UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission File Number
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Emerging growth company | |
Non-accelerated filer ☐ | Smaller reporting company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Former name, former address and former fiscal year, if changed since last report
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date. The number of shares outstanding of the issuer’s common stock as of November 5, 2021: common stock, no par value
INTERNATIONAL SEAWAYS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DOLLARS IN THOUSANDS
(UNAUDITED)
September 30, 2021 |
| December 31, 2020 | ||||
ASSETS | ||||||
Current Assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Voyage receivables, net of allowance for credit losses of $ | ||||||
including unbilled receivables of $ | | | ||||
Other receivables | | | ||||
Inventories | | | ||||
Prepaid expenses and other current assets | | | ||||
Restricted cash | | | ||||
Total Current Assets | | | ||||
Restricted cash | | | ||||
Vessels and other property, less accumulated depreciation of $ | | | ||||
Vessels construction in progress | | | ||||
Deferred drydock expenditures, net | | | ||||
Operating lease right-of-use assets | | | ||||
Investments in and advances to affiliated companies | | | ||||
Long-term derivative asset | | | ||||
Time charter contracts acquired, net | | | ||||
Other assets | | | ||||
Total Assets | $ | | $ | | ||
LIABILITIES AND EQUITY | ||||||
Current Liabilities: | ||||||
Accounts payable, accrued expenses and other current liabilities | $ | | $ | | ||
Current portion of operating lease liabilities | | | ||||
Current installments of long-term debt | | | ||||
Current portion of derivative liability | | | ||||
Total Current Liabilities | | | ||||
Long-term operating lease liabilities | | | ||||
Long-term debt | | | ||||
Long-term derivative liability | | | ||||
Other liabilities | | | ||||
Total Liabilities | | | ||||
Commitments and contingencies | ||||||
Equity: | ||||||
Capital - | ||||||
shares and | | | ||||
Accumulated deficit | ( | ( | ||||
| | |||||
Accumulated other comprehensive loss | ( | ( | ||||
Total equity before noncontrolling interests | | | ||||
Noncontrolling interests | | | ||||
Total Equity | | | ||||
Total Liabilities and Equity | $ | | $ | |
See notes to condensed consolidated financial statements
1
INTERNATIONAL SEAWAYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Shipping Revenues: | ||||||||||||
Pool revenues, including $ | ||||||||||||
from companies accounted for by the equity method | $ | | $ | | $ | | $ | | ||||
Time and bareboat charter revenues | | | | | ||||||||
Voyage charter revenues | | | | | ||||||||
| | | | |||||||||
Operating Expenses: | ||||||||||||
Voyage expenses | | | | | ||||||||
Vessel expenses | | | | | ||||||||
Charter hire expenses | | | | | ||||||||
Depreciation and amortization | | | | | ||||||||
General and administrative | | | | | ||||||||
Reversal of expected credit losses | ( | ( | ( | ( | ||||||||
Third-party debt modification fees | | | | | ||||||||
Merger and integration related costs | | — | | | ||||||||
(Gain)/loss on disposal of vessels and other property, net of impairments | ( | | ( | | ||||||||
Total operating expenses | | | | | ||||||||
(Loss)/income from vessel operations | ( | | ( | | ||||||||
Equity in income of affiliated companies | | | | | ||||||||
Operating (loss)/income | ( | | ( | | ||||||||
Other (expense)/income | ( | ( | | ( | ||||||||
(Loss)/income before interest expense and income taxes | ( | | ( | | ||||||||
Interest expense | ( | ( | ( | ( | ||||||||
(Loss)/income before income taxes | ( | | ( | | ||||||||
Income tax provision | ( | | ( | ( | ||||||||
Net (loss)/income | ( | | ( | | ||||||||
Less: Net loss attributable to noncontrolling interests | ( | — | ( | | ||||||||
Net (loss)/income attributable to the Company | $ | ( | $ | | $ | ( | $ | | ||||
Weighted Average Number of Common Shares Outstanding: | ||||||||||||
Basic | | | | | ||||||||
Diluted | | | | | ||||||||
Per Share Amounts: | ||||||||||||
Basic net (loss)/income per share | $ | ( | $ | | $ | ( | $ | | ||||
Diluted net (loss)/income per share | $ | ( | $ | | $ | ( | $ | |
See notes to condensed consolidated financial statements
2
INTERNATIONAL SEAWAYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
DOLLARS IN THOUSANDS
(UNAUDITED)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Net (loss)/income | $ | ( | $ | | $ | ( | $ | | ||||
Other comprehensive income/(loss), net of tax: | ||||||||||||
Net change in unrealized losses on cash flow hedges | | | | ( | ||||||||
Defined benefit pension and other postretirement benefit plans: | ||||||||||||
Net change in unrecognized prior service costs | | ( | | | ||||||||
Net change in unrecognized actuarial losses | | ( | | | ||||||||
Other comprehensive income/(loss), net of tax | | | | ( | ||||||||
Comprehensive (loss)/income | ( | | ( | | ||||||||
Less: Comprehensive loss attributable to noncontrolling interests | ( | — | ( | | ||||||||
Comprehensive (loss)/income attributable to the Company | $ | ( | $ | | $ | ( | $ | |
See notes to condensed consolidated financial statements
3
INTERNATIONAL SEAWAYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DOLLARS IN THOUSANDS
(UNAUDITED)
Nine Months Ended September 30, | ||||||
2021 | 2020 | |||||
Cash Flows from Operating Activities: | ||||||
Net (loss)/income | $ | ( | $ | | ||
Items included in net (loss)/income not affecting cash flows: | ||||||
Depreciation and amortization | | | ||||
Loss on write-down of vessels and other assets | | | ||||
Amortization of debt discount and other deferred financing costs | | | ||||
Amortization of time charter hire contracts acquired | | | ||||
Deferred financing costs write-off | | | ||||
Stock compensation | | | ||||
Earnings of affiliated companies | ( | ( | ||||
Merger and integration related costs, noncash | | | ||||
Change in fair value of interest rate collar recorded through earnings | | | ||||
Write-off of registration statement costs | | | ||||
Other – net | | | ||||
Items included in net (loss)/income related to investing and financing activities: | ||||||
Gain on disposal of vessels and other property, net | ( | ( | ||||
Loss on extinguishment of debt | | | ||||
Cash distributions from affiliated companies | | | ||||
Payments for drydocking | ( | ( | ||||
Insurance claims proceeds related to vessel operations | | | ||||
Changes in operating assets and liabilities: | ||||||
(Increase)/decrease in receivables | ( | | ||||
(Decrease)/increase in deferred revenue | ( | | ||||
Net change in inventories, prepaid expenses and other current assets, accounts | ||||||
payable, accrued expenses and other current and long-term liabilities | ( | ( | ||||
Net cash (used in)/provided by operating activities | ( | | ||||
Cash Flows from Investing Activities: | ||||||
Cash acquired, net of equity issuance costs related to merger | | | ||||
Expenditures for vessels and vessel improvements | ( | ( | ||||
Proceeds from disposal of vessels and other property, net | | | ||||
Expenditures for other property | ( | ( | ||||
Investments in and advances to affiliated companies, net | ( | | ||||
Net cash provided by/(used in) investing activities | | ( | ||||
Cash Flows from Financing Activities: | ||||||
Issuance of debt, net of issuance costs | | | ||||
Extinguishment of debt | | ( | ||||
Premium and fees on extinguishment of debt | | ( | ||||
Payments on debt | ( | ( | ||||
Borrowings on revolving credit facilities | | | ||||
Repayments on revolving credit facilities | ( | | ||||
Cash payments on derivatives containing other-than-insignificant financing element | ( | ( | ||||
Repurchase of common stock | | ( | ||||
Cash dividends paid | ( | ( | ||||
Cash paid to tax authority upon vesting of stock-based compensation | ( | ( | ||||
Other – net | | ( | ||||
Net cash used in financing activities | ( | ( | ||||
Net (decrease)/increase in cash, cash equivalents and restricted cash | ( | | ||||
Cash, cash equivalents and restricted cash at beginning of year | | | ||||
Cash, cash equivalents and restricted cash at end of period | $ | | $ | |
See notes to condensed consolidated financial statements
4
INTERNATIONAL SEAWAYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
DOLLARS IN THOUSANDS
(UNAUDITED)
Accumulated | |||||||||||||||
Other | |||||||||||||||
Accumulated | Comprehensive | Noncontrolling | |||||||||||||
Capital | Deficit | Loss | Interests | Total | |||||||||||
For the nine months ended | |||||||||||||||
Balance at January 1, 2021 | $ | | $ | ( | $ | ( | $ | — | $ | | |||||
Issuance of common stock related to merger | | | | | | ||||||||||
Net loss | | ( | | ( | ( | ||||||||||
Other comprehensive income | | | | | | ||||||||||
Dividends declared | ( | | | | ( | ||||||||||
Forfeitures of vested restricted stock awards | ( | | | | ( | ||||||||||
Compensation relating to restricted stock awards | | | | | | ||||||||||
Compensation relating to restricted stock units awards | | | | | | ||||||||||
Compensation relating to stock option awards | | | | | | ||||||||||
Balance at September 30, 2021 | $ | | $ | ( | $ | ( | $ | | $ | | |||||
Balance at January 1, 2020 | $ | | $ | ( | $ | ( | $ | — | $ | | |||||
Net income | | | | | | ||||||||||
Other comprehensive loss | | | ( | | ( | ||||||||||
Dividends declared | ( | | | — | ( | ||||||||||
Forfeitures of vested restricted stock awards | ( | | | | ( | ||||||||||
Compensation relating to restricted stock awards | | | | | | ||||||||||
Compensation relating to restricted stock units awards | | | | | | ||||||||||
Compensation relating to stock option awards | | | | | | ||||||||||
Repurchase of common stock | ( | | | — | ( | ||||||||||
Balance at September 30, 2020 | $ | | $ | ( | $ | ( | $ | — | $ | | |||||
For the three months ended | |||||||||||||||
Balance at July 1, 2021 | $ | | $ | ( | $ | ( | $ | — | $ | | |||||
Issuance of common stock related to merger | | | | | | ||||||||||
Net loss | | ( | | ( | ( | ||||||||||
Other comprehensive income | | | | — | | ||||||||||
Dividends declared | ( | | | — | ( | ||||||||||
Forfeitures of vested restricted stock awards | ( | | | — | ( | ||||||||||
Compensation relating to restricted stock awards | | | | — | | ||||||||||
Compensation relating to restricted stock units awards | | | | — | | ||||||||||
Compensation relating to stock option awards | | | | — | | ||||||||||
Balance at September 30, 2021 | $ | | $ | ( | $ | ( | $ | | $ | | |||||
Balance at July 1, 2020 | $ | | $ | ( | $ | ( | $ | — | $ | | |||||
Net income | | | | — | | ||||||||||
Other comprehensive income | | | | — | | ||||||||||
Dividends declared | ( | | | — | ( | ||||||||||
Forfeitures of vested restricted stock awards | ( | | | — | ( | ||||||||||
Compensation relating to restricted stock awards | | | | — | | ||||||||||
Compensation relating to restricted stock units awards | | | | — | | ||||||||||
Compensation relating to stock option awards | | | | — | | ||||||||||
Balance at September 30, 2020 | $ | | $ | ( | $ | ( | $ | — | $ | |
See notes to condensed consolidated financial statements
5
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 — Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements include the accounts of International Seaways, Inc. (“INSW”), a Marshall Islands corporation, and its wholly owned subsidiaries. As of September 30, 2021, the Company owned and operated a fleet of
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required by generally accepted accounting principles in the United States. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results have been included. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
The condensed consolidated balance sheet as of December 31, 2020 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles in the United States for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
All intercompany balances and transactions within INSW have been eliminated. Investments in 50% or less owned affiliated companies, in which INSW exercises significant influence, are accounted for by the equity method.
Note 2 — Merger Transaction:
Completion of Merger Transaction
On July 16, 2021 (the “Effective Time”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) dated as of March 30, 2021, by and among INSW, Diamond S Shipping Inc., a Republic of the Marshall Islands corporation (“Diamond S”), and Dispatch Transaction Sub, Inc., a Republic of the Marshall Islands corporation and wholly-owned subsidiary of INSW (“Merger Sub”), Merger Sub merged with and into Diamond S (the “Merger”), with Diamond S surviving such merger as a wholly owned subsidiary of INSW. Immediately following the Effective Time, the Company contributed all of the outstanding stock of Diamond S to International Seaways Operating Corporation, a direct wholly-owned subsidiary of the Company.
At the Effective Time, each common share of Diamond S (the “Diamond S Common Shares”) issued and outstanding immediately prior to the Effective Time (excluding Diamond S Common Shares owned by Diamond S, the Company, Merger Sub or any of their respective direct or indirect wholly-owned subsidiaries) was cancelled in exchange for the right to receive
As provided for under the terms of the Merger Agreement, on July 15, 2021, prior to the Effective Time, INSW paid a special dividend to its shareholders of record as of July 14, 2021 in an aggregate amount equal to $
6
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Amended and Restated Debt Agreements
In connection with the Merger, lenders under Diamond S’ existing credit facilities agreed, among other things, to consent to the Merger and waive any event of default that would arise as a result of the Merger.
On May 27, 2021, the Company entered into Amendment and Restatement Agreements with (i) Diamond S, Nordea Bank Abp, New York Branch, as Administrative Agent, and the lenders constituting the Required Lenders under that certain credit agreement of Diamond S first dated as of March 27, 2019 (the “$
At the Effective Time, as a result of the consummation of the Merger, and following the payment by Diamond S of fees required to be paid to the lenders, the Amendment and Restatement Agreements and INSW Guarantees became effective.
Directors and Certain Officers
Pursuant to the Merger Agreement, following the Effective Time, the Company now has a board of directors (the “Board”) consisting of
Effective as of the Effective Time, as contemplated by the Merger Agreement to permit
The three vacancies created by the resignation of Mr. Wallach and the expansion of the Board were filled by the Board with Mr. Craig H. Stevenson, Jr., Mrs. A. Kate Blankenship and Mr. Nadim Qureshi, the
Each of Mr. Stevenson, Mrs. Blankenship and Mr. Qureshi will be compensated in accordance with the director compensation program as described in the Company’s definitive Proxy Statement filed with the SEC on May 5, 2021 (reduced on an appropriate pro rata basis with respect to service in 2021). In connection with joining the Board, Mr. Stevenson, Mrs. Blankenship and Mr. Qureshi entered into customary indemnification agreements with the Company.
On July 14, 2021, in connection with the consummation of the Merger, the Company entered into a letter agreement with Mr. Stevenson. (the “Letter Agreement”). The Letter Agreement provides that during the period from July 14, 2021, until the earlier of six months following such date and the date of termination of such engagement, in addition to serving as a director, Mr. Stevenson will provide services to the Company as special advisor to the Chief Executive Officer of the Company. During the advisory period, Mr. Stevenson will receive a total consulting fee equal to $
Following the Merger, the senior management of INSW remain in their current roles and lead the Company.
7
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Accounting for the Merger
Based on the terms of the Merger Agreement, the Merger was determined to not meet the requirements of a business combination under the guidelines of ASC 805, Business Combinations, and ASU 2017-01, Business Combinations (Topic 805). The Merger consists of acquiring vessels and associated assets and liabilities, which are concentrated in a group of similar identifiable assets, and therefore not considered a business. As a result, the Merger is treated as an asset acquisition, whereby all assets acquired and liabilities assumed are recorded at the cost of the acquisition, including transaction costs, on the basis of their relative fair value.
The following table presents a summary of how the consideration paid by INSW for the net assets acquired was determined:
(Dollars in thousands, except per share data) | Amounts | ||
Diamond S outstanding shares | | ||
Exchange ratio | | ||
INSW common stock issued to Diamond S shareholders | | ||
Replacement unvested restricted stock awards issued to Diamond S employees | | (a) | |
Total INSW common stock issued | | ||
Closing price per share | $ | | |
Total value of INSW common stock and replacement awards issued | $ | | |
Replacement awards allocated to post-combination vesting | $ | ( | (a) |
Consideration transferred | $ | | |
Consideration transferred not related to value of net assets acquired | $ | ( | (b) |
Consideration transferred related to value of net assets acquired | $ | |
(a) | Unvested Diamond S restricted stock awards of |
(b) | ASC 805 requires an evaluation of all consideration transferred by the acquirer to identify the inclusion of any payments that might be related to goods and services that are separate from the combination. Pursuant to the Merger Agreement, Diamond S’ management services agreements with Capital Ship Management Corp (“CSMC”) were terminated and a termination fee of approximately $ |
Supplemental cash flow information for the nine months ended September 30, 2021 associated with the stock-for-stock acquisition of vessels and associated assets and liabilities aggregating
8
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table presents the fair values of the tangible and intangible assets acquired and liabilities assumed as well as the calculation of the excess of the net assets acquired over the consideration transferred by INSW:
(Dollars in thousands) | Fair Value | |
Vessels and other property, net | $ | |
Cash | | |
Voyage receivables, net of allowance for credit losses of $ | | |
Other receivables | | |
Inventories | | |
Prepaid expenses and other current assets | | |
Restricted cash | | |
Advances to Norient pool | | |
Time charter contracts acquired, net | | |
Operating lease right-of-use assets | | |
Other noncurrent assets | | |
Accounts payable, accrued expenses and other current liabilities | ( | |
Operating lease liabilities | ( | |
Current and noncurrent debt | ( | |
Derivative liabilities, net | ( | |
Noncontrolling interests | ( | |
Net asset value acquired | $ | |
Consideration transferred related to value of net assets acquired | $ | |
Excess of net asset value acquired over consideration transferred | $ | |
The million value of the
In accordance with ASC 820, the above market time charter contracts were recorded at their estimated fair value at the time of the Merger taking into consideration future cash flows under the stated time charter rates compared to estimated future market-based charter rates, using a discounted cash flow model.
The operating lease right-of-use asset of $
The fair value of Diamond S’ secured borrowings assumed as part of the Merger was measured using the income approach, which takes into account the future cash flows that a market participant would expect to receive from holding the liability as an asset. The carrying amount of the variable rate borrowings under the secured debt facilities at the time of the Merger approximates the fair value estimated based on current market rates and an appropriate credit spread. The credit spread is estimated as the margin over LIBOR in Diamond S’ recently entered secured debt facilities, which varies from
9
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In connection with the Merger, the Company acquired
Merger and integration related costs represent transactions that are separate from the acquisition of assets and assumption of liabilities in the Merger and are comprised of the following:
(Dollars in thousands) | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | ||||
CSMC termination fee, noncash | $ | | $ | | ||
Accelerated vesting triggered by involuntary termination | | | ||||
Severance | | | ||||
Technical manager transition costs | | | ||||
Other integration costs | | | ||||
Merger and integration related costs | $ | | $ | |
As discussed above, the CSMC termination fee is accounted for separately from the asset acquisition, as part of the consideration transferred, that is not related to the fair value of the acquired net assets.
The Company recognized noncash stock compensation cost of $
The Company incurred severance costs for the former executives of Diamond S totaling $
Note 3 — Significant Accounting Policies:
For a description of all of the Company’s material accounting policies, see Note 2, “Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K. The following is a summary of any changes or updates to the Company’s critical accounting policies for the current period:
10
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Concentration of Credit Risk — The allowance for credit losses is recognized as an allowance or contra-asset and reflects our best estimate of probable losses inherent in the voyage receivables balance. Activity for allowance for credit losses is summarized as follows:
(Dollars in thousands) | Allowance for Credit Losses - | ||
Balance at December 31, 2020 | $ | | |
Reversal of expected credit losses | ( | ||
Write-offs charged against the allowance | ( | ||
Balance at September 30, 2021 | $ | |
We are also exposed to credit losses from off-balance sheet exposures related to guarantees of joint venture debt. See Note 7, “Equity Method Investments,” for more information on these off-balance sheet exposures.
During the three and nine months ended September 30, 2021 and 2020, the Company did not have any individual customers who accounted for 10% or more of its revenues apart from the pools in which it participates. The pools in which the Company participates accounted in aggregate for
Deferred finance charges — Finance charges, excluding original issue discount, incurred in the arrangement and/or amendments resulting in the modification of debt are deferred and amortized to interest expense on either an effective interest method or straight-line basis over the term of the related debt. Unamortized deferred finance charges of $
Vessels construction in progress — Interest costs are capitalized to vessels during the period that vessels are under construction. Interest capitalized aggregated $
Time Charter Contracts Acquired — The Company follows the provisions of ASC 350-20-35, Intangibles-Goodwill and Other. Intangible assets with estimable useful lives are amortized over their estimated useful lives. The Company’s intangible assets consist of charter-in contracts with contractual rates in excess of fair market charter rates that were acquired as part of the Merger (See Note 2, “Merger Transaction”). These assets are amortized on a straight-line basis as a reduction of time charter revenues over the remaining term of such charters. For the three and nine months ended September 30, 2021, amortization of time charter contracts was $
Variable Interest Entities — The Company determines at the inception of each arrangement whether an entity in which we have made an investment or in which we have other variable interests is considered a variable interest entity (“VIE”). We consolidate a VIE when we are the primary beneficiary, i.e., when we have the power to direct activities that most significantly affect the economic performance of the VIE and have the obligation to absorb the majority of its losses or benefits. If we are not the primary beneficiary, we account for the investment or other variable interests in a VIE in accordance with applicable generally accepted accounting principles in the United States.
Periodically, we assess whether any changes in our interest or relationship with the entity have occurred that may affect our determination of whether the entity is a VIE and, if so, whether we are or remain the primary beneficiary. See Note 8, “Variable Interest Entities,” for additional information.
11
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Recently Issued Accounting Standards — In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848),
which provides relief for companies preparing for discontinuation of interest rates such as LIBOR. A contract modification is eligible to apply the optional relief to account for the modifications as a continuation of the existing contracts without additional analysis and consider embedded features to be clearly and closely related to the host contract without reassessment, if all of the following criteria are met: (1) contract references a rate that will be discontinued; (2) modified terms directly replace (or have potential to replace) this reference rate; and (3) changes to any other terms that change (or have potential to change) amount and timing of cash flows must be related to replacement of the reference rate. In addition, this guidance provides relief from certain hedge accounting requirements. Hedge accounting may continue uninterrupted when critical terms change due to reference rate reform. For cash flow hedges, entities can (1) disregard potential discontinuation of a referenced interest rate when assessing whether a hedged forecasted interest payment is probable; (2) continue hedge accounting upon a change in the hedged risk as long as the hedge is still highly effective; (3) assess effectiveness of the hedge relationship in ways that essentially disregards a potential mismatch in the variable rate indices between the hedging instrument and the hedged item; and (4) disregard the requirement that individual hedged transactions must share the same risk exposure for hedges of portfolios of forecasted transactions that reference a rate affected by reference rate reform. Relief provided by this ASU is optional and expires December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (ASC 848) to refine the scope of ASC 848 and to clarify some of its guidance. The Company has determined that its primary exposure to LIBOR is in relation to its floating rate debt facilities and the interest rate derivatives to which it is a party. On November 30, 2020, the benchmark administrator for the U.S. Dollar (“USD”) LIBOR announced a proposal to extend the publication of the most commonly used USD LIBOR settings until June 30, 2023. In light of this proposal, in an interagency statement, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued guidance, strongly encouraging banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021. Only in limited circumstances will it be appropriate for banks to enter into new contracts referencing USD LIBOR after December 31, 2021. The principal objective, and result, of these actions appears to be that legacy USD LIBOR-based instruments (i.e., those maturing after December 31, 2021) may continue to use USD LIBOR as a reference rate through June 30, 2023, without undermining the regulators’ determination that LIBOR should not be available for any other purpose. On January 25, 2021, the International Swaps and Derivatives Association, Inc. (“ISDA”), published new fallback provisions for derivatives linked to key interbank offered rates (“IBOR”) which will be incorporated into all new derivatives contracts that reference ISDA’s standard interest rate derivatives definitions. Such fallback provisions will also be included in legacy non-cleared derivatives if the counterparties have bilaterally agreed to include them or both have adhered to the IBOR fallback protocol. The Company has engaged and will continue to engage in discussions with its lending banks and the counterparties to its interest rate derivative contracts in advance of the June 30, 2023 sunset date for the USD LIBOR reference rate settings used in its agreements to evaluate the Company’s options. Based on information available today, the Company’s current view is that the Secured Overnight Financing Rate (“SOFR”) will be the alternative reference rate that the Company’s LIBOR-based agreements will transition to as the sunset date draws closer.
Note 4 — Earnings per Common Share:
Basic earnings per common share is computed by dividing earnings, after the deduction of dividends and undistributed earnings allocated to participating securities, by the weighted average number of common shares outstanding during the period.
The computation of diluted earnings per share assumes the issuance of common stock for all potentially dilutive stock options and restricted stock units not classified as participating securities. Participating securities are defined by ASC 260, Earnings Per Share, as unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents and are included in the computation of earnings per share pursuant to the two-class method.
Weighted average shares of unvested restricted common stock considered to be participating securities totaled
12
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Reconciliations of the numerator of the basic and diluted earnings per share computations are as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
(Dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||
Net (loss)/income attributable to the Company allocated to: | ||||||||||||
Common Stockholders | $ | ( | $ | | $ | ( | $ | | ||||
Participating securities | | | | | ||||||||
$ | ( | $ | | $ | ( | $ | |
For the three and nine months ended September 30, 2021 earnings per share calculations, there were
Note 5 — Business and Segment Reporting:
The Company has
Information about the Company’s reportable segments as of and for the three and nine months ended September 30, 2021 and 2020 follows:
Crude | Product | |||||||||||
(Dollars in thousands) | Tankers | Carriers | Other | Totals | ||||||||
Three months ended September 30, 2021: | ||||||||||||
Shipping revenues | $ | | $ | | $ | | $ | | ||||
Time charter equivalent revenues | | | | | ||||||||
Depreciation and amortization | | | | | ||||||||
Gain on disposal of vessels and other property, net of impairments | ( | ( | | ( | ||||||||
Adjusted loss from vessel operations | ( | ( | ( | ( | ||||||||
Equity in income of affiliated companies | | | | | ||||||||
Investments in and advances to affiliated companies at September 30, 2021 | | | | | ||||||||
Adjusted total assets at September 30, 2021 | | | | | ||||||||
Three months ended September 30, 2020: | ||||||||||||
Shipping revenues | $ | | $ | | $ | | $ | | ||||
Time charter equivalent revenues | | | | | ||||||||
Depreciation and amortization | | | | | ||||||||
Loss on disposal of vessels and other property, including impairments | | | | | ||||||||
Adjusted income/(loss) from vessel operations | | | ( | | ||||||||
Equity in income of affiliated companies | | | | | ||||||||
Investments in and advances to affiliated companies at September 30, 2020 | | | | | ||||||||
Adjusted total assets at September 30, 2020 | | | | |
13
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Crude | Product | |||||||||||
(Dollars in thousands) | Tankers | Carriers | Other | Totals | ||||||||
Nine months ended September 30, 2021: | ||||||||||||
Shipping revenues | $ | | $ | | $ | — | $ | | ||||
Time charter equivalent revenues | | | — | | ||||||||
Depreciation and amortization | | | | | ||||||||
Loss/(gain) on disposal of vessels and other property, including impairments | | ( | — | ( | ||||||||
Adjusted loss from vessel operations | ( | ( | ( | ( | ||||||||
Equity in income of affiliated companies | | — | — | | ||||||||
Expenditures for vessels and vessel improvements | | | — | | ||||||||
Payments for drydocking | | | — | | ||||||||
Nine months ended September 30, 2020: | ||||||||||||
Shipping revenues | $ | | $ | | $ | — | $ | | ||||
Time charter equivalent revenues | | | — | | ||||||||
Depreciation and amortization | | | | | ||||||||
Loss on disposal of vessels and other property, including impairments | | — | — | | ||||||||
Adjusted income/(loss) from vessel operations | | | ( | | ||||||||
Equity in income of affiliated companies | | — | — | | ||||||||
Expenditures for vessels and vessel improvements | | | — | | ||||||||
Payments for drydockings | | | — | |
Reconciliations of time charter equivalent (“TCE”) revenues of the segments to shipping revenues as reported in the condensed statements of operations follow:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
(Dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||
Time charter equivalent revenues | $ | | $ | | $ | | $ | | ||||
Add: Voyage expenses | | | | | ||||||||
Shipping revenues | $ | | $ | | $ | | $ | |
Consistent with general practice in the shipping industry, the Company uses time charter equivalent revenues, which represent shipping revenues less voyage expenses, as a measure to compare revenue generated from a voyage charter to revenue generated from a time charter. Time charter equivalent revenues, a non-GAAP measure, provide additional meaningful information in conjunction with shipping revenues, the most directly comparable GAAP measure, because it assists Company management in making decisions regarding the deployment and use of its vessels and in evaluating their financial performance.
14
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Reconciliations of adjusted (loss)/income from vessel operations of the segments to (loss)/income before income taxes, as reported in the condensed consolidated statements of operations follow:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
(Dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||
Total adjusted (loss)/income from vessel operations of all segments | $ | ( | $ | | $ | ( | $ | | ||||
General and administrative expenses | ( | ( | ( | ( | ||||||||
Reversal of expected credit losses | | | | | ||||||||
Third-party debt modification fees | ( | | ( | ( | ||||||||
Merger and integration related costs | ( | — | ( | | ||||||||
Gain/(loss) on disposal of vessels and other property, including impairments | | ( | | ( | ||||||||
Consolidated (loss)/income from vessel operations | ( | | ( | | ||||||||
Equity in income of affiliated companies | | | | | ||||||||
Other (expense)/income | ( | ( | | ( | ||||||||
Interest expense | ( | ( | ( | ( | ||||||||
(Loss)/income before income taxes | $ | ( | $ | | $ | ( | $ | |
Reconciliations of total assets of the segments to amounts included in the condensed consolidated balance sheets follow:
(Dollars in thousands) | September 30, 2021 | September 30, 2020 | ||||
Adjusted total assets of all segments | $ | | $ | | ||
Corporate unrestricted cash and cash equivalents | | | ||||
Restricted cash | | | ||||
Other unallocated amounts | | | ||||
Consolidated total assets | $ | | $ | |
Note 6 — Vessels:
Vessel Impairments
During the nine months ended September 30, 2021, the Company gave consideration on a quarterly basis as to whether events or changes in circumstances had occurred since December 31, 2020 that could indicate that the carrying amounts of the vessels in the Company’s fleet may not be recoverable. During the quarter ended September 30, 2021, the Company continued to monitor industry and market factors and its intentions regarding its vessels to determine if indicators of impairment were present and determined that
Vessel Acquisitions and Construction Commitments
On March 11, 2021, the Company entered into agreements to construct
15
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
for through a combination of long-term financing, cash on hand and availability under the Company’s $
See Note 2, “Merger Transaction” for a description of the acquisition of
Vessel sales
During the nine months ended September 30, 2021, the Company recognized a net aggregate gain of $
Note 7 — Equity Method Investments:
Investments in affiliated companies include joint ventures accounted for using the equity method. As of September 30, 2021, the Company had a
The FSO Joint Venture is a party to a number of contracts: (a) the FSO Joint Venture is an obligor pursuant to a guarantee facility agreement dated as of July 14, 2017, by and among, the FSO Joint Venture, ING Belgium NV/SA, as issuing bank, and Euronav and INSW, as guarantors (the “Guarantee Facility”); (b) the FSO Joint Venture is party to
The FSO Joint Venture drew down on a $
Investments in and advances to affiliated companies as reflected in the accompanying condensed consolidated balance sheet as of September 30, 2021 consisted of: FSO Joint Venture of $
16
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A condensed summary of the results of operations of the joint ventures follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
(Dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||
Shipping revenues | $ | | $ | | $ | | $ | | ||||
Ship operating expenses | ( | ( | ( | ( | ||||||||
Income from vessel operations | | | | | ||||||||
Other (expense)/income | ( | ( | ( | | ||||||||
Interest expense | ( | ( | ( | ( | ||||||||
Income tax provision | ( | ( | ( | ( | ||||||||
Net income | $ | | $ | | $ | | $ | |
Note 8 — Variable Interest Entities (“VIEs”):
Consolidated VIEs
We consolidate VIEs in which we hold a variable interest and are the primary beneficiary. In connection with the Merger, the Company acquired
Diamond Anglo Ship Management Pte. Ltd. — Diamond Anglo Ship Management Pte. Ltd. (“DASM”) was formed in January 2018 by Diamond S and Anglo Eastern Investment Holdings Ltd. (“AE Holdings”), a third party, to provide ship management services to some of Diamond S’ vessels. DASM is owned
NT Suez Holdco LLC — The NT Suez Holdco LLC (“NT Suez”) joint venture was formed in September 2014 to purchase
Unconsolidated VIEs
As of September 30, 2021,
The following table presents the carrying amounts of assets and liabilities in the condensed consolidated balance sheet related to the unconsolidated VIEs as of September 30, 2021:
(Dollars in thousands) | Condensed | |||||
Investments in Affiliated Companies | $ | |
17
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In accordance with accounting guidance, the Company evaluated its maximum exposure to loss related to these unconsolidated VIEs by assuming a complete loss of the Company’s investment in these VIEs. The table below compares the Company’s liability in the condensed consolidated balance sheet to the maximum exposure to loss at September 30, 2021:
(Dollars in thousands) | Condensed | Maximum Exposure to | ||||
Other Liabilities | $ | – | $ | |
In addition, as of September 30, 2021, the Company had approximately $
Note 9 — Fair Value of Financial Instruments, Derivatives and Fair Value Disclosures:
The estimated fair values of the Company’s financial instruments, other than derivatives that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows:
(Dollars in thousands) | Fair Value | Level 1 | Level 2 | ||||||
September 30, 2021: | |||||||||
Cash and cash equivalents (1) | $ | | $ | | $ | | |||
$ | ( | | ( | ||||||
Sinosure Credit Facility | ( | | ( | ||||||
( | ( | | |||||||
$ | ( | | ( | ||||||
$ | ( | | ( | ||||||
$ | ( | | ( | ||||||
$ | ( | | ( | ||||||
$ | ( | | ( | ||||||
Macquarie Credit Facility | ( | | ( | ||||||
December 31, 2020: | |||||||||
Cash and cash equivalents (1) | $ | | $ | | $ | | |||
$ | ( | | ( | ||||||
Sinosure Credit Facility | ( | | ( | ||||||
( | ( | |
(1) | Includes restricted cash of $ |
Derivatives
The Company uses interest rate collars and swaps for the management of interest rate risk exposure associated with changes in LIBOR interest rate payments due on its credit facilities. In connection with its entry into the $
18
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
During April 2020, the Company entered into an interest rate swap agreement with a major financial institution covering a notional amount of $
The Company is also party to a floating-to-fixed interest rate swap agreement with a major financial institution covering the balance outstanding under the Sinosure Credit Facility that effectively converts the Company’s interest rate exposure under the Sinosure Credit Facility from a floating rate based on three-month LIBOR to a fixed rate. The interest rate swap agreement, which contains no leverage features, is designated and qualifies as a cash flow hedge. In July 2020, the Company extended the maturity date of the interest rate swap from
In connection with the Merger, the Company assumed the interest rate swap agreements associated with the $
19
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Derivatives are recorded on a net basis by counterparty when a legal right of offset exists. The Company had the following amounts recorded on a gross basis by transaction in the accompanying unaudited condensed consolidated balance sheets related to the Company’s use of derivatives as of September 30, 2021 and December 31, 2020:
(Dollars in thousands) | Long-term derivative | Current portion of derivative liabilities | Long-term derivative | Accounts payable, accrued expenses and other current liabilities | Other | ||||||||||
September 30, 2021: | |||||||||||||||
Derivatives designated as cash flow hedges: | |||||||||||||||
Interest rate swaps | $ | | $ | ( | $ | ( | $ | | $ | | |||||
Other-than-insignificant financing element of derivatives: | |||||||||||||||
Interest rate swaps(1) | | | | ( | ( | ||||||||||
Total | $ | | $ | ( | $ | ( | $ | ( | $ | ( | |||||
December 31, 2020: | |||||||||||||||
Derivatives designated as cash flow hedges: | |||||||||||||||
Interest rate swaps | $ | | $ | ( | $ | ( | $ | | $ | | |||||
Other-than-insignificant financing element of derivatives: | |||||||||||||||
Interest rate swaps(1) | | | | ( | ( | ||||||||||
Total | $ | | $ | ( | $ | ( | $ | ( | $ | ( |
(1) | Represents the financing element of the hybrid instrument discussed above, which is recorded at amortized cost. |
The following tables present information with respect to gains and losses on derivative positions reflected in the condensed consolidated statements of operations or in the condensed consolidated statements of comprehensive income.
The effect of cash flow hedging relationships recognized in other comprehensive income/(loss) excluding amounts reclassified from accumulated other comprehensive loss, including hedges of equity method investees, for the three and nine months ended September 30, 2021 and 2020 follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
(Dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||
Derivatives designated as cash flow hedges: | ||||||||||||
Interest rate swaps | $ | | $ | ( | $ | | $ | ( | ||||
Other-than-insignificant financing element of derivatives: | ||||||||||||
Interest rate swaps | ( | ( | ( | ( | ||||||||
Total other comprehensive loss | $ | | $ | ( | $ | | $ | ( |
20
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The effect of cash flow hedging relationships on the condensed consolidated statement of operations is presented excluding hedges of equity method investees. The effect of the Company’s cash flow hedging relationships on the condensed consolidated statement of operations for the three and nine months ended September 30, 2021 and 2020 follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
(Dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||
Derivatives designated as cash flow hedges: | ||||||||||||
Interest rate swaps | $ | | $ | | $ | | $ | | ||||
Derivatives not designated as cash flow hedges: | ||||||||||||
Interest rate collar | — | — | | | ||||||||
Other-than-insignificant financing element of derivatives: | ||||||||||||
Interest rate swaps | | | | | ||||||||
Total interest expense | $ | | $ | | $ | | $ | |
See Note 13, “Accumulated Other Comprehensive Loss,” for disclosures relating to the impact of derivative instruments on accumulated other comprehensive loss.
The following table presents the fair values, which are pre-tax, for assets and liabilities measured on a recurring basis (excluding investments in affiliated companies):
(Dollars in thousands) | Fair Value | Level 2 |
| |||||||
Assets/(Liabilities) at September 30, 2021: | ||||||||||
Derivative Assets (interest rate swaps) | $ | | $ | | (1) | |||||
Derivative Liabilities (interest rate swaps) | ( | ( | (1) | |||||||
Assets/(Liabilities) at December 31, 2020: | ||||||||||
Derivative Assets (interest rate swaps) | $ | | $ | | (1) | |||||
Derivative Liabilities (interest rate swaps) | ( | ( | (1) |
(1) | For the interest rate swaps, fair values are derived using valuation models that utilize the income valuation approach. These valuation models take into account contract terms such as maturity, as well as other inputs such as interest rate yield curves and creditworthiness of the counterparty and the Company. |
21
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table summarizes the fair values of assets for which an impairment charge was recognized for the nine months ended September 30, 2021:
(Dollars in thousands) | Fair Value | Level 2 | Total Impairment | ||||||
Assets: | |||||||||
Crude Tankers - Vessels held for sale(1)(2) | $ | | $ | | $ | ( |
(1) | Pre-tax impairment charges of $ |
(2) | Fair value measurement of $ |
Note 10 — Debt:
Debt consists of the following:
(Dollars in thousands) | September 30, 2021 |
| December 31, 2020 | |||
$ | $ | | $ | | ||
Sinosure Credit Facility, due 2027-2028, net of unamortized deferred finance costs of $ | | | ||||
$ | | | ||||
$ | | | ||||
$ | | | ||||
$ | | | ||||
$ | | | ||||
Macquarie Credit Facility, due 2025, net of unamortized deferred finance costs of $ | | | ||||
| | |||||
| | |||||
Less current portion | ( | ( | ||||
Long-term portion | $ | | $ | |
Capitalized terms used hereafter have the meaning given in these condensed consolidated financial statements or in the respective transaction documents referred to below, including subsequent amendments thereto.
Debt Agreements Assumed in the Merger
As described above in Note 2, “Merger Transaction,” in connection with the Merger, lenders under Diamond S’ existing credit facilities agreed, among other things, to consent to the Merger and waive any event of default that would arise as a result of the Merger. At the Effective Time, as a result of the consummation of the Merger, and following the payment by Diamond S of fees required to be paid to the lenders, the Amendment and Restatement Agreements and INSW’s Guarantees of Diamond S’ obligations under these agreements became effective.
22
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Amended and Restated $
The Amended and Restated $
The sale and delivery of
The Company also assumed a $
The $
The Company is in the process of dissolving NT Suez and taking full ownership of
Macquarie Credit Facility
On September 30, 2021, the Company, Seaways Shipping II Corporation, a wholly owned subsidiary of the Company, and Seaways Shipping II Corporation’s three subsidiaries (the “Borrowers”) executed a credit agreement for a $
23
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
with their respective earnings, insurances and certain other assets, as well as certain additional assets of the Company’s subsidiaries. The facility bears interest at LIBOR plus a margin of
$
In January 2020, the Company, International Seaways Operating Corporation and certain of their subsidiaries entered into a credit agreement comprising $
Sinosure Credit Facility Refinancing
On October 26, 2021, the Company entered into lease financing arrangements with Ocean Yield ASA for the sale and leaseback of the
Debt Covenants
The $
Under the Sinosure Credit Facility, the Obligors (as defined in the Sinosure Credit Facility) were required to comply with various collateral maintenance and financial covenants, including with respect to:
(i) | minimum security coverage, which shall not be less than |
24
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ii) | maximum consolidated leverage ratio, which shall not be greater than |
(iii) | minimum consolidated liquidity, under which unrestricted consolidated cash and cash equivalents shall be no less than $ |
(iv) | consolidated interest expense coverage ratio, which shall not be less than |
The Company was not in compliance with the consolidated interest expense coverage ratio financial covenant contained in the Company’s debt facilities for the Test Date ending on September 30, 2021. As described above, on November 8, 2021, the Company completed alternative financing on the
The
The Company’s credit facilities also require it to comply with a number of covenants, including the delivery of quarterly and annual financial statements, budgets and annual projections; maintaining required insurances; compliance with laws (including environmental); compliance with the Employee Retirement Income Security Act of 1974 ("ERISA"); maintenance of flag and class of the collateral vessels; restrictions on consolidations, mergers or sales of assets; limitations on liens; limitations on issuance of certain equity interests; limitations on transactions with affiliates; and other customary covenants and related provisions.
Interest Expense
Total interest expense before the impact of capitalized interest, including amortization of issuance and deferred financing costs (for additional information related to deferred financing costs see Note 3, “Significant Accounting Policies”), commitment, administrative and other fees for all of the Company’s debt facilities for the three and nine months ended September 30, 2021 was $
Debt Modifications, Repurchases and Extinguishments
During the first quarter of 2020, the Company incurred debt issuance costs aggregating $
25
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
proceeds. In addition, in connection with the repurchases and extinguishment of the Company’s debt facilities, the Company recognized aggregate net losses of $
Note 11 — Taxes:
The Company derives substantially all of its gross income from the use and operation of vessels in international commerce. The Company’s entities that own and operate vessels are primarily domiciled in the Marshall Islands, which do not impose income tax on shipping operations.
A substantial portion of income earned by the Company is not subject to income tax. With respect to subsidiaries not subject to income tax in their respective countries of incorporation, no deferred taxes are provided for the temporary differences in the bases of the underlying assets and liabilities for tax and accounting purposes.
The Company qualifies for an exemption from U.S. federal income taxes under Section 883 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and U.S. Treasury Department regulations for the 2021 calendar year, as less than 50 percent of the total value of the Company’s stock was held by one or more shareholders who own 5% or more of the Company’s stock for more than half of the days of 2021.
The Company also has or had subsidiaries in various jurisdictions that perform administrative, commercial or technical management functions. These subsidiaries are subject to income tax based on the services performed in countries in which their offices are located; current and deferred income taxes are recorded accordingly.
In addition to the Company’s shipping income and pursuant to certain agreements, Diamond S has historically performed commercial, technical and administrative management services for its vessel owning subsidiaries. These management services, which are performed by Diamond S Management LLC, a Marshall Islands entity (“DSMM”), will be phased out by the end of 2021 as vessels are delivered into third party commercial pools and technical managers. DSMM elected to be taxed as a corporation for United States federal income tax purposes. As such, DSMM is subject to United States federal income tax (imposed a
The Company has two entities that were established in Singapore. The income for these two entities is taxable at the prevailing Singapore Corporate income tax rate, which is currently
The Marshall Islands and Liberia impose tonnage taxes, which are assessed on the tonnage of certain of the Company’s vessels. These tonnage taxes are included in vessel expenses in the accompanying condensed consolidated statements of operations.
Note 12 — Capital Stock and Stock Compensation:
The Company accounts for stock-based compensation expense in accordance with the fair value method required by ASC 718, Compensation – Stock Compensation. Such fair value method requires share-based payment transactions to be measured according to the fair value of the equity instruments issued.
26
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Issuance of Shares upon Merger
At the Effective Time, the Diamond S Common Shares issued and outstanding immediately prior to the Effective Time (excluding Diamond S Common Shares owned by Diamond S, the Company, Merger Sub or any of their respective direct or indirect wholly-owned subsidiaries) were cancelled in exchange for
Restricted Common Stock
The Company awarded a total of
Pursuant to the Merger, the Company assumed certain equity awards granted under the Diamond S Shipping Inc. 2019 Equity and Incentive Compensation Plan, amended as of March 27, 2019 (the “Diamond S Plan”). After giving effect to the exchange ratio and appropriate adjustments to reflect the consummation of the Merger, outstanding awards of
Effective as of the Effective Time, as contemplated by the Merger Agreement in order to permit
Restricted Stock Units and Stock Options
During the nine months ended September 30, 2021, the Company granted
During the nine months ended September 30, 2021, the Company awarded
27
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
performance conditions was determined to be $
During the nine months ended September 30, 2021, the Company awarded to certain of its senior officers and employees an aggregate of
Dividends
On
See Note 2, “Merger Transaction” for a description of the special dividend aggregating $
Share Repurchases
In connection with the settlement of vested restricted stock units, the Company repurchased
On August 4, 2020, the Company’s Board of Directors approved a resolution reauthorizing the Company’s $
28
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 13 — Accumulated Other Comprehensive Loss:
The components of accumulated other comprehensive loss, net of related taxes, in the condensed consolidated balance sheets follow:
(Dollars in thousands) | September 30, 2021 |
| December 31, 2020 | |||
Unrealized losses on derivative instruments | $ | ( | $ | ( | ||
Items not yet recognized as a component of net periodic benefit cost (pension plans) | ( | ( | ||||
| $ | ( | $ | ( |
The changes in the balances of each component of accumulated other comprehensive loss, net of related taxes, during the three and nine months ended September 30, 2021 and 2020 follow:
(Dollars in thousands) | Unrealized losses on cash flow hedges | Items not yet recognized as a component of net periodic benefit cost | Total | ||||||
Balance as of June 30, 2021 | $ | ( | $ | ( | $ | ( | |||
Current period change, excluding amounts reclassified | |||||||||
from accumulated other comprehensive loss | | | | ||||||
Amounts reclassified from accumulated other comprehensive loss | | | | ||||||
Balance as of September 30, 2021 | $ | ( | $ | ( | $ | ( | |||
Balance as of June 30, 2020 | $ | ( | $ | ( | $ | ( | |||
Current period change, excluding amounts reclassified | |||||||||
from accumulated other comprehensive loss | ( | ( | ( | ||||||
Amounts reclassified from accumulated other comprehensive loss | | | | ||||||
Balance as of September 30, 2020 | $ | ( | $ | ( | $ | ( |
(Dollars in thousands) | Unrealized losses on cash flow hedges | Items not yet recognized as a component of net periodic benefit cost | Total | ||||||
Balance as of December 31, 2020 | $ | ( | $ | ( | $ | ( | |||
Current period change, excluding amounts reclassified | |||||||||
from accumulated other comprehensive loss | | | | ||||||
Amounts reclassified from accumulated other comprehensive loss | | — | | ||||||
Balance as of September 30, 2021 | $ | ( | $ | ( | $ | ( | |||
Balance as of December 31, 2019 | $ | ( | $ | ( | $ | ( | |||
Current period change, excluding amounts reclassified | |||||||||
from accumulated other comprehensive loss | ( | | ( | ||||||
Amounts reclassified from accumulated other comprehensive loss | | — | | ||||||
Balance as of September 30, 2020 | $ | ( | $ | ( | $ | ( |
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INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Amounts reclassified out of each component of accumulated other comprehensive loss follow:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
(Dollars in thousands) | 2021 | 2020 | 2021 | 2020 | Statement of Operations | |||||||||
Reclassifications of losses on cash flow hedges: | ||||||||||||||
Interest rate swaps entered into by the Company's | Equity in income of | |||||||||||||
equity method joint venture investees | $ | | $ | | $ | | $ | | affiliated companies | |||||
Interest rate swaps entered into by the Company's subsidiaries | | | | | Interest expense | |||||||||
Reclassifications of losses on derivatives subsequent to | ||||||||||||||
discontinuation of hedge accounting | ||||||||||||||
Interest rate collar entered into by the Company's subsidiaries | | | | | Interest expense | |||||||||
Reclassifications of losses on other-than-insignificant | ||||||||||||||
financing element of derivatives: | ||||||||||||||
Interest rate swaps entered into by the Company's subsidiaries | | | | | Interest expense | |||||||||
Total before and net of tax | $ | | $ | | $ | | $ | |
At September 30, 2021, the Company expects that it will reclassify $
See Note 9, “Fair Value of Financial Instruments, Derivatives and Fair Value Disclosures,” for additional disclosures relating to derivative instruments.
Note 14 — Revenue:
Revenue Recognition
The majority of the Company's contracts for pool revenues, time and bareboat charter revenues, and voyage charter revenues are accounted for as lease revenue under ASC 842. The Company's contracts with pools are short term which are cancellable with up to
Lightering services provided by the Company's Crude Tanker Lightering Business, and voyage charter contracts that do not meet the definition of a lease are accounted for as service revenues under ASC 606. In accordance with ASC 606, revenue is recognized when a
30
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
customer obtains control of or consumes promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services.
The following table presents the Company’s revenues from leases accounted for under ASC 842 and revenues from services accounted for under ASC 606 for the three and nine months ended September 30, 2021 and 2020:
Crude | Product | ||||||||
(Dollars in thousands) | Tankers | Carriers | Totals | ||||||
Three months ended September 30, 2021: | |||||||||
Revenues from leases | |||||||||
Pool revenues | $ | | $ | | $ | | |||
Time and bareboat charter revenues | | | | ||||||
Voyage charter revenues from non-variable lease payments | | | | ||||||
Voyage charter revenues from variable lease payments | | | | ||||||
Revenues from services | |||||||||
Voyage charter revenues from lightering services | | — | | ||||||
Total shipping revenues | $ | | $ | | $ | | |||
Three months ended September 30, 2020: | |||||||||
Revenues from leases | |||||||||
Pool revenues | $ | | $ | | $ | | |||
Time and bareboat charter revenues | | — | | ||||||
Voyage charter revenues from non-variable lease payments | | | | ||||||
Voyage charter revenues from variable lease payments | | | | ||||||
Revenues from services | |||||||||
Voyage charter revenues from lightering services | | — | | ||||||
Total shipping revenues | $ | | $ | | $ | |
Crude | Product | ||||||||
(Dollars in thousands) | Tankers | Carriers | Totals | ||||||
Nine months ended September 30, 2021: | |||||||||
Revenues from leases | |||||||||
Pool revenues | $ | | $ | | $ | | |||
Time and bareboat charter revenues | | | | ||||||
Voyage charter revenues from non-variable lease payments(1) | | | | ||||||
Voyage charter revenues from variable lease payments | | | | ||||||
Revenues from services | |||||||||
Voyage charter revenues from lightering services | | — | | ||||||
Total shipping revenues | $ | | $ | | $ | | |||
Nine months ended September 30, 2020: | |||||||||
Revenues from leases | |||||||||
Pool revenues | $ | | $ | | $ | | |||
Time and bareboat charter revenues | | — | | ||||||
Voyage charter revenues from non-variable lease payments(1) | | | | ||||||
Voyage charter revenues from variable lease payments | | | | ||||||
Revenues from services | |||||||||
Voyage charter revenues from lightering services | | — | | ||||||
Total shipping revenues | $ | | $ | | $ | |
(1) | Includes $ |
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INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Contract Balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers, and significant changes in contract assets and liabilities balances, associated with revenue from services accounted for under ASC 606. Balances related to revenues from leases accounted for under ASC 842 are excluded from the table below.
(Dollars in thousands) | Voyage receivables - Billed receivables | Contract assets (Unbilled voyage receivables) | Contract liabilities (Deferred revenues and off hires) | ||||||
Opening balance as of January 1, 2021 | $ | | $ | | $ | | |||
Closing balance as of September 30, 2021 | | | |
We receive payments from customers based on the schedule established in our contracts. Contract assets relate to our conditional right to consideration for our completed performance obligations under contracts and decrease when the right to consideration becomes unconditional or payments are received. Contract liabilities include payments received in advance of performance under contracts and are recognized when performance under the respective contract has been completed. Deferred revenues allocated to unsatisfied performance obligations will be recognized over time as the services are performed.
Performance Obligations
All of the Company’s performance obligations, and associated revenue, are generally transferred to customers over time. The expected duration of services is less than one year. Adjustments in revenues from performance obligations satisfied in previous periods recognized were
Costs to Obtain or Fulfill a Contract
As of September 30, 2021, there were
Note 15 — Leases:
As permitted under ASC 842, the Company has elected not to apply the provisions of ASC 842 to short term leases, which include: (i) tanker vessels chartered-in where the duration of the charter was one year or less at inception; (ii) workboats employed in the Crude Tankers Lightering business which have a lease term of 12-months or less; and (iii) short term leases of office and other space.
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INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Contracts under which the Company is a Lessee
The Company currently has
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
(Dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||
Operating lease cost | ||||||||||||
Vessel assets | ||||||||||||
Charter hire expenses | $ | | $ | | $ | | $ | | ||||
Office and other space | ||||||||||||
General and administrative | | | | | ||||||||
Voyage expenses | | | | | ||||||||
Short-term lease cost | ||||||||||||
Vessel assets (1) | ||||||||||||
Charter hire expenses | | | | | ||||||||
Office and other space | ||||||||||||
General and administrative | — | — | | | ||||||||
Total lease cost | $ | | $ | | $ | | $ | |
(1) | Excludes vessels spot chartered-in under operating leases and employed in the Crude Tankers Lightering business for periods of less than |
Supplemental cash flow information related to leases was as follows:
Nine Months Ended September 30, | ||||||
(Dollars in thousands) | 2021 | 2020 | ||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||
Operating cash flows used for operating leases | $ | | $ | |
Supplemental balance sheet information related to leases was as follows:
(Dollars in thousands) | September 30, 2021 | December 31, 2020 | ||||
Operating lease right-of-use assets | $ | | $ | | ||
Current portion of operating lease liabilities | $ | ( | $ | ( | ||
Long-term operating lease liabilities | ( | ( | ||||
Total operating lease liabilities | $ | ( | $ | ( | ||
Weighted average remaining lease term - operating leases | ||||||
Weighted average discount rate - operating leases |
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INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Charters-in of vessel assets:
As of September 30, 2021, INSW had commitments to charter in
Payments of lease liabilities and related number of operating days under these operating leases as of September 30, 2021 are as follows:
Bareboat Charters-in:
(Dollars in thousands) | Amount | Operating Days | |||
2021 | $ | | |||
2022 | | ||||
2023 | | ||||
Total lease payments | | ||||
less imputed interest | ( | ||||
Total operating lease liabilities | $ | |
Time Charters-in:
(Dollars in thousands) | Amount | Operating Days | |||
2021 | $ | | |||
2022 | | ||||
Total lease payments (lease component only) | | ||||
less imputed interest | ( | ||||
Total operating lease liabilities | $ | |
2. Office and other space:
The Company has operating leases for offices and lightering workboat dock space. These leases have expiry dates ranging from July 2023 to May 2033. The lease for the workboat dock space contains renewal options executable by the Company for periods through December 2027. We have determined that the options through December 2024 are reasonably certain to be executed by the Company, and accordingly the options are included in the lease liability and right of use asset calculations for such lease.
Payments of lease liabilities for office and other space as of September 30, 2021 are as follows:
(Dollars in thousands) | Amount | ||
2021 | $ | | |
2022 | | ||
2023 | | ||
2024 | | ||
2025 | | ||
Thereafter | | ||
Total lease payments | | ||
less imputed interest | ( | ||
Total operating lease liabilities | $ | |
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INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Contracts under which the Company is a Lessor
See Note 14, “Revenue,” for discussion on the Company’s revenues from operating leases accounted for under ASC 842.
The future minimum revenues, before reduction for brokerage commissions, expected to be received on non-cancelable time charters for
(Dollars in thousands) | Amount | Revenue Days | |||
2021 | $ | | |||
2022 | | ||||
2023 | | ||||
Future minimum revenues | $ | |
Future minimum revenues do not include (i) the Company’s share of time charters entered into by the pools in which it participates, and (ii) the Company’s share of time charters entered into by the joint ventures, which the Company accounts for under the equity method. Revenues from a time charter are not generally received when a vessel is off-hire, including time required for normal periodic maintenance of the vessel. In arriving at the minimum future charter revenues, an estimated time off-hire to perform periodic maintenance on each vessel has been deducted, although there is no assurance that such estimate will be reflective of the actual off-hire in the future.
Note 16 — Contingencies:
INSW’s policy for recording legal costs related to contingencies is to expense such legal costs as incurred.
Multi-Employer Plans
The Merchant Navy Officers Pension Fund (“MNOPF”) is a multi-employer defined benefit pension plan covering British crew members that served as officers on board INSW’s vessels (as well as vessels of other owners). The trustees of the plan have indicated that, under the terms of the High Court ruling in 2005, which established the liability of past employers to fund the deficit on the Post 1978 section of MNOPF, calls for further contributions may be required if additional actuarial deficits arise or if other employers liable for contributions are not able to pay their share in the future. As the amount of any such assessment cannot be reasonably estimated,
The Merchant Navy Ratings Pension Fund (“MNRPF”) is a multi-employer defined benefit pension plan covering British crew members that served as ratings (seamen) on board INSW’s vessels (as well as vessels of other owners) more than
Spin-Off Related Agreements
On November 30, 2016, INSW was spun off from OSG as a separate publicly traded company. In connection with the spin-off, INSW and OSG entered into several agreements, including a separation and distribution agreement, an employee matters agreement and a transition services agreement. While most of the obligations under those agreements were subsequently fulfilled, certain provisions (including in particular mutual indemnification provisions under the separation and distribution agreement and the employee matters agreement) continue in force.
35
INTERNATIONAL SEAWAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Legal Proceedings Arising in the Ordinary Course of Business
The Company is a party, as plaintiff or defendant, to various suits in the ordinary course of business for monetary relief arising principally from personal injuries, wrongful death, collision or other casualty and to claims arising under charter parties and other contract disputes. A substantial majority of such personal injury, wrongful death, collision or other casualty claims against the Company are covered by insurance (subject to deductibles not material in amount). Each of the claims involves an amount which, in the opinion of management, should not be material to the Company’s financial position, results of operations and cash flows.
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INTERNATIONAL SEAWAYS, INC.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward looking statements. Such forward-looking statements represent the Company’s reasonable expectation with respect to future events or circumstances based on various factors and are subject to various risks and uncertainties and assumptions relating to the Company’s operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Accordingly, there are or will be important factors, many of which are beyond the control of the Company, that could cause the Company’s actual results to differ materially from those indicated in these statements. Undue reliance should not be placed on any forward-looking statements and consideration should be given to the following factors when reviewing any such statement. Such factors include, but are not limited to:
● | the possibility that costs or difficulties related to the integration of INSW’s and Diamond S’ operations will be greater than expected; |
● | the risk that stockholder litigation in connection with the Merger may result in significant costs of defense, indemnification and liability; |
● | the risk that the anticipated tax treatment of the Merger is not obtained; |
● | transaction costs related to the Merger; |
● | the highly cyclical nature of INSW’s industry; |
● | fluctuations in the market value of vessels; |
● | declines in charter rates, including spot charter rates or other market deterioration; |
● | an increase in the supply of vessels without a commensurate increase in demand; |
● | the impact of adverse weather and natural disasters; |
● | the adequacy of INSW’s insurance to cover its losses, including in connection with maritime accidents or spill events; |
● | constraints on capital availability; |
● | changing economic, political and governmental conditions in the United States and/or abroad and general conditions in the oil and natural gas industry; |
● | the impact of changes in fuel prices; |
● | acts of piracy on ocean-going vessels; |
● | terrorist attacks and international hostilities and instability; |
● | the impact of public health threats and outbreaks of other highly communicable diseases, including the effects of the current COVID-19 pandemic; |
● | the effect of the Company’s indebtedness on its ability to finance operations, pursue desirable business opportunities and successfully run its business in the future; |
● | the Company’s ability to generate sufficient cash to service its indebtedness and to comply with debt covenants; |
● | the Company’s ability to make capital expenditures to expand the number of vessels in its fleet, and to maintain all of its vessels and to comply with existing and new regulatory standards; |
● | the availability and cost of third-party service providers for technical and commercial management of the Company’s fleet; |
● | fluctuations in the contributions of the Company’s joint ventures to its profits and losses; |
● | the Company’s ability to renew its time charters when they expire or to enter into new time charters; |
● | termination or change in the nature of the Company’s relationship with any of the commercial pools in which it participates and the ability of such commercial pools to pursue a profitable chartering strategy; |
● | competition within the Company’s industry and INSW’s ability to compete effectively for charters with companies with greater resources; |
● | the loss of a large customer or significant business relationship; |
● | the Company’s ability to realize benefits from its past acquisitions or acquisitions or other strategic transactions it may make in the future; |
● | increasing operating costs and capital expenses as the Company’s vessels age, including increases due to limited shipbuilder warranties or the consolidation of suppliers; |
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INTERNATIONAL SEAWAYS, INC.
● | the Company’s ability to replace its operating leases on favorable terms, or at all; |
● | changes in credit risk with respect to the Company’s counterparties on contracts; |
● | the failure of contract counterparties to meet their obligations; |
● | the impact of the discontinuance of LIBOR on interest rates of our debt that reference LIBOR; |
● | the Company’s ability to attract, retain and motivate key employees; |
● | work stoppages or other labor disruptions by employees of INSW or other companies in related industries; |
● | unexpected drydock costs; |
● | the potential for technological innovation to reduce the value of the Company’s vessels and charter income derived therefrom; |
● | the impact of an interruption in or failure of the Company’s information technology and communication systems upon the Company’s ability to operate; |
● | seasonal variations in INSW’s revenues; |
● | government requisition of the Company’s vessels during a period of war or emergency; |
● | the Company’s compliance with complex laws, regulations and in particular, environmental laws and regulations, including those relating to ballast water treatment and the emission of greenhouse gases and air contaminants, including from marine engines; |
● | any non-compliance with the U.S. Foreign Corrupt Practices Act of 1977 or other applicable regulations relating to bribery or corruption; |
● | the impact of litigation, government inquiries and investigations; |
● | governmental claims against the Company; |
● | the arrest of INSW’s vessels by maritime claimants; |
● | changes in laws, including governing tax laws, treaties or regulations, including those relating to environmental and security matters; and |
● | changes in worldwide trading conditions, including the impact of tariffs, trade sanctions, boycotts and other restrictions on trade. |
The Company assumes no obligation to update or revise any forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q and written and oral forward-looking statements attributable to the Company or its representatives after the date of this Quarterly Report on Form 10-Q are qualified in their entirety by the cautionary statement contained in this paragraph and in other reports hereafter filed by the Company with the Securities and Exchange Commission.
INTRODUCTION
This Management’s Discussion and Analysis, which should be read in conjunction with our accompanying condensed consolidated financial statements, provides a discussion and analysis of our business, current developments, financial condition, cash flows and results of operations. It is organized as follows:
● | General. This section provides a general description of our business, which we believe is important in understanding the results of our operations, financial condition and potential future trends. |
● | Operations & Oil Tanker Markets. This section provides an overview of industry operations and dynamics that have an impact on the Company’s financial position and results of operations. |
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INTERNATIONAL SEAWAYS, INC.
● | Critical Accounting Estimates and Policies. This section identifies any updates to those accounting policies that are considered important to our results of operations and financial condition, require significant judgment and involve significant management estimates. |
● | Results from Vessel Operations. This section provides an analysis of our results of operations presented on a business segment basis. In addition, a brief description of significant transactions and other items that affect the comparability of the results is provided, if applicable. |
● | Liquidity and Sources of Capital. This section provides an analysis of our cash flows, outstanding debt and commitments. Included in the analysis of our outstanding debt is a discussion of the amount of financial capacity available to fund our ongoing operations and future commitments as well as a discussion of the Company’s planned and/or already executed capital allocation activities. |
General:
We are a provider of ocean transportation services for crude oil and refined petroleum products. We operate our fleet of VLCC, Suezmax, Aframax and Panamax crude tankers and LR1, LR2, MR and Handysize product carriers in the International Flag market. Our business includes two reportable segments: Crude Tankers and Product Carriers. For the three and nine months ended September 30, 2021, we derived 48% and 63%, respectively, of our TCE revenues from our Crude Tankers segment, compared with 85% and 79%, respectively, for the three and nine months ended September 30, 2020. Revenues from our Product Carriers segment constituted the balance of our TCE revenues in the 2021 and 2020 periods.
Completion of Merger Transaction
As described in Note 2, “Merger Transaction,” to the accompanying condensed consolidated financial statements, on July 16, 2021 pursuant to the Merger Agreement dated as of March 30, 2021, the Company completed a stock-for-stock merger with Diamond S. As of September 30, 2021, the Company operated a fleet of 89 vessels, consisting of 53 product carriers and 36 crude tankers with an aggregate carrying capacity of approximately 9.8 million deadweight tons (“dwt”), including two vessels that have been chartered-in under operating leases for durations exceeding one year at inception, two FSO service vessels in which we have ownership interests through joint venture partnerships, and two Suezmaxes owned through another joint venture. In addition to our operating fleet of 89 vessels, three dual-fuel LNG VLCC newbuilds are scheduled for delivery to the Company in the first quarter of 2023, bringing the total operating and newbuild fleet to 92 vessels. Subsequent to September 30, 2021, the Company chartered in an LR1 for a minimum period of 18-months.
The Company’s revenues are highly sensitive to patterns of supply and demand for vessels of the size and design configurations owned and operated by the Company and the trades in which those vessels operate. Rates for the transportation of crude oil and refined petroleum products from which the Company earns a substantial majority of its revenues are determined by market forces such as the supply and demand for oil, the distance that cargoes must be transported, and the number of vessels expected to be available at the time such cargoes need to be transported. The demand for oil shipments is significantly affected by the state of the global economy, levels of U.S. domestic and international production and OPEC exports. The number of vessels is affected by newbuilding deliveries and by the removal of existing vessels from service, principally through storage, recycling or conversions. The Company’s revenues are also affected by its vessel employment strategy, which seeks to achieve the optimal mix of spot (voyage charter) and long-term (time or bareboat charter) charters. Because shipping revenues and voyage expenses are significantly affected by the mix between voyage charters and time charters, the Company measures the performance of its fleet of vessels based on TCE revenues. Management makes economic decisions based on anticipated TCE rates and evaluates financial performance based on TCE rates achieved. In order to take advantage of market conditions and optimize economic performance, management employs all of
the Company’s LR1 product carriers, which currently participate in the Panamax International pool, in the transportation of crude oil cargoes. Our revenues are derived predominantly from spot market voyage charters and our vessels are predominantly employed in the spot market via market-leading commercial pools. We derived approximately 80% and 76% of our total TCE revenues in the spot market for the three and nine months ended September 30, 2021, respectively, compared with 67% and 81% for the three and nine months ended September 30, 2020, respectively.
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INTERNATIONAL SEAWAYS, INC.
The following is a discussion and analysis of our financial condition as of September 30, 2021 and results of operations for the three and nine months ended September 30, 2021 and 2020. You should consider the foregoing when reviewing the condensed consolidated financial statements and this discussion and analysis. You should read this section together with the condensed consolidated financial statements, including the notes thereto. This Quarterly Report on Form 10-Q includes industry data and forecasts that we have prepared based, in part, on information obtained from industry publications and surveys. Third-party industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. In addition, certain statements regarding our market position in this report are based on information derived from internal market studies and research reports. Unless we state otherwise, statements about the Company’s relative competitive position in this report are based on our management’s beliefs, internal studies and management’s knowledge of industry trends.
Operations and Oil Tanker Markets:
The International Energy Agency (“IEA”) estimates global oil consumption for the third quarter of 2021 at 97.8 million barrels per day (“b/d”), up 6.2% from the same quarter in 2020. The estimate for global oil consumption for 2021 is 96.3 million b/d, an increase of 6.1% over 2020. OECD demand in 2021 is estimated to increase by 6.0% to 44.5 million b/d, while non-OECD demand is estimated to increase by 6.1% to 51.8 million b/d.
Global oil production in the third quarter of 2021 was 96.3 million b/d, an increase of 6.0% from the third quarter of 2020. OPEC crude oil production averaged 26.9 million b/d in the third quarter of 2021, an increase of 1.4 million b/d from the second quarter of 2021, and an increase of 3.1 million b/d from the third quarter of 2020. Non-OPEC production increased by 2.2 million b/d to 64.1 million b/d in the third quarter of 2021 compared with the third quarter of 2020. Oil production in the U.S. in the third quarter of 2021 increased by 0.9% to 11.3 million b/d compared to the second quarter of 2021 and by 3.4% from the third quarter of 2020.
U.S. refinery throughput increased by 0.9 million b/d to 16.5 million b/d in the third quarter of 2021 compared with the second quarter of 2021. U.S. crude oil imports in the third quarter of 2021 increased by 0.5 million b/d to 6.4 million b/d compared with the third quarter of 2020, with imports from OPEC countries remaining flat and imports from non-OPEC countries increasing by 0.5 million b/d.
China’s crude oil imports declined by 0.5 million b/d from August 2021 to September 2021 and declined by 1.8 million b/d from September 2020. For the first nine months of the year, China’s crude oil imports declined by 6.8% compared to the comparable period in 2020 to average 10.4 million b/d. Due to higher oil prices, China drew down more inventories from commercial and strategic reserves.
As a result of rising oil demand outpacing production of crude oil and refined products and significant increases in current prices of crude oil, global inventories were drawn down during the third quarter of 2021 to below the average over the last five years. Total commercial stocks in the OECD have declined by approximately 30 million barrels in the two months ending August 2021, the most recent available combined inventory data. Large draws in total inventories have negatively impacted current tanker market earnings.
During the third quarter of 2021, the tanker fleet of vessels over 10,000 dwt decreased, net of vessels recycled, by 0.2 million dwt as the crude fleet decreased by 0.5 million dwt, with VLCCs and Suezmaxes declining by 0.8 and 0.4 million dwt, respectively and Aframaxes growing by 0.7 million dwt. The product carrier fleet increased by 0.3 million dwt. Year-over-year, the size of the tanker fleet increased by 12.3 million dwt with the VLCCs, Suezmaxes, Aframaxes and MRs increasing by 5.1 million dwt, 3.0 million dwt, 2.2 million dwt and 2.1 million dwt, respectively. The LR1/Panamax fleet remained flat.
During the third quarter of 2021, the tanker orderbook declined by 3.8 million dwt overall. The crude tanker orderbook decreased by 2.4 million dwt, with decreases in the VLCC, Suezmax and Aframax sectors of 1.3 million dwt, 0.2 million dwt and 1.0 million dwt, respectively. The product carrier orderbook decreased by 1.4 million dwt with LR1s declining by 0.1 million dwt and MRs declining by 1.2 million dwt. Year-over-year, the total tanker orderbook increased by 0.4 million dwt, with VLCCs increasing by 3.4 million dwt and all other sector orderbooks declining.
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INTERNATIONAL SEAWAYS, INC.
After a weak first half of 2021, crude tanker rates remained under pressure and all tanker types operated at or below industry average cash breakeven levels on benchmark routes during the third quarter of 2021. So far in the fourth quarter of 2021, rates in all segments continue to be weak.
The pandemic involving the novel coronavirus (COVID-19) has adversely affected the Company’s business, operations and financial results, and will likely continue to do so. See Item 1A, Risk Factors in our December 31, 2020 Form 10-K – The current pandemic involving the novel coronavirus (COVID-19) has adversely affected the Company’s business, operations and financial results, and will likely continue to do so.
Update on Critical Accounting Estimates and Policies:
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates in the application of its accounting policies based on the best assumptions, judgments and opinions of management. For a description of all of the Company’s material accounting policies, see Note 2, “Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K. See Note 3, “Significant Accounting Policies,” to the accompanying condensed consolidated financial statements for any changes or updates to the Company’s critical accounting policies for the current period.
Results from Vessel Operations:
During the third quarter of 2021, results from vessel operations decreased by $79.6 million to a loss of $62.8 million from income of $16.8 million in the third quarter of 2020. Such decrease resulted principally from $47.0 million of one-time merger and integration related costs incurred in the current quarter related to the Company’s Merger with Diamond S, and increased vessel expenses, which were not sufficiently covered with a corresponding increase in TCE revenues despite having a larger post-Merger fleet, partially offset by a net increase of $21.9 million in the third quarter of 2021 compared with the third quarter of 2020 in gain on the disposal of vessels.
The decrease in TCE revenues in the third quarter of 2021 of $21.0 million, or 22%, to $73.0 million from $94.0 million in the corresponding quarter of the prior year primarily reflects lower average daily rates across the majority of INSW’s fleet sectors, which accounted for a decrease of approximately $64.6 million. Partially offsetting this rates-based decline were significant days-based increases in the Suezmax and MR fleets, which reflected the growth in the vessel count in these fleets that resulted from the Merger.
During the first nine months of 2021, income from vessel operations decreased by $230.2 million to a loss of $92.1 million from income of $138.1 million in the first nine months of 2020. The primary drivers of the decrease were consistent with those described above in the quarter-over-quarter analysis.
The decrease in TCE revenues in the first nine months of 2021 of $186.2 million, or 53%, to $162.9 million from $349.1 million in the corresponding period of the prior year primarily reflects lower average daily rates across all of INSW’s fleet sectors, which accounted for a rates-based decrease of approximately $221.0 million. Also contributing to the decrease was a decline in revenue days in the VLCC fleet principally due to the sales of three older VLCCs between November 2020 and July 2021. Partially offsetting these declines were days-based increases in the Suezmax and MR fleets, as described above.
See Note 5, “Business and Segment Reporting,” to the accompanying condensed consolidated financial statements for additional information on the Company’s segments, including equity in income of affiliated companies and reconciliations of (i) time charter equivalent revenues to shipping revenues and (ii) adjusted income from vessel operations for the segments to income before income taxes, as reported in the condensed consolidated statements of operations.
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INTERNATIONAL SEAWAYS, INC.
Crude Tankers
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
(Dollars in thousands, except daily rate amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||
TCE revenues | $ | 34,771 | $ | 79,799 | $ | 101,817 | $ | 274,543 | ||||
Vessel expenses | (24,384) | (24,276) | (65,327) | (73,256) | ||||||||
Charter hire expenses | (4,106) | (4,692) | (12,182) | (14,655) | ||||||||
Depreciation and amortization | (15,963) | (14,864) | (42,005) | (43,841) | ||||||||
Adjusted (loss)/income from vessel operations (a) | $ | (9,682) | $ | 35,967 | $ | (17,697) | $ | 142,791 | ||||
Average daily TCE rate | $ | 12,845 | $ | 36,010 | $ | 15,710 | $ | 43,066 | ||||
Average number of owned vessels (b) | 30.5 | 24.0 | 24.2 | 24.1 | ||||||||
Average number of vessels chartered-in under operating leases | 2.0 | 2.0 | 2.0 | 2.2 | ||||||||
Number of revenue days: (c) | 2,707 | 2,216 | 6,481 | 6,375 | ||||||||
Number of ship-operating days: (d) | ||||||||||||
Owned vessels | 2,810 | 2,208 | 6,611 | 6,604 | ||||||||
Vessels bareboat chartered-in under operating leases | 184 | 184 | 546 | 548 | ||||||||
Vessels time chartered-in under operating leases (e) | — | — | — | 44 |
(a) | Adjusted income/(loss) from vessel operations by segment is before general and administrative expenses, reversal of expected credit losses, third-party debt modification fees, merger and integration related costs and gain/(loss) on disposal of vessels and other property, including impairments. |
(b) | The average is calculated to reflect the addition and disposal of vessels during the period. |
(c) | Revenue days represent ship-operating days less days that vessels were not available for employment due to repairs, drydock or lay-up. Revenue days are weighted to reflect the Company’s interest in chartered-in vessels. |
(d) | Ship-operating days represent calendar days. |
(e) | The Company’s Crude Tankers Lightering business time chartered-in one vessel under an operating lease for a portion of the nine-month period ended September 30, 2020. No vessel was time chartered-in for the Company’s Crude Tankers Lightering business during the three and nine months ended September 30, 2021. |
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INTERNATIONAL SEAWAYS, INC.
The following tables provide a breakdown of TCE rates achieved for the three and nine months ended September 30, 2021 and 2020, between spot and fixed earnings and the related revenue days. The information in this table is based, in part, on information provided by the commercial pools in which the segment’s vessels participate and excludes commercial pool fees/commissions averaging approximately $667 and $646 per day for the three and nine months ended September 30, 2021, respectively, and $635 and $744 per day for the three and nine months ended September 30, 2020, respectively, as well as activity in the Crude Tankers Lightering business and revenue and revenue days for which recoveries were recorded by the Company under its loss of hire insurance policies.
2021 | 2020 | |||||||||||
Spot Earnings | Fixed Earnings | Spot Earnings | Fixed Earnings | |||||||||
Three Months Ended September 30, | ||||||||||||
VLCC: | ||||||||||||
Average rate | $ | 10,686 | $ | 43,893 | $ | 35,740 | $ | 73,399 | ||||
Revenue days | 761 | 92 | 810 | 362 | ||||||||
Suezmax (1): | ||||||||||||
Average rate | $ | 10,650 | $ | 26,604 | $ | 28,246 | $ | — | ||||
Revenue days | 748 | 90 | 180 | — | ||||||||
Aframax: | ||||||||||||
Average rate | $ | 11,361 | $ | 25,746 | $ | 10,860 | $ | — | ||||
Revenue days | 276 | 76 | 368 | — | ||||||||
Panamax: | ||||||||||||
Average rate | $ | 9,755 | $ | 11,054 | $ | 15,508 | $ | 15,790 | ||||
Revenue days | 151 | 264 | 118 | 269 | ||||||||
Nine Months Ended September 30, | ||||||||||||
VLCC: | ||||||||||||
Average rate | $ | 13,345 | $ | 45,517 | $ | 56,459 | $ | 70,772 | ||||
Revenue days | 2,170 | 338 | 2,322 | 623 | ||||||||
Suezmax (1): | ||||||||||||
Average rate | $ | 12,189 | $ | 26,604 | $ | 40,028 | $ | — | ||||
Revenue days | 1,110 | 90 | 541 | — | ||||||||
Aframax: | ||||||||||||
Average rate | $ | 10,554 | $ | 25,746 | $ | 24,107 | — | |||||
Revenue days | 812 | 76 | 1,063 | $ | — | |||||||
Panamax: | ||||||||||||
Average rate | $ | 12,812 | $ | 11,046 | $ | 29,508 | $ | 16,021 | ||||
Revenue days | 332 | 1,303 | 300 | 1,348 |
(1) | During the three months ended September 30, 2021, Suezmaxes acquired by the Company through the Merger were employed on transitional voyages in the spot market prior to delivering to Penfield Maritime’s Suezmax Pool. These transitional voyages are excluded from the tables above. |
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INTERNATIONAL SEAWAYS, INC.
During the third quarter of 2021, TCE revenues for the Crude Tankers segment decreased by $45.0 million, or 56%, to $34.8 million from $79.8 million in the third quarter of 2020, principally as a result of significantly lower average blended rates in the VLCC, Suezmax and Panamax sectors aggregating approximately $50.0 million. Commencing from the latter part of the second quarter of 2020, principally as the result of the impact of the COVID-19 pandemic, oil production has declined. This development, which negatively impacted the demand for oil tankers during the second half of 2020, continued through the first three quarters of 2021. The extent to which the current COVID-19 related market conditions will continue to negatively impact the tanker rate environment will depend on (i) the extent to which oil demand is met from excess crude inventories that were built up during the period of oil demand destruction, (ii) the timing and magnitude of oil demand recoveries in the various parts of the world and (iii) the levels of oil production during such periods.
Also contributing to the decline in TCE revenues was (i) a $19.6 million days-based decline in VLCC revenue which reflects 429 fewer revenue days in the current quarter, driven by the sales of older vessels discussed above, and (ii) a $1.0 million decrease in revenue in the Crude Tankers Lightering business in the current quarter. Partially offsetting the decreases to TCE revenues was a $25.1 million days-based increase in the Suezmax fleet, which reflects an incremental 908 revenue days in the current quarter arising from the Company’s acquisition of 13 Suezmaxes as a part of its Merger with Diamond S. The revenue days in the Aframax fleet during the current quarter decreased marginally as compared to the third quarter of 2020, as the impact of the acquisition of one Aframax as a part of the Merger was offset by the Company’s sale of a 2001-built Aframax in November 2020.
Vessel expenses increased by $0.1 million to $24.4 million in the third quarter of 2021 from $24.3 million in the third quarter of 2020. Such increase reflects an approximately $7.8 million increase in the Suezmax fleet due to the additions to the fleet described above. This increase was substantively offset by (i) a $2.7 million reduction in the VLCC fleet principally relating to the vessel sales discussed above and (ii) a $2.7 million reduction in the Panamax fleet that reflects the sales of a 2002-built and a 2003-built Panamax during August 2021, and a reduction of $1.0 million in drydock deviation costs from what was incurred in the prior year’s quarter. Charter hire expenses decreased by $0.6 million to $4.1 million from $4.7 million in the third quarter of 2020. Depreciation and amortization increased by $1.1 million to $16.0 million in the current quarter from $14.9 million in the prior year’s quarter. Such increase resulted from the additions to the Suezmax and Aframax fleets noted above, along with the impacts of scrubber installations and drydockings performed during 2020 and 2021. These increases were offset to a large extent by the vessel sales noted above and impairment charges recorded in December 2020.
Excluding depreciation and amortization, the reversal of expected credit losses and general and administrative expenses, operating income for the Crude Tankers Lightering business was $1.2 million for the third quarter of 2021 compared to $1.0 million for the third quarter of 2020.
During the first nine months of 2021, TCE revenues for the Crude Tankers segment decreased by $172.7 million or 63%, to $101.8 million from $274.5 million in the first nine months of 2020, principally as a result of the market factors described above which resulted in significantly lower average blended rates across all the Crude Tankers sectors aggregating approximately $166.6 million. Also contributing to the decrease was an aggregate 722-day decrease in VLCC and Aframax revenue days, which had the effect of decreasing TCE revenues by $35.6 million and was driven by the vessel sales described above along with the additional impact of the sale of a 2002-built Aframax in January 2020, partially offset by 125 fewer offhire days in the current year’s period. The reduction in current period offhire days was principally driven by fewer VLCC out-of-service days for scrubber installations in the current period. Serving to partially offset such declines were the Suezmaxes and Aframax added to the Company’s fleet as a result of the Merger, as noted above.
Vessel expenses decreased by $7.9 million to $65.3 million in the nine months ended September 30, 2021 from $73.2 million in the corresponding period of 2020. The primary driver of the net decrease were the vessel sales referred to above. Charter hire expenses decreased by $2.5 million to $12.2 million from $14.7 million in the prior year’s period. Consistent with the quarter-over-quarter comparison noted above, such decrease related to a reduction in short-term time chartered-in vessels in the Crude Tankers Lightering business as a result of lower anticipated lightering activity levels in the current year’s period. Depreciation and amortization decreased by $1.8 million to $42.0 million in the current period from $43.8 million in the prior year’s period. The drivers of such decline were the vessel sales and 2020 impairment charges discussed above.
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INTERNATIONAL SEAWAYS, INC.
Excluding depreciation and amortization, the reversal of expected credit losses and general and administrative expenses, operating income for the Crude Tankers Lightering business was $3.6 million for the first nine months of 2021 and $5.5 million for the first nine months of 2020. The decrease in the current period’s operating income as compared to the prior year’s period primarily reflects lower levels of lightering activity in the current period. During the current year’s period, 253 service support only lighterings were performed, as compared to 290 service support only lighterings in the prior year’s period. Additionally, during the prior year’s period the Crude Tankers Lightering business utilized its chartered-in Aframaxes on three spot voyages.
Product Carriers
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
(Dollars in thousands, except daily rate amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||
TCE revenues | $ | 38,197 | $ | 14,233 | $ | 61,038 | $ | 74,509 | ||||
Vessel expenses | (33,790) | (7,226) | (47,050) | (21,483) | ||||||||
Charter hire expenses | (1,573) | (1,749) | (5,102) | (9,558) | ||||||||
Depreciation and amortization | (9,828) | (4,127) | (17,578) | (12,250) | ||||||||
Adjusted income/(loss) from vessel operations | $ | (6,994) | $ | 1,131 | $ | (8,692) | $ | 31,218 | ||||
Average daily TCE rate | $ | 9,448 | $ | 14,009 | $ | 10,267 | $ | 22,716 | ||||
Average number of owned vessels | 47.3 | 10.0 | 22.6 | 9.8 | ||||||||
Average number of vessels chartered-in under operating leases | 1.3 | 1.3 | 1.3 | 2.4 | ||||||||
Number of revenue days | 4,043 | 1,016 | 5,945 | 3,280 | ||||||||
Number of ship-operating days: | ||||||||||||
Owned vessels | 4,354 | 920 | 6,164 | 2,691 | ||||||||
Vessels time chartered-in under operating leases | 124 | 115 | 368 | 648 |
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INTERNATIONAL SEAWAYS, INC.
The following tables provide a breakdown of TCE rates achieved for the three and nine months ended September 30, 2021 and 2020, between spot and fixed earnings and the related revenue days. The information in this table is based, in part, on information provided by the commercial pools in which the segment’s vessels participate and excludes commercial pool fees/commissions averaging approximately $610 and $618 per day for the three and nine months ended September 30, 2021, and $681 and $606 per day for the three and nine months ended September 30, 2020, respectively, as well as revenue and revenue days for which recoveries were recorded by the Company under its loss of hire insurance policies.
2021 | 2020 | |||||||||||
Spot Earnings | Fixed Earnings | Spot Earnings | Fixed Earnings | |||||||||
Three Months Ended September 30, | ||||||||||||
LR2: | ||||||||||||
Average rate | $ | — | $ | 17,797 | $ | 21,505 | $ | — | ||||
Revenue days | — | 92 | 92 | — | ||||||||
LR1(1): | ||||||||||||
Average rate | $ | 12,476 | $ | — | $ | 14,900 | $ | — | ||||
Revenue days | 523 | — | 534 | — | ||||||||
MR(2): | ||||||||||||
Average rate | $ | 10,000 | $ | 15,730 | $ | 14,368 | $ | — | ||||
Revenue days | 2,668 | 124 | 390 | — | ||||||||
Handy: | ||||||||||||
Average rate | $ | 6,311 | $ | — | $ | — | $ | — | ||||
Revenue days | 319 | — | — | — | ||||||||
Nine Months Ended September 30, | ||||||||||||
LR2: | ||||||||||||
Average rate | $ | — | $ | 17,787 | $ | 29,724 | $ | — | ||||
Revenue days | — | 273 | 274 | — | ||||||||
LR1(1): | ||||||||||||
Average rate | $ | 13,634 | $ | — | $ | 27,835 | $ | — | ||||
Revenue days | 1,438 | — | 1,567 | — | ||||||||
MR(2): | ||||||||||||
Average rate | $ | 9,797 | $ | 15,730 | $ | 17,898 | $ | — | ||||
Revenue days | 3,453 | 124 | 1,440 | — | ||||||||
Handy: | ||||||||||||
Average rate | $ | 6,311 | $ | — | $ | — | $ | — | ||||
Revenue days | 319 | — | — | — |
(1) | During the 2021 and 2020 periods, each of the Company’s LR1s participated in the Panamax International Pool and transported crude oil cargoes exclusively. |
(2) | During the three months ended September 30, 2021, MRs acquired by the Company through the Merger were employed on transitional voyages in the spot market prior to delivering to pools. These transitional voyages are excluded from the tables above. |
During the third quarter of 2021, TCE revenues for the Product Carriers segment increased by $24.0 million, or 168%, to $38.2 million from $14.2 million in the third quarter of 2020. In conjunction with the Merger, the Company acquired 44 MRs. The Company subsequently sold seven of the MRs during the third quarter of 2021. The net effect of these transactions was the driver of a 2,719-day increase in MR revenue days during the current year’s quarter, which contributed a $37.0 million days-based increase in TCE revenues. The Company also acquired six Handysize vessels in the Merger, which contributed a total of $1.6 million in TCE revenues during the period. Partially offsetting such increases were period-over-period decreases in average daily blended rates earned by the MR and LR1 fleet sectors, which accounted for a rates-based decrease in TCE revenues of approximately $14.7 million.
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INTERNATIONAL SEAWAYS, INC.
Vessel expenses increased by $26.6 million to $33.8 million in the third quarter of 2021 from $7.2 million in the third quarter of 2020. Such increase reflects increases of approximately $22.8 million and $5.1 million in the MR and Handysize fleets, respectively, primarily driven by the additions to the fleet described above. Depreciation and amortization increased by $5.7 million to $9.8 million in the current quarter from $4.1 million in the prior year’s quarter. Such increase resulted primarily from the additions to the MR and Handysize fleets noted above.
During the first nine months of 2021, TCE revenues for the Product Carriers segment decreased by $13.5 million to $61.0 million from $74.5 million in the first nine months of 2020. Approximately $54.3 million of such decrease was attributable to decreases in the average daily blended rates earned across all Product Carrier fleets. Also contributing to the decline in TCE revenues was a $2.9 million days-based decrease in the LR1 fleet that resulted principally from 150 more drydock days in the current year’s period, partially offset by $0.5 million in loss of hire proceeds received in the first quarter of 2021 and the impact of the purchase of a 2009-built LR1 that was delivered to the Company in February 2020. Serving to further offset the above net decreases was a $42.2 million days-based increase in the MR fleet and TCE revenues for the Handysize fleet of $1.6 million, each of which was driven by the Merger.
The $4.5 million decrease in charter hire expenses during the nine months ended September 30, 2021 compared to the same period of 2020 was due to the redelivery of three time chartered in MRs to their owners between March and July 2020. The drivers of the increases in vessel expenses and depreciation and amortization as compared to the prior year’s period are consistent with those described in the quarter-over-quarter discussion above.
General and Administrative Expenses:
During the third quarter of 2021, general and administrative expenses increased by $0.8 million to $8.2 million from $7.4 million in the third quarter of 2020. The primary drivers for such increase were related to the Merger and comprised of (i) increased rental costs of $0.3 million relating to the legacy office space of Diamond S, which will not be a recurring cost as the lease for such office space was terminated effective September 30, 2021, (ii) increased insurance costs resulting from the Merger of $0.4 million, and (iii) increased communications and technology expenses of $0.2 million.
For the nine months ended September 30, 2021, general and administrative expenses increased by $1.7 million to $23.2 million from $21.5 million for the same period in 2020. The primary drivers for such increase were consistent with those described in the quarter-over-quarter discussion above. Also contributing to the increase was the recognition during the first quarter of 2021 of $0.7 million of previously deferred costs related to the Company’s filing of a Form S-3 registration statement in October 2018, as the Company determined it to be probable that securities would not be issued under such registration statement prior to its expiry in October 2021.
Other Income/(Expense):
For the nine months ended September 30, 2021 other income was $0.4 million compared with other expense of $13.5 million for the nine months ended September 30, 2020. The nine months ended September 30, 2020 includes a prepayment fee of $1.0 million related to the repurchase of the 10.75% Subordinated Notes and a write-off of $12.5 million of unamortized original issue discount and deferred financing costs associated with the payoff of the 2017 Term Loan, the ABN Term Loan Facility and repurchase of the 10.75% Subordinated Notes during the first quarter of 2020, which were treated as extinguishments, and prepayment fees of $0.2 million and a write-off of $0.6 million of unamortized deferred financing costs associated with the payoff of the Transition Term Loan Facility in August 2020, which was treated as an extinguishment. Other income/(expense) for both periods also includes net actuarial gains and currency gains or losses associated with the retirement benefit obligation in the United Kingdom.
Interest Expense:
Interest expense was $10.6 million and $8.0 million for the three months ended September 30, 2021 and 2020, respectively. The quarter-over-quarter increase is primarily attributable to $3.8 million interest expense of the Amended and Restated $525 Million
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INTERNATIONAL SEAWAYS, INC.
Credit Agreement, Amended and Restated $360 Million Credit Agreement and the $66 Million Credit Facility that were assumed in connection with the Merger, partially offset by the impact of the $40.0 million payoff of the $390 Million Facility Transition Term Loan in August 2020 and regular quarterly principal repayments. Interest expense decreased by $4.0 million in the nine months ended September 30, 2021 to $24.9 million compared to $28.9 million for the nine months ended September 30, 2020, as a result of lower average outstanding debt balances in the current year period compared to the 2020 period, which included the aforementioned impact of the $40.0 million payoff of the $390 Million Facility Transition Term Loan, and the use of cash in the January 2020 refinancing to reduce outstanding debt balances. In addition, lower average margins and interest rates on the refinanced portion of debt entered into by the Company during the first quarter of 2020 and lower average LIBOR rates during the first nine months of 2021 compared with the corresponding periods of 2020, contributed to the decreases in interest expense in the current year periods. See Note 10, “Debt,” in the accompanying condensed consolidated financial statements for further information on the Company’s debt facilities.
Taxes:
The Company qualifies for an exemption from U.S. federal income taxes under Section 883 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and U.S. Treasury Department regulations for the 2021 calendar year as less than 50 percent of the total value of the Company’s stock has been held by one or more shareholders who own 5% or more of the Company’s stock for more than half of the days of 2021. There can be no assurance at this time that INSW will continue to qualify for the Section 883 exemption beyond calendar year 2021. Should the Company not qualify for the exemption in the future, INSW will be subject to U.S. federal income taxation of 4% of its U.S. source shipping income on a gross basis without the benefit of deductions. Shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the U.S. will be considered to be 50% derived from sources within the United States. Shipping income attributable to transportation that both begins and ends in the U.S. would be considered to be 100% derived from sources within the United States, but INSW does not and cannot engage in transportation that gives rise to such income.
EBITDA and Adjusted EBITDA:
EBITDA represents net income/(loss) before interest expense, income taxes and depreciation and amortization expense. Adjusted EBITDA consists of EBITDA adjusted for the impact of certain items that we do not consider indicative of our ongoing operating performance. EBITDA and Adjusted EBITDA are presented to provide investors with meaningful additional information that management uses to monitor ongoing operating results and evaluate trends over comparative periods. EBITDA and Adjusted EBITDA do not represent, and should not be considered a substitute for, net income or cash flows from operations determined in accordance with GAAP. 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 reported under GAAP. Some of the limitations are:
● | EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; |
● | EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; and |
● | EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt. |
While EBITDA and Adjusted EBITDA are frequently used by companies as a measure of operating results and performance, neither of those items as prepared by the Company is necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation.
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INTERNATIONAL SEAWAYS, INC.
The following table reconciles net income/(loss), as reflected in the condensed consolidated statements of operations, to EBITDA and Adjusted EBITDA:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
(Dollars in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||
Net (loss)/income | $ | (67,878) | $ | 13,981 | $ | (100,026) | $ | 111,358 | ||||
Income tax provision | 35 | — | 36 | 1 | ||||||||
Interest expense | 10,639 | 7,999 | 24,925 | 28,889 | ||||||||
Depreciation and amortization | 25,806 | 19,014 | 59,639 | 56,161 | ||||||||
Noncontrolling interests | (312) | — | (312) | — | ||||||||
EBITDA | (31,710) | 40,994 | (15,738) | 196,409 | ||||||||
Amortization of time charter contracts acquired | 1,743 | — | 1,743 | — | ||||||||
Third-party debt modification fees | 26 | — | 26 | 232 | ||||||||
Merger and integration related costs | 47,079 | — | 47,560 | — | ||||||||
(Gain)/loss on disposal of vessels and other property, net of impairments | (9,104) | 12,834 | (5,088) | 14,164 | ||||||||
Write-off of deferred financing costs | — | 572 | — | 13,073 | ||||||||
Loss on extinguishment of debt | — | 181 | — | 1,195 | ||||||||
Adjusted EBITDA | $ | 8,034 | $ | 54,581 | $ | 28,503 | $ | 225,073 |
Liquidity and Sources of Capital:
Our business is capital intensive. Our ability to successfully implement our strategy is dependent on the continued availability of capital on attractive terms. In addition, our ability to successfully operate our business to meet near-term and long-term debt repayment obligations is dependent on maintaining sufficient liquidity.
Liquidity
Working capital at September 30, 2021 and December 31, 2020 was approximately negative $52.0 million and positive $148.0 million, respectively. Current liabilities include current installments of long-term debt of $220.8 million and $61.5 million at September 30, 2021 and December 31, 2020, respectively. Such amounts are excluded from the definition of current liabilities for purposes of the working capital covenant in the Company’s debt facilities. Current assets are highly liquid, consisting principally of cash, interest-bearing deposits and receivables.
The Company’s total cash decreased by $83.1 million during the nine months ended September 30, 2021. This decrease reflects cash used in operating activities of $49.0 million, $44.7 million in expenditures for vessels and other property including transaction costs incurred and paid by the Company in connection with the Merger and construction costs for three dual-fuel LNG VLCCs, $6.9 million net working capital deposits made to commercial pools in which the Company’s vessels operate, scheduled principal amortization for the Company’s debt facilities totaling $112.4 million, $14.2 million in net repayments on revolving credit facilities, $4.0 million in cash settlement payments on derivatives containing other-than-insignificant financing elements, and cash dividends of $37.9 million. Such cash outflows were partially offset by proceeds from disposal of vessels and other property of $113.5 million, proceeds from issuance of debt, net of issuance and deferred financing costs of $19.5 million, and cash acquired, net of equity issuance costs related to merger of $54.2 million.
Our cash and cash equivalents balance generally exceed Federal Deposit Insurance Corporation insured limits. We place our cash and cash equivalents in what we believe to be credit-worthy financial institutions. In addition, certain of our money market accounts invest in U.S. Treasury securities or other obligations issued or guaranteed by the U.S. government or its agencies, floating rate and variable demand notes of U.S. and foreign corporations, commercial paper rated in the highest category by Moody’s Investor Services and Standard & Poor’s, certificates of deposit and time deposits, asset-backed securities, and repurchase agreements.
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INTERNATIONAL SEAWAYS, INC.
As of September 30, 2021, we had total liquidity on a consolidated basis of $172.6 million comprised of $132.6 million of cash (including $23.7 million of restricted cash) and $40.0 million of undrawn revolver capacity.
Restricted cash of $23.7 million as of September 30, 2021 represents legally restricted cash relating to the Sinosure Credit Facility, the $66 Million Credit Facility, and the Macquarie Credit Facility. Such facilities stipulate that cash accounts be maintained which are limited in their use to pay expenses related to drydocking the vessels and servicing the debt facilities.
As of September 30, 2021, we had total debt outstanding (net of original issue discount and deferred financing costs) of $1,108.4 million and net debt to total capitalization (including noncontrolling interests) of 44.0%, compared with 24.8% at December 31, 2020.
The Company was not in compliance with the consolidated interest expense coverage ratio financial covenant contained in the Company’s debt facilities for the Test Date ending on September 30, 2021. As described below, we completed alternative financing on the six VLCCs that collateralized the Sinosure Credit Facility and simultaneously prepaid and terminated the Sinosure Credit Facility in order to both increase liquidity and remedy the covenant noncompliance that existed for the Test Date ending on September 30, 2021.
Sources, Uses and Management of Capital
We have maintained a strong balance sheet, which has allowed us to take advantage of attractive strategic opportunities during the low end of the tanker cycle and we have maintained what we believe to be a prudent financial leverage for the current point in the tanker cycle.
In addition to future operating cash flows, our other future sources of funds are proceeds from issuances of equity securities, additional borrowings as permitted under our loan agreements and proceeds from the opportunistic sales of our vessels. Our current uses of funds are to fund working capital requirements, maintain the quality of our vessels, purchase vessels, comply with international shipping standards and environmental laws and regulations, repay or repurchase our outstanding loan facilities, pay a regular quarterly cash dividend, and repurchase shares of our common stock from time-to-time.
The following is a summary of the significant capital allocation activities the Company executed during the first nine months of 2021 and sources of capital the Company has at its disposal for future use as well as the Company’s current commitments for future uses of capital:
On March 11, 2021, the Company entered into agreements to construct three dual-fuel LNG VLCCs at Daewoo Shipbuilding and Marine Engineering’s shipyard. The VLCCs will be able to burn LNG in their power plant, which will significantly reduce greenhouse gas emissions. Upon delivery to the Company in the first quarter of 2023, the vessels will be employed on seven-year time charter contracts with an oil major – Shell – at a rate that consists of a floor rate plus profit sharing. The total construction cost for the vessels will be approximately $290 million, which will be paid for through a combination of long-term financing and cash on hand. Accumulated expenditures totaling $29.4 million have been made in connection with the construction contracts as of September 30, 2021. The Company currently has a financing commitment from a financial institution covering approximately 85% of the vessel construction costs. Such commitment is subject to finalization of definitive documents, and other customary conditions for similar transactions. We expect to execute and close on the financing during the fourth quarter of 2021.
During the nine months ended September 30, 2021, the Company’s Board of Directors declared and paid regular quarterly cash dividends of $0.06 per share. The Company’s Board of Directors declared a regular quarterly cash dividend of $0.06 per share of common stock on November 8, 2021. The dividend will be paid on December 23, 2021 to shareholders of record as of December 9, 2021.
During the nine months ended September 30, 2021, the Company sold and delivered a 2002-built VLCC, a 2002-built Panamax, a 2003-built Panamax, and seven MRs acquired as part of the Merger, which were built between 2006 and 2009, for net proceeds of $113.5 million. The sale and delivery of the seven MRs during the three months ended September 30, 2021 reduced the number of vessels collateralizing the Amended and Restated $525 Million Credit Agreement and the Amended and Restated $360 Million Credit Agreement to 34 and 21 vessels, respectively, and also resulted in a permanent reduction of the drawdown availability under the $525
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Million Facility Revolving Loan and the $360 Million Facility Revolving Loan of $5.8 million and $8.4 million, respectively. As of September 30, 2021, both of these revolving facilities were fully drawn. Also, as a result of these vessel sales, total quarterly principal amortization under the Amended and Restated $525 Million Credit Agreement and the Amended and Restated $360 Million Credit Agreement has decreased from $30.9 million to $28.2 million per quarter.
In addition, the Company entered into memoranda of agreements for the sale of three additional 2002-built Panamaxes and one 2007-built Handysize product carrier acquired as part of the Merger for aggregate gross proceeds of approximately $29.0 million. One of the Panamaxes was delivered to its buyer in November 2021, and the other three vessels are expected to be delivered to buyers by the end of the fourth quarter of 2021.
As described above, the Merger (see Note 2, “Merger Transaction,” to the accompanying condensed consolidated financial statements) with Diamond S became effective on July 16, 2021 and resulted in the acquisition of 64 vessels and their associated assets and liabilities in exchange for the issuance of 22,536,647 shares of INSW Common Stock. The Company paid a $31.5 million special dividend on July 15, 2021 to INSW shareholders of record as of July 14, 2021 prior to the Merger.
On September 30, 2021, the Company, Seaways Shipping II Corporation, a wholly owned subsidiary of the Company, and ACG Guarantor’s three subsidiaries (the “Borrowers”) executed a credit agreement for a $20.0 million term loan facility with Macquarie Bank Limited, London Branch, as lender, facility agent and security agent (the “Macquarie Credit Facility”). The Macquarie Credit Facility is comprised of three loans, each secured by a first lien on one of three LR1s owned by the Company, along with their respective earnings, insurances and certain other assets, as well as certain additional assets of the Company’s subsidiaries. The facility bears interest at LIBOR plus a margin of 3.825%. The loan amortizes in quarterly installments varying in amount between $0.5 million to $0.9 million commencing December 31, 2021, and matures on March 31, 2025, with a balloon payment of approximately $11.7 million due at maturity. The maturity date for the loan is subject to acceleration upon the occurrence of certain events as described in the credit agreement. The Macquarie Credit Facility is guaranteed by the Company and Seaways Shipping II Corporation. The full $20.0 million was drawn down on September 30, 2021.
On October 26, 2021, the Company entered into lease financing arrangements with Ocean Yield ASA for the sale and leaseback of the six VLCCs that collateralized the Sinosure Credit Facility, for a net sale price of $374.6 million in total, which represents 90% of the fair value of the six VLCCs. The proceeds of the sale will be recognized as a financing obligation. This refinancing generated incremental liquidity of approximately $150 million for the Company. The proceeds from the transactions, which were received on November 8, 2021, were used to prepay the $228.4 million outstanding loan balance under the Sinosure Credit Facility, with the balance intended for general corporate purposes. Under these lease financing arrangements, each of the six VLCCs is subject to a 10-year bareboat charter with purchase options exercisable commencing at the end of the fourth year and purchase obligations at the end of the 10-year term. Charter hire under the arrangement is comprised of a fixed monthly repayment amount of $2.4 million plus a variable interest component calculated based on three-month LIBOR plus a margin of 4.05%. The terms and conditions, including financial covenants, of the arrangements are in-line with those of the Company’s existing debt facilities.
The Company is in the process of dissolving NT Suez Holdco LLC and taking full ownership of one of the two Suezmaxes owned by the joint venture. In conjunction with such process, the Company is refinancing its half of the $66 Million Credit Facility on a long-term basis. The entire remaining outstanding principal amount of the $66 Million Credit Facility is reflected as a current liability in the accompanying condensed balance sheet as of September 30, 2021. This refinancing is also expected to result in the release of the Company’s share of restricted cash attributable to this facility. The dissolution and refinancing are expected to be completed before the scheduled November 18, 2021 maturity of the $66 Million Credit Facility.
As of September 30, 2021, the Company has vessel construction commitments for the three dual-fuel LNG VLCCs discussed above. The Company also has contractual commitments for the purchase and installation of ballast water treatment systems on 25 vessels. The Company’s aggregate purchase commitments for vessel construction and betterments as of September 30, 2021, are presented in the Aggregate Contractual Obligations Table below.
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Outlook
The first nine months of 2021 has proven to be a weaker rate environment for tankers than the same period in 2020 although we continue to expect that oil supply and demand will start to come back into balance during the first half of 2022, creating a market rebound when worldwide demand for oil increases. Oil demand has increased considerably since the onset of the COVID-19 pandemic. With strong economic growth and high vaccination rates, oil demand is expected to continue to grow. With expected growth in demand, during the third quarter of 2021 OPEC+ announced plans to steadily raise production. Diminishing oil stocks and increased oil supply should increase tanker demand and strengthen freight markets.
We believe our balance sheet positions us to support our operations over the next twelve months as we continue to advance our disciplined capital allocation strategy and execute on various liquidity raising measures in the remainder of 2021.
Off-Balance Sheet Arrangements
As of September 30, 2021, the FSO Joint Venture had total bank debt outstanding of $52.4 million, of which $26.2 million was nonrecourse to the Company.
The FSO Joint Venture is a party to a number of contracts: (a) the FSO Joint Venture is an obligor pursuant to a guarantee facility agreement dated as of July 14, 2017, by and among, the FSO Joint Venture, ING Belgium NV/SA, as issuing bank, and Euronav and INSW, as guarantors (the “Guarantee Facility”); (b) the FSO Joint Venture is party to two service contracts with NOC (the “NOC Service Contracts”) and (c) the FSO Joint Venture is a borrower under a $220 million secured credit facility by and among TI Africa and TI Asia, as joint and several borrowers, ABN AMRO Bank N.V. and ING Belgium SA/NV, as Lenders, Mandated Lead Arrangers and Swap Banks, and ING Bank N.V., as Agent and as Security Trustee. INSW severally guarantees the obligations of the FSO Joint Venture pursuant to the Guarantee Facility.
The FSO Joint Venture drew down on a $220 million credit facility in April 2018. The Company provided a guarantee for the $110 million FSO Term Loan portion of the facility, which has an interest rate of LIBOR plus two percent and amortizes through July 2022 and September 2022. INSW’s guarantee of the FSO Term Loan has financial covenants that provide (i) INSW’s Liquid Assets shall not be less than the higher of $50 million and 5% of Total Indebtedness of INSW, (ii) INSW shall have Cash of at least $30 million and (iii) INSW shall be compliance with the Loan to Value Test (as such capitalized terms are defined in the Company guarantee). As of September 30, 2021, the maximum aggregate potential amount of future payments (undiscounted) that INSW could be required to make in relation to its equity method investees secured bank debt and interest rate swap obligations was $26.6 million and the carrying value of the Company's guaranty in the accompanying condensed consolidated balance sheets was nil.
In addition, and pursuant to an agreement between INSW and the trustees of the OSG Ship Management (UK) Ltd. Retirement Benefits Plan (the “Scheme”), INSW guarantees the obligations of INSW Ship Management UK Ltd., a subsidiary of INSW, to make payments to the Scheme.
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Aggregate Contractual Obligations
A summary of the Company’s long-term contractual obligations as of September 30, 2021 follows:
Beyond | |||||||||||||||||||||
(Dollars in thousands) | 2021 | 2022 | 2023 | 2024 | 2025 | 2025 | Total | ||||||||||||||
$390 Million Facility Term Loan - floating rate(1) | $ | 12,015 | $ | 47,099 | $ | 45,498 | $ | 43,969 | $ | 120,284 | $ | — | $ | 268,865 | |||||||
Sinosure Credit Facility - floating rate(2)(10) | 8,405 | $ | 32,996 | $ | 31,957 | $ | 30,939 | $ | 29,878 | $ | 138,325 | 272,500 | |||||||||
8.5% Senior Notes - fixed rate | 531 | $ | 2,125 | $ | 26,062 | $ | — | $ | — | $ | — | 28,718 | |||||||||
$525 Million Facility Term Loan - floating rate(3) | 19,753 | $ | 77,741 | $ | 75,674 | $ | 73,488 | $ | — | $ | — | 246,656 | |||||||||
$525 Million Facility Revolving Loan - floating rate(3) | 982 | $ | 3,847 | $ | 3,847 | $ | 147,955 | $ | — | $ | — | 156,631 | |||||||||
$360 Million Facility Term Loan - floating rate(4) | 11,132 | $ | 43,818 | $ | 42,666 | $ | 39,259 | $ | — | $ | — | 136,875 | |||||||||
$360 Million Facility Revolving Loan - floating rate(4) | 329 | $ | 1,257 | $ | 1,257 | $ | 44,857 | $ | — | $ | — | 47,700 | |||||||||
$66 Million Credit Facility - floating rate(5) | 44,330 | $ | — | $ | — | $ | — | $ | — | $ | — | 44,330 | |||||||||
Macquarie Credit Facility - floating rate(6) | 727 | $ | 3,132 | $ | 3,104 | $ | 2,547 | $ | 12,682 | $ | — | 22,192 | |||||||||
Operating lease obligations(7) | |||||||||||||||||||||
Bareboat Charter-ins | 1,582 | 6,278 | 4,532 | — | — | — | 12,392 | ||||||||||||||
Time Charter-ins | 506 | 649 | — | — | — | — | 1,155 | ||||||||||||||
Office and other space | 68 | 273 | 229 | 773 | 998 | 7,932 | 10,273 | ||||||||||||||
Vessel and vessel betterment commitments(8) | 19,134 | 89,306 | 173,099 | 164 | — | — | 281,703 | ||||||||||||||
Merger related costs(9) | 5,427 | — | — | — | — | — | 5,427 | ||||||||||||||
Total | $ | 124,921 | $ | 308,521 | $ | 407,925 | $ | 383,951 | $ | 163,842 | $ | 146,257 | $ | 1,535,417 |
(1) | Amounts shown include contractual interest obligations of floating rate debt estimated based on the applicable margin for the $390 Million Facility Term Loan of 2.60%, plus (i) the fixed rate stated in the related floating-to-fixed interest rate swap of 1.97% for the $202.6 million notional amount and 0.50% for the $25 million notional amount covered in the interest rate swaps and (ii) the effective three-month LIBOR rate of 0.13% as of September 30, 2021 for the remaining outstanding balance. |
(2) | Amounts shown include contractual interest obligations of floating rate debt estimated based on the applicable margin for the Sinosure Credit Facility of 2.00% plus (i) the fixed rate stated in the related floating-to-fixed interest rate swap of 2.35% through the maturity date of December 21, 2027, or (ii) the effective three-month LIBOR rate of 0.12% as of September 30, 2021 for periods after the swap maturity date. |
(3) | Amounts shown include contractual interest obligations of floating rate debt estimated based on the applicable margin for the Amended and Restated $525 Million Credit Agreement assumed as part of the Merger of 2.50%, plus (i) the average fixed rates stated in the related floating-to-fixed interest rate swaps of 0.54% for the $163.5 million notional amount of the term loan covered by the interest rate swaps and (ii) the effective three-month LIBOR rate of 0.13% as of September 30, 2021 for the remaining outstanding balance. |
(4) | Amounts shown include contractual interest obligations of floating rate debt estimated based on the applicable margin for the Amended and Restated $360 Million Credit Agreement assumed as part of the Merger of 2.65%, plus the effective three-month LIBOR rate of 0.13% as of September 30, 2021. |
(5) | Amounts shown include contractual interest obligations of floating rate debt estimated based on the applicable margin for the $66 Million Credit Facility assumed as part of the Merger of 3.25%, plus the effective three-month LIBOR rate of 0.11% as of September 30, 2021. |
(6) | Amounts shown include contractual interest obligations of floating rate debt estimated based on the applicable margin for the Macquarie Credit Facility of 3.825%, plus the effective three-month LIBOR rate of 0.13% as of September 30, 2021. |
(7) | As of September 30, 2021, the Company had charter-in commitments for two vessels and one workboat employed in the Crude Tankers Lightering business on leases that are accounted for as operating leases. The full amounts due under bareboat charter-ins, |
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office and other space leases, and lease component of the amounts due under long term time charter-ins are discounted and reflected on the Company’s consolidated condensed balance sheet as lease liabilities with corresponding right of use asset balances. |
(8) | Represents the Company’s commitments for the purchase and installation of ballast water treatment systems on 25 vessels and the construction of three dual-fuel LNG VLCCs. |
(9) | Amounts shown include contractual obligations for professional and consulting fees related to the Merger. |
(10) | As discussed above, the Company entered into sale and leaseback agreements on the six VLCCs that collateralized the Sinosure Credit Facility and paid off the $228.4 million outstanding loan balance under the Sinosure Credit Facility on November 8, 2021. Each of the six VLCCs is subject to a 10-year bareboat charter with purchase options exercisable commencing at the end of the fourth year and purchase obligations at the end of the 10-year term. Charter hire under the arrangement is comprised of a fixed monthly repayment amount of $2.4 million plus a variable interest component calculated based on three-month LIBOR plus a margin of 4.05%. |
Risk Management:
The Company is exposed to market risk from changes in interest rates, which could impact its results of operations and financial condition. The Company manages this exposure to market risk through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. To manage its interest rate risk in a cost-effective manner, the Company, from time-to-time, enters into interest rate swap, collar or cap agreements, in which it agrees to exchange various combinations of fixed and variable interest rates based on agreed upon notional amounts or to receive payments if floating interest rates rise above a specified cap rate. The Company uses such derivative financial instruments as risk management tools and not for speculative or trading purposes. In addition, derivative financial instruments are entered into with a diversified group of major financial institutions in order to manage exposure to nonperformance on such instruments by the counterparties.
The Company uses interest rate swaps for the management of interest rate risk exposure associated with changes in LIBOR interest rate payments due on its credit facilities.
Available Information
The Company makes available free of charge through its internet website, www.intlseas.com, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission.
The public may also read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E. Washington D.C. 20549 (information on the operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330). The SEC also maintains a web site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at https://www.sec.gov.
The Company also makes available on its website, its corporate governance guidelines, its Code of Business Conduct and Ethics, insider trading policy, anti-bribery and corruption policy and charters of the Audit Committee, the Human Resources and Compensation Committee and the Corporate Governance and Risk Assessment Committee of the Board of Directors. The Company is required to disclose any amendment to a provision of its Code of Business Conduct and Ethics. The Company intends to use its website as a method of disseminating this disclosure, as permitted by applicable SEC rules. Any such disclosure will be posted to the Company website within four business days following the date of any such amendment. Neither our website nor the information contained on that site, or connected to that site, is incorporated by reference into this Quarterly Report on Form 10-Q.
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s current disclosure controls and procedures were effective as of September 30, 2021 to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting during the three months ending September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
See Note 16, “Contingencies,” to the accompanying condensed consolidated financial statements for a description of the current legal proceedings, which is incorporated by reference in this Part II, Item 1.
Item 1A. Risk Factors
In addition to the other information set forth below in this Quarterly Report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our 2020 Form 10-K and under the headings "Risk Factors - Risks Related to the Merger" and "Risk Factors - Risks Related to the Combined Company" in the joint proxy statement/prospectus included in the registration statement on Amendment No. 1 to Form S-4 (File No, 333-255774) filed with the SEC on June 4, 2021. The risks described in those documents are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
No stock repurchases were made during the three months ended September 30, 2021 other than shares withheld to cover tax withholding liabilities relating to the vesting of outstanding restricted stock units held by certain members of management.
See Note 12, “Capital Stock and Stock Compensation,” to the accompanying condensed consolidated financial statements for additional information about the stock repurchase plan and a description of shares withheld to cover tax withholding liabilities relating to the vesting of previously-granted equity awards to certain members of management, which is incorporated by reference in this Part II, Item 2.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Other Information
On November 8, 2021, the Company prepaid and terminated the Sinosure Credit Facility. See Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Liquidity and Sources of Capital – Liquidity” for further information.
Item 6. Exhibits
*10.1 | ||
10.2 | ||
10.3 | ||
31.1 |
| Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended. |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended. | |
32 | ||
EX-101.INS | Inline XBRL Instance Document | |
EX-101.SCH | Inline XBRL Taxonomy Extension Schema | |
EX-101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | |
EX-101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
EX-101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | |
EX-101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | |
EX-104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INTERNATIONAL SEAWAYS, INC. | |
(Registrant) | |
Date: November 9, 2021 | /s/ Lois K. Zabrocky |
Lois K. Zabrocky | |
Chief Executive Officer | |
Date: November 9, 2021 | /s/ Jeffrey D. Pribor |
Jeffrey D. Pribor | |
Chief Financial Officer |
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