Costamare Inc. — 2012 Form 20-F
Reporting period: Fiscal year ended December 31, 2012. This is an annual report, not a stand-alone fourth-quarter filing. 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 containerships and principally leases them to liner companies on multi-year time charters. At December 31, 2012, it owned 47 operating vessels; as of February 22, 2013, the reported fleet comprised 47 vessels in the water and 10 newbuilds on order. The three largest customers—Maersk, MSC and COSCO—accounted for 74% of 2012 revenue. Fleet utilization was 99.9% in 2012.
Financial performance and position
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Voyage revenue | $386.2 million | $382.2 million | +1.0% |
| Operating income | $154.9 million | $170.7 million | -9.3% |
| Net income | $81.1 million | $87.6 million | -7.4% |
| Basic and diluted EPS | $1.20 | $1.45 | Lower |
| Net cash from operating activities | $168.1 million | $195.2 million | -13.9% |
| Net cash used in investing activities | $236.5 million | $283.8 million | Lower outflow |
| Net cash from financing activities | $237.7 million | $26.8 million | Higher, including equity proceeds |
Operating margin, calculated as operating income divided by revenue, was approximately 40.1% versus 44.7%; net margin was approximately 21.0% versus 22.9%. Cash-basis adjusted voyage revenue, a company-defined non-GAAP measure, declined 4.9% to $392.4 million, despite GAAP revenue growth. Management attributed the GAAP increase chiefly to larger vessels earning higher average rates, while the cash-basis decline reflected lower cash hire under charter escalation clauses.
At year-end, total assets were $2.31 billion, stockholders’ equity $520.5 million, and debt $1.56 billion, all debt secured. Cash and cash equivalents were $267.3 million; restricted cash was $47.3 million. Working capital was positive $50.5 million, compared with negative $87.7 million in 2011. The company reported $532.7 million of available borrowing capacity at year-end under facilities committed to newbuild financing. The weighted-average debt interest rate was 4.376%.
Material changes and unusual items
- Revenue rose modestly, but operating income and net income fell. A key factor was the change from a $13.1 million vessel-sale gain in 2011 to a $2.8 million net loss on vessel sales/disposals in 2012. The 2012 amount included losses on vessel sales and a partial reversal of a provision related to the Rena incident.
- Operating cash flow declined by $27.1 million, mainly due to lower cash collected under escalating charters, higher dry-docking payments and increased interest and swap payments.
- Investing outflows included $191.2 million of newbuild advances and $74.1 million for secondhand vessels. Financing included $194.1 million net proceeds from two 2012 follow-on equity offerings and $73.1 million of dividends paid.
- Ten newbuild vessels had an aggregate contract price of approximately $953.7 million. Remaining shipyard commitments at December 31, 2012 were $629.4 million, largely payable in 2013.
- Interest-rate swap liabilities totaled $180.8 million at year-end; 27 of 28 swaps qualified for hedge accounting. Management estimated that a 100-basis-point LIBOR increase would have reduced 2012 net income and cash flows by approximately $3.2 million.
Outlook, risks and contingencies
Management described a weak containership market in 2012, with declining charter rates and vessel values amid subdued trade and rising vessel supply. It noted signs of trade stabilization toward year-end, but gave no specific earnings or revenue guidance. As of February 22, 2013, fixed-term charters represented approximately $2.7 billion of contracted revenue and average remaining charter duration was 5.1 years; these are post-year-end figures and depend on charterer performance and contract terms.
The company stated its intention to continue quarterly dividends of $0.27 per share, or $1.08 annualized, while cautioning that dividends remain at the board’s discretion and depend on cash generation, financing covenants and other conditions. It paid $0.27 per share in February 2013 for the fourth quarter of 2012.
Principal risks include a prolonged shipping downturn, charterer credit and customer concentration, vessel oversupply and rechartering risk, substantial secured debt and covenant restrictions, refinancing and newbuild funding needs, interest-rate and foreign-currency exposure, and operating, environmental and regulatory liabilities. Management reported no default under credit facilities. No impairment was recorded, although its analysis indicated that 15 vessels’ estimated market values were below carrying values; recoverability depended on projected cash flows and assumptions about future charter rates and utilization.
The Rena ran aground in New Zealand in 2011 and was declared a constructive total loss. In 2012, its owner subsidiary agreed to pay NZ$27.6 million, plus a possible NZ$10.4 million, under a government settlement; the filing said these payments were covered by insurance. A NZ$300,050 fine was imposed after a guilty plea, and third-party cargo-loss and damage proceedings were at an early stage. The company cautioned that insurance might not cover all costs.
Related-party management arrangements are material: the principal manager is controlled by the CEO, receives daily and revenue-based fees, and the agreement provides for annual fee increases. A new cooperation arrangement with V.Ships Greece was expected to begin in April 2013; anticipated benefits were not assured.
Important facts for investors to verify
- Charterer exposure, especially the 74% of 2012 revenue from Maersk, MSC and COSCO, and their ability to meet charter obligations.
- Newbuild delivery timing, remaining funding commitments, and availability of committed credit facilities.
- Debt maturities, collateral values, covenant headroom and the effect of swap liabilities and interest-rate changes.
- Whether operating cash flow can support planned capital spending and the stated dividend policy.
- Assumptions behind vessel impairment testing and developments in the Rena-related claims and insurance recoveries.
- Costs, performance and governance implications of the related-party management agreements and V.Ships cooperation arrangement.