Danaos Corporation, a leading international owner of containerships, reported unaudited results for the quarter ended March 31, 2014.

Highlights for the First Quarter Ended March 31, 2014:

    Operating revenues of $135.5 million for the three months ended March 31, 2014 compared to $146.1 million for the three months ended March 31, 2013, a decrease of 7.3%.

    Adjusted EBITDA1 of $96.4 million for the three months ended March 31, 2014 compared to $108.6 million for the three months ended March 31, 2013, a decrease of 11.2%.

    Adjusted net income1 of $7.0 million, or $0.06 per share, for the three months ended March 31, 2014 compared to $13.9 million, or $0.13 per share, for the three months ended March 31, 2013, a decrease of 49.6%.

    The remaining average charter duration of our fleet was 8.7 years as of March 31, 2014 (weighted by aggregate contracted charter hire).

    Total contracted operating revenues were $4.1 billion as of March 31, 2014, through 2028.

    Charter coverage of 88% for the next 12 months in terms of contracted operating days and 98% in terms of operating revenues.

Danaos' CEO Dr. John Coustas commented:

Danaos is reporting 1st quarter 2014 adjusted net income of $7 million or 6 cents per share, which is $6.9 million lower than the $13.9 million adjusted net income for the 1st quarter of 2013. This decrease is mainly a result of the previously announced Zim restructuring which accounts for $6 million in lower operating revenues. We anticipate this effect to be partially offset upon legal consummation of the Zim restructuring when we will commence to gradually recognize through our income statement the debt and equity instruments that we will receive in return for the charter rate concessions.

A positive income driver which starts becoming increasingly relevant is the decrease in our financing costs as a result of the rapid deleveraging of our balance sheet and the gradual expiration of interest rate swaps which will continue in the coming quarters. During the 1st quarter of 2014 finance costs were $4.6 million lower when compared to the 1st quarter of 2013. In the current quarter we reduced indebtedness by $60.7 million while we will reduce debt by at least $200 million in total within 2014. Interest rate swaps were $300 million lower between the 2 quarters while there is a further $1 billion in swaps expiring within 2014.

The containership market remains challenging. The focus of the liner companies is on fleet deployment optimization and the creation of operational efficiencies either through M&A consolidation or alliances. In the short run this may add further pressure to the gearless panamax charter market which we believe will subside in the medium term as demand growth eventually absorbs in the non mainlane trades what today are considered 'surplus' vessels. On a macro level, a successful operational consolidation in the liner industry and the rationalization of the liner services is a positive step as the industry will become healthier and the counterparty risk for charter owners like Danaos will improve.

In any case, we maintain our strong 98% contract coverage for the next 12 months, limiting further downside from a prolonged weak spot charter market.

We continue to be one of the most cost competitive operators in the industry with our daily vessel operating expenses averaging at $6,110 per day for the 1st quarter of 2014.

With a resilient business model both from an operating and financial standpoint, we will continue to manage our fleet efficiently, while in 2014 we will focus on further de-leveraging the company and creating value for our shareholders.

Three months ended March 31, 2014 compared to the three months ended March 31, 2013

During the three months ended March 31, 2014, Danaos had an average of 58.6 containerships compared to 63.1 containerships for the three months ended March 31, 2013. Our fleet utilization increased to 95.2% in the three months ended March 31, 2014 compared to 89.6% in the three months ended March 31, 2013, while the effective utilization for the fleet under employment, excluding vessels on lay up, was 97.9% in the three months ended March 31, 2014. During the three months ended March 31, 2014, we sold the Marathonas, on February 26, 2014.

Our adjusted net income was $7.0 million, or $0.06 per share, for the three months ended March 31, 2014 compared to $13.9 million, or $0.13 per share, for the three months ended March 31, 2013. We have adjusted our net income in the three months ended March 31, 2014 for unrealized gains on derivatives of $5.7 million, a non-cash expense of $4.7 million for fees related to our 2011 comprehensive financing plan (comprised of non-cash, amortizing and accrued finance fees) and a gain on sale of vessel of $0.5 million. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The decrease of 49.6%, or $6.9 million, in adjusted net income for the three months ended March 31, 2014 compared to the three months ended March 31, 2013, is attributed to a $6.0 million decrease in operating revenues as a result of reduced rates for 6 x 4,253 vessels on charter to Zim following the Zim restructuring and a $1.6 million increase in total fleet operating costs, partially offset by a $0.7 million lower dry docking amortization charge on our income statement. Additionally, a $4.6 million improvement in net finance costs due to lower debt balances and interest rate swap expirations, offset an equal amount of decrease in operating revenues attributed to lower re-chartering rates for certain of our vessels as a result of the continuing soft charter market and off hires related to scheduled dry dockings. As of March 31, 2014, we had one vessel on cold lay-up, which on April 8, 2014 we have entered into an agreement to sell.

On a non-adjusted basis our net income was $8.4 million, or $0.08 per share, for the three months ended March 31, 2014, compared to net income of $13.4 million, or $0.12 per share, for the three months ended March 31, 2013.

Operating Revenues
Operating revenues decreased 7.3%, or $10.6 million, to $135.5 million in the three months ended March 31, 2014, from $146.1 million in the three months ended March 31, 2013.

Operating revenues for the three months ended March 31, 2014 reflect:

    $2.8 million of additional revenues in the three months ended March 31, 2014 compared to the three months ended March 31, 2013, related to the Amalia C, the Niledutch Zebra, the Niledutch Palanca and the Dimitris C, which were added to our fleet on May 14, 2013, June 25, 2013, November 13, 2013 and November 21, 2013, respectively.

    $6.0 million decrease in revenues in the three months ended March 31, 2014 compared to the three months ended March 31, 2013, related to the agreement we entered into with ZIM for a reduction in the charter rates payable by ZIM under the time charters for six of our vessels.

    $3.1 million decrease in revenues in the three months ended March 31, 2014 compared to the three months ended March 31, 2013, related to the Elbe, the Hope, the Kalamata, the Lotus and the Komodo, which were generating revenues in the three months ended March 31, 2013, but were sold within 2013.

    $4.3 million decrease in revenues in the three months ended March 31, 2014 compared to the three months ended March 31, 2013, which was mainly attributable to the soft charter market, as well as the scheduled off-hires of $1.2 million in the three months ended March 31, 2014 compared to nil in the three months ended March 31, 2013.