3
This annual report is printed on HOLMENBOOK paper 80gr
and complies to the following certifications.
SS 627750 AND EN 16001 are the Swedish and European
standards for the introduction of energy management systems.
FSC® – Forest Stewardship Council® is a system for the certifcation of
forestry that is supported by several environmental organisations.
PEFC – Programme for the Endorsement of Forest Certifcation
schemes is an international system for forest certifcation.
company
profile
Recently, Safe
Bulkers, Inc., has
Safe Bulkers, Inc. is an international provider of marine drybulk transpor-
tation services, transporting bulk cargoes, particularly coal, grain and iron
ore, along worldwide shipping routes for some of the world’s largest con-
sumers of such services.
selectively invested in
We are listed on the New York Stock Exchange and trade under the symbol “SB”.
secondhand vessels
We are a successor to a business that first invested in shipping in 1958 and
has been involved in the drybulk sector uninterrupted for decades since.
at prices it considers
attractive, taking
into account that
secondhand prices
have reached the 50%
level of the ten year
historical average.
As of February 15, 2013, the Company’s operational fleet was comprised of
25 drybulk vessels with an aggregate carrying capacity of 2,282,400 dwt and
an average age of 4.8 years making ours one of the world’s youngest fleets
of Panamax, Kamsarmax, Post-Panamax and Capesize class vessels. The
Company has also contracted for six additional drybulk newbuilds and one
secondhand vessel with deliveries scheduled through 2015.
The Company invests in young and modern vessels, with advanced designs
and technological specifications, which subsequently are chartered to well-
established customers with whom we maintain long–lasting relationships.
Recently, Safe Bulkers, Inc., has selectively invested in secondhand vessels
at prices it considers attractive, taking into account that secondhand prices
have reached the 50% level of the ten year historical average. As of Febru-
ary 15, 2013, the contracted employment of the Company’s fleet was 65% of
fleet ownership days for 2013, 26% for 2014 and 13% for 2015, including ves-
sels which are scheduled to be delivered to us in the future.
We have paid dividends to our stockholders, each quarter since our initial
public offering in 2008, including an aggregate amount of $37.5 million over
the four quarters of 2012, which is a total of approximately $0.50 per share.
We also declared a dividend of $0.05 per share, which is scheduled to be
paid on March 8, 2013, to our shareholders of record as of March 4, 2013.
We currently intend to use a portion of our free cash to pay dividends to our
stockholders. Our future liquidity needs will impact our dividend policy. The
declaration and payment of dividends, if any, will always be subject to the
discretion of our board of directors. The timing and amount of any dividends
declared will depend on, among other things: (i) our earnings, financial con-
dition and cash requirements and available sources of liquidity, (ii) decisions
in relation to our growth strategies, (iii) provisions of Marshall Islands and
Liberian law governing the payment of dividends, (iv) restrictive covenants
in our existing and future debt instruments and (v) global financial condi-
tions. Dividends might be reduced or not be paid in the future.
3
chairman’s
letter
Fellow Shareholders,
During 2012, we have operated in an adverse market environment. The weakness
of the global economy and excess supply of newbuild vessels suppressed the
charter market at low levels. Many companies have faced liquidity problems
as well as problems with their financial covenants. Bank financing has become
expensive and increasingly selective to specific companies, and as a result, the
ability to obtain equity financing is an advantage.
In this environment, we reduced our dividend to levels we considered
appropriate to further strengthen our balance sheet, while continuing to
reward our investors with meaningful and regular payouts. On March 8th
we paid a dividend of $0.05 per share, our nineteenth consecutive quarterly
dividend since our initial public offering.
As of year-end, we are in full compliance with our financial covenants. We
managed to reduce our dependence on banking loans by obtaining additional
funding for new acquisitions through equity financing. Our intention is to
continue to gradually deleverage our company and cautiously expand our
fleet. During 2012, our fleet expanded by 29% in terms of deadweight tonnage,
and, as of February 15, 2013, our fleet consisted of 25 vessels with an average
age of 4.8 years. With our present newbuilding program, we have contracted
to expand our fleet to 32 vessels by 2015.
Polys Hajioannou is
our Chief Executive
Officer and has been
Chairman of our
board of directors
since 2008.
We reduced our counterparty risk by accepting early redelivery of three vessels,
receiving substantial cash compensation of $25.1 million against contracted
revenues . We pushed back newbuild deliveries, reducing capital expenditure
requirements over the next couple of years. We exercised our contractual right
to cancel one capsize newbuild due to excessive construction delays.
We tapped the secondhand market which has bottomed to 50% of the ten year
historical average and presents opportunities. In this respect we have acquired
three secondhand Japanese built vessels through equity financing.
Our lean operations contribute to our earnings. Our daily operating expenses
together with our daily general and administrative expenses, including
management fees, are among the lowest in the industry: $5,765 during 2012;
$5.767 during 2011; and $5,660 during 2010. We have also maintained low
financing costs by meeting financial covenants, thus preserving low-spread
loans contracted in the past, and by contracting additional low-cost loans from
Japanese governmental financial institutions for newbuild financing.
As a result of our hands-on approach, we have managed to achieve net
income of $96.1 million and EPS of $1.27. With respect to those operational
4
and chartering indicators that demonstrate our operational and chartering
performance, our fleet utilization was 99.2% and our time charter equivalent
rate was $22,979 during 2012.
We currently prefer to employ more vessels that come off charter into the
spot market, which offers upside potential compared to the weak period time
charter market, which does not provide such flexibility. As of February 15, 2013,
the contracted employment of the Company’s fleet was 65% of fleet ownership
days for 2013, 26% for 2014 and 13% for 2015, including vessels that are scheduled
to be delivered to us in the future.
During 2013, we will be focused mainly on the secondhand market for further
expansion of our fleet. We expect that we can operate such vessels more
profitably in low charter market conditions compared to our peers due to our
lean structure. Our intention is to be well-positioned for the next shipping cycle
with our existing fleet, additional secondhand vessels acquired at the bottom
of the previous cycle and newbuilds of the latest design.
Having invested along with you, and solely through Safe Bulkers in ship owning
activities, we will continue to focus on profitably growing our business, and
maximizing the Company’s value.
With these words, we are proud to present our 2012 Annual Report, which
provides detailed information about our business and financial performance.
We would like to thank all of our stockholders for their continued support and
interest in our company.
Polys Hajioannou
Chief Executive Officer and Chairman of the Board
5
operational
highlights
Our newbuild
deliveries in 2012.
Company Awards
M|V Efrossini, Panamax,
DWT 75.000.
M|V Pedhoulas Farmer, Kamsarmax,
DWT 81.600.
Safe Bulkers, Inc. has been ranked ''The Fourth
Best Performing Shipping Company for the
Year 2011'' by Marine Money International.
M|V Venus Horizon, Post-Panamax
DWT 95.800.
M|V Pedhoulas Builder, Kamsarmax,
DWT 81.600.
Our President Dr. Loukas Barmparis receives
the Marine Money Award.
M|V Pedhoulas Fighter, Kamsarmax,
DWT 81.600.
6
financial
highlights(*)
Net Revenue
168.9
184.3
2011
2012
Net Income
Adjusted Net Income
102.8
89.7
96.1
89.8
200
150
100
50
0
s
r
a
l
l
o
D
S
.
U
f
o
s
n
o
i
l
l
i
m
n
I
100
s
r
a
l
l
o
D
S
.
U
f
o
s
n
o
i
l
l
i
m
n
I
75
50
25
0
Daily G & A Expenses
Daily Opex
INTEREST EXPENSE
1,417
1,289
4,350
4,476
2011
2012
10
8
6
4
2
0
s
r
a
l
l
o
D
S
.
U
f
o
s
n
o
i
l
l
i
m
n
I
9.1
5.3
2011
2012
EBITDA
Adjusted EBITDA
EPS
Adjusted EPS
131.3
137.5 131.2
118.2
1,6
1.48
1,2
1.29
1.27
1.19
75
50
25
0
0,8
0,4
0,0
s
r
a
l
l
o
D
S
.
U
n
I
s
r
a
l
l
o
D
S
.
U
n
I
8000
6000
4000
2000
0
150
125
100
s
r
a
l
l
o
D
S
.
U
f
o
s
n
o
i
l
l
i
m
n
I
2011
2012
2011
2012
2011
2012
(*) Definitions:
- EBITDA represents net income before interest, income tax expense, depreciation and amortization.
- Adjusted net income, Adjusted EPS and Adjusted EBITDA represent, respectively, Net Income, EPS and EBITDA before early redelivery income/(cost) and gain/(loss) on derivatives and foreign currency.
EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS are not recognized measurements under US GAAP.
- EPS and Adjusted EPS for the twelve month periods ended December 31, 2012 and 2011 was calculated on a weighted average number of shares of 75,468,465 and of 69,463,093, respectively.
- Daily vessel operating expenses include the costs for crewing, insurance, lubricants, spare parts, provisions, stores, repairs, maintenance, statutory and classification expense, drydocking, intermediate and
special surveys, tonnage taxes and other miscellaneous items. Daily vessel operating expenses are calculated by dividing vessel operating expenses by ownership days for the relevant period.
- Daily general and administrative expenses (“Daily G & A Expenses”) include daily management fees and the costs payable to third parties in relation to our operation as a public company. Daily G & A Expenses
are calculated by dividing general and administrative expenses by ownership days for the relevant period. Daily management fees include the fixed and the variable fees payable to our Manager. Daily manage-
ment fees are calculated by dividing management fees by ownership days for the relevant period.
7
fleet
profile
Vessel Name
Current Fleet
Paraskevi
Maria
Koulitsa
Vassos
Katerina
Maritsa
Efrossini
Pedhoulas Merchant
Pedhoulas Trader
Pedhoulas Leader
Pedhoulas Commander
Pedhoulas Builder
Pedhoulas Fighter
Pedhoulas Farmer
Stalo
Marina
Sophia
Eleni
Martine
Andreas K
Panayiota K
Venus Heritage
Venus History
Venus Horizon
Kanaris
Pelopidas
Total
Newbuilds
TBN*
TBN*
TBN*
TBN*
TBN*
TBN*
Total
Vessel Type
Panamax
Panamax
Panamax
Panamax
Panamax
Panamax
Panamax
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Kamsarmax
Post-Panamax
Post-Panamax
Post-Panamax
Post-Panamax
Post-Panamax
Post-Panamax
Post-Panamax
Post-Panamax
Post-Panamax
Post-Panamax
Capesize
Capesize
Panamax
Panamax
Panamax
Post-Panamax
Post-Panamax
Capesize
* To be Named
** Expected Delivery Date for Newbuilds and for Secondhand
8
DWT
74,300
76,000
76,900
76,000
76,000
76,000
75,000
82,300
82,300
82,300
83,700
81,600
81,600
81,600
87,000
87,000
87,000
87,000
87,000
92,000
92,000
95,800
95,800
95,800
178,100
176,000
2,366,100
75,000
76,600
76,600
84,000
84,000
181,000
577,200
Year Built**
2003
2003
2003
2004
2004
2005
2012
2006
2006
2007
2008
2012
2012
2012
2006
2006
2007
2008
2009
2009
2010
2010
2011
2012
2010
2011
2013
2014
2014
2015
2015
2014
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
SAFE BULKERS, INC.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
Republic of The Marshall Islands
(Jurisdiction of incorporation or organization)
30-32 Avenue Karamanli
P.O. Box 70837
16605 Voula
Athens, Greece
(Address of principal executive offices)
Dr. Loukas Barmparis
President
30-32 Avenue Karamanli
P.O. Box 70837
16605 Voula
Athens, Greece
Telephone : +30 210 899 4980
Facsimile : +30 210 895 4159
(Name, Address, Telephone Number and Facsimile Number of Company contact person)
Registration statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year
ended December 31, 2012
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Shell Company Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 001-34077
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, $0.001 par value per share
Preferred stock purchase rights
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual
report. As of December 31, 2012, there were 76,661,451 shares of the registrant’s common stock outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £ No S
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. Yes £ No S
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 S No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes S No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer
and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer £ Accelerated filer S Non-accelerated filer £
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.
U.S. GAAP S International Financial Reporting Standards as issued by the International Accounting Standards Board £ Other £
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to fol-
low. Item 17£ Item 18 £
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S
(Mark One)
£
S
£
£
10
11
annual report 2012
TABLE OF CONTENTS
Page
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS ................................................15
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE ...............................................................................15
ITEM 3.
KEY INFORMATION .........................................................................................................................15
ITEM 4.
INFORMATION ON THE COMPANY ................................................................................................ 33
ITEM 4A. UNRESOLVED STAFF COMMENTS.................................................................................................. 45
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS ................................................................45
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ................................................................59
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS ...................................................63
ITEM 8.
FINANCIAL INFORMATION ............................................................................................................ 67
ITEM 9.
THE OFFER AND LISTING ................................................................................................................68
ITEM 10. ADDITIONAL INFORMATION .........................................................................................................69
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..................................... 80
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES ..................................................81
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ...........................................................81
ABOUT THIS REPORT
In this annual report, “Safe Bulkers,” “the Company,” “we,” “us” and “our” are sometimes used for convenience where refer-
ences are made to Safe Bulkers, Inc. and its subsidiaries (as well as the predecessors of the foregoing). These expres-
sions are also used where no useful purpose is served by identifying the particular company or companies. Our affiliated
management company, Safety Management Overseas S.A., a company incorporated under the laws of the Republic of
Panama, is sometimes referred to in this annual report as “Safety Management” or our “Manager.”
FORWARD-LOOKING STATEMENTS
All statements in this annual report that are not statements of historical fact are “forward-looking statements” within
the meaning of the United States Private Securities Litigation Reform Act of 1995. The disclosure and analysis set forth
in this annual report includes assumptions, expectations, projections, intentions and beliefs about future events in a
number of places, particularly in relation to our operations, cash flows, financial position, plans, strategies, business
prospects, changes and trends in our business and the markets in which we operate. These statements are intended
as forward-looking statements. In some cases, predictive, future-tense or forward-looking words such as “believe,” “in-
tend,” “anticipate,” “estimate,” “project,” “forecast,” “plan,” “potential,” “may,” “should,” and “expect” and similar expressions
are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. In
addition, we and our representatives may from time to time make other oral or written statements which are forward-
looking statements, including in our periodic reports that we file with the Securities and Exchange Commission (“SEC”),
other information sent to our security holders, and other written materials.
Forward-looking statements include, but are not limited to, such matters as:
• future operating or financial results and future revenues and expenses;
• future, pending or recent acquisitions, business strategy, areas of possible expansion and expected capital spend-
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS .....81
ing or operating expenses;
ITEM 15. CONTROLS AND PROCEDURES ......................................................................................................81
ITEM 16.
[RESERVED] ....................................................................................................................................83
• availability of key employees, crew, length and number of off-hire days, drydocking requirements and fuel and in-
surance costs;
• general market conditions and shipping industry trends, including charter rates, vessel values and factors affecting
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT .........................................................................................83
supply and demand;
ITEM 16B. CODE OF ETHICS ............................................................................................................................83
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES ..............................................................................83
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ....................................84
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS ....................84
•
our financial condition and liquidity, including our ability to make required payments under our credit facilities,
comply with our loan covenants and obtain additional financing in the future to fund capital expenditures, acquisi-
tions and other corporate activities;
• the overall health and condition of the U.S. and global financial markets, including the value of the U.S. dollar rela-
tive to other currencies;
• our expectations about availability of vessels to purchase, the time that it may take to construct and deliver new
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT .................................................................84
vessels or the useful lives of our vessels;
ITEM 16G. CORPORATE GOVERNANCE ..........................................................................................................84
• our continued ability to enter into period time charters with our customers and secure profitable employment for
our vessels in the spot market;
ITEM 16H. MINE SAFETY DISCLOSURE............................................................................................................. 85
• our expectations relating to dividend payments and ability to make such payments;
ITEM 17.
FINANCIAL STATEMENTS ................................................................................................................ 85
• our ability to leverage our Manager’s relationships and reputation within the drybulk shipping industry to our ad-
ITEM 18.
FINANCIAL STATEMENTS ................................................................................................................ 85
ITEM 19.
EXHIBITS .........................................................................................................................................85
•
•
vantage;
our anticipated general and administrative expenses;
environmental and regulatory conditions, including changes in laws and regulations or actions taken by regula-
tory authorities;
•
risks inherent in vessel operation, including terrorism, piracy and discharge of pollutants;
• potential liability from future litigation; and
•
other factors discussed in “Item 3. Key Information — D. Risk Factors” of this annual report.
We caution that the forward-looking statements included in this annual report represent our estimates and assump-
tions only as of the date of this annual report and are not intended to give any assurance as to future results. Assump-
tions, expectations, projections, intentions and beliefs about future events may, and often do, vary from actual results
12
13
annual report 2012
and these differences can be material. The reasons for this include the risks, uncertainties and factors described under
“Item 3. Key Information — D. Risk Factors.” As a result, the forward-looking events discussed in this annual report might
not occur and our actual results may differ materially from those anticipated in the forward-looking statements. Ac-
cordingly, you should not unduly rely on any forward-looking statements.
We undertake no obligation to update or revise any forward-looking statements contained in this annual report,
whether as a result of new information, future events, a change in our views or expectations or otherwise. New factors
emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the im-
pact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual
results to be materially different from those contained in any forward-looking statement.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. Selected Financial Data
The following table presents selected consolidated financial and other data of Safe Bulkers, Inc. for each of the five years
in the five year period ended December 31, 2012. The table should be read together with “Item 5. Operating and Finan-
cial Review and Prospects.” The selected consolidated financial data of Safe Bulkers, Inc. is a summary of, is derived from,
and is qualified by reference to, our audited consolidated financial statements and notes thereto, which have been pre-
pared in accordance with U.S. generally accepted accounting principles, or “U.S. GAAP.”
Our audited consolidated statements of income, shareholders’ equity and cash flows for the years ended December 31,
2010, 2011 and 2012 and the consolidated balance sheets at December 31, 2011 and 2012, together with the notes
thereto, are included in “Item 18. Financial Statements” and should be read in their entirety.
Year Ended December 31,
2008
2009
2010
2011
2012
(In thousands of U.S. dollars except share data)
STATEMENT OF INCOME
Revenues
Commissions
Net revenues
Voyage expenses
Vessel operating expenses
Depreciation
General and administrative expenses
Management fee to related party
Third party expenses
Early redelivery (cost)/income
Loss on asset purchase cancellations
Gain on sale of assets
Operating income
Interest expense
Other finance costs
Interest income
Loss on derivatives
Foreign currency (loss)/gain
Amortization and write-off
of deferred finance charges
Net income
Earnings per share, basic and diluted
Cash dividends declared per share
Weighted average number of shares
outstanding, basic and diluted
$ 208,411
$ 168,400
$ 159,698
$ 172,036
(7,639 )
(3,794 )
(2,678 )
(3,128 )
$ 187,557
(3,261 )
200,772
164,606
157,020
168,908
184,296
(273 )
(17,615 )
(10,614 )
(577 )
(19,628 )
(13,893 )
(610 )
(23,128 )
(19,673 )
(1,987 )
(26,066 )
(23,637 )
(7,286 )
(34,540 )
(32,250 )
(4,420 )
(3,625 )
(565 )
—
—
163,660
(4,436 )
(2,610 )
74,951
(20,699 )
(4,880 )
(2,138 )
132
—
15,199
121,922
(6,026 )
(2,463 )
207
—
—
108,936
—
177,714
(16,392 )
(408 )
1,492
(19,509 )
(9,501 )
(10,342 )
(442 )
2,164
(4,416 )
838
(6,423 )
(330 )
2,627
(8,164 )
281
(5,250 )
(1,055 )
1,046
(12,491 )
(799 )
(7,726 )
(2,220 )
11,677
—
—
111,951
(9,072 )
(1,268 )
1,122
(5,384 )
(3 )
(131 )
(106 )
(266 )
(653 )
(1,226 )
$ 119,211
2.19
$
3.83
$
$ 165,410
3.03
$
0.60
$
$ 109,647
1.73
$
0.60
$
$
$
$
89,734
1.29
0.60
$
$
$
96,120
1.27
0.50
54,500,889
54,510,587
63,300,466 69,463,093 75,468,465
14
15
annual report 2012
Year Ended December 31,
2008
2009
2010
2011
2012
(In thousands of U.S. dollars except share data)
OTHER FINANCIAL DATA
Net cash provided by operating activities $ 259,597
Net cash (used in) investing activities
(148,223 )
$ 211,338
$ 118,147
$ 107,189
(191,863 )
(131,709 )
(125,889 )
$ 105,065
(158,145 )
Net cash (used in)/provided
by financing activities
Net increase/(decrease) in cash and cash
equivalents
(83,672 )
(28,742 )
60,136
(18,514 ) 127,683
27,702
(9,267 )
46,574
(37,214 )
74,603
BALANCE SHEET DATA
Total current assets
Total fixed assets
Other non-current assets
Year Ended December 31,
2008
2009
2010
2011
2012
(In thousands of U.S. dollars except share data)
$
88,086
387,296
6,900
$ 105,648
467,513
55,563
$ 104,276
640,258
60,838
$
37,959
777,663
61,649
$ 171,829
849,903
60,482
Total assets
Total current liabilities
Derivative liabilities—Long-term
Long-term debt, net of current portion
Unearned revenue—Long-term
Total shareholders’ (deficit)/equity
482,282
70,863
21,716
413,483
11,765
(35,545 )
628,724
65,551
15,510
420,994
29,450
97,219
805,372
52,983
9,787
467,070
31,399
244,133
877,271
51,673
10,130
465,805
17,821
331,842
1,082,214
47,493
8,978
596,468
3,419
425,826
Total liabilities and shareholders’
equity
B. Capitalization and Indebtedness
Not applicable.
482,282
628,724
805,372
877,271
1,082,214
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
SOME OF THE FOLLOWING RISKS RELATE PRINCIPALLY TO THE INDUSTRY IN WHICH WE OPERATE AND OUR BUSI-
NESS IN GENERAL. OTHER RISKS RELATE PRINCIPALLY TO THE SECURITIES MARKET AND OWNERSHIP OF OUR COM-
MON STOCK, INCLUDING THE TAX CONSEQUENCES OF OWNERSHIP OF OUR COMMON STOCK. THE OCCURRENCE
OF ANY OF THE EVENTS DESCRIBED IN THIS SECTION COULD SIGNIFICANTLY AND NEGATIVELY AFFECT OUR BUSI-
NESS, FINANCIAL CONDITION OR OPERATING RESULTS OR THE TRADING PRICE OF OUR COMMON STOCK.
Risks Inherent in Our Industry and Our Business
The international drybulk shipping industry is cyclical and volatile, and charter rates are significantly lower than their highs
in the middle of 2008; these factors may lead to further reductions and volatility in our charter rates, vessel values and results
of operations.
The drybulk shipping industry is cyclical with attendant volatility in charter rates, vessel values and profitability. Because
we charter some of our vessels pursuant to short-term time charters, and we expect that the number of vessels in our
fleet that we charter pursuant to short-term time charters will increase during 2013 as period time charters contracted
during past periods expire, we are exposed to changes in spot market and short-term time charter rates for drybulk
carriers and such changes may affect our earnings and the value of our drybulk carriers at any given time. The spot
market is highly competitive and volatile, while period time charter contracts of longer duration provide income at pre-
determined rates over more extended periods of time. We may be unable to keep our vessels fully employed in these
short-term markets. Charter rates available in the spot market may be insufficient to enable our vessels to be operated
profitably. A significant decrease in charter rates would affect asset values and adversely affect our profitability, cash
flows and ability to pay dividends.
During 2012, the Baltic Dry Index, or “BDI,” remained volatile, reaching a high of 1,624 on January 3, 2012 and a low of
647 on February 3, 2012.
As of February 15, 2013, 17 of our 25 drybulk vessels were deployed or scheduled to be deployed on period time charters
of more than three months term. In addition, we have contracted to acquire seven vessels comprised of six newbuilds
and one secondhand vessel, scheduled to be delivered through 2015, six of which do not currently have contracted
charters. As more vessels become available for employment, we may have difficulty entering into additional multi-year,
fixed-rate time charters for our vessels, and as a result, our cash flows may be subject to instability in the long-term.
We may be required to enter into additional variable rate charters, as opposed to contracts based on fixed rates, which
could result in a decrease in our cash flows and net income in periods when the market for drybulk shipping is depressed.
If low charter rates in the drybulk market prevail during periods when we must replace our existing charters, it will have
an adverse effect on our revenues, profitability, cash flows and our ability to comply with the financial covenants in our
loan and credit facilities.
The factors affecting the supply and demand for drybulk vessels are outside of our control and are difficult to predict with
confidence. As a result, the nature, timing, direction and degree of changes in industry conditions are also unpredictable.
Factors that influence demand for vessel capacity include:
• demand for and production of drybulk products;
• global and regional economic and political conditions;
• environmental and other regulatory developments;
• the distance drybulk cargoes are to be moved by sea; and
• changes in seaborne and other transportation patterns.
Factors that influence the supply of vessel capacity include:
• the size of the newbuilding orderbook;
• the number of newbuild deliveries, which among other factors relates to the ability of shipyards to deliver new-
builds by contracted delivery dates and the ability of purchasers to finance such newbuilds;
• the scrapping rate of older vessels;
• port and canal congestion;
• the number of vessels that are in or out of service, including due to vessel casualties; and
• changes in environmental and other regulations that may limit the useful lives of vessels.
We anticipate that the future demand for our drybulk vessels and, in turn, drybulk charter rates, will be dependent,
among other things, upon economic growth in the world’s developing economies, seasonal and regional changes in de-
mand, changes in the capacity of the global drybulk vessel fleet and the sources and supply of drybulk cargo to be trans-
ported by sea. A decline in demand for commodities transported in drybulk vessels or an increase in supply of drybulk
vessels could cause a significant decline in charter rates, which could materially adversely affect our business, financial
condition and results of operations.
A negative change in global economic or regulatory conditions, especially in the Asian region, which includes countries like
China, Japan or India, could reduce drybulk trade and demand, which could reduce charter rates and have a material adverse
effect on our business, financial condition and results of operations.
We expect that a significant number of the port calls made by our vessels will involve the loading or discharging of raw
materials in ports in the Asian region, particularly China, Japan and India. As a result, a negative change in economic
or regulatory conditions in any Asian country, particularly China, Japan or, to some extent, India, can have a material
adverse effect on our business, financial position and results of operations, as well as our future prospects, by reducing
demand and, as a result, charter rates and affecting our ability to charter our vessels. If economic growth declines in
China, Japan, India and other major countries in the Asian region, or if the regulatory environment in these countries
changes adversely for our industry, we may face decreases in such drybulk trade and demand. Moreover, a slowdown
in the United States economy or the economies of countries within the European Union will likely adversely affect eco-
nomic growth in China, Japan, India and other major countries in the Asian region. Such an economic downturn in any
of these countries could have a material adverse effect on our business, financial condition and results of operations.
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annual report 2012
The ongoing uncertainty and volatility in the financial markets related to the European sovereign debt crisis, and the state of
the global economic recovery may adversely affect our operating results.
The world has recently experienced a global macroeconomic downturn, and if economic and financial market condi-
tions in the United States or other key markets, including Europe, remain uncertain, persist or deteriorate further, our
customers may respond by suspending, delaying or reducing their operations, which may adversely affect our business,
operating results, and financial condition. The uncertain financial climate in Greece could also result in further changes
to tax and other laws to which we may be subject.
An oversupply of drybulk vessel capacity may lead to reductions in charter rates and profitability.
The market supply of drybulk vessels has been increasing, and the number of drybulk vessels on order as of Decem-
ber 31, 2012, was approximately 29.9% for Panamax class vessels, 15.7% for Post-Panamax class vessels and 12.5% for
Capesize class vessels of the then-existing global drybulk fleet in terms of deadweight tons (“dwt”), with the majority of
new deliveries expected mainly during 2013. As a result, the drybulk fleet continues to grow. An oversupply of drybulk
vessel capacity will likely result in a reduction of charter hire rates. We will be exposed to changes in charter rates with
respect to our existing fleet and our remaining newbuilds and secondhand vessels, depending on the ultimate growth of
the global drybulk fleet. If we cannot enter into period time charters on acceptable terms, we may have to secure char-
ters in the spot market, where charter rates are more volatile and revenues are, therefore, less predictable, or we may
not be able to charter our vessels at all. Eight vessels in our current fleet will be available for employment in the first half
of 2013. Additionally we have not yet arranged charters for our newbuild vessel and our secondhand vessel scheduled
to be delivered to us during 2013. A material increase in the net supply of drybulk vessel capacity without correspond-
ing growth in drybulk vessel demand could have a material adverse effect on our fleet utilization and our charter rates
generally, and could, accordingly, materially adversely affect our business, financial condition and results of operations.
The market values of our vessels may decrease, which could cause us to breach covenants in our credit and loan facilities, and
could have a material adverse effect on our business, financial condition and results of operations.
Our credit and loan facilities, which are secured by mortgages on our vessels, require us to comply with collateral cover-
age ratios and satisfy certain financial and other covenants, including those that are affected by the market value of our
vessels. The market value of drybulk vessels has generally experienced a steady decrease. The market prices for second-
hand and newbuild drybulk vessels in the recent past have declined from higher to lower levels within a short period of
time. The market value of our vessels fluctuates depending on a number of factors, including:
• general economic and market conditions affecting the shipping industry;
• prevailing level of charter rates;
• competition from other shipping companies;
• configurations, sizes and ages of vessels;
• cost of newbuilds;
• governmental or other regulations; and
• technological advances.
We were in compliance with our covenants as of December 31, 2011 and December 31, 2012. If the market value of
our vessels or newbuilds declines upon their delivery to us, we may breach some of the covenants contained in our
credit and loan facilities. If we do breach such covenants and we are unable to remedy or our lenders refuse to waive the
relevant breach, our lenders could accelerate our indebtedness and foreclose on the vessels in our fleet securing those
loan and credit facilities. As a result of cross-default provisions contained in our loan and credit facility agreements, this
could in turn lead to additional defaults under our loan agreements and the consequent acceleration of the indebted-
ness thereunder and the commencement of similar foreclosure proceedings by other lenders. If our indebtedness were
accelerated in full or in part, it would be difficult for us to refinance our debt or obtain additional financing and we could
lose our vessels if our lenders foreclose their liens, which would adversely affect our ability to continue our business.
The international drybulk shipping industry is highly competitive, and we may not be able to compete successfully for char-
ters with new entrants or established companies with greater resources.
We employ our vessels in a highly competitive market that is capital intensive and highly fragmented. Competition aris-
es primarily from other vessel owners, some of which have substantially greater resources than we do. Competition for
the transportation of drybulk cargo by sea is intense and depends on price, customer relationships, operating expertise,
professional reputation and size, age, location and condition of the vessel. Due in part to the highly fragmented mar-
ket, additional 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 than we are able to offer, which
could have a material adverse effect on our fleet utilization and, accordingly, our profitability.
Rising crew costs may adversely affect our profits.
Crew costs are a significant expense for us under our charters. There is a limited supply of well-qualified crew. We gener-
ally bear crewing costs under our charters. Increases in crew costs may adversely affect our profitability.
We are subject to regulation and liability under environmental laws that could require significant expenditures and affect our
cash flow and net income.
Our business and the operation of our vessels are regulated under international conventions, national, state and local
laws and regulations in force in the jurisdictions in which our vessels operate, as well as in the country or countries of
their registration, in order to protect against potential environmental impacts. Government regulation of vessels, par-
ticularly in the area of environmental requirements, can be expected to become more stringent in the future and could
require us to incur significant capital expenditures on our vessels to keep them in compliance, or even to scrap or sell cer-
tain vessels altogether. For example, various jurisdictions that do not already regulate management of ballast waters
are considering regulating the management of ballast waters to prevent the introduction of non-indigenous species
that are considered invasive. Such regulations could, if implemented, require us to make changes to the ballast water
management plans we currently have in place and to install new equipment on board. Various jurisdictions are also reg-
ulating or considering the regulation of emissions of sulfur oxides, nitrogen oxides and greenhouse gases from 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 business, financial condition and results
of operations. Because such conventions, laws and regulations are often revised, or the required additional measures
for compliance are still under development, 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. We are also required by
various governmental and quasi-governmental agencies to obtain certain permits, licenses, certificates and financial
assurances with respect to our operations.
These requirements can also affect the resale prices or useful lives of our vessels or require reductions in cargo capac-
ity, ship modifications or operational changes or restrictions. Failure to comply with these requirements could lead to
decreased availability of or more costly insurance coverage for environmental matters or result in the denial of access
to certain jurisdictional waters or ports, or detention in certain ports. Under local, national and foreign laws, as well
as international treaties and conventions, we could incur material liabilities, including cleanup obligations and claims
for natural resource, personal injury and property damages in the event that there is a release of petroleum or other
hazardous materials from our vessels or otherwise in connection with our operations. Violations of, or liabilities under,
environmental regulations can result in substantial penalties, fines and other sanctions, including, in certain instances,
seizure or detention of our vessels. Events of this nature would have a material adverse effect on our business, financial
condition and results of operations.
The operation of our vessels is affected by the requirements set forth in the United Nations’ International Maritime Or-
ganization’s International Management Code for the Safe Operation of Ships and for Pollution Prevention, or “ISM Code.”
Under the ISM Code we are required to develop and maintain an extensive Safety Management System (“SMS”) that
includes the adoption of a safety and environmental protection policy. Failure to comply with the ISM Code may subject
us to increased liability, invalidate existing insurance or decrease available insurance coverage for the affected vessels
and result in a denial of access to, or detention in, certain ports. Currently, each of the vessels in our current fleet is ISM
Code- certified. If we fail to maintain ISM Code certification for our vessels, we may also breach covenants in certain of
our credit and loan facilities that require that our vessels be ISM Code-certified. If we breach such covenants due to fail-
ure to maintain ISM Code certification and are unable to remedy the relevant breach, our lenders could accelerate our
indebtedness and foreclose on the vessels in our fleet securing those credit facilities.
Increased inspection procedures, tighter import and export controls and survey requirements could increase costs and disrupt
our business.
International shipping is subject to various security and customs inspections and related procedures in countries of ori-
gin and destination. Inspection procedures can result in the seizure of the contents of our vessels, delays in the loading,
offloading or delivery and the levying of customs duties, fines and other penalties against us.
It is possible that changes to inspection procedures could impose additional financial and legal obligations on us.
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19
annual report 2012 Furthermore, 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 impractical. Any such changes or developments
may have a material adverse effect on our business, financial condition and results of operations.
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 do not adequately maintain our vessels, we may be unable to prevent these events. The occurrence
of any of these events could have a material adverse effect on our business, financial condition and results of operations.
The hull and machinery of every commercial vessel must be certified as safe and seaworthy in accordance with applica-
ble rules and regulations, and accordingly vessels must undergo regular surveys. If any vessel does not maintain its class
and/or fails any annual survey, intermediate survey or special survey, the vessel will be unable to trade between ports
and will be unemployable and we would be in violation of certain covenants in our credit and loan facilities. This would
also negatively impact our revenues.
Our vessels are exposed to operational risks, including terrorism and piracy, that may not be adequately covered by our insur-
ance.
The operation of any vessel includes risks such as weather conditions, mechanical failure, collision, fire, contact with
floating objects, cargo or property loss or damage and business interruption due to political circumstances in foreign
countries, piracy, terrorist attacks, armed hostilities and labor strikes. Such occurrences could result in death or injury to
persons, loss, damage or destruction of property or environmental damage, delays in the delivery of cargo, loss of rev-
enues from or termination of charter contracts, governmental fines, penalties or restrictions on conducting business,
higher insurance rates and damage to our reputation and customer relationships generally. In the past, political con-
flicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping,
particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as
the South China Sea, the Gulf of Aden and parts of Indian Ocean and West Africa. If these attacks and other disruptions
result in areas where our vessels are deployed being characterized by insurers as “war risk” zones or Joint War Committee
“war, strikes, terrorism and related perils” listed areas, as parts of Indian Ocean currently is, premiums payable for such
coverage could increase significantly and such insurance coverage may be more difficult or impossible to obtain. In ad-
dition, there is always the possibility of a marine disaster, including oil spills and other environmental damage. Although
our vessels carry a relatively small amount of the oil used for fuel (“bunkers”), a spill of oil from one of our vessels or losses
as a result of fire or explosion could be catastrophic under certain circumstances.
We may not be adequately insured against all risks, and our insurers may not pay particular claims. With respect to war
risks insurance, which we usually obtain for certain of our vessels making port calls in designated war zone areas, such
insurance may not be obtained prior to one of our vessels entering into an actual war zone, which could result in that
vessel not being insured. Even if our insurance coverage is adequate to cover our losses, we may not be able to timely
obtain a replacement vessel in the event of a loss. Under the terms of our credit facilities, we will be subject to restric-
tions on the use of any proceeds we may receive from claims under our insurance policies. Furthermore, in the future,
we may not be able to maintain or obtain adequate insurance coverage at reasonable rates for our fleet. We may also
be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all
other members of the protection and indemnity associations through which we receive indemnity insurance coverage
for tort liability. Our insurance policies also contain deductibles, limitations and exclusions which, although we believe
are standard in the shipping industry, may nevertheless increase our costs in the event of a claim or decrease any recov-
ery in the event of a loss. If the damages from a catastrophic oil spill or other marine disaster exceeded our insurance
coverage, the payment of those damages could have a material adverse effect on our business and could possibly result
in our insolvency.
In general, we do not carry loss of hire insurance. Occasionally, we may decide to carry loss of hire insurance when our
vessels are trading in areas where a history of piracy has been reported. Loss of hire insurance covers the loss of revenue
during extended vessel off-hire periods, such as those that occur during an unscheduled drydocking or unscheduled re-
pairs due to damage to the vessel. Accordingly, any loss of a vessel or any extended period of vessel off- hire, due to an ac-
cident or otherwise, could have a material adverse effect on our business, financial condition and results of operations.
The operation of drybulk vessels has certain unique operational risks; failure to adequately maintain our vessels could have a
material adverse effect on our business, financial condition and results of operations.
With a drybulk vessel, the cargo itself and its interaction with the vessel may create operational risks. By their nature,
drybulk cargoes are often heavy, dense and easily shifted, and they may react badly to water exposure. In addition, dry-
bulk vessels 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 dam-
aged due to treatment during unloading procedures may be more susceptible to breach while at sea. Breaches of a dry-
bulk vessel’s hull may lead to the flooding of the vessel’s holds. If a drybulk vessel suffers flooding in its forward holds, the
Maritime claimants could arrest one or more of our vessels, which could interrupt our cash flow.
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, or other assets of the relevant vessel-owning company, for unsatisfied debts, claims or
damages. In many jurisdictions, a claimant may seek to obtain security for its claim by arresting a vessel through foreclo-
sure proceedings. The arrest or attachment of one or more of our vessels, or other assets of the relevant vessel-owning
company or companies, could cause us to default on a charter, breach covenants in certain of our credit facilities, inter-
rupt our cash flow and require us to pay large sums of money to have the arrest or attachment lifted. In addition, in
some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel
which is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by
the same owner. Claimants could attempt to assert “sister ship” liability against one vessel in our fleet for claims relating
to another of our vessels.
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 govern-
ment takes control of a vessel and becomes its owner, while requisition for hire occurs when a government takes control
of a vessel and effectively becomes its charterer at dictated charter rates. Generally, requisitions occur during periods of
war or emergency, although governments may elect to requisition vessels in other circumstances. Even if 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 cause us to breach covenants in certain
of our credit facilities, and could have a material adverse effect on our business, financial condition and results of opera-
tions.
Changes in fuel prices may adversely affect our profits.
Upon redelivery of vessels at the end of a time charter, we may be obligated to repurchase bunkers on board at prevail-
ing market prices, which could be materially higher than fuel prices at the inception of the charter period. In addition,
although we rarely deploy our vessels on voyage charters, fuel is a significant, if not the largest, expense that we would
incur with respect to vessels operating on voyage charter. As a result, an increase in the price of fuel may adversely af-
fect our profitability. The price and supply of fuel is volatile and fluctuates based on events outside our control, including
geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war
and unrest in oil producing countries and regions, regional production patterns and environmental concerns and regu-
lations.
Seasonal fluctuations in industry demand could have a material adverse effect on our business, financial condition and re-
sults of operations and the amount of available cash with which we can pay dividends.
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in
charter rates. This seasonality may result in quarter-to-quarter volatility in our results of operations, which could affect
the amount of dividends, if any, that we pay to our stockholders from quarter to quarter. The market for marine drybulk
transportation services is typically stronger in the fall and winter months in anticipation of increased consumption of
coal and other raw materials in the northern hemisphere during the winter months. In addition, unpredictable weather
patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. This seasonality could
have a material adverse effect on our business, financial condition and results of operations.
Charterers may renegotiate or default on period time charters, which could reduce our revenues and have a material adverse
effect on our business, financial condition and results of operations.
The ability and willingness of each of our counterparties to perform its obligations under a period time charter agree-
ment 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 drybulk shipping industry and the overall financial condition of the
counterparties. If we enter into period time charters with charterers when charter rates are high and charter rates sub-
sequently fall significantly, charterers may seek to renegotiate financial terms or may default on their obligations. Ad-
ditionally, charterers may attempt to bring claims against us based on vessel performance or cargo loading or unload-
ing operations, seeking to renegotiate financial terms or avoid payments. Also, our charterers may experience financial
20
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annual report 2012 difficulties due to prevailing economic conditions or for other reasons, and as a result may default on their obligations.
In recent years the industry has experienced numerous incidents of charterers renegotiating their charters or defaulting
on their obligations thereunder. We have agreed to certain early redeliveries at the request of charterers. See “Operating
and Financial Review and Prospects.” If a charterer defaults on a charter, we will, to the extent commercially reasonable,
seek the remedies available to us, which may include arbitration or litigation to enforce the contract, although such ef-
forts may not be successful. Should a charterer default on a period time charter, we may have to enter into a charter at a
lower charter rate, which would reduce our revenues. If we cannot enter into a new period time charter, we may have to
secure a charter in the spot market, where charter rates are volatile and revenues are less predictable. It is also possible
that we would be unable to secure a charter at all, which would also reduce our revenues, and could have a material ad-
verse effect on our business, financial condition, results of operations, loan and credit facility covenants and cash flows.
We depend upon a limited number of customers for a large part of our revenues and the loss of one or more of these custom-
ers could have a material adverse effect on our business, financial condition and results of operations.
We expect to derive a significant part of our revenues from a limited number of customers. During the year ended De-
cember 31, 2012, approximately 62.9% of our revenues were derived from two charterers, namely Daiichi Chuo Kisen
Kaisha (“Daiichi”) and Kawasaki Kisen Kaisha, with each one accounting for more than 10% of total revenues. We could
lose a customer for many different reasons,
•
including failures of the customer to make charter payments because of its financial inability, disagreements with
us or otherwise;
• the customer’s termination of its charters because of our non-performance, including serious deficiencies with the
vessels we provide to that customer or prolonged periods of off-hire; or
•
in certain cases, a prolonged force majeure event affecting the customer, including damage to or destruction of
relevant production facilities, war or political unrest, prevents us from performing services for that customer.
If we lose a key customer, we may be unable to obtain period time charters on comparable terms with charterers of
comparable standing or may have increased exposure to the volatile spot market, which is highly competitive and sub-
ject to significant price fluctuations. We would not receive any revenues from such a vessel while it remained unchar-
tered, but we may be required to pay expenses necessary to maintain the vessel in proper operating condition, insure it
and service any indebtedness secured by such vessel. The loss of any of our key customers, a decline in payments under
our charters or the failure of a key customer to perform under its charters with us could have a material adverse effect
on our business, financial condition and results of operations.
Daiichi accounted for 46.5% of our revenues in 2012, and as of the date hereof, six of our vessels are chartered to Daiichi,
all at charter rates that are higher than rates currently available in the spot market. Recently, Daiichi announced plans
to reduce the number of vessels it operates, both newbuilds and chartered in vessels and to pare its fleet to weather a
decline in drybulk shipping rates due in part to expanding capacity, slowing demand and higher fuel prices. Given the
importance of this charterer to our business, any deterioration of Daiichi’s business or of its ability or willingness to
perform its obligations under its charters with us could have an adverse effect on our business, financial condition and
results of operations.
We may have difficulty properly managing our planned growth through acquisitions of additional vessels.
We intend to grow our business through the acquisition of our six contracted newbuilds and one contracted second-
hand vessel scheduled to be delivered through 2015. We may contract additional newbuild vessels or make selective ac-
quisitions of additional secondhand vessels. Our future growth will primarily depend on our ability to locate and acquire
suitable vessels, enlarge our customer base, operate and supervise any newbuilds we may order and obtain required
debt or equity financing on acceptable terms.
A delay in the delivery to us of any such vessel, or the failure of the shipyard to deliver a vessel at all, could cause us to
breach our obligations under a related charter and could adversely affect our earnings. In addition, the delivery of any of
these vessels with substantial defects could have similar consequences.
A shipyard could fail to deliver a newbuild on time or at all because of:
•
work stoppages or other hostilities, political or economic disturbances that disrupt the operations of the shipyard;
• quality or engineering problems;
• bankruptcy or other financial crisis of the shipyard;
• a backlog of orders at the shipyard;
22
• disputes between the Company and the shipyard regarding contractual obligations;
• weather interference or catastrophic events, such as major earthquakes or fires;
• our requests for changes to the original vessel specifications; or
• shortages of or delays in the receipt of necessary construction materials, such as steel, or equipment, such as main
engines, electricity generators and propellers.
A third-party seller could fail to deliver a secondhand vessel on time or at all because of:
• bankruptcy or other financial crisis of the third-party seller;
• quality or engineering problems;
• disputes between the Company and the third-party seller regarding contractual obligations; or
• weather interference or catastrophic events, such as major earthquakes or fires.
In addition, we may seek to terminate a vessel acquisition contract due to market conditions, financing limitations or
other reasons. The outcome of contract termination negotiations may require us to forego deposits on construction or
acquisition, as applicable, and pay additional cancellation fees. In addition, where we have already arranged a future
charter with respect to the terminated contract, we may incur liabilities to such charter counterparty depending on the
terms of such charter.
During periods in which charter rates are high, vessel values generally are high as well, and it may be difficult to consum-
mate vessel acquisitions or enter into newbuild contracts at favorable prices. During periods when charter rates are
low, we may be unable to fund the acquisition of vessels, whether through lending or cash on hand. For these reasons,
we may be unable to execute our growth plans or avoid significant expenses and losses in connection with our future
growth efforts.
As we expand our business, we will need to improve or expand our operations and financial systems, staff and crew; if we
cannot improve these systems or recruit suitable employees, our performance may be adversely affected.
Our current operating and financial systems may not be adequate as we implement our plan to expand the size of our
fleet, and our Manager’s attempts to improve those systems may be ineffective. In addition, as we expand our fleet, we
will have to rely on our Manager to recruit additional seafarers and shoreside administrative and management person-
nel. Our Manager may not be able to continue to hire suitable employees or a sufficient number of employees as we
expand our fleet. If our Manager’s unaffiliated crewing agents encounter business or financial difficulties, we may not
be able to adequately staff our vessels. We may also have to increase our customer base to provide continued employ-
ment for most of our new vessels. If we are unable to operate our financial system, our Manager is unable to operate our
operations systems effectively or to recruit suitable employees in sufficient numbers or we are unable to increase our
customer base as we expand our fleet, our performance may be adversely affected.
Unless we set aside reserves for vessel replacement, at the end of a vessel’s useful life, our revenue will decline, which would
adversely affect our cash flows and income.
As of February 15, 2013, the vessels in our current fleet had an average age of 4.8 years. Unless we maintain cash re-
serves for vessel replacement, we may be unable to replace the vessels in our fleet upon the expiration of their useful
lives. We estimate the useful life of our vessels to be 25 years from the date of initial delivery from the shipyard. Our cash
flows and income are dependent on the revenues we earn by chartering our vessels to customers. If we are unable to
replace the vessels in our fleet upon the expiration of their useful lives, our business, financial condition and results of
operations will be materially adversely affected. Any reserves set aside for vessel replacement would not be available for
other cash needs or dividends.
If we are unable to obtain additional secured indebtedness, we may default on our commitments relating to our contracted
newbuilds, and we may not be able to finance our future fleet expansion program, which would have a material adverse effect
on our business, financial condition and results of operations.
The net remaining unpaid balance of the contract prices for our six newbuilds and our one secondhand vessel was
$198.8 million as of February 15, 2013. We anticipate that our primary sources of funds to satisfy these commitments
will be from existing cash and time deposits, operating cash surplus and available borrowings under our existing credit
facilities and our floating rate note facility. As of February 15, 2013, the company has two existing vessels unencum-
bered and a $50 million long-term floating rate note facility against which additional loan and credit facilities can be
drawn, as well as $73.7 million in cash and short-term time deposits and restricted cash, and $68.9 million available
under existing revolving credit facilities. Our ability to obtain bank financing or to access the capital markets for future
23
annual report 2012 offerings may be limited by our financial condition at the time of any such financing or offering, including the actual
or perceived credit quality of our charterers and the market value of our fleet, as well as by adverse market conditions
resulting from, among other things, general economic conditions, weakness in the financial markets and contingencies
and uncertainties that are beyond our control. To the extent that we are unable to enter into new credit facilities and ob-
tain such additional secured indebtedness on terms acceptable to us, we will need to find alternative financing. If we are
unable to find alternative financing, we will not be capable of funding all of our commitments for capital expenditures
relating to our contracted newbuilds. A failure to fulfill our commitments generally results in a forfeiture of the advance
we paid to the shipyard or the third-party seller with respect to the contracted newbuild or secondhand vessel and a
write-off of expenses capitalized. In addition, we may also be liable for other damages for breach of contract. Examples
of such liabilities could include payments to the shipyard or the third-party seller for the difference between the forfeited
advance and the amount that remains to be paid by us if the shipyard or the third-party seller cannot locate a third-party
buyer that is willing to pay an amount equal to the difference or compensatory payments by us to charter parties with
whom we have entered into charters with respect to such vessels. Such events, if they occurred, would adversely affect
our business, financial condition and results of operation.
The aging of our fleet and our acquisitions of secondhand vessels may result in increased operating costs in the future, which
could adversely affect our ability to operate our vessels profitably.
In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. As of February
15, 2013, the average age of the vessels in our current fleet was 4.8 years. As our vessels age, they may become less fuel
efficient and more costly to maintain and will not be as advanced as more recently constructed vessels due to improve-
ments in design and engine technology. Rates for cargo insurance, paid by charterers, also increase with the age of a
vessel, making older vessels less desirable to charterers. Governmental regulations, safety or other equipment stand-
ards related to the age of vessels may require expenditures for alterations, or the addition of new equipment, to our ves-
sels and may restrict the type of activities in which our vessels may engage. As our vessels age, market conditions may
not justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.
In 2012, we took delivery of one 2003 built, secondhand Panamax class vessel, and in January 2013, we took delivery of
another 2003 built, secondhand Panamax class vessel. In January 2013, we contracted to acquire a third secondhand
2008 built Kamsarmax class vessel, scheduled to be delivered to us in March 2013. We may encounter higher operating
and maintenance costs due to the age and condition of those vessels. Secondhand vessels may also develop unexpected
mechanical and operational problems despite adherence to regular survey schedules and proper maintenance. We can-
not obtain the same knowledge about the condition of a secondhand vessel compared to a newbuild through the per-
formed inspection prior to the purchase of such secondhand vessel nor about the cost of any required (or anticipated)
repairs that we would have had if this vessel had been built for and operated exclusively by us. We will have the benefit of
warranties on newly constructed vessels; we may not receive the benefit of warranties on secondhand vessels.
Because we generate substantially all of our revenues in U.S. dollars but incur a material portion of our expenses in other
currencies, and may, in the future, also incur a material portion of our indebtedness and our capital expenditure requirements
in other currencies, exchange rate fluctuations could have a material adverse effect on our business, financial condition and
results of operations.
We generate substantially all of our revenues in U.S. dollars, but in 2012 we incurred approximately 26.42% of our ves-
sel operating expenses in currencies other than the U.S. dollar, of which 64.25% was denominated in euro amounts.
Although as of December 31, 2012, all of our indebtedness and the vast majority of the amounts due under our new-
build contracts were denominated in U.S. Dollars, we have also entered into shipbuilding contracts whereby part of
the contract price is payable in Japanese yen. In addition, certain of our existing credit facilities allow us to convert the
outstanding loan amount or any part thereof into currencies other than the U.S. dollar. Also, in the future, we may enter
into new credit facilities or newbuild contracts that are denominated in or permit conversion into currencies other than
the U.S. dollar. The use of different currencies could lead to fluctuations in our net income due to changes in the value of
the U.S. dollar relative to other currencies, in particular the euro and the Japanese yen. We have not hedged our currency
exposure, and, as a result, our results of operations and financial condition, denominated in U.S. dollars, and our ability
to pay dividends, could suffer.
Restrictive covenants in our existing credit facilities impose, and any future credit facilities will impose, financial and other
restrictions on us, and any breach of these covenants could result in the acceleration of our indebtedness and foreclosure on
our vessels.
Our existing credit facilities impose, and any future credit facility will impose, operating and financial restrictions on us.
These restrictions in our existing credit facilities generally limit our ability to, among other things, and subject to excep-
tions set forth in such credit facility:
•
pay dividends if an event of default has occurred and is continuing or would occur as a result of the payment of such
dividend;
• enter into certain long-term charters;
•
incur additional indebtedness, including through the issuance of guarantees;
• change the flag, class or management of the vessel mortgaged under such facility or terminate or materially
amend the management agreement relating to such vessel;
• create liens on their assets;
• make loans;
• make investments;
• make capital expenditures;
• undergo a change in ownership or control or permit a change in ownership and control of our Manager;
• sell the vessel mortgaged under such facility; and
• permit our chief executive officer to change.
Therefore, we may need to seek permission from our lenders in order to engage in some corporate actions. Our lenders’
interests may be different from ours, and we cannot guarantee that we will be able to obtain our lenders’ permission
when needed. This may limit our ability to pay dividends to our stockholders, finance our future operations or pursue
business opportunities.
Certain of our existing credit facilities require our subsidiaries to maintain financial ratios and satisfy financial covenants.
Depending on the credit facility, certain of our subsidiaries are subject to financial ratios and covenants requiring that
these subsidiaries:
• ensure that the market value of the vessel mortgaged under the applicable credit facility, determined in accordance
with the terms of that facility, does not fall below 100% to 120%, as applicable, of the outstanding amount of the
loan;
• ensure that outstanding amounts in currencies other than the U.S. dollar do not exceed 100% or 110%, as appli-
cable, of the U.S. dollar equivalent amount specified in the relevant credit agreement for the applicable period by,
if necessary, providing cash collateral security in an amount necessary for the outstanding amounts to meet this
threshold;
• maintain a cash collateral deposit or minimum cash balance per vessel with the respective lender; and
• ensure that we comply with certain financial covenants under the guarantees described below.
In addition, under guarantees we have entered into with respect to certain of our subsidiaries’ existing credit facilities,
we are subject to financial covenants. Depending on the guarantee, these financial covenants include the following:
• our total liabilities (on a consolidated basis, including those of our subsidiaries) divided by our total consolidated
assets (based on the market value of all vessels owned by our subsidiaries, and the book value of all other assets,
on an adjusted basis as set out in the relevant guarantee) must not exceed 80% or 85% (depending on the relevant
guarantee);
• the ratio of our aggregate debt to EBITDA must not at any time exceed 5.5:1 on a trailing 12 months’ basis or the ra-
tio of our aggregate debt after deducting cash to EBITDA must not at any time exceed 8.5:1 on a trailing 12 months’
basis;
• our consolidated net worth (consolidated total assets less consolidated total liabilities) must not at any time be
less than $150.0 million, as adjusted to reflect, among other things, the market value of our vessels as set out in the
relevant guarantee;
• maintenance of minimum free liquidity of $500,000 on deposit with the relevant lender on a per vessel basis; and
• payment of dividends is subject to no event of default having occurred.
In connection with these guarantees, we have also undertaken to ensure that a minimum of 51% of our shares shall
remain directly or indirectly beneficially owned by the Hajioannou family for the duration of the relevant credit facilities.
A failure to meet our payment and other obligations or to maintain compliance with the applicable financial covenants
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25
annual report 2012 could lead to defaults under our secured credit facilities. Our lenders could then accelerate our indebtedness and fore-
close on the vessels in our fleet securing those credit facilities. The loss of these vessels would have a material adverse
effect on our business, financial condition, and results of operations.
The declaration and payment of dividends will always be subject to the discretion of our board of directors and will depend
on a number of factors. Our board of directors may not declare dividends in the future.
The declaration and payment of dividends, if any, will always be subject to the discretion of our board of directors. The
timing and amount of any dividends declared will depend on, among other things: (i) our earnings, financial condition
and cash requirements and available sources of liquidity, (ii) decisions in relation to our growth strategies, (iii) provisions
of Marshall Islands and Liberian law governing the payment of dividends, (iv) restrictive covenants in our existing and
future debt instruments, and (v) global financial conditions. Dividends might be reduced or not be paid in the future.
There may be a high degree of variability from period to period in the amount of cash, if any, that is available for the pay-
ment of dividends based upon, among other things:
• the rates we obtain from our charters as well as the rates obtained upon the expiration of our existing charters;
• the level of our operating costs;
• the level of our general and administrative costs;
• the number of unscheduled off-hire days and the timing of, and number of days required for, scheduled drydocking
of our ships;
• vessel acquisitions and related financings;
• restrictions in our loan and credit facilities and in any future debt facilities;
• prevailing global and regional economic and political conditions;
• the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of our
business;
• the amount of cash reserves established by our board of directors; and
• restrictions under Marshall Islands and Liberian law.
We may incur expenses or liabilities or be subject to other circumstances in the future that reduce or eliminate the
amount of cash that we have available for distribution as dividends, if any. Our growth strategy contemplates that we
will finance the acquisition of our newbuilds or selective acquisitions of additional vessels in addition to our contracted
newbuilds through a combination of our operating cash flow and debt financing or equity financing. If financing is not
available to us on acceptable terms, our board of directors may decide to finance or refinance such acquisitions with a
greater percentage of cash from operations to the extent available, which would reduce or even eliminate the amount
of cash available for the payment of dividends. We may also enter into other agreements that will restrict our ability to
pay dividends.
Under the terms of certain of our existing credit facilities, we are not permitted to pay dividends if an event of default has
occurred and is continuing or would occur as a result of the payment of such dividend. We expect that any future credit
facilities will also have restrictions on the payment of dividends.
The laws of the Republic of Liberia and of the Republic of The Marshall Islands, where our vessel-owning subsidiaries are
incorporated, generally prohibit the payment of dividends other than from surplus or net profits, or while a company is
insolvent or would be rendered insolvent by the payment of such a dividend. Our subsidiaries may not have sufficient
funds, surplus or net profits to make distributions to us. In addition, under guarantees we have entered into with respect
to certain of our subsidiaries’ existing credit facilities, we are subject to financial and other covenants, which may limit
our ability to pay dividends. We also may not have sufficient surplus or net profits in the future to pay dividends.
The amount of cash we generate from our operations may differ materially from our net income or loss for the period,
which will be affected by non-cash items. We may incur other expenses or liabilities that could reduce or eliminate the
cash available for distribution as dividends. As a result of these and the other factors mentioned above, we may pay
dividends during periods when we record losses and may not pay dividends during periods when we record net income.
We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to make dividend
payments.
We are a holding company and our subsidiaries, which are all wholly-owned by us, conduct all of our operations and
own all of our operating assets. We have no significant assets other than the equity interests in our wholly-owned sub-
sidiaries, cash and cash equivalents and long-term investment held by us. As a result, our ability to make dividend pay-
ments depends on our subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these
distributions could be affected by a claim or other action by a third party, including a creditor, and the laws of the Repub-
lic of Liberia and of the Republic of The Marshall Islands, where our vessel-owning subsidiaries are incorporated, which
regulate the payment of dividends by companies. 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 depend on our Manager to operate our business and our business could be harmed if our Manager failed to perform its
services satisfactorily.
Pursuant to our management agreement, as amended, (the “Management Agreement”) our Manager provides us with
our executive officers and with technical, administrative and commercial services (including vessel maintenance, crew-
ing, purchasing, shipyard supervision, insurance, assistance with regulatory compliance, financial services and office
space). Our operational success depends significantly upon our Manager’s satisfactory performance of these services.
Our business would be harmed if our Manager failed to perform these services satisfactorily. In addition, if the Manage-
ment Agreement were to be terminated or if its terms were to be altered, our business could be adversely affected, as we
may not be able to immediately replace such services, and even if replacement services were immediately available, the
terms offered could be less favorable than those under our Management Agreement.
Our ability to compete for and enter into charters and to expand our relationships with our existing charterers will de-
pend largely on our relationship with our Manager and its reputation and relationships in the shipping industry. If our
Manager suffers material damage to its reputation or relationships, it may harm our ability to:
• renew existing charters upon their expiration;
• obtain new charters;
• successfully interact with shipyards during periods of shipyard construction constraints;
• obtain financing on commercially acceptable terms;
• maintain satisfactory relationships with our charterers and suppliers; and
• successfully execute our business strategies.
If our ability to do any of the things described above is impaired, it could have a material adverse effect on our business,
financial condition and results of operations.
Although we may have rights against our Manager if it defaults on its obligations to us, investors in us will have no re-
course against our Manager.
Our Manager has provided in the past certain management services to an affiliated and to an unaffiliated company
under the specific restrictions of our Management Agreement. Although our Manager is required to provide preferential
treatment to our vessels with respect to chartering arrangements under the Management Agreement, our Manager’s
time and attention may be diverted from the management of our vessels in such circumstances.
Currently, our Manager does not provide any services to any company other than us.
Further, we will need to seek approval from our lenders to change our Manager.
Management fees are payable to our Manager regardless of our profitability, which could have a material adverse effect on
our business, financial condition and results of operations.
Pursuant to our Management Agreement, we pay our Manager a fixed fee of $700 per day per vessel for providing
commercial, technical and administrative services and a variable fee of 1.25% on gross freight, charter hire, ballast
bonus and demurrage. In addition, we pay our Manager certain commissions and fees with respect to vessel pur-
chases, sales and newbuilds. The management fees do not cover expenses such as voyage expenses, vessel oper-
ating expenses, maintenance expenses, crewing costs, insurance premiums, commissions and certain public com-
pany expenses such as directors’ and officers’ liability insurance, legal and accounting fees and other similar third
party expenses, which are reimbursed by us. The management fees can be adjusted annually on May 29 of each
year, the anniversary of our entry into the Management Agreement. The management fees are payable whether
or not our vessels are employed, and regardless of our profitability, and we have no ability to require our Manager
to reduce the management fees if our profitability decreases, which could have a material adverse effect on our
business, financial condition and results of operations.
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27
annual report 2012 Our Manager is a privately held company, and there is little or no publicly available information about it; an investor could
have little advance warning of problems affecting our Manager that could have a material adverse effect on us.
The ability of our Manager to continue providing services for our benefit will depend in part on its own financial strength.
Circumstances beyond our control could impair our Manager’s financial strength. Because our Manager is privately
held, it is unlikely that information about its financial strength would become public or available to us prior to any de-
fault by our Manager under the Management Agreement. As a result, our investors might have little advance warning of
problems that affect our Manager, even though those problems could have a material adverse effect on us.
Our chief executive officer also controls our Manager, which could create conflicts of interest between us and our Manager.
Our chief executive officer, Polys Hajioannou, controls our Manager. Polys Hajioannou, together with his family, also
controls Vorini Holdings Inc., which owns approximately 60.55% of our outstanding common stock. These relationships
could create conflicts of interest between us, on the one hand, and our Manager, on the other hand. These conflicts may
arise in connection with the chartering, purchase, sale and operation of the vessels in our fleet versus vessels owned or
chartered-in by other companies affiliated with our Manager or our chief executive officer. To the extent we elect not
to exercise our right of first refusal with respect to any drybulk vessel that may be acquired by companies affiliated with
our chief executive officer, such companies could acquire and operate such drybulk vessels under the management of
our Manager in competition with us. Although under our Management Agreement our Manager will be required to first
provide us any chartering opportunities in the drybulk sector, our Manager is not prohibited from giving preferential
treatment in other areas of its management to vessels that are beneficially owned by related parties. These conflicts of
interest may have an adverse effect on our business, financial condition and results of operations.
Our business depends upon certain employees who may not necessarily continue to work for us; if such employees were no
longer to be affiliated with us, our business, financial condition and results of operation could suffer.
Our future success depends, to a significant extent, upon our chief executive officer, Polys Hajioannou, and certain other
members of our senior management and of our Manager. Polys Hajioannou has substantial experience in the drybulk
shipping industry and for 26 years has worked with us, our Manager and its predecessor. He and other members of our
senior management and of our Manager manage our business and their performance is crucial to the execution of our
business strategies and to the growth and development of our business. If these individuals were no longer to be affili-
ated with us or our Manager, or if we were to otherwise cease to receive advisory services from them, we may be unable
to recruit other employees with equivalent talent and experience, and our business and financial condition could suffer.
We do not intend to maintain “key man” life insurance on any of our executive officers.
The provisions in our restrictive covenant arrangement with our chief executive officer restricting his ability to compete with
us, like restrictive covenants generally, may not be enforceable.
Our chief executive officer, Polys Hajioannou, has entered into a restrictive covenant agreement with us under which
he is precluded during the term of his service with us as executive and director and for one year thereafter (and for the
term of our Management Agreement with our Manager and one year thereafter, if longer) from owning and operating
drybulk vessels and from acquiring, investing in or controlling any business that owns or operates such vessels. Courts
generally do not favor the enforcement of such restrictions, particularly when they involve individuals and could be
construed as infringing on such individuals ability to be employed or to earn a livelihood. Our ability to enforce these
restrictions, should it ever become necessary, will depend upon the circumstances that exist at the time enforcement is
sought. A court may not enforce the restrictions as written by way of an injunction and we may not necessarily be able
to establish a case for damages as a result of a violation of the restrictive covenants.
Our vessels call on ports located in Iran and Syria which are identified by the United States government as state sponsors
of terrorism and are subject to United States export controls and economic sanctions, which could be viewed negatively by
investors and adversely affect the trading price of our common stock.
From time to time, vessels in our fleet have called and/or may call on ports located in countries identified by the United
States government as state sponsors of terrorism and subject to United States export controls. From January 1, 2005
through December 31, 2011, vessels in our fleet have made 20 calls to ports in Iran and three calls to ports in Syria out of
a total of 2,327 calls on worldwide ports. From January 1, 2012 through December 31, 2012, vessels in our fleet have not
made any calls to ports in Iran or to ports in Syria. Iran and Syria are identified by the United States government as state
sponsors of terrorism. Although these designations and controls do not prevent our vessels from making calls to ports
in these countries, potential investors could view such port calls negatively, which could adversely affect our reputation
and the market for our common stock. Investor perception of the value of our common stock may be adversely affected
by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding
countries.
Additionally, the United States government imposes economic sanctions that may be applied in certain circumstanc-
es to non-United States entities conducting transactions involving targeted countries and their governments. United
States sanctions have been imposed on Iran and Syria, among other countries in which our vessels may make port calls.
On January 2, 2013, President Obama signed the National Defense Authorization Act for Fiscal Year 2013 (the “NDAA”),
which, among other things, expands U.S. sanctions on non-U.S. business with Iran. In particular, Section 1244 of the
NDAA targets, among other businesses, those determined, after July 1, 2013, to be part of the shipping sector of Iran
and those providing goods or services in support of any activity or transaction on behalf of or for the benefit of, among
others, persons determined to be part of the shipping sector of Iran or certain Iranian persons designated by the U.S.
Department of the Treasury, Office of Foreign Assets Control (“OFAC”). Section 1244 also includes a humanitarian excep-
tion that prohibits the imposition of sanctions with respect to any person for conducting or facilitating a transaction
for the sale of agricultural commodities, food, medicine, or medical devices to Iran or the provision of humanitarian
assistance to the people of Iran.
Our policy going forward is for our vessels to avoid making calls to ports in Iran or Syria unless the charterer provides
information certifying that its cargo is licensed by OFAC.
We are incorporated in the Republic of The Marshall Islands, which does not have a well-developed body of corporate law;
therefore, you may have more difficulty protecting your interests than stockholders of a U.S. corporation.
Our corporate affairs are governed by our articles of incorporation, our bylaws and by The Marshall Islands Business Cor-
porations Act, or the “BCA.” The provisions of the BCA resemble provisions of the corporation laws of a number of states
in the United States. However, there have been few judicial cases in the Republic of The Marshall Islands interpreting the
BCA. The rights and fiduciary responsibilities of directors under the laws of the Republic of The Marshall Islands are not
as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in exist-
ence in certain United States jurisdictions. The rights of stockholders of companies incorporated in the Republic of The
Marshall Islands may differ from the rights of stockholders 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 substan-
tially similar legislative provisions, there have been few, if any, court cases interpreting the BCA in the Republic of 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 our management,
directors or controlling stockholders than would stockholders of a corporation incorporated in a United States jurisdic-
tion which has developed a more substantial body of case law in the corporate law area.
It may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.
We are incorporated under the laws of the Republic of The Marshall Islands, and our Manager’s business is operated pri-
marily from our offices in Athens, Greece. In addition, a majority of our directors and officers are or will be non-residents
of the United States, and all of our assets and a substantial portion of the assets of these non-residents are located out-
side the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these
individuals in the United States if you believe that your rights have been infringed under the securities laws or otherwise.
You may also have difficulty enforcing, both within and outside of the United States, judgments you may obtain in the
United States courts against us or these persons in any action, including actions based upon the civil liability provi-
sions of United States federal or state securities laws. There is also substantial doubt that the courts of the Republic of
The Marshall Islands or Greece would enter judgments in original actions brought in those courts predicated on United
States federal or state securities laws.
We are involved in an ongoing arbitration dispute, which, if determined adversely to us, could cause us to incur a significant
financial loss, harm our reputation and/or have a material effect on us.
We are involved in an ongoing arbitration dispute in London, England, with Zhoushan Jinhaiwan Shipyard Co., Ltd. (the
“Shipyard”). We had entered into an agreement with the Shipyard for the construction, sale and delivery by the Shipyard
to us of one 180,000 DWT Capesize class newbuild vessel (Hull No. J0131) in exchange for USD $53 million. In December
2012, after having paid $31.8 million in advances during construction, we exercised our termination right under the
agreement due to the Shipyard’s excessive construction delays and delivered demands to each of the Shipyard and the
refund guarantor, The Export Import Bank of China (a bank rated Aa3 by Moody’s Investor Services), pursuant to the
agreement and the refund guarantees, respectively, for a refund of the full amount of advances paid, with interest.
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annual report 2012 In response, in January 2013, the Company received a notice of arbitration, and arbitration proceedings with the ship-
yard were initiated in London, England. The Shipyard alleges that our termination constitutes a breach of the agreement
and argues that we are not entitled to a refund of any of the advances paid or interest. Arbitration is inherently uncer-
tain, and an award against us would require us to record the related liability and incur the cost thereof, which includes
the amount of advances already paid, the capitalized expenses recorded and any further damages to the Shipyard with-
out receipt of the vessel.
We are not otherwise involved in any legal proceedings which may have, or have had, a significant effect on our busi-
ness, financial position, results of operations or liquidity, nor are we aware of any other proceedings that are pending
or threatened which may have a significant effect on our business, financial position, results of operations or liquidity.
The nature of our business exposes us to the risk of lawsuits for damages or penalties relating to, among other things,
personal injury, property casualty and environmental contamination. 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. However, such claims, even
if lacking merit, could result in the expenditure of significant financial and managerial resources.
Risks Relating to Our Common Stock
Vorini Holdings Inc., our principal stockholder, controls the outcome of matters on which our stockholders are entitled to vote
and its interests may be different from yours.
Vorini Holdings Inc., which is controlled by our chief executive officer, Polys Hajioannou and his family, owns approxi-
mately 60.55% of our outstanding common stock. This stockholder is able to control the outcome of matters on which
our stockholders are entitled to vote, including the election of our entire board of directors and other significant corpo-
rate actions. The interests of this stockholder may be different from yours.
We are a “controlled company” under the New York Stock Exchange rules, and as such we are entitled to exemption from
certain New York Stock Exchange corporate governance standards, and you may not have the same protections afforded to
stockholders of companies that are subject to all of the New York Stock Exchange corporate governance requirements.
We are a “controlled company” within the meaning of the New York Stock Exchange corporate governance standards.
Under the New York Stock Exchange rules, a company of which more than 50% of the voting power is held by another
company or group is a “controlled company” and may elect not to comply with certain New York Stock Exchange corpo-
rate governance requirements, including: (a) the requirement that a majority of the board of directors consist of inde-
pendent directors, (b) the requirement that the nominating committee be composed entirely of independent directors
and have a written charter addressing the committee’s purpose and responsibilities, (c) the requirement that the com-
pensation committee be composed entirely of independent directors and have a written charter addressing the com-
mittee’s purpose and responsibilities and (d) the requirement of an annual performance evaluation of the corporate gov-
ernance, nominating and compensation committees. We may utilize these exemptions. As a result, non-independent
directors, including members of our management who also serve on our board of directors, will comprise the majority
of our board of directors and may serve on the corporate governance, nominating and compensation committee of our
board of directors which, among other things, reviews the compensation of certain members of our management and
resolves governance issues regarding our company. Accordingly, you may not have the same protections afforded to
stockholders of companies that are subject to all of the New York Stock Exchange corporate governance requirements.
Future sales of our common stock could cause the market price of our common stock to decline and our existing stockholders
may experience significant dilution.
We may issue additional shares of our common stock in the future and our stockholders may elect to sell large numbers
of shares held by them from time to time.
In March 2010, we issued and sold 10,350,000 shares of common stock in a public offering. Concurrently with this pub-
lic offering, we issued and sold 1,000,000 shares of common stock to Vorini Holdings Inc. in a private placement. The
gross proceeds of the March 2010 public offering and private placement were $79.45 million. In April 2011, we issued
and sold 5,000,000 shares of common stock in a public offering. The gross proceeds of the April 2011 public offering
were $42 million. In March 2012, we issued and sold 5,750,000 shares of common stock in a public offering. The gross
proceeds of the March 2012 public offering were approximately $37.4 million.
Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales
could occur, may depress the market price for our common stock. These sales could also impair our ability to raise ad-
ditional capital through the sale of our equity securities in the future.
Our existing stockholders may also experience significant dilution in the future as a result of any future offering.
We also entered into a registration rights agreement in connection with our initial public offering with Vorini Hold-
ings Inc., our principal stockholder, pursuant to which we have granted it and certain of its transferees the right, under
certain circumstances and subject to certain restrictions, to require us to register under the Securities Act of 1933, as
amended (the “Securities Act”), shares of our common stock held by them. Under the registration rights agreement,
Vorini Holdings Inc. and certain of its transferees have the right to request us to register the sale of shares held by them
on their behalf and may require us to make available shelf registration statements permitting sales of shares into the
market from time to time over an extended period. In addition, those persons have the ability to exercise certain pig-
gyback registration rights in connection with registered offerings initiated by us. Registration of such shares under the
Securities Act would, except for shares purchased by affiliates, result in such shares becoming freely tradable without
restriction under the Securities Act immediately upon the effectiveness of such registration.
Anti-takeover provisions in our organizational documents could make it difficult for our stockholders to replace or remove our
current board of directors and together with our adoption of a stockholder rights plan could have the effect of discouraging,
delaying or preventing a merger or acquisition, which could adversely affect the market price of the shares of our common
stock.
Several provisions of our articles of incorporation and bylaws could make it difficult for our stockholders to change the
composition of our board of directors in any one year, preventing them from changing the composition of our manage-
ment. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that stockholders may
consider favorable. These provisions:
• authorize our board of directors to issue “blank check” preferred stock without stockholder approval;
• provide for a classified board of directors with staggered, three-year terms;
• prohibit cumulative voting in the election of directors;
• authorize the removal of directors only for cause;
• prohibit stockholder action by written consent unless the written consent is signed by all stockholders entitled to
vote on the action;
• establish advance notice requirements for nominations for election to our board of directors or for proposing mat-
ters that can be acted on by stockholders at stockholder meetings; and
• provide that special meetings of our stockholders may only be called by the chairman of our board of directors, chief
executive officer or a majority of our board of directors.
We have adopted a stockholder rights plan pursuant to which our board of directors may cause the substantial dilution
of the holdings of any person that attempts to acquire us without the approval of our board of directors.
These anti-takeover provisions, including the provisions of our prospective stockholder rights plan, could substantially
impede the ability of public stockholders to benefit from a change in control and, as a result, may adversely affect the
market price of our common stock and your ability to realize any potential change of control premium.
Tax Risks
In addition to the following risk factors, you should read “Item 10. Additional Information—E. Tax Considerations—Mar-
shall Islands Tax Considerations,” “Item 10. Additional Information—E. Tax Considerations—Liberian Tax Considerations,”
and “Item 10. Additional Information —E. Tax Considerations—United States Federal Income Tax Considerations” for a
more complete discussion of expected material Marshall Islands, Liberian and United States federal income tax conse-
quences of owning and disposing of our common stock.
We may earn shipping income that will be subject to United States income tax, thereby reducing our cash available for dis-
tributions to you.
Under United States tax rules, 50% of our gross income attributable to shipping that begins or ends in the United States
will be subject to a 4% United States federal income tax (without allowance for deductions). The amount of this income
may fluctuate, and we will not qualify for any exemption from this United States tax. Many of our charters contain provi-
sions that obligate the charterers to reimburse us for this 4% United States tax. To the extent we are not reimbursed by
30
31
annual report 2012 our charterers, the 4% United States tax will decrease our cash that is available for dividends.
For a more complete discussion, see the section entitled “Item 10. Additional Information—Tax Considerations—E. Unit-
ed States Federal Income Tax Considerations—Taxation of Our Shipping Income.”
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 non-United States corporation will be treated as a “passive foreign investment company,” or PFIC, for United States
federal income tax purposes if either (a) at least 75% of its gross income for any taxable year consists of certain types of
“passive income” or (b) at least 50% of the average value of the corporation’s assets produce or are held for the produc-
tion 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 that are
received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests,
income derived from the performance of services does not constitute “passive income.” United States stockholders 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. In particular, United States holders who are individuals would not be eligible for preferential
tax rates otherwise applicable to qualified dividends.
Based on our current operations and anticipated future operations, we believe that it is more likely than not that we
currently will not be treated as a PFIC. In this regard, we intend to treat gross income we derive or are deemed to derive
from our period time chartering activities as services income, rather than rental income. Accordingly, we believe that
our income from our period time chartering activities should not constitute “passive income,” and that the assets we
own and operate in connection with the production of that income do not constitute passive assets.
There are legal uncertainties involved in this determination. A recent case decided by the United States Court of Appeals
for the Fifth Circuit held that, contrary to the position of the United States Internal Revenue Service, or the “IRS,” in that
case, and for purposes of a different set of rules under the Internal Revenue Code of 1986, or the “Code,” income received
under a period time charter of vessels should be treated as rental income rather than services income. If the reasoning
of this case were extended to the PFIC context, the gross income we derive or are deemed to derive from our period time
chartering activities would be treated as rental income, and we would probably be a PFIC. In recent guidance, however,
the IRS stated that it disagreed with the holding in the Fifth Circuit case, and specified that income from period time
charters should be treated as services income. In light of these authorities, the IRS or a United States court may not
accept the position that we are not a PFIC, and there is a risk that the IRS or a United States court could determine that
we are a PFIC. Moreover, we may constitute a PFIC for a future taxable year if there were to be changes in our assets,
income or operations.
If the IRS were to find that we are or have been a PFIC for any taxable year, our United States stockholders will face
adverse United States tax consequences. See “Item 10. Additional Information—E. Tax Considerations—United States
Federal Income Tax Considerations—United States Federal Income Taxation of United States Holders” for a more com-
prehensive discussion of the United States federal income tax consequences to United States stockholders if we are
treated as a PFIC.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Safe Bulkers, Inc. was incorporated in the Republic of The Marshall Islands on December 11, 2007, under The Marshall
Islands Business Corporations Act, for the purpose of acquiring ownership of various subsidiaries that either owned or
were scheduled to own vessels. We are controlled by the Hajioannou family, which has a long history of operating and
investing in the international shipping industry, including a long history of vessel ownership. Vassos Hajioannou, the
late father of Polys Hajioannou, our chief executive officer, first invested in shipping in 1958. Polys Hajioannou has been
actively involved in the industry since 1987, when he joined the predecessor of Safety Management.
Over the past 18 years under the leadership of Polys Hajioannou, we have renewed our fleet by selling eleven drybulk
vessels during periods of what we viewed as favorable secondhand market conditions and contracting to acquire 42
drybulk newbuilds and three drybulk secondhand vessels. Also under his leadership, we have expanded the classes of
drybulk vessels in our fleet and the aggregate carrying capacity of our fleet has grown from 887,900 deadweight tons
prior to our initial public offering in May 28, 2008 to 2,282,400 dwt currently. The quality and size of our current fleet,
together with our long-term relationships with several of our charter customers, are, we believe, the results of our long-
term strategy of maintaining a young, high quality fleet, our broad knowledge of the drybulk industry and our strong
management team. In addition to benefiting from the experience and leadership of Polys Hajioannou, we also benefit
from the expertise of our Manager which, along with its predecessor, has specialized in drybulk shipping since 1965, pro-
viding services to over 41 drybulk vessels. A number of our Managers’ key management and operational personnel have
been continuously employed with Safety Management and its predecessor company for over 26 years. In June 2008,
we completed an initial public offering of our common stock in the United States and our common stock began trading
on the New York Stock Exchange. We maintain our offices at 30-32 Avenue Karamanli, P.O. Box 70837, 16673 Voula,
Athens, Greece. Our telephone number at that address is +30-210-899-4980. Our registered address in the Republic of
The Marshall Islands is Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Republic of the Marshall Islands
MH96960. The name of our registered agent at such address is The Trust Company of The Marshall Islands, Inc.
B. Business Overview
We are an international provider of marine drybulk transportation services, transporting bulk cargoes, particularly coal,
grain and iron ore, along worldwide shipping routes for some of the world’s largest consumers of marine drybulk trans-
portation services. As of February 15, 2013, we had a fleet of 25 drybulk vessels, with an aggregate carrying capacity of
2,282,400 dwt and an average age of 4.8 years, making us one of the world’s youngest fleets of Panamax, Kamsarmax,
Post-Panamax and Capesize class vessels. Our fleet is expected to grow through 2015 as the result of the delivery of six
further contracted newbuilds and one secondhand vessel, comprised of three Panamax class vessels, one secondhand
Kamsarmax class vessel, two Post-Panamax class vessels and one Capesize class vessel. Upon delivery of the last of our
contracted newbuilds, our fleet will be comprised of 32 vessels, having an aggregate carrying capacity of 2,943,300 dwt.
We employ our vessels on both period time charters and spot time charters, according to our assessment of market con-
ditions, with some of the world’s largest consumers of marine drybulk transportation services. The vessels we deploy on
period time charters provide us with relatively stable cash flow and high utilization rates, while the vessels we deploy in
the spot market allow us to maintain our flexibility in low charter market conditions.
General
As of February 15, 2013 our fleet comprised 25 vessels, of which seven are Panamax class vessels, six are Kamsarmax
class vessels, ten are Post-Panamax class vessels and two are Capesize class vessels, with an aggregate carrying capacity
of 2,282,400 dwt and an average age of 4.8 years. Assuming delivery of the last of our contracted vessels in 2015, our
fleet will be comprised of ten Panamax class vessels, seven Kamsarmax class vessels, 12 Post-Panamax class vessels and
three Capesize class vessels, and the aggregate carrying capacity of our 32 vessels will be 2,943,300 dwt. As of February
15, 2013, the average remaining duration of the charters for our existing fleet was 1.82 years.
The majority of vessels in our fleet have sister ships with similar specifications in our existing or newbuild fleet. We be-
lieve using sister ships provides cost savings because it facilitates efficient inventory management and allows for the
substitution of sister ships to fulfill our period time charter obligations.
Our Fleet and Newbuilds
The table below presents additional information with respect to our drybulk vessel fleet, including our newbuilds, and
its deployment as of February 15, 2013.
32
33
annual report 2012 Vessel Name
Dwt
Year
Built(1)
Country of
Construction
Charter
Type
CURRENT FLEET
Charter
Rate(2)
Commiss-
ions(3)
Charter Period(4)
Sister
Ship(5)
5.00% Feb. 2013 – Mar 2013
A
hire, ballast bonus and demurrage to our Manager pursuant to our vessel management agreements with our Manager.
(1) For newbuilds, the dates shown reflect the expected delivery dates.
(2) Quoted charter rates are gross charter rates. Gross charter rates are inclusive of commissions. Net charter rates are charter rates after the payment
of commissions. Charter agreements may provide for additional payments, namely ballast bonus, to compensate for vessel repositioning.
(3) Commissions reflect payments made to third-party brokers or our charterers, and do not include the 1.25% fee payable on gross freight, charter
A
A
A
B
C
C
C
(4) The start dates listed reflect either actual start dates or, in the case of contracted charters that had not commenced as of February 15, 2013,
scheduled start dates. Actual start dates and redelivery dates may differ from the scheduled start and redelivery dates depending on the terms of
the charter and market conditions.
(5) Each vessel with the same letter is a “sister ship” of each other vessel that has the same letter, and under certain of our charter contracts, may be
substituted with its “sister ships.”
(6) Fifth year charter rate of a five year charter agreement which provided for variable charter rates.
(7) A period time charter with a forward delivery date in August of 2013 at a gross daily charter rate linked to the Baltic Panamax Index (“BPI”) plus a
premium of 6.5%.
(8) A period time charter at a gross daily charter rate linked to the BPI plus a premium of 4%. Net daily charter rate payable is being reduced by an
amount equal to $1,000 per day.
(9) The charter agreement grants the charterer the option to extend the period time charter for an additional twelve months at a time, at a gross daily
charter rate of $26,330, less 1.25% total commissions, which option may be exercised by the charterer a maximum of two times. The charter agree-
ment also grants the charterer an option to purchase the vessel at any time beginning at the end of the seventh year of the period time charter
period, at a price of $39 million less 1.00% commission, decreasing thereafter on a pro-rated basis by $1.5 million per year. The Company holds a
right of first refusal to buy back the vessel in the event that the charterer exercises its option to purchase the vessel and subsequently offers to sell
such vessel to a third party.
4.75% Oct. 2012 – Nov. 2013 D
(10) Vessel is scheduled to be delivered to us in March 2013.
Panamax
Maria
Koulitsa
Paraskevi
Vassos
Katerina
Maritsa
Efrossini
Kamsarmax
76,000 2003
76,900 2003
74,300 2003
76,000 2004
76,000 2004
76,000 2005
75,000 2012
Pedhoulas Merchant
82,300 2006
Pedhoulas Trader
82,300 2006
Pedhoulas Leader
Pedhoulas Builder
82,300 2007
81,600 2012
Pedhoulas Fighter
Pedhoulas Farmer
Post-Panamax
Stalo
Marina
Sophia
Eleni
Martine
Andreas K
Panayiota K
Venus Heritage
Venus History
Venus Horizon
Capesize
Kanaris
Pelopidas
81,600 2012
81,600 2012
87,000 2006
87,000 2006
87,000 2007
87,000 2008
87,000 2009
92,000 2009
South Korea
92,000 2010
South Korea
95,800 2010
95,800 2011
95,800 2012
178,100 2010
176,000 2011
Japan
Japan
Japan
China
China
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
China
China
China
Japan
Japan
Japan
Japan
Japan
Spot $
Period $
Spot $
Period $
Period $
Period $
Spot $
6,250
8,500
8,000
29,000
20,000
8,000
9,500
4.75% Dec. 2012 – Feb. 2014
5.00% Jan. 2013 – Apr. 2013
1.25% Nov. 2008 – Oct. 2013
3.375% Feb. 2011 – Feb. 2014
1.25% Jan. 2013 – Dec. 2014
4.75% Mar. 2013 – May. 2013
Period $
Period (6) $
18,350
20,000
3.50% Aug. 2011 – Jul. 2013
1.00% Aug. 2011 – Jul. 2013
Period (7)
BPI + 6.5%
3.50% Aug. 2013 – Jul. 2015
4.75% Jun. 2012 – May 2014
Period $
Period $
13,250
8,450
(BPI + 4%) -
Period (8) $
Period $
1,000
8,000
5.00% Aug. 2012 – Sep. 2013 D
4.75% Sep. 2012 – Sep. 2013 D
Period $
Period $
Period $
Period $
Period $
Period $
Spot $
Spot $
Spot $
Spot $
34,160
19,500
34,720
34,160
8,500
10,000
6,000
7,200
12,000
9,500
1.25% Mar. 2010 – Feb. 2015
1.25% Dec. 2011 – Dec. 2013
1.25% Oct. 2008 – Sep. 2013
1.25% Apr. 2010 – Mar. 2015
3.75% Jan. 2013 – Mar. 2013
5.00% Dec. 2012 – Feb. 2014
5.00% Dec. 2012 – Feb. 2013
5.00% Feb. 2013 – Mar. 2013
5.00% Sep. 2012 – Jan. 2013
5.00% Feb. 2013 – Apr.2013
Period $
Period $
25,928
38,000
2.50% Sep. 2011 – Jun. 2031
1.00% Feb. 2012 – Dec. 2021
Subtotal 2,282,400
NEW BUILDS
Panamax
Hull No. 814
Hull No. 1659
Hull No. 1660
Post-Panamax
Hull No. 2396
Hull No. 2397
Capesize
Hull No. 8126
Kamsarmax
TBN Pedhoulas
Commander
75,000 2H 2013
76,600 1H 2014
76,600 1H 2014
Japan
Japan
Japan
84,000 2H 2015
84,000 1H 2015
Japan
Japan
181,000 1H 2014
Japan
Period(9)
$
$
23,100
24,810
1.25% Jan. 2014 – Jul. 2016
1.25%
Jul. 2016 – Jan.2024
SECONDHAND
83,700
2008(10)
Japan
Subtotal 660,900
TOTAL 2,943,300
34
E
E
E
E
E
F
F
G
G
G
B
H
H
I
I
From the beginning of 1995 through February 15, 2013, we have taken delivery of 33 newbuilds and two secondhand
vessels. As of February 15, 2013, we were contracted to take delivery of six Japanese-built newbuilds and one Japanese-
built secondhand vessel, comprised of three Panamax class vessels, one Kamsarmax class vessel, two Post-Panamax
class vessels and one Capesize class vessel. As of February 15, 2013, our remaining capital expenditure requirements
were $198.8 million, of which $69.7 million is payable in 2013, $76.1 million in 2014 and $53.0 million in 2015.
Chartering of Our Fleet
Our vessels are used to transport bulk cargoes, particularly coal, grain and iron ore, along worldwide shipping routes.
We may employ our vessels in time charters or in voyage charters.
A time charter is a contract to charter a vessel for a fixed period of time at a set daily rate and can last from a few days
up to several years, where the vessel performs one or more voyages between load port(s) and discharge port(s). Based
on the duration of vessel’s employment, a time charter can be either a long-term, or period, time charter with dura-
tion of more than three months, or a short-term, or spot, time charter with duration of up to three months. Under our
time charters the charterer pays for most voyage expenses, such as port, canal and fuel costs, agents’ fees, extra war
risks insurance and any other expenses related to the cargoes, and we pay for vessel operating expenses, which include,
among other costs, cos nd intermediate and special surveys. During 2012, all of our vessels were employed under time
charter contracts.
Voyage charters are generally contracts to carry a specific cargo from a load port to a discharge port, including posi-
tioning the vessel at the load port. Under a voyage charter, the charterer pays an agreed upon total amount or on a per
cargo ton basis, and we pay for both vessel operating expenses and voyage expenses. We infrequently enter into voyage
charters. Voyage charters together with spot time charterers are referred to in our industry as employement in the spot
market.
We intend to employ our vessels on both period time charters and spot time charters, according to our assessment of
market conditions, with some of the world’s largest consumers of marine drybulk transportation services. The vessels
we deploy on period time charters provide us with relatively stable cash flow and high utilization rates, while the vessels
we deploy in the spot market allow us to maintain our flexibility in low charter market conditions.
Our Customers
Since 2005 our customers have included over 30 national, regional and international companies, including Bunge,
Cargill, Daiichi, Intermare Transport G.m.b.H., Eastern Energy Pte. Ltd., NYK, NS United Kaiun Kaisha, Kawasaki Kisen
Kaisha, Oldendorff Carriers or their affiliates. During 2012, two of our charterers accounted for 62.9% of our revenues,
namely Daiichi and Kawasaki Kisen Kaisha, with each one accounting for more than 10% of total revenues. During 2011,
two of our charterers accounted for 66.1% of our revenues, namely Daiichi and Kawasaki Kisen Kaisha, with each one
accounting for more than 10% of total revenues. During 2010, three of our charterers accounted for 76.3% of our reve-
nues, namely Daiichi, Kawasaki Kisen Kaisha and Cargill, with each one accounting for more than 10% of total revenues.
35
annual report 2012
We seek to charter our vessels primarily to charterers who intend to use our vessels without sub-chartering them to
third parties. A prospective charterer’s financial condition and reliability are also important factors in negotiating em-
ployment for our vessels.
Management of Our Fleet
We have a management agreement pursuant to which our Manager provides us with technical, administrative, com-
mercial and certain other services for an initial term of two years with automatic one-year renewals for an additional
eight years, during which the management fees can be adjusted every year upon agreement between us and our Man-
ager. The management agreement can be terminated if we provide notice of non- renewal 12 months prior to the end
of the then-current term. The initial two year term expired on May 28, 2010. We have not provided notice of termination
to our Manager. Our arrangements with our Manager and its performance are reviewed by our board of directors. Our
chief executive officer, president, chief financial officer and chief operating officer, collectively referred to in this annual
report as our “executive officers,” provide strategic management for our company and also supervise the management
of our day-to-day operations by our Manager. Our Manager reports to us and our board of directors through our execu-
tive officers.
In return for providing such services our Manager receives a fixed management fee of $700 per day per vessel. In return
for chartering services rendered to us, our Manager also receives a variable fee of 1.25% on all freight, charter hire, bal-
last bonus and demurrage for each vessel. Our Manager also receives a sales fee of 1.0% based on the contract price of
any vessel sold by it on our behalf, and an acquisition fee of 1.0% based on the contract price of any vessel bought by it
on our behalf, including the acquisition of each of our contracted newbuilds. We also pay our Manager a supervision fee
of $550,000 per newbuild, of which 50% is payable upon the signing of the relevant supervision agreement, and 50%
upon successful completion of the sea trials of each newbuild, which we capitalize, for the on-premises supervision by
selected engineers and others on the Manager’s staff of newbuilds we have agreed to acquire pursuant to shipbuilding
contracts, memoranda of agreement, or otherwise.
Our Manager has agreed that, during the term of our management agreement and for a period of one year following its
termination, our Manager will not provide management services to, or with respect to, any drybulk vessels other than
(a) on our behalf or (b) with respect to drybulk vessels that are owned or operated by companies affiliated with our chief
executive officer or his brother Nicolaos Hadjioannou, and drybulk vessels that are acquired, invested in or controlled by
companies affiliated with our chief executive officer or Nicolaos Hadjioannou subject in each case to compliance with,
or waivers of, the restrictive covenant agreements entered into between us and such companies. Our Manager has also
agreed that if one of our drybulk vessels and a drybulk vessel owned or operated by any such company are both available
and meet the criteria for a charter being arranged by our Manager, our drybulk vessel will receive such charter.
Historically our Manager has rarely provided services to third parties. Currently our Manager does not provide manage-
ment services to any third party vessels.
Competition
We operate in highly competitive markets that are based primarily on supply and demand. Our business fluctuates in
line with the main patterns of trade of the major drybulk cargoes and varies according to changes in the supply and
demand for these items. We believe we differentiate ourselves from our competition by providing young, modern ves-
sels with advanced designs and technological specifications. As of February 15, 2013 our fleet had an average age of
4.8 years compared to an industry average of approximately ten years. Upon delivery of our contracted newbuilds and
secondhand vessel, the majority of our fleet will have been built in Japanese shipyards, which we believe provides us with
an advantage in attracting large, well-established customers, including Japanese customers.
The drybulk sector is characterized by relatively low barriers to entry, and ownership of drybulk vessels is highly frag-
mented. In general, we compete with other owners of Panamax class or larger drybulk vessels for charters based upon
price, customer relationships, operating expertise, professional reputation and size, age, location and condition of the
vessel.
Crewing and Shore Employees
Our management team consists of our chief executive officer, president, chief financial officer and chief operating of-
ficer, all of whom are provided by our Manager. In addition, we employ a legal representative for our office in Greece.
Our Manager is responsible for the technical management of our fleet and therefore also handles the recruiting, either
directly or through crewing agents, of the senior officers and all other crew members for our vessels. As of December 31,
2012, approximately 506 people served on board the vessels in our fleet, and our Manager employed approximately 48
people on shore.
Permits and Authorizations
We are required by various governmental and other agencies to obtain certain permits, licenses, certificates and finan-
cial assurances with respect to each of our vessels. The kinds of permits, licenses, certificates and financial assurances
required by governmental and other agencies depend upon several factors, including the commodity being transport-
ed, the waters in which the vessel operates, the nationality of the vessel’s crew and the type and age of the vessel. All
permits, licenses, certificates and financial assurances currently required to operate our vessels have been obtained. Ad-
ditional laws and regulations, environmental or otherwise, may be adopted which could limit our ability to do business
or increase the cost of doing business.
Risk of Loss and Liability Insurance
General
The operation of our fleet involves risks such as mechanical failure, collision, property loss, cargo loss or damage as well
as personal injury, illness and loss of life. In addition, the operation of any oceangoing vessel is subject to the inherent
possibility of marine disaster, including oil spills and other environmental mishaps, the risk of piracy and the liabilities
arising from owning and operating vessels in international trade. The U.S. Oil Pollution Act of 1990 (“OPA 90”), which im-
poses virtually unlimited liability upon owners, operators and demise charterers of vessels trading in the United States
exclusive economic zone for certain oil pollution accidents in the United States, has made liability insurance more ex-
pensive for vessel owners and operators trading in the United States market.
Our Manager is responsible for arranging insurance for all our vessels on terms specified in our Management Agree-
ment, which we believe are in line with standard industry practice. In accordance with our Management Agreement,
our Manager procures and maintains hull and machinery insurance, war risks insurance, freight, demurrage and de-
fense coverage and protection and indemnity coverage with mutual assurance associations. Due to our low incident
rate and the young age of our fleet, we are generally able to procure relatively low rates for all types of insurance.
While our insurance coverage for our drybulk vessel fleet is in amounts that we believe to be prudent to protect us
against normal risks involved in the conduct of our business and consistent with standard industry practice, our Man-
ager may not be able to maintain this level of coverage throughout a vessel’s useful life. Furthermore, all risks may not
be adequately insured against, any particular claim may not be paid and adequate insurance coverage may not always
be obtainable at reasonable rates.
Hull and machinery insurance
Our marine hull and machinery insurance covers risks of partial loss or actual or constructive total loss from collision,
fire, grounding, engine breakdown and other insured risks up to an agreed amount per vessel. Our vessels will each be
covered up to at least their fair market value after meeting certain deductibles per incident per vessel. We also maintain
increased value coverage for each of our vessels. Under this increased value coverage, in the event of the total loss of a
vessel, we are entitled to recover amounts in excess of the total loss amount recoverable under our hull and machinery
policy.
Protection and indemnity insurance
Protection and indemnity insurance is a form of mutual indemnity insurance provided by mutual marine protection and
indemnity associations, or “P&I Associations,” formed by vessel owners to provide protection from large financial loss to
one club member by contribution towards that loss by all members.
Protection and indemnity insurance covers our third-party liabilities in connection with our shipping activities. This in-
cludes third-party liability and other related expenses of injury or death of crew members, passengers and other third
parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third party property,
pollution arising from oil or other substances, and salvage, towing and other related costs, including wreck removal.
Our coverage, except for pollution, will be unlimited. Furthermore, within this aggregate limit, club coverage is also
limited to the amount of the member’s legal liability.
Our protection and indemnity insurance coverage for pollution is limited to $1.0 billion per vessel per incident. Our pro-
tection and indemnity insurance coverage in respect of passengers is limited to $2.0 billion and in respect of passengers
and seamen is limited to $3.0 billion per vessel per incident. The 13 P&I Associations that comprise the International
36
37
annual report 2012 Group of P&I Clubs (the “International Group”) insure approximately 90% of the world’s commercial blue-water tonnage
and have entered into a pooling agreement to reinsure each P&I Association’s liabilities. As a member of a P&I Associa-
tion that is a member of the International Group, we are subject to calls payable to the P&I Association based on the
International Group’s claim records, as well as the claim records of all other members of the individual associations.
Although the P&I Associations compete with each other for business, they have found it beneficial to mutualise their
larger risks among themselves through the International Group. This is known as the “Pool.” This pooling is regulated
by a contractual agreement which defines the risks that are to be covered and how claims falling on the Pool are to be
shared among the participants in the International Group. The Pool provides a mechanism for sharing all claims in ex-
cess of $8.0 million up to $60.0 million. For claims in excess of $60.0 million, the International Group purchases reinsur-
ance from the commercial market of up to $2.06 billion per vessel per incident in excess of $60.0 million and additional
overspill insurance of $1.0 billion in excess of $2.05 billion in respect of passengers and seamen, per vessel per incident.
War risks insurance
Our war risk insurance covers risks of partial loss or actual or constructive total loss from confiscations, seizure, capture,
vandalism, sabotage and other war related risks and is $500.0 million per vessel per incident.
Inspection by Classification Societies
Every oceangoing vessel must be “classed” by a classification society. The classification society certifies that the vessel
is “in class,” signifying that the vessel has been built and maintained in accordance with the rules and regulations of the
classification society. In addition, each vessel must comply with all applicable laws, rules and regulations of the vessel’s
country of registry, or “flag state,” as well as the international conventions of which that flag state is a member. A vessel’s
compliance with international conventions and corresponding laws and ordinances of its flag state can be confirmed by
the applicable flag state, port state control or, upon application or by official order, the classification society, acting on
behalf of the authorities concerned.
The classification society also undertakes, upon 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 or to the regula-
tions of the country concerned.
All areas subject to survey as defined by the classification society are required to be surveyed at least once per class pe-
riod, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of
each area must not exceed five years. The maintenance of class, regular and extraordinary surveys of a vessel’s hull and
machinery, including the electrical plant, and any special equipment classed are required to be performed as follows:
•
Annual Surveys. For oceangoing vessels, annual surveys are conducted for their hulls and machinery, including the
electrical plants, and for any special equipment classed, at intervals of 12 months from the date of commencement
of the class period indicated in the certificate.
• Intermediate Surveys. Extended annual surveys are referred to as “intermediate surveys” and typically are conducted
on the occasion of the second or third annual survey after commissioning and after each class renewal.
• Class Renewal / Special Surveys. Class renewal surveys, also known as “special surveys,” are more extensive than
intermediate surveys and are carried out at the end of each five-year period. During the special survey the vessel
is thoroughly examined, including thickness-gauging to determine any diminution in the steel structures. Should
the thickness be found to be less than class requirements, the classification society would prescribe steel renewals.
It may be expensive to have steel renewals pass a special survey if the vessel is aged or experiences excessive wear
and tear. A vessel owner has the option of arranging with the classification society for the vessel’s machinery to be
on a continuous survey cycle, according to which all machinery 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.
Vessels are drydocked during intermediate and special surveys for repairs of their underwater parts. If “in water survey”
notation is assigned by class, as is the case for our vessels, the vessel owner has the option of carrying out an under-
water inspection of the vessel in lieu of drydocking, subject to certain conditions. In the event that an “in water survey”
notation is assigned as part of a particular intermediate survey, drydocking would be required for the following special
survey thereby generally achieving a higher utilization for the relevant vessel. Drydocking can be undertaken as part of
a special survey if the drydocking occurs within 15 months prior to the special survey deadline. The following table lists
the dates by which we expect to carry out the next drydockings and special surveys for the vessels in our current drybulk
vessel fleet:
Vessel Name
Maria
Vassos
Katerina
Maritsa
Efrossini
Koulitsa
Paraskevi
Pedhoulas Merchant
Pedhoulas Trader
Pedhoulas Leader
Pedhoulas Builder
Pedhoulas Fighter
Pedhoulas Farmer
Stalo
Marina
Sophia
Eleni
Martine
Andreas K
Kanaris
Panayiota K
Venus Heritage
Venus History
Venus Horizon
Pelopidas
Drydocking
January 2016
November 2013
May 2014
January 2015
February 2016
April 2013
January 2016
October 2015
October 2015
November 2015
May 2016
August 2016
September 2016
September 2015
August 2015
June 2016
November 2013
February 2014
August 2013
March 2014
April 2014
December 2014
September 2015
February 2016
November 2015
Special Survey
April 2013
February 2014
May 2014
January 2015
February 2017
April 2013
January 2018
March 2016
May 2016
February 2017
May 2017
August 2017
September 2017
January 2016
January 2016
June 2017
November 2013
February 2014
August 2014
March 2015
April 2015
December 2015
September 2016
February 2017
November 2016
Following an incident or a scheduled survey, if any defects are found, the classification surveyor will issue a “recommen-
dation or condition of class” which must be rectified by the vessel owner within the prescribed time limits.
In general, 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 (“IACS”). All of our
vessels are certified as being “in class” by either Lloyd’s Register of Shipping, the American Bureau of Shipping or Nippon
Kaiji Kyokai, each of which is a member of IACS.
Environmental and Other Regulations
General
Government regulation significantly affects the ownership and operation of our vessels. Our vessels are subject to inter-
national conventions and national, state and local laws and regulations in force in international waters and the countries
in which they operate or are registered, including environmental protection requirements governing the management
and disposal of hazardous substances and wastes, the cleanup of oil spills and the management of other contamina-
tion, air emissions, water discharges and ballast water. These laws and regulations include the International Convention
for Prevention of Pollution from Ships, the International Convention for Safety of Life at Sea (“SOLAS”) and implementing
regulations adopted by the International Maritime Organization (“IMO”), the European Union (“EU”) and other interna-
tional, national and local regulatory bodies. They also include laws and regulations in the jurisdictions where our vessels
travel and in the ports where our vessels call. In the U.S., the requirements include OPA 90, the U.S. Comprehensive
Environmental Response, Compensation, and Liability Act (“CERCLA”), the U.S. Clean Water Act (“CWA”) and Clean Air
Act (“CAA”). Compliance with these environmental protection requirements can impose significant cost and expense,
including the cost of vessel modifications and implementation of certain operating procedures. Our fleet is young and
modern and complies with all current requirements and we do not anticipate incurring significant vessel modification
expenditures in the current or subsequent fiscal year to comply with such requirements. Under our Management Agree-
ment, our Manager has assumed technical management responsibility for our fleet, including compliance with all ap-
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annual report 2012 plicable government and other regulations. If the Management Agreement with our Manager terminates, we would
attempt to hire another party to assume this responsibility. In the event of termination, we might be unable to hire
another party to perform these and other services for the present fee structure and related costs. However, due to the
nature of our relationship with our Manager, we do not expect our Management Agreement to be terminated early.
A variety of governmental and private entities subject our vessels to both scheduled and unscheduled inspections. These
entities include the local port authorities (such as the U.S. Coast Guard, harbor master or equivalent), classification soci-
eties, flag state administration (country of registry), charterers and terminal operators. Certain of these entities require
us to obtain permits, licenses, financial assurances and certificates for the operation of our vessels. Failure to maintain
necessary permits or approvals could require us to incur substantial costs or result in the temporary suspension of the
operation of one or more of our vessels.
We believe that the heightened level of environmental and quality concerns among insurance underwriters, regulators
and charterers is leading to greater inspection and safety requirements on all vessels and may accelerate the scrapping
of older vessels throughout the drybulk shipping industry. Increasing environmental concerns have created a demand
for vessels that conform to the stricter environmental standards. We are required to maintain operating standards for
all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews
and compliance with U.S. and international regulations. We believe that the operation of our vessels is in substantial
compliance with all environmental laws and regulations applicable to us as of the date of this annual report. However,
because such laws and regulations are subject to frequent change and may impose increasingly stricter requirements,
such future requirements could limit our ability to do business, increase our operating costs, force the early retirement
of our vessels and/or affect their resale value, all of which could have a material adverse effect on our financial condition
and results of operations. However, we believe that because our fleet is young and modern, we will not be exposed to
the same level of risk faced by owners of older, less modern vessels.
The International Maritime Organization
Our vessels are subject to standards imposed by the IMO, the United Nations agency for maritime safety and the pre-
vention of pollution by ships. The IMO has adopted regulations to reduce pollution in international waters, both from
accidents and routine operations, and has negotiated international conventions that impose liability for oil pollution in
international waters and a signatory’s territorial waters. For example, Annex III of the International Convention for the
Prevention of Pollution from Ships (“MARPOL”) regulates the transportation of marine pollutants and imposes stand-
ards on packing, marking, labeling, documentation, stowage, quantity limitations and pollution prevention. These
requirements have been expanded by the International Maritime Dangerous Goods Code, which imposes additional
standards for all aspects of the transportation of dangerous goods and marine pollutants by sea.
In 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. Annex VI became effective in 2005,
and sets limits on sulfur oxide and nitrogen oxide emissions from vessel exhausts and prohibits deliberate emissions
of ozone depleting substances, such as chlorofluorocarbons. Annex VI also includes a global cap on the sulfur content
of marine fuels and allows for the establishment of Emission Control Areas (“ECAs”) with more stringent controls on
sulfur emissions. An ECA for North America took effect in 2012 and an ECA for the Caribbean will take effect in 2014.
In 2008, the IMO Marine Environment Protection Committee adopted amendments to Annex VI regarding particulate
matter, nitrogen oxides and sulfur oxide emissions. These amendments, which entered into force in 2010, are designed
to reduce air pollution from vessels by, among other things, (i) implementing a progressive reduction of sulfur oxide
emissions from ships; and (ii) establishing new tiers of stringent nitrogen oxide emissions standards for new marine en-
gines, depending on their date of installation. In addition, the European Union has established separate limitations on
the sulfur content of marine fuels, and some European Union countries may be declared Emission Control Areas in the
future, pursuant to Annex VI and its amendments. We have obtained International Air Pollution Prevention Certificates
for all our vessels, and believe that maintaining compliance with the existing and known future Annex VI requirements
will not have an adverse financial impact on the operation of our vessels. However, additional or new requirements,
conventions, laws or regulations, including the adoption of additional ECAs, or other new or more stringent emissions
requirements adopted by the IMO, the European Union, the United States or individual states, or other jurisdictions in
which we operate, could require vessel modifications or otherwise increase the costs of our operations.
The IMO adopted vessel energy efficient requirements, which took effect in January 2013. The requirements impose
energy efficiency design on new vessels and require energy efficiency management plans for existing vessels. We do not
expect these requirements to have a material effect on our operations.
The IMO adopted new guidelines in 2012 under the revised Annex V to MARPOL, which prohibit discharge of garbage
into the open sea, with certain exceptions, and require vessels to dispose of garbage at port garbage reception facilities.
These guidelines became effective in January 2013. We do not expect these requirements to have a material effect on
our operations.
In 2001, the IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage, or the “Bun-
ker Convention,” which imposes strict liability on ship owners for pollution damage in jurisdictional waters of ratifying
states caused by discharges of bunker fuel. The Bunker Convention also requires registered owners of ships over 1,000
gross tons to maintain insurance in specified amounts to cover their liability for relevant pollution damage. The Bunker
Convention became effective on November 21, 2008. The IMO recently adopted a requirement that vessels traveling
through the Antarctic region (waters south of latitude 60 degrees south) must use lower density fuel. We do not expect
this requirement to affect our operations, which do not involve Antarctic travel.
The operation of our vessels is also affected by the requirements set forth in the IMO’s International Safety Management
(“ISM”) Code. The ISM Code requires vessel owners or any other person, such as a manager or bareboat charterer, who
has assumed responsibility for the operation of a vessel from the vessel owner and on assuming such responsibility has
agreed to take over all the duties and responsibilities imposed by the ISM Code, to develop and maintain an extensive
SMS that includes the adoption of a safety and environmental protection policy setting forth instructions and proce-
dures for safe operation and describing procedures for dealing with emergencies. The ISM Code requires that vessel op-
erators obtain a “Safety Management Certificate” for each vessel they operate from the government of the vessel’s flag
state. The certificate verifies that the vessel operates in compliance with its approved SMS. Currently, our Manager has
the requisite documents of compliance and safety management certificates for each of the vessels in our fleet for which
the certificates are required by the IMO. Our Manager is required to renew these documents of compliance and safety
management certificates every five years. Compliance is externally verified on an annual basis for the Manager and be-
tween the second and third years for each vessel by the applicable flag state.
Although all our vessels are currently ISM Code-certified, such certification may not be maintained by all our vessels at
all times. Non compliance with the ISM Code may subject such party to increased liability, invalidate existing insurance
or decrease available insurance coverage for the affected vessels and result in a denial of access to, or detention in, cer-
tain ports. For example, the U.S. Coast Guard and EU authorities have indicated that vessels not in compliance with the
ISM Code will be prohibited from trading in U.S. and EU ports.
The Maritime Labour Convention
The International Labour Organization’s Maritime Labour Convention was adopted in 2006 (“MLC 2006”). The basic
aims of the MLC 2006 are to ensure comprehensive worldwide protection of the rights of seafarers (the Convention is
sometimes called the Seafarers’ Bill of Rights) and, to establish a level playing field for countries and ship owners com-
mitted to providing decent working and living conditions for seafarers, protecting them from unfair competition on the
part of substandard ships. The Convention was ratified on August 20, 2012, and all vessels need to be certified by August
20, 2013. We do not expect that the MLC 2006 requirements to have a material effect on our operations.
The U.S. Oil Pollution Act of 1990
The OPA 90 established an extensive regulatory and liability regime for the protection of the environment from oil spills
and cleanup of oil spills. OPA 90 applies to discharges of any oil from a vessel, including discharges of fuel and lubricants.
OPA 90 affects all owners and operators whose vessels trade in the United States, its territories and possessions or
whose vessels operate in U.S. waters, which includes the United States’ territorial sea and its two hundred nautical mile
exclusive economic zone. While our vessels do not carry oil as cargo, they do carry lubricants and fuel oil, or “bunkers,”
which subjects our vessels to the requirements of OPA 90.
Under OPA 90, vessel owners, operators and bareboat charterers are “responsible parties” and are jointly, severally and
strictly liable (unless the discharge of pollutants results solely from the act or omission of a third party, an act of God or
an act of war) for all containment and clean-up costs and other damages arising from discharges, or threatened dis-
charges, of pollutants from their vessels, including bunkers.
OPA 90 preserves the right to recover damages under other existing laws, including maritime tort law.
Effective July 31, 2009, the U.S. Coast Guard adopted regulations that adjust the limits of liability of responsible parties
under OPA 90 to the greater of $1,000 per gross ton or $854,400 per non-tank vessel and established a procedure for
adjusting the limits for inflation every three years. These limits of liability do not apply if an incident was directly caused
by violation of applicable U.S. safety, construction or operating regulations or by a responsible party’s gross negligence
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annual report 2012 or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in con-
nection with oil removal activities. As a result of the oil spill in the Gulf of Mexico resulting from the explosion of the
Deepwater Horizon drilling rig, bills have been introduced in the U.S. Congress to increase the limits of OPA liability for
all vessels, including tanker vessels.
All owners and operators of vessels over 300 gross tons are required to establish and maintain with the U.S. Coast
Guard evidence of financial responsibility sufficient to meet their potential aggregate liabilities under OPA 90 and
CERCLA, which is discussed below. An owner or operator of a fleet of vessels is required only to demonstrate evi-
dence of financial responsibility in an amount sufficient to cover the vessel in the fleet having the greatest maxi-
mum liability under OPA 90 and CERCLA. We have complied with these requirements by providing a financial guar-
antee evidencing sufficient self-insurance. We have satisfied these requirements and obtained a U.S. Coast Guard
certificate of financial responsibility for all of our vessels.
The U.S. Coast Guard’s regulations concerning certificates of financial responsibility provide, in accordance with
OPA 90, that claimants may bring suit directly against an insurer or guarantor that furnishes certificates of finan-
cial responsibility and that the insurer or guarantor may only assert limited defenses. Certain organizations that
had typically provided certificates of financial responsibility under pre-OPA 90 laws, including the major protection
and indemnity organizations, have declined to furnish evidence of insurance for vessel owners and operators if they
are subject to direct actions or required to waive insurance policy defenses. This requirement may limit the avail-
ability of coverage required by the U.S. Coast Guard and could increase our costs of obtaining this insurance for our
fleet, as well as the costs of our competitors that also require such coverage.
We currently maintain, for each of our vessels, oil pollution liability coverage insurance in the amount of $1.0 billion
per incident. Although our vessels carry a relatively small amount of bunkers, a spill of oil from one of our vessels
could be catastrophic under certain circumstances. We also carry hull and machinery protection and indemnity
insurance to cover the risks of fire and explosion. Losses as a result of fire or explosion could be catastrophic under
some conditions. While we believe that our existing 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. If the damages from a catastrophic spill exceed our insurance coverage,
the payment of those damages could have a severe, adverse effect on us and could possibly result in our insolvency.
OPA 90 requires the owner or operator of any non-tank vessel of 400 gross tons or more that carries oil of any kind
as a fuel for main propulsion, including bunkers, to prepare and submit a response plan for each vessel. These vessel
response plans include detailed information on actions to be taken by vessel personnel to prevent or mitigate any
discharge or substantial threat of such a discharge of ore from the vessel due to operational activities or casualties.
All of our vessels have U.S. Coast Guard-approved response plans.
OPA 90 specifically permits individual states to impose their own liability regimes with regard to oil pollution inci-
dents occurring within their boundaries, and 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 regula-
tions defining vessels owners’ responsibilities under these laws. We intend to comply with all applicable state regu-
lations in the ports where our vessels call.
The U.S. Comprehensive Environmental Response, Compensation, and Liability Act
CERCLA applies to spills or releases of hazardous substances other than petroleum or petroleum products, whether on
land or at sea. CERCLA imposes joint and several liability, without regard to fault, on the owner or operator of a ship,
vehicle or facility from which there has been a release, and on other specified parties. Liability under CERCLA is generally
limited to the greater of $300 per gross ton or $0.5 million per vessel carrying non-hazardous substances ($5.0 million for
vessels carrying hazardous substances), unless the incident is caused by gross negligence, willful misconduct or a viola-
tion of certain regulations, in which case liability is unlimited. As described above, owners and operators of vessels must
establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet their potential
liabilities under CERCLA.
The U.S. Clean Water Act
The CWA prohibits the discharge of oil or hazardous substances in navigable waters and imposes strict liability in the
form of penalties for any unauthorized discharges. It also imposes substantial liability for the costs of removal, reme-
diation and damages and complements the remedies available under the more recently enacted OPA 90 and CERCLA,
discussed above. The U.S. Environmental Protection Agency (“EPA”) regulates the discharge in U.S. ports of ballast water
and other substances incidental to the normal operation of vessels. Under EPA regulations, commercial vessels greater
than 79 feet in length are required to obtain coverage under the National Pollutant Discharge Elimination System (“NP-
DES”) Vessel General Permit, or “VGP,” to discharge ballast water and other wastewater into U.S. waters by submitting
a Notice of Intent, or “NOI.” The VGP requires vessel owners and operators to comply with a range of best management
practices and reporting and other requirements for a number of incidental discharge types and incorporates current
U.S. Coast Guard requirements for ballast water management, as well as supplemental ballast water requirements. We
have submitted NOIs for our vessels operating in U.S. waters and anticipate incurring costs to meet the requirements of
the VGP. In addition, various states have enacted legislation restricting ballast water discharges and the introduction of
non-indigenous species considered to be invasive. These and any similar ballast water discharge restrictions enacted in
the future could increase the costs of operating in the relevant waters.
The EPA recently proposed a draft of the 2013 VGP, which is expected to be finalized in March 2013 and become effective
in December 2013. The 2013 VGP would require most vessels to meet numeric ballast water discharge limits based on
a staggered schedule based on the first dry docking after January 1, 2014, or January 1, 2016 (depending on vessel bal-
last capacity). The 2013 VGP would also impose more strict technology-based limits in the form of best management
practices for discharges related to oil-to-sea interfaces and require routine inspections, monitoring, reporting, and re-
cordkeeping. The 2013 VGP could also require vessel modifications, the installation of ballast treatment equipment, or
otherwise increase the costs of operating in the relevant waters.
U.S. Air Emission Requirements
In 2008, the U.S. ratified the amended Annex VI to the MARPOL Convention, addressing air pollution from ships, which
went into effect in 2009. In December 2009, the EPA announced its intention to publish final amendments to the emis-
sion standards for new marine diesel engines installed on ships flagged or registered in the United States that are con-
sistent with standards required under recent amendments to Annex VI of MARPOL. The new regulations include near-
term standards that began in 2011 for newly built engines requiring more efficient use of engine technologies in use
today and long-term standards beginning in 2016 requiring an 80 percent reduction in nitrogen oxide emissions below
current standards. The CAA also requires states to adopt State Implementation Plans, or “SIPs,” designed to attain air
quality standards. Several SIPs regulate emissions resulting from vessel loading and unloading operations by requiring
the installation of vapor control equipment. In addition, some individual states, including California, have attempted to
regulate vessel emissions within state waters. The California Air Resources Board recently adopted Ocean-Going Vessel
(“OGV”) fuel content regulations that would apply to all vessels sailing within 24 nautical miles off the California coast
and whose itineraries call for them to enter California ports, terminal facilities or estuarine waters. Changes to the OGV
rule in 2012 included more stringent sulfur limits on marine gas oil used by commercial vessels in California waters. We
do not expect current U.S. requirements to have a material effect on our operations, and the OGV requirements are not
expected to be applicable because our vessels typically do not enter California ports.
New or more stringent air emission regulations which may be adopted could require significant capital expenditures to
retrofit vessels and could otherwise increase our operating costs.
Other environmental initiatives
The EU adopted legislation that (1) requires member states to refuse access to their ports by certain substandard ves-
sels, according to vessel type, flag and number of previous detentions; (2) obliges member states to inspect at least
25% of vessels using their ports annually and increase surveillance of vessels posing a high risk to maritime safety or
the marine environment; (3) provides the EU with greater authority and control over classification societies, including
the ability to seek to suspend or revoke the authority of negligent societies; and (4) requires member states to impose
criminal sanctions for certain pollution events, such as the unauthorized discharge of tank washings. It is also consider-
ing legislation that will affect the operation of vessels and the liability of owners for oil pollution. While we do not believe
that the costs associated with our compliance with these adopted and proposed EU initiatives will be material, it is
difficult to predict what additional legislation, if any, may be promulgated by the EU or any other country or authority.
The U.S. National Invasive Species Act (“NISA”) was enacted in 1996 in response to growing reports of harmful organ-
isms being released into U.S. ports through ballast water taken on by vessels in foreign ports. Under NISA, the U.S.
Coast Guard adopted regulations in July 2004 imposing mandatory ballast water management practices for all ves-
sels equipped with ballast water tanks entering U.S. waters. These requirements can be met by performing mid-ocean
ballast exchange, by retaining ballast water on board the vessel or by using environmentally sound alternative ballast
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annual report 2012 water management methods approved by the U.S. Coast Guard. Mid-ocean ballast exchange is the primary method
for compliance with the U.S. Coast Guard regulations, since holding ballast water can prevent vessels from performing
cargo operations and alternative methods are still under development. In 2012, the U.S. Coast Guard finalized amend-
ments to its ballast water management regulations that impose stricter discharge limits for allowable concentrations
of various invasive species and include approval process requirements for ballast water management systems. The reg-
ulations require ships calling at U.S. ports to treat ballast water, and regularly remove hull fouling. In particular, it is re-
quired for existing vessels to be equipped with approved ballast water treatment systems by their first dry-docking after
January 2016 and for newbuilds with a keel laying date after December 2013 to be equipped upon their delivery. These
regulations will require modifications and installation of ballast water treatment equipment to our current vessels that
call in U.S. ports, resulting in significant capital expenditures and an increase in our operational costs to call in U.S. ports.
Several U.S. states, including Michigan and California, adopted legislation or regulations relating to the permitting and
management of ballast water discharges. These requirements do not currently impact our operational costs, because
our vessels typically do not enter California or Michigan ports. However, other states could adopt similar requirements
that could increase the costs of operation in state waters.
In 2004, the IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and
Sediments (the “BWM Convention”). The BWM Convention’s implementing regulations call for a phased introduction
of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits. The
BWM Convention will not enter into force until 12 months after it has been adopted by 30 states, the combined mer-
chant fleets of which represent not less than 35% of the gross tonnage of the world’s merchant shipping. As of October
2012, the BWM Convention had been adopted by 36 states, representing approximately 29% of the world’s tonnage.
Each vessel in our current fleet has been issued a BWM plan Statement of Compliance by the classification society with
respect to the applicable IMO regulations and guidelines.
If mid-ocean ballast exchange is made mandatory at the international level or if additional ballast water treatment re-
quirements or options are instituted, significant capital expenditures to retrofit vessels and install ballast treatment
equipment will be needed and our operating costs could increase.
Greenhouse Gas Regulation
In February 2005, the Kyoto Protocol to the United Nations Framework Convention on Climate Change entered into force.
Pursuant to the Protocol, adopting countries are required to implement national programs to reduce emissions of certain
gases, generally referred to as greenhouse gases, which are suspected of contributing to global warming. Currently, the
emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol. However, a new treaty
may be adopted in the future that includes restrictions on shipping emissions. International and multinational bodies or
individual countries also may adopt their own climate change regulatory initiatives. The IMO recently announced its inten-
tion to develop reduction measures for greenhouse gases from international shipping. The European Union has indicated
that it intends to propose an expansion of the existing European Union emissions trading scheme to include emissions of
greenhouse gases from vessels. In the United States, the EPA is considering a 2007 petition from the California Attorney
General and a coalition of environmental groups to regulate greenhouse gas emissions from ocean-going vessels under
the Clean Air Act. These or other developments may result in regulations relating to the control of greenhouse gas emis-
sions. Any passage of climate control legislation or other regulatory initiatives in the jurisdictions where we operate could
result in financial impacts on our operations that we cannot predict with certainty at this time.
Vessel security regulations
Several initiatives have been introduced in recent years intended to enhance vessel security. On November 25, 2002,
the Maritime Transportation Security Act of 2002 (the “MTSA”) came into effect. To implement certain portions of the
MTSA, the U.S. Coast Guard issued regulations in July 2003 requiring the implementation of certain security require-
ments aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002,
amendments to SOLAS created a new chapter of the convention dealing specifically with maritime security. This new
chapter came into effect in July 2004 and imposes various detailed security obligations on vessels and port authorities,
most of which are contained in the newly created International Ship and Port Facilities Security Code, or “ISPS Code.”
Among the various requirements are:
• on-board installation of automatic information systems to enhance vessel-to-vessel and vessel-to-shore commu-
nications;
• on-board installation of ship security alert systems;
• the development of vessel security plans; and
• compliance with flag state security certification requirements.
The U.S. Coast Guard regulations, intended to align with international maritime security standards, exempt non-U.S.
vessels from MTSA vessel security measures, provided such vessels have on board a valid “International Ship Security
Certificate” that attests to the vessel’s compliance with SOLAS security requirements and the ISPS Code. We have im-
plemented the various security measures addressed by the IMO, SOLAS and the ISPS Code, and we have approved ISPS
certificates and plans on board all our vessels, which have been certified by the applicable flag state.
Seasonality
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in
charter rates. This seasonality may result in quarter-to-quarter volatility in our results of operations. The market for
marine drybulk transportation services is typically stronger in the fall and winter months in anticipation of increased
consumption of coal and other raw materials in the northern hemisphere during the winter months. In addition, unpre-
dictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. This
seasonality could materially affect our business, financial condition, results of operations and ability to pay dividends.
C. Organizational Structure
Safe Bulkers, Inc. is a holding company with 35 subsidiaries, 25 of which are incorporated in Liberia, nine in the Republic
of The Marshall Islands and one in the Republic of Cyprus. Our subsidiaries are wholly-owned by us. A list of our subsidi-
aries as of February 15, 2013 is set forth in Exhibit 8.1 to this annual report.
D. Property, Plant and Equipment
We have no freehold or material leasehold interest in any real property. We occupy office space at 30-32 Avenue Kara-
manli, 16605 Voula, Athens, Greece, that is provided to us as part of the services we receive under our Management
Agreement. We have established a representation office in Greece and pursuant to legal obligations for such establish-
ment, we directly lease an office space in the same building for that purpose. Other than our vessels, we do not have any
material property. Our vessels are subject to priority mortgages, which secure our obligations under our various credit
facilities. For further details regarding our credit facilities, refer to “Item 5. Operating and Financial Review and Prospects
— B. Liquidity and Capital Resources — Credit Facilities.”
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations should be read in conjunction with the financial state-
ments and the notes to those statements included elsewhere in this annual report. This discussion includes forward-looking state-
ments that involve risks and uncertainties. As a result of many factors, such as those set forth under “Item 3. Key Information—D.
Risk Factors” and elsewhere in this annual report, our actual results may differ materially from those anticipated in these for-
ward-looking statements. Please see the section “Forward-Looking Statements” at the beginning of this annual report.
Overview
Our business is to provide international marine drybulk transportation services by operating vessels in the drybulk sector of
the shipping industry. As of February 15, 2013 our fleet consisted of 25 drybulk vessels, and we had contracts for an additional
six newbuild vessels and one secondhand vessel with an aggregate capacity of 2,943,300 dwt. We deploy our vessels on a mix
of period time and spot time charters according to our assessment of market conditions, adjusting the mix of these charters
to take advantage of the relatively stable cash flow and high utilization rates associated with period time charters, or to profit
from attractive spot time charter rates during periods of strong charter market conditions, or to maintain employment flexi-
bility that the spot market offers during periods of weak time charter market conditions. As of February 15, 2013, 17 out of 25
vessels in our fleet were employed on period time charters and the remainder on spot time charters. We believe our custom-
ers, some of which have been chartering our vessels for over 23 years, enter into period time and spot time charters with us
because of the quality of our young and modern vessels and our record of safe and efficient operations.
The average number of vessels in our fleet for the years ended December 31, 2010, 2011 and 2012 was 14.6, 16.4 and 21.1
respectively.
After delivery of our contracted newbuilds and secondhand vessel, our drybulk fleet will consist of 32 vessels and will have an aggre-
gate carrying capacity of 2,943,300 dwt, assuming we do not acquire any additional vessels or dispose of any of our vessels.
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annual report 2012 Our Manager
Our operations are managed by our Manager, Safety Management Overseas S.A., under the supervision of our execu-
tive officers and our board of directors. Under our Management Agreement, our Manager provides us with technical,
administrative and commercial services for an initial term that expired on May 28, 2010, with automatic one-year re-
newals for an additional eight years, at our option. Our Manager is controlled by Polys Hajioannou.
A. Operating Results
Our operating results are largely driven by the following factors:
• Ownership days. We define ownership days as the aggregate number of days in a period during which each vessel in
our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and affect both
the amount of revenues and the amount of expenses that we record during a period.
• Available days. We define available days (also referred to as voyage days) as the total number of days in a period dur-
ing which each vessel in our fleet was in our possession net of off-hire days associated with scheduled maintenance,
which includes major repairs, drydockings, vessel upgrades or special or intermediate surveys. Available days are used
to measure the number of days in a period during which vessels should be capable of generating revenues.
• Operating days. We define operating days as the number of our available days in a period less the aggregate number
of days that our vessels are off-hire due to any reason, excluding scheduled maintenance. Operating days are used 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 ownership days during that period. Fleet utilization is used to measure a company’s ability to efficiently
find suitable employment for its vessels and minimize the number of days that its vessels are off-hire for reasons such
as scheduled repairs, vessel upgrades, drydockings or special surveys. During the three years ended December 31,
2012, our average annual fleet utilization rate was approximately 99.22%. However, an increase in annual off-hire
days could reduce our operating days, and therefore, our fleet utilization.
• Time charter equivalent rates. We define time charter equivalent rates, or “TCE rates,” as our charter revenues less
commissions and voyage expenses during a period divided by the number of our available days during the period. TCE
rate is a standard shipping industry performance measure used primarily to compare daily earnings generated by
vessels on period time charters and spot time charters with daily earnings generated by vessels on voyage charters,
because charter rates for vessels on voyage charters are generally not expressed in per day amounts, while charter
rates for vessels on period time charters and spot time charters generally are expressed in such amounts. We have
only rarely employed our vessels on voyage charters and, as a result, generally our TCE rates approximate our time
charter rates.
The following table reflects our time charter revenues, commissions, voyage expenses, time charter equivalent revenue,
available days and time charter equivalent rate for the periods indicated:
Year Ended December 31,
Time charter revenues
Less commissions
Less voyage expenses
Time charter equivalent revenue
$
$
2010
2012
2011
(In thousands of U.S. dollars except
available days and time charter equivalent rate)
159,698
2,678
610
156,410
172,036
3,128
1,987
166,921
187,557
3,261
7,286
177,010
$
$
$
$
Available days
5,296
5,976
7,703
Time charter equivalent rate
$
29,534
$
27,932
$
22,979
• Daily vessel operating expenses. We define daily vessel operating expenses to include the costs for crewing, insur-
ance, lubricants, spare parts, provisions, stores, repairs, maintenance, statutory and classification expense, dry-
docking, intermediate and special surveys, tonnage taxes and other miscellaneous items. Daily vessel operating
expenses are calculated by dividing vessel operating expenses by ownership days for the relevant period. Our ability
to control our fixed and variable expenses, including our daily vessel operating expenses, also affects our financial
results. In addition, factors beyond our control, such as developments relating to market premiums for insurance
and the value of the U.S. dollar compared to currencies in which certain of our expenses, including certain crew
wages, are denominated can cause our vessel operating expenses to increase.
• Daily general and administrative expenses. We define daily general and administrative expenses to include daily
management fees, defined below, and the costs payable to third parties in relation to our operation as public com-
pany. Daily vessel general and administrative expenses are calculated by dividing general and administrative ex-
penses by ownership days for the relevant period.
• Daily management fees. We define daily management fees to include the fixed and the variable fees payable to
our Manager. Daily management fees are calculated by dividing management fees by ownership days for the rel-
evant period.
The following table reflects our ownership days, available days, operating days, fleet utilization, TCE rates, daily vessel
operating expenses, daily general and administrative expenses and daily management fees for the periods indicated:
Ownership days
Available days
Operating days
Fleet utilization
TCE rates
Daily vessel operating expenses
Daily general and administrative expenses (1)
Daily management fees
(1) Includes daily management fees.
Revenues
Year Ended December 31,
2010
2011
2012
5,326
5,296
5,269
98.93 %
$
$
$
$
29,534
4,342
1,318
916
5,992
5,976
5,962
99.50 %
$
$
$
$
27,932
4,350
1,417
1,006
7,716
7,703
7,654
99.20 %
22,979
4,476
1,289
1,001
$
$
$
$
Our revenues are driven primarily by the number of vessels in our fleet, the number of days during which our vessels
operate and the amount of daily charter rates that our vessels earn under our charters, which, in turn, are affected by a
number of factors, including:
•
levels of demand and supply in the drybulk shipping industry;
• the age, condition and specifications of our vessels;
• the duration of our charters;
• our decisions relating to vessel acquisitions and disposals;
• the amount of time that we spend positioning our vessels;
• the availability of our vessels, which is related to the amount of time that our vessels spend in drydock undergoing
repairs and the
• amount of time required to perform necessary maintenance or upgrade work; and
• other factors affecting charter rates for drybulk vessels.
Revenue is recognized as earned on a straight-line basis over the charter period in respect of charter agreements that
provide for varying rates. The difference between the revenue recognized and the actual charter rate is recorded either
as unearned revenue or accrued revenue (see “—Unearned Revenue / Accrued Revenue” below). Commissions (address
and brokerage), regardless of charter type, are always charged to us and are deferred and amortized over the related
charter period and are presented as a separate line item in revenues to arrive at net revenues in the accompanying con-
solidated statements of income.
Revenues from our period time charters comprised 99.5%, 92.0% and 88.1% respectively, of our charter revenues for the
years ended December 31, 2010, 2011 and 2012. The revenues from our spot time charters comprised 0.5%, 8.0% and
11.9%, respectively, of our charter revenues for the years ended December 31, 2010, 2011 and 2012.
Unearned Revenue / Accrued Revenue
Unearned revenue as of December 31, 2012 includes: (i) cash received prior to the balance sheet date relating to services
to be rendered after the balance sheet date amounting to $3.9 million as of December 31, 2012 and (ii) deferred revenue
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annual report 2012
resulting from straight-line revenue recognition in respect of charter agreements that provide for variable charter rates
amounting to $17.7 million, all of which will be recognized as revenue during the period from January 1, 2013 until
March 1, 2015.
Unearned revenue as of December 31, 2011 includes: (i) cash received prior to the balance sheet date relating to services
to be rendered after the balance sheet date amounting to $4.1 million as of December 31, 2011 and (ii) deferred revenue
resulting from straight-line revenue recognition in respect of charter agreements that provide for variable charter rates
amounting to $36.9 million, all of which would be recognized as revenue during the period from January 1, 2012 until
March 1, 2015.
Accrued revenue as of December 31, 2012 of $0.6 million represents revenue earned prior to cash being received in re-
spect of charter agreements that provide for variable charter rates. No accrued revenue was recognized during the year
ended December 31, 2011.
Commissions
We pay commissions currently ranging up to 5.0% on our period time and spot time charters, to unaffiliated ship bro-
kers, other brokers associated with our charterers and to our charterers. These commissions are directly related to our
revenues, from which they are deducted. The amount of our total commissions to unaffiliated ship brokers and other
brokers associated with our charterers and to our charterers might grow, as revenues increase due to improving market
conditions and delivery of our six remaining contracted newbuilds and one secondhand vessel, or decrease as a result
of deteriorating market conditions. These commissions do not include fees we pay to our Manager, which are described
under “Item 4. Information on the Company—B. Business Overview—Management of Our Fleet.”
Voyage Expenses
We charter our vessels primarily through period time charters and spot time charters under which the charterer is re-
sponsible for most voyage expenses, such as the cost of bunkers, port expenses, agents’ fees, canal dues, extra war risks
insurance and any other expenses related to the cargo. We are responsible for the remaining voyage expenses such as
draft surveys, hold cleaning, bunkers during ballast period or for vessel repositioning, postage and other minor miscel-
laneous expenses related to the voyage. As our past period time charter contracts expire we expect that our voyage
expenses will continue to increase in the future due to the increased number of vessels operated in the spot market,
which involves increased vessel repositioning costs. We generally do not employ our vessels on voyage charters under
which we would be responsible for all voyage expenses. We also record within voyage expenses the 4% United States
federal tax we pay in respect of our U.S. source shipping income (imposed on gross income without the allowance for
any deductions). In many cases, we recover these taxes from the charterers, and we record such recovered amounts
within revenues.
Vessel Operating Expenses
Vessel operating expenses include costs for crewing, insurance, lubricants, spare parts, provisions, stores, repairs, main-
tenance, statutory and classification expense, drydocking, intermediate and special surveys, tonnage taxes and other
minor miscellaneous items. We expect that our vessel operating expenses will continue to increase in the future as our
fleet grows. Additionally, our crewing costs, which are a significant part of our vessel operating expenses, are expected
to continue to increase in the future due to the limited supply and increase in demand for well-qualified crew. Further-
more, we expect that insurance costs, drydocking and maintenance costs will increase as our vessels age. A portion of
our vessel operating expenses and crew wages paid to our Greek crew members are in currencies other than the U.S.
dollar. These expenses may increase or decrease as a result of fluctuation of the U.S. dollar against these currencies.
Depreciation
We depreciate our drybulk 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 delivery from the shipyard. Furthermore, we estimate the residual value of our vessels is equal to the
product of its lightweight tonnage and estimated scrap rate, which is estimated to be $182 per light-weight ton.
Vessels, Net
Vessels are recorded at their historical cost, which consists of the contracted purchase price, any direct material ex-
penses incurred upon acquisition (including improvements, on-site supervision expenses incurred during the construc-
tion period, commissions paid, delivery expenses and other expenditures to prepare the vessel for her initial voyage)
and financing costs incurred during the construction of the vessel, less any potential discount or commission payable
to us resulting in a contract price reduction. Subsequent expenditures for conversions and major improvements are
also capitalized when it is determined that they appreciably extend the life, increase the earning capacity or improve
the efficiency or safety of the vessels. If such factors are not met, such expenditures are not capitalized and, instead, are
charged to expenses as incurred.
For the years ended December 31, 2011 and 2012, we capitalized interest amounting to $1,471,785 and $966,161 re-
spectively.
Under our Management Agreement with our Manager, for purchases of vessels including with respect to each of our six
remaining contracted newbuilds and our one secondhand contracted vessel, we will pay our Manager an acquisition fee
of 1.0% on the contract price of the relevant vessel for our Manager’s services in connection with finalizing the contract
and arranging for various regulatory approvals. In addition, according to an agreement between us and our Manager,
we pay our Manager a supervision fee in respect of each newbuild, of which 50% is payable upon the signing of the rele-
vant supervision agreement, and 50% upon successful completion of the sea trials of each newbuild, for the on-premises
supervision of all newbuilds we have agreed to acquire pursuant to shipbuilding contracts, memoranda of agreement,
or otherwise. As of May 28, 2008 the supervision fee was $0.375 million, and as of May 29, 2011 the supervision fee was
readjusted to $0.550 million. These amounts charged by our Manager are included as part of the vessel cost.
General and Administrative Expenses
General and administrative expenses consist of management fees paid to our Manager, which is a related party, in rela-
tion to management services offered, and expenses paid to third parties associated with us being a public company,
which include the preparation of disclosure documents, legal and accounting costs, including costs related to compli-
ance with the Sarbanes-Oxley Act of 2002, director and officer liability insurance costs and director compensation.
In connection with our initial public offering which was completed in June 2008, we entered into a two year initial term
Management Agreement with our Manager, with automatic one-year renewals for an additional eight years. The fees
were fixed for the initial two-year period; the fixed fee at $575 per day per vessel and the variable fee at 1.0% on gross
freight, charter hire, ballast bonus and demurrage and were to be adjusted thereafter every year by agreement between
us and our Manager. The initial term of two years expired on May 28, 2010 and as of May 29, 2010, pursuant to an
agreement between us and our Manager, the variable fee on gross freight, charter hire, ballast bonus and demurrage
was readjusted to 1.25%. As of May 29, 2011, pursuant to an agreement between us and our Manager, the fixed fee was
readjusted to $700 per day per vessel from $575 per day. As of May 29, 2012, no increase has been made to any of the fees
paid by us to our Manager under the Management Agreement.
In addition to the fees described above, we pay our Manager the acquisition fees with respect to vessel purchases and
newbuilds described above in “— Vessels, Net” and the sales fees with respect to vessel sales described below under “—
Gain on Sale of Assets.” Such fees remained unchanged.
Although we have not, within the past eight years, deployed our vessels on bareboat charters and do not currently have
any plans to deploy our vessels on bareboat charters, under our Management Agreement, we will also provide our Man-
ager with a fee of $250 per day per vessel deployed on bareboat charters for providing commercial, technical and admin-
istrative services. We expect that the amount of our total management fees will increase following the delivery of our
six contracted newbuilds and our one contracted secondhand vessel and as a result of potential fleet expansion in the
future.
Interest Expense and Other Finance Costs
We incur interest expense on outstanding indebtedness under our existing loan and credit facilities, which we include in
interest expenses. We also incurred financing costs in connection with establishing those facilities, which are capitalized
and amortized over the period of the facility. The amortization of the finance costs is included in amortization and write-
off of deferred finance charges. We will incur additional interest expense in the future on our outstanding borrowings
and under future borrowings.
Inflation
Inflation has only a moderate effect on our expenses given current economic conditions. In the event that significant
global inflationary pressures appear, these pressures would increase our operating, voyage, administrative and financ-
ing expenses.
Gain on Sale of Assets
In June 2009, we agreed to sell our oldest vessel, the Panamax class Efrossini (which is hereinafter called “Old Efrossini”,
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annual report 2012 as we currently own another vessel with the same name), which was delivered to her new owners on January 7, 2010.
The gain from the sale of this vessel amounted to $15.2 million, which was recorded as gain on sale of assets during the
year ended December 31, 2010. In connection with the sale of Old Efrossini, we paid our Manager a sales fee of 1.0% of
the sale price of the vessel. Under our Management Agreement, we are required to pay our Manager a sales fee of 1.0%
of the sale price of a vessel for any future vessel sales.
No gain on sale of assets was recorded in the other periods presented.
Early Redelivery Income, Net
Early redelivery cost reflects amounts payable to charterers for early termination of a period time charter resulting
from our request for early redelivery of a vessel. We generally request such early redelivery when we would like to
take advantage of a strong period time charter market environment and believe that an opportunity to enter into a
similarly priced period time charter is not likely to be available when the relevant vessel is scheduled to be redelivered.
Early redelivery income reflects amounts payable to us for early termination of a period time charter resulting from a
charterer’s request for early redelivery of a vessel. We may accept such requests from charterers when we believe that
we are compensated by a substantial portion of the contracted revenue, reduce our third party risk or maintain the
opportunity to re-employ the vessel either in the spot market or in the period time charter market at adequate levels.
We have entered into such arrangements for early redelivery, and incurred such costs or income in the past and we
may continue to do so in the future, depending on market conditions.
On March 25, 2010, we agreed with the charterers of the Katerina to terminate the $15,500 daily fixed rate time
charter which had commenced on June 26, 2009, and was due to expire by September 15, 2011. As compensation
for early redelivery, we paid the charterers $1.5 million. No replacement charter contract had been secured at the
time of conclusion of the early redelivery agreement. The vessel was subsequently fixed at a gross daily charter rate
of $20,000 for three years.
On April 13, 2010, we took early redelivery of the Pedhoulas Merchant, instead of the contracted earliest redelivery date
of November 5, 2010. In connection with this early redelivery, we recognized early redelivery income of $3.6 million,
comprising cash compensation paid by the relevant charterer of $4.8 million net of commissions, less accrued reve-
nue of $1.2 million. No replacement charter contract had been secured at the time of conclusion of the early redeliv-
ery agreement. The vessel was subsequently fixed at a gross daily charter rate of $27,250 until April 2011.
On April 28, 2010, we agreed with the charterers of the Pedhoulas Leader to terminate the $18,500 daily fixed rate time
charter which had commenced on July 19, 2009, and was due to expire by September 30, 2011. As compensation for
early redelivery of the vessel, we paid the charterers $1.8 million. No replacement charter contract had been secured
at the time of conclusion of the early redelivery agreement. The vessel was redelivered on November 12, 2010, and
was subsequently fixed in the spot market at a gross daily charter rate of $21,750.
On July 30, 2010, we agreed with the charterers of the Maria to terminate the $18,000 daily fixed rate time charter
which had commenced on June 28, 2009, and was due to expire by November 30, 2010. As compensation for early
redelivery of the vessel, we paid the charterers $0.2 million. No replacement charter contract had been secured at the
time of conclusion of the early redelivery agreement. The vessel was redelivered on August 24, 2010, and was subse-
quently fixed at a gross daily charter rate of $17,750 until April 2011.
On December 15, 2012, we took early redelivery of the Martine, instead of the contracted earliest redelivery date of
January 21, 2014. In connection with this early redelivery, we recognized early redelivery income of $8.5 million, com-
prising cash compensation paid by the relevant charterer of $8.6 million, net of commissions, less accrued revenue
of $0.1 million. No replacement charter contract had been secured at the time of conclusion of the early redelivery
agreement. The vessel was subsequently fixed in the spot market at a gross daily charter rate of $9,500.
On December 19, 2012, we took early redelivery of the Maria, instead of the contracted earliest redelivery date of Feb-
ruary 24, 2014. In connection with this early redelivery, we recognized early redelivery income of $3.2 million, com-
prising cash compensation paid by the relevant charterer of $3.4 million, net of commissions, less accrued revenue
of $0.2 million. No replacement charter contract had been secured at the time of conclusion of the early redelivery
agreement. The vessel was subsequently fixed in the spot market at a gross daily charter rate of $6,250.
Critical Accounting Policies
We prepared our consolidated financial statements in accordance with U.S. GAAP, which requires us to make estimates
in the application of our accounting policies based on our best assumptions, judgments and opinions. We base these es-
timates on the information currently available to us and on various other assumptions we believe are reasonable under
the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Following
is a discussion of the accounting policies that involve a high degree of judgment and the methods of their application.
For a further description of our material accounting policies, please read Note 2 to our financial statements at the end
of this annual report.
Vessels’ Depreciation
Depreciation is computed using the straight-line method over the estimated useful life of a vessel, after considering the
estimated residual value. We estimate the useful life of our vessels to be 25 years from the date of initial delivery from the
shipyard. An increase in the useful life of a drybulk vessel or in its residual value would have the effect of decreasing the
annual depreciation and extending it into later periods. A decrease in the useful life of a drybulk vessel or in its residual
value would have the effect of increasing the annual depreciation.
Impairment of Long-lived Assets
The Company reviews for impairment its long-lived assets held and used whenever events or changes in circumstanc-
es 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,
we are required to evaluate the asset for an impairment loss. Measurement of the impairment loss is based on the fair
value of the asset.
The carrying values of our vessels may not represent their fair market value at any point in time since the market
prices of secondhand vessels tend to fluctuate with changes in charter rates and the cost of newbuilds. Historically,
both charter rates and vessel values tend to be cyclical. Declines in the fair market value of vessels, prevailing market
charter rates, vessel sale and purchase considerations, and regulatory changes in drybulk shipping industry, changes
in business plans or changes in overall market conditions that may adversely affect cash flows are considered as po-
tential impairment indicators. In the event the independent market value of a vessel is lower than its carrying value,
we determine undiscounted projected net operating cash flow for such vessel and compare it to the vessel carrying
value.
The undiscounted projected net operating cash flows for each vessel are determined by considering the charter rev-
enues from existing time charters for the fixed vessel days and an estimated daily time charter equivalent for the
unfixed days (based on our company budgeted charter rate for the first 12 months and the most recent ten year
historical average of similar size vessels for the period thereafter) over the remaining estimated life of the vessel, net
of brokerage commissions, expected outflows for vessels’ maintenance, vessel operating expenses, assuming an av-
erage annual inflation rate and management fees. The undiscounted cash flows incorporate various factors such
as estimated future charter rates, future drydocking costs, estimated vessel operating costs assuming an average
annual inflation rate of 3%, estimated vessel utilization rates, estimated remaining lives of the vessels, assumed to be
25 years from the delivery of the vessel from the shipyard and estimated salvage value of the vessels at $182 per light-
weight ton. These assumptions are based on historical trends as well as future expectations. Although management
believes that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assump-
tions are highly subjective.
Our analysis of the impairment test performed for the year ended December 31, 2011, indicated a variance of plus
12% for the first twelve months, between actual net receipts during 2012 and net receipts forecasted by the company
for the same period. Our analysis of the impairment test performed for the year ended December 31, 2012, which
also involved sensitivity tests on the future time charter rates (which is the input that is most sensitive to variations),
allowing for variances of up to 36% depending on vessel type on time charter rates from the Company’s base scenario,
indicated no impairment on any of our vessels.
No impairment loss was recorded for any of the periods presented.
Recent Accounting Pronouncements
Refer to Note 2 of the consolidated financial statements attached to this report.
Results of Operations
Year ended December 31, 2012 compared to year ended December 31, 2011
During the year ended December 31, 2012, we had an average of 21.1 drybulk vessels in our fleet. During the year ended
December 31, 2011, we had an average of 16.4 drybulk vessels in our fleet.
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annual report 2012 During the year ended December 31, 2012, we acquired the vessels Efrossini, a Panamax class vessel, Venus Horizon, a
Post-Panamax class vessel, and Pedhoulas Builder, Pedhoulas Fighter, and Pedhoulas Farmer, all Kamsarmax class vessels.
Additionally, during November 2012 we acquired the Koulitsa, a secondhand Panamax class vessel.
During the year ended December 31, 2011, we acquired the vessels Venus History, a Post-Panamax class vessel and Pelop-
idas, a Capesize class vessel.
Revenues
Revenues increased by 9.1%, or $15.6 million, to $187.6 million during the year ended December 31, 2012 from $172.0
million during the year ended December 31, 2011, as result of the net effect of the following factors: (i) a decrease in the
TCE rate for 2012 by 17.7% to $22,979, compared to $27,932 for 2011 due to the decrease in prevailing charter rates
and (ii) an increase in operating days for the year ended December 31, 2012 by 28.4% to 7,654 days, compared to 5,962
days for the year ended December 31, 2011, due to deliveries of the vessels Efrossini and Venus Horizon in February 2012,
Pedhoulas Builder in May 2012, Pedhoulas Fighter in August 2012, Pedhoulas Farmer in September 2012 and Koulitsa in No-
vember 2012.
Commissions
Commissions to unaffiliated ship brokers, other brokers associated with our charterers and our charterers during the year
ended December 31, 2012 amounted to $3.3 million, an increase of $0.2 million, or 6.5%, compared to $3.1 million during
the year ended December 31, 2011, due to the increase in our revenues and a decrease in our lower average contracted
commissions, which were reduced to 1.74% from 1.81% for the years ended December 31, 2012 and 2011, respectively.
Vessel operating expenses
Vessel operating expenses increased by 32.7% to $34.5 million during the year ended December 31, 2012 from $26.0 mil-
lion during the year ended December 31, 2011. This increase is due to the following main factors:
(i) the increase of ownership days by 28.8% from 5,992 in 2011 to 7,716 in 2012;
(ii) the increase of crewing cost by 30.3% to $17.2 million in 2012, compared to $13.2 million in 2011, primarily due to
the increased number of ownership days;
(iii) the increase of cost for spares, stores and provisions by 68.3% to $6.9 million in 2012, compared to $4.1 million in
2011, attributed to increased use of spares for repairs and increased number of initial supplies for six vessels deliv-
ered in 2012 compared to two delivered in 2011;
(iv) the increase of cost for lubricants by 6.5% to $3.3 million in 2012, compared to $3.1 million in 2011 as a net effect of
increased number of ownership days and lower costs for lubricants in 2012 compared to 2011;
(v) the increase of cost for insurances by 21.7% to $2.8 million, compared to $2.3 million mainly due to increased num-
ber of ownership days; and
(vi) the increase of repairs and dry-docking costs by 9.5% to $2.3 million in 2012, compared to $2.1 million in 2011, as a
net effect of increased repairs costs and reduced dry-docking costs of vessels in 2012 compared to 2011.
Consequently, daily operating expenses, which is defined as the operating expenses per vessel per ownership day, in-
creased by 2.9% to $4,476 during the year ended December 31, 2012 from $4,350 during the year ended December 31,
2011.
Depreciation
Depreciation expense increased by 36.9% to $32.3 million during the year ended December 31, 2012, compared to $23.6
million during the year ended December 31, 2011, due to the increase in the average number of vessels from 16.4 during
the year ended December 31, 2011 to 21.1 during the year ended December 31, 2012.
General and administrative expenses
General and administrative expenses increased by 16.5% to $9.9 million during the year ended December 31, 2012, com-
pared to $8.5 million during the year ended December 31, 2011. The increase of $1.4 million is due to the net effect of: (i)
the increase in the management fees charged by our Manager to $7.7 million in 2012 from $6.0 million in 2011 as a result
of the increased ownership days of 7,716 in 2012, from 5,992 in 2011; and (ii) the decrease in expenses charged by third
parties of $2.2 million in 2012, from $2.5 million in 2011. Daily general and administrative expenses decreased by 9.0% to
$1,289, during the year ended December 31, 2012 from $1,417, during the year ended December 31, 2011. Daily manage-
ment fees, which are the part of daily general and administrative expenses payable to our Manager, decreased by 0.5% to
$1,001 during the year ended December 31, 2012, from $1,006 during the year ended December 31, 2011.
Interest expense
Interest expense increased by 71.7% to $9.1 million during the year ended December 31, 2012, from $5.3 million dur-
ing the year ended December 31, 2011. The $3.8 million increase in interest expense was mainly attributable to: (i) the
average loans outstanding of $533.7 million during the year ended December 31, 2012, compared to the average loans
outstanding of $460.4 million during the year ended December 31, 2011; (ii) the weighted average interest rate of our
outstanding indebtedness of 1.850% per annum (“p.a.”) for the year ended December 31, 2012 compared to the weight-
ed average interest rate of our outstanding indebtedness of 1.439% p.a. for the year ended December 31, 2011, due to
higher margins incurred on certain new loans drawn during the year ended December 31, 2012 and higher prevailing
LIBOR rates; and (iii) lower capitalized interest expenses of $1.0 million during the year ended December 31, 2012 com-
pared to $1.5 million during the year ended December 31, 2011. The total principal amount of loans outstanding as of
December 31, 2012 was $615.7 million, compared to $484.3 million as of December 31, 2011.
Loss on derivatives
Loss on derivatives decreased by $7.1 million to $5.4 million during the year ended December 31, 2012 from $12.5 mil-
lion during the year ended December 31, 2011. The decrease of $7.1 million reflects mainly a decrease in losses of $7.0
million from interest rate derivatives as a result of the realized loss and the mark-to-market valuation of interest rate
swap transactions to $5.4 million for the year ended December 31, 2012 compared to $12.5 million for the year ended
December 31, 2011.
As of December 31, 2012, the aggregate notional amount of interest rate swap transactions outstanding was $505.8
million, compared to $547.1 million as of December 31, 2011. An aggregate notional amount of $53.7 million of interest
rate swap transactions outstanding as of December 31, 2012 will become effective during the year ending December
31, 2013, upon the expiration of the existing interest rate swap transactions relating to such loans. These swaps eco-
nomically hedged the interest rate exposure of 83% of the Company’s aggregate loans outstanding as of December 31,
2012 that bear interest at LIBOR. The mark-to-market valuation of these interest rate swap transactions at the end of
each period is affected by the prevailing comparable interest rates at that time.
Foreign currency gain/(loss)
Foreign currency loss was zero millions during the year ended December 31, 2012, compared to a gain of $0.8 million
during the year ended December 31, 2011. Foreign currency exchange gains or losses result primarily from currency
translation or currency conversion of advances for vessel acquisitions and vessels under construction denominated in
foreign currencies or from currency payments of supplies or services denominated in foreign currencies.
Early redelivery income, net
During the year ended December 31, 2012, we recorded early redelivery income, relating to the early termination of
period time charters of our vessels, of $11.7 million compared to $0.2 million early redelivery income during the year
ended December 31, 2011. Early redelivery income during the year ended December 31, 2012 is analyzed as follows: (i)
On December 15, 2012, we took early redelivery of the Martine, instead of on January 21, 2014, and in connection with
this early redelivery, we recognized early redelivery income of $8.5 million, comprising cash compensation paid by the
relevant charterer of $8.6 million, net of commissions, less accrued revenue of $0.1 million; (ii) on December 19, 2012,
we took early redelivery of the Maria, instead of on February 24, 2014, and in connection with this early redelivery, we
recognized early redelivery income of $3.2 million, comprising cash compensation paid by the relevant charterer of $3.4
million, net of commissions, less accrued revenue of $0.2 million.
Voyage expenses
During the year ended December 31, 2012, we recorded voyage expenses of $7.3 million, compared to $2.0 million dur-
ing the year ended December 31, 2012, as a result of increased vessel repositioning expenses.
Year ended December 31, 2011 compared to year ended December 31, 2010
During the year ended December 31, 2011, we had an average of 16.4 drybulk vessels in our fleet. During the year ended
December 31, 2010, we had an average of 14.6 drybulk vessels in our fleet.
During the year ended December 31, 2011, we acquired the vessels Venus History, a Post-Panamax class vessel and Pelop-
idas, a Capesize class vessel.
During the year ended December 31, 2010, we acquired the vessels Kanaris, a Capesize class vessel, Panayiota K, a Post-
Panamax class vessel, and Venus Heritage, a Post-Panamax class vessel and sold Old Efrossini, a Panamax class vessel.
52
53
annual report 2012 Revenues
Revenues increased by 7.7%, or $12.3 million, to $172.0 million during the year ended December 31, 2011 from $159.7
million during the year ended December 31, 2010, as result of the net effect of the following factors: (i) a decrease in
the TCE rate for 2011 by 5.4% to $27,932, compared to $29,534 for 2010 due to the decrease in prevailing charter rates
and (ii) an increase in operating days for the year ended December 31, 2011 by 13.2% to 5,962 days, compared to 5,269
days for the year ended December 31, 2010, due to an increase in the weighted number of vessels during 2010 of 14.6
compared to 16.4 during 2011, due to the deliveries of the vessels Venus History in September 2011, and Pelopidas in
November 2011.
Commissions
Commissions to unaffiliated ship brokers, other brokers associated with our charterers and our charterers during the
year ended December 31, 2011 amounted to $3.1 million, an increase of $0.4 million, or 14.8%, compared to $2.7 million
during the year ended December 31, 2010, primarily due to the increase in our revenues and to a lesser extent to higher
average contracted commissions, which increased in 2011 to 1.81% from 1.68% in 2010.
Vessel operating expenses
Vessel operating expenses increased by 12.6% to $26.0 million during the year ended December 31, 2011 from $23.1
million during the year ended December 31, 2010. This increase of $2.9 million reflects mainly: (i) crewing cost of $13.2
million, compared to $11.4 million primarily attributable to increased salaries paid to our crews and increased number
of ownership days from 5,326 in 2010 to 5,992 in 2011, (ii) insurance cost of $2.3 million, compared to $1.9 million pri-
marily attributable to the increase number of vessels in 2011 and to increased insurances paid to our insurers, (iii) the
cost for repairs, maintenance and drydocking of $2.1 million, compared to $1.8 million, and (iv) cost for lubricants of $3.1
million, compared to $2.8 million mainly due to increased number of operating days from 5,269 in 2010 to 5,962 in 2011
and increased lubricants prices.
Consequently, daily operating expenses, which represent the operating expenses per vessel per ownership day, in-
creased marginally by 0.2% to $4,350 during the year ended December 31, 2011 from $4,342 during the year ended
December 31, 2010.
Depreciation
Depreciation expenses increased by 19.8% to $23.6 million during the year ended December 31, 2011, compared to
$19.7 million during the year ended December 31, 2010, due to the increase in the average number of vessels from 14.6
during the year ended December 31, 2010 to 16.4 during the year ended December 31, 2011.
General and administrative expenses
General and administrative expenses increased by 21.4% to $8.5 million during the year ended December 31, 2011 from
$7.0 million during the year ended December 31, 2010, due to an increase in the number of ownership days by 12.5%
from 5,326 in 2010 to 5,992 in 2011, as well as due to an increase, as of May 29, 2011, in the fixed daily fee per vessel to
$700 from $575.
Daily general and administrative expenses increased by 7.5% to $1,417, during the year ended December 31, 2011 from
$1,318, during the year ended December 31, 2010.
Daily management fees, which are the part of daily general and administrative expenses payable to our Manager, in-
creased by 9.8% to $1,006 during the year ended December 31, 2011, from $916 during the year ended December 31,
2011.
Interest expense
Interest expenses decreased by 18.8% to $5.2 million during the year ended December 31, 2011 from $6.4 million dur-
ing the year ended December 31, 2010. The $1.2 million decrease in interest expense was mainly attributable to the
increase in the capitalized interest during the year ended December 31, 2011 of $1.5 million from $0.3 million during the
year ended December 31, 2010, and the decrease in the average loans outstanding during the year ended December 31,
2011 of $460.4 million from $476.9 million during the year ended December 31, 2010, partly offset by the increase of the
weighted average interest rate of our outstanding indebtedness to 1.439% p.a. for the year ended December 31, 2011
from 1.394% p.a. for the year ended December 31, 2010.
Loss on derivatives
Loss on derivatives increased by $4.3 million to $12.5 million during the year ended December 31, 2011 from $8.2 million
during the year ended December 31, 2010. The increase of $4.3 million mainly reflects an increase in losses of $4.4 mil-
lion from interest rate derivatives as a result of the realized loss and the mark-to-market valuation of interest rate swap
transactions to $12.4 million for the year ended December 31, 2011 compared to $8.0 million for the year ended Decem-
ber 31, 2010. As of December 31, 2011, the aggregate notional amount of interest rate swap transactions outstanding
was $547.1 million, compared to $638.0 million at December 31, 2010. The aggregate notional amount of interest rate
swap transactions outstanding at December 31, 2011 is higher than the aggregate loans outstanding at December 31,
2011, of $484.3 million, as two of the interest rate swap transactions outstanding at December 31, 2011 will become
effective upon the expiration of the existing interest rate swap transactions relating to such loans. These swaps eco-
nomically hedged the interest rate exposure of 108% of the Company’s aggregate loans outstanding as of December 31,
2011 that bear interest at LIBOR. The mark-to-market valuation of these interest rate swap transactions at the end of
each period is affected by the prevailing comparable interest rates at that time.
Foreign currency gain/(loss)
Foreign currency loss was $0.8 million during the year ended December 31, 2011, compared to gain of $0.3 million
during the year ended December 31, 2010. Foreign currency exchange gains or losses resulted primarily from currency
translation or currency conversion of advances for vessel acquisitions and vessels under construction denominated in
foreign currencies. None of our loans were denominated in foreign currency as of December 31, 2011.
Early redelivery income, net
During the year ended December 31, 2011, we recorded early redelivery income, relating to the early termination of pe-
riod time charters of our vessels, of $0.2 million compared to $0.1 million early redelivery income during the year ended
December 31, 2010.
B. Liquidity and Capital Resources
As of December 31, 2012, we had $129.4 million in cash and restricted cash, of which $102.7 million consisted of cash
and cash equivalents, $22.8 million consisted of short-term restricted cash and $3.9 million was long-term restricted
cash. In addition, as of December 31, 2012, we had $50.0 million in a long-term floating rate note investment (for more
information, please see Note 9 to our financial statements included at the end of this annual report).
As of February 15, 2013, we had $73.7 million in cash, time deposits and restricted cash of which $46.4 million consisted
of cash and cash equivalents, $0.6 million consisted of short-term time deposits, $22.8 million was short-term restrict-
ed cash and $3.9 million was long-term restricted cash. In addition, as of February 15, 2013, we had $50.0 million in a
long-term floating rate note investment.
As of December 31, 2012, we had aggregate debt outstanding of $615.7 million, of which $19.2 million was payable
within the next 12 months. As of December 31, 2012, we had an aggregate additional borrowing capacity of $8.1 mil-
lion available under existing revolving credit facilities. Additionally, we had one existing vessel unencumbered and under
certain conditions we could borrow up to $40.0 million in cash against our long-term floating rate note investment.
As of February 15, 2013, we had an aggregate additional borrowing capacity $68.9 million available under existing re-
volving credit facilities. Additionally, we had two existing vessels unencumbered and under certain conditions we could
borrow up to $40.0 million in cash against our long-term floating rate note investment.
As of December 31, 2012, our commitments for vessel acquisitions were $192.9 million, consisting of $80.8 million,
payable in 2013, $59.1 million, payable in 2014, and $53.0 million, payable in 2015. As of December 31, 2012 the existing
fleet consisted of 24 vessels and we had contracted to aqcuire six newbuilds and one secondhand vessel, three of which
were scheduled to be delivered in 2013, two in 2014 and two in 2015.
As of February 15, 2013, our commitments for vessel acquisitions were $198.8 million, consisting of $69.7 million paya-
ble in 2013, $76.1 million payable in 2014, and $53.0 million payable in 2015. As of February 15, 2012, the existing fleet
consisted of 25 vessels and we had contracted to aqcuire six newbuilds and one secondhand vessel, two of which were
scheduled to be delivered in 2013, three in 2014 and two in 2015.
Our primary liquidity needs are to fund capital expenditures in relation to newbuild contracts, financing expenses, debt
repayment, vessel operating expenses, general and administrative expenses and dividend payments to our stockhold-
ers. We anticipate that our primary sources of funds will be the existing cash and cash equivalents as of December 31,
2012 of $102.7 million, short-term restricted cash of $22.8 million, borrowings of $40 million against our long term
floating rate note investment, additional undrawn borrowing capacity of $8.1 million, cash from operations and possi-
bly, additional indebtedness to be raised against our two existing unencumbered vessels and against our six unencum-
bered newbuild vessels and the one contracted secondhand vessel upon their delivery to us, and equity financing.
54
55
annual report 2012 We currently estimate that the contracted cash flow from operations, existing cash and cash equivalents, additional
borrowing against our floating rate note investment, existing undrawn loan and revolving credit facilities and com-
mitments and additional indebtedness secured by six newbuild vessels and one secondhand vessel which are currently
unencumbered, will be sufficient to fund the operations of our fleet, including our working capital requirements, and
the capital expenditure requirements through the end of 2013. However, during 2013 or 2014, we may seek additional
indebtedness to partially fund our capital expenditure requirements in order to maintain a strong cash position. We may
incur additional indebtedness secured by two existing vessels, our six newbuild vessels and one contracted secondhand
vessel upon their delivery to us, which are all currently unencumbered. To the extent that market conditions deterio-
rate, charterers may default or seek to renegotiate charter contracts, and vessel valuations may decrease, resulting in
a breach of our debt covenants. In such case our contracted revenues may decrease and we may be required to make
additional prepayments under existing loan facilities, resulting in additional financing needs. If we acquire additional
vessels, our capital expenditure requirements will increase and we will need to rely on existing cash and time deposits,
operating cash surplus and existing undrawn loan commitments. If we are unable to obtain additional indebtedness, or
to find alternative financing, we will not be capable of funding our commitments for capital expenditures relating to our
contracted newbuilds and secondhand vessels. A failure to fulfill our commitment would generally result in a forfeiture
of the advances we paid to the shipyard or the third party sellers with respect to the contracted newbuilds and second-
hand vessel. In addition, we may also be liable for other damages for breach of contract. Examples of such liabilities
could include payments to the shipyard or the third party seller for the difference between the forfeited advance and
the amount that remains to be paid by us if the shipyard or the third party seller cannot locate a third-party buyer that
is willing to pay an amount equal to the difference or compensatory payments by us to charter parties with whom we
have entered into charters with respect to the contracted newbuilds. Such events could adversely impact the dividends
we intend to pay, and could have a material adverse effect on our business, financial condition and results of operation.
We have paid dividends to our stockholders each quarter since our initial public offering in June 2008, including an ag-
gregate amount of $37.5 million over three consecutive quarterly dividends, each in the amount of $0.15 per share,
followed by one consecutive quarterly dividend in the amount of $0.05 per share, paid during 2012. We also declared a
dividend of $0.05 per share, payable on or about March 8, 2013, to our shareholders of record on March 4, 2013. Our fu-
ture liquidity needs will impact our dividend policy. We currently intend to use a portion of our free cash to pay dividends
to our stockholders. The declaration and payment of dividends, if any, will always be subject to the discretion of our
board of directors. The timing and amount of any dividends declared will depend on, among other things: (i) our earn-
ings, financial condition and cash requirements and available sources of liquidity; (ii) decisions in relation to our growth
strategies; (iii) provisions of Marshall Islands and Liberian law governing the payment of dividends; (iv) restrictive cov-
enants in our existing and future debt instruments; and (v) global financial conditions. Dividends might be reduced or
not be paid in the future.
Cash Flows
Cash and cash equivalents increased to $102.7 million as of December 31, 2012, compared to $28.1 million as of Decem-
ber 31, 2011. We consider highly liquid investments such as time deposits and certificates of deposit with an original
maturity of three months or less to be cash equivalents. Cash and cash equivalents are primarily held in U.S. dollars.
Net Cash Provided by Operating Activities
Net cash provided by operating activities amounted to $105.1 million in 2012, consisting of net income after non-cash
items of $126.9 million less an increase in working capital of $21.8 million.
Net cash provided by operating activities amounted to $107.2 million in 2011, consisting of net income after non-cash
items of $114.4 million plus an increase in working capital of $7.2 million.
Net cash flows used in investing activities were $125.9 million for the year ended December 31, 2011 compared to net
cash flows used in investing activities of $131.7 million for the year ended December 31, 2010. The decrease in cash flows
used in investing activities of $5.8 million from 2010 is mainly attributable to the net effect of the following factors: (i)
a decrease in our net bank time deposits by $35.0 million during the year ended December 31, 2011, compared to a de-
crease of $22.8 million during the same period in 2010; (ii) a decrease of $31.5 million in payments for vessel acquisitions
and advances for vessels under construction during the year ended December 31, 2011 due to our acquisition of two
new vessels, Venus History in September, and Pelopidas in November, while during the year ended December 31, 2010,
we acquired three new vessels, Kanaris in March, Panayiota K in April and Venus Heritage in December; and (iii) proceeds
from sale of vessels, amounting to $32.2 million in 2010 due to the sale of the Old Efrossini; no vessels were sold in 2011.
Net Cash Provided by/(Used in)Financing Activities
Net cash flows provided by financing activities were $127.7 million for the year ended December 31, 2012, compared to
net cash flows used in financing activities of $18.5 million for the year ended December 31, 2011. This increase of $146.2
million, compared to the year ended December 31, 2011, is largely attributable to an increase of $86.8 million in long-
term debt principal payments, offset by an increase in long-term debt proceeds of $228.6 million, a decrease in dividends
paid of $4.3 million, a decrease in payments of deferred financing costs of $4.4 million and a decrease of $4.4 million in
proceeds from the issuance of common stock.
Net cash flows used in financing activities were $18.5 million for the year ended December 31, 2011, compared to net
cash flows provided by financing activities of $60.1 million for the year ended December 31, 2010. This increase of $78.6
million compared to 2010 is largely attributable to a decrease of $35.4 million in proceeds from the issuance of common
stock, an increase in long-term debt principal payments of $43.5 million, an increase in long-term debt proceeds of $9.5
million an increase in payments of deferred financing costs of $5.4 million and an increase in dividends paid of $4 million.
Credit Facilities
We operate in a capital intensive industry which requires significant amounts of investment, and we fund a portion of
this investment through long-term bank debt. Our subsidiaries have generally entered into individual credit facilities in
order to finance the acquisition of the vessels owned by these subsidiaries and for general corporate purposes. In 2012,
six of our subsidiaries entered into a new credit facility which was used to fully refinance the outstanding balances under
six individual credit facilities that had been previously entered into with the same bank. The durations until maturity
of our 17 credit facilities outstanding on December 31, 2012, ranged from two to 12 years, and they are generally re-
paid by semi-annual principal installments and a balloon payment due on maturity, for 13 of them, and by semi-annual
principal installments for four of them. We generally pay interest on these facilities at LIBOR plus a margin, except for
four facilities, under which a portion of the principal amounts bear interest at the Commercial Interest Reference Rate
published by the Organization for Economic Co-operation and Development (“OECD”) applicable on the date of signing
of the relevant loan agreements. The obligations under our credit facilities are secured by, among other types of security,
first priority mortgages over the vessels owned by the respective borrower subsidiaries, first priority assignments of all
insurances and earnings of the mortgaged vessels and guarantees by Safe Bulkers, Inc.
During 2012, we drew down loans totaling $312.6 million and we repaid $181.3 million of our indebtedness. As of De-
cember 31, 2012, we had 17 outstanding credit facilities with a combined outstanding balance of $615.7 million. These
debt facilities have maturity dates between 2014 and 2024. For a description of our debt facilities as of December 31,
2012, please see Note 8 to our financial statements included at the end of this annual report. During 2013, we are sched-
uled to repay approximately $19.2 million of our long-term debt outstanding as of December 31, 2012. During 2012, we
entered into a new loan facility in the amount of $34.0 million for Efrossini, a new credit facility in the amount of $18.0
million for Pedhoulas Farmer and a new loan facility in the amount of $17.9 million for Pedhoulas Builder.
Net Cash Used in Investing Activities
Covenants under Credit Facilities
Net cash flows used in investing activities were $158.1 million for the year ended December 31, 2012 compared to net
cash flows used in investing activities of $125.9 million for the year ended December 31, 2011. The increase in cash flows
used in investing activities of $32.2 million from 2011 is mainly attributable to the net effect of the following factors: (i)
no change in our net bank time deposits during the year ended December 31, 2012, compared to a decrease of $35.0
million during the same period in 2011; (ii) a decrease of $24.1 million in payments for vessel acquisitions and advances
for vessels under construction during the year ended December 31, 2012, due to the net effect of the cancellation of
newbuild Hull JO131 of $32.4 million and an increase of $8.3 million in advances paid; and (iii) net increase in restricted
cash of $21.3 million during the year ended December 31, 2012, due to an increase in the restricted cash used as loan and
credit facilities collaterals, compared to no change during the year ended December 31, 2011.
The credit facilities impose operating and financial restrictions on us. These restrictions in our existing credit facilities
generally limit our subsidiaries’ ability to, among other things, and subject to exceptions set forth in such credit facilities:
• pay dividends if an event of default has occurred and is continuing or would occur as a result of the payment of such
dividends;
• enter into certain long-term charters;
•
incur additional indebtedness, including through the issuance of guarantees;
• change the flag, class or management of the vessel mortgaged under such facility or terminate or materially
56
57
annual report 2012 amend the management agreement relating to such vessel;
• create liens on their assets;
• make loans;
• make investments;
• make capital expenditures;
• undergo a change in ownership or control or permit a change in ownership and control of our Manager;
• sell the vessel mortgaged under such facility; and
• permit our chief executive officer to change.
Our existing credit facilities also require certain of our subsidiaries to maintain financial ratios and satisfy financial cov-
enants. Depending on the credit facility, certain of our subsidiaries are subject to financial ratios and covenants requir-
ing that these subsidiaries:
• ensure that the market value of the vessel mortgaged under the applicable credit facility, determined in accordance
with the terms of that facility, does not fall below 100% to 120%, as applicable, of the outstanding amount of the
loan (the “Minimum Value Covenant”);
• ensure that outstanding amounts in currencies other than the U.S. dollar do not exceed 100% or 110%, as appli-
cable, of the U.S. dollar equivalent amount specified in the relevant credit agreement for the applicable period by,
if necessary, providing cash collateral security in an amount necessary for the outstanding amounts to meet this
threshold; and
• ensure that we comply with certain financial covenants under the guarantees described below.
In addition, under guarantees we have entered into with respect to certain of our subsidiaries’ existing credit facilities,
we are subject to financial covenants. Depending on the guarantee, these financial covenants include the following:
• our total consolidated liabilities with the relevant bank divided by our total consolidated assets must not exceed
80% or 85% as the case may be (“Consolidated Leverage Covenant”). The total consolidated assets are based on the
market value of our vessels and the book values of all other assets, on an adjusted basis as set out in the relevant
guarantee;
• the ratio of our aggregate debt to EBITDA must not at any time exceed 5.5:1 on a trailing 12 months’ basis or the ra-
tio of our aggregate debt after deducting cash to EBITDA must not at any time exceed 8.5:1 on a trailing 12 months’
basis (“EBITDA Covenant”);
• our net consolidated worth (total consolidated assets less total consolidated liabilities) (“Consolidated Net Worth
Covenant”) must not at any time be less than $150.0 million;
• payment of dividends is subject to no event of default having occurred;
• maintenance of minimum free liquidity of $500,000 is required on deposit on a per vessel basis for five vessels; and
• a minimum of 51% of the Company’s shares shall remain directly or indirectly beneficially owned by the Hajioannou
family for the duration of the relevant credit facilities.
As of December 31, 2012, the Company was in compliance with all debt covenants with respect to its loan and credit
facilities.
Interest Rate Swaps
We have entered into interest rate swap agreements converting floating interest rate exposure into fixed interest rates
in order to economically hedge our exposure to fluctuations in prevailing market interest rates. For more information
on our interest rate swap agreements, refer to Note 13 to our financial statements included at the end of this annual
report.
C. Research and Development, Patents and Licenses
We incur from time to time expenditures relating to inspections for acquiring new vessels that meet our standards. Such
expenditures are insignificant and they are expensed as they are incurred.
D. Trend Information
Our results of operations depend primarily on the charter hire rates that we are able to realize, and the demand for
drybulk vessel services. After reaching historical highs in mid-2008, charter hire rates for Panamax and Capesize drybulk
vessels reached near historically low levels. For example, the Baltic Drybulk Index, or “BDI,” declined from a high of 11,793
in May 2008 to a low of 663 in December 2008, which represents a decline of 94% within a single calendar year. On Feb-
ruary 3, 2012, the BDI reached a low of 647, due to a combination of weak demand and further growth in vessel supply.
As of February 15, 2013, the BDI was 753.
The decline and volatility in charter rates in the drybulk market reflects in part the fact that the supply of drybulk ves-
sels in the market has been increasing, and the number of newbuild drybulk vessels on order is near historic highs. De-
mand for drybulk vessel services is influenced by global financial conditions. The recovery in China and India positively
influenced the charter rates; however, global financial conditions remain volatile and demand for drybulk services may
decrease in the future. The combination of increasing drybulk capacity (both current and expected) and decreasing de-
mand or demand which is not offset by the increase in drybulk capacity is likely to result in reductions in charter hire
rates and, as a consequence, adversely affect our operating results.
In response to the volatile market conditions, we seek to strengthen our charter coverage. Currently, 17 of our 25 ves-
sels are employed or scheduled to be employed in period time charters of more than three months. Additionally, we
believe we have structured our capital expenditure requirements, debt commitments and liquidity resources is a way
that will provide us with financial flexibility (see “Item 5. Operating and Financial Review and Prospects — B. Liquidity
and Capital Resources” for more information).
E. Off-Balance Sheet Arrangements
As of December 31, 2012, we did not have any off-balance sheet arrangements.
F. Contractual Obligations
Our contractual obligations as of December 31, 2012 were:
Total
(Dollars in
thousands)
Less than 1
year (2013)
1-3 years
(2014-2015)
3-5 years
(2016-2017)
More than
5 years
(After January 1,
2018)
Long-term debt obligations
Interest payments (1)
Payments to our Manager (2)
Newbuild contracts
Total
$
$
$
$
$
615,667 $
71,499 $
16,032 $
187,309 $
890,507 $
19,199
16,743
10,050
78,376
124,368
$
$
$
$
$
122,448 $
25,568 $
5,982
108,933
262,931 $
120,291 $
16,979 $
—
—
137,270 $
353,729
12,209
—
—
365,938
(1) Amounts shown reflect estimated interest payments we expect to make with respect to our long-term debt obligations and interest rate swaps.
The interest payments reflect an assumed LIBOR-based applicable interest rate of 0.5083% (the six-month LIBOR rate as of December 31, 2012),
plus the relevant margin of the applicable credit facility and the estimated net settlement of our interest rate swaps. See “Item 5. Operating and
Financial Review and Prospects — B. Liquidity and Capital Resources—Interest Rate Swaps.”
(2) Represents the fixed fee of $700 per vessel per day and the variable fee of 1.25% of estimated charter hire based on charter agreements in place as
of December 31, 2012, based on the management fees effective as of May 29, 2012. In addition, it includes amounts payable to our Manager under
the Management Agreement in respect of the acquisition fees for each of the six newbuilds and one contracted secondhand vessel and the super-
vision fees for each of the six newbuilds, which are described elsewhere herein. The levels of the above mentioned fees are subject to adjustment
every year and will be agreed upon between us and our Manager. The fees shown in the table above do not take into account any potential future
changes to the fees.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth, as of February 15, 2013, information regarding our directors and executive officers.
Name
Age
Position
Polys Hajioannou
Dr. Loukas Barmparis
Konstantinos Adamopoulos
Ioannis Foteinos
John Gaffney
Frank Sica
Ole Wikborg
46
50
50
54
52
62
57
Chief Executive Officer, Chairman of the Board and Class I Director
President, Secretary and Class II Director
Chief Financial Officer and Class III Director
Chief Operating Officer and Class I Director
Class II Director
Class III Director
Class I Director
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annual report 2012
Certain biographical information about each of these individuals is set forth below. The term of our Class I directors
expires in 2015, the term of our Class II directors expires in 2013 and the term of our Class III directors expires in 2014.
Polys Hajioannou is our Chief Executive Officer and has been Chairman of our board of directors since 2008. Mr.
Hajioannou also serves with our Manager and prior to its inception, our Manager’s predecessor Alassia Steamship
Co., Ltd., which he joined in 1987. Mr. Hajioannou was elected as a member of the board of directors of the Union of
Greek Shipowners in 2006 and served on the board until February 2009. Mr. Hajioannou is also a founding member
of the Union of Cyprus Shipowners. Mr. Hajioannou is a member of the Lloyd’s Register Hellenic Advisory Committee.
In 2011, Mr. Hajioannou was appointed to the board of directors of the Hellenic Mutual War Risks Association (Ber-
muda) Limited. Mr. Hajioannou holds a Bachelor of Science degree in nautical studies from Sunderland University.
Dr. Loukas Barmparis is our President and Secretary and has been a member of our board of directors since 2008.
Dr. Barmparis also serves as the technical manager of our Manager, which he joined in February 2006. Until 2009 he
was the project development manager of the affiliated Alasia Development S.A., responsible for renewable energy
projects. Prior to joining our Manager and Alasia Development S.A., from 1999 to 2005 and from 1993 to 1995, Dr.
Barmparis was employed at N. Daskalantonakis Group, Grecotel, one of the largest hotel chains in Greece, as tech-
nical manager and project development general manager. During the interim period between 1995 and 1999, Dr.
Barmparis was employed at Exergia S.A. as an energy consultant. Dr. Barmparis holds a master of business admin-
istration (“M.B.A.”) from the Athens Laboratory of Business Administration, a doctorate from the Imperial College
of Science Technology and Medicine, a master of applied science from the University of Toronto and a diploma in
mechanical engineering from the Aristotle University of Thessaloniki.
Konstantinos Adamopoulos is our Chief Financial Officer and has been a member of our board of directors since
2008. Prior to joining us, Mr. Adamopoulos was employed at Calyon, a financial institution, as a senior relationship
manager in shipping finance for 14 years. Prior to this, from 1990 to 1993, Mr. Adamopoulos was employed by the
National Bank of Greece in London as an account officer for shipping finance and in Athens as deputy head of the ex-
port finance department. Prior to this, from 1987 to 1989, Mr. Adamopoulos served as a finance officer in the Greek
Air Force. Mr. Adamopoulos holds an M.B.A. in finance from the City University Business School and a Bachelor of
Science degree in business administration from the Athens School of Economics and Business Science.
Ioannis Foteinos is our Chief Operating Officer and has been a member of our board of directors since February
2009. Mr. Foteinos has 25 years of experience in the shipping industry. After obtaining a bachelor’s degree in nauti-
cal studies from Sunderland University, he joined the predecessor of our Manager, Safety Management Overseas, in
1984, where he presently serves and will continue to serve as Chartering Manager.
Frank Sica has been a member of our board of directors and of our corporate governance, nominating and compen-
sation committee, and a member and chairman of our audit committee, since 2008. Mr. Sica has served as a Manag-
ing Partner at Tailwind Capital, a private equity firm since 2006. From 2004 to 2005, Mr. Sica was a Senior Advisor to
Soros Private Funds Management. From 1998 to 2003, Mr. Sica worked at Soros Fund Management where he over-
saw the direct real estate and private equity investment activities of Soros. From 1988 to 1998, Mr. Sica was a Manag-
ing Director at Morgan Stanley. Mr. Sica is a graduate of Wesleyan University, where he received a B.A. degree, and of
the Amos Tuck School of Business at Dartmouth College, where he received his M.B.A. Mr. Sica is also director of CSG
Systems International, an account management and billing software company for communication industries, Jet-
Blue Airways Corporation, a commercial airline, and Kohl’s Corporation, an owner and operator of department stores.
Ole Wikborg has been a member of our board of directors and of our audit committee and corporate governance,
nominating and compensation committee since 2008. Mr. Wikborg has been involved in the marine and shipping
industry in various capacities for over 30 years. Since 2002, Mr. Wikborg has served as a director, senior underwriter
and member of the management team of the Norwegian Hull Club, based in Oslo, Norway. From 2002 to 2006, Mr.
Wikborg also served as a member and chairman of the Ocean Hull Committee of the International Union of Marine
Insurance (“IUMI”). Since 2006, he has served as Vice President and a member of the Executive Board of the IUMI and
in 2010, he was elected as President of IUMI. Since 1997, Mr. Wikborg has served as a board member of the Central
Union of Marine Insurers, based in Oslo, and is presently that organization’s Chairman. From 1997 until 2002, Mr.
Wikborg served as the senior vice president and manager of the marine and energy division of the Zurich Protector
Insurance Company ASA, based in Oslo and Zurich, and from 1993 until 1997, he served as a senior underwriter for
the marine division of Protector Insurance Company ASA, based in Oslo. Prior to his career in the field of marine insur-
ance, Mr. Wikborg served in the Royal Norwegian Navy, attaining the rank of Lieutenant Commander.
John Gaffney has been a member of our board of directors and of our audit committee, and a member and chairman
of our corporate governance, nominating and compensation committee, since October 2011. Mr. Gaffney joined
the law firm of Gibson, Dunn & Crutcher LLP as a partner in November 2011. From January 2010 through September
2011, Mr. Gaffney was a Senior Vice President, Corporate Affairs and General Counsel of Solyndra, Inc., where he
led Solyndra’s corporate affairs and legal activities. From January 2008 through December 2009, Mr. Gaffney was an
Executive Vice President at First Solar, where he led First Solar’s corporate development, legal, sustainable develop-
ment and environmental affairs activities. Prior to joining First Solar, Mr. Gaffney practiced law at the firm of Cravath,
Swaine & Moore LLP, where he was a partner from 1993 to 2008. Mr. Gaffney is a graduate of The George Washington
University, where he received a B.A degree, and of New York University, where he received his J.D. and M.B.A. degrees.
B. Compensation of Directors and Senior Management
Non-executive independent directors of the Company are paid an annual fee in the amount of $40,000 plus reimburse-
ment for their out-of-pocket expenses.
In addition, the chairman of the audit committee, Frank Sica, receives the annual equivalent of $60,000 in the form
of shares of our common stock. John Gaffney and Ole Wikborg receive the annual equivalent of $30,000 in the form of
shares of our common stock. The members of our senior management are provided and compensated by our Manager
and have not received and will not receive any compensation from us. We do not have any employment contracts with
any of our executive officers whose services are provided to us by our Manager. For a discussion of the fees payable to our
Manager, refer to “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Man-
agement Agreement”. Also, we do not have any service contracts with any of our non-executive directors that provide
for benefits upon termination of their services.
No amounts are set aside or accrued by us to provide pension, retirement or similar benefits.
C. Board Practices
As of December 31, 2012, we had seven members on our board of directors. The board of directors may change the number
of directors to not less than three, nor more than 15, by a vote of a majority of the entire board. Each director shall be elected
to serve until the third succeeding annual meeting of stockholders and until his or her successor shall have been duly elected
and qualified, except in the event of death, resignation or removal. A vacancy on the board created by death, resignation,
removal (which may only be for cause), or failure of the stockholders to elect the entire class of directors to be elected at any
election of directors or for any other reason, may be filled only by an affirmative vote of a majority of the remaining directors
then in office, even if less than a quorum, at any special meeting called for that purpose or at any regular meeting of the board
of directors. None of our directors is a party to service contracts with us providing for benefits upon termination of employ-
ment. Information regarding the period which each director served and the date of expiration of each director’s current term
is available in “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management.”
During the fiscal year ended December 31, 2012, the full board of directors held four meetings. Each director attended all of
the meetings of committees of which the director was a member in person or electronically. Our board of directors has deter-
mined that each of Mr. Sica, Gaffney and Wikborg are independent within the current meanings of independence employed
by the corporate governance rules of the New York Stock Exchange and the SEC. Stockholders who wish to send commu-
nications on any topic to the board of directors or to the independent directors as a group, or to the chairman of the audit
committee, Mr. Frank Sica, or to the chairman of the corporate governance, nominating and compensation committee, Mr.
John Gaffney, may do so by writing to our Secretary, Dr. Loukas Barmparis, Safe Bulkers, Inc., 30-32 Avenue Karamanli, 16673,
Voula, Athens, Greece.
Corporate Governance
The board of directors and our Company’s management have engaged in an ongoing review of our corporate govern-
ance practices in order to oversee our compliance with the applicable corporate governance rules of the New York Stock
Exchange and the SEC.
We have adopted a number of key documents that are the foundation of the Company’s corporate governance, including:
• a Code of Business Conduct and Ethics for all officers and employees, which incorporates a Code of Ethics for direc-
tors and a Code of Conduct for corporate officers;
• a Corporate Governance, Nominating and Compensation Committee Charter; and
• an Audit Committee Charter.
These documents and other important information on our governance are posted on our website and may be viewed at
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annual report 2012 http://www.safebulkers.com. We will also provide a paper copy of any of these documents upon the written request of
a stockholder. Stockholders may direct their requests to the attention of our Secretary, Dr. Loukas Barmparis, Safe Bulk-
ers, Inc., 30-32 Avenue Karamanli, 16673, Voula, Athens, Greece.
Committees of the Board of Directors
Audit committee
Our audit committee consists of Ole Wikborg, John Gaffney and Frank Sica, as chairman. Our board of directors has
determined that Frank Sica qualifies as an audit committee “financial expert,” as such term is defined in Regulation S-K
promulgated by the SEC. The audit committee is responsible for:
• the appointment, compensation, retention and oversight of independent auditors and approving any non-audit
services performed by such auditor;
• assisting the board in monitoring the integrity of our financial statements, the independent auditors’ qualifications
and independence, the performance of the independent accountants and our internal audit function and our com-
pliance with legal and regulatory requirements;
• annually reviewing an independent auditors’ report describing the auditing firm’s internal quality-control procedures,
and any material issues raised by the most recent internal quality control review, or peer review, of the auditing firm;
• discussing the annual audited financial and quarterly statements with management and the independent auditors;
• discussing earnings press releases, as well as financial information and earnings guidance provided to analysts and
rating agencies;
• discussing policies with respect to risk assessment and risk management;
•
•
•
•
•
•
meeting separately, and periodically, with management, internal auditors and the independent auditor;
reviewing with the independent auditor any audit problems or difficulties and management’s responses;
setting clear hiring policies for employees or former employees of the independent auditors;
annually reviewing the adequacy of the audit committee’s written charter, the internal audit charter, the scope of
the annual internal audit plan and the results of internal audits;
reporting regularly to the full board of directors; and
handling such other matters that are specifically delegated to the audit committee by the board of directors from
time to time.
Our corporate governance, nominating and compensation committee consists of Ole Wikborg, Frank Sica and John
Gaffney, as chairman. The corporate governance, nominating and compensation committee is responsible for:
• nominating candidates, consistent with criteria approved by the full board of directors, for the approval of the full
board of directors to fill board vacancies as and when they arise, as well as putting in place plans for succession, in
particular, of the chairman of the board of directors and executive officers;
• selecting, or recommending that the full board of directors select, the director nominees for the next annual meet-
ing of shareholders;
• developing and recommending to the full board of directors corporate governance guidelines applicable to us and
keeping such guidelines under review;
• overseeing the evaluation of the board and management; and
Equity Compensation Plans
We have agreed to provide the chairman of the audit committee, Mr. Frank Sica, as part of his remuneration, the annual
equivalent of $60,000 in the form of shares of our common stock, and our non-executive independent directors, Mr.
John Gaffney and Mr. Ole Wikborg, as part of their remuneration, the annual equivalent of $30,000 each, in the form of
shares of our common stock.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table sets forth certain information regarding the beneficial ownership of our outstanding common stock
as of February 15, 2013 held by:
• each person or entity that we know beneficially owns 5% or more of our common stock;
• each of our officers and directors; and
• all our directors and officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC. In general, a person who has voting power
or investment power with respect to securities is treated as a beneficial owner of those securities.
Beneficial ownership does not necessarily imply that the named person has the economic or other benefits of ownership. For
purposes of this table, shares subject to options, warrants or rights or shares exercisable within 60 days of February 15, 2013
are considered as beneficially owned by the person holding those options, warrants or rights. Each stockholder is entitled to
one vote for each share held. The applicable percentage of ownership for each stockholder is based on 76,670,460 shares of
common stock outstanding as of February 15, 2013. Information for certain holders is based on their latest filings with the
SEC or information delivered to us. Except as noted below, the address of all stockholders, officers and directors identified in
the table and the accompanying footnotes below is in care of our principal executive offices.
Identity of Person or Group
5% Beneficial Owners:
Vorini Holdings Inc. (1)
Officers and Directors:
Polys Hajioannou (2)
Dr. Loukas Barmparis
Konstantinos Adamopoulos
Ioannis Foteinos
Frank Sica
Ole Wikborg
John Gaffney
All executive officers and directors as a group (7 persons)
Number of
Shares
of Common
Stock Owned
Percentage
of
Common
Stock
46,426,015
46,426,015
—
—
—
9,281
13,954
13,954
46,463,204
60.55 %
60.55 %
—
—
—
*
*
*
60.60 %
• handling such other matters that are specifically delegated to the corporate governance, nominating and compen-
sation committee by the board of directors from time to time.
* Less than 1%
(1) Vorini Holdings Inc. is controlled by Polys Hajioannou and his family.
(2) By virtue of shares owned indirectly through Vorini Holdings Inc., which is our principal stockholder.
D. Employees
Other than an employee who serves as our legal representative in Greece, we have no salaried employees and have
not entered into any employment agreements. Our Manager employs, and provides us with, all four of our executive
officers, including our chief executive officer, Polys Hajioannou, our president, Dr. Loukas Barmparis, our chief financial
officer, Konstantinos Adamopoulos, and our chief operating officer, Ioannis Foteinos. Our Manager is responsible for
paying any salaries payable to our executive officers. As of December 31, 2012, approximately 506 people served on
board the vessels in our fleet, and our Manager employed approximately 48 people on shore.
E. Share Ownership
The common stock beneficially owned by our directors and executive officers and/or companies affiliated with these
individuals is disclosed in “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders” below.
In June 2008, we completed a registered public offering of our shares of common stock in which the selling stockholder
was Vorini Holdings Inc., and our common stock began trading on the New York Stock Exchange. Our major stockhold-
ers have the same voting rights as our other stockholders. As of February 15, 2013, we had five stockholders of record,
three of these stockholders of record were located in the United States and held an aggregate 31,156,506 shares of
common stock, representing approximately 40.6% of our outstanding shares of common stock. However, one of the
United States stockholders of record is Cede & Co., a nominee of The Depository Trust Company, which holds 31,133,271
shares of our common stock. Accordingly, we believe that the shares held by Cede & Co. include shares of common stock
beneficially owned by both holders in the United States and non-United States beneficial owners. We are not aware of
any arrangements the operation of which may at a subsequent date result in our change of control. We are not aware
of any significant changes in the percentage ownership held by any major stockholders since our initial public offering.
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annual report 2012
Vorini Holdings Inc. owns approximately 60.55% of our outstanding common stock. This stockholder is able to control
the outcome of matters on which our stockholders are entitled to vote, including the election of our entire board of
directors and other significant corporate actions. Shares of our common stock held by Vorini Holdings Inc. do not have
different or unique voting rights.
B. Related Party Transactions
Management Affiliations
Our Manager, Safety Management Overseas S.A., is controlled by Polys Hajioannou, our chief executive officer, through
another entity, Machairiotissa Holdings, Inc. Our Manager, along with its predecessor, has provided services to our ves-
sels since 1965 and continues to provide technical, administrative, commercial and certain other services which sup-
port our business, as well as comprehensive ship management services such as technical supervision and commercial
management, including chartering our vessels, pursuant to our Management Agreement described below.
Management Agreement
Under our Management Agreement, our Manager is responsible for providing us with technical, administrative com-
mercial and certain other services, which include the following:
Technical Services
These services include managing day-to-day vessel operations, performing general vessel maintenance, ensuring reg-
ulatory compliance and compliance with the law of the flag state of each vessel and of the places where the vessel
operates, ensuring classification society compliance, supervising the maintenance and general efficiency of vessels, ar-
ranging the hire of qualified officers and crew, training, transportation and lodging, insurance (including handling and
processing all claims) of, and appropriate investigation of any charterer concerns with respect to, the crew, conducting
union negotiations concerning the crew, performing normally scheduled drydocking and general and routine repairs,
arranging insurance for vessels (including marine hull and machinery, protection and indemnity and risks insurance),
purchasing stores, supplies, spares, lubricating oil and maintenance capital expenditures for vessels, appointing super-
visors and technical consultants, providing technical support, shoreside support and shipyard supervision, and attend-
ing to all other technical matters necessary to run our business.
Commercial Services
These services include chartering the vessels that we own, assisting in our chartering, locating, purchasing, financing
and negotiating the purchase and sale of our vessels, supervising the design and construction of newbuilds, and such
other commercial services as we may reasonably request from time to time.
Administrative Services
These services include administering payroll services, assistance with the preparation of our tax returns and financial
statements, assistance with corporate and regulatory compliance matters not related to our vessels, procuring legal
and accounting services, assistance in complying with U.S. and other relevant securities laws, human resources (includ-
ing provision of our executive officers and directors of our subsidiaries), cash management and bookkeeping services,
development and monitoring of internal audit controls, disclosure controls and information technology, assistance
with all regulatory and reporting functions and obligations, furnishing any reports or financial information that might
be requested by us and other non-vessel related administrative services, assistance with office space, providing legal
and financial compliance services, overseeing banking services (including the opening, closing, operation and manage-
ment of all of our accounts, including making deposits and withdrawals reasonably necessary for the management of
our business and day-to-day operations), arranging general insurance and director and officer liability insurance (at our
expense), providing all administrative services required for any subsequent debt and equity financings and attending to
all other administrative matters necessary to ensure the professional management of our business.
Reporting Structure
Our Manager reports to us and to our board of directors through our executive officers.
Compensation of Our Manager
Under our Management Agreement, in return for providing technical, commercial and administrative services, our
Manager receives a fixed fee of $700 per vessel for vessels in our fleet, prorated for the number of calendar days that we
own or charter-in each vessel and $250 per vessel per day, for bareboat charters. Our Manager also receives a variable fee
of 1.25% on all gross freight, charter hire, ballast bonus and demurrage with respect to each vessel in our fleet. Further,
our Manager receives an acquisition fee of 1.0% based on the contract price of any vessel bought and a sales fee of 1.0%
based on the contract price of any vessel sold by it on our behalf, including each of our contracted newbuilds. We also
pay our Manager a supervision fee of $550,000 per newbuild, of which 50% is payable upon the signing of the relevant
supervision agreement, and 50% upon successful completion of the sea trials of each newbuild, for the on-premises
supervision of all newbuilds we have agreed to acquire pursuant to shipbuilding contracts, memoranda of agreement,
or otherwise. The management fees were constant for the 2 year initial period of the Management Agreement, which
ended on May 29, 2010. On May 29, 2010, pursuant to an agreement between us and our Manager, the variable fee
on gross freight, charter hire, ballast bonus and demurrage was readjusted to 1.25% from 1.0%. On May 29, 2011, the
fixed fee per vessel was readjusted to $700 from $575 per day, and the supervision fee per newbuild was readjusted to
$550,000 from $375,000, while all other management fees remained constant. Since then all management fees have
remained constant.
The management fees do not cover capital expenditure, financial costs and operating expenses for our vessels and our
general and administrative expenses such as directors, and officers’ liability insurance, legal and accounting fees and
other similar third party expenses. More specifically, we reimburse expenses of the Manager or its personnel directly
related to the operation and management of our vessels, such as:
•
interest, principal and other financial costs,
• voyage expenses
• vessel operating expenses including crewing costs, surveyor’s attendance fees, bunkers, lubricant oils, spares, sur-
vey fees, classification society fees, maintenance and repair costs, tonnage taxes and vetting expenses,
• commissions, remuneration or disbursements due to lawyers, brokers, agents, surveyors, consultants, financial
advisors, investment bankers, insurance advisors,
• deductibles, insurance premiums and/or P&I calls,
• postage, communication, traveling, victualling and other out of pocket expenses.
Each year, our Manager prepares and submits to us a detailed draft budget for the next calendar year, which includes
a statement of estimated revenue, estimated general and administrative expenses and a proposed budget for capital
expenditures, repairs or alterations. Once approved by us, this draft budget becomes the approved budget.
Term and Termination Rights
Subject to the termination rights described below, the initial term of our Management Agreement expired on May 28,
2010. Since then our Management Agreement has been automatically renewed for three one-year periods, expiring
May 28, 2013. Upon expiration of the renewal term, our Management Agreement automatically renews for one-year
periods until May 28, 2018, at which point the agreement will expire. In addition to the termination provisions outlined
below, we are able to terminate our Management Agreement at any point after the initial term upon 12 months’ notice
to our Manager. Such notice of termination has not been provided to our Manager by us.
Our Manager’s Termination Rights
Our Manager may terminate our Management Agreement prior to the end of its term if:
• any money payable by us is not paid when due or if due on demand, within ten business days following demand by
our Manager;
• we default in the performance of any other material obligation under the Management Agreement and the matter
is unresolved within 20 business days after we receive written notice of such default from our Manager;
• the management fee determined by arbitration in respect of any annual period following the initial term is unsatis-
factory to our Manager, in which case the Manager may terminate upon 12 months’ written notice to us;
• any acquisition of our shares or a merger, consolidation or similar transaction results in any “person” or “group” ac-
quiring 40% or
• more of the total voting power of our or the resulting entity’s outstanding voting securities, and such percentage
represents a higher percentage of such voting power than that held directly or indirectly by Polys Hajioannou and
Nicolaos Hadjioannou, collectively; or
• there is a change in directors after which a majority of the members of our board of directors are not continuing directors.
“Continuing directors” means, as of any date of determination, any member of our board of directors who was:
• member of our board of directors on June 4, 2008; or
• nominated for election or elected to our board of directors with the approval of a majority of the directors then in
office who were either directors on June 4, 2008 or whose nomination or election was previously so approved.
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annual report 2012 Our Termination Rights
In addition to certain standard termination rights, we may terminate our Management Agreement prior to the end of
its term if:
• our Manager defaults in the performance of any material obligation under our Management Agreement and the
matter is not resolved
• within 20 business days after our Manager receives from us written notice of such default; or
• any money payable by our Manager to us or third parties under our Management Agreement is not paid or ac-
counted for within ten business days following written notice by us.
Non-Competition
Our Manager has agreed that, during the term of our Management Agreement and for one year after its termination,
our Manager will not provide any management services to, or with respect to, any drybulk vessels, other than in the
following circumstances:
(a) pursuant to its involvement with us; or
(b) with respect to drybulk vessels that are owned or operated by companies affiliated with our chief executive of-
ficer or Nicolaos Hadjioannou, subject in each case to compliance with, or waivers of, the restrictive covenant
agreements entered into between us and companies affiliated with our chief executive officer or Nicolaos Had-
jioannou.
Our Manager has also agreed that if one of our drybulk vessels and a drybulk vessel owned or operated by a company
affiliated with our chief executive officer or Nicolaos Hadjioannou are both available and meet the criteria for a charter
being fixed by our Manager, our drybulk vessel will receive such charter. Currently our Manager does not provide man-
agement services to any third party.
Sale of Our Manager
Our Manager has agreed that, during the term of the Management Agreement and for one year after its termination,
our Manager will not transfer, assign, sell or dispose of all or substantially all of its business that is necessary for the per-
formance of its services under the Management Agreement without the prior written consent of our board of directors.
Furthermore, during such period, in the event of any proposed change in control of our Manager, we have a 30-day right
of first offer to purchase our Manager. In December 2011, the Management Agreement was amended to define a “pro-
posed change in control of our Manager” to mean (a) the approval by the board of directors of the Manager or the share-
holders of the Manager of a proposed sale of all or substantially all of the assets or property of the Manager necessary
for the performance of its services under the Management Agreement; or (b) the approval of any transaction that would
result in: (i) Polys Hajioannou or Vorini Holdings Inc., or any entity controlled by, or under common control with, any of
the above, beneficially owning, directly or indirectly, less than 60% of the outstanding voting securities or voting power
of the Manager or Machairiotissa Holdings Inc., respectively, or (ii) Polys Hajioannou or Vorini Holdings Inc., or any entity
controlled by, or under common control with, any of the above, together with all directors, officers and employees of the
Manager beneficially owning, directly or indirectly, less than 80% of the outstanding voting securities or voting power of
the Manager or Machairiotissa Holdings Inc., respectively. The Management Agreement was also amended to provide
us the right to obtain certain information about the ownership of the Manager.
Restrictive Covenant Agreements
Under the restrictive covenant agreements entered into with us, Polys Hajioannou, Vorini Holdings Inc., Machairiotissa
Holdings Inc., or any entity controlled by, or under common control with, any of the above (together, the “Hajioannou Enti-
ties”), have agreed to restrictions on their ownership or operation of any drybulk vessels or the acquisition, investment in or
control of any business involved in the ownership or operation of drybulk vessels, subject to the exceptions described below.
In the case of Polys Hajioannou, the restricted period continues until the later of (a) one year following the termination
of the Management Agreement and (b) one year following the termination of his services and employment with us. In
the case of the Hajioannou Entities, the restricted period continues until one year following the termination of the Man-
agement Agreement. Notwithstanding these restrictions, Polys Hajioannou and the Hajioannou Entities are permitted
to engage in the restricted activities during the restricted periods in the following circumstances:
(a) pursuant to their involvement with us;
(c) with respect to certain permitted acquisitions (as defined below), provided that (i) any commercial management
of drybulk vessels controlled by the restricted individuals and entities in connection with such permitted acquisi-
tion is performed by our Manager and (ii) the restricted individuals and entities comply with the requirements for
permitted acquisitions described below; and
(d) pursuant to their passive ownership of up to 9.99% of the outstanding voting securities of any publicly traded
company that is engaged in the drybulk vessel business.
As noted above, Polys Hajioannou and the Hajioannou Entities are permitted to engage in restricted activities with re-
spect to two types of permitted acquisitions. One such permitted acquisition is an acquisition of a drybulk vessel or an
acquisition or investment in a drybulk vessel business on terms and conditions as to price that are not more favorable,
and on such other terms and conditions that are not materially more favorable, than those first offered to us and refused
by a majority of our independent directors. The second type of permitted acquisition is an acquisition of a group of ves-
sels or a business that includes non-drybulk vessels and non-drybulk vessel businesses, provided that less than 50% of
the fair market value of the acquisition is attributable to drybulk vessels or drybulk vessel businesses. Under this second
type of permitted acquisition, we must be promptly given the opportunity to buy the drybulk vessels or drybulk vessel
businesses included in the acquisition for their fair market value plus certain break-up costs. Polys Hajioannou and the
Hajioannou Entities have also agreed that if one of our drybulk vessels and a drybulk vessel owned or operated by any
of the Hajioannou Entities are both available and meet the criteria for a charter being fixed by our Manager, our drybulk
vessels will receive such charter.
Registration Rights Agreement
In connection with the closing of our initial public offering, we entered into a registration rights agreement with Vorini
Holdings Inc., our largest stockholder, pursuant to which we have granted it and certain of its transferees the right,
under certain circumstances and subject to certain restrictions, to require us to register under the Securities Act shares
of our common stock held by those persons. Under the registration rights agreement, Vorini Holdings Inc. and certain
of its transferees have the right to request us to register the sale of shares held by them on their behalf and may require
us to make available shelf registration statements permitting sales of shares into the market from time to time over an
extended period. In addition, those persons have the ability to exercise certain piggyback registration rights in connec-
tion with registered offerings initiated by us. Vorini Holdings Inc. currently owns 45,500,000 shares entitled to these
registration rights.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
See “Item 18. Financial Statements” below.
Legal Proceedings
We are involved in an ongoing arbitration dispute in London, England, with the Shipyard. We had entered into an agree-
ment with the Shipyard for the construction, sale and delivery by the Shipyard to us of one 180,000 DWT Capesize class
newbuild vessel (Hull No. J0131) in exchange for USD $53 million. In December 2012, after having paid $31.8 million in
advances during construction, we exercised our termination right under the agreement due to the Shipyard’s exces-
sive construction delays and delivered demands to each of the Shipyard and the refund guarantor, The Export Import
Bank of China (a bank rated Aa3 by Moody’s Investor Services), pursuant to the agreement and the refund guarantees,
respectively, for a refund of the full amount of advances paid, with interest. In response, in January 2013, the Company
received a notice of arbitration, and arbitration proceedings with the shipyard were initiated in London, England. The
Shipyard alleges that our termination constitutes a breach of the agreement and argues that we are not entitled to a
refund of any of the advances paid or interest. We are vigorously pursuing the arbitration and believe that the merits in
this dispute rest in our favor. However, arbitration is inherently uncertain and we cannot provide assurance that we will
prevail because it is not possible to predict what the final outcome will be of any legal proceeding. An award against us
would require us to record the related liability and incur the cost thereof, which includes the amount of advances already
paid, the capitalized expenses recorded and any further damages to the Shipyard without receipt of the vessel.
(b) pursuant to their involvement with our Manager, subject to compliance with, or waivers of, the Management Agreement;
We are not otherwise involved in any legal proceedings which may have, or have had, a significant effect on our busi-
66
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annual report 2012 ness, financial position, results of operations or liquidity, nor are we aware of any other proceedings that are pending
or threatened which may have a significant effect on our business, financial position, results of operations or liquidity.
The nature of our business exposes us to the risk of lawsuits for damages or penalties relating to, among other things,
personal injury, property casualty and environmental contamination. 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. However, such claims, even
if lacking merit, could result in the expenditure of significant financial and managerial resources.
Dividend Policy
We paid our first quarterly dividend as a public company of $0.1461 per share in August 2008 and subsequent dividends
of $0.475 per share in November 2008, $0.15 per share in February 2009, May 2009, August 2009, November 2009,
February 2010, May 2010, August 2010, November 2010, February 2011, May 2011, August 2011, November 2011,
February 2012, May 2012 and August 2012, and $0.05 per share in November 2012. We also declared a dividend of $0.05
per share on February 18, 2013, for the shareholders of record on March 4, 2013, payable on or about March 8, 2013.
We currently intend to use a portion of our free cash to pay dividends to our shareholders. The declaration and pay-
ment of dividends, if any, will always be subject to the discretion of our board of directors. The timing and amount of
any dividends declared will depend on, among other things: (a) our earnings, financial condition and cash requirements
and available sources of liquidity, (b) decisions in relation to our growth strategies, (c) provisions of Marshall Islands and
Liberian law governing the payment of dividends, (d) restrictive covenants in our existing and future debt instruments
and (e) global financial conditions. Dividends might be reduced or not be paid by us. Our ability to pay dividends may be
limited by the amount of cash we can generate from operations following the payment of fees and expenses and the
establishment of any reserves, as well as additional factors unrelated to our profitability. We are a holding company, and
we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations and to
make dividend payments. See “Item 3. Key Information—D. Risk Factors—Risks Inherent in Our Industry and Our Busi-
ness” for a discussion of the risks related to our ability to pay dividends.
B. Significant Changes
No significant change has occurred since the date of the annual financial statements included in this annual report on
Form 20-F.
ITEM 9. THE OFFER AND LISTING
Trading on the New York Stock Exchange
Since our initial public offering in the United States on May 29, 2008, our common stock has been listed on the New York
Stock Exchange under the symbol “SB.” The following table shows the high and low sales prices for our common stock
during the indicated periods.
2008 (1)
2009
2010
2011
2012
First Quarter 2011
Second Quarter 2011
Third Quarter 2011
Fourth Quarter 2011
First Quarter 2012
Second Quarter 2012
Third Quarter 2012
Fourth Quarter 2012
68
$
Price Range
High
Low
$
19.23
9.64
9.18
9.78
7.73
9.69
9.78
7.93
7.02
7.73
7.00
6.66
5.96
2.98
2.71
6.50
5.28
3.12
8.20
6.97
6.10
5.28
6.07
5.96
5.76
3.12
August 2012
September 2012
October 2012
November 2012
December 2012
January 2013
February 2013(2)
Price Range
6.66
6.21
5.96
5.69
3.54
4.22
4.10
5.98
5.76
5.50
3.23
3.12
3.40
3.61
(1) For the period from May 29, 2008, the date on which our common stock began trading on the New York Stock Exchange, until the end of the period.
(2) For the period through February 15, 2013.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Under our articles of incorporation, our authorized capital stock consists of 200,000,000 shares of common stock, par value
$0.001 per share, of which, as of December 31, 2012 and February 15, 2013, 76,661,451 and 76,670,460 shares were issued
and outstanding, respectively, and 20,000,000 shares of blank check preferred stock, par value $0.01 per share, of which, as
of December 31, 2012 and February 15, 2013, no shares were issued and outstanding. Of this blank check preferred stock,
1,000,000 shares have been designated Series A Participating Preferred Stock in connection with our adoption of a stock-
holder rights plan as described below under “—Stockholder Rights Plan.” All of our shares of stock are in registered form.
Please see Note 10 to our financial statements included at the end of this annual report for a discussion of the history of
our share capital.
B. Memorandum and Articles of Association
Our purpose, as stated in our articles of incorporation, is to engage in any lawful act or activity for which corporations
may now or hereafter be organized under the BCA. Our articles of incorporation and bylaws do not impose any limita-
tions on the ownership rights of our stockholders.
The rights of our stockholders are set forth in our articles of incorporation and bylaws. Amendments to our articles of
incorporation require the affirmative vote of the holders of a majority of all outstanding shares entitled to vote, except
that amendments to certain provisions of our articles of incorporation dealing with the rights of stockholders, the board
of directors, our bylaws and amendments to the articles of incorporation require the affirmative vote of at least 75%
of all outstanding shares entitled to vote. Amendments to our bylaws require the affirmative vote of at least 75% of all
outstanding shares entitled to vote.
Under our bylaws, annual stockholder meetings will be held at a time and place selected by our board of directors. The meet-
ings may be held inside or outside of the Republic of The Marshall Islands. Special meetings may be called by the chairman of
the board of directors, the chief executive officer or a majority of the board of directors. Our board of directors may set a record
date between 15 and 60 days before the date of any meeting to determine the stockholders that will be eligible to receive
notice and vote at the meeting. Our bylaws permit stockholder action by unanimous written consent.
We are registered at The Trust Company of The Marshall Islands, Inc. under registration number 27394.
Directors
Under our bylaws, our directors are elected by a plurality of the votes cast at each annual meeting of the stockholders by
the holders of shares entitled to vote in the election. There is no provision for cumulative voting.
Pursuant to the provisions of our bylaws, the board of directors may change the number of directors to not less than
three, nor more than 15, by a vote of a majority of the entire board. Each director shall be elected to serve until the third
succeeding annual meeting of stockholders and until his or her successor shall have been duly elected and qualified, ex-
cept in the event of death, resignation or removal. A vacancy on the board created by death, resignation, removal (which
may only be for cause), or failure of the stockholders to elect the entire class of directors to be elected at any election of
directors or for any other reason may be filled only by an affirmative vote of a majority of the remaining directors then in
office, even if less than a quorum, at any special meeting called for that purpose or at any regular meeting of the board
of directors. The board of directors has the authority to fix the amounts which shall be payable to the non-employee
members of our board of directors for attendance at any meeting or for services rendered to us.
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annual report 2012
Common Stock
Each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of stock-
holders. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of shares
of common stock are entitled to receive ratably all dividends, if any, declared by our board of directors out of funds le-
gally available for dividends. Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after
payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation
preferences, if any, the holders of our common stock will be entitled to receive pro rata our remaining assets available
for distribution. Holders of common stock do not have conversion, redemption or preemptive rights to subscribe to any
of our securities. All outstanding shares of common stock are fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to the rights of the holders of any shares of preferred stock which we
may issue in the future. Our common stock is not subject to any sinking fund provisions and no holder of any shares will
be required to make additional contributions of capital with respect to our shares in the future. There are no provisions
in our articles of incorporation or bylaws discriminating against a shareholder because of his or her ownership of a par-
ticular number of shares.
We are not aware of any limitations on the rights to own our common stock, including rights of non-resident or foreign
stockholders to hold or exercise voting rights on our common stock, imposed by foreign law or by our articles of incor-
poration or bylaws.
Preferred Stock
Our articles of incorporation authorize our board of directors, without any further vote or action by our stockholders,
to issue up to 20,000,000 shares of blank check preferred stock, of which 1,000,000 shares have been designated Series
A Participating Preferred Stock, in connection with our adoption of a stockholder rights plan as described below under
“—Stockholder Rights Plan,” and to determine, with respect to any series of preferred stock established by our board of
directors, the terms and rights of that series, including:
• the designation of the series;
• the number of shares of the series;
• the preferences and relative, participating, option or other special rights, if any, and any qualifications, limitations
or restrictions of such series; and
• the voting rights, if any, of the holders of the series.
Stockholder Rights Plan
Each share of our common stock includes a right that entitles the holder to purchase from us a unit consisting of one-
thousandth of a share of our Series A participating preferred stock at a purchase price of $25.00 per unit, subject to speci-
fied adjustments. The rights are issued pursuant to a stockholder rights agreement between us and American Stock
Transfer & Trust Company, as rights agent. Until a right is exercised, the holder of a right will have no rights to vote or
receive dividends or any other stockholder rights.
The rights may have anti-takeover effects. The rights will cause substantial dilution to any person or group that at-
tempts to acquire us without the approval of our board of directors. As a result, the overall effect of the rights may be to
render more difficult or discourage any attempt to acquire us. Because our board of directors can approve a redemption
of the rights or a permitted offer, the rights should not interfere with a merger or other business combination approved
by our board of directors. The adoption of the rights agreement was approved by our existing stockholder prior to our
initial public offering in May 2008.
We have summarized the material terms and conditions of the rights agreement and the rights below. For a complete
description of the rights, we encourage you to read the stockholder rights agreement, which we have filed as an exhibit
to this annual report.
Detachment of rights
The rights are attached to all certificates representing our outstanding common stock and will attach to all common
stock certificates we issue prior to the rights distribution date that we describe below. The rights are not exercisable
until after the rights distribution date and will expire at the close of business on the tenth anniversary date of the adop-
tion of the rights plan, unless we redeem or exchange them earlier as described below. The rights will separate from the
common stock and a rights distribution date will occur, subject to specified exceptions, on the earlier of the following
two dates:
• ten days following the first public announcement that a person or group of affiliated or associated persons or an
“acquiring person” has acquired or obtained the right to acquire beneficial ownership of 15% or more of our out-
standing common stock; or
• ten business days following the start of a tender or exchange offer that would result, if closed, in a person becoming
an “acquiring person.”
Our controlling stockholder, Vorini Holdings Inc., and its affiliates are excluded from the definition of “acquiring person”
for purposes of the rights, and therefore their ownership or future share acquisitions cannot trigger the rights. Specified
“inadvertent” owners that would otherwise become an acquiring person, including those who would have this designa-
tion as a result of repurchases of common stock by us, will not become acquiring persons as a result of those transac-
tions.
Our board of directors may defer the rights distribution date in some circumstances, and some inadvertent acquisitions
will not result in a person becoming an acquiring person if the person promptly divests itself of a sufficient number of
shares of common stock.
Until the rights distribution date:
• our common stock certificates will evidence the rights, and the rights will be transferable only with those certifi-
cates; and
• any new shares of common stock will be issued with rights, and new certificates will contain a notation incorporat-
ing the rights agreement by reference.
As soon as practicable after the rights distribution date, the rights agent will mail certificates representing the rights to
holders of record of common stock at the close of business on that date. As of the rights distribution date, only separate
rights certificates will represent the rights.
We will not issue rights with any shares of common stock we issue after the rights distribution date, except as our board
of directors may otherwise determine.
Flip-in event
A “flip-in event” will occur under the rights agreement when a person becomes an acquiring person. If a flip-in event oc-
curs and we do not redeem the rights as described under the heading “—Redemption of rights” below, each right, other
than any right that has become void, as described below, will become exercisable at the time it is no longer redeemable
for the number of shares of common stock, or, in some cases, cash, property or other of our securities, having a current
market price equal to two times the exercise price of such right.
If a flip-in event occurs, all rights that then are, or in some circumstances that were, beneficially owned by or transferred to
an acquiring person or specified related parties will become void in the circumstances which the rights agreement specifies.
Flip-over event
A “flip-over event” will occur under the rights agreement when, at any time after a person has become an acquiring
person:
• we are acquired in a merger or other business combination transaction; or
• 50% or more of our assets, cash flows or earning power is sold or transferred.
If a flip-over event occurs, each holder of a right, other than any right that has become void as we describe under the
heading “—Flip-in event” above, will have the right to receive the number of shares of common stock of the acquiring
company having a current market price equal to two times the exercise price of such right.
Antidilution
The number of outstanding rights associated with our common stock is subject to adjustment for any stock split, stock
dividend or subdivision, combination or reclassification of our common stock occurring prior to the rights distribution
date. With some exceptions, the rights agreement does not require us to adjust the exercise price of the rights until cu-
mulative adjustments amount to at least 1% of the exercise price. It also does not require us to issue fractional shares of
our preferred stock that are not integral multiples of one one-hundredth of a share, and, instead, we may make a cash
adjustment based on the market price of the common stock on the last trading date prior to the date of exercise. The
rights agreement reserves us the right to require, prior to the occurrence of any flip-in event or flip-over event, that, on
any exercise of rights, a number of rights must be exercised so that we will issue only whole shares of stock.
70
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annual report 2012 Redemption of rights
At any time until ten days after the date on which the occurrence of a flip-in event is first publicly announced, we may
redeem the rights in whole, but not in part, at a redemption price of $0.01 per right. The redemption price is subject to
adjustment for any stock split, stock dividend or similar transaction occurring before the date of redemption. At our
option, we may pay that redemption price in cash, shares of common stock or any other consideration our board of di-
rectors may select. The rights are not exercisable after a flip-in event until they are no longer redeemable. If our board of
directors timely orders the redemption of the rights, the rights will terminate on the effectiveness of that action.
Exchange of rights
We may, at our option, exchange the rights (other than rights owned by an acquiring person or an affiliate or an associ-
ate of an acquiring person, which have become void), in whole or in part. The exchange must be at an exchange ratio of
one share of common stock per right, subject to specified adjustments at any time after the occurrence of a flip-in event
and prior to
•
any person other than our existing stockholder becoming the beneficial owner of common stock with voting pow-
er equal to 50% or more of the total voting power of all shares of common stock entitled to vote in the election of
directors; or
•
the occurrence of a flip-over event.
Amendment of terms of rights
While the rights are outstanding, we may amend the provisions of the rights agreement only as follows:
•
•
•
to cure any ambiguity, omission, defect or inconsistency;
to make changes that do not adversely affect the interests of holders of rights, excluding the interests of any ac-
quiring person; or
to shorten or lengthen any time period under the rights agreement, except that we cannot change the time period
when rights may be redeemed or lengthen any time period, unless such lengthening protects, enhances or clarifies
the benefits of holders of rights other than an acquiring person.
At any time when no rights are outstanding, we may amend any of the provisions of the rights agreement, other than
decreasing the redemption price.
Dissenters’ Rights of Appraisal and Payment
Under the BCA, our stockholders have the right to dissent from various corporate actions, including any merger or sale
of all, or substantially all, of our assets not made in the usual course of our business, and receive payment of the fair
value of their shares. In the event of any amendment of our articles of incorporation, a stockholder also has the right to
dissent and receive payment for his or her shares if the amendment alters certain rights in respect of those shares. The
dissenting stockholder must follow the procedures set forth in the BCA to receive payment. In the event that we and
any dissenting stockholder fail to agree on a price for the shares, the BCA procedures involve, among other things, the
institution of proceedings in the high court of the Republic of The Marshall Islands or in any appropriate court in any
jurisdiction in which our shares are primarily traded on a local or national securities exchange. The value of the shares
of the dissenting stockholder is fixed by the court after reference, if the court so elects, to the recommendations of a
court-appointed appraiser.
Stockholders’ Derivative Actions
Under the BCA, any of our stockholders may bring an action in our name to procure a judgment in our favor, also known
as a derivative action, provided that the stockholder bringing the action is a holder of common stock both at the time
the derivative action is commenced and at the time of the transaction to which the action relates.
Limitations on Liability and Indemnification of Officers and Directors
The BCA authorizes corporations to limit or eliminate the personal liability of directors and officers to corporations and
their stockholders for monetary damages for breaches of directors’ fiduciary duties. Our articles of incorporation include
a provision that eliminates the personal liability of directors for monetary damages for actions taken as a director to the
fullest extent permitted by law.
Our bylaws provide that we must indemnify our directors and officers to the fullest extent authorized by law. We are
also expressly authorized to advance certain expenses (including attorneys’ fees and disbursements and court costs) to
our directors and officers and carry directors’ and officers’ insurance providing indemnification for our directors, officers
and certain employees for some liabilities. We believe that these indemnification provisions and insurance are useful to
attract and retain qualified directors and executive officers.
The limitation of liability and indemnification provisions in our articles of incorporation and bylaws may discourage
stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have
the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders. In addition, stockholders’ investments may be adversely
affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to
these indemnification provisions.
There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for
which indemnification is sought.
Anti-Takeover Effect of Certain Provisions of our Articles of Incorporation and Bylaws
Several provisions of our articles of incorporation and bylaws, which are summarized in the following paragraphs, may
have anti-takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a
hostile change of control and enhance the ability of our board of directors to maximize stockholder value in connection
with any unsolicited offer to acquire us. However, these anti-takeover provisions could also delay, defer or prevent (a)
the merger or acquisition of our company by means of a tender offer, a proxy contest or otherwise that a stockholder
might consider in its best interest, including attempts that may result in a premium over the market price for the shares
held by the stockholders, and (b) the removal of incumbent officers and directors.
Blank check preferred stock
Under the terms of our articles of incorporation, our board of directors has authority, without any further vote or action
by our stockholders, to issue up to 20,000,000 shares of blank check preferred stock, of which 1,000,000 shares have
been designated Series A Participating Preferred Stock, in connection with our adoption of a stockholder rights plan as
described above under “—Stockholder Rights Plan.” Our board of directors may issue shares of preferred stock on terms
calculated to discourage, delay or prevent a change of control of our company or the removal of our management.
Classified board of directors
Our articles of incorporation provide for a board of directors serving staggered, three-year terms. Approximately one-
third of our board of directors will be elected each year. This classified board provision could discourage a third party from
making a tender offer for our shares or attempting to obtain control of our company. It could also delay stockholders
who do not agree with the policies of the board of directors from removing a majority of the board of directors for two
years.
Election and removal of directors
Our articles of incorporation prohibit cumulative voting in the election of directors. Our bylaws require parties other
than the board of directors to give advance written notice of nominations for the election of directors. Our articles of
incorporation and bylaws also provide that our directors may be removed only for cause. These provisions may discour-
age, delay or prevent the removal of incumbent officers and directors.
Calling of special meeting of stockholders
Our articles of incorporation and bylaws provide that special meetings of our stockholders may only be called by our
Chairman of the board of directors, chief executive officer or by either, at the request of a majority of our board of direc-
tors.
Advance notice requirements for stockholder proposals and director nominations
Our bylaws provide that stockholders seeking to nominate candidates for election as directors or to bring business be-
fore an annual meeting of stockholders must provide timely notice of their proposal in writing to the corporate secretary.
Generally, to be timely, a stockholder’s notice must be received at our offices not less than 90 days nor more than 120
days prior to the first anniversary date of the previous year’s annual meeting. Our bylaws also specify requirements as
to the form and content of a stockholder’s notice. These provisions may impede stockholders’ ability to bring matters
before an annual meeting of stockholders or to make nominations for directors at an annual meeting of stockholders.
C. Material Contracts
Not applicable.
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annual report 2012 D. Exchange Controls and Other Limitations Affecting Security Holders
(a) the use of vessels;
Under Marshall Islands law, there are currently no restrictions on the export or import of capital, including foreign ex-
change controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident hold-
ers of our common stock.
E. Tax Considerations
Marshall Islands Tax Considerations
We are a non-resident domestic Marshall Islands corporation. Because we do not, and we do not expect that we will,
conduct business or operations in the Republic of The Marshall Islands, under current Marshall Islands law we are not
subject to tax on income or capital gains and our stockholders (so long as they are not citizens or residents of the Repub-
lic of The Marshall Islands) will not be subject to Marshall Islands taxation or withholding on dividends and other distri-
butions (including upon a return of capital) we make to our stockholders. In addition, so long as our stockholders are
not citizens or residents of the Republic of The Marshall Islands, our stockholders will not be subject to Marshall Islands
stamp, capital gains or other taxes on the purchase, holding or disposition of our common stock, and our stockholders
will not be required by the Republic of The Marshall Islands to file a tax return relating to our common stock.
Each stockholder is urged to consult their tax counselor or other advisor with regard to the legal and tax consequences,
under the laws of pertinent jurisdictions, including the Republic of The Marshall Islands, of their investment in us. Fur-
ther, it is the responsibility of each stockholder to file all state, local and non-U.S., as well as U.S. federal tax returns that
may be required of them.
Liberian Tax Considerations
Some of our vessel-owning subsidiaries are incorporated under the laws of the Republic of Liberia. The Republic of Li-
beria enacted a new income tax act effective as of January 1, 2001 (the “New Act”) which did not distinguish between
the taxation of “non-resident” Liberian corporations, such as our subsidiaries, which conduct no business in Liberia and
were wholly exempt from taxation under the income tax law previously in effect since 1977, and “resident” Liberian cor-
porations which conduct business in Liberia and are, and were under the prior law, subject to taxation. The New Act was
amended by the Consolidated Tax Amendments Act of 2011 which was published and became effective on November
1, 2011 (the “Amended Act”). The Amended Act specifically exempts from taxation non-resident Liberian corporations
such as our Liberian subsidiaries that engage in international shipping (and not exclusively in Liberia) and that do not
engage in other business or activities in Liberia other than specifically enumerated in the Amended Act. In addition, the
Amended Act made such exemption from taxation retroactive to the effective date of the New Act.
United States Federal Income Tax Considerations
The following discussion of United States federal income tax matters is based on 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. This discussion does not address any United States state or local taxes,
any United States federal tax other than federal income tax or the tax on net investment income imposed by Section 1411 of
the Code. This discussion does not purport to address the tax consequences of owning our common stock to all categories of
investors, some of which (such as financial institutions, regulated investment companies, real estate investment trusts, tax-ex-
empt organizations, insurance companies, United States expatriates, persons holding our common stock as part of a hedging,
integrated, conversion or constructive sale transaction or a straddle, persons liable for alternative minimum tax, pass-through
entities and investors therein, persons who own, actually or under applicable constructive ownership rules, 10% or more of our
common stock, traders or dealers in securities or currencies and United States holders whose functional currency is not the
United States dollar) may be subject to special rules. This discussion only addresses holders that hold the common stock as a
capital asset. You are encouraged to consult your own tax advisors concerning the overall tax consequences of the ownership
of our common stock arising in your own particular situation under United States federal, state, local or foreign law.
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. Partners in a partnership holding our common stock are encouraged
to consult their tax advisors.
(b) the hiring or leasing of vessels for use on a time, operating or bareboat charter basis;
(c) the participation in a pool, partnership, strategic alliance, joint operating agreement or other joint venture it
directly or indirectly owns or participates in that generates such income; or
(d) the performance of services directly related to those uses.
Shipping income attributable to transportation exclusively between non-United States ports is generally not subject to
United States income tax. However, unless exempt from United States income tax under the rules contained in Section
883 of the Code, a non-United States corporation is, under the rules of Section 887 of the Code, subject to a 4% United
States income tax in respect of its “United States source gross transportation income” (without the allowance for de-
ductions). United States source gross transportation 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. Under Section 883 of the
Code, a non-United States corporation will be exempt from United States income tax on its United States source gross
transportation income if:
(a) it is organized in a foreign country (its “country of organization”) that grants an “equivalent exemption” to United
States corporations; and
(b) either
(i) more than 50% of the value of its stock is owned, directly or indirectly, by individuals who are “residents” of its
country of organization or of another foreign country that grants an “equivalent exemption” to United States
corporations; or
(ii) its stock is “primarily and regularly traded on an established securities market” in its country of organization,
in another country that grants an “equivalent exemption” to United States corporations, or in the United
States.
We believe that we will not satisfy the requirements of Section 883 of the Code. As a result, we will be subject to the 4%
United States income tax on United States source gross transportation income. Since 50% of our gross shipping income
for transportation that begins or ends in the United States would be treated as United States source gross transporta-
tion income, we expect that the effective rate of United States income tax on our gross shipping income for such trans-
portation would equal 2%. Many of our charters contain a provision that obligates the charterer to reimburse us for the
4% United States income tax that we are required to pay in respect of the vessel subject to the relevant charter.
In lieu of the foregoing rules, since the exemption of Section 883 of the Code will not apply to us, our United States
source gross transportation income that is considered to be “effectively connected” with the conduct of a United States
trade or business would be subject to the United States corporate income tax currently imposed at rates of up to 35%
(net of applicable deductions). In addition, we may be subject to the 30% United States “branch profits” taxes on earn-
ings effectively connected with the conduct of such trade or business, as determined after allowance for certain adjust-
ments, and on certain interest paid or deemed paid attributable to the conduct of our United States trade or business.
We expect that none of our United States source gross transportation income will be “effectively connected” with the
conduct of a United States trade or business. Such income would be considered “effectively connected” only if:
(a) we had, or were considered to have, a fixed place of business in the United States involved in the earning of our
United States source gross transportation income; and
(b) substantially all of our United States source gross transportation income was attributable to regularly scheduled
transportation, such as the operation of a vessel that followed a published schedule with repeated sailings at
regular intervals between the same points for voyages that begin or end in the United States.
We believe that we will not meet these conditions because we will not have, or permit circumstances that would result
in our having, any vessel sailing to or from the United States on a regularly scheduled basis. In addition, income attrib-
utable to transportation that both begins and ends in the United States is not subject to the tax rules described above.
Such income is subject to either a 30% gross-basis tax or to United States corporate income tax on net income at rates of
up to 35% (and the branch profits tax discussed above). Although there can be no assurance, we do not expect to engage
in transportation that produces shipping income of this type.
Taxation of Our Shipping Income
Taxation of Gain on Sale of Assets
For purposes of the following discussion “shipping income” means income that is derived by a non-United States corpo-
ration from:
Regardless of whether we qualify for the exemption under Section 883 of the Code, we will not be subject to United
States income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside
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annual report 2012 of the United States (as determined under United States tax principles). In general, a sale of a vessel will be considered to
occur outside of the United States for this purpose if title to the vessel (and risk of loss with respect to the vessel) passes
to the buyer outside of the United States. We expect that any sale of a vessel will be so structured that it will be consid-
ered to occur outside of the United States.
United States Federal Income Taxation of United States Holders
You are a “United States holder” if you are a beneficial owner of our common stock and you are a 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 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 that trust.
Distributions on Our Common Stock
Subject to the discussion of PFICs below, any distributions with respect to our common stock that you receive from us
will generally constitute dividends, which may be taxable as ordinary income or “qualified dividend income” as described
below, to the extent of our current or accumulated earnings and profits (as determined under United States tax princi-
ples). Distributions in excess of our earnings and profits will be treated first as a nontaxable return of capital to the ex-
tent of your tax basis in our common stock (on a dollar-for-dollar basis) and thereafter as capital gain. Because we do not
intend to determine our earnings and profits on the basis of United States federal income tax principles, any distribution
paid will generally be treated as a “dividend” for United States federal income tax purposes.
Because we are not a United States corporation, if you are a United States corporation (or a United States entity taxable
as a corporation), you will not be entitled to claim a dividends-received deduction with respect to any distributions you
receive from us.
Dividends paid with respect to our 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.
If you are an individual, trust or estate, dividends you receive from us should be treated as “qualified dividend income”
taxed at preferential rates, provided that:
(a) The common stock is readily tradable on an established securities market in the United States (such as the New
York Stock Exchange);
(b) We are not a PFIC for the taxable year during which the dividend is paid or the immediately preceding taxable year
(see the discussion below under “—PFIC Status”);
(c) You own our 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;
(d) You are not under an obligation to make related payments with respect to positions in substantially similar or
related property; and
(e) Certain other conditions are met.
Special rules may apply to any “extraordinary dividend.” Generally, an extraordinary dividend is a dividend in an amount
that is equal to (or in excess of) 10% of your adjusted tax basis (or fair market value in certain circumstances) in a share
of our common stock. If we pay an “extraordinary dividend” on our common stock that is treated as “qualified dividend
income” and if you are an individual, estate or trust, then any loss you derive from a subsequent sale or exchange of such
common stock will be treated as long-term capital loss to the extent of such dividend.
There is no assurance that dividends you receive from us will be eligible for preferential rates. Dividends you receive from
us that are not eligible for any preferential rate will be taxed at the ordinary income rates.
Sale, Exchange or other Disposition of Common Stock
Provided that we are not a PFIC for any taxable year, you generally will recognize taxable gain or loss upon a sale, exchange
or other disposition of our common stock in an amount equal to the difference between the amount realized by you from
such sale, exchange or other disposition and your tax basis in such stock. Such gain or loss will be treated as long-term
capital gain or loss if your 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. Your ability to deduct capital losses against ordinary income is subject to limitations.
PFIC Status
Special United States income tax rules apply to you if you hold stock in a non-United States corporation that is classi-
fied as a “passive foreign investment company” (or “PFIC”) for United States income tax purposes. In general, we will be
treated as a PFIC in any taxable year in which, after applying certain look-through rules, either:
(a) at least 75% of our gross income for such taxable year consists of “passive income” (e.g., dividends, interest, capi-
tal gains and rents derived other than in the active conduct of a rental business); or
(b) at least 50% of the average value of our assets during such taxable year consists of “passive assets” (i.e., assets
that produce, or are held for the production of, passive income).
For purposes of determining whether we are a PFIC, we will be treated as earning and owning our proportionate share
of the income and assets, respectively, of any of our subsidiary corporations in which we own at least 25% of the value of
the subsidiary’s stock. Income we earn, or are deemed to earn, in connection with the performance of services will not
constitute passive income. By contrast, rental income will generally constitute passive income (unless we are treated
under certain special rules as deriving our rental income in the active conduct of a trade or business).
Because we have chartered all our vessels to unrelated charterers on the basis of period time and spot time charter con-
tracts (and not on the basis of bareboat charters) and because we expect to continue to do so, we believe that currently
we should not be treated as being and should not become a PFIC. We believe it is more likely than not that our gross
income derived from our time charter activities constitutes active service income (as opposed to passive rental income)
and, as a result, our vessels constitute active assets (as opposed to passive assets) for purposes of determining whether
we are a PFIC. We believe there is legal authority supporting this position, consisting of case law and IRS pronounce-
ments concerning the characterization of income derived from time charters as service income for other tax purposes.
However, there is no legal authority specifically relating to the statutory provisions governing PFICs or relating to cir-
cumstances substantially similar to ours. Moreover, a recent case by the United States Court of Appeals for the Fifth
Circuit held that, contrary to the position of the IRS in that case, and for purposes of a different set of rules under the
Code, income received under a time charter of vessels should be treated as rental income rather than services income. If
the reasoning of the Fifth Circuit case were extended to the PFIC context, the gross income we derive or are deemed to
derive from our time chartering activities would be treated as rental income, and we would probably be a PFIC.
We have not sought, and we do not expect to seek, an IRS ruling on this matter. As a result, the IRS or a court could disa-
gree with our position that we are not currently a PFIC. No assurance can be given that this result will not occur. In ad-
dition, although we intend to conduct our affairs in a manner to avoid, to the extent possible, being classified as a PFIC
with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the future,
or that we can avoid PFIC status in the future.
As discussed below, if we were to be treated as a PFIC for any taxable year, you generally would be subject to one of three
different United States income tax regimes, depending on whether or not you make certain elections.
Taxation of United States Holders That Make a Timely QEF Election
If we were treated as a PFIC, and if you make a timely election to treat us as a “Qualifying Electing Fund” for United
States tax purposes (a “QEF Election”), you would be required to report each year your pro rata share of our ordinary
earnings and our net capital gain for our taxable year that ends with or within your taxable year, regardless of whether
we make any distributions to you. Such income inclusions would not be eligible for the preferential tax rates applicable
to “qualified dividend income.” Your adjusted tax basis in our common stock would be increased to reflect such taxed but
undistributed earnings and profits. Distributions of earnings and profits that had previously been taxed would result in a
corresponding reduction in your adjusted tax basis in our common stock and would not be taxed again once distributed.
You would generally recognize capital gain or loss on the sale, exchange or other disposition of our common stock. Even
if you make a QEF Election for one of our taxable years, if we were a PFIC for a prior taxable year during which you held
our common stock and for which you did not make a timely QEF Election, you would also be subject to the more adverse
rules described below under “Taxation of United States Holders That Make No Election.”
You would make a QEF Election with respect to any year that our company is treated as a PFIC by completing and filing
IRS Form 8621 with your United States income tax return in accordance with the relevant instructions. If we were to be-
come aware that we were to be treated as a PFIC for any taxable year, we would notify all United States holders of such
treatment and would provide all necessary information to any United States holder who requests such information in
order to make the QEF election described above.
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annual report 2012 Taxation of United States Holders That Make a Timely “Mark-to-Market” Election
Alternatively, if we were to be treated as a PFIC for any taxable year and, as we believe, our common stock is treated
as “marketable stock,” you would be allowed to make a “mark-to-market” election with respect to our common stock,
provided that you complete and file IRS Form 8621 in accordance with the relevant instructions. If that election is made,
you generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of our
common stock at the end of the taxable year over your adjusted tax basis in our common stock. You also would be per-
mitted an ordinary loss in respect of the excess, if any, of your adjusted tax basis in our 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). Your tax basis in our common stock would be adjusted to reflect any such income or
loss amount. Gain realized on the sale, exchange or other disposition of our common stock would be treated as ordinary
income, and any loss realized on the sale, exchange or other disposition of the common stock would be treated as ordi-
nary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by you.
Taxation of United States Holders That Make No Election
Finally, if we were treated as a PFIC for any taxable year and if you did not make either a QEF Election or a “mark-to-
market” election for that year, you would be subject to special rules with respect to (a) any excess distribution (that is,
the portion of any distributions received by you on our common stock in a taxable year in excess of 125% of the aver-
age annual distributions received by you in the three preceding taxable years, or, if shorter, your holding period for our
common stock) and (b) any gain realized on the sale, exchange or other disposition of our common stock. Under these
special rules:
(i) the excess distribution or gain would be allocated ratably over your aggregate holding period for our common
stock;
(ii) the amount allocated to the current taxable year would be taxed as ordinary income; and
(iii) 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.
If an individual dies while owning our common stock, the individual’s successor generally would not receive a step-up in
tax basis with respect to such stock for United States tax purposes.
United States Federal Income Taxation of Non-United States Holders
You are a “non-United States holder” if you are a beneficial owner of our common stock (other than a partnership for
United States tax purposes) and you are not a United States holder.
Distributions on Our Common Stock
You generally will not be subject to United States income or withholding taxes on dividends you receive from us with
respect to our common stock, unless that income is effectively connected with your conduct of a trade or business in
the United States. If you are entitled to the benefits of an applicable income tax treaty with respect to those dividends,
that income generally is taxable in the United States only if it is attributable to a permanent establishment maintained
by you in the United States.
Sale, Exchange or Other Disposition of Our Common Stock
You generally will not be subject to United States income tax or withholding tax on any gain realized upon the sale, ex-
change or other disposition of our common stock, unless:
(a) the gain is effectively connected with your conduct of a trade or business in the United States. If you are entitled
to the benefits of an applicable income tax treaty with respect to that gain, that gain generally is taxable in the
United States only if it is attributable to a permanent establishment maintained by you in the United States; or
(b) you are an individual who is present in the United States for 183 days or more during the taxable year of disposi-
tion and certain other conditions are met.
change or other disposition of the stock) that is effectively connected with the conduct of that trade or business in the
same manner as if you were a United States holder. In addition, if you are a corporate non-United States holder, your
earnings and profits that are attributable to the effectively connected income (subject to certain adjustments) may be
subject to an additional United States branch profits tax at a rate of 30%, or at a lower rate as may be specified by an
applicable income tax treaty.
United States Backup Withholding and Information Reporting
In general, if you are a non-corporate United States holder, dividend payments (or other taxable distributions) made
within the United States will be subject to information reporting requirements and backup withholding tax if you:
(1) fail to provide us with an accurate taxpayer identification number;
(2) 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
(3) in certain circumstances, fail to comply with applicable certification requirements.
Under legislation enacted in 2010, United States holders who are individuals generally will be required to report certain
information with respect to an interest in our common stock, including our name, address and such information as is
necessary to identify the class or issue of which the shares of common stock are a part. These requirements are subject
to exceptions, including an exception for shares held in accounts maintained by certain financial institutions and an
exception applicable if the aggregate value of all “specified foreign financial assets” (as defined in the Code) held by the
United States holder (and, as applicable by his or her spouse) does not exceed a specified minimum amount.
If you are a non-United States holder, you may be required to establish your exemption from information reporting and
backup withholding by certifying your status on IRS Form W-8BEN, W-8ECI or W-8IMY, as applicable. If you sell our com-
mon stock to or through a United States office or broker, the payment of the sales 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 our 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 informa-
tion 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 outside the United States, if you sell our common stock through a non-United States office of a broker that is a
United States person or has certain other connections with the United States.
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 accurately completing and timely filing a refund
claim with the IRS. You should consult your own tax advisor regarding the application of the backup withholding and
information reporting rules.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). In accordance with these requirements, we file reports and other information as a foreign private issuer with the
SEC. You may inspect and copy our public filings without charge at the public reference facilities maintained by the SEC
at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the
public reference room. You may obtain copies of all or any part of such materials from the SEC upon payment of pre-
scribed fees. You may also inspect reports and other information regarding registrants, such as us, that file electronically
with the SEC without charge at a web site maintained by the SEC at http://www.sec.gov.
If you are engaged in a United States trade or business for United States tax purposes, you will be subject to United
States tax with respect to your income from our common stock (including dividends and the gain from the sale, ex-
I. Subsidiary Information
Not applicable.
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annual report 2012 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A. Quantitative Information About Market Risk
Interest Rate Risk
We are subject to market risks relating to changes in interest rates because we have floating rate debt outstanding,
which is based on U.S. dollar LIBOR plus, in the case of each credit facility, a specified margin. Our objective is to manage
the impact of interest rate changes on our earnings and cash flow in relation to our borrowings and to this effect, when
we deem appropriate, we use derivative financial instruments. We had entered into 17 interest rate swap agreements
as of December 31, 2012, compared to the same number of interest rate swap agreements as of December 31, 2011, in
order to manage future interest costs and the risk associated with changing interest rates.
The total notional principal amount of these swaps as of December 31, 2012 was $505.8 million, of which $452.1 million
was effective as of December 31, 2012 and $53.7 million becomes effective during 2013. The swaps have specified rates
and durations. Refer to the table in Note 14 of our financial statements included at the end of this annual report which
summarizes the interest rate swaps in place as of December 31, 2012 and December 31, 2011. In January 2013, we en-
tered into an interest rate transaction with a bank in respect of one of our loan facilities for an initial notional amount
of $14 million and duration of five years. For more information, refer to Note 23 of our financial statements included at
the end of this annual report.
Under our interest rate swap transactions, the bank effects quarterly or semiannual floating-rate payments to us for
the relevant amount based either on the three- or six-month U.S. dollar LIBOR and we make quarterly or semiannual
payments to the bank on the relevant amount at the respective fixed rates.
We entered into these interest rate swap agreements to mitigate our exposure to interest rate fluctuations and at a
time when we believed long-term interest rates were reasonably low. None of our interest rate swap meets hedge ac-
counting criteria under accounting guidance relating to Fair Value Measurement. Although we are exposed to credit-re-
lated losses in the event of non-performance in connection with such swap agreements, because the counterparties are
major financial institutions, we consider the risk of loss due to their nonperformance to be minimal.
Through these swap transactions, we effectively hedged the interest rate exposure of 83.0% of our loans outstanding as
of December 31, 2012, which bear interest at LIBOR.
The following table sets forth the sensitivity of our existing loans as of December 31, 2012 as to a 100 basis point in-
crease in LIBOR taking into account our interest rate swap agreements that are currently in place, during the next five
years, and reflects the additional interest expense.
Year
2013
2014
2015
2016
2017
Amount
$1.9 million
$2.6 million
$3.1 million
$3.1 million
$2.9 million
Foreign Currency Exchange Risk
We generate all of our revenues in U.S. dollars, but for the year ended December 31, 2012 we incurred approximately
26.42% of our vessel operating expenses in currencies other than the U.S. dollar. As of December 31, 2012, approxi-
mately 28.02% of our outstanding accounts payable were denominated in currencies other than the U.S. dollar and
were subject to exchange rate risk, as their value fluctuates with changes in exchange rates.
A hypothetical 10% immediate and uniform adverse move in all currency exchange rates from the rates in effect as of
December 31, 2012, would have increased our vessel operating expenses by approximately $912,372 and the fair value
of our outstanding accounts payable by approximately $85,919.
As of December 31, 2012 a portion of our remaining capital expenditures related to the agreements for the purchase of
newbuilds was denominated in Japanese yen, equivalent to $2.3 million. A hypothetical 10% immediate adverse move
in the Japanese yen exchange rate from the rate in effect as of December 31, 2012, would have increased our remaining
capital expenditures by approximately $258,759. While, from time to time, we have in the past used financial derivatives
in the form of foreign exchange forward agreements to mitigate the risk associated with exchange rate fluctuations,
currently, no such instruments are in place, although we may enter into foreign exchange forward agreements in the
future in relation to the remaining payments denominated in Japanese Yen for the newbuild vessels we have contracted
to purchase.
There have been no material quantitative changes in market risk exposures between 2012 and 2011.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS
A. Material Modifications to the Rights of Security Holders
We adopted a stockholder rights plan on May 13, 2008 that authorizes the issuance to our existing stockholders of
preferred share rights and additional shares of common stock if any third party seeks to acquire control of a substantial
block of our common stock. See “Item 10. Additional Information —B. Memorandum and Articles of Association—Stock-
holder Rights Plan” included in this annual report for a description of the stockholder rights plan.
ITEM 15. CONTROLS AND PROCEDURES
A. Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the ef-
fectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act as of December 31, 2012. Disclosure controls and procedures are defined under SEC
rules as controls and other procedures that are designed to ensure that information required to be disclosed by a com-
pany in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported
within required time periods. Disclosure controls and procedures include without limitations controls and procedures
designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under
the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and
principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding
required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and proce-
dures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Ac-
cordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their
control objectives. Based on our evaluation, the chief executive officer and the chief financial officer have concluded that
our disclosure controls and procedures were effective as of December 31, 2012.
B. Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act and for the assessment of the effectiveness of internal
control over financial reporting. Our internal control over financial reporting is a process designed by, or under the su-
pervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions,
and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in ac-
cordance with generally accepted accounting principles in the United States (“U.S. GAAP”).
A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the main-
tenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation
of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
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annual report 2012 assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In making its assessment of our internal control over financial reporting as of December 31, 2012, management, in-
cluding the chief executive officer and chief financial officer, used the criteria set forth in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Management concluded that, as of December 31, 2012, our internal control over financial reporting was effective. De-
loitte Hadjipavlou, Sofianos & Cambanis S.A. (“Deloitte”), our independent registered public accounting firm, has au-
dited the financial statements included herein and our internal control over financial reporting and has issued an at-
testation report on the effectiveness of our internal control over financial reporting as of December 31, 2012 which is
reproduced in its entirety in Item 15(c) below.
C. Attestation Report of the Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Safe Bulkers, Inc.,
Majuro, Republic of The Marshall Islands
We have audited the internal control over financial reporting of Safe Bulkers, Inc., and its subsidiaries (the “Company”) as
of December 31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintain-
ing effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Re-
porting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, or persons performing similar functions, and effected by the com-
pany’s board of directors, management, and other personnel 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 proce-
dures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transac-
tions 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 manage-
ment 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 the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or de-
tected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial
reporting to future periods are subject to the risk that the controls may become inadequate because of changes in con-
ditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2012, based on the criteria established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements as of and for the year ended December 31, 2012 of the Company and our
report dated February 28, 2013 expressed an unqualified opinion on those financial statements.
/s/ Deloitte Hadjipavlou, Sofianos & Cambanis S.A.
Athens, Greece
February 28, 2013
D. Changes in Internal Control over Financial Reporting
During the period covered by this annual report, we have made no changes to our internal control over financial report-
ing that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 16. [RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Audit Committee consists of three independent directors, John Gaffney, Ole Wikborg and Frank Sica, who is the
chairman of the committee. Our board of directors has determined that Frank Sica, whose biographical details are in-
cluded in “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management”, qualifies as an
audit committee financial expert as defined under current SEC regulations.
ITEM 16B. CODE OF ETHICS
We have adopted a Code of Business Conduct and Ethics for all officers and employees of our company, which incorpo-
rates a Code of Ethics for directors and a Code of Conduct for corporate officers, a copy of which is posted on our website,
and may be viewed at http://www.safebulkers.com/corp_ethics.htm. We will also provide a paper copy of this document
free of charge upon written request by our stockholders. Stockholders may direct their requests to the attention of Dr.
Loukas Barmparis, Secretary, Safe Bulkers, Inc., 32 Avenue Karamanli, 16605, Voula, Athens, Greece. No waivers of the
Code of Business Conduct and Ethics have been granted to any person during the fiscal year ended December 31, 2012.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Aggregate fees billed to the Company for the fiscal years ended December 31, 2012 and 2011 by the Company’s principal
accounting firm, Deloitte, Hadjipavlou, Sofianos & Cambanis S.A, an independent registered public accounting firm and
member of Deloitte Touche Tohmatsu, Limited, by the category of service, were as follows:
Audit fees
Total fees
2011
2012
(In Thousands)
$
$
509
509
$
$
575
575
Audit fees represent compensation for professional services rendered for the integrated audit of the consolidated finan-
cial statements of the Company and for the review of the quarterly financial information as well as in connection with
the review of registration statements and related consents and comfort letters and any other audit services required for
SEC or other regulatory filings.
Pre-approval Policies and Procedures
The audit committee charter sets forth our policy regarding retention of the independent auditors, giving the audit
committee responsibility for the appointment, compensation, retention and oversight of the work of the independ-
ent auditors. The audit committee charter provides that the committee is responsible for reviewing and approving in
advance the retention of the independent auditors for the performance of all audit and lawfully permitted non-audit
services. The chairman of the audit committee or in the absence of the chairman, any member of the audit committee
designated by the chairman, has authority to approve in advance any lawfully permitted non-audit services and fees.
82
83
annual report 2012
The audit committee is authorized to establish other policies and procedures for the pre-approval of such services and
fees. Where non-audit services and fees are approved under delegated authority, the action must be reported to the full
audit committee at its next regularly scheduled meeting.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not Applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
On June 10, 2009, the Company announced that Vorini Holdings Inc. authorized a program under which it may from
time to time purchase shares of the Company’s common stock on the open market. The maximum number of shares
of common stock that can be purchased annually under the program and any private placement is approximately 2%
of the Company’s shares outstanding. The program is still in effect. No shares were purchased during 2012 pursuant to
the program. In December 2012, Vorini Holdings Inc. purchased 600,000 shares of the Company at a price of $3.00 per
share in a block trade completed through a broker-dealer. As of February 15, 2013, the Company had 76,670,460 shares
of common stock outstanding. Approximately 46,426,015 of those shares, or 60.55% of common stock outstanding,
were held by the Company’s affiliates, according to information provided to the Company by such affiliates. The remain-
ing 30,244,445 shares, or 39.45% of common stock outstanding, represented the public float.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not Applicable.
ITEM 16G. CORPORATE GOVERNANCE
Statement of Significant Differences Between our Corporate Governance Practices and the New York Stock Exchange Corpo-
rate Governance Standards for U.S. Non-Controlled Issuers
Overview
Pursuant to certain exceptions for foreign private issuers and controlled companies, we are not required to comply with
certain of the corporate governance practices followed by U.S. and non-controlled companies under the New York Stock
Exchange listing standards. However, pursuant to Section 303.A.11 of the New York Stock Exchange Listed Company
Manual and the requirements of Form 20-F, we are required to state any significant differences between our corpo-
rate governance practices and the practices required by the New York Stock Exchange. We believe that our established
practices in the area of corporate governance are in line with the spirit of the New York Stock Exchange standards and
provide adequate protection to our shareholders. For example, our audit committee consists solely of independent
directors. The significant differences between our corporate governance practices and the New York Stock Exchange
standards applicable to listed U.S. companies are set forth below.
Independent Directors
The New York Stock Exchange requires that listed companies have a majority of independent directors. As permitted
under Marshall Islands law and our bylaws, our board of directors consists of a majority of non-independent directors.
Executive Sessions
he New York Stock Exchange requires that non-management directors meet regularly in executive sessions without
management. The New York Stock Exchange also requires that all independent directors meet in an executive session
at least once a year. As permitted under Marshall Islands law and our bylaws, our non-management directors do not
regularly hold executive sessions without management and we do not expect them to do so.
Corporate Governance, Nominating and Compensation Committee
The New York Stock Exchange requires that a listed U.S. company have a nominating/corporate governance committee
and a compensation committee, each composed of independent directors. As permitted under Marshall Islands law and
our bylaws, we have a combined corporate governance, nominating and compensation committee, which at present is
composed wholly of independent directors.
84
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 17. FINANCIAL STATEMENTS
Not Applicable.
ITEM 18. FINANCIAL STATEMENTS
Reference is made to pages F-1 through F-26 included herein by reference.
ITEM 19. EXHIBITS
Exhibit
Number
Description
1.1
1.2
1.3
2.1
2.2
2.3
4.1
4.2
4.3
4.4
4.5
8.1
12.1
12.2
13.1
13.2
Amended and Restated Articles of Incorporation*
Articles of Amendment to Amended and Restated Articles of Incorporation**
Amended and Restated Bylaws*
Form of Registration Rights Agreement between Safe Bulkers, Inc. and Vorini Holdings Inc.*
Stockholder Rights Agreement*
Specimen Share Certificate*
Form of Management Agreement between Safety Management Overseas S.A. and Safe Bulkers,
Inc.*
Amendment No. 1 to Management Agreement between Safety Management Overseas S.A. and
Safe Bulkers, Inc.***
Form of Restrictive Covenant Agreement among Safe Bulkers, Inc., Polys Hajioannou, Vorini Hold-
ings Inc., SafeFixing Corp and Machairiotissa Holdings Inc.*
Form of Restrictive Covenant Agreement between Safe Bulkers, Inc. and Polys Hajioannou*
Amendment No. 1 to Restrictive Covenant Agreement between Safe Bulkers, Inc. and Polys Hajio-
annou***
List of Subsidiaries
Certification of principal executive officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securi-
ties Exchange Act of 1934, as amended
Certification of principal financial officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities
Exchange Act of 1934, as amended
Certification of principal executive officer pursuant to 18 U.S.C. Section 1350 as added by Section
906 of the Sarbanes-Oxley Act of 2002
Certification of principal financial officer pursuant to 18 U.S.C. Section 1350 as added by Section
906 of the Sarbanes-Oxley Act of 2002
* Previously filed as an exhibit to the Company’s Registration Statement on Form F-1 (Reg. No. 333-150995) filed with the SEC and hereby incorpo-
rated by reference to such Registration Statement.
** Previously filed as an exhibit to the Company’s Form 6-K filed with the SEC on October 8, 2009 and hereby incorporated by reference to such Form
6-K.
*** Previously filed as an exhibit to the Company’s Form 20-F filed with the SEC on February 29, 2012 and hereby incorporated by reference to such
Form 20-F.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused
and authorized the undersigned to sign this annual report on its behalf.
February 28, 2013
By /s/ KONSTANTINOS ADAMOPOULOS
Name: Konstantinos Adamopoulos
Title: Chief Financial Officer and Director
85
annual report 2012
86
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm ............................................................................. F-2
Consolidated Balance Sheets as of December 31, 2011 and 2012 ........................................................................ F-3
Consolidated Statements of Income for the Years Ended December 31, 2010, 2011 and 2012 ............................ F-4
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2010, 2011 and 2012 .........F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2011 and 2012 .......................F-6
Notes to Consolidated Financial Statements .................................................................................................. F-7
Page
F1
annual report 2012
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Safe Bulkers, Inc.
Majuro, Republic of the Marshall Islands
We have audited the accompanying consolidated balance sheets of Safe Bulkers, Inc. and subsidiaries (the “Company”)
as of December 31, 2011 and 2012, and the related consolidated statements of income, shareholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibil-
ity of the Company’s management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence support-
ing the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presenta-
tion. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
Safe Bulkers, Inc. and subsidiaries as of December 31, 2011 and 2012, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles gen-
erally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial reporting as of December 31, 2012, based on the criteria estab-
lished in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 28, 2013 expressed an unqualified opinion on the Company’s internal con-
trol over financial reporting.
/s/ Deloitte Hadjipavlou, Sofianos & Cambanis S.A.
February 28, 2013
Athens, Greece
F2
SAFE BULKERS, INC.
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2011 AND 2012
(In thousands of U.S. Dollars, except for share and per share data)
December 31,
Notes
2011
2012
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable
Due from Manager
Inventories
Accrued revenue
Restricted cash
Prepaid expenses and other current assets
Total current assets
FIXED ASSETS:
Vessels, net
Advances for vessel acquisition and vessels under construction
Total fixed assets
OTHER NON CURRENT ASSETS:
Deferred finance charges, net
Restricted cash
Accrued revenue
Long-term investment
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt
Unearned revenue
Trade accounts payable
Accrued liabilities
Derivative liabilities
Due to Manager
Total current liabilities
Derivative liabilities
Long-term debt, net of current portion
Unearned revenue – Long-term
Total liabilities
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Shareholders’ equity:
Common stock, $0.001 par value; 200,000,000 authorized,
70,891,916 and 76,661,451 issued and outstanding at December
31, 2011 and 2012, respectively
Preferred stock, $0.01 par value; 20,000,000 authorized, none
issued or outstanding
Additional paid in capital
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of these consolidated statements.
4
3
19
5
6
7
19
9
8
19
15
14
3
14
8
19
11
28,121
5,550
24
2,653
—
—
1,611
37,959
655,356
122,307
777,663
6,226
5,423
—
50,000
877,271
18,486
23,211
1,183
6,556
2,237
—
51,673
10,130
465,805
17,821
545,429
—
102,724
37,047
—
5,900
554
22,800
2,804
171,829
810,001
39,902
849,903
6,467
3,923
92
50,000
1,082,214
19,199
18,205
3,061
6,364
591
73
47,493
8,978
596,468
3,419
656,358
—
10
71
77
114,918
216,853
331,842
877,271
150,269
275,510
425,856
1,082,214
F3
annual report 2012
SAFE BULKERS, INC.
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012
(In thousands of U.S. Dollars, except for share and per share data)
SAFE BULKERS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012
(In thousands of U.S. Dollars, except for per share data)
Year Ended December 31,
Notes
2010
2011
2012
Additional
Retained
Common Stock Paid in Capital
Earnings
Total
REVENUES:
Revenues
Commissions
Net revenues
EXPENSES:
Voyage expenses
Vessel operating expenses
Depreciation
General and administrative expenses
-Management fee to related party
-Third party expenses
Early redelivery income, net
Gain on sale of assets
Operating income
OTHER (EXPENSE)/INCOME:
Interest expense
Other finance costs
Interest income
Loss on derivatives
Foreign currency gain/(loss)
Amortization and write-off of deferred
finance charges
Net income
Earnings per share in U.S. Dollars,
basic and diluted
Weighted average number of shares,
basic and diluted
12
13
5
3,18
18
16
20
8
14
7
22
159,698
172,036
(2,678)
(3,128)
157,020
168,908
187,557
(3,261)
184,296
(610)
(23,128)
(19,673)
(1,987)
(26,066)
(23,637)
(4,880)
(2,138)
132
15,199
121,922
(6,026)
(2,463)
207
—
108,936
(6,423)
(330)
2,627
(8,164)
281
(5,250)
(1,055)
1,046
(12,491)
(799)
(266)
(653)
(7,286)
(34,540)
(32,250)
(7,726)
(2,220)
11,677
—
111,951
(9,072)
(1,268)
1,122
(5,384)
(3)
(1,226)
109,647
89,734
96,120
1.73
1.29
1.27
63,300,466
69,463,093
75,468,465
The accompanying notes are an integral part of these consolidated statements.
Balance as of January 1, 2010
Net income
Issuance of common stock
Share based compensation
Dividends ($0.60 per share)
Balance as of December 31, 2010
Net income
Issuance of common stock
Share based compensation
Dividends ($0.60 per share)
Balance as of December 31, 2011
Net income
Issuance of common stock
Share based compensation
Dividends ($0.50 per share)
Balance as of December 31, 2012
55
—
11
—
—
66
—
5
—
—
71
—
6
—
—
77
90
—
74,956
120
—
75,166
—
39,632
120
—
114,918
—
35,231
120
—
150,269
97,074
109,647
—
—
(37,820 )
168,901
89,734
—
—
(41,782 )
216,853
96,120
—
—
(37,463 )
275,510
97,219
109,647
74,967
120
(37,820 )
244,133
89,734
39,637
120
(41,782 )
331,842
96,120
35,237
120
(37,463 )
425,856
The accompanying notes are an integral part of these consolidated statements.
F4
F5
annual report 2012
SAFE BULKERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012
(In thousands of U.S. Dollars)
SAFE BULKERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of United States Dollars—except for share and per share data, unless otherwise stated)
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash provid-
ed by operating activities:
Depreciation
Gain on sale of assets
Amortization and write-off of deferred finance charges
Unrealized foreign exchange (gain)
Unrealized (gain)/loss on derivatives
Share based compensation
Change in:
Accounts receivable trade
Due from Manager
Inventories
Accrued revenue
Prepaid expenses and other current assets
Due to Manager
Trade accounts payable
Accrued liabilities
Unearned revenue
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Vessel acquisitions including advances for vessels under
construction
Proceeds from sale of assets
Increase in restricted cash
Restricted cash released
Increase in bank time deposits
Maturity of bank time deposits
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Proceeds from long-term debt
Principal payments of long-term debt
Dividends paid
Payment of deferred financing costs
Proceeds on issuance of common stock (net)
Net Cash Provided by/(Used in) Financing Activities
Net increase/(decrease) in cash and cash equivalents
Effect of exchange rate changes on cash
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow information:
Cash paid for interest (excluding capitalized interest):
Non cash Investing activities (represent advances and capi-
talized interest for newbuild Hull No. J0131)
The accompanying notes are an integral part of these consolidated statements.
2010
December 31,
2011
2012
109,647
89,734
96,120
19,673
(15,199 )
266
(326 )
(4,508 )
120
620
—
(172 )
1,693
(37 )
430
(1,198 )
(1,523 )
8,661
118,147
(192,418 )
32,168
(650 )
6,382
(86,548 )
109,357
(131,709 )
74,500
(50,992 )
(37,820 )
(519 )
74,967
60,136
46,574
326
18,435
65,335
6,414
—
23,637
—
653
—
263
120
(4,265 )
(24 )
(1,236 )
—
(452 )
(449 )
(287 )
547
(1,052 )
107,189
(160,969 )
—
—
—
—
35,080
(125,889 )
84,000
(94,453 )
(41,782 )
(5,916 )
39,637
(18,514 )
(37,214 )
—
65,335
28,121
5,050
—
32,250
—
1,226
—
(2,798 )
120
303
24
(3,247 )
(646 )
(575 )
73
1,878
(255 )
(19,408 )
105,065
(136,845 )
—
(23,300 )
2,000
—
—
(158,145 )
312,630
(181,254 )
(37,463 )
(1,467 )
35,237
127,683
74,603
—
28,121
102,724
8,534
32,412
1. Basis of Presentation and General Information:
Safe Bulkers, Inc. (“Safe Bulkers”) was formed on December 11, 2007, under the laws of the Republic of The Marshall
Islands for the purpose of acquiring an ownership interest in 19 companies, each of which owned or was scheduled to
acquire a newbuild drybulk vessel, all of which were under the common control of Polys Hajioannou and his family. The
shares of the 19 companies were contributed to Safe Bulkers by Vorini Holdings, Inc. (“Vorini Holdings”), a Marshall Is-
lands corporation controlled by Polys Hajioannou and his family. Safe Bulkers became the owner of 100% of each of the
19 companies, and Vorini Holdings became the sole shareholder of Safe Bulkers.
Safe Bulkers successfully completed its initial public offering (the “IPO”) on June 3, 2008 and its common stock trades on
the New York Stock Exchange (“NYSE”) under the symbol “SB.” Following the IPO, Vorini Holdings became the controlling
shareholder of Safe Bulkers.
Since its IPO Safe Bulkers successfully completed three additional public offerings. Vorini Holdings continues to be the
controlling shareholder of Safe Bulkers, and, accordingly, can control the outcome of matters on which shareholders are
entitled to vote, including the election of the entire board of directors and other significant corporate actions
As of December 31, 2012, Safe Bulkers held 35 wholly-owned companies which are referred to herein as “Subsidiaries”,
and which together owned and operated a fleet of 24 drybulk vessels, and were scheduled to acquire an additional six
newbuilds (the “Newbuilds”) and one second-hand vessel.
Safe Bulkers and the Subsidiaries are collectively referred to in the notes to the consolidated financial statements as the
“Company.”
The Company’s principal business is the acquisition, ownership and operation of drybulk vessels. The Company’s vessels
operate worldwide, carrying drybulk cargo for the world’s largest consumers of marine drybulk transportation services.
Safety Management Overseas S.A., a company incorporated under the laws of the Republic of Panama (“Safety Man-
agement” or the “Manager”), a related party controlled by Polys Hajioannou, provides technical, commercial and admin-
istrative management services to the Company.
The accompanying consolidated financial statements include the operations, assets and liabilities of the Company, us-
ing the historical carrying costs of the assets and the liabilities of the Subsidiaries listed below.
Subsidiary
Vessel Name
Type
Built
Marindou Shipping Corporation (“Marindou”)(1)
Maxeikosiexi Shipping Corporation (“Maxeikosiexi”)(1)
Avstes Shipping Corporation (“Avstes”)(1)
Kerasies Shipping Corporation (“Kerasies”)(1)
Marathassa Shipping Corporation (“Marathassa”)(1)
Maxeikositessera Shipping Corporation (“Maxeikositessera”)(1)
Pemer Shipping Ltd. (“Pemer”)(1)
Petra Shipping Ltd. (“Petra”)(1)
Pelea Shipping Ltd. (“Pelea”)(1)
Staloudi Shipping Corporation (“Staloudi”)(1)
Marinouki Shipping Corporation (“Marinouki”)(1)
Soffive Shipping Corporation (“Soffive”)(1)
Eniaprohi Shipping Corporation (“Eniaprohi”)(1)
Eniadefhi Shipping Corporation (“Eniadefhi”)(1)
Maxdodeka Shipping Corporation (“Maxdodeka”)(1)
Maxdekatria Shipping Corporation (“Maxdekatria”)(1)
Maxdeka Shipping Corporation (“Maxdeka”)(3)
Shikoku Friendship Shipping Company (“Shikoku”)(3)
Maxenteka Shipping Corporation (“Maxenteka”)(3)
Maria
Koulitsa
Vassos
Katerina
Maritsa
Efrossini
Pedhoulas Merchant
Pedhoulas Trader
Pedhoulas Leader
Panamax
Panamax
Panamax
Panamax
Panamax
Panamax
Kamsarmax
Kamsarmax
Kamsarmax
Stalo Post-Panamax
Marina Post-Panamax
Sophia Post-Panamax
April 2003
April 2003
February 2004
May 2004
January 2005
February 2012
March 2006
May 2006
March 2007
January 2006
January 2006
June 2007
Eleni Post-Panamax November 2008
February 2009
Andreas K Post-Panamax September 2009
April 2010
Venus Heritage Post-Panamax December 2010
Venus History Post-Panamax September 2011
February 2012
Venus Horizon Post-Panamax
Panayiota K Post-Panamax
Martine Post-Panamax
F6
F7
annual report 2012
Subsidiary
Vessel Name
Type
Built
Kanaris
Pelopidas
Pedhoulas Builder
Pedhoulas Fighter
Pedhoulas Farmer
Panamax
TBN - H 814
Panamax
TBN - H 1659
Panamax
TBN - H 1660
TBN - H 8126
Capesize
TBN - H 2396 Post-Panamax
TBN - H 2397 Post-Panamax
—
—
—
—
Capesize
March 2010
Capesize November 2011
May 2012
Kamsarmax
Kamsarmax
August 2012
Kamsarmax September 2012
2H 2013 (4)
2H 2013 (4)
1H 2014 (4)
1H 2014 (4)
2H 2015 (4)
2H 2015 (4)
—
—
—
—
—
—
—
—
Efrossini (hereinafter
called ‘‘Old Efrossini’’)
—
Panamax February 2003 (8)
—
—
Maxpente Shipping Corporation (“Maxpente”)(1)
Eptaprohi Shipping Corporation (“Eptaprohi”)(1)
Maxeikosi Shipping Corporation (“Maxeikosi”)(1)
Maxeikositria Shipping Corporation (“Maxeikositria”)(1)
Maxeikosiena Shipping Corporation (“Maxeikosiena”)(1)
Glovertwo Shipping Corporation (“Glovertwo”)(3)
Shikokutessera Shipping Inc. (“Shikokutessera”)(3)(5)
Shikokupente Shipping Inc. (“Shikokupente”)(3)
Maxtessera Shipping Corporation (“Maxtessera”)(3)
Shikokuexi Shipping Inc. (“Shikokuexi”)(3)
Shikokuepta Shipping Inc. (“Shikokuepta”)(3)
Maxeikosipente Shipping Corporation (“Maxeikosipente”)(1)(6)
Maxeikosiepta Shipping Corporation (“Maxeikosiepta”)(1)(2)
Vassone Shipping Corporation (“Vassone”)(1)(2)
Efragel Shipping Corporation (“Efragel”)(1)(7)
-//-
S.B. Sea Venture Company Ltd (9)
(1) Incorporated under the laws of the Republic of Liberia.
(2) Second-hand vessel acquisitions. Refer to Note 23.
(3) Incorporated under the laws of the Republic of The Marshall Islands.
(4) Estimated completion date for newbuild vessels.
(5) New estimated completion date for newbuild vessel. Refer to Note 23.
(6) Cancellation of Newbuild. Refer to Notes 4 and 11.
(7) Company dissolved in October 2012.
(8) Vessel sold in January 2010. Refer to Note 20.
(9) Incorporated under the laws of the Republic of Cyprus.
For the years ended December 31, 2010, 2011 and 2012, the following charterers individually accounted for more than
10% of the Company’s charter revenues as follows:
Daiichi Chuo Kisen Kaisha
Kawasaki Kisen Kaisha
Cargill International S.A
2. Significant Accounting Policies:
December 31,
2010
2011
2012
44.92 %
18.78 %
12.67 %
48.17 %
17.93 %
—
46.48 %
16.39 %
—
Principles of Consolidation: The accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts
of Safe Bulkers and its subsidiaries. All intra-group and intercompany balances and transactions have been eliminated
upon consolidation.
Use of Estimates: The preparation of the consolidated financial statements in conformity with U.S. GAAP requires man-
agement to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other Comprehensive Income / (Loss): The Company follows the accounting guidance relating to Statement of Compre-
hensive Income, which requires separate presentation of certain transactions that are recorded directly as components
of shareholders’ equity. The Company has no other comprehensive income/ (loss) and accordingly comprehensive in-
come/(loss) equals net income for the periods presented.
Foreign Currency Translation: The reporting and functional currency of the Company is the United States (“U.S.”) dollar
or (“USD”). Transactions incurred in other currencies are translated into U.S. dollars using the exchange rates in effect
at the time of the transaction. At the balance sheet date, monetary assets and liabilities that are denominated in other
currencies are translated to reflect the period end exchange rates. Resulting gains or losses from foreign currency trans-
actions are recorded within Foreign currency gain/(loss) in the accompanying consolidated statements of income in the
period in which they arise.
Cash and Cash Equivalents: Cash and cash equivalents consist of current, call, time deposits and certificates of deposit
with original maturities of three months or less at the time of purchase and which are not restricted for use or with-
drawal.
Time Deposits: Time deposits are held with banks with original maturities longer than three months at the time of pur-
chase. In the event original maturities are shorter than twelve months at the time of purchase, such deposits are clas-
sified as current assets; if original maturities are longer than twelve months, such deposits are classified as non-current
assets.
Restricted Cash: Restricted cash represents minimum cash deposits or cash collateral deposits required to be main-
tained with certain banks under the Company’s borrowing arrangements or in relation to bank guarantees issued on
behalf of the Company. In the event that the obligation relating to such deposits is expected to be terminated within the
next twelve months, these deposits are classified as current assets; otherwise they are classified as non-current assets.
Accounts Receivable: Accounts receivable reflects trade receivables from time or voyage charters and other receivables
from operational activities, net of an allowance for doubtful accounts. At each balance sheet date, all potentially uncol-
lectible accounts are assessed individually for purposes of determining the appropriate provision for doubtful accounts.
No allowance for doubtful accounts was recorded for any of the periods presented.
Inventories: Inventories consist of bunkers and lubricants owned by the Company remaining on board the vessels at the
end of each reporting period, which are stated at the lower of cost or market. Cost is determined using the first–in, first-
out method.
Vessels, Net: Vessels are stated at their historical cost, which consists of the contracted purchase price and any direct
material expenses incurred upon acquisition (including improvements, on-site supervision expenses incurred during the
construction period, commissions paid, delivery expenses and other expenditures to prepare the vessel for her initial
voyage), less accumulated depreciation. Financing costs incurred during the construction period of the vessels are also
capitalized and included in the vessels’ cost. Certain subsequent expenditures for conversions and major improvements
are also capitalized if it is determined that they appreciably extend the life, increase the earning capacity or improve the
efficiency or safety of the vessels.
Vessels’ Depreciation: Depreciation is computed using the straight-line method over the estimated useful life of the ves-
sels, after considering the estimated residual value. Management estimates the useful life of the Company’s vessels to
be 25 years from the date of initial delivery from the shipyard.
Accounting for Special Survey and Drydocking Costs: Special survey and drydocking costs are expensed in the period in-
curred and are included in vessel operating expenses in the accompanying consolidated statements of income.
Repairs and Maintenance: All repair and maintenance expenses, including major overhauling and underwater inspection
expenses, are expensed when incurred and are included in vessel operating expenses in the accompanying consolidated
statements of income.
Impairment of Long-lived Assets: The Company follows the Accounting Standards Codification (“ASC”) Subtopic 360-10,
“Property, Plant and Equipment” (“ASC 360-10”), which requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be gen-
erated by those assets are less than their carrying amounts. If indicators of impairment are present, the Company per-
forms an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets. If the carrying
value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to its fair value and the
difference is recorded as an impairment loss in the consolidated statement of income. Various factors including antic-
ipated future charter rates, estimated scrap values, future drydocking costs and estimated vessel operating costs are
included in this analysis. No impairment loss was recorded during the years ended December 31, 2010, 2011 and 2012.
Assets Held for Sale: The Company may dispose of certain of its vessels when suitable opportunities occur, including prior
to the end of their useful lives. The Company classifies assets as being held for sale when the following criteria are met:
(i) management is committed to sell the asset; (ii) the asset is available for immediate sale in its present condition; (iii)
an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated;
(iv) the sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale
F8
F9
annual report 2012
within one year; (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair
value; and (vi) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will
be made or that the plan will be withdrawn.
Long-lived assets classified as held for sale are measured at the lower of their carrying amount or fair value less cost to
sell. These assets are no longer depreciated once they meet the criteria of being held for sale. There were no assets held
for sale as at December 31, 2012.
Deferred Financing Costs: Financing fees incurred for obtaining new loans and credit facilities are deferred and amortized
over the term of the respective loan or credit facility using the effective interest rate method. Any unamortized balance
of costs relating to loans repaid or refinanced is expensed in the period in which the repayment or refinancing is made,
subject to the guidance regarding Debt Extinguishment. Any unamortized balance of costs related to credit facilities
repaid is expensed in the period. Any unamortized balance of costs relating to credit facilities refinanced is deferred and
amortized over the term of the respective credit facility in the period in which the refinancing occurs, subject to the pro-
visions of the accounting guidance relating to Changes in Line-of-Credit or Revolving-Debt Arrangements.
Derivative Instruments: The Company may enter into foreign exchange forward contracts to create economic hedges for
its exposure to currency exchange risk on payments relating to the acquisition of vessels and on certain loan obligations.
The Company also enters into interest rate derivatives to create economic hedges for its exposure to interest rate risk of
its loan obligations (see also Notes 8 and 14). When such derivatives do not qualify for hedge accounting the Company
records these financial instruments in the consolidated balance sheet at their fair value as either a derivative asset or a li-
ability, and recognizes the fair value changes thereto in the consolidated statements of income. When the derivatives do
qualify for hedge accounting, depending upon the nature of the hedge, changes in fair value of the derivatives are either
offset against the fair value of assets, liabilities or firm commitments through income, or recognized in other compre-
hensive income/(loss) (effective portion) until the hedged item is recognized in the consolidated statements of income.
For the years ended December 31, 2010, 2011 and 2012, no derivatives were accounted for as accounting hedges.
Financial Instruments: Over-the-counter foreign exchange forward contracts and interest rate derivatives are recorded
at fair value. Other financial instruments, including cash equivalents and debt are recorded at amortized cost.
(a) Interest rate risk: The Company’s interest rates and long-term loan repayment terms are described in Note 8 .The
Company manages its interest rate risk by entering into interest rate derivative instruments which are described in
Note 14.
(b) Concentration of credit risk: Financial instruments, which potentially subject the Company to significant concen-
trations of credit risk, consist principally of trade accounts receivable, cash and cash equivalents, time deposits and
derivative instruments. The Company limits its credit risk with accounts receivable by performing ongoing credit
evaluations of its customers’ financial condition and generally does not require collateral for its trade accounts re-
ceivable. The Company places its cash and cash equivalents, time deposits and other investments with high credit
quality financial institutions. The Company performs periodic evaluations of the relative credit standing of those
financial institutions. The Company is exposed to credit risk in the event of non-performance by its counterparties
to derivative instruments; however, the Company limits its exposure by transacting with counterparties with high
credit ratings.
(c) Fair value measurement: In accordance with the requirements of accounting guidance relating to Fair Value Meas-
urement, the Company classifies and discloses assets and liabilities carried at fair value in one of the following three
categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
Accounting for Revenues and Related Expenses: The Company generates its revenues from charterers for the charter hire
of its vessels. Vessels are chartered under time charter, where a contract is entered into for the use of a vessel for a spe-
cific voyage or a specific period of time and at a specified daily charter rate. Time charter revenues are recognized as
earned on the straight-line basis over the term of the charter as service is provided. Revenues from time charter may
also include ballast bonus, which is an amount paid by the charterer for repositioning the vessel at the charterer’s dis-
posal (delivery point), which is recognized as revenue over the term of the charter, and other miscellaneous revenues
from vessel operations. Expenses relating to the Company’s time charters are vessel operating expenses and certain
voyage expenses, which are paid by the Company and recognized as incurred. Vessel operating expenses that are paid
by the Company include costs for crewing, insurance, lubricants, spare parts, provisions, stores, repairs, maintenance,
statutory and classification expense, drydocking, intermediate and special surveys and other minor miscellaneous ex-
penses. Voyage expenses which are also recognized as incurred and paid by the Company include costs for draft surveys,
hold cleaning, postage, extra war risk insurance, bunkers during ballast period and other minor miscellaneous expenses
related to the voyage. The charterer is responsible for paying the cost of bunkers and other voyage expenses (e.g., port
expenses, agents’ fees, canal dues, extra war risks insurance and any other expenses related to the cargo).
Revenue is recognized when a charter agreement exists, the vessel is made available to the charterer and collection of
the related revenue is reasonably assured. Unearned revenue includes: (i) revenue received prior to the balance sheet
date relating to services to be rendered after the balance sheet date and (ii) deferred revenue resulting from straight-line
revenue recognition in respect of charter agreements that provide for varying charter rates. Accrued revenue results
from straight-line revenue recognition in respect of charter agreements that provide for varying charter rates. Commis-
sions (address and brokerage), regardless of charter type, are always paid by the Company, are deferred and amortized
over the related charter period and are presented as a separate line item in revenues to arrive at net revenues in the
accompanying consolidated statements of income.
Pension and Retirement Benefit Obligations—Crew: The Subsidiaries included in the consolidated financial statements
employ the crew on board under short-term contracts (usually up to nine months) and accordingly, they are not liable
for any pension or post-retirement benefits.
Taxes: Entities within the group that are incorporated under the laws of either the Republic of Liberia or the Republic of
The Marshall Islands are not subject to Liberian or Marshall Islands income taxes. However, each vessel-owning Subsidi-
ary is subject to registration and tonnage taxes under the laws of the Republic of Cyprus or the Republic of The Marshall
Islands depending on where each Company’s vessel is registered, which is not an income tax. As of January 1, 2013, each
vessel managed in Greece is subject to tonnage tax, under the laws of the Republic of Greece, which is not an income tax.
These registration and tonnage taxes are recorded within Vessel Operating Expenses in the accompanying consolidated
statements of income.
Furthermore, the Subsidiaries are subject to a 4% United States federal tax in respect of its U.S. source shipping income
(imposed on gross income without the allowance for any deductions) as they do not meet the requirements for an ex-
emption from such tax provided by Section 883 of the U.S. Internal Revenue Code of 1986. As a result, the Subsidiaries
file U.S. federal tax returns and pay the relevant U.S. federal tax on their U.S. source shipping income, which is not an
income tax. Such taxes have been recorded within Voyage expenses in the accompanying consolidated statements of
income. In many cases, these taxes are recovered from the charterers; such amounts recovered are recorded within
Revenues in the accompanying consolidated statements of income.
Dividends: Dividends are recorded in the period in which they are declared by the Company’s Board of Directors.
Segment Reporting: The Company reports financial information and evaluates its operations by total charter revenue
and not by the type of vessel or vessel employment for its customers. The Company’s vessels have similar operating and
economic characteristics. As a result, management, including the chief operating decision makers, reviews operating
results solely by revenue per day and operating results of the fleet, and thus the Company has determined that it oper-
ates as one reportable segment. Furthermore, when the Company charters a vessel to a charterer, the charterer is free
to trade the vessel worldwide and, as a result, the disclosure of geographic information is impracticable.
Recent Accounting Pronouncements: There are no recent accounting pronouncements the adoption of which would have
a material effect on the Company’s consolidated financial statements in the current period.
3. Transactions with Related Parties
Safety Management Overseas S.A., Panama (the “Manager”): On May 29, 2008, Safe Bulkers signed a management agree-
ment (the “Management Agreement”) with Safety Management, a related party that is controlled by Polys Hajioannou.
Under such Management Agreement, each vessel-owning Subsidiary has entered into, or in the case of vessels not yet
delivered, will enter into, a management agreement with the Manager (the “Shipmanagement Agreements”). Under
these Shipmanagement Agreements, chartering, operations, technical and accounting services are provided to the
vessels by the Manager. In accordance with the Management Agreement and the Shipmanagement Agreements, the
Manager receives a fixed fee per vessel calculated proportionally to the number of ownership days, (the “Fixed fee”), plus
a variable fee calculated on gross freight, charter hire, ballast bonus and demurrage (the “Variable fee”). Fixed fees and
Variable fees are recorded in General and Administrative Expenses (refer to Note 18). In addition, under the Supervision
Agreements, the Manager receives a supervision fee in exchange for on-site supervision services with respect to all
F10
F11
annual report 2012 newbuilds, of which 50% is payable upon the signing of the relevant Supervision Agreement, and 50% upon success-
ful completion of the sea trials of each newbuild (the “Supervision fee”). Supervision fees are recorded in Advances for
vessel acquisition and vessels under construction (refer to Note 6). Furthermore under the Management Agreement,
the Manager receives a sales fee calculated on the contract price for each vessel sold, (the “Sales fee”) payable upon the
conclusion of the vessel sale, and an acquisition fee calculated on the contract price of each vessel constructed or pur-
chased, (the “Acquisition fee”) payable upon the conclusion of the vessel acquisition, in exchange for services provided in
relation to a sale or an acquisition of a vessel respectively. Sales fees are recorded in Gain on sale of assets (refer to Note
20). Acquisition fees are recorded in Advances for vessel acquisition and vessels under construction (refer to Note 6).
The management fees can be adjusted annually effective May 29 of each year, the anniversary of our entry into the Man-
agement Agreement. On May 29, 2011, the Fixed fee was readjusted to $0.700 from $0.575 per day, and the Supervision
fee was readjusted to $550 from $375, while all other management fees remained constant. No readjustment has been
made since then on any of the fees.
Fees pursuant to the Management Agreement, the Shipmanagement Agreements and the Supervision Agreements
were as follows:
Fixed fee
Variable fee
Supervision fee
Sales fee
Acquisition fee
For the Years Ended May 29,
(In thousands of U.S. Dollars, except of Variable,
Sales and Acquisition fees)
2010
2011
2012
$
$
0.575
1.00 %
375
1.00 %
1.00 %
$
$
0.575
1.25 %
375
1.00 %
1.00 %
$
$
0.700
1.25 %
550
1.00 %
1.00 %
Fees pursuant to the Management Agreement, the Shipmanagement Agreements and the Supervision Agreements are
comprised of the following:
Fixed and Variable fees
Supervision fees
Sales fees
Acquisition fees
4. Accounts receivable
Accounts receivable trade are comprised of the following:
Year Ended December 31,
(In thousands of U.S. Dollars)
2010
2011
2012
$
4,880
938
330
1,840
$
6,026
2,113
—
1,348
$
7,726
1,375
—
1,810
Trade receivables
Other receivables
Total
December 31,
2011
2012
$
$
5,550
—
5,550
$
$
5,247
31,800
37,047
Trade receivables reflect the current receivables from time or voyage charters.
Other receivables amounting to $31,800 as of December 31, 2012, reflect the receivables related to the cancellation
of the acquisition agreement of newbuild Hull No. J0131. The Company had entered into a shipbuilding contract with
Zhoushan Jinhaiwan Shipyard Co., (the “Shipyard”) for the construction, sale and delivery by the Shipyard to it of one
180,000 DWT Capesize class newbuild vessel (Hull No. J0131) in exchange for USD $53 million. In December 2012, af-
ter having paid $31.8 million in advances during construction, the Company exercised its termination right under the
agreement due to the Shipyard’s excessive construction delays and delivered demands to each of the Shipyard and the
refund guarantor, The Export Import Bank of China (a bank rated Aa3 by Moody’s Investor Services), pursuant to the
shipbuilding contract and the refund guarantees, respectively, for a refund of the full amount of advances paid, with in-
terest. In response, in January 2013, the Company received a notice of arbitration, and arbitration proceedings with the
shipyard were initiated in London, England. The Shipyard alleges that the Company’s termination constitutes a breach
of the agreement and argues that the Company is not entitled to a refund of any of the advances paid or interest. Under
the terms of the shipbuilding contract and the relevant refund guarantees, the Company is entitled to receive interest
on the advances paid, the accrued amount of which as of December 31, 2012, was $2,541, (refer to Note 11c). The capi-
talized expenses in relation to newbuild Hull No. J0131 until the time of the contract cancellation amounted to $612, and
the accrued legal expenses amounted to $6, as of December 31, 2012, (refer to Note 11c). If the Company wins the arbi-
tration claim, the Company will be entitled to a full refund of the $31.8 million paid in advances, of interest on advances
paid and of arbitration expenses. On the basis of legal advice received, the Company believes that the advances paid,
as well as the interest on these, are recoverable under both the shipbuilding contract and the refund guarantees. How-
ever, arbitration is inherently uncertain and the Company cannot provide assurance that it will prevail because it is not
possible to predict what the final outcome will be of any legal proceeding. The Company is and will continue vigorously
pursuing the arbitration and believes that the merits in this dispute rest in the Company’s favor. An award against the
Company would require the Company to incur the cost thereof, which includes the amount of advances already paid,
the capitalized expenses recorded and any further damages to the Shipyard without receipt of the vessel.
5. Vessels, Net
Vessels, net, are comprised of the following:
Vessel
Cost
Accumulated
Depreciation
Net Book
Value
Balance, January 1, 2011
605,367
(64,123)
Transfer from Advances for vessel acquisitions
and vessels under construction
Depreciation expense
Balance, December 31, 2011
Transfer from Advances for vessel acquisitions
and vessels under construction
Depreciation expense
Balance, December 31, 2012
137,749
—
743,116
186,895
—
930,011
$
$
—
(23,637)
(87,760 )
—
(32,250)
(120,010)
$
$
$
$
541,244
137,749
(23,637)
655,356
186,895
(32,250)
810,001
Transfer from Advances for vessel acquisitions and vessels under construction represents advances paid in respect of the
acquisition of second hand vessels and newbuild vessels which were under construction and delivered to the Company.
For the periods presented, the Company accepted delivery of the following vessels:
•
•
During the year ended December 31, 2011: Venus History and Pelopidas; and
During the year ended December 31, 2012: Efrossini, Venus Horizon, Pedhoulas Builder, Pedhoulas Fighter, Pedhoulas
Farmer and Koulitsa.
As of December 31, 2012, vessels with a carrying value of $795,966 have been provided as collateral to secure the Com-
pany’s bank loans as discussed in Note 8.
F12
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annual report 2012
6. Advances for Vessel Acquisition and Vessels under Construction
8. Bank Debt
Advances for vessel acquisition and vessels under construction are comprised of the following:
Bank debt is comprised of the following secured borrowings:
Balance, January 1, 2011
Advances paid, including capitalized expenses and interest
Transferred to vessel cost
Balance, December 31, 2011
Advances paid, including capitalized expenses and interest
Asset purchase cancellation
Transferred to vessel cost
Balance, December 31, 2012
$
$
$
99,014
161,042
(137,749 )
122,307
136,902
(32,412 )
(186,895 )
39,902
Advances Paid for vessel acquisitions and vessels under construction comprise payments of installments that were due
to the respective shipyard or third-party sellers, capitalized interest and certain capitalized expenses. During 2011 and
2012 such payments were made for the following vessels:
•
During the year ended December 31, 2011: Venus History, Pelopidas, Venus Horizon, Efrossini, Hull No. J0131, Hull 1659,
Hull 1660 and Hull 2396; and
• During the year ended December 31, 2012: Venus Horizon, Efrossini, Pedhoulas Builder, Pedhoulas Fighter, Pedhoulas
Farmer, Koulitsa, Paraskevi (refer to Note 23), Hull No. J0131, Hull 814, Hull 1659, Hull 1660, Hull 2396, Hull 2397 and Hull
8126.
Transfers to vessel cost relate to the delivery to the Company from the respective shipyard or third-party seller of the
following vessels:
• During the year ended December 31, 2011: Venus History and Pelopidas; and
• During the year ended December 31, 2012: Efrossini, Venus Horizon, Pedhoulas Builder, Pedhoulas Fighter, Pedhoulas
Farmer and Koulitsa.
Asset purchase cancellation relates to the cancellation of the acquisition of Hull No. J0131 during the year ended Decem-
ber 31, 2012, discussed in Note 4.
7. Deferred Finance Charges, Net
Deferred finance charges are comprised of the following:
Balance, January 1, 2011
Additions
Write-off
Amortization expense
Balance, December 31, 2011
Additions
Amortization expense
Balance, December 31, 2012
$
$
$
930
5,949
(60 )
(593 )
6,226
1,467
(1,226 )
6,467
Borrower
Pelea
Marindou
Avstes
Eniadefhi
Eniaprohi
Maxdodeka
Maxeikosi
Maxpente
Maxdodeka
Marathassa
Marindou
Marinouki
Avstes
Eniaprohi
Petra
Eniadefhi
Pemer
Eptaprohi
Pelea
Maxeikosiena
Soffive
Kerasies
Maxdekatria
Maxdeka
Staloudi
Shikoku
Maxeikositessera
Maxenteka
Total
Current portion
Long-term portion
Commencement
June 2007
January 2008
April 2008
February 2009
November 2008
February 2010
August 2012
July 2010
December 2012
February 2005
December 2012
March 2006
December 2012
December 2012
January 2007
December 2012
March 2007
April 2012
December 2012
October 2012
November 2007
December 2007
March 2012
August 2011
July 2008
October 2011
September 2012
April 2012
Maturity
December 2012
December 2012
December 2012
December 2012
December 2012
December 2012
August 2014
January 2015
February 2016
February 2017
January 2018
March 2018
April 2018
November 2018
January 2019
February 2019
March 2019
April 2019
June 2019
October 2019
November 2019
December 2019
March 2020
December 2022
July 2023
August 2023
February 2024
April 2024
December 31,
2011
2012
$
$
$
$
31,987
28,500
28,284
34,500
34,000
-
-
38,200
-
16,565
-
27,695
-
-
24,971
-
24,968
-
-
-
35,400
33,065
-
37,496
43,860
44,800
-
-
484,291
18,486
465,805
$
$
$
$
-
-
-
-
-
-
17,875
33,900
23,150
13,305
28,400
25,174
22,700
24,000
22,220
33,750
22,218
42,800
32,298
18,000
33,000
30,932
20,800
34,087
27,520
41,067
33,971
34,500
615,667
19,199
596,468
The above loans and credit facilities generally bear interest at LIBOR plus a margin, except for a portion of the principal
amounts of Maxdeka, Shikoku, Maxenteka and Maxeikositessera loan facilities, which bear interest at the Commercial
Interest Reference Rate (“CIRR”) published by the Organization for Economic Co-operation and Development applicable
on the date of signing of the relevant loan agreements. The above loans and credit facilities are generally repayable in
semi-annual installments and a balloon payment at maturity except for the Maxdeka, Shikoku, Maxenteka and Max-
eikositessera loan facilities, which are repayable in semi-annual installments. The fair value of the long term debt out-
standing on December 31, 2012 amounted to $620,405 when valuing the respective portions of the Maxdeka, Shikoku,
Maxenteka and Maxeikositessera loan facilities on the basis of the relevant CIRR applicable on December 31, 2012.
As of December 31, 2012, an aggregate amount of $8,077, was available for drawing under certain of the above loans
and reducing revolving credit facilities. The estimated minimum annual principal payments required to be made after
December 31, 2012, based on the loan and credit facility agreements as amended, are as follows:
To December 31,
2013
2014
2015
2016
2017
2018
Total
and thereafter
$
$
19,199
49,012
73,436
67,762
52,529
353,729
615,667
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F15
annual report 2012
Total interest incurred on long-term debt for the years ended December 31, 2010, 2011 and 2012 amounted to
$6,738, $6,722, and $10,038, respectively, which includes interest capitalized of $315, $1,472 and $966 for the years
ended December 31, 2010, 2011 and 2012, respectively. The average interest rate (including the margin) for all loan
and credit facilities during the years 2010, 2011 and 2012 was 1.394% p.a., 1.439% p.a., and 1.850% p.a., respectively.
Certain of the above loans or credit facilities have a currency conversion option whereby the borrower may elect to
convert the outstanding loan amount or any part thereof to certain currencies specified in each agreement, using the
spot exchange rate applicable on the date of conversion. Specified currencies include Japanese Yen (“JPY”), Swiss Franc
(“CHF”), Euro (“EUR”), Canadian dollar (“CAD”) or pound sterling (“GBP”), depending on the relevant agreement. In all
the above loans or credit facilities with a currency conversion option, no consideration has been or will be paid by any
of the borrowers to the respective lenders in connection with the conversion option since the parties did not ascribe
value to the conversion option as the conversion options are always based on the market or spot rates at the time
they are exercised. The exercise of the conversion option in any of the above loans or credit facilities results in a change
in both the currency denomination of the loan and the basis of the interest rate (that is, a USD-denominated loan
bears interest based on USD LIBOR and, upon conversion into a JPY-denominated loan, will bear interest based on JPY
LIBOR). All other terms of the loans or credit facilities, including the margin and the repayment terms, will remain the
same upon exercise of the currency conversion option.
The Company considered the accounting guidance relating to Accounting for Derivative Instruments and Hedging Activ-
ities, and concluded that the conversion options are embedded derivatives that would require bifurcation and sepa-
rate accounting because of the following:
(i) The economic characteristics and risks of an instrument in which the underlying is both a foreign currency and
interest rate are not clearly and closely related to the economic characteristics and risks of a debt host;
(ii) The borrowing arrangement that embodies both the conversion option and the debt host is not remeasured
at fair value under otherwise applicable generally accepted accounting principles with changes in fair value
reported in earnings as they occur; and
(iii) A separate instrument with the same terms as the conversion option would be a derivative instrument subject
to the requirements of this accounting guidance.
However, the Company believes that the conversion option under the borrowing arrangements has no fair value due
to the fact that the conversion into a different currency, and, accordingly, into a corresponding LIBOR interest rate,
will always be at the prevailing foreign currency exchange rate (spot rate) and prevailing interest rate at the time of
the conversion. Furthermore, both the Company and the bank did not ascribe value to the currency conversion op-
tions as no consideration was sought by the bank and no value was paid by the Company, as noted above.
As of December 31, 2011 and 2012 all loans were denominated in US Dollars.
The foregoing loans and credit facilities are secured as follows:
• First priority mortgages over the vessels owned by the respective borrowers;
•
First priority assignment of all insurances and earnings of the mortgaged vessels;
•
Second priority mortgage over the Maritsa as security for the Kerasies loan;
•
Agreement for second priority mortgage over the Kanaris as security for the Marinouki and Soffive loans;
•
Second priority mortgage over the Pedhoulas Merchant as security for the Petra loan;
•
Second priority mortgage over the Pedhoulas Trader as security for the Pemer loan; and
•
Corporate guarantee from Safe Bulkers.
The loan and credit facility agreements, as amended, contain debt covenants including restrictions as to changes in
management and ownership of the vessels, additional indebtedness and mortgaging of vessels without the respec-
tive lender’s prior consent, minimum vessel insurance cover ratio requirements, as well as minimum fair vessel value
ratio to outstanding loan principal requirements; the fair vessel value being determined according to the provisions
of the individual loan or credit facility agreements with the relevant bank (the “Minimum Value Covenant”). The bor-
rowers are permitted to pay dividends to their owners as long as no event of default under the respective loan has
occurred or has not been remedied.
One of the loan and facility agreements requires the respective borrowers to maintain at all times a minimum balance of
$150 per vessel in the respective vessel operating accounts. One of the loan and facility agreements requires the respec-
tive borrower to maintain at all times a minimum balance of $500 in the vessel operating account.
In addition, the corporate guarantees, as amended, of Safe Bulkers include the following financial covenants:
•
•
•
•
•
•
its total consolidated liabilities divided by its total consolidated assets must not at any time exceed 80% or 85% as
the case may be (“Consolidated Leverage Covenant”). The total consolidated assets are based on the fair market
value of its vessels and the book values of all other assets, on an adjusted basis as set out in the relevant guarantee;
the ratio of its aggregate debt to EBITDA (as defined in the loan agreement) must not at any time exceed 5.5:1 on a
trailing 12 months’ basis or as the case may be the ratio of its aggregate debt after deducting cash to EBITDA must
not at any time exceed 8.5:1 on a trailing 12 months’ basis (“EBITDA Covenant”);
its consolidated net worth (total consolidated assets less total consolidated liabilities) (“Consolidated Net Worth
Covenant”) must not at any time be less than $150,000;
payment of dividends is subject to no event of default having occurred;
maintenance of minimum free liquidity of $500 is required on deposit with a relevant lender on a per vessel basis
for five vessels; and
a minimum of 51% of its shares shall remain directly or indirectly beneficially owned by the Hajioannou family for
the duration of the relevant credit facilities.
As of December 31, 2012, the Company was in compliance with all debt covenants with respect to its loans and credit
facilities.
9. Long-term Investment
During the year ended December 31, 2009, the Company invested $50,000 in a five-year Floating Rate Note issued by
HSBC Bank Middle East Limited, which is recorded in the consolidated balance sheet at amortized cost as the Company
intends to hold the investment until its maturity on October 14, 2014. The Company receives interest on a quarterly ba-
sis, based on the three-month U.S. dollar LIBOR plus a margin of 1.5%. The fair market value of the Floating Rate Note as
of December 31, 2012 was approximately $49,500, which was equal to the exit price the Company would receive from
the relevant bank, based on an indicative bid price received from the relevant bank. Subject to certain conditions, the
Company may borrow up to 80% of the Floating Rate Note amount.
10. Share Capital
The Company was incorporated on December 11, 2007 with authorized share capital of 500 shares of common stock
with a par value of $0.001 per share. On May 9, 2008, the Company’s Articles of Incorporation were amended. Under the
amended Articles of Incorporation, the Company’s authorized capital stock consists of 200,000,000 shares of common
stock with a par value of $0.001 per share, of which 54,500,000 shares were issued prior to the listing of the Company’s
common stock on the NYSE, which was completed on June 3, 2008, and 20,000,000 shares of preferred stock with a par
value of $0.01 per share, none of which has been issued and is outstanding. In connection with the IPO process, Vorini
Holdings sold 10,000,000 shares of common stock of the Company of a par value of $0.001 per share at a price of $19
per share. No proceeds were paid to the Company.
In March 2010, the Company successfully completed a public offering, whereby 10,350,000 shares of common stock of
Safe Bulkers were issued and sold at a price of $7 per share, and a private placement, whereby 1,000,000 shares of com-
mon stock of Safe Bulkers were issued and sold to Vorini Holdings. The net proceeds of the public offering and the private
placement were $74,967, net of underwriting discount of $3,150 and offering expenses of $861.
In April 2011, the Company successfully completed a public offering, whereby 5,000,000 shares of common stock of
Safe Bulkers were issued and sold at a price of $8.4 per share. The net proceeds of the public offering were $39,637, net
of underwriting discount of $2,100 and offering expenses of $263.
In March 2012, the Company successfully completed a public offering, whereby 5,750,000 shares of common stock of
Safe Bulkers were issued and sold at a price of $6.5 per share. The net proceeds of the public offering were $35,237, net
of underwriting discount of $1,869 and offering expenses of $268.
Pursuant to an arrangement approved by the Company’s shareholders’ and the corporate governance, nominating
and compensation committee, effective July 1, 2008, the audit committee chairman receives the equivalent of $15
every quarter, payable in arrears in the
F16
F17
annual report 2012 form of newly issued common stock of the Company as part compensation for services rendered as audit committee
chairman. The number of shares to be issued is determined based on the closing price of the Company’s common stock
on the last trading day prior to the end of each quarter in which services were provided and are issued as soon as prac-
ticable following the end of the quarter. During the years ended December 31, 2011 and 2012, 7,705 shares and 9,767
shares, respectively, were issued to the audit committee chairman.
Pursuant to an arrangement approved by the Company’s shareholders and the corporate governance, nominating and
compensation committee, effective January 1, 2010, the independent directors of the Company other than the audit
committee chairman each receive the equivalent of $7.5 every quarter, payable in arrears in the form of newly issued
common stock of the Company as part compensation for services rendered as independent directors. The number of
shares to be issued is determined as noted above. During the years ended December 31, 2011 and 2012, 7,704 shares
and 9,768 shares, respectively were issued to the independent directors of the Company other than the audit commit-
tee chairman.
11. Commitments and Contingencies
(a) Commitments under Shipbuilding Contracts and Memorandums of Agreement (“MoAs”)
As of December 31, 2012 the Company had commitments under one shipbuilding contract and six MoAs for the acquisi-
tion of six newbuilds and one second hand vessel. The Company expects to settle these commitments as follows:
Year Ending December 31
Due to Shipyards /
Sellers
Due to
Manager
2013
2014
2015
Total
(b) Other contingent liabilities
$
$
78,376
57,700
51,233
187,309
$
$
2,432
1,376
1,790
5,598
$
$
Total
80,808
59,076
53,023
192,907
The Subsidiaries have not been involved in any legal proceedings other than an arbitration legal proceeding in relation
to the cancellation of the acquisition of newbuild Hull No. J0131, as discussed in Note 4, that may have, or have had, a
significant effect on their business, financial position, results of operations or liquidity, nor is the Company aware of
any proceedings that are pending or threatened that may have a significant effect on its business, financial position,
results of operations or liquidity. From time to time various claims, suits and complaints, including those involving
government regulations and product liability, arise in the ordinary course of the shipping business. In addition, loss-
es may arise from disputes with charterers, agents, shipyards, insurance providers and other claims relating to the
operation of the Company’s vessels. Management is not aware of any material claims or contingent liabilities which
should be disclosed, or for which a provision should be established in the accompanying consolidated financial state-
ments.
The Company accrues for the cost of environmental liabilities when management becomes aware that a liability is
probable and is able to reasonably estimate the probable exposure. Management is not aware of any such claims or
contingent liabilities which should be disclosed, or for which a provision should be established in the accompanying
consolidated financial statements. A maximum of $1,000,000 of the liabilities associated with the individual vessel
actions, mainly for sea pollution, is covered by P&I Club insurance.
(c) Contingent gain
In relation to the cancellation of the acquisition of newbuild Hull No. J0131 discussed in Note 4, the Company expects,
based on the facts and circumstances surrounding the cancellation of the construction of the vessel due to delays in
the construction process and on the basis of legal advice received from legal counsel, to record a contingent gain of
$1,923, on successful settlement of the legal case, which represents accrued interest income of $2,541 on the ad-
vances paid to the shipyard, net of capitalized expenses of $612, related to vessel’s construction and of accrued legal
expenses related to the cancellation of $6.
12. Revenues
Revenues are comprised of the following:
Time charter revenue
Ballast bonus
Other income
Total
13. Vessel Operating Expenses
Vessel operating expenses are comprised of the following:
Crew wages and related costs
Insurance
Repairs, maintenance and drydocking costs
Spares, stores and provisions
Lubricants
Taxes
Miscellaneous
Total
Year Ended
December 31,
2010
2011
2012
$
$
157,663
—
2,035
159,698
$
$
167,759
2,382
1,895
172,036
$
$
179,653
6,397
1,507
187,557
Year Ended
December 31,
2010
2011
2012
$
$
11,441
1,880
1,764
3,947
2,808
178
1,110
23,128
$
$
13,196
2,260
2,108
4,055
3,059
212
1,176
26,066
$
$
17,202
2,828
2,288
6,939
3,296
303
1,684
34,540
14. Fair Value of Financial Instruments and Derivatives Instruments
Over-the-counter foreign exchange forward contracts and interest rate derivatives are recorded at fair value. The car-
rying values of the current financial assets and current financial liabilities are reasonable estimates of their fair value
due to the short-term nature of these financial instruments. The fair values of the variable interest long-term debt ap-
proximate the recorded values, due to their variable interest rates. The fair value of the fixed interest long-term debt
is estimated using prevailing market rates as of the period end. The fair values of the long-term debt and long-term
investment (the floating rate note) are disclosed in Notes 8 and 9, respectively.
Derivative instruments
The Company enters into interest rate swap transactions to manage interest costs and the risk associated with
changing interest rates with respect to its variable interest rate loans and credit facilities. The Company from time to
time may also enter into foreign exchange forward contracts to create economic hedges for its exposure to currency
exchange risk on payments relating to acquisition of vessels and on certain loan obligations or for trading purposes.
Foreign exchange forward contracts are agreements entered into with a bank to exchange, at a specified future date,
currencies of different countries at a specific rate. As of December 31, 2011 and 2012, the Company had no outstand-
ing derivative instruments relating to currency exchange contracts.
The Company’s interest rate swaps and foreign exchange forward contracts did not qualify for hedge accounting. The
Company marks to market the fair market value of the interest rate swaps and foreign exchange forward contracts
at the end of every period and accordingly records the resulting unrealized loss/gain during the period in the consol-
idated statement of income. Information on the location and amounts of derivative fair values in the consolidated
balance sheets and derivative gains/losses in the consolidated statements of income are shown below:
F18
F19
annual report 2012
Derivatives not designated as hedging instruments
Type of Contract Balance sheet location
Interest Rate
Interest Rate
Derivative liabilities
/ Current liabilities
Derivative liabilities
/ Non-current liabilities
Asset Derivatives
Fair Values
Liability Derivatives
Fair Values
December
31, 2011
December
31, 2012
December
31, 2011
December
31, 2012
—
—
—
$
2,237
$
591
—
10,130
8,978
Total Derivatives $
—
$
—
$
12,367
$
9,569
Foreign Exchange Forward Contracts
Interest Rate Contracts
Net (Loss) Recognized
Amount of (Loss) Recognized on Derivatives
Year ended December 31,
2011
2012
$
$
(155 )
(12,336 )
(12,491 )
$
$
—
(5,384 )
(5,384 )
The gain or loss is recognized in the consolidated statement of income and is presented in Other (Expense)/Income –
Loss on Derivatives.
The Company’s interest rate derivative instruments are pay-fixed, receive-variable interest rate swaps based on the USD
LIBOR swap rate. The fair value of the interest rate swaps is determined using a discounted cash flow approach based
on market-based LIBOR swap yield curves. LIBOR swap rates are observable at commonly quoted intervals for the full
terms of the swaps and therefore are considered Level 2 items in accordance with the fair value hierarchy. The following
table summarizes the valuation of the Company’s financial instruments as of December 31, 2011 and 2012.
Significant Other Observable Inputs
(Level 2)
December 31,
2011
2012
Derivative instruments – liability position
12,367
9,569
As of December 31, 2011 and 2012, no fair value measurements for assets or liabilities under Level 1 or Level 3 were
recognized in the Company’s consolidated balance sheet.
Interest Rate Derivatives
Details of interest rate swap transactions entered into with certain banks in respect of certain loans and credit facilities
as of December 31, 2011 and 2012 are presented in the table below:
Inception
Expiry
Notional amount
Fixed
Rate
December 31,
2011
December 31,
2012
Loan or Credit
Facility
Marindou (1)
Petra (1)
Pemer (1)
Marinouki (1)
Avstes (1)
Staloudi (1)
January 14, 2008
February 19, 2008
March 07, 2008
March 19, 2008
April 25, 2008
January 07, 2009
January 14, 2013
January 18, 2013
March 07, 2013
March 05, 2013
April 18, 2013
January 07, 2012
3.9500 % $
2.8850 %
2.7450 %
2.7300 %
3.8900 %
3.3850 %
January 31, 2011
February 01, 2010
Eniadefhi (1)
February 12, 2014
April 01, 2009
Marathassa (2) November 23, 2009 November 23, 2012
Maxdodeka (2)
February 01, 2013
Kerasies (2)
December 14, 2010 December 14, 2015
Maxpente (2)
January 31, 2015
Eniaprohi (2)
November 14, 2011 November 14, 2014
Soffive (2)
November 20, 2011 November 20, 2014
Pelea (2)
December 15, 2011 December 15, 2016
Marathassa (2) November 23, 2012 November 21, 2015
Staloudi (2)
January 07, 2015
Maxdekatria (2) September 28, 2012 September 28, 2017
Marindou (2)
January 16, 2018
Marinouki (2)
March 05, 2018
January 14, 2013
March 05, 2013
January 09, 2012
3.3500 %
1.6500 %
3.9100 %
1.6500 %
1.2200 %
1.4000 %
1.3500 %
2.0500 %
1.9500 %
1.4500 %
0.9000 %
1.6000 %
1.4800 %
$
27,253
30,471
30,468
27,695
27,342
45,680
Notional amount
39,375
16,565
32,250
33,066
38,200
37,776
37,200
36,461
14,935
43,860
—
28,500
—
25,759
28,271
28,268
26,051
25,684
—
37,125
—
30,600
30,932
36,400
35,552
34,800
34,935
14,935
42,040
20,800
28,500
25,174
Total
$
547,097
$
505,826
(1) Under these swap transactions, the bank effects semi-annual floating-rate payments to the Company for the relevant amount based on the six-
month U.S. dollar LIBOR, and the Company effects semi-annual payments to the bank on the relevant amount at the respective fixed rates.
(2) Under these swap transactions, the bank effects quarterly floating-rate payments to the Company for the relevant amount based on the three-
month U.S. dollar LIBOR, and the Company effects quarterly payments to the bank on the relevant amount at the respective fixed rates.
The notional amounts of the above transactions are reduced during the term of the swap transactions based on the
expected principal outstanding under the respective facility. In the Petra, Pemer and Marinouki transactions, the respec-
tive bank had the right to cancel each swap on January 18, 2011, March 5, 2011 and March 7, 2011, respectively, and at
six-month intervals thereafter, which cancellation rights were not exercised.
15. Accrued Liabilities
Accrued liabilities are comprised of the following:
Interest on long-term debt
Vessels’ operating and voyage expenses
Commissions
Interest on derivatives and other finance expenses
General and administrative expenses
Total
16. Early Redelivery Income, Net
December 31,
2011
2012
$
$
1,214
1,365
65
3,571
341
6,556
$
$
1,720
1,929
65
2,439
211
6,364
From time to time, the Company enters into arrangements for early redelivery of its vessels from charterers and may
continue to do so in the future, depending on market conditions. Early redelivery costs are incurred where the con-
tracted daily fixed charter rates are substantially lower than the daily charter rates the vessels could potentially earn
in the current market. Income is recognized in connection with early termination of a period time charter, resulting
from a request of the respective vessel charterers for early redelivery and agreement to compensate the Company. Early
redelivery costs for the periods presented represent costs incurred in connection with early termination of charters for
which no replacement charter contract for the relevant vessel has been secured at the time of concluding the charter
termination agreement, and are recognized at the time the charter termination agreement is concluded. Early redeliv-
ery income is recognized when a charter termination agreement exists, the vessel is redelivered to the Company and
F20
F21
annual report 2012
collection of the related compensation is reasonably assured. If at the time of concluding the early redelivery agreement,
a replacement charter contract had been secured, any costs incurred or income recognized would have been amortized
over the term of the replacement charter contract
Year Ended
December 31,
Company
Date
2010
2011
2012
Kerasies
Pemer
Pelea
Marindou
Eniadefhi
Other minor early redeliveries
Total
March 25, 2010 $
(a)
April 13, 2010
(b)
(c)
April 28, 2010
(d) December 15, 2012
(e) December 21, 2012
$
(1,520)
3,581
(1,765)
—
—
Various $
$
(164)
132
$
$
— $
—
—
—
—
207 $
207 $
—
—
—
3,202
8,475
—
11,677
Details of the transactions presented in the above table are as follows:
(a) On March 25, 2010, Kerasies agreed with the charterers of the Katerina to terminate the $15.5 daily fixed rate time
charter which had commenced on June 26, 2009, and was due to expire by September 15, 2011. As compensa-
tion for early redelivery, Kerasies agreed to pay the charterers $1,520, net of commissions.
(b) On April 13, 2010, Pemer took early redelivery of the Pedhoulas Merchant, instead of on November 5, 2010. In con-
nection with this early redelivery, we recognized early redelivery income of $3,581, comprising cash compensa-
tion paid by the relevant charterer of $4,799, net of commissions, less accrued revenue of $1,218.
(c) On April 28, 2010, Pelea agreed with the charterers of the Pedhoulas Leader to terminate the $18.50 daily fixed rate
time charter which had commenced on July 19, 2009, and was due to expire by September 30, 2011. As compen-
sation for early redelivery, Pelea agreed to pay the charterers an amount of $1,765, net of commissions.
(d) On December 15, 2012, Eniadefhi took early redelivery of the Martine, instead of on January 21, 2014. In connec-
tion with this early redelivery, we recognized early redelivery income of $8,475, comprising cash compensation
paid by the relevant charterer of $8,644, net of commissions, less accrued revenue of $169.
(e) On December 19, 2012, Marindou took early redelivery of the Maria, instead of on February 24, 2014. In connec-
tion with this early redelivery, we recognized early redelivery income of $3,202, comprising cash compensation
paid by the relevant charterer of $3,375, net of commissions, less accrued revenue of $173.
In all the cases presented above, no replacement charter contract had been secured at the time of the termination of the
respective early redelivery agreement.
17. Lease Arrangements—Charters-out
The future minimum time charter revenue, net of commissions, based on vessels committed to non-cancelable time
charter contracts (including fixture recaps) as of December 31, 2012, is as follows:
December 31,
2013
2014
2015
2016
2017
Thereafter
Total
$ 118,918
57,960
27,446
22,056
22,958
175,652
$ 424,990
Future minimum time charter revenue excludes the future acquisitions of the vessels discussed in Note 11, since esti-
mated delivery dates are not confirmed. Revenues from time charters are not generally received when a vessel is off-
hire, including time required for normal periodic maintenance of the vessel. In arriving at the minimum future charter
revenues, an estimated off-hire time of 12 days to perform any scheduled drydocking on each vessel has been deducted,
and it has been assumed that no additional off-hire time is incurred, although such estimate may not be reflective of the
actual off-hire in the future.
18. General and Administrative Expenses
General and administrative expenses for the years ended December 31, 2010, 2011 and 2012 were as follows:
Management fees - related party
Professional fees (legal and accounting)
Director fees
Listing fees and expenses
Miscellaneous
Total
19. Unearned Revenue /Accrued Revenue
December 31,
2010
2011
2012
$
$
4,880
810
240
63
1,025
7,018
$
$
6,026
839
240
58
1,326
8,489
$
$
7,726
588
240
53
1,339
9,946
Unearned Revenue represents cash received in advance of it being earned, whereas Accrued Revenue represents reve-
nue earned prior to cash being received. Revenue is recognized as earned on a straight-line basis at their average rates
where charter agreements provide for varying annual charter rates over their term. Total Unearned Revenue /Accrued
Revenue during the periods presented are as follows:
Unearned Revenue
Revenue received in advance of service provided – Current liability
Deferred revenue resulting from varying charter rates
Current liability
Non-current liability
Total Unearned Revenue
Accrued Revenue
Resulting from varying charter rates – Current asset
Resulting from varying charter rates –Non Current asset
Total Accrued Revenue
20. Gain on Sale of Assets
December 31,
2011
2012
$
4,131
$
3,935
19,080
17,821
41,032
—
—
—
$
$
$
14,270
3,419
21,624
554
92
646
$
$
$
During the year ended December 31, 2010, the Company concluded the sale of the vessel Old Efrossini to an unrelated
third party for gross consideration of $33,000. The sale realized a net gain of $15,199 after taking into account commis-
sions and other directly related expenses amounting to $832 for the vessel.
There were no sales of vessels in 2011 and 2012.
21. Dividends
F22
F23
annual report 2012
During 2012, the Company declared and paid three consecutive quarterly dividends of $0.15 per share followed by one
quarterly dividend of $0.05 per share, totaling $37,463.
22. Earnings Per Share
The computation of basic earnings per share is based on the weighted average number of common shares outstanding
during the year and includes the shares issuable to the audit committee chairman and the independent directors at the
end of the year for services rendered. Diluted earnings per share are the same as basic earnings per share. There are no
other potentially dilutive shares.
23. Subsequent Events
(a) Interest Rate Derivative: In January 2013, the Company entered into an interest rate transaction with a bank in
respect of the Petra loan for an initial notional amount of $14,000 and duration of five years at a fixed rate of
0.98%.
(b) Second Hand Vessel Acquisitions: In January 2013, Maxeikosiepta took delivery of Paraskevi, a 74,300 dwt, Japa-
nese built second-hand Panamax class vessel. The relevant MoA had been signed in December 2012 and provided
for a purchase price of $13,850, of which $2,770 was paid on signing of the MoA and the remaining $11,080 was
paid on vessel’s delivery to the Company in January 2013. In January 2013, Vassone entered into a MoA for the
acquisition of a 83,700 dwt Japanese built secondhand Kamsarmax class vessel, to be named Pedhoulas Com-
mander. The MoA provides for purchase price of $19,400, of which $1,940 was paid on signing of the MoA and the
remaining $17,460 will be paid on vessel’s delivery to the Company scheduled in March 2013.
(c) Formation of subsidiary: In January 2013, the Company formed the subsidiary Vasstwo Shipping Corporation,
incorporated under the laws of the Republic of Liberia.
(d) Addendum of MoA: In January 2013, the Company agreed to a new scheduled delivery of Hull 1659, to be in the first
half of 2014, instead of the initial scheduled delivery in the second half of 2013.
(e) Early redelivery: On December 28, 2012, the Company agreed with the charterer of the Maritsa the early termi-
nation of a charter party of which the contracted earliest redelivery date was January 29, 2015. The vessel was
redelivered to the Company in January 2013, whereupon the Company received cash compensation of $13,060.
The vessel has subsequently been chartered with the same charterer for a minimum period of 22 months at a
gross daily charter rate of $8.
(f) Dividend declaration: On February 18, 2013, the Board of Directors declared a dividend of $0.05 per common
share, totaling $3,834, payable to all shareholders of record as of March 4, 2013, on March 8, 2013.
corporate
directory
U.S. Legal Counsel
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
Tel.: +1 (212) 44664800
U.K./Greek Legal Counsel
Norton Rose LLP
Building K1
1 Palea Leoforos Posidonos &
3 Moraitini str.
175 64 Paleo Faliro ,Greece
Tel.: +30 (210) 947-5300
Independent Auditors
Deloitte Hadjipavlou, Sofianos &
Cambanis S.A.
Fragoklissias 3a & Granikou str.
Marousi 15125
Athens, Greece
Tel: + 30 210 678-1100
Investor Relations / Media
Contact
Eleni Bej, Vice President
Capital Link, Inc.
230 Park Avenue, Suite 1536
New York, N.Y. 10169
Tel.: (212) 661-7566
Fax: (212) 661-7526
E-Mail: safebulkers@capitallink.com
Board of Directors and
Management
Polys Hajioannou,
Chief Executive Officer,
Chairman and Director
Dr. Loukas Barmparis
President, Secretary and Director
Konstantinos Adamopoulos
Chief Financial Officer,
Treasurer and Director
Ioannis Foteinos
Chief Operating Officer and Director
Frank Sica
Director
John Gaffney
Director
Ole Wikborg
Director
Corporate Office
Safe Bulkers, Inc.
30-32 Karamanli Avenue
Voula 166 73
Athens, Greece
Tel.: +30 (210) 899-4980
Fax: +30 (210) 895-4159
Transfer Agent and Registrar
American Stock Transfer & Trust
Company
6201 15th Avenue, Brooklyn, NY 11219
Tel: +1 (718) 9218210
F24
Stock Listing
Safe Bulkers, Inc.’s common stock is traded on
the New York Stock Exchange under the ticker
symbol “SB”.
Website
Information about Safe Bulkers’ fleet, as well as cor-
porate investor information, press releases, stock
quotes, and SEC filings may be obtained through our
website at www.safebulkers.com
This annual report is printed on HOLMENBOOK paper 80gr
and complies to the following certifications.
SS 627750 AND EN 16001 are the Swedish and European
standards for the introduction of energy management systems.
FSC® – Forest Stewardship Council® is a system for the certifcation of
forestry that is supported by several environmental organisations.
PEFC – Programme for the Endorsement of Forest Certifcation
schemes is an international system for forest certifcation.
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