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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO
RULE 13A-16 OR 15D-16 UNDER THE SECURITIES
EXCHANGE ACT OF 1934

For the month of September 2019

Commission File Number:  000-29106

GOLDEN OCEAN GROUP LIMITED.
(Translation of registrant's name into English)

Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda
(Address of principal executive offices)

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

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

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

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

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





INFORMATION CONTAINED IN THIS FORM 6-K REPORT

Attached hereto as Exhibit 99.1 to this Report on Form 6-K are the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the unaudited condensed consolidated interim financial statements and related information and data of Golden Ocean Group Limited (the “Company”) for the six months ended June 30, 2019.

This Report on Form 6-K is hereby incorporated by reference into the Company's Registration Statement on Form F-3 (File No. 333-232709) filed with the U.S. Securities and Exchange Commission with an effective date of July 26, 2019.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
Matters discussed in this Report on Form 6-K, and the documents incorporated by reference herein, may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements, which 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 desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are including this cautionary statement in connection with this safe harbor legislation. This Form 6-K 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. The words "believe," "anticipate," "intend," "estimate," "forecast," "project," "plan," "potential," "may," "should," "expect," "will" and similar expressions identify forward-looking statements.
The forward-looking statements in this Form 6-K, and the documents incorporated by reference herein, are based upon various assumptions, including, without limitation, management's examination of historical operating trends, data contained in our records and 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.
All statements in this document that are not statements of historical fact are forward-looking statements. Forward-looking statements include, but are not limited to, such matters as:
our future operating or financial results;
our continued borrowing availability under our debt agreements and compliance with the covenants contained therein;
changes in credit risk with respect to our counterparties on contracts;
the failure of contract counterparties to meet their obligations;
the impact of the discontinuance of LIBOR after 2021 on interest rates of our debt that reference LIBOR;
our ability to procure or have access to financing, our liquidity and the adequacy of cash flows for our operations;
fluctuations in the contributions of the Company’s joint ventures to its profits and losses;
our ability to successfully employ our dry bulk vessels;
changes in our operating expenses, including bunker prices, fuel prices, dry docking, crewing and insurance costs;
the adequacy of our insurance to cover our losses;
the Company’s ability to replace its operating leases on favorable terms, or at all;
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 of vessels under construction, the delivery and commencement of operation 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 any future vessel construction;
our expectations regarding the availability of vessel acquisitions and our ability to complete acquisition transactions planned;
the Company’s ability to renew its time charters when they expire or to enter into new time charters;
competition within the Company’s industry and the Company’s ability to compete effectively for charters with companies with greater resources;
the loss of a large customer or significant business relationship;
the potential for technological innovation to reduce the value of the Company’s vessels and charter income derived therefrom;
the impact of an interruption in or failure of the Company’s information technology and communications system upon the Company’s ability to operate;
vessel breakdowns and instances of off-hire;



potential conflicts of interest involving members of our board of directors and senior management;
the Company’s ability to attract, retain and motivate key employees;
work stoppages or other labor disruptions by the Company’s employees or the employees of other companies in related industries;
potential liability from pending or future litigation;
the impact of government inquiries and investigations;
the arrest of the Company’s vessels by maritime claimants;
government requisition of the Company’s vessels during a period of war or emergency;
potential exposure or loss from investment in derivative instruments;
the highly cyclical nature of the industry that we operate in;
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;
governmental claims against the Company;
the Company’s compliance with complex laws, regulations, including environmental laws and regulations and the U.S. Foreign Corrupt Practices Act of 1977;
changes in seaborne and other transportation;
changes in governmental rules and regulations or actions taken by regulatory authorities;
the impact of public health threats and outbreaks of other highly communicable diseases;
general domestic and international political and geopolitical conditions;
the impact of adverse weather and natural disasters;
any further changes in U.S. trade policy that could trigger retaliatory actions by affected countries;
potential disruption of shipping routes due to accidents or political events;
acts of piracy on ocean-going vessels, terrorist attacks and international hostilities and instability; and
other factors discussed in "Item 3.D. Risk Factors" in our Annual Report on Form 20-F for the year ended December 31, 2018 filed with the Commission on March 22, 2019.

In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form 6-K and the documents incorporated by reference herein, might not occur, and our actual results could differ materially from those anticipated in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement contained in this Form 6-K, and the documents incorporated by reference herein, whether as a result of new information, future events or otherwise, except as required by law.





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 
 
 
GOLDEN OCEAN GROUP LIMITED
(registrant)
 
 
 
 
Date:
September 18, 2019
 
By:
/s/ Per Heiberg
 
 
 
 
Name: Per Heiberg
 
 
 
 
Title: Principal Financial Officer
 
 
 
 
 
 
 
 





EXHIBIT 99.1
 
As used herein, "we," "us," "our", "Golden Ocean" and the "Company" all refer to Golden Ocean Group Limited and its subsidiaries. The following presentation of management's discussion and analysis of financial condition and results of operations for the six month periods ended June 30, 2019 and 2018 should be read in conjunction with our unaudited condensed consolidated interim financial statements and related notes thereto included elsewhere herein, which have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP").

The term deadweight ton, or dwt, is used in describing the size and capacity 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” and “$” in this report are to, and amounts are represented in, U.S. dollars.

The below discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth in the section "Risk Factors" included in the Company's Annual Report on Form 20-F filed for the fiscal year ended December 31, 2018.

Management's Discussion and Analysis of Financial Condition and Results of Operations

General
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. On March 31, 2015, we completed a merger with Golden Ocean Group Limited and subsequently 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 Oslo Stock Exchange under the ticker code "GOGL".

We own and operate dry bulk carriers primarily consisting 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. 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 June 30, 2019, we owned 67 dry bulk vessels. In addition, we had ten vessels chartered-in (of which eight are chartered in on operating leases from SFL Corporation Ltd., the former Ship Finance International Limited, or SFL, one chartered in on an operating lease from an unrelated third party and one chartered in on a finance lease from an unrelated third party). Each vessel is operated by one of our subsidiaries and is flagged either in the Marshall Islands, Hong Kong or Panama.

Results of Operations
Six-months ended June 30, 2019 compared to the six-months ended June 30, 2018

Operating revenues

We currently operate most of our vessels in the spot market, exposing us to fluctuations in spot market charter rates. As a result, our shipping revenues and financial performance are significantly affected by conditions in the dry bulk spot market, and any decrease in spot charter rates may adversely affect our earnings. In the first six months of 2019, market conditions were significantly weaker compared to the first six months of 2018, which is illustrated by the drop in the Baltic Dry Index, or BDI, from 1,217 to 894 points, thus negatively impacting our operating revenues. In addition, the mix of charters between spot or voyage charters and time charters also affects our revenues and voyage expenses.

5




 
Six Months Ended June 30,
 
 
Change
(in thousands of $)
2019

2018

 
$

Time charter revenues
128,139

159,645

 
(31,506
)
Voyage charter revenues
112,867

130,021

 
(17,154
)
Other revenues
786

1,165

 
(379
)
Total operating revenues
241,792

290,831

 
(49,039
)

Time charter revenues decreased by $31.5 million in the six months ended June 30, 2019 compared with the six months ended June 30, 2018 primarily due to a decrease of $34.1 million reflecting the decline in the dry bulk market which resulted in lower rates under index-linked and short-term time charters for vessels that were in our fleet through the duration of both these periods.

This factor was partially offset by:
an increase of $1.8 million attributable to chartered-in vessels that traded on time charters during the six months ended June 30, 2019, and
an increase of $0.8 million attributable to the five Capesize newbuildings delivered to us during the six months ended June 30, 2018, primarily due to an increase in activity for these vessels on time charters during the six months ended June 30, 2019 compared with the six months ended June 30, 2018.

Voyage charter revenues decreased by $17.2 million in the six months ended June 30, 2019 compared with the six months ended June 30, 2018 primarily due to:

a decrease of $9.1 million attributable to lower rates on chartered-in vessels trading on voyage charters during the six months ended June 30, 2019,
a decrease of $5.1 million attributable to the five Capesize newbuildings delivered to us during the six months ended June 30, 2018, primarily due to a decrease in voyage charter activity for these vessels during the six months ended June 30, 2019 compared with the six months ended June 30, 2018, and
a decrease of $3.0 million as a result of lower voyage charter rates for vessels that were in our fleet through the duration of both periods.

Other revenues decreased by $0.4 million in the six months ended June 30, 2019 compared with the six months ended June 30, 2018.

Other operating income (expenses), net
 
Six Months Ended June 30,
 
 
Change
(in thousands of $)
2019

2018

 
$

Other operating income (expenses), net
2,816

1,049

 
1,767


The increase in other operating income (expenses) is primarily related to an increase in net income from Capesize Chartering Ltd., or CCL, under our revenue sharing agreement with CCL.

Gain on sale of assets and amortization of deferred gains
 
Six Months Ended June 30,
 
 
Change
(in thousands of $)
2019

2018

 
$

Gain on sale of assets and amortization of deferred gains

129

 
(129
)

The decrease in gain on sale of assets and amortization of deferred gains is due to a decrease in amortization of deferred gains on the sale and lease back transaction of eight vessels with SFL in 2015 as a result of the adoption of ASC 842 Leases on January 1, 2019. Upon adoption of ASC 842, the remaining balance of deferred gain was recognized as an opening balance adjustment to accumulated deficit. See also “Note 3, Recently Issued Accounting Standards” to the unaudited interim condensed consolidated financial statements in this report.



6



Voyage expenses and commissions
 
Six Months Ended June 30,
 
 
Change
(in thousands of $)
2019

2018

 
$

Voyage expenses and commissions

67,104

63,445

 
3,659


Voyage expenses and commissions increased by $3.7 million in the six months ended June 30, 2019 compared with the six months ended June 30, 2018 primarily due to an increase of $5.9 million attributable to increased voyage charter activity for vessels that were in our fleet through the duration of both periods.

This factor was partially offset by a decrease of $2.0 million attributable to the five Capesize newbuildings delivered to us during the six months ended June 30, 2018, which traded mostly on time charters during the first six months of 2019, in addition to a decrease of $0.2 million from chartered-in vessels trading on voyage charters during the first six months of 2019.

Ship operating expenses
 
Six Months Ended June 30,
 
 
Change
(in thousands of $)
2019

2018

 
$

Ship operating expenses
90,818

76,429

 
14,389


Ship operating expenses increased by $14.4 million in the six months ended June 30, 2019 compared with the six months ended June 30, 2018 primarily due to:

an increase of $7.6 million as a result of the adoption of ASC 842 and the presentation of the non-lease component, or service element, from charter hire expenses to ship operating expenses for vessels chartered in on time charter during the six months ended June 30, 2019,
an increase of $4.7 million in dry docking expenses due to more ships being dry docked,
an increase of $1.2 million attributable to an increase in activity for the five Capesize newbuildings delivered to us during the first six months ended June 30, 2018, and
an increase of $0.9 million attributable to remaining vessels that were in our fleet through the duration of both periods.

Charter hire expenses
 
Six Months Ended June 30,
 
 
Change
(in thousands of $)
2019

2018

 
$

Charter hire expenses
31,616

46,698

 
(15,082
)

Charter hire expenses decreased by $15.1 million in the six months ended June 30, 2019 compared with the six months ended June 30, 2018 primarily due to:

a decrease of $7.5 million mainly attributable to lower rates on short-term chartered-in vessels during the six months ended June 30, 2019, and
a reduction of $7.6 million as a result of the adoption of ASC 842 and the presentation of the non-lease component, or service element, from charter hire expenses to ship operating expenses for vessels chartered in on time charter during the six months ended June 30, 2019.

Administrative expenses
 
Six Months Ended June 30,
 
 
Change
(in thousands of $)
2019

2018

 
$

Administrative expenses
6,805

7,357

 
(552
)

Administrative expenses decreased by $0.6 million in the six months ended June 30, 2019 compared with the six months ended June 30, 2018 primarily due to a decrease in personnel related expenses of $0.5 million and other administrative expenses of $0.1 million.


7



Impairment loss on vessels
 
Six Months Ended June 30,
 
 
Change
(in thousands of $)
2019

2018

 
$

Impairment loss on vessels

1,080

 
(1,080
)

The impairment loss on vessels in the six months ended June 30, 2018 relates to one Panamax vessel classified as held for sale as of June 30, 2018 and delivered to its new owner in August 2018. No impairments have been recorded in the first six months of 2019.

Depreciation
 
Six Months Ended June 30,
 
 
Change
(in thousands of $)
2019

2018

 
$

Depreciation
46,853

45,470

 
1,383


Depreciation increased by $1.4 million in the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to:

an increase of $0.7 million attributable to vessels that were in our fleet as of June 30, 2018, and
an increase of $0.7 million attributable to the five Capesize newbuildings delivered to us during the six months ended June 30, 2018.

Interest income
 
Six Months Ended June 30,
 
 
Change
(in thousands of $)
2019

2018

 
$

Interest income
2,775

3,156

 
(381
)

Interest income decreased by $0.4 million in the six months ended June 30, 2019 compared with the six months ended June 30, 2018 primarily due to our decreased cash position during this period, which reflects the full repayment in January 2019 of the net outstanding of $168.2 million under our 3.07 % $200 million Convertible Bond, or the Convertible Bond, and to lower interest rates earned on our deposits.

Interest expense
 
Six Months Ended June 30,
 
 
Change
(in thousands of $)
2019

2018

 
$

Interest on fixed rate debt
430

2,807

 
(2,377
)
Interest on floating rate debt
29,732

26,061

 
3,671

Interest on related party debt

1,338

 
(1,338
)
Finance lease interest expense
200

400

 
(200
)
Commitment fees
195

170

 
25

Amortization of deferred charges
941

728

 
213

Amortization of fair value adjustments as a result of the Merger
813

5,003

 
(4,190
)
 
32,311

36,507

 
(4,196
)

Interest expense decreased by $4.2 million in the six months ended June 30, 2019 compared with the six months ended June 30, 2018 primarily due to:

a decrease of $4.2 million in amortization of fair value adjustment of our Convertible Bond and a decrease of $2.4 million of fixed rate interest debt following the full repayment of the Convertible Bond at maturity in January 2019,
a decrease of $1.3 million of interest on related party debt following the prepayment of the related party seller credit loans of $65.5 million as part of the refinancing of these loans during the six months ended June 30, 2018, and

8



a decrease of $0.2 million in finance lease interest expense following a reduction of our outstanding finance lease obligations.

These factors were partially offset by:
an increase of $3.7 million on our floating rate debt primarily due to (i) an increase in total floating rate debt with the $120.0 million loan facility partially used to finance the repayment of the related party seller credit loans of $65.5 million during the six months ended June 30, 2018, (ii) an increase in LIBOR rates, with the average 3 month LIBOR rates increasing from 2.13% to 2.60% in the first half of 2018 compared with the first half of 2019, respectively, although the increase in LIBOR rates was somewhat off-set by lower average margin in the first half of 2019, and
an increase of $0.2 million of amortization of deferred charges as a result of increased debt issuance costs from the amendment of the $420 million loan facility and the new $93.75 million and $131.79 million loan facilities entered into during the first six months of 2019.

Equity results of associated companies
 
Six Months Ended June 30,
 
 
Change
(in thousands of $)
2019

2018

 
$

Equity results of associated companies
178

325

 
(147
)

Equity results of associated companies decreased by $0.1 million in the six months ended June 30, 2019 compared with the six months ended June 30, 2018. This was primarily due to decreased earnings from trading activity in one of our joint venture companies.

Gain (loss) on derivatives
 
Six Months Ended June 30,
 
 
Change
(in thousands of $)
2019

2018

 
$

Gain (loss) on derivatives
(10,217
)
7,931

 
(18,148
)

The loss on derivatives increased by $18.1 million in the six months ended June 30, 2019 compared with the six months ended June 30, 2018 primarily due to a negative development in the fair value of our USD denominated interest rate swaps, bunker derivatives and foreign currency derivatives of $22.2 million, $1.0 million and $0.2 million, respectively. This was partially offset by increased gain from our forward freight derivatives of $5.3 million.

Other financial items
 
Six Months Ended June 30,
 
 
Change
(in thousands of $)
2019

2018

 
$

Other financial items
(2,313
)
(747
)
 
(1,566
)

Other financial items decreased by $1.6 million in the six months ended June 30, 2019 compared with the six months ended June 30, 2018 primarily due to:
a $1.4 million mark-to-market loss of our investments in equity securities recognized at fair value, and
a $0.2 million increase in foreign exchange losses.

Recent Accounting Pronouncements 
For information regarding recently adopted and recently issued accounting standards applicable to us, see "Note 3, Recently Issued Accounting Standards" to the unaudited interim condensed consolidated financial statements in this report.

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 through issuance of convertible bonds. Our ability to generate adequate cash flows on a short and medium term basis depends substantially on the 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.


9



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, Singapore dollars and Euro.

Our short-term liquidity requirements relate to payment of operating costs (including drydocking), installation of scrubbers and ballast water treatment systems on certain of our vessels, funding working capital requirements, committed shareholder loan to Singapore Marine, repayment of bank loans, 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, $33.0 million in available financing under our $420.0 million loan facility for scrubber installations 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.

As of June 30, 2019 and December 31, 2018, we had cash, cash equivalents and restricted cash of $163.3 million and $372.6 million, respectively.

Other significant transactions subsequent to June 30, 2019 impacting our cash flows include the following:

In August 2019, and based on the improved market conditions following the second quarter, the Board declared a cash dividend to our shareholders of $0.10 per share, totaling approximately $14.4 million, which was paid in September 2019.
In August 2019, we repurchased an additional 25,000 of our shares for approximately $0.1 million.
In August 2019, we and Frontline Ltd, or Frontline, announced that we had entered into a non-binding term sheet agreement with Trafigura Group to establish a leading global supplier of marine fuels (the “JV”). The Company and Frontline will acquire 10 percent and 15 percent interests in the JV, respectively, and Trafigura Group will contribute its existing physical bunkering activities to the JV. Subject to agreement on final terms, the JV is expected to commence operations in the third quarter of 2019 and will act as the exclusive purchaser of marine fuels for Trafigura Group, the Company and Frontline, as well as certain entities affiliated with Hemen Holding Ltd, the Company and Frontline’s largest shareholder. In connection with this agreement, we will make available a shareholder loan of $1.0 million to the joint venture company.
In September 2019, we announced that we had agreed to make a further investment in Singapore Marine Pte Ltd., or Singapore Marine, in connection with its acquisition of the majority of assets and operations of Swiss Marine. We have increased our equity investment in Singapore Marine by $9.5 million and increased availability by $0.7 million, to $10.7 million, under our existing shareholder loan to Singapore Marine with a five-year term. At the date of this report, Singapore Marine has drawn down the full $10.7 million under the shareholder loan.

As of June 30, 2019, our current portion of long-term debt was $233.7 million. This amount includes $155.4 million in balloon payments at maturity on December 31, 2019 under our $284.0 million facility and $78.3 million in ordinary debt repayments. We are currently in the process of refinancing our $284.0 million credit facility prior to its maturity in December 2019. We believe it is probable that we will be able to implement our refinancing plan, based on the existing level of collateral and our history of successfully refinancing our debt. Most recently, and in the six months ended June 30, 2019, we refinanced $222.1 million under our three non-recourse loan facilities with our new $93.75 million and $131.79 million loan facilities described below. See also "Note 14, Debt" to these condensed consolidated interim financial statements for additional information. We believe that our cash on hand, expected cash flows from operations and borrowings under our current facilities, including the expected refinancing of the $284.0 million credit facility, will be sufficient to fund our requirements for, at least, the 12 months from the date of this 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 and repayment of bank loans. Potential 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.

10



 
 
Six Months Ended June 30,
 
(in thousands of $)
 
2019

2018

Net cash provided by (used in) operating activities

 
28,490

62,197

Net cash provided by (used in) investing activities

 
(18,755
)
(152,096
)
Net cash provided by (used in) financing activities

 
(219,082
)
39,576

Net change in cash, cash equivalents and restricted cash


 
(209,347
)
(50,323
)
Cash, cash equivalents and restricted cash at beginning of period


 
372,604

371,984

Cash, cash equivalents and restricted cash at end of period

 
163,257

321,661

Operating Activities
We have significant exposure to the spot market as only 9 of our vessels were fixed on long term time charter contracts during the six months ended June 30, 2019, and at the date of this report, we have 9 vessels on fixed rate time charter contracts with initial contract duration of more than eleven 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. The revenues and net operating income are therefore dependent on the earnings in the spot market.

Revenues from time 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% or 95% after completed loading and the remaining 5-10% after completed discharge.

Net cash provided by operating activities in the six months ended June 30, 2019 was $28.5 million compared with $62.2 million in the six months ended June 30, 2018. As a substantial part of our fleet trades 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 June 30, 2019, compared with the actual rates achieved during the first six months of 2019, 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 estimated average cash break-even rates on a time charter equivalent (TCE) basis are (i) approximately $13,800 per day for our Capesize vessels and (ii) approximately $9,600 per day for our Panamax vessels. The average market spot rates for the first six months of 2019 were as follows: for Capesize vessels, approximately $10,000 per day and for Panamax vessels, approximately $8,200 per day. However, market conditions started to improve going in to the third quarter of 2019 and the average market spot rates from July 1, 2019 to September 16, 2019 were as follows: for Capesize vessels, approximately $29,300 per day and for Panamax vessels, approximately $16,000 per day.

Investing Activities

Net cash used in investing activities was $18.8 million in the six months ended June 30, 2019 and comprised primarily:

payments of $10.0 million in relation to our investment in Singapore Marine, and
payments of approximately $8.9 million related to installation of scrubbers and ballast water systems on certain of our vessels.

This was partially offset by $0.1 million in dividends from our investment in Scorpio Bulkers Inc., an unaffiliated dry bulk shipping company listed on the New York Stock Exchange. We treat this investment as investment in marketable securities.

Net cash used in investing activities was $152.1 million in the six months ended June 30, 2018 and comprised primarily:

payments of an aggregate of $147.6 million in final installments, including predelivery costs, on delivery of five Capesize newbuildings,
payment of $4.5 million in connection with the acquisition of one Capesize vessel, and
payment of $1.2 million in other fixed assets.

This was partially offset by:

proceeds of $0.5 million from our seller credit receivable, and
proceeds of $0.2 million from sale of marketable securities and $0.5 million from other investing activities.

11




Financing Activities

Net cash used in financing activities was $219.1 million in the six months ended June 30, 2019 and comprised primarily:

repayments of $423.5 million, which included the full repayment at maturity on January 30, 2019 of the net outstanding amount of $168.2 million under our convertible bond, prepayments of an aggregate of $222.1 million under our three non-recourse loan facilities, $102.7 million credit facility, $73.4 million credit facility and $80.2 million credit facility, which financed the 14 vessels acquired from Quintana Shipping Ltd. in 2017, and repayments of $33.2 million in ordinary installments,
distributions of $10.8 million in cash dividends to our shareholders, and
repayments of $2.7 million in finance lease obligations, $2.6 million in share repurchases and $5.2 million in debt issuance costs.

This was partially offset by:

$225.5 million in proceeds from drawdowns from our $93.75 million and $131.79 million term loan facilities to finance the repayment of our non-recourse debt as described above, and
net proceeds of $0.2 million from the exercise of options previously granted under our 2016 share option plan to purchase 50,000 shares.

Net cash provided by financing activities was $39.6 million in the six months ended June 30, 2018 and comprised primarily:

$253.0 million in proceeds from drawdowns of $150.0 million from our $425 million term loan facility in connection with the delivery of five Capesize newbuildings and $103.0 million in drawdowns from our new $120 million term loan facility, and
net proceeds of $0.2 million from the exercise of options previously granted under our 2016 share option plan to purchase 50,000 shares.

This was partially offset by:

repayments of $181.1 million, representing repayments of $58.3 million at maturity under our $34.0 million and $82.5 million loan facilities, prepayment of the full outstanding amounts under our related party seller credit loans of $65.5 million, repayments of $11.6 million under the cash sweep mechanism of the non-recourse loans financing the vessels acquired from Quintana in 2017, repayments of $30.4 million in ordinary installments and $15.3 million in payments from repurchases of our convertible bond,
distributions of $28.9 million in cash dividends to our shareholders, and
repayments of $2.5 million in finance lease obligations and $1.2 million in debt issuance costs.

Borrowing Activities
In February 2019, we extended our $420 million term loan facility for 14 vessels by three years from June 2020 to June 2023 at LIBOR plus a margin of 2.5% and upsized the facility to partially finance the installation of scrubbers on up to 11 vessels. Each scrubber installation will be financed with up to $3 million in a separate tranche to be repaid over three years, commencing January 1, 2020.

In May 2019, we entered into two new credit facilities, one for $93.75 million and one for $131.79 million, to refinance our obligations under the three non-recourse loan facilities which financed the 14 vessels acquired from Quintana Shipping Ltd. in 2017. Both facilities are fully guaranteed by the parent company, eliminating all remaining non-recourse debt. Each of the new facilities has a five-year tenor and a 19-year age adjusted amortization profile. The LIBOR margins on the $93.75 million and $131.79 million credit facilities are 2.15 % and 2.10%, respectively.

Debt 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, our loan agreements contain certain financial covenants, including the requirement to maintain a certain level of free cash, positive working capital as defined in the loan agreement which excludes the short-term portion of long-term borrowings and finance lease obligations, and a value adjusted equity covenant. Under our debt facilities, the aggregate value of the collateral vessels shall not fall below 135% of the loan outstanding, depending on the facility. We need to maintain free cash

12



of the higher of $20 million or 5% of total interest bearing debt, maintain positive working capital as defined in our loan agreements, 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 our 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.

As of June 30, 2019, we were in compliance with all of the financial and other covenants contained in our loan agreements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 bank 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. 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 have 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 June 30, 2019 amounted to $1,155.5 million compared to $1,185.3 million as of December 31, 2018 and bear interest at LIBOR plus a margin.

Interest Rate Swap Agreements
In the six months ended June 30, 2019, we recognized a net loss of $12.4 million related to interest rate swap agreements (six months ended June 30, 2018: net gain of $9.8 million). As of June 30, 2019 and December 31, 2018, the weighted average fixed interest rate for our portfolio of interest rate swaps was 2.01% and 2.01%, respectively.

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, Euro 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, in our opinion, well established banks.

Foreign currency Swap Agreements
In the six months ended June 30, 2019, we recognized a net loss of $0.3 million related to foreign currency swaps (six months ended June 30, 2018: net loss of $0.1 million).

Inflation
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

13



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 time charter 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, and fuel suppliers. 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, in our opinion, usually well established banks or other well known institutions in the market.

In the six months ended June 30, 2019, we recognized a net gain of $7.0 thousand in related to bunker swap agreements (six months ended June 30, 2018: net gain of $1.0 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 through forward freight agreements, or 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 FFA 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. FFA are settled on a daily basis through reputable clearing houses and also include a margin maintenance requirement based on marking the contract to market.

In the six months ended June 30, 2019, we recognized a net gain of $2.5 million related to FFA (six months ended June 30, 2018: net loss of $2.8 million).

GOLDEN OCEAN GROUP LIMITED

INDEX TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


 
 
 
 
 
 
 
 
 
 


14



Golden Ocean Group Limited
Unaudited Interim Condensed Consolidated Statements of Operations for the six months ended June 30, 2019 and June 30, 2018

(in thousands of $, except per share data)
 
 
Six months ended June 30,
 
 
2019

 
2018

Operating revenues
 
 
 
 
Time charter revenues
 
128,139

 
159,645

Voyage charter revenues
 
112,867

 
130,021

Other revenues
 
786

 
1,165

Total operating revenues
 
241,792

 
290,831

 
 
 
 
 
Gain on sale of assets and amortization of deferred gains
 

 
129

Other operating income (expenses), net
 
2,816

 
1,049

 
 
 
 
 
Operating expenses
 
 

 
 

Voyage expenses and commissions
 
67,104

 
63,445

Ship operating expenses
 
90,818

 
76,429

Charter hire expenses
 
31,616

 
46,698

Administrative expenses
 
6,805

 
7,357

Impairment loss on vessels
 

 
1,080

Depreciation
 
46,853

 
45,470

Total operating expenses
 
243,196

 
240,479

 
 
 
 
 
Net operating income (loss)
 
1,412

 
51,530

 
 
 
 
 
Other income (expenses)
 
 

 
 

Interest income
 
2,775

 
3,156

Interest expense
 
(32,311
)
 
(36,507
)
Equity results of associated companies
 
178

 
325

Gain (loss) on derivatives
 
(10,217
)
 
7,931

Other financial items
 
(2,313
)
 
(747
)
Net other income (expenses)
 
(41,888
)
 
(25,842
)
 
 
 
 
 
Net income (loss) before tax
 
(40,476
)
 
25,688

Income tax expense
 
75

 
25

 
 
 
 
 
Net income (loss)
 
(40,551
)
 
25,663

 
 
 
 
 
Per share information:
 
 

 
 

Basic and diluted earnings (loss) per share
 
$
(0.28
)
 
$
0.18

Dividends per share
 
$
0.13

 
$
0.20


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


15



Golden Ocean Group Limited
Unaudited Interim Condensed Consolidated Statements of Comprehensive Income (Loss) for the six months ended June 30, 2019 and June 30, 2018

(in thousands of $)
 
 
Six months ended June 30,
 
 
2019

 
2018

Comprehensive income (loss), net
 
 
 
 
Net income (loss)
 
(40,551
)
 
25,663

Other comprehensive income (loss), net
 
 
 
 
Unrealized gain (loss)
 

 

Other comprehensive income (loss), net
 

 

 
 
 
 
 
Comprehensive income (loss), net
 
(40,551
)
 
25,663


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


16



Golden Ocean Group Limited
Unaudited Interim Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018
(in thousands of $)
 
 
June 30,

 
December 31,

 
 
2019

 
2018

ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
97,937

 
305,352

Restricted cash
 
19,612

 
20,272

Marketable securities
 
10,009

 
12,033

Trade accounts receivable, net
 
30,439

 
27,650

Other current assets
 
29,471

 
26,667

Related party receivables
 
6,344

 
3,990

Derivative instruments receivable
 
2,780

 
9,449

Inventories
 
39,288

 
28,154

Prepaid expenses
 
8,061

 
6,127

Voyages in progress
 
5,170

 
2,808

Favorable charter party contracts
 
16,500

 
18,732

Total current assets
 
265,611

 
461,234

Restricted cash
 
45,708

 
46,981

Vessels and equipment, net
 
2,365,773

 
2,406,456

Finance leases, right of use assets, net
 
721

 
1,165

Operating leases, right of use assets, net
 
196,827

 

Favorable charter party contracts
 
9,164

 
16,221

Investments in associated companies
 
1,686

 
1,658

Other long term assets
 
18,097

 
17,639

Total assets
 
2,903,587

 
2,951,354

 
 
 
 
 
LIABILITIES AND EQUITY
 
 

 
 

Current liabilities
 
 

 
 

Current portion of long-term debt
 
233,668

 
471,764

Current portion of finance lease obligations
 
4,687

 
5,649

Current portion of operating lease obligations
 
22,585

 

Derivative instruments payable
 
10,293

 
1,294

       Related party payables
 
696

 

       Trade accounts payables
 
14,673

 
7,752

Accrued expenses
 
33,846

 
26,643

Other current liabilities
 
30,826

 
28,398

Total current liabilities
 
351,274

 
541,500

Long-term liabilities
 
 

 
 

Long-term debt
 
914,012

 
877,278

Non-current portion of finance lease obligations
 

 
1,786

Non-current portion of operating lease obligations
 
165,084

 

Other long term liabilities
 

 
7,278

Total liabilities
 
1,430,370

 
1,427,842

Commitments and contingencies
 


 


Equity
 
 

 
 


17



Share capital (2019: 144,272,697 shares. 2018: 144,272,697 shares. All shares are issued and outstanding at par value $0.05)
 
7,215

 
7,215

Treasury shares
 
(4,239
)
 
(2,643
)
Additional paid in capital
 
473

 
233

Contributed capital surplus
 
1,775,678

 
1,786,451

Accumulated deficit
 
(305,910
)
 
(267,744
)
Total equity
 
1,473,217

 
1,523,512

Total liabilities and equity
 
2,903,587

 
2,951,354


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



18





Golden Ocean Group Limited
Unaudited Interim Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and June 30, 2018

(in thousands of $)
 
 
 
Six months ended June 30,
 
 
2019

 
2018

 
 
 
 
 
Net cash provided by (used in) operating activities
 
28,490

 
62,197

Investing activities
 
 

 
 

Investments in equity securities
 
(10,000
)
 

Payments related to upgrades, vessels and newbuildings
 
(8,844
)
 
(153,304
)
Distributions from associated companies
 

 
45

Proceeds from seller credit receivable
 

 
500

Proceeds from sale of marketable securities
 

 
224

Other investing activities, net
 
89

 
439

Net cash provided by (used in) investing activities
 
(18,755
)
 
(152,096
)
Financing activities
 
 

 
 

Proceeds from long-term debt
 
225,540

 
252,993

Repayment of long-term debt
 
(423,482
)
 
(181,029
)
Repayment of finance leases
 
(2,748
)
 
(2,548
)
Distributions to shareholders
 
(10,773
)
 
(28,850
)
Debt fees paid
 
(5,174
)
 
(1,200
)
Payments related to share repurchases
 
(2,630
)
 

Proceeds from share distributions
 
185

 

Net proceeds from share issuance
 

 
210

Net cash provided by (used in) financing activities
 
(219,082
)
 
39,576

Net change in cash, cash equivalents and restricted cash
 
(209,347
)
 
(50,323
)
Cash, cash equivalents and restricted cash at beginning of period
 
372,604

 
371,984

Cash, cash equivalents and restricted cash at end of period
 
163,257

 
321,661


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



19



Golden Ocean Group Limited
Unaudited Interim Condensed Consolidated Statements of Changes in Equity for the six months ended June 30, 2019 and June 30, 2018

(in thousands of $, except number of shares)
 
 
Six months ended June 30,
 
 
2019

 
2018

Number of shares outstanding
 
 
 
 
Balance at beginning of period
 
144,272,697

 
142,197,697

Shares issued
 

 
2,050,000

Balance at end of period
 
144,272,697

 
144,247,697

 
 
 
 
 
Share capital
 
 

 
 

Balance at beginning of period
 
7,215

 
7,111

Shares issued
 

 
103

Balance at end of period
 
7,215

 
7,214

 
 
 
 
 
Treasury shares
 
 
 
 
Balance at beginning of period
 
(2,643
)
 

Shares purchased
 
(1,881
)
 

Shares distributed
 
285

 

Balance at end of period
 
(4,239
)
 

 
 
 
 
 
Additional paid in capital
 
 

 
 

Balance at beginning of period
 
233

 
454,694

Shares issued
 

 
17,448

Stock option expense
 
240

 
288

Balance at end of period
 
473

 
472,430

 
 
 
 
 
Contributed capital surplus
 
 

 
 

Balance at beginning of period
 
1,786,451

 
1,378,824

Distributions to shareholders
 
(10,773
)
 
(28,850
)
Balance at end of period
 
1,775,678

 
1,349,974

 
 
 
 
 
Other comprehensive income (loss)
 
 
 
 
Balance at beginning of period
 

 
5,323

Adjustment on adoption of changes in ASC 825
 

 
(5,323
)
Balance at end of period
 

 

 
 
 
 
 
Accumulated deficit
 
 

 
 

Balance at beginning of period
 
(267,744
)
 
(351,903
)
Adjustment on adoption of ASC 606
 

 
(5,698
)
Adjustment on adoption of changes in ASC 825
 

 
5,323

Adjustment on adoption of ASC 842
 
2,485

 

Distributed treasury shares
 
(100
)
 

Net income (loss)
 
(40,551
)
 
25,663

Balance at end of period
 
(305,910
)
 
(326,615
)
Total equity
 
1,473,217

 
1,503,003


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

20



Golden Ocean Group Limited
Notes to the Unaudited Interim Condensed Consolidated Financial Statements

1. INTERIM FINANCIAL DATA

The unaudited interim condensed consolidated financial statements of Golden Ocean Group Limited. (“Golden Ocean,” the “Company,” "we," or "our") have been stated on the same basis, except for the adoption of ASC 842 as noted below, as the Company’s audited consolidated financial statements and, in the opinion of management, include all material adjustments, consisting only of normal recurring adjustments considered necessary for a fair statement of the Company's consolidated financial statements, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The unaudited interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and notes included in our Annual Report on Form 20-F for the year ended December 31, 2018, filed with the Securities and Exchange Commission (the "SEC") on March 22, 2019.

The unaudited interim condensed consolidated financial statements do not include all the disclosures required in an Annual Report on Form 20-F. The results of operations for the interim period ended June 30, 2019 are not necessarily indicative of the results for the year ending December 31, 2019.

2. ACCOUNTING POLICIES

Basis of accounting
These unaudited interim condensed consolidated financial statements are stated in accordance with U.S. GAAP. These unaudited interim condensed consolidated financial statements include the assets and liabilities of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated on consolidation.

Accounting Policies
The preparation of these unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Some accounting policies have a significant impact on amounts reported in these unaudited interim condensed consolidated financial statements. Other than our accounting policies adopted as a result of new guidance and as described under "Note 3 Recently Issued Accounting Standards", our accounting policies have not changed from those reported in our 2018 Annual Report on Form 20-F for the year ended December 31, 2018, filed with the SEC on March 22, 2019.

3. RECENTLY ISSUED ACCOUNTING STANDARDS

Accounting Standards Updates, not yet adopted
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 August 2018, the FASB issued ASU No. 2018-13, Fair value measurement (Topic 820), which is intended to streamline the disclosure requirements on fair value measurements. Disclosures such as the amounts of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and the valuation process for Level 3 fair value measurements were removed. Additional disclosures such as disclosure about changes in unrealized gains and losses included in the other comprehensive income for Level 3 fair value measurements, the range and weighted average of significant unobservable inputs used for Level 3 fair value measurements are required to be reported by the public entities. The amendment is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the impact of the adoption of the accounting standard on our consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808), to provide clarity on when transactions between entities in a collaborative arrangement should be accounted for under the new revenue standard, ASC 606. In determining whether transactions in collaborative arrangements should be accounted under the revenue standard, the update specifies that entities shall apply unit of account guidance to identify distinct goods or services and whether such goods and services are separately identifiable from other promises in the contract. The accounting update also precludes entities from presenting

21



transactions with a collaborative partner which are not in scope of the new revenue standard together with revenue from contracts with customers. The accounting update is effective January 1, 2020 and early adoption is permitted. We are currently evaluating the impact of the adoption of the accounting standard on our consolidated financial statements.

Accounting Standards Updates, recently adopted
On January 1, 2019, we adopted ASC 842 Leases which revises the accounting for leases. Under the new lease standard, lessees are required to recognize a right-of-use asset and a lease liability for substantially all leases. The new lease standard requires lessees and lessors to classify most leases as either financing or operating using principles similar to previous lease accounting. The income statement recognition is similar to previous lease accounting and is based on lease classification. The accounting applied by a lessor under the new guidance is substantially equivalent to previous lease accounting guidance.

We adopted the new accounting standard using the modified retrospective transition approach, which allowed us to recognize a cumulative effect adjustment to the opening balance of accumulated deficit in the period of adoption rather than restate our comparative prior year periods. As a lessee, we currently have three major categories of leases - chartered-in vessels, vessels under finance lease and office leases. The adoption of the new accounting standard resulted in the recognition of operating lease right-of-use assets of $205.3 million and related lease liabilities for operating leases of $198.5 million in Total Assets and Total Liabilities, respectively. A deferred gain of $2.5 million from a sale and leaseback transaction in 2015 was recognized as a cumulative-effect adjustment to Total Equity on our Condensed Consolidated Balance Sheet on January 1, 2019.

In connection with the adoption of ASC 842, we elected the package of practical expedients for all our leases that permits us not to (i) reassess whether any expired or existing contracts are or contain leases; (ii) reassess the lease classification for any expired or existing leases and (iii) reassess initial direct costs for any existing leases. Additionally, we elected not to use the practical expedient of hindsight in determining the lease term and the practical expedient pertaining to land easements as it is not applicable to us.

Prior to January 1, 2019, we recognized lease expense in accordance with then-existing U.S. GAAP (“prior GAAP”). Because both ASC 842 and prior GAAP generally recognize operating lease expenses on a straight-line basis over the term of the lease arrangement, there were no material differences between the timing and amount of lease expenses recognized under the two accounting methodologies during the six months ended June 30, 2019 and 2018. However, as we have not applied the practical expedient allowed under the transition guidance of ASC 842 to not separate the lease and non-lease components related to a lease contract and to account for them instead as a single lease component for the purposes of the recognition and measurement requirements of ASC 842, we have a change in presentation in the six months ended June 30, 2019 compared to the six months ended June 30, 2018. For vessels chartered in on time charter, we have presented $7.6 million of the non-lease component, or service element, under ship operating expenses as opposed to charter hire expenses during the six months ended June 30, 2019.

We have also elected as an accounting policy not to apply the provisions of ASC 842 to short term leases (i.e., leases with an original term of 12-months or less). As a result, we recognize the lease payments in the income statement on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred. The accounting policy election for short-term leases is made by class of underlying asset to which the right of use relates.

The adoption of the new accounting standard has not had any material impact for the accounting of our one and only finance lease arrangement.

In determining the appropriate discount rate to use in calculating the present value of our contractual lease payments, we make significant judgments and assumptions to estimate the incremental borrowing rate as the rate implicit in our leases cannot be readily determined. The incremental borrowing rate is defined as the rate of interest that a lessee would have to pay to borrow on a 100% collateralized basis over a term similar to the lease term and amount equal to the lease payments in a similar economic environment.

For arrangements where we are the lessor, the adoption of the new lease standard did not have a material impact on our financial statements as all of our leases are operating leases. For our contracts where we are the lessor, we have elected the practical expedient to not separate non-lease components from the associated lease component and, instead, to account for these components as a single component if both of the following are met: (1) the timing and pattern of transfer of the non-lease component(s) and associated lease component are the same and (2) the lease component, if accounted for separately, would be classified as an operating lease. Revenues from contracts where the non-lease component is the predominant component are accounted for under ASC 606. When a lessor, lease revenue for fixed lease payments is recognized over the lease term on a straight-line basis and lease revenue for variable lease payments is recognized in the period in which the changes in facts and circumstances on which the variable lease payments are based occur. Initial direct costs are expensed over the lease term on the same basis as lease revenue.

22



See also "Note 6, Operating Revenues" and "Note 10, Operating Leases" for additional disclosures on our operating lease arrangements.

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity, and Derivatives and Hedging , which changes the classification of certain equity-linked financial instruments with down round features. As a result, a free standing equity-linked financial instrument or an embedded conversion option would not be accounted for as a derivative liability at fair value as a result of existence of a down round feature. For freestanding equity classified financial instruments, the amendment requires the entities to recognize the effect of the down round feature when triggered in its earnings per share calculations. The Standard was effective for fiscal years beginning after December 15, 2018. The adoption of this accounting standard has not had any material impact on our consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging, which is intended to align the results of the cash flow and fair value hedge accounting with the risk management activities of an entity. The amendments expand the hedge accounting for both financial and non-financial risk components and they reduce the operational burden of applying hedge accounting. The amendment enables the financial statements to reflect accurately the intent and outcome of its hedging strategies. The standard requires a modified retrospective transition method in which we will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the consolidated balance sheet as of the date of adoption. The Standard was effective for fiscal years beginning after December 15, 2018. The adoption of this accounting standard has not had any material impact on our consolidated financial statements as we do not apply hedge accounting of our derivatives.

4. EARNINGS PER SHARE

The components of the numerator and the denominator in the calculation of basic and diluted earnings per share for the six months ended June 30, 2019 and 2018 are as follows:
(in thousands of $)
 
2019

 
2018

Net income (loss)
 
(40,551
)
 
25,663



(in thousands)
 
2019

 
2018

Weighted average number of shares outstanding - basic
 
143,687

 
144,032

Dilutive effect of share options
 

 
315

Weighted average number of shares outstanding - diluted
 
143,687

 
144,347



Total outstanding share options of 495,000 were anti-dilutive in the six months ended June 30, 2019, using the treasury stock method. In the six months ended June 30, 2018, share options using the treasury stock method were dilutive by 315,239 shares and only insignificantly impacting our earnings per share in the period. In the six months ended June 30, 2019, we acquired an aggregate of 350,000 shares and distributed 50,000 treasury shares as settlement for 50,000 share options that were exercised. As of June 30, 2019, we held 745,000 treasury shares (December 31, 2018: 445,000 treasury shares). Our treasury shares have been weighted for the portion of the period they were outstanding.

5. SEGMENT INFORMATION

The chief operating decision maker ("CODM") measures performance based on the overall return to shareholders using consolidated net income. The CODM does not review a measure of operating result at a lower level than the consolidated group and the Company only has one reportable segment.
 
The Company's vessels operate worldwide and therefore management does not evaluate performance by geographical region as this information is not meaningful.

6. OPERATING REVENUES
Our shipping revenues are primarily generated from time charters and voyage charters. In a time charter, the vessel is hired by the charterer for a specified period of time in exchange for consideration which is based on a daily hire rate. Generally, the charterer has the discretion over the ports visited, shipping routes and vessel speed. The contract/charterparty generally provides typical warranties regarding the speed and performance of the vessel. The charterparty generally has some owner protective restrictions such as that the vessel is sent only to safe ports by the charterer and carries only lawful or non hazardous cargo. In a time charter

23



contract, where we charter the ship out to a charterer, we are responsible for all the costs incurred for running the vessel such as crew costs, vessel insurance, repairs and maintenance and lubes. The charterer bears the voyage related costs such as bunker expenses, port charges, canal tools during the hire period. The performance obligations in a time charter contract are satisfied over the term of the contract beginning when the vessel is delivered to the charterer until it is redelivered back to us. The charterer generally pays the charter hire in advance of the upcoming contract period. The time charter contracts are considered operating leases because (i) the vessel is an identifiable asset (ii) we do not have substantive substitution rights and (iii) the charterer has the right to control the use of the vessel during the term of the contract and derives the economic benefits from such use. Time charter contracts are accounted for under ASC 842 leases and revenues are recorded over the term of the charter. 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.

In a voyage charter contract, the charterer hires the vessel to transport a specific agreed-upon cargo for a single voyage. The consideration for such a contract is determined on the basis of a freight rate per metric ton of cargo carried or occasionally on a lump sum basis. The charterer is responsible for any short loading of cargo or "dead" freight. The voyage charter party generally has standard payment terms of 90% or 95% freight paid within three to five days after completion of loading. The voyage charter party generally has a "demurrage" or "despatch" clause. As per this clause, the charterer reimburses us for any potential delays exceeding the allowed laytime as per the charter party clause at the ports visited, which is recorded as demurrage revenue. Conversely, the charterer may be given credit if the loading/discharging activities happen within a shorter period than the allowed laytime, which is despatch and results in a reduction in revenue. Estimates and judgments are required in ascertaining the most likely outcome of a particular voyage and actual outcomes may differ from estimates. In a voyage charter contract, the performance obligations begin to be satisfied once the vessel begins loading the cargo. We have determined that our voyage charter contracts consist of a single performance obligation of transporting the cargo within a specified period. Therefore, the performance obligation is met evenly as the voyage progresses, and the revenue is recognized on a straight line basis over the voyage days from the commencement of loading to completion of discharge. The voyage charters generally have variable consideration in the form of demurrage or despatch, which is recognized as we satisfy the performance obligations under the contract. We estimate demurrage or despatch at contract inception using either the expected value or most likely amount approaches. Such estimate is reviewed and updated over the term of the voyage charter contract. In the six months ended June 30, 2019 and 2018, we recognized a total of $7.8 million and $7.7 million, respectively, in demurrage which is included under voyage revenues. Most of our voyage contracts are considered service contracts which fall under the provisions of ASC 606 because we, as the shipowner, retain control over the operations of the vessel such as directing the routes taken or the vessel speed. However, some of our voyage charter contracts could be considered to contain a lease. A voyage charter contains a lease component if the contract (i) specifies a specific vessel asset; and (ii) has terms that allow the charterer to exercise substantive decision-making rights, which have an economic value to the charterer and therefore allow the charterer to direct how and for what purpose the vessel is used. The new lease standard provides a practical expedient for lessors in which the lessor may elect, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for these components as a single component if both of the following are met: (1) the timing and pattern of transfer of the non-lease component(s) and associated lease component are the same and (2) the lease component, if accounted for separately, would be classified as an operating lease. When a lessor, we have elected this practical expedient for our time charter contracts and voyage charter contracts that qualify as leases and thus do not separate the non-lease component, or service element, from the lease. Furthermore, the standard requires us to account for the combined component in accordance with ASC 606 revenues from contracts with customers if the non-lease components are the predominant components. Under this guidance we have assessed that the non-lease, or service, components were the predominant component for all of our voyage charter contracts.

The following table shows the revenues earned from time charters, voyage charters and other revenues for the six months ended June 30, 2019 and 2018:
(in thousands of $)
 
2019

 
2018

Time charter revenues
 
128,139

 
159,645

Voyage charter revenues
 
112,867

 
130,021

Other revenues
 
786

 
1,165

Total operating revenues
 
241,792

 
290,831



Certain voyage expenses are capitalized between the previous discharge port, or contract date if later, and the next load port and amortized between load port and discharge port. $10.6 million of contract assets were capitalized in the period ended June 30, 2019 under "Other current assets", of which $6.3 million was amortized up to June 30, 2019, leaving a remaining balance of $4.3 million. $2.1 million of contract assets were amortized in the six months ended June 30, 2019 in relation to voyages in progress at the end of December 31, 2018. No impairment losses were recognized in the period.


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As at June 30, 2019 we reported the following contract assets in relation to our contracts with customers, including contracts containing lease components where the non-lease component was the predominant component and the revenues where therefore accounted for under ASC 606:
(in thousands of $)
 
2019

 
2018

Voyages in progress
 
5,170

 
2,808

Trade accounts receivable
 
30,439

 
27,650

Other current assets (capitalized fulfillment costs)
 
4,271

 
2,554

Total
 
39,880

 
33,012



As at June 30, 2019, we recorded $10.0 million in total deferred charter revenue for consideration received or unearned revenue related to ongoing voyages at period end. In the first six months of 2019, we recognized $8.7 million in revenue, which was deferred as at December 31, 2018, as the performance obligations were met.

7. CASH, CASH EQUIVALENTS AND RESTRICTED CASH

As of June 30, 2019 and June 30, 2018, the following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows.

(in thousands of $)
 
2019

 
2018

Cash and cash equivalents
 
97,937

 
249,970

Short term restricted cash
 
19,612

 
15,535

Long term restricted cash
 
45,708

 
56,156

Total cash, cash equivalents and restricted cash shown in the statement of cash flows
 
163,257

 
321,661



Amounts included in short-term and long-term restricted cash include primarily cash balances that are required to be maintained by the financial covenants in our loan facilities. Under our debt facilities, we need to maintain free cash of the higher of $20 million or 5% of total interest bearing debt. In addition to minor amounts secured for tax payments or for claims processes, short-term restricted cash included $9.1 million as at June 30, 2019 (December 31, 2018: $0.8 million), required to be set aside by our margin calls and cash collateral on derivative positions

8. MARKETABLE SECURITIES

Our marketable securities are equity securities in Scorpio Bulkers Inc., a dry bulk shipping company listed on the New York Stock Exchange.
(in thousands of $)
 
 
Balance at December 31, 2018
 
12,033

Sales during the year
 

Unrealized gain (loss)
 
(2,024
)
Balance at June 30, 2019
 
10,009



During the six months ended June 30, 2019, we received approximately $0.1 million in dividends from our investment in Scorpio Bulkers Inc.


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9. VESSELS AND EQUIPMENT, NET
(in thousands of $)
 
Cost

 
Accumulated Depreciation

 
Net Book Value

Balance at December 31, 2018
 
2,679,547

 
(273,091
)
 
2,406,456

Additions
 
5,726

 

 
5,726

Depreciation
 

 
(46,409
)
 
(46,409
)
Balance at June 30, 2019
 
2,685,273

 
(319,500
)
 
2,365,773



At June 30, 2019, we owned three Newcastlemaxes, 35 Capesizes, 27 Panamaxes and two Ultramaxes (At December 31, 2018: three Newcastlemaxes, 35 Capesizes, 27 Panamaxes and two Ultramaxes).

In the six months ended June 30, 2019, we capitalized an aggregate of $5.7 million in costs for completed installations of scrubber and ballast water treatment systems.
 
Total depreciation expense for vessels and equipment was $46.4 million for the six months ended June 30, 2019. In addition, we depreciated $0.4 million of our finance leased assets during the six months ended June 30, 2019.

10. OPERATING LEASES

As of June 30, 2019, we had leased in eight vessels from SFL and one vessel from an unrelated third party, all of which had an initial duration above 12 months. All of these vessels are leased under long-term time charters classified as operating leases. In addition, we had two operating leases for our offices in Oslo and Singapore. As a result of the adoption of ASC 842 on January 1, 2019, we recognized right-of-use assets and lease liabilities for these leases as further disclosed below.

For the eight Capesize vessels leased from SFL the daily time charter rate is $17,600 of which $7,000 is for operating expenses (including dry docking costs) up until the second quarter of 2022 when the daily time charter rate will be reduced to $14,900 until expiry of the contracts. In addition, 33% of any profit from revenues above the daily time charter rate for all eight vessels aggregated will be calculated and paid on a quarterly basis to SFL. 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. This resulted in a daily rate of $18,700 for second quarter of 2019. We have a purchase option of $112 million en-bloc after 10 years since inception of the leases in 2015, and, if such option is not exercised, SFL has the option to extend the charters by three years at $14,900 per day. The lease term for these vessels has been determined to be 13 years. The minimum lease payments do not include any contingent profit share element. Further, any deviation from the three-month LIBOR base of LIBOR of 0.4% per annum, is considered a variable lease element which is expensed as incurred. We have allocated the consideration due under the leases between the lease and non-lease components based upon the estimated stand alone price of the services provided by the owner of the vessels, which include the provision of crewing, vessel insurance, repairs and maintenance and lubes. We have recorded the non-lease component of $10.1 million within Ship Operating Expenses and have recognized the lease component of $15.2 million within Charter hire expense within the Consolidation Statement of Operations.

For the Ultramax vessel, Golden Hawk, the daily rate is $13,200 until expiry of the fixed term of the contract in the first quarter of 2022. Based on an agreement to reduce the daily rate to $11,200 from $13,200 for a two-year period from February 20, 2016 to February 20, 2018, we will pay to the lessor $1.75 million on or about February 20, 2022 to compensate for the reduced charter hire. However, if the 6-T/C Baltic Exchange Supramax Index exceeds the daily rate of $13,200, any such excess will be paid to the lessor but limited to the agreed compensation of $1.75 million which will be then reduced with a corresponding amount. As of the second quarter of 2019, no such index linked compensation has been paid. We have allocated the consideration due under the leases between the lease and non-lease components based upon the estimated stand alone price of the services provided by the owner of the vessels. We have recorded the non-lease component of $1.0 million within Ship Operating Expenses and have recognized the lease component of $0.7 million within Charter hire expense within the Consolidation Statement of Operations.

Furthermore, we are committed to making rental payments under operating leases for office premises. A lease expense of $0.4 million is recorded in Administrative expenses in the Consolidated Statement of Operations for the first six months of 2019.

We have recognized right of use assets for our 11 long-term operating leases as follows:

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(in thousands of $)
 
SFL Leases

 
Golden Hawk Lease

 
Office Leases

 
Total

Balance at January 1, 2019 on adoption of ASC 842
 
198,405

 
3,844

 
3,079

 
205,328

Amortization
 
(7,792
)
 
(501
)
 
(208
)
 
(8,501
)
Balance at June 30, 2019
 
190,613

 
3,343

 
2,871

 
196,827



The amortization of right of use assets relating to leased vessels is presented under charter hire expenses in the statement of operations. The amortization of right of use assets relating to office leases is presented under administrative expenses in the statement of operations.

We have recognized lease obligations for our 11 long-term operating leases as follows:
(in thousands of $)
 
SFL Leases

 
Golden Hawk Lease

 
Office Leases

 
Total

Balance at January 1, 2019 on adoption of ASC 842
 
185,816

 
9,567

 
3,079

 
198,462

Repayments
 
(9,472
)

(1,146
)

(208
)
 
(10,826
)
Foreign exchange translation
 

 

 
33

 
33

Balance at June 30, 2019
 
176,344

 
8,421

 
2,904

 
187,669

 
 
 
 
 
 
 
 
 
Current portion

 
19,571

 
2,412

 
602

 
22,585

Non-current portion
 
156,773

 
6,009

 
2,302

 
165,084



Charterhire and office rent expense
The future minimum operating lease expense payments under our non-cancelable fixed rate operating leases as of December 31, 2018 are as follows:
(in thousands of $)
 
 
2019
 
35,613

2020
 
35,709

2021
 
35,613

2022
 
32,590

2023
 
28,177

Thereafter
 
110,357

 
 
278,059



The future minimum rental payments under our non-cancelable operating leases as of June 30, 2019 are as follows:
(in thousands of $)
 
 
2019 (remaining six months)
 
16,747

2020
 
33,698

2021
 
35,356

2022
 
28,096

2023
 
23,019

Thereafter
 
104,489

Total minimum lease payments
 
241,405

Less: Imputed interest
 
53,736

Present value of operating lease liabilities
 
187,669



Total expense for operating leases, including short term leases, was $38.6 million for the six months ended June 30, 2019 (six months ended June 30, 2018: $46.6 million). Total cash paid in respect of operating leases was $33.5 million in six months ended June 30, 2019 (six months ended June 30, 2018: $35.3 million). The weighted average discount rate in relation to our operating leases was 6.2% for six months ended June 30, 2019 and the weighted average lease term was 8 years for the period ended June 30, 2019.

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Rental income
As of June 30, 2019, we leased out 9 vessels on fixed time charter rates (December 31, 2018: 17 vessels) and 16 vessels (December 31, 2018: 13 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. Our revenues from these leases have been included with time charter revenues in the Condensed Consolidated Statement of Operations, which solely relates to leasing revenues.
   
The future minimum operating lease revenue receipts under our non-cancelable fixed rate operating leases as of June 30, 2019 are as follows:
(in thousands of $)
 
 
2019 (remaining six months)
 
32,052

2020
 
37,410

2021
 
10,907

2022
 

2023
 

Thereafter
 

Total minimum lease receipts
 
80,369



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 June 30, 2019, the cost and accumulated depreciation of the 25 vessels which were leased out to third parties, were $1,104.2 million and $125.3 million, respectively. As of December 31, 2018, the cost and accumulated depreciation of the 30 vessels which were leased out to third parties, were $1,375.7 million and $134.4 million, respectively.

11. VESSELS UNDER FINANCE LEASE, NET

As of June 30, 2019, we held one vessel, the Golden Eclipse, under finance lease (December 31, 2018: one vessel). The lease was for an initial term of 10 years and expires during April 2020.

(in thousands of $)
 
 
Balance at December 31, 2018
 
1,165

Depreciation
 
(444
)
Balance at June 30, 2019
 
721



The outstanding obligations under finance leases at December 31, 2018 are payable as follows: