Costamare Inc. — FY 2016 Form 20-F
Reporting period: Fiscal year ended December 31, 2016. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under U.S. GAAP; amounts below are U.S. dollars.
Business context
Costamare owns and charters containerships to liner companies. At December 31, 2016, its consolidated fleet averaged 53.6 vessels during the year. As of March 10, 2017, the broader reported fleet comprised 69 vessels, including five newbuilds on order; some vessels are held through joint ventures in which Costamare owns minority interests.
Key financial metrics
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $468.2 million | $490.4 million |
| Operating income | $166.1 million | $217.9 million |
| Net income | $81.7 million | $143.8 million |
| Net income available to common shareholders | $60.6 million | $125.9 million |
| Basic and diluted EPS | $0.79 | $1.68 |
| Cash from operating activities | $226.6 million | $244.7 million |
| Cash used in investing activities | $34.4 million | $43.0 million |
| Cash used in financing activities | $127.4 million | $214.7 million |
| Cash and cash equivalents at year-end | $164.9 million | $100.1 million |
| Total assets | $2.56 billion | $2.63 billion |
| Total stockholders’ equity | $1.07 billion | $963.5 million |
Revenue declined 4.5%; operating income fell 23.8%, and net income fell 43.2%. Calculated operating margin was approximately 35.5% versus 44.4% in 2015; net margin was approximately 17.5% versus 29.3%.
Year-end current assets were $209.8 million and current liabilities $280.0 million, giving negative working capital of $70.2 million and a current ratio of about 0.75. The company reported total liquidity, including restricted cash, of $210.6 million. Debt and finance-lease obligations totaled approximately $1.42 billion, including $1.058 billion of long-term debt and $363.8 million of lease obligations. Costamare also guaranteed $174.6 million of joint-venture debt. The company stated it was not in default under its credit facilities.
Material changes and unusual items
- Revenue fell because of lower charter rates for some vessels, fewer revenue days and vessel disposals; improved utilization and the leap year partly offset the decline. Cash-basis revenue, a non-GAAP measure, decreased 6.6% to $460.5 million.
- Operating expenses decreased, including vessel operating expenses, but this was outweighed by lower revenue and significant charges.
- A $37.2 million loss was recorded on a vessel classified as held for sale, MSC Romanos, which was sold for scrap in January 2017. The Karmen sale generated a $4.4 million loss.
- The company recorded a $4.0 million impairment of its ZIM equity investment. It also incurred $9.7 million of interest-rate-swap breakage costs and reported a $4.0 million net loss on derivative instruments.
- Operating cash flow remained substantial but decreased $18.1 million. The December 2016 common-stock offering raised $69.0 million net; 12 million shares were issued at $6.00 each. Year-end shares outstanding were 90.4 million.
- Common dividends were reduced from $0.29 per share to $0.10 per share for the fourth quarter of 2016. Cash dividends paid in 2016 were $53.9 million on common stock and $21.1 million on preferred stock; an additional $19.5 million of common dividends was reinvested in shares.
Outlook, risks and contingencies
Management said cash from operations and available financing were expected to meet short- and long-term needs, including newbuild commitments, but gave no quantified earnings or revenue guidance. As of March 10, 2017, fixed-term charters represented approximately $1.5 billion of contracted revenue, including owner extension options; average remaining charter duration was approximately 3.3 years. However, 24 of 51 vessels in the water had charters due to expire before year-end 2017, and one vessel was unemployed.
Management described the containership market as weak: industry charter rates were historically low, supply exceeded demand, and the order book was concentrated in larger vessels. Key exposures include charterer credit and concentration (five major liner customers generated 96% of 2016 revenue), re-chartering rates, vessel values and impairment assumptions, refinancing and covenant compliance, interest rates, and dividend capacity. Environmental rules, including the IMO global sulphur limit scheduled for 2020, may require operating changes or investment. Costamare also disclosed related-party management arrangements and joint-venture commitments; remaining installments for five newbuilds were reported at $187.5 million overall, with Costamare’s share of commitments and financing described separately in the filing.
The company reported no material pending legal proceedings and no off-balance-sheet arrangements. Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls and internal controls were effective at year-end.
Most important facts for investors to verify
- Whether charter renewals and re-charter rates can offset the substantial 2017 charter expirations and any vessel idle time.
- Current unrestricted liquidity, debt and lease maturities, guarantees, covenant headroom, and availability and terms of refinancing.
- Whether the held-for-sale charge, vessel valuations and impairment assumptions remain appropriate as market values and charter rates change.
- Charterer financial condition and concentration, including developments affecting ZIM and other major customers.
- Funding, delivery timing, charter coverage and Costamare’s remaining share of joint-venture newbuild commitments.
- The sustainability of common and preferred dividends given debt service, preferred dividend priority, negative working capital and the reduced common dividend.