Genco Shipping & Trading (GNK) - 2022 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and related notes, offering a comprehensive view of the company's financial position, performance, and cash flows Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, comprehensive income, equity, and cash flows, along with detailed notes explaining significant accounting policies, specific transactions, and other relevant financial disclosures Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (U.S. Dollars in thousands) | Item | June 30, 2022 | December 31, 2021 | | :------------------------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $44,669 | $114,573 | | Total current assets | $120,146 | $174,830 | | Vessels, net | $1,025,403 | $981,141 | | Total assets | $1,186,143 | $1,203,002 | | Total current liabilities | $48,916 | $41,895 | | Long-term debt, net | $181,568 | $238,229 | | Total liabilities | $235,684 | $286,327 | | Total Genco Shipping & Trading Limited shareholders' equity | $949,952 | $916,587 | | Total equity | $950,459 | $916,675 | Condensed Consolidated Statements of Operations This statement details the company's revenues, expenses, and net income over specific periods Condensed Consolidated Statements of Operations (U.S. Dollars in Thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Voyage revenues | $137,764 | $121,008 | $273,991 | $208,599 | | Total operating expenses | $88,569 | $84,759 | $182,703 | $166,040 | | Operating income | $49,195 | $36,249 | $91,288 | $42,559 | | Net income attributable to Genco Shipping & Trading Limited | $47,382 | $32,037 | $89,071 | $34,022 | | Earnings per share-basic | $1.12 | $0.76 | $2.11 | $0.81 | | Earnings per share-diluted | $1.10 | $0.75 | $2.07 | $0.80 | Condensed Consolidated Statements of Comprehensive Income This statement presents net income and other comprehensive income, reflecting all changes in equity during a period except those from investments by and distributions to owners Condensed Consolidated Statements of Comprehensive Income (U.S. Dollars in Thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $47,625 | $32,037 | $89,490 | $34,022 | | Other comprehensive income (loss) | $1,499 | $(23) | $4,792 | $138 | | Comprehensive income | $49,124 | $32,014 | $94,282 | $34,160 | | Comprehensive income attributable to Genco Shipping & Trading Limited | $48,881 | $32,014 | $93,863 | $34,160 | Condensed Consolidated Statements of Equity This statement details changes in the company's equity accounts over a period, including net income, other comprehensive income, and dividends Condensed Consolidated Statements of Equity (U.S. Dollars in Thousands) | Item | Balance — January 1, 2022 | Net income | Other comprehensive income | Cash dividends declared | Balance — June 30, 2022 | | :------------------------------------------------- | :------------------------ | :--------- | :------------------------- | :---------------------- | :---------------------- | | Common Stock | $419 | - | - | - | $423 | | Additional Paid-in Capital | $1,702,166 | - | - | $(62,014) | $1,641,664 | | Accumulated Other Comprehensive Income | $825 | - | $4,792 | - | $5,617 | | Accumulated Deficit | $(786,823) | $89,071 | - | - | $(697,752) | | Total Genco Shipping & Trading Limited Shareholders' Equity | $916,587 | $89,071 | $4,792 | $(62,014) | $949,952 | | Total Equity | $916,675 | $89,490 | $4,792 | $(62,014) | $950,459 | Condensed Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities over a period Condensed Consolidated Statements of Cash Flows (U.S. Dollars in Thousands) | Item | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $99,159 | $62,552 | | Net cash (used in) provided by investing activities | $(49,980) | $4,156 | | Net cash used in financing activities | $(119,083) | $(85,186) | | Net decrease in cash, cash equivalents and restricted cash | $(69,904) | $(18,478) | | Cash, cash equivalents and restricted cash at end of period | $50,627 | $161,201 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements 1 - General Information This note provides an overview of the company's operations, fleet composition, and significant events impacting its financial reporting - The Company's fleet comprises 44 drybulk vessels (17 Capesize, 15 Ultramax, 12 Supramax) with an aggregate carrying capacity of approximately 4.636 million dwt and an average age of 10.3 years as of June 30, 2022[25] - The Company consolidates GS Shipmanagement Pte. Ltd. (GSSM), a joint venture formed in September 2021 with Synergy Marine Pte. Ltd., as the primary beneficiary[26][27] - The future impact of the COVID-19 pandemic on the Company's operational and financial performance remains unpredictable, with potential adverse effects on business, results, cash flows, and asset values[28][29] 2 - Summary of Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the financial statements, including changes in estimates - Effective January 1, 2022, the Company increased the estimated scrap value of vessels from $310 per lwt to $400 per lwt, decreasing depreciation expense by $1.159 million for the three months and $2.304 million for the six months ended June 30, 2022[40][41] - This change increased basic EPS by $0.03 (3M) and $0.06 (6M), and diluted EPS by $0.02 (3M) and $0.05 (6M)[42] Realized and Unrealized Gains from Bunker Swap and Forward Fuel Purchase Agreements (U.S. Dollars in Thousands) | Type of Gain | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Realized Gains | $667 | $60 | $1,296 | $215 | | Unrealized Gains | $321 | $168 | $1,760 | $52 | 3 - Cash Flow Information This note provides additional details on non-cash investing activities and specific cash payments related to interest and asset reclassifications - Non-cash investing activities for the six months ended June 30, 2022, included $3.965 million for vessel and ballast water treatment system purchases and $1.036 million for other fixed assets[47] - Cash paid for interest, net of capitalized amounts, was $3.739 million for the six months ended June 30, 2022, a decrease from $6.764 million in the prior year period[49] - The Company reclassified $18.543 million from Deposits on vessels to Vessels, net of accumulated depreciation, upon the delivery of the Genco May and Genco Laddey during the six months ended June 30, 2022[50] 4 - Vessel Acquisitions and Dispositions This note details the company's activities related to purchasing and selling vessels, including financing and collateral arrangements - The Company acquired two 2022-built Ultramax vessels, the Genco Mary and Genco Laddey, for $29.170 million each, delivered on January 6, 2022, and financed with cash on hand[57] - As of June 30, 2022, $5.643 million of current restricted cash represents net proceeds from the November 2021 sale of the Genco Provence, serving as collateral under the $450 Million Credit Facility[59] 5 – Earnings Per Share This note provides information on the calculation of basic and diluted earnings per share, including weighted-average common shares outstanding Weighted Average Common Shares Outstanding | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Weighted-average common shares outstanding, basic | 42,385,423 | 42,071,019 | 42,276,371 | 42,022,669 | | Weighted-average common shares outstanding, diluted | 42,996,676 | 42,612,132 | 42,932,370 | 42,445,184 | 6 - Related Party Transactions This note discloses any transactions between the company and its related parties - The Company did not engage in any related party transactions during the three and six months ended June 30, 2022 and 2021[63] 7 – Debt This note provides details on the company's long-term debt, credit facilities, and compliance with financial covenants Long-term Debt, Net (U.S. Dollars in Thousands) | Item | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Principal amount | $188,500 | $246,000 | | Less: Unamortized debt financing costs | $(6,932) | $(7,771) | | Long-term debt, net | $181,568 | $238,229 | - As of June 30, 2022, the Company had $218.870 million of availability under the $450 Million Credit Facility and was in compliance with all financial covenants[67] Effective Interest Rates | Period | Effective Interest Rate | | :----------------------- | :---------------------- | | Three Months Ended June 30, 2022 | 3.96% | | Three Months Ended June 30, 2021 | 3.22% | | Six Months Ended June 30, 2022 | 3.43% | | Six Months Ended June 30, 2021 | 3.20% | 8 – Derivative Instruments This note describes the company's use of derivative instruments to manage financial risks, including interest rate caps and their accounting treatment - As of June 30, 2022, the Company had three interest rate cap agreements outstanding with a total notional amount of $200.0 million to manage interest rate risk[72] Fair Value of Interest Rate Cap Assets (U.S. Dollars in Thousands) | Balance Sheet Location | June 30, 2022 | December 31, 2021 | | :--------------------------------------- | :------------ | :---------------- | | Fair value of derivative instruments - current | $3,894 | $0 | | Fair value of derivative instruments - noncurrent | $1,954 | $1,166 | - The Company recorded a $4.792 million gain in Accumulated Other Comprehensive Income (AOCI) for the six months ended June 30, 2022, with an estimated $3.744 million expected to be reclassified into earnings within the next twelve months[74] 9 - Fair Value of Financial Instruments This note provides information on the fair values and carrying values of the company's financial instruments, categorized by the fair value hierarchy Fair Values and Carrying Values of Financial Instruments (U.S. Dollars in Thousands) | Item | June 30, 2022 Carrying Value | June 30, 2022 Fair Value | December 31, 2021 Carrying Value | December 31, 2021 Fair Value | | :-------------------------------- | :----------------------- | :----------------------- | :------------------------------- | :------------------------------- | | Cash and cash equivalents | $44,669 | $44,669 | $114,573 | $114,573 | | Restricted cash | $5,958 | $5,958 | $5,958 | $5,958 | | Principal amount of floating rate debt | $188,500 | $188,500 | $246,000 | $246,000 | - Cash and cash equivalents and restricted cash are classified as Level 1, while floating rate debt, interest rate cap agreements, bunker swap agreements, and forward fuel purchase agreements are classified as Level 2 in the fair value hierarchy[83] 10 - Accounts Payable and Accrued Expenses This note provides a breakdown of the company's accounts payable and accrued expenses Accounts Payable and Accrued Expenses (U.S. Dollars in Thousands) | Item | June 30, 2022 | December 31, 2021 | | :--------------------------------- | :------------ | :---------------- | | Accounts payable | $13,691 | $9,399 | | Accrued general and administrative expenses | $3,328 | $4,719 | | Accrued vessel operating expenses | $24,164 | $15,838 | | Total accounts payable and accrued expenses | $41,183 | $29,956 | 11 – Voyage Revenues This note details the composition of the company's voyage revenues, distinguishing between lease revenue and spot market revenue Total Voyage Revenues (U.S. Dollars in Thousands) | Revenue Type | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Lease revenue | $62,752 | $31,557 | $118,557 | $50,457 | | Spot market voyage revenue | $75,012 | $89,451 | $155,434 | $158,142 | | Total voyage revenues | $137,764 | $121,008 | $273,991 | $208,599 | 12 – Leases This note describes the company's lease arrangements, including sublease income and short-term charter-in agreements - The Company recorded $306 thousand in sublease income for both the three and six months ended June 30, 2022 and 2021, from a sublease agreement for its main office space[91] - All charter-in agreements for third-party vessels were considered short-term leases (less than twelve months) during the reported periods, thus no right-of-use assets or lease liabilities were recognized[92] 13 – Commitments and Contingencies This note outlines the company's significant commitments and potential contingent liabilities, particularly related to vessel upgrades - The Company has recorded $24.064 million in Vessel assets as of June 30, 2022, related to ballast water treatment systems (BWTS) additions, with an estimated $1.129 million expected to be paid for BWTS during the remainder of 2022[93] 14 - Stock-Based Compensation This note provides details on the company's stock option and restricted stock unit activity, including unrecognized compensation costs Stock Option Activity for Six Months Ended June 30, 2022 | Item | Number of Options | Weighted Average Exercise Price | | :-------------------------- | :---------------- | :------------------------------ | | Outstanding as of January 1, 2022 | 916,287 | $9.02 | | Exercised | (392,774) | $10.19 | | Outstanding as of June 30, 2022 | 523,513 | $8.14 | | Exercisable as of June 30, 2022 | 329,622 | $8.09 | Restricted Stock Units (RSUs) Activity for Six Months Ended June 30, 2022 | Item | Number of RSUs | Weighted Average Grant Date Price | | :-------------------------- | :------------- | :------------------------------ | | Outstanding as of January 1, 2022 | 306,887 | $9.65 | | Granted | 243,190 | $20.00 | | Vested | (180,661) | $10.85 | | Outstanding as of June 30, 2022 | 369,416 | $15.88 | - As of June 30, 2022, unrecognized compensation cost of $4.261 million related to RSUs is expected to be recognized over a weighted-average period of 2.71 years[100] 15 - Legal Proceedings This note discloses any ongoing legal actions or claims that could materially affect the company's financial position - The Company is not aware of any legal proceedings or claims expected to have a material effect on its financial condition, results of operations, or cash flows[103] 16 – Subsequent Events This note reports significant events that occurred after the balance sheet date but before the financial statements were issued - On August 3, 2022, the Company declared a regular quarterly dividend of $0.50 per share, totaling approximately $21.3 million, to be paid on or about August 23, 2022[104] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, discussing key business drivers, market conditions, operational performance, liquidity, capital resources, and critical accounting policies General Business Overview This section provides an overview of the company's fleet, operational strategy, and financial deleveraging efforts - The Company operates a fleet of 44 drybulk vessels (17 Capesize, 15 Ultramax, 12 Supramax) with an aggregate capacity of approximately 4.636 million dwt and an average age of 10.4 years[109] - Genco's value strategy, announced in April 2021, focuses on compelling dividends, financial deleveraging (paid down $203 million in 2021 and $57.5 million in 2022), and opportunistic fleet growth[112] Impact of COVID-19 This section discusses the ongoing effects of the COVID-19 pandemic on drybulk shipping demand and vessel operating expenses - China's 'zero tolerance' COVID-19 policy and associated lockdown measures in H1 2022 reduced demand for steel products and other commodities, impacting drybulk shipping rates[117] - Vessel operating expenses continued to be affected by higher-than-anticipated costs due to COVID-19 disruptions, particularly related to crew rotations, testing, PPE, and quarantine periods[118][121] IMO 2020 Compliance This section outlines the company's strategy for complying with international sulfur emission regulations - The Company has installed scrubbers on its 17 Capesize vessels to comply with IMO 2020 sulfur emission regulations, while the remainder of the fleet uses compliant low sulfur fuel[125] Vessel Sales and Acquisitions (MD&A) This section details the company's recent vessel acquisition and fleet renewal activities - The Company acquired two 2022-built 61,000 dwt Ultramax newbuilding vessels, the Genco Mary and Genco Laddey, delivered on January 6, 2022[126] - During 2021, the Company completed the purchase of six Ultramax vessels and the sale of five Supramax and six Handysize vessels as part of its fleet renewal strategy[127] Our Operations (MD&A) This section describes the company's primary business segment and its joint venture for technical management - The Company operates in one reportable segment: ocean transportation of drybulk cargoes worldwide[129] - In September 2021, the Company formed a joint venture, GS Shipmanagement Pte. Ltd. (GSSM), with Synergy Marine Pte. Ltd. to provide technical management for all 44 vessels in its fleet, aiming for increased visibility, fuel efficiency, and potential cost savings[130][131] Factors Affecting Our Results of Operations This section identifies key performance measures and external factors influencing the company's financial results - Key performance measures include Ownership days, Chartered-in days, Available days (owned & chartered-in fleet), Available days (owned fleet), Operating days, Fleet utilization, TCE rates, and Daily vessel operating expenses (DVOE)[137][138][139][140][142][143][144][145] Operating Data and Financial Performance This section presents key operating metrics and financial results, including revenue, expenses, and profitability, for the reported periods Operating Data (U.S. dollars in thousands, except for per share amounts) | Item | 3M Ended June 30, 2022 | 3M Ended June 30, 2021 | % Change (3M) | 6M Ended June 30, 2022 | 6M Ended June 30, 2021 | % Change (6M) | | :------------------------------------------------- | :--------------------- | :--------------------- | :------------ | :--------------------- | :--------------------- | :------------ | | Voyage revenues | $137,764 | $121,008 | 13.8% | $273,991 | $208,599 | 31.3% | | Total operating expenses | $88,569 | $84,759 | 4.5% | $182,703 | $166,040 | 10.0% | | Operating income | $49,195 | $36,249 | 35.7% | $91,288 | $42,559 | 114.5% | | Net income attributable to Genco Shipping & Trading Limited | $47,382 | $32,037 | 47.9% | $89,071 | $34,022 | 161.8% | | Earnings per share - basic | $1.12 | $0.76 | 47.4% | $2.11 | $0.81 | 160.5% | | EBITDA | $64,240 | $50,228 | 27.9% | $122,212 | $70,124 | 74.3% | Fleet Data and Average Daily Results | Metric | 3M Ended June 30, 2022 | 3M Ended June 30, 2021 | % Change (3M) | 6M Ended June 30, 2022 | 6M Ended June 30, 2021 | % Change (6M) | | :------------------------------------------------- | :--------------------- | :--------------------- | :------------ | :--------------------- | :--------------------- | :------------ | | Total Ownership days | 4,004.0 | 3,647.5 | 9.8% | 7,953.9 | 7,544.5 | 5.4% | | Total Available days (owned & chartered-in fleet) | 3,655.5 | 4,040.7 | (9.5)% | 7,729.9 | 8,241.6 | (6.2)% | | Total Operating days | 3,610.7 | 3,997.5 | (9.7)% | 7,568.0 | 8,120.4 | (6.8)% | | Fleet utilization | 97.2% | 98.3% | (1.1)% | 95.6% | 98.1% | (2.5)% | | Fleet average TCE rate | $28,756 | $21,137 | 36.0% | $26,354 | $16,508 | 59.6% | | Fleet average Daily vessel operating expenses | $7,358 | $5,151 | 42.8% | $7,100 | $5,015 | 41.6% | Results of Operations Analysis This section provides a detailed comparative analysis of the company's financial performance for the three and six months ended June 30, 2022, versus 2021 Three Months Ended June 30, 2022 vs. 2021 This subsection analyzes the financial performance for the three-month period, highlighting key revenue and expense drivers Voyage Revenues (3M) - Voyage revenues increased by $16.8 million (13.8%) to $137.8 million, primarily due to higher rates for minor bulk vessels, partially offset by decreased major bulk vessel revenue from drydockings[154] - The average TCE rate for the overall fleet increased 36.0% to $28,756/day, with major bulk TCE up 13.8% to $27,034/day and minor bulk TCE up 53.7% to $29,551/day[156] - Fleet utilization marginally decreased from 98.3% to 97.2% due to additional repair periods for Supramax vessels and scheduled Capesize drydockings[157] Voyage Expenses (3M) - Voyage expenses decreased by $4.2 million to $32.5 million, primarily due to lower bunker consumption for major bulk vessels[159] Vessel Operating Expenses (3M) - Vessel operating expenses increased by $10.7 million (56.8%) to $29.5 million, driven by higher crew expenses (wages, COVID-19 costs, timing of changes) and increased repair/maintenance[160] - Average daily vessel operating expenses (DVOE) increased 42.8% to $7,358/day, with the Company anticipating meeting its full-year DVOE budget of $5,860/day due to expected lower expenses in H2 2022[161][162] Charter Hire Expenses (3M) - Charter hire expenses decreased by $3.3 million (39.4%) to $5.0 million, primarily due to a decrease in chartered-in days[165] General and Administrative Expenses (3M) - General and administrative expenses increased by $0.5 million (9.0%) to $6.4 million, mainly due to higher nonvested stock amortization and travel expenditures, partially offset by lower legal and professional fees[167] Technical Management Fees (3M) - Technical management fees decreased by $0.6 million (46.4%) to $0.7 million, primarily due to savings from transferring vessel management to the GSSM joint venture[170] Depreciation and Amortization (3M) - Depreciation and amortization expense increased by $0.8 million (5.5%) to $14.5 million, mainly due to the delivery of six Ultramax vessels, partially offset by a $1.2 million decrease from the increased estimated scrap value of vessels[171] Net Interest Expense (3M) - Net interest expense decreased by $2.1 million (47.6%) to $2.3 million, primarily due to lower outstanding debt[172] Other Income (3M) - Other income increased by $0.6 million to $0.8 million, driven by higher realized and unrealized gains from bunker swap and forward fuel purchase agreements due to increasing fuel prices[173] Six Months Ended June 30, 2022 vs. 2021 This subsection analyzes the financial performance for the six-month period, highlighting key revenue and expense drivers Voyage Revenues (6M) - Voyage revenues increased by $65.4 million (31.3%) to $274.0 million, primarily due to higher rates achieved by both major and minor bulk vessels[174] - The average TCE rate for the overall fleet increased 59.6% to $26,354/day, with major bulk TCE up 37.2% to $25,649/day and minor bulk TCE up 78.1% to $26,749/day[175] - Fleet utilization decreased from 98.1% to 95.6% due to additional offhire and repair periods for Supramax vessels and scheduled Capesize drydockings[176] Voyage Expenses (6M) - Voyage expenses remained stable at $70.9 million, with no significant fluctuation compared to the prior year period[178] Vessel Operating Expenses (6M) - Vessel operating expenses increased by $18.6 million (49.3%) to $56.5 million, primarily due to higher crew expenses (wages, COVID-19 costs, timing of changes) and increased repair/maintenance[179] - Average daily vessel operating expenses (DVOE) increased 41.6% to $7,100/day, with the Company expecting operating expenses to stabilize in H2 2022 after crew and technical management transitions[180] Charter Hire Expenses (6M) - Charter hire expenses decreased by $1.1 million (7.8%) to $12.7 million, mainly due to fewer chartered-in days, partially offset by higher charter-in rates[181] General and Administrative Expenses (6M) - General and administrative expenses increased by $0.5 million (3.9%) to $12.4 million, primarily due to higher nonvested stock amortization expense and travel-related expenditures[182] Technical Management Fees (6M) - Technical management fees decreased by $1.2 million (41.6%) to $1.6 million, due to savings realized from transferring vessel management to the GSSM joint venture[183] Depreciation and Amortization (6M) - Depreciation and amortization expense increased by $1.4 million (5.0%) to $28.6 million, primarily due to the delivery of six Ultramax vessels, partially offset by a $2.3 million decrease from the increased estimated scrap value of vessels[184][185] Loss on Sale of Vessels (6M) - No vessel sales occurred during the first half of 2022, compared to a net loss of $0.7 million from vessel sales and exchanges in the first half of 2021[186] Net Interest Expense (6M) - Net interest expense decreased by $4.3 million (48.3%) to $4.6 million, primarily due to lower outstanding debt[187] Other Income (6M) - Other income increased by $2.4 million to $2.8 million, driven by higher realized and unrealized gains from bunker swap and forward fuel purchase agreements due to increasing fuel prices[188] Liquidity and Capital Resources This section discusses the company's sources of liquidity, capital management strategies, and financial obligations - Primary liquidity sources include cash flow from operations, cash on hand ($44.7 million unrestricted as of June 30, 2022), equity offerings, and credit facility borrowings ($218.9 million available under revolver)[189][190] - The Company made an $8.8 million voluntary debt prepayment in Q2 2022 and aims for zero net debt in the medium term, with no mandatory debt repayments until 2026[190][191] - The $450 Million Credit Facility requires collateral maintenance of at least 140% of the outstanding loan principal, which the Company was in compliance with as of June 30, 2022[192][195] Dividends Policy and Payments This subsection outlines the company's dividend policy and recent dividend declarations - The new quarterly dividend policy calculates distributable cash flow as operating cash flow less debt repayments, capital expenditures for drydocking, and a Board-determined reserve[196][197] - On August 3, 2022, a quarterly dividend of $0.50 per share was announced, subject to legally available funds and Board discretion[198] U.S. Federal Income Tax Treatment of Dividends This subsection discusses the tax implications of dividends for U.S. Holders, particularly regarding qualified dividend income and PFIC status - Dividends paid to non-corporate U.S. Holders generally qualify for preferential tax rates as 'qualified dividend income' if certain conditions are met, including the Company not being a PFIC[203] - The Company does not believe it has been, is, or will be a Passive Foreign Investment Company (PFIC), but no assurance can be given, and PFIC status would have adverse U.S. federal income tax consequences[207][208] Cash Flow Analysis This subsection provides a detailed analysis of the company's cash flows from operating, investing, and financing activities - Net cash provided by operating activities increased by $36.6 million to $99.2 million for the six months ended June 30, 2022, driven by higher rates, working capital changes, and decreased interest expense[213] - Net cash used in investing activities was $50.0 million for the six months ended June 30, 2022, a significant change from $4.2 million provided in the prior year, primarily due to the purchase of two Ultramax vessels[214] - Net cash used in financing activities increased by $33.9 million to $119.1 million, mainly due to a $58.6 million increase in dividend payments, partially offset by a $24.7 million decrease in debt repayments[215] Credit Facilities (MD&A) This subsection describes the company's credit facilities and their refinancing - The $450 Million Credit Facility, entered into on August 3, 2021, was used to refinance the Company's prior $495 Million and $133 Million Credit Facilities[218] Interest Rate Swap and Cap Agreements, Forward Freight Agreements and Currency Swap Agreements (MD&A) This subsection details the company's use of derivative instruments to manage interest rate and market risks - As of June 30, 2022, the Company held three interest rate cap agreements with a total notional principal amount of $200.0 million to manage interest rate risk[219] - The Company has not entered into any Forward Freight Agreements (FFAs) as of June 30, 2022, but may do so in the future to hedge market risks[222] Capital Expenditures (MD&A) This subsection outlines the company's planned and incurred capital expenditures, particularly for vessel upgrades and drydockings - The Company completed the installation of Ballast Water Treatment Systems (BWTS) on three vessels during H1 2022 and anticipates completing installations on seven more vessels during the remainder of 2022[228] Estimated Capital Expenditures and Off-hire Days (U.S. dollars in millions) | Period | Estimated Drydocking Cost | Estimated BWTS Cost | Estimated Fuel Efficiency Upgrade Costs | Estimated Off-hire Days | | :------------------------ | :------------------------ | :------------------ | :-------------------------------------- | :---------------------- | | July 1 - December 31, 2022 | $10.4 | $2.0 | $4.5 | 292 | | 2023 | $2.4 | $0 | $0 | 70 | - During the six months ended June 30, 2022, the Company incurred $14.2 million in drydocking costs, completing five drydockings, with six more started in Q2 2022 and expected to complete in Q3 2022[235][236] Off-Balance Sheet Arrangements This subsection discloses any material off-balance sheet arrangements that could impact the company's financial position - The Company does not have any material off-balance sheet arrangements that would significantly affect its financial condition or results of operations[238] Inflation Impact This subsection discusses the potential effects of inflation on the company's operating costs and financial performance - Inflation has a moderate effect on expenses currently, but significant global inflationary pressures could increase operating, voyage, general and administrative, and financing costs[239] Critical Accounting Policies This section outlines the accounting policies that require significant judgment and estimation, which are crucial to understanding the company's financial results Vessels and Depreciation (Critical Accounting Policy) This subsection details the accounting policy for vessels, including their valuation, depreciation methods, and impact on financial covenants - Vessels are recorded at cost and depreciated on a straight-line basis over an estimated useful life of 25 years, based on cost less an estimated residual scrap value of $400/lwt (increased from $310/lwt effective January 1, 2022)[241] - As of June 30, 2022, the carrying value of eleven Capesize vessels exceeded their valuation for covenant compliance purposes by an aggregate of $56.2 million, though the Company was in compliance with its collateral maintenance covenant[246][247] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the Company's exposure to market risks, primarily interest rate risk, and how it manages these risks through derivative financial instruments Interest Rate Risk This subsection describes the company's exposure to fluctuations in interest rates and its strategies for mitigation - The Company is exposed to interest rate risk on its floating rate debt and uses three interest rate cap agreements with a total notional amount of $200.0 million to manage this risk[250][251] - A 1% increase in LIBOR would result in an estimated $1.1 million increase in interest expense for the six months ended June 30, 2022[254] Derivative Financial Instruments This subsection explains the accounting treatment and impact of the company's derivative instruments, including interest rate caps and fuel agreements - Interest rate cap agreements are initially designated as cash flow hedges, with changes in value deferred in AOCI and reclassified to interest expense when the hedged interest affects earnings[256] - A portion of one interest rate cap agreement was dedesignated as a cash flow hedge in Q2 2022 due to outstanding debt being below the notional amount, with subsequent gains/losses recorded in interest expense[257][259] - Bunker swap and forward fuel purchase agreements do not qualify for hedge accounting, so unrealized or realized gains/losses are recognized as other income (expense)[261] Currency and Exchange Rates Risk This subsection assesses the company's exposure to foreign currency fluctuations - The majority of the Company's transactions are denominated in U.S. Dollars, and the foreign exchange risk associated with operating expenses in other currencies is considered immaterial[262] Item 4. Controls and Procedures This section reports on the effectiveness of the Company's disclosure controls and procedures and any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This subsection provides management's conclusion on the effectiveness of the company's disclosure controls and procedures - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022[263] Changes in Internal Control Over Financial Reporting This subsection reports on any material changes in the company's internal control over financial reporting during the quarter - There have been no material changes in the Company's internal control over financial reporting during the most recent fiscal quarter[264] PART II —OTHER INFORMATION This section provides additional information not covered in Part I, including updated risk factors and a list of exhibits Item 1A. Risk Factors This section provides updates to previously disclosed risk factors, focusing on the ongoing war in Ukraine and its potential impact on drybulk markets, as well as the proposed Inflation Reduction Act of 2022 and its implications for corporate taxation - The war in Ukraine, including attacks on port cities like Odesa, creates unpredictable impacts on Ukrainian grain shipments and the broader drybulk market[265] - The proposed Inflation Reduction Act of 2022 could impose a 15% minimum tax on corporations with average annual book profits exceeding $1 billion, potentially affecting the Company, though it does not believe it would be subject to it in the near future[266][267] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, stock agreements, certifications, and interactive data files - The Exhibit Index provides a comprehensive list of documents, including corporate articles, by-laws, stock agreements, and certifications, filed with this report[268][270][272][273]