UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16 OF THE
SECURITIES EXCHANGE ACT OF 1934

For the month of December 2020

Commission File Number: 001-36231
 

SCORPIO BULKERS INC.
(Translation of registrant's name into English)
 

9, Boulevard Charles III, Monaco 98000
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F x   Form 40-F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o.

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o.

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.















 




INFORMATION CONTAINED IN THIS FORM 6-K REPORT
 

Attached as Exhibit 99.1 to this Report on Form 6-K is Management’s Discussion and Analysis of Financial Condition and Results of Operations and the unaudited interim consolidated financial statements, and the accompanying notes thereto, for the nine month period ended September 30, 2020 of Scorpio Bulkers Inc. (the “Company”).

The information contained in this Report on Form 6-K is hereby incorporated by reference into the Company's registration statement on Form F-3 (File No. 333-217445), the Company's registration statement on Form F-3 (File No. 333-221441), the Company's registration statement on Form F-3 (File No. 333-222013) and the Company's registration statement on Form F-3 (File No. 333-222448).






SIGNATURES
 
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.

 
                    
 
 SCORPIO BULKERS INC.
 (registrant)
  
  
Dated:December 11, 2020By: /s/ Hugh Baker
 Hugh Baker
 Chief Financial Officer
 


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    The following is management’s discussion and analysis of financial condition and results of operations of Scorpio Bulkers Inc. for the nine-month period ended September 30, 2020. The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements, including the notes thereto, included in this report, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP, and the discussion included in our Annual Report on Form 20-F for the year ended December 31, 2019, filed with the U.S. Securities and Exchange Commission, or the SEC, on April 2, 2020, or our Annual Report. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, such as those set forth in the section entitled “Risk Factors” included in our Annual Report. We use the term deadweight tons, or dwt, expressed in metric tons, each of which is equivalent to 1,000 kilograms, in describing the size of our vessels.
    Unless otherwise indicated, references to “Scorpio Bulkers,” the “Company,” “we,” “our,” “us,” or similar terms refer to Scorpio Bulkers Inc. and its subsidiaries, except where the context otherwise requires.

All share and per share information included herein have been retroactively adjusted to reflect the one-for-ten reverse stock split of the Company’s common shares, which took effect on April 7, 2020.
Overview
    We are an international shipping company that owns and operates the latest generation of newbuilding drybulk carriers with fuel-efficient specifications and carrying capacities of greater than 30,000 dwt in the international shipping markets. Scorpio Bulkers Inc. was incorporated in the Republic of the Marshall Islands on March 20, 2013.
    Our vessels transport a broad range of major and minor bulk commodities, including ores, coal, grains, and fertilizers, along worldwide shipping routes, and are employed primarily in the spot market or in spot market-oriented pools of similarly sized vessels. At September 30, 2020, we had an operating fleet of 54 vessels consisting of 49 owned or finance leased vessels (including 16 Kamsarmax vessels and 33 Ultramax vessels), and five time chartered-in Kamsarmax vessels.
    The Company is organized by vessel type into two operating segments:
Ultramax - includes vessels ranging from approximately 60,200 dwt to 64,000 dwt
Kamsarmax - includes vessels ranging from approximately 82,000 dwt to 84,000 dwt

    Our vessels are commercially managed by Scorpio Commercial Management S.A.M., or SCM, and technically managed by Scorpio Ship Management S.A.M., or SSM, pursuant to a master agreement (as amended and restated from time to time) effective as from January 1, 2018, or the Master Agreement. SCM and SSM are controlled by the Lolli-Ghetti family, of which Emanuele Lauro, our Chairman and Chief Executive Officer, and Filippo Lauro, our Vice President, are members. Additional dry bulk vessels that we may acquire in the future are expected to be managed under the Master Agreement or on substantially similar terms.
    SCM’s commercial management services include securing employment for our vessels in the spot market or on time charters. SCM also manages the Scorpio Pools identified below, which are spot-market oriented pools of similarly sized vessels operated by companies affiliated with us, in which a number of our vessels and vessels owned by third parties are employed.
    SSM’s technical management services include providing technical support, such as arranging the hiring of qualified officers and crew, supervising the maintenance and performance of our vessels, purchasing supplies, spare parts and new equipment, arranging and supervising drydocking and repairs, and monitoring regulatory and classification society compliance and customer standards.
    We have also entered into an administrative services agreement, as amended from time to time, or the Administrative Services Agreement, with Scorpio Services Holding Limited, or SSH, an entity controlled by the Lolli-Ghetti family. The administrative services provided under this agreement primarily include provision of administrative staff, office space and accounting, legal compliance, financial and information technology services. We reimburse SSH for the direct or indirect expenses it incurs in providing us with the administrative services described above.
1


    We generate revenue by charging customers for the transportation of their drybulk cargoes using our vessels. Historically, these services generally have been provided under the following basic types of contractual relationships:
Commercial Pools, whereby we participate with other shipowners to operate a large number of vessels as an integrated transportation system, which offers customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools negotiate charters primarily in the spot market but may also arrange time charter agreements. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and COAs (described below), thus generating higher effective TCE revenues than otherwise might be obtainable in the spot market.
Voyage charters, which are charters for short intervals that are priced on current, or “spot,” market rates.
Time charters, which are chartered to customers for a fixed period of time at rates that are generally fixed, but may contain a variable component based on inflation, interest rates, or current market rates.
    For all of our vessels’ contractual relationships, we are responsible for crewing and other vessel operating costs for our owned or finance leased vessels and the charterhire expense for vessels that we time charter-in.
    The table below illustrates the primary distinctions among these different employment arrangements:
Commercial PoolVoyage CharterTime Charter
Typical contract lengthVariesSingle voyageUp to one year or more
Hire rate basis
VariesVariesDaily
Voyage expenses
Pool paysWe payCustomer pays
Vessel operating costs for owned or finance leased vessels
We payWe payWe pay
Charterhire expense for vessels chartered-in
We payWe payWe pay
Off-hire
Pool does not payCustomer does not payCustomer does not pay
See “Important Financial and Operational Terms and Concepts” below.
As of the date of this report, some of our owned, finance leased and time chartered-in vessels were operating in the Scorpio Kamsarmax Pool or the Scorpio Ultramax Pool, which we refer to together as the “Scorpio Pools,” which are spot market-oriented commercial pools managed by our commercial manager, SCM, a related party of ours.
Important Financial and Operational Terms and Concepts
We use a variety of financial and operational terms and concepts. These include the following:
Hire rate. The basic payment from the charterer for the use of the vessel.
Vessel revenues. Vessel revenues primarily include revenues from time charters, pool revenues, and voyage charters. Vessel revenues are affected by hire rates and the number of days a vessel operates. Vessel revenues are also affected by the mix of business between vessels on time charter, vessels in pools, and vessels operating on voyage charter. Revenues from vessels in pools and on voyage charter are more volatile, as they are typically tied to prevailing market rates.
Voyage charters. Voyage charters or spot voyages are charters under which the customer pays a transportation charge for the movement of a specific cargo between two or more specified ports. We pay all of the voyage expenses.
Voyage expenses. Voyage expenses primarily include bunkers, port charges, canal tolls, cargo handling operations and brokerage commissions paid by us under voyage charters, as well as brokerage commissions and miscellaneous voyage expenses that we are unable to collect under time charter and pool arrangements. These expenses are subtracted from voyage charter revenues to calculate TCE revenues.
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Vessel operating costs. For our owned and finance leased vessels, we are responsible for vessel operating costs, which include crewing, repairs and maintenance, insurance, stores, lube oils, communication expenses, and technical management fees.
Technical management fees are paid to SSM. Pursuant to our Master Agreement, SSM provides us with technical management services, and we provide them with the ability to subcontract technical management of our vessels.
Charterhire. Charterhire is the amount we pay the owner for time chartered-in vessels. The amount is usually for a fixed period of time at rates that are generally fixed, but may contain a variable component based on inflation, interest rates, or current market rates. The vessel’s owner is responsible for crewing and other vessel operating costs.
Drydocking. We periodically drydock each of our owned and finance leased vessels for inspection, repairs and maintenance and any modifications to comply with industry certification or governmental requirements. Generally, each vessel is drydocked every 30 months to 60 months. We capitalize a substantial portion of the costs incurred during drydocking and amortize those costs on a straight-line basis from the completion of a drydocking to the estimated completion of the next drydocking. We immediately expense costs for routine repairs and maintenance performed during drydocking that do not improve or extend the useful lives of the vessels. The number of drydockings undertaken in a given period and the nature of the work performed determine the level of drydocking expenditures.
Depreciation. Depreciation expense typically consists of:
charges related to the depreciation of the historical cost of our owned or finance leased vessels (less an estimated residual value) over the estimated useful lives of the vessels; and
charges related to the amortization of drydocking expenditures over the estimated number of years to the next scheduled drydocking.
Time charter equivalent (TCE) revenue or rates. We report TCE revenue, a non-GAAP financial measure, because (i) we believe it provides additional meaningful information in conjunction with voyage revenues and voyage expenses, the most directly comparable U.S. GAAP measures, (ii) it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance, (iii) it is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance irrespective of changes in the mix of charter types (i.e., spot charters, time charters and bareboat charters) under which the vessels may be employed between the periods, and (iv) we believe that it presents useful information to investors. TCE revenue is vessel revenue less voyage expenses, including bunkers, port charges and commissions to SCM. The TCE rate achieved on a given voyage is expressed in U.S. dollars/day and is generally calculated by dividing TCE revenue by the number of revenue days in the period. For a reconciliation of TCE revenue, deduct voyage expenses from revenue on our Statement of Operations. Please also see “Non-GAAP Financial Measures.”
Revenue days. Revenue days are the total number of calendar days our vessels were in service during a period, less the total number of off-hire days during the period associated with repairs or drydockings. Consequently, revenue days represent the total number of days available for the vessel to earn revenue. Idle days, which are days when a vessel is available to earn revenue, yet is not employed, are included in revenue days. We use revenue days to show changes in net vessel revenues between periods.
Contract of affreightment. A contract of affreightment, or COA, relates to the carriage of specific quantities of cargo with multiple voyages over the same route and over a specific period of time which usually spans a number of years. A COA does not designate the specific vessels or voyage schedules that will transport the cargo, thereby providing both the charterer and shipowner greater operating flexibility than with voyage charters alone. The charterer has the flexibility to determine the individual voyage scheduling at a future date while the shipowner may use different vessels to perform these individual voyages. As a result, COAs are mostly entered into by large fleet operators, such as pools or shipowners with large fleets of the same vessel type. We pay the voyage expenses while the freight rate normally is agreed on a per cargo ton basis.
Commercial pools. To increase vessel utilization and revenues, we participate in commercial pools with other shipowners and operators of similar modern, well-maintained vessels. By operating a large number of vessels as an integrated transportation system, commercial pools offer customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools employ experienced commercial charterers and operators who have close working relationships with customers and brokers, while technical management is performed by each shipowner. Pools negotiate charters with customers primarily in the spot market. The size and scope of these pools enable them to enhance utilization rates for pool
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vessels by securing backhaul voyages and COAs, thus generating higher effective TCE revenues than otherwise might be obtainable in the spot market while providing a higher level of service offerings to customers.
Off-hire. Time a vessel is not available for service due primarily to scheduled and unscheduled repairs or drydockings. For time chartered-in vessels, we do not pay the charterhire expense when the vessel is off-hire.
Operating days. Operating days are the total number of available days in a period with respect to owned and finance leased vessels, before deducting available days due to off-hire days and days in drydock. Operating days is a measurement that is only applicable to our owned and finance leased vessels, not our time chartered-in vessels.
Non-GAAP Financial Measures
    To supplement our financial information presented in accordance with U.S. GAAP, management uses certain “non-GAAP financial measures” as such term is defined in Regulation G promulgated by the SEC. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in, or excluded from, the most directly comparable measure calculated and presented in accordance with U.S. GAAP. Management believes the presentation of these measures provides investors with greater transparency and supplemental data relating to our financial condition and results of operations, and therefore a more complete understanding of factors affecting our business than U.S. GAAP measures alone. In addition, management believes the presentation of these matters is useful to investors for period-to-period comparison of results as the items may reflect certain unique and/or non-operating items such as asset sales, write-offs, contract termination costs or items outside of management’s control.

    Earnings before interest, taxes, depreciation and amortization, or EBITDA, adjusted net (loss) income and related per share amounts, as well as adjusted EBITDA and TCE revenue are non-GAAP financial measures that we believe provide investors with a means of evaluating and understanding how our management evaluates our operating performance. These non-GAAP financial measures should be viewed in addition to the results reported under U.S. GAAP, and should not be considered in isolation from, as substitutes for, nor superior to financial measures prepared in accordance with U.S. GAAP.
Reconciliations of adjusted net (loss) income, EBITDA, adjusted EBITDA and TCE revenue as determined in accordance with U.S. GAAP for the nine months ended September 30, 2020 and 2019 are provided below (dollars in thousands, except per share data).
EBITDA (unaudited)
Nine Months Ended September 30,
In thousands20202019
Net (loss) income$(206,380)$29,570 
Add Back:
Net interest expense23,915 33,399 
Depreciation and amortization (1)
47,912 53,864 
EBITDA$(134,553)$116,833 
(1) Includes depreciation, amortization of deferred financing costs and restricted stock amortization.
Adjusted Net (Loss) Income (unaudited)
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For the Nine Months Ended September 30,
20202019
In thousands, except per share dataAmountPer diluted shareAmount Per diluted share
Net (loss) income$(206,380)$(23.34)$29,570 $4.25 
Adjustments:
Loss / write-down on assets held for sale36,607 4.14 12,041 1.73 
Write-off of deferred financing cost366 0.04 446 0.06 
Total adjustments36,973 4.18 12,487 1.79 
Adjusted net (loss) income$(169,407)$(19.16)$42,057 $6.04 
Adjusted EBITDA (unaudited)
Nine Months Ended September 30,
In thousands20202019
Net (loss) income$(206,380)$29,570 
Impact of Adjustments36,973 12,487 
Adjusted net income(169,407)42,057 
Add Back:
Net interest expense23,915 33,399 
Depreciation and amortization (1)
47,546 53,417 
Adjusted EBITDA$(97,946)$128,873 
(1) Includes depreciation, amortization of deferred financing costs and restricted stock amortization.
TCE Revenue (unaudited)
    Time Charter Equivalent (TCE) revenue is defined as voyage revenues less voyage expenses. Such TCE revenue, divided by the number of our available days during the period, or revenue days, is TCE per revenue day, which we believe is consistent with industry standards. TCE per revenue day is a common shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charter hire rates for vessels on voyage charters are generally not expressed in per-day amounts while charter hire rates for vessels on time charters generally are expressed in such amounts.
        
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Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019
Time charter equivalent revenue ($000’s):  
Vessel revenue$113,679 $164,315 
Voyage expenses(4,517)(846)
Time charter equivalent revenue$109,162 $163,469 
Time charter equivalent revenue attributable to:  
Kamsarmax$45,205 $60,673 
Ultramax63,957 102,796 
 $109,162 $163,469 
Revenue days:  
Kamsarmax5,232 5,198 
Ultramax8,411 10,269 
Combined13,643 15,467 
TCE per revenue day:  
Kamsarmax$8,640 $11,672 
Ultramax$7,604 $10,010 
Combined$8,001 $10,569 
Executive Summary
For the first nine months of 2020, the Company’s GAAP net loss was $206.4 million, or $23.34 per diluted share, including a loss of approximately $106.7 million and cash dividend income of $0.9 million, or $12.31 per diluted share, from the Company’s equity investment in Scorpio Tankers Inc., a write-down of assets of approximately $36.6 million, or $4.14 per diluted share, related to the classification of four vessels (SBI Taurus, SBI Bolero, SBI Jaguar and SBI Rock) as held for sale and the agreement to sell the SBI Sousta and a write-off of approximately $0.4 million, or $0.04 per diluted share, of deferred financing costs on the credit facilities related to three vessels that were sold in the first nine months of 2020 (SBI Taurus, SBI Bolero and SBI Jaguar). For the first nine months of 2019, the Company’s GAAP net income was $29.6 million, or $4.25 per diluted share. These results include a non-cash gain of approximately $68.6 million and cash dividend income of $1.6 million, or $10.09 per diluted share, from the Company’s equity investment in Scorpio Tankers Inc., a write-down of assets either sold or held for sale and write-off of related deferred financing costs totaling approximately $12.5 million, or $1.79 per diluted share, and the write-off of deferred financing costs of approximately $3.2 million, or $0.45 per diluted share.

EBITDA for the first nine months of 2020 and 2019 were a loss of $134.6 million and a gain of $116.8 million, respectively (see Non-GAAP Financial Measures above).

For the first nine months of 2020, the Company’s adjusted net loss was $169.4 million, or $19.16 adjusted per diluted share, which excludes the impact of the write-down of assets of approximately $36.6 million and the write-off of deferred financing costs on credit facilities related to the three vessels sold of approximately $0.4 million. Adjusted EBITDA for the first nine months of 2020 was a loss of $97.9 million (see Non-GAAP Financial Measures above).

For the first nine months of 2019, the Company’s adjusted net income was $42.1 million, or $6.04 adjusted per diluted share, which excludes the impact of the write-down of assets either sold or held for sale of approximately $12.0 million and the write-off of related deferred financing costs of approximately $0.4 million. Adjusted EBITDA for the first nine months of 2019 was $128.9 million (see Non-GAAP Financial Measures above).

The Company’s vessel revenues for the first nine months of 2020 were $113.7 million compared to $164.3 million in the first nine months of 2019. The Company’s TCE revenue (see Non-GAAP Financial Measures above) for the first nine months of 2020 was $109.2 million, a decrease of $54.3 million from the prior year period.

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Total operating expenses for the first nine months of 2020 were $186.8 million, including the write-down of vessels of approximately $36.6 million, compared to $165.2 million in the first nine months of 2019, which included a charge related to the classification of vessels as sold or held for sale of approximately $12.0 million.

Recent and Other Developments

COVID-19

Since the beginning of the calendar year 2020, the ongoing outbreak of the novel coronavirus (COVID-19) that originated in China in December 2019 and that has spread to most developed nations of the world has resulted in numerous actions taken by governments and governmental agencies in an attempt to mitigate the spread of the virus. These measures have resulted in a significant reduction in global economic activity and extreme volatility in the global financial and commodities markets. A significant reduction in manufacturing and other economic activities has and is expected to continue to have a materially adverse impact on the global demand for raw materials, coal and other bulk cargoes that our customers transport on our vessels. This significant decline in the demand for dry bulk tonnage may materially and adversely impact our ability to profitably charter our vessels. When these measures and the resulting economic impact will end and what the long-term impact of such measures on the global economy will be are not known at this time. As a result, the extent to which COVID-19 will impact the Company’s results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.

Quarterly Cash Dividend

In the third quarter of 2020, the Company’s Board of Directors declared and the Company paid a quarterly cash dividend of $0.05 per share totaling approximately $0.6 million.

On October 27, 2020, the Company’s Board of Directors declared a quarterly cash dividend of $0.05 per share, payable on or about December 15, 2020, to all shareholders of record as of November 13, 2020.

Vessel Sales

During the third quarter of 2020, the Company entered into agreements with unaffiliated third parties to sell the following two Kamsarmax vessels.

Vessel NameVessel TypeSales Price
($000’s)
Delivery
to Buyer
SBI RockKamsarmax$18,030Delivered
SBI SoustaKamsarmax18,435Delivered


During the fourth quarter of 2020, the Company entered into agreements with unaffiliated third parties to sell 21 vessels, including 14 Ultramax vessels and seven Kamsarmax vessels. A summary of the transactions is as follows.

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Vessel NameVessel TypeSales Price
($000’s)
Expected Delivery
to Buyer
SBI CongaKamsarmax$18,400 Delivered
SBI PhoenixUltramax17,000Delivered
SBI SamsonUltramax17,000Delivered
SBI HeraUltramax18,460Delivered
SBI ZeusUltramax18,500Delivered
SBI HyperionUltramax17,500Delivered
SBI ReggaeKamsarmax19,500January - May 2021
SBI JiveKamsarmax20,500February - May 2021
SBI SwingKamsarmax20,500February - May 2021
SBI MazurkaKamsarmax20,500February - May 2021
SBI ParaparaKamsarmax20,500February - May 2021
SBI GeminiUltramax16,000January 2021
SBI HydraUltramax16,750January - April 2021
SBI AntaresUltramax16,750January - April 2021
SBI BravoUltramax16,750January - April 2021
SBI MaiaUltramax16,750January - April 2021
SBI ApolloUltramax19,200January 2021
SBI PoseidonUltramax19,200January 2021
SBI OrionUltramax16,100January - March 2021
SBI TethysUltramax18,250January - March 2021
SBI ZumbaKamsarmax20,000January - March 2021

The Company expects to recognize asset losses on sale / write-downs of approximately $191.8 million in the fourth quarter of 2020 in relation to the sale of the above vessels. The Company also expects to write-off approximately $4.6 million of deferred financing costs when the related debt is repaid in the fourth quarter of 2020 or first half of 2021.

Letter of Intent to Purchase Wind Turbine Installation Vessel

In August 2020, the Company signed a letter of intent to enter into a shipbuilding contract with Daewoo Shipbuilding and Marine Engineering Inc. to build a wind turbine installation vessel (“WTIV”) which is expected to be delivered in 2023, with options to construct three further similar vessels. The Company’s purchase of the WTIV is subject to the negotiation and execution of definitive documentation.

Financial Results for the Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
    For the first nine months of 2020, the Company’s GAAP net loss was $206.4 million, or $23.34 per diluted share, including a loss of approximately $106.7 million and cash dividend income of $0.9 million, or $12.31 per diluted share, from the Company’s equity investment in Scorpio Tankers Inc., a write-down of assets of approximately $36.6 million, or $4.14 per diluted share, related to the classification of four vessels (SBI Taurus, SBI Bolero, SBI Jaguar and SBI Rock) as held for sale and the agreement to sell the SBI Sousta and a write-off of approximately $0.4 million, or $0.04 per diluted share, of deferred financing costs on the credit facilities related to three vessels that were sold in the first nine months of 2020 (SBI Taurus, SBI Bolero and SBI Jaguar). For the first nine months of 2019, the Company’s GAAP net income was $29.6 million, or $4.25 per diluted share. These results include a non-cash gain of approximately $68.6 million and cash dividend income of $1.6 million, or $10.09 per diluted share, from the Company’s equity investment in Scorpio Tankers Inc., a write-down of assets either sold or held for sale and write-off of related deferred financing costs totaling approximately $12.5 million, or $1.79 per diluted share, and the write-off of deferred financing costs of approximately $3.2 million, or $0.45 per diluted share.
EBITDA for the first nine months of 2020 and 2019 were a loss of $134.6 million and a gain of $116.8 million, respectively (see Non-GAAP Financial Measures above).
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For the first nine months of 2020, the Company’s adjusted net loss was $169.4 million, or $19.16 adjusted per diluted share, which excludes the impact of the write-down of assets of approximately $36.6 million and the write-off of deferred financing costs on credit facilities related to the three vessels sold of approximately $0.4 million. Adjusted EBITDA for the first nine months of 2020 was a loss of $97.9 million (see Non-GAAP Financial Measures above).

For the first nine months of 2019, the Company’s adjusted net income was $42.1 million, or $6.04 adjusted per diluted share, which excludes the impact of the write-down of assets either sold or held for sale of approximately $12.0 million and the write-off of related deferred financing costs of approximately $0.4 million. Adjusted EBITDA for the first nine months of 2019 was $128.9 million (see Non-GAAP Financial Measures above).

The Company’s vessel revenues for the first nine months of 2020 were $113.7 million compared to $164.3 million in the first nine months of 2019. The Company’s TCE revenue (see Non-GAAP Financial Measures above) for the first nine months of 2020 was $109.2 million, a decrease of $54.3 million from the prior year period.

Total operating expenses for the first nine months of 2020 were $186.8 million, including the write-down of vessels of approximately $36.6 million, compared to $165.2 million in the first nine months of 2019, which included a charge related to the classification of vessels as sold or held for sale of approximately $12.0 million.

Ultramax Operations
Nine Months Ended September 30,
Dollars in thousands20202019Change% Change
TCE Revenue:
Vessel revenue
$66,744 $103,234 $(36,490)(35)
Voyage expenses
2,787 438 2,349 536 
TCE Revenue$63,957 $102,796 $(38,839)(38)
Operating expenses:
Vessel operating costs
47,813 50,962 (3,149)(6)
Charterhire expense
2,487 2,731 (244)(9)
Vessel depreciation
25,499 27,108 (1,609)(6)
General and administrative expense
2,993 3,131 (138)(4)
Loss / write-down on assets held for sale
7,615 4,688 2,927 62 
Total operating expenses
$86,407 $88,620 $(2,213)(2)
Operating income$(22,450)$14,176 $(36,626)(258)
    
Vessel revenue for the Company’s Ultramax Operations decreased to $66.7 million for the first nine months of 2020 from $103.2 million in the prior year period.

TCE revenue (see Non-GAAP Financial Measures above) for the Company’s Ultramax Operations was $64.0 million for the first nine months of 2020 compared to $102.8 million for the prior year period. The Company’s Ultramax fleet consisted of a day-weighted average of 34 vessels owned or finance leased and one vessel time chartered-in during the first nine months of 2020 and 37 vessels owned or finance leased and one vessel time chartered-in during the first nine months of 2019. TCE revenue per day was $7,604 and $10,010 for the first nine months of 2020 and 2019, respectively.

Nine Months Ended September 30,
Ultramax Operations:20202019Change% Change
TCE Revenue (in thousands)
$63,957 $102,796 $(38,839)(38)
TCE Revenue / Day$7,604 $10,010 $(2,406)(24)
Revenue Days8,411 10,269 (1,858)(18)
    
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The Company’s Ultramax Operations vessel operating costs were $47.8 million for the first nine months of 2020, including approximately $2.6 million of takeover costs and contingency expenses, compared with vessel operating costs of $51.0 million in the prior year period, relating to the 34 and 37 vessels owned or finance leased on average, respectively, during the periods. The year over year decrease is due primarily to the reduction in fleet size and the COVID-19 pandemic, which for most of the year reduced crew travel and the purchase of stores and spares and the performance of repairs. Daily operating costs excluding takeover costs and contingency expenses for the first nine months of 2020 remained flat at $4,888 compared to $4,873 in the prior year period.

Charterhire expense for the Company’s Ultramax Operations was approximately $2.4 million and $2.7 million for the first nine months of 2020 and 2019, respectively, and relates to the vessel that the Company time chartered-in until August 2020 when the vessel was redelivered to its owner.

Ultramax Operations depreciation decreased from $27.1 million to $25.5 million in the first nine months of 2019 and 2020, respectively, due to the decrease in fleet size and the classification of vessels as held for sale (upon which depreciation ceases).

General and administrative expense for the Company’s Ultramax Operations, which consists primarily of administrative service fees, which are incurred on a per vessel per day basis, and bank charges, which are incurred based on the number of transactions, was approximately $3.0 million for the first nine months of 2020 and $3.1 million in the prior year period.

During the first nine months of 2020, the Company recorded a write-down on assets held for sale of $7.6 million related to the classification of two Ultramax vessels, the SBI Jaguar and SBI Taurus, as held for sale. The sales were completed in April 2020. During the first nine months of 2019, the Company recorded a write-down on assets held for sale of $4.7 million related to the classification of the SBI Cougar and SBI Puma as held for sale. The sale of the vessels was completed in October 2019.
Kamsarmax Operations
Nine Months Ended September 30,
Dollars in thousands20202019Change% Change
TCE Revenue:
Vessel revenue
$46,935 $61,081 $(14,146)(23)
Voyage expenses
1,730 408 1,322 324 
TCE Revenue$45,205 $60,673 $(15,468)(25)
Operating expenses:
Vessel operating costs
23,609 25,730 (2,121)(8)
Charterhire expense
13,061 8,039 5,022 62 
Vessel depreciation
13,614 13,695 (81)(1)
General and administrative expense
1,468 1,594 (126)(8)
Loss / write-down on assets held for sale
28,992 7,353 21,639 294 
Total operating expenses
$80,744 $56,411 $24,333 43 
Operating income$(35,539)$4,262 $(39,801)934 
    
Vessel revenue for the Company’s Kamsarmax Operations decreased to $46.9 million in the first nine months of 2020 from $61.1 million in the prior year period.

TCE revenue (see Non-GAAP Financial Measures above) for the Company’s Kamsarmax Operations was $45.2 million for the first nine months of 2020 associated with a day-weighted average of 17 vessels owned or finance leased and five vessels time chartered-in, compared to $60.7 million for the prior year period associated with a day-weighted average of 19 vessels owned or finance leased. TCE revenue per day was $8,640 and $11,672 for the first nine months of 2020 and 2019, respectively.
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Nine Months Ended September 30,
Kamsarmax Operations:20202019Change% Change
TCE Revenue (in thousands)
$45,205 $60,673 $(15,468)(25)
TCE Revenue / Day$8,640 $11,672 $(3,032)(26)
Revenue Days5,232 5,198 34 
    
Kamsarmax Operations vessel operating costs were $23.6 million for the first nine months of 2020, including approximately $1.3 million of takeover costs and contingency expenses, compared with vessel operating costs of $25.7 million in the prior year period, relating to 17 and 19 vessels owned or finance leased on average, respectively, during the periods. The year over year decrease is due primarily to the reduction in fleet size and the COVID-19 pandemic, which for most of the year reduced crew travel and the purchase of stores and spares and the performance of repairs. Daily operating costs excluding takeover costs and contingency expenses for the first nine months of 2020 decreased to $4,929 from $4,990 in the prior year period.

Kamsarmax Operations charterhire expense was $13.0 million in the first nine months of 2020, relating to five vessels the Company began time chartering-in during 2019. The year over year increase reflects the full year impact of the cost in 2020.

Kamsarmax Operations depreciation was $13.6 million and $13.7 million in the first nine months of 2020 and 2019, respectively. While the fleet size decreased, vessels were drydocked or had scrubbers installed both of which added to the costs being depreciated.

General and administrative expense for the Company’s Kamsarmax Operations was $1.5 million for the first nine months of 2020 and $1.6 million in the first nine months of 2019. The expense consists primarily of administrative services fees, which are incurred on a per vessel per day basis, and bank charges, which are incurred based on the number of transactions.

During the first nine months of 2020, the Company recorded a write down on assets held for sale of $29.0 million related to the classification of two vessels (SBI Bolero and SBI Rock) as held for sale and the agreement to sell the SBI Sousta at September 30, 2020. In the first nine months of 2019, $7.4 million was written down related to assets either sold or held for sale.
Corporate
Certain general and administrative expenses the Company incurs, as well as all of its financial expenses and investment income or losses, are not attributable to a specific segment. Accordingly, these costs are not allocated to the Company’s segments. These general and administrative expenses, including compensation, audit, legal and other professional fees, as well as the costs of being a public company, such as director fees, were $15.1 million and $19.3 million in the first nine months of 2020 and 2019, respectively. The decrease from the prior year is due primarily to a reduction in compensation costs.

The Company recorded a loss of approximately $106.7 million for the first nine months of 2020 and received cash dividend income of $0.9 million from its equity investment in Scorpio Tankers Inc. During the first nine months of 2019, the Company recorded a non-cash gain of approximately $68.6 million as well as cash dividend income of $1.6 million also related to its equity investment in Scorpio Tankers Inc.

Financial expenses, net of interest income decreased to $27.2 million in the first nine months of 2020 from $39.8 million in the prior year period due to lower LIBOR rates and the redemption of the Company’s 7.50% Senior Unsecured Notes in August 2019.

Liquidity and Capital Resources
Our primary sources of funds are cash flow from our vessels, a number of which operate in the Scorpio Pools, credit facility borrowings and equity offerings. Our liquidity and capital needs arise primarily from working capital requirements to operate our fleet, payments to meet or refinance our debt obligations and expenditures for vessel acquisition/construction, as well as to maintain the high quality of our fleet including drydocking and scrubber installations. We also make occasional repurchases of shares of our common stock at the sole discretion of management based on market conditions and other factors.

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At September 30, 2020, cash and cash equivalents totaled $40.2 million and we had approximately $73.8 million in available and undrawn capacity under our revolving credit facilities. We believe that our current cash and cash equivalents balance, available credit under existing credit facilities, as well as our operating cash flows will be sufficient to fund the operation of our fleet as well as other liquidity requirements such as debt repayment and capital expenditures.

Recent Financing Activities
    Our recent financing activities include the following, which are more fully described in the “Secured Credit Facilities and Financing Obligations” section below:
$184 Million Credit Facility

During the fourth quarter of 2020, the Company repaid $56.2 million in aggregate related to the sales of the SBI Rock, SBI Sousta, SBI Conga, SBI Hera and SBI Zeus.

$90 Million Credit Facility

During the fourth quarter of 2020, the Company repaid $36.9 million in aggregate related to the sales of the SBI Phoenix, SBI Samson and SBI Hyperion.

Cash Flow
Operating Activities
    The table below summarizes the effect of the major components of our operating cash flow.
Nine Months Ended September 30,
20202019
Net (loss) income(206,380)29,570 
Non-cash items included in net (loss) income187,663 (5,980)
Related party balances(5,110)(2,769)
Effect of changes in other working capital and operating assets and liabilities(23,825)1,859 
Net cash provided by operating activities(47,652)22,680 
    The cash flow provided by operating activities for the nine months ended September 30, 2020 reflects the lower time charter rates earned during the period. Our non-cash items include unrealized gains on investments, the loss/write-down on vessels held for sale, vessel depreciation, amortization of restricted stock and deferred financing costs.
Investing Activities
Net cash provided by investing activities of $53.6 million primarily reflects the proceeds received from the sale of 2.25 million common shares of Scorpio Tankers Inc. (NYSE: STNG) in May 2020 and the sale of two Ultramax vessels and one Kamsarmax vessel, partially offset by payments made on our scrubber program.
Financing Activities
Net cash used in financing activities of $8.3 million primarily reflects the repayments of long term debt related to the sale of vessels, as well as per the normal amortization schedule offset by net proceeds from our issuance of stock and the refinancing of existing bank debt under financing obligations via our new sale and leaseback transactions.
Share Repurchase Program
In January 2019, the Company’s Board of Directors authorized a Securities Repurchase Program to purchase up to an aggregate of $50.0 million of the Company’s securities (the “Program”). During the fourth quarter of 2020, the Company repurchased approximately 0.8 million of the Company’s common shares under the Program for an aggregate purchase price of approximately $11.3 million (or at an average purchase price of $15.01 per repurchased share) funded from available cash resources. Approximately $38.7 million remains available for further repurchases under the Program.

Dividend
12


    Year to date 2020, our Board of Directors declared cash dividends totaling $0.35 per share or $3.2 million in the aggregate, of which $2.6 million has been paid as of the date of this filing.
Secured Credit Facilities and Financing Obligations
As of September 30, 2020, we had $650.8 million of outstanding borrowings under the credit agreements and financing obligations as shown in the following table (dollars in thousands):
September 30, 2020December 11, 2020
$85.5 Million Credit Facility$33,531 $33,531 
$30.0 Million Credit Facility26,166 25,055 
$60.0 Million Credit Facility24,029 24,029 
$184.0 Million Credit Facility66,552 77,458 
$34.0 Million Credit Facility30,786 30,786 
$90.0 Million Credit Facility72,550 35,611 
$19.6 Million Lease Financing - SBI Rumba15,935 15,721 
$19.0 Million Lease Financing - SBI Tango16,412 16,206 
$19.0 Million Lease Financing - SBI Echo16,548 16,355 
$20.5 Million Lease Financing - SBI Hermes18,091 17,872 
$21.4 Million Lease Financing - SBI Samba19,322 19,080 
CMBFL Lease Financing104,963 102,282 
$45.0 Million Lease Financing - SBI Virgo & SBI Libra40,383 39,706 
AVIC Lease Financing104,330 103,185 
$67.3 Million Lease Financing61,19760,257 
Total bank loans and financing obligations outstanding$650,795 $617,134 
Our secured credit facilities are secured by, among other things: a first priority mortgage over the relevant collateralized vessels; a first priority assignment of earnings, and insurances from the mortgaged vessels for the specific facility; a pledge of the earnings account of the mortgaged vessels for the specific facility; and a pledge of the equity interests of each vessel owning subsidiary under the specific facility.

Amendment of Minimum Liquidity Covenant

The Company agreed with its lenders and a finance lessor to permanently reduce the level of the minimum liquidity covenant under the relevant debt financings from the greater of: (i) $25.0 million or (ii) $700,000 per owned vessel, to the greater of: (i) $25.0 million or (ii) $500,000 per owned vessel. As a result, on the basis of the current owned or finance leased fleet size of 41 vessels, the minimum liquidity requirement is $25.0 million (a reduction from $28.7 million).

In consideration for the above amendment, the Company made advance principal repayments of approximately $7.7 million in aggregate in the third quarter of 2020 that would have fallen due in the third quarter of 2021.

Payment Holiday on Certain Future Principal Repayments

In addition, the Company agreed with a specific finance lessor to defer two quarterly installment payments (i.e. Q1 2021 and Q2 2021) to the subsequent eight quarters (in equal payments). As a result, the Company will not have to make certain quarterly installment payments on this lease financing totaling approximately $4.6 million that would have fallen due during the first half of 2021.

Loan Covenants
13


    Certain of our credit facilities and financing obligations discussed above, have, among other things, the following financial covenants, as amended or waived, the most stringent of which require us to maintain:
The ratio of net debt to total capitalization of no greater than 0.60 to 1.00.
Consolidated tangible net worth (adjusted for a minimum amount of $100.0 million in historical non-operating costs and to exclude certain future non-operating items, including impairments) of no less than $500.0 million plus: (i) 25% of cumulative positive net income (on a consolidated basis) for each fiscal quarter commencing on or after December 31, 2013, and (ii) 50% of the value of any new equity issues occurring on or after December 31, 2013.
Minimum liquidity of not less than the greater of $25.0 million and $0.5 million per owned or finance leased vessel.
Minimum fair value of the collateral for each credit facility, such that the aggregate fair value of the vessels collateralizing the credit facility be between 140% and 160% of the aggregate principal amount outstanding under such credit facility, or, if we do not meet these thresholds, to prepay a portion of the loan or provide additional security to eliminate the shortfall.
Minimum fair value of the vessel for certain financing obligations be 115% of the principal amount outstanding under such financing obligation, or, if we do not meet this threshold, to prepay a portion of the financing obligation or provide additional security to eliminate the shortfall.
    Our credit facilities and financing obligations discussed above have, among other things, the following restrictive covenants which may restrict our ability to, among other things:
incur additional indebtedness;
sell the collateral vessel, if applicable;
make additional investments or acquisitions;
pay dividends; or
effect a change of control of the Company.

    A violation of any of the financial covenants contained in our credit facilities described above may constitute an event of default under all of our credit facilities, which, unless cured within the grace period set forth under the credit facility, if applicable, or waived or modified by our lenders, provides our lenders with the right to, among other things, require us to post additional collateral, enhance our equity and liquidity, increase our interest payments, pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet, reclassify our indebtedness as current liabilities, accelerate our indebtedness, and foreclose their liens on our vessels and the other assets securing the credit facilities, which would impair our ability to continue to conduct our business.

In addition, our credit facilities and finance leases contain subjective acceleration clauses under which the debt could become due and payable in the event of a material adverse change in our business.

    Furthermore, our credit facilities contain a cross-default provision that may be triggered by a default under one of our other credit facilities. A cross-default provision means that a default on one loan would result in a default on certain of our other loans. Because of the presence of cross-default provisions in certain of our credit facilities, the refusal of any one lender under our credit facilities to grant or extend a waiver could result in certain of our indebtedness being accelerated, even if our other lenders under our credit facilities have waived covenant defaults under the respective credit facilities. If our secured indebtedness is accelerated in full or in part, it would be very difficult in the current financing environment for us to refinance our debt or obtain additional financing and we could lose our vessels and other assets securing our credit facilities if our lenders foreclose their liens, which would adversely affect our ability to conduct our business.

    Moreover, in connection with any waivers of or amendments to our credit facilities that we have obtained, or may obtain in the future, our lenders may impose additional operating and financial restrictions on us or modify the terms of our existing credit facilities. These restrictions may further restrict our ability to, among other things, pay dividends, make capital expenditures or incur additional indebtedness, including through the issuance of guarantees. In addition, our lenders may require the payment of additional fees, require prepayment of a portion of our indebtedness to them, accelerate the amortization schedule for our indebtedness and increase the interest rates they charge us on our outstanding indebtedness.

    As of the date of this filing, we were in compliance with all of the financial covenants contained in our credit facilities and financing obligations that we had entered into as of the date of this filing.

14


    Please see Note 9, Debt, to our consolidated financial statements for additional information about these credit facilities and financing obligations.

Vessel Sales

$67.3 Million Lease Financing

On March 19, 2020, we closed the transactions to sell and leaseback the SBI Cronos and SBI Achilles, two Ultramax vessels and on April 2, 2020, we closed a transaction to sell and lease back the SBI Lynx, a Kamsarmax vessel to Ocean Yield ASA. As part of the transaction we agreed to bareboat charter-in the SBI Cronos for a period of nine years, the SBI Achilles for a period of ten years and the SBI Lynx for a period of twelve years. We have several purchase options during the charter period of each agreement, as well as a purchase option for each vessel upon the expiration of the relevant agreement.

The transaction provides financing for the installation of scrubbers for each of the vessels included at approximately $1.5 million, which will amortize over four years.

$12.8 Million Credit Facility

This credit facility was repaid in full and terminated upon the closing of the sale and leaseback transaction concerning the SBI Lynx under the $67.3 Million Lease Financing in April 2020.

$38.7 Million Credit Facility

This credit facility was repaid in full and terminated in April 2020 in connection with the sale of the SBI Jaguar.

$85.5 Million Credit Facility

We repaid approximately $11.1 million of this credit facility in April 2020 in connection with the sale of the SBI Taurus.

$184.0 Million Credit Facility

We repaid approximately $12.5 million of this credit facility in May 2020 in connection with the sale of the SBI Bolero.

During the third quarter of 2020, we entered into agreements with unaffiliated third parties to sell the following two Kamsarmax vessels.

Vessel NameVessel TypeSales Price
($000’s)
Delivery
to Buyer
SBI RockKamsarmax$18,030 Delivered
SBI SoustaKamsarmax18,435Delivered


During the fourth quarter of 2020, the Company entered into agreements with unaffiliated third parties to sell 21 vessels, including 14 Ultramax vessels and seven Kamsarmax vessels. A summary of the transactions is as follows.

15


Vessel NameVessel TypeSales Price
($000’s)
Expected Delivery
to Buyer
SBI CongaKamsarmax$18,400 Delivered
SBI PhoenixUltramax17,000Delivered
SBI SamsonUltramax17,000Delivered
SBI HeraUltramax18,460Delivered
SBI ZeusUltramax18,500Delivered
SBI HyperionUltramax17,500Delivered
SBI ReggaeKamsarmax19,500January - May 2021
SBI JiveKamsarmax20,500February - May 2021
SBI SwingKamsarmax20,500February - May 2021
SBI MazurkaKamsarmax20,500February - May 2021
SBI ParaparaKamsarmax20,500February - May 2021
SBI GeminiUltramax16,000January 2021
SBI HydraUltramax16,750January - April 2021
SBI AntaresUltramax16,750January - April 2021
SBI BravoUltramax16,750January - April 2021
SBI MaiaUltramax16,750January - April 2021
SBI ApolloUltramax19,200January 2021
SBI PoseidonUltramax19,200January 2021
SBI OrionUltramax16,100January - March 2021
SBI TethysUltramax18,250January - March 2021
SBI ZumbaKamsarmax20,000January - March 2021

The Company expects to recognize asset losses on sale / write-downs of approximately $191.8 million in the fourth quarter of 2020 in relation to the sale of the above vessels. The Company also expects to write-off approximately $4.6 million of deferred financing costs when the related debt is repaid in the fourth quarter of 2020 or first half of 2021.

COVID-19

16


Since the beginning of the calendar year 2020, the ongoing outbreak of the novel coronavirus (COVID-19) that originated in China in December 2019 and that has spread to most developed nations of the world has resulted in numerous actions taken by governments and governmental agencies in an attempt to mitigate the spread of the virus. These measures have resulted in a significant reduction in global economic activity and extreme volatility in the global financial and commodities markets. A significant reduction in manufacturing and other economic activities has and is expected to continue to have a materially adverse impact on the global demand for raw materials, coal and other bulk cargoes that our customers transport on our vessels. This significant decline in the demand for dry bulk tonnage may materially and adversely impact our ability to profitably charter our vessels. When these measures and the resulting economic impact will end and what the long-term impact of such measures on the global economy will be are not known at this time. As a result, the extent to which COVID-19 will impact the Company’s results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.

Fair Value of Our Vessels

The fair values of drybulk vessels, including our vessels, have generally experienced high volatility, and the fluctuation in the fair values of our vessels may result in an impairment charge or the incurrence of a loss on vessels sold or held for sale if the fair value of such vessels is below their carrying value. At September 30, 2020 the carrying value of our vessels was $1.3 billion in total on our condensed consolidated balance sheet, which exceeded the fair value of our vessels as of that date by approximately $400.0 million in total (approximately $114.0 million and $286.0 million on the Kamsarmax and Ultramax fleets, respectively). The fair market value of our vessels may fluctuate depending on a number of factors, including, among others: (i) prevailing level of charter rates; (ii) general economic and market conditions affecting the shipping industry; (iii) types, sizes and ages of vessels; (iv) supply of and demand for vessels; (v) other modes of transportation; (vi) cost of newbuildings; (vii) governmental or other regulations; (viii) the need to upgrade vessels as a result of charterer requirements, technological advances in vessel design or equipment or otherwise; (ix) technological advances; and (x) competition from other shipping companies and other modes of transportation. Thus far with respect to the fourth quarter of 2020, we expect to recognize asset write-downs of approximately $191.8 million in relation to the classification of certain vessels as held for sale.

Critical Accounting Estimates
    There have been no material changes to our significant accounting estimates since December 31, 2019 other than those reflected in our unaudited interim condensed consolidated financial statements for the nine-month period ended September 30, 2020 included elsewhere herein.  For a description of our critical accounting estimates and all of our significant accounting policies, see Note 1 to our audited financial statements and "Item 5 - Operating and Financial Review and Prospects," included in our Annual Report.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
    As of September 30, 2020, our contractual obligations and commitments consisted principally of debt repayments, future minimum payments under non-cancelable time chartered-in agreements and future minimum purchases under non-cancelable purchase agreements. As of September 30, 2020, there have been no significant changes to such arrangements and obligations since December 31, 2019 other than that noted below.

Financial Guarantees

We guarantee certain obligations of certain related parties arising from bunker purchases made through April 2021 on behalf of the vessels we own. The maximum potential liability as of the date of this filing is $5.0 million.




17


INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Page
F- 1

Scorpio Bulkers Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)

September 30,December 31,
20202019
(unaudited)
Assets
Current assets 
Cash and cash equivalents$40,220 $42,530 
Inventories4,554 6,371 
Due from related parties13,015 5,954 
Prepaid expenses and other current assets10,720 10,431 
Total current assets68,509 65,286 
Non-current assets 
Vessels, net1,277,383 1,271,993 
Equity investments-related party23,857 173,298 
Assets held for sale17,500 77,536 
Deferred financing costs, net2,410 2,982 
Other assets27,266 60,234 
Due from related parties11,790 14,230 
Total non-current assets1,360,206 1,600,273 
Total assets$1,428,715 $1,665,559 
  
Liabilities and shareholders’ equity 
Current liabilities 
Bank loans, net$4,809 $44,956 
Financing obligations35,940 29,159 
Accounts payable and accrued expenses32,322 48,746 
Due to related parties483 972 
Total current liabilities73,554 123,833 
Non-current liabilities 
Bank loans, net244,545 332,613 
Financing obligations356,693 321,646 
Other liabilities135 12,500 
Total non-current liabilities601,373 666,759 
Total liabilities674,927 790,592 
Commitment and contingencies (Note 7)
Shareholders’ equity 
Preferred shares, $0.01 par value per share; 50,000,000 shares authorized; no shares issued or outstanding
  
Common shares, $0.01 par value per share; authorized 31,875,000 and 21,250,000 shares as of September 30, 2020 and December 31, 2019; outstanding 12,386,880 shares as of September 30, 2020 and 7,248,180 as of December 31, 2019
858 809 
Paid-in capital1,802,296 1,717,144 
Common shares held in treasury, at cost; 856,785 shares at September 30, 2020 and December 31, 2019
(56,720)(56,720)
Accumulated deficit (992,646)(786,266)
Total shareholders’ equity753,788 874,967 
Total liabilities and shareholders’ equity$1,428,715 $1,665,559 
F- 2

Scorpio Bulkers Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)


See notes to the unaudited condensed consolidated financial statements.

F- 3

Scorpio Bulkers Inc. and Subsidiaries
Condensed Consolidated Statement of Operations (unaudited)
(Amounts in thousands, except per share amounts)

 Nine Months Ended September 30,
 20202019
Revenue: 
Vessel revenue$15,567 $1,445 
Vessel revenue-related party98,112 162,870 
Total vessel revenue113,679 164,315 
Operating expenses: 
Voyage expenses2,788 701 
Voyage expenses-related party1,729 145 
Vessel operating costs62,274 66,703 
Vessel operating costs-related party9,148 9,989 
Charterhire expense15,548 10,770 
Vessel depreciation39,113 40,803 
General and administrative expenses13,448 17,393 
General and administrative expenses-related party6,141 6,608 
Loss / write-down on assets held for sale35,785 11,637 
Loss / write-down on assets held for sale-related party822 404 
Total operating expenses186,796 165,153 
Operating (loss) income(73,117)(838)
Other income (expense): 
Interest income190 1,227 
Income from equity investment 22 
Income from equity investment - related party(105,858)70,205 
Foreign exchange loss(243)(33)
Financial expense, net(27,352)(41,013)
Total other (expense) income(133,263)30,408 
Net (loss) income$(206,380)$29,570 
Weighted-average shares outstanding: 
Basic8,843 6,789 
Diluted8,843 6,961 
(Loss) income per common share: 
Basic$(23.34)$4.36 
Diluted$(23.34)$4.25 
 
See notes to the unaudited condensed consolidated financial statements.

F- 4

Scorpio Bulkers Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Shareholders’ Equity (unaudited)
(Dollars in thousands)

Number of
shares
outstanding
Common
stock
Paid-in
capital
Treasury SharesAccumulated deficitTotal
Balance as of January 1, 20207,248,180 $809 $1,717,144 $(56,720)$(786,266)$874,967 
Net income(206,380)(206,380)
Common stock issued4,715,000 47 82,208 — — 82,255 
Reverse stock split— (2)— — — (2)
Issuance of restricted stock, net of forfeitures423,700 4 (4)— —  
Cash dividends declared on stock ($0.30 per common share)— — (2,606)— — (2,606)
Restricted stock amortization— — 5,552 — — 5,552 
Balance as of September 30, 202012,386,880 $858 $1,802,294 $(56,720)$(992,646)$753,786 




Number of
shares
outstanding
Common
stock
Paid-in
capital
Treasury SharesAccumulated deficitTotal
Balance as of January 1, 20197,121,726 $796 $1,747,648 $(56,720)$(830,920)$860,804 
Net loss29,570 29,570 
Issuance of restricted stock, net of forfeitures127,070 13 (13)— —  
Cash dividends declared on stock ($0.60 per common share)— — (4,298)— — (4,298)
Restricted stock amortization— — 6,674 — — 6,674 
Balance as of September 30, 20197,248,796 $809 $1,750,011 $(56,720)$(801,350)$892,750 


See notes to the unaudited condensed consolidated financial statements.

F- 5

Scorpio Bulkers Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)

 Nine Months Ended September 30,
 20202019
Operating activities 
Net (loss) income$(206,380)$29,570 
Adjustment to reconcile net (loss) income to net cash provided by operating activities:
Restricted stock amortization5,552 6,674 
Vessel depreciation39,113 40,803 
Amortization of deferred financing costs2,880 5,941 
Write-off of deferred financing costs366 446 
Loss / write-down on assets held for sale33,894 10,385 
Net losses (gains) on investments106,730 (68,606)
Dividend income on equity investments(872)(1,623)
Changes in operating assets and liabilities:
Drydocking expenditures(16,606)(2,265)
Decrease (increase) in prepaid expenses and other current assets20,108 (2,829)
(Decrease) increase in accounts payable, accrued expenses and other liabilities(27,327)6,953 
(Decrease) increase in related party balances(5,110)(2,769)
Net cash (used in) provided by operating activities(47,652)22,680 
Investing activities 
Equity investment (1,500)
Sale of equity investment42,711  
Proceeds from sale of vessels52,518 47,302 
Dividend income on equity investments872 1,623 
Scrubber payments(42,495)(16,678)
Net cash provided by investing activities53,606 30,747 
Financing activities
Proceeds from issuance of common stock82,254  
Proceeds from issuance of debt132,708 300,070 
Repayments of long term debt(220,620)(332,052)
Dividend paid(2,606)(4,298)
Debt issue cost paid (4,508)
Net cash provided by financing activities(8,264)(40,788)
Increase in cash and cash equivalents(2,310)12,639 
Cash and cash equivalents, beginning of period42,530 67,495 
Cash and cash equivalents, end of period$40,220 $80,134 
Supplemental cash flow information:
Interest paid$22,939 $37,167 
Non-cash investing and financing activities
Right of use assets obtained in exchange for operating lease liabilities$ $50,296 
See notes to the unaudited condensed consolidated financial statements.
F- 6

SCORPIO BULKERS INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements

F- 7

SCORPIO BULKERS INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
1.Organization and Basis of Presentation
Company
Scorpio Bulkers Inc. and its subsidiaries (together the “Company”) is an international shipping company that owns and operates the latest generation newbuilding drybulk carriers with fuel-efficient specifications and carrying capacities of greater than 30,000 dwt in the international shipping markets. Scorpio Bulkers Inc. was incorporated in the Republic of the Marshall Islands on March 20, 2013.

The Company’s vessels transport a broad range of major and minor bulk commodities, including ores, coal, grains, and fertilizers, along worldwide shipping routes, and are, or are expected to be, employed primarily in the spot market or in spot market-oriented pools of similarly sized vessels. As of September 30, 2020, the Company owned or finance leased 49 vessels consisting of 16 Kamsarmax vessels and 33 Ultramax vessels and time chartered in five Kamsarmax vessels.
The Company is organized by vessel type into two operating segments (see Note 16, Segments, to the condensed consolidated financial statements):
Ultramax - includes vessels ranging from approximately 60,200 dwt to 64,000 dwt
Kamsarmax - includes vessels ranging from approximately 82,000 dwt to 84,000 dwt

In addition, in August 2020, the Company signed a letter of intent to enter into a shipbuilding contract with Daewoo Shipbuilding and Marine Engineering Inc. to build a wind turbine installation vessel (“WTIV”) which is expected to be delivered in 2023, with options to construct three further similar vessels. The Company’s purchase of the WTIV is subject to the negotiation and execution of definitive documentation.

The Company’s vessels are commercially managed by Scorpio Commercial Management S.A.M., or SCM, an entity controlled by the Lolli-Ghetti family of which Emanuele Lauro, the Company’s co-founder, Chairman and Chief Executive Officer, and Filippo Lauro, the Company’s Vice President, are members. SCM’s services include securing employment for the Company’s vessels in pools, in the spot market and on time charters.

The Company’s vessels are technically managed by Scorpio Ship Management S.A.M., or SSM, an entity controlled by the Lolli-Ghetti family. SSM facilitates vessel technical support such as crew, provisions, deck and engine stores, insurance, maintenance and repairs, and other services as necessary to operate the vessels such as drydocks and vetting/inspection under a technical management agreement.

The Company has also entered into an administrative services agreement, as amended from time to time, or the Administrative Services Agreement, with Scorpio Services Holding Limited, or SSH, an entity controlled by the Lolli-Ghetti family. The administrative services provided under this agreement primarily include provision of administrative staff, office space and accounting, legal compliance, financial and information technology services, in addition to arranging vessel sales and purchases for the Company.

Basis of accounting
The condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. All material intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of financial position as of September 30, 2020 and the Company’s result of operations for the nine months ended September 30, 2020 and 2019, and cash flows for the nine months ended September 30, 2020 and 2019. The condensed consolidated balance sheet as of December 31, 2019 was derived from audited financial statements but does not contain all the footnote disclosures from the annual financial statements.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reporting amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets, liabilities, revenues and expenses. Actual results could differ from those estimates.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with Securities and Exchange Commission, or the SEC, rules and regulations; however, management believes that the disclosures herein are adequate to make the information presented not misleading. This
F- 8

SCORPIO BULKERS INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
report should be read in conjunction with the audited financial statements and the notes included in the Company’s Annual Report on Form 20-F for the year ended December 31, 2019.
Reverse stock split
On April 7, 2020, the Company effected a one-for-ten reverse stock split. All share and per share information has been retroactively adjusted to reflect the reverse stock split. The par value was not adjusted as a result of the reverse stock split.

Going concern

The Company’s revenue is primarily derived from pool revenue. The bulker shipping industry is volatile and a sustained cyclical downturn could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.
The fair market values of the Company’s vessels also experience high volatility. The fair market value of the vessels may increase or decrease depending on a number of factors including, but not limited to, the prevailing level of charter rates and day rates, general economic and market conditions affecting the international shipping industry, types, sizes and ages of vessels, supply and demand for vessels, availability of or developments in other modes of transportation, competition from other shipping companies, cost of newbuildings, governmental or other regulations and technological advances. In addition, as vessels grow older they generally decline in value. If the fair market value of its vessels declines, the Company may not be in compliance with certain provisions of its credit facilities and it may not be able to refinance its debt. The prepayment of certain credit facilities may be necessary for the Company to maintain compliance with certain covenants in the event that the value of its vessels falls below a certain level. Additionally, if the Company sells one or more of its vessels at a time when vessel prices have fallen, the sale price may be less than the vessel’s carrying value on its consolidated financial statements, resulting in a loss on sale or an impairment loss being recognized, ultimately leading to a reduction in earnings. Furthermore, if vessel values fall significantly, this could indicate a decrease in the recoverable amount for the vessel which may result in an impairment adjustment in the carrying value of the vessel.
These condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, nor to the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern.

2.Cash and cash equivalents
At December 31, 2019, cash and cash equivalents included $10.1 million of short-term deposits with original maturities of less than three months. There were no such short-term deposits at September 30, 2020.





F- 9

SCORPIO BULKERS INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
3.Earnings Per Common Share 
The following is a reconciliation of the basic and diluted earnings per share computations (amounts in thousands, except per share amounts):
September 30,
Nine Months Ended20202019
Net (loss) income for basic and diluted earnings per share$(206,380)$29,570 
Common shares outstanding and common stock equivalents:
  Weighted average shares basic8,843 6,789 
Effect of dilutive securities 172 
Weighted average common shares - diluted8,843 6,961 
(Loss) income per share:
Basic$(23.34)$4.36 
Diluted$(23.34)$4.25 
The following is a summary of anti-dilutive equity awards not included in detailed earnings per share computations for the nine months ended September 30, 2020 and 2019 (in thousands).
September 30,
20202019
Anti-dilutive equity awards266 109 

4.Vessels, net
At September 30, 2020 the Company owned or finance leased 16 Kamsarmax vessels and 33 Ultramax vessels. A rollforward of activity within vessels is as follows (amounts in thousands):
Balance at December 31, 2019$1,271,993 
Transferred to assets held for sale(105,520)
Transferred from assets held for sale77,536 
Other additions72,487 
Depreciation(39,113)
Balance at September 30, 2020$1,277,383 
Depreciation includes depreciation related to the Company’s finance leased vessels.
All of the Company’s vessels serve as collateral against existing loan facilities.

Owned or Finance Leased Vessels
Vessel NameYear BuiltDWTVessel Type
SBI Antares201561,000 Ultramax
SBI Athena201564,000 Ultramax
SBI Bravo201561,000 Ultramax
SBI Leo201561,000 Ultramax
SBI Echo201561,000 Ultramax
SBI Lyra201561,000 Ultramax
SBI Tango201561,000 Ultramax
SBI Maia201561,000 Ultramax
F- 10

SCORPIO BULKERS INC. AND SUBSIDIARIES
Unaudited Notes to Condensed Consolidated Financial Statements
SBI Hydra201561,000 Ultramax
SBI Subaru201561,000 Ultramax
SBI Pegasus201564,000 Ultramax
SBI Ursa201561,000 Ultramax
SBI Thalia201564,000 Ultramax
SBI Cronos201561,000 Ultramax
SBI Orion201564,000 Ultramax
SBI Achilles201661,000 Ultramax
SBI Hercules201664,000 Ultramax
SBI Perseus201664,000 Ultramax
SBI Hermes201661,000 Ultramax
SBI Zeus201660,200 Ultramax
SBI Hera201660,200 Ultramax
SBI Hyperion201661,000 Ultramax
SBI Tethys201661,000 Ultramax
SBI Phoebe201664,000 Ultramax
SBI Poseidon201660,200 Ultramax
SBI Apollo201660,200 Ultramax
SBI Samson201764,000 Ultramax
SBI Phoenix201764,000 Ultramax
SBI Aries201564,000 Ultramax
SBI Gemini201564,000 Ultramax
SBI Pisces201664,000 Ultramax
SBI Libra201764,000 Ultramax
SBI Virgo201764,000 Ultramax
Total Ultramax2,051,800 
SBI Samba201584,000 Kamsarmax