UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number 001-33831
EAGLE BULK SHIPPING INC.
(Exact name of Registrant as specified in its charter)
Republic of the Marshall Islands
(State or other jurisdiction of incorporation or organization)
98-0453513
(I.R.S. Employer Identification No.)
300 First Stamford Place, 5th Floor
Stamford, Connecticut
(Address of principal executive offices)
06902
(Zip Code)
Registrant’s telephone number, including area code: (203) 276–8100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
EGLE
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,
“accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
Smaller reporting company
☐ Accelerated filer
☒ Emerging growth company
☒ Non-Accelerated filer
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provide pursuant to Section
13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15
U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on June 30,
2021, the last business day of the registrant’s most recently completed second quarter, was approximately
$269,420,584 based on the closing price of $47.32 per share on The Nasdaq Global Select Market on that date. (For
this purpose, all outstanding shares of common stock have been considered held by non-affiliates, other than the
shares beneficially owned by directors, officers and certain shareholders of the registrant holding above 10% of the
outstanding shares of common stock; without conceding that any of the excluded parties are "affiliates" of the
registrant for purposes of the federal securities laws.)
As of March 9, 2022, 13,633,263 shares of the registrant’s common stock were outstanding.
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ☒ No ☐
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 2022 annual meeting of shareholders, which will be
filed with the Securities and Exchange Commission within 120 days of December 31, 2021, are incorporated by
reference into Part III of this Annual Report on Form 10-K for the registrant's fiscal year ended December 31, 2021.
2
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Reserved
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
Signatures
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References in this Annual Report on Form 10-K (this “Form 10-K” or “Annual Report”) to “we,” “us,” “our,”
“Eagle Bulk,” “Eagle,” the “Company” and similar terms all refer to Eagle Bulk Shipping Inc. and its subsidiaries,
unless otherwise stated or the context otherwise requires.
A glossary of shipping terms (the “Glossary”) that should be used as a reference when reading this Annual Report
can be found immediately prior to Item 1A. Capitalized terms that are used in this Annual Report are either defined
when they are first used or in the Glossary.
All dollar amounts are stated in United States (“U.S.”) dollars unless otherwise stated.
Reverse Stock Split
Effective as of September 15, 2020, the Company completed a 1-for-7 reverse stock split (the “Reverse Stock Split”)
of the Company's issued and outstanding shares of common stock, par value $0.01 per share. Proportional
adjustments were made to the Company’s issued and outstanding common stock and to the exercise price and the
number of shares issuable upon exercise of all of the Company’s outstanding warrants, the exercise price and
number of shares issuable upon exercise of the options outstanding under the Company’s equity incentive plans, and
the number of shares subject to restricted stock awards under the Company’s equity incentive plans. Furthermore,
the conversion rate set forth in the indenture governing the Company’s Convertible Bond Debt was adjusted to
reflect the Reverse Stock Split. No fractional shares of common stock were issued in connection with the Reverse
Stock Split. Furthermore, if a shareholder held less than seven shares prior to the Reverse Stock Split, then such
shareholder received cash in lieu of the fractional share. All references to common stock and all per share data
contained in this Annual Report have been retrospectively adjusted to reflect the Reverse Stock Split unless
explicitly stated otherwise.
Forward-Looking Statements and Risk Factor Summary
This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and the Private Securities Litigation Reform Act of 1995, and are intended to be covered by the
safe harbor provided for under these sections. These statements may include words such as “believe,” “estimate,”
“project,” “intend,” “expect,” “plan,” “anticipate,” and similar expressions in connection with any discussion of the
timing or nature of future operating or financial performance or other events. Forward-looking statements reflect
management's current expectations and observations with respect to future events and financial performance.
Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in
good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to risks,
uncertainties, and other factors, which could cause actual results to differ materially from future results expressed,
projected or implied by those forward-looking statements. The principal factors that affect our financial position,
results of operations and cash flows include charter market rates, which fluctuate based on various economic and
market conditions, periods of charter hire, vessel operating expenses and voyage costs, which are incurred primarily
in U.S. dollars, depreciation expenses, which are a function of the purchase price of our vessels and our vessels’
estimated useful lives and scrap value, general and administrative expenses, and financing costs related to our
indebtedness. The accuracy of the Company’s assumptions, expectations, beliefs and projections depends on events
or conditions that change over time and are thus susceptible to change based on actual experience, new
developments and known and unknown risks. The Company gives no assurance that the forward-looking statements
will prove to be correct and does not undertake any duty to update them. Our business is subject to a number of risks
that could cause actual results to differ materially from those indicated by forward-looking statements made herein
and presented elsewhere by management from time to time. These risks are discussed more fully under “Item 1A.
Risk Factors” and include, but are not limited to the following:
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changes in demand in the drybulk market, including, without limitation, changes in production of, or
demand for, commodities and bulk cargoes, generally or in particular regions;
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greater than anticipated levels of drybulk vessel newbuilding orders or lower than anticipated rates of
drybulk vessel scrapping;
significant decrease in spot charter rates that could impact our profitability;
failure of our charterers or other counterparties to meet their obligations under our charter agreements;
changes in rules and regulations applicable to the drybulk industry, including, without limitation, legislation
adopted by international bodies or organizations such as the International Maritime Organization and the
European Union (the “EU”) or by individual countries;
actions taken by regulatory authorities, including, without limitation, the U.S. Treasury Department’s
Office of Foreign Assets Control (“OFAC”);
the global economic environment;
changes in trading patterns significantly impacting overall drybulk tonnage requirements;
increased fuel costs or bunker prices;
changes in the typical seasonal variations in drybulk charter rates and other seasonal fluctuations;
changes in the cost of other modes of bulk commodity transportation;
an over-supply of drybulk carrier capacity across the industry may depress charter rates;
changes in general domestic and international political conditions, including China;
a decrease in the level of China's export of goods or an increase in trade protectionism globally or by
certain countries;
changes in the condition of the Company’s vessels or applicable maintenance or regulatory standards
(which may affect, among other things, our anticipated dry docking costs);
increased costs due to compliance with safety and other vessel requirements imposed by classification
societies and complex laws and regulations, including environmental regulations;
significant deterioration in charter hire rates from current levels or the inability of the Company to achieve
its cost-cutting measures;
the duration and impact of the novel coronavirus (“COVID-19”) pandemic;
the relative cost and availability of low and high sulfur fuel oil;
any legal proceedings which we may be involved from time to time; and other factors listed from time to
time in our filings with the Securities and Exchange Commission (the “SEC”);
the state of the global financial markets may adversely impact our ability to obtain additional financing;
the market value of our vessels are volatile and may decline;
world events, such as terrorist attacks and international conflicts or instability;
the conflict between Russia and Ukraine may impact our ability to retain and source crew, and in turn,
could adversely affect our revenue, expenses, and profitability;
acts of piracy on ocean going vessels;
the imposition of sanctions by the United Nations, U.S., EU, UK and/or other relevant authorities;
our noncompliance with international safety regulations could result in increased liability or adversely
affect our insurance coverage;
increased costs due to increased inspection procedures and tighter import and export controls;
arrests of our vessels by maritime claimants;
risks associated with operating ocean-going vessels;
inherent risks of our business that might not be adequately covered by insurance;
requisitions of our vessels by governments during a period of war;
costs due to our failure to comply with the U.S. Foreign Corrupt Practices Act (the “FCPA”);
costs and reputational harm due to cyber-attacks or other security breaches;
risks of default under our loan agreements;
our failure to manage our planned growth properly or integrate newly acquired vessels;
risks associated with purchasing and operating secondhand vessels;
the loss of one or more of our significant customers;
our failure to employ our vessels profitably due to the competitive international shipping industry;
our failure to attract and retain key management personnel;
costs due to the aging of our fleet;
technological innovations could reduce our charter hire income and the value of our vessels;
if we are required to pay tax on U.S. source income;
if we are treated as a “passive foreign investment company”;
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the inability of our subsidiaries to declare or pay dividends;
costs associated with expanding our business;
losses from derivative instruments;
interest rate risks under our debt facilities;
the phase out of LIBOR on our interest rates and interest rate swaps;
our common stock might be affected by the under-developed corporate laws of the Marshall Islands;
the fluctuation of the price of our common stock;
the inactivity of the public market for our common stock;
certain shareholders own large portions of our outstanding common stock, which may limit stockholders’
ability to influence our actions;
our shareholders are limited in their ability to elect or remove directors;
our shareholders are subject to advance notice requirements for shareholder proposals and director
nominations;
our organizational documents contain super majority provisions;
our organizational documents provide that disputes between us and our shareholders shall be subject to the
jurisdiction of the U.S. federal courts located in the Southern District of New York; and
changes in global, regional, and local regulatory requirements concerning decarbonization which could
impact fuel cost, vessel speeds, or trading areas and could attach cost to certain air emissions.
We have based these statements on assumptions and analyses formed by applying our experience and perception of
historical trends, current conditions, expected future developments and other factors we believe are appropriate in
the circumstances. The Company’s future results may be impacted by adverse economic conditions, such as
inflation, deflation, or lack of liquidity in the capital markets, that may negatively affect it or parties with whom it
does business. Should one or more of the foregoing risks or uncertainties materialize in a way that negatively
impacts the Company, or should the Company’s underlying assumptions prove incorrect, the Company’s actual
results may vary materially from those anticipated in its forward-looking statements, and its business, financial
condition and results of operations could be materially and adversely affected.
Other unknown or unpredictable factors also could harm our results. We disclaim any intent or obligation to publicly
update any forward-looking statements, whether as a result of new information, future events or otherwise, except as
may be required under applicable securities laws.
6
PART I
ITEM 1. BUSINESS
Overview and Recent Developments
Eagle Bulk Shipping Inc. (“Eagle” or the “Company”) is a U.S.-based, fully integrated, shipowner-operator,
providing global transportation solutions to a diverse group of customers including miners, producers, traders, and
end users. Headquartered in Stamford, Connecticut, with offices in Singapore and Copenhagen, Eagle focuses
exclusively on the versatile mid-size drybulk vessel segment and owns one of the largest fleets of Supramax/
Ultramax vessels in the world. The Company performs all management services in-house (strategic, commercial,
operational, technical, and administrative services) and employs an active management approach to fleet trading
with the objective of optimizing revenue performance and maximizing earnings on a risk-managed basis.
As of December 31, 2021, our owned fleet totaled 53 vessels, or 3.19 million deadweight ton ("dwt"), with an
average age of 9.3 years.
Vessel acquisitions and sales
For the year ended December 31, 2021, the Company took delivery of nine vessels and sold one vessel:
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During the fourth quarter of 2020, the Company entered into a series of memorandum of agreements to
purchase three high specification scrubber-fitted Ultramax bulk carriers for a total purchase price of $51.5
million including direct expenses of acquisition, of which $3.3 million was paid as a deposit as of
December 31, 2020. The Company took delivery of the vessels during the first quarter of 2021.
During the first quarter of 2021, the Company entered into another series of memorandum of agreements to
purchase four vessels. The first vessel is a high-specification scrubber-fitted Ultramax bulk carrier for a
total purchase price of $15.3 million and a warrant convertible into 212,315 common shares of the
Company. The remaining three vessels are 2011-built Crown-58 Supramax bulk carriers that were
purchased for a total purchase price of $20.5 million and a warrant convertible into 329,583 common shares
of the Company. The above mentioned prices include direct expenses of acquisition. Common shares were
issuable upon exercise of warrants on a pro-rata basis in connection with each vessel delivery. The warrants
were measured at fair value on the date of the memorandum of agreement and recorded as Vessels and
vessel improvements on the Consolidated Balance Sheets when the Company took delivery of the vessels.
The fair value of the warrants for the total of 541,898 common shares was approximately $10.7 million as
of the date of the memorandum of agreements for each vessel. The Company took delivery of the four
vessels during the second and third quarters of 2021 and issued 541,898 shares of common stock upon
conversion of outstanding warrants.
During the second quarter of 2021, the Company entered into memorandum of agreements to acquire two
high-specification 2015-built scrubber-fitted Ultramax bulk carriers. This acquisition was partially financed
with cash on hand, which included proceeds raised from equity issued under the Company's ATM Offering
(as defined below). The total cost of the vessels acquired including direct costs of acquisition was $42.2
million. The Company took delivery of the two vessels in each of the third and fourth quarters of 2021.
During the second quarter of 2021, the Company signed a memorandum of agreement to sell the vessel
Tern for a total net consideration of $9.2 million after commissions and associated selling expenses. The
vessel was delivered to the buyer during the third quarter of 2021. The Company recorded a gain of $4.0
million in its Consolidated Statements of Operations for the year ended December 31, 2021. Additionally,
the Company wrote off $0.3 million of unamortized drydock costs upon the sale of the vessel.
7
Vessel upgrades - ballast water systems
During the third quarter of 2018, the Company entered into a contract for the purchase of ballast water treatment
systems (“BWTS”) on 39 of our owned vessels. The projected costs, including installation, are approximately
$0.5 million per BWTS. The Company intends to complete the majority of the installations during scheduled
drydockings. The Company completed installation of BWTS on 23 vessels and recorded $11.5 million in Vessels
and vessel improvements in the Consolidated Balance Sheet as of December 31, 2021. Additionally, the Company
recorded $4.4 million as advances paid towards installation of BWTS on the remaining vessels as a noncurrent asset
in its Consolidated Balance Sheet as of December 31, 2021.
Business Strategy
Our vision is to be the leading integrated drybulk shipowner-operator through consistent outperformance and
sustainable growth. We plan to achieve our vision by:
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Focusing on the most versatile drybulk vessel segment
We focus on owning-operating vessels within the mid-size Supramax/Ultramax segment. We consider this
vessel segment to be the most versatile amongst the various drybulk asset classes due to the optimal size and
specifications of Supramax/Ultramax ships, which allows us to carry the most diversified cargo mix when
compared to other sizes of drybulk carriers. With a size ranging from 50,000 to 65,000 dwt and a length of
approximately 200 meters, Supramax/Ultramax vessels are able to accommodate large cargo quantities and call
on the majority of ports around the globe. In addition, these vessels are equipped with onboard cranes and grabs,
giving them the ability to load and discharge cargoes without the need for shore-based port equipment/
infrastructure. We believe the versatility and flexibility of Supramax/Ultramax vessels provide for improved
risk-adjusted returns.
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Employing an active management strategy for fleet trading
We employ an active management strategy for fleet employment with the objective of optimizing revenue
performance and maximizing earnings on a risk-managed basis. Through the execution of various commercial
strategies employed across our global trading desks in the United States, Europe, and Asia, the Company has
been able to achieve optimal time charter equivalent results and outperform the relevant market index on a
consistent basis.
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Executing on fleet renewal and growth
Since 2016, we have executed on a comprehensive fleet renewal program totaling 49 vessel transactions. We
have acquired 29 modern vessels and sold 20 of our oldest and least efficient vessels. We believe these
transactions have vastly improved our fleet makeup. The average size of our ships has increased, the average
age of our fleet has remained fairly static (over the period), and our fleet emissions profile has significantly
improved (as measured by fuel consumption per dwt).
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Performing technical management in-house
We perform all technical management services relating to vessel maintenance, vessel repairs and crewing. We
believe maintaining technical management in-house allows us to better optimize operating costs and vessel
performance.
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Implementing a prudent approach to balance sheet management
We believe the long-term success of our Company is contingent on maintaining a prudent approach to balance
sheet management, including working capital optimization, diversifying capital sources, lowering cost of
capital, limiting interest rate exposure, and optimizing the debt profile.
8
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Emphasis on Environmental, Social and Governance (“ESG”) factors
We have developed, maintained and expanded on various initiatives relating to ESG matters. To better inform
our shareholders and other stakeholders about these matters of strategic importance, we started publishing an
annual ESG Sustainability Report in 2020, prepared in accordance with the Marine Transportation Framework,
established by the Sustainability Accounting Standards Board. The reports are available for download on our
company website. Initiatives we have undertaken include:
Environmental
• Executing on a comprehensive fleet renewal program, acquiring modern efficient vessels and selling
older, less efficient ones, which has resulted in an improved fleet makeup and reduced greenhouse gas
(“GHG”) emissions on a ton-mile basis.
• Creating a performance department and implementing performance optimization software, which has
resulted in improved vessel performance and reduced fuel consumption.
• Applying high specification hull coatings and installing various energy saving devices around the
propeller aperture to improve vessel performance and reduce fuel consumption.
• Reducing sulfur emissions by approximately 85% by following strategies to comply with the
International Maritime Organization’s (“IMO”) fuel sulfur content regulations, which went into effect
in January 2020.
• Joining the Getting to Zero Coalition, a global alliance of more than 1,540 companies committed to
the decarbonization of deep-sea shipping in line with the IMO GHG emissions reduction strategy and,
ultimately, the alignment of shipping emissions with the United Nations Framework Convention on
Climate Change Paris Agreement.
• Providing relevant data on fuel consumption and sailing distances for each of our owned vessels to
our lenders that are signatories to the Poseidon Principles. The Poseidon Principles establish a
framework for assessing and disclosing the climate alignment of ship finance portfolios and are
consistent with the policies and ambitions of the IMO to reduce shipping's total annual GHG emissions
by at least 50% by 2050.
• Becoming a signatory to the Sea Cargo Charter, a global framework for aligning chartering activities
with responsible environmental behavior in order to promote international shipping’s decarbonization.
The Charter is consistent with the IMO's ambition for GHG emissions from international shipping to
peak as soon as possible and to reduce by at least 50% by 2050 compared to 2008 levels.
• Joining the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping as Mission Ambassador,
which is a not-for-profit, independent research and development center. It works across the shipping
sector with industry, academia, and authorities to create an overview of viable decarbonization
pathways, facilitate the development and implementation of new energy technologies, build confidence
in new concepts, and their supply chains and accelerate the energy transition by defining and maturing
viable strategic pathways.
• Investigating existing and emerging technologies to reduce GHG emissions including completing our
first 100% sustainable biofuel voyage on the M/V Sydney Eagle.
• Joining other industry leaders in calling on policy makers to prioritize the implementation of a carbon
pricing mechanism and dedicated shipping industry decarbonized research and development fund
during COP26 held in Glasgow, Scotland.
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Social
• Abiding by equal opportunity employer guidelines and promoting diversity in the workforce.
• Recognizing and complying with the Maritime Labor Convention, which was adopted by the
International Labor Organization (“ILO”). All of our crew labor contracts are International Transport
Workers’ Federation compliant agreements.
• Becoming a signatory to The Neptune Declaration, a global "call to action" initiative to help end the
unprecedented crew change crisis affecting the maritime industry as a result of the outbreak of
COVID-19 and its impact to worldwide travel.
• Implementing a robust safety management system.
• Volunteering with, and donating to, various local charities and causes.
• Providing paid internship opportunities to university students.
Governance
• Setting up a best-in-class corporate governance structure.
• Combating corruption through strict internal procedures and training, as well as taking part in
collective action through our membership in the Maritime Anti-Corruption Network.
• Adopting a comprehensive code of ethics program within the organization that provides ongoing
training and robust controls.
• Focusing on highly transparent reporting of sustainability, operating, and financial performance.
Our Fleet
The 53 vessels in our owned fleet as of December 31, 2021 included the following vessels:
Vessel
Antwerp Eagle
Bittern
Canary
Cape Town Eagle
Cardinal
Copenhagen Eagle
Crane
Crested Eagle
Crowned Eagle
Dublin Eagle
Egret Bulker
Fairfield Eagle
Gannet Bulker
Golden Eagle
Dwt
(in thousands)
63.5
57.8
57.8
63.7
55.4
63.5
57.8
56.0
55.9
63.5
57.8
63.3
57.8
56.0
Year Built
2015
2009
2009
2015
2004
2015
2010
2009
2008
2015
2010
2013
2010
2010
Class
Ultramax
Supramax
Supramax
Ultramax
Supramax
Ultramax
Supramax
Supramax
Supramax
Ultramax
Supramax
Ultramax
Supramax
Supramax
10
Grebe Bulker
Greenwich Eagle
Groton Eagle
Hamburg Eagle
Helsinki Eagle
Hong Kong Eagle
Ibis Bulker
Imperial Eagle
Jaeger
Jay
Kingfisher
Madison Eagle
Martin
Montauk Eagle
Mystic Eagle
New London Eagle
Newport Eagle
Nighthawk
Oriole
Oslo Eagle
Owl
Petrel Bulker
Puffin Bulker
Roadrunner Bulker
Rotterdam Eagle
Rowayton Eagle
Sandpiper Bulker
Sankaty Eagle
Santos Eagle
Shanghai Eagle
Singapore Eagle
Southport Eagle
Stamford Eagle
Stellar Eagle
Stockholm Eagle
Stonington Eagle
Sydney Eagle
Valencia Eagle
Westport Eagle
57.8
63.3
63.3
63.3
63.6
63.5
57.8
56.0
52.5
57.8
57.8
63.3
57.8
58.0
63.3
63.1
58.0
57.8
57.8
63.7
57.8
57.8
57.8
57.8
63.6
63.3
57.8
58.0
63.5
63.4
63.4
63.3
61.5
56.0
63.3
63.3
63.5
63.6
63.3
2010
2013
2013
2014
2015
2016
2010
2010
2004
2010
2010
2013
2010
2011
2013
2015
2011
2011
2011
2015
2011
2011
2011
2011
2017
2013
2011
2011
2015
2016
2017
2013
2016
2009
2016
2012
2015
2015
2015
Supramax
Ultramax
Ultramax
Ultramax
Ultramax
Ultramax
Supramax
Supramax
Supramax
Supramax
Supramax
Ultramax
Supramax
Supramax
Ultramax
Ultramax
Supramax
Supramax
Supramax
Ultramax
Supramax
Supramax
Supramax
Supramax
Ultramax
Ultramax
Supramax
Supramax
Ultramax
Ultramax
Ultramax
Ultramax
Ultramax
Supramax
Ultramax
Ultramax
Ultramax
Ultramax
Ultramax
11
Nature of Business
The following is a brief description of the commercial strategies we use to employ our vessels:
1) Time Charter-Out
Time charter-out describes a contract for the use of a ship for an agreed period of time, at an agreed hire
rate per day. Commercial control of the vessel becomes the responsibility of the time charterer who
performs the voyage(s). The time charterer is responsible to pay the agreed hire and also purchase the fuel
and pay port expenses. Time charters can range from as short as one voyage (approximately 20-40 days) to
multiple years.
2) Voyage Chartering
Voyage chartering involves the employment of a vessel between designated ports for the duration of the
voyage only. Freight is earned on the volume of cargo carried. In contrast to the Time charter-out method,
in a voyage charter, we maintain control of the commercial operation and are responsible for managing the
voyage, including vessel scheduling and routing, as well as any related costs, such as fuel, port expenses
and other expenses. Having the ability to control and manage the voyage, we are able to generate increased
margin through operational efficiencies, business intelligence and scale. Additionally, contracting to carry
cargoes on voyage terms often gives us the ability to utilize a wide range of vessels to perform the contract
(as long as the vessel meets the contractual parameters), thereby giving significant operational flexibility to
the fleet. Such vessels include not only ships we own, but also third-party ships, which can be chartered-in
on an opportunistic basis (the inverse of a Time charter-out strategy).
3) Vessel + Cargo Arbitrage
With this strategy, we contract to carry a cargo on voyage terms (as described above under the caption
“Voyage Chartering”) with a specific ship earmarked to cover the commitment. As the date of cargo
loading approaches, the market may have moved in such a way whereby we elect to substitute a different
vessel to perform the voyage, while assigning a different piece of business to the original earmarked ship.
Taken as a whole, this strategy can generate increased revenues, on a risk-managed basis, as compared to
the original cargo-vessel pairing.
4) Time Charter-In
This strategy involves us leasing a vessel from a third-party shipowner at a set U.S. dollar per day rate. As
referenced above, vessels can be time-chartered in order to cover existing cargo commitments, resulting in
a Vessel+Cargo arbitrage. These ships may be chartered-in for periods longer than required for the initial
cargo or arbitrage, and can also be chartered-in opportunistically in order to benefit from rate dislocations
and to obtain risk-managed exposure to the market overall.
5) Hedging (FFAs)
Forward Freight Agreements (“FFAs”) are cleared financial instruments, which we can use to hedge market
rate exposure by locking in a fixed rate against the eventual forward market. FFAs are an important tool to
manage market risk associated with chartering-in of third-party vessels. FFAs can also be used to lock in
revenue streams on owned vessels or against forward cargo commitments the Company may enter into.
6) Asymmetric Optionality
This is a blended strategy approach whereby we utilize time charters, cargo commitments and FFAs
together to hedge away market exposure while maintaining upside optionality to positive market volatility.
As a simplified example, a ship may be time chartered-in for one year with a further optional year. In such
a scenario, and dependent on market conditions, we could sell an FFA for the firm 1-year period
commitment, essentially eliminating exposure to the market, while maintaining full upside on rate
developments for the optional year.
12
Charter Characteristics
Typical contract length
Hire rate basis (1)
Voyage expenses (2)
Vessel operating expenses for owned
vessels (3)
Charter hire expense for vessels chartered-
in
Off-hire (4)
Voyage
Charter
Single
voyage
Per MT of cargo
loaded
We pay
We pay
Time
Charter
One or multiple
voyages
Daily
Customer
pays
We pay
Index
Charter
Six months
or more
Linked to
BSI
Customer
pays
We pay
We pay
Customer does not
pay
We pay
Customer does not
pay
We pay
Customer does not
pay
(1)
(2)
(3)
(4)
“Hire rate” refers to a sum of money paid to the vessel owner by a charterer under a time charter party for the
use of a vessel. "Freight rate basis" means the sum of money paid to the vessel owner under a voyage charter or
contract of affreightment based on the unit measurement of cargo loaded. “BSI” refers to the “Baltic Supramax
Index” and the daily hire rate varies based on the Index. Please refer to the Glossary for further detail on how
the BSI is calculated.
“Voyage expenses” include fuel, port charges, canal tolls, and brokerage commissions.
“Vessel operating expenses” include crewing, repairs and maintenance, insurance, stores, lubes and
communication expenses.
“Off-hire” refers to the time a vessel is unavailable to perform the service either due to scheduled or
unscheduled repairs.
The Company employs its fleet opportunistically in an effort to maximize earnings. The Company enters into
charters and is continuously developing contractual relationships directly with cargo interests. These relationships
and the related cargo contracts have the dual benefit of providing greater operational efficiencies and act as a
balance to the Company’s naturally long position to the market. Notwithstanding the focus on short term chartering,
the Company consistently monitors the drybulk shipping market and, based on market conditions, will consider
entering into long-term time charters on our owned fleet when appropriate.
The following summary represents the charter characteristics of our vessels as of December 31, 2021, 2020, and
2019:
Time Charter
Voyage Charter
Shipyard (1)
Total
December 31, 2021
28
December 31, 2020
18
December 31, 2019
28
22
3
53
25
2
45
17
5
50
(1) The vessels are in shipyard as of the year end undergoing statutory drydock, BWTS or scrubber installation and
repairs.
In connection with the charters of each of our vessels, unaffiliated third-party ship brokers earn commissions
ranging from 1.25% to 5.00% of the total daily charter hire rate of each charter with the commission rate depending
on the number of brokers involved with arranging the relevant charter.
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Our vessels operate worldwide in compliance with trading limits imposed by governmental economic sanctions
regimes and insurance terms and do not operate in or conduct business with countries or territories that are subject to
United States, European Union (“EU”), United Kingdom or United Nations (“UN”) comprehensive country-wide or
territory-wide sanctions.
Our Customers
Our customers include some of the world's leading agricultural, mining, manufacturing and trading companies, as
well as smaller, privately owned companies. Our assessment of customers’ financial condition and reliability is an
important factor in negotiating employment for our vessels. We evaluate the counterparty risk of potential customers
based on our management's experience in the shipping industry combined with the additional input of an
independent credit risk consultant. In 2021, 2020 and 2019, we did not have a customer who accounted for more
than 10% of our revenue.
Operations
There are two central aspects to the operation of our fleet:
•
•
Commercial operations, which involve chartering and operating a vessel; and
Technical operations, which involve maintaining, crewing and repairing a vessel.
We carry out the commercial, technical and strategic management of our fleet through our wholly-owned subsidiary,
Eagle Bulk Management LLC, a Marshall Islands limited liability company which maintains its principal executive
offices in Stamford, Connecticut. We also maintain offices in Copenhagen, Denmark and Singapore. Our staff in the
three offices worldwide provide the following services:
•
•
•
•
•
Commercial operations and technical supervision;
Vessel maintenance and repair;
Vessel acquisition and sale;
Legal, compliance and insurance services and
Finance, accounting, treasury and information technology services.
Each of the Company’s vessels serve the same type of customer, have similar operation and maintenance
requirements, operate in the same regulatory environment, and are subject to similar economic characteristics. Based
on this, the Company has determined that it operates in one reportable segment which is engaged in the ocean
transportation of drybulk cargoes worldwide through the ownership and operation of drybulk vessels.
Commercial and Strategic Management
We perform the commercial and strategic management of our fleet including obtaining employment for our vessels
and maintaining relationships with the charterers of our vessels. We have three offices across the globe located in
Copenhagen, Singapore and Stamford, Connecticut which allows for 24 hour global market coverage. We believe
that due to our management team’s experience in operating drybulk vessels, we have access to a broad range of
charterers and can employ our fleet efficiently in diverse market conditions and achieve high utilization rates.
Being an active owner-operator means effectively seeking to operate our own vessels when possible, as compared
with time chartering them to other operators, all with a view toward achieving higher-than-market net charter hire
income. In doing so, we believe we can take advantage of rapidly changing market conditions and obtain better
operational efficiencies from our fleet.
Technical Management
We have established in-house technical management capabilities, through which we provide technical management
services to all vessels in our fleet. Technical management includes managing day-to-day operation of the vessel and
14
machinery, performing general maintenance, ensuring regulatory and classification society compliance, supervising
the general efficiency of vessels, arranging the hire of qualified officers and crew, planning, arranging and
supervising drydocking and repairs, purchasing supplies, spare parts, lubes, and new equipment for vessels, and
appointing supervisors and technical consultants.
Human Capital Management
As of December 31, 2021, we have an aggregate of 94 shore-based personnel employed in our three office locations.
We value a diverse workforce and our shore-based personnel comprises of 25 different nationalities across three
worldwide offices. We are an Equal Opportunity Employer in our hiring and promoting practices, benefits and
wages.
Our values
•
•
•
•
•
PASSION for excellence drives us
EMPOWERMENT of our people leads to better results
INTEGRITY defines our culture
RESPONSIBILITY to safety underpins every decision
FORWARD THINKING takes us to a more successful tomorrow
Talent management and leadership
We take a systemic approach to hiring, training and developing our employees based on our code of ethics. This
includes creating individual goals based on company priorities and providing employees periodic feedback in order
to assess individual performance. We have developed internal promoting practices based on objective annual
performance evaluations, encouraging employees to develop within their chosen career path and providing necessary
professional trainings as needed. We also employ a succession planning process that identifies suitable candidates,
and their development needs, for key positions in the company.
In addition to our shore-based personnel, we currently crew our vessels with officers and crew members from
Ukraine, Russia, Georgia, Bulgaria and the Philippines who are hired through third-party crew managers.
Historically, the majority of our crew have been hired through two crew manning agents, one Russian and the other
Ukrainian. The officers and crew are primarily Russian and Ukrainian. The evolving situation in Ukraine and the
sanctions being imposed may adversely affect our ability to hire and/or pay for our crew for our vessels. As of
December 31, 2021, we employed approximately 1,000 officers and crew members on our owned fleet. The third-
party crew managers recruit crew members with training, licenses and experience appropriate for our vessels. On
board, our crews perform most operational and maintenance work and assist in supervising work during cargo
operations and at drydock facilities. We often man our vessels with more crew members than are required by the
vessel's Flag State safe manning requirement in order to allow for the performance of routine maintenance duties.
All of our crew members are subject to and are paid commensurate with international collective bargaining
agreements and, therefore, we do not anticipate any labor disruptions. The international collective bargaining
agreements, to which we are a party, are typically renewed for a two-year term.
Human rights, health and safety
We continuously strive to provide a secure working environment for both our shore-based personnel as well as our
crew members on our ships. During COVID-19, we have taken extraordinary measures to protect the health of our
shore based employees by allowing our employees to work from home during the peak of the pandemic. We took
measures to adapt all of our offices to the new safety precautions to include social distancing guidelines as well as
ensuring mask wearing compliance.
For our crew members on our ships, we maintain security measures to ensure well-being and safety on our ships. We
developed and implemented a safety management system in compliance with the International Safety Management
Code. All necessary certificates required by the IMO were obtained by our in-house technical managers. We comply
15
with the Maritime Labor Convention adopted by the ILO in 2006. The Convention outlines the minimum
requirements for seafarers to work, conditions of employment, facilities while on board, and health and welfare
protection. The Convention obliges all ships above 500 gross tons in international trade to have a Maritime Labor
Certificate and a Declaration of Maritime Labor Compliance. All our vessels and crew are compliant with the
Convention, and we intend to maintain them accordingly. We also publish our ESG report on an annual basis where
we report key metrics such as marine casualties, lost time incident rate and port state control.
During the pandemic, government-imposed travel restrictions, which were put in place in order to curtail the spread
of the virus, created substantial challenges with respect to being able to effect crew changes and repatriation, and our
seafarers sometimes had to work past their contractual employment periods. At Eagle, it has been a strategic priority
to relieve our seafarers as close to their contractual due dates as possible, and we have successfully managed crew
changeovers even in light of evolving travel restrictions in many countries. In order to achieve this result, we had to
divert some of our ships and/or incur additional off-hire costs in addition to higher crew change expenses. During
the year ended December 31, 2021, we incurred approximately 115 days of additional off-hire related to crew
changes. These costs notwithstanding, we believe it is our obligation to Eagle’s seafarers to ensure their overall
health and safety.
Permits, Authorizations and Regulations
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 expect to be 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
increase the cost of us doing business.
Our vessels operate worldwide in compliance with trading limits imposed by our insurance terms and do not operate
in or conduct business with countries or territories that are subject to U.S., EU, UK or UN comprehensive country-
wide or territory-wide sanctions.
Environmental and Other Regulations
Government regulation significantly affects the trading locations and operation of our vessels. 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 transit or operate 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 required 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 (including national Coast Guards, harbor masters and port state
control authorities), classification societies, flag state administrations (country of vessel registry), as well as our
charterers and terminal operators. Certain of these entities require us to obtain permits, licenses and certificates for
the operation of our vessels. Failure to maintain the necessary permits or approvals could result in substantial costs
in fines and penalties or result in the temporary suspension of the operation of one or more of our vessels.
We believe that the heightening levels of environmental and quality concerns among regulators, charterers and the
insurance industry is leading to greater inspection and safety requirements on all vessels, which may accelerate the
recycling of older vessels throughout the shipping industry. Increasingly stringent environmental regulations have
created a demand for vessels that conform to the most up-to-date environmental standards, whether through
retrofitting or new design. We strive to maintain operating standards for all of our vessels that emphasize operational
safety, quality maintenance, continuous training of our officers and crews and adherence to applicable international
regulations. We believe that our vessels are in substantial compliance with environmental laws and regulations and
16
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 subject to change and may impose 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.
International Maritime Organization
The UN’s IMO has adopted several international conventions, including the International Convention for the
Prevention of Pollution from Ships, 1973, as modified by
thereto
(“MARPOL”). MARPOL has been in effect since October 2, 1983 and has been adopted by over 150 nations,
including many of the jurisdictions in which our vessels operate. MARPOL sets forth pollution-prevention
requirements applicable to different types of 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 packaged form, respectively; Annexes IV and V relate to sewage and garbage
management, respectively; and Annex VI relates to air emissions. Annex VI was separately adopted by the IMO in
September of 1997.
the Protocol of 1978 relating
In 2013, the Marine Environmental Protection Committee (“MEPC”) was adopted by resolution amendments to
MARPOL Annex I Conditional Assessment Scheme (“CAS”). The amendments, which became effective on
October 1, 2014, pertain to the inspections of bulk carriers and tankers and require compliance with the 2011
Enhanced Survey Programme Code, which enhances the programs of inspections. We made the necessary financial
expenditures to comply with these amendments.
Air Emissions
Annex VI to MARPOL, which was designed to address air pollution from vessels and which became effective on
May 19, 2005, sets limits on sulfur oxide and nitrogen oxide emissions from ships and prohibits deliberate emissions
of ozone depleting substances, such as chlorofluorocarbons. Annex VI also regulates shipboard incineration and the
emission of volatile organic compounds from tankers. In addition, Annex VI includes a global cap on the sulfur
content of fuel oil and allows for special areas to be established with more stringent controls of sulfur emissions
known as “Emission Control Areas” (“ECAs”), as explained below.
MEPC adopted amendments to Annex VI on October 10, 2008, 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. As of January 1, 2020, sulfur content
could not exceed 0.50% unless an approved exhaust gas cleaning system (“scrubber”) is in use. Additionally, in
October 2018, MEPC amended Annex VI to prohibit the carriage of bunkers above 0.5% sulfur on ships on or after
March 1, 2020, with the exception of vessels fitted with scrubbers which can carry fuel of higher sulfur content.
We have implemented a comprehensive approach to compliance with IMO sulfur regulations. We believe that fitting
scrubbers is the most cost-effective approach to achieve compliance for the majority of the ships in our fleet. As of
December 31, 2021, 47 of our 53 vessels were fitted with scrubbers, making us the largest owner of scrubber fitted
Supramax/Ultramax vessels in the world. The balance of our fleet complies with the MARPOL Annex VI sulfur
limit through consumption of compliant fuels.
Sulfur content standards are stricter within certain ECAs. As of January 1, 2015, ships operating within an ECA may
not use fuel with sulfur content in excess of 0.1%. Annex VI establishes procedures for designating new
ECAs. Currently, the Baltic Sea, the North Sea, certain coastal areas of North America and United States Caribbean
area have been designated as ECAs. Ocean-going vessels in these areas will be subject to stringent emissions
controls, which may cause us to incur additional costs to procure compliant fuel and/or install scrubbers. If
additional ECAs are approved by the IMO or other new or more stringent requirements relating to emissions from
marine engines or port operations by vessels are adopted by the states where our vessels operate, compliance with
these regulations could entail additional expenses relating to operation of scrubbers, purchase of compliant fuel or
otherwise increase the costs of our operations.
17
Annex VI also establishes progressive reductions in nitrogen oxide emissions from marine diesel engines installed
on ships, with a "Tier II" emission limit for engines installed on a ship constructed on or after January 1, 2011; and a
more stringent "Tier III" emission limit for engines installed on a ship constructed on or after January 1, 2016
operating in ECAs.
We believe we are in substantial compliance with all current requirements of Annex VI, but we may incur additional
costs to comply with more stringent 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 International Convention for the Safety of Life at Sea (“SOLAS”) and the International Convention on Load
Lines (the “LL Convention”) impose a variety of standards that regulate the design and operational features of
ships. The IMO periodically revises the SOLAS and LL Convention standards. In addition, the Convention of
Limitation of Liability for Maritime Claims establishes limits of liability for loss of life or personal injury claim and
property claims against shipowners.
The operation of our ships is also affected by Chapter IX of SOLAS, which sets forth the IMO's International
Management Code for the Safe Operation of Ships and Pollution Prevention (the “ISM Code”). The ISM Code
requires shipowners and bareboat charterers to develop and maintain an extensive Safety Management System
(“SMS”) that includes, among other things, the adoption of a safety and environmental protection policy setting
forth instructions and procedures for safe operation and describing procedures for emergency response. We rely
upon the SMS that we have developed for compliance with the ISM Code. The failure of a shipowner 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. As
of the date of this filing, all of the vessels in our owned fleet are ISM code-certified.
The ISM Code requires that vessel operators obtain a safety management certificate (“SMC”) for each vessel they
operate. This certificate evidences compliance by a vessel’s operators with the ISM Code requirements for a SMS.
No vessel can obtain a SMC under the ISM Code unless its manager has been awarded a document of compliance
(“DoC”) issued by the vessel's flag state or by an approved organization on behalf of the flag state. Our in-house
technical managers have obtained DoC for all offices and safety management certificates for all of our vessels for
which the certificates are required by the IMO, which certificates are renewed as needed.
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 International Convention for the Control
and Management of Ships’ Ballast Water and Sediments (“BWM Convention”) is designed to protect the marine
environment from the introduction of non-native (alien) species as a result of the carrying of ships’ ballast water
from one place to another. The BWM Convention was adopted in 2004 and became effective on September 8, 2017.
The BWM Convention is applicable to new and existing vessels that are designed to carry ballast water. It defines a
discharge standard consisting of maximum allowable levels of critical invasive species. This standard is met by
installing ballast water treatment systems (“BWTS”) that render the invasive species non-viable. In addition, each
vessel is required to have on board a valid International Ballast Water Management Certificate, a Ballast Water
Management Plan, and a Ballast Water Record Book.
Under relevant U.S. federal laws, USCG approved BWTS are required to be installed in all vessels at the first out of
water drydocking after January 1, 2016 if these vessels are to discharge ballast water inside 12 nautical miles of the
coast of the United States. An Alternative Management System (“AMS”) may be installed in lieu of a USCG
approved BWTS. An AMS is valid for five years from the date of required compliance with ballast water discharge
standards, by which time it must be replaced by an approved system unless the AMS itself achieves approval.
18
On August 14, 2018, the Company entered into a contract for the purchase of BWTS on all of our owned vessels.
The projected costs, including installation, is approximately $0.5 million per BWTS. The Company intends to
complete the majority of the installations during scheduled drydockings. The Company completed installation of
BWTS on 23 vessels and recorded $11.5 million in Vessels and vessel improvements in the Consolidated Balance
Sheet as of December 31, 2021. Additionally, the Company recorded $4.4 million as advances paid towards
installation of BWTS on the remaining vessels as a noncurrent asset in its Consolidated Balance Sheet as of
December 31, 2021.
The IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (the “Bunker
Convention”) to impose strict liability on shipowners for pollution damage in jurisdictional waters of ratifying states
caused by discharges of bunker fuel. The Bunker Convention requires registered owners of ships over 1,000 gross
tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable
national or international limitation regime (but not exceeding the amount calculated in accordance with the
Convention on Limitation of Liability for Maritime Claims of 1976, as amended). With respect to non-ratifying
states, liability for spills or releases of oil carried as fuel in ships' bunkers typically is determined by national or
other domestic laws in the jurisdiction where the events or damages occur. Our ships carry insurance in excess of the
statutory requirements.
In March 2006, the IMO amended Annex I to MARPOL, including a regulation relating to oil fuel tank protection,
which became effective August 1, 2007. The regulation applies to various ships delivered on or after August 1,
2010. The requirements it contains address issues such as fuel tanks, protected location accidental oil fuel outflow
performance standards, a tank capacity limit and certain other maintenance, inspection and engineering standards.
IMO regulations also require owners and operators of certain vessels to adopt Ship Oil Pollution Emergency Plans.
Periodic training and drills for response personnel and for vessels and their crews are required.
In March 2021, the U.S. government began investigating an allegation that one of the Company's vessels may have
improperly disposed of ballast water that entered the engine room bilges during a repair. The investigation of this
alleged violation of environmental laws is ongoing, and although at this time we do not believe that this matter will
have a material impact on the Company, our financial condition or results of operations, we cannot determine what
penalties, if any, will be imposed. We have posted a surety bond as security for any fines, penalties or associated
costs that may be issued, and the Company is cooperating fully with the U.S. government in its investigation of this
matter. For the year ended December 31, 2021, the Company incurred and recorded $2.8 million as Other operating
expense in our Consolidated Statement of Operations, relating to this incident, which includes legal fees, surety
bond expenses, vessel off-hire, crew changes and travel costs.
Anti-Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti-Fouling Systems on Ships
(the “Anti-Fouling Convention”). The Anti-Fouling Convention prohibits the use of organotin compound coatings to
prevent the attachment of mollusks and other sea life to the hulls of vessels. Vessels of over 400 gross tons engaged
in international voyages are required to undergo an initial survey before the vessel is put into service or before an
International Anti-Fouling System Certificate is issued for the first time and subsequent surveys when the anti-
fouling systems are altered or replaced. We have obtained Anti-Fouling System Certificates for all of our vessels
that are subject to the Anti-Fouling Convention.
In November 2020, MEPC 75 approved draft amendments to the Anti-Fouling Convention to prohibit anti-fouling
systems containing cybutryne. These amendments were adopted at MEPC 76 in June 2021 and will apply to ships
from January 1, 2023.
19
Compliance Enforcement
The flag state, as defined by the UN Convention on the Law of the Sea, is responsible for implementing and
enforcing a broad range of international maritime regulations with respect to all ships granted the right to fly its
flag. The “Shipping Industry Guidelines on Flag State Performance” evaluates and reports on flag states based on
factors such as sufficiency of infrastructure, ratification, implementation, and enforcement of principal international
maritime treaties, supervision of statutory ship surveys, casualty investigations, and participation at IMO and ILO
meetings. Our vessels are flagged in the Marshall Islands. Marshall Islands-flagged vessels have historically
received a good assessment in the shipping industry. We recognize the importance of a credible flag state and do not
intend to use flag states with poor performance indicators.
Noncompliance with the ISM Code or other IMO regulations may subject the shipowner or bareboat charterer to
increased liability, lead to decreases in available insurance coverage for affected vessels or result in the denial of
access to, or detention in some ports. As of the date of this report, each of our vessels is ISM Code certified and it is
our intent to maintain ISM code certification. However, there can be no assurance that such certificates will be
maintained in the future.
The IMO continues to 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 may have on our operations.
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 (“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 with the United States, its territories and possessions or whose vessels operate in United States 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 (“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 or 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 (i.e.,
no showing of “fault” is required) for all containment and clean-up costs and other damages arising from discharges
or threatened discharges of oil from their vessels, unless the spill results solely from the act or omission of a third
party, an act of God or an act of war. OPA defines these other damages broadly to include:
•
•
•
•
•
•
Injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;
Injury to, or economic losses resulting from, the destruction of real and personal property;
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;
Loss of subsistence use of natural resources that are injured, destroyed, or lost;
Lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property
or natural resources; and
Net cost of providing 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
November 19, 2019, the USCG adjusted the limits of OPA liability for non-tank vessels (e.g. drybulk) to the greater
of $1,200 per gross ton or $997,100 (subject to periodic adjustment for inflation). These limits of liability may not
apply if an incident was caused by the violation of an applicable United States federal safety, construction or
operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual
20
relationship), or a responsible party’s gross negligence or willful misconduct. The limitation on liability similarly
may 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 damage 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 or residue 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 gross
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 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 have complied with
the regulations by providing a certificate of responsibility from third party entities that are acceptable to the USCG.
We currently maintain pollution liability coverage insurance in the amount of $1.0 billion per incident for each of
our vessels. If the damages from a catastrophic spill were to exceed our insurance coverages, it could have an
adverse effect on our business and results of operation.
OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law.
Also, 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; some states have enacted legislation providing for unlimited liability for oil spills. In some cases, states
which have enacted such legislation have not yet issued implementing regulations defining vessel owners’
responsibilities under these laws. We intend to comply with all applicable state regulations in the ports where our
vessels call. We believe that we are in substantial compliance with all applicable existing state requirements. In
addition, we intend to comply with all future applicable state regulations in the ports where our vessels call.
Other Environmental Initiatives
The United States Clean Water Act (the “CWA”) prohibits the discharge of oil, hazardous substances and ballast
water in United States 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.
Furthermore, 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 United States federal law. In 2015, the Environmental
Protection Agency (“EPA”) and the Army Corps of Engineers (“Corps”) expanded the definition of “waters of the
United States” (“WOTUS”), thereby expanding federal authority under the CWA. However, in April 2020, the EPA
and the Corps published a final rule replacing the 2015 rules, and significantly reducing the waters subject to federal
regulation under the CWA. On August 30, 2021, a federal court struck down the replacement rule and, on December
7, 2021, the EPA and the Corps published a proposed rule that would put back into place the pre-2015 definition of
“waters of the United States,” updated to reflect Supreme Court decisions, while the agencies continue to consult
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with stakeholders on future regulatory actions. As a result of such recent developments, substantial uncertainty
exists regarding the scope of waters protected under the CWA.
The EPA and the USCG have enacted rules relating to ballast water discharge, which requires the installation of
equipment on vessels to treat ballast water before it is discharged or the implementation of other port facility
disposal arrangements or procedures. The EPA will regulate these ballast water discharges and other discharges
incidental to the normal operation of certain vessels within United States waters pursuant to the Vessel Incidental
Discharge Act (“VIDA”), which was signed into law on December 4, 2018 and replaces the 2013 Vessel General
Permit (“VGP”) program (which authorizes discharges incidental to operations of commercial vessels and contains
numeric ballast water discharge limits for most vessels) and current USCG ballast water management regulations
adopted under the U.S. National Invasive Species Act (“NISA”). VIDA establishes a new framework for the
regulation of vessel incidental discharges under the CWA, requires the EPA to develop performance standards for
those discharges within two years of enactment, and requires the USCG to develop implementation, compliance, and
enforcement regulations within two years of EPA’s promulgation of standards. Under VIDA, all provisions of the
2013 VGP and USCG regulations regarding ballast water treatment remain in force and effect until the EPA and
USCG regulations are finalized. Non-military, non-recreational vessels greater than 79 feet in length must continue
to comply with the requirements of the VGP, including submission of a Notice of Intent (“NOI”) or retention of a
PARI form and submission of annual reports. On October 26, 2020, the EPA published a proposed rule establishing
national standards for discharges of ballast water under VIDA. Within two years after the EPA publishes its final
standards, the USCG must develop corresponding implementation, compliance, and enforcement regulations
regarding ballast water.
In addition, certain states have enacted additional discharge standards beyond the requirements of the VIDA. These
state specific standards introduce more stringent requirements, such as those further restricting ballast water
discharges and preventing the introduction of invasive species. The VIDA and state-specific regulations and any
similar restrictions enacted in the future may increase the costs of operating in the relevant waters.
The U.S. Clean Air Act (the “CAA”) requires the EPA to promulgate standards applicable to certain air pollutants,
including volatile organic compounds. The CAA also requires states to draft State Implementation Plans (“SIPs”)
designed to attain national health-based air quality standards in each state. State-specific SIPs may include
regulations concerning emissions resulting from vessel loading and unloading operations, including the installation
of vapor control equipment.
Our operations occasionally generate and require the transportation, treatment and disposal of both hazardous and
non-hazardous solid wastes that are subject to the requirements of the U.S. Resource Conservation and Recovery
Act (“RCRA,”) or comparable state, local or foreign requirements. The RCRA imposes significant record keeping
and reporting requirements on transporters of hazardous waste. In addition, from time to time we arrange for the
disposal of hazardous waste or hazardous substances at off-site disposal facilities. If such materials are improperly
disposed of by third parties, we may still be held liable for cleanup costs under applicable laws.
In October 2009, the EU 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. Member States were required to enact laws or
regulations to comply with the directive by the end of 2010. Criminal liability for pollution may result in substantial
penalties or fines and increased civil liability claims. The directive applies to all types of vessels, irrespective of their
flag, but certain exceptions apply to warships or where human safety or the safety of the ship is in danger.
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. Regulations 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 EU has
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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.
Greenhouse Gas Regulation
Currently, GHG emissions 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. Although the U.S. withdrew from the Paris Agreement effective November 4, 2020, the U.S. rejoined
the Paris Agreement on February 19, 2021, following a January 20, 2021, executive order by U.S. President Biden.
Although the international agreements discussed above do not currently provide for GHG emissions limits or
reporting for international shipping, the IMO and EU have imposed reporting requirements and the IMO has
proposed emissions requirements. As of January 1, 2019, owners and operators of ships above 5,000 gross tonnage
are required to have a documented plan in place to monitor CO2 emissions to comply with the IMO’s data collection
system (“IMO DCS”) requirement. The Company updated its existing Ship Energy Efficiency Management Plans
(“SEEMP”) in 2018 documenting the methodologies we decided to use for collecting and reporting the required data
to flag state. Our updated SEEMPs have been verified by a recognized independent organization and we are
collecting all relevant data in our onboard data collection system since the start of 2019. Starting January 1, 2020, a
recognized independent organization will review and certify the annual emissions data submitted by each vessel and
issue each vessel a Statement of Compliance. The independent organization will then submit the data annually to the
IMO Ship Fuel Oil Consumption Database. The IMO will utilize this data to produce an annual report to the MEPC,
summarizing the data collected.
The Company also established and received approval for its EU Monitoring, Reporting, Verification (“MRV”)
monitoring plans from an independent verifier in 2017. The reporting requirements of the EU MRV are similar to
those under IMO DCS but only apply to ships calling at European Economic Area (EU, Norway and Iceland)
ports. Data collection takes place on a per voyage basis and started January 1, 2018. The reported CO2 emissions,
together with additional data, are independently verified before being sent to a central database managed by the
European Maritime Safety Agency (“EMSA”). The aggregated ship emission and efficiency data is published
annually by the European Commission starting June 30, 2019. Also, on July 14, 2021, the European Commission
adopted a series of legislative proposals setting out how it intends to achieve climate neutrality in the EU by 2050,
including extending its emissions trading system to the maritime sector. The proposed extension of the emissions
trading system would cover CO2 emissions from ships above 5,000 gross tonnage. The obligations would be
gradually phased in over a three- to four-year period, such that allowances for 100% of verified emissions would not
be required for several years. A vote on the final proposal is likely to occur in approximately June 2022. The
Company is evaluating the potential impact that the final proposal, if approved, could have on the Company and its
operations.
During MEPC 76 in June 2021, the IMO approved amendments to Annex VI to cut the carbon intensity of existing
ships. The amendments will require ships to combine a technical and an operational approach to reduce their carbon
intensity, in line with the ambition of the Initial IMO GHG Strategy, which aims to reduce carbon intensity of
international shipping by 40% by 2030, compared to 2008. The amendments include (1) a technical requirement to
reduce carbon intensity based on a new Energy Efficiency Existing Ship Index (“EEXI”), and (2) operational carbon
intensity reduction requirements, based on a new operational carbon intensity indicator (“CII”). These amendments
are expected to enter into force on November 1, 2022, with the requirements for EEXI and CII certification coming
into effect from January 1, 2023. The Company has evaluated the impact of EEXI requirements and determined that
the majority of our fleet will be minimally impacted with some of the oldest ships requiring the application of an
engine power limitation that may reduce operational top speed. The Company is working with Class and Flag to
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complete the EEXI certification of all vessels in advance of the requirement coming into effect. EEXI requirements
will ultimately lead the oldest ships in the drybulk fleet to slow down significantly which will limit drybulk supply
and could positively impact rates. The Company is evaluating the impact of CII requirements on the fleet and sees
limited impact through 2025 after which the annual CII requirements become incrementally stricter each year. The
most immediate impact of CII requirements coming into effect will likely be the need for collaboration between the
Company and Charterers to actively manage CII scoring.
Any passage of climate control legislation or other regulatory initiatives by the IMO, the EU, the U.S. 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. Revenue generation and strategic growth opportunities may also
be adversely affected. 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 such as those which
may present a risk of damage or loss to our vessels.
International Labour Organization
The ILO is a specialized agency of the UN with headquarters in Geneva, Switzerland. The ILO has adopted the
Maritime Labor Convention 2006 (the “MLC 2006”). A Maritime Labor Certificate and a Declaration of Maritime
Labor Compliance will be required to ensure compliance with the MLC 2006 for all ships above 500 gross tons in
international trade. All of our vessels are compliant with the MLC 2006 and we intend to maintain them accordingly.
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 Maritime Transportation Security Act of 2002 (“MTSA”). To
implement certain portions of the MTSA, in July 2003, the USCG issued regulations requiring the implementation
of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United
States. The regulations also impose requirements on certain ports and facilities, some of which are regulated by the
EPA. We have implemented measures to comply with the requirements when calling at U.S. ports.
Similarly, in December 2002, amendments to SOLAS created a new chapter of the convention dealing specifically
with maritime security. The new Chapter V became effective in July 2004 and imposes various detailed security
obligations on vessels and port authorities, and mandates compliance with the International Ship and Port Facilities
Security Code (“ISPS Code”). The ISPS Code is designed to enhance the security of ports and ships against
terrorism. Amendments to SOLAS Chapter VII, made mandatory in 2004, apply to vessels transporting dangerous
goods and require those vessels be in compliance with the International Maritime Dangerous Goods Code. To trade
internationally, a vessel must attain an International Ship Security Certificate (“ISSC”) from a recognized security
organization approved by the vessel’s flag state. Among the various requirements are:
•
•
•
•
•
On-board installation of automatic identification systems to provide a means for the automatic transmission
of safety-related information from among similarly equipped ships and shore stations, including
information on a ship’s identity, position, course, speed and navigational status;
On board installation of ship security alert systems, which do not sound on the vessel but only alert the
authorities on shore; the development of vessel security plans;
Ship identification number to be permanently marked on a vessel’s hull;
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.
Ships operating without a valid certificate may be detained at port until it obtains an ISSC, or it may be expelled
from port, or refused entry at port.
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Furthermore, additional security measures could be required in the future which could have a significant financial
impact on us. 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 SOLAS security requirements and the ISPS Code. Our vessels have a valid
ISSC and it is our intent to maintain such certificates. We have implemented the various security measures
addressed by the MTSA, SOLAS and the ISPS Code.
Financial Regulations
Our business operations in countries outside the United States are subject to a number of laws and regulations,
including restrictions imposed by the FCPA, as well as economic sanctions and trade embargoes administered by
Office of Foreign Assets Control (“OFAC”). The FCPA prohibits bribery of foreign officials and requires us to keep
books and records that accurately and fairly reflect our transactions. OFAC administers and enforces economic
sanctions and trade embargoes based on U.S. foreign policy and national security goals against targeted foreign
states, organizations and individuals.
In November 2015, the Company filed a voluntary self-disclosure report with OFAC regarding certain apparent
violations of U.S. sanctions regulations in the provision of shipping services for third party charterers with respect to
the transportation of cargo to or from Myanmar (formerly Burma). The Company had a different senior management
team at the time of the apparent violations which occurred between 2011 and 2014. The Company’s new senior
management and new Board of Directors self-reported the apparent violation and cooperated fully with OFAC's
investigation and has since implemented robust remedial measures and significantly enhanced its compliance
safeguards.
On January 23, 2020, Eagle Shipping International (USA) LLC (“ESI”), a subsidiary of the Company, entered into a
settlement agreement with OFAC in which ESI agreed to make a one-time payment to the U.S. Department of the
Treasury in the amount of $1.125 million and undertake certain compliance commitments in exchange for OFAC
agreeing to release and forever discharge the Company and its subsidiaries, including ESI, without any finding of
fault, from any and all civil liability in connection with the apparent violations. The settlement does not constitute an
admission of fault or wrongdoing by the Company or any of its subsidiaries.
Inspection by Classification Societies
Every ocean-going vessel must be inspected and certified by a classification society. The classification society
certifies that the vessel is “in class,” signifying that the vessel has been built and maintained in accordance with the
rules of the classification society and complies with applicable rules and regulations of the vessel's country of
registry and the international conventions of which that country is a member. In addition, where surveys are required
by international conventions and corresponding laws and ordinances of a flag state, the classification society will
undertake them on application or by official order, acting on behalf of the authorities concerned.
The classification society also undertakes on request other surveys and checks that are required by regulations and
requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the
regulations of the country concerned.
For maintenance of the class certification, regular and extraordinary surveys of hull, machinery, including the
electrical plant, and any special equipment classed are required to be performed as follows:
•
Annual Surveys. For ocean-going ships, annual surveys are conducted for the hull and the machinery,
including the electrical plant, and where applicable for special equipment classed, within three months
before or after each anniversary date of the date of commencement of the class period indicated in the
certificate.
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•
•
Intermediate Surveys. Intermediate surveys typically are required two and one-half years after the vessel is
commissioned, and thereafter at five year intervals. The first three intermediate surveys may be conducted
while the vessel remains in the water, and thereafter the vessel must be dry-docked for each Intermediate
Survey.
Class Renewal Surveys. Class renewal surveys, also known as special surveys, are carried out for the ship’s
hull, machinery, including the electrical plant and for any special equipment classed, at the intervals
indicated by the character of classification for the hull. At the special survey the vessel is thoroughly
examined, including audio-gauging to determine the thickness of the steel structures. Should the thickness
be found to be less than class requirements, the classification society would prescribe steel renewals. The
classification society may grant a one year grace period for completion of the special survey. Substantial
amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences
excessive wear and tear. In lieu of the special survey approximately every five years, depending on whether
a grace period was granted, a shipowner has the option of arranging with the classification society for the
vessel’s hull or machinery to be on a continuous survey cycle, in which every part of the vessel would be
surveyed within a five year cycle. At an owner’s application, the surveys required for class renewal may be
split according to an agreed schedule to extend over the entire period of class. This process is referred to as
continuous class renewal.
All areas subject to survey as defined by the classification society are required to be surveyed at least once per class
period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent
surveys of each area must not exceed five years.
Most vessels are also drydocked every 30 to 60 months for inspection of the underwater parts and for repairs related
to inspections. If any defects are found, the classification surveyor will issue a “recommendation” which must be
rectified by the shipowner within prescribed time limits.
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in class” by a
classification society which is a member of the International Association of Classification Societies (the “IACS”). In
December 2013, the IACS adopted new harmonized Common Structure Rules, which apply to bulk carriers
constructed on or after July 1, 2015. All our vessels must be certified as being “in class” prior to their delivery under
our standard purchase contracts and memorandum of agreement. If the vessel is not class certified on the date of
closing, we have no obligation to take delivery of the vessel. We have all of our vessels and intend to have all
vessels that we acquire in the future, classed by IACS members.
Risk of Loss and Liability Insurance
General
The operation of any drybulk 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 a marine casualty, including oil spills (e.g. fuel oil) and other
environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. OPA,
which imposes 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 shipowners and operators trading in the U.S. market.
While we maintain hull and machinery insurance, loss of hire insurance, war risks insurance, protection and
indemnity cover and freight, demurrage and defense cover for our owned 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 current 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.
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Hull & Machinery and War Risks Insurance
We maintain marine hull, machinery and war risks insurances, which cover the risk of damage or actual or
constructive total loss for all of our vessels. Our vessels are each covered up to at least their fair market value with a
deductible of $100,000 per vessel per incident.
Protection and Indemnity Insurance Coverage
Protection and Indemnity Insurance is a form of mutual indemnity insurance provided by protection and indemnity
associations (“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, illness 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, and other related costs, including wreck removal. Subject to the
“capping” discussed below except for pollution is unlimited.
Our current Protection and Indemnity Insurance coverage for pollution is $1.0 billion per vessel per incident. The 13
P&I Associations that comprise the International Group of P&I Association 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 Company'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.
Competition
We compete with a large number of international drybulk owners. The international shipping industry is highly
competitive and fragmented with no single owner accounting for more than 2.6% of the on-the-water drybulk fleet,
measured by vessel count. As of December 31, 2021, there are approximately 12,700 drybulk vessels over 10,000
dwt totaling approximately 945 million dwt. We compete with other owners of drybulk vessels, primarily in the
Supramax/Ultramax segment and (to a lesser extent) the Handysize and Panamax segments. Many of our
competitors are privately-held companies.
Competition in the shipping industry varies according to the nature of the contractual relationship as well as the
specific commodity being shipped. Our business will fluctuate as a result of changes in the supply and demand for
drybulk commodities and also the main patterns of trade in these commodities. Competition in virtually all bulk
trades is intense and based primarily on supply of ships and demand for our ocean transportation services. 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. Increasingly, major customers are demonstrating a preference for modern
vessels based on concerns about the environmental and operational risks associated with older vessels.
Consequently, we believe owners of large modern fleets have gained a competitive advantage over owners of older
fleets.
Seasonality
Demand for vessel capacity has historically exhibited seasonal variations with corresponding fluctuations in charter
rates. This seasonality may result in quarter-to-quarter volatility in our operating results for our vessels trading in the
spot market. The drybulk market is typically stronger in the fall (due to both increased North American grain
shipments and higher coal purchases for heating fuel ahead of the cold winter months) and spring (due to increased
South American grain shipments). In addition, unpredictable weather patterns may disrupt vessel scheduling and
supplies of certain commodities.
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Value of Assets and Cash Requirements
The replacement costs of comparable new vessels may be above or below the book value of our fleet. The market
value of our fleet may be below book value when market conditions are weak and exceed book value when markets
are strong. In common with other shipowners, we may consider asset redeployment which at times may include the
sale of vessels at less than their book value.
Exchange Controls
Under Marshall Islands law, there are currently no restrictions on the export or import of capital, including foreign
exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident
holders of our common stock.
Tax Considerations
The following is a discussion of the material Marshall Islands and United States federal income tax considerations
relevant to owning common stock by a United States Holder or a Non-United States Holder, (each as defined
below). This discussion does not purport to deal with the tax consequences of owning the common stock to all
categories of investors, some of which (such as financial institutions, regulated investment companies, real estate
investment trusts, tax-exempt organizations, insurance companies, persons holding our common stock as part of a
hedging, integrated, conversion or constructive sale transaction or a straddle, traders in securities that have elected
the mark-to-market method of accounting for their securities, persons liable for alternative minimum tax, persons
who are investors in pass-through entities, dealers in securities or currencies, persons required to recognize income
for U.S. federal income tax purposes no later than when such income is reported on an “applicable financial
statement,” persons subject to the “base erosion and anti-avoidance” tax, persons who own, directly or
constructively, 10% or more of our common stock and investors whose functional currency is not the United States
dollar) may be subject to special rules. This discussion deals only with holders who own common stock as a capital
asset. Shareholders are encouraged to consult their own tax advisors concerning the overall tax consequences arising
in their own particular situation under United States federal, state, local or foreign law of the ownership of our
common stock.
Marshall Islands Tax Considerations
In the opinion of Seward & Kissel LLP, the following are the material Marshall Islands tax consequences of our
activities to us and shareholders of our common stock. We are incorporated in the Marshall Islands. Under current
Marshall Islands law, we are 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 Tax Considerations
In the opinion of Seward & Kissel LLP, our United States tax counsel, the following are the material United States
federal income tax consequences to us of our activities and to United States Holders and to Non-United States
Holders of our common stock. The following discussion of United States federal income tax matters is based on the
Internal Revenue Code of 1986, as amended, or the Code, judicial decisions, administrative pronouncements, and
existing and proposed regulations issued by the United States Department of the Treasury, all of which are subject to
change, possibly with retroactive effect. In addition, the discussion below is based, in part, on the description of our
business as described in Item 1. Business in this Annual Report and assumes that we conduct our business as
described in that section.
We have made, or will make, special United States federal income tax elections in respect of each of our ship
owning or operating subsidiaries that is potentially subject to tax as a result of deriving income attributable to the
transportation of cargoes to or from the United States. The effect of the special U.S. tax elections is to ignore or
disregard the subsidiaries for which elections have been made as separate taxable entities and to treat them as part of
their parent, the ''Company.'' Therefore, for purposes of the following discussion, the Company, and not the
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subsidiaries subject to this special election, will be treated as the owner and operator of the vessels and as receiving
the income therefrom.
United States Federal Income Taxation of Our Company
Taxation of Operating Income: In General
The Company currently earns, and anticipates that it will continue to earn, substantially all its income from the
hiring or leasing of vessels for use on a time or voyage charter basis or from the performance of services directly
related to those uses, all of which we refer to as ''shipping income.''
Unless exempt from United States federal income taxation under the rules of Section 883 of the Code (“Section
883”), as discussed below, a foreign corporation such as Eagle will be subject to United States federal income
taxation on its ''shipping income'' that is treated as derived from sources within the United States, to which we refer
as ''United States source shipping income.'' For tax purposes, ''United States source shipping income'' includes 50%
of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in
the United States.
Shipping income attributable to transportation exclusively between non-United States 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 any United States federal income tax.
Shipping income attributable to transportation exclusively between United States ports is considered to be 100%
derived from United States sources. However, the Company is not permitted by United States law to engage in the
transportation of cargoes that produces 100% United States source income.
Unless exempt from tax under Section 883, the Company's gross United States source shipping income would be
subject to a 4% tax imposed without allowance for deductions as described below.
Exemption of Operating Income from United States Federal Income Taxation
Under Section 883 and the regulations thereunder, a foreign corporation will be exempt from United States federal
income taxation on its United States source shipping income if:
•
it is organized in a qualified foreign country, which is one that grants an ''equivalent exemption'' from tax to
corporations organized in the United States in respect of each category of shipping income for which
exemption is being claimed under Section 883 and to which we refer as the ''Country of Organization Test'';
and
•
one of the following tests is met:
◦ more than 50% of the value of its shares is beneficially owned, directly or indirectly, by qualified
shareholders, which as defined includes individuals who are ''residents'' of a qualified foreign
country, to which we refer as the ''50% Ownership Test'';
◦
◦
subject to an exception for closely-held corporations, its shares are ''primarily and regularly traded
on an established securities market'' in a qualified foreign country or in the United States, to which
we refer as the "Publicly-Traded Test"; or
it is a ''controlled foreign corporation'' and satisfies an ownership test, to which, collectively, we
refer to as the ''CFC Test.''
The Republic of the Marshall Islands, the jurisdiction where the Company is incorporated, has been officially
recognized by the United States Internal Revenue Service (the “IRS”) as a qualified foreign country that grants the
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requisite ''equivalent exemption'' from tax in respect of each category of shipping income the Company earns and
currently expects to earn in the future. Therefore, the Company will be exempt from United States federal income
taxation with respect to its United States source shipping income if it satisfies any one of the 50% Ownership Test,
the Publicly-Traded Test, or the CFC Test.
For our 2021 taxable year, we believe that we satisfy the Publicly-Traded Test, as discussed in more detail below.
The Company does not currently anticipate a circumstance under which it would be able to satisfy the 50%
Ownership Test or the CFC Test.
Publicly-Traded Test
The regulations under Section 883 provide, in pertinent part, that shares of a foreign corporation will be considered
to be ''primarily traded'' on an established securities market in a country if the number of shares of each class of
shares that are traded during any taxable year on all established securities markets in that country exceeds the
number of shares in each such class that are traded during that year on established securities markets in any other
single country. The Company's common stock, which is its sole class of issued and outstanding shares, are
''primarily traded'' on the Nasdaq Global Select Market.
Under the regulations, the Company's common stock will be considered to be ''regularly traded'' on an established
securities market if one or more classes of its shares representing more than 50% of its outstanding shares, by both
total combined voting power of all classes of shares entitled to vote and total value, are listed on such market, to
which we refer as the ''listing threshold.'' Since our common stock, which is our sole class of issued and outstanding
shares, is listed on the Nasdaq Global Select Market, we believe that we satisfy the listing threshold.
It is further required that with respect to each class of shares relied upon to meet the listing threshold, (i) such class
of shares is traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or one-
sixth of the days in a short taxable year; and (ii) the aggregate number of shares of such class of shares traded on
such market during the taxable year is at least 10% of the average number of shares of such class of shares
outstanding during such year or as appropriately adjusted in the case of a short taxable year. We believe the
Company will satisfy the trading frequency and trading volume tests. Even if this were not the case, the regulations
provide that the trading frequency and trading volume tests will be deemed satisfied if, as is the case with the
Company's common stock, such class of shares is traded on an established market in the United States and such
shares are regularly quoted by dealers making a market in such shares.
Notwithstanding the foregoing, the regulations provide, in pertinent part, that a class of shares 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 share
attribution rules, on more than half the days during the taxable year by persons who each own 5% or more of the
vote and value of such class of outstanding shares, to which we refer as the ''5 Percent Override Rule.''
For purposes of being able to determine the persons who actually or constructively own 5% or more of the vote and
value of the Company's common stock (“5% Shareholders”), the regulations permit the Company to rely on those
persons that are identified on Schedule 13G and Schedule 13D filings with the SEC, as owning 5% or more of the
Company's common stock. The regulations further provide that an investment company which is registered under
the Investment Company Act of 1940, as amended, will not be treated as a 5% Shareholder for such purposes.
In the event the 5 Percent Override Rule is triggered, the regulations provide that the 5 Percent Override Rule will
nevertheless not apply if the Company can establish that within the group of 5% Shareholders, there are sufficient
qualified shareholders for purposes of Section 883 to preclude non-qualified shareholders in such group from
owning 50% or more of the Company's common stock for more than half the number of days during the taxable
year, which we refer to as the ''5 Percent Override Exception.''
Based on the ownership and trading of our stock in 2021, we believe that we satisfied the publicly traded test and
qualified for the Section 883 exemption in 2021. Even if we do qualify for the Section 883 exemption in 2021, there
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can be no assurance that changes and shifts in the ownership of our stock by 5% shareholders will not preclude us
from qualifying for the Section 883 exemption in future taxable years.
Taxation in Absence of Section 883 Exemption
If the benefits of Section 883 are unavailable, the Company's United States source shipping income would be subject
to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, to the extent that
such income is not considered to be ''effectively connected'' with the conduct of a United States trade or business, as
described below. Since under the sourcing rules described above, no more than 50% of the Company's shipping
income would be treated as being United States source shipping income, the maximum effective rate of United
States federal income tax on our shipping income would never exceed 2% under the 4% gross basis tax regime.
Based on the current operation of our vessels, if we were subject to 4% gross basis tax, our United States federal
income tax liability would be approximately $2.7 million and $1.6 million for the years ended December 31, 2021
and 2020, respectively. However, we can give no assurance that the operation of our vessels, which are under the
control of third party charterers, will not change such that our United States federal income tax liability would be
substantially higher.
To the extent the Company's United States source shipping income is considered to be ''effectively connected'' with
the conduct of a United States trade or business, as described below, any such ''effectively connected'' United States
source shipping income, net of applicable deductions, would be subject to United States federal income tax,
currently imposed at a rate of 21%. In addition, the Company may be subject to the 30% ''branch profits'' tax on
earnings effectively connected with the conduct of such trade or business, as determined after allowance for certain
adjustments, and on certain interest paid or deemed paid attributable to the conduct of the Company's United States
trade or business.
The Company's United States source shipping income would be considered ''effectively connected'' with the conduct
of a United States trade or business only if:
•
•
the Company has, or is considered to have, a fixed place of business in the United States involved in the
earning of United States source shipping income; and
substantially all of the Company's United States source shipping income is attributable to regularly
scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated
sailings at regular intervals between the same points for voyages that begin or end in the United States.
United States Taxation of Gain on Sale of Vessels
Assuming that any decision on a vessel sale is made from and attributable to the United States office of the
Company, as we believe likely to be the case as the Company is currently structured, then any gain derived from the
sale of any such vessel will be treated as derived from United States sources and subject to United States federal
income tax as ''effectively connected'' income (determined under rules different from those discussed above) under
the above described net income tax regime. If the Company were to qualify for exemption from tax under Section
883 in respect of the shipping income derived from the international operation of its vessels, then gain from the sale
of any such vessel should likewise be exempt from tax under Section 883.
United States Federal Income Taxation of United States Holders
As used herein, the term “United States Holder” means a beneficial owner of our common stock that is an individual
United States citizen or resident, a United States corporation or other United States entity taxable as a corporation,
an estate the income of which is subject to United States federal income taxation regardless of its source, or a trust if
(i) a court within the United States is able to exercise primary jurisdiction over the administration of the trust and
one or more United States persons have the authority to control all substantial decisions of the trust or (ii) it has in
place an election to be treated as a United States person for U.S. federal income tax purposes.
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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 tax advisor.
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 United States Holder will generally constitute dividends to the extent of the
Company's current or accumulated earnings and profits, as determined under United States federal income tax
principles. Distributions in excess of such earnings and profits will be treated first as a nontaxable return of capital to
the extent of the United States 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 United States corporation, United States Holders that are corporations
will not be entitled to claim a dividend received deduction with respect to any distributions they receive from us.
Dividends paid with respect to the Company's common stock will generally be treated as ''passive category income''
for purposes of computing allowable foreign tax credits for United States foreign tax credit purposes.
Dividends paid on the Company's common stock to a United States Holder who is an individual, trust or estate (a
''United States Non-Corporate Holder'') will generally be treated as ''qualified dividend income'' that is taxable to
such United States Non-Corporate Holder at preferential tax rates provided that (1) the common stock is readily
tradable on an established securities market in the United States (such as the Nasdaq Global Select Market on which
the Company's common stock is traded); (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 we do not believe
we have been, are or will be); (3) the United States 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 United States Non-Corporate Holder is not under an obligation to make related payments with
respect to positions in substantially similar or related property.
There is no assurance that any dividends paid on the Company's common stock will be eligible for these preferential
rates in the hands of a United States Non-Corporate Holder, although we believe that they will be so eligible. Any
dividends out of earnings, and profits the Company pays, which are not eligible for these preferential rates will be
taxed as ordinary income to a United States Non-Corporate Holder.
Special rules may apply to any ''extraordinary dividend''-generally, a dividend in an amount which is equal to or in
excess of 10% of a shareholder's adjusted basis in a common share-paid by the Company. If the Company pays an
''extraordinary dividend'' on its common stock that is treated as ''qualified dividend income,'' then any loss derived by
a United States Non-Corporate Holder from the sale or exchange of such common stock will be treated as a long-
term capital loss to the extent of such dividend.
Sale, Exchange or Other Disposition of Common Stock
Assuming the Company does not constitute a passive foreign investment company for any taxable year, a United
States Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of the
Company's common stock in an amount equal to the difference between the amount realized by the United States
Holder from such sale, exchange or other disposition and the United States Holder's tax basis in such stock. Such
gain or loss will be treated as long-term capital gain or loss if the United States Holder's holding period is greater
than one year at the time of the sale, exchange or other disposition. Such capital gain or loss will generally be treated
as United States source income or loss, as applicable, for United States foreign tax credit purposes. Long-term
capital gains of United States Non-Corporate Holders are currently eligible for reduced rates of taxation. A United
States Holder's ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company Status and Significant Tax Consequences
Special United States federal income tax rules apply to a United States Holder that holds shares in a foreign
corporation classified as a “passive foreign investment company” for United States federal income tax purposes. In
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general, the Company will be treated as a passive foreign investment company with respect to a United States
Holder if, for any taxable year in which such holder holds the Company's common stock, either:
•
•
at least 75% of our 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 our assets during such taxable year produce, or are held for the
production of, passive income
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 was 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, we do not believe that the Company has been or
is, nor do we expect the Company to become, a passive foreign investment company with respect to any taxable
year. Although there is no legal authority directly on point, our belief is based principally on the position that, for
purposes of determining whether the Company is a passive foreign investment company, the gross income it derives
from its time chartering and voyage chartering activities should constitute services income, rather than rental
income. Accordingly, such income should not constitute passive income, and the assets that the Company owns and
operates in connection with the production of such income, in particular, the vessels, should not constitute passive
assets for purposes of determining whether the Company is a passive foreign investment company.
We believe there is substantial legal authority supporting our position consisting of case law and 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. In addition, we have obtained an opinion from our
counsel, Seward & Kissel LLP, that, based upon the Company's operations as described herein, its income from time
charters and voyage charters should not be treated as passive income for purposes of determining whether it is a
passive foreign investment company. However, in the absence of any legal authority specifically relating to the
statutory provisions governing passive foreign investment companies, the United States Internal Revenue Service, or
the IRS or a court could disagree with our position. In addition, although the Company intends to conduct its affairs
in a manner to avoid being classified as a passive foreign investment company with respect to any taxable year, we
cannot assure you that the nature of its operations will not change in the future.
As discussed more fully below, if the Company were to be treated as a passive foreign investment company for any
taxable year, a United States Holder would be subject to different taxation rules depending on whether the United
States Holder makes an election to treat the Company as a ''Qualified Electing Fund,'' which election we refer to as a
''QEF election.'' As an alternative to making a QEF election, a United States Holder should be able to make a ''mark-
to-market'' election with respect to the Company's common stock, as discussed below. In addition, if we were to be
treated as a passive foreign investment company, a United States holder would be required to file an annual report
with the IRS for that year with respect to such holder’s common stock.
Taxation of United States Holders Making a Timely QEF Election
If a United States Holder makes a timely QEF election, which United States Holder we refer to as an ''Electing
Holder,'' the Electing Holder must report for United States federal income tax purposes its pro rata share of the
Company's ordinary earnings and net capital gain, if any, for each taxable year of the Company for which it is a
passive foreign investment company that ends with or within the taxable year of the Electing Holder, regardless of
whether or not distributions were received from the Company by the Electing Holder. No portion of any such
inclusions of ordinary earnings will be treated as ''qualified dividend income.'' Net capital gain inclusions of United
States Non-Corporate Holders would be eligible for preferential capital gains tax rates. The Electing Holder's
adjusted tax basis in the common stock will be increased to reflect taxed but undistributed earnings and profits.
Distributions of earnings and profits 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 not,
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however, be entitled to a deduction for its pro rata share of any losses that the Company incurs with respect to any
year. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of
the Company's common stock. A United States Holder would make a timely QEF election for shares of the
Company by filing one copy of IRS Form 8621 with his United States federal income tax return for the first year in
which he held such shares when the Company was a passive foreign investment company. If the Company were to
be treated as a passive foreign investment company for any taxable year, the Company would provide each United
States Holder with all necessary information in order to make the QEF election described above.
Taxation of United States Holders Making a ''Mark-to-Market'' Election
Alternatively, if the Company were to be treated as a passive foreign investment company for any taxable year and,
as we anticipate, its shares are treated as "marketable stock", a United States Holder would be allowed to make a
''mark-to-market'' election with respect to the Company's common stock, provided the United States Holder
completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury regulations. If
that election is made, the United States 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 United States Holder would also be permitted an ordinary loss in respect of the
excess, if any, of the United States 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 United States 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 Company's common
stock would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the
Company’s 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 United States Holder. No income inclusions under this election will
be treated as "qualified dividend income."
Taxation of United States Holders Not Making a Timely QEF or Mark-to-Market Election
Finally, if the Company were to be treated as a passive foreign investment company for any taxable year, a United
States Holder who does not make either a QEF election or a “mark-to-market” election for that year, whom we refer
to as a “Non-Electing Holder” would be subject to special 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 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 Company's common stock. Under these special rules:
•
•
•
the excess distribution or gain would be allocated ratably over the Non-Electing Holder's aggregate holding
period for the common stock;
the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which
the Company was a passive foreign investment company, would be taxed as ordinary income and would
not be “qualified dividend 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 deferral
benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.
These special rules would not apply to a qualified pension, profit sharing or other retirement trust or other tax-
exempt organization that did not borrow money or otherwise utilize leverage in connection with its acquisition of the
Company's common stock. If the Company is a passive foreign investment company and a Non-Electing Holder
who is an individual dies while owning the Company's common stock, such holder's successor generally would not
receive a step-up in tax basis with respect to such shares.
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United States Federal Income Taxation of “Non-United States Holders”
A beneficial owner of common stock (other than a partnership) that is not a United States Holder is referred to
herein as a “Non-United States Holder”.
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 tax advisor.
Dividends on Common Stock
Non-United States Holders generally will not be subject to United States federal income tax or withholding tax on
dividends received from the Company with respect to its common stock, unless that income is effectively connected
with the Non-United States Holder's conduct of a trade or business in the United States. If the Non-United States
Holder is entitled to the benefits of a United States income tax treaty with respect to those dividends, that income is
taxable only if it is attributable to a permanent establishment maintained by the Non-United States Holder in the
United States.
Sale, Exchange or Other Disposition of Common Stock
Non-United States Holders generally will not be subject to United States federal income tax or withholding tax on
any gain realized upon the sale, exchange or other disposition of the Company's common stock, unless:
•
•
The gain is effectively connected with the Non-United States Holder’s conduct of a trade or business in the
United States (and, if the Non-United States holder is entitled to the benefits of an income tax treaty with
respect to that gain, that gain is attributable to a permanent establishment maintained by the Non-United
States holder in the United States); or
The Non-United States 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-United States Holder is engaged in a United States trade or business for United States federal income tax
purposes, the income from the common stock, including dividends and the gain from the sale, exchange or other
disposition of the shares, that is effectively connected with the conduct of that trade or business will generally be
subject to regular United States federal income tax in the same manner as discussed in the previous section relating
to the taxation of United States Holders. In addition, if you are a corporate Non-United States Holder, your earnings
and profits that are attributable to the effectively connected income, which are subject to certain adjustments, may be
subject to an additional branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable
income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to
information reporting requirements if you are a non-corporate United States Holder. Such payments or distributions
may also be subject to backup withholding tax if you are a non-corporate United States Holder and you:
•
•
•
Fail to provide an accurate taxpayer identification number;
Are notified by the IRS that you have failed to report all interest or dividends required to be shown on your
federal income tax returns; or
In certain circumstances, fail to comply with applicable certification requirements.
Non-United States Holders may be required to establish their exemption from information reporting and backup
withholding by certifying their status on an appropriate IRS Form W-8.
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If you are a Non-United States Holder and you sell your common stock to or through a United States office of a
broker, the payment of the proceeds is subject to both United States backup withholding and information reporting
unless you certify that you are a non-United States person, under penalties of perjury, or you otherwise establish an
exemption. If you sell your common stock through a non-United States office of a non-United States broker and the
sales proceeds are paid to you outside the United States, then information reporting and backup withholding
generally will not apply to that payment. However, United States information reporting requirements, but not backup
withholding, will apply to a payment of sales proceeds, even if that payment is made to you outside the United
States, if you sell your common stock through a non-United States office of a broker that is a United States person or
has some other contacts with the United States. Such information reporting requirements will not apply, however, if
the broker has documentary evidence in its records that you are a non-United States person and certain other
conditions are met, or you otherwise establish an exemption.
Backup withholding tax is not an additional tax. Rather, you generally may obtain a refund of any amounts withheld
under backup withholding rules that exceed your income tax liability by filing a refund claim with the IRS.
Individuals who are United States Holders (and to the extent specified in applicable Treasury regulations, certain
United States entities and Non-United States Holders) 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 shares, unless the
shares are held through an account maintained with a United States 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 an individual United States Holder (and to the extent specified in
applicable Treasury regulations, a United States entity and Non-United States Holders) that is required to file IRS
Form 8938 does not file such form, the statute of limitations on the assessment and collection of United States
federal income taxes of such holder for the related tax year may not close until three years after the date that the
required information is filed. United States Holders (including United States entities) and Non-United States Holders
are encouraged to consult their own tax advisors regarding their reporting obligations under this legislation.
Glossary of Shipping Terms
The following are definitions of shipping terms used in this Form 10-K.
Annual Survey— The inspection of a vessel by a classification society, on behalf of a flag state, that takes place
every year.
Ballast Water Treatment System or BWTS— A system used to prevent the spread of harmful aquatic organisms
from one region to another by minimizing the uptake and/or discharge of sediments and organisms in the water that
ships use as ballast to maintain stability. These systems are required on all ships, according to a timetable of
implementation, in accordance with the BWM Convention discussed in the Pollution Control and Liability
Requirements section above.
Baltic Exchange—Based in London, the Baltic Exchange is a market for the trading and settlement of physical and
derivative contracts. The exchange also publishes daily freight market prices and maritime shipping cost indices,
including Baltic Dry Index and segment indices for Capesize, Panamax, Supramax, and Handysize bulk carriers.
Baltic Supramax Index or BSI —The BSI is an index published by the Baltic Exchange which tracks the gross
time charter spot value for a Supramax vessel. Initiated in 2005, the BSI was originally based on a 52,000 dwt ship
of standard design and 6 trade routes across the world. As a result of a trend toward larger ship sizes and changes to
trade patterns, this version of the index was discontinued as of January 31, 2019. The updated BSI is now based on a
58,000 dwt, non-scrubber fitted Supramax and 10 trade routes across the world.
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Bareboat Charter—Also known as “demise charter.” Contract or hire of a ship under which the shipowner is
usually paid a fixed amount of charter hire rate for a certain period of time during which the charterer is responsible
for the operating costs and voyage costs of the vessel as well as arranging for crewing. Such owner is known as the
bareboat charterer or the demise charterer.
Bulk Vessels/Carriers—Vessels which are specially designed and built to carry large volumes of cargo in bulk
cargo form.
Bunkers—Fuel oil used to power a vessel's engines. The name is derived from the bins used to store coal onboard
when ships were powered by coal. There are three main fuel types currently used on commercial cargo ships. First,
High Sulfur Fuel Oil (“HSFO”) is a residual fuel with maximum sulfur content of 3.5%. This was the primary fuel
used by commercial shipping prior to implementation of the IMO2020 sulfur regulation and continues to be used by
scrubber-fitted ships. Second, Very Low Sulfur Fuel Oil (“VLSFO”) is a fuel with maximum sulfur content of 0.5%
and is the primary fuel used by non-scrubber fitted ships starting January 1, 2020. Third, Marine Gas Oil (“MGO”)
is a distillate product similar to diesel fuel and has a maximum sulfur content of 0.1%. This fuel type is primarily
used in ECA zones.
Capesize—A drybulk carrier in excess of 100,000 dwt.
Charter— The hire of a vessel for a specified period of time or to carry a cargo for a fixed fee from a loading port
to a discharging port. The contract for a charter is called a charter party.
Charterer— The individual or company hiring a vessel.
Charter Hire Rate— A sum of money paid to the vessel owner by a charterer under a time charter party for the use
of a vessel.
Classification Society—An independent organization which certifies that a vessel has been built and maintained in
accordance with the rules of such organization and complies with the applicable rules and regulations of the country
of such vessel and the international conventions of which that country is a member.
Deadweight Ton or “dwt”—A unit of a vessel's capacity for cargo, fuel oil, stores and crew, measured in metric
tons of 1,000 kilograms. A vessel's dwt or total deadweight is the maximum total weight the vessel can carry when
loaded to a particular load line.
Demurrage—Additional revenue paid to the shipowner on its Voyage Charters for delays experienced in loading
and/or unloading cargo that are not deemed to be the responsibility of the shipowner, calculated in accordance with
specific Charter terms.
Despatch —The amount payable by the shipowner if the vessel completes loading or discharging before the allowed
loading/unloading time has expired, calculated in accordance with specific charter terms.
Drybulk—Non-liquid cargoes of commodities shipped in an unpackaged state.
Drydocking—The removal of a vessel from the water for inspection and/or repair of submerged parts.
Emission Control Area or “ECA”—Designated sea areas in which stricter airborne emissions controls are in place.
As of early 2020, there are four ECA zones in place that cover the Baltic Sea, North Sea, and most of the coastline
of U.S., Canada, and U.S. Caribbean territory. Ships operating within these zones have a maximum sulfur emissions
limit of 0.1%.
Gross Ton—Unit of 100 cubic feet or 2.831 cubic meters used in arriving at the calculation of gross tonnage.
Handysize—A drybulk carrier having a carrying capacity of up to approximately 40,000 dwt.
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Hull—The shell or body of a vessel.
International Maritime Organization or “IMO”—A UN agency that issues international trade standards for
shipping.
Intermediate Survey—The inspection of a vessel by a classification society surveyor which takes place between
two and three years before and after each Special Survey for such vessel pursuant to the rules of international
conventions and classification societies.
ISM Code—The International Management Code for the Safe Operation of Ships and for Pollution Prevention, as
adopted by the IMO.
Metric Ton—A ton, unit of measurement equal to 1,000 kilograms.
Light Weight Ton ("lwt")—The actual weight of the ship with no fuel, passengers, cargo, water or stores on board.
Newbuilding—A newly constructed vessel.
OPA—The United States Oil Pollution Act of 1990 (as amended).
Orderbook—A reference to currently placed orders for the construction of vessels (e.g., the Panamax orderbook).
Panamax—A drybulk carrier of approximately 65,000 to 100,000 dwt of maximum length, depth and draft capable
of passing fully loaded through the Panama Canal. Ships of this size may occasionally be equipped with onboard
cargo handling equipment, but typically do not and must rely on shore-based equipment to load and unload.
Protection and Indemnity Insurance—Insurance obtained through a mutual association formed by shipowners to
provide liability insurance protection from large financial loss to one member through contributions towards that
loss by all members.
Scrapping—The disposal of old or damaged vessel tonnage by way of sale as scrap metal.
Scrubber or Exhaust Gas Cleaning System — This equipment is used to remove SOx from ship's exhaust gas.
Short-Term Time Charter—A time charter which lasts less than approximately 12 months.
SOLAS—The International Convention for the Safety of Life at Sea 1974, as amended, adopted under the auspices
of the IMO.
Special Survey—The inspection of a vessel by a classification society surveyor which takes place a minimum of
every four years and a maximum of every five years.
Spot Market—The market for immediate chartering of a vessel usually for single voyages.
Supramax—A drybulk carrier ranging in size from approximately 50,000 to 60,000 dwt.
Technical Management—The management of the operation of a vessel, including physically maintaining the vessel
and all of its machinery, maintaining necessary certifications, and supplying necessary stores, spares, and lubricating
oils. Responsibilities also generally include selecting, engaging and training crew, and arranging necessary insurance
coverage.
Time Charter—Contract for hire of a ship. A charter under which the shipowner is paid charter hire rate on a per
day basis for a certain period of time, the shipowner being responsible for providing the crew and paying operating
costs while the charterer is responsible for paying the voyage costs. Any delays at port or during the voyages are the
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responsibility of the charterer, save for certain specific exceptions such as loss of time arising from vessel
breakdown and routine maintenance.
Ultramax—A drybulk carrier ranging in size from approximately 60,000 to 65,000 dwt.
Voyage Charter —Contract for hire of a vessel under which a shipowner is paid freight on the basis of moving
cargo from a loading port to a discharge port. The shipowner is responsible for paying both operating costs and
voyage costs. The charterer is typically responsible for any delay at the loading or discharging ports.
Voyage Expenses—Includes fuel, port charges, canal tolls, brokerage commissions and cargo handling operations.
These expenses are subtracted from shipping revenues to calculate Time Charter Equivalent revenues for Voyage
Charters.
Vessel Operating Expenses—Includes crewing, repairs and maintenance, insurance, stores, lubes, communication
expenses.
Available Information
The Company makes available free of charge through its internet website, www.eagleships.com, its annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports
including related exhibits and supplemental schedules, filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act, as soon as reasonably practicable after the Company electronically files such material with, or
furnishes it to, the SEC. Our SEC filings are also available to the public at the SEC's web site at http://www.sec.gov.
The information on our website is not incorporated by reference into this Annual Report.
We maintain our principal executive offices at 300 First Stamford Place 5th Floor, Stamford, Connecticut. Our
telephone number at that address is (203) 276-8100. Our website address is www.eagleships.com. Information
contained on our website does not constitute part of this Annual Report.
39
ITEM 1A. RISK FACTORS
We operate in a highly cyclical and competitive industry. Some of the risks relate principally to the industry in which
we operate and our business in general. Other risks relate principally to the securities market, national and global
economic conditions and the ownership of our common stock. The occurrence of certain geopolitical,
macroeconomic, or industry-specific factors, including the risks outlined below, could adversely affect our business,
operating results, cash flows and financial condition.
Industry Specific Risk Factors
The global economic environment may have a material adverse effect on our business.
Drybulk demand is highly correlated to the global macroeconomic landscape. According to the International
Monetary Fund ("IMF"), global economic growth for 2021 was 5.9%, as compared to 2020 which was -3.1%. World
output in 2020 was impacted significantly by COVID-19, but experienced a strong rebound in 2021. As of January
2022, the forecast for 2022 is 4.4% growth, compared to a 5-year average of 3.4% for the period 2015 to 2019.
Although the current global economic environment is relatively positive, a resurgence of COVID-19 or slowdown in
vaccine distribution or other events that impact the global economic environment, such as the recent invasion of
Ukraine by Russia and any resulting macroeconomic impacts from this event, could affect us negatively in the
following ways:
•
•
•
Employing our fleet at charter hire rates below our breakeven levels which could negatively impact our
ability to operate and generate a profit. Operating at below breakeven levels for a prolonged period of time
may leave us with insufficient cash resources to meet certain obligations, including the payment of interest
and principal on our debt, causing us to potentially breach financial covenants under our existing credit
facility and bond terms.
Our charterers may fail to meet their obligations under existing time charter or voyage charter agreements.
The market value of our fleet could decrease, causing us to potentially recognize losses if vessels are sold
or if their values impaired. Additionally, a decline in the value of our fleet could cause us to breach certain
covenants under our existing credit facility.
Changes in the economic and political environment in China, including as a result of COVID-19, which was first
identified in Wuhan, Hubei Province, China, and policies adopted by the Chinese government to regulate its
economy may have a material adverse effect on our business.
China is a major source of demand for drybulk; a deterioration in the economic fundamentals for this nation,
including as a result of COVID-19, which was first identified in Wuhan, Hubei Province, China, may materially
impact drybulk demand. Although state-owned enterprises still account for a substantial portion of the Chinese
industrial output, in general, the Chinese government is reducing the level of direct control that it exercises over the
economy through state plans and other measures. There is an increasing level of freedom and autonomy in areas
such as allocation of resources, production, pricing and management 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 and may be subject to revision, change or abolition. If
the Chinese government does not continue to pursue a policy of economic reform, the amount of its imports and
exports could adversely be affected, which could have a material adverse effect on our business.
A decrease in the level of China’s export of goods or an increase in trade protectionism globally or by certain
countries could have a material adverse impact on our charterers’ business and, in turn, could cause a material
adverse impact on our results of operations, financial condition and cash flows.
China exports considerably more goods than it imports. Our vessels may be deployed on routes involving trade in
and out of emerging markets, and our charterers’ shipping and business revenue may be derived from the shipment
40
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 recently
implemented economic policies aimed at increasing domestic consumption of Chinese-made goods. This may have
the effect of reducing the supply of goods available for export and may, in turn, result in decreased demand for our
charterers' business. The level of imports to and exports from China could also 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.
Our operations expose us to the risk that increased trade protectionism, including by the United States, will
adversely affect our business. If the global economy is undermined by downside risks, governments may turn to
trade barriers to protect their domestic industries against foreign imports, thereby depressing the demand for
international shipping. Ongoing current trade frictions between the United States and China increase the risk of
interruptions to exports from and to China. Since July 2018, the U.S. Government has imposed additional tariffs
ranging from 7.5% to 25% on Chinese-origin goods covering the vast majority of products traded between the two
countries. China has retaliated with increased tariffs on some U.S. goods. These tariffs caused trade between the two
countries to significantly decrease in 2018 and 2019. On January 15, 2020, the United States and China signed a
“Phase One” trade agreement, in which China agreed to increase its purchases and imports of U.S. goods by $200
billion over 2017 levels during the two-year period from January 1, 2020 to December 31, 2021. This had the effect
of increasing exports from the United States to China, although China did not meet its commitments and thus
exports did not increase as much as required by the agreement. In connection with this agreement, the United States
agreed to reduce certain tariffs and indefinitely suspend the imposition of certain additional tariffs. Nonetheless,
U.S. tariffs of 7.5% to 25% on the vast majority of Chinese products and Chinese retaliatory tariffs on some U.S.
products remain in place. While the Phase One agreement may reduce the risk of adverse effects on Chinese and
U.S. trade policy, the success of the agreement is uncertain, as the Biden Administration has recently signaled the
need to maintain political pressure on China, particularly with respect to national security and human rights
concerns, and to respond to China's failure to achieve its commitments under the agreement, including through the
continued or escalated use of restrictive or protectionist trade policies. Further increased protectionism in the
markets that our charterers serve may 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. Moreover, despite the Phase One agreement the United States
continues to implement a number of policies that may reduce trade between the United States and China, including
stricter export control requirements and supply chain restrictions; targeted sanctions related to the pro-democracy
movement in Hong Kong and human rights abuses in the Xinjiang Uyghur Autonomous Region (“XUAR”);
sanctions that prohibit U.S. persons from purchasing or selling any publicly traded securities, or any publicly traded
securities that are derivative of or designed to provide investment exposure to such securities, of certain Chinese
companies; and import restrictions related to human rights abuses in China generally, but with a focus on the
XUAR. While it is unclear how the Biden Administration will handle each of these policies, the expectation is that
most of these measures will remain in place or be further strengthened.
Any increased trade barriers or restrictions on trade, especially trade with China, would still 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, results of operations and financial condition and our ability to pay
dividends to our shareholders.
The COVID-19 or other pandemics, could have a material adverse impact on our business, results of operations,
or financial condition.
We believe that COVID-19 and the measures to contain it taken by governments of various countries have
negatively affected our business and could continue to do so. COVID-19 impacted the global economies and the
trade routes in which we operate, the way we conduct our business and the business of our charterers. Governments
have imposed lockdowns, quarantine regulations and other emergency health measures to protect their citizens from
41
exposure to COVID-19. We took similar precautions, by repurposing our global office spaces to meet the social
distancing guidelines, enabling our employees to work remotely and froze our corporate travel until the pandemic
restrictions were lifted.
The Company experienced delays in cargo operations due to port restrictions and additional protocols and
cancellation of a few cargo contracts. However, the Company was able to secure alternative business for its vessels
upon cancellation at the prevailing charter rates. The travel restrictions imposed at various ports have severely
impeded our crew rotation plans during the year. We experienced disruptions to our normal vessel operations and
incurred additional off-hire time due to deviations our vessels had to take to allow for crew changes. As a result of
the spread of COVID-19, the Company has incurred some additional expenses relating to procurement of personal
protective equipment, COVID-19 testing, and crew travel, which is included in our vessel operating expenses in our
Consolidated Statement of Operations for the years ended December 31, 2021 and 2020. Additionally, the Company
experienced some delays in operations, drydocking and BWTS installations as a result of protocols regarding
COVID-19, as well as limitations of labor. We also experienced loss of revenues due to a number of off-hire days
relating to crew changes and quarantine restrictions as a number of our crew members tested positive for COVID-19
during 2021.
All of the foregoing have impacted our business in 2020 and 2021 and although the current drybulk rates are high,
the negative effects of the pandemic may have prolonged impact on our business, financial condition, results of
operations and forward-looking expectations. Furthermore, modified processes, procedures and controls could be
required to respond to changes in our business environment. The increase in remote working of our employees may
exacerbate certain risks to our business, including an increased demand for information technology resources,
increased risk of malicious technology-related events, such as cyberattacks and phishing attacks, and increased risk
of improper dissemination of personal, proprietary or confidential information.
Charter rates for drybulk vessels are volatile and could experience an extended period of low rates, which may
adversely affect our earnings, revenue and profitability and our ability to comply with our loan covenants.
The drybulk shipping industry is cyclical with high volatility in charter rates and profitability. The degree of charter
rate volatility among different types of drybulk vessels has varied widely. In the past, time charter and spot market
charter rates for drybulk carriers have declined below operating costs of vessels (including as recently as 2016). The
Baltic Supramax Index or the "BSI", a daily average of charter rates for key drybulk routes published by the Baltic
Exchange Ltd, which tracks the gross time charter spot value for a Supramax vessel. Initiated in 2005, the BSI was
originally based on a 52,000 dwt ship of standard design and 6 trade routes across the world. As a result of a trend
toward larger ship sizes and changes to trade patterns, this version of the index was discontinued as of January 31,
2019. The updated BSI is now based on a 58,000 dwt, non-scrubber fitted Supramax and 10 trade routes across the
world. Over the last ten years (i.e., 2011-2021), the calendar year average for the BSI has ranged from $6,966 in
2015 to $26,768 in 2021. The average of daily rates from 2011 to 2021 was approximately $11,100.
Our ability to be profitable will depend upon a number of factors. 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. Since we charter our vessels principally in the spot market, we are exposed to the cyclicality and
volatility of the spot market. Spot market charter rates may fluctuate significantly based upon available charters and
the supply of and demand for seaborne shipping capacity, and we may be unable to keep our vessels fully employed
in these short-term markets. Alternatively, charter rates available in the spot market may be insufficient to enable our
vessels to operate profitably. A significant decrease in charter rates would also affect asset values and adversely
affect our profitability and cash flows.
Factors that influence the demand for drybulk vessel capacity include:
•
supply of and demand for energy resources, commodities, consumer and industrial products;
42
•
•
•
•
•
•
•
•
•
•
•
changes in the exploration or production of energy resources, commodities, consumer and industrial
products;
the location of regional and global exploration, production and manufacturing facilities;
the location of consuming regions for energy resources, commodities, 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 weather;
disruptions and developments in international trade, including trade disputes, the imposition of tariffs on
various commodities or finished goods, or export controls;
disruptions from conflict/war and any related sanctions or restrictions imposed on certain regions or/and
countries;
changes in seaborne and other transportation patterns, including the distance cargo is transported by sea;
environmental and other legal regulatory developments;
currency exchange rates.
Factors that influence the supply of drybulk vessel capacity include:
•
•
•
•
•
•
•
•
•
•
the number of newbuilding orders and deliveries including slippage in deliveries;
number of shipyards and ability of shipyards to deliver vessels;
port and canal congestion;
the scrapping rate of vessels;
speed of vessel operation;
vessel casualties;
the number of vessels that are out of service, namely those that are laid-up, dry docked, awaiting repairs or
otherwise not available for hire;
availability of financing for new vessels;
changes in national or international regulations that may effectively cause reductions in the carrying
capacity of vessels or early obsolescence of tonnage; and
changes in environmental and other regulations that may limit the useful lives of vessels.
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 costs, insurance
43
coverage costs, the efficiency and age profile of the existing drybulk 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 drybulk vessels 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 drybulk fleet, including vessel scrapping and ordering rates of newbuildings, and the sources and supply
of drybulk cargo to be transported by sea. A decrease in the level of China’s imports of raw materials or a decrease
in trade globally could have a material adverse impact on our charterers’ business and, in turn, could cause a
material adverse impact on our results of operations, financial condition and cash flows. Global drybulk supply is
expected to remain low over the next two years, as a result of low orders placed over the past three years and future
uncertainties relating to future regulations around decarbonization. Although global economic conditions have
improved, there can be no assurance as to the sustainability of future economic growth. Adverse economic, political,
social or other developments could have a material adverse effect on our business, financial condition and operating
results.
If we are required to charter our vessels at a time when demand and charter rates are very low, we may not be able to
secure employment for our vessels at all, or we may have to accept reduced and potentially unprofitable rates. If we
are unable to secure profitable employment for our vessels, we may decide to lay-up some or all unemployed vessels
until such time that charter rates become attractive again. During the lay-up period, we will continue to incur some
expenditures, such as insurance and maintenance costs, for each such vessel. Additionally, before exiting lay-up, we
will have to pay reactivation costs for any such vessel to regain its operational condition. As a result, our business,
financial condition, results of operations and cash flows and our compliance with covenants in our credit facility
may be affected.
Our operating results will be subject to seasonal fluctuations, which could affect our operating results.
Demand for vessel capacity has historically exhibited seasonal variations and, as a result, fluctuations in charter
rates. This seasonality may result in quarter-to-quarter volatility in our operating results for our vessels trading in the
spot market. The drybulk market is typically stronger in the fall (due to both increased North American grain
shipments and higher coal purchases for heating fuel ahead of the cold winter months) and spring (due to increased
South American grain shipments). In addition, unpredictable weather patterns may disrupt vessel scheduling and
supplies of certain commodities. To the extent that we must enter into a new charter or renew an existing charter for
a vessel in our fleet during a time when seasonal variations have reduced prevailing charter rates, our operating
results may be adversely affected.
An over-supply of drybulk carrier capacity across the industry may depress the charter rates, which may limit our
ability to operate our drybulk carriers profitably.
The global drybulk fleet increased significantly from 2009 to 2013 as a result of the large number of newbuilding
orders placed during the boom in the drybulk freight market from 2007 to 2008. Scrapping of older ships helped
curtail some of this new supply growth, but was not enough to materially offset the large net growth in the fleet.
Supply growth momentum has slowed significantly over the last five years as fewer newbuilding orders have been
placed. During 2021, the fleet growth decreased slightly to 3.6% in 2021 from 3.8% in 2020. In 2021, vessels
representing 37.9 million dwt were delivered, a decrease of 11.0 million dwt from 2020. Scrapping in 2021 totaled
5.1 million dwt, a decrease of 10.2 million dwt from 2020.
Although supply growth has been decreasing, any increase in the vessel supply or increase in newbuilding ordering
levels may decrease our future charter rates earned on our vessels affecting our profitability and our ability to meet
our financial obligations as they become due.
44
The market values of our vessels are volatile and may decline which could limit the amount of funds that we can
borrow or cause us to breach certain financial covenants under our credit facility or bond terms.
The fair market values of our vessels have been very volatile. As of December 31, 2021, the fair market value of our
fleet is higher than their carrying value; however, the fair market value of our vessels may continue to fluctuate
depending on a number of factors, including:
•
•
•
•
•
•
•
•
•
•
prevailing level of charter rates;
the duration and impact of COVID-19;
general economic and market conditions affecting the shipping industry;
types, sizes, and ages of vessels;
supply of and demand for vessels;
other modes of transportation;
cost of new buildings;
governmental or other regulations;
the need to upgrade secondhand and previously owned vessels as a result of charterer requirements,
technological advances in vessel design or equipment or otherwise; and
technological advances.
Conversely, if vessel values are elevated at a time when we wish to acquire additional vessels, the cost of acquisition
may increase and this could adversely affect our business, results of operations, cash flow and financial condition.
Declines in charter rates and vessel values could cause us to incur impairment charges.
We evaluate the carrying amounts of our vessels to determine if events have occurred that would require an
impairment of their carrying amounts. The recoverable amount of vessels is reviewed based on events and changes
in circumstances that would indicate that the carrying amount of the assets might not be recovered. The review for
potential impairment indicators and projection of future cash flows related to the vessels is complex and requires us
to make various estimates including future freight rates and earnings from the vessels. All of these items have been
historically volatile.
If indicators of impairment are present, we perform an analysis of the undiscounted projected net operating cash
flows for each vessel and compare it to the vessel’s carrying value. We record impairment charges if the projected
net operating cash flows do not exceed the carrying value. The amount of impairment recorded is equal to the
difference between the fair market value and the carrying value of each vessel.
The carrying values of our vessels may not represent their fair market value in the future because the new market
prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of new buildings. Any
impairment charges incurred as a result of declines in charter rates could have a material adverse effect on our
business, results of operations and our ability to meet the financial covenants in our loan agreements.
Fuel cost, or bunker prices, may adversely affect profits.
While we generally do 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 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. Further, fuel may become much more expensive in the future, which may reduce the profitability and
competitiveness of our business versus other forms of transportation, such as truck or rail.
45
New regulations restricting sulfur emissions became effective January 1, 2020. We installed scrubbers on 37 of our
vessels as part of our strategy to comply with the sulfur emissions regulations, and ten of the vessels we acquired
from 2019 to 2021 were equipped with scrubbers upon delivery to the Company. As of December 31, 2021, the
Company has 47 vessels of the fleet which are scrubber fitted.
Beginning January 1, 2020, we transitioned to consuming IMO compliant fuel on our vessels that were not equipped
with scrubbers or when our scrubbers could not be used. Generally, VLSFO is more expensive than HSFO. During
2021, the fuel prices have increased and are expected to continue to rise during 2022. As a result, the cost
differential between the low sulfur fuel and the high sulfur fuel has widened. The cost differential between the two
grades of fuel increased from $72/MT in the fourth quarter of 2020 to $134/MT in the fourth quarter of 2021.
Although the fuel prices recovered during 2021, if the cost differential between the low sulfur fuel and high sulfur
fuel stays at a lower than anticipated level, we may not realize the economic benefits or recover the cost of the
scrubbers we have installed. The occurrence of any of the foregoing events may have a material adverse effect on
our business, results of operations, cash flows, financial condition and ability to pay dividends. In addition, a number
of countries have imposed restrictions on the discharge of wash water from open loop scrubbers within their port
limits. While there are no restrictions on using open loop scrubbers outside of port limits, any changes in these
regulations or more stringent standards globally could impact the use of open loop scrubbers going forward.
Compliance with safety and other vessel requirements imposed by classification societies may be very costly and
may adversely affect our business.
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its
country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the
applicable rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention.
A vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a special survey, a
vessel’s machinery may be on a continuous survey cycle under which the machinery would be surveyed periodically
over a five-year period. Every vessel is also required to be drydocked every two and a half to five years for
inspection, depending on its age, of its underwater parts.
Compliance with the above requirements may result in significant expense. If any vessel does not maintain its class
or fails any annual, intermediate or special survey, the vessel will be unable to trade between ports and will be
unemployable and uninsurable, which could negatively impact our results of operations and financial condition.
We are subject to complex laws and regulations, including environmental regulations that can adversely affect
the cost, manner or feasibility of doing business.
Our operations are subject to numerous laws and regulations in the form of international conventions and treaties,
national, state and local laws and national and international regulations in force in the jurisdictions in which our
vessels operate or are registered, which can significantly affect the ownership and operation of our vessels. These
regulations include, but are not limited to, OPA, CERCLA, the CAA, the CWA, the MTSA, requirements of the
USCG and the EPA, and regulations of the IMO, including MARPOL, as from time to time amended including
designation of ECAs thereunder, SOLAS, as from time to time amended, the ISM Code, the LL Convention, the
Bunker Convention, and EU regulations. Compliance with such laws, regulations and standards, where applicable,
may require installation of costly equipment or operational changes and may affect the resale value or useful lives of
our vessels. We may also incur additional costs in order to comply with other existing and future regulatory
obligations, including, but not limited to, costs relating to air emissions, the management of ballast and bilge waters,
elimination of tin-based paint, maintenance and inspection, development and implementation of emergency
procedures and insurance coverage or other financial assurance of our ability to address pollution incidents. These
costs could have a material adverse effect on our business, results of operations, cash flows and financial condition.
A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal
sanctions or the suspension or termination of our operations. Environmental laws often impose strict liability for
remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard
46
to whether we were negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are
strictly, and jointly and severally, liable for the discharge of oil within the 200-mile exclusive economic zone around
the United States. An oil spill could result in significant liability, including fines, penalties and criminal liability and
remediation costs for natural resource damages under other federal, state and local laws, as well as third-party
damages. We are required to satisfy insurance and financial responsibility requirements for potential oil (including
marine fuel) spills and other pollution incidents. Although we have arranged insurance to cover certain
environmental risks, there can be no assurance that such insurance will be sufficient to cover all such risks or that
any claims will not have a material adverse effect on our business, results of operations, cash flows and financial
condition and our ability to pay dividends, if any, in the future. For additional information regarding the
environmental regulations affecting our operations, see Item 1. Business.
In March 2021, the U.S. government began investigating an allegation that one of the Company's vessels may have
improperly disposed of ballast water that entered the engine room bilges during a repair. The investigation of this
alleged violation of environmental laws is ongoing, and although at this time we do not believe that this matter will
have a material impact on the Company, our financial condition or results of operations, we cannot determine what
penalties, if any, will be imposed. We have posted a surety bond as security for any fines, penalties or associated
costs that may be issued, and the Company is cooperating fully with the U.S. government in its investigation of this
matter. For the year ended December 31, 2021, the Company incurred and recorded $2.8 million as Other operating
expense in our Consolidated Statement of Operations, relating to this incident, which includes legal fees, surety
bond expenses, vessel off-hire, crew changes and travel costs.
World events could affect our operations and financial results.
Past terrorist attacks, as well as the threat of future terrorist attacks around the world, and the invasion of Ukraine by
Russia, continue to cause uncertainty in the world’s financial markets and may affect our business, operating results
and financial condition. Conflicts, instability and other recent developments in the Middle East, Europe and
elsewhere may lead to additional acts of terrorism and armed conflict around the world, which may contribute to
further economic instability in the global financial markets. Any of these occurrences could have a material adverse
impact on our business, financial condition and results of operations.
We could also be negatively impacted by market disruption caused by health crises. In December 2019, COVID-19
was reported in China and has since spread across the world. On March 11, 2020, the World Health Organization
declared the COVID-19 outbreak as a pandemic. In response, many countries, ports, and organizations, including
those where the Company conducts a large part of its operations, have implemented measures to combat the
pandemic, such as quarantines and travel restrictions. Such measures led to a significant short-term slowdown in the
worldwide economic activity and decline in demand for drybulk cargoes, which resulted to lower charter rates and
shipping revenues in 2020. Although the 2021 drybulk rates were higher, the negative effects of the pandemic may
have a prolonged impact on our business, financial condition, results of operations and forward-looking
expectations. Please refer to Item 7. Management's Discussion and Analysis - Business outlook for additional
information.
This outbreak adversely affected the Company by (i) reducing demand for its services because of reduced global or
national economic activity primarily during 2020 and (ii) negatively impacted our ability to perform crew changes
on our vessels. Although this disruption from COVID-19 may only be temporary, given the dynamic nature of these
circumstances, the duration of business disruption and the related financial impact cannot be reasonably estimated at
this time but could materially affect our business, results of operations and financial condition.
Acts of piracy on ocean-going vessels have had and may continue to have an adverse effect on 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, West Africa and in the Gulf of Aden off the coast of Somalia. Although the frequency of sea
piracy worldwide has decreased from 2014 to 2021, sea piracy incidents continue to occur in the Gulf of Guinea and
the West Coast of Africa, with drybulk vessels and tankers particularly vulnerable to such attacks. The Company
experienced two piracy incidents, one each in 2020 and 2021, on our vessels which were resolved peacefully and
47
without significant losses to the Company, and with no loss of life, or personal injury, to our crew members. If
piracy attacks continue to occur in regions that are characterized as “war risk” zones, or Joint War Committee “war
and strikes” listed areas, insurance premiums payable for such coverage could increase significantly and such
insurance coverage may be more difficult to obtain. In addition, crew costs and costs in relation to the employment
of onboard security guards, could increase in such circumstances. Furthermore, if our vessels were seized and
detained by pirates, while we believe the charterer remains liable for charter payments, the charterer may dispute this
and withhold charter hire 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 or hijacking as a result of an act of piracy against our vessels, or an increase
in cost, or unavailability, of insurance for our vessels, could have a material adverse impact on our business,
financial condition and results of operations.
If our vessels call on ports located in countries or territories that are subject to comprehensive sanctions imposed
by the UN, the United States, the EU or other relevant authorities, or if we are found to be in violation of
sanctions, there could be an adverse effect on our reputation, business position, financial condition or results of
operations, or the market for our common shares.
As a company maintaining its corporate office in the United States with offices in Denmark and Singapore, we are
subject to U.S. and EU economic sanctions and trade embargo laws and regulations as well as equivalent economic
sanctions laws of other relevant jurisdictions in connection with our activities. The laws and regulations of these
different jurisdictions vary in their application and do not all apply to the same covered persons or proscribe the
same activities. In addition, the sanctions and embargo laws and regulations of each jurisdiction may be amended to
increase or reduce the restrictions they impose over time, and the lists of persons and entities designated under these
laws and regulations are amended frequently. Moreover, most sanctions regimes provide that entities owned or
controlled by the persons or entities designated in such lists are also subject to sanctions. The U.S. and EU have
enacted new sanctions programs in recent years. Additional countries or territories, as well as additional persons or
entities within or affiliated with those countries or territories, have been, and in the future, the target of sanctions.
Further, the U.S. has increased its focus on sanctions enforcement with respect to the shipping sector.
As a result of Russian actions in Ukraine, the U.S., EU and United Kingdom, together with numerous other
countries, have imposed significant sanctions on persons and entities associated with Russia and Belarus, as well as
comprehensive sanctions on certain areas within the Donbas region of Ukraine, and such sanctions apply to entities
owned or controlled by such designated persons or entities. These sanctions adversely affect our ability to operate in
the region and also restrict parties whose cargo we may carry. Moreover, historically, the majority of our crew have
been hired through two crew manning agents, one Russian and the other Ukrainian. The officers and crew are
primarily Russian and Ukrainian. The evolving situation in Ukraine and the sanctions being imposed may adversely
affect our ability to hire and/or pay our crew for our vessels.
In recent years, multilateral international sanctions targeting Iran have restricted and/or prohibited us and our
charterers from engaging in Iran-related activities, including calling on ports in Iran. The United States continues to
maintain comprehensive sanctions on Iran that generally prohibit persons and companies in the United States, as
well as U.S. persons and persons owned or controlled by U.S. persons, wherever located, from engaging in nearly all
Iran-related activity. In addition, following the U.S. withdrawal from the Joint Comprehensive Plan of Action
("JCPOA"), the U.S. re-imposed all of its previously-lifted sanctions that target non-U.S. companies for engaging in
certain activities with Iran, including those related to Iran’s energy, shipping, shipbuilding, and insurance sectors,
and has issued additional sanctions targeting other sectors of the Iranian economy. On the other hand, the EU has
stayed in the JCPOA and maintained the lifting of nearly all of its sanctions targeting Iran, except for targeted asset
freezes and travel bans against certain Iranian individuals and entities and restrictions on activities related to the
military, nuclear proliferation and human rights abuses. The EU and Germany also have blocking rules in place
intended to protect the interests of EU persons against the extraterritorial application of U.S. sanctions against Iran
and Cuba.
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In November 2015, the Company filed a voluntary self-disclosure report regarding certain apparent violations of
U.S. sanctions regulations in the provision of shipping services for third party charterers with respect to the
transportation of cargo to or from Myanmar (formerly Burma), which occurred under a different senior operational
management team. In January 2020, the Company entered into a settlement agreement with OFAC in which the
Company agreed to make a one-time payment to the U.S. Department of the Treasury in the amount of $1.125
million and undertake certain compliance commitments in exchange for OFAC agreeing to release and forever
discharge the Company and its subsidiaries, without any finding of fault, from any and all civil liability in
connection with these apparent violations. The settlement does not constitute an admission of fault or wrongdoing
by the Company or any of its subsidiaries.
Sanctions and trade embargo laws and regulations are generally subject to strict liability. Although we intend to
maintain compliance with all applicable economic sanctions and trade embargo laws and regulations, there can be no
assurance that, notwithstanding our compliance safeguards, we will not be found in the future to have been in
violation, particularly as the sanctions and embargo laws and regulations are amended, the scope of certain laws and
regulations may be unclear, and the laws and regulations are subject to discretionary interpretations by regulators
that may change over time. Further, charterers or other counterparties may violate provisions in contracts with us, or
legal restrictions relating to sanctions. Any such violation might adversely affect our business, results of operations
or financial condition, including that any such violation could result in substantial fines or other civil and/or criminal
penalties that could be increased due to our prior settlement agreement with OFAC, and could severely impact our
ability to access U.S. capital markets and conduct our business. Additionally, our reputation and the market for our
securities may be adversely affected and /or some investors may decide to divest their interest, or not to invest, in the
Company if we engage in certain other activities in countries subject to sanctions, such as entering into permissible
charters or engaging in permissible operations with individuals or entities in or associated with those countries. The
determination by these investors and/or lenders not to invest in, or to divest from, our common shares may adversely
affect the price at which our common shares trade. Furthermore, detecting, investigating, and resolving actual or
alleged violations is expensive and can consume significant time and attention of our senior management.
Investor perception of the value of our common shares may be adversely affected by the consequences of war, the
effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
We are subject to international safety regulations and the failure to comply with these regulations may subject us
to increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or
detention in, certain ports.
The operation of our vessels is affected by the requirements set forth in the ISM Code. The ISM Code requires
shipowners, ship managers and bareboat charterers to develop and maintain an extensive “Safety Management
System” that includes the adoption of a safety and environmental protection policy setting forth instructions and
procedures for safe operation and describing procedures for dealing with emergencies. The failure of a shipowner or
bareboat charterer to comply with the ISM Code may subject it to increased liability, may invalidate existing
insurance or decrease available insurance coverage for the affected vessels and may result in a denial of access to, or
detention in, certain ports. Each of the vessels that has been delivered to us is ISM Code-certified and we expect that
each other vessel that we have agreed to purchase will be ISM Code-certified when delivered to us. However, if we
are subject to increased liability for non-compliance or if our insurance coverage is adversely impacted as a result of
non-compliance, it may negatively affect our ability to pay dividends, if any, in the future. If any of our vessels are
denied access to, or are detained in, certain ports, our revenues may be adversely impacted.
In addition, vessel classification societies also impose significant safety and other requirements on our vessels. In
complying with current and future environmental requirements, vessel-owners and operators may also incur
significant additional costs in meeting new maintenance and inspection requirements, in developing contingency
arrangements for potential spills and in obtaining insurance coverage. Government regulation of vessels, particularly
in the areas of safety and environmental requirements, can be expected to become stricter in the future and require us
to incur significant capital expenditures on our vessels to keep them in compliance.
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The operation of our vessels is also affected by other government regulation in the form of international
conventions, national, state and local laws and regulations in force in the jurisdictions in which the vessels operate,
as well as in the country or countries of their registration. Because such conventions, laws, and regulations are often
revised, we cannot predict the ultimate cost of complying with such conventions, laws and regulations or the impact
thereof on the resale prices or useful lives of our vessels. Additional conventions, laws and regulations may be
adopted which could limit our ability to do business or increase the cost of our doing business and which may
materially adversely affect our operations. We are required by various governmental and quasi-governmental
agencies to obtain certain permits, licenses, certificates, and financial assurances with respect to our operations.
Increased inspection procedures and tighter import and export controls could increase costs and disrupt our
business.
International shipping is subject to various security and customs inspection and related procedures in countries of
origin and destination and trans-shipment points. Inspection procedures may result in the seizure of contents of our
vessels, 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 results of operations.
Arrests of our vessels by maritime claimants could cause a significant loss of earnings for the related off-hire
period.
Crew members, suppliers of goods and services to a vessel, shippers of cargo 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 result in a significant loss of earnings for the related off-hire period. In addition,
in jurisdictions where the “sister ship” theory of liability applies, a claimant may arrest the vessel which is subject to
the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same
owner. In countries with “sister ship” liability laws, claims might be asserted against us or any of our vessels for
liabilities of other vessels that we own.
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;
•
•
•
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 not have insurance that is sufficient to cover these costs or losses and may have to pay drydocking costs not
covered by our insurance. 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 and reduce the amount of cash that we have available for
dividends. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are
conveniently located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced
50
to travel to a drydocking facility that is not conveniently located to our vessels’ positions. Any of these
circumstances or events could increase our costs or lower our revenues. The involvement of our vessels in an
environmental disaster may harm our reputation as a safe and reliable vessel owner and operator.
Our business has inherent operational risks, which may not be adequately covered by insurance.
The operation of our company has certain unique risks. With a drybulk carrier, the cargo itself and its interaction
with the vessel can be an operational risk. By their nature, drybulk cargoes are often heavy, dense, easily shifted, and
react badly to water exposure. In addition, drybulk 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 drybulk carriers may lead to the flooding of the vessels’
holds. If a drybulk 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 maintain our vessels, we may be unable to prevent these events. Any of these circumstances or events
could negatively impact our business, financial condition, results of operations and ability to pay dividends, if any,
in the future. In addition, the loss of any of our vessels could harm our reputation as a safe and reliable vessel owner
and operator.
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.
In the event of a casualty to a vessel or other catastrophic event, we will rely on our insurance to pay the insured
value of the vessel or the damages incurred. We procure insurance for the vessels in our fleet employed against those
risks that we believe the shipping industry commonly insures against. These insurances include marine hull and
machinery insurance, Protection and Indemnity Insurance, which include pollution risks and crew insurances, and
war risk insurance. Currently, the amount of coverage for liability for pollution, spillage and leakage available to us
on commercially reasonable terms through P&I Associations and providers of excess coverage is $1.0 billion per
vessel per occurrence.
We have procured hull and machinery insurance, Protection and Indemnity Insurance (including pollution
insurance), and war risk insurance for our fleet. We have also purchased insurance against loss of hire, which covers
business interruptions that result from the loss of use of a vessel. We may not be adequately insured against all risks.
We may not be able to obtain adequate insurance coverage for our fleet in the future, and we may not be able to
obtain certain insurance coverage, including insurance against charter party defaults, that we have obtained in the
past on terms that are acceptable to us or at all. The insurers may not pay particular claims. Our insurance policies
may contain deductibles for which we will be responsible and limitations and exclusions which may increase our
costs or lower our revenue. Moreover, insurers may default on claims they are required to pay.
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.
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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 unilateral 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.
Failure to comply with the FCPA or other applicable anti-corruption laws 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 FCPA. We are
subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees
and/or agents may take actions determined to be in violation of applicable anti-corruption laws, including the FCPA.
Any such violation might adversely affect our business, results of operations or financial condition. Further, any
such violation could severely impact our ability to access U.S. capital markets and conduct our business and could
result in some investors and/or lenders deciding, or being required, to divest their interest, or not to invest, in us or
lend to us. The determination by these investors and/or lenders not to invest in, or to divest from, our common
shares may adversely affect the price at which our common shares trade. Any such violation could also result in
substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and
might adversely affect our business, results of operations 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.
Cyber-attacks or other security breaches involving our computer systems or the systems of one or more of our
vendors could materially and adversely affect our business.
Our systems are vulnerable to cyber security risks, and we are subject to potential disruption caused by such
activities. Companies such as ours are subject to cyber-attacks on their systems. Such attacks may have various
goals, from seeking confidential information to causing operational disruption. Although to date such activities have
not resulted in material disruptions to our operations or, to our knowledge, a material breach of any security or
confidential information, no assurance can be provided that such disruptions or breach will not occur in the future.
Additionally, any significant violations of data privacy could result in the loss of business, litigation, regulatory
investigations, penalties, ongoing expenses related to client credit monitoring and support, and other expenses, any
of which could damage our reputation and adversely affect the growth of our business. While we have deployed
resources that are responsible for maintaining appropriate levels of cyber-security, and while we utilize third party
technology products and services to help identify, protect, and remediate our information technology systems and
infrastructure against security breaches and cyber-incidents, our responsive and precautionary measures may not be
adequate or effective to prevent, identify, or mitigate attacks by hackers, foreign governments, or other actors or
breaches caused by employee error, malfeasance, or other disruptions.
Financial Risk Factors
The state of the global financial markets may adversely impact our ability to obtain additional financing,
including the refinancing of our existing credit facility and bond terms, on acceptable terms, restricting us from
being able to operate or expand our business.
Global financial markets are volatile with access to debt and equity capital being potentially expensive or restrictive.
We cannot be certain that additional financing will be available if, and when, needed. We also cannot be certain that
52
we will be able to refinance our existing credit facility and bond terms, on acceptable terms or at all, prior to
maturity. If additional financing is not available when needed, or is available only on unfavorable terms, we may not
be able to meet our obligations as they come due, nor be able to grow our existing business through potential
acquisitions or similar opportunities as they arise. For more information on our debt facilities, see Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital
Resources and Note 6, Debt, to the consolidated financial statements.
If general economic conditions throughout the world deteriorate, including as a result of COVID-19, it will
impede our results of operations, financial condition and cash flows, and could impair our ability to access
capital markets at a reasonable cost.
If the economic conditions in the world deteriorate, it could have a material adverse effect on our ability to
implement our business strategy. We face risks attendant to changes in economic environments, changes in interest
rates, and instability in the banking and securities markets around the world, among other factors. Major market
disruptions such as those that occurred as a result of COVID-19 in 2020, and the adverse changes in market
conditions and regulatory climate in the United States and worldwide may adversely affect our business or impair
our ability to borrow amounts under our credit facility or any future financial arrangements and may cause the
trading price of our common shares on the Nasdaq Global Select Market to decline.
A significant number of the port calls made by our vessels involve the loading or discharging of raw materials and
semi-finished products in ports in the Asia Pacific region. As a result, a negative change in economic conditions in
any Asia Pacific country, and particularly in China and India, could have an adverse effect on our business, results
of operations, cash flows, financial condition and ability to pay dividends. In particular, in recent years, China has
been one of the world’s fastest growing economies in terms of gross domestic product. China’s gross domestic
product grew by 8.1% in 2021, as compared to 2.3% in 2020. We cannot assure you that the Chinese economy will
not experience a significant contraction in the future. The ongoing trade dispute between the United States and
China may have an adverse effect on the Chinese economy, including on industrial production and exports. If the
Chinese government does not continue to pursue a policy of economic growth and urbanization, the level of imports
to and exports from China could be adversely affected by changes to these initiatives by the Chinese government, as
well as by changes in political, economic and social conditions or other relevant policies of the Chinese government,
such as changes in laws, regulations or export and import restrictions. Notwithstanding economic reform, the
Chinese government may adopt policies that favor domestic drybulk shipping companies and may hinder our ability
to compete with them effectively. Moreover, a significant or protracted slowdown in the economies of the United
States, the EU or various Asian countries may adversely affect economic growth in China and elsewhere. Our
business, results of operations, cash flows, financial condition and ability to pay dividends will likely be materially
and adversely affected by an economic downturn in any of these countries.
We have substantial indebtedness, and if we default under our loan agreements, our lenders may act to accelerate
our outstanding indebtedness under our credit facility, which would impact our ability to continue to conduct our
business.
At December 31, 2021, the Company’s debt excluding debt issuance costs totaled $401.7 million of which $49.8
million is shown in the current portion of long-term debt.
As described under Note 6, Debt, to the consolidated financial statements, the obligations under these agreements
are secured by collateral, contain a number of operating restrictions, covenants and events of default, and a breach of
any of the covenants could result in an event of default under one or more of these agreements, including as a result
of cross default provisions.
53
The failure of our charterers to meet their obligations under our charter agreements, on which we depend for
substantially all of our revenues, could cause us to suffer losses or otherwise adversely affect our business and
ability to comply with covenants in our credit facility.
The ability and willingness of each of our counterparties to perform its obligations will depend on a number of
factors that are beyond our control and may include, among other things, general economic conditions, the condition
of the drybulk shipping industry and the overall financial condition of the counterparties. Charterers are sensitive to
the commodity markets and may be impacted by market forces affecting commodities, such as iron ore, coal, grain,
and other minor bulks. In addition, in depressed market conditions, there have been reports of charterers, including
some of our charter counterparties, defaulting on their obligations under charters, and our customers may fail to pay
charter hire. Should a counterparty fail to honor its obligations under its charter with us, it may be difficult to secure
substitute employment for such vessel at a similar charter rate. If our charterers fail to meet their obligations to us or
attempt to renegotiate our charter agreements, we could sustain significant losses which could have a material
adverse effect on our business, financial condition, results of operations and cash flows, if any, in the future, and
compliance with covenants in our credit facility.
Utilizing derivative instruments, such as forward freight, bunker and interest rate swap agreements, could result
in losses.
From time to time, we may take positions in derivative instruments, including FFAs, interest rate swaps and bunker
swaps. 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. We
recorded a net realized and unrealized loss of $38.2 million on FFAs and bunker swaps which was recorded in
Realized and unrealized loss/(gain) on derivative instruments, net in the Consolidated Statement of Operations for
the year ended December 31, 2021.
In addition, we entered into, and in the future may enter into additional, interest rate swaps to effectively convert a
portion of our debt from a floating to a fixed-rate basis. Under these swap contracts, exclusive of applicable margins,
we pay fixed rate interest and receive floating-rate interest amounts based on three-month LIBOR settings. If our
hedging strategies are not effective, we may incur substantial losses if interest rates move materially differently from
our expectations. In addition, our financial condition could be materially adversely affected to the extent we do not
hedge our exposure to interest rate fluctuations under our financing arrangements.
Any hedging activities we engage in may not effectively manage exposure or have the desired impact on our
financial conditions, results of operations or cash flows.
Our revolver facility under the Global Ultraco Debt Facility exposes us to interest rate risk.
Although the interest on our outstanding term loan under the Global Ultraco Debt Facility is fixed by an interest rate
swaps, our earnings are exposed to interest rate risk associated with the revolver facility under Global Ultraco Debt
Facility, which is undrawn as of December 31, 2021, and bears interest at the London Interbank Offered Rate
(“LIBOR”) plus 2.50% per annum. LIBOR tends to fluctuate based on multiple facts, including general short-term
interest rates, rates set by the U.S. Federal Reserve and other central banks, the supply of and demand for credit in
the London interbank market and general economic conditions. Accordingly, our interest expense for any particular
period will fluctuate based on LIBOR. If interest rates increase, so will our interest costs, which may have a material
adverse effect on our results of operations and financial condition.
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Changes in our interest rates under our credit facility and our interest rate swaps due to the phase-out of LIBOR
may adversely affect our interest expense.
LIBOR is the basic rate of interest used in lending between banks on the London interbank market and is widely
used as a reference for setting the interest rates on loans globally. We generally use LIBOR as a reference rate to
calculate interest rates under our credit facility. In 2017, the United Kingdom’s Financial Conduct Authority
("FCA"), which regulates LIBOR, announced that it intended to phase out LIBOR by the end of 2021. Subsequently,
the administrator of LIBOR announced its plan to cease publication of certain LIBOR rates after June 30, 2023. The
U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee
comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index, the
Secured Overnight Financing Rate (“SOFR”), calculated using short-term repurchase agreements backed by
Treasury securities. SOFR is observed and backward looking, unlike LIBOR under the current methodology, which
is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel
members. Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into
account bank credit risk (as is the case with LIBOR). SOFR also may be more volatile than LIBOR. Whether or not
SOFR, or another alternative reference rate, attains market traction as a LIBOR replacement tool remains in
question. Although we expect that the capital and debt markets will cease to use LIBOR as a benchmark in the near
future, and the administrator of LIBOR announced its intention to extend the publication of most tenors of LIBOR
for U.S. dollars through June 30, 2023, we cannot predict whether or when LIBOR will actually cease to be
available, whether SOFR will become the market benchmark in its place or what impacts such a transition may have
on our business, financial condition and results of operations. Ultraco and the facility agent may amend the Global
Ultraco Debt Facility to replace LIBOR with an alternate benchmark rate (including any mathematical or other
adjustments to the benchmark (if any) incorporated therein, a “LIBOR Successor Rate”). We may also need to
amend our interest rate swaps and any credit facilities to replace LIBOR with an agreed upon replacement index.
This could cause certain of the interest rates under our credit facility and interest rate swaps to change. The new rates
may not be as favorable to us as those in effect prior to any LIBOR phase-out. We may also find it desirable to
engage in more frequent interest rate hedging transactions.
Company Specific Risk Factors
We are dependent on spot charters and any decrease in spot charter rates in the future may adversely affect our
earnings, our ability to pay dividends or meet our financial covenants on our indebtedness.
As of December 31, 2021, we owned a fleet of 53 vessels which are employed for less than one year exposing us to
fluctuations in spot market charter rates. Historically, the drybulk market has been volatile as a result of the many
conditions and factors that can affect the price, supply and demand for drybulk capacity. A global economic crisis
may reduce demand for transportation of drybulk cargoes, which may materially affect our revenues, profitability
and cash flows. The spot charter market may fluctuate significantly based upon supply of and demand for vessels
and cargoes. The successful operation of our vessels in the competitive spot charter market depends upon, among
other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters
and time spent traveling unladen to pick up cargo. The spot market is very volatile, and, in the past, there have been
periods when spot rates have declined below the operating cost of vessels. If future spot charter rates decline, then
we may be unable to operate our vessels trading in the spot market profitably, meet our obligations, including
payments on indebtedness, or to pay dividends, if any, in the future. Furthermore, as charter rates for spot charters
are fixed for a single voyage, which may last up to several weeks, during periods in which spot charter rates are
rising, we will generally experience delays in realizing the benefits from such increases.
The laws of the Marshall Islands generally prohibit 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 and our subsidiaries may not have sufficient funds or surplus to make
distributions to us. We can give no assurance that dividends will be paid at all.
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In addition, the declaration and payment of dividends, if any, will always be subject to the discretion of the board of
directors, restrictions contained in our existing debt agreements and the requirements of Marshall Islands law. The
timing and amount of any dividends declared will depend on, among other things, the Company's earnings, financial
condition and cash requirements and availability, the ability to obtain debt and equity financing on acceptable terms
as contemplated by the Company's growth strategy, the terms of its outstanding indebtedness and the ability of the
Company's subsidiaries to distribute funds to it. During 2021, the Company adopted a dividend policy which allows
for a minimum dividend of 30% of its net income, but not less than $0.10 per share, subject to approval from its
board of directors. Pursuant to the adoption, the Company declared a dividend of $2.00 per outstanding share of
common stock based on its net income of $78.3 million for the three months ended September 30, 2021.
Additionally, on February 22, 2022, the Company declared a dividend of $2.05 per outstanding share of common
stock, based on net income of $87.5 million for the three months ended December 31, 2021. Please see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations — Dividends.
We may have difficulty managing our planned growth properly and integrating newly acquired vessels.
The management of the 53 vessels in our owned fleet, as of December 31, 2021, and additional drybulk vessels that
we may acquire in the future impose significant responsibilities on our management and staff. The addition of
vessels to our fleet may require us to increase the number of our personnel. Further, we are providing technical
management services to all of our vessels in our fleet. We will also have to manage our customer base so that we can
provide continued employment for our vessels upon the expiration of our existing charters.
We intend to continue to grow our business. Our future growth will primarily depend on:
locating and acquiring suitable vessels;
obtaining required financing on acceptable terms;
identifying and consummating acquisitions or joint ventures;
enhancing our customer base; and
•
•
•
•
• managing our expansion.
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.
Purchasing and operating secondhand vessels may result in increased operating costs and reduced fleet
utilization.
While we have the right to inspect previously owned vessels prior to purchase, such an inspection does 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 dry dock, which would reduce our fleet utilization. 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 have entered into and may enter into in the future, among other things, charter agreements with our customers.
Such agreements subject us to counter party risks. The ability 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 condition of the maritime industry, the overall financial condition of
the counterparty, charter rates received for specific types of vessels, the supply and demand for commodities such as
56
iron ore, coal, grain, and other minor bulks and various expenses. Should a counter party 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.
The loss of one or more of our significant customers may affect our financial performance.
Some of our charterers are privately owned companies for which limited credit and financial information was
available to us in making our assessment of counter party risk when we entered into our charter. In addition, the
ability of each of our charterers to perform its obligations under a charter will depend on a number of factors that are
beyond our control. These factors may include general economic conditions, the condition of the drybulk shipping
industry, the charter rates received for specific types of vessels and various operating expenses. If one or more of
these charterers terminates its charter or chooses not to re-charter our vessel or is unable to perform under its charter
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, results of operations and cash available for distribution as dividends to our
shareholders. In addition, we may be required to change the flagging or registration of the related vessel and may
incur additional costs, including maintenance and crew costs if a charterer were to default on its obligations. Our
shareholders do not have any recourse against our charterers. For the years ended December 31, 2021, 2020 and
2019, the Company had no charterers which individually accounted for more than 10% of the Company's gross
charter revenue.
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.
Our vessels are employed 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 drybulk 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 could enter the drybulk 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 drybulk shipping companies, our results of
operations would 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. Our success will
depend upon our ability to retain key members of our management team and to hire new members as may be
desirable. 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 maintain "key man"
life insurance on any of our officers.
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.
Although the weighted average age of the 53 drybulk vessels in our owned fleet as of December 31, 2021 was
approximately 9.3 years, as our fleet ages, we will incur increased costs. Older vessels are typically less fuel
efficient and more expensive 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.
57
Technological innovation could reduce our charter hire income and the value of our vessels.
The charter hire rates and the value and operational life of a vessel are determined by a number of factors including
the vessel's efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the
ability to load and discharge cargo quickly. Flexibility includes the ability to enter harbors, utilize related docking
facilities and pass through canals and straits. The length of a vessel's physical life is related to its original design and
construction, its maintenance and the impact of the stress of operations. If new drybulk carriers are built that are
more efficient or more flexible or have longer physical lives than our vessels, competition from these more
technologically advanced vessels could adversely affect the amount of charter hire payments we receive for our
vessels once their initial charters expire and the resale value of our vessels could significantly decrease. As a result,
our business, results of operations, cash flows and financial condition could be adversely affected.
We may be subject to litigation that, if not resolved in our favor and not sufficiently insured against, could have a
material adverse effect on us.
We may be, from time to time, involved in various litigation matters. These matters may include, among other
things, contract disputes, personal injury claims, environmental claims or proceedings, asbestos and other toxic tort
claims, employment matters, governmental claims for taxes or duties, and other litigation that arises in the ordinary
course of our business. Although we intend to defend these matters vigorously, we cannot predict with certainty the
outcome or effect of any claim or other litigation matter, and the ultimate outcome of any litigation or the potential
costs to resolve them may have a material adverse effect on us. Insurance may not be applicable or sufficient in all
cases and/or insurers may not remain solvent which may have a material adverse effect on our financial condition.
We may have to pay tax on United States source income, which will reduce our earnings.
Under the United States 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
United States source shipping income and such income is subject to a 4% United States federal income tax without
allowance for any deductions, unless that corporation qualifies for exemption from tax under Section 883 of the
Code and the Treasury regulations promulgated thereunder.
We believe that we qualify for this statutory tax exemption for our 2021 taxable year and we intend to 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 and thereby become subject to U.S. federal
income tax on our U.S. source income. Therefore, we can give no assurances on our tax-exempt status. If we are not
entitled to exemption under Section 883 of the Code for any taxable year, we could be subject for those years to an
effective 2% U.S. federal income tax on the gross shipping income we derive during the year that are attributable to
the transport of cargoes to or from the United States. The imposition of this tax would have a negative effect on our
business and would result in decreased earnings and cash available to pay amounts due on the note or for
distribution to our shareholders. For more information, see Item 1. Business - United States Federal Income
Taxation of Our Company.
United States tax authorities could treat us as a "passive foreign investment company," which could have adverse
United States federal income tax consequences to United States holders.
A foreign corporation will be treated as a "passive foreign investment company," or PFIC, for United States 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, and 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."
58
United States shareholders of a PFIC are subject to a disadvantageous United States 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 method of operation, we do not believe that we have been, are or 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
and voyage chartering activities as services income, rather than rental income. Accordingly, we believe that our
income from our time and voyage 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 passive assets.
There is, however, no direct legal authority under the PFIC rules addressing our method of operation and there is
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 our 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 there were to be changes in the nature and extent of our
operations.
If the IRS were to find that we are or have been a PFIC for any taxable year, our United States shareholders may
face adverse United States tax consequences and information reporting obligations. Under the PFIC rules, unless
those shareholders made an election available under the Code (which election could itself have adverse
consequences for such shareholders), such shareholders would be liable to pay United States federal income tax
upon excess distributions and upon any gain from the disposition of our common stock at the then prevailing income
tax rates applicable to ordinary income plus interest as if the excess distribution or gain had been recognized ratably
over the shareholder’s holding period of our common stock.
We may be subject to additional taxes, including as a result of challenges by tax authorities or changes in
applicable law, which could adversely impact our business and financial results.
We are subject to tax in certain jurisdictions in which we are organized, own assets or have operations. In computing
our tax obligations in these jurisdictions, we are required to take various tax accounting and reporting positions on
matters that are not entirely free from doubt and for which we have not received rulings from the governing
authorities. We cannot assure you that, upon review of these positions, the applicable authorities will agree with our
positions. A successful challenge by a tax authority, or a change in applicable law, could result in additional tax
imposed on us, which could adversely impact our business and financial results.
We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to
satisfy certain of our financial obligations and to make dividend payments.
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 and to make dividend payments in the future depends on our subsidiaries and their ability to
distribute funds to us. If we are unable to obtain funds from our subsidiaries, our board of directors may exercise its
discretion not to declare or pay dividends. We do not intend to obtain funds from other sources to pay dividends.
As we expand our business, 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 continue to expand the size of our fleet in the
future and our attempts to improve those systems may be ineffective. In addition, if we further expand our fleet, we
will need to recruit suitable additional seafarers and shore side administrative and management personnel. We
cannot guarantee that we will be able to hire suitable employees as we expand our fleet. If we or our crewing agent
encounters 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 as we expand our fleet, our financial
59
performance may be adversely affected and, among other things, the amount of cash available for distribution as
dividends to our shareholders may be reduced.
We conduct business in China, where the legal system has inherent uncertainties that could limit the legal
protections available to us.
Some of our vessels may be chartered to Chinese customers or from time to time on our charterers’ instructions, our
vessels may call on Chinese ports. Such charters and any additional charters that we enter into may be subject to
new 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. Changes in laws and regulations,
including with regards to tax matters, and their implementation by local authorities could affect our vessels 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.
The conflict between Russia and Ukraine may impact our ability to retain and source crew, and in turn, could
adversely affect our revenue, expenses, and profitability.
We have relationships with Ukrainian and Russian manning agencies which procure our crews. The invasion of
Ukraine by Russia may impact our ability to continue to source and retain crew from these countries. Continued
hostilities and the implementation of sanctions may reduce, or eliminate, the pool of available crew from these
countries, and in turn, result in delays and lost earnings for our vessels. We have relationships with manning
agencies in areas outside of Ukraine and Russia, including in Asia. If we are not able to source Ukrainian and
Russian crews in the future, we may experience delays and loss of earnings for our vessels until replacement crews
are employed. We may incur additional travel expenses to repatriate the Russian and Ukrainian crew members on
board our vessels, as well as their replacements sourced from other regions. Global crew wages may rise if the
available supply of Russian and Ukrainian crew is diminished, as we will be competing with other shipowners to
employ crew from other regions.
Risks Relating to Our Common Stock
We are incorporated in the Marshall Islands, which does not have a well-developed body of corporate law.
Our corporate affairs are governed by our Third Amended and Restated Articles of Incorporation (the “Charter”) and
Second Amended and Restated By-laws (the “Bylaws”) and by the Marshall Islands Business Corporations Act (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 companies incorporated in 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 United States 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 United States jurisdiction which has developed a
relatively more substantial body of case law.
The market price of our common shares has fluctuated and may continue to fluctuate in the future.
The market price of our common shares has fluctuated since we became a public company and may continue to do
so as a result of many factors, including our actual results of operations and perceived prospects, the prospects of our
competition and of the shipping industry in general and in particular the drybulk sector, differences between our
actual financial and operating results and those expected by investors and analysts, changes in analysts’
60
recommendations or projections, changes in general valuations for companies in the shipping industry, particularly
the drybulk sector, changes in general economic or market conditions and broad market fluctuations.
The public market for our common shares may not be active and liquid enough for you to resell our common
shares in the future.
The stock market has experienced extreme price and volume fluctuations. If the volatility in the market continues or
worsens, it could continue to have an adverse effect on the market price of our common shares and could impact a
potential sale price if holders of our common stock decide to resell their shares.
The seaborne transportation industry has been highly unpredictable and volatile. The market for common shares in
this industry may also be volatile. The market price of our common shares may be influenced by many factors, many
of which are beyond our control, including:
•
actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in
our industry;
announcements by us or our competitors of significant contracts, acquisitions or capital commitments;
terrorist acts;
future sales of our common shares or other securities;
•
• mergers and strategic alliances in the shipping industry;
•
•
• market conditions in the shipping industry;
•
•
•
•
•
economic and regulatory trends;
shortfalls in our operating results from levels forecast by securities analysts;
announcements concerning us or our competitors;
the general state of the securities market; and
investors’ perception of us and the drybulk shipping industry.
As a result of these and other factors, investors in our common stock may not be able to resell their shares at or
above the price they paid for such shares. These broad market and industry factors may materially reduce the market
price of our common shares, regardless of our operating performance.
Certain shareholders own large portions of our outstanding common stock, which may limit other shareholders'
ability to influence our actions.
Certain shareholders currently hold significant percentages of our common stock. To the extent a significant
percentage of the ownership of our common stock is concentrated in a small number of holders, such holders will be
able to influence the outcome of any shareholder vote, including the election of directors, the adoption or
amendment of provisions in our articles of incorporation or by-laws and possible mergers, corporate control contests
and other significant corporate transactions. This concentration of ownership may have the effect of delaying,
deferring or preventing a change in control, merger, consolidation, takeover or other business combination involving
us. This concentration of ownership could also discourage a potential acquirer from making a tender offer or
otherwise attempting to obtain control of us, which could in turn have an adverse effect on the market price of our
common stock.
The effect of the sale of any borrowed shares, which sales, if any, may be made to facilitate transactions by which
investors in our Convertible Bond Debt may hedge their investments, may be to lower the market price of our
common stock.
We have been advised that certain selling shareholders may sell borrowed shares (including under this prospectus)
and use the resulting short position to establish or maintain their hedge with respect to their investments in our
Convertible Bond Debt. The existence of the share lending arrangements and the short sales of our common stock
effected in connection therewith could cause the market price of our common stock to be lower over the term of the
share lending arrangements than it would have been had we not entered into such arrangements, due to the effect of
the increase in the number of our outstanding shares of common stock being traded in the market or otherwise.
61
Future sales, or availability for sale, of common stock by shareholders could depress the market price of our
common stock.
Sales of a substantial number of shares of our common stock in the public market, including sales by any selling
shareholder or sales pursuant to our ATM Offering, or the perception that large sales could occur could depress the
market price of our common stock. Such future sales, or perception thereof, could also impact our ability to raise
capital through future offerings of equity or equity-linked securities. During 2021, we issued 541,898 shares in
relation to acquisition of four vessels. From time to time, we may issue additional shares in connection with the
acquisition of vessels. As of March 9, 2022, we had 13,633,263 shares of common stock issued and outstanding.
To the extent we issue common stock upon conversion of our Convertible Bond Debt, the conversion of some or all
of the Convertible Bond Debt will dilute the ownership interests of existing stockholders. If we elect to deliver
shares to holders of our Convertible Bond Debt with respect to the principal amount owed at maturity or upon the
holder's exercise of the conversion option prior to maturity, the ownership interests of existing stockholders would
be diluted. Any sales in the public market of common stock so issued could adversely affect prevailing market prices
of our common stock. In addition, the existence of our Convertible Bond Debt may encourage short selling by
market participants because the conversion of our Convertible Bond Debt could depress the price of our common
stock.
Our shareholders are limited in their ability to elect or remove directors.
The Charter prohibits cumulative voting in the election of directors. The Bylaws require parties other than the board
of directors to give advance written notice of nominations for the election of directors. The Charter also provides
that directors may only be removed for cause upon the affirmative vote of a majority of the outstanding shares of
capital stock entitled to vote for the election of directors. Newly created directorships resulting from an increase in
the number of directors and vacancies occurring in the board of directors for any reason may only be filled by a
majority of the directors then in office, even if less than a quorum exists.
Our shareholders may take action only at Annual or Special Meetings.
The Charter and the Bylaws provide that any action required or permitted to be taken by shareholders must be
effected at a duly called annual or special meeting of shareholders. Except as otherwise mandated by law,
shareholders may not act by written consent.
Under the Bylaws, annual shareholder meetings will be held at a time and place selected by the board of directors.
The meetings may be held in or outside of the Marshall Islands. These provisions may impede shareholders’ ability
to take actions with respect to the Company that they deem appropriate or advisable.
The Charter and the Bylaws provide that, except as otherwise required by law, special meetings of shareholders may
be called at any time only by (i) the lead director (if any), (ii) the chairman of the board of directors, (iii) the board
of directors pursuant to a resolution duly adopted by a majority of the board stating the purpose or purposes thereof,
or (iv) any one or more shareholders who beneficially owns, in the aggregate, 15% or more of the aggregate voting
power of all then-outstanding shares of Voting Stock. The notice of any such special meeting is to include the
purpose or purposes thereof, and the business transacted at the special meeting is limited to the purpose or purposes
stated in the notice (or any supplement thereto). These provisions may impede the ability of shareholders to bring
matters before a special meeting of shareholders.
The board of directors may set a record date between 15 and 60 days before the date of any meeting to determine the
shareholders that will be eligible to receive notice and vote at the meeting.
62
Our shareholders are subject to advance notice requirements for shareholder proposals and director nominations
The Bylaws provide that shareholders seeking to nominate candidates for election as directors or to bring business
before an annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate
secretary. To be timely, a shareholder's notice will have to be received at the Company’s principal executive offices
not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual
meeting of shareholders; provided, however, that in the event that the annual meeting is called for a date that is not
within 30 days before or after such anniversary date, such as is the case for the 2019 annual meeting, notice by the
shareholder must be received not later than the close of business on the tenth day following the day on which such
notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made,
whichever occurs first, in order for such notice by a shareholder to be timely. The Bylaws also specify requirements
as to the form and content of a shareholder's notice. These advance notice requirements, particularly the 60 to 90 day
requirement, may impede shareholders' ability to bring matters before an annual meeting of shareholders or make
nominations for directors at an annual meeting of shareholders.
Certain super majority provisions in our organizational documents may discourage, delay or prevent changes to
such documents.
The Charter provides that a two-thirds vote is required to amend or repeal certain provisions of the Charter and
Bylaws, including those provisions relating to: the number and election of directors; filling of board vacancies;
resignations and removals of directors; director liability and indemnification of directors; the power of shareholders
to call special meetings; advance notice of director nominations and shareholders proposals; and amendments to the
Charter and Bylaws. These super majority provisions may discourage, delay or prevent changes to the Charter or
Bylaws.
Our Third Amended and Restated Articles of Incorporation provide that the U.S. federal courts located in the
Southern District of New York or, if such courts lack jurisdiction, the state courts of the State of New York, shall
be the sole and exclusive forum for certain disputes between us and our shareholders, which could limit our
shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or
employees.
Our Third Amended and Restated Articles of Incorporation, or our Articles of Incorporation, provide that, unless the
Company consents in writing to the selection of an alternative forum, the U.S. federal courts located in the Southern
District of New York or, if such court lacks jurisdiction, the state courts of the State of New York, shall be the sole
and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Company, (b)any action
asserting a claim of a breach of a fiduciary duty owed by any director, officer or other employee of the Company to
the Company or the Company’s shareholders, (c) any action asserting a claim arising pursuant to any provision of
the BCA or (d) any action asserting a claim governed by the internal affairs doctrine. This forum selection provision
could apply to actions brought under provisions of the federal securities laws, including the Securities Act and
Exchange Act. The forum selection provision may limit a shareholder’s ability to bring a claim in a judicial forum
that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage
lawsuits with respect to such claims.
The Company may not achieve the intended benefits of having a forum selection provision if it is found to be
unenforceable.
Our Articles of Incorporation include a forum selection provision as described above. However, the enforceability of
similar forum selection provisions in other companies’ governing documents has been challenged in legal
proceedings, and it is possible that in connection with any action a court could find the forum selection provision
contained in our Articles of Incorporation to be inapplicable or unenforceable in such action. If a court were to find
the forum selection provision to be inapplicable to, or unenforceable in respect of, one or more of the specified types
of actions or proceedings, the Company may incur additional costs associated with resolving such action in other
jurisdictions, which could adversely affect our business, financial condition and results of operations.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We do not own any real property. We lease office space at 300 First Stamford Place, Stamford CT 06902. In
addition, we lease offices in Singapore and Copenhagen, Denmark. Our interests in our drybulk vessels are our only
material properties. See Item 1. Business — Our Fleet.
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ITEM 3. LEGAL PROCEEDINGS
See Note 9, Commitments and Contingencies, to the Company’s consolidated financial statements set forth in
Item 8. Financial Statements and Supplementary Data of this Form 10-K, for information regarding legal
proceedings in which we are involved.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
65
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
The trading market for shares of our common stock is the Nasdaq Global Select Market, on which our shares are
quoted under the symbol "EGLE.”
On March 9, 2022, the closing sale price of our common stock, as reported on the Nasdaq Global Select Market, was
$63.32 per share.
The number of shareholders of record of our common stock was approximately 112 on March 9, 2022.
Payment of Dividends to Shareholders
During 2021, the Company adopted a dividend policy which allows for a minimum dividend of 30% of its net
income, but not less than $0.10 per share, subject to approval from its board of directors. During the year ended
December 31, 2021, a quarterly cash dividend for the third quarter of 2021 of $2.00 per share was declared and paid
on November 24, 2021 to the shareholders of record as of November 15, 2021. On February 22, 2022, a quarterly
cash dividend for the fourth quarter of 2021 of $2.05 per share was declared and is to be paid on March 25, 2022 to
the shareholders of record as of March 15, 2022. We expect to continue paying cash dividends on a quarterly basis;
however, in the future, the declaration and payment of dividends, if any, will always be subject to the discretion of
the board of directors, restrictions contained in the Company’s debt facilities, and the requirements of Marshall
Islands law. The timing and amount of any dividends declared will depend on, among other things, the Company's
earnings, financial condition and cash requirements and availability, the ability to obtain debt and equity financing
on acceptable terms as contemplated by the Company's growth strategy, the terms of its outstanding indebtedness
and the ability of the Company's subsidiaries to distribute funds to it. See also Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations—Dividends.
Equity Compensation Plan Information
On December 15, 2016, the Company adopted the 2016 Equity Incentive Plan (the “2016 Plan”), which replaced the
prior Management Incentive Program (the "2014 Plan"). Under the terms of the 2016 Plan, a maximum of 764,087
shares may be issued. Any director, officer, employee or consultant of the Company or any of its subsidiaries
(including any prospective officer or employee) is eligible to be designated to participate in the 2016 Plan. On
June 7, 2019, the Company's shareholders approved an amendment and restatement of the 2016 Plan, which
increased the number of shares reserved under the 2016 Plan by an additional 357,142 shares to a maximum of
1,121,229 shares of common stock.
The following table sets forth certain information as of December 31, 2021 regarding the 2016 Plan. The 2016 Plan
was approved by our shareholders on December 15, 2016.
Plan Category
Equity compensation plans approved by security holders
Securities to be
issued upon
exercise of
outstanding
options, warrants
and rights (1)
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
Remaining
securities for
future issuance
under equity
compensation
plans (1)
47,568 $
38.60
191,013
66
(1) The sum, combined with 882,648 restricted shares issued consists of 1,121,229 shares eligible to be granted under
the 2016 Plan.
67
ITEM 6. RESERVED
68
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our consolidated financial statements and related notes set forth in Item 8. Financial Statements
and Supplementary Data and the risk factors identified in Item 1A. Risk Factors of this Annual Report. For further
discussion regarding our results of operations for the year ended December 31, 2020 as compared to the year ended
December 31, 2019, refer to Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
General Overview
Eagle Bulk Shipping Inc. (“Eagle” or the “Company”) is a U.S. based fully integrated shipowner-operator providing
global transportation solutions to a diverse group of customers including miners, producers, traders, and end users.
Headquartered in Stamford, Connecticut, with offices in Singapore and Copenhagen, Eagle focuses exclusively on
the versatile mid-size drybulk vessel segment and owns one of the largest fleets of Supramax/ Ultramax vessels in
the world. The Company performs all management services in-house such as strategic, commercial, operational,
technical, and administrative services and employs an active management approach to fleet trading with the
objective of optimizing revenue performance and maximizing earnings on a risk-managed basis. Typical cargoes we
transport include both major bulk cargoes, such as iron ore, coal and grain coal, grain, and iron ore, and minor bulk
cargoes such as fertilizer, steel products, petcoke, cement, and forest products. As of December 31, 2021, we owned
and operated a modern fleet of 53 Supramax/Ultramax drybulk vessels. We chartered-in four Ultramax vessels on a
long term basis with a remaining lease term of less than one year. In addition, the Company charters-in third-party
vessels on a short to medium term basis.
Our owned fleet totals 53 vessels, with an aggregate carrying capacity of 3.19 million dwt and had an average age of
9.3 years as of December 31, 2021.
Financing
In March 2021, the Company entered into an at market issuance sales agreement with B. Riley Securities, Inc.,
BTIG, LLC and Fearnley Securities, Inc., as sales agents (each, a “Sales Agent” and collectively, the “Sales
Agents”), to sell shares of common stock, par value $0.01 per share, of the Company with aggregate gross sales
proceeds of up to $50.0 million, from time to time through an “at-the-market” offering program (the “ATM
Offering”). During the second quarter of 2021, the Company sold and issued an aggregate of 581,385 shares at a
weighted-average sales price of $47.97 per share under the ATM Offering for aggregate net proceeds of $27.1
million after deducting sales agent commissions and other offering costs. The proceeds were used for partial
financing of vessel acquisitions and other corporate purposes.
On March 26, 2021, Eagle Bulk Holdco LLC (“Holdco”), a wholly-owned subsidiary of the Company entered into a
Credit Agreement ("Holdco Revolving Credit Facility”) made by and among (i) Holdco, as borrower, (ii) the
Company and certain wholly-owned vessel-owning subsidiaries of Holdco, as joint and several guarantors, (iii) the
banks and financial institutions named therein as lenders (together with their successors and assigns, the “RCF
Lenders”), (iv) Crédit Agricole Corporate and Investment Bank and Nordea Bank ABP, New York Branch, as
mandated lead arrangers, (v) Crédit Agricole Corporate and Investment Bank, as arranger, facility agent and security
trustee for the RCF Lenders. Pursuant to the Holdco Revolving Credit Facility, the RCF lenders agreed to make
available an aggregate principal amount of up to the lesser of (a) $35,000,000 and (b) 65% of the Fair Market Value
of the Initial Vessels (as defined below). Borrowings under the Holdco Revolving Credit Facility, which were repaid
in full on October 1, 2021, bore interest at a rate of 2.4% plus LIBOR for the relevant interest period.
On October 1, 2021, Eagle Bulk Ultraco LLC (“Eagle Ultraco”), a wholly-owned subsidiary of the Company, along
with certain of its vessel-owning subsidiaries, as guarantors, entered into a new senior secured credit facility (the
“Global Ultraco Debt Facility”) with the lenders party thereto (the “Global Ultraco Lenders”) Credit Agricole
Corporate and Investment Bank (“Credit Agricole”), Skandinaviska Enskilda Banken AB (PUBL), Danish Ship
69
Finance A/S, Nordea Bank ABP, Filial I Norge, DNB Markets Inc., Deutsche Bank AG, and ING Bank N.V.,
London Branch. The Global Ultraco Debt Facility provides for an aggregate principal amount of $400.0 million,
which consists of (i) a term loan facility in an aggregate principal amount of $300.0 million (the “Global Ultraco
Term Facility”) and (ii) a revolving credit facility in an aggregate principal amount of $100.0 million (the “Global
Ultraco Revolving Facility”) to be used for refinancing the outstanding debt including accrued interest and
commitment fees under the Norwegian Bond Debt and the New Ultraco Debt Facility and Holdco Revolving Credit
Facility ("Previous Debt Facilities") and for general corporate purposes. The Company paid fees of $5.8 million to
the lenders in connection with the transaction and incurred an additional $0.4 million as third party legal costs.
Pursuant to the Global Ultraco Debt Facility, the Company borrowed $350.0 million and together with cash on hand
repaid the outstanding debt, accrued interest and commitment fees under the Previous Debt Facilities. Concurrently,
the Company issued a ten day call notice to redeem the outstanding bonds under the Norwegian Bond Debt at a
redemption price of 102.475% of the nominal amount of each bond. Pursuant to the bond terms, the Company paid
$185.6 million consisting of $176.0 million par value of the outstanding bonds, accrued interest of $5.2 million and
$4.4 million of a call premium into a defeasance account to be further credited to the bondholders upon expiry of the
notice period. The bonds outstanding under the Norwegian Bond Debt were repaid in full on October 18, 2021 after
the expiry of the requisite notice period. Additionally, the Company entered into four interest rate swaps for the
notional amount of $300.0 million of the term loan under the Global Ultraco Debt Facility at a fixed interest rate
ranging between 0.83% and 1.06% to hedge the LIBOR based floating interest rate.
The following are certain significant events with respect to our vessels that occurred during 2021:
For the year ended December 31, 2021, the Company sold one vessel (Tern) for total net proceeds of $9.2 million
after brokerage commissions and associated selling expenses. The Company recorded a net gain of $4.0 million
from the sale of the Tern in its Consolidated Statement of Operations for the year ended December 31, 2021.
During the fourth quarter of 2020, the Company entered into a series of memorandum of agreements to purchase
three high specification scrubber-fitted Ultramax bulk carriers for a total purchase price of $51.5 million including
direct expenses of acquisition. The Company paid a deposit of $3.3 million related to the acquisition of these vessels
as of December 31, 2020 and took delivery of the vessels during the first quarter of 2021.
During the first quarter of 2021, the Company entered into another series of memorandum of agreements to purchase
four vessels. The first vessel is a high-specification scrubber-fitted Ultramax bulk carrier for a total purchase price of
$15.3 million and a warrant convertible into 212,315 common shares of the Company. The remaining three vessels
are 2011-built Crown-58 Supramax bulk carriers that were purchased for a total purchase price of $20.5 million and
a warrant convertible into 329,583 common shares of the Company. The above mentioned prices include direct
expenses of acquisition. Common shares were issuable upon exercise of warrants on a pro-rata basis in connection
with each vessel delivery. The warrants were measured at fair value on the date of the memorandum of agreement
and recorded as Vessels and vessel improvements on the Consolidated Balance Sheet when the Company took
delivery of the vessels. The fair value of the warrants for the total of 541,898 common shares was approximately
$10.7 million as of the date of the memorandum of agreement for each vessel. The Company took delivery of the
four vessels during the second and third quarters of 2021 and issued 541,898 shares of common stock upon
conversion of outstanding warrants.
During the second quarter of 2021, the Company entered into memorandum of agreements to acquire two high-
specification 2015-built scrubber-fitted Ultramax bulk carriers. This acquisition was partially financed with cash on
hand, which included proceeds raised from equity issued under the Company's ATM Offering. The total cost of the
vessels acquired including the direct costs of acquisition was $42.2 million. The Company took delivery of the two
vessels in each of the third and fourth quarters of 2021.
Business Strategy and Outlook:
We believe our strong balance sheet allows us the flexibility to opportunistically make investments in the drybulk
segment that will drive shareholder growth. In order to accomplish this, we intend to:
70
• Maintain a highly efficient and quality fleet in the drybulk segment;
• Maintain a revenue strategy that takes advantage of a rising rate environment and at the same time mitigate
risk in a declining rate environment;
• Maintain a cost structure that allow us to be competitive in all economic cycles without sacrificing safety
and maintenance;
Continue to grow our relationships with our charterers and vendors; and
Continue to invest in our on-shore operations and development of processes.
•
•
Our financial performance is based on the following key elements of our business strategy:
(1) Concentration in one vessel category: Supramax/Ultramax drybulk vessels, which we believe offer certain size,
operational and geographical advantages relative to other classes of drybulk vessels, such as Handysize,
Panamax and Capesize vessels,
(2) An active owner-operator model where we seek to operate our own fleet and develop contractual relationships
with cargo interests. These relationships and the related cargo contracts have the dual benefit of providing
greater operational efficiencies and act as a balance to the Company’s naturally long position to the market.
Notwithstanding the focus on short term chartering, we consistently monitor the drybulk shipping market and,
based on market conditions, will consider taking advantage of long-term time charters on our owned fleet at
higher rates when appropriate.
(3) Maintain high quality vessels and improve standards of operation through improved standards and procedures,
crew training and repair and maintenance procedures.
Business Outlook
COVID-19
In March 2020, the World Health Organization (the “WHO”) declared COVID-19 to be a pandemic. The COVID-19
pandemic, has had, and continues to have, widespread, rapidly evolving, and unpredictable impacts on global
society, economies, financial markets, and business practices. Governments have implemented measures such as
social distancing, mask and vaccine mandates, travel restrictions, COVID testing guidelines and quarantine
regulations. These measures taken to slow the spread of COVID-19 led to a significant short-term slowdown in the
worldwide economic activity and decline in demand for drybulk cargoes. This impacted charter rates and shipping
revenues for the year ended December 31, 2020.
In 2021, drybulk trade increased by 3.8% compared to a decrease of 1.6% in 2020, as measured in metric tons of
cargo. This was a result of increased demand for nearly all drybulk cargoes compared to 2020, which was severely
restricted by lockdowns, travel restrictions, and other economic shocks from the COVID-19 pandemic. Of particular
note, coal demand experienced a strong rebound due to both the general effects of the economic recovery and due to
high natural gas prices, leading to commodity substitutions. The BSI averaged $26,768 for 2021, compared to
$8,189 for 2020, which represents the highest BSI index level since 2008.
The Company continued to experienced delays in cargo operations due to port restrictions and additional protocols.
Our crew on our ships were exposed to risk of exposure to COVID-19. The travel restrictions imposed at various
ports severely impeded our crew rotation plans during the year. We experienced some disruptions to our normal
vessel operations and incurred additional off-hire time due to deviations our vessels had to take to allow for crew
changes. As a result of the spread of COVID-19, the Company incurred some additional expenses relating to
procurement of personal protective equipment, COVID-19 testing, and crew travel, which is included in our vessel
operating expenses in our Consolidated Statement of Operations for the year ended December 31, 2021.
Additionally, the Company experienced some delays in operations, drydocking and BWTS installations as a result of
protocols regarding COVID-19, as well as limitations on labor. We also experienced loss of revenues due to a
number of off-hire days relating to crew changes and quarantine restrictions as a number of our crew members tested
71
positive for COVID-19 during 2021. For the year ended December 31, 2021, we incurred 115 days of off-hire
related to crew changes. For additional discussion regarding the impact of COVID-19, see “—Liquidity and Capital
Resources— Summary of Liquidity and Capital Resources” and “Item 1A Risk Factors.”
While the average BSI was at $22,718 per day as of March 9, 2022, the economic activity levels as well as the
demand for drybulk cargoes may be negatively impacted by COVID-19. We have instituted measures to reduce the
risk of spread of COVID-19 for our crew members on our vessels as well as our onshore offices in Stamford,
Connecticut, Singapore, and Copenhagen. However, if the COVID-19 pandemic continues to impact the global
economy on a prolonged basis, or vaccination program goes slower than expected, the rate environment in the
drybulk market and our vessel values may deteriorate and our operations and cash flows may be negatively impacted
as well as our ability to meet the debt covenants under our existing debt facility.
The impact of recent developments in Ukraine
In February 2022, as a result of the invasion of Ukraine by Russia, economic sanctions were imposed by the U.S.,
the European Union, the United Kingdom and a number of other countries on Russian financial institutions,
businesses and individuals, as well as certain regions within the Donbas region of Ukraine. While it is difficult to
estimate the impact of current or future sanctions on the Company’s business and financial position, these sanctions
could adversely impact the Company’s operations. In the near term, we expect increased volatility in the region due
to these geopolitical events. The Black Sea region is a major export market for grains with the Ukraine and Russia
exporting a combined 15% of the global seaborne grain trade. While uncertainty remains with respect to the ultimate
impact of the invasion of Ukraine by Russia, we anticipate seeing significant changes in trade flows. A reduction or
stoppage of grain out of the Black Sea or cargoes from Russia will negatively impact the markets in those areas. At
the same time, it is possible for us to see an increase in ton miles as end users find alternative sources for cargo. For
more information regarding the risks relating to economic sanctions as a result of Russia’s invasion of Ukraine as
well as the impact on retaining and sourcing our crew, see Part I, Item 1A, "Risk Factors" – If our vessels call on
ports located in countries or territories that are subject to comprehensive sanctions imposed by the UN, the United
States, the EU or other relevant authorities, or if we are found to be in violation of sanctions, there could be an
adverse effect on our reputation, business position, financial condition or results of operations, or the market for our
common shares; see also Part I, Item 1A, "Risk Factors" – The conflict between Russia and Ukraine may impact our
ability to retain and source crew, and in turn, could adversely affect our revenue, expenses, and profitability.
Market Overview
The international shipping industry is highly competitive and fragmented with no single owner accounting for more
than 2.6% of the on-the-water drybulk fleet, measured by vessel count. As of December 31, 2021, there are
approximately 12,700 drybulk vessels over 10,000 dwt totaling 945 million dwt. We compete with other owners of
drybulk vessels, primarily in the Supramax/Ultramax segment and (to a lesser extent) the Handysize and Panamax
segments. Many of our competitors are privately-held companies.
Competition in the shipping industry varies according to the nature of the contractual relationship as well as the
specific commodity being shipped. Our business will fluctuate as a result of changes in the supply and demand for
drybulk commodities and also the main patterns of trade in these commodities. Competition in virtually all bulk
trades is intense and based primarily on supply of ships and demand for our ocean transportation services. 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. Increasingly, major customers are demonstrating a preference for modern
vessels based on concerns about the environmental and operational risks associated with older vessels.
Consequently, owners of large modern fleets have gained a competitive advantage over owners of older fleets.
Our strategy is to focus on the Supramax/Ultramax asset class, defined as drybulk vessels that range in size from
approximately 50,000 to 65,000 dwt. These vessels have the cargo loading and unloading flexibility offered by their
on-board cranes, while the cargo carrying capacity approaches that of Panamax, which ranges in size between
65,000 and 100,000 dwt but which require onshore facilities to load and offload their cargoes. We believe that the
cargo handling flexibility and cargo carrying capacity of the Supramax/Ultramax class makes it the preferred type of
72
ship attractive to potential charterers. As of December 31, 2021, all of our owned vessels range in size between
50,000 and 64,000 dwt.
The supply of drybulk vessels depends primarily on the size of the orderbook and the scrapping of older or less
efficient vessels. During 2021, fleet growth decreased slightly to 3.6% in 2021 from 3.8% in 2020. In 2021, vessels
totaling 37.9 million dwt were delivered, a decrease of 11.0 million dwt from 2020. Scrapping in 2021 totaled 5.1
million dwt, a decrease of 10.2 million dwt from 2020.
The typical trading life of a Supramax/Ultramax vessel is approximately 25 years. As of December 2021, 11% of the
world's drybulk fleet (by vessel count) was 20 years or older.
Fleet Growth for 2022 is expected to continue at low levels of 2.0% for the drybulk fleet and 2.9% for Supramax/
Ultramax vessels. The orderbook as of January 2022 stands at approximately 7.0% of the total drybulk fleet, with
the orderbook for the Supramax/Ultramax segment at 6.5% of the on-the-water fleet, with both figures at or near the
smallest orderbook in approximately 30 years. As of January 2022, the IMF forecasted world GDP growth at 4.4%
for 2022, as the global economy continues to recover from the COVID-19 pandemic. Drybulk trade is expected to
grow by approximately 1.7% in 2022 on continuing modest levels of growth across most drybulk commodities.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the
United States (“U.S. GAAP” or “GAAP”). The preparation of the 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 accounting policies, see Note 2, Significant Accounting Policies, to
our consolidated financial statements included herein.
Revenue Recognition
Revenues are generated from time charters and voyage charters. Time charter revenues are recognized on a straight-
line basis over the term of the respective time charter agreements as service is provided. Voyage revenues for cargo
transportation are recognized ratably over the estimated relative transit time of each voyage. Voyage revenue is
deemed to commence upon the commencement of loading of the charterer's cargo and is deemed to end upon the
completion of discharge of the cargo, provided the charter rate is fixed and determinable, and collectability is
reasonably assured. The costs incurred during the period prior to commencement of loading the cargo, primarily
bunkers, are deferred as they represent setup costs and recorded as a current asset and are amortized on a straight-
line basis as the related performance obligations are satisfied.
Revenue is based on contracted charter parties, including spot-market related time charters for which rates fluctuate
based on changes in the spot market. However, there is always the possibility of dispute over terms and payment of
hires and freights. In particular, disagreements may arise as to the responsibility for third party costs incurred by the
customer and revenue due to us as a result. Additionally, there are certain performance parameters included in
contracted charter parties, which if not met, can result in customer claims.
On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, (or "ASC 326"). The Company
maintains an allowance for credit losses for expected uncollectible accounts receivable, which is recorded as an
offset to accounts receivable and changes in such are classified as voyage expense in the Consolidated Statements of
73
Operations for the years ended December 31, 2021 and 2020. Upon adoption of ASC 326, the Company assessed
collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an
individual basis when we identify specific customers with known disputes or collectability issues. In determining the
amount of the allowance for credit losses, the Company considered historical collectability based on past due status
and made judgments about the creditworthiness of customers based on ongoing credit evaluations. The Company
also considered customer-specific information, current market conditions and reasonable and supportable forecasts
of future economic conditions to inform adjustments to historical loss data. For the years ended December 31, 2021
and 2020, our assessment considered business and market disruptions caused by COVID-19 and estimates of
expected emerging credit and collectability trends. The continued volatility in market conditions and evolving shifts
in credit trends are difficult to predict causing variability and volatility that may have a material impact on our
allowance for credit losses in future periods.
Vessel Lives and Impairment
The Company estimates the useful life of the Company's vessels to be 25 years from the date of initial delivery from
the shipyard to the original owner. In addition, the Company estimates the scrap rate to be $300 per lwt, to compute
each vessel's residual value, which is based on the 15-year average scrap value of steel.
The carrying values of the Company's vessels may not represent their fair market value at any point in time since the
market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of new buildings.
Historically, both charter rates and vessel values tend to be cyclical. The volatility in the drybulk market is heavily
impacted by growth rate and demand for commodities such as coal and iron ore in the world economy and Chinese
economy in particular. We evaluate the carrying amounts and periods over which long-lived assets are depreciated
to determine if events have occurred which would require modification to their carrying values or useful lives. In
evaluating useful lives and carrying values of long-lived assets, we review certain indicators of potential
impairment, such as carrying value of the vessels lower than their fair market value, vessel sales, business plans and
overall market conditions.
If indicators of impairment are present, we perform an analysis of the undiscounted projected net operating cash
flows for each vessel and compare it to the vessel’s carrying value. This assessment is made at the individual vessel
level since we can separately identify cash flow information for each vessel. In developing estimates of future cash
flows, the Company must make assumptions about future charter rates, vessel operating expenses, and the estimated
remaining useful lives of the vessels. These assumptions are based on historical trends as well as future expectations.
The Company annually reviews all the assumptions that are used in the calculation of projected net operating cash
flows. Specifically, we utilize the rates currently in effect for the duration of their current charters. Based on our
annual review of assumptions, for periods of time where our vessels are not fixed on charters, we utilized an
estimated daily time charter equivalent for our vessels’ unfixed days based on a historical average of the last fifteen
years of one and three years’ time charter rates as published by a third party. Historically, the Company utilized the
25 year average of one and three year time charters for the unfixed days of the remaining useful life in its
impairment analysis. This is considered a change in accounting estimate and it was done primarily to closely align
with our peers and also based on our annual evaluation of assumptions used in the undiscounted projected net
operating cash flows analysis, we believe that the 15 year average is more representative of future rate environment
for our vessels. The change in accounting estimate did not have any impact on the impairment analysis and the
consolidated financial statements.
The undiscounted projected net operating cash flows are determined by considering the future charter revenues from
the existing charters for the fixed fleet days and for the unfixed days, projected FFA rates up to 2023 and an
estimated daily time charter equivalent over the estimated remaining life of the vessel, assumed to be 25 years from
the delivery of the vessel from the shipyard, reduced by commissions, expected outflows for vessels’ maintenance
and vessel operating expenses (including planned drydocking and special survey expenditures) and any planned
capital expenditures such as scrubbers and BWTS.
The Company evaluated if any impairment indicators existed as of December 31, 2021. Based on the evaluation, the
Company determined that there were no impairment indicators for our vessels in the Company's fleet for which the
74
average vessel prices based on vessel valuations received from third party brokers were greater than their carrying
values. The Company determined that there were no impairment indicators and no further impairment analysis was
required.
Of the inputs that the Company uses for its impairment analysis, future time charter rates are the most significant
and most volatile. We utilize historical averages as discussed above in our impairment tests due to the highly
cyclical nature of the drybulk shipping industry. Our vessels range from very new to eighteen years old, and we
believe that utilizing rates over a long period of time incorporates numerous shipping cycles and reflects our strategy
of operating our vessels over a long time period, and in line with the overall useful economic life of our vessels. As
disclosed elsewhere herein, we also consider whether utilizing ten or five year averages would impact our
impairment assessment. Our vessels remain fully utilized and have a relatively long average remaining useful life of
approximately 16 years in which to provide sufficient cash flows on an undiscounted basis to recover their carrying
values as of December 31, 2021. Management will continue to monitor developments in charter rates in our
participatory markets with respect to the expectation of future rates over an extended period.
As of December 31, 2016, as part of our fleet renewal program, management considered it probable that we would
divest some of our older vessels as well as certain less efficient vessels from its fleet to achieve operating cost
savings. Based on our projected undiscounted cash flows prior to sale, factoring the probability of sale, such vessels
were determined to be impaired, and written down to their current fair value as of December 31, 2016, which was
determined by obtaining broker quotes from two unaffiliated ship brokers. As a result, we recorded an impairment
charge of $122.9 million in the fourth quarter of 2016. The carrying value of these vessels prior to impairment was
$234.9 million. In addition to the above, in 2015, we identified six vessels as probable sales, and recognized an
impairment charge in 2015 of $50.9 million. As the value of such vessels further declined in the first quarter of
2016, we recorded an additional impairment charge of $6.2 million in that quarter. All vessels identified as probable
sales in 2015 have been sold as of December 31, 2021. Out of the sixteen vessels impaired in 2016, fourteen vessels
have been sold as of December 31, 2021.
Although management believes that the assumptions used to evaluate potential impairment are reasonable and
appropriate, such assumptions are highly subjective. In the event that any future impairment were to occur, we
would determine the fair value of the related asset and record a charge to operations calculated by comparing the
asset's carrying value to its estimated fair value. We estimate fair value primarily through the use of third party
valuations performed on an individual vessel basis. Such valuations are not necessarily the same as the amount any
vessel may bring upon sale, which may be more or less, and should not be relied upon as such.
The table set forth below indicates the carrying value of each of our vessels as of December 31, 2021 and 2020. We
believe, based on broker quotes recently obtained, our vessels have a basic charter free market value greater than its
carrying value by approximately $289.8 million for the year ended December 31, 2021, and a basic charter free
market value lower than its carrying value by approximately $223.7 million for the year ended December 31, 2020.
Please note that the carrying values of vessels sold during the year 2021 have been excluded from the table. When
the carrying value exceeds the basic charter free market value, the difference represents the approximate amount by
which we believe we would have to adjust our net income if we sold all of such vessels, excluding commissions, on
industry standard terms, in cash transactions, and to a willing buyer where we are not under any compulsion to sell,
and where the buyer is not under any compulsion to buy.
Drybulk Vessels
Antwerp Eagle
Bittern
Canary
Cape Town Eagle
Cardinal
Copenhagen Eagle
Dwt
(in thousands)
63.5
57.8
57.8
63.7
55.4
63.5
Year
Purchased
2015
Carrying Value*
as of December 31, 2021
$21.5 million
2009
2009
2015
2004
2015
$16.4 million
$16.3 million
$20.1 million
$5.8 million
$19.3 million
Carrying Value*
as of December 31, 2020
—
$17.4 million *
$17.3 million *
$20.9 million *
$6.2 million
$20.1 million *
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Crane
Crested Eagle
Crowned Eagle
Dublin Eagle
Egret Bulker
Fairfield Eagle
Gannet Bulker
Golden Eagle
Grebe Bulker
Greenwich Eagle
Groton Eagle
Hamburg Eagle
Helsinki Eagle
Hong Kong Eagle
Ibis Bulker
Imperial Eagle
Jaeger
Jay
Kingfisher
Madison Eagle
Martin
Montauk Eagle
Mystic Eagle
New London Eagle
Newport Eagle
Nighthawk
Oriole
Oslo Eagle
Owl
Petrel Bulker
Puffin Bulker
Roadrunner Bulker
Rotterdam Eagle
Rowayton Eagle
Sandpiper Bulker
Sankaty Eagle
Santos Eagle
Shanghai Eagle
Singapore Eagle
Southport Eagle
Stamford Eagle
Stellar Eagle
Stockholm Eagle
57.8
56.0
55.9
63.5
57.8
63.3
57.8
56.0
57.8
63.3
63.3
63.3
63.6
63.5
57.8
56.0
52.5
57.8
57.8
63.3
57.8
58.0
63.3
63.1
58.0
57.8
57.8
63.7
57.8
57.8
57.8
57.8
63.6
63.3
57.8
58.0
63.5
63.4
63.4
63.3
61.5
56.0
63.3
2010
2009
2008
2015
2010
2013
2010
2010
2010
2013
2013
2014
2015
2016
2010
2010
2004
2010
2010
2013
2010
2011
2013
2015
2011
2011
2011
2015
2011
2011
2011
2011
2017
2013
2011
2011
2015
2016
2017
2013
2016
2009
2016
$17.5 million
$18.6 million
$17.7 million
$19.2 million
$17.2 million
$16.9 million
$17.3 million
$19.8 million
$17.5 million
$16.7 million
$16.9 million
$20.9 million
$16.3 million
$20.8 million
$16.9 million
$19.7 million
$5.5 million
$16.9 million
$17.3 million
$17.0 million
$17.2 million
$9.8 million
$16.6 million
$21.6 million
$7.7 million
$17.8 million
$18.2 million
$15.7 million
$18.3 million
$18.2 million
$17.8 million
$18.6 million
$18.6 million
$16.8 million
$17.8 million
$10.1 million
$19.3 million
$20.8 million
$18.3 million
$16.8 million
$15.8 million
$19.0 million
$17.6 million
76
$18.5 million *
$19.8 million *
$18.9 million *
$20.0 million *
$18.2 million *
$17.7 million *
$18.2 million *
$21.1 million *
$17.8 million *
$17.5 million *
$17.4 million *
$21.9 million *
—
$21.7 million *
$17.8 million *
$20.9 million *
$5.8 million
$17.9 million *
$18.3 million *
$17.8 million *
$18.2 million *
—
$17.4 million *
$21.8 million *
—
$18.8 million *
$18.6 million *
—
$18.8 million *
$18.7 million *
$18.7 million *
$18.8 million *
—
$17.6 million *
$18.7 million *
—
$20.1 million *
$21.7 million *
$18.9 million
$17.6 million *
$16.3 million
$19.8 million *
—
Stonington Eagle
Sydney Eagle
Valencia Eagle
Westport Eagle
63.3
63.5
63.6
63.3
2012
2015
2015
2015
$17.1 million
$19.3 million
$20.2 million
$17.4 million
$17.8 million *
$20.1 million *
—
$18.0 million *
* Indicates drybulk carriers for which we believe the basic charter-free market value is lower than the vessel’s
carrying value.
Deferred Drydock Cost
There are two methods that are used by the shipping industry to account for drydockings: (a) the deferral method
where drydock costs are deferred when incurred and amortized over the period to the next scheduled drydock; and
(b) expensing drydocking costs in the period it is incurred. We use the deferral method of accounting for drydock
expenses. Under the deferral method, drydock expenses are deferred and amortized on a straight-line basis until the
next drydock, which we estimate to be a period of two and a half to five years. We believe the deferral method better
matches costs with revenue than expensing the costs as incurred. We use judgment when estimating the period
between drydock performed, which can result in adjustments to the estimated amortization of drydock expense. If
the vessel is disposed of before the next drydock, the remaining balance in deferred drydock is written-off to the
gain or loss upon disposal of vessels in the period when contracted. We expect that our vessels will be required to be
drydocked approximately every 60 months for vessels younger than 15 years and 30 months for vessels older than
15 years.
Costs deferred as part of the drydocking include direct costs that are incurred as part of the drydocking to meet
regulatory requirements. During drydocking, we capitalize into the cost basis of the vessel any expenditures that add
economic life to the vessel, increase the vessel’s earnings capacity or improve the vessel’s efficiency. Expenditures
for normal maintenance and repairs, whether incurred as part of the drydocking or not, are expensed as incurred.
Unamortized drydocking costs are written off as drydocking expense if the vessels are drydocked earlier than the
applicable amortization period. Unamortized drydocking costs of vessels that are sold are written off and included in
the calculation of the resulting gain or loss in the year of the vessels’ sale.
Vessel acquisition
Where we identify any intangible assets or liabilities associated with the acquisition of a vessel, we record all
identified tangible and intangible assets or liabilities at fair value. Fair value is determined by reference to market
data and the amount of expected future cash flows. We value any asset or liability arising from the market value of
the time charters assumed when an acquired vessel is delivered to us.
Where we have assumed an existing charter obligation or enter into a time charter with the existing charterer in
connection with the purchase of a vessel at charter rates that are less than market charter rates, we record a liability
in fair value below contract value of time charters acquired based on the difference between the assumed charter rate
and the market charter rate for an equivalent vessel. Conversely, where we assume an existing charter obligation or
enter into a time charter with the existing charterer in connection with the purchase of a vessel at charter rates that
are above market charter rates, we record an asset in fair value above contract value of time charters acquired, based
on the difference between the market charter rate and the contracted charter rate for an equivalent vessel. This
determination is made at the time the vessel is delivered to us, and such assets and liabilities are amortized to
revenue over the remaining period of the charter. The determination of the fair value of acquired assets and assumed
liabilities requires us to make significant assumptions and estimates of many variables including market charter
rates, expected future charter rates, future vessel operation expenses, the level of utilization of our vessels and our
weighted average cost of capital. The use of different assumptions could result in a material change in the fair value
of these items, which could have a material impact on our financial position and results of operations. In the event
that the market charter rates relating to the acquired vessels are lower than the contracted charter rates at the time of
their respective deliveries to us, our net earnings for the remainder of the terms of the charters may be adversely
affected although our cash flows will not be affected.
77
Results of operations for years ended December 31, 2021 and 2020
This section of this Form 10-K generally discusses 2021 and 2020 results and year-to-year comparisons between
2021 and 2020. A discussion of 2020 results of operations compared to 2019 has been omitted from this Form 10-K,
but may be found in “Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of
Operations” of our Form 10-K for the year ended December 31, 2020, filed with the SEC on March 12, 2021.
Net Income/(Loss)
For the year ended December 31, 2021, the Company reported net income of $184.9 million, or basic and diluted
income of $14.91 per share and $11.79 per share, respectively. For the year ended December 31, 2020, the Company
reported a net loss of $35.1 million, or $3.40 per basic and diluted share. The net income/(loss) for the years ended
December 31, 2021 and 2020 are the result of the items described below.
Factors Affecting our Results of Operations
The following tables represent the operating data and certain financial statement data for the years ended
December 31, 2021 and 2020 on a consolidated basis.
We believe that the important measures for analyzing future trends in our results of operations consist of the
following:
Ownership days
Chartered-in days
Available days
Operating days
Fleet utilization
For the Years Ended
December 31, 2021
December 31, 2020
18,258
2,331
19,538
19,439
99.5 %
18,065
2,179
19,612
19,450
99.2 %
•
•
•
•
•
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.
Chartered-in days: We define chartered-in days as the aggregate number of days in a period during which
the Company chartered-in vessels.
Available days: We define available days as the number of our ownership days and chartered-in days less
the aggregate number of days that our vessels are off-hire due to vessel familiarization upon acquisition,
repairs, vessel upgrades or special surveys and other reasons which prevent the vessel from performing
under the relevant charter party such as surveys, medical events, stowaway disembarkation, etc. The
shipping industry uses available days to measure the number of days in a period during which vessels
should be capable of generating revenues. We completed drydock for 11 vessels during 2021 and two
vessels were in drydock as of December 31, 2021 and 11 vessels completed drydock during 2020.
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
78
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. Our fleet continues to perform at very high
utilization rates.
Time Charter and Voyage Revenue
Shipping revenues are highly sensitive to patterns of supply and demand for vessels of the size and design
configurations owned and operated by a company and the trades in which those vessels operate. In the drybulk
sector of the shipping industry, rates for the transportation of drybulk cargoes such as ores, grains, steel, fertilizers,
and similar commodities, are determined by market forces such as the supply and demand for such commodities, the
distance that cargoes must be transported, and the number of vessels available or expected to be available at the time
such cargoes need to be transported. The demand for shipments is significantly affected by the state of the global
economy and in discrete geographical areas. The number of vessels is affected by newbuilding deliveries and by the
removal of existing vessels from service, principally due to scrapping.
The mix of charters between voyage charters and time charters also affects revenues. Because the mix between
voyage charters and time charters significantly affects shipping revenues and voyage expenses, vessel revenues are
benchmarked based on net charter hire income. Net charter hire income comprises revenue from vessels operating
on time charters, and voyage revenue less voyage expenses from vessels operating on voyage charters in the spot
market and charter hire expenses. Net charter hire income serves as a measure of analyzing fluctuations between
financial periods and as a method of equating revenue generated from a voyage charter to time charter revenue.
The following table represents the reconciliation of Net charter hire income, a non-GAAP measure, for the years
ended December 31, 2021 and 2020.
Revenues, net
Less:
Voyage expenses
Charter hire expenses
Net charter hire income
% of Net charter hire from
Time charters
Voyage charters
For the Years Ended
December 31, 2021
December 31, 2020
$
594,537,654
$
275,133,547
104,643,078
37,101,692
89,548,796
21,280,224
$
452,792,884
$
164,304,527
61 %
39 %
52 %
48 %
Our economic decisions are primarily based on anticipated net charter hire rates and we evaluate financial
performance based on net charter rates achieved. Our revenues are driven primarily by the number of vessels in our
fleet, the number of days during which our vessels operate and the net charter hire 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 drybulk shipping industry; and
other factors affecting spot market charter rates for drybulk carriers.
79
Our revenues for the years ended December 31, 2021 and 2020 were earned from time and voyage charters. As is
common in the shipping industry, we pay commissions ranging from 1.25% to 5.00% of the total daily charter hire
rate of each charter to unaffiliated ship brokers and in-house brokers associated with the charterers, depending on the
number of brokers involved with arranging the charter. We record such broker commissions as voyage expenses.
Revenues, net
Revenues, net for the year ended December 31, 2021 were $594.5 million, an increase of 116% compared to the
prior year ended December 31, 2020 primarily due to an increase in charter hire rates as rates recovered from the
economic downturn caused by the COVID-19 pandemic in 2020, partly offset by a decrease in available days. The
available days including chartered-in days for the year ended December 31, 2021 were 19,538 as compared to
19,612 for the year ended December 31, 2020.
Voyage expenses
To the extent that we employ our vessels on voyage charters, we incur expenses that include but are not limited to
bunkers, port charges and canal tolls, as these expenses are borne by the vessel owner on voyage charters. Bunkers,
port charges, and canal toll expenses primarily increase in periods during which more vessels are employed on
voyage charters.
Voyage expenses for the year ended December 31, 2021 were $104.6 million, compared with $89.5 million for the
year ended December 31, 2020. Voyage expenses have primarily increased due to an increase in bunker
consumption expense, an increase in broker commission expense and an increase in port expenses.
Vessel operating expenses
Vessel operating expenses include expenses relating to crewing costs, vessel operations, general vessel maintenance,
regulatory and classification society compliance, insurance, repairs, stores, supplies, spare parts, and technical
consultants.
Vessel operating expenses for the year ended December 31, 2021 were $103.9 million, compared with $86.5 million
for the year ended December 31, 2020. The increase in vessel operating expenses is primarily attributable to an
increase in lubes expense, an increase in stores and spares delivery costs, crew wages, and crew changes due to the
ongoing COVID-19 pandemic, and vessel start-up expenses as the Company purchased and took delivery of nine
vessels during 2021. The ownership days for the year ended December 31, 2021 were 18,258 compared to 18,065
for the prior year ended December 31, 2020.
We believe daily vessel operating expenses are a good measure for comparative purposes over a 12-month period in
order to take into account all of the expenses that each vessel in our fleet will incur over a full year of operation.
Average daily vessel operating expenses for our fleet for the year ended December 31, 2021 were $5,689 as
compared to $4,790 for the year ended December 31, 2020.
Insurance expense varies with overall insurance market conditions as well as the insured's loss record, level of
insurance and desired coverage. The main insurance expenses include hull and machinery insurance (i.e. asset
insurance) costs, loss of hire insurance, Protection, and Indemnity ("P&I") insurance (i.e. liability insurance) costs.
Certain other insurances, such as basic war risk premiums based on voyages into designated war risk areas are often
for the account of the charterers for time charter voyages and on owners’ account for voyage charters.
Our vessel operating expenses, which generally represent costs under the vessel operating budgets, cost of insurance
and vessel registry and other regulatory fees, will increase with the enlargement of our fleet. Other factors beyond
our control, some of which may affect the shipping industry in general, may also cause these expenses to increase,
including, for instance, developments relating to market prices for crew, insurance, lubricants, and supplies.
80
Charter hire expense
Charter hire expenses for the year ended December 31, 2021 were $37.1 million compared to $21.3 million for the
year ended December 31, 2020. The increase in charter hire expenses in 2021 compared with 2020 was mainly due
to an increase in charter hire rates due to improvement in the charter hire market and an increase in the number of
chartered-in days. The chartered-in days for 2021 were 2,331 compared to 2,179 in 2020. Between 2017 and 2021,
the Company entered into a series of agreements to charter five Ultramax vessels on a long term basis. The
minimum chartered-in periods ranged between one and four years with an option to extend the duration between
three and 24 months. Four and three of those five vessels were chartered-in as of December 31, 2021 and 2020,
respectively. The remaining vessel will be delivered during the second quarter of 2022.
Depreciation and amortization
We depreciate the cost of our vessels on a straight-line basis over the expected useful life of each vessel.
Depreciation is based on the cost of the vessel less its estimated residual value. We estimate the useful life of our
vessels to be 25 years from the date of initial delivery from the shipyard to the original owner. We estimate the scrap
rate to be $300/lwt to compute each vessel's residual value.
Depreciation and amortization expenses for the years ended December 31, 2021 and 2020 were $53.5 million and
$50.2 million, respectively. The increase in depreciation expense is due to an increase in the cost base of our owned
fleet due to the capitalization of scrubbers and BWTS on our vessels, and the acquisition of nine vessels in 2021,
offset by the sale of five vessels in the third and fourth quarters of 2020 and the sale of one vessel in the third quarter
of 2021. The increase in drydock amortization is due to the completion of eleven additional drydocks since the end
of 2020. Total depreciation and amortization expenses for the year ended December 31, 2021 includes $44.9 million
of vessel and other fixed asset depreciation and $8.7 million of deferred drydocking amortization. Total depreciation
and amortization expenses for the year ended December 31, 2020 includes $42.8 million of vessel and other fixed
asset depreciation and $7.4 million of amortization of deferred drydocking costs.
Drydocking relates to our regularly scheduled maintenance program necessary to preserve the quality of our vessels
as well as to comply with international shipping standards and environmental laws and regulations. Management
anticipates that vessels are to be drydocked every two and a half years for vessels older than 15 years and every five
years for vessels younger than 15 years, accordingly, these expenses are deferred and amortized over that period.
General and administrative expenses
Our general and administrative expenses include legal, professional expenses, recurring administrative and other
expenses including payroll and expenses relating to our executive officers and office staff, office rent, directors fees,
and directors and officers insurance. General and administrative expenses also include stock-based compensation
expenses.
General and administrative expenses for the years ended December 31, 2021 and 2020 were $35.2 million and $31.5
million, respectively. The increase in general and administrative expenses in 2021 was primarily due to an increase
in legal expenses, compensation and benefits and an increase in stock-based compensation expense.
General and administrative expenses include stock-based compensation charges of $3.5 million and $3.0 million,
respectively, for the years ended December 31, 2021 and 2020. These stock-based compensation charges relate to
the stock options, restricted stock units and performance-based stock awards granted to certain members of
management, employees, and certain directors of the Company under the 2016 Plan. The stock-based compensation
expense is higher primarily due to higher stock grants during the year. Please see Note 13, Stock Incentive Plans, to
the consolidated financial statements.
81
Other operating expense
Other operating expense for the year ended December 31, 2021 was $2.8 million, with no comparable amount for
the year ended December 31, 2020. In March 2021, the U.S. government began investigating an allegation that one
of our vessels may have improperly disposed of ballast water that entered the engine room bilges during a repair.
The Company posted a surety bond as security for any fines, penalties or other associated costs. Other operating
expense consists of expenses incurred relating to this incident, which include legal fees, surety bond expenses,
vessel off-hire, crew changes and travel costs.
(Gain)/loss on sale of vessels
For the years ended December 31, 2021 and 2020, the Company recorded a gain of $4.0 million and a loss of $0.5
million, respectively. The gain for the year ended December 31, 2021, includes a gain on the sale of the vessel Tern.
The loss for the year ended December 31, 2020, includes a loss on the sale of five vessels - Goldeneye, Shrike, Skua,
Osprey I and Hawk I.
Interest expense
Interest expense for the years ended December 31, 2021 and 2020 was $32.3 million and $35.4 million, respectively.
The decrease in interest expense was primarily due to a decrease in outstanding debt and lower interest rates due to
the refinancing of the Company's debt in the fourth quarter of 2021.
Amortization of debt issuance costs is included in interest expense. These financing costs relate to costs associated
with our various outstanding debt facilities. For the years ended December 31, 2021 and 2020, the amortization of
debt issuance costs was $7.1 million and $6.3 million, respectively. The interest expense for the years ended
December 31, 2021 and 2020 includes $4.1 million and $3.9 million, respectively, of interest expense representing
the amortization of the equity component of the Convertible Bond Debt. Please refer to Note 6, Debt, to our
consolidated financial statements for further information.
Realized and unrealized loss/(gain) on derivative instruments, net
Realized and unrealized loss on derivative instruments, net for the year ended December 31, 2021 was $38.2 million
compared to a realized and unrealized gain on derivatives instruments, net of $4.8 million for the year ended
December 31, 2020. The increase in realized and unrealized losses on derivative instruments was primarily due to
the sharp increase in charter hire rates. Please refer to Note 7, Derivative Instruments, to our consolidated financial
statements for further information.
Loss on debt extinguishment
Loss on debt extinguishment for the year ended December 31, 2021 was $6.1 million, with no comparable amount
for the year ended December 31, 2020. On October 18, 2021, the Company repaid the outstanding debt together with
accrued interest as of that date under the Norwegian Bond Debt and discharged the debt in full from the proceeds of
the Global Ultraco Debt Facility and cash on hand. As a result, the Company recognized $1.6 million representing
the outstanding balance of debt discount and debt issuance costs, as well as a $4.4 million call premium on the
Norwegian Bond Debt as a loss on debt extinguishment in the fourth quarter of 2021. During the third quarter of
2021, the Company cancelled the Super Senior Facility. There was no outstanding debt under the Super Senior
Facility. The Company recognized $0.1 million representing the outstanding balance of debt issuance costs as a loss
on debt extinguishment. Please see Note 6, Debt, to our consolidated financial statements for further information.
82
Selected Financial Data
The selected financial data presented below have been derived in part from, and should be read in conjunction with,
the consolidated financial statements
(Dollars, Shares, and Weighted average shares outstanding amounts in thousands except Per Share amounts and
Fleet Data)
Income Statement Data
Revenues, net
Voyage expenses
Vessel operating expenses
Charter hire expenses
Depreciation and amortization
General and administrative expenses
Other operating expense(1)
Impairment of operating lease right-of-use
assets(2)
(Gain)/loss on sale of vessels
Total operating expenses, net
2021
2020
2019
2018
2017
$
594,538 $ 275,134 $ 292,378 $
310,094 $
236,785
104,643
103,877
37,102
53,517
35,161
2,812
—
(3,966)
89,549
86,528
21,280
50,157
31,532
—
352
490
87,701
82,342
42,169
40,546
35,042
1,125
—
(5,979)
79,566
81,336
38,046
37,717
36,157
—
—
62,351
78,607
31,284
33,691
33,126
—
—
(335)
(2,135)
333,146
279,888
282,947
272,487
236,925
Interest expense
Interest income
Realized and unrealized loss/(gain) on derivative
instruments, net
Loss on debt extinguishment(3)
Net income/(loss)
32,257
35,393
(92)
(257)
30,577
(1,867)
38,244
6,085
(4,827)
—
150
2,268
25,744
(585)
(126)
—
29,377
(651)
(38)
14,969
$
184,898 $
(35,063) $
(21,697) $
12,575 $
(43,797)
Share and Per Share Data
Basic net income/(loss) per share (4)
Diluted net income/(loss) per share (4)
$
$
14.91 $
(3.40) $
(2.13) $
11.79 $
(3.40) $
(2.13) $
1.25 $
1.23 $
(4.43)
(4.43)
Weighted average shares outstanding - Basic (4)
12,400
10,310
10,195
10,095
9,883
Weighted average shares outstanding – Diluted (4)
15,684
10,310
10,195
10,257
9,883
Consolidated Cash Flow Data
Net cash provided by/(used in) operating
activities
$
209,171 $
12,595 $
21,686 $
45,470 $
(10,037)
Net cash used in investing activities
(125,481)
(5,492)
(168,619)
(31,014)
(155,250)
Net cash (used in)/provided by financing
activities
(86,317)
22,615
127,900
7,381
145,022
(1) In March 2021, the U.S. government began investigating an allegation that one of our vessels may have
improperly disposed of ballast water that entered the engine room bilges during a repair. The Company posted a
surety bond as security for any fines, penalties or other associated costs. Other operating expense for the year ended
December 31, 2021 consists of expenses incurred relating to this incident, which include legal fees, surety bond
expenses, vessel off-hire, crew changes and travel costs. Other operating expense for the year ended December 31,
2019 was $1.1 million. The expense relates to our legal settlement with OFAC.
83
(2) During the second quarter of 2020, the Company determined that there were impairment indicators present for
one of our chartered-in vessel contracts and, as a result, we recorded an operating lease impairment of $0.4 million.
(3) On October 18, 2021, the Company repaid the outstanding debt together with accrued interest as of that date
under the Norwegian Bond Debt and discharged the debt in full using the proceeds of the Global Ultraco Debt
Facility and cash on hand. As a result, the Company recognized $6.0 million representing a bond call premium and
the outstanding balance of debt discount and debt issuance costs, as Loss on debt extinguishment in the fourth
quarter of 2021. See Note 6, Debt, to the consolidated financial statements.
During the third quarter of 2021, the Company cancelled the Super Senior Revolving Facility. There were no
outstanding amounts under the facility and the Company recorded $0.1 million as Loss on debt extinguishment in
the third quarter of 2021. Please see Note 6, Debt, to the consolidated financial statements.
On January 25, 2019, the Company repaid the outstanding debt together with accrued interest as of that date under
the New First Lien Facility and the Original Ultraco Debt Facility and discharged the debt in full from the proceeds
of the New Ultraco Debt Facility. As a result, the Company recognized $2.3 million representing the outstanding
balance of debt issuance costs, as a loss on debt extinguishment in the first quarter of 2019. Please see Note 6, Debt,
to the consolidated financial statements.
On December 8, 2017, the Company repaid the amounts outstanding under the First Lien Facility and the Second
Lien Facility by issuance of $200.0 million of the Norwegian Bond Debt and $65.0 million of the New First Lien
Facility. As a result, the Company recognized a $15.0 million loss on debt extinguishment in the fourth quarter of
2017.
(4) Adjusted to give effect for the 1-for-7 Reverse Stock Split that became effective as of September 15, 2020, see
Note 1, General Information, to the consolidated financial statements.
84
Consolidated Balance Sheet Data
2021
2020
2019
2018
2017
December 31,
Current assets
Total assets
Total liabilities
Current portion of long-term debt (a)
Long-term debt
Stockholders' equity (b)
Other Data
Capital expenditures:
Vessels and vessel improvements
Purchase of scrubbers and ballast water systems
Drydocking expenditures
Ratio of Total debt to Total capitalization (c)
Fleet Data
Number of vessels in owned fleet
Average age of fleet (years)
Fleet ownership days
Charter-in days
Fleet available days
Fleet operating days
Fleet utilization
$ 156,033 $ 118,265 $ 100,533 $ 118,474 $ 105,223
1,126,658
967,127
1,002,087
846,209
808,350
455,392
496,709
520,584
366,603
347,185
49,800
39,244
35,709
29,176
4,000
330,244
412,931
410,067
301,583
313,684
671,266
470,418
481,503
479,606
461,165
$ 128,254 $
4,230 $ 143,478 $ 43,444 $ 176,603
6,712
21,906
36.1 %
53
9.3
18,258
2,331
19,538
19,439
99.5 %
28,377
14,294
49.0 %
45
8.8
18,065
2,179
19,612
19,450
99.2 %
58,196
11,903
48.1 %
50
8.7
16,945
3,583
19,214
19,058
99.2 %
12,342
8,323
40.8 %
47
9.0
17,213
3,294
20,083
19,921
99.2 %
—
2,579
40.8 %
47
8.2
16,293
3,353
19,245
19,140
99.5 %
(a) The 2021 amount represents $49.8 million under the Global Ultraco Debt Facility to be repaid in 2022.
(b) Effective as of September 15, 2020, the Company completed the 1-for-7 Reverse Stock Split of the Company's
issued and outstanding shares of common stock, par value $0.01 per share. All references herein to common stock
and per share data for all periods presented in these consolidated financial statements and notes thereto, have been
retrospectively adjusted to reflect the Reverse Stock Split. See Note 1, General Information, to the consolidated
financial statements for additional information.
(c) Ratio of Total debt to Total capitalization was calculated as debt divided by capitalization (debt plus stockholders'
equity).
Effects of Inflation
The Company believes that its business benefits during periods of elevated inflation and positive demand growth, as
higher charter rates, and net revenues, more than offset increases in costs relating to vessel operating expenses,
drydocking, and general and administrative.
85
Liquidity and Capital Resources
The following table presents the cash flow information for the years ended December 31, 2021 and 2020:
(in thousands of U.S. dollars)
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in)/provided by financing activities
(Decrease)/increase in cash and cash equivalents
Cash, cash equivalents including restricted cash, beginning of year
For the Years Ended
December 31, 2021 December 31, 2020
$
209,171 $
(125,481)
(86,317)
(2,627)
88,849
12,595
(5,492)
22,615
29,718
59,130
Cash and cash equivalents including restricted cash, end of year
$
86,222 $
88,849
Net cash provided by operating activities for the year ended December 31, 2021 was $209.2 million, compared with
$12.6 million in 2020. The increase in cash flows provided by operating activities resulted primarily from the
increase in revenues due to higher charter hire rates.
Net cash used in investing activities for the year ended December 31, 2021 was $125.5 million, compared to $5.5
million in the prior year. During 2021, the Company purchased nine vessels for $126.2 million. The Company paid
$6.7 million for the purchase of ballast water treatment systems on our fleet. Additionally, the Company paid $2.1
million for vessel improvements. This use of cash was partially offset by the proceeds from the sale of one vessel for
$9.2 million and $0.4 million of insurance proceeds received on hull and machinery claims.
Net cash used in financing activities for the year ended December 31, 2021 was $86.3 million, compared to net cash
provided by financing activities of $22.6 million in the prior year ended December 31, 2020. During 2021, the
Company received (i) $300.0 million in proceeds from the Global Ultraco Debt Facility, (ii) $50.0 million in
proceeds from the revolver loan under the Global Ultraco Debt Facility, (iii) $55.0 million in proceeds from the
revolver loan under the New Ultraco Debt Facility, (iv) $16.5 million in proceeds from the New Ultraco Debt
Facility, (v) $24.0 million in proceeds from the Holdco Revolving Credit Facility and (vi) $27.1 million in net
proceeds from the ATM Offering. The Company repaid (i) $182.9 million of the New Ultraco Debt Facility, (ii)
$184.4 million of the Norwegian Bond Debt, (iii) $12.5 million of the Global Ultraco Debt Facility, (iv) $55.0
million of the revolver loan under the New Ultraco Debt Facility, (v) $24.0 million of the Holdco Revolving Credit
Facility, (vi) $15.0 million of the revolver loan under the Super Senior Facility and (vii) $50.0 million of the
revolver loan under the Global Ultraco Debt Facility. Additionally, the Company paid (i) $6.4 million in financing
costs to lenders, (ii) $0.7 million in other financing costs, and (iii) $0.5 million of financing costs related to the
equity offerings in December 2020. Additionally, the Company paid $25.8 million in dividends to its shareholders
and $1.9 million to settle net share equity awards.
As of December 31, 2021, our cash and cash equivalents balance was $86.1 million, compared to a cash and cash
equivalents balance of $69.9 million at December 31, 2020. In addition, our restricted cash balance at December 31,
2021 was $0.1 million which includes $0.1 million for collateralizing letters of credit relating to our office leases. As
of December 31, 2020, our restricted cash balance was $18.9 million and includes $18.8 million in proceeds from
the sale of vessels which were restricted pursuant to the terms under the Norwegian Bond Debt and $0.1 million for
collateralizing letters of credit relating to our office leases.
At December 31, 2021, the Company’s debt, net of $21.6 million debt discount and debt issuance costs totaled
$380.0 million of which $49.8 million is shown in the current portion of long-term debt and $330.2 million in
noncurrent liabilities.
86
In addition, as of December 31, 2021, we had $100.0 million in an undrawn revolver facility available under the
Global Ultraco Debt Facility.
Our principal sources of funds are operating cash flows, long-term bank borrowings and borrowings under our
revolving credit facility. Our principal use of funds is capital expenditures to establish and grow our fleet, maintain
the quality of our vessels, comply with international shipping standards and environmental laws and regulations,
fund working capital requirements and repayments of interest and principal on our outstanding debt facilities.
We believe that our current financial resources, together with the undrawn revolver under the Global Ultraco Debt
Facility and cash generated from operations will be sufficient to meet our ongoing business needs and other
obligations over the next twelve months and for the foreseeable future thereafter. Our ability to generate sufficient
cash depends on many factors beyond our control including, among other things, general charter rate environment.
Dividends
During 2021, the Company adopted a dividend policy which allows for a minimum dividend of 30% of its net
income, but not less than $0.10 per share, subject to approval from its board of directors. During the year ended
December 31, 2021, a quarterly cash dividend for the third quarter of 2021 of $2.00 per share was declared and paid
on November 24, 2021 to the shareholders of record as of November 15, 2021. On February 22, 2022, a quarterly
cash dividend for the fourth quarter of 2021 of $2.05 per share was declared and is to be paid on March 25, 2022 to
the shareholders of record as of March 15, 2022. We expect to continue paying cash dividends on a quarterly basis;
however, in the future, the declaration and payment of dividends, if any, will always be subject to the discretion of
the board of directors, restrictions contained in the Company’s debt facilities, and the requirements of Marshall
Islands law. The timing and amount of any dividends declared will depend on, among other things, the Company's
earnings, financial condition and cash requirements and availability, the ability to obtain debt and equity financing
on acceptable terms as contemplated by the Company's growth strategy, the terms of its outstanding indebtedness
and the ability of the Company's subsidiaries to distribute funds to it.
Debt Agreements
Refer to Note 6, Debt, to our consolidated financial statements above for a summary of our credit agreements.
Contractual Obligations
Information about the Company's contractual obligations can be found within Note 3, Vessels, Note 6, Debt, and
Note 10, Leases, in addition to the information presented below. We believe that funds from future operating cash
flows and cash on hand and available to us through our financing transactions will be sufficient for future operations
and commitments, and for capital acquisitions and other strategic transactions for the next 12 months and for the
foreseeable future thereafter.
Capital Expenditures
Our capital expenditures relate to the purchase of vessels and capital improvements to our vessels, which are
expected to enhance the revenue earning capabilities and compliance with new regulations.
In addition to acquisitions that we may undertake in future periods, the Company's other major capital expenditures
include funding the Company's program of regularly scheduled drydocking and vessel improvements necessary to
comply with international shipping standards and environmental laws and regulations. Although the Company has
some flexibility regarding the timing of its drydocking, the costs are relatively predictable. In accordance to the
statutory requirements, management anticipates that vessels are to be drydocked every five years for vessels younger
than 15 years and two and a half years for vessels older than 15 years. Funding of these requirements is anticipated
to be met with cash from operations. We anticipate that the process of recertification will require us to reposition
these vessels from a discharge port to shipyard facilities, which will reduce our available days and operating days
during that period.
87
During the third quarter of 2018, the Company entered into a contract for the purchase of BWTS on 39 of our owned
vessels. The projected costs, including installation, are approximately $0.5 million per BWTS. The Company
intends to complete the installation during scheduled drydockings. The Company completed installation of BWTS
on 23 vessels and recorded $11.5 million in Vessels and vessel improvements in the Consolidated Balance Sheet as
of December 31, 2021. Additionally, the Company recorded $4.4 million as advances paid towards installation of
BWTS as a noncurrent asset in its Consolidated Balance Sheet as of December 31, 2021. We intend to fund the
remaining BWTS installations with cash on hand.
Drydocking costs incurred are deferred and amortized to expense on a straight-line basis over the period through the
date of the next scheduled drydocking for those vessels. In 2021, 11 of our vessels completed drydock and two
vessels were in drydock as of December 31, 2021 and we incurred $21.9 million in drydocking related costs. In
2020, 11 of our vessels completed drydock and we incurred $14.3 million in drydocking related costs. The increase
in drydocking costs was primarily due to additional required upgrades including the installation of BWTS,
discretionary vessel upgrades, and an increase in shipyard costs due to shipyard congestion caused by the
COVID-19 pandemic.
The following table represents certain information about the estimated costs for anticipated vessel drydockings,
BWTS, and vessel upgrades in the next four quarters, along with the anticipated off-hire days:
Quarter Ending
March 31, 2022
June 30, 2022
September 30, 2022
December 31, 2022
Off-hire Days(2)
383
238
85
99
Projected Costs(1) (in millions)
BWTS
$
2.8 $
0.7
0.2
0.5
Drydocks
Vessel Upgrades(3)
1.2
0.4
—
—
4.1 $
4.0
0.1
0.3
(1) Actual costs will vary based on various factors, including where the drydockings are actually performed. We expect to fund these
costs with cash on hand.
(2) Actual duration of off-hire days will vary based on the age and condition of the vessel, yard schedules and other factors.
(3) Vessel upgrades represents capital expenditures relating to items such as high-spec low friction hull paint which improves fuel
efficiency and reduces fuel costs, NeoPanama Canal chock fittings enabling vessels to carry additional cargo through the new Panama
Canal locks, as well as other retrofitted fuel-saving devices. Vessel upgrades are discretionary in nature and evaluated on a business
case-by-case basis. We expect to fund these upgrades with cash on hand.
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Other Contingencies
We refer you to Note 9, Commitment and Contingencies, to our consolidated financial statements included in this
Annual Report for a discussion of our contingencies related to claim litigation. The potential impact from legal
proceedings on our business, liquidity, results of operations, financial position and cash flows, could change in the
future.
88
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
The Company is exposed to market risk from changes in interest rates, which could impact its results of operations
and financial condition. The Company's objective is to manage the impact of interest rate changes on its earnings
and cash flows. The Company expects to manage this exposure to market risk through its regular operating and
financing activities and, when deemed appropriate, using derivative financial instruments. The Company has entered
into, and in the future may enter into additional, interest rate swaps to manage net exposure to interest rate changes
related to its borrowings and to lower its overall borrowing costs. On October 1, 2021, the Company, along with
certain of its vessel-owning subsidiaries, as guarantors, entered into the Global Ultraco Debt Facility with the Global
Ultraco Lenders. The Global Ultraco Debt Facility provides for an aggregate principal amount of $400.0 million,
which consists of (i) the Global Ultraco Term Facility in an aggregate principal amount of $300.0 million and (ii) the
Global Ultraco Revolving Facility in an aggregate principal amount of $100.0 million to be used for refinancing the
outstanding debt including accrued interest and commitment fees under the Previous Debt Facilities and for general
corporate purposes. Additionally, the Company entered into four interest rate swaps for the notional amount of
$300.0 million of the term loan under the Global Ultraco Debt Facility at a fixed interest rate ranging between
0.83% and 1.06% to hedge the LIBOR-based floating interest rate. The interest rate swaps were designated and
qualified as a cash flow hedge. The Company uses the interest rate swaps for the management of interest rate risk
exposure, as the interest rate swaps effectively convert a portion of the Company’s debt from a floating to a fixed
rate. The interest rate swaps are an agreement between the Company and counterparties to pay, in the future, a fixed-
rate payment in exchange for the counterparties paying the Company a variable payment. The amount of the net
payment obligation is based on the notional amount of the interest rate swaps and the prevailing market interest
rates. The Company may terminate the interest rate swaps prior to their expiration dates, at which point a realized
gain or loss would be recognized. The value of the Company’s commitment would increase or decrease based
primarily on the extent to which interest rates move against the rate fixed for each swap.
At December 31, 2021, the Company’s debt consisted of $114.1 million, net of $13.2 million in debt discount and
debt issuance costs under the Convertible Bond Debt and $287.6 million, net of $8.5 million in debt issuance costs
under the Global Ultraco Debt Facility. In addition, we have $100.0 million in an undrawn revolver facility available
under the Global Ultraco Debt Facility. The Convertible Bond Debt carries a fixed interest rate of 5.00% and
therefore does not carry any exposure to interest rate increases. The interest rate on our outstanding term loan debt
under the Global Ultraco Debt Facility is fixed with interest rate swaps which were entered into in the fourth quarter
of 2021. Therefore the only outstanding debt which has any exposure to interest rate fluctuations is our revolving
facility under the Global Ultraco Debt Facility, which carries an interest of margin plus LIBOR. Our total cash
interest expense for the year ended December 31, 2021 on our outstanding revolver loan under the Global Ultraco
Debt Facility was $0.1 million. The table below provides sensitivity analysis of changes in interest rates for an
increase or decrease of 100 basis points and an increase of 200 basis points and the increase in annual interest
expense under each scenario if our revolver facility is fully drawn at $100.0 million.
+200 basis points
+100 basis points
-100 basis points
Incremental interest expense
For the year ended
December 31, 2021
For the year ended
December 31, 2020
$
2,000,000 $
1,000,000
(1,000,000)
1,400,000
700,000
(700,000)
For information regarding our use of interest rate swaps, see Note 7, Derivative Instruments, to our consolidated
financial statements.
89
Foreign Currency and Exchange Rate Risk
The shipping industry in which the Company operates substantially transacts using the U.S. dollar. The Company
generates all of its revenues in U.S. dollars and the Company’s current exposure to currency fluctuations is not
material. The majority of the Company's operating expenses are in U.S. dollars. However, we incur some of our
voyage expenses and vessel operating expenses in other currencies. The amount and frequency of some of these
expenses may fluctuate from period to period. Depreciation in the value of the U.S. dollar relative to other
currencies will increase the U.S. dollar cost to us of paying such expenses. There is currently no expectation that that
there would be an increase in the business conducted in foreign currencies. In the future if there is a substantial
increase in our foreign currency transactions, our exposure could increase and we may seek to hedge against any
currency fluctuation.
Item 8. Financial Statements and Supplementary Data
The information required by this item is contained in the financial statements set forth in Item 15(a) under the
caption "Consolidated Financial Statements" as part of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and our 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 Securities 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 were effective as of December 31, 2021. The Company’s disclosure controls and procedures are
designed to provide reasonable assurance 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 and that such information is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
Management's 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) and 15d-15(f) of the Exchange Act. The Company's internal control over
financial reporting is a process designed by, or 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 generally
accepted accounting principles.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework
(2013). Based on management’s assessment and those criteria, management has concluded that the Company
maintained effective internal control over financial reporting as of December 31, 2021.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of the Company's assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
90
statements in accordance with generally accepted accounting principles, and that the Company's receipts and
expenditures are being made only in accordance with authorizations of management and the directors of the
Company; and 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.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2021 has been
audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which
is included in Part IV. Item 15. Exhibits, Financial Statement Schedules under the heading, “Report of Independent
Registered Public Accounting Firm.”
Changes in Internal Control Over Financial Reporting
In addition, we evaluated our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of
the Exchange Act and there have been no changes in our internal control over financial reporting that occurred
during the fourth quarter of 2021 that materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Item 9B. Other Information
None
91
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding our directors, executive officers and certain corporate governance items will be included in
the proxy statement for the 2022 annual meeting of shareholders, to be filed within 120 days after December 31,
2021, and is incorporated by reference to this Form 10-K.
Item 11. Executive Compensation
Information regarding executive compensation will be included in the proxy statement for the 2022 annual meeting
of shareholders, to be filed within 120 days after December 31, 2021, and is incorporated by reference to this Form
10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
On December 15, 2016, the Company adopted the 2016 Equity Incentive Plan (the “2016 Plan”) which replaced the
2014 Plan. Under the terms of the 2016 Plan, a maximum of 1,121,229 shares may be issued. Any director, officer,
employee or consultant of the Company or any of its subsidiaries (including any prospective officer or employee) is
eligible to be designated to participate in the 2016 Plan.
The following table sets forth certain information as of December 31, 2021 regarding the 2016 Plan. The 2016 Plan
was approved by our shareholders on December 15, 2016.
Number of
Securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
Weighted-average
exercise price of
outstanding
options, warrants
and rights
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans(excluding
securities reflected
in column (a))
Plan Category
Equity compensation plans approved by security
holders
(a)*
(b)
(c)*
47,568 $
38.60
191,013
* The sum, combined with 882,648 restricted shares issued consists of 1,121,229 shares eligible to be granted under
the 2016 Plan.
Information regarding beneficial ownership and management and related stockholder matters will be included in the
proxy statement for the 2022 annual meeting of shareholders, to be filed within 120 days after December 31, 2021,
and is incorporated by reference to this Form 10-K.
92
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain relationships and related transactions and director independence will be included in
the proxy statement for the 2022 annual meeting of shareholders, to be filed within 120 days after December 31,
2021, and is incorporated by reference to this Form 10-K.
Item 14. Principal Accountant Fees and Services
Information regarding principal accounting fees and services billed to us by our principal accountant, Deloitte &
Touche LLP (PCAOB ID No. 34) will be included in the proxy statement for the 2022 annual meeting of
shareholders, to be filed within 120 days after December 31, 2021, and is incorporated by reference to this Form 10-
K.
93
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Documents filed as part of this Annual Report on Form 10-K
1.
2.
Consolidated Financial Statements: See accompanying Index to Consolidated Financial Statements.
Consolidated Financial Statement Schedule: Financial statement schedules are omitted either due to the
absence of conditions under which they are required or because the information required is included in
the notes to the Company’s consolidated financial statements.
(b) Exhibits
Number
3.1
3.2
3.3
4.1
4.2
4.3*
4.4
4.5
10.1#
10.2#
10.3#
10.4#
Exhibit Title
Second Amended and Restated By-Laws of Eagle Bulk Shipping Inc., dated as of October 15, 2014
(incorporated by reference to Exhibit 3.2 to the Report on Form 8-K of Eagle Bulk Shipping Inc.,
filed with the SEC on October 16, 2014; File No. 001-33831).
Third Amended and Restated Articles of Incorporation of Eagle Bulk Shipping Inc., dated as of
August 4, 2016 (incorporated by reference to Exhibit 3.1 to the Report on Form 8-K of Eagle Bulk
Shipping Inc., filed with the SEC on August 4, 2016; File No. 001-33831).
Articles of Amendment to Third Amended and Restated Articles of Incorporation of Eagle Bulk
Shipping Inc. (incorporated by reference to Exhibit 3.1 to the Report on Form 8-K of Eagle Bulk
Shipping Inc., filed with the SEC on September 14, 2020; File No. 001-33831).
Form of Specimen Stock Certificate of Eagle Bulk Shipping Inc. (incorporated by reference to
Exhibit 4.1 to the Report on Form 8-K of Eagle Bulk Shipping Inc., filed with the SEC on October
16, 2014; File No. 001-33831).
Amended and Restated Registration Rights Agreement, dated as of May 13, 2016, by and between
Eagle Bulk Shipping Inc. and the Holders party thereto (incorporated by reference to Exhibit 10.1 to
the Report on Form 8-K of Eagle Bulk Shipping Inc., filed with the SEC on May 17, 2016; File No.
001-33831).
Description of Securities.
Indenture, dated July 29, 2019, by and between Eagle Bulk Shipping Inc. and Deutsche Bank Trust
Company Americas, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K filed with the SEC on August 2, 2019).
Form of Note representing the Company's 5.00% Convertible Senior Notes due 2024 (included as
Exhibit A to the Indenture filed as Exhibit 4.1) (incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K filed with the SEC on August 2, 2019).
Eagle Bulk Shipping Inc. Amended and Restated 2016 Equity Incentive Plan (incorporated by
reference to Appendix A of the Company’s Definitive Proxy Statement on Schedule 14A (File No.
001-33831) filed with the SEC on April 25, 2019).
Employment Agreement, dated October 29, 2021, among Eagle Bulk Shipping Inc., Eagle Shipping
International (USA) LLC and Gary Vogel (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K of Eagle Bulk Shipping Inc., filed with the SEC on November 1, 2021; File No.
001-33831).
Employment Agreement, dated September 3, 2016, among Eagle Bulk Shipping Inc., Eagle Shipping
International (USA) LLC and Frank De Costanzo (incorporated by reference to Exhibit 10.6 to the
Quarterly Report on Form 10-Q of Eagle Bulk Shipping Inc., filed with the SEC on November 9,
2016; File No. 001-33831).
Option Award Agreement, dated November 7, 2016, between Frank De Costanzo and Eagle Bulk
Shipping Inc. (incorporated by reference to Exhibit 10.1 to the Report on Form 8-K of Eagle Bulk
Shipping Inc., filed with the SEC on November 9, 2016; File No. 001-33831).
94
10.5#
10.6#
10.7#
10.8
10.9*
10.10#*
10.11#*
21.1*
23.1*
23.2*
31.1*
31.2*
32.1**
32.2**
Option Award Agreement, dated December 15, 2016, between Gary Vogel and Eagle Bulk Shipping
Inc. (incorporated by reference to Exhibit 10.38 to the Annual Report on Form 10-K of Eagle Bulk
Shipping Inc., filed with the SEC on March 31, 2017; File No. 001-33831).
Form of Restricted Stock Award Agreement under the Eagle Bulk Shipping Inc. 2016 Equity
Incentive Plan (incorporated by reference to Exhibit 10.1 to the Report on Form 8-K of Eagle Bulk
Shipping Inc., filed with the SEC on March 7, 2017; File No. 001-33831).
Form of Option Award Agreement under the Eagle Bulk Shipping Inc. 2016 Equity Incentive Plan
(incorporated by reference to Exhibit 10.2 to the Report on Form 8-K of Eagle Bulk Shipping Inc.,
filed with the SEC on March 7, 2017; File No. 001-33831).
At Market Issuance Sales Agreement with B. Riley Securities, Inc., BTIG, LLC and Fearnley
Securities, Inc. (incorporated by reference to Exhibit 1.1 to the Report on Form 8-K of Eagle Bulk
Shipping Inc. filed with the SEC on March 12, 2021; File No. 001-33831).
Senior Secured Credit Facility, dated October 1, 2021, by and between Eagle Bulk Shipping, Inc.,
certain vessel-owning subsidiaries, as guarantors, the lenders party thereto, the swap banks party
thereto, Credit Agricole Corporate and Investment Bank, Skandinaviska Enskilda Banken AB
(PUBL), Danish Ship Finance A/S, Nordea Bank ABP, Filial I Norge and DNB Markets Inc., as
mandated lead arrangers and bookrunners, DNB Bank ASA, as swap coordinator, Deutsche Bank AG
and ING Bank N.V., London Branch, as lenders, and Credit Agricole, as security trustee, structurer,
sustainability coordinator and facility agent
Restricted Stock Award Agreement under the Eagle Bulk Shipping Inc. 2016 Equity Incentive Plan,
dated September 3, 2021, between Gary Vogel and Eagle Bulk Shipping Inc.
Restricted Stock Award Agreement under the Eagle Bulk Shipping Inc. 2016 Equity Incentive Plan,
dated September 3, 2021, between Frank De Costanzo and Eagle Bulk Shipping Inc.
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Consent of Seward & Kissel LLP.
Rule 13a-14(d) / 15d-14(a) Certification of Principal Executive Officer.
Rule 13a-14(d) / 15d-14(a) Certification of Principal Financial Officer.
Section 1350 Certification of Principal Executive Officer.
Section 1350 Certification of Principal Financial Officer.
101.INS*
XBRL Instance Document.
101.SCH* XBRL Schema Document.
101.CAL* XBRL Calculation Linkbase Document.
101.DEF* XBRL Definition Linkbase Document.
101.LAB* XBRL Labels Linkbase Document.
101.PRE* XBRL Presentation Linkbase Document.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith.
** Furnished herewith.
# Management contract or compensatory plan or arrangement.
95
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EAGLE BULK SHIPPING INC.
By:
/s/ Gary Vogel
Name: Gary Vogel
Title: Chief Executive Officer
March 11, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on March 11, 2022.
Name
Title
/s/ Gary Vogel
Gary Vogel
/s/ Frank De Costanzo
Frank De Costanzo
/s/ Paul M. Leand, Jr.
Paul M. Leand, Jr.
/s/ Randee E. Day
Randee E. Day
/s/ Justin A. Knowles
Justin A. Knowles
/s/ Bart Veldhuizen
Bart Veldhuizen
/s/ Gary Weston
Gary Weston
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Chairman of the Board of Directors
Director
Director
Director
Director
96
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID No.34)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2021, 2020
and 2019
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2021, 2020
and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
F-2
F-5
F-7
F-8
F-9
F-12
F-14
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of Eagle Bulk Shipping Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Eagle Bulk Shipping Inc. and subsidiaries (the
"Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive
income/(loss), changes in stockholders’ equity and cash flows, for each of the three years in the period ended
December 31, 2021, and the related notes (collectively referred to as the "financial statements"). We also have
audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control -
Integrated Framework (2013) issued by COSO.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, effective January 1, 2019, the Company adopted FASB
Accounting Standards Update 2016-02, Leases, using the modified retrospective approach.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (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 audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of
the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such
procedures included 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. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
F- 2
Definition and Limitations of 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 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Determination of Vessel Asset Impairment Indicators — Refer to Note 2 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of vessel assets for impairment involves an initial assessment of each vessel asset to
determine whether events or changes in circumstances exist that may indicate that the carrying amounts of vessel
assets are no longer recoverable. Total Vessels and vessel improvements, at cost, net of accumulated depreciation as
of December 31, 2021 and 2020, were $908 million and $811 million, respectively.
Possible indications of impairment may include events or changes in circumstances affecting the legal environment,
the business climate, employment, charter hire rates, market value, useful economic life and physical condition of
the vessel assets. When events or changes in circumstances exist, the Company evaluates its vessel assets for
impairment by comparing undiscounted future cash flows expected to be generated over the life of each vessel asset
to the respective carrying amount. If the Company’s estimate of undiscounted future cash flows for any vessel asset
for which indicators of impairment exist is lower than the vessel asset’s carrying value, and the vessel’s carrying
value is greater than its fair market value, the carrying value is written down, by recording a charge to operations, to
the vessel asset’s fair market value.
The Company makes significant assumptions to evaluate vessel assets for possible indications of impairment.
Changes in these assumptions could have a significant impact on the vessel assets identified for further analysis. For
the years ended December 31, 2021, 2020, and 2019, no impairment loss has been recognized on vessel assets.
We identified the determination of impairment indicators for vessel assets as a critical audit matter because of the
significant assumptions management makes when determining whether events or changes in circumstances have
occurred indicating that the carrying amounts of vessel assets may not be recoverable. This required a high degree of
auditor judgment and an increased extent of effort when performing audit procedures to evaluate whether
management appropriately identified impairment indicators.
F- 3
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the evaluation of vessel assets for possible indications of impairment included the
following, among others:
• We tested the effectiveness of the controls over management’s identification of possible circumstances that
may indicate that the carrying amounts of vessel assets are no longer recoverable, including controls over
management’s estimates of the legal environment, the business climate, employment, charter hire rates,
market value, useful economic life and physical condition of the vessel assets.
• We evaluated management’s impairment analysis by:
◦
◦
◦
Testing vessel assets for possible indications of impairment, including searching for adverse asset-
specific and/or market conditions.
Developing an independent expectation of impairment indicators and comparing such expectation
to management’s analysis.
Obtained from the Company’s management the vessel assets impairment indicators analysis and
the assumptions used in the legal environment, the business climate, employment, charter hire
rates, market value, and physical condition of the vessel assets, and considered the consistency of
the assumptions used with evidence obtained in other areas of the audit. This included, among
others, 1) internal communications by management to the board of directors, and 2) external
communications by management to analysts and investors.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 11, 2022
We have served as the Company's auditor since 2015.
F- 4
EAGLE BULK SHIPPING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in U.S. dollars except share data)
December 31, 2021
December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash - current
Accounts receivable, net of a reserve of $1,818,482 and $2,357,191, respectively
Prepaid expenses
Inventories
Collateral on derivatives
Fair value of derivative assets - current
Other current assets
Total current assets
Noncurrent assets:
$
86,146,552 $
—
28,456,036
3,361,730
17,651,381
15,080,567
4,668,873
667,677
69,927,594
18,846,177
13,843,480
3,182,815
11,624,833
—
—
839,881
156,032,816
118,264,780
Vessels and vessel improvements, at cost, net of accumulated depreciation of
$218,669,885 and $177,771,755, respectively
908,075,913
810,713,959
Advances for vessel purchases
Operating lease right-of-use assets
Other fixed assets, net of accumulated depreciation of $1,402,584 and
$1,137,562, respectively
Restricted cash - noncurrent
Deferred drydock costs, net
Fair value of derivative assets - noncurrent
Advances for scrubbers and ballast water systems and other assets
Total noncurrent assets
Total assets
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued interest
Other accrued liabilities
Fair value of derivative liabilities - current
Current portion of operating lease liabilities
Unearned charter hire revenue
Current portion of long-term debt
Total current liabilities
Noncurrent liabilities:
Norwegian Bond Debt, net of debt discount and debt issuance costs
Super Senior Facility, net of debt issuance costs
New Ultraco Debt Facility, net of debt issuance costs
Global Ultraco Debt Facility, net of debt issuance costs
Convertible Bond Debt, net of debt discount and debt issuance costs
Noncurrent portion of operating lease liabilities
Other noncurrent accrued liabilities
F- 5
—
17,017,429
257,228
75,000
37,093,531
3,112,091
4,994,416
970,625,608
3,250,000
7,540,871
489,179
75,000
24,153,776
—
2,639,491
848,862,276
$
1,126,658,424 $
967,127,056
$
20,781,295 $
10,589,970
2,957,241
17,993,299
4,253,155
15,728,107
12,087,586
49,800,000
123,600,683
—
—
—
229,289,860
100,953,744
1,282,553
265,365
4,690,135
11,747,064
481,791
7,615,371
8,072,295
39,244,297
82,440,923
169,290,230
14,896,357
132,083,949
—
96,660,485
686,422
—
Fair value of derivative liabilities - noncurrent
Total noncurrent liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 25,000,000 shares authorized, none issued as of
December 31, 2021 and 2020
Common stock, $0.01 par value, 700,000,000 shares authorized, 12,917,027 and
11,661,797 shares issued and outstanding as of December 31, 2021 and 2020,
respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income/(loss)
Total stockholders' equity
Total liabilities and stockholders' equity
—
331,791,522
455,392,205
650,607
414,268,050
496,708,973
—
—
129,170
116,618
982,745,562
943,571,685
(313,494,798)
(472,137,822)
1,886,285
671,266,219
(1,132,398)
470,418,083
$
1,126,658,424 $
967,127,056
The accompanying notes are an integral part of these Consolidated Financial Statements.
F- 6
EAGLE BULK SHIPPING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in U.S. dollars except share data)
Revenues, net
Voyage expenses
Vessel operating expenses
Charter hire expenses
Depreciation and amortization
General and administrative expenses
Impairment of operating lease right-of-use
assets
Other operating expense
(Gain)/loss on sale of vessels
Total operating expenses, net
For the Years Ended
December 31, 2021 December 31, 2020 December 31, 2019
$
594,537,654 $
275,133,547 $
292,377,638
104,643,078
103,876,600
37,101,692
53,517,372
35,160,889
—
2,812,415
(3,966,370)
89,548,796
86,527,915
21,280,224
50,157,147
31,532,109
352,368
—
489,772
87,701,407
82,342,123
42,168,642
40,545,904
35,041,996
—
1,125,000
(5,978,566)
333,145,676
279,888,331
282,946,506
Operating income/(loss)
261,391,978
(4,754,784)
9,431,132
Interest expense
Interest income
Realized and unrealized loss/(gain) on
derivative instruments, net
Loss on debt extinguishment
Total other expense, net
Net income/(loss)
Weighted average shares outstanding*:
Basic*
Diluted*
Per share amounts:
Basic net income/(loss) *
Diluted net income/(loss) *
32,256,787
35,392,623
(91,533)
(257,165)
38,243,746
6,085,094
76,494,094
(4,826,774)
—
30,308,684
30,577,489
(1,867,326)
149,632
2,268,452
31,128,247
$
184,897,884 $
(35,063,468) $
(21,697,115)
12,399,509
15,684,392
10,310,246
10,310,246
10,195,088
10,195,088
$
$
14.91 $
11.79 $
(3.40) $
(3.40) $
(2.13)
(2.13)
* Adjusted to give effect for the 1-for-7 Reverse Stock Split that became effective as of September 15, 2020, see
Note 1, General Information.
The accompanying notes are an integral part of these Consolidated Financial Statements.
F- 7
EAGLE BULK SHIPPING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(in U.S. dollars)
Net income/(loss)
$
184,897,884 $
(35,063,468) $
(21,697,115)
December 31, 2021
For the Years Ended
December 31, 2020
December 31, 2019
Other comprehensive income/(loss):
Net unrealized gain/(loss) on cash
flow hedges
3,018,683
(1,132,398)
—
Comprehensive income/(loss)
$
187,916,567 $
(36,195,866) $
(21,697,115)
The accompanying notes are an integral part of these Consolidated Financial Statements.
F- 8
EAGLE BULK SHIPPING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in U.S. dollars except share data)
F- 9
Common
Shares*
Common
Shares
Amount*
Additional
paid-in
Capital*
Accumulated
Deficit
Accumulated
other
comprehensive
income/(loss)
Total
Stockholders’
Equity
Balance at January 1, 2019
10,150,771 $ 101,508 $ 894,881,580 $ (415,377,239) $
— $ 479,605,849
—
(21,697,115)
—
(21,697,115)
Net loss
Proceeds received from the Share
Lending Agreement
Issuance of shares due to vesting
of restricted shares
Equity component of Convertible
Bond Debt, net of equity issuance
costs
Cash used to settle net share
equity awards
Stock-based compensation
—
—
—
—
35,829
63,829
638
(638)
—
—
—
—
20,175,803
—
—
(1,443,753)
4,826,324
Balance at December 31, 2019
10,214,600
102,146
918,475,145
(437,074,354)
Net loss
—
—
—
(35,063,468)
Issuance of shares due to vesting
of restricted shares
Issuance of common shares for
Equity Offerings
Fees for Equity Offerings
Cash used to settle net share
equity awards
Cash used to settle fractional
shares in the Reverse Stock Split
Unrealized loss on cash flow
hedges
Stock-based compensation
65,982
660
(660)
1,381,215
13,812
23,803,693
—
—
—
—
—
—
(579,651)
—
(1,162,609)
—
—
—
(12,513)
—
3,048,280
—
—
—
—
—
—
—
Net income
Dividends declared
Issuance of shares due to vesting
of restricted shares
Issuance of shares upon exercise
of stock options
Issuance of shares upon
conversion of Convertible Bond
Debt
Issuance of shares upon
conversion of warrants
Issuance of shares from ATM
Offering, net of commissions and
issuance costs
Fees for Equity Offerings
Cash used to settle net share
equity awards
Unrealized gain on cash flow
hedges
Stock-based compensation
—
—
184,897,884
(26,254,860)
—
—
81,281
50,641
—
—
813
506
(813)
55,072
25
—
982
541,898
5,419
10,674,569
581,385
5,814
27,132,524
—
—
—
—
—
(232,971)
—
(1,936,581)
—
—
—
3,481,095
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
35,829
—
20,175,803
(1,443,753)
4,826,324
481,502,937
(35,063,468)
—
23,817,505
(579,651)
(1,162,609)
(12,513)
(1,132,398)
(1,132,398)
—
3,048,280
—
—
—
—
—
—
—
—
—
184,897,884
(26,254,860)
—
55,578
982
10,679,988
27,138,338
(232,971)
(1,936,581)
3,018,683
—
3,018,683
3,481,095
Balance at December 31, 2020
11,661,797
116,618
943,571,685
(472,137,822)
(1,132,398) 470,418,083
Balance at December 31, 2021
12,917,027 $ 129,170 $ 982,745,562 $ (313,494,798) $
1,886,285 $ 671,266,219
F- 10
* Adjusted retroactively to give effect for the 1-for-7 Reverse Stock Split that became effective as of September
15, 2020, see Note 1, General Information.
The accompanying notes are an integral part of these Consolidated Financial Statements.
F- 11
EAGLE BULK SHIPPING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in U.S. dollars)
Cash flows from operating activities:
Net income/(loss)
Adjustments to reconcile net income/(loss) to net cash provided by
operating activities:
Depreciation
Amortization of deferred drydocking costs
Amortization of operating lease right-of-use assets
Amortization of debt discount and debt issuance costs
Loss on debt extinguishment
(Gain)/loss on sale of vessels
Impairment of operating lease right-of-use assets
Net unrealized loss/(gain) on fair value of derivatives
Stock-based compensation expense
Drydocking expenditures
Changes in operating assets and liabilities:
Accounts payable
Accounts receivable
Accrued interest
Inventories
Operating lease liabilities current and noncurrent
Collateral on derivatives
Fair value of derivatives, other current and noncurrent assets
Other accrued liabilities
Prepaid expenses
Unearned charter hire revenue
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of vessels and vessel improvements
Advances for vessel purchases
Purchase of scrubbers and ballast water treatment systems
Proceeds from hull and machinery insurance claims
Proceeds from sale of vessels
Purchase of other fixed assets
For the Years Ended
December 31,
2021
December 31,
2020
December 31,
2019
$ 184,897,884 $ (35,063,468) $ (21,697,115)
44,861,755
42,778,395
34,318,053
8,655,617
7,378,752
6,227,851
16,364,248
12,516,798
12,764,596
7,082,655
6,085,094
(3,966,370)
—
6,272,309
—
489,772
352,368
3,783,939
2,268,452
(5,978,566)
—
68,153
(536,935)
(75,537)
3,481,095
3,048,280
4,826,324
(21,906,358)
(14,293,562)
(11,903,474)
10,066,523
(4,170,779)
3,199,113
(14,966,819)
1,917,765
(6,902)
(1,732,894)
(630,954)
3,585,458
(6,026,548)
4,199,445
313,507
(17,131,939)
(13,255,978)
(13,475,534)
(15,080,567)
—
(1,622,099)
(228,992)
6,204,957
(3,006,946)
(178,915)
1,448,601
—
1,503,904
4,261,774
4,463
4,015,291
3,380,036
(2,234,580)
209,170,763
12,594,907
21,685,726
(128,253,515)
(979,612)
(143,477,720)
—
(3,250,000)
—
(6,712,172)
(28,376,566)
(58,196,164)
354,263
3,943,667
3,845,967
9,163,354
23,224,650
29,560,746
(33,071)
(53,794)
(351,434)
Net cash used in investing activities
(125,481,141)
(5,491,655)
(168,618,605)
Cash flows from financing activities:
Proceeds from the revolver loan under New First Lien Facility
Payment of revolver under New First Lien Facility
Proceeds from Convertible Bond Debt, net of debt discount
—
—
—
—
—
—
5,000,000
(5,000,000)
112,482,586
F- 12
Proceeds from New Ultraco Debt Facility
Proceeds from Share Lending Agreement
16,500,000
22,550,000
187,760,000
—
—
35,829
Proceeds from the revolver loan under New Ultraco Debt Facility
55,000,000
55,000,000
Proceeds from the Super Senior Facility
Proceeds from Holdco Revolving Credit Facility
Proceeds from the Global Ultraco Debt Facility
Proceeds from the revolver loan under the Global Ultraco Debt Facility
Proceeds from issuance of shares under ATM Offering, net of commissions
Repayment of New First Lien Facility - term loan
Repayment of Norwegian Bond Debt
Repayment of Original Ultraco Debt Facility
—
15,000,000
24,000,000
300,000,000
50,000,000
27,138,338
—
—
—
—
—
—
—
—
—
—
—
—
(60,000,000)
(184,356,000)
(8,000,000)
(8,000,000)
—
—
(82,600,000)
Repayment of term loan under New Ultraco Debt Facility
(182,929,593)
(28,734,393)
(15,146,013)
Repayment of term loan under Global Ultraco Debt Facility
Repayment of revolver loan under New Ultraco Debt Facility
Repayment of revolver loan under Super Senior Facility
Repayment of revolver loan under Holdco Revolving Credit Facility
Repayment of revolver loan under Global Ultraco Debt Facility
Financing costs paid to lenders
Other financing costs
(Payments on)/proceeds from Equity Offerings, net of issuance costs
Cash received from exercise of stock options
Cash used to settle fractional shares
Dividends paid
Cash used to settle net share equity awards
Net cash (used in)/provided by financing activities
(12,450,000)
—
(55,000,000)
(55,000,000)
(15,000,000)
(24,000,000)
(50,000,000)
—
—
—
—
—
—
—
—
(6,351,489)
(381,471)
(3,533,770)
(730,711)
(141,634)
(1,655,353)
(492,972)
23,497,854
55,578
—
(23)
(12,513)
(25,763,388)
—
—
—
—
—
(1,936,581)
(1,162,609)
(1,443,753)
(86,316,841)
22,615,234
127,899,526
Net (decrease)/increase in cash, cash equivalents and restricted cash
(2,627,219)
29,718,486
(19,033,353)
Cash, cash equivalents and restricted cash at beginning of year
88,848,771
59,130,285
78,163,638
Cash, cash equivalents and restricted cash at end of year
$ 86,221,552 $ 88,848,771 $ 59,130,285
Supplemental cash flow information:
Accruals for vessel purchases and vessel improvements included in Other
accrued liabilities
Accruals for scrubbers and ballast water treatment systems in Accounts
payable and Other accrued liabilities
Accruals for dividends payable included in Other accrued liabilities and Other
noncurrent accrued liabilities
Fair value of warrants issued as consideration for vessel purchases included in
Vessels and vessel improvements
Accruals for equity issuance costs included in Accounts payable and Other
accrued liabilities
$
$
$
72,597 $
— $
—
3,306,853 $
3,154,693 $ 16,380,168
491,472 $
— $
$ 10,679,988 $
— $
$
— $
260,000 $
—
—
—
Cash paid during the period for interest
$ 25,966,735 $ 29,603,965 $ 23,208,093
The accompanying notes are an integral part of these Consolidated Financial Statements.
F- 13
EAGLE BULK SHIPPING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. General Information
The accompanying consolidated financial statements include the accounts of Eagle Bulk Shipping Inc. and its
wholly-owned subsidiaries (collectively, the "Company,” “we” or “our” or similar terms). The Company is engaged
in the ocean transportation of drybulk cargoes worldwide through the ownership, charter and operation of drybulk
vessels. The Company's fleet is comprised of Supramax and Ultramax drybulk carriers and the Company operates its
business in one business segment.
Each of the Company’s vessels serve the same type of customer, have similar operation and maintenance
requirements, operate in the same regulatory environment, and are subject to similar economic characteristics. Based
on this, the Company has determined that it operates in one reportable segment, which is engaged in the ocean
transportation of drybulk cargoes worldwide through the ownership and operation of drybulk carrier vessels.
The Company is a holding company incorporated in 2005, under the laws of the Republic of the Marshall Islands
and is the sole owner of all of the outstanding shares of its wholly-owned subsidiaries formed in the Republic of the
Marshall Islands. The primary activity of each of the subsidiaries is the ownership of a vessel. The operations of the
vessels are managed by a directly wholly-owned subsidiary of the Company, Eagle Bulk Management LLC, a
Republic of the Marshall Islands limited liability company.
As of December 31, 2021, the Company owned and operated a modern fleet of 53 ocean-going vessels, including 27
Supramax and 26 Ultramax vessels, with a combined carrying capacity of 3.19 million deadweight tons ("dwt") and
an average age of approximately 9.3 years. Additionally, the Company chartered-in four Ultramax vessels for
remaining lease term of less than one year. The Company also charters-in third-party vessels on a short to medium
term basis. For the years ended December 31, 2021, 2020 and 2019, the Company had no charterers which
individually accounted for more than 10% of the Company's gross charter revenue.
In March 2021, the Company entered into an at market issuance sales agreement with B. Riley Securities, Inc.,
BTIG, LLC and Fearnley Securities, Inc., as sales agents (each, a “Sales Agent” and collectively, the “Sales
Agents”), to sell shares of common stock, par value $0.01 per share, of the Company with aggregate gross sales
proceeds of up to $50.0 million, from time to time through an “at-the-market” offering program (the “ATM
Offering”). During the second quarter of 2021, the Company sold and issued an aggregate of 581,385 shares at a
weighted-average sales price of $47.97 per share under the ATM Offering for aggregate net proceeds of
$27.1 million after deducting sales agent commissions and other offering costs. The proceeds were used for partial
financing of vessel acquisitions and other corporate purposes.
Effective as of September 15, 2020, the Company completed a 1-for-7 reverse stock split (the “Reverse Stock Split”)
of the Company's issued and outstanding shares of common stock, par value $0.01 per share. Proportional
adjustments were made to the Company’s issued and outstanding common stock and to the exercise price and the
number of shares issuable upon exercise of all of the Company’s outstanding warrants, the exercise price and
number of shares issuable upon exercise of the options outstanding under the Company’s equity incentive plans, and
the number of shares subject to restricted stock awards under the Company’s equity incentive plans. Furthermore,
the conversion rate set forth in the indenture governing the Company’s Convertible Bond Debt was adjusted to
reflect the Reverse Stock Split. No fractional shares of common stock were issued in connection with the Reverse
Stock Split. Furthermore, if a shareholder held less than seven shares prior to the Reverse Stock Split, then such
shareholder received cash in lieu of the fractional share. All references herein to common stock and per share data
for all periods presented in these consolidated financial statements and notes thereto, have been retrospectively
adjusted to reflect the Reverse Stock Split.
F- 14
On March 11, 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) outbreak a
pandemic. In response to the pandemic, many countries, ports and organizations, including those where the
Company conducts a large part of its operations, have implemented measures to combat the pandemic, such as
quarantines, mask and vaccine mandates, and travel restrictions. Such measures have caused and may continue to
cause severe trade disruptions. The ongoing pandemic resulted in the decline in charter hire rates which impacted
our revenues and cash flow from operations for the year ended December 31, 2020. The Company experienced some
delays in cargo operations due to port restrictions and additional protocols and cancellation of a few cargo contracts.
However, the Company was able to secure alternative business for its vessels upon cancellation at the prevailing
charter rates. As a result of the spread of COVID-19, the Company has incurred some additional crewing expenses
relating to procurement of personal protective equipment, COVID-19 testing, and crew travel, which is included in
our Vessel operating expenses in our Consolidated Statements of Operations for the years ended December 31, 2021
and 2020. Additionally, the Company experienced some delays in drydocking and BWTS installations, operations
and crew changes due to quarantine regulations and COVID-19 testing and resulting off-hire days.
Although the disruption from COVID-19 may only be temporary, given the dynamic nature of these circumstances,
the duration of business disruption and the related financial impact cannot be reasonably estimated at this time but
could materially affect our business, results of operations and financial condition.
Note 2. Significant Accounting Policies
(a)
(b)
(c)
Principles of Consolidation: The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States (“U.S. GAAP” or “GAAP”)
and include the accounts of Eagle Bulk Shipping Inc. and its wholly-owned subsidiaries. All intercompany
balances and transactions were eliminated upon consolidation.
Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Significant
estimates include vessel impairment, vessel valuations, residual value of vessels, the useful lives of vessels,
the value of stock-based compensation, fair value of the Convertible Bond Debt (as defined below) and its
equity component, estimated losses on our trade receivables, fair value of right-of-use assets and lease
liabilities and the fair value of derivatives. Actual results could differ from those estimates.
Cash, Cash Equivalents and Restricted Cash: The Company considers highly liquid investments such as
time deposits and certificates of deposit with an original maturity of three months or less at the time of
purchase to be cash equivalents. The Restricted cash - current balance as of December 31, 2020 relates to
the proceeds from the sale of vessels, which were restricted pursuant to the terms under the Norwegian
Bond Debt. Please see Note 6, Debt, for additional information. Additionally, the Company also had
Restricted cash - noncurrent of $0.1 million for collateralizing a letter of credit on our office lease as of
December 31, 2021 and 2020.
The following table provides a reconciliation of cash, cash equivalents and restricted cash within the
Consolidated Balance Sheets that sum to the total amounts shown in the Consolidated Statements of Cash
Flows:
Cash and cash equivalents
Restricted cash - current
Restricted cash - noncurrent
December 31, 2021
December 31, 2020
December 31, 2019
$
$
86,146,552 $
69,927,594 $
—
75,000
18,846,177
75,000
53,583,898
5,471,470
74,917
86,221,552 $
88,848,771 $
59,130,285
F- 15
(d)
Accounts Receivable and Credit Losses: Accounts receivable includes receivables from charterers for time
and voyage charterers. On January 1, 2020, the Company adopted Accounting Standards Update ("ASU")
2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, (or "ASC 326"). At each balance sheet date, the Company maintains an allowance for credit
losses for expected uncollectible accounts receivable. The Company wrote off $0.9 million and $0.8 million
for the years ended December 31, 2021 and 2020, respectively, related to previously reserved amounts in
the allowance for doubtful accounts. The Company recorded a provision of $0.4 million and $0.7 million
respectively, for doubtful accounts for the years ended December 31, 2021 and 2020.
The Company maintains an allowance for credit losses for expected uncollectible accounts receivable,
which is recorded as an offset to accounts receivable and changes in such are classified as voyage expense
in the Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019. The
Company assesses collectability by reviewing accounts receivable on a collective basis where similar
characteristics exist and on an individual basis when we identify specific customers with known disputes or
collectability issues. In determining the amount of the allowance for credit losses, the Company considered
historical collectability based on past due status and made judgments about the creditworthiness of
customers based on ongoing credit evaluations. The Company also considers customer-specific
information, current market conditions and reasonable and supportable forecasts of future economic
conditions to inform adjustments to historical loss data. For the years ended December 31, 2021 and 2020,
our assessment considered business and market disruptions caused by COVID-19 and estimates of expected
emerging credit and collectability trends. The continued volatility in market conditions and evolving shifts
in credit trends are difficult to predict causing variability and volatility that may have a material impact on
our allowance for credit losses in future periods. The allowance for credit losses on accounts receivable was
$1.8 million as of December 31, 2021 and $2.4 million as of December 31, 2020.
Insurance Claims: Insurance claims are recorded net of any deductible amounts for insured damages,
which are recognized when recovery is virtually certain under the related insurance policies and where the
Company can make an estimate of the amount to be reimbursed following the insurance claim. Insurance
claims are included in accounts receivable on the consolidated balance sheets.
Inventories: Inventories, which consist of bunkers, are stated at cost which is determined on a first-in, first-
out method. Lubes and spares are expensed as incurred.
Vessels and Vessel Improvements, At Cost: Vessels are stated at cost, which consists of the contract price,
and other direct costs relating to acquiring and placing the vessels in service. Major vessel improvements
such as scrubbers and ballast water systems are capitalized and depreciated over the remaining useful lives
of the vessels. Depreciation is calculated on a straight-line basis over the estimated useful lives of the
vessels based on the cost of the vessels reduced by the estimated scrap value of the vessels as discussed
below.
Vessel Useful Economic Life and Impairment of Long-Lived Assets: The Company estimates the useful
life of the Company's vessels to be 25 years from the date of initial delivery from the shipyard to the
original owner. The useful lives of the Company's vessels are evaluated to determine if events have
occurred which would require modification to their useful lives. In addition, the Company estimates the
scrap value of the vessels to be $300 per light weight ton ("lwt").
The Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. When the estimate of undiscounted
cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its
carrying amount, the Company will evaluate the asset for an impairment loss. Measurement of the
impairment loss is based on the fair value of the asset as provided by third parties. The Company reviews
on an annual basis all the assumptions used in the calculation of undiscounted cash flows. The Company
uses the 15 year average of one and three year time charter rates as published by a reputable independent
(e)
(f)
(g)
(h)
F- 16
(i)
(j)
(k)
(l)
third party shipping broker in its calculation of undiscounted cash flows. We did not recognize any vessel
impairment charges for the years ended December 31, 2021, 2020 and 2019.
Accounting for Drydocking Costs: The Company follows the deferral method of accounting for
drydocking costs whereby actual costs incurred are deferred and are amortized on a straight-line basis over
the period through the date the next drydocking is required to become due, generally 30 months if the
vessels are 15 years old or more and 60 months for the vessels younger than 15 years. Costs deferred as
part of the drydocking include direct costs that are incurred as part of the drydocking to meet regulatory
requirements. Certain costs are capitalized during drydocking if they are expenditures that add economic
life to the vessel, increase the vessel’s earnings capacity or improve the vessel’s efficiency. Direct costs that
are deferred include the shipyard costs, parts, inspection fees, steel, blasting and painting. Expenditures for
normal maintenance and repairs, whether incurred as part of the drydocking or not, are expensed as
incurred. Unamortized drydocking costs of vessels that are sold are written off and included in the
calculation of the resulting gain or loss in the year of the vessels’ sale. Unamortized drydocking costs are
written off as drydocking expense if the vessels are drydocked before the expiration of the applicable
amortization period.
Deferred Financing Costs: Fees incurred for obtaining new loans or refinancing existing ones are deferred
and amortized to interest expense over the life of the related debt using the effective interest method.
Unamortized deferred financing costs are written off when the related debt is repaid or refinanced and such
amounts are expensed in the period the repayment or refinancing is made. Such amounts are classified as a
reduction of the long-term debt balance on the consolidated balance sheets.
Other Fixed Assets: Other fixed assets are stated at cost less accumulated depreciation. Depreciation is
based on a straight-line basis over the estimated useful life of the asset. Other fixed assets consist
principally of leasehold improvements, computers and software and are depreciated over three years.
Depreciation expense for other fixed assets for each of the years ended December 31, 2021, 2020 and 2019
was $0.3 million.
Leases: On January 1, 2019, the Company adopted Accounting Standards Codification ("ASC") 842,
Leases, ("ASC 842"), which revised the accounting for leases. Under the revised lease standard, lessees are
required to recognize a right-of-use asset and a lease liability for substantially all leases. The standard
continues to classify leases as either financing or operating, with classification affecting the pattern of
expense recognition. For operating leases, ASC 842 requires recognition in an entity’s income statement of
a single lease expense, calculated so that the cost of the lease is allocated over the lease term, generally on a
straight-line basis. Right-of-use assets represent a right to use an underlying asset for the lease term and the
related lease liability represents an obligation to make lease payments pursuant to the contractual terms of
the lease agreement. Operating lease right-of-use assets are assessed for any potential impairment on each
balance sheet date. The accounting applied by a lessor under ASC 842 is substantially equivalent to the
prior lease accounting guidance.
At lease commencement, a lessee must develop a discount rate to calculate the present value of the lease
payments so that it can determine lease classification and measure the lease liability. When determining the
discount rate to be used at lease commencement, a lessee must use the rate implicit in the lease unless that
rate cannot be readily determined. When the rate implicit in the lease cannot be readily determined, the
lessee should use its incremental borrowing rate. The incremental borrowing rate is the rate that reflects the
interest a lessee would have to pay to borrow funds on a collateralized basis over a similar term and in a
similar economic environment.
(m)
Accounting for Revenues and Expenses: Revenues generated from time charters and/or revenues
generated from profit sharing arrangements are recognized on a straight-line basis over the term of the
respective time charter agreements as service is provided and the profit sharing is fixed and determinable.
F- 17
Under voyage charters, voyage revenues for cargo transportation are recognized ratably over the estimated
relative transit time of each voyage. Voyage revenue is deemed to commence upon the loading of the
charterer’s cargo and is deemed to end upon the completion of discharge, provided an agreed non-
cancellable charter between the Company and the charterer is in existence, the charter rate is fixed and
determinable, and collectability is reasonably assured.
Under voyage charters, voyage expenses include costs such as bunkers, port charges, canal tolls and cargo
handling operations, whereas, under time charters, such voyage costs are the responsibility of the
Company's customers. Vessel operating expenses include crewing, vessel maintenance and vessel
insurance. Brokerage commissions under voyage or time charters are included in voyage expenses. All
voyage and vessel operating expenses are expensed as incurred on an accrual basis, except for
commissions. Commissions are recognized over the related time or voyage charter period since
commissions are earned as the Company's revenues are earned. Probable losses on voyages are provided for
in full at the time such loss can be estimated.
At the inception of a time charter, the Company records the difference between the cost of bunker from
previous charterer and the bunker sold to the current charterer as a gain or loss within voyage expenses.
Additionally, the Company records lower of cost and net realizable value adjustments to re-value the
bunker fuel on a quarterly basis for certain time charter agreements where the inventory is subject to gains
and losses. These differences in bunkers, including any lower of cost and net realizable value adjustments,
resulted in a net (gain) or loss of ($6.3 million), ($0.6 million) and $0.2 million during the years ended
December 31, 2021, 2020 and 2019, respectively. Additionally, voyage expenses include the cost of
bunkers consumed during the ballast period for time charter voyages. The ballast period starts from the
completion of the previous voyage and ends on the delivery of the vessel to the current charterers.
Unearned Charter Hire Revenue: Unearned charter hire revenue represents cash received from charterers
prior to the time such amounts are earned. These amounts are recognized as revenue as services are
provided in future periods.
Repairs and Maintenance: All repair and maintenance expenses are expensed as incurred and are recorded
in vessel operating expenses.
Protection and Indemnity Insurance: The Company’s Protection and Indemnity Insurance is subject to
additional premiums referred to as "back calls" or "supplemental calls" which are accounted for on an
accrual basis and are recorded in vessel operating expenses.
Earnings Per Share: Basic earnings per share is computed by dividing the net income or loss by the
weighted average number of common shares outstanding during the period. Diluted earnings per share
reflects the impact of stock options, restricted stock and warrants, if any, under the treasury stock method
unless their impact is anti-dilutive. The Convertible Bond Debt is included in diluted earnings per share
based on the if-converted method.
Interest Rate Risk Management: The Company is exposed to the impact of interest rate changes for
outstanding debt under the revolver facility on the Global Ultraco Debt Facility. The Company's objective
is to manage the impact of interest rate changes on its earnings and cash flows. During October 2021, the
Company entered into four interest rate swaps to hedge the three month LIBOR based on floating interest
rate exposure of the term loan under the Global Ultraco Debt Facility for the full notional amount of
$300.0 million ranging between 0.83% and 1.06%.
Federal Taxes: The Company is a Republic of the Marshall Islands Corporation. For the years ended
December 31, 2021, 2020 and 2019, the Company believes that its operations qualify for Internal Revenue
Code Section 883 exemption and therefore are not subject to United States federal taxes on United States
source shipping income.
(n)
(o)
(p)
(q)
(r)
(s)
F- 18
(t)
(u)
Stock-Based Compensation: The Company issues stock-based compensation utilizing both stock options
and stock grants. In accordance with ASC 718, Stock Compensation, ("ASC 718"), stock-based
compensation is measured at the fair value of the award at the date of grant and recognized over the period
of vesting on a straight-line basis using the graded vesting method. The grant-date fair value of stock
options is estimated using the Black-Scholes option pricing model. Additionally, the Company granted
performance-based restricted stock grants in September 2021 to certain members of its senior management
team under the 2016 Plan, which are contingent on certain performance criteria such as earnings per share
and the total shareholder return. The fair value of such grants is valued using the Monte Carlo simulation
model. Please see Note 13, Stock-Based Compensation, for additional information. Forfeitures are
recognized as they occur.
Collateral on Derivatives: The Company does not offset fair value amounts recognized for derivatives by
the right to reclaim cash collateral or the obligation to return cash collateral. The amount of collateral to be
posted is defined in the terms of respective master agreement executed with counterparties or exchanges
and is required when agreed upon threshold limits are exceeded. As of December 31, 2021 and 2020, the
Company posted cash collateral related to derivative instruments under its collateral security arrangements
of $15.1 million and $0.1 million, respectively, which is recorded within Collateral on derivatives for the
year ended December 31, 2021 and recorded within Other current assets for the year ended December 31,
2020 in the consolidated balance sheets.
Recently Issued Accounting Pronouncements Not Yet Effective
The Financial Accounting Standards Board ("FASB") has issued accounting standards that had not yet become
effective as of December 31, 2021 and may impact the Company’s consolidated financial statements or related
disclosures in future periods. Those standards and their potential impact are discussed below.
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial
Reporting, (“ASU 2020-04”). ASU 2020-04 addresses concerns about certain accounting consequences that could
result from the anticipated transition away from the use of LIBOR and other interbank offered rates to alternative
reference rates. ASU 2020-04 is elective and applies “to all entities, subject to meeting certain criteria, that have
contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to
be discontinued because of reference rate reform.” ASU 2020-04 establishes (1) a general contract modification
principle that entities can apply in other areas that may be affected by reference rate reform and (2) certain elective
hedge accounting expedients. ASU 2020-04 is optional and effective for all entities as of March 12, 2020 and may
be applied prospectively to contract modifications made on or before December 31, 2022. In January 2021, the
FASB issued ASU 2021-01, Rate Reference Reform (Topic 848), Scope, ("ASU 2021-01"), which clarifies certain
provisions in Topic 848, if elected by an entity, to apply to derivative instruments that use interest rate for
margining, discounting, or contract price alignment that is modified as a result of rate reference reform The
Company is currently evaluating the adoption of ASU 2020-04 on its debt under the Global Ultraco Debt Facility as
it bears interest on outstanding borrowings at LIBOR plus a margin rate. Additionally, the Company is also
evaluating the adoption of ASU 2021-01 on its interest rate swaps related to the Global Ultraco Debt Facility.
In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an
Entity's Own Equity, (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments
with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own
equity. ASU 2020-06 removes from U.S. GAAP the separation models for (1) convertible debt with a cash
conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, after adopting
the ASU's guidance, entities will not separately present in equity an embedded conversion feature in such debt.
Instead, the entity will account for a convertible debt instrument wholly as debt, and for convertible preferred stock
wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that
require bifurcation as a derivative under ASC 815, Derivatives and Hedging, or (2) a convertible debt instrument
was issued at a substantial premium. ASU 2020-06 is effective for all public entities for fiscal years beginning after
December 15, 2021, with early adoption permitted in fiscal years beginning after December 15, 2020. The Company
is finalizing its evaluation of the adoption of ASU 2020-06 on its Convertible Bond Debt but has initially concluded
F- 19
it will adopt this ASU under the modified retrospective approach and that the debt instrument will no longer require
bifurcation and separate accounting of the equity component. Under this conclusion, the resulting debt discount will
no longer be amortized to interest expense over the life of the bond.
Note 3. Vessels and Vessel Improvements
As of December 31, 2021, the Company’s owned fleet consisted of 53 drybulk vessels.
During the fourth quarter of 2020, the Company entered into a series of memorandum of agreements to purchase
three high specification scrubber-fitted Ultramax bulk carriers for a total purchase price of $51.5 million including
direct expenses of acquisition. The Company paid a deposit of $3.3 million on these vessels as of December 31,
2020. The Company took delivery of the vessels during the first quarter of 2021.
During the first quarter of 2021, the Company entered into another series of memorandum of agreements to purchase
four vessels. The first vessel is a high-specification scrubber-fitted Ultramax bulk carrier for a total purchase price of
$15.3 million and a warrant convertible into 212,315 common shares of the Company. The remaining three vessels
are 2011-built, Crown-58 Supramax bulk carriers that were purchased for a total purchase price of $20.5 million and
a warrant convertible into 329,583 common shares of the Company. The above mentioned prices include direct
expenses of acquisition. Common shares were issuable upon exercise of warrants on a pro-rata basis in connection
with each vessel delivery. The warrants were measured at fair value on the date of the memorandum of agreement
and recorded as Vessels and vessel improvements on the Consolidated Balance Sheets when the Company took
delivery of the vessels. The fair value of the warrants for the total of 541,898 common shares was approximately
$10.7 million as of the date of the memorandum of agreements for each vessel. The Company took delivery of the
four vessels during the second and third quarters of 2021 and issued 541,898 shares of common stock upon
conversion of outstanding warrants.
During the second quarter of 2021, the Company entered into memorandum of agreements to acquire two high-
specification 2015-built, scrubber-fitted Ultramax bulk carriers. This acquisition was partially financed with cash on
hand, which included proceeds raised from equity issued under the Company's ATM Offering. The total cost of the
vessels acquired including the direct costs of acquisition was $42.2 million. The Company took delivery of the two
vessels in each of the third and fourth quarters of 2021.
In the second quarter of 2021, the Company signed a memorandum of agreement to sell the vessel Tern for a total
net consideration of $9.2 million after commissions and associated selling expenses. The vessel was delivered to the
buyer during the third quarter of 2021. The Company recorded a gain of $4.0 million in its Consolidated Statements
of Operations for the year ended December 31, 2021. Additionally, the Company wrote off $0.3 million of
unamortized drydock costs upon sale of the vessel.
During the third quarter of 2018, the Company entered into a contract for the purchase of ballast water treatment
systems (“BWTS”) on 39 of our owned vessels. The projected costs, including installation, are approximately
$0.5 million per BWTS. The Company intends to complete the installations during scheduled drydockings. The
Company completed installation of BWTS on 23 vessels and recorded $11.5 million in Vessels and vessel
improvements in the Consolidated Balance Sheet as of December 31, 2021. Additionally, the Company recorded
$4.4 million as advances paid towards installation of BWTS on the remaining vessels as a noncurrent asset in its
Consolidated Balance Sheet as of December 31, 2021.
F- 20
The Vessels and vessel improvements activity for the years ended December 31, 2021 and 2020 is below:
December 31, 2021
$
810,713,959 $
December 31, 2020
835,959,084
3,250,000
128,326,112
10,679,988
(4,885,998)
4,588,585
(44,596,733)
908,075,913 $
—
979,612
—
(23,458,118)
39,706,507
(42,473,126)
810,713,959
$
December 31, 2021 December 31, 2020
17,495,270
$
14,293,562
(7,378,752)
(256,304)
24,153,776
24,153,776 $
21,906,358
(8,655,617)
(310,986)
37,093,531 $
$
December 31, 2021 December 31, 2020
$
7,467,901 $
1,743,255
8,556,036
226,107
4,625,539
1,178,695
5,942,830
—
$
17,993,299 $
11,747,064
Vessels and vessel improvements
Transfer from advances paid for vessel purchases
Purchase of vessels and vessel improvements
Fair value of warrants issued as consideration for vessel purchases
Sale of vessels
Scrubbers and BWTS
Depreciation expense
Vessels and vessel improvements
Note 4. Deferred Drydock Costs
Drydocking activity is summarized as follows:
Beginning Balance
Payments for drydocking
Drydock amortization
Write-off due to sale of vessels
Ending Balance
Note 5. Other Accrued Liabilities
Other accrued liabilities consists of:
Vessel and voyage expenses
Scrubber, BWTS and drydocking costs
General and administrative expenses
Dividends payable
Total
F- 21
Note 6. Debt
Long-term debt consists of the following:
Convertible Bond Debt
Debt discount and debt issuance costs - Convertible Bond Debt
Convertible Bond Debt, net of debt discount and debt issuance
costs
Global Ultraco Debt Facility
Debt issuance costs - Global Ultraco Debt Facility
Less: Current portion - Global Ultraco Debt Facility
Global Ultraco Debt Facility, net of debt issuance costs
Norwegian Bond Debt
Debt discount and debt issuance costs - Norwegian Bond Debt
Less: Current portion - Norwegian Bond Debt
Norwegian Bond Debt, net of debt discount and debt issuance costs
New Ultraco Debt Facility
Debt issuance costs - New Ultraco Debt Facility
Less: Current portion - New Ultraco Debt Facility
New Ultraco Debt Facility, net of debt issuance costs
Super Senior Facility
Debt issuance costs - Super Senior Facility
Super Senior Facility, net of debt issuance costs
Total long-term debt
Convertible Bond Debt
December 31, 2021
$
114,119,000 $
(13,165,256)
100,953,744
287,550,000
December 31, 2020
114,120,000
(17,459,515)
96,660,485
—
—
—
—
180,000,000
(2,709,770)
(8,000,000)
169,290,230
166,429,594
(3,101,348)
(31,244,297)
132,083,949
15,000,000
(103,643)
14,896,357
412,931,021
(8,460,140)
(49,800,000)
229,289,860
—
—
—
—
—
—
—
—
—
—
—
$
330,243,604 $
On July 29, 2019, the Company issued $114.1 million in aggregate principal amount of 5.0% Convertible Senior
Notes due 2024 (the “Convertible Bond Debt”). After deducting debt discount of $1.6 million, the Company
received net proceeds of approximately $112.5 million. Additionally, the Company incurred $1.0 million of debt
issuance costs relating to the transaction. The Company used the proceeds to partially finance the purchase of six
Ultramax vessels and for general corporate purposes, including working capital. The Company took delivery of the
vessels in the third and fourth quarters of 2019.
The Convertible Bond Debt bears interest at a rate of 5.0% per annum on the outstanding principal amount thereof,
payable semi-annually in arrears on February 1 and August 1 of each year, which commenced on February 1, 2020.
The Convertible Bond Debt may bear additional interest upon certain events, as set forth in the indenture governing
the Convertible Bond Debt (the “Indenture”).
The Convertible Bond Debt will mature on August 1, 2024 (the “Maturity Date”), unless earlier repurchased,
redeemed or converted pursuant to its terms. The Company may not otherwise redeem the Convertible Bond Debt
prior to the Maturity Date.
Each holder has the right to convert any portion of the Convertible Bond Debt, provided such portion is of $1,000 or
a multiple thereof, at any time prior to the close of business on the business day immediately preceding the Maturity
Date. The conversion rate of the Convertible Bond Debt after adjusting for the Reverse Stock Split effected on
September 15, 2020 and the Company's payment of a cash dividend of $2.00 per share on November 24, 2021 to
shareholders of record as of November 15, 2021 is 26.747 shares of the Company's common stock per $1,000
principal amount of Convertible Bond Debt, which is equivalent to a conversion price of approximately $37.39 per
share of its common stock (subject to further adjustments for future dividends).
F- 22
Upon conversion, the Company will pay or deliver, as the case may be, either cash, shares of its common stock or a
combination of cash and shares of its common stock, at the Company’s election, to the holder (subject to shareholder
approval requirements in accordance with the listing standards of the Nasdaq Global Select Market).
If the Company undergoes a fundamental change, as set forth in the Indenture, each holder may require the
Company to repurchase all or part of their Convertible Bond Debt for cash in principal amounts of $1,000 or a
multiple thereof. The fundamental change repurchase price will be equal to 100% of the principal amount of the
Convertible Bond Debt to be repurchased, plus accrued and unpaid interest. If, however, the holders elect to convert
their Convertible Bond Debt in connection with the fundamental change, the Company will be required to increase
the conversion rate of the Convertible Bond Debt at a rate determined by a combination of the date the fundamental
change occurs and the stock price of the Company's common stock on such date.
The Convertible Bond Debt is the general, unsecured senior obligation of the Company. It ranks: (i) senior in right
of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the
Convertible Bond Debt; (ii) equal in right of payment to any of the Company’s unsecured indebtedness that is not so
subordinated; (iii) effectively junior in right of payment to any of the Company’s secured indebtedness to the extent
of the value of the assets securing such indebtedness; and (iv) structurally junior to all indebtedness and other
liabilities of current or future subsidiaries of the Company.
The indenture also provides for customary events of default. Generally, if an event of default occurs and is
continuing, then the trustee or the holders of at least 25% in aggregate principal amount of the Convertible Bond
Debt then outstanding may declare 100% of the principal of and accrued and unpaid interest, if any, on all the
Convertible Bond Debt then outstanding to be due and payable.
In accordance with ASC 470, Debt, ("ASC 470") the liability and equity components of convertible debt instruments
that may be settled in cash upon conversion (including partial cash settlement) is to be separately accounted for in a
manner that reflects the issuer's non-convertible debt borrowing rate. The guidance requires the initial proceeds
received from the sale of convertible debt instruments to be allocated between a liability component and equity
component in a manner that reflects the interest expense at the interest rate of similar non-convertible debt that could
have been issued by the Company at the time of issuance. The Company accounted for the Convertible Bond Debt
based on the above guidance and attributed a portion of the proceeds to the equity component. The resulting debt
discount is amortized using the effective interest method over the expected life of the Convertible Bond Debt as
interest expense. Additionally, the debt discount and issuance costs were allocated based on the total amount
incurred to the liability and equity components using the same proportions as the proceeds from the Convertible
Bond Debt. See Note 2, Significant Accounting Policies, for discussion of the impact of ASU 2020-06 on the
accounting for the Convertible Bond Debt upon adoption on January 1, 2022.
Share Lending Agreement
In connection with the issuance of the Convertible Bond Debt, certain persons entered into an arrangement (the
“Share Lending Agreement”) to borrow up to 511,840 shares of the Company’s common stock through share
lending arrangements from Jefferies LLC (“JCS”), an initial purchaser of the Convertible Bond Debt, which in turn
entered into an arrangement to borrow the shares from an entity affiliated with Oaktree Capital Management, L.P.,
one of the Company’s shareholders. The number of shares under the Share Lending Agreement have been adjusted
for the Reverse Stock Split. As of December 31, 2021, the fair value of the 511,840 outstanding loaned shares was
$23.3 million based on the closing price of the common stock on December 31, 2021. In connection with the Share
Lending Agreement, JCS paid $0.03 million representing a nominal fee per borrowed share, equal to the par value of
the Company’s common stock.
While the share lending agreement does not require cash payment upon return of the shares, physical settlement is
required (i.e., the loaned shares must be returned at the end of the arrangement). In view of this share return
provision and other contractual undertakings of JCS in the share lending agreement, which have the effect of
substantially eliminating the economic dilution that otherwise would result from the issuance of borrowed shares,
F- 23
the loaned shares are not considered issued and outstanding for accounting purposes and for the purpose of
computing and reporting the Company's basic and diluted weighted average shares or earnings per share. If JCS
were to file bankruptcy or commence similar administrative, liquidating or restructuring proceedings, the Company
will have to consider 511,840 shares lent to JCS as issued and outstanding for the purposes of calculating earnings
per share.
Global Ultraco Debt Facility
On October 1, 2021, Eagle Bulk Ultraco LLC (“Eagle Ultraco”), a wholly-owned subsidiary of the Company, along
with certain of its vessel-owning subsidiaries as guarantors, entered into a new senior secured credit facility (the
"Global Ultraco Debt Facility") with the lenders party thereto (the “Lenders”) Credit Agricole Corporate and
Investment Bank (“Credit Agricole”), Skandinaviska Enskilda Banken AB (PUBL), Danish Ship Finance A/S,
Nordea Bank ABP, Filial I Norge, DNB Markets Inc., Deutsche Bank AG, and ING Bank N.V., London Branch.
The Global Ultraco Debt Facility provides for an aggregate principal amount of $400.0 million, which consists of (i)
a term loan facility in an aggregate principal amount of $300.0 million (the “Term Facility”) and (ii) a revolving
credit facility in an aggregate principal amount of $100.0 million (the “Revolving Facility”) to be used for
refinancing the outstanding debt including accrued interest and commitment fees under the Holdco Revolving Credit
Facility, New Ultraco Debt Facility and Norwegian Bond Debt (the "Previous Debt Facilities"), which are discussed
below, and for general corporate purposes. The Company paid fees of $5.8 million to the Lenders in connection with
the transaction.
The Global Ultraco Debt Facility has a maturity date of five years from the date of borrowing on the Term Facility,
which is October 1, 2026. Outstanding borrowings bear interest at a rate of LIBOR plus 2.10% to 2.80% per annum,
depending certain metrics such as the Company's financial leverage ratio and meeting sustainability linked criteria.
Repayments of $12.45 million are due quarterly beginning on December 15, 2021, with a final balloon payment of
all outstanding principal and accrued interest due upon maturity. The loan is repayable in whole or in part without
premium or penalty prior to the maturity date subject to certain requirements stipulated in the Global Ultraco Debt
Facility.
The Global Ultraco Debt Facility is secured by 49 of the Company's vessels. The Global Ultraco Debt Facility
contains certain standard affirmative and negative covenants along with financial covenants. The financial covenants
include: (i) minimum consolidated liquidity based on the greater of (a) $0.6 million per vessel owned directly or
indirectly by the Company or (b) 7.5% of the Company's total debt; (ii) debt to capitalization ratio not greater than
0.60:1.00; and (iii) maintaining positive working capital.
Pursuant to the Global Ultraco Debt Facility, the Company borrowed $350.0 million and together with cash on hand
repaid the outstanding debt, accrued interest and commitment fees under the Holdco Revolving Credit Facility and
New Ultraco Debt Facility. Concurrently, the Company issued a 10 day call notice to redeem the outstanding bonds
under the Norwegian Bond Debt (see details below). Additionally, in October 2021, the Company entered into four
interest rate swaps for the notional amount of $300.0 million of the Term Facility under the Global Ultraco Debt
Facility at a fixed interest rate ranging between 0.83% and 1.06% to hedge the LIBOR based floating interest rate
(see Note 7, Derivative Instruments, for additional details).
Holdco Revolving Credit Facility
On March 26, 2021, Eagle Bulk Holdco LLC (“Holdco”), a wholly-owned subsidiary of the Company entered into a
Credit Agreement ("Holdco Revolving Credit Facility”) made by and among (i) Holdco, as borrower, (ii) the
Company and certain wholly-owned vessel-owning subsidiaries of Holdco, as joint and several guarantors, (iii) the
banks and financial institutions named therein as lenders (together with their successors and assigns, the “RCF
Lenders”), (iv) Crédit Agricole Corporate and Investment Bank and Nordea Bank ABP, New York Branch, as
mandated lead arrangers, and (v) Crédit Agricole Corporate and Investment Bank, as arranger, facility agent and
security trustee for the RCF Lenders. Borrowings under the Holdco Revolving Credit Facility were repaid in full on
October 1, 2021 from the proceeds of the Global Ultraco Debt Facility. Certain of the lenders in the Holdco
Revolving Credit Facility were also lenders in the Global Ultraco Debt Facility, and therefore, under the guidance in
F- 24
ASC 470 with certain other criteria met, the Company accounted for the repayment as a debt modification.
Unamortized debt issuance costs of $0.2 million related to the Holdco Revolving Debt Facility were deferred and
will be amortized over the term of the Global Ultraco Debt Facility.
New Ultraco Debt Facility
On January 25, 2019, Ultraco Shipping LLC (“Ultraco”), a wholly-owned subsidiary of the Company, entered into a
senior secured credit facility, (the “New Ultraco Debt Facility”), which provided for a term loan facility and a
revolving credit facility. The proceeds from the New Ultraco Debt Facility were used to repay the outstanding debt
including accrued interest under the Original Ultraco Debt Facility (as defined below) and the New First Lien
Facility (as defined below) in full and for general corporate purposes. Subsequent to amendments on each of
October 1, 2019, April 20, 2020 and June 9, 2020, which provided incremental commitments along with certain
other amendments, and an agency resignation and appointment and further amendments providing incremental
commitments on April 5, 2021, the Company repaid the New Ultraco Debt Facility in full from the proceeds of the
Global Ultraco Debt Facility on October 1, 2021. Certain of the lenders in the New Ultraco Debt Facility were also
lenders in the Global Ultraco Debt Facility, and therefore, under the guidance in ASC 470 with certain other criteria
met, the Company accounted for the repayment as a debt modification. Unamortized debt issuance costs of
$2.8 million related to the New Ultraco Debt Facility were deferred and will be amortized over the term of the
Global Ultraco Debt Facility.
New First Lien Facility
On December 8, 2017, Eagle Shipping LLC, a wholly-owned subsidiary of the Company (“Eagle Shipping”) entered
into a credit agreement (the “New First Lien Facility”), which was repaid in full from the proceeds of the New
Ultraco Debt Facility on January 25, 2019. The Company accounted for the above transaction as a debt
extinguishment. As a result, the Company recognized $1.1 million, representing the outstanding balance of debt
issuance costs, as Loss on debt extinguishment in the Consolidated Statement of Operations for the year ended
December 31, 2019.
Super Senior Facility
On December 8, 2017, Eagle Bulk Shipco LLC, a wholly-owned subsidiary of the Company ("Shipco") entered into
a revolving credit facility in an aggregate amount of up to $15.0 million (the "Super Senior Facility").
During the third quarter of 2021, the Company cancelled the Super Senior Facility. There were no outstanding
amounts under the facility, and the Company recorded $0.1 million as Loss on debt extinguishment in its
Consolidated Statements of Operations for the year ended December 31, 2021.
Norwegian Bond Debt
On November 28, 2017, Shipco issued $200.0 million in aggregate principal amount of 8.25% Senior Secured
Bonds (the “Bonds” or the “Norwegian Bond Debt”). After giving effect to an original issue discount of
approximately 1% and deducting offering expenses of $3.1 million, the net proceeds from the issuance of the Bonds
was approximately $195.0 million. Interest on the Bonds accrued at a rate of 8.25% per annum and the Bonds were
to mature on November 28, 2022.
During the year ended December 31, 2021, the Company sold one vessel for net proceeds of $9.2 million; during the
year ended December 31, 2020, the Company sold five vessels for combined net proceeds of $23.2 million; and
during the years ended December 31, 2019 and 2018, the Company sold five vessels for combined net proceeds of
$40.4 million. Pursuant to the bond terms governing the Norwegian Bond Debt, the proceeds from the sale of
vessels were to be held in a restricted account to be used for the financing of the acquisition of additional vessels by
Shipco and for the partial financing of the scrubbers. As a result, the Company recorded the proceeds from the sale
of these vessels as Restricted cash - current in the Consolidated Balance Sheets as of December 31, 2020. The
proceeds were used to purchase two Ultramax vessel for $36.1 million and partial financing of scrubbers for
F- 25
$23.6 million. During the third quarter of 2021, the Company transferred the remaining proceeds from sale of
vessels of $13.8 million along with cash on hand of $11.8 million into a Shipco defeasance account to be used
towards redemption of the bonds in October 2021.
The Company issued a 10 day call notice to redeem the outstanding bonds under the Norwegian Bond Debt at a
redemption price of 102.475% of the nominal amount of each bond. Pursuant to the bond terms, the Company paid
$185.6 million consisting of $176.0 million par value of the outstanding bonds, accrued interest of $5.2 million and
$4.4 million of a call premium into a defeasance account to be further credited to the bondholders upon expiry of the
notice period. The bonds outstanding under the Norwegian Bond Debt were repaid in full on October 18, 2021 after
the expiry of the requisite notice period.
The repayment of the Norwegian Bond Debt was considered a debt extinguishment under ASC 470, and therefore,
the call premium of $4.4 million and the unamortized debt discount and debt issuance costs of $1.6 million were
record as Loss on debt extinguishment in the Consolidated Statement of Operations for the year ended December 31,
2021.
Original Ultraco Debt Facility
On June 28, 2017, Ultraco, a wholly-owned subsidiary of the Company, entered into a credit agreement (the
“Original Ultraco Debt Facility”), which was repaid in full from the proceeds of the New Ultraco Debt Facility on
January 25, 2019. The Company accounted for the above transaction as a debt extinguishment. As a result, the
Company recognized $1.2 million representing the outstanding balance of debt issuance costs as Loss on debt
extinguishment in the Consolidated Statement of Operations for the year ended December 31, 2019.
Interest rates
2021
For the year ended December 31, 2021, the interest rate on the Convertible Bond Debt was 5.00%. The weighted
average effective interest rate including the amortization of debt discount and debt issuance costs for the year was
10.14%.
For the year ended December 31, 2021, the interest rate on the Global Ultraco Debt Facility ranged from 2.35% to
2.57%, including a margin over LIBOR applicable under the terms of the Global Ultraco Debt Facility and
commitment fees of 40% of the margin on the undrawn portion of the revolver credit facility of the Global Ultraco
Debt Facility. The weighted average effective interest rate including the amortization of debt issuance costs for the
year was 3.04%.
For the year ended December 31, 2021, the interest rate on the Holdco Revolving Credit Facility, which was repaid
on October 1, 2021, ranged from 2.55% to 2.60%, including a margin over LIBOR applicable under the terms of the
Holdco Revolving Credit Facility and commitment fees of 40% of the margin on the undrawn portion of the revolver
credit facility of the Holdco Revolving Credit Facility. The weighted average effective interest rate including the
amortization of debt issuance costs for the year was 5.61%.
For the year ended December 31, 2021, the interest rate on the New Ultraco Debt Facility, which was repaid on
October 1, 2021, ranged from 2.60% to 2.72%, including a margin over LIBOR applicable under the terms of the
New Ultraco Debt Facility and commitment fees of 40% of the margin on the undrawn portion of the revolver credit
facility of the New Ultraco Debt Facility. The weighted average effective interest rate including the amortization of
debt issuance costs for the year was 3.28%.
For the year ended December 31, 2021, the interest rate on the Super Senior Facility was 2.24%. The weighted
average effective interest rate including the amortization of debt issuance costs for the year was 2.58%. The
outstanding revolver loan under the Super Senior Facility was repaid in the first quarter of 2021. The facility was
cancelled during the third quarter of 2021.
F- 26
For the year ended December 31, 2021, the interest rate on the Norwegian Bond Debt, which was repaid on October
18, 2021, was 8.25%. The weighted average effective interest rate including the amortization of debt discount and
debt issuance costs for the year was 8.96%.
2020
For the year ended December 31, 2020, the interest rate on the Convertible Bond Debt was 5.00%. The weighted
average effective interest rate including the amortization of debt discount and debt issuance costs for the year was
10.14%.
For the year ended December 31, 2020, the interest rate on the New Ultraco Debt Facility ranged from 2.73% to
4.68% including a margin over LIBOR applicable under the terms of the New Ultraco Debt Facility and
commitment fees of 40% of the margin on the undrawn portion of the revolver credit facility of the New Ultraco
Debt Facility. The weighted average effective interest rate including the amortization of debt discount and debt
issuance costs for the year was 3.98%.
For the year ended December 31, 2020, the interest rate on our outstanding debt under the Super Senior Facility
ranged between 2.24% and 2.89%. The weighted average effective interest rate including the amortization of debt
issuance costs for the year was 3.00%. Additionally, we pay commitment fees of 40% of the margin on the undrawn
portion of the Super Senior Revolver Facility.
For the year ended December 31, 2020, the interest rate on the Norwegian Bond Debt was 8.25%. The weighted
average effective interest rate including the amortization of debt discount and debt issuance costs for the year was
8.75%.
2019
For the year ended December 31, 2019, the interest rate on the Convertible Bond Debt was 5.00%. The weighted
average effective interest rate including the amortization of debt discount and debt issuance costs for the year was
10.14%.
For the year ended December 31, 2019, the interest rate on the New Ultraco Debt Facility ranged from 4.51% to
5.26% including a margin over LIBOR applicable under the terms of the New Ultraco Debt Facility and
commitment fees of 40% of the margin on the undrawn portion of the revolver credit facility of the New Ultraco
Debt Facility. The weighted average effective interest rate including the amortization of debt discount and debt
issuance costs for the year was 4.54%.
For the year ended December 31, 2019, the interest rate on the New First Lien Facility, which was repaid on January
25, 2019, ranged from 5.89% to 6.01% including a margin over LIBOR applicable under the terms of the New First
Lien Facility and commitment fees of 40% of the margin on the undrawn portion of the revolver credit facility of the
New First Lien Facility. The weighted average effective interest rate including the amortization of debt discount and
debt issuance costs for the year was 6.45%.
For the year ended December 31, 2019, the interest rate on the Norwegian Bond Debt was 8.25%. The weighted
average effective interest rate including the amortization of debt discount and debt issuance costs for the year was
9.04%.
For the year ended December 31, 2019, the interest rate on the Original Ultraco Debt Facility, which was repaid on
January 25, 2019, was 5.28% including a margin over LIBOR and commitment fees of 40% of the margin on the
undrawn portion of the facility. The weighted average effective interest rate for the year was 6.80%.
F- 27
Interest expense consisted of:
Amortization of debt discount and debt
issuance costs
Convertible Bond Debt interest
Global Ultraco Debt Facility interest
Holdco RCF interest
Original Ultraco Debt Facility interest
Norwegian Bond Debt interest
New Ultraco Debt Facility interest
New First Lien Facility interest
Super Senior Facility interest
Commitment fees on revolver facilities
For the Years Ended
December 31, 2021 December 31, 2020 December 31, 2019
$
7,082,655 $
6,272,309 $
5,737,654
2,473,924
313,918
—
11,710,417
4,335,026
—
29,818
573,375
5,737,650
—
—
—
15,298,250
7,612,342
—
215,804
256,268
3,783,939
2,377,550
—
—
362,257
15,930,750
7,172,442
293,545
—
657,006
Total Interest expense
$
32,256,787 $
35,392,623 $
30,577,489
Scheduled Debt Maturities
The following table presents the scheduled maturities of principal amounts of our debt obligations for the next five
years.
2022
2023
2024
2025
2026
Global Ultraco Debt
Facility
Convertible Bond
Debt (1)
$
49,800,000 $
49,800,000
49,800,000
49,800,000
88,350,000 $
$
$
287,550,000 $
114,119,000
$
—
—
114,119,000
—
—
$
$
Total
49,800,000
49,800,000
163,919,000
49,800,000
88,350,000
401,669,000
(1) This amount represents the total amount of the Convertible Bond Debt that would be paid in cash at the election
of the Company upon maturity.
Note 7. Derivative Instruments
Interest rate swaps
During October 2021, the Company entered into four interest rate swaps for the notional amount of $300.0 million
of the Term Facility under the Credit Agreement for the Global Ultraco Debt Facility at a fixed interest rate ranging
between 0.83% and 1.06% to hedge the LIBOR-based floating interest rate.
On March 31, 2020, the Company entered into an interest rate swap to effectively convert a portion of its debt under
the New Ultraco Debt Facility from a floating to a fixed-rate basis. The Company entered into two additional
interest rate swap agreements during the second quarter of 2020 to convert the remaining portion of its outstanding
debt under the New Ultraco Debt Facility excluding the revolver facility. In August 2021, the Company cancelled
the interest rate swaps with a notional amount of $150.8 million and incurred a $0.2 million loss, which will be
amortized as interest expense over the original life of the cancelled swaps. Concurrent with the cancellation, the
Company entered into an interest rate swap with a notional amount of $143.0 million, which was subsequently
F- 28
cancelled on October 1, 2021 upon repayment of the debt. The Company incurred an additional $0.2 million loss,
which will be amortized as interest expense over the original life of the cancelled swaps.
The interest rate swaps were designated and qualified as cash flow hedges. The Company uses interest rate swaps
for the management of interest rate risk exposure, as an interest rate swap effectively converts a portion of the
Company’s debt from a floating to a fixed rate. The interest rate swap is an agreement between the Company and
counterparties to pay, in the future, a fixed-rate payment in exchange for the counterparties paying the Company a
variable payment. The amount of the net payment obligation is based on the notional amount of the interest rate
swap and the prevailing market interest rates. The Company may terminate the interest rate swaps prior to their
expiration dates, at which point a realized gain or loss would be recognized. The value of the Company’s
commitment would increase or decrease based primarily on the extent to which interest rates move against the rate
fixed for each swap.
Tabular disclosure of derivatives location
The following table summarizes the interest rate swaps in place as of December 31, 2021 and 2020:
Interest Rate Swap Detail
Notional Amount Outstanding
Trade date
October 7, 2021 (1)
October 13, 2021 (1)
October 14, 2021 (1)
October 22, 2021 (1)
March 31, 2020 (2)
April 15, 2020 (2)
June 25, 2020 (2)
Fixed
rate
0.83% October 12, 2021 December 15, 2025 $
Start date
End date
0.94% October 15, 2021 December 15, 2025
0.93% October 18, 2021 December 15, 2025
1.06% October 26, 2021 December 15, 2025
0.64%
0.58%
0.50%
July 27, 2020
January 26, 2024
July 27, 2020
January 26, 2024
July 27, 2020
January 26, 2024
December 31,
2021
215,662,500 $
23,962,500
23,962,500
23,962,500
December 31,
2020
—
—
—
—
—
—
—
72,452,297
36,226,149
57,751,148
(1) Interest rate swap associated with Global Ultraco Debt Facility.
(2) Interest rate swap associated with New Ultraco Debt Facility.
$
287,550,000 $
166,429,594
Under these swap contracts, exclusive of applicable margins, the Company will pay fixed rate interest and receive
floating-rate interest amounts based on three-month LIBOR settings.
The Company records the fair value of the interest rate swap as an asset or liability on its balance sheet. The
effective portion of the swap is recorded in Accumulated other comprehensive income/(loss). As of December 31,
2021, the effective portion of the swap recorded in Accumulated other comprehensive income/(loss) was
$3.0 million. The estimated loss that is currently recorded in Accumulated other comprehensive income/(loss) as of
December 31, 2021 that is expected to be reclassified into earnings within the next twelve months is $0.6 million.
No portion of the cash flow hedges was ineffective during the year ended December 31, 2021.
F- 29
The effect of derivative instruments on the Consolidated Statements of Operations for the years ended December 31,
2021 and 2020 is below:
Derivatives in Cash
Flow Hedging
Relationships
Amount of Gain or (Loss)
Recognized in OCI on
Derivatives
For the Years Ended
December 31,
2021
December 31,
2020
Location of Gain or
(Loss) Reclassified
from Accumulated
OCI into Income
Amount of Gain or (Loss)
Reclassified from Accumulated
OCI into Income
For the Years Ended
December 31,
2021
December 31,
2020
Interest rate swaps
$
2,105,718
$ (1,021,453)
Interest expense
$
(912,965) $
110,945
The following table shows the interest rate swap asset and liabilities as of December 31, 2021 and 2020:
Derivatives designated
as hedging instruments
Interest rate swap
Balance Sheet location
Fair value of derivative assets - noncurrent
Interest rate swap
Fair value of derivative liabilities - current
Interest rate swap
Fair value of derivative liabilities - noncurrent
December 31,
2021
December 31,
2020
$
$
$
3,112,091 $
884,725 $
— $
—
481,791
650,607
Forward freight agreements and bunker swaps
The Company trades in forward freight agreements (“FFAs”) and bunker swaps, with the objective of utilizing this
market as economic hedging instruments that reduce the risk of specific vessels to changes in the freight market. The
Company’s FFAs and bunker swaps have not qualified for hedge accounting treatment. As such, unrealized and
realized gains are recognized as a component of Realized and unrealized loss/(gain) on derivative instruments, net in
the Consolidated Statement of Operations and Other current assets and Fair value of derivatives in the Consolidated
Balance Sheets. Derivatives are considered to be Level 2 instruments in the fair value hierarchy.
For our bunker swaps, the Company may enter into master netting, collateral and offset agreements with
counterparties. As of December 31, 2021, the Company has International Swaps and Derivatives Association
(“ISDA”) agreements with five applicable banks and financial institutions which contain netting provisions. In
addition to a master agreement with the Company supported by a primary parent guarantee on either side, the
Company also has associated credit support agreements in place with the two counterparties which, among other
things, provide the circumstances under which either party is required to post eligible collateral, when the market
value of transactions covered by these agreements exceeds specified thresholds. The Company does not anticipate
non-performance by any of the counterparties. As of December 31, 2021, no collateral had been received or pledged
related to these bunker swaps.
As of December 31, 2021, the Company had outstanding bunker swap agreements to purchase 21,660 metric tons of
low sulphur fuel oil with prices ranging between $272 and $583 per metric ton, that are expiring in 2022.
The following table shows our open positions on FFAs as of December 31, 2021:
FFA Period
Average FFA
Contract Price
Number of Days
Hedged
Quarter ending March 31, 2022
Quarter ending June 30, 2022
Quarter ending September 30, 2022
Quarter ending December 31, 2022
$
26,352
24,809
21,638
20,259
855
720
720
720
F- 30
The Company will realize a gain or loss on these FFAs based on the price differential between the average daily BSI
rate and the FFA contract price. The gains or losses are recorded in Realized and unrealized loss/(gain) on derivative
instruments, net in the Consolidated Statement of Operations.
The effect of non-designated derivative instruments on the Consolidated Statements of Operations:
Derivatives not designated as
hedging instruments
Location of loss/(gain)
recognized
FFAs - realized loss
FFAs - unrealized loss
Bunker swaps - realized gain
Bunker swaps - unrealized
loss/(gain)
Total
Realized and unrealized loss/(gain)
on derivative instruments, net
Realized and unrealized loss/(gain)
on derivative instruments, net
Realized and unrealized loss/(gain)
on derivative instruments, net
Realized and unrealized loss/(gain)
on derivative instruments, net
For the Years Ended
December 31, 2021 December 31, 2020
$
41,138,509 $
3,822,049
58,747
711,708
(2,962,916)
(8,347,947)
9,406
$
38,243,746 $
(1,012,584)
(4,826,774)
Derivatives not designated as
hedging instruments
FFAs - Unrealized loss
FFAs - Unrealized gain
Bunker Swaps - Unrealized gain
Balance Sheet Location
Fair value of derivative
liabilities - current
Fair value of derivative
assets - current
Fair value of derivative
assets - current
Fair value of derivatives
December 31, 2021
December 31, 2020
$
3,368,430 $
4,325,880
—
—
342,993
352,399
See Note 2, Significant Accounting Policies, for a discussion of the Company's policy on its collateral on
derivatives.
Note 8. Fair Value Measurements
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash, cash equivalents and restricted cash—the carrying amounts reported in the consolidated balance sheets for
interest-bearing deposits approximate their fair value due to their short-term nature thereof.
Debt—the carrying values approximates fair values for bonds issued under the Convertible Bond Debt, which is
traded on NASDAQ. The carrying amount of our term loan borrowing under the Global Ultraco Debt Facility
approximates its fair value, due to its variable interest rates.
The Company defines fair value, establishes a framework for measuring fair value and provides disclosures about
fair value measurements. The fair value hierarchy for disclosure of fair value measurements is as follows:
•
•
Level 1 – Quoted prices in active markets for identical assets or liabilities. Our Level 1 non-derivatives
include cash, money-market accounts and restricted cash accounts.
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable. Our
Level 2 non-derivatives include our debt balances under the Convertible Bond Debt and the Global Ultraco
F- 31
Debt Facility. Freight forward agreements, bunker swaps and interest rate swaps are considered to be a
Level 2 item as the Company, using the income approach to value the derivatives, uses observable Level 2
market inputs at measurement date and standard valuation techniques to convert future amounts to a single
present amount assuming that participants are motivated, but not compelled to transact. See Note 7
Derivative Instruments.
•
Level 3 – Inputs that are unobservable (for example cash flow modeling inputs based on assumptions).
Assets and liabilities measured at fair value:
December 31, 2021
Assets
Cash and cash equivalents (1)
Collateral on derivatives
Fair value of derivative assets - current (2)
Fair value of derivative assets - noncurrent (3)
Liabilities
Global Ultraco Debt Facility (4)
Convertible Bond Debt (5)
Fair value of derivative liabilities - current (6)
Carrying Value (8)
Level 1
Level 2
Fair Value
$
86,221,552 $ 86,221,552 $
15,080,567
15,080,567
4,668,873
3,112,091
287,550,000
114,119,000
4,253,155
—
—
—
—
—
—
—
4,668,873
3,112,091
287,550,000
147,498,808
4,253,155
Carrying Value (8)
Level 1
Level 2
Fair Value
December 31, 2020
Assets
Cash and cash equivalents (1)
Other current assets (2)
Liabilities
Norwegian Bond Debt (7)
New Ultraco Debt Facility (4)
Super Senior Facility (4)
Convertible Bond Debt (5)
Fair value of derivative liabilities - current and noncurrent (6)
$
88,848,771 $ 88,848,771 $
—
483,739
131,340
352,399
180,000,000
166,429,594
15,000,000
114,120,000
1,132,398
—
—
—
—
—
173,250,000
166,429,594
15,000,000
92,748,748
1,132,398
F- 32
(1)
Includes restricted cash (current and non-current) of $0.1 million at December 31, 2021 and $18.9 million at
December 31, 2020.
(2) Relates to unrealized mark-to-market gains on FFAs and bunker swaps as of December 31, 2021 and December 31,
2020. Includes $0.1 million of collateral on derivatives as of December 31, 2020.
Includes $3.1 million of unrealized gains on our interest rate swaps as of December 31, 2021.
(3)
(4) The fair value of the liabilities is based on the required repayment to the lenders if the debt was discharged in full on
December 31, 2021 and December 31, 2020.
(5) The fair value of the Convertible Bond Debt is based on the last trade on December 16, 2021 and the last trade on
(6)
December 21, 2020 on Bloomberg.com.
Includes $3.4 million of unrealized mark-to-market losses on FFAs and $0.9 million of unrealized losses on our interest
rate swaps as of December 31, 2021 and $1.1 million of unrealized losses on our interest rate swaps as of December 31,
2020.
(7) The fair value of the bond is based on the last trade on December 14, 2020 on Bloomberg.com.
(8) The outstanding debt balances represent the face value of the debt excluding debt discount and debt issuance costs.
Note 9. Commitments and Contingencies
Legal Proceedings
The Company is involved in legal proceedings and may become involved in other legal matters arising in the
ordinary course of its business. The Company evaluates these legal matters on a case-by-case basis to make a
determination as to the impact, if any, on its business, liquidity, results of operations, financial condition or cash
flows.
In March 2021, the U.S. government began investigating an allegation that one of the Company's vessels may have
improperly disposed of ballast water that entered the engine room bilges during a repair. The investigation of this
alleged violation of environmental laws is ongoing, and although at this time we do not believe that this matter will
have a material impact on the Company, our financial condition or results of operations, we cannot determine what
penalties, if any, will be imposed. We have posted a surety bond as security for any fines, penalties or associated
costs that may be issued, and the Company is cooperating fully with the U.S. government in its investigation of this
matter. For the year ended December 31, 2021, the Company incurred and recorded $2.8 million as Other operating
expense in our Consolidated Statement of Operations, relating to this incident, which includes legal fees, surety
bond expenses, vessel off-hire, crew changes and travel costs.
We have not been involved in any legal proceedings, other than as disclosed above, which we believe 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, other than as described above, which we believe may have a
significant effect on our business, financial position, and 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.
Note 10. Leases
The following are the types of contracts the Company has, which are accounted for under lease guidance, ASC 842:
Time charter out contracts
The Company's shipping revenues are principally generated from time charters and voyage charters. In a time
charter contract, the vessel is hired by the charterer for a specified period of time in exchange for consideration
F- 33
which is based on a daily hire rate. The charterer has the full discretion over the ports visited, shipping routes and
vessel speed. The contract/charter party generally provides typical warranties regarding the speed and performance
of the vessel. The charter party generally has some owner protective restrictions such that the vessel is sent only to
safe ports by the charterer, subject always to compliance with applicable sanction laws, and carry only lawful or
non-hazardous cargo. In a time charter contract, the Company is responsible for all the costs incurred for running the
vessel such as crew costs, vessel insurance, repairs and maintenance and lubes. The charterer bears the voyage
related costs such as bunker expenses, port charges and canal tolls during the hire period. The performance
obligations in a time charter contract are satisfied over the term of the contract beginning when the vessel is
delivered to the charterer until it is redelivered back to the Company. The charterer generally pays the charter hire in
advance of the upcoming contract period. The Company determined that all time charter contracts are considered
operating leases and therefore fall under the scope of ASC 842 because: (i) the vessel is an identifiable asset; (ii) the
Company does not have substantive substitution rights; and (iii) the charterer has the right to control the use of the
vessel during the term of the contract and derives the economic benefits from such use.
Under ASC 842, the Company elected not to separate the lease and non-lease components included in the time
charter revenue because the pattern of revenue recognition for the lease and non-lease components (included in the
daily hire rate) is the same. The daily hire rate represents the hire rate for a bare boat charter as well as the
compensation for expenses incurred running the vessel such as crewing expense, repairs, insurance, maintenance
and lubes. Both the lease and non-lease components are earned by passage of time.
The revenue generated from time charter out contracts is recognized on a straight-line basis over the term of the
respective time charter agreements, which are recorded as part of Revenues, net in our Consolidated Statements of
Operations for the years ended December 31, 2021, 2020 and 2019.
Time charter-in contracts
The Company charters in vessels to supplement our own fleet and employs them both on time charters and voyage
charters. The time charter-in contracts range in lease terms from 30 days to 2 years. Time charter-in contracts with
an initial lease term of less than 12 months are excluded from the operating lease right-of-use assets and lease
liabilities recognized on our Consolidated Balance Sheet but recognizes the operating lease right-of-use assets and
the corresponding lease liabilities on the Consolidated Balance sheet for time charter-in contracts greater than 12
months. The Company recognizes the lease payments for all vessel operating leases as charter hire expenses on the
Consolidated Statements of Operations on a straight-line basis over the lease term.
The Company determined that the time charter-in contracts do not contain an implicit borrowing rate. Therefore, the
Company arrived at the incremental borrowing rate by determining the Company's implied credit rating and the
yield curve for debt as of January 1, 2019. The Company then interpolated the yield curve to determine the
incremental borrowing rate for each lease based on the remaining lease term on the specific lease. Based on the
above methodology, the Company's incremental borrowing rates ranged from 2.81% to 6.08% for the five lease
contracts (three time charter-in contracts and two office leases) for which the Company recorded operating lease
right-of-use assets and corresponding lease liabilities.
The Company has time charter-in contracts for Ultramax vessels which are greater than 12 months as of the date of
lease commencement. A description of each of these contracts is below:
(i) The Company entered into an agreement effective April 28, 2017, to charter-in a 61,400 dwt, 2013 built
Japanese vessel for approximately four years with options for two additional years. The hire rate for the first four
years is $12,800 per day and the hire rate for the first optional year is $13,800 per day and $14,300 per day for the
second optional year. The Company has determined that it will not exercise the existing options under this contract
and therefore the options are not included in the calculation of the operating lease right-of-use asset. In addition, the
Company’s fair value below contract value of time charters acquired of $1.8 million as of December 31, 2018,
which related to the unamortized value of a prior charter with the same counterparty that had been recorded at the
time of the Company’s emergence from bankruptcy, was offset against the corresponding right of use asset on this
lease as of January 1, 2019. On July 8, 2021, the Company exercised its option to extend the charter for another year
F- 34
at a hire rate of $13,800 per day. The Company has increased the lease liability and the corresponding right-of-use
asset by $5.0 million to reflect the extended lease term in its Consolidated Balance Sheet as of December 31, 2021.
The discount rate utilized in the measurement of lease liability and the corresponding right-of-use asset based on the
Company's implied credit rating and the yield curve for debt as of July 8, 2021 was 1.36%.
(ii) On May 4, 2018, the Company entered into an agreement to charter-in a 61,425 dwt, 2013 built
Ultramax vessel for three years with an option for an additional two years. The hire rate for the first three years is
$12,700 per day and $13,750 per day for the first year option and $14,750 per day for the second year option. The
Company took delivery of the vessel in the third quarter of 2018. During the second quarter of 2021, the Company
decided to extend the lease term to its maximum redelivery date allowed under the charter party. Additionally, on
June 28, 2021, the Company exercised its option to extend the charter for another year until October 19, 2022 at a
hire rate of $13,750 per day. The Company has increased the lease liability and the corresponding right-of-use asset
by $5.8 million to reflect the extended lease term in its Consolidated Balance Sheet as of December 31, 2021. The
discount rate utilized in the measurement of lease liability and the corresponding right-of-use asset based on the
Company's implied credit rating and the yield curve for debt as of June 28, 2021 was 1.34%.
(iii) On December 9, 2018, the Company entered into an agreement to charter-in a 62,487 dwt, 2016 built
Ultramax vessel for two years. The hire rate for the vessel until March 2020 is $14,250 per day and $15,250 per day
thereafter. The Company took delivery of the vessel in the fourth quarter of 2018. On December 25, 2019, the
Company renegotiated the lease terms for another year at a hire rate of $11,600 per day. The Company accounted
for this as a lease modification on December 25, 2019 and increased its lease liability and right-of-use asset on its
balance sheet as of December 31, 2019 by $4.5 million. During the first quarter of 2021, the Company decided to
extend the lease term to its maximum redelivery date allowed under the charter party. Therefore, the lease liability
and the corresponding right-of-use asset as of March 31, 2021 have been increased by $1.0 million to reflect the
change in lease term from minimum redelivery date to maximum redelivery date allowed under the charter party. On
May 4, 2021, the Company exercised its option to extend the charter for another year until July 31, 2022 at a hire
rate of $12,600 per day. The Company has increased the lease liability and the corresponding right-of-use asset by
$4.3 million to reflect the extended lease term in its Consolidated Balance Sheet as of December 31, 2021. The
discount rate utilized in the measurement of lease liability and the corresponding right-of-use asset based on the
Company's implied credit rating and the yield curve for debt as of May 4, 2021 was 1.38%.
(iv) On December 22, 2020, the Company entered into an agreement to charter-in a 63,634 dwt, 2021 built
Ultramax vessel for twelve months with an option for an additional three months at a hire rate of $5,900 per day plus
57% of the Baltic Supramax Index ("BSI") 58 average of 10 time charter routes as published by the Baltic Exchange
each business day. Additionally, following the initial fifteen month period the Company has an additional option to
extend for a period of eleven to thirteen months at an increased rate of $6,500 per day with no change in the rest of
the terms. Also, the Company shall share the scrubber benefit with the owners 50% calculated as the price
differential between the high sulfur and low sulfur fuel oil based on actual bunker consumption during the lease
period. On July 7, 2021, the Company took delivery of the vessel and recorded $9.1 million as lease liability and
corresponding right-of-use asset in its Consolidated Balance Sheet as of December 31, 2021. The discount rate
utilized in the measurement of lease liability and the corresponding right-of-use asset based on the Company's
implied credit rating and the yield curve for debt as of July 7, 2021 was 1.33%.
(v) On September 6, 2021, the Company entered into an agreement to charter-in a 2021 built Ultramax
vessel for a period of a minimum of twelve months and a maximum of fifteen months at a hire rate of $11,250 per
day plus 57.5% of the BSI 58 average of 10 time charter routes published by the Baltic Exchange each business day.
The Company has the option to extend the lease term for another year, during which time the fixed hire rate
decreases to $10,750 per day with no change to the remaining terms. The vessel is expected to be delivered to the
Company in the second quarter of 2022. No right-of-use asset or corresponding liability has been recognized in the
Consolidated Balance Sheet as of December 31, 2021 since the Company did not take delivery of the vessel and as
such lease term has not begun yet.
Office leases
On October 15, 2015, the Company entered into a commercial lease agreement as a sublessee for office space in
Stamford, Connecticut. The lease is effective from January 2016 through June 2023, with an average annual rent of
F- 35
$0.4 million. The lease is secured by a letter of credit backed by cash collateral of $0.1 million and is recorded as
Restricted cash - noncurrent in the accompanying Consolidated Balance Sheets as of December 31, 2021 and 2020.
In November 2018, the Company entered into an office lease agreement in Singapore, which was originally set to
expire in October 2021, with an average annual rent of $0.3 million. On August 17, 2021, the Company renewed the
lease on the existing office space for an additional 5 years with an average annual rent of $0.4 million. The
Company increased the lease liability and the corresponding right-of-use asset by $1.3 million in its Consolidated
Balance Sheets as of December 31, 2021. The discount rate utilized in the measurement of lease liability and the
corresponding right-of-use asset based on the Company's implied credit rating as of August 17, 2021 was 3.09%.
Additionally, the Company entered into a new lease agreement for an additional office space in Singapore for 4.9
years beginning in the second quarter of 2022 with an average annual rent of $0.2 million. The Company took
possession of the unit in February 2022. No right-of-use asset or corresponding liability has been recognized in the
Consolidated Balance Sheets as of December 31, 2021 since the Company did not take possession of the office
space and the lease term has not yet commenced.
The Company determined the two office leases to be operating leases and recorded the lease expense as part of
General and administrative expenses in the Consolidated Statement of Operations for the years ended December 31,
2021, 2020 and 2019.
Operating lease right-of-use assets and lease liabilities as of December 31, 2021 and 2020 are as follows:
Location in Balance
Sheet
December 31, 2021 (1) December 31, 2020 (1)
Description
Non current assets:
Chartered-in contracts greater than
12 months (2)
Office leases
Operating lease right-of-
use assets
Operating lease right-of-
use assets
Liabilities:
Chartered-in contracts greater than
12 months
Office leases
Current portion of
operating lease liabilities
Current portion of
operating lease liabilities
Lease liabilities - current portion
Office leases
Noncurrent portion of
operating lease liabilities
Lease liabilities - non current
portion
$
$
$
$
$
15,039,060 $
6,207,253
1,978,369
17,017,429 $
1,333,618
7,540,871
15,039,060 $
6,974,943
689,047
15,728,107 $
640,428
7,615,371
1,282,553
1,282,553 $
686,422
686,422
(1) The Operating lease right-of-use assets and Operating lease liabilities represent the present value of lease
payments for the remaining term of the lease. The discount rates used ranged from 1.33% to 6.08%. The weighted
average discount rate used to calculate the lease liability was 1.67%.
(2) During the second quarter of 2020, the Company determined that there were impairment indicators present for
one of our chartered-in vessel contracts and, as a result, we recorded an operating lease impairment of $0.4 million.
The operating lease impairment was included as component of Operating income/(loss) in our Consolidated
Statements of Operations for the year ended December 31, 2020.
F- 36
The table below presents the components of the Company’s lease expenses and sub-lease income on a gross basis
earned from chartered-in contracts greater than 12 months for the year ended December 31, 2021 and 2020:
Description
Lease expense for chartered-in
contracts less than 12 months
Lease expense for chartered-in
contracts greater than 12 months
Location in Statement
of Operations
For the Year Ended
December 31, 2021
For the Year Ended
December 31, 2020
Charter hire expenses
$
20,553,368
$
8,731,978
Charter hire expenses
Total charter hire
expenses
16,548,324
$
37,101,692
$
12,548,246
21,280,224
Lease expense for office leases
General and
administrative expenses $
642,020
$
733,874
Sub lease income from chartered-in
contracts greater than 12 months * Revenues, net
$
25,372,314
$
8,589,156
* The sub-lease income represents only time charter revenue earned on the chartered-in contracts greater than 12
months. There is additional revenue earned from voyage charters on the same chartered-in contracts which is
recorded in Revenues, net in our Consolidated Statements of Operations for the years ended December 31, 2021 and
2020. Additionally, there is revenue earned from time charters from chartered-in contracts less than 12 months
which is included in Revenues, net in our Consolidated Statements of Operations for the years ended December 31,
2021 and 2020.
The cash paid for operating leases with terms greater than 12 months is $18.1 million and $14.0 million for the years
ended December 31, 2021 and 2020, respectively.
The weighted average remaining lease term on our operating leases greater than 12 months is 12.82 months.
F- 37
The table below provides the total amount of lease payments on an undiscounted basis on our time chartered-in
contracts and office leases greater than 12 months as of December 31, 2021:
Supplemental Disclosure Information
Discount rate upon adoption (1)
Year:
Chartered-in
contracts greater
than 12 months
Office leases
Total Operating
leases
5.37 %
5.80 %
5.48 %
2022
2023
2024
2025
2026
2027
Present value of lease liability
Lease liabilities - short term
Lease liabilities - long term
Total lease liabilities
15,096,117
—
—
—
—
—
748,243
510,074
265,922
265,195
265,195
53,766
15,844,360
510,074
265,922
265,195
265,195
53,766
15,096,117
2,108,395
17,204,512
15,039,060
—
15,039,060
689,047
1,282,553
1,971,600
15,728,107
1,282,553
17,010,660
Discount based on incremental borrowing rate
$
57,057
$
136,795
$
193,852
(1) Discount rate upon adoption does not include the discount rate on the lease modification on December 25, 2019.
The discount rate used for calculation of the right-of-use asset and the related lease liability on December 25, 2019
was 2.806%.
Note 11. Revenue
Voyage charters
In a voyage charter contract, the charterer hires the vessel to transport a specific agreed-upon cargo for a single
voyage which may contain multiple load ports and discharge ports. The consideration in such a contract is
determined on the basis of a freight rate per metric ton of cargo carried or occasionally on a lump sum basis. The
charter party generally has a minimum amount of cargo. The charterer is liable for any short loading of cargo or
“dead” freight. The voyage contract generally has standard payment terms of 95% freight paid within three days
after completion of loading. The voyage charter party generally has a “demurrage” or “despatch” clause. As per this
clause, the charterer reimburses the Company for any potential delays exceeding the allowed laytime as per the
charter party clause at the ports visited which is recorded as demurrage revenue. Conversely, the charterer is given
credit if the loading/discharging activities happen within the allowed laytime known as despatch, resulting in a
reduction in revenue. In a voyage charter contract, the performance obligations begin to be satisfied once the vessel
begins loading the cargo. The Company determined that its voyage charter contracts consist of a single performance
obligation of transporting the cargo within a specified time period. Therefore, the performance obligation is met
evenly as the voyage progresses and the revenue is recognized on a straight line basis over the voyage days from the
commencement of the loading of cargo to the completion of discharge.
The voyage contracts are considered service contracts which fall under the provisions of ASC 606, Revenue
Recognition, ("ASC 606") because the Company, as the shipowner, retains the control over the operations of the
F- 38
vessel such as directing the routes taken or the vessel speed. The voyage contracts generally have variable
consideration in the form of demurrage or despatch. The amount of revenue earned as demurrage or paid by the
Company as despatch for the years ended December 31, 2021, 2020 and 2019 was $20.7 million, $6.3 million and
$10.7 million, respectively.
The following table shows the revenues earned from time charters and voyage charters for the years ended
December 31, 2021, 2020 and 2019:
For the Years Ended
December 31, 2021
December 31, 2020
December 31, 2019
$
$
299,613,590 $
105,028,131 $
294,924,064
170,105,416
594,537,654 $
275,133,547 $
128,142,708
164,234,930
292,377,638
Time charters
Voyage charters
Contract costs
In a voyage charter contract, the Company bears all voyage related costs such as fuel costs, port charges and canal
tolls. These costs are considered contract fulfillment costs because the costs are direct costs related to the
performance of the contract and are expected to be recovered. The costs incurred during the period prior to
commencement of loading the cargo, primarily bunkers, are deferred as they represent setup costs and recorded as a
current asset and are amortized on a straight-line basis as the related performance obligations are satisfied. As of
December 31, 2021 and 2020, the Company recognized $0.7 million and $0.5 million, respectively, of deferred costs
which represents bunker expenses and charter hire expenses incurred prior to commencement of loading. These
costs are recorded in Other current assets on the Consolidated Balance Sheets.
Note 12. Net Income/(Loss) per Common Share
The computation of basic net income/(loss) per share is based on the weighted average number of common shares
outstanding for the years ended December 31, 2021, 2020 and 2019. Diluted net income/(loss) per share gives effect
to stock awards, stock options and restricted stock units using the treasury stock method, unless the impact is anti-
dilutive.
Diluted net income per share for the year ended December 31, 2021 includes 200,145 stock awards and 47,568 stock
options as their effect was dilutive. Additionally, the Convertible Bond Debt is not considered a participating
security and therefore not included in the computation of Basic net income per share for the year ended
December 31, 2021. The Company determined that it does not overcome the presumption of share settlement of
outstanding debt, and therefore, the Company applied the if-converted method and included the potential shares to
be issued upon conversion of Convertible Bond Debt in the calculation of Diluted net income per share for the year
ended December 31, 2021 as their effect was dilutive.
Diluted net loss per share for the year ended December 31, 2020 does not include 218,013 stock awards, 325,591
stock options and outstanding warrants convertible to 21,718 shares of common stock as their effect was anti-
dilutive. Additionally, the Convertible Bond Debt is not considered a participating security and therefore not
included in the computation of Basic net loss per share for the year ended December 31, 2020. The Company
determined that it does not overcome the presumption of share settlement of outstanding debt and therefore the
Company applied the if-converted method and did not include the potential shares to be issued upon conversion of
Convertible Bond Debt in the calculation of Diluted net loss per share for the year ended December 31, 2020 as their
effect was anti-dilutive.
Diluted net loss per share for the year ended December 31, 2019 does not include 222,786 stock awards, 326,399
stock options and outstanding warrants convertible to 21,718 shares of common stock as their effect was anti-
F- 39
dilutive. Additionally, the Convertible Bond Debt is not considered a participating security and therefore not
included in the computation of Basic net loss per share for the year ended December 31, 2019. The Company
determined that it does not overcome the presumption of share settlement of outstanding debt, and therefore, the
Company applied the if-converted method and did not include the potential shares to be issued upon conversion of
Convertible Bond Debt in the calculation of Diluted net loss per share for the year ended December 31, 2019 as their
effect was anti-dilutive.
Net income/(loss)
Weighted Average Shares - Basic
For the Years Ended
December 31,
2021
December 31,
2020
December 31,
2019 *
$ 184,897,884 $
(35,063,468) $
(21,697,115)
12,399,509
10,310,246
10,195,088
Dilutive effect of stock options, warrants and restricted stock units
3,284,883
—
—
Weighted Average Shares - Diluted
Basic net income/(loss) per share
Diluted net income/(loss) per share
15,684,392
10,310,246
10,195,088
$
$
14.91 $
11.79 $
(3.40) $
(3.40) $
(2.13)
(2.13)
* Adjusted to give effect for the 1-for-7 Reverse Stock Split that became effective on September 15, 2020. See Note
1, General Information.
Note 13. Stock Incentive Plans
As a result of the Reverse Stock Split, proportional adjustments were made to the Company's issued and outstanding
common stock and to its common stock underlying stock options and other common stock-based equity grants
outstanding immediately prior to the effectiveness of the Reverse Stock Split. No fractional shares were issued in
connection with the Reverse Stock Split. All references herein to common stock and per share data presented in this
footnote have been retrospectively adjusted to reflect the Reverse Stock Split.
2014 Management Incentive Plan
On October 15, 2014, in accordance with the Plan of Reorganization, the Company adopted the post-emergence
Management Incentive Program (the “2014 Plan” or "MIP"), which provided for the distribution of New Eagle MIP
Primary Equity in the form of shares of New Eagle Common Stock, and New Eagle MIP Options, to the
participating senior management and other employees of the reorganized Company with 2% of the New Eagle
Common Stock (on a fully diluted basis) on the Effective Date, and two tiers of options to acquire 5.5% of the New
Eagle Common Stock (on a fully diluted basis) with different strike prices based on the equity value for the
reorganized Company.
There are no unvested restricted stock awards outstanding as of December 31, 2021 and 2020 under the 2014 Plan.
There are no unvested and unexercised options as of December 31, 2021. There were 40,000 options vested but not
exercised and no unvested options as of December 31, 2020. The 40,000 vested options were exercised in November
2021 at an exercise price of $29.96 per share and 5,351 shares were issued after tax.
2016 Equity Compensation Plan
On December 15, 2016, the Company’s shareholders approved the 2016 Equity Compensation Plan (the “2016
Plan”) and the Company registered 764,087 shares of common stock, which can be issued under the 2016 Plan. The
2016 Plan replaced the 2014 Plan and no other awards will be granted under the 2014 Plan. Under the terms of the
2016 Plan, awards for up to a maximum of 428,571 shares may be granted under the 2016 Plan to any one employee
of the Company and its subsidiaries during any one calendar year, and awards in the form of options and stock
appreciation rights for up to a maximum of 428,571 shares may be granted under the 2016 Plan. The total number of
F- 40
shares of common stock with respect to which awards may be granted under the 2016 Plan to any non-employee
director during any one calendar year shall not exceed 71,428, subject to adjustment as provided in the 2016 Plan.
Any Director, officer, employee or consultant of the Company or any of its subsidiaries (including any prospective
officer or employee) is eligible to be designated to participate in the 2016 Plan. The Company withheld shares
related to restricted stock awards that vested in 2021 at the fair market value equivalent to the maximum statutory
tax withholding obligation and remitted that amount in cash to the appropriate taxation authorities. On June 7, 2019,
the Company's shareholders approved an amendment and restatement of the 2016 Plan, which increased the number
of shares reserved under the 2016 Plan by an additional 357,142 shares to a maximum of 1,121,229 shares of
common stock.
On February 19, 2021, the Company granted 92,327 restricted shares as a Company-wide grant under the 2016 Plan.
The aggregate fair value of the grant is $2.8 million based on the closing share price of $29.96 on February 19,
2021. The shares will vest in equal installments on each of the next three grant date anniversaries over a three-year
term. Additionally, on February 19, 2021, the Company granted 4,341 shares of fully vested common stock to its
board of directors. The aggregate fair value of the director grant is $0.1 million based on the closing share price of
$29.96 on February 19, 2021. The amortization of the above grants is $1.8 million for the year ended December 31,
2021, which is included in General and administrative expenses in the Consolidated Statements of Operations.
On September 3, 2021, the Company granted 17,727 shares of time-based restricted share awards to certain
members of its senior management team under the 2016 Plan. The shares will vest in equal installments on each of
the next three grant date anniversaries over a three-year term. The aggregate fair value of these awards is
$0.9 million based on the closing share price of $49.77 on September 3, 2021. The amortization of the above grant is
$0.2 million for the year ended December 31, 2021, which is included in General and administrative expenses in the
Consolidated Statements of Operations.
Additionally, on September 3, 2021, the Company granted performance-based restricted stock grants to certain
members of its senior management team under the 2016 Plan, which are contingent on certain performance criteria.
The maximum number of performance-based stock awards that can be issued are 53,182.
Of the maximum 53,182 performance-based stock awards granted, 35,454 shares were granted on September 3,
2021 based on earnings per share ("EPS performance") for the year ended December 31, 2021 (with targets set forth
earlier in 2021). These performance-based restricted shares will vest in equal installments on each of the next three
grant-date anniversaries over a three-year term, subject to achievement of the EPS performance criteria. The
aggregate fair value of these awards is $1.8 million based on the closing share price of $49.77 on September 3, 2021.
The EPS performance is considered to be a performance condition under ASC 718, and therefore, the stock-based
compensation expense is initially recorded based on the probable outcome that the performance condition will be
achieved as of the grant date with subsequent adjustments to the probable outcome over time. The ultimate expense
recognized is based on the actual performance outcome at the end of the performance period. As of December 31,
2021, the Company achieved the maximum EPS performance target (100%) and recorded $0.4 million as stock-
based compensation expense which is included in General and administrative expenses in its Consolidated Statement
of Operations for the year ended December 31, 2021.
Of the maximum 53,182 performance-based stock awards granted, 17,728 shares were granted on September 3,
2021, based on relative total shareholder return ("TSR performance") for the year ended December 31, 2021. These
market-based restricted shares will vest in equal installments on each of the next three grant-date anniversaries over
a three-year term, subject to achievement of the relative TSR market condition. All the vested TSR performance
shares are subject to a one-year holding period after vesting. The TSR performance is based on the Company's total
shareholder return compared to seven peer companies over the performance period which ranges between January 1,
2021 and December 31, 2021. The TSR performance is calculated based on average daily closing stock price over a
20-trading-day period at each of the beginning and end of the performance period. The aggregate fair value of the
TSR performance awards, which was calculated using a Monte Carlo simulation model, was $0.5 million. The
assumptions used in the model were the closing stock price of $49.77 on September 3, 2021; the risk-free rate of
return of 0.05% based on 4-month treasury rates as of September 3, 2021; expected volatility of 55.66% based on 1-
year historical daily volatility of the closing share prices for the Company; and 8.1% discount applied for the 1-year
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holding period using the Finnerty model. Volatility for each of the peer companies as well as the correlation of
returns between each of the companies was also determined as inputs into the Monte Carlo model. As of
December 31, 2021, the Company determined that the TSR performance achievement will be 64.1% of the total
maximum shares under the market criteria and recorded $0.2 million as stock-based compensation expense, which is
included in General and administrative expenses in its Consolidated Statement of Operations for the year ended
December 31, 2021.
The following schedule represents outstanding stock awards granted under the 2016 Plan, excluding the
performance-based shares described above:
Restricted
shares
Weighted
Average Fair
value on
grant date
Aggregate
fair value
(in millions)
Vesting
Terms
Unvested restricted stock outstanding as of
December 31, 2019
222,786 $
32.63 $
7.27
Issued during 2020
Vested during 2020
Forfeitures and cancellations due to settlement
of tax liability on vested shares during 2020
Unvested restricted stock outstanding as of
December 31, 2020
107,930
(65,981)
22.12
32.63
(46,722)
32.63
2.39
(2.15)
(1.52)
218,013
27.48
5.99
Issued during 2021
Vested during 2021
Forfeitures and cancellations due to settlement
of tax liability on vested shares during 2021
Unvested restricted stock outstanding as of
December 31, 2021
114,395
(81,734)
33.40
27.48
(50,529)
27.48
3.82
(2.25)
(1.39)
200,145 $
30.83 $
6.17
The following schedule represents unvested options outstanding granted under the 2016 Plan:
33% vesting
annually over
three-year term
33% vesting
annually over
three-year term
Unvested options outstanding as of December 31, 2019
Vested and unexercised during 2020
Unvested options outstanding as of December 31, 2020
Vested and unexercised during 2021
Unvested options outstanding as of December 31, 2021
Options
Weighted Average
Exercise
Price
Fair
Value of
Options
on grant
date
Aggregate fair
value
(in millions)
26,000
$
(13,000)
13,000
$
(13,000) $
—
38.92
$
38.92
38.92
38.92
$
$
$
18.20
$
(9.10) $
9.10
$
(9.10) $
—
$
0.47
(0.24)
0.23
(0.23)
—
There are 47,568 options vested but not exercised as of December 31, 2021. The Company issues new shares upon
exercise of any vested options. All options expire within five years from the grant date. The vested but not exercised
options expire on March 1, 2022 and June 1, 2022 at exercise prices ranging between $32.97 and $38.92 per share.
All 47,568 options were exercised prior to March 1, 2022.
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The stock-based compensation expense for the above stock awards and options under the 2016 Plan and 2014 Plan
included in General and administrative expenses:
December 31, 2021
December 31, 2020 December 31, 2019
For the Years Ended
Stock awards / stock option plans
Total stock-based compensation expense
$
$
3,481,095 $
3,048,280 $
4,826,324
3,481,095 $
3,048,280 $
4,826,324
The future compensation expense to be recognized for all grants for the years ending December 31, 2022, 2023 and
2024 is estimated to be $2.5 million, $1.0 million and $0.2 million.
Note 14. Employee Benefit Plan
In October 2010, the Company established a safe harbor 401(k) plan, which is available to full-time office
employees who meet the plan’s eligibility requirements. The plan allows participants to contribute to the plan a
percentage of pre-tax compensation, but not in excess of the maximum allowed under the Internal Revenue Code.
The Company was matching contributions amounting to 100% of the first 3% and 50% of the next 2% of each
employee’s salary. The matching contribution vests immediately. The Company revised its matching contributions
to 100% up to 6% of each employee's salary beginning January 1, 2019. The total matching contribution incurred by
the Company and included in general and administrative expenses for the years ended December 31, 2021, 2020 and
2019 was $433,048, $447,574 and $435,142, respectively.
The Company has a discretionary profit sharing contribution program under which employees may receive profit
sharing contributions based on the Company’s annual operating performance. For the years ended December 31,
2021, 2020 and 2019, the Company did not make a profit sharing contribution.
Note 15. Subsequent events
On February 22, 2022, the Company's Board of Directors declared a cash dividend of $2.05 per share to be paid on
March 25, 2022 to shareholders of record at the close of business on March 15, 2022. The aggregate amount of the
dividend is expected to be approximately $27.0 million, which the Company anticipates will be funded from cash on
hand.
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