Safe Bulkers(SB) - 2020 Q4 - Annual Report

PART I ITEM 3. KEY INFORMATION This section provides an overview of Safe Bulkers, Inc, presents its selected consolidated financial data, and details a comprehensive list of risk factors A. Selected Financial Data Selected consolidated financial data for the five-year period ending December 31, 2020, highlights key operational, balance sheet, and cash flow metrics Statement of Operations Data (2018-2020) | Indicator | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | Revenues | $201,548 | $206,682 | $206,035 | | Net Revenues | $193,191 | $197,761 | $198,158 | | Operating Income | $55,887 | $44,051 | $10,478 | | Net (Loss)/Income | $27,684 | $16,038 | $(12,905) | | (Loss)/Earnings Per Share (Basic & Diluted) | $0.16 | $0.04 | $(0.25) | Balance Sheet Data (as of Dec 31, 2019 & 2020) | Indicator | 2019 | 2020 | | :--- | :--- | :--- | | Total Assets | $1,114,643 | $1,105,629 | | Total Liabilities | $624,701 | $642,770 | | Total Shareholders' Equity | $472,742 | $444,747 | Cash Flow Data (2018-2020) | Indicator | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $85,449 | $58,284 | $63,376 | | Net cash used in investing activities | $(63,670) | $(36,785) | $(34,784) | | Net cash (used in)/provided by financing activities | $(15,580) | $8,540 | $(9,293) | D. Risk Factors This section outlines numerous risks inherent to the company's industry, business operations, and securities - The drybulk shipping industry is cyclical and volatile, with the Baltic Dry Index (BDI) showing significant fluctuations, reaching a low of 393 in May 2020 and a high of 2,097 in October 2020, impacting charter rates, vessel values, and profitability[42][43] - The company faces risks from environmental regulations concerning Greenhouse Gas (GHG) emissions, which may impose operational restrictions, carbon taxes, or render less efficient vessels obsolete[67] - The viability of the company's investment in Scrubbers is dependent on the price differential between high-sulfur fuel oil (HFO) and compliant low-sulfur fuels[63][64][65] - The upcoming phase-out of the London Interbank Offered Rate (LIBOR) by the end of 2021 introduces uncertainty and potential adverse impacts on the company's floating-rate indebtedness[119][122] - The Hajioannou family controls approximately 48.93% of the company's outstanding Common Stock as of March 15, 2021, enabling them to control the outcome of shareholder votes[164][472] - There is a risk that U.S. tax authorities could classify the company as a "passive foreign investment company" (PFIC), which would result in adverse U.S. federal income tax consequences for U.S. shareholders[198][201] ITEM 4. INFORMATION ON THE COMPANY This section details the company's history, business operations, fleet profile, chartering strategy, and complex regulatory environment A. History and Development of the Company The company was incorporated in the Marshall Islands in 2007 and has significantly grown its fleet since its 2008 IPO under the control of the Hajioannou family - The company was incorporated on December 11, 2007, in the Republic of the Marshall Islands and is controlled by the Hajioannou family, active in shipping since 1958[203] - Since its IPO in 2008, the company's fleet has grown from 887,900 dwt to 3,937,000 dwt as of March 15, 2021, by acquiring 51 newbuilds and seven second-hand vessels while selling 16 older vessels[204] B. Business Overview Safe Bulkers provides international marine drybulk transportation with a mixed chartering strategy and is subject to extensive international regulations Fleet Composition as of March 15, 2021 | Vessel Class | Number of Vessels | | :--- | :--- | | Panamax | 15 | | Kamsarmax | 10 | | Post-Panamax | 14 | | Capesize | 4 | | Total | 43 | - The company has an orderbook for two newbuild vessels and has contracted to sell two older Panamax vessels as part of its fleet renewal plan[209] - In 2020, two charterers, Viterra B.V. and Cargill International S.A., accounted for a combined 26.14% of the company's revenues, with each contributing more than 10%[228] - The company has installed Scrubbers on 20 of its vessels to comply with IMO 2020 sulfur emission regulations and plans to install one more in 2021[63][273] - The COVID-19 pandemic has negatively impacted the business through reduced demand for cargo, lower charter rates in 2020, and operational challenges[326][327] C. Organizational Structure Safe Bulkers, Inc is a holding company that wholly owns 50 subsidiaries incorporated in either the Republic of Liberia or the Republic of the Marshall Islands - As of March 15, 2021, Safe Bulkers, Inc is a holding company with 50 wholly-owned subsidiaries incorporated in Liberia and the Marshall Islands[335] ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Management's discussion and analysis of financial condition and results, highlighting a net loss despite stable revenues in 2020 and a solid liquidity position A. Operating Results A review of 2020 operating results shows stable revenues but a significant drop in operating income due to lower TCE rates and higher voyage expenses Key Performance Indicators (2019 vs. 2020) | Metric | 2019 | 2020 | | :--- | :--- | :--- | | TCE Rate | $12,805 | $10,559 | | Fleet Utilization (Available Days) | 97.49% | 92.45% | | Daily Vessel Operating Expenses | $4,582 | $4,591 | | Daily General & Administrative Expenses | $1,379 | $1,408 | - Revenues decreased by 0.3% to $206.0 million in 2020, mainly due to lower prevailing charter rates[387] - Voyage expenses increased by 203.6% to $41.6 million in 2020, primarily due to higher vessel repositioning costs and increased bunker consumption[389] - Interest expense decreased by 20.9% to $21.2 million in 2020, driven by a lower weighted average interest rate[398] B. Liquidity and Capital Resources The company maintained a solid liquidity position with $171.2 million as of year-end 2020 and was in compliance with all debt covenants - As of December 31, 2020, the company's liquidity was $171.2 million, consisting of cash, restricted cash, and available credit facilities[401] - Total outstanding debt was $616.2 million as of December 31, 2020, with $81.3 million scheduled for repayment in 2021[401][419] - Future capital expenditure requirements include $52.0 million for two newbuild vessels scheduled for delivery in 2022 and $2.7 million for remaining BWTS investments[401] - The company was in compliance with all debt covenants as of December 31, 2020, which include requirements related to minimum vessel value, leverage, and net worth[426] D. Trend Information Market trends show high volatility in 2020 but a strong recovery in charter rates and vessel prices in early 2021 - The Baltic Dry Index (BDI) was highly volatile in 2020, ranging from a low of 393 to a high of 2,097, before recovering to 1,983 as of March 15, 2021[428] - The company's average Time Charter Equivalent (TCE) rate decreased from $12,805 in 2019 to $10,559 in 2020[430] - As of March 15, 2021, the company had contracted 46% of its remaining 2021 ownership days at an average TCE rate of $16,870, signaling a significant improvement[433] F. Contractual Obligations A summary of total contractual obligations amounting to $798.2 million, primarily comprising long-term debt and payments to managers Contractual Obligations as of December 31, 2020 (in thousands) | Obligation Type | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt | $616,224 | $81,284 | $238,497 | $238,689 | $57,754 | | Interest payments | $58,590 | $17,202 | $26,414 | $12,538 | $2,436 | | Payments to Managers | $70,351 | $20,679 | $41,400 | $8,272 | $— | | Newbuild contracts | $50,284 | $— | $50,284 | $— | $— | | Scrubbers and BWTS | $2,745 | $1,813 | $932 | $— | $— | | Total | $798,194 | $120,978 | $357,527 | $259,499 | $60,190 | ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Information on the company's leadership, board structure, executive compensation, and key governance committees - The company's board of directors consists of seven members, with directors divided into three classes serving staggered three-year terms[442][443][455] - Executive officers, including the CEO, President, and CFO, are provided to the company by its related-party Managers, Safety Management and Safe Bulkers Management[452] - Non-executive independent directors receive an annual fee of $40,000, while the audit committee chair receives an additional annual equivalent of $60,000 in common stock[453][465] - The board has two primary committees: an Audit Committee and a combined Corporate Governance, Nominating and Compensation Committee, both composed of independent directors[460] ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS Details on the company's ownership, highlighting the Hajioannou family's controlling stake and significant related-party management agreements - As of March 15, 2021, the Hajioannou family, including CEO Polys Hajioannou, beneficially owns approximately 48.93% of the company's outstanding common stock, giving them control over shareholder votes[469][472] - The company's operations are managed by Safety Management and Safe Bulkers Management, entities controlled by CEO Polys Hajioannou, under management agreements[474] Management Agreement Fees | Fee Type | Amount | | :--- | :--- | | Daily Ship Management Fee | €875 per vessel | | Annual Ship Management Fee | €3 million | | Vessel Purchase/Sale Commission | 1.0% of contract price | | Newbuild Supervision Fee | $550,000 per newbuild | - The company has restrictive covenant agreements with CEO Polys Hajioannou and affiliated entities that limit their ability to own or operate competing drybulk vessels[497] ITEM 8. FINANCIAL INFORMATION This section confirms the inclusion of financial statements, comments on legal proceedings, and outlines the company's dividend policy - The company is not involved in any legal proceedings expected to have a significant effect on its business, financial position, or results of operations[510] - In 2020, the company declared and paid four quarterly dividends of $0.50 per share on its Series C and Series D Preferred Shares, totaling $4.6 million and $6.4 million, respectively[512] - The company currently does not intend to pay dividends on its common stock, with any future dividends at the discretion of the board and subject to various constraints[514] ITEM 9. THE OFFER AND LISTING Information on the NYSE listing of the company's Common Stock and Series C and D Preferred Shares Company Securities on NYSE | Security | Trading Symbol | | :--- | :--- | | Common Stock | SB | | Series C Preferred Shares | SB. PR. C | | Series D Preferred Shares | SB. PR. D | ITEM 10. ADDITIONAL INFORMATION Details on share capital, organizational documents with anti-takeover provisions, and key tax considerations for the company and its shareholders - As of December 31, 2020, the company's authorized capital stock consists of 200,000,000 shares of Common Stock and 20,000,000 shares of blank check preferred stock[517] - The company adopted a shareholder rights plan on August 6, 2020, which could make a hostile takeover more difficult by causing substantial dilution to an acquirer[529][530][533] - Anti-takeover provisions include a classified board of directors with staggered terms, a prohibition on cumulative voting, and advance notice requirements for stockholder proposals[553][555][558] - The company is a non-resident Marshall Islands corporation and is not subject to income or capital gains tax in the Republic of the Marshall Islands[562] - The company is subject to a 4% U.S. federal tax on its U.S. source gross shipping income unless it qualifies for an exemption under Section 883 of the Code, which it did for 2020[571] ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK An analysis of the company's exposure to market risks, including interest rate, freight rate, and foreign currency exchange risk, and its hedging strategies - The company is exposed to interest rate risk from floating-rate debt and has hedged 44% of its loan exposure through interest rate swaps with a total notional amount of $244.3 million[622][623] - A hypothetical 100 basis point increase in LIBOR would increase the company's interest expense by an estimated $2.6 million in 2021[624][625] - The company uses Forward Freight Agreements (FFAs) and bunker swaps to manage exposure to charter rate and fuel price volatility, incurring a net unrealized loss of $0.2 million on FFAs in 2020[626][627][629] - The company faces foreign currency risk as approximately 28.3% of its 2020 vessel operating expenses and the majority of its management fees were in currencies other than the U.S. dollar[630] PART II ITEM 15. CONTROLS AND PROCEDURES Management's assessment confirms the effectiveness of disclosure controls and internal control over financial reporting as of year-end 2020 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[637] - Management assessed the company's internal control over financial reporting based on the 2013 COSO framework and concluded that it was effective as of December 31, 2020[640][641] - The independent registered public accounting firm, Deloitte, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2020[641][643] ITEM 16. Corporate Governance and Other Disclosures A review of corporate governance topics, including the audit committee's financial expert, accountant fees, share repurchase programs, and foreign private issuer exemptions - The Audit Committee includes Frank Sica, who the board has determined qualifies as an "audit committee financial expert"[649] Principal Accountant Fees (in thousands) | Fee Type | 2019 | 2020 | | :--- | :--- | :--- | | Audit fees | $320 | $378 | | All other fees | $13 | $19 | | Total fees | $333 | $397 | - In 2019 and 2020, the company repurchased a total of 6,126,579 shares of its common stock under publicly announced programs[657][658] - As a foreign private issuer, the company is exempt from certain NYSE corporate governance rules, including the requirement for a majority of independent directors on the board[660][661] ITEM 18. FINANCIAL STATEMENTS Consolidated Financial Statements The audited consolidated financial statements present the company's financial position, results of operations, and cash flows for the three years ended December 31, 2020 Consolidated Balance Sheet Highlights (as of Dec 31, 2020) | Account | Amount (in thousands) | | :--- | :--- | | Total Assets | $1,105,629 | | Vessels, net | $942,164 | | Cash and cash equivalents | $90,038 | | Total Liabilities | $642,770 | | Long-term debt, net | $607,667 | | Total Shareholders' Equity | $444,747 | Consolidated Statement of Operations Highlights (Year ended Dec 31, 2020) | Account | Amount (in thousands) | | :--- | :--- | | Net Revenues | $198,158 | | Operating Income | $10,478 | | Net Loss | $(12,905) | | Net Loss available to common shareholders | $(25,313) | | Loss Per Share | $(0.25) | Consolidated Statement of Cash Flows Highlights (Year ended Dec 31, 2020) | Account | Amount (in thousands) | | :--- | :--- | | Net Cash Provided by Operating Activities | $63,376 | | Net Cash Used in Investing Activities | $(34,784) | | Net Cash Used in Financing Activities | $(9,293) | Notes to Consolidated Financial Statements Detailed notes supplementing the financial statements, covering critical accounting policies, debt, share capital, and derivative instruments - The company's critical audit matter for 2020 was the impairment evaluation of its vessels, specifically the complex judgments involved in estimating future charter rates[681][684] - Vessels are depreciated on a straight-line basis over an estimated useful life of 25 years, while special survey and drydocking costs are expensed as incurred[722][723] - As of December 31, 2020, the company had total long-term debt of $616.2 million, secured primarily by mortgages over its vessels[763][768] - As of December 31, 2020, the company had future minimum time charter revenue of $243.3 million from non-cancellable contracts, with $78.2 million expected in 2021[834]