INTERNATIONAL SEAWAYS, INC. 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 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
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 war between
? the impact of public health threats and outbreaks of other highly communicable
diseases, including the effects of the ongoing 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;
? an event occurs that causes the rights issued under the A&R Rights Agreement
adopted by the Company on
? 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;
? 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;
? 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 Company's ability to attract, retain and motivate key employees;
25
INTERNATIONAL SEAWAYS, INC. ? 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;
legal, regulatory or market measures to address climate change, including
? proposals to restrict emissions of greenhouse gases ("GHGs") and other
sustainability initiatives, could have an adverse impact on the Company's
business and results of operations;
increasing scrutiny and changing expectations from investors, lenders, and
? other market participants with respect to our Environmental, Social and
Governance policies;
? any non-compliance with the
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;
? changes in worldwide trading conditions, including the impact of tariffs, trade
sanctions, boycotts and other restrictions on trade; and
? Pending and future tax law changes may result in significant additional taxes
to INSW.
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 theSecurities 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.
26
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.
? Risk Management. This section provides a general overview of how the interest
rate, currency and fuel price volatility risks are managed by the Company.
General: We are a provider of ocean transportation services for crude oil and refined petroleum products. We operate our fleet of VLCC, Suezmax, and Aframax crude tankers and LR1, LR2, and MR product carriers in the International Flag market. Our business includes two reportable segments: Crude Tankers and Product Carriers. For the three months endedMarch 31, 2023 and 2022, we derived 54% and 63%, respectively, of our TCE revenues from our Product Carriers segment. Revenues from our Crude Tankers segment constituted the balance of our TCE revenues in the 2023 and 2022 periods.
As of
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 ofU.S. domestic and international production andOPEC 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 operate 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 96% of our total TCE revenues in the spot market for the three months endedMarch 31, 2023 , compared with 94% for the three months endedMarch 31, 2022 . The following is a discussion and analysis of our financial condition as ofMarch 31, 2023 and results of operations for the three months endedMarch 31, 2023 and 2022. 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 27INTERNATIONAL SEAWAYS, INC. 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 first quarter of 2023 at 100.4 million barrels per day ("b/d"), up 0.8% from the same quarter in 2022. The estimate for global oil consumption for 2023 is 101.9 million b/d, an increase of 2.0% over 2022.OECD demand in 2023 is estimated to increase by 0.3% to 46.2 million b/d, while non-OECD demand is estimated to increase by 1.7% to 55.7 million b/d. Global oil production in the first quarter of 2023 was 100.8 million b/d, an increase of 2.2% from the first quarter of 2022.OPEC crude oil production averaged 28.8 million b/d in the first quarter of 2023, a decrease of 0.3 million b/d from the fourth quarter of 2022, and an increase of 0.4 million b/d from the first quarter of 2022. Non-OPEC production increased by 1.8 million b/d to 66.7 million b/d in the first quarter of 2023 compared with the first quarter of 2022. Oil production in theU.S. in the first quarter of 2023 increased by 0.1% to 12.5 million b/d compared to the fourth quarter of 2022 and by 1.1% from the first quarter of 2022.U.S. refinery throughput decreased by 0.7 million b/d to 15.6 million b/d in the first quarter of 2023 compared with the fourth quarter of 2022.U.S. crude oil imports in the first quarter of 2023 decreased by 0.1 million b/d to 6.3 million b/d compared with the first quarter of 2022, with imports fromOPEC countries remaining flat and imports from non-OPEC countries decreasing by 0.1 million b/d.China's average crude oil imports increased to 12.3 million b/d inMarch 2023 , an increase of 22.5% year over year. First quarter 2023 crude oil imports were up 6.7% compared with the first quarter of 2022.
Total commercial inventory stocks in the
During the first quarter of 2023, the tanker fleet of vessels over 10,000 dwt increased, net of vessels recycled, by 5.7 million dwt as the crude fleet increased by 5.1 million dwt, with VLCCs, Suezmaxes and Aframaxes growing by 3.0 million dwt, 0.5 million dwt and 1.6 million dwt, respectively. The product carrier fleet increased by 0.6 million dwt, with MRs growing 0.6 million dwt. Year-over-year, the size of the tanker fleet increased by 22.4 million dwt with the VLCCs, Suezmaxes, Aframaxes and MRs increasing by 11.8 million dwt, 3.6 million dwt, 3.7 million dwt and 3.2 million dwt, respectively. The LR1/Panamax fleet remained flat. During the first quarter of 2023, the tanker orderbook declined by 2.8 million dwt overall compared with the fourth quarter of 2022. The crude tanker orderbook decreased by 3.6 million dwt, with a decrease in the VLCC and Aframax orderbooks of 3.4 million dwt and 0.5 million dwt, respectively, and an increase in the Suezmax orderbook of 0.3 million dwt. The product carrier orderbook increased by 0.8 million dwt, with increases in the LR1 and MR sectors of 0.3 million dwt and 0.5 million dwt, respectively. Year-over-year, the total tanker orderbook decreased by 15.2 million dwt, with the MR sector remaining flat and all other sectors seeing declines. The first quarter of 2023 saw a continuation of the strength in rates experienced during 2022, as disruptions in trade flows caused by the Russian invasion ofUkraine positively affected tanker demand. First quarter earnings were significantly over 10-year average rates. Subsequent to theApril 2023 announcement of production cuts byOPEC , the markets have weakened, although they still remain historically strong. 28INTERNATIONAL SEAWAYS, INC.
Update on Critical Accounting Estimates and Policies:
The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted inthe 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 3, "Summary of Significant Accounting Policies," to the Company's consolidated financial statements as of and for the year endedDecember 31, 2022 included in the Company's Annual Report on Form 10-K. See Note 2, "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 first quarter of 2023, results from vessel operations increased by$190.9 million to income of$185.3 million from a loss of$5.6 million in the first quarter of 2022. Such increase resulted principally from a$185.3 million period-over-period increase in TCE revenues and a$9.4 million increase in net gains on the disposal of vessels and other assets in the current quarter. The increase in TCE revenues in the first quarter of 2023 of$185.3 million , or 189%, to$283.3 million from$98.0 million in the first quarter of 2022 reflects an aggregate$181.5 million rates-based increase resulting from higher average daily rates earned across all of INSW's various fleet sectors. See Note 4, "Business and Segment Reporting," to the accompanying condensed consolidated financial statements for additional information on the Company's segments, including equity in results of affiliated companies and reconciliations of (i) time charter equivalent revenues to shipping revenues and (ii) adjusted income/(loss) from vessel operations for the segments to income/(loss) before income taxes, as reported in the condensed consolidated statements of operations. 29INTERNATIONAL SEAWAYS, INC. Crude Tankers Three Months EndedMarch 31 ,
(Dollars in thousands, except daily rate amounts) 2023
2022
TCE revenues $ 129,285 $ 36,475
Vessel expenses (25,028) (23,222)
Charter hire expenses (2,490) (3,943)Depreciation and amortization (17,226)
(15,152)
Adjusted income/(loss) from vessel operations (a) $ 84,541
$ 54,390 $ 15,429
Average number of owned vessels (b) 18.0 20.0
Average number of vessels chartered-in 9.3
9.0
Number of revenue days (c) 2,377
2,364
Number of ship-operating days: (d) Owned vessels 1,621
1,800
Vessels bareboat chartered-in under leases (e) 833
810
(a) Adjusted income/(loss) from vessel operations by segment is before general
and administrative expenses, third-party debt modification fees and
loss/(gain) on disposal of vessels and other property, net of 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) Represents VLCCs and Aframaxes that secure lease financing arrangements.
30
INTERNATIONAL SEAWAYS, INC.
The following table provides a breakdown of TCE rates achieved for the three
months ended March 31, 2023 and 2022, 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 $1,266 and $732 per day for the three months ended March 31, 2023
and 2022, 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.
2023 2022
Spot Earnings Fixed Earnings Spot Earnings Fixed Earnings
Three Months Ended March 31 ,
VLCC:
Average rate $ 46,371 $ 48,118 $ 12,269 $ 45,179
Revenue days 780 112 801 35
Suezmax:
Average rate $ 58,191 $ 31,402 $ 13,610 $ 26,618
Revenue days 996 131 1,060 90
Aframax(1):
Average rate $ 50,756 $ - $ 13,216 $ -
Revenue days 330 - 307 -
Panamax:
Average rate $ - $ - $ 20,551 $ -
Revenue days - - 70 -
(1) During the three months ended
was employed on a transitional voyage in the spot market outside of its
ordinary course operations in
voyage is excluded from the table above.
During the first quarter of 2023, TCE revenues for the Crude Tankers segment increased by$92.8 million , or 254%, to$129.3 million from$36.5 million in the first quarter of 2022. Such increase principally resulted from (i) an aggregate rates-based increase in the VLCC, Suezmax and Aframax fleets of$87.6 million due to significantly higher average daily blended rates in these sectors, (ii) a$5.6 million increase in the Crude Tankers Lightering activity, and (iii) a$1.4 million days-based increase in the VLCC and Aframax fleets, which reflected 82 fewer off-hire days in the current period. These increases were partially offset by (iv) a$1.4 million days-based decrease in the Panamax fleet due to the Company's recycling of its two remaining Panamaxes inApril 2022 . Vessel expenses increased by$1.8 million to$25.0 million in the first quarter of 2023 from$23.2 million in the first quarter of 2022. Such increase was principally driven by increased costs of stores, lubricating oils and spares. Charter hire expenses decreased by$1.5 million to$2.5 million from$3.9 million in the first quarter of 2022 due to the impact of the bareboat charters for two of the Company's Aframaxes being classified as finance leases subsequent to the Company providing notice inDecember 2022 of its intention to exercise its purchase options under the bareboat charters. Depreciation and amortization increased by$2.1 million to$17.2 million in the current quarter from$15.2 million in the first quarter of 2022 principally as a result of (i) the impact of drydockings and ballast water treatment system and scrubber installations performed during 2022 and the first quarter of 2023, (ii)$0.7 million in amortization in the first quarter of 2023 relating to the two Aframaxes classified as finance leases as discussed above, and (iii) the commencement of depreciation on the first of the Company's three dual-fuel LNG VLCC newbuilds, which was delivered to the Company in earlyMarch 2023 . Such increases in depreciation expense were partially offset by decreases related to the recyclings of the Panamaxes in 2022. Excluding depreciation and amortization and general and administrative expenses, operating income for the Crude Tankers Lightering business was$6.0 million for the first quarter of 2023 compared to$0.9 million for the first quarter of 2022, with the increase principally attributable to 122 service support only lighterings being performed during the three months endedMarch 31, 2023 compared to the 80 performed during the three months endedMarch 31, 2022 . In addition, there was an increase in the average rate earned per operation in the 2023 period compared with the comparable period in 2022. 31INTERNATIONAL SEAWAYS, INC. Product Carriers Three Months EndedMarch 31 ,
(Dollars in thousands, except daily rate amounts) 2023
2022
TCE revenues $ 154,035 $ 61,500
Vessel expenses (33,741) (37,094)
Charter hire expenses (6,310) (3,367)Depreciation and amortization (12,294)
(11,841)
Adjusted income from vessel operations$ 101,690 $ 9,198 Average daily TCE rate $ 37,726$ 14,362 Average number of owned vessels 39.8
48.2
Average number of vessels chartered-in 7.9
5.6
Number of revenue days 4,083
4,282
Number of ship-operating days: Owned vessels 3,582
4,341
Vessels bareboat chartered-in under leases (a) 450
257
Vessels time chartered-in under leases 264
245
(a) Represents an LR2 and MRs that secure lease financing arrangements.
The following table provides a breakdown of TCE rates achieved for the three months endedMarch 31, 2023 and 2022, 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$787 and$618 per day for the three months endedMarch 31, 2023 and 2022, respectively, as well as revenue and revenue days for which recoveries were recorded by the Company under its loss of hire insurance policies. 2023
2022
Spot Earnings Fixed Earnings Spot Earnings Fixed Earnings
Three Months Ended March 31 ,
LR2:
Average rate $ - $ 19,108 $ - $ 17,145
Revenue days - 90 - 90
LR1(1):
Average rate $ 70,838 $ - $ 20,300 $ -
Revenue days 800 - 678 -
MR(2):
Average rate $ 31,468 $ 18,434 $ 14,030 $ 15,119
Revenue days 3,087 90 3,115 56
Handy:
Average rate $ - $ - $ 12,251 $ -
Revenue days - - 343 -
(1) During the 2023 and 2022 periods, each of the Company's LR1s operated in the
(2) During the three months ended
transitional voyage in the spot market outside of its ordinary course
operations in Norden's
transitional voyage is excluded from the table above.
32
INTERNATIONAL SEAWAYS, INC.
During the first quarter of 2023, TCE revenues for the Product Carriers segment
increased by $92.5 million , or 150%, to $154.0 million from $61.5 million in the
first quarter of 2022. The growth in TCE revenues was primarily as a result of
substantial period-over-period increases in average daily blended rates earned
in the MR and LR1 fleet sectors, which accounted for a rates-based increase of
$93.7 million . Also contributing to the increased TCE revenues was a $2.4
million days-based increase in the LR1 fleet, which reflected (i) the delivery
of one time chartered-in 2009-built LR1 in February 2022 , and (ii) the purchase
of a 2011-built LR1 in February 2022 . Partially offsetting these
quarter-over-quarter increases was a $4.0 million decrease in TCE revenues due
to the sales of the Company's four remaining Handysize vessels during the second
quarter of 2022.
Vessel expenses decreased by $3.4 million to $33.7 million in the first quarter
of 2023 from $37.1 million in the first quarter of 2022. Such decrease reflects
fewer operating days in the current period, which resulted from the sales of the
four Handysizes noted above, as well as the sales of four MRs between March 2022
and March 2023 . Charter hire expenses increased by $2.9 million to $6.3 million
in the current quarter from $3.4 million in the first quarter of 2022, primarily
as a result of the time chartered-in LR1 described above and an increased daily
rate for a time chartered-in 2008-built LR1 upon the Company's extension of such
time charter in October 2022 . Depreciation and amortization increased by $0.5
million to $12.3 million in the current quarter from $11.8 million in the prior
year's quarter. Such increase resulted primarily from the impact of the purchase
of the LR1 noted above and increased drydock amortization, offset by the impact
of the sales of the Handysize and MR vessels described above.
General and Administrative Expenses
During the first quarter of 2023, general and administrative expenses increased by$1.1 million to$11.2 million from$10.2 million in the first quarter of 2022. The primary drivers for such increase was higher compensation and benefits costs of$1.3 million , of which$0.8 million relates to non-cash stock compensation, and increased travel and entertainment costs of$0.4 million , reflecting further easing of COVID related travel restrictions in 2023 compared to the first quarter of 2022.
Equity in Results of Affiliated Companies
During the three months endedMarch 31, 2023 , equity in results of affiliated companies decreased by$5.6 million compared with the corresponding 2022 period. This decrease was attributable to the sale of the Company's interest in the FSO joint ventures onJune 7, 2022 .
Other Income/(Expense)
Other income was$4.3 million for the three months endedMarch 31, 2023 compared with$0.2 million of other expense for the three months endedMarch 31, 2022 . The current period other income includes$4.1 million of interest income from invested cash, resulting from a significant increase in the average balance of invested cash and the rates earned on such investments during 2023 compared to 2022. Both periods reflect net actuarial gains and currency gains (2023 period) or losses (2022 period) associated with the retirement benefit obligation in theUnited Kingdom . Interest Expense
The components of interest expense are as follows:
Three Months Ended March 31 ,
(Dollars in thousands) 2023 2022
Interest before items shown below $ 20,741$ 11,701 Interest cost on defined benefit pension obligation 330
125
Impact of interest rate hedge derivatives (2,384)
1,574
Capitalized interest (1,740) (660)
Interest expense $ 16,947 $ 12,740
33
INTERNATIONAL SEAWAYS, INC.
Interest expense was $16.9 million and $12.7 million for the three months ended
March 31, 2023 and 2022, respectively. Interest expense increased as a result of
(i) higher average floating interest rates during the three months ended March
31, 2023 compared with the corresponding period of 2022, (ii) the impact of two
lease financings entered into during the second quarter of 2022 and (iii)
post-delivery interest expense related to BoComm Lease Financing. See Note 8,
"Debt," in the accompanying condensed consolidated financial statements for
further information on the Company's debt facilities.
Taxes
As ofMarch 31, 2023 , the Company believes it will qualify for an exemption fromU.S. federal income taxes under Section 883 of theU.S. Internal Revenue Code of 1986, as amended (the "Code") andU.S. Treasury Department regulations for the 2023 calendar year, so long as less than 50 percent of the total value of the Company's stock is held by one or more shareholders who own 5% or more of the Company's stock for more than half of the days of 2023. There can be no assurance at this time that INSW will continue to qualify for the Section 883 exemption beyond calendar year 2023. Should the Company not qualify for the exemption in the future, INSW will be subject toU.S. federal income taxation of 4% of itsU.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 theU.S. will be considered to be 50% derived from sources within theUnited States. Shipping income attributable to transportation that both begins and ends in theU.S. would be considered to be 100% derived from sources withinthe 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.
The following table reconciles net income/(loss), as reflected in the condensed consolidated statements of operations, to EBITDA and Adjusted EBITDA:
34
INTERNATIONAL SEAWAYS, INC.
Three Months Ended March 31,
(Dollars in thousands) 2023 2022
Net income/(loss) $ 172,633 $ (13,001) Income tax (benefit)/provision (1) 4 Interest expense 16,947 12,740 Depreciation and amortization 29,548 27,000 EBITDA 219,127 26,743 Amortization of time charter contracts acquired - 340 Third-party debt modification fees 407 187 Gain on disposal of vessels and other assets, net of impairments (10,748) (1,376) Write-off of deferred financing costs
166 133
Adjusted EBITDA $ 208,952 $ 26,027 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 As ofMarch 31, 2023 , we had total liquidity on a consolidated basis of$518.6 million comprised of$156.2 million of cash,$105.0 million of short-term investments, and$257.4 million of undrawn revolver capacity. The$18.3 million restricted cash balance represents cash held in escrow in relation to the Company's exercise of its option to purchase a bareboat chartered-in 2009-built Aframax, the purchase of which closed in earlyApril 2023 . Working capital atMarch 31, 2023 andDecember 31, 2022 was$335.1 million and$385.2 million , respectively. Current assets are highly liquid, consisting principally of cash, interest-bearing deposits, short-term investments consisting of time deposits with original maturities of between 91 and 180 days, and receivables. Current liabilities include current installments of long-term debt and finance lease liabilities of$173.9 million and$204.7 million atMarch 31, 2023 andDecember 31, 2022 , respectively. The Company's total cash decreased by$69.2 million during the three months endedMarch 31, 2023 . This decrease reflects (i)$98.3 million of cash dividends paid to shareholders, (ii) a$97.0 million debt prepayment made in conjunction with an amendment to the$750 Million Credit Facility, (iii)$10.0 million in expenditures for vessels and other property including construction costs for three dual-fuel LNG VLCCs, net of proceeds from the issuance of related lease financing, (iv)$41.4 million in scheduled principal amortization for the Company's secured debt facilities and lease financing arrangements, (v)$25.0 million in net cash invested in short-term investments, and (vi)$22.6 million in finance lease liability extinguishments relating to the Company exercising its options to purchase two 2009-built Aframaxes that it had been bareboat chartering-in. Such cash outflows were offset to a large extent by (i) cash provided by operating activities of$220.8 million , and (ii) proceeds from the disposal of vessels and other assets of$10.3 million , net of the prepayment of associated debt. Our cash and cash equivalents balances generally exceedFederal 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 inU.S. Treasury securities or other obligations issued or guaranteed by theU.S. government or its agencies, floating rate and variable demand notes ofU.S. and foreign corporations, commercial paper rated in the highest category byMoody's Investor Services andStandard & Poor's , certificates of deposit and time deposits, asset-backed securities, and repurchase agreements.
As of
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INTERNATIONAL SEAWAYS, INC. Sources, Uses and Management of Capital
During 2022, as the tanker cycle recovered from the historical lows of 2021, we increased our overall liquidity with vessel sales, a refinancing that increased the capacity of our revolving credit and cash from operations. With strong market conditions continuing in 2023, we have used incremental liquidity generated from operations to invest in the fleet, reduce debt levels and make returns to shareholders. 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, pay newbuilding construction costs, comply with international shipping standards and environmental laws and regulations, repay or repurchase our outstanding loan facilities, pay a regular quarterly cash dividend, and from time to time, repurchase shares of our common stock and pay supplemental cash dividends. The following is a summary of the significant capital allocation activities the Company executed during the first quarter of 2023 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: During the first quarter of 2023, the Company's Board of Directors declared a regular quarterly cash dividend of$0.12 per share of common stock and a supplemental cash dividend of$1.88 per share of common stock. Pursuant to such dividend declarations, the Company made dividend payments totaling$98.3 million during the three months endedMarch 31, 2023 . OnMay 4, 2023 , the Company's Board of Directors declared a regular quarterly cash dividend of$0.12 per share of common stock and a supplemental dividend of$1.50 per share of common stock. Both dividends will be paid onJune 28, 2023 to stockholders of record as ofJune 14, 2023 . InDecember 2022 the Company tendered notice of its intention to exercise its options to purchase two 2009-built Aframaxes that it had been bareboat chartering-in. The aggregate purchase price for the two vessels was$43.0 million , representing an approximately 45% discount to the current market price of the vessels. The first of the two vessels was purchased inMarch 2023 , and the second in earlyApril 2023 . OnMarch 10, 2023 the Company entered into an amendment to the$750 Million Credit Facility agreement. Pursuant to the amendment, theCompany (a) prepaid$97 million of outstanding principal under the$750 Million Facility Term Loan; (b) obtained a release of collateral vessel mortgages over 22 MR product carriers; and (c) received from the lenders additional revolving credit commitments in an aggregate amount of$40 million , which additional commitments constitute an increase to, and are subject to the same terms and conditions as, the previously-existing revolving credit commitments. Following the effectiveness of the amendment, the aggregate principal commitments available under the$750 Million Facility Revolving Loan was$257.4 million (none of which was outstanding) and the scheduled future quarterly principal amortization under the$750 Million Facility Term Loan decreased from$30.2 million to$27.7 million . OnMarch 14, 2023 the Company sold a 2008-built MR for approximately$20.5 million , saving the Company the cost of having to conduct a third special survey and install a ballast water treatment system on the vessel. The sale also resulted in a mandatory principal prepayment of approximately$9.7 million of the$750 Million Facility Term Loan and a$0.4 million further reduction in the scheduled future quarterly principal amortization. As ofMarch 31, 2023 , the Company has vessel construction commitments for two dual-fuel LNG VLCCs. The Company also has contractual commitments for the purchase and installation of 11 ballast water treatment systems and ten Mewis ducts, and the final outstanding installment payments due for eight ballast water treatment systems that had been installed as ofMarch 31, 2023 . The Company's debt service commitments and aggregate purchase commitments for vessel construction and betterments as ofMarch 31, 2023 , are presented in the Aggregate Contractual Obligations Table below. 36INTERNATIONAL SEAWAYS, INC. Outlook
Our strong balance sheet, as evidenced by a substantial level of liquidity, 26 unencumbered vessels, and diversified financing sources with debt maturities spread out between 2026 and 2031, positions us to support our operations over the next twelve months as we continue to advance our disciplined capital allocation strategy of fleet renewal, incremental debt reduction and returns to shareholders and pursue potential strategic opportunities that may arise within the diverse sectors in which we operate.
Off-Balance Sheet Arrangements
Pursuant to an agreement between INSW and the trustees of theOSG Ship Management (UK) Ltd. Retirement Benefits Plan (the "Scheme"), INSW guarantees the obligations ofINSW Ship Management UK Ltd. , a subsidiary of INSW, to make payments to the Scheme.
Aggregate Contractual Obligations
A summary of the Company's long-term contractual obligations as ofMarch 31, 2023 follows: Beyond (Dollars in thousands) 2023 2024 2025 2026 2027 2027 Total$750 Million Facility Term Loan - floating rate(1)$ 96,944 $ 123,597 $ 116,814 $ 57,909 $ - $ -$ 395,264 ING Credit Facility - floating rate(2) 2,698 3,484 3,335 17,773 - - 27,290 Ocean Yield Lease Financing - floating rate(3) 43,457 55,470 52,706 50,184 48,330 244,267 494,414 COSCO Lease Financing - floating rate(2) 6,804 8,676 8,226 7,777 7,333 24,107 62,923 BoComm Lease Financing - fixed rate(4) 22,512 23,809 23,744 23,743 23,742 189,345 306,895 Toshin Lease Financing - fixed rate(4) 1,860 2,223 2,160 2,160 2,151 9,157 19,711 Hyuga Lease Financing - fixed rate(4) 1,701 2,456 2,232 2,232 2,232 8,576 19,429 Kaiyo Lease Financing - fixed rate(4) 1,688 2,250 2,250 2,410 2,214 6,555 17,367 Kaisha Lease Financing - fixed rate(4) 1,688 2,250 2,438 2,225 2,214 6,715 17,530 Operating lease obligations(5) Office and other space 159 973 998 1,024
1,077 5,831 10,062 Finance lease obligations(6) Bareboat Charter-ins 18,329 - - - - - 18,329 Vessel and vessel
betterment commitments(7) 12,458 1,254 - -
- - 13,712
Total $ 210,298 $ 226,442 $ 214,903 $ 167,437 $ 89,293 $ 494,553 $ 1,402,926 (1) Amounts shown include contractual interest obligations on
outstanding floating rate debt estimated based on the applicable margin for
the
the related interest rate swaps of 2.84%.
(2) Amounts shown include contractual interest obligations of outstanding
floating rate debts estimated based on the applicable margin plus the
effective three-month LIBOR rate as of
Lease Financing and 4.87% for the ING Credit Facility.
(3) Amounts shown include contractual interest obligations on
outstanding floating rate debt estimated based on the applicable margin for
the Ocean Yield Lease Financing of 4.05% plus the fixed rate stated in the
interest rate swaps (assigned for accounting purposes) of 2.84% on
million of notional principal amount outstanding and the effective
three-month LIBOR rate as of March 31, 2023 of 4.80% for the remaining
outstanding principal under the Ocean Yield Lease Financing.
(4) Amounts shown include contractual implicit interest obligations of the lease
financing under the bareboat charters. In addition, BoComm Lease Financing
includes 3.5% interest during the construction period and 1% commitment fee,
prior to the commencement of the bareboat charter, and post-delivery rate is
4.22%. BoComm Lease Financing amounts include both the outstanding principal
amount and the undrawn amount as of
$115.2 million , respectively. 37INTERNATIONAL SEAWAYS, INC.
(5) The full amounts due under office and other space leases are discounted and
reflected on the Company's consolidated condensed balance sheet as lease
liabilities with corresponding right of use asset balances.
(6) Amount shown includes purchase option price obligation and remaining
charter-in commitment for one 2009-built Aframax that is currently bareboat
chartered-in. The purchase closed in early
(7) Represents the Company's commitments under contracts for the purchase and
installation of ballast water treatment systems on 11 vessels, and
installation of mewis duct systems on ten vessels.
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 variable 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, theSecurities and Exchange Commission . The public may also read and copy any materials the Company files with theSEC at theSEC's Public Reference Room at 100 F Street,N.E. Washington D.C . 20549 (information on the operation of thePublic Reference Room is available by calling theSEC at 1-800-SEC -0330). TheSEC also maintains a web site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with theSEC 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, theHuman Resources and Compensation Committee and theCorporate 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 applicableSEC 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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INTERNATIONAL SEAWAYS, INC.
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