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Athens, Greece - Dec. 15, 2016 Danaos Corporation ("Danaos") (NYSE: DAC), one of the world's largest independent owners of containerships, today reported unaudited results for the period ended September 30, 2016. Highlights for the Third Quarter and Nine Months Ended September 30, 2016: • Adjusted net income1 of $22.8 million, or $0.21 per share, for the three months ended September 30, 2016 compared to $43.8 million, or $0.40 per share, for the three months ended September 30, 2015, a decrease of 47.9%. Adjusted net income1 of $117.7 million, or $1.07 per share, for the nine months ended September 30, 2016 compared to $112.3 million, or $1.02 per share, for the nine months ended September 30, 2015, an increase of 4.8%. • Operating revenues of $111.8 million for the three months ended September 30, 2016 compared to $144.6 million for the three months ended September 30, 2015, a decrease of 22.7%. Operating revenues of $386.2 million for the nine months ended September 30, 2016 compared to $424.6 million for the nine months ended September 30, 2015, a decrease of 9.0%. • Adjusted EBITDA1 of $75.5 million for the three months ended September 30, 2016 compared to $106.8 million for the three months ended September 30, 2015, a decrease of 29.3%. Adjusted EBITDA1 of $274.7 million for the nine months ended September 30, 2016 compared to $312.6 million for the nine months ended September 30, 2015, a decrease of 12.1%. • Total contracted operating revenues were $2.2 billion as of September 30, 2016, with charters extending through 2028 and remaining average contracted charter duration of 6.5 years, weighted by aggregate contracted charter hire. • Charter coverage of 95% for the next 12 months on current operating revenues and 79% in terms of contracted operating days. • On September 1, 2016, Hanjin Shipping, a 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. • In July 2016, we reached a charter restructuring agreement with Hyundai Merchant Marine ("HMM"). Three and Nine Months Ended September 30, 2016 Financial Summary (Expressed in thousands of United States dollars, except per share amounts) 
Adjusted net income, adjusted earnings per share and adjusted EBITDA are non-GAAP measures. Refer to the reconciliation of net income to adjusted net income and net income to adjusted EBITDA. Danaos' CEO Dr. John Coustas commented: We report our results for the third quarter of 2016 in the aftermath of the bankruptcy of Hanjin Shipping, one of Danaos' large customers. As a result of the bankruptcy, we did not recognize any operating revenues for the vessels that had been chartered to Hanjin during the quarter. This reduced our operating revenues by $24.8 million and was the main contributor to the $21 million reduction in our adjusted net income to $22.8 million compared to an adjusted net income of $43.8 million in the third quarter of 2015. Setting aside the significant effect of the Hanjin bankruptcy on our operating revenues and our bottom line, we have otherwise managed to improve our adjusted net income by $3.8 million, mainly due to a $10.2 million improvement in our net finance costs resulting from the continued de-leveraging of our balance sheet, interest rate swap expirations and a $1.3 million reduction in total operating expenses, partially offset by a $8 million reduction in operating revenues attributed to lower fleet utilization, the sale of the Federal during the first quarter and lower re-chartering rates for certain of our vessels in a softer charter market. As a result of the Hanjin bankruptcy we also recorded a write-off of $15.8 million, representing the outstanding charter hire owed to us by Hanjin as of June 30, 2016. Additionally, principally as a result of the effects of the cancellation of the Hanjin charters, the Company was in breach of certain financial covenants as at September 30, 2016 for which we have obtained waivers until April 1, 2017. Because the waivers are for a period of less than 12 months, all of the debt has been classified as current on the September 30, 2016 financial statements. Notwithstanding the negative consequences of the Hanjin bankruptcy, the Company is currently in a position to fully service all of its operational and contractual financial obligations. All the Hanjin vessels have been discharged and re-delivered to us. We have already re-chartered 5 x 3,400 TEU vessels at market rates while we are still in negotiations to charter the remaining 3 x 10,100 TEU vessels, which we expect to be deployed after the end of the first quarter of 2017. During the third quarter we sold all the shares that the Company had received as compensation pursuant to the HMM restructuring for a consideration of $38.1 million. This constitutes a 98% recovery of the $39 million charter hire concession for which we were compensated with HMM shares. Despite the effective recovery at par on a cash basis, we recorded a non-cash accounting loss of $12.9 million on the sale of these shares, reflecting the difference between the book value and the sale price of the shares, which has been included within our adjusted net income calculation. Danaos continues to have low near term exposure to the weak spot market compared to current operating revenues with 95% of charter cover in terms of third quarter operating revenues and 79% in terms of contracted operating days for the next 12 months. Additionally, our continued focus on cost containment has reduced our daily operating costs to $5,462 per day for the third quarter, a decline of nearly 4% versus the same period in the prior year. This clearly positions us as one of the most efficient operators in the industry, which is particularly beneficial in today's environment. Amidst this challenging economic environment we will remain singularly focused on preserving value, de-levering our balance sheet, managing our fleet efficiently and capitalizing on the resilience of our business model. Three months ended September 30, 2016 compared to the three months ended September 30, 2015 During the three months ended September 30, 2016, Danaos had an average of 55 containerships compared to 56 containerships for the three months ended September 30, 2015. Our fleet utilization decreased to 96.7% in the three months ended September 30, 2016 compared to 100.0% in the three months ended September 30, 2015. Our adjusted net income amounted to $22.8 million, or $0.21 per share, for the three months ended September 30, 2016 compared to $43.8 million, or $0.40 per share, for the three months ended September 30, 2015. We have adjusted our net income in the three months ended September 30, 2016 mainly for bad debt expense of $15.8 million related to Hanjin Shipping, loss on sale of HMM securities of $12.9 million, unrealized gains on derivatives of $1.6 million and a non-cash amortization charge of $4.0 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 $21.0 million in adjusted net income for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 is attributable to a $32.8 million decrease in operating revenues, which were partially offset by $10.2 million decrease in net finance costs mainly due to lower debt balances and interest rate swap expirations, a $1.3 million decrease in total operating expenses and a $0.3 million decrease in loss on equity investments. On a non-adjusted basis, we incurred a loss of $8.4 million, or $0.08 loss per share, for the three months ended September 30, 2016 compared to net income of $42.1 million, or $0.38 earnings per share, for the three months ended September 30, 2015. Operating Revenues Operating revenues decreased by 22.7%, or $32.8 million, to $111.8 million in the three months ended September 30, 2016 from $144.6 million in the three months ended September 30, 2015. Operating revenues for the three months ended September 30, 2016 reflect: • $24.8 million decrease in revenues in the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to loss of revenue from cancelled charters with Hanjin Shipping for eight of our vessels, for which we ceased recognizing revenue effective as of July 1, 2016. See "Recent news" below. • $1.1 million decrease in revenues in the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the sale of the Federal on January 8, 2016. • $4.5 million decrease in revenues in the three months ended September 30, 2016 compared to the three months ended September 30, 2015 due to the re-chartering of certain of our vessels at lower rates. • $2.4 million decrease in revenues due to lower fleet utilization in the three months ended September 30, 2016 compared to the three months ended September 30, 2015. Vessel Operating Expenses Vessel operating expenses decreased by 5.7%, or $1.6 million, to $26.6 million in the three months ended September 30, 2016 from $28.2 million in the three months ended September 30, 2015. The decrease is attributable to a 3.7% decrease in the average daily operating cost per vessel while the average number of vessels in our fleet during the three months ended September 30, 2016 decreased by 1.8% compared to the three months ended September 30, 2015. The average daily operating cost per vessel decreased to $5,462 per day for the three months ended September 30, 2016 from $5,669 per day for the three months ended September 30, 2015. Management believes that our daily operating cost ranks as one of the most competitive in the industry. Full report Danaos Corporation press release |
