DANAOS CORP, 20-F filed on 3/15/2016
Annual and Transition Report (foreign private issuer)
Document and Entity Information
12 Months Ended
Dec. 31, 2015
Document and Entity Information
 
Entity Registrant Name
Danaos Corp 
Entity Central Index Key
0001369241 
Document Type
20-F 
Document Period End Date
Dec. 31, 2015 
Amendment Flag
false 
Current Fiscal Year End Date
--12-31 
Entity Well-known Seasoned Issuer
No 
Entity Voluntary Filers
No 
Entity Current Reporting Status
Yes 
Entity Filer Category
Accelerated Filer 
Entity Common Stock, Shares Outstanding
109,781,744 
Document Fiscal Year Focus
2015 
Document Fiscal Period Focus
FY 
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2015
Dec. 31, 2014
CURRENT ASSETS
 
 
Cash and cash equivalents
$ 72,253 
$ 57,730 
Restricted cash
2,818 
2,824 
Accounts receivable, net
10,652 
7,904 
Inventories
11,040 
11,665 
Prepaid expenses
1,079 
713 
Due from related parties
19,007 
10,597 
Vessels held for sale
6,264 
 
Other current assets
4,457 
11,640 
Total current assets
127,570 
103,073 
NON-CURRENT ASSETS
 
 
Fixed assets at cost net of accumulated depreciation of $690,794 (2014: $669,394)
3,446,323 
3,624,338 
Deferred charges, net
39,733 
55,275 
Investments in affiliates
11,289 
 
Other non-current assets
72,188 
68,506 
Total non-current assets
3,569,533 
3,748,119 
Total assets
3,697,103 
3,851,192 
CURRENT LIABILITIES
 
 
Accounts payable
12,971 
12,510 
Accrued liabilities
14,014 
24,705 
Current portion of long-term debt
269,979 
178,116 
Current portion of vendor financing
 
46,530 
Unearned revenue
9,853 
13,719 
Other current liabilities
5,328 
52,502 
Total current liabilities
312,145 
328,082 
LONG-TERM LIABILITIES
 
 
Long-term debt, net of current portion
2,505,399 
2,773,004 
Vendor financing, net of current portion
 
17,837 
Unearned revenue, net of current portion
24,426 
30,412 
Other long-term liabilities
13,219 
13,708 
Total long-term liabilities
2,543,044 
2,834,961 
Total liabilities
2,855,189 
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 December 31, 2015 and 2014)
   
   
Common stock (par value $0.01, 750,000,000 common shares authorized as of December 31, 2015 and 2014. 109,781,744 and 109,669,429 issued and outstanding as of December 31, 2015 and 2014, respectively)
1,098 
1,097 
Additional paid-in capital
546,822 
546,735 
Accumulated other comprehensive loss
(103,081)
(139,742)
Retained earnings
397,075 
280,059 
Total stockholders' equity
841,914 
688,149 
Total liabilities and stockholders' equity
$ 3,697,103 
$ 3,851,192 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2015
Dec. 31, 2014
CONSOLIDATED BALANCE SHEETS
 
 
Accumulated Depreciation
$ 690,794 
$ 669,394 
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
109,781,744 
109,669,429 
Common stock, shares outstanding
109,781,744 
109,669,429 
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
OPERATING REVENUES
$ 567,936 
$ 552,091 
$ 588,117 
OPERATING EXPENSES:
 
 
 
Voyage expenses
(12,284)
(12,974)
(11,770)
Vessel operating expenses
(112,736)
(113,755)
(122,074)
Depreciation
(131,783)
(137,061)
(137,414)
Amortization of deferred drydocking and special survey costs
(3,845)
(4,387)
(5,482)
Impairment loss
(41,080)
(75,776)
(19,004)
General and administrative expenses
(21,831)
(21,442)
(19,458)
Gain / (loss) on sale of vessels
 
5,709 
(449)
Income From operations
244,377 
192,405 
272,466 
OTHER INCOME (EXPENSE):
 
 
 
Interest income
3,419 
1,703 
2,210 
Interest expense
(70,397)
(79,980)
(91,185)
Other finance expenses
(18,696)
(19,757)
(20,120)
Equity loss on investments
(1,941)
 
 
Other income/(expenses), net
111 
422 
302 
Net unrealized and realized losses on derivatives
(39,857)
(98,713)
(126,150)
Total Other Expenses, net
(127,361)
(196,325)
(234,943)
Net Income / (Loss)
$ 117,016 
$ (3,920)
$ 37,523 
EARNINGS/(LOSS) PER SHARE
 
 
 
Basic and diluted net income/(loss) per share
$ 1.07 
$ (0.04)
$ 0.34 
Basic and diluted weighted average number of shares
109,785,484 
109,676,056 
109,654,199 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
 
Net Income / (Loss)
$ 117,016 
$ (3,920)
$ 37,523 
Other Comprehensive Income
 
 
 
Amortization of deferred realized losses on cash flow hedges
4,017 
4,016 
4,017 
Reclassification of unrealized losses to earnings
32,644 
88,939 
116,557 
Total Other Comprehensive Income
36,661 
92,955 
120,574 
Comprehensive Income
$ 153,677 
$ 89,035 
$ 158,097 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (USD $)
In Thousands, except Share data, unless otherwise specified
Common Stock
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total
Balance at Dec. 31, 2012
$ 1,096 
$ 546,023 
$ (353,271)
$ 246,456 
$ 440,304 
Balance (in shares) at Dec. 31, 2012
109,604,000 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
Net Income / (Loss)
 
 
 
37,523 
37,523 
Net movement in other comprehensive income
 
 
120,574 
 
120,574 
Issuance of common stock
(1)
 
 
 
Issuance of common stock (in shares)
49,000 
 
 
 
 
Stock compensation
 
75 
 
 
75 
Balance at Dec. 31, 2013
1,097 
546,097 
(232,697)
283,979 
598,476 
Balance (in shares) at Dec. 31, 2013
109,653,000 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
Net Income / (Loss)
 
 
 
(3,920)
(3,920)
Net movement in other comprehensive income
 
 
92,955 
 
92,955 
Issuance of common stock (in shares)
16,000 
 
 
 
 
Stock compensation
 
638 
 
 
638 
Balance at Dec. 31, 2014
1,097 
546,735 
(139,742)
280,059 
688,149 
Balance (in shares) at Dec. 31, 2014
109,669,000 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
Net Income / (Loss)
 
 
 
117,016 
117,016 
Net movement in other comprehensive income
 
 
36,661 
 
36,661 
Issuance of common stock
(1)
 
 
 
Issuance of common stock (in shares)
113,000 
 
 
 
 
Stock compensation
 
88 
 
 
88 
Balance at Dec. 31, 2015
$ 1,098 
$ 546,822 
$ (103,081)
$ 397,075 
$ 841,914 
Balance (in shares) at Dec. 31, 2015
109,782,000 
 
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Cash Flows from Operating Activities
 
 
 
Net Income / (Loss)
$ 117,016 
$ (3,920)
$ 37,523 
Adjustments to reconcile net income/(loss) to net cash provided by operating activities
 
 
 
Depreciation
131,783 
137,061 
137,414 
Amortization of deferred drydocking and special survey costs
3,845 
4,387 
5,482 
Impairment loss
41,080 
75,776 
19,004 
Amortization of finance costs and written-off finance costs
14,038 
15,070 
15,431 
Exit fees accrued on debt
3,639 
3,745 
3,763 
Payments for drydocking and special survey costs deferred
(2,341)
(6,887)
(283)
(Gain)/loss on sale of vessels
 
(5,709)
449 
Stock based compensation
88 
638 
75 
Amortization of deferred realized losses on interest rate swaps
4,017 
4,016 
4,017 
Unrealized gains on derivatives
(16,285)
(24,915)
(22,121)
Equity loss on investments
1,941 
 
 
(Increase)/decrease in:
 
 
 
Accounts receivable
(2,748)
134 
(4,297)
Inventories
625 
2,831 
3,235 
Prepaid expenses
16 
106 
(113)
Due from related parties
(8,410)
3,862 
(1,795)
Other assets, current and non-current
2,975 
(7,518)
(11,379)
Increase/(decrease) in:
 
 
 
Accounts payable
(971)
(614)
(858)
Accrued liabilities
(10,691)
(6,206)
(1,983)
Unearned revenue, current and long term
(9,852)
(2,306)
1,858 
Other liabilities, current and long-term
1,911 
2,630 
3,603 
Net cash provided by operating activities
271,676 
192,181 
189,025 
Cash flows from investing activities:
 
 
 
Vessels additions
(1,112)
(39,165)
(46,839)
Investments in affiliates
(13,230)
 
 
Net proceeds from sale of vessels
1,050 
50,602 
52,926 
Net cash (used in)/provided by investing activities
(13,292)
11,437 
6,087 
Cash flows from financing activities:
 
 
 
Payments on long-term debt
(178,808)
(164,154)
(113,634)
Payments on Vendor financing
(64,367)
(57,388)
(57,387)
Deferred finance costs
(692)
(4,392)
(100)
Decrease/(increase) in restricted cash
11,893 
(11,466)
Net cash used in financing activities
(243,861)
(214,041)
(182,587)
Net increase/(decrease) in cash and cash equivalents
14,523 
(10,423)
12,525 
Cash and cash equivalents, beginning of year
57,730 
68,153 
55,628 
Cash and cash equivalents, end of year
72,253 
57,730 
68,153 
Supplementary Cash Flow information
 
 
 
Cash paid for interest
71,795 
82,957 
92,887 
Non-cash investing and financing activities
 
 
 
Acquisition of debt securities and equity investment
 
64,896 
 
Non-cash deferred financing fees
 
$ 90 
$ 87 
Basis of Presentation and General Information
Basis of Presentation and General Information

 

1. Basis of Presentation and General Information

        The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The reporting and functional currency of 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 21, "Stockholders' Equity".

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

        The Company's principal business is the acquisition and operation of vessels. Danaos conducts its operations through the vessel owning companies whose principal activity is the ownership and operation of containerships (refer to Note 2, "Significant Accounting Policies") that are under the exclusive management of a related party of the Company (refer to Note 13, "Related Party Transactions").

        The consolidated financial statements have been prepared to reflect the consolidation of the companies listed below. The historical balance sheets and results of operations of the companies listed below have been reflected in the consolidated balance sheets and consolidated statements of operations, consolidated statements of comprehensive income, 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 December 31, 2015, Danaos consolidated 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 

 

Vessels sold during 2014

 

 

 

 

 

 

 

 

 

 

 

Boxcarrier (No. 6) Corp. 

 

June 27, 2006

 

Marathonas

 

 

1991 

 

 

4,814 

 

Boxcarrier (No. 7) Corp. 

 

June 27, 2006

 

Messologi

 

 

1991 

 

 

4,814 

 

Boxcarrier (No. 8) Corp. 

 

November 16, 2006

 

Mytilini

 

 

1991 

 

 

4,814 

 

Duke Marine Inc. 

 

April 14, 2003

 

Duka

 

 

1992 

 

 

4,651 

 

Commodore Marine Inc. 

 

April 14, 2003

 

Commodore

 

 

1992 

 

 

4,651 

 


 

 

 

(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

 

2. Significant Accounting Policies

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

        The Company also consolidates entities that are determined to be variable interest entities, of which the Company is the primary beneficiary, as defined in the accounting guidance, if it determines that it is the primary beneficiary. A variable interest entity is defined as a legal entity where either (a) equity interest holders as a group lack the characteristics of a controlling financial interest, including decision making ability and an interest in the entity's residual risks and rewards, or (b) the equity holders have not provided sufficient equity investment to permit the entity to finance its activities without additional subordinated financial support, or (c) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both and substantially all of the entity's activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. Refer to Note 12, "Long-Term Debt", which describes an arrangement under the credit facility with ABN Amro, Lloyds TSB and National Bank of Greece for a variable interest entity.

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

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

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

        Reclassifications in Other Comprehensive Income:    The Company had the following reclassifications out of Accumulated Other Comprehensive Loss as of December 31, 2015, 2014 and 2013, respectively (in thousands):

                                                                                                                                                                                    

 

 

 

 

Year ended December 31,

 

 

 

Location of Reclassification into Income

 

 

 

2015

 

2014

 

2013

 

Amortization of deferred realized losses on cash flow hedges

 

Net unrealized and realized losses on derivatives

 

 

4,017 

 

 

4,016 

 

 

4,017 

 

Reclassification of unrealized losses to earnings

 

Net unrealized and realized losses on derivatives

 

 

32,644 

 

 

88,939 

 

 

116,557 

 

​  

​  

​  

​  

​  

​  

Total Reclassifications

 

 

 

$

36,661 

 

$

92,955 

 

$

120,574 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

        Foreign Currency Translation:    The functional currency of the Company is the U.S. dollar. The Company engages in worldwide commerce with a variety of entities. Although its operations may expose it to certain levels of foreign currency risk, its transactions are predominantly U.S. dollar denominated. Additionally, the Company's wholly-owned vessel subsidiaries transacted a nominal amount of their operations in Euros; however, all of the subsidiaries' primary cash flows are U.S. dollar denominated. Transactions in currencies other than the functional currency are translated at the exchange rate in effect at the date of each transaction. Differences in exchange rates during the period between the date a transaction denominated in a foreign currency is consummated and the date on which it is either settled or translated, are recognized in the consolidated Statements of Operations. The foreign currency exchange gains recognized in the accompanying consolidated Statements of Operations for each of the years ended December 31, 2015, 2014 and 2013 were $0.1 million, $0.3 million and $0.04 million, respectively.

        Cash and Cash Equivalents:    Cash and cash equivalents consist of interest bearing call deposits, where the Company has instant access to its funds and withdrawals and deposits can be made at any time, as well as time deposits with original maturities of three months or less which are not restricted for use or withdrawal. Cash and cash equivalents of $72.3 million as of December 31, 2015 (December 31, 2014: $57.7 million) comprised cash balances and short-term deposits.

        Restricted Cash:    Cash restricted accounts include retention accounts. Certain of the Company's loan agreements require the Company to deposit one- third of quarterly and one-sixth of the semi-annual principal installments and interest installments, respectively, due on the outstanding loan balance monthly in a retention account. On the rollover settlement date, both principal and interest are paid from the retention account. Refer to Note 3, "Restricted Cash".

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

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

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

        Financing Costs:    Fees incurred for obtaining new loans and loans that have been accounted for as modified are deferred and amortized over the loans' respective repayment periods using the effective interest rate method. These charges are included in the consolidated balance sheet line item "Deferred Charges, net". The amortization expense associated with deferred financing fees is included under "Other finance expense" in the consolidated Statements of Operations.

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

        Vessels acquired in the secondhand market are treated as a business combination to the extent that such acquisitions include continuing operations and business characteristics such as management agreements, employees and customer base. Otherwise, these are treated as purchase of assets. Where the Company identifies any intangible assets or liabilities associated with the acquisition of a vessel purchased in the secondhand market, the Company records all identified tangible and intangible assets or liabilities at fair value. Fair value is determined by reference to market data and the discounted amount of expected future cash flows. The Company has acquired certain vessels in the secondhand market, all of which were considered to be acquisitions of assets.

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

        Vessels held for sale:    Vessels are classified as "Vessels held for sale" when all of the following criteria are met: management has committed to a plan to sell the vessel; the vessel is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of vessels; an active program to locate a buyer and other actions required to complete the plan to sell the vessel have been initiated; the sale of the vessel is probable and transfer of the vessel is expected to qualify for recognition as a completed sale within one year; the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Vessels classified as held for sale are measured at the lower of their carrying amount or fair value less cost to sell. These vessels are not depreciated once they meet the criteria to be held for sale. As of December 31, 2015, the Company recorded an impairment loss of $2.1 million for the vessel held for sale, which is included under "Impairment loss" in the consolidated Statements of Operations.

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

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

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

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

        As of December 31, 2015, December 31, 2014 and December 31, 2013, the Company concluded that events and circumstances triggered the existence of potential impairment of its long-lived assets. These indicators included volatility in the spot market and decline in the vessels' market values, as well as the potential impact the current marketplace may have on its future operations. As a result, the Company performed step one of the impairment assessment of the Company's long-lived assets by comparing the undiscounted projected net operating cash flows for each vessel to its carrying value. The Company's strategy is to charter its vessels under multi-year, fixed rate period charters that range from less than 1 to 18 years for vessels in its fleet, providing the Company with contracted stable cash flows. The significant factors and assumptions the Company used in its undiscounted projected net operating cash flow analysis included, among others, operating revenues, off-hire revenues, drydocking costs, operating expenses and management fees estimates. Revenue assumptions were based on contracted time charter rates up to the end of life of the current contract of each vessel as well as the estimated average time charter equivalent rates for the remaining life of the vessel after the completion of its current contract. The estimated daily time charter equivalent rates used for non-contracted revenue days are based on a combination of (i) recent charter market rates, (ii) conditions existing in the containership market as of December 31, 2015, December 31, 2014 and December 31, 2013 in relation to laid up vessels; (iii) historical average time charter rates, based on publications by independent third party maritime research services, and (iv) estimated future time charter rates, based on publications by independent third party maritime research services that provide such forecasts. Recognizing that the container transportation is cyclical and subject to significant volatility based on factors beyond the Company's control, management believes the use of revenue estimates, based on the combination of factors (i) to (iv) above, to be reasonable as of the reporting date. In addition, the Company used an annual operating expenses escalation factor and estimates of scheduled and unscheduled off-hire revenues based on historical experience. All estimates used and assumptions made were in accordance with the Company's internal budgets and historical experience of the shipping industry.

        As of December 31, 2015 and December 31, 2014, the Company's assessment concluded that step two of the impairment analysis was required for certain of its vessels, as undiscounted projected net operating cash flows of certain vessels did not exceed the carrying value of the respective vessels. Fair value of each vessel was determined with the assistance from valuations obtained by third party independent shipbrokers (on the basis of a commercial transaction between a willing buyer and a willing seller). As of December 31, 2015 and December 31, 2014, the Company recorded an impairment loss of $39.0 million and $75.8 million, respectively for its older vessels mainly due to the decrease in the estimated average time charter equivalent rates for the remaining life of the vessels, after the completion of their current contracts. The impairment loss is included under "Impairment loss" in the consolidated Statements of Operations.

        No impairment of vessels existed as of December 31, 2013, as the undiscounted projected net operating cash flows per vessel exceeded the carrying value of each vessel.

        Investments in Debt Securities:    The Company classifies its debt securities as held-to-maturity based on management's positive intent and ability to hold to maturity. These securities are reported at amortized cost, subject to impairment. Management evaluates securities for other than temporary impairment on a quarterly basis. An investment is considered impaired if the fair value of the investment is less than its amortized cost. Consideration is given to: 1) if the Company intends to sell the security (that is, it has decided to sell the security); 2) it is more likely than not that the Company will be required to sell the security before the recovery of its (entire) amortized cost basis; or 3) a credit loss exists—that is, the Company does not expect to recover the entire amortized cost basis of the security (the present value of cash flows expected to be collected is less than the amortized cost basis of the security).

        Investments in Equity Securities:    The Company classifies its equity securities at cost as the Company does not have the ability to exercise significant influence. Management evaluates the equity security for other than temporary impairment on a quarterly basis. An investment is considered impaired if the fair value of the investment is less than its cost. Consideration is given to significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee, significant adverse change in the regulatory, economic, or technological environment of the investee, significant adverse change in the general market condition of either the geographic area or the industry in which the investee operates, as well as factors that raise significant concerns about the investee's ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants.

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

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

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

        Vessel Operating Expenses:    Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses for repairs and maintenance, the cost of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Aggregate expenses increase as the size of the Company's fleet increases. Under multi-year time charters, the Company pays for vessel operating expenses. Under bareboat charters, such as those on which the Company chartered two of the containerships in its fleet as of December 31, 2015, 2014 and 2013, respectively, the Company's charterers bear most vessel operating expenses, including the costs of crewing, insurance, surveys, drydockings, maintenance and repairs.

        General and administrative expenses:    General and administrative expenses include management fees paid to the vessels' manager (refer to Note 13, "Related Party Transactions"), audit fees, legal fees, board remuneration, executive officers compensation, directors & officers insurance and stock exchange fees.

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

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

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

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

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

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

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

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

        Earnings/(Loss) Per Share:    The Company has presented net income/(loss) per share for all years presented based on the weighted average number of outstanding shares of common stock of Danaos Corporation at the reported periods. The warrants issued in 2011 were excluded from the diluted (loss)/income per share for the year ended December 31, 2015, 2014 and 2013, because they were antidilutive. There are no other dilutive or potentially dilutive securities, accordingly there is no difference between basic and diluted net income per share.

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

        The aggregate number of shares of common stock for which awards may be granted under the Plan cannot exceed 6% of the number of shares of common stock issued and outstanding at the time any award is granted. Awards made under the Plan that have been forfeited, cancelled or have expired, will not be treated as having been granted for purposes of the preceding sentence. Unless otherwise set forth in an award agreement, any awards outstanding under the Plan will vest immediately upon a "change of control", as defined in the Plan. The Plan will automatically terminate ten years after it has been most recently approved by the Company's stockholders. Refer to Note 20, "Stock Based Compensation".

        As of April 18, 2008, the Company established the Directors Share Payment Plan ("Directors Plan") under the Plan. The purpose of the Directors Plan is to provide a means of payment of all or a portion of compensation payable to directors of the Company in the form of Company's Common Stock. Each member of the Board of Directors of the Company may participate in the Directors Plan. Pursuant to the terms of the Directors Plan, Directors may elect to receive in Common Stock all or a portion of their compensation. On the last business day of each quarter, the rights of common stock are credited to each Director's Share Payment Account. Following December 31st of each year, the Company will deliver to each Director the number of shares represented by the rights credited to their Share Payment Account during the preceding calendar year. Refer to Note 20, "Stock Based Compensation".

        As of April 18, 2008, the Board of Directors and the Compensation Committee approved the Company's ability to provide, from time to time, incentive compensation to the employees of Danaos Shipping Company Limited (the "Manager"), in the form of free shares of the Company's common stock under the Plan. Prior approval is required by the Compensation Committee and the Board of Directors. The plan was effective since December 31, 2008. Pursuant to the terms of the plan, employees of the Manager may receive (from time to time) shares of the Company's common stock as additional compensation for their services offered during the preceding period. The stock will have no vesting period and the employee will own the stock immediately after grant. The total amount of stock to be granted to employees of the Manager will be at the Company's Board of Directors' discretion only and there will be no contractual obligation for any stock to be granted as part of the employees' compensation package in future periods. Refer to Note 20, "Stock Based Compensation".

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 2015-014"), 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. The Company is currently evaluating the impact that ASU 2014-09 will have on its consolidated financial statements and associated disclosures, and have not yet selected a transition method.

        In February 2015, the FASB issued Accounting Standards Update No. 2015-02, "Consolidation (Topic 810)—Amendments to the Consolidation Analysis", ("ASU 2015-02"). ASU 2015-02 amends the criteria for determining which entities are considered variable interest entities ("VIEs"), amends the criteria for determining if a service provider possesses a variable interest in a VIE and ends the deferral granted to investment companies for application of the VIE consolidation model. The ASU is effective for interim and annual periods beginning after December 15, 2015. Early application is permitted. The Company does not expect the adoption of this ASU to have a material impact on the Company's results of operations, financial position or cash flows.

        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. After its adoption in 2016, this change will result in a reclassification of $35.0 million from Deferred charges, net to Long-term debt in the consolidated balance sheet as of December 31, 2015. Additionally, amortization of deferred finance costs amounting to $14.0 million will be reclassified from Other finance expenses to Interest expense in the consolidated Statements of Operations for the year ended December 31, 2015.

        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 ending 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.

Restricted Cash
Restricted Cash

 

3. Restricted Cash

        The Company was required to maintain cash of $2.8 million as of December 31, 2015 and December 31, 2014 in a retention bank accounts as 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

 

4. Fixed Assets, Net

        On December 23, 2015, the Company entered into an agreement to sell the vessel Federal for gross sale consideration of $7.2 million, of which $1.4 million was received in advance during the year ended December 31, 2015. As of December 31, 2015, the vessel Federal is classified as vessel held for sale in the consolidated Balance Sheet, (refer to Note 24, "Subsequent Events") and is analyzed as follows (in thousands):

                                                                                                                                                                                    

 

 

2015

 

Carrying value

 

$

8,364

 

Impairment loss

 

 

(2,100

)

​  

​  

Fair value less cost to sell

 

$

6,264

 

​  

​  

        During the year ended December 31, 2014, the Company sold and delivered five vessels: Marathonas, Commodore, Duka, Mytilini and Messologi for total gross sale consideration of $57.7 million. Refer to Note 19, "Sale of Vessels".

        On November 5, 2014, the Company acquired two 6,402 TEU containerships, Performance and Priority, both built in 2002 for total contract price of $36.5 million.

        As of December 31, 2015, the Company recorded an impairment loss of $39.0 million in relation to its twelve of the older vessels that are held and used. As of 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 with the assistance from valuations obtained by third party independent shipbrokers. The Company's assessment concluded that no impairment of vessels existed as of December 31, 2013. Refer to Note 23 "Impairment Loss".

        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 December 31, 2015 and 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

 

5. Deferred Charges, Net

        Deferred charges 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

 

 

2,341

 

 

 

 

2,341

 

Amortization

 

 

(3,845

)

 

(14,038

)

 

(17,883

)

​  

​  

​  

​  

​  

​  

As of December 31, 2015

 

$

4,751

 

$

34,982

 

$

39,733

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

        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 Assets
Other Current Assets

 

6. Other Current Assets

        Other current assets consisted of the following as at December 31 (in thousands):

                                                                                                                                                                                    

 

 

2015

 

2014

 

Fair value of swaps

 

$

138 

 

 

 

Claims receivable

 

 

954 

 

$

7,856 

 

Advances to suppliers and other assets

 

 

3,365 

 

 

3,784 

 

​  

​  

​  

​  

Total

 

$

4,457 

 

$

11,640 

 

​  

​  

​  

​  

​  

​  

​  

​  

        As of December 31, 2015 and December 31, 2014, claims receivable consist of insurance and other claims. As of December 31, 2015 and December 31, 2014, the claim receivable related to a collision incident of the Hanjin Italy outside Singapore amounted to $0.7 million and $7.0 million, respectively.

Investments in Affiliates
Investments in Affiliates

 

7. Investments in affiliates

        In August 2015, an affiliated company Gemini Shipholdings Corporation ("Gemini") was formed by the Company and Virage International Ltd. ("Virage"), a company controlled by the Company's largest shareholder. Gemini acquired a 100% interest in entities with capital leases for the Suez Canal and Genoa and that own the container vessel NYK Lodestar. Additionally, Gemini has agreed to acquire the container vessel NYK Leo, which was delivered on February 4, 2016. Gemini financed these acquisitions with the assumption of capital lease obligations of $35.4 million, $9.0 million of borrowings under a secured loan facility and an aggregate of $27.0 million from equity contributions from the Company and Virage, which subscribed in cash for 49% and 51%, respectively, of Gemini's issued and outstanding share capital. As of December 31, 2015, Gemini consolidated its wholly owned subsidiaries listed below:

                                                                                                                                                                                    

Company

 

Vessel Name

 

Year Built

 

TEU(1)

 

Date of vessel delivery

Averto Shipping S.A. 

 

Suez Canal

 

 

2002 

 

 

5,610 

 

July 20, 2015

Sinoi Marine Ltd. 

 

Genoa

 

 

2002 

 

 

5,544 

 

August 2, 2015

Kingsland International Shipping Limited

 

NYK Lodestar

 

 

2001 

 

 

6,422 

 

September 21, 2015

Leo Shipping and Trading S.A. 

 

NYK Leo

 

 

2002 

 

 

6,422 

 

February 4, 2016


 

 

 

(1)          

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

        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 loss on investments" in the consolidated Statements of Operations. The Company does not guarantee the debt of Gemini and its subsidiaries and has the right to purchase all of the beneficial interest in Gemini that it does not own for fair market value at any time after December 31, 2018, or earlier if permitted under its credit facilities.The net assets of Gemini total $23.0 million as of December 31, 2015. 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):

                                                                                                                                                                                    

 

 

2015

 

Current assets

 

$

12,578 

 

Non-current assets

 

$

54,771 

 

Current liabilities

 

$

5,552 

 

Non-current liabilities

 

$

38,758 

 

Net operating revenues

 

$

1,775 

 

Net loss

 

$

3,961 

 

 

Other Non-current Assets
Other Non-current Assets

 

8. Other Non-current Assets

        Other non-current assets consisted of the following as at December 31 (in thousands):

                                                                                                                                                                                    

 

 

2015

 

2014

 

Fair value of swaps

 

 

 

$

664 

 

Series 1 ZIM notes, net

 

$

6,587 

 

 

6,274 

 

Series 2 ZIM notes, net

 

 

32,507 

 

 

30,923 

 

Equity participation ZIM

 

 

28,693 

 

 

28,693 

 

Other assets

 

 

4,401 

 

 

1,952 

 

​  

​  

​  

​  

Total

 

$

72,188 

 

$

68,506 

 

​  

​  

​  

​  

​  

​  

​  

​  

        As of July 16, 2014, ZIM and its creditors entered into definitive documentation effecting ZIM's restructuring with its creditors. 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 accounts 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 December 31, 2015 and December 31, 2014, the Company recorded $6.6 million and $6.3 million in relation to the Series 1 Notes and $32.5 million and $30.9 million in relation to the Series 2 Notes, respectively and recognized $1.1 million and $0.6 million in relation to their fair value unwinding in the consolidated Statements of Operations in "Interest income" for the years ended December 31, 2015 and December 31, 2014, respectively. Furthermore, for the year ended December 31, 2015 and December 31, 2014, the Company recognized in the consolidated Statements of Operations in "Interest income", a non-cash interest income of $0.8 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 consolidated Statements of Operations in "Operating revenues" over the remaining life of the respective time charters. For the years ended December 31, 2015 and December 31, 2014, the Company recognized $6.0 million and $2.7 million, respectively, of unearned revenue amortization in "Operating revenues". As of December 31, 2015, the outstanding balances of the current and non-current portion of unearned revenue in relation to ZIM amounted to $6 million and $24.4 million, respectively. As of December 31, 2014, the corresponding outstanding balance of the current and non-current portion of unearned revenue amounted to $6.0 million and $30.4 million, respectively. Refer to Notes 15c, Financial Instruments—Fair value of Financial Instruments and Note 23, "Impairment Loss".

        In respect to the fair value of swaps, refer to Note 15b, Financial Instruments—Fair Value Interest Rate Swap Hedges.

Accrued Liabilities
Accrued Liabilities

 

9. Accrued Liabilities

        Accrued liabilities consisted of the following as at December 31 (in thousands):

                                                                                                                                                                                    

 

 

2015

 

2014

 

Accrued payroll

 

$

1,162 

 

$

1,175 

 

Accrued interest

 

 

8,059 

 

 

9,457 

 

Accrued expenses

 

 

4,793 

 

 

14,073 

 

​  

​  

​  

​  

Total

 

$

14,014 

 

$

24,705 

 

​  

​  

​  

​  

​  

​  

​  

​  

        Accrued expenses mainly consisted of accrued realized losses on cash flow interest rate swaps of $1.2 million and $10.4 million as of December 31, 2015 and December 31, 2014, respectively, as well as other accruals related to the operation of the Company's fleet of $3.6 million and $3.7 million as of December 31, 2015 and 2014, respectively.

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

 

10. Other Current and Long-term Liabilities

        Other current liabilities consisted of the following as at December 31 (in thousands):

                                                                                                                                                                                    

 

 

2015

 

2014

 

Fair value of swaps

 

$

4,538 

 

$

51,022 

 

Other current liabilities

 

 

790 

 

 

1,480 

 

​  

​  

​  

​  

Total

 

$

5,328 

 

$

52,502 

 

​  

​  

​  

​  

​  

​  

​  

​  

        As of December 31, 2014, other current liabilities include an amount of $0.7 million related to deferred fees accrued in accordance with the Bank Agreement (refer to Note 12, "Long-Term Debt"), which are recorded at amortized cost.

        Other long-term liabilities consisted of the following at December 31 (in thousands):

                                                                                                                                                                                    

 

 

2015

 

2014

 

Fair value of swaps

 

 

 

$

2,398 

 

Other long-term liabilities

 

$

13,219 

 

 

11,310 

 

​  

​  

​  

​  

Total

 

$

13,219 

 

$

13,708 

 

​  

​  

​  

​  

​  

​  

​  

​  

        In respect to the fair value of swaps, refer to Note 15a, Financial Instruments—Cash Flow Interest Rate Swap Hedges.

Lease Arrangements
Lease Arrangements

 

11. Lease Arrangements

Charters-out

        The future minimum revenue, expected to be earned on non-cancellable time charters consisted of the following as at December 31, 2015 (in thousands):

                                                                                                                                                                                    

2016

 

$

524,682 

 

2017

 

 

490,984 

 

2018

 

 

445,471 

 

2019

 

 

410,944 

 

2020

 

 

374,903 

 

2021 and thereafter

 

 

913,111 

 

​  

​  

Total future revenue

 

$

3,160,095 

 

​  

​  

​  

​  

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

Long-Term Debt
Long-Term Debt

 

12. Long-Term Debt

        Long-term debt as of December 31, 2015 and 2014 consisted of the following (in thousands):

                                                                                                                                                                                    

Lender

 

As of
December 31,
2015

 

Current
portion

 

Long-term
portion

 

As of
December 31,
2014

 

Current
portion

 

Long-term
portion

 

The Royal Bank of Scotland

 

$

667,134 

 

$

24,327 

 

$

642,807 

 

$

678,954 

 

$

12,657 

 

$

666,297 

 

HSH Nordbank AG-Aegean Baltic Bank-Piraeus Bank

 

 

627,818 

 

 

50 

 

 

627,768 

 

 

628,513 

 

 

 

 

628,513 

 

HSH Nordbank

 

 

21,208 

 

 

9,006 

 

 

12,202 

 

 

28,843 

 

 

7,633 

 

 

21,210 

 

The Export-Import Bank of Korea ("KEXIM")

 

 

8,204 

 

 

8,204 

 

 

 

 

18,573 

 

 

10,369 

 

 

8,204 

 

The Export-Import Bank of Korea & ABN Amro

 

 

45,609 

 

 

11,250 

 

 

34,359 

 

 

56,859 

 

 

11,250 

 

 

45,609 

 

Deutsche Bank

 

 

169,921 

 

 

5,338 

 

 

164,583 

 

 

174,709 

 

 

4,786 

 

 

169,923 

 

Canyon Capital Finance

 

 

136,719 

 

 

11,425 

 

 

125,294 

 

 

144,467 

 

 

8,228 

 

 

136,239 

 

Credit Suisse

 

 

199,373 

 

 

11,978 

 

 

187,395 

 

 

208,585 

 

 

9,328 

 

 

199,257 

 

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

 

 

228,999 

 

 

13,509 

 

 

215,490 

 

 

239,896 

 

 

11,422 

 

 

228,474 

 

Commerzbank-Credit Suisse-Golden Tree

 

 

258,089 

 

 

20,139 

 

 

237,950 

 

 

274,984 

 

 

17,327 

 

 

257,657 

 

The Royal Bank of Scotland (January 2011 Credit Facility)

 

 

69,948 

 

 

30,990 

 

 

38,958 

 

 

85,017 

 

 

15,326 

 

 

69,691 

 

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

 

 

69,562 

 

 

37,901 

 

 

31,661 

 

 

94,812 

 

 

22,476 

 

 

72,336 

 

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

 

 

20,582 

 

 

14,244 

 

 

6,338 

 

 

26,444 

 

 

6,371 

 

 

20,073 

 

Sinosure CEXIM-Citi-ABN Amro Credit Facility

 

 

122,040 

 

 

20,340 

 

 

101,700 

 

 

142,380 

 

 

20,340 

 

 

122,040 

 

Club Facility (January 2011 Credit Facility)

 

 

50,404 

 

 

32,665 

 

 

17,739 

 

 

65,457 

 

 

14,773 

 

 

50,684 

 

Citi-Eurobank Credit Facility (January 2011 Credit Facility)

 

 

63,834 

 

 

18,180 

 

 

45,654 

 

 

69,759 

 

 

5,830 

 

 

63,929 

 

Comprehensive Financing Plan exit fees accrued

 

 

15,501 

 

 

 

 

15,501 

 

 

11,862 

 

 

 

 

11,862 

 

Fair value hedged debt

 

 

433 

 

 

433 

 

 

 

 

1,006 

 

 

 

 

1,006 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

Total long-term debt

 

$

2,775,378 

 

$

269,979 

 

$

2,505,399 

 

$

2,951,120 

 

$

178,116 

 

$

2,773,004 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

Hyundai Samho Vendor Financing

 

 

 

 

 

 

 

$

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 subsequent to December 31, 2015 are as follows (in thousands):

                                                                                                                                                                                    

 

 

Fixed
principal
repayments

 

Variable
principal
payments

 

Final Payment
due on
December 31,
2018*

 

Total
principal
payments

 

2016

 

$

183,173 

 

$

86,373 

 

$

 

$

269,546 

 

2017

 

 

180,430 

 

 

133,032 

 

 

 

 

313,462 

 

2018

 

 

204,919 

 

 

77,048 

 

 

1,833,449 

 

 

2,115,416 

 

2019

 

 

20,340 

 

 

 

 

 

 

20,340 

 

2020

 

 

20,340 

 

 

 

 

 

 

20,340 

 

2021

 

 

20,340 

 

 

 

 

 

 

20,340 

 

​  

​  

​  

​  

​  

​  

​  

​  

Total long-term debt

 

$

629,542 

 

$

296,453 

 

$

1,833,449 

 

$

2,759,444 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  


 

 

 

*          

The last payment due on December 31, 2018, includes the unamortized remaining principal debt balances under the Bank Agreement, as such amount will be determinable following the fixed and variable amortization.

        The maturities of long term debt for the twelve month periods subsequent to December 31, 2015 are based on the terms of the Bank Agreement, under which the Company was not required to repay any outstanding principal amounts under its credit facilities, other than the KEXIM and KEXIM ABN Amro credit facilities which are not covered by the Bank Agreement, until May 15, 2013; thereafter until December 31, 2018 it is required to make quarterly principal payments in fixed amounts. In addition, the Company is required to make an additional payment in such amount that, together with the fixed principal payment, equals a certain percentage of its Actual Free Cash Flow of the preceding financial quarter. The table above includes both the fixed payments for which the Company has a contractual obligation, as well as the Company's estimate of the future Actual Free Cash Flows and resulting variable amortization. The last payment due on December 31, 2018, will also include the unamortized remaining principal debt balances, as such amount will be determinable following the fixed and variable amortization.

        On September 12, 2013, the Company signed a supplemental letter extending the terms of the February 9, 2012 supplemental letter through November 20, 2018 (the maturity of the respective credit facility), which amended the interest rate margin and the financial covenants of its KEXIM ABN Amro credit facility. More specifically, under the February 9, 2012 supplemental letter the financial covenants were aligned with those set forth in the Bank Agreement (see below), and the interest rate margin was increased by 0.5 percentage points.

Bank Agreement

        On January 24, 2011, the Company entered into a definitive agreement, which became effective on March 4, 2011, referred to as the Bank Agreement, that superseded, amended and supplemented the terms of each of the Company's then existing credit facilities (other than its credit facilities with KEXIM and KEXIM ABN Amro which are not covered thereby), and provided for, among other things, revised amortization schedules, maturities, interest rates, financial covenants, events of defaults, guarantee and security packages and approximately $425 million of new debt financing. Subject to the terms of the Bank Agreement and the intercreditor agreement (the "Intercreditor Agreement"), which the Company entered into with each of the lenders participating under the Bank Agreement to govern the relationships between the lenders thereunder, under the January 2011 Credit Facilities (as described and defined below) and under the Hyundai Samho Vendor Financing described below, the lenders participating thereunder continued to provide the Company's then outstanding credit facilities and amended the covenants under such credit facilities in accordance with the terms of the Bank Agreement.

        In accordance with the accounting guidance for troubled debt restructuring, the Company's debt did not meet the conditions of troubled debt restructuring as the lenders have not granted a concession. The effective borrowing rate of the restructured debt was higher than the effective borrowing rate of the old debt.

Interest and Fees

        Under the terms of the Bank Agreement, borrowings under each of the Company's existing credit facilities, other than the KEXIM and KEXIM-ABN Amro credit facilities which are not covered by the Bank Agreement, bear interest at an annual interest rate of LIBOR plus a margin of 1.85%.

        The Company was required to pay an amendment fee equal to 0.5% of the outstanding commitments under each existing financing arrangement, or $12.5 million in the aggregate, of which 20% was paid and deferred on the signing of a commitment letter for the Bank Agreement in August 2010, 40% was paid in January 2011 upon the signing of the Bank Agreement and the remaining 40% was due on December 31, 2014. The Company settled in full this amendment fee by paying $4.3 million on December 23, 2014 and $0.7 million on January 7, 2015. This amendment fee is deferred and amortized over the life of the respective credit facilities with the effective interest method. In addition, the Company is required to pay exit fees, which are discussed in detail below.

        The Company was also required to pay a fee of 0.25% of the total committed amount contemplated by the August 6, 2010 commitment letter for the Bank Agreement for the period starting from August 6, 2010 up until March 4, 2011 (the effective date of the agreement) and which commitment fee was amended to 0.75% for the period after March 4, 2011, which fees were capitalized in cost of vessels under construction as it related to undrawn committed debt designated for specific newbuildings, and a $4.38 million amendment fee (of which $1.22 million was paid in December 2010 and $3.16 million was paid in January 2011) relating to conditions in respect of the Sinosure-CEXIM credit facility. This amendment fee was deferred and is being amortized over the life of the new debt using the effective interest rate method.

Principal Payments

        Under the terms of the Bank Agreement (other than the KEXIM and KEXIM ABN Amro credit facilities, which are not covered by the Bank Agreement), the Company is required to make quarterly principal payments in fixed amounts, in relation to the Company's total debt commitments from the Company's lenders under the Bank Agreement and the January 2011 Credit Facilities, as specified in the table below (in thousands):

                                                                                                                                                                                    

 

 

February 15,

 

May 15,

 

August 15,

 

November 15,

 

December 31,

 

Total

 

2016

 

 

30,973 

 

 

36,278 

 

 

32,276 

 

 

43,852 

 

 

 

 

143,379 

 

2017

 

 

44,939 

 

 

36,691 

 

 

35,338 

 

 

31,872 

 

 

 

 

148,840 

 

2018

 

 

34,152 

 

 

37,585 

 

 

44,399 

 

 

45,334 

 

 

65,969 

 

 

227,439 

 

​  

​  

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

519,658 

 

​  

​  

​  

​  


 

 

 

*          

The Company may elect to make the scheduled payments shown in the above table three months earlier.

        Furthermore, an additional variable payment in such amount that, together with the fixed principal payment (as disclosed above), equals 92.5% of Actual Free Cash Flow for such quarter until the earlier of (x) the date on which the Company's consolidated net leverage is below 6:1 and (y) May 15, 2015; and thereafter through maturity, which will be December 31, 2018 for each covered credit facility, it will be required to make fixed quarterly principal payments in fixed amounts as specified in the Bank Agreement and described above plus an additional payment in such amount that, together with the fixed principal payment, equals 89.5% of Actual Free Cash Flow for such quarter. In addition, any additional amounts of cash and cash equivalents from January 1, 2015 until maturity in excess of the greater of (1) $50 million of accumulated unrestricted cash and cash equivalents and (2) 2% of the Company's consolidated debt, would be applied first to the prepayment of the January 2011 Credit Facilities and after the January 2011 Credit Facilities are repaid, to the outstanding credit facilities covered by the Bank Agreement. The last payment due on December 31, 2018, will also include the unamortized remaining principal debt balances, as such amount will be determinable following the fixed and variable amortization.

        Under the Bank Agreement, "Actual Free Cash Flow" with respect to each credit facility covered thereby is equal to revenue from the vessels collateralizing such facility, less the sum of (a) interest expense under such credit facility, (b) pro rata portion of payments under its interest rate swap arrangements, (c) interest expense and scheduled amortization under the Hyundai Samho Vendor Financing and (d) per vessel operating expenses and pro rata per vessel allocation of general and administrative expenses (which are not permitted to exceed the relevant budget by more than 20%), plus (e) the pro rata share of operating cash flow of any Applicable Second Lien Vessel (which will mean, with respect to an existing facility, a vessel with respect to which the participating lenders under such facility have a second lien security interest and the first lien credit facility has been repaid in full).

        Under the terms of the Bank Agreement, the Company continues to be required to make any mandatory prepayments provided for under the terms of its existing credit facilities and is required to make additional prepayments as follows:

 

 

 

           

•          

50% of the first $300 million of net equity proceeds (including convertible debt and hybrid instruments), after entering into the Bank Agreement and 25% of any additional net equity proceeds; and

           

•          

any debt proceeds (after repayment of any underlying secured debt covered by vessels collateralizing the new borrowings) (excluding the January 2011 Credit Facilities, the Sinosure CEXIM Credit Facility and the Hyundai Samho Vendor Financing),

which amounts would first be applied to repayment of amounts outstanding under the January 2011 Credit Facilities and then to the existing credit facilities. Any equity proceeds retained by the Company and not used within 12 months for certain specified purposes would be applied for prepayment of the January 2011 Credit Facilities and then to the credit facilities covered by the Bank Agreement. The Company would also be required to prepay the portion of a credit facility attributable to a particular vessel upon the sale or total loss of such vessel; the termination or loss of an existing charter for a vessel, unless replaced within a specified period by a similar charter acceptable to the lenders; or the termination of a newbuilding contract. The Company's respective lenders under its credit facilities covered by the Bank Agreement and the January 2011 Credit Facilities may, at their option, require the Company to repay in full amounts outstanding under such respective credit facilities, upon a "Change of Control" of the Company, which for these purposes is defined as (i) Dr. Coustas ceasing to be its Chief Executive Officer, (ii) its common stock ceasing to be listed on the NYSE (or Nasdaq or other recognized stock exchange), (iii) whilst an event of default is continuing, a change in the ultimate beneficial ownership of the capital stock of any of its subsidiaries or ultimate control of the voting rights of those shares, (iv) Dr. Coustas and members of his family ceasing to collectively own over one third of the voting interest in its outstanding capital stock or (v) any other person or group controlling more than 20% of the voting power of its outstanding capital stock.

Covenants and Events of Defaults

        On January 24, 2011, the Company entered into the Bank Agreement that superseded, amended and supplemented the terms of each of its existing credit facilities (other than its credit facilities with KEXIM and KEXIM-ABN Amro) and provided for, among other things, revised financial covenant levels under such existing credit facilities as described below, with which the Company was in compliance as of December 31, 2015 and 2014.

        Under the Bank Agreement, the financial covenants under each of the Company's existing credit facilities (other than under the KEXIM-ABN Amro credit facility which is not covered thereby, but which has been aligned with those covenants until maturity of the respective facility under the supplemental letter dated September 12, 2013 and our KEXIM credit facility, which contains only a collateral coverage covenant of 130%), have been reset to require the Company to:

 

 

 

           

•          

maintain a ratio of (i) the market value of all of the vessels in the Company's fleet, on a charter-inclusive basis, plus the net realizable value of any additional collateral, to (ii) the Company's consolidated total debt above specified minimum levels gradually increasing from 90% through December 31, 2011 to 130% from September 30, 2017 through September 30, 2018; 

           

•          

maintain a minimum ratio of (i) the market value of the nine vessels (Hyundai Smart, Hyundai Speed, Hyundai Ambition, Hyundai Together, Hyundai Tenacity, Hanjin Greece, Hanjin Italy, Hanjin Germany and CMA CGM Rabelais) collateralizing the New Credit Facilities, calculated on a charter-free basis, plus the net realizable value of any additional collateral, to (ii) the Company's aggregate debt outstanding under the New Credit Facilities of 100% from September 30, 2012 through September 30, 2018;

           

•          

maintain minimum free consolidated unrestricted cash and cash equivalents, less the amount of the aggregate variable principal amortization amounts, described above, of $30.0 million at the end of each calendar quarter; 

           

•          

ensure that the Company's (i) consolidated total debt less unrestricted cash and cash equivalents to (ii) consolidated EBITDA (defined as net income before interest, gains or losses under any hedging arrangements, tax, depreciation, amortization and any other non-cash item, capital gains or losses realized from the sale of any vessel, finance charges and capital losses on vessel cancellations and before any non-recurring items and excluding any accrued interest due to us but not received on or before the end of the relevant period; provided that non-recurring items excluded from this calculation shall not exceed 5% of EBITDA calculated in this manner) for the last twelve months does not exceed a maximum ratio gradually decreasing from 12:1 on December 31, 2010 to 4.75:1 on September 30, 2018; 

           

•          

ensure that the ratio of the Company's (i) consolidated EBITDA for the last twelve months to (ii) net interest expense (defined as interest expense (excluding capitalized interest), less interest income, less realized gains on interest rate swaps (excluding capitalized gains) and plus realized losses on interest rate swaps (excluding capitalized losses)) exceeds a minimum level of 1.50:1 through September 30, 2013 and thereafter gradually increasing to 2.80:1 by September 30, 2018; and 

           

•          

maintain a consolidated market value adjusted net worth (defined as the amount by which the Company's total consolidated assets adjusted for the market value of the Company's vessels in the water less cash and cash equivalents in excess of the Company's debt service requirements exceeds the Company's total consolidated liabilities after excluding the net asset or liability relating to the fair value of derivatives as reflected in the Company's financial statements for the relevant period) of at least $400 million.

        For the purpose of these covenants, the market value of the Company's vessels will be calculated, except as otherwise indicated above, on a charter-inclusive basis (using the present value of the "bareboat-equivalent" time charter income from such charter) so long as a vessel's charter has a remaining duration at the time of valuation of more than 12 months plus the present value of the residual value of the relevant vessel (generally equivalent to the charter free value of such a vessel at the age such vessel would be at the expiration of the existing time charter). The market value for newbuilding vessels, all of which currently have multi-year charters, would equal the lesser of such amount and the newbuilding vessel's book value.

        Under the terms of the Bank Agreement, the covered credit facilities also contain customary events of default, including those relating to cross-defaults to other indebtedness, defaults under its swap agreements, non-compliance with security documents, material adverse changes to its business, a Change of Control as described above, a change in its Chief Executive Officer, its common stock ceasing to be listed on the NYSE (or Nasdaq or another recognized stock exchange), a breach of the management agreement for the vessels securing the respective credit facilities and cancellation or amendment of the time charters (unless replaced with a similar time charter with a charterer acceptable to the lenders) for the vessels securing the respective credit facilities.

        Under the terms of the Bank Agreement, the Company generally will not be permitted to incur any further financial indebtedness or provide any new liens or security interests, unless such security is provided for the equal and ratable benefit of each of the lenders party to the Intercreditor Agreement, other than security arising by operation of law or in connection with the refinancing of outstanding indebtedness, with the consent, not to be unreasonably withheld, of all lenders with a lien on the security pledged against such outstanding indebtedness. In addition, the Company would not be permitted to pay cash dividends or repurchase shares of its capital stock unless (i) its consolidated net leverage is below 6:1 for four consecutive quarters and (ii) the ratio of the aggregate market value of its vessels to its outstanding indebtedness exceeds 125% for four consecutive quarters and provided that an event of default has not occurred and the Company is not, and after giving effect to the payment of the dividend, in breach of any covenant.

Collateral and Guarantees

        Each of the Company's existing credit facilities and swap arrangements, to the extent applicable, continue to be secured by their previous collateral on the same basis, and received, to the extent not previously provided, pledges of the shares of the Company's subsidiaries owning the vessels collateralizing the applicable facilities, cross-guarantees from each subsidiary owning the vessels collateralizing such facilities, assignment of the refund guarantees in relation to any newbuildings funded by such facilities and other customary shipping industry collateral.

January 2011 Credit Facilities (Aegean Baltic Bank-HSH Nordbank-Piraeus Bank, RBS, ABN Amro Club facility, Club Facility and Citi-Eurobank)

        On January 24, 2011, the Company entered into agreements for the following new term loan credit facilities ("January 2011 Credit Facilities"):

 

 

 

           

(i)          

a $123.8 million credit facility provided by HSH, which is secured by the Hyundai Speed, the Hanjin Italy and the CMA CGM Rabelais and customary shipping industry collateral related thereto (the $123.8 million amount includes principal commitment of $23.75 million under the Aegean Baltic Bank—HSH Nordbank—Piraeus Bank credit facility already drawn as of December 31, 2010, which was transferred to the new facility upon finalization of the agreement in 2011);

           

(ii)          

a $100.0 million credit facility provided by RBS, which is secured by the Hyundai Smart and the Hanjin Germany and customary shipping industry collateral related thereto;

           

(iii)          

a $37.1 million credit facility with ABN Amro and lenders participating under the Bank Agreement which is secured by Hanjin Greece and customary shipping industry collateral related thereto;

           

(iv)          

a $83.9 million new club credit facility to be provided, on a pro rata basis, by the other existing lenders participating under the Bank Agreement, which is secured by Hyundai Together and Hyundai Tenacity and customary shipping industry collateral related thereto; and

           

(v)          

a $80.0 million credit facility with Citibank and Eurobank, which is secured by the Hyundai Ambition and customary shipping industry collateral related thereto ((i)-(v), collectively, the "January 2011 Credit Facilities").

        As of December 31, 2015, $274.3 million was outstanding under the above January 2011 Facilities and there was no remaining borrowing availability under these credit facilities.

Interest and Fees

        Borrowings under each of the January 2011 Credit Facilities bear interest at an annual interest rate of LIBOR plus a margin of 1.85%, subject, on and after January 1, 2013, to increases in the applicable margin to: (i) 2.50% if the outstanding indebtedness thereunder exceeds $276 million, (ii) 3.00% if the outstanding indebtedness thereunder exceeds $326 million and (iii) 3.50% if the outstanding indebtedness thereunder exceeds $376 million.

        The Company paid an arrangement fee of 2.00%, or $8.5 million in the aggregate, $3.3 million of which was paid in August 2010 (the date the commitment letter was entered into) and $5.2 million paid in January 2011, which was deferred and is being amortized through the Statement of Operations over the life of the respective facilities with the effective interest rate method. Furthermore, the Company paid a commitment fee of 0.75% per annum payable quarterly in arrears on the committed but undrawn portion of the respective loan.

        On October 22, 2014, the Company entered into a supplemental agreement with the lenders under the HSH Nordbank AG-Aegean Baltic Bank-Piraeus Bank credit facility in relation to the use of proceeds from the sale of 5 mortgaged vessels (the Marathonas, the Commodore, the Duka, the Mytilini and the Messologi), all of which were sold during the year ended December 31, 2014 for an aggregate of $55.2 million gross sale proceeds less sale commissions, of which $18.2 million was applied against prepayment of the respective facility on August 18, 2014. The remaining $37.0 million were used to finance the acquisition of two secondhand containership vessels delivered on November 5, 2014. Refer to Note 4, "Fixed Assets, net". The Company paid the lenders a fee of $0.09 million for fully utilizing the remaining $37.0 million. This fee is deferred and amortized over the life of the respective credit facility with the effective interest method.

Principal Payments

        Under the Bank Agreement, the Company was not required to repay any outstanding principal amounts under its January 2011 Credit Facilities until May 15, 2013 and thereafter it is required to make quarterly principal payments in fixed amounts as specified in the Bank Agreement plus an additional quarterly variable amortization payment, all as described above under "—Bank Agreement—Principal Payments."

Covenants, Events of Default and Other Terms

        The January 2011 Credit Facilities contain substantially the same financial and operating covenants, events of default, dividend restrictions and other terms and conditions as applicable to the Company's then outstanding credit facilities as revised under the Bank Agreement described above.

Collateral and Guarantees

        The collateral described above relating to the newbuildings financed by the respective credit facilities, was (other than in respect of the CMA CGM Rabelais) subject to a limited participation by Hyundai Samho in any enforcement thereof until repayment of the related Hyundai Samho Vendor financing (described below) for such vessels. In addition lenders participating in the $83.9 million club credit facility described above received a lien on Hyundai Together and Hyundai Tenacity as additional security in respect of the pre-existing credit facilities the Company had with such lenders. The lenders under the other January 2011 Credit Facilities also received a lien on the respective vessels securing such January 2011 Credit Facilities as additional collateral in respect of its pre-existing credit facilities and interest rate swap arrangements with such lenders and Citibank and Eurobank also received a second lien on Hyundai Ambition as collateral in respect of its previously unsecured interest rate arrangements with them.

        In addition, Aegean Baltic—HSH Nordbank—Piraeus Bank also received a second lien on the Deva, the CSCL Europe and the CSCL Pusan as collateral in respect of all borrowings from Aegean Baltic—HSH Nordbank—Piraeus Bank and RBS also received a second lien on the Derby D, CSCL America and the CSCL Le Havre as collateral in respect of all borrowings from RBS.

        The Company's obligations under the January 2011 Credit Facilities are guaranteed by its subsidiaries owning the vessels collateralizing the respective credit facilities. The Company's Manager has also provided an undertaking to continue to provide the Company with management services and to subordinate its rights to the rights of its lenders, the security trustee and applicable hedge counterparties.

Sinosure-CEXIM-Citi-ABN Amro Credit Facility

        On February 21, 2011, the Company entered into a bank agreement with Citibank, acting as agent, ABN Amro and the Export-Import Bank of China ("CEXIM") for a senior secured credit facility (the "Sinosure-CEXIM Credit Facility") of up to $203.4 million, in three tranches each in an amount equal to the lesser of $67.8 million and 60.0% of the contract price for the newbuilding vessels, CMA CGM Tancredi, CMA CGM Bianca and CMA CGM Samson, securing such tranche for post-delivery financing of these vessels. The Company took delivery of the respective vessels in 2011. The China Export & Credit Insurance Corporation, or Sinosure, covers a number of political and commercial risks associated with each tranche of the credit facility.

        Borrowings under the Sinosure-CEXIM Credit Facility bear interest at an annual interest rate of LIBOR plus a margin of 2.85% payable semi-annually in arrears. The Company is required to repay principal amounts drawn under each tranche of the Sinosure-CEXIM Credit Facility in consecutive semi-annual installments over a ten-year period commencing after the delivery of the respective newbuilding being financed by such amount through the final maturity date of the respective tranches and repay the respective tranche in full upon the loss of the respective newbuilding.

        As of December 31, 2015, $122.0 million was outstanding under the credit facility and there was no remaining borrowing availability under the credit facility.

Covenants, Events of Default and Other Terms

        The Sinosure-CEXIM credit facility was amended and restated, effective on June 30, 2013, to align its financial covenants with the Company's Bank Agreement (except for the minimum ratio of the charter free market value of certain vessels, as described in the Bank Agreement, which is not applicable) described above and continues to require the Company to maintain a minimum ratio of the market value of the vessel collateralizing a tranche of the facility to debt outstanding under such tranche of 125%.

        The Sinosure-CEXIM credit facility also contains customary events of default, including those relating to cross-defaults to other indebtedness, defaults under its swap agreements, non-compliance with security documents, material adverse changes to its business, a Change of Control as described above, a change in its Chief Executive Officer, its common stock ceasing to be listed on the NYSE (or Nasdaq or another recognized stock exchange), a breach of the management agreement for the mortgaged vessels and cancellation or amendment of the time charters (unless replaced with a similar time charter with a charterer acceptable to the lenders) for the mortgaged vessels.

        The Company will not be permitted to pay cash dividends or repurchase shares of its capital stock unless (i) its consolidated net leverage is below 6:1 for four consecutive quarters and (ii) the ratio of the aggregate market value of its vessels to its outstanding indebtedness exceeds 125% for four consecutive quarters and provided that an event of default has not occurred and the Company is not, and after giving effect to the payment of the dividend is not, in breach of any covenant.

Collateral

        The Sinosure-CEXIM Credit Facility is secured by customary post-delivery shipping industry collateral with respect to the vessels, CMA CGM Tancredi, CMA CGM Bianca and CMA CGM Samson, securing the respective tranche.

Hyundai Samho Vendor Financing

        The Company entered into an agreement with Hyundai Samho Heavy Industries ("Hyundai Samho") for a financing facility of $190.0 million in respect of eight of its newbuilding containerships built by Hyundai Samho, the Hyundai Speed, the Hyundai Smart, the Hyundai Ambition, the Hyundai Together, the Hyundai Tenacity, the Hanjin Greece, the Hanjin Italy and the Hanjin Germany, in the form of delayed payment of a portion of the final installment for each such newbuilding. As of December 31, 2015, the outstanding balance of this credit facility was nil.

        Borrowings under this facility bore interest at a fixed interest rate of 8%. The Company was required to repay principal amounts under this financing facility in six consecutive semi-annual installments commencing one and a half years, in the case of three of the newbuilding vessels being financed, and in seven consecutive semi-annual installments commencing one year, in the case of the other five newbuilding vessels, after the delivery of the respective newbuilding being financed. This financing facility was secured by second priority collateral related to the newbuilding vessels being financed.

Exit Fees

        The Company is required to pay Exit Fees of $25.0 million and, in the respective proportion to facilities covered by the Bank Agreement and the January 2011 Credit Facilities, are payable the earlier of (a) December 31, 2018 and (b) the date on which the respective facilities are repaid in full. The Exit Fees will accrete in the consolidated Statement of Operations over the life of the respective facilities (with the effective interest rate method) and are reported under "Long-term debt, net of current portion" in the consolidated Balance Sheets. The Company has recognized an amount of $15.5 million and $11.9 million as of December 31, 2015 and December 31, 2014, respectively.

Credit Facilities Summary Table