Danaos (DAC) 6-KCurrent report (foreign)

EXHIBIT 99.1

DANAOS CORPORATION

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis should be read in conjunction with our interim condensed consolidated financial statements (unaudited) and the notes thereto included elsewhere in this report.

Results of Operations

Three months ended September 30, 2023 compared to three months ended September 30, 2022

During the three months ended September 30, 2023, Danaos had an average of 68.0 container vessels compared to 71.0 container vessels during the three months ended September 30, 2022. Our containership fleet utilization for the three months ended September 30, 2023 was 97.7% compared to 97.1% for the three months ended September 30, 2022.

Operating Revenues

Operating revenues decreased by 8.0%, or $20.8 million, to $239.2 million in the three months ended September 30, 2023 from $260.0 million in the three months ended September 30, 2022.

Operating revenues for the three months ended September 30, 2023 reflected:

Voyage Expenses

Voyage expenses decreased by $1.3 million to $9.0 million in the three months ended September 30, 2023 from $10.3 million in the three months ended September 30, 2022 primarily as a result of a decrease in commissions and the average number of vessels in our fleet.

Vessel Operating Expenses

Vessel operating expenses increased by $0.3 million to $39.5 million in the three months ended September 30, 2023 from $39.2 million in the three months ended September 30, 2022, primarily as a result of an increase in the average daily operating cost for vessels on time charter to $6,499 per vessel per day for the three months ended September 30, 2023 compared to $6,173 per vessel per day for the three months ended September 30, 2022, which was partially offset by a decrease in the average number of vessels in our fleet. The average daily operating cost increased mainly due to increased repair and maintenance expenses. Management believes that our daily operating costs remain among the most competitive in the industry.

Depreciation

Depreciation expense decreased by 5.3%, or $1.8 million, to $32.3 million in the three months ended September 30, 2023 from $34.1 million in the three months ended September 30, 2022 mainly due to our recent sale of three vessels.

Amortization of Deferred Drydocking and Special Survey Costs

Amortization of deferred drydocking and special survey costs increased by $1.7 million to $4.8 million in the three months ended September 30, 2023 from $3.1 million in the three months ended September 30, 2022.

General and Administrative Expenses

General and administrative expenses decreased by $0.1 million to $7.1 million in the three months ended September 30, 2023, from $7.2 million in the three months ended September 30, 2022.

Interest Expense and Interest Income

Interest expense decreased by 73.1%, or $11.7 million, to $4.3 million in the three months ended September 30, 2023 from $16.0 million in the three months ended September 30, 2022. The decrease in interest expense is a result of:

As of September 30, 2023, outstanding debt, gross of deferred finance costs, was $417.4 million, which included $262.8 million principal amount of our Senior Notes. These balances compare to debt of $868.1 million, which included $300.0 million principal amount of our Senior Notes, and a leaseback obligation of $79.6 million, gross of deferred finance costs, as of September 30, 2022. See “Liquidity and Capital Resources”.

Interest income increased by $1.8 million to $3.1 million in the three months ended September 30, 2023 compared to $1.3 million in the three months ended September 30, 2022 mainly as a result of increased interest rates and average amount of time deposits in the three months ended September 30, 2023.

Loss on Investments

We recognized a $9.3 million loss on marketable securities in the three months ended September 30, 2023 on our shareholding interest in Eagle Bulk Shipping Inc. (“Eagle Bulk” or “EGLE”) of 1,552,865 shares of common stock. This loss compares to a loss on investments of $107.3 million on our shareholding interest in ZIM Integrated Shipping Services Ltd. (“ZIM”) recognized in the three months ended September 30, 2022. In September 2022, we sold all of our remaining ordinary shares of ZIM for net proceeds of $161.3 million.

Dividend Income

Dividend income of $0.9 million was recognized on EGLE ordinary shares in the three months ended September 30, 2023 compared to $27.0 million recognized on ZIM ordinary shares in the three months ended September 30, 2022.

Equity Loss on Investments

Equity loss on investments amounting to $0.5 million in the three months ended September 30, 2023 relates to our share of initial expenses of a newly established company, Carbon Termination Technologies Corporation (“CTTC”), currently engaged in the research and development of decarbonization technologies for the shipping industry.

Other Finance Expenses

Other finance expenses increased by $1.0 million to $1.2 million in the three months ended September 30, 2023 compared to $0.2 million in the three months ended September 30, 2022 mainly due to commitment fees for our recently established revolving credit facility.

Loss on Derivatives

Amortization of deferred realized losses on interest rate swaps remained stable at $0.9 million in each of the three months ended September 30, 2023 and September 30, 2022.

Other Income/(expenses), net

Other expenses, net were $1.1 million in the three months ended September 30, 2023 compared to other income, net of $0.4 million in the three months ended September 30, 2022.

Income Taxes

Income taxes of $3.8 million in the three months ended September 30, 2022, related to the taxes withheld on dividend income earned on ZIM ordinary shares compared to no income tax in the three months ended September 30, 2023.

Nine months ended September 30, 2023 compared to nine months ended September 30, 2022

During the nine months ended September 30, 2023, Danaos had an average of 68.1 container vessels compared to 71.0 container vessels during the nine months ended September 30, 2022. Our containership fleet utilization for the nine months ended September 30, 2023 was 97.7% compared to 98.1% for the nine months ended September 30, 2022.

Operating Revenues

Operating revenues decreased by 2.2%, or $16.6 million, to $724.3 million in the nine months ended September 30, 2023 from $740.9 million in the nine months ended September 30, 2022.

Operating revenues for the nine months ended September 30, 2023 reflect:

Voyage Expenses

Voyage expenses decreased by $1.7 million to $25.2 million in the nine months ended September 30, 2023 from $26.9 million in the nine months ended September 30, 2022 primarily as a result of a decrease in commissions and the average number of vessels in our fleet.

Vessel Operating Expenses

Vessel operating expenses increased by $3.1 million to $122.0 million in the nine months ended September 30, 2023 from $118.9 million in the nine months ended September 30, 2022, primarily as a result of an increase in the average daily operating cost for vessels on time charter to $6,758 per vessel per day for the nine months ended September 30, 2023 compared to $6,314 per vessel per day for the nine months ended September 30, 2022, which was partially offset by a decrease in the average number of vessels in our fleet. The average daily operating cost increased mainly due to increased repair and maintenance expenses. Management believes that our daily operating costs remain among the most competitive in the industry.

Depreciation

Depreciation expense decreased by 5.4%, or $5.5 million, to $95.8 million in the nine months ended September 30, 2023 from $101.3 million in the nine months ended September 30, 2022 due to our recent sale of three vessels.

Amortization of Deferred Drydocking and Special Survey Costs

Amortization of deferred drydocking and special survey costs increased by $4.1 million to $13.1 million in the nine months ended September 30, 2023 from $9.0 million in the nine months ended September 30, 2022.

General and Administrative Expenses

General and administrative expenses decreased by $0.6 million to $21.1 million in the nine months ended September 30, 2023, from $21.7 million in the nine months ended September 30, 2022. The decrease was primarily attributable to decreased management fees due to the recent sale of three vessels.

Gain on Sale of Vessels

In January 2023, we completed the sale of the Amalia C for net proceeds of $4.9 million resulting in a gain of $1.6 million.

Interest Expense and Interest Income

Interest expense decreased by 65.6%, or $32.3 million, to $16.9 million in the nine months ended September 30, 2023 from $49.2 million in the nine months ended September 30, 2022. The decrease in interest expense is a result of:

As of September 30, 2023, outstanding debt, gross of deferred finance costs, was $417.4 million, which included $262.8 million principal amount of our Senior Notes. These balances compare to debt of $868.1 million, which included $300.0 million principal amount of our Senior Notes, and a leaseback obligation of $79.6 million, gross of deferred finance costs, as of September 30, 2022.

Interest income increased by $8.0 million to $9.4 million in the nine months ended September 30, 2023 compared to $1.4 million in the nine months ended September 30, 2022 mainly as a result of increased interest rates and average amount of time deposits in the nine months ended September 30, 2023.

Loss on Investments

We recognized a $2.9 million loss on marketable securities in the nine months ended September 30, 2023 on our shareholding interest in EGLE of 1,552,865 shares of common stock. This loss compares to a loss on investments of $176.4 million on our shareholding interest in ZIM recognized in the nine months ended September 30, 2022. In the nine months ended September 30, 2022, we sold all of our remaining ordinary shares of ZIM for net proceeds of $246.6 million.

Dividend Income

Dividend income of $0.9 million was recognized on EGLE ordinary shares in the nine months ended September 30, 2023 compared to $165.4 million recognized on ZIM ordinary shares in the nine months ended September 30, 2022.

Gain/(loss) on Debt Extinguishment

A $2.3 million loss on early extinguishment of our leaseback obligations in the nine months ended September 30, 2023 compares to a $22.9 million gain related to our early extinguishment of debt in the nine months ended September 30, 2022.

Equity Loss on Investments

Equity loss on investments amounting to $3.9 million in the nine months ended September 30, 2023 relates to our share of initial expenses of a newly established company, CTTC, currently engaged in the research and development of decarbonization technologies for the shipping industry.

Other Finance Expenses

Other finance expenses increased by $2.3 million to $3.4 million in the nine months ended September 30, 2023 compared to $1.1 million in the nine months ended September 30, 2022 mainly due to commitment fees for our recently established revolving credit facility.

Loss on Derivatives

Amortization of deferred realized losses on interest rate swaps remained stable at $2.7 million in each of the nine months ended September 30, 2023 and September 30, 2022.

Other Income/(expenses), net

Other expenses, net were $0.6 million in the nine months ended September 30, 2023 compared to other income, net of $1.3 million in the nine months ended September 30, 2022

Income Taxes

Income taxes of $18.3 million, in the nine months ended September 30, 2022, related to the taxes withheld on dividend income earned on ZIM ordinary shares and compared to no income tax in the nine months ended September 30, 2023.

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; common stock sales in August 2010 and the fourth quarter of 2019, the capital contribution of Danaos Investment Limited as Trustee of the 883 Trust (“DIL”) on August 10, 2018 and dividends and sales proceeds from our divested investment in ZIM ordinary shares in 2021 and 2022. In February 2021, we sold $300 million of 8.500% senior unsecured notes due 2028 (the “Senior Notes”). In December 2022, we repurchased $37.2 million aggregate principal amount of our Senior Notes in a privately negotiated transaction. We may also at any time and from time to time, seek to retire or purchase our outstanding debt securities through cash purchases, in open-market purchases, privately negotiated transactions or otherwise. 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, drydocking costs, installment payments for our ten contracted containership newbuildings, payments for the acquisition of contracted dry bulk vessels, debt interest payments, servicing our debt obligations, payment of dividends and repurchases of our common stock. Our long-term liquidity needs primarily relate to installment payments for our ten contracted newbuildings and any additional vessel acquisitions in the containership or drybulk sector and debt repayment. We anticipate that our primary sources of funds will be cash from operations and equity or debt financings. We currently expect that the sources of funds available to us will be sufficient to meet our short-term liquidity (for the next 12 months after the issuance of the condensed consolidated financial statements) and long-term liquidity requirements.

Under our existing multi-year charters as of September 30, 2023, we had $2.4 billion of total contracted cash revenues, with $227.5 million for the remainder of 2023, $821.0 million for 2024 and thereafter $1.4 billion. Although these contracted cash revenues are based on contracted charter rates, we are dependent on the ability and willingness of our charterers to meet their obligations under these charters. In May 2022, we received a $238.9 million charter hire prepayment related to charter contracts for 15 of our vessels, representing partial prepayment of charter hire payable during the period from May 2022 through January 2027. This prepayment is recorded as unearned revenue on our balance sheet and recognized as revenue in our income statement over the term of the applicable charters.

As of September 30, 2023, we had cash and cash equivalents of $306.3 million. As of September 30, 2023, we had $348.75 million of remaining borrowing availability under a reducing revolving credit facility, the availability under which reduces on a quarterly basis. As of September 30, 2023, we had $417.4 million of outstanding indebtedness (gross of deferred finance costs), including $262.8 million relating to our Senior Notes. As of September 30, 2023, we were obligated to make quarterly fixed amortization payments, totaling $24.4 million to September 30, 2024, related to the long-term bank debt. We are also obligated to make certain payments to our Manager, Danaos Shipping. As described below under “—Management Agreement” in November 2023, we extended the term of our management agreement from December 31, 2024 to December 31, 2025 and in conjunction therewith the fees and commissions payable thereunder were modified.

In June 2022, we drew down $130.0 million under a new senior secured term loan facility from BNP Paribas and Credit Agricole, which is secured by six 5,466 TEU sister vessels acquired in 2021. This facility is repayable in 8 quarterly instalments of $5.0 million, followed by 12 quarterly instalments of $1.9 million together with a balloon payment of $67.2 million payable over five-year term. In December 2022, we early extinguished the remaining $437.75 million of the Citibank/Natwest $815 mil. Facility and replaced it with the $382.5 mil. Revolving Credit Facility with Citibank, out of which nil is drawn down as of September 30, 2023 and with the Alpha Bank $55.25 mil. Facility, which was drawn down in full and under which $49.6 million is outstanding as of September 30, 2023. The Citibank $382.5 mil. Revolving Credit Facility is reducing and repayable over 5 years in 20 quarterly reductions of $11.25 million each together with a final reduction of $157.5 million at maturity in December 2027. We pay a commitment fee at a rate of 0.8% per annum on the undrawn amount of this facility. The Alpha Bank $55.25 mil. Facility is repayable over 5 years with 20 consecutive quarterly instalments of $1.875 million each, together with a balloon payment of $17.75 million at maturity in December 2027.

On March 11, 2022, we entered into contracts for the construction of two 7,100 TEU container vessels with expected vessels delivery in 2024. On April 1, 2022, as amended on April 21, 2022, we entered into contracts for the construction of four 8,000 TEU container vessels with expected vessels delivery in 2024. On April 28, 2023, we entered into contracts for the construction of two 6,000 TEU container vessels with expected vessels delivery in 2024 and 2025. On June 20, 2023, we entered into contracts for the construction of two 8,200 TEU container vessels with expected vessels delivery in 2026. The aggregate purchase price of the vessel construction contracts amounts to $834.9 million.

The remaining contractual commitments under these 10 vessel construction contracts are analyzed as follows as of September 30, 2023 (in millions of U.S. dollars):

Additionally, a supervision fee of $850 thousand per newbuilding vessel (as amended on November 10, 2023) will be payable to Danaos Shipping Company Limited (“the Manager”) over the construction period starting from steel cutting. Supervision fees totaling $1.1 million were charged by the Manager and capitalized to the vessels under construction in the nine months ended September 30, 2023. Interest expense amounting to $5.0 million and $12.0 million was capitalized to the vessels under construction in the year ended December 31, 2022 and in the nine months ended September 30, 2023, respectively.

Subsequent to September 30, 2023, we declared a dividend of $0.80 per share of common stock payable on December 6, 2023 to holders of record on November 27, 2023. We intend to pay a regular quarterly dividend on our common stock, which will have an impact on our liquidity. Payments of dividends are subject to the discretion of our board of directors, provisions of Marshall Islands law affecting the payment of distributions to stockholders and the terms of our credit facilities, which permit the payment of dividends so long as there has been no event of default thereunder nor would occur as a result of such dividend payment, and Senior Notes, which include limitations on the amount of dividends and other restricted payments that we may make, and will be subject to conditions in the container and drybulk shipping industries, our financial performance and us having sufficient available excess cash and distributable reserves.

In June 2022, we announced a share repurchase program of up to $100 million of our common stock. We had repurchased 466,955 shares of our common stock in the open market for $28.6 million as of December 31, 2022. In the nine months ended September 30, 2023, we repurchased an additional 852,721 shares for $52.5 million, out of which 2,900 shares valued at $0.2 million remained unsettled as of September 30, 2023. Subsequent to September 30, 2023, we repurchased 250,519 shares of our common stock in the open market for $16.3 million. A $100 million increase to the existing share repurchase program, for a total aggregate amount of $200 million, was approved by our Board of Directors on November 10, 2023. As of November 10, 2023, the Company has repurchased an aggregate of approximately $97.4 million of common stock under the share purchase program. All purchases have been made on the open market within the safe harbor provisions of Regulation 10b-18 under the Exchange Act. Under the share repurchase program, shares of our common stock may be purchased in open market or privately negotiated transactions, at times and prices that are considered to be appropriate by the Company, and the program may be suspended or discontinued at any time.

Marketable Securities

In June 2023, we acquired marketable securities, comprising 1,552,865 shares of common stock of Eagle Bulk, for $68.2 million (out of which $24.4 million from Virage International Ltd., our related company). As of September 30, 2023, these marketable securities were fair valued at $65.3 million and we recognized a $2.9 million loss on these marketable securities. Additionally, we recognized dividend income on these shares amounting to $0.9 million in the three months ended September 30, 2023. Eagle Bulk is listed on the New York Stock Exchange (Ticker: EGLE) and currently owns and operates a fleet of 52 Ultramax and Supramax bulk carriers that aggregate to approximately 3.2 million deadweight tons (“DWT”).

ZIM Equity Securities

On January 27, 2021, ZIM completed its initial public offering and listing on the New York Stock Exchange of its ordinary shares. Following this offering the Company owned 10,186,950 ordinary shares of ZIM. These shares were recorded at a book value of $75 thousands as of December 31, 2020. In 2021, we sold 3,000,000 ZIM ordinary shares resulting in net proceeds to us of $120.7 million. In April 2022, we sold 1,500,000 ZIM ordinary shares resulting in net proceeds to us of $85.3 million and we sold our remaining shareholding interest in ZIM of 5,686,950 ordinary shares for $161.3 million in September 2022. For the year ended December 31, 2022 we recognized a $176.4 million loss on these shares. Additionally we recognized dividend income on these shares amounting to $165.4 million gross of withholding taxes of $18.3 million in the year ended December 31, 2022. See Note 6, “Other Current and Non-current Assets” to our condensed consolidated financial statements included in this report.

Investments in Affiliates

In March 2023, we invested $4.3 million in the common shares of a newly established company Carbon Termination Technologies Corporation (“CTTC”), incorporated in the Republic of the Marshall Islands, which represents a 49% ownership interest. CTTC currently engages in research and development of decarbonization technologies for the shipping industry. We use equity method of accounting for this investment. Our share of CTTC’s initial expenses amounted to $3.9 million and is presented under “Equity loss on investments” in the condensed consolidated statement of income in the nine months ended September 30, 2023.

Acquisition of Capesize Bulk Carriers

In July 2023, we reached an agreement to acquire 5 Capesize bulk carriers built in 2010 through 2012 that aggregate to 879,306 DWT for a total of $103 million. One of these vessels was delivered to us on September 26, 2023, three vessels in October 2023 and the remaining one is expected to be delivered in November 2023. Additionally, in September 2023, we entered into agreements to acquire 2 Capesize bulk carriers built in 2009 that aggregate to 351,765 DWT for a total of $36.6 million. These 2 vessels are expected to be delivered to us between November and December 2023. The remaining aggregate contractual commitments under these vessel acquisition agreements amounted to $110.9 million as of September 30, 2023.

Impact of the wars in Ukraine and Gaza on our Business

As disclosed in our Annual Report on Form 20-F for the year ended December 31, 2022 filed with the Securities and Exchange Commission on March 9, 2023, the current conflict between Russia and Ukraine, and related sanctions imposed by the U.S., EU and others, adversely affect the crewing operations of our Manager, which has crewing offices in St. Petersburg, Odessa and Marioupol (damaged by the war), and trade patterns involving ports in the Black Sea or Russia, and as well as impacting world energy supply and creating uncertainties in the global economy, which in turn impact containership and drybulk demand. The extent of the impact will depend largely on future developments.

The war between Israel and Hamas in the Gaza Strip has not affected our business to date; however, an escalation of this conflict could have reverberations on the regional and global economies that could have the potential to adversely affect demand for containership cargoes and our business

Cash Flows

Net Cash Provided by Operating Activities

Net cash flows provided by operating activities decreased by $359.1 million, to $430.1 million provided by operating activities in the nine months ended September 30, 2023 compared to $789.2 million provided by operating activities in the nine months ended September 30, 2022. The decrease was the result of: (i) $149.8 million in ZIM dividends that were collected in the nine months ended September 30, 2022 compared to $0.9 million dividends collected on our shareholding interest in EGLE in the nine months ended September 30, 2023, (ii) a $247.0 million decrease in cash operating revenues as a result of the charter revenue prepayment that occurred in the nine months ended September 30, 2022, (iii) a $14.2 million decrease in operating revenues due to a decrease in the average number of vessels in our fleet as a result of vessel sales, (iv) a $8.8 million increase in cash operating expenses and (v) a $5.4 million increase in drydocking expenses, which were partially offset by: (i) a $33.2 million increase in operating revenues due to higher charter rates, (ii) a $29.5 million decrease in net finance costs and (iii) a $2.5 million improvement in working capital between the two periods.

Net Cash Provided by/(Used in) Investing Activities

Net cash flows provided by/(used in) investing activities decreased by $363.1 million, to $198.6 million used in investing activities in the nine months ended September 30, 2023 compared to $164.5 million provided by investing activities in the nine months ended September 30, 2022. The decrease was due to: (i) a $246.6 million in proceeds from the sale of ZIM shares collected in the nine months ended September 30, 2022 compared to no such proceeds in the nine months ended September 30, 2023 as we no longer held ZIM shares during the latter period, (ii) a $9.1 million decrease in vessel sale proceeds, (iii) a $29.8 million increase in advances and payments for vessel acquisitions in the nine months ended September 30, 2023, (iv) a $4.9 million increase in additions to vessel cost and (v) $74.4 million in net investments in the nine months ended September 30, 2023, which include $68.2 million invested in Eagle Bulk Shipping and our investment in Carbon Termination Technologies, which were partially offset by a $1.7 million decrease in advance payments for vessels under construction between the two periods.

Net Cash Used in Financing Activities

Net cash flows used in financing activities decreased by $321.2 million, to $192.9 million used in financing activities in the nine months ended September 30, 2023 compared to $514.1 million used in financing activities in the nine months ended September 30, 2022 due to (i) a $454.3 million decrease in payments of long-term debt and leaseback obligations, (ii) a $13.9 million decrease in finance costs, (iii) a $3.4 million decrease in payments of accumulated accrued interest and (iv) a $1.1 million decrease in dividend payments on our common stock, which were partially offset by (i) a $127.7 million decrease in proceeds from long-term debt and (ii) a $23.8 million increase in repurchase of common stock in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Non-GAAP Financial Measures

We report our financial results in accordance with U.S. generally accepted accounting principles (GAAP). Management believes, however, that certain non-GAAP financial measures used in managing the business may provide users of this financial information additional meaningful comparisons between current results and results in prior operating periods. Management believes that these non-GAAP financial measures can provide additional meaningful reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain items that impact the overall comparability. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our performance. See the table below for supplemental financial data and corresponding reconciliation to GAAP financial measures. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP.

EBITDA and Adjusted EBITDA

EBITDA represents net income before interest income and expense, taxes, depreciation, as well as amortization of deferred drydocking & special survey costs, amortization of assumed time charters, amortization of deferred realized losses of cash flow interest rate swaps, amortization of finance costs, debt discount and commitment fees. Adjusted EBITDA represents net income before interest income and expense, taxes other than withholding taxes on dividends received, depreciation, amortization of deferred drydocking & special survey costs, amortization of assumed time charters, amortization of deferred realized losses of cash flow interest rate swaps, amortization of finance costs, debt discount and commitment fees, gain/loss on investments, gain/loss on debt extinguishment, gain on sale of vessels and stock-based compensation. We believe that EBITDA and Adjusted EBITDA assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. EBITDA and Adjusted EBITDA are also used: (i) by prospective and current customers as well as potential lenders to evaluate potential transactions; and (ii) to evaluate and price potential acquisition candidates. Our EBITDA and Adjusted EBITDA may not be comparable to that reported by other companies due to differences in methods of calculation.

EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are: (i) EBITDA/Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs; and (ii) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA/Adjusted EBITDA do not reflect any cash requirements for such capital expenditures. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Because of these limitations, EBITDA/Adjusted EBITDA should not be considered as principal indicators of our performance.

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

EBITDA decreased by $8.3 million, to $530.9 million in the nine months ended September 30, 2023 from $539.2 million in the nine months ended September 30, 2022. This decrease was mainly attributed to (i) $165.4 million in dividends from ZIM (gross of withholding taxes) recognized in the nine months ended September 30, 2022 compared to $0.9 million in dividends from EGLE recognized in the nine months ended September 30, 2023, (ii) a $25.2 million decrease in gain on debt extinguishment between the two periods, (iii) a $3.9 million equity loss on investments in the nine months ended September 30, 2023 and (iv) a $2.7 million increase in total operating expenses between the two periods, which were partially offset by (i) a $173.5 million change in fair value of investments, (ii) a $12.9 million increase in operating revenues (excluding $29.5 million decrease in amortization of assumed time charters) and (iii) a $1.6 million gain on sale of vessel in the nine months ended September 30, 2023 compared to no such gain in the nine months ended September 30, 2022.

Adjusted EBITDA decreased by $140.3 million, to $534.4 million in the nine months ended September 30, 2023 from $674.7 million in the nine months ended September 30, 2022. This decrease was mainly attributed to (i) recognition of a $147.1 million dividend from ZIM (net of withholding taxes) in the nine months ended September 30, 2022 compared to $0.9 million in dividends from EGLE in the nine months ended September 30, 2023, (ii) a $3.1 million increase in total operating expenses and (iii) a $3.9 million equity loss on investments in the nine months ended September 30, 2023, which were partially offset by a $12.9 million increase in operating revenues (excluding a $29.5 million decrease in amortization of assumed time charters). Adjusted EBITDA for the nine months ended September 30, 2023 is adjusted for a $2.9 million change in fair value of investments, a $2.3 million loss on debt extinguishment and a $1.6 million gain on sale of vessel.

Credit Facilities

We, as borrower or guarantor, and certain of our subsidiaries, as borrowers or guarantors, have entered into a number of credit facilities in connection with financing the acquisition of certain vessels in our fleet. Our existing credit facilities are secured by, among other things, our vessels (as described below). The following summarizes certain terms of our credit facilities and our Senior Notes:

As of September 30, 2023, there was $348.75 million of remaining borrowing availability under our Citibank $382.5 mil. Revolving Credit Facility. As of September 30, 2023, 44 of our container vessels and 1 recently acquired drybulk vessel were unencumbered. For additional information regarding the credit facilities and related repayment schedule, please refer to Note 8 “Long-term Debt, net” in the unaudited condensed consolidated financial statements included in this report.

Senior Notes

On February 11, 2021, we consummated an offering of $300 million aggregate principal amount of 8.500% Senior Notes due 2028 of Danaos Corporation, which we refer to as the Senior Notes. The Senior Notes are general senior unsecured obligations of Danaos Corporation.

The Senior Notes were issued pursuant to an Indenture, dated as of February 11, 2021, between the Company and Citibank, N.A., London Branch, as trustee, paying agent, registrar and transfer agent. The Senior Notes bear interest at a rate of 8.500% per year, payable in cash on March 1 and September 1 of each year, commencing September 1, 2021. The Senior Notes will mature on March 1, 2028.

In December 2022, we repurchased $37.2 million aggregate principal amount of our Senior Notes in a privately negotiated transaction. For additional details regarding the Senior Notes please refer to Note 8, “Long-term Debt, net” in the unaudited condensed consolidated financial statements included elsewhere in this report and “Item 5. Operating and Financial Review and Prospects –Senior Notes” in our Annual Report on Form 20-F for the year ended December 31, 2022 filed with the Securities and Exchange Commission on March 9, 2023.

Qualitative and Quantitative Disclosures about Market Risk

Interest Rate Swaps

In the past, we entered into interest rate swap agreements converting floating interest rate exposure into fixed interest rates in order to hedge our exposure to fluctuations in prevailing market interest rates, as well as interest rate swap agreements converting the fixed rate we paid in connection with certain of our credit facilities into floating interest rates in order to economically hedge the fair value of the fixed rate credit facilities against fluctuations in prevailing market interest rates. All of these interest rate swap agreements have expired and we do not currently have any outstanding interest rate swap agreements. Refer to Note 9, “Financial Instruments”, to our unaudited condensed consolidated financial statements included in this report.

Foreign Currency Exchange Risk

We did not enter into derivative instruments to hedge the foreign currency translation of assets or liabilities or foreign currency transactions during the nine months ended September 30, 2023 and 2022.

Impact of Inflation and Interest Rates Risk on our Business

We continue to see near-term impacts on our business due to elevated inflation in the United States of America, the Eurozone and other countries, including ongoing global prices pressures in the wake of the war in Ukraine, driving up energy and commodity prices, which continue to affect our operating expenses. Interest rates have increased rapidly and substantially as central banks in developed countries raise interest rates in an effort to subdue inflation. The eventual implications of tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital for our business.

Capitalization and Indebtedness

The table below sets forth our consolidated capitalization as of September 30, 2023.

Other than these adjustments, there have been no other material changes to our capitalization from debt or equity issuances, re-capitalizations, special dividends, or debt repayments as adjusted in the table below between October 1, 2023 and November 10, 2023.

Our Fleet

The following table describes in detail our container vessels deployment profile as of November 10, 2023:

The following table describes the details of our Capesize drybulk vessels, which did not generate any operating revenues in the three months ended September 30, 2023:

The specifications of our 10 contracted containerships under construction as of November 10, 2023 are as follows:

Executive Officers

On November 10, 2023, Iraklis Prokopakis’s previously announced retirement from his executive role as Senior Vice President and Chief Operating Officer of the Company became effective. Mr. Prokopakis will remain a member of the Company’s Board of Directors. On November 10, 2023, Dimitris Vastarouchas, who had been serving as the Company’s Deputy Chief Operating Officer was appointed the Company’s Chief Operating Officer, and Filippos Prokopakis, who had been serving as Commercial Director of our Manager, Danaos Shipping, was appointed Chief Commercial Officer of the Company.

Management Agreement

On November 10, 2023, we entered into an Amended and Restated Management Agreement with Danaos Shipping, extending the term from December 31, 2024 to December 31, 2025. Under the Amended and Restated Management Agreement we will pay our Manager the following fees: (i) an annual management fee of $2,000,000, commencing in 2024, and 100,000 shares of our common stock, payable annually commencing in the fourth quarter of 2023, (ii) a daily vessel management fee of $475 for vessels on bareboat charter, pro-rated for the number of calendar days we own each vessel, commencing in 2024, (iii) a daily vessel management fee of $950 for vessels on time charter, pro-rated for the number of calendar days we own each vessel, (iv) a fee of 1.25% on all freight, charter hire, ballast bonus and demurrage for each vessel, commencing in 2024, (v) a fee of 1.0% based on the contract price of any vessel bought or sold by it on our behalf, including newbuilding contracts, and (vi) a flat fee of $850,000 per newbuilding vessel, which we capitalize, for the on premises supervision of any newbuilding contracts by selected engineers and others of its staff.

Forward Looking Statements

Matters discussed in this report may constitute forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements reflect our current views with respect to future events and financial performance and may include statements concerning our operations, cash flows, financial position, including with respect to vessel and other asset values, plans, objectives, goals, strategies, future events, performance or business prospects, changes and trends in our business and the markets in which we operate, and underlying assumptions and other statements, which are other than statements of historical facts. The forward-looking statements in this release are based upon various assumptions. Although Danaos Corporation believes that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, Danaos Corporation cannot assure you that it will achieve or accomplish these expectations, beliefs or projections. Important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include any resurgence of the COVID-19 pandemic, the strength of world economies and currencies, general market conditions, including changes in charter hire rates and vessel values, charter counterparty performance, changes in demand that may affect attitudes of time charterers to scheduled and unscheduled drydocking, changes in our operating expenses, including bunker prices, drydocking and insurance costs, our ability to operate profitably in the drybulk sector, our ability to obtain financing and comply with covenants in our financing arrangements, actions taken by regulatory authorities, potential liability from pending or future litigation, domestic and international political conditions, potential disruption of shipping routes due to accidents and political events, including the conflict in Ukraine and related sanctions, any escalation of the conflict in Israel and Gaza, or acts by terrorists.

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

INDEX TO FINANCIAL STATEMENTS

DANAOS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(Expressed in thousands of United States Dollars, except share and per share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

DANAOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(Expressed in thousands of United States Dollars, except share and per share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

DANAOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

(Expressed in thousands of United States Dollars)

The accompanying notes are an integral part of these condensed consolidated financial statements

DANAOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

(Expressed in thousands of United States Dollars)

The accompanying notes are an integral part of these condensed consolidated financial statements.

DANAOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(Expressed in thousands of United States Dollars)

The accompanying notes are an integral part of these condensed consolidated financial statements.

DANAOS CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 Danaos Corporation and its subsidiaries (“Danaos” or the “Company”), is the United States Dollar.

Danaos Corporation, 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 11, “Stockholders’ Equity”. The Company’s principal business is the acquisition and operation of vessels. Danaos conducts its operations through the vessel owning companies whose principal activity is the ownership and operation of containerships and drybulk vessels 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 state fairly, in all material respects, the Company’s condensed consolidated financial position as of September 30, 2023, the condensed consolidated results of operations for the three and nine months ended September 30, 2023 and 2022 and the condensed consolidated cash flows for the nine months ended September 30, 2023 and 2022. 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, 2022. The results of operations for the three and nine months ended September 30, 2023, 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 annual financial statements. These condensed consolidated financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America.

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, comprehensive income, cash flows and stockholders’ equity at and for each period since their respective incorporation dates.

DANAOS CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of September 30, 2023, Danaos included the following vessel owning companies (the “Danaos Subsidiaries”):

Container vessels

DANAOS CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Drybulk vessels

Impact of the wars in Ukraine and Gaza on the Company’s Business

As disclosed in the Company’s Annual Report on Form 20-F for the year ended December 31, 2022 filed with the Securities and Exchange Commission on March 9, 2023, the current conflict between Russia and Ukraine, and related sanctions imposed by the U.S., EU and others, adversely affect the crewing operations of the Company’s Manager, which has crewing offices in St. Petersburg, Odessa and Mariupol (damaged by the war), and trade patterns involving ports in the Black Sea or Russia, and as well as impacting world energy supply and creating uncertainties in the global economy, which in turn impact containership and drybulk demand. The extent of the impact will depend largely on future developments.

DANAOS CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The war between Israel and Hamas in the Gaza Strip has not affected the Company’s business to date; however, an escalation of this conflict could have reverberations on the regional and global economies that could have the potential to adversely affect demand for containership cargoes and the Company’s business.

For a detailed discussion about the Company’s significant accounting policies, see Note 2 “Significant Accounting Policies” in the Company’s consolidated financial statements included in the Annual Report on Form 20-F for the year ended December 31, 2022 filed with the Securities and Exchange Commission on March 9, 2023. During the nine months ended September 30, 2023, there were no significant changes made to the Company’s significant accounting policies.

In March 2023, the Company invested $4.3 million in the common shares of a newly established company Carbon Termination Technologies Corporation (“CTTC”), incorporated in the Republic of the Marshall Islands, which represents the Company’s 49% ownership interest. CTTC currently engages in research and development of decarbonization technologies for the shipping industry. Equity method of accounting is used for this investment. The Company’s share of CTTC’s initial expenses amounted to $3.9 million and is presented under “Equity loss on investments” in the condensed consolidated statement of income in the nine months ended September 30, 2023.

In July��2023, the Company reached an agreement to acquire 5 Capesize bulk carriers built in 2010 through 2012 that aggregate to 879,306 DWT for a total of $103.0 million. One of these vessels was delivered to the Company on September 26, 2023, three vessels in October 2023 and the remaining one is expected to be delivered in November 2023. Additionally, in September 2023, the Company entered into agreements to acquire 2 Capesize bulk carriers built in 2009 that aggregate to 351,765 DWT for a total of $36.6 million. These 2 vessels are expected to be delivered to the Company between November and December 2023. The remaining aggregate contractual commitments under these vessel acquisition agreements amounted to $110.9 million (including commissions) as of September 30, 2023. The estimated useful life of Capesize bulk carriers is 25 years from the year built.

On April 1, 2022, the Company entered into contracts, as amended on April 21, 2022, for the construction of four 8,000 TEU container vessels with expected vessels delivery in 2024. On March 11, 2022, the Company entered into contracts for the construction of two 7,100 TEU container vessels with expected vessels delivery in 2024. On April 28, 2023, the Company entered into contracts for the construction of two 6,000 TEU container vessels with expected vessels delivery in 2024 and 2025. On June 20, 2023, the Company entered into contracts for the construction of two 8,200 TEU container vessels with expected vessels delivery in 2026. The aggregate purchase price of the vessel construction contracts amounts to $834.9 million. The remaining contractual commitments under 10 vessel construction contracts are analyzed as follows as of September 30, 2023 (in thousands):

Additionally, a supervision fee of $850 thousand per newbuilding vessel(as amended on November 10, 2023 – refer to Note 16, “Subsequent Events”) will be payable to Danaos Shipping Company Limited (the “Manager”) over the construction period. Supervision fees totaling $1.1 million were charged by the Manager and capitalized to the vessels under construction in the nine months ended September 30, 2023. Interest expense amounting to $5.0 million was capitalized to the vessels under construction in the year ended December 31, 2022 and $12.0 million in the nine months ended September 30, 2023.

On December 23, 2022, the Company entered into an agreement to sell the vessel Amalia C for an aggregate gross consideration of $5.1 million, which was delivered to its buyers in January 2023 resulting in a $1.6 million gain separately presented under “Gain on sale of vessels” in the condensed consolidated statement of income. The vessel was presented as held for sale under “Other current assets” and a $1.0 million advance payment received for sale of the vessel was presented under “Other current liabilities” as of December 31, 2022. On January 17, 2022, the Company entered into agreement to sell its vessels Catherine C and Leo C for aggregate gross consideration of $130.0 million, out of which $13.0 million were advanced by the buyers in January 2022. The vessels were delivered to their buyers in November 2022 resulting in a $37.2 million gain.

The Company assumed time charter liabilities related to its acquisition of vessels in the second half of 2021. The amortization of these assumed time charters amounted to $16.8 million and $46.3 million in the nine months ended September 30, 2023 and September 30, 2022, respectively and is presented under “Operating revenues” in the condensed consolidated statement of income. The remaining unamortized amount of $9.0 million is presented under “Unearned revenue, current portion” in the condensed consolidated balance sheet as of September 30, 2023 and is expected to be amortized into “Operating revenues” in the next 12 months.

The residual value (estimated scrap value at the end of the vessels’ useful lives) of the fleet was estimated at $492.3 million and $487.3 million as of September 30, 2023 and as of December 31, 2022, respectively. The Company has calculated the residual value of the vessels taking into consideration the 10 year average and the 5 year average of the scrap prices. 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.

On May 12, 2020, the Company refinanced the existing leaseback obligation related to the vessels Hyundai Honour and Hyundai Respect with a new sale and leaseback arrangement with Oriental Fleet International Company Limited (“Oriental Fleet”) amounting to $139.1 million with a four years term, at the end of which the Company would reacquire these vessels. This arrangement did not qualify for a sale of the vessels and the net proceeds were recognized as a financial leaseback liability. In January 2023, the Company gave early termination notice to Oriental Fleet and fully repaid its outstanding leaseback obligation related to these two vessels on May 12, 2023. The early termination resulted in a loss of $2.3 million, which is presented under “Loss on debt extinguishment” in the consolidated statement of income.

5            Deferred Charges, net

Deferred charges, net consisted of the following (in thousands):

DANAOS CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

Other current and non-current assets consisted of the following (in thousands):

In June 2023, the Company acquired marketable securities of Eagle Bulk Shipping Inc. consisting of 1,552,865 shares of common stock for $68.2 million (out of which $24.4 million from Virage International Ltd., a related company). As of September 30, 2023, these marketable securities were fair valued at $65.3 million and the Company recognized a $2.9 million loss on these marketable securities reflected under “Loss on investments” in the condensed consolidated statement of income. Additionally, the Company recognized dividend income on these shares amounting to $0.9 million in the three months ended September 30, 2023.

The Company’s shareholding interest in ZIM of 7,186,950 ordinary shares was fair valued at $423.0 million and presented under “Other current assets” in the condensed consolidated balance sheet as of December 31, 2021, based on the closing price of ZIM ordinary shares on the NYSE on that date. In April 2022, the Company sold 1,500,000 ordinary shares of ZIM resulting in net proceeds of $85.3 million. All the remaining shareholding interest of 5,686,950 ordinary shares were sold for $161.3 million in September 2022. For the nine months ended September 30, 2022, the Company recognized $176.4 million loss on these shares compared to none in the nine months ended September 30, 2023. This loss is reflected under “Loss on investments” in the condensed consolidated statement of income. Additionally, the Company recognized dividend income on these shares amounting to $165.4 million in the nine months ended September 30, 2022 gross of withholding taxes compared to none in the nine months ended September 30, 2023. Withholding taxes amounting to $18.3 million were recognized on dividend income under “Income taxes” in the condensed consolidated statement of income in the nine months ended September 30, 2022.