Performance Shipping Inc. — filing summary
Important entity and period note: The supplied filing is Diana Containerships Inc.’s audited Form 20-F for the fiscal year ended December 31, 2014, filed March 23, 2015. It is not a Performance Shipping Inc. filing and does not report a standalone 2014 fourth quarter. The summary below describes the filing actually provided.
Business context and reporting period
Diana Containerships owned and operated containerships, principally under time charters, and reported under U.S. GAAP. At year-end 2014, its fleet comprised 11 vessels with combined capacity of 52,359 TEU. The fleet averaged 8.8 vessels during the year; utilization was 99.7%.
Financial and operating metrics
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Time-charter revenue, net of prepaid charter amortization | $54.1 million | $54.0 million |
| Operating income (loss) | $9.9 million | ($52.9 million) |
| Net income (loss) | $3.2 million | ($57.3 million) |
| Basic and diluted earnings (loss) per share | $0.06 | ($1.73) |
| Operating cash flow | $25.5 million | $31.7 million |
| Cash and cash equivalents at year-end | $82.0 million | $19.7 million |
| Total current assets / current liabilities | $86.4 million / $9.3 million | $23.0 million / $3.8 million |
| Bank debt, gross | $98.7 million | $98.7 million |
| Related-party loan, principal | $50.0 million | $50.0 million |
| TCE rate per available day | $16,803 | $15,162 |
| Daily vessel operating expense | $8,305 | $8,780 |
Year-end working capital was $77.2 million. Restricted cash totaled $9.9 million. The reported net time-charter revenue reflects $11.6 million of prepaid charter revenue amortization in 2014, versus $20.3 million in 2013. Approximate operating and net margins on this net revenue basis were 18% and 6%, respectively. The filing does not provide a clear standalone fourth-quarter income statement in the supplied text.
Material changes versus the prior year
- Net income swung to $3.2 million from a $57.3 million loss. The 2013 loss included $42.3 million in impairment charges and $16.5 million in vessel-sale losses; 2014 had no impairment charge and $0.7 million of vessel-sale losses.
- Net charter revenue was essentially flat, despite lower gross charter revenue and 9% fewer ownership days, largely because prepaid-charter amortization declined.
- Operating cash flow fell by $6.3 million, while year-end cash increased by $62.3 million. The main source of 2014 financing cash was equity issuance, including a $91.3 million net private-placement raise.
- The company acquired three vessels in 2014 for an aggregate stated purchase price of about $60.3 million and sold one older vessel. Common shares outstanding rose from 35.1 million to 73.2 million, reflecting the placement and other share issuances.
- Vessel operating expenses declined to $26.6 million from $30.9 million, while interest and finance costs increased to $6.7 million from $4.6 million.
Outlook, commentary, risks and unusual items
- Charters and market: Management described container shipping as cyclical and volatile, with charter and freight rates still weak relative to historical averages. Most existing charters were short, and many were due to expire in 2015. At year-end, estimated minimum charter revenue was $36.9 million through 2015 and $3.2 million through 2016. Four charterers generated 87% of 2014 revenue.
- Debt covenant: The RBS facility’s minimum security-cover covenant was not met at December 31, 2014: the hull-cover ratio was 134% against a 140% minimum. Lenders waived prepayment or additional-security demands and agreed not to reassess compliance before March 31, 2015. The filing warns that an uncured breach could permit acceleration and foreclosure. Gross debt under the bank and related-party facilities was $148.7 million, with no remaining borrowing capacity reported.
- Liquidity and planned acquisitions: Management expected operating cash flow to fund fleet operations and working capital. In March 2015, the company agreed to acquire two vessels for $21.5 million each, expected to be funded with cash on hand; completion and charter novations remained conditions.
- Vessel values: Management estimated that the carrying value of eight vessels exceeded their aggregate charter-free market value by approximately $77.9 million at year-end. The 2014 impairment test did not indicate an accounting impairment, but the valuation gap and market sensitivity remain relevant.
- Dividends: The company reported 2014 dividends of $0.21 per share and declared $0.0025 per share for the fourth quarter after year-end. The 2014 private-placement agreement limited dividends to $0.01 per share annualized for at least four consecutive quarters beginning with the second-quarter 2014 dividend, subject to a market-improvement exception and board discretion.
- Other risks and items: Key risks include charter-rate declines, charterer credit/default risk, vessel oversupply and depreciation in vessel values, interest-rate and euro exposure, environmental regulation, and dependence on related parties. Related-party transactions included a $50 million loan from major shareholder Diana Shipping and brokerage and travel services from affiliates. The filing reported no material pending legal proceedings. Auditors issued an unqualified opinion, and management and the auditor reported effective internal control over financial reporting.
Most important facts for investors to verify
- Confirm the issuer: this is a Diana Containerships Inc. filing, not a Performance Shipping Inc. filing; also verify the intended period, since this is a full-year report, not a Q4 report.
- Review the RBS covenant waiver’s expiration and subsequent compliance status, including whether additional collateral or repayment was required.
- Check post-year-end vessel acquisition closings, charter novations, and the actual remaining charter coverage and rates as charters roll off.
- Assess the $77.9 million estimated vessel market-value shortfall against updated broker valuations and impairment assumptions.
- Reconcile debt balances and maturities, including the related-party loan’s interest, back-end fee, and restrictions on additional borrowing.
- Verify the share-count impact, registration rights, ownership concentration, related-party agreements, and the dividend cap and subsequent dividend decisions.