20-F 1 gogl-201720f.htm 20-F Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549

FORM 20-F
 
(Mark One)
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
For the fiscal year ended December 31, 2017
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________________to___________________
OR
 
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report  _______________________________

Commission file number
000-29106
 
 

Golden Ocean Group Limited
(Exact name of Registrant as specified in its charter)
 
(Translation of Registrant's name into English)
 
Bermuda
(Jurisdiction of incorporation or organization)
 
Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda
(Address of principal executive offices)
 
Georgina Sousa, Telephone: (1) 441 295 6935, Facsimile: (1) 441 295 3494,
Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act
Title of each class
Name of each exchange on which registered
Common Shares, Par Value $0.05 Per Share
NASDAQ Global Select Market

Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)




Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

142,197,697 Common Shares, Par Value $0.05 Per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o
No x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes o
No x

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x
No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  x
No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definitions of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  o
Accelerated filer  x
Non-accelerated filer  o
Emerging growth company  o

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP x
International Financial Reporting Standards as issued by the International Accounting Standards Board o
Other o

If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 o
Item 18 o




If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o
No x




INDEX TO REPORT ON FORM 20-F


 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 




CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS


Matters discussed in this annual report may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995, or the PSLRA, provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.
We are taking advantage of the safe harbor provisions of the PSLRA and are including this cautionary statement in connection therewith. This document and any other written or oral statements made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future events and financial performance. This annual report includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as “forward-looking statements.” We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material. When used in this document, the words “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “projects,” “likely,” “will,” “would,” “could” and similar expressions or phrases may identify forward-looking statements.
The forward-looking statements in this report are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections. As a result, you are cautioned not to rely on any forward-looking statements.
In addition to these important factors and matters discussed elsewhere herein, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include among other things:
•
our future operating or financial results;
•
our continued borrowing availability under our debt agreements and compliance with the covenants contained therein;
•
our ability to procure or have access to financing, our liquidity and the adequacy of cash flows for our operations;
•
our ability to successfully employ our existing and newbuilding dry bulk vessels;
•
changes in our operating expenses, including bunker prices, dry docking and insurance costs;
•
our ability to fund future capital expenditures and investments in the construction, acquisition and refurbishment of our vessels (including the amount and nature thereof and the timing of completion thereof, the delivery and commencement of operations dates, expected downtime and lost revenue);
•
planned, pending or recent acquisitions, business strategy and expected capital spending or operating expenses, including drydocking, surveys, upgrades and insurance costs;
•
risks associated with vessel construction;
•
our expectations regarding the availability of vessel acquisitions and our ability to complete acquisition transactions planned;
•
vessel breakdowns and instances of off-hire;
•
potential conflicts of interest involving members of our board of directors, or the Board, and senior management;
•
potential liability from pending or future litigation;
•
potential exposure or loss from investment in derivative instruments;
•
general dry bulk shipping market trends, including fluctuations in charter hire rates and vessel values;
•
changes in supply and demand in the dry bulk shipping industry, including the market for our vessels and the number of newbuildings under construction;
•
the strength of world economies;
•
stability of Europe and the Euro;
•
fluctuations in interest rates and foreign exchange rates;
•
changes in seaborne and other transportation;
•
changes in governmental rules and regulations or actions taken by regulatory authorities;
•
general domestic and international political conditions;
•
potential disruption of shipping routes due to accidents or political events; and
•
other factors discussed in “Item 3.D. Risk Factors.”

We caution readers of this report not to place undue reliance on these forward-looking statements, which speak only as of their dates. Except to the extent required by applicable law or regulation, we undertake no obligation to release publicly any revisions

i


to these forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events. These forward-looking statements are not guarantees of our future performance, and actual results and future developments may vary materially from those projected in the forward-looking statements.



ii


PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.  KEY INFORMATION

On October 7, 2014, Knightsbridge Shipping Limited, or Knightsbridge, and Golden Ocean Group Limited, or the Former Golden Ocean, entered into an agreement and plan of merger, or the Merger Agreement, pursuant to which the two companies agreed to merge, or the Merger, with Knightsbridge serving as the surviving legal entity. The Merger was completed on March 31, 2015, and the name of Knightsbridge was changed to Golden Ocean Group Limited. The Merger has been accounted for as a business combination using the acquisition method of accounting, with us selected as the accounting acquirer. See "Item 4.A-Information on the Company" for more information.

Throughout this report, unless the context otherwise requires, "Golden Ocean," the "Company," "we," "us" and "our" refer to Golden Ocean Group Limited and its subsidiaries.

The term deadweight ton, or dwt, is used in describing the size of vessels. Dwt, expressed in metric tons, each of which is equivalent to 1,000 kilograms, refers to the maximum weight of cargo and supplies that a vessel can carry.

We own and operate dry bulk vessels of the following sizes:

•
Newcastlemax, which are vessels with carrying capacities of between 200,000 dwt and 210,000 dwt;
•
Capesize, which are vessels with carrying capacities of between 100,000 dwt and 200,000 dwt;
•
Panamax, which are vessels with carrying capacities of between 65,000 and 100,000 dwt; and
•
Ultramax, which are vessels with carrying capacities of between 55,000 and 65,000 dwt.

Unless otherwise indicated, all references to "USD," "US$" and "$" in this report are to, and amounts are presented in, U.S. dollars.

Unless otherwise indicated, all share and per share amounts disclosed in this report give retroactive effect to the one-for-five reverse stock split effected on August 1, 2016, for all periods presented.

A.  SELECTED FINANCIAL DATA

Our selected statement of operations data with respect to the fiscal years ended December 31, 2017, 2016 and 2015, and our selected balance sheet data as of December 31, 2017 and 2016, have been derived from our consolidated financial statements included herein and should be read in conjunction with such statements and the notes thereto. The selected statement of operations data with respect to the fiscal years ended December 31, 2014 and 2013 and the selected balance sheet data as of December 31, 2015, 2014 and 2013 have been derived from our consolidated financial statements not included herein. The following table should also be read in conjunction with "Item 5-Operating and Financial Review and Prospects" and the consolidated financial statements and notes thereto included herein. Our accounts are maintained in U.S. dollars. All share and per share amounts disclosed in the table below give retroactive effect to the one-for-five reverse stock split effected on August 1, 2016, for all periods presented. In addition as of January 1, 2016, we changed the presentation of debt issuance costs in the balance sheet as a direct deduction from the carrying amount of the related debt rather than as an asset. The change has been retrospectively applied for all periods presented.


1


 
Fiscal year ended December 31,
 
2017

 
2016

 
2015

 
2014

 
2013

(in thousands of $, except shares, per share data and ratios)
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Total operating revenues (1)
460,023

 
256,863

 
190,238

 
96,715

 
37,546

Total operating expenses
413,517

 
328,366

 
414,363

 
77,229

 
30,722

Net operating (loss) income
50,075

 
(70,258
)
 
(234,913
)
 
19,486

 
6,824

Net (loss) income from continuing operations
(2,348
)
 
(127,711
)
 
(220,839
)
 
16,253

 
3,530

Net (loss) income from discontinued operations (2)
—

 
—

 
—

 
(258
)
 
(7,433
)
Net (loss) income
(2,348
)
 
(127,711
)
 
(220,839
)
 
15,995

 
(3,903
)
(Loss) earnings per share from continuing operations: basic ($)
($0.02)
 
($1.34)
 
($7.30)
 
$1.55
 
$0.70
(Loss) earnings per share from continuing operations: diluted ($)
($0.02)
 
($1.34)
 
($7.30)
 
$1.55
 
$0.70
Loss per share from discontinued operations: basic ($)
$0.00
 
$0.00
 
$0.00
 
$0.00
 
($1.45)
Loss per share from discontinued operations: diluted ($)
$0.00
 
$0.00
 
$0.00
 
$0.00
 
($1.45)
(Loss) earnings per share: basic ($)
($0.02)
 
($1.34)
 
($7.30)
 
$1.52
 
($0.75)
(Loss) earnings per share: diluted ($)
($0.02)
 
($1.34)
 
($7.30)
 
$1.52
 
($0.75)
Cash distributions per share declared ($)
$0.00
 
$0.00
 
$0.00
 
$3.15
 
$3.50
 
 
 
 
 
 
 
 
 
 
Balance Sheet Data (at end of year):
 
 
 
 
 

 
 

 
 

Cash and cash equivalents
309,029

 
212,942

 
102,617

 
42,221

 
98,250

Long term restricted cash
54,845

 
53,797

 
48,521

 
18,923

 
15,000

Newbuildings
105,727

 
180,562

 
338,614

 
323,340

 
26,706

Vessels and equipment, net
2,215,003

 
1,758,939

 
1,488,205

 
852,665

 
262,747

Total assets
2,870,058

 
2,361,623

 
2,172,870

 
1,259,207

 
409,194

Current portion of long-term debt
109,671

 
—

 
20,380

 
19,812

 
—

Current portion of obligations under capital lease
5,239

 
4,858

 
15,749

 
—

 
—

Long-term debt
1,134,788

 
1,058,418

 
908,116

 
340,155

 
94,336

Obligations under capital lease
7,435

 
12,673

 
17,531

 
—

 
—

Share capital
7,111

 
5,299

 
1,727

 
801

 
305

Total equity
1,494,049

 
1,238,719

 
1,158,649

 
884,273

 
307,441

Common shares outstanding
142,197,697

 
105,965,192

 
34,535,128

 
16,024,310

 
6,094,412

Other Financial Data:
 
 
 
 
 

 
 
 
 
Equity to assets ratio (percentage) (3)
52.1
%
 
52.5
%
 
53.3
%
 
70.2
%
 
75.1
%
Debt to equity ratio (4)
0.8

 
0.9

 
0.8

 
0.4

 
0.3

Price earnings ratio (5)
(407.5
)
 
(3.5
)
 
(0.7
)
 
14.9

 
(61.3
)
Time charter equivalent revenue (6)
363,061

 
188,851

 
134,547

 
42,407

 
30,737

Time charter equivalent rate (7)
13,436

 
8,478

 
10,185

 
15,238

 
21,140


(1)
Net income as a result of our revenue sharing agreements is presented as other operating income, net. Comparative numbers in 2016 have been revised to conform to our current presentation. In 2016, $0.9 million was previously included in other revenues and has been reclassified to other operating income, net.

2


(2)
We classified our only very large crude carrier, or VLCC, as "held for sale" as of December 31, 2012 and this vessel was sold during 2013. The operations of our VLCCs have been recorded as discontinued operations in 2014 and all prior years shown above.
(3)
Equity to assets ratio is calculated as total equity divided by total assets.
(4)
Debt to equity ratio is calculated as total interest bearing current and long-term liabilities divided by total equity.
(5)
Price earnings ratio is calculated using the year end share price divided by basic (loss) earnings per share. Historical periods have been adjusted for the 5 to 1 reverse split completed in August 2016.
(6)
A reconciliation of time charter equivalent revenues, or TCE revenue, to total operating revenues as reflected in the consolidated statements of operation is as follows: 
(in thousands of $)
 
2017

 
2016

 
2015

 
2014

 
2013

Total operating revenues
 
460,023

 
256,863

 
190,238

 
96,715

 
37,546

Add: Amortization of favorable charter party contracts
 
19,333

 
27,277

 
23,714

 
—

 
—

Add: Other operating income
 
3,881

 
945

 
—

 
—

 
—

Less: Bareboat charter revenue *
 
—

 
2,399

 
—

 
—

 
—

Less: Other revenues
 
1,247

 
3,949

 
1,306

 
20,353

 
—

Net time and voyage charter revenues
 
481,990

 
278,737

 
212,646


76,362


37,546

Less: Voyage expenses & commission
 
118,929

 
89,886

 
78,099

 
33,955

 
6,809

Time charter equivalent revenue
 
363,061

 
188,851

 
134,547

 
42,407

 
30,737


Consistent with general practice in the shipping industry, we use TCE revenue as a measure to compare revenue generated from a voyage charter to revenue generated from a time charter. We define TCE revenue as operating revenues less voyage expenses and commission plus amortization of time charter party out contracts. Under time charter agreements, voyage costs, such as bunker fuel, canal and port charges and commissions, are borne and paid by the charterer whereas under voyage charter agreements, voyage costs are borne and paid by the owner. TCE revenue is a common shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance despite changes in the mix of charter types (i.e., spot charters and time charters) under which the vessels may be employed between the periods. Time charter equivalent revenues, a non-U.S. GAAP measure, provides additional meaningful information in conjunction with operating revenues, the most directly comparable U.S. GAAP measure, because it assists management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance, regardless of whether a vessel has been employed on a time charter or a voyage charter. For further information regarding the fleet deployment, refer to “Item 5. Operating and Financial Review and Prospects – A. Operating Results.”

* In 2016, we received $2.4 million in respect of claims for unpaid charter hire owed under bareboat charters of two VLCCs. The receipt was recorded as bareboat charter revenue as it related to services previously rendered under such terms. This amount was received as full and final settlement for the claims. For the purpose of determining our 2016 TCE revenue, this amount was excluded from the calculation as it relates to vessels sold in prior years.
 
(7)
Time charter equivalent rate, or TCE rate, represents the weighted average daily TCE revenue of our entire operating fleet.
(in thousands of $, except for TCE Rate and days)
 
2017

 
2016

 
2015

 
2014

 
2013

Time charter equivalent revenue
 
363,061

 
188,851

 
134,547

 
42,407

 
30,737

 
 
 
 
 
 
 
 
 
 
 
Fleet available days
 
27,323

 
22,397

 
13,330

 
2,841

 
1,460

Fleet offhire days
 
(301
)
 
(121
)
 
(120
)
 
(58
)
 
(6
)
Fleet onhire days
 
27,022

 
22,276

 
13,210


2,783


1,454

 
 
 
 
 
 
 
 
 
 
 
Time charter equivalent rate
 
13,436

 
8,478

 
10,185

 
15,238

 
21,140


TCE rate is a measure of the average daily revenue performance, following alignment of the revenue streams resulting from operation of the vessels under voyage or spot charters and time charters, as detailed in footnote 5 above. Our method of calculating TCE rate is determined by dividing TCE revenue by onhire days during a reporting period. Onhire days are calculated on a vessel

3


by vessel basis and represent the net of available days and offhire days for each vessel (owned or chartered in) in our possession during a reporting period. Available days for a vessel during a reporting period is the number of days the vessel (owned or chartered in) is in our possession during the period. By definition, available days for an owned vessel equal the calendar days during a reporting period, unless the vessel is delivered by the yard during the relevant period whereas; available days for a chartered-in vessel equal the tenure in days of the underlying time charter agreement, pro-rated to the relevant reporting period if such tenure overlaps more than one reporting periods. Offhire days for a vessel during a reporting period is the number of days the vessel is in our possession during the period but is not operational as a result of unscheduled repairs, scheduled dry docking or special or intermediate surveys and lay-ups, if any.

B.  CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C.  REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

D. RISK FACTORS

The following summarizes the risks that may materially affect our business, financial condition or results of operations. The occurrence of any of the events described in this section could significantly and negatively affect our business, financial condition, operating results or the trading price of our securities.

Risks Related to Our Industry

Charter hire rates for dry bulk vessels are volatile and may decrease in the future, which may adversely affect our earnings, revenue and profitability and our ability to comply with our loan covenants.

Substantially all of our revenues are derived from a single market, the dry bulk segment, and therefore our financial results depend on chartering activities and developments in this segment. The dry bulk shipping industry is cyclical with attendant volatility in charter hire rates and profitability. The dry bulk charter market, from which we derive and plan to continue to derive our revenues, has only recently begun to recover after experiencing a prolonged period of historically low rates. The degree of charter hire rate volatility among different types of dry bulk vessels has varied widely, and time charter and spot market rates for dry bulk vessels have in the recent past declined below operating costs of vessels. The Baltic Dry Index, or BDI, an index published by the Baltic Exchange Limited of shipping rates for 20 key dry bulk routes, fell 97% from a peak of 11,793 in May 2008 to a low of 290 in February 2016. While the BDI has increased since February 2016 to 1,143 as of March 16, 2018, there can be no assurance that the dry bulk charter market will continue to recover and the market could instead again decline.

Fluctuations in charter rates result from changes in the supply and demand for vessel capacity and changes in the supply and demand for the major commodities carried on water internationally. Because the factors affecting the supply and demand for vessels are outside of our control and are unpredictable, the nature, timing, direction and degree of changes in charter rates are also unpredictable. Since we charter our vessels principally in the spot market, we are exposed to the cyclicality and volatility of the spot market. Spot market charterhire rates may fluctuate significantly based upon available charters and the supply of and demand for seaborne shipping capacity, and we may be unable to keep our vessels fully employed in these short-term markets. Alternatively, charter rates available in the spot market may be insufficient to enable our vessels to operate profitably. A significant decrease in charter rates would also affect asset values and adversely affect our profitability, cash flows and our ability to pay dividends, if any.

Furthermore, a significant decrease in charter rates would cause asset values to decline and we may have to record an impairment charge in our consolidated financial statements which could adversely affect our financial results. Because the market value of our vessels may fluctuate significantly, we may also incur losses when we sell vessels, which may adversely affect our earnings. If we sell vessels at a time when vessel prices have fallen and before we have recorded an impairment adjustment to our financial statements, the sale may be at less than the vessel's carrying amount in our financial statements, resulting in a loss and a reduction in earnings. For instance, during the year ended December 31, 2017, we recorded impairment losses of $1.1 million in connection with the sale of six Ultramax vessels.

Factors that influence demand for vessel capacity include:


4


•
supply of and demand for energy resources, commodities, and semi-finished and finished consumer and industrial products;
•
changes in the exploration or production of energy resources, commodities, and semi-finished and finished consumer and industrial products;
•
the location of regional and global exploration, production and manufacturing facilities;
•
the location of consuming regions for energy resources, commodities, and semi-finished and finished consumer and industrial products;
•
the globalization of production and manufacturing;
•
global and regional economic and political conditions, including armed conflicts and terrorist activities, embargoes and strikes;
•
disruptions and developments in international trade;
•
changes in seaborne and other transportation patterns, including the distance cargo is transported by sea;
•
environmental and other regulatory developments;
•
currency exchange rates; and
•
the weather.

Demand for our dry bulk oceangoing vessels is dependent upon economic growth in the world’s economies, seasonal and regional changes in demand, changes in the capacity of the global dry bulk fleet and the sources and supply of dry bulk cargo transported by sea. The capacity of the global dry bulk vessels fleet seems likely to increase and economic growth may not resume in areas that have experienced a recession or continue in other areas. As such, adverse economic, political, social or other developments could have a material adverse effect on our business and operating results.

Factors that influence the supply of vessel capacity include:
•
number of newbuilding orders and deliveries;
•
the number of shipyards and ability of shipyards to deliver vessels;
•
port and canal congestion;
•
scrapping of older vessels;
•
speed of vessel operation;
•
vessel casualties; and
•
number of vessels that are out of service or laid up.

In addition to the prevailing and anticipated freight rates, factors that affect the rate of newbuilding, scrapping and laying-up include newbuilding prices, secondhand vessel values in relation to scrap prices, costs of bunkers and other operating costs, costs associated with classification society surveys, normal maintenance costs, insurance coverage costs, the efficiency and age profile of the existing dry bulk fleet in the market, and government and industry regulation of maritime transportation practices, particularly environmental protection laws and regulations. These factors influencing the supply of and demand for shipping capacity are outside of our control, and we may not be able to correctly assess the nature, timing and degree of changes in industry conditions.
Global economic conditions may negatively impact the dry bulk shipping industry.
In the current global economy, operating businesses are faced with tightening credit, weak demand for goods and services, and weak international liquidity conditions. There has similarly been a general decline in the willingness by banks and other financial institutions to extend credit, particularly in the shipping industry, due to the historically volatile asset values of vessels. As the shipping industry is highly dependent on the availability of credit to finance and expand operations, it has been negatively affected by this decline. In particular, lower demand for dry bulk cargoes as well as diminished trade credit available for the delivery of such cargoes have historically led to decreased demand for dry bulk vessels, creating downward pressure on charter rates and vessel values. Any weakening in global economic conditions may have a number of adverse consequences for dry bulk and other shipping sectors, including, among other things:
•
low charter rates, particularly for vessels employed on short-term time charters or in the spot market;
•
decreases in the market value of dry bulk vessels and limited second-hand market for the sale of vessels;
•
limited financing for vessels;
•
widespread loan covenant defaults; and
•
declaration of bankruptcy by certain vessel operators, vessel owners, shipyards and charterers.

The occurrence of one or more of these events could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.


5


The over-supply of dry bulk vessel capacity may depress charter rates, which has and may continue to limit our ability to operate our dry bulk vessels profitably.
The supply of dry bulk vessels has outpaced vessel demand growth over the past few years, thereby causing downward pressure on charter rates. As of December 31, 2017, newbuilding orders have been placed for approximately 10.1% of the existing fleet capacity according to industry sources. If the supply of dry bulk vessels is not fully absorbed by the market, charter rates may be negatively affected.
We are dependent on spot charters and any decrease in spot charter rates in the future may adversely affect our earnings.
We currently operate most of our vessels in the spot market, exposing us to fluctuations in spot market charter rates. We may also employ any additional vessels that we acquire or take delivery of in the spot market.
Although the number of vessels in our fleet that participate in the spot market will vary from time to time, we anticipate that a significant portion of our fleet will participate in this market. As a result, our financial performance will be significantly affected by conditions in the dry bulk spot market and only our vessels that operate under fixed-rate time charters may, during the period such vessels operate under such time charters, provide a fixed source of revenue to us.
Historically, the dry bulk markets have been volatile as a result of the many conditions and factors that can affect the price, supply of and demand for dry bulk capacity. Weak global economic trends may further reduce demand for transportation of dry bulk cargoes over longer distances, which may materially affect our revenues, profitability and cash flows. The spot charter market may fluctuate significantly based upon supply of and demand of vessels and cargoes. The successful operation of our vessels in the competitive spot charter market depends upon, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo. The spot market is volatile, and, in the past, there have been periods when spot rates have declined below the operating cost of vessels. If future spot charter rates decline, then we may be unable to operate our vessels trading in the spot market profitably, or meet our obligations, including payments on indebtedness. Furthermore, as charter rates for spot charters are fixed for a single voyage, which may last up to several weeks during periods in which spot charter rates are rising, we will generally experience delays in realizing the benefits from such increases.
We may not be able to obtain financing on acceptable terms, which may negatively impact our business.
The ability to obtain money from the credit markets has become more difficult as many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt and reduced, and in some cases ceased, to provide funding to borrowers. Due to these factors, we cannot be certain that financing will be available if needed and to the extent required, on acceptable terms. If financing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.
Risks involved with operating ocean-going vessels could affect our business and reputation, which could have a material adverse effect on our results of operations and financial condition.

The operation of an ocean-going vessel carries inherent risks. These risks include the possibility of:
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a marine disaster,
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terrorism,
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environmental accidents,
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cargo and property losses and damage, and
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business interruptions caused by mechanical failure, human error, war, terrorism, piracy, political action in various countries, labor strikes, or adverse weather conditions.

Any of these circumstances or events could increase our costs or lower our revenues. The involvement of our vessels in an environmental disaster may harm our reputation as a safe and reliable dry bulk operator.
World events could affect our operations and financial results.
Past terrorist attacks, as well as the threat of future terrorist attacks around the world, continue to cause uncertainty in the world’s financial markets and may affect our business, operating results and financial condition. Moreover, we operate in a sector of the economy that is likely to be adversely impacted by the effects of political conflicts, including geopolitical events and other

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international hostilities. Further, continuing conflicts, instability and other recent developments in the Middle East and elsewhere, and the presence of armed forces in Iraq, Afghanistan and Syria, may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets. Any of these occurrences could have a material adverse impact on our business, financial condition and results of operations.
We face risks attendant to changes in economic and regulatory conditions around the world.
We face risks attendant to changes in economic environments, changes in interest rates, instability in the banking and securities markets and trade regulation around the world, among other factors. Major market disruptions and adverse changes in market conditions and regulatory climate in China, the United States, the European Union and worldwide may adversely affect our business or impair our ability to borrow amounts under credit facilities or any future financial arrangements.
Additionally, a further economic slowdown in the Asia-Pacific region, especially in China, could negatively affect global economic markets and the market for dry bulk shipping. Chinese dry bulk imports have accounted for the majority of global dry bulk transportation growth annually over the last decade, with recent demand growth driven by stronger iron ore and coal imports into China. Before the global economic financial crisis that began in 2008, China had one of the world’s fastest growing economies in terms of gross domestic product, or GDP, which had a significant impact on shipping demand. Although the growth rate of China’s GDP for the year ended December 31, 2017, was 6.9%, up from a growth rate of 6.7% for the year ended December 31, 2016, it still remains well below pre-2008 levels. China and other countries in the Asia Pacific region may continue to experience slowed or even negative economic growth in the future. Our financial condition and results of operations, as well as our future prospects, would likely be hindered by a continuing or worsening economic downturn in any of these countries or geographic regions.
Over the past several years, the credit markets in the United States and Europe have remained contracted, deleveraged and less liquid, and the U.S. federal and state governments and European authorities have implemented governmental action and/or new regulation of the financial markets and may implement additional regulations in the future. Global financial markets have been, and continue to be, disrupted and volatile. Potential adverse developments in the outlook for the United States or European countries, or market perceptions concerning these and related issues, could reduce the overall demand for dry bulk cargoes and for our service, which could negatively affect our financial position, results of operations and cash flow.
Further, governments may turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing shipping demand. In particular, leaders in the United States have indicated the United States may seek to implement more protective trade measures. President Trump was elected on a platform promoting trade protectionism. The results of the presidential election have thus created significant uncertainty about the future relationship between the United States, China and other exporting countries, including with respect to trade policies, treaties, government regulations and tariffs. For example, on January 23, 2017, President Trump signed an executive order withdrawing the United States from the Trans-Pacific Partnership, a global trade agreement intended to include the United States, Canada, Mexico, Peru and a number of Asian countries. In March 2018, President Trump announced tariffs on imported steel and aluminum into the United States that could have a negative impact on international trade generally and dry bulk shipping specifically. Protectionist developments, or the perception they may occur, may have a material adverse effect on global economic conditions, and may significantly reduce global trade. Moreover, increasing trade protectionism may cause an increase in (a) the cost of goods exported from regions globally, particularly the Asia-Pacific region, (b) the length of time required to transport goods and (c) the risks associated with exporting goods. Such increases may significantly affect the quantity of goods to be shipped, shipping time schedules, voyage costs and other associated costs.
While global economic conditions have generally improved, renewed adverse and developing economic and governmental factors, together with the concurrent volatility in charter rates and vessel values, may have a material adverse effect on our results of operations, financial condition and cash flows and could cause the price of our common shares to decline. An extended period of deterioration in the outlook for the world economy could reduce the overall demand for our services and could also adversely affect our ability to obtain financing on acceptable terms or at all.
Changes in the economic and political environment in China and policies adopted by the government to regulate its economy may have a material adverse effect on our business, financial condition and results of operations.
The Chinese economy differs from the economies of western countries in such respects as structure, government involvement, level of development, growth rate, capital reinvestment, allocation of resources, bank regulation, currency and monetary policy, rate of inflation and balance of payments position. Prior to 1978, the Chinese economy was a “planned economy.” Since 1978, increasing emphasis has been placed on the utilization of market forces in the development of the Chinese economy. Annual and five year state plans are adopted by the Chinese government in connection with the development of the economy. Although state-owned enterprises still account for a substantial portion of the Chinese industrial output, in general, the Chinese government is

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reducing the level of direct control that it exercises over the economy through State Plans and other measures. There is an increasing level of freedom and autonomy in areas such as allocation of resources, production, pricing and management and a gradual shift in emphasis to a “market economy” and enterprise reform. Limited price reforms were undertaken with the result that prices for certain commodities are principally determined by market forces. In addition, economic reforms may include reforms to the banking and credit sector and may produce a shift away from the export-driven growth model that has characterized the Chinese economy over the past few decades. Many of the reforms are unprecedented or experimental and may be subject to revision, change or abolition based upon the outcome of such experiments. The level of imports to and exports from China could be adversely affected by the failure to continue market reforms or changes to existing pro-export economic policies. The level of imports to and exports from China may also be adversely affected by changes in political, economic and social conditions (including a slowing of economic growth) or other relevant policies of the Chinese government, such as changes in laws, regulations or export and import restrictions, internal political instability, changes in currency policies, changes in trade policies and territorial or trade disputes. A decrease in the level of imports to and exports from China could adversely affect our business, operating results and financial condition.
We conduct a substantial amount of business in China. The legal system in China has inherent uncertainties that could have a material adverse effect on our business, financial condition and results of operations.
The Chinese legal system is based on written statutes and their legal interpretation by the Standing Committee of the National People’s Congress. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, the Chinese government has been developing a comprehensive system of commercial laws, and considerable progress has been made in introducing laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, there is a general lack of internal guidelines or authoritative interpretive guidance and because of the limited number of published cases and their non-binding nature, interpretation and enforcement of these laws and regulations involve uncertainties. Changes in laws and regulations, including with regards to tax matters, and their implementation by local authorities could affect our vessels that are either chartered to Chinese customers or that call to Chinese ports and our vessels being built at Chinese shipyards, and could have a material adverse effect on our business, results of operations and financial condition.
Acts of piracy on ocean-going vessels could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean and in the Gulf of Aden off the coast of Somalia. Sea piracy incidents continue to occur, increasingly on the West Coast of Africa, with dry bulk vessels and tankers particularly vulnerable to such attacks. In the past, political conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping. The perception that our vessels are potential piracy or terrorist targets could have a material adverse impact on our business, financial condition and results of operations.
Further, if these piracy attacks occur in regions in which our vessels are deployed that insurers characterize as "war risk" zones or by the Joint War Committee as "war and strikes" listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain, if available at all. In addition, crew costs, including costs that may be incurred to the extent we employ on-board security guards, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could have a material adverse impact on our business, results of operations, cash flows, financial condition and may result in loss of revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make payments to us under our charters.
Our vessels may call on ports located in countries that are subject to restrictions imposed by the U.S. or other governments, which could adversely affect our reputation and the market for our common shares.
While none of our vessels called on ports located in countries subject to U.S. sanctions during 2017, and we intend to comply with all applicable sanctions and embargo laws and regulations, our vessels may call on ports located in these countries from time to time on charterers’ instructions in the future, and there can be no assurance that we will maintain such compliance, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. With effect from July 1, 2010, the U.S. enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or CISADA, which expanded the scope of the Iran Sanctions Act. Among other things, CISADA expands the application of the prohibitions to companies, such as ours, and

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introduces limits on the ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products.
In addition, on May 1, 2012, President Obama signed Executive Order 13608, which prohibits foreign persons from violating or attempting to violate, or causing a violation of any sanctions in effect against Iran or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions. Any persons found to be in violation of Executive Order 13608 will be deemed a foreign sanctions evader, and U.S. persons are generally prohibited from all transactions or dealings with such persons, whether direct or indirect. Among other things, foreign sanctions evaders are unable to transact in U.S. dollars. Also in 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012, or the Iran Threat Reduction Act, which created new sanctions and strengthened existing sanctions. Among other things, the Iran Threat Reduction Act intensifies existing sanctions regarding the provision of goods, services, infrastructure or technology to Iran's petroleum or petrochemical sector. The Iran Threat Reduction Act also includes a provision requiring the President of the United States to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act, as amended, on a person the President determines is a controlling beneficial owner of, or otherwise owns, operates, or controls or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the person otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a person could be subject to a variety of sanctions, including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction, and exclusion of that person's vessels from U.S. ports for up to two years.
On July 14, 2015, the P5+1 (the United States, United Kingdom, Germany, France, Russia and China) and the European Union announced that they reached a landmark agreement with Iran titled the Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran’s Nuclear Program, or the JCPOA, which is intended to significantly restrict Iran’s ability to develop and produce nuclear weapons for ten years while simultaneously easing sanctions directed toward non-U.S. persons for conduct involving Iran, but taking place outside of U.S. jurisdiction and does not involve U.S. persons. On January 16, 2016, or Implementation Day, the United States joined the European Union and the United Nations in lifting a significant number of their nuclear-related sanctions on Iran following an announcement by the International Atomic Energy Agency, or IAEA that Iran had satisfied its respective obligations under the JCPOA.
U.S. sanctions prohibiting certain conduct that is now permitted under the JCPOA have not actually been repealed or permanently terminated at this time. Rather, the U.S. government has implemented changes to the sanctions regime by: (1) issuing waivers of certain statutory sanctions provisions; (2) committing to refrain from exercising certain discretionary sanctions authorities; (3) removing certain individuals and entities from OFAC's sanctions lists; and (4) revoking certain Executive Orders and specified sections of Executive Orders. These sanctions will not be permanently "lifted" until the earlier of “Transition Day,” set to occur on October 20, 2023, or upon a report from the IAEA stating that all nuclear material in Iran is being used for peaceful activities. On October 13, 2017, President Trump announced that he would not certify Iran’s compliance with the JCPOA. This did not withdraw the U.S. from the JCPOA or reinstate any sanctions. However, the U.S. President must periodically renew sanctions waivers and his refusal to do so could result in the reinstatement of certain sanctions currently suspended under the JCPOA. Although it is our intention to comply with the provisions of the JCPOA, there can be no assurance that we will be in compliance in the future as such regulations and U.S. Sanctions may be amended over time, and the U.S. retains the authority to revoke the aforementioned relief if Iran fails to meet its commitments under the JCPOA, as noted above.
Current or future counterparties of ours may be affiliated with persons or entities that are or may be in the future the subject of sanctions imposed by the Trump administration, the EU, and/or other international bodies as a result of the annexation of Crimea by Russia in March 2014. If we determine that such sanctions require us to terminate existing or future contracts to which we or our subsidiaries are party or if we are found to be in violation of such applicable sanctions, our results of operations may be adversely affected or we may suffer reputational harm. Currently, we do not believe that any of our existing counterparties are affiliated with persons or entities that are subject to such sanctions.
Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, our common shares may adversely affect the price at which our common shares trade. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into charters with individuals or entities in countries

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subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries, or engaging in operations associated with those countries pursuant to contracts with third parties that are unrelated to those countries or entities controlled by their governments. Investor perception of the value of our common shares may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
Compliance with safety and other vessel requirements imposed by classification societies may be costly and could reduce our net cash flows and net income.
The hull and machinery of every commercial vessel must be certified as being "in class" by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention.
A vessel must undergo annual surveys, intermediate surveys, drydockings and special surveys. In lieu of a special survey, a vessel's machinery may be placed on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. We expect our vessels to be on special survey cycles for hull inspection and continuous survey cycles for machinery inspection.
Every vessel is also required to be drydocked every two and a half to five years for inspection of the underwater parts of the vessel. Vessels under fifteen years of age can waive dry docking on intermediate inspections in order to increase available days and decrease capital expenditures, provided the vessel is inspected underwater. If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable which could cause us to be in violation of certain covenants in our loan agreements. Any such inability to carry cargo or be employed, or any such violation of covenants, could have a material adverse impact on our financial condition and results of operations.
Compliance with the above requirements may result in significant expense. If any vessel does not maintain its class or fails any annual, intermediate or special survey, the vessel will be unable to trade between ports and will be unemployable, which could have a material adverse effect on our business, results of operations, cash flows and financial condition.
We are subject to complex laws and regulations, including environmental laws and regulations, which can adversely affect our business, results of operations and financial condition.
Our operations will be subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which our vessels operate or are registered, which can significantly affect the ownership and operation of our vessels. These requirements include, but are not limited to European Union regulations, the U.S. Oil Pollution Act of 1990, or OPA, requirements of the U.S. Coast Guard, or USCG, and the U.S. Environmental Protection Agency, or EPA, the U.S. Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, the U.S. Clean Air Act, or CAA, the U.S. Clean Water Act, or CWA, the International Maritime Organization, or IMO, International Convention on Civil Liability for Oil Pollution Damage of 1969, as from time to time amended and replaced by the 1992 protocol, and generally referred to as CLC, the IMO International Convention on Civil Liability for Bunker Oil Pollution Damage of 2001, or the Bunker Convention, the IMO International Convention for the Prevention of Pollution from Ships of 1973, as from time to time amended and generally referred to as MARPOL, including the designation of Emission Control Areas, or ECAs thereunder, the IMO International Convention for the Safety of Life at Sea of 1974, as from time to time amended and generally referred to as the SOLAS Convention, the IMO's International Management code for the safe Operation of Ships and for Pollution Prevention, or ISM Code, the IMO International Convention on Load Lines of 1966, as from time to time amended, and the U.S. Maritime Transportation Security Act of 2002, or MTSA.
Compliance with such laws and regulations, where applicable, may require installation of costly equipment or operational changes and may affect the resale value or useful lives of our vessels. Compliance with such laws and regulations may require us to obtain certain permits or authorizations prior to commencing operations. Failure to obtain such permits or authorizations could materially impact our business results of operations and financial conditions by delaying or limiting our ability to accept charterers. We may also incur additional costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to air emissions including greenhouse gases, the management of ballast waters, maintenance and inspection, development and implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address pollution incidents.
A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability, without regard to whether we were negligent or at

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fault. Under OPA, for example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil in U.S. waters, including the 200-nautical mile exclusive economic zone around the United States. An oil spill could also result in significant liability, including fines, penalties, criminal liability and remediation costs for natural resource damages under other international and U.S. federal, state and local laws, as well as third-party damages, including punitive damages, and could harm our reputation with current or potential charterers of our vessels. We will be required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Although we have insurance to cover certain environmental risks, there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on our business, financial condition, results of operations and cash flows.
Regulations relating to ballast water discharge coming into effect during September 2019 may adversely affect our revenues and profitability. The IMO has imposed updated guidelines of ballast water management systems specifying the maximum amount of viable organisms allowed to be discharged from a vessel’s ballast water. Depending on the date of the IOPP renewal survey, existing vessels must comply with the updated D-2 standard on or after September 8, 2019. For most vessels, compliance with the D-2 standard will involve installing onboard systems to treat ballast water and eliminate unwanted organisms. We currently have 36 vessels that do not comply with the updated guideline and we have estimated costs of compliance to be approximately $41 million over the next six years.
If we fail to comply with international safety regulations, we may be subject to increased liability, which may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.
The operation of our vessels is affected by the requirements set forth in the ISM Code. The ISM Code requires shipowners, ship managers and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. If we fail to comply with the ISM Code, we may be subject to increased liability, or may invalidate existing insurance or decrease available insurance coverage for our affected vessels, and such failure may result in a denial of access to, or detention in, certain ports.
Maritime claimants could arrest one or more of our vessels, which could interrupt our cash flow.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by "arresting" or "attaching" a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could result in a significant loss of earnings for the related off-hire period. In addition, in jurisdictions where the "sister ship" theory of liability applies, such as South Africa, a claimant may arrest the vessel that is subject to the claimant's maritime lien and any "associated" vessel, which is any vessel owned or controlled by the same owner. In countries with "sister ship" liability laws, claims might be asserted against us or any of our vessels for liabilities of other vessels that we own.
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
Our vessels may call in ports where smugglers attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull of our vessel and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims or restrictions which could have an adverse effect on our business, financial condition, results of operations and cash flows.
Governments could requisition our vessels during a period of war or emergency resulting in a loss of earnings.
A government of a vessel's registry could requisition for title or seize one or more of our vessels. Requisition for title occurs when a government takes control of a vessel and becomes the owner. A government could also requisition one or more of our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our vessels could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Risks Related to Our Business
The fair market values of our vessels may decline, which could limit the amount of funds that we can borrow, cause us to breach certain financial covenants in our credit facilities, or result in an impairment charge, and cause us to incur a loss if we sell vessels following a decline in their market value.

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The fair market values of dry bulk vessels, including our vessels, have generally experienced high volatility and may decline in the future. The fair market value of our vessels may continue to fluctuate depending on but not limited to the following factors:
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general economic and market conditions affecting the shipping industry;
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competition from other shipping companies;
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types and sizes of vessels;
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the availability of other modes of transportations;
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cost of newbuildings;
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shipyard capacity;
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governmental or other regulations;
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age of vessels;
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prevailing level of charter rates;
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the need to upgrade secondhand and previously owned vessels as a result of charterer requirements, and
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technological advances in vessel design or equipment or otherwise.

During the period a vessel is subject to a charter, we might not be permitted to sell it to take advantage of increases in vessel values without the charterer's consent. If we sell a vessel at a time when ship prices have fallen, the sale may be at less than the vessel's carrying amount in our financial statements, with the result that we could incur a loss and a reduction in earnings. During the year ended December 31, 2017, we recorded an impairment loss of $1.1 million related to the sale of six vessels. During the year ended December 31, 2016, we recorded an impairment loss of $1.0 million related to a sale of one vessel. The carrying values of our vessels are reviewed whenever events or changes in circumstances indicate that the carrying amount of the vessel may no longer be recoverable. We assess recoverability of the carrying value by estimating the future net cash flows expected to result from the vessel, including eventual disposal. If the future net undiscounted cash flows and the estimated fair market value of the vessel are less than the carrying value, an impairment loss is recorded equal to the difference between the vessel's carrying value and fair value. Any impairment charges incurred as a result of declines in charter rates and other market deterioration could negatively affect our business, financial condition or operating results or the trading price of our common shares.

In addition, if we determine at any time that a vessel's future useful life and earnings require us to impair its value in our financial statements, this would result in a charge against our earnings and a reduction of our shareholders' equity. If the fair market values of our vessels decline, we may not be in compliance with certain covenants contained in our secured credit facilities, which may result in an event of default. In such circumstances, we may not be able to refinance our debt or obtain additional financing acceptable to us or at all. Further, if we are not able to comply with the covenants in our secured credit facilities, and are unable to remedy the relevant breach, our lenders could accelerate our debt and foreclose on our fleet.
Conversely, if vessel values are elevated at a time when we wish to acquire additional vessels, the cost of acquisition may increase and this could adversely affect our business, results of operations, cash flow and financial condition.
We may require additional capital in the future, which may not be available on favorable terms, or at all.
As of December 31, 2017, we had five vessels under construction, total newbuilding commitments of $144.6 million and available debt financing of $150 million, which was drawn down in connection with the delivery of the five newbuildings during January and February 2018.
Depending on many factors, including market developments, our future earnings, value of our assets and expenditures for any new projects, we may need additional funds. We cannot guarantee that we will be able to obtain additional financing at all or on terms acceptable to us. If adequate funds are not available, we may have to reduce expenditures for investments in new and existing projects, which could hinder our growth, prevent us from realizing potential revenues from prior investments and have a negative impact on our cash flows and results of operations.
We are highly leveraged, which could significantly limit our ability to execute our business strategy and has increased the risk of default under our debt obligations.
As of December 31, 2017, we had $1,304.1 million of outstanding indebtedness under our credit facilities, debt securities and related party seller's credits. We cannot assure you that we will be able to generate cash flow in amounts that is sufficient to satisfy these obligations. If we are not able to satisfy these obligations, we may have to undertake alternative financing plans or sell our assets. In addition, debt service payments under our credit facilities may limit funds otherwise available for working capital, capital expenditures, payment of cash distributions and other purposes. If we are unable to meet our debt obligations, or if we otherwise default under our credit facilities, our lenders could declare the debt, together with accrued interest and fees, to be immediately

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due and payable and foreclose on our fleet, which could result in the acceleration of other indebtedness that we may have at such time and the commencement of similar foreclosure proceedings by other lenders
Our credit facilities impose operating and financial restrictions on us that limit our ability, or the ability of our subsidiaries party thereto, as applicable, to:
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pay dividends and make capital expenditures;
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incur additional indebtedness, including the issuance of guarantees;
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create liens on our assets;
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change the flag, class or management of our vessels or terminate or materially amend the management agreement relating to each vessel;
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sell our vessels;
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merge or consolidate with, or transfer all or substantially all our assets to, another person; or
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enter into a new line of business.

In addition, our loan agreements, which are secured by liens on our vessels, contain various financial covenants. Among those covenants are requirements that relate to our financial position, operating performance and liquidity. For example, there are financial covenants that require us to maintain (i) an equity ratio fixing a minimum value of adjusted equity that is based, in part, upon the market value of the vessels securing the loans, (ii) minimum levels of free cash, (iii) positive working capital, and (iv) a minimum value, or loan-to-value, covenant, which could require us to post collateral or prepay a portion of the outstanding borrowings should the value of the vessels securing borrowings decrease below a required level.
The market value of dry bulk vessels is likewise sensitive to, among other things, changes in the dry bulk market, with vessel values deteriorating in times when dry bulk rates are falling or anticipated to fall and improving when charter rates are rising or anticipated to rise. Such conditions may result in us not being in compliance with our loan covenants. In such a situation, unless our lenders are willing to provide further waivers of covenant compliance or modifications to our covenants, or would be willing to refinance our indebtedness, we may have to sell vessels in our fleet and/or seek to raise additional capital in the equity markets in order to comply with our loan covenants. Furthermore, if the value of our vessels deteriorates significantly, we may have to record an impairment adjustment in our financial statements, which would adversely affect our financial results and further hinder our ability to raise capital. The fair market values of our vessels may decline, which could limit the amount of funds that we can borrow, cause us to breach certain financial covenants in our credit facilities, or result in an impairment charge, and cause us to incur a loss if we sell vessels following a decline in their market value.
If we are not in compliance with our covenants and are not able to obtain covenant waivers or modifications, our lenders could 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, or they could accelerate our indebtedness, any of which would impair our ability to continue to conduct our business. If our indebtedness is accelerated, we might not be able to refinance our debt or obtain additional financing and could lose our vessels if our lenders foreclose on their liens. In addition, if we find it necessary to sell our vessels at a time when vessel prices are low, we will recognize losses and a reduction in our earnings, which could affect our ability to raise additional capital necessary for us to comply with our loan agreements.
Furthermore, certain of 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 for us to refinance our debt or obtain additional financing and we could lose our vessels securing our credit facilities if our lenders foreclose their liens, which would adversely affect our ability to conduct our business.
We may be unable to successfully compete with other vessel operators for charters, which could adversely affect our results of operations and financial position.

The operation of dry bulk vessels and transportation of dry bulk cargoes is extremely competitive. Competition for the transportation of dry bulk cargoes by sea is intense and depends on price, location, size, age, condition and the acceptability of the vessel and its operators to the charterers. Through our operating subsidiaries, we compete with other vessel owners, and, to a lesser extent, owners of other size vessels. The dry bulk market is highly fragmented. Due in part to the highly fragmented market, competitors with greater resources could enter the dry bulk shipping industry and operate larger fleets through consolidations or acquisitions and may be able to offer lower charter rates and higher quality vessels than we are able to offer. Although we believe that no single

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competitor has a dominant position in the markets in which we compete, we are aware that certain competitors may be able to devote greater financial and other resources to their activities than we can, resulting in a significant competitive threat to us. As a result, we cannot assure you that we will be successful in finding continued timely employment of our existing vessels.
Our results of operations are subject to seasonal fluctuations, which may adversely affect our financial condition.

We operate our dry bulk vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charterhire rates. The dry bulk sector is typically stronger in the fall and winter months in anticipation of increased consumption of coal and other raw materials in the northern hemisphere. The celebration of Chinese New Year in the first quarter of each year, also results in lower volumes of seaborne trade into China during this period. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. This seasonality may result in quarter-to-quarter volatility in our revenues and operating results, which could affect our ability to pay dividends, if any, in the future.

A drop in spot charter rates may provide an incentive for some charterers to default on their charters.

When we enter into a time charter or bareboat charter, charter rates under that charter may be fixed for the term of the charter. 14 of our vessels are currently on a fixed rate time charters expiring between 2018 and 2021. If the spot charter rates or short-term time charter rates in the dry bulk shipping industry become significantly lower than the time charter equivalent rates that some of our charterers are obligated to pay us under our existing charters, the charterers may have incentive to default under that charter or attempt to renegotiate the charter. If our charterers fail to pay their obligations, we would have to attempt to re-charter our vessels at lower charter rates, which would affect our ability to comply with our loan covenants and operate our vessels profitably. If we are not able to comply with our loan covenants and our lenders choose to accelerate our indebtedness and foreclose their liens, we could be required to sell vessels in our fleet and our ability to continue to conduct our business would be impaired.
Our fixed rate time charters may limit our ability to benefit from any improvement in charter rates, and at the same time, our revenues may be adversely affected if we do not successfully employ our vessels on the expiration of our charters.

14 of our vessels are currently on a fixed rate time charters expiring between 2018 and 2021. Although our fixed rate time charters generally provide reliable revenues, they also limit the portion of our fleet available for spot market voyages during an upswing in the dry bulk industry cycle, when spot market voyages might be more profitable. By the same token, we cannot assure you that we will be able to successfully employ our vessels in the future or renew our existing charters at rates sufficient to allow us to operate our business profitably or meet our obligations. A decline in charter or spot rates or a failure to successfully charter our vessels could have a material adverse effect on our business, financial condition and results of operations.

We are subject to certain risks with respect to our counterparties on contracts, and failure of such counterparties to meet their obligations could cause us to suffer losses or otherwise adversely affect our business.

We have entered, and may enter in the future, into various contracts, including charter parties with our customers, loan agreements with our lenders, and vessel management, pooling arrangements, newbuilding contracts and other agreements with other entities, which subject us to counterparty risks. The ability of each of the counterparties to perform its obligations under a contract with us or contracts entered into on our behalf will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the shipping sector, the overall financial condition of the counterparty, charter rates received for our vessels and the supply and demand for commodities. Should a counterparty fail to honor its obligations under any such contract, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Charterers are sensitive to the commodity markets and may be impacted by market forces affecting commodities. In addition, in depressed market conditions, charterers may have incentive to renegotiate their charters or default on their obligations under charters. Should a charterer in the future fail to honor its obligations under agreements with us, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements we secure on the spot market or on charters may be at lower rates, depending on the then existing charter rate levels, compared to the rates currently being charged for our vessels. In addition, if the charterer of a vessel in our fleet that is used as collateral under one or more of our loan agreements defaults on its charter obligations to us, such default may constitute an event of default under our loan agreements, which may allow the bank to exercise remedies under our loan agreements. If our charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations, cash flows and compliance with covenants in our loan agreements.

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Our ability to obtain additional debt financing may be dependent on the performance of our then existing charterers and their creditworthiness.
The actual or perceived credit quality of our charterers, and any defaults by them, may materially affect our ability to obtain the additional capital resources required to purchase additional vessels or may significantly increase our costs of obtaining such capital. Our inability to obtain additional financing at anticipated costs or at all may materially affect our results of operations and our ability to implement our business strategy.
Our financing arrangements have floating interest rates, which could negatively affect our financial performance as a result of interest rate fluctuations.
As certain of our current financing agreements have, and our future financing arrangements may have, floating interest rates, typically based on LIBOR, movements in interest rates could negatively affect our financial performance. Furthermore, historically interest in most loan agreements in our industry has been based on published LIBOR rates. Recently, however, lenders have insisted on provisions that entitle the lenders, in their discretion, to replace published LIBOR as the base for the interest calculation with their cost-of-funds rate. If we are required to agree to such a provision in future loan agreements, our lending costs could increase significantly, which would have an adverse effect on our profitability, earnings and cash flow.
In order to manage our exposure to interest rate fluctuations, we may from time to time use interest rate derivatives to effectively fix some of our floating rate debt obligations. No assurance can however be given that the use of these derivative instruments, if any, may affectively protect us from adverse interest rate movements. The use of interest rate derivatives may affect our results through mark to market valuation of these derivatives. Also, adverse movements in interest rate derivatives may require us to post cash as collateral, which may impact our free cash position. As of December 31, 2017, we had $0.5 million in restricted cash due to collateral for our interest rate swaps.
Certain of our directors, executive officers and major shareholders may have interests that are different from the interests of our other shareholders.
Certain of our directors, executive officers and major shareholders may have interests that are different from, or are in addition to, the interests of our other shareholders. In particular, Hemen Holding Limited, a company indirectly controlled by trusts established by Mr. Fredriksen, our director, for the benefit of his immediate family, or Hemen, and certain of its affiliates, may be deemed to beneficially own approximately 35.7% of our issued and outstanding common shares.
Hemen is also a principal shareholder of a number of other large publicly traded companies involved in various sectors of the shipping and oil services industries, or the Hemen Related Companies. In addition, certain of our directors, including Mr. Lorentzon, Mr. Fredriksen and Mrs. Blankenship, also serve on the boards of one or more of the Hemen Related Companies, including but not limited to, Frontline Ltd. (NYSE:FRO), or Frontline, Ship Finance International Limited (NYSE:SFL), or Ship Finance, Seadrill Limited (NYSE:SDRL), or Seadrill, Flex LNG Ltd (OSE:FLNG), or FLEX, and North Atlantic Drilling Ltd. (NYSE:NADLQ), or NADL. There may be real or apparent conflicts of interest with respect to matters affecting Hemen and other Hemen Related Companies whose interests in some circumstances may be adverse to our interests.
To the extent that we do business with or compete with other Hemen Related Companies for business opportunities, prospects or financial resources, or participate in ventures in which other Hemen Related Companies may participate, these directors and officers may face actual or apparent conflicts of interest in connection with decisions that could have different implications for us. These decisions may relate to corporate opportunities, corporate strategies, potential acquisitions of businesses, newbuilding acquisitions, inter-company agreements, the issuance or disposition of securities, the election of new or additional directors and other matters. Such potential conflicts may delay or limit the opportunities available to us, and it is possible that conflicts may be resolved in a manner adverse to us or result in agreements that are less favorable to us than terms that would be obtained in arm's-length negotiations with unaffiliated third-parties.
We are dependent on the success and profitability of the pools in which our vessels operate.
We are party to the pooling arrangements pursuant to which the profitability of our vessels operating in these vessel pools is dependent upon the pool managers’ and other pool participants’ ability to successfully implement a profitable chartering strategy, which could include, among other things, obtaining favorable charters and employing vessels in the pool efficiently in order to service those charters. As of the date of this annual report, 26 of our vessels operate under revenue sharing agreements or pools. If vessels from other pool participants that enter into pools in which we participate are not of comparable design or quality to our vessels, or if the owners of such other vessels negotiate for greater pool weightings than those obtained by us, this could negatively impact the profitability of the pools in which we may participate or our profitability or dilute our interest in the pool's profits.

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Further, in addition to bearing charterer credit risk indirectly, we may also face credit risk from our pool managers and other pool participants. Not all pool managers or pool participants will necessarily provide detailed financial information regarding their operations. As a result, pool manager and other pool participant risk is largely assessed on the basis of the reputation of our pool managers and other pool participants in the market, and even on that basis, there is no assurance that they can or will fulfill their obligations under the contracts we may enter into with them. As such, pool managers and other pool participants may fail to fulfill their obligations to us. Should a pool manager or other pool participant fail to honor its obligations under agreements with us, we may have to withdraw our vessels from the pool and it may be difficult to secure substitute employment for our vessels, and any new charter arrangements we secure on the spot market, on time charters or in alternative pooling arrangements may be at lower rates or on less favorable terms, depending on the then existing charter rate levels, compared to the rates currently being charged for our vessels, and other market conditions. If our pool managers or other pool participants fail to meet their obligations to us, we could sustain significant losses, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We may not be able to implement our growth successfully.
Subject to the covenants in our credit facilities, our long term intention is to renew and grow our fleet through selective acquisitions of dry bulk tonnage. Our business plan will therefore depend upon our ability to identify and acquire suitable vessels to grow our fleet in the future and successfully employ our vessels.
Growing any business by acquisition presents numerous risks, including undisclosed liabilities and obligations, difficulty obtaining additional qualified personnel and managing relationships with customers and suppliers. In addition, competition from other companies, many of which may have significantly greater financial resources than us, may reduce our acquisition opportunities or cause us to pay higher prices. We cannot assure you that we will be successful in executing our plans to establish and grow our business or that we will not incur significant expenses and losses in connection with these plans. Our failure to effectively identify, purchase, develop and integrate any vessels could impede our ability to establish our operations or implement our growth successfully. Our acquisition growth strategy exposes us to risks that may harm our business, financial condition and operating results, including risks that we may:
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fail to realize anticipated benefits, such as cost savings or cash flow enhancements;
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incur or assume unanticipated liabilities, losses or costs associated with any vessels or businesses acquired, particularly if any vessel we acquire proves not to be in good condition;
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be unable to hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and fleet;
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decrease our liquidity by using a significant portion of available cash or borrowing capacity to finance acquisitions;
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significantly increase our interest expense or financial leverage if we incur debt to finance acquisitions; or
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incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges.

Purchasing and operating secondhand vessels may result in increased drydocking costs and vessels off-hire, which could adversely affect our earnings.

Subject to the covenants in our credit facilities, our long term business strategy includes growth through the acquisition of previously owned vessels. Even following a physical inspection of secondhand vessels prior to purchase, we do not have the same knowledge about their condition and cost of any required (or anticipated) repairs that we would have had if these vessels had been built for and operated exclusively by us. Accordingly, we may not discover defects or other problems with such vessels prior to purchase. Any such hidden defects or problems, when detected, may be expensive to repair, and if not detected, may result in accidents or other incidents for which we may become liable to third parties. Also, when purchasing previously owned vessels, we do not receive the benefit of any builder warranties if the vessels we buy are older than one year.
In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. The average age of our dry bulk vessel fleet is approximately five years. As our fleet ages, we will incur increased costs. Older vessels are typically less fuel efficient than more recently constructed vessels due to improvements in engine and hull technology. Governmental regulations, safety and other equipment standards related to the age of vessels may require expenditures for alterations or the addition of new equipment to some of our vessels and may restrict the type of activities in which these vessels may engage. We cannot assure you that, as our vessels age, market conditions will justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives. As a result, regulations and standards could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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New vessels may experience initial operational difficulties and unexpected incremental start-up costs.
New vessels, during their initial period of operation, have the possibility of encountering structural, mechanical and electrical problems as well as unexpected incremental start-up costs. Typically, the purchaser of a newbuilding will receive the benefit of a warranty from the shipyard for newbuildings, but we cannot assure you that any warranty we obtain will be able to resolve any problem with the vessel without additional costs to us and off-hire periods for the vessel. Upon delivery of a newbuild vessel from a shipyard, we may incur operating expenses above the incremental start-up costs typically associated with such a delivery and such expenses may include, among others, additional crew training, consumables and spares.
The operation of dry bulk vessels involves certain unique operational risks.
The operation of dry bulk vessels has certain unique operational risks. With a dry bulk vessel, the cargo itself and its interaction with the ship can be a risk factor. By their nature, dry bulk cargoes are often heavy, dense and easily shifted, and react badly to water exposure. In addition, dry bulk vessels are often subjected to battering treatment during unloading operations with grabs, jackhammers (to pry encrusted cargoes out of the hold), and small bulldozers. This treatment may cause damage to the dry bulk vessel. Dry bulk vessels damaged due to treatment during unloading procedures may be more susceptible to a breach to the sea. Hull breaches in dry bulk vessels may lead to the flooding of their holds. If a dry bulk vessel suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the dry bulk vessel's bulkheads leading to the loss of the dry bulk vessel.
If we are unable to adequately maintain or safeguard our vessels, we may be unable to prevent these events. Any of these circumstances or events could negatively impact our business, financial condition or results of operations. In addition, the loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator.
Rising fuel, or bunker, prices may adversely affect our profits.
Since we primarily employ our vessels in the spot market, we expect that fuel, or bunkers, will typically be the largest expense in our shipping operations for our vessels. While we believe that we can transfer increased cost to the customer, and will experience a competitive advantage as a result of increased bunker prices due to the greater fuel efficiency of our vessels compared to the average global fleet, changes in the price of fuel may adversely affect our profitability. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the Organization of the Petroleum Exporting Countries, or OPEC, and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Fuel may therefore become much more expensive in the future and we might not be able to fully recover this increased cost through our charter rates.
Operational risks and damage to our vessels could adversely impact our performance.
Our vessels and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad weather and other acts of God, business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy, labor strikes, boycotts and other circumstances or events. These hazards may result in death or injury to persons, loss of revenues or property, the payment of ransoms, environmental damage, higher insurance rates, damage to our customer relationships and market disruptions, delay or rerouting.
If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover at all or in full. The loss of revenues while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, may adversely affect our business and financial condition. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced to travel to a drydocking facility that is not conveniently located relative to our vessels' positions. The loss of earnings while these vessels are forced to wait for space or to travel to more distant drydocking facilities may adversely affect our business and financial condition.
Further, the total loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator. If we are unable to adequately maintain or safeguard our vessels, we may be unable to prevent any such damage, costs or loss, which could negatively impact our business, financial condition, results of operations and cash flows.
We rely on our information systems to conduct our business, and failure to protect these systems against security breaches could adversely affect our business and results of operations. Additionally, if these systems fail or become unavailable for any significant period of time, our business could be harmed.

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The efficient operation of our business, including processing, transmitting and storing electronic and financial information, is dependent on computer hardware and software systems.  Information systems are vulnerable to security breaches by computer hackers and cyber terrorists.  We rely on industry accepted security measures and technology to securely maintain confidential and proprietary information maintained on our information systems.  However, these measures and technology may not adequately prevent security breaches.  In addition, the unavailability of the information systems or the failure of these systems to perform as anticipated for any reason could disrupt our business and could result in decreased performance and increased operating costs, causing our business and results of operations to suffer.  Any significant interruption or failure of our information systems or any significant breach of security could adversely affect our business and results of operations.
Increased inspection procedures, tighter import and export controls and new security regulations could increase costs and cause disruption of our business.
International shipping is subject to security and customs inspection and related procedures in countries of origin, destination and trans-shipment points. Under the U.S. Maritime Transportation Security Act of 2002, or MTSA, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States and at certain ports and facilities. These security procedures can result in delays in the loading, offloading or trans-shipment and the levying of customs duties, fines or other penalties against exporters or importers and, in some cases, carriers. Future changes to the existing security procedures may be implemented that could affect the dry bulk sector. These changes have the potential to impose additional financial and legal obligations on carriers and, in certain cases, to render the shipment of certain types of goods uneconomical or impractical. These additional costs could reduce the volume of goods shipped, resulting in a decreased demand for vessels and have a negative effect on our business, revenues and customer relations.
Failure to comply with the U.S. Foreign Corrupt Practices Act could result in fines, criminal penalties and an adverse effect on our business.
We may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or U.S Foreign Corrupt Practices Act, and other anti-bribery legislation. We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption laws, including the U.S. Foreign Corrupt Practices Act. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.
Incurrence of expenses or liabilities may reduce or eliminate distributions.
Certain of our credit facilities currently restrict our wholly-owned non-recourse subsidiary that indirectly owns the 14 vessels acquired from Quintana Shipping Ltd., or Quintana, which we refer to as the Quintana Acquisition, from paying dividends to us without prior consent from the lenders. The amount and timing of cash distributions in the future will also depend, among other things, on our compliance with covenants in our credit facilities, earnings, financial condition, cash position, Bermuda law affecting the payment of distributions, restrictions in our financing agreements and other factors. We could also incur other expenses or contingent liabilities that would reduce or eliminate the cash available for distribution by us as cash distributions. In addition, the declaration and payment of cash distributions is subject at all times to the discretion of our Board. We cannot assure you that it will pay cash distributions.

We may be subject to litigation that, if not resolved in our favor and not sufficiently insured against, could have a material adverse effect on us.
We may be, from time to time, involved in various litigation matters. These matters may include, among other things, contract disputes, shareholder litigation, personal injury claims, environmental claims or proceedings, asbestos and other toxic tort claims, employment matters, governmental claims for taxes or duties, and other litigation that arises in the ordinary course of our business. Although we intend to defend these matters vigorously, we cannot predict with certainty the outcome or effect of any claim or other litigation matter, and the ultimate outcome of any litigation or the potential costs to resolve them may have a material adverse effect on us. Insurance may not be applicable or sufficient in all cases and/or insurers may not remain solvent which may have a material adverse effect on our financial condition.

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If we do not set aside funds and are unable to borrow or raise funds for vessel replacement at the end of a vessel's useful life, our revenue will decline, which would adversely affect our business, results of operations and financial condition.
If we do not set aside funds and are unable to borrow or raise funds for vessel replacement, we will be unable to replace the vessels in our fleet upon the expiration of their remaining useful lives. Our cash flows and income are dependent on the revenues earned by the chartering of our vessels. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our business, results of operations and financial condition would be adversely affected. Any funds set aside for vessel replacement will not be available for cash distributions.
We may not have adequate insurance to compensate us if our vessels are damaged or lost.
In the event of a casualty to a vessel or other catastrophic event, we rely on our insurance to pay the insured value of the vessel or the damages incurred. We procure insurance for our fleet against those risks that we believe companies in the shipping industry commonly insure. These insurances include hull and machinery insurance, protection and indemnity insurance, which include environmental damage and pollution insurance coverage, and war risk insurance. We can give no assurance that we will be adequately insured against all risks and we cannot guarantee that any particular claim will be paid, even if we have previously recorded a receivable or revenue in respect of such claim. Our insurance policies may contain deductibles for which we will be responsible and limitations and exclusions, which may increase our costs or lower our revenues.

We cannot assure you that we will be able to obtain adequate insurance coverage for our vessels in the future or renew our existing policies on the same or commercially reasonable terms, or at all. For example, more stringent environmental regulations have in the past led to increased costs for, and in the future may result in the lack of availability of, protection and indemnity insurance against risks of environmental damage or pollution. Any uninsured or underinsured loss could harm our business, results of operations, cash flows and financial condition. In addition, our insurance may be voidable by the insurers as a result of certain of our actions, such as our vessels failing to maintain certification with applicable maritime self-regulatory organizations. Further, we cannot assure you that our insurance policies will cover all losses that we incur, or that disputes over insurance claims will not arise with our insurance carriers. Any claims covered by insurance would be subject to deductibles, and since it is possible that a large number of claims may be brought, the aggregate amount of these deductibles could be material. In addition, our insurance policies may be subject to limitations and exclusions, which may increase our costs or lower our revenues, thereby possibly having a material adverse effect on our business, results of operations, cash flows and financial condition.

We may be subject to calls because we obtain some of our insurance through protection and indemnity associations.
We may be subject to increased premium payments, or calls, if the value of our claim records, the claim records of our fleet managers, and/or the claim records of other members of the protection and indemnity associations through which we receive insurance coverage for tort liability (including pollution-related liability) significantly exceed projected claims. Our payment of these calls could result in significant expense to us, which could have a material adverse effect on our business, results of operations, cash flows and financial condition. In addition, our protection and indemnity associations may not have enough resources to cover claims made against them.
We are a holding company, and depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations.
We are a holding company and our subsidiaries conduct all of our operations and own all of our operating assets. We have no significant assets other than the equity interests in our subsidiaries. Pursuant to certain of our loan agreements, our wholly-owned non-recourse subsidiary that indirectly owns the 14 vessels acquired in the Quintana Acquisition is prohibited from paying dividends to us without prior consent from the lenders. Our ability to satisfy our financial obligations in the future depends on our subsidiaries and their ability to distribute funds to us. If we are unable to obtain funds from our subsidiaries, we may not be able to satisfy our financial obligations.
The international nature of our operations may make the outcome of any bankruptcy proceedings difficult to predict.
We are incorporated under the laws of Bermuda and conduct operations in countries around the world. Consequently, in the event of any bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding involving us or any of our subsidiaries, bankruptcy laws other than those of the United States could apply. If we become a debtor under U.S. bankruptcy law, bankruptcy courts in the United States may seek to assert jurisdiction over all of our assets, wherever located, including property situated in other countries. There can be no assurance, however, that we would become a debtor in the United States, or that a U.S. bankruptcy court would be entitled to, or accept, jurisdiction over such a bankruptcy case, or that courts in other countries that have jurisdiction

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over us and our operations would recognize a U.S. bankruptcy court’s jurisdiction if any other bankruptcy court would determine it had jurisdiction.
Because we are a Bermuda exempted company, our shareholders may have less recourse against us or our directors than shareholders of a U.S. company have against the directors of that U.S. Company.
Because we are a Bermuda company, the rights of holders of our common shares will be governed by Bermuda law and our memorandum of association and bye-laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders in other jurisdictions, including with respect to, among other things, rights related to interested directors, amalgamations, mergers and acquisitions, takeovers, the exculpation and indemnification of directors and shareholder lawsuits.
Among these differences is a Bermuda law provision that permits a company to exempt a director from liability for any negligence, default, or breach of a fiduciary duty except for liability resulting directly from that director’s fraud or dishonesty.  Our bye-laws provide that no director or officer shall be liable to us or our shareholders unless the director’s or officer’s liability results from that person’s fraud or dishonesty. Our bye-laws also require us to indemnify a director or officer against any losses incurred by that director or officer resulting from their negligence or breach of duty, except where such losses are the result of fraud or dishonesty.  Accordingly, we carry directors’ and officers’ insurance to protect against such a risk.
In addition, under Bermuda law, the directors of a Bermuda company owe their duties to that company and not to the shareholders. Bermuda law does not, generally, permit shareholders of a Bermuda company to bring an action for a wrongdoing against the company or its directors, but rather the company itself is generally the proper plaintiff in an action against the directors for a breach of their fiduciary duties. Moreover, class actions and derivative actions are generally not available to shareholders under Bermuda law. These provisions of Bermuda law and our bye-laws, as well as other provisions not discussed here, may differ from the law of jurisdictions with which shareholders may be more familiar and may substantially limit or prohibit a shareholder's ability to bring suit against our directors or in the name of the company. Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than that which actually approved it. However, generally a derivative action will not be permitted where there is an alternative action available that would provide an adequate remedy. Any property or damages recovered by derivative action go to the company, not to the plaintiff shareholders. When the affairs of a company are being conducted in a manner which is oppressive or prejudicial to the interests of some part of the shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company or that the company be wound up.
It is also worth noting that under Bermuda law, our directors and officers are required to disclose to our board any interests they have in any material contract entered into by our company or any of its subsidiaries. Our directors and officers are also required to disclose their material interests in any corporation or other entity which is party to a material contract with our company or any of its subsidiaries. A director who has disclosed his or her interests in accordance with Bermuda law may participate in any meeting of our board, and may vote on the approval of a material contract, notwithstanding that he or she has an interest.
United States tax authorities could treat us as a "passive foreign investment company", which could have adverse United States federal income tax consequences to United States shareholders.
A foreign corporation will be treated as a "passive foreign investment company", or PFIC, for United States federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of "passive income" or (2) at least 50% of the average value of the corporation's assets produce or are held for the production of those types of "passive income". For purposes of these tests, "passive income" includes cash distributions, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute "passive income". United States shareholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
Based on our current and proposed method of operation, we do not believe that we are or that we have been since the beginning of our 2004 taxable year, or that we will be a PFIC with respect to any taxable year. In this regard, we intend to treat the gross income we derive or are deemed to derive from our time chartering and voyage chartering activities as services income, rather

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than rental income. Accordingly, we believe that our income from these activities does not constitute "passive income", and the assets that we own and operate in connection with the production of that income do not constitute assets that produce, or are held for the production of, "passive income".
Although there is no direct legal authority under the PFIC rules addressing our method of operation there is substantial legal authority supporting our position consisting of case law and United States Internal Revenue Service, or the IRS, pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, it should be noted that there is also authority that characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept our position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if there were to be changes in the nature and extent of our operations.
If the IRS were to find that we are or have been a PFIC for any taxable year, our United States shareholders will face adverse United States federal income tax consequences. Under the PFIC rules, unless those shareholders make an election available under United States Internal Revenue Code of 1986, as amended, or the Code (which election could itself have adverse consequences for such shareholders, as discussed below under "Taxation-United States Federal Income Tax Considerations"), such shareholders would be liable to pay United States federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our common shares, as if the excess distribution or gain had been recognized ratably over the shareholder's holding period of our common shares.
We may have to pay tax on United States source income, which would reduce our earnings.
Under the Code, 50% of the gross shipping income of a vessel owning or chartering corporation, such as ourselves and our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States, may be subject to a 4% United States federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the applicable Treasury Regulations promulgated thereunder.
We believe that we and each of our subsidiaries qualified for this statutory tax exemption for our taxable year ending on December 31, 2017 and we will take this position for United States federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption for future taxable years and thereby become subject to United States federal income tax on our United States source shipping income. For example, we would no longer qualify for exemption under Section 883 of the Code for a particular taxable year if certain non-qualified shareholders with a 5% or greater interest in our common shares owned, in the aggregate, 50% or more of our outstanding common shares for more than half the days during the taxable year. It is possible that we could be subject to this rule for our taxable year ending on or after December 31, 2018. Due to the factual nature of the issues involved, there can be no assurances on our tax-exempt status or that of any of our subsidiaries.
If we or our subsidiaries are not entitled to exemption under Section 883 of the Code for any taxable year, we, or our subsidiaries, could be subject during those years to an effective 2% United States federal income tax on gross shipping income derived during such a year that is attributable to the transport of cargoes to or from the United States. The imposition of this tax would have a negative effect on our business. However, the amount of our shipping income that would be subject to this tax has historically not been material.
Our share price may be highly volatile and future sales of our common shares could cause the market price of our common shares to decline.
Our common shares commenced trading on the NASDAQ Global Select Market in February 1997 and currently trade under the symbol "GOGL". Beginning on April 7, 2015, our shares traded on the Oslo Stock Exchange, or the OSE, under the ticker code “GOGL”. We cannot assure you that an active and liquid public market for our common shares will continue. The market price of our common shares has historically fluctuated over a wide range and may continue to fluctuate significantly in response to many factors, such as actual or anticipated fluctuations in our operating results, changes in financial estimates by securities analysts, economic and regulatory trends, general market conditions, rumors and other factors, many of which are beyond our control. If the volatility in the broad stock market worsens, it could have an adverse effect on the market price of our common shares and impact a potential sale price if holders of our common shares decide to sell their shares.

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Future issuance of shares or other securities may dilute the holdings of shareholders and could materially affect the price of our common shares.
It is possible that we may in the future decide to offer additional shares or other securities in order to secure financing for new projects, in connection with unanticipated liabilities or expenses or for any other purposes. Any such additional offering could reduce the proportionate ownership and voting interests of holders of our common shares, as well as our earnings per share and our net asset value per share, and any offering by us could have a material adverse effect on the market price of our common shares.
Because our offices and most of our assets are outside the United States, you may not be able to bring suit against us, or enforce a judgment obtained against us in the United States.
Our executive offices, administrative activities and assets are located outside the United States. As a result, it may be more difficult for investors to effect service of process within the United States upon us, or to enforce both in the United States and outside the United States judgments against us in any action, including actions predicated upon the civil liability provisions of the federal securities laws of the United States.

ITEM 4.  INFORMATION ON THE COMPANY

A.  HISTORY AND DEVELOPMENT OF THE COMPANY

History

On September 18, 1996, we were incorporated in Bermuda under the name Knightsbridge Tankers Limited as an exempted company pursuant to the Bermuda Companies Act 1981. In October 2014, we changed our name to Knightsbridge Shipping Limited. Following the completion of the Merger on March 31, 2015, we changed our name to Golden Ocean Group Limited. Our registered and principal executive offices are located at Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda, and our telephone number at this location is +1 (441) 295-6935.

Our common shares currently trade on the NASDAQ Global Select Market and the OSE under the ticker code "GOGL".

We are engaged primarily in the ownership and operation of dry bulk vessels. We operate through subsidiaries located in Bermuda, Liberia, the Marshall Islands, Norway, and Singapore. We are also involved in the charter, purchase and sale of vessels.

Historical business purpose

We were originally established for the purpose of owning and operating five very large crude oil carriers, or VLCCs. In February 1997, we completed our initial public offering, which resulted in $317.2 million net proceeds. We used these proceeds and bank debt to fund the acquisition of our initial fleet of five VLCCs. Between 2007 and 2013, we sold our five VLCCs and subsequently discontinued our crude oil tanker operations.

The Merger

On October 7, 2014, we and the Former Golden Ocean entered into the Merger Agreement. The Merger was approved by our shareholders and the shareholders of the Former Golden Ocean at separate special general meetings held on March 26, 2015. In addition, our shareholders approved the adoption of the Amended and Restated Bye-laws.

The Merger was completed on March 31, 2015 and we issued 12.3 million of our common shares to the Former Golden Ocean shareholders as merger consideration with one share in the Former Golden Ocean receiving 0.13749 of our common shares. Following completion of the Merger and, pursuant to the merger agreement, we canceled 10,390 common shares (which were held by the Former Golden Ocean) and 908 common shares (which account for fractional shares that were not distributed to the Former Golden Ocean shareholders as merger consideration).

Our Acquisitions, Disposals and Newbuildings

We entered into the following acquisitions and disposals in 2015, 2016, 2017 and 2018 (to date):


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In January 2015, we took delivery of four previously acquired Capesize vessels (KSL Seoul, Golden Kathrine, KSL Sakura and KSL Seville).

In March 2015, we completed the acquisition from Frontline 2012 Ltd. of 12 special purpose companies, or SPCs, and issued share capital in exchange for the 12 SPCs, assuming newbuilding commitments of $404.0 million, net of a cash payment from Frontline 2012 Ltd. of $108.6 million. No other working capital balances were acquired.

In March 2015, we took delivery of the KSL Stockholm, a Capesize vessel.

As of March 31, 2015, and prior to the Merger with the Former Golden Ocean, we owned eighteen Capesize vessels and twenty-one newbuilding contracts for construction of nineteen Capesizes and two Newcastelmaxes.

After the completion of the Merger, on March 31, 2015, we acquired seven Capesize vessels (Channel Navigator, Channel Alliance, Golden Feng, Golden Shui, Golden Magnum, Golden Beijing and Golden Zhoushan), ten Ice-class Panamax vessels (Golden Saguenay, Golden Opportunity, Golden Ice, Golden Strength, Golden Suek, Golden Bull, Golden Brilliant, Golden Pear, Golden Diamond and Golden Ruby), eight Kamsarmax vessels (Golden Eminence, Golden Empress, Golden Endeavour, Golden Endurer, Golden Enterprise, Golden Rose, Golden Daisy and Golden Ginger), four Supramax vessels (Golden Cecilie, Golden Cathrine, Golden Aries and Golden Gemini) and three newbuilding contracts for construction of four respective Supramax vessels (Golden Taurus, Golden Leo, Golden Virgo and Golden Libra). We further acquired a Panamax vessel (Golden Lydernhon) and a Kamsarmax vessel (Golden Eclipse), both owned under a respective capital lease.

In April 2015, we sold two Capesize vessels (Channel Alliance and Channel Navigator) to an unrelated third party, and agreed to sell four newbuilding Capesize vessels (Front Atlantic, Front Baltic, Front Caribbean, and Front Mediterranean). Upon completion of the construction of the vessels and delivery of them from the yards, the vessels were delivered to the buyer and three of the four vessels were chartered in for periods between six and 12 months following delivery. All three chartered vessels have since been redelivered to their owners.

Also in April 2015, we agreed to a sale and leaseback transaction with Ship Finance for eight Capesize vessels. Five of these vessels (KSL China, Battersea, Belgravia, Golden Future and Golden Zhejiang) were owned by us prior to the completion of the Merger and three vessels (Golden Zhoushan, Golden Beijing and Golden Magnum) were acquired as a result of the Merger. These were sold en-bloc for an aggregate price of $272.0 million. The vessels were delivered to Ship Finance in the third quarter of 2015 and were chartered in for a period of ten years. We have a purchase option of $112 million en-bloc after ten years and, if such option is not exercised, Ship Finance will have the option to extend the charters by three years.

In May 2015, we took delivery of the Golden Taurus, an Ultramax vessel.

In June 2015, we took delivery of the Golden Aso and Golden Finsbury, both Capesize vessels.

In August 2015, we took delivery of, and simultaneously sold, the Front Atlantic, a Capesize vessel. We chartered the vessel in for a period of 12 months.

In November 2015, we entered into an agreement with New Times Shipbuilding Co. Ltd, or New Times Shipbuilding, to convert two Capesize dry bulk newbuildings to Suezmax oil tanker newbuildings. On November 23, 2015, we agreed to sell these newbuilding contracts to Frontline for $1.9 million. The sale was completed on December 31, 2015.

In November 2015, we took delivery of, and simultaneously sold, the Front Baltic, a Capesize vessel. We chartered the vessel in for a period of 12 months.

In January 2016, we took delivery of the Golden Barnet and the Golden Bexley, two Capesize vessels, and the Golden Scape and the Golden Swift, two Newcastlemax vessels.

In February 2016, we took delivery of, and simultaneously sold, the Front Caribbean, a Capesize vessel. We chartered the vessel in for a period of six months.

In May 2016, we took delivery of the Golden Fulham, a Capesize vessel.

Also, in May 2016, the owner of the Golden Lyderhorn, a Panamax vessel held under a capital lease, notified us that they intended to exercise their option to sell the vessel for a net price of $9.5 million with expected delivery in August 2016. We entered into an

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agreement to sell the vessel at the time of its re-delivery to an unrelated third party for net proceeds of $3.5 million. The vessel was delivered to the new owner on August 22, 2016.

In August 2016, we took delivery of the Golden Leo, an Ultramax newbuilding vessel.

In October 2016, we took delivery of, and simultaneously sold, the Front Mediterranean, a Capesize newbuilding vessel.

In January 2017, we took delivery of the Golden Virgo and the Golden Libra, two Ultramax newbuilding vessels.

In February 2017, we took delivery of the Golden Surabaya and the Golden Savannah, two Capesize newbuilding vessels.

In March 2017, we agreed to acquire 14 vessels comprised of one Newcastlemax, five Capsize, and eight Panamax vessels in the Quintana Acquisition (Gayle, Golden Houston, Golden Kaki, Golden Amreen, Golden Anastasia, Golden Myrtalia, Golden Deb, Golden Sue, Golden Kennedy, Golden Jake, Golden Arion, Golden Ioanari, Golden Keen and Golden Shea). The aforementioned vessels were delivered between April and July 2017. In March 2017, we also agreed, to acquire two 2017 built Panamax vessels from affiliates of Hemen, with the vessels subsequently renamed Golden Amber and Golden Opal and delivered in June 2017.
In September 2017, we took delivery of the Golden Nimbus, a Capesize newbuilding vessel and entered into agreements to sell to an unrelated third party for an aggregate $142.5 million the following six Ultramax vessels: Golden Libra, Golden Virgo, Golden Aries, Golden Gemini, Golden Taurus and Golden Leo. The vessels were delivered to their new owner in the fourth quarter of 2017.
In October 2017, we agreed to acquire two Capesize vessels from affiliates of Hemen. The Golden Behike was delivered in November 2017 and the Golden Monterrey was delivered in January 2018.
In January and February 2018, we took delivery of the Golden Cirrus, Golden Arcus, Golden Cumulus, Golden Incus and Golden Calvus, our five remaining Capesize newbuilding vessels.

B.  BUSINESS OVERVIEW

We are an international shipping company that owns and operates a fleet of dry bulk vessels, comprising of Newcastlemax, Capesize, Panamax and Ultramax vessels. Our vessels transport a broad range of major and minor bulk commodities, including ores, coal, grains and fertilizers, along worldwide shipping routes. Our vessels operate in the spot and time charter markets.

As of March 20, 2018, we owned 68 dry bulk vessels. In addition, we had ten vessels chartered-in (of which eight are chartered in on operating leases from Ship Finance, one chartered in on an operating lease from an unrelated third party and one chartered in on a capital lease from an unrelated third party). Each vessel is owned and operated by one of our subsidiaries and is flagged either in the Marshall Islands, Hong Kong, or Panama. 14 of our vessels are chartered-out on fixed rate time charters, 13 of our vessels are chartered out on index linked rate time charters and the remaining 51 vessels operate in the spot market, of which 26 vessels participate under revenue sharing agreements or pool arrangements.

We own various vessel owning and operating subsidiaries. Our operations take place substantially outside of the United States. Our subsidiaries, therefore, own and operate vessels that may be affected by changes in foreign governments and other economic and political conditions. Our vessels operate worldwide and as a result, our management does not, and did not, evaluate performance by geographical region because this information is not meaningful.

The dry bulk shipping industry is highly cyclical, experiencing volatility in profitability, vessel values and freight rates. Freight rates are strongly influenced by the supply of dry bulk vessels and the demand for dry bulk seaborne transportation.
 
Our Business Strategy

Our business strategy is to operate a diversified fleet of dry bulk vessels with flexibility to adjust our market exposure depending on existing factors such as charter rates, newbuilding costs, vessel resale and scrap values and vessel operating expenses resulting from, among other things, changes in the supply of and demand for dry bulk capacity. We may adjust our exposure through time charters, voyage charters, bareboat charters, sale and leasebacks, sales and purchases of vessels, newbuilding contracts and acquisitions. Our intention is to renew and grow our fleet through selective acquisitions.


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Capesize Chartering Ltd

In February 2015, the Former Golden Ocean, Bocimar International NV, C Transport Holding Ltd, Golden Union Shipping Co S.A., and Star Bulk Carriers Corp. announced the formation of a joint venture company, Capesize Chartering Ltd, or CCL. The purpose of the joint venture is to combine and coordinate the chartering services of all the parties for their participating Capesize dry bulk vessels that are intended to trade on the spot market and ultimately achieve improved scheduling ability through the joint marketing opportunity, with the overall aim of enhancing economic efficiencies. Each participating vessel owner will continue to be responsible for the operating, accounting and technical management of its respective vessels. CCL commenced operations in the second half of February 2015 from the existing offices of each of the five parties involved. In January 2016, Golden Union Shipping Co S.A. transferred its 20% stake in CCL equally to the remaining four joint venture partners and at the same time the joint venture partners entered into a revenue sharing agreement, and we agreed to include 21 Capesize dry bulk vessels in the revenue sharing agreement. We currently include 22 Capesize drybulk vessels in the revenue sharing agreement. The revenue sharing agreement initially applied to 65 modern Capesize dry bulk vessels across the joint venture partners and is being managed from our offices in Singapore and Bocimar’s offices in Antwerp.

Management Structure

Overall responsibility for the oversight of the management of our company and its subsidiaries rests with our Board. We operate management services through Golden Ocean Group Management (Bermuda) Ltd, our subsidiary incorporated in Bermuda, which in turn subcontracts services to Golden Ocean Management AS and Golden Ocean Shipping Co Pte. Ltd., our subsidiaries incorporated in Norway and Singapore, respectively. Our principal executive officer and principal financial officer are employed by Golden Ocean Management AS. Our principal commercial officer is employed by Golden Ocean Shipping Co Pte. Ltd. The Board defines the scope and terms of the services to be provided, including day-to-day operations by the aforementioned subsidiaries, and requires that it be consulted on all matters of material importance and/or of an unusual nature and, for such matters, provides specific authorization to personnel to act on our behalf.

Technical Supervision Services

We receive technical supervision services from Frontline Management (Bermuda) Limited, or Frontline Management. Pursuant to the terms of the agreement, Frontline Management receives a management fee of $30,555 (2016: $31,875) per vessel per year. This fee is subject to annual review. Frontline Management is also our newbuilding supervision and charges us for costs incurred in relation to the supervision. Technical operations and crewing of all owned vessels are outsourced to several leading ship management companies.

Seasonality
 
The dry bulk trade has a history of tracking seasonal demand fluctuations, but the industry appears to have become less dependent on such fluctuations as a result of the increased transportation of certain dry bulk commodities. In the last few years, adverse weather conditions in the Southern Hemisphere, which often occur during the first quarter, have had a negative impact on iron ore and coal exports from Australia and iron ore exports from Brazil.

Grain has traditionally had the greatest impact on the seasonality in the dry bulk market, particularly during the peak demand seasons, which occurs during the second quarter in the Southern Hemisphere and at the end of the third quarter and throughout the fourth quarter in the Northern Hemisphere. The growth of iron ore and coal transportation over the last decade, however, has diminished the relative importance of grain to the dry bulk transportation industry. Since iron ore, like most other commodities, has moved from fixed price agreements between shippers and receivers to spot pricing, short term price fluctuations have had an impact on iron ore trading by reducing normal seasonal patterns. Other factors, however, such as weather and port congestion still impact market volatility.

Customers

For the year ended December 31, 2017, one customer accounted for 10 percent or more of our consolidated revenues in the amounts of $59.7 million.

For the year ended December 31, 2016, two customers each accounted for 10 percent or more of our consolidated revenues in the amount of $34.5 million and $27.1 million, respectively.

For the year ended December 31, 2015, one customer accounted for 10 percent or more of our consolidated revenues in the amount of $28.0 million.

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Competition

The market for international seaborne dry bulk transportation services is highly fragmented and competitive. Seaborne dry bulk transportation services are generally provided by independent ship-owner fleets. In addition, many owners and operators in the dry bulk sector pool their vessels together on an ongoing basis, and such pools are available to customers to the same extent as independently owned and operated fleets. Competition for charters in the dry bulk market is intense and is based upon price, location, size, age, condition and acceptability of the vessel and its manager. Competition is also affected by the availability of other size vessels to compete in the trades in which we engage. Charters are to a large extent brokered through international independent brokerage houses that specialize in finding the optimal ship for any particular cargo based on the aforementioned criteria. Brokers may be appointed by the cargo shipper or the ship owner.
 
Environmental and Other Regulations

Government regulations and laws significantly affect the ownership and operation of our vessels. We are subject to international conventions, national, state and local laws and regulations in force in the countries in which our vessels may operate or are registered and compliance with such laws, regulations and other requirements may entail significant expense.

Our vessels are subject to both scheduled and unscheduled inspections by a variety of government, quasi-governmental and private organizations including local port authorities, national authorities, harbor masters or equivalents, classification societies, flag state administrations (countries of registry) and charterers. Our failure to maintain permits, licenses, certificates or other approvals required by some of these entities could require us to incur substantial costs or temporarily suspend operation of one or more of our vessels.

We believe that the heightened levels of environmental and quality concerns among insurance underwriters, regulators and charterers have led to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for vessels that conform to stricter environmental standards.  We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations; however, because such laws and regulations are frequently changed and may impose increasingly stricter requirements, we cannot predict with certainty the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition, a future serious marine incident that results in significant oil pollution or otherwise causes significant adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.

It should be noted that the United States is currently experiencing changes in its environmental policy, the results of which have yet to be fully determined. For example, in April 2017, President Trump signed an executive order regarding environmental regulations, specifically targeting the U.S. offshore energy strategy, which may affect parts of the maritime industry and our operations.

Furthermore, recent action by the IMO’s Maritime Safety Committee and United States agencies indicate that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. For example, cyber-risk management systems must be incorporated by ship-owners and managers by 2021. This might cause companies to cultivate additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. However, the impact of such regulations is hard to predict at this time.

International Maritime Organization

The International Maritime Organization, or the IMO, is the United Nations agency for maritime safety and the prevention of pollution by ships. The IMO has adopted several international conventions that regulate the international shipping industry, including but not limited to the International Convention on Civil Liability for Oil Pollution Damage as from time to time amended, and generally referred to as CLC, the International Convention on Civil Liability for Bunker Oil Pollution Damage, or the Bunker Convention, and the International Convention for the Prevention of Pollution from Ships, as from time to time amended and generally referred to as MARPOL. MARPOL is broken into six Annexes, each of which establishes environmental standards relating to different sources of pollution: Annex I relates to oil leakage or spilling; Annexes II and III relate to harmful substances carried, in bulk, in liquid or packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and Annex VI, which was separately adopted by the IMO, relates to air pollution by ship emissions, including greenhouse gases.


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The operation of our vessels is also affected by the requirements contained in the International Management Code for the Safe Operation of Ships and for Pollution Prevention, or the ISM Code, promulgated by the IMO under the SOLAS Convention. The ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We intend to rely upon the safety management system that our appointed ship managers have developed.

The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel’s management with the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code.

Regulation II-1/3-10 of the SOLAS Convention governs ship construction and stipulates that ships over 150 meters in length must have adequate strength, integrity and stability to minimize risk of loss or pollution. Goal-based standards amendments in the SOLAS Convention regulation II-1/3-10 were adopted in 2010 and entered into force in 2012, with a date of July 1, 2016 set for application to new oil tankers and bulk carriers. The SOLAS Convention regulation II-1/3-10 on goal based ship construction standards for bulk carriers and oil tankers, which entered into force on January 1, 2012, requires that all oil tankers and bulk carriers of 150 meters in length and above, for which the building contract is placed on or after July 1, 2016, satisfy applicable structural requirements conforming to the functional requirements of the International Goal-based Ship Construction Standards for Bulk Carriers and Oil Tankers (GBS Standards).

Noncompliance with the ISM Code or with other IMO regulations may subject a shipowner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports including United States and European Union ports.

Anti-Fouling Requirements

In 2001, the IMO adopted the International Convention on the Control of Harmful Anti-fouling Systems on Ships, or the “Anti-fouling Convention.” The Anti-fouling Convention, which entered into force on September 17, 2008, prohibits the use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels. Vessels of over 400 gross tons engaged in international voyages will also be required to undergo an initial survey before the vessel is put into service or before an International Anti-fouling System Certificate is issued for the first time; and subsequent surveys when the anti-fouling systems are altered or replaced. We have obtained Anti-fouling System Certificates for all of our vessels that are subject to the Anti-fouling Convention.

Compliance Enforcement

Noncompliance with the ISM Code or other IMO regulations may subject the ship owner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. The USCG and European Union authorities have indicated that vessels not in compliance with the ISM Code by applicable deadlines will be prohibited from trading in U.S. and European Union ports, respectively. As of the date of this report, each of our vessels is ISM Code certified. However, there can be no assurance that such certificates will be maintained in the future. The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.

Air Emissions
In September 1997, the IMO adopted Annex VI to the MARPOL Convention to address air pollution from vessels. Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts and prohibits deliberate emissions of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile compounds from cargo tanks, and the shipboard incineration of specific substances. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions. Emissions of “volatile organic compounds” from certain tankers, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls) are also prohibited.
In October 2008, the IMO adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide particulate matter and ozone depleting substances, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on board ships. On October 27, 2016, at its 70th session, the MEPC agreed to implement a global 0.5% m/m sulfur oxide emissions

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limit (reduced from the current 3.50%) starting from January 1, 2020. Under the new global cap, ships will have to use fuel oil on board with a sulfur content of no more than 0.50% m/m, against the current limit of 3.50%. This limitation will require ships to use fuel oil on board with a sulfur content of no more than 0.5% m/m, which can be met by using low-sulfur complaint fuel oil, alternative fuels, or certain exhaust gas cleaning systems. Once the cap becomes effective, ships will be required to obtain bunker delivery notes stating the Sulphur content and International Air Pollution Prevention Certificates by their flag states. This subjects ocean-going vessels in these areas to stringent emissions controls, and may cause us to incur additional costs.
Sulfur content standards are even stricter within certain “Emission Control Areas,” or “ECAs.” As of January 1, 2015, ships operating within an ECA are not permitted to use fuel with sulfur content in excess of 0.1%. Amended Annex VI establishes procedures for designating new ECAs. Currently, the IMO has designated four ECAs, including specific portions of the Baltic Sea area, North American area and United States area. This subjects ocean-going vessels in these areas to stringent emissions controls, and may cause us to incur additional costs. If other ECAs are approved by the IMO or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the United States Environmental Protection Agency, or the EPA, or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.
As of January 1, 2013 MARPOL made mandatory certain measures relating to energy efficiency for ships. This included the requirement that all new ships utilize the Energy Efficiency Design Index, or “EEDI,” and all ships use the Ship Energy Efficiency Management Plan (SEEMP).
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for new marine diesel engines, depending on their date of installation. At the MEPC meeting held from March to April 2014, amendments to Annex VI were adopted which address the date on which Tier III Nitrogen Oxide (NOx) standards in ECAs will go into effect. Under the amendments, Tier III NOx standards apply to ships that operate in North American and U.S. Caribbean Sea ECAs designed for the control of NOx with a marine diesel engine installed and constructed on or after January 1, 2016. Tier III requirements could apply to areas that will be designated for Tier III NOx in the future. At MEPC 70 and MEPC 71, the MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen oxide, effective January 1, 2021. The U.S. Environmental Protection Agency promulgated equivalent (and in some senses stricter) emissions standards in late 2009. As a result of these designations or similar future designations, we may be required to incur additional operating or other costs.
As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI has become effective on March 1, 2018 and requires ships above 5,000 gross tonnage to collect and report annual data on fuel oil consumption to an IMO database, with the first data “calendar year” beginning January 1, 2019.

United States

The United States Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act

The United States Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability regime for environmental protection and cleanup of oil spills. OPA affects all "owners and operators" whose vessels trade with the United States or its territories or possessions, or whose vessels operate in the waters of the United States, which include the United States territorial sea and the 200 nautical mile exclusive economic zone around the United States. The Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, imposes liability for cleanup and natural resource damage from the release of hazardous substances other than oil, except in limited circumstances, whether on land or at sea. OPA and CERCLA both define "owner and operator" in the case of a vessel as any person owning, operating or chartering by demise, the vessel. Accordingly, both OPA and CERCLA impact our operations.

Under OPA, vessel owners and operators are responsible parties who are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from oil spills from their vessels. OPA defines these other damages broadly to include:

•
injury to, destruction or loss of, or loss of use of natural resources and the costs of assessment thereof;
•
injury to, or economic losses resulting from, the destruction of real and personal property;
•
net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources;
•
loss of subsistence use of natural resources that are injured, destroyed or lost;
•
lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and

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•
net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as from fire, safety or health hazards.

OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. OPA limits the liability of responsible parties and with respect to tankers over 3,000 gross tons, other than single-hull tank vessels, it is the greater of $2,200 per gross ton or $18,796,800, and the greater of $1,100 per gross ton or $939,800 for any non-tank vessel, including any edible oil tank, and any oil spill response, vessel (subject to periodic adjustment for inflation). These limits of liability do not apply if an incident was proximately caused by the violation of an applicable United States federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship), or a responsible party's gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident where the responsible party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.

The 2010 Deepwater Horizon oil spill in the Gulf of Mexico resulted in additional regulatory initiatives or statutes, including the raising of liability caps under OPA, new regulations regarding offshore oil and gas drilling, and a pilot inspection program for offshore facilities. However, the status of several of these initiatives and regulations is currently in flux. For example, the U.S. Bureau of Safety and Environmental Enforcement (“BSEE”) announced a new Well Control Rule in April 2016, but pursuant to orders by President Trump in early 2017, the BSEE announced in August 2017 that this rule would be revised. In January 2018, President Trump proposed leasing new sections of U.S. waters to oil and gas companies for offshore drilling, vastly expanding the U.S. waters that are available for such activity over the next five years. The effects of the proposal are currently unknown. Compliance with any new requirements of OPA may substantially impact our cost of operations or require us to incur additional expenses to comply with any new regulatory initiatives or statutes. Additional legislation or regulations applicable to the operation of our vessels that may be implemented in the future could adversely affect our business.

OPA permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, provided they accept, at a minimum, the levels of liability established under OPA. Some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters, however, in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining tanker owners' responsibilities under these laws. Compliance with any new requirements of OPA may substantially impact our cost of operations or require us to incur additional expenses to comply with any new regulatory initiatives or statutes.

CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damage for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war.  Liability under CERCLA is limited to the greater of $300 per gross ton or $5 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refuses to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.

OPA and CERCLA have no effect on the availability of damages under existing law, including maritime tort law. We believe that we are in substantial compliance with OPA, CERCLA and all applicable state regulations in the ports where our vessels call.

OPA and CERCLA both require owners and operators of vessels to establish and maintain with the United States Coast Guard, or the USCG, evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. Under OPA and CERCLA, an owner or operator of more than one tanker is required to demonstrate evidence of financial responsibility for the entire fleet in an amount equal only to the financial responsibility requirement of the tanker having the greatest maximum liability. We have provided such evidence and received certificates of financial responsibility from the USCG for each of our vessels required to have one.

The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) , or the CAA, requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. The CAA requires states to adopt State Implementation Plans, or SIPs, some of which regulate emissions resulting from vessel loading and unloading operations which may affect our vessels.


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Other United States Environmental Initiatives

The United States Clean Water Act, or CWA, prohibits the discharge of oil, hazardous substances and ballast water in United States navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. Furthermore, many states in United States that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than United States federal law. The U.S. Environmental Protection Agency, or the EPA, recently proposed revisions to the CWA.

The United States Environmental Protection Agency, EPA, and USCG have enacted rules relating to ballast water discharge, compliance with which requires the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost, or otherwise restrict our vessels from entering United States waters.

The EPA regulates the discharge of ballast and bilge water and other substances in United States waters under the CWA. The EPA regulations require vessels 79 feet in length or longer (other than commercial fishing vessels and recreational vessels) comply with a permit that regulates ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters under the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels, or VGP. For a new vessel delivered to an owner or operator after September 19, 2009 to be covered by the VGP, the owner must submit a Notice of Intent, or NOI, at least 30 days before the vessel operates in United States waters. In March 2013, the EPA re-issued the VGP for another five years, and the new VGP took effect in December 2013. The 2013 VGP focuses on authorizing discharges incidental to operations of commercial vessels and the 2013 VGP contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in United States waters, more stringent requirements for exhaust gas scrubbers and the use of environmentally acceptable lubricants.

We have submitted NOIs for our vessels where required and do not believe that the costs associated with obtaining and complying with the VGP will have a material impact on our operations.

USCG regulations adopted and proposed for adoption under the United States National Invasive Species Act, or the NISA, also impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering or operating in United States waters, which require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures, or otherwise restrict our vessels from entering United States waters.

The USCG has implemented revised regulations on ballast water management by establishing standards on the allowable concentration of living organisms in ballast water discharged from ships in U.S. waters. As of January 1, 2014, vessels were technically subject to the phasing-in of these standards, and the USCG must approve any technology before it is placed on a vessel. The USCG first approved said technology in December 2016, and continues to review ballast water management systems. The USCG may also provide waivers to vessels that demonstrate why they cannot install the new technology. The EPA, on the other hand, has taken a different approach to enforcing ballast discharge standards under the VGP. In December 2013, the EPA issued an enforcement response policy in connection with the new VGP in which the EPA indicated that it would take into account the reasons why vessels do not have the requisite technology installed, but will not grant any waivers. In addition, through the CWA certification provisions that allow U.S. states to place additional conditions on the use of the VGP within state waters, a number of states have proposed or implemented a variety of stricter ballast requirements including, in some states, specific treatment standards.

Two judicial decisions should be noted. First, in October 2015, the Second Circuit Court of Appeals issued a ruling that directed the EPA to redraft the sections of the 2013 VGP that address ballast water. However, the Second Circuit stated that 2013 VGP will remains in effect until the EPA issues a new VGP. The effect of such redrafting remains unknown. Second, on October 9, 2015, the U.S. Court of Appeals for the Sixth Circuit stayed the Waters of the United States rule (WOTUS), which aimed to expand the regulatory definition of “waters of the United States,” pending further action of the court. In response to this decision, regulations have continued to be implemented as they were prior to the stay on a case-by-case basis. On February 28, 2017, President Trump issued an Executive Order directing the EPA and U.S. Army Corps of Engineers to review the WOTUS and publish a proposed rule rescinding or revising the WOTUS rule. In January 2018, the EPA and Army Corps of Engineers issued a final rule pursuant to President Trump’s order, under which the Agencies will interpret the term “waters of the United States” to mean waters covered by the regulations, as they are currently being implemented, within the context of the Supreme Court decisions and agency guidance documents, until February 6, 2020. Litigation regarding the status of the WOTUS rule is currently underway, and the effect of future actions in these cases upon our operations is unknown.

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USCG has set up requirements for ships constructed before December 1, 2013 with ballast tanks trading with exclusive economic zones of the U.S. to install water ballast treatment systems as follows: (1) ballast capacity 1,500-5,000m3-first scheduled drydock after January 1, 2014; and (2) ballast capacity above 5,000m3-first scheduled drydock after January 1, 2016. We expect all of our vessels to have ballast capacities over 5,000m3, and those of our vessels trading in the U.S. will have to install water ballast treatment plants at their first drydock after January 1, 2016, unless an extension is granted by the USCG.
Compliance with the VGP could require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other disposal arrangements, and/or otherwise restrict our vessels from entering United States waters. In addition, certain states have enacted more stringent discharge standards as conditions to their required certification of the VGP. We will submit NOIs for our vessels where required and do not believe that the costs associated with obtaining and complying with the VGP will have a material impact on our operations.
In addition, at the international level, the IMO adopted an International Convention for the Control and Management of Ships' Ballast Water and Sediments, or the BWM Convention, in February 2004. The BWM Convention's implementing regulations call for a phased introduction of mandatory ballast water exchange requirements to be replaced in time with mandatory concentration limits. All ships will also have to carry a ballast water record book and an International Ballast Water Management Certificate. The BWM Convention entered into force on September 9, 2017.

Many of the implementation dates originally written into the BWM Convention have already passed, so that once the BWM Convention enters into force, the period for installation of mandatory ballast water exchange requirements would be extremely short, with several thousand ships a year needing to install ballast water management systems, or BWMS. For this reason, on December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM Convention so that they are triggered by the entry into force date and not the dates originally in the BWM Convention. This in effect makes all vessels constructed before the entry into force date ‘existing’ vessels, and allows for the installation of a BWMS on such vessels at the first renewal survey following entry into force. At the IMO’s Marine Environmental Protection Committee, or MEPC’s, 70th Session in October 2016, MEPC adopted updated “guidelines for approval of ballast water management systems. At MEPC 71, the schedule regarding the BWM Convention’s implementation dates was also discussed and amendments to the schedule of certain BWM Convention implementation dates were introduced to extend the date existing vessels are subject to certain ballast water standards. Ships over 400 gross tons generally must comply with a “D-1 standard,” requiring the exchange of ballast water only in open seas and away from coastal waters. The “D-2 standard” specifies the maximum amount of viable organisms allowed to be discharged. and compliance dates vary depending on the IOPP renewal dates. Depending on the date of the IOPP renewal survey, existing vessels must comply with the D2 standard between September 8, 2019 and September 8, 2024, inclusive. For most ships, compliance with the D2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Cost of compliance may be substantial.

When mid-ocean ballast exchange or ballast water treatment requirements become mandatory, the cost of compliance for ocean carriers could be significant and the costs of ballast water treatments may be material. However, many countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges. The United States, for example, requires vessels entering its waters from another country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements. Although we do not believe that the costs of compliance with a mandatory mid-ocean ballast exchange would be material, it is difficult to predict the overall impact of such a requirement on our operations.

The United States Clean Air Act, or the CAA, including its amendments of 1977 and 1990, requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in each State.

Compliance with future EPA and the USCG regulations could require the installation of certain engineering equipment and water treatment systems to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost, or may otherwise restrict our vessels from entering United States waters.

European Union Regulations

In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. The directive applies to all types of vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in danger. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims. Regulation (EU) 2015/757 of the European Parliament and of

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the Council of 29 April 2015 (amending EU Directive 2009/16/EC) governs the monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and, subject to some exclusions, requires companies with ships over 5,000 gross tonnage to monitor and report carbon dioxide emissions annually starting on January 1, 2018, which may cause us to incur additional expenses.

The European Union has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as determined by type, age, and flag as well as the number of times the ship has been detained. The European Union also adopted and then extended a ban on substandard ships and enacted a minimum ban period and a definitive ban for repeated offenses. The regulation also provided the European Union with greater authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply. Furthermore, the European Union has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary engines. The EU Directive 2005/33/EC (amending Directive 1999/32/EC) introduced requirements parallel to those in Annex VI relating to the sulfur content of marine fuels. In addition, the European Union imposed a 0.1% maximum sulfur requirement for fuel used by ships at berth in European Union ports.

Greenhouse Gas Regulation

Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions with targets extended through 2020. The international negotiations are continuing with respect to a successor to the Kyoto Protocol and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S. and China, signed the Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions. The 2015 United Nations Convention on Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on November 4, 2016. The Paris Agreement does not directly limit greenhouse gas emissions from ships. On June 1, 2017, President Trump announced that it is withdrawing from the Paris Agreement. The timing and effect of such action has yet to be determined.

At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive IMO strategy on reduction of greenhouse gas emissions from ships was approved. In accordance with this roadmap, initial IMO strategy for reduction of greenhouse gas emissions needs to be developed by MEPC 72, which will be held in April 2018. The IMO may implement market-based mechanisms to reduce greenhouse gas emissions from ships at the upcoming MEPC session.

As of January 1, 2013, ships were required to comply with new MEPC mandatory requirements to address greenhouse gas emissions from ships. As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. Under these measures, by 2025, all new ships built will be 30% more energy efficient than those built in 2014. It makes the limits of the Energy Efficiency Design Index, or EEDI, apply to new ships, and all ships must develop and implement Ship Energy Efficiency Management Plans, or SEEMPs.

For 2020, the European Union made a unilateral commitment to reduce overall greenhouse gas emissions from its member states from 20% of 1990 levels. The European Union also committed to reduce its emissions by 20% under the Kyoto Protocol’s second period, from 2013 to 2020. In April 2015, a regulation was adopted requiring that large ships (over 5,000 gross tons) calling at European Union ports from January 2018 collect and publish data on carbon dioxide emissions and other information. In the United States, the EPA has issued a finding that greenhouse gases endanger the public health and safety, has adopted regulations to limit greenhouse gas emissions from certain mobile sources and has proposed regulations to limit greenhouse gas emissions from large stationary sources. However, in March 2017, Presiden Trump signed an executive order to review and possibly eliminate the EPA’s plan to cut greenhouse gas emissions. The outcome of this order is not yet known. Although the mobile source emissions regulations do not apply to greenhouse gas emissions from vessels, the EPA or individual U.S. states could enact environmental regulations that would affect our operations. For example, California has introduced a cap-and-trade program for greenhouse gas emissions, aiming to reduce emissions 40% by 2030.

Any passage of climate control legislation or other regulatory initiatives by the IMO, European Union, the United States or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol or Paris Agreement, that restrict emissions of greenhouse gases could require us to make significant financial expenditures, including capital expenditures to upgrade our vessels, which we cannot predict with certainty at this time. Even in the absence of climate control legislation, our business may be indirectly affected to the extent that climate change may result in sea level changes or more intense weather events.

International Labour Organization


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The International Labour Organization, or ILO, is a specialized agency of the UN with headquarters in Geneva, Switzerland. The ILO has adopted the Maritime Labour Convention 2006, or MLC 2006. A Maritime Labour Certificate and a Declaration of Maritime Labour Compliance is required to ensure compliance with the MLC 2006 for all ships above 500 gross tons in international trade. The MLC 2006 entered into force on August 20, 2013. Amendments to MLC 2006 were adopted in 2014 and 2016. The MLC 2006 could require us to develop new procedures to ensure full compliance with its requirements.

Vessel Security Regulations

Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security.  On November 25, 2002, the United States Maritime Transportation Security Act of 2002, or the MTSA, came into effect. To implement certain portions of the MTSA, in July 2003, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States and at certain ports.

Similarly, in December 2002, amendments to the SOLAS Convention created a new chapter of the convention dealing specifically with maritime security. The new Chapter XI-2 became effective in July 2004 and imposes various detailed security obligations on vessels and port authorities, and mandates compliance with the International Ship and Port Facilities Security Code, or ISPS Code. The ISPS Code is designed to enhance the security of ports and ships against terrorism.

After July 1, 2004, to trade internationally, a vessel must attain an International Ship Security Certificate, or ISSC, from a recognized security organization approved by the vessel's flag state. The following are among the various requirements, some of which are found in the SOLAS Convention:

•
on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship's identity, position, course, speed and navigational status;
•
on-board installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on shore;
•
the development of vessel security plans;
•
ship identification number to be permanently marked on a vessel's hull;
•
a continuous synopsis record kept onboard showing a vessel's history, including the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship's identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and
•
compliance with flag state security certification requirements.

A ship operating without a valid certificate, may be detained at port until it obtains an ISSC, or it may be expelled from port, or refused entry at port. Amendments to the SOLAS Convention Chapter VII, made mandatory in 2004, apply to vessels transporting dangerous goods and require those vessels be in compliance with the International Maritime Dangerous Goods Code, or IMDG Code. Starting in January 1, 2016, the IMDG Code also includes updates to the provisions for radioactive material, reflecting the latest 2012 provisions from the International Atomic Energy Agency IAEA, new marking requirements for “overpack” and “salvage” and updates to various individual packing requirements. The IMO has also adopted the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, or STCW. The STCW had a transitional period which ended on January 1, 2017 and which mandated certain requirements for security training, and certifications. Flag states that have ratified SOLAS and STCW generally employ the classification societies, which have incorporated SOLAS and STCW requirements into their class rules, to undertake surveys to confirm compliance.

The USCG regulations, intended to align with international maritime security standards, exempt from the MTSA vessel security measures non- United States vessels that have on board, as of July 1, 2004, a valid ISSC attesting to the vessel's compliance with the SOLAS Convention security requirements and the ISPS Code. We believe that our fleet is currently in compliance with applicable security requirements.

Inspection by Classification Societies

Every oceangoing vessel must be "classed" by a classification society. The classification society certifies that the vessel is "in-class," signifying that the vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the vessel's country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.


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The classification society also undertakes on request other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the regulations of the country concerned.
For maintenance of the class certification, regular and extraordinary surveys of hull, machinery, including the electrical plant, and any special equipment classed are required to be performed as follows:
•
Annual Surveys. For seagoing ships, annual surveys are conducted for the hull and the machinery, including the electrical plant and where applicable for special equipment classed, at intervals of 12 months from the date of commencement of the class period indicated in the certificate.
•
Intermediate Surveys. Extended annual surveys are referred to as intermediate surveys and typically are conducted two and one-half years after commissioning and each class renewal. Intermediate surveys may be carried out on the occasion of the second or third annual survey.
•
Class Renewal Surveys. Class renewal surveys, also known as special surveys, are carried out for the ship’s hull, machinery, including the electrical plant, and for any special equipment classed, at the intervals indicated by the character of classification for the hull. At the special survey, the vessel is thoroughly examined, including audio-gauging to determine the thickness of the steel structures. Should the thickness be found to be less than class requirements, the classification society would prescribe steel renewals. The classification society may grant a one-year grace period for completion of the special survey. Substantial amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear. In lieu of the special survey every five years, a ship owner has the option of arranging with the classification society for the vessel’s hull or machinery to be on a continuous survey cycle, in which every part of the vessel would be surveyed within a five-year cycle. At a ship owner’s request, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of class. This process is referred to as continuous class renewal.

All areas subject to survey as defined by the classification society are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of each area must not exceed five years.

Vessels under 15 years of age can extend the drydocking cycle to 90 months from 60 months in order to increase available days and decrease capital expenditures, provided that the vessel is inspected underwater. If any defects are found, the classification surveyor will issue a “recommendation” which must be rectified by the ship owner within prescribed time limits.

Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as "in-class" by a classification society which is a member of the International Association of Classification Societies. All our vessels are certified as being "in-class" by a recognized classification society.

Risk of loss and insurance

Our business is affected by a number of risks, including mechanical failure of the vessels, collisions, property loss to the vessels, cargo loss or damage and business interruption due to political circumstances in foreign countries, piracy incidents, hostilities and labor strikes. In addition, there is always an inherent possibility of catastrophic marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon shipowners, operators and bareboat charterers of any vessel trading in the exclusive economic zone of the United States for certain oil pollution accidents in the United States, has made liability insurance more expensive for ship owners and operators trading in the United States market.

Frontline, who provides technical supervision services to us, is responsible for arranging the insurance of our vessels in line with standard industry practice. In accordance with that practice, we maintain marine hull and machinery and war risks insurance, which include the risk of actual or constructive total loss, and protection and indemnity insurance with mutual assurance associations. We carry insurance covering the loss of hire resulting from marine casualties or hull and marine particular damages on our vessels. Currently, the amount of coverage for liability for pollution, spillage and leakage available to us on commercially reasonable terms through protection and indemnity associations and providers of excess coverage is $1.0 billion per vessel per occurrence. Protection and indemnity associations are mutual marine indemnity associations formed by shipowners to provide protection from large financial loss to one member by contribution towards that loss by all members.

We believe that our current insurance coverage is adequate to protect us against the accident-related risks involved in the conduct of our business and that we maintain appropriate levels of environmental damage and pollution insurance coverage, consistent

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with standard industry practice. However, there is no assurance that all risks are adequately insured against, that any particular claims will be paid or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future.


C.  ORGANIZATIONAL STRUCTURE

See Exhibit 8.1 for a list of our significant subsidiaries.

D.  PROPERTY, PLANT AND EQUIPMENT

The following table summarizes key information about our fleet as of March 20, 2018:
Vessel
 
Built
 
DWT
 
Flag
 
Type of Employment(1)
Newcastlemax - Owned
Golden Gayle
 
2011
 
206,565
 
MI
 
Index linked time charter
Golden Scape
 
2016
 
211,112
 
HK
 
Time charter (expires November 2018)
Golden Swift
 
2016
 
211,112
 
HK
 
Spot market with RSA
 
 
 
 
628,789
 
 
 
 
 
 
 
 
 
 
 
 
 
Capesize - Owned
Golden Feng
 
2009
 
169,232
 
MI
 
Spot market with RSA
Golden Shui
 
2009
 
169,333
 
MI
 
Spot market with RSA
Golden Myrtalia
 
2011
 
177,979
 
MI
 
Index linked time charter
Golden Anastasia
 
2014
 
179,189
 
MI
 
Index linked time charter
Golden Houston
 
2014
 
181,214
 
MI
 
Spot market with RSA
Golden Kaki
 
2014
 
180,560
 
MI
 
Spot market with RSA
KSL Salvador
 
2014
 
180,958
 
HK
 
Index linked time charter
KSL San Francisco
 
2014
 
181,066
 
HK
 
Index linked time charter
KSL Santiago
 
2014
 
181,020
 
HK
 
Time charter (expires February 2019)
KSL Santos
 
2014
 
181,055
 
HK
 
Time charter (expires April 2018)
KSL Sapporo
 
2014
 
180,960
 
HK
 
Spot market with RSA
KSL Seattle
 
2014
 
181,015
 
HK
 
Spot market with RSA
KSL Singapore
 
2014
 
181,062
 
HK
 
Time charter (expires December 2018)

KSL Sydney
 
2014
 
181,009
 
HK
 
Time charter (expires March 2019)
Golden Amreen
 
2015
 
179,337
 
MI
 
Spot market with RSA
Golden Aso
 
2015
 
182,472
 
HK
 
Index linked time charter
Golden Finsbury
 
2015
 
182,418
 
HK
 
Spot market
Golden Kathrine
 
2015
 
182,486
 
HK
 
Spot market with RSA
KSL Sakura
 
2015
 
76,596
 
HK
 
Index linked time charter
KSL Seoul
 
2015
 
181,010
 
HK
 
Index linked time charter
KSL Seville
 
2015
 
181,003
 
HK
 
Index linked time charter
KSL Stockholm
 
2015
 
181,043
 
HK
 
Index linked time charter
Golden Barnet
 
2016
 
180,355
 
HK
 
Spot market with RSA
Golden Behike
 
2016
 
180,491
 
MI
 
Spot market with RSA
Golden Bexley
 
2016
 
180,228
 
HK
 
Time charter (expires January 2019)
Golden Fulham
 
2016
 
182,610
 
HK
 
Spot market with RSA
Golden Monterrey
 
2016
 
180,491
 
MI
 
Spot market with RSA
Golden Nimbus
 
2017
 
180,504
 
MI
 
Time charter (expires December 2018)
Golden Savannah
 
2017
 
181,044
 
HK
 
Index linked time charter
Golden Surabaya
 
2017
 
181,046
 
HK
 
Index linked time charter
Golden Arcus
 
2018
 
180,478
 
MI
 
Time charter (expires February 2019)
Golden Calvus
 
2018
 
180,521
 
MI
 
Spot market with RSA

35


Golden Cirrus
 
2018
 
180,487
 
MI
 
Spot market with RSA
Golden Cumulus
 
2018
 
180,499
 
MI
 
Index linked time charter
Golden Incus
 
2018
 
180,511
 
MI
 
Time charter (expires February 2019)
 
 
 
 
6,201,282
 
 
 
 
 
 
 
 
 
 
 
 
 
Capesize - Operating Lease - Related Party, Ship Finance
Battersea
 
2009
 
169,500
 
MI
 
Spot market with RSA
Belgravia
 
2009
 
169,500
 
MI
 
Spot market with RSA
Golden Magnum
 
2009
 
179,788
 
HK
 
Spot market with RSA
Golden Beijing
 
2010
 
176,000
 
HK
 
Spot market with RSA
Golden Future
 
2010
 
176,000
 
HK
 
Spot market with RSA
Golden Zhejiang
 
2010
 
175,834
 
HK
 
Spot market with RSA
Golden Zhoushan
 
2011
 
175,834
 
HK
 
Spot market with RSA
KSL China
 
2013
 
179,109
 
MI
 
Spot market with RSA
 
 
 
 
1,401,565
 
 
 
 
 
 
 
 
 
 
 
 
 
Panamax - Owned
Golden Shea
 
2007
 
76,939
 
MI
 
Spot market
Golden Ice
 
2008
 
75,500
 
HK
 
Spot market
Golden Opportunity
 
2008
 
75,750
 
HK
 
Spot market
Golden Saguenay
 
2008
 
75,500
 
HK
 
Spot market
Golden Strength
 
2009
 
75,500
 
HK
 
Spot market
Golden Eminence
 
2010
 
79,463
 
HK
 
Spot market
Golden Empress
 
2010
 
79,463
 
HK
 
Time charter (expires December 2021)
Golden Endeavour
 
2010
 
79,454
 
HK
 
Time charter (expires October 2020)
Golden Arion
 
2011
 
82,188
 
MI
 
Spot market
Golden Endurer
 
2011
 
79,474
 
HK
 
Time charter (expires November 2020)
Golden Enterprise
 
2011
 
79,463
 
HK
 
Spot market
Golden Ioanari
 
2011
 
82,188
 
MI
 
Spot market
Golden Jake
 
2011
 
82,188
 
MI
 
Spot market
Golden Suek
 
2011
 
74,849
 
HK
 
Spot market
Golden Daisy
 
2012
 
81,507
 
MI
 
Spot market
Golden Ginger
 
2012
 
81,487
 
MI
 
Time charter (expires January 2019)
Golden Keen
 
2012
 
81,586
 
MI
 
Spot market
Golden Rose
 
2012
 
81,585
 
MI
 
Spot market
Golden Bull
 
2012
 
75,000
 
HK
 
Spot market
Golden Brilliant
 
2013
 
74,500
 
HK
 
Spot market
Golden Diamond
 
2013
 
74,186
 
HK
 
Spot market
Golden Pearl
 
2013
 
74,186
 
HK
 
Spot market
Golden Sue
 
2013
 
84,943
 
MI
 
Spot market
Golden Deb
 
2014
 
84,943
 
MI
 
Spot market
Golden Ruby
 
2014
 
74,052
 
HK
 
Spot market
Golden Kennedy
 
2015
 
83,789
 
MI
 
Spot market
Golden Amber
 
2017
 
74,500
 
MI
 
Spot market
Golden Opal
 
2017
 
74,231
 
MI
 
Spot market
 
 
 
 
2,198,414
 
 
 
 
 
 
 
 
 
 
 
 
 
Panamax - Capital Lease, Third party
Golden Eclipse
 
2010
 
79,600
 
HK
 
Time charter (expires February 2020)
 
 
 
 
 
 
 
 
 

36


Ultramax - Owned
Golden Cecilie
 
2015
 
60,263
 
HK
 
Spot market with RSA
Golden Cathrine
 
2015
 
60,000
 
HK
 
Spot market with RSA
 
 
 
 
120,263
 
 
 
 
 
 
 
 
 
 
 
 
 
Supramax - Operating Lease, Third party
Golden Hawk
 
2015
 
58,000
 
PAN
 
Spot market with RSA

1.RSA: Revenue sharing agreement or pool arrangement

Key to Flags:
MI – Marshall Islands, HK – Hong Kong, PAN - Panama.

Other than our interests in the vessels described above, we do not own or lease any other material physical properties, except for the lease for office space in Singapore and in Oslo from Seatankers Management Norway AS, a related party, at market rates.




ITEM 4A. UNRESOLVED STAFF COMMENTS

None.


37


ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A. OPERATING RESULTS

Overview

The following discussion should be read in conjunction with "Item 3-Selected Financial Data", "Item 4-Information on the Company" and the audited Consolidated Financial Statements and Notes thereto included herein.

As of December 31, 2017, we owned 62 dry bulk vessels, agreed to purchase one vessel and had construction contracts for five newbuildings. The acquired vessel and five newbuildings were subsequently delivered during January and February 2018. In addition, as of December 31, 2017, we had ten vessels chartered-in (of which eight are chartered in on operating leases from Ship Finance, one chartered in on an operating lease from an unrelated third party and one chartered in on a capital lease from an unrelated third party). Each vessel is owned and operated by one of our subsidiaries and is flagged either in the Marshall Islands, Hong Kong or Panama. As of December 31, 2017, ten of our vessels were chartered-out on fixed rate time charters, 15 of our vessels were chartered out on index linked rate time charters and the remaining 47 vessels operated in the spot market, of which 22 vessels participated in revenue sharing agreements or pools.




38


Fleet Changes

Refer to "Item 4-Information on the Company-A. History and Development of the Company" for a discussion on acquisitions and disposals of vessels during the years ended December 31, 2017, 2016, and 2015. A summary of the changes in the vessels that we own and chartered in under long term operating and capital leases for the years ended December 31, 2017, 2016 and 2015 is summarized below.
 
 
2017

 
2016

 
2015

 
Newcastlemax
 
 
 
 
 
 
 
At start of period
 
2

 
—

 
—

 
Acquisitions and newbuilding deliveries
 
1

p
2

j
—

 
At end of period
 
3

 
2

 
—

 
Capesize
 
 
 
 
 
 
 
At start of period
 
29

 
28

 
13

 
Acquired as a result of the Merger
 
—

 
—

 
7

a
Acquisitions and newbuilding deliveries
 
9

q
5

k
9

b
Disposals
 
—

 
(2
)
l
(12
)
c
Chartered in/owned by joint venture
 
(1
)
r
(2
)
m
11

d
At end of period
 
37

 
29

 
28

 
Panamax
 
 
 
 
 
 
 
At start of period
 
19

 
20

 
—

 
Acquired as a result of the Merger
 
—

 
—

 
18

e
Acquisitions and newbuilding deliveries
 
10

s
—

 
—

 
Disposals
 
—

 
—

 
—

 
Chartered in
 
—

 
(1
)
n
2

f
At end of period
 
29

 
19

 
20

 
Ultramax
 
 
 
 
 
 
 
At start of period
 
7

 
6

 
—

 
Acquired as a result of the Merger
 
—

 
—

 
4

g
Acquisitions and newbuilding deliveries
 
2

t
1

o
1

h
Disposals
 
(6
)
u
—

 
—

 
Chartered in
 
—

 
—

 
1

i
At end of period
 
3

 
7

 
6

 
Total
 
 
 
 
 
 
 
At start of period
 
57

 
54

 
13

 
Acquired as a result of the Merger
 
—

 
—

 
29

 
Acquisitions and newbuilding deliveries
 
22

 
8

 
10

 
Disposals
 
(6
)
 
(2
)
 
(12
)
 
Chartered in/owned by joint venture
 
(1
)
 
(3
)
 
14

 
 
 
72

 
57

 
54

 

a.
Seven vessels acquired upon the completion of the Merger (Channel Navigator, Channel Alliance, Golden Feng, Golden Shui, Golden Magnum, Golden Beijing and Golden Zhoushan).
b.
(i) Delivery of six newbuildings (KSL Seoul, Golden Kathrine, KSL Sakura, KSL Seville, KSL Stockholm and Golden Aso) purchased in September 2014 from Frontline 2012 Ltd., (ii) delivery of one newbuilding (Golden Finsbury) and (iii) delivery of two newbuildings (Front Atlantic and Front Baltic) purchased in March 2015 from Frontline 2012 Ltd.
c.
(i) Disposal of two vessels upon delivery from the yard (Front Atlantic and Front Baltic), (ii) disposal of two vessels acquired upon the completion of the Merger (Channel Alliance and Channel Navigator) and (iii) disposal of eight vessels to Ship Finance (four owned at January 1, 2013: Battersea, Belgravia, Golden Future and Golden Zhejiang; one purchased in 2015: KSL China and three acquired upon the completion of the Merger: Golden Magnum, Golden Beijing and Golden Zhoushan).

39


d.
(i) One vessel owned through a joint venture (Golden Opus) acquired upon the completion of the Merger, (ii) eight vessels chartered in on long term operating leases from Ship Finance (Battersea, Belgravia, Golden Future, Golden Zhejiang, KSL China, Golden Magnum, Golden Beijing and Golden Zhoushan) and (iii) two vessels chartered in on long term operating leases from a third party (Front Atlantic and Front Baltic).
e.
18 vessels acquired upon the completion of the Merger (Golden Saguenay, Golden Opportunity, Golden Ice, Golden Strength, Golden Suek, Golden Bull, Golden Brilliant, Golden Pear, Golden Diamond, Golden Ruby, Golden Eminence, Golden Empress, Golden Endeavour, Golden Endurer, Golden Enterprise, Golden Rose, Golden Daisy and Golden Ginger).
f.
Two vessels under capital leases (Golden Lyderhorn and Golden Eclipse) acquired upon the completion of the Merger.
g.
Four vessels acquired upon the completion of the Merger (Golden Cecilie, Golden Cathrine, Golden Aries and Golden Gemini).
h.
Delivery of one newbuilding (Golden Taurus) acquired upon the completion of the Merger.
i.
One vessel under a long term operating lease (Golden Hawk) acquired upon the completion of the Merger.
j.
Delivery of two newbuildings (Golden Scape and Golden Swift) purchased in September 2014 from Frontline 2012 Ltd.
k.
(i) Delivery of two newbuilding (Golden Barnet and Golden Bexley), (ii) delivery of one newbuilding (Golden Fulham) and (iii) delivery of two newbuildings (Front Caribbean and Front Mediterranean) purchased in March 2015 from Frontline 2012 Ltd.
l.
Disposal of two vessels upon delivery from the yard (Front Caribbean and Front Mediterranean).
m.
Redelivery of two vessels chartered in on long term operating leases to their owners (Front Atlantic and Front Baltic).
n.
Disposal of one vessel under a capital lease (Golden Lyderhorn) acquired upon the completion of the Merger.
o.
Delivery of one newbuilding (Golden Leo) acquired upon the completion of the Merger.
p.
Delivery of one vessel (Golden Gayle) acquired from Quintana.
q.
(i) Delivery of two newbuildings (Golden Surabaya and Golden Savannah), (ii) delivery of five vessels (Golden Kaki, Golden Amreen, Golden Myrtalia, Golden Anastasia and Golden Houston) acquired from Quintana, (iii) delivery of one newbuilding (Golden Nimbus), and (iv) delivery of one vessel (Golden Behike) acquired from affiliates of Hemen.
r.
Disposal of one vessel (Golden Opus) sold by the joint venture company to an unrelated third party.
s.
Delivery of eight vessels (Golden Sue, Golden Kennedy, Golden Shea, Golden Ioanari, Golden Arion, Golden Deb, Golden Jake, Golden Keen) from Quintana and two vessels (Golden Amber and Golden Opal) from Hemen.
t.
Delivery of two newbuildings (Golden Virgo and Golden Libra).
u.
Disposal of six vessels (Golden Gemini, Golden Libra, Golden Leo, Golden Virgo, Golden Taurus and Golden Aries) to an unrelated third party.


40


Summary of Fleet Employment

As discussed below, as at December 31, 2017, our vessels are operated under time charters and voyage charters.

A time charter agreement is a contract entered into by an owner and a charterer whereby the charterer is entitled to the use of a vessel for a specific period of time for a specified daily fixed on index-linked rate of hire. Under a time charter agreement, voyage costs, such as bunker fuel and port charges, are borne and paid by the charterer. In the time charter market, rates vary depending on the length of the charter period and vessel specific factors such as age, speed and fuel consumption. An index-linked rate usually refers to freight rate indices issued by the Baltic Exchange, such as the BDI. These rates are based on actual charter hire rates under charter entered into by market participants, as well as daily assessments provided to the Baltic Exchange by a panel of major shipbrokers.

A voyage or spot charter agreement is a contract entered into by an owner and a charterer whereby a charterer is entitled to the use of a vessel to transport commodities between specified geographical locations at a specified freight rate per ton. Under voyage charter agreements, voyage costs are borne and paid by the owner. In the voyage charter market, rates are also influenced by cargo size, commodity, port dues and canal transit fees, as well as delivery and redelivery regions. In general, a larger cargo size is quoted at a lower rate per ton than a smaller cargo size. Routes with costly ports or canals generally command higher rates than routes with low port dues and no canals to transit. Voyages with a load port within a region that includes ports where vessels usually discharge cargo or a discharge port within a region with ports where vessels load cargo are generally quoted at lower rates, because such voyages generally increase vessel utilization by reducing the unloaded portion (or ballast leg) that is included in the calculation of the return charter to a loading area.

Several of our vessels may trade under revenue sharing arrangements or pools that are primarily exposed to the spot market. Under our revenue sharing agreement with CCL, we currently include 22 Capesize drybulk vessels. We currently have one Newcastlemax vessel trading under a revenue sharing agreement with Bocimar International NV and C Transport Holding Ltd. Our three Ultramax vessels trade under C Transport Holding Ltd's revenue sharing agreement for Supramax vessels.

41


 
 
As of December 31,
 
 
2017
 
2016
 
2015
 
 
Number of vessels

 
Percentage of fleet

 
Number of vessels

 
Percentage of fleet

 
Number of vessels

 
Percentage
of fleet

Newcastlemax
 
 
 
 
 
 
 
 
 
 
 
 
Spot
 
—

 
—
%
 
2

 
100
%
 
—

 
—
%
Spot with RSA (1)
 
1

 
33
%
 
—

 
—
%
 
—

 
—
%
Time charter
 
1

 
33
%
 
—

 
—
%
 
—

 
—
%
Index linked time charter
 
1

 
33
%
 
—

 
—
%
 
—

 
—
%
 
 
3

 
100
%
 
2

 
100
%
 
—

 
—
%
Capesize
 
 
 
 
 
 
 
 
 
 
 
 
Spot
 
1

 
—
%
 
1

 
4
%
 
20

 
70
%
Spot with RSA (2)
 
18

 
50
%
 
18

 
62
%
 
—

 
—
%
Time charter
 
4

 
10
%
 
—

 
—
%
 
—

 
—
%
Index linked time charter
 
14

 
40
%
 
10

 
34
%
 
8

 
30
%
 
 
37

 
100
%
 
29

 
100
%
 
28

 
100
%
Panamax
 
 
 
 
 
 
 
 
 
 
 
 
Spot
 
24

 
80
%
 
13

 
70
%
 
14

 
70
%
Spot with RSA
 
—

 
—
%
 
 
 
—
%
 
—

 
—
%
Time charter
 
5

 
20
%
 
6

 
30
%
 
6

 
30
%
Index linked time charter
 
—

 
—
%
 
—

 
—
%
 
—

 
—
%
 
 
29

 
100
%
 
19

 
100
%
 
20

 
100
%
Ultramax
 
 
 
 
 
 
 
 
 
 
 
 
Spot
 
—

 
—
%
 
7

 
100
%
 
6

 
100
%
Spot with RSA (3)
 
3

 
100
%
 
—

 
—
%
 
—

 
—
%
Time charter
 
—

 
—
%
 
—

 
—
%
 
—

 
—
%
Index linked time charter
 
—

 
—
%
 
—

 
—
%
 
—

 
—
%
 
 
3

 
100
%
 
7

 
100
%
 
6

 
100
%
Total
 
 
 
 
 
 
 
 
 
 
 
 
Spot
 
25

 
35
%
 
23

 
40
%
 
40

 
74
%
Spot with RSA
 
22

 
31
%
 
18

 
30
%
 
—

 
—
%
Time charter
 
10

 
14
%
 
6

 
10
%
 
6

 
11
%
Index linked time charter
 
15

 
20
%
 
10

 
20
%
 
8

 
15
%
 
 
72

 
100
%
 
57

 
100
%
 
54

 
100
%
(1)    The Golden Swift traded under a Newcastlemax revenue sharing agreement.
(2)    18 of our Capesize vessels traded under the CCL revenue sharing agreement.
(3)     Our 3 Ultramax vessels traded in C Transport Holding Ltd’s Supramax revenue sharing agreement.


42


Below is an overview of vessels on time charter contracts with an initial contract duration of more than one year, as of December 31, 2017:
Vessel Type
Vessel Name
Dwt
Net Rate
Expiry (min period)
Panamax
Golden Empress
79,463
22,800
December 2021
Panamax
Golden Endeavour
79,600
18,525
November 2020
Panamax
Golden Endurer
79,600
22,800
November 2020
Panamax
Golden Eclipse
79,600
28,025
January 2020
Panamax
Golden Rose
81,585
10,600
March 2018
Capesize
Golden Aso
182,472
15,100
March 2018
Capesize
KSL Santos
181,055
13,250
April 2018
Capesize
Golden Scape
211,112
20,000
November 2018
Capesize
Golden Bexley
180,209
16,700
January 2019
Capesize
Golden Nimbus
180,504
16,750
December 2018
In addition to the vessels specified in the table above, in 2017 we entered into fixed rate time charters commencing in 2018 for three of our vessels. We also converted one of our index linked time charters to a fixed rate, effective from January 2018. Refer to "Item 4 D. Property Plant and Equipment" for a summary of key information of our fleet as of the date of this report.
In January 2015, we entered into an agreement with RWE Supply & Trading GmbH, a wholly owned subsidiary of RWE AG (a major European energy company), to charter out a total of fifteen Capesize vessels on long term, index-linked contracts. In September 2015, the parties agreed to amend the terms to ten Capesize vessels at five years with charterer's option to extend for an additional two and a half years, instead of fifteen Capesize vessels at five-year terms. During 2015, eight vessels were delivered to RWE and the remaining two vessels were delivered in 2016. These charters are considered long term since their duration exceeds one year, however they have not been included in the table above as the time charter revenue earned on these is variable due to the index-linked daily time charter rate and therefore comparable to charter revenue earned in the spot market.
Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires that management make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
 
Management believes that the following accounting policies are the most critical in fully understanding and evaluating our reported financial results as they require a higher degree of judgment in their application resulting from the need to make estimates about the effect of matters that are inherently uncertain. See also Note 2 to the audited Consolidated Financial Statements included herein for details of all significant accounting policies.
 
Business combinations
We accounted for the acquisition of the Former Golden Ocean on March 31, 2015 as a business combination and have measured the identifiable assets acquired and the liabilities assumed at their acquisition date fair values. The consideration transferred has been measured at fair value based on the closing price of our shares on the date of acquisition and the fair value of the vested share options in the Former Golden Ocean. The allocation of the purchase price for the Former Golden Ocean required us to make significant estimates and assumptions, including estimates of future revenues earned by vessels held under capital lease and the operating costs (including dry docking costs) of those vessels, the appropriate discount rate to value these cash flows. In developing estimates of future cash flows, we must make assumptions about future performance, with significant assumptions being related to charter rates, ship operating expenses, utilization and drydocking requirements. These assumptions are based on historical trends as well as future expectations. Specifically, in estimating future charter rates, management takes into consideration the rates being earned at the time and estimated daily time charter equivalent rates for each vessel for the unfixed days over the remaining terms of the leases.

In addition, we were required to separately value the charters acquired with vessels from the Former Golden Ocean and used an "excess earnings" technique where the terms of the contract are assessed relative to current market conditions. The values of the contract related intangibles were determined by means of calculating the incremental or decremental cash flows arising over the life of the contracts compared with contracts with terms at prevailing market rates. This gave rise to an acquisition date fair value asset of $127.1 million for favorable contracts asset in respect of vessels chartered out and an acquisition date fair value liability

43


of $7.5 million for unfavorable contracts in respect of the vessels chartered in. These balances are being amortized over the remaining contract periods for each lease. We were also required to value the Convertible Bond (defined below) and this resulted in a $38.8 million discount to the principal amount, which is being amortized over the term of the bond. The surplus of the fair value of the net assets acquired over the fair value of the consideration transferred of $78.9 million was recognized as a bargain purchase gain in our consolidated statement of operations. Acquisition related costs are expensed as incurred.

Revenue and expense recognition
Revenues and expenses are recognized on the accruals basis. Revenues are generated from voyage charters, time charter and bareboat charter hires. Voyage revenues are recognized rateably over the estimated length of each voyage and, therefore, are allocated between reporting periods based on the relative transit time in each period. Voyage expenses are recognized as incurred. Probable losses on voyages are provided for in full at the time such losses can be estimated. Time charter and bareboat charter revenues are recorded over the term of the charter as a service is provided. When a time charter contract is linked to an index, we recognize revenue for the applicable period based on the actual index for that period. We use a discharge-to-discharge basis in determining percentage of completion for all voyage contracts whereby we recognize revenue rateably from when product is discharged (unloaded) at the end of one voyage to when it is discharged after the next voyage. However, we did not recognize revenue if a charter was not contractually committed to by a customer and us, even if the vessel discharged its cargo and was sailing to the anticipated load port on its next voyage.

From January 1, 2018, we are adopting ASC 606 Revenue from Contracts with Customers which replaces nearly all existing revenue guidance. Under this guidance, we believe the most significant impact will be to the timing of revenue recognition on voyage charters. The total revenue recognized on voyage charters across all accounting periods will remain the same however, each period’s voyage results could differ materially from the same period’s voyage results recognized based on the present revenue recognition guidance. Under ASC 606 voyage revenue will be recognized on a load to-discharge basis. We expect to recognize an increase in the retained deficit of approximately $10 million on January 1, 2018 related to the timing of revenue recognition based on the change to the load-to-discharge method.

Revenues generated through revenue sharing agreements are presented gross when we are the primary obligor under the charter parties. The net income as a result of our revenue sharing agreements is presented as other operating income, net. Comparative numbers have been revised to conform to our current presentation. In 2016, $0.9 million was previously included in other revenues and has been reclassified to other operating income, net.

Demurrage is a form of damages for breaching the period allowed to load and unload cargo in a voyage charter, or the laytime, and is recognized as income according to the terms of the voyage charter contract when the charterer remains in possession of the vessel after the agreed laytime.

Claims for unpaid charter hire and damages for early termination of time and bareboat charters are recorded upon receipt of cash when collectability is not reasonably assured. Such amounts related to services previously rendered are recorded as time charter revenue. Amounts in excess of services previously rendered are classified as other operating income.

Marketable securities
Our marketable securities are considered to be available-for-sale securities and as such are carried at fair value. Any resulting unrealized gains and losses, net of deferred taxes if any, are recorded as a separate component of other comprehensive income in equity unless the securities are considered to be other than temporarily impaired, in which case unrealized losses are recorded in the consolidated statement of operations as impairment loss on shares.

We review our available-for-sale securities for impairment at each reporting period to evaluate whether an event or change in circumstances has occurred in that period that may have a significant adverse effect on the value of the securities. We record an impairment charge for other-than-temporary declines in value when the value is not anticipated to recover above the cost within a reasonable period after the measurement date, unless there are mitigating factors that indicate impairment may not be required. If an impairment charge is recorded, subsequent recoveries in value are not reflected in earnings until sale of the securities held as available for sale occurs.

Vessels and depreciation
Vessels are stated at cost less accumulated depreciation. Depreciation is calculated based on cost less estimated residual value, using the straight-line method, over the useful life of each vessel. The useful life of each vessel is deemed to be 25 years. The residual value is calculated by multiplying the lightweight tonnage of the vessel by the market price of scrap per tonne. The market price of scrap per tonne is calculated as the 10-year average, up to the date of delivery of the vessel, across the three main recycling markets (Far East, Indian sub-continent and Bangladesh). Residual values are reviewed annually.


44


Impairment of long lived assets
The carrying values of our vessels and newbuildings, if any, may not represent their fair market value at any point in time since the market prices of second-hand vessels and the cost of newbuildings tend to fluctuate with changes in charter rates. Historically, both charter rates and vessel values tend to be cyclical. The carrying amounts of vessels that are held and used by us and newbuildings under construction are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a particular vessel or newbuilding may not be fully recoverable. Such indicators may include depressed spot rates and depressed second-hand vessel values. We assess recoverability of the carrying value of each asset or newbuilding on an individual basis by estimating the future undiscounted cash flows expected to result from the asset, including any remaining construction costs for newbuildings, and eventual disposal. If the future net undiscounted cash flows are less than the carrying value of the asset, or the current carrying value plus future newbuilding commitments, an impairment loss is recorded equal to the difference between the asset's or newbuildings carrying value and fair value. Fair value is estimated based on values achieved for the sale/purchase of similar vessels and appraised valuations. In addition, long-lived assets to be disposed of are reported at the lower of carrying amount and fair value less estimated costs to sell.
 
In developing estimates of future cash flows, we must make assumptions about future performance, with significant assumptions being related to charter rates, ship operating expenses, utilization, drydocking requirements, residual value and the estimated remaining useful lives of the vessels. These assumptions are based on historical trends as well as future expectations. Specifically, in estimating future charter rates, management takes into consideration rates currently in effect for existing time charters and estimated daily time charter equivalent rates for each vessel class for the unfixed days over the estimated remaining lives of each of the vessels. The estimated daily time charter equivalent rates used for unfixed days are based on a combination of (i) trading exchange forecasts for five years and (ii) estimate of implied charter rates based on the broker values received from third party brokers on a quarterly basis. The implied rate is a calculated rate for each vessel based on the charter rate the vessel would need to achieve, given our expected future operating costs and discount factors that once discounted would equate to the average broker values. We then use the resultant undiscounted cash flows in our model. Recognizing that the transportation of dry bulk cargoes is cyclical and subject to significant volatility based on factors beyond our control, management believes the use of estimates based on the combination of internally forecasted rates and calculated average rates as of the reporting date to be reasonable. We believe that the estimated future undiscounted cash flows expected to be earned by each of our vessels over their remaining estimated useful life will exceed the vessels' carrying value as of December 31, 2017, and accordingly, have not recorded an impairment charge.

Estimated outflows for operating expenses and drydocking requirements are based on historical and budgeted costs and are adjusted for assumed inflation. Finally, utilization is based on historical levels achieved and estimates of a residual value are consistent with the pattern of scrap rates used in management's evaluation of salvage value.

The more significant factors that could impact management's assumptions regarding cash flows include (i) loss or reduction in business from significant customers, (ii) unanticipated changes in demand for transportation of dry bulk cargoes, (iii) greater than anticipated levels of newbuilding orders or lower than anticipated levels of vessel scrappings, and (iv) changes in rules and regulations applicable to the dry bulk industry, including legislation adopted by international organizations such as the IMO and the European Union or by individual countries. Although management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate at the time they were made, such assumptions are highly subjective and likely to change, possibly materially, in the future. There can be no assurance as to how long charter rates and vessel values will remain at their current low levels or whether they will improve by a significant degree. If charter rates were to remain at depressed levels future assessments of vessel impairment would be adversely affected.

Our Fleet – Comparison of Possible Excess of Carrying Value Over Estimated Charter-Free Market Value of Certain Vessels

In "Critical Accounting Policies – Impairment of long-lived assets", we discuss our policy for impairing the carrying values of our vessels and newbuildings. During the past few years, the market values of vessels have experienced particular volatility, with substantial declines in many vessel classes.  As a result, the charter-free market value, or basic market value, of certain of our vessels may have declined below those vessels' carrying value, even though we would not impair those vessels' carrying value under the accounting impairment policy, due to the belief that future undiscounted cash flows expected to be earned by such vessels over their operating lives would exceed such vessels' carrying amounts.

Our estimates of basic market value assume that our vessels are all in good and seaworthy condition without need for repair and if inspected would be certified in class without notations of any kind. Our estimates are based on the values achieved for the sale/purchase of similar vessels and appraised valuations and are inherently uncertain. In addition, vessel values are highly volatile; as such, our estimates may not be indicative of the current or future basic market value of the vessels or prices that we could achieve if we were to sell them.

The table set forth below indicates the carrying value of each of our owned vessels as of December 31, 2017 and 2016:

45


Vessel Type
Vessel Name
 
Built
Dwt

2017
($ millions)

2016
($ millions)

Newcastlemax
Golden Scape
 
2016
211,112

67.3

69.8

Newcastlemax
Golden Swift
 
2016
211,112

65.9

68.3

Newcastlemax
Golden Gayle
 
2011
206,565

31.2

—

Capesize
Golden Feng
 
2009
169,232

31.5

32.9

Capesize
Golden Shui
 
2009
169,333

31.6

32.9

Capesize
KSL Salvador
 
2014
180,958

62.1

64.5

Capesize
KSL San Francisco
 
2014
181,066

58.9

61.2

Capesize
KSL Santiago
 
2014
181,020

58.4

60.7

Capesize
KSL Santos
 
2014
181,055

58.8

61.1

Capesize
KSL Sapporo
 
2014
180,960

61.2

63.6

Capesize
KSL Seattle
 
2014
181,015

60.9

63.3

Capesize
KSL Singapore
 
2014
181,062

60.9

63.3

Capesize
KSL Sydney
 
2014
181,000

61.6

64.0

Capesize
KSL Sakura
 
2015
181,062

59.4

61.7

Capesize
KSL Seoul
 
2015
181,010

59.7

61.9

Capesize
KSL Stockholm
 
2015
181,055

60.0

62.3

Capesize
KSL Seville
 
2015
181,062

59.1

61.3

Capesize
Golden Kathrine
 
2015
182,486

60.6

62.9

Capesize
Golden Aso
 
2015
182,472

61.5

63.8

Capesize
Golden Finsbury
 
2015
182,418

48.7

50.5

Capesize
Golden Barnet
 
2016
180,355

52.3

54.1

Capesize
Golden Bexley
 
2016
180,209

52.0

53.9

Capesize
Golden Fulham
 
2016
182,000

50.1

51.8

Capesize
Golden Amreen
 
2015
179,337

36.5

—

Capesize
Golden Anastasia
 
2014
179,189

34.9

—

Capesize
Golden Behike
 
2016
180,491

40.6

—

Capesize
Golden Houston
 
2014
181,214

34.0

—

Capesize
Golden Kaki
 
2014
181,214

35.5

—

Capesize
Golden Myrtalia
 
2011
177,979

25.4

—

Capesize
Golden Nimbus
 
2017
180,000

50.3

—

Capesize
Golden Savannah
 
2017
181,044

62.3

—

Capesize
Golden Surabaya
 
2017
181,046

62.0

—

Panamax
Golden Ice
 
2008
75,500

14.3

14.9

Panamax
Golden Opportunity
 
2008
75,500

14.3

14.9

Panamax
Golden Saguenay
 
2008
75,500

14.3

14.9

Panamax
Golden Strength
 
2009
75,500

15.2

15.9

Panamax
Golden Suek
 
2011
74,849

16.8

17.4

Panamax
Golden Bull
 
2012
75,000

17.9

18.6

Panamax
Golden Brilliant
 
2013
74,500

19.5

20.2

Panamax
Golden Diamond
 
2013
74,500

19.6

20.3

Panamax
Golden Pearl
 
2013
74,186

19.6

20.3

Panamax
Golden Ruby
 
2014
74,052

20.7

21.5

Panamax
Golden Sue
 
2013
84,943

23.6

—

Panamax
Golden Deb
 
2013
84,943

24.4

—

Panamax
Golden Shea
 
2007
76,937

11.9

—


46


Panamax
Golden Kennedy
 
2015
83,789

24.8

—

Panamax
Golden Opal
 
2017
74,231

21.6

—

Panamax
Golden Amber
 
2017
74,500

21.3

—

Panamax
Golden Eminence
 
2010
79,463

15.6

16.2

Panamax
Golden Empress
 
2010
79,463

15.6

16.2

Panamax
Golden Endeavour
 
2010
79,454

15.6

16.2

Panamax
Golden Endurer
 
2011
79,474

16.5

17.1

Panamax
Golden Enterprise
 
2011
79,463

16.5

17.1

Panamax
Golden Daisy
 
2012
81,507

19.2

19.8

Panamax
Golden Ginger
 
2012
81,487

19.2

19.8

Panamax
Golden Rose
 
2012
81,585

19.2

19.8

Panamax
Golden Jake
 
2011
81,827

18.3

—

Panamax
Golden Arion
 
2011
82,188

18.2

—

Panamax
Golden Ioanari
 
2011
81,827

17.5

—

Panamax
Golden Keen
 
2012
81,586

19.3

—

Ultramax
Golden Aries
 
2015
63,605

—

23.5

Ultramax
Golden Cecilie
 
2015
60,263

24.1

25.0

Ultramax
Golden Cathrine
 
2015
60,000

24.0

24.9

Ultramax
Golden Gemini
 
2015
63,605

—

23.6

Ultramax
Golden Taurus
 
2015
64,000

—

24.9

Ultramax
Golden Leo
 
2016
63,650

—

25.7

 
 
 
 
 
2,213.8

1,758.5


We believe that the basic charter-free market value for each of the vessels above is lower than their carrying value and that the aggregate carrying value of these vessels exceeds their aggregate basic charter-free market value by approximately $353 million as of December 31, 2017 (December 31, 2016: $667 million). We believe that the estimated future undiscounted cash flows expected to be earned by each of these vessels over its remaining estimated useful life, exceed each of these vessel's carrying value as of December 31, 2017, and accordingly, have not recorded an impairment charge.

The basic charter-free market value for each of the five (December 31, 2016: ten) newbuildings we owned at December 31, 2017 was lower than the newbuilding's total estimated cost of completion (being the aggregate of the carrying value, the remaining installments to be paid, the estimated newbuilding supervision costs and the estimated capitalized interest at December 31). We believe that the aggregate estimated cost of completion of these newbuildings exceeded their aggregate basic charter-free market value by approximately $23 million as of December 31, 2017 (December 31, 2016: $159 million). We believe that the estimated future undiscounted cash flows expected to be earned by each newbuilding over its estimated useful life exceed the newbuilding's estimated cost of completion and, accordingly, have not recorded an impairment charge.

We refer you to the risk factor entitled "The fair market values of our vessels may decline, which could limit the amount of funds that we can borrow, cause us to breach certain financial covenants in our credit facilities, or result in an impairment charge, and cause us to incur a loss if we sell vessels following a decline in their market value".

Factors Affecting Our Results

The principal factors which affect our results of operations and financial position include:

•
the earnings from our vessels;
•
gains (losses) from the sale of assets;
•
vessel operating expenses;
•
impairment losses on vessels and newbuilding contracts;
•
provisions for uncollectible receivables;

47


•
administrative expenses;
•
depreciation;
•
interest expense;
•
bargain purchase gain; and
•
discontinued operations.
We derive our earnings from time charters and voyage charters earned by our vessels. As of December 31, 2017, 62 of our 72 vessels, which are owned or leased in by us, were employed in the voyage charter market or on short term time charters of less than a year. The dry bulk industry has historically been highly cyclical, experiencing volatility in profitability, vessel values and freight rates.

Operating costs are the direct costs associated with running a vessel and include crew costs, vessel supplies, repairs and maintenance, drydockings, lubricating oils, insurance and management fees.

An impairment loss on a vessel is recognized when the vessel's carrying value exceeds the estimated future net undiscounted cash flows expected to be earned over the remaining estimated useful life of the vessel.

An impairment loss on a newbuilding under construction is recognized when the estimated cost of completion, being the aggregate of the carrying value, the remaining installments to be paid, the estimated newbuilding supervision costs and the estimated capitalized interest at the assessment day, exceeds the estimated future net undiscounted cash flows expected to be earned over the estimated useful life of the newbuilding upon its delivery.

Losses from uncollectible receivables are accrued when information is available before the financial statements are issued that indicates that it is probable that a receivable will not be collected.

Administrative expenses are comprised of general corporate overhead expenses, including personnel costs, property costs, audit fees, legal and professional fees, restricted stock unit, or RSU, and stock option expense and other general administrative expenses. Personnel costs include, among other things, salaries, pension costs, fringe benefits, travel costs and health insurance.

Depreciation, or the periodic costs charged to our income for the reduction in usefulness and long-term value of our vessels, is also related to the number of vessels we own or lease. We depreciate the cost of vessels we own, less their estimated residual value, over their estimated useful life on a straight-line basis. We depreciate the cost of vessels held under capital lease over the term of the lease. No charge is made for depreciation of vessels under construction until they are delivered.

Interest expense relates to vessel specific debt facilities and capital leases. Interest expense depends on our overall borrowing levels and may significantly increase when we acquire vessels or on the delivery of newbuildings. Interest incurred during the construction of a newbuilding is capitalized in the cost of the newbuilding. Interest expense may also change with prevailing interest rates, although the effect of these changes may be reduced by interest rate swaps or other derivative instruments.

We recorded a bargain purchase gain of $78.9 million in 2015, which resulted from the Merger, and is the amount by which the fair value of the net assets acquired exceeded the value of the consideration paid.

Lack of Historical Operating Data for Vessels before their Acquisition (other than those acquired in a Business Combination)

Consistent with shipping industry practice, other than inspection of the physical condition of the vessels and examinations of classification society records, there is no historical financial due diligence process when we acquire vessels. Accordingly, we do not obtain the historical operating data for the vessels from the sellers because that information is not material to our decision to make acquisitions, nor do we believe it would be helpful to potential investors in our common shares in assessing our business or profitability. Most vessels are sold under a standardized agreement, which, among other things, provides the buyer with the right to inspect the vessel and the vessel's classification society records. The standard agreement does not give the buyer the right to inspect, or receive copies of, the historical operating data of the vessel. Prior to the delivery of a purchased vessel, the seller typically removes from the vessel all records, including past financial records and accounts related to the vessel. In addition, the technical management agreement between the seller's technical manager and the seller is automatically terminated and the vessel's trading certificates are revoked by its flag state following a change in ownership.
 

48


Consistent with shipping industry practice, we treat the acquisition of a vessel (whether acquired with or without charter) as the acquisition of an asset rather than a business. Although vessels are generally acquired free of charter, we have in the past agreed to acquire (and may in the future acquire) some vessels with time charters. Where a vessel has been under a voyage charter, the vessel is delivered to the buyer free of charter. It is rare in the shipping industry for the last charterer of the vessel in the hands of the seller to continue as the first charterer of the vessel in the hands of the buyer. In most cases, when a vessel is under time charter and the buyer wishes to assume that charter, the vessel cannot be acquired without the charterer's consent and the buyer's entering into a separate direct agreement with the charterer to assume the charter. The purchase of a vessel itself does not transfer the charter, because it is a separate service agreement between the vessel owner and the charterer. When we purchase a vessel and assume a related time charter, we must take the following steps before the vessel will be ready to commence operations:

•
obtain the charterer's consent to us as the new owner;
•
in some cases, obtain the charterer's consent to a new flag for the vessel;
•
arrange for a new crew for the vessel;
•
replace all hired equipment on board, such as gas cylinders and communication equipment;
•
negotiate and enter into new insurance contracts for the vessel through our own insurance brokers;
•
register the vessel under a flag state and perform the related inspections in order to obtain new trading certificates from the flag state;
•
implement a new planned maintenance program for the vessel; and
•
ensure that the new technical manager obtains new certificates for compliance with the safety and vessel security regulations of the flag state.

Inflation
 
Although inflation has had a moderate impact on our vessel operating expenses and corporate overhead, management does not consider inflation to be a significant risk to direct costs in the current and foreseeable economic environment. It is anticipated that insurance costs, which have risen over the last three years, may continue to rise moderately over the next few years. Dry bulk cargo transportation is a specialized area and the number of vessels is increasing. There will therefore be an increased demand for qualified crew and this has and will continue to put inflationary pressure on crew costs. However, in a shipping downturn, costs subject to inflation can usually be controlled because shipping companies typically monitor costs to preserve liquidity and encourage suppliers and service providers to lower rates and prices in the event of a downturn.

Year ended December 31, 2017 compared with year ended December 31, 2016

Operating revenues
(in thousands of $)
 
2017

 
2016

 
Change

Time charter revenues
 
233,007

 
91,407

 
141,600

Voyage charter revenues
 
225,769

 
159,108

 
66,661

Bareboat charter revenues
 
—

 
2,399

 
(2,399
)
Other revenues
 
1,247

 
3,949

 
(2,702
)
Total operating revenues
 
460,023

 
256,863

 
203,160


Time charter revenues increased by $141.6 million in 2017 compared with 2016, primarily due to:

•
an increase of $28.5 million generated from improved market conditions captured by index-linked time charters for nine of our Capesize vessels,
•
an increase of $39.0 million generated from vessel delivered during 2017 that traded on the time charter market,
•
an increase of $58.0 million generated by our vessels that were delivered prior to the year ended December 31, 2016,
•
an increase of $8.2 million generated from 12 chartered-in vessels operating in the spot market, and
•
a decrease of $7.9 million related to amortization expense of time charter out contracts recognized at fair value in the balance sheet, mainly due to the expiration of contracts in 2017 and amortization of $3.1 million in negative fair value of contracts acquired in relation to the Quintana Acquisition.


49


Voyage charter revenues increased by $66.7 million in 2017 compared with 2016 primarily due to:

•
an increase of $38.1 million generated from 40 chartered-in vessels (compared with 38 vessels during 2016) on short-term charters and relets during 2017 that traded on the spot market,
•
an increase of $21.3 million generated from vessel delivered during 2017 that traded on the spot market, and
•
an increase of $7.2 million generated by our vessels that were delivered prior to the year ended December 31, 2016.

During 2016, bareboat charter revenues of $2.4 million related to a receipt of claims for unpaid charter hire owed under bareboat charters of two VLCCs. The receipt was recorded as bareboat charter revenue as it related to services previously rendered under such terms. This amount was received as full and final settlement for the claims. During 2017, we had no bareboat charter revenues.

During 2017, other revenues was primarily comprised of $1.7 million for management fee revenue for services provided by us to related parties, offset by $0.5 million in other voyage related claim expenses. During 2016, other revenues was primarily comprised of $2.0 million for loss of hire in relation to warranty claims on four Capesize newbuilding deliveries and $1.9 million in respect of management fee revenue for services provided by us to related parties.

Gain (loss) on sale of assets and amortization of deferred gains
(in thousands of $)
 
2017

 
2016

 
Change

Net loss on sale of vessels
 
(570
)
 
72

 
(642
)
Amortization of deferred gains
 
258

 
228

 
30

Gain (loss) on sale of assets and amortization of deferred gains
 
(312
)
 
300

 
(612
)

In 2017, we sold six Ultramax vessels to an unrelated third party, and for one of these vessels we agreed to a partial settlement in the form of consideration shares in the buyer. In the aggregate the consideration received consisted of $135.1 million in cash and 910,802 consideration shares in the buyer. The six vessels were delivered in the fourth quarter of 2017 and we recorded a net loss of $0.6 million upon completion of the deliveries, in addition to impairment loss of $1.1 million as described below.

During 2016, gain on sale of vessels arose on the sales of Front Mediterranean ($13 thousand gain), Front Caribbean ($68 thousand gain) and Golden Lyderhorn ($9 thousand loss). Amortization of deferred gains arose on the sale and lease back of eight vessels with Ship Finance, which was completed in the third quarter of 2015.

Amortization of deferred gains relates to deferred gains on the sale and lease back transaction of eight vessels with Ship Finance conducted in 2015.

Other operating income (expenses)
(in thousands of $)
 
2017

 
2016

 
Change

Other operating income (expenses)
 
3,881

 
945

 
2,936


Other operating income increased by $2.9 million in 2017 compared with 2016 as a result of a positive revenue sharing amount received from the revenue sharing agreements for our Capesize and Newcastlemax vessels.

Voyage expenses and commission
(in thousands of $)
 
2017

 
2016

 
Change

Voyage expenses and commission
 
118,929

 
89,886

 
29,043

 
Voyage expenses and commission increased by $29.0 million in 2017 compared with 2016 primarily due to:

•
an increase of $15.2 million incurred by our vessels that were delivered prior to the year ended December 31, 2016,
•
an increase of $4.4 million incurred by the 14 vessels acquired from Quintana,
•
an increase of $4.0 million incurred by the three vessels acquired from affiliates of Hemen, and
•
an increase of $5.8 million incurred by the five newbuildings delivered in 2017.

This was partially offset by a decrease of $0.4 million related to vessels that were chartered-in on short term charters and operated in the spot market.

50



Ship operating expenses
(in thousands of $)
 
2017

 
2016

 
Change

Ship operating expenses
 
132,198

 
105,843

 
26,355


Ship operating expenses increased by $26.4 million in 2017 compared with 2016 primarily due to:

•
an increase of $17.3 million incurred by the 14 vessels acquired from Quintana,
•
an increase of $2.5 million incurred by the three vessels acquired from affiliates of Hemen, and
•
an increase of $6.6 million incurred by the five newbuildings delivered in 2017.


Charter hire expenses
(in thousands of $)
 
2017

 
2016

 
Change

Charter hire expenses
 
70,673

 
53,691

 
16,982


Charter hire expenses increased by $17.0 million in 2017 compared with 2016 primarily due to:

•
an increase of $21.0 million incurred for vessels chartered in from third parties on short term charters and relets,
•
an increase of $2.5 million incurred for the eight vessels chartered in from Ship Finance, including a $0.2 million profit share, and
•
an increase of $2.4 million incurred following reduction in onerous contracts provisions in 2016.

This was partially offset by a decrease of $8.9 million incurred for vessels chartered in from third parties on long term charters.

Administrative expenses
(in thousands of $)
 
2017

 
2016

 
Change

Administrative expenses
 
12,558

 
12,728

 
(170
)

Administrative expenses decreased by $0.2 million in 2017 as compared to 2016 primarily due to an increase of $0.3 million incurred in personnel related expenses, partially offset by a decrease of $0.3 million incurred in related party administration charges and a decrease of $0.2 million incurred in IT expenses.

Provision for uncollectible receivables
(in thousands of $)
 
2017

 
2016

 
Change

Provision for uncollectible receivables
 
—

 
1,800

 
(1,800
)

In 2017, there was no provision for uncollectible receivables. In 2016, the provision for uncollectible receivables of $1.8 million was recorded against the carrying value of the long-term receivable following an impairment review that was triggered by an agreement with the counterparty to collect $3.0 million.

Impairment loss on vessels and newbuildings
(in thousands of $)
 
2017

 
2016

 
Change

Impairment loss on vessels and newbuildings
 
1,066

 
985

 
81


In September 2017, we entered into agreements to sell six Ultramax vessels, Golden Libra, Golden Virgo, Golden Taurus, Golden Gemini, Golden Aries and Golden Leo, for a gross sale price of $142.5 million. We recorded an impairment loss of $1.1 million, corresponding to the difference between the carrying value and estimated fair value of the vessels as at September 30, 2017 based on the agreements to sell the vessels.


51


Impairment loss on vessels and newbuildings in 2016 was attributable to $1.0 million impairment loss on the Golden Lyderhorn, a vessel held under capital lease, following an impairment review that was triggered by the likelihood to dispose the vessel prior to the end of its useful life.

Depreciation
(in thousands of $)
 
2017

 
2016

 
Change

Depreciation
 
78,093

 
63,433

 
14,660


Depreciation expenses increased by $14.7 million in 2017 as compared to 2016, primarily due to:

•
an increase of $7.8 million incurred by the 14 vessels acquired from Quintana,
•
an increase of $5.3 million incurred by the deliveries of Golden Virgo, Golden Libra, Golden Surabaya, Golden Savannah, Golden Nimbus,
•
an increase of $0.9 million incurred by the three vessels acquired from affiliates of Hemen, and
•
an increase of $0.7 million incurred following a net addition to the fleet during 2016.

Interest income
(in thousands of $)
 
2017

 
2016

 
Change

Interest income
 
2,207

 
1,666

 
541


Interest income increased by $0.5 million in 2017 compared with 2016 primarily due to an increase in interest income on bank deposits due to higher cash deposits held during the year.

Interest expense
(in thousands of $)
 
2017

 
2016

 
Change

Interest on floating rate debt
 
38,832

 
26,768

 
12,064

Interest on fixed rate debt
 
6,164

 
6,122

 
42

Finance lease interest expense
 
1,086

 
1,952

 
(866
)
Interest on other obligations
 
—

 
16

 
(16
)
Commitment fees
 
1,353

 
2,069

 
(716
)
Interest capitalized on newbuildings
 
—

 
(2,258
)
 
2,258

Amortization of fair value adjustments as a result of the Merger
 
10,360

 
9,497

 
863

Amortization of deferred charges
 
1,415

 
1,345

 
70

Related party interest expense
 
630

 
—

 
630

 
 
59,840

 
45,511

 
14,329


Interest expense increased by $14.3 million in 2017 compared with 2016, primarily due to:

•
an increase of $12.1 million in interest expense on (i) floating rate debt relating to three new loan facilities entered into in relation to the Quintana Acquisition, (ii) drawdowns under the $425.0 million term loan facility in connection with newbuilding deliveries during 2017, and (iii) $86.8 million in total deferred repayments at an increased margin of 4.25% following the debt restructuring in the first quarter of 2016,
•
a decrease of $0.9 million in finance lease interest expense following the sale of the Golden Lyderhorn in August 2016,
•
a decrease of $0.7 million in commitment fees following a reduction in undrawn amounts under our credit facilities compared with 2016,
•
a decrease of $2.3 million in interest capitalized on newbuildings as interest capitalization on the remaining five newbuildings due for delivery at December 31, 2017 was ceased during 2016 as they were concluded substantially complete,
•
an increase of $0.9 million due to amortization of the fair value adjustment of $38.8 million on the Convertible Bond, and
•
an increase of $0.3 million in respect three new related party seller credits assumed in 2017 following the acquisition of three vessels from affiliates of Hemen.

Associated companies

52


(in thousands of $)
 
2017

 
2016

 
Change

Equity results of associated companies
 
4,620

 
(381
)
 
5,001

Impairment of associated companies
 
—

 
(2,142
)
 
2,142

 
 
4,620

 
(2,523
)
 
7,143


Equity results of associated companies increased by $5.0 million in 2017 compared with 2016 primarily caused by a $4.2 million increase in results from our 50% equity interest in Golden Opus Inc. The increase was mainly due to gains recognized by the joint venture company from the sale of its only vessel the Golden Opus.

In 2016, the impairment loss was related to our 50% equity interest in Golden Opus Inc. following an impairment review that was triggered by a significant fall in rates in the BDI.

Impairment loss on marketable securities
(in thousands of $)
 
2017

 
2016

 
Change

Other than temporary impairment on marketable securities
 
—

 
(10,050
)
 
10,050


In 2017, we had no impairment losses on marketable securities. In 2016, the other than temporary impairment on marketable securities was comprised of $8.5 million in respect of an investment in a company listed on a U.S. stock exchange and $1.5 million in respect of an investment in a company listed on the Norwegian "Over the Counter" market.

Gain (loss) on derivatives
(in thousands of $)
 
2017

 
2016

 
Change

Gain (loss) on derivatives
 
145

 
(675
)
 
820


Gain (loss) on derivatives increased by $0.8 million in 2017 compared with 2016 primarily due to a decrease in loss on interest rate swaps derivatives of $1.3 million. In 2017, the gain on derivatives was comprised of losses of $0.5 million on interest rate swaps, gains of $0.2 million on foreign currency swaps, gains of $0.9 million on bunker derivatives and loss of $0.5 million on forward freight agreements. In 2016, the loss on derivatives was comprised of losses of $1.8 million on interest rate swaps, losses of $0.1 million on foreign currency swaps, gains of $1.2 million on bunker derivatives and gains of $0.1 million on forward freight agreements.

Other financial items
(in thousands of $)
 
2017

 
2016

 
Change

Other financial items
 
501

 
(515
)
 
1,016


"Other financial items" was positive $0.5 million in 2017 compared with negative $0.5 million in 2016 primarily due to an increase of distributions from marketable securities of $1.6 million.

This was offset by:

•
loss on purchase of convertible bond of $0.3 million,
•
an increase in bank charges of $0.6 million, and
•
a decrease in loss on sale of marketable securities of $0.2 million.


Year ended December 31, 2016 compared with year ended December 31, 2015


Operating revenues

53


(in thousands of $)
 
2016

 
2015

 
Change

Time charter revenues
 
91,407

 
85,960

 
5,447

Voyage charter revenues
 
159,108

 
102,972

 
56,136

Bareboat charter revenues
 
2,399

 
—

 
2,399

Other revenues
 
3,949

 
1,306

 
2,643

Total operating revenues
 
256,863

 
190,238

 
66,625


Time charter revenues increased by $5.5 million in 2016 as compared to 2015 primarily due to:

•
an increase of $18.2 million generated from improved market conditions captured in index-linked time charter for ten of our Capesize vessels and full year results for the vessels acquired in the Merger, and
•
an increase of $1.7 million generated from six vessels delivered during 2016 that traded on the time charter market.

This was partially offset by:

•
a decrease of $9.8 million generated from 13 compared to 26 chartered-in vessels on short term charters and relets during 2016 and 2015, respectively, which we traded on time charter terms, and
•
a decrease of $4.6 million related to amortization of the estimated fair value allocated to favorable time charters of (2016: $27.3 million, 2015: $23.7 million)

Voyage charter revenues increased by $56.1 million in 2016 as compared to 2015 primarily due to:

•
an increase of $27.6 million generated from five of six vessels delivered during 2016 that traded on the spot market, and
•
an increase of $27.2 million generated from 38 compared to 24 chartered-in vessels on short term charters and relets during 2016 and 2015, respectively, which we traded on the spot market.

During 2016, bareboat charter revenues of $2.4 million related to a receipt of claims for unpaid charter hire owed under bareboat charters of the VLCCs. The receipt was recorded as bareboat charter revenue as it related to services previously rendered under such terms. This amount was received as full and final settlement for the claims.

During 2016, other revenues was primarily comprised of $2.0 million for loss of hire in relation to warranty claims on four Capesize newbuilding deliveries and $1.9 million in respect of management fee revenue for services provided by us to related parties. During 2015, other revenues was primarily comprised of $0.3 million in respect of the reimbursement of expenses incurred in connection with the unlawful arrest of one vessel and $0.9 million in respect of management fee revenue for services provided by us to related parties.

Gain (loss) on sale of assets and amortization of deferred gains
(in thousands of $)
 
2016

 
2015

 
Change

Net loss on sale of vessels
 
72

 
(2,062
)
 
2,134

Loss on sale of newbuilding contracts
 
—

 
(8,858
)
 
8,858

Amortization of deferred gains
 
228

 
132

 
96

Gain (loss) on sale of assets and amortization of deferred gains
 
300

 
(10,788
)
 
11,088


During 2016, gain on sale of vessels arose on the sales of Front Mediterranean ($13 thousand gain), Front Caribbean ($68 thousand gain) and Golden Lyderhorn ($9 thousand loss). Amortization of deferred gains arose on the sale and lease back of eight vessels with Ship Finance, which was completed in the third quarter of 2015.

During 2015, loss on sale of vessels arose on the sales of Front Atlantic ($2.2 million loss) and Front Baltic ($0.1 million gain), with both vessels sold upon their delivery in August and November 2015, respectively. The loss on sale of newbuilding contracts is attributable to the sale of two newbuilding contracts to Frontline. Amortization of deferred gains arose on the sale and lease back of eight vessels with Ship Finance, which was completed in the third quarter of 2015.

Other operating income (expenses)

54


(in thousands of $)
 
2016

 
2015

 
Change

Other operating income (expenses)
 
945

 
—

 
945


Other operating income increased by $0.9 million in 2016 as a result of a positive revenue sharing amount from the Capesize revenue sharing agreement.

Voyage expenses and commission
(in thousands of $)
 
2016

 
2015

 
Change

Voyage expenses and commission
 
89,886

 
78,099

 
11,787

 
Voyage expenses and commission increased by $11.8 million in 2016 as compared to 2015 primarily due to:

•
an increase of $15.9 million incurred by the delivery of six newbuildings in 2016, and
•
an increase of $9.0 million incurred by vessels that were chartered-in on short term charters and operated in the spot market.

This was partially offset by a decrease of $13.1 million related to vessels operated in the spot market in 2015, which traded under time charter terms in 2016.

Ship operating expenses
(in thousands of $)
 
2016

 
2015

 
Change

Ship operating expenses
 
105,843

 
83,022

 
22,821


Ship operating expenses increased by $22.8 million in 2016 as compared to 2015 primarily due to:

•
an increase of $9.9 million incurred by the 29 vessels acquired as a result of the Merger, for which full year expenses were incurred in 2016,
•
an increase of $8.8 million incurred by the delivery of six newbuildings in 2016,
•
an increase of $4.2 million incurred by the eight vessels that were delivered during 2015 and traded for the full year in 2016, and
•
an increase of $2.8 million primarily related to yard payments resulting from deferral of delivery under the newbuilding program.

This was partially offset by a decrease of $2.9 million related to drydock costs for three vessels in 2016 compared to six vessels in 2015.

Charter hire expenses
(in thousands of $)
 
2016

 
2015

 
Change

Charter hire expenses
 
53,691

 
30,719

 
22,972


Charter hire expenses increased by $23 million in 2016 as compared to 2015, primarily due to:

•
an increase of $3.7 million incurred by vessels chartered in from third parties on short term charters and relets,
•
an increase of $9.7 million incurred by vessels chartered in from third parties on long term charters,
•
an increase of $13.5 million incurred by the eight vessels chartered in from Ship Finance resulting from full year expenses in 2016, and
•
an increase of $1.0 million resulting from lower amortization of unfavorable time charter contracts, recognized as deduction of charter hire expenses.

This was partially offset by a decrease of $4.8 million resulting from reduction in onerous contracts provisions.

Administrative expenses

55


(in thousands of $)
 
2016

 
2015

 
Change

Administrative expenses
 
12,728

 
12,469

 
259


Administrative expenses increased by $0.3 million in 2016 as compared to 2015 primarily due to:

•
an increase of $1.7 million incurred for personnel, travel and offices costs due full year expenses for the Former Golden Ocean, and
•
an increase of $0.9 million incurred in related party charges.

These factors were partially offset by:

•
a decrease of $2.0 million in legal, audit and professional fees incurred as a result of the Merger,
•
a decrease of $0.3 million in director fees, and
•
a decrease of $0.2 million in other expenses and RSU/Stock option expenses.

Provision for uncollectible receivables
(in thousands of $)
 
2016

 
2015

 
Change

Provision for uncollectible receivables
 
1,800

 
4,729

 
(2,929
)

The provision for uncollectible receivables of $1.8 million in 2016 was recorded against the carrying value of a long-term receivable acquired in the Merger following an impairment review that was triggered by an agreement with the counterparty to collect $3.0 million.

Impairment loss on vessels and newbuildings
(in thousands of $)
 
2016

 
2015

 
Change

Impairment loss on vessels and newbuildings
 
985

 
152,597

 
(151,612
)

Impairment loss on vessels and newbuildings in 2016 is attributable to $1.0 million impairment loss on the Golden Lyderhorn, a vessel held under capital lease, following an impairment review that was triggered by the likelihood to dispose the vessel prior to the end of its useful life.

Impairment loss on vessels and newbuildings in 2015 is attributable to:

•
$141.0 million related to impairment losses on five of the eight vessels that we agreed to sell to Ship Finance in April 2015 (KSL China, Battersea, Belgravia, Golden Future and Golden Zhejiang),
•
$7.1 million related to the impairment loss on newbuildings. In April 2015, we agreed sell four newbuildings to a third party on delivery of the newbuilding. One of these vessels was delivered and sold in August 2015 at a loss of $2.2 million. The impairment review of the remaining three vessels indicated that the expected costs would exceed the agreed sales price of the vessels and an impairment loss was recognized, and
•
$4.5 million related to an impairment loss on the Golden Lyderhorn, a vessel held under capital lease, following an impairment review that was triggered by a significant fall in rates in the BDI.

Depreciation
(in thousands of $)
 
2016

 
2015

 
Change

Depreciation
 
63,433

 
52,728

 
10,705


Depreciation expenses increased by $10.7 million in 2016 as compared to 2015 primarily due to:

•
an increase of $4.5 million due to full year depreciation on the 29 vessels acquired upon the completion of the Merger, of which two were vessels under capital lease,
•
an increase of $9.1 million due to the delivery of six newbuildings in 2016,
•
an increase of $3.6 million due to full year depreciation in 2016 of eight vessels delivered in 2015, and
•
a decrease of $6.5 million due to eight vessels sold to Ship Finance during 2015.


56


Interest income
(in thousands of $)
 
2016

 
2015

 
Change

Interest income
 
1,666

 
849

 
817


Interest income increased by $0.8 million in 2016 as compared to 2015 primarily due to:

•
an increase in interest income on bank deposits of $1.32 million due to higher cash deposits held during the year, and
•
a decrease of interest income of $0.4 million on an interest bearing long term receivable, acquired as a result of the Merger.

Interest expense
(in thousands of $)
 
2016

 
2015

 
Change

Interest on floating rate debt
 
26,768

 
20,475

 
6,293

Interest on fixed rate debt
 
6,122

 
4,719

 
1,403

Finance lease interest expense
 
1,952

 
1,981

 
(29
)
Interest on other obligations
 
16

 
2

 
14

Commitment fees
 
2,069

 
3,217

 
(1,148
)
Interest capitalized on newbuildings
 
(2,258
)
 
(8,968
)
 
6,710

Amortization of fair value adjustments as a result of the Merger
 
9,497

 
6,844

 
2,653

Amortization of deferred charges
 
1,345

 
1,562

 
(217
)
 
 
45,511

 
29,831

 
15,680


Interest expense increased by $17.2 million in 2016 as compared to 2015 primarily due to:

•
an increase of $6.3 million in interest on (i) floating rate debt (ii) $142.2 million drawdowns under the $425.0 million term loan facility, (iii) $40.5 million deferred repayments at an increased margin of 4.25% following the debt restructuring in the first quarter of 2016 and (iv) full year interest expense accruing on facilities acquired as a result of the Merger,
•
an increase of $1.4 million in interest on fixed rate debt, as a result of full year interest expense accruing on the Convertible bond acquired as a result of the Merger,
•
a decrease of $1.2 million in commitment fees as the 2015 results included $1.5 million fees in relation to the new $425.0 million loan facility, which was entered into in February 2015,
•
a decrease of $6.7 million in interest capitalized on newbuildings as eight of the 18 newbuildings due for delivery at December 31, 2015 were delivered in 2016 and interest capitalization the remaining ten newbuildings due for delivery at December 31, 2016 was ceased during 2016 as they were concluded substantially complete,
•
an increase of $2.7 million due to full year the amortization of the fair value adjustment of $38.8 million on the Convertible Bond, and
•
a decrease of $0.2 million of amortization of deferred charges.

Associated companies
(in thousands of $)
 
2016

 
2015

 
Change

Equity results of associated companies
 
(381
)
 
(433
)
 
52

Impairment of associated companies
 
(2,142
)
 
(4,600
)
 
2,458

 
 
(2,523
)
 
(5,033
)
 
2,510


In 2016 and 2015, the impairment loss related to our 50% equity interest in Golden Opus Inc. following an impairment review that was triggered by a significant fall in rates in the BDI.

Impairment loss on marketable securities
(in thousands of $)
 
2016

 
2015

 
Change

Other than temporary impairment on marketable securities
 
(10,050
)
 
(23,323
)
 
13,273



57


In 2016, the other than temporary impairment on marketable securities was comprised of $8.5 million in respect of an investment in a company listed on a U.S. stock exchange and $1.5 million in respect of an investment in a company listed on the Norwegian "Over the Counter" market. In 2015, the other than temporary impairment on marketable securities was comprised of $19.1 million in respect of an investment in a company listed on a U.S. stock exchange that was acquired during 2015 and $4.2 million in respect of an investment in a company listed on the Norwegian "Over the Counter" market that was acquired as a result of the Merger.

Loss on derivatives
(in thousands of $)
 
2016

 
2015

 
Change

Loss on derivatives
 
(675
)
 
(6,939
)
 
6,264


Loss on derivatives decreased by $6.3 million in 2016 as compared to 2015 primarily due gains on bunker derivatives of $5.4 million. In 2016, the loss on derivatives was comprised of losses of $1.8 million on interest rate swaps, losses of $0.1 million on foreign currency swaps, gains of $1.2 million on bunker derivatives and gains of $0.1 million on freight forward agreements. In 2015, the loss on derivatives was comprised of losses of $2.5 million on interest rate swaps, losses of $0.2 million on foreign currency swaps, losses of $3.6 million on bunker derivatives and losses of $0.6 million on forward freight agreements.

Bargain purchase gain arising on consolidation
(in thousands of $)
 
2016

 
2015

 
Change

Bargain purchase gain arising on consolidation
 
—

 
78,876

 
(78,876
)

We recorded a bargain purchase gain of $78.9 million in 2015, which resulted from the Merger, and is the amount by which the fair value of the net assets acquired exceeded the value of the consideration paid.

Other financial items
(in thousands of $)
 
2016

 
2015

 
Change

Other financial items
 
(515
)
 
(336
)
 
(179
)

"Other financial items" remained at the same levels in 2016 as compared to 2015.

Recently Issued Accounting Standards

Refer to Note 3 of "Item 18. Financial Statements".

B. LIQUIDITY AND CAPITAL RESOURCES

We operate in a capital-intensive industry and have historically financed our purchase of vessels through a combination of equity capital and borrowings from commercial banks, as well as issuance of convertible bonds. Our ability to generate adequate cash flows on a short and medium term basis depends substantially on the trading performance of our vessels in the market. Periodic adjustments to the supply of and demand for dry bulk vessels cause the industry to be cyclical in nature.

We expect continued volatility in market rates for our vessels in the foreseeable future with a consequent effect on our short and medium term liquidity.

Our funding and treasury activities are conducted within corporate policies to increase investment returns while maintaining appropriate liquidity for our requirements. Cash and cash equivalents are held primarily in U.S. dollars with some balances held in Norwegian Kroner and Singapore dollars.

Our short-term liquidity requirements relate to payment of operating costs (including drydocking), funding working capital requirements, repayment of debt financing, payment of newbuilding installments, lease payments for our chartered in fleet and maintaining cash reserves against fluctuations in operating cash flows and payment of cash distributions. Sources of short-term liquidity include cash balances, restricted cash balances, short-term investments and receipts from customers. Restricted cash balances are primarily related to the minimum cash covenant in our loan agreements and to margin calls on derivative positions or minor amounts secured for tax payments or for claims processes.


58


As of December 31, 2017 and 2016, we had cash and cash equivalents of $309.0 million and $212.9 million, respectively. In addition, as of December 31, 2017 and 2016, we had total restricted cash balances of $63.0 million and $54.1 million, respectively. As of December 31, 2017, restricted cash included cash balances of $60.6 million (December 2016: $53.8 million), which are required to be maintained by the financial covenants in our loan facilities.

Our wholly-owned non-recourse subsidiary that owns the 14 vessels acquired in the Quintana Acquisition is prohibited from paying dividends to us without lenders consent.

As of December 31, 2017, the remaining commitments for our five newbuilding contracts amounted to $144.6 million. The Company also had committed bank financing of $150 million to finance its remaining five newbuilding contracts as of December 31, 2017.

Other significant transactions subsequent to December 31, 2017, impacting our cash flows include the following:

•
During January and February 2018, we took delivery of our five vessels under construction, paid in aggregate $144.6 million in final installments and drew down $150.0 million in debt.
•
In January 2018, we took delivery of the Golden Monterrey, a vessel acquired from affiliates of Hemen, and paid $4.5 million in cash as partial consideration. The remaining consideration was in the form of 2,000,000 of our newly-issued common shares and the assumption of a $21.5 million seller's credit.
•
In February 2018, the Board declared a cash dividend to our shareholders of $0.10 per share, totaling approximately $14.4 million, which amount is payable on or about March 22, 2018.
•
In February 2018, we bought $9.4 million notional amount of our 3.07% convertible bond at a price of 97.725% of par value, or approximately $9.2 million.
•
In March 2018, we issued 50,000 of our common shares in connection with our 2016 share option plan and received $210 thousand in proceeds.

We believe that our working capital, cash on hand and borrowings under our current facilities will be sufficient to fund our requirements for, at least, the 12 months from the date of this annual report.

Medium to Long-term Liquidity and Cash Requirements

Our medium and long-term liquidity requirements include funding the equity portion of investments in new or replacement vessels, repayment of bank and bond loans and seller's credit financing. Additional sources of funding for our medium and long-term liquidity requirements include new loans, refinancing of existing arrangements, equity issues, public and private debt offerings, vessel sales, sale and leaseback arrangements and asset sales.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated.
(in thousands of $)
2017

2016

2015

Net cash provided by (used in) operating activities
93,539

(23,053
)
(14,827
)
Net cash provided by (used in) investing activities
(26,039
)
(175,311
)
112,568

Net cash provided by (used in) financing activities
28,587

308,689

(37,345
)
Net change in cash and cash equivalents
96,087

110,325

60,396

Cash and cash equivalents at beginning of period
212,942

102,617

42,221

Cash and cash equivalents at end of period
309,029

212,942

102,617


Net cash provided by operating activities

We have significant exposure to the spot market as only ten of our vessels were fixed on long term time charter contracts in 2017, and at the date of this report we have 14 vessels on fixed rate time charter contracts with initial contract duration of more than nine months. In addition, from time to time we may also enter into Forward Freight Agreements, or FFAs, to hedge our exposure to the charter market for a specified route and period of time. As of December 31, 2017, we had coverage in the aggregate of 470 days with maturity in 2018 under our FFAs. The revenues and net operating income are therefore dependent on the earnings in the spot market.


59


Revenues from time and bareboat charters are generally received monthly or bi-weekly in advance while revenues from voyage charters are received on negotiated terms for each voyage, normally 90/95% after completed loading and the remaining after completed discharge.

Net cash provided by operating activities in the year ended December 31, 2017 was $93.5 million compared with negative $23.1 million and negative $14.8 million in the year ended December 31, 2016 and December 31, 2015, respectively. As a substantial part of our fleet trade on either voyage charters or index linked time charter contracts, we are significantly exposed to the spot market. Therefore, our spot market exposure contributes to volatility in cash flows from operating activities. Any increase or decrease in the average rates earned by our vessels in periods subsequent to December 31, 2017, compared with the actual rates achieved during 2017, will as a consequence have a positive or negative comparative impact on the amount of cash provided by operating activities.
 
Based on the current level of operating expenses, debt repayments, interest expenses and general and administrative costs, the average cash breakeven rates on a TCE basis are (i) approximately $14,000 per day for our Capesize vessels and (ii) approximately $10,250 per day for our Panamax vessels. As of March 16, 2018, average spot rates year to date were as follows: Capesize vessels approximately $13,600 per day and Panamax vessels approximately $11,300 per day.

Net cash used in investing activities

Net cash used in investing activities was $26.0 million in 2017 and was comprised mainly of additions to newbuildings, vessels and equipment of $159.5 million, of which most was in respect of 10 newbuilding contracts, five of which were delivered during the year. In addition, restricted cash increased by $8.8 million, primarily related to three new loan facilities entered into during 2017. This amount was partially offset by the following:

•
net sale proceeds of $134.2 million in respect of six Ultramax vessels sold during the year,
•
net distributions from associated companies of $6.6 million, and
•
distributions from marketable securities of $1.6 million.

Net cash used in investing activities was $175.30 million in 2016 and was comprised primarily of:

•
payments on 12 vessels under construction for an aggregate of $267.3 million,
•
purchase of marketable securities of $0.7 million and equipment of $0.2 million, and
•
increase in restricted cash of $5.2 million.

This was partially offset by:

•
net sale proceeds of $97.8 million primarily related to the sale of two Capesize vessels generating $92.4 million in proceeds, one Panamax vessel generating $3.5 million in proceeds and proceeds from the sale of two Capesize newbuilding contracts agreed sold in 2015 to Frontline for $1.9 million, and
•
distributions from associated companies of $0.3 million and proceeds of $0.1 million from the sale of marketable securities.

Net cash provided by investing activities was $112.6 million in 2015 and was comprised mainly of:

•
net sale proceeds of an aggregate of $381.7 million primarily related to a sale and leaseback transaction of eight Capesize vessels with Ship Finance generating $272.0 million in proceeds, sale of two Capesize vessels for $16.8 million and two Capesize newbuildings sold on delivery for $92.4 million,
•
$108.6 million in cash acquired in respect of purchase of 12 SPCs from Frontline 2012,
•
$129.1 million in cash acquired upon the Merger,
•
refund of newbuilding installments of $40.1 million, and
•
decrease in restricted cash of $4.1 million.

This was partially offset by:

•
payments of an aggregate of $519.0 million in relation to our newbuilding program, and
•
purchase of marketable securities of $32.2 million.

Net cash provided by financing activities


60


Net cash provided by financing activities in 2017 was $28.6 million and was primarily a result of our two equity offerings of an aggregate of 16,372,505 new ordinary shares that generated net proceeds of $122.3 million, and loan drawdowns of $75.0 million. These items were partially offset by debt repayments of $163.8 million, capital lease repayments of $4.9 million, and debt fees paid of $0.3 million.

Net cash provided by financing activities in 2016 was $308.7 million and was primarily a result of our private placement and subsequent offering of an aggregate of 75,610,480 new ordinary shares that generated net proceeds of $205.4 million, and loan drawdowns of $142.2 million. These items were partially offset by debt repayments of $22.2 million, capital lease repayments of $15.7 million, and debt fees paid of $0.9 million.

Net cash provided used in financing activities in 2015 was $37.3 million and was primarily a result of debt repayments of $244.3 million, capital lease repayments of $5.2 million, and debt fees paid of $3.8 million. These items were partially offset by loan drawdowns of $216.0 million.

Equity Issuances

In December 2017, we issued 60,000 shares in relation to our 2016 share option plan and received $252 thousand in proceeds.

In October 2017, we issued 7,764,705 new common shares at $8.50 per share in a public offering, raising gross proceeds of $66 million (approximately NOK 521 million).

In March 2017, we issued 8,607,800 new common shares at NOK 60 per share in a public offering, raising gross proceeds of NOK 516.5 million (approximately $60 million).

In total, the net proceeds from the two equity offerings were $122.3 million, comprising $126.0 million gross proceeds from the placement net of issue costs of $3.7 million.

In February 2016, we completed a private placement of 68,736,800 new common shares, or the Private Placement Shares, at NOK 25.00 per share, generating gross proceeds of NOK 1.7 billion (approximately $200 million), in order to fulfill the equity requirement in our amended loan agreements.
 
In March 2016, we conducted a subsequent offering, or the Subsequent Offering, of up to 6,873,680 new common shares at NOK 25.00 per share for gross proceeds of up to NOK171.8 million (approximately $20 million). Ultimately, 2,673,858 new common shares, or the Subsequent Offering Shares, were issued in connection with the Subsequent Offering for gross proceeds of NOK 66.8 (approximately $8.0 million).

In total, the net proceeds from the Private Placement and the Subsequent Offering were $205.4 million, comprising $208.0 million gross proceeds from the placement net of issue costs of $2.6 million.

See Notes 4 and 25 to the audited Consolidated Financial Statements included herein for additional details of share issuance in relation to the Merger and share issuances in exchange for vessel acquisitions, respectively.

Borrowing Activities

Loan Amendments and Covenants

Our loan agreements contain loan-to-value clauses, which could require the Company to post additional collateral or prepay a portion of the outstanding borrowings should the value of the vessels securing borrowings under each of such agreements decrease below required levels. In addition, our loan agreements contain certain financial covenants, including the requirement to maintain a certain level of free cash, positive working capital and a value adjusted equity covenant. Under our recourse debt facilities, the aggregate value of the collateral vessels shall not fall below 125% or 135% of the loan outstanding, depending on the facility. We need to maintain free cash of the higher of $20 million or 5% of total interest bearing debt, maintain positive working capital and maintain a value adjusted equity of at least 25% of value adjusted total assets.

Restricted cash includes cash balances that are required to be maintained by the financial covenants in our loan facilities. Failure to comply with any of the covenants in the loan agreements could result in a default, which would permit the lender to accelerate the maturity of the debt and to foreclose upon any collateral securing the debt. Under those circumstances, we might not have sufficient funds or other resources to satisfy its obligations.


61


As of December 31, 2017, we were in compliance with all of the financial and other covenants contained in our loan agreements.

In February 2016, we agreed with our lenders to amend certain of the terms of the $420.0 million term loan facility, $425.0 million senior secured post-delivery term facility, $33.93 million credit facility, $82.5 million credit facility and the $284.0 million credit facility, or the Amended Loan Facilities. The agreement with our lenders to enter into the Amended Loan Facilities was subject to us raising at least $200 million in equity. In February and March 2016, we successfully completed a private placement that raised $205.4 million in equity.

The impact of these loan amendments was to defer $113.9 million of loan repayments due in the period from April 1, 2016 to September 30, 2018 and to postpone repayments on future drawings on the delivery of newbuilding vessels and defer repayments of the loan facility in the joint venture company owning the Golden Opus during this period.

In October 2017, we terminated the amended terms agreed with our lenders in February 2016. This reinstated normal debt service, including quarterly repayments, and covenants and also removed certain restrictions related to new acquisitions, new debt and dividend payments.

See Note 20, Debt, to the audited Consolidated Financial Statements included herein for additional details of the amended terms agreed with out lenders in February 2016, which were subsequently terminated in October 2017.

New Loan Facilities Related to the Quintana Acquisition

In 2017, we acquired 14 vessels from Quintana. The vessels were acquired by 14 SPCs owned by our newly-established wholly-owned non-recourse subsidiary. In connection with the acquisition we assumed obligations of $262.7 million under three new loan facilities.

According to the agreements with the lenders of the acquired vessels, we agreed to make a $17.4 million pre-payment of the debt, equaling three ordinary quarterly installments, in exchange for no mandatory debt repayment until July 2019. In the period prior to July 2019, a cash sweep mechanism has been put in place whereby if certain conditions are met, we will pay down on the deferred repayment amount of $40.6 million. The cash sweep is calculated semi-annually with first potential payment following the end of the first quarter of 2018.

The average interest rate of the debt assumed in connection with the Quintana Acquisition is LIBOR plus 3.1% margin and ordinary debt repayments, following the end of the waiver period in July 2019, will amount to $5.8 million per quarter. Pursuant to covenants in the loan agreements, our wholly-owned non-recourse subsidiary which owns the acquired vessels through 14 SPCs is prohibited from paying dividends to us without consent from the lenders. During the repayment holiday period through June 2019, we are required under the loan agreements to satisfy financial covenants including $10 million minimum cash and 105% minimum value covenant. Thereafter, the financial covenants under these loans will include 25% market adjusted equity, $10 million minimum cash and 125-135% minimum value covenant.

$102.7 Million Term Loan Facility

We assumed this debt of $102.7 million, net of a $6.4 million prepayment, as a result of the acquisition of vessels from Quintana in 2017. This facility finances five vessels and bears interest of LIBOR plus a margin of 3.0%. Repayments are made on a quarterly basis from the third quarter of 2019 onward. Two of the tranches under the facility mature in January 2020, with a balloon payment of in total $28.0 million. The remaining three tranches mature in October 2021 with balloon payments of $60.2 million in the aggregate.

As of December 31, 2017, $102.7 million was outstanding under this facility and there was no available, undrawn amount. As of December 31, 2017, this facility was secured by two of our Capesize vessels and three Panamax vessels.

$73.4 Million Term Loan Facility

We assumed this debt of $73.4 million as a result of the acquisition of vessels from Quintana in 2017. This facility finances five vessels and bears interest of LIBOR plus a margin of 3.25%. Repayments are made on a quarterly basis from the third quarter of 2019 onward. Four of the tranches under the facility mature in December 2019, with an aggregated balloon payment of $39.4 million and the fifth tranche matures in January 2022 with a balloon payment of $21.6 million.

During 2017, $5.7 million was repaid under this facility. As of December 31, 2017, $67.7 million was outstanding under this facility and there was no available undrawn amount. As of December 31, 2017, this facility was secured by one of our Capesize

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vessels and four Panamax vessels.

$80.2 Million Term Loan Facility

We assumed this debt of $80.2 million as a result of the acquisition of vessels from Quintana in 2017. This facility finances four vessels and bears interest of LIBOR plus a margin of in the range between 2.75% to 3.35% depending on the vessel. Repayments are made on a quarterly basis from the third quarter of 2019 onward. One of the tranches under the facility matures in October 2019, with a balloon payment of $11.1 million, two of the tranches mature in November 2019 with an aggregated balloon payment of $33.3 million and the fourth tranche matures in November 2021 with a balloon payment of $24.6 million.

During 2017, $5.4 million was repaid under this facility. As of December 31, 2017, $74.8 million was outstanding under this facility and there was no available undrawn amount. As of December 31, 2017, this facility was secured by one of our Newcastlemax vessels, two Capesize vessels and one Panamax vessel.

$420.0 Million Term Loan Facility

In June 2014, we entered into a term loan facility of up to $420.0 million, dependent on the market values of the vessels at the time of draw down, consisting of 14 tranches of up to $30.0 million to finance, in part, 14 newbuilding vessels. Each tranche is repayable by quarterly installments based on a 20-years profile from the delivery date of each vessel and all amounts outstanding shall be repaid on June 30, 2020. The facility has an interest rate of LIBOR plus a margin of 2.5%. In January 2016, following an accelerated repayment to comply with the minimum value covenant as of December 31, 2015, the quarterly repayment schedule was amended to $5.2 million, in total, for all 14 tranches.

During 2017, $36.1 million (2016: $7.3 million) was repaid and there have been no draw downs (2016: nil). As of December 31, 2017, $352.4 million (2016: $388.5 million) was outstanding under this facility and there was no available, undrawn amount. As of December 31, 2016, $15.5 million in repayments was deferred and subsequently repaid in 2017. As of December 31, 2017, there were no deferred repayments under this facility following the termination of the amended terms in October 2017. See "-Loan Amendments and Covenants" above. The facility is secured by 14 (2016: 14) of our Capesize vessels.

$425.0 Million Senior Secured Post-Delivery Term Facility

In February 2015, we entered into a senior secured post-delivery term loan facility of up to $425.0 million, depending on the market values of the vessels at the time of draw down, to partially finance 14 newbuilding vessels. The facility was initially divided into 12 tranches of $30.0 million and two tranches of $32.5 million. Each tranche was originally repayable in quarterly payments of 1/80 of the drawn down amount and all amounts outstanding are to be repaid on the final maturity date of March 31, 2021. The loan bore interest at LIBOR plus a margin of 2.0%. In December 2015, the loan agreement was amended and the minimum level of the loan to value was increased from 55% to 70%. The margin was also amended to 2.20% plus LIBOR and the quarterly repayments changed from 1/80 to 1/64 of the drawn down amount. The amendment also allowed us to substitute the optional additional borrowers with another of our wholly owned subsidiaries.

During 2017, $20.9 million (2016: $2.3 million) was repaid and we drew down a total of $75.0 million (2016: $142.2 million) on delivery of three Capesize bulk carriers during the year. As of December 31, 2017, $220.9 million (2016: $166.7 million) was outstanding under this facility and there was $150.0 million available, undrawn amount. As of December 31, 2016, $7.6 million in repayments was deferred and subsequently repaid in 2017. As of December 31, 2017, there were no deferred repayments under this facility following the termination of amended terms in October 2017. See "-Loan Amendments and Covenants" above. At December 31, 2017, this facility was secured by nine (2016: six) of our Capesize vessels.

$33.9 Million Credit Facility

We assumed this debt of $30.5 million as a result of the Merger. This facility financed two vessels and bears interest of LIBOR plus a margin of 2.75%. Repayments are made on a quarterly basis, each in an amount $0.6 million, with a balloon payment of $22.6 million on the final maturity date of May 27, 2018.

During 2017, $4.0 million (2016: $0.6 million) was repaid and there have been no draw downs (2016: nil). As of December 31, 2017, $24.3 million (2016: $28.3 million) was outstanding under this facility and there was no available, undrawn amount. As of December 31, 2016, $1.7 million in repayments was deferred and subsequently repaid in 2017. As of December 31, 2017, there were no deferred repayments under this facility following the termination of the amended terms in October 2017. See "-Loan Amendments and Covenants" above. At December 31, 2017, this facility was secured by two (2016: two) of our Panamax vessels.


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$82.5 Million Credit Facility

We assumed this debt of $67.8 million as a result of the Merger. This facility financed six vessels and bears interest of LIBOR plus a margin of 2.75%. Repayments are made on a quarterly basis, each in an amount $1.2 million, with a balloon payment of $32.0 million on the final maturity date on October 31, 2018.

During 2017, $8.6 million (2016: $3.2 million) was repaid and there have been no draw downs (2016: nil). As of December 31, 2017, $35.7 million (2016: $44.4 million) was outstanding under this facility and there was no available, undrawn amount. As of December 31, 2016, $3.7 million in repayments was deferred and subsequently repaid in 2017. As of December 31, 2017, there were no deferred repayments under this facility following the termination of the amended terms in October 2017. See "-Loan Amendments and Covenants" above. At December 31, 2017, this facility was secured by four (2016: four) of our Panamax vessels.

$284.0 Million Credit Facility

We assumed this debt of $260.5 million as a result of the Merger. This facility financed 19 vessels and bears interest of LIBOR plus a margin of 2.0%. Repayments are made on a quarterly basis, each in an amount $4.0 million, with a balloon payment of $202.5 million on the final maturity date on December 31, 2019.

During 2017, $67.7 million (2016: $4.0 million) was repaid and there have been no draw downs (2016: nil). As of December 31, 2017, $190.9 million (2016: $258.5 million) was outstanding under this facility and there was no available, undrawn amount. As of December 31, 2016, $12.0 million in repayments was deferred and subsequently repaid in 2017. As of December 31, 2017, there were no deferred repayments under this facility following the termination of the amended terms in October 2017. See "-Loan Amendments and Covenants" above. At December 31, 2017, this facility was secured by two (2016: two) of our Capesize vessels, 12 (2016: 12) Panamax vessels and two (2016: five) Ultramax vessels.

$200.0 Million Convertible Bond

In January 2014, the Former Golden Ocean issued a $200 million convertible bond with a five-year tenor and coupon of 3.07% per year, payable bi-annually in arrears. We assumed this obligation as a result of the Merger. The Convertible Bond has no regular repayments and matures in full on January 30, 2019. There are no financial covenants in the Convertible Bond agreement. The bonds will be redeemed at 100% of their principal amount and will, unless previously redeemed, converted or purchased and canceled, mature on January 30, 2019. We have a right to redeem the bonds at par plus accrued interest at any time during the term of the loan, provided that 90% or more of the bonds issued shall have been redeemed or converted to shares.

As a result of the private placement in February 2016, the conversion price of the Convertible Bond was changed to $88.15 per share, equaling 2,268,860 new shares if the bonds were converted at that price, subject to adjustment for any dividend payments in the future. As a further result of the dividend declared in February 2018 of $0.10 per share, the Conversion Price was adjusted on the Convertible Bond from $88.15 to $87.19 per share effective as of March 2, 2018, which was the ex-dividend date.

On December 15, 2017, we bought from an unaffiliated third party $9,400,000 notional in the Convertible Bond at a price of 96.85 % of par value, or approximately $9.1 million. The balance of the bond was $178.9 million as of December 31, 2017. In February 2018, we bought an additional $9.4 million notional in the convertible bond. As of the date of this annual report, we hold $18.8 million notional representing 9.4% in the convertible bond.

Related Party Seller Credits

In connection with the acquisition of two Panamax vessels from affiliates of Hemen in 2017, we assumed an aggregate of $22.5 million in debt under seller's credit agreements, non-amortizing until June 2019 and with an interest rate of LIBOR plus a margin of 3.0%.

In connection with the agreements to acquire two Capesize vessels from affiliates of Hemen in 2017, we entered into a non-amortizing seller's credit loan with an affiliate of Hemen for 50% of the purchase price of each vessel. Each loan bears interest at LIBOR plus a margin of 3.00% per annum and matures three years after delivery of each vessel. Following the delivery of Golden Behike in 2017, we have assumed $21.5 million in a seller's credit loan related to the vessel. In January 2018, we took delivery of Golden Monterrey and subsequently assumed a $21.5 million seller's credit as part of the consideration.

Other Activities


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In 2016, we received $2.4 million in respect of claims for unpaid charter hire under bareboat charters of the VLCCs Titan Venus and Mayfair. The receipt was recorded as bareboat charter revenue as it related to services previously rendered under such terms. This amount was received as fill and final settlement for the claims.

In February 2016, we and the lessor of the chartered-in vessel, Golden Hawk, agreed that the daily rate be reduced to $11,200 from $13,200 for two years from February 20, 2016. We also agreed that we will reimburse the lessor when the reduced daily rate exceeds the 6-T/C Baltic Exchange Supramax Index in any day during the two-year period with the maximum reimbursed amount capped at $1.75 million and that on February 20, 2022 we will pay to the lessor the difference between the amount reimbursed and $1.75 million.

During 2012 and 2013, the Former Golden Ocean canceled nine newbuilding contracts at Zhoushan Jinhaiwan Shipyard Co Ltd, or Jinhaiwan, and all of the cancellations were taken to arbitration by the shipyard. The Former Golden Ocean received positive awards on all contracts during 2014 and received $103.6 million during 2014 in respect of installments paid and accrued interest on three contracts. There were appeals to the High Court in London on the remaining contracts and the Former Golden Ocean was awarded full repayment on all remaining contracts at the end of 2014. The Former Golden Ocean received $72 million in the first quarter of 2015, in respect of installments paid and accrued interest on four of the six appealed contracts and used $9.6 million of this amount to repay debt. In April 2015, we received a final refund of $40.1 million on the two remaining appealed contracts. There was no debt associated with these last two contracts. We are in a process with the shipyard to recover our legal costs.


C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

We do not undertake any significant expenditure on research and development and have no significant interests in patents or licenses.
 
D. TREND INFORMATION

The market conditions for dry bulk vessels improved in 2017 compared with 2016. According to industry sources, global fleet utilization (calculated as total demand in tonne miles transported divided by total available fleet capacity) was on average 84.4% in 2017, up 3.2 percentage points from 81.2% in 2016. The utilization increased during the year and in the fourth quarter utilization was at 86.6%, up from 84.4% in the third quarter of 2017 and 83.3% in the fourth quarter of 2016.

According to the Baltic Exchange, average earnings for a Capesize were $15,128 per day for 2017 compared with $7,388 per day for 2016. For a Panamax average earnings for 2017 were $9,766 per day compared with $5,562 per day in 2016, and for a Supramax vessel average earnings were $6,236 per day in 2017 compared with $6,966 per day in 2016.

Transportation volumes for all major commodity groups trended higher in 2017 compared with 2016. Total seaborne volumes transported increased 4.5% from 4.28 billion tonnes in 2016 to 4.47 billion tonnes in 2017. In addition to the increase in tonnes transported, we also observed an increase in distance and hence also in tonne miles. According to industry sources, growth measured in capacity required to transport the commodities was approximately 5.4%.

Global steel production increased in 2017 compared with 2016, both in China and in the rest of the world. China represents approximately 50% of the total steel production. Due to increased demand, steel prices and steel margins remained steady during the year, and this contributed to keeping production at high levels. Exports from China dropped compared with 2016 as more of the produced steel was consumed domestically. China enforced restrictions on steel production and pollution from November 2017 to March 2018, which led to concern about the need for import of iron ore. However, the internationally produced iron ore was preferred over the domestically produced iron ore due to the quality and iron content. The price spread between high and low quality iron ore increased, following greater demand in higher grade iron ore. Due to growing stockpiles of iron ore, there is a risk going forward of drawdown of stock reserves, which could negatively impact imports. However, historically inventory usually builds up in the first quarter prior to a seasonal increase in construction.

Transported volumes of coal increased as well during 2017. The growth came primarily from imports to China and South Korea, while other major importers maintained their 2016 level. India experienced a marginal decline in imports. As China produces almost 90% of its total coal consumption, the imported volume will be the swing supply and we have observed volatility in these numbers over the years. Electricity consumption is growing in China and hydro power production capacity has not grown recently. New energy sources are increasing but coal generated electricity is still the main electricity source, representing as much as 73.5% of total production in 2017. South Korean import growth was a result of increased activity in their economy. India has aimed for self-sufficiency in coal production, but towards the end of 2017 its coal stock piles became critically low and there are signs that India will increase its coal imports at least in the short term.

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Global growth in transportation of agricultural product was 4.6% in 2017, and in the fourth quarter of 2017 tonne-mile demand for agribulks increased almost 10% year over year, mainly due to strong imports of soybean from China. Soy bean also had strong overall annual growth, followed by global corn trade, while global wheat trade grew slower than the average. Looking ahead, agriproducts should still show a steady growth, but supply of crops may be impacted by weather related factors.

The global fleet of dry bulk vessels amounted to 807 million dwt at the end of 2017 compared with 783 million dwt at the beginning of the year. In total, 38.3 million dwt was delivered in 2017 and 14.0 million dwt was removed from the global fleet, amounting to net fleet growth in 2017 of 24.2 million dwt, or 3% annual growth rate. Deliveries of newbuildings were down from the 47.0 million dwt delivered in 2016, as a consequence of the drop in the order book over the last few years.

The order book for 2018 is projected at 33 million dwt, 25% of which is composed of vessels originally scheduled to be delivered in 2017. Although, most of the slippage of the 2017 order book has been absorbed, there is still 6.5 million dwt scheduled for delivery within the first nine months of 2018 that has not commenced construction and an additional 8.0 million dwt that has potential for delay based on the production progress. Given recent market sentiment and rates, and assuming scrapping at similar low levels as in 2017, net fleet growth for 2018 is expected to be around 2%.

Asset prices increased in 2017 relative to 2016. The second-hand market was active in the beginning of the year, with a strong uplift in prices, but slowed down towards the end of the year. Following a small number of newbuilding orders placed in 2016, the better rate environment in 2017 triggered new newbuilding orders. According to industry sources, around 42.5 million dwt in newbuilding orders was placed during 2017. As a result of increased ordering, as well as increasing steel prices, we observe that shipyards are increasing newbuilding prices. This may dampen the demand for new orders, although optional contracts linked to already-reported orders are expected to be declared. This will increase the total order book further, but these incremental vessels are not expected to be delivered until 2020. Should there be further increases in time charter rates and newbuilding prices, there should be a corresponding increase in second-hand values.


E. OFF-BALANCE SHEET ARRANGEMENTS

We are committed to make rental payments under operating leases. The future minimum rental payments under our non-cancelable operating leases are disclosed below in "Tabular disclosure of contractual obligations".

Apart from the above, we are not subject to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition.


F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

At December 31, 2017, we had the following contractual obligations:
 
 
Payment due by period
 
 
 
 
Less than

 
 
 
 
 
More than

(in thousands of $)
 
Total

 
one year

 
1-3 years

 
3-5 years

 
5 years

Fixed rate debt1
 
190,600

 
—

 
190,600

 
—

 
—

Floating rate debt
 
1,069,537

 
109,671

 
938,266

 
21,600

 
—

Operating lease obligations 2
 
312,122

 
37,008

 
70,843

 
67,109

 
137,162

Capital lease obligations 3
 
13,679

 
5,944

 
7,735

 
—

 
—

Newbuilding commitments 4
 
144,630

 
144,630

 
—

 
—

 
—

Interest on fixed rate debt
 
7,818

 
5,851

 
1,967

 
—

 
—

Interest on floating rate debt 5
 
147,130

 
58,770

 
88,039

 
321

 
—

Interest on capital lease obligations
 
1,005

 
705

 
300

 
—

 
—

Total contractual cash obligations
 
1,886,521

 
362,579

 
1,297,750

 
89,030

 
137,162


1.
On December 15, 2017, we bought from an unaffiliated third party $9,400,000 notional in the Convertible Bond.
 

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2.
As of December 31, 2017, we had nine vessels under operating leases, of which eight were with Ship Finance. The operating lease obligation for the eight Ship Finance vessels excludes the purchase option exercisable at the end of the ten-year minimum term to buy back the vessels en-bloc for an aggregate $112.0 million and excludes the additional three years of hire that are at Ship Finance's option. It is also net of the $7,000 per day that Ship Finance pays to us for operating costs.

3.
As of December 31, 2017, we held one vessel under capital leases.

4.
The newbuilding commitments as of December 31, 2017 represent contractual commitments for five Capesize dry bulk newbuildings.

5.
Interest on floating rate debt was calculated using the three month USD LIBOR plus the agreed margin applicable for each of our credit facilities and the respective outstanding principal as of December 31, 2017.

The table above does not reflect our profit sharing arrangement with Ship Finance. Additionally, the table above does not reflect our cash sweep mechanism payments, which may become due under several of our loan facilities. See "Item 5–Operating and Financial Review and Prospects–B. Liquidity and Capital Resources" for a discussion of both items.

G. SAFE HARBOR
 
Forward-looking information discussed in this Item 5 includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as "forward-looking statements." We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material. Please see "Cautionary Statement Regarding Forward-Looking Statements" in this report.
 
ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.  DIRECTORS AND SENIOR MANAGEMENT

Set forth below are the names and positions of our directors and executive officers.

Name
 
Age
 
Position
Ola Lorentzon
 
68
 
Director and Chairman
Kate Blankenship
 
53
 
Director and Audit Committee member
John Fredriksen
 
73
 
Director
Gert-Jan van den Akker
 
59
 
Director
Georgina Sousa
 
67
 
Company Secretary
Birgitte Ringstad Vartdal

 
40
 
Chief Executive Officer of Golden Ocean Management AS
Per Heiberg
 
51
 
Chief Financial Officer of Golden Ocean Management AS
Thomas Semino
 
44
 
Chief Commercial Officer Golden Ocean Shipping Co Pte. Ltd.

Certain biographical information about each of our directors and executive officers is set forth below.

Ola Lorentzon is currently Chairman of the Board and has served as a director on the Board since September 18, 1996, Chairman since May 26, 2000 and our Chief Executive Officer from May 5, 2010 until March 31, 2015. Mr. Lorentzon is also a director of Frontline, Flex and Erik Thun AB.  Mr. Lorentzon was the Managing Director of Frontline Management AS, a subsidiary of Frontline, from April 2000 until September 2003.
 
Kate Blankenship was a director of the Former Golden Ocean and was appointed a director of the Board following the completion of the Merger. Mrs. Blankenship served as our Chief Financial Officer from April 2000 to September 2007 and served as our Secretary from December 2000 to March 2007. Mrs. Blankenship served as the Chief Accounting Officer and Secretary of Frontline between 1994 and October 2005. Mrs. Blankenship also serves as a director of Frontline, Ship Finance, Seadrill, Seadrill Partners LLC, NADL, Archer Limited, Independent Tankers Corporation Limited and Avance Gas Holding Ltd. She is a member of the Institute of Chartered Accountants in England and Wales. Mrs. Blankenship served as a director of Golar LNG Limited from July 2003 until September 2015 and Golar LNG Partners LP from September 2007 until September 2015.

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John Fredriksen was a director of the Former Golden Ocean and was appointed a director on the Board following the completion of the Merger. Mr. Fredriksen is the Chairman, President and a director of Frontline. Mr. Fredriksen has served as Chairman, President and a director of Seadrill since 2005. Mr. Fredriksen has established trusts for the benefit of his immediate family that indirectly control Hemen. From 2001 until September 2014, Mr. Fredriksen served as Chairman, President and a director of Golar LNG Limited.

Gert-Jan van den Akker was appointed a director of the Board following the completion of the Merger. Mr. van den Akker is President at Cargill Agricultural Supplychain Enterprise. In 2013 and 2014, Mr. van den Akker was the Senior Head of Region at Louis Dreyfus Commodities. Prior to joining Louis Dreyfus Commodities, Mr. van den Akker had 27 years of experience at Cargill where his last position was a platform leader for the global energy, transportation and metals platform.

Georgina E. Sousa has served as our Secretary since March 15, 2007 and has been employed by Frontline since February 2007.  Mrs. Sousa is also a director of Frontline and Seadrill. Mrs. Sousa previously served as a director of the Former Golden Ocean prior to the completion of the Merger, Ship Finance and NADL. Prior to joining Frontline, Mrs. Sousa was Vice-President-Corporate Services of Consolidated Services Limited, a Bermuda management company having joined that firm in 1993 as Manager of Corporate Administration. From 1976 to 1982, Mrs. Sousa was employed by the Bermuda law firm of Appleby, Spurling & Kempe as a Company Secretary and from 1982 to 1993 she was employed by the Bermuda law firm of Cox & Wilkinson as Senior Company Secretary.
 
Birgitte Ringstad Vartdal has served as Chief Executive Officer of Golden Ocean Management AS since April 2016. Mrs. Ringstad Vartdal was also previously the Chief Financial Officer of Golden Ocean Management AS, a position she held from June 2010. Prior to that, Mrs. Vartdal was the Vice President, Investments, in the Torvald Klaveness Group. Mrs. Vartdal has held other positions within the Torvald Klaveness Group, including serving as VP Head of Commercial Controlling, Risk Manager and Financial Analyst. Mrs. Vartdal was also previously a Structuring Analyst in Hydro Energy. Mrs. Vartdal currently serves as a director of Marine Harvest ASA. Mrs. Vartdal was Chair and a director of Sevan Drilling Ltd, a subsidiary of Seadrill, from July 2015 to August 2016, and a director of Sevan Drilling ASA from July 2013 to July 2015. Mrs. Vartdal holds the degree of Siv.Ing. (MSc) in Physics and Mathematics from the Norwegian University of Science and Technology (NTNU) and an MSc in Financial Mathematics from Heriot-Watt University, Scotland.

Per Heiberg has served as Chief Financial Officer of Golden Ocean Management AS since April 2016. Mr. Heiberg has been with the Company since July 2005, and his previous position was Vice President of Finance. Prior to joining Golden Ocean, he served as Back Office Officer for Electrabel Nordic. Mr. Heiberg also held several positions within Statkraft, including as Controller and Market Analyst. Mr. Heiberg holds a Bachelor's degree in administration and economics from the University College of Southeast Norway.

Thomas Semino has served as Chief Commercial Officer of Golden Ocean Shipping Co Pte. Ltd. since November 2016. Prior to joining Golden Ocean Mr. Semino was Head of Dry Freight in Vitol S.A., has previously been Managing Director of Ocean Freight in Bunge S.A., and also has background from Cargill S.A. and Coeclerici Spa. Mr. Semino has a law degree in Maritime Law from Universita' degli Studi di Genova.

B.  COMPENSATION

During the year ended December 31, 2017, we paid aggregate cash compensation of approximately $1.8 million and an aggregate amount of approximately $0.1 million for pension and retirement benefits to our directors and executive officers. In addition, we also recognized stock compensation expense of approximately $0.4 million in respect of 475,000 share options, which were granted to our executive officers in November 2016. The initial exercise price of these options was $4.2 per option and is reduced by the amount of dividends paid after the date of grant.

See Note 26 to our audited Consolidated Financial Statements included herein for information pertaining to the 2010 Equity Incentive Plan, under which directors, officers, employees, consultants and service providers to us and our subsidiaries and affiliates are eligible to receive options to acquire common stock, stock appreciation rights, restricted stock, restricted stock units and unrestricted common stock.

See Note 27 to our audited Consolidated Financial Statements included herein for information pertaining to the 2016 Share Option Plan, or the 2016 Scheme, which permits share options to be granted to directors, officers and employees of the Company and its subsidiaries.
C.  BOARD PRACTICES


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In accordance with our Amended and Restated Bye-laws, the number of directors shall be such number not less than two as our shareholders by Ordinary Resolution may from time to time determine. We currently have four directors.

As provided in the Amended and Restated Bye-Laws, each director shall hold office until the next Annual General Meeting following his or her election or until his or her successor is elected. Our officers are elected by the Board and shall hold office for such period and on such terms as the Board may determine.

We have established an audit committee comprised of Mrs. Blankenship. The audit committee is responsible for assisting the Board with its oversight responsibilities regarding the integrity of our financial statements, our compliance with legal and regulatory requirements, our independent registered public accounting firm's qualifications and independence, and the performance of our internal audit functions.

There are no service contracts between us and any of our directors providing for benefits upon termination of their employment.

Board practices and exemptions from the NASDAQ corporate governance rules

As a foreign private issuer, we are exempt from certain requirements of the NASDAQ Global Select Market that are applicable to U.S. domestic companies.
 
We have certified to NASDAQ that our corporate governance practices are in compliance with, and are not prohibited by, the laws of Bermuda. Accordingly, we are exempt from many of NASDAQ's corporate governance practices other than the requirements regarding the disclosure of a going concern audit opinion, submission of a listing agreement, notification of material non-compliance with NASDAQ corporate governance practices and the establishment and composition of an audit committee and a formal written audit committee charter. The practices that we follow in lieu of NASDAQ's corporate governance rules are as follows:

•
The Board is currently comprised by a majority of independent directors. Under Bermuda law, we are not required to have a majority of independent directors and cannot assure you that we will continue to do so.
•
In lieu of holding regular meetings at which only independent directors are present, the entire Board may hold regular meetings as is consistent with Bermuda law.
•
In lieu of an audit committee comprised of three independent directors, our audit committee has one member, which is consistent with Bermuda law. The member of the audit committee currently meets NASDAQ's requirement of independence.
•
In lieu of a nomination committee comprised of independent directors, the Board is responsible for identifying and recommending potential candidates to become board members and recommending directors for appointment to board committees. Shareholders are permitted to identify and recommend potential candidates to become board members, but pursuant to the Amended and Restated Bye-Laws, directors are elected by the shareholders in duly convened annual or special general meetings.
•
In lieu of a compensation committee comprised of independent directors, the Board is responsible for establishing the executive officers' compensation and benefits. Under Bermuda law, compensation of the executive officers is not required to be determined by an independent committee.
•
In lieu of obtaining an independent review of related party transactions for conflicts of interests, consistent with Bermuda law requirements, our Amended and Restated Bye-Laws do not prohibit any director from being a party to, or otherwise interested in, any transaction or arrangement with us or in which we are otherwise interested, provided that the director makes proper disclosure of same as required by the Amended and Restated Bye-Laws and Bermuda law.
•
Prior to the issuance of securities, we are required to obtain the consent of the Bermuda Monetary Authority as required by law. We have obtained blanket consent from the Bermuda Monetary Authority for the issue and transfer of our securities provided that such securities remain listed on a recognized stock exchange.
•
In lieu of obtaining shareholder approval prior to the issuance of securities, consistent with Bermuda law and our bye-laws, our board of directors approves share issuances.

•
Pursuant to NASDAQ corporate governance rules and as a foreign private issuer, we are not required to solicit proxies or provide proxy statements to NASDAQ. Bermuda law does not require that we solicit proxies or provide proxy statements to NASDAQ. Consistent with Bermuda law and as provided in the Amended and Restated Bye-Laws, we are also required

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to notify our shareholders of meetings no less than five days before the meeting. Our Amended and Restated Bye-Laws also provide that shareholders may designate a proxy to act on their behalf.

•
NASDAQ rules provide that the minimum quorum requirement for a meeting of shareholders is 33 1/3% of the outstanding common shares. The Company follows applicable Bermuda laws with respect to quorum requirements. The Company’s quorum requirement is set forth in its bye-laws, which provide that a quorum for the transaction of business at any meeting of shareholders is two or more shareholders either present in person or represented by proxy. If we only have one shareholder, then one shareholder present in person or proxy shall constitute the necessary quorum.

 
Other than as noted above, we are in full compliance with all other applicable NASDAQ corporate governance standards. Please see Item 16G of this annual report.

D.  EMPLOYEES

As of December 31, 2017, we employed 32 people in our offices in Oslo and Singapore. We contract with independent ship managers to manage and operate our vessels.

E.  SHARE OWNERSHIP

As of March 20, 2018, the beneficial interests of our Directors and officers in our common shares were as follows:
Director or Officer
Common Shares of $0.05 each

Percentage of Common Shares Outstanding

Ola Lorentzon
16,877

(1)

Birgitte Ringstad Vartdal

11,300

(1)

Gert-Jan van den Akker
—

—

Kate Blankenship
5,901

(1)

John Fredriksen (2)
—

—

Thomas Semino
50,000

(1)

Per Heiberg
3,000

(1)

Georgina Sousa

—

—


1.
Less than 1%.
2.
Hemen may be deemed to beneficially own 52,023,779 of our common shares. In addition, Hemen holds TRS agreements with underlying exposure to 4,500,000 of our common shares. See “Item 7. Major Shareholders and Related Party Transactions-A. Major Shareholders” below. Hemen, a Cyprus holding company, is indirectly controlled by trusts established by Mr. Fredriksen, for the benefit of his immediate family. Mr. Fredriksen disclaims beneficial ownership of the common shares held by Hemen, except to the extent of his voting and dispositive interest in such common shares. Mr. Fredriksen has no pecuniary interest in the shares held by Hemen.

Share Option Scheme
2016 Share Option Plan

Details of options to acquire our common shares by our directors and officers under the 2016 Scheme as of March 20, 2018, were as follows:
 
Director or Officer
Number of options
 
 
Exercise price
 
Expiration Date
Total

 
Vested

 
Birgitte Ringstad Vartdal
 
225,000

 
75,000

 
USD 4.10

 
November 2021
Per Heiberg
100,000

 
33,333

 
USD 4.10


 
November 2021

Thomas Semino
100,000

 
—

 
USD 4.10

 
November 2021


See Note 32, Subsequent events, to our audited Consolidated Financial Statements included herein for information pertaining to options exercised in 2018 as of the date of this report.
ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

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A.  MAJOR SHAREHOLDERS

The following table presents certain information as of March 20, 2018 regarding the ownership of our common shares with respect to each shareholder whom we know to beneficially own more than 5% of our outstanding common shares.

Owner
Number of shares owned

Percentage owned

Hemen Holding Limited (1,2) 
52,023,779

35.7
%
Riverstone(3,4)
10,847,447

7.5
%
Folketrygdfondet (3,5)
7,348,284

5.1
%
 
(1) Percentage amount based on 145,674,466 common shares as of March 20, 2018, which includes the shares issuable pursuant to the Convertible Bond to Hemen.

(2) Hemen may be deemed to beneficially own 1,270,657 of our common shares beneficially owned by Frontline. Hemen also owns $124.4 million of the Convertible Bond, which is convertible into 1,426,769 of our common shares at an exercise price of $87.19 per share. Hemen may also be deemed to beneficially own 3,500,000 of our common shares it has lent to Farahead Investments Inc., or Farahead. The Frontline, Convertible Bond and Farahead shares are included in the 52,023,779 shares that Hemen may be deemed to beneficially own. In addition, Hemen holds TRS agreements with underlying exposure to 4,500,000 of our common shares. Hemen, a Cyprus holding company, is indirectly controlled by trusts established by Mr. Fredriksen, for the benefit of his immediate family. Mr. Fredriksen disclaims beneficial ownership of the common shares held by Hemen, except to the extent of his voting and dispositive interest in such shares of common stock. Mr. Fredriksen has no pecuniary interest in the shares held by Hemen.

(3) Percentage amount based on 144,247,697 common shares outstanding as of March 20, 2018.

(4) The beneficial ownership is based on the latest available filing made with the Commission on Schedule 13G/A on October 4, 2017, which reported sole voting and dispositive power over the shares by Riverstone Quintana Shipping Holdco, LLC, Riverstone/Carlyle Global Energy and Power Fund IV (Cayman), L.P., Riverstone/Carlyle Energy Partners IV (Cayman), L.P., R/C GP IV Cayman LLC I, Riverstone/Carlyle Energy Partners IV, L.P. and R/C Energy GP IV, LLC. The business address of Riverstone Quintana Shipping Holdco, LLC, Riverstone/Carlyle Global Energy and Power Fund IV (Cayman), L.P., Riverstone/Carlyle Energy Partners IV (Cayman), L.P., R/C GP IV Cayman LLC I, Riverstone/Carlyle Energy Partners IV, L.P. and R/C Energy GP IV, LLC as reported on the Schedule 13G/A filed with the Commission on October 4, 2017 is 712 Fifth Ave., 36th Floor New York, NY 10019.

(5) The beneficial ownership is based on the latest available filing made with the Commission on Schedule 13G/A on February 13, 2018, which reported sole voting and dispositive power over the shares by Folketrygdfondet. The business address of Folketrygdfondet as reported on the Schedule 13G/A filed with the Commission on February 13, 2018 is Haakon VII’s Gate 2, P.O. Box 1845 Vika, 0123 Oslo, Norway.

Our major shareholders have the same voting rights as our other shareholders. No corporation or foreign government owns more than 50% of our outstanding common shares. We are not aware of any arrangements, the operation of which may at a subsequent date result in a change in control of the Company.

B.  RELATED PARTY TRANSACTIONS
 
See Note 28 to our audited Consolidated Financial Statements included herein.

C.  INTERESTS OF EXPERTS AND COUNSEL

Not applicable.

ITEM 8. FINANCIAL INFORMATION

A.  CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

See Item 18.

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Legal Proceedings

We are a party, as plaintiff or defendant, to several lawsuits in various jurisdictions for demurrage, damages, off-hire and other claims and commercial disputes arising from the operation of our vessels, in the ordinary course of business or in connection with our acquisition activities. We believe that the resolution of such claims will not have a material adverse effect on our operations or financial condition.

In 2016, we received a final arbitration award relating to a time charter party entered into in March 2006. The claimants were awarded approximately $9.8 million in total. The claim itself was an unsafe port allegation which falls under our protection and indemnity insurance and will be covered by our insurance company. In January 2018, a final settlement agreement was made between the parties involved, and we received $0.2 million as compensation for agreed off-hire and reimbursement of costs.

Except as described above, to the best of our knowledge, there are no other legal or arbitration proceedings existing or pending which have had or may have significant effects on our financial position or profitability and no such proceedings are pending or known to be contemplated.

Dividend Distribution Policy
 
The amount and timing of any dividend distributions in the future will depend, among other things, on our compliance with covenants in our credit facilities, earnings, financial condition, cash position, Bermuda law affecting the dividend distributions, restrictions in our financing agreements and other factors. In addition, the declaration and payment of dividend distributions is subject at all times to the discretion of our Board.

B.  SIGNIFICANT CHANGES
 
None.
 
ITEM 9.  THE OFFER AND LISTING

Our common shares have been quoted on the NASDAQ Global Select Market, or NASDAQ, since our initial public offering in February 1997 and traded under the ticker symbol "VLCCF". Following the completion of the Merger with the former Golden Ocean on March 31, 2015, our common shares began trading under the new ticker symbol "GOGL" on NASDAQ since April 1, 2015.

In April 2015, we obtained a secondary listing on the OSE. Trading in our common shares on the OSE commenced on April 1, 2015 under the ticker symbol "VLCCF". On April 7, 2015, we obtained a new ticker symbol “GOGL” for the common shares traded on the OSE and trading under the new ticker symbol commenced since then.

The prices in the tables below are adjusted for the one-for-five reverse stock split, completed on August 1, 2016.

The following table sets forth, for the five most recent fiscal years during which our common shares were traded on NASDAQ and OSE, the annual high and low prices for the common shares as reported by NASDAQ and OSE.

 
NASDAQ
OSE
Fiscal year ended December 31,
High

 
Low

High

 
Low

2017

$9.95

 

$4.65

NOK 77.00

 
NOK 39.30

2016

$5.35

 

$2.55

NOK 46.69

 
NOK 21.30

2015

$29.49

 

$4.85

NOK 219.3

 
NOK 39.47

2014

$81.60

 

$17.85

—

 
—

2013

$53.45

 

$26.55

—

 
—

2012

$79.05

 

$24.70

—

 
—


The following table sets forth the high and low prices for the common shares as reported by NASDAQ and OSE for the periods indicated.


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NASDAQ
OSE
Fiscal year ended December 31, 2017
High

 
Low

High

 
Low

First quarter

$8.30

 

$4.65

NOK 71.00

 
NOK 39.30

Second quarter

$9.05

 

$5.43

NOK 77.00

 
NOK 46.09

Third quarter

$9.95

 

$5.82

NOK 76.09

 
NOK 49.70

Fourth quarter

$8.59

 

$7.01

NOK 73.45

 
NOK 57.55

 
 
 
 
 
 
 
Fiscal year ended December 31, 2016
High

 
Low

High

 
Low

First quarter

$5.35

 

$2.55

NOK 46.69

 
NOK 21.30

Second quarter

$4.90

 

$3.10

NOK 38.00

 
NOK 26.80

Third quarter

$4.63

 

$3.22

NOK 37.80

 
NOK 27.40

Fourth quarter

$5.08

 

$3.50

NOK 42.90

 
NOK 27.60

 
 
 
 
 
 
 
Fiscal year ended December 31, 2015
High

 
Low

High

 
Low

First quarter

$14.30

 

$4.85

—

 
—

Second quarter

$23.15

 

$12.05

NOK 219.30

 
NOK 130.85

Third quarter

$29.49

 

$17.55

NOK 183.24

 
NOK 101.85

Fourth quarter

$28.45

 

$19.38

NOK 111.60

 
NOK 39.47


The following table sets forth, for the most recent six months, the high and low prices for the common shares as reported by NASDAQ and OSE.
 
NASDAQ
OSE
Month
High

 
Low

High
 
Low
March 2018 (through March 16, 2018)

$8.78

 

$8.56

NOK 67.65
 
NOK 65.90
February 2018

$9.58

 

$7.85

NOK 74.45
 
NOK 61.60
January 2018

$9.35

 

$8.07

NOK 75.30
 
NOK 65.30
December 2017

$8.82

 

$7.80

NOK 73.45
 
NOK 64.15
November 2017

$8.32

 

$7.01

NOK 68.15
 
NOK 57.55
October 2017

$8.59

 

$7.69

NOK 68.80
 
NOK 61.50
September 2017

$9.74

 

$7.74

NOK 76.10
 
NOK 61.00
 
ITEM 10.  ADDITIONAL INFORMATION

A.  SHARE CAPITAL

Not applicable.

B.  MEMORANDUM AND ARTICLES OF ASSOCIATION

Our Amended and Restated Bye-Laws were adopted at the Special General Meeting held on March 26, 2015.

To see the full text of our Memorandum of Association and Amended and Restated Bye-Laws, please see Exhibits 1.1 and 1.4 attached to our Annual Report on Form 20-F for the year ended December 31, 2014 filed with the Commission on April 29, 2015, and is hereby incorporated by reference into this Annual Report.

Purpose

The purposes and powers of the Company are set forth in Items 6 and 7(a) through (h) of our amended Memorandum of Association and by reference to the Second Schedule of the Companies Act. These purposes include exploring, drilling, moving, transporting and refining petroleum and hydro-carbon products, including oil and oil products; acquiring, owning, chartering, selling, managing and operating ships and aircraft; the entering into of any guarantee, contract, indemnity or suretyship to assure, support, secure,

73


with or without the consideration or benefit, the performance of any obligations of any person or persons; and the borrowing and raising of money in any currency or currencies to secure or discharge any debt or obligation in any manner.

There are no limitations on the right of non-Bermudians or non-residents of Bermuda to hold or vote our common shares.

Voting Rights

The holders of our common shares will be entitled to one vote per share on each matter requiring the approval of the holders of the common shares. At any annual or special general meeting of shareholders where there is a quorum, a simple majority vote will generally decide any matter, unless a different vote is required by express provision of the Amended and Restated Bye-Laws or Bermuda law.

The Companies Act and our Amended and Restated Bye-Laws do not confer any conversion or sinking fund rights attached to our common shares.

Preemptive Rights

Bermuda law does not provide a shareholder with a preemptive right to subscribe for additional issues of a company’s shares unless, and to the extent that, the right is expressly granted to the shareholder under the bye-laws of a company or under any contract between the shareholder and the company.

Holders of our common shares do not have any preemptive rights pursuant to the Amended and Restated Bye-Laws.

Repurchase of Shares

Subject to the Companies Act, the Memorandum of Association and the Amended and Restated Bye-Laws, our Board may from time to time repurchase any common shares for cancellation or to be held as treasury shares.

Holders of our common shares, however, do not have any right to require the Company to purchase their shares pursuant to the Amended and Restated Bye-Laws.

Redemption of Preference Shares

The Company may with the approval of the shareholders issue preference shares which are redeemable at the option of the Company or the holder, subject to the Companies Act, the Memorandum of Association and the Amended and Restated Bye-Laws.

Call on Shares

Pursuant to the Amended and Restated Bye-Laws, the Board may from time to time make calls upon our shareholders in respect of any moneys unpaid on their shares.

Reduction of Share Capital

Subject to the Companies Act, the Memorandum of Association and the Amended and Restated Bye-Laws, the shareholders may by resolution authorize the reduction of the Company’s issued share capital or any capital redemption reserve fund or any share premium account in any manner.

Dividend and Other Distributions

Under the Companies Act, a company may, subject to its bye-laws and by resolution of the directors, declare and pay a dividend, or make a distribution out of contributed surplus, provided there are reasonable grounds for believing that after any such payment (a) the company will be solvent and (b) the realizable value of its assets will be greater than its liabilities.

The Amended and Restated Bye-Laws provide that the Board from time to time may declare cash dividends or distributions out of contributed surplus to be paid to the shareholders according to their rights and interests including such interim dividends as appear to be justified by the position of the Company.

Board of Directors


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The Amended and Restated Bye-Laws provide that the Board shall consist of not less than two members and shall at all times comprise a majority of directors who are not residents in the United Kingdom or Norway. Our shareholders may change the number of directors by the vote of shareholders representing a simple majority of the total number of votes which may be cast at any annual or special general meeting, or by written resolution. Each director is elected at an annual general meeting of shareholders for a term commencing upon election and each director shall serve until re-elected or their successors are appointed on the date of the next scheduled annual general meeting of shareholders. The Amended and Restated Bye-Laws do not permit cumulative voting for directors.

Subject to the Companies Act, the Amended and Restated Bye-Laws permit our directors to engage in any transaction or arrangement with us or in which we may otherwise be interested. Additionally, as long as our director declares the nature of his or her interest at the first opportunity at a meeting of the Board, he or she shall not by reason of his office be accountable to us for any benefit which he or she derives from any transaction to which the Amended and Restated Bye-Laws permit him or her to be interested.

Our directors are not required to retire because of their age and are not required to be holders of our common shares.

Removal of Directors and Vacancies on the Board

Under the Companies Act, any director may be removed, with or without cause, by a vote of the majority of shareholders if the bye-laws so provide. A company may remove a director by specifically convening a special general meeting of the shareholders. The notice of any such special general meeting must be served on the director concerned no less than fourteen (14) days before the special general meeting. The affected director is entitled to be heard at that special general meeting.

The Amended and Restated Bye-Laws provide that directors may be removed, with or without cause, by a vote of the shareholders representing a majority of the votes present and entitled to vote at a special general meeting called for that purpose. The notice of any such special general meeting must be served on the director concerned no less than 14 days before the special general meeting and he or she shall be entitled to be heard at that special general meeting.

Any director vacancy created by the removal of a director from our Board at a special general meeting may be filled by the election of another director in his place by a majority vote of the shareholders entitled to vote at the special general meeting called for the purpose of removal of that director, or in the absence of such election, by the Board. The Board may fill casual vacancies so long as quorum of directors remains in office. Each director elected to the Board to fill a vacancy shall serve until the next annual general meeting of shareholders and until a successor is duly elected and qualified or until such director’s resignation or removal.

Quorum and Action by the Board of Directors

The Amended and Restated Bye-Laws provide that at any meeting of the Board (which must be held outside of the United Kingdom or Norway), the presence of the majority of the Board, unless otherwise fixed, constitutes a quorum for the transaction of business and that when a quorum is present, the acts of a majority of the directors present at any meeting shall be the acts of the Board, except as may be otherwise specified by Bermuda law or the Amended and Restated Bye-Laws. A quorum shall not be present unless a majority of directors present are neither resident in Norway nor physically located or resident in the United Kingdom.

A resolution in writing signed by all directors for the time being entitled to receive notice of a meeting of the Board shall be as valid and effectual as a resolution passed at a meeting of the Board.

A meeting of the Board or committee appointed by the Board shall be deemed to take place at the place where the largest group of participating directors or committee members has assembled or, if no such group exists, at the place where the chairman of the meeting participates. In no event shall the place where the largest group of participating directors or committee members has assembled or, if no such group exists, the place where the chairman of the meeting participates, be located in the United Kingdom. The Board or relevant committee shall use its best endeavors to ensure that any such meeting is not deemed to have been held in Norway, and the fact that one or more directors may be present at such teleconference by virtue of his being physically in Norway shall not deem such meeting to have taken place in Norway.

Duties of Directors and Officers; Limitation of Liability

Under Bermuda law, directors and officers shall discharge their duties in good faith and with that degree of diligence, care and skill which reasonably prudent people would exercise under similar circumstances in like positions. In discharging their duties, directors and officers may rely upon financial statements of the corporation represented to them to be correct by the president or the officer having charge of its books or accounts or by independent accountants.


75


The Companies Act provides that a company’s bye-laws may include a provision for the elimination or limitation of liability of a director to the company or its shareholders for any loss arising or liability attaching to him by virtue of any rule of law in respect to any negligence, default, breach of any duty or breach of trust of which the director may be guilty of; provided that such provision shall not eliminate or limit the liability of a director for any fraud or dishonesty he may be guilty of.

The Amended and Restated Bye-Laws limit the liability of our directors and officers to the fullest extent permitted by the Companies Act.

Director Indemnification

Bermuda law permits the bye-laws of a Bermuda company to contain a provision indemnifying the company’s directors and officers for any loss arising or liability attaching to him or her by virtue of any rule of law in respect of any negligence, default, breach of duty or breach of trust of which the officer or person may be guilty, save with respect to fraud or dishonesty. Bermuda law also grants companies the power generally to indemnify directors and officers of a company, except in instances of fraud and dishonesty, if any such person was or is a party or threatened to be made a party to a threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was a director and officer of such company or was serving in a similar capacity for another entity at such company’s request.

The Amended and Restated Bye-Laws provide that each director, alternate director, officer, person or member of a board committee, if any, resident representative, and his or her heirs, executors or administrators, collectively, Indemnitees, will be indemnified and held harmless out of our assets to the fullest extent permitted by Bermuda law against all liabilities, loss, damage or expense (including but not limited to liabilities under contract, tort and statute or any applicable foreign law or regulation and all reasonable legal and other costs and expenses properly payable) incurred or suffered by him or her as such director, alternate director, officer, person or committee member or resident representative. The restrictions on liability, indemnities and waivers provided for in the Amended and Restated Bye-Laws do not extend to any matter that would render the same void under the Companies Act. In addition, each Indemnitee shall be indemnified out of our assets against all liabilities incurred in defending any proceedings, whether civil or criminal, in which judgment is given in such Indemnitee’s favor, or in which he or she is acquitted.

Under the Amended and Restated Bye-Laws, shareholders have further agreed to waive any claim or right of action they may have at any time against any Indemnitee on account of any action taken by such Indemnitee or the failure of such Indemnitee to take any action in the performance of his or her duties with or for the Company with the exception of any claims or rights of action arising out of fraud or dishonesty

Shareholder Meetings

Under the Companies Act, an annual general meeting of the shareholders shall be held for the election of directors on any date or time as designated by or in the manner provided for in the bye-laws and held at such place within or outside Bermuda as may be designated in the bye-laws. Any other proper business may be transacted at the annual general meeting.

Under the Companies Act, any meeting that is not the annual general meeting is called a special general meeting, and may be called by the Board or by such persons as authorized by the corporation’s memorandum of association or bye-laws. Under the Companies Act, holders of one-tenth of a company’s issued common shares may also call special general meetings. At such special general meeting, only business that is related to the purpose set forth in the required notice may be transacted. Additionally, under Bermuda law, a company may, by resolution at a special general meeting, elect to dispense with the holding of an annual general meeting for (a) the year in which it is made and any subsequent year or years; (b) for a specified number of years; or (c) indefinitely.
Under the Companies Act, notice of any general meeting must be given not less than five (5) days before the meeting and shall state the place, date and hour of the meeting and, in the case of a special general meeting, shall also state the purpose of such meeting and the that it is being called at the direction of whoever is calling the meeting. Under Bermuda law, accidental failure to give notice will not invalidate proceedings at a general meeting.

Annual General Meetings. The Amended and Restated Bye-Laws provide that the Board may fix the date, time and place of the annual general meeting within or without Bermuda (but never in the United Kingdom or Norway) for the election of directors and to transact any other business properly brought before the meeting.

Special General Meetings. The Amended and Restated Bye-Laws provide that special general meetings may be called by the Board and when required by the Companies Act (i.e. by holders of one-tenth of a company’s issued common shares through a written request to the Board).


76


Notice Requirements. The Amended and Restated Bye-Laws provide that we must give not less than five (5) days notice before any annual or special general meeting.

Quorum of Shareholders

Under the Companies Act, where the bye-laws so provide, a general meeting of the shareholders of a company may be held with only one individual present if the requirement for a quorum is satisfied and, where a company has only one shareholder or only one holder of any class of shares, the shareholder present in person or by proxy constitutes a general meeting.

Under the Amended and Restated Bye-Laws, quorum at annual or special general meetings shall be constituted by two or more shareholders either present in person or represented by proxy. If we only have one shareholder, then one shareholder present in person or proxy shall constitute the necessary quorum.

Shareholder Action without a Meeting

Under the Companies Act, unless the company’s bye-laws provide otherwise, any action required to or that may be taken at an annual or general meeting can be taken without a meeting if a written consent to such action is signed by the necessary majority of the shareholders entitled to vote with respect thereto.

The Amended and Restated Bye-Laws provide that, except in the case of the removal of auditors and directors, anything which may be done by resolution may, without an annual or special general meeting be done by resolution in writing, signed by a simple majority of all the shareholders or their proxies (or such greater majority required by the Companies Act).

Shareholder’s Rights to Examine Books and Records

Under the Companies Act, any shareholder, during the usual hours of business, may inspect, for a purpose reasonably related to his or her interest as a shareholder, and make copies of extracts from the share register, and minutes of all general meetings.

Amendments to Memorandum of Association

Under Bermuda law, a company may, by resolution passed at an annual or special general meeting of shareholders, alter the provisions of the memorandum of association. An application for alteration can only be made by (i) holders of not less in the aggregate than 20% in par value of a company’s issued share capital, (ii) by holders of not less in the aggregate that 20% of the company’s debentures entitled to object to alterations to the memorandum, or (iii) in the case a company that is limited by guarantee, by not less than 20% of the shareholders.

Variation in Shareholder Rights

Under Bermuda law, if at any time a company has more than one class of shares, the rights attaching to any class, unless otherwise provided for by the terms of issue of the relevant class, the rights attached to any class of share may be varied with (i) the consent in writing of the holders of 75% in nominal value of the issued shares of that class, or (ii) the sanction of a resolution passed at a separate general meeting of holders of the shares of the class at which a quorum consisting of at least two persons holding or representing of one-third of the issued shares of the relevant class is present.

The Amended and Restated Bye-Laws may be amended from time to time in the manner provided for in the Companies Act.

Vote on Amalgamations, Mergers, Consolidations and Sales of Assets

Under the Companies Act, any plan of merger or amalgamation must be authorized by the resolution of a company’s shareholders and must be approved by a majority vote of three-fourths of those shareholders voting at such special general meeting. Also, it is required that a quorum of two or more persons holding or representing more than one-third (1/3) of the issued and outstanding common shares of the company on the Record Date are in attendance in person or by proxy at such special general meeting.

There are no provisions in our Amended and Restated Bye-Laws addressing such matters.

Appraisal and Dissenters Rights

Under Bermuda law, in the event of an amalgamation or a merger of a Bermuda company with another company or corporation, a shareholder of the Bermuda company who did not vote in favor of the amalgamation or merger and is not satisfied that fair value

77


has been offered for such shareholder’s shares may, within one month of notice of the special general meeting, apply to the Supreme Court of Bermuda to appraise the fair value of those shares.

Derivative Actions

Class actions and derivative actions are generally not available to shareholders under Bermuda law. Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company, or illegal, or would result in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than that which actually approved it. However, generally a derivative action will not be permitted where there is an alternative action available that would provide an adequate remedy. Any property or damages recovered by derivative action go to the company, not to the plaintiff shareholders. When the affairs of a company are being conducted in a manner which is oppressive or prejudicial to the interests of some part of the shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company or that the company be wound up.

A statutory right of action is conferred on subscribers to shares of a Bermuda company against persons (including directors and officers) responsible for the issue of a prospectus in respect of damage suffered by reason of an untrue statement contained in the prospectus, but this confers no right of action against the Bermuda company itself. In addition, subject to any limitations that may be contained in the company’s bye-laws, a shareholder may bring a derivative action on behalf of the company to enforce a right of the company (as opposed to a right of its shareholders) against its officers (including directors) for breach of their statutory and fiduciary duty to act honestly and in good faith with a view to the best interests of the company.

The Amended and Restated Bye-Laws contain provisions whereby each shareholder (i) agrees that the liability of our officers shall be limited, (ii) agrees to waive any claim or right of action such shareholder might have, whether individually or in the right of the Company, against any director, alternate director, officer, person or member of a committee, resident representative or any of their respective heirs, executors or administrators for any action taken by any such person, or the failure of any such person to take any action, in the performance of his or her duties, or supposed duties, to the Company or otherwise, and (iii) agrees to allow us to indemnify and hold harmless our officers and directors in respect of any liability attaching to such officer and director incurred by him or her as an officer or director of the Company. The restrictions on liability, indemnity and waiver do not extend to any liability of an officer or director for fraud or dishonesty.

Liquidation

Under Bermuda Law, in the event of our liquidation, dissolution or winding up, the holders of common shares are entitled to share in our assets, if any, remaining after the payment of all of our debts and liabilities, subject to any liquidation preference on any outstanding preference shares.

C.  MATERIAL CONTRACTS

Attached and incorporated by reference as exhibits 4.4 and 4.5 to this Annual Report are the contracts we consider to be both material and not in the ordinary course of business. Descriptions of these contracts are included within “Item 5. Operating and Financial Review and Prospects-B. Liquidity and Capital Resources-Vessel Transactions” and “Item 5. Operating and Financial Review and Prospects-B. Liquidity and Capital Resources-Equity Issuances.” Other than these contracts, we have no material contracts other than those entered in the ordinary course of business. 

D.  EXCHANGE CONTROLS

The Bermuda Monetary Authority, or the BMA, must give permission for all issuances and transfers of securities of a Bermuda exempted company like ours, unless the proposed transaction is exempted by the BMA's written general permissions. We have received general permission from the BMA to issue any unissued common shares and for the free transferability of our common shares as long as our common shares are listed on an "appointed stock exchange". Our common shares are listed on the NASDAQ Global Select Market, which is an "appointed stock exchange". Our common shares may therefore be freely transferred among persons who are residents and non-residents of Bermuda.

Although we are incorporated in Bermuda, we are classified as a non-resident of Bermuda for exchange control purposes by the BMA. Other than transferring Bermuda Dollars out of Bermuda, there are no restrictions on our ability to transfer funds into and

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out of Bermuda or to pay dividends to U.S. residents who are holders of common shares or other non-residents of Bermuda who are holders of our common shares in currency other than Bermuda Dollars.

In accordance with Bermuda law, share certificates may be issued only in the names of corporations, individuals or legal persons. In the case of an applicant acting in a special capacity (for example, as an executor or trustee), certificates may, at the request of the applicant, record the capacity in which the applicant is acting. Notwithstanding the recording of any such special capacity, we are not bound to investigate or incur any responsibility in respect of the proper administration of any such estate or trust.

We will take no notice of any trust applicable to any of our shares or other securities whether or not we had notice of such trust.

As an "exempted company", we are exempt from Bermuda laws which restrict the percentage of share capital that may be held by non-Bermudians, but as an exempted company, we may not participate in certain business transactions including: (i) the acquisition or holding of land in Bermuda (except that required for its business and held by way of lease or tenancy for terms of not more than 21 years) without the express authorization of the Bermuda legislature; (ii) the taking of mortgages on land in Bermuda to secure an amount in excess of $50,000 without the consent of the Minister of Finance of Bermuda; (iii) the acquisition of any bonds or debentures secured on any land in Bermuda except bonds or debentures issued by the Government of Bermuda or by a public authority in Bermuda; or (iv) the carrying on of business of any kind in Bermuda, except in so far as may be necessary for the carrying on of its business outside Bermuda or under a license granted by the Minister of Finance of Bermuda.

The Bermuda government actively encourages foreign investment in "exempted" entities like us that are based in Bermuda but do not operate in competition with local business. In addition to having no restrictions on the degree of foreign ownership, we are subject neither to taxes on our income or dividends nor to any exchange controls in Bermuda. In addition, there is no capital gains tax in Bermuda, and profits can be accumulated by us, as required, without limitation. There is no income tax treaty between the United States and Bermuda pertaining to the taxation of income other than applicable to insurance enterprises.

 E.  TAXATION
 
The following discussion summarizes the material United States federal income tax and Bermuda tax consequences to United States Holders, as defined below, of the purchase, ownership and disposition of common shares. This summary does not purport to deal with all aspects of United States federal income taxation and Bermuda taxation that may be relevant to an investor's decision to purchase our common shares, nor any tax consequences arising under the laws of any state, locality or other foreign jurisdiction.

United States Federal Income Tax Considerations

In the opinion of Seward & Kissel LLP, our United States counsel, the following are the material United States federal income tax consequences to us of our activities and to United States Holders of our common shares. The following discussion of United States federal income tax matters is based on the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the U.S. Department of the Treasury, all of which are subject to change, possibly with retroactive effect. Except as otherwise noted, this discussion is based on the assumption that we will not maintain an office or other fixed place of business within the United States.

Taxation of Our Shipping Income: In General

We anticipate that we will derive substantially all of its gross income from the use and operation of vessels in international commerce and that this income will principally consist of freights from the transportation of cargoes, charterhire from time or voyage charters and the performance of services directly related thereto, which is referred to herein as "shipping income".

Shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States will be considered to be 50% derived from sources within the United States. Shipping income attributable to transportation that both begins and ends in the United States will be considered to be 100% derived from sources within the United States. We are not permitted by law to engage in transportation that gives rise to 100% United States source income.

Shipping income attributable to transportation exclusively between non-United States ports will be considered to be 100% derived from sources outside the United States. Shipping income derived from sources outside the United States will not be subject to United States federal income tax.

Based upon our current and anticipated shipping operations, our vessels will operate in various parts of the world, including to or from United States ports. Unless exempt from United States federal income taxation under Section 883 of the Code, or Section

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883, we will be subject to United States federal income taxation, in the manner discussed below, to the extent our shipping income is considered derived from sources within the United States.

Application of Section 883

Under the relevant provisions of Section 883, we will be exempt from United States federal income taxation on its United States source shipping income if:

i.
We are organized in a "qualified foreign country", which is one that grants an equivalent exemption from taxation to corporations organized in the United States in respect of the shipping income for which exemption is being claimed under Section 883, and which is referred to herein as the "country of organization requirement"; and
ii.
We can satisfy any one of the following two ownership requirements for more than half the days during the taxable year:
•
Our stock is "primarily and regularly" traded on an established securities market located in the United States or a qualified foreign country (such as NASDAQ Global Select Market, on which our common shares trade), which is referred to herein to as the "Publicly-Traded Test"; or
•
more than 50% of our stock, in terms of value, is beneficially owned by one or more "qualified shareholders" which, as defined, includes individuals who are residents of a qualified foreign country or foreign corporations that satisfy the country of organization requirement and the Publicly-Traded Test.

The United States Treasury Department has recognized Bermuda, our country of incorporation, as a qualified foreign country. In addition, the United States Treasury Department has recognized Liberia, the country of incorporation of certain of our vessel-owning subsidiaries, as a qualified foreign country. Accordingly, we and our vessel owning subsidiaries satisfy the country of organization requirement.

Therefore, our eligibility for exemption under Section 883 is wholly dependent upon being able to satisfy one of the stock ownership requirements.

For our 2017 taxable year, we believe that we satisfied the Publicly-Traded Test since its common shares were "primarily and regularly" traded on the NASDAQ Global Select Market, which is an “established securities market” in the United States within the meaning of the Treasury Regulation under Section 883 of the Code, and intends to take this position on its 2017 United States income tax returns. However, we can provide no assurance that we will continue to be able to satisfy these requirements for any future taxable years.
Under the Treasury Regulations, stock of a corporation will be considered to be “regularly traded” on an established securities market if one or more classes of stock of the corporation representing more than 50% of the total combined voting power of all classes of stock entitled to vote and of the total value of the stock of the corporation are listed on such market during the taxable year. Since our common shares, which constitute more than 50% of the total combined voting power and total value of our stock, are listed on the NASDAQ Global Select Market, we will satisfy the listing requirement.
It is further required that, with respect to each class of stock relied upon to meet the listing threshold, (i) such class of stock is traded on the market, other than in de minimis quantities, on at least 60 days during the taxable year or 1/6 of the days in a short taxable year; and (ii) the aggregate number of shares of such class of stock traded on such market is at least 10% of the average number of shares of such class of stock outstanding during such year or as appropriately adjusted in the case of a short taxable year. We believe we will satisfy the foregoing trading frequency and trading volume tests. Even if this were not the case, the Treasury Regulations provide that the foregoing trading frequency and trading volume tests will be deemed satisfied if, as we expect to be the case with our common shares, such class of stock is traded on an established securities market in the United States, such as the NASDAQ Global Select Market, and such stock is regularly quoted by dealers making a market in such stock.
Notwithstanding the foregoing, the Treasury Regulations provide, in pertinent part, that a class of our stock will not be considered to be “regularly traded” on an established securities market for any taxable year in which 50% or more of the vote and value of the outstanding shares of such class of stock are owned, actually or constructively, under specified stock attribution rules, on more than half the days during the taxable year by persons who each own 5% or more of the vote and value of the outstanding shares of such class of stock, which we refer to as the 5 Percent Override Rule.
For purposes of determining the persons that own 5% or more of our common shares, or “5% Shareholders,” the Treasury Regulations permit us to rely on those persons that are identified on Schedule 13G and Schedule 13D filings with the SEC, as having a 5% or more beneficial interest in our common shares. The Treasury Regulations further provide that an investment

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company identified on an SEC Schedule 13G or Schedule 13D filing that is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% Shareholder for such purposes. We currently do not believe that 5% Shareholders control more than 50% of the voting power or value of our common shares for more than half of the days in the taxable year, and therefore, we should not run afoul of the 5 Percent Override Rule.

Taxation in Absence of Section 883 Exemption

To the extent the benefits of Section 883 are unavailable with respect to any item of United States source income, our United States source shipping income, would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, which is referred to herein as the "4% gross basis tax regime". Since under the sourcing rules described above, no more than 50% of our shipping income would be treated as being derived from United States sources, the maximum effective rate of United States federal income tax on our shipping income would never exceed 2% under the 4% gross basis tax regime. Historically, the amount of this tax would not have been material.

Gain on Sale of Vessels

Regardless of whether we qualify for exemption under Section 883, we will not be subject to United States federal income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under United States federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States.

Taxation of United States Holders

The following is a discussion of the material United States federal income tax considerations relevant to an investment decision by a United States Holder, as defined below, with respect to the common shares. This summary is not intended to be applicable to all categories of investors, such as dealers in securities, traders in securities that elect the mark-to-market method of accounting, banks, thrifts or other financial institutions, insurance companies, regulated investment companies, tax-exempt organizations, United States expatriates, persons that hold common shares as part of a straddle, conversion transaction or hedge, persons who own 10% or more of our outstanding stock, persons deemed to sell common shares under the constructive sale provisions of the United States Internal Revenue Code of 1986, as amended, or the Code, United States Holder whose "functional currency" is other than the United States dollar, or holders subject to the alternative minimum tax, each of which may be subject to special rules. In addition, this discussion is limited to persons who hold common shares as "capital assets" (generally, property held for investment) within the meaning of Code Section 1221. This summary does not contain a detailed description of all the United States federal income tax consequences to United States Holders in light of their particular circumstances and does not address the Medicare tax on net investment income, or the effects of any state, local or non-United States tax laws. You are encouraged to consult your own tax advisor concerning the overall tax consequences arising in your own particular situation under United States federal, state, local or foreign law of the ownership of common shares.

As used herein, the term "United States Holder" means a beneficial owner of common shares that is a (i) United States individual citizen or resident, (ii) United States corporation or other United States entity taxable as a corporation, (iii) estate, the income of which is subject to United States federal income taxation regardless of its source, or (iv) trust if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust.

If a partnership holds common shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding common shares, you are encouraged to consult your own tax advisor regarding the United States federal income tax consequences of owning an interest in a partnership that holds common shares.

Distributions

Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect to common shares to a United States Holder will generally constitute dividends, which may be taxable as ordinary income or "qualified dividend income" as described in more detail below, to the extent of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Distributions in excess of our earnings and profits will be treated first as a non-taxable return of capital to the extent of the United States Holder's tax basis in its common shares on a dollar-for-dollar basis and thereafter as capital gain. Because we are not a United States corporation, United States Holders that are corporations will not generally be entitled to claim a dividends-received deduction with respect to any distributions they receive from us.

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Dividends paid on common shares to a United States Holder which is an individual, trust or estate (a "United States Non-Corporate Holder") will generally be treated as "qualified dividend income" that is taxable to such shareholder at preferential United States federal income tax rates provided that (1) common shares are readily tradable on an established securities market in the United States (such as the NASDAQ Global Select Market on which the common shares are listed); (2) we are not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (which we do not believe we are, have been since the beginning of our 2004 taxable year, or will be); and (3) the United States Non-Corporate Holder has owned common shares for more than 60 days in the 121-day period beginning 60 days before the date on which the common shares become ex-dividend.

Any dividends paid by us which are not eligible for these preferential rates will be taxed as ordinary income to a United States Holder.

Sale, Exchange or other Disposition of Our Common Shares

Assuming we do not constitute a passive foreign investment company for any taxable year, a United States Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common shares in an amount equal to the difference between the amount realized by the United States Holder from such sale, exchange or other disposition and the United States Holder's tax basis in the common shares. Such gain or loss will be capital gain or loss and will be treated as long-term capital gain or loss if the United States Holder's holding period in the common shares is greater than one year at the time of the sale, exchange or other disposition. Long-term capital gains of a United States Non-Corporate Holder are taxable at preferential United States federal income tax rates. A United States Holder's ability to deduct capital losses is subject to certain limitations.

Passive Foreign Investment Company Status and Significant Tax Consequences

Special United States federal income tax rules apply to a United States Holder that holds stock in a foreign corporation classified as a passive foreign investment company, or a PFIC, for United States federal income tax purposes. In general, we will be treated as a PFIC with respect to a United States Holder if, for any taxable year in which such holder held our common shares, either;

•
at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business); or

•
at least 50% of the average value of the assets held by us during such taxable year produce, or are held for the production of, passive income.

For purposes of determining whether we are a PFIC, we will be treated as earning and owning its proportionate share of the income and assets, respectively, of any of its subsidiary corporations in which it owns at least 25% of the value of the subsidiary's stock. Income earned, or deemed earned, by us in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute "passive income" unless we are treated under specific rules as deriving its rental income in the active conduct of a trade or business.

We were a PFIC for United States federal income tax purposes through our 2003 taxable year. United States Holders who held our common shares prior to the 2004 taxable year are encouraged to consult their tax advisors regarding the proper tax treatment of any dispositions of common shares and any distributions by us.

Based on our past and current operations and future projections, we do not believe that we were, are or will be a PFIC with respect to any taxable year, other than the taxable years ending prior to its 2004 taxable year. Our belief is based principally on the position that, for purposes of determining whether we are a PFIC, the gross income we derive or are deemed to derive from the time chartering and voyage chartering activities should constitute services income, rather than rental income. Correspondingly, we believe that such income does not constitute passive income, and the assets that we or our wholly-owned subsidiaries own and operate in connection with the production of such income, in particular, the vessels, do not constitute assets that produce, or are held for the production of, passive income for purposes of determining whether we are a PFIC.

Although there is no direct legal authority under the PFIC rules, we believe that there is substantial legal authority supporting our position consisting of case law and United States Internal Revenue Service, or the IRS, pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, in the absence of any legal authority specifically relating to the Code provisions governing PFICs, the IRS or a court

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could disagree with our position. In addition, although we intend to conduct our affairs in such a manner as to avoid being classified as a PFIC with respect to any taxable year, there can be no assurance that the nature of our operations will not change in the future.

As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a United States Holder would be subject to different taxation rules depending on whether the United States Holder makes an election to treat us as a "Qualified Electing Fund", which is referred to herein as a "QEF election". As an alternative to making a QEF election, a United States Holder should be able to elect to mark-to-market our common shares, which is referred to herein as a "Mark-to-Market election."

Taxation of United States Holders Making a Timely QEF Election

If a United States Holder makes a timely QEF election, which United States Holder is referred to herein as an "Electing United States Holder", the Electing United States Holder must report each year for United States federal income tax purposes its pro rata share of our ordinary earnings and our net capital gain, if any, for our taxable year that ends with or within the taxable year of the Electing United States Holder, regardless of whether or not distributions were received from us by the Electing United States Holder. The Electing United States Holder's adjusted tax basis in the common shares will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the common shares and will not be taxed again once distributed. An Electing United States Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of the common shares. A United States Holder will be eligible to make a QEF election with respect to its common shares only if we provide the United States Holder with annual tax information relating to us. There can be no assurance that we will provide such tax information on an annual basis.

Taxation of United States Holders Making a "Mark-to-Market" Election

Alternatively, if we were to be treated as a PFIC for any taxable year and, as anticipated, the common shares are treated as "marketable stock", a United States Holder would be allowed to make a Mark-to-Market election with respect to our common shares. If that election is made, the United States Holder generally would include as ordinary income in each taxable year that we are a PFIC the excess, if any, of the fair market value of the common shares at the end of the taxable year over such holder's adjusted tax basis in the common shares. The United States Holder would also be permitted an ordinary loss for each such tax year in respect of the excess, if any, of the United States Holder's adjusted tax basis in the common shares over its fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the Mark-to-Market election. A United States Holder's tax basis in its common shares would be adjusted to reflect any such income or loss amount. In any taxable year that we are a PFIC, gain realized on the sale, exchange or other disposition of the common shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the United States Holder.

Taxation of United States Holders Not Making a Timely QEF or Mark-to-Market Election

Finally, if we were to be treated as a PFIC for any taxable year, a United States Holder who does not make either a QEF election or a Mark-to-Market election for that year, who is referred to herein as a "Non-Electing United States Holder", would be subject to special rules with respect to (1) any excess distribution (i.e., the portion of any distributions received by the Non-Electing United States Holder on the common shares in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing United States Holder in the three preceding taxable years, or, if shorter, the Non-Electing United States Holder's holding period for the common shares), and (2) any gain realized on the sale, exchange or other disposition of the common shares. Under these special rules:

•
the excess distribution or gain would be allocated ratably over the Non-Electing United States Holders' aggregate holding period for the common shares;
•
the amount allocated to the current taxable year and any taxable years before we became a PFIC would be taxed as ordinary income; and
•
the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.

These penalties would not apply to a pension or profit sharing trust or other tax-exempt organization that did not borrow funds or otherwise utilize leverage in connection with its acquisition of the common shares. If a Non-Electing United States Holder who is an individual dies while owning the common shares, the successor of such deceased Non-Electing United States Holder generally would not receive a step-up in tax basis with respect to such stock.

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PFIC Annual Filing Requirements

If we were to be treated as a PFIC, a United States Holder will generally be required to file an information return on an IRS Form 8621 with respect to its ownership of our common stock.

Backup Withholding and Information Reporting

In general, dividend payments, or other taxable distributions, made within the United States to a holder of common shares will be subject to information reporting requirements. Such payments will also be subject to "backup withholding" if paid to a non-corporate United States Holder who:

•
fails to provide an accurate taxpayer identification number;
•
is notified by the IRS that he has failed to report all interest or dividends required to be shown on his United States federal income tax returns; or
•
in certain circumstances, fails to comply with applicable certification requirements.

If a holder sells his common shares to or through a United States office of a broker, the payment of the proceeds is subject to both United States information reporting and backup withholding unless the holder establishes an exemption. If a holder sells his common shares through a non-United States office of a non-United States broker and the sales proceeds are paid to the holder outside the United States, then information reporting and backup withholding generally will not apply to that payment. However, United States information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, including a payment made to a holder outside the United States, if the holder sells his common shares through a non-United States office of a broker that is a United States person or has some other contacts with the United States, unless the broker has documentary evidence in its records that the holder is not a United States person and certain other conditions are met, or the holder otherwise establishes an exemption.

Non-United States Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status on an applicable IRS Form W-8.

Backup withholding is not an additional tax. Rather, a taxpayer generally may obtain a refund of any amounts withheld under backup withholding rules that exceed the taxpayer's income tax liability by filing a refund claim with the IRS.

Other U.S. Information Reporting Obligations

Individuals who are United States Holders (and to the extent specified in applicable Treasury Regulations, certain United States entities) who hold "specified foreign financial assets" (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury Regulations). Specified foreign financial assets would include, among other assets, the common shares, unless the common shares are held through an account maintained with a United States financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, in the event an individual United States Holder (and to the extent specified in applicable Treasury Regulations a United States entity) that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of United States federal income taxes of such holder for the related tax year may not close until three years after the date that the required information is filed. United States Holders (including United States entities) are encouraged consult their own tax advisors regarding their reporting obligations under this legislation.


Bermuda Taxation
 
As of the date of this annual report, we are not subject to taxation under the laws of Bermuda and distributions to us by our subsidiaries also are not subject to any Bermuda tax. As of the date of this document, there is no Bermuda income, corporation or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by non-residents of Bermuda in respect of capital gains realized on a disposition of the Company's common shares or in respect of distributions by us with respect to the Company's common shares. This does not, however, apply to the taxation of persons ordinarily resident in Bermuda. Bermuda holders should consult their own tax advisors regarding possible Bermuda taxes with respect to dispositions of, and distributions on, the Company's common shares.
 

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The Minister of Finance in Bermuda has granted the Company a tax exempt status until March 31, 2035, under which no income taxes or other taxes (other than duty on goods imported into Bermuda and payroll tax in respect of any Bermuda-resident employees) are payable by us in Bermuda. If the Minister of Finance in Bermuda does not grant a new exemption or extend the current tax exemption, and if the Bermudian Parliament passes legislation imposing taxes on exempted companies, we may become subject to taxation in Bermuda after March 31, 2035.
 
Currently, there are no withholding taxes payable in Bermuda on dividends distributed by us to our shareholders.
 
Liberian Taxation
 
Under the Consolidated Tax Amendments Act of 2010, our Liberian subsidiaries should be considered non-resident Liberian corporations which are wholly exempted from Liberian taxation effective as of 1977.
 
F.  DIVIDENDS AND PAYING AGENTS

Not applicable.

G.  STATEMENT BY EXPERTS

Not applicable.

H.  DOCUMENTS ON DISPLAY

We are subject to the informational requirements of the Exchange Act. In accordance with these requirements, we file reports and other information with the Commission. These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the Commission 100 F Street, N.E., Room 1580 Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330, and you may obtain copies at prescribed rates from the public reference facilities maintained by the Commission at its principal office in Washington, D.C. 20549. The Commission maintains a website (http://www.sec.gov.) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. In addition, documents referred to in this annual report may be inspected at our principal executive offices at Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, Bermuda HM 08.
 
I.  SUBSIDIARY INFORMATION

Not applicable.
 
ITEM 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We interpret market risk as the risk arising from fluctuations in interest rates, foreign currency exchange rates, commodity prices and other factors affecting the rate, index or price of an underlying financial instrument.

Interest Rate Risk

We are exposed to interest rate fluctuations primarily due to our floating interest rate bearing long term debt. The international dry bulk industry is a capital-intensive industry, which requires significant amounts of financing, typically provided in the form of secured long-term debt. Our current financing agreements bear floating interest rates, typically three-month USD LIBOR. Significant adverse fluctuations in floating interest rates could adversely affect our operating and financial performance and our ability to service our debt.

From time to time, we may take positions in interest rate derivative contracts to manage the risk associated with fluctuations in interest payments resulting from fluctuations of the underlying floating interest rates of our long-term debt. Changes in the fair value of our interest rate derivatives at each reporting period are recognized and presented under “Gain (loss) on derivatives” in the condensed consolidated statement of operations. Adverse fluctuations in floating interest rates could adversely affect our free cash position as we may be required to secure cash as collateral, under our interest rate derivative contracts

We are exposed to credit risk in the event of non-performance by the counterparties of our interest rate derivative contracts. In order to mitigate the credit risk, we enter into derivative transactions with counterparties, usually well-established banks, which

85


bear reliable credit ratings. The possibility of a counterparty contractual non-performance event to materialize is considered remote and hence, the credit risk is considered minimal.

Our variable rate borrowings as of December 31, 2017, net of the amount subject to interest rate swap agreements, amounted to $1,113.5 million compared to $886.5 million as of December 31, 2016 and bear interest at LIBOR plus a margin.

Interest Rate Swap Agreements
Our swaps are intended to reduce the risk associated with fluctuations in interest rates payments whereby the floating rate on a notional principal amount of $500 million (December 31, 2016: $400 million) was swapped to fixed rate, of which $100 million start in October 2019.

As at December 31, 2017 and 2016, the carrying value of the derivatives which represents their fair value is as follows:
(in thousands of $)
 
2017

 
2016

Interest rate swaps - asset positions
 
2,864

 
1,502

Interest rate swaps - liability positions
 
1,914

 
1,777


As at December 31, 2017 and 2016, the weighted average fixed interest rate for our portfolio of interest rate swaps was 2.01% and 2.03%, respectively.

During 2017, we recorded a net loss on interest rate swaps of $0.5 million in the consolidated statement of operations, which resulted from realized loss (interest expense) of $1.7 million and unrealized gain of $1.2 million (change in the fair value). During 2016, we recorded a net loss on interest rate swaps of $1.8 million in the consolidated statement of operations, which resulted from realized loss (interest expense) of $1.8 million and unrealized loss of $38 thousand (change in the fair value).

As at December 31, 2017, our estimated interest expense until the maturity of our floating-rate long term debt based on the applicable three-month USD LIBOR of 2.00% plus the relevant margin of applicable to each of our floating-rate credit facilities is tabled below. The table below also sets forth the sensitivity of our estimated interest expense to a 100 basis point increase in the applicable thee-month USD LIBOR.

(in thousands of $)
 
Estimated interest expense
 
Estimated interest expense - increase of 100 basis points in floating rate
 
Sensitivity
2018
 
55,161

 
64,622

 
9,461

2019
 
50,784

 
62,269

 
11,485

2020
 
26,155

 
32,647

 
6,492

2021
 
6,664

 
8,321

 
1,657

2022
 
265

 
321

 
56

Thereafter
 
—

 
—

 
—

 
 
139,029

 
168,180

 
29,151


Foreign Currency Risk
The majority of our transactions, assets and liabilities are denominated in United States dollars, our functional currency. However, we incur expenditure in currencies other than the functional currency, mainly in Norwegian Kroner and Singapore Dollars. There is a risk that currency fluctuations in transactions incurred in currencies other than the functional currency will have a negative effect of the value of our cash flows. We may enter into foreign currency swaps to mitigate such risk exposures. The counterparties to such contracts are major banking and financial institutions. Credit risk exists to the extent that the counter parties are unable to perform under the contracts but this risk is considered remote as the counter parties are well established banks.

Foreign currency Swap Agreements
As of December 31, 2017, we had contracts to swap USD to NOK for a notional amount of $7.0 million (2016: $7.2 million). As of December 31, 2017, the fair value of our swaps was a receivable of $83 thousand and a payable of $66 thousand (2016: payable of $213 thousand). In 2017, we recorded total net gains on our foreign currency swaps of $229 thousand (2016: loss of $29 thousand).

Inflation

86


Inflation has only a moderate effect on our expenses given current economic conditions. In the event that significant global inflationary pressures appear, these pressures would increase operating, voyage, general and administrative, and financing costs.

Commodity Price Risk
Fuel costs represent the largest component of our voyage expenses. An increase in the price of fuel may adversely affect our profitability if these increases cannot be passed onto customers. The price and supply of fuel is unpredictable and fluctuates as a result of events outside our control, including geo-political developments, supply and demand for oil and gas, actions by members of OPEC and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns and regulations.

Bunker Swap Agreements
From time to time we may enter into contracts of affreightment and timecharter contracts with fixed bunker prices on redelivery. We are exposed to fluctuations in bunker prices, when the contracts of affreightment and time charter contracts are based on an assumed bunker price for the trade. There is no guarantee that a bunker swap agreement removes all the risk from the bunker exposure, due to possible differences in location and timing of the bunkering between the physical and financial position. The counterparties to such contracts are major banking and financial institutions. Credit risk exists to the extent that the counter parties are unable to perform under the contracts but this risk is considered remote as the counter parties are usually well established banks or other well renowned institutions in the market.

As of December 31, 2017, we had outstanding bunker swap agreements for about 36.0 thousand metric tonnes (December 31, 2016: 3.6 thousand metric tonnes). As of December 31, 2017, the fair value of our bunker swaps was a receivable of $0.8 million and a payable of $0.3 million (2016: receivable of $0.1 million). In 2017, we recorded total net gains on our bunker swaps of $913 thousand (2016: net gain of $1.2 million).

Spot Market Rate Risk
The cyclical nature of the dry bulk shipping industry causes significant increases or decreases in the revenue that we earn from our vessels, particularly those vessels that operate in the spot market, participate in pools or revenue sharing agreements that are concentrated in the spot market.

Forward Freight Agreements
From time to time we may take positions in freight derivatives, mainly FFAs. Generally freight derivatives may be used to hedge a vessel owner’s exposure to the charter market for a specified route and period of time. By taking positions in FFAs or other derivative instruments, we could suffer losses in the settling or termination of these agreements. This could adversely affect our results of operation and cash flow. FFAs are settled on a daily basis through NasdaqOMX and also include a margin maintenance requirement based on marking the contract to market. In 2017, we recorded a net loss on FFAs of $517 thousand (2016: net gain of $42 thousand).

Please see Note 29 to our Consolidated Financial Statements included herein for additional information on our financial instruments.


ITEM 12.    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

87


PART II

ITEM 13.    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14.    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15.    CONTROLS AND PROCEDURES

a)   Disclosure Controls and Procedures

Management assessed the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered by this annual report as of December 31, 2017. Based upon that evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective as of the evaluation date.
 
b)   Management's annual report on internal control over financial reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) promulgated under the Securities Exchange Act of 1934.

Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
•
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of the Company's management and directors; and
•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.

Management conducted the evaluation of the effectiveness of the internal controls over financial reporting using the control criteria framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its report entitled Internal Control-Integrated Framework (2013).
 
Our management with the participation of our principal executive officer and principal financial officer assessed the effectiveness of the design and operation of our internal controls over financial reporting pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as of December 31, 2017. Based upon that evaluation, our management with the participation of our principal executive officer and principal financial officer concluded that our internal controls over financial reporting are effective as of December 31, 2017.
 
The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers AS, an independent registered public accounting firm, as stated in their report which appears herein.

c)   Attestation report of the registered public accounting firm
 

88


The independent registered public accounting firm that audited the consolidated financial statements, PricewaterhouseCoopers AS, has issued an attestation report on the effectiveness of the Company's internal control over financial reporting as of December 31, 2017, appearing under Item 18, and such report is incorporated herein by reference.
 
d)   Changes in internal control over financial reporting
 
There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 16.      [Reserved]

ITEM 16A.    AUDIT COMMITTEE FINANCIAL EXPERT
 
The Board has determined that Mrs. Kate Blankenship, who is an independent director, is our audit committee's financial expert.

ITEM 16B.    CODE OF ETHICS

We have adopted a code of ethics that applies to all entities controlled by us and all of our employees, directors, officers and agents. We have posted a copy of our code of ethics on our website at www.goldenocean.no. We will provide any person, free of charge, a copy of our code of ethics upon written request to our registered office.

ITEM 16C.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

Our principal accountant for 2017 and 2016 was PricewaterhouseCoopers AS. The following table sets forth for the two most recent fiscal years the fees paid or accrued for audit and services provided by PricewaterhouseCoopers AS.
(in thousands of $)
2017

 
2016

Audit Fees (a)
1,049

 
728

Audit-Related Fees (b)
—

 
—

Tax Fees (c)
—

 
—

All Other Fees (d)
—

 
—

Total
1,049

 
728


(a)           Audit Fees
Audit fees represent professional services rendered for the audit of our annual financial statements and services provided by the principal accountant in connection with statutory and regulatory filings or engagements. The amount in 2017 includes $208,478 in total in connection with the Prospectus Supplements, filed on March 16, 2017 and October 18, 2017, respectively, and the Prospectus dated March 27, 2017, for the listing of 17,800,000 consideration shares on the Oslo Stock Exchange. The amount in 2016 includes $113,400 in connection with the F-3 Registration Statement, filed on May 13, 2016.

(b)           Audit–Related Fees
Audit-related fees consisted of assurance and related services rendered by the principal accountant related to the performance of the audit or review of our financial statements which have not been reported under Audit Fees above.

(c)           Tax Fees
Tax fees represent fees for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning.

(d)           All Other Fees
All other fees include services other than audit fees, audit-related fees and tax fees set forth above.

Our Board has adopted pre-approval policies and procedures in compliance with paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X that require the Board to approve the appointment of our independent auditor before such auditor is engaged and approve each of the audit and non-audit related services to be provided to us by such auditor under such engagement. All services provided by the principal auditor in 2017 were approved by our Board pursuant to the pre-approval policy.

ITEM 16D.    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

89



Not applicable.

ITEM 16E.    PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Period
Total number of shares purchased
Average price paid per share
Total number of shares purchased as part of publicly announced programs
Maximum amount in US$ that may yet be expected on share repurchases under programs
March 2017
3,300,000
(1)


N/A
N/A
October 2017
4,000,000
(2)

N/A
N/A
(1) In March 2017, we agreed to acquire two Panamax vessels from affiliates of Hemen for an aggregate of 3,300,000 common shares and assumed seller's credits of an aggregate of $22.5 million with an affiliate of Hemen. In June 2017, the Golden Amber and Golden Opal were delivered to us and we issued an aggregate of 3,300,000 common shares to satisfy the purchase price.
(2) In October 2017, we agreed to acquire two Capesize vessels from affiliates of Hemen at an aggregated purchase price of $86.0 million. As settlement of the purchase price for each vessel, the Company entered into a seller’s credit loan with an affiliate of Hemen for 50% of the purchase price of each vessel. The remaining part of the purchase price was to be settled with an aggregate of $9.0 million of cash and 4,000,000 of newly-issued common shares of the Company; 2,000,000 shares was to be issued upon the delivery of each vessel. In November 2017, one of the vessels, Golden Behike, was delivered to us and 2,000,000 shares were issued to satisfy the purchase price. In January 2018, one of the vessels, Golden Monterrey, was delivered to us and 2,000,000 shares were issued to satisfy the purchase price.
See Notes 28 and 32 to our audited Consolidated Financial Statements included herein for more information.


ITEM 16F.    CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G.    CORPORATE GOVERNANCE

Pursuant to the NASDAQ listing standards available to foreign private issuers, we are not required to comply with all of the corporate governance practices followed by U.S. companies under the NASDAQ listing standards. The significant differences between our corporate governance practices and the NASDAQ standards applicable to listed U.S. companies are set forth below.

Independence of Directors. We are exempt from certain NASDAQ requirements regarding independence of directors. Consistent with Bermuda law, our board of directors is not required to be composed of a majority of independent directors. Currently, two of the four members of our board of directors, Kate Blankenship and Gert Jan van den Akker are independent in accordance with NASDAQ rules. Our board of directors does not hold meetings at which only independent directors are present.

Executive Sessions. NASDAQ requires that non-management directors meet regularly in executive sessions without management. As permitted under Bermuda law and our bye-laws, our non-management directors do not regularly hold executive sessions without management and we do not expect them to do so in the future.
 
Nominating/Corporate Governance Committee. NASDAQ requires that a listed U.S. company have a nominating/corporate governance committee composed solely of independent directors. As permitted under Bermuda law and our bye-laws, we do not currently have a nominating or corporate governance committee. Our board of directors is responsible for identifying and recommending potential candidates to become board members and recommending directors for appointment to board committees.

Audit Committee. NASDAQ requires, among other things, that a listed U.S. company have an audit committee with a minimum of three independent members. As permitted under Bermuda law and our bye-laws, our audit committee consists of one member who currently meets NASDAQ independence requirements.
 

90


Compensation Committee. NASDAQ requires that a listed U.S. company have a compensation committee composed solely of independent directors. As permitted under Bermuda law and our bye-laws, we do not currently have a compensation committee and compensation of executive officers is not required to be determined by a committee composed of independent members.
 
Related Party Transactions. NASDAQ requires that a listed U.S. company conduct appropriate review and oversight of all related party transactions for potential conflict of interest situations on an ongoing basis by the company's audit committee or another independent body of the board of directors. As permitted under Bermuda law and our bye-laws, our directors are not prohibited from being a party to, or otherwise interested in, any transaction or arrangement with us or in which we are otherwise interested, provided that the director makes proper disclosure of same as required by our bye-laws and Bermuda law.
 
Proxy Materials. NASDAQ requires that a listed U.S. company solicit proxies and provide proxy statements for all shareholder meetings. Such company must also provide copies of its proxy solicitation to NASDAQ. As permitted under Bermuda law and our bye-laws, we do not currently solicit proxies or provide proxy materials to NASDAQ. Our bye-laws also require that we notify our shareholders of meetings no less than five (5) days before the meeting.

Share Issuance. In lieu of obtaining shareholder approval prior to the issuance of securities or the adoption of equity compensation plans or material amendments to such equity compensation plans, consistent with Bermuda law and our bye-laws, our board of directors approves share issuances and adoptions of and material amendments to equity compensation plans.

Quorum. NASDAQ rules provide that the minimum quorum requirement for a meeting of shareholders is 33 1/3% of the outstanding common shares. The Company follows applicable Bermuda laws with respect to quorum requirements. The Company’s quorum requirement is set forth in its bye-laws, which provide that a quorum for the transaction of business at any meeting of shareholders is two or more shareholders either present in person or represented by proxy. If we only have one shareholder, then one shareholder present in person or proxy shall constitute the necessary quorum.


ITEM 16H    MINE SAFETY DISCLOSURES

Not applicable.


91


PART III

ITEM 17.  FINANCIAL STATEMENTS

Not applicable.

ITEM 18.  FINANCIAL STATEMENTS

The following financial statements listed below and set forth on pages F-1 through F-50 are filed as part of this annual report:

Consolidated Financial Statements of Golden Ocean Group Limited



92



ITEM 19.  EXHIBITS
Number
 
Description of Exhibit
 
Memorandum of Association (1)
 
Certificate of Name Change (3)
 
Certificate of Change of Share Capital (3)
 
Amended and Restated Bye-Laws (3)
 
Form of Common Share Certificate (4)
 
2010 Equity Incentive Plan (2)
 
Registration Rights Agreement by and between Knightsbridge, Frontline 2012 Ltd. and Hemen Holding Limited, dated April 23, 2014 (5)
 
2016 Share Option Scheme(6)
 
Form of Memorandum of Agreement in connection with the Quintana Acquisition, dated March 14, 2017(6)
 
Registration Rights Agreement by and among Golden Ocean Group Limited, Q Jake Shipping Ltd., Q A Maritime Ltd., Q Ioanari Shipping Ltd., Q Myrtalia Shipping Ltd., Q Gayle Shipping Ltd., Q Keen Shipping Ltd., Q Shea Shipping Ltd., Q Sue Shipping Ltd., Q Deb Shipping Ltd., Q Anastasia Shipping Ltd., Q Amreen Shipping Ltd., Q Houston Shipping Ltd., Q Kaki Shipping Ltd., and Q Kennedy Shipping Ltd., dated March 14, 2017(6)

 
Significant Subsidiaries
 
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
 
Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
 
Principal Executive Officer Certifications pursuant to 18 U.S.C. Section 1350 as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
Principal Financial Officer Certifications pursuant to 18 U.S.C. Section 1350 as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
Consent of Independent Registered Public Accounting Firm
 
Consent of Seward & Kissel LLP

101.
 
INS XBRL Instance Document
101.
 
SCH XBRL Taxonomy Extension Schema
101.
 
CAL XBRL Taxonomy Extension Schema Calculation Linkbase
101.
 
DEF XBRL Taxonomy Extension Schema Definition Linkbase
101.
 
LAB XBRL Taxonomy Extension Schema Label Linkbase
101.
 
PRE XBRL Taxonomy Extension Schema Presentation Linkbase
 
 
 
(1)
 
 
Incorporated by reference from our Registration Statement on Form F-3 (File No. 333-164007) filed with the Commission on December 24, 2009.
(2)
 
 
Incorporated by reference from Exhibit No. 2 of our Report on Form 6-K filed September 27, 2010.
(3)
 
 
Incorporated by reference from our Annual Report on Form 20-F filed with the Commission on April 29, 2015.
(4)
 
 
Incorporated by reference from Amendment No. 1 to our Registration Statement on Form 8-A filed with the Commission on August 1, 2016.
(5)
 
 
Incorporated by reference to Exhibit E of the Schedule 13D (File No. 005-50787) filed with the Commission on May 5, 2014.
(6)
 
 
Incorporated by reference from our Annual Report on Form 20-F filed with the Commission on April 5, 2017.


93


SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual report on its behalf.

GOLDEN OCEAN GROUP LIMITED
 
/s/ Per Terje Heiberg
 
Per Terje Heiberg
 
Principal Financial Officer
 
Dated: March 20, 2018


94


Consolidated Financial Statements of Golden Ocean Group Limited



F-1


Report of Independent Registered Public Accounting Firm


To the Board of Directors and Shareholders of Golden Ocean Group Limited

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Golden Ocean Group Limited and its subsidiaries as of December 31, 2017 and December 31, 2016, and the related consolidated statements of operations, consolidated statements of comprehensive (loss) income, consolidated statements of cash flows and consolidated statements of changes in equity for each of the three years in the period ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and December 31, 2016 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017 based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control Over Financial Reporting appearing under Item 15(b). Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.


Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

F-2



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



/s/PricewaterhouseCoopers AS


Oslo, Norway
March 20, 2018

We have served as the Company’s auditor since 2010.



F-3


Golden Ocean Group Limited
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015
(in thousands of $, except per share data)

 
 
2017

 
2016

 
2015

Operating revenues
 
 
 
 
 
 
Time charter revenues
 
233,007

 
91,407

 
85,960

Voyage charter revenues
 
225,769

 
159,108

 
102,972

Bareboat charter revenues
 
—

 
2,399

 
—

Other revenues
 
1,247

 
3,949

 
1,306

Total operating revenues
 
460,023


256,863

 
190,238

 
 
 
 
 
 
 
Gain (loss) on sale of assets and amortization of deferred gains
 
(312
)
 
300

 
(10,788
)
Other operating income, net
 
3,881

 
945

 
—

 
 
 
 
 
 
 
Operating expenses
 
 
 
 

 
 

Voyage expenses and commission
 
118,929

 
89,886

 
78,099

Ship operating expenses
 
132,198

 
105,843

 
83,022

Charter hire expenses
 
70,673

 
53,691

 
30,719

Administrative expenses
 
12,558

 
12,728

 
12,469

Provision for uncollectible receivables
 
—

 
1,800

 
4,729

Impairment loss on vessels and newbuildings
 
1,066

 
985

 
152,597

Depreciation
 
78,093

 
63,433

 
52,728

Total operating expenses
 
413,517

 
328,366

 
414,363

 
 
 
 
 
 
 
Net operating (loss) income
 
50,075

 
(70,258
)
 
(234,913
)
 
 
 
 
 
 
 
Other income (expenses)
 
 
 
 

 
 

Interest income
 
2,207

 
1,666

 
849

Interest expense
 
(59,840
)
 
(45,511
)
 
(29,831
)
Equity results of associated companies, including impairment
 
4,620

 
(2,523
)
 
(5,033
)
Impairment loss on marketable securities
 
—

 
(10,050
)
 
(23,323
)
Gain (loss) on derivatives
 
145

 
(675
)
 
(6,939
)
Bargain purchase gain arising on consolidation
 
—

 
—

 
78,876

Other financial items
 
501

 
(515
)
 
(336
)
Net other (expenses) income
 
(52,367
)
 
(57,608
)
 
14,263

Net (loss) income before income taxes
 
(2,292
)
 
(127,866
)
 
(220,650
)
Income tax expense (credit)
 
56

 
(155
)
 
189

Net (loss) income
 
(2,348
)
 
(127,711
)
 
(220,839
)
 
 
 
 
 
 
 
Per share information:
 
 
 
 

 
 

(Loss) earnings per share: basic and diluted
 
$
(0.02
)
 
$
(1.34
)
 
$
(7.30
)

The accompanying notes are an integral part of these consolidated financial statements.

F-4


Golden Ocean Group Limited
Consolidated Statements of Other Comprehensive (Loss) Income for the years ended December 31, 2017, 2016 and 2015
(in thousands of $, except per share data)

 
 
2017

 
2016

 
2015

Comprehensive income (loss), net
 
 
 
 
 
 
Net (loss) income
 
(2,348
)
 
(127,711
)
 
(220,839
)
Net changes related to marketable securities
 
 
 
 
 
 
Unrealized gain (loss)
 
3,036

 
(7,763
)
 
(23,323
)
Reclassification of loss to net income
 
—

 
10,050

 
23,323

Other comprehensive income
 
3,036

 
2,287

 
—

 
 
 
 
 
 
 
Comprehensive income (loss), net
 
688

 
(125,424
)
 
(220,839
)

The accompanying notes are an integral part of these consolidated financial statements.


F-5


Golden Ocean Group Limited
Consolidated Balance Sheets as of December 31, 2017 and 2016
(in thousands of $)

 
 
2017

 
2016

ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
309,029

 
212,942

Restricted cash
 
8,110

 
315

Marketable securities
 
16,300

 
6,524

Trade accounts receivable, net
 
23,363

 
14,755

Other receivables
 
25,437

 
10,987

Related party receivables
 
1,990

 
1,927

Derivative instruments receivables
 
3,748

 
1,594

Inventories
 
20,142

 
17,953

Prepaid expenses and accrued income
 
8,587

 
6,524

Voyages in progress
 
9,062

 
3,998

Favorable charter party contracts
 
18,732

 
22,413

Total current assets
 
444,500

 
299,932

Restricted cash
 
54,845

 
53,797

Vessels and equipment, net
 
2,215,003

 
1,758,939

Vessels under capital leases, net
 
2,061

 
2,956

Newbuildings
 
105,727

 
180,562

Favorable charter party contracts
 
34,954

 
53,686

Investments in associated companies
 
2,287

 
4,224

Other long term assets
 
10,681

 
7,527

Total assets
 
2,870,058

 
2,361,623

LIABILITIES AND EQUITY
 
 
 
 

Current liabilities
 
 
 
 

Current portion of long-term debt
 
109,671

 
—

Current portion of obligations under capital leases
 
5,239

 
4,858

Derivative instruments payables
 
2,293

 
1,990

       Related party payables
 
2,730

 
1,387

       Trade accounts payables
 
5,401

 
2,882

Accrued expenses
 
24,304

 
17,867

Other current liabilities
 
32,089

 
14,617

Total current liabilities
 
181,727

 
43,601

Long-term liabilities
 
 
 
 

Long-term debt
 
1,134,788

 
1,058,418

Long-term related party debt

 
44,000

 
—

Obligations under capital leases
 
7,435

 
12,673

Other long term liabilities
 
8,059

 
8,212

Total liabilities
 
1,376,009

 
1,122,904

Commitments and contingencies
 


 


Equity
 
 
 
 

Share capital (142,197,697 shares. 2016: 105,965,192 shares. All shares are issued and outstanding at par value $0.05)
 
7,111

 
5,299


F-6


Additional paid in capital
 
454,694

 
201,864

Contributed capital surplus
 
1,378,824

 
1,378,824

Accumulated other comprehensive income
 
5,323

 
2,287

Retained deficit
 
(351,903
)
 
(349,555
)
Total equity
 
1,494,049

 
1,238,719

Total liabilities and equity
 
2,870,058

 
2,361,623



The accompanying notes are an integral part of these consolidated financial statements.


F-7


Golden Ocean Group Limited
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
(in thousands of $)
 
 
 
2017

 
2016

 
2015

 
 
 
 
 
 
 
Net (loss) income
 
(2,348
)
 
(127,711
)
 
(220,839
)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
 
 
 
 
 
 
Depreciation
 
78,093

 
63,433

 
52,728

Amortization of deferred charges
 
1,415

 
1,345

 
1,562

(Gain) loss on sale of assets and amortization of deferred gains
 
312

 
(300
)
 
10,788

Loss on sale of marketable securities
 
—

 
203

 
—

Impairment loss on vessels and newbuildings
 
1,066

 
985

 
152,597

Equity award expenses (gain)
 
576

 
86

 
(10
)
Bargain purchase gain arising on consolidation
 
—

 
—

 
(78,876
)
Equity results of associated companies, including impairment
 
(4,620
)
 
381

 
433

Impairment of associated companies
 
—

 
2,142

 
4,600

Gain on purchase of associated companies
 
—

 
(24
)
 
—

Amortization of charter party-out contracts
 
19,333

 
27,277

 
23,714

Amortization of charter party-in contracts
 
(672
)
 
(674
)
 
(1,399
)
Amortization of other fair value adjustments, net, arising on the Merger
 
10,360

 
9,434

 
6,479

Mark to market (gain) loss on derivatives
 
(1,851
)
 
(3,363
)
 
2,429

Provision for onerous contracts
 
29

 
(2,370
)
 
2,370

Provision for doubtful debts
 
—

 
199

 
512

Provision for uncollectible receivables
 
—

 
1,800

 
4,729

Impairment loss on marketable securities
 
—

 
10,050

 
23,323

Other
 
(1,019
)
 
—

 
—

Changes in operating assets and liabilities, net of acquisition:
 
 
 
 
 
 
Trade accounts receivable, net
 
(8,608
)
 
(5,323
)
 
(5,039
)
Related party balances,net
 
1,281

 
1,883

 
(5,080
)
Other receivables
 
(14,034
)
 
5,255

 
(3,321
)
Inventories
 
(2,188
)
 
(2,797
)
 
7,705

Voyages in progress
 
(5,064
)
 
(2,308
)
 
(367
)
Prepaid expenses and accrued income
 
(2,063
)
 
(837
)
 
11,627

Other long term assets
 
(3,634
)
 
(5,365
)
 
—

Trade accounts payables
 
2,519

 
348

 
(5,445
)
Accrued expenses
 
6,543

 
(11
)
 
(6,597
)
Other current liabilities
 
17,336

 
2,715

 
6,647

Other long term liabilities
 
778

 
494

 
(97
)
Net cash (used in) provided by operating activities
 
93,539

 
(23,053
)
 
(14,827
)
Investing activities
 
 
 
 

 
 

Changes in restricted cash
 
(8,843
)
 
(5,240
)
 
4,052

Dividends from associated companies
 
7,556

 
256

 
88

Dividends received from investments
 
1,606

 
—

 
—

Purchase of investment in associated companies
 
(1,000
)
 
(754
)
 
—

Purchase of marketable securities
 
—

 
—

 
(32,159
)

F-8


Additions to newbuildings
 
(152,130
)
 
(267,341
)
 
(518,989
)
Refund of newbuilding installments
 
—

 
—

 
40,148

Cash acquired upon purchase of SPC's
 
—

 
—

 
108,645

Cash acquired upon merger with Former Golden Ocean
 
—

 


 
129,084

Purchase of vessels and equipment
 
(7,418
)
 
(194
)
 
(24
)
Proceeds from sale of vessels
 
134,190

 
97,837

 
381,723

Proceeds from the sale of marketable securities
 
—

 
125

 
—

Net cash provided by (used in) investing activities
 
(26,039
)
 
(175,311
)
 
112,568

Financing activities
 
 
 
 

 
 

Proceeds from long-term debt
 
75,000

 
142,200

 
215,975

Repayment of long-term debt
 
(163,770
)
 
(22,219
)
 
(244,338
)
Repayment of capital leases
 
(4,858
)
 
(15,749
)
 
(5,157
)
Debt fees paid
 
(308
)
 
(898
)
 
(3,825
)
Net proceeds from share issuance
 
122,523

 
205,355

 
—

Net cash provided by (used in) financing activities
 
28,587

 
308,689

 
(37,345
)
Net change in cash and cash equivalents
 
96,087

 
110,325

 
60,396

Cash and cash equivalents at beginning of year
 
212,942

 
102,617

 
42,221

Cash and cash equivalents at end of year
 
309,029

 
212,942

 
102,617

 
 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 

 
 

Interest paid, net of capitalized interest
 
55,920

 
38,075

 
26,358

Income taxes paid
 
—

 
—

 
266


Details of non-cash investing and financing activities in the year ended December 31, 2017 and 2016 are given in Note 31.

The accompanying notes are an integral part of these consolidated financial statements.


F-9


Golden Ocean Group Limited
Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015
(in thousands of $, except number of shares)

 
 
2017

 
2016

 
2015

Number of shares outstanding
 
 
 
 
 
 
Balance at beginning of year
 
105,965,192

 
34,535,128

 
16,024,310

Shares issued
 
36,232,505

 
71,430,612

 
18,522,116

Shares canceled
 
—

 
(548
)
 
(11,298
)
Balance at end of year
 
142,197,697

 
105,965,192

 
34,535,128

 
 
 
 
 
 
 
Share capital
 
 
 
 

 
 

Balance at beginning of year
 
5,299

 
1,727

 
801

Shares issued
 
1,812

 
3,572

 
926

Balance at end of year
 
7,111

 
5,299

 
1,727

 
 
 
 
 
 
 
Additional paid in capital
 
 
 
 

 
 

Balance at beginning of year
 
201,864

 
—

 
772,863

Shares issued
 
252,254

 
201,783

 
433,526

Restricted stock unit expense (income)
 
—

 
—

 
92

Value of vested options in Former Golden Ocean
 
—

 
—

 
926

Stock option expense
 
576

 
81

 
41

Transfer to contributed surplus
 
—

 
—

 
(1,207,448
)
Balance at end of year
 
454,694

 
201,864

 
—

 
 
 
 
 
 
 
Contributed capital surplus
 
 
 
 

 
 

Balance at beginning of year
 
1,378,824

 
1,378,766

 
111,614

Contributions from shareholder
 
—

 
—

 
59,746

Restricted stock unit expense (income)
 
—

 
5

 
(102
)
Stock option expense
 
—

 
53

 
60

Transfer from additional paid in capital
 
—

 
—

 
1,207,448

Balance at end of year
 
1,378,824

 
1,378,824

 
1,378,766

 
 
 
 
 
 
 
Other comprehensive income
 
 
 
 
 
 
Balance at beginning of year
 
2,287

 
—

 
—

Other comprehensive income, net

 
3,036

 
2,287

 
—

Balance at end of year
 
5,323

 
2,287

 
—

 
 
 
 
 
 
 
Retained deficit
 
 
 
 

 
 

Balance at beginning of year
 
(349,555
)
 
(221,844
)
 
(1,005
)
Net (loss) income
 
(2,348
)
 
(127,711
)
 
(220,839
)
Balance at end of year
 
(351,903
)
 
(349,555
)
 
(221,844
)
Total equity
 
1,494,049

 
1,238,719

 
1,158,649


The accompanying notes are an integral part of these consolidated financial statements.


F-10


Golden Ocean Group Limited
Notes to Consolidated Financial Statements

1. ORGANIZATION AND BUSINESS

Historical Structure of the Company
We were incorporated as Knightsbridge Tankers Limited in Bermuda as an exempted company under the Bermuda Companies Act of 1981 on September 18, 1996. We were originally established for the purpose of owning and operating very large crude oil carriers, or VLCCs. Between 2007 and 2013, we sold our VLCCs and subsequently discontinued our crude oil tanker operations to expand the scope of our activities within dry bulk shipping by acquiring Capesize vessels delivered to us between 2009 and 2014.
  
On October 7, 2014, we entered into an agreement and plan of merger, or the Merger Agreement, with Golden Ocean Group Limited, or the Former Golden Ocean, a dry bulk shipping company based in Bermuda and listed on the Oslo Stock Exchange, or the OSE, pursuant to which the two companies agreed to merge, with us as the surviving company, or the Merger. The Merger was completed on March 31, 2015.

Prior to entering into the Merger Agreement, we changed our name to Knightsbridge Shipping Limited and we subsequently changed our name to Golden Ocean Group Limited following completion of the Merger.

Our common shares commenced trading on the NASDAQ Global Select Market in February 1997 and currently trade under the symbol "GOGL". We obtained a secondary listing on the OSE in April 2015.

In March 2017, we acquired 16 dry bulk vessels in transactions where we issued in aggregate 17.8 million consideration shares and assumed bank debt and seller credit loans of $285.2 million. Of the 16 acquired vessels, 14 were acquired from subsidiaries of Quintana Shipping Ltd., or Quintana, and two Panamax vessels were acquired from affiliates of Hemen Holding Limited, or Hemen.

In October 2017, we entered into agreements to acquire two Capesize vessels from Hemen at an aggregated purchase price of $86.0 million. As settlement of the purchase price for each vessel, the Company entered into a seller's credit loan with an affiliate of Hemen for 50% of the purchase price of each vessel, respectively.

Business
We own and operates dry bulk carriers of primarily four sizes: Newcastlemax vessels, which are between 200,000 and 210,000 dwt, Capesize vessels, which are between 100,000 and 200,000 dwt, Panamax vessels, which are vessels between 65,000 and 100,000 dwt, and Ultramax vessels, which are between 55,000 and 65,000 dwt. We operate through subsidiaries located in Bermuda, Liberia, Norway and Singapore. We are also involved in the charter, purchase and sale of vessels.

As of December 31, 2017, we owned 62 dry bulk vessels, agreed to purchase one vessel and had construction contracts for five newbuildings. The acquired vessel and five newbuildings were subsequently delivered during January and February 2018. In addition, we had ten vessels chartered-in (of which eight are chartered in on operating leases from Ship Finance, one chartered in on an operating lease from an unrelated third party and one chartered in on a capital lease from an unrelated third party). Each vessel is (or, in the case of newbuildings, expected to be) owned and operated by one of our subsidiaries and is (or expected to be) flagged either in the Marshall Islands, Hong Kong or Panama. Ten of our vessels were chartered-out on fixed rate time charters, fifteen of our vessels were chartered out on long-term index linked rate time charters and the remaining vessels operated in the spot market, in spot pools or on short term charters expiring within the next six to nine months.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include the assets and liabilities of us and our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

Reverse stock split
On August 1, 2016, we effected a one-for-five reverse stock split. All share and per share information has been retroactively adjusted to reflect the reverse stock split. The common share par value was adjusted as a result of the reverse stock split as disclosed in Note 25 of these consolidated financial statements.

F-11



Business combinations
We accounted for our acquisition of the Former Golden Ocean on March 31, 2015 as a business combination and have measured the identifiable assets acquired and the liabilities assumed at their acquisition date fair values. The consideration transferred has been measured at fair value based on the closing price of our shares on the date of acquisition and the fair value of the vested share options in the Former Golden Ocean. The surplus of the fair value of the net assets acquired over the fair value of the consideration transferred is recognized as a bargain purchase gain. Acquisition related costs are expensed as incurred.

Use of estimates
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles requires us to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Such estimates and assumptions impact, among others, the following: impairment of assets and other than temporary impairments of uncollectible securities, the amount of uncollectible accounts and accounts receivable, the amount to be paid for certain liabilities, including contingent liabilities, the amount of costs to be capitalized in connection with the construction of our newbuildings and the lives of our vessels. Actual results could differ from those estimates.

Fair values
We have determined the estimated fair value amounts presented in these consolidated financial statements using available market information and appropriate methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. The estimates presented in these consolidated financial statements are not necessarily indicative of the amounts that we could realize in a current market exchange. Estimating the fair value of assets acquired and liabilities assumed in a business combination requires the use of estimates and significant judgments, among others, the following: the market assumptions used when valuing acquired time charter contracts, the expected revenues earned by vessels held under capital lease and the operating costs (including dry docking costs) of those vessels and the discount rate used in cash flow based valuations, The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Reporting and functional currency
Our functional currency is the United States dollar as all revenues are received in United States dollars and a majority of our expenditures are made in United States dollars. We and our subsidiaries report in United States dollars.

Foreign currency
Transactions in foreign currencies during the year are translated into United States dollars at the rates of exchange in effect at the date of the transaction. Foreign currency monetary assets and liabilities are translated using rates of exchange at the balance sheet date. Foreign currency non-monetary assets and liabilities are translated using historical rates of exchange. Foreign currency transaction gains or losses are included in the consolidated statements of operations.

Revenue and expense recognition
Revenues and expenses are recognized on the accruals basis. Revenues are generated from voyage charters and time charters. Voyage revenues are recognized ratably over the estimated length of each voyage and, therefore, are allocated between reporting periods based on the relative transit time in each period. Voyage expenses are recognized as incurred. Probable losses on voyages are provided for in full at the time such losses can be estimated. Time charter and bareboat charter revenues are recorded over the term of the charter as a service is provided. When a time charter contract is linked to an index, we recognize revenue for the applicable period based on the actual index for that period. We use a discharge-to-discharge basis in determining percentage of completion for all voyage charters whereby we recognize revenue ratably from when product is discharged (unloaded) at the end of one voyage to when it is discharged after the next voyage. However, we did not recognize revenue if a charter was not contractually committed to by a customer and us, even if the vessel discharged its cargo and was sailing to the anticipated load port on its next voyage. Revenues generated through revenue sharing agreements are presented gross when the Company is the primary obligor under the charter parties.

Demurrage is a form of damages for breaching the period allowed to load and unload cargo in a voyage charter, or the laytime, and is recognized as income according to the terms of the voyage charter contract when the charterer remains in possession of the vessel after the agreed laytime.

Claims for unpaid charter hire and damages for early termination of time charters or bareboat charters are recorded upon receipt of cash when collectability is not reasonably assured. Such amounts related to services previously rendered are recorded as time charter or bareboat charter revenue. Amounts in excess of services previously rendered are classified as other operating income.


F-12


Net income as a result of our revenue sharing agreements is presented as other operating income, net. Comparative numbers have been revised to conform to our current presentation. In 2016, $0.9 million was previously included in other revenues and has been reclassified to other operating income, net.

Charterhire expense
Charter hire expense is charged to the consolidated statement of operations on a straight-line basis over the lease term.

Contingent rental expense (income)
Any contingent elements of rental expense (income), such as profit share or interest rate adjustments, are recognized when the contingent conditions have materialized.

Gain (loss) on sale of assets and amortization of deferred gains
Gain (loss) on sale of assets and amortization of deferred gains include losses from the sale of vessels and the amortization of deferred gains. Gains (losses) from the sale of assets are recognized when the vessel has been delivered and all risks have been transferred and are determined by comparing the proceeds received with the carrying value of the vessel.

A deferred gain arises when we enter into a sale-leaseback transaction regarding a vessel and we do not relinquish the right to substantially all of the remaining use of the vessel. This deferred gain will be amortized in proportion to the gross rental payments over the minimum term of the lease.

Drydocking
Normal vessel repair and maintenance costs are expensed when incurred. We recognize the cost of a drydocking at the time the drydocking takes place, that is, it applies the "expense as incurred" method.

Impairment of vessels and newbuildings
The carrying values of our long-lived assets and newbuildings under construction are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. Such indicators may include depressed spot rates and depressed second hand vessel values. We assess recoverability of the carrying value of each asset or newbuilding on an individual basis by estimating the future undiscounted cash flows expected to result from the asset, including any remaining construction costs for newbuildings, and eventual disposal. If the future net undiscounted cash flows are less than the carrying value of the asset, or the current carrying value plus future newbuilding commitments, an impairment loss is recorded equal to the difference between the asset's or newbuildings carrying value and fair value. In addition, long-lived assets to be disposed of are reported at the lower of carrying amount and fair value less estimated costs to sell.

Fair value is estimated based on values achieved for the sale/purchase of similar vessels and appraised valuations. In addition, vessels to be disposed of by sale are reported at the lower of their carrying amount or fair value less estimated costs to sell.

Interest expense
Interest costs are expensed as incurred except for interest costs that are capitalized. Interest expenses are capitalized during construction of newbuildings based on accumulated expenditures for the applicable project at our current rate of borrowing. The capitalization of interest expenses ceases when the newbuilding is considered substantially completed. The amount of interest expense capitalized in an accounting period shall be determined by applying an interest rate (the "capitalization rate") to the average amount of accumulated expenditures for the asset during the period. The capitalization rates used in an accounting period are based on the rates applicable to borrowings outstanding during the period. We do not capitalize amounts beyond the actual interest expense incurred in the period.

Earnings per share
Basic earnings per share is computed based on the income available to common stockholders and the weighted average number of shares outstanding. Diluted earnings per share includes the effect of the assumed conversion of potentially dilutive instruments.

Cash and cash equivalents
All demand and time deposits and highly liquid, low risk investments with original maturities of three months or less at the date of purchase are considered equivalent to cash.

Restricted cash
Restricted cash comprises collateral deposits for derivative trading, and the minimum balance that must be maintained at all times in accordance with our loan agreements with various banks.

Marketable securities

F-13


Our marketable securities are considered to be available-for-sale securities and as such are carried at fair value. Any resulting unrealized gains and losses are recorded as a separate component of other comprehensive income in equity unless the securities are considered to be other than temporarily impaired, in which case unrealized losses are recorded in the consolidated statement of operations as impairment loss on marketable securities. The cost of available for sale securities is calculated on an average cost basis.

Derivatives
Our derivative instruments include interest-rate swap agreements, foreign currency swaps, forward freight agreements and bunker hedges. These derivatives are considered to be economic hedges. However, none of these derivative instruments have been designated as hedges for accounting purposes. These transactions involve the conversion of floating rates into fixed rates over the life of the transactions without changes in the fair values are recognized as assets or liabilities. Changes in the fair value of these derivatives are recorded in Gain (loss) on derivatives in our consolidated statement of operations. Cash outflows and inflows resulting from economic derivative contracts are presented as cash flows from operations in the consolidated statement of cash flows.

Financial instruments
In determining the fair value of our financial instruments, we use a variety of methods and assumptions that are based on market conditions and risks, including determining the impact of nonperformance risks, existing at each balance sheet date. For the majority of financial instruments, including most derivatives and long-term debt, standard market conventions and techniques such as options pricing models are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.

Receivables
Trade receivables, other receivables and long term receivables are presented net of allowances for doubtful balances. If trade accounts receivable become uncollectible, they are charged as an operating expense. Losses from uncollectible receivables are accrued when collection of the invoiced revenues is not assured. We make a judgment with regards to whether or not this should be recognized as income and if collection is not reasonably assured, no revenue will be recognized until cash has been received. These conditions are considered in relation to individual receivables or in relation to groups of similar types of receivables.

Interest income on interest bearing receivables is recognized on an accrual basis using prevailing contractual interest rates.

Inventories
Inventories, which are comprised principally of fuel and lubricating oils, are stated at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis.

Vessels and depreciation
Vessels are stated at cost less accumulated depreciation. Depreciation is calculated based on cost less estimated residual value, using the straight-line method, over the useful life of each vessel. The useful life of each vessel is deemed to be 25 years. The residual value is calculated by multiplying the lightweight tonnage of the vessel by the market price of scrap per tonne. The market price of scrap per tonne is calculated as the 10 year historical average up to the date we take ownership of the vessel, across the three main recycling markets (Far East, Indian sub-continent and Bangladesh). Residual values are reviewed annually.

Vessels and equipment under capital lease
We charter in certain vessels and equipment under leasing agreements. Leases of vessels and equipment, where we have substantially all the risks and rewards of ownership, are classified as capital leases. Each lease payment is allocated between liability and finance charges to achieve a constant rate on the capital balance outstanding. The interest element of the capital cost is charged to the Consolidated Statement of Operations over the lease period. Our one outstanding capital lease was acquired as a result of the Merger and recorded at fair value.

Depreciation of vessels and equipment under capital lease is included within "Depreciation" in the consolidated statement of operations. Vessels and equipment under capital lease are depreciated on a straight-line basis over the vessels' remaining economic useful lives or on a straight-line basis over the term of the lease. The method applied is determined by the criteria by which the lease has been assessed to be a capital lease.

Newbuildings
The carrying value of the vessels under construction ("Newbuildings") represents the accumulated costs to the balance sheet date which we have had to pay by way of purchase installments and other capital expenditures together with capitalized interest and associated finance costs. No charge for depreciation is made until the vessel is available for use.


F-14


Value of long term charter contracts
We account for the fair value of acquired long term charter contracts, as either a separate asset or liability. The fair value is calculated as the net present value of the difference in cash flows arising over the period of the contract when the expected cash flows from the contract are compared to expected cash flows from comparable contracts at the acquisition date. An asset is recorded for contracts, which are favorable to us and a liability has been recorded for contracts, which are unfavorable to us.

The amortization of time charter out contracts is recorded and presented under time charter revenues and the amortization of time charter in contracts is amortized and presented under charter hire expenses in the consolidated statement of operations.

Equity method investments
Investments in companies over which we have the ability to exercise significant influence but do not control are accounted for using the equity method. We record our investments in equity-method investees in the consolidated balance sheets as "Investment in associated companies" and our share of the investees' earnings or losses in the consolidated statements of operations as "Share in results of associated companies". The excess, if any, of purchase price over book value of our investments in equity method investees is included in the accompanying consolidated balance sheets in "Investment in associated companies".

The carrying values of equity method investments are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may no longer be recoverable. Such indicators may include depressed spot rates and depressed second hand vessel values. We assess recoverability of the carrying value of each individual equity method investments by estimating the fair value of the net assets of the company. An impairment loss is recorded equal to the difference between the investments carrying value and fair value. Fair value of investment is estimated based on values achieved for the sale/purchase of similar vessels and appraised valuations of the investments underlying assets.

Borrowings - loan amendments
Short term obligations that we intend to refinance on a long term basis when the intent to refinance is supported by the ability to consummate the refinancing, are classified as long term liabilities at the balance sheet date.

This is demonstrated by either a post balance sheet issuance of a long term obligation before the balance sheet is issued or when we enter into a financing agreement which clearly permits us to refinance the obligation on a long term basis, on terms that are readily determinable. If the Company enters into a financing agreement, the agreement must not expire within one year of the balance sheet date, no violations of any provisions of the financing agreement should have occurred at the balance sheet date or before the balance sheet is issued and the prospective lender or investor who has entered into the financing agreement should be to be financially capable of honoring the agreement.

Convertible bond
In January 2014, the Former Golden Ocean issued a $200 million convertible bond, which we assumed at the time of the Merger. It includes a loan component and an option to convert the loan to shares, which has not been bifurcated from the loan component and accounted for separately as it is indexed to our shares and would be classified as shareholders equity if it were a free standing derivative. The fair value of the convertible bond was determined to be $161.2 million at the time of the Merger based on the quoted price of 80.6%. The difference of $38.8 million is being amortized over the remaining life of the bond, and recorded as interest expense. A reacquisition of our outstanding debt securities is considered an extinguishment and the difference between the reacquisition price of debt and the net carrying amount of the extinguished debt is recognized in the income statement.

Deferred charges
Loan costs, including debt arrangement fees, are capitalized and amortized on a straight-line basis over the term of the relevant loan. The straight line basis of amortization approximates the effective interest method. If a loan is repaid early, any unamortized portion of the related deferred charges is charged against income in the period in which the loan is repaid. Amortization of deferred charges is included in interest expense, and prior year's numbers in 2016 and 2015 have been revised to conform with current presentation. In 2016 and 2015, $1.3 million and $0.1 million, respectively, was previously included in other financial items and have been reclassified to interest expense. Debt issuance costs are presented in the balance sheet as a direct deduction from the carrying amount of the related debt.

Distributions to shareholders
Distributions to shareholders are applied first to retained earnings. When retained earnings are not sufficient, distributions are applied to the contributed capital surplus account.

Stock-based compensation


F-15


Share Options Scheme
Stock based compensation represents the cost of vested and non-vested shares and share options granted to employees and to directors, for their services, and is included in “General and administrative expenses” in the consolidated statements of operations. The fair value of share options grants is determined with reference to option pricing models, and depends on the terms of the granted options. The fair value is recognized (generally as compensation expense) over the requisite service period for all awards that vest based on the ’straight-line method’ which treats such awards as a single award and results in recognition of the cost ratably over the entire vesting period.

Restricted Stock Units (RSUs)
We account for 50% of the RSUs issued to the directors as equity classified awards and we account for the remaining 50% as liability classified awards. We account for the RSUs issued to the management companies as liability classified awards.

The fair value of an equity instrument issued to a non-employee is measured by using the stock price and other measurement assumptions as of the date at which either (i) a commitment for performance by the counterparty has been reached; or (ii) the counterparty's performance is complete. This criterion is not considered to be met in the absence of considerable evidence, and liability accounting is applied with a re-measurement at each period end date. We have obtained a right to receive future services in exchange for unvested, forfeitable equity instruments, and the fair value of the equity instruments does not create equity until the future services are received (i.e. the instruments are not considered issued until they vest).

We expense the fair value of RSUs issued to employees on a straight line basis over the period the awards vest.

Transactions subject to common control and effect of acquisition from shareholder
The acquisition of 12 special purpose companies, each owning one newbuilding contract, from Frontline 2012 in March 2015 is recorded at historical carrying values as the transaction was determined to be between entities under common control and the difference of $59.7 million between the aggregate consideration paid by us and the historical carrying values recognized by Frontline 2012 has been recorded as additional contributed capital surplus.

Other comprehensive income/(loss):
The statement of other comprehensive income/(loss) presents the change in equity (net assets) during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by shareholders and distributions to shareholders. Reclassification adjustments are presented out of accumulated other comprehensive income/(loss) on the face of the statement in which the components of other comprehensive income/(loss) are presented or in the notes to the financial statements. The Company follows the provisions of ASC 220 “Comprehensive Income”, and presents items of net income/(loss), items of other comprehensive income/(loss) (“OCI”) and total comprehensive income/(loss) in two separate and consecutive statements.

3. RECENTLY ISSUED ACCOUNTING STANDARDS

Accounting Standards Updates, not yet adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. This update establishes a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. We have concluded that, under ASC 606, voyage charter revenue will continue to be recognized over time, however the period over which it is recognized will change from discharge-to-discharge to load-to-discharge.We believe that performance obligations under a voyage charter begin to be met from the point at which a cargo is loaded until the point at which a cargo is discharged. While this represents a change in the period over which revenue is recognized, the total voyage results recognized over all periods would not change, however, each period’s voyage results could differ materially from the same period’s voyage results recognized based on the present revenue recognition guidance. We expect to recognize an increase in the retained deficit of approximately $10 million on January 1, 2018 related to the timing of revenue recognition based on the change to the load-to-discharge method.

The new guidance also specifies revised treatment for certain contract related costs, being either incremental costs to obtain a contract, or cost to fulfill a contract. Under the new guidance, an entity shall recognize as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs. The guidance also provides a practical expedient whereby an entity may recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. Cost to fulfill a contract must be capitalized if they meet certain criteria. We are in the process of assessing the impact of this change on its consolidated financial statements.

F-16



We have elected to apply the modified retrospective approach. Upon adoption, we will recognize the cumulative effect of adopting this guidance as an adjustment to its opening balance of retained earnings as of January 1, 2018. Prior periods will not be retrospectively adjusted.

In January 2016, the FASB issued ASU 2016-01 Financial instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement for to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The amendments in this update will affect us for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Upon adoption of the standard, we expect that the standard may impact how we present the change in the fair value of our marketable securities in our consolidated statements of operations. As of December 31, 2017, our marketable securities had an unrealized gain of $5.3 million classified under other comprehensive income.

In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842), which requires lessees to recognize most leases on the balance sheet. This is expected to increase both reported assets and liabilities. For public companies, the standard will be effective for the first interim reporting period within annual periods beginning after December 15, 2018, although early adoption is permitted. Lessees and lessors will be required to apply the new standard at the beginning of the earliest period presented in the financial statements in which they first apply the new guidance, using a modified retrospective transition method. The requirements of this standard include a significant increase in required disclosures. Management is analyzing the impact of the adoption of this guidance on the Company’s consolidated financial statements, including assessing changes that might be necessary to information technology systems, processes and internal controls to capture new data and address changes in financial reporting. Management expects that we will recognize increases in reported amounts for property, plant and equipment and related lease liabilities upon adoption of the new standard.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which revises guidance for the accounting for credit losses on financial instruments within its scope. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The guidance will be effective January 1, 2020, with early adoption permitted. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We are in the process of evaluating the impact of this standard update on our consolidated financial statements and related disclosures.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. The update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this Update are effective for the Company for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. We do not expect the adoption of ASU 2017-01 to have a material impact on our consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Statement of cash flows (Topic 230): Classification of certain cash receipts and cash payments. This ASU addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The amendments in this Update are effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. Other than presentation, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.


F-17


In November 2016, the FASB issued ASU No. 2016-18, Statement of cash flows (Topic 230): Restricted Cash. The new standard requires that the statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments in this Update are effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments in this Update should be applied using a retrospective transition method to each period presented. Upon adoption of the standard, we expect restricted cash being reclassified as a component of cash, cash equivalents and restricted cash in the Consolidated Statements of Cash Flows. As of December 31, 2017 we have $63.0 million in restricted cash.

Accounting Standards Updates, recently adopted

In July 2015, the FASB issued ASU 2015-11-Inventory (Topic 330)-Simplifying the Measurement of Inventory, which applies to inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments in this update more closely align the measurement of inventory in GAAP with the measurement of inventory in IFRS. The adoption of ASU 2015-11 has not had a material impact on our consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-07, Investments-Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. The update eliminates the requirement that an investor retrospectively apply equity method accounting when an investment that it had accounted for by another method initially qualifies for use of the equity method. The adoption of ASU 2016-07 has not had a material impact on our consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The update simplifies the accounting for share based payment transactions. The adoption of ASU 2016-09 has not had a material impact on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017- 01 Business Combinations (Topic 805): Clarifying the Definition of a Business. The update introduces a screen to determine when an integrated set of assets and activities does not constitute a business. As under the screening mechanisms of the update, future transactions in relation to an integrated set of assets and activities are more likely to qualify as asset acquisitions as opposed to business combinations. The adoption of ASU 2017-01 has not had a material impact on our consolidated financial statements and related disclosures.




4. MERGER WITH THE FORMER GOLDEN OCEAN

The Transaction

On March 31, 2015, we merged with the Former Golden Ocean, a dry bulk shipping company based in Bermuda and listed on the OSE that mainly operated Capesize, Panamax and Ultramax vessels, and our name was changed to Golden Ocean Group Limited. Shareholders in the Former Golden Ocean received our shares as merger consideration. Pursuant to the Merger Agreement, one share in the Former Golden Ocean gave the right to receive 0.13749 of our shares, and we issued a total of 12,300,090 shares to shareholders in the Former Golden Ocean as merger consideration.

Accounting for the Merger

The Merger was accounted for as a business combination using the acquisition method of accounting under the provisions of ASC 805, with us selected as the accounting acquirer under this guidance. The factors that were considered in determining that we should be treated as the accounting acquirer were the relative voting rights in the combined company, the composition of the board of directors in the combined company, the relative sizes of us and the Former Golden Ocean, the composition of senior management of the combined company and the name of the combined company. Management considered that the relative voting rights in the combined company and the composition of the board of directors in the combined company were the most significant factors in determining us as the accounting acquirer.

The value of the consideration paid was calculated as follows:

F-18


(in thousands of $)
 
 
Fair value of shares issued
 
307,220

Fair value of vested stock options in the Former Golden Ocean
 
926

Total value of consideration
 
308,146


The following represents the calculation of the bargain purchase gain arising on consolidation based on management's final allocation of the total purchase price to the assets acquired and liabilities assumed:
(in thousands of $)
 
 
Assets
 
 
Cash and cash equivalents
 
129,084

Restricted cash
 
2,448

Marketable securities
 
5,779

Other current assets
 
78,457

Favorable contracts
 
30,417

Current assets
 
246,185

Restricted cash
 
31,552

Newbuildings
 
12,030

Vessels, net
 
632,997

Vessels under capital lease, net
 
14,029

Investment in associated companies
 
11,346

Favorable contracts
 
96,673

Other non current assets
 
9,116

Total assets
 
1,053,928

Liabilities
 
 
Current portion of long term debt
 
39,395

Current portion of capital lease obligations
 
7,032

Other current liabilities
 
28,180

Unfavorable contracts
 
1,567

Current liabilities
 
76,174

Long term debt
 
391,717

Convertible bond debt
 
161,200

Long term capital lease obligations
 
31,405

Other long term liabilities
 
434

Unfavorable contracts
 
5,976

Total liabilities
 
666,906

Fair value of net assets acquired and liabilities assumed
 
387,022

Total value of consideration
 
308,146

Bargain purchase gain arising on consolidation
 
78,876


As the fair value of the net assets acquired and liabilities assumed exceeded the total value of consideration paid, a bargain purchase gain of $78.9 million was recorded in the consolidated statement of operations. We consider that the bargain purchase gain is primarily attributable to the fall in our share price from the date we and the Former Golden Ocean entered into the Merger Agreement until the date the Merger was completed. On October 7, 2014, the date we and the Former Golden Ocean entered into the Merger Agreement, our closing share price was $7.85 and would have resulted in a fair value of shares issued of $482.3 million as compared to $307.2 million on March 31, 2015.

Vessels and equipment, net
The 29 vessels acquired were valued at fair value separately from the attached time charter contracts. Vessels were valued at fair value (level 2) based on the average of broker valuations from two different ship broker companies The brokers assessed each vessel based on, amongst other, age, yard, deadweight and capacity, and compare this to market transactions. For vessels we agreed to sell in April 2015 (Channel Alliance, Channel Navigator, Golden Zhoushan, Golden Beijing and Golden Magnum) the sales

F-19


price was used. The fair value of the vessels less estimated residual value is depreciated on a straight-line basis over the vessels' estimated remaining economic useful lives in accordance with Company's existing policy.

Vessels acquired with existing time charters
The value of a time charter acquired with a vessel was recognized separately to the value of the vessel. These contracts were fair valued (level 3) using an 'excess earnings' technique where the terms of the contract are assessed relative to current market conditions. The values of the contract related intangibles were determined by means of calculating the incremental or decremental cash flows arising over the life of the contracts compared with contracts with terms at prevailing market rates. This gave rise to a favorable contract asset in respect of vessels chartered out and an unfavorable contract liability in respect of the vessels chartered in.

The favorable contracts had remaining terms of ten months to 7.5 years at the time of the merger and the unfavorable contracts had remaining terms of three months to ten years. The fair value is amortized over the period of the contract on a straight line basis, except for the value of a contract of affreightment, which is amortized to reflect the timing of the expected economic benefit.

Newbuildings
The four newbuildings were valued at fair value (level 2) by estimating the market values for newbuilding contracts, this was the same process as for assessing the value of vessels. The valuation was based on the sales price for the completed vessel, not for the shipbuilding contract. The fair value was calculated as the estimated fair value of a completed vessel less the remaining committed capital expenditure for the vessel.

Vessels under capital lease
Leases of vessels, where we had substantially all the risks and rewards of ownership, were classified as capital leases. We acquired two vessels under capital lease as a result of the Merger, both of which were leased from unrelated third parties. The leasehold interest in these capital leased assets was recorded at fair value (level 3) based on the discounted value of the expected cash flows for the leasehold interest.

Capital lease obligations
The obligations under these capital leases were recorded at fair value (level 3) based on the net present value of the contractual lease payments.

Equity method investments
The fair value of the investment in associated companies equated to book value with the exception of the investment in Golden Opus Inc. As Golden Opus Inc. owned one vessel, the fair value of the company included a fair value adjustment based on broker values following the same process for assessing the value of owned vessels. This would be considered a level 3 assessment.

Convertible bond
While quoted market prices were not always available, the bonds traded "over the counter" and the fair value of the bonds was based on the market price on offer at the merger date (level 2).

Other
In April 2015, we received $40.1 million being the final outstanding amount in relation to the cancellation of newbuilding contracts by the Former Golden Ocean at Jinhaiwan. This amount was included in 'other current assets' in the purchase price allocation on March 31, 2015 and had no impact on the consolidated statement of operations.

The consolidated statement of operations for 2015 included revenues of $113.9 million and a net loss of $96.7 million, which are attributable to the Former Golden Ocean.

Unaudited Pro Forma Results

The following unaudited pro forma financial information presents the combined results of operations of the Company and the Former Golden Ocean as if the Merger had occurred as of the beginning of 2015. The pro forma financial information is not intended to represent or be indicative of the consolidated results of operations or financial condition of the Company that would have been reported had the acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial condition of the Company.

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(in thousands $, except per share data)
2015

Total operating revenues
225,013

 
 
Net (loss) income from continuing operations
(318,975
)
Loss from discontinued operations
—

Net (loss) income
(318,975
)
 
 
Basic and diluted earnings per share:
 
Basic and diluted (loss) earnings per share from continuing operations
$
(1.85
)
Basic and diluted loss per share from discontinued operations
$
—

Basic and diluted (loss) earnings per share
$
(1.85
)


5. INCOME TAXES

Bermuda
We were incorporated in Bermuda. Under current Bermuda law, we are not required to pay taxes in Bermuda on either income or capital gains. We have received written assurance from the Minister of Finance in Bermuda that, in the event of any such taxes being imposed, we will be exempted from taxation until March 31, 2035.

United States
We do not accrue U.S. income taxes as we are not engaged in a U.S. trade or business and are exempted from a gross basis tax under Section 883 of the U.S. Internal Revenue Code. A reconciliation between the income tax expense resulting from applying the U.S. Federal statutory income tax rate and the reported income tax expense has not been presented herein as it would not provide additional useful information to users of the financial statements as our net income is subject to neither Bermuda nor U.S. tax.

Singapore
We participate in the tax scheme in Singapore. All qualified shipping income derived from the shipping activity in our Singapore subsidiary is exempt from taxation for the duration of the Approved International Shipping Enterprise (AIS) approval. The AIS approval was in June 2015 for a period of ten years.

Other Jurisdictions
Our subsidiary in Norway is subject to income tax. The tax paid by our subsidiary in Norway is not material.

We do not have any unrecognized tax benefits, material accrued interest or penalties relating to income taxes. Based upon review of applicable laws and regulations, and after consultation with counsel, we do not believe we are subject to material income taxes in any jurisdiction.

6. SEGMENT INFORMATION

Our chief operating decision maker, or the CODM, measures performance based on our overall return to shareholders based on consolidated net income. The CODM does not review a measure of operating result at a lower level than the consolidated group and we only have one reportable segment.
 
Our vessels operate worldwide and therefore management does not evaluate performance by geographical region as this information is not meaningful.

For the year ended December 31, 2017, one customer accounted for 10 percent or more of our consolidated revenues in the amounts of $59.7 million. For the year ended December 31, 2016, two customers each accounted for 10 percent or more of our consolidated revenues in the amount of $34.5 million and $27.1 million, respectively. For the year ended December 31, 2015, one customer accounted for 10 percent or more of our consolidated revenues in the amount of $28.0 million.

7. EARNINGS PER SHARE


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The components of the numerator and the denominator in the calculation of basic and diluted earnings per share are as follows:
(in thousands of $)
 
2017

 
2016

 
2015

Net (loss) income
 
(2,348
)
 
(127,711
)
 
(220,839
)

(in thousands)
 
2017

 
2016

 
2015

Weighted average number of shares outstanding - basic
 
125,019

 
95,238

 
30,243

Impact of restricted stock units
 
—

 
8

 
27

Weighted average number of shares outstanding - diluted
 
125,019

 
95,246

 
30,270


The exercise of share options using the treasury stock method was anti-dilutive as of December 31, 2017, 2016 and 2015, as the Company reported a net loss for the years then ended. Therefore, as of December 31, 2017, 2016 and 2015, 324,338, 84,000 and 76,200 shares, respectively, were excluded from the denominator in each calculation.

The conversion of the convertible bonds using the if-converted method was anti-dilutive as of December 31, 2017, 2016 and 2015, as the Company reported a net loss for the years then ended. Therefore, as of December 31, 2017, 2016 and 2015, 2,264,173, 2,268,860 and 2,007,025 shares, respectively, were excluded from the denominator in each calculation.

8. GAIN (LOSS) ON SALE OF ASSETS AND AMORTIZATION OF DEFERRED GAINS
(in thousands of $)
 
2017

 
2016

 
2015

Net gain (loss) on sale of vessels
 
(570
)
 
72

 
(2,062
)
(Loss) on sale of newbuilding contracts
 
—

 
—

 
(8,858
)
Amortization of deferred gains
 
258

 
228

 
132

 
 
(312
)
 
300

 
(10,788
)

In September 2017, we entered into agreements to sell six Ultramax vessels (Golden Libra, Golden Virgo, Golden Taurus, Golden Gemini, Golden Aries and Golden Leo). In the fourth quarter of 2017, we agreed to a partial settlement for one of these vessels in the form of consideration shares in the buyer. In the aggregate, the consideration received consisted of $135.1 million in cash and 910,802 consideration shares in the buyer. The value of the consideration shares in the buyer was $7.4 per share at the date of completion of the sale. The six vessels were delivered in the fourth quarter of 2017 and the Company recorded a net loss of $0.6 million upon completion of the sales.

In August 2016, we sold Golden Lyderhorn, a 1999-built Panamax classified as a vessel held under capital lease, and a loss on the sale of $9.0 thousand was recorded as a result of previous impairment.

In February 2016 and October 2016, we completed the sale of Front Caribbean and Front Mediterranean and gains of $68.0 thousand and $13.0 thousand were recorded, respectively.

In November 2015, we entered into an agreement with New Times Shipbuilding Co. Ltd in China to convert two Capesize dry bulk newbuildings to Suezmax oil tanker newbuildings, with expected delivery in the first quarter of 2017. On November 23, 2015, we agreed to sell these newbuilding contracts to Frontline for $1.9 million. The sale was completed on December 31, 2015 and we recognized a loss of $8.9 million.

In April 2015, we agreed to the sale of four newbuilding Capesize vessels; two of the vessels (Front Atlantic and Front Baltic) were sold in August 2015 and November 2015, respectively, and we recorded a loss of $2.2 million and a gain of $0.1 million, respectively.

9. IMPAIRMENT OF VESSELS AND NEWBUILDINGS

In 2017, we entered into agreements to sell six Ultramax vessels for a gross sale price of $142.5 million, consisting of $135.1 million in cash and 910,802 consideration shares in the buyer. We recorded an impairment loss of $1.1 million, corresponding to the difference between the carrying value and estimated fair value of the vessels based on the sales agreements.


F-22


In 2016, we entered into an agreement to sell the Golden Lyderhorn, a vessel held under capital lease, and recorded an impairment loss of $1.0 million thereon. The loss corresponded to the difference between the carrying value and estimated fair value of the vessel as at June 30, 2016 following an impairment review that was triggered by the likelihood to dispose the vessel prior to the end of its useful life. The sale was subsequently concluded and the vessel was delivered to its new owner in August 2016.

In 2015, we determined that the carrying value of the related asset for Golden Lyderhorn, a vessel held under capital lease, was not fully recoverable. An impairment review was triggered by a significant fall in rates in the Baltic Dry Index. We recorded an impairment loss of $4.5 million, being the difference between the carrying value and estimated fair value of our leasehold interest based on the discounted expected future cash flows from the leased vessel.

Also in 2015, we recorded an impairment loss of $7.1 million on three Capesize newbuildings (Front Baltic, Front Caribbean and Front Mediterranean), which we agreed to sell, together with Front Atlantic, to a third party upon their completion and delivery to us. The loss recorded was equal to the difference between the carrying value plus expected costs to complete the three newbuildings and estimated fair value. In 2015, we agreed to the sale of four newbuilding Capesize vessels; two of vessels (Front Atlantic and Front Baltic) were delivered in 2015, and a loss of $2.2 million and a gain of $0.1 million, respectively, were recorded.

In 2015, we recorded an impairment loss of $141.0 million on five Capesize vessels relating to KSL China ($20.5 million), Battersea ($38.3 million), Belgravia ($34.2 million), Golden Future ($27.5 million) and Golden Zhejiang ($20.5 million). The loss recorded was equal to the difference between the carrying value and estimated fair value of the vessels. Also in 2015, we agreed to sell and lease back these vessels. The vessels were delivered in 2015.


10. LEASES

As of December 31, 2017, we leased in eight (2016: eight vessels) from Ship Finance and one vessel (2016: one vessel) from third parties. All of these vessels are leased under long-term time charters which are classified as operating leases.

Charterhire and office rent expense
The future minimum operating lease expense payments under our non-cancelable operating leases as of December 31, 2017 are as follows:
(in thousands of $)
 
 
2018
 
37,008

2019
 
35,369

2020
 
35,474

2021
 
35,066

2022
 
32,043

Thereafter
 
137,162

 
 
312,122


The future minimum operating lease expense payments are based on the contractual cash outflows under non-cancelable contracts. The charter hire expense recognition is based upon the straight-line basis, net of amortization of unfavorable time charter contracts.

As of December 31, 2017, the future minimum rental payments include $0.9 million (2016: $1.2 million) in relation to office rent expenses and $311.2 million (2016: $345.5 million) in relation to charter hire expenses for leased in vessels.

During 2017, 2016 and 2015, the charter hire expense under operating leases, net of amortization of unfavorable time charter contracts-in were as follows:
(in thousands of $)
 
2017

 
2016

 
2015

Charter hire expenses, operating leases
 
71,345

 
54,365

 
32,118

Amortization of unfavorable time charter contracts-in
 
(672
)
 
(674
)
 
(1,399
)
Charterhire expenses
 
70,673

 
53,691

 
30,719



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With reference to Note 28, in April 2015 we agreed to a sale and leaseback transaction with Ship Finance for eight Capesize vessels that were time chartered-in by one of our subsidiaries for a period of ten years. The daily time charter rate is $17,600 during the first seven years and $14,900 in the remaining three years, of which $7,000 is for operating expenses (including dry docking costs). In addition, 33% of our profit from revenues above the daily time charter rate for all eight vessels aggregated will be calculated and paid on a quarterly basis to Ship Finance. In addition, the daily hire payments will be adjusted if the actual three month LIBOR should deviate from a base LIBOR of 0.4% per annum. For each 0.1% point increase/decrease in the interest rate level, the daily charter hire will increase or decrease by $50 per day in the first seven years and $25 per day in the remaining three years. We have a purchase option of $112 million en-bloc after 10 years and, if such option is not exercised, Ship Finance has the option to extend the charters by three years at $14,900 per day. The minimum lease period has been assessed to 13 years. Contingent rental income recorded in 2017, 2016 and 2015 as a reduction in charter hire expense was $1.15 million, $0.41 million and $0.02 million, respectively.

We acquired two long term chartered-in vessels, accounted for as operating leases, as a result of the Merger. One vessel was redelivered in June 2015.

Rental income
As of December 31, 2017, we leased out 10 vessels on fixed time charter rates (2016 : six vessels) and fifteen vessels (2016 : ten vessels) on index-linked time charter rates to third parties with initial periods ranging between one year and ten years. All of these leases are classified as operating leases.

The future minimum operating lease revenue receipts under our non-cancelable fixed rate operating leases as of December 31, 2017 are as follows:
(in thousands of $)
 
 
2018
 
57,494

2019
 
35,785

2020
 
23,166

2021
 
8,370

2022
 
—

Thereafter
 
—

 
 
124,815


The future minimum operating lease revenue receipts are based on the contractual cash inflows under non-cancelable contracts. The charter hire revenue recognition is based upon the straight-line basis, net of amortization of favorable time charter contracts.

As of December 31, 2017, the cost and accumulated depreciation of the twenty-four owned vessels and the one vessel held under capital lease, which were leased out to third parties, were $1,254.8 million and $103.3 million, respectively. As of December 31, 2016, the cost and accumulated depreciation of the fifteen owned vessels and the one vessel held under capital lease, which were leased out to third parties, were $771.1 million and $58.2 million, respectively.

11. MARKETABLE SECURITIES

Our marketable securities are equity securities considered to be available-for-sale securities.
(in thousands of $)
2017

 
2016

Balance at start of year
6,524

 
14,615

Disposals during the year
—

 
(328
)
Additions during the year
6,740

 
—

Unrealized gain (loss), net
3,036

 
(7,763
)
Balance at end of year
16,300

 
6,524


In the third quarter of 2017, we entered into agreements to sell six Ultramax vessels to a company listed on a U.S. stock exchange. For one of the vessels we agreed to a partial settlement in the form of 910,802 consideration shares in the buyer. The cost price and fair value as of December 31, 2017 was $6.7 million for these shares. As of December 31, 2017, the fair value of our total investments in this company was $16.3 million.


F-24


During 2016, we sold $0.3 million of our investment in a company listed on a U.S. stock exchange., for cash proceeds of $0.1 million and realized a loss on the sale of $0.2 million. We recorded a net unrealized loss of $6.3 million of which $8.5 million was concluded as other-than-temporary impairment loss. The fair value of this investment as of December 31, 2016 was $6.5 million. During 2015, we made a $32.2 million investment in the company and we recorded a net unrealized loss determined as other-than-temporary impairment loss of $19.1 million. The fair value of this investment at December 31, 2015 was $13.1 million.

During 2015 and as a result of the Merger, we acquired an investment of $5.7 million in a company listed on the Norwegian 'over the counter' market. In 2017, the company sold its assets and in the aggregate we received a total $1.6 million in distributions from the company. As of December 31, 2017, we do not hold any investment in the company. During 2016, we recorded a net unrealized loss determined as other-than-temporary impairment loss of $1.5 million. The fair value of this investment at December 31, 2016 was nil. In 2015, we recorded a net unrealized loss determined as other-than-temporary impairment loss of $4.2 million. The fair value of this investment at December 31, 2015 was $1.5 million.

12. TRADE ACCOUNTS RECEIVABLE, NET

Trade accounts receivables are stated net of a provision for doubtful accounts. Movements in the provision for doubtful accounts in the three years ended December 31, 2017 are summarized as follows:
(in thousands of $)
 
 
Balance at December 31, 2014
 
7,434

Additions charged to income
 
512

Balance at December 31, 2015
 
7,946

Additions charged to income
 
199

Deductions credited to trade receivables
 
(7,193
)
Balance at December 31, 2016
 
952

Additions charged to income
 
462

Deductions credited to trade receivables
 
(768
)
Balance at December 31, 2017
 
646


In June 2016, we received $1.7 million and $0.7 million as full settlement of claims for unpaid charter hire and damages for Mayfair and Camden, respectively; the two VLCC vessels that had their charters were terminated in 2012. The settlement related to unrecognized bareboat charter revenue in respect to services rendered in the year ended December 31, 2011 and the aggregate $2.4 million was presented as such on the statement of operations. Trade accounts receivable of $7.0 million and a provision for doubtful accounts in the same amount were written off.


13. OTHER RECEIVABLES
(in thousands of $)
2017

 
2016

Agent receivables
4,794

 
2,070

Advances
664

 
486

Claims receivables
1,819

 
420

Other receivables
18,160

 
8,011

 
25,437

 
10,987


Other receivables are presented net of allowances for doubtful accounts amounting to nil and nil as of December 31, 2017 and December 31, 2016.

14. VALUE OF CHARTER PARTY CONTRACTS

The value of charter-out contracts is summarized as follows:

F-25


(in thousands of $)
2017

 
2016

 
2015

Opening balance
76,099

 
103,376

 
—

Acquired as a result of the Merger
—

 
—

 
127,090

Acquired time charter contracts from Quintana

(3,080
)
 
—

 
—

Amortization charge
(19,333
)
 
(27,277
)
 
(23,714
)
Total
53,686

 
76,099

 
103,376

Less: current portion
(18,732
)
 
(22,413
)
 
(28,829
)
Non-current portion
34,954

 
53,686

 
74,547


In connection with the acquisition of vessels from Quintana in 2017, we acquired certain time charter-out contracts. The contracts were valued to net negative $3.1 million and were fully amortized as of December 31, 2017. Time charter revenues in 2017, 2016 and 2015 have been reduced by $19.3 million, $27.3 million and $23.7 million, respectively, as a result of the amortization of charter-out contracts.

The value of charter-out contracts will be amortized as follows:
(in thousands of $)
 
 
2018
 
18,732

2019
 
18,732

2020
 
12,148

2021
 
4,074

2022
 
—

Thereafter
 
—

 
 
53,686


The value of charter-in contracts is summarized as follows:
(in thousands of $)
2017

 
2016

 
2015

Opening balance
5,470

 
6,144

 
—

Acquired as a result of the Merger
—

 
—

 
7,543

Amortization charge
(672
)
 
(674
)
 
(1,399
)
Total
4,798

 
5,470

 
6,144

Less: current portion
(672
)
 
(672
)
 
(674
)
Non-current portion
4,126

 
4,798

 
5,470


The current and non-current portion of the value of unfavorable charter-in contracts is recorded in other current liabilities and long term liabilities, respectively.

Charterhire expenses in 2017, 2016, and 2015, have been reduced by $0.7 million, $0.7 million and $1.4 million, respectively, as a result of the amortization of unfavorable charter-in contracts.

The value of unfavorable charter-in contracts will be amortized as follows:
(in thousands of $)
 
 
2018
 
672

2019
 
672

2020
 
674

2021
 
672

2022
 
672

Thereafter
 
1,436

 
 
4,798



F-26


15. VESSELS AND EQUIPMENT, NET
(in thousands of $)
 
Cost

 
Accumulated Depreciation

 
Net Book Value

Balance at December 31, 2015
 
1,540,559

 
(52,354
)
 
1,488,205

Additions
 
194

 


 
 
Disposals
 
(92,351
)
 


 
 
Transfer from newbuildings
 
425,393

 


 
 
Depreciation
 

 
(62,502
)
 
 
Balance at December 31, 2016
 
1,873,795

 
(114,856
)
 
1,758,939

Additions
 
448,392

 


 
 
Disposals
 
(148,908
)
 
8,403

 
 
Transfer from newbuildings
 
227,336

 


 
 
Impairment loss
 
(1,066
)
 


 
 
Depreciation
 


 
(78,093
)
 
 
Balance at December 31, 2017
 
2,399,549

 
(184,546
)
 
2,215,003


At December 31, 2017, we owned three Newcastlemaxes, 29 Capesizes, 28 Panamaxes and two Ultramaxes (at December 31, 2016: two Newcastlemaxes, 20 Capesizes, 18 Panamaxes and six Ultramaxes).

In October 2017 and with reference to Note 28, we agreed to acquire two modern Capesize vessels from Hemen, our largest shareholder, with a purchase price of $43.0 million for each vessel. As settlement of the purchase price for each vessel, we entered into seller's credit loans with an affiliate of Hemen for $21.5 million, respectively. The remaining part of the purchase price consisted of $4.5 million of cash and 2,000,000 of newly-issued common shares of the Company. In November 2017, one of the vessels was delivered to us and $40.7 million was capitalized in purchase price for the vessel. Refer to Note 32 for the delivery of the second vessel.

In March 2017, we entered into agreements to acquire 16 dry bulk vessels in transactions where we would issue in aggregate 17.8 million consideration shares and assume debt of $285.2 million. Of the 16 acquired vessels, 14 were acquired from subsidiaries of Quintana and two Panamax vessels were acquired from affiliates of Hemen. The vessels acquired from Quintana consisted of one Newcastlemax, five Capesizes and eight Panamaxes. The 14 vessels acquired from Quintana were subsequently renamed Golden Gayle, Golden Houston, Golden Kaki, Golden Amreen, Golden Anastasia, Golden Myrtalia, Golden Deb, Golden Sue, Golden Kennedy, Golden Jake, Golden Arion, Golden Ioanari, Golden Keen and Golden Shea were delivered between April and July 2017. In exchange for the 14 vessels acquired from Quintana, we issued an aggregate of 14.5 million shares as consideration to Quintana and associated companies. We also assumed $262.7 million in debt and prepaid $17.4 million in installments of this debt. In aggregate, we capitalized $363.4 million in the purchase price for the 14 vessels. In connection with the acquisition of vessels from Quintana in 2017, we acquired certain time charter-out contracts. The contracts were valued to net negative $3.1 million and were fully amortized as of December 31, 2017.

In exchange for the two Panamax vessels acquired from affiliates of Hemen, subsequently renamed Golden Amber and Golden Opal and delivered in June 2017, we issued an aggregate of 3.3 million shares as consideration to Hemen and assumed seller's credits of an aggregate of $22.5 million. In the aggregate, we capitalized $43.1 million in the purchase price for the two vessels.

In September 2017, we entered into agreements to sell six Ultramax vessels, Golden Libra, Golden Virgo, Golden Taurus, Golden Gemini, Golden Aries and Golden Leo, for a gross sale price of $142.5 million. For one of the vessels we agreed to a partial settlement in the form of consideration shares in the buyer. In the aggregate, the consideration received consisted of $135.1 million in cash and 910,802 consideration shares in the buyer, with a market value of $7.4 per share upon completion of the sale. In the third quarter of 2017, we recorded an impairment loss of $1.1 million in connection with the sale. The vessels were delivered in the fourth quarter of 2017 and we recorded a net loss of $0.6 million upon completion of the sales.

In September 2017, we took delivery of the Golden Nimbus, a Capesize newbuilding. The total construction cost transferred from newbuildings amounts to $50.7 million.

In February 2017, we took delivery of the Golden Surabaya and Golden Savannah, two Capesize dry bulk newbuildings. The total construction cost transferred from newbuildings was $128.1 million.


F-27


In January 2017, we took delivery of the Golden Virgo and Golden Libra, two Ultramax dry bulk newbuildings. The total construction cost transferred from newbuildings was $48.5 million.

In October 2016, we took delivery of the Front Mediterranean, a Capesize dry bulk newbuilding. The total construction cost transferred from newbuldings amounts to $46.2 million. The vessel was sold upon delivery for sales proceeds of $46.3 million and we recognized a gain of $13.0 thousand.

In August 2016, we took delivery of the Golden Leo, an Ultramax dry bulk newbuilding that was acquired as a result of the Merger. The total construction cost transferred from newbuldings was $26.0 million.

In May 2016, we took delivery of the Golden Fulham, a Capesize dry bulk newbuilding that was purchased from Frontline 2012 Ltd. The total construction cost transferred from newbuldings was $52.9 million.

In February 2016, we took delivery of the Front Caribbean, a Capesize dry bulk newbuilding. The total construction cost transferred from newbuldings was $46.1 million. The vessel was sold upon delivery for sales proceeds of $46.2 million and we recognized a gain of $68.0 thousand.

In January 2016, we took delivery of the Golden Barnet and Golden Bexley, both Capesize dry bulk newbuildings and the Golden Scape and Golden Swift, both Newcastlemax dry bulk newbuildings. All of these newbuildings were purchased from Frontline 2012 Ltd. The total construction cost transferred from newbuildings was $254.1 million.

Total depreciation expense was $78.1 million, $62.5 million and $51.6 million in 2017, 2016 and 2015, respectively.

16. VESSELS UNDER CAPITAL LEASE, NET
(in thousands of $)
 
 
Balance at December 31, 2015
 
8,354

Disposals
 
(3,473
)
Impairment loss
 
(985
)
Depreciation
 
(940
)
Balance at December 31, 2016
 
2,956

Depreciation
 
(895
)
Balance at December 31, 2017
 
2,061


Refer to Note 9 for further details related to impairment on Golden Lyderhorn in 2016.

The outstanding obligations under capital leases at December 31, 2017 are payable as follows:
(in thousands of $)
 
 
2018
 
5,944

2019
 
5,944

2020
 
1,791

Thereafter
 
—

Minimum lease payments
 
13,679

Less: imputed interest
 
(1,005
)
Present value of obligations under capital leases
 
12,674


As of December 31, 2017, we held one vessel under capital lease (December 31, 2016: one vessel). The lease is for an initial term of 10 years. The remaining period of the lease at December 31, 2017 is three years (December 31, 2016: 4 years).

As of December 31, 2017, we had the following purchase options for the one vessel:

F-28


(in thousands of $)
 
Purchase option exercise date
 
Purchase option amount

Golden Eclipse
 
April 2018
 
38,000

Golden Eclipse
 
April 2019
 
36,250

Golden Eclipse
 
April 2020
 
33,550


Our lease obligation is secured by the lessor's title to the leased asset and by a guarantee issued to the lessor (Golden Eclipse).

17. NEWBUILDINGS

The carrying value of newbuildings represents the accumulated costs we have paid by way of purchase installments and other capital expenditures together with capitalized loan interest. The carrying value of newbuildings at December 31, 2017 relates to five Capesize dry bulk newbuildings (December 31, 2016: eight Capesize and two Ultramax dry bulk newbuildings).

Movements in the two years ended December 31, 2017 are summarized as follows:
Balance at December 31, 2015
 
338,614

Installments and newbuilding supervision fees paid
 
265,083

Interest capitalized
 
2,258

Transfers to Vessels and Equipment
 
(425,393
)
Balance at December 31, 2016
 
180,562

Installments and newbuilding supervision fees paid
 
152,501

Interest capitalized
 
—

Transfers to Vessels and Equipment
 
(227,336
)
Balance at December 31, 2017
 
105,727


Refer to Note 32 for the delivery of the remaining five newbuildings.

In September 2017, we took delivery of the Golden Nimbus, a Capesize newbuilding, and paid a final installment including agreed extras of $29.3 million.

In February, 2017, we took delivery of the Golden Surabaya and Golden Savannah, two Capesize dry bulk newbuildings, and paid final installments including agreed extras of $67.7 million in total.

In January 2017, we took delivery of the Golden Virgo and Golden Libra, two Ultramax dry bulk newbuildings, and paid final installments including agreed extras of $31.3 million in total.

During 2017, we paid and capitalized in aggregate pre-delivery installments of $19.5 million and other capitalized costs of $4.7 million.

In October 2016, we took delivery of the Front Mediterranean, a Capesize newbuilding. Upon delivery, the final installment including agreed extras of $33.5 million was paid.

In August 2016, we took delivery of the Golden Leo, an Ultramax newbuilding. Upon delivery, the final installment including agreed extras of $15.7 million was paid.

In May 2016, we took delivery of the Golden Fulham, a Capesize newbuilding. Upon delivery, the final installment including agreed extras of $41.5 million was paid.

In February 2016, we took delivery of the Front Caribbean, a Capesize newbuilding. Upon delivery, the final installment including agreed extras of $33.4 million was paid.

In January 2016, we took delivery of the Golden Barnet and Golden Bexley, both Capesize newbuildings, and Golden Scape and Golden Swift, both Newcastlemax newbuildings. Upon delivery, aggregate final installments including agreed extras of $112.6 million were paid.

F-29



During 2016, we paid and capitalized in aggregate pre-delivery installments of $24.6 million and other capitalized costs $3.7 million.


18. EQUITY METHOD INVESTMENTS

As at December 31, the Company had the following participation in investments that are recorded using the equity method:
(% of ownership)
 
2017

 
2016

United Freight Carriers LLC ("UFC")
 
50.00
%
 
50.00
%
Golden Opus Inc. ("G. Opus")
 
50.00
%
 
50.00
%
Seateam Management Pte. Ltd ("Seateam")
 
22.19
%
 
22.19
%
Capesize Chartering Ltd ("CCL")
 
25.00
%
 
25.00
%

Movements in equity method investments for the years ended December 31, 2017 and 2016 are summarized as follows:
(in thousands of $)
 
G. Opus

 
UFC

 
Seateam

 
CCL

 
Total

At December 31, 2015
 
4,958

 
770

 
497

 
—

 
6,225

Distributions received from associated companies
 
—

 
—

 
(256
)
 
—

 
(256
)
Share of income / (loss)
 
(694
)
 
(149
)
 
462

 
—

 
(381
)
Impairment loss
 
(2,142
)
 
—

 
—

 
—

 
(2,142
)
Equity contribution
 
750

 
—

 
—

 
—

 
750

Purchases
 
—

 
—

 
28

 
—

 
28

At December 31, 2016
 
2,872

 
621

 
731

 
—

 
4,224

Distributions received from associated companies
 
(7,300
)
 
—

 
(257
)
 
—

 
(7,557
)
Share of income / (loss)
 
3,473

 
827

 
320

 
—

 
4,620

Equity contribution
 
1,000

 
—

 
—

 
—

 
1,000

At December 31, 2017
 
45

 
1,448

 
794

 
—

 
2,287


The following tables include summarized financial information provided by the equity investees including information for significant equity affiliates and the reconciliation of such information to the consolidated financial statements shown below:
(in thousands of $)
 
G. Opus
 
UFC
 
Others
 
Total
 
 
2017

 
2016

 
2017

 
2016

 
2017

 
2016

 
2017

 
2016

Current assets
 
119

 
1,715

 
4,125

 
1,819

 
9,867

 
10,086

 
14,111

 
13,620

Non current assets
 
—

 
21,936

 
—

 
—

 
389

 
363

 
389

 
22,299

Total assets
 
119

 
23,651

 
4,125

 
1,819

 
10,256

 
10,449

 
14,500

 
35,919

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
29

 
155

 
1,227

 
577

 
6,521

 
7,216

 
7,777

 
7,948

Long-term liabilities
 
—

 
17,751

 
—

 
—

 
35

 
11

 
35

 
17,762

Stockholders' equity
 
90

 
5,745

 
2,898

 
1,242

 
3,700

 
3,222

 
6,688

 
10,209

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of ownership in equity investees
 
50%
 
50%
 
*
 
 
Equity investment of associated companies
 
45

 
2,872

 
1,448

 
621

 
821

 
715

 
2,314

 
4,208

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidation and reconciling adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
—

Other
 
—

 
—

 
—

 
—

 
(27
)
 
16

 
(27
)
 
16

Investment in equity investees
 
45

 
2,872

 
1,448

 
621

 
794

 
731

 
2,287

 
4,224


F-30






F-31


(in thousands of $)
 
G. Opus
 
UFC
 
Others
 
 
2017

 
2016

 
2015

 
2017

 
2016

 
2015

 
2017

 
2016

 
2015

Total operating revenue
 
3,817

 
4,262

 
5,739

 
7,413

 
9,591

 
23,977

 
8,815

 
8,391

 
7,494

Gain sale of vessel
 
7,166

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total operating expense
 
(3,324
)
 
(4,905
)
 
(8,864
)
 
(5,914
)
 
(9,885
)
 
(23,450
)
 
(7,063
)
 
(6,576
)
 
(6,043
)
Net operating (loss) income
 
7,659

 
(643
)
 
(3,125
)
 
1,499

 
(294
)
 
527

 
1,752

 
1,815

 
1,451

Net (loss) income
 
6,945

 
(1,299
)
 
(3,742
)
 
1,654

 
(297
)
 
489

 
1,633

 
1,611

 
1,301

 
 


 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of ownership in investees
 
50%
 
50%
 
*
Equity in net income (loss) of associated companies
 
3,473

 
(650
)
 
(1,871
)
 
827

 
(149
)
 
245

 
362

 
357

 
276

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidation and reconciling adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Excluded (income) loss prior to the Merger in 2015**
 
—

 
—

 
1,050

 
—

 
—

 
(105
)
 
—

 
—

 
(28
)
Other
 
—

 
(44
)
 
—

 
—

 
—

 
—

 
(42
)
 
105

 
—

Equity in net income (loss) of associated companies
 
3,473


(694
)

(821
)

827


(149
)

140


320


462


248

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment loss on investment
 
—

 
(2,142
)
 
(4,600
)
 
—

 
—

 
—

 
—

 
—

 
—

Total equity in net income (loss) of associated companies including impairment losses
 
3,473

 
(2,836
)
 
(5,421
)
 
827

 
(149
)
 
140

 
320

 
462

 
248

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017

 
2016

 
2015

 
 
 
 
 
 
 
 
 
 
 
 
Total operating revenue
 
20,045

 
22,244

 
37,210

 
 
 
 
 
 
 
 
 
 
 
 
Gain sale of vessel
 
7,166

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Total operating expense
 
(16,301
)
 
(21,366
)
 
(38,357
)
 
 
 
 
 
 
 
 
 
 
 
 
Net operating (loss) income
 
10,910

 
878

 
(1,147
)
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income
 
10,232

 
15

 
(1,952
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity in net income (loss) of associated companies
 
4,662

 
(442
)
 
(1,350
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidation and reconciling adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Excluded (income) loss prior to the Merger in 2015**
 
—

 
—

 
917

 
 
 
 
 
 
 
 
 
 
 
 
Other
 
(42
)
 
61

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Equity in net income (loss) of associated companies
 
4,620

 
(381
)
 
(433
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment loss on investment
 
—

 
(2,142
)
 
(4,600
)
 
 
 
 
 
 
 
 
 
 
 
 
Total equity in net income (loss) of associated companies including impairment losses
 
4,620

 
(2,523
)
 
(5,033
)
 
 
 
 
 
 
 
 
 
 
 
 


F-32


*Calculation based on a percentage range between 21.25% and 25%
**The table includes results for the full year 2015, but that these entities were acquired as a part of the merger which closed on March 31, 2015 and therefore the company’s share of results is only recorded for the period subsequent to the merger.

In 2017, Golden Opus Inc. sold its only vessel to an unrelated third party and repaid its outstanding bank debt. Following these transactions, Golden Opus Inc. distributed $7.3 million in cash to each of the two joint venture partners, respectively. As of December 31, 2016 and 2015, Golden Opus had a $22 million senior secured term loan agreement with us as guarantor for 50% of the facility.

In 2017, cash dividends received from equity method investees amounted to $7.6 million (2016: $0.3 million, 2015: $0.1 million).

In April 2016, we purchased an additional 5,156 ordinary shares at par value of SG$1 in Seateam. The purchase increased the stake of the Company from 21.25% to 22.19%. The net asset value per share at the date of the purchase was $5.47 and resulted in a gain on purchase of $24 thousand recognized in other financial items.

In March 2016, we contributed $0.8 million additional capital to Golden Opus Inc.

As of March 31, 2016, we recorded an impairment loss of $2.2 million of the investment in Golden Opus Inc. following an impairment review triggered by the continuing fall in rates in the Baltic Dry Index. The loss recorded corresponded to the difference between the carrying value prior to the impairment of $5.3 million and its estimated fair value of $3.1 million.

In February 2016, Golden Union Shipping Co S.A. equally transferred its 20% stake in CCL to the remaining four joint venture partners (Bocimar International NV, C Transport Holding Ltd, Star Bulk Carrier Corp and the Company). The Company's initial investment in Capesize Chartering and subsequent share of results is insignificant at December 31, 2017.

As of December 31, 2015, we recorded an impairment loss of $4.6 million of the investment in Golden Opus Inc. following an impairment review that was triggered by the significant fall in rates in the Baltic Dry Index. The loss recorded is equal to the difference between the carrying value prior to the impairment of $9.6 million and its estimated fair value of $5.0 million.

With reference to Note 28 and in February 2015, the Former Golden Ocean, Bocimar International NV, C Transport Holding Ltd, Golden Union Shipping Co S.A., and Star Bulk Carriers Corp. announced the formation of a new joint venture company, Capesize Chartering Ltd. We acquired the Former Golden Ocean's 20% interest in Capesize Chartering upon completion of the Merger and allocated nil value to the shares.

19. OTHER LONG TERM ASSETS
(in thousands of $)
 
2017

 
2016

Seller's credit receivable long-term portion
 
1,500

 
2,000

Deferred tax asset
 
294

 
343

Prepaid charterhire expenses (straight-lining of lease expense)
 
8,887

 
5,184

Other long term assets
 
10,681

 
7,527


With reference to Note 28, in the third quarter of 2015 eight vessels were sold and leased back from Ship Finance for a period of 10 years. The daily time charter rate is $17,600 during the first seven years and $14,900 in the remaining six years, including the three years optional period of the vessel owner. We have straight lined the total charterhire expense over the lease term of 13 years. An amount of $3.7 million was credited to charterhire expenses in 2017 (2016: $5.2 million), with the corresponding asset presented as part of other long term assets. We will begin to amortize this asset when the daily charter hire rate reduces in the third quarter of 2022.

The seller's credit receivable originates from a sale of a vessel in 2009. In 2016, the Company renegotiated the principal amount of the asset to $3.0 million and its repayment profile, with the interest rate set to 1% and the maturity date to December 31, 2019. As a result, the asset was re-measured at $3.0 million and a provision for uncollectible receivables of $1.8 million was recognized and subsequently written off. In 2017, 2016 and 2015, the Company recognized total interest income of $0.2 million, $0.2 million and $0.6 million, respectively

As of December 31, 2017, the outstanding seller's credit receivable falls due as follows:

F-33


(in thousands of $)
 
 
2018
 
500

2019
 
1,500

2020
 
—

2021
 
—

2022
 
—

Thereafter
 
—

 
 
2,000


20. DEBT
(in thousands of $)
 
2017

 
2016

 $33.9 million term loan
 
24,317

 
28,275

 $82.5 million term loan
 
35,733

 
44,367

 $284.0 million term loan
 
190,870

 
258,538

 $420.0 million term loan
 
352,432

 
388,545

 $425.0 million term loan
 
220,868

 
166,743

 $102.7 million term loan
 
102,765

 
—

 $73.4 million term loan
 
67,739

 
—

 $80.2 million term loan
 
74,814

 
—

Total U.S. dollar denominated floating rate debt
 
1,069,538

 
886,468

U.S. dollar denominated fixed rate debt
 
178,856

 
177,300

Deferred charges
 
(3,935
)
 
(5,350
)
Total debt
 
1,244,459

 
1,058,418

Less: current portion
 
(109,671
)
 
—

 
 
1,134,788

 
1,058,418


Movements in 2017 and 2016 are summarized as follows:
 (in thousands of $)
 
 Floating rate debt

 
 Fixed rate debt

 
Sellers credit

 
Deferred charges

 
Total

 Balance at December 31, 2015
 
761,739

 
167,815

 
4,739

 
(5,797
)
 
928,496

 Loan repayments
 
(17,471
)
 
—

 
(4,748
)
 
—

 
(22,219
)
 Loan draw downs
 
142,200

 
—

 
—

 
—

 
142,200

  Amortization of purchase price adjustment
 
—

 
9,485

 
9

 
—

 
9,494

  Capitalized financing fees and expenses
 
—

 
—

 
—

 
(898
)
 
(898
)
  Amortization of capitalized fees and expenses
 
—

 
—

 
—

 
1,345

 
1,345

 Balance at December 31, 2016
 
886,468

 
177,300

 
—

 
(5,350
)
 
1,058,418

 Loan repayments
 
(154,666
)
 
(9,104
)
 
—

 
—

 
(163,770
)
 Loan draw downs
 
337,736

 
—

 
—

 
—

 
337,736

  Amortization of purchase price adjustment
 
—

 
10,360

 
—

 
—

 
10,360

 Convertible bond loss on extinguishment

 
—

 
300

 
—

 
—

 
300

  Amortization of capitalized fees and expenses
 
—

 
—

 
—

 
1,415

 
1,415

 Balance at December 31, 2017
 
1,069,538

 
178,856

 
—

 
(3,935
)
 
1,244,459


In October 2017, we terminated the amended terms agreed with our lenders in February 2016, as further described below, related to the $420.0 million term loan facility, $425.0 million senior secured post-delivery term facility, $33.9 million credit facility, $82.5 million credit facility and the $284.0 million credit facility.

New Loan Facilities Related to the Quintana Acquisition
In 2017, we acquired 14 vessels from Quintana. The vessels were acquired by a newly-established wholly-owned non-recourse subsidiary. In connection with the acquisition we assumed obligations of $262.7 million under three new loan facilities.

F-34



According to the agreements with the lenders of the acquired vessels, we agreed to make a $17.4 million pre-payment of the debt in exchange for no mandatory debt repayment until July 2019. In the period prior to July 2019, a cash sweep mechanism is put in place whereby if certain conditions are met, we will pay down on the deferred repayment amount of $40.6 million. The cash sweep is calculated semi-annually with first potential payment following the end of the first quarter of 2018.

The average interest rate of the debt assumed in connection with the acquisition of the vessels from Quintana is LIBOR plus 3.1% margin and ordinary debt repayments, following the end of the waiver period in July 2019, will amount to $5.8 million per quarter. Pursuant to the loan agreements, our wholly-owned non-recourse subsidiary, which owns the acquired vessels is prohibited from paying dividends to us. During the repayment holiday period through June 2019, we are required under the loan agreements to satisfy financial covenants including $10 million minimum cash and 105% minimum value covenant. Thereafter, the financial covenants under these loans will include 25% market adjusted equity, $10 million minimum cash and 125-135% minimum value covenant.

$102.7 million credit facility
We assumed this debt of $102.7 million, net of a $6.4 million prepayment, as a result of the acquisition of five vessels from Quintana in 2017. This facility financed five vessels and bears interest of LIBOR plus a margin of 3.0%. Repayments are made on a quarterly basis from the third quarter of 2019 onward. Two of the tranches under the facility mature in January 2020, with a balloon payment of in total $28.0 million. The remaining three tranches mature in October 2021 with balloon payments of in total $60.2 million.

As of December 31, 2017, $102.7 million was outstanding under this facility and there was no available, undrawn amount. As of December 31, 2017, this facility was secured by two of our Capesize vessels and three Panamax vessels.

$73.4 million credit facility
We assumed this debt of $73.4 million as a result of the acquisition of five vessels from Quintana in 2017. This facility financed five vessels and bears interest of LIBOR plus a margin of 3.25%. Repayments are made on a quarterly basis from the third quarter of 2019 onward. Four of the tranches under the facility mature in December 2019, with an aggregated balloon payment of $39.4 million and the fifth tranche matures in January 2022 with a balloon payment of $21.6 million.

During 2017, $5.7 million was repaid under this facility. As of December 31, 2017, $67.7 million was outstanding under this facility and there was no available, undrawn amount. As of December 31, 2017, this facility was secured by one of our Capesize vessels and four Panamax vessels.

$80.2 million credit facility
We assumed this debt of $80.2 million as a result of the acquisition of four vessels from Quintana in 2017. This facility financed four vessels and bears interest of LIBOR plus a margin of in the range between 2.75% - 3.35% depending on the vessel. Repayments are made on a quarterly basis from the third quarter of 2019 onward. One of the tranches under the facility matures in October 2019, with a balloon payment of $11.1 million, two of the tranches mature in November 2019 with an aggregated balloon payment of $33.3 million and the fourth tranche matures in November 2021 with a balloon payment of $24.6 million.

During 2017, $5.4 million was repaid under the facility. As of December 31, 2017, $74.8 million was outstanding under this facility and there was no available, undrawn amount. As of December 31, 2017, this facility was secured by one of our Newcastlemax vessels, two Capesize vessels and one Panamax vessel.

$33.9 million credit facility
We assumed this debt of $30.5 million as a result of the Merger. This facility financed two vessels and bears interest of LIBOR plus a margin of 2.75%. Repayments are made on a quarterly basis, each in an amount $0.6 million, with a balloon payment of $22.6 million on the final maturity date of May 27, 2018. The terms of the facility were amended on March 31, 2016, as described below.

During 2017, $4.0 million (2016: $0.6 million) was repaid and there have been no draw downs (2016: nil). As of December 31, 2017, $24.3 million (2016: $28.3 million) was outstanding under this facility and there was no available, undrawn amount. As of December 31, 2016 $1.7 million in repayments was deferred and subsequently repaid in 2017. As of December 31, 2017, there were no deferred repayments under this facility following the termination of amended terms in October 2017, as described below. At December 31, 2017, this facility was secured by two (2016: two) of our Panamax vessels.

$82.5 million credit facility
We assumed this debt of $67.8 million as a result of the Merger. This facility financed six vessels and bears interest of LIBOR

F-35


plus a margin of 2.75%. Repayments are made on a quarterly basis, each in an amount $1.2 million, with a balloon payment of $32.0 million on the final maturity date on October 31, 2018. The terms of the facility were amended on March 31, 2016, as described below.

During 2017, $8.6 million (2016: $3.2 million) was repaid and there have been no draw downs (2016: nil). As of December 31, 2017, $35.7 million (2016: $44.4 million) was outstanding under this facility and there was no available, undrawn amount. As of December 31, 2016, $3.7 million in repayments was deferred and subsequently repaid in 2017. As of December 31, 2017, there were no deferred repayments under this facility following the termination of amended terms in October 2017, as described below. At December 31, 2017, this facility was secured by four (2016: four) of our Panamax vessels.

$284.0 million credit facility
We assumed this debt of $260.5 million as a result of the Merger. This facility financed 19 vessels and bears interest of LIBOR plus a margin of 2.0%. Repayments are made on a quarterly basis, each in an amount $4.0 million, with a balloon payment of $202.5 million on the final maturity date on December 31, 2019. The terms of the facility were amended on March 31, 2016, as described below.

During 2017, $67.7 million (2016: $4.0 million) was repaid and there have been no draw downs (2016: nil). As of December 31, 2017, $190.9 million (2016: $258.5 million) was outstanding under this facility and there was no available, undrawn amount. As of December 31, 2016, $12.0 million in repayments was deferred and subsequently repaid in 2017. As of December 31, 2017, there were no deferred repayments under this facility following the termination of amended terms in October 2017, as described below. At December 31, 2017, this facility was secured by two (2016: two) of our Capesize vessels, 12 (2016: 12) Panamax vessels and two (2016: five) Ultramax vessels.

$420.0 million term loan facility
In June 2014, we entered into a term loan facility of up to $420.0 million, dependent on the market values of the vessels at the time of draw down, consisting of 14 tranches of up to $30.0 million to finance, in part, 14 newbuilding vessels. Each tranche is repayable by quarterly installments based on a 20-years profile from the delivery date of each vessel and all amounts outstanding shall be repaid on June 30, 2020. The facility has an interest rate of LIBOR plus a margin of 2.5%. In January 2016, following an accelerated repayment to comply with the minimum value covenant as of December 31, 2015, the quarterly repayment schedule was amended to $5.2 million, in total, for all 14 tranches. The terms of the facility was further amended on March 31, 2016, as described below.

During 2017, $36.1 million (2016: $7.3 million) was repaid and there have been no draw downs (2016: nil). As of December 31, 2017, $352.4 million (2016: $388.5 million) was outstanding under this facility and there was no available, undrawn amount. As of December 31, 2016, $15.5 million in repayments was deferred and subsequently repaid in 2017. As of December 31, 2017, there were no deferred repayments under this facility following the termination of amended terms in October 2017, as discussed below. The facility is secured by 14 (2016: 14) of our Capesize vessels.

$425.0 million senior secured post-delivery term loan facility
In February 2015, we entered into a senior secured post-delivery term loan facility of up to $425.0 million, depending on the market values of the vessels at the time of draw down, to partially finance 14 newbuilding vessels. The facility was initially divided into 12 tranches of $30.0 million and two tranches of $32.5 million. Each tranche was originally repayable in quarterly payments of 1/80 of the drawn down amount and all amounts outstanding are to be repaid on the final maturity date of March 31, 2021. The loan bore interest at LIBOR plus a margin of 2.0%. In December 2015, the loan agreement was amended and the minimum level of the loan to value was increased from 55% to 70%. The margin was also amended to 2.20% plus LIBOR and the quarterly repayments changed from 1/80 to 1/64 of the drawn down amount. The amendment also allowed us to substitute the optional additional borrowers with another of our wholly owned subsidiaries. The terms of the loan were further amended on March 31, 2016, as described below.

During 2017, $20.9 million (2016: $2.3 million) was repaid and we have drawn down a total of $75.0 million (2016: $142.2 million) on delivery of three Capesize bulk carriers (2016: five Capesize vessels). As of December 31, 2017, $220.9 million (2016: $166.7 million) was outstanding under this facility and there was $150.0 million available, undrawn amount. As of December 31, 2016, $7.6 million in repayments was deferred and subsequently repaid in 2017. As of December 31, 2017, there were no deferred repayments under this facility following the termination of amended terms in October 2017, as discussed below. At December 31, 2017, this facility was secured by nine (2016: six) of our Capesize vessels.

Loan Amendments and Cash Sweep Mechanism

F-36


In February 2016, we agreed with our lenders to amend certain of the terms on the $420.0 million term loan facility, $425.0 million senior secured post-delivery term facility, $33.9 million credit facility, $82.5 million credit facility and the $284.0 million credit facility, or the Loan Facilities, as follows:

For the period from April 1, 2016 to September 30, 2018 there would be no repayments on these facilities, subject to a cash sweep mechanism as described below. The minimum value covenant was set at 100% with a subsequent increase to 125% or 135% (depending on the facility) on October 1, 2018 and the market adjusted equity ratio was waived up until the same date. We also agreed that for the remaining newbuilding contracts where we had financing in the $425.0 million term loan facility, there would be a fixed draw down of $25.0 million per vessel subject to compliance with the minimum value covenant of 100% for the period. The margins on the loans were unchanged, however; we would pay an increased margin of 4.25% for the deferred repayments under the loan facilities. We would resume repayment of each loan on October 1, 2018 based on the repayment model as if October 1, 2018 was April 1, 2016 regardless of any repayment made during the period in accordance with the cash sweep mechanism described below and without affecting the final maturity date.

A cash sweep mechanism was put in place whereby we would pay down on the deferred repayment amount should our cash position improve. We would report and furnish our lenders at the end of each first and third quarter a calculation of free projected cash anticipated at September 30, 2018, or the Free Projected Cash. All Free Projected Cash above a threshold of $25 million would be used to repay the loans on the cash sweep repayment date, which was when the compliance certificates fall due. The first cash sweep repayment date was due at the end of the third quarter of 2016 and no payments were triggered following reporting to the lenders. The cash sweep that we would pay to each lender would be based on a relative value of the deferred amount in each facility as calculated as per end of that half year period equal to:

•
the installments that had fallen due and payable under the agreements during that period had not such installments been suspended in accordance; over
•
all regular installments that had fallen due and payable under all existing credit facilities during that period had not such installments been suspended.
Existing credit facilities included the Loan Facilities and the $22 million senior secured term loan agreement made between Golden Opus Inc., and us as guarantor of 50% of the facility. In August 2017, Golden Opus Inc. sold its only vessel and settled its outstanding loan facility. Any repayments made under the cash sweep would be applied against balloon payments due on the loans. Due to the operation of the cash sweep mechanism, we would not be permitted to make any cash dividend payments without the prior approval of our lenders in the period to September 30, 2018.

In 2017, we prepaid in aggregate $86.8 million of deferred repayments based on the cash sweep mechanism.

As at December 31, 2016, the deferred repayments under the loan facilities amounted to $40.5 million. In October 2017, we terminated the amended terms related these facilities. This effectively reinstated normal covenants and removed certain restrictions described above.

Financial covenants
Our loan agreements contain loan-to-value clauses, which could require us to post additional collateral or prepay a portion of the outstanding borrowings should the value of the vessels securing borrowings under each of such agreements decrease below required levels. In addition, the loan agreements contain certain financial covenants, including the requirement to maintain a certain level of free cash, positive working capital and a value adjusted equity covenant. Under our recourse debt facilities, the aggregate value of the collateral vessels shall not fall below 125% or 135% of the loan outstanding, depending on the facility. We need to maintain free cash of at least $20 million or 5% of total interest bearing debt, maintain positive working capital and maintain a value adjusted equity of at least 25% of value adjusted total assets.

With regards to free cash, we have covenanted to retain at least $60.6 million of cash and cash equivalents as at December 31, 2017 (December 31, 2016: $53.8 million) and this is classified under restricted cash. In addition, none of our vessel owning subsidiaries may sell, transfer or otherwise dispose of their interests in the vessels they own without the prior written consent of the applicable lenders unless, in the case of a vessel sale, the outstanding borrowings under the credit facility applicable to that vessel are repaid in full. Failure to comply with any of the covenants in the loan agreements could result in a default, which would permit the lender to accelerate the maturity of the debt and to foreclose upon any collateral securing the debt. Under those circumstances, we might not have sufficient funds or other resources to satisfy our obligations.


F-37


As of December 31, 2017 and December 31, 2016, we were in compliance with our covenants.

U.S. Dollar Denominated Fixed Rate Debt
3.07% Convertible Bonds due 2019
In January 2014, the Former Golden Ocean issued a $200 million convertible bond with a 5 year tenor and coupon of 3.07% per year, payable bi-annually in arrears. The convertible bond has no regular repayments and matures in full on January 30, 2019. There are no financial covenants in the convertible bond agreement. At the time of the Merger, we assumed the convertible bond and the conversion price was adjusted based on the exchange ratio in the Merger. The conversion price at December 31, 2017 was $88.15 (December 31, 2016: $88.15) per share. The fair value of the convertible bond was determined to be $161.2 million at the time of the Merger based on the quoted price of 80.6%. The difference of $38.8 million is being amortized over the remaining life of the bond so as to maintain a constant effective rate so that the convertible bond will have a value of $200 million on maturity. The bonds will be redeemed at 100% of their principal amount and will, unless previously redeemed, converted or purchased and cancelled, mature on January 30, 2019. We have a right to redeem the bonds at par plus accrued interest at any time during the term, provided that 90% or more of the bonds issued shall have been redeemed or converted to shares. As at December 31, 2017, 2,268,860 (December 31, 2016: 2,268,860) new shares would be issued if the bonds were converted at the current price of $88.15 (December 31, 2016: $88.15).

In December 2017, we acquired $9.4 million in nominal value of our outstanding convertible bond at a price of 96.85% of par value, reducing the outstanding convertible debt balance. As a result of the transaction we recognized a loss of $0.3 million, presented under other financial items. See Note 32 for a discussion of additional purchases of our convertible bond after December 31, 2017.
 
During 2017, $10.4 million (2016: $9.5 million, 2015: $6.6 million) was amortized and recorded as interest expense.

Seller's credit
In 2016, we repaid the outstanding amount of $4.8 million on maturity, and amortized the remaining fair value balance of $8.3 thousand, of a seller's credit partially financing the acquisition of two vessels in 2013. See Note 28 for a discussion of related party seller credits entered into in 2017 in relation to vessels acquisitions from affiliates of Hemen.

Deferred charges
Debt issuance costs of $3.9 million at December 31, 2017 (December 31, 2016: $5.4 million) are presented as a deduction from the carrying amount of our debt.

The outstanding debt as of December 31, 2017 is repayable as follows:
(in thousands of $)
 
 
2018
 
109,671

2019
 
496,558

2020
 
364,767

2021
 
267,542

2022
 
21,600

Thereafter
 
—

 
 
1,260,138

  Amortization of purchase price adjustment
 
(11,744
)
 
 
1,248,394


Assets pledged
As of December 31, 2017, fifty-nine vessels (2016: forty-five vessels) with an aggregate carrying value of $2,130.0 million (2016: $1,733.2 million) were pledged as security for our floating rate debt.

Weighted average interest
The weighted average interest rate related our floating rate debt (margin excluding LIBOR) as of December 31, 2017 and 2016 was 2.69%, and 2.37% respectively. Our fixed rate debt bears interest of 3.07% per annum.

21. ACCRUED EXPENSES

F-38


(in thousands of $)
 
2017

 
2016

Voyage expenses
 
7,388

 
3,467

Ship operating expenses
 
6,937

 
6,424

Administrative expenses
 
1,510

 
935

Tax expenses
 
9

 
12

Interest expenses
 
8,460

 
7,029

 
 
24,304

 
17,867


22. OTHER CURRENT LIABILITIES
(in thousands of $)
 
2017

 
2016

Deferred charter revenue
 
21,704

 
10,509

Deferred gain on sale and leaseback
 
258

 
258

Unfavorable charter party-in contracts
 
672

 
672

Payroll and Employee Tax accruals
 
488

 
396

Other current liabilities
 
8,967

 
2,782

 
 
32,089

 
14,617


23. DERIVATIVE INSTRUMENTS PAYABLE AND RECEIVABLE

Our derivative instruments are not designated as hedging instruments and are summarized as follows:
(in thousands of $)
 
2017

 
2016

Interest rate swaps
 
2,864

 
1,502

Foreign currency swaps
 
83

 
—

Bunker derivatives
 
801

 
92

Asset Derivatives - Fair Value
 
3,748

 
1,594


(in thousands of $)
 
2017

 
2016

Interest rate swaps
 
1,914

 
1,777

Foreign currency swaps
 
66

 
213

Bunker derivatives
 
313

 
—

Liability Derivatives - Fair Value
 
2,293

 
1,990


During 2017, 2016 and 2015, the following were recognized and presented under “Gain (loss) on derivatives” in the consolidated statement of comprehensive income:
 (in thousands of $)
 
 
2017

 
2016

 
2015

Interest rate swaps
Interest expense
 
(1,705
)
 
(1,807
)
 
(2,127
)
 
Unrealized fair value gain (loss)
 
1,225

 
(38
)
 
(394
)
Foreign currency swaps
Realized gain (loss)
 
204

 
(3
)
 
68

 
Unrealized fair value gain (loss)
 
25

 
(27
)
 
(251
)
Forward freight agreements
Realized gain (loss)
 
(517
)
 
42

 
(606
)
Bunker derivatives
Realized gain (loss)
 
622

 
(1,518
)
 
(1,853
)
 
Unrealized fair value gain (loss)
 
291

 
2,676

 
(1,776
)
 
 
 
145

 
(675
)
 
(6,939
)

24. OTHER LONG TERM LIABILITIES

F-39


(in thousands of $)
 
2017

 
2016

Deferred gain on sale and leaseback
 
2,485

 
2,744

Other long term liabilities
 
5,574

 
5,468

 
 
8,059

 
8,212


25. SHARE CAPITAL
Authorized share capital:
 
 
 
 
(in thousands of $ except per share amount)
 
2017

 
2016

150 million common shares of $0.05 par value

 
7,500

 
7,500


In September 2016, at the Company's 2016 Annual General Meeting, the shareholders approved that the Company's authorized share capital was increased from $6,000,000 divided into 120,000,000 common shares of $0.05 par value to $7,500,000 divided into 150,000,000 common shares of $0.05 par value.

In August 2016, we effected 1-for-5 reverse share split of the our common shares where every five shares of the Company's issued and outstanding common shares par value $0.01 per share was automatically combined into one issued and outstanding common share par value $0.05 per share. As a result of the 1-for-5 reverse share split the Company's authorized capital was restated from $6,000,000 divided into 600,000,000 common shares of $0.01 par value to $6,000,000 divided into 120,000,000 common shares of $0.05 par value.

In February 2016, at a Special General Meeting, the shareholders approved that the Company's authorized share capital was increased from $5,000,000 divided into 500,000,000 common shares of $0.01 par value to $6,000,000 divided into 600,000,000 common shares of $0.01 par value.

Issued and fully paid share capital:
 
 
 
 
(number of shares of $0.05 each)
 
2017

 
2016

Balance at start of year
 
105,965,192

 
34,535,128

Shares issued re:
 
 
 
 
 - settlement of RSUs
 
—

 
19,954

 - private placement
 
—

 
68,736,800

 - subsequent offering
 
—

 
2,673,858

 - cancellation
 
—

 
(548
)
 - equity offerings
 
16,372,505

 
—

 - issue of consideration shares to Quintana
 
14,500,000

 
—

 - issue of consideration shares to Hemen
 
5,300,000

 
—

 - settlement of options
 
60,000

 
—

Balance at end of year
 
142,197,697

 
105,965,192


With reference to Note 15 and Note 28, and in relation to the 14 vessels acquired from Quintana and three vessels acquired from affiliates of Hemen in 2017, we issued, in the aggregate, 14,500,000 and 5,300,000 consideration shares, respectively.

In December 2017, we issued 60,000 shares and received $252 thousand in proceeds in relation to our 2016 share option plan.

In October 2017, we completed an equity offering raising gross proceeds of approximately $66 million through the issuance of 7,764,705 shares.

In March 2017, we completed an equity offering raising gross proceeds of approximately $60 million through the issuance of 8,607,800 shares.

In October 2016, we issued an aggregate of 19,954 common shares, par value $0.05 per share, in connection with the Company's 2010 Equity Incentive Plan. As a result of the share issuance, there are currently no outstanding awards under the 2010 Equity Incentive Plan.

F-40



In February 2016, we announced a private placement of 68,736,800 new shares, or the Private Placement Shares, at NOK 25.00 per share, generating gross proceeds of NOK 1.7 billion (approximately $200 million).

In February 2016, we announced a subsequent offering, or the Subsequent Offering, of up to 6,873,680 new common shares at NOK 25.00 per share for gross proceeds of up to NOK171.8 million (approximately $20 million). Ultimately, 2,673,858 new common shares, or the Subsequent Offering Shares, were issued in connection with the Subsequent Offering for gross proceeds of NOK 66.8 million (approximately $8.0 million). As with the Private Placement Shares, the Subsequent Offering Shares issued as part of the Subsequent Offering were restricted shares in the U.S. There are currently no restrictions to the shares.

In total, the net proceeds from the private placement were $205.4 million comprising $208.0 million gross proceeds from the placement net of issue costs of $2.6 million.

As at December 31, 2017, 142,197,697 common shares were outstanding (December 31, 2016: 105,965,192 common shares).

Refer to Note 32 for shares issued subsequent to the date of this report.


26. RESTRICTED STOCK UNITS

In September 2010, our Board of Directors approved the adoption of the 2010 Equity Incentive Plan, or the "Plan," and reserved 160,000 common shares of the Company for issuance pursuant to the Plan. The Plan permits RSUs to be granted to our directors, officers, employees affiliates, consultants and service providers. We have issued RSUs under the plan, which generally vest over three years at a rate of 1/3 of the number of RSUs granted on each annual anniversary of the date of grant, subject to the participant continuing to provide services to us from the grant date through the applicable vesting date.

Payment upon vesting of RSUs may be in cash, in shares of common stock or a combination of both as determined by the Board. They must be valued in an amount equal to the fair market value of a share of common stock on the date of vesting. The participant shall receive a 'cash distribution equivalent right' with respect to each RSU entitling the participant to receive amounts equal to the ordinary dividends that would be paid during the time the RSU is outstanding and unvested on the shares of common stock underlying the RSU as if such shares were outstanding from the date of grant through the applicable vesting date of the RSU. Such payments shall be paid to the participant at the same time at which the RSUs vesting event occurs, conditioned upon the occurrence of the vesting event.

On September 22, 2016, the management companies forfeited their remaining 11,744 outstanding awards. On October 24, 2016, we issued an aggregate of 19,954 common shares in settlement of all the outstanding tranches, vested and non-vested, of RSUs granted to former Board members, as adjusted for dividends. As a result of the share issuance, there are currently no outstanding awards under the 2010 Equity Plan as of December 31, 2016 and 2017, respectively.

The following table summarizes restricted stock unit transactions in 2016: 
 
 
Number of units
 
 
 
 
Directors

 
Management companies

 
Total

 
Fair value

Units outstanding as of December 31, 2015
 
11,744

 
11,744

 
23,488

 
$5.35
Granted
 
—

 
—

 
—

 
—

Settled
 
(11,744
)
 
—

 
(11,744
)
 
$3.64
Forfeited
 
—

 
(11,744
)
 
(11,744
)
 
—

Units outstanding as of December 31, 2016
 
—

 
—

 
—

 
—


The fair values in the table above are the closing share prices on December 31, the share prices on the date of grant or the share prices on the date of vesting, as appropriate. The RSU expense in 2017, 2016 and 2015 was nil, $0.01 million and $0.01 million, respectively.


 
27. SHARE OPTIONS


F-41


2016 Share Option Plan:
In November 2016, the Board approved the adoption of the 2016 Share Option Plan, or the "2016 Plan". The 2016 Plan permits share options to be granted to directors, officers and employees, or the Option holders, of the Company and its subsidiaries. The plan has a 10 year term effective November 2016, unless otherwise determined by the Board. The share options entitle the Option holders to subscribe for common shares at a price per share equal to the exercise price as determined by the Board on the date the share options are granted. The share options have no voting or other shareholder rights.

On November 10, 2016, the Board approved the issue of 700,000 share options to senior management in accordance with the terms of the 2016 Plan at an exercise price of $4.20, adjusted for any distribution of dividends made before the relevant options are exercised. The share options have a five years term and vest over a three years period equally at a rate of 1/3 of the number of share options granted on each annual anniversary of the date of grant, subject to the option holder continuing to provide services to the Company from the grant date through the applicable vesting date.

The fair value of the share options granted on November 10, 2016 under the 2016 Scheme was calculated on the Black-Scholes method. The significant assumptions used to estimate the fair value of the share options are set out below:
•
Grant Date:        November 10, 2016.
•
Expected Term:        Given the absence of expected dividend payments and that the exercise price is adjustable for
any distribution of dividends made before the relevant options are exercised, we expect that it is reasonable for holders of the granted options to avoid early exercise of the options. As a result, we assumed that the expected term of the options is their contractual term.
•
Expected Volatility:    We used the historical volatility of the common shares to estimate the volatility of the prices
of the shares underlying the share options. The final expected volatility estimate, which is based on historical share price volatility for the period from the Merger on March 31, 2015 to the grant date on November 10, 2016, was 71%.
•
Expected Dividends:    The share options exercise price is adjustable for distribution of dividend before the share
options are exercised. We assumed that the expected dividend is nil based on the dividend restrictions in the loan agreements.
•
Dilution Adjustment:    The number of share options is considered immaterial as compared to the number of shares
outstanding and no dilution adjustment was incorporated in the valuation model.
•
Risk-free Rate:        We used the five-year US Government bond risk-free yield-to-maturity rate of
1.55% as of November 10, 2016 as an estimate for the risk-free rate to match the expected five year term of the share options.
•
Expected Forfeitures:    We expect that there will be no forfeitures of non-vested shares options during the terms.

The following table summarizes the unvested option activity for the year ended December 31, 2017 and 2016:
 
 
Number of options
 
Weighted Average Exercise Price
Weighted Average Grant date Fair Value
 
 
Management

 
Total

 
Granted November 2016
 
700,000

 
700,000

 
$4.20
$2.47
Outstanding as of December 31, 2016 - Unvested
 
700,000

 
700,000

 
$4.20
$2.47
Granted
 
—

 
—

 
 
 
Exercised
 
60,000

 
60,000

 
$4.20
$2.47
Exercisable
 
173,333

 
173,333

 
$4.20
$2.47
Forfeited
 
—

 
—

 
—

—

Outstanding as of December 31, 2017 - Unvested
 
466,667

 
466,667

 
$4.20
$2.47

The following table summarizes certain information about the options outstanding as of December 31, 2017 and 2016:

F-42


 
 
Options Outstanding and Unvested, December 31, 2017
 
Options Outstanding and Exercisable, December 31, 2017
Weighted Average Exercise Price of Outstanding Options
 
Number of options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Life
 
Number of options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Life
$4.20
 
466,667

 
$4.20
 
1.86
 
173,333

 
$4.20
 
1.86
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Options Outstanding and Unvested, December 31, 2016
 
Options Outstanding and Exercisable, December 31, 2016
Weighted Average Exercise Price of Outstanding Options
 
Number of options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Life
 
Number of options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Life
$4.20
 
700,000

 
$4.20
 
2.86
 
—

 
—

 
—


For the year ended December 31 2017 and 2016 the share based compensation was $0.6 million and $0.1 million, respectively, and is included in "Administrative expenses" in the consolidated statement of operations. With reference to Note 25, we issued 60,000 shares in December 2017 following the exercise of share options in 2017.

As at December 31, 2017 and 2016, the estimated cost relating to non-vested share options not yet recognized was $1.1 million $1.6 million.

With reference to Note 32 and declaration of dividends in 2018, the exercise price will be adjusted to $4.10 per share.

The Former Golden Ocean Stock Option Incentive Plan
On March 21, 2005, the Former Golden Ocean approved a share option plan for directors and eligible employees. The weighted average exercise price under the plan was NOK 144.45 in 2016 and 2017. As of December 31, 2016, 84,000 options were outstanding, and in 2017 all outstanding options were canceled following expiration of the term of the plan. No options were exercised in 2016 or in 2017.

28. RELATED PARTY TRANSACTIONS

We transact business with the following related parties, consisting of companies in which Hemen and companies associated with Hemen have a significant interest: Frontline Ltd and its subsidiaries (ICB Shipping (Bermuda) Ltd, Frontline Management (Bermuda) Ltd, Seateam Management Pte Ltd and Frontline 2012 Ltd., referred to as "Frontline"), Ship Finance International Ltd (referred to as "Ship Finance") and Seatankers Management Co. Ltd and companies affiliated with it (referred to as "Seatankers"). We also transact business with our associated companies.

Frontline

Refer to Note 8 for transactions with Frontline regarding sale of contracts and vessels in 2015.

Ship Finance

In April 2015, we agreed to a sale and leaseback transaction with Ship Finance for eight Capesize vessels. These vessels were sold en-bloc for an aggregate price of $272.0 million. The vessels were delivered to Ship Finance in the third quarter of 2015 and were time chartered-in by one of our subsidiaries for a period of ten years. The daily time charter rate is $17,600 during the first seven years and $14,900 in the remaining three years, of which $7,000 is for operating expenses (including dry docking costs). In addition, 33% of our profit from revenues above the daily time charter rate for all eight vessels aggregated will be calculated and paid on a quarterly basis to Ship Finance and the daily hire payments will be adjusted if the actual three month LIBOR should deviate from a base LIBOR of 0.4% per annum. For each 0.1% point increase/decrease in the interest rate level, the daily charter hire will increase or decrease by $50 per day in the first seven years and $25 per day in the remaining three years. We have a purchase

F-43


option of $112 million en-bloc after ten years and, if such option is not exercised, Ship Finance will have the option to extend the charters by three years at $14,900 per day.

We are the commercial manager for 14 (2016: 14) dry bulk and eight (2016: nine) container vessels owned and operated by Ship Finance. Pursuant to the management agreements, we receive $125 per day per vessel for managing seven of the 14 dry bulk vessels and $75 per day per vessel for managing the remaining seven dry bulk vessels (2016: $125 per day per vessel for managing the seven dry bulk vessels, 2015: $125 per day per vessel for managing the twelve dry bulk vessels) and $75 per day per vessel for managing the eight container vessels (2016: $75 per day per vessel for managing the nine container vessels, 2015: $65 per day per vessel for managing the eleven container vessels).

Seatankers

We are the commercial manager of twenty (2016: twenty-one) dry bulk vessel owned and operated by Seatankers. Pursuant to the management agreements, we receive $125 (2016: $125, 2015: $125) per day per vessel for managing the dry bulk vessels. From time to time we may also charter in dry bulk vessel owned by Seatankers on short term time charters.

Capesize Chartering

In February 2015, the Former Golden Ocean, Bocimar International NV, C Transport Holding Ltd, Golden Union Shipping Co S.A., and Star Bulk Carriers Corp. announced the formation of a new joint venture company, Capesize Chartering Ltd, or CCL. We acquired the Former Golden Ocean's 20% interest in Capesize Chartering upon completion of the Merger on March 31, 2015. In January 2016, Golden Union Shipping Co S.A. equally transferred its 20% stake in CCL to the remaining four joint venture partners. At the same time, we entered into a revenue sharing agreement for Capesize dry bulk vessels with the joint venture partners whereby it was agreed that we would initially include 21 Capesize dry bulk vessels in the revenue sharing agreement. The revenue sharing agreement applies to 65 modern Capesize dry bulk vessels across the joint venture partners and is being managed from our offices in Singapore and Bocimar’s offices in Antwerp.

United Freight Carriers

We acquired the Former Golden Ocean's 50% interest United Freight Carriers LLC, or UFC, upon completion of the Merger on March 31, 2015. UFC is a dry cargo vessel operator and logistics service provider that primarily focuses its activity around smaller bulk carriers with deadweight of up to 50,000 tonnes.

Management Agreements

Technical Supervision Services

We receive technical supervision services from Frontline Management. Pursuant to the terms of the agreement, Frontline Management receives an annual management fee of $30,555 per vessel (2016: $31,875 per vessel). This fee is subject to annual review. Frontline Management also manages our newbuilding supervision and charges us for the costs incurred in relation to the supervision.

Ship Management

The ship management of our vessels is provided by external ship managers, except for twenty (2016: fifteen) vessels, which is provided by SeaTeam Management Pte. Ltd, a company in which we own 22.2% and is a subsidiary of Frontline.

Other Management Services

We aim to operate efficiently through utilizing Frontline or other companies with the same main shareholder and these costs are allocated based on a cost plus mark-up model. During 2016, we received assistance in relation to consolidation and reporting as well as management of our Sarbanes Oxley compliance from Frontline and we were charged a fee of $115,000 (2015: $115,000) per quarter for these services. Effective January 1, 2017, we only receive services in relation to management of our Sarbanes Oxley compliance from Frontline at a quarterly fee of $17,500. We also receive services in relation to sales and purchase activities, bunker procurement and administrative services in relation to the corporate headquarter.

Acquisition of vessels from affiliates of Hemen


F-44


In October 2017, we agreed to acquire two Capesize vessels from affiliates of Hemen, our largest shareholder, at an aggregated purchase price of $86.0 million. As settlement of the purchase price for each vessel, the Company entered into a seller's credit loan with an affiliate of Hemen for 50% of the purchase price of each vessel. The remaining part of the purchase price was to be settled with an aggregate of $9.0 million of cash and 4,000,000 of newly-issued common shares of the Company; 2,000,000 shares was to be issued upon the delivery of each vessel. In November 2017, one of the vessels, Golden Behike, was delivered to us and 2,000,000 shares were issued to satisfy the purchase price. Refer to Note 32 for the delivery of the second vessel.

In March 2017, we entered into agreements to acquire two Panamax vessels from affiliates of Hemen. In exchange for the two Panamax vessels acquired from affiliates of Hemen, subsequently renamed Golden Amber and Golden Opal and delivered in June 2017, we issued an aggregate of 3.3 million shares as consideration to Hemen and assumed seller's credits of an aggregate of $22.5 million.

Seller's credits from affiliates of Hemen

In connection with the acquisition of the two Panamax vessels from affiliates of Hemen in 2017, we assumed an aggregate of $22.5 million in debt under seller's credit agreements, non-amortizing until June 2019 and with an interest rate of LIBOR plus a margin of 3.0%.

In connection with the agreements to acquire two Capesize vessels from affiliates of Hemen in October 2017, we entered into non-amortizing seller's credit loans with an affiliate of Hemen for 50% of the purchase price of each vessel. Each loan bears interest at LIBOR plus a margin of 3.00% per annum and matures three years after delivery of each vessel. Following the delivery of Golden Behike in 2017, we assumed $21.5 million in a seller's credit loan related to the vessel. Refer to Note 32 for the delivery of the second vessel.

A summary of long-term balances owed to related parties as of December 31, 2017 and 2016 is as follows:
(in thousands of $)
 
2017

 
2016

Hemen
 
44,000

 
—

 
 
44,000

 
—


A summary of net amounts charged by related parties in 2017, 2016 and 2015 is as follows:
(in thousands of $)
 
2017

 
2016

 
2015

ICB Shipping (Bermuda) Ltd
 
—

 
—

 
579

Frontline Ltd
 
4,210

 
6,521

 
13,192

The Former Golden Ocean
 
—

 
—

 
134

Ship Finance International Limited
 
27,977

 
25,564

 
12,060

Seateam Management Pte Ltd
 
3,103

 
2,638

 
1,932

Seatankers Management Co Ltd
 
9,696

 
4,216

 
159

Golden Opus Inc
 
1,286

 
1,114

 
—

Capesize Chartering Ltd
 
57

 
98

 
—

Affiliates of Hemen
 
634

 
—

 
—

 
 
46,963

 
40,151

 
28,056


Net amounts charged by related parties comprise general management and commercial management fees, charter hire expenses, newbuilding supervision fees, interest expenses and newbuilding commission fees.
 
A summary of net amounts charged to related parties in 2017, 2016 and 2015 is as follows:
(in thousands of $)
 
2017

 
2016

 
2015

Ship Finance International Limited
 
738

 
795

 
560

Seatankers Management Co Ltd
 
933

 
957

 
310

United Freight Carriers LLC
 
—

 
150

 
—

Capesize Chartering Ltd
 
3,368

 
945

 
—

 
 
5,039

 
2,847

 
870



F-45


Net amounts charged to related parties comprise commercial management fees since April 1, 2015, following the completion of the Merger with the Former Golden Ocean.

A summary of balances due from related parties as of December 31, 2017 and 2016 is as follows:
(in thousands of $)
 
2017

 
2016

Capesize Chartering Ltd
 
—

 
322

Frontline Ltd
 
1,095

 
1,523

Ship Finance International Ltd
 
60

 
2

Seatankers Management Co Ltd
 
825

 
77

Golden Opus Inc
 
10

 
3

 
 
1,990

 
1,927


A summary of short-term balances owed to related parties as of December 31, 2017 and 2016 is as follows:
(in thousands of $)
 
2017

 
2016

Capesize Chartering Ltd
 
879

 
—

Frontline Ltd
 
1,822

 
1,044

Seatankers Management Co Ltd
 
—

 
270

Golden Opus Inc
 
29

 
73

 
 
2,730

 
1,387


As at December 31, 2017 and December 31, 2016, receivables and payables with related parties mainly comprise unpaid fees for services rendered from and to related parties.

We have periodically issued share options and RSUs to Board and management companies, as disclosed in Notes 26 and 27 of these consolidated financial statements. In February 2016, Hemen was allocated 31.6 million shares at NOK 25.00 per share in connection with a private placement share offering of 68.7 million new shares. Hemen also owns $124.4 million of the Convertible Bond, which is convertible into 1,426,769 of our common shares at an exercise price of $87.19 per share. In 2017, we issued an aggregate of 5,300,000 shares to Hemen in connection with vessel acquisitions.

29. FINANCIAL ASSETS AND LIABILITIES

Interest rate risk management
Our interest rate swaps are intended to reduce the risk associated with fluctuations in interest rates payments. As of December 31, 2017, we have interest rate swaps whereby the floating rate on a notional principal amount of $500 million (December 31, 2016: $400 million) are swapped to fixed rate. During 2017, we entered into two new interest rate swaps for notional principal amount of $100 million in total. Credit risk exists to the extent that the counter parties are unable to perform under the contracts but this risk is considered remote as the counter parties are banks, which participate in loan facilities to which the interest rate swaps are related.

Our interest rate swap contracts as at December 31, 2017 of which none are designated as hedging instruments are summarized as follows:
(in thousands of $)
Notional Amount

Inception Date
Maturity Date
Fixed Interest Rate

Receiving floating, pay fixed
50,000

October 2012
October 2019
1.22
%
Receiving floating, pay fixed
50,000

February 2015
February 2020
1.93
%
Receiving floating, pay fixed
100,000

October 2019
October 2025
2.51
%
Receiving floating, pay fixed
50,000

October 2015
October 2019
1.22
%
Receiving floating, pay fixed
50,000

November 2015
February 2020
1.92
%
Receiving floating, pay fixed
50,000

August 2017
August 2025
2.41
%
Receiving floating, pay fixed
50,000

August 2017
August 2025
2.58
%
Receiving floating, pay fixed
50,000

February 2017
February 2022
1.90
%
Receiving floating, pay fixed
50,000

April 2017
April 2022
1.86
%
 
500,000

 
 
 

F-46



Changes in the fair value of the interest rate swap transactions are recorded in "Gain (loss) on derivatives" in the consolidated statement of operations.

Forward freight agreements
We take positions from time to time in the forward freight market (FFA), either as a hedge to a physical contract or as a speculative position. Currently, all such contracts are cleared through clearing houses and the Company uses NasdaqOMX in this respect. Credit risk exists to the extent that NasdaqOMX is unable to perform under the contracts but this risk is considered remote as all participants post collateral security for their positions.

As of December 31, 2017, we had coverage in the aggregate of 470 days with maturity in 2018 under our FFAs. As of December 31, 2016, we did not have any open positions.

The losses on FFA are recorded in "Gain (loss) on derivatives" in the consolidated statement of operations.

Bunker derivatives
We enter into cargo contracts from time to time. We are then exposed to fluctuations in bunker prices, as the cargo contract price is based on an assumed bunker price for the trade. There is no guarantee that the hedge removes all the risk from the bunker exposure, due to possible differences in location and timing of the bunkering between the physical and financial position. The counterparties to such contracts are major banking and financial institutions. Credit risk exists to the extent that the counter parties are unable to perform under the contracts but this risk is considered remote as the counter parties are usually well established banks or other well renowned institutions in the market

As of December 31, 2017 and December 31, 2016, we had outstanding bunker swap agreements for about 36.0 thousand metric tonnes and 3.6 thousand metric tonnes, respectively.

Losses on bunker derivatives are recorded in "Gain (loss) on derivatives" in the consolidated statement of operations.

Foreign currency risk
The majority of our transactions, assets and liabilities are denominated in United States dollars, our functional currency. However, we incur expenditure in currencies other than the functional currency, mainly in Norwegian Kroner and Singapore Dollars. There is a risk that currency fluctuations in transactions incurred in currencies other than the functional currency will have a negative effect of the value of our cash flows. We are then exposed to currency fluctuations and we may enter into foreign currency swaps to mitigate such risk exposures. The counterparties to such contracts are major banking and financial institutions. Credit risk exists to the extent that the counter parties are unable to perform under the contracts but this risk is considered remote as the counter parties are well established banks.

As of December 31, 2017 and December 31, 2016, we had contracts to swap USD to NOK for a notional amount of $7.0 million and $7.2 million, respectively.

Changes in the fair value of foreign currency swaps are recorded in "Gain (loss) on derivatives" in the consolidated statement of operations.

Fair values
The guidance for fair value measurements applies to all assets and liabilities that are being measured and reported on a fair value basis. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The same guidance requires that assets and liabilities carried at fair value should be classified and disclosed in one of the following three categories based on the inputs used to determine its fair value:

Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data;
Level 3: Unobservable inputs that are not corroborated by market data.

In addition, ASC 815, “Derivatives and Hedging” requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position.


F-47


The carrying value and estimated fair value of our financial instruments at December 31, 2017 and December 31, 2016 are as follows:
 
 
 
2017

 
2017

 
2016

 
2016

 (in thousands of $)
 
 
Fair
Value

 
Carrying
Value

 
Fair
Value

 
Carrying
 Value

Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
309,029

 
309,029

 
212,942

 
212,942

Restricted cash
 
 
62,955

 
62,955

 
54,112

 
54,112

Marketable securities
 
 
16,300

 
16,300

 
6,524

 
6,524

Derivative assets
 
 
3,748

 
3,748

 
1,594

 
1,594

Liabilities
 
 
 
 
 
 
 
 
 
Long term debt - floating
 
 
1,069,538

 
1,069,538

 
886,468

 
886,468

Long term debt - convertible bond
 
 
195,000

 
178,856

 
162,122

 
177,300

Long term debt - sellers credit
 
 
44,000

 
44,000

 
—

 
—

Derivative liabilities
 
 
2,293

 
2,293

 
1,990

 
1,990


The fair value hierarchy of our financial instruments is as follows:

 (in thousands of $)
 
 
2017 Fair
Value

 
Level 1

 
Level 2

 
Level 3

Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
309,029

 
309,029

 
—

 
—

Restricted cash
 
 
62,955

 
62,955

 
—

 
—

Marketable securities
 
 
16,300

 
16,300

 
—

 
—

Derivative assets
 
 
3,748

 
—

 
3,748

 
—

Liabilities
 
 
 
 
 
 
 
 
 
Long term debt - floating
 
 
1,069,538

 
—

 
1,069,538

 
—

Long term debt - convertible bond
 
 
195,000

 
—

 
195,000

 
—

     Long term debt - sellers credit
 
 
44,000

 
—

 
44,000

 
—

Derivative liabilities
 
 
2,293

 
—

 
2,293

 
—


 (in thousands of $)
 
 
2016 Fair
Value

 
Level 1

 
Level 2

 
Level 3

Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
212,942

 
212,942

 
—

 
—

Restricted cash
 
 
54,112

 
54,112

 
—

 
—

Marketable securities
 
 
6,524

 
6,524

 
—

 
—

Derivative assets
 
 
1,594

 
—

 
1,594

 
—

Liabilities
 
 
 
 
 
 
 
 
 
Long term debt - floating
 
 
886,468

 
—

 
886,468

 
—

Long term debt - convertible bond
 
 
162,122

 
—

 
162,122

 
—

Derivative liabilities
 
 
1,990

 
—

 
1,990

 
—


There have been no transfers between different levels in the fair value hierarchy in 2017 and 2016.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:


F-48


•
The carrying value of cash and cash equivalents, which are highly liquid, approximate fair value.
•
Restricted cash and investments – the balances relate entirely to restricted cash and the carrying values in the balance sheet approximate their fair value.
•
Floating rate debt - the carrying value in the balance sheet approximates the fair value since it bears a variable interest rate, which is reset on a quarterly basis.
•
Convertible bond – quoted market prices are not available, however the bonds are traded "over the counter" and the fair value of bonds is based on the market price on offer at the year end.
•
Sellers credit - the carrying value in the balance sheet approximates the fair value since it bears a variable interest rate, which is reset on a quarterly basis.
•
Marketable securities - are listed equity securities for which the fair value is based on quoted market prices.
•
Derivatives - are based on the present value of the estimated future cash flows that we would receive or pay to terminate the agreements at the balance sheet date.

Assets Measured at Fair Value on a Nonrecurring Basis

Refer to Note 4 for a summary of the estimated fair values of the assets acquired and liabilities assumed as a result of the Merger.

During the year ended December 31, 2017, the following assets were measured at fair value on a nonrecurring basis:

•
The value of six Ultramax vessels classified as held for sale in the third quarter of 2017, was measured at fair value. The fair value was based on level three inputs and the expected market values based on sales agreements.

During the year ended December 31, 2016, the following assets were measured at fair value on a nonrecurring basis:

•
The investment in Golden Opus Inc. was measured at fair value based on level three inputs, and the expected market values of the underlying assets and liabilities.

•
The Golden Lyderhorn, a vessel held under capital lease was measured at fair value based on level three inputs, and was determined using discounted expected future cash flows for the vessel.

•
The other long term asset acquired on completion of the Merger was measured at fair value based on level three inputs, and the estimated recoverable principal amount from the counterparty.

Assets Measured at Fair Value on a Recurring Basis
Marketable securities are listed equity securities considered to be available-for-sale securities for which the fair value as at the balance sheet date is their aggregate market value based on quoted market prices (level 1) for the investment in a company listed on a U.S. stock exchange and level two for the investment in the company listed on the Norwegian 'over the counter' market.

The fair value (level 2) of interest rate, currency swap and bunker swap agreements is the present value of the estimated future cash flows that we would receive or pay to terminate the agreements at the balance sheet date, taking into account, as applicable, fixed interest rates on interest rate swaps, current interest rates, forward rate curves, current and future bunker prices and the credit worthiness of both us and the derivative counterparty.

Concentrations of risk
There is a concentration of credit risk with respect to cash and cash equivalents to the extent that substantially all of the amounts are carried with Skandinaviska Enskilda Banken, DnB and Nordea Bank Norge ASA. However, we believe this risk is remote, as these financial institutions are established and reputable establishments with no prior history of default. We do not require collateral or other security to support financial instruments subject to credit risk.

30. COMMITMENTS AND CONTINGENCIES

The Company insures the legal liability risks for our shipping activities with Assuranceforeningen SKULD and Assuranceforeningen Gard Gjensidig, both mutual protection and indemnity associations. We are subject to calls payable to the associations based on our claims record in addition to the claims records of all other members of the associations. A contingent liability exists to the extent that the claims records of the members of the associations in the aggregate show significant deterioration, which result in additional calls on the members.

We have one vessel held under capital lease, the Golden Eclipse, that was sold by the Former Golden Ocean in 2008 and leased back for a period of ten years. We have the right to purchase the vessel at the dates and amounts as disclosed in Note 16.

F-49



We sold eight vessels to Ship Finance in the third quarter of 2015 and leased them back on charters for an initial period of ten years. We have a purchase option of $112 million en-bloc after ten years and, if such option is not exercised, Ship Finance will have the option to extend the charters by three years at $14,900 per day.

As of December 31, 2017, we had five vessels under construction. The outstanding commitments for the five newbuildings amounted to $144.6 million with contractual payments due in 2018. With reference to Note 32, in January and February 2018, the Company took delivery of the remaining five newbuildings and paid $144.6 million in final installments.

In October 2017, we agreed to acquire two Capesize vessels from affiliates of Hemen. As of December 31, 2017, we had commitments to take delivery of the remaining one vessel. The agreed purchase price for the vessel was $43.0 million. As settlement of the purchase price, we agreed to enter into a seller's credit loan with an affiliate of Hemen for $21.5 million. The remaining part of the purchase price was to be settled with $4.5 million of cash and 2,000,000 of newly-issued common shares of the Company. Refer to Note 32 for the delivery of the second vessel.

In 2016, we received 2.4 million in respect of claims for unpaid charter hire owed under bareboat charters of the VLCCs Titan Venus and Mayfair. The receipt was recorded as bareboat charter revenue as it related to services previously rendered under such terms. This amount was received as full and final settlement for the claims.

In 2016, we received a final arbitration award relating to a time charter party entered into in March 2006. The claimants were awarded approximately $9.8 million in total. The claim itself was an unsafe port allegation which falls under our protection and indemnity insurance and will be covered by our insurance company. In January 2018, a final settlement agreement was made between the parties involved, and we received $0.2 million as compensation for agreed off-hire and reimbursement of costs.

Except as described above, to the best of our knowledge, there are no legal or arbitration proceedings existing or pending which have had or may have significant effects on our financial position or profitability and no such proceedings are pending or known to be contemplated.

31. SUPPLEMENTAL INFORMATION

In March 2017, we entered into an agreement with Quintana to acquire 14 vessels. As consideration, we issued an aggregate of 14.5 million common shares to Quintana and assumed the vessels' corresponding debt of approximately $262.7 million. The aggregate of 14.5 million common shares issued in consideration for the acquired vessels were issued gradually upon delivery of each of the vessels. All vessels were delivered in 2017.

In March 2017, we also entered into an agreement with affiliates of Hemen to acquire two Panamax vessels. As consideration, we issued an aggregate of 3.3 million common shares to Hemen and assumed seller's credits of an aggregate of $22.5 million with an affiliate of Hemen. The aggregate of 3.3 million common shares issued in consideration for the acquired vessels were issued gradually upon delivery of each of the vessels. The two vessels were delivered in 2017.

In October 2017, we agreed to acquire two Capesize vessels from affiliates of Hemen at an aggregated purchase price of $86.0 million. As settlement of the purchase price for each vessel, we entered into a seller's credit loan with an affiliate of Hemen for 50% of the purchase price of each vessel. The remaining part of the purchase price was to be settled with an aggregate of $9.0 million of cash and 4,000,000 of newly-issued common shares of the Company; 2,000,000 shares was to be issued upon the delivery of each vessel. In November 2017, one of the vessels was delivered to us and 2,000,000 shares were issued, a seller's credit of $21.5 million assumed and $4.5 million in cash was paid to satisfy the purchase price. Refer to Note 32 for the delivery of the second vessel.


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32. SUBSEQUENT EVENTS

In January 2018, we took delivery of the Golden Monterrey, a vessel acquired from affiliates of Hemen, and issued 2,000,000 common shares to Hemen to satisfy the purchase price. We also assumed a $21.5 million seller's credit and paid $4.5 million in cash as part of the consideration for the vessel.

In January and February 2018, we took delivery of our remaining five newbuildings and paid $144.6 million in final installments. An aggregate of $150.0 million was drawn in debt in relation to the deliveries.

In February 2018, our Board of Directors declared a cash dividend to our shareholders of $0.10 per share.

In February 2018, we bought $9.4 million notional in our 3.07% convertible bond at a price of 97.725% of par value. After the purchase, we hold $18.8 million notional representing 9.4% in the convertible bond.
In March 2018, we issued 50,000 shares in the Company in relation to our 2016 share option plan.



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