Seaspan Reports Financial Results for the Quarter Ended March 31, 2012
Thursday, 17 May 2012 | 14:30
Seaspan Corporation announced its financial results for the quarter ended March 31, 2012.Summary of Key Highlights
-- Achieved vessel utilization of 99.1% for the quarter ended March 31,
-- Accepted delivery of two newbuilding vessels during the quarter,
bringing Seaspan's operating fleet to a total of 67 vessels at March 31,
2012. The two delivered vessels are 13100 TEU vessels, the largest
vessels in Seaspan's fleet and flagship vessels in COSCON's
-- Paid a fourth quarter dividend of $0.59375 per Series C preferred share
on January 30, 2012, representing a distribution of $8.3 million. The
dividend was paid to all Series C shareholders of record as of January
27, 2012 for the period from October 30, 2011 to January 29, 2012.
-- Paid a fourth quarter dividend of $0.1875 per common share on February
22, 2012, increasing cumulative dividends paid to $7.72 per common share
since Seaspan's August 2005 initial public offering.
-- Repurchased 11.3 million Class A common shares through a tender offer at
a price of $15 per share for an aggregate cost of $169.5 million
excluding, fees and expenses.
Gerry Wang, Chief Executive Officer, Co-Chairman, and Co-Founder of Seaspan, commented, "During the first quarter, Seaspan continued to generate strong, stable operational and financial results for shareholders. We also took delivery of two newbuildings during the quarter, increasing our fleet to 67 vessels. Consistent with our strategy, both vessels commenced operations under long-term time charters with a leading liner company."
Mr. Wang added, "Based on our favourable results, our board has declared a $0.25 per share dividend on our Class A common stock for the first quarter, representing a 33% increase. We remain committed to drawing upon our strong and flexible capital structure to further grow our high-quality fleet in a disciplined manner. In achieving this important goal, we intend to continue to emphasize our SAVER vessel design, which we believe provides customers with improved efficiency and operational savings."
First Quarter Developments
Delivery of Vessels
In March 2012, Seaspan accepted delivery of the COSCO Excellence and COSCO Faith vessels. Both 13100 TEU vessels are on charter to COSCON under 12-year, fixed-rate time charter contracts.
In March 2012, CSCL did not exercise its option to extend the time charter for the CSCL Dalian. Seaspan plans to re-charter the vessel, subject to market conditions, following its redelivery to Seaspan on or about July 2012.
In March 2012, Seaspan was notified the time charter for the UASC Madinah will not be extended and the vessel will be returned to Seaspan in June 2012. This vessel is owned by one of Seaspan's subsidiaries, and is being chartered to Seaspan. Seaspan's subsidiary financed the vessel with a term loan from a leading U.S. bank, and this term loan will mature in June upon the expiration of the UASC time charter. Subject to certain conditions, the vessel will be sold to the U.S. bank in June 2012 for the amount outstanding under the term loan and will be leased back to Seaspan's subsidiary for approximately nine years.
Open Market Share Repurchase Plan
In February 2012, Seaspan's Board of Directors authorized the repurchase of up to $50.0 million of its Class A common shares. The share repurchase authorization does not have an expiration date and repurchase activity will depend on factors such as working capital needs, repayment of debt, share price, and economic and market conditions. Share repurchases may be effected from time to time through open market purchases or in privately negotiated transactions, and the repurchase program may be suspended, delayed or discontinued at any time. Seaspan has entered into a Rule 10b5-1 plan in connection with the share repurchase program. No shares were repurchased during the quarter ended March 31, 2012.
Acquisition of Seaspan Management Services Limited
On January 27, 2012, Seaspan acquired all of the issued and outstanding share capital of Seaspan Management Services Limited (the "Manager"), and acquired and cancelled all of the issued and outstanding shares of Seaspan's Class C common stock, which were owned by a subsidiary of the Manager.
The purchase price for the acquisition, excluding potential balance sheet adjustments and any contingent consideration for managed fleet growth payments, was $54.0 million, which Seaspan paid through the issuance of approximately 4.2 million shares of its Class A common stock, valued on a per share basis equal to $12.794, being the volume-weighted average trading price for the 90 trading days immediately preceding the closing date of the acquisition. For accounting purposes, under U.S. GAAP, the purchase price is required to be valued at the acquisition date. Therefore, the closing share price on the day prior to acquisition of $15.85 per share was used to value the Class A common shares at $66.9 million.
The Manager provides technical, administrative and strategic services to Seaspan. Prior to the acquisition, the Manager was owned by affiliates of Seaspan's largest shareholder and certain of Seaspan's directors. The acquisition increases Seaspan's control over access to services that the Manager provides on a long-term basis, and reduces certain conflicts between Seaspan and its directors who had interests in the Manager. Seaspan previously paid fees to the Manager for technical services on a fixed basis, which fees were adjusted every three years. As a result of the acquisition, Seaspan's costs for these services will vary more directly with the actual cost of providing technical services for Seaspan's fleet. The conflicts committee of Seaspan's board of directors, which committee is composed of independent directors, with the assistance of financial and legal advisors, reviewed and approved the acquisition of the Manager. For additional information about Seaspan's acquisition of the Manager, please see Seaspan's Form 6-K filed with the SEC on January 30, 2012.
On January 19, 2012, Seaspan repurchased 11.3 million shares of its Class A common stock tendered in a tender offer at a price of $15.00 per share, for an aggregate cost of $169.5 million excluding fees and expenses related to the tender offer.
On April 17, 2012, Seaspan declared a quarterly dividend of $0.59375 per Series C preferred share, representing a total distribution of $8.3 million. This dividend was paid on April 30, 2012 to all shareholders of record on April 27, 2012.
On May 12, 2012, Seaspan's board of directors declared a quarterly dividend of $0.25 per Class A common share. The dividend will be paid on June 8, 2012 to all shareholders of record as of May 29, 2012. This represents a 33.3% increase over the previous quarterly common share dividend. With this dividend, Seaspan has increased its quarterly common share dividend by 150% since March 31, 2010. Seaspan expects common share dividends for the four quarters ending December 31, 2012 to total $1.00 per share.
Delivery of vessels
On April 18 and 27, 2012, Seaspan accepted delivery of the COSCO Hope and the COSCO Fortune, respectively, bringing its operating fleet to 69 vessels. Both 13100 TEU vessels are on charter to COSCON under 12-year, fixed-rate time charter contracts.
On April 24, 2012, Seaspan fixed the CSCL Ningbo on a six-month time charter with CSCL at a charter rate of $8,450 per day, with an additional six-month extension option at a charter rate of $12,250 per day.
Ship Operating Expense
Prior to the acquisition of the Manager, the ship operating expense was comprised of fees paid to the Manager for technical services in exchange for a fixed fee per day per vessel, which was adjusted every three years. The fixed technical management fee was established based on costs expected to be incurred by the Manager in providing the technical services. As a result of the acquisition, Seaspan's ship operating expense is made up of the direct operating costs of the vessels.
Ship operating expense for the quarter ended March 31, 2012 of $34.6 million included $9.3 million of technical management fees paid to the Manager during the pre-acquisition period from January 1 to January 26, 2012 and $25.3 million in direct costs incurred during the post-acquisition period from January 27 to March 31, 2012.
Ship operating expense increased to $34.6 million for the quarter ended March 31, 2012, from $31.1 million for the same period in the prior year. In 2011, the ship operating expenses represented the amounts paid to the Manager for technical management fees. The increase in ship operating expense was primarily due to an increase in ownership days resulting from the two vessel deliveries in the first quarter of 2012 and a full period of expenses for the 10 vessel deliveries during 2011. In addition, lubricant costs, spares and repairs and maintenance increased due to a worldwide rise in the cost of lubricants, service and parts prices. Prior to the acquisition of the Manager, the entire fixed technical service fee was classified as ship operating expense. As a result of the acquisition of the Manager, the portion of the Manager's general and administrative expenses previously included in the fixed technical service fee, because such expenses are not operating in nature, has been reclassified as general and administrative expenses in 2012 and are no longer included in ship operating expense. This decrease partially offsets the increases described above.
Source: Seaspan Corporation