Star Bulk Carriers Corp. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, filed on November 25, 2008, reports the unaudited financial results for Star Bulk Carriers Corp. for the third quarter and nine months ended September 30, 2008. The Company, a Greek dry bulk carrier operator, commenced operations in December 2007. As of November 24, 2008, the fleet consisted of 12 vessels (4 Capesize, 8 Supramax) with a total capacity of 1,106,250 DWT and an average age of 9.5 years.
Key Financial Metrics
Third Quarter 2008 (Ended Sept 30):
- Voyage Revenues: $65.18 million
- Operating Income: $37.64 million
- Net Income: $35.24 million ($0.63 basic EPS; $0.62 diluted EPS)
- EBITDA: $51.64 million
- Adjusted EBITDA: $34.17 million
- Time Charter Equivalent (TCE) Rate: $62,156 per day (Adjusted TCE: $45,756)
- Fleet Utilization: 92%
Nine Months Ended September 30, 2008:
- Voyage Revenues: $166.10 million
- Operating Income: $88.53 million
- Net Income: $83.54 million ($1.63 basic EPS; $1.54 diluted EPS)
- EBITDA: $123.54 million
- Adjusted EBITDA: $78.01 million
- Time Charter Equivalent (TCE) Rate: $63,489 per day (Adjusted TCE: $43,353)
- Fleet Utilization: 91%
Liquidity and Balance Sheet (Sept 30, 2008):
- Cash and Cash Equivalents: $4.89 million (down from $18.99 million at Dec 31, 2007)
- Long-Term Debt: $260.50 million
- Current Portion of Long-Term Debt: $44.50 million
- Net Cash Provided by Operating Activities (9 months): $83.69 million
Material Changes and Unusual Items
The Company notes that meaningful year-over-year comparisons are not possible as operations commenced in Q4 2007. Reported Net Income and EBITDA for both periods were significantly impacted by non-cash accounting adjustments related to vessel acquisitions:
- Amortization of Time Charters: A major non-cash add-back included in Net Income was the amortization of the fair value of below/above market acquired time charters ($16.89 million in Q3; $51.81 million for the nine months).
- Vessel Transactions:
- Star Iota Sale: Sold in October 2008 for ~$18.4 million. This resulted in a $1.02 million gain in Q3 and a $3.63 million impairment loss recognized in the nine-month period.
- Star Ypsilon Acquisition: Delivered in September 2008 for ~$87.2 million, chartered until July 2011.
- Stock-Based Compensation: Expenses of $0.44 million (Q3) and $2.66 million (9 months) related to restricted shares issued to directors.
Outlook, Risks, and Management Commentary
Charter Coverage: The Company has secured 100% of operating days for 2008, 74% for 2009, and 64% for 2010 under time charters. A new short-term agreement was secured for the Star Beta with Vale.
Dividend Policy: On November 17, 2008, a dividend of $0.36 per share was declared. To conserve cash, 50% is paid in cash ($0.18) and 50% in newly issued stock. This structure limits cash outlay to approximately $8 million, conserving $11.6 million.
Share Repurchases: Under a $50 million program, the Company has repurchased 977,000 shares and 1,362,500 warrants as of November 24, 2008, leaving $37.07 million of capacity remaining.
Risks and Contingencies:
- Arbitration: The Company initiated arbitration against Oldendorff Gmbh & Co. KG regarding the repudiation of a sub-charter for the Star Beta. The counterparty, Industrial Carriers Inc. (ICI), has filed for creditor protection in Greece.
- Legal Dispute: TMT Co. Ltd. alleged unspecified damages regarding a Master Agreement breach in August 2008. No formal claim has been filed as of the report date.
Investor Verification Checklist
- Verify the sustainability of the Adjusted TCE rate ($45,756) versus the reported TCE rate ($62,156) given the heavy reliance on amortization of acquired charters.
- Assess the impact of the $305 million total debt load ($260.5M long-term + $44.5M current) against the reduced cash balance of $4.89 million.
- Monitor the outcome of the arbitration against Oldendorff regarding the Star Beta charter repudiation.
- Review the dilution impact of the stock dividend and the remaining capacity of the $50 million share buyback program.
- Confirm the status of the TMT Co. Ltd. dispute and whether a formal claim is filed.