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, 2010 (Unaudited)
Filing Date: December 10, 2010
Costamare Inc. is a Marshall Islands corporation owning and operating a fleet of container vessels. As of September 30, 2010, the fleet consisted of 41 vessels with a total capacity of approximately 211,882 TEU. The Company charters vessels to leading liner operators under long, medium, and short-term time charters. The financial statements reflect a reorganization of predecessor companies under common control.
Key Financial Metrics
| Metric (in thousands USD) | 9 Months Ended Sept 30, 2009 | 9 Months Ended Sept 30, 2010 |
|---|---|---|
| Voyage Revenue | $305,012 | $267,464 |
| Operating Income | $147,217 | $131,058 |
| Net Income | $94,327 | $69,421 |
| Earnings Per Share (Basic/Diluted) | $2.01 | $1.48 |
| Net Cash from Operating Activities | $118,345 | $88,994 |
| Total Assets | $1,710,300 | $1,707,663 |
| Total Debt (Current + Non-Current) | $1,435,593 | $1,372,133 |
| Cash and Cash Equivalents | $12,282 | $30,974 |
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenue decreased by approximately 12.3% ($37.5 million) compared to the prior year period, driven by a reduction in the number of vessels in operation due to sales.
- Profitability: Net income decreased by 26.4% ($24.9 million). While operating expenses decreased, the decline in revenue and increased losses on derivative instruments contributed to lower net income.
- Derivative Losses: The Company recorded a loss of $8.96 million on derivative instruments in 2010, compared to a gain of $6.77 million in 2009. This was primarily due to the fair value change of interest rate swaps and collars.
- Asset Turnover: The Company sold four vessels for scrap in 2010, realizing a capital gain of $9.59 million, compared to gains of $2.52 million in 2009. Total vessel acquisitions and additions cost $123.77 million in 2010.
- Debt Reduction: Total long-term debt decreased by approximately $63.5 million, primarily due to repayments of term loans and the credit facility.
Outlook, Risks, and Subsequent Events
- Initial Public Offering (IPO): On November 4, 2010, the Company completed its IPO, issuing 13.3 million shares at $12.00 per share, with estimated net proceeds of $146.1 million.
- Stock Split: A stock split of 0.88 shares for each share outstanding was effected on October 19, 2010.
- New Financing: On November 19, 2010, the Company entered into a new $120 million term loan facility available for 18 months to finance newbuild or secondhand acquisitions.
- Fleet Expansion: The Company contracted for three newbuild containerships (approx. $95 million each) and four secondhand vessels. Two secondhand vessels were delivered in November 2010, with two more scheduled for early 2011.
- Management Agreements: Following the IPO, management agreements with related parties (Costamare Shipping) were amended, increasing the daily management fee to $0.850 per vessel and adding a 0.75% commission on gross freight.
- Risks: The Company is exposed to interest rate fluctuations, managed via interest rate swaps and collars. Significant concentration of credit risk exists with top charterers, who accounted for 74% of revenue in the first nine months of 2010.
Investor Verification Checklist
- Derivative Valuation: Verify the fair value of the $138.4 million liability associated with interest rate swaps and the impact of rising interest rates on future earnings.
- Debt Covenants: Review the financial covenants in the $854.8 million Credit Facility, specifically the Total Liabilities to Market Value Adjusted Total Assets ratio (max 0.75:1) and minimum liquidity requirements.
- Charter Concentration: Assess the risk associated with the top three charterers representing 74% of total revenue.
- Related Party Transactions: Confirm the terms and fees of the new management agreements with Costamare Shipping and CIEL Shipmanagement following the IPO.
- Capital Expenditure: Monitor the funding and delivery schedule for the three newbuild vessels and four secondhand acquisitions contracted in late 2010.