Liquidity and Capital Resources
Our principal source of funds has been operating cash flows, vessel sales, and long-term bank borrowings, as well as equity provided by our stockholders from our initial public offering in October 2006 and common stock sale in August 2010. Our principal uses of funds have been capital expenditures to establish, grow and maintain our fleet, comply with international shipping standards, environmental laws and regulations and to fund working capital requirements and repayment of debt.
Our short-term liquidity needs primarily relate to the funding of our vessel operating expenses, debt interest payments and servicing the current portion of our debt obligations. Our long-term
liquidity needs primarily relate to any additional vessel acquisitions in the containership sector and debt repayment. We anticipate that our primary sources of funds will be cash from operations and equity or debt financings. As described below, on August 10, 2018, we refinanced over $2.2 billion of debt scheduled to mature by December 2018, extending maturities to December 31, 2023 (or in some cases June 30, 2024).
Under our existing multi-year charters as of June 30, 2018, we had contracted revenues of $205.5 million for the remainder of 2018, $317.1 million for 2019 and, thereafter, approximately $1.1 billion. Although these contracted revenues are based on contracted charter rates, we are dependent on the ability and willingness of our charterers, some of which are facing substantial financial pressure, to meet their obligations under these charters.
As of June 30, 2018, we had cash and cash equivalents of $72.4 million. As of June 30, 2018, we had no remaining borrowing availability under our credit facilities. As of June 30, 2018, we had $2,293.9 million of outstanding indebtedness gross of deferred finance costs, of which $2.2 billion of principal was due for repayment by December 31, 2018.
On June 19, 2018, the Company entered into an agreement with certain of the lenders holding approximately $2.2 billion of debt maturing on December 31, 2018 for a debt refinancing transaction which was consummated on August 10, 2018.
The debt refinancing involved the Companys entry into new credit facilities, including the amendment and restatement of certain previous credit facilities, resulting in a $551 million reduction in our debt, reset financial and certain other covenants, modified interest rates and amortization profiles and the extension of debt maturities by approximately five years to December 31, 2023 (or, in some cases, June 30, 2024). In the refinancing, the Company issued to certain of its lenders an aggregate of 99,342,271 shares of the Companys common stock on the August 10, 2018 closing date, representing 47.5% of the Companys issued and outstanding common stock after giving effect to such issuance. The issuance ratably diluted existing holders of the Common Stock. See New Credit Facilities below. After giving effect to the debt refinancing, we had approximately $1.7 billion of principal amount of debt outstanding and no remaining borrowing availability under our credit facilities.
Under the new credit facilities, we are required to apply a substantial portion of our cash from operations to the repayment of principal under such facilities. See New Credit Facilities below and Note 9 Long-Term Debt, net to our unaudited condensed consolidated financial statements included elsewhere in this report. We currently expect that the remaining portion of our cash from operations will be sufficient to fund all of our other obligations
We have not paid a dividend since 2008, when our board of directors determined to suspend the payment of cash dividends as a result of market conditions in the international shipping industry
. In addition, under the new credit facilities we are not permitted to pay dividends, until (1) we receive in excess of $50 million in net cash proceeds from offerings of common stock and (2) the payment in full of the first installment of amortization payable following the consummation of the debt refinancing under each new credit facility. After these conditions are satisfied, under the new credit facilities we will be permitted to pay dividends if an event of default has not occurred and is continuing or would occur as a result of the payment of such dividend, and we remain in compliance with the financial and other covenants thereunder. To the extent our new credit facilities permit us to pay dividends, any dividend payments will be subject to us having sufficient available excess cash and distributable reserves, the provisions of Marshall Islands law affecting the payment of distributions to stockholders and the discretion of our board of directors.
5
We have 15,000,000 outstanding warrants, which will expire on January 31, 2019, with an exercise price of $7.00 per share. We will not receive any cash upon exercise of the warrants as the warrants are only exercisable on a cashless basis.
In July 2014, ZIM and its creditors entered into definitive documentation effecting ZIMs restructuring with its creditors. The terms of the restructuring included a reduction in the charter rates payable by ZIM under its time charters, expiring in 2020 or 2021, for six of our vessels. The terms also included our 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 payable in kind, 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 ZIMs other obligations to us which relate to the outstanding long term receivable as of December 31, 2013. See Note 7, Other Non-current Assets to our unaudited condensed consolidated financial statements included in this report.
In July 2016, we entered into a charter restructuring agreement with Hyundai Merchant Marine, which 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 our vessels currently employed with HMM. In exchange, under the charter restructuring agreement we received (i) $32.8 million principal amount of senior, unsecured Loan Notes 1, amortizing subject to available cash flows, which accrue interest at 3% per annum payable on maturity in July 2024, (ii) $6.2 million principal amount of senior, unsecured, non-amortizing Loan Notes 2, which accrue interest at 3% per annum payable on maturity in December 2022 and (iii) 4,637,558 HMM shares, which were sold on September 1, 2016 for cash proceeds of $38.1 million. On March 28, 2017, the Company sold $13.0 million principal amount carried at amortized costs of $8.6 million of HMM Loan Notes 1 for gross cash proceeds on sale of $6.2 million resulting in a loss on sale of $2.4 million. The sale of these notes resulted in the transfer of all held to maturity securities into the available for sale securities and recognizing unrealized holding losses of $24.1 million for all remaining HMM and ZIM notes in accumulated other comprehensive income/(loss) as of June 30, 2018. See Note 7, Other Non-current Assets to our unaudited condensed consolidated financial statements included in this report.
In connection with the Refinancing, Danaos Investment Limited as Trustee of the 883 Trust (DIL), our largest stockholder, contributed $10 million to us on the August 10, 2018 closing date of the Refinancing and has further agreed to commit to backstop, through a cash contribution pursuant to a subordinated loan agreement, any shortfall in the required minimum consolidated cash balance of $60 million required under the new credit facilities as of September 30, 2018, subject to certain limitations (the Minimum Cash Condition Backstop). DIL will not receive any shares of common stock or other interests in us as a result of the contributions and commitments described in the preceding sentence. In connection with the Refinancing, we have also undertaken to seek to sell two of our 13,100 TEU vessels, the
Hyundai Honour
and the
Hyundai Respect
. The net proceeds from sales of such vessels are to be applied pro rata to repay the new credit facilities secured by mortgages on such vessels, which would further reduce our outstanding debt. The current carrying value of these vessels may exceed the market value of these vessels.
6
New Credit Facilities
On July 31, 2018, we entered into new credit facilities for an aggregate principal amount of approximately $1.6 billion due December 31, 2023 through an amendment and restatement or replacement of the Companys previous credit facilities that had outstanding debt of approximately $2.2 billion maturing on December 31, 2018. The new credit facilities provide for quarterly fixed and variable amortization payments, together representing approximately 85% of actual free cash flows from the relevant vessels securing such credit facilities (calculated on a generally consistent basis to the bank agreement that the Company entered into with its lenders in 2011), subject to certain adjustments. The new credit facilities have maturity dates of December 31, 2023 or, in some cases, June 30, 2024 as noted below. The interest rate payable under the new credit facilities is LIBOR+2.50% (subject to a 0% floor), with subordinated tranches of two credit facilities incurring additional PIK interest of 4.00%, compounded quarterly, payable in respect of approximately $282 million principal amount thereunder, which tranches have maturity dates of June 30, 2024.
The new credit facilities contain financial covenants requiring us to maintain: (i) minimum collateral to loan value coverage on a charter-free basis increasing from 57.0% as of December 31, 2018 to 100% as of September 30, 2023 and thereafter, (ii) minimum collateral to loan value coverage on a charter-attached basis increasing from 69.5% as of December 31, 2018 to 100% as of September 30, 2023 and thereafter, (iii) minimum liquidity of $30 million throughout the term of the new credit facilities, (iv) maximum consolidated net leverage ratio, declining from 7.50x as of December 31, 2018 to 5.50x as of September 30, 2023 and thereafter, (v) minimum interest coverage ratio of 2.50x throughout the term of the new credit facilities and (vi) minimum consolidated market value adjusted net worth increasing from negative $510 million as of December 31, 2018 to $60 million as of September 30, 2023 and thereafter.
The new credit facilities contain certain restrictive covenants and customary events of default, including those relating to cross-acceleration and cross-defaults to other indebtedness, non-compliance or repudiation of security documents, material adverse changes to our business, our Common Stock ceasing to be listed on the New York Stock Exchange (NYSE) (or another recognized stock exchange), foreclosure on a vessel in our fleet, a change in control of our Manager, a breach of the management agreement by our Manager for the vessels securing the respective credit facilities and a material breach of a charter by a charterer or cancellation of a charter (unless replaced with a similar charter acceptable to the lenders) for the vessels securing the respective new credit facilities.
A Change of Control will give rise to a mandatory prepayment in full of each new credit facility. A Change of Control for these purposes include the occurrence of the following: (i) Dr. Coustas ceases to be both our Chief Executive Officer and our director, subject to certain exceptions, (ii) the existing members of the board of directors and the directors appointed following nomination by the existing board of directors collectively do not constitute a majority of the board of directors, (iii) Dr. Coustas and members of his family cease to collectively control more than 15% of the voting interest in our outstanding capital stock or to beneficially own at least 15% and one share of our outstanding capital stock, (iv) any person or persons acting in concert (other than the Coustas family) (x) holds a greater portion of our outstanding capital stock than the Coustas family (other than as a direct result of the sale by the lenders of shares issued in the Refinancing) or (y) controls us or (v) DIL ceases to beneficially hold our unsecured subordinated loan, if any, made in connection with the Minimum Cash Condition Backstop.
Each of the new credit facilities is secured by customary shipping industry collateral, including vessel mortgages, earnings accounts, our investments in ZIM and Hyundai Merchant Marine securities and stock pledges and benefits from corporate guarantees.
We will not be permitted to pay dividends under the new credit facilities, until (1) we receive in excess of $50 million in net cash proceeds from offerings of Common Stock and (2) the payment in full of the first installment of amortization payable following the consummation of the Refinancing under each new credit facility entered into in connection therewith (other than the Sinosure-CEXIM credit facility). After these conditions are satisfied, under the credit facilities, we would be permitted to pay dividends unless an event of default has occurred and is continuing or would occur as a result of the payment of such dividend and as long as the obligors under each new credit facility are in compliance with covenants thereunder (including our compliance with financial covenants).
10
INDEX TO FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017
|
|
F-2
|
|
|
|
Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)
|
|
F-3
|
|
|
|
Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)
|
|
F-4
|
|
|
|
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 (unaudited)
|
|
F-5
|
|
|
|
Notes to the Unaudited Condensed Consolidated Financial Statements
|
|
F-6
|
F-
1
DANAOS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States Dollars, except share and per share amounts)
|
|
|
|
As of
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
Notes
|
|
2018
|
|
2017
|
|
|
|
|
|
(unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
3
|
|
$
|
72,423
|
|
$
|
66,895
|
|
Restricted cash
|
|
3
|
|
2,812
|
|
2,812
|
|
Accounts receivable, net
|
|
|
|
15,794
|
|
6,502
|
|
Inventories
|
|
|
|
9,057
|
|
8,841
|
|
Prepaid expenses
|
|
|
|
1,961
|
|
1,234
|
|
Due from related parties
|
|
|
|
34,939
|
|
34,007
|
|
Other current assets
|
|
|
|
5,712
|
|
5,708
|
|
Total current assets
|
|
|
|
142,698
|
|
125,999
|
|
NON-CURRENT ASSETS
|
|
|
|
|
|
|
|
Fixed assets at cost, net of accumulated depreciation of $816,947 (2017: $763,190)
|
|
4
|
|
2,743,897
|
|
2,795,971
|
|
Deferred charges, net
|
|
5
|
|
15,061
|
|
8,962
|
|
Investments in affiliates
|
|
6
|
|
6,182
|
|
5,998
|
|
Other non-current assets
|
|
7
|
|
58,924
|
|
49,466
|
|
Total non-current assets
|
|
|
|
2,824,064
|
|
2,860,397
|
|
Total assets
|
|
|
|
$
|
2,966,762
|
|
$
|
2,986,396
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
$
|
16,290
|
|
$
|
11,371
|
|
Accrued liabilities
|
|
8
|
|
18,400
|
|
15,226
|
|
Current portion of long-term debt, net
|
|
9
|
|
134,861
|
|
2,329,601
|
|
Unearned revenue
|
|
|
|
19,284
|
|
22,853
|
|
Other current liabilities
|
|
|
|
759
|
|
788
|
|
Total current liabilities
|
|
|
|
189,594
|
|
2,379,839
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES
|
|
|
|
|
|
|
|
Long-term debt, net
|
|
9
|
|
2,152,957
|
|
|
|
Unearned revenue, net of current portion
|
|
|
|
49,004
|
|
56,159
|
|
Other long-term liabilities
|
|
|
|
1,331
|
|
1,693
|
|
Total long-term liabilities
|
|
|
|
2,203,292
|
|
57,852
|
|
Total liabilities
|
|
|
|
2,392,886
|
|
2,437,691
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
Preferred stock (par value $0.01, 100,000,000 preferred shares authorized and not issued as of June 30, 2018 and December 31, 2017)
|
|
12
|
|
|
|
|
|
Common stock (par value $0.01, 750,000,000 common shares authorized as of June 30, 2018 and December 31, 2017. 109,799,352 issued and outstanding as of June 30, 2018 and December 31, 2017)
|
|
12
|
|
1,098
|
|
1,098
|
|
Additional paid-in capital
|
|
|
|
546,898
|
|
546,898
|
|
Accumulated other comprehensive loss
|
|
7, 10
|
|
(109,735
|
)
|
(114,076
|
)
|
Retained earnings
|
|
|
|
135,615
|
|
114,785
|
|
Total stockholders equity
|
|
|
|
573,876
|
|
548,705
|
|
Total liabilities and stockholders equity
|
|
|
|
$
|
2,966,762
|
|
$
|
2,986,396
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-
2
DANAOS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Expressed in thousands of United States Dollars, except share and per share amounts)
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
Notes
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING REVENUES
|
|
|
|
$
|
113,466
|
|
$
|
113,888
|
|
$
|
225,320
|
|
$
|
223,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
|
(3,186
|
)
|
(3,216
|
)
|
(6,347
|
)
|
(7,055
|
)
|
Vessel operating expenses
|
|
|
|
(26,742
|
)
|
(27,216
|
)
|
(53,591
|
)
|
(54,671
|
)
|
Depreciation
|
|
|
|
(26,697
|
)
|
(29,195
|
)
|
(53,757
|
)
|
(58,046
|
)
|
Amortization of deferred drydocking and special survey costs
|
|
5
|
|
(2,409
|
)
|
(1,662
|
)
|
(4,252
|
)
|
(3,403
|
)
|
General and administrative expenses
|
|
|
|
(5,777
|
)
|
(5,340
|
)
|
(10,959
|
)
|
(11,469
|
)
|
Income From Operations
|
|
|
|
48,655
|
|
47,259
|
|
96,414
|
|
89,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
1,418
|
|
1,344
|
|
2,793
|
|
2,815
|
|
Interest expense
|
|
|
|
(23,020
|
)
|
(21,413
|
)
|
(45,869
|
)
|
(42,313
|
)
|
Other finance expenses
|
|
|
|
(961
|
)
|
(1,040
|
)
|
(1,932
|
)
|
(2,087
|
)
|
Equity income on investments
|
|
6
|
|
210
|
|
149
|
|
184
|
|
355
|
|
Other income/(expenses), net
|
|
7, 9
|
|
(19,543
|
)
|
(5,149
|
)
|
(28,928
|
)
|
(7,597
|
)
|
Loss on derivatives
|
|
10
|
|
(921
|
)
|
(921
|
)
|
(1,832
|
)
|
(1,832
|
)
|
Total Other Expenses, net
|
|
|
|
(42,817
|
)
|
(27,030
|
)
|
(75,584
|
)
|
(50,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
$
|
5,838
|
|
$
|
20,229
|
|
$
|
20,830
|
|
$
|
38,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share
|
|
|
|
$
|
0.05
|
|
$
|
0.18
|
|
$
|
0.19
|
|
$
|
0.35
|
|
Basic and diluted weighted average number of common shares (in thousands)
|
|
13
|
|
109,799
|
|
109,825
|
|
109,799
|
|
109,825
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-
3
DANAOS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (unaudited)
(Expressed in thousands of United States Dollars)
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
Notes
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the period
|
|
|
|
$
|
5,838
|
|
$
|
20,229
|
|
$
|
20,830
|
|
$
|
38,672
|
|
Other comprehensive income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain/(loss) on available for sale securities
|
|
7
|
|
1,057
|
|
(308
|
)
|
2,509
|
|
(34,107
|
)
|
Amortization of deferred realized losses on cash flow hedges
|
|
10
|
|
921
|
|
921
|
|
1,832
|
|
1,832
|
|
Total Other Comprehensive Income/(Loss)
|
|
|
|
1,978
|
|
613
|
|
4,341
|
|
(32,275
|
)
|
Comprehensive Income
|
|
|
|
$
|
7,816
|
|
$
|
20,842
|
|
$
|
25,171
|
|
$
|
6,397
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements
F-
4
DANAOS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Expressed in thousands of United States Dollars)
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
Net income
|
|
$
|
20,830
|
|
$
|
38,672
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
Depreciation
|
|
53,757
|
|
58,046
|
|
Amortization of deferred drydocking and special survey costs
|
|
4,252
|
|
3,403
|
|
Amortization of finance costs
|
|
5,114
|
|
5,729
|
|
Exit fee accrued on debt
|
|
1,484
|
|
1,615
|
|
Loss on sale of securities
|
|
|
|
2,357
|
|
Payments for drydocking and special survey costs deferred
|
|
(10,351
|
)
|
(4,516
|
)
|
Amortization of deferred realized losses on interest rate swaps
|
|
1,832
|
|
1,832
|
|
Equity income on investments
|
|
(184
|
)
|
(355
|
)
|
(Increase)/Decrease in
|
|
|
|
|
|
Accounts receivable
|
|
(9,292
|
)
|
(3,816
|
)
|
Inventories
|
|
(216
|
)
|
2,434
|
|
Prepaid expenses
|
|
(727
|
)
|
(133
|
)
|
Due from related parties
|
|
(932
|
)
|
233
|
|
Other assets, current and non-current
|
|
(6,953
|
)
|
(898
|
)
|
Increase/(Decrease) in
|
|
|
|
|
|
Accounts payable
|
|
4,919
|
|
2,259
|
|
Accrued liabilities
|
|
3,174
|
|
359
|
|
Unearned revenue, current and long-term
|
|
(10,724
|
)
|
(10,803
|
)
|
Other liabilities, current and long-term
|
|
(391
|
)
|
(6,367
|
)
|
Net Cash provided by Operating Activities
|
|
55,592
|
|
90,051
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
Vessels additions
|
|
(1,683
|
)
|
(2,612
|
)
|
Net proceeds from sale of securities
|
|
|
|
6,236
|
|
Net Cash provided by/(used in) Investing Activities
|
|
(1,683
|
)
|
3,624
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
Payments of long-term debt
|
|
(48,381
|
)
|
(103,572
|
)
|
Net Cash used in Financing Activities
|
|
(48,381
|
)
|
(103,572
|
)
|
|
|
|
|
|
|
Net Increase/(Decrease) in cash, cash equivalents and restricted cash
|
|
5,528
|
|
(9,897
|
)
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
69,707
|
|
76,529
|
|
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
75,235
|
|
$
|
66,632
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-
5
DANAOS CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1
Basis 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 12, Stockholders Equity. The Companys 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.
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 Companys condensed consolidated financial position as of June 30, 2018, the condensed consolidated results of operations for the three and six months ended June 30, 2018 and 2017 and the condensed consolidated cash flows for the three and six months ended June 30, 2018 and 2017. 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, 2017. The results of operations for the three and six months ended June 30, 2018, are not necessarily indicative of the results to be expected for the full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
The Companys condensed consolidated financial statement have been prepared on a going concern basis and contemplate the realization of assets and satisfaction of liabilities in the normal course of business. On June 19, 2018, the Company reached a refinancing agreement with certain of its lenders holding debt maturing by December 31, 2018 through a debt reduction of approximately $551 million, the resetting of financial and other covenants, modified interest rates and amortization profiles and an extension of existing debt maturities by approximately five years to December 31, 2023, or in some cases to June 30, 2024. On August 10, 2018, the Company consummated the refinancing agreement reached with certain of the Companys lenders on June 19, 2018, as further disclosed in the Note 9 Long-term debt, net and the Note 15 Subsequent Events, which alleviated substantial doubt about the Companys ability to continue as a going concern reported in the Note 3, Going Concern to the consolidated financial statements in the Annual Report on Form 20-F for the year ended December 31, 2017.
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 entitys 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 entitys 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.
F-
6
DANAOS CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of June 30, 2018, 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(1)
|
|
Megacarrier (No. 1) Corp.
|
|
September 10, 2007
|
|
Hyundai Honour
|
|
2012
|
|
13,100
|
|
Megacarrier (No. 2) Corp.
|
|
September 10, 2007
|
|
Hyundai Respect
|
|
2012
|
|
13,100
|
|
Megacarrier (No. 3) Corp.
|
|
September 10, 2007
|
|
Maersk Enping
|
|
2012
|
|
13,100
|
|
Megacarrier (No. 4) Corp.
|
|
September 10, 2007
|
|
Maersk Exeter
|
|
2012
|
|
13,100
|
|
Megacarrier (No. 5) Corp.
|
|
September 10, 2007
|
|
MSC Ambition
|
|
2012
|
|
13,100
|
|
CellContainer (No. 6) Corp.
|
|
October 31, 2007
|
|
Express Berlin
|
|
2011
|
|
10,100
|
|
CellContainer (No. 7) Corp.
|
|
October 31, 2007
|
|
Express Rome
|
|
2011
|
|
10,100
|
|
CellContainer (No. 8) Corp.
|
|
October 31, 2007
|
|
Express Athens
|
|
2011
|
|
10,100
|
|
Karlita Shipping Co. Ltd.
|
|
February 27, 2003
|
|
Pusan C (ex CSCL Pusan)
|
|
2006
|
|
9,580
|
|
Ramona Marine Co. Ltd.
|
|
February 27, 2003
|
|
CSCL Le Havre
|
|
2006
|
|
9,580
|
|
Teucarrier (No. 5) Corp.
|
|
September 17, 2007
|
|
CMA CGM Melisande
|
|
2012
|
|
8,530
|
|
Teucarrier (No. 1) Corp.
|
|
January 31, 2007
|
|
CMA CGM Attila
|
|
2011
|
|
8,530
|
|
Teucarrier (No. 2) Corp.
|
|
January 31, 2007
|
|
CMA CGM Tancredi
|
|
2011
|
|
8,530
|
|
Teucarrier (No. 3) Corp.
|
|
January 31, 2007
|
|
CMA CGM Bianca
|
|
2011
|
|
8,530
|
|
Teucarrier (No. 4) Corp.
|
|
January 31, 2007
|
|
CMA CGM Samson
|
|
2011
|
|
8,530
|
|
Oceanew Shipping Ltd.
|
|
January 14, 2002
|
|
Europe
|
|
2004
|
|
8,468
|
|
Oceanprize Navigation Ltd.
|
|
January 21, 2003
|
|
America (ex CSCL America)
|
|
2004
|
|
8,468
|
|
Boxcarrier (No. 2) Corp.
|
|
June 27, 2006
|
|
CMA CGM Musset
|
|
2010
|
|
6,500
|
|
Boxcarrier (No. 3) Corp.
|
|
June 27, 2006
|
|
CMA CGM Nerval
|
|
2010
|
|
6,500
|
|
Boxcarrier (No. 4) Corp.
|
|
June 27, 2006
|
|
CMA CGM Rabelais
|
|
2010
|
|
6,500
|
|
Boxcarrier (No. 5) Corp.
|
|
June 27, 2006
|
|
CMA CGM Racine
|
|
2010
|
|
6,500
|
|
Boxcarrier (No. 1) Corp.
|
|
June 27, 2006
|
|
CMA CGM Moliere
|
|
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
|
|
Continent Marine Inc.
|
|
March 22, 2006
|
|
Zim Monaco
|
|
2009
|
|
4,253
|
|
Medsea Marine Inc.
|
|
May 8, 2006
|
|
Zim Dalian
|
|
2009
|
|
4,253
|
|
Blacksea Marine Inc.
|
|
May 8, 2006
|
|
Zim Luanda
|
|
2009
|
|
4,253
|
|
Bayview Shipping Inc.
|
|
March 22, 2006
|
|
Zim Rio Grande
|
|
2008
|
|
4,253
|
|
Channelview Marine Inc.
|
|
March 22, 2006
|
|
Zim Sao Paolo
|
|
2008
|
|
4,253
|
|
Balticsea Marine Inc.
|
|
March 22, 2006
|
|
Zim Kingston
|
|
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
|
|
ANL Tongala (ex Deva)
|
|
2004
|
|
4,253
|
|
Containers Lines Inc.
|
|
May 30, 2002
|
|
Derby D
|
|
2004
|
|
4,253
|
|
Boulevard Shiptrade S.A
|
|
September 12, 2013
|
|
Dimitris C
|
|
2001
|
|
3,430
|
|
CellContainer (No. 4) Corp.
|
|
March 23, 2007
|
|
Express Spain
|
|
2011
|
|
3,400
|
|
CellContainer (No. 5) Corp.
|
|
March 23, 2007
|
|
Express Black Sea
|
|
2011
|
|
3,400
|
|
CellContainer (No. 1) Corp.
|
|
March 23, 2007
|
|
Express Argentina
|
|
2010
|
|
3,400
|
|
CellContainer (No. 2) Corp.
|
|
March 23, 2007
|
|
Express Brazil
|
|
2010
|
|
3,400
|
|
CellContainer (No. 3) Corp.
|
|
March 23, 2007
|
|
Express France
|
|
2010
|
|
3,400
|
|
Wellington Marine Inc.
|
|
January 27, 2005
|
|
Singapore
|
|
2004
|
|
3,314
|
|
Auckland Marine Inc.
|
|
January 27, 2005
|
|
Colombo
|
|
2004
|
|
3,314
|
|
Vilos Navigation Company Ltd.
|
|
May 30, 2013
|
|
MSC Zebra
|
|
2001
|
|
2,602
|
|
Trindade Maritime Company
|
|
April 10, 2013
|
|
Amalia C
|
|
1998
|
|
2,452
|
|
Sarond Shipping Inc.
|
|
January 18, 2013
|
|
Danae C
|
|
2001
|
|
2,524
|
|
Speedcarrier (No. 7) Corp.
|
|
December 6, 2007
|
|
Highway
|
|
1998
|
|
2,200
|
|
Speedcarrier (No. 6) Corp.
|
|
December 6, 2007
|
|
Progress C (ex Hyundai Progress)
|
|
1998
|
|
2,200
|
|
Speedcarrier (No. 8) Corp.
|
|
December 6, 2007
|
|
Bridge
|
|
1998
|
|
2,200
|
|
Speedcarrier (No. 1) Corp.
|
|
June 28, 2007
|
|
Vladivostok
|
|
1997
|
|
2,200
|
|
Speedcarrier (No. 2) Corp.
|
|
June 28, 2007
|
|
Advance
|
|
1997
|
|
2,200
|
|
Speedcarrier (No. 3) Corp.
|
|
June 28, 2007
|
|
Stride
|
|
1997
|
|
2,200
|
|
Speedcarrier (No. 5) Corp.
|
|
June 28, 2007
|
|
Future
|
|
1997
|
|
2,200
|
|
Speedcarrier (No. 4) Corp.
|
|
June 28, 2007
|
|
Sprinter
|
|
1997
|
|
2,200
|
|
(1)
Twenty-feet equivalent unit, the international standard measure for containers and containership capacity.
F-
7
DANAOS CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2
Significant Accounting Policies
For a detailed discussion about the Companys significant accounting policies, see Note 2 Significant Accounting Policies in the Companys consolidated financial statements included in the Annual Report on Form 20-F for the year ended December 31, 2017 filed with the Securities and Exchange Commission on March 7, 2018. During the six months ended June 30, 2018, other than the following, there were no other significant changes made to the Companys significant accounting policies:
Changes in Accounting Principles:
Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). The guidance adds or clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. Additionally, in November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires that amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted these standards effective January 1, 2018. Prior periods were retrospectively adjusted to conform to the current periods presentation. The adoption of ASU 2016-15 did not have a material impact on the condensed consolidated statements of cash flows. Upon adoption of ASU 2016-18, the Company reclassified the restricted cash balance of $2.8 million as of December 31, 2017, December 31, 2016 and June 30, 2017 to the cash, cash equivalent and restricted cash balances within the condensed consolidated statements of cash flows. Refer to Note 3 Cash, Cash Equivalents and Restricted Cash for further details.
Financial Instruments
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 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 Company adopted this standard effective January 1, 2018. The Companys investment in ZIM equity securities does not have readily determinable fair value. As a result, the Company elected to record this equity investment at cost, less impairment, adjusted for subsequent observable price changes. The adoption of this standard did not have a material effect on the condensed consolidated financial statements and notes disclosures. As of June 30, 2018, the Company did not identify any observable prices for the same or similar securities that would indicate a change in the carrying value of the Companys equity.
F-
8
DANAOS CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2
Significant Accounting Policies (Continued)
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update No. 2014-9 Revenue from Contracts with Customers (ASU 2014-09), which superseded the current revenue recognition guidance and outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. 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. 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 adopted this standard effective January 1, 2018 using modified retrospective approach. The adoption of this standard did not have any effect on the retained earnings or on the financial results for the six months ended June 30, 2018 of the Company since all the Companys vessels generated revenues from time charter and bareboat charter agreements, which are governed by ASU 2016-02 Leases see below.
Recent Accounting Pronouncements:
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. This guidance requires companies to identify lease and non-lease components of a lease agreement. Lease components relate to the right to use the leased asset and non-lease components relate to payments for goods or services that are transferred separately from the right to use the underlying asset. Total lease consideration is allocated to lease and non-lease components on a relative standalone basis. The recognition of revenues related to lease components will be governed by ASC 842 while revenue related to non-lease components will be subject to ASC 606. In March 2018, the FASB tentatively approved a proposed amendment to ASU 842, that would provide an entity the optional transition method to initially account for the impact of the adoption with a cumulative adjustment to retained earnings on the effective date of the ASU, January 1, 2019 rather than January 1, 2017, which would eliminate the need to restate amounts presented prior to January 1, 2019. In addition, lessors can elect, as a practical expedient, not to allocate the total consideration to lease and non-lease components based on their relative standalone selling prices. As adopted by the Accounting Standards Update No. 2018-11 in July 2018, this practical expedient will allow lessors to elect and account for the combined component based on its predominant characteristic. ASC 842 provides practical expedients that allow entities to not (i) reassess whether any expired or existing contracts are considered or contain leases; (ii) reassess the lease classification for any expired or existing leases; and (iii) reassess initial direct costs for any existing leases. In July 2018, the FASB issued Accounting Standards Update No. 2018-10, Codification Improvements to Topic 842, Leases, which further improves and clarifies ASU 2016-02. The Company plans to adopt the standard on January 1, 2019 and expects to elect the use of practical expedients. The Company has not completed its analysis of this ASU. Based on a preliminary assessment, the Company is expecting that the adoption will not have a material effect on its consolidated financial statements since the Company is primarily a lessor and the changes are fairly minor.
In June 2016, the FASB issued ASU 2016-13, Financial InstrumentsCredit 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 Companys consolidated financial statements.
F-
9
DANAOS CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3
Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash consisted of the following (in thousands):
|
|
As of
|
|
As of
|
|
As of
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
December 31, 2016
|
|
Cash and cash equivalents
|
|
$
|
72,423
|
|
$
|
66,895
|
|
$
|
73,717
|
|
Restricted cash
|
|
2,812
|
|
2,812
|
|
2,812
|
|
Total
|
|
$
|
75,235
|
|
$
|
69,707
|
|
$
|
76,529
|
|
The Company was required to maintain cash of $2.8 million as of June 30, 2018, December 31, 2017 and December 31, 2016, in retention bank accounts as a collateral for the upcoming scheduled debt payments of its KEXIM-ABN Amro credit facility, which were recorded under current assets in the Companys Condensed Consolidated Balance Sheets.
4
Fixed assets, net
The residual value (estimated scrap value at the end of the vessels useful lives) of the fleet was estimated at $378.2 million as of June 30, 2018 and as of December 31, 2017. 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 rates. 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.
5
Deferred Charges, net
Deferred charges, net consisted of the following (in thousands):
|
|
Drydocking and
Special Survey Costs
|
|
As of January 1, 2017
|
|
$
|
8,199
|
|
Additions
|
|
7,511
|
|
Amortization
|
|
(6,748
|
)
|
As of December 31, 2017
|
|
8,962
|
|
Additions
|
|
10,351
|
|
Amortization
|
|
(4,252
|
)
|
As of June 30, 2018
|
|
$
|
15,061
|
|
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.
F-
10
DANAOS CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6
Investments in affiliates
In August 2015, an affiliated company Gemini Shipholdings Corporation (Gemini) was formed by the Company and Virage International Ltd. (Virage), a company controlled by the Companys largest shareholder. Gemini acquired a 100% interest in entities with capital leases for the
Suez Canal
and
Genoa
and that own the container vessels
Lodestar (ex NYK Lodestar)
and
NYK Leo
. Gemini financed these acquisitions with the assumption of capital lease obligations of $35.4 million, $19.0 million of borrowings under secured loan facilities and an aggregate of $47.4 million from equity contributions from the Company and Virage, which subscribed in cash for 49% and 51%, respectively, of Geminis issued and outstanding share capital. As of June 30, 2018, 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
|
|
Lodestar (ex NYK Lodestar)
|
|
2001
|
|
6,422
|
|
September 21, 2015
|
Leo Shipping and Trading S.A.
|
|
NYK Leo
|
|
2002
|
|
6,422
|
|
February 4, 2016
|
The Company has determined that Gemini is a variable interest entity of which the Company is not the primary beneficiary, and as such, this affiliated company is accounted for under the equity method and recorded under Equity income on investments in the condensed 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 $12.6 million as of June 30, 2018. The Companys 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, 2018
|
|
December 31, 2017
|
|
Current assets
|
|
$
|
8,327
|
|
$
|
10,014
|
|
Non-current assets
|
|
$
|
41,441
|
|
$
|
40,901
|
|
Current liabilities
|
|
$
|
6,339
|
|
$
|
6,131
|
|
Non-current liabilities
|
|
$
|
30,813
|
|
$
|
32,544
|
|
|
|
Six months ended
|
|
Six months ended
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Net operating revenues
|
|
$
|
8,625
|
|
$
|
8,590
|
|
Net income
|
|
$
|
376
|
|
$
|
725
|
|
F-
11
DANAOS CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7
Other Non-current Assets
Other non-current assets consisted of the following (in thousands):
|
|
As of
|
|
As of
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
Available for sale securities:
|
|
|
|
|
|
ZIM notes, net
|
|
$
|
24,760
|
|
$
|
21,093
|
|
HMM notes, net
|
|
14,327
|
|
13,509
|
|
Equity participation ZIM
|
|
|
|
|
|
Other assets
|
|
19,837
|
|
14,864
|
|
Total
|
|
$
|
58,924
|
|
$
|
49,466
|
|
Equity participation in ZIM and interest bearing unsecured ZIM notes maturing in 2023, which consist of $8.8 million Series 1 Notes and $41.1 million of Series 2 Notes, were obtained after the charter restructuring agreements with ZIM in July 2014. Interest bearing senior unsecured HMM notes consist of $32.8 million Loan Notes 1 maturing in July 2024 and $6.2 million Loan Notes 2 maturing in December 2022, which were obtained after the charter restructuring agreements with HMM in July 2016. As of December 31, 2016, the Company has recorded an impairment loss on its equity participation in ZIM amounting to $28.7 million, thus reducing its book value to nil and $0.7 million impairment loss on ZIM notes. See Note 8 Other Non-current Assets to the consolidated financial statements in the Annual Report on Form 20-F for the year ended December 31, 2017 for further details.
On March 28, 2017, the Company sold $13.0 million principal amount of HMM Loan Notes 1 maturing in July 2024 carried at amortized costs of $8.6 million for gross cash proceeds on sale of $6.2 million, which were received in April 2017. The sale resulted in a loss of $2.4 million, which was recognized in the Other income/(expenses), net in the accompanying condensed consolidated statement of income for the six months ended June 30, 2017. The proceeds were used to repay related outstanding debt obligations in April 2017. The unrealized losses, which were recognized in other comprehensive loss, are analyzed as follows as of June 30, 2018 (in thousands):
Description of securities
|
|
Amortized cost
basis
|
|
Fair value
|
|
Unrealized loss
on available for
sale securities
|
|
ZIM notes
|
|
$
|
43,500
|
|
$
|
24,760
|
|
$
|
(18,740
|
)
|
HMM notes
|
|
19,685
|
|
14,327
|
|
(5,358
|
)
|
Total
|
|
$
|
63,185
|
|
$
|
39,087
|
|
$
|
(24,098
|
)
|
|
|
Unrealized loss
on available for
sale securities
|
|
Beginning balance as of January 1, 2018
|
|
$
|
(26,607
|
)
|
Unrealized gain on available for sale securities
|
|
2,509
|
|
Ending balance as of June 30, 2018
|
|
$
|
(24,098
|
)
|
Other assets mainly include non-current assets related to straight-lining of the Companys revenue amounting to $16.8 million and $10.8 million as of June 30, 2018 and December 31, 2017, respectively.
F-
12
DANAOS CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8
Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
|
|
As of
|
|
As of
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
Accrued payroll
|
|
$
|
797
|
|
$
|
928
|
|
Accrued interest
|
|
9,959
|
|
9,953
|
|
Accrued expenses
|
|
7,644
|
|
4,345
|
|
Total
|
|
$
|
18,400
|
|
$
|
15,226
|
|
Accrued expenses mainly consisted of accruals related to the operation of the Companys fleet and other expenses as of June 30, 2018 and December 31, 2017.
9
Long
-Term Debt, net
Companys long-term debt, net as of June 30, 2018 and December 31, 2017 consisted of the following (in thousands):
Credit Facility
|
|
Balance as of
June 30, 2018
|
|
Balance as of
December 31,
2017
|
|
The Royal Bank of Scotland
|
|
630,405
|
|
$
|
634,864
|
|
HSH Nordbank AG-Aegean Baltic Bank-Piraeus Bank
|
|
616,361
|
|
622,851
|
|
The Export-Import Bank of Korea & ABN Amro
|
|
17,484
|
|
23,109
|
|
Deutsche Bank
|
|
152,998
|
|
156,062
|
|
Citibank
|
|
113,957
|
|
117,316
|
|
Credit Suisse
|
|
171,783
|
|
176,189
|
|
ABN Amro-Bank of America Merrill Lynch-Burlington Loan Management-National Bank of Greece
|
|
195,603
|
|
199,302
|
|
EnTrustPermal-Credit Suisse-CitiGroup
|
|
213,580
|
|
220,689
|
|
The Royal Bank of Scotland (January 2011 Credit Facility)
|
|
24,316
|
|
24,316
|
|
HSH Nordbank AG-Aegean Baltic Bank-Piraeus Bank (January 2011 Credit Facility)
|
|
17,205
|
|
17,205
|
|
ABN Amro-Bank of America Merrill Lynch-Burlington Loan Management -National Bank of Greece (January 2011 Credit Facility)
|
|
8,771
|
|
8,771
|
|
Sinosure CEXIM-Citibank-ABN Amro Credit Facility
|
|
71,190
|
|
81,360
|
|
CitibankEurobank Credit Facility (January 2011 Credit Facility)
|
|
37,645
|
|
37,645
|
|
Comprehensive Financing Plan exit fees accrued
|
|
22,583
|
|
21,099
|
|
Total long-term debt
|
|
$
|
2,293,881
|
|
$
|
2,340,778
|
|
Less: Deferred finance costs, net
|
|
(6,063
|
)
|
(11,177
|
)
|
Less: Current portion
|
|
(134,861
|
)
|
$
|
(2,329,601
|
)
|
Total long-term debt net of current portion and deferred finance cost
|
|
$
|
2,152,957
|
|
|
|
All floating rate loans discussed above are collateralized by first and second preferred mortgages over the vessels financed, general assignment of all hire freights, income and earnings, the assignment of their insurance policies, as well as any proceeds from the sale of mortgaged vessels and the corporate guarantee of Danaos Corporation.
As of June 30, 2018, there was no remaining borrowing availability under the Companys credit facilities.
F-
13
DANAOS CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9
Long
-Term Debt, net (Continued)
New Credit Facilities
On June 19, 2018, the Company entered into a debt refinancing agreement with certain of its lenders holding debt of $2.2 billion maturing by December 31, 2018, for a debt refinancing (the Refinancing) which was consummated on August 10, 2018 (the Closing Date). See Note 15, Subsequent Events. The Refinancing involved a debt reduction of approximately $551 million, the resetting of financial and other covenants, modified interest rates and amortization profiles and an extension of existing debt maturities by approximately five years to December 31, 2023, or in some cases to June 30, 2024. Additionally, the Company issued an aggregate of 99,342,271 shares of common stock to certain of its lenders. The Companys largest stockholder, Danaos Investment Limited as Trustee of the 883 Trust (DIL), contributed $10 million to the Company on the Closing Date, for which DIL did not receive any shares of common stock or other interests in the Company. Prior to
the consummation of this agreement, the Company classified all of its long-term debt, net of deferred finance costs as current.
On July 31, 2018, as part of the Refinancing the Company entered into new credit facilities for an aggregate principal amount of approximately $1.6 billion due December 31, 2023 through an amendment and restatement or replacement of existing credit facilities. The new credit facilities provide for quarterly fixed and variable amortization payments, together representing approximately 85% of actual free cash flows from the relevant vessels securing such credit facilities (calculated on a generally consistent basis to the Companys 2011 Restructuring Agreement), subject to certain adjustments. The new credit facilities have maturity dates of December 31, 2023 (or in some cases as indicated below, June 30, 2024). The interest rate payable under the new credit facilities is LIBOR+2.50% (subject to a 0% floor), with subordinated tranches of two credit facilities incurring additional PIK interest of 4.00%, compounded quarterly, payable in respect of approximately $282 million principal amount thereunder, which tranches have maturity dates of June 30, 2024.
The new credit facilities contain financial covenants requiring the Company to maintain: (i) minimum collateral to loan value coverage on a charter-free basis increasing from 57.0% as of December 31, 2018 to 100% as of September 30, 2023 and thereafter, (ii) minimum collateral to loan value coverage on a charter-attached basis increasing from 69.5% as of December 31, 2018 to 100% as of September 30, 2023 and thereafter, (iii) minimum liquidity of $30 million throughout the term of the new credit facilities, (iv) maximum consolidated net leverage ratio, declining from 7.50x as of December 31, 2018 to 5.50x as of September 30, 2023 and thereafter, (v) minimum interest coverage ratio of 2.50x throughout the term of the new credit facilities and (vi) minimum consolidated market value adjusted net worth increasing from negative $510 million as of December 31, 2018 to $60 million as of September 30, 2023 and thereafter.
The new credit facilities contain certain restrictive covenants and customary events of default, including those relating to cross-acceleration and cross-defaults to other indebtedness, non-compliance, or repudiation of security documents, material adverse changes to the Companys business, the Companys common stock ceasing to be listed on the NYSE (or another recognized stock exchange), foreclosure on a vessel in the Companys fleet, a change in control of the Manager, a breach of the management agreement by the Manager and a material breach of a charter by a charterer or cancellation of a charter (unless replaced with a similar charter acceptable to the lenders) for the vessels securing the respective new credit facilities. Each of the new credit facilities is secured by customary shipping industry collateral, including vessel mortgages, earnings accounts, the Companys investments in ZIM and Hyundai Marine Securities and stock pledges and to benefit from corporate guarantees.
Sinosure-CEXIM credit facility and KEXIM-ABN AMRO credit facility
On the Closing Date the Company amended and restated the Sinosure-CEXIM credit facility, dated as of February 21, 2011, under which $71.2 million was outstanding as of June 30, 2018, primarily to align its financial covenants with those contained in the new credit facilities and provide second lien collateral to lenders under certain of the new credit facilities.
On June 27, 2018, the Company gave notice to the lenders under the KEXIM ABN-AMRO credit facility and fully repaid $17.5 million outstanding under this facility on July 20, 2018.
F-
14
DANAOS CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9
Long
-Term Debt, net (Continued)
After giving effect to the debt refinancing consummated on August 10, 2018, scheduled debt maturities of long-term debt subsequent to June 30, 2018 are as follows (in thousands):
Payments due by period ended
|
|
Fixed principal
repayments
|
|
Variable
principal
repayments
|
|
Final payments
due by June 30,
2024*
|
|
Total
principal
payments
|
|
June 30, 2019
|
|
$
|
114,606
|
|
$
|
20,255
|
|
|
|
$
|
134,861
|
|
June 30, 2020
|
|
113,360
|
|
28,234
|
|
|
|
141,594
|
|
June 30, 2021
|
|
118,852
|
|
24,431
|
|
|
|
143,283
|
|
June 30, 2022
|
|
105,927
|
|
32,685
|
|
|
|
138,612
|
|
June 30, 2023
|
|
85,222
|
|
57,939
|
|
|
|
143,161
|
|
June 30, 2024
|
|
35,879
|
|
89,610
|
|
$
|
1,444,298
|
|
1,569,787
|
|
Total long-term debt
|
|
$
|
573,846
|
|
$
|
253,154
|
|
$
|
1,444,298
|
|
$
|
2,271,298
|
|
* The final payments due by June 30, 2024, include the unamortized remaining principal debt balances under the new credit facilities, as such amount will be determinable following the fixed and variable amortization.
As a result of a decrease in operating income of the Company and the charter attached value of certain of the Companys vessels caused mainly by the loss of contractual revenue from Hanjin Shipping, in 2016, the Company was in breach of the minimum security cover, consolidated net leverage and consolidated net worth financial covenants related to its loan facilities as of June 30, 2018 and December 31, 2017. The Company was also in default of the principal repayment under the 2011 Restructuring Agreement amounting to $37,589 thousand, which was due on May 15, 2018. These breaches and defaults were addressed by the Refinancing consummated on August 10, 2018.
The Company incurred $29.7 million and $5.2 million of professional fees related to the refinancing discussions with its lenders reported under Other income/(expenses), net in the accompanying condensed consolidated statements of income for the six months ended June 30, 2018 and 2017, respectively.
10
Financial Instruments
The principal financial assets of the Company consist of cash and cash equivalents, trade receivables and other assets. The principal financial liabilities of the Company consist of long-term bank loans and accounts payable. The following is a summary of the Companys risk management strategies and the effect of these strategies on the Companys condensed consolidated financial statements.
Interest Rate Risk:
Interest rate risk arises on bank borrowings. The Company monitors the interest rate on borrowings closely to ensure that the borrowings are maintained at favorable rates.
Concentration of Credit Risk:
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its temporary cash investments, consisting mostly of deposits, with established financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions that are considered in the Companys investment strategy. The Company is exposed to credit risk in the event of non-performance by counterparties, however, the Company limits this exposure by diversifying among counterparties with high credit ratings. The Company depends upon a limited number of customers for a large part of its revenues. Credit risk with respect to trade accounts receivable is generally managed by the selection of customers among the major liner companies in the world and their dispersion across many geographic areas.
F-
15
DANAOS CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10
Financial Instruments (Continued)
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 is estimated based on currently available debt with similar contract terms, interest rate and remaining maturities as well as taking into account its increased credit risk. The fair value of available for sale securities is estimated based on either observable market based inputs or unobservable inputs that are corroborated by market data. The Company is exposed to changes in fair value of available for sale securities as there is no hedging strategy.
a. Interest Rate Swap Hedges
The Company currently has no outstanding interest rate swaps agreements. However, in the past years, the Company entered into interest rate swap agreements with its lenders in order to manage its floating rate exposure. Certain variable-rate interests on specific borrowings were associated with vessels under construction and were capitalized as a cost of the specific vessels. In accordance with the accounting guidance on derivatives and hedging, the amounts related to realized gains or losses on cash flow hedges that have been entered into and qualified for hedge accounting, in order to hedge the variability of that interest, were recognized in accumulated other comprehensive loss and are reclassified into earnings over the depreciable life of the constructed asset, since that depreciable life coincides with the amortization period for the capitalized interest cost on the debt. An amount of $1.8 million was reclassified into earnings for the six months ended June 30, 2018 and June 30, 2017, respectively, representing its amortization over the depreciable life of the vessels. An amount of accumulated other comprehensive loss of $85.6 million is unamortized as of June 30, 2018 and an amount of $3.7 million is expected to be reclassified into earnings within the next 12 months.
b. Fair Value of Financial Instruments
The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.
Level I: Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. Valuation of these items does not entail a significant amount of judgment.
Level II: Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.
Level III: Inputs that are unobservable. The Company did not use any Level 3 inputs as of June 30, 2018 and December 31, 2017.
The estimated fair values of the Companys financial instruments are as follows:
|
|
June 30, 2018
|
|
As of December 31, 2017
|
|
|
|
Book Value
|
|
Fair Value
|
|
Book Value
|
|
Fair Value
|
|
|
|
(in thousands of $)
|
|
Cash and cash equivalents
|
|
$
|
72,423
|
|
$
|
72,423
|
|
$
|
66,895
|
|
$
|
66,895
|
|
Restricted cash
|
|
$
|
2,812
|
|
$
|
2,812
|
|
$
|
2,812
|
|
$
|
2,812
|
|
Due from related parties
|
|
$
|
34,939
|
|
$
|
34,939
|
|
$
|
34,007
|
|
$
|
34,007
|
|
ZIM notes
|
|
$
|
24,760
|
|
$
|
24,760
|
|
$
|
21,093
|
|
$
|
21,093
|
|
HMM notes
|
|
$
|
14,327
|
|
$
|
14,327
|
|
$
|
13,509
|
|
$
|
13,509
|
|
Long-term debt, including current portion
|
|
$
|
2,293,881
|
|
$
|
1,737,947
|
|
$
|
2,340,778
|
|
$
|
2,325,209
|
|
F-
16
DANAOS CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10
Financial Instruments (continued)
The estimated fair value of the financial instruments that are measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows as of June 30, 2018:
|
|
Fair Value Measurements as of June 30, 2018
|
|
|
|
Total
|
|
(Level I)
|
|
(Level II)
|
|
(Level III)
|
|
|
|
(in thousands of $)
|
|
ZIM notes(1)
|
|
$
|
24,760
|
|
$
|
|
|
$
|
24,760
|
|
$
|
|
|
HMM notes(1)
|
|
$
|
14,327
|
|
$
|
|
|
$
|
14,327
|
|
$
|
|
|
The estimated fair value of the financial instruments that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows as of June 30, 2018:
|
|
Fair Value Measurements as of June 30, 2018
|
|
|
|
Total
|
|
(Level I)
|
|
(Level II)
|
|
(Level III)
|
|
|
|
(in thousands of $)
|
|
Long-term debt, including current portion(2)
|
|
$
|
1,737,947
|
|
$
|
|
|
$
|
1,737,947
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated fair value of the financial instruments that are measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows as of December 31, 2017:
|
|
Fair Value Measurements as of December 31, 2017
|
|
|
|
Total
|
|
(Level I)
|
|
(Level II)
|
|
(Level III)
|
|
|
|
(in thousands of $)
|
|
ZIM notes(1)
|
|
$
|
21,093
|
|
$
|
|
|
$
|
21,093
|
|
$
|
|
|
HMM notes(1)
|
|
$
|
13,509
|
|
$
|
|
|
$
|
13,509
|
|
$
|
|
|
The estimated fair value of the financial instruments that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows as of December 31, 2017:
|
|
Fair Value Measurements as of December 31, 2017
|
|
|
|
Total
|
|
(Level I)
|
|
(Level II)
|
|
(Level III)
|
|
|
|
(in thousands of $)
|
|
Long-term debt, including current portion(2)
|
|
$
|
2,325,209
|
|
$
|
|
|
$
|
2,325,209
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The fair value is estimated based on either observable market based inputs or unobservable inputs that are corroborated by market data, including currently available information on the Companys counterparty, other contracts with similar terms, remaining maturities and interest rates.
(2)
Long-term debt, including current portion is presented gross of deferred finance costs of $6.1 million and $11.2 million as of June 30, 2018 and December 31, 2017, respectively. The fair value of the Companys debt is estimated based on currently available debt with similar contract terms, interest rate and remaining maturities, as well as taking into account its increased credit risk.
11
Commitments 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 Companys business. Furthermore, the Company does not have any commitments outstanding.
F-
17
DANAOS CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12
Stockholders Equity
Our largest stockholder, Danaos Investment Limited as Trustee of the 883 Trust (DIL) contributed $10 million to the Company in connection with the consummation of the Companys debt refinancing on August 10, 2018. DIL did not receive any shares of common stock or other interests in the Company as a result of this contribution.
As of April 18, 2008, the Board of Directors and the Compensation Committee approved incentive compensation of Managers 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 Companys 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 Companys 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 Companys 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, 2018, the Company did not grant any shares under the plan. During the six months ended June 30, 2018, no new shares were issued.
The Company has also established the Directors Share Payment Plan under its 2006 equity compensation plan. The purpose of the plan is to provide a means of payment of all or a portion of compensation payable to directors of the Company in the form of Companys 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, 2018 and June 30, 2017, none of the directors elected to receive their compensation in Company shares.
13
Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share:
|
|
Three months ended
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
|
|
(in thousands)
|
|
Numerator:
|
|
|
|
|
|
Net income
|
|
$
|
5,838
|
|
$
|
20,229
|
|
|
|
|
|
|
|
Denominator
(number of shares in thousands):
|
|
|
|
|
|
Basic and diluted weighted average common shares outstanding
|
|
109,799
|
|
109,825
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
|
|
(in thousands)
|
|
Numerator:
|
|
|
|
|
|
Net income
|
|
$
|
20,830
|
|
$
|
38,672
|
|
|
|
|
|
|
|
Denominator
(number of shares in thousands):
|
|
|
|
|
|
Basic and diluted weighted average common shares outstanding
|
|
109,799
|
|
109,825
|
|
|
|
|
|
|
|
|
|
The Warrants issued and outstanding as of June 30, 2018 and 2017, were excluded from the diluted earnings per share for the three and six months ended June 30, 2018 and 2017, because they were antidilutive.
F-
18
DANAOS CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14
Related Party Transactions
Management fees to Danaos Shipping Company Limited (the Manager) amounted to $8,307 thousand in the six months ended June 30, 2018 ($8,428 thousand in the six months ended June 30, 2017) and are presented under General and administrative expenses in the condensed consolidated statements of income.
Commissions to the Manager amounted to $2,518 thousand in the six months ended June 30, 2018 ($2,608 thousand in the six months ended June 30, 2017) and are presented under Voyage expenses in the condensed consolidated statements of income.
15
Subsequent Events
(a) Consummation of Debt Refinancing.
On August 10, 2018, the Company consummated the debt refinancing agreed with certain of the Companys lenders on June 19, 2018, as described in the Note 9 Long-term debt, net. In connection with this debt refinancing, the Company issued 99,342,271 new shares of common stock to certain of the Companys lenders, which represent 47.5% of the outstanding common stock after giving effect to this issuance.
DIL, the Companys largest stockholder, and the Manager made a number of financial and operating commitments in connection with this debt refinancing. DIL contributed $10 million cash to the Company on August 10, 2018. DIL did not receive any shares of common stock or other interests in the Company as a result of the contribution and further agreed to commit to backstop (the Backstop Agreement), through a cash contribution pursuant to a subordinated loan agreement, any shortfall in the minimum consolidated cash balance of $60 million required under the new credit facilities as of September 30, 2018, subject to certain limitations.
Additionally, on August 10, 2018, the term of the management agreement with the Manager was extended until December 31, 2024. The Manager agreed to apply all or some of the amount of DILs unfulfilled obligations, if any, under the Backstop Agreement as a credit towards any fees payable by the Company to the Manager.
In connection with the Refinancing, the Company has undertaken to seek to sell two of its 13,100 TEU vessels, the
Hyundai Honour
and
Hyundai Respect
, before December 31, 2018. The net proceeds from sales of such vessels are to be applied pro rata to repay the new credit facilities secured by mortgages on such vessels, which would further reduce the outstanding debt. The current carrying value of these vessels may exceed the market value of these vessels.
(b) Restricted Stock
. On September 14, 2018, the Company granted 4,182,832 shares of restricted stock to executive officers of the Company, 50% of which are scheduled to vest on December 31, 2019 and 50% of which are scheduled to vest on December 31, 2021, subject to satisfaction of the vesting terms, under its 2006 Equity Compensation Plan, as amended.
F-
19