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I
ANNUAL REPORT2015
1
DIANA CONTAINERSHIPS INC.
2015 ANNUAL REPORT
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ANNUAL REPORT 2015
2
DIANA CONTAINERSHIPS INC. 2015 ANNUAL REPORT
LETTER TO SHAREHOLDERS
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ANNUAL REPORT 2015 3
To Our Shareholders:
Conditions in the container shipping industry remained challenging in 2015, with little growth
in demand and an over-supply of tonnage that continued to increase significantly throughout
the year. Despite this environment, Diana Containerships Inc. continued to pursue initiatives to
ensure that the Company will be in a strong position when the market cycle turns - as it eventually
will. Toward that end, we maintained our focus on selectively expanding the Company’s fleet
through the addition of modern tonnage, while also divesting older vessels. At the same time, we
maintained a solid balance sheet to serve as a source of stability in turbulent times and to support
future growth.
Fleet Expansion. During the year, we continued to make strategic investments in our fleet.
We acquired and received delivery of two Post-Panamax container vessels, the m/v Rotterdam
and m/v Hamburg, as well as two Panamax vessels, the m/v YM New Jersey and m/v YM Los
Angeles. In addition, consistent with our efforts to modernize and upgrade the fleet, we sold for
demolition the 1995-built vessel Garnet in late September 2015. Subsequent to year-end, we also
sold for demolition the 1993-built vessel Hanjin Malta. As a result of these actions, as of the end
of March 2016 our fleet consisted of 13 container vessels - including six Post-Panamax and seven
Panamax vessels - with none built prior to 2001.
Balance Sheet Strength. We continue to focus on maintaining a strong balance sheet to
support our growth and promote financial stability. At December 31, 2015, the Company had
approximately $38.4 million of available and restricted cash and over $239 million in stockholders’
equity on the balance sheet.
We also have maintained our financial flexibility through access to credit facilities that support
our strategic aims. In September 2015 the Company signed a six-year term loan facility with The
Royal Bank of Scotland plc for up to US$148 million, bearing interest at the rate of 2.75% over
LIBOR.
Financial Results. Time charter revenues for 2015, net of prepaid charter revenue
amortization, were $62.2 million, versus $54.1 million in 2014. The increase was mainly due
to the higher number of ownership days in 2015 compared to 2014, and was partly offset by
reduced time charter rates. Net loss for 2015 was $17.5 million, compared to net income of $3.2
million for 2014. The loss for 2015 was primarily the result of $8.3 million of direct sale and other
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ANNUAL REPORT 2015
4
charges associated with the disposal of the vessel Garnet and $6.6 million of impairment charges
associated with the vessel Hanjin Malta, without which the result for the period would have been
a net loss of $2.6 million.
Dividend Policy. During 2015, the Company paid four quarterly cash dividends totalling
$0.01 per share. In spite of the pressures of the industry cycle, we believe it is important to
continue providing a nominal cash dividend in order to meet the needs of investors with dividend
requirements.
Investing in Our Future. Going forward, Diana Containerships Inc. enjoys the benefits of a
strong balance sheet, and we intend to use it to take advantage in a conservative way of the very
low asset values we are seeing today. When and as the container shipping market returns to a
healthier state, it is of vital importance for us and our shareholders that a turnaround in earnings
and ship values finds us with a modern, well capitalized fleet able to take advantage of the upturn
to maximize future earnings and cash flow.
Toward that end, we will continue to execute a prudent and sharply-focused strategy of
acquiring high quality containerships throughout the shipping cycle. We will deploy our vessels
in a manner that balances the maturities of our time charters to mitigate cyclical conditions while
generating reliable cash flows. We will also remain committed to maintaining a strong balance
sheet to provide the flexibility to capitalize on market conditions.
We deeply appreciate your interest in and support of Diana Containerships Inc., and are
committed to continuing our efforts to deliver shareholder value in the future.
Sincerely,
Symeon Palios
Chief Executive Officer and Chairman of the Board
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ANNUAL REPORT 2015
5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2015
OR
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from .......................to.......................
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of event requiring this shell company report....................
Commission file number 001-35025
DIANA CONTAINERSHIPS INC.
(Exact name of Registrant as specified in its charter)
Diana Containerships Inc.
(Translation of Registrant’s name into English)
Republic of The Marshall Islands
(Jurisdiction of incorporation or organization)
Pendelis 18, 175 64 Palaio Faliro, Athens, Greece
(Address of principal executive offices)
Mr. Ioannis Zafirakis
Pendelis 18, 175 64 Palaio Faliro, Athens, Greece
Tel: + 30-216-600-2400, Fax: + 30-216-600-2599
E-mail: izafirakis@dcontainerships.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Common stock, $0.01 par value
Preferred stock purchase rights
Name of each exchange on which registered
Nasdaq Global Market
Nasdaq Global Market
Securities registered or to be registered pursuant to Section 12(g) of the Act.
....................... None .......................
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
....................... None .......................
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of
the close of the period covered by the annual report.
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ANNUAL REPORT 2015 6
As of December 31, 2015, there were 73,890,581 shares of the registrant’s common stock outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes No
Yes No
Note-Checking the box above will not relieve any registrant required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the
Exchange Act. (Check one):
Yes No
Large accelerated filer
Accelerated filer Non-accelerated filer
Indicate by check mark which basis of accounting the registrant has used to prepare the financial
statements included in this filing:
U.S. GAAP International Financial Reporting Standards as issued
by the International Accounting Standards Board
Other
If “Other” has been checked in response to the previous question, indicate by check mark which
financial statement item the registrant has elected to follow.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Item 17 Item 18
Yes No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed
by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes No
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ANNUAL REPORT 2015
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
7
8
PART I
Item 1.
Item 2.
Item 3.
Item 4.
Item 4A.
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Item 10.
Item 11.
Item 12.
PART II
Identity of Directors, Senior Management and Advisers ...........................
9
9
Offer Statistics and Expected Timetable .................................................
9
Key Information ......................................................................................
43
Information on the Company ..................................................................
68
Unresolved Staff Comments ..................................................................
68
Operating and Financial Review and Prospects ......................................
88
Directors, Senior Management and Employees ......................................
Major Shareholders and Related Party Transactions ...............................
95
Financial Ιnformation ..............................................................................
98
The Offer and Listing .............................................................................. 100
101
Additional Information ............................................................................
Quantitative and Qualitative Disclosures about Market Risk ..................... 111
Description of Securities Other than Equity Securities ............................. 112
Defaults, Dividend Arrearages and Delinquencies ................................... 112
Item 13.
Material Modifications to the Rights of Security Holders and Use of Proceeds .. 112
Item 14.
Controls and Procedures ....................................................................... 113
Item 15.
Item 16A.
Audit Committee Financial Expert ........................................................... 114
Item 16B. Code of Ethics ....................................................................................... 114
Principal Accountant Fees and Services ................................................. 114
Item 16C.
Exemptions from the Listing Standards for Audit Committees ................. 115
Item 16D.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers .... 115
Item 16E.
Item 16F.
Change in Registrant’s Certifying Accountant ......................................... 115
Item 16G. Corporate Governance .......................................................................... 115
Mine Safety Disclosure .......................................................................... 116
Item 16H.
PART III
Item 17.
Item 18.
Item 19.
Financial Statements .............................................................................. 116
Financial Statements .............................................................................. 116
Exhibits ................................................................................................. 117
INDEX TO FINANCIAL STATEMENTS
F-1
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ANNUAL REPORT 2015
8
FORWARD-LOOKING STATEMENTS
Diana Containerships Inc., or the Company, desires to take advantage of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary
statement in connection with this safe harbor legislation. This document and any other written
or oral statements made by us or on our behalf may include forward-looking statements, which
reflect our current views with respect to future events and financial performance. The words
“believe”, “anticipate,” “intends,” “estimate,” “forecast,” “project,” “plan,” “potential,” “will,” “may,”
“should,” “expect” and similar expressions identify forward-looking statements.
Please note in this annual report, “we”, “us”, “our” and “the Company” all refer to Diana
Containerships Inc. and its subsidiaries, unless the context requires otherwise.
The forward-looking statements in this document 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 we believe 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, we cannot assure you that
we will achieve or accomplish these expectations, beliefs or projections.
In addition to these important factors and matters discussed elsewhere herein, including
under the heading “Item 3.D - Risk Factors,” 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, fluctuations in currencies and interest rates, general market
conditions, including fluctuations in charter hire rates and vessel values, changes in demand in
the container shipping industry, changes in the supply of vessels, changes in the Company’s
operating expenses, including bunker prices, crew costs, drydocking and insurance costs,
changes in governmental rules and regulations or actions taken by regulatory authorities, potential
liability from pending or future litigation, general domestic and international political conditions,
potential disruption of shipping routes due to accidents, labor disputes or political events, and
other important factors described from time to time in the reports filed by the Company with the
Securities and Exchange Commission, or the SEC.
We caution readers of this annual report not to place undue reliance on any forward-looking
statements, which speak only as of their dates. We undertake no obligation to update or revise
any forward-looking statements.
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ANNUAL REPORT 2015 9
PART I
Item 1. Identity of Directors, Senior Management and
Advisers
Not Applicable.
Item 2. Offer Statistics and Expected Timetable
Not Applicable.
Item 3. Key Information
A. Selected Financial Data
The following table sets forth our selected consolidated financial data and other operating
data. The selected consolidated financial data in the table as of and for the years ended
December 31, 2015, 2014, 2013, 2012 and 2011, are derived from our audited consolidated
financial statements and notes thereto which have been prepared in accordance with U.S.
generally accepted accounting principles, or U.S. GAAP. The following data should be read
in conjunction with Item 5. “Operating and Financial Review and Prospects”, the consolidated
financial statements, related notes and other financial information included elsewhere in this
annual report.
For the years ended December 31,
2015
2014
2013
2012
2011
(in thousands of U.S. dollars, except for share and per share data)
Statement of Operations Data:
Time charter revenues
$
70,746 $
65,678 $
74,337 $
68,835 $
26,992
Prepaid charter revenue
amortization
Time charter revenues, net
Voyage expenses
(8,566)
62,180
2,619
(11,610)
54,068
332
Vessel operating expenses
35,847
26,559
(20,322)
(12,204)
-
54,015
56,631
26,992
705
30,870
1,404
28,969
Depreciation and amortization
of deferred charges
13,140
10,309
11,070
12,476
Management fees
-
-
305
1,551
731
11,134
5,937
650
General and administrative
expenses
Impairment losses
Loss on vessels’ sale
Foreign currency losses /
(gains)
6,194
6,607
8,300
(55)
6,306
5,059
3,468
3,442
-
695
17
42,323
16,481
-
-
66
(194)
-
-
18
Operating income / (loss)
(10,472)
9,850
(52,864)
8,957
5,080
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ANNUAL REPORT 2015
10
Interest and finance costs
Interest income
Net income / (loss)
Earnings / (loss) per common
share, basic and diluted
Dividends declared and
paid, per share
Weighted average number
of common shares, basic
Weighted average number
of common shares, diluted
(7,166)
107
(6,746)
134
(4,554)
(3,066)
72
78
(1,604)
154
(17,531) $
3,238 $
(57,346) $
5,969 $
$ 3,630
(0.24) $
0.06 $
(1.73) $
0.22 $
$ 0.23
0.01 $
0.21 $
0.90 $
1.00 $
0.18
$
$
$
72,876,441 51,645,071
33,159,328 26,934,533 15,536,028
72,876,441 51,645,071
33,159,328 26,934,533 15,543,916
As of and for the years ended December 31,
2015
2014
2013
2012
2011
(in thousands of U.S. dollars, except for fleet data and average daily results)
Balance Sheet Data:
Cash and cash equivalents
$
29,388 $
82,003 $
19,685
$
31,526 $
41,354
Total current assets
34,914
86,446
22,980
36,912
43,559
Vessels’ net book value
384,549
306,094
265,372
260,945
158,827
Property and equipment, net
Restricted cash
987
9,000
1,089
9,870
321
9,870
-
9,270
-
-
Total assets
435,723
409,263
316,709
337,045
210,011
Total current liabilities
24,697
9,290
3,779
6,110
3,114
Long-term bank debt
(net of unamortized deferred
financing costs)
142,678
98,298
98,102
91,906
Related party financing
48,950
50,867
50,233
-
-
-
Common stock
739
731
350
322
231
Total stockholders’ equity
$
239,174 $
256,443 $
164,465
$
238,758 $
206,533
Cash Flow Data:
Net cash provided by
operating activities
Net cash used in investing
activities
Net cash provided by
financing activities
Fleet Data:
$
17,445 $
25,487 $
31,740
$
31,346 $
12,504
(111,751)
(51,636)
(81,663)
(149,960)
(79,321)
41,691
88,467
38,082
108,786
97,073
Average number of vessels (1)
12.6
8.8
Number of vessels at
end of period
Ownership days (2)
Available days (3)
Operating days (4)
Fleet utilization (5)
14.0
4,600
4,515
11.0
3,198
3,198
4,155
3,189
9.6
9.0
3,516
3,516
3,442
8.6
10.0
3,156
3,156
3,150
3.6
5.0
1,320
1,320
1,311
92.0%
99.7%
97.9%
99.8%
99.3%
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ANNUAL REPORT 2015
11
Average Daily Results:
Time charter equivalent
(TCE) rate (6)
Daily vessel operating
expenses (7)
$
13,192 $
16,803 $
15,162
$
17,499 $
19,895
7,793
8,305
8,780
9,179
8,435
(1) 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 the period.
(2) Ownership days are the aggregate number of days in a period during which each vessel
in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over
a period and affect both the amount of revenues and the amount of expenses that we record
during a period.
(3) Available days are the number of our ownership days less the aggregate number of days
that our vessels are off-hire due to scheduled repairs or repairs under guarantee, vessel upgrades
or special surveys and the aggregate amount of time that we spend positioning our vessels. The
shipping industry uses available days to measure the number of days in a period during which
vessels should be capable of generating revenues.
(4) Operating days are the number of available days in a period less the aggregate number
of days that our vessels are off-hire due to any reason, including unforeseen circumstances. The
shipping industry uses operating days to measure the aggregate number of days in a period
during which vessels actually generate revenues.
(5) We calculate fleet utilization by dividing the number of our operating days during a period
by the number of our available days during the period. The shipping industry uses fleet utilization
to measure a company’s efficiency in finding suitable employment for its vessels and minimizing
the amount of days that its vessels are off-hire for reasons other than scheduled repairs or repairs
under guarantee, vessel upgrades, special surveys or vessel positioning.
(6) Time charter equivalent rates, or TCE rates, are defined as our time charter revenues,
net, less voyage expenses during a period divided by the number of our available days during
the period, which is consistent with industry standards. Voyage expenses include port charges,
bunker (fuel) expenses, canal charges and commissions. TCE rate is a non-GAAP measure, and
management believes it is useful to provide to investors because it is a standard shipping industry
performance measure used primarily to compare daily earnings generated by vessels on time
charters with daily earnings generated by vessels on voyage charters, because charter hire rates
for vessels on voyage charters are generally not expressed in per day amounts while charter hire
rates for vessels on time charters are generally expressed in such amounts. The following table
reflects the calculation of our TCE rates for the periods presented.
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ANNUAL REPORT 2015
12
For the years ended December 31,
2015
2014
2013
2012
2011
(in thousands of U.S. dollars, except for available days and TCE rate)
Time charter revenues, net
of prepaid charter revenue
amortization
Less: voyage expenses
Time charter equivalent revenues
Available days
$
$
62,180 $
(2,619)
54,068
(332)
59,561 $
53,736
$
$
4,515
3,198
$
$
54,015
(705)
53,310
3,516
56,631 $
(1,404)
26,992
(731)
55,227 $
26,261
3,156
1,320
Time charter equivalent (TCE) rate $
13,192 $
16,803
$
15,162
$
17,499 $
19,895
(7) Daily vessel operating expenses, which include crew wages and related costs, the cost
of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable
stores, tonnage taxes, regulatory fees, environmental costs and other miscellaneous expenses
are calculated by dividing vessel operating expenses by ownership days for the relevant period.
B. Capitalization and Indebtedness
Not Applicable.
C. Reasons for the Offer and Use of Proceeds
Not Applicable.
D. Risk Factors
Some of the following risks relate principally to the industry in which we operate and our
business in general. Other risks relate principally to the securities market and ownership of our
common stock. The occurrence of any of the events described in this section could significantly
and negatively affect our business, financial condition or operating results or the trading price of
our common stock.
Industry Specific Risk Factors
The containership sector is cyclical and volatile, with charter hire rates and profitability
at reduced levels, and the continued global economic downturn has resulted in decreased
demand for container shipping.
Our growth generally depends on continued growth in world and regional demand for
containership services, and the global economic slowdown that commenced in 2008 and
from which the global economy has not fully recovered resulted in decreased demand for
containerships and a related decrease in charter rates that have not fully recovered.
The ocean-going containership sector is both cyclical and volatile in terms of charter hire rates
and profitability. Containership charter rates peaked in 2005 and generally stayed strong until the
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ANNUAL REPORT 2015
13
middle of 2008, when the effects of the 2008 economic crisis began to affect global container
trade. Containership charter rates subsequently improved and stabilized somewhat, although
rates declined in 2015 and may remain below their long-term averages and decline further.
Fluctuations in charter rates result from changes in the supply and demand for ship capacity
and changes in the supply and demand for the major products internationally transported by
containerships. The factors affecting the supply and demand for containerships and supply and
demand for products shipped in containers are outside of our control, and the nature, timing
and degree of changes in industry conditions are unpredictable. We cannot assure you that we
will be able to successfully charter our vessels in the future or renew existing charters upon their
expiration or termination, most of which are scheduled to expire in 2016, assuming the earliest
redelivery dates, at rates sufficient to allow us to meet our obligations or at all.
The factors that influence demand for containership capacity include:
Æ supply and demand for products suitable for shipping in containers;
Æ changes in global production of products transported by containerships;
Æ the distance container cargo products are to be moved by sea;
Æ the globalization of manufacturing;
Æ global and regional economic and political conditions;
Æ developments in international trade;
Æ changes in seaborne and other transportation patterns, including changes in the distances
over which container cargoes are transported;
Æ environmental and other regulatory developments;
Æ currency exchange rates;
Æ weather; and
Æ cost of bunkers.
The factors that influence the supply of containership capacity include:
Æ the number of newbuilding orders and deliveries;
Æ the extent of newbuilding vessel deferrals;
Æ the scrapping rate of older containerships;
Æ newbuilding prices and containership owner access to capital to finance the construction of
newbuildings;
Æ charter rates and the price of steel and other raw materials;
Æ changes in environmental and other regulations that may limit the useful life of containerships;
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ANNUAL REPORT 2015 14
Æ the number of containerships that are sailing at reduced speed, or slow-steaming, to
conserve fuel;
Æ the number of containerships that are out of service;
Æ port congestion and canal closures; and
Æ demand for fleet renewal.
Our ability to employ any containerships that we acquire in the future and recharter our
containerships upon the expiration or termination of their current charters, and the charter rates
payable under any charters or renewal options or replacement charters will depend upon, among
other things, the prevailing state of the containership charter market, which can be affected by
consumer demand for products shipped in containers. For instance, we have vessels whose
charter expire in 2016, for which the current one-year time charter rate is significantly less than
the charter rate payable under the charters we currently have in place. When our containerships’
charters expire, we may be forced to recharter our containerships at reduced or even unprofitable
rates, or we may not be able to recharter our vessels at all, which may reduce or eliminate our
earnings or make our earnings volatile. The same issues will exist if we acquire additional vessels
and attempt to obtain multi-year time charter arrangements as part of our acquisition and financing
plan, which may affect our ability to operate our vessels profitably. The containership market also
affects the value of our vessels, which follow the trends of freight rates and containership rates.
Liner companies, which are the most significant charterers of containerships, have been
placed under significant financial pressure, thereby increasing our charter counterparty
risk.
The decline in global trade as a result of the lingering effects of the economic slowdown
has resulted in a significant decline in demand for the seaborne transportation of products in
containers, including for exports from China to Europe and the United States. Consequently,
the cargo volumes and freight rates achieved by liner companies, which charter containerships
from ship owners like us, declined sharply in the second half of 2011, and continued to be weak
throughout 2012 and 2013, especially for medium to smaller size containerships. Freight rates
remained below their historical averages throughout 2014 and 2015, which has adversely affected
their profitability. The financial challenges faced by liner companies, some of which announced
efforts to obtain third party aid and restructure their obligations, have reduced demand for
containership charters compared to historical averages. The combination of the current surplus
of containership capacity and the expected increase in the size of the world containership
fleet over the next several years may make it difficult to secure substitute employment for our
containerships if our counterparties fail to perform their obligations under the currently arranged
time charters, and any new charter arrangements we are able to secure may be at lower rates.
We are dependent upon a limited number of customers in a consolidating industry for
a large part of our revenues. The loss of these customers could adversely affect our
financial performance.
Most of our vessels are currently employed on time charter, to an aggregate of 6 different
charterers. Should charter rates for containerships improve, we will seek to charter a greater
portion of our containerships pursuant to medium - and long-term fixed-rate time charters
with leading liner companies, and we may remain dependent upon a limited number of liner
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operators. In addition, in recent years there have been significant examples of consolidation in
the containership sector. Financial difficulties in the industry may accelerate the trend towards
consolidation. The cessation of business with liner companies to which our vessels are chartered
or their failure to fulfill their obligations under the charters for our containerships could have a
material adverse effect on our financial condition and results of operations, as well as our cash
flows and our ability to pay dividends to our shareholders.
An over-supply of containership capacity may lead to a further reduction in charter
rates, which may limit our ability to operate our vessels profitably or at all.
According to industry sources, as of March 1, 2015, newbuilding containerships with
an aggregate capacity of 3.268 million TEUs, representing approximately 17.7% of the total
worldwide containership fleet capacity as of that date, were on order. The size of the orderbook
when compared to the fleet is small relative to historical levels and will result in the increase in the
size of the world containership fleet over the next few years. However, the orderbook remains
heavily skewed towards ships of at least 8,000 TEU in size. An over-supply of containership
capacity, combined with a decline in the demand for containerships, may result in a further
reduction of charter hire rates. If such a reduction continues in the future, we may only be able
to charter our fleet for reduced rates or unprofitable rates or we may not be able to charter our
containerships at all.
The reduction in charter rates may cause certain vessel owners or operators, including us, to
elect to “lay up” one or more of its vessels for an extended period of time. The lay up of a vessel
significantly reduces the vessel’s operating costs during the lay up period, but the owners will
continue to incur certain expenses relating to maintenance, insurance and debt service costs,
among others. In addition, vessel owners will incur expenditures to re-commission a vessel and
place it back into service, the amount of which cannot generally be determined at the time of lay
up. These expenditures may be extensive, and may delay the eventual re-activation of the vessel
until such time as the owner determine that there is a sustainable rebound in charter rates, which
may result in lost earnings during the early stages of a recovery.
The current state of global financial markets and current economic conditions may
adversely impact our ability to obtain financing on acceptable terms or at all, which may
hinder or prevent us from expanding our business.
Global financial markets and economic conditions have been, and continue to be, volatile.
This volatility has negatively affected the general willingness of banks and other financial
institutions to extend credit, particularly in the shipping industry, due to the historically volatile
asset values of vessels. As the shipping industry is highly dependent on the availability of credit
to finance and expand operations, it has been and may continue to be negatively affected by
this decline in lending. A weak state of global financial markets and economic conditions might
adversely impact our ability to issue additional equity at prices that will not be dilutive to our
existing shareholders or preclude us from issuing equity at all.
Also, as a result of concerns about the stability of financial markets generally and the
solvency of counterparties specifically, the cost of obtaining money from the credit markets
has increased as many lenders have increased interest rates, enacted tighter lending
standards, refused to refinance existing debt at all or on terms similar to current debt and
reduced, and in some cases ceased, to provide funding to borrowers. Due to these factors,
we cannot be certain that financing will be available if needed, and to the extent required, on
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acceptable terms or at all. If financing is not available when needed, or is available only on
unfavorable terms, we may be unable to enhance our existing business, or otherwise take
advantage of business opportunities as they arise.
The instability of the euro or the inability of countries to refinance their debts could have
a material adverse effect on our revenue, profitability and financial position.
As a result of the credit crisis in Europe, the European Commission created the European
Financial Stability Facility, or the EFSF, and the European Financial Stability Mechanism, or the
EFSM, to provide funding to Eurozone countries in financial difficulties that seek such support.
In September 2012, the European Council established a permanent stability mechanism, the
European Stability Mechanism, or the ESM, to assume the role of the EFSF and the EFSM in
providing external financial assistance to Eurozone countries. Despite these measures, concerns
persist regarding the debt burden of certain Eurozone countries and their ability to meet future
financial obligations. An extended period of adverse development in the outlook for European
countries could reduce the overall demand for consumer products and consequently for our
services. These potential developments, or market perceptions concerning these and related
issues, could affect our financial position, results of operations and cash flow.
Changes in the economic and political environment in China and policies adopted by the
government to regulate its economy may have a material adverse effect on our business,
financial condition and results of operations.
The Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development in such respects as structure,
government involvement, level of development, growth rate, capital reinvestment, allocation of
resources, rate of inflation and balance of payments position. Prior to 1978, the Chinese economy
was a planned economy. Since 1978, increasing emphasis has been placed on the utilization of
market forces in the development of the Chinese economy. Annual and five-year State Plans
are adopted by the Chinese government in connection with the development of the economy.
Although state-owned enterprises still account for a substantial portion of the Chinese industrial
output, in general, the Chinese government is reducing the level of direct control that it exercises
over the economy through State Plans and other measures. There is an increasing level of freedom
and autonomy in areas such as allocation of resources, production, pricing and management and
a gradual shift in emphasis to a “market economy” and enterprise reform. Limited price reforms
were undertaken, with the result that prices for certain commodities are principally determined
by market forces. Many of the reforms are unprecedented or experimental and may be subject
to revision, change or abolition based upon the outcome of such experiments. If the Chinese
government does not continue to pursue a policy of economic reform, the level of imports to
and exports from China could be adversely affected by changes to these economic reforms by
the Chinese government, as well as by changes in political, economic and social conditions or
other relevant policies of the Chinese government, such as changes in laws, regulations or export
and import restrictions, all of which could adversely affect our business, operating results and
financial condition.
A decrease in the level of China’s export of goods or an increase in trade protectionism
globally could have a material adverse impact on our charterers’ business and, in turn,
could cause a material adverse impact on our results of operations, financial condition
and cash flows.
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China exports considerably more goods than it imports. Our containerships may be
deployed on routes involving containerized trade in and out of emerging markets, and our
charterers’ container shipping and business revenue may be derived from the shipment of
goods from the Asia Pacific region to various overseas export markets including the United
States and Europe. Any reduction in or hindrance to the output of China-based exporters could
have a material adverse effect on the growth rate of China’s exports and on our charterers’
business. For instance, the government of China has implemented economic policies aimed at
increasing domestic consumption of Chinese-made goods and restricting currency exchanges
within China. This may have the effect of reducing the supply of goods available for export
and may, in turn, result in a decrease of demand for container shipping. Additionally, though
in China there is an increasing level of autonomy and a gradual shift in emphasis to a “market
economy” and enterprise reform, many of the reforms, particularly some limited price reforms
that result in the prices for certain commodities being principally determined by market forces,
are unprecedented or experimental and may be subject to revision, change or abolition. The
level of imports to and exports from China could be adversely affected by changes to these
economic reforms by the Chinese government, as well as by changes in political, economic
and social conditions or other relevant policies of the Chinese government. Changes in laws
and regulations, including with regards to tax matters, and their implementation by local
authorities could affect our charterers’ business and have a material adverse impact on our
business, results of operations and financial condition.
Our operations expose us to the risk that increased trade protectionism from China or other
nations will adversely affect our business. If the global recovery is undermined by downside risks
and the recent economic downturn returns, governments may turn to trade barriers to protect
their domestic industries against foreign imports, thereby depressing the demand for shipping.
Specifically, increasing trade protectionism in the markets that our charterers serve has caused
and may continue to cause an increase in: (i) the cost of goods exported from China, (ii) the length
of time required to deliver goods from China and (iii) the risks associated with exporting goods
from China, as well as a decrease in the quantity of goods to be shipped.
Any increased trade barriers or restrictions on trade, especially trade with China, would
have an adverse impact on our charterers’ business, operating results and financial condition
and could thereby affect their ability to make timely charter hire payments to us and to renew
and increase the number of their time charters with us. This could have a material adverse effect
on our business, results of operations and financial condition and our ability to pay dividends
to our shareholders.
Vessel values may fluctuate, which may adversely affect our financial condition, result in
the incurrence of a loss upon disposal of a vessel, impairment losses or increases in the
cost of acquiring additional vessels.
Vessel values may fluctuate due to a number of different factors, including: general
economic and market conditions affecting the shipping industry; competition from other
shipping companies; the types and sizes of available vessels; the availability of other modes of
transportation; increases in the supply of vessel capacity; the cost of newbuildings; governmental
or other regulations; and the need to upgrade secondhand and previously owned vessels as
a result of charterer requirements, technological advances in vessel design or equipment or
otherwise. In addition, as vessels grow older, they generally decline in value. Due to the cyclical
nature of the containership market, if for any reason we sell any of our owned vessels at a time
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when prices are depressed, we could incur a loss and our business, results of operations, cash
flow and financial condition could be adversely affected. Moreover, if the book value of a vessel
is impaired due to unfavorable market conditions we may incur a loss that could adversely affect
our operating results. For example, during 2015, impairment losses were recorded for one of our
vessels, as our impairment test exercise indicated that its carrying value was not recoverable.
Conversely, if vessel values are elevated at a time when we wish to acquire additional vessels,
the cost of acquisition may increase and this could adversely affect our business, results of
operations, cash flows, financial condition and ability to pay dividends to our shareholders.
The containership sector is highly competitive, and we may be unable to compete
successfully for charters with established companies or new entrants that may have
greater resources and access to capital, which may have a material adverse effect on us.
The containership sector is a highly competitive industry that is capital intensive and highly
fragmented. Competition arises primarily from other vessel owners, some of whom may have
greater resources and access to capital than we have. Competition among vessel owners for
the seaborne transportation of semi-finished and finished consumer and industrial products can
be intense and depends on the charter rate, location, size, age, condition and the acceptability
of the vessel and its operators to charterers. Due in part to the highly fragmented market, many
of our competitors with greater resources and access to capital than we have could operate
larger fleets than we may operate and thus be able to offer lower charter rates or higher quality
vessels than we are able to offer. If this were to occur, we may be unable to retain or attract new
charterers on attractive terms or at all, which may have a material adverse effect on our business,
prospects, financial condition, liquidity and results of operations.
An increase in operating costs could adversely affect our cash flows and financial
condition.
Vessel operating expenses include the costs of crew, provisions, deck and engine stores,
lube oil, bunkers, insurance and maintenance and repairs, which depend on a variety of factors,
many of which are beyond our control. Some of these costs, primarily relating to insurance and
enhanced security measures implemented after September 11, 2001 and as a result of increases
in the frequency of acts of piracy, have been increasing. If our vessels suffer damage, they may
need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and
can be substantial. Increases in any of these costs could have a material adverse effect on our
business, results of operations, cash flows, financial condition and ability to pay dividends to our
shareholders.
Change to the price of fuel, or bunkers, may adversely affect profits.
While we generally do not bear the cost of fuel, or bunkers, for vessels operating on time
charters, fuel is a significant factor in negotiating charter rates. As a result, an increase in
the price of fuel beyond our expectations may adversely affect our profitability at the time of
charter negotiation. While the price of fuel is currently at relatively low levels due to the price
of oil, the price and supply of fuel is unpredictable and fluctuates based on events outside
our control, including geopolitical developments, supply and demand for oil and gas, actions
by the Organization of Petroleum Exporting Countries and other oil and gas producers,
war and unrest in oil producing countries and regions, regional production patterns and
environmental concerns and regulations.
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Further, despite the low fuel prices in 2015 and the beginning of 2016, fuel may become
much more expensive in the future, which may reduce the profitability and competitiveness of our
business versus other forms of transportation, such as truck or rail.
Increased inspection procedures, tighter import and export controls and new security
regulations could increase costs and cause disruption of our business.
The international containership sector is subject to additional security and customs
inspection and related procedures in countries of origin, destination and trans-shipment points.
These security procedures can result in cargo seizure, delays in the loading, offloading, trans-
shipment, or delivery of containers and the levying of customs duties, fines or other penalties
against exporters or importers and, in some cases, carriers.
It is possible that changes to existing inspection procedures will be proposed or
implemented. Any such changes may affect the containership sector and have the potential to
impose additional financial and legal obligations on carriers and, in certain cases, to render the
shipment of certain types of goods by container uneconomical or impractical. These additional
costs could reduce the volume of goods shipped in containers, resulting in a decreased demand
for containerships. In addition, it is unclear what financial costs any new security procedures
might create for containership owners and operators. Any additional costs or a decrease
in container volumes could have an adverse impact on our ability to attract customers and
therefore have an adverse impact on our ability to operate our vessels profitably.
Compliance with safety and other vessel requirements imposed by classification societies
may be very costly and may adversely affect our business.
The hull and machinery of every commercial vessel must be classed by a classification
society authorized by its country of registry. The classification society certifies that a vessel is safe
and seaworthy in accordance with the applicable rules and regulations of the country of registry
of the vessel and the Safety of Life at Sea Convention.
A vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of
a special survey, a vessel’s machinery may be on a continuous survey cycle under which the
machinery would be surveyed periodically over a five-year period. If any vessel does not maintain
its class and/or fails any annual survey, intermediate survey or special survey, the vessel will be
unable to trade between ports and will be unemployable. This could negatively impact our results
of operations and financial condition.
We are subject to regulation and liability under environmental laws that could require
significant expenditures and affect our cash flows and net income.
Our business and the operations of our containerships are materially affected by
environmental regulation in the form of international conventions, national, state and local
laws and regulations in force in the jurisdictions in which our containerships operate, as well
as in the country or countries of their registration, including those governing the management
and disposal of hazardous substances and wastes, the cleanup of oil spills and other
contamination, air emissions (including greenhouse gases), water discharges and ballast water
management. These regulations include, but are not limited to, European Union regulations,
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the U.S. Oil Pollution Act of 1990, or OPA, requirements of the U.S. Coast Guard and the U.S.
Environmental Protection Agency, or EPA, the U.S. Clean Air Act, the U.S. Clean Water Act and
the U.S. Marine Transportation Security Act of 2002, and regulations of the United Nation’s
International Maritime Organization, or the IMO, including the International Convention on
Civil Liability for Oil Pollution Damage of 1969, the International Convention for the Prevention
of Pollution from Ships of 1975, the International Convention for the Prevention of Pollution
from Ships of 1973, or MARPOL, including designations of Emission Control Areas, or
ECAs thereunder, the IMO International Convention for the Safety of Life at Sea of 1974, the
International Convention on Load Lines of 1966, the International Convention of Civil Liability
for Bunker Oil Pollution Damage, and the International Management Code for the Safe
Operation of Ships and Pollution Prevention. Because such conventions, laws, and regulations
are often revised, we cannot predict the ultimate cost of complying with such requirements
or the impact thereof on the re-sale price or useful life of any containership that we own or
will acquire. Additional conventions, laws and regulations may be adopted that could limit our
ability to do business or increase the cost of our doing business and which may materially
adversely affect our operations. Government regulation of vessels, particularly in the areas of
safety and environmental requirements, continue to change, requiring us to incur significant
capital expenditures on our vessels to keep them in compliance, or even to scrap or sell certain
vessels altogether. In addition, we may incur significant costs in meeting new maintenance and
inspection requirements, in developing contingency arrangements for potential environmental
violations and in obtaining insurance coverage. For example, the cost of compliance with any
new emissions regulation that may be adopted by the United Nations Framework Convention on
Climate Change may be substantial, or we may face substantial taxes on bunkers. Additionally,
we cannot predict the cost of compliance with any new regulation that may be promulgated by
the United States as a result of the 2010 BP plc Deepwater Horizon oil spill in the Gulf of Mexico.
In addition, we are subject to the International Convention for the Control and Management
of Ships’ Ballast Water and Sediments, or the BWM Convention, adopted by the IMO in 2004.
The BWM Convention requires vessels to install expensive ballast water treatment at the first
MARPOL renewal survey after the convention becomes effective. The BWM Convention will
enter into force 12 months after the date on which no less than 30 states, and the combined
merchant fleets of which constitute no less than 35% of the gross tonnage of the world’s
merchant shipping, have either signed it without reservation as to ratification, acceptance or
approval, or have deposited the requisite instruments of ratification, acceptance, approval or
accession. The process to verify global tonnage figures to assess the BWM Convention’s entry
into force has completed. As of February 2016, 47 states have ratified the BWM Convention,
but their combined fleets comprise 34.35% of the gross tonnage of the world’s merchant fleet,
just under the 35% required for entry into force.
The operation of our containerships is also affected by the requirements set forth in the
International Maritime Organization’s International Management Code for the Safe Operation
of Ships and Pollution Prevention, or the ISM Code. The ISM Code requires shipowners and
bareboat charterers to develop and maintain an extensive “Safety Management System” that
includes the adoption of a safety and environmental protection policy setting forth instructions
and procedures for safe operation and describing procedures for dealing with emergencies.
Failure to comply with the ISM Code may subject us to increased liability, may decrease available
insurance coverage for the affected ships and may result in denial of access to, or detention in,
certain ports.
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In addition, we are required by various governmental and quasi-governmental agencies to
obtain certain permits, licenses, certificates, approvals and financial assurances with respect
to our operations. Our failure to maintain necessary permits, licenses, certificates, approvals or
financial assurances could require us to incur substantial costs or temporarily suspend operation
of one or more of the vessels in our fleet, or lead to the invalidation or reduction of our insurance
coverage.
Environmental requirements can also affect the resale value or useful lives of our vessels,
require a reduction in cargo capacity, ship modifications or operational changes or restrictions,
lead to decreased availability of insurance coverage for environmental matters or result in the
denial of access to certain jurisdictional waters or ports, or detention in certain ports. Under
local, national and foreign laws, as well as international treaties and conventions, we could incur
material liabilities, including for cleanup obligations and natural resource damages, in the event
that there is a release of petroleum or hazardous substances from our vessels or otherwise in
connection with our operations. We could also become subject to personal injury or property
damage claims relating to the release of hazardous substances associated with our existing
or historic operations. Violations of, or liabilities under, environmental requirements can result
in substantial penalties, fines and other sanctions, including in certain instances, seizure or
detention of our vessels.
We may be unable to attract and retain qualified, skilled employees or crew necessary to
operate our business.
Our success will depend in large part on our ability and the ability of Unitized Ocean Transport
Limited, which we refer to as UOT or our Manager, our wholly-owned subsidiary, to attract and
retain highly skilled and qualified personnel. In crewing our vessels, we require technically skilled
employees with specialized training who can perform physically demanding work. Competition
to attract and retain qualified crew members is intense. If we are not able to increase our rates to
compensate for any crew cost increases, it could have a material adverse effect on our business,
results of operations, cash flows and financial condition. Any inability we, or our Manager,
experience in the future to hire, train and retain a sufficient number of qualified employees could
impair our ability to manage, maintain and grow our business, which could have a material
adverse effect on our financial condition, results of operations and cash flows.
Labor interruptions could disrupt our business.
Our vessels are manned by masters, officers and crews that are employed by our vessel-
owning subsidiaries. If not resolved in a timely and cost-effective manner, industrial action or other
labor unrest could prevent or hinder our operations from being carried out normally and could
have a material adverse effect on our financial condition, results of operations and cash flows.
Our vessels may suffer damage due to the inherent operational risks of the seaborne
transportation industry and we may experience unexpected drydocking costs or delays,
which may adversely affect our business and financial condition.
Our vessels and their cargoes may be at risk of being damaged or lost because of events
such as:
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Æ marine disasters;
Æ bad weather;
Æ business interruptions caused by mechanical failures;
Æ grounding, fire, explosions and collisions; and
Æ human error, war, terrorism, piracy and other circumstances or events.
These hazards may result in death or injury to persons, loss of revenues or property,
environmental damage, higher insurance rates, damage to our customer relationships, delay or
rerouting. If our vessels suffer damage, they may need to be repaired at a drydocking facility.
The costs of drydock repairs are unpredictable and may be substantial. We may have to pay
drydocking costs that our insurance does not cover in full. The loss of earnings while these
vessels are being repaired and repositioned, as well as the actual cost of these repairs, would
decrease our earnings. In addition, space at drydocking facilities is sometimes limited and not
all drydocking facilities are conveniently located. We may be unable to find space at a suitable
drydocking facility or our vessels may be forced to travel to a drydocking facility that is not
conveniently located relative to our vessels’ positions. The loss of earnings while these vessels
are forced to wait for space or to steam to more distant drydocking facilities would decrease
our earnings. The involvement of our vessels in an environmental disaster may also harm our
reputation as a safe and reliable vessel owner and operator.
World events could affect our results of operations and financial condition.
Continuing conflicts and recent developments in the Middle East, including Syria, and North
Africa, including Libya and Egypt, may lead to additional acts of terrorism and armed conflict
around the world, which may contribute to further economic instability in the global financial
markets. These uncertainties could also adversely affect our ability to obtain additional financing
on terms acceptable to us or at all. In the past, political conflicts have also resulted in attacks on
vessels, mining of waterways and other efforts to disrupt international shipping, particularly in
the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions
such as the South China Sea, the Gulf of Guinea and the Gulf of Aden off the coast of Somalia. Any
of these occurrences could have a material adverse impact on our operating results, revenues
and costs.
Acts of piracy on ocean-going vessels could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world
such as the South China Sea and in the Gulf of Aden off the coast of Somalia. Although the
frequency of sea piracy worldwide has generally decreased since 2013, sea piracy incidents
continue to occur, particularly in the Gulf of Aden off the coast of Somalia and increasingly in the
Gulf of Guinea. Acts of piracy could result in harm or danger to the crews that man our vessels.
In addition, if these piracy attacks result in regions in which our vessels are deployed being
characterized by insurers as “war risk” zones, as the Gulf of Aden has been since May 2008, or
Joint War Committee “war and strikes” listed areas, premiums payable for such coverage could
increase significantly and such insurance coverage may be more difficult to obtain. In addition,
crew costs, due to employing onboard security guards, could increase in such circumstances.
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We may not be adequately insured to cover losses from these incidents, which could have a
material adverse effect on us. In addition, detention hijacking, involving the hostile detention of a
vessel, as a result of an act of piracy against our vessels, or an increase in cost, or unavailability
of insurance for our vessels, could have a material adverse impact on our business, financial
condition, results of operations.
If our vessels call on ports located in countries that are subject to restrictions imposed by
the U.S. or other governments, that could adversely affect our reputation and the market
for our common stock.
While none of our vessels called on ports located in countries subject to U.S. sanctions
during 2015, and we intend to comply with all applicable sanctions and embargo laws and
regulations, there can be no assurance that we will maintain such compliance, particularly as
the scope of certain laws may be unclear and may be subject to changing interpretations. The
U.S. sanctions and embargo laws and regulations vary in their application, as they do not all
apply to the same covered persons or proscribe the same activities, and such sanctions and
embargo laws and regulations may be amended or strengthened over time. In 2010, the U.S.
enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or CISADA,
which expanded the scope of the former Iran Sanctions Act. Among other things, CISADA
expanded the application of the prohibitions to additional activities of non-U.S. companies
and introduced limits on the ability of companies and persons to do business or trade with
Iran when such activities relate to the investment, supply or export of refined petroleum or
petroleum products. In addition, in 2012, President Obama signed Executive Order 13608
which prohibits foreign persons from violating or attempting to violate, or causing a violation
of any sanctions in effect against Iran or facilitating any deceptive transactions for or on behalf
of any person subject to U.S. sanctions. Any persons found to be in violation of Executive
Order 13608 will be deemed a foreign sanctions evader and will be banned from all contacts
with the United States, including conducting business in U.S. dollars. Also in 2012, President
Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012, or the
Iran Threat Reduction Act, which created new sanctions and strengthened existing sanctions.
Among other things, the Iran Threat Reduction Act intensifies existing sanctions regarding the
provision of goods, services, infrastructure or technology to Iran’s petroleum or petrochemical
sector. The Iran Threat Reduction Act also includes a provision requiring the President of the
United States to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act,
as amended, on a person the President determines is a controlling beneficial owner of, or
otherwise owns, operates, or controls or insures a vessel that was used to transport crude oil
from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel,
the person had actual knowledge the vessel was so used or (2) if the person otherwise owns,
operates, or controls, or insures the vessel, the person knew or should have known the vessel
was so used. Such a person could be subject to a variety of sanctions, including exclusion
from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction,
and exclusion of that person’s vessels from U.S. ports for up to two years.
On November 24, 2013, the P5+1 (the United States, United Kingdom, Germany, France,
Russia and China) entered into an interim agreement with Iran entitled the “Joint Plan of Action”
(“JPOA”). Under the JPOA it was agreed that, in exchange for Iran taking certain voluntary
measures to ensure that its nuclear program is used only for peaceful purposes, the U.S. and
E.U. would voluntarily suspend certain sanctions for a period of six months.
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On January 20, 2014, the U.S. and E.U. indicated that they would begin implementing the
temporary relief measures provided for under the JPOA. These measures include, among other
things, the suspension of certain sanctions on the Iranian petrochemicals, precious metals, and
automotive industries from January 20, 2014 until July 20, 2014. The JPOA was extended twice.
On July 14, 2015, the P5+1 and the EU announced that they reached a landmark agreement
with Iran titled the Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran’s
Nuclear Program, or the JCPOA, which is intended to significantly restrict Iran’s ability to develop
and produce nuclear weapons for 10 years while simultaneously easing sanctions directed
toward non-U.S. persons for conduct involving Iran, but taking place outside of U.S. jurisdiction
and does not involve U.S. persons. On January 16, 2016, or Implementation Day, the United
States joined the EU and the UN in lifting a significant number of their nuclear-related sanctions
on Iran following an announcement by the International Atomic Energy Agency, or IAEA, that Iran
had satisfied its respective obligations under the JCPOA.
U.S. sanctions prohibiting certain conduct that is now permitted under the JCPOA have
not actually been repealed or permanently terminated at this time. Rather, the U.S. government
has implemented changes to the sanctions regime by: (1) issuing waivers of certain statutory
sanctions provisions; (2) committing to refrain from exercising certain discretionary sanctions
authorities; (3) removing certain individuals and entities from OFAC’s sanctions lists; and (4)
revoking certain Executive Orders and specified sections of Executive Orders. These sanctions
will not be permanently “lifted” until the earlier of “Transition Day,” set to occur on October 20,
2023, or upon a report from the IAEA stating that all nuclear material in Iran is being used for
peaceful activities.
Although it is our intention to comply with the provisions of the JCPOA, there can be no
assurance that we will be in compliance in the future as such regulations and U.S. Sanctions may
be amended over time, and the U.S. retains the authority to revoke the aforementioned relief if
Iran fails to meet its commitments under the JCPOA.
Due to the nature of our business and the evolving nature of the foregoing sanctions and
embargo laws and regulations, there can be no assurance that we will be in compliance at all
times in the future, particularly as the scope of certain laws may be unclear and may be subject
to changing interpretations. Any violation of such restrictions could result in fines, penalties
or other sanctions that could severely impact our ability to access U.S. capital markets and
conduct our business, and could result in some investors deciding, or being required, to
divest their interest, or not to invest, in us. In addition, certain institutional investors may have
investment policies or restrictions that prevent them from holding securities of companies that
have contracts with countries identified by the U.S. government as state sponsors of terrorism.
The determination by these investors not to invest in, or to divest from, our common stock
may adversely affect the price at which our common stock trades. Moreover, our charterers
may violate applicable sanctions and embargo laws and regulations as a result of actions
that do not involve us or our vessels, and those violations could in turn negatively affect our
reputation. In addition, our reputation and the market for our securities may be adversely
affected if we engage in certain other activities, such as entering into charters with individuals
or entities in countries subject to U.S. sanctions and embargo laws that are not controlled
by the governments of those countries, or engaging in operations associated with those
countries pursuant to contracts with third parties that are unrelated to those countries or
entities controlled by their governments. Investor perception of the value of our common stock
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may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and
governmental actions in these and surrounding countries.
Current or future counterparties of ours may be affiliated with persons or entities that are
or may be in the future the subject of sanctions imposed by the Obama administration, the
European Union and/or other international bodies as a result of the annexation of Crimea by
Russia in March 2014. If we determine that such sanctions require us to terminate existing or
future contracts to which we or our subsidiaries are party or if we are found to be in violation
of such applicable sanctions, our results of operations may be adversely affected or we may
suffer reputational harm. Currently, we do not believe that any of our existing counterparties are
affiliated with persons or entities that are subject to such sanctions.
We conduct business in China, where the legal system is not fully developed and has
inherent uncertainties that could limit the legal protections available to us.
Some of our vessels may be chartered to Chinese customers and from time to time on our
charterers’ instructions, our vessels may call on Chinese ports. Such charters and voyages may
be subject to regulations in China that may require us to incur new or additional compliance or
other administrative costs and may require that we pay to the Chinese government new taxes
or other fees. Applicable laws and regulations in China may not be well publicized and may
not be known to us or to our charterers in advance of us or our charterers becoming subject
to them, and the implementation of such laws and regulations may be inconsistent. Changes
in Chinese laws and regulations, including with regards to tax matters, or changes in their
implementation by local authorities could affect our vessels if chartered to Chinese customers
as well as our vessels calling to Chinese ports and could have a material adverse impact on our
business, financial condition and results of operations.
Governments could requisition our vessels during a period of war or emergency, resulting
in loss of earnings.
A government of a vessel’s registry could requisition for title or seize one or more of our
vessels. Requisition for title occurs when a government takes control of a vessel and becomes
the owner. A government could also requisition one or more of our vessels for hire. Requisition
for hire occurs when a government takes control of a vessel and effectively becomes the
charterer at dictated charter rates. Generally, requisitions occur during a period of war or
emergency. Even if we would be entitled to compensation in the event of a requisition of one or
more of our vessels, the amount and timing of the payment would be uncertain. Government
requisition of one or more of our vessels could have a material adverse effect on our business,
results of operations, cash flows and financial condition.
The smuggling of drugs or other contraband onto our vessels may lead to governmental
claims against us.
We expect that our vessels will call in ports in areas where smugglers attempt to hide drugs
and other contraband on vessels, with or without the knowledge of crew members. To the extent
our vessels are found with contraband, whether inside or attached to the hull of our vessel and
whether with or without the knowledge of any of our crew, we may face governmental or other
regulatory claims which could have an adverse effect on our business, results of operations, cash
flows and financial condition.
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Maritime claimants could arrest or attach our vessels, which would interrupt our business
or have a negative effect on our cash flows.
Crew members, suppliers of goods and services to a vessel, shippers of cargo, lenders,
and other parties may be entitled to a maritime lien against that vessel for unsatisfied debts,
claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting
or attaching a vessel through foreclosure proceedings. The arrest or attachment of one or more
of our vessels could interrupt our business or require us to pay large sums of funds to have the
arrest or attachment lifted, which would have a negative effect on our cash flows.
In addition, in some jurisdictions, such as South Africa, under the “sister-ship” theory of
liability, a claimant may arrest both the vessel that is subject to the claimant’s maritime lien and
any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants
could try to assert “sister-ship” liability against one vessel in our fleet for claims relating to another
of our ships.
There is a lack of historical operating history provided with our secondhand vessel
acquisitions and profitable operation of the vessels will depend on our skill and expertise.
Consistent with shipping industry practice, other than inspection of the physical condition of
the vessels and examinations of classification society records, neither we nor our Manager will
conduct any historical financial due diligence process when we acquire vessels. Accordingly,
neither we nor our Manager will obtain the historical operating data for any secondhand vessels
we may acquire in the future from the sellers because that information is not material to our
decision to make acquisitions, nor do we believe it would be helpful to potential investors in
assessing our business or profitability. Most vessels are sold under a standardized agreement,
which, among other things, provides the buyer with the right to inspect the vessel and the
vessel’s classification society records. The standard agreement does not give the buyer
the right to inspect, or receive copies of, the historical operating data of the vessel. Prior to
the delivery of a purchased vessel, the seller typically removes from the vessel all records,
including past financial records and accounts related to the vessel. In addition, the technical
management agreement between the seller’s technical manager and the seller is automatically
terminated and the vessel’s trading certificates are revoked by its flag state following a change
in ownership.
Consistent with shipping industry practice, we treat the acquisition of a vessel (whether
acquired with or without charter) as the acquisition of an asset rather than a business. Although
vessels are generally acquired free of charter, we have acquired and may also in the future
acquire some vessels with time charters. Where a vessel has been under a voyage charter, the
vessel is delivered to the buyer free of charter, and it is rare in the shipping industry for the last
charterer of the vessel in the hands of the seller to continue as the first charterer of the vessel
in the hands of the buyer. In most cases, when a vessel is under time charter and the buyer
wishes to assume that charter, the vessel cannot be acquired without the charterer’s consent
and the buyer’s entering into a separate direct agreement with the charterer to assume the
charter. The purchase of a vessel itself does not transfer the charter, because it is a separate
service agreement between the vessel owner and the charterer.
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Due to the differences between the prior owners of these vessels and the Company with
respect to the routes we expect to operate, our future customers, the cargoes we expect to
carry, the freight rates and charter hire rates we will charge in the future and the costs we
expect to incur in operating our vessels, we believe that our operating results will be significantly
different from the operating results of the vessels while owned by the prior owners. Profitable
operation of the vessels will depend on our skill and expertise. If we are unable to operate the
vessels profitably, it may have an adverse effect on our financial condition, results of operations
and cash flows.
Company Specific Risk Factors
The market values of our vessels are highly volatile and have decreased and may continue
to decrease in the future, which could limit the amount of funds that we can borrow
under our loan facilities.
The fair market value of our vessels is related to prevailing freight charter rates. While
the fair market value of vessels and the freight charter market have a very close relationship
as the charter market moves from trough to peak, the time lag between the effect of charter
rates on market values of ships can vary. The fair market values of our vessels have generally
experienced high volatility, and you should expect the market value of our vessels to fluctuate
depending on a number of factors including:
Æ the prevailing level of charter hire rates;
Æ general economic and market conditions affecting the shipping industry;
Æ competition from other shipping companies and other modes of transportation;
Æ the types, sizes and ages of vessels;
Æ the supply and demand for vessels;
Æ applicable governmental regulations;
Æ technological advances; and
Æ the cost of newbuildings.
The market values of our vessels may remain low or decrease, which could cause us to
breach covenants in our loan agreements and adversely affect our operating results.
We believe that the market value of the mortgaged vessels in our fleet is in excess of
amounts required under our current loan facility with RBS. However, if the market values of
our vessels, which are at relatively low levels, decrease further, we may breach some of the
covenants contained in the financing agreements relating to our indebtedness at the time. If
we do breach such covenants and we are unable to remedy the relevant breach, our lenders
could accelerate our debt and foreclose on our fleet. In addition, if the book value of a vessel
is impaired due to unfavorable market conditions or a vessel is sold at a price below its book
value, we would incur a loss that could adversely affect our operating results.
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Our growth in the future depends on our ability to successfully charter our vessels, for
which we will face substantial competition.
The process of obtaining new long-term time charters is highly competitive and generally
involves an intensive screening process and competitive bids, and often extends for several
months. Containership charters are awarded based upon a variety of factors relating to the
vessel operator, including:
Æ shipping industry relationships and reputation for customer service and safety;
Æ containership experience and quality of ship operations, including cost effectiveness;
Æ quality and experience of seafaring crew;
Æ the ability to finance containerships at competitive rates and financial stability generally;
Æ relationships with shipyards and the ability to get suitable berths;
Æ construction management experience, including the ability to obtain on-time delivery of new
ships according to customer specifications;
Æ willingness to accept operational risks pursuant to the charter, such as allowing termination of
the charter for force majeure events; and
Æ competitiveness of the bid in terms of overall price.
We expect substantial competition for providing new containership service from a number
of experienced companies, including state-sponsored entities and major shipping companies.
Many of these competitors have significantly greater financial resources than we do, and can
therefore operate larger fleets and may be able to offer better charter rates. As a result of these
factors, we may be unable to obtain new customers on a profitable basis, if at all, which will
impede our ability to establish our operations and implement our growth successfully.
Furthermore, if our vessels become available for employment under new time charters during
periods when charter rates are at depressed levels, we may have to employ our containerships at
depressed charter rates, if we are able to secure employment for our vessels at all, which would
lead to reduced or volatile earnings. Future charter rates may not be at a level that will enable us to
operate our containerships profitably to allow us to implement our growth strategy successfully,
pay dividends or repay our debt.
We cannot assure you that our board of directors will declare dividends.
In 2015, 2014 and 2013 we made dividend payments in the aggregate amount of $0.01,
$0.21 and $0.90 per share, respectively, and have declared a dividend of $0.0025 per share
on March 1, 2016, with respect to the fourth quarter of 2015. We currently intend to declare a
variable quarterly dividend each February, May, August and November equal to available cash
from operations during the previous quarter after the payment of cash expenses and reserves
for scheduled drydockings, intermediate and special surveys and other purposes as our board
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of directors may from time to time determine are required, after taking into account contingent
liabilities, the terms of any credit facility, our growth strategy and other cash needs and the
requirements of Marshall Islands law.
The declaration and payment of dividends, if any, will always be subject to the discretion
of our board of directors. The timing and amount of any dividends declared will depend on,
among other things, our earnings, financial condition and cash requirements and availability,
our ability to obtain debt and equity financing on acceptable terms as contemplated by our
growth strategy and provisions of Marshall Islands law affecting the payment of dividends. The
international containership sector is highly volatile, and we cannot predict with certainty the
amount of cash, if any, that will be available for distribution as dividends in any period. Also,
there may be a high degree of variability from period to period in the amount of cash that is
available for the payment of dividends.
We may incur expenses or liabilities or be subject to other circumstances in the future that
reduce or eliminate the amount of cash that we have available for distribution as dividends,
including as a result of the risks described in this section of the annual report. Our growth strategy
contemplates that we will finance the acquisition of additional vessels through a combination
of debt and equity financing on terms acceptable to us. If financing is not available to us on
acceptable terms, our board of directors may determine to finance or refinance acquisitions with
cash from operations, which would reduce or even eliminate the amount of cash available for the
payment of dividends.
Marshall Islands law generally prohibits the payment of dividends other than from surplus
(retained earnings and the excess of consideration received for the sale of shares above the
par value of the shares) or while a company is insolvent or would be rendered insolvent by the
payment of such a dividend. In addition, any credit facilities that we may enter into in the future
may include restrictions on our ability to pay dividends.
The failure of our counterparties to meet their obligations to us under any vessel purchase
agreements or time charter agreements could cause us to suffer losses or otherwise
adversely affect our business.
Currently, we have secured time charters for our operating vessels with minimum remaining
durations up to 7 months. Generally, we intend to selectively employ our vessels under short-,
medium- or long-term time charters. The ability and willingness of each of our counterparties to
perform its obligations under a vessel purchase agreement or time charter agreement with us will
depend on a number of factors that are beyond our control and may include, among other things,
general economic conditions, the condition of the containership market and the overall financial
condition of the counterparty. If the seller of a vessel fails to deliver a vessel to us as agreed, or if
we cancel a purchase agreement because a seller has not met its obligations, this may have a
material adverse effect on our business. In addition, in depressed market conditions, there have
been reports of charterers renegotiating their charters or defaulting on their obligations under
charters and our future customers may fail to pay charterhire or attempt to renegotiate charter
rates. If our future charterers fail to meet their obligations to us or attempt to renegotiate our future
charter agreements, we could sustain significant losses which could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
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We may be unable to locate suitable vessels or dispose of vessels at reasonable prices
which would adversely affect our ability to operate our business.
We intend to further grow our fleet through selective acquisitions. Our business strategy
is dependent on identifying and purchasing suitable vessels. Changing market and regulatory
conditions may limit the availability of suitable vessels because of customer preferences or
because they are not or will not be compliant with existing or future rules, regulations and
conventions. Additional vessels of the age and quality we desire may not be available for
purchase at prices we are prepared to pay or at delivery times acceptable to us, and we may
not be able to dispose of vessels at reasonable prices, if at all. If we are unable to purchase
and dispose of vessels at reasonable prices in accordance with our business strategy or in
response to changing market and regulatory conditions, our business would be adversely
affected.
Our purchasing and operating secondhand vessels may result in increased operating
costs and vessels off-hire, which could adversely affect our earnings.
Our current business strategy includes growth through the acquisition of previously owned
vessels. While we will typically inspect secondhand vessels before purchase, this does not
provide us with the same knowledge about their condition that we would have had if these vessels
had been built for and operated exclusively by us. Accordingly, we may not discover defects
or other problems with such vessels before purchase. Any such hidden defects or problems,
when detected, may be expensive to repair, and if not detected, may result in accidents or
other incidents for which we may become liable to third parties. In addition, when purchasing
secondhand vessels, we do not receive the benefit of any builder warranties if the vessels we buy
are older than one year.
In general, the costs to maintain a vessel in good operating condition increase with the age
of the vessel. Older vessels are typically less fuel efficient than more recently constructed vessels
due to improvements in engine technology. Potential charterers may also choose not to charter
older vessels. Governmental regulations, safety and other equipment standards related to the age
of vessels may require expenditures for alterations or the addition of new equipment to some of
our vessels and may restrict the type of activities in which these vessels may engage. We cannot
assure you that, as our vessels age, market conditions will justify those expenditures or enable us
to operate our vessels profitably during the remainder of their useful lives. As a result, regulations
and standards could have a material adverse effect on our business, financial condition, results
of operations and cash flows.
We may not be able to implement our growth successfully.
Our business plan is to identify and acquire suitable vessels at favorable prices and trade
our vessels on short-, medium- or long-term time charters. Our business plan will therefore
depend upon our ability to identify and acquire suitable vessels to grow our fleet in the future and
successfully employ our vessels.
Growing any business by acquisition presents numerous risks, including undisclosed
liabilities and obligations, difficulty obtaining additional qualified personnel and managing
relationships with customers and suppliers. In addition, competition from other companies,
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many of which may have significantly greater financial resources than us, may reduce our
acquisition opportunities or cause us to pay higher prices. We cannot assure you that we will
be successful in executing our plans to establish and grow our business or that we will not
incur significant expenses and losses in connection with these plans. Our failure to effectively
identify, purchase, develop and integrate any vessels could impede our ability to establish our
operations or implement our growth successfully. Our acquisition growth strategy exposes us
to risks that may harm our business, financial condition and operating results, including risks
that we may:
Æ fail to realize anticipated benefits, such as cost savings or cash flow enhancements;
Æ incur or assume unanticipated liabilities, losses or costs associated with any vessels or
businesses acquired, particularly if any vessel we acquire proves not to be in good
condition;
Æ be unable to hire, train or retain qualified shore and seafaring personnel to manage and operate
our growing business and fleet;
Æ decrease our liquidity by using a significant portion of available cash or borrowing capacity to
finance acquisitions;
Æ significantly increase our interest expense or financial leverage if we incur debt to finance
acquisitions; or
Æ incur other significant charges, such as impairment of goodwill or other intangible
assets, asset devaluation or restructuring charges.
We have acquired re-sale newbuilding vessels in the past and we may in the future agree
to acquire additional newbuilding vessels, and any delay in the delivery of vessels under
contract could have a material adverse effect on us.
We have acquired re-sale newbuilding vessels in the past. As we grow our fleet in the future,
we may acquire additional newbuildings. The completion and delivery of newbuildings could be
delayed because of, among other things:
Æ quality or engineering problems;
Æ changes in governmental regulations or maritime self-regulatory organization standards;
Æ work stoppages or other labor disturbances at the shipyard;
Æ bankruptcy of or other financial crisis involving the shipyard;
Æ a backlog of orders at the shipyard;
Æ political, social or economic disturbances;
Æ weather interference or a catastrophic event, such as a major earthquake or fire;
Æ requests for changes to the original vessel specifications;
Æ shortages of or delays in the receipt of necessary construction materials, such as steel;
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Æ an inability to finance the constructions of the vessels; or
Æ an inability to obtain requisite permits or approvals.
If the seller of any newbuilding vessel we have contracted to purchase is not able to deliver
the vessel to us as agreed, or if we cancel a purchase agreement because a seller has not met
his obligations, it may result in a material adverse effect on our business, prospects, financial
condition, liquidity and results of operations.
Increased competition in technological innovation could reduce the demand for our
vessels and our ability to successfully implement our business strategy.
The charter hire rates and the value and operational life of a vessel are determined by
a number of factors including the vessel’s efficiency, operational flexibility and physical life.
Efficiency includes speed, fuel economy and the ability to be loaded and unloaded quickly.
Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through
canals and straits. Physical life is related to the original design and construction, maintenance
and the impact of the stress of operations. If new containerships are built that are more
efficient or flexible or have longer physical lives than our vessels, competition from these more
technologically advanced containerships could adversely affect the amount of charter hire
payments we receive for our vessels or our ability to charter our vessels at all.
Our executive officers and directors will not devote all of their time to our business,
which may hinder our ability to operate successfully.
Our executive officers and directors will be involved in other business activities, such as the
operation of Diana Shipping Inc., or Diana Shipping, which may result in their spending less time
than is appropriate or necessary to manage our business successfully. This could have a material
adverse effect on our business, results of operations, cash flows and financial condition.
Certain existing shareholders currently own a significant portion of our outstanding
common shares, which may limit your ability to influence our actions.
Diana Shipping currently owns approximately 25.7% of our outstanding common stock
and our executive officers and non-executive directors collectively own approximately 12.8% of
our outstanding common stock. In addition, 12 West Capital Management LP beneficially owns
approximately 25.8% of our outstanding common stock. Accordingly, certain of our existing
shareholders have the power to exert considerable influence over our actions, including the
election of directors, the adoption or amendment of provisions in our articles of incorporation and
possible mergers or other significant corporate transactions. This concentration of ownership
may have the effect of delaying, deferring or preventing a change in control, merger, consolidation,
takeover or other business combination. This concentration of ownership could also discourage
a potential acquirer from making a tender offer or otherwise attempting to obtain control of us,
which could in turn have an adverse effect on the market price of our shares. So long as certain
of our existing shareholders continue to own a significant amount of our equity, even though the
amount held by each such shareholder represents less than 50% of our voting power, they will
continue to be able to exercise considerable influence over our decisions.
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Diana Shipping will not provide any guarantee of the performance of our obligations
nor will you have any recourse against Diana Shipping should you seek to enforce a
claim against us.
Diana Shipping currently owns approximately 25.7% of our common stock, but will not
provide any guarantee of the performance of our obligations. Further, you will have no recourse
against Diana Shipping should you seek to enforce a claim against us.
The fiduciary duties of our officers and directors may conflict with those of the officers
and directors of Diana Shipping and/or its affiliates.
Our officers and directors have fiduciary duties to manage our business in a manner
beneficial to us and our shareholders. However, our Chief Executive Officer and Chairman of
the Board, President, Chief Operating Officer and Chief Financial Officer also serve as executive
officers and/or directors of Diana Shipping. As a result, these individuals have fiduciary duties to
manage the business of Diana Shipping and its affiliates in a manner beneficial to such entities
and their shareholders. Consequently, these officers and directors may encounter situations in
which their fiduciary obligations to Diana Shipping and us are in conflict. Although Diana Shipping
is contractually restricted from competing with us in the containership sector, there may be other
business opportunities for which Diana Shipping may compete with us such as hiring employees,
acquiring other businesses, or entering into joint ventures, which could have a material adverse
effect on our business. In addition, we are contractually restricted from competing with Diana
Shipping in the drybulk carrier sector, which limits our ability to expand our operations.
The Public Company Accounting Oversight Board inspection of our independent
accounting firm, could lead to findings in our auditors’ reports and challenge the
accuracy of our published audited consolidated financial statements.
Auditors of U.S. public companies are required by law to undergo periodic Public Company
Accounting Oversight Board (“PCAOB”) inspections that assess their compliance with U.S. law
and professional standards in connection with performance of audits of financial statements
filed with the SEC. For several years certain European Union countries, including Greece, did
not permit the PCAOB to conduct inspections of accounting firms established and operating in
such European Union countries, even if they were part of major international firms. Accordingly,
unlike for most U.S. public companies, the PCAOB was prevented from evaluating our auditor’s
performance of audits and its quality control procedures, and, unlike stockholders of most U.S.
public companies, we and our stockholders were deprived of the possible benefits of such
inspections. During 2015, Greece has agreed to allow the PCAOB to conduct inspections of
accounting firms operating in Greece. In the future, such PCAOB inspections could result in
findings in our auditors’ quality control procedures, question the validity of the auditor’s reports
on our published consolidated financial statements and the effectiveness of our internal control
over financial reporting, and cast doubt upon the accuracy of our published audited financial
statements.
Restrictive covenants in our credit facilities may impose financial and other restrictions
on us.
We entered into a $148.0 million secured loan facility with the Royal Bank of Scotland plc,
or RBS, in September 2015 in order to refinance part of the acquisition costs of certain of our
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vessels and to partially finance the acquisition of two new vessels, after we repaid the $98.7
million credit facility we had with the same bank. In addition, in May 2013, we entered into an
unsecured loan agreement of up to $50.0 million with Diana Shipping Inc., one of our major
shareholders, to be used to fund vessels acquisitions and for general corporate purposes. This
loan agreement was amended in September 2015. As of December 31, 2015, we had $193.5
million of principal debt outstanding under our loan facilities. As of December 31, 2015 and the
date hereof we did not have any remaining borrowing capacity under our loan agreements.
Our loan facilities impose operating and financial restrictions on us. These restrictions may
limit our ability to, among other things:
Æ pay dividends or make capital expenditures if we do not repay amounts drawn under our loan
facilities, if there is a default under the loan facilities or if the payment of the dividend or capital
expenditure would result in a default or breach of a loan covenant;
Æ incur additional indebtedness, including through the issuance of guarantees;
Æ change the flag, class or management of our vessels;
Æ create liens on our assets;
Æ sell our vessels;
Æ enter into a time charter or consecutive voyage charters that have a term that exceeds, or
which by virtue of any optional extensions may exceed a certain period;
Æ merge or consolidate with, or transfer all or substantially all our assets to, another person; and
Æ enter into a new line of business.
Therefore, we may need to seek permission from our lenders in order to engage in some
corporate actions. Our lenders’ interests may be different from ours and we cannot guarantee
that we will be able to obtain our lenders’ permission when needed. This may limit our ability to
pay any dividends to you, finance our future operations, make acquisitions or pursue business
opportunities.
Our ability to obtain debt financing in the future may be dependent on the performance
of our then existing charters and the creditworthiness of our charterers.
The actual or perceived credit quality of our charterers, and any defaults by them, may
materially affect our ability to obtain the additional capital resources that we will require to
purchase additional vessels in the future or may significantly increase our costs of obtaining such
capital. Our inability to obtain financing at all or at a higher than anticipated cost may materially
affect our results of operation and our ability to implement our business strategy.
We may be unable to attract and retain key management personnel and other employees in
the shipping industry, which may negatively impact the effectiveness of our management
and results of operations.
Our success depends to a significant extent upon the abilities and efforts of our
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management team, our Chief Executive Officer and Chairman of the Board, Mr. Symeon
Palios; our President, Mr. Anastasios Margaronis; our Chief Financial Officer and Treasurer, Mr.
Andreas Michalopoulos; and our Chief Operating Officer and Secretary, Mr. Ioannis Zafirakis.
Our success will depend upon our ability to retain key members of our management team
and to hire new members as may be necessary. The loss of any of these individuals could
adversely affect our business prospects and financial condition. Difficulty in hiring and retaining
replacement personnel could adversely affect our business, results of operations and ability to
pay dividends. We do not intend to maintain “key man” life insurance on any of our officers or
other members of our management team.
If our insurance is insufficient to cover losses that may occur to our vessels or result
from our operations due to the inherent operational risks of the shipping industry, it
could adversely affect our financial condition.
The operation of an ocean-going vessel carries inherent risks, any of which could increase
our costs or lower our revenues. These risks include the possibility of:
Æ marine disaster;
Æ environmental accidents;
Æ cargo and property losses or damage;
Æ business interruptions caused by mechanical failure, human error, political action in various
countries, war, labor strikes, or adverse weather conditions; and
Æ loss of revenue during vessel off-hire periods.
Under our vessel management agreements with UOT, our Manager is responsible for
procuring and paying for insurance for our vessels. Our insurance policies contain standard
limitations, exclusions and deductibles. The policies insure against those risks that the shipping
industry commonly insures against, which are hull and machinery, protection and indemnity
and war risk. The Manager currently maintains hull and machinery coverage in an amount at
least equal to the vessels’ fair market value. The Manager maintains an amount of protection
and indemnity insurance that is at least equal to the standard industry level of coverage. We
cannot assure you that the Manager will be able to procure adequate insurance coverage for
our fleet in the future or that our insurers will pay any particular claim.
We expect to continue to operate substantially outside the United States, which will
expose us to political and governmental instability, which could harm our operations.
We expect that our operations will continue to be primarily conducted outside the United
States and may be adversely affected by changing or adverse political and governmental
conditions in the countries where our vessels are flagged or registered and in the regions where
we otherwise engage in business. Any disruption caused by these factors may interfere with
the operation of our vessels, which could harm our business, financial condition and results
of operations. Past political efforts to disrupt shipping in these regions, particularly in the
Arabian Gulf, have included attacks on ships and mining of waterways. In addition, terrorist
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attacks outside this region and continuing hostilities in the Middle East and the world may
lead to additional armed conflicts or to further acts of terrorism and civil disturbance in the
United States and elsewhere. Any such attacks or disturbances may disrupt our business,
increase vessel operating costs, including insurance costs, and adversely affect our financial
condition and results of operations. Our operations may also be adversely affected by
expropriation of vessels, taxes, regulation, tariffs, trade embargoes, economic sanctions
or a disruption of or limit to trading activities or other adverse events or circumstances in or
affecting the countries and regions where we operate or where we may operate in the future.
We generate all of our revenues in U.S. dollars and incur a portion of our expenses in
other currencies, and therefore exchange rate fluctuations could have an adverse impact
on our results of operations.
We generate all of our revenues in U.S. dollars and incur a portion of our expenses in
currencies other than the dollar. This difference could lead to fluctuations in net income due to
changes in the value of the U.S. dollar relative to the other currencies, in particular the Euro.
Expenses incurred in foreign currencies against which the U.S. dollar falls in value can increase,
decreasing our revenues. Further declines in the value of the dollar could lead to higher expenses
payable by us.
We may have to pay tax on United States source income, which would reduce our
earnings.
Under the United States Internal Revenue Code of 1986, or the Code, 50% of the gross
shipping income of a vessel owning or chartering corporation, such as us and our subsidiaries,
that is attributable to transportation that begins or ends, but that does not both begin and end,
in the United States may be subject to a 4% United States federal income tax without allowance
for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the
Code, or Section 883, and the applicable Treasury Regulations promulgated thereunder.
We intend to take the position that we qualified for this statutory tax exemption for
U.S. federal income tax return reporting purposes for our 2015 taxable year and we intend
to so qualify for future taxable years. However, there are factual circumstances beyond our
control that could cause us to lose the benefit of this tax exemption for any future taxable year
and thereby become subject to U.S. federal income tax on our U.S.-source shipping income.
For example, in certain circumstances we may no longer qualify for exemption under Code
Section 883 for a particular taxable year if shareholders, other than “qualified shareholders”,
with a five percent or greater interest in our common shares owned, in the aggregate, 50% or
more of our outstanding common shares for more than half the days during the taxable year.
Due to the factual nature of the issues involved, there can be no assurances on our tax-exempt
status.
If we are not entitled to exemption under Section 883 for any taxable year, we would be
subject for those years to an effective 2% United States federal income tax on the shipping
income we derive during the year which is attributable to the transport of cargoes to or from the
United States. The imposition of this taxation would have a negative effect on our business and
would result in decreased earnings available for distribution to our shareholders.
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37
We may be treated as a “passive foreign investment company,” which could have certain
adverse U.S. Federal income tax consequences to U.S. holders.
A foreign corporation will be treated as a “passive foreign investment company,” or PFIC,
for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable
year consists of certain types of “passive income” or (2) at least 50% of the average value of the
corporation’s assets produce or are held for the production of those types of “passive income.”
For purposes of these tests, cash will be treated as an asset held for the production of passive
income. For purposes of these tests, “passive income” generally includes dividends, interest, and
gains from the sale or exchange of investment property and rents and royalties other than those
received from unrelated parties in connection with the active conduct of a trade or business. For
purposes of these tests, income derived from the performance of services does not constitute
“passive income.” U.S. holders of stock in a PFIC are subject to a disadvantageous U.S. federal
income tax regime with respect to the income derived by the PFIC, the distributions they receive
from the PFIC and the gain, if any, they derive from the sale or other disposition of their stock in
the PFIC.
Whether we will be treated as a PFIC will depend upon our method of operation. In this
regard, we intend to treat the gross income we derive or are deemed to derive from time or voyage
chartering activities as services income, rather than rental income. Accordingly, we believe that
any income from time or voyage chartering activities will not constitute “passive income,” and any
assets that we may own and operate in connection with the production of that income will not
constitute passive assets. However, any gross income that we may be deemed to have derived
from bareboat chartering activities will be treated as rental income and thus will constitute “passive
income,” and any assets that we may own and operate in connection with the production of that
income will constitute passive assets. There is substantial legal authority supporting this position
consisting of case law and Internal Revenue Service, or IRS, pronouncements concerning
the characterization of income derived from time charters and voyage charters as services
income for other tax purposes. However, it should be noted that there is also authority which
characterizes time charter income as rental income rather than services income for other tax
purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept our
position with regard to our status from time to time as a PFIC, and there is a risk that the IRS
or a court of law could determine that we are or have been a PFIC for a particular taxable year.
If we are or have been a PFIC for any taxable year, U.S. holders of our common stock will face
certain adverse U.S. federal income tax consequences and information reporting obligations.
Under the PFIC rules, unless such U.S. holders make certain elections available under the Code
(which elections could themselves have certain adverse consequences for such U.S. holders),
such U.S. holders would be liable to pay U.S. federal income tax at the then prevailing income
tax rates on ordinary income plus interest upon excess distributions and upon any gain from
the disposition of our common stock, as if the excess distribution or gain had been recognized
ratably over such U.S. holder’s holding period for such common stock. See Item 10.E “Taxation
-United States Federal Income Tax Considerations - United States Federal Income Taxation
of U.S. Holders - PFIC Status and Significant Tax Consequences” for a more comprehensive
discussion of the U.S. federal income tax consequences to U.S. holders of our common stock if
we are or were to be treated as a PFIC.
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We may be subject to increased premium payments, or calls, because we obtain some of
our insurance through protection and indemnity associations.
We may be subject to increased premium payments, or calls, in amounts based on our
claim records as well as the claim records of other members of the protection and indemnity
associations in the International Group, which is comprised of 13 mutual protection and indemnity
associations and insures approximately 90% of the world’s commercial tonnage and through
which we receive insurance coverage for tort liability, including pollution-related liability, as well as
actual claims. Amounts we may be required to pay as a result of such calls will be unavailable for
other purposes.
The international nature of our operations may make the outcome of any bankruptcy
proceedings difficult to predict.
We are incorporated under the laws of the Republic of the Marshall Islands and we conduct
operations in countries around the world. Consequently, in the event of any bankruptcy,
insolvency, liquidation, dissolution, reorganization or similar proceeding involving us or any of our
subsidiaries, bankruptcy laws other than those of the United States could apply. If we become
a debtor under U.S. bankruptcy law, bankruptcy courts in the United States may seek to assert
jurisdiction over all of our assets, wherever located, including property situated in other countries.
There can be no assurance, however, that we would become a debtor in the United States, or
that a U.S. bankruptcy court would be entitled to, or accept, jurisdiction over such a bankruptcy
case, or that courts in other countries that have jurisdiction over us and our operations would
recognize a U.S. bankruptcy court’s jurisdiction if any other bankruptcy court would determine it
had jurisdiction.
The Greek crisis could adversely affect the operations of our fleet manager, which has
offices in Greece.
As a result of the ongoing economic slump in Greece and the capital controls imposed by
the government in June 2015, our fleet manager, UOT, which has offices in Greece, may be
subjected to new regulations that may require us to incur new or additional compliance or other
administrative costs and may require that we pay to the Greek government new taxes or other
fees. Furthermore, renewed political uncertainty and social unrest due to the worsening economic
conditions and the growing refugee population in the country may undermine Greece’s political
and economic stability and may lead it to exit the eurozone, which may adversely affect the
operations of our manager located in Greece. We also face the risk that enhanced capital controls,
strikes, work stoppages, civil unrest and violence within Greece may disrupt the operations of our
manager located in Greece.
Risks Relating to our Common Shares
We may be unable to maintain our listing on The Nasdaq Global Select Market, which
would adversely affect the value of our common shares and make it more difficult for you
to monetize your investment.
Nasdaq Global Select Market and each national securities exchange have certain corporate
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governance requirements that must be met in order for us to maintain our listing. If we fail to
maintain the relevant corporate governance requirements, our common shares could be delisted,
which would make it harder for you to monetize your investment in our common shares and
would cause the value of your investment to decline.
On January 14, 2016, we received written notification from The NASDAQ Stock Market LLC
indicating that because the closing bid price of our common stock for the 30 consecutive business
days following the notice was below US$1.00 per share, we no longer meet the minimum bid
price requirement for The Nasdaq Global Select Market set forth in Nasdaq Listing Rule 5450(a)
(1). Pursuant to The Nasdaq Listing Rules, the applicable grace period to regain compliance is
180 calendar days, or until July 12, 2016.
The notification letter has no effect at this time on the listing of our common stock, which
continues to trade on The Nasdaq Global Select Market. In February of 2016 our shareholders
approved a reverse stock split, to be implemented at the discretion of the Board. We intend to
monitor the closing bid price of our common stock until July 12, 2016, and if necessary intend
to complete a reverse stock split in order to regain compliance with the minimum bid price
requirement. If we do effect a reverse stock split, the liquidity of our common shares may be
adversely affected given the reduced number of shares that will be outstanding following the
reverse stock split. In the event we do not regain compliance within the 180-day grace period and
we meet all other listing standards and requirements, we may be eligible for an additional 180-day
grace period if we transfer to The Nasdaq Capital Market.
If the share price of our common shares fluctuates, you could lose a significant part of
your investment.
The market price of our common shares may be influenced by many factors, many of which
are beyond our control, including the other risks described herein and the following:
Æ the failure of securities analysts to publish research about us, or analysts making changes in
their financial estimates;
Æ announcements by us or our competitors of significant contracts, acquisitions or capital
commitments;
Æ variations in quarterly operating results;
Æ general economic conditions;
Æ terrorist or piracy acts;
Æ future sales of our common shares or other securities; and
Æ investors’ perception of us and the international containership sector.
These broad market and industry factors may materially reduce the market price of our
common shares, regardless of our operating performance.
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Future offerings of debt securities and amounts outstanding under current and future
credit facilities or other borrowings, which would rank senior to our common stock upon
our liquidation, and future offerings of equity securities, which would dilute our existing
stockholders, may adversely affect the market value of our common stock.
On September 10, 2015, we entered into an agreement for a loan facility of $148.0
million with RBS, and on May 20, 2013 we entered into an unsecured loan agreement of $50
million with Diana Shipping, which was amended on September 9, 2015. In the future, we
may attempt to increase our capital resources with further borrowing under credit facilities,
making offerings of debt or additional offerings of equity securities, including commercial
paper, medium-term notes, senior or subordinated notes and classes of preferred stock.
Upon liquidation, holders of our debt securities and preferred stock and lenders with respect
to our credit facilities and other borrowings will receive a distribution of our available assets
prior to the holders of our common stock. Additional equity offerings may dilute the holdings
of our existing stockholders or reduce the market value of our common stock, or both. Any
preferred stock, if issued, could have a preference on liquidating distributions or a preference
on dividend payments that would limit amounts available for distribution to holders of our
common stock. Because our decision to borrow additional amounts under credit facilities
or issue securities in any future offering will depend on market conditions and other factors
beyond our control, we cannot predict or estimate the amount, timing or nature of our future
indebtedness or offering of securities. Therefore, holders of our common stock bear the
risk of our future offerings reducing the market value of our common stock and diluting their
shareholdings in us or that in the event of bankruptcy, liquidation, dissolution or winding-up
of the Company, all or substantially all of our assets will be distributed to holders of our debt
securities or preferred stocks or lenders with respect to our credit facilities and other borrowings.
We are a holding company, and we will depend on the ability of our current and future
subsidiaries to distribute funds to us in order to satisfy our financial obligations or to
make dividend payments.
We are a holding company, and our current and future subsidiaries, which will all be wholly-
owned by us, either directly or indirectly, will conduct all of our operations and own all of our
operating assets. We will have no significant assets other than the equity interests in our wholly-
owned subsidiaries. As a result, our ability to satisfy our financial obligations and to pay dividends,
if any, to our shareholders will depend on the ability of our subsidiaries to distribute funds to us. In
turn, the ability of our subsidiaries to make dividend payments to us will depend on them having
profits available for distribution and, to the extent that we are unable to obtain dividends from
our subsidiaries, this will limit the discretion of our board of directors to pay or recommend the
payment of dividends. Also, our subsidiaries are limited by Marshall Islands law which generally
prohibits the payment of dividends other than from surplus (retained earnings and the excess
of consideration received for the sale of shares above the par value of the shares) or while a
company is insolvent or would be rendered insolvent by the payment of such a dividend.
Because we are a foreign corporation, you may not have the same rights or protections
that a shareholder in a United States corporation may have.
We are incorporated in the Republic of the Marshall Islands, which does not have a well-
developed body of corporate law and may make it more difficult for our shareholders to protect
their interests. Our corporate affairs are governed by our amended and restated articles of
incorporation and bylaws and the Marshall Islands Business Corporations Act, or BCA. The
provisions of the BCA resemble provisions of the corporation laws of a number of states in the
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United States. The rights and fiduciary responsibilities of directors under the law of the Marshall
Islands are not as clearly established as the rights and fiduciary responsibilities of directors under
statutes or judicial precedent in existence in certain U.S. jurisdictions and there have been few
judicial cases in the Marshall Islands interpreting the BCA. Shareholder rights may differ as well.
While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the
State of Delaware and other states with substantially similar legislative provisions, our public
shareholders may have more difficulty in protecting their interests in the face of actions by the
management, directors or controlling shareholders than would shareholders of a corporation
incorporated in a U.S. jurisdiction. Therefore, you may have more difficulty in protecting your
interests as a shareholder in the face of actions by the management, directors or controlling
stockholders than would shareholders of a corporation incorporated in a U.S. jurisdiction.
Future sales of our common stock could cause the market price of our common stock to
decline.
As of December 31, 2015, we had 73,890,581 shares of common stock outstanding. The
market price of our common stock could decline from its current levels due to sales of a large
number of shares in the market, including sales of shares by our large shareholders, our issuance
of additional shares, or securities convertible into our common stock or the perception that these
sales could occur. These sales could also make it more difficult or impossible for us to sell equity
securities in the future at a time and price that we deem appropriate to raise funds through future
offerings of shares of our common stock. The issuance of such additional shares of common
stock would also result in the dilution of the ownership interests of our existing shareholders. We
have entered into a registration rights agreement with Diana Shipping that will entitle it to have all
the shares of our common stock that it owns registered for re-sale in the public market under the
Securities Act.
As a key component of our business strategy, we intend to issue additional shares of
common stock or other securities to finance our growth as market conditional warrant.
These issuances, which would generally not be subject to shareholder approval, may
lower your ownership interests and may depress the market price of our common stock.
As a key component of our business strategy, we plan to finance potential future expansions
of our fleet in large part with equity financing. Pursuant to our amended and restated articles
of incorporation, we are authorized to issue up to 500 million common shares and 25 million
preferred shares, each with a par value of $0.01 per share. Therefore, subject to the rules of
The Nasdaq Global Select Market that are applicable to us, we may issue additional shares of
common stock, and other equity securities of equal or senior rank, without shareholder approval,
in a number of circumstances from time to time.
The issuance by us of additional shares of common stock or other equity securities of equal
or senior rank will have the following effects:
Æ our existing shareholders’ proportionate ownership interest in us may decrease;
Æ the relative voting strength of each previously outstanding share may be diminished;
Æ the market price of our common stock may decline; and
Æ the amount of cash available for dividends payable on our common stock, if any, may
decrease.
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It may not be possible for our investors to enforce U.S. judgments against us.
We are incorporated in the Republic of the Marshall Islands. Substantially all of our assets
are located outside the United States. As a result, it may be difficult or impossible for U.S.
shareholders to serve process within the United States upon us or to enforce judgment upon us
for civil liabilities in U.S. courts. In addition, you should not assume that courts in the countries
in which we are incorporated or where our assets are located (1) would enforce judgments of
U.S. courts obtained in actions against us based upon the civil liability provisions of applicable
U.S. federal and state securities laws or (2) would enforce, in original actions, liabilities against us
based upon these laws.
Anti-takeover provisions in our organizational documents could make it difficult for our
shareholders to replace or remove our current board of directors or have the effect of
discouraging, delaying or preventing a merger or acquisition, which could adversely
affect the value of our securities.
Several provisions of our amended and restated articles of incorporation and bylaws could
make it difficult for our shareholders to change the composition of our board of directors in any
one year, preventing them from changing the composition of management. In addition, the same
provisions may discourage, delay or prevent a merger or acquisition that shareholders may
consider favorable.
These provisions include:
Æ authorizing our board of directors to issue “blank check” preferred stock without shareholder
approval;
Æ providing for a classified board of directors with staggered, three-year terms;
Æ prohibiting cumulative voting in the election of directors;
Æ authorizing the removal of directors only for cause and only upon the affirmative vote of the
holders of two-thirds of the outstanding common shares entitled to vote generally in the
election of directors;
Æ limiting the persons who may call special meetings of shareholders; and
Æ establishing advance notice requirements for nominations for election to our board of
directors or for proposing matters that can be acted on by shareholders at shareholder
meetings.
In addition, we have entered into a Stockholders Rights Agreement pursuant to which our
board of directors may cause the substantial dilution of any person that attempts to acquire us
without the approval of our board of directors.
These anti-takeover provisions, including provisions of our stockholders rights agreement,
could substantially impede the ability of shareholders to benefit from a change in control and, as
a result, may adversely affect the value of our securities, if any, and the ability of shareholders to
realize any potential change of control premium.
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Item 4. Information on the Company
A. History and Development of the Company
Diana Containerships Inc. is a corporation incorporated under the laws of the Republic of
the Marshall Islands on January 7, 2010. Each of the Company’s vessels is owned by a separate
wholly-owned subsidiary. Diana Containerships Inc. is the owner of all the issued and outstanding
shares of the subsidiaries listed in Exhibit 8.1 to this annual report. We maintain our principal
executive offices at Pendelis 18, 175 64 Palaio Faliro, Athens, Greece. Our telephone number at
that address is +30 216 600 2400. Our agent and authorized representative in the United States is
our wholly-owned subsidiary, Container Carriers (USA) LLC, established in July 2014, in the State
of Delaware, which is located at 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808.
Business Development and Capital Expenditures and Divestitures
In December 2011, we entered into an agreement for a revolving credit facility of up to $100
million with the Royal Bank of Scotland plc. The credit facility had a term of five years and bore, up
to June 1, 2013, interest at the rate of 2.75% per annum over LIBOR. We also paid a commitment
fee of 0.99% per annum on the undrawn amount of the facility until October 31, 2013. In 2012 and
2013, we drew down an aggregate amount of $98.7 million. During 2013 and 2014, we entered
into various supplemental agreements with the lenders under the facility, which provided for an
increased margin of 3.10% per annum over LIBOR, effective June 1, 2013, and certain other
amendments of the terms of the initial facility agreement. The loan was repaid in full in September
2015, when we entered into a new loan agreement with Royal Bank of Scotland plc for up to
$148.0 million, discussed below.
In February 2013, we entered into a Memorandum of Agreement with Hanjin Shipping Co.,
Ltd., Seoul, for the purchase of a 1993-built Panamax container vessel of approximately 4,024
TEU capacity, the m/v Hanjin Malta, for a purchase price of $22 million. The vessel was delivered
to us from the sellers in March 2013.
Effective March 1, 2013, Unitized Ocean Transport Limited, which we refer to as the
“Manager” or “UOT”, our wholly-owned subsidiary, provides us and the vessels we own with
management and administrative services. Pursuant to our management agreements with
UOT, UOT receives a fixed commission of 2% on the gross charter hire and freight earned
by each vessel plus a fixed management fee of $15,000 per vessel per month for employed
vessels and $7,500 per vessel per month for laid-up vessels, if any. In addition, pursuant to
the administrative services agreement, UOT receives a fixed monthly fee of $10,000. Since
March 1, 2013 the management and administrative fees payable to UOT are eliminated in
consolidation as intercompany transactions. Until February 28, 2013, similar fees were payable
to Diana Shipping Services S.A, or DSS, a wholly-owned subsidiary of Diana Shipping. On
March 1, 2013, and in relation with the appointment of UOT to act as our new Manager, the
Administrative Services Agreement, the Broker Services Agreement that DSS had entered into
with Diana Enterprises Inc. on our behalf, and the Vessel Management Agreements with DSS
were terminated.
Following the termination agreement for brokerage services that were provided to us through
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DSS on March 1, 2013, Diana Enterprises entered on the same date into an agreement with UOT
to provide brokerage services for a fixed monthly fee of $120,833. The agreement had a term of
thirteen months and the fees were payable quarterly in advance, effective April 1, 2013. In March
2014, the Broker Services Agreement between UOT and Diana Enterprises Inc. was terminated
and replaced with a new agreement with retroactive effect from January 1, 2014 and ending on
March 31, 2015. Effective July 1, 2014, the agreement between UOT and Diana Enterprises Inc.
was terminated and replaced with a new agreement between Diana Containerships Inc. and
Diana Enterprises Inc., on substantially similar fees and payment terms. Finally, upon expiration
of the agreement, it was further renewed until March 31, 2016, for a fixed monthly fee of $121,000.
In April, May and December 2013, we sold the m/v Maersk Madrid, m/v Maersk Merlion, m/v
Maersk Malacca and m/v Apl Spinel to unrelated parties for demolition, for the aggregate sale
price of $37.5 million, net of address commissions. In May, June and December 2013, the vessels
were delivered to their new owners.
In May 2013, we entered into an unsecured loan agreement of up to $50.0 million with Diana
Shipping, to be used to fund vessel acquisitions and for general corporate purposes. The loan
had an initial term of four years and bore, until its amendment discussed below, interest at the rate
of 5.0% per annum over LIBOR and a fee of 1.25% per annum (“back-end fee”) on any amounts
repaid upon any repayment or voluntary prepayment dates. In August 2013, the full amount of
$50.0 million was drawn down.
In May 2013, we filed a prospectus supplement pursuant to Rule 424(b) relating to the offer
and sale of an aggregate of up to $40.0 million in gross proceeds of our common stock under
an at-the-market offering, with Deutsche Bank Securities Inc., as sales agent. In 2013, a total
of 2,859,603 shares of our common stock were sold under the at-the-market offering and the
net proceeds, after deducting underwriting commissions and offering expenses payable by us,
amounted to $12.4 million. In 2014, a total of 1,092,596 shares of our common stock were sold
under the at-the-market offering and the net proceeds received, after deducting underwriting
commissions and offering expenses payable by us, amounted to $4.7 million. In July 2014, we
announced the suspension of the offer and sale of our common shares under the existing at-
the-market offering until there is a significant improvement in the containership market.
In August 2013, we entered into two Memoranda of Agreement for the purchase of two
2006-built Post-Panamax container vessels of approximately 6,541 TEU capacity each, the m/v
Puelo, and the m/v Pucon, for a purchase price of $47.0 million each. The vessels were delivered
to us from the sellers in August and September 2013, respectively.
In February 2014, we sold the m/v Apl Sardonyx, to unrelated parties for demolition, for the
sale price of $9.7 million, net of address commission. The vessel was delivered to her new owners
in the same month.
In July 2014, we entered into an agreement to sell 36,653,386 shares of our common stock
in a private placement (the “Private Placement”) to a group of investors including Diana Shipping,
unaffiliated institutional investors, and our Chief Executive Officer and Chairman of the Board,
Mr. Symeon Palios, and a member of his family, along with other members of the Company’s
senior management, at a purchase price of $2.51 per share. In the transaction, Diana Shipping
purchased common shares of value $40.0 million, two institutional investors not affiliated
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with us whose manager is based in the United States together purchased common shares of
value $40.0 million, and Mr. Palios and a member of his family, along with other members of
the Company’s senior management, purchased common shares of an aggregate value $12.0
million. The transaction closed on July 29, 2014. In connection with the Private Placement,
we entered with our respective counterparties, into amendments to the brokerage services
agreement with Diana Enterprises Inc., the loan agreement with Diana Shipping Inc., the facility
agreement with the Royal Bank of Scotland plc and the Stockholders Rights Agreement. The
net proceeds received from the transaction, after deducting offering expenses payable by us,
amounted to $91.3 million. The purchasers received customary registration rights with respect to
the shares purchased in the Private Placement. The transaction was approved by an independent
committee of our Board of Directors, which obtained a fairness opinion from Houlihan Lokey
Financial Advisors, Inc. regarding the financial fairness to us of the aggregate purchase price
to be received by us in the transaction. For more information on the Private Placement, see
“Item 7. Major Shareholders and Related Party Transactions - B. Related Party Transactions.”
In August 2014, we signed, through two separate wholly-owned subsidiaries, two
Memoranda of Agreement to purchase from an unrelated party two 2004-built Post-Panamax
container vessels of approximately 5,576 TEU capacity each, the m/v YM March and the m/v
YM Great, for a purchase price of $22.175 million each. The vessels were delivered to us in
September and October 2014, respectively.
In November 2014, we signed, through a separate wholly-owned subsidiary, a Memorandum
of Agreement to purchase from an unrelated party a 2005-built Panamax container vessel of
approximately 5,042 TEU capacity, the m/v Santa Pamina, for a purchase price of $15.95
million. The vessel was delivered to us in November 2014.
In December 2014, we acquired, jointly with two other related parties, from unrelated
individuals, a plot of land, in Athens, Greece, for an aggregate price of Euro 2.0 million or $2.5
million, based on the exchange rate of U.S. Dollar to Euro on the date of acquisition. The plot of
land is under the common ownership of the joint purchasers. We paid one third of the purchase
price, and the total cost for the acquisition of the plot, including additional capitalized costs,
amounted to $0.9 million.
In March 2015, we entered, through two separate wholly-owned subsidiaries, into
two Memoranda of Agreement with unrelated parties, to acquire the 2006-built Panamax
container vessels of approximately 4,923 TEU capacity, the m/v YM New Jersey and the m/v
YM Los Angeles, for the purchase price of $21.5 million each. The vessels were delivered to
us in April 2015.
In July 2015, we entered, through two separate wholly-owned subsidiaries, into two
Memoranda of Agreement with unrelated parties, to acquire two Post-Panamax container
vessels of approximately 6,494 TEU capacity, the 2009-built m/v Hamburg and the 2008-built
m/v Rotterdam, for the purchase price of $38.5 million and $37.5 million, respectively. Both
vessels were delivered to us from September to November 2015.
In September 2015, we sold the m/v Garnet (ex Apl Garnet), to unrelated parties for
demolition, for the sale price of $7.6 million, net of address commission. The vessel was delivered
to her new owners in the same month.
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ANNUAL REPORT 2015 46
In September 2015, we, through nine separate wholly-owned subsidiaries, entered into a
loan agreement with RBS of up to $148.0 million, to re-finance the acquisition cost of seven
of our vessels, including the full prepayment of the existing facility agreement, and to support
the acquisition of the two newly acquired vessels, the m/v Hamburg and the m/v Rotterdam
(discussed above). The new loan facility has a term of six years, is repayable in quarterly
installments and a balloon payment payable together with the last installment, and bears interest
at the rate of 2.75% per annum over LIBOR. Until December 31, 2015, we drew down in full the
$148.0 million. In connection with this loan, we paid arrangement and structuring fees amounting
to $1.9 million and a commitment fee of 1.375% per annum on the undrawn amount of the loan
until the drawdown dates.
In September 2015, and in relation with the RBS refinance discussed above, the loan
agreement with Diana Shipping was amended. The loan agreement is extended until March
2022, provides for annual repayments of $5.0 million, plus a balloon installment at the final
maturity date, and bears interest at LIBOR plus margin of 3.0% per annum. We also agreed to
pay at the date of the amendment the accumulated back-end fee, amounting to $1.3 million, and
that no additional back-end fee would be charged thereafter. Furthermore, we agreed that we will
pay at the final maturity date a flat fee of $0.2 million.
In February 2016, we entered, through a wholly-owned subsidiary, into a memorandum
of agreement to sell the m/v Hanjin Malta to an unrelated party for demolition, for a sale price
of $5.0 million before commissions. The vessel was delivered to her new owners on March 9,
2016.
B. Business Overview
We are a corporation formed under the laws of the Republic of the Marshall Islands on
January 7, 2010. We were founded to own containerships and pursue containership acquisition
opportunities.
As of the date of this annual report, our fleet consists of seven panamax and six post-panamax
containerships with a combined carrying capacity of 66,440 TEU and a weighted average age of
9.7 years. As at December 31, 2015, our fleet consisted of eight panamax and six post-panamax
containerships with a combined carrying capacity of 70,464 TEU and a weighted average age
of 10.3 years. As at December 31, 2014, our fleet consisted of seven panamax and four post-
panamax containerships with a combined carrying capacity of 52,359 TEU and a weighted
average age of 11.2 years. As at December 31, 2013, our fleet consisted of seven panamax
and two post-panamax containerships with a combined carrying capacity of 40,894 TEU and a
weighted average age of 11.5 years.
During 2015, 2014 and 2013, we had fleet utilization of 92.0%, 99.7%, and 97.9%,
respectively, our vessels achieved a daily time charter equivalent rate of $13,192, $16,803,
and $15,162, respectively, and we generated revenues, net of prepaid charter revenue
amortization, of $62.2 million, $54.1 million and $54.0 million, respectively.
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Set forth below is summary information concerning our fleet as at March 18, 2016.
Vessel
BUILT TEU
Sister
Ships*
Gross Rate
(USD
Per Day)
Com**
Charterers
Delivery Date
to
Charterers***
Redelivery Date
to
Owners****
Notes
SAGITTA
$6,600
5.00%
Maersk Line A/S
30-Nov-15
11-Jan-16
1
8 Panamax Container Vessels
2010 3,426
CENTAURUS
2010 3,426
YM LOS ANGELES
2006 4,923
YM NEW JERSEY
2006 4,923
PAMINA
(ex Santa Pamina)
2005 5,042
DOMINGO
(ex Cap Domingo)
2001 3,739
CAP DOUKATO
(ex Cap San Raphael)
2002 3,739
HANJIN MALTA
1993 4,024
PUELO
2006 6,541
PUCON
2006 6,541
MARCH
(ex YM March)
2004 5,576
GREAT
(ex YM Great)
2004 5,576
HAMBURG
2009 6,494
ROTTERDAM
2008 6,494
A
$5,850
3.50%
CMA CGM
27-Jan-16
27-May-16 - 27-Jan-17
A
$10,875
5.00% Maersk Line A/S
2-Oct-15
2-Sep-16 - 2-Apr-17
2
B
$21,000
B
$21,000
US$350
per day
US$350
per day
Yang Ming (UK) Ltd.
9-Apr-15
19-Oct-16 - 19-Feb-17
3,4
Yang Ming (UK) Ltd.
22-Apr-15
24-Sep-16 - 24-Jan-17 3,5
$15,325
4.00%
Zim Integrated
Shipping
Services Ltd
21-May-15
21-Mar-16
6
C
$6,750
3.75% Rudolf A. Oetker KG
24-Dec-15
12-Feb-16
7,8,9
$9,900
3.75%
23-Dec-14
23-Jan-16
C
Rudolf A. Oetker KG
7,10
$6,250
3.75%
23-Jan-16
23-Apr-16 - 23-Jan-17
$25,550
US$150
per day
Hanjin Shipping
Co. Ltd.
15-Mar-13
19-Feb-16
3,11,12
6 Post - Panamax Container Vessels
D
$27,900
US$150
per day
CSAV Valparaiso
23-Aug-13
2-Aug-15
13,14,15
D
$17,000
3.75% Hapag-Lloyd AG
20-Aug-15
10-May-16 - 20-Jul-16 16,17,18
E
E
F
$6,200
5.00%
21-Dec-15
6-Jan-16
19
$6,200
5.00%
$14,750
5.00%
Maersk Line A/S
Maersk Line A/S
6-Jan-16
26-Mar-16
15-Aug-15
15-Feb-16
6,20
21
$6,000
5.00%
15-Feb-16
15-Apr-16 - 15-Feb-17
$14,000
0%
MSC-Mediterranean
Shipping Co. S.A.,
Geneva
16-Nov-15
27-Jan-16
13
F
$6,000
5.00% Maersk Line A/S
2-Feb-16
2-Apr-16 - 2-Feb-17
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48
* Each container vessel is a “sister ship”, or closely similar, to other container vessels that have the same letter.
** Total commission paid to third parties.
*** In case of newly acquired vessel with time charter attached, this date refers to the expected/actual date of
delivery of the vessel to the Company.
**** Range of redelivery dates, with the actual date of redelivery being at the Charterers’ option, but subject
to the terms, conditions, and exceptions of the particular charterparty.
1. In November 2015, the Company agreed to extend as from November 30, 2015 the previous
charter party with Maersk Line A/S for a period of up to minimum January 8, 2016 to maximum
March 1, 2016 at a gross charter rate of US$6,600 per day.
2. In September 2015, the Company agreed to extend as from October 2, 2015 the previous
charter party with Maersk Line A/S for a period of minimum 11 months to maximum 18 months at
a gross charter rate of US$10,875 per day.
3. For financial reporting purposes, an asset is recognized upon the delivery of the vessel which
represents the difference between the current fair market value of the charter and the net present
value of future contractual cash flows. This asset is amortized over the period of the time charter
agreement and is set off against the corresponding revenues during the same period.
4. The charterer has the option to employ the vessel for a further twenty-two (22) to twenty-six
(26) month period at the same daily gross charter rate less US$350 per day commission paid
to third parties. The optional period if exercised will start on December 19, 2016 and must be
declared six (6) months prior to this date.
5. The charterer has the option to employ the vessel for a further twenty-two (22) to twenty-six
(26) month period at the same daily gross charter rate less US$350 per day commission paid
to third parties. The optional period if exercised will start on November 24, 2016 and must be
declared six (6) months prior to this date.
6. Based on latest information.
7. Reederei Santa Containerschiffe GmbH & Co. KG has agreed to novate the time charter
contract to Rudolf A. Oetker KG.
8. In November 2015, the Company agreed to extend as from December 24, 2015 the previous
charter party with Rudolf A. Oetker KG for a period of up to minimum February 10, 2016 to
maximum March 25, 2016 at a gross charter rate of US$6,750 per day.
9. Currently without an active charterparty. Vessel on scheduled drydocking.
10. In January 2016, the Company agreed to extend as from January 23, 2016 the previous
charter party with Rudolf A. Oetker KG for a period of minimum 3 months to maximum 12 months
at a gross charter rate of US$6,250 per day.
11. Charterers have agreed to compensate the owners for the early redelivery of the vessel till the
minimum agreed redelivery date, March 31, 2016.
12. Vessel sold and delivered to her new owners on March 9, 2016.
13. Currently without an active charterparty.
14. The charterers paid the owners a compensation for the early redelivery of the vessel equal to
the amount of US$6,000 per day for the period between August 2, 2015 and up to February 23,
2016.
15. Charterers changed to Norasia Container Lines Limited, as per Novation Agreement signed
in September 2014 with a retroactive effect from July 1, 2014. As per same Novation Agreement,
with effect from February 1, 2015, charterers have changed to Hapag-Lloyd AG.
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16. The charterers paid the owners a compensation for the early redelivery of the vessel equal to
the amount of US$6,000 per day for the period between August 20, 2015 and up to March 20,
2016.
17. Charterers changed to Norasia Container Lines Limited, as per Novation Agreement signed
in September 2014 with a retroactive effect from July 1, 2014. As per same Novation Agreement,
with effect from April 28, 2015, charterers have changed to Hapag-Lloyd AG.
18. In July 2015, the Company agreed to extend as from August 20, 2015 (00:01) the previous
charter party with Hapag-Lloyd AG for a period of up to minimum May 10, 2016 to maximum July
20, 2016 at a gross charter rate of US$17,000 per day.
19. Charterers will pay US$1 per day for the first 5 days of the charter period.
20. In December 2015, the Company agreed to extend as from January 6, 2016 the previous
charter party with Maersk Line A/S for a period of minimum 2 months to maximum 10 months at
a gross charter rate of US$6,200 per day.
21. In January 2016, the Company agreed to extend as from February 15, 2016 the previous
charter party with Maersk Line A/S for a period of minimum 2 months to maximum 12 months at
a gross charter rate of US$6,000 per day.
Our Management Team
Our management team is responsible for the strategic management of our company,
including the development of our business plan. Strategic management also involves, among
other things, locating, purchasing, financing and selling vessels. Our management team is led
by our Chief Executive Officer and Chairman of the Board, Mr. Symeon Palios, who founded the
predecessors of Diana Shipping and DSS in 1972. Mr. Palios has served as the Chief Executive
Officer and Chairman of the Board of Diana Shipping Inc. since 2005 and as a director since
1999. Mr. Anastasios Margaronis, our President and a director, also serves as President and
as a director of Diana Shipping Inc. and has been employed by the Diana Shipping group of
companies since 1979. Mr. Ioannis Zafirakis, our Chief Operating Officer, Secretary and a
director, also serves as Chief Operating Officer and Secretary and a director of Diana Shipping
Inc. and has been employed by the Diana Shipping group of companies since 1997. Mr. Andreas
Michalopoulos, our Chief Financial Officer and Treasurer, has held these same offices with Diana
Shipping Inc. since 2006.
Our management team has experience in multiple sectors of the international shipping
industry, including the containership sector, and a proven track record of strategic growth
beginning with the formation of the Diana Shipping group of companies in 1972. Our
management team is responsible for identifying assets for acquisition and for the operation of
our business in order to build our fleet and effectively manage our growth.
Potential Conflicts of Interest
Our management team is comprised of four executive officers who are also executive officers
of Diana Shipping. Three of our executive officers serve on our board of directors as well as the
board of directors of Diana Shipping. Our officers and directors have fiduciary duties to manage
our business in a manner beneficial to us and our shareholders. As a result, these individuals
have fiduciary duties to manage the business of Diana Shipping and its affiliates in a manner
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beneficial to such entities and their shareholders. Consequently, these officers and directors may
encounter situations in which their fiduciary obligations to Diana Shipping and us are in conflict.
Although Diana Shipping is contractually restricted from competing with us in the containership
industry, there may be other business opportunities for which Diana Shipping may compete with
us such as hiring employees, acquiring other businesses, or entering into joint ventures, which
could have a material adverse effect on our business. In addition, we are contractually restricted
from competing with Diana Shipping in the dry bulk carrier sector, which limits our ability to
expand our operations.
Management of Our Fleet
The business of Diana Containerships Inc. is the ownership of containerships. Diana
Containerships Inc. wholly owns, directly or indirectly, the subsidiaries which own the vessels
that comprise our fleet. The holding company sets general overall direction for the company and
interfaces with various financial markets. The commercial and technical management of our fleet,
as well as providing administrative services relating to the fleet’s operations, are carried out since
March 1, 2013, by UOT, our fleet manager. In exchange for providing us with commercial and
technical services, we pay our Manager a commission that is equal to 2% of our gross revenues,
a fixed management fee of $15,000 per month for each vessel in operation and a fixed monthly fee
of $7,500 for laid-up vessels, if any. In addition, pursuant to an Administrative Services Agreement,
we pay to UOT a fixed monthly administrative fee of $10,000, in exchange for providing us with
accounting, administrative, financial reporting and other services necessary for the operation of
our business. These amounts are considered inter-company transactions and are, therefore,
eliminated from our consolidated financial statements.
Until March 1, 2013, DSS provided us with commercial, technical, accounting, administrative,
financial reporting and other services, pursuant to an Administrative Services Agreement and
Vessel Management Agreements. In addition, pursuant to a Broker Services Agreement, DSS
had appointed Diana Enterprises Inc., a related party controlled by our Chief Executive Officer
and Chairman of the Board, Mr. Symeon Palios, as broker to assist it in providing services to
us. Please see “Item 7. Major Shareholders and Related Party Transactions - B. Related Party
Transactions” for a detailed description of these agreements. On March 1, 2013, and in relation
with the appointment of UOT to act as our new Manager, the Administrative Services Agreement,
the Broker Services Agreement that DSS had entered into with Diana Enterprises Inc. on our
behalf, and the Vessel Management Agreements with DSS, were terminated.
On August 8, 2013, DSS was found guilty on felony counts and on December 5, 2013 was
sentenced by the United States District Court in Norfolk, Virginia to a fine of $1.1 million and a
period of probation of three years and six months as a result of a conviction in which DSS was
held vicariously liable for the actions of the chief engineer and second assistant engineer of one
of Diana Shipping Inc.’s vessels. This conviction and fine payable by DSS did not result in the
payment of any additional fees or expenses to us prior to the time that UOT replaced DSS as
our Manager, and we do not believe that the conviction in any way affected the level of services
provided to us by DSS.
Business Strategy
Acquire high quality containerships throughout the shipping cycle.
We will seek to provide attractive returns to our investors by continuing to make accretive
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acquisitions of high quality containerships in the secondhand market, including from shipyards
and lending institutions. We believe that the containership sector currently provides attractive
acquisition opportunities as asset values remain at low levels and will continue to present
attractive opportunities through the cycle. Over time, we expect that asset prices and charter
rates will increase and we will continue to seek to make acquisitions that meet our investment
criteria. Because members of our senior management team have successfully navigated
previous market cycles, we believe that we have the experience and discipline to capitalize
on market movements. We will continue to initially focus on vessels ranging from 3,500 TEU
to 8,500 TEU because we believe that the current orderbook composition, coupled with
global GDP growth, creates a favorable multi-year dynamic of supply and demand for these
mid-sized containerships. As industry dynamics change, we might opportunistically acquire
containerships outside of this range as well as enter into newbuilding contracts with shipyards
on terms that meet our acquisition criteria.
Strategically deploy our vessels in order to optimize the opportunities in the time charter
market.
We intend to actively monitor market conditions, charter rates and vessel operating expenses
in order to selectively employ vessels as market conditions warrant. In the near term we intend to
enter into short-term time charters to allow our shareholders to benefit from what we believe to be
an improving charter rate environment. Depending on market conditions, in the future we might
enter into long-term time charters at rates that compare favorably to historical averages, shielding
us from charter rate decreases and cyclical fluctuations. We believe that maintaining staggered
charter maturities will provide us with the flexibility to capitalize on favorable market conditions,
while providing us with a base of strong, visible cash flows.
Maintain a strong balance sheet.
We have a strong balance sheet and we intend to maintain relatively low debt levels. We
believe that maintaining a strong balance sheet will continue to provide us with the flexibility to
capitalize on vessel purchase opportunities. Notwithstanding the foregoing, based on prevailing
conditions and our outlook for the containership market, we might consider incurring further
indebtedness in the future to enhance returns to our shareholders.
Our Customers
Our customers include national, regional, and international companies, such as Maersk Line
A/S, CMA CGM, Zim Integrated Shipping Services Ltd, Rudolf A. Oetker KG, Hapag Lloyd AG,
MSC Mediterranean Shipping Co S.A. Geneva, and Yang Ming (UK,) Ltd. During 2015, five of
our charterers accounted for 83% of our revenues: Yang Ming (UK) Ltd (25%), Maersk Line A/S
(11%), Reederei Santa Containerschiffe / Rudolf A. Oetker KG (10%), CSAV Valparaiso / Hapag
Lloyd A.G Hamburg (24%) and Hanjin Shipping Co. Ltd (13%). During 2014, four of our charterers
accounted for 87% of our revenues: Reederei Santa Containerschiffe MbH & Co. (25%), CSAV
Valparaiso (31%), NOL Liner (Pte) Ltd (17%) and Hanjin Shipping Co. Ltd (14%). During 2013, four
of our charterers accounted for 87% of our revenues: A.P. M
ller-Maersk A/S (16%), Reederei
Santa Containerschiffe, GMbH & Co. (23%), NOL Liner (Pte) Ltd (38%) and Hanjin Shipping Co.
Ltd (10%). We believe that developing strong relationships with the end users of our services
allows us to better satisfy their needs with appropriate and capable vessels. A prospective
charterer’s financial condition, creditworthiness, reliability and track record are important factors
in negotiating our vessels’ employment.
ø
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52
The Container Shipping Industry
The containers used in maritime transportation are steel boxes of standard dimensions. The
standard unit of measure of volume or capacity in container shipping is the 20-foot equivalent
unit, or TEU, representing a container which is 20 feet long and typically 8.5 feet high and 8
feet wide. In recent years, 40-foot long containers (9.5 feet high), equivalent to two TEU, have
increasingly been used by large retailers to move lightweight, fast moving consumer goods
across the globe. There are specialized containers of both sizes to carry refrigerated perishables
or frozen products, as well as tank containers that carry liquids such as liquefied gases, spirits or
chemicals.
A container shipment begins at the shipper’s premises with the delivery of an empty
container. Once the container has been filled with cargo, it is transported by truck, rail or barge to
a container port, where it is loaded onto a containership. The container is shipped either directly
to the destination port or through an intermediate port where it is transferred to another vessel,
an activity referred to as transshipment. When the container arrives at its destination port, it is off-
loaded and delivered to the receiver’s premises by truck, rail or barge.
Container shipping has a number of advantages compared with other shipping methods,
including:
Less Cargo Handling:
Containers provide a secure environment for cargo. The contents of a container, once loaded
into the container, are not directly handled until they reach their final destination. Using other
shipping methods, cargo may be loaded and discharged several times, resulting in a greater risk
of breakage and loss.
Efficient Port Turnaround:
With specialized cranes and other terminal equipment, containerships can be loaded and
unloaded in significantly less time and at lower cost than other cargo vessels.
Highly Developed Intermodal Network:
Onshore movement of containerized cargo, from points of origin, around container ports,
staging or storage areas, and to final destinations, benefits from the physical integration of the
container with other transportation equipment such as road chassis, railcars and other means
of hauling the standard-sized containers. Sophisticated port and intermodal industries have
developed to support container transportation.
Reduced Shipping Time:
Containerships can travel at a speed of up to 25 knots per hour, even in rough seas, thereby
transporting cargo over long distances in shorter periods of time. Such speed reduces transit
time and facilitates the timeliness of regular scheduled port calls, compared to general cargo
shipping. However, since 2008, due to higher fuel prices and the negative effects of the global
recession, most operators have reduced speeds and deployed more ships on some voyage
strings. This has also had a positive environmental effect in helping reduce ship emissions.
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Types of Container Ships
Containerships are typically “cellular,” which means they are equipped with metal guide rails
to allow for rapid loading and unloading, and provide for more secure carriage. Partly cellular
containerships include roll-on/roll-off vessels, or “ro-ro” ships, designed to carry chassis and
trailers, and multipurpose ships which can carry a variety of cargo including containers.
The main categories of containerships are broadly as follows:
Æ Very Large:
“Very large” ships (with capacity in excess of 10,000 TEU) are currently exclusively deployed
on the Asia-North Europe and Mediterranean and Transpacific trades. Middle East trades may at
some stage see the regular deployment of ships with capacity exceeding 10,000 TEU.
Æ Large:
Large ships have a capacity of 8,000 to 9,999 TEU and are currently deployed on the
Transpacific, Asia-Middle East and Asia to Latin America trades.
Æ Post Panamax:
Ships with a capacity of 5,000 to 7,999 TEU, so-called because of their inability to transit
through the existing Panama Canal due to dimension restrictions. However, there are plans
to widen the existing Panama Canal, with completion expected in May 2016, which would
allow ships with capacity of up to 13,500 TEU to transit the waterway. Ships of this size can
be considered the workhorses of many smaller or emerging trade routes outside of the main
east-west arteries.
Æ Panamax:
Ships with a capacity between 3,000 to 4,999 TEU, which is the maximum size that the
Panama Canal can currently handle. There is a fear that many of these ships may become
redundant once the widened Panama Canal is fully open and carriers continue to deploy the
largest vessels they can across their service portfolios in order to minimize slot costs.
Æ Intermediate:
In this category, the ships range in capacity between 2,000 and 2,999 TEU and are generally
able to operate on all trades.
Æ Handysize:
Smaller ships with capacities ranging from 1,000 to 1,999 TEU, for use in regional trades - a
primary example being the intra-Asian trades.
Æ Feeder:
Ships with a capacity of less than 1,000 TEU, which are usually employed as feeder vessels
on trades to and from hub ports or on small niche trades or domestic routes.
Containership Newbuilding Prices
The factors which influence new-built prices include ship type, shipyard capacity, demand
for ships, “berth cover”, i.e., the forward book of business of shipyards, buyer relationships with
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the yard, individual design specifications, including fuel efficiency or environmental features and
the price of ship materials, engine and machinery equipment and particularly the price of steel.
Containership Secondhand Prices
Vessel values are primarily driven by supply and demand for vessels. During extended
periods of high demand, as evidenced by high charter rates, secondhand vessel values tend to
appreciate and during periods of low demand, evidenced by low charter rates, vessel values tend
to decline. Vessel values are also influenced by age and specification and by the replacement
cost (new-built price) in the case of vessels up to five years old.
Values for younger vessels tend to fluctuate on a percentage, if not on a nominal, basis less
than values for older vessels. This is due to the fact that younger vessels with a longer remaining
economic life are less susceptible to the level of charter rates than older vessels with limited
remaining economic life.
Vessels are usually sold through specialized brokers who report transactions to the maritime
transportation industry on a regular basis. The sale and purchase market for vessels is usually
quite transparent and liquid, with a number of vessels changing hands on an annual basis.
Containership Charter Rates
The main factors affecting vessel charter rates are primarily the supply and demand
for container shipping. The shorter the charter period, the greater the vessel charter rate is
affected by the current supply to demand balance and by the current phase of the market
cycle (high point or low point). For longer charter periods, from three years to ten years, vessel
charter rates tend to be more stable and less cyclical because the period may cover not only
a particular phase of a market cycle, but a full market cycle or several market cycles. Other
factors affecting charter rates include the age and characteristics of the ships (including fuel
consumption, speed, wide beam, shallow draft, whether geared or gearless), the price of new-
built and secondhand ships (buying as an alternative to chartering ships) and market conditions.
According to industry sources, during 2015 time charter rates strengthened during the first
half of the year only to collapse by the end of 2015. The Alphaliner charter index ended the year at
44.7 points, down 3% compared to December 2014.
Container Freight Rates
Factors that drive vessel charter rates also affect container freight rates. Container freight
rates are primarily driven by the supply and demand for container shipping, the cost of operating
ships, fuel prices, and carrier behaviour, including inter-carrier competition. To some extent,
container freight rates are also affected by market conditions.
According to industry sources, freight rates across global trade routes have, dropped in 2015,
a sign of continuing oversupply. The overall Shanghai Containerised Freight Index ended 2015 at
487 points compared to its opening reading of 2015 at 1,055 points. However, based on the
Shanghai Containerised Freight Index, freight rates for boxes shipped from Shanghai to Europe
averaged US$1,008 per TEU in 2015 which was 27% lower than the full year 2014 average.
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Global Container Trade
According to industry sources, the global container trade grew by approximately 2.4% in
2015 and is expected to grow by 4% in 2016.
Disclosure Pursuant to Section 13(r) of the Securities Exchange Act
of 1934
The disclosure below does not relate to any activities conducted by Diana Containerships
Inc., its management or Unitized Ocean Transport Limited, its vessel technical manager. The
disclosure herein relates solely to certain activities conducted by Diana Shipping Inc.
Section 219 of the U.S. Iran Threat Reduction and Syria Human Rights Act of 2012, or ITRA,
added a new Section 13(r) to the U.S. Securities Exchange Act of 1934, as amended, or the
Exchange Act, that requires each SEC reporting issuer to disclose in its annual and, if applicable,
quarterly reports regardless of whether it or any of its affiliates have knowingly engaged in certain
activities, transactions or dealings relating to Iran or with the Government of Iran or certain
designated natural persons or entities involved in terrorism or the proliferation of weapons of
mass destruction during the period covered by the report. The required disclosure includes
disclosure of activities that are not prohibited by U.S. or other law, even if conducted outside of
the U.S. by non-U.S. affiliates in compliance with local law.
Diana Shipping Inc. is the former parent company of the Company and current owner of
25.7% of our common stock, and certain members of the Company’s board of directors and
senior management team are also members of the board of directors and management team
of Diana Shipping Inc., however all vessel operations of the Company and Diana Shipping
Inc. are performed by separate companies that do not share common management teams or
boards of directors. The Company has been advised that the Annual Report on Form 20-F for
the year ended December 31, 2015 to be filed by Diana Shipping Inc. with the Securities and
Exchange Commission is expected to contain the disclosure set forth below (with all references
contained therein to “the Company” being references to Diana Shipping Inc. and its consolidated
subsidiaries). As a result, it appears that the Company may be required to provide the disclosures
set forth below pursuant to Section 219 of ITRA and Section 13(r) of the Exchange Act. By
providing this disclosure, the Company does not admit that it is an affiliate of Diana Shipping Inc.
The disclosure relates solely to activities conducted by Diana Shipping Inc. and its consolidated
subsidiaries.
The expected disclosure of Diana Shipping Inc. is as follows:
Disclosure Pursuant to Section 219 of the Iran Threat Reduction And Syrian Human Rights Act
Section 219 of the U.S. Iran Threat Reduction and Syria Human Rights Act of 2012, or the
ITRA, added new Section 13(r) to the U.S. Securities Exchange Act of 1934, as amended,
or the Exchange Act, requiring each SEC reporting issuer to disclose in its annual and, if
applicable, quarterly reports whether it or any of its affiliates have knowingly engaged in
certain activities, transactions or dealings relating to Iran or with the Government of Iran
or certain designated natural persons or entities involved in terrorism or the proliferation of
weapons of mass destruction during the period covered by the report.
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Pursuant to Section 13(r) of the Exchange Act, we note that for the period covered by
this annual report, the vessels Amphitrite and Clio made five port calls to Iran in 2015 for
a combined length of 60 days. The vessel Amphitrite made calls to the port of Bandar
Imam Khomeini on December 29, 2014 (discharging corn), April 29, 2015 (discharging
soya beans), September 6, 2015 (discharging corn) and November 28, 2015 (discharging
maize), and remained in the port of Bandar Imam Khomeini during 2015 for 50 days in the
aggregate. The vessel Clio made a call to the port of Bandar Imam Khomeini on October
27, 2015, discharging corn, and remained in the port of Bandar Imam Khomeini for 10
days. During this time the Amphitrite was on time charter to Bunge S.A. at a gross rate of
$11,300 per day and the Clio was on time charter to Transgrain Shipping B.V. at a gross
rate of $6,500 per day. Our aggregate gross revenue attributable to these 60 days of port
calls was approximately $3.2 million, less 5% commissions paid to third parties. As we do
not attribute profits to specific voyages under a time charter, we have not attributed any
profits to the voyages which included these port calls. Our charter party agreements for the
Amphitrite and Clio restrict the charterers from calling in Iran in violation of U.S. sanctions,
or carrying any cargo to Iran which is subject to U.S. sanctions. However, there can be
no assurance that the Amphitrite, Clio or another of our vessels will not, from time to time
in the future on charterer’s instructions, perform voyages which would require disclosure
pursuant to Exchange Act Section 13(r).
Environmental and Other Regulations
Government regulation significantly affects the ownership and operation of our vessels.
We are subject to international conventions and treaties, and, in the countries in which our
vessels may operate or are registered, national, state and local laws and regulations in force
in the countries in which our vessels may operate or are registered relating to safety and health
and environmental protection, including the storage, handling, emission, transportation and
discharge of hazardous and non-hazardous materials, and the remediation of contamination
and liability for damage to natural resources. Compliance with such laws, regulations and other
requirements entails significant expense, including vessel modifications and implementation of
certain operating procedures.
A variety of governmental and private entities subject our vessels to both scheduled and
unscheduled inspections. These entities include the local port authorities (applicable national
authorities such as the U.S. Coast Guard and harbor masters), classification societies, flag state
administrations (countries of registry) and charterers. Some of these entities require us to obtain
permits, licenses, certificates or approvals for the operation of our vessels. Our failure to maintain
necessary permits, licenses, certificates, approvals or financial assurances could require us to
incur substantial costs or temporarily suspend operation of one or more of the vessels in our fleet,
or lead to the invalidation or reduction of our insurance coverage.
In recent periods, heightened levels of environmental and operational safety concerns
among insurance underwriters, regulators and charterers have led to greater inspection and
safety requirements on all vessels and may accelerate the scrapping of older vessels throughout
the shipping industry. Increasing environmental concerns have created a demand for vessels
that conform to the stricter environmental standards. We believe that the operation of our vessels
will be in substantial compliance with applicable environmental laws and regulations and that
our vessels will have all material permits, licenses, certificates or other authorizations necessary
for the conduct of our operations. However, because such laws and regulations are frequently
changed and may impose increasingly strict requirements, we cannot predict the ultimate cost of
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57
complying with these requirements, or the impact of these requirements on the re-sale value or
useful lives of our vessels. In addition, a future serious marine incident, such as one comparable
to the 2010 BP plc Deepwater Horizon oil spill, that results in significant oil pollution, release of
hazardous substances, loss of life, or otherwise causes significant adverse environmental impact
could result in additional legislation or regulation that could negatively affect our profitability.
International Maritime Organization (IMO)
The IMO has adopted the International Convention for the Prevention of Pollution from
Ships, 1973, as modified by the Protocol of 1978 relating thereto (collectively referred to as
MARPOL 73/78 and herein as “MARPOL”). MARPOL entered into force on October 2, 1983. It
has been adopted by over 150 nations, including many of the jurisdictions in which our vessels
operate. MARPOL is broken into six Annexes, each of which regulates a different source of
pollution. Annex I relates to oil leakage or spilling; Annexes II and III relate to harmful substances
carried, in bulk, in liquid or packaged form, respectively; Annexes IV and V relate to sewage and
garbage management, respectively; and Annex VI, lastly, relates to air emissions. Annex VI was
separately adopted by the IMO in September of 1997.
Air Emissions
In September of 1997, the
IMO adopted Annex VI to MARPOL to address air
pollution. Effective May 2005, Annex VI sets limits on nitrogen oxide emissions from ships
whose diesel engines were constructed (or underwent major conversions) on or after January
1, 2000. It also prohibits “deliberate emissions” of “ozone depleting substances,” defined to
include certain halons and chlorofluorocarbons. “Deliberate emissions” are not limited to times
when the ship is at sea; they can for example include discharges occurring in the course of
the ship’s repair and maintenance. Emissions of “volatile organic compounds” from certain
tankers, and the shipboard incineration (from incinerators installed after January 1, 2000) of
certain substances (such as polychlorinated biphenyls (PCBs)) are also prohibited. Annex VI
also includes a global cap on the sulfur content of fuel oil and allows for special areas to be
established with more stringent controls on sulfur emissions, known as ECAs (see below).
The IMO’s Maritime Environment Protection Committee, or MEPC, adopted amendments
to Annex VI on October 10, 2008, which entered into force on July 1, 2010. The amended Annex
VI seeks to further reduce air pollution by, among other things, implementing a progressive
reduction of the amount of sulphur contained in any fuel oil used on board ships. As of January
1, 2012, the amended Annex VI requires that fuel oil contain no more than 3.50% sulfur (from
the current cap of 4.50%). By January 1, 2020, sulfur content must not exceed 0.50%, subject
to a feasibility review to be completed no later than 2018.
Sulfur content standards are even stricter within certain “Emission Control Areas”, or
ECAs. As of July 1, 2010, ships operating within an ECA were not permitted to use fuel with
sulfur content in excess of 1.0% (from 1.50%), which was further reduced to 0.10% on January
1, 2015. Amended Annex VI establishes procedures for designating new ECAs. Currently, the
Baltic Sea and the North Sea have been so designated. Effective August 1, 2012, certain
coastal areas of North America were designated ECAs, and effective January 1, 2014, the
applicable areas of the United States Caribbean Sea were designated ECAs. If other ECAs
are approved by the IMO or other new or more stringent requirements relating to emissions
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from marine diesel engines or port operations by vessels are adopted by the EPA or the
states where we operate, compliance with these regulations could entail significant capital
expenditures, operational changes, or otherwise increase the costs of our operations.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions
standards for new tier III marine engines, depending on their date of installation. The U.S. EPA
promulgated equivalent (and in some senses stricter) emissions standards in late 2009.
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy
efficiency for ships in part to address greenhouse gas emissions. It made the Energy Efficiency
Design Index (EEDI) for new ships mandatory and the Ship Energy Efficiency Management Plan
(SEEMP) apply to all ships.
Safety Management System Requirements
The IMO also adopted the International Convention for the Safety of Life at Sea, or the
SOLAS Convention, and the International Convention on Load Lines, or LL Convention,
which impose a variety of standards that regulate the design and operational features of
ships. The IMO periodically revises the SOLAS and LL Convention standards. May 2012
SOLAS Convention amendments entered into force as of January 1, 2014, and May 2013
SOLAS Convention amendments regarding emergency training and drills, entered into
force as of January 1, 2014. The Convention on Limitation of Liability for Maritime Claims
(LLMC) was recently amended and the amendments went into effect on June 8, 2015. The
amendments alter the limits of liability for loss of life or personal injury claim and property
claims against ship-owners.
Our operations are also subject to environmental standards and requirements contained
in the International Safety Management Code for the Safe Operation of Ships and for Pollution
Prevention, or ISM Code, promulgated by the IMO under the SOLAS Convention. The ISM
Code requires the owner of a vessel, or any person who has taken responsibility for operation
of a vessel, to develop an extensive “Safety Management System” that includes, among other
things, the adoption of a safety and environmental protection policy setting forth instructions
and procedures for operating its vessels safely and describing procedures for responding to
emergencies. We rely upon the safety management system that we and our Manager, UOT,
implements for compliance with the ISM Code. The failure of a ship owner or bareboat charterer
to comply with the ISM Code may subject such party to increased liability, may decrease available
insurance coverage for the affected vessels and may result in a denial of access to, or detention
in, certain ports.
The ISM Code requires that vessel operators also obtain a safety management certificate
for each vessel they operate. This certificate evidences compliance by a vessel’s management
with code requirements for a safety management system. No vessel can obtain a certificate
under the ISM Code unless its manager has been awarded a document of compliance, issued
in most instances by the vessel’s flag state or by Classification Societies on behalf of the flag
state. We believe that we have all material requisite documents of compliance for our offices
and safety management certificates for all of our vessels for which such certificates are required
by the ISM Code. We will renew these documents of compliance and safety management
certificates as required.
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Noncompliance with the ISM Code and other IMO regulations may subject the shipowner
or bareboat charterer to increased liability, may lead to decreases in, or invalidation of, available
insurance coverage for affected vessels and may result in the denial of access to, or detention in,
some ports.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose pollution control and liability
in international waters and the territorial waters of the signatory nations to such conventions. For
example, many countries have ratified and follow the liability plan adopted by the IMO and set out
in the International Convention on Civil Liability for Oil Pollution Damage, or the CLC, although
the United States is not a party. Under this convention and depending on whether the country
in which the damage results is a party to the 1992 Protocol to the CLC, a vessel’s registered
owner is strictly liable, subject to certain defenses, for pollution damage caused in the territorial
waters of a contracting state by discharge of persistent oil. The limits on liability outlined in the
1992 Protocol use the International Monetary Fund currency unit of Special Drawing Rights, or
SDR. Amendments adopted in 2000, which entered into force in 2003, raised the compensation
limits set forth in the 1992 Protocol by 50 percent. The right to limit liability is forfeited under the
CLC where the spill is caused by the shipowner’s personal fault and under the 1992 Protocol
where the spill is caused by the shipowner’s personal act or omission by intentional or reckless
conduct. A state that is a party to the CLC may not allow a ship under its flag to trade unless
that ship has a certificate of insurance or something equivalent. In jurisdictions where the CLC
has not been adopted, various legislative schemes or common law govern, and liability is
imposed either on the basis of fault or in a manner similar to that of the CLC. We believe that our
protection and indemnity insurance will cover the liability under the plan adopted by the IMO.
The IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution
Damage, or the Bunker Convention, to impose strict liability on ship owners for pollution damage
in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker
Convention requires registered owners of ships over 1,000 gross tons to maintain insurance
for pollution damage in an amount equal to the limits of liability under the applicable national or
international limitation regime (but not exceeding the amount calculated in accordance with the
Convention on Limitation of Liability for Maritime Claims of 1976, as amended). With respect to
non-ratifying states, liability for spills or releases of oil carried as fuel in ship’s bunkers typically is
determined by the national or other domestic laws in the jurisdiction where the events or damages
occur.
In addition, the IMO adopted the International Convention for the Control and Management
of Ships’ Ballast Water and Sediments, or the BWM Convention, in February 2004. The BWM
Convention will not become effective until 12 months after it has been adopted by 30 states,
the combined merchant fleets of which represent not less than 35% of the gross tonnage of
the world’s merchant shipping. To date, the BWM Convention has not yet been ratified but
proposals regarding implementation have recently been submitted to the IMO. Many of the
implementation dates originally written in the BWM Convention have already passed, so that
once the BWM Convention enters into force, the period for installation of mandatory ballast
water exchange requirements would be extremely short, with several thousand ships a year
needing to install ballast water management systems (BWMS). For this reason, on December 4,
2013, the IMO Assembly passed a resolution revising the application dates of BWM Convention
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so that they are triggered by the entry into force date and not the adoption dates in the BWM
Convention. This in effect makes all vessels constructed before the entry into force date ‘existing’
vessels, and allows for the installation of a BWMS on such vessels at the first renewal survey
following entry into force of the Convention. Furthermore, in October 2014 the MEPC met and
adopted additional resolutions concerning the BWM Convention’s implementation. Once mid-
ocean ballast exchange or ballast water treatment requirements become mandatory, the cost
of compliance could increase for ocean carriers and the costs of ballast water treatments may
be material. However, many countries already regulate the discharge of ballast water carried
by vessels from country to country to prevent the introduction of invasive and harmful species
via such discharges. The United States, for example, requires vessels entering its waters from
another country to conduct mid-ocean ballast exchange, or undertake some alternate measure,
and to comply with certain reporting requirements. It is difficult to predict the overall impact of
such a requirement on our operations.
The IMO continues to review and introduce new regulations. It is impossible to predict what
additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations
might have on our operations.
U.S. Regulations
The U.S. Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability
regime for the protection and cleanup of the environment from oil spills. OPA affects all “owners
and operators” whose vessels trade in the United States, its territories and possessions or whose
vessels operate in U.S. waters, which includes the U.S. territorial sea and its 200 nautical mile
exclusive economic zone. The United States has also enacted the Comprehensive Environmental
Response, Compensation and Liability Act, or CERCLA, which applies to the discharge of
hazardous substances other than oil, whether on land or at sea. OPA and CERCLA both define
“owner and operator” “in the case of a vessel as any person owning, operating or chartering by
demise, the vessel.” Although OPA is primarily directed at oil tankers (which are not operated by
us), it also applies to non-tanker ships, including containerships, with respect to the fuel oil, or
bunkers, used to power such ships. CERCLA also applies to our operations.
Under OPA, vessel owners and operators are “responsible parties” and are jointly, severally
and strictly liable (unless the spill results solely from the act or omission of a third party, an act
of God or an act of war) for all containment and clean-up costs and other damages arising
from discharges or threatened discharges of oil from their vessels. OPA defines these other
damages broadly to include:
Æ injury to, destruction or loss of, or loss of use of, natural resources and related assessment
costs;
Æ injury to, or economic losses resulting from, the destruction of real and personal property;
Æ net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or
loss of real or personal property, or natural resources;
Æ loss of subsistence use of natural resources that are injured, destroyed or lost;
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Æ lost profits or impairment of earning capacity due to injury, destruction or loss of real or
personal property or natural resources; and
Æ net cost of increased or additional public services necessitated by removal activities following
a discharge of oil, such as protection from fire, safety or health hazards.
OPA contains statutory caps on liability and damages; such caps do not apply to direct
cleanup costs. Effective December 21, 2015, the U.S. Coast Guard adjusted the limits of OPA
liability for non-tank vessels to the greater of $1,100 per gross ton or $939,800 (subject to periodic
adjustment for inflation). These limits of liability do not apply if an incident was proximately
caused by the violation of an applicable U.S. federal safety, construction or operating regulation
by a responsible party (or its agent, employee or a person acting pursuant to a contractual
relationship), or a responsible party’s gross negligence or willful misconduct. The limitation on
liability similarly does not apply if the responsible party fails or refuses to (i) report the incident where
the responsibility party knows or has reason to know of the incident; (ii) reasonably cooperate
and assist as requested in connection with oil removal activities; or (iii) without sufficient cause,
comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the
Intervention on the High Seas Act.
CERCLA contains a similar liability regime whereby owners and operators of vessels are
liable for cleanup, removal and remedial costs, as well as damage for injury to, or destruction or
loss of, natural resources, including the reasonable costs associated with assessing same, and
health assessments or health effects studies. There is no liability if the discharge of a hazardous
substance results solely from the act or omission of a third party, an act of God or an act of
war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5 million for vessels
carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000
for any other vessel. These limits do not apply (rendering the responsible person liable for the
total cost of response and damages) if the release or threat of release of a hazardous substance
resulted from willful misconduct or negligence, or the primary cause of the release was a violation
of applicable safety, construction or operating standards or regulations. The limitation on liability
also does not apply if the responsible person fails or refused to provide all reasonable cooperation
and assistance as requested in connection with response activities where the vessel is subject
to OPA.
OPA and CERCLA each preserve the right to recover damages under existing law, including
maritime or tort law.
OPA and CERCLA both require owners and operators of vessels to establish and maintain
with the U.S. Coast Guard evidence of financial responsibility sufficient to meet the maximum
amount of their potential liability under OPA and CERCLA. Vessel owners and operators may
satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond,
qualification as a self-insurer or a guarantee.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico may also result in additional
regulatory initiatives or statutes, including the raising of liability caps under OPA. For example,
on August 15, 2012, the U.S. Bureau of Safety and Environment Enforcement (BSEE) issued a
final drilling safety rule for offshore oil and gas operations that strengthens the requirements for
safety equipment, well control systems, and blowout prevention practices. Compliance with any
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new requirements of OPA may substantially impact our cost of operations or require us to incur
additional expenses to comply with any new regulatory initiatives or statutes. A new rule issued
by the U.S. Bureau of Ocean Energy Management, or BOEM, that increased the limits of liability
of damages for offshore facilities under OPA based on inflation took effect in January 2015. In
April 2015, it was announced that new regulations are expected to be imposed in the United
States regarding offshore oil and gas drilling. In December 2015, the BSEE announced a new
pilot inspection program for offshore facilities. Compliance with any new requirements of OPA
may substantially impact our cost of operations or require us to incur additional expenses to
comply with any new regulatory initiatives or statutes. Additional legislation, regulations, or other
requirements applicable to the operation of our vessels that may be implemented in the future
could adversely affect our business.
We maintain pollution liability coverage insurance in the amount of $1 billion per incident
for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance
coverage, it could have a material adverse effect on our business, financial condition, results
of operations and cash flows. The U.S. Clean Water Act, or CWA, prohibits the discharge of oil
or hazardous substances in U.S. navigable waters unless authorized by a duly-issued permit or
exemption, and imposes strict liability in the form of penalties for any unauthorized discharges.
The CWA also imposes substantial liability for the costs of removal, remediation and damages
and complements the remedies available under OPA and CERCLA.
The EPA regulates the discharge of ballast and bilge water and other substances in U.S.
waters under the CWA. EPA regulations require vessels 79 feet in length or longer (other
than commercial fishing and recreational vessels) to comply with a Vessel General Permit, or
VGP, authorizing ballast and bilge water discharges and other discharges incidental to the
operation of vessels. The VGP imposes technology and water-quality based effluent limits for
certain types of discharges and establishes specific inspection, monitoring, recordkeeping
and reporting requirements to ensure the effluent limits are met. On March 28, 2013, the EPA
re-issued the VGP for another five years; this VGP took effect on December 19, 2013. The
new VGP focuses on authorizing discharges incidental to operations of commercial vessels.
The VGP also contains numeric ballast water discharge limits for most vessels to reduce the
risk of invasive species in US waters, more stringent requirements for exhaust gas scrubbers
and the use of environmentally acceptable lubricants. U.S. Coast Guard regulations adopted
under the U.S. National Invasive Species Act, or NISA, also impose mandatory ballast water
management practices for all vessels equipped with ballast water tanks entering or operating
in U.S. waters. As of June 21, 2012, the U.S. Coast Guard implemented revised regulations on
ballast water management by establishing standards on the allowable concentration of living
organisms in ballast water discharged from ships in U.S. waters. The USCG must approve any
technology before it is placed on a vessel, but has not yet approved the technology necessary
for vessels to meet the foregoing standards.
Notwithstanding the foregoing, as of January 1, 2014, vessels are technically subject
to the phrasing-in of these standards. As a result, the USCG has provided waivers to vessels
which cannot install the as-yet unapproved technology. The EPA on the other hand has taken
a different approach to enforcing ballast discharge standards under the VGP. On December
27, 2013, the EPA issued an enforcement response policy in connection with the new VGP in
which the EPA indicated that it would take into account the reasons why vessels do not have the
requisite technology installed, but will not grant any waivers. The revised ballast water standards
are consistent with those adopted by the IMO in 2004. Compliance with the EPA and the U.S.
Coast Guard regulations could require the installation of equipment on our vessels to treat ballast
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water before it is discharged or the implementation of other port facility disposal arrangements
or procedures at potentially substantial cost, or may otherwise restrict our vessels from entering
U.S. waters. It should also be noted that in October 2015, the Second Circuit Court of Appeals
issued a ruling that directed the EPA to redraft the sections of the 2013 VGP that address ballast
water. However, the Second Circuit stated that 2013 VGP will remains in effect until the EPA
issues a new VGP. It presently remains unclear how the ballast water requirements set forth by
the EPA, the USCG, and IMO BWM Convention, some of which are in effect and some which are
pending, will co-exist.
The U.S. Clean Air Act
The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990), or the CAA,
requires the EPA to promulgate standards applicable to emissions of volatile organic compounds
and other air contaminants. The CAA also requires states to draft State Implementation Plans, or
SIPs, designed to attain national health-based air quality standards in each state. Although state-
specific, SIPs may include regulations concerning emissions resulting from vessel loading and
unloading operations by requiring the installation of vapor control equipment.
Compliance with the EPA and the U.S. Coast Guard regulations could require the installation
of certain engineering equipment and water treatment systems to treat ballast water before it is
discharged or the implementation of other port facility disposal arrangements or procedures at
potentially substantial cost, or may otherwise restrict our vessels from entering U.S. waters.
European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for
illicit ship-source discharges of polluting substances, including minor discharges, if committed
with intent, recklessly or with serious negligence and the discharges individually or in the
aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a
polluting substance may also lead to criminal penalties. Member States were required to enact
laws or regulations to comply with the directive by the end of 2010. Criminal liability for pollution
may result in substantial penalties or fines and increased civil liability claims. The directive applies
to all types of vessels, irrespective of their flag, but certain exceptions apply to warships or where
human safety or that of the ship is in danger.
The European Union has adopted regulations and directives requiring, among other things,
more frequent inspections of high-risk ships, as determined by type, age, flag and the number
of time the ship has been detained. The European Union also adopted and then extended a
ban on substandard ships and enacted a minimum ban period and a definitive ban for repeated
offenses. The regulation also provided the European Union with greater authority and control over
classification societies, by imposing more requirements on classification societies and providing
for fines or penalty payments for organizations that failed to comply.
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from ships in international transport are not
subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change,
which entered into force in 2005 and pursuant to which adopting countries have been required
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to implement national programs to reduce greenhouse gas emissions. The 2015 United Nations
Convention on Climate Change Conference in Paris did not result in an agreement that directly
limited greenhouse gas emissions from ships.
As of January 1, 2013, all ships must comply with mandatory requirements adopted by
the MEPC in July 2011 relating to greenhouse gas emissions. All ships are required to follow
the Ship Energy Efficiency Management Plans. Now the minimum energy efficiency levels per
capacity mile, outlined in the Energy Efficiency Design Index, applies to all new ships. These
requirements could cause us to incur additional compliance costs. The IMO is planning to
implement market-based mechanisms to reduce greenhouse gas emissions from ships at an
upcoming MEPC session.
The European Union has indicated that it intends to propose an expansion of the existing
European Union emissions trading scheme to include emissions of greenhouse gases
from marine vessels. In April 2013, the European Parliament rejected proposed changes to
the European Union Emissions Law regarding carbon trading. In June 2013 the European
Commission developed a strategy to integrate maritime emissions into the overall European
Union Strategy to reduced greenhouse gas emissions. If the strategy is adopted by the
European Parliament and Council large vessels using European Union ports would be required
to monitor, report, and verify their carbon dioxide emissions beginning in January 2018. In April
2015, a regulation was adopted requiring that large ships (over 5,000 gross tons) calling at
European ports from January 2018 collect and publish data on carbon dioxide omissions.
In December 2013 the European Union environmental ministers discussed draft rules to
implement monitoring and reporting of carbon dioxide emissions from ships. In the United
States, the EPA has issued a finding that greenhouse gases endanger the public health and
safety and has adopted regulations to limit greenhouse gas emissions from certain mobile
sources and large stationary sources. Although the mobile source emissions regulations do
not apply to greenhouse gas emissions from vessels, the EPA is considering a petition from the
California Attorney General and environmental groups to regulate greenhouse gas emissions
from ocean-going vessels. Any passage of climate control legislation or other regulatory
initiatives by the IMO, European Union, the U.S. or other countries where we operate, or any
treaty adopted at the international level to succeed the Kyoto Protocol, that restrict emissions
of greenhouse gases could require us to make significant financial expenditures, including
capital expenditures to upgrade our vessels, which we cannot predict with certainty at this
time.
International Labour Organization
The International Labour Organization (ILO) is a specialized agency of the UN with
headquarters in Geneva, Switzerland. The ILO has adopted the Maritime Labor Convention
2006 (MLC 2006). A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance
will be required to ensure compliance with the MLC 2006 for all ships above 500 gross tons
in international trade. The MLC 2006 entered into force on August 20, 2013. The MLC 2006
requires us to maintain developed procedures to ensure full compliance.
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Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives
intended to enhance vessel security. On November 25, 2002, the U.S. Maritime Transportation
Security Act of 2002, or the MTSA, came into effect. To implement certain portions of the MTSA,
in July 2003, the U.S. Coast Guard issued regulations requiring the implementation of certain
security requirements aboard vessels operating in waters subject to the jurisdiction of the United
States. The regulations also impose requirements on certain ports and facilities, some of which
are regulated by the U.S. Environmental Protection Agency (EPA).
Similarly, in December 2002, amendments to the SOLAS Convention created a new chapter
of the convention dealing specifically with maritime security. The new Chapter XI-2 became
effective in July 2004 and imposes various detailed security obligations on vessels and port
authorities, and mandates compliance with the International Ship and Port Facilities Security
Code, or the ISPS Code. The ISPS Code is designed to enhance the security of ports and ships
against terrorism. To trade internationally, a vessel must attain an International Ship Security
Certificate, or ISSC from a recognized security organization approved by the vessel’s flag state.
Among the various requirements are:
Æ on-board installation of automatic identification systems to provide a means for the
automatic transmission of safety-related information from among similarly equipped
ships and shore stations, including information on a ship’s identity, position, course, speed
and navigational status;
Æ on-board installation of ship security alert systems, which do not sound on the vessel but
only alert the authorities on shore;
Æ the development of vessel security plans;
Æ ship identification number to be permanently marked on a vessel’s hull;
Æ a continuous synopsis record kept onboard showing a vessel’s history including the
name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship
was registered with that state, the ship’s identification number, the port at which the ship
is registered and the name of the registered owner(s) and their registered address; and
Æ compliance with flag state security certification requirements.
Ships operating without a valid certificate, the ship may be detained at port until it obtains an
ISSC, or it may be expelled from port, or refused entry at port.
The U.S. Coast Guard regulations, intended to align with international maritime security
standards, exempt from MTSA vessel security measures non-U.S. vessels that have on board,
as of July 1, 2004, a valid ISSC attesting to the vessel’s compliance with the SOLAS Convention
security requirements and the ISPS Code. We have already implemented the various security
measures addressed by the MTSA, the SOLAS Convention and the ISPS Code.
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Inspection by Classification Societies
Every oceangoing vessel must be constructed and classified in accordance with the
applicable Rules & Regulations of a classification society. The Class Certificate that will be issued
upon completion of vessel’s construction by the classification society certifies that the vessel
complies with the Class Rules and includes vessel’s Character of Classification and the applicable
class notations which provide useful information about the construction and the characteristics
of the vessel. To maintain it’s ‘class’, every vessel shall be inspected periodically by authorized
surveyors of the classification society that is classed with. During these periodical surveys it shall
be confirmed compliance with applicable class rules and regulations. In addition, the classification
society acting as Recognized Organization (RO) will carry out necessary statutory surveys and
will issue the statutory certificates on behalf of vessel’s Flag Administration which will ensure
compliance with all applicable International and National requirements and will enable the vessel
to obtain sail permit from the port authorities.
For maintenance of the class certification, regular (periodical) and extraordinary surveys of
hull, machinery, including the electrical plant, and any special equipment classed are required to
be performed as follows:
Æ Annual Surveys: For seagoing ships, annual surveys are conducted for the hull and the machinery,
including the electrical plant, and where applicable for special equipment classed, within three months
before or after each anniversary date of the date of commencement of the class period indicated in
the certificate.
Æ Intermediate Surveys: Extended annual surveys are referred to as intermediate surveys and
typically are conducted two and one-half years after commissioning and each class renewal.
Intermediate surveys are to be carried out at or between the occasion of the second or third annual
survey.
Æ Class Renewal Surveys: Class renewal surveys, also known as special surveys, are carried out
for the ship’s hull, machinery, including the electrical plant, and for any special equipment classed,
at intervals indicated by the character of classification, (usually every 5 years). At the special survey,
the vessel is thoroughly examined, including UTM-gauging to determine the thickness of the steel
structures. Should the thickness be found to be less than class requirements, the classification
society would prescribe steel renewals. The classification society may grant a one-year grace period
for completion of the special survey. Substantial amounts of money may have to be spent for steel
renewals to pass a special survey if the vessel experiences excessive wear and tear. Upon shipowner’s
request, the surveys required for class renewal may be split according to an agreed schedule to extend
over the entire period of class. This process is referred to as continuous class renewal.
Æ Bottom Surveys: Underwater parts of vessel’s hull shall be surveyed twice within a class period
which normally shall be carried out in drydock. However for vessels with special class notation, one of
the two bottom surveys may be carried out afloat with class approved diving company.
Æ If any defects are found, the classification surveyor will issue a recommendation which must be
rectified by the ship owner within prescribed time limits.
Most insurance underwriters make it a condition for insurance coverage that a vessel be
certified as “in class” by a classification society which is a member of the IACS. All new and
secondhand vessels that we purchase must be certified prior to their delivery under our standard
agreements.
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100% Container Screening
On August 3, 2007, the United States signed into law the Implementing Recommendations
of the 9/11 Commission Act of 2007 (the “9/11 Commission Act”). The 9/11 Commission Act
amends the SAFE Port Act of 2006 to require that all containers being loaded at foreign ports
onto vessels destined for the United States be scanned by nonintrusive imaging equipment and
radiation detection equipment before loading.
As a result of the 100% scanning requirements added to the SAFE Port Act of 2006, ports that
ship to the United States may need to install new x-ray machines and make infrastructure changes
in order to accommodate the screening requirements. Such implementation requirements may
change which ports are able to ship to the United States and shipping companies may incur
significant increased costs. It is impossible to predict how this requirement will affect the industry
as a whole, but changes and additional costs can be reasonably expected.
Risk of Loss and Insurance Coverage
General
The operation of any containership vessel includes risks such as mechanical failure, collision,
property loss, cargo loss or damage and business interruption due to political circumstances in
foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility
of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising
from owning and operating vessels in international trade. OPA, which imposes virtually unlimited
liability upon owners, operators and demise charterers of vessels trading in the United States
exclusive economic zone for certain oil pollution accidents in the United States, has made liability
insurance more expensive for ship owners and operators trading in the United States market.
While we maintain hull and machinery insurance, war risks insurance, protection and
indemnity cover and freight, demurrage and defense cover for our vessels in amounts that we
believe to be prudent to cover normal risks in our operations, we may not be able to achieve or
maintain this level of coverage throughout a vessel’s useful life. Furthermore, while we believe
we procure adequate insurance coverage, not all risks can be insured, and there can be no
guarantee that any specific claim will be paid, or that we will always be able to obtain adequate
insurance coverage at reasonable rates.
Hull and Machinery and War Risks Insurance
We maintain for our vessels marine hull and machinery and war risks insurance, which covers,
among other risks, the risk of actual or constructive total loss. Our vessels are each covered up to
at least fair market value with deductibles which vary according to the size and value of the vessel.
Protection and Indemnity Insurance
Protection and indemnity insurance is generally provided by mutual protection and indemnity
associations, or P&I Associations, which insure our third party liabilities in connection with our
shipping activities. This includes third-party liability and other related expenses resulting from the
injury or death of crew, passengers and other third parties, the loss or damage to cargo, claims
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arising from collisions with other vessels, damage to third-party property, pollution arising from
oil or other substances and salvage, towing and other related costs, including wreck removal.
Protection and indemnity insurance is a form of mutual indemnity insurance, extended by
protection and indemnity mutual associations, or “clubs.”
We procure protection and indemnity insurance coverage for pollution in the amount of
$1 billion per vessel per incident. The 13 P&I Associations that comprise the International Group
insure approximately 90% of the world’s commercial tonnage and have entered into a pooling
agreement to reinsure each association’s liabilities. As a member of certain P&I Associations
which are members of the International Group, we are subject to calls payable to the associations
based on the group’s claim records as well as the claim records of all other members of the
individual associations and members of the pool of P&I Associations comprising the International
Group. Supplemental calls are made by the P&I Associations based on estimates of premium
income and anticipated and paid claims and such estimates are adjusted each year by the
Board of Directors of the P&I Associations until the closing of the relevant policy year, which
generally occurs within three years from the end of the policy year. We do not know whether any
supplemental calls will be charged in respect of any policy year by the P&I Associations in which
the Company’s vessels are entered. To the extent we experience supplemental calls; our policy
is to expense such amounts.
C. Organizational Structure
We are a corporation incorporated under the laws of the Republic of the Marshall Islands
on January 7, 2010. We are the sole owner of all of the issued and outstanding shares of the
subsidiaries listed in Note 1 “General Information” of our consolidated financial statements filed
as part of this annual report and in exhibit 8.1 to this annual report.
D. Property, Plants and Equipment
Our Manager, UOT, currently rents our office space from an unrelated third party and owns
office furniture and equipment. Furthermore, in December 2014, UOT acquired, jointly with
two other related parties, from unrelated individuals, a plot of land, in Athens, Greece, for an
aggregate price of Euro 2.0 million or $2.5 million, based on the exchange rate of U.S. Dollar
to Euro on the date of acquisition. The plot of land is under the common ownership of the joint
purchasers. We paid one third of the purchase price, and the total cost for the acquisition of the
plot, including additional capitalized costs, amounted to $0.9 million.
Other than this interest in real property, our only material properties are the vessels in our fleet.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
The following management’s discussion and analysis should be read in conjunction with
our consolidated financial statements and their notes included elsewhere in this report. This
discussion contains forward-looking statements that reflect our current views with respect
to future events and financial performance. Our actual results may differ materially from those
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anticipated in these forward-looking statements as a result of certain factors, such as those set
forth in the section entitled “Item 3.D-Risk Factors” and elsewhere in this report.
A. Operating Results
We charter our vessels to customers primarily pursuant to short-term and long-term time
charters. Currently, we have secured time charters for the operating vessels of our fleet with
minimum remaining durations up to 7 months. Under our time charters, the charterer typically
pays us a fixed daily charter hire rate and bears all voyage expenses, including the cost of
bunkers (fuel oil) and port and canal charges. We remain responsible for paying the chartered
vessel’s operating expenses, including the cost of crewing, insuring, repairing and maintaining
the vessel, the costs of spares and consumable stores, tonnage taxes, environmental costs and
other miscellaneous expenses, and we also pay commissions to one or more unaffiliated ship
brokers and to in-house brokers associated with the charterer for the arrangement of the relevant
charter.
Factors Affecting Our Results of Operations
We believe that the important measures for analyzing trends in our results of operations
consist of the following:
Æ Ownership days. We define ownership days as the aggregate number of days in a period during
which each vessel in our fleet has been owned by us. Ownership days are an indicator of the size of
our fleet over a period and affect both the amount of revenues and the amount of expenses that we
record during a period.
Æ Available days. We define available days as the number of our ownership days less the
aggregate number of days that our vessels are off-hire due to scheduled repairs or repairs under
guarantee, vessel upgrades or special surveys including the aggregate amount of time that we
spend positioning our vessels for such events. The shipping industry uses available days to measure
the number of days in a period during which vessels should be capable of generating revenues.
Æ Operating days. We define operating days as the number of our available days in a period less
the aggregate number of days that our vessels are off-hire due to any reason, including unforeseen
circumstances. The shipping industry uses operating days to measure the aggregate number of days
in a period during which vessels actually generate revenues.
Æ Fleet utilization. We calculate fleet utilization by dividing the number of our operating days during a
period by the number of our available days during the period. The shipping industry uses fleet utilization
to measure a company’s efficiency in finding suitable employment for its vessels and minimizing the
amount of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under
guarantee, vessel upgrades and special surveys including vessel positioning for such events.
Æ Time Charter Equivalent (TCE) rates. We define TCE rates as our time charter revenues, net,
less voyage expenses during a period divided by the number of our available days during the period,
which is consistent with industry standards. TCE rate is a non-GAAP measure, and management
believes it is useful to provide to investors because it is a standard shipping industry performance
measure used primarily to compare daily earnings generated by vessels on time charters with daily
earnings generated by vessels on voyage charters, because charter hire rates for vessels on voyage
charters are generally not expressed in per day amounts while charter hire rates for vessels on time
charters generally are expressed in such amounts.
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Æ Daily Operating Expenses. We define daily operating expenses as total vessel operating
expenses, which include crew wages and related costs, the cost of insurance and vessel registry,
expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage
taxes, regulatory fees, environmental costs and other miscellaneous expenses divided by total
ownership days for the relevant period.
The following table reflects our ownership days, available days, operating days, fleet
utilization, TCE rate and daily operating expenses for the periods indicated.
For the year ended
December 31, 2015
For the year ended
December 31, 2014
For the year ended
December 31, 2013
Ownership days
Available days
Operating days
Fleet utilization
Time charter equivalent (TCE) rate (1)
Daily operating expenses
$
$
4,600
4,515
4,155
92.0%
13,192 $
7,793 $
3,198
3,198
3,189
99.7%
16,803
8,305
$
$
3,516
3,516
3,442
97.9%
15,162
8,780
(1) Please see “Item 3 A.-Selected Financial Data” for a reconciliation of TCE to GAAP
measures.
Time Charter Revenues
Our revenues are driven primarily by the number of vessels in our fleet, the number of voyage
days and the amount of daily charter hire that our vessels earn under charters which, in turn, are
affected by a number of factors, including:
Æ the duration of our charters;
Æ our decisions relating to vessel acquisitions and disposals;
Æ the amount of time that we spend positioning our vessels;
Æ the amount of time that our vessels spend in drydock undergoing repairs;
Æ maintenance and upgrade work;
Æ the age, condition and specifications of our vessels;
Æ levels of supply and demand in the container shipping industry; and
Æ other factors affecting spot market charter rates for container vessels.
Period charters refer to both time and bareboat charters. Vessels operating on time charters
for a certain period of time provide more predictable cash flows over that period of time, but
can yield lower profit margins than vessels operating in the spot charter market during periods
characterized by favorable market conditions. Vessels operating in the spot charter market
generate revenues that are less predictable but may enable their owners to capture increased
profit margins during periods of improvements in charter rates although their owners would be
exposed to the risk of declining charter rates, which may have a materially adverse impact on
financial performance. As we employ vessels on period charters, future spot charter rates may
be higher or lower than the rates at which we have employed our vessels on period charters.
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71
Currently, the majority of the vessels in our fleet are employed on time charters, while
some of them are not chartered. Our time charter agreements subject us to counterparty risk.
In depressed market conditions, charterers may seek to renegotiate the terms of their existing
charter agreements or avoid their obligations under those contracts. Should a counterparty fail to
honor its obligations under agreements with us, we could sustain significant losses which could
have a material adverse effect on our business, financial condition, results of operations and cash
flows.
Voyage Expenses
We incur voyage expenses that include port and canal charges, bunker (fuel oil) expenses
and commissions. Port and canal charges and bunker expenses primarily increase in periods
during which vessels are employed on voyage charters because these expenses are for
the account of the owner of the vessels. Currently, we incur port and canal charges and
bunker expenses only for the few vessels that are off-hire, while the majority of our vessels
are employed under time charters that require the charterer to bear all of those expenses.
We have paid commissions ranging from 0% to 5% of the total daily charter hire rate of
each charter to unaffiliated ship brokers, depending on the number of brokers involved with
arranging the charter. In addition to commissions paid to third parties, we have historically
paid to our former fleet manager, DSS, a commission that was equal to 1% of our revenues in
exchange for providing us with technical and commercial management services in connection
with the employment of our fleet. Effective March 1, 2013, our new fleet manager, UOT, our
wholly-owned subsidiary, receives commission that is equal to 2% of our gross revenues in
exchange for providing us with technical and commercial management services in connection
with the employment of our fleet. However, this commission is eliminated from our consolidated
financial statements as an intercompany transaction.
Vessel Operating Expenses
Vessel operating expenses include crew wages and related costs, the cost of insurance and
vessel registry, expenses relating to repairs and maintenance, the costs of spares and consumable
stores, tonnage taxes, regulatory fees, environmental costs and other miscellaneous expenses.
Other factors beyond our control, some of which may affect the shipping industry in general,
including, for instance, developments relating to market prices for crew wages and insurance,
may also cause these expenses to increase. In conjunction with our senior executive officers, our
Manager has established an operating expense budget for each vessel and performs the day-
to-day management of our vessels under separate management agreements with our vessel-
owning subsidiaries. We monitor the performance of our Manager by comparing actual vessel
operating expenses with the operating expense budget for each vessel. We are responsible for
the costs of any deviations from the budgeted amounts.
Vessel Depreciation
We depreciate our vessels on a straight-line basis over their estimated useful lives which we
estimate to be 30 years from the date of their initial delivery from the shipyard. Depreciation is
based on the cost less the estimated salvage values. Each vessel’s salvage value is the product
of her light-weight tonnage and estimated scrap rate, which, effective July 1, 2013, is estimated
at $350 per light-weight ton for all vessels in the fleet. We believe that these assumptions are
common in the containership industry.
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Management Fees
We paid to DSS, our former fleet manager, up to February 28, 2013, a fixed management fee
of $15,000 per month for employed vessels and would also pay $20,000 per vessel per month for
laid-up vessels, in exchange for providing us with commercial and technical services pursuant to
Vessel Management Agreements. Since March 1, 2013, our new fleet manager, UOT, receives a
fixed monthly management fee of $15,000 per vessel in operation, and will receive a fixed monthly
fee of $7,500 for laid-up vessels, if any. However, these management fees are eliminated from our
consolidated financial statements as intercompany transactions.
General and Administrative Expenses
We incur general and administrative expenses, including our onshore related expenses such
as legal and professional expenses. Certain of our general and administrative expenses are
provided for under our Broker Services Agreement with Diana Enterprises. We also incur payroll
expenses of employees and general and administrative expenses reflecting the costs associated
with running a public company, including board of director costs, director and officer insurance,
investor relations, registrar and transfer agent fees and legal and accounting costs related to our
compliance with public reporting obligations and the Sarbanes-Oxley Act of 2002.
Interest and Finance Costs
We incur interest and finance costs in connection with our vessel-specific debt. As at
December 31, 2015, we had $144.7 million of outstanding principal indebtedness from our loan
agreement with the Royal Bank of Scotland and $48.8 million outstanding principal indebtedness
from our loan agreement with Diana Shipping Inc.
Lack of Historical Operating Data for Vessels before their Acquisition
Consistent with shipping industry practice, other than inspection of the physical condition of
the vessels and examinations of classification society records, there is no historical financial due
diligence process when we acquire vessels. Accordingly, we will not obtain the historical operating
data for the vessels from the sellers because that information is not material to our decision to
make acquisitions, nor do we believe it would be helpful to potential investors in our common
shares in assessing our business or profitability. Most vessels are sold under a standardized
agreement, which, among other things, provides the buyer with the right to inspect the vessel
and the vessel’s classification society records. The standard agreement does not give the buyer
the right to inspect, or receive copies of, the historical operating data of the vessel. Prior to the
delivery of a purchased vessel, the seller typically removes from the vessel all records, including
past financial records and accounts related to the vessel. In addition, the technical management
agreement between the seller’s technical manager and the seller is automatically terminated and
the vessel’s trading certificates are revoked by its flag state following a change in ownership.
Consistent with shipping industry practice, we treat the acquisition of a vessel (whether
acquired with or without charter) as the acquisition of an asset rather than a business. Although
vessels are generally acquired free of charter, we have in the past and we may, in the future,
acquire vessels with existing time charters. Where a vessel has been under a voyage charter, the
vessel is delivered to the buyer free of charter, and it is rare in the shipping industry for the last
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charterer of the vessel in the hands of the seller to continue as the first charterer of the vessel in
the hands of the buyer. In most cases, when a vessel is under time charter and the buyer wishes
to assume that charter, the vessel cannot be acquired without the charterer’s consent and the
buyer’s entering into a separate direct agreement with the charterer to assume the charter.
The purchase of a vessel itself does not transfer the charter, because it is a separate service
agreement between the vessel owner and the charterer.
When we purchase a vessel and assume or renegotiate a related time charter, we must take,
among other things, the following steps before the vessel will be ready to commence operations:
Æ obtain the charterer’s consent to us as the new owner;
Æ obtain the charterer’s consent to a new technical manager;
Æ obtain the charterer’s consent to a new flag for the vessel;
Æ arrange for a new crew for the vessel;
Æ replace all hired equipment on board, such as gas cylinders and communication equipment;
Æ negotiate and enter into new insurance contracts for the vessel through our own insurance
brokers;
Æ register the vessel under a flag state and perform the related inspections in order to obtain new
trading certificates from the flag state;
Æ implement a new planned maintenance program for the vessel; and
Æ ensure that the new technical manager obtains new certificates for compliance with the safety
and vessel security regulations of the flag state.
The following discussion is intended to help you understand how acquisitions of vessels
affect our business and results of operations.
Our business is mainly comprised of the following elements:
Æ acquisition and disposition of vessels;
Æ employment and operation of our vessels; and
Æ management of the financial, general and administrative elements involved in the conduct of
our business and ownership of our vessels.
The employment and operation of our vessels mainly require the following components:
Æ vessel maintenance and repair;
Æ crew selection and training;
Æ vessel spares and stores supply;
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Æ contingency response planning;
Æ on board safety procedures auditing;
Æ accounting;
Æ vessel insurance arrangement;
Æ vessel chartering;
Æ vessel hire management;
Æ vessel surveying; and
Æ vessel performance monitoring.
The management of financial, general and administrative elements involved in the conduct of
our business and ownership of vessels, mainly requires the following components:
Æ management of our financial resources, including banking relationships, i.e., administration of
bank loans and bank accounts;
Æ management of our accounting system and records and financial reporting;
Æ administration of the legal and regulatory requirements affecting our business and assets;
and
Æ management of the relationships with our service providers and customers.
The principal factors that may affect our profitability, cash flows and shareholders’ return on
investment include:
Æ rates and periods of charterhire;
Æ levels of vessel operating expenses;
Æ depreciation expenses;
Æ financing costs; and
Æ fluctuations in foreign exchange rates.
See “ Item 3.D-Risk Factors” for additional factors that may affect our business.
Our Fleet – Comparison of Possible Excess of Carrying Value Over
Estimated Charter-Free Market Value of our Vessels
In “Critical Accounting Policies - Impairment of long-lived assets,” we discuss our policy
for impairing the carrying values of our vessels. Historically, the market values of vessels have
experienced volatility, which from time to time may be substantial. As a result, the charter-free
market value of certain of our vessels may have declined below those vessels’ carrying value,
even though we would not impair those vessels’ carrying value under our accounting impairment
policy. In 2015, we recorded impairment charges for the vessel Hanjin Malta, as our impairment
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test exercise indicated that its carrying value was not recoverable. In 2014, our impairment test
exercise did not result in an indication of impairment.
Based on: (i) the carrying value of each of our vessels as of December 31, 2015 and 2014,
and (ii) what we believe the charter-free market value of each of our vessels was as of December
31, 2015 and 2014, the aggregate carrying value of 10 vessels in our fleet as of December 31,
2015 and 8 vessels as of December 31, 2014 exceeded their aggregate charter-free market value
by approximately $99.0 million and $77.9 million, respectively, as noted in the table below. This
aggregate difference represents the approximate analysis of the amount by which we believe
we would have to reduce our net income or increase our loss if we sold all of such vessels at
December 31, 2015 and 2014, on industry standard terms, in cash transactions, and to a willing
buyer where we were not under any compulsion to sell, and where the buyer was not under
any compulsion to buy. For the purposes of this calculation, we have assumed that these 10
and 8 vessels, respectively, would be sold at prices that reflect our estimate of their charter-free
market values as of December 31, 2015 and 2014. However, as of the same date, certain of
those container vessels were employed for their remaining charter duration, under time charters
which we believe were above market levels. We believe that if these vessels were sold with those
charters attached, we would have received a premium over their charter-free market value.
However, as of December 31, 2015, and currently, we have not entered into any agreement to
sell any of our vessels, apart from the vessel Hanjin Malta, which was sold for demolition in March
2016, and its carrying value had been impaired as of December 31, 2015.
Our estimates of charter-free market value assume that our vessels were all in good and
seaworthy condition without need for repair and if inspected would be certified in class without
notations of any kind. Our estimates are based on information available from various industry
sources, including:
Æ reports by industry analysts and data providers that focus on our industry and related dynamics
affecting vessel values;
Æ news and industry reports of similar vessel sales;
Æ news and industry reports of sales of vessels that are not similar to our vessels where we have
made certain adjustments in an attempt to derive information that can be used as part of our
estimates;
Æ approximate market values for our vessels or similar vessels that we have received from
that shipbrokers have generally
shipbrokers, whether solicited or unsolicited, or
disseminated;
Æ offers that we may have received from potential purchasers of our vessels; and
Æ vessel sale prices and values of which we are aware through both formal and informal
communications with shipowners, shipbrokers, industry analysts and various other shipping
industry participants and observers.
As we obtain information from various industry and other sources, our estimates of charter-
free market values are inherently uncertain. In addition, vessel values are highly volatile; as such,
our estimates may not be indicative of the current or future charter-free market values of our
vessels or prices that we could achieve if we were to sell them. We also refer you to the risk factor
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76
under “Item 3.D - Risk Factors” entitled “Vessel values may fluctuate, which may adversely affect
our financial condition, result in the incurrence of a loss upon disposal of a vessel, impairment
losses or increases in the cost of acquiring additional vessels”.
Vessel
1 Sagitta
2 Centaurus
3 Cap Domingo
4 Cap Doukato
5 Garnet (ex Apl Garnet)
6 Hanjin Malta
7 Puelo
8 Pucon
9 March
10 Great
11 Pamina
12 YM Los Angeles
13 YM New Jersey
14 Rotterdam
15 Hamburg
Vessels Net Book Value
TEU
3,426
3,426
3,739
3,739
4,729
4,024
6,541
6,541
5,576
5,576
5,042
4,923
4,923
6,494
6,494
Carrying Value
(in millions of US dollars)
Year Built
At December
31, 2015
At December
31, 2014
2010
2010
2001
2002
1995
1993
2006
2006
2004
2004
2005
2006
2006
2008
2009
38.2*
39.6*
22.3*
22.9*
-
5.0
43.3*
43.4*
21.4
21.3
15.4*
18.2*
18.3*
36.8*
38.5
384.6
39.6*
41.0*
23.4*
24.0*
15.9*
12.3*
44.9*
45.0*
22.1
22.0
15.9
-
-
-
-
306.1
*Indicates vessels for which we believe, as of December 31, 2015 and December 31, 2014,
the charter-free market value was lower than the vessel’s carrying value. We believe that the
aggregate carrying value of these vessels exceeded their aggregate charter-free market value by
approximately $99.0 million and $77.9 million, respectively.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with U.S.
GAAP. The preparation of consolidated financial statements requires us to make estimates and
judgments that affect the reported amounts of assets and liabilities, revenues and expenses and
related disclosures of contingent assets and liabilities at the date of our financial statements.
Actual results may differ from these estimates under different assumptions and conditions.
Critical accounting policies are those that reflect significant judgments of 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 when we acquire
and operate vessels, because they generally involve a comparatively higher degree of judgment
in their application. For a description of all our significant accounting policies, see Note 2 to our
consolidated financial statements included in this annual report.
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ANNUAL REPORT 2015
77
Accounts Receivable, Trade
Accounts receivable, trade, at each balance sheet date, include receivables from charterers
for hire 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.
Accounting for Revenues and Expenses
Revenues are generated from time charter agreements that we have entered into for our
vessels and may enter into in the future. Time charter agreements with the same charterer are
accounted for as separate agreements according to the terms and conditions of each agreement.
Time charter revenues are recorded over the term of the charter as service is provided. Revenues
are recorded when they become fixed and determinable. Revenues from time charter agreements
providing for varying annual rates over their term are accounted for on a straight line basis.
Income representing ballast bonus payments in connection with the repositioning of a vessel by
the charterer to the vessel owner is recognized in the period earned. Deferred revenue includes
cash received prior to the balance sheet date for which all criteria for recognition as revenue
would not be met, including any deferred revenue resulting from charter agreements providing
for varying annual rates, which are accounted for on a straight line basis. Deferred revenue also
may include the unamortized balance of liabilities associated with the acquisition of secondhand
vessels with time charters attached, acquired at values below fair market value at the date the
acquisition agreement is consummated.
Voyage expenses, primarily consisting of port, canal and bunker expenses that are unique
to a particular charter, are paid for by the charterer under time charter arrangements or by
the Company under voyage charter arrangements, except for commissions, which are always
paid for by the Company, regardless of charter type. All voyage and vessel operating expenses
are expensed as incurred, except for commissions. Commissions are deferred over the related
voyage charter period to the extent revenue is deferred since commissions are due as revenues
are earned.
Prepaid/Deferred Charter Revenue
The Company records identified assets or liabilities associated with the acquisition of a vessel
at their relative fair value, determined by reference to market data. The Company values any
asset or liability arising from the market value of the time charters assumed when a vessel is
acquired. The amount to be recorded as an asset or liability at the date of vessel delivery is based
on the difference between the current fair market value of the charter and the net present value
of future contractual cash flows. In determining the relative fair value, when the present value of
the contractual cash flows of the time charter assumed is different than its current fair value, the
difference, capped to the excess between the acquisition cost and the vessel’s fair value on a
charter free basis, is recorded as prepaid charter revenue or as deferred revenue, respectively.
Such assets and liabilities, respectively, are amortized as a reduction of, or an increase in, revenue
over the period of the time charter assumed.
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ANNUAL REPORT 2015 78
Vessel Cost
Vessels are stated at cost which consists of the contract price and costs incurred upon
acquisition or delivery of a vessel from a shipyard. Subsequent expenditures for conversions
and major improvements are also capitalized when they appreciably extend the life, increase the
earnings capacity or improve the efficiency or safety of the vessels; otherwise these amounts are
charged to expense as incurred.
Vessel Depreciation
We have recorded 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 her initial
voyage, less accumulated depreciation. We depreciate our containership vessels on a straight-
line basis over their estimated useful lives, estimated to be 30 years from the date of initial delivery
from the shipyard which we believe is also consistent with that of other shipping companies.
Secondhand vessels are depreciated from the date of their acquisition through their remaining
estimated useful life. Depreciation is based on cost less the estimated salvage value. Furthermore,
we have historically estimated the salvage values of our vessels to be $200 to $350 per light-
weight ton depending on the vessels age and market conditions, while effective July 1, 2013
we adjusted prospectively the scrap rate used to $350 per light-weight ton for all vessels in the
fleet. A decrease in the useful life of a containership or in her salvage value would have the effect
of increasing the annual depreciation charge. When regulations place limitations on the ability
of a vessel to trade on a worldwide basis, the vessel’s useful life is adjusted at the date such
regulations are adopted.
Deferred Drydock Cost
Our vessels are required to be drydocked every five years for major repairs and maintenance
that cannot be performed while the vessels are operating. We defer the costs associated with
drydockings as they occur and amortize these costs on a straight-line basis over the period
through the date the next drydocking is scheduled to become due. Unamortized drydocking
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. Costs capitalized as part of the drydocking include actual
costs incurred at the yard and parts used in the drydocking. We believe that these criteria are
consistent with industry practice and that our policy of capitalization reflects the economics and
market values of the vessels.
Impairment of Long-lived Assets
We evaluate the carrying amounts, primarily for vessels and related drydock costs, and
periods over which our long-lived assets are depreciated to determine if events have occurred
which would require modification to their carrying values or useful lives. When the estimate
of future undiscounted net operating cash flows, excluding interest charges, expected to be
generated by the use of the asset is less than its carrying amount, we should evaluate the
asset for an impairment loss. Measurement of the impairment loss is based on the fair value
of the asset. We determine the fair value of our assets based on management estimates and
assumptions and by making use of available market data and taking into consideration third
party valuations. In evaluating useful lives and carrying values of long-lived assets, management
reviews certain indicators of potential impairment, such as undiscounted projected operating
cash flows, vessel sales and purchases, business plans and overall market conditions. The
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ANNUAL REPORT 2015 79
current economic and market conditions are having broad effects on participants in a wide
variety of industries. The current conditions in the containerships market with decreased
charter rates and decreased vessel market values are conditions that we consider indicators
of a potential impairment.
We determine future undiscounted net operating cash flows for each vessel and compare
them to the vessel’s carrying value. The projected net operating cash flows are determined by
considering the historical (excluding years with extraordinary figures) and estimated vessels’
performance and utilization, the charter revenues from existing charters for the fixed fleet days and
an estimated daily time charter equivalent for the unfixed days, based, to the extent applicable, on
the most recent ten-year blended, for modern and older vessels, average historical 6-12 months
time charter rates available for each type of vessel, over the remaining estimated life of each
vessel net of brokerage commissions, expected outflows for scheduled vessels’ maintenance
and vessel operating expenses assuming an average annual inflation rate of 3%. Effective fleet
utilization is assumed at 98%, taking into account the period(s) each vessel is expected to
undergo its scheduled maintenance (drydocking and special surveys), as well as an estimate of
1% off hire days each year, which assumptions are in line with our historical performance and our
expectations for future fleet utilization under our current fleet deployment strategy. The review of
the vessel’s carrying amounts in connection with the estimated recoverable amounts for the year
ended December 31, 2014 did not indicate impairment charges for any of our vessels, while for
the years ended December 31, 2015 and 2013, the above mentioned review indicated impairment
charges for certain of our vessels, amounting to $6.6 million and $42.3 million, respectively.
Set forth below is an analysis of the average estimated daily time charter equivalent rate used
in our impairment analysis as of December 31, 2015:
Up to 4,000 TEU
Between 4,000 TEU and 6,000 TEU
Above 6,000 TEU
Average estimated
daily Time charter
equivalent rate used
$ 14,965
$ 18,222
$ 25,779
For the purposes of presenting our investors with additional information to determine how
the Company’s future results of operations may be impacted in the event that daily time charter
rates do not improve from their current levels in future periods, we set forth below an analysis that
shows the 1-year, 3-year and 5-year average blended rates and the effect the use of each of these
rates would have on the Company’s impairment analysis.
5-year
period
(in USD)
9,431
11,816
n/a*
Impairment
charge
(in USD
million)
3-year
period
(in USD)
Impairment
charge
(in USD
million)
67.3
4.3
n/a*
8,368
67.3
9,761
24,986
7.4
0.0
1-year
period
(in USD)
10,338
11,817
22,750
Impairment
charge
(in USD
million)
67.3
4.3
0.0
Up to 4,000 TEU
Between 4,000 -
6,000 TEU
Above 6,000 TEU
*For the vessels with capacity of more than 6,000 TEU, average daily rates were only available
since 2012.
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Share Based Payment
According to Code 718 “Compensation - Stock Compensation” of the Accounting Standards
Codification, we are required to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of the award, with limited
exceptions. That cost is recognized over the period during which an employee is required to
provide service in exchange for the award - the requisite service period, which is usually the
vesting period. No compensation cost is recognized for equity instruments for which employees
do not render the requisite service. Employee share purchase plans will not result in recognition
of compensation cost if certain conditions are met. We initially measure the cost of employee
services received in exchange for an award or liability instrument based on its current fair value;
the fair value of that award or liability instrument is re-measured subsequently at each reporting
date through the settlement date. Changes in fair value during the requisite service period
are recognized as compensation cost over that period with the exception of awards granted
in the form of restricted shares which are measured at their grant date fair value and are not
subsequently re measured. The grant-date fair value of employee share options and similar
instruments are estimated using option-pricing models adjusted for the unique characteristics
of those instruments unless observable market prices for the same or similar instruments are
available. If an equity award is modified after the grant date, incremental compensation cost is
recognized in an amount equal to the excess of the fair value of the modified award over the fair
value of the original award immediately before the modification.
Results of Operations
Year ended December 31, 2015 compared to the year ended December 31, 2014
Net Income / (Loss). Net loss for 2015 amounted to $17.5 million, compared to a net income
of $3.2 million for 2014. The loss for 2015 was mainly the result of impairment charges and direct
sale and other charges totalling $14.9 million.
Time Charter Revenues, net of prepaid charter revenue amortization. Time charter revenues,
net of prepaid charter revenue amortization of $8.6 million and $11.6 million for 2015 and 2014
respectively, amounted to $62.2 million for 2015, compared to $54.1 million in 2014. The net
time charter revenues increased, despite the decrease of the daily time charter rates, mainly as
a result of the 44% increase of ownership days and the decrease of the prepaid charter revenue
amortization.
Voyage Expenses. Voyage expenses for 2015 amounted to $2.6 million, compared to $0.3
million in 2014. Voyage expenses in 2015 mainly consist of bunkers costs and commissions paid
to third party brokers. The increase in voyage expenses in 2015 compared to 2014 was mainly
due to the increased bunkers costs that we incurred while certain of our vessels were off-hire and
also due to increased commissions. As commissions are a percentage of time charter revenues,
they follow the same trend with time charter revenues.
Vessel Operating Expenses. Vessel operating expenses amounted to $35.8 million in
2015, compared to $26.6 million in the prior year and mainly consist of expenses for running
and maintaining the vessels, such as crew wages and related costs, consumables and stores,
insurances, repairs and maintenance and environmental compliance costs. The increase in 2015
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ANNUAL REPORT 2015 81
was primarily due to the enlargement of our fleet and also due to increased average stores and
spares expenses, partly offset by decreased average crew cost and repairs and maintenance
costs.
Depreciation and Amortization of Deferred Charges. Depreciation and amortization of
deferred charges for 2015 amounted to $13.1 million, compared to $10.3 million in 2014 and for
2015, it mainly represents the depreciation expense of our containerships and the amortization
charge of dry-docking costs for four of our vessels which underwent during the year their
scheduled dry-dockings. In 2014, the figure mainly includes the vessel’s depreciation expense,
as no vessels had performed any dry-dockings until then.
General and Administrative Expenses. General and administrative expenses for 2015
amounted to $6.2 million, compared to $6.3 million in 2014 and mainly consist of payroll expenses
of office employees, consultancy fees, brokerage services fees, compensation cost on restricted
stock awards, legal fees and audit fees. The slight decrease in general administrative expenses
was mainly attributable to decreased payroll and bonuses of the office employees and was partly
off-set by increased compensation cost on restricted stock awards and legal fees.
Impairment Losses. Impairment losses in 2015 were $6.6 million and represent non-cash
impairment charges recorded for the vessel Hanjin Malta.
Loss on Vessels’ Sale. Loss on vessels’ sale amounted to $8.3 million in 2015, and relates to
the sale of the vessel Garnet (ex Apl Garnet) in September 2015, while in 2014, Loss on vessels’
sale amounted to $0.7 million and related to the sale of the vessel Apl Sardonyx.
Foreign Currency Losses / (Gains). Foreign currency gains for 2015 amounted to $55
thousand, which mainly consists of unrealized exchange differences derived from the year-end
valuation of accounts other than the U.S. Dollar. In 2014, there were foreign currency losses of
$17 thousand.
Interest and Finance Costs. Interest and finance costs for 2015 amounted to $7.2 million,
compared to $6.7 million for 2014 and consist of the interest expenses relating to our average
debt outstanding during the respective periods and other loan fees and expenses. The increase
in 2015 was mainly attributable to the increase of our average total debt, after our re-finance of our
loan agreement with RBS in September 2015, and to commitment fees payable in connection
with this agreement, and was partly off-set by decreased interest rates, which decreased to 3.7%
in 2015 from 3.9% in 2014.
Interest Income. Interest income for 2015 and 2014, amounted to $0.1 million, and consists
of interest income received on deposits of cash and cash equivalents.
Year ended December 31, 2014 compared to the year ended December 31, 2013
Net Income / (Loss). Net income for 2014 amounted to $3.2 million, compared to a net loss
of $57.3 million for 2013. The loss for 2013 was mainly the result of impairment charges and direct
sale and other charges totalling $58.8 million.
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Time Charter Revenues, net of prepaid charter revenue amortization. Time charter revenues,
net of prepaid charter revenue amortization of $11.6 million and $20.3 million for 2014 and 2013
respectively, amounted to $54.1 million for 2014, compared to $54.0 million in 2013. The net
time charter revenues remained relatively unchanged, despite the 12% decrease of the gross
time charter revenues and the 9% decrease of ownership days, as a result of the decrease of
the prepaid charter revenue amortization. In 2013, prepaid charter revenue amortization was
recognized for six vessels in total, while the time charter agreements for two of these vessels
expired in December 2013 and January 2014 and for another two vessels the time charter
agreements expired in December 2014.
Voyage Expenses. Voyage expenses for 2014 amounted to $0.3 million, compared to $0.7
million in 2013. Voyage expenses mainly consist of commissions paid to third party brokers,
and up to February 28, 2013 also included commissions paid to DSS on our gross charterhire
pursuant to our vessel management agreements. The decrease in voyage expenses in 2014
compared to 2013 was due to the decrease in commissions, as effective March 1, 2013, UOT
provides us with management services similar to those previously provided by DSS, and these
fees are eliminated in consolidation as intercompany transactions. In addition, as commissions
are a percentage of time charter revenues, they follow the same trend with time charter revenues.
Vessel Operating Expenses. Vessel operating expenses amounted to $26.6 million in
2014, compared to $30.9 million in the prior year and mainly consist of expenses for running
and maintaining the vessels, such as crew wages and related costs, consumables and stores,
insurances, repairs and maintenance and environmental compliance costs. The decrease in
2014 was primarily due to the decrease in ownership days and also due to decreased average
crew costs, stores and spares expenses.
Depreciation. Depreciation for 2014 amounted to $10.3 million, compared to $11.1 million
in 2013 and represents the depreciation expense of our containerships during the respective
periods. The decrease in 2014 was mainly due to decreased ownership days during the year.
Management Fees. Management fees were zero in 2014, compared to $0.3 million in 2013
and consisted of fees payable to DSS pursuant to the vessel management agreements that we,
through our vessel-owning subsidiaries, had entered into for the provision of commercial and
technical management services for the vessels in our fleet. In 2014 there were no management
fees, as UOT, our wholly-owned subsidiary, provides us with similar services since March 1, 2013.
General and Administrative Expenses. General and administrative expenses for 2014
amounted to $6.3 million, compared to $5.1 million in 2013 and mainly consist of payroll expenses
of office employees, consultancy fees, brokerage services fees, compensation cost on restricted
stock awards, legal fees and audit fees. The increase in 2014 was mainly due to the full operation
of UOT in 2014, compared to the previous year when the company started its operations in March
and also due to increased salaries. The increase in general administrative expenses was partly
off-set by decreased legal expenses and employees’ retirement obligation.
Impairment Losses. Impairment losses in 2014 were zero, compared to $42.3 million in 2013
and represented non-cash impairment charges recorded for the vessels Maersk Madrid, Maersk
Malacca, Maersk Merlion and Apl Sardonyx.
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ANNUAL REPORT 2015 83
Loss on Vessels’ Sale. Loss on vessels’ sale amounted to $0.7 million in 2014, and relates
to the sale of the vessel Apl Sardonyx, while in 2013, Loss on vessels’ sale amounted to $16.5
million and related to the sale of the vessels Maersk Madrid, Maersk Malacca, Maersk Merlion
and Apl Spinel.
Foreign Currency Losses / (Gains). Foreign currency losses for 2014 amounted to $17
thousand, which mainly consists of unrealized exchange differences derived from the year-end
valuation of accounts other than the U.S. Dollar. In 2013, there were foreign currency losses of
$66 thousand.
Interest and Finance Costs. Interest and finance costs for 2014 amounted to $6.7 million,
compared to $4.6 million for 2013 and consist of the interest expenses relating to our average
debt outstanding during the respective periods and other loan fees and expenses. The increase
in 2014 was due to increased average debt compared to the prior period, after the drawdown of
$50.0 million from our loan agreement with Diana Shipping Inc. and $6.0 million from our credit
facility with RBS in August and September 2013 respectively, and increased average interest
rates, which increased to 3.9% in 2014 from 3.5% in 2013.
Interest Income. Interest income for 2014 amounted to $0.1 million, the same with 2013 and
consists of interest income received on deposits of cash and cash equivalents.
Inflation
Inflation does not have a material effect on our expenses given current economic conditions.
In the event that significant global inflationary pressures appear, these pressures would increase
our operating, voyage, administrative and financing costs.
B. Liquidity and Capital Resources
We have financed our capital requirements with cash flow from operations, equity
contributions from shareholders and long-term bank debt. Our main uses of funds have been
capital expenditures for the acquisition of new vessels, expenditures incurred in connection with
ensuring that our vessels comply with international and regulatory standards, repayments of bank
loans and payments of dividends. We will require capital to fund additional vessel acquisitions
and debt service.
During 2015, we repaid our $98.7 million of outstanding debt to RBS and drew down
an aggregate amount of $148.0 million under our new loan facility with the same bank, to
refinance the acquisition cost of seven of our vessels and to support the acquisition cost of two
new vessels acquired during the year. Our operating cash flow is generated from charters on
our vessels, through our subsidiaries. Working capital, which is current assets minus current
liabilities, amounted to $10.2 million at December 31, 2015 and $77.2 million at December 31,
2014. We anticipate that internally generated cash flow will be sufficient to fund the operations
of our fleet, including our working capital requirements.
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ANNUAL REPORT 2015 84
Cash Flow
As at December 31, 2015, cash and cash equivalents amounted to $29.4 million compared
to $82.0 million for the prior year. We consider highly liquid investments such as time deposits
and certificates of deposit with an original maturity of three months or less to be cash equivalents.
Cash and cash equivalents are primarily held in U.S. dollars.
Net Cash Provided by Operating Activities
Net cash provided by operating activities in 2015, 2014 and 2013 amounted to $17.4 million,
$25.5 million, and $31.7 million, respectively. The decrease in cash from operating activities
in 2015 compared to 2014, is mainly due to the decrease of our time charter rates in 2015,
counterbalanced with the enlargement of our average fleet, after the acquisition of four vessels
and the disposal of one vessel in 2015. The decrease in cash from operating activities in 2014
compared to 2013, is mainly due to the decrease of our average fleet during 2014, after the
disposal of five vessels from May 2013 to February 2014, partly off-set with the addition of six
vessels to the Company’s fleet from March 2013 to November 2014, and also due to increased
payments of interest and general administrative expenses.
Net Cash Used in Investing Activities
Net cash used in investing activities in 2015 was $111.8 million and consists of $113.0 million
paid for the four vessels that we acquired during the year, $6.0 million paid for time charter
agreements attached to the memoranda of agreement for two vessels acquired during the year,
$7.0 million received from the sale of one vessel during the year, $39 thousand paid for equipment
additions, and finally $0.3 million received, representing insurance settlements.
Net cash used in investing activities in 2014 was $51.6 million and consists of $60.4 million
paid for the three vessels that we acquired during the year, $0.9 million paid for the acquisition of
a plot of land and for equipment additions, $8.8 million received from the sale of one vessel during
the year, and finally $0.9 million received, representing insurance settlements.
Net cash used in investing activities in 2013 was $81.7 million and consists of $107.9 million
paid for the three vessels that we acquired during the year, $8.5 million paid for a time charter
agreement attached to the memorandum of agreement of a vessel acquired during the year,
$0.4 million paid for property and equipment additions, $33.7 million received from the sale of
four vessels during the year, and finally $1.4 million received representing insurance settlements.
Net Cash Provided by Financing Activities
Net cash provided by financing activities in 2015 was $41.7 million and consists of $148.0
million of loan proceeds received under our new loan agreement with the Royal Bank of Scotland,
$103.3 million of debt repayments and prepayments, $3.2 million of finance costs that we paid
for our new loan agreement with RBS and for our amendment of the DSI loan agreement, $0.7
million of cash dividends paid to investors and $0.9 million of reduced restricted cash required
under our new loan facility with RBS.
Net cash provided by financing activities in 2014 was $88.5 million and consists of $96.0
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ANNUAL REPORT 2015 85
million of net proceeds received from the offering of 1,092,596 shares of common stock under
our at-the-market program and of 36,653,386 shares under the private equity placement that
took place during the year, and $7.5 million of cash dividends paid to investors.
Net cash provided by financing activities in 2013 was $38.1 million and consists of $12.4
million of net proceeds received from the offering of 2,859,603 shares of common stock under
our at-the-market program, $6.0 million of loan proceeds received under our loan agreement
with the Royal Bank of Scotland, and $50.0 million of loan proceeds received under our loan
agreement with DSI. It also includes $29.7 million of cash dividends paid to investors, and $0.6
million of additional restricted cash required under our credit facility.
Loan Facilities
The Royal Bank of Scotland plc - Revolving Credit Facility: On December 16,
2011, we entered into a revolving credit facility with the Royal Bank of Scotland plc, where the
lenders agreed to make available to us a revolving credit facility of up to $100.0 million, in order to
refinance part of the acquisition cost of the vessels m/v Sagitta and m/v Centaurus, and finance
part of the acquisition cost of additional containerships (“Additional Ships”). An aggregate amount
of $98.7 million was drawn down under the credit facility. We paid an arrangement fee of 1%, or
$1 million, on signing of the agreement. We also paid commitment commissions of 0.99% per
annum on the available commitment up to October 31, 2013, date at which the available amount
to be drawn from the credit facility became zero.
The facility would have been available for five years with the maximum available amount
reducing based on the age of the financed vessels and being assessed on a yearly basis, as well
as, at the date on which the age of any Additional Ship exceeded the 20 years. In the event that
the amounts outstanding at that time exceeded the revised Available Facility Limit, we would
have repaid such part of the loan that exceeded the Available Facility Limit. The credit facility
provided for interest at LIBOR plus a margin of 2.75% per annum, and effective June 1, 2013, for
an increased margin of 3.10% per annum over LIBOR.
The facility was secured by first priority mortgages over certain vessels of the fleet, general
assignments of earnings, insurances and requisition compensation, minimum insurance
coverage, specific assignments of any charters exceeding durations of twelve months,
pledge of shares of the guarantors which were the ship-owning companies of the mortgaged
vessels, manager’s undertakings and minimum security value depending on the average age
of the mortgaged vessels. The credit facility also included restrictions as to changes in certain
shareholdings, management and employment of vessels, and required minimum cash of 10%
of the drawings under the revolving facility, but not less than $5.0 million, to be deposited by
the borrower with the lenders. Furthermore, the facility agreement contained customary financial
covenants and we were not permitted to pay any dividends that would result in a breach of the
financial covenants. In 2013 and 2014, we entered into various supplemental agreements with
the lenders, the main terms of which provided for security interest on the minimum cash held
by us in favor of the lenders and for changes in the definitions of certain financial covenants. In
addition, we were required to provide additional vessels as collateral to secure the facility and
were restricted from providing any security interest over our assets in favor of DSI.
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ANNUAL REPORT 2015 86
Based on the age of the financed vessels, an amount of $6.0 million was repaid in August
2015. On September 15, 2015, in connection with the loan re-finance discussed below, we
prepaid in full the outstanding balance of $92.7 million and the facility was terminated.
The Royal Bank of Scotland plc - Term Loan: On September 10, 2015, we, through
nine of our subsidiaries, entered into a loan agreement with RBS of up to $148.0 million, to re-
finance the acquisition cost of seven of our vessels, including the full prepayment of the existing
facility agreement (discussed above), and to support the acquisition of the two newly acquired
vessels, the m/v Hamburg and the m/v Rotterdam. Until December 31, 2015, we drew down the
full amount of the loan and paid arrangement and structuring fees amounting to $1.9 million. We
also paid commitment commissions of 1.375% per annum on the undrawn amounts, from July
30, 2015, the date of acceptance of the lenders’ offer letter, until the drawdown dates.
The loan bears interest at the rate of 2.75% per annum over LIBOR and is repayable in
quarterly installments and a balloon payment payable together with the last installment in
September 2021.
The loan is secured by first preferred mortgages on nine vessels of our fleet, first priority
deeds of assignments of insurances, earnings, charter rights and requisition compensation
and a corporate guarantee. The loan agreement also contains customary financial covenants,
minimum security value of the mortgaged vessels, requires minimum liquidity of $0.5 million per
vessel in the fleet and restricted cash of $9.0 million to be deposited by the borrowers with the
lenders for the duration of the loan. There are also restrictions as to changes in the DSI loan
agreement, in the securities purchase agreement that we entered into in connection with the
Private Placement, in certain shareholdings and management of the vessels. Finally, we are not
permitted to pay any dividends that would result in a breach of the financial covenants.
As of December 31, 2015, we had $144.7 million of debt outstanding under our loan facility
with RBS.
Diana Shipping Inc. (“DSI”): On May 20, 2013, we, through our subsidiary Eluk Shipping
Company Inc., entered into an unsecured loan agreement of up to $50.0 million with DSI, to be
used to fund vessel acquisitions and for general corporate purposes. The loan is guaranteed by
the Company and, until the amendment discussed below, it bore interest at a rate of LIBOR plus a
margin of 5.0% per annum and a fee of 1.25% per annum (“back-end fee”) on any amounts repaid
upon any repayment or voluntary prepayment dates. In August 2013, the full amount was drawn
down under the loan agreement which was originally repayable on August 20, 2017.
On September 9, 2015, and in relation with the RBS refinance discussed above, the loan
agreement with DSI was amended. The new loan agreement is extended until March 15, 2022
or such earlier date on which the outstanding principal balance of the loan is paid in full, provides
for annual repayments of $5.0 million, plus a balloon installment at the final maturity date, and
bears interest at LIBOR plus margin of 3.0% per annum. We also agreed to pay at the date of
the amendment the accumulated back-end fee, amounting to $1.3 million, and that no additional
back-end fee will be charged thereafter. Furthermore, we agreed that we will pay at the final
maturity date a flat fee of $0.2 million.
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ANNUAL REPORT 2015 87
As of December 31, 2015, we had $48.75 million of principal debt outstanding under our loan
facility with DSI.
As at December 31, 2015 and the date of this annual report, we have not used any derivative
instruments for hedging purposes or other purposes.
Capital Expenditures
Our future capital expenditures relate to the purchase of containerships and vessel upgrades.
We also expect to incur additional capital expenditures when our vessels undergo surveys.
This process of recertification may require us to reposition these vessels from a discharge port
to shipyard facilities, which will reduce our operating days during the period. The loss of earnings
associated with the decrease in operating days, together with the capital needs for repairs and
upgrades results in increased cash flow needs which we fund with cash on hand.
C. Research and Development, Patents and Licenses
From time to time, we incur expenditures relating to inspections for acquiring new vessels
that meet our standards. Such expenditures are capitalized to vessel’s cost upon such vessel’s
acquisition or expensed, if the vessel is not acquired, however, historically, such expenses were
not material.
D. Trend Information
Our results of operations depend primarily on the charter hire rates that we are able to realize.
Charter hire rates paid for containerships are primarily a function of the underlying balance
between vessel supply and demand.
With some exceptions, time charter rates for all containership sizes increased steadily from
2002 into 2005, in some cases rising by as much as 50.0%, as charter markets experienced
significant growth. Demand for vessels was largely spurred on by growth in the volume of exports
from China. In 2006, time charter rates weakened due to supply rising faster than demand and
also market perception. This trend continued in 2007 and 2008, and in 2009 rates fell even further
due to rising supply and very weak demand. With the recovery in demand since 2009 year-to-
date charter rates across most sizes have improved from the lows of 2009, although in a historical
context they still remain low. As such, we cannot assure investors that we will be able to fix our
vessels, upon expiration of their current charters, at average rates higher than or similar to those
achieved in previous years.
E. Off-balance Sheet Arrangements
As of the date of this annual report, we do not have any off-balance sheet arrangements.
F. Tabular Disclosure of Contractual Obligations
The following table presents our contractual obligations as of December 31, 2015:
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Payments due by period
Contractual Obligations
Total
Amount
Less than
1 year
2-3 years
4-5 years
More than
5 years
(in thousands of US dollars)
Broker Services Agreement (1)
$
363 $
363 $
- $
-
$
-
Long Term Bank Debt (2)
144,687
15,376
30,752
30,752
Related Party Debt (2),(3)
48,950
5,000
10,000
10,000
67,807
23,950
Total
$
194,000 $
20,739 $
40,752 $
40,752
$
91,757
(1) As per our agreement with Diana Enterprises Inc., we pay a fixed monthly fee of $121,000
for the brokerage services we are provided. The duration of the engagement based on the current
agreement is ending on March 31, 2016. Please see “Item 6B.-Compensation” and “Item 7B.-
Related Party Transactions” for more details.
(2) The table above does not include projected interest payments which are based on
LIBOR plus a margin, which are estimated at about $6.3 million for 2016, $5.6 million for 2017
and $4.9 million for 2018, as long as the LIBOR rate remains at the levels of the year ended
December 31, 2015.
(3) The table above includes a flat fee payable to Diana Shipping in 2022, amounting to $0.2
million.
G. Safe Harbor
See the section entitled “Forward-looking Statements” at the beginning of this annual report.
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
Set forth below are the names, ages and positions of our directors and executive officers.
Our board of directors is elected annually on a staggered basis, and each director elected holds
office for a three-year term. Officers are appointed from time to time by our board of directors and
hold office until a successor is elected.
All of our executive officers are also executive officers of Diana Shipping.
Name
Symeon Palios
Anastasios Margaronis
Ioannis Zafirakis
Andreas Michalopoulos
Giannakis (John) Evangelou
Antonios Karavias
Nikolaos Petmezas
Reidar Brekke
Age Position
74
60
44
44
71
74
67
55
Class III Director, Chief Executive Officer and Chairman of the Board
Class II Director and President
Class I Director, Chief Operating Officer and Secretary
Chief Financial Officer and Treasurer
Class III Director
Class I Director
Class III Director
Class II Director
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The term of the Class I directors expires in 2017, the term of the Class II directors expires in
2018, and the term of the Class III directors expires in 2019.
The business address of each officer and director is the address of our principal executive
offices, which are located at Pendelis 18, 175 64 Palaio Faliro, Athens, Greece.
Biographical information concerning the directors and executive officers listed above is set
forth below.
Symeon Palios has served as our Chief Executive Officer and Chairman of the Board since
January 13, 2010 and has served as Chief Executive Officer and Chairman of the Board of Diana
Shipping Inc. since February 21, 2005 and as a Director of that company since March 9, 1999. Mr.
Palios also serves currently as the President of Diana Shipping Services S.A. Prior to November
12, 2004, Mr. Palios was the Managing Director of Diana Shipping Agencies S.A. Since 1972,
when he formed Diana Shipping Agencies S.A., Mr. Palios has had overall responsibility for
its activities. Mr. Palios has experience in the shipping industry since 1969 and expertise in
technical and operational issues. He has served as an ensign in the Greek Navy for the inspection
of passenger boats on behalf of Ministry of Merchant Marine and is qualified as a naval architect
and engineer. Mr. Palios is a member of various leading classification societies worldwide and
he is a member of the board of directors of the United Kingdom Freight Demurrage and Defense
Association Limited. He holds a bachelor’s degree in Marine Engineering from Durham University.
Anastasios Margaronis has served as our Director and President since January 13, 2010
and has served in these positions with Diana Shipping Inc. since February 21, 2005. Mr. Margaronis
also serves as an employee of Diana Shipping Services S.A. Prior to February 21, 2005, Mr.
Margaronis was employed by Diana Shipping Agencies S.A. and performed the services he now
performs as President. He joined Diana Shipping Agencies in 1979 and has been responsible for
overseeing our insurance matters, including hull and machinery, protection and indemnity, loss of
hire and war risks insurances. Mr. Margaronis has experience in the shipping industry, including
in ship finance and insurance, since 1980. He is a member of the Greek National Committee of
the American Bureau of Shipping and a member of the board of directors of the United Kingdom
Mutual Steam Ship Assurance Association (Bermuda) Limited and of the United Kingdom Mutual
Steam Ship Assurance Association (Europe) Limited. He holds a bachelor’s degree in Economics
from the University of Warwick and a master’s of science degree in Maritime Law from the Wales
Institute of Science and Technology.
Ioannis Zafirakis serves as our Director, Chief Operating Officer and Secretary. He also
serves as Director, Chief Operating Officer and Secretary of Diana Shipping Inc. In addition, he
is the Chief Operating Officer of Diana Shipping Services S.A., where he also serves as Director
and Treasurer. Since June 1997 and up to February 2005 Mr. Zafirakis was employed by Diana
Shipping Agencies S.A. where he held a number of positions in its finance and accounting
department. Mr. Zafirakis is also a member of the Business Advisory Committee of the MSc
in International Shipping and Finance at ICMA Centre, Henley Business School, University of
Reading. He holds a bachelor’s degree in Business Studies from City University Business School
in London and a master’s degree in International Transport from the University of Wales in Cardiff.
Andreas Michalopoulos has served as our Chief Financial Officer and Treasurer since
January 13, 2010 and has served in these positions with Diana Shipping Inc. since March 8,
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ANNUAL REPORT 2015 90
2006. Mr. Michalopoulos started his career in 1993 when he joined Merrill Lynch Private
Banking in Paris. In 1995, he became an International Corporate Auditor with Nestle SA based
in Vevey, Switzerland and moved in 1998 to the position of Trade Marketing and Merchandising
Manager. From 2000 to 2002, he worked for McKinsey and Company in Paris, France as an
Associate Generalist Consultant before joining a major Greek Pharmaceutical Group with
U.S. R&D activity as a Vice President of International Business Development and Member
of the Executive Committee in 2002 where he remained until 2005. From 2005 to 2006, he
joined Diana Shipping Agencies S.A. as a Project Manager. Mr. Michalopoulos graduated
from Paris IX Dauphine University with Honors in 1993 obtaining an MSc in Economics and a
master’s degree in Management Sciences specialized in Finance. In 1995, he also obtained
a master’s degree in Business Administration from Imperial College, University of London.
Mr. Andreas Michalopoulos is married to the youngest daughter of Mr. Symeon Palios.
Giannakis (John) Evangelou has served as an independent Director and as the Chairman
of our Audit Committee since February 8, 2011. Mr. Evangelou is also a member of the Board of
Directors of Elgeka-Ferfelis Romania S.A., a member of Elgeka S.A. Group of Companies which
is listed on the A.S.E. and a Director of Baker Tilly South East Europe, a professional services
company. Mr. Evangelou retired from Ernst & Young (Hellas), which he joined as a partner in
1998, on June 30, 2010. During his 12 years at Ernst & Young, he acted as Transaction Support
leader for Greece and a number of countries in Southeast Europe including Turkey, Bulgaria,
Romania and Serbia. In addition to his normal duties as a partner, Mr. Evangelou held the position
of Quality and Risk Management leader for Transaction Advisory Services responsible for a sub-
area comprising 18 countries spanning from Poland and the Baltic in the North to Cyprus and
Malta in the South. From 1986 through 1997, Mr. Evangelou held the position of Group Finance
director at Manley Hopkins Group, a Marine Services Group of Companies. From 1991 through
1997, Mr. Evangelou served as Chief Accounting Officer for Global Ocean Carriers, a shipping
company that was listed on a U.S. stock exchange during that time. From 1996 to 1998, Mr.
Evangelou was an independent consultant and a member of the team that prepared Royal
Olympic Cruises for its listing on Nasdaq. From 1974 through 1986, Mr. Evangelou was a partner
of Moore Stephens in Greece. Additionally, Mr. Evangelou is a Fellow of the Institute of Chartered
Accountants in England and Wales, a member of The Institute of Certified Public Accountants
of Cyprus and a member of the Institute of Certified Accountants - Auditors of Greece.
Antonios Karavias has served as an independent Director and as the Chairman of
our Compensation Committee and member of our Audit Committee since the completion of
the private offering. Since 2007 Mr. Karavias has served as an Independent Advisor to the
Management of Société Générale Bank and Trust and Marfin Egnatia Bank. Previously, Mr.
Karavias was with Alpha Bank from 1999 to 2006 as a Deputy Manager of Private Banking
and with Merrill Lynch as a Vice President from 1980 to 1999. He holds a bachelor’s degree in
Economics from Mississippi State University and a master’s degree in Economics from Pace
University. As of 2012, Mr. Karavias has been President of UNION F.Z., a financial services
company registered in the U.A.E.
Nikolaos Petmezas has served as an independent Director and as a member of our
Compensation Committee since the completion of our private offering in 2010. From 2001 until
mid-2015, Mr. Petmezas served as the Chief Executive Officer of Maersk-Svitzer-Wijsmuller B.V.
Hellenic Office and, prior to its acquisition by Maersk, as a Partner and as Chief Executive
Officer of Wijsmuller Shipping Company B.V. He has also served since 1989 as the Chief
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ANNUAL REPORT 2015 91
Executive Officer of N.G. Petmezas Shipping and Trading, S.A., and since 1984 as the Chief
Executive Officer of Shipcare Technical Services Shipping Co. LTD. Since 1995, Mr. Petmezas
has served as the Managing Director of Kongsberg Gruppen A.S. (Hellenic Office) and, from
1984 to 1995, as the Managing Director of Kongsberg Vaapenfabrik A.S. (Hellenic Branch
Office). Mr. Petmezas served on the Board of Directors of Neorion Shipyards, in Syros, Greece
from 1989 to 1992. Mr. Petmezas began his career in shipping in 1977, holding directorship
positions at Austin & Pickersgill Ltd. Shipyard and British Shipbuilders Corporation until 1983.
Mr. Petmezas has been a member of the Advisory Committee of Westinghouse Electric and
Northrop Grumman since 1983 and a Honorary Consul under the General Consulate of Sri
Lanka in Greece since 1995. Mr. Petmezas holds degrees in Law and in Political Sciences and
Economics from the Aristotle University of Thessaloniki and an LL.M. in Shipping Law from
London University.
Reidar Brekke has served as an independent Director since June 1, 2010. Mr. Brekke
has been a principal, advisor and deal-maker in the international energy, container logistics
and transportation sector for the last 20+ years. Mr. Brekke is currently President of Intermodal
Holdings LP, a company investing in intermodal assets. From 2008-2012, he was President of
Energy Capital Solutions Inc., (New York and Florida) providing strategic and financial advisory
services to international shipping, logistics and energy related companies. From 2003-2008 he
served as Manager of Poten Capital Services LLC, a registered broker-dealer specializing in the
maritime sector. Prior to 2003, Mr. Brekke was C.F.O., then President and C.O.O., of SynchroNet
Marine, a logistics service provider to the global container transportation industry. From 1994 to
2000, he held several senior positions with American Marine Advisors, including Fund Manager
of American Shipping Fund I LLC, and C.F.O. of its broker dealer subsidiary. Prior to this, Mr.
Brekke was an Advisor for the Norwegian Trade Commission in New York and Oslo, Norway,
and a financial advisor in Norway. Mr. Brekke graduated from the New Mexico Military Institute
in 1986 and in 1990 he obtained a MBA from the University of Nevada, Reno. He has been an
adjunct professor at Columbia University’s School of International and Public Affairs – Center for
Energy, Marine Transportation and Public Policy, and is currently on the board of directors of four
privately-held companies involved in container logistics, container leasing and drybulk shipping.
B. Compensation
Since June 1, 2010, the members of our senior management have been compensated
through their affiliation with Diana Enterprises Inc., a related party controlled by our Chief Executive
Officer and Chairman of the Board Mr. Symeon Palios, as described under “Item 7B. Related
Party Transactions”. Pursuant to the respective Broker Services Agreements, fees payable to
Diana Enterprises for brokerage services provided to us in 2015, 2014, and 2013, amounted to
$1.5 million, $1.5 million and $1.4 million, respectively.
In 2014, our executive officers also received 361,442 shares of restricted stock awards, which
will vest ratably over three years from the grant date. In 2015, our executive officers were awarded
731,590 shares of restricted stock awards, which will also vest ratably over three years from the
grant date. Finally, in February 2016, our executive officers were further awarded 855,251 shares
of restricted stock awards, which will also vest ratably over three years from the grant date. In
2015, 2014, and 2013, compensation cost relating to the aggregate amount of restricted stock
awards amounted to $0.9 million, $0.3 million and $0.4 million, respectively.
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Our non-executive directors receive annual compensation in the aggregate amount of
$40,000 plus reimbursement of their out-of-pocket expenses incurred while attending any
meeting of the board of directors or any board committee. In addition, a committee chairman
receives an additional $20,000 annually, and other committee members receive an additional
$10,000. In February 2016, our non-executive directors were awarded 144,738 shares of
restricted stock awards, which will vest ratably over three years from the grant date. We do not
have a retirement plan for our officers or directors. For 2015, 2014, and 2013, fees, bonuses
and expenses to non-executive directors amounted to $0.3 million, $0.4 million and $0.3
million, respectively.
2012 Equity Incentive Plan
In 2010, we adopted an equity incentive plan, which we refer to as the 2010 Equity Incentive
Plan, under which directors, officers, employees, consultants and service providers of us and our
subsidiaries and affiliates would be eligible to receive options to acquire common stock, stock
appreciation rights, restricted stock, restricted stock units and unrestricted common stock. We
reserved for issuance a total of 392,198 common shares under the plan, which was subject
to adjustment for changes in capitalization as provided in the plan. On February 21, 2012, we
amended the 2010 Equity Incentive Plan and it was renamed as the 2012 Amended and Restated
Equity Incentive Plan. We refer to this plan as the 2012 Equity Incentive Plan. The sole material
change from the 2010 Equity Incentive Plan to the 2012 Equity Incentive Plan was the reservation
for issuance of an additional two million common shares.
The 2012 Equity Incentive Plan is administered by our compensation committee, or such
other committee of our board of directors as may be designated by the board to administer the
plan.
Under the terms of the 2012 Equity Incentive Plan, stock options and stock appreciation
rights granted under the plan will have an exercise price per common share equal to the fair
market value of a common share on the date of grant, unless otherwise specifically provided
in an award agreement, but in no event will the exercise price be less than the greater of (i) the
fair market value of a common share on the date of grant and (ii) the par value of one share of
common stock. Options and stock appreciation rights will be exercisable at times and under
conditions as determined by the plan administrator, but in no event will they be exercisable later
than ten years from the date of grant.
The plan administrator may grant shares of restricted stock and awards of restricted stock
units subject to vesting and forfeiture provisions and other terms and conditions as determined
by the plan administrator in accordance with the terms of the plan. Following the vesting of a
restricted stock unit, the award recipient will be paid an amount equal to the number of restricted
stock units that then vest multiplied by the fair market value of a common share on the date of
vesting, which payment may be paid in the form of cash or common shares or a combination
of both, as determined by the plan administrator. The plan administrator may grant dividend
equivalents with respect to grants of restricted stock units.
Adjustments may be made to outstanding awards in the event of a corporate transaction
or change in capitalization or other extraordinary event. In the event of a “change in control” (as
defined in the plan), unless otherwise provided by the plan administrator in an award agreement,
awards then outstanding will become fully vested and exercisable in full.
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Our board of directors may amend the plan and may amend outstanding awards, provided
that no such amendment may be made that would materially impair any rights, or materially
increase any obligations, of a grantee under an outstanding award without the consent of
such grantee. Shareholder approval of plan amendments will be required under certain
circumstances. Unless terminated earlier by our board of directors, the 2012 Equity Incentive
Plan will expire ten years from the date the plan was adopted. The plan administrator may
cancel any award and amend any outstanding award agreement except no such amendment
shall be made without shareholder approval if such approval is necessary to comply with any
tax or regulatory requirement applicable to the outstanding award.
As of the date of this annual report, we have issued a total of 2,359,685 restricted shares
under the 2012 Equity Incentive Plan to our executive officers and non-executive directors, of
which 631,009 shares have vested.
2015 Equity Incentive Plan
On May 5, 2015, our board of directors approved to adopt the 2015 Equity Incentive Plan,
with substantially the same terms and provisions as the 2012 Equity Incentive Plan. Under the
2015 Equity Incentive Plan, an aggregate of 5,000,000 common shares were reserved for
issuance. The plan is administered by the compensation committee, or such other committee
of our board of directors as may be designated by the board to administer the plan. The plan
will expire ten years from its date of adoption.
As of the date of this annual report, we have issued zero restricted shares under the 2015
Equity Incentive Plan to our executive officers and non-executive directors.
C. Board Practices
Actions by the Board of Directors of Diana Containerships
Our amended and restated bylaws provide that vessel acquisitions and disposals from or to
a related party and long term time charter employment with any charterer that is a related party
will require the unanimous approval of the independent members of our board of directors and
that all other material related party transactions shall be subject to the approval of a majority of the
independent members of the board of directors.
Committees of the Board of Directors
We have established an Audit Committee, comprised of two members of our board of
directors, which is responsible for reviewing our accounting controls, recommending to the
board of directors the engagement of our independent auditors, and pre-approving audit and
audit-related services and fees. Each member has been determined by our board of directors to
be “independent” under Nasdaq rules and the rules and regulations of the SEC. As directed by
its written charter, the Audit Committee is responsible for reviewing all related party transactions
for potential conflicts of interest and all related party transactions are subject to the approval of
the Audit Committee. Mr. John Evangelou has served as the Chairman of the Audit Committee
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94
since February 8, 2011. We believe that Mr. Evangelou qualifies as an Audit Committee financial
expert as such term is defined under SEC rules. Mr. Antonios Karavias serves as a member of
our Audit Committee.
In addition, we have established a Compensation Committee, comprised of two independent
directors, which, as directed by its written charter, is responsible for recommending to the board
of directors our senior executive officers’ compensation and benefits. Mr. Antonios Karavias
serves as the Chairman of the Compensation Committee and Mr. Nikolaos Petmezas serves as
a member of our Compensation Committee.
We have also established an Executive Committee comprised of three directors, Mr. Symeon
Palios, our Chief Executive Officer and Chairman of the Board, Mr. Anastasios Margaronis, our
President, and Mr. Ioannis Zafirakis, our Chief Operating Officer and Secretary. The Executive
Committee is responsible for the overall management of our business.
We also maintain directors’ and officers’ insurance, pursuant to which we provide insurance
coverage against certain liabilities to which our directors and officers may be subject, including
liability incurred under U.S. securities law.
D. Crewing and Shore Employees
We crew our vessels primarily with Greek officers and Filipino officers and seamen. We are
responsible for identifying our Greek officers, which are hired by our fleet manager on behalf of
the vessel-owning subsidiaries. Our Filipino officers and seamen are referred to us by Crossworld
Marine Services Inc., an independent crewing agency. The crewing agency handles each
seaman’s training and payroll. We ensure that all our seamen have the qualifications and licenses
required to comply with international regulations and shipping conventions. Additionally, our
seafaring employees perform most commissioning work and supervise work at shipyards and
drydock facilities. We typically man our vessels with more crew members than are required by the
country of the vessel’s flag in order to allow for the performance of routine maintenance duties.
Prior to February 28, 2013, we had no shore-based employees. Our former fleet manager,
DSS, through the Broker Services Agreement with Diana Enterprises and through the
Administrative Services Agreement was responsible for providing services to us and through
the Vessel Management Agreements was responsible for recruiting, either directly or through
a technical manager or a crew manager, the senior officers and all other crew members for the
vessels in our fleet. DSS was responsible for ensuring that all seamen had the qualifications
and licenses required to comply with international regulations and shipping conventions, and
that the vessels were manned by experienced, competent and trained personnel. DSS was
also responsible for ensuring that seafarers’ wages and terms of employment conformed to
international standards or to general collective bargaining agreements to allow unrestricted
worldwide trading of the vessels. Since March 1, 2013, UOT, our new fleet manager, a wholly-
owned subsidiary, is responsible for providing similar services to us and the vessels we own.
The following table presents the number of shoreside personnel employed by our manager
and the number of seafaring personnel employed by our vessel-owning subsidiaries as of
December 31, 2015, 2014 and 2013:
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ANNUAL REPORT 2015 95
As of December 31, 2015 As of December 31, 2014 As of December 31, 2013
Shoreside
Seafaring
Total
40
308
348
32
266
298
31
236
267
E. Share Ownership
With respect to the total amount of common stock owned by all of our officers and directors
individually and as a group, see “Item 7.A- Major Shareholders and Related Party Transactions.”
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table sets forth information regarding ownership of our common stock of
which we are aware as of March 18, 2016, for (i) beneficial owners of more than five percent
of our common shares and (ii) our officers and directors, individually and as a group. All of our
shareholders, including the shareholders listed in this table, are entitled to one vote for each
common share held.
Beneficial ownership is determined in accordance with SEC rules. In computing percentage
ownership of each person, common shares subject to options held by that person that are
currently exercisable or convertible, or exercisable or convertible within 60 days of the date of
this report, are deemed to be beneficially owned by that person. These shares, however, are
not deemed outstanding for the purpose of computing the percentage ownership of any other
person.
As of March 18, 2016, we had 74,890,570 common shares issued and outstanding and the
percentage of beneficial ownership below is based on this figure:
Identity of person or group
Diana Shipping Inc. (1)
12 West Capital Management LP (2)
Symeon Palios (3)
Anastasios Margaronis
Ioannis Zafirakis
Andreas Michalopoulos
Non-executive directors
Shares Beneficially Owned
Number
Percentage
19,269,740
19,287,512
6,740,725
1,218,814
671,065
818,960
144,738
25.7 %
25.8 %
9.0 %
1.6 %
*
1.1 %
*
All directors and officers, as a group (4)
9,594,302
12.8 %
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96
(1) As at December 31, 2015, 2014, and 2013, Diana Shipping Inc. owned 26.1%, 26.3%
and 9.5% of our common stock, respectively.
(2) Based solely on the Schedule 13D/A filed with the SEC on July 2, 2015 by 12 West Capital
Management LP, reporting beneficial ownership of these shares through 12 West Capital Fund
LP, a Delaware limited partnership, and 12 West Capital Offshore Fund LP, a Cayman Islands
exempted limited partnership. The general partner of 12 West Capital Management LP is 12 West
Capital Management, LLC, a Delaware limited liability company. Joel Ramin, as the sole member
of 12 West Capital Management, LLC, possesses the voting and dispositive power with respect
to all securities beneficially owned by 12 West Capital Management LP. The principal business
address of 12 West Capital Management LP is 90 Park Avenue, 41st Floor, New York, New York
10016.
(3) Mr. Symeon Palios is our only director and officer that beneficially owns 5% or more of
our outstanding common stock. Of these shares, Mr. Palios may be deemed to beneficially own
6,260,909 common shares through Taracan Investments S.A., 154,970 common shares through
Corozal Compania Naviera S.A. and 309,941 common shares through Ironwood Trading Corp.,
companies for which he is the controlling person. As at December 31, 2015, 2014, and 2013, Mr.
Palios beneficially owned 8.7%, 8.5% and 5.9%, respectively.
(4) Of the total number of these shares, 2,359,685 were granted pursuant to the Company’s
2012 Equity Incentive Plan.
* Less than 1%
As of March 18, 2016, we had 127 shareholders of record, 109 of which were located in the
United States and held an aggregate of 52,685,424 of our common shares, representing 70.35%
of our outstanding common shares. However, one of the U.S. shareholders of record is CEDE
& CO., a nominee of The Depository Trust Company, which held 52,468,924 of our common
shares as of March 18, 2016. Accordingly, we believe that the shares held by CEDE & CO. include
common shares beneficially owned by both holders in the United States and non-U.S. beneficial
owners. We are not aware of any arrangements the operation of which may at a subsequent date
result in our change of control.
B. Related Party Transactions
Diana Enterprises Inc.
We had entered into a Broker Services Agreement, dated June 1, 2010, with Diana
Enterprises Inc., a related party controlled by our Chief Executive Officer and Chairman of the
Board Mr. Symeon Palios, through DSS pursuant to an Administrative Services Agreement by
and between the Company and DSS, which was terminated on March 1, 2013. Following the
termination agreement for brokerage services that were provided to us through DSS, Diana
Enterprises entered on the same date into an agreement with UOT to provide brokerage services
for a fixed monthly fee of $120,833. The agreement had an initial term of thirteen months and
the fees were payable quarterly in advance. In March 2014, the Broker Services Agreement
with Diana Enterprises Inc. was terminated and replaced with a new agreement, according to
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which, with retroactive effect from January 1, 2014, the duration of the engagement was to be
for a term of fifteen months, ending on March 31, 2015. Effective July 1, 2014, the agreement
between UOT and Diana Enterprises was terminated and replaced with a new agreement
between DCI and Diana Enterprises on substantially similar terms. In July 2014, and in relation
with the Private Placement, this agreement was further amended to increase the percentage
of beneficial ownership in the Change of Control clause. According to this clause, in the
event that Diana Enterprises terminates the agreement within six months following a Change
of Control, as defined in the agreement, Diana Enterprises would be entitled to a lump sum
payment equal to three years’ annual commission. Effective April 1, 2015, the agreement with
Diana Enterprises was further renewed until March 31, 2016 for a fixed monthly fee of $121,000
and provides for a lump sum payment equal to five years’ annual commission, in case of
a Change of Control. Finally, in February 2016, our Board of Directors approved a bimonthly
fee, amounting to $242,000, as cash bonus to Diana Enterprises Inc. In 2015, 2014, and 2013,
fees for broker services amounted to $1.5 million, $1.5 million, and $1.4 million, respectively.
Diana Shipping Inc.
We and Diana Shipping had entered into a non-competition agreement whereby we had
agreed that, during the term of the Administrative Services Agreement with DSS and any vessel
management agreements entered into with DSS, and for six months thereafter, we would not
acquire or charter any vessel, or otherwise operate in, the drybulk sector and Diana Shipping
would not acquire or charter any vessel, or otherwise operate in, the containership sector. On
March 1, 2013, in connection with the appointment of UOT as our new Manager, we amended
and restated the initial non-competition agreement with Diana Shipping Inc., where we agreed
that, as long as any of our current or continuing executive officers also serves as an executive for
Diana Shipping Inc., and for six months thereafter, we will not acquire or charter any vessel, or
otherwise operate in, the drybulk sector and Diana Shipping will not acquire or charter any vessel,
or otherwise operate in, the containership sector.
On May 20, 2013, we entered into a loan agreement of up to $50.0 million with Diana Shipping,
which was subsequently amended on September 9, 2015. Please see “Item 5.B - Liquidity and
Capital Resources - Loan Facilities.”
Private Placement
We entered into a Securities Purchase Agreement, dated July 28, 2014, with Diana
Shipping and two institutional investors not affiliated with the Company or Diana Shipping
(together, the “Unaffiliated Entities”), Taracan Investments S.A., 4 Sweet Dreams S.A., Andreas
Michalopoulos, and Ioannis Zafirakis (collectively, the “Purchasers”), pursuant to which we
issued and sold to the Purchasers and the Purchasers purchased from the Company in
the Private Placement an aggregate of 36,653,386 common shares at a price of $2.51 per
share, which reflected the 30-day volume-weighted average price of the Company’s common
stock over the 30 trading days preceding the date of the Securities Purchase Agreement. The
issuance and sale of the shares was approved by an independent committee of our Board
of Directors. The Purchasers were also granted customary registration rights pursuant to a
registration rights agreement, dated July 28, 2014.
Pursuant to the terms of the Securities Purchase Agreement, Diana Shipping and the
Unaffiliated Entities have granted each other a right of first offer in connection with any proposed
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privately negotiated block sale of our common shares constituting ten percent (10%) or more
of the outstanding common stock (other than sales of stock to us and certain other permitted
transfers). The Unaffiliated Entities have also agreed that for so long as they collectively own ten
percent (10%) or more of the outstanding common stock they will not, without our consent, (i)
acquire beneficial ownership of additional shares of our voting stock in excess of the amount
of shares owned as of the closing under the Securities Purchase Agreement or (ii) make or
otherwise participate in any “solicitation” of “proxies” to vote shares of our common stock, subject
to certain exceptions. Additionally, the Unaffiliated Entities have been granted one observer seat
at each meeting of our Board of Directors and Audit Committee and certain information rights.
The Securities Purchase Agreement also grants the Purchasers certain rights of first refusal over
subsequent equity offerings.
Pursuant to the Securities Purchase Agreement, we have agreed that, commencing with
the dividend payable with respect to the second quarter of 2014, and for not less than four
consecutive fiscal quarters thereafter, we will not declare or pay dividends in excess of $0.01 per
share on an annualized basis; provided, however, that in the event of a material improvement in
the container shipping market, our board of directors may amend this dividend policy to resume
the payment of dividends if the board of directors determines in good faith that such changed
dividend policy is in the best interests of the Company and its shareholders.
In connection with the Private Placement, we entered into amendments to the loan dated
May 20, 2013 between the Company, Eluk Shipping Inc. and Diana Shipping Inc., and the loan
agreement with The Royal Bank of Scotland plc (the “RBS”) dated December 16, 2011. We
also amended our Stockholders Rights Agreement, dated August 10, 2010, to provide that the
Unaffiliated Entities will not be considered an Acquiring Person, as defined therein.
Altair Travel Agency S.A
Effective March 1, 2013, Altair Travel Agency S.A., or Altair, an affiliated entity that is controlled
by our Chief Executive Officer and Chairman of the Board, Mr. Symeon Palios, provides us with
travel related services. In 2015, 2014 and 2013, the expenses we incurred in exchange for travel
services provided by Altair, amounted to $1.1 million, $1.0 million and $1.0 million, respectively.
We believe that the amounts that we pay to Altair Travel Agency S.A. for acquiring tickets and
other travel related services are no greater than fees we would pay to an unrelated third party for
comparable services.
C. Interests Of Experts And Counsel
Not applicable.
Item 8. Financial information
A. Consolidated Statements and Other Financial Information
See Item 18.
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Legal Proceedings
We have not been involved in any legal proceedings which may have, or have had a significant
effect on our business, financial position, results of operations or liquidity, nor are we aware of any
proceedings that are pending or threatened which may have a significant effect on our business,
financial position, results of operations or liquidity. From time to time, we may be subject to
legal proceedings and claims in the ordinary course of business, principally personal injury and
property casualty claims. We expect that these claims would be covered by insurance, subject
to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of
significant financial and managerial resources.
Dividend Policy
We currently intend to declare a variable quarterly dividend each February, May, August
and November equal to available cash from operations during the previous quarter after the
payment of cash expenses and reserves for scheduled drydockings, intermediate and special
surveys and other purposes as our board of directors may from time to time determine are
required, after taking into account contingent liabilities, the terms of any credit facility, our
growth strategy and other cash needs and the requirements of Marshall Islands law. Our board
of directors may review and amend our dividend policy from time to time, in light of our plans
for future growth and other factors. In 2015 and 2014, we made dividend payments of $0.01
and $0.21 per share, respectively, and in March 2016 we declared a cash dividend of $0.0025
per share with respect to the fourth quarter of 2015.
While we have declared and paid cash dividends on our common shares, there can be no
assurance that dividends will be paid in the future. The actual timing and amount of dividend
payments, if any, will be determined by our board of directors and could be affected by various
factors, including our cash earnings, financial condition and cash requirements, the loss of a
vessel, the acquisition of one or more vessels, required capital expenditures, reserves established
by our board of directors, increased or unanticipated expenses, a change in our dividend policy,
additional borrowings or future issuances of securities, many of which will be beyond our control.
We are a holding company, and we depend on the ability of our subsidiaries to distribute funds
to us in order to satisfy our financial obligations and to make dividend payments. In addition, any
credit facilities that we may enter into in the future may include restrictions on our ability to pay
dividends.
Furthermore, pursuant to the Securities Purchase Agreement entered into on July 28, 2014 in
connection with the Private Placement, we agreed that, commencing with the dividend payable
with respect to the second quarter of 2014, and until at least the first quarter of 2015, we would
not declare or pay dividends in excess of $0.01 per share on an annualized basis; provided,
however, that in the event of a material improvement in the container shipping market, our board
of directors may amend this dividend policy to resume the payment of dividends if our board of
directors determines in good faith that such changed dividend policy is in the best interests of the
Company and its shareholders.
Marshall Islands law generally prohibits the payment of dividends other than from surplus, or
while a company is insolvent or would be rendered insolvent by the payment of such a dividend.
In addition, we may incur expenses or liabilities, including extraordinary expenses, decreases
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in revenues, including as a result of unanticipated off-hire days or loss of a vessel, or increased cash
needs that could reduce or eliminate the amount of cash that we have available for distribution as
dividends. The containership sector is cyclical and volatile. We cannot predict with accuracy the
amount of cash flows our operations will generate in any given period. Factors beyond our control
may affect the charter market for our vessels and our charterers’ ability to satisfy their contractual
obligations to us, and we cannot assure you that dividends will actually be declared or paid in
the future. We cannot assure you that we will be able to pay regular quarterly dividends, and our
ability to pay dividends will be subject to the limitations set forth above and in the section of this
annual report titled “Item 3.D - Risk Factors.”
In times when we have debt outstanding, we intend to limit our dividends per share to the
amount that we would have been able to pay if we were financed entirely with equity. Our board
of directors may review and amend our dividend policy from time to time, in light of our plans for
future growth and other factors.
B. Significant Changes
There have been no significant changes since the date of the annual consolidated financial
statements included in this annual report, other than those described in “Note 16—Subsequent
Events” of our annual consolidated financial statements.
Item 9. The Offer and Listing
Our common shares have traded on The Nasdaq Global Market under the symbol “DCIX”
since January 19, 2011 and on The Nasdaq Global Select Market since January 2, 2013. The
table below sets forth the high and low closing prices for each of the periods indicated for the
common shares.
Years
Low
High
For the period from January 19 to December 31, 2011
$
Year-ended December 31, 2012
Year-ended December 31, 2013
Year-ended December 31, 2014
Year-ended December 31, 2015
Periods
1st Quarter ended March 31, 2014
2nd Quarter ended June 30, 2014
3rd Quarter ended September 30, 2014
4th Quarter ended December 31, 2014
1st Quarter ended March 31, 2015
2nd Quarter ended June 30, 2015
3rd Quarter ended September 30, 2015
4th Quarter ended December 31, 2015
Low
$
$
$
$
$
4.58
5.22
3.51
1.85
0.69
3.81
2.46
2.25
1.85
1.94
1.97
1.24
0.69
High
13.15
7.76
7.03
4.26
2.66
4.26
3.94
2.85
2.36
2.66
2.65
2.10
1.38
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1.64
1.38
1.34
0.97
0.80
0.57
0.73
Low
High
$
$
1.24
1.18
0.95
0.69
0.48
0.36
0.37
Months
September 2015
October 2015
November 2015
December 2015
January 2016
February 2016
March 2016 (through March 18, 2016)
Item 10. Additional Information
A. Share Capital
Not Applicable.
B. Memorandum and Articles of Association
Our current amended and restated articles of incorporation have been filed as exhibit 3.1 to
our Form F-4 filed with the SEC on October 15, 2010 with file number 333-169974. The information
contained in this exhibit is incorporated by reference herein.
A description of the material terms of our amended and restated articles of incorporation
and bylaws is included in the section entitled “Description of Capital Stock” in our Registration
Statement on Form F-4 filed with the SEC on October 15, 2010 with file number 333-169974 and
is incorporated by reference herein, provided that since the date of that Registration Statement,
and up to December 31, 2015, the number of shares of our common stock issued and outstanding
has increased to 73,890,581.
C. Material Contracts
The contracts included as exhibits to this annual report are the contracts we consider to be
both material and not entered into in the ordinary course of business, which (i) are to be performed
in whole or in part on or after the filing date of this annual report or (ii) were entered into not
more than two years before the filing date of this annual report. Other than these agreements, we
have no material contracts, other than contracts entered into in the ordinary course of business,
to which the Company or any member of the group is a party. We refer you to Item 5.B for a
discussion of our loan facilities, Item 4.B and Item 7.B for a discussion of our agreements with
companies controlled by our Chief Executive Officer and Chairman of the Board, Mr. Symeon
Palios, and Item 6.B for a discussion of our 2012 Equity Incentive Plan and our 2015 Equity
Incentive Plan.
D. Exchange Controls
Under Republic of the Marshall Islands law, there are currently no restrictions on the export or
import of capital, including foreign exchange controls or restrictions that affect the remittance of
dividends, interest or other payments to non-resident holders of our common stock.
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E. Taxation
The following is a discussion of the material Marshall Islands and U.S. federal income tax
considerations of the ownership and disposition by a U.S. Holder and a Non - U.S. Holder, each
as defined below, with respect to the common stock. This discussion does not purport to deal
with the tax consequences of owning common stock to all categories of investors, some of
which, such as dealers in securities or commodities, financial institutions, insurance companies,
tax-exempt organizations, U.S. expatriates, persons liable for the alternative minimum tax,
persons who hold common stock as part of a straddle, hedge, conversion transaction or
integrated investment, U.S. Holders whose functional currency is not the United States dollar
and investors that own, actually or under applicable constructive ownership rules, 10% or more
of the Company’s common stock, may be subject to special rules. This discussion deals only
with holders who hold the common stock as a capital asset. You are encouraged to consult your
own tax advisors concerning the overall tax consequences arising in your own particular situation
under U.S. federal, state, local or foreign law of the ownership of common stock.
Marshall Islands Tax Considerations
In the opinion of Seward & Kissel LLP, the following are the material Marshall Islands
tax consequences of the Company’s activities to the Company and of the ownership of the
Company’s common stock to its shareholders. The Company is incorporated in the Marshall
Islands. Under current Marshall Islands law, the Company is not subject to tax on income
or capital gains, and no Marshall Islands withholding tax will be imposed upon payments of
dividends by the Company to its shareholders.
United States Federal Income Tax Considerations
In the opinion of Seward & Kissel LLP, the Company’s U.S. counsel, the following are
the material U.S. federal income tax consequences to the Company of its activities and to
U.S. Holders and Non - U.S. Holders, each as defined below, of the common stock. The following
discussion of U.S. federal income tax matters is based on the U.S. Internal Revenue Code of
1986, as amended, or the Code, judicial decisions, administrative pronouncements, and existing
and proposed regulations issued by the U.S. Department of the Treasury, all of which are subject
to change, possibly with retroactive effect.
Taxation of Operating Income: In General
The following discussion addresses the U.S. federal income taxation of our operating income
if we are engaged in the international operation of vessels.
Unless exempt from U.S. federal income taxation under the rules discussed below, a foreign
corporation is subject to U.S. federal income taxation in respect of any income that is derived
from the use of vessels, from the hiring or leasing of vessels for use on a time, voyage or bareboat
charter basis, from the participation in a pool, partnership, strategic alliance, joint operating
agreement, code sharing arrangements or other joint venture it directly or indirectly owns or
participates in that generates such income, or from the performance of services directly related
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to those uses, which we refer to as “shipping income,” to the extent that the shipping income is
derived from sources within the United States. For these purposes, 50% of shipping income that
is attributable to transportation that begins or ends, but that does not both begin and end, in the
United States constitutes income from sources within the United States, which we refer to as
“U.S.-source shipping income.”
Shipping income attributable to transportation that both begins and ends in the United States
is considered to be 100% from sources within the United States. We are not permitted by law to
engage in transportation that produces income which is considered to be 100% from sources
within the United States. Shipping income attributable to transportation exclusively between
non-U.S. ports will be considered to be 100% derived from sources outside the United States.
Shipping income derived from sources outside the United States will not be subject to any
U.S. federal income tax.
Exemption of Operating Income from U.S. Federal Income Taxation
Under Section 883 of the Code, or Section 883, we will be exempt from U.S. federal income
taxation on our U.S.-source shipping income if:
Æ we are organized in a foreign country that grants an “equivalent exemption” to corporations
organized in the United States, or U.S. corporations; and
either:
Æ more than 50% of the value of our common stock is owned, directly or indirectly, by qualified
shareholders, which we refer to as the “50% Ownership Test,” or
Æ our common stock is “primarily and regularly traded on an established securities market” in
a country that grants an “equivalent exemption” to U.S. corporations or in the United
States, which we refer to as the “Publicly-Traded Test.”
The Marshall Islands, the jurisdiction where we are incorporated, grant an “equivalent
exemption” to U.S. corporations. We anticipate that any of our shipowning subsidiaries will
be incorporated in a jurisdiction that provides an “equivalent exemption” to U.S. corporations.
Therefore, we will be exempt from U.S. 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.
We do not currently anticipate a circumstance under which we would be able to satisfy the
50% Ownership Test. Our ability to satisfy the Publicly-Traded Test is discussed below.
Publicly-Traded Test
In order to satisfy the Publicly - Traded Test, our common stock must be primarily and regularly
traded on one or more established securities markets. The regulations under Section 883 provide,
in pertinent part, that shares of a foreign corporation will be considered to be “primarily traded” on
an established securities market in a country if the number of shares of each class of shares that
are traded during any taxable year on all established securities markets in that country exceeds
the number of shares in each such class that are traded during that year on established securities
markets in any other single country. Our common shares are “primarily traded” on The Nasdaq
Global Select Market.
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Under the regulations, stock of a foreign corporation will be considered to be “regularly traded”
on an established securities market if one or more classes of stock representing more than 50%
of the outstanding stock, by both total combined voting power of all classes of shares entitled to
vote and total value, are listed on such market, to which we refer as the “listing threshold.” Since
our common shares are listed on The Nasdaq Global Select Market, we expect to satisfy the
listing threshold.
It is further required that with respect to each class of stock relied upon to meet the listing
threshold, (i) such class of shares is traded on the market, other than in minimal quantities, on
at least 60 days during the taxable year or one-sixth of the days in a short taxable year, which
we refer to as the trading frequency test; and (ii) the aggregate number of stock of such class of
shares traded on such market during the taxable year is at least 10% of the average number of
shares of such class of stock outstanding during such year or as appropriately adjusted in the
case of a short taxable year, which we refer to as the trading volume test. Even if these tests are
not satisfied, the regulations provide that such trading frequency and trading volume tests will be
deemed satisfied if, as is expected to be the case with our common shares, such class of stock
is traded on an established securities market in the United States and such shares are regularly
quoted by dealers making a market in such shares.
Notwithstanding the foregoing, the regulations provide, in pertinent part, that a class of
shares will not be considered to be “regularly traded” on an established securities market for any
taxable year in which 50% or more of the vote and value of the outstanding shares of such class
are owned, actually or constructively under specified share attribution rules, on more than half the
days during the taxable year by persons who each own 5% or more of the vote and value of such
class of stock, to which we refer as the “Five Percent Override Rule.”
For purposes of being able to determine the persons who actually or constructively own 5%
or more of the vote and value of our common stock, or “5% Shareholders,” the regulations permit
us to rely on those persons that are identified on Schedule 13G and Schedule 13D filings with
the Securities and Exchange Commission, as owning 5% or more of our common stock. The
regulations further provide that an investment company which is registered under the Investment
Company Act of 1940, as amended, will not be treated as a 5% Shareholder for such purposes.
In the event the Five Percent Override Rule is triggered, the regulations provide that the
Five Percent Override Rule will nevertheless not apply if we can establish that within the group
of 5% Shareholders, there are sufficient qualified shareholders for purposes of Section 883 to
preclude non-qualified shareholders in such group from owning 50% or more of our common
stock for more than half the number of days during the taxable year.
We believe that we satisfied the Publicly-Traded Test for the 2015 taxable year and were not
subject to the Five Percent Override Rule and we intend to take that position on our 2015 U.S.
federal income tax returns.
Taxation in Absence of Exemption
To the extent the benefits of Section 883 are unavailable, our U.S.-source shipping income,
to the extent not considered to be “effectively connected” with the conduct of a U.S. trade or
business, as described below, would be subject to a 4% tax imposed by Section 887 of the Code
on a gross basis, without the benefit of deductions, which we refer to as the 4% gross basis
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tax regime. Since under the sourcing rules described above, no more than 50% of our shipping
income would be treated as being derived from U.S. sources, the maximum effective rate of
U.S. federal income tax on our shipping income would never exceed 2% under the 4% gross
basis tax regime.
To the extent the benefits of the Section 883 exemption are unavailable and our U.S.-source
shipping income is considered to be “effectively connected” with the conduct of a U.S. trade or
business, as described below, any such “effectively connected” U.S.-source shipping income,
net of applicable deductions, would be subject to the U.S. federal corporate income tax currently
imposed at rates of up to 35%. In addition, we may be subject to an additional 30% “branch
profits” tax on earnings effectively connected with the conduct of such trade or business, as
determined after allowance for certain adjustments, and on certain interest paid or deemed paid
attributable to the conduct of such U.S. trade or business.
Our U.S.-source shipping income would be considered “effectively connected” with the
conduct of a U.S. trade or business only if:
Æ we have, or are considered to have, a fixed place of business in the United States involved
in the earning of shipping income; and
Æ substantially all of our U.S.-source shipping income is attributable to regularly scheduled
transportation, such as the operation of a vessel that follows a published schedule with
repeated sailings at regular intervals between the same points for voyages that begin or
end in the United States (or, in the case of income from the bareboat chartering of a vessel, is
attributable to a fixed place of business in the United States).
We do not anticipate that we will have any vessel operating to or from the United States on
a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping
operations and other activities, we do not anticipate that any of our U.S.-source shipping income
will be “effectively connected” with the conduct of a U.S. trade or business.
United States Federal Income Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883 of the Code, we will not
be subject to U.S. federal income taxation with respect to gain realized on a sale of a vessel,
provided the sale is considered to occur outside of the United States under U.S. federal income
tax principles. In general, a sale of a vessel will be considered to occur outside of the United
States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the
buyer outside of the United States. It is expected that any sale of a vessel by us will be considered
to occur outside of the United States.
United States Federal Income Taxation of U.S. Holders
As used herein, the term “U.S. Holder” means a beneficial owner of common stock that
is an individual U.S. citizen or resident, a U.S. corporation or other U.S. entity taxable as a
corporation, an estate the income of which is subject to U.S. federal income taxation regardless
of its source, or a trust if a court within the United States is able to exercise primary jurisdiction
over the administration of the trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust.
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If a partnership holds the common stock, the tax treatment of a partner will generally depend
upon the status of the partner and upon the activities of the partnership. If you are a partner in a
partnership holding the common stock, you are encouraged to consult your tax advisor.
Distributions
Subject to the discussion of the passive foreign investment company, or PFIC, rules
below, distributions made by us with respect to our common stock, other than certain pro-rata
distributions of our common stock, to a U.S. Holder will generally constitute dividends, which may
be taxable as ordinary income or “qualified dividend income” as described in more detail below, to
the extent of our current and accumulated earnings and profits, as determined under U.S. federal
income tax principles. Distributions in excess of our current and accumulated earnings and profits
will be treated first as a nontaxable return of capital to the extent of the U.S. Holder’s tax basis
in his common stock on a dollar-for-dollar basis and thereafter as capital gain. Because we are
not a United States corporation, U.S. Holders that are corporations will not be entitled to claim
a dividends-received deduction with respect to any distributions they receive from us. Dividends
paid with respect to our common stock will generally be treated as income from sources outside
the United States and will generally constitute “passive category income” or, in the case of certain
types of U.S. Holders, “general category income” for purposes of computing allowable foreign
tax credits for U.S. foreign tax credit purposes.
Dividends paid on our common stock to a U.S. Holder who is an individual, trust or estate,
which we refer to as a U.S. Individual Holder, will generally be treated as “qualified dividend
income” that is taxable to such U.S. Individual Holders at preferential tax rates, provided that
(1) the common stock is readily tradable on an established securities market in the United States
such as the Nasdaq Global Select Market, on which our common stock is traded; (2) we are
not a PFIC for the taxable year during which the dividend is paid or the immediately preceding
taxable year, as discussed below; (3) the U.S. Individual Holder has held the common stock
for more than 60 days in the 121-day period beginning 60 days before the date on which the
common stock becomes ex-dividend; and (4) the U.S. Individual Holder is not under an obligation
to make related payments with respect to positions in substantially similar or related property.
There is no assurance that any dividends paid on our common stock will be eligible for these
preferential rates in the hands of a U.S. Individual Holder. Any distributions out of earnings and
profits we pay which are not eligible for these preferential rates will be taxed as ordinary income
to a U.S. Individual Holder.
Special rules may apply to any “extraordinary dividend,” generally, a dividend paid by us in
an amount which is equal to or in excess of ten percent of a U.S. Holder’s adjusted tax basis,
or fair market value in certain circumstances, in a share of our common stock. If we pay an
“extraordinary dividend” on our common stock that is treated as “qualified dividend income,” then
any loss derived by a U.S. Individual Holder from the sale or exchange of such common stock will
be treated as long-term capital loss to the extent of such dividend.
Sale, Exchange or other Disposition of Common Stock
Subject to the discussion of the PFIC rules below, a U.S. Holder generally will recognize
taxable gain or loss upon a sale, exchange or other disposition of our common stock in an amount
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107
equal to the difference between the amount realized by the U.S. Holder from such sale, exchange
or other disposition and the U.S. Holder’s tax basis in such stock. A U.S. Holder’s tax basis in
the common stock generally will equal the U.S. Holder’s acquisition cost less any prior return
of capital. Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder’s
holding period is greater than one year at the time of the sale, exchange or other disposition and
will generally be treated as U.S.-source income or loss, as applicable, for U.S. foreign tax credit
purposes. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.
PFIC Status and Significant Tax Consequences
Special U.S. federal income tax rules apply to a U.S. Holder that holds stock in a foreign
corporation classified as a PFIC for U.S. federal income tax purposes. In general, we will be
treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which such U.S. Holder
held our common stock, either:
Æ at least 75% of our gross income for such taxable year consists of passive income (e.g.,
dividends, interest, capital gains and rents derived other than in the active conduct of a rental
business), which we refer to as the income test; or
Æ at least 50% of the average value of our assets during such taxable year produce, or are held for
the production of, passive income, which we refer to as the asset test.
For purposes of determining whether we are a PFIC, cash will be treated as an asset which
is held for the production of passive income. In addition, we will be treated as earning and
owning our proportionate share of the income and assets, respectively, of any of our subsidiary
corporations in which we own at least 25% of the value of the subsidiary’s stock. Income earned,
or deemed earned, by us in connection with the performance of services would not constitute
passive income. By contrast, rental income would generally constitute “passive income” unless
we were treated under specific rules as deriving our rental income in the active conduct of a trade
or business.
Our status as a PFIC will depend upon the operations of our vessels. Therefore, we can give
no assurances as to whether we will be a PFIC with respect to any taxable year. In making the
determination as to whether we are a PFIC, we intend to treat the gross income we derive or
are deemed to derive from the time chartering and voyage chartering activities of us or any of
our wholly owned subsidiaries as services income, rather than rental income. Correspondingly,
in the opinion of Seward & Kissel LLP, such income should not constitute passive income, and
the assets that we or our wholly owned subsidiaries own and operate in connection with the
production of such income, should not constitute passive assets for purposes of determining
whether we are a PFIC. There is substantial legal authority supporting this position consisting of
case law and IRS pronouncements concerning the characterization of income derived from time
charters and voyage charters as services income for other tax purposes. However, there is also
authority which characterizes time charter income as rental income rather than services income
for other tax purposes. In the absence of any legal authority specifically relating to the statutory
provisions governing PFICs, the IRS or a court could disagree with the opinion of Seward &
Kissel LLP. On the other hand, any income we derive from bareboat chartering activities will likely
be treated as passive income for purposes of the income test. Likewise, any assets utilized in
bareboat chartering activities will likely be treated as generating passive income for purposes of
the asset test.
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As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a
U.S. Holder would be subject to different taxation rules depending on whether the U.S. Holder
makes an election to treat us as a “Qualified Electing Fund,” which election we refer to as a “QEF
election,” or a “mark-to-market” election with respect to the common stock. In addition, if we
are a PFIC, a U.S. Holder will be required to file with respect to taxable years ending on or after
December 31, 2013 IRS Form 8621 with the IRS.
Taxation of U.S. Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF election, which U.S. Holder we refer to as an “Electing
Holder,” the Electing Holder must report each year for U.S. federal income tax purposes his pro
rata share of our ordinary earnings and our net capital gain, if any, for our taxable year that ends with
or within the taxable year of the Electing Holder, regardless of whether or not distributions were
received from us by the Electing Holder. The Electing Holder’s adjusted tax basis in the common
stock will be increased to reflect taxed but undistributed earnings and profits. Distributions of
earnings and profits that had been previously taxed will result in a corresponding reduction in
the adjusted tax basis in the common stock and will not be taxed again once distributed. An
Electing Holder would generally recognize capital gain or loss on the sale, exchange or other
disposition of our common stock. A U.S. Holder would make a QEF election with respect to any
year that we are a PFIC by filing IRS Form 8621 with his U.S. federal income tax return. After the
end of each taxable year, we will determine whether we were a PFIC for such taxable year. If we
determine or otherwise become aware that we are a PFIC for any taxable year, we will provide
each U.S. Holder with all necessary information, including a PFIC Annual Information Statement,
in order to allow such holder to make a QEF election for such taxable year.
Taxation of U.S. Holders Making a “Mark-to-Market” Election
Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate
will continue to be the case, our shares are treated as “marketable stock,” a U.S. Holder would
be allowed to make a “mark-to-market” election with respect to our common stock, provided the
U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and
related Treasury regulations. If that election is made, the U.S. Holder generally would include as
ordinary income in each taxable year the excess, if any, of the fair market value of the common
stock at the end of the taxable year over such holder’s adjusted tax basis in the common stock.
The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the
U.S. Holder’s adjusted tax basis in the common stock over their fair market value at the end
of the taxable year, but only to the extent of the net amount previously included in income as a
result of the mark-to-market election. A U.S. Holder’s tax basis in his common stock would be
adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other
disposition of our common stock would be treated as ordinary income, and any loss realized on
the sale, exchange or other disposition of the common stock would be treated as ordinary loss
to the extent that such loss does not exceed the net mark-to-market gains previously included by
the U.S. Holder.
Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
Finally, if we were to be treated as a PFIC for any taxable year, a U.S. Holder who has
not timely made a QEF or mark-to-market election for the first taxable year in which it holds
our common stock and during which we are treated as PFIC, whom we refer to as a “Non-
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Electing Holder,” would be subject to special rules with respect to (1) any excess distribution
(i.e., the portion of any distributions received by the Non-Electing Holder on our common stock
in a taxable year in excess of 125% of the average annual distributions received by the Non-
Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder’s
holding period for the common stock), and (2) any gain realized on the sale, exchange or other
disposition of our common stock. Under these special rules:
Æ the excess distribution or gain would be allocated ratably to each day over the Non-Electing
Holders’ aggregate holding period for the common stock;
Æ the amount allocated to the current taxable year and any taxable year before we became a PFIC
would be taxed as ordinary income; and
Æ the amount allocated to each of the other taxable years would be subject to tax at the
highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest
charge for the deemed tax deferral benefit would be imposed with respect to the resulting
tax attributable to each such other taxable year.
These adverse tax consequences would not apply to a pension or profit sharing trust or other
tax-exempt organization that did not borrow funds or otherwise utilize leverage in connection with
its acquisition of our common stock. In addition, if a Non-Electing Holder who is an individual dies
while owning our common stock, such holder’s successor generally would not receive a step-up
in tax basis with respect to such common stock.
U.S. Federal Income Taxation of Non-U.S. Holders
A beneficial owner of our common stock, other than a partnership or entity treated as a
partnership for U.S. Federal income tax purposes, that is not a U.S. Holder is referred to herein
as a Non-U.S. Holder.
Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax on
dividends received from us with respect to our common stock, unless that income is effectively
connected with the Non-U.S. Holder’s conduct of a trade or business in the United States.
In general, if the Non-U.S. Holder is entitled to the benefits of certain U.S. income tax treaties
with respect to those dividends, that income is taxable only if it is attributable to a permanent
establishment maintained by the Non-U.S. Holder in the United States.
Non-U.S. Holders generally will not be subject to U.S. federal income tax or withholding tax
on any gain realized upon the sale, exchange or other disposition of our common stock, unless:
Æ the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business
in the United States. In general, if the Non-U.S. Holder is entitled to the benefits of certain
income tax treaties with respect to that gain, that gain is taxable only if it is attributable to a
permanente stablishment maintained by the Non-U.S. Holder in the United States; or
Æ the Non-U.S. Holder is an individual who is present in the United States for 183 days or more
during the taxable year of disposition and other conditions are met.
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If the Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax
purposes, the income from the common stock, including dividends and the gain from the sale,
exchange or other disposition of the stock, that is effectively connected with the conduct of that
trade or business will generally be subject to regular U.S. federal income tax in the same manner
as discussed in the previous section relating to the taxation of U.S. Holders. In addition, if you
are a corporate Non-U.S. Holder, your earnings and profits that are attributable to the effectively
connected income, which are subject to certain adjustments, may be subject to an additional
branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable U.S.
income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States
to you will be subject to information reporting requirements. Such payments will also be subject
to backup withholding tax if you are a non-corporate U.S. Holder and you:
Æ fail to provide an accurate taxpayer identification number;
Æ are notified by the IRS that you have failed to report all interest or dividends required to be
shown on your U.S. federal income tax returns; or
Æ in certain circumstances, fail to comply with applicable certification requirements.
Non-U.S. Holders may be required to establish their exemption from information reporting
and backup withholding by certifying their status on an applicable IRS Form W-8.
If you sell your common stock through a U.S. office of a broker, the payment of the proceeds
is subject to both U.S. backup withholding and information reporting unless you certify that you
are a non-U.S. person, under penalties of perjury, or you otherwise establish an exemption. If you
sell your common stock through a non-U.S. office of a non-U.S. broker and the sales proceeds
are paid to you outside the United States then information reporting and backup withholding
generally will not apply to that payment. However, U.S. information reporting requirements, but
not backup withholding, will apply to a payment of sales proceeds, even if that payment is made
to you outside the United States, if you sell your common stock through a non-U.S. office of a
broker that is a U.S. person or has certain other contacts with the United States, unless you
certify that you are a non-U.S. person, under penalty of perjury, or you otherwise establish an
exemption.
Backup withholding is not an additional tax. Rather, you generally may obtain a refund of any
amounts withheld under the backup withholding rules that exceed your U.S. federal income tax
liability by timely filing a refund claim with the IRS.
U.S. Holders who are individuals (and to the extent specified in applicable Treasury
Regulations, certain U.S. entities) who hold “specified foreign financial assets” (as defined in
Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the
asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at
any time during the taxable year or $50,000 on the last day of the taxable year (or such higher
dollar amount as prescribed by applicable Treasury Regulations). Specified foreign financial
assets would include, among other assets, our common stock, unless the common stock is held
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ANNUAL REPORT 2015 111
through an account maintained with a U.S. financial institution. Substantial penalties apply to
any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause
and not due to willful neglect. Additionally, in the event a U.S. Holder who is an individual (and to
the extent specified in applicable Treasury regulations, a U.S. entity) that is required to file IRS
Form 8938 does not file such form, the statute of limitations on the assessment and collection of
U.S. federal income taxes of such holder for the related tax year may not close until three years
after the date that the required information is filed.
F. Dividends and paying agents
Not Applicable.
G. Statement by experts
Not Applicable.
H. Documents on display
We file reports and other information with the SEC. These materials, including this annual
report and the accompanying exhibits, may be inspected and copied at the public reference
facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549, or from the SEC’s
website http://www.sec.gov. You may obtain information on the operation of the public reference
room by calling 1 (800) SEC-0330 and you may obtain copies at prescribed rates.
I. Subsidiary information
Not Applicable.
Item 11. Quantitative and Qualitative Disclosures about
Market Risk
Interest Rates
Total interest incurred under our loan facilities and related interest rates during 2015, 2014
and 2013 were as follows:
2015
2014
2013
Interest expense (in millions of USD)
$
5.8
$
5.9
$
4.0
Weighted average interest rate (LIBOR plus margin)
3.65%
3.91%
3.49%
Interest rates range during the year (LIBOR including margin)
3.09% to
5.20%
3.25% to
5.17%
2.94% to
5.18%
An average increase of 1% in 2015 interest rates would have resulted in interest expenses of
$7.6 million, instead of $5.8 million, an increase of about 31%.
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As of December 31, 2015, we had $144.7 million of principal debt outstanding with RBS and
$48.8 million of principal debt outstanding with DSI, and we expect to incur additional debt in
the future. We expect to manage any exposure in interest rates through our regular operating
and financing activities and, when deemed appropriate, through the use of derivative financial
instruments.
Currency and Exchange Rates
We generate all of our revenues in U.S. dollars, but currently incur approximately half of our
operating expenses (around 49% in 2015 and 60% in 2014) and about half of our general and
administrative expenses (around 50% in 2015 and 51% in 2014) in currencies other than the U.S.
dollar, primarily the Euro. For accounting purposes, expenses incurred in Euros are converted
into U.S. dollars at the exchange rate prevailing on the date of each transaction. The amount and
frequency of some of these expenses, such as vessel repairs, supplies and stores, may fluctuate
from period to period. Since approximately 2002, the U.S. dollar has depreciated against the
Euro. Depreciation in the value of the dollar relative to other currencies increases the dollar
cost to us of paying such expenses. The portion of our expenses incurred in other currencies
could increase in the future, which could expand our exposure to losses arising from currency
fluctuations.
While we have not mitigated the risk associated with exchange rate fluctuations through the
use of financial derivatives, we may determine to employ such instruments from time to time in
the future in order to minimize this risk. Our use of financial derivatives would involve certain risks,
including the risk that losses on a hedged position could exceed the nominal amount invested in
the instrument and the risk that the counterparty to the derivative transaction may be unable or
unwilling to satisfy its contractual obligations, which could have an adverse effect on our results.
Currently, we do not consider the risk from exchange rate fluctuations to be material for our
results of operations and therefore, we are not engaged in derivative instruments to hedge part
of those expenses.
Item 12. Description of Securities Other than Equity
Securities
Not Applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security
Holders and Use of Proceeds
None.
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Item 15. Controls and Procedures
A. Disclosure Controls and Procedures
Management, including our Chief Executive Officer and Chief Financial Officer, has conducted
an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this
report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in the reports that it files or submits to the SEC under
the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms.
B. Management’s Annual Report on Internal Control over Financial
Reporting
Management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. The Company’s
internal control over financial reporting is a process designed under the supervision of the
Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the Company’s financial
statements for external reporting purposes in accordance with U.S. GAAP.
Management has conducted an assessment of the effectiveness of the Company’s internal
control over financial reporting based on the framework established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 Framework). Based on this assessment, management has determined that
the Company’s internal control over financial reporting as of December 31, 2015 is effective.
The registered public accounting firm that audited the financial statements included in this
annual report containing the disclosure required by this Item 15 has issued an attestation report
on management’s assessment of our internal control over financial reporting.
C. Attestation Report of Independent Registered Public Accounting Firm
The attestation report on the Company’s internal control over financial reporting issued by the
registered public accounting firm that audited the Company’s consolidated financial statements,
Ernst Young (Hellas) Certified Auditors Accountants S.A., appears on page F-3 of the financial
statements filed as part of this annual report.
D. Changes in Internal Control over Financial Reporting
None.
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Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and our Chief Financial Officer, does
not expect that our disclosure controls or our internal control over financial reporting will prevent
or detect all error and all fraud. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the control system’s objectives
will be met. Further, because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that misstatements due to error or fraud will not occur
or that all control issues and instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty
and that breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more people, or
by management override of the controls. The design of any system of controls is based in part
on certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions.
Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over
time, controls may become inadequate because of changes in conditions or deterioration in the
degree of compliance with policies or procedures.
Item 16A. Audit Committee Financial Expert
Mr. John Evangelou serves as the Chairman of the Company’s Audit Committee. Our board
of directors has determined that Mr. Evangelou qualifies as an “audit committee financial expert”
and is “independent” according to SEC rules.
Item 16B. Code of Ethics
We have adopted a code of ethics that applies to officers, directors, employees and agents.
Our code of ethics is posted on our website, http://www.dcontainerships.com, under “About Us
- Code of Ethics.” Copies of our Code of Ethics are available in print, free of charge, upon request
to Diana Containerships Inc., Pendelis 18, 175 64 Palaio Faliro, Athens, Greece. We intend to
satisfy any disclosure requirements regarding any amendment to, or waiver from, a provision of
this Code of Ethics by posting such information on our website.
Item 16C. Principal Accountant Fees and Services
A. Audit Fees
Our principal accountants, Ernst and Young (Hellas), Certified Auditors Accountants S.A.,
have billed us for audit services.
Audit fees in 2015 amounted to Euro 199,500 or about $220,000 and in 2014 amounted to
Euro 198,750 or about $271,000 and relate to audit services provided in connection with the audit
and AU 722 interim reviews of our consolidated financial statements, the audit of internal control
over financial reporting as well as audit services performed in connection with the Company’s
registration statements.
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ANNUAL REPORT 2015 115
B. Audit-Related Fees
None.
C. Tax Fees
None.
D. All Other Fees
None.
E. Audit Committee’s Pre-Approval Policies and Procedures
Our Audit Committee is responsible for the appointment, replacement, compensation,
evaluation and oversight of the work of our independent auditors. As part of this responsibility, the
Audit Committee pre-approves all audit and non-audit services performed by the independent
auditors in order to assure that they do not impair the auditor’s independence from the Company.
The Audit Committee has adopted a policy which sets forth the procedures and the conditions
pursuant to which services proposed to be performed by the independent auditors may be pre-
approved.
F. Audit Work Performed by Other Than Principal Accountant if
Greater Than 50%
Not applicable.
Item 16D. Exemptions from the Listing Standards for
Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer
and Affiliated Purchasers
Not applicable.
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
We have certified to Nasdaq that our corporate governance practices are in compliance
with, and are not prohibited by, the laws of the Republic of the Marshall Islands. Therefore, we are
exempt from many of Nasdaq’s corporate governance practices other than the requirements
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116
regarding the disclosure of a going concern audit opinion, submission of a listing agreement,
notification to Nasdaq of non-compliance with Nasdaq corporate governance practices,
prohibition on disparate reduction or restriction of shareholder voting rights, and the
establishment of an audit committee satisfying Nasdaq Listing Rule 5605(c)(3) and ensuring
that such audit committee’s members meet the independence requirement of Listing Rule
5605(c)(2)(A)(ii). The practices we follow in lieu of Nasdaq’s corporate governance rules
applicable to U.S. domestic issuers are as follows:
Æ As a foreign private issuer, we are not required to have an audit committee comprised
of at least three members. Our audit committee is comprised of two members;
Æ As a foreign private issuer, we are not required to adopt a formal written charter or board
resolution addressing the nominations process. We do not have a nominations committee,
nor have we adopted a board resolution addressing the nominations process;
Æ As a foreign private issuer, we are not required to hold regularly scheduled board meetings
at which only independent directors are present;
Æ In lieu of obtaining shareholder approval prior to the issuance of designated securities, we will
comply with provisions of the Marshall Islands Business Corporations Act, which allows the
Board of Directors to approve share issuances;
Æ As a foreign private issuer, we are not required to solicit proxies or provide proxy
statements to Nasdaq pursuant to Nasdaq corporate governance rules or Marshall
Islands law. Consistent with Marshall Islands law and as provided in our bylaws, we
will notify our shareholders of meetings between 15 and 60 days before the meeting.
This notification will contain, among other things, information regarding business to be
transacted at the meeting. In addition, our bylaws provide that shareholders must give us
between 150 and 180 days advance notice to properly introduce any business at a
meeting of shareholders.
Other than as noted above, we are in compliance with all other Nasdaq corporate governance
standards applicable to U.S. domestic issuers.
Item 16H. Mine Safety Disclosure
Not applicable.
PART III
Item 17. Financial Statements
See Item 18.
Item 18. Financial Statements
The financial statements required by this Item 18 are filed as a part of this annual report
beginning on page F-1.
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Item 19. Exhibits
(a) Exhibits
Exhibit Number Description
1.1
1.2
2.1
2.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
4.24
Amended and Restated Articles of Incorporation of the Company (1)
Amended and Restated Bylaws of the Company (2)
Form of Share Certificate (3)
Statement of Designations of Rights, Preferences and Privileges of Series A Participating
Preferred Stock of Diana Containerships Inc., dated August 2, 2010 (4)
Registration Rights Agreement dated April 6, 2010 (5)
Stockholders Rights Agreement dated August 2, 2010 (6)
Amendment No. 1 to Stockholders Rights Agreement dated August 2, 2010 by and
between the Company and Computershare Inc., dated July 28, 2014 (7)
2012 Amended and Restated Equity Incentive Plan (8)
2015 Equity Incentive Plan
Administrative Services Agreement with UOT (9)
Broker Services Agreement, dated April 9, 2014, by and between the Company and
Diana Enterprises Inc. (10)
Amendment to Broker Services Agreement, dated April 9, 2014, by and between the
Company and Diana Enterprises Inc., dated July 28, 2014 (11)
Broker Services Agreement, dated April 1, 2015, by and between the Company and
Diana Enterprises Inc.
Form of Vessel Management Agreement with UOT (12)
Amended and Restated Non-Competition Agreement with Diana Shipping Inc. (13)
Loan Agreement, dated May 20, 2013, by and between Eluk Shipping Company Inc. and
Diana Shipping Inc. (14)
First Amendment to Loan Agreement dated May 20, 2013 among Diana Shipping Inc.,
Eluk Shipping Company Inc. and the Company, dated July 28, 2014 (15)
Second Amendment to Loan Agreement dated May 20, 2013 among Diana Shipping
Inc., Eluk Shipping Company Inc. and the Company, dated September 9, 2015
Memorandum of Agreement for m/v Maersk Madrid (16)
Addendum No. 1 to the Memorandum of Agreement for m/v Maersk Madrid (17)
Memorandum of Agreement for m/v Maersk Malacca (18)
Memorandum of Agreement for m/v Maersk Merlion (19)
Memorandum of Agreement for m/v Cap San Raphael (20)
Memorandum of Agreement for m/v Cap San Marco (21)
Memorandum of Agreement for m/v APL Sardonyx (22)
Memorandum of Agreement for m/v APL Spinel (23)
Memorandum of Agreement for m/v APL Garnet (24)
Memorandum of Agreement for m/v Hanjin Malta (25)
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ANNUAL REPORT 2015 118
4.25
4.26
4.27
4.28
4.29
4.30
4.31
8.1
12.1
12.2
13.1
13.2
15.1
101
Memorandum of Agreement for m/v Puelo (26)
Memorandum of Agreement for m/v Pucon (27)
Registration Rights Agreement dated June 15, 2011(28)
Share Purchase Agreement dated June 9, 2011(29)
Securities Purchase Agreement, dated July 28, 2014 (30)
Registration Rights Agreement, dated July 28, 2014 (31)
Loan Agreement with Royal Bank of Scotland plc, dated September 10, 2015
List of Subsidiaries
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Consent of independent registered public accounting firm
The following financial information from Diana Containerships Inc.’s Annual
Report on Form 20-F for the fiscal year ended December 31, 2015, formatted
in Extensible Business Reporting Language (XBRL): (1) Consolidated Balance
Sheets as at December 31, 2015 and 2014; (2) Consolidated Statements of
Operations for the years ended December 31, 2015, 2014 and 2013; (3) Consolidated
Statements of Comprehensive Income / (Loss) for the years ended December 31,
2015, 2014 and 2013; (4) Consolidated Statements of Stockholders’ Equity for the
years ended December 31, 2015, 2014 and 2013; (5) Consolidated Statements of
Cash Flows for the years ended December 31, 2015, 2014 and 2013; and
(6) Notes to Consolidated Financial Statements.
(1) Filed as Exhibit 3.1 to the Company’s Registration Statement on Form F-4 (File No. 333-169974)
on October 15, 2010.
(2) Filed as Exhibit 3.2 to the Company’s Registration Statement on Form F-4 (File No. 333-169974)
on October 15, 2010.
(3) Filed as Exhibit 4.1 to the Company’s Registration Statement on Form F-4 (File No. 333-169974)
on October 15, 2010.
(4) Filed as Exhibit 4.4 to the Company’s Registration Statement on Form F-4 (File No. 333-169974)
on October 15, 2010.
(5) Filed as Exhibit 4.2 to the Company’s Registration Statement on Form F-4 (File No. 333-169974)
on October 15, 2010.
(6) Filed as Exhibit 4.3 to the Company’s Registration Statement on Form F-4 (File No. 333-169974)
on October 15, 2010.
(7) Filed as Exhibit 99.3 to the Company’s Current Report on Form 6-K on July 30, 2014.
(8) Filed as Exhibit 4.4 to the Company’s Annual Report on Form 20-F on February 23, 2012.
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ANNUAL REPORT 2015 119
(9) Filed as Exhibit 4.8 to the Company’s Annual Report on Form 20-F on March 26, 2014.
(10) Filed as Exhibit 99.6 to the Company’s Current Report on Form 6-K on July 30, 2014.
(11) Filed as Exhibit 99.7 to the Company’s Current Report on Form 6-K on July 30, 2014.
(12) Filed as Exhibit 4.11 to the Company’s Annual Report on Form 20-F on March 26, 2014.
(13) Filed as Exhibit 4.12 to the Company’s Annual Report on Form 20-F on March 26, 2014.
(14) Filed as Exhibit 4.20 to the Company’s Annual Report on Form 20-F on March 26, 2014.
(15) Filed as Exhibit 99.5 to the Company’s Current Report on Form 6-K on July 30, 2014.
(16) Filed as Exhibit 10.8 to the Company’s Registration Statement on Form F-1 on May 9, 2011.
(17) Filed as Exhibit 10.9 to the Company’s Registration Statement on Form F-1 on May 9, 2011.
(18) Filed as Exhibit 10.10 to the Company’s Registration Statement on Form F-1 on May 9, 2011.
(19) Filed as Exhibit 10.11 to the Company’s Registration Statement on Form F-1 on May 9, 2011.
(20) Filed as Exhibit 4.16 to the Company’s Annual Report on Form 20-F on February 23, 2012.
(21) Filed as Exhibit 4.17 to the Company’s Annual Report on Form 20-F on February 23, 2012.
(22) Filed as Exhibit 4.18 to the Company’s Annual Report on Form 20-F on February 23, 2012.
(23) Filed as Exhibit 4.19 to the Company’s Annual Report on Form 20-F on February 23, 2012.
(24) Filed as Exhibit 4.20 to the Company’s Annual Report on Form 20-F on February 20, 2013.
(25) Filed as Exhibit 4.21 to the Company’s Annual Report on Form 20-F on February 20, 2013.
(26) Filed as Exhibit 4.30 to the Company’s Annual Report on Form 20-F on March 26, 2014.
(27) Filed as Exhibit 4.31 to the Company’s Annual Report on Form 20-F on March 26, 2014.
(28) Filed as Exhibit 4.14 to the Company’s Annual Report on Form 20-F on June 28, 2011.
(29) Filed as Exhibit 4.15 to the Company’s Annual Report on Form 20-F on June 28, 2011.
(30) Filed as Exhibit 99.1 to the Company’s Current Report on Form 6-K on July 30, 2014.
(31) Filed as Exhibit 99.2 to the Company’s Current Report on Form 6-K on July 30, 2014.
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ANNUAL REPORT 2015 120
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
DIANA CONTAINERSHIPS INC.
By: /s/ Andreas Michalopoulos
Andreas Michalopoulos
Chief Financial Officer and Treasurer
Dated: March 21, 2016
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ANNUAL REPORT 2015
DIANA CONTAINERSHIPS INC.
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
121
Page
Report of Independent Registered Public Accounting Firm......................................
F-2
Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting .................................................................
Consolidated Balance Sheets as at December 31, 2015 and 2014...........................
Consolidated Statements of Operations for the years ended
December 31, 2015, 2014 and 2013 .......................................................................
Consolidated Statements of Comprehensive Income /(Loss) for the years
ended December 31, 2015, 2014 and 2013 .............................................................
Consolidated Statements of Stockholders’ Equity for the years ended
December 31, 2015, 2014 and 2013 .......................................................................
Consolidated Statements of Cash Flows for the years ended
December 31, 2015, 2014 and 2013 .......................................................................
Notes to Consolidated Financial Statements ..........................................................
F-3
F-5
F-6
F-6
F-7
F-8
F-9
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F-1
F-3
ANNUAL REPORT 2015
122
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board of Directors and Stockholders of Diana Containerships Inc.
We have audited the accompanying consolidated balance sheets of Diana Containerships
Inc. as of December 31, 2015 and 2014, and the related consolidated statements of operations,
comprehensive income/ (loss), stockholders’ equity and cash flows for each of the three years
in the period ended December 31, 2015. 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. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as
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 Diana Containerships Inc. at December 31, 2015 and 2014,
and the consolidated results of its operations and its cash flows for each of the three years in
the period ended December 31, 2015, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), Diana Containerships Inc.’s internal control over
financial reporting as of December 31, 2015, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated March 21, 2016 expressed an unqualified
opinion thereon.
/s/ Ernst & Young (Hellas) Certified Auditors Accountants S.A.
Athens, Greece
March 21, 2016
F-2
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ANNUAL REPORT 2015 123
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board of Directors and Stockholders of Diana Containerships Inc.
We have audited Diana Containerships Inc.’s internal control over financial reporting as of
December 31, 2015, based on criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). Diana Containerships Inc.’s management is responsible
for maintaining effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting included in the accompanying
Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the company’s internal control over financial reporting based on
our audit.
We conducted our audit 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 effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles.
A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Diana Containerships Inc. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Diana Containerships Inc.
as of December 31, 2015 and 2014, and the related consolidated statements of operations,
F-3
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ANNUAL REPORT 2015 124
comprehensive income/ (loss), stockholders’ equity and cash flows for each of the three years in
the period ended December 31, 2015 of Diana Containerships Inc. and our report dated March
21, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young (Hellas) Certified Auditors Accountants S.A.
Athens, Greece
March 21, 2016
F-4
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ANNUAL REPORT 2015 125
DIANA CONTAINERSHIPS INC.
Consolidated Balance Sheets as at December 31, 2015 and 2014
(Expressed in thousands of U.S. Dollars, except for share and per share data)
2015
2014
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, trade
Inventories
Prepaid expenses and other assets
Restricted cash, current
Total current assets
FIXED ASSETS:
Vessels (Note 4)
Accumulated depreciation (Note 4)
Vessels’ net book value (Note 4)
Property and equipment, net (Note 5)
Total fixed assets
Deferred charges, net
Restricted cash, non-current (Note 7)
Prepaid charter revenue (Note 6)
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term bank debt, net of unamortized
deferred financing costs (Note 7)
Related party financing, current (Note 3)
Accounts payable, trade and other
Due to related parties, current (Note 3)
Accrued liabilities
Deferred revenue, current (Note 8)
Total current liabilities
Long-term portion of bank debt, net of unamortized deferred
financing costs (Note 7)
Related party financing, non-current (Note 3)
Other liabilities, non-current
Commitments and contingencies (Note 9)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 25,000,000 shares authorized,
none issued
Common stock, $0.01 par value; 500,000,000 shares authorized;
73,890,581 and 73,158,991 issued and outstanding as at
December 31, 2015 and 2014, respectively (Note 10)
Additional paid-in capital (Note 10)
Other comprehensive income / (loss)
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
29,388 $
753
3,704
1,069
-
34,914
421,903
(37,354)
384,549
987
385,536
2,475
9,000
3,798
435,723 $
14,897 $
5,000
2,707
105
1,341
647
24,697
127,781
43,950
121
-
-
739
373,117
5
(134,687)
239,174
435,723 $
82,003
691
2,307
845
600
86,446
333,078
(26,984)
306,094
1,089
307,183
-
9,270
6,364
409,263
5,804
-
1,807
136
1,052
491
9,290
92,494
50,867
169
-
-
731
372,197
(68)
(116,417)
256,443
409,263
The accompanying notes are an integral part of these consolidated financial statements.
F-5
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ANNUAL REPORT 2015
126
DIANA CONTAINERSHIPS INC.
Consolidated Statements of Operations
For the years ended December 31, 2015, 2014 and 2013
(Expressed in thousands of U.S. Dollars – except for share and per share data)
2015
2014
2013
REVENUES:
Time charter revenues (Note 1)
$
70,746 $
65,678 $
Prepaid charter revenue amortization (Note 6)
Time charter revenues, net
EXPENSES:
Voyage expenses (Note 11)
Vessel operating expenses (Note 11)
Depreciation and amortization of deferred
charges (Note 4)
Management fees
General and administrative expenses (Note 3)
Impairment losses (Note 4)
Loss on vessels’ sale (Note 4)
Foreign currency losses / (gains)
(8,566)
62,180
2,619
35,847
13,140
-
6,194
6,607
8,300
(55)
(11,610)
54,068
332
26,559
10,309
-
6,306
-
695
17
74,337
(20,322)
54,015
705
30,870
11,070
305
5,059
42,323
16,481
66
Operating income / (loss)
$
(10,472) $
9,850 $
(52,864)
OTHER INCOME/(EXPENSES)
Interest and finance costs (Notes 3, 7 and 12) $
(7,166) $
(6,746) $
Interest income
Total other expenses, net
Net income / (loss)
Earnings/ (loss) per common share,
basic and diluted (Note 13)
Weighted average number of common
shares, basic and diluted (Note 13)
$
$
$
107
(7,059) $
(17,531) $
134
(6,612) $
3,238 $
(4,554)
72
(4,482)
(57,346)
(0.24) $
0.06 $
(1.73)
72,876,441
51,645,071
33,159,328
DIANA CONTAINERSHIPS INC.
Consolidated Statements of Comprehensive Income / (Loss)
For the years ended December 31, 2015, 2014 and 2013
(Expressed in thousands of U.S. Dollars)
Net income / (loss)
Other comprehensive income / (loss)
(Actuarial gain / (loss))
Comprehensive income / (loss)
$
$
2015
(17,531) $
2014
3,238 $
73
(68)
2013
(57,346)
-
(17,458) $
3,170 $
(57,346)
The accompanying notes are an integral part of these consolidated financial statement
F-6
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ANNUAL REPORT 2015
127
DIANA CONTAINERSHIPS INC.
Consolidated Statements of Stockholders’ Equity
For the years ended December 31, 2015, 2014 and 2013
(Expressed in thousands of U.S. Dollars – except for share and per share data)
Common Stock
# of
Shares
Par
Value
Additional
Paid-in
Capital
Other
Comprehensive
Income/ (Loss)
Accumulated
Deficit
Total
Balance, December 31, 2012
32,191,964 $
322 $ 263,537 $
- $
(25,101) $
238,758
- Net loss
-
-
-
- Issuance of common stock,
net of issuance costs
- Compensation cost on
restricted stock (Note 10)
- Dividends declared and paid
(at $0.30, $0.30, $0.15 and
$0.15 per share) (Note 13)
2,859,603
28
12,328
-
-
-
-
371
-
-
-
-
-
(57,346)
(57,346)
-
-
12,356
371
(29,674)
(29,674)
Balance, December 31, 2013
35,051,567 $
350 $ 276,236 $
- $
(112,121) $
164,465
- Net income
-
-
-
- Issuance of common stock,
net of issuance costs
- Issuance of restricted stock
and compensation cost on
restricted stock (Note 10)
- Actuarial loss
- Dividends declared and paid
(at $0.15, $0.05, $0.0025 and
$0.0025 per share) (Note 13)
37,745,982
377
95,624
361,442
4
337
-
-
-
-
-
-
-
-
-
(68)
3,238
3,238
-
-
-
96,001
341
(68)
-
(7,534)
(7,534)
Balance, December 31, 2014
73,158,991 $
731 $
372,197 $
(68) $
(116,417) $
256,443
- Net loss
-
-
-
- Issuance of restricted stock
and compensation cost on
restricted stock (Note 10)
- Actuarial gain
- Dividends declared and paid
(at $0.0025, $0.0025,
$0.0025 and $0.0025
per share) (Note 13)
731,590
8
920
-
-
-
-
-
-
-
-
73
(17,531)
(17,531)
-
-
928
73
-
(739)
(739)
Balance, December 31, 2015
73,890,581 $
739 $
373,117 $
5 $
(134,687) $
239,174
The accompanying notes are an integral part of these consolidated financial statements.
F-7
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ANNUAL REPORT 2015
128
DIANA CONTAINERSHIPS INC.
Consolidated Statements of Cash Flows
For the years ended December 31, 2015, 2014 and 2013
(Expressed in thousands of U.S. Dollars)
Cash Flows provided by Operating Activities:
Net income / (loss)
Adjustments to reconcile net income/ (loss) to net cash
provided by operating activities:
Depreciation and amortization of deferred charges (Note 4)
Amortization of deferred financing costs (Note 12)
Amortization of deferred revenue (Note 8)
Amortization of prepaid charter revenue (Note 6)
Impairment losses (Note 4)
Loss on vessels’ sale (Note 4)
Compensation cost on restricted stock awards (Note 10)
Actuarial gain / (loss)
(Increase) / Decrease in:
Accounts receivable, trade
Inventories
Prepaid expenses and other assets
Increase / (Decrease) in:
2015
2014
2013
$
(17,531) $
3,238 $
(57,346)
13,140
268
(50)
8,566
6,607
8,300
928
73
(62)
(1,397)
(487)
10,309
196
(221)
11,610
-
695
341
(68)
(157)
(343)
(714)
$
7,045
(60,379)
8,784
(113,020)
25,487 $
89
-
68
600
154
(310)
900
604
289
206
(48)
(2,861)
17,445 $
-
(871)
DIANA CONTAINERSHIPS INC.
(29)
INDEX TO CONSOLIDATED FINANCIAL
859
(51,636) $
STATEMENTS
Accounts payable, trade and other
Due to related parties
Accrued liabilities
Deferred revenue
Other liabilities
Drydock costs
Net Cash provided by Operating Activities
Cash Flows used in Investing Activities:
Vessel acquisitions and other vessel costs (Note 4)
Proceeds from sale of vessels, net of expenses
Acquisition of time charter (Note 6)
Land acquisition (Note 5)
Property and equipment additions
Insurance settlements
Net Cash used in Investing Activities
Cash Flows provided by Financing Activities:
Proceeds from long term debt from a related party (Note 3)
Proceeds from long term bank debt (Note 7)
Repayments / prepayments of long term debt (Note 7)
Issuance of common stock, net of issuance costs
Report of Independent Registered Public Accounting Firm......................................
Payments of financing costs (Notes 3 and 7)
Report of Independent Registered Public Accounting Firm on
Cash dividends (Note 13)
Internal Control over Financial Reporting .................................................................
Changes in restricted cash
88,467 $
Net Cash provided by Financing Activities
Consolidated Balance Sheets as at December 31, 2015 and 2014...........................
62,318 $
Net increase/ (decrease) in cash and cash equivalents
19,685 $
Cash and cash equivalents at beginning of period
Consolidated Statements of Operations for the years ended
Cash and cash equivalents at end of period
December 31, 2015, 2014 and 2013 .......................................................................
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for Interest payments,
net of amounts capitalized
148,000
(103,263)
-
(3,177)
(739)
870
(41,691) $
(52,615) $
82,003 $
(6,000)
-
(39)
263
(111,751) $
-
(7,534)
-
82,003 $
29,388 $
96,001
6,106 $
5,571 $
$
$
$
-
-
-
$
$
$
-
11,070
197
(107)
20,322
42,323
16,481
371
-
(319)
1,242
(362)
(933)
(254)
(619)
(406)
80
-
31,740
(107,864)
33,665
(8,500)
-
(421)
1,457
(81,663)
50,000
Page
6,000
-
12,356
F-2
-
(29,674)
F-3
(600)
38,082
F-5
(11,841)
31,526
19,685
F-6
3,783
The accompanying notes are an integral part of these consolidated financial statements.
F-8
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ANNUAL REPORT 2015
129
F-6
F-7
DIANA CONTAINERSHIPS INC.
Consolidated Statements of Comprehensive Income /(Loss) for the years
Notes to Consolidated Financial Statements
ended December 31, 2015, 2014 and 2013 .............................................................
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
Consolidated Statements of Stockholders’ Equity for the years ended
December 31, 2015, 2014 and 2013 .......................................................................
1. General Information
Consolidated Statements of Cash Flows for the years ended
December 31, 2015, 2014 and 2013 .......................................................................
Notes to Consolidated Financial Statements ..........................................................
The accompanying consolidated financial statements include the accounts of Diana
Containerships Inc. (“DCI”) and its wholly-owned subsidiaries (collectively, the “Company”).
Diana Containerships Inc. was incorporated on January 7, 2010 under the laws of the Republic of
Marshall Islands for the purpose of engaging in any lawful act or activity under the Marshall Islands
Business Corporations Act.
F-8
F-9
The Company is engaged in the seaborne transportation industry through the ownership of
containerships and operates its fleet through Unitized Ocean Transport Limited, a wholly-owned
subsidiary. As at December 31, 2015, the Company was the sole owner of all outstanding shares
of the following subsidiaries:
a/a
Company
Place of
Incorporation
Vessel
Flag
TEU
Date
built
Date
acquired
Date
sold
Vessel Owning Subsidiaries - Panamax Vessels
1 Likiep Shipping Company Inc.
2 Orangina Inc.
3 Rongerik Shipping
Company Inc.
4 Utirik Shipping Company Inc.
5 Dud Shipping Company Inc.
6 Kapa Shipping Company Inc.
(Note 4)
7 Mago Shipping Company Inc.
(Note 4)
Marshall
Islands
Marshall
Islands
Marshall
Islands
Marshall
Islands
Marshall
Islands
Marshall
Islands
Marshall
Islands
Sagitta
Centaurus
Marshall
Islands
Marshall
Islands
Cap Domingo Marshall
Islands
Marshall
Cap Doukato
Islands
Pamina
Marshall
Islands
(ex Santa Pamina)
YM Los Angeles Marshall
Islands
YM New Jersey Marshall
Islands
3,426 Jun-10
Jun-10
3,426 Jul-10
Jul-10
3,739 Mar-01
Feb-12
3,739 Feb-02
Feb-12
5,042 May-05 Nov-14
4,923 Dec-06 Apr-15
4,923 Nov-06 Apr-15
Vessel Owning Subsidiaries - Post-Panamax Vessels
8 Eluk Shipping Company Inc.
9 Oruk Shipping Company Inc.
10 Delap Shipping Company Inc.
11 Jabor Shipping Company Inc.
12 Meck Shipping Company Inc.
(Note 4)
13 Langor Shipping Company
Inc. (Note 4)
Marshall
Islands
Marshall
Islands
Marshall
Islands
Marshall
Islands
Marshall
Islands
Marshall
Islands
Puelo
Pucon
March
(ex YM March)
Great
(ex YM Great)
Rotterdam
Hamburg
Marshall
Islands
Marshall
Islands
Marshall
Islands
Marshall
Islands
Marshall
Islands
Marshall
Islands
6,541 Nov-06 Aug-13
6,541 Aug-06 Sep-13
5,576 May-04 Sep-14
5,576 Apr-04 Oct-14
6,494 Jul-08
Sep-15
6,494 Mar-09 Nov-15
-
-
-
-
-
-
-
-
-
-
-
-
-
Vessel Owning Subsidiaries - Sold Vessels
14 Lemongina Inc. (Note 4)
15 Nauru Shipping Company Inc.
(Notes 4 and 16)
Marshall
Islands
Marshall
Islands
Garnet
(ex Apl Garnet)
Hanjin Malta
Marshall
Islands
Marshall
Islands
4,729 Aug-95 Nov-12 Sep-15
4,024 Jan-93 Mar-13
Feb-16
16 Unitized Ocean
Transport Limited
17 Container Carriers (USA) LLC
Other Subsidiaries
Management
company
Company’s US
representative
Marshall
Islands
Delaware -
USA
-
-
-
-
-
-
-
-
-
-
F-9
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DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
Until September 2015, the Company was also the sole owner of all outstanding shares of the
companies Ralik Shipping Company Inc., Mili Shipping Company Inc., Ebon Shipping Company
Inc., Mejit Shipping Company Inc. and Micronesia Shipping Company Inc., owners of the vessels
Madrid, Malacca, Merlion, Sardonyx and Spinel, respectively, which were sold from April 2013 to
February 2014. Following the disposal of the vessels, the ship-owning companies were dissolved
in September 2015 and accordingly, they are no longer consolidated in the financial statements
of the Company.
Unitized Ocean Transport Limited (the “Manager” or “UOT”), was established
for the purpose of providing the Company and its vessels with management and administrative
services, effective March 1, 2013. Pursuant to the management agreements, UOT receives
a fixed commission of 2% on the gross charter hire and freight earned by each vessel plus a
technical management fee of $15 per vessel per month for employed vessels and $8 per vessel
per month for laid-up vessels, if any. In addition, pursuant to the administrative agreement, UOT
receives a fixed monthly fee of $10. The management and administrative fees payable to UOT
are eliminated in consolidation as intercompany transactions.
Container Carriers (USA) LLC (“Container Carriers”), was established in July 2014
in the State of Delaware, USA, to act as the Company’s authorized representative in the United
States.
During 2015, 2014 and 2013, charterers that accounted for more than 10% of the Company’s
hire revenues were as follows:
Charterer
2015
2014
2013
A
B
C
D
E
F
25%
10%
24%
11%
-
13%
-
25%
31%
-
17%
14%
-
23%
-
16%
38%
10%
2. Significant Accounting Policies and Recent Accounting Pronouncements
(a) Principles of Consolidation: The accompanying consolidated financial statements
have been prepared in accordance with U.S. generally accepted accounting principles and
include the accounts of Diana Containerships Inc. and its wholly-owned subsidiaries referred to
in Note 1 above. All significant intercompany balances and transactions have been eliminated
upon consolidation.
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DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
(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 / (loss): The Company follows the provisions of
Accounting Standard Codification (ASC) 220, “Comprehensive Income”, which requires separate
presentation of certain transactions, which are recorded directly as components of stockholders’
equity. The Company presents Other Comprehensive Income / (Loss) in a separate statement
according to ASU 2011-05.
(d) Foreign Currency Translation: The functional currency of the Company is the
U.S. Dollar because the Company operates its vessels in international shipping markets, and
therefore, primarily transacts business in U.S. Dollars. The Company’s accounting records are
maintained in U.S. Dollars. Transactions involving other currencies during the years presented
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 into U.S. Dollars at the period-end exchange rates. Resulting gains or
losses are reflected separately in the accompanying consolidated statements of operations.
(e) Cash and Cash Equivalents: The Company considers highly liquid investments
such as time deposits, certificates of deposit and their equivalents with an original maturity of
three months or less to be cash equivalents.
(f) Restricted Cash: Restricted cash includes minimum cash deposits required to be
maintained under the Company’s borrowing arrangements.
(g) Accounts Receivable, Trade: The account includes receivables from charterers
for hire, freight and demurrage billings. At each balance sheet date, all potentially uncollectible
accounts are assessed individually for purposes of determining the appropriate provision for
doubtful accounts. No provision for doubtful accounts has been made as of December 31, 2015
and 2014.
(h) Inventories: Inventories consist of lubricants and victualling which are stated at the
lower of cost or market. Cost is determined by the first in, first out method. Inventories may also
consist of bunkers when the vessel operates under freight charter or when on the balance sheet
date a vessel has been redelivered by her previous charterers and has not yet been delivered to
new charterers, or remains idle. Bunkers are also stated at the lower of cost or market and cost
is determined by the first in, first out method.
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DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
(i) Prepaid/Deferred Charter Revenue: The Company records identified assets
or liabilities associated with the acquisition of a vessel at their relative fair value, determined by
reference to market data. The Company values any asset or liability arising from the market value
of the time charters assumed when a vessel is acquired. The amount to be recorded as an asset
or liability at the date of vessel delivery is based on the difference between the current fair market
value of the charter and the net present value of future contractual cash flows. In determining
the relative fair value, when the present value of the contractual cash flows of the time charter
assumed is different than its current fair value, the difference, capped to the excess between
the acquisition cost and the vessel’s fair value on a charter free basis, is recorded as prepaid
charter revenue or as deferred revenue, respectively. Such assets and liabilities, respectively,
are amortized as a reduction of, or an increase in, revenue over the period of the time charter
assumed.
(j) Property and Equipment: The Company acquired in December 2014 a plot of
land, described in Note 5. Land is presented at its fair value on the date of acquisition and it is
not subject to depreciation, but it qualifies to be reviewed for impairment. Equipment consists
of office furniture and equipment and computer software and hardware. The useful life of the
office furniture and equipment is 5 years and the computer software and hardware is 3 years.
Depreciation is calculated on a straight-line basis.
(k) Vessel Cost: Vessels are stated at cost which consists of the contract price and costs
incurred upon acquisition or delivery of a vessel from a shipyard. Subsequent expenditures for
conversions and major improvements are also capitalized when they appreciably extend the life,
increase the earnings capacity or improve the efficiency or safety of the vessels; otherwise these
amounts are charged to expense as incurred.
(l) Vessel Depreciation: The Company depreciates containership vessels on a
straight-line basis over their estimated useful lives, after considering the estimated salvage
value. Each vessel’s salvage value is the product of her light-weight tonnage and estimated
scrap rate, which is estimated at $0.35 per light-weight ton for all vessels in the fleet.
Management estimates the useful life of the Company’s vessels to be 30 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. When regulations place limitations on
the ability of a vessel to trade on a worldwide basis, the vessel’s useful life is adjusted at the
date such regulations are adopted.
(m) Impairment of Long-Lived Assets: The Company follows ASC 360-10-40
“Impairment or Disposal of Long-Lived Assets”, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. The Company reviews vessels for
impairment whenever events or changes in circumstances indicate that the carrying amount of
a vessel may not be recoverable. When the estimate of future undiscounted net operating cash
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DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
flows, excluding interest charges, expected to be generated by the use of the vessel over her
remaining useful life and her eventual disposition is less than her carrying amount, the Company
evaluates the vessel for impairment loss. Measurement of the impairment loss is based on the fair
value of the vessel. The fair value of the vessel is determined based on management estimates
and assumptions and by making use of available market data and third party valuations. The
Company evaluates the carrying amounts and periods over which vessels 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, management
reviews certain indicators of potential impairment, such as undiscounted projected operating
cash flows, vessel sales and purchases, business plans and overall market conditions. The current
conditions in the containerships market with decreased charter rates and decreased vessel
market values are conditions that the Company considers indicators of a potential impairment.
In developing estimates of future undiscounted cash flows, the Company makes assumptions
and estimates about the vessels’ future performance, with the significant assumptions being
related to charter rates, fleet utilization, vessels’ operating expenses, vessels’ residual value and
the estimated remaining useful life of each vessel. The assumptions used to develop estimates
of future undiscounted cash flows are based on historical trends as well as future expectations.
The Company determines undiscounted projected net operating cash flows for each
vessel and compares it to the vessel’s carrying value. The projected net operating cash
flows are determined by considering the historical and estimated vessels’ performance and
utilization, the charter revenues from existing time charters for the fixed fleet days and an
estimated daily time charter equivalent for the unfixed days (based, to the extent applicable,
on the most recent 10 year average historical 6-12 months time charter rates available for
each type of vessel, considering also current market rates) over the remaining estimated life
of each vessel, net of commissions, expected outflows for scheduled vessels’ maintenance
and vessel operating expenses assuming an average annual inflation rate of 3%. Effective
fleet utilization is assumed to 98% in the Company’s exercise, taking into account the
period(s) each vessel is expected to undergo her scheduled maintenance (dry docking and
special surveys), as well as an estimate of 1% off hire days each year, assumptions in line
with the Company’s historical performance. The review of the vessel’s carrying amounts in
connection with the estimated recoverable amounts for the year ended December 31, 2014
did not result in an indication of impairment, while in 2015 and 2013, the above mentioned
review indicated for certain of the Company’s vessels impairment charges, which are
separately reflected in the accompanying consolidated statements of operations (Note 4).
(n) Assets held for sale: It is the Company’s policy to dispose of vessels and other
fixed assets when suitable opportunities occur and not necessarily to keep them until the end
of their useful life. The Company classifies assets or assets in disposal groups as being held for
sale in accordance with ASC 360-10-45-9 “Long-Lived Assets Classified as Held for Sale”, when
the following criteria are met: (i) management possessing the necessary authority has committed
to a plan to sell the asset (disposal group); (ii) the asset (disposal group) is immediately available
for sale on an “as is” basis; (iii) an active program to find the buyer and other actions required to
execute the plan to sell the asset (disposal group) have been initiated; (iv) the sale of the asset
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DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
(disposal group) is probable, and transfer of the asset (disposal group) is expected to qualify
for recognition as a completed sale within one year; and (v) the asset (disposal group) is being
actively marketed for sale at a price that is reasonable in relation to its current fair value and actions
required to complete the plan indicate that it is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn. In case a long-lived asset is to be disposed of other than
by sale (for example, by abandonment, in an exchange measured based on the recorded amount
of the nonmonetary asset relinquished, or in a distribution to owners in a spinoff) the Company
continues to classify it as held and used until its disposal date. Long-lived assets or disposal
groups classified as held for sale are measured at the lower of their carrying amount or fair value
less cost to sell. These assets are not depreciated once they meet the criteria to be held for sale.
(o) Accounting for Revenues and Expenses: Revenues are generated from time
charter agreements. Time charter agreements with the same charterer are accounted for as
separate agreements according to the terms and conditions of each agreement. Time-charter
revenues are recorded over the term of the charter as service is provided. Revenues from
time charter agreements providing for varying annual rates over their term are accounted for
on a straight line basis. Income representing ballast bonus payments, in connection with the
repositioning of a vessel by the charterer to the vessel owner, are recognized in the period
earned. Deferred revenue, if any, includes cash received prior to the balance sheet date for which
all criteria for recognition as revenue would not be met, including any deferred revenue resulting
from charter agreements providing for varying annual rates, which are accounted for on a straight
line basis.
Voyage expenses, primarily consisting of port, canal and bunker expenses that are unique
to a particular charter, are paid for by the charterer under time charter arrangements or by the
Company under voyage charter arrangements, except for commissions, which are always paid
for by the Company, regardless of charter type. All voyage and vessel operating expenses are
expensed as incurred, except for commissions. Commissions are deferred over the related
voyage charter period to the extent revenue has been deferred since commissions are due as
revenues are earned.
(p) Earnings / (Loss) per Common Share: Basic earnings / (loss) per common
share are computed by dividing net income / (loss) attributable to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted earnings
/ (loss) per common share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised.
(q) Segmental Reporting: The Company has determined that it operates under one
reportable segment, relating to its operations of the container vessels. The Company reports
financial information and evaluates the operations of the segment by charter revenues and not
by the length of ship employment for its customers, i.e. spot or time charters. The Company
does not use 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
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DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
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. 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.
(r) Accounting for Dry-Docking Costs: The Company follows the deferral method
of accounting for dry-docking costs whereby actual costs incurred are deferred and amortized
on a straight-line basis over the period through the date the next dry-docking will be scheduled to
become 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. The unamortized dry-
docking cost is reflected in Deferred Charges, net, in the accompanying consolidated balance
sheets.
(s) Financing Costs: Fees paid to lenders for obtaining new loans or refinancing existing
ones are deferred and recorded as a contra to debt. Other fees paid for obtaining loan facilities
not used at the balance sheet date are capitalized as deferred financing costs. Fees are amortized
to interest and finance costs over the life of the related debt using the effective interest method
and, for the fees relating to loan facilities not used at the balance sheet date, according to the loan
availability terms. Unamortized fees relating to loans repaid or refinanced as debt extinguishment
are expensed as interest and finance costs in the period the repayment or extinguishment is
made. Loan commitment fees are charged to expense in the period incurred.
(t) Repairs and Maintenance: All repair and maintenance expenses including
underwater inspection expenses are expensed in the period incurred. Such costs are included in
vessel operating expenses in the accompanying consolidated statements of operations.
(u) Share Based Payment: ASC 718 “Compensation - Stock Compensation”, requires
the Company to measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award (with limited exceptions).
That cost is recognized over the period during which an employee is required to provide
service in exchange for the award - the requisite service period (usually the vesting period). No
compensation cost is recognized for equity instruments for which employees do not render the
requisite service. Employee share purchase plans will not result in recognition of compensation
cost if certain conditions are met. The Company initially measures the cost of employee
services received in exchange for an award or liability instrument based on its current fair value;
the fair value of that award or liability instrument is remeasured subsequently at each reporting
date through the settlement date. Changes in fair value during the requisite service period
are recognized as compensation cost over that period, with the exception of awards granted
in the form of restricted shares which are measured at their grant date fair value and are not
subsequently re-measured. The grant-date fair value of employee share options and similar
instruments are estimated using option-pricing models adjusted for the unique characteristics
of those instruments (unless observable market prices for the same or similar instruments are
available). If an equity award is modified after the grant date, incremental compensation cost
is recognized in an amount equal to the excess of the fair value of the modified award over the
fair value of the original award immediately before the modification.
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DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
(v) Variable Interest Entities: ASC 810-10-50 “Consolidation of Variable Interest
Entities”, 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 guidance 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.
The Company evaluates financial instruments, service contracts, and other arrangements to
determine if any variable interests relating to an entity exist, as the primary beneficiary would be
required to include assets, liabilities, and the results of operations of the variable interest entity in
its financial statements. The Company’s evaluation did not result in an identification of variable
interest entities as of December 31, 2015 and 2014.
(w) Fair Value Measurements: The Company follows the provisions of ASC 820
“Fair Value Measurements and Disclosures”, which defines fair value and provides guidance for
using fair value to measure assets and liabilities. The guidance creates a fair value hierarchy of
measurement and describes fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants in the market
in which the reporting entity transacts. In accordance with the requirements of accounting
guidance relating to Fair Value Measurements, the Company classifies and discloses its assets
and liabilities carried at the fair value in one of the following categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Observable market based inputs or unobservable inputs that are corroborated by
market data;
Level 3: Unobservable inputs that are not corroborated by market data.
(x) 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 various qualified financial institutions and performs periodic evaluations of
the relative credit standing of those financial institutions that are considered in the Company’s
investment strategy. 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 and does not have any agreements to mitigate credit risk.
Recent Accounting Pronouncements
(a) The Financial Accounting Standards Board (“FASB” or the “Board”) and the
International Accounting Standards Board (IASB) (collectively, the Boards) jointly issued a
standard that will supersede virtually all of the existing revenue recognition guidance in U.S.
GAAP and International Financial Reporting Standards, or IFRS, and is effective for annual
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DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
periods beginning on or after December 15, 2016. The standard establishes a five-step model
that will apply to revenue earned from a contract with a customer (with limited exceptions),
regardless of the type of revenue transaction or the industry. The standard’s requirements
will also apply to the recognition and measurement of gains and losses on the sale of some
non-financial assets that are not an output of the entity’s ordinary activities (e.g., sales of
property, plant and equipment or intangibles). Extensive disclosures will be required, including
disaggregation of total revenue; information about performance obligations; changes in contract
asset and liability account balances between periods and key judgments and estimates.
Management is in the process of assessing the impact of the new standard on Company’s
financial position and performance. In August 2015, the Board issued ASU 2015-14-Revenue
From Contracts With Customers that defers the effective period to annual reporting periods
beginning after December 15, 2017.
(b) In August 2014, the FASB issued Accounting Standards Update (“ASU” or “Update”) No.
2014-15 - Presentation of Financial Statements - Going Concern. ASU 2014-15 provides guidance
about management’s responsibility to evaluate whether there is substantial doubt about an
entity’s ability to continue as a going concern and to provide related footnote disclosures. ASU
2014-15 requires an entity’s management to evaluate at each reporting period based on the
relevant conditions and events that are known at the date of financial statements are issued,
whether there are conditions or events, that raise substantial doubt about the entity’s ability to
continue as a going concern within one year after the date that the financial statements are issued
and to disclose the necessary information. ASU 2014-15 is effective for the annual period ending
after December 15, 2016, and for annual periods and interim periods thereafter. Early application
is permitted. Management does not expect the adoption of this ASU to have a material impact on
Company’s results of operations, financial position or cash flows.
(c) In February 2015, the FASB issued the ASU 2015-02, “Consolidation (Topic 810) -
Amendments to the Consolidation Analysis”, which amends the criteria for determining which
entities are considered VIEs, amends the criteria for determining if a service provider possesses a
variable interest in a VIE and ends the deferral granted to investment companies for application of
the VIE consolidation model. The ASU is effective for interim and annual periods beginning after
December 15, 2015. Early application is permitted. Management does not expect the adoption
of this ASU to have a material impact on Company’s results of operations, financial position or
cash flows.
(d) In July 2015, the FASB issued ASU No. 2015-11 - Inventory. ASU 2015-11 is part of
FASB Simplification Initiative. Current guidance requires an entity to measure inventory at the
lower of cost or market. Market could be the replacement cost, net realizable value or net
realizable value less an approximately normal profit margin. Under this Update, the entities
will be required to measure inventory at the lower of cost or net realizable value. Net realizable
value is defined as estimated selling prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal and transportation. The amendments under the
Update more closely align measurement of inventory in US GAAP with the measurement of
inventory in IFRS. For public entities, the amendments of this Update are effective for fiscal
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DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
years beginning after December 15, 2016, including interim periods within those fiscal years. The
amendments of this Update should be applied prospectively with early application permitted.
Management does not expect the adoption of this ASU to have a material impact on Company’s
results of operations, financial position or cash flows.
(e) In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842), which
requires lessees to recognize most leases on the balance sheet. This is expected to increase
both reported assets and liabilities. The new lease standard does not substantially change
lessor accounting. For public companies, the standard will be effective for the first interim
reporting period within annual periods beginning after December 15, 2018, although early
adoption is permitted. Lessees and lessors will be required to apply the new standard at the
beginning of the earliest period presented in the financial statements in which they first apply
the new guidance, using a modified retrospective transition method. The requirements of this
standard include a significant increase in required disclosures. Management is analyzing the
impact of the adoption of this guidance on the Company’s consolidated financial statements,
including assessing changes that might be necessary to information technology systems,
processes and internal controls to capture new data and address changes in financial reporting.
3. Transactions with Related Parties
a) Altair Travel Agency S.A. (“Altair”): Effective March 1, 2013 the Company uses
the services of an affiliated travel agent, Altair, which is controlled by the Company’s CEO and
Chairman. Travel expenses payable to Altair for the years ended December 31, 2015, 2014 and
2013, were $1,120, $1,007 and $971 respectively, and are included in Vessels and other vessels’
costs, in Operating expenses, in General and administrative expenses and in Loss on vessel’s
sale in the accompanying consolidated financial statements. As at December 31, 2015 and 2014,
an amount of $17 and $79, respectively, was payable to Altair and is included in Due to related
parties, current in the accompanying consolidated balance sheets.
b) Diana Enterprises Inc. (“Diana Enterprises” or “DEI”): Diana Enterprises is a
company controlled by the Company’s CEO and Chairman and has entered into an agreement
with DCI to provide brokerage services for a monthly fee of $121 until March 31, 2015, payable
quarterly in advance. The agreement was renewed on April 1, 2015 for a further twelve months,
with substantially similar fees and payment terms to the former agreement. For the years ended
December 31, 2015, 2014 and 2013, total brokerage fees, amounted to $1,451, $1,450 and $1,425
respectively, and are included in General and administrative expenses in the accompanying
consolidated statements of operations. As at December 31, 2015 and 2014, there was no amount
due from or due to Diana Enterprises.
c) Diana Shipping Inc. (“DSI”): On May 20, 2013, the Company, through its subsidiary
Eluk Shipping Company Inc., entered into an unsecured loan agreement of up to $50,000 with
Diana Shipping Inc., one of the Company’s major shareholders, to be used to fund vessel
acquisitions and for general corporate purposes. The loan is guaranteed by the Company and,
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DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
until the amendment discussed below, it bore interest at a rate of LIBOR plus a margin of 5.0%
per annum and a fee of 1.25% per annum (“back-end fee”) on any amounts repaid upon any
repayment or voluntary prepayment dates. In August 2013, the full amount was drawn down
under the loan agreement which was repayable on August 20, 2017.
On September 9, 2015, and in relation with the RBS refinance discussed in Note 7, the loan
agreement with DSI was amended. The new loan agreement is extended until March 15, 2022,
provides for annual repayments of $5,000, plus a balloon instalment at the final maturity date,
and bears interest at LIBOR plus margin of 3.0% per annum. The Company also agreed to pay
at the date of the amendment the accumulated back-end fee, amounting to $1,302, and that no
additional back-end fee will be charged thereafter. Furthermore, the Company agreed that it will
pay at the final maturity date a flat fee of $200.
For 2015, 2014 and 2013, interest and back-end fee expense incurred under the loan
agreement with DSI amounted to $2,745, $3,247 and $1,195, respectively, and is included in
Interest and finance costs in the accompanying consolidated statements of operations. As
at December 31, 2015, the flat fee of $200 is included in Related party financing, non-current,
in the accompanying consolidated balance sheets and in Interest and finance costs in the
accompanying consolidated statements of operations. Accrued interest as of December 31,
2015 and 2014 amounted to $103 and $57, respectively, and is included in Due to related parties,
current, while accrued back-end fee as of December 31, 2014 amounted to $867, and is included
in Related party financing, non-current, in the accompanying consolidated balance sheets.
As of December 31, 2015, the repayment schedule of the loan is as follows:
Period
January 1, 2016 to December 31, 2016
January 1, 2017 to December 31, 2017
January 1, 2018 to December 31, 2018
January 1, 2019 to December 31, 2019
January 1, 2020 to December 31, 2020
January 1, 2021 and thereafter
Total
Principal
Repayment
$
5,000
5,000
5,000
5,000
5,000
23,750
$
48,750
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140
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
4. Vessels
During 2014, the Company, through its subsidiaries Delap Shipping Company Inc., Jabor
Shipping Company Inc. and Dud Shipping Company Inc., acquired from unaffiliated third parties
the vessels “March”, “Great” and “Pamina”, respectively, for an aggregate purchase price of
$60,300. An amount of $348 was deducted from the purchase price of the vessels, representing
lumpsum compensations agreed with the sellers. In 2015, the Company, through its subsidiaries
Kapa Shipping Company Inc. and Mago Shipping Company Inc., entered into two memoranda
of agreement with unrelated parties, to acquire the container vessels “YM Los Angeles” and “YM
New Jersey”, respectively, for the purchase price of $21,500 each. The vessels were acquired
with attached time charters, for which a deferred asset was recognized (Note 6). Later in 2015,
the Company, through its subsidiaries Meck Shipping Company Inc. and Langor Shipping
Company Inc., entered into two memoranda of agreement with unrelated parties, to acquire the
container vessels “Rotterdam” and “Hamburg”, for a purchase price of $37,500 and $38,500
respectively. An amount of $475 was deducted from the purchase price of the vessel “Rotterdam”,
representing a lumpsum compensation agreed with the sellers. Additional capitalized costs for
the years ended December 31, 2015 and 2014 amounted to $495 and $427.
In 2015, the Company, after taking into account factors as the vessels’ age and employment
prospects under the current market conditions, determined the future undiscounted cash flows
for each of its vessels, considering its various alternatives, including that certain vessels would be
sold immediately after the expiration of their existing charter parties. This assessment concluded
that the carrying value of the vessel Hanjin Malta was not recoverable and accordingly, the
Company has recognized an impairment loss of $6,607, which is separately reflected in the 2015
accompanying statement of operations. The fair value of the vessel, which was sold subsequent
to the balance sheet date (Note 16), was determined through Level 3 inputs of the fair value
hierarchy as determined by management, making also use of available market data for the
market value of vessels with similar characteristics. The vessel was measured at fair value on a
non-recurring basis as a result of the management’s impairment test exercise. The fair value and
impairment loss of the specific vessel are presented below:
Vessel
Hanjin Malta
Fair Value
Measurement
Vessel
Impairment Loss
$
5,020
$
6,607
During 2014, the Company, through its subsidiary Mejit Shipping Company Inc., sold the
vessel “Sardonyx” (ex “APL Sardonyx”) to an unaffiliated third party for demolition, for a sale price
of $9,722, net of address commission. In 2015, the Company, through Lemongina Inc., entered
into a memorandum of agreement to sell the vessel “ Garnet” (ex “ APL Garnet”) to an unrelated
party for demolition, for a sale price of $7,615, net of address commission. The aggregate loss
from the sale of the vessels in 2015 and 2014, including direct to sale expenses, amounted to
$8,300 and $695, respectively, and is separately reflected in the accompanying consolidated
statements of operations.
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DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
The amounts in the accompanying consolidated balance sheets are analyzed as follows:
Vessels’ Cost
Accumulated
Depreciation
Net Book Value
Balance, December 31, 2013
- Acquisitions and other vessels’ costs
- Vessels’ disposals
- Depreciation for the period
Balance, December 31, 2014
- Acquisitions and other vessels’ costs
- Vessels’ disposals
- Depreciation for the period
- Impairment charges
$
$
284,108
$
(18,736)
$
60,379
(11,409)
-
-
1,929
(10,177)
333,078
$
(26,984)
$
113,020
(17,588)
-
(6,607)
-
2,243
(12,613)
-
Balance, December 31, 2015
$
421,903
$
(37,354)
$
265,372
60,379
(9,480)
(10,177)
306,094
113,020
(15,345)
(12,613)
(6,607)
384,549
As at December 31, 2015, certain of the Company’s vessels, having a total carrying value of
$275,602, were provided as collateral to secure the term facility with the Royal Bank of Scotland
plc, discussed in Note 7.
5. Property and Equipment, net
The amounts in the accompanying consolidated balance sheets are analyzed as follows:
Property and
Equipment
Accumulated
Depreciation
Net Book
Value
Balance, December 31, 2013
- Land acquisition
- Additions in equipment
- Depreciation for the period
Balance, December 31, 2014
- Additions in property and equipment
- Depreciation for the period
Balance, December 31, 2015
$
$
$
421
871
29
-
1,321
$
39
-
$
(100)
$
-
-
(132)
(232)
$
-
(141)
1,360
$
(373)
$
321
871
29
(132)
1,089
39
(141)
987
In December 2014, UOT acquired, jointly with two other related parties, from unrelated
individuals a plot of land in Athens, Greece, for an aggregate purchase price of Euro 2.0 million or
$2,490, based on the exchange rate of US Dollar to Euro on the date of acquisition. The plot of
land is under the common ownership of the joint purchasers. The Company paid one third of the
purchase price, and the total cost for the acquisition of the plot, including additional capitalized
costs, amounted to $871.
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DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
6. Prepaid Charter Revenue
The amounts presented as Prepaid charter revenue in the accompanying consolidated
balance sheets represent the unamortized balance of an asset associated with vessels acquired
with time charters attached at values above their charter-free fair market values at the time
of acquisition, which is amortized to revenue over the period of the respective time charter
agreements. In this respect, during 2015, the Company recognized prepaid charter revenue for
the newly-acquired vessels “YM Los Angeles” and “YM New Jersey” (Note 4). As of December
31, 2015, the unamortized balance of the account relates to the vessels “Hanjin Malta”, “YM
New Jersey” and “YM Los Angeles”, with their charter expiration falling the earliest in February,
September and October 2016, respectively. Accordingly, the balance of the account as of
December 31, 2015 is expected to be fully amortized within the next twelve months.
The movement of the prepaid charter revenue from vessel acquisitions with time-charter
attached for the years ended December 31, 2015 and 2014 was as follows:
Balance, December 31, 2013
- Amortization for the period
- Write-off of fully amortized assets
Balance, December 31, 2014
- Additions
- Amortization for the period
- Write-off of fully amortized assets
Gross Amount
Accumulated
Amortization
Net Amount
$
$
42,500
$
(24,526)
$
17,974
-
(9,000)
(11,610)
9,000
33,500
$
(27,136)
$
6,000
-
(12,500)
-
(8,566)
12,500
(11,610)
-
6,364
6,000
(8,566)
-
Balance, December 31, 2015
$
27,000
$
(23,202)
$
3,798
The amortization to revenues for 2015, 2014 and 2013 is separately reflected in Prepaid
charter revenue amortization in the accompanying consolidated statements of operations.
7. Long-Term Bank Debt, Current and Non-Current
The amounts of long-term bank debt shown in the accompanying consolidated balance
sheets are analyzed as follows:
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143
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
2015 Total
Current
Non-current 2014 Total
Current
Non-current
Royal Bank of Scotland -
Revolving Credit facility
$
- $
- $
- $
98,700 $
6,000 $
92,700
Royal Bank of Scotland -
Term Loan
less unamortized deferred
financing costs
Total bank debt, net of
unamortized deferred
financing costs
144,687
15,376
129,311
-
-
-
(2,009)
(479)
(1,530)
(402)
(196)
(206)
$ 142,678 $
14,897 $
127,781 $
98,298 $
5,804 $
92,494
The Royal Bank of Scotland plc - Revolving Credit Facility: On December 16,
2011, the Company entered into a revolving credit facility with the Royal Bank of Scotland
plc (“RBS”), where the lenders have agreed to make available to it a revolving credit facility of
up to $100,000 in order to refinance part of the acquisition cost of the vessels m/v “Sagitta”
and m/v “Centaurus” and finance part of the acquisition costs of additional containerships
(“Additional Ships”). An aggregate amount of $98,700 has been drawn down under the credit
facility.
The facility would be available for five years with the maximum available amount reducing
based on the age of the financed vessels and being assessed on a yearly basis, as well as, at
the date on which the age of any Additional Ship exceeded the 20 years. In the event that the
amounts outstanding at that time exceeded the revised Available Facility Limit, the Company
would repay such part of the loan that exceeded the Available Facility Limit. The credit facility
provided for interest at LIBOR plus a margin of 2.75% per annum, and effective June 1, 2013,
for an increased margin of 3.10% per annum over LIBOR.
The facility was secured by first priority mortgages over certain vessels of the fleet, general
assignments of earnings, insurances and requisition compensation, minimum insurance
coverage, specific assignments of any charters exceeding durations of twelve months,
pledge of shares of the guarantors which were the ship-owning companies of the mortgaged
vessels, manager’s undertakings and minimum security value depending on the average
age of the mortgaged vessels. The credit facility also included restrictions as to changes in
certain shareholdings, management and employment of vessels, and required minimum cash
of 10% of the drawings under the revolving facility, but not less than $5,000, to be deposited
by the borrower with the lenders. Furthermore, the facility agreement contained customary
financial covenants and the Company was not permitted to pay any dividends that would result
in a breach of the financial covenants. In 2013 and 2014, the Company entered into various
supplemental agreements with the lenders, the main terms of which provided for security
interest on the minimum cash held by the borrower in favor of the lenders and for changes in
the definitions of certain financial covenants. In addition, the Company was required to provide
additional vessels as collateral to secure the facility and was restricted from providing any
security interest over the Company’s assets in favor of DSI.
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DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
Based on the age of the financed vessels, an amount of $6,000 was repaid in August 2015.
On September 15, 2015, in connection with the loan re-finance discussed below, the Company
prepaid in full the outstanding balance of $92,700 and the facility was terminated. As a result
of the debt modification, the unamortized balance of the related financing costs, amounting to
$263, is amortized to Interest and finance costs, along with the new financing costs, over the life
of the new term loan facility.
The Royal Bank of Scotland plc - Term Loan: On September 10, 2015, the Company,
through nine of its subsidiaries, entered into a loan agreement with RBS of up to $148,000, to
re-finance the acquisition cost of seven of the Company’s vessels, including the full prepayment
of the existing facility agreement (discussed above), and to support the acquisition of the two
newly acquired vessels, the “Hamburg” and the “Rotterdam” (Note 4). Until December 31, 2015,
the Company drew down the full amount of the loan and paid arrangement and structuring fees
amounting to $1,875.
The loan bears interest at the rate of 2.75% per annum over LIBOR and is repayable in
quarterly instalments and a balloon payment payable together with the last installment in
September 2021. The Company paid commitment commissions of 1.375% per annum on the
undrawn amounts, from July 30, 2015, date of acceptance of the lenders’ offer letter, until the
drawdown dates.
The loan is secured by first preferred mortgages on nine vessels of the Company’s fleet, first
priority deeds of assignments of insurances, earnings, charter rights and requisition compensation
and a corporate guarantee. The loan agreement also contains customary financial covenants,
minimum security value of the mortgaged vessels, requires minimum liquidity of $500 per vessel
in the fleet and restricted cash of $9,000 to be deposited by the borrowers with the lenders for
the duration of the loan. There are also restrictions as to changes in the DSI loan agreement,
other than the amendment described in Note 3, in the securities purchase agreement that the
Company has entered into in the private placement which took place in July 2014 (discussed in
Note 10), in certain shareholdings and management of the vessels. Finally, the Company is not
permitted to pay any dividends that would result in a breach of the financial covenants.
The weighted average interest rate of the bank loans during 2015 and 2014 was 3.22% and
3.28%, respectively. During 2015, 2014 and 2013, total interest incurred on long-term bank debt,
amounted to $3,541, $3,282 and $3,029, respectively, and is included in Interest and finance
costs in the accompanying consolidated statements of operations (Note 12). Commitment
fees incurred during 2015, 2014 and 2013, amounted to $329, $0 and $53, respectively, and
are also included in Interest and finance costs in the accompanying consolidated statements of
operations.
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DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
The maturities of the Company’s debt facility described above, as of December 31, 2015, and
throughout its term are as follows:
Period
January 1, 2016 to December 31, 2016
January 1, 2017 to December 31, 2017
January 1, 2018 to December 31, 2018
January 1, 2019 to December 31, 2019
January 1, 2020 to December 31, 2020
January 1, 2021 and thereafter
Total
Principal Repayment
$
$
15,376
15,376
15,376
15,376
15,376
67,807
144,687
8. Deferred Revenue, Current
The amounts presented as deferred revenue, current in the accompanying consolidated
balance sheets as of December 31, 2015 and 2014 reflect (a) cash received prior to the balance
sheet date for which all criteria to recognize as revenue have not been met, (b) deferred revenue
resulting from free quantities of lubricants provided to the vessels as a benefit from the suppliers
for entering into long-term contracts with them. Deferred revenue under (b) above is amortized
to Operating expenses according to the terms of the respective contracts. For 2015, 2014 and
2013, amortization of the deferred revenue from free lubricants amounted to $50, $221 and $107,
respectively.
Hires collected in advance
Deferred revenue from lubricants
Deferred Revenue, current
9. Commitments and Contingencies
2015
647
-
647
$
$
2014
441
50
491
$
$
(a) Various claims, suits, and complaints,
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.
including those
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.
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146
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
The Company’s vessels are covered for pollution in the amount of $1 billion per vessel per
incident, by the P&I Association in which the Company’s vessels are entered. The Company’s
vessels are subject to calls payable to their P&I Association and may be subject to supplemental
calls which are based on estimates of premium income and anticipated and paid claims. Such
estimates are adjusted each year by the Board of Directors of the P&I Association until the closing
of the relevant policy year, which generally occurs within three years from the end of the policy
year. Supplemental calls, if any, are expensed when they are announced and according to the
period they relate to. The Company is not aware of any supplemental calls outstanding in respect
of any policy year.
(b) As at December 31, 2015, the majority of our vessels were operating under time charter
agreements, while the rest of them were not chartered. The minimum contractual annual charter
revenues, net of related commissions to third parties, to be generated from the existing as at
December 31, 2015, non-cancelable time charter contracts until their expiration, are estimated at
$21,819 until December 31, 2016.
10. Changes in Capital Accounts
(a) Compensation cost on restricted common stock: In 2010 the Company
adopted an equity incentive plan which entitles the Company’s directors, officers, employees,
consultants and service providers to receive options to acquire the Company’s common stock,
stock appreciation rights, restricted stock, restricted stock units and unrestricted common
stock. The Equity Incentive plan was amended in 2012. A total of 2,392,198 common shares
have been reserved under the Incentive plan (as amended) for issuance, of which as at December
31, 2015, 1,032,502 common shares remain available to be issued. The plan is administered by
our compensation committee, or such other committee of the Company’s Board of Directors as
may be designated by the Board to administer the plan. The plan will expire in ten years from the
adoption of the plan by the Board of Directors.
In May 2015, the Company’s board of directors approved to adopt the Diana Containerships
Inc. 2015 Equity Incentive Plan, with substantially the same terms and provisions as the Company’s
Amended and Restated 2010 Equity Incentive Plan. Under the 2015 Equity Incentive Plan, an
aggregate of 5,000,000 common shares were reserved for issuance. The plan is administered by
the compensation committee, or such other committee of the Company’s board of directors as
may be designated by the board to administer the plan. The plan will expire in ten years from the
adoption of the plan by the Board of Directors.
During 2015, the Company’s Board of Directors approved the grant of restricted common
stock to the executive management pursuant to the Company’s equity incentive plan, and
in accordance with terms and conditions of restricted shares award agreements signed by
the grantees. The restricted shares are subject to forfeiture until they vest. Unless they forfeit,
grantees have the right to vote, to receive and retain all dividends paid and to exercise all other
rights, powers and privileges of a holder of shares. The fair value of the restricted shares has
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DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
been determined with reference to the closing price of the Company’s stock on the date the
agreements were signed. The aggregate compensation cost is being recognized ratably in the
consolidated statement of operations over the respective vesting periods, which is 3 years.
During 2015, 2014 and 2013, compensation cost on restricted stock amounted to $928,
$341 and $371, respectively, and is included in General and administrative expenses. At
December 31, 2015 and 2014, the total unrecognized compensation cost relating to restricted
share awards was $1,797 and $1,049, respectively. At December 31, 2015, the weighted-
average period over which the total compensation cost related to non-vested awards not
yet recognized is expected to be recognized is 1.07 years. During 2015, 2014 and 2013, the
movement of restricted stock cost was as follows:
Outstanding at December 31, 2012
Granted
Vested
Outstanding at December 31, 2013
Granted
Vested
Outstanding at December 31, 2014
Granted
Vested
Outstanding at December 31, 2015
Number of Shares
Weighted Average
Grant Date Price
79,998
$
-
(66,664)
13,334
$
361,442
(13,334)
361,442
$
731,590
(120,481)
972,551
$
12.50
-
13.50
7.50
3.72
7.50
3.72
2.29
3.72
2.64
(b) ATM offering: On May 21, 2013, the Company filed a prospectus supplement
pursuant to Rule 424(b) relating to the offer and sale of an aggregate of up to $40.0
million in gross proceeds of its common stock under an at-the market offering. In 2013, an
aggregate of 2,859,603 shares of the Company’s common stock have been issued, and
the net proceeds received during the year, after deducting underwriting commissions and
offering expenses payable by the Company, amounted to $12,356. In 2014, a number of
1,092,596 of additional shares were issued and the net proceeds received during the period,
after deducting underwriting commissions and offering expenses payable by the Company,
amounted to $4,652. On July 28, 2014, the Company announced the suspension of the
offer and sale of its common shares under the existing at-the-market offering until there is a
significant improvement in the containership market.
(c) Private Equity Placement: On July 28, 2014, the Company entered into an
agreement to sell 36,653,386 shares of its common stock in a private placement at a purchase
price of $2.51 per share. In the transaction, DSI purchased $40,000 of common shares, two
unaffiliated institutional investors together purchased $40,000 of common shares and the
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148
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
Company’s CEO and Chairman, a member of his family and other members of the senior
management, together purchased $12,000 of common shares. The transaction was approved
by an independent committee of the Company’s Board of Directors, which obtained a fairness
opinion from an independent financial advisor regarding the financial fairness to the Company of
the aggregate purchase price to be received by the Company. Pursuant to the Securities Purchase
Agreement, the Company agreed that, commencing with the dividend payable with respect to the
second quarter of 2014, and for not less than four consecutive fiscal quarters thereafter, it will not
declare or pay dividends in excess of $0.01 per share on an annualized basis; provided, however,
that in the event of a material improvement in the container shipping market, the Company’s board
of directors may amend this dividend policy to resume the payment of dividends. In connection
with this transaction, the Company and its respective counter parties entered into amendments to
the brokerage services agreement with DEI, the loan agreement with DSI, both discussed in Note
3, the facility agreement with RBS discussed in Note 7 and the Stockholders Rights Agreement,
discussed under (d) below. The transaction closed on July 29, 2014 and the net proceeds
received, after deducting offering expenses payable by the Company, amounted to $91,349.
(d) Stockholders Rights Agreement: In 2010, the Company entered into a
stockholders rights agreement (the “Stockholders Rights Agreement”) with Mellon Investor
Services LLC as Rights Agent. Pursuant to this Stockholders Rights Agreement, each share
of the Company’s common stock includes one right (the “Right”) that will entitle the holder
to purchase from the Company a unit consisting of one one-thousandth of a share of our
preferred stock at an exercise price specified in the Stockholders Rights Agreement, subject
to specified adjustments. Until a Right is exercised, the holder of a Right will have no rights to
vote or receive dividends or any other stockholder rights. As at December 31, 2015 and 2014,
no Rights were exercised.
11. Voyage and Vessel Operating Expenses
The amounts in the accompanying consolidated statements of operations are analyzed as
follows:
Voyage Expenses
Port charges
Bunkers
Commissions
Total
Vessel Operating Expenses
Crew wages and related costs
Insurance
Spares and consumable stores
Repairs and maintenance
Tonnage taxes (Note 14)
Environmental costs
Other operating expenses
Total
F-28
$
$
$
2015
2014
2013
52
$
$
$
1,284
1,283
2,619
17,626
2,454
11,134
3,322
644
238
429
$
$
$
-
5
327
332
14,415
1,772
6,075
3,359
526
201
211
30
50
625
705
16,944
1,891
8,071
3,277
356
-
331
$
35,847
$
26,559
$
30,870
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149
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
12. Interest and Finance Costs
The amounts in the accompanying consolidated statements of operations are analyzed as
follows:
Interest expense on bank debt (Note 7)
$
3,541
$
3,282
$
Interest expense and other fees on related party debt (Note 3)
Amortization of deferred financing costs (Note 7)
Commitment fees and other (Note 7)
2,945
268
412
3,247
196
21
2015
2014
2013
3,029
1,195
197
133
Total
$
7,166
$
6,746
$
4,554
13. Earnings / (Loss) per Share
All shares issued (including the restricted shares issued under the equity incentive plan)
are DCI’s common stock and have equal rights to vote and participate in dividends, subject
to forfeiture provisions set forth in the applicable award agreement. Unvested shares granted
under the Company’s incentive plan of 972,551, as at December 31, 2015, and 361,442 as at
December 31, 2014 (Note 10), received dividends which are not refundable, even if such shares
are forfeited, and therefore are considered participating securities for basic earnings per share
calculation purposes. Dividends declared and paid during 2015, 2014 and 2013 amounted to
$739, $7,534 and $29,674, respectively. The calculation of basic earnings/ (loss) per share does
not consider the non-vested shares as outstanding until the time-based vesting restrictions have
lapsed. For the purpose of calculating diluted earnings per share, the weighted average number
of diluted shares outstanding includes the incremental shares assumed issued as determined
in accordance with the antidilution sequencing provisions of ASC 260. For 2015 and 2013 and
on the basis that the Company incurred losses, the effect of the incremental shares assumed
issued would have been anti-dilutive and therefore basic and diluted losses per share are the
same amount. For 2014, the effect of the incremental shares assumed issued, determined in
accordance with the antidilution sequencing provision of ASC 260, was anti-dilutive.
2015
2014
2013
Basic LPS Diluted LPS Basic EPS Diluted EPS
Basic LPS
Diluted LPS
Net income / (loss)
$
(17,531) $
(17,531) $
3,238 $
3,238 $
(57,346) $
(57,346)
Less distributed
earnings allocated to
restricted shares
Net income/
(loss) available
to common
stockholders
Weighted average
number of common
shares, basic
Effect of dilutive
restricted shares
-
-
(50)
(50)
-
-
(17,531)
(17,531)
3,188
3,188
(57,346)
(57,346)
72,876,441 72,876,441 51,645,071
51,645,071 33,159,328
33,159,328
-
-
-
-
-
-
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F-29
ANNUAL REPORT 2015
150
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
Weighted
average number
of common
shares, diluted
Earnings/(loss)
per common
share, basic
and dilute
72,876,441 72,876,441 51,645,071
51,645,071 33,159,328
33,159,328
$
(0.24) $
(0.24) $
0.06 $
0.06 $
(1.73) $
(1.73)
14. Income Taxes
Under the laws of the countries of the companies’ incorporation and / or vessels’ registration,
the companies are not subject to tax on international shipping income; however, they are subject
to registration and tonnage taxes, which are included in vessel operating expenses in the
accompanying consolidated statements of operations (Note 11).
Under Section 883 of the Internal Revenue Code of the United States (the “Code”), a corporation
would be exempt from U.S. federal income taxation on its U.S.-source shipping income if: (a) it is
organized in a foreign country that grants an “equivalent exemption” to corporations organized
in the United States (“United States corporations”); and (b) either (i) more than 50% of the value
of its common stock is owned, directly or indirectly, by “qualified shareholders,”, which is referred
to as the “50% Ownership Test,” or (ii) its common stock is “primarily and regularly traded on
an established securities market” in a country that grants an “equivalent exemption” to U.S.
corporations or in the United States, which is referred to as the “Publicly-Traded Test.”
The Marshall Islands, the jurisdiction where DCI and each of its vessel-owning subsidiaries
are incorporated, grant an “equivalent exemption” to U.S. corporations. Therefore, the Company
would be exempt from U.S. federal income taxation with respect to its U.S.-source shipping
income if either the 50% Ownership Test or the Publicly-Traded Test is met.
Notwithstanding the foregoing, the regulations provide, in pertinent part, that a class of
shares will not be considered to be “regularly traded” on an established securities market for any
taxable year in which 50% or more of the vote and value of the outstanding shares of such class
are owned, actually or constructively under specified share attribution rules, on more than half the
days during the taxable year by persons who each own 5% or more of the vote and value of such
class of outstanding shares, to which we refer as the “Five Percent Override Rule.”
The Company believes that it satisfies the Publicly-Traded Test and is not subject to the
Five Percent Override Rule. However, there are factual circumstances beyond the control of the
Company that could cause it to lose the benefit of the Section 883 exemption. For example, there
is a risk that the Company could no longer qualify for exemption under Code section 883 for a
particular taxable year if shareholders with a five percent or greater interest in its common shares
were to own 50% or more of its outstanding common shares on more than half the days of the
taxable year.
It is not anticipated that the Company will have any vessel operating to the United States on
a regularly scheduled basis. Based on the foregoing and on the expected mode of the shipping
operations and other activities of Diana Containerships, it is not anticipated that any of the U.S.-
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ANNUAL REPORT 2015 151
DIANA CONTAINERSHIPS INC.
Notes to Consolidated Financial Statements
December 31, 2015
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
source shipping income of the Company will be “effectively connected” with the conduct of a U.S.
trade or business.
15. Financial Instruments
The carrying values of temporary cash investments, accounts receivable and accounts
payable approximate their fair value due to the short-term nature of these financial instruments.
The fair value of long-term loans and restricted cash balances, bearing interest at variable interest
rates, approximate their recorded values as at December 31, 2015 and 2014.
16. Subsequent Events
(a) Receipt of NASDAQ Notice: On January 14, 2016, the Company received written
notification from The NASDAQ Stock Market LLC indicating that, because the closing bid price
of the Company’s common stock for the last 30 consecutive business days was below $1.00
per share, the Company no longer meets the minimum bid price requirement for The Nasdaq
Global Select Market. The applicable grace period to regain compliance is until July 12, 2016.
Within this period, the Company intends to complete a reverse stock split, in order to regain
compliance. In this respect, on February 24, 2016, the Annual General Meeting of Shareholders
approved an amendment to the Company’s Amended and Restated Articles of Incorporation
granting authority to the Company’s board of directors to effect a reverse stock split on or before
the Company’s 2017 Annual Meeting of Shareholders.
(b) Vessel’s sale for demolition: On February 16, 2016, the Company, through Nauru
Shipping Company Inc., entered into a memorandum of agreement to sell the vessel “Hanjin
Malta” to an unrelated party for demolition, for a sale price of $5,044 before commissions. On
March 9, 2016, the vessel was delivered to her new owners.
(c) Equity incentive plan and annual bonus: On February 24, 2016, the Company’s
Board of Directors approved a cash bonus of about $180 to all employees and consultants of
the Company and a cash bonus of about $242 to Diana Enterpsises Inc. In addition, the Board
approved an award of 999,989 of restricted common stock to the executive management and
the non-executive directors, pursuant to the Company’s 2010 equity incentive plan, as amended
in 2012. The fair value of the restricted shares based on the closing price on the date of granting
was about $380 and will be recognized in income ratably over the restricted shares vesting period
which will be 3 years.
(d) Declaration of dividends: On March 1, 2016, the Company declared dividends
amounting to $0.0025 per share, which will be paid on or around March 30, 2016 to stockholders
of record as of March 15, 2016.
The Annual Report on Form 20-F (including Exhibits) is available
for download on the Company’s website: www.dcontainerships.com
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ANNUAL REPORT 2015 152
Corporate Directory
Directors and Executive Officers
Symeon Palios
Chairman of the Board of Directors
and Chief Executive Officer
Anastasios Margaronis
Director and President
Andreas Michalopoulos
Chief Financial Officer and Treasurer
Ioannis Zafirakis
Director, Chief Operating Officer and Secretary
Eleni Leontari
Chief Accounting Officer
Antonios Karavias
Non-Executive Director
Nikolaos Petmezas
Non-Executive Director
Giannakis Evangelou
Non-Executive Director
Reidar Brekke
Non-Executive Director
Corporate Offices
Diana Containerships Inc.
Pendelis 18
17564 Palaio Faliro
Athens, Greece
Tel: +30-216-600-2400
Email: info@dcontainerships.com
Stock Listing
Diana Containerships Inc.’s stock
is traded on the Nasdaq Global Market
under the symbol “DCIX”.
Transfer Agent and Registrar
Computershare
P.O. Box 358015
Pittsburgh, PA 15252-8015
or 480 Washington Boulevard
Jersey City, NJ 07310
Toll Free Number: +1-800-231-5469
Outside of US: +1-201-680-6578
www.bnymellon.com/shareowner/equityaccess
Legal Counsel
Seward and Kissel LLP
One Battery Park Plaza
New York, NY 10004
Tel: +1-212-574-1200
Independent Auditors
Ernst & Young (Hellas)
Certified Auditors-Accountants S.A.
Chimarras 8B
151 25 Maroussi
Greece
Tel: +30-210-288-6000
Shareholder/Corporate Information
Any shareholder, investor, or analyst seeking
further information may contact:
Corporate Contact:
Ioannis Zafirakis
Director, Chief Operating Officer and
Secretary
Pendelis 18
17564 Palaio Faliro
Athens, Greece
Tel: +30-216-600-2400
Email: izafirakis@dcontainerships.com
Investor and Media Relations:
Edward Nebb
Comm-Counsellors, LLC
724 Valley Road
New Canaan, Connecticut 06840
Tel: +1-203-972-8350
Email: enebb@optonline.net
Website
Press releases, fleet information, stock
quotes, corporate investor information,
and SEC filings can all be accessed on the
company’s website,
www.dcontainerships.com
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