FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of April 2005
TOP TANKERS INC.
(Translation of registrant's name into English)
109-111 Messogion Avenue
Politia Centre
Athens 115 26 GR(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [_]
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes [_] No [X]
INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Set forth herein as Exhibit 1 is a report containing audited financial
data of TOP Tankers Inc. for the year ended December 31, 2004.
Exhibit 1
---------
Selected Consolidated Financial and Other Data
The following table sets forth selected consolidated financial data
and other operating data of TOP Tankers Inc. The selected financial data in the
table for the three years ended December 31, 2004 are derived from the audited
consolidated financial statements of TOP Tankers Inc. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements, and related notes thereto.
Year Ended December 31,
Dollars in thousands, except per share data and average daily results 2002 2003 2004
---- ---- ----
INCOME STATEMENT DATA
Voyage revenues.................................. $11,426 $23,085 $93,829
Voyage expenses.................................. 3,311 5,937 16,898
Vessel operating expenses........................ 4,553 8,420 16,859
General and administrative expenses(1)........... 816 1,815 8,579
Foreign currency losses, net..................... 62 105 75
Gain on sale of vessels.......................... - - 638
Depreciation and amortization.................... 2,390 4,203 14,622
Total operating expenses......................... 11,132 20,480 56,395
Operating income................................. 294 2,605 37,434
Net interest expense............................. 987 1,335 4,720
Other income (expense), net...................... 894 364 80
Net income....................................... $201 $1,634 $32,794
Basic and diluted earnings per share(2).......... $0.03 $0.27 $2.54
Weighted average basic and diluted shares outstanding(2) 6,000,000 6,000,000 12,922,449
Dividends paid per share(2)...................... $0.14 $0.10 $0.39
BALANCE SHEET DATA, at end of period
Current assets, including cash................... $845 $4,862 $141,051
Total assets..................................... 33,474 55,703 539,886
Current liabilities, including current portion of long-term debt 4,390 9,008 42,811
Total long-term debt, including current portion.. 22,875 34,403 194,806
Stockholders' equity............................. 8,772 16,319 321,809
OTHER FINANCIAL DATA
EBITDA(3)........................................ $3,578 $7,172 $52,136
FLEET DATA
Total number of vessels at end of period......... 3.0 5.0 15.0
Average number of vessels(4)..................... 2.9 4.4 9.6
Total voyage days for fleet(5)................... 961 1,517 3,215
Total time charter days for fleet................ 160 543 1,780
Total spot market days for fleet................. 801 974 1,435
Total calendar days for fleet(6)................. 1,042 1,609 3,517
Fleet utilization(7)............................. 92.2% 94.3% 91.4%
AVERAGE DAILY RESULTS
Time charter equivalent(8)....................... $8,444 $11,304 $23,929
Vessel operating expenses(9)..................... 4,369 5,233 4,794
General and administrative expenses(10).......... 783 1,128 2,439
Total vessel operating expenses(11).............. 5,152 6,361 7,233
(1) We did not pay any compensation to members of our senior management or our
directors in the years ended December 31, 2002 and December 31, 2003.
During 2004, we paid to the members of our senior management and to our
directors aggregate compensation of approximately $4.4 million.
(2) After giving effect to a stock dividend effected in May 2004 and our
initial public offering in July 2004. All share and per share amounts have
been restated to reflect the retroactive effect of the stock dividend.
(3) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA does not represent and should not be considered as an
alternative to net income or cash flow from operations, as determined by
GAAP, and our calculation of EBITDA may not be comparable to that reported
by other companies. EBITDA is included in this report because it is a basis
upon which we assess our liquidity position and because we believe that it
presents useful information to investors regarding our ability to service
and/or incur indebtedness.
The following table reconciles net cash from operating activities, as
reflected in the consolidated statements of cash flows, to EBITDA:
Year Ended December 31,
2002 2003 2004
---- ---- ----
Net Cash from Operating Activities........... $2,409 $4,930 $28,601
Net increase in current assets............... 214 1,768 23,764
Net increase in current liabilities,
excluding current portion
of long-term debt.......................... (381) (3,154) (12,197)
Gain on sale of vessels...................... - - 638
Payments for drydocking costs................ 510 2,414 7,365
Net interest expense......................... 987 1,335 4,720
Amortization and write-off of
deferred financing costs.................. (161) (121) (755)
----- ----- -----
EBITDA....................................... $3,578 $7,172 $52, 136
====== ====== ========
(4) Average number of vessels is the number of vessels that constituted our
fleet for the relevant period, as measured by the sum of the number of days
each vessel was a part of our fleet during the period divided by the number
of calendar days in that period.
(5) Total voyage days for fleet are the total days the vessels were in our
possession for the relevant period net of off hire days associated with
major repairs, drydockings or special or intermediate surveys.
(6) Calendar days are the total days the vessels were in our possession for the
relevant period including off hire days associated with major repairs,
drydockings or special or intermediate surveys.
(7) Fleet utilization is the percentage of time that our vessels were available
for revenue generating voyage days, and is determined by dividing voyage
days by fleet calendar days for the relevant period.
(8) Time charter equivalent, or TCE, is a measure of the average daily revenue
performance of a vessel on a per voyage basis. Our method of calculating
TCE is consistent with industry standards and is determined by dividing net
voyage revenue by voyage days for the relevant time period. Net voyage
revenues are voyage revenues minus voyage expenses. Voyage expenses
primarily consist of port, canal and fuel costs that are unique to a
particular voyage, which would otherwise be paid by the charterer under a
time charter contract, as well as commissions. The following table reflects
calculation of the TCE (all amounts are expressed in thousands of U.S.
dollars, except for Average Daily Time Charter Equivalent amounts and Total
Voyage Days):
Year Ended December 31,
2002 2003 2004
---- ---- ----
Voyage revenues............................ $11,426 $23,085 $93,829
Less:
Voyage expenses........................... (3,311) (5,937) (16,898)
------- ------- --------
Time charter equivalent revenue........... $8,115 $17,148 $76,931
====== ======= =======
Total voyage days......................... 961 1,517 3,215
Average Daily Time Charter Equivalent..... $8,444 $11,304 $23,929
(9) Daily vessel operating expenses, which includes crew costs, provisions,
deck and engine stores, lubricating oil, insurance, maintenance and repairs
is calculated by dividing vessel operating expenses by fleet calendar days
for the relevant time period.
(10) Daily general and administrative expenses are calculated by dividing
general and administrative expenses by fleet calendar days for the relevant
time period.
(11) Total vessel operating expenses, or TVOE, is a measurement of our total
expenses associated with operating our vessels. TVOE is the sum of vessel
operating expenses and general and administrative expenses. Daily TVOE is
calculated by dividing TVOE by fleet calendar days for the relevant time
period.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following is a discussion of our financial condition and results of
operations for the years ended December 31, 2004, 2003 and 2002. You should read
this section together with the consolidated financial statements including the
notes to those financial statements for the periods mentioned above.
We are a provider of international seaborne transportation services,
carrying refined petroleum products and crude oil. As of December 31, 2004, our
fleet consisted of 15 vessels, comprised of 11 Product tankers and 4 Suezmax
tankers, with a total cargo carrying capacity of approximately 1.1 million
deadweight tons, or dwt.
We actively manage the deployment of our fleet between spot market
voyage charters, which generally last from several days to several weeks, and
time charters, which can last up to several years. A spot market voyage charter
is generally a contract to carry a specific cargo from a load port to a
discharge port for an agreed upon total amount. Under spot market voyage
charters, we pay voyage expenses such as port, canal and fuel costs. A time
charter is generally a contract to charter a vessel for a fixed period of time
at a specified daily rate. Under time charters, the charterer pays voyage
expenses such as port, canal and fuel costs. Under both types of charters, we
pay for vessel operating expenses, which include crew costs, provisions, deck
and engine stores, lubricating oil, insurance, maintenance and repairs, as well
as for commissions on gross charter rates. We are also responsible for the
vessel's intermediate and special survey costs.
Vessels operating on time charters provide more predictable cash flows,
but can yield lower profit margins than vessels operating in the spot market
during periods characterized by favorable market conditions. Vessels operating
in the spot market generate revenues that are less predictable but may enable us
to capture increased profit margins during periods of improvements in vessel
rates although we are exposed to the risk of declining vessel rates, which may
have a materially adverse impact on our financial performance. We are constantly
evaluating opportunities to increase the number of our vessels deployed on time
charters, but only expect to enter into additional time charters if we can
obtain contract terms that satisfy our criteria.
On July 23, 2004, our common stock was listed on the Nasdaq National
Market, under the symbol "TOPT", in connection with our initial public offering.
The net proceeds of our initial public offering, approximately $124.4 million,
were primarily used to finance the acquisition of 10 vessels, comprised of 8
ice-class double-hull Handymax tankers and 2 double-hull Suezmax tankers. The
total cost of the acquisition was approximately $252 million. TOP Tanker
Management, our wholly-owned subsidiary, has subcontracted the technical
management of these 10 tankers to Unicom Management, an unaffiliated ship
management company based in Cyprus. The 8 Handymax tankers are deployed under
time charter contracts and the 2 Suezmax tankers are currently deployed in the
spot charter market.
Developments Since Our Initial Public Offering
On November 5, 2004 we completed a follow-on offering of our common
stock. The net proceeds of our follow-on offering, approximately $139.4 million,
were used primarily to finance the acquisition of 5 double-hull Suezmax tankers.
The total cost of the acquisition was approximately $257 million. TOP Tanker
Management, our wholly-owned subsidiary, has subcontracted the technical
management of four of these vessels to V.Ships, an unaffiliated ship management
company based in Glasgow, Scotland and the technical management of the remaining
vessel to Unicom Management, an unaffiliated ship management company based in
Cyprus. One of these vessels has been deployed on a 24 month time charter
contract with Glencore and the remaining four vessels have been deployed in the
spot charter market.
On February 23, 2005, we entered into an agreement for the acquisition
of the M/T Topless, a 47,262 Dwt, double-hull Handymax tanker, built in 1998 by
Onomichi Dockyard Co., Ltd., of Japan. TOP Tanker Management will undertake the
technical management of this vessel. The M/T Topless is scheduled to be
delivered on or about April 25, 2005.
On March 4, 2005 we entered into an agreement for the acquisition of 3
double-hull Handymax tankers, the 46,217 dwt M/T Taintless, the 46,168 dwt M/T
Dauntless and the 46,185 dwt M/T Soundless. The M/T Taintless and the M/T
Dauntless were delivered on March 21 and March 24, 2005, respectively. The M/T
Soundless is scheduled to be delivered on or about April 18, 2005. The vessels
are sisterships, built in 1999, by Hyundai Heavy Industries Co., Ltd., of the
Republic of Korea. TOP Tanker Management will undertake the management of the
M/T Soundless and has subcontracted the technical management of the remaining
two vessels to V.Ships. The M/T Taintless and the M/T Dauntless are deployed
under 60 month time charter contracts with Glencore. The M/T Soundless and the
M/T Topless will also be deployed under 60 month time charter contracts with
Glencore upon their delivery.
On March 16, 2005, we agreed to sell our final remaining single-hull
vessel, the M/T Yapi, for $8.5 million. On March 29, 2005, we also entered the
vessel into a bareboat charter with the purchasers until July 31, 2005, the
vessel's delivery date. We received an advance payment of $1.0 million from the
purchasers as a security of their obligation to purchase the vessel and we will
also be paid a daily bareboat hire of $6,000 under the charter.
Results of Operations
For discussion and analysis purposes only, we evaluate performance
using time charter equivalent, or TCE, revenues. TCE revenues are voyage
revenues minus voyage expenses. Voyage expenses primarily consist of port, canal
and fuel costs that are unique to a particular voyage, which would otherwise be
paid by a charterer under a time charter, as well as commissions. We believe
that presenting voyage revenues, net of voyage expenses, neutralizes the
variability created by unique costs associated with particular voyages or the
deployment of vessels on time charter or on the spot market and presents a more
accurate representation of the revenues generated by our vessels.
We calculate daily TCE rates by dividing TCE revenues by voyage days
for the relevant time period. We also generate demurrage revenue, which
represents fees charged to charterers associated with our spot market voyages
when the charterer exceeds the agreed upon time required to load or discharge a
cargo. We calculate daily direct vessel operating expenses and daily general and
administrative expenses for the relevant period by dividing the total expenses
by the aggregate number of calendar days that we owned each tanker for the
period.
We depreciate our tankers on a straight-line basis over their estimated
useful lives determined to be 25 years from the date of their initial delivery
from the shipyard. Depreciation is based on cost less the estimated residual
value. We capitalize the total costs associated with a drydocking and amortize
these costs on a straight-line basis over the period when the next drydocking
becomes due, which is typically 30 to 60 months. Regulations and/or incidents
may change the estimated dates of next drydockings.
Year ended December 31, 2004 compared to the year ended December 31, 2003
VOYAGE REVENUES--Voyage revenues increased by $70.7 million, or 306.1%,
to $93.8 million for 2004 compared to $23.1 million for the prior year. This
increase is due to the acquisition of 2 tankers and 10 tankers during the first
and third quarter of 2004, respectively, which contributed $66.7 million in
voyage revenues and the overall stronger spot market during 2004 which increased
the voyage revenues generated by the remaining vessels to $27.1 million in 2004
from $23.1 million in 2003.
VOYAGE EXPENSES--Voyage expenses primarily consist of port, canal and
fuel costs that are unique to a particular voyage. These expenses, which are
paid by the charterer under a time charter contract, as well as commissions,
increased $11.0 million, or 186.4%, to $16.9 million for 2004 compared to $5.9
million for the prior year. This increase is primarily due to the increase in
the average number of tankers in our fleet during 2004 compared to the prior
year, as well as the increase in the cost of fuel to operate the tankers.
NET VOYAGE REVENUES--
2003 2004
---- ----
Voyage revenues............................ $23,085 $93,829
Less Voyage expenses....................... (5,937) (16,898)
Net voyage revenues........................ 17,148 76,931
======= ======
Net voyage revenues, which are voyage revenues minus voyage expenses,
increased by $59.8 million, or 349.7%, to $76.9 million for 2004 compared to
$17.1 million for the prior year. This increase is the result of the increase in
the average number of tankers in our fleet and the overall stronger spot market
during 2004 compared to the prior year. The average number of tankers in our
fleet increased 118.2% to 9.6 tankers during 2004 compared to 4.4 tankers during
the prior year.
The following describes our charter revenues for 2004 as compared to
the prior year:
o Average daily TCE rate increased by $12,625, or 111.7%, to $23,929
for 2004 compared to $11,304 for the prior year.
o $32,138,000, or 41.7%, of net voyage revenue was generated by time
charter contracts and $44,793,000, or 58.3%, of net voyage revenue
was generated in the spot market during 2004, compared to
$7,506,000, or 43.9%, of net voyage revenue generated by time
charter contracts, and $9,642,000, or 56.1%, of net voyage revenue
generated in the spot market during the prior year.
o Tankers operated an aggregate of 1,780 days, or 55.4%, on time
charter contracts and 1,435 days, or 44.6%, in the spot market
during 2004, compared to 543 days, or 35.8%, on time charter
contracts and 974 days, or 64.2%, in the spot market during the
prior year.
o Average daily time charter rate was $18,055 for 2004 compared to
average daily time charter rate of $13,824 for the prior year.
o Average daily spot rate was $31,215 for 2004 compared to average
daily spot rate of $9,899 for the prior year.
VESSEL OPERATING EXPENSES -- Vessel operating expenses, which include
crew costs, provisions, deck and engine stores, lubricating oil, insurance,
maintenance and repairs, increased by $8.5 million, or 101.2%, to $16.9 million
for 2004 compared to $8.4 million for the prior year. This increase is primarily
due to the increase in the average number of tankers in our fleet, which
increased 118.2% between the periods. Daily vessel operating expenses per tanker
decreased by $439, or 8.4%, to $4,794 for 2004 compared to $5,233 for the prior
year. This decrease is the result of lower crewing and insurance expenses
associated with the economies of scale of operating a larger fleet during the
year, compared to the previous year and the subcontracting of the technical
management of our vessels to V.Ships Management Limited and Unicom Management
during the third quarter of 2004. Our vessel operating expenses depend on a
variety of factors, many of which are beyond our control and affect the entire
shipping industry.
GENERAL AND ADMINISTRATIVE EXPENSES--General and administrative
expenses, which include all of our onshore expenses, the fees that Primal
Tankers Inc., our former management company, charged to manage our vessels, and
the fees paid to V.Ships Management Limited and Unicom Management, increased by
$6.8 million, or 377.8%, to $8.6 million for 2004 compared to $1.8 million for
the prior year. This increase is due to increased staff and additional
administrative costs in connection with the operation of our larger fleet, and
the duties typically associated with public companies and to the compensation of
our senior management and directors, which was in the aggregate amount of $4.4
million. Daily general and administrative expenses per tanker increased $1,311,
or 116.2%, to $2,439 for 2004 compared to $1,128 for the prior year.
FOREIGN CURRENCY GAINS OR LOSSES--We incurred a $75,000 foreign
currency loss for 2004 compared to a loss of $105,000 for the prior year.
GAIN ON SALE OF VESSELS--During the last quarter of 2004 we sold the
vessels M/T Tireless and M/T Med Prologue and we realized a total gain of
$638,000.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization, which
include depreciation of tankers, office furniture and equipment as well as
amortization of drydockings, increased by $10.4 million, or 247.6%, to $14.6
million for 2004 compared to $4.2 million for the prior year. This increase is
primarily due to the increase in the average number of tankers in our fleet, the
increase in the book value of our fleet as a result of our acquisitions of
tankers during 2004, and the amortization of capitalized expenses associated
with drydockings that occurred for the first time to vessels that are part of
our fleet.
2003 2004
---- ----
Vessels depreciation expense.............................. $3,604 $13,073
Office furniture and equipment depreciation expense....... 0 35
Amortization of drydockings............................... $599 1,514
------ -------
$4,203 14,622
Depreciation of vessels increased by $9.5 million, or 263.9%, to $13.1
million for 2004 compared to $3.6 million for the prior period. This increase is
due to the increase in the book value of our fleet as a result of our
acquisitions of tankers during 2004 compared to the prior year.
Amortization of drydockings increased by $0.9 million, or 150.0%, to
$1.5 million for 2004 compared to $0.6 million for the prior year. This increase
includes amortization associated with $7.4 million of capitalized expenditures
relating to our tankers during 2004 compared to $2.4 million of capitalized
expenditures during the prior year. This increase is the result of the
amortization of capitalized expenses associated mainly with drydockings which
took place after September 30, 2004, all of which relate to tankers which have
capitalized drydocking expenditures for the first time since we acquired them.
We anticipate that the amortization associated with drydockings will continue to
increase in 2005 due to the increase in the average number of tankers in our
fleet, the increase in costs associated with drydockings, and that we are
currently drydocking vessels for the first time since these vessels became part
of our fleet.
NET INTEREST EXPENSE--Net interest expense increased by $3.4 million,
or 261.5%, to $4.7 million for 2004 compared to $1.3 million for the prior year.
This increase is the result of the increase in our weighted average outstanding
debt as a result of our acquisitions of tankers. Net interest expense is
anticipated to continue to increase in 2005 as a result of the debt that we
incurred in connection with our acquisition of additional tankers.
OTHER NET--We recognized a gain of $0.1 million during 2004 compared to
a gain of $0.4 million during the prior year. The amount relating to 2003
relates to the excess amount the Company received in connection with a claim for
damages to its vessels compared to the actual costs associated with the repairs.
NET INCOME--Net income was $32.8 million for 2004 compared to net
income of $1.6 million for the prior year.
Year ended December 31, 2003 compared to the year ended December 31, 2002
VOYAGE REVENUES--Voyage revenues increased by $11.7 million, or 102.6%,
to $23.1 million for 2003 compared to $11.4 million for the prior year. This
increase is due to the acquisition of Fearless and Tireless in February and June
2003, respectively, which contributed $7.6 million in voyage revenues and the
overall stronger spot market during 2003 which increased the voyage revenues
generated by the remaining vessels to $15.5 million in 2003 from $11.4 million
in 2002.
VOYAGE EXPENSES--Voyage expenses primarily consist of port, canal and
fuel costs that are unique to a particular voyage. These expenses, which are
paid by the charterer under a time charter contract, as well as commissions,
increased $2.6 million, or 78.8%, to $5.9 million for 2003 compared to $3.3
million for the prior year. This increase is primarily due to the increase in
the average number of tankers in our fleet during 2003 compared to the prior
year, as well as the increase in the cost of fuel to operate the tankers.
NET VOYAGE REVENUES--
2002 2003
---- ----
Voyage revenues............................ $11,426 $23,085
Less Voyage expenses....................... (3,311) (5,937)
------- -------
Net voyage revenues........................ $8,115 $17,148
====== =======
Net voyage revenues, which are voyage revenues minus voyage expenses,
increased by $9.0 million, or 111.1%, to $17.1 million for 2003 compared to $8.1
million for the prior year. This increase is the result of the increase in the
average number of tankers in our fleet and the overall stronger spot market
during 2003 compared to the prior year. The average number of tankers in our
fleet increased 51.7%, to 4.4 tankers compared to 2.9 tankers for 2003 compared
the prior year.
The following describes our charter revenues for 2003 as compared to
the prior year:
o Average daily TCE rate increased by $2,860, or 33.9%, to $11,304 for
2003 compared to $8,444 for the prior year.
o $7,506,000, or 43.9%, of net voyage revenue was generated by time
charter contracts and $9,642,000, or 56.1%, of net voyage revenue
was generated in the spot market during 2003, compared to
$1,977,000, or 24.7%, of net voyage revenue generated by time
charter contracts, and $6,137,000, or 75.3%, of net voyage revenue
generated in the spot market during the prior year.
o Tankers operated an aggregate of 543 days, or 35.8%, on time charter
contracts and 974 days, or 64.2%, in the spot market during 2003,
compared to 160 days, or 16.6%, on time charter contracts and 801
days, or 83.4%, in the spot market during the prior year.
o Average daily time charter rate was $13,824 for 2003 compared to
average daily time charter rate of $12,359 for the prior year.
o Average daily spot rate was $9,899 for 2003 compared to average
daily spot rate of $7,662 for the prior year.
VESSEL OPERATING EXPENSES -- Vessel operating expenses, which include
crew costs, provisions, deck and engine stores, lubricating oil, insurance,
maintenance and repairs, increased by $3.9 million, or 86.7%, to $8.4 million
for 2003 compared to $4.5 million for the prior year. This increase is primarily
due to the increase in the average number of tankers in our fleet, which
increased 51.7% between the periods. The increase in vessel operating expenses
relative to the increase in the average number of tankers in our fleet and the
growth in the average size of the tankers that comprised our fleet during 2003
compared to 2002 is primarily due to the lower maintenance and repair expenses
during 2002. Daily vessel operating expenses per tanker increased by $864, or
19.8%, to $5,233 for 2003 compared to $4,369 for the prior year. This increase
is the result of the growth in the average size of the tankers in our fleet, as
larger tankers are inherently more expensive to operate, and as a result of the
low vessel operating expenses incurred during 2002 described above. The increase
in daily vessel operating expenses will be the result of the growth in the
average size of the tankers in our fleet and the percentage of Suezmax tankers
that comprise our fleet. Suezmax tankers are larger and inherently more
expensive to operate than product tankers. Our vessel operating expenses depend
on a variety of factors, many of which are beyond our control and affect the
entire shipping industry.
GENERAL AND ADMINISTRATIVE EXPENSES--General and administrative
expenses, which is primarily the fees that Primal Tankers Inc. charged to manage
our vessels, increased by $1.0 million, or 125.0%, to $1.8 million for 2003
compared to $0.8 million for the prior year. This increase is due to an increase
in the management fee charged by Primal Tankers Inc. as a result of the increase
in the payroll expenses including the increase in the number of its personnel
arising from the increase in the average number of tankers in our fleet, which
increased 51.7%, during 2003 compared to the prior year. Daily general and
administrative expenses per tanker increased $345, or 44.1%, to $1,128 for 2003
compared to $783 for the prior year, this increase is due to an increase in the
management fee charged by Primal Tankers Inc. as a result of the increase in the
payroll expenses including the increase in the number of personnel arising from
the increase in the average number of tankers in our fleet, which increased
51.7%, during 2003 compared to the prior year. We did not pay any compensation
to the members of our senior management or our directors during the year ended
December 31, 2003.
FOREIGN CURRENCY GAINS OR LOSSES--We incurred a $105,000 foreign
currency loss for 2003 compared to a loss of $62,000 for the prior year.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization, which
include depreciation of tankers as well as amortization of drydockings,
increased by $1.8 million, or 75.0%, to $4.2 million for 2003 compared to $2.4
million for the prior year. This increase is primarily due to the increase in
the average book value of our fleet as a result of our acquisitions of tankers
during 2003, and the amortization of capitalized expenses associated with
drydockings that occurred for the first time to vessels that are part of our
fleet.
2002 2003
Vessels depreciation expense............................. $2,213 $3,604
Amortization of drydockings.............................. $177 $599
------ ------
$2,390 $4,203
====== ======
Depreciation of vessels increased by $1.4 million, or 63.6%, to $3.6
million for 2003 compared to $2.2 million for the prior period. This increase is
due to the increase in the book value of our fleet as a result of our
acquisitions of tankers during 2003 compared to the prior year.
Amortization of drydockings increased by $0.4 million, or 200.0%, to
$0.6 million for 2003 compared to $0.2 million for the prior year. This increase
includes amortization associated with $2.4 million of capitalized expenditures
relating to our tankers during 2003 compared to $0.5 million of capitalized
expenditures during the prior year.
NET INTEREST EXPENSE--Net interest expense increased by $0.3 million,
or 30.0%, to $1.3 million for 2003 compared to $1.0 million for the prior year.
This increase is the result of the increase in our weighted average outstanding
debt as a result of our acquisitions of tankers during 2003. The magnitude of
the increase in net interest expense relative to the increase in our weighted
average outstanding debt was mitigated by the overall lower interest rate
environment during 2003 compared to the prior year.
OTHER NET--We recognized a gain of $0.4 million during 2003 compared to
a gain of $0.9 million during the prior year. These gains relate to the excess
amount the Company received in connection with a claim for damages to its
vessels compared to the actual costs associated with the repairs.
NET INCOME--Net income was $1.6 million for 2003 compared to net income
of $0.2 million for the prior year.
Liquidity and capital resources
Since our formation, our principal source of funds has been equity
provided by our shareholders, operating cash flows and long-term borrowings. Our
principal use of funds has been capital expenditures to establish and grow our
fleet, maintain the quality of our vessels, comply with international shipping
standards and environmental laws and regulations, fund working capital
requirements, make principal repayments on outstanding loan facilities, and pay
dividends. We expect to rely upon operating cash flows, long-term borrowings and
equity financings to implement our growth plan. We believe that our current cash
balance as well as operating cash flows will be sufficient to meet our liquidity
needs for the next year.
Our practice has been to acquire vessels using a combination of funds
received from equity investors and bank debt secured by mortgages on our
vessels. Our business is capital intensive and its future success will depend on
our ability to maintain a high-quality fleet through the acquisition of newer
vessels and the selective sale of older vessels. These acquisitions will be
principally subject to management's expectation of future market conditions as
well as our ability to acquire vessels on favorable terms.
We operate a fleet that is 100% double-hull. In anticipation of the
accelerated IMO phase out of single-hull tankers to 2010 that became effective
in April 2005, we sold two single-hull tankers in 2004 and our remaining
single-hull tanker in March 2005. The sale of this tanker reduced the total
deadweight tonnage of our current fleet by approximately 1.5%. We do not believe
that this reduction materially affected our operations.
Cash increased $112.5 million to $114.8 million as of December 31, 2004
compared to $2.3 million as of December 31, 2003. That increase includes the
proceeds of our follow-on offering on November 5, 2004, which have been used
primarily to finance the acquisition of 5 Suezmax tankers. Working capital is
current assets minus current liabilities, including the current portion of
long-term debt. Working capital surplus was $98.2 million as of December 31,
2004, compared to a working capital deficit of $4.1 million as of December 31,
2003. The current portion of long-term debt, net of unamortized deferred
financing costs, included in our current liabilities was $19.5 million and $4.0
million as of December 31, 2004 and December 31, 2003, respectively.
EBITDA, as defined in Footnote 3 to the "Selected consolidated
financial and other data" table above, increased by $44.9 million, or 623.6%, to
$52.1 million for 2004 compared to $7.2 million for the prior year. This
increase is due to the growth of our fleet and the overall stronger tanker
market during 2004 compared to the prior year, the increase was mitigated by the
increase in vessel operating expenses and general and administrative expenses
for 2004 compared to the prior year.
EBITDA, increased by $3.6 million, or 100.0%, to $7.2 million for 2003
compared to $3.6 million for the prior year. This increase is due to the growth
of our fleet and the overall stronger tanker market during 2003 compared to the
prior year, the increase was mitigated by the increase in vessel operating
expenses and general and administrative expenses for 2003 compared to the prior
year.
On July 23, 2004, the Company completed its initial public offering on
the Nasdaq National Market. In this respect, 12,258,570 shares of common stock
were issued at $11.00 per share. The net proceeds of the initial public offering
totaled $124.4 million of which approximately $112.1 million were used to
acquire 10 double-hull tankers, consisting of 8 Handymax and 2 Suezmax product
tankers, and approximately $12.3 million for general corporate purposes. In
addition, 20,000 shares of common stock were sold in a private transaction to
Sovereign Holdings, a company owned by our Chief Executive Officer, at the same
price as those sold to the public.
On November 5, 2004, the Company completed a follow-on offering of its
common stock on the Nasdaq National Market. In this respect, 9,552,420 shares of
common stock were issued at $15.50 per share. The net proceeds of the follow-on
offering totaled $139.4 million of which approximately $116.7 million were used
for the acquisition of 5 double-hull Suezmax tankers, and approximately $22.7
million were used to repay a portion of our debt.
While the Company cannot provide assurances that it will continue to do
so, and subject to the limitations discussed elsewhere in its filings with the
Securities and Exchange Commission, it currently intends to pay regular cash
dividends on a quarterly basis. On January 12, 2005, we paid the first dividend
on our common shares of $0.21 per share to shareholders of record as of December
22, 2004. On April 12, 2005, we paid the second dividend on our common shares of
$0.21 per share to shareholders of record as of March 31, 2005.
As of December 31, 2004, the outstanding balance of our credit facility
with the Royal Bank of Scotland, which we refer to as the initial credit
facility, was $197.0 million, maturing in 2012. The interest rate for the first
$98.5 million is LIBOR, whereas with respect to the remaining $98.5 million, we
have entered into a four year swap agreement with the Royal Bank of Scotland for
a fixed interest rate of 3.61%. In addition to these interest rates, the
outstanding amount is subject to a bank spread, which will be adjusted quarterly
to 100 basis points if the ratio of the outstanding loan balance to the
aggregate market value of our vessels securing the loan is less than or equal to
60%; 112.5 basis points if this ratio is greater than 60% but less than 70%; or
125 basis points if this ratio is greater than 70%. The initial credit facility
is collateralized by mortgages on 15 of the vessels in our fleet.
The initial credit facility contains, among other things, financial
covenants requiring us to ensure that the aggregate market value of the
mortgaged vessels at all times exceeds 130% of the aggregate outstanding
principal amount under the loan and to maintain minimum liquid funds with the
lender of not less than the greater of $10.0 million or $0.5 million per vessel
in our fleet. We are permitted to pay dividends under the loan so long as we are
not in default of a loan covenant.
We are obligated to repay the principal amount in 16 consecutive
semi-annual installments of $10.0 million, each commencing on March 31, 2005,
together with a balloon payment of $37.0 million payable with the final
installment. Our initial credit facility allows us, subject to certain
conditions, to defer up to two non-consecutive payments of the first ten
scheduled principal payments of $10.0 million each, provided that a fee of 1%
shall be payable on any deferred installment and a maximum of $20.0 million may
be deferred at any time.
In February 2005, we entered into a financing agreement with the Royal
Bank of Scotland, which we refer to as the new credit facility to partially
finance the acquisition of 3 of the 5 additional Suezmax tankers acquired in
connection with the follow-on offering of our common shares (the M/T Priceless,
the M/T Noiseless and the M/T Faultless), 4 Handymax tankers (the M/T Taintless,
the M/T Dauntless, the M/T Soundless and the M/T Topless) and to refinance the
then outstanding balance of our initial credit facility. The new credit facility
was for the amount of $424.8 million divided into three tranches of $197.0
million, $83.8 million and $144.0 million. The $197.0 million tranche is payable
in 16 equal consecutive semi-annual installments of $10.0 million each,
beginning on March 31, 2005, together with a balloon payment of $37.0 million
payable with the final installment. The $83.8 million tranche is payable in 14
varying semi-annual installments beginning on July 31, 2005, together with a
balloon payment of $17.0 million payable with the final installment. The $144.0
million tranche is payable in 17 semi-annual installments of $6.3 million,
beginning on November 30, 2005, together with a balloon payment of $36.9 million
payable with the final installment. Additional terms and conditions of the new
credit facility are as follows:
The initial interest rate on the new credit facility is 100 basis
points over LIBOR. The interest rate will be adjusted quarterly to 100 basis
points over LIBOR if the ratio of the aggregate outstanding loan balance under
the new credit facility and the initial credit facility to the aggregate market
value of the mortgaged vessels under the new credit facility and the initial
credit facility is less than or equal to 60%; 112.5 basis points over LIBOR if
this ratio is greater than 60% but less than 70%; or 125 basis points over LIBOR
if this ratio is greater than 70%. The new credit facility is collateralized by
a first priority mortgage on each of the 4 Handymax tankers and 3 Suezmax
tankers mentioned above and a second priority mortgage on each of the mortgaged
vessels under the initial credit facility.
The new credit facility contains, among other things, financial
covenants requiring us to: ensure that the aggregate market value of our fleet
at all times exceeds 130% of the aggregate outstanding principal amount under
the new credit facility and the initial credit facility; maintain minimum liquid
funds with the lender of not less than the greater of $10.0 million or $0.5
million per vessel in our fleet; ensure that our total assets minus our debt
will not at any time be less than $200.0 million and at all times exceed 35% of
our total assets; ensure that EBITDA (as defined in the new credit facility)
will at all times exceed 120% of the aggregate of interest expenses and debt due
at a particular period; and meet minimum working capital requirements. The new
credit facility also contains general covenants that require us to maintain
adequate insurance coverage and obtain the bank's consent before we incur new
indebtedness that is secured by the vessels mortgaged thereunder or the
mortgaged vessels under the initial credit facility. In addition, the new credit
facility prohibits us, without the lender's consent, from appointing a chief
executive officer other than Evangelos Pistiolis and requires that the vessels
mortgaged thereunder and the mortgaged vessels under the initial credit facility
be managed by TOP Tanker Management, which will subcontract the technical
management of the mortgaged vessels to V.Ships Management Limited, Unicom
Management and any other company acceptable to the lender. We will be permitted
to pay dividends under the new credit facility so long as we are not in default
of a loan covenant. The new credit facility also requires that the relevant
terms of the loan agreement under the initial credit facility, including the
security and interest margin provisions, be amended to take into account the new
credit facility and the vessels mortgaged thereunder. The initial credit
facility will also be cross-collateralized by second priority mortgages on the
vessels mortgaged under the new credit facility.
We paid a fee of 1.0%, 1.0% and 0.75% of the amount of Tranche A, B and
C, respectively of the loan on the date that we signed the loan agreement, and a
commitment fee of 0.25% per annum shall accrue on the amount of the undrawn
balance from the date that we signed the offer letter which shall be payable one
month in arrears and on the date of the drawdown.
In March 2005, we entered into a credit facility with DVB Bank, which
we refer to as the DVB credit facility, for a total of $56.5 million, to finance
the purchase of 2 Suezmax tankers, the M/T Stopless and the M/T Stainless. The
loan is payable in 28 varying quarterly installments beginning on July 29, 2005
and a balloon payment of $10.2 million, payable together with the last
installment. The interest rate on the DVB credit facility is 125 basis points
over LIBOR. Beginning on the date of the credit facility and ending on the final
drawdown date, we will pay the lender a quarterly fee of 0.25% of the average
undrawn amount of the loan for the quarter. The DVB credit facility is
collateralized by a first priority mortgage on the M/T Stopless and the M/T
Stainless.
The DVB credit facility may be drawn down in amounts not less than $1.0
million and in multiples of $250,000. The lender's obligation to fund the
drawdowns under the loan will terminate if we do not receive delivery of the
mortgaged vessels by April 30, 2005.
The DVB credit facility contains, among other things, financial
covenants requiring us to: ensure that the aggregate market value of the
mortgaged vessels is equal to at least 130% of the outstanding principal amount
under the loan, ensure that our total assets minus our debt will not at any time
be less than $200.0 million or 35% of our total assets, to ensure that our
EBITDA (as defined in the DVB credit facility agreement) will not at any time be
less than 120% of the aggregate of interest expenses and debt due at a
particular period, and maintain certain minimum liquid funds of not less than
the greater of $10.0 million or $0.5 million per vessel in our fleet. In
addition, the DVB credit facility prohibits us, without the lender's consent,
from appointing a chief executive officer other than Evangelos Pistiolis and
requires that the mortgaged vessels are managed by TOP Tanker Management, which
may subcontract the technical management of the mortgaged vessels to V.Ships
Management Limited, Unicom Management or any other company acceptable to the
lender.
Long Term Financial Obligations and other Commercial Obligations: The
following table presents our long-term financial and other commercial
obligations as of December 31, 2004:
Payments due by period
2-3 4-5 More than
Contractual Obligations: Total 1 year years years 5 years
----------------------- ----- ------ ----- ----- -------
(in thousands of $)
Long term debt 197,000 20,000 40,000 40,000 97,000
Operating leases 3,438 622 1,244 1,244 328
Vessel Acquisitions 230,850 230,850 - - -
--------- -------- -------- ------- -------
Total 431,288 251,472 41,244 41,244 97,328
========= ======== ======== ======= =======
TOP Tanker Management, our wholly-owned subsidiary, is responsible for
the chartering, operational and technical management of our tanker fleet,
including crewing, maintenance, repair, capital expenditures, drydocking, vessel
taxes, maintaining insurance and other vessel operating expenses under
management agreements with our vessel owning subsidiaries. TOP Tanker Management
has undertaken the technical management of 2 of the vessels in our tanker fleet
and has subcontracted the technical management of 11 of the vessels in our
tanker fleet to Unicom Management, a ship management company based in Cyprus,
and has subcontracted the technical management of 10 of the vessels in our
tanker fleet to V.Ships Management Limited, a ship management company based in
the Isle of Man. TOP Tanker Management pays a monthly fee of $14,000 per vessel
under its agreements with Unicom Management and a monthly fee of $10,000 per
vessel under its agreements with V.Ships Management. Under the terms of these
agreements, Unicom Management and V.Ships Management may be terminated at any
time upon 3 months notice.
In July 2004, we entered into an agreement to lease office space in
Athens, Greece from Pyramis Technical Co. SA, which is wholly owned by the
father of our Chief Executive Officer. The agreement is for a duration of six
years initially, with an option for an extension of four years. The monthly
rental is Euro 39,000 adjusted annually for inflation effective January 1, 2006.
The minimum rentals payable under this lease for each of the years ending
December 31, 2005 through December 31, 2010, before any adjustment for inflation
and translated using the exchange rate of US$/Euro on December 31, 2004, are
approximately $3.4 million.
Other major capital expenditures include funding our maintenance
program of regularly scheduled intermediate survey or special survey drydocking
necessary to preserve the quality of our vessels as well as to comply with
international shipping standards and environmental laws and regulations.
Although we have some flexibility regarding the timing of this maintenance, the
costs are relatively predictable. Management anticipates that these vessels
which are younger than 15 years are required to undergo in-water intermediate
surveys 2.5 years after a special survey drydocking and that vessels are to be
drydocked every five years, while vessels 15 years or older are to be drydocked
for an intermediate survey every 2.5 years in which case the additional
intermediate survey drydockings take the place of in-water surveys.
During 2004, we had 250 off hire days associated with drydockings.
During 2003 we had 83 off hire days associated with 2 drydockings. Each
intermediate survey drydocking is estimated to require approximately 25 days and
each special survey drydocking is estimated to require approximately 35 days. In
addition to the costs described above, drydockings result in off hire time for a
vessel, during which the vessel is unable to generate revenue. Off hire time
includes the actual time the vessel is in the shipyard as well as ballast time
to the shipyard from the port of last discharge. The ability to meet this
maintenance schedule will depend on our ability to generate sufficient cash
flows from operations or to secure additional financing.
NET CASH PROVIDED BY OPERATING ACTIVITIES-increased 483.7% to $28.6
million during 2004, compared to $4.9 million during the prior year. This
increase is primarily attributable to net income of $32.8 million and
depreciation and amortization of $15.4 million for 2004, compared to net income
of $1.6 million and depreciation and amortization of $4.3 million during the
prior year.
NET CASH USED IN INVESTING ACTIVITIES-was $344.9 million during 2004
compared to net cash used in investing activities of $19.7 million during the
prior year. During the 2004, we expended $327.6 million for the acquisition of
12 tankers, compared to expending $19.6 million for the acquisition of 2 tankers
during the prior year.
NET CASH PROVIDED BY FINANCING ACTIVITIES--was $428.7 million during
2004 compared to net cash provided by financing activities of $17.0 million
during the prior year. The change in cash provided by financing activities
relates to the following:
o Net proceeds from borrowing under long-term debt were $281.9 million
in connection with the acquisition of 4 Suezmax tankers and 8
product tankers during 2004 compared to $25.9 million in connection
with our acquisition of 2 product tankers during the prior year.
o Principal repayments of long-term debt were $119.5 million during
2004 compared to $14.3 million during the prior year.
o Net issuance of common stock and capital contributions to additional
paid in capital were $281.1 million during 2004 compared to $6.5
million during the prior year as a result of our initial public
offering on July 23, 2004 and our follow-on offering on November 5,
2004.
o Dividends of $2.3 million during 2004 compared to $0.6 million
during the prior year.
NET CASH PROVIDED BY OPERATING ACTIVITIES--increased 104.2% to $4.9
million during 2003, compared to $2.4 million during the prior year. This
increase is primarily attributable to net income of $1.6 million and
depreciation and amortization of $4.3 million for 2003 compared to net income of
$0.2 million and depreciation and amortization of $2.5 million during the prior
year.
NET CASH USED IN INVESTING ACTIVITIES--was $19.7 million during 2003
compared to net cash used in investing activities of $18.3 million during the
prior year. During 2003, we expended $19.6 million for the acquisition of two
tankers, compared to expending $18.6 million for the acquisition of one tanker
during the prior year.
NET CASH PROVIDED BY FINANCING ACTIVITIES--was $17.0 million during
2003 compared to net cash provided by financing activities of $14.2 million
during the prior year. The change in cash provided by financing activities
relates to the following:
o Net proceeds from borrowing under long-term debt were $25.9 million
in connection with the acquisition of 2 product tankers during 2003
compared to $15.6 million in connection with our acquisition of 1
product tanker during the prior year.
o Principal repayments of long-term debt were $14.3 million during
2003 compared to $2.6 million during the prior year.
o Capital contributions to additional paid in capital was $6.5 million
during 2003 compared to $2.3 million during the prior year.
Subsequent Events
Fleet Composition: We currently own and operate a fleet of 22 vessels,
consisting of 13 product tankers and 9 double-hull Suezmax tankers. Two of our
Handymax tankers were delivered in March 2005 and 5 of our Suezmax tankers were
purchased in connection with the proceeds of the following-on offering of our
common stock in November 2004. We also expect to take delivery of the M/T
Soundless and the M/T Topless on or about April 18 and April 25, 2005,
respectively.
In March 2005, we agreed to sell our final remaining single-hull
tanker, the M/T Yapi, for $8.5 million. On March 29, 2005, we also entered the
vessel into a bareboat charter with the purchasers until July 31, 2005, the
vessel's delivery date. We received an advance payment of $1 million and will be
paid a daily bareboat hire of $6,000 under the charter.
New Credit Facilities: Please see the discussion in "Liquidity and
Capital Resources".
Interest Rate Swaps: In connection with the new credit facility
discussed above, we entered into interest rate swap agreements, effective on
March 31, 2005: (i) for the initial amount of $93.5 million and for a period of
five years, with a fixed interest rate of 4.72% plus the applicable bank margin;
(ii) for the initial amount of $27.9 million and for a period of four years,
with a fixed interest rate of 4.58% plus the applicable bank margin; and (iii)
for the initial amount of $36.5 million and for a period of four years, with a
fixed interest rate of 4.66% plus the applicable bank margin.
Fleet Management: TOP Tanker Management is responsible for the
chartering, operational and technical management of our tanker fleet under
management agreements with us. TOP Tanker Management will undertake the
technical management of two of the vessels to be delivered in late April 2005
and has subcontracted the technical management of 11 of the vessels in our
tanker fleet to Unicom Management, an unaffiliated ship management company based
in Cyprus, and the technical management of 11 of the vessels in our tanker fleet
to V.Ships Management Limited, an unaffiliated ship management company based in
the Isle of Man. TOP Tanker Management may subcontract the technical management
of vessels acquired in the future to other third party technical management
companies.
London Office: On February 2, 2005, TOP TANKERS (U.K) LIMITED, a newly
established wholly-owned subsidiary to be engaged in the chartering of our
vessels, entered into a lease for office space in London. The lease will end on
December 31, 2005.
Dividends: On March 16, 2005, we declared a dividend on our common
shares of $0.21 per share that was paid on April 12, 2005, to shareholders of
record of our common shares as of March 31, 2005.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States, or U.S. GAAP. The preparation of those financial statements
requires us to make estimates and judgments that affect the reported amount of
assets and liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities at the date of our financial statements.
Actual results may differ from these estimates under different assumptions or
conditions.
Critical accounting policies are those that reflect significant
judgments or uncertainties, and potentially result in materially different
results under different assumptions and conditions. We have described below what
we believe are our most critical accounting policies that involve a higher
degree of judgment and the methods of their application. For a description of
all of our significant accounting policies, see Note 2 to our consolidated
financial statements included herein.
Impairment of long-lived assets. We evaluate the carrying amounts and
periods over which long-lived assets are depreciated to determine if events have
occurred which would require modification to their carrying values or useful
lives. In evaluating useful lives and carrying values of long-lived assets, we
review certain indicators of potential impairment, such as undiscounted
projected operating cash flows, vessel sales and purchases, business plans and
overall market conditions. We determine undiscounted projected net operating
cash flows for each vessel and compare it to the vessel carrying value. In the
event that impairment occurred, we would determine the fair value of the related
asset and we would record a charge to operations calculated by comparing the
asset's carrying value to the estimated fair value. We estimate fair value
primarily through the use of third party valuations performed on an individual
vessel basis.
Depreciation. We record the value of our vessels at their cost (which
includes acquisition costs directly attributable to the vessel and expenditures
made to prepare the vessel for its initial voyage) less accumulated
depreciation. We depreciate our vessels on a straight-line basis over their
estimated useful lives, estimated to be 25 years from date of initial delivery
from the shipyard. We believe that a 25-year depreciable life is consistent with
that of other shipowners. Depreciation is based on cost less the estimated
residual scrap value. A decrease in the useful life of the vessel or in the
residual value would have the effect of increasing the annual depreciation
charge. When regulations place limitations over the ability of a vessel to trade
on a worldwide basis, the vessel's useful life is adjusted at the date such
regulations become effective.
Deferred drydock costs. Our vessels are required to be drydocked for
major repairs and maintenance that cannot be performed while the vessels are
operating approximately every 30 to 60 months. We capitalize the costs
associated with the drydocks as they occur and amortize these costs on a
straight line basis over the period between drydocks. Costs capitalized as part
of the drydock include actual costs incurred at the drydock yard; cost of fuel
consumed between the vessel's last discharge port prior to the drydock and the
time the vessel leaves the drydock yard; cost of hiring riding crews to effect
repairs on a ship and parts used in making such repairs that are reasonably made
in anticipation of reducing the duration or cost of the drydock; cost of travel,
lodging and subsistence of our personnel sent to the drydock site to supervise;
and the cost of hiring a third party to oversee a drydock. We believe that these
criteria are consistent with GAAP guidelines and industry practice, and that our
policy of capitalization reflect the economics and market values of the vessels.
Allowance for doubtful accounts. Revenue is based on contracted charter
parties and, although our business is with customers who we believe to be of the
highest standard, there is always the possibility of dispute over terms and
payment of freight. In such circumstances, we assess the recoverability of
amounts outstanding and we estimate a provision if there is a possibility of
non-recoverability. Although we believe our provisions to be based on fair
judgment at the time of their creation, it is possible that an amount under
dispute is not recovered and the estimated provision for doubtful recoverability
is inadequate.
Quantitative and Qualitative Disclosure of Market Risk
Interest Rate Fluctuation. The international tanker shipping industry
is capital intensive, requiring significant amounts of investment. Much of this
investment is provided in the form of long-term debt. Our debt usually contains
interest rates that fluctuate with LIBOR. Increasing interest rates could
adversely impact future earnings.
Our interest expense is affected by changes in the general level of
interest rates. As an indication of the extent of our sensitivity to interest
rate changes, The following table sets forth the sensitivity of the initial
credit facility in U.S. dollars to a 100 basis points increase in LIBOR on
December 31 of each repayment year. The following table takes into account the
four year interest rate swap agreement under the initial credit facility.
Interest Expense Sensitivity to 100 Basis Point Change in LIBOR
December 31, 2004........................................... 985,000
December 31, 2005........................................... 885,000
December 31, 2006........................................... 785,000
December 31, 2007........................................... 685,000
December 31, 2008........................................... 1,170,000
December 31, 2009........................................... 970,000
December 31, 2010........................................... 770,000
December 31, 2011........................................... 570,000
December 31, 2012........................................... 0
Foreign Exchange Rate Risk. We generate all of our revenues in U.S.
dollars but incur approximately 14% of our expenses in currencies other than
U.S. dollars. For accounting purposes, expenses incurred in Euros are translated
into U.S. dollars at the exchange rate prevailing on the date of each
transaction.
Inflation. Although inflation has had a moderate impact on our trading
fleet's operating and voyage expenses in recent years, management does not
consider inflation to be a significant risk to operating or voyage costs in the
current economic environment. However, in the event that inflation becomes a
significant factor in the global economy, inflationary pressures would result in
increased operating, voyage and financing costs.
TOP TANKERS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
--------
Report of Ernst & Young, Independent Registered
Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2003 and 2004 F-3
Consolidated Statements of Income for the years ended
December 31, 2002, 2003 and 2004 F-4
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 2002, 2003 and 2004 F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 2002, 2003 and 2004 F-6
Notes to Consolidated Financial Statements F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders of
TOP Tankers Inc.
We have audited the accompanying consolidated balance sheets of TOP Tankers Inc.
as of December 31, 2003 and 2004 and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TOP Tankers Inc.
at December 31, 2003 and 2004 and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2004, in conformity with U.S. generally accepted accounting principles.
Ernst & Young (Hellas) Certified Auditors Accountants S.A.
Athens, Greece
March 30, 2005
TOP TANKERS INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2004
(Expressed in thousands of U.S. Dollars - except share and per share data)
ASSETS
2003 2004
---- ----
CURRENT ASSETS:
Cash and cash equivalents 2,343 114,768
Accounts receivable trade, net 818 19,971
Insurance claims 1,065 98
Inventories (Note 4) 509 3,221
Due from related parties (Note 3) - 219
Prepayments and other 127 2,774
-------- --------
Total current assets 4,862 141,051
-------- --------
FIXED ASSETS:
Advances for vessel acquisitions (Notes 5 and 18) - 25,650
Vessels, net (Notes 6 and 8) 48,074 355,997
Office furniture and equipment, net (Note 3) - 440
-------- --------
Total fixed assets 48,074 382,087
-------- --------
OTHER NON CURRENT ASSETS:
Deferred charges, net (Note 7) 2,148 6,748
Due from related parties (Note 3) 319 -
Restricted cash (Note 8) 300 10,000
-------- --------
Total assets 55,703 539,886
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 8) 4,027 19,540
Dividends payable - 5,845
Accounts payable 3,027 10,358
Due to related parties (Note 3) 105 -
Accrued liabilities (Note 9) 694 3,766
Unearned revenue 1,155 3,054
Financial instruments (Note 8) - 248
-------- --------
Total current liabilities 9,008 42,811
-------- --------
LONG-TERM DEBT, net of current portion (Note 8) 30,376 175,266
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 20,000,000 shares
authorized; none issued (Note 11) - -
Common stock, $0.01 par value; 50,000,000 shares authorized;
6,000,000 and 27,830,990 shares issued and outstanding at
December 31, 2003 and 2004, respectively (Note 11)
60 278
Additional paid-in capital (Note 11) 13,351 294,240
Accumulated other comprehensive loss (Note 8) - (248)
Retained earnings 2,908 27,539
-------- --------
Total stockholders' equity 16,319 321,809
-------- --------
Total liabilities and stockholders' equity 55,703 539,886
======== ========
The accompanying notes are an integral part of these consolidated statements.
TOP TANKERS INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
(Expressed in thousands of U.S. Dollars - except share and per share data)
2002 2003 2004
---- ---- ----
REVENUES:
Voyage revenues (Note 1) 11,426 23,085 93,829
-------- --------- --------
EXPENSES:
Voyage expenses (Note 13) 3,311 5,937 16,898
Vessel operating expenses (Note 13) 4,553 8,420 16,859
Depreciation (Note 6) 2,213 3,604 13,108
Amortization of deferred charges (Note 7) 177 599 1,514
Management fees charged by a related party (Note 3) 673 1,686 1,120
Sub-Manager fees (Note 1) - - 803
General and administrative expenses 143 129 6,656
Foreign currency losses, net 62 105 75
Gain on sale of vessels (Note 6) - - (638)
-------- --------- --------
Operating income 294 2,605 37,434
-------- --------- --------
OTHER INCOME (EXPENSES):
Interest and finance costs (Notes 8 and 14) (993) (1,336) (5,201)
Interest income 6 1 481
Other, net (Note 15) 894 364 80
-------- --------- --------
Total other income (expenses), net (93) (971) (4,640)
-------- --------- --------
Net Income 201 1,634 32,794
======== ======== ========
Earnings per share, basic and diluted (Notes 11 and 12) 0.03 0.27 2.54
======== ======== ========
Weighted average number of shares, basic and diluted 6,000,000 6,000,000 12,922,449
========== ========== ===========
The accompanying notes are an integral part of these consolidated statements.
TOP TANKERS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
(Expressed in thousands of U.S. Dollars - except share and per share data)
Capital Stock
-------------
Accumulated
Additional Other
Comprehensive Par Paid-in Comprehensive Retained
Income # of Shares Value Capital Loss Earnings Total
------ ----------- ----- ------- ---- -------- -----
BALANCE, December 31, 2001 6.000.000 60 4,588 - 2,488 7,136
Net income 201 - - - - 201 201
Contributions to additional
paid-in capital - - - 2,279 - - 2,279
Dividends paid ($0.14 per share) - - - - - (844) (844)
--------
Comprehensive income 201
======== ---------- ------- -------- -------- --------- ---------
BALANCE, December 31, 2002 6.000.000 60 6,867 - 1,845 8,772
Net income 1,634 - - - - 1,634 1,634
Contributions to additional
paid-in capital - - - 6,484 - - 6,484
Dividends paid ($0.10 per share) - - - - - (571) (571)
--------
Comprehensive income 1,634
======== ---------- ------- -------- -------- --------- ---------
BALANCE, December 31, 2003 6.000.000 60 13,351 - 2,908 16,319
Net income 32,794 - - - - 32,794 32,794
Dividends paid ($0.39 per share) - - - - - (2,318) (2,318)
Contributions to additional
paid-in capital - - - 17,077 - - 17,077
Issuance of common stock - 21.830.990 218 263,812 - - 264,030
Dividends declared ($0.21 per share) - - - - - (5,845) (5,845)
Other comprehensive income
- Unrealized loss on cash flow hedges (248) - - - (248) - (248)
--------
Comprehensive income 32,546
======== ---------- ------- -------- -------- --------- ---------
BALANCE, December 31, 2004 27.830.990 278 294,240 (248) 27,539 321,809
=========== ======= ======== ======== ========= =========
The accompanying notes are an integral part of these consolidated statements.
TOP TANKERS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
(Expressed in thousands of U.S. Dollars)
2002 2003 2004
---- ---- ----
Cash Flows from Operating Activities:
Net income 201 1,634 32,794
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,213 3,604 13,108
Amortization of dry-docking costs 177 599 1,514
Amortization and write off of
deferred financing costs 161 121 755
Gain on sale of vessels - - (638)
(Increase) Decrease in: Accounts receivable 87 (689) (19,153)
Insurance claims (278) (787) 967
Inventories (48) (220) (2,712)
Due from related parties - - (219)
Prepayments and other 25 (72) (2,647)
Increase (Decrease) in:
Accounts payable 497 1,883 7,331
Due to related parties 385 (204) (105)
Accrued liabilities 228 320 3,072
Unearned revenue (729) 1,155 1,899
Payments for dry-docking (510) (2,414) (7,365)
------- -------- --------
Net Cash from Operating Activities 2,409 4,930 28,601
------- -------- --------
Cash Flows from (used in) Investing Activities:
Advances for vessel acquisitions - - (25,650)
Vessel acquisitions and improvements (18,547) (19,550) (327,629)
Advances to related parties 251 (151) 319
Net proceeds from sale of vessels - - 8,536
Expenditures for property and equipment - - (475)
------- -------- --------
Net Cash used in Investing Activities (18,296) (19,701) (344,899)
------- -------- --------
Cash Flows from (used in) Financing Activities:
Proceeds from long-term debt 15,550 25,850 281,900
Principal payments of long-term debt (2,550) (3,059) (4,251)
Repayment of long-term debt - (11,230) (115,260)
Increase in restricted cash - (300) (9,700)
Contributions to additional paid-in capital 2,279 6,484 17,077
Issuance of common stock - - 264,030
Payment of financing costs (200) (154) (2,755)
Dividends paid (844) (571) (2,318)
------- -------- --------
Net Cash from Financing Activities 14,235 17,020 428,723
------- -------- --------
Net increase (decrease) in cash and cash equivalents (1,652) 2,249 112,425
Cash and cash equivalents at beginning of year 1,746 94 2,343
------- -------- --------
Cash and cash equivalents at end of year 94 2,343 114,768
======= ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid 727 1,045 3,157
======= ======== ========
The accompanying notes are an integral part of these consolidated statements.
TOP TANKERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2004
(Expressed in thousands of United States Dollars - except share and per share
data, unless otherwise stated)
1. Basis of Presentation and General Information:
The accompanying consolidated financial statements include the accounts of
TOP Tankers Inc. (formerly Ocean Holdings Inc.) ("TOP") and its
wholly-owned subsidiaries (collectively the "Company"). Ocean Holdings Inc.
was formed on January 10, 2000, under the laws of Marshall Islands, was
renamed to TOP Tankers Inc. in May 2004 and is the sole owner of all
outstanding shares of the following subsidiaries:
(a) TOP Tanker Management Inc., (the "Manager") established on May 24,
2004, under the laws of Marshall Islands, is responsible for all of
the chartering, operational and technical management of the Company's
fleet. Up to June 30, 2004 the operations of the vessels were managed
by Primal Tankers Inc., a related Liberian corporation which is wholly
owned by the father of the Company's Chief Executive Officer (Note 3).
Since July 1, 2004 the ship-owning companies have a management
agreement with the Manager, under which management services are
provided in exchange for a fixed monthly fee per vessel. The Manager
has an office in Greece located at 109-111, Messogion Avenue 115 26
Athens Greece. The Manager subcontracted the technical management of
the vessels to two unaffiliated ship management companies, Unicom
Management Services Ltd and VShips Management Limited (collectively
the "Sub-Manager"). The Sub-Manager provides operational and technical
services to Company's vessels at a fixed monthly fee per vessel. Such
fees for the year ended December 31, 2004 totaled $ 803 and are
separately reflected in the accompanying 2004 consolidated statement
of income. At December 31, 2004 the amount due to the Sub-Manager
totaled $ 2,139 and is included in Accounts Payable in the
accompanying 2004 consolidated balance sheet.
(b) Helidona Shipping Company Limited ("Helidona"), incorporated in the
Marshall Islands in May 2003, owner of the 29,998 DWT, (built in
1989), tanker vessel "Yapi" and Helidona Shipping Company Limited,
incorporated in British Cayman Islands in August 2000, former owner of
vessel "Yapi", which was acquired in August 2000.
(c) Gramos Shipping Company Inc. ("Gramos"), incorporated in the Marshall
Islands in January 2003, owner of the 45,720 DWT (built in 1992),
tanker vessel "Faithful", which was acquired in July 2003 and Vermio
Shipping Company Limited, incorporated in the Marshall Islands in
December 2001, owner of vessel "Faithful" for the period from February
2002 to July 2003.
(d) Rupel Shipping Company Inc. ("Rupel"), incorporated in the Marshall
Islands in January 2003, owner of the 44,646 DWT (built in 1992)
tanker vessel "Fearless", which was acquired in February 2003.
(e) Mytikas Shipping Company Ltd. ("Mytikas"), incorporated in the
Marshall Islands in February 2004, owner of the 136,055 DWT (built in
1993) tanker vessel "Limitless", which was acquired in March 2004.
(f) Litochoro Shipping Company Ltd. ("Litochoro"), incorporated in the
Marshall Islands in March 2004, owner of the 135,915 DWT (built in
1992) tanker vessel "Endless", which was acquired in March 2004.
(g) Falakro Shipping Company Ltd. ("Falakro"), incorporated in Liberia in
July 2004, owner of the 47,076 DWT (built in 1991) tanker vessel
"Doubtless", which was acquired in August 2004.
(h) Pageon Shipping Company Ltd. ("Pageon"), incorporated in Cyprus in
July 2004, owner of the 47,084 DWT (built in 1992) tanker vessel
"Vanguard", which was acquired in August 2004.
(i) Vardousia Shipping Company Ltd. ("Vardousia"), incorporated in Cyprus
in July 2004, owner of the 47,084 DWT (built in 1992) tanker vessel
"Invincible", which was acquired in August 2004.
(j) Psiloritis Shipping Company Ltd. ("Psiloritis"), incorporated in
Liberia in July 2004, owner of the 47,084 DWT (built in 1991) tanker
vessel "Victorious", which was acquired in August 2004.
(k) Parnon Shipping Company Ltd. ("Parnon"), incorporated in Cyprus in
July 2004, owner of the 47,084 DWT (built in 1992) tanker vessel
"Relentless", which was acquired in August 2004.
(l) Menalo Shipping Company Ltd. ("Menalo"), incorporated in Cyprus in
July 2004, owner of the 47,084 DWT (built in 1991) tanker vessel
"Restless", which was acquired in August 2004.
(m) Pintos Shipping Company Ltd. ("Pintos"), incorporated in Cyprus in
July 2004, owner of the 47,084 DWT (built in 1992) tanker vessel
"Sovereign", which was acquired in August 2004.
(n) Pylio Shipping Company Ltd. ("Pylio"), incorporated in Liberia in
2004, owner of the 154,970 DWT (built in 1991) tanker vessel
"Flawless", which was acquired in September 2004.
(o) Idi Shipping Company Ltd. ("Idi"), incorporated in Liberia in July
2004, owner of the 47,094 DWT (built in 1991) tanker vessel
"Spotless", which was acquired in September 2004.
(p) Taygetus Shipping Company Ltd. ("Taygetus"), incorporated in Liberia
in July 2004, owner of the 154,970 DWT (built in 1991) tanker vessel
"Timeless", which was acquired in September 2004.
(q) Kalidromo Shipping Company Limited ("Kalidromo"), incorporated in the
Marshall Islands in May 2003, owner of the 31,766 DWT (built in 1980)
tanker vessel "Tireless", which was sold in September 2004.
(r) Olympos Shipping Company Limited ("Olympos"), incorporated in the
Marshall Islands in May 2003, owner of the 29,990 DWT (built in 1985),
tanker vessel "Med Prologue" which was sold on December 6, 2004 and
Olympos Shipping Company Limited, incorporated in British Cayman
Islands in December 1999, former owner of the vessel.
(s) Kisavos Shipping Company Limited ("Kisavos"), incorporated in the
Marshall Islands in November 2004, to be the owner of the 154,970 DWT
(built in 1991) tanker vessel "Priceless" (Notes 5 and 18).
(t) Imitos Shipping Company Limited ("Imitos"), incorporated in the
Marshall Islands in November 2004, to be the owner of the 149,554 DWT
(built in 1992) tanker vessel "Noiseless" (Notes 5 and 18).
(u) Parnis Shipping Company Limited ("Parnis"), incorporated in the
Marshall Islands in November 2004, to be the owner of the 149,599 DWT
(built in 1992) tanker vessel "Stainless" (Notes 5 and 18).
(v) Parnasos Shipping Company Limited ("Parnasos"), incorporated in
Liberia in November 2004, to be the owner of the 154,970 DWT (built in
1992) tanker vessel "Faultess" (Notes 5 and 18).
(w) Vitsi Shipping Company Limited ("Vitsi"), incorporated in Liberia in
November 2004, to be the owner of the 154,970 DWT (built in 1991)
tanker vessel "Stopless" (Notes 5 and 18).
The Company is engaged in the ocean transportation of crude oil and refined
petroleum cargoes worldwide through the ownership and operation of the
tanker vessels mentioned above.
At December 31, 2004, five vessels were operating under voyage charters and
ten vessels under long-term time charters, with an estimated duration of 24
months, including a profit sharing agreement, which is settled on a
calendar quarter basis. During 2004, 44% of the Company's voyage revenues
were derived from these time charter agreements. During 2002, 2003 and 2004
four charterers individually accounted for more than 10% of the Company's
voyage revenues as follows:
Charterer 2002 2003 2004
--------- ---- ---- ----
A - 31% 29%
B 20% 16% -
C 21% - -
D 24% - 15%
2. Significant Accounting Policies:
(a) Principles of Consolidation: The accompanying consolidated financial
statements have been prepared in accordance with U.S. generally
accepted accounting principles ("US GAAP") and include the accounts
and operating results of Top Tankers Inc. and its wholly-owned
subsidiaries referred to in Note 1. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) Use of Estimates: The preparation of consolidated financial statements
in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(c) Other Comprehensive Income: The Company follows the provisions of
Statement of Financial Accounting Standards "Statement of
Comprehensive Income" (SFAS 130), which requires separate presentation
of certain transactions, which are recorded directly as components of
stockholders' equity.
(d) Foreign Currency Translation: The functional currency of the Company
is the U.S. Dollar because the Company's vessels operate in
international shipping markets, and therefore primarily transact
business in U.S. Dollars. The Company's books of accounts are
maintained in U.S. Dollars. Transactions involving other currencies
during the year are converted into U.S. Dollars using the exchange
rates in effect at the time of the transactions. At the balance sheet
dates, monetary assets and liabilities, which are denominated in other
currencies, are translated to reflect the year-end exchange rates.
Resulting gains or losses are reflected separately in the accompanying
consolidated statements of income.
(e) Cash and Cash Equivalents: The Company considers highly liquid
investments such as time deposits and certificates of deposit with an
original maturity of three months or less to be cash equivalents.
(f) Accounts Receivable--Trade: The amount shown as Accounts
Receivable--Trade at each balance sheet date, includes estimated
recoveries from charterers for hire, freight and demurrage billings,
net of a provision for doubtful accounts. At each balance sheet date,
all potentially uncollectible accounts are assessed individually for
purposes of determining the appropriate provision for doubtful
accounts. Provision for doubtful accounts at December 31, 2003 and
2004 totaled to $0 and $132, respectively.
(g) Insurance Claims: Insurance claims are recorded on the accrual basis
and represent the claimable expenses, net of deductibles, incurred
through December 31 of each year, which are expected to be recovered
from insurance companies.
(h) Inventories: Inventories consist of bunkers, lubricants and consumable
stores which are stated at the lower of cost or market. Cost is
determined by the first in, first out method.
(i) Vessel Cost: Vessels are stated at cost, which consists of the
contract price and any material expenses incurred upon acquisition
(initial repairs, improvements and delivery expenses). Subsequent
expenditures for conversions and major improvements are also
capitalized when they appreciably extend the life, increase the
earning capacity or improve the efficiency or safety of the vessels
otherwise these amounts are charged to expense as incurred.
(j) Impairment of Long-Lived Assets: The Company applies SFAS 144
"Accounting for the Impairment or Disposal of Long-lived Assets",
which addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. The standard requires that,
long-lived assets and certain identifiable intangibles held and used
or disposed of by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. When the estimate of undiscounted cash
flows, excluding interest charges, expected to be generated by the use
of the asset is less than its carrying amount, the Company should
evaluate the asset for an impairment loss. Measurement of the
impairment loss is based on the fair value of the asset as provided by
third parties. In this respect, management regularly reviews the
carrying amount of the vessels in connection with the estimated
recoverable amount for each of the Company's vessels. The review for
impairment of each vessel's carrying amount as of December 31, 2002,
2003 and 2004, did not result in an indication of an impairment loss.
(k) Vessel Depreciation: Depreciation is computed using the straight-line
method over the estimated useful life of the vessels, after
considering the estimated salvage value. Each vessel's salvage value
is equal to the product of its lightweight tonnage and estimated scrap
rate. With the exception of the vessel Tireless, Management estimates
the useful life of the Company's vessels to be 25 years from the date
of initial delivery from the shipyard. Second hand vessels are
depreciated from the date of their acquisition through their remaining
estimated useful life. The useful life of the vessel Tireless was
estimated to 28 years, which coincided with the validity of the class
certificate. When regulations place limitations over the ability of a
vessel to trade on a worldwide basis, its useful life is adjusted at
the date such regulations become effective.
(l) Accounting for Dry-Docking Costs: The Company follows the deferral
method of accounting for dry-docking costs whereby actual costs
incurred are deferred and are amortized on a straight-line basis over
the period through the date the next dry-docking becomes due.
Unamortized dry-docking costs of vessels that are sold are written off
and included in the calculation of the resulting gain or loss in the
year of the vessel's sale.
(m) Financing Costs: Fees incurred for obtaining new loans or refinancing
existing ones are recorded as a contra to debt. Such fees are
amortized to interest expense over the life of the related debt using
the effective interest method. Unamortized fees relating to loans
repaid or refinanced are expensed in the period the repayment or
refinancing is made.
(n) Pension and Retirement Benefit Obligations -Crew: The ship-owning
companies included in the consolidation, employ the crew on board,
under short-term contracts (usually up to nine months) and
accordingly, they are not liable for any pension or post retirement
benefits.
(o) Staff leaving Indemnities - Administrative personnel: The Company's
employees are entitled to termination payments in the event of
dismissal or retirement with the amount of payment varying in relation
to the employee's compensation, length of service and manner of
termination (dismissed or retired). Employees who resign, or are
dismissed with cause are not entitled to termination payments. The
Company's liability on an actuarially determined basis, at December
31, 2003 and 2004 amounted to $0 and $77, respectively.
(p) Accounting for Revenue and Expenses: Revenues are generated from
voyage and time charter agreements. Time charter revenues are recorded
over the term of the charter as service is provided. Under a voyage
charter the revenues and associated voyage costs are recognized on a
pro-rata basis over the duration of the voyage. A voyage is deemed to
commence upon the completion of discharge of the vessel's previous
cargo and is deemed to end upon the completion of discharge of the
current cargo. Demurrage income represents payments by the charterer
to the vessel owner when loading or discharging time exceeded the
stipulated time in the voyage charter. Vessel operating expenses are
accounted for on the accrual basis. Unearned revenue represents cash
received prior to year-end related to revenue applicable to periods
after December 31 of each year.
(q) Repairs and Maintenance: All repair and maintenance expenses and
underwater inspection expenses are expensed in the year incurred. Such
costs are included in vessel operating expenses in the accompanying
consolidated statements of income.
(r) Earnings per Share: Basic earnings per share are computed by dividing
net income by the weighted average number of common shares deemed
outstanding during the year. Diluted earnings per share, reflects the
potential dilution that could occur if securities or other contracts
to issue common stock were exercised. The Company had no dilutive
securities outstanding during the three year period ended December 31,
2004.
(s) Segment Reporting: The Company reports financial information and
evaluates its operations by charter revenues and not by the length of
ship employment for its customers, i.e., spot or time charters. The
Company does not have discrete financial information to evaluate the
operating results for each such type of charter. Although revenue can
be identified for these types of charters, management cannot and does
not identify expenses, profitability or other financial information
for these charters. As a result, management, including the chief
operating decision maker, reviews operating results solely by revenue
per day and operating results of the fleet and thus the Company has
determined that it operates under one reportable segment. Furthermore,
when the Company charters a vessel to a charterer, the charterer is
free to trade the vessel worldwide and, as a result, the disclosure of
geographic information is impracticable.
(t) Derivatives: SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (as amended) establishes accounting and reporting
standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured
at its fair value, with changes in the derivatives' fair value
recognized currently in earnings unless specific hedge accounting
criteria are met.
During 2004, the Company engaged in an interest rate swap agreement in
order to hedge the exposure of interest rate fluctuations associated
with the cash flows on a portion of the Company's variable rate
borrowings (Note 8). This swap agreement is designated and qualifies
as a cash flow hedge. Its fair value is included in financial
instruments in the accompanying 2004 consolidated balance sheet with
changes in the effective portion of the instrument's fair value
recorded in accumulated other comprehensive loss. The ineffective
portion of the change in fair value of the derivative financial
instrument is immediately recognized in the income statement as a
component of interest and finance cost. If the hedged item is a
forecasted transaction that later is not expected to or will not
occur, then the derivative financial instrument no longer qualifies as
a cash flow hedge. As a result, fair value changes that were
previously recorded in accumulated other comprehensive loss are
immediately recognized in earnings as a component of financial
income/expense. In all other instances, when a derivative financial
instrument ceases to be designated or to qualify as a cash flow hedge,
the previously recorded changes in fair value remain in accumulated
other comprehensive income until the hedged item affects earnings. It
is the Company's intention to hold this swap agreement to maturity.
The off-balance sheet risk in outstanding option agreements involves
the risk of a counter party not performing under the terms of the
contract . The Company monitors its positions, the credit ratings of
counterparties and the level of contracts it enters into with any one
party. The Company has a policy of entering into contracts with
parties that meet stringent qualifications and, given the high level
of credit quality of its derivative counterparty, the Company does not
believe it is necessary to obtain collateral arrangements.
(u) Recent Accounting Pronouncements:
FASB Interpretation No. 46R: In December 2003, the FASB issued
Interpretation No. 46R, Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51 (the "Interpretation"), which revised
Interpretation No. 46, issued in January 2003. The Interpretation
addresses the consolidation of business enterprises (variable interest
entities) to which the usual condition (ownership of a majority voting
interest) of consolidation does not apply. The Interpretation focuses
on financial interests that indicate control. It concludes that in the
absence of clear control through voting interests, a company's
exposure (variable interest) to the economic risks and potential
rewards from the variable interest entity's assets and activities are
the best evidence of control. Variable interests are rights and
obligations that convey economic gains or losses from changes in the
value of the variable interest entity's assets and liabilities.
Variable interests may arise from financial instruments, service
contracts, and other arrangements. If an enterprise holds a majority
of the variable interests of an entity, it would be considered the
primary beneficiary. The primary beneficiary would be required to
include assets, liabilities, and the results of operations of the
variable interest's entity in its financial statements. The Company
was required to adopt the provisions of FIN 46R for entities created
prior to February 2003, in 2004. The adoption of FIN 46R in 2004 did
not have any impact on the Company's consolidated financial position,
results of operations or cash flows.
(v) Reclassifications of Prior Year Balances: A reclassification has been
made to the 2003 consolidated financial statements to conform to the
presentation in the 2004 consolidated financial statements. An amount
of $208, concerning unamortized deferred financing fees, which is now
presented as a contra to current portion of long-term debt ($57) and
as a contra to long-term debt, net of current portion ($151) at
December 31, 2003, was previously classified in deferred charges, net.
3. Transactions with Related Parties:
(a) Primal Tankers Inc.: As discussed in Note 1, up to June 30, 2004, the
ship-owning companies had a management agreement with Primal Tankers
Inc., under which management services were provided in exchange for a
fixed monthly fee per vessel, which was renewed annually. The fees
charged by Primal Tankers Inc. during 2002, 2003 and 2004 amounted to
$673, $1,686 and $1,120, respectively, and they are separately
reflected in the accompanying consolidated statements of income. At
December 31, 2003 and 2004 the amounts due to and from Primal Tankers
Inc. totalled $105 and $219, respectively and are separately reflected
in the accompanying consolidated balance sheets. As of December 31,
2003, the Company had advanced to Primal Tankers Inc. $319 of deposits
as a security for the performance by the ship-owning companies of
their obligations under the management agreements. Such deposits,
following the termination of the management agreements, were refunded
to the Company free of interest. The amount of $319 is separately
reflected under Other Non-Current Assets in the accompanying 2003
consolidated balance sheet. During 2004 the Manager acquired from
Primal Tankers Inc. office furniture and equipment for a consideration
of $475. Depreciation expense for 2004 amounted to $35 and is included
in depreciation in the accompanying 2004 consolidated statement of
income.
(b) Pyramis Technical Co. S.A.: On July 9, 2004 the Company concluded an
agreement to lease office space in Athens, Greece from Pyramis
Technical Co. SA, which is wholly owned by the father of the Company's
Chief Executive Officer. The agreement is for duration of six years
beginning July 2004 with an option for an extension of four years. The
monthly rental is Euro 39,000 adjusted annually for inflation increase
effective January 1, 2006. General and administrative expenses for the
year ended December 31, 2004 include $281 of rentals paid to Pyramis
Technical Co. S.A. The minimum rentals payable under operating leases
for each of the years ending December 31, 2005 through December 31,
2010 before any adjustment for inflation and translated using the
exchange rate of $/Euro at December 31, 2004 are:
Year Amount
---- ------
2005 622
2006 622
2007 622
2008 622
2009 and thereafter 950
-----------
3,438
===========
4. Inventories:
The amounts shown in the accompanying consolidated balance sheets are
analyzed as follows:
2003 2004
---- ----
Bunkers 242 2,096
Lubricants 147 805
Consumable stores 120 320
----- ------
509 3,221
===== =======
5. Advances for Vessel Acquisitions:
In November 2004, Kisavos, Imitos, Parnis, Parnasos and Vitsi entered into
memoranda of agreement to acquire the vessels Priceless, Noiseless,
Stainless, Faultless and Stopless, respectively, for a total amount of $
256,500. Under the terms of the agreements, the Company, as of December 31,
2004, paid $25,650 representing a 10% deposit on the purchase price of each
vessel. The acquisitions will be financed from the proceeds of the
Company's follow-on public offering discussed in Note 11 and from long-term
bank financing. As of December 31, 2004, remaining contracted payments for
vessels acquisitions, all due in 2005, amounted to $230,850. The expected
delivery date of the Priceless is February 2005. The expected delivery date
of the Noiseless, Stainless, Faultless and Stopless is April 2005.
6. Vessels, net:
The amounts in the accompanying consolidated balance sheets are analyzed as
follows:
Vessel Accumulated Net
Cost Depreciation Book Value
---- ------------ ----------
Balance, December 31, 2002 36,396 (4,268) 32,128
- Acquisitions 19,550 - 19,550
- Depreciation - (3,604) (3,604)
-------- -------- --------
Balance, December 31, 2003 55,946 (7,872) 48,074
- Acquisitions 327,629 - 327,629
- Disposals (Tireless and
Med Prologue) (10,024) 3,391 (6,633)
- Depreciation - (13,073) (13,073)
-------- -------- --------
Balance, December 31, 2004 373,551 (17,554) 355,997
======== ======== ========
Acquisitions during the year ended December 31, 2004 represent (a) the
acquisition cost of the vessels Limitless and Endless for a total amount of
$75,846, (b) the acquisition cost of the ten vessels discussed in Note 1(g)
through Note 1(p) for a total amount of $251,257 and (c) improvements of
$526 on the vessel Yapi.
In September and December 2004 vessels Tireless and Med Prologue,
respectively, were sold for $8,900. These sales, after the related sales
expenses of $364 and the unamortized, as of each vessel's sale date,
dry-docking and financing costs written off of $1,265, resulted in a gain
of $638, which is separately reflected in the accompanying 2004
consolidated statement of income.
All Company's vessels, having a total carrying value of $355,997 at
December 31, 2004, have been provided as collateral to secure the loans
discussed in Note 8.
7. Deferred Charges, net:
The unamortized amounts included in the accompanying consolidated balance
sheets represent dry-docking costs and are analyzed as follows:
Balance, December 31, 2002 333
- Additions 2,414
- Write-off due to loan repayment -
- Amortization (599)
--------------
Balance, December 31, 2003 2,148
- Additions 7,365
- Write-off due to sale of vessels (Note 6) (1,251)
- Write-off due to loan repayment or refinancing -
- Amortization (1,514)
--------------
Balance, December 31, 2004 6,748
==============
Write-off of deferred charges due to vessels sale is included in gain from
vessels sale in the accompanying 2004 consolidated statement of income.
8. Long-term Debt:
The amounts in the accompanying consolidated balance sheets are analyzed as
follows:
Borrower(s) 2003 2004
------- -------
(a) The Company - 194,806
(b) Mytikas - -
(c) Litochoro - -
(d) Helidona and Olympos 10,148 -
(e) Gramos 11,403 -
(f) Kalidromo 1,800 -
(g) Rupel 11,052 -
------- ---------
Total 34,403 194,806
Less - current portion (4,027) (19,540)
------- ---------
Long - term portion 30,376 175,266
======= =========
(a) The Company: In late July 2004 the Company concluded a bank loan to
partially finance the acquisition cost of the ten tanker vessels
discussed in Note 6 and to refinance the Company's existing loans,
with the exception of the Kalidromo loan discussed in (f) below. The
bank loan was for the amount of $222,000 divided into 2 tranches of
$197,000 and $25,000, respectively. The $197,000 tranche is payable in
16 consecutive semi-annual installments of $10,000 each, from March
31, 2005 to September 2012, plus a balloon payment of $ 37,000 payable
together with the last installment. The $25,000 tranche, which was
partially repaid ($2,310) from the sale proceeds of the vessel
Tireless, was repaid in full, on November 15, 2004, from the proceeds
of the Company's follow-on offering (Note 11). The loan bears interest
at LIBOR plus a margin. At December 31, 2004 the interest rate
(including the margin) was 4.60%.
(b) Mytikas: Loan for an amount of $30,400, obtained in March 2004, to
partially finance the acquisition cost of vessel Limitless. On August
17, 2004, the outstanding balance of the loan as of that date was
refinanced from the proceeds of the loan discussed in (a) above.
(c) Litochoro: Loan for an amount of $29,500, obtained in March 2004, to
partially finance the acquisition cost of vessel Endless. On August
17, 2004, the outstanding balance of the loan as of that date was
refinanced from the proceeds of the loan discussed in (a) above.
(d) Helidona and Olympos: Loan for an amount of $10,520, obtained in
September 2003, to refinance their then outstanding loan balances. On
August 12, 2004, the outstanding balance of the loan as of that date
was refinanced from the proceeds of the loan discussed in (a) above.
(e) Gramos: Loan for an amount of $11,750, obtained in July 2003, to
assist Gramos in financing the acquisition cost of vessel Faithful
from Vermio. On October 15, 2004, the outstanding balance of the loan
as of that date was refinanced from the proceeds of the loan discussed
in (a) above.
(f) Kalidromo: Loan for an amount of $2,100, obtained in June 2003, to
partially finance the acquisition cost of the vessel Tireless. Upon
the sale of the vessel Tireless on September 24, 2004, the outstanding
balance of the loan ($1,413) was fully repaid.
(g) Rupel: Loan for an amount of $12,000, obtained in February 2003, to
partially finance the acquisition cost of the vessel Fearless. On
October 15, 2004, the outstanding balance of the loan as of that date
was refinanced from the proceeds of the loan discussed in (a) above.
The loan is secured as follows:
o First priority mortgages over the Company's vessels;
o Assignments of insurance and earnings of the mortgaged vessels;
o Corporate guarantee of the TOP Tankers Inc;
o Pledge over the earnings accounts of the vessels.
The loan, among others, contains financial covenants requiring the Company
to ensure that the aggregate market value of the mortgaged vessels at all
times exceed 130% of the aggregate outstanding principal amount under the
loan, to ensure that total assets minus total debt will not at any time be
less than $150,000 and to maintain liquid funds which at any time be not
less than the higher of $10,000 or $500 per vessel. As a result, the
minimum liquid funds required under the loan covenants of $10,000 have been
classified as restricted cash. The Company is permitted to pay dividends
under the loan so long as it is not in default of a loan covenant or if
such dividend payment would not result in a default of a loan covenant.
Interest expense for the years ended December 31, 2002, 2003 and 2004,
amounted to $797, $1,128 and $4,161 respectively and is included in
interest and finance costs in the accompanying consolidated statements of
income (Note 14). The weighted average interest rate of the above loans
during the years 2002, 2003 and 2004, was 3.11%, 3.28% and 3.19%,
respectively.
The annual principal payments required to be made after December 31, 2004,
are as follows:
Year Amount
---- ------
2005 20,000
2006 20,000
2007 20,000
2008 20,000
2009 20,000
2010 and thereafter 97,000
-----------
197,000
Less unamortized financing fees (2,194)
-----------
194,806
===========
In connection with the loan discussed under (a) above, on August 26, 2004,
the Company entered into an interest rate swap agreement in order to hedge
the Company's variable interest rate exposure. As of December 31, 2004, the
swap agreement had a notional amount of $98,500 and its fair value is in a
loss position of ($248). The 2004 change in fair value on the swap
agreement is recorded entirely as a component of other comprehensive loss
as there is no hedge ineffectiveness. The swap agreement will expire in
September 2008.
9. Accrued Liabilities:
The amounts in the accompanying consolidated balance sheets are analyzed as
follows:
2003 2004
--------- ----------
Interest on long-term debt 165 1,170
Vessels' operating and voyage expenses 524 2,019
General and administrative expenses 5 577
--------- ----------
Total 694 3,766
========= ==========
10. Contingencies:
Various claims, suits, and complaints, including those involving government
regulations and product liability, arise in the ordinary course of the
shipping business. In addition, losses may arise from disputes with
charterers, agents, insurance and other claims with suppliers relating to
the operations of the Company's vessels. Currently, management is not aware
of any such claims or contingent liabilities, which should be disclosed, or
for which a provision should be established in the accompanying
consolidated financial statements.
The Company accrues for the cost of environmental liabilities when
management becomes aware that a liability is probable and is able to
reasonably estimate the probable exposure. Currently, management is not
aware of any such claims or contingent liabilities, which should be
disclosed, or for which a provision should be established in the
accompanying consolidated financial statements. A minimum of up to $1
billion of the liabilities associated with the individual vessels actions,
mainly for sea pollution, are covered by the Protection and Indemnity (P&I)
Club insurance.
11. Common Stock and Additional Paid-In Capital:
The Company's common stock since inception and prior to the amendment of
its articles of incorporation in May 2004 consisted of 500 shares
authorized, issued and outstanding, of no par value. The holders of the
shares are entitled to one vote on all matters submitted to a vote of
stockholders and to receive all dividends, if any.
On May 10 and May 27, 2004 the Company's Articles of Incorporation were
amended. Under the amended articles of incorporation the Company was
renamed to TOP Tankers Inc. and currently, its authorized capital stock
consists of 50,000,000 registered and/or bearer shares of common stock, par
value $0.01 per share and 20,000,000 registered preferred shares with par
value of $0.01. The Board of Directors shall have the authority to
establish such series of preferred stock and with such designations,
preferences and relative, participating, optional or special rights and
qualifications, limitations or restrictions as shall be stated in the
resolutions providing for the issue of such preferred stock. In addition
the Company within the context of its initial public offering discussed
below, on May 21, 2004, cancelled the 500 shares of Ocean and issued
6,000,000 shares at par value of $0.01 each. The share and per share data
included in the accompanying consolidated financial statements have been
restated to reflect the issuance of the 6,000,000 shares outstanding for
all periods presented.
On July 23, 2004 the Company completed its initial public offering in the
United States under the United States Securities Act of 1933, as amended.
In this respect 12,278,570 shares of common stock at par value of $0.01
were issued for $11.00 per share. The net proceeds to the Company totaled
$124,440.
On November 5, 2004 the Company completed a follow on public offering in
the United States under the United States Securities Act of 1933, as
amended. In this respect 9,552,420 shares of common stock at par value of
$0.01 were issued for $15.50 per share. The net proceeds to the Company
totaled $139,372.
The amounts shown in the accompanying consolidated statements of
stockholders' equity, as contributions to additional paid-in capital,
represent (a) payments made by the stockholders ($2,279, $6,484 and $17,077
in 2002, 2003 and 2004, respectively), prior to the Company's initial
public offering discussed above, at various dates to finance vessel
acquisitions in excess of the amounts of bank loans obtained and advances
for working capital purposes and (b) the consideration received for the
issuance of the shares in July and November 2004, discussed above, in
excess of their par value.
The Company paid dividends of $844, $571 and $2,318 during the years ended
December 31, 2002, 2003 and 2004, respectively. In December 2004, the
Company declared dividends of $0.21 per share, amounted to $5,845, which
were paid in January 2005.
12. Earnings Per Common Share:
The components of the calculation of basic earnings per share and diluted
earnings per share are as follows:
2002 2003 2004
---- ---- ----
Net Income:
Income available to common shareholders $ 201 $ 1,634 $ 32,794
Basic earnings per share:
Weighted average common shares outstanding 6,000,000 6,000,000 12,922,449
Diluted earnings per share:
Weighted average common shares--diluted 6,000,000 6,000,000 12,922,449
Basic earnings per common share $ 0.03 $ 0.27 $ 2.54
Diluted earnings per common share $ 0.03 $ 0.27 $ 2.54
13. Voyage and Vessel Operating Expenses:
The amounts in the accompanying consolidated statements of income are
analyzed as follows:
Voyage Expenses 2002 2003 2004
--------------- ---- ---- ----
Port charges 1,197 1,824 5,181
Bunkers 1,667 3,367 8,588
Commissions 447 746 3,129
--------- --------- ----------
Total 3,311 5,937 16,898
========= ========= ==========
Vessel Operating Expenses
-------------------------
Crew wages and related costs 2,145 3,638 7,285
Insurance 695 1,323 2,873
Repairs and maintenance 883 1,874 2,842
Spares and consumable stores 818 1,559 3,804
Taxes (Note 16) 12 26 55
--------- --------- ----------
Total 4,553 8,420 16,859
========= ========= ==========
14. Interest and Finance Costs:
The amounts in the accompanying consolidated statements of income are
analyzed as follows:
2002 2003 2004
---- ---- ----
Interest on long-term debt (Note 8) 797 1,128 4,161
Bank charges 35 87 285
Amortization and write-off of
financing fees (Note 7) 161 121 755
------- ------- -------
Total 993 1,336 5,201
======= ======= =======
15. Other, net:
The amounts in the accompanying consolidated statements of income are
analyzed as follows:
2002 2003 2004
---- ---- ----
Insurance claims recoveries 886 364 -
Miscellaneous 8 - 80
-------- ------- ------
Total 894 364 80
======== ======= ======
Insurance claim recoveries represent the excess amount the Company received
in connection with claims for damages to its vessels compared to actual
costs associated with the repairs.
16. Income Taxes:
Marshall Islands, Cyprus and Liberia do not impose a tax on international
shipping income. Under the laws of Marshall Islands, Cyprus and Liberia,
the countries of the companies' incorporation and vessels' registration,
the companies are subject to registration and tonnage taxes which have been
included in vessels' operating expenses in the accompanying consolidated
statements of income.
Pursuant to the Internal Revenue Code of the United States (the "Code"),
U.S. source income from the international operations of ships is generally
exempt from U.S. tax if the company operating the ships meets both of the
following requirements, (a) the Company is organized in a foreign country
that grants an equivalent exception to corporations organized in the United
States and (b) either (i) more than 50% of the value of the Company's stock
is owned, directly or indirectly, by individuals who are "residents" of the
Company's country of organization or of another foreign country that grants
an "equivalent exemption" to corporations organized in the United States
(50% Ownership Test) or (ii) the Company's stock is "primarily and
regularly traded on an established securities market" in its country of
organization, in another country that grants an "equivalent exemption" to
United States corporations, or in the United States (Publicly-Traded Test).
Under the regulations, a Company's stock will be considered to be
"regularly traded" on an established securities market if (i) one or more
classes of the its stock representing 50 percent or more of its outstanding
shares, by voting power and value, is listed on the market and is traded on
the market, other than in minimal quantities, on at least 60 days during
the taxable year; and (ii) the aggregate number of shares of stock traded
during the taxable year is at least 10% of the average number of shares of
the stock outstanding during the taxable year.
Treasury regulations under the Code were promulgated in final form in
August 2003. These regulations apply to taxable years beginning after
September 24, 2004. As a result, such regulations will be effective for
calendar year taxpayers, like the Company, beginning with the calendar year
2005. The Marshall Islands, Cyprus and Liberia, the jurisdictions where the
Company and its ship-owning subsidiaries are incorporated, grant an
"equivalent exemption" to United States corporations. Therefore, the
Company is exempt from United States federal income taxation with respect
to our U.S.-source shipping income if either the 50% Ownership Test or the
Publicly-Traded Test is met. The Company believes that for periods prior to
its initial public offering in July 2004, the 50% Ownership Test is
satisfied. The Company also believes that for periods subsequent to its
initial public offering, it satisfies the publicly traded requirements of
the statute on the basis that more than 50% of the value of its stock is
primarily and regularly traded on the Nasdaq National Market and,
therefore, the Company and its subsidiaries are entitled to exemption from
U.S. federal income tax, in respect of their U.S. source shipping income.
17. Financial Instruments:
The principal financial assets of the Company consist of cash on hand and
at banks and accounts receivable due from charterers. The principal
financial liabilities of the Company consist of long-term bank loans and
accounts payable due to suppliers.
(a) Interest rate risk: The Company's interest rates and long-term loan
repayment terms are described in Note 8.
(b) Concentration of Credit risk: Financial instruments, which potentially
subject the Company to significant concentrations of credit risk,
consist principally of cash and trade accounts receivable. The Company
places its temporary cash investments, consisting mostly of deposits,
with high credit qualified financial institutions. The Company
performs periodic evaluations of the relative credit standing of those
financial institutions with which it places its temporary cash
investments. The Company limits its credit risk with accounts
receivable by performing ongoing credit evaluations of its customers'
financial condition and generally does not require collateral for its
accounts receivable.
(c) Fair value: The carrying values of cash and cash equivalents, accounts
receivable and accounts payable are reasonable estimates of their fair
value due to the short-term nature of these financial instruments. The
fair value of the long-term bank loan discussed in Note 8 bearing
interest at variable interest rates approximates the recorded value.
The carrying value of the liability for the interest rate swap
agreement approximates its fair value as the fair value estimates the
amount the Company would have paid had the interest rate swap
agreement been terminated on the balance sheet date.
18. Subsequent Events:
(a) New Credit Facilities: In February and March 2005, the Company
concluded three bank loans bearing interest at LIBOR plus a margin as
follows: (i) in February 2005, a bank loan to partially finance the
acquisition cost of vessels Priceless, Noiseless and Faultless (Note
1) and to refinance the loan discussed in Note 8(a). The loan is for
the amount of $280,794 divided into two tranches of $197,000 and
$83,794, respectively. The $197,000 tranche is payable in 16 equal
consecutive semi-annual instalments of $10,000 each, from March 31,
2005 to September 2012, plus a balloon payment of $37,000 payable
together with the last instalment. The $83,794 tranche is subject to a
fee of 1% payable on draw down and the tranche is payable in 14
varying semi-annual instalments starting July 31, 2005, plus a balloon
payment of $17,041 payable together with the last instalment; (ii) in
March 2005, a bank loan to partially finance the acquisition cost of
vessels Stainless and Stopless (Note 1). The loan is for the amount of
$56,500 divided into two tranches and is payable in 28 varying
quarterly instalments starting July 29, 2005, plus a balloon payment
of $10,170 payable together with the last instalment. The loan is
subject to a fee of 1% payable on draw down. On March 30, 2005 Parnis
and Vitsi drew down $56,500 of the bank loan; and (iii) in March 2005,
a bank loan to partially finance the acquisition cost of the vessels
Topless, Dauntless, Soundless and Taintless, discussed in (c) below.
The loan, which is for the amount of $144,000 and will be provided as
Tranche C of the loan discussed under (i) above, is subject to fee of
1% payable on draw down and is payable in 17 equal consecutive
semi-annual instalments of $6,300 each, starting November 30, 2005,
plus a balloon payment of $36,900 payable together with the last
instalment. The total loan discussed under (i) and (iii) above is
$424,794.
(b) Vessel's Delivery: On February 3, 2005, Kisavos took delivery of the
154,970 DWT (built in 1991), tanker vessel "Priceless" for $49,450. On
February 2, 2005, Kisavos drew down $27,931 as a portion of the bank
loan discussed in (a)(i) above and the then outstanding balance of the
vessel's purchase price of $44,505 ($49,450 less the 10% advance
payment made in November 2004) was paid to the sellers.
(c) Newly Established Wholly Owned Subsidiaries and Vessels Acquisitions:
In February and March 2005 the Company established Agion Oros Shipping
Company Limited ("Agion Oros"), Lefka Shipping Company Limited
("Lefka"), Agrafa Shipping Company Limited ("Agrafa") and Giona
Shipping Company Limited ("Giona"), all incorporated in the Marshall
Islands. In late February and early March 2005, Agion Oros, Lefka,
Agrafa and Giona entered into memoranda of agreement to acquire the
vessels Topless, Dauntless, Soundless and Taintless, respectively, at
a total cost of $163,500. Vessels Taintless and Dauntless were
delivered to the Company on March 21 and March 24, 2005, respectively.
Vessels Soundless and Topless are expected to be delivered on or about
April 18 and April 25, 2005, respectively. On March 21 and March 24,
2005 Giona and Lefka collectively drew down $73,100 of the bank loan
discussed in (a)(iii) above and the vessels' purchase price of $83,000
was paid to the sellers.
(d) Dividends: On March 16, 2005, the Company declared dividends of $0.21
per share to be paid in April 2005.
(e) London Office: On February 2, 2005, TOP TANKERS (U.K) LIMITED, a newly
established subsidiary to be engaged in chartering activities
involving the Company's vessels, entered into a rent agreement for
office space in London. The agreement is for duration of one year
ending December 31, 2005.
(f) Sale of Vessel: Based on the Memorandum of Agreement dated March 16,
2005, the Company agreed to sell vessel Yapi for a consideration of
$8,550. On March 29, 2005 the vessel entered into a bareboat charter
with the buyers until July 31, 2005 (the vessel's delivery date), at a
daily bareboat hire of $6. According to the terms of the bareboat
charter the Company collected in advance an amount of $1,000 from the
buyers as a security of their obligation to purchase the vessel.
(g) Interest Rate Swaps: In connection with the loans discussed under
(a)(i) and (a)(iii) above, the Company entered into the following
interest rate swap agreements with declining notional balances in
order to hedge its variable interest rate exposure, with effective
date March 31, 2005; (i) for an initial notional amount of $93,500 and
for a period of five years, with a fixed interest rate of 4.72% plus
the applicable bank margin; (ii) for an initial notional amount of
$27,931 and for a period of four years, with a fixed interest rate of
4.5775% plus the applicable bank margin; and (iii) for an initial
notional amount of $36,550 and for a period of four years, with a
fixed interest rate of 4.66% plus the applicable bank margin.
(h) Vessels' Delivery (Unaudited): On April 1, 2005, Parnis and Vitsi took
delivery of the vessels Stainless and Stopless. On March 30, 2005
Parnis and Vitsi drew down $56,500 of the bank loan discussed in
(a)(ii) above and the then outstanding balance of the vessels'
purchase price of $92,677 ($102,975 less the 10% advance payment made
in November 2004) was paid to the sellers on March 31, 2005. On April
11, 2005, Parnasos took delivery of the vessel Faultless. On April 8,
2005, Parnasos drew down $27,931 of the $83,794 tranche of the bank
loan discussed in (a)(i) and the then outstanding balance of the
vessel's purchase price of $46,485 ( $51,650 less the 10% advance
payment made in November 2004) was paid to the sellers.
Forward Looking Statement
-------------------------
Matters discussed in this report may constitute forward-looking statements.
Forward-looking statements reflect our current views with respect to future
events and financial performance and may include statements concerning plans,
objectives, goals, strategies, future events or performance, and underlying
assumptions and other statements, which are other than statements of historical
facts.
The forward-looking statements in this release are based upon various
assumptions, many of which are based, in turn, upon further assumptions,
including without limitation, management's examination of historical operating
trends, data contained in our records and other data available from third
parties. Although TOP Tankers believes that these assumptions were reasonable
when made, because these assumptions are inherently subject to significant
uncertainties and contingencies which are difficult or impossible to predict and
are beyond our control, TOP Tankers cannot assure you that it will achieve or
accomplish these expectations, beliefs or projections.
Important factors that, in our view, could cause actual results to differ
materially from those discussed in the forward-looking statements include the
strength of world economies and currencies, general market conditions, including
changes in charterhire rates and vessel values, changes in demand for oil and
petroleum products, the effect of changes in OPEC's petroleum production levels
and worldwide oil consumption and storage, changes in demand that may affect
attitudes of time charterers to scheduled and unscheduled drydocking, changes in
TOP Tankers' operating expenses, including bunker prices, dry-docking and
insurance costs, changes in governmental rules and regulations including
requirements for double-hull tankers or actions taken by regulatory authorities,
potential liability from pending or future litigation, domestic and
international political conditions, potential disruption of shipping routes due
to accidents and political events or acts by terrorists.
Risks and uncertainties are further described in reports filed by TOP
Tankers with the US Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TOP TANKERS INC.
(registrant)
Dated: April 15, 2005
By: /s/ Stamatis N. Tsantanis
--------------------------
Stamatis N. Tsantanis
Chief Financial Officer
23116.0001 #563800v2