SEC Filing Summary: TOP TANKERS INC. (Form 6-K)
Business Context and Reporting Period
Company: TOP TANKERS INC. (formerly Ocean Holdings Inc.)
Filing Date: November 26, 2007
Reporting Period: Third Quarter and Nine Months Ended September 30, 2007
Business Overview: The Company provides international seaborne transportation services for refined petroleum products and crude oil. As of September 30, 2007, the fleet consisted of 20 vessels (8 Handymax and 12 Suezmax tankers) with a total capacity of approximately 2.2 million dwt. This represents a reduction from 27 vessels (2.6 million dwt) in the prior year due to sales and leaseback transactions, partially offset by the re-acquisition of four Suezmax tankers in May 2007.
Key Financial Metrics
| Metric (in thousands, except per share) | 3 Months Ended Sept 30, 2006 | 3 Months Ended Sept 30, 2007 | 9 Months Ended Sept 30, 2006 | 9 Months Ended Sept 30, 2007 |
|---|---|---|---|---|
| Voyage Revenues | $70,646 | $51,193 | $242,249 | $200,470 |
| Net Voyage Revenues (TCE) | $58,332 | $36,352 | $199,875 | $155,985 |
| Operating Income (Loss) | $(2,485) | $(11,696) | $33,845 | $(3,136) |
| Net Income (Loss) | $(11,394) | $(18,373) | $11,929 | $(11,637) |
| EPS (Basic & Diluted) | $(0.35) | $(0.50) | $0.37 | $(0.34) |
| Cash from Operating Activities | N/A | N/A | $44,704 | $5,832 |
| Total Debt (Outstanding) | N/A | N/A | N/A | $338,593 |
| Cash and Cash Equivalents | N/A | N/A | N/A | $15,834 |
Note: TCE (Time Charter Equivalent) is calculated as voyage revenues minus voyage expenses (port, canal, fuel, commissions).
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenues decreased 27.5% in Q3 2007 and 17.2% in the first nine months of 2007 compared to the prior year. This was driven by a 20.4% drop in average daily TCE rates (Q3) and a 14.9% reduction in operating days due to a smaller average fleet size.
- Profitability Shift: The Company reported a net loss of $18.4 million for Q3 2007, compared to a loss of $11.4 million in Q3 2006. For the nine-month period, the Company swung from a net income of $11.9 million in 2006 to a net loss of $11.6 million in 2007.
- Operating Expenses: Voyage expenses increased 20.3% in Q3 2007 due to higher bunker costs and canal passes, despite fewer spot market days. Charter hire expense decreased 33.9% in Q3 2007 due to the re-acquisition of four Suezmax vessels, eliminating lease payments for those assets.
- Non-Recurring Items: An $8.0 million unamortized deferred gain was recognized in Q3 2007 following the termination of bareboat charters for three vessels (M/T Invincible, M/T Victorious, M/T Restless) sold by their owners to third parties.
Guidance, Outlook, and Risks
- Fleet Expansion: The Company entered agreements to acquire six drybulk vessels (aggregate price ~$370 million) scheduled for delivery between November 2007 and March 2008. Financing is expected through new secured loans and capital raisings.
- Charter Deployment: Approximately 63% of estimated operating days for the tanker and drybulk fleet for 2008 are secured under time charter contracts. As of September 30, 2007, 10 of 20 tankers were on time charters.
- Accounting Change: The Company intends to change its accounting policy for Planned Major Maintenance Activities (PMMA) from the deferral method to the direct expense method beginning Q4 2007. Retrospective application is expected to decrease net income for 2006 by approximately $26.1 million.
- Liquidity and Debt: Total indebtedness was approximately $338.6 million as of September 30, 2007, with a debt-to-total capital ratio of 60.8%. The Company maintains interest rate swaps to hedge floating rate debt exposure.
- Risks: Key risks include volatility in spot market rates, bunker price fluctuations, potential failure of sellers to deliver new vessels, and litigation risks (a consolidated class action complaint was filed in August 2007, though the Company has filed motions to dismiss).
Investor Verification Checklist
- Debt Covenants: Verify compliance with loan covenants requiring aggregate market value of mortgaged vessels to exceed 130% of outstanding principal and minimum liquid funds of $10,000.
- Accounting Policy Impact: Assess the full retrospective impact of the PMMA accounting change on historical earnings and future cash flow projections.
- Financing for Expansion: Confirm the status of financing for the six new drybulk vessels and the two new-buildings, as these acquisitions rely on new secured loan facilities.
- Litigation Status: Monitor the outcome of the consolidated class action securities lawsuit filed in August 2007.
- Spot Market Exposure: Evaluate the Company's exposure to spot market volatility, as 7 of 12 Suezmax vessels were operating on the spot market in Q3 2007 at significantly lower rates than the prior year.