DANAOS CORP, 20-F filed on 3/5/2019
Annual and Transition Report (foreign private issuer)
v3.10.0.1
Document and Entity Information
12 Months Ended
Dec. 31, 2018
shares
Document and Entity Information  
Entity Registrant Name Danaos Corp
Entity Central Index Key 0001369241
Document Type 20-F
Document Period End Date Dec. 31, 2018
Amendment Flag false
Current Fiscal Year End Date --12-31
Entity Well-known Seasoned Issuer No
Entity Voluntary Filers No
Entity Current Reporting Status Yes
Entity Filer Category Non-accelerated Filer
Entity Common Stock, Shares Outstanding 213,324,455
Document Fiscal Year Focus 2018
Document Fiscal Period Focus FY
v3.10.0.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
CURRENT ASSETS    
Cash and cash equivalents $ 77,275 $ 66,895
Restricted cash   2,812
Accounts receivable, net 9,225 6,502
Inventories 8,884 8,841
Prepaid expenses 1,214 1,234
Due from related parties 17,970 34,007
Other current assets 5,182 5,708
Total current assets 119,750 125,999
NON-CURRENT ASSETS    
Fixed assets at cost, net of accumulated depreciation of $743,924 (2017: $763,190) 2,480,329 2,795,971
Deferred charges, net 13,031 8,962
Investments in affiliates 7,363 5,998
Other non-current assets 59,369 49,466
Total non-current assets 2,560,092 2,860,397
Total assets 2,679,842 2,986,396
CURRENT LIABILITIES    
Accounts payable 10,477 11,371
Accrued liabilities 11,770 15,226
Current portion of long-term debt, net 113,777 2,329,601
Accumulated accrued interest, current portion 35,782  
Unearned revenue 19,753 22,853
Other current liabilities 31,142 788
Total current liabilities 222,701 2,379,839
LONG-TERM LIABILITIES    
Long-term debt, net 1,508,108  
Accumulated accrued interest, net of current portion 200,574  
Unearned revenue, net of current portion 41,730 56,159
Other long-term liabilities 15,876 1,693
Total long-term liabilities 1,766,288 57,852
Total liabilities 1,988,989 2,437,691
Commitments and Contingencies
STOCKHOLDERS' EQUITY    
Preferred stock (par value $0.01, 100,000,000 preferred shares authorized and not issued as of December 31, 2018 and December 31, 2017)
Common stock (par value $0.01, 750,000,000 common shares authorized as of December 31, 2018 and December 31, 2017. 213,324,455 issued and outstanding as of December 31, 2018 and 109,799,352 as of December 31, 2017) 2,133 1,098
Additional paid-in capital 725,581 546,898
Accumulated other comprehensive loss (118,710) (114,076)
Retained earnings 81,849 114,785
Total stockholders' equity 690,853 548,705
Total liabilities and stockholders' equity $ 2,679,842 $ 2,986,396
v3.10.0.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
CONSOLIDATED BALANCE SHEETS    
Accumulated depreciation $ 743,924 $ 763,190
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized 100,000,000 100,000,000
Preferred stock, shares issued 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized 750,000,000 750,000,000
Common stock, shares issued 213,324,455 109,799,352
Common stock, shares outstanding 213,324,455 109,799,352
v3.10.0.1
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
CONSOLIDATED STATEMENTS OF OPERATIONS      
OPERATING REVENUES $ 458,732 $ 451,731 $ 498,332
OPERATING EXPENSES      
Voyage expenses (12,207) (12,587) (13,925)
Vessel operating expenses (104,604) (106,999) (109,384)
Depreciation (107,757) (115,228) (129,045)
Amortization of deferred drydocking and special survey costs (9,237) (6,748) (5,528)
Impairment Loss (210,715)   (415,118)
Bad debt expense     (15,834)
General and administrative expenses (26,334) (22,672) (22,105)
Loss on sale of vessels     (36)
Income/(loss) from operations (12,122) 187,497 (212,643)
OTHER INCOME (EXPENSES):      
Interest income 5,781 5,576 4,682
Interest expense (85,706) (86,556) (82,966)
Other finance expenses (3,026) (4,126) (4,932)
Equity income/(loss) on investments 1,365 965 (16,252)
Gain on debt extinguishment 116,365    
Other income/(expenses), net (50,456) (15,757) (41,602)
Net unrealized and realized losses on derivatives (5,137) (3,694) (12,482)
Total Other Expenses, net (20,814) (103,592) (153,552)
Net Income/(Loss) $ (32,936) $ 83,905 $ (366,195)
EARNINGS/(LOSS) PER SHARE      
Basic and diluted earnings/(loss) per share $ (0.22) $ 0.76 $ (3.34)
Basic and diluted weighted average number of common shares 148,719,749 109,824,329 109,801,586
v3.10.0.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)      
Net income/(loss) $ (32,936) $ 83,905 $ (366,195)
Other comprehensive income/(loss):      
Unrealized losses on available for sale securities (9,771) (26,607)  
Amortization of deferred realized losses on cash flow hedges 3,694 3,694 4,028
Accelerated amortization of deferred realized losses on cash flow hedges 1,443   7,706
Reclassification of unrealized losses to earnings     184
Total Other Comprehensive Income/(Loss) (4,634) (22,913) 11,918
Comprehensive Income/(Loss) $ (37,570) $ 60,992 $ (354,277)
v3.10.0.1
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
$ in Thousands
Common Stock
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total
Balance at Dec. 31, 2015 $ 1,098 $ 546,822 $ (103,081) $ 397,075 $ 841,914
Balance (in shares) at Dec. 31, 2015 109,782,000        
Increase (Decrease) in Stockholders' Equity          
Net loss       (366,195) (366,195)
Net movement in other comprehensive income     11,918   11,918
Issuance of common stock (in shares) 17,000        
Stock compensation   76     76
Balance at Dec. 31, 2016 $ 1,098 546,898 (91,163) 30,880 487,713
Balance (in shares) at Dec. 31, 2016 109,799,000        
Increase (Decrease) in Stockholders' Equity          
Net loss       83,905 83,905
Net movement in other comprehensive income     (22,913)   $ (22,913)
Stock compensation (in shares)         0
Balance at Dec. 31, 2017 $ 1,098 546,898 (114,076) 114,785 $ 548,705
Balance (in shares) at Dec. 31, 2017 109,799,000        
Increase (Decrease) in Stockholders' Equity          
Net loss       (32,936) (32,936)
Paid-in capital   10,000     10,000
Net movement in other comprehensive income     (4,634)   (4,634)
Issuance of common stock $ 993 167,719     168,712
Issuance of common stock (in shares) 99,342,000        
Stock compensation $ 42 964     1,006
Stock compensation (in shares) 4,183,000        
Balance at Dec. 31, 2018 $ 2,133 $ 725,581 $ (118,710) $ 81,849 $ 690,853
Balance (in shares) at Dec. 31, 2018 213,324,000        
v3.10.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash flows from operating activities      
Net income/(loss) $ (32,936) $ 83,905 $ (366,195)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities      
Depreciation 107,757 115,228 129,045
Amortization of deferred drydocking and special survey costs 9,237 6,748 5,528
Impairment losses 210,715   444,502
Amortization of finance costs 11,771 11,153 12,652
Exit fee accrued on debt 2,059 3,169 3,447
Debt discount amortization 3,186    
Gain on debt extinguishment (116,365)    
PIK interest 1,433    
Bad debt expense     15,834
Loss on sale of securities   2,357 12,906
Payments for drydocking and special survey costs deferred (13,306) (7,511) (8,976)
Loss on sale of vessels     36
Stock based compensation 1,006   76
Amortization of deferred realized losses on interest rate swaps 5,137 3,694 11,734
Unrealized gains on derivatives     (4,649)
Equity income/(loss) on investments (1,365) (965) 16,252
(Increase)/Decrease in      
Accounts receivable (2,723) (2,544) (13,210)
Inventories (43) 2,554 (355)
Prepaid expenses 20 117 (654)
Due from related parties 16,037 (1,404) (13,596)
Other assets, current and non-current (13,728) (9,099) (5,455)
Increase/(Decrease) in      
Accounts payable (894) 215 (383)
Accrued liabilities (3,456) (238) 1,450
Unearned revenue, current and long-term (17,529) (19,301) 26,501
Other liabilities, current and long-term (1,327) (7,005) (4,523)
Net cash provided by operating activities 164,686 181,073 261,967
Cash flows from investing activities      
Vessels additions (2,830) (4,478) (4,561)
Advances for vessels additions (5,420)    
Investments in affiliates     (9,996)
Net proceeds from sale of securities   6,236  
Net proceeds from sale of vessels     5,178
Net cash provided by/(used in) investing activities (8,250) 1,758 (9,379)
Cash flows from financing activities      
Proceeds from long-term debt 325,852    
Payments of long-term debt (440,990) (189,653) (251,130)
Payments of accumulated accrued interest (8,556)    
Finance costs (35,005)    
Paid-in capital 10,000    
Share issuance costs (169)    
Net cash used in financing activities (148,868) (189,653) (251,130)
Net increase/(decrease) in cash, cash equivalents and restricted cash 7,568 (6,822) 1,458
Cash, cash equivalents and restricted cash, beginning of year 69,707 76,529 75,071
Cash, cash equivalents and restricted cash, end of year 77,275 69,707 76,529
Supplemental cash flow information      
Cash paid for interest $ 71,915 $ 74,643 69,180
Non-cash investing and financing activities      
Acquisition of debt securities and equity investment     $ 24,627
v3.10.0.1
Basis of Presentation and General Information
12 Months Ended
Dec. 31, 2018
Basis of Presentation and General Information  
Basis of Presentation and General Information

1. Basis of Presentation and General Information

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The reporting and functional currency of Danaos Corporation and its subsidiaries (the “Company”) is the United States Dollar.

Danaos Corporation, formerly Danaos Holdings Limited, was formed on December 7, 1998 under the laws of Liberia and is presently the sole owner of all outstanding shares of the companies listed below. Danaos Holdings Limited was redomiciled in the Marshall Islands on October 7, 2005. In connection with the redomiciliation, the Company changed its name to Danaos Corporation. On October 14, 2005, the Company filed and the Marshall Islands accepted Amended and Restated Articles of Incorporation. The authorized capital stock of Danaos Corporation is 750,000,000 shares of common stock with a par value of $0.01 and 100,000,000 shares of preferred stock with a par value of $0.01. Refer to Note 18, “Stockholders’ Equity”.

The Company’s vessels operate worldwide, carrying containers for many established charterers.

The Company’s principal business is the acquisition and operation of vessels. Danaos conducts its operations through the vessel owning companies whose principal activity is the ownership and operation of containerships (refer to Note 2, “Significant Accounting Policies”) that are under the exclusive management of a related party of the Company (refer to Note 11, “Related Party Transactions”).

The consolidated financial statements of the Company have been prepared to reflect the consolidation of the companies listed below. The historical balance sheets and results of operations of the companies listed below have been reflected in the consolidated balance sheets and consolidated statements of operations, consolidated statements of comprehensive income/(loss), cash flows and stockholders’ equity at and for each period since their respective incorporation dates.

The Company’s consolidated financial statements have been prepared on a going concern basis and contemplate the realization of assets and satisfaction of liabilities in the normal course of business. On August 10, 2018, the Company consummated the refinancing agreement (the “Refinancing”) reached with certain of the Company’s lenders through a debt reduction of approximately $551 million, the resetting of financial and other covenants, modified interest rates and amortization profiles and an extension of existing debt maturities by approximately five years to December 31, 2023, or in some cases to June 30, 2024, as further disclosed in the Note 10 “Long-term debt, net”. This alleviated substantial doubt about the Company’s ability to continue as a going concern reported in the Note 3, “Going Concern” to the consolidated financial statements in the Annual Report on Form 20-F for the year ended December 31, 2017.

As of December 31, 2018, Danaos consolidated the vessel owning companies (the “Danaos Subsidiaries”) listed below. All vessels are container vessels:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year

 

 

Company

    

Date of Incorporation

    

Vessel Name

    

Built

    

TEU(1)

Megacarrier (No. 1) Corp.

 

September 10, 2007

 

Hyundai Honour

 

2012

 

13,100

Megacarrier (No. 2) Corp.

 

September 10, 2007

 

Hyundai Respect

 

2012

 

13,100

Megacarrier (No. 3) Corp.

 

September 10, 2007

 

Maersk Enping

 

2012

 

13,100

Megacarrier (No. 4) Corp.

 

September 10, 2007

 

Maersk Exeter

 

2012

 

13,100

Megacarrier (No. 5) Corp.

 

September 10, 2007

 

MSC Ambition

 

2012

 

13,100

CellContainer (No. 6) Corp.

 

October 31, 2007

 

Express Berlin

 

2011

 

10,100

CellContainer (No. 7) Corp.

 

October 31, 2007

 

Express Rome

 

2011

 

10,100

CellContainer (No. 8) Corp.

 

October 31, 2007

 

Express Athens

 

2011

 

10,100

Karlita Shipping Co. Ltd.

 

February 27, 2003

 

Pusan C (ex CSCL Pusan)

 

2006

 

9,580

Ramona Marine Co. Ltd.

 

February 27, 2003

 

Le Havre (ex CSCL Le Havre)

 

2006

 

9,580

Teucarrier (No. 5) Corp.

 

September 17, 2007

 

CMA CGM Melisande

 

2012

 

8,530

Teucarrier (No. 1) Corp.

 

January 31, 2007

 

CMA CGM Attila

 

2011

 

8,530

Teucarrier (No. 2) Corp.

 

January 31, 2007

 

CMA CGM Tancredi

 

2011

 

8,530

Teucarrier (No. 3) Corp.

 

January 31, 2007

 

CMA CGM Bianca

 

2011

 

8,530

Teucarrier (No. 4) Corp.

 

January 31, 2007

 

CMA CGM Samson

 

2011

 

8,530

Oceanew Shipping Ltd.

 

January 14, 2002

 

Europe

 

2004

 

8,468

Oceanprize Navigation Ltd.

 

January 21, 2003

 

America (ex CSCL America)

 

2004

 

8,468

Boxcarrier (No. 2) Corp.

 

June 27, 2006

 

CMA CGM Musset

 

2010

 

6,500

Boxcarrier (No. 3) Corp.

 

June 27, 2006

 

CMA CGM Nerval

 

2010

 

6,500

Boxcarrier (No. 4) Corp.

 

June 27, 2006

 

CMA CGM Rabelais

 

2010

 

6,500

Boxcarrier (No. 5) Corp.

 

June 27, 2006

 

CMA CGM Racine

 

2010

 

6,500

Boxcarrier (No. 1) Corp.

 

June 27, 2006

 

CMA CGM Moliere

 

2009

 

6,500

Expresscarrier (No. 1) Corp.

 

March 5, 2007

 

YM Mandate

 

2010

 

6,500

Expresscarrier (No. 2) Corp.

 

March 5, 2007

 

YM Maturity

 

2010

 

6,500

Actaea Company Limited

 

October 14, 2014

 

Performance

 

2002

 

6,402

Asteria Shipping Company Limited

 

October 14, 2014

 

Dimitra C (ex Priority)

 

2002

 

6,402

Continent Marine Inc.

 

March 22, 2006

 

Zim Monaco

 

2009

 

4,253

Medsea Marine Inc.

 

May 8, 2006

 

Zim Dalian

 

2009

 

4,253

Blacksea Marine Inc.

 

May 8, 2006

 

Zim Luanda

 

2009

 

4,253

Bayview Shipping Inc.

 

March 22, 2006

 

Zim Rio Grande

 

2008

 

4,253

Channelview Marine Inc.

 

March 22, 2006

 

Zim Sao Paolo

 

2008

 

4,253

Balticsea Marine Inc.

 

March 22, 2006

 

Zim Kingston

 

2008

 

4,253

Seacarriers Services Inc.

 

June 28, 2005

 

YM Seattle

 

2007

 

4,253

Seacarriers Lines Inc.

 

June 28, 2005

 

YM Vancouver

 

2007

 

4,253

Containers Services Inc.

 

May 30, 2002

 

ANL Tongala (ex Deva)

 

2004

 

4,253

Containers Lines Inc.

 

May 30, 2002

 

Derby D

 

2004

 

4,253

Boulevard Shiptrade S.A

 

September 12, 2013

 

Dimitris C

 

2001

 

3,430

CellContainer (No. 4) Corp.

 

March 23, 2007

 

Express Spain

 

2011

 

3,400

CellContainer (No. 5) Corp.

 

March 23, 2007

 

Express Black Sea

 

2011

 

3,400

CellContainer (No. 1) Corp.

 

March 23, 2007

 

Express Argentina

 

2010

 

3,400

CellContainer (No. 2) Corp.

 

March 23, 2007

 

Express Brazil

 

2010

 

3,400

CellContainer (No. 3) Corp.

 

March 23, 2007

 

Express France

 

2010

 

3,400

Wellington Marine Inc.

 

January 27, 2005

 

Singapore

 

2004

 

3,314

Auckland Marine Inc.

 

January 27, 2005

 

Colombo

 

2004

 

3,314

Vilos Navigation Company Ltd.

 

May 30, 2013

 

MSC Zebra

 

2001

 

2,602

Trindade Maritime Company

 

April 10, 2013

 

Amalia C

 

1998

 

2,452

Sarond Shipping Inc.

 

January 18, 2013

 

Danae C

 

2001

 

2,524

Speedcarrier (No. 7) Corp.

 

December 6, 2007

 

Highway

 

1998

 

2,200

Speedcarrier (No. 6) Corp.

 

December 6, 2007

 

Progress C (ex Hyundai Progress)

 

1998

 

2,200

Speedcarrier (No. 8) Corp.

 

December 6, 2007

 

Bridge

 

1998

 

2,200

Speedcarrier (No. 1) Corp.

 

June 28, 2007

 

Vladivostok

 

1997

 

2,200

Speedcarrier (No. 2) Corp.

 

June 28, 2007

 

Advance

 

1997

 

2,200

Speedcarrier (No. 3) Corp.

 

June 28, 2007

 

Stride

 

1997

 

2,200

Speedcarrier (No. 5) Corp.

 

June 28, 2007

 

Future

 

1997

 

2,200

Speedcarrier (No. 4) Corp.

 

June 28, 2007

 

Sprinter

 

1997

 

2,200


(1)

Twenty-foot equivalent unit, the international standard measure for containers and containership capacity.

 

v3.10.0.1
Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Significant Accounting Policies  
Significant Accounting Policies

2. Significant Accounting Policies

Principles of Consolidation:  The accompanying consolidated financial statements represent the consolidation of the accounts of the Company and its wholly‑owned subsidiaries. The subsidiaries are fully consolidated from the date on which control is obtained by the Company.

The Company also consolidates entities that are determined to be variable interest entities, of which the Company is the primary beneficiary, as defined in the accounting guidance, if it determines that it is the primary beneficiary. A variable interest entity is defined as a legal entity where either (a) equity interest holders as a group lack the characteristics of a controlling financial interest, including decision making ability and an interest in the entity’s residual risks and rewards, or (b) the equity holders have not provided sufficient equity investment to permit the entity to finance its activities without additional subordinated financial support, or (c) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights.

Inter‑company transaction balances and unrealized gains/(losses) on transactions between the companies are eliminated.

Investments in affiliates: The Company’s investments in affiliates are accounted for using the equity method of accounting. Under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and the Company’s proportionate share of earnings or losses and distributions. The Company evaluates its investments in affiliates for impairment when events or circumstances indicate that the carrying value of such investments may have experienced other than temporary decline in value below their carrying value. If the estimated fair value is less than the carrying value and is considered an other than temporary decline, the carrying value is written down to its estimated fair value and the resulting impairment is recorded in the Consolidated Statements of Operations.

Use of Estimates:  The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an on‑going basis, management evaluates the estimates and judgments, including those related to future drydock dates, the selection of useful lives for tangible assets, expected future cash flows from long‑lived assets to support impairment tests, provisions necessary for accounts receivables, provisions for legal disputes, and contingencies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions and/or conditions.

 

Reclassifications in Other Comprehensive Income/(Loss): The Company had the following reclassifications out of Accumulated Other Comprehensive Loss as of December 31, 2018, 2017 and 2016, respectively (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 

 

    

Location of Reclassification into Income

    

2018

    

2017

    

2016

Amortization of deferred realized losses on cash flow hedges

 

Net unrealized and realized losses on derivatives

 

 

3,694

 

 

3,694

 

 

4,028

Accelerated amortization of deferred realized losses on cash flow hedges

 

Net unrealized and realized losses on derivatives

 

 

1,443

 

 

 —

 

 

7,706

Reclassification of unrealized losses to earnings

 

Net unrealized and realized losses on derivatives

 

 

 —

 

 

 —

 

 

184

Total Reclassifications

 

 

 

$

5,137

 

$

3,694

 

$

11,918

 

Foreign Currency Translation:  The functional currency of the Company is the U.S. dollar. The Company engages in worldwide commerce with a variety of entities. Although its operations may expose it to certain levels of foreign currency risk, its transactions are predominantly U.S. dollar denominated. Additionally, the Company’s wholly‑owned vessel subsidiaries transacted a nominal amount of their operations in Euros; however, all of the subsidiaries’ primary cash flows are U.S. dollar denominated. Transactions in currencies other than the functional currency are translated at the exchange rate in effect at the date of each transaction. Differences in exchange rates during the period between the date a transaction denominated in a foreign currency is consummated and the date on which it is either settled or translated, are recognized in the Consolidated Statements of Operations. The foreign currency exchange gains/(losses) recognized in the accompanying Consolidated Statements of Operations for each of the years ended December 31, 2018, 2017 and 2016 were $0.1 million loss, $0.4 million loss and $0.1 million loss, respectively.

Cash and Cash Equivalents:  Cash and cash equivalents consist of interest bearing call deposits, where the Company has instant access to its funds and withdrawals and deposits can be made at any time, as well as time deposits with original maturities of three months or less which are not restricted for use or withdrawal. Cash and cash equivalents of $77.3 million as of December 31, 2018 (December 31, 2017: $66.9 million) comprised cash balances and short-term deposits.

Restricted Cash:  Cash restricted accounts include retention accounts. Until the full repayment of the KEXIM ABN Amro loan facility in June 2018, the Company was required to deposit one-third of quarterly and one‑sixth of the semi‑annual principal installments and interest payments, respectively, due on the outstanding loan balance monthly in a retention account. On the rollover settlement date, both principal and interest were paid from the retention account. Refer to Note 3, "Cash, Cash Equivalents and Restricted Cash”.

Accounts Receivable, Net:  The amount shown as Accounts Receivable, net, at each balance sheet date includes estimated recoveries from charterers for hire and demurrage billings, net of a provision for doubtful accounts. At each balance sheet date, all potentially uncollectible accounts are assessed individually for purposes of determining the appropriate provision for doubtful accounts based on the Company’s history of write‑offs, level of past due accounts based on the contractual term of the receivables and its relationships with and economic status of its customers. Bad debts are written off in the period in which they are identified.

Insurance Claims:  Insurance claims represent the claimable expenses, net of deductibles, which are expected to be recovered from insurance companies. Any costs to complete the claims are included in accrued liabilities. The Company accounts for the cost of possible additional call amounts under its insurance arrangements in accordance with the accounting guidance for contingencies based on the Company’s historical experience and the shipping industry practices. Insurance claims are included in the consolidated balance sheet line item “Other current assets”.

Prepaid Expenses and Inventories:  Prepaid expenses consist mainly of insurance expenses, and inventories consist of bunkers, lubricants and provisions remaining on board the vessels at each period end, which are valued at cost as determined using the first‑in, first‑out method. Costs of spare parts are expensed as incurred.

Deferred Financing Costs: Loan arrangement fees incurred for obtaining new loans, for loans that have been accounted for as modified and the fees paid to third parties for loans that have been accounted for as extinguished, where there is a replacement debt and the lender remains the same, are deferred and amortized over the loans’ respective repayment periods using the effective interest rate method and are presented in the consolidated balance sheets as a direct deduction from the carrying amount of debt liability. Unamortized deferred financing costs for extinguished facilities are written-off. Loan arrangement fees related to the facilities accounted for under troubled debt restructuring with future undiscounted cash flows greater than the net carrying value of the original debt are capitalized and amortized over the loan respective repayment period using the effective interest rate method. Additionally, amortization of deferred finance costs amounting to $15.0 million, $11.2 million and $12.7 million is included in interest expenses in the Consolidated Statements of Operations for the years ended December 31, 2018, December 31, 2017 and December 31, 2016, respectively.  

Fixed Assets:  Fixed assets consist of vessels. Vessels are stated at cost, less accumulated depreciation. The cost of vessels consists of the contract purchase price and any material expenses incurred upon acquisition (improvements and delivery expenses). Subsequent expenditures for conversions and major improvements are also capitalized when they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels. Otherwise, these expenditures are charged to expense as incurred. Interest costs while under construction are included in vessels’ cost.

The Company has acquired certain vessels in the secondhand market in prior years, all of which were considered to be acquisitions of assets. Following adoption of ASU 2017-01 “Business Combinations (Topic 805)” on January 1, 2018, the Company evaluates if any vessel acquisition in secondhand market constitutes a business or not. When substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. The following assets are considered as a single asset for the purposes of the evaluation (i) a tangible asset that is attached to and cannot be physically removed and used separately from another tangible assets (or an intangible asset representing the right to use a tangible asset); (ii) in place lease intangibles, including favorable and unfavorable intangible assets or liabilities, and the related leased assets.    

Depreciation:  The cost of the Company’s vessels is depreciated on a straight-line basis over the vessels’ remaining economic useful lives after considering the estimated residual value (refer to Note 4, “Fixed Assets, net”). Management has estimated the useful life of the Company’s vessels to be 30 years from the year built.

Vessels held for sale: Vessels are classified as “Vessels held for sale” when all of the following criteria are met: management has committed to a plan to sell the vessel; the vessel is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of vessels; an active program to locate a buyer and other actions required to complete the plan to sell the vessel have been initiated; the sale of the vessel is probable and transfer of the vessel is expected to qualify for recognition as a completed sale within one year; the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Vessels classified as held for sale are measured at the lower of their carrying amount or fair value less cost to sell. These vessels are not depreciated once they meet the criteria to be held for sale.

Accounting for Special Survey and Drydocking Costs:  The Company follows the accounting guidance for planned major maintenance activities. Drydocking and special survey costs, which are reported in the balance sheet within “Deferred charges, net”, include planned major maintenance and overhaul activities for ongoing certification including the inspection, refurbishment and replacement of steel, engine components, electrical, pipes and valves, and other parts of the vessel. The Company follows the deferral method of accounting for special survey and drydocking costs, whereby actual costs incurred are deferred and amortized on a straight‑line basis over the period until the next scheduled survey and drydocking, which is two and a half years. If special survey or drydocking is performed prior to the scheduled date, the remaining unamortized balances are immediately written off.

The amortization periods reflect the estimated useful economic life of the deferred charge, which is the period between each special survey and drydocking.

Costs incurred during the drydocking period relating to routine repairs and maintenance are expensed. The unamortized portion of special survey and drydocking costs for vessels sold is included as part of the carrying amount of the vessel in determining the gain/(loss) on sale of the vessel.

Impairment of Long‑lived Assets:  The accounting standard for impairment of long‑lived assets requires that long‑lived assets and certain identifiable intangibles held and used or disposed of by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In the case of long‑lived assets held and used, if the future net undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value.

As of December 31, 2018, the Company concluded that events and circumstances triggered the existence of potential impairment of its long‑lived assets. These indicators included volatility in the charter market and the vessels’ market values, as well as the potential impact the current marketplace may have on our future operations. As a result, the Company performed step one of the impairment assessment of the Company’s long-lived assets by comparing the undiscounted projected net operating cash flows for each vessel to its carrying value. The Company’s strategy is to charter its vessels under multi‑year, fixed rate period charters that range from less than 1 to 18 years for vessels in its fleet, providing the Company with contracted stable cash flows. The significant factors and assumptions the Company used in its undiscounted projected net operating cash flow analysis included, among others, operating revenues, off‑hire revenues, drydocking costs, operating expenses and management fees estimates. Revenue assumptions were based on contracted time charter rates up to the end of life of the current contract of each vessel as well as the estimated average time charter equivalent rates for the remaining life of the vessel after the completion of its current contract. The estimated daily time charter equivalent rates used for non‑contracted revenue days are based on a combination of (i) recent charter market rates, (ii) conditions existing in the containership market as of December 31, 2018; (iii) historical average time charter rates, based on publications by independent third party maritime research services, and (iv) estimated future time charter rates, based on publications by independent third party maritime research services that provide such forecasts. Recognizing that the container transportation industry is cyclical and subject to significant volatility based on factors beyond the Company’s control, management believes the use of revenue estimates, based on the combination of factors (i) to (iv) above, to be reasonable as of the reporting date. In addition, the Company used an annual operating expenses escalation factor and estimates of scheduled and unscheduled off‑hire revenues based on historical experience. All estimates used and assumptions made were in accordance with the Company’s internal budgets and historical experience of the shipping industry.As at December 31, 2018, the Company’s assessment concluded that step two of the impairment analysis was required for certain of its vessels, as the undiscounted projected net operating cash flows of certain vessels did not exceed the carrying value of the respective vessels. Fair value of each vessel was determined by management with the assistance from valuations obtained by third party independent shipbrokers. As of December 31, 2018, the Company recorded an impairment loss of $210.7 million for ten of its vessels that are held and used, which is reflected under “Impairment loss” in the accompanying Consolidated Statements of Operations.

As of December 31, 2017, the Company concluded that there are no events and circumstances, which may trigger the existence of potential impairment of the Company's vessels. The indicators which were considered were mainly the improved charter market and the improved vessel's market values compared to the prior year, as well as the potential impact the marketplace may have on the future operations. As of December 31, 2016, the Company concluded that events and circumstances triggered the existence of impairment of its long-lived assets and recorded an impairment loss of $415.1 million for its vessels that were held and used.

 

Investments in Debt Securities: The Company classified its debt securities originally as held-to-maturity based on management’s positive intent and ability to hold to maturity and were reported at amortized cost, subject to impairment up until December 31, 2016.

During 2017, the Company sold a portion of its debt securities, originally classified as held to maturity and as such reclassified remaining held to maturity debt securities into the available for sale category. The transfer between the categories is accounted for at fair value. The unrealized holding gain/(loss) upon transfer from held to maturity category to available for sale category is recorded in accumulated other comprehensive income/(loss). Available for sale securities are carried at fair value with net unrealized gain/(loss) included in accumulated other comprehensive income/(loss), subject to impairment. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Interest income, including amortization of premiums and accretion of discounts are recognized in the interest income in the consolidated statements of operations. Upon sale, realized gain/(loss) is recognized in the consolidated statement of operations based on specific identification method. Management evaluates securities for other than temporary impairment on a quarterly basis. An investment is considered impaired if the fair value of the investment is less than its amortized cost. Consideration is given to: 1) if the Company intends to sell the security (that is, it has decided to sell the security); 2) it is more likely than not that the Company will be required to sell the security before the recovery of its entire amortized cost basis; or 3) a credit loss exists—that is, the Company does not expect to recover the entire amortized cost basis of the security (the present value of cash flows expected to be collected is less than the amortized cost basis of the security).

Investments in Equity Securities: The Company classifies its equity securities of ZIM at cost as the Company does not have the ability to exercise significant influence. Equity securities of HMM were acquired and held principally for the purpose of resale in the near term and were classified as trading securities based on management’s intention on the date of acquisition and were recorded at fair value based on quoted market prices with changes in fair value and realized gains/(losses) presented under “Other income/(expenses), net” in the Consolidated Statements of Operations. The Company sold equity securities of HMM in 2016.

Management evaluates the equity security for other than temporary impairment on a quarterly basis. An investment is considered impaired if the fair value of the investment is less than its cost. Consideration is given to significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee, significant adverse change in the regulatory, economic, or technological environment of the investee, significant adverse change in the general market condition of either the geographic area or the industry in which the investee operates, as well as factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants.

Pension and Retirement Benefit Obligations‑Crew:  The crew on board the companies’ vessels serve in such capacity under short‑term contracts (usually up to seven months) and accordingly, the vessel‑owning companies are not liable for any pension or post‑retirement benefits.

Accounting for Revenue and Expenses:  Revenues from time chartering of vessels are accounted for as operating leases and are thus recognized on a straight line basis as the average revenue over the rental periods of such charter agreements, as service is performed. The Company earns revenue from bareboat and time charters. Bareboat and time charters involve placing a vessel at the charterers’ disposal for a period of time during which the charterer uses the vessel in return for the payment of a specified daily hire rate. Under a time charter, the daily hire rate includes the crew, lubricants, insurance, repair and maintenance, spares and stores. Under a bareboat charter, the charterer is provided only with the vessel.

Voyage Expenses:  Voyage expenses include port and canal charges, bunker (fuel) expenses (bunker costs are normally covered by the Company’s charterers, except in certain cases such as vessel re‑positioning), address commissions and brokerage commissions. Under multi‑year time charters and bareboat charters, such as those on which the Company charters its containerships and under short‑term time charters, the charterers bear the voyage expenses other than brokerage and address commissions. As such, voyage expenses represent a relatively small portion of the vessels’ overall expenses.

Vessel Operating Expenses:  Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses for repairs and maintenance, the cost of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Aggregate expenses increase as the size of the Company’s fleet increases. Under multi‑year time charters, the Company pays for vessel operating expenses. Under bareboat charters, the Company’s charterers bear most vessel operating expenses, including the costs of crewing, insurance, surveys, drydockings, maintenance and repairs.

General and administrative expenses:  General and administrative expenses include management fees paid to the vessels’ manager (refer to Note 11, “Related Party Transactions”), audit fees, legal fees, board remuneration, executive officers compensation, directors & officers insurance and stock exchange fees.

Repairs and Maintenance:  All repair and maintenance expenses are charged against income when incurred and are included in vessel operating expenses in the accompanying Consolidated Statements of Operations.

Dividends:  Dividends, if any, are recorded in the Company’s financial statements in the period in which they are declared by the Company’s board of directors.

Troubled Debt Restructuring and Accumulated Accrued Interest: Prior to the finalization of the Refinancing (refer to Note 10, “Long-Term Debt, Net”), the Company concluded that it was experiencing financial difficulty and that certain of the lenders granted a concession (as part of the Refinancing). The Company was experiencing financial difficulty primarily as a result of the projected cash flows not being sufficient to service the balloon payment due as of December 31, 2018 without restructuring and the Company was not able to obtain funding from sources other than existing creditors at an effective interest rate equal to the current market interest rate for similar debt. As a result, the accounting guidance for troubled debt restructuring (“TDR”) was applied at the Closing Date. The TDR accounting guidance requires the Company to record the value of the new debt to its restructured undiscounted cash flows over the life of the loan, including cash flows associated with the remaining scheduled interest and principal payments not to exceed the carrying amount of the original debt. In cases in which the recorded value of the debt instrument exceeds the sum of undiscounted future cash flows to be received under the restructured debt instrument, the recorded value is reduced to the sum of undiscounted future cash flows, and a gain is recorded. As a result of the TDR accounting, the interest expense related to the future periods on certain facilities was recognized under the accumulated accrued interest line in the Balance Sheet. Interest payments relating to the future interest recognized in accumulated accrued interest, are recognized as a reduction to the accumulated accrued interest payable when these are paid. As a result, these interest payments are not recorded as interest expense.

In the future, when interest rates change, actual cash flows will differ from the cash flows measured on the Refinancing date. The accounting treatment for changes in cash flows due to changes in interest rates depends on whether there is an increase or a decrease from the spot interest rate used in the initial TDR accounting (“threshold interest rate”). Fluctuations in the effective interest rate after the Refinancing from changes in the interest rate or other cause are accounted for as changes in estimates in the periods in which these changes occur. Upon an increase in the interest rates from the threshold interest rate used to calculate accumulated accrued interest payable, the Company recognizes additional interest expenses in the period the expense is incurred. The additional interest expense is calculated by multiplying the difference between the current interest rate and the threshold interest rate with the current carrying value of the debt. A gain due to decrease in interest rates (‘interest windfall’) will not be recognized until the debt facilities have been settled and there are no future interest payments. In case there are subsequent increases in interest rates above the threshold interest rate after a previous decrease in interest rates, the carrying amount of the accumulated accrued interest will be reduced by the interest payments in excess of the threshold interest rate until the prior interest windfall due to decrease in the interest rates is recaptured on a cumulative basis.

The Paid-in-kind interest (“PIK interest”) related to each period will increase the carrying value of the loan facility and correspondingly decrease the carrying value of the accumulated accrued interest. PIK interest in excess of the amount recognized in the accumulated accrued interest is expensed in the period the expense is incurred.

Segment Reporting:  The Company reports financial information and evaluates its operations by total charter revenues. Although revenue can be identified for different types of charters, management does not identify expenses, profitability or other financial information for different charters. As a result, management, including the chief operating decision maker, reviews operating results solely by revenue per day and operating results of the fleet, and thus the Company has determined that it has only one operating and reportable segment.

Going Concern: The management of the Company assesses the Company’s ability to continue as a going concern at each period end. The assessment evaluates whether there are conditions that give rise to substantial doubt to continue as a going concern within one year from the consolidated financial statements issuance date.

If a substantial doubt to continue as a going concern is identified and after considering management’s plans this substantial doubt is alleviated the Company discloses the following: (i) principal conditions or events that raised substantial doubt about the Company’s ability to continue as a going concern (before consideration of management’s plans), (ii) management’s evaluation of the significance of those conditions or events in relation to the Company’s ability to meet its obligations, (iii) management’s plans that alleviated substantial doubt about the Company’s ability to continue as a going concern.

If a substantial doubt to continue as a going concern is identified and after considering management’s plans this substantial doubt is not alleviated the Company discloses the following: (i) a statement indicating that there is substantial doubt about the Company’s ability to continue as a going concern, (ii) principal conditions or events that raised substantial doubt about the Company’s ability to continue as a going concern, (iii) management’s evaluation of the significance of those conditions or events in relation to the Company’s ability to meet its obligations, and (iv) management’s plans that are intended to mitigate the conditions or events that raised substantial doubt about the Company’s ability to continue as a going concern.

The Company updates the going concern disclosure in subsequent periods until the period in which substantial doubt no longer exists disclosing how the relevant conditions or events that raised substantial doubt were resolved.

Derivative Instruments:  The Company entered into interest rate swap contracts to create economic hedges for its interest rate risks. The Company recorded these financial instruments at their fair value. When such derivatives do not qualify for hedge accounting, changes in their fair value are recorded in the Consolidated Statement of Operations. When the derivatives do qualify for hedge accounting, depending upon the nature of the hedge, changes in the fair value of derivatives are either offset against the fair value of assets, liabilities or firm commitments through income, or recognized in other comprehensive income (effective portion) and are reclassified to earnings when the hedged transaction is reflected in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in income.

At the inception of the transaction, the Company documents the relationship between hedging instruments and hedged items, as well as its risk management objective and the strategy for undertaking various hedging transactions. The Company also documents its assessment, both at the hedge inception and on an ongoing basis, of whether the derivative financial instruments that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

On July 1, 2012, the Company elected to prospectively de‑designate fair value and cash flow interest rate swaps for which it was obtaining hedge accounting treatment due to the compliance burden associated with this accounting policy. As a result, all changes in the fair value of the Company’s cash flow interest rate swap agreements were recorded in earnings under “Net Unrealized and Realized Losses on Derivatives” from the de‑designation date forward.

The Company evaluated whether it is probable that the previously hedged forecasted interest payments are probable to not occur in the originally specified time period. The Company has concluded that the previously hedged forecasted interest payments are probable of occurring. Therefore, unrealized gains or losses in accumulated other comprehensive loss associated with the previously designated cash flow interest rate swaps will remain frozen in accumulated other comprehensive loss and recognized in earnings when the interest payments will be recognized. If such interest payments were to be identified as being probable of not occurring, the accumulated other comprehensive loss balance pertaining to these amounts would be reversed through earnings immediately.

The Company does not use financial instruments for trading or other speculative purposes.

Earnings/(Loss) Per Share:  The Company has presented net earnings/(loss) per share for all years presented based on the weighted average number of outstanding shares of common stock of Danaos Corporation at the reported periods. Diluted earnings per share reflect the potential dilution that would occur if securities or other contracts to issue common stock were exercised. The warrants issued in 2011 were excluded from the diluted earnings/(loss) per share for the year ended December 31, 2018, 2017 and 2016, because they were antidilutive. Unvested shares of restricted stock are included in the calculation of the diluted earnings per share, unless considered antidilutive, based on the weighted average number of shares of restricted stock outstanding during the period.

Equity Compensation Plan:  The Company has adopted an equity compensation plan (the “Plan”) in 2006, which is generally administered by the compensation committee of the Board of Directors. The Plan allows the plan administrator to grant awards of shares of common stock or the right to receive or purchase shares of common stock to employees, directors or other persons or entities providing significant services to the Company or its subsidiaries. The actual terms of an award will be determined by the plan administrator and set forth in written award agreement with the participant. Any options granted under the Plan will be accounted for in accordance with the accounting guidance for share‑based compensation arrangements.

The aggregate number of shares of common stock for which awards may be granted under the Plan cannot exceed 6% of the number of shares of common stock issued and outstanding at the time any award is granted. Awards made under the Plan that have been forfeited, cancelled or have expired, will not be treated as having been granted for purposes of the preceding sentence. Unless otherwise set forth in an award agreement, any awards outstanding under the Plan will vest immediately upon a “change of control”, as defined in the Plan. The Plan will automatically terminate ten years after it has been most recently approved by the Company’s stockholders. Refer to Note 17, “Stock Based Compensation”.

As of April 18, 2008, the Company established the Directors Share Payment Plan (“Directors Plan”) under the Plan. The purpose of the Directors Plan is to provide a means of payment of all or a portion of compensation payable to directors of the Company in the form of Company’s Common Stock. Each member of the Board of Directors of the Company may participate in the Directors Plan. Pursuant to the terms of the Directors Plan, Directors may elect to receive in Common Stock all or a portion of their compensation. On the last business day of each quarter, the rights of common stock are credited to each Director’s Share Payment Account. Following December 31st of each year, the Company will deliver to each Director the number of shares represented by the rights credited to their Share Payment Account during the preceding calendar year. Refer to Note 17, “Stock Based Compensation”.

As of April 18, 2008, the Board of Directors and the Compensation Committee approved the Company’s ability to provide, from time to time, incentive compensation to the employees of Danaos Shipping Company Limited (the “Manager”), in the form of free shares of the Company’s common stock under the Plan. Prior approval is required by the Compensation Committee and the Board of Directors. The plan was effective since December 31, 2008. Pursuant to the terms of the plan, employees of the Manager may receive (from time to time) shares of the Company’s common stock as additional compensation for their services offered during the preceding period. The stock will have no vesting period and the employee will own the stock immediately after grant. The total amount of stock to be granted to employees of the Manager will be at the Company’s Board of Directors’ discretion only and there will be no contractual obligation for any stock to be granted as part of the employees’ compensation package in future periods. Refer to Note 17, “Stock Based Compensation”.

Newly Implemented Accounting Policies:

Statement of Cash Flows

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). The guidance adds or clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. Additionally, in November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”), which requires that amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted these standards effective January 1, 2018. Prior periods were retrospectively adjusted to conform to the current period’s presentation. The adoption of ASU 2016-15 did not have a material impact on the consolidated statements of cash flows. Upon adoption of ASU 2016-18, the Company reclassified the restricted cash balance of $2.8 million as of December 31, 2017 and $2.8 million as of December 31, 2016 to the cash, cash equivalents and restricted cash balances within the consolidated statements of cash flows. Refer to Note 3 “Cash, Cash Equivalents and Restricted Cash” for further details.

Financial Instruments

In January 2016, the FASB issued Accounting Standards Update No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 requires all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this Update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition the amendments in this Update eliminate the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The Company adopted this standard effective January 1, 2018. The Company’s investment in ZIM equity securities does not have readily determinable fair value. As a result, the Company elected to record this equity investment at cost, less impairment, adjusted for subsequent observable price changes. The adoption of this standard did not have a material effect on the consolidated financial statements and notes disclosures. As of December 31, 2018, the Company did not identify any observable prices for the same or similar securities that would indicate a change in the carrying value of the Company’s equity.

Revenue Recognition

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-9 “Revenue from Contracts with Customers” (“ASU 2014-09”), which superseded the current revenue recognition guidance and outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations. In addition, in 2016, the FASB issued four amendments, which clarified the guidance on certain items such as reporting revenue as a principal versus agent, identifying performance obligations, accounting for intellectual property licenses, assessing collectability and presentation of sales taxes. The Company adopted this standard effective January 1, 2018 using modified retrospective approach. The adoption of this standard did not have any effect on the retained earnings or on the financial results for year ended December 31, 2018 of the Company since all the Company’s vessels generated revenues from time charter and bareboat charter agreements.

Recent Accounting Pronouncements:

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 will apply to both types of leases – capital (or finance) leases and operating leases. According to the new Accounting Standard, lessees will be required to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASU 2016 – 02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. This guidance requires companies to identify lease and non-lease components of a lease agreement. Lease components relate to the right to use the leased asset and non-lease components relate to payments for goods or services that are transferred separately from the right to use the underlying asset. Total lease consideration is allocated to lease and non-lease components on a relative standalone basis. The recognition of revenues related to lease components will be governed by ASC 842 while revenue related to non-lease components will be subject to ASC 606. In March 2018, the FASB tentatively approved a proposed amendment to ASU 842, that would provide an entity the optional transition method to initially account for the impact of the adoption with a cumulative adjustment to retained earnings on the effective date of the ASU, January 1, 2019 rather than January 1, 2017, which would eliminate the need to restate amounts presented prior to January 1, 2019. In addition, lessors can elect, as a practical expedient, not to allocate the total consideration to lease and non-lease components based on their relative standalone selling prices. As adopted by the Accounting Standards Update No. 2018-11 in July 2018, this practical expedient will allow lessors to elect and account for the combined component based on its predominant characteristic. ASC 842 provides practical expedients that allow entities to not (i) reassess whether any expired or existing contracts are considered or contain leases; (ii) reassess the lease classification for any expired or existing leases; and (iii) reassess initial direct costs for any existing leases. In July 2018, the FASB issued Accounting Standards Update No. 2018-10, “Codification Improvements to Topic 842, Leases” and in December 2018 the Accounting Standards Update No. 2018-20 “Narrow-scope improvements for lessors”, which further improve and clarify ASU 2016-02. The Company plans to adopt the standard on January 1, 2019 and expects to elect the use of all practical expedients. Based on a preliminary assessment, the Company is expecting that the adoption will not have a material effect on its consolidated financial statements since the Company is primarily a lessor and the changes are fairly minor.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. In December 2018, the FASB issued Accounting Standards Update No. 2018-19 “Codification improvements to Topic 326”, which clarifies that impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. The ASU 2016-13 is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of the new standard on the Company’s consolidated financial statements.

v3.10.0.1
Cash, Cash Equivalents and Restricted Cash
12 Months Ended
Dec. 31, 2018
Cash, Cash Equivalents and Restricted Cash  
Cash, Cash Equivalents and Restricted Cash

3. Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash consisted of the following (in thousands):                                               

 

 

 

 

 

 

 

 

 

 

 

 

    

As of

    

As of

    

As of

 

    

December 31, 2018

    

December 31, 2017

    

December 31, 2016

Cash and cash equivalents

 

$

77,275

 

$

66,895

 

$

73,717

Restricted cash

 

 

 —

 

 

2,812

 

 

2,812

Total 

 

$

77,275

 

$

69,707

 

$

76,529

 

The Company was required to maintain cash of $2.8 million as of December 31, 2017 and December 31, 2016 in retention bank accounts as a collateral for the upcoming scheduled debt payments of its KEXIM-ABN Amro credit facility, which were recorded under current assets in the Company’s Consolidated Balance Sheets. This credit facility was fully repaid in July 2018.

v3.10.0.1
Fixed Assets, Net
12 Months Ended
Dec. 31, 2018
Fixed Assets, Net  
Fixed Assets, Net

4. Fixed Assets, Net

Fixed assets, net consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Vessel

 

 

 

 

Net Book

 

    

Costs

    

Accumulated Depreciation

    

Value

As of January 1, 2016

 

$

4,137,117

 

$

(690,794)

 

$

3,446,323

Additions

 

 

4,561

 

 

 —

 

 

4,561

Impairment Loss

 

 

(586,995)

 

 

171,877

 

 

(415,118)

Depreciation

 

 

 —

 

 

(129,045)

 

 

(129,045)

As of December 31, 2016

 

$

3,554,683

 

$

(647,962)

 

$

2,906,721

Additions

 

 

4,478

 

 

 —

 

 

4,478

Depreciation

 

 

 —

 

 

(115,228)

 

 

(115,228)

As of December 31, 2017

 

$

3,559,161

 

$

(763,190)

 

$

2,795,971

Additions

 

 

2,830

 

 

 —

 

 

2,830

Impairment Loss

 

 

(337,738)

 

 

127,023

 

 

(210,715)

Depreciation

 

 

 —

 

 

(107,757)

 

 

(107,757)

As of December 31, 2018

 

$

3,224,253

 

$

(743,924)

 

$

2,480,329

 

As of December 31, 2018, the Company concluded that events and circumstances triggered the existence of potential impairment of its long-lived assets. These indicators included volatility in the charter market and the vessels’ market values, as well as the potential impact the current marketplace may have on our future operations. As a result, the Company performed step one of the impairment assessment of the Company’s long-lived assets by comparing the undiscounted projected net operating cash flows for each vessel to its carrying value. As at December 31, 2018, the Company’s assessment concluded that step two of the impairment analysis was required for certain of its vessels, as the undiscounted projected net operating cash flows of certain vessels did not exceed the carrying value of the respective vessels. Fair value of each vessel was determined by management with the assistance from valuations obtained by third party independent shipbrokers. As of December 31, 2018, the Company recorded an impairment loss of $210.7 million for ten of its vessels that are held and used, which is reflected under “Impairment loss” in the accompanying Consolidated Statements of Operations.

As of December 31, 2017, the Company concluded that there are no events and circumstances, which may trigger the existence of potential impairment of the Company’s vessels. The indicators which were considered were mainly the current improved charter market and the improved vessel’s market values compared to the prior year, as well as the potential impact the marketplace may have on the future operations. As of December 31, 2016, the Company’s testing for impairment resulted in an impairment loss of $415.1 million for its twenty-five held and used vessels. This impairment loss was caused mainly by the loss of a charterer, volatility in the spot market and decline in the vessels’s market values.

The residual value (estimated scrap value at the end of the vessels’ useful lives) of the fleet was estimated at $378.2 million as of December 31, 2018 and December 31, 2017. The Company has calculated the residual value of the vessels taking into consideration the 10 year average and the 5 year average of the scrap. The Company has applied uniformly the scrap value of $300 per ton for all vessels. The Company believes that $300 per ton is a reasonable estimate of future scrap prices, taking into consideration the cyclicality of the nature of future demand for scrap steel. Although the Company believes that the assumptions used to determine the scrap rate are reasonable and appropriate, such assumptions are highly subjective, in part, because of the cyclical nature of future demand for scrap steel.

 

In connection with the Refinancing, the Company has undertaken to seek to refinance two of its 13,100 TEU vessels, the Hyundai Honour and Hyundai Respect. The net proceeds are to be applied pro rata to repay the existing credit facilities secured by mortgages on such vessels.

v3.10.0.1
Deferred Charges, Net
12 Months Ended
Dec. 31, 2018
Deferred Charges, Net  
Deferred Charges, Net

5. Deferred Charges, Net

Deferred charges, net consisted of the following (in thousands):

 

 

 

 

 

 

    

Drydocking and

 

 

Special Survey

 

 

Costs

As of January 1, 2016

 

$

4,751

Additions

 

 

8,976

Amortization

 

 

(5,528)

As of December 31, 2016

 

$

8,199

Additions

 

 

7,511

Amortization

 

 

(6,748)

As of December 31, 2017

 

$

8,962

Additions

 

 

13,306

Amortization

 

 

(9,237)

As of December 31, 2018

 

$

13,031

 

The Company follows the deferral method of accounting for drydocking and special survey costs in accordance with accounting for planned major maintenance activities, whereby actual costs incurred are deferred and amortized on a straight‑line basis over the period until the next scheduled survey, which is two and a half years. If special survey or drydocking is performed prior to the scheduled date, the remaining unamortized balances are immediately written off. Furthermore, when a vessel is drydocked for more than one reporting period, the respective costs are identified and recorded in the period in which they were incurred and not at the conclusion of the drydocking.

v3.10.0.1
Investments in affiliates
12 Months Ended
Dec. 31, 2018
Investments in affiliates  
Investments in affiliates

6. Investments in affiliates

In August 2015, an affiliated company Gemini Shipholdings Corporation (“Gemini”) was formed by the Company and Virage International Ltd. (“Virage”), a company controlled by the Company’s largest shareholder. Gemini acquired a 100% interest in two entities with capital leases for the container vessels Suez Canal and Genoa and two entities that own the container vessels Catherine C ( ex NYK Lodestar) and Leo C (ex NYK Leo). Gemini financed these acquisitions with the assumption of capital lease obligations of $35.4 million, $19.0 million of borrowings under secured loan facilities and an aggregate of $47.4 million from equity contributions from the Company and Virage, which subscribed in cash for 49% and 51%, respectively, of Gemini’s issued and outstanding share capital. As of December 31, 2018, Gemini consolidated its wholly owned subsidiaries listed below:

 

 

 

 

 

 

 

 

 

 

Company

    

Vessel Name

    

Year Built

    

TEU

    

Date of vessel delivery

Averto Shipping S.A.

 

Suez Canal

 

2002

 

5,610

 

July 20, 2015

Sinoi Marine Ltd.

 

Genoa

 

2002

 

5,544

 

August 2, 2015

Kingsland International Shipping Limited

 

Catherine C (ex NYK Lodestar)

 

2001

 

6,422

 

September 21, 2015

Leo Shipping and Trading S.A.

 

Leo (ex NYK Leo)

 

2002

 

6,422

 

February 4, 2016

 

The Company has determined that Gemini is a variable interest entity of which the Company is not the primary beneficiary, and as such, this affiliated company is accounted for under the equity method and recorded under “Equity income/(loss) on investments” in the Consolidated Statements of Operations. The Company does not guarantee the debt of Gemini and its subsidiaries and has the right to purchase all of the beneficial interest in Gemini that it does not own for fair market value at any time after December 31, 2018, to the extent permitted under its credit facilities. The net assets of Gemini total $15.0 million and $12.2 million as of December 31, 2018 and December 31, 2017, respectively. The Company’s exposure is limited to its share of the net assets of Gemini proportionate to its 49% equity interest in Gemini.

A condensed summary of the financial information for equity accounted investments 49% owned by the Company shown on a 100% basis are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

    

2018

    

2017

    

2016

Current assets

 

$

8,327

 

$

10,014

 

 

 

Non-current assets

 

$

41,155

 

$

40,901

 

 

 

Current liabilities

 

$

5,201

 

$

6,131

 

 

 

Long-term liabilities

 

$

29,254

 

$

32,544

 

 

 

Net operating revenues

 

$

18,885

 

$

17,388

 

$

13,909

Impairment loss

 

 

 —

 

 

 —

 

$

29,881

Net income/(loss)

 

$

2,787

 

$

1,969

 

$

(33,168)

 

v3.10.0.1
Other Non-current Assets
12 Months Ended
Dec. 31, 2018
Other Non-current Assets  
Other Non-current Assets

7. Other Non‑current Assets

Other non‑current assets consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

2018

    

2017

Available for sale securities:

 

 

 

 

 

 

ZIM notes, net

 

$

21,044

 

$

21,093

HMM notes, net

 

 

7,847

 

 

13,509

Equity participation ZIM

 

 

 —

 

 

 —

Advances for vessels additions

 

 

5,420

 

 

 —

Other assets

 

 

25,058

 

 

14,864

Total

 

$

59,369

 

$

49,466

 

a.     ZIM

In July 2014, after the charter restructuring agreements with ZIM, the Company obtained equity participation in ZIM and interest bearing unsecured ZIM notes maturing in 2023, consisting of $8.8 million Series 1 Notes and $41.1 million of Series 2 Notes. ZIM notes were originally classified as held to maturity securities and recorded at amortized costs less other than temporary impairment since initial recognition. The Company classifies its equity participation in ZIM at cost as the Company does not have the ability to exercise significant influence. In 2016, the Company tested for impairment of its equity participation in ZIM based on the existence of triggering events that indicate the interest in equity may have been impaired and recorded an impairment loss of $28.7 million, thus reducing its book value to nil. The Company also tests periodically for impairment of its investments in debt securities based on the existence of triggering events that indicate debt instruments may have been impaired. As of December 31, 2016, the Company recorded an impairment loss of $0.7 million impairment loss on ZIM notes, which were recognized under “Other Income/(Expenses), net” in the accompanying Consolidated Statements of Operations.

In relation to ZIM Notes, the Company received redemption of $0.3 million in the year ended December 31, 2016. The Company recognized $1.4 million, $1.3 million and $1.3 million in relation to their fair value unwinding of ZIM notes in the Consolidated Statements of Operations in “Interest income” for years ended December 31, 2018, December 31, 2017 and December 31, 2016, respectively. Furthermore, for each of the years ended December 31, 2018, December 31, 2017 and December 31, 2016, the Company recognized in the Consolidated Statements of Operations in “Interest income”, a non-cash interest income of $0.9 million in relation to ZIM notes, which is accrued quarterly with deferred cash payment on maturity.

Furthermore, in July 2014, an amount of $39.1 million, which represents the additional compensation received from ZIM, was recorded as unearned revenue representing compensation to the Company for the future reductions in the daily charter rates payable by ZIM under its time charters, expiring in 2020 or 2021, for six of the Company’s vessels. This amount is recognized in the Consolidated Statements of Operations in “Operating revenues” over the remaining life of the respective time charters. For each of the years ended December 31, 2018, December 31, 2017 and December 31, 2016, the Company recorded an amount of $6.0 million of unearned revenue amortization in “Operating revenues”. As of December 31, 2018, the outstanding balances of the current and non-current portion of unearned revenue in relation to ZIM amounted to $6.0 million and $6.5 million, respectively. As of December 31, 2017, the corresponding outstanding balances of the current and non-current portion of unearned revenue amounted to $6.0 million and $12.5 million, respectively. Refer to Note 13, “Financial Instruments—Fair value of Financial Instruments”.

b.     HMM

In July 2016, after the charter restructuring agreements with HMM, the Company obtained interest bearing senior unsecured HMM notes consisting of $32.8 million Loan Notes 1 maturing in July 2024 and $6.2 million Loan Notes 2 maturing in December 2022 and 4.6 million HMM shares. The HMM notes were originally classified as held to maturity securities and recorded at amortized costs less other than temporary impairment since initial recognition. Based on the management’s intention, the HMM shares were held principally for the purpose of the resale in the near term and were classified as trading securities. The Company also tests periodically for impairment of its investments in debt securities based on the existence of triggering events that indicate debt instruments may have been impaired.

On September 1, 2016, the Company sold all HMM shares obtained after the charter restructuring agreements with HMM for cash proceeds on sale of $38.1 million resulting in a loss on sale of $12.9 million, which was recorded under “Other income/(expenses), net” in the Consolidated Statement of Operations for the year ended December 31, 2016. The HMM shares were considered trading securities and the proceeds were classified as operating activities in the Consolidated Statement of Cash Flows for the year ended December 31, 2016. The proceeds were used to repay outstanding debt obligations. Furthermore, for the years ended December 31, 2018, December 31, 2017 and December 31, 2016, the Company recognized $1.8 million, $1.8 million and $1.0 million, respectively, of non-cash interest income and fair value unwinding of HMM notes under “Interest income” in the Consolidated Statement of Operations.

On July 18, 2016, the Company recognized unearned revenue of $75.6 million representing compensation to the Company for the future reductions in the daily charter rates payable by HMM under the time charter agreements, which represents non-cash transaction for the Statement of Cash Flows for the year ended December 31, 2016. The amortization of unearned revenue is recognized in the Consolidated Statement of Operations under “Operating revenues” over the remaining life of the respective charters. For the years ended December 31, 2018, December 31, 2017 and December 31, 2016, the Company recorded an amount of $8.8 million, $15.6 million and $7.9 million, respectively, of unearned revenue amortization. As of December 31, 2018, the outstanding balances of the current and non-current portion of unearned revenue in relation to HMM amounted to $8.2 million and $35.2 million, respectively. As of December 31, 2017, the corresponding outstanding balances of the current and non-current portion of unearned revenue amounted to $8.8 million and $43.4 million, respectively. Refer also to Note 13, “Financial Instruments – Fair value of Financial Instruments”.

c.      Transfer to Available for sale category

On March 28, 2017, the Company sold $13.0 million principal amount of HMM Loan Notes 1 maturing in July 2024 carried at amortized costs of $8.6 million for gross cash proceeds on sale of $6.2 million, which were received in April 2017. The sale resulted in a loss of $2.4 million, which was recognized in the “Other income/(expenses), net” in the accompanying Consolidated Statements of Operations for year ended December 31, 2017. The proceeds were used to repay related outstanding debt obligations in April 2017. The sale of  these notes resulted in a transfer of all remaining held to maturity HMM and ZIM notes into the available for sale securities at fair value.The unrealized losses, which were recognized in other comprehensive loss, are analyzed as follows as of December 31, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized cost

 

 

 

 

 

 

Description of securities

    

basis

    

Fair value

    

Unrealized loss

ZIM notes

 

$

44,676

 

$

21,044

 

$

(23,632)

HMM notes

 

 

20,593

 

 

7,847

 

 

(12,746)

Total

 

$

65,269

 

$

28,891

 

$

(36,378)

 

 

 

 

 

 

    

Unrealized loss

 

 

on available for

 

    

sale securities

Balance as of January 1,2017

 

 

 —

Unrealized loss on available for sale securities

 

$

(26,607)

Balance as of December 31, 2017

 

 

(26,607)

Unrealized loss on available for sale securities

 

 

(9,771)

Balance as of December 31, 2018

 

$

(36,378)

 

The Company has agreed to install scrubbers on seven of its vessels and have an option to install them on two more vessels, with estimated total costs amounting to approximately $21.6 million out of which advances of $5.0 million were paid before December 31, 2018 and the remaining amount of $16.6 million is expected to be paid in 2019.

 

Other assets mainly include non-current assets related to straight-lining of the Company’s revenue amounting to $23.1 million and $10.8 million as of December 31, 2018 and December 31, 2017, respectively.

v3.10.0.1
Accrued Liabilities
12 Months Ended
Dec. 31, 2018
Accrued Liabilities  
Accrued Liabilities

8. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

2018

    

2017

Accrued payroll

 

$

924

 

$

928

Accrued interest

 

 

6,304

 

 

9,953

Accrued expenses

 

 

4,542

 

 

4,345

Total

 

$

11,770

 

$

15,226

 

Accrued expenses mainly consisted of accruals related to the operation of the Company’s fleet and other expenses as of December 31, 2018 and December 31, 2017.

v3.10.0.1
Lease Arrangements
12 Months Ended
Dec. 31, 2018
Lease Arrangements  
Lease Arrangements

9. Lease Arrangements

Charters‑out

The future minimum rentals, expected to be earned on non-cancellable time charters consisted of the following as of December 31, 2018 (in thousands):

 

 

 

 

 

2019

    

$

366,659

2020

 

 

345,174

2021

 

 

319,423

2022

 

 

257,533

2023

 

 

172,454

2024 and thereafter

 

 

116,111

Total future rentals

 

$

1,577,354

 

Rentals from time charters are not generally received when a vessel is off‑hire, including time required for normal periodic maintenance of the vessel. In arriving at the future minimum rentals, an estimated time off‑hire to perform periodic maintenance on each vessel has been deducted, although there is no assurance that such estimate will be reflective of the actual off‑hire in the future. The off‑hire assumptions used relate mainly to drydocking and special survey maintenance carried out approximately every 2.5 years per vessel, or every 5 years for vessels less than 15-years old, and which may last approximately 10 to 15 days.

v3.10.0.1
Long-Term Debt, net
12 Months Ended
Dec. 31, 2018
Long-Term Debt, net  
Long-Term Debt, net

10. Long‑Term Debt, net

Long‑term debt consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

Balance as of

    

Balance as of

 

 

December 31, 

 

December 31, 

Credit Facility

 

2018

 

2017

The Royal Bank of Scotland $475.5 mil. Facility

 

$

474,743

 

$

634,864

The Royal Bank of Scotland (January 2011 Facility)

 

 

 —

 

 

24,316

HSH Nordbank AG - Aegean Baltic Bank - Piraeus Bank $382.5 mil. Facility

 

 

379,762

 

 

622,851

HSH Nordbank AG - Aegean Baltic Bank - Piraeus Bank (January 2011 Facility)

 

 

 —

 

 

17,205

Citibank $114 mil. Facility

 

 

110,644

 

 

117,316

Credit Suisse $171.8 mil. Facility

 

 

167,990

 

 

176,189

Citibank – Eurobank $37.6 mil. Facility

 

 

35,544

 

 

37,645

Club Facility $206.2 mil.

 

 

202,439

 

 

220,689

Sinosure Cexim - Citibank - ABN Amro $203.4 mil. Facility

 

 

61,020

 

 

81,360

Citibank $123.9 mil. Facility

 

 

122,523

 

 

 —

Citibank $120 mil. Facility

 

 

115,973

 

 

 —

Deutsche Bank

 

 

 —

 

 

156,062

ABN Amro-Bank of America Merrill Lynch-Burlington Loan Management-National Bank of Greece

 

 

 —

 

 

199,302

ABN Amro - Bank of America Merrill Lynch - Burlington Loan Management - National Bank of Greece (January 2011 Credit Facility)

 

 

 —

 

 

8,771

The Export - Import Bank of Korea & ABN Amro

 

 

 —

 

 

23,109

Fair value of debt

 

 

(26,065)

 

 

 —

Comprehensive Financing Plan exit fees accrued

 

 

21,583

 

 

21,099

Total long-term debt

 

$

1,666,156

 

$

2,340,778

Less: Deferred finance costs, net

 

 

(44,271)

 

 

(11,177)

Less: Current portion

 

 

(113,777)

 

$

(2,329,601)

Total long-term debt net of current portion and deferred finance cost

 

$

1,508,108

 

 

 —

 

Each of the new credit facilities are co