Star Bulk Carriers Q4 & Year End Report

 

Spyros Capralos, President and CEO of Star Bulk commented: "Our strong fourth quarter 2010 results of $0.38 per share excluding non-cash items were above Street estimates capping a solid financial year for our Company despite the volatile markets. A great part of our EPS is due to proceeds generated by a cash claim settlement related to the Star Ypsilon. While we recognize this as an extraordinary item in the sense that we do not expect similar settlement proceeds on a quarterly basis, we have to emphasize that these proceeds were added to the Company's cash reserves, further strengthening our balance sheet and increasing our net asset value. During the fourth quarter of 2010, we achieved an average Time Charter Equivalent rate of $26,644 per day, almost a 16% increase over the same period 2009, while reducing our operating costs by 10% compared to the fourth quarter of 2009 and by improving fleet utilization to 99.1%. In addition, we are pleased that our solid financial position enables us to continue rewarding shareholders with a quarterly dividend by declaring a $0.05 dividend for the fourth quarter 2010. 

 

“During 2010, the company was able to achieve a number of important goals including the successful implementation of our operating cost reduction efforts and pursuing organic fleet expansion while renewing our fleet. In this context we acquired two new building Capesize vessels, which we will take delivery of in the fourth quarter 2011, and we replaced an older Capesize vessel with the younger Star Aurora, effectively bringing our fleet's total carrying capacity to 1,287,686 deadweight tons. Worth mentioning is the fact that while we have managed to grow our fleet, we have not increased our headcount. The average age of our fleet excluding our two newbuildings currently stands at around 10.5 years. Equally important is the continued support of our growth plans by our senior lenders. In this context we recently announced that we signed commitment letters with a major European bank for senior debt financing for both Capesize new building vessels, for up to 65% of the vessels' price at favorable financing cost and terms. 

 

“At the appropriate time, we expect to secure period time-charter employment for the Star Cosmo and Star Omicron currently operating in the spot market and the one Capesize new building currently unfixed. We are in constant communication with quality counterparties about securing employment for the vessels with time charters that expire within 2011. 

 

“While we remain cautious about the effect of the oversupply in the dry bulk sector as well as softer freight rates, we are convinced that our company will navigate safely through any future challenges, taking advantage of the opportunities that are bound to arise.”

 

George Syllantavos, Chief Financial Officer of Star Bulk commented: "Our strong financial position enabled us to continue growing our Company and rewarding shareholders with a meaningful dividend while comfortably satisfying all of our original debt covenants. The company's debt repayment schedule has successfully passed the initial front-loaded period and will decrease from $68 million paid in 2010 to $34 million in 2011, $32 million in 2012 and $31 million in 2013, even though we have added two newbuilding and one secondhand capesizes to our fleet. Currently, our total contracted revenue stands at approximately $195 million. 

 

“Further, our cost efficient in-house management has produced tangible results as we realized a 26% decrease in our vessel operating expenses for the entire year ended December 31, 2010 compared to year 2009. I want to add that we have enjoyed the full benefit of the prevailing low interest rates, by successfully resistingthe exposure to interest rate swaps that has adversely burdened other shipping companies.”

 

Fourth Quarter 2010 and 2009 Results 

For the fourth quarter 2010, total revenues amounted to $31.9 million compared to $31.2 million for the fourth quarter 2009, despite the decrease in the average number of vessels to 11.0 for the fourth quarter 2010 from 11.8 for the fourth quarter 2009. This increase was mainly due to higher average TCE rates, a non-US GAAP measure representing time charter equivalent daily cash rates earned from chartering of the Company's vessels, during the fourth quarter 2010 as compared to the fourth quarter 2009. During the fourth quarter 2010 the Company earned $26,644 TCE rate per day as compared to $23,012 TCE rate per day for the fourth quarter 2009. Operating income amounted to $22.0 million for the fourth quarter 2010 compared to an operating loss of $2.8 million for the fourth quarter 2009. This increase was mainly due to other operating income that amounted to $21.6 million arising from a claim settlementrelated to the early termination of the time charter of the vessel Star Ypsilon that occurred in July 2009.Net income for the fourth quarter 2010 amounted to $20.7 million or $0.33 earnings per share calculated on 62,167,272 and 62,682,939 weighted average number of shares, basic and diluted, respectively. Net loss for the fourth quarter 2009 amounted to $4.6 million or $0.07 loss per basic and diluted shares calculated on 61,049,760 weighted average numbers of basic and diluted shares. 

 

The fourth quarter 2010 net income figure includes the following non-cash items: 

 

Revenue of $0.3 million representing amortization of fair value of below market acquired time charters, attached to vessels acquired, over the remaining period of the time charter into revenue.

 

Expenses of $3.4 million relating to the amortization of stock based compensation recognized in connection with the restricted shares issued to directors and employees.

Excluding these items, net income for the fourth quarter of 2010 would amount to $23.8 million or $0.38 earnings per basic and diluted share.

 

 

The fourth quarter 2009 net loss figure includes the following non-cash items: 

 

Net revenue of $0.3 million representing amortization of fair value of below/above market acquired time charters, attached to vessels acquired, over the remaining period of the time charter into revenue. 

 

A loss of $0.9 million associated with a loss on the time charter agreement termination which relates to the write-off of unamortized fair value of an above-market acquired time charter on a vessel due to an early redelivery date.

 

Expenses of $0.1 million relating to the amortization of stock based compensation recognized in connection with the restricted shares issued to directors and employees. 

 

An unrealized gain of $0.3 million associated with the mark-to-market valuation of the Company's derivatives.

Excluding these items, net loss for the fourth quarter of 2009 would amount to $4.2 million or $0.07 loss per basic and diluted share.

 

 

Adjusted EBITDA for the fourth quarter 2010 and 2009 was $37.3 million and $10.7 million, respectively. A reconciliation of EBITDA and adjusted EBITDA to net cash provided by cash flows from operating activities is set forth below. 

 

An average of 11.0 and 11.8 vessels were owned and operated during the fourth quarter 2010 and 2009, respectively, earning an average Time Charter Equivalent, ('TCE") rate of $26,644 per day and $23,012 per day, respectively. We refer you to the information under the heading "Summary of Selected Data" later in this earnings release for further information regarding our calculation of TCE rates. 

 

Vessel operating expenses decreased approximately 10% to $6.1 million for the fourth quarter 2010 compared to $6.8million for the same period last year. The decrease is mainly due to a more cost efficient in-house management of the vessels which was fully implemented during the first quarter of 2010 and due to the decrease in the number of vessels that operated during the fourth quarter of 2010 compared to the fourth quarter of 2009. 

 

Depreciation expense decreased to $12.2 million for the fourth quarter 2010 from $13.1million for the fourth quarter 2009. The decrease in depreciation expense was due to the fact that our fleet was reduced from an average of 11.8 vessels during the fourth quarter 2009, to an average of 11.0 during the fourth quarter 2010. 

 

General and administrative expenses increased to $6.3 million for the fourth quarter 2010 from $2.4 million for the fourth quarter 2009, respectively. This increase is mainly due to increased stock-based compensation expenses. 

 

Year ended December 31, 2010 and 2009 Results 

For the year ended December 31, 2010, total revenues amounted to $121.0 million compared to $142.4 million for the same period of 2009. This decrease is mainly due to lower average TCE rates, a non-US GAAP measure representing time charter equivalent daily cash rates earned from chartering of the Company's vessels, during the year ended December 2010 as compared to the year ended December 31, 2009. During the year ended December 31, 2010 the Company earned $26,859 TCE rate per day as compared to $29,450 TCE rate per day for the year ended December 31, 2009. Furthermore the number of vessels operated decreased from 12.0 in 2009 to 10.8 in 2010. In addition, the Company recorded lower revenue of $4.3 million associated with the amortization of fair value of below market acquired time charters, attached to vessels acquired, over the remaining period of the time charters. Operating income amounted to $0.3 million for the year ended December 31, 2010 compared to operating loss of $49.3 million for same period of 2009. This increase was mainly due to other operating income that amounted to $26.6 million partly arising from a claim settlement related to the early termination of the time charter of the vessel Star Ypsilon that occurred in July 2009 and the Company's sale of a 45% interest in the future proceeds related to the settlement of several commercial claims amounting to $5 million. Net loss for the year ended December 31, 2010 amounted to $5.1 million representing $0.08 loss per basic and diluted share calculated on 61,489,162 weighted average number of basic and diluted shares. Net loss for the year ended December 31, 2009 amounted to $58.4 million representing $0.96 loss per share calculated on 60,873,421 weighted average number of shares, basic and diluted. 

 

The year ended December 31, 2010net loss figure includes the following non-cash items: 

 

Impairment loss of $34.7 million in connection with the sale of the vessel Star Beta.

 

An increase in revenue of $1.4 million representing amortization of fair value of below market acquired time charters, attached to vessels acquired, over the remaining period of the time charter into revenue.

 

Expenses of $6.5 million relating to the amortization of stock based compensation recognized in connection with the restricted shares issued to directors and employees. 

 

An unrealized loss of $0.3 million associated with the mark-to-market valuation of the Company's derivatives. 

 

A bad debt expense of $2.1 million associated with a write-off of a Charterer's balance.

Excluding these items, net income for the year ended December 31, 2010 would amount to $37.1 million or $0.60 earnings per basic and diluted share.

 

 

The year ended December 31, 2009 net loss figure includes the following non-cash items: 

 

Impairment loss of $75.2 million in connection with the sale of the vessel Star Alpha. 

 

Net revenue of $5.7 million representing amortization of fair value of below/above market acquired time charters, attached to vessels acquired, over the remaining period of the time charter into revenue. 

 

Expenses of $1.8 million relating to the amortization of stock based compensation recognized in connection with the restricted shares issued to directors and employees.

Excluding these items, net income for the year ended December 31, 2009 would amount to $12.9 million or $0.21 earnings per basic and diluted share.

 

 

Adjusted EBITDA for year ended December 31, 2010 and 2009 was $89.5 million and $80.4 million respectively. A reconciliation of EBITDA and adjusted EBITDA to net cash provided by cash flows from operating activitiesis set forth below. 

 

An average of 10.8 and 12.0 vessels were owned and operated during the year ended December 31, 2010 and 2009, respectively, earning an average TCE rate of $26,859 and $29,450 per day, respectively. We refer you to the information under the heading "Summary of Selected Data" later in this earnings release for further information regarding our calculation of TCE rates. 

 

Vessel operating expenses decreased approximately 26% to $22.2 million for the year ended December 31, 2010 compared to $30.2 million for the same period last year. The decreaseis mainly due to a more cost efficient in-house management which was fully implemented during the year ended December 31, 2010 and the decrease in the number of vessels that operated during year ended December 31, 2010 comparedto the same period of 2009. 

 

Depreciation expense decreased to $46.9 million for the year ended December 31, 2010 from $58.3 million for the same period last year. The decrease in depreciation expense was due to the fact that our fleet was reduced from an average of 12.0 vessels during the year ended December 31, 2009, to an average of 10.8 during the same period this year. Furthermore, depreciation expense was further reduced due to the reclassification of the vessel Star Beta during the first quarter of 2010 as an asset held for sale. 

 

General and administrative expenses increased to $15.4 million for year ended December 31, 2010 from $8.7 million the same period of 2009, respectively. This increase is mainly due to higher professional fees and increased stock-based compensation expenses. 

 

Liquidity and Capital Resources 

Cash Flows

 

Net cash provided by operating activities for the year ended December 31, 2010 and 2009, was $87.9 million and $65.8 million, respectively. Cash flows generated by the operation of our fleet decreased due to a lower average number of vessels to 10.8 for the year ended December 31, 2010 compared to 12.0 for the year ended December 31, 2009 and lower average TCE rates, (a non-US GAAP measure representing time charter equivalent daily cash rates earned from chartering of the Company's vessels) as a result of the decline in the Drybulk vessel shipping industry. During the year ended December 31, 2010 the Company earned $26,859 TCE rate per day as compared to $29,450 TCE rate per day for the year ended December 31, 2009. However there was anincrease in cash provided by operating activities for the year ended December 31, 2010 which was mainly due to $ 21.6 million in cash collected arising from the Star Ypsilon claim settled in 2010 and the Company's sale of a 45% interest in the future proceeds related to the settlement of several commercial claims for $5 million. Furthermore, vessel operating expenses decreased by approximately 26% for the year ended December 31, 2010 mostly due to a more efficient in-house management and operation of a smaller fleet. Net cash used in investing activities for the year ended December 31, 2010 and 2009 was $60.2 million and $1.4 million, respectively. Net cash used in investing activities for the year ended December 31, 2010, was primarily due to additions to vessel cost mainly related to the acquisition of the vessel Star Aurora amounting to $44.1 million plus installments related to the Company's two newbuildings amounting to $43.5 million in aggregate and offset by a net decrease in restricted cash amounting to $7.0 million and by the proceeds from the sale of Star Beta amounting to $20.3 million. Net cash used in investing activities for the year ended December 31, 2009, was primarily a result of the proceeds from the sale of vessel Star Alpha amounting to $19.1 million offset by an increase in restricted cash of $20.5 million relating to the waivers obtained for existing loan agreements. 

 

Net cash used infinancing activities for the year ended December 31, 2010 and 2009 was $55.1 million and $53.8 million respectively. For the year ended December 31, 2010, net cash used in financing activities consisted of loan installment payments amounting to $68.4 million, cash dividend payments of $12.4 million and financing fees amounting $0.3 million offset by proceeds from new loans related to the acquisition of Star Aurora amounting to $26.0 million. For the year ended December 31, 2009, net cash used in financing activities consisted of loan installment payments amounting to $49.3 million and cash dividend payments of $6.2 million, offset by cash provided from our directors' dividend reinvestment of $1.9 million.