|
A.
|
Selected Financial Data
|
The following tables set forth our selected consolidated financial data and other operating data. The selected consolidated financial data
in the tables as of and for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 are derived from our audited consolidated financial statements and notes thereto which have been prepared in accordance with U.S. generally accepted
accounting principles, or U.S. GAAP. The following data should be read in conjunction with “Item 5. Operating and Financial Review and Prospects”, the consolidated financial statements, related notes and other financial information included
elsewhere in this annual report.
|
As of and for the
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
(in thousands of U.S. dollars,
|
|
|
except for share and per share data, fleet data and average daily results)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
Time charter revenues
|
|
$
|
226,189
|
|
|
$
|
161,897
|
|
|
$
|
114,259
|
|
|
$
|
157,712
|
|
|
$
|
175,576
|
|
Impairment loss
|
|
|
-
|
|
|
|
442,274
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Operating income/(loss)
|
|
|
38,250
|
|
|
|
(483,987
|
)
|
|
|
(88,321
|
)
|
|
|
(47,177
|
)
|
|
|
(18,204
|
)
|
Net income/(loss)
|
|
|
16,580
|
|
|
|
(511,714
|
)
|
|
|
(164,237
|
)
|
|
|
(64,713
|
)
|
|
|
(10,268
|
)
|
Dividends on series B preferred shares
|
|
|
(5,769
|
)
|
|
|
(5,769
|
)
|
|
|
(5,769
|
)
|
|
|
(5,769
|
)
|
|
|
(5,080
|
)
|
Income/(loss) attributed to common stockholders
|
|
|
10,811
|
|
|
|
(517,483
|
)
|
|
|
(170,006
|
)
|
|
|
(70,482
|
)
|
|
|
(15,348
|
)
|
Earnings/(loss) per common share, basic and diluted
|
|
|
0.10
|
|
|
|
(5.41
|
)
|
|
|
(2.11
|
)
|
|
|
(0.89
|
)
|
|
|
(0.19
|
)
|
Weighted average number of common shares, basic
|
|
|
103,736,742
|
|
|
|
95,731,093
|
|
|
|
80,441,517
|
|
|
|
79,518,009
|
|
|
|
81,292,290
|
|
Weighted average number of common shares, diluted
|
|
|
104,715,883
|
|
|
|
95,731,093
|
|
|
|
80,441,517
|
|
|
|
79,518,009
|
|
|
|
81,292,290
|
|
|
As of and for the
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
(in thousands of U.S. dollars,
|
|
|
except for share and per share data and average daily results)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,187,796
|
|
|
$
|
1,246,722
|
|
|
$
|
1,668,663
|
|
|
$
|
1,836,965
|
|
|
$
|
1,787,122
|
|
Total current liabilities
|
|
|
125,156
|
|
|
|
80,441
|
|
|
|
78,225
|
|
|
|
58,889
|
|
|
|
98,092
|
|
Capital stock
|
|
|
1,063,709
|
|
|
|
1,071,587
|
|
|
|
986,044
|
|
|
|
977,731
|
|
|
|
972,125
|
|
Long-term debt (including current portion), net of deferred financing costs
|
|
|
530,547
|
|
|
|
601,384
|
|
|
|
598,181
|
|
|
|
600,071
|
|
|
|
484,256
|
|
Total stockholders’ equity
|
|
|
627,684
|
|
|
|
624,758
|
|
|
|
1,056,589
|
|
|
|
1,218,366
|
|
|
|
1,282,226
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) operating activities
|
|
$
|
79,930
|
|
|
$
|
23,413
|
|
|
$
|
(20,998
|
)
|
|
$
|
23,945
|
|
|
$
|
44,910
|
|
Net cash provided by/(used in) investing activities
|
|
|
99,370
|
|
|
|
(152,333
|
)
|
|
|
(41,619
|
)
|
|
|
(155,637
|
)
|
|
|
(152,513
|
)
|
Net cash provided by/(used in) financing activities
|
|
|
(93,702
|
)
|
|
|
73,587
|
|
|
|
(9,459
|
)
|
|
|
106,009
|
|
|
|
85,871
|
|
|
|
As of and for the
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of vessels (1)
|
|
|
49.9
|
|
|
|
49.6
|
|
|
|
45.2
|
|
|
|
40.8
|
|
|
|
37.9
|
|
Number of vessels at year-end
|
|
|
48.0
|
|
|
|
50.0
|
|
|
|
46.0
|
|
|
|
43.0
|
|
|
|
39.0
|
|
Weighted average age of vessels at year-end (in years)
|
|
|
9.1
|
|
|
|
8.4
|
|
|
|
8.2
|
|
|
|
7.4
|
|
|
|
7.1
|
|
Ownership days (2)
|
|
|
18,204
|
|
|
|
18,119
|
|
|
|
16,542
|
|
|
|
14,900
|
|
|
|
13,822
|
|
Available days (3)
|
|
|
17,964
|
|
|
|
17,890
|
|
|
|
16,447
|
|
|
|
14,600
|
|
|
|
13,650
|
|
Operating days (4)
|
|
|
17,799
|
|
|
|
17,566
|
|
|
|
16,354
|
|
|
|
14,492
|
|
|
|
13,564
|
|
Fleet utilization (5)
|
|
|
99.1
|
%
|
|
|
98.2
|
%
|
|
|
99.4
|
%
|
|
|
99.3
|
%
|
|
|
99.4
|
%
|
Average Daily Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time charter equivalent (TCE) rate (6)
|
|
$
|
12,179
|
|
|
$
|
8,568
|
|
|
$
|
6,106
|
|
|
$
|
9,739
|
|
|
$
|
12,081
|
|
Daily vessel operating expenses (7)
|
|
|
5,247
|
|
|
|
4,987
|
|
|
|
5,196
|
|
|
|
5,924
|
|
|
|
6,289
|
|
__________________
|
(1)
|
Average number of vessels is the number of vessels that constituted our fleet for the relevant period, as measured by the sum of the number of days each
vessel was a part of our fleet during the period divided by the number of calendar days in the period.
|
|
(2)
|
Ownership days are the aggregate number of days in a period during which each vessel in our fleet has been owned by us. Ownership days are an indicator of
the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during a period.
|
|
(3)
|
Available days are the number of our ownership days less the aggregate number of days that our vessels are off-hire due to scheduled repairs or repairs
under guarantee, vessel upgrades or special surveys and the aggregate amount of time that we spend positioning our vessels for such events. The shipping industry uses available days to measure the number of days in a period during
which vessels should be capable of generating revenues.
|
|
(4)
|
Operating days are the number of available days in a period less the aggregate number of days that our vessels are off-hire due to any reason, including
unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues.
|
|
(5)
|
We calculate fleet utilization by dividing the number of our operating days during a period by the number of our available days during the period. The
shipping industry uses fleet utilization to measure a company's efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons other than scheduled repairs or
repairs under guarantee, vessel upgrades, special surveys or vessel positioning for such events.
|
|
(6)
|
Time charter equivalent rates, or TCE rates, are defined as our time charter
revenues less voyage expenses during a period divided by the number of our available days during the period, which is consistent with industry standards. Voyage expenses include port charges, bunker (fuel) expenses, canal charges
and commissions. TCE rate is a non-GAAP measure,
and management believes it is useful to investors because it is a standard shipping industry
performance
measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charter hire rates for vessels on voyage charters are generally not
expressed in per day amounts while charter hire rates
for vessels on time charters are generally expressed in such amounts. The following table
reflects the calculation of our TCE rates for the periods presented.
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands of U.S. dollars, except for
|
|
|
TCE rates, which are expressed in U.S. dollars, and available days)
|
|
Time charter revenues
|
|
$
|
226,189
|
|
|
$
|
161,897
|
|
|
$
|
114,259
|
|
|
$
|
157,712
|
|
|
$
|
175,576
|
|
Less: voyage expenses
|
|
|
(7,405
|
)
|
|
|
(8,617
|
)
|
|
|
(13,826
|
)
|
|
|
(15,528
|
)
|
|
|
(10,665
|
)
|
Time charter equivalent revenues
|
|
$
|
218,784
|
|
|
$
|
153,280
|
|
|
$
|
100,433
|
|
|
$
|
142,184
|
|
|
$
|
164,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available days
|
|
|
17,964
|
|
|
|
17,890
|
|
|
|
16,447
|
|
|
|
14,600
|
|
|
|
13,650
|
|
Time charter equivalent (TCE) rate
|
|
$
|
12,179
|
|
|
$
|
8,568
|
|
|
$
|
6,106
|
|
|
$
|
9,739
|
|
|
$
|
12,081
|
|
|
(7)
|
Daily vessel operating expenses, which include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs
of spares and consumable stores, tonnage taxes and other miscellaneous expenses, are calculated by dividing vessel operating expenses by ownership days for the relevant period.
|
|
B.
|
Capitalization and Indebtedness
|
|
C.
|
Reasons for the Offer and Use of Proceeds
|
Some of the following risks relate principally to the industry in which we operate and our business in general. Other risks relate
principally to the securities market and ownership of our securities, including our common stock and our Series B Preferred Shares. The occurrence of any of the events described in this section could significantly and negatively affect our
business, financial condition, operating results, cash available for the payment of dividends on our shares and interest on our loan facilities and Bond, or the trading price of our securities.
Industry Specific Risk Factors
Charter hire rates for dry bulk carriers are volatile, which may adversely affect our earnings.
The dry bulk shipping industry is cyclical with attendant volatility in charter hire rates and profitability. The degree of charter hire
rate volatility among different types of dry bulk carriers has varied widely, and charter hire rates for Panamax and Capesize dry bulk carriers have declined significantly from historically high levels. Because we charter some of our vessels
pursuant to short-term time charters, we are exposed to changes in spot market and short-term charter rates for dry bulk carriers and such changes may affect our earnings and the value of our dry bulk carriers at any given time. In addition, more
than half of our vessels are scheduled to come off of their current charters in 2019, based on their earliest redelivery date, for which we may be seeking new employment. We cannot assure you that we will be able to successfully charter our
vessels in the future or renew existing charters at rates sufficient to allow us to meet our obligations or pay any dividends in the future. Fluctuations in charter rates result from changes in the supply of and demand for vessel capacity and
changes in the supply of and demand for the major commodities carried by water internationally. Because the factors affecting the supply of and demand for vessels are outside of our control and are unpredictable, the nature, timing, direction and
degree of changes in industry conditions are also unpredictable.
Factors that influence demand for dry bulk vessel capacity include:
|
●
|
supply of and demand for energy resources, commodities, semi-finished and finished consumer and industrial products;
|
|
●
|
changes in the exploration or production of energy resources, commodities, semi-finished and finished consumer and industrial products;
|
|
●
|
the location of regional and global exploration, production and manufacturing facilities;
|
|
●
|
the location of consuming regions for energy resources, commodities, semi-finished and finished consumer and industrial products;
|
|
●
|
the globalization of production and manufacturing;
|
|
●
|
global and regional economic and political conditions, including armed conflicts and terrorist activities; embargoes and strikes;
|
|
●
|
natural disasters and other disruptions in international trade;
|
|
●
|
disruptions and developments in international trade;
|
|
●
|
changes in seaborne and other transportation patterns, including the distance cargo is transported by sea;
|
|
●
|
environmental and other regulatory developments;
|
|
●
|
currency exchange rates; and
|
Factors that influence the supply of dry bulk vessel capacity include:
|
●
|
the number of newbuilding orders and deliveries, including slippage in deliveries;
|
|
●
|
the number of shipyards and ability of shipyards to deliver vessels;
|
|
●
|
port and canal congestion;
|
|
●
|
the scrapping rate of older vessels;
|
|
●
|
speed of vessel operation;
|
|
●
|
the number of vessels that are out of service, namely those that are laid-up, drydocked, awaiting repairs or otherwise not available for hire.
|
In addition to the prevailing and anticipated freight rates, factors that affect the rate of newbuilding, scrapping and laying-up include
newbuilding prices, secondhand vessel values in relation to scrap prices, costs of bunkers and other operating costs, costs associated with classification society surveys, normal maintenance and insurance coverage, the efficiency and age profile
of the existing dry bulk fleet in the market and government and industry regulation of maritime transportation practices, particularly environmental protection laws and regulations. These factors influencing the supply of and demand for shipping
capacity are outside of our control, and we may not be able to correctly assess the nature, timing and degree of changes in industry conditions.
We anticipate that the future demand for our dry bulk carriers will be dependent upon economic growth in the world's economies, including
China and India, seasonal and regional changes in demand, changes in the capacity of the global dry bulk carrier fleet and the sources and supply of dry bulk cargo transported by sea. While there has been a general decrease in new dry bulk
carrier ordering since 2014, the capacity of the global dry bulk carrier fleet could increase and economic growth may not resume in areas that have experienced a recession or continue in other areas. Adverse economic, political, social or other
developments could have a material adverse effect on our business and operating results.
The dry bulk carrier charter market remains significantly below its high in 2008, which has had and
may continue to have an adverse effect on our revenues, earnings and profitability, and may affect our ability to comply with our loan covenants.
The abrupt and dramatic downturn in the dry bulk charter market, from which we derive substantially all of our revenues, has severely
affected the dry bulk shipping industry and has adversely affected our business. The Baltic Dry Index, or the BDI, a daily average of charter rates for key dry bulk routes published by the Baltic Exchange Limited, has long been viewed as the main
benchmark to monitor the movements of the dry bulk vessel charter market and the performance of the entire dry bulk shipping market. The BDI declined 94% in 2008 from a peak of 11,793 in May 2008 to a low of 663 in December 2008 and has remained
volatile since then, reaching a record low of 290 in February 2016. In 2018 BDI ranged from a low of 948 in April to a high of 1,774 in July and remains at comparatively low levels relative to historical highs and there can be no assurance that
the dry bulk charter market will not decline further. The decline and volatility in charter rates is due to various factors, including the lack of trade financing for purchases of commodities carried by sea, which has resulted in a significant
decline in cargo shipments, and the excess supply of iron ore in China, which has resulted in falling iron ore prices and increased stockpiles in Chinese ports. The decline and volatility in charter rates in the dry bulk market also affects the
value of our dry bulk vessels, which follows the trends of dry bulk charter rates, and earnings on our charters, and similarly, affects our cash flows, liquidity and compliance with the covenants contained in our loan agreements.
The decline in the dry bulk carrier charter market has had and may continue to have additional adverse consequences for our industry,
including an absence of financing for vessels, no active secondhand market for the sale of vessels, charterers seeking to renegotiate the rates for existing time charters, and widespread loan covenant defaults in the dry bulk shipping industry.
Accordingly, the value of our common shares could be substantially reduced or eliminated.
If economic conditions throughout the world decline, in particular in the EU, in China and the rest
of the Asia-Pacific region, it could negatively affect our earnings, financial condition and cash flows and may further adversely affect the market price of our common shares.
Negative trends in the global economy that emerged in 2008 continue to adversely affect global
economic conditions. In addition, the world economy continues to face a number of new challenges, including continuing economic weakness in the European Union, or the EU. Deterioration in the global economy has caused, and could in the future
cause, a decrease in worldwide demand for certain goods and, thus, shipping. Moreover, we operate in a sector of the economy that is likely to be adversely impacted by the effects of political conflicts, including the current political
instability in the Middle East and other geographic countries and areas, geopolitical events such as the withdrawal of the U.K. from the European Union, or “Brexit,” terrorist or other attacks, and war (or threatened war) or international
hostilities, such as those between the United States and North Korea.
The EU and other parts of the world have recently been or are currently in a recession and
continue to exhibit weak economic trends. Moreover, concerns persist regarding the debt burden of certain Eurozone countries, such as Greece, Spain, Portugal, and Italy, and their ability to meet future financial obligations and the overall
stability of the euro. Partly as a result, the credit markets in the United States and Europe have experienced significant contraction, deleveraging and reduced liquidity, and the U.S. federal and state governments and European authorities have
implemented a broad variety of governmental action and new regulation of the financial markets and may implement additional regulations in the future. As a result, global economic conditions and global financial markets have been, and continue to
be, volatile. Further, credit markets and the debt and equity capital markets have been distressed and the uncertainty surrounding the future of the global credit markets has resulted in reduced access to credit worldwide.
Economic slowdown in the Asia Pacific region, particularly in China, may have a materially adverse effect on us, as we anticipate a
significant number of the port calls made by our vessels will continue to involve the loading or discharging of dry bulk commodities in ports in the Asia Pacific region. Before the global economic financial crisis that began in 2008, China had
one of the world's fastest growing economies in terms of gross domestic product, or GDP, which had a significant impact on shipping demand. The growth rate of China's GDP is estimated to be approximately 6.5% for the year ended December 31, 2018,
which is 0.3% lower than the growth rate for the year ended December 31, 2017. This forecasted growth rate would be China's slowest growth rate in 25 years. Our earnings and ability to grow our fleet would likely be impeded by an economic
downturn in China or other countries in the Asia Pacific region.
A decrease in the level of China’s export of goods or an increase in trade protectionism could have
a material adverse impact on our charterers’ business and, in turn, could cause a material adverse impact on our earnings, financial condition and cash flows.
Our vessels may be deployed on routes involving trade in and out of emerging markets, and our charterers’ shipping and business revenue may
be derived from the shipment of goods from the Asia Pacific region to various overseas export markets including the United States and Europe. Any reduction in or hindrance to the output of China-based exporters could have a material adverse
effect on the growth rate of China’s exports and on our charterers’ business.
For instance, the government of China has implemented economic policies aimed at increasing domestic consumption of Chinese-made goods and
restricting currency exchanges within China. This may have the effect of reducing the supply of goods available for export and may, in turn, result in a decrease of demand for shipping. Additionally, though in China there is an increasing level
of autonomy and a gradual shift in emphasis to a “market economy” and enterprise reform, many of the reforms, particularly some limited price reforms that result in the prices for certain commodities being principally determined by market forces,
are unprecedented or experimental and may be subject to revision, change or abolition. The level of imports to and exports from China could be adversely affected by changes to these economic reforms by the Chinese government, as well as by
changes in political, economic and social conditions or other relevant policies of the Chinese government. For example, China imposes a tax for non-resident international transportation enterprises engaged in the provision of services of
passengers or cargo, among other items, in and out of China using their own, chartered or leased vessels. The regulation may subject international transportation companies to Chinese enterprise income tax on profits generated from international
transportation services passing through Chinese ports. This tax or similar regulations, such as the recently promoted environmental taxes on coal, by China may result in an increase in the cost of raw materials imported to China and the risks
associated with importing raw materials to China, as well as a decrease in any raw materials shipped from our charterers to China. This could have an adverse impact on our charterers’ business, operating results and financial condition and could
thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us.
In addition, leaders in the United States have indicated the United States may seek to implement more protective trade measures. The
current U.S. president was elected on a platform promoting trade protectionism and his election has created uncertainty about the future relationship between the United States and China and other exporting countries, including with respect to
trade policies, treaties, government regulations and tariffs. On January 23, 2017, the U.S. President signed an executive order withdrawing the United States from the Trans-Pacific Partnership, a global trade agreement intended to include the
United States, Canada, Mexico, Peru and a number of Asian countries. Additionally, in March 2018, the U.S. President announced tariffs on imported steel and aluminum into the United States that could have a negative impact on international trade
generally and dry bulk shipping specifically. Most recently, in January 2019, the United States announced expanded sanctions against Venezuela, which may have an effect on its oil output and in turn affect global oil supply.
Our operations expose us to the risk that increased trade protectionism will adversely affect our business. If the continuing global
recovery is undermined by downside risks and the recent economic downturn is prolonged, governments may turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing the demand for shipping. Specifically,
increasing trade protectionism in the markets that our charterers serve has caused and may continue to cause an increase in: (i) the cost of goods exported from China, (ii) the length of time required to deliver goods from China and (iii) the
risks associated with exporting goods from China, as well as a decrease in the quantity of goods to be shipped.
Any increased trade barriers or restrictions on trade, especially trade with China, would have an adverse impact on our charterers’
business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us. This could have a material adverse effect
on our business, financial condition and earnings.
A decline in the state of global financial markets and economic conditions may adversely impact our
ability to obtain additional financing or refinance our existing loan and credit facilities on acceptable terms which may hinder or prevent us from expanding our business.
Recent volatility in global financial markets and economic conditions has negatively affected the general willingness of banks and other
financial institutions to extend credit, particularly in the shipping industry, due to the historically volatile asset values of vessels. As the shipping industry is highly dependent on the availability of credit to finance and expand operations,
it has been, and may continue to be negatively affected by a decline in lending. Furthermore, a decline in global financial markets may adversely impact our ability to issue additional equity at prices that are not dilutive to our existing
shareholders or preclude us from issuing equity at all.
Also, as a result of any renewed concerns about the stability of financial markets generally and the solvency of counterparties
specifically, the cost of obtaining money from the credit markets may increase as lenders may increase interest rates, enact tighter lending standards, refuse to refinance existing debt at all or on terms similar to current debt and reduce, and
in some cases cease to provide funding to borrowers. Due to these factors, we cannot be certain that additional financing will be available if needed and to the extent required, or that we will be able to refinance our existing loan and credit
facilities, on acceptable terms or at all. If additional financing or refinancing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be unable to enhance
our existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.
Regulations relating to ballast water discharge coming into effect during September 2019 may
adversely affect our revenues and profitability.
The IMO has imposed updated guidelines for ballast water management systems specifying the maximum amount of viable organisms allowed to be
discharged from a vessel’s ballast water. Depending on the date of the IOPP renewal survey, existing vessels constructed before September 8, 2017 must comply with the updated D-2 standard on or after September 8, 2019. For most vessels,
compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Ships constructed on or after September 8, 2017 are to comply with the D-2 standards on or after September 8,
2017. We currently have 36 vessels that do not comply with the updated guideline and costs of compliance may be substantial and adversely affect our revenues and profitability.
Furthermore, United States regulations are currently changing. Although the 2013 Vessel General Permit (“VGP”) program and U.S. National
Invasive Species Act (“NISA”) are currently in effect to regulate ballast discharge, exchange and installation, the Vessel Incidental Discharge Act (“VIDA”), which was signed into law on December 4, 2018, requires that the U.S. Coast Guard
develop implementation, compliance, and enforcement regulations regarding ballast water within two years. The new regulations could require the installation of new equipment, which may cause us to incur substantial costs.
An over-supply of dry bulk carrier capacity may prolong or further depress the current low charter
rates and, in turn, adversely affect our profitability.
The market supply of dry bulk carriers has increased materially since 2009 due to a high level of new deliveries in the last few years.
Although dry bulk newbuilding deliveries have tapered off since 2014, newbuildings continued to be delivered through the end of 2018. While vessel supply will continue to be affected by the delivery of new vessels and the removal of vessels from
the global fleet, either through scrapping or accidental losses, an over-supply of dry bulk carrier capacity could prolong the period during which low charter rates prevail. Currently, more than half of our vessels are scheduled to come off of
their current charters in 2019, based on their earliest redelivery date, for which we may be seeking new employment.
Risks associated with operating ocean-going vessels could affect our business and reputation, which
could adversely affect our revenues and stock price.
The operation of ocean-going vessels carries inherent risks. These risks include the possibility of:
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environmental accidents;
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cargo and property losses or damage;
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business interruptions caused by mechanical failure, human error, war, terrorism, political action in various countries, labor strikes or adverse weather
conditions; and
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These hazards may result in death or injury to persons, loss of revenues or property, environmental damage, higher insurance rates, damage
to our customer relationships, delay or rerouting. If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and may be substantial. We may have to pay drydocking costs
that our insurance does not cover in full. The loss of earnings while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, would decrease our earnings. In addition, space at drydocking facilities is
sometimes limited and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced to travel to a drydocking facility that is not conveniently located to our
vessels’ positions. The loss of earnings while these vessels are forced to wait for space or to steam to more distant drydocking facilities would decrease our earnings. The involvement of our vessels in an environmental disaster may also harm our
reputation as a safe and reliable vessel owner and operator.
World events could affect our earnings and financial condition.
Continuing conflicts and recent developments in the Middle East, Ukraine and other geographic countries and areas, geopolitical events such
as Brexit, terrorist or other attacks, and war (or threatened war) or international hostilities, such as those between the United States and North Korea, may lead to armed conflict or acts of terrorism around the world, which may contribute to
further economic instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all. In the past, political conflicts have also resulted in
attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea, the Gulf
of Aden off the coast of Somalia and the Gulf of Guinea. Any of these occurrences could have a material adverse impact on our operating results. Additionally, Brexit, or similar events in other jurisdictions, could impact global markets,
including foreign exchange and securities markets; any resulting changes in currency exchange rates, tariffs, treaties and other regulatory matters could in turn adversely impact our business and operations.
Acts of piracy on ocean-going vessels could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean
and in the Gulf of Aden off the coast of Somalia. Although the frequency of sea piracy worldwide has generally decreased since 2013, sea piracy incidents continue to occur. Acts of piracy could result in harm or danger to the crews that man our
vessels. In addition, if these piracy attacks occur in regions in which our vessels are deployed that insurers characterized as "war risk" zones or Joint War Committee "war and strikes" listed areas, premiums payable for such coverage could
increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including due to employing onboard security guards, could increase in such circumstances. Furthermore, while we believe the charterer
remains liable for charter payments when a vessel is seized by pirates, the charterer may dispute this and withhold charterhire until the vessel is released. A charterer may also claim that a vessel seized by pirates was not "on-hire" for a
certain number of days and is therefore entitled to cancel the charter party, a claim that we would dispute. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, any
detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability, of insurance for our vessels, could have a material adverse impact on our business, financial condition and earnings.
Our operating results are subject to seasonal fluctuations, which could affect our operating
results.
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charter hire rates.
This seasonality may result in quarter-to-quarter volatility in our operating results. The dry bulk carrier market is typically stronger in the fall and winter months in anticipation of increased consumption of coal and other raw materials in the
northern hemisphere during the winter months. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. As a result, our revenues may be weaker during the fiscal quarters
ended June 30 and September 30, and, conversely, our revenues may be stronger in fiscal quarters ended December 31 and March 31. While this seasonality will not directly affect our operating results, it could materially affect our operating
results to the extent our vessels are employed in the spot market in the future.
An increase in the price of fuel, or bunkers, may adversely affect profits.
While we generally will not bear the cost of fuel, or bunkers, for vessels operating on time charters, fuel is a significant factor in
negotiating charter rates. As a result, an increase in the price of fuel beyond our expectations may adversely affect our profitability at the time of charter negotiation. Fuel is also a significant, if not the largest, expense in our shipping
operations when vessels are under voyage charter. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply of and demand for oil and gas, actions by the
Organization of Petroleum Exporting Countries and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns and regulations. Fuel may become much more expensive in
the future, including as a result of the imposition of sulfur oxide emissions limits in 2020 under new regulations adopted by the International Maritime Organization, or the IMO, which may reduce the profitability and competitiveness of our
business versus other forms of transportation, such as truck or rail.
We are subject to complex laws and regulations, including environmental regulations that can
adversely affect the cost, manner or feasibility of doing business.
Our business and the operations of our vessels are materially affected by environmental regulation in the form of international
conventions, national, state and local laws and regulations in force in the jurisdictions in which our vessels operate, as well as in the country or countries of their registration, including those governing the management and disposal of
hazardous substances and wastes, the cleanup of oil spills and other contamination, air emissions (including greenhouse gases), water discharges and ballast water management. These regulations include, but are not limited to, European Union
regulations, the U.S. Oil Pollution Act of 1990, requirements of the U.S. Coast Guard, or USCG and the U.S. Environmental Protection Agency, the U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) , the U.S. Clean Water Act,
and the U.S. Maritime Transportation Security Act of 2002, and regulations of the IMO, including the International Convention on Civil Liability for Oil Pollution Damage of 1969, the International Convention for the Prevention of Pollution from
Ships of 1973, as modified by the Protocol of 1978, collectively referred to as MARPOL 73/78 or MARPOL, including designations of Emission Control Areas, thereunder, SOLAS, the International Convention on Load Lines of 1966, the International
Convention of Civil Liability for Bunker Oil Pollution Damage, and the ISM Code. Because such conventions, laws, and regulations are often revised, we cannot predict the ultimate cost of complying with such requirements or the impact thereof on
the re-sale price or useful life of any vessel that we own or will acquire. Additional conventions, laws and regulations may be adopted that could limit our ability to do business or increase the cost of our doing business and which may
materially adversely affect our operations. Government regulation of vessels, particularly in the areas of safety and environmental requirements, continue to change, requiring us to incur significant capital expenditures on our vessels to keep
them in compliance, or even to scrap or sell certain vessels altogether. In addition, we may incur significant costs in meeting new maintenance and inspection requirements, in developing contingency arrangements for potential environmental
violations and in obtaining insurance coverage.
In addition, we are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, certificates,
approvals and financial assurances with respect to our operations. Our failure to maintain necessary permits, licenses, certificates, approvals or financial assurances could require us to incur substantial costs or temporarily suspend operation
of one or more of the vessels in our fleet, or lead to the invalidation or reduction of our insurance coverage.
Environmental requirements can also affect the resale value or useful lives of our vessels, require a reduction in cargo capacity, ship
modifications or operational changes or restrictions, lead to decreased availability of insurance coverage for environmental matters or result in the denial of access to certain jurisdictional waters or ports, or detention in certain ports. Under
local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including for cleanup obligations and natural resource damages, in the event that there is a release of petroleum or
hazardous substances from our vessels or otherwise in connection with our operations. We could also become subject to personal injury or property damage claims relating to the release of hazardous substances associated with our existing or
historic operations. Violations of, or liabilities under, environmental requirements can result in substantial penalties, fines and other sanctions, including in certain instances, seizure or detention of our vessels.
Increased inspection procedures, tighter import and export controls and new security regulations
could increase costs and disrupt our business.
International shipping is subject to various security and customs inspection and related procedures in countries of origin, destination and
trans-shipment points. These security procedures may result in cargo seizure, delays in the loading, offloading, trans-shipment or delivery and the levying of customs duties, fines or other penalties against us.
It is possible that changes to inspection procedures could impose additional financial and legal obligations on us. Changes to inspection
procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse
effect on our business, financial condition and earnings.
The operation of dry bulk carriers has certain unique operational risks which could affect our
earnings and cash flow.
The international shipping industry is an inherently risky business involving global operations. Our vessels and their cargoes are at risk
of being damaged or lost because of events such as marine disasters, bad weather, mechanical failures, human error, environmental accidents, war, terrorism, piracy and other circumstances or events. In addition, transporting cargoes across a wide
variety of international jurisdictions creates a risk of business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts, the potential for changes in tax rates or policies, and the potential
for government expropriation of our vessels. Any of these events may result in loss of revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make payments to us under our charters.
Furthermore, the operation of vessels, such as dry bulk carriers, has certain unique risks. With a dry bulk carrier, the cargo itself and
its interaction with the vessel can be an operational risk. By their nature, dry bulk cargoes are often heavy, dense, easily shifted, and react badly to water exposure. In addition, dry bulk carriers are often subjected to battering treatment
during unloading operations with grabs, jackhammers (to pry encrusted cargoes out of the hold) and small bulldozers. This treatment may cause damage to the vessel. Vessels damaged due to treatment during unloading procedures may be more
susceptible to breach to the sea. Hull breaches in dry bulk carriers may lead to the flooding of the vessels' holds. If a dry bulk carrier suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure
may buckle the vessel's bulkheads leading to the loss of a vessel. If we are unable to adequately repair our vessels after such damages, we may be unable to prevent these events. Any of these circumstances or events could negatively impact our
business, financial condition, earnings, and ability to pay dividends, if any, in the future, and interest on our Bond. In addition, the loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator.
We cannot assure you that we will be adequately insured against all risks or that we will be able to obtain adequate insurance coverage at
reasonable rates for our vessels in the future. For example, in the past more stringent environmental regulations have led to increased costs for, and in the future may result in the lack of availability of, insurance against risks of
environmental damage or pollution. Additionally, our insurers may refuse to pay particular claims. Any significant loss or liability for which we are not insured could have a material adverse effect on our financial condition.
Our vessels may call on ports located in countries that are subject to sanctions and embargoes
imposed by the U.S. or other governments, which could adversely affect our reputation and the market for our common stock.
From time to time on charterers' instructions, our vessels may call on ports located in countries subject to countrywide U.S. sanctions,
including Iran, North Korea, Sudan and Syria. Since July 11, 2011, none of our vessels have called on ports in North Korea, Sudan or Syria. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to
the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. With effect from July 1, 2010, the U.S. enacted the Comprehensive Iran Sanctions
Accountability and Divestment Act, or CISADA, which expanded the scope of the Iran Sanctions Act. Among other things, CISADA expands the application of the prohibitions to companies such as ours and introduces limits on the ability of companies
and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products. In addition, on May 1, 2012, President Obama signed Executive Order 13608 which prohibits
foreign persons from violating or attempting to violate, or causing a violation of any sanctions in effect against Iran or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions. Any persons found to be
in violation of Executive Order 13608 will be deemed a foreign sanctions evader and will be banned from all contacts with the United States, including conducting business in U.S. dollars. Any persons found to be in violation of Executive Order
13608 will be deemed a foreign sanctions evader, and U.S. persons are generally prohibited from all transactions or dealings with such persons, whether direct or indirect. Among other things, foreign sanctions evaders are unable to transact in
U.S. dollars.
Also in 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012, or the Iran Threat Reduction
Act, which created new sanctions and strengthened existing sanctions. Among other things, the Iran Threat Reduction Act intensifies existing sanctions regarding the provision of goods, services, infrastructure or technology to Iran's petroleum or
petrochemical sector. The Iran Threat Reduction Act also includes a provision requiring the President of the United States to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act, as amended, on a person the President
determines is a controlling beneficial owner of, or otherwise owns, operates, or controls or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel,
the person had actual knowledge the vessel was so used or (2) if the person otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a person could be subject to a variety of
sanctions, including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction, and exclusion of that person's vessels from U.S. ports for up to two years.
On November 24, 2013, the P5+1 (the United States, United Kingdom, Germany, France, Russia and China) entered into an interim agreement
with Iran entitled the Joint Plan of Action, or the JPOA. Under the JPOA it was agreed that, in exchange for Iran taking certain voluntary measures to ensure that its nuclear program is used only for peaceful purposes, the United States and
European Union would voluntarily suspend certain sanctions for a period of six months. On January 20, 2014, the United States and European Union indicated that they would begin implementing the temporary relief measures provided for under the
JPOA. These measures included, among other things, the suspension of certain sanctions on the Iranian petrochemicals, precious metals, and automotive industries from January 20, 2014 until July 20, 2014. The JPOA was subsequently extended twice.
On July 14, 2015, the P5+1 and the European Union announced that they reached a landmark agreement with Iran titled the Joint Comprehensive
Plan of Action Regarding the Islamic Republic of Iran's Nuclear Program, or the JCPOA, which is intended to significantly restrict Iran's ability to develop and produce nuclear weapons for 10 years while simultaneously easing sanctions directed
toward non-U.S. persons for conduct involving Iran, but taking place outside of U.S. jurisdiction and does not involve U.S. persons. On January 16, 2016, or Implementation Day, the United States joined the European Union and the United Nations
in lifting a significant number of their nuclear-related sanctions on Iran following an announcement by the International Atomic Energy Agency, or IAEA, that Iran had satisfied its respective obligations under the JCPOA.
U.S. sanctions prohibiting certain conduct that was permitted under the JCPOA was not actually repealed or permanently terminated. Rather,
the U.S. government implemented changes to the sanctions regime by: (1) issuing waivers of certain statutory sanctions provisions; (2) committing to refrain from exercising certain discretionary sanctions authorities; (3) removing certain
individuals and entities from OFAC's sanctions lists; and (4) revoking certain Executive Orders and specified sections of Executive Orders. These sanctions were not be permanently "lifted." On October 13, 2017, the U.S. President announced that
he would not certify Iran’s compliance with the JCPOA. This did not withdraw the United States from the JCPOA or reinstate any sanctions. On May 8, 2018, President Trump announced his decision to cease U.S. participation in the JCPOA and to
reimpose the U.S. nuclear-related sanctions that were previously lifted, following two wind-down periods. The second wind-down period ended on November 4, 2018.
Current or future counterparties of ours may be affiliated with persons or entities that are or may be in the future the subject of
sanctions imposed by the Obama administration, the European Union and/or other international bodies as a result of the annexation of Crimea by Russia in March 2014. If we determine that such sanctions require us to terminate existing or future
contracts to which we or our subsidiaries are party or if we are found to be in violation of such applicable sanctions, our results of operations may be adversely affected or we may suffer reputational harm. Currently, we do not believe that any
of our existing counterparties are affiliated with persons or entities that are subject to such sanctions.
Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain
such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines, penalties
or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition,
certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The
determination by these investors not to invest in, or to divest from, our common stock may adversely affect the price at which our common stock trades. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as
a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other
activities, such as entering into charters with individuals or entities in countries subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries, or engaging in operations associated with those
countries pursuant to contracts with third parties that are unrelated to those countries or entities controlled by their governments. Investor perception of the value of our common stock may be adversely affected by the consequences of war, the
effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
Maritime claimants could arrest or attach one or more of our vessels, which could interrupt our cash
flows.
Crew members, suppliers of goods and services to a vessel, shippers of cargo, lenders, and other parties may be entitled to a maritime lien
against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting or attaching a vessel through foreclosure proceedings. The arrest or attachment of one or more of our
vessels could interrupt our cash flows and require us to pay large sums of money to have the arrest or attachment lifted. In addition, in some jurisdictions, such as South Africa, under the "sister ship" theory of liability, a claimant may arrest
both the vessel that is subject to the claimant's maritime lien and any "associated" vessel, which is any vessel owned or controlled by the same owner. Claimants could attempt to assert "sister ship" liability against one vessel in our fleet for
claims relating to another of our vessels.
We conduct business in China, where the legal system is not fully developed and has inherent
uncertainties that could limit the legal protections available to us.
Some of our vessels may be chartered to Chinese customers and from time to time on our charterers' instructions, our vessels may call on
Chinese ports. Such charters and voyages may be subject to regulations in China that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Chinese government new taxes or other
fees. Applicable laws and regulations in China may not be well publicized and may not be known to us or to our charterers in advance of us or our charterers becoming subject to them, and the implementation of such laws and regulations may be
inconsistent. Changes in Chinese laws and regulations, including with regards to tax matters, or changes in their implementation by local authorities could affect our vessels if chartered to Chinese customers as well as our vessels calling to
Chinese ports and could have a material adverse impact on our business, financial condition and results of operations.
Governments could requisition our vessels during a period of war or emergency, resulting in a loss
of earnings.
A government could requisition one or more of our vessels for title or for hire. Requisition for title occurs when a government takes
control of a vessel and becomes her owner, while requisition for hire occurs when a government takes control of a vessel and effectively becomes her charterer at dictated charter rates. Generally, requisitions occur during periods of war or
emergency, although governments may elect to requisition vessels in other circumstances. Although we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment would be
uncertain. Government requisition of one or more of our vessels may negatively impact our revenues and reduce the amount of cash we may have available for distribution as dividends to our shareholders, if any such dividends are declared.
Failure to comply with the U.S. Foreign Corrupt Practices Act could result in fines, criminal
penalties and an adverse effect on our business.
We may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are
committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA. We
are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption laws, including the FCPA. Any such
violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, earnings or financial condition. In addition, actual or alleged
violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.
Changing laws and evolving reporting requirements could have an adverse effect on our business.
Changing laws, regulations and standards relating to reporting requirements, including the European Union General Data Protection
Regulation, or GDPR, may create additional compliance requirements for us.
GDPR broadens the scope of personal privacy laws to protect the rights of European Union citizens and requires organizations to report on
data breaches within 72 hours and be bound by more stringent rules for obtaining the consent of individuals on how their data can be used. GDPR has become enforceable on May 25, 2018 and non-compliance may expose entities to significant fines or
other regulatory claims which could have an adverse effect on our business, financial condition, and operations.
Company Specific Risk Factors
The market values of our vessels have declined in recent years and may further decline, which could
limit the amount of funds that we can borrow and could trigger breaches of certain financial covenants contained in our loan facilities, which could adversely affect our operating results, and we may incur a loss if we sell vessels following a
decline in their market values.
The market values of our vessels, which are related to prevailing freight charter rates, have declined significantly in recent years. While
the market values of vessels and the freight charter market have a very close relationship as the charter market moves from trough to peak, the time lag between the effect of charter rates on market values of ships can vary.
The market values of our vessels have generally experienced high volatility, and you should expect the market values of our vessels to
fluctuate depending on a number of factors including:
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the prevailing level of charter hire rates;
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general economic and market conditions affecting the shipping industry;
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competition from other shipping companies and other modes of transportation;
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the types, sizes and ages of vessels;
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the supply of and demand for vessels;
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applicable governmental or other regulations;
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technological advances;
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the need to upgrade vessels as a result of chaterer requirements, technological advances in vessel design or equipment or otherwise; and
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the cost of newbuildings.
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The market values of our vessels are at low levels compared to historical averages and if the market values of our vessels decline further,
we may not be in compliance with certain covenants contained in our current and future loan facilities and we may not be able to refinance our debt or obtain additional financing or incur debt on terms that are acceptable to us or at all. As at
December 31, 2018, we were in compliance with all of the covenants in our loan facilities. If we are not able to comply with the covenants in our loan facilities or are unable to obtain waivers or amendments or otherwise remedy the relevant
breach, our lenders could accelerate our debt and foreclose on our vessels.
Furthermore, if we sell any of our owned vessels at a time when prices are depressed, our business, results of operations, cash flow and
financial condition could be adversely affected. Moreover, if we sell a vessel at a time when vessel prices have fallen and before we have recorded an impairment adjustment to our financial statements, the sale may be at less than the vessel's
carrying amount in our financial statements, resulting in a loss and a reduction in earnings. In addition, if vessel values persist or decline further, we may have to record an impairment adjustment in our financial statements which could
adversely affect our financial results.
We charter some of our vessels on short-term time charters in a volatile shipping industry and a
decline in charter hire rates could affect our results of operations and our ability to pay dividends.
Although significant exposure to short-term time charters is not unusual in the dry bulk shipping industry, the short-term time charter
market is highly competitive and spot market charter hire rates (which affect time charter rates) may fluctuate significantly based upon available charters and the supply of, and demand for, seaborne shipping capacity. While the short-term time
charter market may enable us to benefit in periods of increasing charter hire rates, we must consistently renew our charters and this dependence makes us vulnerable to declining charter rates. As a result of the volatility in the dry bulk carrier
charter market, we may not be able to employ our vessels upon the termination of their existing charters at their current charter hire rates or at all. The dry bulk carrier charter market is volatile, and in the recent past, short-term time
charter and spot market charter rates for some dry bulk carriers declined below the operating costs of those vessels before rising. We cannot assure you that future charter hire rates will enable us to operate our vessels profitably, or to pay
dividends.
Rising crew costs could adversely affect our results of operations.
Due to an increase in the size of the global shipping fleet, the limited supply of and increased demand for crew has created upward
pressure on crew costs. Continued higher crew costs or further increases in crew costs could adversely affect our results of operations.
Our investment in Diana Wilhelmsen Management Limited may expose us to additional risks.
During 2015 we invested in a 50/50 joint venture with Wilhelmsen Ship Management to provide management services to a limited number of
vessels in our fleet, but our eventual goal is to provide fleet management services to unaffiliated third party vessel operators. While this joint venture may provide us in the future with a potential revenue source, it may also expose us to
risks such as low customer satisfaction, increased operating costs compared to those we would achieve for our vessels, and inability to adequately staff our vessels with crew that meets our expectations or to maintain our vessels according to our
standards, which would adversely affect our financial condition.
The effects of the Greek crisis could adversely affect the operations of our fleet manager, which
has offices in Greece.
As a result of the economic slump in Greece and the capital controls imposed by the Greek government in June 2015, Diana Shipping Services
S.A., our manager which has offices in Greece, may be subjected to new regulations that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Greek government new taxes or other
fees. Although the Greek economy showed signs of improvement since 2017, conditions may worsen in the future, which may adversely affect the operations of our manager located in Greece. We also face the risk that enhanced capital controls,
strikes, work stoppages, civil unrest and violence within Greece may disrupt the operations of our manager located in Greece.
A cyber-attack could materially disrupt our business.
We rely on information technology systems and networks in our operations and administration of our business. Information systems are
vulnerable to security breaches by computer hackers and cyber terrorists. We rely on industry accepted security measures and technology to securely maintain confidential and proprietary information maintained on our information systems. However,
these measures and technology may not adequately prevent security breaches. Our business operations could be targeted by individuals or groups seeking to sabotage or disrupt our information technology systems and networks, or to steal data. A
successful cyber-attack could materially disrupt our operations, including the safety of our operations, or lead to unauthorized release of information or alteration of information in our systems. Any such attack or other breach of our
information technology systems could have a material adverse effect on our business and results of operations. In addition, the unavailability of the information systems or the failure of these systems to perform as anticipated for any reason
could disrupt our business and could result in decreased performance and increased operating costs, causing our business and results of operations to suffer. Any significant interruption or failure of our information systems or any significant
breach of security could adversely affect our business and results of operations.
The Public Company Accounting Oversight Board inspection of our independent accounting firm, could
lead to findings in our auditors’ reports and challenge the accuracy of our published audited consolidated financial statements.
Auditors of U.S. public companies are required by law to undergo periodic Public Company Accounting Oversight Board, or PCAOB, inspections
that assess their compliance with U.S. law and professional standards in connection with performance of audits of financial statements filed with the SEC. For several years certain European Union countries, including Greece, did not permit the
PCAOB to conduct inspections of accounting firms established and operating in such European Union countries, even if they were part of major international firms. Accordingly, unlike for most U.S. public companies, the PCAOB was prevented from
evaluating our auditor’s performance of audits and its quality control procedures, and, unlike stockholders of most U.S. public companies, we and our stockholders were deprived of the possible benefits of such inspections. Since 2015, Greece has
agreed to allow the PCAOB to conduct inspections of accounting firms operating in Greece. In the future, such PCAOB inspections could result in findings in our auditors’ quality control procedures, question the validity of the auditor’s reports
on our published consolidated financial statements and the effectiveness of our internal control over financial reporting, and cast doubt upon the accuracy of our published audited financial statements.
Our earnings may be adversely affected if we are not able to take advantage of favorable charter
rates.
We charter our dry bulk carriers to customers pursuant to short, medium or long-term time charters. However, as part of our business
strategy, the majority of our vessels are currently fixed on short to medium-term time charters. We may extend the charter periods for additional vessels in our fleet, including additional dry bulk carriers that we may purchase in the future, to
take advantage of the relatively stable cash flow and high utilization rates that are associated with long-term time charters. While we believe that long-term charters provide us with relatively stable cash flows and higher utilization rates than
shorter-term charters, our vessels that are committed to long-term charters may not be available for employment on short-term charters during periods of increasing short-term charter hire rates when these charters may be more profitable than
long-term charters.
Investment in derivative instruments such as forward freight agreements could result in losses.
From time to time, we may take positions in derivative instruments including forward freight agreements, or FFAs. FFAs and other derivative
instruments may be used to hedge a vessel owner's exposure to the charter market by providing for the sale of a contracted charter rate along a specified route and period of time. Upon settlement, if the contracted charter rate is less than the
average of the rates, as reported by an identified index, for the specified route and period, the seller of the FFA is required to pay the buyer an amount equal to the difference between the contracted rate and the settlement rate, multiplied by
the number of days in the specified period. Conversely, if the contracted rate is greater than the settlement rate, the buyer is required to pay the seller the settlement sum. If we take positions in FFAs or other derivative instruments and do
not correctly anticipate charter rate movements over the specified route and time period, we could suffer losses in the settling or termination of the FFA. This could adversely affect our results of operations and cash flows.
We may have difficulty effectively managing any further growth, which may adversely affect our
earnings.
Since the completion of our initial public offering in March 2005, we have increased our fleet to 48 vessels in operation, as of the date
of this annual report. The significant increase in the size of our fleet has imposed significant additional responsibilities on our management and staff. We may grow our fleet further in the future and this may require us to increase the number
of our personnel. We may also have to increase our customer base to provide continued employment for the new vessels.
Any future growth will primarily depend on our ability to:
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locate and acquire suitable vessels;
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identify and consummate acquisitions or joint ventures;
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enhance our customer base;
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manage our expansion; and
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obtain required financing on acceptable terms.
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Growing any business by acquisition presents numerous risks, such as undisclosed liabilities and obligations, the possibility that
indemnification agreements will be unenforceable or insufficient to cover potential losses and difficulties associated with imposing common standards, controls, procedures and policies, obtaining additional qualified personnel, managing
relationships with customers and integrating newly acquired assets and operations into existing infrastructure. We cannot give any assurance that we will be successful in executing our growth plans or that we will not incur significant expenses
and losses in connection with our future growth.
We cannot assure you that we will be able to borrow amounts under our loan facilities and
restrictive covenants in our loan facilities impose financial and other restrictions on us.
We have entered into several loan agreements to finance vessel acquisitions and the construction of newbuildings. As of December 31, 2018,
we had $534.9 million outstanding under our facilities and bond. Our ability to borrow amounts under our facilities is subject to the execution of customary documentation relating to the facility, including security documents, satisfaction of
certain customary conditions precedent and compliance with terms and conditions included in the loan documents. Prior to each drawdown, we are required, among other things, to provide the lender with acceptable valuations of the vessels in our
fleet confirming that the vessels in our fleet have a minimum value and that the vessels in our fleet that secure our obligations under the facilities are sufficient to satisfy minimum security requirements. To the extent that we are not able to
satisfy these requirements, including as a result of a decline in the value of our vessels, we may not be able to draw down the full amount under the facilities without obtaining a waiver or consent from the lender. We will also not be permitted
to borrow amounts under the facilities if we experience a change of control.
The loan facilities also impose operating and financial restrictions on us. These restrictions may limit our ability to, among other
things:
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pay dividends if we do not repay amounts drawn under our loan facilities, if there is a default under the loan facilities or if the payment of the dividend
would result in a default or breach of a loan covenant;
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incur additional indebtedness, including through the issuance of guarantees;
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change the flag, class or management of our vessels;
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create liens on our assets;
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enter into a time charter or consecutive voyage charters that have a term that exceeds, or which by virtue of any optional extensions may exceed a certain
period;
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merge or consolidate with, or transfer all or substantially all our assets to, another person; and
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enter into a new line of business.
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Therefore, we may need to seek permission from our lenders in order to engage in some corporate actions. Our lenders’ interests may be
different from ours and we cannot guarantee that we will be able to obtain our lenders' permission when needed. This may limit our ability to finance our future operations, make acquisitions or pursue business opportunities.
We cannot assure you that we will be able to refinance indebtedness incurred under our loan
facilities.
We cannot assure you that we will be able to refinance our indebtedness with equity offerings or otherwise, on terms that are acceptable to
us or at all. If we are not able to refinance these amounts with the net proceeds of equity offerings or otherwise, on terms acceptable to us or at all, we will have to dedicate a greater portion of our cash flow from operations to pay the
principal and interest of this indebtedness than if we were able to refinance such amounts. If we are not able to satisfy these obligations, we may have to undertake alternative financing plans. The actual or perceived credit quality of our
charterers, any defaults by them, and the market value of our fleet, among other things, may materially affect our ability to obtain alternative financing. In addition, debt service payments under our loan facilities or alternative financing may
limit funds otherwise available for working capital, capital expenditures and other purposes. If we are unable to meet our debt obligations, or if we otherwise default under our loan facilities or an alternative financing arrangement, our lenders
could declare the debt, together with accrued interest and fees, to be immediately due and payable and foreclose on our fleet, which could result in the acceleration of other indebtedness that we may have at such time and the commencement of
similar foreclosure proceedings by other lenders.
Purchasing and operating secondhand vessels may result in increased operating costs and reduced
operating days, which may adversely affect our earnings.
While we have the right to inspect previously owned vessels prior to our purchase of them and we usually inspect secondhand vessels that we
acquire, such inspections do not provide us with the same knowledge about their condition that we would have if these vessels had been built for, and operated exclusively by, us. A secondhand vessel may have conditions or defects that we were not
aware of when we bought the vessel and which may require us to incur costly repairs to the vessel. These repairs may require us to put a vessel into drydock, which would reduce our operating days. Furthermore, we usually do not receive the
benefit of warranties on secondhand vessels.
We are subject to certain risks with respect to our counterparties on contracts, and failure of such
counterparties to meet their obligations could cause us to suffer losses or otherwise adversely affect our business.
We enter into, among other things, charter parties with our customers. Such agreements subject us to counterparty risks. The ability and
willingness of each of our counterparties to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the
maritime and offshore industries, the overall financial condition of the counterparty, charter rates received for specific types of vessels, and various expenses. Should a counterparty fail to honor its obligations under agreements with us, we
could sustain significant losses, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In addition, in depressed market conditions, our charterers may no longer need a vessel that is currently under charter or may be able to
obtain a comparable vessel at lower rates. As a result, charterers may seek to renegotiate the terms of their existing charter agreements or avoid their obligations under those contracts. If our charterers fail to meet their obligations to us
or attempt to renegotiate our charter agreements, it may be difficult to secure substitute employment for such vessels, and any new charter arrangements we secure may be at lower rates. As a result, we could sustain significant losses, which
could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In the highly competitive international shipping industry, we may not be able to compete for
charters with new entrants or established companies with greater resources, and as a result, we may be unable to employ our vessels profitably.
We employ our vessels in a highly competitive market that is capital intensive and highly fragmented. Competition arises primarily from
other vessel owners, some of whom have substantially greater resources than we do. Competition for the transportation of dry bulk cargo by sea is intense and depends on price, location, size, age, condition and the acceptability of the vessel and
its operators to the charterers. Due in part to the highly fragmented market, competitors with greater resources than us could enter the dry bulk shipping industry and operate larger fleets through consolidations or acquisitions and may be able
to offer lower charter rates and higher quality vessels than we are able to offer. If we are unable to successfully compete with other dry bulk shipping companies, our results of operations may be adversely impacted.
We may be unable to attract and retain key management personnel and other employees in the shipping
industry, which may negatively impact the effectiveness of our management and results of operations.
Our success depends to a significant extent upon the abilities and efforts of our management team. We have entered into employment
contracts with our Chief Executive Officer and Chairman of the Board, Mr. Simeon Palios; our President, Mr. Anastasios Margaronis; our Chief Financial Officer, Mr. Andreas Michalopoulos; our Chief Strategy Officer, Mr. Ioannis Zafirakis and our
Chief Operating Officer, Mrs. Semiramis Paliou. Our success will depend upon our ability to retain key members of our management team and to hire new members as may be necessary. The loss of any of these individuals could adversely affect our
business prospects and financial condition. Difficulty in hiring and retaining replacement personnel could have a similar effect. We do not currently, nor do we intend to, maintain “key man” life insurance on any of our officers or other members
of our management team.
The fiduciary duties of our officers and directors may conflict with those of the officers and
directors of Performance Shipping.
Certain of our officers and directors are officers and directors of Performance Shipping Inc. (formerly known as Diana Containerships Inc.
until February 2019), or Performance Shipping, and have fiduciary duties to manage our business in a manner beneficial to us and our shareholders, as well as a duty to the shareholders of Performance Shipping. Consequently, these officers and
directors may encounter situations in which their fiduciary obligations to Performance Shipping and to us are in conflict. The resolution of these conflicts may not always be in our best interest or that of our shareholders and could have a
material adverse effect on our business, results of operations, cash flows and financial condition.
We may not have adequate insurance to compensate us if we lose our vessels or to compensate third
parties.
We procure insurance for our fleet against risks commonly insured against by vessel owners and operators. Our current insurance includes
hull and machinery insurance, war risks insurance and protection and indemnity insurance (which includes environmental damage and pollution insurance). We can give no assurance that we are adequately insured against all risks or that our insurers
will pay a particular claim. Even if our insurance coverage is adequate to cover our losses, we may not be able to timely obtain a replacement vessel in the event of a loss. Furthermore, in the future, we may not be able to obtain adequate
insurance coverage at reasonable rates for our fleet. We may also be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations
through which we receive indemnity insurance coverage for tort liability. Our insurance policies also contain deductibles, limitations and exclusions which, although we believe are standard in the shipping industry, may nevertheless increase our
costs.
Our vessels may suffer damage and we may face unexpected drydocking costs, which could adversely
affect our cash flow and financial condition.
If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and can
be substantial. The loss of earnings while a vessel is being repaired and repositioned, as well as the actual cost of these repairs not covered by our insurance, would decrease our earnings and available cash. We may not have insurance that is
sufficient to cover all or any of the costs or losses for damages to our vessels and may have to pay drydocking costs not covered by our insurance.
The aging of our fleet may result in increased operating costs in the future, which could adversely
affect our earnings.
In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. Currently, our fleet
consists of 48 vessels in operation, having a combined carrying capacity of 5.7 million dead weight tons, or dwt, and a weighted average age of 9.3 years as of the date of this report. As our fleet ages, we will incur increased costs. Older
vessels are typically less fuel efficient and more costly to maintain than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to
charterers. Governmental regulations and safety or other equipment standards related to the age of vessels may also require expenditures for alterations or the addition of new equipment to our vessels and may restrict the type of activities in
which our vessels may engage. We cannot assure you that, as our vessels age, market conditions will justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.
We are exposed to U.S. dollar and foreign currency fluctuations and devaluations that could harm our
reported revenue and results of operations.
We generate all of our revenues in U.S. dollars but incur around half of our operating expenses and our general and administrative expenses
in currencies other than the U.S. dollar, primarily the Euro. Because a significant portion of our expenses is incurred in currencies other than the U.S. dollar, our expenses may from time to time increase relative to our revenues as a result of
fluctuations in exchange rates, particularly between the U.S. dollar and the Euro, which could affect the amount of net income that we report in future periods. While we historically have not mitigated the risk associated with exchange rate
fluctuations through the use of financial derivatives, we may employ such instruments from time to time in the future in order to minimize this risk. Our use of financial derivatives would involve certain risks, including the risk that losses on
a hedged position could exceed the nominal amount invested in the instrument and the risk that the counterparty to the derivative transaction may be unable or unwilling to satisfy its contractual obligations, which could have an adverse effect on
our results.
Volatility in the London Interbank Offered Rate, or LIBOR, could affect our profitability, earnings
and cash flow.
LIBOR may be volatile, with the spread between LIBOR and the prime lending rate widening significantly at times. These conditions are the
result of disruptions in the international markets. Because the interest rates borne by our outstanding loan facilities fluctuate with changes in LIBOR, it would affect the amount of interest payable on our debt, which, in turn, could have an
adverse effect on our profitability, earnings and cash flow. Recently, however, there is uncertainty relating to the LIBOR calculation process which may result in the phasing out of LIBOR in the future, and lenders have insisted on provisions
that entitle the lenders, in their discretion, to replace published LIBOR as the base for the interest calculation with their cost-of-funds rate. If we are required to agree to such a provision in future loan agreements, our lending costs could
increase significantly, which would also have an adverse effect on our profitability, earnings and cash flow.
In addition, the banks, currently reporting information used to set LIBOR, will likely stop such reporting after 2021, when their
commitment to reporting information ends. The Alternative Reference Rate Committee, or "Committee", a committee convened by the U.S. Federal Reserve that includes major market participants, has proposed an alternative rate to replace U.S. Dollar
LIBOR: the Secured Overnight Financing Rate, or "SOFR." The impact of such a transition away from LIBOR would be significant for us because of our substantial indebtedness.
We depend upon a few significant customers for a large part of our revenues and the loss of one or
more of these customers could adversely affect our financial performance.
We have historically derived a significant part of our revenues from a small number of charterers. During 2018, 2017, and 2016,
approximately 55%, 43% and 54%, respectively, of our revenues were derived from five, three and four charterers, respectively. If one or more of our charterers chooses not to charter our vessels or is unable to perform under one or more charters
with us and we are not able to find a replacement charter, we could suffer a loss of revenues that could adversely affect our financial condition and results of operations.
We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us
in order to satisfy our financial obligations.
We are a holding company and our subsidiaries conduct all of our operations and own all of our operating assets. We have no significant
assets other than the equity interests in our subsidiaries. As a result, our ability to satisfy our financial obligations depends on our subsidiaries and their ability to distribute funds to us. If we are unable to obtain funds from our
subsidiaries, we may not be able to satisfy our financial obligations.
Because we are organized under the laws of the Marshall Islands, it may be difficult to serve us with
legal process or enforce judgments against us, our directors or our management.
We are organized under the laws of the Marshall Islands, and substantially all of our assets are located outside of the United States. In
addition, the majority of our directors and officers are non-residents of the United States, and all or a substantial portion of the assets of these non-residents are located outside the United States. As a result, it may be difficult or
impossible for someone to bring an action against us or against these individuals in the United States if they believe that their rights have been infringed under securities laws or otherwise. Even if you are successful in bringing an action of
this kind, the laws of the Marshall Islands and of other jurisdictions may prevent or restrict them from enforcing a judgment against our assets or the assets of our directors or officers.
The international nature of our operations may make the outcome of any bankruptcy proceedings difficult
to predict.
We are incorporated under the laws of the Republic of the Marshall Islands and we conduct operations in countries around the world.
Consequently, in the event of any bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding involving us or any of our subsidiaries, bankruptcy laws other than those of the United States could apply. If we become a
debtor under U.S. bankruptcy law, bankruptcy courts in the United States may seek to assert jurisdiction over all of our assets, wherever located, including property situated in other countries. There can be no assurance, however, that we would
become a debtor in the United States, or that a U.S. bankruptcy court would be entitled to, or accept, jurisdiction over such a bankruptcy case, or that courts in other countries that have jurisdiction over us and our operations would recognize a
U.S. bankruptcy court’s jurisdiction if any other bankruptcy court would determine it had jurisdiction.
If we expand our business further, we may need to improve our operating and financial systems and
will need to recruit suitable employees and crew for our vessels.
Our current operating and financial systems may not be adequate if we further expand the size of our fleet and our attempts to improve
those systems may be ineffective. In addition, if we expand our fleet further, we will need to recruit suitable additional seafarers and shoreside administrative and management personnel. While we have not experienced any difficulty in recruiting
to date, we cannot guarantee that we will be able to continue to hire suitable employees if we expand our fleet. If we or our crewing agents encounter business or financial difficulties, we may not be able to adequately staff our vessels. If we
are unable to grow our financial and operating systems or to recruit suitable employees should we determine to expand our fleet, our financial performance may be adversely affected, among other things.
We may have to pay tax on U.S. source income, which would reduce our earnings.
Under the U.S. Internal Revenue Code of 1986, as amended, or the Code, 50% of the gross shipping income of a vessel-owning or chartering
corporation, such as ourselves and our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States is characterized as U.S. source shipping income and such income is
generally subject to a 4% U.S. federal income tax without allowance for deductions, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder.
We expect that we and each of our subsidiaries qualify for this statutory tax exemption for the 2018 taxable year and we will take this
position for U.S. federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption in future years and thereby become subject to U.S. federal
income tax on our U.S. source shipping income. For example, in certain circumstances we may no longer qualify for exemption under Code Section 883 for a particular taxable year if shareholders, other than “qualified shareholders”, with a five
percent or greater interest in our common shares owned, in the aggregate, 50% or more of our outstanding common shares for more than half the days during the taxable year. Due to the factual nature of the issues involved, we can give no
assurances on our tax-exempt status or that of any of our subsidiaries.
If we or our subsidiaries are not entitled to this exemption under Section 883 of the Code for any taxable year, we or our subsidiaries
would be subject for those years to a 4% U.S. federal income tax on our gross U.S.-source shipping income. The imposition of this taxation could have a negative effect on our business and would result in decreased earnings available for
distribution to our shareholders, although, for the 2018 taxable year, we estimate our maximum U.S. federal income tax liability to be immaterial if we were subject to this U.S. federal income tax. See “Item 10. Additional Information—E.
Taxation" for a more comprehensive discussion of U.S. federal income tax considerations.
U.S. federal tax authorities could treat us as a “passive foreign investment company”, which could
have adverse U.S. federal income tax consequences to U.S. shareholders.
A foreign corporation will be treated as a “passive foreign investment company”, or PFIC, for U.S. federal income tax purposes if either
(1) at least 75% of its gross income for any taxable year consists of certain types of “passive income” or (2) at least 50% of the average value of the corporation's assets produce or are held for the production of those types of “passive
income.” For purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment property, and rents and royalties other than rents and royalties which are received from unrelated parties in
connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income.” U.S. shareholders of a PFIC are subject to a disadvantageous U.S.
federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
Based on our current and proposed method of operation, we do not believe that we will be a PFIC with respect to any taxable year. In this
regard, we intend to treat the gross income we derive or are deemed to derive from our time chartering activities as services income, rather than rental income. Accordingly, we believe that our income from our time chartering activities does not
constitute “passive income,” and the assets that we own and operate in connection with the production of that income do not constitute assets that produce or are held for the production of “passive income”.
There is substantial legal authority supporting this position consisting of case law and U.S. Internal Revenue Service, or “IRS”,
pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, it should be noted that there is also authority which characterizes time charter income
as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could determine that we are
a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if the nature and extent of our operations changed.
If the IRS or a court of law were to find that we are or have been a PFIC for any taxable year, our U.S. shareholders would face adverse
U.S. federal income tax consequences. Under the PFIC rules, unless those shareholders make an election available under the Code (which election could itself have adverse consequences for such shareholders), such shareholders would be subject to
U.S. federal income tax at the then prevailing U.S. federal income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our common stock, as if the excess distribution or gain had been
recognized ratably over the shareholder's holding period of our common stock. See “Item 10. Additional Information—E. Taxation–United States Taxation of U.S. Holders–PFIC Status and Significant Tax Consequences" for a more comprehensive
discussion of the U.S. federal income tax consequences to U.S. holders of our common stock if we are or were to be treated as a PFIC
Risks Relating to Our Common Stock
Our board of directors has suspended the payment of cash dividends on our common stock. We cannot
assure you that our board of directors will reinstate dividend payments in the future, or when such reinstatement might occur.
In order to position us to take advantage of market opportunities in a then-deteriorating market, our board of directors, beginning with
the fourth quarter of 2008, suspended our common stock dividend. Our dividend policy will be assessed by our board of directors from time to time. We believe that this suspension has enhanced our flexibility by permitting cash flow that would
have been devoted to dividends to be used for opportunities that have arisen, and may continue to arise in the marketplace, such as funding our operations, acquiring vessels and servicing our debt.
Our policy, prior to suspension of our dividend, was to declare quarterly distributions to shareholders by each February, May, August and
November substantially equal to our available cash from operations during the previous quarter after accounting for cash expenses and reserves for scheduled drydockings, intermediate and special surveys and other purposes as our board of
directors may from time to time determine are required, and after taking into account contingent liabilities, the terms of our loan facilities, our growth strategy and other cash needs and the requirements of Marshall Islands law. The declaration
and payment of dividends, if any, will always be subject to the discretion of our board of directors. The timing and amount of any dividends declared will depend on, among other things, our earnings, financial condition and cash requirements and
availability, our ability to obtain debt and equity financing on acceptable terms as contemplated by our growth strategy and provisions of Marshall Islands law affecting the payment of dividends. In addition, other external factors, such as our
lenders imposing restrictions on our ability to pay dividends under the terms of our loan facilities, may limit our ability to pay dividends. Further, under the terms of our loan agreements, we may not be permitted to pay dividends that would
result in an event of default or if an event of default has occurred and is continuing.
Our growth strategy contemplates that we will finance the acquisition of additional vessels through a combination of debt and equity
financing on terms acceptable to us. If financing is not available to us on acceptable terms, our board of directors may determine to finance or refinance acquisitions with cash from operations, which could also reduce or even eliminate the
amount of cash available for the payment of dividends.
Marshall Islands law generally prohibits the payment of dividends other than from surplus (retained earnings and the excess of
consideration received for the sale of shares above the par value of the shares) or while a company is insolvent or would be rendered insolvent by the payment of such a dividend. We may not have sufficient surplus in the future to pay dividends.
We can give no assurance that we will reinstate our dividends in the future or when such reinstatement might occur.
In addition, our ability to pay dividends to holders of our common shares will be subject to the rights of holders of our Series B
Preferred Shares, which rank prior to our common shares with respect to dividends, distributions and payments upon liquidation. No cash dividend may be paid on our common stock unless full cumulative dividends have been or contemporaneously are
being paid or provided for on all outstanding Series B Preferred Shares for all prior and the then-ending dividend periods. Cumulative dividends on our Series B Preferred Shares accrue at a rate of 8.875% per annum per $25.00 stated liquidation
preference per Series B Preferred Share, subject to increase upon the occurrence of certain events, and are payable, as and if declared by our board of directors, on January 15, April 15, July 15 and October 15 of each year, or, if any such
dividend payment date otherwise would fall on a date that is not a business day, the immediately succeeding business day. For additional information about our Series B Preferred Shares, please see the section entitled "Description of Registrant's
Securities to be Registered" of our registration statement on Form 8-A filed with the SEC on February 13, 2014 and incorporated by reference herein.
The market price of our common stock has fluctuated widely and may fluctuate widely in the future,
and there is no guarantee that there will continue to be an active and liquid public market for you to resell our common stock in the future.
The market price of our common stock is volatile and has fluctuated widely since our common stock began trading on the NYSE, and may
continue to fluctuate due to factors such as:
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actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry;
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mergers and strategic alliances in the dry bulk shipping industry;
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market conditions in the dry bulk shipping industry;
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changes in government regulation;
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shortfalls in our operating results from levels forecast by securities analysts;
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announcements concerning us or our competitors; and
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the general state of the securities market.
|
The dry bulk shipping industry has been highly unpredictable and volatile. The market for common stock in this industry may be equally
volatile. Therefore, we cannot assure you that you will be able to sell any of our common stock you may have purchased at a price greater than or equal to its original purchase price, or that you will be able to sell our common stock at all.
Since we are incorporated in the Marshall Islands, which does not have a well-developed body of
corporate law, you may have more difficulty protecting your interests than shareholders of a U.S. corporation.
Our corporate affairs are governed by our amended and restated articles of incorporation and bylaws and by the Marshall Islands Business
Corporations Act, or the BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Marshall Islands interpreting the BCA. The rights
and fiduciary responsibilities of directors under the laws of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in the United States.
The rights of shareholders of the Marshall Islands may differ from the rights of shareholders of companies incorporated in the United States. While the BCA provides that it is to be interpreted according to the laws of the State of Delaware and
other states with substantially similar legislative provisions, there have been few, if any, court cases interpreting the BCA in the Marshall Islands and we cannot predict whether Marshall Islands courts would reach the same conclusions as U.S.
courts. Thus, you may have more difficulty in protecting your interests in the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a U.S. jurisdiction which has
developed a relatively more substantial body of case law.
Certain existing shareholders will be able to exert considerable control over matters on which our
shareholders are entitled to vote.
As of the date of this annual report, Mr. Simeon Palios, our Chief Executive Officer and Chairman of the Board, beneficially owns
15,513,891 shares, or approximately 14.7% of our outstanding common stock, which is held indirectly through entities over which he exercises sole voting power. Additionally, on January 31, 2019, we issued 10,675 shares of newly designated Series
C Preferred Stock, par value $0.01 per share, to a company controlled by Mr. Palios. The Series C Preferred Stock will vote with our common shares and each share of the Series C Preferred Stock shall entitle the holder thereof to 1,000 votes on
all matters submitted to a vote of the common stockholders of the Issuer. Through his beneficial ownership of common shares and shares of Series C Preferred Stock, Mr. Palios controls 22.5% of the vote of any matter submitted to the vote of the
common shareholders. Please see "Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders." While Mr. Palios and the entities controlled by Mr. Palios have no agreement, arrangement or understanding relating to the voting
of their shares of our common stock, they are able to influence the outcome of matters on which our shareholders are entitled to vote, including the election of directors and other significant corporate actions. This concentration of ownership
may have the effect of delaying, deferring or preventing a change in control, merger, consolidation, takeover or other business combination. This concentration of ownership could also discourage a potential acquirer from making a tender offer or
otherwise attempting to obtain control of us, which could in turn have an adverse effect on the market price of our shares. So long as our Chairman continues to own a significant amount of our equity, even though the amount held by him represents
less than 50% of our voting power, he will continue to be able to exercise considerable influence over our decisions. The interests of these shareholders may be different from your interests.
Future sales of our common stock could cause the market price of our common stock to decline.
Our amended and restated articles of incorporation authorize us to issue up to 200,000,000 shares of common stock, of which, as of December
31, 2018, 103,764,351 shares were outstanding. The number of shares of common stock available for sale in the public market is limited by restrictions applicable under securities laws and agreements that we and our executive officers, directors
and principal shareholders have entered into.
Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales could occur, may
depress the market price for our common stock. These sales could also impair our ability to raise additional capital through the sale of our equity securities in the future.
Anti-takeover provisions in our organizational documents could make it difficult for our
shareholders to replace or remove our current board of directors or have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of our common stock.
Several provisions of our amended and restated articles of incorporation and bylaws could make it difficult for our shareholders to change
the composition of our board of directors in any one year, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that shareholders may consider
favorable.
These provisions include:
|
●
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authorizing our board of directors to issue “blank check” preferred stock without shareholder approval;
|
|
●
|
providing for a classified board of directors with staggered, three-year terms;
|
|
●
|
prohibiting cumulative voting in the election of directors;
|
|
●
|
authorizing the removal of directors only for cause and only upon the affirmative vote of the holders of a majority of the outstanding shares of our common
stock entitled to vote for the directors;
|
|
●
|
prohibiting shareholder action by written consent;
|
|
●
|
limiting the persons who may call special meetings of shareholders; and
|
|
●
|
establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by
shareholders at shareholder meetings.
|
In addition, we have adopted a Stockholders Rights Agreement, dated January 15, 2016, pursuant to which our board of directors may cause
the substantial dilution of any person that attempts to acquire us without the approval of our board of directors.
These anti-takeover provisions, including provisions of our Stockholders Rights Agreement, could substantially impede the ability of public
shareholders to benefit from a change in control and, as a result, may adversely affect the market price of our common stock and your ability to realize any potential change of control premium.
Our Series B Preferred Shares are senior obligations of ours and rank prior to our common shares
with respect to dividends, distributions and payments upon liquidation, which could have an adverse effect on the value of our common shares.
The rights of the holders of our Series B Preferred Shares rank senior to the obligations to holders of our common shares. Upon our
liquidation, the holders of Series B Preferred Shares will be entitled to receive a liquidation preference of $25.00 per share, plus all accrued but unpaid dividends, prior and in preference to any distribution to the holders of any other class
of our equity securities, including our common shares. The existence of the Series B Preferred Shares could have an adverse effect on the value of our common shares.
Risks Relating to Our Series B Preferred Stock
We may not have sufficient cash from our operations to enable us to pay dividends on our Series B
Preferred Shares following the payment of expenses and the establishment of any reserves.
We pay quarterly dividends on our Series B Preferred Shares only from funds legally available for such purpose when, as and if declared by
our board of directors. We may not have sufficient cash available each quarter to pay dividends. The amount of dividends we can pay on our Series B Preferred Shares depends upon the amount of cash we generate from and use in our operations, which
may fluctuate.
The amount of cash we have available for dividends on our Series B Preferred Shares will not depend solely on our
profitability. The actual amount of cash we have available to pay dividends on our Series B Preferred Shares depends on many factors, including the following:
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●
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changes in our operating cash flow, capital expenditure requirements, working capital requirements and other cash needs;
|
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●
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restrictions under our existing or future credit facilities or any future debt securities on our ability to pay dividends if an event of default has
occurred and is continuing or if the payment of the dividend would result in an event of default, or under certain facilities if it would result in the breach of certain financial covenants;
|
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●
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the amount of any cash reserves established by our board of directors; and
|
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●
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restrictions under Marshall Islands law, which generally prohibits the payment of dividends other than from surplus (retained earnings and the excess of
consideration received for the sale of shares above the par value of the shares) or while a company is insolvent or would be rendered insolvent by the payment of such a dividend.
|
The amount of cash we generate from our operations may differ materially from our net income or loss for the period, which is affected by
non-cash items, and our board of directors in its discretion may elect not to declare any dividends. As a result of these and the other factors mentioned above, we may pay dividends during periods when we record losses and may not pay dividends
during periods when we record net income.
The Series B Preferred Shares represent perpetual equity interests.
The Series B Preferred Shares represent perpetual equity interests in us and, unlike our indebtedness, will not give rise to a claim for
payment of a principal amount at a particular date. As a result, holders of the Series B Preferred Shares may be required to bear the financial risks of an investment in the Series B Preferred Shares for an indefinite period of time. In addition,
the Series B Preferred Shares will rank junior to all our indebtedness and other liabilities, and to any other senior securities we may issue in the future with respect to assets available to satisfy claims against us.
Our Series B Preferred Shares are subordinate to our indebtedness, and your interests could be
diluted by the issuance of additional preferred shares, including additional Series B Preferred Shares, and by other transactions.
Our Series B Preferred Shares are subordinated to all of our existing and future indebtedness. Therefore, our ability to pay dividends on,
redeem or pay the liquidation preference on our Series B Preferred Shares in liquidation or otherwise may be subject to prior payments due to the holders of our indebtedness. Our existing indebtedness restricts, and our future indebtedness may
include restrictions on, our ability to pay dividends on or redeem preferred shares. Our amended and restated articles of incorporation currently authorize the issuance of up to 25,000,000 preferred shares, par value $0.01 per share. Of these
preferred shares, 1,000,000 shares have been designated Series A Participating Preferred Stock and 5,000,000 shares have been designated Series B Preferred Shares. The Series B Preferred Shares are senior in rank to the Series A Participating
Preferred Shares. The issuance of additional Series B Preferred Shares or other preferred shares on a parity with or senior to the Series B Preferred Shares would dilute the interests of holders of our Series B Preferred Shares, and any issuance
of preferred shares senior to our Series B Preferred Shares or of additional indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on our Series B Preferred Shares. The Series B Preferred Shares do
not contain any provisions affording the holders of our Series B Preferred Shares protection in the event of a highly leveraged or other transaction, including a merger or the sale, lease or conveyance of all or substantially all our assets or
business, which might adversely affect the holders of our Series B Preferred Shares, so long as the rights of our Series B Preferred Shares are not directly materially and adversely affected.
We may redeem the Series B Preferred Shares, and you may not be able to reinvest the redemption
price you receive in a similar security.
Since February 14, 2019, we may, at our option, redeem Series B Preferred Shares, in whole or in part, at any time or from time to time. We
may have an incentive to redeem Series B Preferred Shares voluntarily if market conditions allow us to issue other preferred shares or debt securities at a rate that is lower than the dividend on the Series B Preferred Shares. If we redeem Series
B Preferred Shares, then from and after the redemption date, your dividends will cease to accrue on your Series B Preferred Shares, your Series B Preferred Shares shall no longer be deemed outstanding and all your rights as a holder of those
shares will terminate, except the right to receive the redemption price plus accumulated and unpaid dividends, if any, payable upon redemption. If we redeem the Series B Preferred Shares for any reason, you may not be able to reinvest the
redemption price you receive in a similar security.
Market interest rates may adversely affect the value of our Series B Preferred Shares.
One of the factors that may influence the price of our Series B Preferred Shares is the dividend yield on the Series B Preferred Shares (as
a percentage of the price of our Series B Preferred Shares) relative to market interest rates. An increase in market interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of our Series B
Preferred Shares to expect a higher dividend yield, and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution. Accordingly, higher market interest rates could cause the market
price of our Series B Preferred Shares to decrease.
As a holder of Series B Preferred Shares you have extremely limited voting rights.
Your voting rights as a holder of Series B Preferred Shares are extremely limited. Our common shares are the only outstanding class or
series of our shares carrying full voting rights. Holders of Series B Preferred Shares have no voting rights other than the ability, subject to certain exceptions, to elect one director if dividends for six quarterly dividend periods (whether or
not consecutive) payable on our Series B Preferred Shares are in arrears and certain other limited protective voting rights.
Our ability to pay dividends on and to redeem our Series B Preferred Shares is limited by the
requirements of Marshall Islands law.
Marshall Islands law provides that we may pay dividends on and redeem the Series B Preferred Shares only to the extent that assets are
legally available for such purposes. Legally available assets generally are limited to our surplus, which essentially represents our retained earnings and the excess of consideration received by us for the sale of shares above the par value of
the shares. In addition, under Marshall Islands law we may not pay dividends on or redeem Series B Preferred Shares if we are insolvent or would be rendered insolvent by the payment of such a dividend or the making of such redemption.
The amount of your liquidation preference is fixed and you will have no right to receive any greater
payment regardless of the circumstances.
The payment due upon a liquidation is fixed at the redemption preference of $25.00 per share plus accumulated and unpaid dividends to the
date of liquidation. If, in the case of our liquidation, there are remaining assets to be distributed after payment of this amount, you will have no right to receive or to participate in these amounts. Furthermore, if the market price for your
Series B Preferred Shares is greater than the liquidation preference, you will have no right to receive the market price from us upon our liquidation.
Item 4.
Information on the Company
|
B.
|
History and development of the Company
|
Diana Shipping Inc. is a holding company incorporated under the laws of Liberia in March 1999 as Diana Shipping Investments Corp. In
February 2005, the Company’s articles of incorporation were amended. Under the amended and restated articles of incorporation, the Company was renamed Diana Shipping Inc. and was re-domiciled from the Republic of Liberia to the Republic of the
Marshall Islands. Our executive offices are located at Pendelis 16, 175 64 Palaio Faliro, Athens, Greece. Our telephone number at this address is +30-210-947-0100. Our agent and authorized representative in the United States is our wholly-owned
subsidiary, Bulk Carriers (USA) LLC, established in September 2006, in the State of Delaware, which is located at 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808. The SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC. The address of the SEC's Internet site is http://www.sec.gov. The address of the Company's Internet site is http://www.dianashippinginc.com.
Business Development and Capital Expenditures and Divestitures
In January 2016, we entered into a loan agreement with the China Export Import Bank, or CEXIM Bank for a loan of up to $75.7 million to
finance part of the construction cost of
San Francisco, Newport News
and Hull
DY6006
. On January 4, 2017, we drew down $57.24 million. On February 6, 2017, we signed a Deed of Release with the bank, pursuant to which, the owner of Hull
DY6006
was released from all of its obligations under the loan agreement as a borrower as a result of the cancellation of its shipbuilding contract with the yards.
In February 2016, we acquired from a related party three Panamax vessels for an aggregate price of $39.3 million. Two of the vessels, the
Selina
and the
Ismene
, were delivered in
March 2016 and the third vessel, the
Maera
, was delivered in May 2016. The Company had agreed to acquire the vessels from entities affiliated
with Mrs. Semiramis Paliou and Mrs. Aliki Paliou, each of whom is a family member of the Company’s Chief Executive Officer and Chairman of the Board. Mrs. Semiramis Paliou is also a director of the Company. The transaction was approved
unanimously by a committee of the Board of Directors established for the purpose of considering the transaction and consisting of the Company’s independent directors and each of its executive directors other than Mrs. Semiramis Paliou and Mr.
Simeon Palios. The agreed upon purchase price of the vessels was based, among other factors, on independent third party broker valuations obtained by the Company.
In March 2016, we entered into a term loan agreement with ABN AMRO Bank N.V. for a loan of $25.755 million, drawn on March 30, 2016, to
finance the acquisition cost of the Selina and the Ismene.
On May 10, 2016, we entered into a term loan agreement with DNB Bank ASA and the CEXIM Bank for a loan of $13.51 million, drawn on the same
date, to finance the acquisition cost of the Maera.
In September 2016, we entered into an amendment to the loan agreement with Performance Shipping, dated May 20, 2013 and amended in
September 2015, pursuant to which the repayment of all outstanding principal amounts was deferred until the later of (i) the repayment or prepayment in full by Performance Shipping of a deferred amount under its loan agreement with The Royal Bank
of Scotland plc, whose repayment was scheduled to commence on March 15, 2019 and to be completed not later than June 15, 2021, and (ii) September 15, 2018. The amendment also changed the borrower under the loan to another wholly-owned subsidiary
of Performance Shipping and provided for an increase of the interest rate for the period between September 12, 2016 (the effective date of the amendment) and December 31, 2018 to 3.35% per annum over LIBOR.
In October 2016, we provided a notice of cancellation of the shipbuilding contract, dated January 2014 for the construction of Hull DY6006
for a contract price of $28.8 million, pursuant to our right under the contract to cancel the contract due to a delay in delivery of 150 days after the original delivery date and to claim a refund of the pre-delivery installment payments together
with interest at a rate of 5% per annum, amounting to $9.4 million, which was received in December 2016.
In December 2016, one of our wholly-owned subsidiaries, upon signing a settlement agreement with a former charterer, received an amount of
$5.5 million as partial payment pursuant to an arbitration award. The partial payment of the arbitration award is without prejudice, and we intend to seek the recovery of the balance of the award.
In January 2017, we took delivery of two Newcastlemax dry bulk vessels, Hull H2548, named
San Francisco,
and Hull H2549, named
Newport News,
which were under
construction at China Shipbuilding Trading Company, Limited and Jiangnan Shipyard (Group) Co., Ltd. for a contract price of $47.7 million each.
In April 2017, we issued a total 20,125,000 common shares, at a price of $4.00 per share, in a public offering. As part of the offering,
entities affiliated with Simeon Palios, our Chief Executive Officer and Chairman, executive officers and certain directors, purchased an aggregate of 5,500,000 common shares at the public offering price. The net proceeds from the offering after
deducting underwriting discounts and other offering expenses were approximately $77.3 million. Substantially all of the net proceeds of the offering were used to fund the acquisition costs of the three dry bulk vessels delivered to us in May 2017
described below.
In April 2017, we acquired from unaffiliated third party sellers two 2013-built Post-Panamax vessels, the
Electra
and the
Phaidra
, for a purchase price of $22.25 million
per vessel and a 2013-built Kamsarmax dry bulk carrier, the
Astarte
, for a purchase price of $22.75 million. All three vessels were delivered
in May 2017.
In May 2017, we acquired 100 shares of newly-designated Series C Preferred Stock, par value $0.01 per share, of Performance Shipping, in
exchange for a reduction of $3.0 million in the principal amount of our loan to Performance Shipping, dated May 20, 2013, as amended. The Series C Preferred Stock has no dividend or liquidation rights. The Series C Preferred Stock votes with the
common shares of Performance Shipping and each share of the Series C Preferred Stock entitles the holder thereof to up to 250,000 votes, subject to a cap such that the aggregate voting power of any holder of Series C Preferred Stock together with
its affiliates does not exceed 49.0%, on all matters submitted to a vote of the stockholders of Performance Shipping. The acquisition of shares of Series C Preferred Stock was approved by an Independent Committee of our Board of Directors.
In June 2017, we refinanced our unsecured loan facility with Performance Shipping with a new secured loan facility of $82.6 million, which
included the $42.4 million outstanding principal balance as of June 30, 2017, increased by the flat fee of $0.2 million payable at maturity, plus an additional loan amount to Performance Shipping of $40.0 million. The loan also had an additional
$5.0 million interest-bearing discount premium, bore interest at the rate of 6% per annum for the first twelve (12) months of the loan, scaled to 9% for the next three (3) months, and further scaled to 12% for the remaining three (3) months of
the loan. The loan was fully repaid by Performance Shipping in July 2018.
In July 2017, the
Melite
run
aground at Pulau Laut, Indonesia, following which, the vessel was considered a constructive total loss. In October 2017, the vessel was sold to an unrelated third party for demolition, on an “as is where is” basis, for approximately $2.5 million,
before commissions. As a result of this sale, the outstanding balance of the loan assigned to the vessel amounting to $5.8 million was also prepaid. On November 14, 2017, the Company also received the balance of the insured value (net of the
price sold and commissions), amounting to $11.5 million.
In July 2018, the Company signed a term loan facility with BNP Paribas for up to $75 million with maturity date on July 16, 2023, secured
by the vessels
Alcmene
,
Seattle
,
Electra
,
Phaidra
,
Astarte
,
G P. Zafirakis
and
P.S. Palios
. The proceeds from the loan facility together with available cash were used to voluntarily prepay in full the balance of $130 million
of the existing credit facility with BNP Paribas dated June 22, 2015 which had maturity date on July 24, 2020. The new loan facility has resulted in the release of mortgages on 17 of the Company’s vessels as of that date.
In September 2018, the Company issued $100 million of senior unsecured bond maturing in September 2023 and callable beginning three years
after issuance, or the Bond. In addition, the Company may issue up to an additional $25 million of the Bond on one or more occasions. The Bond offering was priced with a U.S. dollar fixed-rate coupon of 9.50%. Interest will be payable
semi-annually in arrears in March and September of each year, commencing in March 2019. Since December 4, 2018, the Bond is listed on the Oslo Stock Exchange under the ticker symbol “DIASH01”.
In September 2018, using part of the proceeds from the Bond, the Company exercised its option to redeem all of its outstanding 8.50% Senior
Notes due 2020 (NYSE: DSXN), or the Notes, of which an aggregate principal amount of approximately $63.25 million was outstanding. The redemption date was October 29, 2018 and the redemption price was 100% of the principal amount of the Notes, or
$25.00 per Note, plus accrued and unpaid interest to, but excluding, the date of redemption. Following the redemption, the Notes were delisted from the New York Stock Exchange.
In November 2018, the Company, through, separate wholly-owned subsidiaries, entered into two Memoranda of Agreement to sell to an
unaffiliated third party, the 2001-built vessel Triton for a sale price of $7.35 million before commissions and the 2001-built vessel Alcyon, for a sale price of $7.45 million before commissions. Both vessels were delivered to their new owners in
December 2018.
In December 2018, the Company completed a tender offer to purchase 4,166,666 shares, or about 3.86%, of its outstanding common stock using
funds available from cash and cash equivalents at a price of $3.60 per share, or $15 million, in the aggregate.
In January 2019, the Company issued 10,675 shares of its newly-designated Series C Preferred Stock, par value $0.01 per share, to an
affiliate of its Chairman and Chief Executive Officer, Mr. Simeon Palios, for an aggregate purchase price of approximately $1.07 million. The Series C Preferred Stock will vote with the common shares of the Company, and each share entitles the
holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Company. The Series C Preferred Stock has no dividend or liquidation rights and cannot be transferred without the consent of the Company except to the
holder’s affiliates and immediate family members. The issuance of shares of Series C Preferred Stock was approved by an independent committee of the Board of Directors, which received a fairness opinion from an independent third party that the
transaction was fair from a financial point of view to the issuer.
In February 2019, the Company signed, through two separate wholly-owned subsidiaries, two Memoranda of Agreement to sell to two affiliated
parties, the vessels
Danae
and
Dione
,
each a 2001-built dry bulk vessel for $7.2 million each. The sale of the vessels was approved by disinterested directors of the Company and the vessels were sold at a price equal to the higher of two independent broker valuations. The Company
expects the
Danae
to be delivered to her buyer by June 28, 2019 and the
Dione
to her buyer by April 15, 2019.
In February 2019, the Company commenced a tender offer to purchase 5,178,571 shares, or about 4.9%, of its outstanding common stock using
funds available from cash and cash equivalents at a price of $2.80 per share, or $14.5 million, net to the seller, in cash, less any applicable withholding taxes and without interest. The tender offer is scheduled to expire on March 27, 2019.
In March 2019, the Company, through two wholly owned subsidiaries, entered into a $19.0 million loan agreement with DNB Bank ASA, for
working capital. The loan will be available until March 20, 2019 and will be repayable by March 20, 2024.
Please see "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources" for a discussion of our loan
facilities.
We are a global provider of shipping transportation services. We specialize in the ownership of dry bulk vessels.
As of December 31, 2018 and the date of this report, our operating fleet consists of 48 dry bulk carriers, of which 20 are Panamax, five
are Kamsarmax, five are Post-Panamax, 14 are Capesize and four are Newcastlemax vessels, having a combined carrying capacity of approximately 5.7 million dwt and a weighted average age of 9.1 years and 9.3 years, respectively. As of the date of
this report, we have agreed to sell the vessels
Dione
and
Danae
to affiliated companies, with deliveries to their new buyers expected in April and June 2019, respectively.
As of December 31, 2017, our fleet consisted of 50 vessels of which 22 were Panamax, five were Kamsarmax, five were Post-Panamax, 14 were
Capesize and four were Newcastlemax vessels, having a combined carrying capacity of approximately 5.8 million dwt, and a weighted average age of 8.4 years.
As of December 31, 2016, our fleet consisted of 46 vessels of which 23 were Panamax, four were Kamsarmax, three were Post-Panamax, 14 were
Capesize and two were Newcastlemax vessels, having a combined carrying capacity of approximately 5.2 million dwt, and a weighted average age of 8.2 years. In addition, we had two vessels under construction which were delivered in January 2017.
During 2018, 2017 and 2016, we had a fleet utilization of 99.1%, 98.2% and 99.4%, respectively, our vessels achieved daily time charter
equivalent rates of $12,179, $8,568 and $6,106, respectively, and we generated revenues of $226.2 million, $161.9 million and $114.3 million, respectively.
The following table presents certain information concerning the dry bulk carriers in our fleet, as of March 11, 2019.
|
Vessel
|
Sister Ships*
|
Gross Rate (USD Per Day)
|
Com**
|
Charterers
|
Delivery Date to Charterers***
|
Redelivery Date to Owners****
|
Notes
|
|
BUILT DWT
|
|
20 Panamax Bulk Carriers
|
|
|
|
|
|
|
|
|
|
1
|
DANAE
|
A
|
$10,000
|
5.00%
|
Phaethon International Company AG
|
22-Dec-17
|
7-Feb-19
|
|
|
|
|
$8,100
|
5.00%
|
7-Feb-19
|
7-Jan-20 - 7-Apr-20
|
1
|
|
2001 75,106
|
|
|
|
|
|
|
|
2
|
DIONE
|
A
|
$10,350
|
5.00%
|
Ausca Shipping Limited, Hong Kong
|
23-Jan-18
|
23-Mar-19 - 23-Apr-19
|
2,3,4
|
|
2001 75,172
|
|
|
|
|
|
|
|
3
|
NIREFS
|
A
|
$10,750
|
3.75%
|
Hudson Shipping Lines Incorporated
|
11-Aug-18
|
11-Jul-19 - 11-Oct-19
|
|
|
2001 75,311
|
|
|
|
|
|
|
|
4
|
OCEANIS
|
A
|
$10,350
|
5.00%
|
Ausca Shipping Limited, Hong Kong
|
16-Nov-18
|
1-Jan-20 - 31-Mar-20
|
|
|
2001 75,211
|
|
|
|
|
|
|
|
5
|
THETIS
|
B
|
$10,650
|
3.75%
|
Hudson Shipping Lines Incorporated
|
16-Nov-18
|
16-Jan-20 - 16-Apr-20
|
|
|
2004 73,583
|
|
|
|
|
|
|
|
6
|
PROTEFS
|
B
|
$11,000
|
3.75%
|
Hudson Shipping Lines Incorporated
|
19-Sep-18
|
4-Sep-19 - 19-Dec-19
|
|
|
2004 73,630
|
|
|
|
|
|
|
|
7
|
CALIPSO
|
B
|
$12,200
|
5.00%
|
Glencore Agriculture B.V., Rotterdam
|
12-Mar-18
|
28-May-19 - 12-Sep-19
|
|
|
2005 73,691
|
|
|
|
|
|
|
|
8
|
CLIO
|
B
|
$10,600
|
5.00%
|
Ausca Shipping Limited, Hong Kong
|
10-Nov-18
|
10-Sep-19 - 10-Dec-19
|
|
|
2005 73,691
|
|
|
|
|
|
|
|
9
|
NAIAS
|
B
|
$10,000
|
5.00%
|
Phaethon International Company AG
|
26-Nov-17
|
26-Jan-19
|
|
|
|
|
$10,000
|
5.00%
|
26-Jan-19
|
26-Dec-20 - 10-Apr-21
|
|
|
2006 73,546
|
|
|
|
|
|
|
|
10
|
ARETHUSA
|
B
|
$12,600
|
5.00%
|
Glencore Agriculture B.V., Rotterdam
|
27-Apr-18
|
27-Apr-19 - 27-Jul-19
|
|
|
2007 73,593
|
|
|
|
|
|
|
|
11
|
ERATO
|
C
|
$10,500
|
5.00%
|
Phaethon International Company AG
|
30-Dec-17
|
18-Mar-19 - 30-May-19
|
4
|
|
2004 74,444
|
|
|
|
|
|
|
|
12
|
CORONIS
|
C
|
$11,300
|
5.00%
|
CJ International Italy Societa Per Azioni
|
10-Oct-18
|
11-Aug-19 - 11-Nov-19
|
|
|
2006 74,381
|
|
|
|
|
|
|
|
13
|
MELIA
|
|
$12,000
|
5.00%
|
United Bulk Carriers International S.A., Luxemburg
|
28-Apr-18
|
28-Sep-19 - 28-Dec-19
|
|
|
2005 76,225
|
|
|
|
|
|
|
|
14
|
ARTEMIS
|
|
$12,600
|
5.00%
|
Ausca Shipping Limited, Hong Kong
|
17-Sep-18
|
17-Sep-19 17-Dec-19
|
|
|
2006 76,942
|
|
|
|
|
|
|
|
15
|
LETO
|
|
$12,500
|
5.00%
|
Glencore Agriculture B.V., Rotterdam
|
10-Jan-18
|
10-May-19 - 25-Aug-19
|
|
|
2010 81,297
|
|
|
|
|
|
|
|
16
|
SELINA
|
D
|
$12,250
|
5.00%
|
BG Shipping Co., Limited, Hong Kong
|
6-Feb-18
|
6-Jun-19 - 6-Sep-19
|
|
|
2010 75,700
|
|
|
|
|
|
|
|
17
|
MAERA
|
D
|
$11,750
|
5.00%
|
ST Shipping and Transport Pte. Ltd., Singpore
|
4-Jul-18
|
10-Feb-19
|
|
|
|
|
$7,000
|
5.00%
|
Glencore Agriculture B.V., Rotterdam
|
10-Feb-19
|
27-Mar-19
|
|
|
|
|
$9,450
|
5.00%
|
27-Mar-19
|
10-Apr-20 - 10-Jul-20
|
|
|
2013 75,403
|
|
|
|
|
|
|
|
18
|
ISMENE
|
|
$12,125
|
5.00%
|
Koch Shipping Pte. Ltd., Singapore
|
12-Dec-18
|
1-Jan-20 - 31-Mar-20
|
|
|
2013 77,901
|
|
|
|
|
|
|
|
19
|
CRYSTALIA
|
E
|
$11,100
|
5.00%
|
Glencore Agriculture B.V., Rotterdam
|
3-Oct-17
|
28-Jan-19
|
5,6
|
|
|
|
$10,500
|
5.00%
|
2-Mar-19
|
2-May-20 - 2-Aug-20
|
|
|
2014 77,525
|
|
|
|
|
|
|
|
20
|
ATALANDI
|
E
|
$13,500
|
5.00%
|
Uniper Global Commodities SE, Düsseldorf
|
27-Apr-18
|
27-Jun-19 - 27-Sep-19
|
|
|
2014 77,529
|
|
|
|
|
|
|
|
|
5 Kamsarmax Bulk Carriers
|
21
|
MAIA
|
F
|
$13,300
|
5.00%
|
Glencore Agriculture B.V., Rotterdam
|
12-Nov-18
|
1-Jan-20 - 31-Mar-20
|
|
|
2009 82,193
|
|
|
|
|
|
|
|
22
|
MYRSINI
|
F
|
$12,750
|
5.00%
|
Glencore Agriculture B.V., Rotterdam
|
22-Dec-18
|
22-Oct-19 - 22-Dec-19
|
|
|
2010 82,117
|
|
|
|
|
|
|
|
23
|
MEDUSA
|
F
|
$14,000
|
4.75%
|
Cargill International S.A., Geneva
|
3-Sep-18
|
3-Oct-19 - 3-Dec-19
|
|
|
2010 82,194
|
|
|
|
|
|
|
|
24
|
MYRTO
|
F
|
$14,000
|
4.75%
|
Cargill International S.A., Geneva
|
25-Apr-18
|
25-May-19 - 25-Jul-19
|
|
|
2013 82,131
|
|
|
|
|
|
|
|
25
|
ASTARTE
|
|
$14,250
|
5.00%
|
Glencore Agriculture B.V., Rotterdam
|
16-Oct-18
|
16-Dec-19 - 16-Mar-20
|
|
|
2013 81,513
|
|
|
|
|
|
|
|
|
5 Post-Panamax Bulk Carriers
|
26
|
ALCMENE
|
|
$11,500
|
5.00%
|
BG Shipping Co., Limited, Hong Kong
|
21-Nov-18
|
21-Oct-19 - 21-Jan-20
|
|
|
2010 93,193
|
|
|
|
|
|
|
|
27
|
AMPHITRITE
|
G
|
$11,150
|
4.75%
|
Cargill International S.A., Geneva
|
28-Sep-17
|
27-Jan-19
|
|
|
|
|
$12,750
|
5.00%
|
Uniper Global Commodities SE, Düsseldorf
|
27-Jan-19
|
27-Mar-20 - 27-Jun-20
|
7
|
|
2012 98,697
|
|
|
|
|
|
|
|
28
|
POLYMNIA
|
G
|
$16,000
|
4.75%
|
Cargill International S.A., Geneva
|
9-Jul-18
|
9-Sep-19 - 9-Dec-19
|
|
|
2012 98,704
|
|
|
|
|
|
|
|
29
|
ELECTRA
|
H
|
$13,500
|
5.00%
|
Uniper Global Commodities SE, Düsseldorf
|
19-Oct-18
|
15-Sep-19 - 15-Dec-19
|
|
|
2013 87,150
|
|
|
|
|
|
|
|
30
|
PHAIDRA
|
H
|
$12,700
|
5.00%
|
Uniper Global Commodities SE, Düsseldorf
|
13-Jan-18
|
14-Mar-19 - 13-Apr-19
|
4
|
|
2013 87,146
|
|
|
|
|
|
|
|
|
14 Capesize Bulk Carriers
|
31
|
NORFOLK
|
|
$13,250
|
5.00%
|
SwissMarine Services S.A., Geneva
|
1-Dec-17
|
1-Sep-19 - 1-Dec-19
|
|
|
2002 164,218
|
|
|
|
|
|
|
|
32
|
ALIKI
|
|
$18,000
|
5.00%
|
SwissMarine Services S.A., Geneva
|
9-Apr-18
|
9-Dec-19 - 9-Feb-20
|
|
|
2005 180,235
|
|
|
|
|
|
|
|
33
|
BALTIMORE
|
|
$18,050
|
5.00%
|
Koch Shipping Pte. Ltd., Singapore
|
6-Jun-18
|
22-May-19 - 21-Aug-19
|
|
|
2005 177,243
|
|
|
|
|
|
|
|
34
|
SALT LAKE CITY
|
|
$16,250
|
4.75%
|
Cargill International S.A., Geneva
|
1-May-18
|
14-Mar-19
|
8,9
|
|
|
|
$9,750
|
4.75%
|
14-Mar-19
|
14-Nov-20 - 14-Feb-21
|
10
|
|
2005 171,810
|
|
|
|
|
|
|
|
35
|
SIDERIS GS
|
I
|
$15,350
|
5.00%
|
Berge Bulk Shipping Pte. Ltd., Singapore
|
15-Dec-18
|
15-Dec-19 - 30-Mar-20
|
|
|
2006 174,186
|
|
|
|
|
|
|
|
36
|
SEMIRIO
|
I
|
$20,050
|
5.00%
|
Pacific Bulk Cape Company Limited, Hong Kong
|
1-Sep-18
|
1-Jul-19 - 16-Sep-19
|
|
|
2007 174,261
|
|
|
|
|
|
|
|
37
|
BOSTON
|
I
|
$17,000
|
5.00%
|
EGPN Bulk Carrier Co., Limited, Hong Kong
|
6-Dec-17
|
6-Apr-19 - 6-Jul-19
|
|
|
2007 177,828
|
|
|
|
|
|
|
|
38
|
HOUSTON
|
I
|
$19,000
|
5.00%
|
SwissMarine Services S.A., Geneva
|
9-May-18
|
17-Feb-19
|
|
|
|
|
$10,125
|
5.00%
|
Koch Shipping Pte. Ltd., Singapore
|
17-Feb-19
|
17-Apr-20 - 1-Aug-20
|
|
|
2009 177,729
|
|
|
|
|
|
|
|
39
|
NEW YORK
|
I
|
$16,000
|
5.00%
|
DHL Project & Chartering Limited, Hong Kong
|
2-Feb-18
|
2-Jun-19 - 2-Sep-19
|
|
|
2010 177,773
|
|
|
|
|
|
|
|
40
|
SEATTLE
|
J
|
$16,000
|
5.00%
|
SwissMarine Services S.A., Geneva
|
24-Dec-18
|
24-Apr-20 - 24-Jul-20
|
|
|
2011 179,362
|
|
|
|
|
|
|
|
41
|
P. S. PALIOS
|
J
|
$17,350
|
5.00%
|
Koch Shipping Pte. Ltd., Singapore
|
24-May-18
|
9-Jun-19 - 24-Aug-19
|
|
|
2013 179,134
|
|
|
|
|
|
|
|
42
|
G. P. ZAFIRAKIS
|
K
|
$17,000
|
5.00%
|
SwissMarine Services S.A., Geneva
|
31-Dec-18
|
31-May-20 - 31-Aug-20
|
|
|
2014 179,492
|
|
|
|
|
|
|
|
43
|
SANTA BARBARA
|
K
|
$20,250
|
4.75%
|
Cargill International S.A., Geneva
|
24-Apr-18
|
9-Oct-19 - 9-Dec-19
|
|
|
2015 179,426
|
|
|
|
|
|
|
|
44
|
NEW ORLEANS
|
|
$21,000
|
5.00%
|
SwissMarine Services S.A., Geneva
|
24-Mar-18
|
12-Mar-19 - 30-Mar-19
|
4
|
|
2015 180,960
|
|
|
|
|
|
|
|
|
4 Newcastlemax Bulk Carriers
|
45
|
LOS ANGELES
|
L
|
$19,150
|
5.00%
|
SwissMarine Services S.A., Geneva
|
16-Apr-18
|
6-Mar-19
|
|
|
|
|
$13,250
|
5.00%
|
6-Mar-19
|
6-Jun-20 - 6-Sep-20
|
|
|
2012 206,104
|
|
|
|
|
|
|
|
46
|
PHILADELPHIA
|
L
|
$20,000
|
5.00%
|
Koch Shipping Pte. Ltd., Singapore
|
18-Jun-18
|
3-Feb-20 - 18-May-20
|
|
|
2012 206,040
|
|
|
|
|
|
|
|
47
|
SAN FRANCISCO
|
M
|
$24,000
|
5.00%
|
Koch Shipping Pte. Ltd., Singapore
|
14-May-18
|
5-Mar-19
|
|
|
|
|
$16,000
|
5.00%
|
5-Mar-19
|
5-Oct-20 - 20-Jan-21
|
|
|
2017 208,006
|
|
|
|
|
|
|
|
48
|
NEWPORT NEWS
|
M
|
BCI_2014 5TCs AVG + 24%
|
5.00%
|
SwissMarine Services S.A., Geneva
|
10-Jan-17
|
25-Feb-19
|
|
|
|
|
$16,500
|
5.00%
|
25-Feb-19
|
25-Jun-20 - 25-Sep-20
|
|
|
2017 208,021
|
|
|
|
|
|
|
|
* Each dry bulk carrier is a "sister ship", or closely similar, to other dry bulk carriers that have the same letter.
|
** Total commission percentage paid to third parties.
|
*** In case of newly acquired vessel with time charter attached, this date refers to the expected/actual date of delivery of the vessel
to the Company.
|
**** Range of redelivery dates, with the actual date of redelivery being at the Charterers’ option, but subject to the terms,
conditions, and exceptions of the particular charterparty.
|
|
1 Vessel sold and expected to be delivered to her new Owners at the latest by June 28, 2019.
|
2 Vessel off hire for drydocking from December 17, 2018 to January 12, 2019.
|
3 Vessel sold and expected to be delivered to her new Owners at the latest by April 15, 2019.
|
4 Based on latest information.
|
5 Charterers have agreed to pay the average value between ''P2A_03 Skaw - Gibraltar trip to Taiwan - Japan'' and ''P3A_03 Japan - South
Korea transpacific round voyage'', as published by the Baltic Exchange on January 18, 2019, for the excess period commencing from January 18, 2019.
|
6 Vessel on scheduled drydocking from January 30, 2019 to March 2, 2019.
|
7 The charter rate was US$5,000 per day for the first 5 days of the charter period.
|
8 Charterers have agreed to pay Owners as daily hire, for the period from March 1, 2019 until the actual redelivery date and time, the
current charterparty agreed hire rate.
|
9 Estimated redelivery date from the charterers.
|
10 Estimated delivery date to the charterers.
|
Each of our vessels is owned through a separate wholly-owned subsidiary.
The business of Diana Shipping Inc. is the ownership of dry bulk vessels. The parent holding company wholly owns the subsidiaries which own
the vessels that comprise our fleet. The holding company sets general overall direction for the company and interfaces with various financial markets. The commercial and technical management of our fleet, as well as the provision of
administrative services relating to the fleet’s operations, are carried out by our wholly-owned subsidiary, Diana Shipping Services S.A., which we refer to as DSS, and Diana Wilhelmsen Management Limited, a 50/50 joint venture with Wilhelmsen
Ship Management, which we refer to as DWM. In exchange for providing us with commercial and technical services, personnel and office space, we pay DSS a commission, which is a percentage of the managed vessels’ gross revenues, a fixed monthly fee
per managed vessel and an additional monthly fee for the administrative services provided to Diana Shipping Inc. Such services may include budgeting, reporting, monitoring of bank accounts, compliance with banks, payroll services and any other
possible service that Diana Shipping Inc. would require to perform its operations. Similarly, in exchange for providing us with commercial and technical services, we pay DWM a commission which is a percentage of the managed vessels’ gross
revenues and a fixed management monthly fee for each managed vessel. The amounts deriving from the agreements with DSS are considered inter-company transactions and, therefore, are eliminated from our consolidated financial statements. The
management fees deriving from the agreements with DWM are included in our statement of operations as “Management fees to related party”, whereas commercial fees are included in “Voyage expenses”.
Since June 1, 2010, Diana Enterprises Inc., renamed to Steamship Shipbroking Enterprises Inc., or Steamship, a related party controlled by
our Chief Executive Officer and Chairman of the Board, Mr. Simeon Palios, provides brokerage services to us. Brokerage fees are included in “General and Administrative expenses” in our statement of operations. The terms of this relationship are
currently governed by a Brokerage Services Agreement dated November 21, 2018.
Our customers include regional and international companies, such as Cargill International S.A., Glencore Grain B.V., RWE Supply and Trading
Gmbh, Koch Shipping Pte Ltd and Swissmarine Services S.A. During 2018, five of our charterers accounted for 55% of our revenues: Swissmarine (16%), Koch (15%), Cargill (14%) and Glencore (10%). During 2017, three of our charterers accounted for
43% of our revenues: Koch (17%), Swissmarine (14%), and Cargill (12%). During 2016, four of our charterers accounted for 54% of our revenues: RWE Supply (19%), Swissmarine (15%), Cargill (10%) and Glencore (10%).
We charter our dry bulk carriers to customers pursuant to time charters. Under our time charters, the charterer typically pays us a fixed
daily charter hire rate and bears all voyage expenses, including the cost of bunkers (fuel oil) and canal and port charges. We remain responsible for paying the chartered vessel's operating expenses, including the cost of crewing, insuring,
repairing and maintaining the vessel. In 2018, we paid commissions that ranged from 3.75% to 5.0% of the total daily charter hire rate of each charter to unaffiliated ship brokers and to in-house brokers associated with the charterer, depending
on the number of brokers involved with arranging the charter.
We strategically monitor developments in the dry bulk shipping industry on a regular basis and, subject to market demand, seek to adjust
the charter hire periods for our vessels according to prevailing market conditions. In order to take advantage of relatively stable cash flow and high utilization rates, we fix some of our vessels on long-term time charters. Currently, the
majority of our vessels are employed on short to medium-term time charters, which provides us with flexibility in responding to market developments. We continuously evaluate our balance of short- and long-term charters and extend or reduce the
charter hire periods of the vessels in our fleet according to the developments in the dry bulk shipping industry.
The Dry Bulk Shipping Industry
The global dry bulk carrier fleet could be divided into seven categories based on a vessel's carrying capacity. These categories consist
of:
|
●
|
Very Large Ore Carriers
. Very
large ore carriers, or VLOCs, have a carrying capacity of more than 200,000 dwt and are a comparatively new sector of the dry bulk carrier fleet. VLOCs are built to exploit economies of scale on long-haul iron ore routes.
|
|
●
|
Capesize
. Capesize vessels have
a carrying capacity of 110,000-199,999 dwt. Only the largest ports around the world possess the infrastructure to accommodate vessels of this size. Capesize vessels are primarily used to transport iron ore or coal and, to a much
lesser extent, grains, primarily on long-haul routes.
|
|
●
|
Post-Panamax
. Post-Panamax
vessels have a carrying capacity of 80,000-109,999 dwt. These vessels tend to have a shallower draft and larger beam than a standard Panamax vessel with a higher cargo capacity. These vessels have been designed specifically for
loading high cubic cargoes from draught restricted ports, although they cannot transit the Panama Canal.
|
|
●
|
Panamax
. Panamax vessels have a
carrying capacity of 60,000-79,999 dwt. These vessels carry coal, iron ore, grains, and, to a lesser extent, minor bulks, including steel products, cement and fertilizers. Panamax vessels are able to pass through the Panama Canal,
making them more versatile than larger vessels with regard to accessing different trade routes. Most Panamax and Post-Panamax vessels are “gearless,” and therefore must be served by shore-based cargo handling equipment. However, there
are a small number of geared vessels with onboard cranes, a feature that enhances trading flexibility and enables operation in ports which have poor infrastructure in terms of loading and unloading facilities.
|
|
●
|
Handymax/Supramax
. Handymax
vessels have a carrying capacity of 40,000-59,999 dwt. These vessels operate in a large number of geographically dispersed global trade routes, carrying primarily grains and minor bulks. Within the Handymax category there is also a
sub-sector known as Supramax. Supramax bulk carriers are ships between 50,000 to 59,999 dwt, normally offering cargo loading and unloading flexibility with on-board cranes, or “gear,” while at the same time possessing the cargo
carrying capability approaching conventional Panamax bulk carriers.
|
|
●
|
Handysize
.
Handysize vessels have a carrying capacity of up to 39,999 dwt. These vessels are primarily involved in carrying minor bulk cargoes. Increasingly,
ships of this type operate within regional trading routes, and may serve as trans-shipment feeders for larger vessels. Handysize vessels are well suited for small ports with length and draft restrictions. Their cargo gear enables them
to service ports lacking the infrastructure for cargo loading and unloading.
|
Other size categories occur in regional trade, such as Kamsarmax, with a maximum length of 229 meters, the maximum length that can load in
the port of Kamsar in the Republic of Guinea. Other terms such as Seawaymax, Setouchmax, Dunkirkmax, and Newcastlemax also appear in regional trade.
The supply of dry bulk carriers is dependent on the delivery of new vessels and the removal of vessels from the global fleet, either
through scrapping or loss. The level of scrapping activity is generally a function of scrapping prices in relation to current and prospective charter market conditions, as well as operating, repair and survey costs. The average age at which a
vessel is scrapped was 28 years in 2018, 25 years in 2017 and 23 years in 2016.
The demand for dry bulk carrier capacity is determined by the underlying demand for commodities transported in dry bulk carriers, which in
turn is influenced by trends in the global economy. Demand for dry bulk carrier capacity is also affected by the operating efficiency of the global fleet, along with port congestion, which has been a feature of the market since 2004, absorbing
tonnage and therefore leading to a tighter balance between supply and demand. In evaluating demand factors for dry bulk carrier capacity, the Company believes that dry bulk carriers can be the most versatile element of the global shipping fleets
in terms of employment alternatives.
Charter hire rates fluctuate by varying degrees among dry bulk carrier size categories. The volume and pattern of trade in a small number
of commodities (major bulks) affect demand for larger vessels. Therefore, charter rates and vessel values of larger vessels often show greater volatility. Conversely, trade in a greater number of commodities (minor bulks) drives demand for
smaller dry bulk carriers. Accordingly, charter rates and vessel values for those vessels are usually subject to less volatility.
Charter hire rates paid for dry bulk carriers are primarily a function of the underlying balance between vessel supply and demand, although
at times other factors may play a role. Furthermore, the pattern seen in charter rates is broadly mirrored across the different charter types and the different dry bulk carrier categories. In the time charter market, rates vary depending on the
length of the charter period and vessel-specific factors such as age, speed and fuel consumption.
In the voyage charter market, rates are, among other things, influenced by cargo size, commodity, port dues and canal transit fees, as well
as commencement and termination regions. In general, a larger cargo size is quoted at a lower rate per ton than a smaller cargo size. Routes with costly ports or canals generally command higher rates than routes with low port dues and no canals
to transit. Voyages with a load port within a region that includes ports where vessels usually discharge cargo or a discharge port within a region with ports where vessels load cargo also are generally quoted at lower rates, because such voyages
generally increase vessel utilization by reducing the unloaded portion (or ballast leg) that is included in the calculation of the return charter to a loading area.
Within the dry bulk shipping industry, the charter hire rate references most likely to be monitored are the freight rate indices issued by
the Baltic Exchange. These references are based on actual charter hire rates under charters entered into by market participants as well as daily assessments provided to the Baltic Exchange by a panel of major shipbrokers. The Baltic Panamax Index
is the index with the longest history. The Baltic Capesize Index and Baltic Handymax Index are of more recent origin.
The Baltic Dry Index, or BDI, a daily average of charter rates in 20 shipping routes measured on a time charter and voyage basis and
covering Capesize, Panamax, Supramax, and Handysize dry bulk carriers declined from a high of 11,793 in May 2008 to a low of 663 in December 2008. In 2016, the BDI ranged from a record low of 290 in February to a high of 1,257 in November. In
2017, the BDI ranged from a low of 685 in February to a high of 1,743 in December. In 2018, the BDI ranged from a low of 948 in April to a high of 1,774 in July.
Dry bulk vessel values in 2018 generally remained at the same levels as compared to 2017. Consistent with these trends were the market
values of our dry bulk carriers. As charter rates and vessel values remain at relatively low levels, there can be no assurance as to how long charter rates and vessel values will remain at their current levels or whether they will decrease or
improve to any significant degree in the near future.
Our business fluctuates in line with the main patterns of trade of the major dry bulk cargoes and varies according to changes in the supply
and demand for these items. We operate in markets that are highly competitive and based primarily on supply and demand. We compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on our
reputation as an owner and operator. We compete with other owners of dry bulk carriers in the Panamax, Post-Panamax and smaller class sectors and with owners of Capesize and Newcastlemax dry bulk carriers. Ownership of dry bulk carriers is highly
fragmented.
We believe that we possess a number of strengths that provide us with a competitive advantage in the dry bulk shipping industry:
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We own a modern, high quality fleet of dry bulk carriers
. We believe that owning a modern, high quality fleet reduces operating costs, improves safety and provides us with a competitive advantage in securing
favorable time charters. We maintain the quality
of
our vessels by carrying out regular inspections, both while in port and at sea, and adopting a
comprehensive maintenance program for each vessel.
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Our fleet includes thirteen groups of sister ships.
We believe that maintaining a fleet that includes sister ships enhances the revenue generating potential of our fleet by providing us with operational and
scheduling flexibility. The uniform nature of sister ships
also
improves our operating efficiency by allowing our fleet manager to apply the
technical knowledge of one vessel to all vessels of the same series and creates economies of scale that enable us to realize cost savings when maintaining, supplying and crewing our vessels.
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We have an experienced management team.
Our
management team consists of experienced executives who have, on average, more than 30 years of operating experience in the shipping industry and has demonstrated ability in managing the commercial, technical and financial areas of our
business. Our management team is led by Mr. Simeon Palios, a qualified naval architect and engineer who has more than 40 years of experience in the shipping industry.
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We benefit from the experience and reputation of Diana Shipping Services S.A.
and the relationship with Wilhelmsen Ship Management through the
Diana
Wilhelmsen Management Limited joint venture.
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We benefit from strong relationships with members of the
shipping and financial industries.
We have developed strong relationships with major
international
charterers, shipbuilders and financial institutions that we believe are the result of the quality of our operations, the strength of our management team and our reputation for
dependability.
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We have a strong balance sheet and a relatively low level
of indebtedness.
We believe that our strong balance sheet and relatively low level of indebtedness
provide
us with the flexibility to increase the amount of funds that we may draw under our loan facilities in connection with any future acquisitions or otherwise and enable us to use cash
flow that would otherwise be dedicated to debt service for other purposes.
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Permits and Authorizations
We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect
to our vessels. The kinds of permits, licenses and certificates required depend upon several factors, including the commodity transported, the waters in which the vessel operates the nationality of the vessel's crew and the age of a vessel. We
have been able to obtain all permits, licenses and certificates currently required to permit our vessels to operate. Additional laws and regulations, environmental or otherwise, may be adopted which could limit our ability to do business or
increase the cost of us doing business.
Disclosure Pursuant to Section 219 of the Iran Threat Reduction And Syrian Human Rights Act
Section 219 of the U.S. Iran Threat Reduction and Syria Human Rights Act of 2012, or the ITRA, added new Section 13(r) to the U.S.
Securities Exchange Act of 1934, as amended, or the Exchange Act, requiring each SEC reporting issuer to disclose in its annual and, if applicable, quarterly reports whether it or any of its affiliates have knowingly engaged in certain
activities, transactions or dealings relating to Iran or with the Government of Iran or certain designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction during the period covered by the
report.
Pursuant to Section 13(r) of the Exchange Act, we note that for the period covered by this annual report, one of our vessels made one port
call to Iran in 2018.
The vessel
Myrto
made a call to
the port of Bandar Imam Khomeini on April 12, 2018, discharging soybeans, and remained in the port of Bandar Imam Khomeini during 2018 for ten days. During this time the
Myrto
was on time charter to Cargill at a gross rate of $8,000 per day.
The aggregate gross revenue attributable to these ten days that our vessel remained in the port of Bandar Imam Khomeini was $80,000. As we
do not attribute profits to specific voyages under a time charter, we have not attributed any profits to the voyages which included this port call. Our charter party agreements for our vessels restrict the charterers from calling in Iran in
violation of U.S. sanctions, or carrying any cargo to Iran which is subject to U.S. sanctions. However, there can be no assurance that the vessel referenced above or another of our vessels will not, from time to time in the future on charterer’s
instructions, perform voyages which would require disclosure pursuant to Exchange Act Section 13(r).
Environmental and Other Regulations in the Shipping Industry
Government regulation and laws significantly affect the ownership and operation of our fleet. We are subject to international conventions
and treaties, national, state and local laws and regulations in force in the countries in which our vessels may operate or are registered relating to safety and health and environmental protection including the storage, handling, emission,
transportation and discharge of hazardous and non-hazardous materials, and the remediation of contamination and liability for damage to natural resources. Compliance with such laws, regulations and other requirements entails significant expense,
including vessel modifications and implementation of certain operating procedures.
A variety of government and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the
local port authorities (applicable national authorities such as the United States Coast Guard (“USCG”), harbor master or equivalent), classification societies, flag state administrations (countries of registry) and charterers, particularly
terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and other authorizations for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial
costs or result in the temporary suspension of the operation of one or more of our vessels.
Increasing environmental concerns have created a demand for vessels that conform to 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 United States and international regulations. We believe that the
operation of our vessels is in substantial compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations.
However, because such laws and regulations frequently change and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or
useful lives of our vessels. In addition, a future serious marine incident that causes significant adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.
International Maritime Organization (IMO)
The International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution by vessels (the
“IMO”), has adopted the International Convention for the Prevention of Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto, collectively referred to as MARPOL 73/78 and herein as “MARPOL,” adopted the International
Convention for the Safety of Life at Sea of 1974 (“SOLAS Convention”), and the International Convention on Load Lines of 1966 (the “LL Convention”). MARPOL establishes environmental standards relating to oil leakage or spilling, garbage
management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms. MARPOL is applicable to drybulk, tanker and LNG carriers, among other vessels, and is broken into six Annexes,
each of which regulates a different source of pollution. Annex I relates to oil leakage or spilling; Annexes II and III relate to harmful substances carried in bulk in liquid or in packaged form, respectively; Annexes IV and V relate to sewage
and garbage management, respectively; and Annex VI, lastly, relates to air emissions. Annex VI was separately adopted by the IMO in September of 1997.
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. Effective May 2005, Annex VI sets limits on
sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts and prohibits “deliberate emissions” of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile compounds from cargo tanks, and the
shipboard incineration of specific substances. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions, as explained below. The
shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls, or PCBs) are also prohibited. We believe that all our vessels are currently compliant in all material respects
with these regulations.
The MEPC, adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and ozone depleting
substances, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on board ships.
On October 27, 2016, at its 70th session, the MEPC agreed to implement a global 0.5% m/m sulfur oxide emissions limit (reduced from 3.50%) starting from January 1, 2020. This limitation can be met by using low-sulfur compliant fuel oil,
alternative fuels, or certain exhaust gas cleaning systems. Once the cap becomes effective, ships will be required to obtain bunker delivery notes and International Air Pollution Prevention (“IAPP”) Certificates from their flag states that
specify sulfur content. Additionally, at MEPC 73, amendments to Annex VI to prohibit the carriage of bunkers above 0.5% sulphur, added for combustion purposes, for propulsion, or operation on board a ship - unless the ship has an exhaust gas
cleaning system ("scrubber") fitted, will take effect March 1, 2020. These regulations subject ocean-going vessels to stringent emissions controls, and may cause us to incur substantial costs.
Sulfur content standards are even stricter within certain “Emission Control Areas,” or (“ECAs”). As of January 1, 2015, ships operating
within an ECA were not permitted to use fuel with sulfur content in excess of 0.1%. Amended Annex VI establishes procedures for designating new ECAs. Currently, the IMO has designated four ECAs, including specified portions of the Baltic Sea
area, North Sea area, North American area and United States Caribbean area. Ocean-going vessels in these areas will be subject to stringent emission controls and may cause us to incur additional costs. If other ECAs are approved by the IMO, or
other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the U.S. Environmental Protection Agency (“EPA”) or the states where we operate, compliance with these
regulations could entail significant capital expenditures or otherwise increase the costs of our operations.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for marine diesel engines, depending on their
date of installation. At the MEPC meeting held from March to April 2014, amendments to Annex VI were adopted which address the date on which Tier III Nitrogen Oxide (NOx) standards in ECAs will go into effect. Under the amendments, Tier III NOx
standards apply to ships that operate in the North American and U.S. Caribbean Sea ECAs designed for the control of NOx produced by vessels with a marine diesel engine installed and constructed on or after January 1, 2016. Tier III requirements
could apply to areas that will be designated for Tier III NOx in the future. At MEPC 70 and MEPC 71, the MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen oxide for ships built after January 1, 2021. The EPA promulgated equivalent
(and in some senses stricter) emissions standards in late 2009. As a result of these designations or similar future designations, we may be required to incur additional operating or other costs.
As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI became effective as of March 1, 2018 and requires ships above 5,000
gross tonnage to collect and report annual data on fuel oil consumption to an IMO database, with the first year of data collection commencing on January 1, 2019. The IMO intends to use such data as the first step in its roadmap (through 2023)
for developing its strategy to reduce greenhouse gas emissions from ships, as discussed further below.
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. All ships are now required to
develop and implement Ship Energy Efficiency Management Plans (“SEEMPS”), and new ships must be designed in compliance with minimum energy efficiency levels per capacity mile as defined by the Energy Efficiency Design Index (“EEDI”). Under these
measures, by 2025, all new ships built will be 30% more energy efficient than those built in 2014.
We may incur costs to comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could
require the installation of expensive emission control systems and could adversely affect our business, results of operations, cash flows and financial condition.
Safety Management System Requirements
The SOLAS Convention was amended to address the safe manning of vessels and emergency training drills. The Convention of Limitation of
Liability for Maritime Claims (the “LLMC”) sets limitations of liability for a loss of life or personal injury claim or a property claim against ship owners. We believe that our vessels are in substantial compliance with SOLAS and LLMC standards.
Under Chapter IX of the SOLAS Convention, or the International Safety Management Code for the Safe Operation of Ships and for Pollution
Prevention (the “ISM Code”), our operations are also subject to environmental standards and requirements. The ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among
other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We rely upon the safety management
system that we and our technical management team have developed for compliance with the ISM Code. The failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease
available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports.
The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate evidences
compliance by a vessel’s management with the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued by each flag state, under
the ISM Code. We have obtained applicable documents of compliance for our offices and safety management certificates for all of our vessels for which the certificates are required by the IMO. The document of compliance and safety management
certificate are renewed as required.
Regulation II-1/3-10 of the SOLAS Convention governs ship construction and stipulates that ships over 150 meters in length must have
adequate strength, integrity and stability to minimize risk of loss or pollution. Goal-based standards amendments in SOLAS regulation II-1/3-10 entered into force in 2012, with July 1, 2016 set for application to new oil tankers and bulk
carriers. The SOLAS Convention regulation II-1/3-10 on goal-based ship construction standards for bulk carriers and oil tankers, which entered into force on January 1, 2012, requires that all oil tankers and bulk carriers of 150 meters in
length and above, for which the building contract is placed on or after July 1, 2016, satisfy applicable structural requirements conforming to the functional requirements of the International Goal-based Ship Construction Standards for Bulk
Carriers and Oil Tankers (GBS Standards).
Amendments to the SOLAS Convention Chapter VII apply to vessels transporting dangerous goods and require those vessels be in compliance
with the International Maritime Dangerous Goods Code (“IMDG Code”). Effective January 1, 2018, the IMDG Code includes (1) updates to the provisions for radioactive material, reflecting the latest provisions from the International Atomic Energy
Agency, (2) new marking, packing and classification requirements for dangerous goods, and (3) new mandatory training requirements.
The IMO has also adopted the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (“STCW”). As
of February 2017, all seafarers are required to meet the STCW standards and be in possession of a valid STCW certificate. Flag states that have ratified SOLAS and STCW generally employ the classification societies, which have incorporated SOLAS
and STCW requirements into their class rules, to undertake surveys to confirm compliance.
Furthermore, recent action by the IMO’s Maritime Safety Committee and United States agencies indicate that cybersecurity regulations for
the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. For example, cyber-risk management systems must be incorporated by ship-owners and managers by 2021. This might cause
companies to create additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. The impact of such regulations is hard to predict at this time.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of
the signatories to such conventions. For example, the IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments, (the “BWM Convention”), in 2004. The BWM Convention entered into force on
September 9, 2017. The BWM Convention requires ships to manage their ballast water to remove, render harmless, or avoid the uptake or discharge of new or invasive aquatic organisms and pathogens within ballast water and sediments. The BWM
Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits, and require all ships to carry a ballast water record book and an
International Ballast Water Management Certificate.
On December 4, 2013, the IMO Assembly passed a resolution revising the application dates of BWM Convention so that the dates are triggered
by the entry into force date and not the dates originally in the BWM Convention. This, in effect, makes all vessels delivered before the entry into force date “existing vessels” and allows for the installation of ballast water management systems
on such vessels at the first International Oil Pollution Prevention (“IOPP”) renewal survey following entry into force of the convention. The MEPC adopted updated guidelines for approval of ballast water management systems (G8) at MEPC 70. At
MEPC 71, the schedule regarding the BWM Convention’s implementation dates was also discussed and amendments were introduced to extend the date existing vessels are subject to certain ballast water standards. Ships over 400 gross tons generally
must comply with a “D-1 standard,” requiring the exchange of ballast water only in open seas and away from coastal waters. The “D-2 standard” specifies the maximum amount of viable organisms allowed to be discharged, and compliance dates vary
depending on the IOPP renewal dates. Depending on the date of the IOPP renewal survey, existing vessels must comply with the D-2 standard on or after September 8, 2019. For most ships, compliance with the D-2 standard will involve installing
on-board systems to treat ballast water and eliminate unwanted organisms. Ballast Water Management systems, which include systems that make use of chemical, biocides, organisms or biological mechanisms, or which alter the chemical or physical
characteristics of the ballast water, must be approved in accordance with IMO Guidelines (Regulation D-3). Costs of compliance with these regulations may be substantial.
Once mid-ocean ballast exchange ballast water treatment requirements become mandatory under the BWM Convention, the cost of compliance
could increase for ocean carriers and may have a material effect on our operations. However, many countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and
harmful species via such discharges. The U.S., for example, requires vessels entering its waters from another country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements.
The IMO also adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (the “Bunker Convention”) to impose
strict liability on ship owners (including the registered owner, bareboat charterer, manager or operator) for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker Convention requires
registered owners of ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in
accordance with the LLMC). With respect to non-ratifying states, liability for spills or releases of oil carried as fuel in ship’s bunkers typically is determined by the national or other domestic laws in the jurisdiction where the events or
damages occur.
Ships are required to maintain a certificate attesting that they maintain adequate insurance to cover an incident. In jurisdictions, such
as the United States where the Bunker Convention has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or on a strict-liability basis.
Anti‑Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti‑fouling Systems on Ships, or the “Anti‑fouling
Convention.” The Anti‑fouling Convention, which entered into force on September 17, 2008, prohibits the use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels. Vessels of over 400 gross
tons engaged in international voyages will also be required to undergo an initial survey before the vessel is put into service or before an International Anti‑fouling System Certificate is issued for the first time; and subsequent surveys when
the anti‑fouling systems are altered or replaced.] We have obtained Anti‑fouling System Certificates for all of our vessels that are subject to the Anti‑fouling Convention.
Noncompliance with the ISM Code or other IMO regulations may subject the ship owner or bareboat charterer to increased liability, may lead
to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. The USCG and European Union authorities have indicated that vessels not in compliance with the ISM Code by
applicable deadlines will be prohibited from trading in U.S. and European Union ports, respectively. As of the date of this report, each of our vessels is ISM Code certified. However, there can be no assurance that such certificates will be
maintained in the future
.
The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations,
if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
The U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act
The U.S. Oil Pollution Act of 1990 (“OPA”) established an extensive regulatory and liability regime for the protection and cleanup of the
environment from oil spills. OPA affects all “owners and operators” whose vessels trade or operate within the U.S., its territories and possessions or whose vessels operate in U.S. waters, which includes the U.S.’s territorial sea and its 200
nautical mile exclusive economic zone around the U.S. The U.S. has also enacted the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), which applies to the discharge of hazardous substances other than oil, except in
limited circumstances, whether on land or at sea. OPA and CERCLA both define “owner and operator” in the case of a vessel as any person owning, operating or chartering by demise, the vessel. Both OPA and CERCLA impact our operations.
Under OPA, vessel owners and operators are “responsible parties” and are jointly, severally and strictly liable (unless the spill results
solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels, including bunkers (fuel). OPA
defines these other damages broadly to include:
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(i)
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injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;
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(ii)
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injury to, or economic losses resulting from, the destruction of real and personal property;
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(iii)
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loss of subsistence use of natural resources that are injured, destroyed or lost;
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(iv)
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net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural
resources;
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(v)
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lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and
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(vi)
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net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or
health hazards, and loss of subsistence use of natural resources.
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OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. Effective December 21, 2015, the
USCG adjusted the limits of OPA liability for non-tank vessels, edible oil tank vessels, and any oil spill response vessels, to the greater of $1,100 per gross ton or $939,800 (subject to periodic adjustment for inflation). These limits of
liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual
relationship), or a responsible party's gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident where the responsible party knows or has
reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c),
(e)) or the Intervention on the High Seas Act.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as
well as damages for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing the same, and health assessments or health effects studies. There is no liability if the discharge of a
hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as
cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous
substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the
responsible person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.
OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. OPA and CERCLA both require
owners and operators of vessels to establish and maintain with the USCG evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject. Vessel owners and operators
may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We comply and plan to comply going forward with the USCG’s financial responsibility
regulations by providing applicable certificates of financial responsibility.
The 2010
Deepwater Horizon
oil
spill in the Gulf of Mexico resulted in additional regulatory initiatives or statutes, including higher liability caps under OPA, new regulations regarding offshore oil and gas drilling, and a pilot inspection program for offshore facilities.
However, several of these initiatives and regulations have been or may be revised. For example, the U.S. Bureau of Safety and Environmental Enforcement’s (“BSEE”) revised Production Safety Systems Rule (“PSSR”), effective December 27, 2018,
modified and relaxed certain environmental and safety protections under the 2016 PSSR. Additionally, the BSEE released proposed changes to the Well Control Rule, which could roll back certain reforms regarding the safety of drilling operations,
and the U.S. president proposed leasing new sections of U.S. waters to oil and gas companies for offshore drilling, expanding the U.S. waters that are available for such activity over the next five years. The effects of these proposals are
currently unknown. Compliance with any new requirements of OPA and future legislation or regulations applicable to the operation of our vessels could impact the cost of our operations and adversely affect our business.
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within
their boundaries, provided they accept, at a minimum, the levels of liability established under OPA and some states have enacted legislation providing for unlimited liability for oil spills. Many U.S. states that border a navigable waterway have
enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law.
Moreover, some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters, although in some cases, states which have enacted this type of legislation have not yet issued implementing
regulations defining vessel owners’ responsibilities under these laws. The Company intends to comply with all applicable state regulations in the ports where the Company’s vessels call.
We currently maintain pollution liability coverage insurance in the amount of $1 billion per incident for each of our vessels. If the
damages from a catastrophic spill were to exceed our insurance coverage, it could have an adverse effect on our business and results of operation.
Other United States Environmental Initiatives
The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) (“CAA”) requires the EPA to promulgate standards applicable to
emissions of volatile organic compounds and other air contaminants. The CAA requires states to adopt State Implementation Plans, or SIPs, some of which regulate emissions resulting from vessel loading and unloading operations which may affect
our vessels.
The U.S. Clean Water Act (“CWA”) prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters unless
authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements
the remedies available under OPA and CERCLA. In 2015, the EPA expanded the definition of “waters of the United States” (“WOTUS”), thereby expanding federal authority under the CWA. Following litigation on the revised WOTUS rule, in December
2018, the EPA and Department of the Army proposed a revised, limited definition of “waters of the United States.” The effect of this proposal on U.S. environmental regulations is still unknown.
The EPA and the USCG have also enacted rules relating to ballast water discharge, compliance with which requires the installation of
equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial costs, and/or otherwise restrict our vessels from entering U.S.
Waters. The EPA will regulate these ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters pursuant to the Vessel Incidental Discharge Act (“VIDA”), which was signed into
law on December 4, 2018 and will replace the 2013 Vessel General Permit (“VGP”) program (which authorizes discharges incidental to operations of commercial vessels and contains numeric ballast water discharge limits for most vessels
to reduce the risk of invasive species in U.S. waters, stringent requirements for exhaust gas scrubbers, and requirements for the use of
environmentally acceptable lubricants) and current Coast Guard ballast water management regulations adopted under the U.S. National Invasive Species Act (“NISA”), such as mid-ocean ballast exchange programs and installation of approved USCG
technology for all vessels equipped with ballast water tanks bound for U.S. ports or entering U.S. waters. VIDA establishes a new framework for the regulation of vessel incidental discharges under Clean Water Act (CWA), requires the EPA to
develop performance standards for those discharges within two years of enactment, and requires the U.S. Coast Guard to develop implementation, compliance, and enforcement regulations within two years of EPA’s promulgation of standards. Under
VIDA, all provisions of the 2013 VGP and USCG regulations regarding ballast water treatment remain in force and effect until the EPA and U.S. Coast Guard regulations are finalized. Non-military, non-recreational vessels greater than 79 feet in
length must continue to comply with the requirements of the VGP, including submission of a Notice of Intent (“NOI”) or retention of a PARI form and submission of annual reports. We have submitted NOIs for our vessels where required. Compliance
with the EPA, U.S. Coast Guard and state regulations could require the installation of ballast water treatment equipment on our vessels or the implementation of other port facility disposal procedures at potentially substantial cost, or may
otherwise restrict our vessels from entering U.S. waters.
European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting
substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a
polluting substance may also lead to criminal penalties. The directive applies to all types of vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in danger. Criminal
liability for pollution may result in substantial penalties or fines and increased civil liability claims. Regulation (EU) 2015/757 of the European Parliament and of the Council of 29 April 2015 (amending EU Directive 2009/16/EC) governs the
monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and, subject to some exclusions, requires companies with ships over 5,000 gross tonnage to monitor and report carbon dioxide emissions annually starting
on January 1, 2018, which may cause us to incur additional expenses.
The European Union has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk
ships, as determined by type, age, and flag as well as the number of times the ship has been detained. The European Union also adopted and extended a ban on substandard ships and enacted a minimum ban period and a definitive ban for repeated
offenses. The regulation also provided the European Union with greater authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations
that failed to comply. Furthermore, the EU has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary engines. The EU Directive 2005/33/EC (amending Directive 1999/32/EC) introduced requirements
parallel to those in Annex VI relating to the sulfur content of marine fuels. In addition, the EU imposed a 0.1% maximum sulfur requirement for fuel used by ships at berth in EU ports.
International Labour Organization
The International Labor Organization (the “ILO”) is a specialized agency of the UN that has adopted the Maritime Labor Convention 2006
(“MLC 2006”). A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance is required to ensure compliance with the MLC 2006 for all ships above 500 gross tons in international trade. We believe that all our vessels are in
substantial compliance with and are certified to meet MLC 2006.
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations
Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions with targets extended through 2020.
International negotiations are continuing with respect to a successor to the Kyoto Protocol, and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S. and China, signed
the Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions. The 2015 United Nations Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on November 4, 2016 and does
not directly limit greenhouse gas emissions from ships. On June 1, 2017, the U.S. President announced that the United States intends to withdraw from the Paris Agreement. The timing and effect of such action has yet to be determined, but the
Paris Agreement provides for a four-year exit process.
At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive IMO strategy on reduction
of greenhouse gas emissions from ships was approved. In accordance with this roadmap, in April 2018, nations at the MEPC 72 adopted an initial strategy to reduce greenhouse gas emissions from ships. The initial strategy identifies “levels of
ambition” to reducing greenhouse gas emissions, including (1) decreasing the carbon intensity from ships through implementation of further phases of the EEDI for new ships; (2) reducing carbon dioxide emissions per transport work, as an average
across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008 emission levels; and (3) reducing the total annual greenhouse emissions by at least 50% by 2050 compared to 2008 while pursuing efforts
towards phasing them out entirely. The initial strategy notes that technological innovation, alternative fuels and/or energy sources for international shipping will be integral to achieve the overall ambition. These regulations could cause us
to incur additional substantial expenses.
The EU made a unilateral commitment to reduce overall greenhouse gas emissions from its member states from 20% of 1990 levels by 2020. The
EU also committed to reduce its emissions by 20% under the Kyoto Protocol’s second period from 2013 to 2020. Starting in January 2018, large ships calling at EU ports are required to collect and publish data on carbon dioxide emissions and other
information.
In the United States, the EPA issued a finding that greenhouse gases endanger the public health and safety, adopted regulations to limit
greenhouse gas emissions from certain mobile sources, and proposed regulations to limit greenhouse gas emissions from large stationary sources. However, in March 2017, the U.S. President signed an executive order to review and possibly eliminate
the EPA’s plan to cut greenhouse gas emissions. The EPA or individual U.S. states could enact environmental regulations that would affect our operations.
Any passage of climate control legislation or other regulatory initiatives by the IMO, the EU, the U.S. or other countries where we
operate, or any treaty adopted at the international level to succeed the Kyoto Protocol or Paris Agreement, that restricts emissions of greenhouse gases could require us to make significant financial expenditures which we cannot predict with
certainty at this time. Even in the absence of climate control legislation, our business may be indirectly affected to the extent that climate change may result in sea level changes or certain weather events.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001 in the United States, there have been a variety of initiatives intended to enhance vessel
security such as the U.S. Maritime Transportation Security Act of 2002 (“MTSA”). To implement certain portions of the MTSA, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in
waters subject to the jurisdiction of the United States and at certain ports and facilities, some of which are regulated by the EPA.
Similarly, Chapter XI-2 of the SOLAS Convention imposes detailed security obligations on vessels and port authorities and mandates
compliance with the International Ship and Port Facilities Security Code (“the ISPS Code”). The ISPS Code is designed to enhance the security of ports and ships against terrorism. To trade internationally, a vessel must attain an International
Ship Security Certificate (“ISSC”) from a recognized security organization approved by the vessel’s flag state. Ships operating without a valid certificate may be detained, expelled from, or refused entry at port until they obtain an ISSC. The
various requirements, some of which are found in the SOLAS Convention, include, for example, on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among
similarly equipped ships and shore stations, including information on a ship’s identity, position, course, speed and navigational status; a continuous synopsis record kept onboard showing a vessel's history including the name of the ship, the
state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship's identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered
address; and compliance with flag state security certification requirements.
The USCG regulations, intended to align with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security
measures, provided such vessels have on board a valid ISSC that attests to the vessel’s compliance with the SOLAS Convention security requirements and the ISPS Code. Future security measures could have a significant financial impact on us. We
intend to comply with the various security measures addressed by MTSA, the SOLAS Convention and the ISPS Code.
The cost of vessel security measures has also been affected by the escalation in the frequency of acts of piracy against ships, notably off
the coast of Somalia, including the Gulf of Aden and Arabian Sea area. Substantial loss of revenue and other costs may be incurred as a result of detention of a vessel or additional security measures, and the risk of uninsured losses could
significantly affect our business. Costs are incurred in taking additional security measures in accordance with Best Management Practices to Deter Piracy, notably those contained in the BMP4 industry standard.
Inspection by Classification Societies
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The
classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and SOLAS. Most insurance underwriters make it a condition for insurance
coverage and lending that a vessel be certified “in class” by a classification society which is a member of the International Association of Classification Societies, the IACS. The IACS has adopted harmonized Common Structural Rules, or the
Rules, which apply to oil tankers and bulk carriers constructed on or after July 1, 2015. The Rules attempt to create a level of consistency between IACS Societies. All of our vessels are certified as being “in class” by all the applicable
Classification Societies (e.g., American Bureau of Shipping, Lloyd's Register of Shipping).
A vessel must undergo annual surveys, intermediate surveys, drydockings and special surveys. In lieu of a special survey, a vessel’s
machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Every vessel is also required to be drydocked every 30 to 36 months for inspection of the underwater parts of the
vessel. If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable which could
cause us to be in violation of certain covenants in our loan agreements. Any such inability to carry cargo or be employed, or any such violation of covenants, could have a material adverse impact on our financial condition and results of
operations.
Risk of Loss and Liability Insurance
The operation of any cargo vessel includes risks such as mechanical failure, physical damage, collision, property loss, cargo loss or
damage and business interruption due to political circumstances in foreign countries, piracy incidents, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other
environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon shipowners, operators and bareboat charterers of any vessel trading in the
exclusive economic zone of the United States for certain oil pollution accidents in the United States, has made liability insurance more expensive for shipowners and operators trading in the United States market. We carry insurance coverage as
customary in the shipping industry. However, not all risks can be insured, specific claims may be rejected, and we might not be always able to obtain adequate insurance coverage at reasonable rates.
While we maintain hull and machinery insurance, war risks insurance, protection and indemnity cover and freight, demurrage and defense
cover for our operating fleet in amounts that we believe to be prudent to cover normal risks in our operations, we may not be able to achieve or maintain this level of coverage throughout a vessel's useful life. Furthermore, while we believe that
our present insurance coverage is adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.
Hull & Machinery and War Risks Insurance
We maintain marine hull and machinery and war risks insurance, which cover, among other marine risks, the risk of actual or constructive
total loss, for all of our vessels. Our vessels are each covered up to at least fair market value with deductibles ranging to a maximum of $100,000 per vessel per incident for Panamax, Kamsarmax and Post-Panamax vessels and $150,000 per vessel
per incident for Capesize and Newcastlemax vessels.
Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I Associations, covers our
third-party liabilities in connection with our shipping activities. This includes third-party liability and other related expenses of injury or death of crew, passengers and other third parties, loss or damage to cargo, claims arising from
collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances, and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual
indemnity insurance, extended by protection and indemnity mutual associations, or “clubs.”
Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The 13 P&I Associations
that comprise the International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each association’s liabilities. The International Group’s website states that the Pool provides
a mechanism for sharing all claims in excess of US$ 10 million up to, currently, approximately US$ 8.2 billion. As a member of a P&I Association, which is a member of the International Group, we are subject to calls payable to the
associations based on our claim records as well as the claim records of all other members of the individual associations and members of the shipping pool of P&I Associations comprising the International Group. Our vessels may be subject to
supplemental calls which are based on estimates of premium income and anticipated and paid claims. Such estimates are adjusted each year by the Board of Directors of the P&I Association until the closing of the relevant policy year, which
generally occurs within three years from the end of the policy year. Supplemental calls, if any, are expensed when they are announced and according to the period they relate to.
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C.
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Organizational structure
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Diana Shipping Inc. is the sole owner of all of the issued and outstanding shares of the subsidiaries listed in exhibit 8.1 to this annual
report.
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D.
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Property, plants and equipment
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Since October 8, 2010, DSS owns the land and the building where we have our principal offices in Athens, Greece and in December 2014, DSS
acquired a plot of land jointly with two other related entities from unrelated individuals. Other than this interest in real property, our only material properties are the vessels in our fleet.
Item 10.
Additional Information
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B.
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Memorandum
and articles of association
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Our current amended and restated articles of incorporation have been filed as exhibit 1 to our Form 6-K filed with the SEC on May 29, 2008
with file number 001-32458, and our current amended and restated bylaws have been filed as exhibit 3.2 to our Form F-3 filed with the SEC on May 6, 2009 with file number 333-159016. The information contained in these exhibits is incorporated by
reference herein.
Information regarding the rights, preferences and restrictions attaching to each class of our shares is described in the section entitled
“Description of Capital Stock” in the accompanying prospectus to our effective Registration Statement on Form F-3 filed with the SEC on June 6, 2018 with file number 333-225964, including any subsequent amendments or reports filed for the purpose
of updating such description, provided that since the date of that Registration Statement, (i) the number of our outstanding shares of common stock has increased to 105,764,351 as of March 12, 2019, and (ii) the Stockholder Rights Plan described
therein has been replaced by a Stockholders Rights Agreement dated as of January 15, 2016, as described below under “Stockholders Rights Agreement ,” and (iii) in January 2019, we issued 10,675 shares of newly-designated Series C Preferred Stock,
par value $0.01 per share.
For additional information about our Series B Preferred Shares, please see the section entitled "Description of
Registrant's Securities to be Registered" of our registration statement on Form 8-A filed with the SEC on February 13, 2014 and incorporated by reference herein.
For additional information about our Series C Preferred Shares, please see the Form 6-K filed with the SEC on February 6, 2019 and incorporated by reference herein.
Stockholders Rights Agreement
On January 15, 2016, we entered into a Stockholders Rights Agreement with Computershare Trust Company, N.A., as Rights Agent, to replace
the Amended and Restated Stockholders Rights Agreement, dated October 7, 2008.
Under the Stockholders Rights Agreement, we declared a dividend payable of one preferred stock purchase right, or Right, for each share of
common stock outstanding at the close of business on January 26, 2016. Each Right entitles the registered holder to purchase from us one one-thousandth of a share of Series A participating preferred stock, par value $0.01 per share, at an
exercise price of $40.00 per share. The Rights will separate from the common stock and become exercisable only if a person or group acquires beneficial ownership of 18.5% or more of our common stock (including through entry into certain
derivative positions) in a transaction not approved by our Board of Directors. In that situation, each holder of a Right (other than the acquiring person, whose Rights will become void and will not be exercisable) will have the right to
purchase, upon payment of the exercise price, a number of shares of our common stock having a then-current market value equal to twice the exercise price. In addition, if the Company is acquired in a merger or other business combination after an
acquiring person acquires 18.5% or more of our common stock, each holder of the Right will thereafter have the right to purchase, upon payment of the exercise price, a number of shares of common stock of the acquiring person having a then-current
market value equal to twice the exercise price. The acquiring person will not be entitled to exercise these Rights. Under the Stockholders Rights Agreement's terms, it will expire on January 14, 2026. A copy of the Stockholders Rights
Agreement and a summary of its terms are contained in the Form 8-A12B filed with the SEC on January 15, 2016, with file number 001-32458.
Attached as exhibits to this annual report are the contracts we consider to be both material and not entered into in the ordinary course of
business, which (i) are to be performed in whole or in part on or after the filing date of this annual report or (ii) were entered into not more than two years before the filing date of this annual report. Other than these agreements, we have no
material contracts, other than contracts entered into in the ordinary course of business, to which the Company or any member of the group is a party. A description of these is included in our description of our agreements generally: we refer you
to Item 5.B for a discussion of our loan facilities, and Item 7.B for a discussion of our agreements with companies controlled by our Chief Executive Officer and Chairman of the Board, Mr. Simeon Palios.
Under Marshall Islands, Panamanian, Cypriot and Greek law, there are currently no restrictions on the export or import of capital,
including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of our securities.
The following is a discussion of the material Marshall Islands and U.S. federal income tax considerations of the ownership and disposition
by a U.S. Holder and a Non-U.S. Holder, each as defined below, of the common stock. This discussion does not purport to deal with the tax consequences of owning common stock to all categories of investors, some of which, such as dealers in
securities or commodities, financial institutions, insurance companies, tax-exempt organizations, U.S. expatriates, persons liable for the alternative minimum tax, persons who hold common stock as part of a straddle, hedge, conversion transaction
or integrated investment, U.S. Holders whose functional currency is not the United States dollar, persons required to recognize income for U.S. federal income tax purposes no later than when such income is reported on an “applicable financial
statement” and investors that own, actually or under applicable constructive ownership rules, 10% or more of the Company’s common stock, may be subject to special rules. This discussion deals only with holders who hold the common stock as a
capital asset. You are encouraged to consult your own tax advisors concerning the overall tax consequences arising in your own particular situation under U.S. federal, state, local or foreign law of the ownership of common stock.
Marshall Islands Tax Considerations
The Company is incorporated in the Marshall Islands. Under current Marshall Islands law, the company is not subject to tax on income or
capital gains, and no Marshall Islands withholding tax will be imposed upon payments of dividends by us to our shareholders.
United States Federal Income Taxation
The following discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), existing and
proposed U.S. Treasury Department regulations, (the “Treasury Regulations”), administrative rulings, pronouncements and judicial decisions, all as of the date of this Annual Report. This discussion assumes that we do not have an office or other
fixed place of business in the United States. Unless the context otherwise requires, the reference to Company below shall be meant to refer to both the Company and its vessel-owning and operating subsidiaries.
Taxation of the Company’s Shipping Income
In General
The Company anticipates that it will derive substantially all of its gross income from the use and operation of vessels in international
commerce and that this income will principally consist of freights from the transportation of cargoes, hire or lease from time or voyage charters and the performance of services directly related thereto, which the Company refers to as “Shipping
Income.”
Shipping Income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States will
be considered to be 50% derived from sources within the United States. Shipping Income attributable to transportation that both begins and ends in the United States will be considered to be 100% derived from sources within the United States. The
Company is not permitted by law to engage in transportation that gives rise to 100% U.S. source Shipping Income. Shipping Income attributable to transportation exclusively between non-U.S. ports will be considered to be 100% derived from sources
outside the United States. Shipping Income derived from sources outside the United States will not be subject to U.S. federal income tax.
Based upon the Company’s anticipated shipping operations, the Company’s vessels will operate in various parts of the world, including to or
from U.S. ports. Unless exempt from U.S. federal income taxation under Section 883 of the Code, the Company will be subject to U.S. federal income taxation, in the manner discussed below, to the extent its Shipping Income is considered derived
from sources within the United States.
In the year ended December 31, 2018, approximately 3.8% of the Company’s shipping income was attributable to the transportation of cargoes
either to or from a U.S. port. Accordingly, approximately 1.9% of the Company’s shipping income would be treated as derived from U.S. sources for the year ended December 31, 2018. In the absence of exemption from U.S. federal income tax under
Section 883 of the Code, the Company would have been subject to a 4% tax on its gross U.S. source Shipping Income, equal to $171,823 for the year ended December 31, 2018.
Application of Exemption under Section 883 of the Code
Under the relevant provisions of Section 883 of the Code and the final Treasury Regulations promulgated thereunder, a foreign corporation
will be exempt from U.S. federal income taxation on its U.S. source Shipping Income if:
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(1)
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It is organized in a qualified foreign country which, as defined, is one that grants an equivalent exemption from tax to corporations organized in the
United States in respect of the Shipping Income for which exemption is being claimed under Section 883 of the Code, or the “Country of Organization Requirement”; and
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(2)
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It can satisfy any one of the following two stock ownership requirements:
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●
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more than 50% of its stock, in terms of value, is beneficially owned by qualified shareholders which, as defined, includes individuals who are residents of
a qualified foreign country, or the “50% Ownership Test”; or
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its stock is “primarily and regularly” traded on an established securities market located in the United States or a qualified foreign country, or the
“Publicly Traded Test”.
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The U.S. Treasury Department has recognized the Marshall Islands, Panama and Cyprus the countries of incorporation of each of the Company
and its subsidiaries that earns Shipping Income, as a qualified foreign country. Accordingly, the Company and each of the subsidiaries satisfy the Country of Organization Requirement.
For the 2018 taxable year, the Company believes that it is unlikely that the 50% Ownership Test was satisfied. Therefore, the eligibility
of the Company and each subsidiary to qualify for exemption under Section 883 of the Code is wholly dependent upon the Company’s ability to satisfy the Publicly Traded Test.
Under the Treasury Regulations, stock of a foreign corporation is considered “primarily traded” on an established securities market in a
country if the number of shares of each class of stock that is traded during the taxable year on all established securities markets in that country exceeds the number of shares in each such class that is traded during that year on established
securities markets in any other single country. The Company’s common stock was “primarily traded” on the NYSE during the 2018 taxable year.
Under the Treasury Regulations, the Company’s common stock will be considered to be “regularly traded” on the NYSE if: (1) more than 50% of
its common stock, by voting power and total value, is listed on the NYSE, referred to as the “Listing Threshold”, (2) its common stock is traded on the NYSE, other than in minimal quantities, on at least 60 days during the taxable year (or
one-sixth of the days during a short taxable year), which is referred to as the “Trading Frequency Test”; and (3) the aggregate number of shares of its common stock traded on the NYSE during the taxable year is at least 10% of the average number
of shares of its common stock outstanding during such taxable year (as appropriately adjusted in the case of a short taxable year), which is referred to as the “Trading Volume Test”. The Trading Frequency Test and Trading Volume Test are deemed
to be satisfied under the Treasury Regulations if the Company’s common stock is regularly quoted by dealers making a market in the common stock.
The Company believes that its common stock has satisfied the Listing Threshold, as well as the Trading Frequency Test and Trading Volume
Tests, during the 2018 taxable year.
Notwithstanding the foregoing, the Treasury Regulations provide, in pertinent part, that stock of a foreign corporation will not be
considered to be “regularly traded” on an established securities market for any taxable year during which 50% or more of such stock is owned, actually or constructively under specified stock attribution rules, on more than half the days during
the taxable year by persons, or “5% Shareholders”, who each own 5% or more of the value of such stock, or the “5% Override Rule.” For purposes of determining the persons who are 5% Shareholders, a foreign corporation may rely on Schedules 13D
and 13G filings with the SEC.
Based on Schedules 13D and 13G filings, during the 2018 taxable year, less than 50% of the Company’s common stock was owned by 5%
Shareholders. Therefore, the Company believes that it is not subject to the 5% Override Rule and thus has satisfied the Publicly Traded Test for the 2018 taxable year. However, there can be no assurance that the Company will continue to satisfy
the Publicly Traded Test in future taxable years. For example, the Company could be subject to the 5% Override Rule if another 5% Shareholder in combination with the Company’s existing 5% Shareholders were to own 50% or more of the Company’s
common stock. In such a case, the Company would be subject to the 5% Override Rule unless it could establish that, among the shares of the common stock owned by the 5% Shareholders, sufficient shares are owned by qualified shareholders, for
purposes of Section 883 of the Code, to preclude non-qualified shareholders from owning 50% or more of the Company’s common stock for more than half the number of days during the taxable year. The requirements of establishing this exception to
the 5% Override Rule are onerous and there is no assurance the Company will be able to satisfy them.
Based on the foregoing, the Company believes that it satisfied the Publicly Traded Test and therefore believes that it was exempt from U.S.
federal income tax under Section 883 of the Code, during the 2018 taxable year, and intends to take this position on its 2018 U.S. federal income tax returns.
Taxation in Absence of Exemption Under Section 883 of the Code
To the extent the benefits of Section 883 of the Code are unavailable with respect to any item of U.S. source Shipping Income, the Company
and each of its subsidiaries would be subject to a 4% tax imposed on such income by Section 887 of the Code on a gross basis, without the benefit of deductions, which is referred to as the “4% Gross Basis Tax Regime”. Since under the sourcing
rules described above, no more than 50% of the Company’s Shipping Income would be treated as being derived from U.S. sources, the maximum effective rate of U.S. federal income tax on the Company’s Shipping Income would never exceed 2% under the
4% Gross Basis Tax Regime.
Based on its U.S. source Shipping Income for the 2018 taxable year and in the absence of exemption under Section 883 of the Code, the
Company would be subject to $171,823 of U.S. federal income tax under the 4% Gross Basis Tax Regime.
The 4% Gross Basis Tax Regime would not apply to U.S. source Shipping Income to the extent considered to be “effectively connected” with
the conduct of a U.S. trade or business. In the absence of exemption under Section 883 of the Code, such “effectively connected” U.S. source Shipping Income, net of applicable deductions, would be subject to U.S. federal income tax currently
imposed at a rate of 21%. In addition, earnings “effectively connected” with the conduct of such U.S. trade or business, as determined after allowance for certain adjustments, and certain interest paid or deemed paid attributable to the conduct
of the U.S. trade or business may be subject to U.S. federal branch profits tax imposed at a rate of 30%. The Company’s U.S. source Shipping Income would be considered “effectively connected” with the conduct of a U.S. trade or business only if:
(1) the Company has, or is considered to have, a fixed place or business in the United States involved in the earning of Shipping Income; and (2) substantially all of the Company’s U.S. source Shipping Income is attributable to regularly
scheduled transportation, such as the operation of a vessel that followed a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States, or, in the case of income from
the chartering of a vessel, is attributable to a fixed place of business in the United States. We do not intend to have, or permit circumstances that would result in having a vessel operating to the United States on a regularly scheduled basis.
Based on the foregoing and on the expected mode of our shipping operations and other activities, we believe that none of our U.S. source Shipping Income will be effectively connected with the conduct of a U.S. trade or business.
Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883 of the Code, we will not be subject to U.S. federal income taxation with
respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under U.S. federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United
States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States.
United States Taxation of U.S. Holders
The following is a discussion of the material U.S. federal income tax considerations relevant to an investment decision by a U.S. Holder,
as defined below, with respect to our common stock. This discussion does not purport to deal with the tax consequences of owning our common stock to all categories of investors, some of which may be subject to special rules. You are encouraged to
consult your own tax advisors concerning the overall tax consequences arising in your own particular situation under U.S. federal, state, local or foreign law of the ownership of our common stock.
As used herein, the term “U.S. Holder” means a beneficial owner of our common stock that (i) is a U.S. citizen or resident, a U.S.
corporation or other U.S. entity taxable as a corporation, an estate, the income of which is subject to U.S. federal income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction
over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust and (ii) owns the common stock as a capital asset, generally, for investment purposes.
If a partnership holds our common stock, the tax treatment of a partner will generally depend upon the status of the partner and upon the
activities of the partnership. If you are a partner in a partnership holding our common stock, you are encouraged to consult your own tax advisor on this issue.
Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made by the Company with respect to its common
stock to a U.S. Holder will generally constitute dividends, which may be taxable as ordinary income or “qualified dividend income” as described in more detail below, to the extent of the Company’s current or accumulated earnings and profits, as
determined under U.S. federal income tax principles. Distributions in excess of the Company’s earnings and profits will be treated first as a non-taxable return of capital to the extent of the U.S. Holder’s tax basis in his common stock on a
dollar-for-dollar basis and thereafter as capital gain. Because the Company is not a U.S. corporation, U.S. Holders that are corporations will generally not be entitled to claim a dividends-received deduction with respect to any distributions
they receive from the Company.
Dividends paid to a U.S. Holder which is an individual, trust, or estate, referred to herein as a “U.S. Non-Corporate Holder,” will
generally be treated as “qualified dividend income” that is taxable to Holders at preferential U.S. federal income tax rates, provided that (1) the common stock is readily tradable on an established securities market in the United States (such as
the NYSE on which the common stock is listed); (2) the Company is not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (which the Company does not believe it is,
has been or will be); (3) the U.S. Non-Corporate Holder has owned the common stock for more than 60 days in the 121-day period beginning 60 days before the date on which the common stock becomes ex-dividend; and (4) the U.S. Non-Corporate Holder
is not under an obligation (whether pursuant to a short sale or otherwise) to make payments with respect to positions in substantially similar or related property. There is no assurance that any dividends paid on our common stock will be
eligible for these preferential rates in the hands of a U.S. Non-Corporate Holder. Any dividends paid by the Company which are not eligible for these preferential rates will be taxed as ordinary income to a U.S. Non-Corporate Holder. Special
rules may apply to any “extraordinary dividend,” generally, a dividend paid by us in an amount which is equal to or in excess of ten percent of a U.S. Holder’s adjusted tax basis, or fair market value in certain circumstances, in a share of our
common stock. If we pay an “extraordinary dividend” on our common stock that is treated as “qualified dividend income,” then any loss derived by a U.S. Individual Holder from the sale or exchange of such common stock will be treated as long-term
capital loss to the extent of such dividend.
Sale, Exchange or other Disposition of Common Stock
Subject to the discussion of the PFIC rules below, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or
other disposition of the Company’s common stock in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder’s tax basis in such stock. Such gain or loss
will be treated as long-term capital gain or loss if the U.S. Holder’s holding period in the common stock is greater than one year at the time of the sale, exchange or other disposition. Long-term capital gain of a U.S. Non-Corporate Holder is
taxable at preferential U.S. Federal income tax rates. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.
PFIC Status and Significant Tax Consequences
Special U.S. federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a passive foreign
investment company, or a “PFIC”, for U.S. federal income tax purposes. In general, the Company will be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which such Holder held the Company’s common stock, either:
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at least 75% of the Company’s gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived
other than in the active conduct of a rental business), or
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at least 50% of the average value of the assets held by the corporation during such taxable year produce, or are held for the production of, such passive
income.
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For purposes of determining whether the Company is a PFIC, the Company will be treated as earning and owning its proportionate share of the
income and assets, respectively, of any of its subsidiary corporations in which it owns at least 25% of the value of the subsidiary’s stock. Income earned, or deemed earned, by the Company in connection with the performance of services would not
constitute passive income. By contrast, rental income would generally constitute passive income unless the Company is treated under specific rules as deriving its rental income in the active conduct of a trade or business.
Based on the Company’s current operations and future
projections, the Company does not believe that it is, nor does it expect to become, a PFIC with respect to any taxable year. Although there is no legal authority directly on point, the Company’s belief is based principally on the position that,
for purposes of determining whether the Company is a PFIC, the gross income the Company derives or is deemed to derive from the time chartering and voyage chartering activities of its wholly-owned subsidiaries should constitute services income,
rather than rental income. Correspondingly, the Company believes that such income does not constitute passive income, and the assets that the Company or its wholly-owned subsidiaries own and operate in connection with the production of such
income, in particular, the vessels, do not constitute assets that produce or are held for the production of passive income for purposes of determining whether the Company is a PFIC. The Company believes there is substantial legal authority
supporting its position consisting of case law and Internal Revenue Service, or the “IRS”, pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes.
However,
there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes.
It should be noted that in the
absence of any legal authority specifically relating to the statutory provisions governing PFICs, the IRS or a court could disagree with this position. In addition, although the Company intends to conduct its affairs in a manner to avoid being
classified as a PFIC with respect to any taxable year, there can be no assurance that the nature of its operations will not change in the future.
As discussed more fully below, if the Company were to be treated as a PFIC for any taxable year, a U.S. Holder would be subject to
different U.S. federal income taxation rules depending on whether the U.S. Holder makes an election to treat the Company as a “Qualified Electing Fund,” which election is referred to as a “QEF Election.” As discussed below, as an alternative to
making a QEF Election, a U.S. Holder should be able to make a “mark-to-market” election with respect to the common stock, which election is referred to as a “Mark-to-Market Election”. If the Company were to be treated as a PFIC, a U.S. Holder
would be required to file with respect to taxable years ending on or after December 31, 2013 IRS Form 8621 to report certain information regarding the Company.
Taxation of U.S. Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF Election, which U.S. Holder is referred to as an “Electing Holder”, the Electing Holder must report
each year for U.S. federal income tax purposes his pro rata share of the Company’s ordinary earnings and net capital gain, if any, for the Company’s taxable year that ends with or within the taxable year of the Electing Holder, regardless of
whether or not distributions were received by the Electing Holder from the Company. The Electing Holder’s adjusted tax basis in the common stock will be increased to reflect amounts included in the Electing Holder’s income. Distributions
received by an Electing Holder that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the common stock and will not be taxed again once distributed. An Electing Holder would generally recognize
capital gain or loss on the sale, exchange or other disposition of the common stock.
Taxation of U.S. Holders Making a Mark-to-Market Election
Alternatively, if the Company were to be treated as a PFIC for any taxable year and, as anticipated, the common stock is treated as
“marketable stock,” a U.S. Holder would be allowed to make a Mark-to-Market Election with respect to the Company’s common stock. If that election is made, the U.S. Holder generally would include as ordinary income in each taxable year the excess,
if any, of the fair market value of the common stock at the end of the taxable year over such Holder’s adjusted tax basis in the common stock. The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the U.S.
Holder’s adjusted tax basis in the common stock over its fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the Mark-to-Market Election. A U.S. Holder’s tax
basis in his common stock would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of the common stock would be treated as ordinary income, and any loss realized on the sale, exchange
or other disposition of the common stock would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the U.S. Holder.
Taxation of U.S. Holders Not Making a Timely QEF Election or Mark-to-Market Election
Finally, if the Company were to be treated as a PFIC for any taxable year, a U.S. Holder who does not make either a QEF Election or a
Mark-to-Market Election for that year, whom is referred to as a “Non-Electing Holder”, would be subject to special U.S. federal income tax rules with respect to (1) any excess distribution (i.e., the portion of any distributions received by the
Non-Electing Holder on the common stock in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three (3) preceding taxable years, or, if shorter, the Non-Electing Holder’s holding period
for the common stock), and (2) any gain realized on the sale, exchange or other disposition of the common stock. Under these special rules:
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the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s aggregate holding period for the common stock;
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the amount allocated to the current taxable year and any taxable years before the Company became a PFIC would be taxed as ordinary income; and
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the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer
for that year, and an interest charge for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.
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These penalties would not apply to a pension or profit sharing trust or other tax-exempt organization that did not borrow funds or
otherwise utilize leverage in connection with its acquisition of the common stock. If a Non-Electing Holder who is an individual dies while owning the common stock, such Holder’s successor generally would not receive a step-up in tax basis with
respect to such stock.
U.S. Federal Income Taxation of “Non-U.S. Holders”
A beneficial owner of our common stock that is not a U.S. Holder (other than a partnership) is referred to herein as a “Non-U.S. Holder.”
Dividends on Common Stock
Non-U.S. Holders generally will not be subject to U.S. federal income or withholding tax on dividends received from us with respect to our
common stock, unless that income is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of a U.S. income tax treaty with respect to those
dividends, that income is taxable in the United States only if attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.
Sale, Exchange or Other Disposition of Common Stock
Non-U.S. Holders generally will not be subject to U.S. federal income or withholding tax on any gain realized upon the sale, exchange or
other disposition of our common stock, unless:
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the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the
benefits of a U.S. income tax treaty with respect to that gain, the gain is taxable in the United States only if attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States; or
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the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions
are met.
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If the Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax purposes, the income from our common stock,
including dividends and the gain from the sale, exchange or other disposition of the common stock, that is effectively connected with the conduct of that U.S. trade or business will generally be subject to U.S. federal income tax in the same
manner as discussed in the previous section relating to the taxation of U.S. Holders. In addition, in the case of a corporate Non-U.S. Holder, such Holder’s earnings and profits that are attributable to the effectively connected income, subject
to certain adjustments, may be subject to an additional U.S. federal branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable U.S. income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States to a holder will be subject to U.S. federal
information reporting requirements. Such payments will also be subject to U.S. federal “backup withholding” if paid to a non-corporate U.S. holder who:
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fails to provide an accurate taxpayer identification number;
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is notified by the IRS that he has failed to report all interest or dividends required to be shown on his U.S. federal income tax returns; or
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in certain circumstances, fails to comply with applicable certification requirements.
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Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status
on an applicable IRS Form W-8.
If a holder sells his common stock to or through a U.S. office of a broker, the payment of the proceeds is subject to both backup
withholding and information reporting unless the holder establishes an exemption. If a holder sells his common stock through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid to the holder outside the United States, then
information reporting and backup withholding generally will not apply to that payment. However, information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, including a payment made to a holder
outside the United States, if the holder sells his common stock through a non-U.S. office of a broker that is a U.S. person or has some other contacts with the United States.
Backup withholding is not an additional tax. Rather, a taxpayer generally may obtain a refund of any amounts withheld under backup
withholding rules that exceed the taxpayer’s U.S. federal income tax liability by filing a refund claim with the IRS.
U.S. Holders who are individuals (and to the extent specified in applicable Treasury Regulations, certain U.S. entities) who hold
“specified foreign financial assets” (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any
time during the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury Regulations). Specified foreign financial assets would include, among other assets, our common stock,
unless the common stock is held through an account maintained with a U.S. financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to
willful neglect. Additionally, in the event a U.S. Holder who is an individual (and to the extent specified in applicable Treasury regulations, a U.S. entity) that is required to file IRS Form 8938 does not file such form, the statute of
limitations on the assessment and collection of U.S. federal income taxes of such holder for the related tax year may not close until three (3) years after the date that the required information is filed.
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F.
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Dividends and paying agents
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E.
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H.
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Documents on display
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We file reports and other information with the SEC. These
materials, including this annual report and the accompanying exhibits are available from the SEC’s website
http://www.sec.gov
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I.
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Subsidiary information
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