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1Basis of Presentation and General Information
The accompanying condensed consolidated financial statements (unaudited) have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The reporting and functional currency of the Company is the United States Dollar.
Danaos Corporation (“Danaos” or “Company”), formerly Danaos Holdings Limited, was formed on December 7, 1998 under the laws of Liberia and is presently the sole owner of all outstanding shares of the companies listed below. Danaos Holdings Limited was redomiciled in the Marshall Islands on October 7, 2005. In connection with the redomiciliation, the Company changed its name to Danaos Corporation. On October 14, 2005, the Company filed and the Marshall Islands accepted Amended and Restated Articles of Incorporation. The authorized capital stock of Danaos Corporation is 750,000,000 shares of common stock with a par value of $0.01 and 100,000,000 shares of preferred stock with a par value of $0.01. Refer to Note 13, Stockholders’ Equity.
In the opinion of management, the accompanying condensed consolidated financial statements (unaudited) of Danaos and subsidiaries contain all adjustments necessary to present fairly, in all material respects, the Company’s condensed consolidated financial position as of June 30, 2016 and December 31, 2015, the condensed consolidated results of operations for the three and six months ended June 30, 2016 and 2015 and the condensed consolidated cash flows for the six months ended June 30, 2016 and 2015. All such adjustments are deemed to be of a normal, recurring nature. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in Danaos’ Annual Report on Form 20-F for the year ended December 31, 2015. The results of operations for the three and six months ended June 30, 2016, are not necessarily indicative of the results to be expected for the full year.
The year-end condensed consolidated balance sheet data was derived from audited financial statements except for the effect of the adoption of the Accounting Standards Update No. 2015-03 “Simplifying the Presentation of Debt Issuance Costs” (Note 2), but does not include all disclosures required by accounting principles generally accepted in the United States of America.
The Company’s principal business is the acquisition and operation of vessels. Danaos conducts its operations through the vessel owning companies whose principal activity is the ownership and operation of containerships that are under the exclusive management of a related party of the Company.
The accompanying condensed consolidated financial statements (unaudited) represent the consolidation of the accounts of the Company and its wholly owned subsidiaries. The subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidated from the date that control ceases. Inter-company transaction balances and unrealized gains on transactions between the companies are eliminated.
The Company also consolidates entities that are determined to be variable interest entities, of which the Company is the primary beneficiary, as defined in the authoritative guidance under U.S. GAAP. A variable interest entity is defined as a legal entity where either (a) equity interest holders as a group lack the characteristics of a controlling financial interest, including decision making ability and an interest in the entity’s residual risks and rewards, or (b) the equity holders have not provided sufficient equity investment to permit the entity to finance its activities without additional subordinated financial support, or (c) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights.
The condensed consolidated financial statements (unaudited) have been prepared to reflect the consolidation of the companies listed below. The historical balance sheets and results of operations of the companies listed below have been reflected in the condensed consolidated balance sheets and condensed consolidated Statements of Income, cash flows and stockholders’ equity at and for each period since their respective incorporation dates.
The consolidated companies are referred to as “Danaos,” or “the Company.”
As of June 30, 2016, Danaos included the vessel owning companies (the “Danaos Subsidiaries”) listed below. All vessels are container vessels:
Company |
|
Date of Incorporation |
|
Vessel Name |
|
Year Built |
|
TEU(2) |
Megacarrier (No. 1) Corp. |
|
September 10, 2007 |
|
Hyundai Together |
|
2012 |
|
13,100 |
Megacarrier (No. 2) Corp. |
|
September 10, 2007 |
|
Hyundai Tenacity |
|
2012 |
|
13,100 |
Megacarrier (No. 3) Corp. |
|
September 10, 2007 |
|
Hyundai Smart |
|
2012 |
|
13,100 |
Megacarrier (No. 4) Corp. |
|
September 10, 2007 |
|
Hyundai Speed |
|
2012 |
|
13,100 |
Megacarrier (No. 5) Corp. |
|
September 10, 2007 |
|
Hyundai Ambition |
|
2012 |
|
13,100 |
CellContainer (No. 6) Corp. |
|
October 31, 2007 |
|
Hanjin Germany |
|
2011 |
|
10,100 |
CellContainer (No. 7) Corp. |
|
October 31, 2007 |
|
Hanjin Italy |
|
2011 |
|
10,100 |
CellContainer (No. 8) Corp. |
|
October 31, 2007 |
|
Hanjin Greece |
|
2011 |
|
10,100 |
Karlita Shipping Co. Ltd. |
|
February 27, 2003 |
|
CSCL Pusan |
|
2006 |
|
9,580 |
Ramona Marine Co. Ltd. |
|
February 27, 2003 |
|
CSCL Le Havre |
|
2006 |
|
9,580 |
Teucarrier (No. 5) Corp. |
|
September 17, 2007 |
|
CMA CGM Melisande |
|
2012 |
|
8,530 |
Teucarrier (No. 1) Corp. |
|
January 31, 2007 |
|
CMA CGM Attila |
|
2011 |
|
8,530 |
Teucarrier (No. 2) Corp. |
|
January 31, 2007 |
|
CMA CGM Tancredi |
|
2011 |
|
8,530 |
Teucarrier (No. 3) Corp. |
|
January 31, 2007 |
|
CMA CGM Bianca |
|
2011 |
|
8,530 |
Teucarrier (No. 4) Corp. |
|
January 31, 2007 |
|
CMA CGM Samson |
|
2011 |
|
8,530 |
Oceanew Shipping Ltd. |
|
January 14, 2002 |
|
CSCL Europe |
|
2004 |
|
8,468 |
Oceanprize Navigation Ltd. |
|
January 21, 2003 |
|
CSCL America |
|
2004 |
|
8,468 |
Boxcarrier (No. 2) Corp. |
|
June 27, 2006 |
|
CMA CGM Musset(1) |
|
2010 |
|
6,500 |
Boxcarrier (No. 3) Corp. |
|
June 27, 2006 |
|
CMA CGM Nerval(1) |
|
2010 |
|
6,500 |
Boxcarrier (No. 4) Corp. |
|
June 27, 2006 |
|
CMA CGM Rabelais(1) |
|
2010 |
|
6,500 |
Boxcarrier (No. 5) Corp. |
|
June 27, 2006 |
|
CMA CGM Racine(1) |
|
2010 |
|
6,500 |
Boxcarrier (No. 1) Corp. |
|
June 27, 2006 |
|
CMA CGM Moliere(1) |
|
2009 |
|
6,500 |
Expresscarrier (No. 1) Corp. |
|
March 5, 2007 |
|
YM Mandate |
|
2010 |
|
6,500 |
Expresscarrier (No. 2) Corp. |
|
March 5, 2007 |
|
YM Maturity |
|
2010 |
|
6,500 |
Actaea Company Limited |
|
October 14, 2014 |
|
Performance |
|
2002 |
|
6,402 |
Asteria Shipping Company Limited |
|
October 14, 2014 |
|
Priority |
|
2002 |
|
6,402 |
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 |
|
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 |
Vessel sold in 2016 |
|
|
|
|
|
|
|
|
Federal Marine Inc. |
|
February 14, 2006 |
|
Federal |
|
1994 |
|
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-feet equivalent unit, the international standard measure for containers and containership capacity. |
|
2Significant Accounting Policies
All accounting policies are as described in the Company’s Annual Report on Form 20-F for the year ended December 31, 2015 filed with the Securities and Exchange Commission on March 15, 2016, except as described below under “Change in Accounting Principle”.
Change in Accounting Principle
The Company historically presented fees incurred for obtaining loans as deferred charges in the consolidated balance sheets. During the six months ended June 30, 2016, the Company adopted 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 consolidated balance sheets as a direct deduction from the carrying amount of debt liability, consistent with debt discounts. Upon adoption, the Company applied the new guidance retrospectively to prior periods presented in the consolidated financial statements. The effect of the retrospective application of this change in accounting principle on the Company’s consolidated balance sheet as of December 31, 2015 resulted in a reduction of deferred charges, net by $35.0 million, with a corresponding reduction of long-term debt, net. Additionally, amortization of deferred charges amounting to $7.2 million was reclassified from other finance expenses to interest expense in the condensed consolidated statements of income for the six months ended June 30, 2015.
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. In addition, in 2016, the FASB issued four amendments, which clarified the guidance on certain items such as reporting revenue as a principal versus agent, identifying performance obligations, accounting for intellectual property licenses, assessing collectability and presentation of sales taxes. The Company is currently evaluating the impact that the adoption of the new standard will have on its consolidated financial statements and associated disclosures, and have not yet selected a transition method.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 requires all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this Update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition the amendments in this Update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement for to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The amendments are effective for annual periods 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.
In March 2016, the FASB issued ASU 2016-07, “Investments - Equity Method and Joint Ventures (Topic 323)” (“ASU 2016-07”), which simplifies the accounting for equity method investments by removing the requirement that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. ASU 2016-07 is effective for fiscal years beginning after December 15, 2016, and interim periods within those years, and must be applied prospectively. Early adoption is permitted. The Company is currently evaluating the provisions of this guidance and assessing its impact on its consolidated financial statements and notes disclosures.
In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations. The amendments in ASU 2016-8 affect the guidance in the ASU 2014-09, which is not yet effective. ASU 2016-08 is effective for fiscal years beginning after December 15, 2017, and interim reporting periods within those years. Early application is permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the provisions of this guidance and assessing its impact on its consolidated financial statements and notes disclosures.
In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation - Improvements to Employee Share-Based Payment Accounting (Topic 718)” (“ASU 2016-09”), which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, all excess income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 including interim periods within that reporting period, however early adoption is permitted. The Company is currently evaluating the guidance to determine the Company’s adoption method and the effect it will have on its consolidated financial statements and notes disclosures.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The ASU 2016-13 is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of the new standard on the Company’s consolidated financial statements.
|
3Restricted Cash
The Company was required to maintain cash of $5,880 thousand and $2,818 thousand as of June 30, 2016 and as of December 31, 2015, respectively, in a retention bank account as a collateral for the upcoming scheduled debt payments of its KEXIM and KEXIM-ABN Amro credit facilities, which were recorded under current assets in the Company’s Balance Sheets.
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4Fixed assets, net
On December 23, 2015, the Company entered into an agreement to sell the 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 and the remaining $5.8 million was received upon the completion of the sale on January 8, 2016. As of December 31, 2015, the Federal was classified as vessel held for sale in the consolidated Balance Sheet and was valued at $6.3 million, net of impairment loss of $2.1 million. The sale of the vessel resulted in a loss on sale of the vessel of $36 thousand.
During the year ended 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. Fair value of each vessel was determined with the assistance from valuations obtained by third party independent shipbrokers.
The residual value (estimated scrap value at the end of the vessels’ useful lives) of the fleet was estimated at $379.6 million and $386.4 million as of June 30, 2016 and as of December 31, 2015, respectively. The Company has calculated the residual value of the vessels taking into consideration the 10 year average and the 5 year average of the scrap. The Company has applied uniformly the scrap value of $300 per ton for all vessels. The Company believes that $300 per ton is a reasonable estimate of future scrap prices, taking into consideration the cyclicality of the nature of future demand for scrap steel. Although the Company believes that the assumptions used to determine the scrap rate are reasonable and appropriate, such assumptions are highly subjective, in part, because of the cyclical nature of future demand for scrap steel.
|
5Deferred Charges, net
Deferred charges, net consisted of the following (in thousands):
|
|
Drydocking and |
|
|
As of January 1, 2015 |
|
$ |
6,255 |
|
Additions |
|
2,341 |
|
|
Amortization |
|
(3,845 |
) |
|
|
|
|
|
|
As of December 31, 2015 |
|
4,751 |
|
|
Additions |
|
6,394 |
|
|
Amortization |
|
(2,430 |
) |
|
|
|
|
|
|
As of June 30, 2016 |
|
$ |
8,715 |
|
|
|
|
|
|
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.
|
6Investments in affiliates
In August 2015, an affiliated company Gemini Shipholdings Corporation (“Gemini”) was formed by the Company and Virage International Ltd. (“Virage”), a company controlled by the Company’s largest shareholder. Gemini acquired a 100% interest in entities with capital leases for the Suez Canal and Genoa and that own the container vessels NYK Lodestar and NYK Leo. Gemini financed these acquisitions with the assumption of capital lease obligations of $35.4 million, $19.0 million of borrowings under secured loan facilities and an aggregate of $37.5 million from equity contributions from the Company and Virage, which subscribed in cash for 49% and 51%, respectively, of Gemini’s issued and outstanding share capital. As of June 30, 2016, Gemini consolidated its wholly owned subsidiaries listed below:
Company |
|
Vessel Name |
|
Year Built |
|
TEU |
|
Date of vessel delivery |
|
Averto Shipping S.A. |
|
Suez Canal |
|
2002 |
|
5,610 |
|
July 20, 2015 |
|
Sinoi Marine Ltd. |
|
Genoa |
|
2002 |
|
5,544 |
|
August 2, 2015 |
|
Kingsland International Shipping Limited |
|
NYK Lodestar |
|
2001 |
|
6,422 |
|
September 21, 2015 |
|
Leo Shipping and Trading S.A. |
|
NYK Leo |
|
2002 |
|
6,422 |
|
February 4, 2016 |
|
The Company has determined that Gemini is a variable interest entity of which the Company is not the primary beneficiary, and as such, this affiliated company is accounted for under the equity method and recorded under “Equity loss on investments” in the consolidated Statements of Income. The Company does not guarantee the debt of Gemini and its subsidiaries and has the right to purchase all of the beneficial interest in Gemini that it does not own for fair market value at any time after December 31, 2018, or earlier if permitted under its credit facilities. The net assets of Gemini total $31.6 million and $23.0 million as of June 30, 2016 and December 31, 2015, respectively. The Company’s exposure is limited to its share of the net assets of Gemini proportionate to its 49% equity interest in Gemini. A condensed summary of the financial information for equity accounted investments 49% owned by the Company shown on a 100% basis are as follows (in thousands):
|
|
As of |
|
As of |
|
||
|
|
June 30, 2016 |
|
December 31, 2015 |
|
||
Current assets |
|
$ |
12,701 |
|
$ |
12,578 |
|
Non-current assets |
|
$ |
70,547 |
|
$ |
54,771 |
|
Current liabilities |
|
$ |
7,014 |
|
$ |
5,552 |
|
Non-current liabilities |
|
$ |
44,601 |
|
$ |
38,758 |
|
|
|
Six months ended |
|
|
|
|
June 30, 2016 |
|
|
Net operating revenues |
|
$ |
6,266 |
|
Net loss |
|
$ |
1,906 |
|
|
7Other Current and Non-current Assets
Other current assets consisted of the following (in thousands):
|
|
As of |
|
As of |
|
||
|
|
June 30, 2016 |
|
December 31, 2015 |
|
||
Fair value of swaps |
|
$ |
24 |
|
$ |
138 |
|
Claims receivable |
|
1,178 |
|
954 |
|
||
Advances to suppliers and other assets |
|
2,436 |
|
3,365 |
|
||
|
|
|
|
|
|
||
Total |
|
$ |
3,638 |
|
$ |
4,457 |
|
|
|
|
|
|
|
|
|
As of June 30, 2016 and December 31, 2015, claims receivable consists of insurance and other claims. In respect to the fair value of swaps, refer to Note 11b, Financial Instruments—Fair Value Interest Rate Swap Hedges.
Other non-current assets consisted of the following (in thousands):
|
|
As of |
|
As of |
|
||
|
|
June 30, 2016 |
|
December 31, 2015 |
|
||
Series 1 ZIM notes, net |
|
$ |
6,540 |
|
$ |
6,587 |
|
Series 2 ZIM notes, net |
|
33,345 |
|
32,507 |
|
||
Equity participation ZIM |
|
28,693 |
|
28,693 |
|
||
Other assets |
|
5,664 |
|
4,401 |
|
||
|
|
|
|
|
|
||
Total |
|
$ |
74,242 |
|
$ |
72,188 |
|
|
|
|
|
|
|
|
|
As of July 16, 2014, ZIM and its creditors entered into definitive documentation effecting ZIM’s restructuring with its creditors on substantially the same terms as the agreement in principle previously announced by ZIM in January 2014. The terms of the restructuring include a reduction in the charter rates payable by ZIM under its time charters, expiring in 2020 or 2021, for six of the Company’s vessels, which had already been implemented beginning in January 2014. The terms also include the receipt of approximately $49.9 million aggregate principal amount of unsecured, interest bearing ZIM notes maturing in 2023 (consisting of $8.8 million of 3% Series 1 Notes due 2023 amortizing subject to available cash flow in accordance with a corporate cash sweep mechanism, and $41.1 million of 5% Series 2 Notes due 2023 non-amortizing (of the 5% interest rate, 3% is payable quarterly in cash and 2% is accrued quarterly with deferred cash payment on maturity)) and ZIM shares representing approximately 7.4% of the outstanding ZIM shares immediately after the restructuring, in exchange for such charter rate reductions and cancellation of ZIM’s other obligations to the Company which related to the outstanding long term receivable as of December 31, 2013.
As of July 16, 2014, the Company calculated the fair value of the instruments received from ZIM based on the agreement discussed above, other available information on ZIM, other contracts with similar terms, remaining maturities and interest rates and recorded at fair value an amount of $6.1 million in relation to the Series 1 Notes, $30.1 million in relation to the Series 2 Notes and $28.7 million in relation to its equity participation in ZIM. On a quarterly basis, the Company 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 June 30, 2016 and December 31, 2015, the Company recorded $6.5 million and $6.6 million in relation to the Series 1 Notes and $33.3 million and $32.5 million in relation to the Series 2 Notes, respectively and recognized $0.6 million and $0.5 million in relation to their fair value unwinding in the condensed consolidated Statements of Income in “Interest income” for the six months ended June 30, 2016 and 2015, respectively. In relation to Series 1 Notes, the Company received redemption of $0.3 million in the six months ended June 30, 2016. Furthermore, for the six months ended June 30, 2016 and 2015, the Company recognized in the condensed consolidated Statements of Income in “Interest income”, a non-cash interest income of $0.4 million and $0.4 million, respectively, in relation to the 2% interest of Series 2 Notes, which is accrued quarterly with deferred cash payment on maturity. The Company tests periodically for impairment of these investments based on the existence of triggering events that indicate ZIM’s debt instruments and interest in equity may have been impaired.
Furthermore, as of July 16, 2014, an amount of $39.1 million, which represents the additional compensation received from ZIM, was recorded as unearned revenue representing compensation to the Company for the future reductions in the daily charter rates payable by ZIM under its time charters, expiring in 2020 or 2021, for six of the Company’s vessels. This amount is recognized in the condensed consolidated Statements of Income in “Operating revenues” over the remaining life of the respective time charters. For the six months ended June 30, 2016 and 2015, the Company recorded an amount of $3.0 million and $3.0 million, respectively, of unearned revenue amortization in “Operating revenues”. As of June 30, 2016, the outstanding balances of the current and non-current portion of unearned revenue in relation to ZIM amounted to $6.0 million and $21.5 million, respectively. As of December 31, 2015, the corresponding outstanding balances of the current and non-current portion of unearned revenue amounted to $6.0 million and $24.4 million, respectively. Refer to Note 11c, Financial Instruments- Fair value of Financial Instruments.
|
8Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
|
|
As of |
|
As of |
|
||
|
|
June 30, 2016 |
|
December 31, 2015 |
|
||
Accrued payroll |
|
$ |
1,182 |
|
$ |
1,162 |
|
Accrued interest |
|
8,465 |
|
8,059 |
|
||
Accrued expenses |
|
4,981 |
|
4,793 |
|
||
|
|
|
|
|
|
||
Total |
|
$ |
14,628 |
|
$ |
14,014 |
|
|
|
|
|
|
|
|
|
Accrued expenses mainly consisted of accruals related to the operation of the Company’s fleet of $5.0 million and $3.6 million as of June 30, 2016 and December 31, 2015, respectively and accrued realized losses on cash flow interest rate swaps of nil and $1.2 million as of June 30, 2016 and December 31, 2015, respectively.
|
9Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
|
|
As of |
|
As of |
|
||
|
|
June 30, 2016 |
|
December 31,2015 |
|
||
Fair value of swaps |
|
$ |
2,395 |
|
$ |
4,538 |
|
Other current liabilities |
|
789 |
|
790 |
|
||
|
|
|
|
|
|
||
Total |
|
$ |
3,184 |
|
$ |
5,328 |
|
|
|
|
|
|
|
|
|
In respect of the fair value of swaps, refer to Note 11a, Financial Instruments — Cash Flow Interest Rate Swap Hedges.
|
10Long-Term Debt, net
Long-term debt, net consisted of the following (in thousands):
Lender |
|
As of |
|
Current |
|
Long-term |
|
As of |
|
Current |
|
Long-term |
|
||||||
The Royal Bank of Scotland |
|
$ |
657,788 |
|
$ |
22,066 |
|
$ |
635,722 |
|
$ |
667,134 |
|
$ |
24,327 |
|
$ |
642,807 |
|
HSH Nordbank AG-Aegean Baltic Bank-Piraeus Bank |
|
627,818 |
|
876 |
|
626,942 |
|
627,818 |
|
50 |
|
627,768 |
|
||||||
HSH Nordbank |
|
16,762 |
|
9,204 |
|
7,558 |
|
21,208 |
|
9,006 |
|
12,202 |
|
||||||
The Export-Import Bank of Korea (“KEXIM”) |
|
3,020 |
|
3,020 |
|
— |
|
8,204 |
|
8,204 |
|
— |
|
||||||
The Export-Import Bank of Korea & ABN Amro |
|
39,984 |
|
11,250 |
|
28,734 |
|
45,609 |
|
11,250 |
|
34,359 |
|
||||||
Deutsche Bank |
|
167,419 |
|
5,882 |
|
161,537 |
|
169,921 |
|
5,338 |
|
164,583 |
|
||||||
Citi |
|
132,396 |
|
12,323 |
|
120,073 |
|
136,719 |
|
11,425 |
|
125,294 |
|
||||||
Credit Suisse |
|
194,457 |
|
11,953 |
|
182,504 |
|
199,373 |
|
11,978 |
|
187,395 |
|
||||||
ABN Amro-Bank of America Merrill Lynch-Burlington Loan Management-National Bank of Greece-Sequoia |
|
223,470 |
|
15,388 |
|
208,082 |
|
228,999 |
|
13,509 |
|
215,490 |
|
||||||
Commerzbank-Credit Suisse-Golden Tree |
|
250,885 |
|
22,577 |
|
228,308 |
|
258,089 |
|
20,139 |
|
237,950 |
|
||||||
The Royal Bank of Scotland (January 2011 Credit Facility) |
|
60,847 |
|
33,212 |
|
27,635 |
|
69,948 |
|
30,990 |
|
38,958 |
|
||||||
HSH Nordbank AG-Aegean Baltic Bank-Piraeus Bank (January 2011 Credit Facility) |
|
56,934 |
|
39,352 |
|
17,582 |
|
69,562 |
|
37,901 |
|
31,661 |
|
||||||
ABN Amro-Bank of America Merrill Lynch-Burlington Loan Management -National Bank of Greece (January 2011 Credit Facility) |
|
14,977 |
|
12,840 |
|
2,137 |
|
20,582 |
|
14,244 |
|
6,338 |
|
||||||
Sinosure CEXIM-Citi-ABN Amro Credit Facility |
|
111,870 |
|
20,340 |
|
91,530 |
|
122,040 |
|
20,340 |
|
101,700 |
|
||||||
Club Facility (January 2011 Credit Facility) |
|
39,943 |
|
30,132 |
|
9,811 |
|
50,404 |
|
32,665 |
|
17,739 |
|
||||||
Citi—Eurobank Credit Facility (January 2011 Credit Facility) |
|
60,908 |
|
21,853 |
|
39,055 |
|
63,834 |
|
18,180 |
|
45,654 |
|
||||||
Comprehensive Financing Plan exit fees accrued |
|
17,256 |
|
— |
|
17,256 |
|
15,501 |
|
— |
|
15,501 |
|
||||||
Fair value hedged debt |
|
140 |
|
140 |
|
— |
|
433 |
|
433 |
|
— |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total long-term debt |
|
$ |
2,676,874 |
|
$ |
272,408 |
|
$ |
2,404,466 |
|
$ |
2,775,378 |
|
$ |
269,979 |
|
$ |
2,505,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Deferred finance costs, net |
|
(28,462 |
) |
— |
|
(28,462 |
) |
(34,982 |
) |
— |
|
(34,982 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total long-term debt net of deferred finance costs |
|
$ |
2,648,412 |
|
$ |
272,408 |
|
$ |
2,376,004 |
|
$ |
2,740,396 |
|
$ |
269,979 |
|
$ |
2,470,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All floating rate loans discussed above are collateralized by first and second preferred mortgages over the vessels financed, general assignment of all hire freights, income and earnings, the assignment of their insurance policies, as well as any proceeds from the sale of mortgaged vessels and the corporate guarantee of Danaos Corporation.
Maturities of long-term debt for the next five years and thereafter subsequent to June 30, 2016, are as follows (in thousands):
Payment due by period ended |
|
Fixed |
|
Variable |
|
Final Payment |
|
Total |
|
||||
June 30, 2017 |
|
$ |
192,367 |
|
$ |
79,901 |
|
— |
|
$ |
272,268 |
|
|
June 30, 2018 |
|
170,538 |
|
97,276 |
|
— |
|
267,814 |
|
||||
June 30, 2019 |
|
127,556 |
|
15,281 |
|
$ |
1,925,709 |
|
2,068,546 |
|
|||
June 30, 2020 |
|
20,340 |
|
— |
|
— |
|
20,340 |
|
||||
June 30, 2021 |
|
20,340 |
|
— |
|
— |
|
20,340 |
|
||||
Thereafter |
|
10,170 |
|
— |
|
— |
|
10,170 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total long-term debt |
|
$ |
541,311 |
|
$ |
192,458 |
|
$ |
1,925,709 |
|
$ |
2,659,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* The last payment due on December 31, 2018, includes the unamortized remaining principal debt balances under the restructuring agreement, as such amount will be determinable following the fixed and variable amortization.
There were no significant changes to the terms of the Company’s credit facilities during the six months ended June 30, 2016. As of June 30, 2016, there was no remaining borrowing availability under the Company’s credit facilities. The Company was in compliance with all covenants under its Bank Agreement and its other credit facilities as of June 30, 2016.
|
11Financial Instruments
The principal financial assets of the Company consist of cash and cash equivalents, trade receivables and other assets. The principal financial liabilities of the Company consist of long-term bank loans, accounts payable and derivatives.
Derivative Financial Instruments: The Company only uses derivatives for economic hedging purposes. The following is a summary of the Company’s risk management strategies and the effect of these strategies on the Company’s condensed consolidated financial statements.
Interest Rate Risk: Interest rate risk arises on bank borrowings. The Company monitors the interest rate on borrowings closely to ensure that the borrowings are maintained at favorable rates.
Concentration of Credit Risk: Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, trade accounts receivable and derivatives. The Company places its temporary cash investments, consisting mostly of deposits, with established financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions that are considered in the Company’s investment strategy. The Company is exposed to credit risk in the event of non-performance by counterparties to derivative instruments, however, the Company limits this exposure by diversifying among counterparties with high credit ratings. The Company depends upon a limited number of customers for a large part of its revenues. Credit risk with respect to trade accounts receivable is generally managed by the selection of customers among the major liner companies in the world and their dispersion across many geographic areas. The Company’s maximum exposure to credit risk is mainly limited to the carrying value of its derivative instruments. The Company is not a party to master netting arrangements.
Fair Value: The carrying amounts reflected in the accompanying condensed consolidated balance sheets of financial assets and liabilities (excluding long-term bank loans and certain other non-current assets) approximate their respective fair values due to the short maturity of these instruments. The fair values of long-term floating rate bank loans approximate the recorded values, generally due to their variable interest rates. The fair value of the swap agreements equals the amount that would be paid by the Company to cancel the swaps.
Interest Rate Swaps: The off-balance sheet risk in outstanding swap agreements involves both the risk of a counter-party not performing under the terms of the contract and the risk associated with changes in market value. The Company monitors its positions, the credit ratings of counterparties and the level of contracts it enters into with any one party. The counterparties to these contracts are major financial institutions. The Company has a policy of entering into contracts with parties that meet stringent qualifications and, given the high level of credit quality of its derivative counter-parties, the Company does not believe it is necessary to obtain collateral arrangements.
a. Cash Flow Interest Rate Swap Hedges
The Company, according to its long-term strategic plan to maintain relative stability in its interest rate exposure, has decided to swap part of its interest expense from floating to fixed. To this effect, the Company has entered into interest rate swap transactions with varying start and maturity dates, in order to pro-actively and efficiently manage its floating rate exposure.
These interest rate swaps are designed to economically hedge the variability of interest cash flows arising from floating rate debt, attributable to movements in three month USD$ LIBOR. According to the Company’s Risk Management Accounting Policy, and after putting in place the formal documentation required by hedge accounting in order to designate these swaps as hedging instruments, as from their inception, these interest rate swaps qualified for hedge accounting, and, accordingly, from that time until June 30, 2012, only hedge ineffectiveness amounts arising from the differences in the change in fair value of the hedging instrument and the hedged item were recognized in the Company’s earnings. Assessment and measurement of prospective and retrospective effectiveness for these interest rate swaps were performed on a quarterly basis. For qualifying cash flow hedges, the fair value gain or loss associated with the effective portion of the cash flow hedge was recognized initially in stockholders’ equity, and recognized to the Statement of Income in the periods when the hedged item affects profit or loss.
On July 1, 2012, the Company elected to prospectively de designate cash flow interest rate swaps for which it was obtaining hedge accounting treatment due to the compliance burden associated with this accounting policy. As a result, all changes in the fair value of the Company’s cash flow interest rate swap agreements are recorded in earnings under “Net unrealized and realized losses on derivatives” from the de designation date forward. The Company evaluated whether it is probable that the previously hedged forecasted interest payments are probable to not occur in the originally specified time period. The Company has concluded that the previously hedged forecasted interest payments are probable of occurring. Therefore, unrealized gains or losses in accumulated other comprehensive loss associated with the previously designated cash flow interest rate swaps will remain in accumulated other comprehensive loss and recognized in earnings when the interest payments will be recognized. If such interest payments were to be identified as being probable of not occurring, the accumulated other comprehensive loss balance pertaining to these amounts would be reversed through earnings immediately.
The interest rate swap agreements converting floating interest rate exposure into fixed were as follows (in thousands):
Counter-party |
|
Contract |
|
Effective |
|
Termination |
|
Notional |
|
Fixed Rate |
|
Floating Rate |
|
Fair Value |
|
Fair Value |
|
|||
CITI |
|
02/07/2008 |
|
2/11/2011 |
|
2/11/2016 |
|
$ |
200,000 |
|
4.695 |
% p.a. |
USD LIBOR 3M BBA |
|
— |
|
$ |
(1,012 |
) |
|
ABN Amro |
|
06/06/2013 |
|
1/4/2016 |
|
12/31/2016 |
|
$ |
325,000 |
|
1.4975 |
% p.a. |
USD LIBOR 3M BBA |
|
$ |
(1,415 |
) |
$ |
(2,113 |
) |
ABN Amro |
|
05/31/2013 |
|
1/4/2016 |
|
12/31/2016 |
|
$ |
250,000 |
|
1.4125 |
% p.a. |
USD LIBOR 3M BBA |
|
(980 |
) |
(1,413 |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Total fair value of swap liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,395 |
) |
$ |
(4,538 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded in the condensed consolidated Statements of Income unrealized gains of $2.1 million and $30.4 million in relation to fair value changes of interest rate swaps for the six months ended June 30, 2016 and 2015, respectively. Furthermore, unrealized losses of $0.2 million and $21.5 million were reclassified from Accumulated Other Comprehensive Loss to earnings for the six months ended June 30, 2016 and 2015, respectively (following the hedge accounting discontinuance as of July 1, 2012).
The variable-rate interest on specific borrowings was associated with vessels under construction and was capitalized as a cost of the specific vessels. In accordance with the accounting guidance on derivatives and hedging, the amounts in accumulated other comprehensive income/(loss) related to realized gains or losses on cash flow hedges that have been entered into and qualify for hedge accounting, in order to hedge the variability of that interest, were classified under other comprehensive income/(loss) and are reclassified into earnings over the depreciable life of the constructed asset, since that depreciable life coincides with the amortization period for the capitalized interest cost on the debt. An amount of $2.0 million was reclassified into earnings for the six months ended June 30, 2016 and 2015, respectively, representing its amortization over the depreciable life of the vessels.
|
|
Three months |
|
Three months |
|
||
|
|
2016 |
|
2015 |
|
||
|
|
(in millions) |
|
||||
Total realized losses |
|
$ |
(1.2 |
) |
$ |
(13.7 |
) |
Amortization of deferred realized losses |
|
(1.0 |
) |
(1.0 |
) |
||
Unrealized gains |
|
0.9 |
|
4.5 |
|
||
|
|
|
|
|
|
||
Net unrealized and realized losses on cash flow interest rate swaps |
|
$ |
(1.3 |
) |
$ |
(10.2 |
) |
|
|
|
|
|
|
|
|
|
|
Six months |
|
Six months |
|
||
|
|
2016 |
|
2015 |
|
||
|
|
(in millions) |
|
||||
Total realized losses |
|
$ |
(3.4 |
) |
$ |
(34.0 |
) |
Amortization of deferred realized losses |
|
(2.0 |
) |
(2.0 |
) |
||
Unrealized gains |
|
1.9 |
|
8.9 |
|
||
|
|
|
|
|
|
||
Net unrealized and realized losses on cash flow interest rate swaps |
|
$ |
(3.5 |
) |
$ |
(27.1 |
) |
|
|
|
|
|
|
|
|
b. Fair Value Interest Rate Swap Hedges
These interest rate swaps are designed to economically hedge the fair value of the fixed rate loan facilities against fluctuations in the market interest rates by converting the Company’s fixed rate loan facilities to floating rate debt. Pursuant to the adoption of the Company’s Risk Management Accounting Policy, and after putting in place the formal documentation required by hedge accounting in order to designate these swaps as hedging instruments, as of June 15, 2006, these interest rate swaps qualified for hedge accounting, and, accordingly, from that time until June 30, 2012, hedge ineffectiveness amounts arising from the differences in the change in fair value of the hedging instrument and the hedged item were recognized in the Company’s earnings. The Company considered its strategic use of interest rate swaps to be a prudent method of managing interest rate sensitivity, as it prevented earnings from being exposed to undue risk posed by changes in interest rates. Assessment and measurement of prospective and retrospective effectiveness for these interest rate swaps was performed on a quarterly basis, on the financial statement and earnings reporting dates.
On July 1, 2012, the Company elected to prospectively de-designate fair value interest rate swaps for which it was applying hedge accounting treatment due to the compliance burden associated with this accounting policy. All changes in the fair value of the Company’s fair value interest rate swap agreements continue to be recorded in earnings under “Net unrealized and realized losses on derivatives” from the de-designation date forward.
The Company evaluated whether it is probable that the previously hedged forecasted interest payments will not occur in the originally specified time period. The Company has concluded that the previously hedged forecasted interest payments continue to be probable of occurring. Therefore, the fair value of the hedged item associated with the previously designated fair value interest rate swaps will be frozen and recognized in earnings when the interest payments are recognized. If such interest payments were to be identified as being probable of not occurring, the fair value of hedged debt balance pertaining to these amounts would be reversed through earnings immediately.
The interest rate swap agreements converting fixed interest rate exposure into floating were as follows (in thousands):
Counter |
|
Contract |
|
Effective |
|
Termination |
|
Notional |
|
Fixed Rate |
|
Floating Rate |
|
Fair Value |
|
Fair Value |
|
|||
RBS |
|
11/15/2004 |
|
12/15/2004 |
|
8/27/2016 |
|
$ |
60,528 |
|
5.0125 |
% p.a. |
USD LIBOR 3M BBA + 0.835% p.a. |
|
$ |
6 |
|
$ |
55 |
|
RBS |
|
11/15/2004 |
|
11/17/2004 |
|
11/2/2016 |
|
$ |
62,342 |
|
5.0125 |
% p.a. |
USD LIBOR 3M BBA + 0.855% p.a. |
|
18 |
|
83 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Total fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24 |
|
$ |
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value change of the interest rate swaps amounted to $0.1 million loss and $0.3 million loss for the six months ended June 30, 2016 and 2015, respectively and are included in the condensed consolidated Statements of Income under “Net unrealized and realized losses on derivatives”. The related assets are presented under “Other current assets” in the condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015, respectively. The Company reclassified from “Long-term debt, net”, where its fair value of hedged item was recorded, to its earnings unrealized gains of $0.3 million and gains of $0.3 million for the six months ended June 30, 2016 and 2015, respectively (following the hedge accounting discontinuance as of July 1, 2012). The related liability of the fair value hedged debt of $0.1 million and $0.4 million is presented under “Current portion of long-term debt” in the condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015, respectively.
|
|
Three months |
|
Three months |
|
||
|
|
(in millions) |
|
||||
Unrealized losses on swap asset |
|
$ |
— |
|
$ |
(0.1 |
) |
Reclassification of fair value of hedged debt to Statement of Income |
|
0.1 |
|
0.1 |
|
||
Realized gains |
|
— |
|
0.1 |
|
||
|
|
|
|
|
|
||
Net unrealized and realized gains on fair value interest rate swaps |
|
$ |
0.1 |
|
$ |
0.1 |
|
|
|
|
|
|
|
|
|
|
|
Six months |
|
Six months |
|
||
|
|
(in millions) |
|
||||
Unrealized losses on swap asset |
|
$ |
(0.1 |
) |
$ |
(0.3 |
) |
Reclassification of fair value of hedged debt to Statement of Income |
|
0.3 |
|
0.3 |
|
||
Realized gains |
|
0.1 |
|
0.3 |
|
||
|
|
|
|
|
|
||
Net unrealized and realized gains on fair value interest rate swaps |
|
$ |
0.3 |
|
$ |
0.3 |
|
|
|
|
|
|
|
|
|
c. Fair Value of Financial Instruments
The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.
Level I: Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.
Level II: Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.
Level III: Inputs that are unobservable. The Company did not use any Level 3 inputs as of June 30, 2016 and December 31, 2015.
The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.
|
|
Fair Value Measurements as of June 30, 2016 |
|
||||||||
|
|
Total |
|
Quoted Prices |
|
Significant |
|
Significant |
|
||
|
|
(in thousands of $) |
|
||||||||
Assets |
|
|
|
|
|
|
|
|
|
||
Interest rate swap contracts |
|
$ |
24 |
|
— |
|
$ |
24 |
|
— |
|
Liabilities |
|
|
|
|
|
|
|
|
|
||
Interest rate swap contracts |
|
$ |
2,395 |
|
— |
|
$ |
2,395 |
|
— |
|
|
|
Fair Value Measurements as of December 31, 2015 |
|
||||||||
|
|
Total |
|
Quoted Prices |
|
Significant |
|
Significant |
|
||
|
|
(in thousands of $) |
|
||||||||
Assets |
|
|
|
|
|
|
|
|
|
||
Interest rate swap contracts |
|
$ |
138 |
|
— |
|
$ |
138 |
|
— |
|
Liabilities |
|
|
|
|
|
|
|
|
|
||
Interest rate swap contracts |
|
$ |
4,538 |
|
— |
|
$ |
4,538 |
|
— |
|
Interest rate swap contracts are measured at fair value on a recurring basis. Fair value is determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Such instruments are typically classified within Level 2 of the fair value hierarchy. The fair values of the interest rate swap contracts have been calculated by discounting the projected future cash flows of both the fixed rate and variable rate interest payments. Projected interest payments are calculated using the appropriate prevailing market forward rates and are discounted using the zero-coupon curve derived from the swap yield curve. Refer to Note 11(a)-(b) above for further information on the Company’s interest rate swap contracts.
The Company is exposed to credit-related losses in the event of nonperformance of its counterparties in relation to these financial instruments. As of June 30, 2016, these financial instruments are in the counterparties’ favor, apart from the interest rate swap agreements with RBS. The Company has considered its risk of non-performance and of its counterparties in accordance with the relevant guidance of fair value accounting. The Company performs evaluations of its counterparties for credit risk through ongoing monitoring of their financial health and risk profiles to identify risk or changes in their credit ratings.
The estimated fair values of the Company’s financial instruments are as follows:
|
|
As of June 30, 2016 |
|
As of December 31, 2015 |
|
||||||||
|
|
Book Value |
|
Fair Value |
|
Book Value |
|
Fair Value |
|
||||
|
|
(in thousands of $) |
|
||||||||||
Cash and cash equivalents |
|
$ |
101,060 |
|
$ |
101,060 |
|
$ |
72,253 |
|
$ |
72,253 |
|
Restricted cash |
|
$ |
5,880 |
|
$ |
5,880 |
|
$ |
2,818 |
|
$ |
2,818 |
|
Accounts receivable, net |
|
$ |
21,874 |
|
$ |
21,874 |
|
$ |
10,652 |
|
$ |
10,652 |
|
Due from related parties |
|
$ |
32,131 |
|
$ |
32,131 |
|
$ |
19,007 |
|
$ |
19,007 |
|
Series 1 ZIM Notes |
|
$ |
6,540 |
|
$ |
6,540 |
|
$ |
6,587 |
|
$ |
6,587 |
|
Series 2 ZIM Notes |
|
$ |
33,345 |
|
$ |
33,345 |
|
$ |
32,507 |
|
$ |
32,507 |
|
Equity investment in ZIM |
|
$ |
28,693 |
|
$ |
37,903 |
|
$ |
28,693 |
|
$ |
35,831 |
|
Accounts payable |
|
$ |
11,937 |
|
$ |
11,937 |
|
$ |
12,971 |
|
$ |
12,971 |
|
Accrued liabilities |
|
$ |
14,628 |
|
$ |
14,628 |
|
$ |
14,014 |
|
$ |
14,014 |
|
Long-term debt, including current portion (2) |
|
$ |
2,676,874 |
|
$ |
2,677,411 |
|
$ |
2,775,378 |
|
$ |
2,776,739 |
|
The estimated fair value of the financial instruments that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows (in thousands):
|
|
Fair Value Measurements as of June 30, 2016 |
|
||||||||
|
|
Total |
|
(Level I) |
|
(Level II) |
|
(Level III) |
|
||
|
|
(in thousands of $) |
|
||||||||
Series 1 ZIM Notes (1) |
|
$ |
6,540 |
|
— |
|
$ |
6,540 |
|
— |
|
Series 2 ZIM Notes (1) |
|
$ |
33,345 |
|
— |
|
$ |
33,345 |
|
— |
|
Equity investment in ZIM (1) |
|
$ |
37,903 |
|
— |
|
$ |
37,903 |
|
— |
|
Long-term debt, including current portion(2) |
|
$ |
2,677,411 |
|
— |
|
$ |
2,677,411 |
|
— |
|
Accrued liabilities(3) |
|
$ |
14,628 |
|
— |
|
$ |
14,628 |
|
— |
|
|
|
Fair Value Measurements as of December 31, 2015 |
|
||||||||
|
|
Total |
|
(Level I) |
|
(Level II) |
|
(Level III) |
|
||
|
|
(in thousands of $) |
|
||||||||
Series 1 ZIM Notes (1) |
|
$ |
6,587 |
|
— |
|
$ |
6,587 |
|
— |
|
Series 2 ZIM Notes (1) |
|
$ |
32,507 |
|
— |
|
$ |
32,507 |
|
— |
|
Equity investment in ZIM (1) |
|
$ |
35,831 |
|
— |
|
$ |
35,831 |
|
— |
|
Long-term debt, including current portion(2) |
|
$ |
2,776,739 |
|
— |
|
$ |
2,776,739 |
|
— |
|
Accrued liabilities(3) |
|
$ |
14,014 |
|
— |
|
$ |
14,014 |
|
— |
|
(1) |
The fair value is estimated based on currently available information on the Company’s counterparty, other contracts with similar terms, remaining maturities and interest rates. |
(2) |
Long-term debt is presented gross of deferred finance costs of $28.5 million and $35.0 million as of June 30, 2016 and December 31, 2015, respectively. The fair value of the Company’s debt is estimated based on currently available debt with similar contract terms, interest rate and remaining maturities, as well as taking into account its creditworthiness. |
(3) |
The fair value of the Company’s accrued liabilities, which mainly consists of accrued interest on its credit facilities and accrued realized losses on its cash flow interest rate swaps, is estimated based on currently available debt and swap agreements with similar contract terms, interest rates and remaining maturities, as well as taking into account its creditworthiness. |
|
12Commitments and Contingencies
There are no material legal proceedings to which the Company is a party or to which any of its properties are the subject, or other contingencies that the Company is aware of, other than routine litigation incidental to the Company’s business. Furthermore, the Company does not have any commitments outstanding.
|
13Stockholders’ Equity
As of April 18, 2008, the Board of Directors and the Compensation Committee approved incentive compensation of Manager’s employees with its shares from time to time, after specific for each such time, decision by the compensation committee and the Board of Directors in order to provide a means of compensation in the form of free shares to certain employees of the Manager of the Company’s common stock. The plan was effective as of December 31, 2008. Pursuant to the terms of the plan, employees of the Manager may receive (from time to time) shares of the Company’s common stock as additional compensation for their services offered during the preceding period. The stock will have no vesting period and the employee will own the stock immediately after grant. The total amount of stock to be granted to employees of the Manager will be at the Company’s Board of Directors’ discretion only and there will be no contractual obligation for any stock to be granted as part of the employees’ compensation package in future periods. During the six months ended June 30, 2016, the Company did not grant any shares under the plan. During the six months ended June 30, 2016, the Company issued 17,608 new shares of common stock, which were distributed to the employees of the Manager in partial settlement of 2015 and 2014 grants.
The Company has also established the Directors Share Payment Plan under its 2006 equity compensation plan. The purpose of the plan is to provide a means of payment of all or a portion of compensation payable to directors of the Company in the form of Company’s Common Stock. The plan was effective as of April 18, 2008. Each member of the Board of Directors of the Company may participate in the plan. Pursuant to the terms of the plan, directors may elect to receive in Common Stock all or a portion of their compensation. Following December 31 of each year, the Company delivers to each Director the number of shares represented by the rights credited to their Share Payment Account during the preceding calendar year. During the six months ended June 30, 2016 and June 30, 2015, none of the directors elected to receive their compensation in Company shares.
|
15Subsequent Events
On July 15, 2016, the Company entered into a charter restructuring agreement with Hyundai Merchant Marine (‘HMM”) as part of the agreements it reached with its creditors and owners of its chartered-in fleet in connection with the restructuring of its obligations. The charter restructuring agreement provides for a 20% reduction, for the period until December 31, 2019 (or earlier charter expiration in the case of eight vessels), in the charter hire rates payable for thirteen of the Company’s vessels currently employed with HMM. In exchange, under the charter restructuring agreement the Company received (i) $6.2 million principal amount of senior, unsecured, non-amortizing loan notes, which accrue interest at 3% per annum payable on maturity in December 2022, (ii) $32.8 million principal amount of senior, unsecured loan notes, amortizing subject to available cash flows, which accrue interest at 3% per annum payable on maturity in July 2024 and (iii) 4,637,558 HMM shares issued on July 23, 2016, which will be freely tradable on the Stock Market Division of the Korean Exchange from August 5, 2016 onwards.
On July 29, 2016, at the Company’s annual meeting of stockholders, Mr. William Repko and Mr. Miklόs Konkoly-Thege were re-elected as Class III directors, each for a three-year term expiring at the annual meeting of the Company’s stockholders in 2019.
|
Change in Accounting Principle
The Company historically presented fees incurred for obtaining loans as deferred charges in the consolidated balance sheets. During the six months ended June 30, 2016, the Company adopted 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 consolidated balance sheets as a direct deduction from the carrying amount of debt liability, consistent with debt discounts. Upon adoption, the Company applied the new guidance retrospectively to prior periods presented in the consolidated financial statements. The effect of the retrospective application of this change in accounting principle on the Company’s consolidated balance sheet as of December 31, 2015 resulted in a reduction of deferred charges, net by $35.0 million, with a corresponding reduction of long-term debt, net. Additionally, amortization of deferred charges amounting to $7.2 million was reclassified from other finance expenses to interest expense in the condensed consolidated statements of income for the six months ended June 30, 2015.
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. In addition, in 2016, the FASB issued four amendments, which clarified the guidance on certain items such as reporting revenue as a principal versus agent, identifying performance obligations, accounting for intellectual property licenses, assessing collectability and presentation of sales taxes. The Company is currently evaluating the impact that the adoption of the new standard will have on its consolidated financial statements and associated disclosures, and have not yet selected a transition method.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 requires all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this Update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition the amendments in this Update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement for to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The amendments are effective for annual periods 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.
In March 2016, the FASB issued ASU 2016-07, “Investments - Equity Method and Joint Ventures (Topic 323)” (“ASU 2016-07”), which simplifies the accounting for equity method investments by removing the requirement that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. ASU 2016-07 is effective for fiscal years beginning after December 15, 2016, and interim periods within those years, and must be applied prospectively. Early adoption is permitted. The Company is currently evaluating the provisions of this guidance and assessing its impact on its consolidated financial statements and notes disclosures.
In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations. The amendments in ASU 2016-8 affect the guidance in the ASU 2014-09, which is not yet effective. ASU 2016-08 is effective for fiscal years beginning after December 15, 2017, and interim reporting periods within those years. Early application is permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the provisions of this guidance and assessing its impact on its consolidated financial statements and notes disclosures.
In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation - Improvements to Employee Share-Based Payment Accounting (Topic 718)” (“ASU 2016-09”), which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, all excess income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 including interim periods within that reporting period, however early adoption is permitted. The Company is currently evaluating the guidance to determine the Company’s adoption method and the effect it will have on its consolidated financial statements and notes disclosures.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The ASU 2016-13 is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of the new standard on the Company’s consolidated financial statements.
|
As of June 30, 2016, Danaos included the vessel owning companies (the “Danaos Subsidiaries”) listed below. All vessels are container vessels:
Company |
|
Date of Incorporation |
|
Vessel Name |
|
Year Built |
|
TEU(2) |
Megacarrier (No. 1) Corp. |
|
September 10, 2007 |
|
Hyundai Together |
|
2012 |
|
13,100 |
Megacarrier (No. 2) Corp. |
|
September 10, 2007 |
|
Hyundai Tenacity |
|
2012 |
|
13,100 |
Megacarrier (No. 3) Corp. |
|
September 10, 2007 |
|
Hyundai Smart |
|
2012 |
|
13,100 |
Megacarrier (No. 4) Corp. |
|
September 10, 2007 |
|
Hyundai Speed |
|
2012 |
|
13,100 |
Megacarrier (No. 5) Corp. |
|
September 10, 2007 |
|
Hyundai Ambition |
|
2012 |
|
13,100 |
CellContainer (No. 6) Corp. |
|
October 31, 2007 |
|
Hanjin Germany |
|
2011 |
|
10,100 |
CellContainer (No. 7) Corp. |
|
October 31, 2007 |
|
Hanjin Italy |
|
2011 |
|
10,100 |
CellContainer (No. 8) Corp. |
|
October 31, 2007 |
|
Hanjin Greece |
|
2011 |
|
10,100 |
Karlita Shipping Co. Ltd. |
|
February 27, 2003 |
|
CSCL Pusan |
|
2006 |
|
9,580 |
Ramona Marine Co. Ltd. |
|
February 27, 2003 |
|
CSCL Le Havre |
|
2006 |
|
9,580 |
Teucarrier (No. 5) Corp. |
|
September 17, 2007 |
|
CMA CGM Melisande |
|
2012 |
|
8,530 |
Teucarrier (No. 1) Corp. |
|
January 31, 2007 |
|
CMA CGM Attila |
|
2011 |
|
8,530 |
Teucarrier (No. 2) Corp. |
|
January 31, 2007 |
|
CMA CGM Tancredi |
|
2011 |
|
8,530 |
Teucarrier (No. 3) Corp. |
|
January 31, 2007 |
|
CMA CGM Bianca |
|
2011 |
|
8,530 |
Teucarrier (No. 4) Corp. |
|
January 31, 2007 |
|
CMA CGM Samson |
|
2011 |
|
8,530 |
Oceanew Shipping Ltd. |
|
January 14, 2002 |
|
CSCL Europe |
|
2004 |
|
8,468 |
Oceanprize Navigation Ltd. |
|
January 21, 2003 |
|
CSCL America |
|
2004 |
|
8,468 |
Boxcarrier (No. 2) Corp. |
|
June 27, 2006 |
|
CMA CGM Musset(1) |
|
2010 |
|
6,500 |
Boxcarrier (No. 3) Corp. |
|
June 27, 2006 |
|
CMA CGM Nerval(1) |
|
2010 |
|
6,500 |
Boxcarrier (No. 4) Corp. |
|
June 27, 2006 |
|
CMA CGM Rabelais(1) |
|
2010 |
|
6,500 |
Boxcarrier (No. 5) Corp. |
|
June 27, 2006 |
|
CMA CGM Racine(1) |
|
2010 |
|
6,500 |
Boxcarrier (No. 1) Corp. |
|
June 27, 2006 |
|
CMA CGM Moliere(1) |
|
2009 |
|
6,500 |
Expresscarrier (No. 1) Corp. |
|
March 5, 2007 |
|
YM Mandate |
|
2010 |
|
6,500 |
Expresscarrier (No. 2) Corp. |
|
March 5, 2007 |
|
YM Maturity |
|
2010 |
|
6,500 |
Actaea Company Limited |
|
October 14, 2014 |
|
Performance |
|
2002 |
|
6,402 |
Asteria Shipping Company Limited |
|
October 14, 2014 |
|
Priority |
|
2002 |
|
6,402 |
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 |
|
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 |
Vessel sold in 2016 |
|
|
|
|
|
|
|
|
Federal Marine Inc. |
|
February 14, 2006 |
|
Federal |
|
1994 |
|
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-feet equivalent unit, the international standard measure for containers and containership capacity. |
|
Deferred charges, net consisted of the following (in thousands):
|
|
Drydocking and |
|
|
As of January 1, 2015 |
|
$ |
6,255 |
|
Additions |
|
2,341 |
|
|
Amortization |
|
(3,845 |
) |
|
|
|
|
|
|
As of December 31, 2015 |
|
4,751 |
|
|
Additions |
|
6,394 |
|
|
Amortization |
|
(2,430 |
) |
|
|
|
|
|
|
As of June 30, 2016 |
|
$ |
8,715 |
|
|
|
|
|
|
|
As of June 30, 2016, Gemini consolidated its wholly owned subsidiaries listed below:
Company |
|
Vessel Name |
|
Year Built |
|
TEU |
|
Date of vessel delivery |
|
Averto Shipping S.A. |
|
Suez Canal |
|
2002 |
|
5,610 |
|
July 20, 2015 |
|
Sinoi Marine Ltd. |
|
Genoa |
|
2002 |
|
5,544 |
|
August 2, 2015 |
|
Kingsland International Shipping Limited |
|
NYK Lodestar |
|
2001 |
|
6,422 |
|
September 21, 2015 |
|
Leo Shipping and Trading S.A. |
|
NYK Leo |
|
2002 |
|
6,422 |
|
February 4, 2016 |
|
A condensed summary of the financial information for equity accounted investments 49% owned by the Company shown on a 100% basis are as follows (in thousands):
|
|
As of |
|
As of |
|
||
|
|
June 30, 2016 |
|
December 31, 2015 |
|
||
Current assets |
|
$ |
12,701 |
|
$ |
12,578 |
|
Non-current assets |
|
$ |
70,547 |
|
$ |
54,771 |
|
Current liabilities |
|
$ |
7,014 |
|
$ |
5,552 |
|
Non-current liabilities |
|
$ |
44,601 |
|
$ |
38,758 |
|
|
|
Six months ended |
|
|
|
|
June 30, 2016 |
|
|
Net operating revenues |
|
$ |
6,266 |
|
Net loss |
|
$ |
1,906 |
|
|
Other current assets consisted of the following (in thousands):
|
|
As of |
|
As of |
|
||
|
|
June 30, 2016 |
|
December 31, 2015 |
|
||
Fair value of swaps |
|
$ |
24 |
|
$ |
138 |
|
Claims receivable |
|
1,178 |
|
954 |
|
||
Advances to suppliers and other assets |
|
2,436 |
|
3,365 |
|
||
|
|
|
|
|
|
||
Total |
|
$ |
3,638 |
|
$ |
4,457 |
|
|
|
|
|
|
|
|
|
Other non-current assets consisted of the following (in thousands):
|
|
As of |
|
As of |
|
||
|
|
June 30, 2016 |
|
December 31, 2015 |
|
||
Series 1 ZIM notes, net |
|
$ |
6,540 |
|
$ |
6,587 |
|
Series 2 ZIM notes, net |
|
33,345 |
|
32,507 |
|
||
Equity participation ZIM |
|
28,693 |
|
28,693 |
|
||
Other assets |
|
5,664 |
|
4,401 |
|
||
|
|
|
|
|
|
||
Total |
|
$ |
74,242 |
|
$ |
72,188 |
|
|
|
|
|
|
|
|
|
|
Accrued liabilities consisted of the following (in thousands):
|
|
As of |
|
As of |
|
||
|
|
June 30, 2016 |
|
December 31, 2015 |
|
||
Accrued payroll |
|
$ |
1,182 |
|
$ |
1,162 |
|
Accrued interest |
|
8,465 |
|
8,059 |
|
||
Accrued expenses |
|
4,981 |
|
4,793 |
|
||
|
|
|
|
|
|
||
Total |
|
$ |
14,628 |
|
$ |
14,014 |
|
|
|
|
|
|
|
|
|
|
Other current liabilities consisted of the following (in thousands):
|
|
As of |
|
As of |
|
||
|
|
June 30, 2016 |
|
December 31,2015 |
|
||
Fair value of swaps |
|
$ |
2,395 |
|
$ |
4,538 |
|
Other current liabilities |
|
789 |
|
790 |
|
||
|
|
|
|
|
|
||
Total |
|
$ |
3,184 |
|
$ |
5,328 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, net consisted of the following (in thousands):
Lender |
|
As of |
|
Current |
|
Long-term |
|
As of |
|
Current |
|
Long-term |
|
||||||
The Royal Bank of Scotland |
|
$ |
657,788 |
|
$ |
22,066 |
|
$ |
635,722 |
|
$ |
667,134 |
|
$ |
24,327 |
|
$ |
642,807 |
|
HSH Nordbank AG-Aegean Baltic Bank-Piraeus Bank |
|
627,818 |
|
876 |
|
626,942 |
|
627,818 |
|
50 |
|
627,768 |
|
||||||
HSH Nordbank |
|
16,762 |
|
9,204 |
|
7,558 |
|
21,208 |
|
9,006 |
|
12,202 |
|
||||||
The Export-Import Bank of Korea (“KEXIM”) |
|
3,020 |
|
3,020 |
|
— |
|
8,204 |
|
8,204 |
|
— |
|
||||||
The Export-Import Bank of Korea & ABN Amro |
|
39,984 |
|
11,250 |
|
28,734 |
|
45,609 |
|
11,250 |
|
34,359 |
|
||||||
Deutsche Bank |
|
167,419 |
|
5,882 |
|
161,537 |
|
169,921 |
|
5,338 |
|
164,583 |
|
||||||
Citi |
|
132,396 |
|
12,323 |
|
120,073 |
|
136,719 |
|
11,425 |
|
125,294 |
|
||||||
Credit Suisse |
|
194,457 |
|
11,953 |
|
182,504 |
|
199,373 |
|
11,978 |
|
187,395 |
|
||||||
ABN Amro-Bank of America Merrill Lynch-Burlington Loan Management-National Bank of Greece-Sequoia |
|
223,470 |
|
15,388 |
|
208,082 |
|
228,999 |
|
13,509 |
|
215,490 |
|
||||||
Commerzbank-Credit Suisse-Golden Tree |
|
250,885 |
|
22,577 |
|
228,308 |
|
258,089 |
|
20,139 |
|
237,950 |
|
||||||
The Royal Bank of Scotland (January 2011 Credit Facility) |
|
60,847 |
|
33,212 |
|
27,635 |
|
69,948 |
|
30,990 |
|
38,958 |
|
||||||
HSH Nordbank AG-Aegean Baltic Bank-Piraeus Bank (January 2011 Credit Facility) |
|
56,934 |
|
39,352 |
|
17,582 |
|
69,562 |
|
37,901 |
|
31,661 |
|
||||||
ABN Amro-Bank of America Merrill Lynch-Burlington Loan Management -National Bank of Greece (January 2011 Credit Facility) |
|
14,977 |
|
12,840 |
|
2,137 |
|
20,582 |
|
14,244 |
|
6,338 |
|
||||||
Sinosure CEXIM-Citi-ABN Amro Credit Facility |
|
111,870 |
|
20,340 |
|
91,530 |
|
122,040 |
|
20,340 |
|
101,700 |
|
||||||
Club Facility (January 2011 Credit Facility) |
|
39,943 |
|
30,132 |
|
9,811 |
|
50,404 |
|
32,665 |
|
17,739 |
|
||||||
Citi—Eurobank Credit Facility (January 2011 Credit Facility) |
|
60,908 |
|
21,853 |
|
39,055 |
|
63,834 |
|
18,180 |
|
45,654 |
|
||||||
Comprehensive Financing Plan exit fees accrued |
|
17,256 |
|
— |
|
17,256 |
|
15,501 |
|
— |
|
15,501 |
|
||||||
Fair value hedged debt |
|
140 |
|
140 |
|
— |
|
433 |
|
433 |
|
— |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total long-term debt |
|
$ |
2,676,874 |
|
$ |
272,408 |
|
$ |
2,404,466 |
|
$ |
2,775,378 |
|
$ |
269,979 |
|
$ |
2,505,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Deferred finance costs, net |
|
(28,462 |
) |
— |
|
(28,462 |
) |
(34,982 |
) |
— |
|
(34,982 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total long-term debt net of deferred finance costs |
|
$ |
2,648,412 |
|
$ |
272,408 |
|
$ |
2,376,004 |
|
$ |
2,740,396 |
|
$ |
269,979 |
|
$ |
2,470,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of long-term debt for the next five years and thereafter subsequent to June 30, 2016, are as follows (in thousands):
Payment due by period ended |
|
Fixed |
|
Variable |
|
Final Payment |
|
Total |
|
||||
June 30, 2017 |
|
$ |
192,367 |
|
$ |
79,901 |
|
— |
|
$ |
272,268 |
|
|
June 30, 2018 |
|
170,538 |
|
97,276 |
|
— |
|
267,814 |
|
||||
June 30, 2019 |
|
127,556 |
|
15,281 |
|
$ |
1,925,709 |
|
2,068,546 |
|
|||
June 30, 2020 |
|
20,340 |
|
— |
|
— |
|
20,340 |
|
||||
June 30, 2021 |
|
20,340 |
|
— |
|
— |
|
20,340 |
|
||||
Thereafter |
|
10,170 |
|
— |
|
— |
|
10,170 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total long-term debt |
|
$ |
541,311 |
|
$ |
192,458 |
|
$ |
1,925,709 |
|
$ |
2,659,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* The last payment due on December 31, 2018, includes the unamortized remaining principal debt balances under the restructuring agreement, as such amount will be determinable following the fixed and variable amortization.
|
|
|
Fair Value Measurements as of June 30, 2016 |
|
||||||||
|
|
Total |
|
Quoted Prices |
|
Significant |
|
Significant |
|
||
|
|
(in thousands of $) |
|
||||||||
Assets |
|
|
|
|
|
|
|
|
|
||
Interest rate swap contracts |
|
$ |
24 |
|
— |
|
$ |
24 |
|
— |
|
Liabilities |
|
|
|
|
|
|
|
|
|
||
Interest rate swap contracts |
|
$ |
2,395 |
|
— |
|
$ |
2,395 |
|
— |
|
|
|
Fair Value Measurements as of December 31, 2015 |
|
||||||||
|
|
Total |
|
Quoted Prices |
|
Significant |
|
Significant |
|
||
|
|
(in thousands of $) |
|
||||||||
Assets |
|
|
|
|
|
|
|
|
|
||
Interest rate swap contracts |
|
$ |
138 |
|
— |
|
$ |
138 |
|
— |
|
Liabilities |
|
|
|
|
|
|
|
|
|
||
Interest rate swap contracts |
|
$ |
4,538 |
|
— |
|
$ |
4,538 |
|
— |
|
|
|
As of June 30, 2016 |
|
As of December 31, 2015 |
|
||||||||
|
|
Book Value |
|
Fair Value |
|
Book Value |
|
Fair Value |
|
||||
|
|
(in thousands of $) |
|
||||||||||
Cash and cash equivalents |
|
$ |
101,060 |
|
$ |
101,060 |
|
$ |
72,253 |
|
$ |
72,253 |
|
Restricted cash |
|
$ |
5,880 |
|
$ |
5,880 |
|
$ |
2,818 |
|
$ |
2,818 |
|
Accounts receivable, net |
|
$ |
21,874 |
|
$ |
21,874 |
|
$ |
10,652 |
|
$ |
10,652 |
|
Due from related parties |
|
$ |
32,131 |
|
$ |
32,131 |
|
$ |
19,007 |
|
$ |
19,007 |
|
Series 1 ZIM Notes |
|
$ |
6,540 |
|
$ |
6,540 |
|
$ |
6,587 |
|
$ |
6,587 |
|
Series 2 ZIM Notes |
|
$ |
33,345 |
|
$ |
33,345 |
|
$ |
32,507 |
|
$ |
32,507 |
|
Equity investment in ZIM |
|
$ |
28,693 |
|
$ |
37,903 |
|
$ |
28,693 |
|
$ |
35,831 |
|
Accounts payable |
|
$ |
11,937 |
|
$ |
11,937 |
|
$ |
12,971 |
|
$ |
12,971 |
|
Accrued liabilities |
|
$ |
14,628 |
|
$ |
14,628 |
|
$ |
14,014 |
|
$ |
14,014 |
|
Long-term debt, including current portion (2) |
|
$ |
2,676,874 |
|
$ |
2,677,411 |
|
$ |
2,775,378 |
|
$ |
2,776,739 |
|
The estimated fair value of the financial instruments that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows (in thousands):
|
|
Fair Value Measurements as of June 30, 2016 |
|
||||||||
|
|
Total |
|
(Level I) |
|
(Level II) |
|
(Level III) |
|
||
|
|
(in thousands of $) |
|
||||||||
Series 1 ZIM Notes (1) |
|
$ |
6,540 |
|
— |
|
$ |
6,540 |
|
— |
|
Series 2 ZIM Notes (1) |
|
$ |
33,345 |
|
— |
|
$ |
33,345 |
|
— |
|
Equity investment in ZIM (1) |
|
$ |
37,903 |
|
— |
|
$ |
37,903 |
|
— |
|
Long-term debt, including current portion(2) |
|
$ |
2,677,411 |
|
— |
|
$ |
2,677,411 |
|
— |
|
Accrued liabilities(3) |
|
$ |
14,628 |
|
— |
|
$ |
14,628 |
|
— |
|
|
|
Fair Value Measurements as of December 31, 2015 |
|
||||||||
|
|
Total |
|
(Level I) |
|
(Level II) |
|
(Level III) |
|
||
|
|
(in thousands of $) |
|
||||||||
Series 1 ZIM Notes (1) |
|
$ |
6,587 |
|
— |
|
$ |
6,587 |
|
— |
|
Series 2 ZIM Notes (1) |
|
$ |
32,507 |
|
— |
|
$ |
32,507 |
|
— |
|
Equity investment in ZIM (1) |
|
$ |
35,831 |
|
— |
|
$ |
35,831 |
|
— |
|
Long-term debt, including current portion(2) |
|
$ |
2,776,739 |
|
— |
|
$ |
2,776,739 |
|
— |
|
Accrued liabilities(3) |
|
$ |
14,014 |
|
— |
|
$ |
14,014 |
|
— |
|
(1) |
The fair value is estimated based on currently available information on the Company’s counterparty, other contracts with similar terms, remaining maturities and interest rates. |
(2) |
Long-term debt is presented gross of deferred finance costs of $28.5 million and $35.0 million as of June 30, 2016 and December 31, 2015, respectively. The fair value of the Company’s debt is estimated based on currently available debt with similar contract terms, interest rate and remaining maturities, as well as taking into account its creditworthiness. |
(3) |
The fair value of the Company’s accrued liabilities, which mainly consists of accrued interest on its credit facilities and accrued realized losses on its cash flow interest rate swaps, is estimated based on currently available debt and swap agreements with similar contract terms, interest rates and remaining maturities, as well as taking into account its creditworthiness. |
The interest rate swap agreements converting floating interest rate exposure into fixed were as follows (in thousands):
Counter-party |
|
Contract |
|
Effective |
|
Termination |
|
Notional |
|
Fixed Rate |
|
Floating Rate |
|
Fair Value |
|
Fair Value |
|
|||
CITI |
|
02/07/2008 |
|
2/11/2011 |
|
2/11/2016 |
|
$ |
200,000 |
|
4.695 |
% p.a. |
USD LIBOR 3M BBA |
|
— |
|
$ |
(1,012 |
) |
|
ABN Amro |
|
06/06/2013 |
|
1/4/2016 |
|
12/31/2016 |
|
$ |
325,000 |
|
1.4975 |
% p.a. |
USD LIBOR 3M BBA |
|
$ |
(1,415 |
) |
$ |
(2,113 |
) |
ABN Amro |
|
05/31/2013 |
|
1/4/2016 |
|
12/31/2016 |
|
$ |
250,000 |
|
1.4125 |
% p.a. |
USD LIBOR 3M BBA |
|
(980 |
) |
(1,413 |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Total fair value of swap liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,395 |
) |
$ |
(4,538 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Three months |
|
||
|
|
2016 |
|
2015 |
|
||
|
|
(in millions) |
|
||||
Total realized losses |
|
$ |
(1.2 |
) |
$ |
(13.7 |
) |
Amortization of deferred realized losses |
|
(1.0 |
) |
(1.0 |
) |
||
Unrealized gains |
|
0.9 |
|
4.5 |
|
||
|
|
|
|
|
|
||
Net unrealized and realized losses on cash flow interest rate swaps |
|
$ |
(1.3 |
) |
$ |
(10.2 |
) |
|
|
|
|
|
|
|
|
|
|
Six months |
|
Six months |
|
||
|
|
2016 |
|
2015 |
|
||
|
|
(in millions) |
|
||||
Total realized losses |
|
$ |
(3.4 |
) |
$ |
(34.0 |
) |
Amortization of deferred realized losses |
|
(2.0 |
) |
(2.0 |
) |
||
Unrealized gains |
|
1.9 |
|
8.9 |
|
||
|
|
|
|
|
|
||
Net unrealized and realized losses on cash flow interest rate swaps |
|
$ |
(3.5 |
) |
$ |
(27.1 |
) |
|
|
|
|
|
|
|
|
The interest rate swap agreements converting fixed interest rate exposure into floating were as follows (in thousands):
Counter |
|
Contract |
|
Effective |
|
Termination |
|
Notional |
|
Fixed Rate |
|
Floating Rate |
|
Fair Value |
|
Fair Value |
|
|||
RBS |
|
11/15/2004 |
|
12/15/2004 |
|
8/27/2016 |
|
$ |
60,528 |
|
5.0125 |
% p.a. |
USD LIBOR 3M BBA + 0.835% p.a. |
|
$ |
6 |
|
$ |
55 |
|
RBS |
|
11/15/2004 |
|
11/17/2004 |
|
11/2/2016 |
|
$ |
62,342 |
|
5.0125 |
% p.a. |
USD LIBOR 3M BBA + 0.855% p.a. |
|
18 |
|
83 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Total fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24 |
|
$ |
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Three months |
|
||
|
|
(in millions) |
|
||||
Unrealized losses on swap asset |
|
$ |
— |
|
$ |
(0.1 |
) |
Reclassification of fair value of hedged debt to Statement of Income |
|
0.1 |
|
0.1 |
|
||
Realized gains |
|
— |
|
0.1 |
|
||
|
|
|
|
|
|
||
Net unrealized and realized gains on fair value interest rate swaps |
|
$ |
0.1 |
|
$ |
0.1 |
|
|
|
|
|
|
|
|
|
|
|
Six months |
|
Six months |
|
||
|
|
(in millions) |
|
||||
Unrealized losses on swap asset |
|
$ |
(0.1 |
) |
$ |
(0.3 |
) |
Reclassification of fair value of hedged debt to Statement of Income |
|
0.3 |
|
0.3 |
|
||
Realized gains |
|
0.1 |
|
0.3 |
|
||
|
|
|
|
|
|
||
Net unrealized and realized gains on fair value interest rate swaps |
|
$ |
0.3 |
|
$ |
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|