Business Context and Reporting Period
Company: Costamare Inc.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2011 (Unaudited)
Filing Date: October 27, 2011
Costamare Inc. is a container shipping company owning and operating a fleet of vessels chartered to liner operators. As of September 30, 2011, the fleet consisted of 49 container vessels with a total capacity of approximately 236,188 TEU. The company also has 10 newbuild vessels under construction.
Key Financial Metrics
| Metric (in thousands USD) | 9 Months Ended Sep 30, 2010 | 9 Months Ended Sep 30, 2011 |
|---|---|---|
| Revenue (Voyage) | $267,464 | $280,165 |
| Operating Income | $131,058 | $123,117 |
| Net Income | $69,421 | $61,510 |
| Earnings Per Share (Basic & Diluted) | $1.48 | $1.02 |
| Cash from Operating Activities | $88,994 | $134,412 |
| Cash from Investing Activities | $2,480 | $(256,623) |
| Cash from Financing Activities | $(72,782) | $33,050 |
| Total Debt (Current + Non-Current) | $1,341,737 | $1,426,806 |
| Cash and Cash Equivalents | $159,774 | $70,613 |
| Total Stockholders' Equity | $362,142 | $317,438 |
Material Changes vs. Prior Period
- Revenue Growth: Voyage revenue increased by approximately 4.7% to $280.2 million, driven by fleet expansion and charter rates.
- Profitability Decline: Net income decreased by 11.4% to $61.5 million. Earnings per share dropped from $1.48 to $1.02, primarily due to a significant increase in the weighted average number of shares outstanding (from 47 million to 60.3 million) following the 2010 IPO and stock split, alongside higher operating expenses.
- Expense Increases: Vessels' operating expenses rose to $83.3 million (from $76.7 million), and management fees to related parties increased to $11.3 million (from $8.2 million). Interest and finance costs increased slightly to $56.0 million.
- Capital Expenditure: Investing cash outflows surged to $256.6 million (compared to a net inflow of $2.5 million in 2010) due to the acquisition of nine secondhand vessels ($133.1 million) and significant pre-delivery payments for ten newbuild vessels ($147.3 million).
- Liquidity: Cash and cash equivalents decreased by $89.2 million to $70.6 million, reflecting heavy capital deployment. However, operating cash flow improved significantly to $134.4 million.
- Debt Levels: Total debt increased by $85.1 million to $1.43 billion to finance vessel acquisitions and newbuilds.
Outlook, Risks, and Unusual Items
- Dividends: The company declared a third-quarter dividend of $0.27 per share ($16.3 million total), payable November 7, 2011. Total dividends paid in the nine-month period were $45.2 million.
- Vessel Sales: The company recognized a gain of $10.8 million from the sale of three vessels for scrap. Two additional vessels (MSC Fado and MSC Tuscany) are classified as "held for sale" with an expected aggregate gain of approximately $5.0 million upon delivery in late 2011.
- Derivatives: The company holds significant interest rate swap agreements to hedge floating rate debt. The fair value of these derivatives resulted in a net liability of $173.3 million as of September 30, 2011. A loss of $6.6 million was recognized on derivative instruments in the income statement.
- Subsequent Event - Vessel Loss: On October 5, 2011, the vessel C/V Rena ran aground in New Zealand and was declared a "constructive total loss" for insurance purposes. Management expects the financial impact to be limited due to insurance coverage, though the incident is being monitored.
- Commitments: The company has $810.6 million remaining in commitments for the ten newbuild vessels under construction, payable through 2014.
Investor Verification Checklist
- Insurance Coverage: Verify the extent of insurance coverage and potential deductibles regarding the C/V Rena total loss to confirm the "limited impact" assertion.
- Debt Covenants: Review compliance with financial covenants (e.g., Total Liabilities to Market Value Adjusted Total Assets ratio not exceeding 0.75:1) given the increased debt load and equity reduction from dividends.
- Newbuild Delivery Schedule: Confirm the delivery timelines and charter party status for the ten newbuild vessels to ensure future revenue streams are secured as projected.
- Related Party Transactions: Assess the impact of increased management fees paid to related parties (Costamare Shipping, CIEL, Shanghai Costamare) on future operating margins.
- Liquidity Position: Monitor the cash balance of $70.6 million against upcoming debt maturities and newbuild installment payments, particularly the $151.9 million principal payment due in 2012.