DANAOS CORP, 6-K filed on 8/4/2020
Report of Foreign Issuer
v3.20.2
Document and Entity Information
6 Months Ended
Jun. 30, 2020
Document and Entity Information  
Entity Registrant Name DANAOS CORPORATION
Entity Central Index Key 0001369241
Document Type 6-K
Document Period End Date Jun. 30, 2020
Amendment Flag false
Current Fiscal Year End Date --12-31
Document Fiscal Year Focus 2020
Document Fiscal Period Focus Q2
v3.20.2
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
CURRENT ASSETS    
Cash and cash equivalents $ 84,955 $ 139,170
Accounts receivable, net 12,552 7,145
Inventories 9,358 8,494
Prepaid expenses 1,353 1,458
Due from related parties 22,376 20,512
Other current assets 14,144 13,607
Total current assets 144,738 190,386
NON-CURRENT ASSETS    
Fixed assets at cost, net of accumulated depreciation of $890,269 (2019: $840,429) 2,466,556 2,389,874
Deferred charges, net 19,584 11,455
Investments in affiliates 12,230 8,965
Other non-current assets 56,971 82,339
Total non-current assets 2,555,341 2,492,633
Total assets 2,700,079 2,683,019
CURRENT LIABILITIES    
Accounts payable 20,903 11,168
Accrued liabilities 14,620 8,527
Current portion of long-term debt, net 123,084 119,673
Current portion of long-term leaseback obligation, net 23,822 16,342
Accumulated accrued interest, current portion 30,415 34,137
Unearned revenue 18,240 17,960
Other current liabilities 7,848 15,273
Total current liabilities 238,932 223,080
LONG-TERM LIABILITIES    
Long-term debt, net 1,240,253 1,270,663
Long-term leaseback obligation, net of current portion 107,353 121,872
Accumulated accrued interest, net of current portion 139,553 156,583
Unearned revenue, net of current portion 23,783 28,528
Other long-term liabilities 393 603
Total long-term liabilities 1,511,335 1,578,249
Total liabilities 1,750,267 1,801,329
Commitments and Contingencies
STOCKHOLDERS' EQUITY    
Preferred stock (par value $0.01, 100,000,000 preferred shares authorized and not issued as of June 30, 2020 and December 31, 2019)
Common stock (par value $0.01, 750,000,000 common shares authorized as of June 30, 2020 and December 31, 2019. 24,789,312 shares issued and outstanding as of June 30, 2020 and December 31, 2019) 248 248
Additional paid-in capital 785,870 785,274
Accumulated other comprehensive loss (116,993) (116,934)
Retained earnings 280,687 213,102
Total stockholders' equity 949,812 881,690
Total liabilities and stockholders' equity $ 2,700,079 $ 2,683,019
v3.20.2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical)
$ in Thousands
Jun. 30, 2020
USD ($)
$ / shares
shares
Dec. 31, 2019
USD ($)
$ / shares
shares
CONDENSED CONSOLIDATED BALANCE SHEETS    
Accumulated depreciation | $ $ 890,269 $ 840,429
Preferred stock, par value (in dollars per share) | $ / shares $ 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) | $ / shares $ 0.01 $ 0.01
Common stock, shares authorized 750,000,000 750,000,000
Common stock, shares issued 24,789,312 24,789,312
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)        
OPERATING REVENUES $ 116,824 $ 112,319 $ 223,020 $ 225,210
OPERATING EXPENSES        
Voyage expenses (3,289) (2,732) (7,335) (6,002)
Vessel operating expenses (28,568) (27,306) (54,570) (53,177)
Depreciation (25,258) (24,039) (49,839) (47,805)
Amortization of deferred drydocking and special survey costs (2,941) (2,063) (5,251) (4,254)
General and administrative expenses (6,013) (6,492) (11,853) (13,361)
Income From Operations 50,755 49,687 94,172 100,611
OTHER INCOME (EXPENSES):        
Interest income 1,588 1,569 3,302 3,165
Interest expense (13,645) (18,844) (29,958) (36,687)
Other finance expenses (1,038) (1,770) (1,660) (2,094)
Equity income/(loss) on investments 1,720 32 3,265 (52)
Other income, net 19 367 270 434
Loss on derivatives (903) (903) (1,806) (1,796)
Total Other Expenses, net (12,259) (19,549) (26,587) (37,030)
Net Income $ 38,496 $ 30,138 $ 67,585 $ 63,581
EARNINGS PER SHARE        
Basic earnings per share $ 1.57 $ 2.02 $ 2.75 $ 4.26
Diluted earnings per share $ 1.55 $ 1.97 $ 2.73 $ 4.16
Basic weighted average number of common shares (in thousands) 24,573 14,939 24,573 14,939
Diluted weighted average number of common shares (in thousands) 24,789 15,314 24,789 15,276
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (unaudited)        
Net income for the period $ 38,496 $ 30,138 $ 67,585 $ 63,581
Other comprehensive income/(loss):        
Unrealized gain/(loss) on available for sale securities 6,467 (2,021) (1,865) (2,626)
Amortization of deferred realized losses on cash flow hedges 903 903 1,806 1,796
Total Other Comprehensive Income/(Loss) 7,370 (1,118) (59) (830)
Comprehensive Income $ 45,866 $ 29,020 $ 67,526 $ 62,751
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
shares in Thousands, $ in Thousands
Common Stock
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total
Balance at Dec. 31, 2018 $ 152 $ 727,562 $ (118,710) $ 81,849 $ 690,853
Balance (in shares) at Dec. 31, 2018 15,237        
Increase (Decrease) in Stockholders' Equity          
Net Income       33,443 33,443
Stock compensation   830     830
Net movement in other comprehensive income     288   288
Balance at Mar. 31, 2019 $ 152 728,392 (118,422) 115,292 725,414
Balance (in shares) at Mar. 31, 2019 15,237        
Balance at Dec. 31, 2018 $ 152 727,562 (118,710) 81,849 690,853
Balance (in shares) at Dec. 31, 2018 15,237        
Increase (Decrease) in Stockholders' Equity          
Net Income         63,581
Net movement in other comprehensive income         (830)
Balance at Jun. 30, 2019 $ 154 729,425 (119,540) 145,430 755,469
Balance (in shares) at Jun. 30, 2019 15,373        
Balance at Mar. 31, 2019 $ 152 728,392 (118,422) 115,292 725,414
Balance (in shares) at Mar. 31, 2019 15,237        
Increase (Decrease) in Stockholders' Equity          
Net Income       30,138 30,138
Stock compensation $ 2 1,033     1,035
Stock compensation (in shares) 136        
Net movement in other comprehensive income     (1,118)   (1,118)
Balance at Jun. 30, 2019 $ 154 729,425 (119,540) 145,430 755,469
Balance (in shares) at Jun. 30, 2019 15,373        
Balance at Dec. 31, 2019 $ 248 785,274 (116,934) 213,102 881,690
Balance (in shares) at Dec. 31, 2019 24,789        
Increase (Decrease) in Stockholders' Equity          
Net Income       29,089 29,089
Stock compensation   298     298
Net movement in other comprehensive income     (7,429)   (7,429)
Balance at Mar. 31, 2020 $ 248 785,572 (124,363) 242,191 903,648
Balance (in shares) at Mar. 31, 2020 24,789        
Balance at Dec. 31, 2019 $ 248 785,274 (116,934) 213,102 881,690
Balance (in shares) at Dec. 31, 2019 24,789        
Increase (Decrease) in Stockholders' Equity          
Net Income         67,585
Net movement in other comprehensive income         (59)
Balance at Jun. 30, 2020 $ 248 785,870 (116,993) 280,687 949,812
Balance (in shares) at Jun. 30, 2020 24,789        
Balance at Mar. 31, 2020 $ 248 785,572 (124,363) 242,191 903,648
Balance (in shares) at Mar. 31, 2020 24,789        
Increase (Decrease) in Stockholders' Equity          
Net Income       38,496 38,496
Stock compensation   298     298
Net movement in other comprehensive income     7,370   7,370
Balance at Jun. 30, 2020 $ 248 $ 785,870 $ (116,993) $ 280,687 $ 949,812
Balance (in shares) at Jun. 30, 2020 24,789        
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash Flows from Operating Activities    
Net income $ 67,585 $ 63,581
Adjustments to reconcile net income to net cash provided by operating activities    
Depreciation 49,839 47,805
Amortization of deferred drydocking and special survey costs 5,251 4,254
Amortization of finance costs 5,604 5,714
Exit fee accrued on debt 258 295
Debt discount amortization 2,858 3,234
PIK interest 1,550 1,695
Payments for drydocking and special survey costs deferred (13,380) (1,690)
Amortization of deferred realized losses on interest rate swaps 1,806 1,796
Stock based compensation 596 1,865
Equity (income)/ loss on investments (3,265) 52
(Increase)/Decrease in    
Accounts receivable (5,407) 1,729
Inventories (864) (281)
Prepaid expenses 105 72
Due from related parties (1,864) (2,114)
Other assets, current and non-current 1,934 (8,750)
Increase/(Decrease) in    
Accounts payable 5,235 873
Accrued liabilities 3,702 (1,057)
Unearned revenue, current and long-term (4,465) (7,252)
Other liabilities, current and long-term (210) (365)
Net Cash provided by Operating Activities 116,868 111,456
Cash Flows from Investing Activities    
Vessels additions and advances (98,746) (10,638)
Investments (75)  
Net Cash used in Investing Activities (98,821) (10,638)
Cash Flows from Financing Activities    
Payments of long-term debt (65,176) (205,811)
Proceeds from sale-leaseback of vessels 139,080 146,523
Proceeds from long-term debt 23,400  
Payments of leaseback obligation (142,065) (2,086)
Payments of accumulated accrued interest (15,502) (17,867)
Finance costs (11,999) (20,049)
Net cash used in financing activities (72,262) (99,290)
Net Increase/(Decrease) in cash and cash equivalents (54,215) 1,528
Cash and cash equivalents at beginning of period 139,170 77,275
Cash and cash equivalents at end of period $ 84,955 $ 78,803
v3.20.2
Basis of Presentation and General Information
6 Months Ended
Jun. 30, 2020
Basis of Presentation and General Information  
Basis of Presentation and General Information

1     Basis of Presentation and General Information

 

The accompanying condensed consolidated financial statements (unaudited) 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 the Company is the United States Dollar.

 

Danaos Corporation (“Danaos” or “Company”), 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 11, “Stockholders’ Equity”. 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 that are under the exclusive management of a related party of the Company.

 

In the opinion of management, the accompanying condensed consolidated financial statements (unaudited) of Danaos and subsidiaries contain all adjustments necessary to present fairly, in all material respects, the Company’s condensed consolidated financial position as of June 30, 2020, the condensed consolidated results of operations for the three and six months ended June 30, 2020 and 2019 and the condensed consolidated cash flows for the six months ended June 30, 2020 and 2019. All such adjustments are deemed to be of a normal, recurring nature. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in Danaos’ Annual Report on Form 20-F for the year ended December 31, 2019. The results of operations for the three and six months ended June 30, 2020, are not necessarily indicative of the results to be expected for the full year. The year-end condensed consolidated balance sheet data was derived from annual financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

 

The accompanying condensed consolidated financial statements (unaudited) 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 transferred to the Company. They are de-consolidated from the date that control ceases. Inter-company transaction balances and unrealized gains on transactions between the companies are eliminated.

 

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 authoritative guidance under U.S. GAAP. 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. The condensed consolidated financial statements (unaudited) 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 condensed consolidated balance sheets and condensed consolidated statements of income, cash flows and stockholders’ equity at and for each period since their respective incorporation dates. The consolidated companies are referred to as “Danaos,” or “the Company.”

 

As of June 30, 2020, Danaos included the vessel owning companies (the “Danaos Subsidiaries”) listed below. All vessels are container vessels:

 

 

 

 

 

 

 

 

 

 

Company

    

Date of Incorporation

    

Vessel Name

    

Year 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

 

Hyundai Smart (ex Maersk Enping)

 

2012

 

13,100

Megacarrier (No. 4) Corp.

 

September 10, 2007

 

Hyundai Speed (ex Maersk Exeter)

 

2012

 

13,100

Megacarrier (No. 5) Corp.

 

September 10, 2007

 

Hyundai Ambition (ex 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

 

2006

 

9,580

Ramona Marine Co. Ltd.

 

February 27, 2003

 

Le Havre

 

2006

 

9,580

Blackwell Seaways Inc.

 

January 9, 2020

 

Niledutch Lion

 

2008

 

8,626

Oceancarrier (No.1) Corp.

 

February 20, 2020

 

SM Charleston

 

2005

 

8,533

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

 

2004

 

8,468

Rewarding International Shipping Inc.

 

October 1, 2019

 

Phoebe

 

2005

 

8,463

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

 

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

 

Rio Grande (ex 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

 

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

 

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

 

Impact of COVID-19 on the Company's Business

 

The spread of the COVID-19 virus, which has been declared a pandemic by the World Health Organization, in 2020 has caused substantial disruptions in the global economy and the shipping industry, as well as significant volatility in the financial markets, the severity and duration of which remains uncertain.

 

The impact of the COVID-19 pandemic continues to unfold and may continue to have negative effect on the Company's business, financial performance and the results of its operations, including due to decreased demand for global seaborne container trade and containership charter rates, the extent of which will depend largely on future developments. As a result, many of the Company's estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, the Company's estimates may change in future periods.

 

The Company has evaluated the impact of current economic situation on the recoverability of the carrying amount of its vessels. As of June 30, 2020, the Company concluded that events and circumstances triggered the existence of potential impairment of its vessels. These indicators included volatility in the charter market as well as the potential impact the current marketplace may have on the future operations. As a result, the Company performed step one of the impairment assessment of the Company's vessels by comparing the undiscounted projected net operating cash flows for each vessel to its carrying values. As of June 30, 2020, the Company's assessment concluded that step two of the impairment analysis was not required for any vessel, as the undiscounted projected net operating cash flows of the Company's vessels exceeded the carrying value of the respective vessels. As of June 30, 2020, no vessel impairment loss was identified.

v3.20.2
Significant Accounting Policies
6 Months Ended
Jun. 30, 2020
Significant Accounting Policies  
Significant Accounting Policies

2      Significant Accounting Policies

 

For a detailed discussion about the Company’s significant accounting policies, see Note 2 “Significant Accounting Policies” in the Company’s consolidated financial statements included in the Annual Report on Form 20-F for the year ended December 31, 2019 filed with the Securities and Exchange Commission on February 27, 2020. During the six months ended June 30, 2020, other than the following, there were no other significant changes made to the Company’s significant accounting policies:

 

Newly Implemented Accounting Principles:

 

We adopted Topic 326 "Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments" on January 1, 2020. This standard provides new guidance for measuring and recognizing credit losses on financial instruments using the modified retrospective approach with a cumulative effect adjustment to opening retained earnings recorded at the beginning of the period of adoption. The standard applies to the allowance for uncollectible debt securities in the Company's books, but did not result in any significant changes to the allowance methodology and did not have a material impact on the Company's unaudited condensed consolidated financial statements.

 

Recent Accounting Pronouncements:

 

In March 2020, the FASB issued ASU 2020-4, "Reference Rate Reform (Topic 848)" ("ASU 2020-4"), which provides optional guidance intended to ease the potential burden in accounting for the expected discontinuation of LIBOR as a reference rate in the financial markets. The guidance can be applied to modifications made to certain contracts to replace LIBOR with a new reference rate. The guidance, if elected, will permit entities to treat such modifications as the continuation of the original contract, without any required accounting reassessments or remeasurements. The ASU 2020-4 was effective for the Company beginning on March 12, 2020 and the Company will apply the amendments prospectively through December 31, 2022. There was no impact to the Company's unaudited condensed consolidation financial statements for the six months ended June 30, 2020 as a result of adopting this standard update. Currently, the Company has various contracts that reference LIBOR and is assessing how this standard may be applied to specific contract modifications.

 

v3.20.2
Fixed Assets, Net
6 Months Ended
Jun. 30, 2020
Fixed Assets, Net  
Fixed Assets, Net

3      Fixed assets, net

 

The Company took delivery of the following vessels in the six months ended June 30, 2020:

 

 

 

 

 

 

 

 

 

 

Company

    

Vessel Name

    

Year Built

    

TEU

    

Date of vessel delivery

Blackwell Seaways Inc.

 

Niledutch Lion

 

2008

 

8,626

 

January 23, 2020

Rewarding International Shipping Inc.

 

Phoebe

 

2005

 

8,463

 

April 14, 2020

Oceancarrier (No.1) Corp.

 

SM Charleston

 

2005

 

8,533

 

June 10, 2020

 

In the six months ended June 30, 2020, the Company installed scrubbers on nine of its vessels with total costs of $39.7 million. The residual value (estimated scrap value at the end of the vessels’ useful lives) of the fleet was estimated at $408.4 million and $378.2 million as of June 30, 2020 and as of December 31, 2019, respectively. 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.

 

On May 12, 2020, the Company refinanced the existing leaseback obligation related to the vessels Hyundai Honour and Hyundai Respect with a new sale and leaseback arrangement amounting to $139.1 million with a four years term, at the end of which the Company will reacquire these vessels for an aggregate amount of $36.0 million or earlier, at the Company’s option, for a purchase price set forth in the agreement. The Company incurred early termination fees amounting to $0.5 million, which are presented under “Other finance expenses” in the condensed consolidated statements of income. This new arrangement was recorded as a failed sale and leaseback by the Company with the net proceeds received recognized as a financial liability. The carrying value of these vessels amount to $277.0 million as of June 30, 2020.

 

The scheduled leaseback instalments subsequent to June 30, 2020 are as follows (in thousands):

 

 

 

 

 

Instalments due by period ended:

    

 

 

June 30, 2021

 

$

30,916

June 30, 2022

 

 

30,916

June 30, 2023

 

 

30,915

Until May 2024

 

 

61,833

Total leaseback instalments

 

 

154,580

Less: Imputed interest

 

 

(19,351)

Total leaseback obligation

 

 

135,229

Less: Deferred finance costs, net

 

 

(4,054)

Less: Current leaseback obligation

 

 

(23,822)

Leaseback obligation, net of current portion

 

$

107,353

 

v3.20.2
Deferred Charges, Net
6 Months Ended
Jun. 30, 2020
Deferred Charges, Net  
Deferred Charges, Net

4     Deferred Charges, net

 

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

 

 

 

 

 

 

 

Drydocking and

 

    

Special Survey Costs

As of January 1, 2019

 

$

13,031

Additions

 

 

7,157

Amortization

 

 

(8,733)

As of December 31, 2019

 

 

11,455

Additions

 

 

13,380

Amortization

 

 

(5,251)

As of June 30, 2020

 

$

19,584

 

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.

v3.20.2
Investments in affiliates
6 Months Ended
Jun. 30, 2020
Investments in affiliates  
Investments in affiliates

5     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 entities with capital leases for the Suez Canal and Genoa and that own the container vessels Catherine C and Leo C. In August 2019, an affiliated company of Gemini acquired an 8,533 TEU container vessel built in 2006 renamed to Belita. Gemini financed these acquisitions with the assumption of capital lease obligations of $35.4 million, $30.0 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 June 30, 2020, Gemini consolidated its wholly owned subsidiaries listed below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year

 

 

 

Date of vessel

Company

    

Vessel Name

    

Built

    

TEU

    

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

 

2001

 

6,422

 

September 21, 2015

Leo Shipping and Trading S.A.

 

Leo C

 

2002

 

6,422

 

February 4, 2016

Springer Shipping Co.

 

Belita

 

2006

 

8,533

 

August 26, 2019

 

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 condensed consolidated statements of income. 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, provided that such fair market value is not below the net book value of such equity interests. The net assets of Gemini total $25.0 million and $18.3 million as of June 30, 2020 and December 31, 2019, 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):

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

    

June 30, 2020

    

December 31, 2019

Current assets

 

$

8,469

 

$

6,242

Non-current assets

 

$

70,042

 

$

69,740

Current liabilities

 

$

8,687

 

$

9,892

Non-current liabilities

 

$

44,865

 

$

47,795

 

 

 

 

 

 

 

 

 

 

Six months ended

 

Six months ended

 

    

June 30, 2020

    

June 30, 2019

Net operating revenues

 

$

16,441

 

$

7,451

Net income/(loss)

 

$

6,664

 

$

(106)

 

v3.20.2
Other Non-current Assets
6 Months Ended
Jun. 30, 2020
Other Non-current Assets  
Other Non-current Assets

6     Other Non-current Assets

 

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

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

    

June 30, 2020

    

December 31, 2019

Available for sale securities:

 

 

 

 

 

 

ZIM notes, net

 

$

21,567

 

$

20,078

HMM notes, net

 

 

10,360

 

 

11,377

Equity participation ZIM

 

 

75

 

 

 —

Advances for vessels additions

 

 

 —

 

 

18,800

Advances for vessels acquisition

 

 

 —

 

 

2,507

Other assets

 

 

24,969

 

 

29,577

Total

 

$

56,971

 

$

82,339

 

Equity participation in ZIM and interest bearing unsecured ZIM notes maturing in 2023, which consist of $8.8 million Series 1 Notes and $41.1 million of Series 2 Notes, were obtained after the charter restructuring agreements with ZIM in July 2014. Interest bearing senior unsecured HMM notes consist of $32.8 million Loan Notes 1 maturing in July 2024 and $6.2 million Loan Notes 2 maturing in December 2022, which were obtained after the charter restructuring agreements with HMM in July 2016. See Note 7 “Other Non-current Assets” to the consolidated financial statements in the Annual Report on Form 20-F for the year ended December 31, 2019 for further details.

 

ZIM and HMM unsecured debt securities are not publicly traded, are infrequently traded over the counter by certain brokers and have no readily determinable market value or credit ratings. The unrealized loss was primarily caused by challenging business environment faced by container shipping industry, which affected profitability and liquidity of ZIM and HMM. Credit spreads of debt securities issued by shipping companies, including ZIM and HMM increased due to impact the COVID-19 pandemic on near-term profit and liquidity forecasts of liner companies by the industry analysts. The Company collects cash interest applicable to ZIM securities and rentals on the Company's vessels leased to ZIM and HMM on a regular basis, in accordance with the contractual agreements. The contractual terms of ZIM and HMM debt securities do not permit ZIM or HMM to settle the debt securities at a price less than the amortized cost basis on the investments. The Company currently does not expect ZIM or HMM to settle the debt securities at a price less than the amortized cost basis of the investments. The Company does not intend to sell ZIM and HMM debt securities and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis. These securities are in continuous unrealized loss position for a period exceeding twelve months as of June 30, 2020 and December 31, 2019.

 

The following tables summarizes the unrealized positions for available-for-sale debt securities as of June 30, 2020 and December 31, 2019 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized cost

 

 

 

 

 

Description of securities

    

basis

    

Fair value

    

Unrealized loss

June 30, 2020

 

 

 

 

 

 

 

 

 

ZIM notes

 

$

48,494

 

$

21,567

 

$

(26,927)

HMM notes

 

 

23,522

 

 

10,360

 

 

(13,162)

Total

 

$

72,016

 

$

31,927

 

$

(40,089)

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

ZIM notes

 

$

47,171

 

$

20,078

 

$

(27,093)

HMM notes

 

 

22,508

 

 

11,377

 

 

(11,131)

Total

 

$

69,679

 

$

31,455

 

$

(38,224)

 

The unrealized losses, which were recognized in other comprehensive loss, are analyzed as follows as of June 30, 2020 (in thousands):

 

 

 

 

 

 

 

Unrealized loss

 

 

on available for

 

    

sale securities

Beginning balance as of January 1, 2020

 

$

(38,224)

Unrealized loss on available for sale securities

 

 

(1,865)

Ending balance as of June 30, 2020

 

$

(40,089)

 

Other assets mainly include non-current assets related to straight-lining of the Company’s revenue amounting to $24.8 million and $29.6 million as of June 30, 2020 and December 31, 2019, respectively.

v3.20.2
Accrued Liabilities
6 Months Ended
Jun. 30, 2020
Accrued Liabilities  
Accrued Liabilities

7     Accrued Liabilities

 

Accrued liabilities consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

As of

    

As of

 

 

June 30, 2020

 

December 31, 2019

Accrued payroll

 

$

866

 

$

809

Accrued interest

 

 

2,437

 

 

3,910

Accrued scrubbers expenses

 

 

2,391

 

 

 —

Accrued dry-docking expenses

 

 

4,041

 

 

 —

Accrued expenses

 

 

4,885

 

 

3,808

Total 

 

$

14,620

 

$

8,527

 

Accrued expenses mainly consisted of accruals related to the operation of the Company’s fleet and vessel additions as of June 30, 2020 and December 31, 2019.

v3.20.2
Long-Term Debt, net
6 Months Ended
Jun. 30, 2020
Long-Term Debt, net  
Long-Term Debt, net

8      Long-Term Debt, net

 

Long-term debt, net consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of

 

Balance as of

Credit Facility

    

June 30, 2020

    

December 31, 2019

The Royal Bank of Scotland $475.5 mil. Facility

 

$

449,692

 

$

458,604

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

 

 

362,986

 

 

372,340

Citibank $114 mil. Facility

 

 

68,587

 

 

74,402

Credit Suisse $171.8 mil. Facility

 

 

109,695

 

 

115,759

Citibank – Eurobank $37.6 mil. Facility

 

 

22,499

 

 

27,455

Club Facility $206.2 mil.

 

 

135,761

 

 

143,389

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

 

 

30,510

 

 

40,680

Citibank $123.9 mil. Facility

 

 

86,947

 

 

88,793

Citibank $120 mil. Facility

 

 

96,614

 

 

100,245

Macquarie Bank $24 mil. Facility

 

 

24,000

 

 

 —

Fair value of debt

 

 

(17,136)

 

 

(19,994)

Comprehensive Financing Plan exit fees accrued

 

 

22,397

 

 

22,139

Total long-term debt

 

$

1,392,552

 

$

1,423,812

Less: Deferred finance costs, net

 

 

(29,215)

 

 

(33,476)

Less: Current portion

 

 

(123,084)

 

 

(119,673)

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

 

$

1,240,253

 

$

1,270,663

 

On April 8, 2020, the vessel owning companies Rewarding International Shipping Inc. and Blackwell Seaways Inc. entered into a loan agreement with Macquarie Bank, which is guaranteed by Danaos, for an amount up to $24 million drawn down in full on April 9, 2020. The loan was used to partially finance the acquisition costs of two newly acquired vessels Niledutch Lion and Phoebe owned by these vessel owning companies, liens on which vessels secure this loan agreement. The loan bears interest at LIBOR plus 3.9% margin and is repayable in nineteen quarterly instalments starting from September 30, 2020 over a five year period of the loan with a balloon payment at maturity amounting to $10.4 million.

 

Each of the credit facilities is collateralized by first and second preferred mortgages over the vessels financed, general assignment of all hire freights, income and earnings, the assignment of their insurance policies, as well as any proceeds from the sale of mortgaged vessels, and in the case of the credit facilities entered into in 2018 the Company’s investments in ZIM and Hyundai Merchant Marine securities, and stock pledges and benefits from corporate guarantees. As of June 30, 2020, fifty-five of the Company's vessels, excluding the SM Charleston, Hyundai Honour and Hyundai Respect, having a net carrying value of $2,165.9 million, were subject to first and second preferred mortgages as collateral to the Company's credit facilities. As of June 30, 2020, there was no remaining borrowing availability under the Company’s credit facilities. The Company was in compliance with the financial covenants of the credit facilities as of June 30, 2020 and December 31, 2019. Unpaid loan amendment fees of $7.4 million and $14.8 million are accrued under "Other current liabilities" as of June 30, 2020 and December 31, 2019, respectively.

 

The Sinosure–Cexim–Citibank–ABN Amro Credit Facility provides for semi-annual amortization payments and the 2018 Credit Facilities provide for quarterly fixed and variable amortization payments, together representing approximately 85% of actual free cash flows from the relevant vessels securing such credit facilities, subject to certain adjustments. The 2018 Credit Facilities have maturity dates of December 31, 2023 (or in some cases June 30, 2024). The scheduled debt maturities of total long-term debt subsequent to June 30, 2020 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed principal

 

 

 

Total

Payments due by period ended

    

repayments

    

Final payments

    

principal payments

June 30, 2021

 

$

123,084

 

 

 —

 

$

123,084

June 30, 2022

 

 

109,477

 

 

 —

 

 

109,477

June 30, 2023

 

 

87,422

 

 

 —

 

 

87,422

June 30, 2024

 

 

38,079

*

$

1,017,179

 

 

1,055,258

June 30, 2025

 

 

1,650

 

 

10,400

 

 

12,050

Total long-term debt

 

$

359,712

 

$

1,027,579

 

$

1,387,291


*     The final payments include the unamortized remaining principal debt balances under the 2018 Credit Facilities, as such amount will be determinable following the fixed amortization. As mentioned above, the Company is also subject to quarterly variable principal amortization based on actual free cash flows, which are included under “Final payments” in this table.

 

v3.20.2
Financial Instruments
6 Months Ended
Jun. 30, 2020
Financial Instruments  
Financial Instruments

9     Financial Instruments

 

The principal financial assets of the Company consist of cash and cash equivalents and trade receivables and other assets. The principal financial liabilities of the Company consist of long-term bank loans. The following is a summary of the Company’s risk management strategies and the effect of these strategies on the Company’s condensed consolidated financial statements.

 

Interest Rate Risk:  Interest rate risk arises on bank borrowings. The Company monitors the interest rate on borrowings closely to ensure that the borrowings are maintained at favorable rates.

 

Concentration of Credit Risk:  Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its temporary cash investments, consisting mostly of deposits, with established financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions that are considered in the Company’s investment strategy. The Company is exposed to credit risk in the event of non-performance by counterparties, however, the Company limits this exposure by diversifying among counterparties with high credit ratings. The Company depends upon a limited number of customers for a large part of its revenues. Credit risk with respect to trade accounts receivable is generally managed by the selection of customers among the major liner companies in the world and their dispersion across many geographic areas.

 

Fair Value:  The carrying amounts reflected in the accompanying condensed consolidated balance sheets of financial assets and liabilities (excluding long-term bank loans and certain other non-current assets) approximate their respective fair values due to the short maturity of these instruments. The fair values of long-term floating rate bank loans approximate the recorded values, generally due to their variable interest rates. The fair value of available for sale securities is estimated based on either observable market based inputs or unobservable inputs that are corroborated by market data. The Company is exposed to changes in fair value of available for sale securities as there is no hedging strategy.

 

a.   Interest Rate Swap Hedges

 

The Company currently has no outstanding interest rate swaps agreements. However, in the past years, the Company entered into interest rate swap agreements with its lenders in order to manage its floating rate exposure. Certain variable-rate interests on specific borrowings were associated with vessels under construction and were capitalized as a cost of the specific vessels. In accordance with the accounting guidance on derivatives and hedging, the amounts related to realized gains or losses on cash flow hedges that have been entered into and qualified for hedge accounting, in order to hedge the variability of that interest, were recognized in accumulated other comprehensive loss and are reclassified into earnings over the depreciable life of the constructed asset, since that depreciable life coincides with the amortization period for the capitalized interest cost on the debt. An amount of $1.8 million was reclassified into earnings for the six months ended June 30, 2020 and 2019, representing its amortization over the depreciable life of the vessels. An amount of $3.6 million is expected to be reclassified into earnings within the next 12 months.

 

b.  Fair Value of Financial Instruments

 

The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.

 

Level I:   Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. Valuation of these items does not entail a significant amount of judgment.

 

Level II:   Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.

 

Level III:  Inputs that are unobservable. The Company did not use any Level 3 inputs as of June 30, 2020 and December 31, 2019.

 

The estimated fair values of the Company’s financial instruments are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2020

 

As of December 31, 2019

 

    

Book Value

    

Fair Value

    

Book Value

    

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands of $)

Cash and cash equivalents

 

$

84,955

 

$

84,955

 

$

139,170

 

$

139,170

ZIM notes

 

$

21,567

 

$

21,567

 

$

20,078

 

$

20,078

HMM notes

 

$

10,360

 

$

10,360

 

$

11,377

 

$

11,377

Long-term debt, including current portion

 

$

1,392,552

 

$

1,392,552

 

$

1,423,812

 

$

1,423,812

 

The estimated fair value of the financial instruments that are measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows as of June 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of June 30, 2020

 

    

Total

    

(Level I)

    

(Level II)

    

(Level III)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands of $)

ZIM notes(1)

 

$

21,567

 

$

 —

 

$

21,567

 

$

 —

HMM notes(1)

 

$

10,360

 

$

 —

 

$

10,360

 

$

 —

 

The estimated fair value of the financial instruments that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows as of June 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of June 30, 2020

 

    

Total

    

(Level I)

 

 (Level II)

    

(Level III)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands of $)

Long-term debt, including current portion(2)

 

$

1,392,552

 

$

 —

 

$

1,392,552

 

$

 —

 

The estimated fair value of the financial instruments that are measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows as of December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of December 31, 2019

 

    

Total

    

(Level I)

    

(Level II)

    

(Level III)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands of $)

ZIM notes(1)

 

$

20,078

 

$

 —

 

$

20,078

 

$

 —

HMM notes(1)

 

$

11,377

 

$

 —

 

$

11,377

 

$

 —

 

The estimated fair value of the financial instruments that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows as of December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of December 31, 2019

 

    

Total

    

(Level I)

    

(Level II)

    

(Level III)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands of $)

Long-term debt, including current portion(2)

 

$

1,423,812

 

$

 —

 

$

1,423,812

 

$

 —


(1)

The fair value is estimated based on either observable market based inputs or unobservable inputs that are corroborated by market data, including currently available information on the Company’s counterparty, other contracts with similar terms, remaining maturities and interest rates.

 

(2)

Long-term debt, including current portion is presented gross of deferred finance costs of $29.2 million and $33.5 million as of June 30, 2020 and December 31, 2019, respectively. The fair value of the Company’s debt is estimated based on currently available debt with similar contract terms, interest rate and remaining maturities, as well as taking into account its increased credit risk and does not include amounts related to the accumulated accrued interest.

 

v3.20.2
Commitments and Contingencies
6 Months Ended
Jun. 30, 2020