Business Context and Reporting Period
Company: TOP Ships Inc.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Fourth Quarter and Fiscal Year ended December 31, 2009
Filing Date: March 11, 2010
TOP Ships Inc. is an international provider of seaborne crude oil, petroleum products, and drybulk transportation services. The company operates a fleet of eight Handymax tankers and five drybulk vessels. During 2009, the company completed its newbuilding program, taking delivery of six product tankers which were immediately chartered out on bareboat basis for 7 to 10 years. The company also terminated charters on five chartered-in vessels to reduce costs.
Key Financial Metrics
| Metric | Q4 2009 | Q4 2008 | FY 2009 | FY 2008 |
|---|---|---|---|---|
| Revenues | $24.4 million | $37.0 million | $108.0 million | $257.4 million |
| Operating Income (Loss) | ($31.7 million) | $8.0 million | ($34.2 million) | $61.7 million |
| Net Income (Loss) | ($35.9 million) | $8.4 million | ($50.2 million) | $25.6 million |
| Diluted EPS | ($1.20) | $0.28 | ($1.78) | $0.97 |
| Operating Cash Flow | N/A | N/A | $6.6 million | $11.8 million |
| Total Debt | N/A | N/A | $404.3 million | $342.5 million |
| Cash & Equivalents | N/A | N/A | $0 | $46.2 million |
Note: Q4 Operating Cash Flow is not explicitly broken out in the provided text; only annual figures are available.
Material Changes vs. Prior Period
- Revenue Decline: Full-year 2009 revenues dropped 58% to $108.0 million from $257.4 million in 2008, driven by the termination of high-cost chartered-in vessels and market conditions.
- Impairment Charges: The company recorded a non-cash impairment charge of $36.6 million in Q4 2009 related to the write-down of two older tanker vessels. Excluding this charge, Q4 would have shown a net income of $0.7 million.
- Lease Termination: The company incurred $15.4 million in lease termination expenses in 2009 after ending charters on five chartered-in vessels.
- Liquidity Position: Cash and cash equivalents decreased from $46.2 million at the end of 2008 to $0 at the end of 2009. Restricted cash also declined from $52.6 million to $22.2 million.
- Fleet Expansion: The fleet grew from 7 vessels in 2008 to 13 vessels in 2009, with a shift toward owned vessels on long-term bareboat charters.
Outlook, Risks, and Management Commentary
Management Commentary
CEO Evangelos J. Pistiolis highlighted two milestones: completing the newbuilding program with six tankers on long-term bareboat charters (reducing market and operational risk) and terminating expensive chartered-in vessels. The company reported 100% fleet utilization in Q4 2009.
Guidance and Future Outlook
- Charter Portfolio: 84% of total ship days through the end of 2011 are under fixed employment, with expected gross revenue of approximately $151 million. Through the end of 2012, 75% of ship days are fixed with expected revenue of $199 million.
- Capital Commitments: The company states it has no capital commitments.
Risks and Contingencies
- Loan Covenant Breaches: As of December 31, 2009, the company was in breach of EBITDA, minimum liquidity, adjusted net worth, and asset value cover covenants with all five lending banks. While waivers were obtained for prior breaches, the company is currently in discussions to secure waivers for the 2009 breaches. Consequently, the company expects to classify all debt as current in its 2009 audited statements.
- Charter Dispute: A bareboat charterer unilaterally reduced the daily hire rate for two vessels (M/T Ionian Wave and M/T Tyrrhenian Wave) from $14,300 to $10,000. The company considers this a breach and intends to take steps to recover owed amounts.
- PFIC Status: The company confirmed it will be treated as a Passive Foreign Investment Company (PFIC) for 2009, which may result in adverse U.S. federal income tax consequences for shareholders unless a Qualified Electing Fund (QEF) election is made.
Investor Verification Checklist
- Debt Classification: Verify the status of loan covenant waivers with the five lending banks to confirm if debt remains classified as current or if refinancing is secured.
- Cash Position: Confirm the company's ability to meet interest and principal payments given the $0 cash balance and $404.3 million in debt.
- Charter Dispute Resolution: Monitor the outcome of the dispute regarding the reduced charter rates for the M/T Ionian Wave and M/T Tyrrhenian Wave.
- PFIC Tax Implications: Review the tax consequences for U.S. shareholders and the availability of QEF election information.
- Utilization Rates: Verify the sustainability of the 100% fleet utilization rate reported in Q4 2009 given the challenging market environment.