TOP SHIPS INC. — 2013 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2013. The filing is an annual report, not a standalone fourth-quarter report. Financial statements are prepared under U.S. GAAP; amounts below are U.S. dollars unless stated otherwise.
Business context
Top Ships provides seaborne transportation services. It sold its last operating vessels during 2013 and, at year-end, had no operating fleet. It had paid deposits on two product/chemical tanker newbuildings, originally scheduled for delivery in 2015. A February 2014 agreement replaced one purchase with a 50,000-dwt vessel scheduled for delivery in May 2014, with a time charter attached. The other 39,000-dwt vessel was scheduled for delivery in the third quarter of 2015.
Key financial metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $20.074 million | $31.428 million |
| Operating income (loss) | $9.233 million | $(52.774) million |
| Net income (loss) | $1.408 million | $(63.984) million |
| Basic and diluted EPS | $0.08 | $(3.77) |
| Operating cash flow | $3.070 million | $15.129 million |
| Investing cash flow | $50.994 million | $6.002 million |
| Financing cash flow | $(44.283) million | $(21.131) million |
| Year-end total assets | $27.868 million | $211.415 million |
| Year-end stockholders’ equity | $14.795 million | $13.079 million |
Revenue fell 36.1%, reflecting vessel sales, including the October disposal of six vessel-owning subsidiaries and the April sale of M/T UACC Sila. Average daily time-charter-equivalent revenue declined 12.3% to $10,484. The reported operating profit included a $1.591 million gain on disposal of subsidiaries; results also benefited from substantially lower operating costs and no vessel impairment charge, compared with $61.484 million of impairment in 2012. These changes make 2013 profitability a poor guide to earnings from a future operating fleet.
At year-end, current assets were $10.262 million and current liabilities were $8.605 million, a working-capital surplus of approximately $1.7 million. Cash and cash equivalents were $9.706 million; a further $1.739 million was restricted as collateral for a swap. The company reported no outstanding debt facilities. Other obligations included a $4.706 million unpaid M/T Delos charter-termination fee and derivative liabilities totaling $1.697 million. Shareholders received no dividends.
Material changes and transactions
- In April 2013, the company sold M/T UACC Sila for $26 million and repaid its related debt.
- On October 16, 2013, it sold subsidiaries owning six vessels for stated aggregate cash consideration of approximately $173 million, with buyers assuming about $135.448 million of debt and swap obligations. The sale generated a $1.591 million gain; reported net proceeds were $37.552 million.
- The company paid $14.4 million in deposits toward two newbuildings. The original remaining installments were reported as $57.6 million. Following the February 2014 replacement agreement, the company disclosed $30.9 million of 2014 purchase payments, including $27.4 million payable in cash or shares at its option, and $28.0 million in 2015.
- Revenue depended heavily on a small customer base: approximately 99% came from three charterers in 2013, with one accounting for 63%.
Outlook, risks and unusual items
- Management expected operating cash flow in 2014 to decrease from 2013 and expected no revenue until delivery of the first newbuilding, then anticipated in the second quarter of 2014. The filing does not provide quantified earnings guidance.
- Funding the newbuildings is a central risk. Management expected to use cash, bank debt, debt or equity offerings, and potentially funds from its major shareholder. Failure to secure funding could delay or prevent delivery; the company had limited liquidity relative to the remaining purchase commitments.
- Both newbuilding purchases were from entities affiliated with CEO and director Evangelos J. Pistiolis. The February 2014 replacement transaction also allowed part of the delivery payment to be made in shares, creating potential dilution.
- The 2013 sale of the M/V Evian followed a reported failure by its bareboat charterer to pay certain vessel operating expenses. The company also wrote off $1.8 million of uncollected Evian revenue and $0.6 million relating to M/T Miss Marilena.
- The company disclosed that M/V Evian made one port call to Bandar Abbas, Iran, in 2013 while on bareboat charter to an unrelated party. The vessel loaded iron ore and remained in port for 26.3 days; the company said it could not readily calculate the charterer’s gross revenue or net proceeds from the call.
- Management identified shipping-market cyclicality, charter rates and vessel values, oversupply, financing availability, counterparty and customer concentration, sanctions, environmental regulation, and foreign-exchange exposure as risks. The company also expected PFIC status for 2013, potentially affecting U.S. shareholders’ tax treatment.
- The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an ICFR attestation because the company was a non-accelerated filer.
Most important facts for investors to verify
- Whether the May 2014 vessel was delivered on schedule, its time-charter terms and counterparty, and whether the 2015 newbuilding remains on track.
- How the company funded the remaining vessel commitments, including the amount paid in cash versus shares, any new borrowings, and resulting dilution.
- Current unrestricted and restricted cash, payment timing for the M/T Delos termination fee, and settlement or remaining exposure under the Alpha Bank swap.
- Whether the company has resumed revenue-generating operations and how much revenue and cash flow are supported by contracted charters versus uncontracted employment.
- The status of the Iran-related disclosure and sanctions compliance, as well as any subsequent customer-payment, litigation, or other contingent-liability developments.
- Related-party transaction terms, including newbuilding pricing, manager fees and commissions, and governance oversight given the CEO’s controlling ownership and the board’s limited independence.