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1Basis 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 13, Stockholders’ Equity.
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, 2017, the condensed consolidated results of operations for the three and six months ended June 30, 2017 and 2016 and the condensed consolidated cash flows for the three and six months ended June 30, 2017 and 2016. 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, 2016. The results of operations for the three and six months ended June 30, 2017, 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 audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
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.
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, 2017, 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(2) |
|
Megacarrier (No. 1) Corp. |
|
September 10, 2007 |
|
Hyundai Honour (ex Hyundai Together) |
|
2012 |
|
13,100 |
|
Megacarrier (No. 2) Corp. |
|
September 10, 2007 |
|
Hyundai Respect (ex Hyundai Tenacity) |
|
2012 |
|
13,100 |
|
Megacarrier (No. 3) Corp. |
|
September 10, 2007 |
|
Maersk Enping (ex Hyundai Smart) |
|
2012 |
|
13,100 |
|
Megacarrier (No. 4) Corp. |
|
September 10, 2007 |
|
Maersk Exeter (ex Hyundai Speed) |
|
2012 |
|
13,100 |
|
Megacarrier (No. 5) Corp. |
|
September 10, 2007 |
|
MSC Ambition (ex Hyundai 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 |
|
CSCL Pusan |
|
2006 |
|
9,580 |
|
Ramona Marine Co. Ltd. |
|
February 27, 2003 |
|
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 |
|
CSCL America |
|
2004 |
|
8,468 |
|
Boxcarrier (No. 2) Corp. |
|
June 27, 2006 |
|
CMA CGM Musset(1) |
|
2010 |
|
6,500 |
|
Boxcarrier (No. 3) Corp. |
|
June 27, 2006 |
|
CMA CGM Nerval(1) |
|
2010 |
|
6,500 |
|
Boxcarrier (No. 4) Corp. |
|
June 27, 2006 |
|
CMA CGM Rabelais(1) |
|
2010 |
|
6,500 |
|
Boxcarrier (No. 5) Corp. |
|
June 27, 2006 |
|
CMA CGM Racine(1) |
|
2010 |
|
6,500 |
|
Boxcarrier (No. 1) Corp. |
|
June 27, 2006 |
|
CMA CGM Moliere(1) |
|
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 |
|
Priority |
|
2002 |
|
6,402 |
|
Wellington Marine Inc. |
|
January 27, 2005 |
|
YM Singapore |
|
2004 |
|
4,300 |
|
Continent Marine Inc. |
|
March 22, 2006 |
|
Zim Monaco |
|
2009 |
|
4,253 |
|
Medsea Marine Inc. |
|
May 8, 2006 |
|
Zim Dalian (ex OOCL Novorossiysk) |
|
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 (ex OOCL Istanbul) |
|
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 |
|
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 |
|
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 |
|
Hyundai Highway |
|
1998 |
|
2,200 |
|
Speedcarrier (No. 6) Corp. |
|
December 6, 2007 |
|
Hyundai Progress |
|
1998 |
|
2,200 |
|
Speedcarrier (No. 8) Corp. |
|
December 6, 2007 |
|
Hyundai Bridge |
|
1998 |
|
2,200 |
|
Speedcarrier (No. 1) Corp. |
|
June 28, 2007 |
|
Vladivostok (ex Hyundai Vladivostok) |
|
1997 |
|
2,200 |
|
Speedcarrier (No. 2) Corp. |
|
June 28, 2007 |
|
Advance (ex Hyundai Advance) |
|
1997 |
|
2,200 |
|
Speedcarrier (No. 3) Corp. |
|
June 28, 2007 |
|
Stride (ex Hyundai Stride) |
|
1997 |
|
2,200 |
|
Speedcarrier (No. 5) Corp. |
|
June 28, 2007 |
|
Hyundai Future |
|
1997 |
|
2,200 |
|
Speedcarrier (No. 4) Corp. |
|
June 28, 2007 |
|
Hyundai Sprinter |
|
1997 |
|
2,200 |
|
(1) |
Vessel subject to charterer’s option to purchase vessel after first eight years of time charter term for $78.0 million, which will fall in September 2017, March 2018, May 2018, July 2018 and August 2018, respectively. Each such option was exercisable 15 months in advance of these dates. None of these options were exercised. |
|
(2) |
Twenty-feet equivalent unit, the international standard measure for containers and containership capacity. |
|
|||
2Significant Accounting Policies
All accounting policies are as described in the Company’s Annual Report on Form 20-F for the year ended December 31, 2016 filed with the Securities and Exchange Commission on March 6, 2017, except as described below under “Available for Sale Securities”.
Available for Sale Securities
If there is a change in the intent or ability to hold a debt security to maturity, the Company reclassifies such securities out of the held to maturity securities into the available for sale securities, provided the instruments meet the definition of the latter, at the date of the reclassification. 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 condensed consolidated statements of income. Upon sale, realized gain/(loss) is recognized in the condensed consolidated statement of income 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).
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-9 “Revenue from Contracts with Customers” (“ASU 2014-09”), which will supersede the current revenue recognition guidance and outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The ASU 2014-09 was amended by ASU 2015-14 “Revenue from Contracts with Customers: Deferral of the Effective Date” (“ASU 2015-14”), which was issued in August 2015. Public entities can now elect to defer implementation of ASU 2014-09 to interim and annual periods beginning after December 15, 2017. Additionally, ASU 2015-14 permits early adoption of the standard but not before the original effective date, i.e. annual period beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. 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 is currently evaluating the impact that the adoption of the new standard will have on its consolidated financial statements and associated disclosures, and have not yet selected a transition method.
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 fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement for 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 amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early application is not permitted. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements and notes disclosures.
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. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and notes disclosures.
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. The amendments in ASU 2016-8 affect the guidance in the ASU 2014-09, which is not yet effective. ASU 2016-08 is effective for fiscal years beginning after December 15, 2017, and interim reporting periods within those years. Early application is permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the provisions of this guidance and assessing its impact on its consolidated financial statements and notes disclosures.
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. 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.
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 FASB issued ASU 2016-15 to decrease the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this update provide guidance on eight specific cash flow issues. Additionally, in November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash — a consensus of the FASB Emerging Issues Task Force” (“ASU 2016-18”), which requires that amounts 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. These revised standards are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact of these updated standards on the Company’s consolidated statements of cash flows.
|
|||
3Going Concern
As a result of a decrease in operating income of the Company and the charter attached market value of certain of its vessels caused principally by the cancellation of eight charters with Hanjin Shipping, which is currently under bankruptcy proceedings with the Seoul Central District Court, the Company was in breach of certain financial covenants under its Bank Agreement and its other credit facilities as of June 30, 2017 and December 31, 2016. Refer to Note 10 for further details. The Company obtained waivers of the breaches of the financial covenants, including the lenders rights to call the debt due to non-compliance with these financial covenants, until April 1, 2017. The Company has therefore classified its long-term debt, net of deferred finance costs as current, resulting in total current liabilities amounting to $2,464.0 million, which substantially exceeded its total current assets amounting to $127.1 million as of June 30, 2017. The Company is currently in discussions with its lenders regarding the non-compliance with these covenants and refinancing the 2018 maturities of substantially all of its debt. If the Company is unable to comply with the covenants in the debt agreements, obtain waivers or reach agreements with the lenders to modify or refinance such debt agreements, the Company may have to restructure its obligations in a court supervised process or otherwise. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. However, the Company continues to generate positive cash flows from its operations and currently is in a position to service all its operational obligations as well as all scheduled principal amortization and interest payments under the original terms of the debt agreements.
In light of the above, the condensed consolidated financial statements were prepared assuming that the Company will continue as a going concern. Therefore, the accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and liabilities, other than the reclassification of long-term debt to current liabilities as described above, or any other adjustments that might result in the event the Company is unable to continue as a going concern.
|
|||
4Restricted Cash
The Company was required to maintain cash of $2.8 million as of June 30, 2017 and as of December 31, 2016, respectively, 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 Condensed Consolidated Balance Sheets.
|
|||
5Fixed assets, net
During the year ended December 31, 2016, the Company recorded an impairment loss of $415.1 million in relation to twenty-five of its vessels that are held and used. Fair value of each vessel was determined with the assistance from valuations obtained by third party independent shipbrokers.
The residual value (estimated scrap value at the end of the vessels’ useful lives) of the fleet was estimated at $378.9 million and $379.6 million as of June 30, 2017 and as of December 31, 2016, 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.
|
|||
6Deferred Charges, net
Deferred charges, net consisted of the following (in thousands):
|
|
|
Drydocking and |
|
|
|
As of January 1, 2016 |
|
$ |
4,751 |
|
|
Additions |
|
8,976 |
|
|
|
Amortization |
|
(5,528 |
) |
|
|
|
|
|
|
|
|
As of December 31, 2016 |
|
8,199 |
|
|
|
Additions |
|
4,516 |
|
|
|
Amortization |
|
(3,403 |
) |
|
|
|
|
|
|
|
|
As of June 30, 2017 |
|
$ |
9,312 |
|
|
|
|
|
|
|
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.
|
|||
7Investments 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 NYK Lodestar and 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 June 30, 2017, Gemini consolidated its wholly owned subsidiaries listed below:
|
Company |
|
Vessel Name |
|
Year Built |
|
TEU |
|
Date of vessel |
|
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 |
|
NYK Lodestar |
|
2001 |
|
6,422 |
|
September 21, 2015 |
|
Leo Shipping and Trading S.A. |
|
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 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, or earlier if permitted under its credit facilities. The net assets of Gemini total $11.0 million as of June 30, 2017. 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, 2017 |
|
December 31, 2016 |
|
||
|
Current assets |
|
$ |
10,164 |
|
$ |
10,829 |
|
|
Non-current assets |
|
$ |
41,865 |
|
$ |
42,752 |
|
|
Current liabilities |
|
$ |
6,500 |
|
$ |
6,890 |
|
|
Non-current liabilities |
|
$ |
34,533 |
|
$ |
36,420 |
|
|
|
|
Six months ended |
|
Six months ended |
|
||
|
|
|
June 30, 2017 |
|
June 30, 2016 |
|
||
|
Net operating revenues |
|
$ |
8,590 |
|
$ |
6,266 |
|
|
Net income/(loss) |
|
$ |
725 |
|
$ |
(1,906 |
) |
|
|||
8Other Non-current Assets
Other non-current assets consisted of the following (in thousands):
|
|
|
As of |
|
As of |
|
||
|
|
|
June 30, 2017 |
|
December 31, 2016 |
|
||
|
Available for sale securities: |
|
|
|
|
|
||
|
ZIM notes, net |
|
$ |
11,587 |
|
— |
|
|
|
HMM notes, net |
|
13,595 |
|
— |
|
||
|
Held to maturity securities: |
|
|
|
|
|
||
|
ZIM notes, net |
|
— |
|
$ |
40,232 |
|
|
|
HMM notes, net |
|
— |
|
25,651 |
|
||
|
Equity participation ZIM |
|
— |
|
— |
|
||
|
Other assets |
|
4,363 |
|
5,274 |
|
||
|
|
|
|
|
|
|
||
|
Total |
|
$ |
29,545 |
|
$ |
71,157 |
|
|
|
|
|
|
|
|
|
|
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. Both ZIM and HMM notes were classified as held to maturity securities and recorded at amortized costs less other than temporary impairment since initial recognition. As of December 31, 2016, the Company has recorded an impairment loss on its equity participation in ZIM amounting to $28.7 million, thus reducing its book value to nil and $0.7 million impairment loss on ZIM notes. See Note 8 “Other Non-current Assets” to the consolidated financial statements in the Annual Report on Form 20-F for the year ended December 31, 2016 for further details.
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 condensed consolidated statement of income for the six months ended June 30, 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 and unrealized losses, which were recognized in other comprehensive loss, are analyzed as follows as of June 30, 2017 (in thousands):
|
Description of securities |
|
Amortized cost |
|
Fair value |
|
Unrealized loss |
|
|||
|
ZIM notes |
|
$ |
41,279 |
|
$ |
11,587 |
|
$ |
29,692 |
|
|
HMM notes |
|
18,010 |
|
13,595 |
|
4,415 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Total |
|
$ |
59,289 |
|
$ |
25,182 |
|
$ |
34,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Both ZIM and HMM notes are in a continuous unrealized loss position for less than 12 months. The Company considers the decline in fair value of ZIM and HMM notes as temporary given the short duration of the decline.
|
|||
9Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
|
|
|
As of |
|
As of |
|
||
|
|
|
June 30, 2017 |
|
December 31, 2016 |
|
||
|
Accrued payroll |
|
$ |
1,060 |
|
$ |
1,032 |
|
|
Accrued interest |
|
9,618 |
|
9,193 |
|
||
|
Accrued expenses |
|
5,145 |
|
5,239 |
|
||
|
|
|
|
|
|
|
||
|
Total |
|
$ |
15,823 |
|
$ |
15,464 |
|
|
|
|
|
|
|
|
|
|
Accrued expenses mainly consisted of accruals related to the operation of the Company’s fleet as of June 30, 2017 and December 31, 2016.
|
|||
10Long-Term Debt, net
Company’s long-term debt, net, which was all classified as current as of June 30, 2017 and December 31, 2016 consisted of the following (in thousands):
|
Lender |
|
As of |
|
As of |
|
||
|
The Royal Bank of Scotland |
|
$ |
642,315 |
|
$ |
648,528 |
|
|
HSH Nordbank AG-Aegean Baltic Bank-Piraeus Bank |
|
623,694 |
|
624,570 |
|
||
|
HSH Nordbank |
|
7,556 |
|
12,200 |
|
||
|
The Export-Import Bank of Korea & ABN Amro |
|
28,734 |
|
34,359 |
|
||
|
Deutsche Bank |
|
161,332 |
|
164,582 |
|
||
|
Citibank |
|
123,248 |
|
127,353 |
|
||
|
Credit Suisse |
|
183,913 |
|
189,080 |
|
||
|
ABN Amro-Bank of America Merrill Lynch-Burlington Loan Management-National Bank of Greece |
|
210,515 |
|
217,584 |
|
||
|
EnTrustPermal-Credit Suisse-GoldenTree |
|
233,307 |
|
242,229 |
|
||
|
The Royal Bank of Scotland (January 2011 Credit Facility) |
|
29,991 |
|
42,384 |
|
||
|
HSH Nordbank AG-Aegean Baltic Bank-Piraeus Bank (January 2011 Credit Facility) |
|
18,470 |
|
34,562 |
|
||
|
ABN Amro-Bank of America Merrill Lynch-Burlington Loan Management -National Bank of Greece (January 2011 Credit Facility) |
|
8,771 |
|
9,655 |
|
||
|
Sinosure CEXIM-Citibank-ABN Amro Credit Facility |
|
91,530 |
|
101,700 |
|
||
|
Club Facility (January 2011 Credit Facility) |
|
— |
|
11,590 |
|
||
|
Citibank—Eurobank Credit Facility (January 2011 Credit Facility) |
|
42,084 |
|
47,938 |
|
||
|
Comprehensive Financing Plan exit fees accrued |
|
19,845 |
|
18,948 |
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Total long-term debt |
|
$ |
2,425,305 |
|
$ |
2,527,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Deferred finance costs, net |
|
(16,601 |
) |
(22,330 |
) |
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Total long-term debt, net of deferred finance costs |
|
$ |
2,408,704 |
|
$ |
2,504,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All floating rate loans discussed above are 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 the corporate guarantee of Danaos Corporation.
As of June 30, 2017, there was no remaining borrowing availability under the Company’s credit facilities.
Scheduled maturities of long-term debt for the next five years and thereafter subsequent to June 30, 2017, are as follows (in thousands):
|
Payment due by period ended |
|
Fixed |
|
Variable |
|
Final Payment |
|
Total |
|
|||
|
June 30, 2018 |
|
$ |
170,557 |
|
— |
|
— |
|
$ |
170,557 |
|
|
|
June 30, 2019 |
|
127,564 |
|
— |
|
$ |
2,056,489 |
|
2,184,053 |
|
||
|
June 30, 2020 |
|
20,340 |
|
— |
|
— |
|
20,340 |
|
|||
|
June 30, 2021 |
|
20,340 |
|
— |
|
— |
|
20,340 |
|
|||
|
June 30, 2022 |
|
10,170 |
|
— |
|
— |
|
10,170 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
Total long-term debt |
|
$ |
348,971 |
|
— |
|
$ |
2,056,489 |
|
$ |
2,405,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* The last payment due on December 31, 2018, includes the unamortized remaining principal debt balances under the restructuring agreement, as such amount will be determinable following the fixed and variable amortization.
As a result of a decrease in operating income of the Company and the charter attached value of certain of the Company’s vessels caused mainly by the loss of contractual revenue from Hanjin Shipping, the Company was in breach of the minimum security cover, consolidated net leverage and consolidated net worth financial covenants related to its loan facilities as of June 30, 2017 and December 31, 2016. The Company obtained temporary waivers of the breaches of these financial covenants, including the lenders rights to call the debt due to non-compliance with financial covenants until April 1, 2017. The Company is currently in discussions with its lenders regarding the non-compliance with these covenants and refinancing the 2018 maturities of substantially all of its debt. The Company has therefore classified its long-term debt, net of deferred finance costs as current. The Company incurred $5.2 million professional fees related to the refinancing discussions with its lenders reported under “Other income/(expense), net” in the accompanying condensed consolidated statement of income for the six months ended June 30, 2017.
|
|||
11Financial Instruments
The principal financial assets of the Company consist of cash and cash equivalents, trade receivables and other assets. The principal financial liabilities of the Company consist of long-term bank loans and accounts payable. 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.
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 and $2.0 million was reclassified into earnings for the six months ended June 30, 2017 and June 30, 2016, respectively, representing its amortization over the depreciable life of the vessels. An amount of $3.7 million is expected to be reclassified into earnings within the next 12 months.
b. Investments in Available for Sale Securities
The carrying amount of the investments in available for sale securities reported in the condensed consolidated balance sheets represents fair value of these securities with net unrealized gain/(loss) reflected directly in accumulated other comprehensive income/(loss) unless an unrealized loss is considered other than temporary, in which case it is transferred to the condensed consolidated statements of income.
c. 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, 2017 and December 31, 2016.
The estimated fair values of the Company’s financial instruments are as follows:
|
|
|
As of June 30, 2017 |
|
As of December 31, 2016 |
|
||||||||
|
|
|
Book Value |
|
Fair Value |
|
Book Value |
|
Fair Value |
|
||||
|
|
|
(in thousands of $) |
|
||||||||||
|
Cash and cash equivalents |
|
$ |
63,820 |
|
$ |
63,820 |
|
$ |
73,717 |
|
$ |
73,717 |
|
|
Restricted cash |
|
$ |
2,812 |
|
$ |
2,812 |
|
$ |
2,812 |
|
$ |
2,812 |
|
|
Accounts receivable, net |
|
$ |
11,844 |
|
$ |
11,844 |
|
$ |
8,028 |
|
$ |
8,028 |
|
|
Due from related parties |
|
$ |
32,370 |
|
$ |
32,370 |
|
$ |
32,603 |
|
$ |
32,603 |
|
|
ZIM notes |
|
$ |
11,587 |
|
$ |
11,587 |
|
$ |
40,232 |
|
$ |
35,574 |
|
|
Equity investment in ZIM |
|
— |
|
— |
|
— |
|
— |
|
||||
|
HMM notes |
|
$ |
13,595 |
|
$ |
13,595 |
|
$ |
25,651 |
|
$ |
25,651 |
|
|
Accounts payable |
|
$ |
13,849 |
|
$ |
13,849 |
|
$ |
11,156 |
|
$ |
11,156 |
|
|
Accrued liabilities |
|
$ |
15,823 |
|
$ |
15,823 |
|
$ |
15,464 |
|
$ |
15,464 |
|
|
Long-term debt, including current portion |
|
$ |
2,425,305 |
|
$ |
2,425,305 |
|
$ |
2,527,262 |
|
$ |
2,527,262 |
|
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, 2017:
|
|
|
Fair Value Measurements as of June 30, 2017 |
|
||||||||||
|
|
|
Total |
|
(Level I) |
|
(Level II) |
|
(Level III) |
|
||||
|
|
|
(in thousands of $) |
|
||||||||||
|
ZIM notes(1) |
|
$ |
11,587 |
|
$ |
— |
|
$ |
11,587 |
|
$ |
— |
|
|
HMM notes(1) |
|
$ |
13,595 |
|
$ |
— |
|
$ |
13,595 |
|
$ |
— |
|
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, 2017:
|
|
|
Fair Value Measurements as of June 30, 2017 |
|
||||||||||
|
|
|
Total |
|
(Level I) |
|
(Level II) |
|
(Level III) |
|
||||
|
|
|
(in thousands of $) |
|
||||||||||
|
Equity investment in ZIM (1) |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Long-term debt, including current portion(2) |
|
$ |
2,425,305 |
|
$ |
— |
|
$ |
2,425,305 |
|
$ |
— |
|
|
Accrued liabilities(3) |
|
$ |
15,823 |
|
$ |
— |
|
$ |
15,823 |
|
$ |
— |
|
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, 2016:
|
|
|
Fair Value Measurements as of December 31, 2016 |
|
||||||||||
|
|
|
Total |
|
(Level I) |
|
(Level II) |
|
(Level III) |
|
||||
|
|
|
(in thousands of $) |
|
||||||||||
|
ZIM notes(1) |
|
$ |
35,574 |
|
$ |
— |
|
$ |
35,574 |
|
$ |
— |
|
|
Equity investment in ZIM (1) |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
HMM notes(1) |
|
$ |
25,651 |
|
$ |
— |
|
$ |
25,651 |
|
$ |
— |
|
|
Long-term debt, including current portion(2) |
|
$ |
2,527,262 |
|
$ |
— |
|
$ |
2,527,262 |
|
$ |
— |
|
|
Accrued liabilities(3) |
|
$ |
15,464 |
|
$ |
— |
|
$ |
15,464 |
|
$ |
— |
|
|
(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 $16.6 million and $22.3 million as of June 30, 2017 and December 31, 2016, 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 creditworthiness. |
|
(3) |
The fair value of the Company’s accrued liabilities, which mainly consists of accrued interest on its credit facilities is estimated based on currently available debt agreements with similar contract terms, as well as taking into account its creditworthiness. |
|
|||
12Commitments and Contingencies
There are no material legal proceedings to which the Company is a party or to which any of its properties are the subject, or other contingencies that the Company is aware of, other than routine litigation incidental to the Company’s business. Furthermore, the Company does not have any commitments outstanding.
|
|||
13Stockholders’ Equity
As of April 18, 2008, the Board of Directors and the Compensation Committee approved incentive compensation of Manager’s employees with its shares from time to time, after specific for each such time, decision by the compensation committee and the Board of Directors in order to provide a means of compensation in the form of free shares to certain employees of the Manager of the Company’s common stock. The plan was effective as of 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. During the six months ended June 30, 2017, the Company did not grant any shares under the plan. During the six months ended June 30, 2017, no new shares were issued.
The Company has also established the Directors Share Payment Plan under its 2006 equity compensation plan. The purpose of the 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. The plan was effective as of April 18, 2008. Each member of the Board of Directors of the Company may participate in the plan. Pursuant to the terms of the plan, directors may elect to receive in Common Stock all or a portion of their compensation. Following December 31 of each year, the Company delivers to each Director the number of shares represented by the rights credited to their Share Payment Account during the preceding calendar year. During the six months ended June 30, 2017 and June 30, 2016, none of the directors elected to receive their compensation in Company shares.
|
|||
Available for Sale Securities
If there is a change in the intent or ability to hold a debt security to maturity, the Company reclassifies such securities out of the held to maturity securities into the available for sale securities, provided the instruments meet the definition of the latter, at the date of the reclassification. 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 condensed consolidated statements of income. Upon sale, realized gain/(loss) is recognized in the condensed consolidated statement of income 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).
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-9 “Revenue from Contracts with Customers” (“ASU 2014-09”), which will supersede the current revenue recognition guidance and outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The ASU 2014-09 was amended by ASU 2015-14 “Revenue from Contracts with Customers: Deferral of the Effective Date” (“ASU 2015-14”), which was issued in August 2015. Public entities can now elect to defer implementation of ASU 2014-09 to interim and annual periods beginning after December 15, 2017. Additionally, ASU 2015-14 permits early adoption of the standard but not before the original effective date, i.e. annual period beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. 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 is currently evaluating the impact that the adoption of the new standard will have on its consolidated financial statements and associated disclosures, and have not yet selected a transition method.
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 fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement for 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 amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early application is not permitted. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements and notes disclosures.
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. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and notes disclosures.
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. The amendments in ASU 2016-8 affect the guidance in the ASU 2014-09, which is not yet effective. ASU 2016-08 is effective for fiscal years beginning after December 15, 2017, and interim reporting periods within those years. Early application is permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the provisions of this guidance and assessing its impact on its consolidated financial statements and notes disclosures.
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. 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.
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 FASB issued ASU 2016-15 to decrease the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this update provide guidance on eight specific cash flow issues. Additionally, in November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash — a consensus of the FASB Emerging Issues Task Force” (“ASU 2016-18”), which requires that amounts 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. These revised standards are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact of these updated standards on the Company’s consolidated statements of cash flows.
|
|||
As of June 30, 2017, 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(2) |
|
Megacarrier (No. 1) Corp. |
|
September 10, 2007 |
|
Hyundai Honour (ex Hyundai Together) |
|
2012 |
|
13,100 |
|
Megacarrier (No. 2) Corp. |
|
September 10, 2007 |
|
Hyundai Respect (ex Hyundai Tenacity) |
|
2012 |
|
13,100 |
|
Megacarrier (No. 3) Corp. |
|
September 10, 2007 |
|
Maersk Enping (ex Hyundai Smart) |
|
2012 |
|
13,100 |
|
Megacarrier (No. 4) Corp. |
|
September 10, 2007 |
|
Maersk Exeter (ex Hyundai Speed) |
|
2012 |
|
13,100 |
|
Megacarrier (No. 5) Corp. |
|
September 10, 2007 |
|
MSC Ambition (ex Hyundai 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 |
|
CSCL Pusan |
|
2006 |
|
9,580 |
|
Ramona Marine Co. Ltd. |
|
February 27, 2003 |
|
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 |
|
CSCL America |
|
2004 |
|
8,468 |
|
Boxcarrier (No. 2) Corp. |
|
June 27, 2006 |
|
CMA CGM Musset(1) |
|
2010 |
|
6,500 |
|
Boxcarrier (No. 3) Corp. |
|
June 27, 2006 |
|
CMA CGM Nerval(1) |
|
2010 |
|
6,500 |
|
Boxcarrier (No. 4) Corp. |
|
June 27, 2006 |
|
CMA CGM Rabelais(1) |
|
2010 |
|
6,500 |
|
Boxcarrier (No. 5) Corp. |
|
June 27, 2006 |
|
CMA CGM Racine(1) |
|
2010 |
|
6,500 |
|
Boxcarrier (No. 1) Corp. |
|
June 27, 2006 |
|
CMA CGM Moliere(1) |
|
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 |
|
Priority |
|
2002 |
|
6,402 |
|
Wellington Marine Inc. |
|
January 27, 2005 |
|
YM Singapore |
|
2004 |
|
4,300 |
|
Continent Marine Inc. |
|
March 22, 2006 |
|
Zim Monaco |
|
2009 |
|
4,253 |
|
Medsea Marine Inc. |
|
May 8, 2006 |
|
Zim Dalian (ex OOCL Novorossiysk) |
|
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 (ex OOCL Istanbul) |
|
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 |
|
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 |
|
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 |
|
Hyundai Highway |
|
1998 |
|
2,200 |
|
Speedcarrier (No. 6) Corp. |
|
December 6, 2007 |
|
Hyundai Progress |
|
1998 |
|
2,200 |
|
Speedcarrier (No. 8) Corp. |
|
December 6, 2007 |
|
Hyundai Bridge |
|
1998 |
|
2,200 |
|
Speedcarrier (No. 1) Corp. |
|
June 28, 2007 |
|
Vladivostok (ex Hyundai Vladivostok) |
|
1997 |
|
2,200 |
|
Speedcarrier (No. 2) Corp. |
|
June 28, 2007 |
|
Advance (ex Hyundai Advance) |
|
1997 |
|
2,200 |
|
Speedcarrier (No. 3) Corp. |
|
June 28, 2007 |
|
Stride (ex Hyundai Stride) |
|
1997 |
|
2,200 |
|
Speedcarrier (No. 5) Corp. |
|
June 28, 2007 |
|
Hyundai Future |
|
1997 |
|
2,200 |
|
Speedcarrier (No. 4) Corp. |
|
June 28, 2007 |
|
Hyundai Sprinter |
|
1997 |
|
2,200 |
|
(1) |
Vessel subject to charterer’s option to purchase vessel after first eight years of time charter term for $78.0 million, which will fall in September 2017, March 2018, May 2018, July 2018 and August 2018, respectively. Each such option was exercisable 15 months in advance of these dates. None of these options were exercised. |
|
(2) |
Twenty-feet equivalent unit, the international standard measure for containers and containership capacity. |
|
|||
Deferred charges, net consisted of the following (in thousands):
|
|
|
Drydocking and |
|
|
|
As of January 1, 2016 |
|
$ |
4,751 |
|
|
Additions |
|
8,976 |
|
|
|
Amortization |
|
(5,528 |
) |
|
|
|
|
|
|
|
|
As of December 31, 2016 |
|
8,199 |
|
|
|
Additions |
|
4,516 |
|
|
|
Amortization |
|
(3,403 |
) |
|
|
|
|
|
|
|
|
As of June 30, 2017 |
|
$ |
9,312 |
|
|
|
|
|
|
|
|
|||
As of June 30, 2017, Gemini consolidated its wholly owned subsidiaries listed below:
|
Company |
|
Vessel Name |
|
Year Built |
|
TEU |
|
Date of vessel |
|
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 |
|
NYK Lodestar |
|
2001 |
|
6,422 |
|
September 21, 2015 |
|
Leo Shipping and Trading S.A. |
|
NYK Leo |
|
2002 |
|
6,422 |
|
February 4, 2016 |
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, 2017 |
|
December 31, 2016 |
|
||
|
Current assets |
|
$ |
10,164 |
|
$ |
10,829 |
|
|
Non-current assets |
|
$ |
41,865 |
|
$ |
42,752 |
|
|
Current liabilities |
|
$ |
6,500 |
|
$ |
6,890 |
|
|
Non-current liabilities |
|
$ |
34,533 |
|
$ |
36,420 |
|
|
|
|
Six months ended |
|
Six months ended |
|
||
|
|
|
June 30, 2017 |
|
June 30, 2016 |
|
||
|
Net operating revenues |
|
$ |
8,590 |
|
$ |
6,266 |
|
|
Net income/(loss) |
|
$ |
725 |
|
$ |
(1,906 |
) |
|
|||
Other non-current assets consisted of the following (in thousands):
|
|
|
As of |
|
As of |
|
||
|
|
|
June 30, 2017 |
|
December 31, 2016 |
|
||
|
Available for sale securities: |
|
|
|
|
|
||
|
ZIM notes, net |
|
$ |
11,587 |
|
— |
|
|
|
HMM notes, net |
|
13,595 |
|
— |
|
||
|
Held to maturity securities: |
|
|
|
|
|
||
|
ZIM notes, net |
|
— |
|
$ |
40,232 |
|
|
|
HMM notes, net |
|
— |
|
25,651 |
|
||
|
Equity participation ZIM |
|
— |
|
— |
|
||
|
Other assets |
|
4,363 |
|
5,274 |
|
||
|
|
|
|
|
|
|
||
|
Total |
|
$ |
29,545 |
|
$ |
71,157 |
|
|
|
|
|
|
|
|
|
|
HMM and ZIM as of June 30, 2017 (in thousands):
|
Description of securities |
|
Amortized cost |
|
Fair value |
|
Unrealized loss |
|
|||
|
ZIM notes |
|
$ |
41,279 |
|
$ |
11,587 |
|
$ |
29,692 |
|
|
HMM notes |
|
18,010 |
|
13,595 |
|
4,415 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Total |
|
$ |
59,289 |
|
$ |
25,182 |
|
$ |
34,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Accrued liabilities consisted of the following (in thousands):
|
|
|
As of |
|
As of |
|
||
|
|
|
June 30, 2017 |
|
December 31, 2016 |
|
||
|
Accrued payroll |
|
$ |
1,060 |
|
$ |
1,032 |
|
|
Accrued interest |
|
9,618 |
|
9,193 |
|
||
|
Accrued expenses |
|
5,145 |
|
5,239 |
|
||
|
|
|
|
|
|
|
||
|
Total |
|
$ |
15,823 |
|
$ |
15,464 |
|
|
|
|
|
|
|
|
|
|
|
|||
Company’s long-term debt, net, which was all classified as current as of June 30, 2017 and December 31, 2016 consisted of the following (in thousands):
|
Lender |
|
As of |
|
As of |
|
||
|
The Royal Bank of Scotland |
|
$ |
642,315 |
|
$ |
648,528 |
|
|
HSH Nordbank AG-Aegean Baltic Bank-Piraeus Bank |
|
623,694 |
|
624,570 |
|
||
|
HSH Nordbank |
|
7,556 |
|
12,200 |
|
||
|
The Export-Import Bank of Korea & ABN Amro |
|
28,734 |
|
34,359 |
|
||
|
Deutsche Bank |
|
161,332 |
|
164,582 |
|
||
|
Citibank |
|
123,248 |
|
127,353 |
|
||
|
Credit Suisse |
|
183,913 |
|
189,080 |
|
||
|
ABN Amro-Bank of America Merrill Lynch-Burlington Loan Management-National Bank of Greece |
|
210,515 |
|
217,584 |
|
||
|
EnTrustPermal-Credit Suisse-GoldenTree |
|
233,307 |
|
242,229 |
|
||
|
The Royal Bank of Scotland (January 2011 Credit Facility) |
|
29,991 |
|
42,384 |
|
||
|
HSH Nordbank AG-Aegean Baltic Bank-Piraeus Bank (January 2011 Credit Facility) |
|
18,470 |
|
34,562 |
|
||
|
ABN Amro-Bank of America Merrill Lynch-Burlington Loan Management -National Bank of Greece (January 2011 Credit Facility) |
|
8,771 |
|
9,655 |
|
||
|
Sinosure CEXIM-Citibank-ABN Amro Credit Facility |
|
91,530 |
|
101,700 |
|
||
|
Club Facility (January 2011 Credit Facility) |
|
— |
|
11,590 |
|
||
|
Citibank—Eurobank Credit Facility (January 2011 Credit Facility) |
|
42,084 |
|
47,938 |
|
||
|
Comprehensive Financing Plan exit fees accrued |
|
19,845 |
|
18,948 |
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Total long-term debt |
|
$ |
2,425,305 |
|
$ |
2,527,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Deferred finance costs, net |
|
(16,601 |
) |
(22,330 |
) |
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Total long-term debt, net of deferred finance costs |
|
$ |
2,408,704 |
|
$ |
2,504,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled maturities of long-term debt for the next five years and thereafter subsequent to June 30, 2017, are as follows (in thousands):
|
Payment due by period ended |
|
Fixed |
|
Variable |
|
Final Payment |
|
Total |
|
|||
|
June 30, 2018 |
|
$ |
170,557 |
|
— |
|
— |
|
$ |
170,557 |
|
|
|
June 30, 2019 |
|
127,564 |
|
— |
|
$ |
2,056,489 |
|
2,184,053 |
|
||
|
June 30, 2020 |
|
20,340 |
|
— |
|
— |
|
20,340 |
|
|||
|
June 30, 2021 |
|
20,340 |
|
— |
|
— |
|
20,340 |
|
|||
|
June 30, 2022 |
|
10,170 |
|
— |
|
— |
|
10,170 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
Total long-term debt |
|
$ |
348,971 |
|
— |
|
$ |
2,056,489 |
|
$ |
2,405,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* The last payment due on December 31, 2018, includes the unamortized remaining principal debt balances under the restructuring agreement, as such amount will be determinable following the fixed and variable amortization.
|
|||
|
|
|
As of June 30, 2017 |
|
As of December 31, 2016 |
|
||||||||
|
|
|
Book Value |
|
Fair Value |
|
Book Value |
|
Fair Value |
|
||||
|
|
|
(in thousands of $) |
|
||||||||||
|
Cash and cash equivalents |
|
$ |
63,820 |
|
$ |
63,820 |
|
$ |
73,717 |
|
$ |
73,717 |
|
|
Restricted cash |
|
$ |
2,812 |
|
$ |
2,812 |
|
$ |
2,812 |
|
$ |
2,812 |
|
|
Accounts receivable, net |
|
$ |
11,844 |
|
$ |
11,844 |
|
$ |
8,028 |
|
$ |
8,028 |
|
|
Due from related parties |
|
$ |
32,370 |
|
$ |
32,370 |
|
$ |
32,603 |
|
$ |
32,603 |
|
|
ZIM notes |
|
$ |
11,587 |
|
$ |
11,587 |
|
$ |
40,232 |
|
$ |
35,574 |
|
|
Equity investment in ZIM |
|
— |
|
— |
|
— |
|
— |
|
||||
|
HMM notes |
|
$ |
13,595 |
|
$ |
13,595 |
|
$ |
25,651 |
|
$ |
25,651 |
|
|
Accounts payable |
|
$ |
13,849 |
|
$ |
13,849 |
|
$ |
11,156 |
|
$ |
11,156 |
|
|
Accrued liabilities |
|
$ |
15,823 |
|
$ |
15,823 |
|
$ |
15,464 |
|
$ |
15,464 |
|
|
Long-term debt, including current portion |
|
$ |
2,425,305 |
|
$ |
2,425,305 |
|
$ |
2,527,262 |
|
$ |
2,527,262 |
|
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, 2017:
|
|
|
Fair Value Measurements as of June 30, 2017 |
|
||||||||||
|
|
|
Total |
|
(Level I) |
|
(Level II) |
|
(Level III) |
|
||||
|
|
|
(in thousands of $) |
|
||||||||||
|
ZIM notes(1) |
|
$ |
11,587 |
|
$ |
— |
|
$ |
11,587 |
|
$ |
— |
|
|
HMM notes(1) |
|
$ |
13,595 |
|
$ |
— |
|
$ |
13,595 |
|
$ |
— |
|
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, 2017:
|
|
|
Fair Value Measurements as of June 30, 2017 |
|
||||||||||
|
|
|
Total |
|
(Level I) |
|
(Level II) |
|
(Level III) |
|
||||
|
|
|
(in thousands of $) |
|
||||||||||
|
Equity investment in ZIM (1) |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Long-term debt, including current portion(2) |
|
$ |
2,425,305 |
|
$ |
— |
|
$ |
2,425,305 |
|
$ |
— |
|
|
Accrued liabilities(3) |
|
$ |
15,823 |
|
$ |
— |
|
$ |
15,823 |
|
$ |
— |
|
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, 2016:
|
|
|
Fair Value Measurements as of December 31, 2016 |
|
||||||||||
|
|
|
Total |
|
(Level I) |
|
(Level II) |
|
(Level III) |
|
||||
|
|
|
(in thousands of $) |
|
||||||||||
|
ZIM notes(1) |
|
$ |
35,574 |
|
$ |
— |
|
$ |
35,574 |
|
$ |
— |
|
|
Equity investment in ZIM (1) |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
HMM notes(1) |
|
$ |
25,651 |
|
$ |
— |
|
$ |
25,651 |
|
$ |
— |
|
|
Long-term debt, including current portion(2) |
|
$ |
2,527,262 |
|
$ |
— |
|
$ |
2,527,262 |
|
$ |
— |
|
|
Accrued liabilities(3) |
|
$ |
15,464 |
|
$ |
— |
|
$ |
15,464 |
|
$ |
— |
|
|
(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 $16.6 million and $22.3 million as of June 30, 2017 and December 31, 2016, 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 creditworthiness. |
|
(3) |
The fair value of the Company’s accrued liabilities, which mainly consists of accrued interest on its credit facilities is estimated based on currently available debt agreements with similar contract terms, as well as taking into account its creditworthiness. |
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