International Seaways(INSW) - 2021 Q2 - Quarterly Report

Filing Information This section provides essential administrative and stock-related details for the company's quarterly filing General Information This section provides the general filing information for International Seaways, Inc.'s Form 10-Q for the quarterly period ended June 30, 2021, including its status as an accelerated filer and an emerging growth company, and details on its common stock and senior notes - The registrant is an Accelerated Filer and an Emerging Growth Company[6] | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------------ | :---------------- | :---------------------------------------- | | Common Stock (no par value) | INSW | New York Stock Exchange | | 8.5% Senior Notes due 2023 | INSW - PA | New York Stock Exchange | - As of August 5, 2021, the number of shares outstanding of the issuer's common stock (no par value) was 50,674,393 shares[8] Condensed Consolidated Financial Statements This section presents the company's financial position, operational performance, and cash flows for the reported periods Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets from $1,586,539 thousand at December 31, 2020, to $1,518,865 thousand at June 30, 2021, primarily driven by a reduction in cash and cash equivalents and vessels and other property. Total liabilities also decreased, leading to a slight reduction in total equity | Metric (Dollars in thousands) | June 30, 2021 | December 31, 2020 | | :---------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $117,391 | $199,390 | | Total Current Assets | $212,310 | $256,834 | | Vessels and other property, net | $1,055,747 | $1,108,214 | | Total Assets | $1,518,865 | $1,586,539 | | Total Current Liabilities | $102,112 | $108,896 | | Long-term debt | $444,566 | $474,332 | | Total Liabilities | $571,411 | $614,497 | | Total Equity | $947,454 | $972,042 | Condensed Consolidated Statements of Operations The company reported a significant shift from net income in Q2 2020 to a net loss in Q2 2021 and for the six months ended June 30, 2021. This was primarily due to a substantial decrease in shipping revenues, which fell from $139,725 thousand in Q2 2020 to $46,304 thousand in Q2 2021, and from $265,062 thousand in H1 2020 to $93,060 thousand in H1 2021 | Metric (Dollars in thousands, except per share) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Shipping Revenues | $46,304 | $139,725 | $93,060 | $265,062 | | Total operating expenses | $63,722 | $71,833 | $122,323 | $143,821 | | Operating (loss)/income | $(12,043) | $73,097 | $(18,420) | $131,557 | | Net (loss)/income | $(18,783) | $64,358 | $(32,148) | $97,377 | | Basic net (loss)/income per share | $(0.67) | $2.26 | $(1.15) | $3.37 | | Diluted net (loss)/income per share | $(0.67) | $2.24 | $(1.15) | $3.35 | Condensed Consolidated Statements of Comprehensive Income/(Loss) The company reported a comprehensive loss of $19,306 thousand for Q2 2021, a significant decline from a comprehensive income of $63,239 thousand in Q2 2020. For the six months ended June 30, 2021, the comprehensive loss was $22,452 thousand, compared to an income of $81,866 thousand in the prior year, primarily driven by the net loss and changes in unrealized gains/losses on cash flow hedges | Metric (Dollars in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (loss)/income | $(18,783) | $64,358 | $(32,148) | $97,377 |\n| Other comprehensive (loss)/income, net of tax | $(523) | $(1,119) | $9,696 | $(15,511) |\n| Comprehensive (loss)/income | $(19,306) | $63,239 | $(22,452) | $81,866 | Condensed Consolidated Statements of Cash Flows Cash flows from operating activities shifted from a net inflow of $127,690 thousand in H1 2020 to a net outflow of $22,518 thousand in H1 2021. Investing activities continued to use cash, while financing activities also saw a reduced outflow compared to the prior year, resulting in a net decrease in cash, cash equivalents, and restricted cash of $82,113 thousand for H1 2021 | Metric (Dollars in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------------------- | :----------------------------- | :----------------------------- | | Net cash (used in)/provided by operating activities | $(22,518) | $127,690 | | Net cash used in investing activities | $(21,065) | $(27,765) | | Net cash used in financing activities | $(38,530) | $(105,707) | | Net decrease in cash, cash equivalents and restricted cash | $(82,113) | $(5,782) | | Cash, cash equivalents and restricted cash at end of period | $133,564 | $144,461 | Condensed Consolidated Statements of Changes in Equity Total equity decreased from $972,042 thousand at January 1, 2021, to $947,454 thousand at June 30, 2021, primarily due to a net loss of $32,148 thousand and dividends paid, partially offset by other comprehensive income and stock-based compensation | Metric (Dollars in thousands) | Balance at January 1, 2021 | Net loss | Other comprehensive income | Dividends declared and paid | Balance at June 30, 2021 | | :---------------------------- | :------------------------- | :------- | :------------------------- | :-------------------------- | :----------------------- | | Capital | $1,280,501 | — | — | $(3,369) | $1,278,365 | | Accumulated deficit | $(275,846) | $(32,148) | — | — | $(307,994) | | Accumulated other comprehensive loss | $(32,613) | — | $9,696 | — | $(22,917) | | Total Equity | $972,042 | $(32,148) | $9,696 | $(3,369) | $947,454 | Notes to Condensed Consolidated Financial Statements This section details the significant accounting policies, estimates, and disclosures supporting the financial statements Note 1 — Basis of Presentation The condensed consolidated financial statements include International Seaways, Inc. and its wholly-owned subsidiaries, primarily engaged in crude oil and refined petroleum product transportation. As of June 30, 2021, the company operated 36 vessels and had three LNG VLCC newbuilds scheduled for 2023. Post-June 30, 2021, the fleet expanded to 97 vessels due to the Diamond S merger - As of June 30, 2021, the Company owned and operated a fleet of 36 oceangoing vessels, including three chartered-in vessels and two vessels through joint ventures[15] - Three dual-fuel LNG VLCC newbuilds are scheduled for delivery in Q1 2023, bringing the total operating and newbuild fleet to 39 vessels as of June 30, 2021[15] - Subsequent to June 30, 2021, the operating and newbuild fleet increased to 97 vessels upon the completion of the acquisition of 64 vessels through the merger transaction[15] Note 2 — Merger Transaction International Seaways, Inc. completed a stock-for-stock merger with Diamond S Shipping Inc. on July 16, 2021, resulting in INSW shareholders owning approximately 55.75% and former Diamond S shareholders owning 44.25% of the combined entity. The merger involved a special dividend payment, amendment of debt agreements, changes to the Board of Directors, and is accounted for as an asset acquisition - On July 16, 2021, INSW completed a stock-for-stock merger with Diamond S Shipping Inc., with Diamond S becoming a wholly-owned subsidiary of INSW[19] - The merger resulted in the issuance of 22,536,647 shares of INSW Common Stock, with pre-merger INSW shareholders owning approximately 55.75% and former Diamond S shareholders owning 44.25% of the combined company[20] - Prior to the merger, INSW paid a special dividend of $31.5 million ($1.12 per share) to its shareholders on July 15, 2021[21] - The merger is treated as an asset acquisition, not a business combination, with acquired assets and assumed liabilities recorded at cost based on their relative fair value[31] Completion of Merger Transaction - On July 16, 2021, International Seaways, Inc. completed a stock-for-stock merger with Diamond S Shipping Inc., with Diamond S becoming a wholly-owned subsidiary of INSW[19] - Each Diamond S common share was exchanged for 0.55375 of an INSW common share, resulting in the issuance of 22,536,647 INSW common shares[20] - Pre-merger INSW shareholders and former Diamond S shareholders now own approximately 55.75% and 44.25%, respectively, of the combined company's 50,674,393 outstanding common shares[20] - INSW paid a special dividend of $31.5 million ($1.12 per share) to its shareholders on July 15, 2021, prior to the merger's effective time[21] Amended and Restated Debt Agreements - Lenders under Diamond S' existing credit facilities consented to the Merger and waived any resulting event of default[22] - On May 27, 2021, INSW entered into Amendment and Restatement Agreements for Diamond S' $360 Million and $525 Million Credit Agreements[23] - INSW executed guarantees for Diamond S' obligations under the amended credit agreements, which became effective upon the merger's consummation[23][24] Directors and Certain Officers - Following the Merger, the Company's Board of Directors consists of ten directors: a chairman, six additional directors designated by INSW, and three additional directors designated by Diamond S[25] - Mr. Ty E. Wallach resigned from the Board, and his restricted stock awards vested immediately. Mr. Craig H. Stevenson Jr., Alexandra K. Blankenship, and Nadim Qureshi, designated by Diamond S, joined the Board[26][27] - Mr. Stevenson, Jr. will also serve as a special advisor to the CEO for six months, receiving a total consulting fee of $0.5 million[29] - The senior management of INSW remains in their current roles, leading the combined company[30] Accounting for the Merger - The Merger is not considered a business combination under ASC 805 and ASU 2017-01, but rather an asset acquisition, as it primarily involves acquiring vessels and associated assets and liabilities[31] - All acquired assets and assumed liabilities will be recorded at the cost of acquisition, including transaction costs, based on their relative fair value[31] - As of June 30, 2021, INSW incurred approximately $4.8 million in direct transaction costs, with $4.4 million paid during the six months ended June 30, 2021[32] Note 3 — Significant Accounting Policies This note outlines updates to the company's critical accounting policies, including definitions for cash, cash equivalents, and restricted cash, credit risk concentration, deferred finance charges, vessel capitalization, and the company's approach to the LIBOR transition - Restricted cash of $16.2 million (June 30, 2021) and $16.3 million (December 31, 2020) relates to the Sinosure Credit Facility and is included in non-current assets[33] - The allowance for credit losses for voyage receivables increased from $55 thousand at December 31, 2020, to $95 thousand at June 30, 2021[34] - The Company's primary exposure to LIBOR is in its floating rate debt facilities and interest rate derivatives, with a transition to SOFR expected as the June 30, 2023 sunset date approaches[39] Cash, cash equivalents and restricted cash - Interest-bearing deposits with maturities of three months or less when purchased are classified as cash and cash equivalents[33] - Restricted cash, primarily related to the Sinosure Credit Facility, was $16.2 million as of June 30, 2021, and $16.3 million as of December 31, 2020, and is included in non-current assets[33] Concentration of Credit Risk | (Dollars in thousands) | Voyage Receivables | | :------------------------------ | :----------------- | | Balance at December 31, 2020 | $55 | | Provision for expected credit losses | $43 | | Write-offs charged against the allowance | $(3) | | Balance at June 30, 2021 | $95 | - The Company is exposed to credit losses from off-balance sheet exposures related to guarantees of joint venture debt[34] - Commercial pools accounted for 94% and 88% of consolidated voyage receivables at June 30, 2021, and December 31, 2020, respectively[35] Deferred finance charges - Deferred finance charges are amortized to interest expense over the term of the related debt[36] - Unamortized deferred finance charges were $0.7 million (Core Revolving Facility) and $5.9 million (other debt facilities) as of June 30, 2021[36][37] - Interest expense from amortization of deferred financing charges was $0.5 million for Q2 2021 and $1.0 million for H1 2021[37] Vessels - Interest costs are capitalized to vessels during construction, aggregating $58 thousand for both the three and six months ended June 30, 2021[38] Recently Issued Accounting Standards (LIBOR Transition) - The FASB issued ASU 2020-04 and ASU 2021-01 to provide relief for companies preparing for the discontinuation of LIBOR[39] - The Company's primary exposure to LIBOR is in its floating rate debt facilities and interest rate derivatives[39] - The Company expects to transition its LIBOR-based agreements to the Secured Overnight Financing Rate (SOFR) as the June 30, 2023 sunset date for USD LIBOR approaches[39] Note 4 — Earnings per Common Share Basic EPS is calculated by dividing earnings (after deducting dividends and undistributed earnings for participating securities) by the weighted average common shares outstanding. Diluted EPS considers potentially dilutive stock options and restricted stock units. For H1 2021, there were no dilutive equity awards, and certain awards were anti-dilutive - Basic earnings per common share is computed by dividing earnings, after the deduction of dividends and undistributed earnings allocated to participating securities, by the weighted average number of common shares outstanding[40] - Diluted earnings per share assumes the issuance of common stock for all potentially dilutive stock options and restricted stock units not classified as participating securities[41] | (Dollars in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (loss)/income allocated to: | | | | | | Common Stockholders | $(18,785) | $64,272 | $(32,154) | $97,227 | | Participating securities | $2 | $86 | $6 | $150 | | Total | $(18,783) | $64,358 | $(32,148) | $97,377 | - For the three and six months ended June 30, 2021, there were no dilutive equity awards outstanding[45] Note 5 — Business and Segment Reporting The Company operates in two reportable segments: Crude Tankers and Product Carriers. Adjusted income/(loss) from vessel operations is used for segment reporting, excluding general and administrative expenses, credit losses, debt modification fees, merger costs, and disposal losses. The accounting policies are consistent with the consolidated financial statements - The Company has two reportable segments: Crude Tankers and Product Carriers[46] - Adjusted income/(loss) from vessel operations for segment purposes excludes general and administrative expenses, provision for credit losses, third-party debt modification fees, merger and integration related costs, and loss on disposal of vessels and other property[46] | (Dollars in thousands) | Crude Tankers (Q2 2021) | Product Carriers (Q2 2021) | Totals (Q2 2021) | Crude Tankers (Q2 2020) | Product Carriers (Q2 2020) | Totals (Q2 2020) | | :--------------------- | :---------------------- | :------------------------- | :--------------- | :---------------------- | :------------------------- | :--------------- | | Shipping revenues | $32,548 | $13,756 | $46,304 | $110,407 | $29,318 | $139,725 | | Time charter equivalent revenues | $31,096 | $13,622 | $44,718 | $105,890 | $29,399 | $135,289 | | Adjusted (loss)/income from vessel operations | $(7,058) | $975 | $(6,101) | $62,883 | $15,731 | $78,591 | | Equity in income of affiliated companies | $5,375 | — | $5,375 | $5,205 | — | $5,205 | | (Dollars in thousands) | Crude Tankers (H1 2021) | Product Carriers (H1 2021) | Totals (H1 2021) | Crude Tankers (H1 2020) | Product Carriers (H1 2020) | Totals (H1 2020) | | :--------------------- | :---------------------- | :------------------------- | :--------------- | :---------------------- | :------------------------- | :--------------- | | Shipping revenues | $70,058 | $23,002 | $93,060 | $204,084 | $60,978 | $265,062 | | Time charter equivalent revenues | $67,046 | $22,841 | $89,887 | $194,744 | $60,276 | $255,020 | | Adjusted loss from vessel operations | $(8,015) | $(1,698) | $(9,754) | $106,824 | $30,087 | $136,864 | | Equity in income of affiliated companies | $10,843 | — | $10,843 | $10,316 | — | $10,316 | Note 6 — Vessels The Company recorded a $3.5 million impairment charge for a Panamax vessel held for sale in Q2 2021. It also committed to construct three dual-fuel LNG VLCCs for $290.0 million, with $14.6 million expended by June 30, 2021. Several vessel sales were initiated or completed in H1 2021 and post-quarter, including a VLCC, Panamaxes, and MRs acquired in the merger - A held-for-sale impairment charge of $3.5 million was recorded in Q2 2021 for a 2003-built Panamax, writing down its value to estimated fair value and covering selling costs[50][51] - The Company entered into agreements to construct three dual-fuel LNG VLCCs for approximately $290.0 million, with delivery scheduled for Q1 2023. These vessels will be employed on seven-year time charter contracts with Shell[52] - Accumulated expenditures for vessels under construction totaled $14.6 million as of June 30, 2021, with remaining commitments of $273.8 million[52] - During H1 2021 and post-quarter, the Company entered into agreements for the sale of a 2002-built VLCC, three Panamaxes, and seven MRs (six acquired in the merger)[53][54][55] Vessel Impairments - A held-for-sale impairment charge of $3.5 million was recognized in Q2 2021 for a 2003-built Panamax[50] - The charge included $3.4 million to write down the vessel to its estimated fair value and $0.1 million for estimated selling costs[50][51] - Fair value was determined using the market approach, based on the sales price from a memorandum of agreement[51] Construction Commitments - The Company committed to construct three dual-fuel LNG VLCCs, scheduled for delivery in Q1 2023, with a total cost of approximately $290.0 million[52] - These VLCCs will be employed on seven-year time charter contracts with Shell[52] - Accumulated expenditures of $14.6 million (including $58 thousand in capitalized interest) were recorded as of June 30, 2021, with remaining commitments of $273.8 million[52] Vessel sales - In H1 2021, the Company entered agreements for the sale of a 2002-built VLCC, a 2002-built Panamax, and a 2003-built Panamax[53] - The 2002-built VLCC was delivered in July 2021, and the two Panamaxes are expected to deliver in August 2021[53] - On June 30, 2021, agreements were made to sell six MRs acquired in the merger, expected to deliver in Q3 2021[54] - Additional agreements were made in July 2021 to sell a 2009-built MR (from the merger) and two 2002-built Panamaxes[55] Note 7 — Equity Method Investments The Company holds a 50% interest in the FSO Joint Venture (TI Africa and TI Asia), which operates two Floating Storage and Offloading Service vessels. INSW guarantees a portion of the FSO Term Loan, with a maximum potential future payment of $33.2 million as of June 30, 2021. The FSO Joint Venture reported net income of $9,582 thousand for Q2 2021 and $19,292 thousand for H1 2021 - The Company holds a 50% interest in the FSO Joint Venture (TI Africa and TI Asia), operating two Floating Storage and Offloading Service vessels[56] - INSW guarantees obligations of the FSO Joint Venture, including a $110 million FSO Term Loan portion of a $220 million credit facility[57][58] - As of June 30, 2021, the maximum aggregate potential future payment under INSW's guarantee was $33.2 million[59] | Metric (Dollars in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Shipping revenues | $26,109 | $26,119 | $51,954 | $52,143 | | Net income | $9,582 | $9,213 | $19,292 | $18,240 | Note 8 — Variable Interest Entities ("VIEs") The Company participates in five commercial pools and two joint ventures, with one pool and the two FSO joint ventures identified as Variable Interest Entities (VIEs). The Company is not considered a primary beneficiary of these VIEs. As of June 30, 2021, the maximum exposure to loss related to these VIEs was $173.9 million, excluding $14.9 million in trade receivables from the VIE pool - As of June 30, 2021, one commercial pool and the two FSO joint ventures were determined to be Variable Interest Entities (VIEs)[61] - The Company is not considered a primary beneficiary of these VIEs[61] | (Dollars in thousands) | Condensed Consolidated Balance Sheet | Maximum Exposure to Loss | | :--------------------- | :----------------------------------- | :----------------------- | | Investments in Affiliated Companies | $140,603 | | | Other Liabilities | $3 | $173,853 | - The Company had approximately $14.9 million of trade receivables from the VIE pool, excluded from the maximum exposure to loss calculation[61] Note 9 — Fair Value of Financial Instruments, Derivatives and Fair Value Disclosures The Company uses interest rate collars and swaps to manage interest rate risk on its credit facilities, designating them as cash flow hedges. Fair values of financial instruments are categorized by hierarchy, with most debt and derivatives falling under Level 2. The company recognized significant changes in unrealized gains/losses on cash flow hedges in other comprehensive income | (Dollars in thousands) | Fair Value (June 30, 2021) | Level 1 | Level 2 | | :--------------------- | :------------------------- | :------ | :------ | | Cash and cash equivalents | $133,564 | $133,564 | $— | | Core Term Loan Facility | $(252,619) | $— | $(252,619) | | Sinosure Credit Facility | $(234,337) | $— | $(234,337) | | 8.5% Senior Notes | $(25,600) | $(25,600) | $— | - The Company uses interest rate collars and swaps to manage interest rate risk exposure associated with changes in LIBOR interest rate payments on its credit facilities[63] | (Dollars in thousands) | Derivatives Designated as Cash Flow Hedges (June 30, 2021) | | :--------------------- | :--------------------------------------------------------- | | Long-term derivative assets | $6,526 | | Current portion of derivative liabilities | $(3,950) | | Long-term derivative liabilities | $(3,782) | | (Dollars in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--------------------- | :----------------------------- | :----------------------------- | | Net change in unrealized losses on cash flow hedges | $9,822 | $(16,168) | Derivatives - The Company uses interest rate collars and swaps to manage interest rate risk, converting a $350 million notional collar into a $250 million notional pay-fixed, receive-three-month LIBOR interest rate swap[63] - An additional interest rate swap covering $25 million of the Core Term Loan Facility was entered into in April 2020, converting to a fixed rate of 0.50% through January 23, 2025[64] - The Sinosure Credit Facility's floating-to-fixed interest rate swap was extended to December 21, 2027, and the fixed LIBOR rate reduced to 2.35%. This hybrid instrument has a bifurcated embedded derivative and a financing component[65] | (Dollars in thousands) | June 30, 2021 | December 31, 2020 | | :--------------------- | :------------ | :---------------- | | Derivative Assets (interest rate swaps) | $6,526 | $2,129 | | Derivative Liabilities (interest rate swaps) | $(7,732) | $(10,276) | Note 10 — Debt The Company's total debt outstanding (net of unamortized deferred finance costs) was $506.0 million as of June 30, 2021, primarily comprising the Core Term Loan Facility, Sinosure Credit Facility, and 8.5% Senior Notes. The Company was in compliance with all debt covenants as of June 30, 2021, but anticipates a potential breach of the Interest Coverage Ratio covenant in Q3 2021 due to forecasted declining TCE rates and is in discussions with lenders for amendments or waivers. Interest expense decreased significantly in H1 2021 due to lower debt balances and rates | Debt (Dollars in thousands) | June 30, 2021 | December 31, 2020 | | :-------------------------- | :------------ | :---------------- | | Core Term Loan Facility, net | $249,119 | $267,427 | | Sinosure Credit Facility, net | $232,631 | $244,243 | | 8.5% Senior Notes, net | $24,299 | $24,145 | | Total | $506,049 | $535,815 | | Less current portion | $(61,483) | $(61,483) | | Long-term portion | $444,566 | $474,332 | - The Company was in compliance with all financial and non-financial debt covenants as of June 30, 2021[71] - Forecasted decline in average daily TCE rates could lead to a breach of the Interest Coverage Ratio covenant under the Core Term Loan Facility and Sinosure Credit Facility by the end of Q3 2021[78] - The Company is in discussions with Sinosure Credit Facility lenders to amend debt facilities to eliminate the Interest Coverage Ratio covenant or obtain a waiver[78] | Metric (Dollars in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest expense (before capitalized interest) | $6,900 | $8,700 | $14,100 | $20,600 | | Interest paid | $6,000 | $10,200 | $12,300 | $17,300 | Debt Covenants - The Company was in compliance with all financial and non-financial covenants under its debt facilities as of June 30, 2021[71] - Key covenants include minimum liquidity ($50 million or 5% of Consolidated Indebtedness), maximum leverage ratio (not exceeding 0.60 to 1.00), current assets exceeding current liabilities, minimum collateral value (135% of Core Term Loans), and interest coverage ratio (not lower than 2.50:1.00)[72][73][79] - A potential breach of the Interest Coverage Ratio covenant is forecasted for Q3 2021 due to declining TCE rates, and the Company is seeking amendments or waivers[78] Interest Expense | Metric (Dollars in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest expense (before capitalized interest) | $6,900 | $8,700 | $14,100 | $20,600 | | Interest paid | $6,000 | $10,200 | $12,300 | $17,300 | - The decrease in interest expense is primarily due to the $40.0 million payoff of the Transition Term Loan Facility in August 2020, regular principal repayments, lower average outstanding debt balances, and lower average LIBOR rates[180] Debt Modifications, Repurchases and Extinguishments - During H1 2020, the Company incurred $7.3 million in debt issuance costs for the 2020 Debt Facilities, with $6.3 million capitalized as deferred finance charges and $0.2 million expensed as modification fees[80] - Net losses of $13.5 million were recognized in H1 2020 due to prepayment fees ($1.0 million) and write-offs of unamortized original issue discount and deferred financing costs ($12.5 million) related to debt extinguishments[80] Note 11 — Taxes The Company primarily derives income from international shipping operations and qualifies for a U.S. federal income tax exemption under Section 883 of the Code for 2021. Subsidiaries performing administrative functions are subject to local income taxes. Tonnage taxes are assessed by the Marshall Islands and included in vessel expenses - The Company qualifies for an exemption from U.S. federal income taxes under Section 883 of the U.S. Internal Revenue Code for the 2021 calendar year[83] - This exemption is based on less than 50% of the Company's stock being held by 5% or more shareholders for more than half of 2021[83] - Marshall Islands imposes tonnage taxes on certain vessels, which are included in vessel expenses[84] Note 12 — Capital Stock and Stock Compensation The Company accounts for stock-based compensation using the fair value method. The merger with Diamond S resulted in the issuance of 22,536,647 INSW common shares and conversion of Diamond S restricted stock awards. The Company granted restricted common stock, time-based and performance-based restricted stock units (RSUs), and stock options in H1 2021. Regular quarterly cash dividends of $0.06 per share were declared, and share repurchases occurred for tax withholding purposes - The Company accounts for stock-based compensation expense using the fair value method required by ASC 718[85] - The merger with Diamond S resulted in the issuance of 22,536,647 INSW Common Stock shares[86] - In H1 2021, the Company awarded 41,287 restricted common stock shares to non-employee directors, 64,943 time-based RSUs, 64,943 performance-based RSUs, and 141,282 stock options to officers and employees[88][91][92][93] - Regular quarterly cash dividends of $0.06 per share were declared on February 23, 2021, June 4, 2021, and July 28, 2021[95] - The Company repurchased 50,975 shares of common stock in H1 2021 at an average cost of $20.21 per share to cover withholding taxes related to vested restricted stock units[97] Issuance of Shares upon Merger - The merger with Diamond S resulted in the issuance of 22,536,647 shares of INSW Common Stock[86] - Post-merger, pre-merger INSW shareholders own approximately 55.75% and former Diamond S shareholders own 44.25% of the 50,674,393 outstanding common shares[87] Restricted Common Stock - 41,287 restricted common stock shares were awarded to non-employee directors in H1 2021, with a weighted average fair value of $19.86 per share[88] - Outstanding unvested Diamond S restricted stock awards (131,845 shares) were converted into 72,994 unvested restricted shares of INSW Common Stock upon merger[89] - Mr. Ty E. Wallach's 5,035 restricted INSW Common Stock shares vested immediately upon his resignation from the Board due to the merger[90] Restricted Stock Units and Stock Options - 64,943 time-based restricted stock units (RSUs) were granted to senior officers and employees in H1 2021, with a weighted average grant date fair value of $21.58 per RSU, vesting in equal installments over three years[91] - 64,943 performance-based RSUs were awarded in H1 2021, vesting based on ROIC and TSR performance over a three-year period, with a weighted average grant date fair value of $21.58 per RSU (or $22.50 for TSR-based awards)[92] - 141,282 stock options were awarded in H1 2021, with an exercise price of $21.58 per share and a weighted average grant date fair value of $9.92 per option, vesting in equal installments over three years[93] Dividends - Regular quarterly cash dividends of $0.06 per share were declared on February 23, 2021, and June 4, 2021, resulting in payments of $1.7 million each[95] - An additional regular quarterly cash dividend of $0.06 per share was declared on July 28, 2021, payable on September 23, 2021[95] - A special dividend of $31.5 million was paid on July 15, 2021, in connection with the Merger Transaction[96] Share Repurchases - The Company repurchased 50,975 shares of common stock during H1 2021 at an average cost of $20.21 per share to cover withholding taxes related to vested restricted stock units[97] - The Board reauthorized a $30.0 million stock repurchase program on August 4, 2020, and increased it to $50.0 million on October 28, 2020[98] - No shares were acquired under the repurchase programs during H1 2021, but 1,417,292 shares were repurchased for $30.0 million in H1 2020 under a prior program[98] Note 13 — Accumulated Other Comprehensive Loss Accumulated other comprehensive loss decreased from $32,613 thousand at December 31, 2020, to $22,917 thousand at June 30, 2021. This change was primarily driven by a positive current period change in unrealized losses on cash flow hedges, partially offset by pension plan adjustments | (Dollars in thousands) | June 30, 2021 | December 31, 2020 | | :--------------------- | :------------ | :---------------- | | Unrealized losses on derivative instruments | $(14,276) | $(24,098) | | Items not yet recognized as a component of net periodic benefit cost (pension plans) | $(8,641) | $(8,515) | | Total | $(22,917) | $(32,613) | | (Dollars in thousands) | Balance as of December 31, 2020 | Current period change (H1 2021) | Amounts reclassified (H1 2021) | Balance as of June 30, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :-------------------------- | | Unrealized losses on cash flow hedges | $(24,098) | $3,849 | $5,973 | $(14,276) | | Items not yet recognized as a component of net periodic benefit cost | $(8,515) | $(126) | — | $(8,641) | | Total | $(32,613) | $3,723 | $5,973 | $(22,917) | - The Company expects to reclassify $8.9 million of net losses on derivative instruments from accumulated other comprehensive loss to earnings over the next twelve months[101] Note 14 — Revenue The majority of the Company's revenue from pool, time, and bareboat charters is accounted for as lease revenue under ASC 842, recognized straight-line over the lease term. Lightering services and non-lease voyage charters are accounted for as service revenues under ASC 606, recognized when services are transferred. Total shipping revenues significantly decreased in H1 2021 compared to H1 2020 - The majority of the Company's contracts for pool, time, and bareboat charter revenues are accounted for as lease revenue under ASC 842[103] - Lightering services and voyage charter contracts not meeting the definition of a lease are accounted for as service revenues under ASC 606[104] | (Dollars in thousands) | Crude Tankers (Q2 2021) | Product Carriers (Q2 2021) | Totals (Q2 2021) | Crude Tankers (Q2 2020) | Product Carriers (Q2 2020) | Totals (Q2 2020) | | :--------------------- | :---------------------- | :------------------------- | :--------------- | :---------------------- | :------------------------- | :--------------- | | Revenues from leases | $26,108 | $13,756 | $39,864 | $100,191 | $29,318 | $121,109 | | Revenues from services | $6,440 | — | $6,440 | $8,566 | — | $8,566 | | Total shipping revenues | $32,548 | $13,756 | $46,304 | $110,407 | $29,318 | $139,725 | | (Dollars in thousands) | Crude Tankers (H1 2021) | Product Carriers (H1 2021) | Totals (H1 2021) | Crude Tankers (H1 2020) | Product Carriers (H1 2020) | Totals (H1 2020) | | :--------------------- | :---------------------- | :------------------------- | :--------------- | :---------------------- | :------------------------- | :--------------- | | Revenues from leases | $57,784 | $22,751 | $80,826 | $189,168 | $60,978 | $250,146 | | Revenues from services | $12,274 | — | $12,274 | $14,916 | — | $14,916 | | Total shipping revenues | $70,058 | $23,002 | $93,060 | $204,084 | $60,978 | $265,062 | Revenue Recognition - Most pool, time, and bareboat charter revenues are recognized as lease revenue under ASC 842 on a straight-line basis over the lease term[103] - Lightering services and voyage charter contracts not meeting the definition of a lease are recognized as service revenues under ASC 606 when services are transferred[104] | (Dollars in thousands) | Total Shipping Revenues (Q2 2021) | Total Shipping Revenues (Q2 2020) | Total Shipping Revenues (H1 2021) | Total Shipping Revenues (H1 2020) | | :--------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total shipping revenues | $46,304 | $139,725 | $93,060 | $265,062 | Contract Balances | (Dollars in thousands) | Voyage receivables - Billed receivables | Contract assets (Unbilled voyage receivables) | Contract liabilities (Deferred revenues and off hires) | | :--------------------- | :-------------------------------------- | :-------------------------------------------- | :----------------------------------------------------- | | Opening balance as of January 1, 2021 | $2,148 | $166 | $— | | Closing balance as of June 30, 2021 | $3,107 | $125 | $— | - Contract assets represent conditional rights to consideration for completed performance obligations, decreasing when the right becomes unconditional or payments are received[107] - Contract liabilities include payments received in advance of performance and are recognized upon completion of the respective contract[107] Performance Obligations - All performance obligations and associated revenue are generally transferred to customers over time, with an expected duration of less than one year[108] - Adjustments in revenues from performance obligations satisfied in previous periods were nil for H1 2021, compared to $15 thousand for H1 2020[108] Costs to Obtain or Fulfill a Contract - As of June 30, 2021, there were no unamortized deferred costs of obtaining or fulfilling a contract[109] Note 15 — Leases The Company has elected not to apply ASC 842 provisions to short-term leases. As a lessee, it has operating leases for chartered-in vessels and office space, with total lease costs of $3,841 thousand for Q2 2021 and $7,478 thousand for H1 2021. Operating lease liabilities totaled $14,767 thousand as of June 30, 2021. As a lessor, the Company has non-cancelable time charters with future minimum revenues of $31,326 thousand - The Company has elected not to apply ASC 842 to short-term leases, including tanker vessels chartered-in for one year or less, workboats, and short-term office space[110] | Metric (Dollars in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total lease cost | $3,841 | $4,402 | $7,478 | $10,250 | | Metric (Dollars in thousands) | June 30, 2021 | December 31, 2020 | | :---------------------------- | :------------ | :---------------- | | Operating lease right-of-use assets | $16,999 | $21,588 | | Total operating lease liabilities | $(14,767) | $(19,120) | | Weighted average remaining lease term - operating leases | 2.45 years | 2.75 years | | (Dollars in thousands) | Amount | Revenue Days | | :--------------------- | :----- | :----------- | | Future minimum revenues (non-cancelable time charters) | $31,326 | 935 | Contracts under which the Company is a Lessee - The Company has operating leases for chartered-in vessels (two Aframaxes, one LR1, one workboat) and leased office and other space[112] | Metric (Dollars in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------------------- | :----------------------------- | :----------------------------- | | Operating cash flows used for operating leases | $5,522 | $7,295 | | (Dollars in thousands) | Total operating lease liabilities (Bareboat Charters-in) | Total operating lease liabilities (Time Charters-in) | Total operating lease liabilities (Office and other space) | | :--------------------- | :--------------------------------------- | :----------------------------------- | :----------------------------------------- | | As of June 30, 2021 | $12,883 | $971 | $913 | Contracts under which the Company is a Lessor - The Company has non-cancelable time charters for five Panamaxes, one LR2, and one VLCC[116] | (Dollars in thousands) | Amount | Revenue Days | | :--------------------- | :----- | :----------- | | 2021 | $11,706 | 499 | | 2022 | $16,425 | 365 | | 2023 | $3,195 | 71 | | Future minimum revenues | $31,326 | 935 | Note 16 — Contingencies The Company expenses legal costs as incurred and has potential liabilities related to multi-employer pension plans (MNOPF and MNRPF) where future contributions may be required, though amounts cannot be reasonably estimated. Certain mutual indemnification provisions from the 2016 spin-off from OSG remain in force. The Company is also involved in various legal proceedings in the ordinary course of business, which management believes are not material - The Company expenses legal costs related to contingencies as incurred[117] - Potential future contributions may be required for multi-employer defined benefit pension plans (MNOPF and MNRPF) covering British crew members, but the amounts cannot be reasonably estimated[118][119] - Mutual indemnification provisions from the 2016 spin-off from OSG remain in force[120] - The Company is a party to various suits in the ordinary course of business, which management believes are not material to its financial position, results of operations, and cash flows[121][122] Multi-Employer Plans - The Company participates in the Merchant Navy Officers Pension Fund (MNOPF) and Merchant Navy Ratings Pension Fund (MNRPF), multi-employer defined benefit pension plans[118][119] - Calls for further contributions may be required if additional actuarial deficits arise or if other liable employers cannot pay their share[118][119] - No reserves have been recorded for these contingencies as the assessment amounts cannot be reasonably estimated[118][119] Spin-Off Related Agreements - Certain provisions, including mutual indemnification, from agreements related to the November 30, 2016 spin-off from OSG remain in force[120] Legal Proceedings Arising in the Ordinary Course of Business - The Company is involved in various legal suits in the ordinary course of business, primarily for personal injuries, wrongful death, collision, and contract disputes[121] - A substantial majority of these claims are covered by insurance, and management believes the amounts involved are not material to the Company's financial position, results of operations, and cash flows[122] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, operational results, and future outlook Forward-Looking Statements This section highlights that the report contains forward-looking statements based on the Company's expectations, which are subject to various risks and uncertainties. Readers are cautioned against undue reliance on these statements and should consider factors such as merger integration costs, industry cyclicality, market fluctuations, and global economic conditions - The report contains forward-looking statements representing the Company's expectations for future events, subject to various risks and uncertainties[124] - Key risk factors include merger integration costs, stockholder litigation, tax treatment of the merger, industry cyclicality, fluctuations in vessel market value, declines in charter rates, and global economic conditions[125] - The Company assumes no obligation to update or revise any forward-looking statements[127] Introduction This Management's Discussion and Analysis provides an overview of the Company's business, current developments, financial condition, cash flows, and results of operations. It is structured into sections covering general business, operations and oil tanker markets, critical accounting estimates, vessel operations results, liquidity, and risk management - This section provides a discussion and analysis of the Company's business, current developments, financial condition, cash flows, and results of operations[128] - The analysis is organized into sections including General Business, Operations & Oil Tanker Markets, Critical Accounting Estimates and Policies, Results from Vessel Operations, and Liquidity and Sources of Capital[129][133] General Business Overview International Seaways, Inc. provides ocean transportation for crude oil and refined petroleum products, operating VLCC, Suezmax, Aframax, Panamax crude tankers, and LR1, LR2, and MR product carriers. Post-merger with Diamond S, the fleet expanded to 94 vessels plus newbuilds. Revenues are highly sensitive to market forces, and the Company primarily employs its vessels in the spot market via commercial pools, though spot market exposure decreased in H1 2021 due to opportunistic time charters - The Company provides ocean transportation services for crude oil and refined petroleum products, operating various types of crude and product tankers[131] - Post-merger (July 16, 2021), the Company operates a fleet of 94 vessels (56 product carriers, 38 crude tankers) plus three dual-fuel LNG VLCC newbuilds, totaling 97 vessels[132] - Revenues are highly sensitive to supply and demand patterns for vessels, oil supply/demand, cargo distances, and vessel availability[133] - The Company derived approximately 75% and 72% of its total TCE revenues from the spot market for the three and six months ended June 30, 2021, respectively, a decrease from 81% and 87% in the prior year[133] Operations and Oil Tanker Markets Global oil consumption increased in Q2 2021, with a projected 5.8% increase for the full year. Global oil production also rose, but China's crude oil imports weakened in H1 2021. The tanker fleet expanded in Q2 2021, particularly crude tankers, while the tanker orderbook declined. Crude tanker rates remained under pressure in Q2 2021, operating at or below cash breakeven levels, a trend that continued into Q3 2021. The COVID-19 pandemic continues to adversely affect the Company's business - Global oil consumption in Q2 2021 was 94.7 million b/d, up 14% YoY, with a 2021 estimate of 96.4 million b/d (5.8% increase over 2020)[137] - Global oil production in Q2 2021 increased by 2.7% YoY to 94.5 million b/d, with non-OPEC production rising by 2.4 million b/d[138] - China's crude oil imports averaged 10.5 million b/d in H1 2021, 3% below H1 2020[140] - The tanker fleet (over 10,000 dwt) increased by 3.8 million dwt in Q2 2021, primarily in crude tankers, while the tanker orderbook declined by 2.2 million dwt[141][142] - Crude tanker rates remained under pressure in Q2 2021, operating at or below industry average cash breakeven levels, a weakness that continued into Q3 2021[143] - The COVID-19 pandemic continues to adversely affect the Company's business, operations, and financial results[145] Update on Critical Accounting Estimates and Policies This section refers to Note 3 of the condensed consolidated financial statements for any changes or updates to the Company's critical accounting policies for the current period, emphasizing that financial statements are prepared using management's best assumptions and judgments - The Company's consolidated financial statements are prepared in accordance with GAAP, requiring estimates based on management's best assumptions, judgments, and opinions[146] - Updates to critical accounting policies for the current period are summarized in Note 3, 'Significant Accounting Policies,' of the accompanying condensed consolidated financial statements[146] Results from Vessel Operations Results from vessel operations significantly declined in Q2 and H1 2021, shifting from income to loss, primarily due to substantially lower Time Charter Equivalent (TCE) revenues across all fleet sectors. This was driven by lower average daily rates and reduced revenue days, particularly in the VLCC fleet due to vessel sales and drydockings. The Crude Tankers segment experienced a 71% decrease in TCE revenues in Q2 2021, while the Product Carriers segment saw a 54% decrease - Results from vessel operations decreased by $85.3 million to a loss of $17.4 million in Q2 2021 (from income of $67.9 million in Q2 2020)[147] - TCE revenues decreased by $90.6 million (67%) in Q2 2021 to $44.7 million, primarily due to lower average daily rates (approx. $69.3 million decrease) and 238 fewer VLCC revenue days[148] - For H1 2021, income from vessel operations decreased by $150.5 million to a loss of $29.3 million (from income of $121.2 million in H1 2020)[149] - H1 2021 TCE revenues decreased by $165.1 million (65%) to $89.9 million, mainly due to lower average daily rates (approx. $138.8 million decrease) and reduced revenue days across VLCC, Aframax, LR1, and MR fleets[150] Crude Tankers Segment Performance | Metric (Dollars in thousands, except daily rate) | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :----------------------------------------------- | :----------- | :----------- | :----------- | :----------- | | TCE revenues | $31,096 | $105,890 | $67,046 | $194,744 | | Adjusted (loss)/income from vessel operations | $(7,058) | $62,883 | $(8,015)