Filing summary
Issuer and period: The supplied filing is Diana Containerships Inc.’s annual Form 20-F for the fiscal year ended December 31, 2012—not a Performance Shipping Inc. filing and not a standalone fourth-quarter report. The filing reports the 2012 and 2011 full-year results. Financial statements are presented in U.S. dollars and audited under U.S. GAAP.
Business context and key financial metrics
Diana Containerships owns and operates containerships, chartering them primarily under time charters. Its fleet expanded from five vessels at year-end 2011 to ten at year-end 2012; five vessels were acquired during 2012. All vessels were on time charters at year-end.
| Metric | 2012 | 2011 |
|---|---|---|
| Time-charter revenue | $56.6 million | $27.0 million |
| Operating income | $9.0 million | $5.1 million |
| Net income | $6.0 million | $3.6 million |
| Basic and diluted EPS | $0.22 | $0.23 |
| Operating margin (calculated) | Approximately 15.8% | Approximately 18.8% |
| Net margin (calculated) | Approximately 10.5% | Approximately 13.4% |
| Operating cash flow | $31.3 million | $12.5 million |
| Investing cash flow | $(150.0) million | $(79.3) million |
| Financing cash flow | $108.8 million | $97.1 million |
| Cash and cash equivalents at year-end | $31.5 million | $41.4 million |
| Long-term debt outstanding | $92.7 million gross | None reported at year-end |
| Total assets / stockholders’ equity | $337.0 million / $238.8 million | $210.0 million / $206.5 million |
The filing reports working capital of $30.8 million at year-end 2012, versus $40.4 million in 2011. A $9.27 million compensating cash balance was required under the credit facility. The reported TCE rate fell to $17,499 per available day from $19,895, while daily vessel operating expenses rose to $9,179 from $8,435. Fleet utilization edged up to 99.8% from 99.3%.
Material changes versus prior year
- Revenue more than doubled as the average fleet grew from 3.6 to 8.6 vessels and operating days increased. Net income rose, but EPS declined from $0.23 to $0.22 as the weighted-average share count increased substantially.
- Lower average charter rates partly offset fleet growth: TCE declined about 12%. Vessel operating expenses increased to $29.0 million from $11.1 million, reflecting the larger fleet and higher crew, repair and maintenance costs. Depreciation and interest costs also increased.
- Cash fell by $9.8 million despite higher operating cash flow, primarily reflecting $150.0 million of investing outflows for vessel acquisitions and related charter agreements, offset by equity and debt financing.
- The company issued 9.1 million shares in 2012, raising approximately $53.9 million net, and drew $92.7 million under its RBS revolving facility. Dividends paid totaled $28.5 million, or $1.00 per share, compared with $4.2 million, or $0.18 per share, in 2011.
Outlook, risks and unusual items
- Management expected 2013 revenue to increase with fleet expansion, but warned lower average charter rates could offset the growth. It expected vessel operating costs and depreciation to rise with the fleet; interest and finance costs were expected to remain approximately level.
- Management described the containership market as cyclical and volatile, with charter rates near historical lows and capacity oversupply a concern. Five vessel charters were scheduled to expire during 2013 using earliest redelivery dates; replacement rates could be materially lower.
- Charterers were concentrated: three customers accounted for 90% of 2012 revenue. The filing also flags counterparty credit risk, vessel-value declines, financing and covenant risks, rising operating costs, regulatory and environmental compliance costs, and foreign-exchange exposure.
- The RBS facility bears interest at LIBOR plus 2.75%, is secured by vessels, and includes collateral, liquidity and other financial covenants, as well as restrictions that can limit dividends and other actions. The filing reports $92.7 million outstanding and $9.27 million of compensating cash.
- For vessels acquired with attached charters in 2012, the company recorded $42.0 million of prepaid charter revenue assets; $12.2 million was amortized against revenue during the year. Management estimated aggregate vessel carrying value exceeded estimated charter-free market value by $65.4 million at year-end, versus $33.8 million in 2011, but recorded no impairment after its cash-flow recoverability analysis.
- After year-end, the company declared a $0.30-per-share dividend and agreed to buy the 1993-built Hanjin Malta for $22 million, expected to be funded from cash on hand. The vessel was to be chartered back at $25,550 per day for a minimum 36.5 months.
- The company reported effective disclosure controls and internal control over financial reporting, and the auditor issued unqualified opinions on the financial statements and internal controls. No material pending or threatened legal proceedings were reported.
Important facts for investors to verify
- Confirm the issuer: the supplied document is for Diana Containerships Inc., not Performance Shipping Inc.
- Review charter expiry dates, renewal options, counterparty credit quality and expected replacement rates, particularly for 2013 expirations.
- Check the RBS facility’s current balance, collateral valuations, covenant headroom, minimum-cash requirements and dividend restrictions.
- Assess the assumptions behind the $65.4 million estimated carrying-value versus charter-free market-value gap and the no-impairment conclusion.
- Verify the timing and economics of the Hanjin Malta purchase and charter, and whether the variable dividend policy remains sustainable after debt service, vessel spending and reserves.