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Seaspan Reports Financial Results for the Quarter Ended March 31, 2016

25/4/16
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Continued Growth in Revenue and Cash Flow

 

HONG KONG, CHINA – April 25, 2016 /CNW/ – Seaspan Corporation ("Seaspan") (NYSE:SSW) announced today its financial results for the quarter ended March 31, 2016. Below is a summary of Seaspan's key financial results:

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

  Quarter Ended March 31,   Change  
  2016     2015   $     %  
Revenue $ 215,523     $ 188,547   $ 26,976     14.3%  
                           
Reported net earnings $ 7,128     $ 21,333   $ (14,205)     (66.6%)  
                           
Normalized net earnings(1) $ 46,004     $ 38,356   $ 7,648     19.9%  
                           
Earnings (loss) per share, basic and diluted $ (0.06)     $ 0.08   $ (0.14)     (175.0%)  
                           
Normalized earnings per share(1) $ 0.33     $ 0.25   $ 0.08     32.0%  
                           
Cash available for distribution to common shareholders(2) $ 100,527     $ 93,882   $ 6,645     7.1%  
                           
Adjusted EBITDA(3) $ 163,655     $ 154,075   $ 9,580     6.2%  
 

(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, 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. Please read "Reconciliation of Non-GAAP Financial Measures for the Quarters Ended March 31, 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, 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 the Quarters Ended March 31, 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, 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 Quarters Ended March 31, 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 97.2% for the quarter ended March 31, 2016, or 98.3% if the impact of scheduled off-hire days is excluded.
  • Accepted delivery of one vessel during the first quarter, bringing Seaspan's operating fleet to a total of 86 vessels at March 31, 2016.
  • Paid $13.2 million of regular quarterly dividends to preferred shareholders of record as of January 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 2015 fourth quarter of $0.375 per Class A common share to all shareholders of record as of January 20, 2016.
  • Raised $110.0 million through a financing transaction during 2016.

Gerry Wang, Chief Executive Officer, Co-Chairman and Co-Founder of Seaspan, commented, "During the first quarter, we generated strong operational and financial results, as we further implemented our stable and stress-tested business model. Our success in increasing our first quarter revenue and cash flow is directly related to our growing high-quality fleet and sizeable contracted revenue stream. We continued to grow our fleet during the first quarter, taking delivery of our ninth 10000 TEU SAVER containership, which commenced an eight-year, fixed-rate contract with MOL."

Mr. Wang added, "We continue to access diverse capital sources to fund Seaspan's growth under attractive terms, highlighting the Company's strong relationships with leading global financial institutions and favourable cost of capital. As we progress through 2016, we expect to remain well positioned to draw upon our predictable cash flows to provide shareholders with a stable dividend, while preserving our financial strength for capitalizing on attractive growth opportunities."

First Quarter Developments

Financing

On March 11, 2016, Seaspan entered into a lease financing arrangement with special purpose companies ("SPCs") for one 10000 TEU newbuilding vessel, the MOL Benefactor, which delivered on March 24, 2016. The lease financing arrangement provided gross financing proceeds of $110.0 million upon delivery of the vessel. Under the lease financing arrangement, Seaspan sold the vessel to the SPCs and leased the vessel back from the SPCs over an initial term of nine years, with an option to purchase the vessel at the end of the lease term for a pre-determined fair value purchase price. If the purchase option is not exercised, the lease term will be automatically extended for an additional two years. The lease financing arrangement provides financing at market rates.

Vessel Delivery

On March 24, 2016, Seaspan accepted delivery of the MOL Benefactor, expanding Seaspan's operating fleet to 86 vessels. The MOL Benefactor was constructed at Jiangsu Yangzi Xinfu Shipbuilding Co., Ltd. using Seaspan's fuel-efficient SAVER design and commenced an eight-year, fixed-rate time charter with Mitsui O.S.K. Lines Ltd. on March 28, 2016.

Common Share Repurchase Plan

Under Seaspan's Rule 10b5-1 share repurchase plan, which was renewed in April 2015 and expires in March 2018 and provides for the repurchase of up to $50.0 million of its Class A common shares, Seaspan repurchased 564,270 Class A common shares for approximately $8.3 million during the quarter ended March 31, 2016.

Subsequent Event

Dividends

On April 12, 2016, Seaspan declared the following quarterly cash dividends on its common and preferred shares, for a total distribution of $50.0 million:

Security   Ticker   Dividend

per Share
  Period   Record

Date
  Payment

Date
Class A

common shares
  SSW   $0.375   January 1, 2016 to

March 31, 2016
  April 20, 2016   May 2, 2016
                     
Series C

preferred shares
  SSW PR C   $0.59375   January 30, 2016 to

April 29, 2016
  April 29, 2016   May 2, 2016
                     
Series D

preferred shares
  SSW PR D   $0.496875   January 30, 2016 to

April 29, 2016
  April 29, 2016   May 2, 2016
                     
Series E

preferred shares
  SSW PR E   $0.515625   January 30, 2016 to

April 29, 2016
  April 29, 2016   May 2, 2016
 

Results for the Quarter Ended March 31, 2016

At the beginning of 2016, Seaspan had 85 vessels in operation. Seaspan accepted delivery of one newbuilding vessel during the quarter ended March 31, 2016, bringing its operating fleet to a total of 86 vessels at March 31, 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.

  Quarter Ended

March 31,
  Increase  
  2016   2015   Days   %  
Operating days(1) 7,172   6,500   672   10.3 %
Ownership days(1) 7,375   6,570   805   12.3 %
 

The following table summarizes Seaspan's vessel utilization for the quarters ended March 31, 2016 and 2015:

    First Quarter  
    2016     2015  
Vessel Utilization:            
Ownership Days(1)   7,375     6,570  
Less Off-hire Days:            
  Scheduled 5-Year Survey   (75)     (49)  
  Unscheduled Off-hire(2)   (128)     (21)  
Operating Days(1)   7,172     6,500  
Vessel Utilization   97.2 %   98.9 %
 
  (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 quarters ended March 31, 2016 and 2015:

Financial Summary

(in millions of US dollars)
  Quarter Ended

March 31,
  Change  
    2016   2015   $   %  
                           
Revenue   $ 215.5   $ 188.5   $ 27.0     14.3 %
Ship operating expense     47.6     44.6     3.0     6.8 %
Depreciation and amortization expense     58.8     46.6     12.2     26.3 %
General and administrative expense     7.8     6.8     1.0     14.6 %
Operating lease expense     14.9     6.2     8.7     141.4 %
Interest expense and amortization of deferred financing fees     30.1     25.0     5.2     20.7 %
Change in fair value of financial instruments loss     52.2     39.3     12.8     32.6 %
 

Revenue

Revenue increased by 14.3% to $215.5 million for the quarter ended March 31, 2016, over the same period in 2015. The increase was primarily due to the delivery of eight vessels in 2015 and one additional operating day in 2016. The increase was partially offset by lower average charter rates for vessels which were on short-term charters and an increase in scheduled and unscheduled off-hire.

The increase in operating days and the related financial impact thereof for the quarter ended March 31, 2016, relative to the same period in 2015, are attributable to the following:

  Quarter Ended

March 31, 2016
 
  Operating

Days Impact
    $ Impact

(in millions)
 
Full period contribution for 2015 vessel deliveries 720       32.3  
Change in daily charter hire rate and re-charters       (4.7)  
Additional days due to leap year 81       2.1  
Unscheduled off-hire (107)       (1.8)  
Scheduled off-hire (26)       (2.8)  
Supervision fee revenue       1.3  
Vessel management revenue       0.6  
Other 4        
Total 672     $ 27.0  
 

Vessel utilization was 97.2% for the quarter ended March 31, 2016, compared to 98.9% for the same period in 2015.

The decrease in vessel utilization for the quarter ended March 31, 2016, compared to the same period in 2015, was primarily due to a 107-day increase in unscheduled off-hire and a 26-day increase in scheduled off-hire. The increase in unscheduled off-hire was primarily due to six vessels that were off-charter for a total of 119 days in the first quarter of 2016, compared to one vessel that was off-charter for a total of three days in the same period of 2015. The increase in scheduled off-hire was due to the completion of nine scheduled dry-dockings in the first quarter of 2016, compared to four scheduled dry-dockings in the same period of 2015.

Seaspan completed dry-dockings for nine vessels during the quarter ended March 31, 2016:

Vessel Class

(TEU)
    First Quarter  
4250     2 (1)
4500     1  
8500     1  
13100     5  
      9  
 
(1) Dry-docking for these vessels was completed between their time charters.
 

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

Ship Operating Expense

Ship operating expense increased by 6.8% to $47.6 million for the quarter ended March 31, 2016, compared to the same period in 2015, primarily due to an increase in ownership days of 12.3% for the quarter ended March 31, 2016. The increase in ownership days is primarily due to eight vessel deliveries in 2015. Seaspan expects ship operating expense to continue to increase as its fleet expands and ages and as the average size of its vessels increases.

Depreciation and Amortization Expense

Depreciation and amortization expense increased by 26.3% to $58.8 million for the quarter ended March 31, 2016, compared to the same period in 2015, primarily due to an increase in fleet size from vessels delivered in 2015, write-offs of replaced vessel equipment and an increase in dry-dock amortization from an increase in the number of vessels dry-docking.

General and Administrative Expense

General and administrative expense increased by $1.0 million, or 14.6% to $7.8 million for the quarter ended March 31, 2016, compared to the same period in 2015. The increase was primarily due to professional fees and other expenses incurred.

Operating Lease Expense

Operating lease expense increased to $14.9 million for the quarter ended March 31, 2016, from $6.2 million in the same period in 2015. The increase was primarily due to the acquisition of four vessels in 2015 that were financed through new lease financing arrangements. Under these lease financing arrangements, Seaspan sold the vessels to the SPCs and are leasing the vessels back over an initial terms ranging between 8.5 and 9.5 years, with an option to purchase the vessels at the end of the lease term for a pre-determined fair value purchase price. If the purchase option is not exercised, the lease terms will be automatically extended for an additional two or 2.5 years. The sale of vessels resulted in a deferred gain totaling $191.1 million, which is being recorded as a reduction of operating lease expense over 10.5 to 12 years, representing the initial lease terms plus extensions.

Interest Expense and Amortization of Deferred Financing Fees

The following table summarizes Seaspan's borrowings:

(in millions of US dollars)   As at March 31,     Change  
    2016     2015     $     %  
                                 
Long-term debt, excluding deferred financing fees   $ 3,436.7     $ 3,392.8     $ 43.9       1.3 %
Other long-term liabilities, excluding deferred gains and deferred financing fees     336.7       360.4       (23.7)       (6.6)  
Total borrowings     3,773.4       3,753.2       20.2       0.5  
Less: Vessels under construction     (218.7)       (335.9)       117.2       34.9  
Operating borrowings   $ 3,554.7     $ 3,417.3     $ 137.4       4.0 %
 

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 $5.2 million to $30.1 million for the quarter ended March 31, 2016, compared to the same period in 2015. This increase was primarily due to the increase in operating borrowings related to the vessels delivered in 2015 and the full period impact of three 4500 TEU vessels which were refinanced in March 2015. These increases were partially offset by net repayments made on operating borrowings.

Although Seaspan has entered into fixed interest rate swaps for much 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.

Change in Fair Value of Financial Instruments

The change in fair value of financial instruments resulted in a loss of $52.2 million for the quarter ended March 31, 2016, compared to a loss of $39.3 million for the same period in 2015. The losses for the quarters ended March 31, 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 17 newbuilding containerships on order scheduled for delivery to Seaspan and third parties by the end of 2017. Seaspan's current operating fleet of 86 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 C Series C preferred shares
SSW PR D Series D preferred shares
SSW PR E Series E 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 quarter ended March 31, 2016 on April 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, call1-855-859-2056 or 1-404-537-3406 and enter the replay passcode: 92700541. The recording will be available from April 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 May 10, 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 MARCH 31, 2016
(IN THOUSANDS OF US DOLLARS)
 
 
  March 31,

2016
    December 31,

2015
 
Assets              
Current assets:              
  Cash and cash equivalents $ 258,251     $ 215,520  
  Short-term investments   2,361       3,415  
  Accounts receivable   29,431       24,065  
  Loans to affiliate   233,199       219,649  
  Prepaid expenses   40,203       39,731  
  Gross investment in lease   32,505       37,783  
    595,950       540,163  
               
Vessels   5,028,446       5,069,229  
Vessels under construction   218,744       209,119  
Deferred charges   67,990       57,299  
Goodwill   75,321       75,321  
Other assets   90,133       89,056  
Fair value of financial instruments   24,139       33,632  
  $ 6,100,723     $ 6,073,819  
Liabilities and Shareholders' Equity              
Current liabilities:              
  Accounts payable and accrued liabilities $ 75,894     $ 76,386  
  Current portion of deferred revenue   19,576       22,199  
  Current portion of long-term debt   322,069       285,783  
  Current portion of other long-term liabilities   39,748       38,173  
  Fair value of financial instruments   243       1,260  
    457,530       423,801  
               
Deferred revenue   2,405       2,730  
Long-term debt   3,087,565       3,072,058  
Other long-term liabilities   466,822       462,161  
Fair value of financial instruments   357,269       336,886  
    4,371,591       4,297,636  
               
Shareholders' equity:              
  Share capital   1,220       1,223  
  Treasury shares   (367)       (356)  
  Additional paid in capital   2,261,828       2,266,661  
  Deficit   (503,690)       (460,425)  
  Accumulated other comprehensive loss   (29,859)       (30,920)  
    1,729,132       1,776,183  
  $ 6,100,723     $ 6,073,819  
               
               
 
SEASPAN CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE QUARTERS ENDED MARCH 31, 2016 AND 2015
(IN THOUSANDS OF US DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
 
  Quarter Ended

March 31,
 
  2016     2015  
               
Revenue $ 215,523     $ 188,547  
               
Operating expenses:              
  Ship operating   47,607       44,577  
  Cost of services, supervision fees   1,300        
  Depreciation and amortization   58,837       46,599  
  General and administrative   7,793       6,799  
  Operating leases   14,851       6,152  
    130,388       104,127  
               
Operating earnings   85,135       84,420  
               
Other expenses (income):              
  Interest expense and amortization of deferred financing fees   30,143       24,970  
  Interest income   (3,077)       (3,413)  
  Undrawn credit facility fees   412       857  
  Refinancing expenses         1,152  
  Change in fair value of financial instruments   52,151       39,335  
  Equity income on investment   (1,800)       (249)  
  Other expenses   178       435  
    78,007       63,087  
               
Net earnings $ 7,128     $ 21,333  
               
Deficit, beginning of period   (460,425)       (459,161)  
Dividends – common shares   (36,880)       (33,377)  
Dividends – preferred shares   (13,154)       (13,435)  
Amortization of Series C issuance costs   (116)       (314)  
Other   (243)        
Deficit, end of period $ (503,690)     $ (484,954)  
               
Weighted average number of shares, basic   97,752       97,988  
Weighted average number of shares, diluted   97,789       98,036  
               
Earnings (loss) per share, basic and diluted $ (0.06)     $ 0.08  
               
 
 
SEASPAN CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE QUARTERS ENDED MARCH 31, 2016 AND 2015
(IN THOUSANDS OF US DOLLARS)
 
  Quarter Ended

March 31,
  2016   2015
           
Net earnings $ 7,128   $ 21,333
           
Other comprehensive income:          
Amounts reclassified to net earnings during the period, relating to cashflow hedging instruments   1,061     1,090
           
Comprehensive income $ 8,189   $ 22,423
           
 
 
SEASPAN CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 2016 AND 2015
(IN THOUSANDS OF US DOLLARS)
 
  Quarter Ended

March 31,
   
  2016     2015    
Cash from (used in):                
Operating activities:                
  Net earnings $ 7,128     $ 21,333    
  Items not involving cash:                
    Depreciation and amortization   58,837       46,599    
    Share-based compensation   946       912    
    Amortization of deferred financing fees   3,311       3,101    
    Amounts reclassified from other comprehensive loss to interest expense   811       872    
    Unrealized change in fair value of financial instruments   28,859       11,736    
    Refinancing expenses         1,152    
    Equity income on investment   (1,800)       (249)    
    Amortization of deferred gain   (3,866)       (1,386)    
    Other   24       2,561    
Changes in assets and liabilities   (16,348)       (22,262)    
Cash from operating activities   77,902       64,369    
                 
Financing activities:                
  Draws on credit facilities   140,000       37,575    
  Repayment of credit facilities   (90,520)       (104,864)    
  Draws on other long-term liabilities         150,000    
  Repayment of other long-term liabilities   (6,041)       (4,045)    
  Common shares repurchased, including related expenses   (8,269)          
  Financing fees   (1,610)       (3,290)    
  Dividends on common shares   (35,570)       (16,311)    
  Dividends on preferred shares   (13,154)       (13,435)    
  Proceeds from sale-leaseback of vessels   110,000       110,000    
Cash from financing activities   94,836       155,630    
                 
Investing activities:                
  Expenditures for vessels   (117,424)       (70,131)    
  Short-term investments   1,054       (1,776)    
  Loans to affiliate   (13,550)       (23,901)    
  Repayment of loans to affiliate         17,833    
  Other assets   (87)       (418)    
Cash used in investing activities   (130,007)       (78,393)    
                 
Increase in cash and cash equivalents   42,731       141,606    
Cash and cash equivalents, beginning of period   215,520       201,755    
Cash and cash equivalents, end of period $ 258,251     $ 343,361    
                 
 
 
SEASPAN CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
FOR THE QUARTERS ENDED MARCH 31, 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, 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.

In the second quarter of 2015, the definition of cash available for distribution to common shareholders was revised to include the gain and exclude the amortization of the deferred gain on Seaspan's sale-leaseback financings. Accordingly, the comparative figures for the prior periods have been adjusted to reflect this change. The impact of this change resulted in an increase in cash available for distribution to common shareholders for the quarter ended March 31, 2015 of approximately 23.8%.

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.

  Quarter Ended

March 31,
 
  2016     2015  
               
Net earnings $ 7,128     $ 21,333  
Add:              
  Depreciation and amortization   58,837       46,599  
  Interest expense and amortization of deferred financing fees   30,143       24,970  
  Refinancing expenses         1,152  
  Share-based compensation   946       912  
  Change in fair value of financial instruments(1)   52,029       39,147  
  Bareboat charter adjustment, net(2)   4,770       4,441  
  Gain on sales(3)   16,333       19,463  
Less:              
  Amortization of deferred gain(4)   (3,866)       (1,386)  
  Dry-dock reserve adjustment   (5,849)       (4,169)  
Cash dividends paid on preferred shares:              
  Series C   (7,910)       (8,114)  
  Series D   (2,475)       (2,537)  
  Series E   (2,769)       (2,784)  
Net cash flows before interest payments   147,317       139,027  
Less:              
  Interest expense at the hedged rate(5)   (46,790)       (45,145)  
               
Cash available for distribution to common shareholders $ 100,527     $ 93,882  
               
 
 
SEASPAN CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
FOR THE QUARTERS ENDED MARCH 31, 2016 AND 2015
(IN THOUSANDS OF US DOLLARS)
 

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, 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 earnings per share is calculated as normalized net earnings, less dividends on Series C (excluding the retained earnings impact of any repurchases), Series D and Series E preferred shares, divided by the weighted average number of Class A common shares outstanding for the period.

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.

  Quarter Ended

March 31,
 
  2016     2015  
               
Net earnings $ 7,128     $ 21,333  
Adjust:              
  Interest expense, excluding amortization of deferred financing fees   26,832       21,869  
  Refinancing expenses         1,152  
  Write-off of vessel equipment(6)   6,805        
  Change in fair value of financial instruments(1)   52,029       39,147  
  Interest expense at the hedged rate(5)   (46,790)       (45,145)  
Normalized net earnings $ 46,004     $ 38,356  
               
Less: preferred share dividends              
  Series C (including amortization of issuance costs)   8,026       8,428  
  Series D   2,475       2,537  
  Series E   2,769       2,784  
    13,270       13,749  
               
Normalized net earnings attributable to common shareholders $ 32,734     $ 24,607  
               
Weighted average number of shares used to compute earnings per share              
               
Reported, basic   97,752       97,988  
  Share-based compensation   37       48  
Reported, diluted and normalized   97,789       98,036  
               
Earnings (loss) per share:              
  Reported, basic and diluted $ (0.06)     $ 0.08  
  Normalized(7) $ 0.33     $ 0.25  
                 
 
SEASPAN CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
FOR THE QUARTERS ENDED MARCH 31, 2016 AND 2015
(IN THOUSANDS OF US DOLLARS)
 

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, bareboat charter adjustment, change in fair value of financial instruments and certain other items that Seaspan believes are not representative of its operating performance.

In the second quarter of 2015, the definition of Adjusted EBITDA was revised to include the gain and exclude the amortization of the deferred gain on Seaspan's sale-leaseback financings. Accordingly, the comparative figures for the prior periods have been adjusted to reflect this change. The impact of this change resulted in an increase in Adjusted EBITDA for the quarter ended March 31, 2015 of approximately 13.3%.

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.

  Quarter Ended

March 31,
 
  2016     2015  
               
Net earnings $ 7,128     $ 21,333  
Add:              
  Interest expense and amortization of deferred financing fees   30,143       24,970  
  Interest income   (3,077)       (3,413)  
  Undrawn credit facility fees   412       857  
  Depreciation and amortization   58,837       46,599  
  Refinancing expenses         1,152  
  Share-based compensation   946       912  
  Gain on sales(3)   16,333       19,463  
  Amortization of deferred gain(4)   (3,866)       (1,386)  
  Bareboat charter adjustment, net(2)   4,770       4,441  
  Change in fair value of financial instruments(1)   52,029       39,147  
               
Adjusted EBITDA $ 163,655     $ 154,075  
 

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 Mediterranean Shipping Company ("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 quarter ended March 31, 2016, the gain on sale relates to the proceeds received in excess of vessel cost upon the sale of one 10000 TEU vessel that was financed through a sale-leaseback financing. Under this lease financing arrangement, Seaspan sold the vessel to the SPCs and is leasing the vessel back. For accounting purposes, the gain is recognized over the term of the lease.

(4) Eight vessels were financed through lease financing arrangements under which Seaspan sold the vessels to the SPCs and is leasing the vessels back. The gain on sales was deferred and is being amortized as a reduction of operating lease expense.

(5) 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.

(6) 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 $6.8 million for the quarter ended March 31, 2016. These write-offs are included in depreciation and amortization expense. The cost of the vessel upgrades will be recovered from the charterer.

(7) Normalized earnings per share increased for the quarter ended March 31, 2016 as detailed in the table below:

  Quarter Ended

March 31, 2016
     
Normalized earnings per share- March 31, 2015 $ 0.25
     
Excluding share count changes:    
  Increase in normalized earnings(a)   0.08
     
Normalized earnings per share- March 31, 2016 $ 0.33
 

___________________

(a) The increase in normalized earnings is primarily due to an increase in revenue of $27.0 million for the quarter ended March 31, 2016, partially offset by increases in operating lease expense of $8.7 million, depreciation and amortization expense of $5.4 million, ship operating expense of $3.0 million, and interest at the hedged rate of $1.6 million for the quarter ended March 31, 2016. Please read "Results for the Quarter Ended March 31, 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; the repurchase plan for Seaspan's common shares and repurchases under such plan; 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.

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