Maia of which $50.2 million was drawn
on March 30, 2015. The loan is repayable in 24 equal consecutive quarterly installments of about
$1.0 million and a balloon of $26.3 million payable together with the last installment on March 30,
2021. The loan bears interest at LIBOR plus a margin of 2.0%.
On April 29, 2015, our wholly-owned subsidiary Lelu Shipping Company Inc. (“Lelu”) entered
into a term loan agreement with Danish Ship Finance A/S for a loan facility of $30.0 million, drawn
on April 30, 2015 to partly finance the acquisition cost of the Santa Barbara, which was delivered
in January 2015. The loan is repayable in 28 equal consecutive quarterly installments of $0.5
million each and a balloon of $16.0 million payable together with the last installment on April 30,
2022. The loan bears interest at LIBOR plus a margin of 2.15%
On July 22, 2015, we entered into a term loan agreement with BNP Paribas for a loan of $165.0
million drawn on July 24, 2015. The loan is repayable in 20 consecutive quarterly installments,
the first eight installments in an amount of $2.5 million, followed by four installments in an amount
ANNUAL REPORT 2017 ■ 81
of $5.0 million; eight installments in an amount of $7.0 million; and a balloon installment of $69.0
million payable together with the last installment on July 24, 2020. The loan bears interest at
LIBOR plus a margin of 2.35% per annum for the first two years; 2.3% per annum for the third
year and 2.25% per annum until the final maturity of the loan.
On September 30, 2015, our wholly-owned subsidiaries, Ujae Shipping Company Inc. (“Ujae”)
and Rairok Shipping Company Inc. (“Rairok”) entered into a term loan agreement with ING Bank
N.V. for a loan of up to $39.7 million, available in two advances to finance part of the acquisition
cost of the New Orleans and the Medusa. Advance A of about $28.0 million was drawn on
November 19, 2015 and is repayable in 28 consecutive quarterly installments of about $0.5
million and a balloon installment of about $15.0 million payable together with the last installment
on November 19, 2022. Advance B of about $11.7 million was drawn on October 6, 2015 and is
repayable in 28 consecutive quarterly installments of about $0.3 million and a balloon installment
of about $3.5 million payable together with the last installment on October 6, 2022. The loan bears
interest at LIBOR plus a margin of 1.65%.
On January 7, 2016, three of our wholly-owned subsidiaries entered into a secured loan
agreement with the CEXIM Bank for a loan of up to $75.7 million in order to finance part of the
construction cost of three vessels. On January 4, 2017, we drew down $57.24 million to finance
part of the construction cost of San Francisco and Newport News, both delivered on January 4,
2017. The balance of the committed loan amount, including the tranche for Hull DY6006 whose
shipbuilding contract was cancelled on October 31, 2016, was cancelled. On February 6, 2017,
we also entered into a Deed of Release with the CEXIM Bank in order to release the owner of Hull
DY6006 of all of its obligations under the loan agreement as borrower. The loan is payable in 60
equal quarterly installments of $954,000 each, the last of which is payable by March 12, 2032,
and bears interest at LIBOR plus a margin of 2.3%.
On March 29, 2016, two of our wholly-owned subsidiaries entered into a term loan agreement
with ABN AMRO Bank N.V. for a loan of $25.755 million, drawn on March 30, 2016, to finance the
acquisition cost of the Selina and the Ismene. The loan is payable in eight consecutive quarterly
installments of $855,000 each and a balloon installment of $18.9 million payable together with
the last installment by June 30, 2019. The first repayment installment was repaid on September
30, 2017. The loan bears interest at LIBOR plus a margin of 3%.
On May 10, 2016, one of our wholly-owned subsidiaries entered into a term loan agreement
with DNB Bank ASA and the CEXIM Bank for a loan of $13.51 million, drawn on the same date,
being the purchase price of the Maera. The loan is payable in seven equal consecutive quarterly
installments of $19,775 each, four equal consecutive quarterly installments of $282,500 each and
a balloon of about $12.2 million payable together with the last installment on January 4, 2019.
The loan bears interest at LIBOR plus a margin of 3% per annum. Subsequently to December
31, 2017, and according to the terms of the loan agreement, we prepaid an additional amount of
$289,177 which will be deducted from the balloon and which was reclassified as current in the
consolidated balance sheet as at December 31, 2017.
Under the secured term loans outstanding as of December 31, 2017, 46 vessels of the
Company’s fleet were mortgaged with first preferred or priority ship mortgages. Additional
securities required by the banks include first priority assignment of all earnings, insurances,
first assignment of time charter contracts with duration that exceeds a certain period, pledge
over the shares of the borrowers, manager’s undertaking and subordination and requisition
compensation and either a corporate guarantee by Diana Shipping Inc. (the “Guarantor”) or a
guarantee by the ship owning companies (where applicable), financial covenants, as well as
operating account assignments. The lenders may also require additional security in the future
82 ■ ANNUAL REPORT 2017
in the event the borrowers breach certain covenants under the loan agreements. The secured
term loans generally include restrictions as to changes in management and ownership of the
vessels, additional indebtedness, as well as minimum requirements regarding hull cover ratio and
minimum liquidity per vessel owned by the borrowers, or the guarantor, maintained in the bank
accounts of the borrowers, or the guarantor. Furthermore, the secured term loans contain cross
default provisions and additionally the Company is not permitted to pay any dividends following
the occurrence of an event of default.
As at December 31, 2016, we were not in compliance with the minimum security cover
requirement, under our $165.0 million loan facility with BNP Paribas. We estimated the shortfall to
be $25.7 million and as such an amount of $19.7 million, representing the amount which would
have to be paid to the bank, was reclassified as current in the consolidated balance sheet as at
December 31, 2016. In addition, we received a waiver from the Commonwealth Bank, valid until
December 31, 2016, for the non-compliance with the minimum required security cover, which
was amended to a lower level than the one stated in the loan agreement. On January 13, 2017,
the bank extended its consent for the use of the lower minimum required security cover until June
30, 2017. As of December 31, 2017 and the date of this report, we were in compliance with all
of our loan covenants.
Currently, all of our vessels, except for four, have been provided as collateral to secure our
loan facilities.
Senior Notes due 2020
On May 28, 2015, we issued $55.0 million aggregate principal amount of our 8.5% senior
unsecured notes due 2020, or our Notes, in a registered public offering and on June 5, 2015,
we issued an additional $8.25 million aggregate principal amount of the Notes, pursuant to the
underwriters’ option to purchase additional Notes. The Notes will mature on May 15, 2020, and
effective May 15, 2017 may be redeemed in whole or in part at any time at a redemption price equal
to 100% of the principal amount to be redeemed, plus accrued and unpaid interest to, but excluding,
the redemption date. The Notes bear interest at a rate of 8.500% per annum, payable quarterly on
each February 15, May 15, August 15 and November 15, commencing on August 15, 2015. The
Notes commenced trading on the NYSE on May 29, 2015 under the symbol “DSXN.”
For additional information about our Notes, please see the section entitled “Description of Notes”
in the final prospectus supplement related to the offering, filed with the SEC on May 22, 2015 and
incorporated by reference herein.
As of December 31, 2017, 2016 and 2015 and as of the date of this annual report, we did not
and have not designated any financial instruments as accounting hedging instruments.
Capital Expenditures
We make capital expenditures from time to time in connection with vessel acquisitions and
constructions, which we finance with cash from operations, debt under loan facilities at terms
acceptable to us, with funds from equity issuances and we have also issued senior notes. Currently,
we do not have capital expenditures for vessel acquisitions or constructions, but we incur capital
expenditures when our vessels undergo surveys. This process of recertification may require us to
reposition these vessels from a discharging port to shipyard facilities, which will reduce our operating
days during the period. The loss of earnings associated with the decrease in operating days together
with the capital needs for repairs and upgrades result in increased cash flow needs. We expect to
cover such capital expenditures and cash flow needs with cash from operations and cash on hand.
ANNUAL REPORT 2017 ■ 83
C. Research and development, patents and licenses
We incur from time to time expenditures relating to inspections for acquiring new vessels that
meet our standards. Such expenditures are insignificant and they are expensed as they incur.
D. Trend information
Our results of operations depend primarily on the charter hire rates that we are able to realize,
and the demand for dry bulk vessel services. The Baltic Dry Index, or the BDI, has long been viewed
as the main benchmark to monitor the movements of the dry bulk vessel charter market and the
performance of the entire dry bulk shipping market. The BDI declined 94% in 2008 from a peak
of 11,793 in May 2008 to a low of 663 in December 2008 and has remained volatile since then.
In 2015, the BDI ranged from a high of 1,222 in August to a low of 471 in December. In 2016, the
BDI ranged from a record low of 290 in February to a high of 1,257 in November. In 2017, the BDI
ranged from a low of 685 in February to a high of 1,743 in December.
The decline and volatility in charter rates in the dry bulk market reflects in part the fact that the
supply of dry bulk vessels in the market has been increasing, and the number of newbuilding dry
bulk vessels on order is high. Demand for dry bulk vessel services is influenced by global financial
conditions. The recovery in China and India positively influenced the charter rates; however, global
financial conditions remain volatile and demand for dry bulk services may decrease in the future. The
combination of increasing dry bulk capacity (both current and expected) and decreasing demand or
demand which is not offset by the increase in dry bulk capacity may result in reductions in charter
hire rates and, as a consequence, adversely affect our operating results.
Additionally, we believe we have structured our capital expenditure requirements, debt commitments
and liquidity resources in a way that will provide us with financial flexibility (see “Item 5. Operating and
Financial Review and Prospects—B. Liquidity and Capital Resources” for more information).
E. Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
F. Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations, in thousands of U.S. dollars, and their
maturity dates as of December 31, 2017:
Contractual Obligations
Loan Agreements and Notes(1)
Estimated Interest Payments on
Loan Agreements and Notes(1)
Broker services agreement(2)
Preferred dividends(3)
Total
Payments due by period
Total
Amount
Less than
1 year
2-3 years 4-5 years
More than
5 years
(in thousands of US dollars)
$ 604,793 $ 62,059 $ 302,475 $ 204,961 $ 35,298
70,148
450
7,692
24,525
32,033
7,423
6,167
450
5,769
-
1,923
-
-
-
-
$ 683,083
$ 92,803 $ 336,431 $ 212,384 $ 41,465
(1) As of December 31, 2017, we had an aggregate principal amount of $604.8 million of
indebtedness outstanding under our loan facilities and our Notes. Estimated interest payments
represent projected interest payments on our long term debt, which are based on the weighted
84 ■ ANNUAL REPORT 2017
average LIBOR rate in 2017 plus the margin of our loan agreements in 2017 and the fixed interest
rate of our Notes.
(2) Our agreement with Steamship (formerly Diana Enterprises Inc.) dated April 1, 2017,
expires on March 31, 2018.
(3) On February 24, 2014 we completed an offering of 2,600,000 shares of Series B
Perpetual Preferred Stock, at the price of $25.0 per share, and dividends are payable at a rate
equal to 8.875% per annum. At any time on or after February 14, 2019, the Series B Preferred
Shares may be redeemed, in whole or in part, at a redemption price of $25.00 per share, plus an
amount equal to all accumulated and unpaid dividends thereon to the date of redemption, whether
or not declared. The table above presents our obligations for dividend payments until February 14,
2019. The table above does not include the payment for the redemption, which is at our option.
G. Safe Harbor
See the section entitled “Forward-Looking Statements” at the beginning of this annual report.
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
Set forth below are the names, ages and positions of our directors and executive officers.
Effective March 4, 2015, our Board of Directors increased its size from seven to nine members
and Mr. Kyriacos Riris and Mrs. Semiramis Paliou were appointed to fill the resulting vacancies.
Our board of directors is elected annually on a staggered basis, and each director elected holds
office for a three-year term and until his or her successor is elected and has qualified, except in
the event of such director’s death, resignation, removal or the earlier termination of his or her term
of office. Officers are appointed from time to time by our board of directors and hold office until a
successor is appointed or their employment is terminated.
Name
Simeon Palios
Anastasios Margaronis
Ioannis Zafirakis
Andreas Michalopoulos
Maria Dede
William (Bill) Lawes
Konstantinos Psaltis
Kyriacos Riris
Apostolos Kontoyannis
Semiramis Paliou
Konstantinos Fotiadis
Age Position
76 Class I Director, Chief Executive Officer and Chairman
62 Class I Director and President
46 Class I Director, Chief Operating Officer and Secretary
46 Chief Financial Officer and Treasurer
45 Chief Accounting Officer
74 Class II Director
79 Class II Director
68 Class II Director
69 Class III Director
43 Class III Director
67 Class III Director
The term of our Class I directors expires in 2018, the term of our Class II directors expires in
2019, and the term of our Class III directors expires in 2020.
The business address of each officer and director is the address of our principal executive
offices, which are located at Pendelis 16, 175 64 Palaio Faliro, Athens, Greece.
Biographical information with respect to each of our directors and executive officers is set
forth below.
ANNUAL REPORT 2017 ■ 85
Simeon P. Palios has served as the Chief Executive Officer and Chairman of Diana Shipping
Inc. since February 21, 2005 and as a Director since March 9, 1999 and has served as the
Chief Executive Officer and Chairman of Diana Containerships Inc. since January 13, 2010. Mr.
Palios also serves currently as the President of Diana Shipping Services S.A., our management
company. Prior to November 12, 2004, Mr. Palios was the Managing Director of Diana Shipping
Agencies S.A. Since 1972, when he formed Diana Shipping Agencies S.A., Mr. Palios has had
overall responsibility for its activities. Mr. Palios has experience in the shipping industry since 1969
and expertise in technical and operational issues. He has served as an ensign in the Greek Navy
for the inspection of passenger boats on behalf of Ministry of Merchant Marine and is qualified
as a naval architect and marine engineer. Mr. Palios is a member of various leading classification
societies worldwide and he is a member of the board of directors of the United Kingdom Freight
Demurrage and Defense Association Limited. Mr. Palios has also served as President of the
Association “Friends of Biomedical Research Foundation, Academy of Athens” since 2015. He
holds a bachelor’s degree in Marine Engineering from Durham University.
Anastasios C. Margaronis has served as our President and as a Director since February 21,
2005 and has served as the Director and President of Diana Containerships Inc. since January 13,
2010. Mr. Margaronis is a Deputy President of Diana Shipping Services S.A., where he also serves
as a Director and Secretary. Prior to February 21, 2005, Mr. Margaronis was employed by Diana
Shipping Agencies S.A. and performed on our behalf the services he now performs as President.
He joined Diana Shipping Agencies S.A. in 1979 and has been responsible for overseeing our
vessels’ insurance matters, including hull and machinery, protection and indemnity and war risks
insurances. Mr. Margaronis has experience in the shipping industry, including in ship finance and
insurance, since 1980. He is a member of the Greek National Committee of the American Bureau
of Shipping and a member of the board of directors of the United Kingdom Mutual Steam Ship
Assurance Association (Europe) Limited. He holds a bachelor’s degree in Economics from the
University of Warwick and a master’s of science degree in Maritime Law from the Wales Institute
of Science and Technology.
Ioannis G. Zafirakis serves as our Director, Chief Operating Officer and Secretary. He also
serves as Director, Chief Operating Officer and Secretary of Diana Containerships Inc. In addition,
he is the Chief Operating Officer of Diana Shipping Services S.A., where he also serves as Director
and Treasurer. From June 1997 to February 2005, Mr. Zafirakis was employed by Diana Shipping
Agencies S.A. where he held a number of positions in its finance and accounting department.
Mr. Zafirakis is also a member of the Business Advisory Committee of the MSc in International
Shipping and Finance at ICMA Centre, Henley Business School, University of Reading. He holds
a bachelor’s degree in Business Studies from City University Business School in London and a
master’s degree in International Transport from the University of Wales in Cardiff.
Andreas Michalopoulos has served as our Chief Financial Officer and Treasurer since March
8, 2006 and has served in these positions with Diana Containerships Inc. since January 13, 2010.
Mr. Michalopoulos started his career in 1993 when he joined Merrill Lynch Private Banking in Paris.
In 1995, he became an International Corporate Auditor with Nestle SA based in Vevey, Switzerland
and moved in 1998 to the position of Trade Marketing and Merchandising Manager. From 2000
to 2002, he worked for McKinsey and Company in Paris, France as an Associate Generalist
Consultant before joining a major Greek Pharmaceutical Group with U.S. R&D activity as a Vice
President of International Business Development and Member of the Executive Committee in 2002
where he remained until 2005. From 2005 to 2006, he joined Diana Shipping Agencies S.A. as a
Project Manager. Mr. Michalopoulos graduated from Paris IX Dauphine University with Honors in
1993 obtaining an MSc in Economics and a master’s degree in Management Sciences specialized
in Finance. In 1995, he also obtained a master’s degree in Business Administration from Imperial
College, University of London. Mr. Andreas Michalopoulos is married to the youngest daughter
86 ■ ANNUAL REPORT 2017
of Mr. Simeon Palios.
Maria Dede has served as our Chief Accounting Officer since September 1, 2005 during which
time she has been responsible for all financial reporting requirements. Mrs. Dede has also served
as an employee of Diana Shipping Services S.A. since March 2005. In 2000 Mrs. Dede joined the
Athens branch of Arthur Andersen, which merged with Ernst and Young (Hellas) in 2002, where
she served as an external auditor of shipping companies until 2005. From 1996 to 2000 Mrs.
Dede was employed by Venus Enterprises S.A., a ship-management company, where she held
a number of positions primarily in accounting and supplies. Mrs. Dede holds a Bachelor’s degree
in Maritime Studies from the University of Piraeus, a Master’s degree in Business Administration
from the ALBA Graduate Business School and a Master’s degree in Auditing and Accounting from
the Greek Institute of Chartered Accountants.
William (Bill) Lawes has served as a Director and the Chairman of our Audit Committee
since March 2005. Mr. Lawes served as a Managing Director and a member of the Regional
Senior Management Board of JPMorgan Chase and its predecessor banks from 1987 until 2002.
Prior to joining JPMorgan Chase, he was Global Head of Shipping Finance at Grindlays Bank.
Since December 2007, he has served as an independent member of the Board of Directors
and Chairman of the Audit Committee of Teekay Tankers Ltd. Mr. Lawes joined Seafarers UK, a
maritime charity, as Trustee and Finance Committee member in 2016. Mr. Lawes is qualified as a
member of the Institute of Chartered Accountants of Scotland.
Konstantinos Psaltis has served as a Director since March 2005 and a member of our
Compensation Committee since May 2017. From 1981 to 2006, Mr. Psaltis served as Managing
Director of Ormos Compania Naviera S.A., a company that specializes in operating and managing
multipurpose container vessels and from 2006 until today as a President of the same company.
Prior to joining Ormos Compania Naviera S.A., Mr. Psaltis simultaneously served as a technical
manager in the textile manufacturing industry and as a shareholder of shipping companies
managed by M.J. Lemos. From 1961 to 1964, he served as ensign in the Royal Hellenic Navy. He
holds a degree in Mechanical Engineering from Technische Hochschule Reutlingen & Wuppertal
and a bachelor’s degree in Business Administration from Tubingen University in Germany.
Kyriacos Riris has served as a Director since March 2015. Commencing in 1998, Mr. Riris
served in a series of positions in PricewaterhouseCoopers (PwC), Greece, including Senior Partner,
Managing Partner of the Audit and the Advisory/Consulting Lines of Service. From 2009 to 2014,
Mr. Riris served as Chairman of the Board of Directors of PricewaterhouseCoopers (PwC), Greece.
Prior to its merger with PwC, Mr. Riris was employed at Grant Thornton, Greece, where in 1984
he became a Partner. From 1976 to 1982, Mr. Riris was employed at Arthur Young, Greece. Mr.
Riris holds a degree from Birmingham Polytechnic (presently Birmingham City University) and
completed his professional qualifications with the Association of Certified Chartered Accountants
(ACCA) in the UK in 1975, becoming a Fellow of the Association of Certified Accountants in 1985.
Apostolos Kontoyannis has served as a Director and as the Chairman of our Compensation
Committee and a member of our Audit Committee since March 2005. Mr. Kontoyannis has over
40 years of experience in shipping finance and currently serves as financial consultant to various
shipping companies. He was employed by Chase Manhattan Bank N.A. in Frankfurt (Corporate
Bank), London (Head of Shipping Finance South Western European Region) and Piraeus (Manager,
Ship Finance Group) from 1975 to 1987. Mr. Kontoyannis holds a bachelor’s degree in Finance
and Marketing and a master’s degree in business administration in Finance from Boston University.
Semiramis Paliou has served as a Director since March 2015. Mrs. Paliou has almost 20 years
of experience in shipping operations, technical management and crewing. Mrs. Paliou began her
ANNUAL REPORT 2017 ■ 87
career at Lloyd’s Register of Shipping from 1996 to 1998 as a trainee ship surveyor. She was
then employed by Diana Shipping Agencies S.A. From 2007 to 2010 she was employed as a
Director and President of Alpha Sigma Shipping Corp. From February 2010 to November 2015
she was the Head of the Operations, Technical and Crew department of Diana Shipping Services
S.A. From November 2015 to October 2016 she served as Vice President of the same company.
Since November 2016 she serves as Managing Director and Head of the Technical, Operations,
Crew and Supply department of Unitized Ocean Transport Limited. Mrs. Paliou obtained her BSc
in Mechanical Engineering from Imperial College, London and her MSc in Naval Architecture from
University College, London. She is the daughter of Simeon Palios, our Chief Executive Officer and
Chairman, and is a member of the Greek committee of Det Norske Veritas - Germanischer Lloyd
and a member of the Greek committee of Nippon Kaiji Kyokai.
Konstantinos Fotiadis has served as a Director since May 2017. Mr. Fotiadis served as an
independent Director and as the Chairman of the Audit Committee of Diana Containerships Inc.
from April 2010 until February 8, 2011. From 1990 until 1994 Mr. Fotiadis served as the President
and Managing Director of Reckitt & Colman (Greece), part of the British multinational Reckitt &
Colman plc, manufacturers of household, cosmetics and health care products. From 1981 until its
acquisition in 1989 by Reckitt & Colman plc, Mr. Fotiadis was a General Manager at Dr. Michalis
S.A., a Greek company manufacturing and marketing cosmetics and health care products. From
1978 until 1981 Mr. Fotiadis held positions with Esso Chemicals Ltd. and Avrassoglou S.A. Mr.
Fotiadis has also been active as a business consultant and real estate developer. Mr. Fotiadis
holds a degree in Economics from Technische Universitaet Berlin and in Business Administration
from Freie Universitaet Berlin.
B. Compensation
Aggregate executive compensation (including amounts paid to Steamship (formerly Diana
Enterprises Inc.) pursuant to the Brokerage Services Agreements) for 2017 was $3.7 million. Since
June 1, 2010, Steamship (formerly Diana Enterprises Inc.), a related party, as described in “Item 7.
Major Shareholders and Related Party Transactions—B. Related Party Transactions” has provided
to us brokerage services. Under the Brokerage Services Agreements in effect during 2017, fees
for 2017 amounted to $1.8 million. We consider fees under these agreements to be part of our
executive compensation due to the affiliation with Steamship. We expect such fees to remain the
same in 2018.
Non-employee directors receive annual compensation in the amount of $52,000 plus
reimbursement of out-of-pocket expenses. In addition, each non-executive serving as chairman
or member of a committee receives additional annual compensation of $26,000 or $13,000,
respectively, plus reimbursement of out-of-pocket expenses. For 2017, 2016 and 2015 fees and
expenses of our non-executive directors amounted to $0.4 million, $0.4 million and $0.4 million,
respectively.
Since 2008 and until the date of this annual report, our board of directors has awarded an
aggregate amount of 11,675,241 shares of restricted common stock, of which 9,654,657 shares
were awarded to senior management and 2,020,584 shares were awarded to non-employee
directors. All restricted shares vest ratably over three years, except for 600,000 shares awarded in
2008 which vested ratably over a period of six years until 2014 and 1,314,000 shares awarded in
2014 which will vest ratably over a period of six years until 2022. The restricted shares are subject
to forfeiture until they become vested. Unless they forfeit their shares, grantees have the right to
vote, to receive and retain all dividends paid and to exercise all other rights, powers and privileges
of a holder of shares.
88 ■ ANNUAL REPORT 2017
In 2017, compensation costs relating to the aggregate amount of restricted stock awards
amounted to $8.2 million.
We do not have a retirement plan for our officers or directors.
Equity Incentive Plan
In November 2014, our board of directors approved, and the Company adopted the 2014 Equity
Incentive Plan, or the 2014 Plan, for 5,000,000 common shares, of which, currently, 1,124,759 shares
remain reserved for issuance.
Under the 2014 Plan, the Company’s employees, officers and directors are entitled to receive
options to acquire the Company’s common stock. The 2014 Plan is administered by the Compensation
Committee of the Company’s Board of Directors or such other committee of the Board as may be
designated by the Board. Under the terms of the 2014 Plan, the Company’s Board of Directors is able to
grant a) incentive stock options, b) non-qualified stock options, c) stock appreciation rights, d) dividend
equivalent rights, e) restricted stock, f) unrestricted stock, g) restricted stock units, and h) performance
shares. No options, stock appreciation rights or restricted stock units can be exercisable prior to the first
anniversary or subsequent to the tenth anniversary of the date on which such award was granted. Under
the 2014 Plan, the Administrator may waive or modify the application of forfeiture of awards of restricted
stock and performance shares in connection with cessation of service with the Company.
C. Board Practices
We have established an Audit Committee, comprised of two board members, which is responsible
for reviewing our accounting controls, recommending to the board of directors the engagement of our
independent auditors, and pre-approving audit and audit-related services and fees. Each member
has been determined by our board of directors to be “independent” under the rules of the NYSE
and the rules and regulations of the SEC. As directed by its written charter, the Audit Committee is
responsible for appointing, and overseeing the work of the independent auditors, including reviewing
and approving their engagement letter and all fees paid to our auditors, reviewing the adequacy
and effectiveness of the Company’s accounting and internal control procedures and reading and
discussing with management and the independent auditors the annual audited financial statements.
The members of the Audit Committee are Mr. William Lawes (Chairman and financial expert) and Mr.
Apostolos Kontoyannis (member and financial expert).
We have established a Compensation Committee comprised of two members, which, as directed
by its written charter, is responsible for setting the compensation of executive officers of the Company,
reviewing the Company’s incentive and equity-based compensation plans, and reviewing and
approving employment and severance agreements. The members of the Compensation Committee
are Mr. Apostolos Kontoyannis (Chairman) and Mr. Konstantinos Psaltis (member).
We have established a Nominating Committee comprised of two members, which, as directed by
its written charter, is responsible for identifying, evaluating and making recommendations to the board
of directors concerning individuals for selections as director nominees for the next annual meeting
of stockholders or to otherwise fill board of director vacancies. The members of the Nominating
Committee are Mr. Konstantinos Psaltis (Chairman) and Mr. Kyriacos Riris (member).
We have established an Executive Committee comprised of the three executive directors, Mr.
Simeon Palios (Chairman), Mr. Anastasios Margaronis (member) and Mr. Ioannis Zafirakis (member).
The Executive Committee has, to the extent permitted by law, the powers of the Board of Directors in
the management of the business and affairs of the Company.
ANNUAL REPORT 2017 ■ 89
We also maintain directors’ and officers’ insurance, pursuant to which we provide insurance coverage
against certain liabilities to which our directors and officers may be subject, including liability incurred
under U.S. securities law. Our executive directors have employment agreements, which, if terminated
without cause, entitle them to continue receiving their basic salary through the date of the agreement’s
expiration.
D. Employees
We crew our vessels primarily with Greek officers and Filipino officers and seamen and may also
employ seamen from Poland, Rumania and Ukraine. DSS and DWM are responsible for identifying the
appropriate officers and seamen mainly through crewing agencies. The crewing agencies handle each
seaman’s training, travel and payroll. The management companies ensure that all our seamen have the
qualifications and licenses required to comply with international regulations and shipping conventions.
Additionally, our seafaring employees perform most commissioning work and supervise work at
shipyards and drydock facilities. We typically man our vessels with more crew members than are required
by the country of the vessel’s flag in order to allow for the performance of routine maintenance duties.
The following table presents the number of shoreside personnel employed by DSS and the number
of seafaring personnel employed by our vessel-owning subsidiaries as at December 31, 2017, 2016
and 2015.
Year Ended December 31,
2016
2017
2015
Shoreside
Seafaring
Total
E. Share Ownership
93
95
1,006
923
101
993
1,099
1,018
1,094
With respect to the total amount of common shares and Series B Preferred Shares owned
by our officers and directors, individually and as a group, see “Item 7. Major Shareholders and
Related Party Transactions—A. Major Shareholders.”
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table sets forth information regarding ownership of our common stock of which
we are aware as of March 14, 2018, for (i) beneficial owners of five percent or more of our common
stock and (ii) our officers and directors, individually and as a group. All of our shareholders, including
the shareholders listed in this table, are entitled to one vote for each share of common stock held.
Title of Class
Identity of Person or Group
Common Stock, par value $0.01 Simeon Palios (1)
Franklin Resources Inc. (2)
Kopernik Global Investors, LLC (3)
Number of
Shares Owned
Percent of
Class
24,914,107
12,833,190
5,573,381
23.1%
11.9%
5.2%
27.1%
* Based on 107,931,017 common shares outstanding as of March 14, 2018.
All officers and directors as a group. (4)
29,273,657
(1) Mr. Simeon Palios indirectly may be deemed to beneficially own 9,524,360 shares
90 ■ ANNUAL REPORT 2017
beneficially owned by Ironwood Trading Corp. and 15,389,747 shares beneficially owned by
Steamship Shipbroking Enterprises Inc. (formerly Diana Enterprises Inc.), including 4,762,180
shares beneficially owned through Corozal Compania Naviera, as the result of his ability to control
the vote and disposition of such entities, for an aggregate of 24,914,107 shares. As of December
31, 2015, 2016 and 2017, Mr. Simeon Palios owned indirectly 20.6%, 22.2% and 22.5%,
respectively, of our outstanding common stock.
(2) This information is derived from a Schedule 13G/A filed with the SEC on February 6, 2018.
(3) This information is derived from a Schedule 13G/A filed with the SEC on February 9, 2018.
(4) Mr. Simeon Palios is our only director or officer that beneficially owns 5% or more of our
outstanding common stock. Mr. Anastasios Margaronis, our President and a member of our board
of directors is indirect shareholder through ownership of stock held in Corozal Compania Naviera
S.A., and Ironwood Trading Corp. Mr. Margaronis does not have dispositive or voting power with
regard to shares held by Corozal Compania S.A. and Ironwood Trading Corp. and, accordingly,
is not considered to be beneficial owner of our common shares held through Corozal Compania
Naviera S.A. and Ironwood Trading Corp. Mr. Anastasios Margaronis also owns indirectly 3.2%
of our outstanding common stock. Messrs. Lawes, Psaltis, Kontoyannis, Fotiadis and Mrs. Paliou
each a non-executive director of ours each owns less than 1% of our outstanding common stock.
In addition, Steamship (formerly Diana Enterprises Inc.) owns indirectly 100,390, or 3.9% of the
outstanding Series B Preferred Shares and Mr. Anastasios Margaronis owns indirectly 28,025,
or 1.1% of the outstanding Series B Preferred Shares. All officers and directors as a group own
133,575, or 5.1% of our outstanding Series B Preferred Shares.
As of March 14, 2018, we had 127 shareholders of record, 109 of which were located in the
United States and held an aggregate of 84,288,424 of our common shares, representing 78.1% of
our outstanding common shares. However, one of the U.S. shareholders of record is CEDE & CO., a
nominee of The Depository Trust Company, which held 84,271,573 of our common shares as of that
date. Accordingly, we believe that the shares held by CEDE & CO. include common shares beneficially
owned by both holders in the United States and non-U.S. beneficial owners. We are not aware of
any arrangements the operation of which may at a subsequent date result in our change of control.
Holders of the Series B Preferred Shares generally have no voting rights except (1) in respect
of amendments to the Articles of Incorporation which would adversely alter the preferences,
powers or rights of the Series B Preferred Shares or (2) in the event that we propose to issue any
parity stock if the cumulative dividends payable on outstanding Preferred Stock are in arrears or
any senior stock. However, if and whenever dividends payable on the Series B Preferred Shares
are in arrears for six or more quarterly periods, whether or not consecutive, holders of Series B
Preferred Shares (voting together as a class with all other classes or series of parity stock upon
which like voting rights have been conferred and are exercisable) will be entitled to elect one
additional director to serve on our board of directors until such time as all accumulated and unpaid
dividends on the Series B Preferred Shares have been paid in full.
B. Related Party Transactions
Steamship Shipbroking Enterprises Inc.
Steamship (formerly Diana Enterprises Inc.), an affiliated entity that is controlled by our Chief
Executive Officer and Chairman of the Board, Mr. Simeon Palios, provides to us brokerage services
for an annual fee pursuant to a Brokerage Services Agreement. In 2017, brokerage fees amounted
to $1.8 million. The terms of this relationship are currently governed by a Brokerage Services
ANNUAL REPORT 2017 ■ 91
Agreement dated April 1, 2017, due to expire on March 31, 2018.
Altair Travel Agency S.A.
Altair Travel Agency S.A., or Altair, an affiliated entity that is controlled by our Chief Executive
Officer and Chairman of the Board, Mr. Simeon Palios, provides us with travel related services.
Travel related expenses in 2017, amounted to $2.1 million. We believe that the amounts that we
pay to Altair Travel Agency S.A. for acquiring tickets and other travel related services are no greater
than fees we would pay to an unrelated third party for comparable services.
Diana Containerships, Non-Competition Agreement
On March 1, 2013, we entered into an amended and restated non-competition agreement
with Diana Containerships, where we have agreed that, as long as any of our current or continuing
executive officers also serves as an executive for Diana Containerships Inc., and for six months
thereafter, we will not acquire or charter any vessel, or otherwise operate in, the containership
sector and Diana Containerships will not acquire or charter any vessel, or otherwise operate in,
the dry bulk sector.
Diana Containerships, Loan Agreement and Series C Preferred Stock
On May 20, 2013, we entered into a loan agreement with Eluk Shipping Company Inc., a
subsidiary of Diana Containerships, to provide to it an unsecured loan of up to $50.0 million to be used
for general corporate purposes and working capital, which was drawn on August 20, 2013. The loan
was approved by an Independent Committee of our Board of Directors and by our Board of Directors
and bore interest at LIBOR plus a margin of 5% per annum and a back-end fee equal to 1.25% per
annum on the outstanding amount, receivable on the repayment date of such amount. The loan was
amended on July 28, 2014, and further amended on September 9, 2015, pursuant to which the loan
maturity was extended to March 15, 2022; interest decreased to at LIBOR plus a margin of 3% per
annum; the back-end fee accumulated up to and became payable on the date of the amendment;
and the borrowers agreed to pay to the lender a fee of $0.2 million on the maturity date. In addition,
the outstanding principal amount of the loan was to be repaid in amounts totalling $5.0 million per
annum, but not to exceed $32.5 million in the aggregate. The unsecured loan was guaranteed by
Diana Containerships, and Diana Containerships and its subsidiaries were not able to incur additional
indebtedness during the term of the loan without our prior consent. Also, the loan was subordinated
to Diana Containerships’ then existing loan with the Royal Bank of Scotland. On August 24, 2016,
an Independent Committee of our Board of Directors and our Board of Directors approved another
amendment to the loan, pursuant to which the repayment of all outstanding principal amounts were
to be deferred until the later of (i) the repayment or prepayment in full by Diana Containerships of a
deferred amount under its then existing loan agreement with The Royal Bank of Scotland plc, whose
repayment was scheduled to commence on March 15, 2019 and be completed not later than June
15, 2021, and (ii) September 15, 2018. The amendment also changed the borrower under the loan
to another wholly-owned subsidiary of Diana Containerships, Kapa Shipping Company Inc., and
provided for an increase of the interest rate for the period between September 12, 2016 (the effective
date of the amendment) and December 31, 2018 to 3.35% per annum over LIBOR.
On May 30, 2017, we further amended the loan to Diana Containerships, pursuant to which we
acquired 100 shares of newly-designated Series C Preferred Stock, par value $0.01 per share, of
Diana Containerships, in exchange for a reduction of $3.0 million in the principal amount of the loan.
The Series C Preferred Stock has no dividend or liquidation rights. The Series C Preferred Stock votes
with the common shares of Diana Containerships, and each share of the Series C Preferred Stock
entitles the holder thereof to up to 250,000 votes, subject to a cap such that the aggregate voting
92 ■ ANNUAL REPORT 2017
power of any holder of Series C Preferred Stock together with its affiliates does not exceed 49.0%, on
all matters submitted to a vote of the stockholders of Diana Containerships. The acquisition of shares
of Series C Preferred Stock was approved by an Independent Committee of our Board of Directors.
Refinancing of Loan Agreement
On June 30, 2017, we refinanced our loan agreement with Diana Containerships described
above with a new secured loan facility of $82.6 million, which includes the $42.4 million outstanding
principal balance as of June 30, 2017, increased by the flat fee of $0.2 million payable at maturity,
plus an additional loan amount to Diana Containerships of $40.0 million. We refer to this loan as the
Refinanced Loan. The loan matures on December 31, 2018, and bears interest at the rate of 6% per
annum for the first twelve (12) months of the loan, scaled to 9% for the next three (3) months, and
further scaled to 12% for the remaining three (3) months of the loan. We have the option to request
full repayment of the Refinanced Loan after twelve months from the initial drawing. The loan also has
an additional $5.0 million interest-bearing amount, classified as discount premium, which is payable
at maturity, but will be permanently waived and cancelled, in case we exercise our option for full
repayment of the loan within twelve months from drawing. The loan facility includes financial and
other covenants.
In connection with the refinancing transaction, Diana Containerships entered into a loan
agreement with Addiewell Ltd., an unaffiliated third party, dated June 30, 2017, in the amount of
$35.0 million, which we refer to as the Addiewell Loan. The Addiewell Loan also has an additional
$10.0 million interest-bearing amount, which is classified as discount premium. Diana Containerships
used the aggregate new borrowings of $75.0 million under the Addiewell Loan and Refinanced Loan,
together with $10.0 million cash on hand, to pay an aggregate of $85.0 million for full and final
settlement of Diana Containerships’ then existing $148.0 million secured loan facility with The Royal
Bank of Scotland plc, entered into on September 10, 2015, as amended, which had an outstanding
balance of $128.9 million as of June 30, 2017. The Refinanced Loan and Addiewell Loan are each
secured by second and first priority mortgages, respectively, on all vessels of Diana Containerships,
pursuant to which the $35.0 million funded under the Addiewell Loan has the first repayment priority,
followed in priority order by the $40.0 million funded under the Refinanced Loan, the balance of the
principal amount under the Addiewell Loan, and the balance of the amounts owed to Diana Shipping
Inc. under the Refinanced Loan.
Income from interest and fees for 2017, amounted to $3.9 million and is included in Interest and
other income in the respective consolidated statements of operations. As of December 31, 2017 and
the date of this report, the loan receivable from Diana Containerships amounted to $82.6 million and
$74.2 million, respectively, and an additional $5.0 million unrecorded discount premium outstanding.
Diana Wilhelmsen Management Limited
Diana Wilhelmsen Management Limited, or DWM, is a 50/50 joint venture which provides
management services to ten vessels in our fleet for a fixed monthly fee and commercial services
charged as a percentage of the vessels’ gross revenues. Management fees for 2017 amounted
to $1.9 million, whereas commercial fees amounted to about $0.3 million.
C. Interests of Experts and Counsel
Not Applicable.
Item 8. Financial information
ANNUAL REPORT 2017 ■ 93
A. Consolidated statements and other financial information
See “Item 18. Financial Statements.”
Legal Proceedings
On August 8, 2013, DSS was found guilty on felony counts and on December 5, 2013 was
sentenced by the United States District Court in Norfolk, Virginia to a fine of $1.1 million and a
period of probation of three years and six months, as a result of a conviction in which DSS was
held vicariously liable for the actions of the chief engineer and second assistant engineer of the
M/V Thetis, who were found guilty by the Court of violating several U.S. statutes and regulations
in failing to properly handle waste oils, maintain required records and for obstruction of justice.
In addition, the sentence includes a requirement for the duration of the probation period to
maintain an enhanced system subject to independent audit for managing waste oils on each
vessel managed by DSS. The probation period ended in June 2017.
In December 2016, one of our wholly-owned subsidiaries, upon signing a settlement
agreement with a former charterer, received an amount of $5.5 million as partial payment
pursuant to an arbitration award. The partial payment of the arbitration award is without
prejudice, and we intend to seek the recovery of the balance of the award.
Except as described above, we have not been involved in any legal proceedings which may
have, or have had, a significant effect on our business, financial position, results of operations or
liquidity, nor are we aware of any proceedings that are pending or threatened which may have a
significant effect on our business, financial position, results of operations or liquidity. From time
to time, we may be subject to legal proceedings and claims in the ordinary course of business,
principally personal injury and property casualty claims. We expect that these claims would be
covered by insurance, subject to customary deductibles. Those claims, even if lacking merit,
could result in the expenditure of significant financial and managerial resources.
Dividend Policy
Our board of directors reviews and amends our dividend policy from time to time in light of our
business plans and other factors. As of November 2008, our board of directors has suspended
the payment of dividends on our common shares, with the exception of a stock dividend of the
shares of Diana Containerships representing 80% of our interest at that date, distributed to all
shareholders on a pro-rata basis as a result of the partial spin-off of Diana Containerships, effective
January 19, 2011.
We believe that the suspension of dividend payments has positioned us better in a recently
depressed market and has enhanced our flexibility by permitting cash flow that would have been
devoted to dividends to be used for opportunities that have arisen, and may continue to arise in
the marketplace, such as funding our operations, acquiring vessels and servicing our debt.
Marshall Islands law generally prohibits the payment of dividends other than from surplus
or when a company is insolvent or if the payment of the dividend would render the company
insolvent. Also, our loan facilities prohibit the payment of dividends should an event of default arise.
We believe that, under current law, any dividends that we have paid and may pay in the future
from earnings and profits constitute “qualified dividend income” and as such are generally subject
to a 20% United States federal income tax rate with respect to non-corporate United States
shareholders. Distributions in excess of our earnings and profits will be treated first as a non-
94 ■ ANNUAL REPORT 2017
taxable return of capital to the extent of a United States shareholder’s tax basis in its common
stock on a dollar-for-dollar basis and thereafter as capital gain. We note that legislation was
previously introduced in the United States Congress, which, if enacted in its present form, would
preclude dividends received after the date of enactment from qualifying as “qualified dividend
income.” Please see the section of this annual report entitled “Taxation” under Item 10.E for
additional information relating to the tax treatment of our dividend payments.
Cumulative dividends on our Series B Preferred Shares are payable on each January 15, April
15, July 15 and October 15, when, as and if declared by our board of directors or any authorized
committee thereof out of legally available funds for such purpose. The dividend rate for our Series
B Preferred Shares is 8.875% per annum per $25.00 of liquidation preference per share (equal to
$2.21875 per annum per share) and is not subject to adjustment. At any time on or after February
14, 2019, we may redeem, in whole or from time to time in part, the Series B Preferred Shares
at a redemption price of $25.00 per share plus an amount equal to all accumulated and unpaid
dividends thereon to the date of redemption, whether or not declared.
Marshall Islands law provides that we may pay dividends on and redeem the Series B Preferred
Shares only to the extent that assets are legally available for such purposes. Legally available
assets generally are limited to our surplus, which essentially represents our retained earnings and
the excess of consideration received by us for the sale of shares above the par value of the shares.
In addition, under Marshall Islands law we may not pay dividends on or redeem Series B Preferred
Shares if we are insolvent or would be rendered insolvent by the payment of such a dividend or
the making of such redemption.
B. Significant Changes
There have been no significant changes since the date of the annual consolidated financial
statements included in this annual report, other than those described in note 14 “Subsequent
events” of our annual consolidated financial statements.
Item 9. The Offer and Listing
A. Offer and Listing Details
The trading market for shares of our common stock is the NYSE, on which our shares trade
under the symbol “DSX”. The following table sets forth the required disclosure with respect to the
high and low closing prices for shares of our common stock, as reported by the NYSE:
Period
Annual
1st quarter
2nd quarter
3rd quarter
4th quarter
September
October
November
December
2018
2017
2016
2015
2014
2013
High
Low
High
Low
High
Low
High
Low
High
Low
High
Low
$6.03 $3.30
$4.47
$2.02 $8.11 $3.58
$13.55
$ 6.31
$13.64
$7.47
$4.79 $3.30
$4.47
$2.02
6.03
3.50
3.46
4.26
3.63
3.12
4.57
3.66
4.11
2.12
2.27
2.40
$4.09 $3.63
4.13
3.66
4.57
3.85
4.14
3.94
January
$4.50
$3.80
ANNUAL REPORT 2017 ■ 95
February
March*
3.93
3.35
3.89
3.70
* For the period from March 1, 2018 until March 14, 2018
Our Series B Preferred Stock has traded on the NYSE under the symbol “DSXPRB” since
February 21, 2014. The following table sets forth the high and low closing sales prices for our
Series B Preferred Stock for each of the periods indicated:
Period
Annual
1st quarter
2nd quarter
3rd quarter
4th quarter
September
October
November
December
January
February
March**
2018
High
Low
2017
High
2016
High
2015
High
Low
Low
2014 *
Low
High
Low
$ 24.81
$ 17.24
$ 18.52
$ 9.50 $ 25.59 $ 10.80
$ 26.98 $ 22.76
$ 21.93
$ 17.24
$ 15.15
$ 9.50
22.70
24.19
24.81
20.89
21.56
23.53
18.52
13.42
18.33
14.99
17.25
14.53
$ 24.19
$ 22.12
24.73
24.46
24.81
23.55
23.53
24.11
$ 24.94 $ 23.30
24.53
24.70
22.60
24.38
*Commencing on February 21, 2014
** For the period from March 1, 2018 until March 14, 2018
B. Plan of Distribution
Not Applicable.
C. Markets
Our common shares have traded on the NYSE since March 23, 2005 under the symbol “DSX,”
our Series B Preferred Stock has traded on the NYSE under the symbol “DSXPRB” since February
21, 2014, and our 8.5% Senior Notes due 2020 have traded on the NYSE since May 29, 2015
under the symbol “DSXN.”
D. Selling Shareholders
Not Applicable.
E. Dilution
Not Applicable.
F. Expenses of the Issue
Not Applicable.
96 ■ ANNUAL REPORT 2017
Item 10. Additional Information
A. Share Capital
Not Applicable.
B. Memorandum and Articles of Association
Our current amended and restated articles of incorporation have been filed as exhibit 1 to
our Form 6-K filed with the SEC on May 29, 2008 with file number 001-32458, and our current
amended and restated bylaws have been filed as exhibit 3.2 to our Form F-3 filed with the SEC
on May 6, 2009 with file number 333-159016. The information contained in these exhibits is
incorporated by reference herein.
Information regarding the rights, preferences and restrictions attaching to each class of our
shares is described in the section entitled “Description of Capital Stock” in the accompanying
prospectus to our effective Registration Statement on Form F-3 filed with the SEC on July 2,
2015 with file number 333-205491, provided that since the date of that Registration Statement,
(i) the number of our outstanding shares of common stock has increased to 107,931,017 as
of March 14, 2018, and (ii) the Stockholder Rights Plan described therein has been replaced
by a Stockholders Rights Agreement dated as of January 15, 2016, as described below under
“Stockholders Rights Agreement.” For additional information about our Series B Preferred Shares,
please see the section entitled “Description of Registrant’s Securities to be Registered” of our
registration statement on Form 8-A filed with the SEC on February 13, 2014 and incorporated by
reference herein.
Stockholders Rights Agreement
On January 15, 2016, we entered into a Stockholders Rights Agreement with Computershare
Trust Company, N.A., as Rights Agent, to replace the Amended and Restated Stockholders Rights
Agreement, dated October 7, 2008.
Under the Stockholders Rights Agreement, we declared a dividend payable of one preferred stock
purchase right, or Right, for each share of common stock outstanding at the close of business on
January 26, 2016. Each Right entitles the registered holder to purchase from us one one-thousandth of
a share of Series A participating preferred stock, par value $0.01 per share, at an exercise price of $40.00
per share. The Rights will separate from the common stock and become exercisable only if a person or
group acquires beneficial ownership of 18.5% or more of our common stock (including through entry
into certain derivative positions) in a transaction not approved by our Board of Directors. In that situation,
each holder of a Right (other than the acquiring person, whose Rights will become void and will not be
exercisable) will have the right to purchase, upon payment of the exercise price, a number of shares of
our common stock having a then-current market value equal to twice the exercise price. In addition, if
the Company is acquired in a merger or other business combination after an acquiring person acquires
18.5% or more of our common stock, each holder of the Right will thereafter have the right to purchase,
upon payment of the exercise price, a number of shares of common stock of the acquiring person having
a then-current market value equal to twice the exercise price. The acquiring person will not be entitled to
exercise these Rights. Under the Stockholders Rights Agreement’s terms, it will expire on January 14,
2026. A copy of the Stockholders Rights Agreement and a summary of its terms are contained in the
Form 8-A12B filed with the SEC on January 15, 2016, with file number 001-32458.
ANNUAL REPORT 2017 ■ 97
C. Material Contracts
Attached as exhibits to this annual report are the contracts we consider to be both material
and not entered into in the ordinary course of business, which (i) are to be performed in whole
or in part on or after the filing date of this annual report or (ii) were entered into not more than
two years before the filing date of this annual report. Other than these agreements, we have no
material contracts, other than contracts entered into in the ordinary course of business, to which
the Company or any member of the group is a party. A description of these is included in our
description of our agreements generally: we refer you to Item 5.B for a discussion of our loan
facilities, and Item 7.B for a discussion of our agreements with companies controlled by our Chief
Executive Officer and Chairman of the Board, Mr. Simeon Palios.
D. Exchange Controls
Under Marshall Islands, Panamanian, Cypriot and Greek law, there are currently no restrictions
on the export or import of capital, including foreign exchange controls or restrictions that affect
the remittance of dividends, interest or other payments to non-resident holders of our securities.
E. Taxation
The following is a discussion of the material Marshall Islands and U.S. federal income tax
considerations of the ownership and disposition by a U.S. Holder and a Non-U.S. Holder, each as
defined below, with respect to the common stock. This discussion does not purport to deal with
the tax consequences of owning common stock to all categories of investors, some of which, such
as dealers in securities or commodities, financial institutions, insurance companies, tax-exempt
organizations, U.S. expatriates, persons liable for the alternative minimum tax, persons who hold
common stock as part of a straddle, hedge, conversion transaction or integrated investment, U.S.
Holders whose functional currency is not the United States dollar and investors that own, actually
or under applicable constructive ownership rules, 10% or more of the Company’s common stock,
may be subject to special rules. This discussion deals only with holders who hold the common
stock as a capital asset. You are encouraged to consult your own tax advisors concerning the
overall tax consequences arising in your own particular situation under U.S. federal, state, local or
foreign law of the ownership of common stock.
Marshall Islands Tax Considerations
The Company is incorporated in the Marshall Islands. Under current Marshall Islands law, the
company is not subject to tax on income or capital gains, and no Marshall Islands withholding tax
will be imposed upon payments of dividends by us to our shareholders.
United States Federal Income Taxation
The following discussion is based upon the provisions of the U.S. Internal Revenue Code of
1986, as amended (the “Code”), existing and proposed U.S. Treasury Department regulations,
(the “Treasury Regulations”), administrative rulings, pronouncements and judicial decisions, all
as of the date of this Annual Report. This discussion assumes that we do not have an office or
other fixed place of business in the United States. Unless the context otherwise requires, the
reference to Company below shall be meant to refer to both the Company and its vessel-owning
and operating subsidiaries.
98 ■ ANNUAL REPORT 2017
Taxation of the Company’s Shipping Income
In General
The Company anticipates that it will derive substantially all of its gross income from the use and
operation of vessels in international commerce and that this income will principally consist of freights
from the transportation of cargoes, hire or lease from time or voyage charters and the performance
of services directly related thereto, which the Company refers to as “Shipping Income.”
Shipping Income that is attributable to transportation that begins or ends, but that does not both
begin and end, in the United States will be considered to be 50% derived from sources within the
United States. Shipping Income attributable to transportation that both begins and ends in the United
States will be considered to be 100% derived from sources within the United States. The Company
is not permitted by law to engage in transportation that gives rise to 100% U.S. source Shipping
Income. Shipping Income attributable to transportation exclusively between non-U.S. ports will be
considered to be 100% derived from sources outside the United States. Shipping Income derived
from sources outside the United States will not be subject to U.S. federal income tax.
Based upon the Company’s anticipated shipping operations, the Company’s vessels will operate
in various parts of the world, including to or from U.S. ports. Unless exempt from U.S. federal
income taxation under Section 883 of the Code, the Company will be subject to U.S. federal income
taxation, in the manner discussed below, to the extent its Shipping Income is considered derived
from sources within the United States.
In the year ended December 31, 2017, approximately 4.2% of the Company’s shipping income
was attributable to the transportation of cargoes either to or from a U.S. port. Accordingly, 2.1% of
the Company’s shipping income would be treated as derived from U.S. sources for the year ended
December 31, 2017. In the absence of exemption from U.S. federal income tax under Section 883
of the Code, the Company would have been subject to a 4% tax on its gross U.S. source Shipping
Income, equal to approximately $136,000 for the year ended December 31, 2017.
Application of Exemption under Section 883 of the Code
Under the relevant provisions of Section 883 of the Code and the final Treasury Regulations
promulgated thereunder, a foreign corporation will be exempt from U.S. federal income taxation on
its U.S. source Shipping Income if:
(1) It is organized in a qualified foreign country which, as defined, is one that grants an equivalent
exemption from tax to corporations organized in the United States in respect of the Shipping Income
for which exemption is being claimed under Section 883 of the Code, or the “Country of Organization
Requirement”; and
(2) It can satisfy any one of the following two stock ownership requirements:
> more than 50% of its stock, in terms of value, is beneficially owned by qualified shareholders
which, as defined, includes individuals who are residents of a qualified foreign country, or the
“50% Ownership Test”; or
> its stock is “primarily and regularly” traded on an established securities market located in the United
States or a qualified foreign country, or the “Publicly Traded Test”.
The U.S. Treasury Department has recognized the Marshall Islands, Panama and Cyprus the
countries of incorporation of each of the Company and its subsidiaries that earns Shipping Income,
ANNUAL REPORT 2017 ■ 99
as a qualified foreign country. Accordingly, the Company and each of the subsidiaries satisfy the
Country of Organization Requirement.
For the 2017 taxable year, the Company believes that it is unlikely that the 50% Ownership Test
was satisfied. Therefore, the eligibility of the Company and each subsidiary to qualify for exemption
under Section 883 of the Code is wholly dependent upon the Company’s ability to satisfy the Publicly
Traded Test.
Under the Treasury Regulations, stock of a foreign corporation is considered “primarily traded”
on an established securities market in a country if the number of shares of each class of stock that
is traded during the taxable year on all established securities markets in that country exceeds the
number of shares in each such class that is traded during that year on established securities markets
in any other single country. The Company’s common stock was “primarily traded” on the NYSE
during the 2017 taxable year.
Under the Treasury Regulations, the Company’s common stock will be considered to be
“regularly traded” on the NYSE if: (1) more than 50% of its common stock, by voting power and total
value, is listed on the NYSE, referred to as the “Listing Threshold”, (2) its common stock is traded on
the NYSE, other than in minimal quantities, on at least 60 days during the taxable year (or one-sixth
of the days during a short taxable year), which is referred to as the “Trading Frequency Test”; and
(3) the aggregate number of shares of its common stock traded on the NYSE during the taxable
year is at least 10% of the average number of shares of its common stock outstanding during such
taxable year (as appropriately adjusted in the case of a short taxable year), which is referred to as
the “Trading Volume Test”. The Trading Frequency Test and Trading Volume Test are deemed to be
satisfied under the Treasury Regulations if the Company’s common stock is regularly quoted by
dealers making a market in the common stock.
The Company believes that its common stock has satisfied the Listing Threshold, as well as
the Trading Frequency Test and Trading Volume Tests, during the 2017 taxable year.
Notwithstanding the foregoing, the Treasury Regulations provide, in pertinent part, that stock of a
foreign corporation will not be considered to be “regularly traded” on an established securities market
for any taxable year during which 50% or more of such stock is owned, actually or constructively
under specified stock attribution rules, on more than half the days during the taxable year by persons,
or “5% Shareholders”, who each own 5% or more of the value of such stock, or the “5% Override
Rule.” For purposes of determining the persons who are 5% Shareholders, a foreign corporation
may rely on Schedules 13D and 13G filings with the SEC.
Based on Schedules 13D and 13G filings, during the 2017 taxable year, less than 50% of the
Company’s common stock was owned by 5% Shareholders. Therefore, the Company believes
that it is not subject to the 5% Override Rule and thus has satisfied the Publicly Traded Test for the
2017 taxable year. However, there can be no assurance that the Company will continue to satisfy
the Publicly Traded Test in future taxable years. For example, the Company could be subject to
the 5% Override Rule if another 5% Shareholder in combination with the Company’s existing 5%
Shareholders were to own 50% or more of the Company’s common stock. In such a case, the
Company would be subject to the 5% Override Rule unless it could establish that, among the shares
of the common stock owned by the 5% Shareholders, sufficient shares are owned by qualified
shareholders, for purposes of Section 883 of the Code, to preclude non-qualified shareholders
from owning 50% or more of the Company’s common stock for more than half the number of days
during the taxable year. The requirements of establishing this exception to the 5% Override Rule are
onerous and there is no assurance the Company will be able to satisfy them.
100 ■ ANNUAL REPORT 2017
Based on the foregoing, the Company believes that it satisfied the Publicly Traded Test and therefore
believes that it was exempt from U.S. federal income tax under Section 883 of the Code, during the
2017 taxable year, and intends to take this position on its 2017 U.S. federal income tax returns.
Taxation in Absence of Exemption Under Section 883 of the Code
To the extent the benefits of Section 883 of the Code are unavailable with respect to any item of
U.S. source Shipping Income, the Company and each of its subsidiaries would be subject to a 4%
tax imposed on such income by Section 887 of the Code on a gross basis, without the benefit of
deductions, which is referred to as the “4% Gross Basis Tax Regime”. Since under the sourcing rules
described above, no more than 50% of the Company’s Shipping Income would be treated as being
derived from U.S. sources, the maximum effective rate of U.S. federal income tax on the Company’s
Shipping Income would never exceed 2% under the 4% Gross Basis Tax Regime.
Based on its U.S. source Shipping Income for the 2017 taxable year and in the absence of
exemption under Section 883 of the Code, the Company would be subject to approximately
$136,000 of U.S. federal income tax under the 4% Gross Basis Tax Regime.
The 4% Gross Basis Tax Regime would not apply to U.S. source Shipping Income to the extent
considered to be “effectively connected” with the conduct of a U.S. trade or business. In the absence
of exemption under Section 883 of the Code, such “effectively connected” U.S. source Shipping
Income, net of applicable deductions, would be subject to U.S. federal income tax currently imposed
at a rate of 21%. In addition, earnings “effectively connected” with the conduct of such U.S. trade
or business, as determined after allowance for certain adjustments, and certain interest paid or
deemed paid attributable to the conduct of the U.S. trade or business may be subject to U.S. federal
branch profits tax imposed at a rate of 30%. The Company’s U.S. source Shipping Income would
be considered “effectively connected” with the conduct of a U.S. trade or business only if: (1) the
Company has, or is considered to have, a fixed place or business in the United States involved in
the earning of Shipping Income; and (2) substantially all of the Company’s U.S. source Shipping
Income is attributable to regularly scheduled transportation, such as the operation of a vessel that
followed a published schedule with repeated sailings at regular intervals between the same points
for voyages that begin or end in the United States, or, in the case of income from the chartering
of a vessel, is attributable to a fixed place of business in the United States. We do not intend to
have, or permit circumstances that would result in having a vessel operating to the United States
on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping
operations and other activities, we believe that none of our U.S. source Shipping Income will be
effectively connected with the conduct of a U.S. trade or business.
Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883 of the Code, we will not be
subject to U.S. federal income taxation with respect to gain realized on a 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, a 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 of the
United States. It is expected that any sale of a vessel by us will be considered to occur outside of
the United States.
United States Taxation of U.S. Holders
The following is a discussion of the material U.S. federal income tax considerations relevant to
an investment decision by a U.S. Holder, as defined below, with respect to our common stock. This
ANNUAL REPORT 2017 ■ 101
discussion does not purport to deal with the tax consequences of owning our common stock to all
categories of investors, some of which may be subject to special rules. You are encouraged to consult
your own tax advisors concerning the overall tax consequences arising in your own particular situation
under U.S. federal, state, local or foreign law of the ownership of our common stock.
As used herein, the term “U.S. Holder” means a beneficial owner of our common stock that (i) is a
U.S. citizen or resident, a U.S. corporation or other U.S. entity taxable as a corporation, an estate, the
income of which is subject to U.S. federal income taxation regardless of its source, or a trust if 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 and (ii) owns
the common stock as a capital asset, generally, for investment purposes.
If a partnership holds our common stock, the tax treatment of a partner will generally depend upon
the status of the partner and upon the activities of the partnership. If you are a partner in a partnership
holding our common stock, you are encouraged to consult your own tax advisor on this issue.
Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made
by the Company with respect to its common stock to a U.S. Holder will generally constitute dividends,
which may be taxable as ordinary income or “qualified dividend income” as described in more detail
below, to the extent of the Company’s current or accumulated earnings and profits, as determined
under U.S. federal income tax principles. Distributions in excess of the Company’s earnings and profits
will be treated first as a non-taxable return of capital to the extent of the U.S. Holder’s tax basis in his
common stock on a dollar-for-dollar basis and thereafter as capital gain. Because the Company is not
a U.S. corporation, U.S. Holders that are corporations will generally not be entitled to claim a dividends-
received deduction with respect to any distributions they receive from the Company.
Dividends paid to a U.S. Holder which is an individual, trust, or estate, referred to herein as a “U.S.
Non-Corporate Holder,” will generally be treated as “qualified dividend income” that is taxable to Holders
at preferential U.S. federal income tax rates, provided that (1) the common stock is readily tradable on
an established securities market in the United States (such as the NYSE on which the common stock
is listed); (2) the Company is not a passive foreign investment company for the taxable year during
which the dividend is paid or the immediately preceding taxable year (which the Company does not
believe it is, has been or will be); (3) the U.S. Non-Corporate Holder has owned the common stock for
more than 60 days in the 121-day period beginning 60 days before the date on which the common
stock becomes ex-dividend; and (4) the U.S. Non-Corporate Holder is not under an obligation (whether
pursuant to a short sale or otherwise) to make payments with respect to positions in substantially
similar or related property. 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. Non-Corporate Holder. Any dividends paid
by the Company which are not eligible for these preferential rates will be taxed as ordinary income
to a U.S. Non-Corporate Holder. Special rules may apply to any “extraordinary dividend,” generally,
a dividend paid by us in an amount which is equal to or in excess of ten percent of a U.S. Holder’s
adjusted tax basis, or fair market value in certain circumstances, in a share of our common stock. If we
pay an “extraordinary dividend” on our common stock that is treated as “qualified dividend income,”
then any loss derived by a U.S. Individual Holder from the sale or exchange of such common stock
will be treated as long-term capital loss to the extent of such dividend.
Sale, Exchange or other Disposition of Common Stock
Subject to the discussion of the PFIC rules below, a U.S. Holder generally will recognize taxable
gain or loss upon a sale, exchange or other disposition of the Company’s common stock in an
102 ■ ANNUAL REPORT 2017
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 tax basis in such stock. Such gain or loss
will be treated as long-term capital gain or loss if the U.S. Holder’s holding period in the common
stock is greater than one year at the time of the sale, exchange or other disposition. Long-term
capital gain of a U.S. Non-Corporate Holder is taxable at preferential U.S. Federal income tax rates.
A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.
PFIC Status and Significant Tax Consequences
Special U.S. federal income tax rules apply to a U.S. Holder that holds stock in a foreign
corporation classified as a passive foreign investment company, or a “PFIC”, for U.S. federal income
tax purposes. In general, the Company will be treated as a PFIC with respect to a U.S. Holder if, for
any taxable year in which such Holder held the Company’s common stock, either:
> at least 75% of the Company’s gross income for such taxable year consists of passive income
(e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental
business), or
> at least 50% of the average value of the assets held by the corporation during such taxable year
produce, or are held for the production of, such passive income.
For purposes of determining whether the Company is a PFIC, the Company will be treated as
earning and owning its proportionate share of the income and assets, respectively, of any of its
subsidiary corporations in which it owns at least 25% of the value of the subsidiary’s stock. Income
earned, or deemed earned, by the Company in connection with the performance of services would
not constitute passive income. By contrast, rental income would generally constitute passive income
unless the Company is treated under specific rules as deriving its rental income in the active conduct
of a trade or business.
Based on the Company’s current operations and future projections, the Company does not
believe that it is, nor does it expect to become, a PFIC with respect to any taxable year. Although
there is no legal authority directly on point, the Company’s belief is based principally on the position
that, for purposes of determining whether the Company is a PFIC, the gross income the Company
derives or is deemed to derive from the time chartering and voyage chartering activities of its wholly-
owned subsidiaries should constitute services income, rather than rental income. Correspondingly,
the Company believes that such income does not constitute passive income, and the assets that
the Company or its wholly-owned subsidiaries own and operate in connection with the production
of such income, in particular, the vessels, do not constitute assets that produce or are held for the
production of passive income for purposes of determining whether the Company is a PFIC. The
Company believes there is substantial legal authority supporting its position consisting of case law
and Internal Revenue Service, or the “IRS”, pronouncements concerning the characterization of
income derived from time charters and voyage charters as services income for other tax purposes.
However, there is also authority which characterizes time charter income as rental income rather than
services income for other tax purposes. It should be noted that in the absence of any legal authority
specifically relating to the statutory provisions governing PFICs, the IRS or a court could disagree
with this position. In addition, although the Company intends to conduct its affairs in a manner to
avoid being classified as a PFIC with respect to any taxable year, there can be no assurance that
the nature of its operations will not change in the future.
ANNUAL REPORT 2017 ■ 103
As discussed more fully below, if the Company were to be treated as a PFIC for any taxable
year, a U.S. Holder would be subject to different U.S. federal income taxation rules depending on
whether the U.S. Holder makes an election to treat the Company as a “Qualified Electing Fund,”
which election is referred to as a “QEF Election.” As discussed below, 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 the
common stock, which election is referred to as a “Mark-to-Market Election”. If the Company were
to be treated as a PFIC, a U.S. Holder would be required to file with respect to taxable years ending
on or after December 31, 2013 IRS Form 8621 to report certain information regarding the Company.
Taxation of U.S. Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF Election, which U.S. Holder is referred to as an “Electing
Holder”, the Electing Holder must report each year for U.S. federal income tax purposes his pro
rata share of the Company’s ordinary earnings and net capital gain, if any, for the Company’s
taxable year that ends with or within the taxable year of the Electing Holder, regardless of whether
or not distributions were received by the Electing Holder from the Company. The Electing Holder’s
adjusted tax basis in the common stock will be increased to reflect amounts included in the
Electing Holder’s income. Distributions received by an Electing Holder that had been previously
taxed will result in a corresponding reduction in the adjusted tax basis in the common stock and
will not be taxed again once distributed. An Electing Holder would generally recognize capital gain
or loss on the sale, exchange or other disposition of the common stock.
Taxation of U.S. Holders Making a Mark-to-Market Election
Alternatively, if the Company were to be treated as a PFIC for any taxable year and, as
anticipated, the common stock is treated as “marketable stock,” a U.S. Holder would be allowed
to make a Mark-to-Market Election with respect to the Company’s common stock. 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 common stock at the end of the taxable year over
such Holder’s adjusted tax basis in the common stock. The U.S. Holder would also be permitted
an ordinary loss in respect of the excess, if any, of the U.S. Holder’s adjusted tax basis in the
common stock over its fair market value 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 his common stock would be adjusted to reflect any such income or loss
amount. Gain realized on the sale, exchange or other disposition of the common stock would be
treated as ordinary income, and any loss realized 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 by the U.S. Holder.
Taxation of U.S. Holders Not Making a Timely QEF Election or Mark-to-Market Election
Finally, if the Company 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, whom is referred
to as a “Non-Electing Holder”, would be subject to special U.S. federal income tax rules with
respect to (1) any excess distribution (i.e., the portion of any distributions received by the Non-
Electing Holder on the common stock in a taxable year in excess of 125% of the average annual
distributions received by the Non-Electing Holder in the three (3) preceding taxable years, or, if
shorter, the Non-Electing Holder’s holding period for the common stock), and (2) any gain realized
on the sale, exchange or other disposition of the common stock. Under these special rules:
> the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s
104 ■ ANNUAL REPORT 2017
aggregate holding period for the common stock;
> the amount allocated to the current taxable year and any taxable years before the Company
became a PFIC 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 taxpayer for that year, and an interest charge for
the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable
to each such other taxable year.
These penalties would not apply to a pension or profit sharing trust or other tax-exempt
organization that did not borrow funds or otherwise utilize leverage in connection with its
acquisition of the common stock. If a Non-Electing Holder who is an individual dies while owning
the common stock, such Holder’s successor generally would not receive a step-up in tax basis
with respect to such stock.
U.S. Federal Income Taxation of “Non-U.S. Holders”
A beneficial owner of our common stock that is not a U.S. Holder (other than a partnership) is
referred to herein as a “Non-U.S. Holder.”
Dividends on Common Stock
Non-U.S. Holders generally will not be subject to U.S. federal income or withholding tax on
dividends received from us with respect to our common stock, unless that income is effectively
connected with the Non-U.S. Holder’s conduct of a trade or business in the United States.
If the Non-U.S. Holder is entitled to the benefits of a U.S. income tax treaty with respect to
those dividends, that income is taxable in the United States only if attributable to a permanent
establishment maintained by the Non-U.S. Holder in the United States.
Sale, Exchange or Other Disposition of Common Stock
Non-U.S. Holders generally will not be subject to U.S. federal income or withholding tax on any
gain realized upon the sale, exchange or other disposition of our common stock, unless:
> the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the
United States. If the Non-U.S. Holder is entitled to the benefits of a U.S. income tax treaty with
respect to that gain, the gain is taxable in the United States only if attributable to a permanent
establishment maintained by the Non-U.S. Holder in the United States; or
> the Non-U.S. Holder is an individual who is present in the United States for 183 days or more
during the taxable year of disposition and other conditions are met.
If the Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax
purposes, the income from our common stock, including dividends and the gain from the sale,
exchange or other disposition of the common stock, that is effectively connected with the conduct
of that U.S. trade or business will generally be subject to U.S. federal income tax in the same
manner as discussed in the previous section relating to the taxation of U.S. Holders. In addition, in
the case of a corporate Non-U.S. Holder, such Holder’s earnings and profits that are attributable to
ANNUAL REPORT 2017 ■ 105
the effectively connected income, subject to certain adjustments, may be subject to an additional
U.S. federal branch profits tax at a rate of 30%, or at a lower rate as may be specified by an
applicable U.S. income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States
to a holder will be subject to U.S. federal information reporting requirements. Such payments will
also be subject to U.S. federal “backup withholding” if paid to a non-corporate U.S. holder who:
> fails to provide an accurate taxpayer identification number;
> is notified by the IRS that he has failed to report all interest or dividends required to be shown
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 an applicable IRS Form W-8.
If a holder sells his common stock to or through a U.S. office of a broker, the payment of the
proceeds is subject to both backup withholding and information reporting unless the holder establishes
an exemption. If a holder sells his common stock through a non-U.S. office of a non-U.S. broker
and the sales proceeds are paid to the holder outside the United States, then information reporting
and backup withholding generally will not apply to that payment. However, information reporting
requirements, but not backup withholding, will apply to a payment of sales proceeds, including a
payment made to a holder outside the United States, if the holder sells his common stock through a
non-U.S. office of a broker that is a U.S. person or has some other contacts with the United States.
Backup withholding is not an additional tax. Rather, a taxpayer generally may obtain a refund
of any amounts withheld under backup withholding rules that exceed the taxpayer’s U.S. federal
income tax liability by filing a refund claim with the IRS.
U.S. Holders who are individuals (and to the extent specified in applicable Treasury Regulations,
certain U.S. entities) who hold “specified foreign financial assets” (as defined in Section 6038D
of the Code) are required to file IRS Form 8938 with information relating to the asset for each
taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during
the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as
prescribed by applicable Treasury Regulations). Specified foreign financial assets would include,
among other assets, our common stock, unless the common stock is held through an account
maintained with a U.S. financial institution. Substantial penalties apply to any failure to timely file
IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful
neglect. Additionally, in the event a U.S. Holder who is an individual (and to the extent specified
in applicable Treasury regulations, a U.S. entity) that is required to file IRS Form 8938 does not
file such form, the statute of limitations on the assessment and collection of U.S. federal income
taxes of such holder for the related tax year may not close until three (3) years after the date that
the required information is filed.
F. Dividends and paying agents
106 ■ ANNUAL REPORT 2017
Not Applicable.
G. Statement by experts
Not Applicable.
H. Documents on display
We file reports and other information with the SEC. These materials, including this annual
report and the accompanying exhibits, may be inspected and copied at the public reference
facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549, or from the SEC’s
website http://www.sec.gov. You may obtain information on the operation of the public reference
room by calling 1 (800) SEC-0330 and you may obtain copies at prescribed rates.
I. Subsidiary information
Not Applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Interest Rates
We are exposed to market risks associated with changes in interest rates relating to our loan
facilities, according to which we pay interest at LIBOR plus a margin; and as such increases in
interest rates could affect our results of operations. An increase of 1% in the interest rates of our
loan facilities bearing a variable interest rate during 2017, could have increased our interest cost
(including capitalized interest and interest on our Notes) from $25.0 million to $30.8 million.
We will continue to have debt outstanding, which could impact our results of operations
and financial condition. We expect to manage any exposure in interest rates through our regular
operating and financing activities and, when deemed appropriate, through the use of derivative
financial instruments.
As of December 31, 2017, 2016 and 2015 and as of the date of this annual report, we did not
and have not designated any financial instruments as accounting hedging instruments.
Currency and Exchange Rates
We generate all of our revenues in U.S. dollars but currently incur less than half of our operating
expenses (around 38% in 2017 and around 41% in 2016) and about half of our general and
administrative expenses (around 48% in 2017 and around 50% in 2016) in currencies other than
the U.S. dollar, primarily the Euro. For accounting purposes, including throughout this annual
report, expenses incurred in Euros are converted into U.S. dollars at the exchange rate prevailing
on the date of each transaction. Because a significant portion of our expenses are incurred in
currencies other than the U.S. dollar, our expenses may from time to time increase relative to our
revenues as a result of fluctuations in exchange rates, particularly between the U.S. dollar and the
Euro, which could affect our results of operations in future periods. Currently, we do not consider
the risk from exchange rate fluctuations to be material for our results of operations, as during 2017
and 2016, these non-US dollar expenses represented 29% and 42%, respectively of our revenues
and therefore, we are not engaged in extensive derivative instruments to hedge a considerable
part of those expenses.
ANNUAL REPORT 2017 ■ 107
PART IΙ
While we historically have not mitigated the risk associated with exchange rate fluctuations
through the use of financial derivatives, we may determine to employ such instruments from time to
time in the future in order to minimize this risk. Our use of financial derivatives would involve certain
risks, including the risk that losses on a hedged position could exceed the nominal amount invested
in the instrument and the risk that the counterparty to the derivative transaction may be unable or
unwilling to satisfy its contractual obligations, which could have an adverse effect on our results.
Item 12. Description of Securities Other than Equity Securities
Not Applicable.
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security
Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
a) Disclosure Controls and Procedures
Management, including our Chief Executive Officer and Chief Financial Officer, has conducted
an evaluation of the effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by
this annual report. Based upon that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports that it files or submits to the
SEC under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms.
b) Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. The Company’s
internal control over financial reporting is a process designed under the supervision of the
Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the Company’s financial
statements for external reporting purposes in accordance with U.S. GAAP.
Management has conducted an assessment of the effectiveness of the Company’s internal
control over financial reporting based on the framework established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 Framework). Based on this assessment, management has determined that the Company’s
internal control over financial reporting as of December 31, 2017 is effective.
108 ■ ANNUAL REPORT 2017
The registered public accounting firm that audited the financial statements included in this
annual report containing the disclosure required by this Item 15 has issued an attestation report
on management’s assessment of our internal control over financial reporting.
c) Attestation Report of Independent Registered Public Accounting Firm
The attestation report on the Company’s internal control over financial reporting issued by the
registered public accounting firm that audited the Company’s consolidated financial statements,
Ernst Young (Hellas) Certified Auditors Accountants S.A., appears on page F-3 of the financial
statements filed as part of this annual report.
d) Changes in Internal Control over Financial Reporting
Since the establishment in 2015 of our 50% owned joint venture, Diana Wilhelmsen
Management Limited, our internal controls over financial reporting have changed in order to
incorporate in our procedures and controls those conducted by the joint venture in managing
our vessels.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and our Chief Financial Officer, does
not expect that our disclosure controls or our internal control over financial reporting will prevent
or detect all error and all fraud. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the control system’s objectives will be
met. Further, because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that misstatements due to error or fraud will not occur or that
all control issues and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. Controls can also be circumvented
by the individual acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls is based in part on certain
assumptions about the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future conditions. Projections of any
evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may
become inadequate because of changes in conditions or deterioration in the degree of compliance
with policies or procedures.
Item 16A. Audit Committee Financial Expert
Our Board of Directors has determined that both the members of our Audit Committee, Mr.
William Lawes and Mr. Apostolos Kontoyannis, qualify as “Audit Committee financial experts” and
that they are both considered to be “independent” according to SEC rules.
Item 16B. Code of Ethics
We have adopted a code of ethics that applies to officers, directors, employees and agents. Our
code of ethics is posted on our website, http://www.dianashippinginc.com, under “About Us—Code
of Ethics” and was filed as Exhibit 11.1 to our 2009 annual report on Form 20-F filed with the SEC on
March 30, 2010 and incorporated by reference herein. Copies of our code of ethics are available in
print, free of charge, upon request to Diana Shipping Inc., Pendelis 16, 175 64 Palaio Faliro, Athens,
Greece. We intend to satisfy any disclosure requirements regarding any amendment to, or waiver
ANNUAL REPORT 2017 ■ 109
from, a provision of this code of ethics by posting such information on our website.
Item 16C. Principal Accountant Fees and Services
a) Audit Fees
Our principal accountants, Ernst and Young (Hellas), Certified Auditors Accountants S.A., have
billed us for audit services.
Audit fees in 2017 and 2016 amounted to € 420,000 and € 420,000, or approximately
$465,988 and $476,920, respectively, and relate to audit services provided in connection with
timely AS 4105 reviews, the audit of our consolidated financial statements and the audit of internal
control over financial reporting.
b) Audit-Related Fees
Audit related fees in 2017 amounted to € 40,000, or approximately $44,640 and relate to audit
services provided in connection with the Company’s filings with the SEC. There were no audit
related fees in 2016.
c) Tax Fees
During 2017 and 2016, we received services for which fees amounted to $18,600 for each
year and relate to the calculation of Earnings and Profits of the Company.
d) All Other Fees
None.
e) Audit Committee’s Pre-Approval Policies and Procedures
Our Audit Committee is responsible for the appointment, replacement, compensation,
evaluation and oversight of the work of our independent auditors. As part of this responsibility, the
Audit Committee pre-approves the audit and non-audit services performed by the independent
auditors in order to assure that they do not impair the auditor’s independence from the Company.
The Audit Committee has adopted a policy which sets forth the procedures and the conditions
pursuant to which services proposed to be performed by the independent auditors may be pre-
approved.
f) Audit Work Performed by Other than Principal Accountant if Greater than 50%
Not applicable.
Item 16D. Exemptions from the Listing Standards for Audit
Committees
Our Audit Committee consists of two independent members of our Board of Directors.
Otherwise, our Audit Committee conforms to each other requirement applicable to audit
committees as required by the applicable listing standards of the NYSE.
Item 16E. Purchases of Equity Securities by the Issuer
and Affiliated Purchasers
110 ■ ANNUAL REPORT 2017
On May 23, 2014, we announced that our Board of Directors authorized a share repurchase
plan for up to $100 million of the Company’s common shares. The plan does not have an expiration
date. As of December 31, 2017 and the date of this report, there is an outstanding value of about
$72 million of common shares that can be repurchased under the plan.
The following table sets forth the stock purchase activity of affiliated purchasers of the
Company during 2017.
Total
Number of
Common
Shares
Purchased
(1)
Average
Price
Paid per
Common
Share
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
Maximum
Amount that
May Yet Be
Purchased
Under the
Plans or
Programs
Name
Period
Steamship Shipbroking Enterprises Inc.
(formerly Diana Enterprises Inc.)
April 2017
4,750,000
$ 4.00
Anamar Investments Inc
April 2017
750,000
$ 4.00
N/A
N/A
N/A
N/A
(1) These common shares were purchased in the underwritten public offering of 20,125,000 of the Company’s
common shares that closed on April 26, 2017.
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
Overview
Pursuant to an exception for foreign private issuers, we, as a Marshall Islands company, are not
required to comply with the corporate governance practices followed by U.S. companies under
the NYSE listing standards. We believe that our established practices in the area of corporate
governance are in line with the spirit of the NYSE standards and provide adequate protection
to our shareholders. In fact, we have voluntarily adopted NYSE required practices, such as (a)
having a majority of independent directors, (b) establishing audit, compensation and nominating
committees and (c) adopting a Code of Ethics. The significant differences between our corporate
governance practices and the NYSE standards 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 and our bylaws, our non-
management directors do not regularly hold executive sessions without management and we do
not expect them to do so in the future.
Audit Committee
The NYSE requires, among other things, that a company have an audit committee with a
minimum of three members. Our Audit Committee consists of two independent members of our
Board of Directors. Our Audit Committee conforms to every other requirement applicable to audit
committees set forth in the listing standards of the NYSE.
ANNUAL REPORT 2017 ■ 111
Shareholder Approval of Equity Compensation Plans
The NYSE requires listed companies to obtain prior shareholder approval to adopt or materially
revise any equity compensation plan. As permitted under Marshall Islands law and our amended
and restated bylaws, we do not need prior shareholder approval to adopt or revise equity
compensation plans, including our equity incentive plan.
Corporate Governance Guidelines
The NYSE requires 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.
Item 16H. Mine Safety Disclosure
Not applicable.
112 ■ ANNUAL REPORT 2017
DIANA SHIPPING INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm ............................................. F-2
Report of Independent Registered Public Accounting Firm ............................................ F-3
Consolidated Balance Sheets as of December 31, 2017 and 2016 ................................ F-5
Consolidated Statements of Operations for the years
ended December 31, 2017, 2016 and 2015 ................................................................... F-6
Consolidated Statements of Comprehensive Loss for the years
ended December 31, 2017, 2016 and 2015 ................................................................... F-6
Consolidated Statements of Stockholders’ Equity for the years
ended December 31, 2017, 2016 and 2015 ................................................................... F-7
Consolidated Statements of Cash Flows for the years
ended December 31, 2017, 2016 and 2015 ................................................................... F-8
Notes to Consolidated Financial Statements ................................................................. F-10
F-1
ANNUAL REPORT 2017 ■ 113
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Diana Shipping Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Diana Shipping Inc. (the
Company) as of December 31, 2017 and 2016, the related consolidated statements of operations,
comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period
ended December 31, 2017, and the related notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2017 and 2016, and
the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2017, 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) (PCAOB), the Company’s internal control over financial reporting
as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated March 16, 2018, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether due to error or fraud. Our audits
included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures include examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
/s/ Ernst & Young (Hellas) Certified Auditors-Accountants S.A.
We have served as the Company’s auditor since 2004.
Athens, Greece
March 16, 2018
F-2
114 ■ ANNUAL REPORT 2017
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Diana Shipping Inc.
Opinion on Internal Control over Financial Reporting
We have audited Diana Shipping Inc.’s internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). In our opinion, Diana Shipping Inc. (the Company) maintained,
in all material respects, effective internal control over financial reporting as of December 31,
2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the consolidated balance sheets of Diana Shipping
Inc. as of December 31, 2017 and 2016, and the related consolidated statements of
operations, comprehensive loss, stockholders’ equity and cash flows for each of the three
years in the period ended December 31, 2017, and the related notes and our report dated
March 16, 2018, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’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 Annual 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 are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations on Internal Control over Financial Reporting
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
F-3
ANNUAL REPORT 2017 ■ 115
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.
/s/ Ernst & Young (Hellas) Certified Auditors-Accountants S.A.
Athens, Greece
March 16, 2018
F-4
116 ■ ANNUAL REPORT 2017
DIANA SHIPPING INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2017 and 2016
(Expressed in thousands of U.S. Dollars – except for share and per share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2(e))
Accounts receivable, trade (Note 2(f))
Due from related parties (Notes 2(g) and 4(b))
Inventories (Note 2(h))
Prepaid expenses and other assets
Total current assets
FIXED ASSETS:
2017
2016
$ 40,227
$ 98,142
4,937
82,660
5,770
5,167
5,903
102
5,860
5,309
138,761
115,316
Advances for vessels under construction and acquisitions and other vessel costs
-
46,863
Vessels net book value (Note 5)
Property and equipment, net (Note 6)
Total fixed assets
OTHER NON-CURRENT ASSETS:
Restricted cash (Notes 2(e) and 7)
Due from related parties, non-current (Notes 2(g) and 4(b))
Investments in related parties (Notes 2(v) and 3)
Deferred charges, net (Notes 2(m), 2(n) and 5)
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
1,053,578
1,403,912
22,650
23,114
1,076,228
1,473,889
25,582
-
3,249
2,902
23,000
45,417
6,014
5,027
$ 1,246,722 $ 1,668,663
Current portion of long-term debt, net of deferred financing costs, current (Note 7)
$ 60,763
$ 65,072
Accounts payable, trade and other
Due to related parties (Note 4(a) and 4(d))
Accrued liabilities
Deferred revenue
Total current liabilities
7,954
271
8,246
3,207
6,572
25
5,734
822
80,441
78,225
Long-term debt, net of current portion and deferred financing costs, non-current
(Note 7)
540,621
533,109
Other non-current liabilities
Commitments and contingencies (Note 8)
STOCKHOLDERS’ EQUITY:
Preferred stock (Note 9(a))
Common stock, $0.01 par value; 200,000,000 shares authorized and
106,131,017 and 84,696,017 issued and outstanding at December 31, 2017
and 2016, respectively (Note 9(b) and (c))
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings/(Accumulated deficit)
Total stockholders’ equity
Total liabilities and stockholders’ equity
902
-
26
1,061
740
-
26
847
1,070,500
985,171
294
(447,123)
185
70,360
624,758
1,056,589
$ 1,246,722 $ 1,668,663
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ANNUAL REPORT 2017 ■ 117
DIANA SHIPPING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2017, 2016 and 2015
(Expressed in thousands of U.S. Dollars – except for share and per share data)
REVENUES:
Time charter revenues
EXPENSES:
Voyage expenses
Vessel operating expenses
Depreciation and amortization of deferred charges (Notes
2(l) and 2(m))
General and administrative expenses
Management fees to related party (Notes 3(b) and 4(d))
Impairment loss (Note 5)
Insurance recoveries, net of other loss (Note 5)
Gain on contract termination
Other loss/(income)
Operating loss
OTHER INCOME / (EXPENSES):
Interest and finance costs (Note 10)
Interest and other income (Note 4(b))
Loss from equity method investments (Note 3)
Total other expenses, net
Net loss
2017
2016
2015
$
161,897 $
114,259 $
157,712
8,617
90,358
87,003
26,332
1,883
442,274
(10,879)
-
296
13,826
85,955
81,578
25,510
1,464
-
-
(5,500)
(253)
15,528
88,272
76,333
25,335
405
-
-
-
(984)
$
(483,987) $
(88,321) $
(47,177)
(26,628)
4,508
(5,607)
(21,949)
2,410
(56,377)
(15,555)
3,152
(5,133)
$
$
(27,727) $
(75,916) $
(17,536)
(511,714) $
(164,237) $
(64,713)
Dividends on series B preferred shares (Notes 9(a) and 11)
(5,769)
(5,769)
Net loss attributed to common stockholders
$
Loss per common share, basic and diluted (Note 11) $
Weighted average number of common shares, basic
and diluted (Note 11)
(517,483) $
(5.41) $
(170,006) $
(2.11) $
(5,769)
(70,482)
(0.89)
95,731,093
80,441,517
79,518,009
DIANA SHIPPING INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the years ended December 31, 2017, 2016 and 2015
(Expressed in thousands of U.S. Dollars)
Net loss
2017
2016
2015
$
(511,714) $
(164,237) $
(64,713)
Other comprehensive income/(loss) (Actuarial gain/(loss))
Comprehensive loss
109
(84)
$
(511,605) $
(164,321) $
1,016
(63,697)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
118 ■ ANNUAL REPORT 2017
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F-7
ANNUAL REPORT 2017 ■ 119
DIANA SHIPPING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2017 , 2016 and 2015
(Expressed in thousands of U.S. Dollars)
Cash Flows from Operating Activities:
Net loss
$ (511,714)
$ (164,237)
$
(64,713)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization of deferred charges
87,003
81,578
76,333
2017
2016
2015
Impairment loss (Note 5)
Amortization of financing costs (Note 10)
Amortization of free lubricants benefit
Compensation cost on restricted stock (Note 9(d))
Actuarial gain/(loss)
442,274
1,455
-
8,232
109
Gain from insurance recoveries, net of other loss (Note 5)
(10,879)
-
1,503
(15)
8,313
(84)
-
Gain on shipbuilding contract termination
-
(278)
-
1,364
(85)
8,279
1,016
-
-
Loss from equity method investments, net of dividends (Note 3)
5,607
56,377
5,133
(Increase) / Decrease in:
Receivables
Due from related parties
Inventories
Prepaid expenses and other assets
Increase / (Decrease) in:
Accounts payable
Due to related parties
Accrued liabilities, net of accrued preferred dividends
Deferred revenue
Other liabilities
Drydock costs
966
(141)
90
142
(1,391)
3,334
391
620
1,382
(2,391)
246
2,512
2,385
162
(39)
(715)
(1,592)
117
1,871
2,070
1,062
(349)
(739)
(217)
437
(865)
(643)
(6,418)
(2,489)
(6,009)
Net cash provided by / (used in) Operating Activities
$ 23,413
$ (20,998)
$ 23,945
Cash Flows from Investing Activities:
Payments for vessel acquisitions, improvements and construction (Note 5)
(125,781)
(50,911)
(155,352)
Proceeds from vessel sale, net of expenses (Note 5)
Proceeds from insurance contract, net of expenses (Note 5)
Proceeds from sale of investment (Note 3)
2,032
11,362
158
-
-
-
-
-
-
F-8
120 ■ ANNUAL REPORT 2017
DIANA SHIPPING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2017 , 2016 and 2015
(Expressed in thousands of U.S. Dollars)
2017
2016
2015
Proceeds from shipbuilding contract termination (Notes 5)
Cash dividends from investment in Diana Containerships Inc. (Note 3(a))
Loan to Diana Containerships Inc. (Note 4(b))
Joint venture investment (Note 3(b))
-
-
(40,000)
-
9,413
96
-
-
Payments for plant, property and equipment (Note 6)
(104)
(217)
-
193
-
(267)
(211)
Net cash used in Investing Activities
$ (152,333)
$ (41,619)
$ (155,637)
Cash Flows from Financing Activities:
Proceeds from long-term debt (Note 7)
57,240
39,265
441,173
Proceeds from issuance of common stock, net of expenses (Note 9(c))
77,311
-
Cash dividends on preferred stock
Payments for repurchase of common stock (Note 9(e))
Financing costs
Loan payments (Note 7)
(5,769)
(5,769)
-
(31)
-
(466)
-
(5,769)
(2,673)
(5,482)
(55,164)
(42,489)
(321,240)
Net cash provided by / (used in) Financing Activities
$ 73,587
$
(9,459)
$ 106,009
Net decrease in cash, cash equivalents and restricted cash
(55,333)
(72,076)
(25,683)
Cash, cash equivalents and restricted cash at beginning of the year
121,142
193,218
218,901
Cash, cash equivalents and restricted cash at end of the year
$ 65,809
$ 121,142
$ 193,218
RECONCILIATION OF CASH,
CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents
Restricted cash
$ 40,227
$ 98,142
171,718
25,582
23,000
21,500
Cash, cash equivalents and restricted cash
$ 65,809
$ 121,142
193,218
SUPPLEMENTAL CASH FLOW INFORMATION
Related party loan reduction in exchange for preferred shares (Note 4(b))
$
3,000
$
-
$
-
Interest, net of amounts capitalized
$ 24,503
$ 19,265
$
13,048
The accompanying notes are an integral part of these consolidated financial statements.
F-9
ANNUAL REPORT 2017 ■ 121
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
1. Basis of Presentation and General Information
The accompanying consolidated financial statements include the accounts of Diana Shipping
Inc., or DSI, and its wholly-owned and beneficially-owned subsidiaries (collectively, the “Company”).
DSI was formed on March 8, 1999 as Diana Shipping Investment Corp. under the laws of the
Republic of Liberia. In February 2005, the Company’s articles of incorporation were amended. Under
the amended articles of incorporation, the Company was renamed Diana Shipping Inc. and was
re-domiciled from the Republic of Liberia to the Republic of the Marshall Islands.
The consolidated statements of cash flows for the years ended December 31, 2016 and 2015
have been derived from the audited consolidated financial statements for those years, as adjusted to
conform to current period presentation for restricted cash following the adoption of ASU No. 2016-18.
The Company is engaged in the ocean transportation of dry bulk cargoes worldwide mainly
through the ownership of dry bulk carrier vessels. The Company also operates the majority of its
own fleet through Diana Shipping Services S.A., or DSS, a wholly-owned subsidiary and a limited
number of vessels through a 50% owned joint venture (Notes 3 and 4).
Diana Shipping Services S.A., or DSS, provides the Company and its vessels with management
services since November 12, 2004, pursuant to management agreements and since October 1, 2013
administrative services with regards to services related to DSI’s operations and its subsidiaries. Such
costs are eliminated in consolidation. As at December 31, 2017, DSS does not provide management
services to ten vessels in the Company’s fleet whose management has been transferred progressively
since August 2015 to Diana Wilhelmsen Management Limited, or DWM, (Notes 3(b) and 4(d)).
During 2017, 2016, and 2015 charterers that individually accounted for 10% or more of the
Company’s time charter revenues were as follows:
Charterer
A
B
C
D
E
F
G
2017
17%
14%
12%
2016
15%
10%
19%
10%
2015
24%
20%
12%
10%
2. Significant Accounting Policies
(a) Principles of Consolidation: The accompanying consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles, and include the
accounts of Diana Shipping Inc. and its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated upon consolidation. Under Accounting Standards Codification
(“ASC”) 810 “Consolidation”, the Company consolidates entities in which it has a controlling
F-10
122 ■ ANNUAL REPORT 2017
financial interest, by first considering if an entity meets the definition of a variable interest entity
(“VIE”) for which the Company is deemed to be the primary beneficiary under the VIE model, or if
the Company controls an entity through a majority of voting interest based on the voting interest
model. The Company evaluates financial instruments, service contracts, and other arrangements to
determine if any variable interests relating to an entity exist. For entities in which the Company has a
variable interest, the Company determines if the entity is a VIE by considering whether the entity’s
equity investment at risk is sufficient to finance its activities without additional subordinated financial
support and whether the entity’s at-risk equity holders have the characteristics of a controlling
financial interest. In performing the analysis of whether the Company is the primary beneficiary of
a VIE, the Company considers whether it individually has the power to direct the activities of the
VIE that most significantly affect the entity’s performance and also has the obligation to absorb
losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The
Company reconsiders the initial determination of whether an entity is a VIE if certain types of events
(“reconsideration events”) occur. If the Company holds a variable interest in an entity that previously
was not a VIE, it reconsiders whether the entity has become a VIE. The Company has identified that
it has variable interests in Diana Containerships Inc. and Diana Wilhelmsen Management Limited.
The Company assessed reconsideration events and concluded that Diana Containerships Inc. is
a VIE, however the Company is not the primary beneficiary (Notes 3(a) and 4(b)).
(b) Use of Estimates: The preparation of consolidated financial statements in conformity with U.S.
generally accepted accounting principles 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 consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.
(c) Other Comprehensive Income / (loss): The Company separately presents certain
transactions, which are recorded directly as components of stockholders’ equity. Other
Comprehensive Income / (Loss) is presented in a separate statement.
(d) Foreign Currency Translation: The functional currency of the Company is the U.S. dollar
because the Company’s vessels operate in international shipping markets, and therefore
primarily transact business in U.S. dollars. The Company’s accounting records are maintained
in U.S. dollars. Transactions involving other currencies during the year are converted into
U.S. dollars using the exchange rates in effect at the time of the transactions. At the balance
sheet dates, monetary assets and liabilities which are denominated in other currencies are
translated into U.S. dollars at the year-end exchange rates. Resulting gains or losses are
reflected separately in the accompanying consolidated statements of operations.
(e) Cash and Cash Equivalents and Restricted Cash: The Company considers highly liquid
investments such as time deposits, certificates of deposit and their equivalents with an original
maturity of three months or less to be cash equivalents. Restricted cash consists mainly of
cash deposits required to be maintained at all times under the Company’s loan facilities (Note
7). As of December 31, 2017, restricted cash also included $582 of cash guarantee which was
restricted to withdrawal or usage.
(f) Accounts Receivable, Trade: The amount shown as accounts receivable, trade, at each
balance sheet date, includes receivables from charterers for hire, ballast bonus billings, if any,
hold cleanings and extra voyage insurance, net of any provision for doubtful accounts. At
each balance sheet date, all potentially uncollectible accounts are assessed individually for
purposes of determining the appropriate provision for doubtful accounts. No provision for
doubtful accounts was established as of December 31, 2017 and 2016.
F-11
ANNUAL REPORT 2017 ■ 123
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
(g) Loan Receivable from Related Party: The amounts shown as Due from related parties,
current and non-current, in the consolidated balance sheet as at December 31, 2017 and
2016, represent amounts receivable from Diana Containerships Inc., or Diana Containerships,
with respect to a loan agreement, net of any provision for credit losses and does not include
the $5,000 discount premium due on the termination date of the loan (Note 4(b)). Interest
income and fees, deriving from the agreement are recorded in the accounts as incurred.
At each balance sheet date, amounts due under the aforementioned loan agreement are
assessed for purposes of determining the appropriate provision for credit losses. As at
December 31, 2017 and 2016, the Company assessed the ability of Diana Containerships to
meet its obligations under the loan agreement by taking into consideration existing economic
conditions, the current financial condition of Diana Containerships, equity offerings, sale plans,
historical losses, and other risks/factors that may affect Diana Containerships’ future financial
condition and its ability to meet its obligations. As a result of this assessment, the Company
did not record any provision for credit losses, as it determined that Diana Containerships will
be able to meet its obligations under the loan in the near future.
(h) Inventories: Inventories consist of lubricants and victualling which are stated at the lower
of cost or net realizable value. Net realizable value is the estimated selling prices in the
ordinary course of business, less reasonably predictable costs of completion, disposal, and
transportation. When evidence exists that the net realizable value of inventory is lower than its
cost, the difference is recognized as a loss in earnings in the period in which it occurs. Cost is
determined by the first in, first out method. Inventories may also consist of bunkers when on
the balance sheet date a vessel remains idle. Bunkers, if any, are also stated at the lower of
cost or net realizable value and cost is determined by the first in, first out method.
(i) Vessel Cost: Vessels are stated at cost which consists of the contract price and any material
expenses incurred upon acquisition or during construction. Expenditures for conversions and
major improvements are also capitalized when they appreciably extend the life, increase the
earning capacity or improve the efficiency or safety of the vessels; otherwise these amounts are
charged to expense as incurred. Interest cost incurred during the assets’ construction periods
that theoretically could have been avoided if expenditure for the assets had not been made is
also capitalized. The capitalization rate, applied on accumulated expenditures for the vessel, is
based on interest rates applicable to outstanding borrowings of the period.
(j) Property and equipment: The Company owns the land and building where its offices are located.
Land is presented in its fair value on the date of acquisition and it is not subject to depreciation. The
building has an estimated useful life of 55 years with no residual value. Depreciation is calculated
on a straight-line basis. Equipment consists of office furniture and equipment, computer software
and hardware and vehicles which consist of motor scooters and a car. The useful life of the car
is 10 years, of the office furniture, equipment and the scooters is 5 years; and of the computer
software and hardware is 3 years. Depreciation is calculated on a straight-line basis.
(k) Impairment of Long-Lived Assets: Long-lived assets (vessels, land, and building) and certain
identifiable intangibles held and used by an entity are reviewed for impairment whenever events
or changes in circumstances (such as market conditions, obsolesce or damage to the asset,
F-12
124 ■ ANNUAL REPORT 2017
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
potential sales and other business plans) indicate that the carrying amount of the assets may
not be recoverable. When the estimate of undiscounted projected net operating cash flows,
excluding interest charges, expected to be generated by the use of the asset over its remaining
useful life and its eventual disposition is less than its carrying amount, the Company should
evaluate the asset for an impairment loss. Measurement of the impairment loss is based on
the fair value of the asset. The Company determines the fair value of its assets based on
management estimates and assumptions and by making use of available market data and
taking into consideration third party valuations.
With respect to the vessels, the Company determines undiscounted projected net operating
cash flows for each vessel by considering the historical and estimated vessels’ performance
and utilization, assuming (i) future revenues calculated for the fixed days, using the fixed charter
rate of each vessel from existing time charters and for the unfixed days, the most recent 10 year
average of historical 1 year time charter rates available for each type of vessel over the remaining
estimated life of each vessel, net of commissions. Historical ten-year blended average one-year
time charter rates are in line with the Company’s overall chartering strategy, they reflect the full
operating history of vessels of the same type and particulars with the Company’s operating
fleet and they cover at least a full business cycle; (ii) expected outflows for scheduled vessels’
maintenance; (iii) vessel operating expenses; and (iv) fleet utilization; assumptions in line with
the Company’s historical performance and its expectations for future fleet utilization under its
current fleet deployment strategy.
During the last quarter of 2017, the Company’s management considered various factors, including
the recovery of the market, the worldwide demand for dry-bulk products, supply of tonnage and
order book and concluded that the charter rates for the years 2008-2010 are exceptional. In this
respect the Company’s management decided to exclude from the 10-year average of 1 year
time charters these three years for which the rates were well above the average and which were
not considered sustainable for the foreseeable future. The Company performed the exercise
discussed above which resulted to recording an impairment on certain vessels’ carrying value
(Note 5). No impairment loss has been identified or recorded for 2016 and 2015.
With respect to the land and building, the Company determines undiscounted projected net
operating cash flows by considering an estimated monthly rent the Company would have to
pay in order to lease a similar property, during the useful life of the building. As at December
31, 2017, 2016 and 2015, no impairment loss was identified or recorded and the Company
has not identified any other facts or circumstances that would require the write down of the
value of its land or building in the near future.
(l) Vessel Depreciation: Depreciation is computed using the straight-line method over the
estimated useful life of the vessels, after considering the estimated salvage (scrap) value.
Each vessel’s salvage value is equal to the product of its lightweight tonnage and estimated
scrap rate. Management estimates the useful life of the Company’s vessels to be 25 years
from the date of initial delivery from the shipyard. Second hand vessels are depreciated from
the date of their acquisition through their remaining estimated useful life. When regulations
place limitations over the ability of a vessel to trade on a worldwide basis, its remaining useful
F-13
ANNUAL REPORT 2017 ■ 125
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
life is adjusted at the date such regulations are adopted.
(m) Accounting for Dry-Docking Costs: The Company follows the deferral method of
accounting for dry-docking costs whereby actual costs incurred are deferred and are
amortized on a straight-line basis over the period through the date the next dry-docking
is scheduled to become due. Unamortized dry-docking costs of vessels that are sold or
impaired are written off and included in the calculation of the resulting gain or loss in the
year of the vessel’s sale or impairment.
(n) Financing Costs: Fees paid to lenders for obtaining new loans or refinancing existing ones are
deferred and recorded as a contra to debt. Other fees paid for obtaining loan facilities not used
at the balance sheet date are capitalized as deferred financing costs. Fees relating to drawn loan
facilities are amortized to interest and finance costs over the life of the related debt using the
effective interest method and fees incurred for loan facilities not used at the balance sheet date
are amortized using the straight line method according to their availability terms. Unamortized
fees relating to loans repaid or refinanced as debt extinguishment are expensed as interest and
finance costs in the period the repayment or extinguishment is made. Loan commitment fees are
charged to expense in the period incurred, unless they relate to loans obtained to finance vessels
under construction, in which case they are capitalized to the vessels’ cost.
(o) Concentration of Credit Risk: Financial instruments, which potentially subject the Company
to significant concentrations of credit risk, consist principally of cash, trade accounts
receivable and the loan receivable from a related party. The Company places its temporary
cash investments, consisting mostly of deposits, with various qualified financial institutions
and performs periodic evaluations of the relative credit standing of those financial institutions
that are considered in the Company’s investment strategy. The Company limits its credit
risk with accounts receivable by performing ongoing credit evaluations of its customers’
financial condition and generally does not require collateral for its accounts receivable and
does not have any agreements to mitigate credit risk. The Company limits its credit risk
with the loan receivable by performing ongoing credit evaluations of Diana Containerships’
financial condition. The loan agreement is guaranteed by second preferred mortgages over
the vessels of Diana Containerships’ fleet (Note 4(b)). The Company has not entered into any
agreement to mitigate credit risk.
(p) Accounting for Revenues and Expenses: Revenues are generated from time charter
agreements and are usually paid fifteen days in advance. Time charter agreements with the
same charterer are accounted for as separate agreements according to the terms and conditions
of each agreement. Time charter revenues are recorded over the term of the charter as service
is provided. Income representing ballast bonus payments by the charterer to the vessel owner,
if any, is recognized in the period earned. Revenues from time charter agreements providing for
varying annual rates over their term are accounted for on a straight line basis. Compensation
due to earlier redelivery than the minimum period agreed in the charter party is recognized in
the period earned. Deferred revenue includes cash received prior to the balance sheet date for
which all criteria to recognize as revenue have not been met. Deferred revenue may also include
F-14
126 ■ ANNUAL REPORT 2017
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
deferred revenue resulting from charter agreements providing for varying annual rates, which
are accounted for on a straight line basis, or the unamortized balance of the liability associated
with the acquisition of second-hand vessels with time charters attached which were acquired at
values below fair market value at the date the acquisition agreement is consummated. Voyage
expenses, primarily consisting of commissions, port, canal and bunker expenses that are unique
to a particular charter, are paid for by the charterer under time charter arrangements, except for
commissions, which are always paid for by the Company, regardless of charter type and gain or
loss from the sale of bunkers on delivery to the time charterers. All voyage and vessel operating
expenses are expensed as incurred, except for commissions. Commissions are deferred over
the related voyage charter period to the extent revenue has been deferred since commissions
are due as the Company’s revenues are earned.
(q) Repairs and Maintenance: All repair and maintenance expenses including underwater
inspection expenses are expensed in the year incurred. Such costs are included in vessel
operating expenses in the accompanying consolidated statements of operations.
(r) Earnings / (loss) per Common Share: Basic earnings / (loss) per common share are
computed by dividing net income / (loss) available to common stockholders by the weighted
average number of common shares outstanding during the year. Diluted earnings per
common share, reflects the potential dilution that could occur if securities or other contracts
to issue common stock were exercised.
(s) Segmental Reporting: The Company has determined that it operates under one reportable
segment, relating to its operations of the dry-bulk vessels. The Company reports financial
information and evaluates the operations of the segment by charter revenues and not by the
length of ship employment for its customers, i.e. spot or time charters. The Company does
not use discrete financial information to evaluate the operating results for each such type of
charter. Although revenue can be identified for these types of charters, management cannot
and does not identify expenses, profitability or other financial information for these charters.
As a result, management, including the chief operating decision maker, reviews operating
results solely by revenue per day and operating results of the fleet. Furthermore, when the
Company charters a vessel to a charterer, the charterer is free to trade the vessel worldwide
and, as a result, the disclosure of geographic information is impracticable.
(t) Fair Value Measurements: The Company classifies and discloses its assets and liabilities
carried at the fair value in one of the following categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Observable market based inputs or unobservable inputs that are corroborated by
market data;
Level 3: Unobservable inputs that are not corroborated by market data.
F-15
ANNUAL REPORT 2017 ■ 127
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
(u) Share Based Payments: The Company issues restricted share awards which are measured
at their grant date fair value and are not subsequently re-measured. That cost is recognized
over the period during which an employee is required to provide service in exchange for the
award—the requisite service period (usually the vesting period). No compensation cost is
recognized for equity instruments for which employees do not render the requisite service.
Forfeitures of awards are accounted for when and if they occur. If an equity award is modified
after the grant date, incremental compensation cost will be recognized in an amount equal
to the excess of the fair value of the modified award over the fair value of the original award
immediately before the modification.
(v) Equity method investments: Investments in common stock in entities over which the
Company exercises significant influence, but does not exercise control are accounted for
by the equity method of accounting. Under this method, the Company records such an
investment at cost and adjusts the carrying amount for its share of the earnings or losses
of the entity subsequent to the date of investment and reports the recognized earnings or
losses in income. Dividends received, if any, reduce the carrying amount of the investment.
When the Company’s share of losses in an entity accounted for by the equity method equals
or exceeds its interest in the entity, the Company does not recognize further losses, unless
the Company has made advances, incurred obligations and made payments on behalf of
the entity. The Company also evaluates whether a loss in value of an investment that is
other than a temporary decline should be recognized. Evidence of a loss in value might
include absence of an ability to recover the carrying amount of the investment or inability
of the investee to sustain an earnings capacity that would justify the carrying amount of the
investment. The Company assessed the financial condition of Diana Containerships (Note
3(a)), the market conditions that could affect its operations in the near future and historical
losses of its investment and as a result the Company recorded impairment in 2017 and 2016,
which is included in Loss from equity method investments in the accompanying statements
of operations.
(w) Going concern: The Company’s policy is in accordance with ASU No. 2014-15,
“Presentation of Financial Statements - Going Concern”, issued in August 2014 by the
FASB. ASU 2014-15 provides U.S. GAAP guidance on management’s responsibility in
evaluating whether there is substantial doubt about a company’s ability to continue as a
going concern and on related required footnote disclosures. For each reporting period,
management evaluates whether there are conditions or events that raise substantial doubt
about the Company’s ability to continue as a going concern within one year from the date
the financial statements are issued.
Recent Accounting Pronouncements adopted
As of January 1, 2017, the Company adopted ASU No. 2016-15- Statement of Cash Flows
Classification of Certain Cash Receipts and Cash Payments and ASU No. 2016-18—Statement
of Cash Flows – Restricted Cash.
F-16
128 ■ ANNUAL REPORT 2017
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
The adoption of ASU No. 2016-15- Statement of Cash Flows Classification of Certain Cash
Receipts and Cash Payments did not result in any changes in the classification of cash receipts and
cash payments. The adoption of ASU No. 2016-18—Statement of Cash Flows – Restricted Cash,
changed the presentation of restricted cash in cash flow, where amounts generally described as
restricted cash and restricted cash equivalents are included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts shown on the statement of
cash flows.
Recent Accounting Pronouncements not yet adopted
In May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from
Contracts with Customers”, clarifying the method used to determine the timing and requirements
for revenue recognition on the statements of income. Under the new standard, an entity must
identify the performance obligations in a contract, the transaction price and allocate the price
to specific performance obligations to recognize the revenue when the obligation is completed.
The amendments in this update also require disclosure of sufficient information to allow users
to understand the nature, amount, timing and uncertainty of revenue and cash flow arising
from contracts. In August 2015, FASB issued ASU No. 2015-14 “Revenue from Contracts with
Customers (Topic 606): Deferral of the Effective Date,” which deferred the effective date of ASU
2014-09 for all entities by one year. The standard will be effective for public entities for annual
reporting periods beginning after December 15, 2017 and interim periods therein. In May and April
2016, the FASB issued two Updates with respect to Topic 606: ASU 2016-10, “Revenue from
Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” and
ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements
and Practical Expedients.” The Company has evaluated the impact of the standard after reviewing
historical contracts and has determined that all of the Company’s agreements are considered
leases. Certain non-lease components which are required to be assessed according to this
standard, may only affect presentation and disclosures and not the way revenue is recognized.
In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842), which requires
lessees to recognize most leases on the balance sheet. This is expected to increase both
reported assets and liabilities. The new lease standard does not substantially change lessor
accounting. For public companies, the standard will be effective for the first interim reporting
period within annual periods beginning after December 15, 2018, although early adoption is
permitted. Lessees and lessors will be required to apply the new standard at the beginning
of the earliest period presented in the financial statements in which they first apply the new
guidance, using a modified retrospective transition method. The requirements of this standard
include a significant increase in required disclosures. The Company is analyzing the impact of
the adoption of this guidance on the Company’s consolidated financial statements, including
assessing changes that might be necessary to information technology systems, processes and
internal controls to capture new data and address changes in financial reporting.
F-17
ANNUAL REPORT 2017 ■ 129
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
In May 2017, the FASB issued ASU 2017-09, “Compensation — Stock Compensation (Topic
718), Scope of Modification Accounting” (“ASU 2017-09”), which clarifies and reduces both
(1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718,
Compensation—Stock Compensation, to a change to the terms or conditions of a share-based
payment award. ASU 2017-09 is effective for annual periods, including interim periods within
those annual periods, beginning after December 15, 2017, however early adoption is permitted.
The Company does not expect that the adoption of ASU 2017-09 will have a material effect in
the Company’s financial statements.
In June 2016, the FASB issued ASU No. 2016-13– Financial Instruments – Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends
guidance on reporting credit losses for assets held at amortized cost basis and available for sale
debt securities. For public entities, the amendments of this Update are effective for fiscal years
beginning after December 15, 2019, including interim periods within those fiscal years. Early
application is permitted. The Company does not expect that the adoption of ASU 2016-13 will
have a material effect in the Company’s financial statements.
3. Investments in related parties
a) Diana Containerships Inc., or Diana Containerships: As at December 31, 2016, DSI owned
25.73% of the common stock of Diana Containerships amounting to $5,815 and included
in “Investments in related parties” in the accompanying consolidated balance sheets. As at
December 31, 2017, the investment was reduced to zero following the gradual sales during
the year of all Diana Containerships’ common stock previously owned by the Company.
For 2017, 2016, and 2015, the investment in Diana Containerships resulted in loss of $5,656,
$56,465, and $4,977, respectively, of which $3,124, $17,568 and $0, respectively was
impairment, which was recorded based on Diana Containerships’ market value on Nasdaq
at the date of each impairment charge recognition. The loss and impairment are included
in “Loss from equity method investments” in the accompanying consolidated statements of
operations. Additionally, for 2017, Loss from equity method investments also includes $757
loss from the sale of the shares discussed above. For 2017, 2016, and 2015, DSI received
dividends from Diana Containerships amounting to $0, $96 and $193, respectively.
On May 30, 2017, the company acquired 100 shares of newly-designated Series C Preferred
Stock, par value $0.01 per share, of Diana Containerships for $3,000 in exchange for a
reduction of an equal amount in the principal amount of the Company’s outstanding loan to
Diana Containerships (Note 4(b)). The Series C Preferred Stock has no dividend or liquidation
rights. The Series C Preferred Stock votes with the common shares of Diana Containerships,
if any, and each share of the Series C Preferred Stock entitles the holder thereof to up to
250,000 votes, subject to a cap such that the aggregate voting power of any holder of Series
C Preferred Stock together with its affiliates does not exceed 49.0%, on all matters submitted
to a vote of the stockholders of Diana Containerships. The acquisition of shares of Series
C Preferred Stock was approved by an independent committee of the Board of Directors
F-18
130 ■ ANNUAL REPORT 2017
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
of the Company. As at December 31, 2017, the $3,000 is also included in “Investments in
related parties” in the accompanying 2017 consolidated balance sheet accounted for at
cost less impairment, if any.
b) Diana Wilhelmsen Management Limited, or DWM: DWM is a joint venture which was
established on May 7, 2015 by Diana Ship Management Inc., a wholly owned subsidiary
of DSI, and Wilhelmsen Ship Management Holding Limited, an unaffiliated third party, each
holding 50% of DWM. As at December 31, 2017, DWM provided management services
to ten vessels of the Company’s fleet (Note 4(d)). The DWM office is located in Limassol,
Cyprus. As at December 31, 2017 and 2016, the investment in DWM amounted to $249 and
$199, respectively, and is included in “Investments in related parties” in the accompanying
consolidated balance sheets. For 2017, 2016, and 2015, the investment in DWM resulted
in gain of $49, $88, and loss of $156, respectively, included in “Loss from equity method
investments” in the accompanying consolidated statements of operations.
4. Transactions with Related Parties
a) Altair Travel Agency S.A. (“Altair”): The Company uses the services of an affiliated travel
agent, Altair, which is controlled by the Company’s CEO and Chairman of the Board. Travel
expenses for 2017, 2016 and 2015 amounted to $2,096, $2,320, and $2,685, respectively,
and are mainly included in “Vessels, net book value”, “Advances for vessels under construction
and acquisitions and other vessel costs”, “Vessel operating expenses” and “General and
administrative expenses” in the accompanying consolidated financial statements. At December
31, 2017 and 2016, an amount of $162 and $23, respectively, was payable to Altair and is
included in “Due to related parties” in the accompanying consolidated balance sheets.
(b) Diana Containerships Inc.: On May 20, 2013, the Company entered into a five year unsecured
loan of $50,000 with a subsidiary of Diana Containerships, drawn on August 20, 2013, for
general corporate purposes and working capital. The loan, initially bore interest at LIBOR plus
a margin of 5% and a back-end fee equal to 1.25% per annum on the outstanding amount of
the loan payable by the borrower on the repayment date of the loan. Following an amendment
on September 9, 2015, the interest was reduced to LIBOR plus a margin of 3% per annum, the
back-end fee which was paid on the date of the amendment was eliminated, and a fixed fee
of $200 was to be payable on the maturity date. In addition, the borrower agreed to repay the
principal amount of the loan on the last day of each interest period in amounts totalling $5,000
per annum, but not to exceed $32,500 in the aggregate. Following another amendment on
August 24, 2016, the repayment of all outstanding principal amounts was deferred until a later
date, the borrower was changed to another wholly-owned subsidiary of Diana Containerships
and the interest rate of the deferral period increased to 3.35% per annum over LIBOR. On May
30, 2017, as discussed in Note 3(a), the loan was decreased by $3,000, in order to acquire the
Series C Preferred Stock issued by Diana Containerships.
On June 30, 2017, DSI entered into an agreement with Diana Containerships to refinance the
above loan, amounting to $42,417 at that date, with a loan facility of $82,617, which reflects
F-19
ANNUAL REPORT 2017 ■ 131
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
an additional loan amount to Diana Containerships of $40,000 and the $200 fixed fee of
the previous loan which became payable on the termination date of the previous agreement
and has been included in “Interest and other income” in the accompanying statements of
operations. The loan also provides for an additional $5,000 interest-bearing discount premium
payable on the termination date, unless the lender demands earlier prepayment on or after the
first anniversary of the drawdown of the loan, in which case the discount premium is waived.
The loan matures in eighteen months from its date of signing, or December 31, 2018, and
bears interest at the rate of 6% per annum for the first twelve months, scaled to 9% for the
next three months, and further scaled to 12% for the remaining three months of the loan. The
loan facility is secured by second preferred mortgages on Diana Containerships’ vessels and
includes financial and other covenants. Additionally, Diana Containerships is required to prepay
the loan with any proceeds received from equity offerings, loan refinancings and vessel sales,
according to the terms of the loan agreement. The loan is subordinated to the loan of Diana
Containerships with another lender.
As at December 31, 2017 the outstanding balance of the loan and interest due from Diana
Containerships amounted to $82,660 and is separately presented in “Due from related
parties, current” in the related accompanying consolidated balance sheet (Note 14(c)). This
amount does not include the additional $5,000 interest-bearing discount premium, which is
payable on the termination date (Note 8(b)). As at December 31, 2016, there was an amount
of $102 and $45,417 presented in Due from related parties, current and non- current,
respectively.
For 2017, 2016 and 2015, interest and other income amounted to $3,855, $1,692, and
$2,745, respectively, and is included in “Interest and other income” in the accompanying
consolidated statements of operations.
(c) Diana Enterprises Inc. renamed to Steamship Shipbroking Enterprises Inc., or Steamship:
Steamship is a company controlled by the Company’s CEO and Chairman of the Board
which provides brokerage services to DSI pursuant to a Brokerage Services Agreement
for a fixed fee amended annually on each anniversary of the agreement. For 2017, 2016
and 2015, brokerage fees amounted to $1,800, $1,680, and $1,302, respectively, and
are included in “General and administrative expenses” in the accompanying consolidated
statements of operations. As of December 31, 2017 and 2016, there was no amount due to
Steamship included in the accompanying consolidated balance sheets.
(d) Diana Wilhelmsen Management Limited: As of December 31, 2017, DWM provided
management services to ten vessels of the Company’s fleet for a fixed monthly fee and
commercial services charged as a percentage of the vessels’ gross revenues. Management
fees for 2017, 2016 and 2015 amounted to $1,883, $1,464, and $405, respectively, and
are separately presented as “Management fees to related party” in the accompanying
consolidated statements of operations, whereas commercial fees amounted to $260,
$124, and $43, respectively, and are included in “Voyage expenses” in the accompanying
consolidated statements of operations. As at December 31, 2017 and 2016 there was an
amount of $109 and $2, respectively, due to DWM, included in “Due to related parties” in
F-20
132 ■ ANNUAL REPORT 2017
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
the accompanying consolidated balance sheets.
(e) Vessel Acquisitions: On February 4, 2016, the Company, through three separate wholly-
owned subsidiaries, entered into three Memoranda of Agreement to acquire from a related
party three Panamax vessels for an aggregate purchase price of $39,265. The Company
had agreed to acquire the vessels from entities affiliated with Mrs. Semiramis Paliou and
Mrs. Aliki Paliou, each of whom is a family member of the Company’s Chief Executive Officer
and Chairman of the Board. Mrs. Semiramis Paliou is also a director of the Company. The
transaction was approved unanimously by a committee of the Board of Directors established
for the purpose of considering the transaction and consisting of the Company’s independent
directors and each of its executive directors other than Mrs. Semiramis Paliou and Mr.
Simeon Palios. The agreed upon purchase price of the vessels was based, among other
factors, on independent third party broker valuations obtained by the Company. Two of the
vessels were delivered in March 2016 and the third was delivered in May 2016 (Note 5).
5. Vessels, net book value
The amounts in the accompanying consolidated balance sheets are analyzed as follows:
Balance, December 31, 2015
$ 1,947,992
$ (507,189)
$ 1,440,803
Vessel Cost
Accumulated
Depreciation
Net Book
Value
- Acquisitions, improvements and other vessel costs
39,427
-
- Depreciation for the year
Balance, December 31, 2016
- Transfer from advances for vessels under construction
and acquisition and other vessel costs
- Acquisitions, improvements and other vessel costs
- Vessel disposal
- Impairment charges
- Depreciation for the year
-
(76,318)
39,427
(76,318)
$ 1,987,419
$ (583,507)
$ 1,403,912
104,858
67,787
(15,349)
(877,484)
-
-
-
12,834
438,573
(81,553)
104,858
67,787
(2,515)
(438,911)
(81,553)
Balance, December 31, 2017
$ 1,267,231
$ (213,653)
$ 1,053,578
On February 4, 2016, the Company acquired the vessels Ismene, Selina and Maera for an
aggregate purchase price of $39,265. Ismene and Selina were delivered in March 2016 and the
Maera was delivered in May 2016.
On October 31, 2016, Houk Shipping Company Inc. provided a notice of cancellation of the
shipbuilding contract pursuant to its right under the contract to cancel the contract due to a delay
in delivery and to claim a refund of the pre-delivery installments and interest, amounting to $9,413,
which the Company received in December 2016.
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ANNUAL REPORT 2017 ■ 133
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
On January 4, 2017, the Company took delivery of Hull H2548 named San Francisco, and Hull
H2549 named Newport News, which were under construction until then for an aggregate contract
price of $95,400. As at December 31, 2016, advances for the construction and other vessel costs
amounted to $46,863 and are separately presented in the related consolidated balance sheet.
In April 2017, the Company acquired the vessels Astarte, Electra and Phaidra from unaffiliated third
party sellers for an aggregate purchase price of $67,250. All three vessels were delivered in May 2017.
On July 25, 2017, the Melite run aground at Pulau Laut, Indonesia. Following this incident, on
September 21, 2017, the owners served a notice of frustration of the voyage to the time-charterers
and a notice of abandonment to the H&M and IV insurers as it was considered that the extent of
damages and the estimated cost of repairs were such that the vessel constituted a constructive
total loss. As of September 30, 2017, the vessel’s net book value was reduced to its scrap value
of $2,515 resulting in an impairment of $19,807 which is included in “Impairment loss”, in the
2017 accompanying consolidated statement of operations. The vessel, which was insured for a
value of $14,000 to H&M insurers, was sold to an unrelated third party at the recorded price in
October 2017, and in November 2017, the Company received the balance of the insured value
of the vessel amounting to $11,528, which is included in “Insurance recoveries, net of other loss”
in the accompanying statement of operations.
As at December 31, 2017, the Company’s estimated undiscounted projected net operating
cash flows, excluding interest charges, expected to be generated by the use of certain vessels
over their remaining useful lives and their eventual disposition was less than their carrying amount.
During the last quarter of 2017, the Company’s management considered various factors, including
the recovery of the market, the worldwide demand for dry-bulk products, supply of tonnage and
order book and concluded that the charter rates for the years 2008-2010 are extraordinary. In
this respect the Company’s management decided to exclude from the 10-year average of 1 year
time charters these three years for which the rates were well above the average and which were
not considered sustainable for the foreseeable future. The Company performed the exercise
discussed above which resulted to recording an impairment on certain vessels’ carrying value
(Note 2). Accordingly, the Company recognized an aggregate impairment loss of $422,466, which
is included in “Impairment loss” in the 2017 accompanying consolidated statement of operations
of which $3,362 was recognized in “Deferred charges, net”. The change in the assumption
resulted to an increased impairment loss, net loss and net loss attributed to common stockholders
of $287,074, or $3.0 loss per share. The fair value of the vessels was determined through Level
2 inputs of the fair value hierarchy by taking into consideration third party valuations which were
based on last done deals of sale of vessels with similar characteristics, such as type, size and age.
6. Property and equipment, net
The amounts in the accompanying consolidated balance sheets are analyzed as follows:
F-22
134 ■ ANNUAL REPORT 2017
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
Property and
Equipment
Accumulated
Depreciation
Net Book Value
Balance, December 31, 2015
$ 26,365
$ (2,876)
$ 23,489
- Additions in property and equipment
- Depreciation for the year
217
-
-
(592)
217
(592)
Balance, December 31, 2016
$ 26,582
$ (3,468)
$ 23,114
- Additions in property and equipment
- Depreciation for the year
- Disposal of assets
104
-
(3)
-
(568)
3
104
(568)
-
Balance, December 31, 2017
$ 26,683
$ (4,033)
$ 22,650
7. Long-term debt, current and non-current
The amount of long-term debt shown in the accompanying consolidated balance sheets is
analyzed as follows:
8.5% Senior Unsecured Notes
Secured Term Loans
Total debt outstanding
Less related deferred financing costs
2017
2016
63,250
63,250
541,543
539,467
$ 604,793
$
602,717
(3,409)
(4,536)
Total debt, net of deferred financing costs
$ 601,384
$
598,181
Less: Current portion of long term debt, net of deferred financing costs
current
(60,763)
(65,072)
Long-term debt, net of current portion and deferred financing
costs, non-current
$ 540,621
$
533,109
8.5% Unsecured Senior Notes: On May 20, 2015, the Company offered $63,250 aggregate
principal amount of 8.5% Senior Notes due 2020 (the “Notes”), including an overallotment, at the price
of $25.0 per Note, pursuant to an approval obtained by a special committee of the Board of Directors.
As part of the offering, the underwriters sold $12,750 aggregate principal amount of the Notes to,
or to entities affiliated with, the Company’s chief executive officer, Mr. Simeon Palios, and other
executive officers and certain directors of the Company at the public offering price. The proceeds, net
of underwriting discount and offering expenses, amounting to $61,180, are included in “Long-term
debt, net of deferred financing costs, non-current” in the accompanying consolidated balance sheets.
As of May 29, 2015, the Notes are trading on the NYSE under the ticker symbol “DSXN”.
The Notes bear interest from May 28, 2015 at a rate of 8.5% per year and will mature on May
F-23
ANNUAL REPORT 2017 ■ 135
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
15, 2020. Interest is payable quarterly in arrears on the 15th day of February, May, August and
November of each year, commencing on August 15, 2015. Since May 15, 2017, the Company
may redeem the Notes at its option, in whole or in part, at any time, at a redemption price equal to
100% of the principal amount to be redeemed, plus accrued and unpaid interest to, but excluding,
the redemption date. The Notes include financial and other covenants, including maximum net
borrowings and minimum tangible net worth.
Secured Term Loans: The Company, through its subsidiaries, has entered into various long
term loan agreements with bank institutions to partly finance or, as the case may be, refinance part
of the acquisition cost of certain of its fleet vessels. The loan agreements are repayable in quarterly
or semi-annual installments plus one balloon installment per loan agreement to be paid together with
the last installment and bear interest at LIBOR plus margin ranging from 1% to 3%. Their maturities
range from January 2019 to March 2032. For 2017 and 2016, the weighted average interest rates
of the secured term loans were 3.38% and 2.79%, respectively.
As at December 31, 2017, the Company had the following agreements with banks:
On October 22, 2009, the Company, through a wholly-owned subsidiary, entered into a $40,000
loan agreement with Bremer Landesbank (“Bremer”) to partly finance the acquisition cost of the
Houston. The loan is repayable in 40 quarterly installments of $900 each plus one balloon installment
of $4,000 to be paid together with the last installment on November 12, 2019. The loan bears
interest at LIBOR plus a margin of 2.15% per annum.
On October 2, 2010, the Company, through two wholly-owned subsidiaries, entered into a loan
agreement with Export-Import Bank of China (“CEXIM Bank”) and DnB NOR Bank ASA (“DnB”) to
finance part of the construction cost of the Los Angeles and the Philadelphia, for an amount of up
to $82,600, of which $72,100 was drawn on delivery. The Lae advance is repayable in 40 quarterly
installments of approximately $628 each and a balloon of $12,332 payable together with the last
installment on February 15, 2022. The Namu advance is repayable in 40 quarterly installments of
approximately $581 each and a balloon of $11,410 payable together with the last installment on
May 18, 2022. Pursuant to an amendment of the loan agreement dated May 18, 2017, each of the
individual banks are allowed to demand repayment in full of such bank’s contribution in any or all
advances on August 16, 2019. If one or more banks (acting through the agent) exercise such right in
respect of an advance, the borrowers shall be obliged to repay each such bank’s contribution in that
advance in full on such date. The loan bears interest at LIBOR plus a margin of 2.50% per annum.
On September 13, 2011, the Company through one wholly-owned subsidiary entered into a loan
agreement with Emporiki Bank of Greece S.A. (“Emporiki”) for a loan of up to $15,000 to refinance
part of the acquisition cost of the Arethusa. On December 13, 2012, Bikar, the Company, DSS
and Credit Agricole Corporate and Investment Bank (“Credit Agricole”) entered into a supplemental
loan agreement to transfer the outstanding loan balance, the ISDA master swap agreement and
the existing security documents from Emporiki to Credit Agricole. The loan is repayable in 20 equal
semiannual installments of $500 each and a balloon payment of $5,000 to be paid together with the
last installment on September 15, 2021. The loan bears interest at LIBOR plus a margin of 2.5% per
annum, or 1% for such loan amount that is equivalently secured by cash pledge in favor of the bank.
F-24
136 ■ ANNUAL REPORT 2017
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
On May 24, 2013, the Company through two wholly-owned subsidiaries entered into a loan
agreement with CEXIM Bank and DnB to finance part of the construction cost of Crystalia and
Atalandi for an amount of up to $15,000 for each vessel, drawn on May 22, 2014. Each advance
is repayable in 19 quarterly installments of $250 each and a balloon of $10,250 payable together
with the last installment on February 22, 2019. The loan bears interest at LIBOR plus a margin of
3.0% per annum.
On January 9, 2014, the Company through two wholly-owned subsidiaries entered into a loan
agreement with Commonwealth Bank of Australia, London Branch, for a loan facility of up to $18,000
to finance part of the acquisition cost of the Melite and Artemis. The loan bears interest at LIBOR plus
a margin of 2.25%. The loan was drawn in two tranches, one of $8,500 assigned to Melite and one of
$9,500 assigned to Artemis. Tranche A was repayable in 24 equal consecutive quarterly installments
of $196 each; and a balloon of $3,800 payable on January 13, 2020. As a result of the grounding
incident of the Melite mentioned in Note 5 and the subsequent sale of the vessel, the respective loan
balance was repaid in full in October 2017. Tranche B is repayable in 32 equal consecutive quarterly
installments of $156 each and a balloon of $4,500 payable on January 13, 2022.
On December 18, 2014, the Company through two wholly-owned subsidiaries entered into a
loan agreement with BNP Paribas (“BNP”), for a loan facility of up to $55,000 to finance part of the
acquisition cost of the G. P. Zafirakis and the P. S. Palios, of which $53,500 was drawn. The loan
bears interest at LIBOR plus a margin of 2%, and is repayable in 14 equal semi-annual installments
of approximately $1,574 and a balloon of $31,466 payable on November 30, 2021.
On March 17, 2015, the Company, through eight separate wholly-owned subsidiaries, entered
into a loan agreement with Nordea Bank AB, London Branch, for a secured term loan facility of up
to $110,000, to refinance the existing indebtedness with the bank and for general corporate and
working capital purposes. On March 19, 2015, the Company drew down $93,080 and repaid the
then existing indebtedness with the bank amounting to $38,345. The loan is repayable in 24 equal
consecutive quarterly installments of about $1,862 each and a balloon of about $48,402 payable
together with the last installment on March 19, 2021. The loan bears interest at LIBOR plus a margin
of 2.1%.
On March 26, 2015, the Company, through three wholly-owned subsidiaries, entered into a loan
agreement with ABN AMRO Bank N.V. for a secured term loan facility of up to $53,000, to refinance
part of the acquisition cost of the vessels New York, Myrto and Maia. On March 30, 2015, the
Company drew down the amount of $50,160 under the loan facility, which is repayable in 24 equal
consecutive quarterly installments of about $994 each and a balloon of $26,310 payable together
with the last installment on March 30, 2021. The loan bears interest at LIBOR plus a margin of 2.0%.
On April 29, 2015, the Company, through one wholly-owned subsidiary, entered into a term
loan agreement with Danish Ship Finance A/S for a loan facility of $30,000, drawn on April 30, 2015
to partly finance the acquisition cost of the Santa Barbara, which was delivered in January 2015.
The loan is repayable in 28 equal consecutive quarterly installments of $500 each and a balloon
of $16,000 payable together with the last installment on April 30, 2022. The loan bears interest at
LIBOR plus a margin of 2.15%.
F-25
ANNUAL REPORT 2017 ■ 137
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
On July 22, 2015, the Company entered into a term loan agreement with BNP Paribas for a loan
of $165,000 drawn on July 24, 2015. The loan is repayable in 20 consecutive quarterly installments,
the first eight installments in an amount of $2,500 each, followed by four installments in an amount of
$5,000 each; eight installments in an amount of $7,000 each; and a balloon installment of $69,000
payable together with the last installment on July 24, 2020. The loan bears interest at LIBOR plus
a margin of 2.35% per annum for the first two years; 2.3% per annum for the third year and 2.25%
per annum until the final maturity of the loan.
On September 30, 2015, the Company, through two wholly-owned subsidiaries, entered into a
term loan agreement with ING Bank N.V. for a loan of up to $39,683, available in two advances to
finance part of the acquisition cost of the New Orleans and the Medusa. Advance A of $27,950 was
drawn on November 19, 2015 and is repayable in 28 consecutive quarterly installments of about
$466 each and a balloon installment of about $14,907 payable together with the last installment on
November 19, 2022. Advance B of $11,733 was drawn on October 6, 2015 and is repayable in 28
consecutive quarterly installments of about $293 each and a balloon installment of about $3,520
payable together with the last installment on October 6, 2022. The loan bears interest at LIBOR
plus a margin of 1.65%.
On January 7, 2016, the Company, through three wholly-owned subsidiaries, entered into a
secured loan agreement with the Export-Import Bank of China for a loan of up to $75,735 in order
to finance part of the construction cost of Newport News, San Francisco (Note 5) and Hull DY6006.
The tranche for Hull DY6006, whose shipbuilding contract was cancelled on October 31, 2016, was
cancelled and on February 6, 2017, pursuant to a Deed of Release with the bank the owner of Hull
DY6006 was released of all of its obligations under the loan agreement as borrower. On January 4,
2017, the Company drew down $57,240. The loan is repayable in 60 equal quarterly instalments of
$954 each by March 12, 2032 and bears interest at LIBOR plus a margin of 2.3%.
On March 29, 2016, the Company, through two wholly-owned subsidiaries, entered into a term
loan agreement with ABN AMRO Bank N.V. for a loan of $25,755, drawn on March 30, 2016, to
finance the acquisition cost of the Selina and the Ismene. The loan is payable in eight consecutive
quarterly installments of $855 each and a balloon installment of $18,915 payable together with the
last installment by June 30, 2019. The first repayment installment was repaid on September 30,
2017. The loan bears interest at LIBOR plus a margin of 3%.
On May 10, 2016, the Company, through one wholly-owned subsidiary, entered into a term
loan agreement with DNB Bank ASA and the Export-Import Bank of China for a loan of $13,510,
drawn on the same date, being the purchase price of the Maera. The loan is payable in seven equal
consecutive quarterly installments of about $20 each, four equal consecutive quarterly installments
of about $283 and a balloon of about $12,242 payable together with the last installment on January
4, 2019. The loan bears interest at LIBOR plus a margin of 3% per annum. According to the terms
of the loan agreement, the Company will prepay an additional amount of $289 in the first quarter
of 2018, which will be deducted from the balloon, and which is included in “Current portion of long
term debt, net of deferred financing costs, current”.
F-26
138 ■ ANNUAL REPORT 2017
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
Under the secured term loans outstanding as of December 31, 2017, 46 vessels of the
Company’s fleet are mortgaged with first preferred or priority ship mortgages, having an aggregate
carrying value of $968,083. Additional securities required by the banks include first priority
assignment of all earnings, insurances, first assignment of time charter contracts that exceed a
certain period, pledge over the shares of the borrowers, manager’s undertaking and subordination
and requisition compensation and either a corporate guarantee by DSI (the “Guarantor”) or
a guarantee by the ship owning companies (where applicable), financial covenants, as well as
operating account assignments. The lenders may also require additional security in the future in
the event the borrowers breach certain covenants under the loan agreements. The secured term
loans generally include restrictions as to changes in management and ownership of the vessels,
additional indebtedness, as well as minimum requirements regarding hull cover ratio and minimum
liquidity per vessel owned by the borrowers, or the guarantor, maintained in the bank accounts of
the borrowers, or the guarantor. As at December 31, 2017 and 2016, the restricted cash, which
relates to minimum cash deposits required to be maintained at all times under the Company’s loan
facilities, amounted to $25,000 and $23,000, respectively and is included in “Restricted cash” in the
accompanying consolidated balance sheets. Furthermore, the secured term loans contain cross
default provisions and additionally the Company is not permitted to pay any dividends following the
occurrence of an event of default.
As at December 31, 2017, the Company was in compliance with all of its loan covenants.
As at December 31, 2016, the Company was not in compliance with the minimum security
cover requirement of its loan agreement with BNP Paribas dated July 22, 2015. The shortfall was
estimated by the Company to be $25,650 and an amount of $19,731, representing the amount
which would have to be paid to the bank, was reclassified from non-current debt to the “Current
portion of long-term debt, net of deferred financing costs, current” in the 2016 accompanying
consolidated balance sheet.
The maturities of the Company’s debt facilities described above, as at December 31, 2017, and
throughout their term, are shown in the table below. The table does not include the right of each of
the lenders of a secured term loan to demand prepayment of their advance in August 2019 of the
then outstanding balance of such advance, subject to a written notification:
Period
January 1, 2018 to December 31, 2018
January 1, 2019 to December 31, 2019
January 1, 2020 to December 31, 2020
January 1, 2021 to December 31, 2021
January 1, 2022 to December 31, 2022
January 1, 2023 and thereafter
Total
F-27
Principal
Repayment
$ 62,059
119,342
183,132
132,494
72,468
35,298
$ 604,793
ANNUAL REPORT 2017 ■ 139
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
8. Commitments and Contingencies
a) Various claims, suits, and complaints, including those involving government regulations
and product liability, arise in the ordinary course of the shipping business. In addition, losses may
arise from disputes with charterers, agents, insurance and other claims with suppliers relating to
the operations of the Company’s vessels. The Company accrues for the cost of environmental
and other liabilities when management becomes aware that a liability is probable and is able to
reasonably estimate the probable exposure.
The Company’s vessels are covered for pollution in the amount of $1 billion per vessel per incident,
by the P&I Association in which the Company’s vessels are entered. The Company’s vessels are
subject to calls payable to their P&I Association and may be subject to supplemental calls which are
based on estimates of premium income and anticipated and paid claims. Such estimates are adjusted
each year by the Board of Directors of the P&I Association until the closing of the relevant policy year,
which generally occurs within three years from the end of the policy year. Supplemental calls, if any,
are expensed when they are announced and according to the period they relate to. During 2016, the
Company was notified by one of its P&I Clubs of supplemental calls with respect to the 2015 policy year
which however were immaterial and were expensed in the 2016 consolidated statement of operations.
b) Pursuant to the loan agreement with Diana Containerships Inc. dated June 30, 2017 (Note
4(b)), Diana Containerships is required to pay, on the termination date of the loan, an additional
$5,000 interest-bearing discount premium, which is not included in Due from related parties in
the accompanying 2017 balance sheet.
c) As at December 31, 2017, all of the Company’s vessels were fixed under time charter
agreements. The minimum contractual gross charter revenue expected to be generated from
fixed and non-cancelable time charter contracts existing as at December 31, 2017 and until their
expiration was as follows:
Period
Year 1
Year 2
Total
Amount
$
95,851
10,129
$ 105,980
9. Capital Stock and Changes in Capital Accounts
(a) Preferred stock: As at December 31, 2017 and 2016, the Company’s authorized preferred
stock consists of 25,000,000 shares (all in registered form) of preferred stock, par value $0.01
per share, of which 1,000,000 are designated as Series A Participating Preferred Shares and
5,000,000 are designated as Series B Preferred Shares.
As at December 31, 2017 and 2016, the Company had 2,600,000 Series B Preferred Shares
issued and outstanding with par value $0.01 per share, at $25.00 per share and with liquidation
preference at $25.00 per share and zero Series A Participating Preferred Shares issued and
F-28
140 ■ ANNUAL REPORT 2017
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
outstanding. Holders of series B preferred shares have no voting rights other than the ability,
subject to certain exceptions, to elect one director if dividends for six quarterly dividend periods
(whether or not consecutive) are in arrears and certain other limited protective voting rights. Also,
holders of series B preferred shares, rank prior to the holders of common shares with respect to
dividends, distributions and payments upon liquidation.
Dividends on the Series B preferred shares are cumulative from the date of original issue and
are payable on the 15th day of January, April, July and October of each year at the dividend rate
of 8.875% per annum, or $2.21875 per share per annum. For 2017, 2016, and 2015, dividends
on Series B preferred shares amounted to $5,769. At any time on or after February 14, 2019, the
Company may redeem, in whole or in part, the series B preferred shares at a redemption price of
$25.00 per share plus an amount equal to all accumulated and unpaid dividends thereon to the
date of redemption, whether or not declared.
(b) Common Stock: The Company’s authorized capital stock consists of 200,000,000 shares (all
in registered form) of common stock, par value $0.01 per share. The holders of the common shares are
entitled to one vote on all matters submitted to a vote of stockholders and to receive all dividends, if any.
(c) Offering of common shares: On April 26, 2017, the Company issued a total 20,125,000
common shares, at a price of $4.00 per share, in a public offering. As part of the offering, entities affiliated
with Simeon Palios, the Company’s Chief Executive Officer and Chairman, executive officers and certain
directors, purchased an aggregate of 5,500,000 common shares at the public offering price. The net
proceeds from the offering after underwriting discounts and other offering expenses were $77,311.
(d) Incentive plan: In November 2014, the Company’s board of directors approved to adopt the
2014 Equity Incentive Plan, for 5,000,000 shares, of which as at December 31, 2017, 2,924,759
remained reserved for issuance.
Restricted stock during 2017, 2016 and 2015 is analysed as follows:
Number of Shares Weighted Average Grant Date Price
Outstanding at December 31, 2014
2,491,834
$
Granted
Vested
1,100,000
(827,522)
Outstanding at December 31, 2015
2,764,312
$
Granted
Vested
2,150,000
(971,646)
Outstanding at December 31, 2016
3,942,666
$
Granted
Vested
1,310,000
(1,611,549)
Outstanding at December 31, 2017
3,641,117
$
F-29
9.30
6.91
9.57
8.27
2.26
8.67
4.89
3.95
5.46
4.30
ANNUAL REPORT 2017 ■ 141
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
The fair value of the restricted shares has been determined with reference to the closing price of
the Company’s stock on the date the agreements were signed. The aggregate compensation cost
is being recognized ratably in the consolidated statement of operations over the respective vesting
periods. On May 11, 2017, after the resignation of one board member, the total amount of his
unvested shares up to that date became vested at a compensation cost of $662. For 2017, 2016,
and 2015, an amount of $8,232, $8,313, and $8,279, respectively, was recognized in “General and
administrative expenses” presented in the accompanying consolidated statements of operations.
At December 31, 2017 and 2016, the total unrecognized cost relating to restricted share awards
was $10,509 and $13,567, respectively. At December 31, 2017, the weighted-average period over
which the total compensation cost related to non-vested awards not yet recognized is expected to
be recognized is 0.97 years.
(e) Share Repurchase Agreement: On May 22, 2014, the Company’s Board of Directors
authorized a share repurchase plan for up to $100,000 worth of shares of the Company’s common
stock. During 2015, the Company repurchased and retired 413,804 shares at an aggregate cost of
approximately $2,673 and none during 2016 and 2017.
10. Interest and Finance Costs
The amounts in the accompanying consolidated statements of operations are analyzed as
follows:
Interest expense
Amortization of financing costs
Commitment fees and other costs
Total
2017
2016
2015
$
24,978 $
19,523 $
13,922
1,455
195
1,503
923
1,364
269
$
26,628 $
21,949 $
15,555
Total interest on long-term debt for 2017, 2016 and 2015 amounted to $24,991, $21,009, and
$14,622, respectively, of which $13, $1,486, and $700, respectively, were capitalized and included
“Vessels, net book value”, in the accompanying consolidated balance sheets.
11. Loss per Share
All common shares issued (including the restricted shares issued under the Company’s
incentive plans) are the Company’s common stock and have equal rights to vote and participate
in dividends upon their vesting. The calculation of basic earnings/(loss) per share does not treat the
non-vested shares (not considered participating securities) as outstanding until the time/service-
based vesting restriction has lapsed. For the purpose of calculating diluted earnings per share the
weighted average number of diluted shares outstanding includes the incremental shares assumed
issued determined in accordance with the treasury stock method. For the 2017, 2016 and 2015
and on the basis that the Company incurred losses, the effect of incremental shares would be
anti-dilutive and therefore basic and diluted loss per share was the same.
F-30
142 ■ ANNUAL REPORT 2017
DIANA SHIPPING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(Expressed in thousands of U.S. Dollars – except share, per share data, unless otherwise stated)
Profit or loss attributable to common equity holders is adjusted by the amount of dividends on
Series B Preferred Stock as follows:
Net loss
Less dividends on series B preferred shares
2017
2016
2015
$ (511,714)
$
(5,769)
$
$
(164,237)
(5,769)
$
$
(64,713)
(5,769)
Net loss attributed to common stockholders
(517,483)
(170,006)
(70,482)
Weighted average number of common shares, basic
and diluted
95,731,093
80,441,517
79,518,009
Loss per share, basic and diluted
$
(5.41)
$
(2.11)
$
(0.89)
12. Income Taxes
Under the laws of the countries of the companies’ incorporation and / or vessels’ registration,
the companies are not subject to tax on international shipping income; however, they are
subject to registration and tonnage taxes, which are included in vessel operating expenses in the
accompanying consolidated statements of operations.
Pursuant to the Internal Revenue Code of the United States (the “Code”), U.S. source income
from the international operations of ships is generally exempt from U.S. tax if the company
operating the ships meets both of the following requirements, (a) the Company is organized in a
foreign country that grants an equivalent exception to corporations organized in the United States
and (b) either (i) more than 50% of the value of the Company’s stock is owned, directly or indirectly,
by individuals who are “residents” of the Company’s country of organization or of another foreign
country that grants an “equivalent exemption” to corporations organized in the United States (50%
Ownership Test) or (ii) the Company’s stock is “primarily and regularly traded on an established
securities market” in its country of organization, in another country that grants an “equivalent
exemption” to United States corporations, or in the United States (PubliclyTraded Test).
Notwithstanding the foregoing, the regulations provide, in pertinent part, that each class of
the Company’s stock will not be considered to be “regularly traded” on an established securities
market for any taxable year in which 50% or more of the vote and value of the outstanding shares
of such class are owned, actually or constructively under specified stock attribution rules, on more
than half the days during the taxable year by persons who each own 5% or more of the value of
such class of the Company’s outstanding stock, (“5 Percent Override Rule”).
The Company and each of its subsidiaries expects to qualify for this statutory tax exemption
for the 2017, 2016 and 2015 taxable years, and the Company takes this position for United
States federal income tax return reporting purposes. However, there are factual circumstances
beyond the Company’s control that could cause it to lose the benefit of this tax exemption in
future years and thereby become subject to United States federal income tax on its United States
source income such as if, for a particular taxable year, other shareholders with a five percent or
F-31
ANNUAL REPORT 2017 ■ 143
greater interest in the Company’s stock were, in combination with the Company’s existing 5%
shareholders, to own 50% or more of the Company’s outstanding shares of its stock on more
than half the days during the taxable year.
The Company estimates that since no more than the 50% of its shipping income would be
treated as being United States source income, the effective tax rate is expected to be 2% and
accordingly it anticipates that the impact on its results of operations will not be material. The
Company believes that it satisfies the Publicly-Traded Test and all of its United States source
shipping income is exempt from U.S. federal income tax. Based on its U.S. source Shipping
Income for 2017, 2016 and 2015, the Company would be subject to U.S. federal income tax of
approximately $136, $80 and $166, respectively, in the absence of an exemption under Section
883.
13. Financial Instruments and Fair Value Disclosures
The carrying values of temporary cash investments, accounts receivable and accounts payable
approximate their fair value due to the short-term nature of these financial instruments. The fair
values of long-term bank loans approximate the recorded values, due to their variable interest
rates. The fair value of long-term loan receivable from Diana Containerships also approximates
its recorded value, due to its variable interest rate. The fair value of the Senior Unsecured Notes
(Note 7) having a fixed interest rate amounted to $64,970 as of December 31, 2017, and was
determined through the Level 1 input of the fair value hierarchy as defined in FASB guidance for
Fair Value Measurements based on the quoted price of the instrument on that date as stated under
the ticker Symbol “DSXN” on the NYSE.
The Company is exposed to interest rate fluctuations associated with its variable rate
borrowings and its objective is to manage the impact of such fluctuations on earnings and cash
flows of its borrowings. Currently, the company does not have any derivative instruments to
manage such fluctuations.
14. Subsequent Events
a) Series B Preferred Stock Dividends: On January 16, 2018, the Company paid a dividend on
its series B preferred stock, amounting to $0.5546875 per share, or $1,442, to its stockholders
of record as of January 12, 2018.
b) Annual Incentive Bonus: On February 21, 2018 the Company’s Board of Directors approved
the grant of 1,800,000 shares of restricted common stock awards to executive management
and non-executive directors, pursuant to the Company’s 2014 equity incentive plan. The fair
value of the restricted shares based on the closing price on the date of the Board of Directors’
approval was about $6,876 and will be recognized in income ratably over the restricted shares
vesting period which will be 3 years.
c) Loan Prepayment: On March 12, 2018 the Company received an amount of $8,379 as
partial prepayment under the loan with Diana Containerships, decreasing the loan receivable
to $74,238 (Note 4(b)).
F-32
144 ■ ANNUAL REPORT 2017
Corporate Directory
Directors and Executive Officers
Simeon Palios
Chairman of the Board of Directors and Chief
Executive Officer
Anastasios Margaronis
Director and President
Andreas Michalopoulos
Chief Financial Officer and Treasurer
Ioannis Zafirakis
Director, Chief Operating Officer and Secretary
Maria Dede
Chief Accounting Officer
William Lawes
Non-Executive Director
Apostolos Kontoyannis
Non-Executive Director
Konstantinos Fotiadis
Non-Executive Director
Konstantinos Psaltis
Non-Executive Director
Semiramis Paliou
Non-Executive Director
Kyriacos Riris
Non-Executive Director
Corporate Offices
Diana Shipping Inc.
Pendelis 16
17564 Palaio Faliro
Athens, Greece
Tel: +30-210-947-0100
Email: info@dianashippinginc.com
Stock Listing
Diana Shipping Inc.’s stock is traded on the New
York Stock Exchange under the symbol “DSX”.
Diana Shipping Inc.’s Series B Cumulative
Redeemable Perpetual Preferred Shares are
traded on the New York Stock Exchange under
the symbol “DSXPRB”.
F-33F-37
Diana Shipping Inc.’s Senior Unsecured Notes
due 2020 are traded on the New York Stock
Exchange under the symbol “DSXN”.
Transfer Agent and Registrar
Computershare
P.O. Box 358015
Pittsburgh, PA 15252-8015
or
480 Washington Boulevard
Jersey City, NJ 07310
Toll Free Number: +1-800-231-5469
Outside of US: +1-201-680-6578
www.bnymellon.com/shareowner/equityaccess
Legal Counsel
Seward and Kissel LLP
One Battery Park Plaza
New York, NY 10004
Tel: +1-212-574-1200
Independent Auditors
Ernst & Young (Hellas)
Certified Auditors-Accountants S.A
Chimarras 8B
151 25 Maroussi
Greece
Tel: +30-210-288-6000
Shareholder/Corporate Information
Any shareholder, investor, or analyst seeking
further information may contact:
Corporate Contact:
Ioannis Zafirakis
Director, Chief Operating Officer and Secretary
Pendelis 16
17564 Palaio Faliro
Athens, Greece
Tel: +30-210-947-0100
Email: izafirakis@dianashippinginc.com
Investor and Media Relations:
Edward Nebb
Comm-Counsellors, LLC
724 Valley Road
New Canaan, Connecticut 06840
Tel: +1-203-972-8350
Email: enebb@optonline.net
Website
Press releases, fleet information, stock quotes,
corporate investor information, and SEC filings
can all be accessed on the company’s website,
www.dianashippinginc.com.
DIANA SHIPPING INC.
16, PENDELIS Str
17564 PALAIO FALIRO
ATHENS, GREECE
PHONE: +30 210 9470100
FAX: +30 210 9470101
www.dianashipinginc.com