Filing summary
Issuer and period mismatch: The request identifies Performance Shipping Inc. and 2017 Q4, but the supplied Form 20-F is for Diana Containerships Inc. It reports the fiscal year ended December 31, 2017, with annual comparisons; it does not provide standalone fourth-quarter results for Performance Shipping.
Business context and reporting period
Diana Containerships owned and chartered containerships, with operations managed through its subsidiary Unitized Ocean Transport. At December 31, 2017, its fleet comprised 11 vessels, including two contracted for sale, with 57,778 TEU of capacity. The business operated in a weak, cyclical charter market. All share and per-share amounts were retrospectively adjusted for six reverse stock splits in 2016 and 2017.
Financial and operating performance
| Metric | 2017 | 2016 |
|---|---|---|
| Time charter revenue, net | $23.8 million | $33.2 million |
| Operating loss | $24.6 million | $142.0 million |
| Net income (loss) | $3.8 million | ($149.0 million) |
| Operating cash flow | ($12.7 million) | ($12.0 million) |
| Cash and cash equivalents at year-end | $6.4 million | $8.3 million |
| Total assets | $232.3 million | $266.5 million |
| Working capital | ($73.2 million) | ($107.0 million) |
Revenue fell 28% year over year. The average time-charter-equivalent rate declined to $5,320 per available day from $6,341, while fleet utilization improved to 75.9% from 69.8%. Daily vessel operating expense decreased to $5,441 from $6,321. The reported net profit was not evidence of profitable core operations: the company recorded a $24.6 million operating loss and a $42.2 million gain from settling its RBS debt. The 2017 operating margin was approximately negative 103%; net income included the debt-settlement gain.
Interest and finance costs rose to $13.8 million from $7.1 million, including discount-premium amortization on new financing. Impairment charges were $8.4 million in 2017, versus $118.9 million in 2016. The filing reports basic and diluted EPS of $8.94 for 2017, but the unusual per-share figures should be interpreted in light of the reverse splits and major share-count changes.
Debt, liquidity, and capital
In June 2017, the company settled its RBS loan: it paid $85.0 million against a stated outstanding balance of $128.9 million, recognizing the $42.2 million net gain. It replaced part of that financing with secured loans from Diana Shipping (related party) and Addiewell (unrelated party). At year-end, principal was $82.6 million owed to Diana Shipping and $8.5 million owed to Addiewell; the loans also carried $5.0 million and $10.0 million discount premiums, respectively. Both loans were due December 31, 2018, with interest rates stepping up from 6% to 12%. Proceeds from asset sales and specified equity transactions were required to repay debt, limiting their availability for working capital.
Liquidity was strained: current liabilities were $101.2 million against current assets of $28.0 million, and operating cash flow remained negative. The auditor’s report included an explanatory paragraph expressing substantial doubt about the company’s ability to continue as a going concern. Management said available cash and operating cash flow would not cover needs due within a year after issuance of the financial statements, and described vessel sales and improved charter employment as possible remedies. No quantified earnings or charter-rate guidance was provided. Common dividends had been suspended since the quarter ended June 30, 2016.
Material changes, outlook, and risks
- Revenue declined amid vessel disposals, the lay-up of New Jersey, and weak market conditions; better rates on some remaining vessels partly offset the decline.
- The company sold Doukato in 2017 and had March and Great classified as held for sale at year-end. After year-end, it sold New Jersey and contracted to sell Sagitta and Centaurus; proceeds were directed to debt repayment. March and Great were also contracted for sale.
- After year-end, the company reported $7.5 million of additional preferred-share warrant proceeds and repayments of $8.5 million to Addiewell and about $8.4 million to Diana Shipping. It stated that further contracted vessel sales were expected to complete by late April 2018.
- Charter exposure was concentrated: Hapag-Lloyd, OOCL, and CMA CGM accounted for 18%, 24%, and 35% of 2017 revenue, respectively. Most vessel charters had short remaining durations, and management warned that replacement charters could be at lower rates or unavailable.
- Series B preferred shares and warrants created substantial potential dilution; the conversion terms included a price linked to recent trading prices, subject to a $0.50 floor. The filing also describes repeated reverse splits, Nasdaq listing deficiencies cured during 2017, and significant share-price volatility.
- Three purported securities class actions filed in 2017 remained pending; the company said it believed the claims were without merit and intended to defend them.
- Key broader risks include vessel-value and charter-rate volatility, customer credit and concentration, debt covenants and refinancing, environmental compliance costs, and the company’s going-concern uncertainty.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is Diana Containerships Inc., not Performance Shipping Inc.; confirm whether an annual filing or standalone Q4 results were intended.
- Review the going-concern disclosure, cash forecasts, working-capital deficit, and the auditor’s explanatory paragraph.
- Check the exact outstanding debt, discount premiums, interest accruals, maturity terms, collateral, and post-year-end repayments against the loan agreements.
- Verify completion and net proceeds of the contracted vessel sales and whether sale proceeds were applied to debt as required.
- Assess charter expirations, actual vessel employment, customer concentration, and realized rates relative to operating costs.
- Reconcile reported EPS and share counts with the reverse splits, preferred conversions, warrants, and subsequent equity issuance; assess potential dilution.
- Track the securities litigation and any material developments in the company’s Nasdaq listing status.