March 30, 2009
DryShips auditors have "going concern" reservations
Shares of DryShips Inc. (NASDAQ: DRYS) fell after it announced that it had has filed its Annual Report on Form 20-F for the year ended 2008. The company said that the audit opinions filed, though unqualified, include an explanatory "going concern" paragraph. Deloitte, Hadjipavlou, Sofianos and Cambanis S.A. filed the audit opinion regarding the 2008 financial statements of the company and Ernst and Young (Norway) that regarding the 2008 financial statements of wholly-owned subsidiary, Ocean Rig ASA
In the case of DryShips, the paragraph states:
"The accompanying consolidated financial statements for the year ended December 31, 2008, have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company's inability to comply with financial covenants under its current loan agreements as of December 31, 2008, difficulties in meeting its financing needs, its negative working capital position, and other matters discussed in Note 3 raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty."
The "going concern paragraph relating to Ocean Rig reads:
"The accompanying consolidated financial statements have been prepared assuming that Ocean Rig ASA and subsidiaries will continue as a going concern. As more fully described in Note 14, Ocean Rig ASA is a wholly owned subsidiary of DryShips Inc. On a consolidated basis, DryShips Inc. reported a current portion of long-term debt of $2,370,556 as of 31 December 2008 due to DryShip Inc.'s inability to comply with financial covenants under its current debt agreements and a negative working capital position. These conditions raise substantial doubt about DryShips Inc.'s ability to continue as a going concern. Because of the aforementioned conditions relating to DryShips Inc., and the uncertainties surrounding its plans to address its liquidity needs, the parent entity's actions could have a substantial effect on Ocean Rig ASA and subsidiaries' assets; therefore, there is also substantial doubt about whether Ocean Rig ASA and subsidiaries will continue as a going concern. The 2008 consolidated financial statements of Ocean Rig ASA and subsidiaries do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
George Economou, Chairman and Chief Executive of DryShips, commented: "As discussed during our latest conference call, the going concern explanatory paragraph is the result of the previously announced reclassification of $1.8 billion of long-term debt as current. With the proactive approach already taken to reduce $2 billion in capital expenditures, the confidence of our three main lenders with whom we are in close ongoing discussions, secured revenues of over $2.4 billion in the next three years from drybulk time charters and offshore drilling contracts and the recent equity infusion of $380 million through the ATM Equity Offering(SM) share issuance program, we have repositioned DryShips for the long-term and remain ahead of the curve."