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2 ■ ANNUAL REPORT 2018
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A
2018 ANNUAL REPORT
OF PERFORMANCE SHIPPING INC.
ANNUAL REPORT 2018 ■ 3
4 ■ ANNUAL REPORT 2018
PERFORMANCE
SHIPPING INC.
TABLE OF CONTENTS
Operating and Financial Review
and Prospects
Directors, Senior Management
and Employees
5
22
Financial Statements
F pages
ANNUAL REPORT 2018 ■ 5
This 2018 Annual Report of Performance Shipping Inc. (the “Company”) is substantially derived from the
Company’s 2018 Annual Report filed on Form 20-F with the U.S. Securities and Exchange Commission (the
“SEC”) on March 18, 2019, which is available on the SEC’s website at www.sec.gov. Additional information,
including documents filed as exhibits to the Company’s Form 20-F, is also available on the SEC’s website.
FORWARD-LOOKING STATEMENTS
Performance Shipping 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 Performance Shipping 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. Key Information – 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, our
future operating or financial results, changes to our financial condition and liquidity, including our ability to pay
amounts that we owe and obtain additional financing to fund capital expenditures, acquisitions and other general
corporate activities, our ability to continue as a going concern, potential liability from pending or future litigation,
changes in governmental rules and regulations or actions taken by regulatory authorities, 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.
6 ■ ANNUAL REPORT 2018
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 anticipated in these forward-looking statements as a result of certain factors, such
as those set forth in the section entitled “Item 3. Key Information – D. Risk Factors” included in our Form 20-F filed
with the SEC on March 18, 2019, 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 all of our vessels, and the minimum remaining durations of our time charters are up to
2 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:
> 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.
> 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.
> 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.
> 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.
> 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.
ANNUAL REPORT 2018 ■ 7
> 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, lubricant costs, tonnage taxes, regulatory fees,
environmental costs, lay-up expenses 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.
Ownership days
Available days
Operating days
Fleet utilization
Time charter equivalent (TCE) rate (1)
Daily operating expenses
For the
year
ended
December
31, 2018
For the
year
ended
December
31, 2017
For the
year
ended
December
31, 2016
2,307
2,284
2,177
4,178
4,155
3,152
4,780
4,735
3,304
95.3 %
75.9 %
69.8 %
$
$
10,639 $
5,320 $
6,698 $
5,441 $
6,341
6,321
(1) Please see “Item 3. Key Information – A. Selected Financial Data” included in our Form 20-F filed
with the SEC on March 18, 2019, 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:
> the duration of our charters;
> our decisions relating to vessel acquisitions and disposals;
> the amount of time that we spend positioning our vessels;
> the amount of time that our vessels spend in drydock undergoing repairs;
> maintenance and upgrade work;
> the age, condition and specifications of our vessels;
>
levels of supply and demand in the container shipping industry; and
> other factors affecting spot market charter rates for container vessels.
8 ■ ANNUAL REPORT 2018
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.
Currently, all of the vessels in our fleet are employed on time charters. 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. Our vessels are currently
employed under time charters, and these time charters require the charterer to bear all of those expenses. In
addition to this, our laid up vessels, if any, do not incur bunkers costs. However, at times when our vessels are
off-hire due to other reasons, we incur port and canal charges and bunker 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. Our 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, lay-up expenses 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, UOT 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 UOT 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
is estimated at $350 per light-weight ton for all vessels in our fleet. We believe that these assumptions are common in
the containership industry.
ANNUAL REPORT 2018 ■ 9
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 Steamship Shipbroking Enterprises Inc. 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
In the past, we have incurred interest and finance costs in connection with our vessel-specific debt. Currently,
and as of December 31, 2018, we had no debt outstanding.
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 do 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 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:
> obtain the charterer’s consent to us as the new owner;
> obtain the charterer’s consent to a new technical manager;
> obtain the charterer’s consent to a new flag for the vessel;
> arrange for a new crew for the vessel;
10 ■ ANNUAL REPORT 2018
> replace all hired equipment on board, such as gas cylinders and communication equipment;
> negotiate and enter into new insurance contracts for the vessel through our own insurance brokers;
> register the vessel under a flag state and perform the related inspections in order to obtain new trading
trading certificates from the flag state;
>
implement a new planned maintenance program for the vessel; and
> 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:
> acquisition and disposition of vessels;
> employment and operation of our vessels; and
> 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:
> vessel maintenance and repair;
> crew selection and training;
> vessel spares and stores supply;
> contingency response planning;
> on board safety procedures auditing;
> accounting;
> vessel insurance arrangement;
> vessel chartering;
> vessel hire management;
> vessel surveying; and
> 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:
> management of our financial resources, including banking relationships, i.e., administration of
bank loans and bank accounts;
> management of our accounting system and records and financial reporting;
> administration of the legal and regulatory requirements affecting our business and assets; and
> management of the relationships with our service providers and customers.
ANNUAL REPORT 2018 ■ 11
The principal factors that may affect our profitability, cash flows and shareholders’ return on investment
include:
> rates and periods of charterhire;
>
levels of vessel operating expenses;
> depreciation expenses;
> financing costs; and
> fluctuations in foreign exchange rates.
See “ Item 3. Key Information – D. Risk Factors” included in our Form 20-F filed with the SEC on March 18, 2019 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 2018, we recorded impairment charges for the vessels Hamburg and Pamina,
as our impairment test exercise indicated that their carrying values were not recoverable. In 2017, we recorded
impairment charges for the vessels Centaurus and New Jersey as our impairment test exercise indicated that their
carrying values were not recoverable.
Based on: (i) the carrying value of each of our vessels as of December 31, 2018 and 2017, and (ii) what we
believe the charter-free market value of each of our vessels was as of December 31, 2018 and 2017, the aggregate
carrying value of two vessels in our fleet as of December 31, 2018 and six vessels as of December 31, 2017
exceeded their aggregate charter-free market value by approximately $34.8 million and $72.8 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, 2018 and 2017, 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 two and six vessels, respectively, would be sold at prices that reflect our
estimate of their charter-free market values as of December 31, 2018 and 2017.
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:
> reports by industry analysts and data providers that focus on our industry and related dynamics
affecting vessel values;
> news and industry reports of similar vessel sales;
> 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;
12 ■ ANNUAL REPORT 2018
> approximate market values for our vessels or similar vessels that we have received from
shipbrokers, whether solicited or unsolicited, or that shipbrokers have generally disseminated;
> offers that we may have received from potential purchasers of our vessels; and
> 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 under “Item 3. Key Information – D. Risk Factors” included in our Form
20-F filed with the SEC on March 18, 2019, 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 Domingo
4 Puelo
5 Pucon
6 March
7 Great
8 Pamina
9 New Jersey
10 Rotterdam
11 Hamburg
Vessels Net Book Value
Carrying Value
(in millions of US dollars)
TEU
Year Built
At December
At December
31, 2018
31, 2017
3,426
3,426
3,739
6,541
6,541
5,576
5,576
5,042
4,923
6,494
6,494
2010
2010
2001
2006
2006
2004
2004
2005
2006
2008
2009
-
-
5.0
-
38.4*
-
-
9.2
-
33.3*
-
85.9
11.1*
10.1
5.0
40.0*
40.1*
9.2
9.2
14.6*
10.0
34.5*
36.0*
219.8
*Indicates vessels for which we believe, as of December 31, 2018 and December 31, 2017, 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 $34.8 million and $72.8 million, respectively.
ANNUAL REPORT 2018 ■ 13
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.
Accounting for Time Charter Revenues and Related Expenses
Revenues are generated from time charter agreements. According to the terms of a time-charter agreement, we
charter our vessels to a charterer from the delivery of the vessel to the charterer (commencement date), for a fixed
period of time, at rates that are generally determined in the main body of the charter agreements. Our time charter
agreements were determined to contain a lease and are accounted for under ASC 842. Time charter revenues
are recorded over the non-cancellable term of the charter as service is provided, while revenues from time charter
agreements providing for varying charter rates over their term are accounted for on a straight line basis. Any off-
hires are recognized as incurred. The non-lease components of the time charter agreements, primarily relating
to operation and maintenance of the vessel, are accounted for along with the associated lease component as a
single lease component, as revenue from such non-lease components is recognized ratably over the duration of
the time charter, and is not predominant. Time charter agreements with the same charterer are accounted for as
separate agreements according to the terms and conditions of each agreement. Under time charter agreements ,
the charterer typically pays a fixed daily or monthly rate for a fixed period of time for the use of the vessel. Payments
are typically made in advance. 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, except for commissions, which are paid for by us.
All voyage and vessel operating expenses are expensed as incurred, except for commissions. Commissions are
deferred over the related charter period to the extent revenue has been deferred since commissions are due as
revenues are earned.
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.
14 ■ ANNUAL REPORT 2018
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 our 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.
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 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 our management’s 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. Recent economic
and market conditions have had broad effects on participants in a wide variety of industries. The current conditions
in the containerships market, including low charter rates and vessel market values, are conditions that we consider
indicators of a potential impairment. Management also takes into account factors such as the vessels’ age and
employment prospects under the then current market conditions, and determines the future undiscounted cash
flows considering its various alternatives, including sale possibilities existing for each vessel as of the testing dates.
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, considering also current market rates, 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 3.5%. Effective fleet
utilization is assumed at 98%, if a vessel is not laid-up, 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 2018 and 2017 indicated impairment charges for certain of our vessels,
amounting to $20.7 million and $8.4 million, respectively.
ANNUAL REPORT 2018 ■ 15
Set forth below is an analysis of the average estimated daily time charter equivalent rate used in our impairment
analysis as of December 31, 2018:
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
9,144
10,948
21,106
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)
Impairment
charge
(in USD
million)
3-year
period
(in USD)
Impairment
charge
(in USD
million)
1-year
period
(in USD)
Impairment
charge
(in USD
million)
Up to 4,000 TEU
Between
4,000 - 6,000 TEU
8,509
8,871
0.0
0.0
8,154
7,922
0.0
10,942
0.0
11,096
Above 6,000 TEU
18,798
0.0
15,525
12.7
18,138
0.0
0.0
0.0
Share Based Payments
We issue restricted share awards which are measured at their grant date fair value and are not subsequently
re-measured. That cost is recognized under the straight-line method 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).
When the service inception date precedes the grant date, we accrue the compensation cost for periods before the
grant date based on the fair value of the award at the reporting date. In the period in which the grant date occurs,
cumulative compensation cost is adjusted to reflect the cumulative effect of measuring compensation cost based on
the fair value at the grant date. Forfeitures of awards are accounted for when and if they occur. If an equity award is
modified after the grant date, incremental compensation cost will be 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.
16 ■ ANNUAL REPORT 2018
Results of Operations
2018
2017
variation
% change
For the Years Ended December 31,
Time charter revenues
Voyage expenses
in millions of U.S. dollars
25.6
(1.3)
23.8
(1.7)
Vessel operating expenses
(15.5)
(22.7)
Depreciation and amortization of deferred charges
General and administrative expenses
Impairment losses
(Loss) / gain on vessels' sale
Foreign currency (gains) / losses
(4.9)
(8.0)
(20.7)
(16.7)
-
(8.1)
(8.4)
(8.4)
0.9
0.1
1.8
0.4
7.2
3.2
0.4
8 %
-24 %
-32 %
-40 %
-5 %
(12.3)
146 %
(17.6)
-1956 %
(0.1)
-100 %
Interest and finance costs
(11.5)
(13.8)
Interest income
(0.1)
0.1
2.3
-
Gain from bank debt write off
-
42.2
(42.2)
-17 %
0 %
-
Year ended December 31, 2018 compared to the year ended December 31, 2017
Net Loss. Net loss for 2018 amounted to $52.9 million, compared to a net income of $3.8 million for 2017.
The loss for 2018 includes $20.7 million in impairment charges for two vessels and $16.7 million of aggregate loss
in connection with the sale of seven vessels. The net income for 2017 is mainly impacted by the gain from a debt
write-off, net of related expenses, amounting to $42.2 million, arising from the settlement agreement with respect
to the secured loan facility with RBS, which was signed on June 30, 2017, and was partially offset by $8.4 million
of impairment charges recorded during the year for two of our vessels.
Time Charter Revenues. Time charter revenues in 2018 amounted to $25.6 million, compared to $23.8 million
in 2017. The time charter revenues increased, mainly due to increased time charter rates achieved as a result of
improved market conditions. This increase was partially counterbalanced by the loss of revenues, after the sale of
the vessels Doukato, March, Great, New Jersey, Sagitta, Centaurus, Puelo and Hamburg from May 2017 to July
2018.
Voyage Expenses. Voyage expenses for 2018 amounted to $1.3 million, compared to $1.7 million in 2017.
Voyage expenses mainly consist of bunkers costs and commissions paid to third party brokers. The decrease in
voyage expenses in 2018 compared to 2017 was mainly due to significantly lower bunkers costs incurred, as a
result of our increased fleet utilization in 2018, and was partially offset by increased commissions to third party
brokers. As commissions are a percentage of time charter revenues, they follow the same trend as time charter
revenues.
ANNUAL REPORT 2018 ■ 17
Vessel Operating Expenses. Vessel operating expenses amounted to $15.5 million in 2018, compared to $22.7
million in the prior year and mainly consist of expenses for running and maintaining our vessels, such as crew wages
and related costs, consumables and stores, insurances, repairs and maintenance, environmental compliance costs
and lay-up expenses. The decrease in vessel operating expenses in 2018 was attributable to the decrease in the
size of our fleet, despite the fact that almost all major categories of average operating expenses have increased.
The main average increases are reflected in the repairs, maintenance and crew costs, as a number of our vessels
suffered vessel damages during the year and our crew officers received higher salaries in 2018 compared to 2017.
Depreciation and Amortization of Deferred Charges. Depreciation and amortization of deferred charges for
2018 amounted to $4.9 million, compared to $8.1 million in 2017 and mainly represents the depreciation expense
of our containerships and the amortization charge of dry-docking costs for vessels. In 2018, depreciation expenses
decreased, mainly as a result of the shrinkage of our fleet and also due to the impairment recorded for certain of
our vessels, which also led to lower depreciation expense.
General and Administrative Expenses. General and administrative expenses for 2018 amounted to $8.0 million,
compared to $8.4 million in 2017 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 decrease in
general administrative expenses was mainly attributable to decreased audit, legal and shareholders’ meeting fees,
and was partially counterbalanced by increased compensation cost on restricted stock awards.
Impairment Losses. Impairment losses in 2018 and 2017 amounted to $20.7 million and $8.4 million,
respectively, and represent non-cash impairment charges recorded for the vessels Hamburg and Pamina in 2018,
and for the vessels New Jersey and Centaurus, in 2017, as the Company’s assessment concluded that their book
values were not recoverable.
Loss / (Gain) on Vessels’ Sale. In 2018, loss on vessels’ sale amounted to $16.7 million and relates to the
sales of the vessels March, Great, New Jersey, Sagitta, Centaurus, Puelo and Hamburg from March to July 2018,
respectively. Gain on vessels’ sale amounted to $0.9 million in 2017, and relates to the sale of the vessel Doukato
in May 2017.
Foreign Currency (Gains) / Losses. Foreign currency gain for 2018 amounted to $44 thousand, and mainly
consist of unrealized exchange differences derived from the year-end valuation of accounts other than the U.S.
Dollar. In 2017, there were foreign currency losses of $51 thousand.
Interest and Finance Costs. Interest and finance costs for 2018 amounted to $11.5 million, compared to $13.8
million for 2017 and consist of the interest expenses relating to our average debt outstanding during the respective
periods and other loan fees and expenses. The decrease in 2018 was mainly attributable to the decrease of the
interest expense, as a result of the full repayments of the DSI and Addiewell loans, together with the applicable
discount premiums, in May and July 2018, respectively, and was partially counterbalanced by increased discount
premium amortization. However, the average interest rates increased from 4.95% in 2017, to 6.11% in 2018.
Interest Income. Interest income for 2018 and 2017 amounted to $0.1 million, and consists of interest income
received on deposits of cash and cash equivalents.
Year ended December 31, 2017 compared to the year ended December 31, 2016.
Net Income. Net income for 2017 amounted to $3.8 million, compared to a net loss of $149.0 million for 2016.
18 ■ ANNUAL REPORT 2018
The net income for the year ended December 31, 2017, reflected a gain from a debt write-off, arising from the
settlement agreement with respect to the secured loan facility with RBS, which was signed on June 30, 2017,
and was partially offset by $8.4 million of impairment charges recorded during the year for two of our vessels. The
specific gain, net of related expenses, amounted to $42.2 million. The loss for 2016 mainly includes $118.9 million
of impairment charges for seven of our vessels.
Time Charter Revenues, net of prepaid charter revenue amortization. Time charter revenues, net of prepaid
charter revenue amortization of nil and $3.8 million for 2017 and 2016 respectively, amounted to $23.8 million for
2017, compared to $33.2 million in 2016. The time charter revenues decreased, mainly as a result of the sale of
the vessels Hanjin Malta, Angeles and Doukato from March 2016 to May 2017 and the lay-up of the vessel New
Jersey from October 2016 and onwards. This decrease was partially counterbalanced by increased time charter
rates achieved for the majority of the remaining vessels in the fleet.
Voyage Expenses. Voyage expenses for 2017 amounted to $1.7 million, compared to $3.2 million in 2016.
Voyage expenses mainly consist of bunkers costs and commissions paid to third party brokers. The decrease
in voyage expenses in 2017 compared to 2016 was mainly due to decreased bunkers costs and decreased
commissions. In 2016 we incurred increased bunkers costs at the times when certain of our vessels were off-hire
and idle (or in “hot” lay-up condition), while in 2017 our fleet utilization improved and our off-hire days mainly related
to vessels’ “cold” lay-up condition, when vessels incur no bunkers consumption. 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 $22.7 million in 2017, compared to $30.2
million in the prior year and mainly consist of expenses for running and maintaining our vessels, such as crew wages
and related costs, consumables and stores, insurances, repairs and maintenance, environmental compliance costs
and lay-up expenses. The decrease in 2017 was attributable to the decrease of our ownership days by 13% and
also to the decrease of all major categories of operating expenses, such as average stores, spares and crew costs,
as a result of increased “cold” lay-up days of the fleet in 2017, changes in crew composition and overall reduced
supply of spares and other consumables in 2017, as part of the Company’s efforts to keep operating costs at
minimum.
Depreciation and Amortization of Deferred Charges. Depreciation and amortization of deferred charges for 2017
amounted to $8.1 million, compared to $12.7 million in 2016 and mainly represents the depreciation expense of
our containerships and the amortization charge of dry-docking costs for vessels. In 2017, the depreciation expense
decreased, mainly as a result of the vessels’ impairment charges recorded as of September 30, 2016 for seven of
our vessels. As of December 31, 2017, two of the Company’s vessels were classified in current assets as held for
sale, with no material effect in the vessels’ depreciation expense.
General and Administrative Expenses. General and administrative expenses for 2017 amounted to $8.4 million,
compared to $7.2 million in 2016 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
general administrative expenses was mainly attributable to increased legal and shareholders’ meeting fees, as a
result of increased corporate and capital activity in 2017.
Impairment Losses. Impairment losses in 2017 amounted to $8.4 million and represent non-cash impairment
charges recorded during the year for the vessels New Jersey and Centaurus,for which the Company’s assessment
concluded that their book values as of December 31, 2017 were not recoverable. In 2016, impairment losses
amounted to $118.9 million and represent non-cash impairment charges recorded during the year for the vessels
Sagitta, Centaurus, Domingo, Doukato, Great, March and Angeles.
ANNUAL REPORT 2018 ■ 19
Gain/ (Loss) on Vessels’ Sale. Gain on vessels’ sale amounted to $0.9 million in 2017, and relates to the sale of
the vessel Doukato in May 2017, while in 2016, loss on vessels’ sale amounted to $2.9 million and relates to the
sale of the vessels Hanjin Malta and Angeles in March and November 2016, respectively.
Foreign Currency Losses. Foreign currency losses for 2017 amounted to $51 thousand, and mainly consist
of unrealized exchange differences derived from the year-end valuation of accounts other than the U.S. Dollar. In
2016, there were foreign currency losses of $111 thousand.
Interest and Finance Costs. Interest and finance costs for 2017 amounted to $13.8 million, compared to $7.1
million for 2016 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 2017 was mainly attributable to the increase of the
average interest rates and the discount premium amortization in our loan agreements with Addiewell and DSI,
counterbalanced by the decrease of our average total debt outstanding.
Interest Income. Interest income for 2017 and 2016 amounted to $0.1 million, and consists of interest income
received on deposits of cash, cash equivalents and restricted cash.
Gain from Bank Debt Write Off. Gain from bank debt write off amounted to $42.2 million in 2017, and relates to
a gain arising from the full and final settlement of our secured loan facility with RBS, which was agreed to on June
30, 2017. There was no such gain in 2016.
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- and medium-term debt. Our operating cash flow is generated from charters on our
vessels, through our subsidiaries. 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 loans and payments of dividends (which our board of directors determined to suspend in
2016). At times when we are not restricted by our lenders from acquiring additional vessels, we will require capital
to fund vessel acquisitions and debt service.
As of December 31, 2018, we reported a working capital surplus of $9.1 million. Since 2017, our management
has implemented a number of actions to manage the Company’s working capital requirements. During 2018, we
received $17.5 million of gross equity proceeds, and since December 31, 2018, we have received an additional
$3.5 million of gross proceeds from the sale of preferred shares and exercise of preferred warrants. As of March
15, 2019, 96,540 warrants remain outstanding. In addition, in 2018 we received $92.9 million of net proceeds from
the sale of seven of our vessels. Following these actions, we managed to fully repay our entire outstanding debt, by
making use of vessels’ sales proceeds and equity proceeds. Since then, our fleet comprises of four unencumbered
vessels with zero debt outstanding. We expect that we will fund our operations either with cash on hand, cash
generated from operations, bank debt and equity offerings, or a combination thereof, in the twelve-month period
ending one year after the financial statements’ issuance. Accordingly, there is no substantial doubt about our ability
to continue as a going concern.
20 ■ ANNUAL REPORT 2018
Cash Flow
As of December 31, 2018, cash and cash equivalents amounted to $10.5 million compared to $6.4 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 Used in Operating Activities
Net cash used in operating activities in 2018, 2017 and 2016 amounted to $0.3 million, $12.7 million and $12.0
million, respectively. Cash from operations in 2018 was marginally negative and its improvement compared to
the prior years reflected the market improvement from the low vessels’ performance in 2016 and 2017, when the
prolonged weak charter market conditions in the containership sector led to low fleet utilization during both years
through vessel lay-ups, increased off-hire days and reduced time charter rates.
Net Cash Provided by Investing Activities
Net cash provided by investing activities in 2018 was $93.2 million and consists of $92.9 million received from
the sale of seven vessel during the year, $0.1 million paid for equipment additions, and finally $0.4 million received,
representing insurance settlements.
Net cash provided by investing activities in 2017 was $6.7 million and consists of $5.9 million received from the
sale of one vessel during the year, $15 thousand paid for equipment additions, and finally $0.8 million received,
representing insurance settlements.
Net cash provided by investing activities in 2016 was $10.6 million and consists of $10.6 million received from
the sale of two vessels during the year, $0.2 million paid for additional capitalized costs for one vessel, $29 thousand
paid for equipment additions, and finally $0.2 million received, representing insurance settlements.
Net Cash Used in Financing Activities
Net cash used in financing activities in 2018 was $88.8 million and consists of $87.6 million of debt repayments
to related parties, $18.5 million of debt repayments to unrelated parties, $17.4 million of net proceeds from our
equity offering, and finally $0.1 million of finance costs that we paid for our loan agreements.
Net cash used in financing activities in 2017 was $4.9 million and consists of $75.0 million of loan proceeds from
our new loan facilities with Addiewell and DSI, $111.5 million of debt repayments to unrelated parties, $32.0 million
of net proceeds from our equity offering and $0.4 million of finance costs that we paid for our new loan agreements.
Net cash used in financing activities in 2016 was $19.7 million and consists of $19.2 million of debt repayments,
$0.2 million of finance costs that we paid for our new loan agreement with RBS and $0.4 million of cash dividends
paid to investors.
ANNUAL REPORT 2018 ■ 21
Loan Facilities
Diana Shipping Inc. (DSI) – Related party financing: 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 was 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,the loan agreement with DSI was amended. The new loan agreement was extended until
March 15, 2022 or such earlier date on which the outstanding principal balance of the loan was paid in full, provided
for annual repayments of $5.0 million, plus a balloon installment at the final maturity date, and bore interest at LIBOR
plus a 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 would pay at the final maturity date a flat fee of $0.2 million.
On September 12, 2016, we further amended the loan agreement with DSI. The loan was undertaken by our
wholly-owned subsidiary Kapa Shipping Company Inc. and its repayment was immediately suspended and would
not recommence until the later of: (i) September 15, 2018 and (ii) until the deferred tranche of the RBS supplemental
agreement was fully repaid on June 15, 2021 or prepaid. Finally, the margin was revised to 3.35% per annum until
December 31, 2018, thereafter reverting to 3.0% per annum until maturity.
On May 30, 2017, we issued 100 shares of our newly-designated Series C Preferred Stock, par value $0.01 per
share, to DSI, in exchange for a reduction of $3.0 million in the principal amount of our outstanding loan, thus leaving
an outstanding principal balance of $42.4 million as of that date.
On June 30, 2017, we refinanced our existing unsecured loan facility with DSI. The principal amount of the new
secured loan was $82.6 million and included the $42.4 million outstanding principal balance as of June 30, 2017,
increased by the flat fee of $0.2 million which was payable at maturity, and an additional $40.0 million, which was
drawn to partially repay our then existing loan with RBS, discussed in Item 4A included in our Form 20-F filed with the
SEC on March 18, 2019. The new DSI loan would mature on December 31, 2018, however the lenders had the option
to request for full repayment after twelve months from the initial drawing. The loan also provided for an additional $5.0
million interest-bearing “discount premium”, which was payable at maturity, but would be permanently waived and
cancelled, in case the lenders exercised their option for full repayment within twelve months from drawing, subject to
the terms of the Intercreditor Agreement with Addiewell. Moreover, the DSI loan was subordinated to the Addiewell loan,
was secured by second priority mortgages over our vessels, bore interest at the rate of 6% per annum for the first twelve
months, scaled to 9% per annum for the next three months, and further scaled to 12% per annum for the remaining
three months until maturity, included financial and other covenants which stipulated the repayment with proceeds from
the sale of our assets, proceeds from the issuance of new equity and proceeds from the exercise of existing warrants
to purchase Series B Convertible Preferred Shares, and prohibited the payment of dividends.
During 2018, we repaid the entire outstanding loan balance and the entire discount premium using warrant proceeds
and vessels’ sales proceeds. Thus, as of December 31, 2018, and the date of this report, we have no outstanding loan
with DSI.
Addiewell Ltd (Addiewell) – Unrelated party financing: On June 30, 2017, we partially funded the refinancing of
the RBS loan, discussed in Item 4A included in our Form 20-F filed with the SEC on March 18, 2019, with proceeds
under a new secured loan facility with Addiewell Ltd., an unaffiliated third party, in the amount of $35.0 million. Though
22 ■ ANNUAL REPORT 2018
the loan was scheduled to mature on December 31, 2018, the lenders had the option to request full repayment after
twelve months from the initial drawing. The loan also provided for an additional $10.0 million interest-bearing “discount
premium”, which was also payable at maturity, but would be permanently waived and cancelled in the event the lenders
exercised their option for full repayment within twelve months from drawing. Moreover, the loan, which, until its full
repayment, ranked senior to the loan agreement with DSI, was secured by first priority mortgages over our vessels, bore
interest at the rate of 6% per annum for the first twelve months, scaled to 9% per annum for the next three months, and
further scaled to 12% per annum for the remaining three months until maturity. Finally, the new loan facility included
financial and other covenants which stipulated the repayment of the facility with proceeds from the sale of our assets,
proceeds from the issuance of new equity and proceeds from the exercise of existing warrants to purchase Series B
Convertible Preferred Shares and prohibited the payment of dividends.
During 2017, we repaid $26.5 million of our outstanding loan balance with Addiewell, and in 2018, we repaid
the entire outstanding loan balance and the entire discount premium using warrant proceeds and vessels’ sales
proceeds. Thus, as of December 31, 2018, and the date of this report, we have no outstanding loan with Addiewell.
As of December 31, 2018 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 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.
ANNUAL REPORT 2018 ■ 23
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, 2018.
Contractual Obligations
Payments due by period
Total
Amount
Less than
1 year
2-3 years
4-5 years
Broker Services Agreement (1)
Total
$
$
420 $
420 $
420 $
420 $
- $
- $
More than
5 years
- $
- $
-
(1) Our agreement with Steamship Shipbroking Enterprises Inc., dated April 2, 2018, expires on March 31, 2019. Please
see “Item 6. Directors, Senior Management and Employees - B. Compensation” and “Item 7. Major Shareholders and
Related Party Transactions – B. Related Party Transactions” included in our Form 20-F filed with the SEC on March 18,
2019 for more details.
G. Safe Harbor
See the section entitled “Forward-looking Statements” at the beginning of this annual report.
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 and until his
or her successor is elected and has qualified, except in the event of such director’s death, resignation, removal or
the earlier termination of his or her term of office. 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 Inc. (NYSE: DSX).
Name
Age Position
Symeon Palios
77 Class III Director, Chief Executive Officer and Chairman of the Board
Anastasios Margaronis
63 Class II Director and President
Ioannis Zafirakis
47 Class I Director, Chief Strategy Officer and Secretary
24 ■ ANNUAL REPORT 2018
Name
Age Position
Andreas Michalopoulos
47 Chief Financial Officer and Treasurer
Semiramis Paliou
44 Chief Operating Officer
Giannakis (John) Evangelou
74 Class III Director
Antonios Karavias
77 Class I Director
Nikolaos Petmezas
70 Class III Director
Reidar Brekke
58 Class II Director
The term of the Class I directors expires in 2020, the term of the Class II directors expires in 2021 and the term
of the Class III directors expires in 2022.
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. Since October 7, 2015, Mr. Palios has served as President of
the Association “Friends of Biomedical Research Foundation, Academy of Athens”. 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. He has also served
as Director and President of Diana Shipping Inc. since February 21, 2005. Mr. Margaronis is a Deputy President
of Diana Shipping Services S.A., where he also serves as a Director and Secretary. 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 S.A. in 1979 and has been responsible for overseeing our vessels’
insurance matters, including hull and machinery, protection and indemnity, loss of hire and war risks insurances.
Mr. Margaronis has had experience in the shipping industry, including in ship finance and insurance, since 1980.
He is a member of the United Kingdom Mutual Steam Ship Assurance Association (Europe) Limited and a member
of the Greek National Committee of the American Bureau of Shipping. 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.
ANNUAL REPORT 2018 ■ 25
Ioannis Zafirakis serves as our Director, Chief Strategy Officer and Secretary since November 2018. Under his
capacity as Chief Strategy Officer, Mr. Zafirakis is responsible for establishing and reviewing key strategic priorities
and translating them into a comprehensive strategic plan, monitoring the execution of the plan, facilitating and
driving key strategic initiatives through inception phase. He is also responsible for communicating the Company’s
strategy and overall goals internally and externally. He also serves as Director, Chief Strategy Officer and Secretary
of Diana Shipping Inc. In addition, he is the Chief Strategy Officer of Diana Shipping Services S.A., where he also
serves as Director and Treasurer. Since February 2005, Mr. Zafirakis served for the same companies in various
positions such as Chief Operating Officer, Executive Vice-President and Vice-President. From June 1997 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. From January 2010 to November 2018 Mr. Zafirakis served as Director, Chief
Operating Officer and Secretary of Performance Shipping Inc. Mr. Zafirakis is a member of the Business Advisory
Committee of the Shipping Programs of ALBA Graduate Business School at The American College of Greece. 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.
He has served in these positions with Diana Shipping Inc. since March 8, 2006, and he also serves as a Director
of Diana Shipping Inc. since August 1, 2018. He 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, the Company’s
Chief Executive Officer and Chairman.
Semiramis Paliou has served as Chief Operating Officer of Performance Shipping Inc. since November 2018.
Mrs. Paliou has 20 years of experience in shipping operations, technical management and crewing. Mrs. Paliou
began her career at Lloyd’s Register of Shipping from 1996 to 1998 as a trainee ship surveyor. She was then
employed by Diana Shipping Agencies S.A. From 2007 to 2010 she was employed as a Director and President of
Alpha Sigma Shipping Corp. From February 2010 to November 2015 she was the Head of the Operations, Technical
and Crew department of Diana Shipping Services S.A. From November 2015 to October 2016 she served as Vice
President of the same company. Since March 2015, Mrs. Semiramis Paliou serves as a Director of Diana Shipping
Inc. From November 2016 to the end of July 2018, she served as Managing Director and Head of the Technical,
Operations, Crew and Supply department of Unitized Ocean Transport Limited. As of August 2018, she is the
Chief Operating Officer of Diana Shipping Inc. and Diana Shipping Services S.A. Mrs. Paliou obtained her BSc in
Mechanical Engineering from Imperial College, London and her MSc in Naval Architecture from University College,
London. In 2016 she completed a course in Finance for Senior Executives at Harvard Business School. She is the
daughter of Symeon Palios, our Chief Executive Officer and Chairman, and is a member of the Greek committee of
Det Norske Veritas - Germanischer Lloyd, a member of the Greek committee of Nippon Kaiji Kyokai and a member
of the Greek committee of Bureau Veritas. Since March 2018, Mrs. Paliou is on the Board of Directors of the Hellenic
Marine Environment Protection Association.
26 ■ ANNUAL REPORT 2018
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 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.
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 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 Senior Partner of Brightstar Capital Partners, a private equity firm focused on investing in closely held,
middle-market companies. From 2012 – Sept 2018, he was President of Intermodal Holdings LP, a company investing
in intermodal assets. In 2008he started his own firm, 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
ANNUAL REPORT 2018 ■ 27
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 Scorpio Tankers Inc. (NYSE: STNG) and two privately-held companies involved in container leasing and container
rentals, sales and modifications.
B. Compensation
Since June 1, 2010, the members of our senior management have been compensated through their affiliation
with Steamship Shipbroking Enterprises Inc. (or Steamship), a related party controlled by our Chief Executive Officer
and Chairman of the Board Mr. Symeon Palios, as described under “Item 7. Major Shareholders and Related Party
Transactions – B. Related Party Transactions” included in our Form 20-F filed with the SEC on March 18, 2019.
Pursuant to the respective Broker Services Agreements, fees and bonuses payable to Steamship for brokerage
services provided to us in 2018, 2017 and 2016, amounted to $2.1 million, $2.1 million and $2.0 million, respectively.
In 2018, our Board of Directors approved an award of restricted common stock, which was proposed by our
Compensation Committee, with an aggregate value of $5.0 million to our executive officers and non-executive
directors, as a one-time special award, in recognition of the successful refinancing of the RBS loan in 2017, which
resulted in a significant gain of $42.2 million, net of expenses. The number of restricted common shares was
determined in February 2019, at which time an aggregate of 5,747,786 restricted common shares were issued, of
which 4,915,863 shares were issued to our executive officers. One third of these shares vested on the issuance date
and the remainder will vest ratably over two years from the issuance date. In 2017, our Board of Directors approved
an award of restricted common stock with an aggregate value of $380,000 to our executive officers and non-executive
directors. The number of restricted common shares was determined in February 2018, at which time an aggregate
of 161,700 restricted common shares were issued, of which 138,296 shares were issued to our executive officers.
One third of these shares vested on the issuance date and the remainder will vest ratably over two years from the
issuance date. In 2016, our executive officers also received a number of restricted stock awards, which however
were adjusted to almost zero as a result of the reverse stock splits effected in 2017 and 2016.
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 annually. As noted above, in 2018, our Board of Directors approved an award of restricted
common stock with an aggregate value of $5.0 million to our executive officers and non-executive directors. The
number of restricted common shares was determined in February 2019, at which time an aggregate of 5,747,786
restricted common shares were issued, of which 831,923 shares were issued to our non-executive directors. Also,
in 2017, our Board of Directors approved an award of restricted common stock with an aggregate value of $380,000
to our executive officers and non-executive directors. The number of restricted common shares was determined in
February 2018, at which time an aggregate of 161,700 restricted common shares were issued, of which 23,404
shares were issued to our non-executive directors. One third of these shares vested on the issuance date and the
remainder will vest ratably over two years from the issuance date. In 2016 our non-executive directors also received a
number of restricted stock awards, which however were adjusted to zero as a result of the reverse stock splits effected
in 2017 and 2016. We do not have a retirement plan for our officers or directors. For 2018, 2017, and 2016, fees,
bonuses and expenses to non-executive directors amounted to $0.3 million, $0.3 million and $0.3 million, respectively.
In 2018, 2017, and 2016, compensation costs relating to the aggregate amount of restricted stock awards
amounted to $1.6 million, $1.2 million and $1.1 million, respectively.
28 ■ ANNUAL REPORT 2018
2015 Equity Incentive Plan
On May 5, 2015, we adopted an equity incentive plan, which we refer to as the 2015 Equity Incentive Plan, as
amended from time to time, 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. The plan will expire ten years from
its date of adoption unless terminated earlier by our board of directors. On February 9, 2018, our board of directors
adopted Amendment No 1 to the 2015 Equity Incentive Plan, solely to increase the aggregate number of common
shares issuable under the plan to 550,000 shares. As of the date of this annual report, we have issued 161,700
restricted shares under our 2015 Equity Incentive Plan, as amended, to our executive officers and non-executive
directors and 388,300 remain available for issuance.
Upon adoption of the 2015 Equity Incentive Plan, we terminated the 2012 Amended and Restated Equity
Incentive Plan, adopted on February 21, 2012, which included substantially the same terms and provisions as the
2015 Equity Incentive Plan. We refer to this prior plan as the 2012 Equity Incentive Plan.
The 2015 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 2015 Equity Incentive Plan, stock options and stock appreciation rights granted under
the plan will have an exercise price per common share equal to the 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 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 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.
Our board of directors may amend the plan and may amend outstanding awards issued pursuant to the plan,
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. 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.
ANNUAL REPORT 2018 ■ 29
C. Board Practices
Actions by our Board of Directors
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 our 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 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 Strategy 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. Employees
We crew our vessels primarily with Greek and Filipino, and secondarily with Ukrainian and Romanian 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.
30 ■ ANNUAL REPORT 2018
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, 2018, 2017 and 2016:
As of
December 31,
2018
As of
December 31,
2017
As of
December 31,
2016
37
100
137
36
220
256
39
178
217
Shoreside
Seafaring
Total
E. Share Ownership
With respect to the total amount of common stock owned by our officers and directors individually and as a
group, see “Item 7. Major Shareholders and Related Party Transactions – A. Major Shareholders” included in our
Form 20-F filed with the SEC on March 18, 2019.
ANNUAL REPORT 2018 ■ 31
32 ■ ANNUAL REPORT 2018
PERFORMANCE
SHIPPING INC.
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
Report of Independent Registered
Public Accounting Firm
Consolidated Balance Sheets
as at December 31, 2018 and 2017
Consolidated Statements of Operations
for the years ended December 31, 2018,
2017 and 2016
F-2
F-3
F-4
Consolidated Statements of Comprehensive
Income / (Loss) for the years ended
December 31, 2018, 2017 and 2016
F-4
Consolidated Statements of Stockholders’
Equity for the years ended December 31,
2018, 2017 and 2016
Consolidated Statements of Cash Flows
for the years ended December 31, 2018,
2017 and 2016
Notes to Consolidated
Financial Statements
F-5
F-6
F-7
Report of Independent Registered Public
Accounting Firm
To the Shareholders and the Board of Directors of Performance Shipping Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Performance Shipping Inc. (the Company)
as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income/
loss, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, and
the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at December 31,
2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2018, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ Ernst & Young (Hellas) Certified Auditors-Accountants S.A.
We have served as the Company’s auditor since 2010.
Athens, Greece
March 18, 2019
ANNUAL REPORT 2018 ■ F-2
PERFORMANCE SHIPPING INC.
Consolidated Balance Sheets as at December 31, 2018 and 2017
(Expressed in thousands of U.S. Dollars, except for share and per share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, trade
Inventories
Prepaid expenses and other assets
Vessels held for sale (Note 4)
Total current assets
FIXED ASSETS:
Vessels, net (Note 4)
Property and equipment, net
Total fixed assets
Deferred charges, net
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Unrelated party financing, net of unamortized deferred financing costs (Note 5)
Related party financing, net of unamortized deferred financing costs (Note 3)
Accounts payable, trade and other
Due to related parties (Note 3)
Accrued liabilities
Deferred revenue
Total current liabilities
Other liabilities, non-current (Note 7)
Commitments and contingencies (Note 6)
$
$
$
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 25,000,000 shares authorized, 350 and 389 issued and
outstanding as at December 31, 2018 and 2017, respectively (Note 7)
Common stock, $0.01 par value; 500,000,000 shares authorized; 14,463,231 and
4,051,266 issued and outstanding as at December 31, 2018 and 2017, respectively (Note
7)
Additional paid-in capital (Note 7)
Other comprehensive income
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
The accompanying notes are an integral part of these consolidated financial statements.
F-3 ■ ANNUAL REPORT 2018
2018
2017
10,493 $
110
634
743
-
11,980
85,870
998
86,868
1,238
100,086 $
- $
-
1,192
4
1,360
305
2,861
1,649
-
-
143
6,444
428
1,667
1,083
18,378
28,000
201,308
911
202,219
2,088
232,307
12,119
84,832
1,715
65
2,045
439
101,215
320
-
-
40
428,527
57
(333,151)
95,576
100,086 $
410,982
6
(280,256)
130,772
232,307
PERFORMANCE SHIPPING INC.
Consolidated Statements of Operations
For the years ended December 31, 2018, 2017 and 2016
(Expressed in thousands of U.S. Dollars, except for share and per share data)
REVENUES:
Time charter revenues (Note 1)
Prepaid charter revenue amortization
Time charter revenues, net
EXPENSES:
Voyage expenses
Vessel operating expenses
Depreciation and amortization of deferred charges (Note 4)
General and administrative expenses (Notes 3 and 7)
Impairment losses (Note 4)
Loss / (gain) on vessels' sale (Note 4)
Foreign currency (gains) / losses
Operating loss
OTHER INCOME/(EXPENSES)
Interest and finance costs (Notes 3, 5 and 8)
Interest income
Gain from bank debt write off (Note 3)
Total other income /(expenses), net
Net income/ (loss)
Earnings / (Loss) per common share, basic (Note 9)
Earnings / (Loss) per common share, diluted (Note 9)
2018
2017
2016
25,566 $
23,806 $
-
-
25,566 $
23,806 $
36,992
(3,798)
33,194
1,267
15,453
4,945
8,030
20,654
16,700
(44)
(41,439) $
1,702
22,732
8,147
8,366
8,363
(945)
51
(24,610) $
(11,520) $
64
-
(11,456) $
(13,843) $
87
42,185
28,429 $
3,169
30,213
12,740
7,241
118,861
2,899
111
(142,040)
(7,094)
120
-
(6,974)
(52,895) $
3,819 $
(149,014)
(5.60) $
8.94 $
(100,821.38)
(5.60) $
8.94 $
(100,821.38)
$
$
$
$
$
$
$
$
Weighted average number of common shares, basic (Note 9)
9,450,555
427,333
Weighted average number of common shares, diluted (Note 9)
9,450,555
427,361
1,478
1,478
PERFORMANCE SHIPPING INC.
Consolidated Statements of Comprehensive Income / (Loss)
For the years ended December 31, 2018, 2017 and 2016
(Expressed in thousands of U.S. Dollars, except for share and per share data)
Net income / (loss)
Other comprehensive income / (loss) (Actuarial gain / (loss))
$
(52,895) $
51
3,819 $
26
(149,014)
(25)
Comprehensive income / (loss)
$
(52,844) $
3,845 $
(149,039)
2018
2017
2016
The accompanying notes are an integral part of these consolidated financial statements.
ANNUAL REPORT 2018 ■ F-4
PERFORMANCE SHIPPING INC.
Consolidated Statements of Stockholders’ Equity
For the years ended December 31, 2018, 2017 and 2016
(Expressed in thousands of U.S. Dollars – except for share and per share data)
Common Stock
Preferred Stock
# of
Shares
Par
Value
# of
Shares
Par
Value
Additional
Paid-in
Capital
Other
Comprehensive
Income / (Loss)
Accumulated
Deficit
Total
1,519 $
-
14
-
-
1,533 $
-
-
-
-
-
-
-
-
-
-
- $
-
-
-
-
- $
-
32,500
- $
-
-
-
-
- $
-
-
373,856 $
-
1,119
-
-
5 $
-
-
(25)
(134,687) $
239,174
(149,014)
(149,014)
-
-
1,119
(25)
-
(374)
(374)
374,975 $
(20) $
(284,075) $
90,880
-
31,989
4,049,733
40 (32,211)
-
(40)
100
-
3,000
-
-
-
-
-
-
-
-
4,051,266 $
40
389 $
-
-
-
-
-
17,490
-
-
- $
-
-
1,058
-
410,982 $
-
17,413
10,250,265
102 (17,529)
-
(102)
161,700
-
1
-
-
-
14,463,231 $
143
350 $
-
-
- $
234
-
428,527 $
-
-
-
-
-
26
6 $
-
-
-
-
51
57 $
3,819
3,819
-
31,989
-
-
-
-
-
3,000
1,058
26
(280,256) $
130,772
(52,895)
(52,895)
-
17,413
-
-
-
-
235
51
(333,151) $
95,576
Balance, December 31,
2015
- Net loss
- Issuance of restricted
stock and compensation
cost on restricted stock
(Note 7)
- Actuarial loss
- Dividends declared and
paid (at $123.48, $123.48,
$0.00 and $0.00 per
share) (Note 9)
Balance, December 31,
2016
- Net income
- Issuance of Series B
preferred stock, net of
expenses (Note 7)
- Conversion of Series
B preferred stock to
common stock
- Issuance of Series C
preferred stock (Notes 3
and 7)
- Compensation cost on
restricted stock (Note 7)
- Actuarial gain
Balance, December 31,
2017
- Net loss
- Issuance of Series B
preferred stock, net of
expenses (Note 7)
- Conversion of Series
B preferred stock to
common stock (Note 7)
- Issuance of restricted
stock and compensation
cost on restricted stock
(Note 7)
- Actuarial gain
Balance, December 31,
2018
The accompanying notes are an integral part of these consolidated financial statements.
F-5 ■ ANNUAL REPORT 2018
PERFORMANCE SHIPPING INC.
Consolidated Statements of Cash Flows
For the years ended December 31, 2018, 2017 and 2016
(Expressed in thousands of U.S. Dollars)
$
Cash Flows used in Operating Activities:
Net income / (loss)
Adjustments to reconcile net income / (loss) to net cash used in operating
activities:
Depreciation and amortization of deferred charges (Note 4)
Amortization of deferred financing costs (Note 8)
Amortization of discount premium (Notes 3 and 5)
Amortization of prepaid charter revenue
Impairment losses (Note 4)
Loss / (gain) on vessels' sale (Note 4)
Compensation cost on restricted stock awards (Note 7)
Gain from bank debt write off (Note 3)
Actuarial gain / (loss)
(Increase) / Decrease in:
Accounts receivable, trade
Inventories
Prepaid expenses and other assets
Increase / (Decrease) in:
Accounts payable, trade and other
Due to related parties
Accrued liabilities
Deferred revenue
Other liabilities, non current
Drydock costs
Net Cash used in Operating Activities
Cash Flows provided by Investing Activities:
Vessel improvements
Proceeds from sale of vessels, net of expenses (Note 4)
Property and equipment additions
Insurance settlements
Net Cash provided by Investing Activities
Cash Flows used in Financing Activities:
Proceeds from a related party loan (Note 3)
Proceeds from an unrelated party loan (Note 5)
Repayments of a related party loan (Note 3)
Repayments of unrelated parties loans (Note 5)
Issuance of preferred stock, net of expenses (Note 7)
Payments of financing costs
Cash dividends (Note 9)
Net Cash used in Financing Activities
Net increase / (decrease) in cash, cash equivalents
and restricted cash
Cash, cash equivalents and restricted cash at beginning of the year
Cash, cash equivalents and restricted cash at end of the year
RECONCILIATION OF CASH, CASH EQUIVALENTS
AND RESTRICTED CASH
Cash and cash equivalents
Restricted Cash
Cash, cash equivalents and restricted cash
SUPPLEMENTAL CASH FLOW INFORMATION
Related party loan reduction in exchange for preferred shares (Notes 3 and 7) $
$
Interest payments, net of amounts capitalized
$
$
$
$
$
$
$
$
2018
2017
2016
(52,895) $
3,819 $
(149,014)
4,945
176
8,990
-
20,654
16,700
1,587
-
51
318
1,033
(32)
(455)
(61)
(685)
(134)
(22)
(500)
(330) $
-
92,905
(126)
372
93,151 $
-
-
(87,617)
(18,500)
17,413
(68)
-
(88,772) $
8,147
322
6,010
-
8,363
(945)
1,171
(42,185)
26
43
914
639
175
(40)
995
331
36
(474)
(12,653) $
-
5,895
(15)
785
6,665 $
40,000
35,000
-
(111,500)
31,989
(373)
-
(4,884) $
4,049 $
(10,872) $
6,444 $
10,493 $
17,316 $
6,444 $
10,493 $
-
10,493 $
- $
2,355 $
6,444 $
-
6,444 $
3,000 $
7,724 $
12,740
427
-
3,798
118,861
2,899
1,119
-
(25)
282
1,123
(1,617)
(1,236)
-
(291)
(539)
50
(540)
(11,963)
(194)
10,618
(29)
179
10,574
-
-
-
(19,159)
-
(150)
(374)
(19,683)
(21,072)
38,388
17,316
8,316
9,000
17,316
-
6,626
The accompanying notes are an integral part of these consolidated financial statements.
ANNUAL REPORT 2018 ■ F-6
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
1. General Information
The accompanying consolidated financial statements include the accounts of Performance Shipping Inc. (or
“PS”), (formerly Diana Containerships Inc., Note 12) and its wholly-owned subsidiaries (collectively, the “Company”).
Performance Shipping 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.
At December 31, 2018, the Company reported a working capital surplus of $9,119. Since 2017, the Company’s
management has implemented a number of actions to manage the Company’s working capital requirements.
During 2018, the Company has managed to fully repay its entire outstanding debt, by making use of vessels’
sales proceeds and equity proceeds (Notes 4 and 7) and since then, the Company’s fleet comprises of four
unencumbered vessels with zero debt outstanding. The Company expects that it will fund its operations either
with cash on hand, cash generated from operations, bank debt and equity offerings, or a combination thereof,
in the twelve-month period ending one year after the financial statements’ issuance and accordingly, there is no
substantial doubt about the Company’s ability to continue as a going concern.
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, while Wilhelmsen
Ship Management LTD, an unaffiliated third party, provided management services to the laid-up vessels of the
Company’s fleet until March 2018, for a fixed monthly fee for each vessel. The fees payable to Wilhelmsen Ship
Management LTD, amounted to $62, $697 and $604 for the years ended December 31, 2018, 2017 and 2016,
respectively, and are included in Vessel operating expenses in the accompanying consolidated statements of
operations. As at December 31, 2018, 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
1
2
3
4
Rongerik Shipping Company Inc.
Dud Shipping Company Inc.
Oruk Shipping Company Inc.
Meck Shipping Company Inc.
Vessel Owning Subsidiaries - Panamax Vessels
Marshall Islands
Domingo
Marshall Islands
Marshall Islands
Pamina
Marshall Islands
Vessel Owning Subsidiaries - Post-Panamax Vessels
Marshall Islands
Marshall Islands
Pucon
Rotterdam
Vessel Owning Subsidiaries - Sold Vessels
Marshall Islands
Marshall Islands
5
6
7
8
9
10
11 Orangina Inc. (Note 4)
12
13
Marshall Islands
Kapa Shipping Company Inc.
Utirik Shipping Company Inc. (Note 4) Marshall Islands
Mago Shipping Company Inc. (Note 4) Marshall Islands
Delap Shipping Company Inc. (Note 4) Marshall Islands
Jabor Shipping Company Inc. (Note 4) Marshall Islands
Likiep Shipping Company Inc. (Note 4 ) Marshall Islands
Marshall Islands
Eluk Shipping Company Inc. (Note 4)
Marshall Islands
Langor Shipping Company Inc. (Note 4) Marshall Islands
Marshall Islands
Angeles
Doukato
Marshall Islands
New Jersey Marshall Islands
Marshall Islands
March
Marshall Islands
Great
Marshall Islands
Sagitta
Marshall Islands
Centaurus
Marshall Islands
Puelo
Hamburg
Marshall Islands
Other Subsidiaries
3,739
5,042
6,541
6,494
4,923
3,739
4,923
5,576
5,576
3,426
3,426
6,541
6,494
Mar-01
May-05
Feb-12
Nov-14
Aug-06
Jul-08
Sep-13
Sep-15
-
-
-
-
Dec-06
Feb-02
Nov-06
May-04
Apr-04
Jun-10
Jul-10
Nov-06
Mar-09
Apr-15
Feb-12
Apr-15
Sep-14
Oct-14
Jun-10
Jul-10
Aug-13
Nov-15
Nov-16
Jun-17
Mar-18
Mar-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
14 Unitized Ocean Transport Limited
15 Container Carriers (USA) LLC
Marshall Islands
Delaware - USA
Management company
Company's US representative
-
-
-
-
-
-
F-7 ■ ANNUAL REPORT 2018
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
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. The fees payable
to UOT pursuant to the respective management and administrative agreements 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 2018, 2017 and 2016, charterers that accounted for more than 10% of the Company’s hire revenues were
as follows:
Charterer
A
B
C
D
E
F
2018
29 %
-
-
-
32 %
19 %
2017
-
18 %
-
-
24 %
35 %
2016
-
-
22 %
34 %
-
11 %
2. Recent Accounting Pronouncements and Significant Accounting Policies
Recent Accounting Pronouncements Adopted
On January 1, 2018, the Company adopted ASU No. 2016-13 “Financial Instruments – Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments” which amends guidance on reporting credit losses
for assets held at amortized cost basis and available for sale debt securities. On the same date, the Company
adopted ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses”. The
amendments in this update clarify that receivables arising from operating leases are not within the scope of Subtopic
326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance
with Topic 842, Leases. The adoption of ASU No. 2016-13 and ASU No. 2018-19 did not have any effect in the
Company’s financial statements and disclosures.
On January 1, 2018, the Company adopted ASU No. 2016-15- Statement of Cash Flows Classification of
Certain Cash Receipts and Cash Payments and ASU No. 2016-18—Statement of Cash Flows – Restricted Cash.
The adoption of ASU No. 2016-15- Statement of Cash Flows Classification of Certain Cash Receipts and Cash
Payments did not result in any changes in the classification of cash receipts and cash payments. The adoption of
ASU No. 2016-18—Statement of Cash Flows – Restricted Cash, changed the presentation of restricted cash in
cash flow, where amounts generally described as restricted cash and restricted cash equivalents are included with
cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on
the statement of cash flows.
ANNUAL REPORT 2018 ■ F-8
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
On January 1, 2018, the Company adopted the ASU No. 2017-09, “Compensation — Stock Compensation
(Topic 718), Scope of Modification Accounting”, which clarifies and reduces both (1) diversity in practice and (2) cost
and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to
the terms or conditions of a share-based payment award. The adoption of ASU 2017-09 did not have a material
effect in the Company’s financial statements.
On January 1, 2018, the Company adopted the ASU 2014-09 (Topic 606 – Revenue from Contracts with
Customers). The standard, as amended from time to time, outlines a single comprehensive model for entities to use
in accounting for revenue from contracts with customers, supersedes most legacy revenue recognition guidance
and expands disclosure requirements. The core principle of the guidance in Topic 606 is that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services by applying
the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in each
contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in
each contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company
elected to adopt ASC 606 by applying the modified retrospective method, to contracts that were in effect at January
1, 2018, the date of initial application. The Company has evaluated the impact of the standard after reviewing its
contracts and has determined that all of its charter agreements contain a lease and were accounted for under
ASC 842 as discussed below. Implementation of the new revenue standard did not have any impact on revenue
recognition. The prior period comparative information has not been restated and continues to be reported under
the accounting guidance in effect for those periods. There was no cumulative effect from the adoption of the new
revenue standard to opening accumulated deficit as at January 1, 2018, and no impact on any of the line items
reported in the Company’s consolidated financial statements.
In the fourth quarter of 2018, the Company early adopted the ASU No. 2016-02, Leases (ASC 842), as amended
from time to time, with the adoption reflected as of January 1, 2018, the beginning of the Company’s annual period
in accordance with ASC 250, by using the modified retrospective transition method. The Company elected to
apply the additional optional transition method, under which an entity initially applies the new leases standard to
existing leases at the beginning of the period of adoption through a cumulative effect adjustment to the opening
accumulated deficit as of January 1, 2018. The prior period comparative information has not been restated and
continues to be reported under the accounting guidance in effect for those periods (ASC 840), including the
disclosure requirements. Also, the Company elected to apply a package of practical expedients which does not
require the Company, as a lessor, to reassess: (1) whether any expired or existing contracts are or contain leases;
(2) lease classification for any expired or existing leases; and (3) whether initial direct costs for any expired or existing
leases would qualify for capitalization under ASC 842. As all existing contracts with charterers, at January 1, 2018,
are operating leases and as the Company did not account for initial direct costs related to existing leases at January
1, 2018, there were no amounts to be recorded as a cumulative effect adjustment to opening accumulated deficit
on January 1, 2018, and no impact on any of the line items reported in the Company’s consolidated financial
statements. The Company, as a lessor, also elected to apply the practical expedient which allowed it to account
for the lease and the non-lease components of time charter agreements as one, as the criteria of the paragraphs
ASC 842-10-15-42A through 42B are met. The Company did not have any material lease agreements in which it
was a lessee at the adoption date.
F-9 ■ ANNUAL REPORT 2018
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
Recent Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820)—Disclosure
Framework—Changes to the Disclosure Requirements for Fair Value Measurement”, which improves the
effectiveness of fair value measurement disclosures. In particular, the amendments in this Update modify the
disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts
in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial
Statements, including the consideration of costs and benefits. The amendments in the Update apply to all
entities that are required under existing GAAP, to make disclosures about recurring and non-recurring fair value
measurements. ASU No. 2018-13 is effective for annual periods, including interim periods within those annual
periods, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the
range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements,
and the narrative description of measurement uncertainty should be applied prospectively for only the most recent
interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied
retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this
Update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update
and delay adoption of the additional disclosures until their effective date. The Company is currently assessing the
impact that adopting this new accounting guidance will have on its consolidated financial statements and related
disclosures.
In October 2018, the FASB issued ASU No. 2018-17, “Consolidation (Topic 810)—Targeted Improvements to
Related Party Guidance for Variable Interest Entities”. The Board is issuing this Update in response to stakeholders’
observations that Topic 810, Consolidation, could be improved in the following areas: i) applying the variable interest
entity (VIE) guidance to private companies under common control, ii) considering indirect interests held through
related parties under common control for determining whether fees paid to decision makers and service providers
are variable interests. The amendments in this Update improve the accounting for those areas, thereby improving
general purpose financial reporting. ASU No. 2018-17 is effective for annual periods, including interim periods within
those annual periods, beginning after December 15, 2019. All entities are required to apply the amendments in
this Update retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest
period presented. Early adoption is permitted. The Company is currently assessing the impact that adopting this
new accounting guidance will have on its consolidated financial statements and related disclosures.
Significant Accounting Policies
(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 Performance Shipping
Inc. and its wholly-owned subsidiaries referred to in Note 1 above. All significant intercompany balances and
transactions have been eliminated upon consolidation. Under Accounting Standards Codification (“ASC”) 810
“Consolidation”, the Company consolidates entities in which it has a controlling financial interest, by first considering
if an entity meets the definition of a variable interest entity (“VIE”) for which the Company is deemed to be the
primary beneficiary under the VIE model, or if the Company controls an entity through a majority of voting interest
based on the voting interest model. The Company evaluates financial instruments, service contracts, and other
ANNUAL REPORT 2018 ■ F-10
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
arrangements to determine if any variable interests relating to an entity exist. The Company’s evaluation did not
result in an identification of variable interest entities as of December 31, 2018 and 2017.
(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, when applicable, includes minimum cash deposits required to be
maintained under the Company’s borrowing arrangements. The comparative amounts in the accompanying
consolidated statements of cash flows have been reclassified due to the changes in the current presentation of
restricted cash following the adoption as of January 1, 2018, of the ASU No. 2016-18 -Statement of Cash Flows
- Restricted Cash.
(g) Accounts Receivable, Trade: The account includes receivables from charterers for hire, net of any 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. No provision for doubtful accounts
has been made as of December 31, 2018 and 2017.
(h) Inventories: Inventories consist of lubricants and victualling which are stated at the lower of cost or net
realizable value. Cost is determined by the first in, first out method. Net realizable value is defined as estimated
selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and
transportation. 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
F-11 ■ ANNUAL REPORT 2018
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
to new charterers, or remains idle. Bunkers are also stated at the lower of cost or net realizable value and cost is
determined by the first in, first out method.
(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) 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.
(k) 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.
(l) 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 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
ANNUAL REPORT 2018 ■ F-12
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
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 also takes into account factors such as the vessels’ age and
employment prospects under the then current market conditions, and determines the future undiscounted cash
flows considering its various alternatives, including sale possibilities existing for each vessel as of the testing dates.
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
3.5%. Effective fleet utilization is assumed to 98% in the Company’s exercise, if vessel not laid-up, 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 2018, 2017 and 2016 indicated impairment charges for certain of the Company’s vessels, which are separately
reflected in the accompanying consolidated statements of operations (Note 4).
(m) 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 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 (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. The review of the related criteria for the year ended December 31, 2017 resulted in held for sale
classification for certain of the Company’s vessels (Note 4).
(n) Accounting for Revenues from Time Charters and Related Expenses: Revenues are generated from
time charter agreements. According to the terms of a time-charter agreement, the Company charters its vessels
F-13 ■ ANNUAL REPORT 2018
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
to a charterer from the delivery of the vessel to the charterer (commencement date), for a fixed period of time, at
rates that are generally determined in the main body of the charter agreements. As discussed above under “Recent
Accounting Pronouncements Adopted”, the Company’s time charter agreements were determined to contain a
lease and are accounted for under ASC 842. Time charter revenues are recorded over the non-cancellable term
of the charter as service is provided, while revenues from time charter agreements providing for varying charter
rates over their term are accounted for on a straight line basis. Any off-hires are recognized as incurred. The non-
lease components of the time charter agreements, primarily relating to operation and maintenance of the vessel,
are accounted for along with the associated lease component as a single lease component, as revenue from such
non-lease components is recognized ratably over the duration of the time charter, and is not predominant. Time
charter agreements with the same charterer are accounted for as separate agreements according to the terms and
conditions of each agreement. Under time charter agreements, the charterer typically pays a fixed daily or monthly
rate for a fixed period of time for the use of the vessel. Payments are typically made in advance. 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, except for commissions, which are paid for
by the Company. All voyage and vessel operating expenses are expensed as incurred, except for commissions.
Commissions are deferred over the related charter period to the extent revenue has been deferred since
commissions are due as revenues are earned.
(o) 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.
(p) 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 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.
(q) 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
ANNUAL REPORT 2018 ■ F-14
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
consolidated balance sheets. Amortization of dry-docking costs, for 2018, 2017 and 2016 amounted to $518, $744
and $657, respectively, and is reflected in Depreciation and amortization of deferred charges, in the accompanying
consolidated statement of operations.
(r) Financing Costs and Liabilities: Fees paid to lenders for obtaining new loans or refinancing existing ones are
deferred and recorded as a contra to debt, in accordance with ASU 2015-13: Interest-Imputation of Interest. 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.
Discount premiums (Notes 3 and 5) are accounted for similar to other financing fees. 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. A
loan liability is derecognised when the Company pays the creditor and is relieved of its obligation for the liability. The
difference between the settlement price and the net carrying amount of the debt being extinguished (which includes
any deferred debt issuance costs) is recognized as a gain or loss in the statement of operations.
(s) 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.
(t) Share Based Payment: The Company issues restricted share awards which are measured at their grant date
fair value and are not subsequently re-measured. That cost is recognized under the straight-line method 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). When the service inception date precedes the grant date, the Company accrues
the compensation cost for periods before the grant date based on the fair value of the award at the reporting date. In
the period in which the grant date occurs, cumulative compensation cost is adjusted to reflect the cumulative effect
of measuring compensation cost based on the fair value at the grant date. Forfeitures of awards are accounted
for when and if they occur. If an equity award is modified after the grant date, incremental compensation cost will
be 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.
(u) 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:
F-15 ■ ANNUAL REPORT 2018
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
>
>
>
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.
(v) 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.
(w) Going Concern: The Company’s policy is in accordance with ASU No. 2014-15, “Presentation of Financial
Statements - Going Concern”, issued in August 2014 by the FASB. ASU 2014-15 provides U.S. GAAP guidance on
management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue
as a going concern and on related required footnote disclosures. For each reporting period, management is required
to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue
as a going concern within one year from the date the financial statements are issued.
3. Transactions with Related Parties
(a) Altair Travel Agency S.A (“Altair”): The Company uses the services of an affiliated travel agent, Altair, which
is controlled by the Company’s CEO and Chairman of the Board. Travel expenses for 2018, 2017 and 2016 were
$554, $672 and $864 respectively, and are included in Vessel operating expenses, in General and administrative
expenses and in Loss / (gain) on vessels’ sale in the accompanying consolidated statements of operations. As at
December 31, 2018 and 2017, an amount of $4 and $21, respectively, was payable to Altair and is included in Due
to related parties in the accompanying consolidated balance sheets.
(b) Steamship Shipbroking Enterprises Inc. (“Steamship Shipbroking”): Steamship Shipbroking, a company
controlled by the Company’s CEO and Chairman of the Board, provides brokerage services to DCI, pursuant to
a Brokerage Services Agreement for a fixed fee. For 2018, 2017 and 2016, total brokerage fees and bonuses to
Steamship Shipbroking amounted to $2,145, $2,100 and $2,005 respectively, and are included in General and
administrative expenses in the accompanying consolidated statements of operations. As at December 31, 2018
and 2017 there was no amount due from or due to Steamship Shipbroking and an amount of $465 and $420,
respectively, has been accrued for in connection with bonuses approved to Steamship Shipbroking and is included
in Accrued liabilities in the accompanying consolidated balance sheets.
(c) Diana Shipping Inc. (“DSI”): The amounts of related party loans shown in the accompanying consolidated
balance sheets are analyzed as follows:
ANNUAL REPORT 2018 ■ F-16
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
Diana Shipping Inc. -
Term Loan
Discount Premium
payable to the lenders
less unamortized deferred
financing costs
Related party
financing, net of
unamortized deferred
financing costs
$
$
December 31,
2018
Current
Non- current
December 31,
2017
Current
Non-current
- $
- $
- $
82,617
82,617 $
-
-
-
-
-
-
2,292
2,292
(77)
(77)
- $
- $
- $
84,832 $
84,832 $
-
-
-
-
On May 20, 2013, the Company, through one of its subsidiaries, entered into an unsecured loan agreement of
up to $50,000 with Diana Shipping Inc., to be used to fund vessel acquisitions and for general corporate purposes.
Two amendments followed on September 9, 2015 and on September 12, 2016, which revised the main loan
terms and, among others, extended its initial maturity, amended the annual repayment schedule and revised
the applicable margins. On May 30, 2017, as discussed in Note 7, the Company issued 100 shares of its newly-
designated Series C Preferred Stock to DSI, in exchange for a reduction of $3,000 in the principal amount of the
Company’s outstanding loan.
On June 30, 2017, the Company refinanced the above loan, which had an outstanding balance of $42,417
at that time, for $82,617. The newly-drawn amount of $40,000 was used to partially repay the Company’s then
existing loan with The Royal Bank of Scotland plc (“RBS”), whose settlement resulted in a net gain of $42,185 for
the Company, which is reflected in Gain from bank debt write off in the accompanying consolidated statements
of operations. The new loan would mature on December 31, 2018 and provided for an additional $5,000 interest-
bearing “discount premium”, which was payable at maturity and was recognized in Interest and finance costs in the
accompanying consolidated statements of operations throughout the life of the loan, and in Related party financing,
net of unamortized deferred financing costs in the accompanying consolidated balance sheets. The DSI loan was
initially subordinated to the Addiewell loan (Note 5), and was secured by second priority mortgages over all the
Company’s containerships. After the full repayment of the Addiewell loan in May 2018, the DSI loan was secured by
first priority mortgages over all the Company’s containerships. It also bore interest at the rate of 6% per annum for
the first twelve months, scaled to 9% per annum for the next three months and further scaled to 12% per annum
for the remaining three months until maturity, included financial and other covenants which stipulated the repayment
with proceeds from the sale of assets of the Company, proceeds from the issuance of new equity and proceeds
from the exercise of existing warrants to purchase the Company’s Series B Convertible Preferred Shares (Note 7)
and prohibited the payment of dividends. During 2018, the Company has repaid in full the outstanding loan balance
and the entire discount premium by making use of warrant proceeds (Note 7) and vessels’ sales proceeds (Note
4), and accordingly, the loan agreement was terminated.
F-17 ■ ANNUAL REPORT 2018
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
The weighted average interest rate of the DSI loan during 2018 and 2017 was 6.12% and 5.42%, respectively.
For 2018, 2017 and 2016, interest expense incurred under the loan agreements with DSI amounted to $2,054,
$3,656 and $1,692, respectively, while the discount premium amortization amounted to $2,708, $2,292 and $0,
respectively. Interest expense and discount premium amortization are included in Interest and finance costs in
the accompanying consolidated statements of operations. Accrued interest as of December 31, 2018 and 2017
amounted to $0 and $44, respectively, and is included in Due to related parties in the accompanying consolidated
balance sheets.
4. Vessels, net
Vessels’ disposals
In May 2017, the Company, through one of its subsidiaries, entered into a memorandum of agreement to sell
the vessel “Doukato” to an unrelated party. The vessel was delivered to her new owners in June 2017, and the
Company received sale proceeds, net of expenses, of $5,895. In October 2017, the Company, through two of its
subsidiaries, entered into two memoranda of agreement to sell the vessels “March” and “Great”. The vessels were
classified on December 31, 2017 in current assets as held for sale, according to the provisions of ASC 360, as all
criteria required for this classification were met. Furthermore, from February to May 2018, the Company, through five
of its subsidiaries, entered into memoranda of agreement to sell the vessels “New Jersey”, “Sagitta”, “Centaurus”,
“Puelo” and “Hamburg” to unrelated parties. All seven vessels were delivered to their new owners from March to
July 2018, and the Company received aggregate proceeds of $92,905, net of expenses. For 2018 and 2016,
the aggregate loss from the sale of vessels, including direct to sale expenses, amounted to $16,700 and $2,899,
respectively, while for 2017, the respective gain, net of direct to sale expenses, amounted to $945.The amounts are
separately reflected in Loss / (Gain) on vessels’ sale in the accompanying consolidated statements of operations.
The Company used the proceeds from the sales of the vessels to repay indebtedness, according to the respective
terms of the Company’s then existing credit agreements (Notes 3 and 5).
Vessels’ Impairment
In 2018, 2017 and 2016 the Company, after taking into account factors such as the vessels’ age and
employment prospects under the then current market conditions, determined the future undiscounted cash flows
for each of its vessels, considering its various alternatives, including sale possibilities. This assessment concluded
that the carrying value of two vessels in 2018, two vessels in 2017 and seven vessels in 2016 was not recoverable
and accordingly, the Company has recognized an aggregate impairment loss of $20,654, $8,363, and $118,861,
respectively, which is separately reflected in the accompanying statements of operations. The fair value of the
vessels was determined through Level 2 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 vessels were
measured at fair value on a non-recurring basis as a result of the management’s impairment test exercise. The
aggregate fair value of the impaired vessels as of the testing dates was $29,074 in 2018, $20,050 in 2017 and
$59,900 in 2016.
ANNUAL REPORT 2018 ■ F-18
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(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:
Balance, December 31, 2016
- Vessels’ disposals
- Transfer to vessels held for sale
- Depreciation
- Impairment charges
Balance, December 31, 2017
- Vessels’ disposals
- Depreciation
- Impairment charges
Balance, December 31, 2018
Vessels’ Cost
Accumulated
Depreciation
Net Book Value
$
$
$
286,991 $
(46,639) $
(9,951)
(21,350)
-
(8,363)
247,327 $
(121,249)
-
(20,654)
105,424 $
5,001
2,972
(7,353)
-
(46,019) $
30,853
(4,388)
-
(19,554) $
240,352
(4,950)
(18,378)
(7,353)
(8,363)
201,308
(90,396)
(4,388)
(20,654)
85,870
As at December 31, 2018, all the Company’s vessels were unencumbered.
5. Unrelated Party Financing
The amounts of unrelated party financing shown in the accompanying consolidated balance sheets are
analyzed as follows:
Addiewell LTD -
Term Loan
Discount Premium payable to
the lenders
less unamortized deferred
financing costs
Unrelated party financing,
net of unamortized deferred
financing costs
$
$
December 31,
2018
Current
Non-current
December 31,
2017
Current
Non-
current
- $
-
- $
-
-
-
- $
-
-
8,500 $
8,500 $
3,718
3,718
(99)
(99)
- $
- $
- $
12,119 $
12,119 $
-
-
-
-
Addiewell Ltd (“Addiewell”) – Loan Facility: On June 30, 2017, the Company partially funded the refinancing
of its then existing loan with RBS, with proceeds under a new secured loan facility with Addiewell Ltd., an unaffiliated
third party, for the amount of $35,000. The loan, which would mature on December 31, 2018, also provided for an
additional $10,000 interest-bearing “discount premium”, which was also payable at maturity and was recognized
in Interest and finance costs in the accompanying consolidated statements of operations throughout the life of
the loan, and in Unrelated party financing, net of unamortized deferred financing costs in the accompanying
consolidated balance sheets. Moreover, the loan, which ranked senior to the loan agreement with DSI (Note 3), was
F-19 ■ ANNUAL REPORT 2018
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
secured by first priority mortgages over all the Company’s containerships, bore interest at the rate of 6% per annum
for the first twelve months, scaled to 9% per annum for the next three months and further scaled to 12% per annum
for the remaining three months until maturity. Finally, the loan facility included financial and other covenants which
stipulated the repayment of the facility with proceeds from the sale of assets of the Company, proceeds from the
issuance of new equity and proceeds from the exercise of existing warrants to purchase the Company’s Series B
Convertible Preferred Shares (Note 7), and prohibited the payment of dividends. During 2017, the Company repaid
$26,500 of its outstanding loan balance, according to the respective terms of the loan agreement. During 2018, the
Company has repaid in full the outstanding loan balance and the entire discount premium by making use of warrant
proceeds (Note 7) and vessels’ sales proceeds (Note 4), and accordingly, the loan agreement was terminated.
The weighted average interest rate of the Addiewell loan during 2018 and 2017 was 6.00% and 6.00%,
respectively. For 2018, 2017 and 2016, interest expense incurred in connection with the Addiewell and the RBS
loans, amounted to $247, $3,773 and $4,902, respectively, while the discount premium amortization amounted to
$6,282, $3,718 and $0, respectively. Interest expense and discount premium amortization are included in Interest
and finance costs in the accompanying consolidated statements of operations. Accrued interest as of December
31, 2018 and 2017, amounted to $0 and $9, respectively, and is included in Accrued liabilities in the accompanying
consolidated balance sheets.
6. Commitments and Contingencies
(a) Various claims, suits, and complaints, including those involving government regulations and product liability,
arise in the ordinary course of the shipping business. In addition, losses may arise from disputes with charterers,
agents, insurance and other claims with suppliers relating to the operations of the Company’s vessels. Currently,
management is not aware of any claims or contingent liabilities, which should be disclosed, or for which a provision
should be established and has not in the accompanying consolidated financial statements.
The Company accrues for the cost of environmental liabilities when management becomes aware that a liability
is probable and is able to reasonably estimate the probable exposure. Currently, management is not aware of any
such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in
the accompanying consolidated financial statements.
The Company’s vessels are covered for pollution in the amount of $1 billion per vessel per incident, by the
protection and indemnity association (“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, 2018, all our vessels were operating under time charter agreements. The minimum
contractual annual charter revenues, net of related commissions to third parties, to be generated from the existing as
at December 31, 2018, non-cancelable time charter contracts, are estimated at $5,702, until December 31, 2019.
ANNUAL REPORT 2018 ■ F-20
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
7. Changes in Capital Accounts
(a) Reverse Stock Splits: During 2016 and 2017, the Company effected six reverse stock splits of its common
shares, each which was approved by the Company’s shareholders. More specifically, the Company effected: (i) on
June 9, 2016, a one-for-eight reverse stock split, which was approved by shareholders at the Company’s 2016
Annual Meeting of Shareholders held on February 24, 2016; (ii) on July 5, 2017, a one-for-seven reverse stock split;
on July 27, 2017, a one-for-six reverse stock split; on August 24, 2017, a one-for-seven reverse stock split; and
on September 25, 2017, a one-for-three reverse stock split, each approved by shareholders at the Company’s
2017 Annual Meeting of Shareholders held on June 29, 2017; and (iii) on November 2, 2017, a one-for-seven
reverse stock split, which was approved by shareholders at the Company’s Special Meeting of Shareholders held
on October 26, 2017. No fractional shares were issued in connection with the reverse splits. Shareholders who
would otherwise hold fractional shares of the Company’s common stock received a cash payment in lieu of such
fractional share.
(b) Issuance of Series B Preferred Stock and Warrants to purchase Series B Preferred Stock: On March
21, 2017, the Company completed a registered direct offering of (i) 3,000 newly-designated Series B-1 convertible
preferred shares, par value $0.01 per share, and common shares underlying such Series B-1 convertible preferred
shares, and (ii) warrants to purchase 6,500 of Series B-1 convertible preferred shares, 6,500 of Series B-1
convertible preferred shares underlying such warrants, and common shares underlying such Series B-1 convertible
preferred shares. Concurrently with the registered direct offering, the Company completed an offering of warrants
to purchase 140,500 of Series B-2 convertible preferred shares in a private placement, in reliance on Regulation
S under the Securities Act. The securities in the registered direct offering and private placement were issued and
sold to Kalani Investments Limited (or “Kalani”), an entity not affiliated with the Company, pursuant to a Securities
Purchase Agreement. In connection with the private placement, the Company entered into a Registration Rights
Agreement with Kalani, pursuant to which the investor was granted certain registration rights with respect to the
securities issued and sold in the private placement. The Series B convertible preferred shares are convertible at
any time at the option of the holder into common shares at an initial conversion price of $7.00 per common share,
provided that a certain minimum trading volume of the Company’s common shares on the conversion date is met.
At the option of Kalani, the preferred stock may be alternatively converted into common shares at a per share price
equal to the higher of (i) 92.25% of the lowest daily volume weighted average price on any trading day during the
5 consecutive trading day period ending on and including the conversion date and (ii) $0.50. Kalani may elect to
convert the preferred stock into shares of common stock at the conversion price or alternate conversion price then
in effect, at any time. The Series B preferred warrants are exercisable into Series B convertible preferred shares at
any time at the option of the holder thereof at an exercise price of $1,000 per Series B convertible preferred share.
The Company in its assessment for the accounting of the Series B-1 and B-2 convertible preferred shares has
taken into consideration ASC 480 “Distinguishing liabilities from equity” and determined that the preferred shares
should be classified as equity instead of liability. The Company further analysed key features of the preferred
shares to determine whether these are more akin to equity or to debt and concluded that the Series B-1 and B-2
convertible preferred shares are equity-like. In its assessment, the Company identified certain embedded features,
examined whether these fall under the definition of a derivative according to ASC 815 applicable guidance or
whether certain of these features affected the classification. Derivative accounting was deemed inappropriate and
F-21 ■ ANNUAL REPORT 2018
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
thus no bifurcation of these features was performed. Upon exercise of the warrants, the holder is entitled to receive
preferred shares. ASC 480 “Distinguishing liabilities from equity” requires that a warrant which contains an obligation
that may require the issuer to redeem the shares in cash, be classified as a liability and accounted for at fair value.
The Company determined that the fair value of the warrants at inception and at December 31, 2018 is immaterial.
As at December 31, 2018, 100,010 warrants remained outstanding.
In 2018 and 2017, the Company received net equity proceeds, after deducting offering expenses payable by
the Company, of $17,413 and $31,989, respectively. In 2018, an aggregate of 17,490 preferred warrants were
exercised for the sale of an equal number of preferred shares and, in aggregate, 17,529 Series B convertible
preferred shares were converted to 10,250,265 common shares, thus leaving 250 Series B convertible preferred
shares outstanding as of December 31, 2018. Subsequent to the balance sheet date, all outstanding preferred
shares were converted to common shares (Note 12). In 2017, an aggregate of 32,500 Series B convertible preferred
shares were issued, out of which 32,211 were converted to 4,049,733 common shares, thus leaving 289 Series B
convertible preferred shares outstanding as of December 31, 2017.
(c) Issuance of Series C Preferred Stock: On May 30, 2017, the Company issued 100 shares of its newly-
designated Series C Preferred Stock, par value $0.01 per share, to DSI, in exchange for a reduction of $3,000 in
the principal amount of the Company’s outstanding loan (Note 3). The Series C Preferred Stock has no dividend or
liquidation rights. The Series C Preferred Stock votes with the common shares of the Company, and each share
of the Series C Preferred Stock entitles the holder thereof to up to 250,000 votes, subject to a cap such that the
aggregate voting power of any holder of Series C Preferred Stock together with its affiliates does not exceed 49.0%,
on all matters submitted to a vote of the stockholders of the Company. The issuance of shares of Series C Preferred
Stock to DSI was approved by an independent committee of the Board of Directors of the Company, which received
a fairness opinion from independent third parties that the transaction was fair from a financial point of view to the
Company. As of December 31, 2018, the 100 Series C Preferred Stock remained outstanding.
(d) Compensation Cost on Restricted Common Stock: On February 9, 2018, the Company’s Board of
Directors approved an amendment to the 2015 Equity Incentive Plan, to increase the aggregate number of shares
issuable under the plan to 550,000 shares. On February 9, 2018, the Company issued 161,700 restricted common
shares as an award to the executive management and the non-executive directors, pursuant to the Company’s
Board of Directors’ decision of February 9, 2017. The fair value of the award was $380 and the number of shares
issued was based on the share closing price of February 9, 2018. One third of the shares vested on February 9,
2018 and the remainder two thirds will vest ratably over two years from the issuance date. As at December 31,
2018, 388,300 restricted common shares remained reserved for issuance under the Plan.
Moreover, on February 15, 2018, the Company’s Board of Directors approved a one-time award of restricted
common stock, which was proposed by the Company’s compensation committee, with an aggregate value of
$5,000, to the Company’s executive officers and non-executive directors, in recognition of the successful refinancing
of the Company’s RBS loan in 2017. In this respect, a number of 5,747,786 restricted shares were issued on
February 15, 2019 and their number was defined based on the share closing price of February 15, 2019 (Note 12).
One third of the shares vested on the issuance date and the remainder two thirds will vest ratably over two years
from the issuance date. In 2018, compensation cost of $1,464 was recognized in connection with the specific
ANNUAL REPORT 2018 ■ F-22
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
award and is included in General and administrative expenses in the accompanying consolidated statements of
operations and in Other liabilities, non-current in the accompanying consolidated balance sheets.
During 2018, 2017 and 2016, aggregate compensation cost on restricted stock amounted to $1,587, $1,171,
and $1,119 respectively, and is included in General and administrative expenses in the accompanying consolidated
statements of operations. At December 31, 2018 and 2017, the total unrecognized compensation cost relating to
restricted share awards was $3,680 and $267, respectively.
During the year ended December 31, 2018, the movement of the restricted stock cost was as follows:
Outstanding at December 31, 2017
Granted
Vested
Forfeited or expired
Outstanding at December 31, 2018
Number of
Shares
Weighted
Average Grant
Date Price
- $
161,700
(53,899)
-
107,801 $
-
2.35
2.35
-
2.35
As at December 31, 2018, the weighted-average period over which the total compensation cost related to
non-vested awards, as presented above, is expected to be recognized, is 0.61 years.
8. Interest and Finance Costs
The amounts in the accompanying consolidated statements of operations are analyzed as follows:
2018
2017
2016
Interest expense and other fees on unrelated party debt (Note 5)
$
6,529 $
7,491
$
Interest expense and other fees on related party debt (Note 3)
4,762
5,948
4,902
1,692
427
73
176
53
322
82
$
11,520 $
13,843 $
7,094
Amortization of deferred financing costs
Commitment fees and other
Total
F-23 ■ ANNUAL REPORT 2018
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
9. Earnings / (Loss) per Share
All common 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 are entitled
to receive 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 in 2018,
2017 and 2016 were $0, $0 and $374, 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 2018 and
2016, 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 is the same amount. For 2017, the
computation of diluted earnings per share reflects the potential dilution from conversion of outstanding preferred
convertible stock calculated with the “if converted” method. No incremental shares were calculated with the treasury
stock method for the unexercised warrants to issue preferred convertible shares.
2018
2017
2016
Basic LPS
Diluted LPS
Basic EPS Diluted EPS
Basic LPS
Diluted LPS
$
(52,895) $
(52,895) $
3,819
$
3,819 $
(149,014) $
(149,014)
(52,895)
(52,895)
3,819
3,819
(149,014)
(149,014)
9,450,555
9,450,555
427,333
427,333
1,478
1,478
-
-
-
28
-
-
9,450,555
9,450,555
427,333
427,361
1,478
1,478
Net income/
(loss)
Net income/
(loss) available
to common
stockholders
Weighted average
number of common
shares outstanding
Effect of dilutive
shares
Total shares
outstanding
Earnings/(Loss)
per common share $
(5.60) $
(5.60) $
8.94
$
8.94 $
(100,821.38) $ (100,821.38)
ANNUAL REPORT 2018 ■ F-24
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
10. 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.
The Company is potentially subject to a four percent U.S. federal income tax on 50% of its gross income
derived by from its voyages that begin or end in the United States. However, under Section 883 of the Internal
Revenue Code of the United States (the “Code”), a corporation is 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 from
tax to corporations organized in the United States (an “equivalent exemption”); 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 the United States or in a country that grants an “equivalent exemption” , which is referred to as the
“Publicly-Traded Test.”
The Marshall Islands, the jurisdiction where Performance Shipping Inc. 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.
Based on the trading and ownership of its stock, the Company believes that it satisfied the Publicly-Traded Test
for its 2018 taxable year and intends to take this position on its 2018 U.S. federal income tax returns. Therefore,
the Company does not expect to have any U.S. federal income tax liability for the year ended December 31, 2018.
11. 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, 2018 and 2017.
12. Subsequent Events
(a) Issuance and Conversion of Series B Preferred Shares: Subsequent to the balance sheet date and
up to March 15, 2019, the 250 Series B-2 convertible preferred shares outstanding on December 31, 2018 were
converted to common stock (Note 7). Additionally, the Company received $3,470 of gross proceeds from the
exercise of 3,470 Series B-2 preferred warrants to purchase an equal number of Series B-2 convertible preferred
shares. In aggregate, subsequent to the balance sheet date, 3,720 Series B-2 convertible preferred shares were
converted to 5,348,947 common shares, thus leaving 0 Series B-2 convertible preferred shares outstanding on
F-25 ■ ANNUAL REPORT 2018
PERFORMANCE SHIPPING INC.
Notes to Consolidated Financial Statements
December 31, 2018
(Expressed in thousands of US Dollars – except for share and per share data, unless otherwise stated)
March 15, 2019.
(b) Share Repurchase Program: On January 9, 2019, the Company announced that its Board of Directors
authorized a share repurchase program to purchase up to an aggregate of $6,000 of the Company’s common
shares. The timing and amount of any repurchases will be determined by the Company’s management team, and
will depend on market conditions, capital allocation alternatives, applicable securities laws and other factors. The
Board of Directors’ authorization of the repurchase program is effective immediately and expires on December 21,
2019. Common shares repurchased as part of this program will be cancelled by the Company.
(c) Receipt of Nasdaq Notice: On January 15, 2019, the Company announced that it has received written
notification from The Nasdaq Stock Market LLC (“Nasdaq”) dated January 10, 2019, indicating that because the
closing bid price of the Company’s common stock for 30 consecutive business days was below the minimum $1.00
per share bid price requirement for continued listing on the Nasdaq Global Select Market, the Company is not in
compliance with Nasdaq Listing Rule 5450(a)(1). The applicable grace period to regain compliance is 180 days, or
until July 9, 2019 and the Company intends to cure the deficiency within the prescribed grace period.
(d) Determination of restricted stock awards approved in 2018: On February 15, 2019, the Company issued
5,747,786 restricted common shares as a one-time special award to the executive management and the non-
executive Directors, pursuant to the Company’s Board of Directors decision of February 15, 2018, in recognition of
the successful refinancing of the RBS loan in 2017, which resulted in a significant gain of $42,185, net of expenses
(Note 7). The fair value of the award is $5,000 and the number of shares issued was based on the share closing
price of February 15, 2019. One third of the shares vested as of the issuance date and the remainder two thirds
will vest ratably over two years from the issuance date.
(e) Company’s Renaming: On February 19, 2019, the Company’s Annual Meeting of Shareholders approved
an amendment to the Company’s Amended and Restated Articles of Incorporation to change the name of the
Company to “Performance Shipping Inc.,” which was effected on February 25, 2019. The Company’s common
shares will continue to trade on the Nasdaq Global Select Market under the ticker “DCIX”.
ANNUAL REPORT 2018 ■ F-26
Corporate Directory
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
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
Investor &
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.pshipping.com.
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 Strategy Officer and Secretary
Semiramis Paliou
Chief Operating Officer
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
Shareholder/Corporate Information
Any shareholder, investor, or analyst seeking further
information may contact:
Corporate Contact:
Ioannis Zafirakis
Director, Chief Strategy Officer and
Secretary
Pendelis 18
17564 Palaio Faliro
Athens, Greece
Tel: +30-216-600-2400
Email: izafirakis@pshipping.com
Corporate Offices
Performance Shipping Inc.
Pendelis 18
17564 Palaio Faliro
Athens, Greece
Tel: +30-216-600-2400
Email: info@pshipping.com
Stock Listing
Performance Shipping Inc.’s stock is traded
on the Nasdaq Global Market under the symbol
“DCIX”.
PERFORMANCE SHIPPING INC.
PENDELIS 18
17564 PALAIO FALIRO
ATHENS, GREECE
Phone: +30 216 6002400
Fax: +30 216 6002599
www.pshipping.com
30 ■ ANNUAL REPORT 2018