Costamare Inc. — 2013 Annual Report (Form 20-F)
Reporting period: Fiscal year ended December 31, 2013. This is an annual filing, not a quarterly report; it does not provide a clear standalone fourth-quarter 2013 income statement or cash-flow value. Financial statements are prepared under U.S. GAAP and audited by Ernst & Young (Hellas), which issued unqualified opinions on the financial statements and internal controls.
Business context
Costamare owns and charters containerships, primarily under multi-year time charters to liner companies. At February 17, 2014, it reported 56 vessels in the water and 11 newbuilds on order, including vessels in joint ventures with York. Fleet utilization was 99.9% in 2013. Five customers—A.P. Moller-Maersk, MSC, Evergreen, Hapag-Lloyd and COSCO—accounted for 93% of 2013 revenue.
Key financial results
| Metric | 2013 | 2012 |
|---|---|---|
| Voyage revenue | $414.2 million | $386.2 million |
| Operating income | $169.0 million | $154.9 million |
| Net income | $103.1 million | $81.1 million |
| Net income available to common shareholders | $101.6 million | $81.1 million |
| Basic and diluted earnings per common share | $1.36 | $1.20 |
| Net cash from operating activities | $186.7 million | $168.1 million |
| Net cash used in investing activities | $621.1 million | $236.5 million |
| Net cash from financing activities | $260.4 million | $237.7 million |
| Cash and cash equivalents at year-end | $93.4 million | $267.3 million |
| Total assets | $2.686 billion | $2.311 billion |
| Total debt, including current portion | $1.868 billion | $1.562 billion |
| Stockholders’ equity | $656.9 million | $520.5 million |
Operating margin was approximately 40.8% in 2013 versus 40.1% in 2012; net margin was approximately 24.9% versus 21.0%. These are calculated from reported revenue and income figures. Interest and finance costs were $74.5 million. Year-end cash, cash equivalents and restricted cash totaled $152.3 million. Working capital was negative $158.4 million, compared with positive $50.5 million a year earlier.
Changes versus 2012
- Revenue rose 7.3%, mainly as seven newbuild vessels entered service; lower rates on certain vessels and vessel sales partly offset the increase. Cash-basis voyage revenue, a non-GAAP measure, increased 9.4% to $429.2 million.
- Net income increased by $22.0 million. Higher revenue and a $6.5 million gain on derivative instruments contributed; general and administrative expense also included a $3.7 million allowance for doubtful charter receivables.
- Average fleet size increased to 49.6 vessels from 46.8, and ownership days rose 5.9%. Operating expenses increased 3.1%; depreciation increased 12.0%, largely reflecting delivered newbuilds.
- Operating cash flow improved $18.6 million. Investing outflows rose substantially, principally due to $590.4 million of newbuild advances and $51.9 million of secondhand vessel acquisitions. Financing provided $260.4 million, including $469.4 million of debt draws, $163.7 million of repayments and preferred-share proceeds.
- Year-end debt increased to $1.868 billion. Cash and cash equivalents declined by $173.9 million during the year.
Liquidity, debt and capital commitments
- Debt facilities are primarily floating-rate, secured by vessel mortgages and related assignments, and include financial and other covenants. The company stated it was not in default under any credit facility at the report date.
- The weighted-average debt interest rate was 4.28% at December 31, 2013. Management estimated that a 100-basis-point increase in rates would have reduced 2013 net income and cash flow by approximately $3.8 million, after considering the debt and hedges.
- Interest-rate swaps had an aggregate fair-value liability of $103.2 million at year-end. Twenty-six of 27 swaps qualified for hedge accounting; the reported $6.5 million income-statement gain primarily reflected fair-value movement on the non-qualifying swap.
- Contracted charter revenue as of December 31, 2013 was approximately $2.33 billion, based on earliest redelivery dates and stated assumptions. At February 17, 2014, the company reported approximately $2.4 billion, including its share of joint-venture contracted revenue.
- As of February 17, 2014, remaining newbuild commitments were reported at $374.0 million. The company expected to fund liquidity needs through operating cash flow, available committed borrowing and future financing, while noting future financing was not assured on acceptable terms.
- Common dividends paid in 2013 totaled $80.8 million; preferred dividends paid totaled $0.7 million. The board retains discretion over dividends, which are subject to cash availability, law and financing restrictions. Series B preferred shares carry a 7.625% annual rate; Series C shares, issued in January 2014, carry an 8.50% rate.
Outlook, risks and unusual items
- Management described 2013 containership capacity as exceeding demand, with oversupply depressing charter rates and vessel values. It cautioned that weak trade growth and additional large-vessel deliveries could pressure future chartering and cash generation. The filing provides no quantified earnings or revenue guidance.
- Charterer and concentration risk is significant. ZIM was negotiating with creditors to restructure debt and charter obligations; Costamare was participating in discussions that could result in charter concessions, modifications or remedial action. The filing recorded a $3.7 million doubtful-amount allowance related to charter arrangements.
- Management reported no vessel impairment charge for 2013, although its analysis indicated market values below carrying values for 22 vessels, with an aggregate carrying-value excess over estimated market values of $116.9 million. The no-impairment conclusion relied on projected undiscounted cash flows and assumptions about charter rates, utilization, expenses and vessel lives.
- Expansion through the York framework involves minority ownership interests and substantial newbuild commitments. Financing, delivery timing, joint-venture execution and the absence of time charters for some newbuilds are risks.
- Other material risks include high leverage and covenant compliance, refinancing and liquidity, customer concentration, foreign-exchange exposure, derivative counterparties, environmental regulation, vessel operations and insurance. Costamare does not carry loss-of-hire insurance.
- The Rena grounding resulted in a constructive total loss and a New Zealand criminal fine in 2012; the company expected insurance to cover most associated costs but warned coverage might not be sufficient. Management reported no other legal proceedings believed likely to have a significant effect on the business.
Important facts for investors to verify
- Current status of ZIM’s restructuring discussions, deferred charter payments and any changes to ZIM charter terms or receivable recoverability.
- Available cash and borrowing capacity after year-end, upcoming debt maturities, covenant headroom and the terms and completion of refinancing or sale-and-leaseback transactions.
- Funding, delivery schedules, charter coverage and Costamare’s actual ownership share for each newbuild and York joint-venture vessel.
- Assumptions supporting the impairment analysis, particularly charter-rate forecasts, and whether market-value declines or operating changes trigger impairment or covenant concerns.
- Sustainability of common and preferred dividends given negative working capital, debt service, capital commitments and board discretion.
- Standalone fourth-quarter 2013 results, which are not clearly provided in this annual filing and should be checked against the company’s quarterly disclosures.