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13: R2 Condensed Consolidated Balance Sheets HTML 167K
14: R3 Condensed Consolidated Balance Sheets HTML 45K
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(Exact name of Registrant as specified in its charter)
iRepublic of the Marshall Islands
i98-0453513
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i300 First Stamford Place, i5thfloor
iStamford, iConnecticuti06902
(Address
of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (i203) i276-8100
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock, par value $0.01 per share
iEGLE
iThe
Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
iYes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
iYes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
☐
iAccelerated filer
☒
Non-Accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
i☐
No
☒
Number of shares of registrant’s common stock outstanding as of August 3, 2022: i13,691,287
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995, and are intended to be covered by the safe harbor provided for under these sections. These statements may include words such as “believe,”“estimate,”“project,”“intend,”“expect,”“plan,”“anticipate,” and similar expressions in connection with any discussion of the timing or nature of future operating or financial performance or other events. Forward-looking statements reflect management’s current expectations and observations with respect to future events and financial performance.
Where
we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed, projected, or implied by those forward-looking statements. The principal factors that affect our financial position, results of operations and cash flows include, charter market rates, which could decline from historic highs, periods of charter hire, vessel operating expenses and voyage costs, which are incurred primarily in U.S. dollars, depreciation expenses, which are a function of the cost of our vessels, significant vessel improvement costs and our vessels' estimated useful lives, and financing costs related to our indebtedness. Our actual results may differ materially from those anticipated in these forward-looking statements
as a result of certain factors which could include the following: (i) changes in demand in the drybulk market, including, without limitation, changes in production of, or demand for, commodities and bulk cargoes, generally or in particular regions; (ii) greater than anticipated levels of drybulk vessel newbuilding orders or lower than anticipated rates of drybulk vessel scrapping; (iii) changes in rules and regulations applicable to the drybulk industry, including, without limitation, legislation adopted by international bodies or organizations such as the International Maritime Organization and the European Union (the “EU”) or by individual countries; (iv) actions taken by regulatory authorities, including, without limitation, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”); (v) changes in trading patterns significantly impacting overall drybulk tonnage requirements; (vi) changes in the typical seasonal variations in drybulk charter
rates; (vii) changes in the cost of other modes of bulk commodity transportation; (viii) changes in general domestic and international political conditions, including the current conflict between Russia and Ukraine, which may impact our ability to retain and source crew, and in turn, could adversely affect our revenue, expenses, and profitability; (ix) changes in the condition of the Company's vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated drydocking costs); (x) significant deterioration in charter hire rates from current levels or the inability of the Company to achieve its cost-cutting measures; (xi) the duration and impact of the novel coronavirus (“COVID-19”) pandemic, including the availability and effectiveness of vaccines
on a widespread basis and the impact of any mutations of the virus; (xii) the relative cost and availability of low and high sulfur fuel oil; (xiii) our ability to realize the economic benefits or recover the cost of the scrubbers we have installed; (xiv) any legal proceedings which we may be involved from time to time; and other factors listed from time to time in our filings with the Securities and Exchange Commission (the “SEC”). This discussion also includes statistical data regarding world drybulk fleet and order book and fleet age. We generated some of this data internally, and some were obtained from independent industry publications and reports that we believe to be reliable sources. We have not independently verified this data nor sought the consent of any organizations to refer to their reports in this Quarterly Report on Form 10-Q. We disclaim any intent or obligation to update publicly any forward-looking statements, whether as a result of new information,
future events or otherwise, except as may be required under applicable securities laws.
Accounts
receivable, net of a reserve of $i1,921 and $i1,818, respectively
i43,948
i28,456
Prepaid
expenses
i4,524
i3,362
Inventories
i25,193
i17,651
Vessel
held for sale
i5,592
i—
Collateral
on derivatives
i16,770
i15,081
Fair
value of derivative assets - current
i8,459
i4,669
Other
current assets
i929
i667
Total current assets
i244,370
i156,033
Noncurrent
assets:
Vessels and vessel improvements, at cost, net of accumulated depreciation of $i237,490 and $i218,670,
respectively
i885,255
i908,076
Operating
lease right-of-use assets
i35,370
i17,017
Other
fixed assets, net of accumulated depreciation of $i1,521 and $i1,403,
respectively
i380
i257
Restricted
cash - noncurrent
i2,575
i75
Deferred
drydock costs, net
i46,930
i37,093
Fair
value of derivative assets - noncurrent
i7,746
i3,112
Advances
for ballast water systems and other assets
i3,983
i4,995
Total
noncurrent assets
i982,239
i970,625
Total
assets
$
i1,226,609
$
i1,126,658
LIABILITIES
& STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable
$
i22,189
$
i20,781
Accrued
interest
i3,008
i2,957
Other
accrued liabilities
i17,766
i17,994
Fair
value of derivative liabilities - current
i269
i4,253
Current
portion of operating lease liabilities
i29,908
i15,728
Unearned
charter hire revenue
i13,609
i12,088
Current
portion of long-term debt
i49,800
i49,800
Total
current liabilities
i136,549
i123,601
Noncurrent
liabilities:
Global Ultraco Debt Facility, net of debt issuance costs
i205,221
i229,290
Convertible
Bond Debt, net of debt discount and debt issuance costs
i113,253
i100,954
Noncurrent
portion of operating lease liabilities
i5,455
i1,282
Other
noncurrent accrued liabilities
i636
i265
Total
noncurrent liabilities
i324,565
i331,791
Total
liabilities
i461,114
i455,392
Commitments
and contingencies
i
i
Stockholders' equity:
Preferred
stock, $ii.01/ par value, ii25,000,000/
shares authorized, iinone/ issued as of June 30,
2022 and December 31, 2021
i—
i—
Common
stock, $ii0.01/ par value, ii700,000,000/
shares authorized, ii12,989,181/ and ii12,917,027/
shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively
i130
i129
Additional
paid-in capital
i963,482
i982,746
Accumulated
deficit
(i210,854)
(i313,495)
Accumulated
other comprehensive income
i12,737
i1,886
Total
stockholders' equity
i765,495
i671,266
Total
liabilities and stockholders' equity
$
i1,226,609
$
i1,126,658
The
accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. iBasis
of Presentation and General Information
The accompanying condensed consolidated financial statements include the accounts of Eagle Bulk Shipping Inc. and its wholly-owned subsidiaries (collectively, the “Company,”“we,”“our” or similar terms). The Company is engaged in the ocean transportation of drybulk cargoes worldwide through the ownership, charter and operation of drybulk vessels. The Company’s fleet is comprised of Supramax and Ultramax drybulk carriers and the Company operates its business in ione
business segment.
As of June 30, 2022, the Company owned and operated a modern fleet of i53 oceangoing vessels, including i27 Supramax
and i26 Ultramax vessels with a combined carrying capacity of i3.19 million deadweight tons (“dwt”) and an average age of approximately i9.8
years. Additionally, the Company charters-in ifive Ultramax vessels on a long term basis with remaining lease terms of approximately ione year each and also charters-in
vessels on a short term basis for a period less than one year.
For the three and six months ended June 30, 2022 and 2021, the Company’s charterers did not individually account for more than 10% of the Company’s gross charter revenue during those periods.
iThe accompanying
condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), and the rules and regulations of the SEC that apply to interim financial statements and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes normally included in consolidated financial statements prepared in conformity with U.S. GAAP. They should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2021 Annual Report on Form 10-K, filed with the SEC on March 14, 2022 (the “Form 10-K”).
The accompanying condensed consolidated financial statements are unaudited and include all
adjustments (consisting of normal recurring adjustments) that management considers necessary for a fair presentation of its condensed consolidated financial position and results of operations for the interim periods presented.
The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year.
In March 2021, the Company entered into an at market issuance sales agreement with B. Riley Securities, Inc., BTIG, LLC and Fearnley Securities, Inc., as sales agents (each, a “Sales Agent” and collectively, the “Sales Agents”), to sell shares of common stock, par value $i0.01
per share, of the Company with aggregate gross sales proceeds of up to $i50.0 million, from time to time through an “at-the-market” offering program (the “ATM Offering”). During the second quarter of 2021, the Company sold and issued an aggregate of i581,385
shares at a weighted average sales price of $i47.97 per share under the ATM Offering for aggregate net proceeds of $i27.1 million after deducting sales agent commissions and other offering
costs. The proceeds were used for partial financing of vessel acquisitions and other corporate purposes.
iThe preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates and assumptions of the
Company are residual value of vessels, the useful lives of vessels, the value of stock-based compensation, estimated losses on our trade receivables, fair value of Convertible Bond Debt (as defined below) and its equity component, fair value of operating lease right-of-use assets and operating lease liabilities and the fair value of derivatives. Actual results could differ from those estimates.
Note 2. iRecent
Accounting Pronouncements
Significant Accounting Policies
The Company's significant accounting policies are described in Note 2, Significant Accounting Policies, in the Notes to the Consolidated Financial Statements in the Form 10-K. Included herein are certain updates to those policies.
F-7
i
Recently
Adopted Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, after adopting the
ASU's guidance, entities will not separately present in equity an embedded conversion feature in such debt. Instead, the entity will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. The Company adopted ASU 2020-06 as of January 1, 2022 under the modified retrospective approach. The Convertible Bond Debt (defined below) will no longer require bifurcation and separate accounting of the equity component. The resulting debt discount will no longer be amortized to interest expense
over the life of the bond and thus an adjustment to beginning retained earnings of $i8.7 million was recorded within Accumulated deficit reflecting the cumulative impact of adoption. Additionally, a $i20.7
million reduction to Additional paid-in capital was recorded to reverse the equity component and an offsetting $i12.0 million was recorded within Long-term debt as a reversal of the debt discount.
Recently Issued Accounting Pronouncements Not Yet Effective
The FASB has issued accounting standards that had not yet become effective as of June 30,
2022 and may impact the Company's consolidated financial statements or related disclosures in future periods. Those standards and their potential impact are discussed below:
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, (“ASU 2020-04”). ASU 2020-04 addresses concerns about certain accounting consequences that could result from the anticipated transition away from the use of LIBOR and other interbank offered rates to alternative reference rates. ASU 2020-04 is elective and applies “to all entities, subject to meeting certain criteria, that have contracts,
hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.” ASU 2020-04 establishes (1) a general contract modification principle that entities can apply in other areas that may be affected by reference rate reform and (2) certain elective hedge accounting expedients. ASU 2020-04 is optional and effective for all entities as of March 12, 2020 and may be applied prospectively to contract modifications made on or before December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, (“ASU 2021-01”),
which clarifies certain provisions in Topic 848, if elected by an entity, to apply to derivative instruments that use interest rate for margining, discounting, or contract price alignment that is modified as a result of rate reference reform. The Company is currently evaluating the adoption of ASU 2020-04 on its debt under the Global Ultraco Debt Facility (as defined below) as it bears interest on outstanding borrowings at LIBOR plus a margin rate. Additionally, the Company is also evaluating the adoption of ASU 2021-01 on its interest rate swaps related to the Global Ultraco Debt Facility.
During the third quarter of 2018, the Company entered into a contract for the installation of ballast water treatment systems (“BWTS”) on i39 of our owned vessels. The projected cost, including installation, is approximately $i0.5
million per BWTS. The Company intends to complete the installations during scheduled drydockings. The Company completed installation of BWTS on i29 vessels and recorded $i17.3 million
in Vessels and vessel improvements in the Condensed Consolidated Balance Sheets as of June 30, 2022. Additionally, the Company recorded $i3.2 million as advances paid towards installation of BWTS on the remaining vessels as a Noncurrent asset in its Condensed Consolidated Balance Sheets as of June 30, 2022.
On
June 8, 2022, the Company signed a memorandum of agreement to sell the vessel Cardinal for a total consideration of $i15.8 million. The vessel will be delivered to the buyer during the third quarter of 2022. The Company recorded the carrying amount of the vessel of $i5.6 million
as Vessel held for sale in its Condensed Consolidated Balance Sheets as of June 30, 2022.
F-8
i
The Vessels and vessel improvements activity for the six months ended June 30, 2022 is below:
Debt
discount and debt issuance costs - Convertible Bond Debt
(i866)
(i13,165)
Convertible
Bond Debt, net of debt discount and debt issuance costs
i113,253
i100,954
Global
Ultraco Debt Facility
i262,650
i287,550
Debt
discount and Debt issuance costs - Global Ultraco Debt Facility
(i7,629)
(i8,460)
Less:
Current portion - Global Ultraco Debt Facility
(i49,800)
(i49,800)
Global
Ultraco Debt Facility, net of debt issuance costs
i205,221
i229,290
Total
long-term debt
$
i318,474
$
i330,244
/
Convertible
Bond Debt
On July 29, 2019, the Company issued $i114.1 million in aggregate principal amount of i5.00%
Convertible Senior Notes due 2024 (the “Convertible Bond Debt”). After deducting debt discount of $i1.6 million, the Company received net proceeds of approximately $i112.5
million. Additionally, the Company incurred $i1.0 million of debt issuance costs relating to this transaction. The Company used the proceeds to partially finance the purchase of isix
Ultramax vessels and for general corporate purposes, including working capital.
The Convertible Bond Debt bears interest at a rate of i5.00% per annum on the outstanding principal amount thereof, payable semi-annually in arrears on February 1 and August 1 of each year, which commenced on February 1, 2020. The Convertible Bond Debt may bear additional interest upon certain events, as set forth in the indenture
governing the Convertible Bond Debt (the “Indenture”).
The Convertible Bond Debt will mature on August 1, 2024 (the “Maturity Date”), unless earlier repurchased, redeemed or converted pursuant to its terms. The Company may not otherwise redeem the Convertible Bond Debt prior to the Maturity Date.
Each holder has the right to convert any portion of the Convertible Bond Debt, provided such portion is of $i1,000
or a multiple thereof, at any time prior to the close of business on the business day immediately preceding the Maturity Date. The conversion rate of the Convertible Bond Debt after adjusting for a 1-for-7 reverse stock split effected on September 15, 2020 (the “Reverse Stock Split”) and the Company's payments of cash dividends of (i) $i2.00 per share on November 24, 2021 (to shareholders
of record as of November 15, 2021), (ii) $i2.05 per share on March 25, 2022 (to shareholders of record as of March 15, 2022), and (iii) $i2.00
per share on May 25, 2022 (to shareholders of record as of May 16, 2022) is i28.523 shares of the Company's common stock per $ii1,000/
principal amount of Convertible Bond Debt, which is equivalent to a conversion price of approximately $i35.06 per share of its common stock (subject to further adjustments for future dividends).
Upon conversion of the remaining bonds, the Company will pay or deliver, as the case may be, either cash, shares of its common stock or a combination of cash and shares of its common stock, at the
Company’s election, to the holder (subject to shareholder approval requirements in accordance with the listing standards of the Nasdaq Global Select Market).
If the Company undergoes a fundamental change, as set forth in the Indenture, each holder may require the Company to repurchase all or part of their Convertible Bond Debt for cash in principal amounts of $i1,000
or a multiple thereof. The
F-9
fundamental change repurchase price will be equal to i100% of the principal amount of the Convertible Bond Debt to be repurchased, plus accrued and unpaid interest. If, however, the holders instead elect to convert their Convertible Bond Debt in connection with the fundamental change, the
Company will be required to increase the conversion rate of the Convertible Bond Debt at a rate determined by a combination of the date the fundamental change occurs and the stock price of the Company's common stock on such date.
The Convertible Bond Debt is the general, unsecured senior obligations of the Company. It ranks: (i) senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Convertible Bond Debt; (ii) equal in right of payment to any of the Company’s unsecured indebtedness that
is not so subordinated; (iii) effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and (iv) structurally junior to all indebtedness and other liabilities of current or future subsidiaries of the Company.
The Indenture also provides for customary events of default. Generally, if an event of default occurs and is continuing, then the trustee or the holders of at least i25%
in aggregate principal amount of the Convertible Bond Debt then outstanding may declare i100% of the principal of and accrued and unpaid interest, if any, on all the Convertible Bond Debt then outstanding to be due and payable.
In accordance with ASC 470, Debt, (“ASC 470”) the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) prior to the adoption
of ASU 2020-06 were to be separately accounted for in a manner that reflected the issuer's non-convertible debt borrowing rate. The guidance required the initial proceeds received from the sale of convertible debt instruments to be allocated between a liability component and equity component in a manner that reflected the interest expense at the interest rate of similar non-convertible debt that could have been issued by the Company at the time of issuance. Prior to the adoption of ASU 2020-06, the Company accounted for the Convertible Bond Debt based on the above guidance and attributed a portion of the proceeds to the equity component. The resulting debt discount was amortized using the effective interest method over the expected life of the Convertible Bond Debt as interest expense. Additionally,
the debt discount and issuance costs were allocated based on the total amount incurred to the liability and equity components using the same proportions as the proceeds from the Convertible Bond Debt. The Company adopted ASU 2020-06 as of January 1, 2022 and made adjustments to account for the cumulative impact of the adoption. See Note 2, Recent Accounting Pronouncements, for discussion of the impact of ASU 2020-06 on the accounting for the Convertible Bond Debt and the condensed consolidated financial statements upon adoption on January 1, 2022.
Share Lending Agreement
In connection with the issuance of the Convertible Bond Debt,
certain persons entered into an arrangement (the “Share Lending Agreement”) to borrow up to i511,840 shares of the Company’s common stock through share lending arrangements from Jefferies LLC (“JCS”), an initial purchaser of the Convertible Bond Debt, which in turn entered into an arrangement to borrow the shares from an entity affiliated with Oaktree Capital Management, LP, one of the
Company’s shareholders. The number of shares under the Share Lending Agreement have been adjusted for the Reverse Stock Split. As of June 30, 2022, the fair value of the i511,840 outstanding loaned shares was $i26.6 million
based on the closing price of the common stock on June 30, 2022. In connection with the Share Lending Agreement, JCS paid $i0.03 million representing a nominal fee per borrowed share, equal to the par value of the Company’s common stock.
While the Share Lending Agreement does not require cash payment upon return of the shares, physical settlement
is required (i.e., the loaned shares must be returned at the end of the arrangement). In view of this share return provision and other contractual undertakings of JCS in the share lending agreement, which have the effect of substantially eliminating the economic dilution that otherwise would result from the issuance of borrowed shares, the loaned shares are not considered issued and outstanding for the purpose of computing and reporting the Company's basic and diluted weighted average shares or earnings per share. If JCS were to file bankruptcy or commence similar administrative, liquidating or restructuring proceedings, the Company will have to consider i511,840
shares lent to JCS as issued and outstanding for the purposes of calculating earnings per share.
Global Ultraco Debt Facility
On October 1, 2021, Eagle Bulk Ultraco LLC (“Eagle Ultraco”), a wholly-owned subsidiary of the Company, along with certain of its vessel-owning subsidiaries as guarantors, entered into a new senior secured credit facility (the “Global Ultraco Debt Facility”) with the lenders party thereto (the “Lenders”) Credit Agricole Corporate and Investment Bank (“Credit Agricole”), Skandinaviska Enskilda Banken AB (PUBL), Danish Ship Finance
A/S, Nordea Bank ABP, Filial I Norge, DNB Markets Inc., Deutsche Bank AG, and ING Bank N.V., London Branch. The Global Ultraco Debt Facility provides for an aggregate principal amount of $i400.0 million, which consists of (i) a term loan facility in an aggregate principal amount of $i300.0 million
(the “Term
F-10
Facility”) and (ii) a revolving credit facility in an aggregate principal amount of $i100.0 million (the “Revolving Facility”) to be used for refinancing the outstanding debt, including accrued interest and commitment fees under the Holdco Revolving Credit Facility, New Ultraco Debt Facility and Norwegian Bond
Debt (each as defined in Note 6, Debt, in the Notes to the Consolidated Financial Statements in the Form 10-K) and for general corporate purposes. The Company paid fees of $i5.8 million to the Lenders in connection with the transaction.
The Global Ultraco Debt Facility has a maturity date of ifive
years from the date of borrowing on the Term Facility, which is October 1, 2026. Outstanding borrowings bear interest at a rate of LIBOR plus i2.10% to i2.80%
per annum, depending on certain metrics such as the Company's financial leverage ratio and meeting sustainability linked criteria. Repayments of $i12.45 million are due quarterly and began on December 15, 2021, with a final balloon payment of all outstanding principal and accrued interest due upon maturity. The loan is repayable in whole or in part without premium or penalty prior to the maturity date subject to certain requirements stipulated in the Global
Ultraco Debt Facility.
The Global Ultraco Debt Facility is secured by i49 of the Company's vessels. The Global Ultraco Debt Facility contains certain standard affirmative and negative covenants along with financial covenants. The financial covenants include: (i) minimum consolidated liquidity based on the greater of (a) $i0.6 million
per vessel owned directly or indirectly by the Company or (b) i7.5% of the Company's total debt; (ii) debt to capitalization ratio not greater than i0.60:1.00;
and (iii) maintaining positive working capital.
Pursuant to the Global Ultraco Debt Facility, the Company borrowed $i350.0 million and together with cash on hand repaid the outstanding debt, accrued interest and commitment fees under the Holdco Revolving Credit Facility and New Ultraco Debt Facility. Concurrently, the
Company issued a i10-day call notice to redeem the outstanding bonds under the Norwegian Bond Debt. Additionally, in October 2021, the Company entered into ifour
interest rate swaps for the notional amount of $i300.0 million of the Term Facility under the Global Ultraco Debt Facility at a fixed interest rate ranging between i0.83% and i1.06%
to hedge the LIBOR-based floating interest rate (see Note 5, Derivative Instruments, for additional details).
Interest Rates
2022
For the three and six months ended June 30, 2022, the interest rate on the Convertible Bond Debt was ii5.00/%.
The weighted average effective interest rate including the amortization of debt discount and debt issuance costs for these periods was i5.30% and i5.39%, respectively.
For
the three months ended June 30, 2022, the interest rate on the Global Ultraco Debt Facility ranged from i2.98% to i3.93%, including
a margin over LIBOR applicable under the terms of the Global Ultraco Debt Facility and commitment fees of i40% of the margin on the undrawn portion of the revolving credit facility of the Global Ultraco Debt Facility. The weighted average effective interest rate including the amortization of debt discount and debt issuance costs for this period was i3.74%.
For
the six months ended June 30, 2022, the interest rate on the Global Ultraco Debt Facility ranged from i2.35% to i3.93%, including
a margin over LIBOR applicable under the terms of the Global Ultraco Debt Facility and commitment fees of i40% of the margin on the undrawn portion of the revolving credit facility of the Global Ultraco Debt Facility. The weighted average effective interest rate including the amortization of debt discount and debt issuance costs for this period was i3.39%.
2021
For the three and six months ended June 30, 2021, the interest rate on the Convertible Bond Debt was ii5.00/%.
The weighted average effective interest rate including the amortization of debt discount and debt issuance costs for these periods was ii10.14/%.
For
the three months ended June 30, 2021, the interest rate on the New Ultraco Debt Facility ranged from i2.60% to i2.72%, including
a margin over LIBOR applicable under the terms of the New Ultraco Debt Facility and commitment fees of i40% of the margin on the undrawn portion of the revolving credit facility of the New Ultraco Debt Facility. The weighted average effective interest rate including the amortization of debt discount and debt issuance costs for this period was i3.25%.
For
the six months ended June 30, 2021, the interest rate on the New Ultraco Debt Facility ranged from i2.60% to i2.72%, including a
margin over LIBOR applicable under the terms of the New Ultraco Debt Facility and commitment fees of i40% of the margin on the undrawn portion of the revolving credit facility of the New Ultraco Debt Facility. The weighted average effective interest rate including the amortization of debt discount and debt issuance costs for this period was i3.23%.
F-11
For
the three and six months ended June 30, 2021, the interest rate on the Norwegian Bond Debt was ii8.25/%.
The weighted average effective interest rate including the amortization of debt discount and debt issuance costs for these periods was i9.13% and i9.00%, respectively.
For
the three and six months ended June 30, 2021, the interest rate on our outstanding debt under the Super Senior Facility (as defined in Note 6, Debt, in the Notes to the Consolidated Financial Statements in the Form 10-K) was ii2.24/%.
The weighted average effective interest rate including the amortization of debt issuance costs for these periods was ii2.58/%.
Additionally, we paid commitment fees of ii40/%
of the margin on the undrawn portion of the Super Senior Revolver Facility.
For the three and six months ended June 30, 2021, the interest rate on our outstanding debt under the Holdco Revolving Credit Facility was ii2.60/%.
The weighted average effective interest rate including the amortization of debt issuance costs for these periods was ii5.05/%.
Additionally, we paid commitment fees of ii40/%
of the margin on the undrawn portion of the Holdco Revolving Credit Facility.
i
The following table summarizes the Company’s total interest expense:
During October 2021, the Company entered into ifour
interest rate swaps for the notional amount of $i300.0 million of the Term Facility under the Credit Agreement for the Global Ultraco Debt Facility at a fixed interest rate ranging between i0.83% and i1.06%
to hedge the LIBOR-based floating interest rate.
During 2020, the Company entered into a series of interest rate swap agreements to effectively convert a portion of its debt under the New Ultraco Debt Facility, excluding any amounts outstanding under the revolving credit facility as well as any new term loan borrowings from a floating to a fixed-rate basis. In August 2021, the Company cancelled the New Ultraco Debt Facility interest rate swaps. Concurrent with the cancellation, the Company entered into another interest rate swap which was subsequently cancelled on October 1, 2021 upon repayment of the New Ultraco Debt
Facility.
The interest rate swaps were designated and qualified as cash flow hedges. The Company uses interest rate swaps for the management of interest rate risk exposure, as an interest rate swap effectively converts a portion of the Company’s debt from a floating to a fixed rate. The interest rate swap is an agreement between the Company and counterparties to pay, in the future, a fixed-rate payment in exchange for the counterparties paying the Company a variable payment. The amount of the net payment obligation is based on the notional amount
of the interest rate swap and the prevailing market interest rates. The Company may terminate the interest rate swaps prior to their expiration dates, at which point a realized gain or loss may be recognized, or may be amortized over the original life of the interest rate swap if the hedged debt remains outstanding. The value of the Company’s commitment would increase or decrease based primarily on the extent to which interest rates move against the rate fixed for each swap.
The
Company records the fair value of the interest rate swap as an asset or liability on its balance sheet. The effective portion of the swap is recorded in Accumulated other comprehensive income. The estimated income that is currently recorded in Accumulated other comprehensive income as of June 30, 2022 that is expected to be reclassified into the earnings within the next twelve months is $i5.2 million. No portion of
the cash flow hedges were ineffective during the three and six months ended June 30, 2022.
The effect of derivative instruments on the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021 is below:
Derivatives
designated as hedging instruments
Location of (gain)/loss in Statements of Operations
Effective portion of (gain)/loss reclassified from Accumulated other comprehensive income (in thousands)
The Company trades in forward freight agreements (“FFAs”) and bunker swaps, with the objective of utilizing this market as economic hedging instruments that reduce the risk of specific vessels to changes in the freight market. The Company’s FFAs and bunker swaps have not qualified for hedge accounting treatment. As such, unrealized and realized gains are recognized as a component of Other expense, net in the Condensed Consolidated Statements of Operations and Other current assets and Fair value of derivatives in the Condensed Consolidated Balance Sheets. Derivatives are considered to be Level 2 instruments in the fair value hierarchy. For our bunker swaps, the
Company may enter into master netting, collateral and offset agreements with counterparties.
As of June 30, 2022, the Company had International Swaps and Derivatives Association (“ISDA”) agreements with ifive applicable banks and financial institutions, which contain netting provisions. In addition to a master agreement with the
Company supported by a primary parent guarantee on either side, the Company also has associated credit support agreements in place with two counterparties which, among other things, provide the circumstances under which either party is required to post eligible collateral, when the market value of transactions covered by these agreements exceeds specified thresholds. The Company does not anticipate non-performance by any of the counterparties.
As of June 30, 2022, the Company had outstanding bunker swap agreements to purchase i18,200
metric tons of high and low sulfur fuel oil with prices ranging between $i486 and $i841 that are expiring at March 31, 2023. The volume represents less than 10% of our estimated consumption on
our fleet for the year.
The following table shows our open positions on FFAs as of June 30, 2022:
The
Company will realize a gain or loss on these FFAs based on the price differential between the average daily Baltic Supramax Index (“BSI”) rate and the FFA contract price. The gains or losses are recorded in Realized and unrealized (gain)/loss on derivative instruments, net in the Condensed Consolidated Statements of Operations.
F-14
The
effect of non-designated derivative instruments on the Condensed Consolidated Statements of Operations and Balance Sheets is as follows:
(In thousands)
Three Months Ended
Six
Months Ended
Derivatives not designated as hedging instruments
Location of loss/(gain) in Statements of Operations
The Company does not offset fair value amounts recognized for derivatives by the right to reclaim cash collateral or the obligation to return cash collateral. The amount of collateral to be posted is defined in the terms of respective master agreements executed with counterparties or exchanges and is required when agreed upon threshold limits are exceeded. As of June 30, 2022 and December 31, 2021, the Company posted cash collateral related to derivative instruments under its collateral security arrangements of $i16.8
million and $i15.1 million, respectively, which is recorded within Current assets in the Condensed Consolidated Balance Sheets.
6. iFair
Value Measurements
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
i
Cash, cash equivalents and restricted cash—the carrying amounts reported in the Condensed Consolidated Balance Sheets for interest-bearing deposits approximate their fair value due to the short-term nature thereof.
Debt—the carrying values approximates
fair values for bonds issued under the Convertible Bond Debt, which is traded on NASDAQ. The carrying amount of our term loan borrowing under the Global Ultraco Debt Facility approximates its fair value, due to its variable interest rates.
F-15
The Company defines fair value, establishes a framework for measuring fair value and provides disclosures about fair value measurements. The fair value hierarchy for disclosure of fair value measurements is as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities. Our Level 1 non-derivatives include cash, money-market accounts, restricted cash accounts and collateral
on derivatives.
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable. Our Level 2 non-derivatives include our debt balances under the Convertible Bond Debt and the Global Ultraco Debt Facility. Freight forward agreements, bunker swaps and interest rate swaps are considered to be a Level 2 item as the Company, using the income approach to value the derivatives, uses observable Level 2 market inputs at measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact. See Note 5, Derivative Instruments.
Level 3 – Inputs that are unobservable (for example cash flow modeling
inputs based on assumptions).
(2) Includes $i2.9 million
of unrealized mark-to-market gains on bunker swaps, $i0.4 million of unrealized mark-to-market gains on FFAs and $i5.2 million
of unrealized gains on our interest rate swaps as of June 30, 2022 and $ii4.7/ million
of unrealized mark-to-market gains on FFAs and bunker swaps as of December 31, 2021.
(3) Includes $i7.7 million and $i3.1 million
of unrealized gains on our interest rate swaps as of June 30, 2022 and December 31, 2021, respectively.
(4) The fair value of the liabilities is based on the required repayment to the lenders if the debt was discharged in full on June 30, 2022 and December 31, 2021.
(5) The fair value of the Convertible Bond Debt is based on the last trade on May 9, 2022 and December 16, 2021 on Bloomberg.com.
(6) Includes $i0.3 million
of unrealized mark-to-market losses on FFAs and a de minimus amount of unrealized mark-to-market
/
F-16
losses on bunker swaps as of June 30, 2022 and $i3.4 million
of unrealized mark-to-market losses on FFAs and $i0.9 million of unrealized losses on our interest rate swaps as of December 31, 2021.
(7) The outstanding debt balances represent the face value of the debt excluding debt discount and debt issuance costs.
Note 7.
iCommitments and Contingencies
Legal Proceedings
The Company is involved in legal proceedings and may become involved in other legal matters arising in the ordinary course of its business. The Company evaluates these legal matters on a case-by-case basis to make a determination as to the impact,
if any, on its business, liquidity, results of operations, financial condition or cash flows.
In March 2021, the U.S. government began investigating an allegation that one of the Company's vessels may have improperly disposed of ballast water that entered the engine room bilges during a repair. The investigation of this alleged violation of environmental laws is ongoing, and, although at this time we do not believe that this matter will have a material impact on the Company, our financial condition or results of operations, we cannot determine what penalties, if any, will be imposed. We have posted a surety bond as security for any fines, penalties or associated costs that may be issued, and the
Company is cooperating fully with the U.S. government in its investigation of this matter. For the six months ended June 30, 2022 and 2021, the Company incurred and recorded $i0.2 million and $i1.5 million,
respectively, as Other operating expense in its Condensed Consolidated Statements of Operations relating to this incident, which include legal fees, surety bond expenses, vessel off-hire, crew changes and travel costs.
The
Company has time charter-in contracts for Ultramax vessels which are greater than 12 months as of the lease commencement date. A description of each of these contracts is below:
(i) The Company entered into an agreement effective April 28, 2017, to charter-in a i61,400
dwt, 2013 built Japanese vessel for approximately ifour years with options for two additional years. The hire rate for the first ifour years is $i12,800
per day and the hire rate for the first optional year is $i13,800 per day and $i14,300 per day for the second optional year. In addition, the
Company’s fair value below contract value of time charters acquired of $i1.8 million as of December 31, 2018, which related to the unamortized value of a prior charter with the same counterparty that had been recorded at the time of the Company’s emergence from bankruptcy, was offset against the corresponding
right of use asset on this lease as of January 1, 2019. On July 8, 2021, the Company exercised its option to extend the charter for another year at a hire rate of $i13,800 per day. The Company has increased the lease liability and the corresponding right-of-use asset by $i5.0 million
to reflect the extended lease term in its Condensed Consolidated Balance Sheet as of September 30, 2021. The discount rate utilized in the measurement of lease liability and the corresponding right-of-use asset based on the Company's implied credit rating and the yield curve for debt as of July 8, 2021 was i1.36%. On June 16, 2022,
the Company exercised its option to extend the charter for another year at a hire rate of $i14,300 per day. The Company has increased the lease liability and the corresponding right-of-use asset by $i5.1 million
to reflect the extended lease term in its Condensed Consolidated Balance Sheet as of June 30, 2022. The discount rate utilized in the measurement of lease liability and the corresponding right-of-use asset based on the Company's implied credit rating and the yield curve for debt as of June 16, 2022 was i7.15%.
(ii)
On May 4, 2018, the Company entered into an agreement to charter-in a i61,425 dwt 2013 built Ultramax vessel for ithree years
with an option for an additional itwo years. The hire rate for the first ithree years is $i12,700
per day and $i13,750 per day for the first year option and $i14,750 per day for the second year option. The Company took delivery
of the vessel in the third quarter of 2018. During the second quarter of 2021, the Company decided to extend the lease term to its maximum redelivery date allowed under the charter party. Additionally, on June 28, 2021, the Company exercised its option to extend the charter for another year until October 19, 2022 at a hire rate of $i13,750
per day. The Company has increased the lease liability and the corresponding right-of-use asset by $i5.8 million to reflect the extended lease term in its Condensed Consolidated Balance Sheet as of September 30, 2021. The discount rate utilized in the measurement of lease liability and the corresponding right-of-use asset based on the
Company's implied credit rating and the yield curve for debt as of June 28, 2021 was i1.34%.
(iii) On December 9, 2018, the Company entered into an agreement to charter-in a i62,487
dwt 2016 built Ultramax vessel for itwo years. The hire rate for the vessel until March 2020 was $i14,250 per day and $i15,250
per day thereafter. The Company took delivery of the vessel in the fourth quarter of 2018. On December 25, 2019, the Company renegotiated the lease
F-17
terms for another year at a hire rate of $i11,600
per day. The Company accounted for this as a lease modification on December 25, 2019 and increased its lease liability and right-of-use asset on its consolidated balance sheet as of December 31, 2019 by $ii4.5/ million.
During the first quarter of 2021, the Company decided to extend the lease term to its maximum redelivery date allowed under the charter party. Therefore, the lease liability and the corresponding right-of-use asset as of March 31, 2021 have been increased by $ii1.0/ million
to reflect the change in lease term from minimum redelivery date to maximum redelivery date allowed under the charter party. On May 4, 2021, the Company exercised its option to extend the charter for another year until July 31, 2022 at a hire rate of $i12,600 per day. The Company has increased the lease liability and the
corresponding right-of-use asset by $i4.3 million to reflect the extended lease term in its Condensed Consolidated Balance Sheet as of September 30, 2021. The discount rate utilized in the measurement of lease liability and the corresponding right-of-use asset based on the Company's implied credit rating and the yield curve for debt as of May
4, 2021 was i1.38%. On March 17, 2022, the Company has further extended the lease to a minimum period of iten
months and maximum period of itwelve months with an option to further extension of minimum iten months and itwelve
months period. The Company has increased the lease liability and the corresponding right-of-use asset by $i6.9 million to reflect the extended lease term in its Condensed Consolidated Balance Sheet as of March 31, 2022. The discount rate utilized in the measurement of lease liability and the corresponding right-of-use asset based on the
Company's implied credit rating and the yield curve for debt as of March 17, 2022 was i4.48%.
(iv) On December 22, 2020, the Company entered into an agreement to charter-in a i63,634
dwt 2021 built Ultramax vessel for itwelve months with an option for an additional ithree months at a hire rate of $i5,900
per day plus i57% of the BSI 58 average of i10 time charter routes as published by the Baltic Exchange each business day. Additionally, following the initial ififteen
month period the Company has an additional option to extend for a period of eleven to ithirteen months at an increased rate of $i6,500
per day with no change in the rest of the terms. Also, the Company shall share the scrubber benefit with the owners i50% calculated as the price differential between the high sulfur and low sulfur fuel oil based on actual bunker consumption during the lease period. On July 7, 2021, the Company took delivery of the vessel and recorded $ii9.1/ million
as lease liability and corresponding right-of-use asset in its Condensed Consolidated Balance Sheet as of September 30, 2021. The discount rate utilized in the measurement of lease liability and the corresponding right-of-use asset based on the Company's implied credit rating and the yield curve for debt as of July 7, 2021 was i1.33%. On May
17, 2022, the Company exercised its option to extend the charter for i11 months at a hire rate of $i6,500 per day plus i57%
of the BSI 58 average of i10 time charter routes as published by the Baltic Exchange each business day. The Company has increased the lease liability and the corresponding right-of-use asset by $ii7.5/ million
to reflect the extended lease term in its Condensed Consolidated Balance Sheet as of June 30, 2022. The discount rate utilized in the measurement of lease liability and the corresponding right-of-use asset based on the Company's implied credit rating and the yield curve for debt as of May 17, 2022 was i5.825%.
(v) On September
6, 2021, the Company entered into an agreement to charter-in a 2021 built Ultramax vessel for a period of a minimum of itwelve months and a maximum of ififteen months at a hire rate of $i11,250
per day plus i57.5% of the BSI 58 average of i10 time charter routes published by the Baltic Exchange each business day. The Company has the option to
extend the lease term for another year, during which time the fixed hire rate decreases to $i10,750 per day with no change to the remaining terms. On May 17, 2022, the Company took delivery of the vessel and recorded $ii9.7/ million
as a lease liability and corresponding right-of-use asset in its Condensed Consolidated Balance Sheet as of June 30, 2022. The discount rate utilized in the measurement of lease liability and the corresponding right-of-use asset based on the Company's implied credit rating and the yield curve for debt as of May 17, 2022 was i5.825%.
Office
leases
On October 15, 2015, the Company entered into a commercial lease agreement as a sublessee for office space in Stamford, Connecticut. The lease is effective from January 2016 through June 2023, with an average annual rent of $i0.4 million. The lease is secured by cash collateral of $ii0.1/ million
which is recorded as Restricted cash - noncurrent in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021.
In November 2018, the Company entered into an office lease agreement in Singapore, which was initially set to expire in October 2021, with an average annual rent of $i0.3
million. On August 17, 2021, the Company renewed the lease on the existing office space for an additional i5 years with an average annual rent of $i0.4 million.
The Company increased the lease liability and the corresponding right-of-use asset by $i1.3 million in its Condensed Consolidated Balance Sheet as of December 31, 2021. The discount rate utilized in the measurement of lease liability and the corresponding right-of-use asset based on the
Company's implied credit rating as of August 17, 2021 was i3.09%. Additionally, the Company entered into a new lease agreement for an additional office space in Singapore for i4.9
years beginning in the second quarter of 2022 with an average annual rent of $i0.2 million. On February 15, 2022, the Company took possession of the additional office space. The Company has recognized $ii0.5/ million
of lease liability and corresponding right-of-use asset in its Condensed Consolidated Balance Sheet as of June 30, 2022. The discount rate utilized in the measurement of lease liability and the corresponding right-of-use asset based on the
F-18
Company's implied credit rating and the yield curve for debt as of February 15, 2022 was i5.7%.
The
Company determined the iiiithree///
office leases to be operating leases and recorded the lease expense as part of General and administrative expenses in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021.
(1)
The Operating lease right-of-use assets and Operating lease liabilities represent the present value of lease payments for the remaining term of the lease. The discount rate used ranged from ii1.33/%
to ii7.15/%. The weighted average discount rate used to calculate the lease liability was
ii4.99/%.
/
F-19
i
The
table below presents the components of the Company’s lease expenses and sublease income on a gross basis earned from chartered-in contracts greater than 12 months for the three and six months ended June 30, 2022 and 2021:
Lease
expense for chartered-in contracts less than 12 months
Charter hire expenses
$
i14,419
$
i3,158
$
i31,558
$
i8,645
Lease
expense for chartered-in contracts greater than 12 months
Charter hire expenses
i6,866
i3,012
i12,438
i6,005
Total
charter hire expenses
$
i21,285
$
i6,170
$
i43,996
$
i14,650
Lease
expense for office leases
General and administrative expenses
$
i212
$
i92
$
i409
$
i276
Sublease
income from chartered-in contracts greater than 12 months *
Revenues, net
$
i8,344
$
i5,607
$
i16,670
$
i6,753
/
*
The sublease income represents only time charter revenue earned on the chartered-in contracts with terms more than 12 months. There is additional revenue earned from voyage charters on the same chartered-in contracts which is recorded in Revenues, net in our Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021.
The cash paid for operating leases with terms greater than 12 months is $i7.1 million
and $i12.8 million for the three and six months ended June 30, 2022, respectively.
The cash paid for operating leases with terms greater than 12 months is $i3.4 million
and $i6.8 million for the three and six months ended June 30, 2021, respectively.
The weighted average remaining lease term on our operating lease contracts greater than 12 months is i11.91
months.
F-20
i
The table below provides the total amount of remaining lease payments on an undiscounted basis on our chartered-in contracts and office leases greater than 12 months as of June 30,
2022:
In a voyage charter contract, the charterer hires the vessel to transport a specific agreed-upon cargo
for a single voyage, which may contain multiple load ports and discharge ports. The consideration in such a contract is determined on the basis of a freight rate per metric ton of cargo carried or occasionally on a lump sum basis. The charter party generally has a minimum amount of cargo. The charterer is liable for any short loading of cargo or “dead” freight. The voyage contract generally has standard payment terms of i95%
freight paid within ithree days after completion of loading. The voyage charter party generally has a “demurrage” or “despatch” clause. As per this clause, the charterer reimburses the Company for any delays that exceed the agreed to laytime at the ports visited, with the amounts recorded as demurrage revenue. Conversely, the charterer is given credit if the loading/discharging activities happen within the allowed laytime which is known as despatch and results in a reduction of revenue. In a voyage
charter contract, the performance obligations begin to be satisfied once the vessel begins loading the cargo. The Company determined that its voyage charter contracts consist of a single performance obligation of transporting the cargo within a specified time period. Therefore, the performance obligation is met evenly as the voyage progresses, and the revenue is recognized on a straight-line basis over the voyage days from the commencement of the loading of cargo to completion of discharge.
The voyage contracts are considered service contracts
which fall under the provisions of ASC 606 because the Company, as the shipowner, retains control over the operations of the vessel such as directing the routes taken or the vessel speed. The voyage contracts generally have variable consideration in the form of demurrage or despatch. The amount of revenue earned as demurrage or despatch paid by the Company for the three and six months ended June 30, 2022 was $i7.0 million
and $i18.7 million, respectively. The amount of revenue earned as demurrage or despatch paid by the Company for the three and six months ended June 30, 2021 was $i4.3 million
and $i8.2 million, respectively.
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i
The
following table shows the revenues earned from time charters and voyage charters for the three and six months ended June 30, 2022 and 2021:
In a voyage charter contract, the Company bears all voyage related costs such as fuel costs, port charges and canal tolls. These costs are considered contract fulfillment costs because the costs are direct costs related to the performance of the contract and are expected to be recovered. The costs incurred during the period prior to commencement of loading the cargo, primarily bunkers, are deferred as they represent setup costs and recorded as a Current asset and are amortized on a straight-line basis as the related performance obligations are satisfied. As of June 30,
2022 and December 31, 2021, the Company recognized $i0.9 million and $i0.5 million,
respectively, of deferred costs which represents bunker expenses and charter-hire expenses incurred prior to commencement of loading. These costs are recorded in Other current assets on the Condensed Consolidated Balance Sheets.
Note 10. iNet income per Common Share
The computation of basic net income per share is based
on the weighted average number of common stock outstanding for the three and six months ended June 30, 2022 and 2021. Diluted net income per share gives effect to restricted stock awards, restricted stock units and stock options using the treasury stock method, unless the impact is anti-dilutive. Additionally, the Convertible Bond Debt is not considered a participating security and therefore not included in the computation of the Basic net income per share for the three and six months ended June 30, 2022 and 2021. The Company determined that it does not overcome the presumption of share settlement of outstanding debt and therefore the
Company applied the if-converted method and included the potential shares to be issued upon conversion of Convertible Bond Debt in the calculation of Diluted income per share for the three and six months ended June 30, 2022 as their effect was dilutive. Diluted net income per share for the three and six months ended June 30, 2022 excluded ii17,661/
Restricted Stock Units (“RSUs”) related to EPS performance (defined below) as their effect was anti-dilutive. Diluted net income per share for the three months ended June 30, 2021 does not include i21,718 warrants and the potential shares to be issued upon conversion of Convertible Bond Debt as their effect was anti-dilutive. Diluted net income per share for six months ended June 30,
2021 does not include i45,854 stock options, i21,718
warrants and the potential shares to be issued upon conversion of Convertible Bond Debt as their effect was anti-dilutive.
i
The following table summarizes the calculation of basic and diluted income per share:
Dilutive
effect of stock options, shares issuable under Convertible Bond Debt, restricted stock awards and restricted stock units
i3,388,317
i228,976
i3,392,256
i131,724
Weighted
Average Shares - Diluted
i16,376,517
i12,397,156
i16,373,458
i12,081,772
Basic
net income per share
$
i7.27
$
i0.76
$
i11.36
$
i1.60
Diluted
net income per share
$
i5.77
$
i0.74
$
i9.01
$
i1.58
/
F-22
Note 11.
iStock Incentive Plans
On December 15, 2016, the Company’s shareholders approved the 2016 Equity Compensation Plan (the “2016 Plan”) and the Company registered i764,087
shares of common stock adjusted for the Reverse Stock Split, which may be issued under the 2016 Plan. On June 7, 2019, the Company's shareholders approved an amendment and restatement of the 2016 Plan, which increased the number of shares reserved under the 2016 Plan by an additional i357,142
shares to a maximum of i1,121,229 shares of common stock. On June 14, 2022, the Company's shareholders approved a second amendment and restatement of the 2016 Plan, which increased the number of shares reserved under the 2016 Plan by an additional i300,000
shares to a maximum of i1,421,229 shares of common stock. Any director, officer, employee or consultant of the Company or any of its subsidiaries (including any prospective officer or employee) is eligible to be designated to participate in the 2016 Plan. The
Company withheld shares related to restricted stock awards that vested in 2022 at the fair market value equivalent to the maximum statutory tax withholding obligation and remitted that amount in cash to the appropriate taxation authorities.
On February 11, 2022, the Company granted i31,781
restricted shares as a Company-wide grant under the 2016 Plan. The aggregate fair value of the grant is $i1.7 million based on the closing share price of $i52.32
on February 11, 2022. The shares will vest in equal installments on January 2, 2023, January 2, 2024 and January 2, 2025. Additionally, on March 11, 2022, the Company granted i7,451
shares of fully vested common stock to its board of directors. The aggregate fair value of the director grant is $i0.5 million based on the closing share price of $i65.88
on March 11, 2022. On April 5, 2022, the Company granted i7,468 restricted shares with i2-year
cliff vesting. The aggregate fair value of $i0.5 million based on the closing share price of $i63.24
on April 5, 2022. The amortization of the above grants is $i0.4 million and $i1.0 million for the three and six months ended June 30,
2022, respectively, which is included in General and administrative expenses in the Condensed Consolidated Statements of Operations.
On March 11, 2022, the Company granted i17,661 shares of time-based RSUs to certain members of its senior management team
under the 2016 Plan. The units vest in three equal installments on January 2, 2023, January 2, 2024 and January 2, 2025. The aggregate fair value of these units is $i1.2 million based on the
closing share price of $i65.88 on March 11, 2022. The amortization of the above grant is $i0.2 million and $i0.3 million
for the three and six months ended June 30, 2022, respectively, which is included in General and administrative expenses in the Condensed Consolidated Statements of Operations.
As discussed further below, on March 11, 2022, the Company granted performance-based RSUs to certain members of its senior management team under the 2016 Plan, which are contingent on certain performance criteria. The maximum number of performance-based RSUs that can be earned is i52,982.
i17,661
target performance-based RSUs were granted based on earnings per share (“EPS performance”) for the performance period beginning January 1, 2022 and ending December 31, 2022 (with targets set forth during the three months ended June 30, 2022). The RSUs will vest in three substantially equal installments (subject to achievement of performance criteria as of December 31, 2022) with the first installment vesting upon certification by the Compensation Committee and the second and third installments on January 2, 2024 and January 2, 2025, respectively. The total RSUs eligible to vest ranges from izero
to i200% of the target number granted based on the EPS performance. The aggregate grant-date fair value of these RSUs is $i1.2 million
based on the closing share price of $i65.88 on March 11, 2022 and assuming the target number is probable of vesting. The EPS performance is considered to be a performance condition under ASC 718, Share based payment awards, and therefore, the stock-based compensation expense is initially recorded based on the probable outcome that the performance condition will be achieved as of the grant date with subsequent adjustments to the probable outcome over time. The ultimate expense recognized is based on the actual performance outcome at the end of the
performance period. As of June 30, 2022, the Company estimated that the target (i100%) will be met and recorded $ii0.2/ million
of stock-based compensation expense, which is included in General and administrative expenses in its Condensed Consolidated Statement of Operations for both the three and six months ended June 30, 2022.
i8,830 performance-based RSUs were granted based on relative total shareholder return (“TSR
performance”) for the performance period beginning January 1, 2022 and ending December 31, 2022 (with targets set forth during the three months ended June 30, 2022). These market-based RSUs will vest in three substantially equal installments (subject to achievement of performance criteria as of December 31, 2022) with the first installment vesting upon certification by the Compensation Committee and the second and third installments on January 2, 2024 and January 2, 2025, respectively. The total RSUs eligible to vest ranges from izero
to i200% of the target number granted based on the TSR performance. All the vested TSR performance units are subject to a i1-year
holding period after vesting. The TSR performance is based on the Company's total shareholder return compared to iseven peer companies over the performance period. The TSR performance is calculated based on average daily closing stock price over a i20-trading-day
period at each of the beginning and end of the performance period and is adjusted to reflect dividend payments by assuming additional shares are purchased with the dividend payments. The aggregate fair value of the TSR performance
F-23
awards, which was calculated using a Monte Carlo simulation model, was $i0.7 million.
The assumptions used in the model were risk-free rate of return of i1.05% based on continuously compounded yield on zero-coupon treasury rates as of March 11, 2022; expected volatility of i54.74%
based on i1-year historical daily volatility of the closing share prices for the Company; a dividend yield of i12.45%;
and i11.41% discount applied for the i1-year
holding period using the Finnerty model. Volatility for each of the peer companies as well as the correlation of returns between each of the companies was also determined as inputs into the Monte Carlo model. The Company recorded $ii0.1/ million
of stock-based compensation expense, which is included in General and administrative expenses in its Condensed Consolidated Statement of Operations for both the three and six months ended June 30, 2022.
As of June 30, 2022 and December 31, 2021, stock awards, including RSUs, covering a total of i234,418
and i246,962 shares of the Company’s common stock, respectively, are outstanding under the 2016 Plan. The vesting terms are generally ithree
years from the grant date, or as described above in the March 11, 2022 RSU grants or the April 5, 2022 stock grant. The Company is amortizing the grant date fair value of non-vested stock awards to stock-based compensation expense included in General and administrative expenses.
As of December 31, 2021, i47,568
vested stock options were outstanding with exercise prices ranging from $ii32.97/
to $ii38.92/
per share. During the six months ended June 30, 2022, all i47,568 stock options were exercised. In connection with the exercise, i8,077
shares of common stock were issued and i39,491 stock options were cancelled as a settlement for the liability relating to tax withholding as well as the exercise price owed to the Company.
The
future compensation to be recognized for all the grants for the six months ending December 31, 2022, and the years ending December 31, 2023 and 2024 will be $i2.7 million, $i2.7 million
and $i0.8 million, respectively.
Note 12. iCash,
cash equivalents, and restricted cash
i
The following table provides a reconciliation of Cash and cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the amounts shown in the Condensed Consolidated Statements of Cash Flows:
Total
cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows
$
i141,530
$
i86,222
$
i83,799
$
i88,849
*Amounts
included in restricted cash posted to secure the letter of credit on our office leases and the cash required to be set aside by the Norwegian Bond Debt, which was repaid on October 18, 2021. Additionally, as of June 30, 2022, there was an amount paid to secure a bank guarantee related to a dispute with a vendor in the normal course of business included with the Restricted cash - noncurrent balance.
/
Note 13. iSubsequent
Events
On July 28, 2022, the Company's Board of Directors declared a cash dividend of $i2.20 per share to be paid on or about August 26, 2022 to shareholders of record at the close of business on August 16, 2022. The aggregate amount of the dividend is
F-24
expected to be approximately $i30.1 million, which the Company anticipates will be funded from cash on hand at the time the payment is to be made.
F-25
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the Company’s financial condition and results of operations for the three and six months ended June 30, 2022 and 2021. This section should be read in conjunction with the condensed consolidated financial statements included elsewhere in this report and the notes to those financial statements and the audited consolidated financial statements and the notes to those financial statements for the fiscal year ended December 31,
2021, which were included in our Form 10-K, filed with the SEC on March 14, 2022 (the “Form 10-K”). For further discussion regarding our results of operations for the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020 please refer to Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Quarterly Report on Form 10-Q for the three and six months ended June 30, 2021. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences
can be material. Please see “Cautionary Statement Regarding Forward-Looking Statements.”
Business Overview
Eagle Bulk Shipping Inc. (“Eagle” or the “Company”) is a U.S. based fully integrated shipowner-operator providing global transportation solutions to a diverse group of customers including miners, producers, traders, and end users. Headquartered in Stamford, Connecticut, with offices in Singapore and Copenhagen, Eagle focuses exclusively on the versatile mid-size drybulk vessel segment and owns one of the largest fleets of Supramax/Ultramax vessels in the world. The Company performs all management services in-house such as strategic, commercial, operational, technical, and administrative services, and employs an active management approach to fleet trading with the objective
of optimizing revenue performance and maximizing earnings on a risk-managed basis. Typical cargoes we transport include both major bulk cargoes, such as iron ore, coal and grain, and minor bulk cargoes such as fertilizer, steel products, petcoke, cement, and forest products. As of June 30, 2022, we owned and operated a modern fleet of 53 Supramax/Ultramax dry bulk vessels. We chartered-in five Ultramax vessels which have a remaining lease term of approximately one year each. In addition, the Company charters in third-party vessels on a short to medium term basis.
Our owned fleet totals 53 vessels, with an aggregate carrying capacity of 3.19 million dwt and an average age of 9.8 years as of June 30, 2022.
We
carry out the commercial and strategic management of our fleet through our indirectly wholly-owned subsidiary, Eagle Bulk Management LLC, a Marshall Islands limited liability company, which maintains its principal executive offices in Stamford, Connecticut. We own each of our vessels through a separate wholly-owned Marshall Islands limited liability company.
Corporate Information
We maintain our principal executive offices at 300 First Stamford Place, 5th Floor, Stamford, Connecticut06902. Our telephone number at that address is (203)
276-8100. Our website address is www.eagleships.com. Information contained on or accessible through our website does not constitute part of this Quarterly Report on Form 10-Q.
Business Strategy
We believe our balance sheet allows us the flexibility to opportunistically make investments in the drybulk segment that will drive shareholder growth. In order to accomplish this, we intend to:
•Maintain
a highly efficient and quality fleet in the drybulk segment.
•Maintain a revenue strategy that takes advantage of a rising rate environment and at the same time mitigate risk in a declining rate environment.
•Maintain a cost structure that allows us to be competitive in all economic cycles without sacrificing safety or maintenance.
•Continue to grow our relationships with our charterers and vendors.
•Continue to invest in our on-shore operations and development of processes.
1
Our
financial performance is based on the following key elements of our business strategy:
(1)Concentration in one vessel category: Supramax/Ultramax drybulk vessels, which we believe offer certain size, operational and geographical advantages relative to other classes of drybulk vessels, such as Handysize, Panamax and Capesize vessels.
(2)An active owner-operator model where we seek to operate our own fleet and develop contractual relationships directly with cargo interests. These relationships and the related cargo contracts have the dual benefit of providing greater operational efficiencies and act as a balance to the
Company’s naturally long position to the market. Notwithstanding the focus on voyage chartering, we consistently monitor the drybulk shipping market and, based on market conditions, will consider taking advantage of long-term time charters at higher rates when appropriate.
(3)Maintain high quality vessels and improve standards of operation through improved standards and procedures, crew training and repair and maintenance procedures.
We continuously evaluate potential transactions that we believe will be accretive to earnings, enhance shareholder value or are in the best interests of the Company, including without limitation, business combinations, the acquisition of vessels or related businesses,
repayment or refinancing of existing debt, the issuance of new securities, share repurchases or other transactions.
Business Outlook
COVID-19
In March 2020, the World Health Organization (the “WHO”) declared COVID-19, to be a pandemic. The COVID-19 pandemic has had, and continues to have, widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. Governments have implemented measures such as social distancing, mask and vaccine mandates, travel restrictions, COVID testing guidelines and quarantine regulations.
The gross BSI continued to increase in the second
quarter of 2022 and averaged $28,901/day, up 13% as compared to the second quarter of 2021. Although rates were higher resulting in an improvement in profitability, some of our vessels experienced delays in drydocking as well as an increase in related drydocking costs as a result of protocols regarding COVID-19, as well as limitations in labor. We also experienced loss of revenues due to a number of off-hire days relating to crew changes and quarantine restrictions as a number of our crew members tested positive for COVID-19. Our vessel operating expenses specifically crew change costs, COVID testing and quarantine related costs continue to be negatively impacted by COVID-19.
While the BSI is at $19,213 per day as of August 4, 2022, the economic activity levels as well as the demand for dry bulk cargoes may be negatively impacted by COVID-19.
We have instituted measures to reduce the risk of spread of COVID-19 for our crew members on our vessels as well as our onshore offices in Stamford, Connecticut, Singapore, and Copenhagen. However, if the COVID-19 pandemic continues to impact the global economy on a prolonged basis, or if the vaccine is not available on a widespread basis, the rate environment in the drybulk market and our vessel values may deteriorate and our operations and cash flows may be negatively impacted.
The impact of recent developments in Ukraine
In February 2022, as a result of the invasion of Ukraine by Russia, economic sanctions were imposed by the United States, the European Union, the United Kingdom and a number of other countries on Russian financial institutions, businesses and individuals, as well as certain regions within the
Donbas region of Ukraine. While it is difficult to estimate the impact of current or future sanctions on the Company’s business and financial position, these sanctions could adversely impact the Company’s operations. In the near term, we have seen, and expect to continue to see, increased volatility in the region due to these geopolitical events. The Black Sea region is a major export market for grains with the Ukraine and Russia exporting a combined 15% of the global seaborne grain trade. While uncertainty remains with respect to the ultimate impact of the invasion of Ukraine by Russia, we have seen, and anticipate continuing to see, significant changes in trade flows. A reduction or stoppage of grain out of the Black Sea or cargoes from Russia has, and will continue to, negatively impact the markets
in those areas. At the same time, it is possible for us to see an increase in ton miles as end users find alternative sources for cargo. For more information regarding the risks relating to economic sanctions as a result of Russia’s invasion of Ukraine as well as the impact on retaining and sourcing our crew, see Part I, Item 1A, “Risk Factors” of our Form 10-K.
2
Fleet Management
The management of our fleet includes the following functions:
•Strategic management. We locate
and obtain financing and insurance for the purchase and sale of vessels.
•Commercial management. We obtain employment for our vessels and manage our relationships with charterers.
•Technical management. We have established an in-house technical management function to perform day-to-day operations and maintenance of our vessels.
Commercial and Strategic Management
We carry out the commercial and strategic management of our fleet through our indirectly wholly-owned subsidiary, Eagle Bulk Management LLC, a Marshall Islands limited liability company, which maintains its principal executive offices in Stamford, Connecticut. We also have offices in Singapore and Copenhagen, Denmark, through which we provide
round the clock management services to our owned and chartered-in fleet. We currently have 93 shore-based personnel, including our senior management team and our office staff, who either directly or through these subsidiaries, provide the following services:
•commercial operations and technical supervision;
•safety monitoring;
•vessel acquisition; and
•financial, accounting and information technology services.
Technical Management
Technical management includes managing day-to-day vessel operations, performing general vessel
maintenance, ensuring regulatory and classification society compliance, supervising the maintenance and general efficiency of vessels, arranging our hire of qualified officers and crew, arranging and supervising drydocking and repairs, purchasing supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants, and providing technical support.
Value of Assets and Cash Requirements
The replacement costs of comparable new vessels may be above or below the book value of our fleet. The market value of our fleet may be below book value when market conditions are weak and exceed book value when markets conditions are strong. Customary with industry practice, we may consider asset redeployment, which at times may include the sale of vessels at less than their book value. The
Company’s results of operations and cash flow may be significantly affected by future charter markets.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations is based upon our interim unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP and the rules and regulations of the SEC, which apply to interim financial statements. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues, expenses and warrants and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions and conditions.
Critical accounting policies are those
that reflect significant judgments of uncertainties and potentially result in materially different results under different assumptions and conditions. As the discussion and analysis of our financial condition and results of operations are based upon our interim unaudited condensed consolidated financial statements, they do not include all of the information on critical accounting policies normally included in consolidated financial statements. Accordingly, a detailed description of these critical accounting policies should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 14, 2022. There have been no material changes from the “Critical
Accounting Policies” previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at
3
the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant
estimates and assumptions of the Company are the residual value of vessels, the useful lives of vessels, the value of stock-based compensation, the fair value of operating lease right-of-use assets, and the fair value of derivatives. Actual results could differ from those estimates.
Results of Operations for the three and sixmonths ended June 30, 2022:
Fleet Data
We believe that the measures for analyzing future trends in our results of operations consist of the following:
In order to understand our discussion of our results of operations, it is important to understand the meaning of the following terms used in our analysis and the factors that influence our results of operations.
•Ownership days: We define ownership days as the aggregate number of days in a period during which each
vessel in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during a period.
•Chartered-in days: We define chartered-in days as the aggregate number of days in a period during which the Company chartered-in vessels.
•Available days: We define available days as the number of our ownership days and chartered-in days less the aggregate number of days that our vessels are off-hire due to vessel familiarization upon acquisition, repairs, vessel upgrades or special surveys and other reasons which prevent the vessel from performing under the relevant charter party such as surveys,
medical events, stowaway disembarkation, etc. The shipping industry uses available days to measure the number of days in a period during which vessels should be capable of generating revenues. During the six months ended June 30, 2022, the Company completed drydock for seven vessels.
•Operating days: We define operating days as the number of our available days in a period less the aggregate number of days that our vessels are off-hire due to any reason, including unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues.
•Fleet utilization: We calculate
fleet utilization by dividing the number of our operating days during a period by the number of our available days during the period. The shipping industry uses fleet utilization to measure a company's efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee, vessel upgrades, special surveys or vessel positioning. Our fleet continues to perform at very high utilization rates.
Time Charter and Voyage Revenue
Shipping revenues are highly sensitive to patterns of supply and demand for vessels of the size and design configurations owned and operated by a company and the trades in which those vessels operate. In the drybulk sector of the shipping industry, rates for the transportation of drybulk cargoes such as ores, grains, steel, fertilizers, and similar
commodities, are determined by market forces such as the supply and demand for such commodities, the distance that cargoes must be transported, and the number of vessels expected to be available at the time such cargoes need to be transported. The demand for shipments is significantly affected by the state of the global economy and the conditions of certain geographical areas. The number of vessels is affected by newbuilding deliveries and by the removal of existing vessels from service, principally because of scrapping.
4
The mix of charters between spot or voyage charters and mid-term time charters also affects revenues. Because the mix between voyage charters and time charters significantly affects shipping revenues and voyage expenses,
vessel revenues are benchmarked based on net charter hire income. Net charter hire income comprises revenue from vessels operating on time charters, and voyage revenue less voyage expenses from vessels operating on voyage charters in the spot market and charter hire expenses. Net charter hire income serves as a measure of analyzing fluctuations between financial periods and as a method of equating revenue generated from a voyage charter to time charter revenue.
The following table represents Net charter hire income (a non-GAAP measure) for the three and six months ended June 30, 2022 and 2021.
For the three months ended June 30, 2022, the Company reported net income of $94.5 million, or basic and diluted income of $7.27 per share and $5.77 per share, respectively. In the comparable quarter of 2021, the Company reported net income of $9.2 million, or basic and diluted income of $0.76 per share and $0.74 per share, respectively.
For the six months ended June 30, 2022, the Company reported net income of $147.5 million, or basic and diluted income of $11.36 per share and $9.01 per share, respectively. In the comparable
period of 2021, the Company reported net income of $19.1 million, or basic and diluted income of $1.60 per share and $1.58 per share, respectively.
Revenues
Our revenues are derived from time and voyage charters. Net time and voyage charter revenues for the three months ended June 30, 2022 were $198.7 million compared with $129.9 million recorded in the comparable quarter in 2021. The increase in revenues was primarily attributable to higher charter rates as a result of the market recovery with increase in demand for drybulk products and an increase in available days due to an increase in owned days and chartered-in days.
Net time and voyage charter revenues for the six months ended June 30,
2022 and 2021 were $383.1 million and $226.4 million, respectively. The increase in revenues was primarily due to higher charter rates and an increase in available days due to an increase in owned days and chartered-in days.
Voyage expenses
To the extent that we employ our vessels on voyage charters, we will incur expenses that include bunkers, port charges, canal tolls and cargo handling operations, as these expenses are borne by the vessel owner on voyage charters. As is common in the shipping industry, we pay commissions ranging from 1.25% to 5.50% to unaffiliated ship brokers associated with the charterers, depending on the number of brokers involved with arranging the charter. Bunkers, port charges, and canal tolls primarily increase in periods during which vessels are employed on voyage charters because these expenses are
for the vessel owner's account. Voyage expenses for the three months ended June 30, 2022 and 2021 were $36.3 million and $24.5 million, respectively. The increase in voyage expenses was primarily due to an increase in bunker consumption expense as bunker fuel prices increased in the second quarter, an increase in port expenses and an increase in broker commission expense.
Voyage expenses for the six months ended June 30, 2022 and 2021 were $79.9 million and $51.1 million, respectively. The increase in voyage expenses was primarily due to an increase in bunker consumption expense as bunker fuel prices increased in
5
the
current year compared to prior year, an increase in port expenses and an increase in broker commission expense.
Vessel operating expenses
Vessel operating expenses for the three months ended June 30, 2022 were $27.2 million compared to $23.7 million in the comparable quarter in 2021. The increase in vessel operating expenses was primarily attributable to higher owned days as well as an increase in crew expenses due to an increase in crewing costs, crew changes and expenses related to COVID-19 and the war in Ukraine. The Company also continues to face general inflationary pressures particularly impacting the cost of lubes, stores and spares. The ownership days for the three months ended June 30, 2022
and 2021 were 4,823 and 4,511, respectively.
Vessel operating expenses for the six months ended June 30, 2022 and 2021 were $55.1 million and $45.2 million, respectively. The increase in vessel operating expenses was primarily attributable to higher owned days as well as an increase in crew expenses due to an increase in crewing costs, crew changes and expenses related to COVID-19 and the war in Ukraine. The Company also continues to face general inflationary pressures particularly impacting the cost of lubes, stores and spares. The ownership days for the six months ended June 30, 2022 and 2021
were 9,593 and 8,710, respectively.
Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores and related inventory, tonnage taxes, pre-operating costs associated with the delivery of acquired vessels, including providing the newly acquired vessels with initial provisions and stores, and other miscellaneous expenses.
Other factors beyond our control, some of which may affect the shipping industry in general, may cause the operating expenses of our vessels to increase, including, for instance, developments relating to market prices for crew, insurance and petroleum-based lubricants and supplies.
Charter hire expenses
The charter hire expenses
for the three months ended June 30, 2022 were $21.3 million compared to $6.2 million in the comparable quarter in 2021. The increase in charter hire expenses was principally due to an increase in chartered-in days as the Company took delivery of its fifth long term chartered-in vessel during the second quarter, and an increase in charter hire rates due to improvement in the charter hire market. The total chartered-in days for the three months ended June 30, 2022 were 1,142 compared to 497 for the comparable quarter in the prior year. Between 2017 and 2021, the Company entered into a series of agreements to charter five Ultramax vessels on a long term basis. The minimum chartered-in periods ranged between
one and four years with an option to extend the duration between three and 24 months. All five vessels were chartered-in as of June 30, 2022.
The charter hire expenses for the six months ended June 30, 2022 and 2021 were $44.0 million and $14.6 million, respectively. The increase in charter hire expenses was primarily due to an increase in charter hire rates due to improvement in the charter hire market and an increase in the number of chartered-in days. The total chartered-in days for the six months ended June 30, 2022 and 2021 were 2,102 and 1,155, respectively.
Depreciation and amortization
For
the three months ended June 30, 2022 and 2021, total depreciation and amortization expense was $15.3 million and $13.1 million, respectively. Total depreciation and amortization expense for the three months ended June 30, 2022 includes $11.9 million of vessel and other fixed assets depreciation and $3.4 million relating to the amortization of deferred drydocking costs. Comparable amounts for the three months ended June 30, 2021 were $11.0 million of vessel and other fixed assets depreciation and $2.1 million of amortization of deferred drydocking costs. The increase in depreciation expense is due to the acquisition of nine vessels in 2021, offset by the sale of one vessel in the third quarter of 2021. The increase in amortization of deferred drydock costs is related to completing
fourteen drydocks since the second quarter of 2021.
For the six months ended June 30, 2022 and 2021, total depreciation and amortization expense was $29.8 million and $25.6 million, respectively. Total depreciation and amortization expense for the six months ended June 30, 2022 includes $23.6 million of vessel and other fixed asset depreciation and $6.3 million relating to the amortization of deferred drydocking costs. Comparable amounts for the six months ended June 30, 2021 were $21.5 million of vessel and other fixed asset depreciation and $4.1 million of amortization of deferred drydocking costs. The increase in depreciation expense is due to the acquisition of nine vessels in 2021, offset by the sale of one vessel in the
third quarter of 2021. The increase in amortization of deferred drydock costs is related to completing fourteen drydocks since the second quarter of 2021.
6
Depreciation is based on the cost of the vessel less its estimated residual value. We estimate the useful life of our vessels to be 25 years from the date of initial delivery from the shipyard to the original owner. Furthermore, we estimate the residual values of our vessels to be $300 per lightweight ton, which we believe is common in the drybulk shipping industry. Drydocking relates to our regularly scheduled maintenance program necessary to preserve the quality of our vessels as well as to comply with international shipping standards and environmental laws and regulations. Management
anticipates that vessels are to be drydocked every two and a half years for vessels older than 15 years and every five years for vessels younger than 15 years, accordingly, these expenses are deferred and amortized over these respective periods.
General and administrative expenses
Our general and administrative expenses include onshore vessel administration related expenses, such as legal and professional expenses, administrative and other expenses including payroll and expenses relating to our executive officers and office staff, office rent and expenses, directors’ fees, and directors and officers insurance. General and administrative expenses also include stock-based compensation expenses.
General and administrative expenses for the three months ended June 30, 2022 and 2021
were $9.9 million and $7.9 million, respectively. General and administrative expenses include stock-based compensation of $1.6 million and $0.6 million for the three months ended June 30, 2022 and 2021, respectively. The increase in general and administrative expenses was mainly attributable to an increase in consulting expenses, compensation and benefits, and stock-based compensation expense.
General and administrative expenses for the six months ended June 30, 2022 and 2021 were $19.9 million and $15.6 million, respectively. These general and administrative expenses include stock-based compensation of $3.1 million and $1.5 million for the six months ended June 30, 2022 and 2021,
respectively. The increase in general and administrative expenses was primarily attributable to an increase in consulting expenses, compensation and benefits, and stock-based compensation expense.
Other operating expense
Other operating expense for the three months ended June 30, 2022 and 2021 was $0.04 million and $0.6 million, respectively. In March 2021, the U.S. government began investigating an allegation that one of our vessels may have improperly disposed of ballast water that entered the engine room bilges during a repair. The Company posted a surety bond as security for any fines and penalties. Other operating expense consists of expenses incurred relating to this incident, which include
legal fees, surety bond expenses, vessel offhire, crew changes and travel costs.
Other operating expense for the six months ended June 30, 2022 and 2021 was $0.2 million and $1.5 million, respectively.
Interest expense
Our interest expense for the three months ended June 30, 2022 and 2021 was $4.3 million and $8.8 million, respectively. The decrease in interest expense is primarily due to a decrease in outstanding debt and lower interest rates due to the refinancing of the Company's debt in the fourth quarter of 2021.
Interest
expense for the six months ended June 30, 2022 and 2021 was $8.8 million and $17.1 million, respectively. The decrease in interest expense was primarily due to a decrease in outstanding debt and lower interest rates due to the refinancing of the Company's debt in the fourth quarter of 2021.
The Company entered into interest rate swaps in October 2021 to fix the interest rate exposure on the Global Ultraco Debt Facility term loan. As a result of these swaps, which average 87 basis points, the Company’s interest rate exposure is fully
fixed insulating the Company from the rising interest rate environment.
Amortization of debt issuance costs is included in interest expense. These financing costs relate to costs associated with our various outstanding debt facilities. For the three months ended June 30, 2022 and 2021, the amortization of debt issuance costs was $0.5 million and $1.8 million, respectively. For the six months ended June 30, 2022 and 2021, the amortization of debt issuance costs was $1.1 million and $3.5 million, respectively. The interest expense for the three and six months ended June 30,
2021 includes $1.1 million and $2.1 million, respectively, of interest expense representing the amortization of the equity component of the Convertible Bond Debt. The Company adopted ASU 2020-06 as of January 1, 2022 under the modified retrospective approach. The Convertible Bond Debt will no longer require bifurcation and separate accounting of the equity component. Refer to Note 2, Recent Accounting Pronouncements, to the condensed consolidated financial statements for further information.
7
Realized and unrealized (gain)/loss on derivative instruments,
net
Realized and unrealized gain on derivative instruments, net for the three months ended June 30, 2022 was $9.9 million compared to a realized and unrealized loss on derivative instruments, net of $35.9 million for the three months ended June 30, 2021. The $9.9 million gain is primarily related to $7.6 million in gains earned on our freight forward agreements as a result of the decrease in charter hire rates during the second quarter and $2.3 million in bunker swap gains for the three months ended June 30, 2022. For the three months ended June 30, 2021, the Company had $37.2 million in losses on our freight forward agreements due to the sharp
increase in charter hire rates during the second quarter of 2021, and $1.3 million in bunker swap gains.
Realized and unrealized gain on derivative instruments, net for the six months ended June 30, 2022 was $2.0 million compared to a realized and unrealized loss on derivative instruments, net of $36.6 million for the six months ended June 30, 2021. The $2.0 million gain is primarily attributable to $6.9 million in bunker swap gains, offset by $4.9 million in losses incurred on our freight forward agreements as a result of the increase in charter hire rates in the current year. For the comparable period in the prior year, the Company had $38.9 million in losses on our freight forward agreements due to the sharp increase in charter hire rates
in 2021, and $2.3 million in bunker swap gains. Refer to Note 5, Derivative Instruments, to the condensed consolidated financial statements for further information.
Effects of Inflation
The Company believes that its business benefits during periods of elevated inflation and positive demand growth, as higher charter rates, and net revenues, more than offset increases in costs relating to vessel operating expenses, drydocking, and general and administrative.
Net
cash (used in)/provided by financing activities
(79,363)
50,868
Net increase/(decrease) in cash, cash equivalents and restricted cash
55,308
(5,050)
Cash, cash equivalents and restricted cash at beginning of period
86,222
88,849
Cash, cash equivalents
and restricted cash at end of period
$
141,530
$
83,799
Net cash provided by operating activities during the six months ended June 30, 2022 and 2021 was $140.2 million and $30.6 million, respectively. The increase in cash flows provided by operating activities resulted primarily from the increase in revenues due to higher charter hire rates.
Net cash used in investing activities during the six months ended June 30, 2022 and 2021
was $5.5 million and $86.5 million, respectively. During the six months ended June 30, 2022, the Company paid $4.8 million for the purchase of ballast water treatment systems on our fleet. Additionally, the Company paid $0.5 million for vessel improvements and $0.2 million for other fixed assets. Refer to Note 3, Vessels, to the condensed consolidated financial statements for further information.
Net cash used in financing activities during the six months ended June 30, 2022 was $79.4 million compared to net cash provided by financing activities of $50.9 million for the six months ended June 30, 2021. During
the six months ended June 30, 2022, the Company repaid $24.9 million of the Global Ultraco Debt Facility. The Company also paid $52.8 million in dividends and $1.9 million to settle net share equity awards.
Our principal sources of funds are operating cash flows, long-term bank borrowings and borrowings under our revolving credit facility. Our principal use of funds is capital expenditures to establish and grow our fleet, maintain the quality of our vessels, comply with international shipping standards and environmental laws and regulations, fund working capital requirements and repay interest and principal on our outstanding loan facilities.
In addition, as of June 30, 2022, we had $100.0 million in an undrawn revolver facility available under the Global Ultraco Debt Facility.
As of June 30,
2022, the Company’s debt consisted of the Global Ultraco Debt Facility of $262.7 million, net of $7.6 million of debt issuance costs, and the Convertible Bond Debt of $114.1 million, net of $0.9 million of debt discount and issuance costs.
We believe that our current financial resources, improved charter hire rates for the balance of the year and cash generated from operations will be sufficient to meet our ongoing business needs and other obligations over the next twelve months. However, our ability to generate sufficient cash depends on many factors beyond our control including, among other things, the general charter rate environment.
Capital Expenditures
Our capital expenditures relate to the purchase of vessels and capital improvements to our
vessels, which are expected to enhance the revenue earning capabilities and safety of the vessels.
In addition to acquisitions that we may undertake in future periods, the other major capital expenditures include funding the Company’s program of regularly scheduled drydocking, which is necessary to comply with international shipping standards and environmental laws and regulations. Although the Company has some flexibility regarding the timing of its drydocking, the costs are relatively predictable. The Company anticipates that vessels will be drydocked every five years for vessels younger than 15 years and every two and a half years for vessels older than 15 years. We
anticipate that we will fund these costs with cash from operations and that these drydocks will require us to reposition these vessels from a discharge port to shipyard facilities, which will reduce our available days and operating days during that period.
Drydocking costs incurred are deferred and amortized to expense on a straight-line basis over the period through the date of the next scheduled drydocking for those vessels. During the six months ended June 30, 2022, seven of our vessels completed drydock and we incurred drydocking expenditures of $16.1 million. In the six months ended June 30, 2021, four of our vessels completed drydock and we incurred drydocking expenditures of $6.4 million.
The following table represents certain information about the estimated costs for anticipated
vessel drydockings, ballast water treatment systems, and scrubber installations in the next four quarters, along with the anticipated off-hire days:
(1)
Actual costs will vary based on various factors, including where the drydockings are performed.
(2) Actual duration of off-hire days will vary based on the age and condition of the vessel, yard schedules and other factors.
(3) Vessel upgrades represents capex relating to items such as high-spec low friction hull paint which improves fuel efficiency and reduces fuel costs, NeoPanama Canal chock fittings enabling vessels to carry additional cargo through the new Panama Canal locks, as well as other retrofitted fuel-saving devices. Vessel upgrades are discretionary in nature and evaluated on a business case-by-case basis.
Off-balance Sheet Arrangements
We do not have any
off-balance sheet arrangements.
9
Other Contingencies
We refer you to Note 7, Commitments and Contingencies, to our condensed consolidated financial statements for a discussion of our contingencies. If an unfavorable ruling were to occur in these matters, there exists the possibility of a material adverse impact on our business, liquidity, results of operations, financial position and cash flows in the period in which the ruling occurs. The potential impact from legal proceedings on our business, liquidity, results of operations, financial position and cash flows could change in the future.
10
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the market risk disclosure set forth in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 14, 2022. For information regarding our use of certain derivative instruments, including interest rate swaps, forward freight agreements and bunker swaps, see Note 5, Derivatives Instruments, to the condensed consolidated financial statements.
ITEM
4. CONTROLS AND PROCEDURES
Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of June 30, 2022, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2022.
Changes in Internal Controls.
No change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-(f) under the Exchange Act)
occurred during the quarter ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.
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PART II: OTHER INFORMATION
ITEM
1 – LEGAL PROCEEDINGS
From time to time, we are involved in various disputes and litigation matters that arise in the ordinary course of our business, principally personal injury and property casualty claims. Those claims, even if lacking merit, could result in the expenditure by us of significant financial and managerial resources. Information about legal proceedings is set forth in Note 7, Commitments and Contingencies, to the condensed consolidated financial statements and is incorporated by reference herein.
ITEM 1A – RISK FACTORS
There have been no material changes from the “Risk Factors” previously disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 14, 2022. The risks described in the Annual Report on Form 10-K for the year ended December 31, 2021 are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following materials from Eagle Bulk Shipping Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2022 and December 31, 2021, (ii) Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2022 and 2021, (iii) Condensed Consolidated Statements of Comprehensive income (unaudited) for the three and six months ended June
30, 2022 and 2021, (iv) Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three and six months ended June 30, 2022 and 2021, (v) Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2022 and 2021, and (vi) Notes to Condensed Consolidated Financial Statements (unaudited).
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.