DANAOS CORP, 6-K filed on 8/4/2015
Report of Foreign Issuer
Document and Entity Information
6 Months Ended
Jun. 30, 2015
Document and Entity Information
 
Entity Registrant Name
Danaos Corp 
Entity Central Index Key
0001369241 
Document Type
6-K 
Document Period End Date
Jun. 30, 2015 
Amendment Flag
false 
Current Fiscal Year End Date
--12-31 
Document Fiscal Year Focus
2015 
Document Fiscal Period Focus
Q2 
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2015
Dec. 31, 2014
CURRENT ASSETS
 
 
Cash and cash equivalents
$ 74,135 
$ 57,730 
Restricted cash
2,824 
2,824 
Accounts receivable, net
5,183 
7,904 
Inventories
10,926 
11,665 
Prepaid expenses
980 
713 
Due from related parties
18,792 
10,597 
Other current assets
8,676 
11,640 
Total current assets
121,516 
103,073 
Fixed assets, net
3,559,535 
3,624,338 
Deferred charges, net
47,236 
55,275 
Other non-current assets
70,345 
68,506 
Total non-current assets
3,677,116 
3,748,119 
Total assets
3,798,632 
3,851,192 
CURRENT LIABILITIES
 
 
Accounts payable
11,195 
12,510 
Accrued liabilities
19,281 
24,705 
Current portion of long-term debt
230,249 
178,116 
Current portion of vendor financing
35,673 
46,530 
Unearned revenue
14,552 
13,719 
Other current liabilities
22,346 
52,502 
Total current liabilities
333,296 
328,082 
LONG-TERM LIABILITIES
 
 
Long-term debt, net of current portion
2,644,138 
2,773,004 
Vendor financing, net of current portion
 
17,837 
Unearned revenue, net of current portion
27,435 
30,412 
Other long-term liabilities
13,720 
13,708 
Total long-term liabilities
2,685,293 
2,834,961 
Total liabilities
3,018,589 
3,163,043 
Commitments and Contingencies
   
   
STOCKHOLDERS' EQUITY
 
 
Preferred stock (par value $0.01, 100,000,000 preferred shares authorized and not issued as of June 30, 2015 and December 31, 2014)
   
   
Common stock (par value $0.01, 750,000,000 common shares authorized as of June 30, 2015 and December 31, 2014. 109,778,188 and 109,669,429 issued and outstanding as of June 30, 2015 and December 31, 2014, respectively)
1,098 
1,097 
Additional paid-in capital
546,734 
546,735 
Accumulated other comprehensive loss
(116,262)
(139,742)
Retained earnings
348,473 
280,059 
Total stockholders' equity
780,043 
688,149 
Total liabilities and stockholders' equity
$ 3,798,632 
$ 3,851,192 
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Jun. 30, 2015
Dec. 31, 2014
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
Preferred stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
100,000,000 
100,000,000 
Preferred stock, shares issued
Common stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common stock, shares authorized
750,000,000 
750,000,000 
Common stock, shares issued
109,778,188 
109,669,429 
Common stock, shares outstanding
109,778,188 
109,669,429 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
 
 
 
OPERATING REVENUES
$ 141,469 
$ 136,440 
$ 280,074 
$ 271,926 
OPERATING EXPENSES:
 
 
 
 
Voyage expenses
(3,161)
(3,245)
(6,218)
(6,520)
Vessel operating expenses
(29,570)
(28,903)
(56,893)
(59,149)
Depreciation
(32,853)
(34,132)
(65,341)
(68,075)
Amortization of deferred drydocking and special survey costs
(882)
(1,155)
(2,056)
(2,157)
General and administrative expenses
(5,381)
(5,309)
(10,651)
(10,702)
Gain on sale of vessels
 
5,216 
 
5,709 
Income From Operations
69,622 
68,912 
138,915 
131,032 
OTHER INCOME (EXPENSE):
 
 
 
 
Interest income
850 
1,690 
18 
Interest expense
(17,718)
(20,260)
(35,916)
(41,259)
Other finance costs
(4,674)
(4,922)
(9,535)
(9,913)
Other income (expense), net
28 
233 
35 
287 
Unrealized and realized losses on derivatives
(10,036)
(27,323)
(26,775)
(55,115)
Total Other Expenses, net
(31,550)
(52,269)
(70,501)
(105,982)
Net Income
$ 38,072 
$ 16,643 
$ 68,414 
$ 25,050 
EARNINGS PER SHARE
 
 
 
 
Basic and diluted net income per share (in dollars per share)
$ 0.35 
$ 0.15 
$ 0.62 
$ 0.23 
Basic and diluted weighted average number of common shares (in shares)
109,785 
109,669 
109,785 
109,669 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
 
 
Net income for the period
$ 38,072 
$ 16,643 
$ 68,414 
$ 25,050 
Other Comprehensive Income
 
 
 
 
Amortization of deferred realized losses on cash flow hedges
1,001 
1,002 
1,992 
1,992 
Reclassification of unrealized losses to earnings
8,239 
23,189 
21,488 
48,207 
Total Other Comprehensive Income
9,240 
24,191 
23,480 
50,199 
Comprehensive Income
$ 47,312 
$ 40,834 
$ 91,894 
$ 75,249 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Cash Flows from Operating Activities
 
 
Net income
$ 68,414 
$ 25,050 
Adjustments to reconcile net income to net cash provided by operating activities
 
 
Depreciation
65,341 
68,075 
Amortization of deferred drydocking and special survey costs
2,056 
2,157 
Amortization of finance costs
7,200 
7,564 
Exit fees accrued on debt
1,842 
1,874 
Payments for drydocking and special survey costs deferred
(1,217)
(3,789)
Gain on sale of vessels
 
(5,709)
Amortization of deferred realized losses on interest rate swaps
1,992 
1,992 
Unrealized gains on derivatives
(8,903)
(10,207)
(Increase)/Decrease in
 
 
Accounts receivable
2,721 
(705)
Inventories
739 
3,176 
Prepaid expenses
(267)
125 
Due from related parties
(8,195)
995 
Other assets, current and long-term
827 
(8,341)
(Increase)/Decrease in
 
 
Accounts payable
(1,315)
596 
Accrued liabilities
(5,424)
(1,708)
Unearned revenue, current and long term
(2,144)
557 
Other liabilities, current and long-term
953 
1,615 
Net Cash provided by Operating Activities
124,620 
83,317 
Cash Flows from Investing Activities
 
 
Vessels additions
(538)
(563)
Net proceeds from sale of vessels
 
50,602 
Net Cash (used in)/provided by Investing Activities
(538)
50,039 
Cash Flows from Financing Activities
 
 
Payments of long-term debt
(78,291)
(77,625)
Payments of vendor financing
(28,694)
(28,694)
Deferred finance costs
(692)
 
Increase of restricted cash
 
(43,684)
Net Cash used in Financing Activities
(107,677)
(150,003)
Net Increase/(Decrease) in Cash and Cash Equivalents
16,405 
(16,647)
Cash and Cash Equivalents at beginning of period
57,730 
68,153 
Cash and Cash Equivalents at end of period
$ 74,135 
$ 51,506 
Basis of Presentation and General Information
Basis of Presentation and General Information

 

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”), 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, 2015, the condensed consolidated results of operations for the three and six months ended June 30, 2015 and 2014 and the condensed consolidated cash flows for the six months ended June 30, 2015 and 2014. 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, 2014. The results of operations for the three and six months ended June 30, 2015, 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 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, 2015, 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 Together

 

2012 

 

13,100 

Megacarrier (No. 2) Corp.

 

September 10, 2007

 

Hyundai Tenacity

 

2012 

 

13,100 

Megacarrier (No. 3) Corp.

 

September 10, 2007

 

Hyundai Smart

 

2012 

 

13,100 

Megacarrier (No. 4) Corp.

 

September 10, 2007

 

Hyundai Speed

 

2012 

 

13,100 

Megacarrier (No. 5) Corp.

 

September 10, 2007

 

Hyundai Ambition

 

2012 

 

13,100 

CellContainer (No. 6) Corp.

 

October 31, 2007

 

Hanjin Germany

 

2011 

 

10,100 

CellContainer (No. 7) Corp.

 

October 31, 2007

 

Hanjin Italy

 

2011 

 

10,100 

CellContainer (No. 8) Corp.

 

October 31, 2007

 

Hanjin Greece

 

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

 

CSCL 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 

Federal Marine Inc.

 

February 14, 2006

 

Federal

 

1994 

 

4,651 

Auckland Marine Inc.

 

January 27, 2005

 

SNL Colombo

 

2004 

 

4,300 

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

 

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

 

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

 

Hanjin Algeciras

 

2011 

 

3,400 

CellContainer (No. 5) Corp.

 

March 23, 2007

 

Hanjin Constantza

 

2011 

 

3,400 

CellContainer (No. 1) Corp.

 

March 23, 2007

 

Hanjin Buenos Aires

 

2010 

 

3,400 

CellContainer (No. 2) Corp.

 

March 23, 2007

 

Hanjin Santos

 

2010 

 

3,400 

CellContainer (No. 3) Corp.

 

March 23, 2007

 

Hanjin Versailles

 

2010 

 

3,400 

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 (ex Niledutch Palanca)

 

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

 

Hyundai Vladivostok

 

1997 

 

2,200 

Speedcarrier (No. 2) Corp.

 

June 28, 2007

 

Hyundai Advance

 

1997 

 

2,200 

Speedcarrier (No. 3) Corp.

 

June 28, 2007

 

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.

(2)

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

Significant Accounting Policies
Significant Accounting Policies

 

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, 2014 filed with the Securities and Exchange Commission on March 10, 2015.

 

Recent Accounting Pronouncements

 

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments are effective for annual periods ending after December 15, 2015, and interim periods within annual periods beginning after December 15, 2015.  Early application is permitted. The Company is not early adopting this standard and is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnotes disclosures.

 

In April, the FASB voted to propose a deferral of the effective date of the new revenue standard, ASU 2014-09, “Revenue from Contracts with Customers”, by one year. The new guidance would be effective for fiscal years beginning after December 15, 2017 instead of December 15, 2016. Entities are permitted to adopt the new standard in accordance with the original effective date in their option. We are currently evaluating the new guidance to determine the impact it will have on our consolidated financial statements.

Restricted Cash
Restricted Cash

 

3Restricted Cash

 

The Company was required to maintain cash of $2.8 million as of June 30, 2015 and as of December 31, 2014 in a retention bank account as a collateral for the upcoming scheduled debt payments of its KEXIM and KEXIM-ABN Amro credit facilities, which were recorded under current assets in the Company’s Balance Sheets.

Fixed assets, net
Fixed Assets, Net

 

4Fixed assets, net

 

Fixed assets consist of vessels. Vessels’ cost, accumulated depreciation and changes thereto were as follows (in thousands):

 

 

 

Vessel
Cost

 

Accumulated
Depreciation

 

Net Book
Value

 

As of January 1, 2014

 

$

4,450,719

 

$

(608,102

)

$

3,842,617

 

Additions

 

39,165

 

(137,061

)

(97,896

)

Disposals

 

(120,376

)

75,769

 

(44,607

)

Impairment Loss

 

(75,776

)

 

(75,776

)

 

 

 

 

 

 

 

 

As of December 31, 2014

 

4,293,732

 

(669,394

)

3,624,338

 

Additions

 

538

 

(65,341

)

(64,803

)

 

 

 

 

 

 

 

 

As of June 30, 2015

 

$

4,294,270

 

$

(734,735

)

$

3,559,535

 

 

 

 

 

 

 

 

 

 

 

 

 

During the year ended December 31, 2014, the Company recorded an impairment loss of $75.8 million in relation to eight of its older vessels.  Fair value of each vessel was determined by management 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 $386.4 million as of June 30, 2015 and as of December 31, 2014. 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.

Deferred Charges, net
Deferred Charges, Net

 

5Deferred Charges, net

 

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

 

 

 

Drydocking
and
Special Survey
Costs

 

Finance
and Other
Costs

 

Total
Deferred
Charges

 

As of January 1, 2014

 

$

4,041

 

$

63,908

 

$

67,949

 

Additions

 

6,887

 

182

 

7,069

 

Written off amounts

 

(286

)

(55

)

(341

)

Amortization

 

(4,387

)

(15,015

)

(19,402

)

 

 

 

 

 

 

 

 

As of December 31, 2014

 

6,255

 

49,020

 

55,275

 

Additions

 

1,217

 

 

1,217

 

Amortization

 

(2,056

)

(7,200

)

(9,256

)

 

 

 

 

 

 

 

 

As of June 30, 2015

 

$

5,416

 

$

41,820

 

$

47,236

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

Other Current and Non-current Assets
Other Current and Non-current Assets

 

6Other Current and Non-current Assets

 

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

 

 

 

As of
June 30, 2015

 

As of
December 31, 2014

 

Claims receivable

 

$

5,949 

 

$

7,856 

 

Other assets

 

2,727 

 

3,784 

 

 

 

 

 

 

 

Total

 

$

8,676 

 

$

11,640 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2015 and December 31, 2014, claims receivable consists of insurance and other claims. As of June 30, 2015 and December 31, 2014, the Company had an outstanding claim receivable of $3.9 million and $7.0 million, respectively, in relation to a collision incident of the Hanjin Italy outside Singapore.

 

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

 

 

 

As of
June 30, 2015

 

As of
December 31, 2014

 

Fair value of swaps

 

$

366 

 

$

664 

 

Series 1 ZIM notes, net

 

6,427 

 

6,274 

 

Series 2 ZIM notes, net

 

31,700 

 

30,923 

 

Equity participation ZIM

 

28,693 

 

28,693 

 

Other assets

 

3,159 

 

1,952 

 

 

 

 

 

 

 

Total

 

$

70,345 

 

$

68,506 

 

 

 

 

 

 

 

 

 

 

As of July 16, 2014, ZIM and its creditors entered into definitive documentation effecting ZIM’s restructuring with its creditors on substantially the same terms as the agreement in principle previously announced by ZIM in January 2014. The terms of the restructuring include a reduction in the charter rates payable by ZIM under its time charters, expiring in 2020 or 2021, for six of the Company’s vessels, which had already been implemented beginning in January 2014. The terms also include the receipt of approximately $49.9 million aggregate principal amount of unsecured, interest bearing ZIM notes maturing in 2023 (consisting of $8.8 million of 3% Series 1 Notes due 2023 amortizing subject to available cash flow in accordance with a corporate cash sweep mechanism, and $41.1 million of 5% Series 2 Notes due 2023 non-amortizing (of the 5% interest rate, 3% is payable quarterly in cash and 2% is accrued quarterly with deferred cash payment on maturity)) and ZIM shares representing approximately 7.4% of the outstanding ZIM shares immediately after the restructuring, in exchange for such charter rate reductions and cancellation of ZIM’s other obligations to the Company which related to the outstanding long term receivable as of December 31, 2013.

 

As of July 16, 2014, the Company calculated the fair value of the instruments received from ZIM based on the agreement discussed above, other available information on ZIM, other contracts with similar terms, remaining maturities and interest rates and recorded at fair value an amount of $6.1 million in relation to the Series 1 Notes, $30.1 million in relation to the Series 2 Notes and $28.7 million in relation to its equity participation in ZIM. On a quarterly basis, the Company will account for the fair value unwinding of the Series 1 Notes and Series 2 Notes until the value of the instruments equals their face values on maturity. As of June 30, 2015 and December 31, 2014, the Company recorded $6.4 million and $6.3 million in relation to the Series 1 Notes and $31.7 million and $30.9 million in relation to the Series 2 Notes, respectively and recognized $0.5 million and $0.6 million in relation to their fair value unwinding in the condensed consolidated Statements of Income in “Interest income” for the six months ended June 30, 2015 and for the year ended December 31, 2014. Furthermore, for the six months ended June 30, 2015 and for the year ended December 31, 2014, the Company recognized in the condensed consolidated Statements of Income in “Interest income”, a non-cash interest income of $0.4 million and $0.4 million, respectively, in relation to the 2% interest of Series 2 Notes, which is accrued quarterly with deferred cash payment on maturity. The Company will test periodically for impairment of these investments based on the existence of triggering events that indicate ZIM’s debt instruments and interest in equity may have been impaired.

 

Furthermore, as of July 16, 2014, an amount of $39.1 million, which represents the additional compensation received from ZIM, was recorded as unearned revenue representing compensation to the Company for the future reductions in the daily charter rates payable by ZIM under its time charters, expiring in 2020 or 2021, for six of the Company’s vessels. This amount is recognized in the condensed consolidated Statements of Income in “Operating revenues” over the remaining life of the respective time charters. During the six months ended June 30, 2015 and the year ended December 31, 2014, the Company recorded an amount of $3.0 million and $2.7, million, respectively of unearned revenue amortization in “Operating revenues”. As of June 30, 2015, the outstanding balances of the current and non-current portion of unearned revenue in relation to ZIM amounted to $6.0 million and $27.4 million, respectively. As of December 31, 2014, the corresponding outstanding balances of the current and non-current portion of unearned revenue amounted to $6.0 million and $30.4 million, respectively. Refer to Notes 11c, Financial Instruments- Fair value of Financial Instruments.

 

In respect to the fair value of swaps, refer to Note 11b, Financial Instruments—Fair Value Interest Rate Swap Hedges.

Accounts Payable
Accounts Payable

 

7Accounts Payable

 

Accounts payable consisted of the following (in thousands):

 

 

 

As of
June 30, 2015

 

As of
December 31, 2014

 

Suppliers, repairers

 

$

8,394 

 

$

8,613 

 

Insurers, agents, brokers

 

1,448 

 

1,843 

 

Other creditors

 

1,353 

 

2,054 

 

 

 

 

 

 

 

Total

 

$

11,195 

 

$

12,510 

 

 

 

 

 

 

 

 

 

 

Accrued Liabilities
Accrued Liabilities

 

8Accrued Liabilities

 

Accrued liabilities consisted of the following (in thousands):

 

 

 

As of
June 30, 2015

 

As of
December 31, 2014

 

Accrued payroll

 

$

1,643 

 

$

1,175 

 

Accrued interest

 

9,073 

 

9,457 

 

Accrued expenses

 

8,565 

 

14,073 

 

 

 

 

 

 

 

Total

 

$

19,281 

 

$

24,705 

 

 

 

 

 

 

 

 

 

 

Accrued expenses mainly consisted of accrued realized losses on cash flow interest rate swaps of $5.1 million and $10.4 million as of June 30, 2015 and December 31, 2014, respectively, as well as other accruals related to the operation of the Company’s fleet of $3.5 million and $3.7 million as of June 30, 2015 and December 31, 2014, respectively.

Other Current and Long-term Liabilities
Other Current and Long-term Liabilities

 

9Other Current and Long-term Liabilities

 

Other current liabilities consisted of the following (in thousands):

 

 

 

As of
June 30, 2015

 

As of
December 31, 2014

 

Fair value of swaps

 

$

21,556 

 

$

51,022 

 

Other current liabilities

 

790 

 

1,480 

 

Total

 

$

22,346 

 

$

52,502 

 

 

 

 

 

 

 

 

 

 

Other long-term liabilities consisted of the following (in thousands):

 

 

 

As of
June 30, 2015

 

As of
December 31, 2014

 

Fair value of swaps

 

$

1,459 

 

$

2,398 

 

Other long-term liabilities

 

12,261 

 

11,310 

 

 

 

 

 

 

 

Total

 

$

13,720 

 

$

13,708 

 

 

 

 

 

 

 

 

 

 

In respect of the fair value of swaps, refer to Note 11a, Financial Instruments — Cash Flow Interest Rate Swap Hedges.

Long-Term Debt
Long-Term Debt

 

10Long-Term Debt

 

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

 

Lender

 

As of
June 30,
2015

 

Current
portion

 

Long-term
portion

 

As of
December 31,
2014

 

Current
portion

 

Long-term
portion

 

The Royal Bank of Scotland

 

$

674,687 

 

$

20,473 

 

$

654,214 

 

$

678,954 

 

$

12,657 

 

$

666,297 

 

HSH Nordbank AG-Aegean Baltic Bank-Piraeus Bank

 

628,513 

 

142 

 

628,371 

 

628,513 

 

 

628,513 

 

HSH Nordbank

 

25,550 

 

8,787 

 

16,763 

 

28,843 

 

7,633 

 

21,210 

 

The Export-Import Bank of Korea (“KEXIM”)

 

13,389 

 

10,369 

 

3,020 

 

18,573 

 

10,369 

 

8,204 

 

The Export-Import Bank of Korea & ABN Amro

 

51,234 

 

11,250 

 

39,984 

 

56,859 

 

11,250 

 

45,609 

 

Deutsche Bank

 

172,416 

 

4,995 

 

167,421 

 

174,709 

 

4,786 

 

169,923 

 

Canyon Capital Finance

 

141,971 

 

12,033 

 

129,938 

 

144,467 

 

8,228 

 

136,239 

 

Credit Suisse

 

204,299 

 

11,276 

 

193,023 

 

208,585 

 

9,328 

 

199,257 

 

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

 

234,921 

 

14,074 

 

220,847 

 

239,896 

 

11,422 

 

228,474 

 

Commerzbank-Credit Suisse- Credit Agricole

 

267,298 

 

20,955 

 

246,343 

 

274,984 

 

17,327 

 

257,657 

 

The Royal Bank of Scotland (January 2011 Credit Facility)

 

79,680 

 

24,032 

 

55,648 

 

85,017 

 

15,326 

 

69,691 

 

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

 

84,588 

 

31,607 

 

52,981 

 

94,812 

 

22,476 

 

72,336 

 

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

 

23,514 

 

11,186 

 

12,328 

 

26,444 

 

6,371 

 

20,073 

 

Sinosure CEXIM-Citi-ABN Amro Credit Facility

 

132,210 

 

20,340 

 

111,870 

 

142,380 

 

20,340 

 

122,040 

 

Club Facility (January 2011 Credit Facility)

 

58,586 

 

18,761 

 

39,825 

 

65,457 

 

14,773 

 

50,684 

 

Citi—Eurobank Credit Facility (January 2011 Credit Facility)

 

67,105 

 

9,969 

 

57,136 

 

69,759 

 

5,830 

 

63,929 

 

Comprehensive Financing Plan exit fee accrued

 

13,704 

 

 

13,704 

 

11,862 

 

 

11,862 

 

Fair value hedged debt

 

722 

 

 

722 

 

1,006 

 

 

1,006 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total long-term debt

 

$

2,874,387 

 

$

230,249 

 

$

2,644,138 

 

$

2,951,120 

 

$

178,116 

 

$

2,773,004 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hyundai Samho Vendor Financing

 

$

35,673 

 

$

35,673 

 

$

 

$

64,367 

 

$

46,530 

 

$

17,837 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

Maturities of long-term debt for the next five years and thereafter subsequent to June 30, 2015, are as follows (in thousands):

 

Payment due by period ended

 

Fixed
principal
repayments

 

Variable
principal
payments

 

Final Payment
due on
December 31, 2018*

 

Total
principal
payments

 

June 30, 2016

 

$

168,810 

 

$

61,439 

 

$

 

$

230,249 

 

June 30, 2017

 

192,367 

 

109,293 

 

 

301,660 

 

June 30, 2018

 

170,538 

 

121,886 

 

 

292,424 

 

June 30, 2019

 

127,556 

 

21,256 

 

1,835,966 

 

1,984,778 

 

June 30, 2020 and thereafter

 

50,850 

 

 

 

50,850 

 

 

 

 

 

 

 

 

 

 

 

Total long-term debt

 

$

710,121 

 

$

313,874 

 

$

1,835,966 

 

$

2,859,961 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* 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.

 

On May 4, 2015, the preference shares of Auckland Marine Inc., Seacarriers Services Inc., Seacarriers Lines Inc. and Wellington Marine Inc. (subsidiaries of Danaos Corporation) were redeemed and all agreements related to the arrangement with ABN Amro and Investor Bank were terminated at that date. Refer to Note 12, Long-term Debt to our consolidated financial statements in our Annual Report on Form 20-F for the year ended December 31, 2014 for details of this arrangement. There were no other significant changes to the terms of the Company’s credit facilities during the six months ended June 30, 2015.

 

As of June 30, 2015, there was no remaining borrowing availability under the Company’s credit facilities. The Company was in compliance with all covenants under its Bank Agreement and its other credit facilities as of June 30, 2015.

Financial Instruments
Financial Instruments

 

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, accounts payable and derivatives.

 

Derivative Financial Instruments:  The Company only uses derivatives for economic hedging purposes. 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, trade accounts receivable and derivatives. 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 to derivative instruments, 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. The Company’s maximum exposure to credit risk is mainly limited to the carrying value of its derivative instruments. The Company is not a party to master netting arrangements.

 

Fair Value:  The carrying amounts reflected in the accompanying condensed consolidated balance sheets of financial assets and liabilities excluding long-term bank loans 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 the swap agreements equals the amount that would be paid by the Company to cancel the swaps.

 

Interest Rate Swaps:  The off-balance sheet risk in outstanding swap agreements involves both the risk of a counter-party not performing under the terms of the contract and the risk associated with changes in market value. The Company monitors its positions, the credit ratings of counterparties and the level of contracts it enters into with any one party. The counterparties to these contracts are major financial institutions. The Company has a policy of entering into contracts with parties that meet stringent qualifications and, given the high level of credit quality of its derivative counter-parties, the Company does not believe it is necessary to obtain collateral arrangements.

 

a.  Cash Flow Interest Rate Swap Hedges

 

The Company, according to its long-term strategic plan to maintain relative stability in its interest rate exposure, has decided to swap part of its interest expense from floating to fixed. To this effect, the Company has entered into interest rate swap transactions with varying start and maturity dates, in order to pro-actively and efficiently manage its floating rate exposure.

 

These interest rate swaps are designed to economically hedge the variability of interest cash flows arising from floating rate debt, attributable to movements in three month USD$ LIBOR. According to the Company’s Risk Management Accounting Policy, and after putting in place the formal documentation required by hedge accounting in order to designate these swaps as hedging instruments, as from their inception, these interest rate swaps qualified for hedge accounting, and, accordingly, from that time until June 30, 2012, only hedge ineffectiveness amounts arising from the differences in the change in fair value of the hedging instrument and the hedged item were recognized in the Company’s earnings. Assessment and measurement of prospective and retrospective effectiveness for these interest rate swaps were performed on a quarterly basis. For qualifying cash flow hedges, the fair value gain or loss associated with the effective portion of the cash flow hedge was recognized initially in stockholders’ equity, and recognized to the Statement of Income in the periods when the hedged item affects profit or loss.

 

On July 1, 2012, the Company elected to prospectively de designate cash flow interest rate swaps for which it was obtaining hedge accounting treatment due to the compliance burden associated with this accounting policy. As a result, all changes in the fair value of the Company’s cash flow interest rate swap agreements are recorded in earnings under “Unrealized and Realized Losses on Derivatives” from the de designation date forward. The Company evaluated whether it is probable that the previously hedged forecasted interest payments are probable to not occur in the originally specified time period. The Company has concluded that the previously hedged forecasted interest payments are probable of occurring. Therefore, unrealized gains or losses in accumulated other comprehensive loss associated with the previously designated cash flow interest rate swaps will remain in accumulated other comprehensive loss and recognized in earnings when the interest payments will be recognized. If such interest payments were to be identified as being probable of not occurring, the accumulated other comprehensive loss balance pertaining to these amounts would be reversed through earnings immediately.

 

The interest rate swap agreements converting floating interest rate exposure into fixed were as follows (in thousands):

 

Counter-party

 

Contract
Trade
Date

 

Effective
Date

 

Termination
Date

 

Notional
Amount
on
Effective
Date

 

Fixed Rate
(Danaos pays)

 

Floating Rate
(Danaos receives)

 

Fair Value
June 30,
2015

 

Fair Value
December 31,
2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RBS

 

03/09/2007

 

3/15/2010

 

3/15/2015

 

$

200,000

 

5.07

% p.a.

USD LIBOR 3M BBA

 

 

$

(2,011

)

RBS

 

11/15/2007

 

11/19/2010

 

11/19/2015

 

$

100,000

 

5.12

% p.a.

USD LIBOR 3M BBA

 

$

(1,896

)

(4,246

)

RBS

 

11/16/2007

 

11/22/2010

 

11/22/2015

 

$

100,000

 

5.07

% p.a.

USD LIBOR 3M BBA

 

(1,927

)

(4,248

)

CITI

 

04/17/2007

 

4/17/2008

 

4/17/2015

 

$

200,000

 

5.124

% p.a.

USD LIBOR 3M BBA

 

 

(2,895

)

CITI

 

04/20/2007

 

4/20/2010

 

4/20/2015

 

$

200,000

 

5.1775

% p.a.

USD LIBOR 3M BBA

 

 

(3,008

)

CITI

 

11/02/2007

 

11/6/2010

 

11/6/2015

 

$

250,000

 

5.1

% p.a.

USD LIBOR 3M BBA

 

(4,296

)

(10,167

)

CITI

 

11/26/2007

 

11/29/2010

 

11/30/2015

 

$

100,000

 

4.98

% p.a.

USD LIBOR 3M BBA

 

(1,979

)

(4,249

)

CITI

 

02/07/2008

 

2/11/2011

 

2/11/2016

 

$

200,000

 

4.695

% p.a.

USD LIBOR 3M BBA

 

(5,422

)

(9,524

)

Eurobank

 

12/06/2007

 

12/10/2010

 

12/10/2015

 

$

200,000

 

4.8125

% p.a.

USD LIBOR 3M BBA

 

(4,048

)

(8,428

)

Eurobank

 

02/11/2008

 

5/31/2011

 

5/31/2015

 

$

200,000

 

4.755

% p.a.

USD LIBOR 3M BBA

 

 

(3,763

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(19,568

)

$

(52,539

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ABN Amro

 

06/06/2013

 

1/4/2016

 

12/31/2016

 

$

325,000

 

1.4975

% p.a.

USD LIBOR 3M BBA

 

$

(1,379

)

$

(617

)

ABN Amro

 

31/05/2013

 

1/4/2016

 

12/31/2016

 

$

250,000

 

1.4125

% p.a.

USD LIBOR 3M BBA

 

(2,068

)

(264

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fair value of swap liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(23,015

)

$

(53,420

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company recorded in the condensed consolidated Statements of Income unrealized gains of $30.4 million and $58.6 million in relation to fair value changes of interest rate swaps for the six months ended June 30, 2015 and 2014, respectively. Furthermore, unrealized losses of $21.5 million and $48.2 million were reclassified from Accumulated Other Comprehensive Loss to earnings for the six months ended June 30, 2015 and 2014, respectively (following the hedge accounting discontinuance as of July 1, 2012). The Company expects to reclassify from Accumulated Other Comprehensive Loss to earnings within the next twelve months unrealized losses of $11.3 million.

 

The variable-rate interest on specific borrowings was associated with vessels under construction and was capitalized as a cost of the specific vessels. In accordance with the accounting guidance on derivatives and hedging, the amounts in accumulated other comprehensive income/(loss) related to realized gains or losses on cash flow hedges that have been entered into and qualify for hedge accounting, in order to hedge the variability of that interest, were classified under other comprehensive income/(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 $2.0 million was reclassified into earnings for the six months ended June 30, 2015 and 2014, respectively, representing its amortization over the depreciable life of the vessels.

 

 

 

Three months
ended
June 30,

 

Three months
ended
June 30,

 

 

 

2015

 

2014

 

 

 

(in millions)

 

Total realized losses

 

$

(13.7

)

$

(31.0

)

Amortization of deferred realized losses

 

(1.0

)

(1.0

)

Unrealized gains

 

4.5

 

4.6

 

 

 

 

 

 

 

Unrealized and realized losses on cash flow interest rate swaps

 

$

(10.2

)

$

(27.4

)

 

 

 

 

 

 

 

 

 

 

 

Six months
ended
June 30,

 

Six months
ended
June 30,

 

 

 

2015

 

2014

 

 

 

(in millions)

 

Total realized losses

 

$

(34.0

)

$

(63.8

)

Amortization of deferred realized losses

 

(2.0

)

(2.0

)

Unrealized gains

 

8.9

 

10.4

 

 

 

 

 

 

 

Unrealized and realized losses on cash flow interest rate swaps

 

$

(27.1

)

$

(55.4

)

 

 

 

 

 

 

 

 

 

b.  Fair Value Interest Rate Swap Hedges

 

These interest rate swaps are designed to economically hedge the fair value of the fixed rate loan facilities against fluctuations in the market interest rates by converting the Company’s fixed rate loan facilities to floating rate debt. Pursuant to the adoption of the Company’s Risk Management Accounting Policy, and after putting in place the formal documentation required by hedge accounting in order to designate these swaps as hedging instruments, as of June 15, 2006, these interest rate swaps qualified for hedge accounting, and, accordingly, from that time until June 30, 2012, hedge ineffectiveness amounts arising from the differences in the change in fair value of the hedging instrument and the hedged item were recognized in the Company’s earnings. The Company considered its strategic use of interest rate swaps to be a prudent method of managing interest rate sensitivity, as it prevented earnings from being exposed to undue risk posed by changes in interest rates. Assessment and measurement of prospective and retrospective effectiveness for these interest rate swaps was performed on a quarterly basis, on the financial statement and earnings reporting dates.

 

On July 1, 2012, the Company elected to prospectively de-designate fair value interest rate swaps for which it was applying hedge accounting treatment due to the compliance burden associated with this accounting policy. All changes in the fair value of the Company’s fair value interest rate swap agreements continue to be recorded in earnings under “Unrealized and Realized Losses on Derivatives” from the de-designation date forward.

 

The Company evaluated whether it is probable that the previously hedged forecasted interest payments will not occur in the originally specified time period. The Company has concluded that the previously hedged forecasted interest payments continue to be probable of occurring. Therefore, the fair value of the hedged item associated with the previously designated fair value interest rate swaps will be frozen and recognized in earnings when the interest payments are recognized. If such interest payments were to be identified as being probable of not occurring, the fair value of hedged debt balance pertaining to these amounts would be reversed through earnings immediately.

 

The interest rate swap agreements converting fixed interest rate exposure into floating were as follows (in thousands):

 

Counter
party

 

Contract
trade Date

 

Effective
Date

 

Termination
Date

 

Notional
Amount
on
Effective
Date

 

Fixed Rate
(Danaos
receives)

 

Floating Rate
(Danaos pays)

 

Fair Value
June 30,
2015

 

Fair Value
December 31,
2014

 

RBS

 

11/15/2004

 

12/15/2004

 

8/27/2016

 

$

60,528 

 

5.0125 

% p.a.

USD LIBOR 3M BBA + 0.835% p.a.

 

$

160 

 

$

302 

 

RBS

 

11/15/2004

 

11/17/2004

 

11/2/2016

 

$

62,342 

 

5.0125 

% p.a.

USD LIBOR 3M BBA + 0.855% p.a.

 

206 

 

362 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

$

366 

 

$

664 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The total fair value change of the interest rate swaps amounted to $0.3 million loss and $0.5 million loss for the six months ended June 30, 2015 and 2014, respectively and are included in the condensed consolidated Statements of Income under “Unrealized and realized loss on derivatives”. The related asset of $0.4 million and $0.7 million is presented under “Other non-current assets” in the condensed consolidated balance sheet as of June 30, 2015 and December 31, 2014, respectively. The Company reclassified from “Long-term debt, net of current portion”, where its fair value of hedged item was recorded, to its earnings unrealized gains of $0.3 million for the six months ended June 30, 2015 and 2014 (following the hedge accounting discontinuance as of July 1, 2012).

 

 

 

Three months
ended
June 30,
2015

 

Three months
ended
June 30,
2014

 

 

 

(in millions)

 

Unrealized losses on swap asset

 

$

(0.1

)

$

(0.2

)

Reclassification of fair value of hedged debt to Statement of Income

 

0.1

 

0.1

 

Realized gains

 

0.1

 

0.2

 

 

 

 

 

 

 

Unrealized and realized gains on fair value interest rate swaps

 

$

0.1

 

$

0.1

 

 

 

 

 

 

 

 

 

 

 

 

Six months
ended
June 30,
2015

 

Six months
ended
June 30,
2014

 

 

 

(in millions)

 

Unrealized losses on swap asset

 

$

(0.3

)

$

(0.5

)

Reclassification of fair value of hedged debt to Statement of Income

 

0.3

 

0.3

 

Realized gains

 

0.3

 

0.5

 

 

 

 

 

 

 

Unrealized and realized gains on fair value interest rate swaps

 

$

0.3

 

$

0.3

 

 

 

 

 

 

 

 

 

 

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 we have 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, 2015 and December 31, 2014.

 

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.

 

 

 

Fair Value Measurements as of June 30, 2015

 

 

 

Total

 

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

 

 

(in thousands of $)

 

Assets

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

$

366 

 

 

$

366 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

$

23,015 

 

 

$

23,015 

 

 

 

 

 

Fair Value Measurements as of December 31, 2014

 

 

 

Total

 

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

 

 

(in thousands of $)

 

Assets

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

$

664 

 

 

$

664 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

$

53,420 

 

 

$

53,420 

 

 

 

Interest rate swap contracts are measured at fair value on a recurring basis. Fair value is determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Such instruments are typically classified within Level 2 of the fair value hierarchy. The fair values of the interest rate swap contracts have been calculated by discounting the projected future cash flows of both the fixed rate and variable rate interest payments. Projected interest payments are calculated using the appropriate prevailing market forward rates and are discounted using the zero-coupon curve derived from the swap yield curve. Refer to Note 11(a)-(b) above for further information on the Company’s interest rate swap contracts.

 

The Company is exposed to credit-related losses in the event of nonperformance of its counterparties in relation to these financial instruments. As of June 30, 2015, these financial instruments are in the counterparties’ favor. The Company has considered its risk of non-performance and of its counterparties in accordance with the relevant guidance of fair value accounting. The Company performs evaluations of its counterparties for credit risk through ongoing monitoring of their financial health and risk profiles to identify risk or changes in their credit ratings.

 

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

 

 

 

As of June 30, 2015

 

As of December 31, 2014

 

 

 

Book Value

 

Fair Value

 

Book Value

 

Fair Value

 

 

 

(in thousands of $)

 

Cash and cash equivalents

 

$

74,135 

 

$

74,135 

 

$

57,730 

 

$

57,730 

 

Restricted cash

 

$

2,824 

 

$

2,824 

 

$

2,824 

 

$

2,824 

 

Accounts receivable, net

 

$

5,183 

 

$

5,183 

 

$

7,904 

 

$

7,904 

 

Due from related parties

 

$

18,792 

 

$

18,792 

 

$

10,597 

 

$

10,597 

 

Series 1 ZIM Notes

 

$

6,427 

 

$

6,427 

 

$

6,274 

 

$

6,274 

 

Series 2 ZIM Notes

 

$

31,700 

 

$

31,700 

 

$

30,923 

 

$

30,923 

 

Equity investment in ZIM

 

$

28,693 

 

$

37,690 

 

$

28,693 

 

$

32,873 

 

Accounts payable

 

$

11,195 

 

$

11,195 

 

$

12,510 

 

$

12,510 

 

Accrued liabilities

 

$

19,281 

 

$

19,281 

 

$

24,705 

 

$

24,705 

 

Long-term debt, including current portion

 

$

2,874,387 

 

$

2,876,290 

 

$

2,951,120 

 

$

2,953,327 

 

Vendor financing, including current portion

 

$

35,673 

 

$

35,492 

 

$

64,367 

 

$

64,026 

 

 

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 (in thousands):

 

 

 

Fair Value Measurements as of June 30, 2015

 

 

 

Total

 

(Level I)

 

(Level II)

 

(Level III)

 

 

 

(in thousands of $)

 

Series 1 ZIM Notes (1)

 

$

6,427 

 

 

$

6,427 

 

 

Series 2 ZIM Notes (1)

 

$

31,700 

 

 

$

31,700 

 

 

Equity investment in ZIM (1) 

 

$

37,690 

 

 

$

37,690 

 

 

Long-term debt, including current portion(2) 

 

$

2,876,290 

 

 

$

2,876,290 

 

 

Vendor financing, including current portion(3) 

 

$

35,492 

 

 

$

35,492 

 

 

Accrued liabilities(4) 

 

$

19,281 

 

 

$

19,281 

 

 

 

 

 

Fair Value Measurements as of December 31, 2014

 

 

 

Total

 

(Level I)

 

(Level II)

 

(Level III)

 

 

 

(in thousands of $)

 

Series 1 ZIM Notes (1)

 

$

6,274 

 

 

$

6,274 

 

 

Series 2 ZIM Notes (1)

 

$

30,923 

 

 

$

30,923 

 

 

Equity investment in ZIM (1) 

 

$

32,873 

 

 

$

32,873 

 

 

Long-term debt, including current portion(2) 

 

$

2,953,327 

 

 

$

2,953,327 

 

 

Vendor financing, including current portion(3) 

 

$

64,026 

 

 

$

64,026 

 

 

Accrued liabilities(4) 

 

$

24,705 

 

 

$

24,705 

 

 

 

(1)

The fair value is estimated based on currently available information on the Company’s counterparty, other contracts with similar terms, remaining maturities and interest rates.

(2)

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 Vendor financing is estimated based on currently available financing with similar contract terms, interest rate and remaining maturities, as well as taking into account its creditworthiness.

(4)

The fair value of the Company’s accrued liabilities, which mainly consists of accrued interest on its credit facilities and accrued realized losses on its cash flow interest rate swaps, is estimated based on currently available debt and swap agreements with similar contract terms, interest rates and remaining maturities, as well as taking into account its creditworthiness.

Commitments and Contingencies
Commitments and Contingencies

 

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.

Stockholders' Equity
Stockholders' Equity

 

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, 2015, the Company did not grant any shares under the plan. During the six months ended June 30, 2015, the Company issued 108,759 new shares of common stock, which were distributed to the employees of the Manager in settlement of 2014 grants.

 

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, 2015, none of the directors elected to receive their compensation in Company shares.

Earnings per Share
Earnings per Share

 

14Earnings per Share

 

The following table sets forth the computation of basic and diluted earnings per share:

 

 

 

Three months ended

 

 

 

June 30, 2015

 

June 30, 2014

 

 

 

(in thousands)

 

Numerator:

 

 

 

 

 

Net income

 

$

38,072 

 

$

16,643 

 

 

 

 

 

 

 

Denominator (number of shares in thousands):

 

 

 

 

 

Basic and diluted weighted average common shares outstanding

 

109,785 

 

109,669 

 

 

 

 

Six months ended

 

 

 

June 30, 2015

 

June 30, 2014

 

 

 

(in thousands)

 

Numerator:

 

 

 

 

 

Net income

 

$

68,414 

 

$

25,050 

 

 

 

 

 

 

 

Denominator (number of shares in thousands):

 

 

 

 

 

Basic and diluted weighted average common shares outstanding

 

109,785 

 

109,669 

 

 

The Warrants issued and outstanding as of June 30, 2015 and 2014, were excluded from the diluted earnings per share, because they were antidilutive.

Subsequent Events
Subsequent Events

 

15Subsequent Events

 

On July 24, 2015, at the annual meeting of stockholders, Dr. John Coustas was re-elected as Class I director and Mr. Myles R. Itkin was re-elected as Class I director, each for a three-year term expiring at the annual meeting of stockholders in 2018. The Board of Directors was reduced to six directors as Dr. Robert A. Mundell did not stand for re-election at the annual meeting of stockholders.

Significant Accounting Policies (Policies)
Recent Accounting Pronouncements

 

Recent Accounting Pronouncements

 

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments are effective for annual periods ending after December 15, 2015, and interim periods within annual periods beginning after December 15, 2015.  Early application is permitted. The Company is not early adopting this standard and is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnotes disclosures.

 

In April, the FASB voted to propose a deferral of the effective date of the new revenue standard, ASU 2014-09, “Revenue from Contracts with Customers”, by one year. The new guidance would be effective for fiscal years beginning after December 15, 2017 instead of December 15, 2016. Entities are permitted to adopt the new standard in accordance with the original effective date in their option. We are currently evaluating the new guidance to determine the impact it will have on our consolidated financial statements.

Basis of Presentation and General Information (Tables)
Schedule of the vessel owning companies (the Danaos Subsidiaries)

 

As of June 30, 2015, 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 Together

 

2012 

 

13,100 

Megacarrier (No. 2) Corp.

 

September 10, 2007

 

Hyundai Tenacity

 

2012 

 

13,100 

Megacarrier (No. 3) Corp.

 

September 10, 2007

 

Hyundai Smart

 

2012 

 

13,100 

Megacarrier (No. 4) Corp.

 

September 10, 2007

 

Hyundai Speed

 

2012 

 

13,100 

Megacarrier (No. 5) Corp.

 

September 10, 2007

 

Hyundai Ambition

 

2012 

 

13,100 

CellContainer (No. 6) Corp.

 

October 31, 2007

 

Hanjin Germany

 

2011 

 

10,100 

CellContainer (No. 7) Corp.

 

October 31, 2007

 

Hanjin Italy

 

2011 

 

10,100 

CellContainer (No. 8) Corp.

 

October 31, 2007

 

Hanjin Greece

 

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

 

CSCL 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 

Federal Marine Inc.

 

February 14, 2006

 

Federal

 

1994 

 

4,651 

Auckland Marine Inc.

 

January 27, 2005

 

SNL Colombo

 

2004 

 

4,300 

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

 

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

 

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

 

Hanjin Algeciras

 

2011 

 

3,400 

CellContainer (No. 5) Corp.

 

March 23, 2007

 

Hanjin Constantza

 

2011 

 

3,400 

CellContainer (No. 1) Corp.

 

March 23, 2007

 

Hanjin Buenos Aires

 

2010 

 

3,400 

CellContainer (No. 2) Corp.

 

March 23, 2007

 

Hanjin Santos

 

2010 

 

3,400 

CellContainer (No. 3) Corp.

 

March 23, 2007

 

Hanjin Versailles

 

2010 

 

3,400 

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 (ex Niledutch Palanca)

 

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

 

Hyundai Vladivostok

 

1997 

 

2,200 

Speedcarrier (No. 2) Corp.

 

June 28, 2007

 

Hyundai Advance

 

1997 

 

2,200 

Speedcarrier (No. 3) Corp.

 

June 28, 2007

 

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.

(2)

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

Fixed assets, net (Tables)
Schedule of vessels' cost, accumulated depreciation and changes thereto

 

Fixed assets consist of vessels. Vessels’ cost, accumulated depreciation and changes thereto were as follows (in thousands):

 

 

 

Vessel
Cost

 

Accumulated
Depreciation

 

Net Book
Value

 

As of January 1, 2014

 

$

4,450,719

 

$

(608,102

)

$

3,842,617

 

Additions

 

39,165

 

(137,061

)

(97,896

)

Disposals

 

(120,376

)

75,769

 

(44,607

)

Impairment Loss

 

(75,776

)

 

(75,776

)

 

 

 

 

 

 

 

 

As of December 31, 2014

 

4,293,732

 

(669,394

)

3,624,338

 

Additions

 

538

 

(65,341

)

(64,803

)

 

 

 

 

 

 

 

 

As of June 30, 2015

 

$

4,294,270

 

$

(734,735

)

$

3,559,535

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred Charges, net (Tables)
Schedule of deferred charges, net

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Drydocking
and
Special Survey
Costs

 

Finance
and Other
Costs

 

Total
Deferred
Charges

 

As of January 1, 2014

 

$

4,041

 

$

63,908

 

$

67,949

 

Additions

 

6,887

 

182

 

7,069

 

Written off amounts

 

(286

)

(55

)

(341

)

Amortization

 

(4,387

)

(15,015

)

(19,402

)

 

 

 

 

 

 

 

 

As of December 31, 2014

 

6,255

 

49,020

 

55,275

 

Additions

 

1,217

 

 

1,217