# International Seaways, Inc. (INSW) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from International Seaways, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1679049/000155837022002682/insw-20211231x10k.htm
Accession: 0001558370-22-002682
Filing date: 2022-03-02
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/INSW/
All MD&A years: /company/INSW/mda/
Next year: /company/INSW/mda/fy2022/ (FY 2022)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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INTRODUCTION

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This MD&A, which should be read in conjunction with our accompanying consolidated financial statements as set forth in Item 8, “Financial Statements and Supplementary Data,” provides a discussion and analysis of our business, current developments, financial condition, cash flows and results of operations. It is organized as follows:

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[[GREPCENT_TABLE]]
[["","\u25cf","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."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","\u25cf","Operations & Oil Tanker Markets. This section provides an overview of industry operations and dynamics that have an impact on the Company\u2019s financial position and results of operations."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","\u25cf","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."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","\u25cf","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\u2019s planned and/or already executed capital allocation activities."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","\u25cf","Critical Accounting Estimates and Policies. This section identifies those accounting policies that are considered important to our results of operations and financial condition, require significant judgment and involve significant management estimates."]]
[[/GREPCENT_TABLE]]

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We have elected to omit discussions on the comparison of operating results for the year ended December 31, 2020 to the year ended December 31, 2019, the earliest of the three years covered by the consolidated financial statements presented. Refer to Item 7 of our Form 10-K for the year ended December 31, 2020 filed on March 12, 2021, for reference to a discussion of the operating results for the year ended December 31, 2020 to those for the year ended December 31, 2019, the earliest of the three years presented.

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GENERAL

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We are a provider of ocean transportation services for crude oil and refined petroleum products. We operate our vessels in the International Flag market. Our business includes two reportable segments: Crude Tankers and Product Carriers. For the years ended December 31, 2021 and 2020 we derived 56% and 79%, respectively, of our TCE revenues from our Crude Tankers segment. Revenues from our Product Carriers segment constituted the balance of our TCE revenues during these periods.

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As described in Note 2, “Merger Transaction,” to the accompanying consolidated financial statements as set forth in Item 8, “Financial Statements and Supplementary Data,” 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 December 31, 2021, we owned or operated an International Flag fleet of 83 vessels aggregating 9.3 million dwt, including 12 vessels that have been chartered-in under operating leases for durations exceeding one year at inception, and two FSO service vessels in which we have ownership interests through joint venture partnerships (the “JV Vessels”). In addition to our operating fleet of 83 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 86 vessels. Our fleet includes VLCC, Suezmax, Aframax and Panamax crude tankers and LR2, LR1, MR and Handysize product carriers.

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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

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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 the majority 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 81% and 79% of our total TCE revenues in the spot market for the years ended December 31, 2021 and 2020, respectively.

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OPERATIONS AND OIL TANKER MARKETS

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The International Energy Agency (“IEA”) estimates global oil consumption for the fourth quarter of 2021 at 99.0 million barrels per day (“b/d”), up 5.2% from the same quarter in 2020. The estimate for global oil consumption for 2022 is 99.7 million b/d, an increase of 3.4% over 2021. OECD demand in 2022 is estimated to increase by 3.8% to 46.2 million b/d, while non-OECD demand is estimated to increase by 3.3% to 53.5 million b/d.

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Global oil production in the fourth quarter of 2021 was 98.2 million b/d, an increase of 6.4% from the fourth quarter of 2020. OPEC crude oil production averaged 27.7 million b/d in the fourth quarter of 2021, an increase of 0.8 million b/d from the third quarter of 2021, and an increase of 2.8 million b/d from the fourth quarter of 2020. Non-OPEC production increased by 3.1 million b/d to 65.3 million b/d in the fourth quarter of 2021 compared with the fourth quarter of 2020. Oil production in the U.S. in the fourth quarter of 2021 increased by 3.7% to 11.8 million b/d compared to the third quarter of 2021 and by 5.7% from the fourth quarter of 2020.

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U.S. refinery throughput decreased by 0.3 million b/d to 16.2 million b/d in the fourth quarter of 2021 compared with the third quarter of 2021. U.S. crude oil imports in the fourth quarter of 2021 increased by 0.7 million b/d to 6.3 million b/d compared with the fourth quarter of 2020, with imports from OPEC countries increasing by 0.3 million b/d and imports from non-OPEC countries increasing by 0.4 million b/d.

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China’s crude oil imports declined to 10.3 million b/d in 2021, a 5.4% decrease when compared with 2020. However, December 2021 imports of 10.9 million b/d were up 20% year over year, and the highest number since March 2021.

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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 continued to be drawn down during the fourth quarter of 2021 to significantly below the average over the last five years. Total commercial stocks in the OECD declined by approximately 354 million barrels in the year ending November 2021, the most recent available combined inventory data. Large draws in total inventories have negatively impacted current tanker market earnings.

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During the fourth quarter of 2021, the tanker fleet of vessels over 10,000 dwt decreased, net of vessels recycled, by 0.4 million dwt as the crude fleet decreased by 0.6 million dwt, with VLCCs growing by 0.6 million dwt, Suezmaxes declining by 1.2 million dwt, and Aframaxes remaining flat. The product carrier fleet increased by 0.2 million dwt. Year-over-year, the size of the tanker fleet increased by 10.4 million dwt with the VLCCs, Suezmaxes, Aframaxes and MRs increasing by 5.4 million dwt, 1.2 million dwt, 2.4 million dwt and 2.0 million dwt, respectively. The LR1/Panamax fleet declined by 0.5 million dwt.

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During the fourth quarter of 2021, the tanker orderbook declined by 2.5 million dwt overall compared with the third quarter of 2021. The crude tanker orderbook decreased by 1.3 million dwt, with decreases in the VLCC and Suezmax sectors of 1.8 million dwt and 0.2 million dwt, respectively. The Aframax orderbook increased by 0.7 million dwt. The product carrier orderbook decreased by 1.2 million dwt, all in the MR sector. Year-over-year, the total tanker orderbook decreased by 6.9 million dwt, with all sectors seeing declines.

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After a weak three quarters of 2021, crude tanker rates remained under pressure and operated at or below industry average cash breakeven levels on benchmark routes during the fourth quarter of 2021. Smaller product carriers fared better although still at weak levels. So far in the first quarter of 2022, rates in all segments continue to be weak. We continue to believe that the outlook for the tanker markets remains constructive based on the underlying fundamentals such as: an historically low orderbook levels, an aged fleet coupled with high current recycling rates, and incoming emissions regulations. Increases in oil demand and an anticipated need for

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inventory restocking could provide catalysts in 2022, subject to any further negative implications of COVID-19 and further strengthening in oil prices.

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The pandemic involving the novel coronavirus (COVID-19) has adversely affected the Company’s business, operations and financial results, and may likely continue to do so. See Item 1A, Risk Factors - 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.

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RESULTS FROM VESSEL OPERATIONS

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During 2021, income from vessel operations decreased by $152.0 million to a loss of $112.1 million from income of $39.9 million in 2020. Such decrease resulted principally from the significant decline in TCE revenues in 2021 compared to 2020, the $50.7 million of one-time merger and integration related costs incurred in the current year 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, significantly offset by a net gain on disposal of vessels, including impairments of $9.7 million in 2021 compared with a loss of $100.1 million in 2020.

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The decrease in TCE revenues in 2021 of $146.1 million, or 36%, to $255.9 million from $402.0 million in 2020 primarily reflects lower average daily rates across all of INSW’s fleet sectors, which accounted for a rates-based decrease of approximately $253.9 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 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.

​

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The following tables provide a quarterly trend analysis of spot TCE rates earned between the fourth quarter of 2020 and 2021 by our Crude Tankers and Product Carriers fleet. See segment discussion below for a description of the market factors that impacted the quarterly trend of spot rates during 2021.

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Spot Earnings for the Quarter Ended"],["Crude Tankers","\u200b","December 31, 2020","\u200b","March 31, 2021","\u200b","June 30, 2021","\u200b","September 30, 2021","\u200b","December 31, 2021"],["VLCC:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average rate","\u200b","$","17,507","\u200b","$","15,721","\u200b","$","13,684","\u200b","$","10,686","\u200b","$","14,326"],["Revenue days","\u200b","\u200b","750","\u200b","\u200b","759","\u200b","\u200b","651","\u200b","\u200b","761","\u200b","\u200b","778"],["Suezmax:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average rate","\u200b","$","10,406","\u200b","$","12,215","\u200b","$","18,485","\u200b","$","10,650","\u200b","$","13,069"],["Revenue days","\u200b","\u200b","184","\u200b","\u200b","180","\u200b","\u200b","182","\u200b","\u200b","748","\u200b","\u200b","1,084"],["Aframax:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average rate","\u200b","$","8,120","\u200b","$","11,665","\u200b","$","8,589","\u200b","$","11,361","\u200b","$","11,537"],["Revenue days","\u200b","\u200b","307","\u200b","\u200b","270","\u200b","\u200b","266","\u200b","\u200b","276","\u200b","\u200b","275"],["Panamax:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average rate","\u200b","$","9,517","\u200b","$","14,172","\u200b","$","16,535","\u200b","$","9,755","\u200b","$","15,037"],["Revenue days","\u200b","\u200b","92","\u200b","\u200b","90","\u200b","\u200b","91","\u200b","\u200b","151","\u200b","\u200b","105"]]
[[/GREPCENT_TABLE]]

​

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Spot Earnings for the Quarter Ended"],["Product Carriers","\u200b","December 31, 2020","\u200b","March 31, 2021","\u200b","June 30, 2021","\u200b","September 30, 2021","\u200b","December 31, 2021"],["LR2","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average rate","\u200b","$","16,795","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014"],["Revenue days","\u200b","\u200b","37","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"],["LR1","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average rate","\u200b","$","14,867","\u200b","$","12,860","\u200b","$","15,291","\u200b","$","12,476","\u200b","$","17,422"],["Revenue days","\u200b","\u200b","305","\u200b","\u200b","374","\u200b","\u200b","541","\u200b","\u200b","523","\u200b","\u200b","614"],["MR","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average rate","\u200b","$","10,045","\u200b","$","7,449","\u200b","$","10,627","\u200b","$","10,000","\u200b","$","11,311"],["Revenue days","\u200b","\u200b","347","\u200b","\u200b","375","\u200b","\u200b","410","\u200b","\u200b","2,668","\u200b","\u200b","3,040"],["Handy","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average rate","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","6,311","\u200b","$","11,300"],["Revenue days","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","319","\u200b","\u200b","316"]]
[[/GREPCENT_TABLE]]

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See Note 5, “Business and Segment Reporting,” to the Company’s consolidated financial statements as set forth in Item 8, “Financial Statements and Supplementary Data,” 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/(loss) from vessel operations for the segments to loss before income taxes, as reported in the consolidated statements of operations.

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Crude Tankers

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(Dollars in thousands, except daily rate amounts)","\u200b","2021","\u200b","2020"],["TCE revenues","\u200b","$","144,286","\u200b","$","318,588"],["Vessel expenses","\u200b","\u200b","(95,805)","\u200b","\u200b","(97,354)"],["Charter hire expenses","\u200b","\u200b","(16,282)","\u200b","\u200b","(18,803)"],["Depreciation and amortization","\u200b","\u200b","(57,870)","\u200b","\u200b","(57,980)"],["Adjusted income from vessel operations (a)","\u200b","$","(25,671)","\u200b","$","144,451"],["Average daily TCE rate","\u200b","$","15,986","\u200b","$","38,509"],["Average number of owned vessels (b)","\u200b","\u200b","24.8","\u200b","\u200b","23.8"],["Average number of vessels chartered-in under operating leases","\u200b","\u200b","2.9","\u200b","\u200b","2.1"],["Number of revenue days: (c)","\u200b","\u200b","9,026","\u200b","\u200b","8,273"],["Number of ship-operating days: (d)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Owned vessels","\u200b","\u200b","9,061","\u200b","\u200b","8,698"],["Vessels bareboat chartered-in under operating leases","\u200b","\u200b","1,062","\u200b","\u200b","732"],["Vessels time chartered-in under operating leases (e)","\u200b","\u200b","\u2014","\u200b","\u200b","44"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(b)","The average is calculated to reflect the addition and disposal of vessels during the period."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(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\u2019s interest in chartered-in vessels."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(d)","Ship-operating days represent calendar days."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(e)","The Company\u2019s Crude Tankers Lightering business time chartered-in one vessel under an operating lease for a portion of the year ended December 31, 2020. No vessel was time chartered-in for the Company\u2019s Crude Tankers Lightering business during the year ended December 31, 2021."]]
[[/GREPCENT_TABLE]]

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The following table provides a breakdown of TCE rates achieved for the years ended December 31, 2021 and 2020 between spot and fixed earnings and the related revenue days. The information 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 $592 and $674 per day in 2021 and 2020, respectively, as well as revenue and revenue days for which recoveries were recorded by the Company under its loss of hire insurance policies.

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","2021","\u200b","2020"],["\u200b","\u200b","Spot Earnings","\u200b","Fixed Earnings","\u200b","Spot Earnings","\u200b","Fixed Earnings"],["VLCC:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average rate","\u200b","$","13,604","\u200b","$","45,280","\u200b","$","46,948","\u200b","$","68,658"],["Revenue days","\u200b","\u200b","2,948","\u200b","\u200b","412","\u200b","\u200b","3,072","\u200b","\u200b","883"],["Suezmax (1):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average rate","\u200b","$","12,624","\u200b","$","26,953","\u200b","$","32,515","\u200b","$","\u2014"],["Revenue days","\u200b","\u200b","2,193","\u200b","\u200b","168","\u200b","\u200b","725","\u200b","\u200b","\u2014"],["Aframax:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average rate","\u200b","$","10,803","\u200b","$","25,740","\u200b","$","20,526","\u200b","$","\u2014"],["Revenue days","\u200b","\u200b","1,087","\u200b","\u200b","144","\u200b","\u200b","1,369","\u200b","\u200b","\u2014"],["Panamax:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average rate","\u200b","$","13,346","\u200b","$","11,007","\u200b","$","24,810","\u200b","$","15,765"],["Revenue days","\u200b","\u200b","437","\u200b","\u200b","1,370","\u200b","\u200b","392","\u200b","\u200b","1,645"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Excludes transitional voyages in the spot market prior to delivering to the pool for Suezmaxes acquired through the Merger."]]
[[/GREPCENT_TABLE]]

​

During 2021, TCE revenues for the Crude Tankers segment decreased by $174.3 million, or 55%, to $144.3 million from $318.6 million in 2020, principally as a result of significantly lower average blended rates across all the Crude Tankers sectors aggregating approximately $186.8 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

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during the second half of 2020, continued throughout 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.

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Also contributing to the decrease was an aggregate 1,065-day decrease in VLCC, Panamax and Aframax revenue days, which had the effect of decreasing TCE revenues by $42.2 million and was driven by (a) the sales of three older VLCCs between November 2020 and July 2021, (b) the sale of four 2002-built Panamaxes and one 2003-built Panamax between August and December of 2021, and (c) a 122-day decrease in the Aframax fleet reflecting the sale of a 2001-built Aframax in November 2020 partially offset by the acquisition of one Aframax as a part of the Merger. Such declines were partially offset by a $59.8 million days-based increase in the Suezmax fleet which reflected the Company’s acquisition of 13 Suezmaxes as a part of the Merger. The Company’s 2002-built Panamax has been held by Indonesian authorities since September 2021, pending the completion of an investigation. It is expected to remain off hire upon its release in 2022 until its planned sale for recycling.

​

Vessel expenses decreased by $1.6 million to $95.8 million in 2021 from $97.4 million in 2020. Such decrease reflects declines in the VLCC, Panamax and Aframax fleets principally resulting from the vessel transactions noted above, substantially offset by a $17.7 million increase in the Suezmax fleet, which was driven by the vessels acquired in the Merger. Charter hire expenses decreased by $2.5 million to $16.3 million in 2021 from $18.8 million in 2020. The decrease reflects 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. Depreciation and amortization decreased by $0.1 million to $57.9 million in 2021 from $58.0 million in 2020. Such decrease resulted from the vessel sales noted above and impairment charges recorded in December 2020, offset to a large extent by the Merger-related additions to the Suezmax and Aframax fleets noted above, along with the impacts of scrubber installations and drydockings performed during 2020 and 2021.

​

Excluding depreciation and amortization, the reversal of expected credit losses and general and administrative expenses, operating income for the Crude Tankers Lightering business was $6.0 million for 2021 compared to $6.6 million for 2020. The decrease in the current period’s operating income as compared to prior year’s period primarily reflects lower levels of lightering activity in 2021. During 2021, 343 service support only lighterings were performed, as compared to 369 service support only lighterings in the prior year. Additionally, during 2020 the Crude Tankers Lightering business utilized its chartered-in Aframaxes on three spot voyages.

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Product Carriers

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(Dollars in thousands, except daily rate amounts)","\u200b","2021","\u200b","2020"],["TCE revenues","\u200b","$","111,574","\u200b","$","83,417"],["Vessel expenses","\u200b","\u200b","(87,251)","\u200b","\u200b","(31,019)"],["Charter hire expenses","\u200b","\u200b","(7,653)","\u200b","\u200b","(11,311)"],["Depreciation and amortization","\u200b","\u200b","(28,739)","\u200b","\u200b","(16,269)"],["Adjusted income from vessel operations","\u200b","$","(12,069)","\u200b","$","24,818"],["Average daily TCE rate","\u200b","$","10,842","\u200b","$","20,745"],["Average number of owned vessels","\u200b","\u200b","30.0","\u200b","\u200b","9.9"],["Average number of vessels chartered-in under operating leases","\u200b","\u200b","1.6","\u200b","\u200b","2.1"],["Number of revenue days","\u200b","\u200b","10,291","\u200b","\u200b","4,021"],["Number of ship-operating days:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Owned vessels","\u200b","\u200b","10,938","\u200b","\u200b","3,611"],["Vessels bareboat chartered-in under operating leases","\u200b","\u200b","32","\u200b","\u200b","\u2014"],["Vessels time chartered-in under operating leases","\u200b","\u200b","569","\u200b","\u200b","763"]]
[[/GREPCENT_TABLE]]

​

​

53

International Seaways, Inc.

Table of Contents

The following table provides a breakdown of TCE rates achieved for the years ended December 31, 2021 and 2020 between spot and fixed earnings and the related revenue days. The information 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 $624 and $659 per day in 2021 and 2020, respectively, as well as revenue and revenue days for which recoveries were recorded by the Company under its loss of hire insurance policies.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","2021","\u200b","2020"],["\u200b","\u200b","Spot Earnings","\u200b","Fixed Earnings","\u200b","Spot Earnings","\u200b","Fixed Earnings"],["LR2:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average rate","\u200b","$","\u2014","\u200b","$","17,637","\u200b","$","28,202","\u200b","$","17,371"],["Revenue days","\u200b","\u200b","\u2014","\u200b","\u200b","364","\u200b","\u200b","310","\u200b","\u200b","52"],["LR1 (1):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average rate","\u200b","$","14,768","\u200b","$","\u2014","\u200b","$","25,721","\u200b","$","\u2014"],["Revenue days","\u200b","\u200b","2,052","\u200b","\u200b","\u2014","\u200b","\u200b","1,872","\u200b","\u200b","\u2014"],["MR (2):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average rate","\u200b","$","10,506","\u200b","$","16,044","\u200b","$","16,373","\u200b","$","\u2014"],["Revenue days","\u200b","\u200b","6,492","\u200b","\u200b","176","\u200b","\u200b","1,787","\u200b","\u200b","\u2014"],["Handy:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average rate","\u200b","$","8,790","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014"],["Revenue days","\u200b","\u200b","635","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","During the 2021 and 2020 periods, each of the Company\u2019s LR1s participated in the Panamax International Pool and transported crude oil cargoes exclusively."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Excludes transitional voyages in the spot market (while not operating in a commercial pool) for MRs acquired through the Merger."]]
[[/GREPCENT_TABLE]]

​

During 2021, TCE revenues for the Product Carriers segment increased by $28.2 million, or 34%, to $111.6 million from $83.4 million in 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, partially offset by 705 more offhire days in the current year (primarily drydock related), were the primary drivers of a 5,431-day increase in MR revenue days during the current year, which contributed a $85.1 million days-based increase in TCE revenues. Additionally, there was a $5.0 million days-based increase in the LR1 fleet, which reflected (i) the purchase of a 2009-built LR1 that was delivered to the Company in February 2020, (ii) the delivery of two time chartered-in 2008-built LR1s to the Company between August and October 2021, and (iii) 109 fewer off-hire days in the current year, partially offset by (iv) the redelivery of a 2006-built LR1 to its owners at the expiry of its two year charter in August 2021. The Company also acquired six Handysize vessels in the Merger, and subsequently sold two of them in the fourth quarter of 2021. These incremental vessels in the Company’s fleet contributed a total of $5.0 million in TCE revenues during 2021. Significantly offsetting such increases were period-over-period decreases in average daily blended rates earned by the MR, LR1 and LR2 fleet sectors, which accounted for a rates-based decrease in TCE revenues of approximately $67.1 million.

​

Vessel expenses during 2021 increased by $56.3 million to $87.3 million from $31.0 million in 2020. Such increase reflects increases of approximately $50.2 million and $8.1 million in the MR and Handysize fleets, respectively, principally driven by the additions to the fleet as a result of the Merger. Charter hire expenses decreased by $3.6 million to $7.7 million in 2021 from $11.3 million in 2020 due to the redelivery of three time chartered-in MRs to their owners between March and July 2020. Depreciation and amortization increased by $12.4 million to $28.7 million in the current year from $16.3 million in the prior year. Such increase resulted primarily from the additions to the MR and Handysize fleets noted above.

​

General and Administrative Expenses

​

During 2021, general and administrative expenses increased by $4.2 million to $33.2 million from $29.0 million in 2020. The primary drivers for such increase were principally related to the Merger and were comprised of (i) increased compensation and benefits costs of $1.3 million (ii) 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 and (iii) increased insurance costs of $0.9 million, reflecting in part a $0.3 million of non-cash amortization of a prepaid Directors & Officers run-off policy related to the Merger. Also contributing the year-over-year increase was a $0.5 million increase in technology expenses.

​

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Table of Contents

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 was not probable that securities would be issued under such registration statement prior to its expiry in October 2021.

​

Equity in Income of Affiliated Companies

​

In October 2020, the FSO Joint Venture signed a 10-year extension on each of the existing service contracts with North Oil Company (“NOC”), relating to the two FSO service vessels. Such extensions shall commence in direct continuation of the existing contracts, which were originally scheduled to expire during the third quarter of 2022. The fixed charter rates during the extension period although lower than the charter rates that are currently in effect, provide certainty with respect to cash flows over the remaining useful lives of FSO service vessels. Based on the Company’s 50% ownership interest in the FSO Joint Venture, the 10-year contract extensions are expected to generate in excess of $322 million in contract revenues for the Company.

​

During 2021, equity in income of affiliated companies increased by $17.7 million to $21.8 million from $4.1 million in 2020. This increase was principally attributable to increases in earnings from the FSO Joint Venture of $17.7 million, primarily driven by a non-cash $16.4 million deferred tax provision recorded by the FSO Joint Venture in the fourth quarter of 2020. This was driven by the execution of 10-year extensions on each of the joint venture’s existing service contracts in October 2020. The deferred tax provision relates to temporary differences between the financial reporting and tax basis of the FSO Vessels, which are scheduled to reverse over the period from the expiry of the current service contracts in 2022 through the expiry of the extended contracts in 2032. Earnings generated from the FSO Joint Venture also reflect decreases in interest expense due to lower average outstanding debt balances in 2021.

​

Other Expense

​

Other expense was $5.9 million for the year ended December 31, 2021 compared with $12.8 million for the year ended December 31, 2020. The current period expense includes (i) loan breakage fees of $0.3 million related to the prepayment of the Sinosure Credit Facility and a write-off of $1.6 million of unamortized deferred financing costs associated with such loan prepayment in November 2021, which was treated as an extinguishment of debt, (ii) a $4.2 million loss related to the extinguishment of the financing component of the interest rate swap agreement associated with the Sinosure Credit Facility, and (iii) a write-off of $0.5 million of unamortized deferred financing costs associated with the $390 Million Facility Term Loan due to the principal prepayments made in December 2021, upon the sale and leaseback of three vessels that were part of the collateral for this facility. Similarly, the 2020 expense includes (i) prepayment fees of $1.0 million related to 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, ABN Term Loan Facility, and the 10.75% Subordinated Notes, which were treated as extinguishments during the first quarter of 2020, and (ii) 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 of debt. Such charges in 2021 and 2020 were both partially offset by interest income on cash deposits, net actuarial gains and currency gains associated with the retirement benefit obligation in the United Kingdom.

​

Interest Expense

​

The components of interest expense are as follows:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(Dollars in thousands)","\u200b","2021","\u200b","2020"],["Interest before items shown below","\u200b","$","26,954","\u200b","$","26,868"],["Interest cost on defined benefit pension obligation","\u200b","\u200b","81","\u200b","\u200b","545"],["Impact of interest rate hedge derivatives","\u200b","\u200b","10,376","\u200b","\u200b","9,299"],["Capitalized interest","\u200b","\u200b","(615)","\u200b","\u200b","\u2014"],["Interest expense","\u200b","$","36,796","\u200b","$","36,712"]]
[[/GREPCENT_TABLE]]

​

Interest expense was $36.8 million in 2021, compared with $36.7 million in 2020. During 2021, the Company incurred approximately $10.9 million in interest expense related to new debt facilities, including the debt facilities assumed from the Merger, which was partially offset by the impact of the $40.0 million payoff of the $390 Million Facility Transition Term Loan in August 2020, the use of cash in the January 2020 refinancing and cash generated from the sale and leaseback transactions executed during the fourth quarter of 2021 to reduce outstanding debt balances, and lower average margins and LIBOR rates during 2021 compared with 2020. See Note

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International Seaways, Inc.

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10, “Debt,” to the accompanying consolidated financial statements as set forth in Item 8, “Financial Statements and Supplementary Data,” for further information on the Company’s debt facilities.

Income Tax Expense

​

If we do not qualify for an exemption pursuant to Section 883, or the “Section 883 exemption,” of the U.S. Internal Revenue Code of 1986, as amended, or the “Code,” then we will be subject to U.S. federal income tax on our shipping income that is derived from U.S. sources. If we are subject to such tax, our results of operations and cash flows would be reduced by the amount of such tax. We qualified for the Section 883 exemption for the tax year ended December 31, 2021. We will qualify for the Section 883 exemption for 2022 and forward if, among other things, (i) our common shares are treated as primarily and regularly traded on an established securities market in the United States or another qualified country (“publicly traded test”), or (ii) we satisfy one of two other ownership tests. Under applicable U.S. Treasury Regulations, the publicly traded test will not be satisfied in any taxable year in which persons who directly, indirectly or constructively own five percent or more of our common shares (sometimes referred to as “5% shareholders”) own 50% or more of the vote and value of our common shares for more than half the days in such year, unless an exception applies. We can provide no assurance that ownership of our common shares by 5% shareholders will allow us to qualify for the Section 883 exemption in future taxable years. If we do not qualify for the Section 883 exemption, our gross shipping income derived from U.S. sources, i.e., 50% of our gross shipping income attributable to transportation beginning or ending in the United States (but not both beginning and ending in the United States), generally would be subject to a four percent tax without allowance for deductions.

​

In 2021, we obtained advice regarding freight taxes in a certain jurisdiction related to the uncertainty surrounding the application of a law given the limited transparency into the actions of the tax authorities in this jurisdiction. Based on this advice and other considerations related to the application of the tax law to past periods, the Company increased its reserve for uncertain tax liabilities for this jurisdiction for periods prior to 2021 by $0.7 million.

​

See Note 12, “Taxes,” to the Company’s consolidated financial statements set forth in Item 8, “Financial Statements and Supplementary Data,” for further details on the income tax expense line.

​

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:

[[GREPCENT_TABLE]]
[["","\u25cf","EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","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."]]
[[/GREPCENT_TABLE]]

​

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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The following table reconciles net income/(loss), as reflected in the consolidated statements of operations set forth in Item 8, “Financial Statements and Supplementary Data,” to EBITDA and Adjusted EBITDA:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(Dollars in thousands)","\u200b","2021","\u200b","2020"],["Net loss","\u200b","$","(134,660)","\u200b","$","(5,531)"],["Income tax provision","\u200b","\u200b","1,618","\u200b","\u200b","1"],["Interest expense","\u200b","\u200b","36,796","\u200b","\u200b","36,712"],["Depreciation and amortization","\u200b","\u200b","86,674","\u200b","\u200b","74,343"],["Noncontrolling interest","\u200b","\u200b","(174)","\u200b","\u200b","\u2014"],["EBITDA","\u200b","\u200b","(9,746)","\u200b","\u200b","105,525"],["Amortization of time charter contracts acquired","\u200b","\u200b","2,428","\u200b","\u200b","\u2014"],["Third-party debt modification fees","\u200b","\u200b","110","\u200b","\u200b","232"],["Merger and integration related costs","\u200b","\u200b","50,740","\u200b","\u200b","\u200b"],["(Gain)/loss on disposal of vessels and other property, including impairments","\u200b","\u200b","(9,753)","\u200b","\u200b","100,087"],["Write-off of deferred financing costs","\u200b","\u200b","2,113","\u200b","\u200b","13,073"],["Loss on extinguishment of debt","\u200b","\u200b","4,465","\u200b","\u200b","1,197"],["Adjusted EBITDA","\u200b","$","40,357","\u200b","$","220,114"]]
[[/GREPCENT_TABLE]]

​

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 December 31, 2021 was approximately negative $10.0 million compared with $148.0 million at December 31, 2020. Current liabilities include current installments of long-term debt of $178.7 million and $61.5 million at December 31, 2021 and 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 $116.7 million during the year ended December 31, 2021. This decrease reflects cash used in operating activities of $76.2 million, $79.0 million in expenditures for vessels and other property including $10.8 million of capitalized transaction costs incurred and paid by the Company in connection with the Merger and construction costs for three dual-fuel LNG VLCCs, $7.6 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 $169.9 million, $119.9 million in net repayments on revolving credit facilities, $15.7 million in cash settlement payments on derivatives containing other-than-insignificant financing elements, repurchase of common stock of $16.7 million and cash dividends of $40.9 million. Such cash outflows were partially offset by proceeds from disposal of vessels and other property of $165.8 million, net proceeds from issuance of debt and lease financing of $196.0 million, and cash acquired, net of equity issuance costs related to the Merger of $54.0 million.

​

Our cash and cash equivalents balances 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.

​

As of December 31, 2021 we had total liquidity on a consolidated basis of $238.9 million comprised of $98.9 million of cash (including $1.1 million of restricted cash) and $140.0 million of undrawn revolver capacity, reflecting the results of several liquidity enhancing transactions we executed between the third and fourth quarter of 2021. Restricted cash of $1.1 million as of December 31, 2021 represents legally restricted cash relating to the Macquarie Credit Facility, which is collateralized by three LR1 product carriers.

​

As of December 31, 2021, we had total debt outstanding (net of original issue discount and deferred financing costs) of $1,105.0 million and a net debt to total capitalization of 46.2%, which compares with 24.8% at December 31, 2020.

​

57

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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, 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.

​

The following is a summary of the significant capital allocation initiatives we executed during 2021 and the sources of capital we have at our disposal for future use as well as our current commitments for future uses of capital:

​

As described above, we completed a transformational strategic stock-for-stock merger transaction with Diamond S on July 16, 2021 (see Note 2, “Merger Transaction,” to the accompanying consolidated financial statements), which 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.

​

Continuing our track record of returning capital to our shareholders we paid dividends totaling $40.9 million during 20201, consisting of a pre-Merger special cash dividend of $31.5 million, or $1.12 per share, and our quarterly cash dividends of $0.06 per share. We also repurchased and retired 1,077,070 shares of our common stock in open market purchases, at an average price of $15.44 per share for a total cost of $16.7 million.

​

We enacted a post-merger asset optimization program, which resulted in the sale of 16 older tankers (a 2002-built VLCC, four 2002-built Panamaxes, a 2003-built Panamax, a 2006-built Suezmax, a 2007-built Handysize product carrier, a 2006-built Handysize product carrier, and seven MRs which were built between 2006 and 2009), and generated total net proceeds of $165.2 million, which was used in part to prepay approximately $73.5 million of outstanding debt principal secured by certain of those vessels.

​

On March 11, 2021, we entered into agreements to construct three dual-fuel LNG VLCCs at Daewoo Shipbuilding and Marine Engineering’s shipyard. These ships represent a significant efficiency improvement over existing 10-year-old VLCCs (40%) and current conventionally fueled new construction VLCCs (20%).  LNG as a fuel has 22% lower CO2 emissions than conventional marine fuels. Upon the delivery of these vessels in the first quarter of 2023, they 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. On November 15, 2021, we and three of our vessel-owning subsidiaries entered into sale and leaseback arrangements with entities affiliated with the Bank of Communications Limited (“BoComm”) (the “BoComm Lease Financing”) in connection with the construction of the three dual-fuel LNG VLCC newbuilds. BoComm’s obligation to provide funding pursuant to the terms of the sale and leaseback agreements commenced when construction began on the first vessel in November 2021. BoComm Lease Financing is expected to provide funding of $244.8 million in aggregate ($81.6 million each vessel) over the course of the construction and delivery of the three vessels. As of December 31, 2021, we’ve incurred issuance and other debt financing costs of $3.2 million on this transaction and approximately $49.3 million in expenditures under the construction contracts of which $9.6 million was paid for with funds drawn from the long term financing arrangements with BoComm. The predelivery interest rate is 3.5% and there is a commitment fee of 1% on the undrawn funding amount, both payable immediately prior to the delivery of each of the three vessels. The related fixed-rate bareboat charter-in lease agreements for the three VLCC tankers run for a period of seven years beginning on the date on which the vessels are delivered from the yard where they are being constructed, and include purchase options and other customary terms and conditions for sale and leaseback transactions.

​

On September 30, 2021, we 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 facility, which is secured by three of our LR1s built between 2006 and 2009, 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. We incurred issuance and other debt financing costs of $0.8 million on this transaction.

​

58

International Seaways, Inc.

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On October 26, 2021 we entered into lease financing arrangements with Ocean Yield ASA (the “Ocean Yield Lease Financing”) 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. The proceeds from the transactions were used to prepay the $228.4 million outstanding loan balance under the Sinosure Credit Facility, with the balance intended for general corporate purposes. We made a $100.0 million voluntary prepayment on the $525 Million Facility Revolving Loan with the proceeds from this lease financing. We also incurred issuance and other debt financing costs of $3.9 million on this transaction. As a result of the prepayment of the outstanding loan balance due under the Sinosure Credit Facility, approximately $16.1 million of cash that was previously restricted by the Sinosure Credit Facility was released. 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 equal to the aggregate outstanding principal balance of $82.5 million at that date. Charter hire under these arrangements is comprised of a fixed monthly repayment amount aggregating $2.4 million plus a variable interest component calculated based on three-month LIBOR plus a margin of 4.05%.

​

On November 12, 2021, we executed a credit agreement for a $25 million term loan facility with ING Bank N.V., London Branch, as lender, administrative agent, collateral agent and security trustee (the “ING Credit Facility”). The ING Credit Facility is secured by a 2016-built Suezmax. The full $25 million was drawn down on November 12, 2021 and used to repay one-half of the amount outstanding under the $66 Million Credit Facility (approximately $22.0 million) in conjunction with the dissolution of the NT Suez joint venture (our joint venture partner repaid the balance of the principal outstanding under the $66 Million Credit Facility). We also incurred issuance and other debt financing costs of $0.6 million on this transaction. Interest on the loan is based upon LIBOR plus a margin of 2%. The loan amortizes in quarterly installments of approximately $0.5 million commencing in February 2022 and matures on the fifth anniversary of the borrowing date in November 2026 with a final balloon payment due at maturity in an amount equal to the remaining principal amount of the loan outstanding on that date.

​

On December 7, 2021, we entered into a lease financing arrangement with Toshin Co., Ltd for the sale and leaseback of a 2012-built MR, for a net sale price of $17.1 million (the “Toshin Lease Financing”). The transaction generated net proceeds of $6.9 million, after prepaying $10.2 million of the $390 Million Facility Term Loan, which the vessel previously collateralized. We also incurred issuance and other debt financing costs of $0.4 million on this transaction. Under the lease financing arrangement, the vessel is subject to a 10-year fixed rate bareboat charter rate of $6,200 per day for the first three years, $6,000 per day for the second three years, and $5,700 per day for the last four years, with purchase options exercisable commencing at the end of the fourth year and a purchase obligation at the end of the 10-year term for $1.0 million.

​

On December 23, 2021, we entered into lease financing arrangements with Oriental Fleet International Company Limited (“COSCO Shipping”) for the sale and leaseback of a 2013-built Aframax and a 2014-built LR2, for a net sale price of $54.0 million in total (the “COSCO Lease Financing”). The transactions generated net proceeds of $19.9 million, after prepaying $34.1 million of the $390 Million Facility Term Loan which the vessels previously collateralized. We also incurred issuance and other debt financing costs of $1.4 million on this transaction. Under these lease financing arrangements, each of the two vessels is subject to a seven-year bareboat charter with purchase options exercisable commencing after the end of the second year and purchase obligations at the end of the seven-year term equal to the outstanding principal balance of $18.9 million at that date. Charter hire under these arrangements is comprised of a fixed quarterly repayment amount aggregating $1.3 million plus a variable interest component calculated based on three-month LIBOR plus a margin of 3.90%.

​

On January 14, 2022, we entered into a lease financing arrangement with Hyuga Kaiun Co., Ltd (“Hyuga”) for the sale and leaseback of a 2011-built MR for a net sale price of $16.7 million (the “Hyuga Lease Financing”). The transaction generated $5.7 million net proceeds, after prepaying $11.0 million of the $390 Million Facility Term Loan, which the vessel previously collateralized. We also incurred issuance and other debt financing costs of approximately $0.4 million on this transaction. Under the lease financing arrangement, the vessel is subject to a nine-year fixed rate bareboat charter at a bareboat rate of $6,300 per day for the first three years, $6,200 per day for the second three years, and $6,000 per day for the last three years, with purchase options exercisable commencing at the end of the fourth year and a purchase obligation at the end of the nine-year term for $1.5 million.

​

See Note 10, “Debt,” to the accompanying consolidated financial statements as set forth in Item 8, “Financial Statements and Supplementary Data” for further details on these and our other debt facilities.

​

Outlook for 2022

​

We executed various liquidity enhancing initiatives during 2021 that significantly diversified our financing sources and spread our debt maturities out between 2025 and 2031, putting the Company in a strong position to navigate through any period of weaker rates

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during 2022. Our balance sheet and diverse fleet, positions us to support our operations over the next twelve months as we continue to advance our disciplined capital allocation strategy and provides us with flexibility to continue pursuing potential strategic opportunities that may arise within the diverse sectors in which we operate.

​

We plan to recycle our two remaining Panamaxes during 2022. In February 2022, we entered into a memorandum of agreement for the green recycling sale of our 2004-built Panamax for approximately $7.5 million. In anticipation of the phasing out of our older Panamax tankers, we have taken steps over the last couple of years to ensure we continue to maintain a strong presence in our market leading Panamax International pool by acquiring a 2009-built LR1 in early 2020, chartering in three LR1s between August 2021 and January 2022 on charters ranging in length from 12 to 18-months and in continuation of our fleet optimization program, in January 2022, we entered into memoranda of agreements for the sale of a 2010-built MR and the purchase of a 2011-built LR1 with the same counterparty, with an expected net cash payment of $3.0 million for the difference in value between the two ships. Both transactions are expected to close by March 2022.

​

Some of the larger uses of capital we expect during 2022 will be to cover our debt service payments, vessel construction commitments, commitments to purchase and install ballast water treatment systems on 22 vessels and commitments to install a scrubber on one Suezmax. The Company’s debt service commitments and aggregate purchase commitments for vessel construction and betterments as of December 31, 2021, are presented in the Aggregate Contractual Obligations Table below. We also currently expect to spend approximately $43.0 million on drydocking vessels in our fleet during 2022.

​

The Company’s Board of Directors declared a regular quarterly cash dividend of $0.06 per share of common stock on February 28, 2022. The dividend will be paid on March 28, 2022 to shareholders of record at the close of business on March 14, 2022.

​

​

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Aggregate Contractual Obligations

​

A summary of the Company’s long-term contractual obligations as of December 31, 2021 follows:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Beyond","\u200b","\u200b","\u200b"],["(Dollars in thousands)","\u200b","\u200b","2022","\u200b","\u200b","2023","\u200b","\u200b","2024","\u200b","\u200b","2025","\u200b","\u200b","2026","\u200b","\u200b","2026","\u200b","\u200b","Total"],["$390 Million Facility Term Loan - floating rate(1)","\u200b","$","39,388","\u200b","$","38,131","\u200b","$","36,700","\u200b","$","98,388","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","212,607"],["$525 Million Facility Term Loan - floating rate(2)","\u200b","\u200b","77,783","\u200b","\u200b","75,682","\u200b","\u200b","73,486","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","226,951"],["$525 Million Facility Revolving Loan - floating rate(2)","\u200b","\u200b","1,222","\u200b","\u200b","1,215","\u200b","\u200b","44,479","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","46,916"],["$360 Million Facility Term Loan - floating rate(3)","\u200b","\u200b","38,323","\u200b","\u200b","37,285","\u200b","\u200b","34,269","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","109,877"],["$360 Million Facility Revolving Loan - floating rate(3)","\u200b","\u200b","1,137","\u200b","\u200b","1,128","\u200b","\u200b","39,155","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","41,420"],["Macquarie Credit Facility - floating rate(3)","\u200b","\u200b","3,150","\u200b","\u200b","3,119","\u200b","\u200b","2,560","\u200b","\u200b","12,776","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","21,605"],["ING Credit Facility - floating rate(3)","\u200b","\u200b","2,656","\u200b","\u200b","2,621","\u200b","\u200b","2,572","\u200b","\u200b","2,520","\u200b","\u200b","17,051","\u200b","\u200b","\u2014","\u200b","\u200b","27,420"],["Ocean Yield Lease Financing - floating rate(3)","\u200b","\u200b","44,365","\u200b","\u200b","43,125","\u200b","\u200b","41,997","\u200b","\u200b","40,640","\u200b","\u200b","39,399","\u200b","\u200b","256,113","\u200b","\u200b","465,639"],["COSCO Lease Financing - floating rate(3)","\u200b","\u200b","7,135","\u200b","\u200b","6,931","\u200b","\u200b","6,717","\u200b","\u200b","6,508","\u200b","\u200b","6,299","\u200b","\u200b","29,426","\u200b","\u200b","63,016"],["BoComm Lease Financing - fixed rate(4)","\u200b","\u200b","\u2014","\u200b","\u200b","24,268","\u200b","\u200b","23,827","\u200b","\u200b","23,762","\u200b","\u200b","23,762","\u200b","\u200b","211,842","\u200b","\u200b","307,461"],["Toshin Lease Financing - fixed rate(4)","\u200b","\u200b","2,232","\u200b","\u200b","2,418","\u200b","\u200b","2,223","\u200b","\u200b","2,160","\u200b","\u200b","2,160","\u200b","\u200b","11,308","\u200b","\u200b","22,501"],["8.5% Senior Notes - fixed rate","\u200b","\u200b","2,125","\u200b","\u200b","26,063","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","28,188"],["Operating lease obligations(5)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u2014"],["Bareboat Charter-ins","\u200b","\u200b","6,278","\u200b","\u200b","4,532","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","10,810"],["Time Charter-ins","\u200b","\u200b","4,801","\u200b","\u200b","1,725","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","6,526"],["Office and other space","\u200b","\u200b","273","\u200b","\u200b","229","\u200b","\u200b","773","\u200b","\u200b","998","\u200b","\u200b","1,024","\u200b","\u200b","6,908","\u200b","\u200b","10,205"],["Vessel and vessel betterment commitments(6)","\u200b","\u200b","22,536","\u200b","\u200b","355","\u200b","\u200b","164","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","23,055"],["Total","\u200b","$","253,404","\u200b","$","268,827","\u200b","$","308,922","\u200b","$","187,752","\u200b","$","89,695","\u200b","$","515,597","\u200b","$","1,624,197"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(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 2.80%, plus the fixed rate stated in the related floating-to-fixed interest rate swap of 1.97% for the $194.7 million notional amount and 0.50% for the $25 million notional amount covered in the interest rate swaps."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","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 $155.1 million notional amount of the term loan covered by the interest rate swaps and (ii) the effective three-month LIBOR rate of 0.22% as of December 31, 2021 for the remaining outstanding balance."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Amounts shown include contractual interest obligations of floating rate debts estimated based on the applicable margin plus the effective three-month LIBOR rate as of December 31, 2021 of 0.22% for the $360 Million Facility Term Loan, the $360 Million Facility Revolving Loan, Macquarie Credit Facility and COSCO Lease Financing, and 0.15% for the ING Credit Facility and Ocean Yield Lease Financing."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(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. BoComm Lease Financing amounts include both the outstanding principal amount and the undrawn amount as of December 31, 2021 of $9.6 million and $235.2 million, respectively."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(5)","As of December 31, 2021, the Company had charter-in commitments for three vessels on leases that are accounted for as operating leases. The full amounts due under bareboat charter-ins, 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\u2019s consolidated condensed balance sheet as lease liabilities with corresponding right of use asset balances."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(6)","Represents the Company\u2019s commitments for the purchase and installation of ballast water treatment systems on 22 vessels and the installation of a scrubber on one Suezmax, and the Company\u2019s commitment for the construction of three dual-fuel LNG VLCCs not funded by the BoComm Lease Financing."]]
[[/GREPCENT_TABLE]]

​

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In addition to the above long-term contractual commitments we have certain obligations for our shore-based employees as of December 31, 2021, related to a defined benefit pension plan in the U.K. as follows:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Beyond","\u200b","\u200b","\u200b"],["(Dollars in thousands)","\u200b","\u200b","2022","\u200b","\u200b","2023","\u200b","\u200b","2024","\u200b","\u200b","2025","\u200b","\u200b","2026","\u200b","\u200b","2026","\u200b","\u200b","Total"],["Defined benefit pension plan contributions(1)","\u200b","$","737","\u200b","$","759","\u200b","$","781","\u200b","$","805","\u200b","$","829","\u200b","$","4,533","\u200b","$","8,444"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total","\u200b","$","737","\u200b","$","759","\u200b","$","781","\u200b","$","805","\u200b","$","829","\u200b","$","4,533","\u200b","$","8,444"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["(1)","Represents estimated employer contributions under the OSG Ship Management (UK) Ltd. Retirement Benefits Plan (the \u201cScheme\u201d), pursuant to the Scheme's secondary funding objective. The Scheme is currently fully funded for financial reporting purposes. The Company and the trustees of the Scheme have agreed to target achieving a funding level that would permit the securing of the Scheme\u2019s obligations with an insurance company by 2030. The contributions are subject to change after an actuarial estimate of the Scheme's funding level is produced."]]
[[/GREPCENT_TABLE]]

​

Carrying Value of Vessels

​

At December 31, 2021, 76 of the Company’s owned and chartered in vessels were pledged as collateral under certain of the Company’s debt and lease financing facilities. The following table presents information with respect to the carrying amount of the Company’s vessels by type and indicates whether their fair market values, which are estimated by taking an average of two third-party vessel appraisals, are below their carrying values as of December 31, 2021. The carrying value of each of the Company’s vessels does not necessarily represent its fair market value or the amount that could be obtained if the vessel were sold. The Company’s estimates of market values for its vessels assume that the vessels are all in good and seaworthy condition without need for repair and, if inspected, would be certified as being in class without notations. In addition, because vessel values are highly volatile, these estimates may not be indicative of either the current or future prices that the Company could achieve if it were to sell any of the vessels. The Company would not record a loss for any of the vessels for which the fair market value is below its carrying value unless and until the Company either determines to sell the vessel for a loss or determines that the vessel is impaired as discussed below in “Critical Accounting Policies — Vessel Impairment.” The Company believes that the future undiscounted cash flows expected to be earned over the estimated remaining useful lives for those vessels that have experienced declines in market values below their carrying values would exceed such vessels’ carrying values.

​

​

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Footnotes to the following table exclude those vessels with an estimated market value in excess of their carrying value.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(Dollars in thousands)","\u200b","\u200b","Average Vessel Age (weighted by dwt)","\u200b","\u200b","Number of Owned Vessels","\u200b","\u200b","Carrying Value"],["Crude Tankers","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["VLCC","\u200b","\u200b","7.9","\u200b","\u200b","10","\u200b","$","662,472"],["Suezmax","\u200b","\u200b","7.8","\u200b","\u200b","13","\u200b","\u200b","413,523"],["Aframax","\u200b","\u200b","6.7","\u200b","\u200b","2","\u200b","\u200b","60,182"],["Panamax","\u200b","\u200b","18.8","\u200b","\u200b","2","\u200b","\u200b","14,208"],["Total Crude Tankers(1)","\u200b","\u200b","8.1","\u200b","\u200b","27","\u200b","$","1,150,385"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Product Carriers","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["LR2","\u200b","\u200b","7.4","\u200b","\u200b","1","\u200b","$","54,634"],["LR1","\u200b","\u200b","12.9","\u200b","\u200b","5","\u200b","\u200b","82,637"],["MR","\u200b","\u200b","12.4","\u200b","\u200b","41","\u200b","\u200b","481,916"],["Handy","\u200b","\u200b","15.6","\u200b","\u200b","4","\u200b","\u200b","30,320"],["Total Product Carriers(2)","\u200b","\u200b","12.5","\u200b","\u200b","51","\u200b","$","649,507"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Fleet total","\u200b","\u200b","9.5","\u200b","\u200b","78","\u200b","$","1,799,892"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","As of December 31, 2021, the Crude Tankers segment includes vessels with an aggregate carrying value of $315.3 million, which the Company believes exceeds their aggregate market value of approximately $250.8 million by $64.5 million."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","As of December 31, 2021, the Product Carriers segment includes vessels with an aggregate carrying value of $103.3 million, which the Company believes exceeds their aggregate market value of approximately $81.1 million by $22.2 million."]]
[[/GREPCENT_TABLE]]

​

Off-Balance Sheet Arrangements

​

As of December 31, 2021, the FSO Joint Venture had total bank debt outstanding of $39.5 million, of which $19.8 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 secured credit facility on April 26, 2018 (See Note 7, “Equity Method Investments” to the accompanying consolidated financial statements). 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 is in compliance with the Loan to Value Test (as such capitalized terms are defined in the Company guarantee). The FSO Joint Venture has entered into floating-to-fixed interest rate swap agreements with the aforementioned Swap Banks, which cover the notional amounts outstanding under the FSO Loan Facility and pay fixed rates of approximately 4.858% and receive a floating rate based on LIBOR. These agreements have an effective date of June 29, 2018, and maturity dates ranging from July to September 2022. As of December 31, 2021, the maximum potential amount of future payments that INSW could be required to make in relation to its equity method investees secured bank debt and interest rate swap obligations was $20.0 million and the carrying value of the Company’s guaranty in the accompanying consolidated balance sheet was nil.

​

See Note 7, “Equity Method Investments,” to the Company’s consolidated financial statements set forth in Item 8, “Financial Statements and Supplementary Data” for additional information.

​

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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. See Note 17, “Pension and other postretirement benefit plans,” to the Company’s consolidated financial statements set forth in Item 8, “Financial Statements and Supplementary Data,” for additional information.

​

On November 30, 2016, INSW was spun off from Overseas Shipholding Group, Inc. (“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.

​

Risk Management

​

Interest rate risk

​

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. See Note 9, “Fair Value of Financial Instruments, Derivative and Fair Value Disclosures,” to the Company’s consolidated financial statements set forth in Item 8, “Financial Statements and Supplementary Data,” for additional information on the Company various interest rate derivatives.

​

Currency and exchange rate risk

​

The shipping industry’s functional currency is the U.S. dollar. All of the Company’s revenues and most of its operating costs are in U.S. dollars. The Company incurs certain operating expenses, such as vessel and general and administrative expenses, in currencies other than the U.S. Dollar, and the foreign exchange risk associated with these operating expenses is immaterial. If foreign exchange risk becomes material in the future, the Company may seek to reduce its exposure to fluctuations in foreign exchange rates through the use of short-term currency forward contracts and through the purchase of bulk quantities of currencies at rates that management considers favorable. For contracts which qualify as cash flow hedges for accounting purposes, hedge effectiveness would be assessed based on changes in foreign exchange spot rates with the change in fair value of the effective portions being recorded in accumulated other comprehensive loss.

​

Fuel price volatility risk

​

The Company has installed scrubbers on its ten VLCCs and one of its Suezmaxes and is scheduled to install a scrubber on one additional Suezmax during 2022. During 2021, the average price differential between very low sulfur fuel and high sulfur fuel in Singapore and Fujairah, the most common bunkering locations for VLCCs, was approximately $114 per ton. Assuming a VLCC bunker consumption rate of 50 metric tons per day, this translated to approximately $5,700 per day in lower bunker consumption costs on our VLCCs during 2021. In addition to installing scrubbers on certain of the larger vessels in the Company’s fleet, significant consideration continues to be given to other ways of managing the risk of volatility in the price spread between high-sulfur fuel and low-sulfur fuel as well as the risk of limited supply of compliant fuel or HFO along the routes that the Company’s vessels typically travel.

​

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Interest Rate Sensitivity

​

The following table presents information about the Company’s financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents the principal cash flows and related weighted average interest rates by expected maturity dates of the Company’s debt obligations.

​

Principal (Notional) Amount (dollars in millions) by Expected Maturity and Average Interest (Swap) Rate

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Beyond","\u200b","\u200b","\u200b","Fair Value at"],["(Dollars in millions)","\u200b","2022","\u200b","2023","\u200b","2024","\u200b","2025","\u200b","2026","\u200b","2026","\u200b","Total","\u200b","Dec. 31, 2021"],["Liabilities","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Debt","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Fixed rate debt","\u200b","$","1.4","\u200b","$","37.6","\u200b","$","15.5","\u200b","$","16.1","\u200b","$","16.9","\u200b","$","199.3","\u200b","$","286.8","\u200b","$","52.5"],["Average interest rate","\u200b","\u200b","4.94%","\u200b","\u200b","4.36%","\u200b","\u200b","4.36%","\u200b","\u200b","4.35%","\u200b","\u200b","4.35%","\u200b","\u200b","4.88%","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Variable rate debt (1)","\u200b","$","177.4","\u200b","$","177.5","\u200b","$","258.6","\u200b","$","147.0","\u200b","$","50.9","\u200b","$","251.9","\u200b","$","1,063.3","\u200b","$","1,063.3"],["Average interest rate (1)","\u200b","\u200b","3.79%","\u200b","\u200b","3.87%","\u200b","\u200b","4.20%","\u200b","\u200b","4.13%","\u200b","\u200b","4.24%","\u200b","\u200b","4.25%","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Rates are discussed at aggregate contractual obligations section above."]]
[[/GREPCENT_TABLE]]

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As of December 31, 2021, the Company had secured term loans or lease financings, and revolving credit facilities under which borrowings bear interest at a rate based on LIBOR, plus the applicable margin, as stated in the respective financing arrangements. The Company has entered into interest rate swaps agreements for a portion of the outstanding balance under the $390 Million Facility Term Loan and the $525 Million Facility Term Loan to limit the floating interest rate exposure associated with the debt facilities.

​

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CRITICAL ACCOUNTING ESTIMATES AND POLICIES

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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. Following is a discussion of the accounting policies that involve a higher degree of judgment and the methods of their application. 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 set forth in Item 8, “Financial Statements and Supplementary Data.”

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Vessel Lives and Salvage Values

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The carrying value of each of the Company’s vessels represents its original cost at the time it was delivered or purchased less depreciation calculated using an estimated useful life of 25 years (except for FSO service vessels for which estimated useful lives of 30 years are used) from the date such vessel was originally delivered from the shipyard. A vessel’s carrying value is reduced to its new cost basis (i.e. its current fair value) if a vessel impairment charge is recorded.

​

If the estimated useful lives assigned to the Company’s vessels prove to be too long because of new regulations, an extended period of weak markets, the broad imposition of age restrictions by the Company’s customers, or other future events, it could result in higher depreciation expense and impairment losses in future periods related to a reduction in the useful lives of any affected vessels.

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Company management estimates the steel recycle value of all of its vessels to be $300 per lightweight ton consistent with its commitment to implement and practice environmentally and socially responsible ship recycling. The Company’s assumptions used in the determination of estimated salvage value take into account current steel recycling prices, the historic pattern of annual average steel recycling rates over the five years ended December 31, 2021, which ranged from $270 to $595 per lightweight ton, estimated changes in future market demand for recycled steel and estimated future demand for vessels. Steel recycling prices also fluctuate depending upon type of ship, bunkers on board, spares on board and delivery range. Market conditions that could influence the volume and pricing of vessel recycling activity in 2022 and beyond include the combined impact of scheduled newbuild deliveries and charter rate expectations for vessels potentially facing age restrictions imposed by oil majors as well as the impact of ballast water treatment systems regulatory requirements or proposals, costs and timing of pending special surveys, which are likely to be expensive for vessels over 15 years of age and IMO 2020 requirements for the use of low-sulfur fuels and other carbon reduction initiatives.

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These factors will influence owners’ decisions to accelerate the disposal of older vessels, especially those with upcoming special surveys.

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Although management believes that the assumptions used to determine the steel recycling value for its vessels are reasonable and appropriate, such assumptions are highly subjective, in part, because of the cyclicality of the nature of future demand for recycled steel.

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Vessel Impairment

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The carrying values of the Company’s vessels may not represent their fair market value or the amount that could be obtained by selling the vessel at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. Historically, both charter rates and vessel values tend to be cyclical. Management evaluates the carrying amounts of vessels held and used by the Company for impairment only when it determines that it will sell a vessel or when events or changes in circumstances occur that cause management to believe that future cash flows for any individual vessel will be less than its carrying value. In such instances, an impairment charge would be recognized if the estimate of the undiscounted future cash flows expected to result from the use of the vessel and its eventual disposition is less than the vessel’s carrying amount. This assessment is made at the individual vessel level as separately identifiable cash flow information for each vessel is available.

​

In developing estimates of future cash flows, the Company must make assumptions about future performance, with significant assumptions being related to charter rates, operating expenses, utilization, drydocking and capital expenditure requirements, residual value and the estimated remaining useful lives of the vessels. These assumptions are based on historical trends as well as future expectations. Specifically, in estimating future charter rates, management takes into consideration rates currently in effect for existing time charters and estimated daily time charter equivalent rates for each vessel class for the unfixed days over the estimated remaining lives of each of the vessels. The estimated daily time charter equivalent rates used for unfixed days are based on a combination of (i) rates as forecasted by third-party analysts, and (ii) the trailing 12-year historical average rates, based on monthly average rates published by a third-party maritime research service. Management uses the published 12-year historical average rates in its assumptions because it is management’s belief that the 12-year period captures a distribution of strong and weak charter rate periods, which results in the use of an average mid-cycle rate that is more in line with management’s forecast of a return to mid-cycle charter rate levels in the medium term. Recognizing that the transportation of crude oil and petroleum products is cyclical and subject to significant volatility based on factors beyond the Company’s control, management believes the use of estimates based on the combination of rates forecasted by third-party analysts and 12-year historical average rates calculated as of the reporting date to be reasonable.

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Estimated outflows for operating expenses and capital expenditures and drydocking requirements are based on historical and budgeted costs and are adjusted for assumed inflation. Utilization is based on historical levels achieved and estimates of residual value for recycling are based upon the pattern of steel recycling rates used in management’s evaluation of salvage value for purposes of recording depreciation. Finally, for vessels that are being considered for disposal before the end of their respective useful lives, the Company utilizes weighted probabilities assigned to the possible outcomes for such vessels being sold or recycled before the end of their respective useful lives.

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The determination of fair value is highly judgmental. In estimating the fair value of INSW’s vessels for purposes of Step 2 of the impairment tests, the Company considers the market and income approaches by using a combination of third-party appraisals and discounted cash flow models prepared by the Company. In preparing the discounted cash flow models, the Company uses a methodology consistent with the methodology discussed above in relation to the undiscounted cash flow models prepared by the Company and discounts the cash flows using its current estimate of INSW’s weighted average cost of capital.

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The more significant factors that could impact management’s assumptions regarding time charter equivalent rates include (i) loss or reduction in business from significant customers, (ii) unanticipated changes in demand for transportation of crude oil and petroleum products, (iii) changes in production of or demand for oil and petroleum products, generally or in particular regions, (iv) greater than anticipated levels of tanker newbuilding orders or lower than anticipated levels of tanker recycling, and (v) changes in rules and regulations applicable to the tanker industry, including legislation adopted by international organizations such as IMO and the EU or by individual countries. Although management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate at the time they were made, such assumptions are highly subjective and likely to change, possibly materially, in the future.

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Impairment of Equity Method Investments

When events and circumstances warrant, investments accounted for under the equity method of accounting are evaluated for impairment. If a determination is made that an other-than-temporary impairment exists, the investment is written down to its fair value in accordance with ASC 820, Fair Value Measurements and Disclosures, which establishes a new cost basis.

In estimating the fair value of the Company’s investments in equity method investments, the Company utilizes an income approach, by preparing discounted cash flow models since there is a lack of comparable market transactions for the specially built assets held by the joint ventures. In preparing the discounted cash flows models, the Company uses a methodology largely consistent with the methodology and assumptions detailed in the “Vessel Impairment” section above. The cash flows are discounted using the estimated weighted average cost of capital for each joint venture and takes into consideration country risk and entity size.

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