Seaspan Reports Financial Results for the Three and Six Months Ended June 30, 2016

Series of Transactions Strengthens Balance Sheet and Supports Continued Growth of Stable Cash Flows

HONG KONG, China, July 25, 2016 /CNW/ - Seaspan Corporation ("Seaspan") (NYSE: SSW) announced today its financial results for the three and six months ended June 30, 2016. Below is a summary of Seaspan's key financial results:

Summary of Key Financial Results (in thousands of US dollars):



Three Months Ended June 30,


Change



2016


2015


$


%

Revenue


$

224,314


$

199,152


$

25,162



12.6%














Reported net earnings


$

36,425


$

81,356


$

(44,931)



(55.2%)














Normalized net earnings(1)


$

43,977


$

35,163


$

8,814



25.1%














Earnings per share, basic and diluted


$

0.23


$

0.68


$

(0.45)



(66.2%)














Normalized earnings per share, diluted(1)


$

0.30


$

0.22


$

0.08



36.4%














Cash available for distribution to common
shareholders(2)


$

111,223


$

105,708


$

5,515



5.2%














Adjusted EBITDA(3)


$

177,150


$

168,816


$

8,334



4.9%










































Six Months Ended June 30,


Change



2016


2015


$


%

Revenue


$

439,837


$

387,699


$

52,138



13.4%














Reported net earnings


$

43,553


$

102,689


$

(59,136)



(57.6%)














Normalized net earnings(1)


$

89,981


$

73,519


$

16,462



22.4%














Earnings per share, basic and diluted


$

0.17


$

0.76


$

(0.59)



(77.6%)














Normalized earnings per share, diluted(1)


$

0.64


$

0.47


$

0.17



36.2%














Cash available for distribution to common
 shareholders(2)


$

211,750


$

199,590


$

12,160



6.1%














Adjusted EBITDA(3)


$

340,805


$

322,891


$

17,914



5.5%














___________________________________

(1) Normalized net earnings and normalized earnings per share are non-GAAP measures that are adjusted for interest expense, excluding amortization of deferred financing fees, refinancing expenses, foreign exchange gain, write-off of vessel equipment, change in fair value of financial instruments, interest expense at the hedged rate, and certain other items that Seaspan believes are not representative of its operating performance. Normalized earnings per share, diluted, includes the dilutive impact of share-based compensation arrangements and convertible preferred shares. Please read "Reconciliation of Non-GAAP Financial Measures for the Three and Six Months Ended June 30, 2016 and 2015—Description of Non-GAAP Financial Measures—B. Normalized Net Earnings and Normalized Earnings per Share" for a description of normalized net earnings and normalized earnings per share, and for reconciliations of these measures to net earnings and earnings per share, respectively.


(2) Cash available for distribution to common shareholders is a non-GAAP measure that represents net earnings adjusted for depreciation and amortization, interest expense and amortization of deferred financing fees, refinancing expenses, share-based compensation, change in fair value of financial instruments, bareboat charter adjustment, gain on sales, amortization of deferred gain, foreign exchange gain, dry-dock reserve adjustment, cash dividends paid on preferred shares, interest expense at the hedged rate and certain other items that Seaspan believes are not representative of its operating performance. Please read "Reconciliation of Non-GAAP Financial Measures for Three and Six Months Ended June 30, 2016 and 2015—Description of Non-GAAP Financial Measures—A. Cash Available for Distribution to Common Shareholders" for a description of cash available for distribution to common shareholders and a reconciliation of cash available for distribution to common shareholders to net earnings.


(3) Adjusted EBITDA is a non-GAAP measure that represents net earnings adjusted for interest expense and amortization of deferred financing fees, income tax expense, interest income, undrawn credit facility fees, depreciation and amortization, refinancing expenses, share-based compensation, gain on sales, amortization of deferred gain, foreign exchange gain, bareboat charter adjustment, change in fair value of financial instruments and certain other items that Seaspan believes are not representative of its operating performance. Please read "Reconciliation of Non-GAAP Financial Measures for the Three and Six Months Ended June 30, 2016 and 2015—Description of Non-GAAP Financial Measures—C. Adjusted EBITDA" for a description of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net earnings.


Summary of Key Highlights

  • Achieved vessel utilization of 98.1% and 97.7% for the three and six months ended June 30, 2016, or 98.4% and 98.3% if the impact of scheduled off-hire days is excluded.
  • Accepted delivery of one vessel during the second quarter and leased in two vessels, bringing Seaspan's operating fleet to a total of 89 vessels at June 30, 2016.
  • Paid $13.2 million of regular quarterly dividends to preferred shareholders of record as of April 29, 2016.  Dividends per share were:
    • $0.59375 Series C (NYSE: SSW PR C)
    • $0.496875 Series D (NYSE: SSW PR D)
    • $0.515625 Series E (NYSE: SSW PR E)
  • Paid a quarterly dividend for the 2016 first quarter of $0.375 per Class A common share to all shareholders of record as of April 20, 2016.
  • Raised approximately $1.2 billion through capital markets and financing transactions during 2016.

Gerry Wang, Chief Executive Officer, Co-Chairman and Co-Founder of Seaspan, commented, "We continued to generate strong financial and operational results in the second quarter, which was defined by a series of transactions that strengthened our balance sheet and positioned us for further growth. Seaspan secured in excess of $1.0 billion in new capital during the second quarter, comprised of loan, lease and equity financings. Our continued ability to access capital from diverse sources is a strong endorsement of our stress tested business model and disciplined growth strategy."

Mr. Wang, added, "During the second quarter, we expanded our fleet with the delivery of our eighth 14000 TEU SAVER design containership, which commenced a ten-year fixed-rate contract with Yang Ming. We also grew our operating fleet by entering into leasing arrangements for two newly-delivered vessels that were previously owned by GCI and constructed under our supervision.  Each of these vessels has been contracted for long-term fixed-rate charters.  Finally, at the end of the second quarter, Seaspan acquired two newbuilding 11000 TEU vessels from GCI and their associated 17-year charters with MSC.  With these actions, we have taken significant steps to ensure the stability of our cash flows while increasing our position as the world's largest independent owner and lessor of containerships."

Second Quarter Developments

Vessel Deliveries

During the second quarter of 2016, Seaspan accepted delivery of one 14000 TEU vessel, the YM Width. The vessel was constructed at CSBC Corporation, Taiwan using our fuel efficient SAVER design and commenced a 10-year fixed-rate time charter with Yang Ming Marine Transport Corp. ("Yang Ming Marine") on May 29, 2016.

On April 28, 2016, Seaspan entered into a lease financing arrangement with third parties for one 10000 TEU newbuilding vessel, the MOL Beyond. The vessel is being leased from the third parties over a term of 11 years, with an option to purchase the vessel at the nine-year anniversary of the lease for a pre-determined fair value purchase price. Seaspan received the eight-year time charter contract with Mitsui O.S.K. Lines Ltd. for the MOL Beyond from Greater China Intermodal Investment LLC ("GCI") for no consideration.

On May 6, 2016, Seaspan entered into a lease financing arrangement with third parties for one 14000 TEU newbuilding vessel, the YM Window. The vessel is being leased from the third parties over a term of 12 years, with an option to purchase the vessel at the 9.5-year anniversary of the lease for a pre-determined fair value purchase price. Seaspan received the 10-year time charter contract with Yang Ming Marine for the YM Window from GCI for no consideration.

Vessel Acquisitions

On June 29, 2016, Seaspan acquired two 11000 TEU newbuilding vessels from GCI for a total purchase price of $195.6 million. These vessels will commence 17-year bareboat charters with MSC Mediterranean Shipping Company S.A. ("MSC") upon their respective deliveries scheduled in 2017. MSC is obligated to purchase the vessels for a pre-determined amount at the end of their respective charters. These two vessels are sister ships to Seaspan's three 11000 TEU vessels also scheduled for delivery in 2017 and chartered to MSC.

Equity Financings

On May 17, 2016, Seaspan issued to a third-party Asian investor 5,600,000 Series F preferred shares at a price of $25.00 per share, for an aggregate purchase price of $140.0 million. The holder of the Series F preferred shares has the right to convert these shares into common shares at a conversion price of $18.00 per share. The dividend rate is initially set at 6.95%, but will increase by 1.0% annually after the fifth anniversary date up to a maximum of 10.5% by the ninth anniversary date, or in certain circumstances to 10.5% on January 1, 2018. Seaspan has the right to call the Series F preferred shares at par plus any accumulated and unpaid dividends at any time after the dividend increases above 6.95%.

On May 27, 2016, Seaspan issued 5,750,000 Class A common shares in a public offering for net proceeds of approximately $81.1 million before expenses. Concurrently with the closing of the public offering, Seaspan's chief executive officer and affiliates of one of Seaspan's directors and of Dennis Washington purchased directly from Seaspan, in a private placement and at the public offering price, an aggregate of $15.0 million additional Class A common shares.

On June 16, 2016, Seaspan issued 4,600,000 Series G preferred shares at a price of $25.00 per share, for net proceeds of approximately $111.4 million before expenses. Dividends are payable on the Series G preferred shares at a rate of 8.20% per annum on the stated liquidation preference of $25.00 per share.

Redemption of Series C Preferred Shares

In June 2016, Seaspan redeemed 13,321,774 Series C preferred shares, representing all of the issued and outstanding Series C preferred shares, using net proceeds from the Series F preferred share issuance and Class A common share public offering and concurrent private placement.

Revolving Credit Facility

On April 29, 2016, Seaspan completed the renewal of its 364-day unsecured, revolving loan facility with various banks for a total commitment of up to $150.0 million. The facility includes features providing for an increase in commitments by up to $30.0 million, enabling a total facility size of up to $180.0 million. The revolving loan facility bears interest at LIBOR plus a margin.

Lease Financings       

On May 5, 2016, Seaspan entered into 17-year financing arrangements with an Asian-based leasing company, consisting of leases with commitments totalling approximately $253 million to fund the construction and delivery of three 11000 TEU newbuilding containerships and leases with commitments totalling approximately $168 million to fund the construction and delivery of two 11000 TEU containerships. These financing arrangements bear interest at LIBOR plus a margin. The five 11000 TEU newbuilding containerships will commence 17-year bareboat charters upon their deliveries, scheduled during 2017.     

On May 25, 2016, Seaspan entered into a sale-leaseback transaction with special purpose companies, ("SPCs"), for the YM Width for gross proceeds of $144.0 million. Under the lease, Seaspan sold the vessel to the SPCs and leased the vessel back for twelve years, with an option to purchase the vessel at the 9.5-year anniversary for a pre-determined fair value purchase price.

Employment Agreement with CEO Gerry Wang

On May 16, 2016, Seaspan entered into an employment agreement with Gerry Wang to replace the existing employment agreement, dated December 7, 2012. Pursuant to the new employment agreement, Mr. Wang has agreed to continue to serve as Seaspan's chief executive officer and co-chairman through May 31, 2021.

Financial Services Agreement

On May 16, 2016, Seaspan entered into a Financial Services Agreement, with Seaspan Financial Services Ltd., ("SFSL"), an entity owned and controlled by Graham Porter, a Seaspan director, to replace the Financial Services Agreement dated March 14, 2011, between Seaspan and Tiger Ventures Limited, an entity also owned and controlled by Mr. Porter. Under the Financial Services Agreement, SFSL will provide Seaspan with certain strategic services, including negotiating and procuring pre-delivery and post-delivery financing or refinancing for the construction of new vessels or the acquisition of second hand vessels.

Subsequent Events

Dividends

On July 12, 2016, Seaspan declared the following quarterly cash dividends on its common and preferred shares, for a total distribution of $47.9 million:

Security


Ticker


Dividend per
Share


Period


Record Date


Payment Date

Class A

common shares


SSW


$0.375


April 1, 2016 to

June 30, 2016


July 20, 2016


August 1, 2016












Series D

preferred shares


SSW PR D


$0.496875


April 30, 2016 to

July 29, 2016


July 29, 2016


August 1, 2016












Series E

preferred shares


SSW PR E


$0.515625


April 30, 2016 to

July 29, 2016


July 29, 2016


August 1, 2016












Series F

preferred shares


-


$0.352326


May 17, 2016 to

July 29, 2016


July 29, 2016


August 1, 2016












Series G

preferred shares


SSW PR G


$0.250556


June 16, 2016 to

July 29, 2016


July 29, 2016


August 1, 2016












Results for the Three and Six Months Ended June 30, 2016

At the beginning of 2016, Seaspan had 85 vessels in operation. Seaspan accepted delivery of two newbuilding vessels and leased in two vessels during the six months ended June 30, 2016, bringing its operating fleet to a total of 89 vessels at June 30, 2016. Revenue from time charters is determined primarily by the number of operating days, and ship operating expense is determined primarily by the number of ownership days.



Three Months Ended

June 30,


Increase



Six Months Ended

June 30,


Increase




2016


2015


Days


%



2016


2015


Days


%


Operating days(1)..............



7,468



6,762



706



10.4

%



14,640



13,262



1,378



10.4

%

Ownership days(1)............



7,612



6,901



711



10.3

%



14,987



13,471



1,516



11.3

%




























The following table summarizes Seaspan's vessel utilization by quarter and for the six months ended June 30, 2016 and 2015:



First Quarter



Second Quarter



Year To Date- June 30,




2016



2015



2016



2015



2016



2015


Vessel Utilization:

























Ownership Days(1).............



7,375




6,570




7,612




6,901




14,987




13,471


Less Off-hire Days:


























Scheduled 5-Year

    Survey......................



(75)




(49)




(19)




(66)




(94)




(115)



Unscheduled Off-hire(2)



(128)




(21)




(125)




(73)




(253)




(94)


Operating Days(1).............



7,172




6,500




7,468




6,762




14,640




13,262


Vessel Utilization.............



97.2

%



98.9

%



98.1

%



98.0

%



97.7

%



98.4

%


























_____________________

(1)

Operating and ownership days include leased vessels and exclude vessels under bareboat charter.

(2)

Unscheduled off-hire includes days related to vessels off-charter.



The following table summarizes Seaspan's consolidated financial results for the three and six months ended June 30, 2016 and 2015:

Financial Summary

(in millions of US dollars)


Three Months Ended

June 30,


Change



Six Months Ended

June 30,


Change



2016


2015


$


%



2016


2015


$


%



























Revenue....................................


$

224.3


$

199.2


$

25.2



12.6%



$

439.8


$

387.7


$

52.1



13.4%

Ship operating expense.............



49.2



49.3



(0.1)



(0.1%)




96.8



93.9



3.0



3.2%

Depreciation and amortization

    expense................................



54.5



52.4



2.2



4.1%




113.4



99.0



14.4



14.6%

General and administrative

    expense................................



9.1



6.4



2.7



42.0%




16.9



13.2



3.7



27.9%

Operating lease expense..........



20.7



8.6



12.1



140.8%




35.5



14.7



20.8



141.0%

Interest expense and

    amortization of deferred

    financing fees.......................



30.1



28.3



1.8



6.4%




60.2



53.3



7.0



13.1%

Refinancing expenses...............



0.8



1.2



(0.4)



(33.0%)




0.8



2.3



(1.5)



(66.5%)

Change in fair value of financial

   Instruments...........................



23.6



(19.5)



43.1



221.2%




75.8



19.9



55.9



281.6%



























Revenue

Revenue increased by 12.6% to $224.3 million and 13.4% to $439.8 million for the three and six months ended June 30, 2016, respectively, over the same periods in 2015, primarily due to the delivery of newbuilding vessels in 2015 and 2016 and the additional two leased in vessels in 2016, partially offset by lower average charter rates for vessels that were on short-term charters.

The increases in operating days and the related financial impact thereof for the three and six months ended June 30, 2016, respectively, relative to the same periods in 2015, are attributable to the following:



Three Months Ended

June 30, 2016


Six Months Ended

June 30, 2016



Operating

Days Impact


$ Impact

(in millions)


Operating

Days Impact


$ Impact

(in millions)

2016 vessel deliveries...............................



241



9.5



245



9.6

Full period contribution for 2015

    vessel deliveries.....................................



470



20.7



1,190



52.7

Change in daily charter hire rate and

   re-charters..............................................


-



(8.0)


-



(12.7)

Additional days due to leap year..............



-



-



81



2.1

Unscheduled off-hire................................



(52)



(1.0)



(159)



(2.8)

Scheduled off-hire....................................



47



1.0



21



(1.8)

Supervision fee revenue...........................


-



2.6


-



3.9

Vessel management revenue..................


-



0.4


-



1.0

Other..........................................................


-



-


-



0.1

Total                                     



706


$

25.2



1,378


$

52.1














Vessel utilization was 98.1% and 97.7% for the three and six months ended June 30, 2016, respectively, compared to 98.0% and 98.4% the same periods in 2015.

The decrease in vessel utilization for the six months ended June 30, 2016, compared to the same period in 2015, was primarily due to an increase in unscheduled off-hire by 159 days. The increase in unscheduled off-hire was primarily due to eight vessels that were off-charter for a total of 230 days during the six months ended June 30, 2016, compared to two vessels that were off-charter for a total of 38 days in the same period of 2015.

Seaspan completed dry-dockings for 12 vessels during the three and six months ended June 30, 2016:

Vessel Class (TEU)


First Quarter



Second Quarter



Year To Date-June 30, 2016

4250......................................


2

(1)


1

(1)


3

4500......................................


1





1

8500......................................


1





1

13100....................................


5



2



7



9



3



12










______________________________

(1) 

 Dry-docking for these vessels was completed between their time charters.



During the remainder of 2016, Seaspan expects three vessels to undergo their scheduled dry-dockings.

Ship Operating Expense

Ship operating expense decreased by 0.1% to $49.2 million for the three months ended June 30, 2016, compared to the same period in 2015, primarily due to cost savings initiatives implemented, which resulted in lower crew costs and lower stores and spares purchases. This decrease is partially offset by a 10.3% increase in ownership days due to the delivery of newbuilding vessels in 2015 and 2016, and the additional two leased in vessels in 2016.

Ship operating expense increased by 3.2% to $96.8 million for the six months ended June 30, 2016, compared to the same period in 2015, primarily due to an 11.3% increase in ownership days for the six months ended June 30, 2016. The increase in ownership days is primarily due to the delivery of newbuilding vessels in 2015 and 2016, and the additional two leased in vessels in 2016, partially offset by cost savings initiatives implemented which resulted in lower crew costs.

Depreciation and Amortization Expense

Depreciation and amortization expense increased by 4.1% to $54.5 million and by 14.6% to $113.4 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015, primarily due to an increase in fleet size from vessels delivered in 2015 and an increase in dry-dock amortization from an increase in the number of vessels dry-docked. For the six months ended June 30, 2016, the increase in depreciation and amortization was also due to write-offs of replaced vessel equipment.

General and Administrative Expense

General and administrative expense increased by 42.0% to $9.1 million and by 27.9% to $16.9 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015. The increases were primarily due to professional fees and other corporate expenses incurred.

Operating Lease Expense

Operating lease expense increased to $20.7 million and $35.5 million for the three and six months ended June 30, 2016, respectively, from $8.6 million and $14.7 million in the same periods in 2015. The increase was primarily due to the deliveries of four vessels in 2015 and two vessels in 2016 that were financed through sale-leaseback transactions. Under these transactions, Seaspan sold the vessels to the SPCs and are leasing the vessels back over a term of 11 or 12 years, with an option to purchase the vessels at the nine or 9.5-year anniversary of the lease for a pre-determined fair value purchase price. The unamortized portion of the deferred gain on all sale-leasebacks was $202.3 million as at June 30, 2016.

In addition, operating lease expense also increased due to the two leases entered into with third parties in April and May 2016 for a 10000 TEU vessel, the MOL Beyond and a 14000 TEU vessel, the YM Window, respectively.

Interest Expense and Amortization of Deferred Financing Fees

The following table summarizes Seaspan's borrowings:

 (in millions of US dollars)


As at June 30,


Change



2016


2015


$


%














Long-term debt, excluding deferred

    financing fees..............................................................


$

3,316.6


$

3,350.8


$

(34.2)



(1.0%)

Other long-term liabilities, excluding deferred

     gains, deferred financing fees and other...................



411.7



354.6



57.1



16.1

Total borrowings..............................................................



3,728.3



3,705.4



22.9



0.6

Less: Vessels under construction...................................



(289.8)



(211.5)



(78.3)



(37.0)

Operating borrowings......................................................


$

3,438.5


$

3,493.9


$

(55.4)



(1.6%)














Interest expense and amortization of deferred financing fees is comprised primarily of interest incurred on long-term debt and other long-term liabilities, excluding deferred gains, relating to operating vessels at either the variable rate calculated by reference to LIBOR plus the applicable margin or at fixed rates. Interest expense also includes a non-cash reclassification of amounts from accumulated other comprehensive loss related to previously designated hedging relationships. Interest incurred on long-term debt and other long-term liabilities for Seaspan's vessels under construction is capitalized to the cost of the respective vessels under construction. Effective January 1, 2016, in accordance with recent accounting pronouncements, interest expense includes the amortization of debt issuance costs. Previously these amounts were reported as amortization of deferred charges. The comparative figures for the prior period have been reclassified to conform with the current year's presentation.

Interest expense and amortization of deferred financing fees increased by $1.8 million to $30.1 million and by $7.0 million to $60.2 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015. These increases were due to an increase in operating borrowings primarily related to certain vessels that delivered in 2015 and an increase in LIBOR, partially offset by repayments made on existing operating borrowings and lower amortization of deferred financing fees. For the six months ended June 30, 2016, the increase in interest expense was also due to the full period impact of three 4500 TEU vessels which were refinanced in March 2015.

Although Seaspan has entered into fixed interest rate swaps for some of its variable rate debt, the difference between the variable interest rate and the swapped fixed-rate on operating debt is recorded in Seaspan's change in fair value of financial instruments rather than in interest expense.

Refinancing expenses

Refinancing expenses decreased by $0.4 million to $0.8 million and by $1.5 million to $0.8 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015. These decreases were primarily due to deferred financing fees that were written-off in connection with the termination and repayment of term loans.

Change in Fair Value of Financial Instruments

The change in fair value of financial instruments resulted in losses of $23.6 million and $75.8 million for the three and six months ended June 30, 2016, respectively, compared to a gain of $19.5 million and a loss of $19.9 million for the same periods in 2015. The losses for the three and six months ended June 30, 2016 and 2015 were primarily due to decreases in the forward LIBOR curve and the effect of the passage of time.

The fair value of interest rate swap and swaption agreements is subject to change based on the company-specific credit risk of Seaspan and of the counterparty included in the discount factor and the interest rate implied by the current swap curve, including its relative steepness. In determining the fair value, these factors are based on current information available to Seaspan.  These factors are expected to change through the life of the instruments, causing the fair value to fluctuate significantly due to the large notional amounts and long-term nature of Seaspan's derivative instruments.  Because these factors may change, the fair value of the instruments is an estimate and may deviate significantly from the actual cash settlements realized during the term of the instruments. Seaspan's valuation techniques have not changed and remain consistent with those followed by other valuation practitioners.

About Seaspan 

Seaspan provides many of the world's major shipping lines with creative outsourcing alternatives to vessel ownership by offering long-term leases on large, modern containerships combined with industry-leading ship management services. Seaspan's managed fleet consists of 118 containerships representing a total capacity of over 935,000 TEU, including 14 newbuilding containerships on order scheduled for delivery to Seaspan and third parties by the end of 2017. Seaspan's current operating fleet of 89 vessels has an average age of approximately six years and an average remaining lease period of approximately five years, on a TEU weighted basis.

Seaspan has the following securities listed on The New York Stock Exchange:


Symbol:







Description:









SSW







Class A common shares

SSW PR D







Series D preferred shares

SSW PR E

SSW PR G







Series E preferred shares

Series G preferred shares

SSWN







6.375% senior unsecured notes due 2019









Conference Call and Webcast

Seaspan will host a conference call and webcast presentation for investors and analysts to discuss its results for the three and six months ended June 30, 2016 on July 26, 2016 at 6:30 a.m. PT / 9:30 a.m. ET. Participants should call 1-877-246-9875 (US/Canada) or 1-707-287-9353 (International) and request the Seaspan call. A telephonic replay will be available for anyone unable to participate in the live call. To access the replay, call 1-855-859-2056 or 1-404-537-3406 and enter the replay passcode: 51022200. The recording will be available from July 26, 2016 at 9:30 a.m. PT / 12:30 p.m. ET through 8:59 p.m. PT / 11:59 p.m. ET on August 9, 2016. The conference call will also be broadcast live over the Internet and will include a slide presentation. To access the live webcast of the conference call, go to www.seaspancorp.com and click on "News & Events" then "Events & Presentations" for the link. The webcast will be archived on the site for one year.

SEASPAN CORPORATION

UNAUDITED CONSOLIDATED BALANCE SHEET

AS OF JUNE 30, 2016

(IN THOUSANDS OF US DOLLARS)









June 30, 2016



December 31, 2015

Assets








Current assets:









Cash and cash equivalents...........................................


$

346,657



$

215,520


Short-term investments.................................................



2,365




3,415


Accounts receivable.....................................................



35,138




24,065


Loans to affiliate............................................................



74,063




219,649


Prepaid expenses..........................................................



35,642




39,731


Gross investment in lease.............................................



27,227




37,783




521,092




540,163









Vessels...............................................................................



4,984,498




5,069,229

Vessels under construction................................................



289,798




209,119

Deferred charges................................................................



70,708




57,299

Goodwill...............................................................................



75,321




75,321

Other assets........................................................................



120,581




89,056

Fair value of financial instruments.......................................



18,096




33,632



$

6,080,094



$

6,073,819

Liabilities and Shareholders' Equity








Current liabilities:









Accounts payable and accrued liabilities......................  


$

69,532



$

76,386


Current portion of deferred revenue............................



17,883




22,199


Current portion of long-term debt..................................



264,313




285,783


Current portion of other long-term liabilities...................



42,623




38,173


Fair value of financial instruments................................



8




1,260




394,359




423,801









Deferred revenue...............................................................



2,275




2,730

Long-term debt...................................................................



3,026,489




3,072,058

Other long-term liabilities....................................................



574,868




462,161

Fair value of financial instruments.....................................  



352,951




336,886




4,350,942




4,297,636









Shareholders' equity:









Share capital................................................................



1,259




1,223


Treasury shares..........................................................



(367)




(356)


Additional paid in capital...............................................



2,278,476




2,266,661


Deficit...........................................................................  



(521,404)




(460,425)


Accumulated other comprehensive loss.....................



(28,812)




(30,920)




1,729,152




1,776,183



$

6,080,094



$

6,073,819









SEASPAN CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015

(IN THOUSANDS OF US DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
















Three Months Ended

June 30,


Six Months Ended

June 30,



2016


2015


2016


2015














Revenue............................................................................


$

224,314


$

199,152


$

439,837


$

387,699














Operating expenses:














Ship operating.............................................................



49,233



49,289



96,840



93,866


Cost of services, supervision fees............................



3,900



1,300



5,200



1,300


Depreciation and amortization....................................



54,515



52,351



113,352



98,950


General and administrative.........................................



9,064



6,383



16,857



13,182


Operating leases........................................................



20,662



8,582



35,513



14,734




137,374



117,905



267,762



222,032














Operating earnings...........................................................



86,940



81,247



172,075



165,667














Other expenses (income):














Interest expense and amortization of deferred

financing fees............................................................



30,095



28,287



60,238



53,257


Interest income...........................................................



(2,768)



(3,246)



(5,845)



(6,659)


Undrawn credit facility fees.......................................



741



850



1,153



1,707


Refinancing expenses................................................



772



1,152



772



2,304


Change in fair value of financial instruments.............



23,614



(19,480)



75,765



19,855


Equity income on investment......................................



(2,168)



(1,085)



(3,968)



(1,334)


Other expenses (income)...........................................  



229



(6,587)



407



(6,152)




50,515



(109)



128,522



62,978














Net earnings...................................................................


$

36,425


$

81,356


$

43,553


$

102,689














Deficit, beginning of period................................................  



(503,690)



(484,954)



(460,425)



(459,161)

Dividends - common shares..............................................



(36,875)



(36,724)



(73,755)



(70,101)

Dividends - preferred shares............................................  



(16,999)



(13,435)



(30,153)



(26,870)

Amortization of Series C issuance costs..........................





(321)



(116)



(635)

Other..................................................................................



(265)





(508)



Deficit, end of period.........................................................


$

(521,404)


$

(454,078)


$

(521,404)


$

(454,078)














Weighted average number of shares, basic....................



101,480


99,237



99,616


98,606

Weighted average number of shares, diluted...................



101,616


99,301



99,702


98,662














Earnings per share, basic and diluted..............................


$

0.23


$

0.68


$

0.17


$

0.76














SEASPAN CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015

(IN THOUSANDS OF US DOLLARS)








Three Months Ended

June 30,


Six Months Ended

June 30,



2016


2015


2016


2015














Net earnings..........................................................  


$

36,425


$

81,356


$

43,553


$

102,689














Other comprehensive income:














Amounts reclassified to net earnings

during the period, relating to cash

flow hedging instruments..................................



1,047



1,185



2,108



2,275














Comprehensive income....................................  


$

37,472


$

82,541


$

45,661


$

104,964














SEASPAN CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015

(IN THOUSANDS OF US DOLLARS)








Three Months Ended

June 30,


Six Months Ended

June 30,




2016


2015


2016


2015

Cash from (used in):













Operating activities:














Net earnings.........................................................................


$

36,425


$

81,356


$

43,553


$

102,689


Items not involving cash:















Depreciation and amortization........................................



54,515



52,351



113,352



98,950



Share-based compensation...........................................



1,472



1,102



2,418



2,014



Amortization of deferred financing fees........................



3,055



3,490



6,366



6,591



Amounts reclassified from other comprehensive loss

to interest expense........................................................



784



845



1,595



1,717



Unrealized change in fair value of financial

instruments...................................................................



1,491



(47,143)



30,350



(35,407)



Refinancing expenses..................................................



772



1,152



772



2,304



Equity income on investment.........................................



(2,168)



(1,085)



(3,968)



(1,334)



Amortization of deferred gain.......................................



(4,450)



(1,967)



(8,316)



(3,353)



Other income.................................................................





(6,600)





(6,600)



Other.............................................................................



20



1,813



44



4,374

Changes in assets and liabilities.................................................



(4,232)



6,680



(20,580)



(15,582)

Cash from operating activities....................................................



87,684



91,994



165,586



156,363














Financing activities:















Common shares issued, net of issuance costs............



96,034





96,034





Preferred shares issued, net of issuance costs..........



247,663




247,663




Draws on credit facilities...............................................



80,485



158,000



220,485



195,575



Repayment of credit facilities........................................



(200,596)



(199,989)



(291,116)



(304,853)



Draws on other long-term liabilities..............................



81,150




81,150



150,000



Repayment of other long-term liabilities........................



(6,142)



(5,809)



(12,183)



(9,854)



Common shares repurchased, including related

expenses.....................................................................






(8,269)




Preferred shares redeemed, including related

expenses.....................................................................



(333,061)




(333,061)




Financing fees.............................................................



(9,408)



(9,128)



(11,018)



(12,418)



Dividends on common shares.....................................



(35,493)



(17,117)



(71,063)



(33,428)



Dividends on preferred shares...................................



(16,999)



(13,435)



(30,153)



(26,870)



Proceeds from sale-leaseback of vessels.................



144,000



144,000



254,000



254,000

Cash from financing activities...................................................



47,633



56,522



142,469



212,152














Investing activities:















Expenditures for vessels.............................................



(98,112)



(322,198)



(215,536)



(392,329)



Short-term investments................................................



(4)



(10,047)



1,050



(11,823)



Loans to affiliate...........................................................



(2,670)



(61,560)



(16,220)



(85,461)



Repayment of loans to affiliate.....................................



54,306



165,614



54,306



183,447



Other assets.................................................................



(230)



511



(317)



93



Restricted cash............................................................



(201)




(201)


Cash used in investing activities................................................



(46,911)



(227,680)



(176,918)



(306,073)














Increase (decrease) in cash and cash equivalents..................



88,406



(79,164)



131,137



62,442

Cash and cash equivalents, beginning of period.......................



258,251



343,361



215,520



201,755

Cash and cash equivalents, end of period.................................


$

346,657


$

264,197


$

346,657


$

264,197














SEASPAN CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015
(IN THOUSANDS OF US DOLLARS)

Description of Non-GAAP Financial Measures

A. Cash Available for Distribution to Common Shareholders

Cash available for distribution to common shareholders is defined as net earnings adjusted for depreciation and amortization, interest expense and amortization of deferred financing fees, refinancing expenses, share-based compensation, change in fair value of financial instruments, bareboat charter adjustment, gain on sales, amortization of deferred gain, foreign exchange gain, dry-dock reserve adjustment, cash dividends paid on preferred shares, interest expense at the hedged rate and certain other items that Seaspan believes are not representative of its operating performance.

Cash available for distribution to common shareholders is a non-GAAP measure used to assist in evaluating Seaspan's ability to make quarterly cash dividends before reserves for replacement capital expenditures. Cash available for distribution to common shareholders is not defined by United States generally accepted accounting principles ("GAAP") and should not be considered as an alternative to net earnings or any other indicator of Seaspan's performance required to be reported by GAAP.



Three Months Ended

June 30,


Six Months Ended

June 30,



2016


2015


2016


2015














Net earnings.................................................................................


$

36,425


$

81,356


$

43,553


$

102,689

Add:














Depreciation and amortization.................................................



54,515



52,351



113,352



98,950


Interest expense and amortization of deferred financing

fees.........................................................................................



30,095



28,287



60,238



53,257


Refinancing expenses.............................................................



772



1,152



772



2,304


Share-based compensation.....................................................



1,472



1,102



2,418



2,014


Change in fair value of financial instruments(1).......................



23,328



(19,769)



75,357



19,378


Bareboat charter adjustment, net(2)........................................



4,838



4,561



9,608



9,002


Gain on sales(3).......................................................................



32,182



30,739



48,515



50,202

Less:














Amortization of deferred gain(4)..............................................



(4,450)



(1,967)



(8,316)



(3,353)


Foreign exchange gain(5).........................................................





(6,600)





(6,600)


Dry-dock reserve adjustment...................................................



(5,132)



(3,813)



(10,981)



(7,982)

Cash dividends paid on preferred shares:














Series C....................................................................................



(11,755)



(8,114)



(19,665)



(16,228)


Series D.....................................................................................



(2,475)



(2,537)



(4,950)



(5,074)


Series E.....................................................................................



(2,769)



(2,784)



(5,538)



(5,568)

Net cash flows before interest payments......................................



157,046



153,964



304,363



292,991

Less:














Interest expense at the hedged rate(6)......................................



(45,823)



(48,256)



(92,613)



(93,401)














Cash available for distribution to common shareholders...


$

111,223


$

105,708


$

211,750


$

199,590














B. Normalized Net Earnings and Normalized Earnings per Share

Normalized net earnings is defined as net earnings adjusted for interest expense, excluding amortization of deferred financing fees, refinancing expenses, foreign exchange gain, write-off of vessel equipment, change in fair value of financial instruments, interest expense at the hedged rate and certain other items Seaspan believes affect the comparability of operating results. Normalized net earnings is a useful measure because it excludes those items that Seaspan believes are not representative of its operating performance.

Normalized net earnings and normalized earnings per share are not defined by GAAP and should not be considered as an alternative to net earnings, earnings per share or any other indicator of Seaspan's performance required to be reported by GAAP.



Three Months Ended

June 30,


Six Months Ended

June 30,




2016


2015


2016


2015














Net earnings..................................................................................


$

36,425


$

81,356


$

43,553


$

102,689

Adjust:














Interest expense, excluding amortization of deferred

financing fees........................................................................



27,040



24,797



53,872



46,666


Refinancing expenses...........................................................  



772



1,152



772



2,304


Foreign exchange gain(5).......................................................





(6,600)





(6,600)


Write-off of vessel equipment(7)............................................



2,235



2,483



9,040



2,483


Change in fair value of financial instruments(1).....................



23,328



(19,769)



75,357



19,378


Interest expense at the hedged rate(6).................................. 



(45,823)



(48,256)



(92,613)



(93,401)

Normalized net earnings......................................................... 


$

43,977


$

35,163


$

89,981


$

73,519














Less:  preferred share dividends














Series C (including amortization of issuance costs)..............



6,394



8,435



14,420



16,863


Series D.................................................................................. 



2,475



2,537



4,950



5,074


Series E..................................................................................



2,769



2,784



5,538



5,568


Series F..................................................................................



1,189





1,189




Series G.................................................................................



393





393






13,220



13,756



26,490



27,505














Normalized net earnings attributable to common

     shareholders........................................................................


$

30,757


$

21,407


$

63,491


$

46,014














Weighted average number of shares used to compute

     earnings per share


























Reported, basic..........................................................................



101,480



99,237



99,616



98,606


Share-based compensation..................................................



136



64



87



56


Series F convertible preferred shares................................... 



(8)




128



Reported and normalized, diluted.......................................... 



101,616



99,301



99,831



98,662














Earnings per share:















Reported, basic and diluted.......................................


$

0.23


$

0.68


$

0.17


$

0.76



Normalized, diluted(9)..................................................


$

0.30


$

0.22


$

0.64


$

0.47














C. Adjusted EBITDA

Adjusted EBITDA is defined as net earnings adjusted for interest expense and amortization of deferred financing fees, income tax expense, interest income, undrawn credit facility fees, depreciation and amortization, refinancing expenses, share-based compensation, gain on sales, amortization of deferred gain, foreign exchange gain, bareboat charter adjustment, change in fair value of financial instruments and certain other items that Seaspan believes are not representative of its operating performance.

Adjusted EBITDA provides useful information to investors in assessing Seaspan's results of operations. Seaspan believes that this measure is useful in assessing performance and highlighting trends on an overall basis. Seaspan also believes that this measure can be useful in comparing its results with those of other companies, even though other companies may not calculate this measure in the same way as Seaspan.  The GAAP measure most directly comparable to Adjusted EBITDA is net earnings. Adjusted EBITDA is not defined by GAAP and should not be considered as an alternative to net earnings or any other indicator of Seaspan's performance required to be reported by GAAP.




Three Months Ended

June 30,


Six Months Ended

June 30,



2016


2015


2016


2015














Net earnings..................................................................................


$

36,425


$

81,356


$

43,553


$

102,689

Adjust:














Interest expense and amortization of deferred

financing fees........................................................................



30,095



28,287



60,238



53,257


Interest income.......................................................................



(2,768)



(3,246)



(5,845)



(6,659)


Undrawn credit facility fees..................................................



741



850



1,153



1,707


Depreciation and amortization............................................... 



54,515



52,351



113,352



98,950


Refinancing expenses.......................................................... 



772



1,152



772



2,304


Share-based compensation.................................................. 



1,472



1,102



2,418



2,014


Gain on sales(3)..................................................................... 



32,182



30,739



48,515



50,202


Amortization of deferred gain(4)............................................ 



(4,450)



(1,967)



(8,316)



(3,353)


Foreign exchange gain(5)...................................................... 





(6,600)





(6,600)


Bareboat charter adjustment, net(2)...................................... 



4,838



4,561



9,608



9,002


Change in fair value of financial instruments(1).....................   



23,328



(19,769)



75,357



19,378














Adjusted EBITDA.......................................................................


$

177,150


$

168,816


$

340,805


$

322,891














Notes to Non-GAAP Financial Measures

(1) Change in fair value of financial instruments includes realized and unrealized losses (gains) on Seaspan's interest rate swaps, unrealized losses (gains) on Seaspan's foreign currency forward contracts and unrealized losses (gains) on interest rate swaps included in equity income on investment.


(2) In the second half of 2011, Seaspan entered into agreements to bareboat charter four 4800 TEU vessels to MSC for a five-year term, beginning from vessel delivery dates that occurred in 2011. Upon delivery of the vessels to MSC, the transactions were accounted for as sales-type leases. The vessels were disposed of and a gross investment in lease was recorded, which is being amortized to income through revenue. The bareboat charter adjustment in the applicable non-GAAP measures is included to reverse the GAAP accounting treatment and reflect the transaction as if the vessels had not been disposed of. Therefore, the bareboat charter fees are added back and the interest income from leasing, which is recorded in revenue, is deducted resulting in a net bareboat charter adjustment.


(3) During the three months ended June 30, 2016, the gain on sale relates to the proceeds received in excess of vessel cost upon the sale of one 14000 TEU vessel that was sold and leased back through a sale-leaseback transaction. During the six months ended June 30, 2016, the gain on sale relates to the proceeds received in excess of vessel cost upon the sale of one 10000 TEU and one 14000 TEU vessel that were sold and leased back through sale-leaseback transactions. Under these transactions, Seaspan sold the vessels to the SPCs and is leasing the vessels back. For accounting purposes, the gain is recognized over the term of the lease.


(4) Nine vessels were sold by Seaspan and Seaspan is leasing back the vessels. The gain on sales was deferred and is being amortized as a reduction of operating lease expense.


(5) Seaspan entered into contracts for the construction of five 14000 TEU newbuilding containerships. The contracts included a foreign exchange adjustment to adjust the US dollar denominated purchase price of the vessels. In connection with the allocation of two of the vessels to GCI, Seaspan recognized a foreign exchange gain of $6.6 million which has been included in other income.


(6) Interest expense at the hedged rate is calculated as the interest incurred on operating debt at the fixed rate on the related interest rate swaps plus the applicable margin on the related variable rate credit facilities and leases, on an accrual basis. Interest expense on fixed rate borrowings is calculated using the effective interest rate.


(7) Commencing in May 2015, Seaspan installed vessel upgrades for certain of its vessels at the request of its charterer to enhance fuel efficiency. As a result, Seaspan incurred non-cash write-offs related to the original vessel equipment of $2.2 million and $9.0 million for the three and six months ended June 30, 2016. These write-offs are included in depreciation and amortization expense. The costs of the vessel upgrades are recoverable from the charterer.


(8) The convertible Series F preferred shares are not included in the computation of diluted EPS because its effect is anti-dilutive for the period.


(9) Normalized earnings per share increased for the three and six months ended June 30, 2016 as detailed in the table below:




Three Months Ended

June 30, 2016


Six Months Ended

June 30, 2016








Normalized earnings per share- June 30, 2015.........................


$

0.22


$

0.47








Excluding share count changes:








Increase in normalized earnings(a)................................................



0.08



0.17


Increase from impact of preferred shares....................................



0.01



0.01








Share count changes:








Increase in diluted share count (from 99,301 shares to

101,616 shares and from 98,662 to 99,831 for the three and

six months ended, respectively)...................................................



(0.01)



(0.01)








Normalized earnings per share, diluted.....................................


$

0.30


$

0.64








____________________________

(a) The increase in normalized earnings is primarily due to an increase in revenue of $25.2 million and $52.1 million and a decrease in interest at the hedged rate of $2.4 million and $0.8 million for the three and six months ended June 30, 2016 over the same period in 2015, respectively. These increases to normalized earnings were partially offset by increases in operating lease expense of $12.1 million and $20.8 million, general and administrative expense of $2.7 million and $3.7 million and depreciation and amortization expense of $2.4 million and $7.8 million for the three and six months ended June 30, 2016 over the same periods in 2015. There was also a decrease in ship operating expense of $0.1 million and an increase of $3.0 million for the three and six months ended June 30, 2016 over the same periods in 2015, respectively. Please read "Results for the Three and Six Months Ended June 30, 2016" for a description of these changes.



 

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This release contains certain forward-looking statements (as such term is defined in Section 21E of the Securities Exchange Act of 1934, as amended), which reflect management's current views with respect to certain future events and performance, including, in particular, statements regarding: future operating results; time charters; ship operating expense; vessel dry-docking schedules; future contracted revenues; Seaspan's access to capital and financial strength and flexibility; vessel deliveries and dividends, including the amount and timing of payment thereof for 2016. Although these statements are based upon assumptions Seaspan believes to be reasonable, they are subject to risks and uncertainties. These risks and uncertainties include, but are not limited to: the availability to Seaspan of containership acquisition or construction opportunities; the availability and cost to Seaspan of financing to pursue growth opportunities; the number of additional vessels managed by the Manager in the future; general market conditions and shipping market trends, including chartering rates; increased operating expenses; the number of off-hire days; dry-docking requirements; Seaspan's ability to borrow funds under its credit facilities and to obtain additional financing in the future; Seaspan's future cash flows and its ability to make dividend and other payments; the time that it may take to construct new ships; Seaspan's continued ability to enter into primarily long-term, fixed-rate time charters with customers; changes in governmental rules and regulations or actions taken by regulatory authorities; the financial condition of shipyards, charterers, lenders, refund guarantors and other counterparties and their ability to perform their obligations under their agreements with Seaspan; the potential for early termination of long-term contracts and Seaspan's potential inability to enter into, renew or replace long-term contracts; conditions in the public capital markets and the price of Seaspan's shares; the declaration of dividends and related payment dates by Seaspan's board of directors; and other factors detailed from time-to-time in Seaspan's periodic reports and filings with the Securities and Exchange Commission, including Seaspan's Annual Report on Form 20-F for the year ended December 31, 2015.  Seaspan expressly disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in Seaspan's views or expectations, or otherwise.

For Investor Relations Inquiries:
Mr. David Spivak
Chief Financial Officer
Seaspan Corporation
Tel. 604-638-2580

Mr. Michael Sieffert
Associate Director, Corporate Finance
Seaspan Corporation
Tel. 778-328-6490

For Media Inquiries:
Mr. Leon Berman
The IGB Group
Tel. 212-477-8438

SOURCE Seaspan Corporation

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