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Danaos Corporation Reports Results for the Fourth Quarter and Year Ended December 31, 2016

ATHENS, Greece, Feb. 21, 2017 /PRNewswire/ -- Danaos Corporation ("Danaos") (DAC), one of the world's largest independent owners of containerships, today reported unaudited results for the fourth quarter and the year ended December 31, 2016.

Highlights for the Fourth Quarter and Year Ended December 31, 2016:

  • Adjusted net income1 of $23.2 million, or $0.21 per share, for the three months ended December 31, 2016 compared to $47.2 million, or $0.43 per share, for the three months ended December 31, 2015, a decrease of 50.8%. Adjusted net income1 of $140.9 million, or $1.28 per share, for the year ended December 31, 2016 compared to $159.5 million, or $1.45 per share, for the year ended December 31, 2015, a decrease of 11.7%.
  • Operating revenues of $112.1 million for the three months ended December 31, 2016 compared to $143.3 million for the three months ended December 31, 2015, a decrease of 21.8%. Operating revenues of $498.3 million for the year ended December 31, 2016 compared to $567.9 million for the year ended December 31, 2015, a decrease of 12.3%.
  • Adjusted EBITDA1 of $75.9 million for the three months ended December 31, 2016 compared to $105.7 million for the three months ended December 31, 2015, a decrease of 28.2%. Adjusted EBITDA1 of $350.6 million for the year ended December 31, 2016 compared to $418.3 million for the year ended December 31, 2015, a decrease of 16.2%.
  • On September 1, 2016, Hanjin Shipping ("Hanjin"), formerly the charterer of eight of our vessels, filed for receivership with the Seoul Central District Court, which had a negative impact on our current operating results, contracted operating revenue and our debt.
  • We recognized an impairment loss of $415.1 million for our vessels and $29.4 million impairment loss on securities.
  • Total contracted operating revenues were $2.1 billion as of December 31, 2016, with charters extending through 2028 and remaining average contracted charter duration of 6.6 years, weighted by aggregate contracted charter hire.
  • Charter coverage of 92% for the next 12 months based on current operating revenues and 74% in terms of contracted operating days.

 

Three Months and Year Ended December 31, 2016
Financial Summary
(Expressed in thousands of United States dollars, except per share amounts)



Three months
ended


Three months
ended


Year ended


Year ended

December 31,

December 31,

December 31,

December 31,


2016


2015


2016


2015









Operating revenues

$112,107


$143,320


$498,332


$567,936

Net income/(loss)

$(446,567)


$6,534


$(366,195)


$117,016

Adjusted net income1

$23,158


$47,152


$140,881


$159,488

Earnings/(loss) per share

$(4.07)


$0.06


$(3.34)


$1.07

Adjusted earnings per share1

$0.21


$0.43


$1.28


$1.45

Weighted average number of shares (in thousands)

109,805


109,788


109,802


109,785

Adjusted EBITDA1

$75,874


$105,698


$350,587


$418,324

 

1 Adjusted net income, adjusted earnings per share and adjusted EBITDA are non-GAAP measures. Refer to the reconciliation of net income/(loss) to adjusted net income and net income/(loss) to adjusted EBITDA.


Danaos' CEO Dr. John Coustas commented:

Danaos' results for the fourth quarter of 2016 reflect the impact of the bankruptcy of Hanjin Shipping, which previously chartered eight of our vessels on long term charter party agreements representing approximately 20% of our fixed contracted revenue. These charter party agreements were terminated, and each of the chartered vessels were returned to us, as we have previously announced. The $24.0 million decrease in our adjusted net income is primarily the result of a $23.3 million decrease in operating revenues resulting from the Hanjin bankruptcy. During the fourth quarter, our fleet utilization decreased to 90.4% after the Hanjin charter cancellations. We have re-chartered five 3,400 TEU vessels on short term charters at market rates that reflect the prevailing weak chartering environment and managed to secure employment of up to 12 months starting from April 2017 for the remaining three 10,100 TEU vessels.  Excluding the effect of these cancellations, our fleet utilization increased to 99.5% compared to 98.3% in the fourth quarter of 2015.

As a result of the decrease in our operating income and charter attached values, primarily caused by the Hanjin bankruptcy, as of December 31, 2016 we were in breach of certain financial covenants for which we have obtained waivers until April 1, 2017 and continue to engage in discussions with our lenders to address the matter.  Because the waivers are for a period of less than 12 months after the balance sheet date, all of the debt has been classified as current on the December 31, 2016 financial statements. Otherwise the Company is currently in a position to fully service all of its operational and contractual financial obligations.

During 2016 we continued de-leveraging our balance sheet and reduced indebtedness by $251 million, although we expect the rate at which we reduce our leverage to decrease as a result of the cancellation of our Hanjin charters. Additionally, in the context of prudently evaluating the assets on our balance sheet we have also recorded an impairment loss of $415.1 million in relation to the market value of certain of our vessels, primarily in relation to the Hanjin vessels as a result of the loss of their charter and the impairment of the Panamax asset class.

Idle containership capacity currently sits at approximately 7% of the global fleet. The charter rate environment has stabilized, albeit at levels at or below daily operating expenses. Also, very few long term charters have been achieved in the market. The orderbook remains large at approximately 15% of the global fleet, and supply continues to exceed demand. The orderbook is predominantly comprised of larger vessels, which, upon delivery will put further pressure on the market for smaller, less economical vessels. As such, we do not expect rates to meaningfully improve for another 18-24 months absent a significant increase in demand combined with increased scrapping activity. Following the Hanjin bankruptcy, our near term exposure to the weak spot market has increased, with 92% of charter cover in terms of current operating revenues and 74% in terms of contracted operating days for the next 12 months versus 88% for the same period in the prior year. 

During this extended period of market weakness which has presented many challenges, we remain focused on taking necessary actions to preserve the value of our company by managing our fleet efficiently and taking prudent measures to manage and ultimately deleverage our balance sheet.

Three months ended December 31, 2016 compared to the three months ended December 31, 2015

During the three months ended December 31, 2016, Danaos had an average of 55 containerships compared to 56 containerships for the three months ended December 31, 2015. Our fleet utilization for the fourth quarter of 2016 was 90.4%, while fleet utilization for the vessels under employment, excluding the off charter days of the vessels that were previously chartered to Hanjin, increased to 99.5% in the three months ended December 31, 2016 compared to 98.3% in the three months ended December 31, 2015.

Our adjusted net income amounted to $23.2 million, or $0.21 per share, for the three months ended December 31, 2016 compared to $47.2 million, or $0.43 per share, for the three months ended December 31, 2015. We have adjusted our net income/(loss) in the three months ended December 31, 2016 for (i) an impairment loss on vessels of $415.1 million accompanied by accelerated amortization of accumulated other comprehensive loss of $7.7 million, (ii) an impairment loss on our equity in Zim and debt securities of $29.4 million, (iii) an impairment loss related to our 49% equity participation in Gemini Shipholdings Corporation of $14.6 million, (iv) unrealized gains on derivatives of $0.9 million and (v) a non-cash amortization charge of $3.8 million for fees related to our comprehensive financing plan (comprised of non-cash, amortizing and accrued finance fees). Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The decrease of $24.0 million in adjusted net income for the three months ended December 31, 2016 compared to the three months ended December 31, 2015 is mainly attributable to a $23.3 million decrease in operating revenues as a result of the Hanjin bankruptcy. A further decline in revenues of $7.9 million as a result of weaker charter market conditions was partially offset by a $5.2 million decrease in net finance costs mainly due to lower debt balances and interest rate swap expirations, a $1.1 million decrease in total operating expenses and a $0.9 million improvement in the operating performance of our equity investment in Gemini Shipholdings Corporation.

On a non-adjusted basis, we incurred a loss of $446.6 million, or $4.07 loss per share, for the three months ended December 31, 2016 compared to net income of $6.5 million, or $0.06 earnings per share, for the three months ended December 31, 2015.

Operating Revenues
Operating revenues decreased by 21.8%, or $31.2 million, to $112.1 million in the three months ended December 31, 2016 from $143.3 million in the three months ended December 31, 2015.

Operating revenues for the three months ended December 31, 2016 reflect:

  • $23.3 million decrease in revenues in the three months ended December 31, 2016 compared to the three months ended December 31, 2015 due to loss of revenue from cancelled charters with Hanjin for eight of our vessels, for which we ceased recognizing revenue effective as of July 1, 2016. See "Hanjin Update" below.
  • $0.5 million decrease in revenues in the three months ended December 31, 2016 compared to the three months ended December 31, 2015 due to the sale of the Federal on January 8, 2016.
  • $7.4 million decrease in revenues in the three months ended December 31, 2016 compared to the three months ended December 31, 2015 due to the re-chartering of certain of our vessels at lower rates.

Vessel Operating Expenses
Vessel operating expenses decreased by 6.5%, or $1.8 million, to $25.9 million in the three months ended December 31, 2016 from $27.7 million in the three months ended December 31, 2015. The decrease was attributable to a 4.8% decrease in the average daily operating cost per vessel while the average number of vessels in our fleet during the three months ended December 31, 2016 decreased by 1.8% compared to the three months ended December 31, 2015.

The average daily operating cost per vessel decreased to $5,303 per day for the three months ended December 31, 2016 from $5,571 per day for the three months ended December 31, 2015. Management believes that our daily operating cost ranks as one of the most competitive in the industry.

Depreciation & Amortization
Depreciation & Amortization includes Depreciation and Amortization of Deferred Dry-docking and Special Survey Costs.

Depreciation
Depreciation expense decreased by 2.1%, or $0.7 million, to $32.5 million in the three months ended December 31, 2016 from $33.2 million in the three months ended December 31, 2015, mainly due to decreased depreciation expense for twelve vessels for which we recorded an impairment charge on December 31, 2015 and due to the decreased average number of vessels in our fleet in the three months ended December 31, 2016 following the sale of the Federal on January 8, 2016.

Amortization of Deferred Dry-docking and Special Survey Costs
Amortization of deferred dry-docking and special survey costs increased by $0.7 million, to $1.6 million in the three months ended December 31, 2016 from $0.9 million in the three months ended December 31, 2015. The increase was mainly due to the increased payments for dry-docking and special survey costs related to certain vessels over the last year.

General and Administrative Expenses
General and administrative expenses increased by $0.3 million to $6.0 million in the three months ended December 31, 2016 from $5.7 million in the three months ended December 31, 2015.

Other Operating Expenses
Other Operating Expenses include Voyage Expenses.

Voyage Expenses
Voyage expenses increased by $0.8 million, to $3.9 million in the three months ended December 31, 2016 from $3.1 million in the three months ended December 31, 2015. The increase was mainly due to increased bunkering expenses.

Impairment Loss
We have recognized an impairment loss of $415.1 million in relation to 25 of our vessels as of December 31, 2016 compared to an impairment loss of $41.1 million in relation to 13 of our vessels as of December 31, 2015.  The impairment loss as of December 31, 2016 was (i) due to the impairment loss of $205.2 million recognized for five 3,400 TEU vessels formerly chartered to Hanjin, and (ii) the impairment loss of $209.9 million recognized for 18 of our vessels less than 4,300 TEU and for two 6,400 TEU vessels as a result of the continued weakness of containership market and the other than temporary nature of the decline in these vessels' values.

Interest Expense and Interest Income
Interest expense increased by 4.4%, or $0.9 million, to $21.2 million in the three months ended December 31, 2016 from $20.3 million in the three months ended December 31, 2015 including the amortization of deferred finance costs reclassified from other finance expenses to interest expense of $3.0 million and $3.4 million, respectively. The increase in interest expense was mainly due to the increase in average cost of debt due to the increase in US$ Libor, which was partially offset by a decrease in our average debt by $248.7 million, to $2,553.1 million in the three months ended December 31, 2016, from $2,801.8 million in the three months ended December 31, 2015 and a $0.4 million decrease in the amortization of deferred finance costs.

The Company is deleveraging its balance sheet. As of December 31, 2016, the debt outstanding gross of deferred finance costs was $2,527.3 million compared to $2,775.4 million as of December 31, 2015. As a result principally of the cancellation of eight charters with Hanjin, we expect the rate at which we reduce our leverage to decline.

Interest income increased by $0.6 million to $1.5 million in the three months ended December 31, 2016 compared to $0.9 million in the three months ended December 31, 2015. The increase was mainly attributed to the interest income recognized on Hyundai Merchant Marine ("HMM") notes receivable.

Other finance expenses
Other finance expenses increased by $0.5 million, to $1.6 million in the three months ended December 31, 2016 from $1.1 million in the three months ended December 31, 2015, following the reclassification of the amortization of deferred finance costs from other finance expenses to interest expense of $3.0 million and $3.4 million, respectively.

Equity loss on investments
Equity loss on investments increased by $13.7 million, to $14.6 million in the three months ended December 31, 2016 compared to a loss of $0.9 million in the three months ended December 31, 2015 and relates to the investment in Gemini Shipholdings Corporation ("Gemini"), in which the Company has a 49% shareholding interest. This loss increase was mainly attributed to our share of impairment loss for Gemini vessels amounting to $14.6 million in the three months ended December 31, 2016.

Unrealized gain/(loss) on derivatives
Unrealized loss on interest rate swaps amounted to $6.8 million in the three months ended December 31, 2016 compared to unrealized gains of $4.7 million in the three months ended December 31, 2015. The accelerated amortization of accumulated other comprehensive loss of $7.7 million was partially offset by the unrealized gains of $0.9 million attributable to mark to market valuation of our swaps in the three months ended December 31, 2016.

Realized loss on derivatives
Realized loss on interest rate swaps decreased by $6.4 million, to $1.9 million in the three months ended December 31, 2016 from $8.3 million in the three months ended December 31, 2015. This decrease was mainly attributable to lower interest swap rates combined with a $65.5 million decrease in the average notional amount of swaps during the three months ended December 31, 2016 compared to the three months ended December 31, 2015 as a result of swap expirations.

Other income/(expenses), net
Other income/(expenses), net increased to $29.2 million expenses in the three months ended December 31, 2016 from nil in the three months ended December 31, 2015 mainly due to a $29.4 million impairment loss on Zim equity and debt securities.

Adjusted EBITDA
Adjusted EBITDA decreased by 28.2%, or $29.8 million, to $75.9 million in the three months ended December 31, 2016 from $105.7 million in the three months ended December 31, 2015. As outlined earlier, this decrease was mainly attributed to a $31.2 million decrease in operating revenues, which was partially offset by a $0.5 million decrease in total expenses and a $0.9 million operating performance improvement on equity investments before impairment loss. Adjusted EBITDA for the three months ended December 31, 2016 is adjusted mainly for impairment loss on vessels of $415.1 million accompanied by accelerated amortization of accumulated other comprehensive loss of $7.7 million, impairment loss on Zim equity and debt securities of $29.4 million and impairment loss component of equity loss on investments of $14.6 million. Tables reconciling Adjusted EBITDA to Net income/(loss) can be found at the end of this earnings release.

Year ended December 31, 2016 compared to the year ended December 31, 2015

During the year ended December 31, 2016, Danaos had an average of 55 containerships compared to 56 containerships for the year ended December 31, 2015. Our fleet utilization for 2016 was 94.6%, while the effective fleet utilization for the fleet under employment, excluding the off charter days of the ex-Hanjin vessels, decreased to 97.3% in the year ended December 31, 2016 compared to 99.0% in the year ended December 31, 2015.

Our adjusted net income amounted to $140.9 million, or $1.28 per share, for the year ended December 31, 2016 compared to $159.5 million, or $1.45 per share, for the year ended December 31, 2015. We have adjusted our net income in the year ended December 31, 2016 for (i) an impairment loss on vessels of $415.1 million accompanied by accelerated amortization of accumulated other comprehensive loss of $7.7 million, (ii) an impairment loss on Zim equity and debt securities of $29.4 million, (iii) an impairment loss related to our 49% equity participation in Gemini Shipholdings Corporation of $14.6 million, (iv) a bad debt expense of $15.8 million related to Hanjin, (v) a loss on sale of HMM securities of $12.9 million, (vi) unrealized gain on derivatives of $4.6 million and (vii) a non-cash amortization charge of $16.1 million for fees related to our comprehensive financing plan (comprised of non-cash, amortizing and accrued finance fees). Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The decrease of $18.6 million in adjusted net income for the year ended December 31, 2016 compared to the year ended December 31, 2015 is mainly attributable to a $48.1 million decrease in operating revenues as a result of the Hanjin bankruptcy. A further decline in revenues of $21.5 million mainly as a result of weaker charter market conditions and lower fleet utilization was more than offset by a reduction of $47.6 million in net finance costs mainly due to interest rate swap expirations and lower debt balances, a $3.1 million decrease in total operating expenses and a $0.3 million improvement in the operating performance of our equity investment in Gemini Shipholdings Corporation.

On a non-adjusted basis, our net loss amounted to $366.2 million, or $3.34 loss per share, for the year ended December 31, 2016 compared to net income of $117.0 million, or $1.07 earnings per share, for the year ended December 31, 2015.

Operating Revenues
Operating revenues decreased by 12.3%, or $69.6 million, to $498.3 million in the year ended December 31, 2016 from $567.9 million in the year ended December 31, 2015.

Operating revenues for the year ended December 31, 2016 reflect:

  • $48.1 million decrease in revenues in the year ended December 31, 2016 compared to the year ended December 31, 2015 due to loss of revenue from cancelled charters with Hanjin for eight of our vessels, for which we ceased recognizing revenue effective as of July 1, 2016. See "Hanjin Update" below.
  • $2.8 million decrease in revenues in the year ended December 31, 2016 compared to the year ended December 31, 2015 due to the sale of the Federal on January 8, 2016.
  • $14.5 million decrease in revenues in the year ended December 31, 2016 compared to the year ended December 31, 2015 due to the re-chartering of certain of our vessels at lower rates.
  • $4.2 million decrease in revenues due to lower fleet utilization in the year ended December 31, 2016 compared to the year ended December 31, 2015.

Vessel Operating Expenses
Vessel operating expenses decreased by 2.9%, or $3.3 million, to $109.4 million in the year ended December 31, 2016, from $112.7 million in the year ended December 31, 2015. The decrease was due to a decrease in average number of vessels in our fleet by 1.8% and due to a 1.5% decrease in the average daily operating cost per vessel during the year ended December 31, 2016 compared to the year ended December 31, 2015.

The average daily operating cost per vessel decreased to $5,637 per day for the year ended December 31, 2016 from $5,720 per day for the year ended December 31, 2015. Management believes that our daily operating cost ranks as one of the most competitive in the industry.

Depreciation & Amortization
Depreciation & Amortization includes Depreciation and Amortization of Deferred Dry-docking and Special Survey Costs.

Depreciation
Depreciation expense decreased by 2.1%, or $2.8 million, to $129.0 million in the year ended December 31, 2016 from $131.8 million in the year ended December 31, 2015, mainly due to decreased depreciation expense for twelve vessels for which we recorded an impairment charge on December 31, 2015 and due to the decreased average number of vessels in our fleet in the year ended December 31, 2016 following the sale of the Federal on January 8, 2016.

Amortization of Deferred Dry-docking and Special Survey Costs
Amortization of deferred dry-docking and special survey costs increased by $1.7 million, to $5.5 million in the year ended December 31, 2016 from $3.8 million in the year ended December 31, 2015. The increase was mainly due to the increased payments for dry-docking and special survey costs related to certain vessels over the last year.

General and Administrative Expenses
General and administrative expenses increased by $0.3 million to $22.1 million in the year ended December 31, 2016 from $21.8 million in the year ended December 31, 2015.

Other Operating Expenses
Other Operating Expenses include Voyage Expenses and Bad Debt Expense.

Voyage Expenses
Voyage expenses increased by $1.6 million, to $13.9 million in the year ended December 31, 2016 from $12.3 million in the year ended December 31, 2015. The increase was mainly due to increased bunkering expenses.

Bad Debt Expense
Bad debt expense of $15.8 million in the year ended December 31, 2016 compared to nil in the year ended December 31, 2015 relates to receivables from Hanjin, which were written-off.

Impairment Loss
We have recognized an impairment loss of $415.1 million in relation to 25 of our vessels as of December 31, 2016 compared to an impairment loss of $41.1 million in relation to 13 of our vessels as of December 31, 2015. The impairment loss as of December 31, 2016 was (i) due to the impairment loss of $205.2 million recognized for five 3,400 TEU vessels formerly chartered to Hanjin, and (ii) the impairment loss of $209.9 million recognized for 18 of our vessels less than 4,300 TEU and for two 6,400 TEU vessels as a result of the continued weakness of containership market and the other than temporary nature of the decline in these vessels' values.

Interest Expense and Interest Income
Interest expense decreased by 1.7%, or $1.4 million, to $83.0 million in the year ended December 31, 2016 from $84.4 million in the year ended December 31, 2015. This included the amortization of deferred finance costs reclassified from other finance expenses to interest expense of $12.7 million and $14.0 million, respectively. The change in interest expense was mainly due to a $1.3 million decrease in the amortization of deferred finance costs and due to a decrease in our average debt by $242.5 million, to $2,652.2 million in the year ended December 31, 2016, from $2,894.7 million in the year ended December 31, 2015, which were partially offset by an increase in average cost of debt due to the increase in US$ Libor.

The Company is deleveraging its balance sheet. As of December 31, 2016, the debt outstanding gross of deferred finance costs was $2,527.3 million compared to $2,775.4 million as of December 31, 2015. We expect the rate at which we reduce our leverage to decline, primarily as a result of the cancellation of eight charters with Hanjin.

Interest income increased by $1.3 million to $4.7 million in the year ended December 31, 2016 compared to $3.4 million in the year ended December 31, 2015. The increase was mainly attributed to the interest income recognized on HMM notes receivable.

Other finance expenses
Other finance expenses increased by $0.2 million, to $4.9 million in the year ended December 31, 2016 from $4.7 million in the year ended December 31, 2015, following the reclassification of the amortization of deferred finance costs from other finance expenses to interest expense of $12.7 million and $14.0 million, respectively.

Equity loss on investments
Equity loss on investments increased by $14.3 million, to $16.2 million in the year ended December 31, 2016 compared to a loss of $1.9 million in the year ended December 31, 2015 and relates to the investment in Gemini Shipholdings Corporation ("Gemini"), in which the Company has a 49% shareholding interest. This loss increase was mainly attributed to our share of impairment loss for Gemini vessels amounting to $14.6 million in the year ended December 31, 2016.

Unrealized gain/(loss) on derivatives
Unrealized loss on interest rate swaps amounted to $3.1 million in the year ended December 31, 2016 compared to unrealized gains of $16.3 million in the year ended December 31, 2015. The accelerated amortization of accumulated other comprehensive loss of $7.7 million was partially offset by the unrealized gains of $4.6 million attributable to mark to market valuation of our swaps in the year ended December 31, 2016.

Realized loss on derivatives
Realized loss on interest rate swaps decreased by $46.7 million, to $9.4 million in the year ended December 31, 2016 from $56.1 million in the year ended December 31, 2015. This decrease was attributable to lower interest swap rates combined with a $522.0 million decrease in the average notional amount of swaps during the year ended December 31, 2016 compared to the year ended December 31, 2015 as a result of swap expirations.

Other income/(expenses), net
Other income/(expenses), net increased to $41.6 million expenses in the year ended December 31, 2016 from $0.1 million income in the year ended December 31, 2015 mainly due to a $29.4 million impairment loss  in Zim equity and debt securities and a $12.9 million recognized loss on sale of HMM equity securities, which were acquired by Danaos in July 2016 as part of the charter restructuring agreement with HMM, for cash proceeds of $38.1 million.

Adjusted EBITDA
Adjusted EBITDA decreased by 16.2%, or $67.7 million, to $350.6 million in the year ended December 31, 2016 from $418.3 million in the year ended December 31, 2015. As outlined earlier, this decrease was mainly attributed to a $69.6 million decrease in operating revenues, which was partially offset by a $2.1 million decrease in total expenses and a $0.3 million operating performance improvement on equity investments before impairment loss. Adjusted EBITDA for the year ended December 31, 2016 is adjusted mainly for impairment loss on vessels of $415.1 million accompanied by accelerated amortization of accumulated other comprehensive loss of $7.7 million, impairment loss on our equity in Zim and debt securities of $29.4 million, impairment loss component of equity loss on investments of $14.6 million, bad debt expenses of $15.8 million, loss on sale of HMM securities of $12.9 million, unrealized gain on derivatives of $4.6 million and realized loss on derivatives of $5.4 million. Tables reconciling Adjusted EBITDA to Net income/(loss) can be found at the end of this earnings release.

Hanjin Update
On September 1, 2016, Hanjin, a charterer of eight of our vessels under long term, fixed rate charter party agreements, referred to the Bankruptcy Court of Seoul in South Korea, which issued an order to commence the rehabilitation proceedings of Hanjin. Hanjin has cancelled all eight of its charter party agreements with us, which represented approximately $560 million of our $2.8 billion of contracted revenue as of June 30, 2016, and returned each of the vessels to us. We have rechartered all eight vessels on short-term charters at market rates. As a result of these events, we ceased recognizing revenue from Hanjin effective from July 1, 2016 onwards and recognized a bad debt expense of $15.8 million relating to unpaid charter hire recorded as accounts receivable as of June 30, 2016 in our condensed consolidated statements of operations in the year ended December 31, 2016. We have an unsecured claim for unpaid charter hire, charges, expenses and loss of profit against Hanjin totaling $597.9 million submitted to the Bankruptcy Court of Seoul.

As a result of a decrease in our operating income and charter-attached market value of certain of our vessels caused mainly by the cancellation of our eight charters with Hanjin, we were in breach of the minimum security cover, consolidated net leverage and consolidated net worth financial covenants contained in our Bank Agreement and our other credit facilities as of December 31, 2016. We have obtained waivers of the breaches of these financial covenants until April 1, 2017, and we are in discussions with our lenders regarding this matter. As these waivers were obtained for a period of less than the next 12 months after  the balance sheet date, and in accordance with the guidance related to the classification of obligations that are callable by the lenders, we have classified our long-term debt, net of deferred finance costs as current. Otherwise, the Company is currently in a position to fully service all of its operational and contractual obligations. 

Conference Call and Webcast
On Wednesday, February 22, 2017 at 9:00 A.M. ET, the Company's management will host a conference call to discuss the results.

Participants should dial into the call 10 minutes before the scheduled time using the following numbers: 1 844 802 2437 (US Toll Free Dial In), 0800 279 9489 (UK Toll Free Dial In) or +44 (0) 2075 441 375 (Standard International Dial In). Please indicate to the operator that you wish to join the Danaos Corporation earnings call.

A telephonic replay of the conference call will be available until March 1, 2017 by dialing 1 877 344 7529 (US Toll Free Dial In) or +44 (0) 2036 088 021 (Standard International Dial In) and using 10101758# as the access code.

Audio Webcast
There will also be a live and then archived webcast of the conference call through the Danaos website (www.danaos.com). Participants of the live webcast should register on the website approximately 10 minutes prior to the start of the webcast.

About Danaos Corporation
Danaos Corporation is one of the largest independent owners of modern, large-size containerships. Our current fleet of 59 containerships aggregating 353,586 TEUs, including four vessels owned by Gemini Shipholdings Corporation, a joint venture, ranks Danaos among the largest containership charter owners in the world based on total TEU capacity. Our fleet is chartered to many of the world's largest liner companies on fixed-rate charters. Our long track record of success is predicated on our efficient and rigorous operational standards and environmental controls. Danaos Corporation's shares trade on the New York Stock Exchange under the symbol "DAC".

Forward-Looking Statements
Matters discussed in this release may constitute forward-looking statements within the meaning of the safeharbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements reflect our current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. The forward-looking statements in this release are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties. Although Danaos Corporation believes that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, Danaos Corporation cannot assure you that it will achieve or accomplish these expectations, beliefs or projections. Important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the strength of world economies and currencies, general market conditions, including changes in charter hire rates and vessel values, charter counterparty performance, changes in demand that may affect attitudes of time charterers to scheduled and unscheduled drydocking, changes in Danaos Corporation's operating expenses, including bunker prices, dry-docking and insurance costs, ability to obtain financing and comply with covenants in our financing arrangements, actions taken by regulatory authorities, potential liability from pending or future litigation, domestic and international political conditions, potential disruption of shipping routes due to accidents and political events or acts by terrorists.

Risks and uncertainties are further described in reports filed by Danaos Corporation with the U.S. Securities and Exchange Commission.

Visit our website at www.danaos.com

Appendix

Fleet Utilization

Danaos had 484 unscheduled off-hire days in the three months ended December 31, 2016. The following table summarizes vessel utilization and the impact of the off-hire days on the Company's revenue.

 

Vessel Utilization (No. of Days)

First Quarter


Second Quarter


Third Quarter


Fourth Quarter



2016

2016


2016


2016


Total

Ownership Days

5,013


5,005


5,060


5,060


20,138

Less Off-hire Days:










Scheduled Off-hire Days

(31)


(45)


-


-


(76)

Other Off-hire Days

(242)


(110)


(169)


(484)


(1,005)

Operating Days

4,740


4,850


4,891


4,576


19,057

Vessel Utilization

94.6%


96.9%


96.7%


90.4%


94.6%











Operating Revenues (in '000s of US Dollars)

$137,474


$136,999


$111,752


$112,107


$498,332

Average Gross Daily Charter Rate 

$29,003


$28,248


$22,848


$24,499


$26,150





















Vessel Utilization (No. of Days)

First Quarter


Second Quarter


Third Quarter


Fourth Quarter



2015

2015


2015


2015


Total

Ownership Days

5,040


5,096


5,152


5,152


20,440

Less Off-hire Days:










Scheduled Off-hire Days

(16)


(16)


-


(16)


(48)

Other Off-hire Days

(64)


(17)


(2)


(70)


(153)

Operating Days

4,960


5,063


5,150


5,066


20,239

Vessel Utilization

98.4%


99.4%


100.0%


98.3%


99.0%











Operating Revenues (in '000s of US Dollars)

$138,605


$141,469


$144,542


$143,320


$567,936

Average Gross Daily Charter Rate 

$27,945


$27,942


$28,066


$28,291


$28,062

 

Fleet List

The following table describes in detail our fleet deployment profile as of February 20, 2017:

 

Vessel Name

Vessel Size

(TEU)


Year Built


Expiration of Charter(1)


Containerships














Hyundai Ambition

13,100


2012


June 2024


Hyundai Speed

13,100


2012


June 2024


Hyundai Smart

13,100


2012


May 2024


Hyundai Tenacity

13,100


2012


March 2024


Hyundai Together

13,100


2012


February 2024


Express Rome (ex Hanjin Italy)

10,100


2011


August 2017


Express Berlin (ex Hanjin Germany)

10,100


2011


June 2017


Express Athens (ex Hanjin Greece)

10,100


2011


August 2017


CSCL Le Havre

9,580


2006


September 2018


CSCL Pusan

9,580


2006


July 2018


CMA CGM Melisande

8,530


2012


November 2023


CMA CGM Attila

8,530


2011


April 2023


CMA CGM Tancredi

8,530


2011


May 2023


CMA CGM Bianca

8,530


2011


July 2023


CMA CGM Samson

8,530


2011


September 2023


CSCL America

8,468


2004


July 2017


Europe (ex CSCL Europe)

8,468


2004


June 2017


CMA CGM Moliere (2)

6,500


2009


August 2021


CMA CGM Musset (2)

6,500


2010


February 2022


CMA CGM Nerval (2)

6,500


2010


April 2022


CMA CGM Rabelais (2)

6,500


2010


June 2022


CMA CGM Racine (2)

6,500


2010


July 2022


YM Mandate

6,500


2010


January 2028


YM Maturity

6,500


2010


April 2028


Performance

6,402


2002


March 2017


Priority

6,402


2002


March 2017


Colombo (ex SNL Colombo)

4,300


2004


March 2019


YM Singapore

4,300


2004


October 2019


YM Seattle

4,253


2007


July 2019


YM Vancouver

4,253


2007


September 2019


Derby D(3)

4,253


2004


September 2017


Deva

4,253


2004


March 2017


ZIM Rio Grande

4,253


2008


May 2020


ZIM Sao Paolo

4,253


2008


August 2020


OOCL Istanbul

4,253


2008


September 2020


ZIM Monaco

4,253


2009


November 2020


OOCL Novorossiysk

4,253


2009


February 2021


ZIM Luanda

4,253


2009


May 2021


Dimitris C

3,430


2001


March 2017


Express Black Sea (ex Hanjin Constantza)

3,400


2011


March 2017


Express Spain (ex Hanjin Algeciras)

3,400


2011


March 2017


Express Argentina (ex Hanjin Buenos Aires)

3,400


2010


June 2017


Express Brazil (ex Hanjin Santos)

3,400


2010


June 2017


Express France (ex Hanjin Versailles)

3,400


2010


June 2017


MSC Zebra

2,602


2001


October 2017


Amalia C

2,452


1998


May 2017


Danae C

2,524


2001


May 2017


Hyundai Advance

2,200


1997


June 2017


Hyundai Future

2,200


1997


August 2017


Hyundai Sprinter

2,200


1997


August 2017


Hyundai Stride

2,200


1997


July 2017


Hyundai Progress

2,200


1998


December 2017


Hyundai Bridge

2,200


1998


January 2018


Hyundai Highway

2,200


1998


January 2018


Hyundai Vladivostok

2,200


1997


May 2017









NYK Lodestar(4)

6,422


2001


September 2017


NYK Leo(4)

6,422


2002


February 2019


Suez Canal(4)

5,610


2002


July 2017


Genoa(4)

5,544


2002


March 2017









 

(1)

Earliest date charters could expire. Some charters include options to extend their terms.

(2)

The charters with respect to the CMA CGM Moliere, the CMA CGM Musset, the CMA CGM Nerval, the CMA CGM Rabelais and the CMA CGM Racine include an option for the charterer, CMA-CGM, to purchase the vessels eight years after the commencement of the respective charters, which will fall in September 2017, March 2018, May 2018, July 2018 and August 2018, respectively, each for $78.0 million.

(3)

Currently on subjects with the charterer.

(4)

Vessels acquired by Gemini Shipholdings Corporation, in which Danaos holds a 49% equity interest.

 

DANAOS CORPORATION
Condensed Statements of Operations - Unaudited
(Expressed in thousands of United States dollars, except per share amounts)




Three months
ended


Three months
ended


Year ended


Year ended

December 31,

December 31,

December 31,

December 31,



2016


2015


2016


2015










OPERATING REVENUES

$112,107


$143,320


$498,332


$567,936










OPERATING EXPENSES









Vessel operating expenses

(25,856)


(27,678)


(109,384)


(112,736)


Depreciation & amortization

(34,016)


(34,146)


(134,573)


(135,628)


Impairment loss

(415,118)


(41,080)


(415,118)


(41,080)


General & administrative

(5,968)


(5,694)


(22,105)


(21,831)


Loss on sale of vessels

-


-


(36)


-


Other operating expenses

(3,923)


(3,114)


(29,759)


(12,284)

Income From Operations

(372,774)


31,608


(212,643)


244,377










OTHER INCOME/(EXPENSES)









Interest income

1,486


870


4,682


3,419


Interest expense

(21,170)


(20,254)


(82,966)


(84,435)


Other finance expenses

(1,585)


(1,138)


(4,932)


(4,658)


Equity loss on investments

(14,655)


(949)


(16,252)


(1,941)


Other income/(expenses), net

(29,178)


(32)


(41,602)


111


Realized loss on derivatives

(1,915)


(8,305)


(9,425)


(56,142)


Unrealized gain/(loss) on derivatives

(6,776)


4,734


(3,057)


16,285

Total Other Expenses, net

(73,793)


(25,074)


(153,552)


(127,361)










Net Income/(loss)

$(446,567)


$6,534


$(366,195)


$117,016










EARNINGS/(LOSS) PER SHARE








Basic & diluted earnings/(loss) per share

$(4.07)


$0.06


$(3.34)


$1.07

Basic & diluted weighted average number of common
shares (in thousands of shares)

109,805


109,788


109,802


109,785

 

 Non-GAAP Measures*
Reconciliation of Net Income/(Loss) to Adjusted Net Income – Unaudited



Three months
ended


Three months
ended


Year ended


Year ended

December 31,

December 31,

December 31,

December 31,


2016


2015


2016


2015

Net income/(loss)

$(446,567)


$6,534


$(366,195)


$117,016

Bad debt expense

-


-


15,834


-

Loss on sale of HMM securities

-


-


12,906


-

Impairment loss

415,118


41,080


415,118


41,080

Impairment loss on securities

29,384


-


29,384


-

Impairment loss component of equity loss on investments

14,642


-


14,642


-

Accelerated amortization of accumulated other comprehensive loss

7,706


-


7,706


-

Unrealized gain on derivatives

(930)


(4,734)


(4,649)


(16,285)

Amortization of financing fees & finance fees accrued

3,805


4,272


16,099


17,677

Loss on sale of vessels

-


-


36


-

Adjusted Net Income

$23,158


$47,152


$140,881


$159,488

Adjusted Earnings Per Share

$0.21


$0.43


$1.28


$1.45

Weighted average number of shares (in thousands)

109,805


109,788


109,802


109,785

 

* The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, management believes that certain non-GAAP financial measures used in managing the business may provide users of this financial information additional meaningful comparisons between current results and results in prior operating periods. Management believes that these non-GAAP financial measures can provide additional meaningful reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain items that impact the overall comparability. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company's performance. See the Table above for supplemental financial data and corresponding reconciliations to GAAP financial measures for the three months and year ended December 31, 2016 and 2015. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP.

 

DANAOS CORPORATION
Condensed Balance Sheets - Unaudited
(Expressed in thousands of United States dollars)





As of


As of

December 31,

December 31,




2016


2015

ASSETS





CURRENT ASSETS






Cash and cash equivalents


$73,717


$72,253


Restricted cash


2,812


2,818


Accounts receivable, net


8,028


10,652


Fair value of financial instruments


-


138


Other current assets


51,397


41,709




135,954


127,570

NON-CURRENT ASSETS






Fixed assets, net


2,906,721


3,446,323


Deferred charges, net


8,199


4,751


Investments in affiliates


5,033


11,289


Other non-current assets


71,157


72,188




2,991,110


3,534,551

TOTAL ASSETS


$3,127,064


$3,662,121







LIABILITIES AND STOCKHOLDERS' EQUITY





CURRENT LIABILITIES






Long-term debt, current portion


$2,504,932


$269,979


Accounts payable, accrued liabilities & other current liabilities


61,349


37,628


Fair value of financial instruments


-


4,538




2,566,281


312,145

LONG-TERM LIABILITIES






Long-term debt, net


-


2,470,417


Other long-term liabilities


73,070


37,645




73,070


2,508,062







STOCKHOLDERS' EQUITY






Common stock


1,098


1,098


Additional paid-in capital


546,898


546,822


Accumulated other comprehensive loss


(91,163)


(103,081)


Retained earnings


30,880


397,075




487,713


841,914

Total liabilities and stockholders' equity


$3,127,064


$3,662,121

 

DANAOS CORPORATION
Condensed Statements of Cash Flows - Unaudited
(Expressed in thousands of United States dollars)












Three months ended


Three months ended


Year ended


Year ended

December 31,

December 31,

December 31,

December 31,



2016


2015


2016


2015

Operating Activities:









Net income/(loss)

$(446,567)


$6,534


$(366,195)


$117,016


Adjustments to reconcile net income/(loss) to net cash provided by operating activities:









Depreciation

32,459


33,225


129,045


131,783


Impairment losses

444,502


41,080


444,502


41,080


Amortization of deferred drydocking & special survey costs, finance cost and other finance fees accrued

5,362


5,193


21,627


21,522


Payments for drydocking/special survey

(189)


(1,034)


(8,976)


(2,341)


Amortization of deferred realized losses on cash flow interest rate swaps

8,718


1,013


11,734


4,017


Bad debt expense

-


-


15,834


-


Loss on sale of securities

-


-


12,906


-


Equity loss on investments

14,655


949


16,252


1,941


Unrealized gain on derivatives

(930)


(4,734)


(4,649)


(16,285)


Loss on sale of vessels

-


-


36


-


Stock based compensation

76


88


76


88


Accounts receivable

(3,976)


(2,800)


(13,210)


(2,748)


Other assets, current and non-current

(989)


945


18,041


(4,794)


Accounts payable and accrued liabilities

(5,342)


(4,761)


1,067


(11,662)


Other liabilities, current and long-term

(10,183)


(6,189)


(16,123)


(7,941)

Net Cash provided by Operating Activities

37,596


69,509


261,967


271,676










Investing Activities:









Vessel additions and vessel acquisitions

(1,053)


(378)


(4,561)


(1,112)


Investments in affiliates

-


(5,880)


(9,996)


(13,230)


Net proceeds from sale of vessels

-


1,050


5,178


1,050

Net Cash used in Investing Activities

(1,053)


(5,208)


(9,379)


(13,292)










Financing Activities:









Debt  repayment

(88,953)


(85,427)


(251,130)


(243,175)


Deferred finance costs

-


-


-


(692)


Increase in restricted cash

(2,117)


(2,818)


6


6

Net Cash used in Financing Activities

(91,070)


(88,245)


(251,124)


(243,861)

Net (Decrease)/Increase in cash and cash equivalents

(54,527)


(23,944)


1,464


14,523

Cash and cash equivalents, beginning of period

128,244


96,197


72,253


57,730

Cash and cash equivalents, end of period

$73,717


$72,253


$73,717


$72,253

 

DANAOS CORPORATION
Reconciliation of Net Income/(Loss) to Adjusted EBITDA
(Expressed in thousands of United States dollars)



Three months
ended


Three months
ended


Year ended


Year ended

December 31,

December 31,

December 31,

December 31,


2016


2015


2016


2015

Net income/(loss)

$(446,567)


$6,534


$(366,195)


$117,016

Depreciation

32,459


33,225


129,045


131,783

Amortization of deferred drydocking & special survey costs

1,557


921


5,528


3,845

Amortization of deferred finance costs and write-offs and other finance fees accrued

3,805


4,272


16,099


17,677

Amortization of deferred realized losses on interest rate swaps

1,012


1,013


4,028


4,017

Interest income

(1,486)


(870)


(4,682)


(3,419)

Interest expense

18,195


16,877


70,314


70,397

Impairment loss

415,118


41,080


415,118


41,080

Impairment loss on securities

29,384


-


29,384


-

Impairment loss component of equity loss on investments

14,642


-


14,642


-

Accelerated amortization of accumulated other comprehensive loss

7,706


-


7,706


-

Bad debt expense

-


-


15,834


-

Loss on sale of securities

-


-


12,906


-

Loss on sale of vessels

-


-


36


-

Stock based compensation

76


88


76


88

Realized loss on derivatives

903


7,292


5,397


52,125

Unrealized gain on derivatives

(930)


(4,734)


(4,649)


(16,285)

Adjusted EBITDA(1)

$75,874


$105,698


$350,587


$418,324

 

1)

Adjusted EBITDA represents net income/(loss) before interest income and expense, depreciation, amortization of deferred drydocking & special survey costs and deferred finance costs, amortization of deferred realized losses on interest rate swaps, accelerated amortization of accumulated other comprehensive loss, unrealized gain on derivatives, realized loss on derivatives, gain/(loss) on sale of vessels, impairment losses, bad debt expense and loss on sale of securities. However, Adjusted EBITDA is not a recognized measurement under U.S. generally accepted accounting principles, or "GAAP." We believe that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. We also believe that Adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of Adjusted EBITDA generally eliminates the effects of financings, income taxes and the accounting effects of capital expenditures and acquisitions, items which may vary for different companies for reasons unrelated to overall operating performance. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.




Note: Items to consider for comparability include gains and charges. Gains positively impacting net income are reflected as deductions to net income. Charges negatively impacting net income are reflected as increases to net income.




The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, management believes that certain non-GAAP financial measures used in managing the business may provide users of these financial information additional meaningful comparisons between current results and results in prior operating periods. Management believes that these non-GAAP financial measures can provide additional meaningful reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain items that impact the overall comparability. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company's performance. See the Tables above for supplemental financial data and corresponding reconciliations to GAAP financial measures for the three months and year ended December 31, 2016 and 2015. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP.

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/danaos-corporation-reports-results-for-the-fourth-quarter-and-year-ended-december-31-2016-300411042.html