UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-37836-1
INTERNATIONAL SEAWAYS, INC.
(Exact name of registrant as specified in its charter)
Marshall Islands
98-0467117
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
600 Third Avenue, 39th Floor, New York, New York
10016
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: 212-578-1600
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock (no par value)
INSW
New York Stock Exchange
Rights to Purchase Common Stock
N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Accelerated filer ☐
Emerging growth company ☐
Non-accelerated filer ☐
Smaller reporting company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date. The number of shares outstanding of the issuer’s common stock as of November 4, 2024: common stock, no par value, 49,192,838 shares.
INTERNATIONAL SEAWAYS, INC.CONDENSED CONSOLIDATED BALANCE SHEETSDOLLARS IN THOUSANDS(UNAUDITED)
September 30, 2024
December 31, 2023
ASSETS
Current Assets:
Cash and cash equivalents
$
103,309
126,760
Short-term investments
50,000
60,000
Voyage receivables, net of allowance for credit losses of $190 and $191
including unbilled receivables of $185,262 and $237,298
191,093
247,165
Other receivables
15,682
14,303
Inventories
378
1,329
Prepaid expenses and other current assets
9,721
10,342
Current portion of derivative asset
2,087
5,081
Total Current Assets
372,270
464,980
Vessels and other property, less accumulated depreciation of $502,936 and $427,274
2,045,331
1,914,426
Vessels construction in progress
24,401
11,670
Deferred drydock expenditures, net
82,628
70,880
Operating lease right-of-use assets
12,295
20,391
Pool working capital deposits
33,794
31,748
Long-term derivative asset
214
1,153
Other assets
16,913
6,571
Total Assets
2,587,846
2,521,819
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other current liabilities
45,796
57,904
Current portion of operating lease liabilities
7,673
10,223
Current installments of long-term debt
49,823
127,447
Total Current Liabilities
103,292
195,574
Long-term operating lease liabilities
6,773
11,631
Long-term debt
600,689
595,229
Other liabilities
2,462
2,628
Total Liabilities
713,216
805,062
Commitments and contingencies
Equity:
Capital - 100,000,000 no par value shares authorized; 49,192,838 and 48,925,562
shares issued and outstanding
1,501,503
1,490,986
Retained earnings
382,350
226,834
1,883,853
1,717,820
Accumulated other comprehensive loss
(9,223)
(1,063)
Total Equity
1,874,630
1,716,757
Total Liabilities and Equity
See notes to condensed consolidated financial statements
1
INTERNATIONAL SEAWAYS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSDOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS(UNAUDITED)
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
Shipping Revenues:
Pool revenues, including $57,062, $72,877, $211,050 and $250,909
from companies accounted for by the equity method
170,007
194,465
603,970
701,634
Time charter revenues
36,842
27,587
99,030
66,849
Voyage charter revenues
18,341
19,656
54,000
52,558
225,190
241,708
757,000
821,041
Operating Expenses:
Voyage expenses
5,503
5,756
14,537
13,434
Vessel expenses
71,269
64,596
202,490
188,516
Charter hire expenses
7,245
11,297
20,841
30,599
Depreciation and amortization
39,304
33,363
109,974
95,356
General and administrative
13,411
12,314
37,494
35,082
Other operating expenses
985
—
2,715
Third-party debt modification fees
148
168
568
(Gain)/loss on disposal of vessels and other assets, net
(13,499)
74
(41,402)
(10,648)
Total operating expenses
124,218
127,548
346,817
352,907
Income from vessel operations
100,972
114,160
410,183
468,134
Other income
3,211
646
8,525
8,308
Income before interest expense and income taxes
104,183
114,806
418,708
476,442
Interest expense
(12,496)
(16,817)
(37,808)
(51,678)
Income before income taxes
91,687
97,989
380,900
424,764
Income tax benefit/(provision)
(52)
(432)
Net income
91,688
97,937
380,901
424,332
Weighted Average Number of Common Shares Outstanding:
Basic
49,544,412
48,861,356
49,302,367
49,008,901
Diluted
49,881,317
49,275,022
49,677,238
49,442,825
Per Share Amounts:
Basic net income per share
1.85
2.00
7.72
8.65
Diluted net income per share
1.84
1.99
7.66
8.58
2
INTERNATIONAL SEAWAYS, INC.CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEDOLLARS IN THOUSANDS(UNAUDITED)
Other comprehensive loss, net of tax:
Net change in unrealized gains/(losses) on cash flow hedges
(4,277)
(968)
(4,702)
(1,725)
Defined benefit pension and other postretirement benefit plans:
Net change in unrecognized prior service costs
(467)
49
(457)
(11)
Net change in unrecognized actuarial losses
(3,063)
323
(3,001)
(69)
Other comprehensive loss, net of tax
(7,807)
(596)
(8,160)
(1,805)
Comprehensive income
83,881
97,341
372,741
422,527
3
INTERNATIONAL SEAWAYS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSDOLLARS IN THOUSANDS(UNAUDITED)
Cash Flows from Operating Activities:
Items included in net income not affecting cash flows:
Amortization of debt discount and other deferred financing costs
3,093
4,491
Deferred financing costs write-off
1,952
Stock compensation
5,736
5,912
Equity in results of affiliated companies
(42)
20
Other – net
(519)
(2,140)
Items included in net income related to investing and financing activities:
Gain on disposal of vessels and other assets, net
Loss on extinguishment of debt
1,323
Payments for drydocking
(43,855)
(27,622)
Insurance claims proceeds related to vessel operations
1,004
2,858
Changes in operating assets and liabilities:
Decrease in receivables
56,072
69,948
(Decrease)/increase in deferred revenue
(5,273)
911
Purchase of insurance contract in connection with settlement of pension plan obligations
(3,649)
Net change in inventories, prepaid expenses and other current assets, accounts
payable, accrued expenses and other current and long-term liabilities
(8,524)
(3,774)
Net cash provided by operating activities
453,516
562,919
Cash Flows from Investing Activities:
Expenditures for vessels, vessel improvements and vessels under construction
(216,589)
(192,218)
Proceeds from disposal of vessels and other property, net
71,915
20,036
Expenditures for other property
(880)
(1,035)
Investments in short-term time deposits
(125,000)
(210,000)
Proceeds from maturities of short-term time deposits
135,000
215,000
(1,532)
(1,334)
Net cash used in investing activities
(137,086)
(169,551)
Cash Flows from Financing Activities:
Borrowings on revolving credit facilities
Repayments on revolving credit facilities
(50,000)
Repayments of debt
(39,851)
(323,685)
Proceeds from sale and leaseback financing, net of issuance and deferred financing costs
169,717
Payments on sale and leaseback financing and finance lease
(36,831)
(123,732)
Payments of deferred financing costs
(5,759)
(3,006)
Premium and fees on extinguishment of debt
(1,323)
Repurchase of common stock
(25,000)
(13,948)
Cash dividends paid
(225,385)
(247,001)
Cash paid to tax authority upon vesting or exercise of stock-based compensation
(7,055)
(5,158)
Net cash used in financing activities
(339,881)
(498,136)
Net decrease in cash and cash equivalents
(23,451)
(104,768)
Cash and cash equivalents at beginning of year
243,744
Cash and cash equivalents at end of period
138,976
4
INTERNATIONAL SEAWAYS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYDOLLARS IN THOUSANDS(UNAUDITED)
Retained
Accumulated
Earnings /
Other
(Accumulated
Comprehensive
Capital
Deficit)
Income/(loss)
Total
For the nine months ended
Balance at January 1, 2024
Other comprehensive loss
Dividends declared
Forfeitures of vested restricted stock awards and exercised stock options
Compensation relating to restricted stock awards
811
Compensation relating to restricted stock units awards
4,826
Compensation relating to stock option awards
99
Equity consideration issued for purchase of vessels
36,836
Balance at September 30, 2024
Balance at January 1, 2023
1,502,235
(21,447)
6,964
1,487,752
(247,008)
768
4,688
456
Balance at September 30, 2023
1,489,041
155,877
5,159
1,650,077
For the three months ended
Balance at July 1, 2024
1,524,400
364,452
(1,416)
1,887,436
(73,790)
291
1,812
Balance at July 1, 2023
1,487,151
127,368
5,755
1,620,274
(69,428)
(149)
277
1,645
117
5
INTERNATIONAL SEAWAYS, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
Note 1 — Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements include the accounts of International Seaways, Inc. (“INSW”), a Marshall Islands corporation, and its wholly owned subsidiaries. Unless the context indicates otherwise, references to “INSW”, the “Company”, “we”, “us” or “our”, refer to International Seaways, Inc. and its subsidiaries. As of September 30, 2024, the Company’s operating fleet consisted of 76 wholly-owned or lease financed and time chartered-in oceangoing vessels, engaged primarily in the transportation of crude oil and refined petroleum products in the International Flag trade through its wholly owned subsidiaries. In addition to our operating fleet, six LR1 newbuilds are scheduled for delivery to the Company between the second half of 2025 and third quarter of 2026, bringing the total operating and newbuild fleet to 82 vessels.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required by generally accepted accounting principles in the United States. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results have been included. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
The condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles in the United States for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
All intercompany balances and transactions within INSW have been eliminated. Investments in 50% or less owned affiliated companies, in which INSW exercises significant influence, are accounted for by the equity method.
Note 2 — Significant Accounting Policies:
For a description of all of the Company’s material accounting policies, see Note 2, “Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements as of and for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K. The following is a summary of any changes or updates to the Company’s critical accounting policies for the current period:
Concentration of Credit Risk — The allowance for credit losses is recognized as an allowance or contra-asset and reflects our best estimate of probable losses inherent in the voyage receivables balance. Activity for allowance for credit losses is summarized as follows:
(Dollars in thousands)
Allowance for Credit Losses - Voyage Receivables
Balance at December 31, 2023
191
Reversal of expected credit losses
(1)
190
During the three and nine months ended September 30, 2024 and 2023, the Company did not have any individual customers who accounted for 10% or more of its revenues apart from the pools in which it participates. The pools in which the Company participates accounted in aggregate for 97% and 95% of consolidated voyage receivables at September 30, 2024 and December 31, 2023, respectively.
Deferred finance charges — Finance charges, excluding original issue discount, incurred in the arrangement of new debt and/or amendments resulting in the modification of existing debt are deferred and amortized to interest expense on either an effective interest
6
method or straight-line basis over the term of the related debt. Unamortized deferred finance charges of $11.8 million and $4.5 million relating to the $500 Million Revolving Credit Facility and the $160 Million Revolving Credit Facility (See Note 8, “Debt”) as of September 30, 2024 and December 31, 2023, respectively, are included in other assets in the accompanying condensed consolidated balance sheets. Unamortized deferred financing charges of $6.8 million and $11.3 million as of September 30, 2024 and December 31, 2023, respectively, relating to the Company’s outstanding debt facilities, are included in long-term debt in the consolidated balance sheets.
Interest expense relating to the amortization of deferred financing charges amounted to $0.8 million and $2.5 million for the three and nine months ended September 30, 2024, respectively, and $1.2 million and $3.8 million for the three and nine months ended September 30, 2023, respectively.
Vessels construction in progress — Interest costs are capitalized to vessels during the period that vessels are under construction.
Interest capitalized during the three and nine months ended September 30, 2024 totaled $0.3 million and $0.7 million, respectively, and nil and $2.3 million during the three and nine months ended September 30, 2023, respectively. Construction of the Company’s three dual-fuel LNG VLCCs was completed, and the vessels were delivered to the Company between March 2023 and May 2023. The Company has six LR1 newbuilds under construction that are scheduled for delivery to the Company between the second half of 2025 and third quarter of 2026.
Recently Issued Accounting Standards — The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification is the sole source of authoritative GAAP other than United States Securities and Exchange Commission (“SEC”) issued rules and regulations that apply only to SEC registrants. The FASB issues Accounting Standards Updates (“ASU”) to communicate changes to the codification.
In November 2023, the FASB issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures. This guidance is expected to improve financial reporting by providing additional information about a public company’s significant segment expenses and more timely and detailed segment information reporting throughout the fiscal year. This guidance requires annual and interim period disclosure of significant segment expenses that are provided to the chief operating decision maker (“CODM”) as well as interim disclosures for all reportable segments’ profit or loss. It also requires disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. The amendments in ASU 2023-07 are effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 and will apply retrospectively to all prior periods presented in the financial statements. We are currently evaluating the impact of the new guidance on the disclosures to our consolidated financial statements. As the guidance requires only additional disclosure, there will be no effects of this standard on our financial position, results of operations or cash flows.
In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses. This guidance will require additional disclosures and disaggregation of certain costs and expenses presented on the face of the income statement. The amendments are effective for annual reporting periods beginning after December 15, 2026 and interim reporting period beginning after December 15, 2027 with early adoption permitted. We are currently evaluating the impact of this new guidance on the disclosures to our consolidated financial statements.
Note 3 — Earnings per Common Share:
Basic earnings per common share is computed by dividing earnings, after the deduction of dividends and undistributed earnings allocated to participating securities, by the weighted average number of common shares outstanding during the period.
The computation of diluted earnings per share assumes the issuance of common stock for all potentially dilutive stock options and restricted stock units not classified as participating securities. Participating securities are defined by ASC 260, Earnings Per Share, as
7
unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents and are included in the computation of earnings per share pursuant to the two-class method.
Weighted average shares of unvested restricted common stock considered to be participating securities totaled 20,198 and 23,302 for the three and nine months ended September 30, 2024, respectively, and 29,519 and 38,288 for the three and nine months ended September 30, 2023, respectively. Such participating securities are allocated a portion of income, but not losses under the two-class method. As of September 30, 2024, there were 419,215 shares of restricted stock units and 174,417 stock options outstanding and considered to be potentially dilutive securities.
Reconciliations of the numerator of the basic and diluted earnings per share computations are as follows:
Net income allocated to:
Common Stockholders
91,650
97,878
380,730
424,011
Participating securities
38
59
171
321
For the three and nine months ended September 30, 2024 earnings per share calculations, there were 336,905 and 374,871 dilutive equity awards outstanding, respectively. For the three and nine months ended September 30, 2023 earnings per share calculations, there were 413,666 and 433,924 dilutive equity awards outstanding, respectively. Awards of 593,632 and 579,779 for the three and nine months ended September 30, 2024, respectively, and 774,957 and 804,199 for the three and nine months ended September 30, 2023, respectively, were not included in the computation of diluted earnings per share because inclusion of these awards would be anti-dilutive.
Note 4 — Business and Segment Reporting:
The Company has two reportable segments: Crude Tankers and Product Carriers. Adjusted income/(loss) from vessel operations for segment purposes is defined as income/(loss) from vessel operations before general and administrative expenses, other operating expenses, third-party debt modification fees and gain on disposal of vessels and assets, net. The accounting policies followed by the reportable segments are the same as those followed in the preparation of the Company’s condensed consolidated financial statements.
Information about the Company’s reportable segments as of and for the three and nine months ended September 30, 2024 and 2023 follows:
8
Crude
Product
Tankers
Carriers
Totals
Three months ended September 30, 2024:
Shipping revenues
103,212
121,978
Time charter equivalent revenues
98,821
120,866
219,687
20,536
18,768
(18)
(13,481)
Adjusted income from vessel operations
39,656
62,213
101,869
Adjusted total assets at September 30, 2024
1,453,559
953,451
2,407,010
Three months ended September 30, 2023:
114,250
127,458
110,766
125,186
235,952
20,039
13,298
26
Loss on disposal of vessels and other assets
13
61
Adjusted income/(loss) from vessel operations
58,926
67,796
(26)
126,696
Adjusted total assets at September 30, 2023
1,520,485
795,568
2,316,053
Nine months ended September 30, 2024:
355,458
401,542
343,639
398,824
742,463
60,571
49,403
(20)
(41,382)
176,696
232,462
409,158
Expenditures for vessels and vessel improvements
763
215,826
216,589
6,333
37,522
43,855
Nine months ended September 30, 2023:
398,829
422,212
388,963
418,644
807,607
56,583
38,694
79
Loss/(gain) on disposal of vessels and other assets, net
(10,686)
239,985
253,230
(79)
493,136
184,515
7,703
192,218
4,364
23,258
27,622
Reconciliations of time charter equivalent (“TCE”) revenues of the segments to shipping revenues as reported in the condensed statements of operations follow:
Add: Voyage expenses
Consistent with general practice in the shipping industry, the Company uses time charter equivalent revenues, which represent shipping revenues less voyage expenses, as a measure to compare revenue generated from a voyage charter to revenue generated from a time charter. Time charter equivalent revenues, a non-GAAP measure, provide additional meaningful information in conjunction
9
with shipping revenues, the most directly comparable GAAP measure, because it assists Company management in making decisions regarding the deployment and use of its vessels and in evaluating their financial performance.
Reconciliations of total adjusted income from vessel operations of the segments to income before income taxes, as reported in the condensed consolidated statements of operations follow:
Total adjusted income from vessel operations of all segments
General and administrative expenses
(13,411)
(12,314)
(37,494)
(35,082)
(985)
(2,715)
(148)
(168)
(568)
Gain/(loss) on disposal of vessels and other assets, net
13,499
(74)
41,402
10,648
Consolidated income from vessel operations
Reconciliations of total assets of the segments to amounts included in the condensed consolidated balance sheets follow:
September 30, 2023
Adjusted total assets of all segments
Corporate unrestricted cash and cash equivalents
75,000
Other unallocated amounts
27,527
30,993
Consolidated total assets
2,561,022
Note 5 — Vessels:
Impairment of Vessels and Other Property
During the nine months ended September 30, 2024, the Company gave consideration as to whether events or changes in circumstances had occurred since December 31, 2023, that could indicate that the carrying amounts of the vessels in the Company’s fleet may not be recoverable. The Company determined that no held-for-sale or held-for-use impairment indicators existed for the Company’s vessels as of September 30, 2024.
Vessel Acquisitions and Construction Commitments
On February 23, 2024, the Company entered into agreements to acquire two 2014-built and four 2015-built MR Product Carriers for an aggregate consideration of approximately $232 million, payable 85% in cash and 15% in shares of common stock of the Company. All six vessels were delivered during the second quarter of 2024 and are Collateral Vessels under the $500 Million Revolving Credit Facility (see Note 8, “Debt”). In total, for the acquisition of the vessels, the Company paid $198.3 million in cash, including $1.1 million for initial stores on board and directly related third-party professional fees, and also issued 623,778 shares of its common stock to the sellers. Such shares had an aggregate value of $36.8 million based upon the closing market price of the Company’s stock on each of the vessel delivery dates.
10
An automatic shelf registration statement on Form S-3 was filed with the SEC on April 29, 2024 that, in connection with prospectus supplements filed during the second quarter of 2024, registered the aggregate 623,778 shares that were issued in conjunction with these vessel acquisitions and facilitated the seller’s ability to offer and sell or otherwise dispose of the shares of common stock issued to them under this transaction.
In March 2024 the Company exercised options to build two additional dual-fuel ready LNG 73,600 dwt LR1s at the same shipyard from which its other four newbuild LR1s were ordered. The six LR1s are expected to be delivered beginning in the second half of 2025 through the third quarter of 2026 for an aggregate cost of approximately $359 million. The remaining commitments on the contracts for the construction of the LR1 newbuilds as of September 30, 2024 was $335.3 million, which will be paid for through a combination of long-term financing and available liquidity.
Disposal/Sales of Vessels
During the nine months ended September 30, 2024, the Company delivered one 2009-built and two 2008-built MRs to their buyers and recognized an aggregate gain of $41.4 million.
During the nine months ended September 30, 2023, the Company delivered a 2008-built MR to its buyer and recognized a gain of $10.9 million.
Note 6 — Variable Interest Entities (“VIEs”):
Unconsolidated VIEs
As of September 30, 2024, all of the seven commercial pools in which the Company participates were determined to be VIEs for which the Company is not considered a primary beneficiary.
The following table presents the carrying amounts of assets and liabilities in the condensed consolidated balance sheet related to the unconsolidated VIEs as of September 30, 2024:
Condensed Consolidated Balance Sheet
In accordance with accounting guidance, the Company evaluated its maximum exposure to loss related to these unconsolidated VIEs by assuming a complete loss of the Company’s investment in these VIEs. The table below compares the Company’s liability in the condensed consolidated balance sheet to the maximum exposure to loss at September 30, 2024:
Maximum Exposure toLoss
Other Liabilities
–
In addition, as of September 30, 2024, the Company had approximately $182.5 million of trade receivables from the pools that were determined to be a VIE. These trade receivables, which are included in voyage receivables in the accompanying condensed consolidated balance sheet, have been excluded from the above tables and the calculation of INSW’s maximum exposure to loss. The Company does not record the maximum exposure to loss as a liability because it does not believe that such a loss is probable of occurring as of September 30, 2024.
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Note 7 — Fair Value of Financial Instruments, Derivatives and Fair Value Disclosures:
The estimated fair values of the Company’s financial instruments, other than derivatives that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows:
Fair Value Level
Level 1
Short-term investments (1)
$500 Million Revolving Credit Facility(2)
(94,581)
(113,598)
Level 2
ING Credit Facility (2)
(20,833)
Ocean Yield Lease Financing (2)
(289,987)
(311,907)
BoComm Lease Financing (3)
(192,343)
(210,186)
Toshin Lease Financing (3)
(12,149)
(13,566)
Hyuga Lease Financing (3)
(12,127)
(13,643)
Kaiyo Lease Financing (3)
(11,062)
(12,419)
Kaisha Lease Financing (3)
(11,047)
(12,519)
Derivatives
At September 30, 2024, the Company was party to amortizing interest rate swap agreements with major financial institutions participating in the $500 Million Revolving Credit Facility that effectively converts the Company’s interest rate exposure from a three-month SOFR floating rate to a fixed rate of 2.84% through the maturity date of February 22, 2027. The interest rate swap agreements, which contain no leverage features, are designated and qualify as cash flow hedges and have a remaining aggregate notional value of $255.6 million as of September 30, 2024, covering for accounting purposes, the $94.6 million principal balance outstanding under the $500 Million Revolving Credit Facility and $161.0 million outstanding under the Ocean Yield Lease Financing. Also, as of September 30, 2024, approximately $0.4 million in net gains from previously terminated interest rate swaps are expected to be amortized out of accumulated other comprehensive loss to earnings over the next 12 months.
Derivatives are recorded on a net basis by counterparty when a legal right of offset exists. The Company had the following amounts recorded on a net basis by transaction in the accompanying unaudited condensed consolidated balance sheets related to the Company’s use of derivatives as of September 30, 2024 and December 31, 2023:
12
Long-term derivative assets
September 30, 2024:
Derivatives designated as hedging instruments:
Interest rate swaps
710
December 31, 2023:
961
The following tables present information with respect to gains and losses on derivative positions reflected in the condensed consolidated statements of operations or in the condensed consolidated statements of comprehensive income.
The effect of cash flow hedging relationships recognized in other comprehensive income excluding amounts reclassified from accumulated other comprehensive income for the three and nine months ended September 30, 2024 and 2023 follows:
(2,383)
1,897
1,766
6,291
Total other comprehensive (loss)/income
The effect of the Company’s cash flow hedging relationships on the condensed consolidated statement of operations for the three and nine months ended September 30, 2024 and 2023 follows:
(1,734)
(2,343)
(5,699)
(6,328)
Discontinued hedging instruments:
Interest rate swap
(160)
(522)
(769)
(1,688)
Total interest expense
(1,894)
(2,865)
(6,468)
(8,016)
See Note 11, “Accumulated Other Comprehensive Loss,” for disclosures relating to the impact of derivative instruments on accumulated other comprehensive income/(loss).
The following table presents the fair values, which are pre-tax, for assets and liabilities measured on a recurring basis:
Derivative Assets (interest rate swaps)
3,011
7,195
Level 2(1)
Note 8 — Debt:
Debt consists of the following:
$750 Million Facility Term Loan, due 2027, net of unamortized deferred finance costs of $3,124
110,474
$500 Million Revolving Credit Facility, due 2030
94,581
ING Credit Facility, due 2026, net of unamortized deferred finance costs of $295
20,538
Ocean Yield Lease Financing, due 2031, net of unamortized deferred finance costs of $2,276 and $2,656
287,711
309,250
BoComm Lease Financing, due 2030, net of unamortized deferred finance costs of $3,620 and $4,166
219,756
229,583
Toshin Lease Financing, due 2031, net of unamortized deferred finance costs of $257 and $302
12,859
13,903
Hyuga Lease Financing, due 2031, net of unamortized deferred finance costs of $220 and $265
12,629
13,786
Kaiyo Lease Financing, due 2030, net of unamortized deferred finance costs of $187 and $227
11,433
12,518
Kaisha Lease Financing, due 2030, net of unamortized deferred finance costs of $196 and $238
11,543
12,624
650,512
722,676
Less current portion
(49,823)
(127,447)
Long-term portion
Capitalized terms used hereafter have the meaning given in these condensed consolidated financial statements or in the respective transaction documents referred to below, including subsequent amendments thereto.
ING Credit Facility
On April 18, 2024, the Company prepaid the outstanding principal balance of $20.3 million and terminated the ING Credit Facility.
$750 Million Credit Facility
On April 26, 2024, the Company, International Seaways Operating Corporation (the “Borrower”) and certain of their subsidiaries entered into a second amendment that amended and extended the $750 Million Credit Facility with Nordea Bank Abp, New York Branch (“Nordea”), BNP Paribas, Crédit Agricole Corporate & Investment Bank (“CA-CIB”), DNB Markets Inc., and Skandinaviska Enskilda Banken AB (PUBL) (or their respective affiliates), as mandated lead arrangers and bookrunners; ING Bank N.V., London Branch and Danish Ship Finance A/S (or their respective affiliates), as lead arrangers and National Australia Bank Limited, as co-arranger. Nordea is acting as administrative agent, collateral agent, coordinator and security trustee under the amended agreement, and CA-CIB is acting as sustainability coordinator.
Immediately prior to the closing of the second amendment, the $750 Million Facility, had a remaining term loan balance of $94.6 million and undrawn revolver capacity of $257.4 million. The amended agreement consists of a $500 million revolving credit facility
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(the “$500 Million Revolving Credit Facility”) that matures on January 31, 2030. That maturity date is subject to acceleration upon the occurrence of certain events (as described in the credit agreement). The $500 Million Revolving Credit Facility is secured by a first lien on certain of the Company’s vessels (the “Collateral Vessels”), along with their earnings, insurances and certain other assets, as well as by liens on certain additional assets of the Borrower. Under the terms of the $500 Million Revolving Credit Facility capacity is reduced on a quarterly basis by approximately $12.8 million, based on a 20-year age-adjusted profile of the Collateral Vessels. The $500 Million Revolving Credit Facility bears an interest rate based on term SOFR plus the Applicable Margin (each as defined in the credit agreement). The Applicable Margin is 1.85% and is subject to similar sustainability-linked features as included in the $750 Million Credit Facility, that are aimed at reducing the carbon footprint, targeting expenditures toward energy efficiency improvements and maintaining a safety record above the industry average. The Company’s performance against these sustainability measures could impact the margin by five basis points. At the time of closing, $94.6 million was drawn on the $500 Million Revolving Credit Facility. An additional $50 million was drawn in June 2024, and subsequently repaid during the three months ended September 30, 2024.
An aggregate of $94.6 million was outstanding as of September 30, 2024, leaving us an undrawn revolver capacity of $392.6 million on this facility.
The $500 Million Revolving Credit Facility also contains customary representations, warranties, restrictions and covenants applicable to the Company, the Borrower and the subsidiary guarantors (and in certain cases, other subsidiaries), including financial covenants that are consistent with existing financial covenants in the $750 Million Credit Facility and require the Company (i) to maintain a minimum liquidity level of the greater of $50 million and 5% of the Company’s Consolidated Indebtedness; (ii) to ensure the Company’s and its consolidated subsidiaries’ Maximum Leverage Ratio will not exceed 0.60 to 1.00 at any time; (iii) to ensure that Current Assets exceeds Current Liabilities (which is defined to exclude the current potion of Consolidated Indebtedness); and (iv) to ensure the aggregate Fair Market Value of the Collateral Vessels will not be less than 135% of the aggregate outstanding principal amount of the $500 Million Revolving Credit Facility.
Debt Covenants
The Company was in compliance with the financial and non-financial covenants under all of its financing arrangements as of September 30, 2024.
Interest Expense
Total interest expense before the impact of capitalized interest, including amortization of issuance and deferred financing costs, commitment, administrative and other fees for all of the Company’s debt facilities for the three and nine months ended September 30, 2024 was $12.6 million and $37.8 million, respectively, and for the three and nine months ended September 30, 2023 was $16.7 million and $53.2 million, respectively. Interest paid for the Company’s debt facilities for the three and nine months ended September 30, 2024 was $11.3 million and $34.5 million, respectively, and for the three and nine months ended September 30, 2023 was $16.8 million and $52.8 million, respectively. Interest paid for the nine months ended September 30, 2023 also included $2.0 million of the pre-delivery interest expense paid for the three dual-fuel LNG VLCC newbuilds.
Note 9 — Taxes:
As of September 30, 2024, the Company qualifies for an exemption from U.S. federal income taxes under Section 883 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and U.S. Treasury Department regulations for the 2024 calendar year, as less than 50 percent of the total value of the Company’s stock was held by one or more shareholders who own 5% or more of the Company’s stock for more than half of the days of 2024.
The Company reviews its provisions for uncertain tax positions relating to freight taxes in various tax jurisdictions on a regular basis and may update its assessment of its tax positions based on available information at that time. Such information may include additional legal advice as to the applicability of freight taxes in relevant jurisdictions. Freight tax regulations are subject to change and interpretation; therefore, the amounts recorded by the Company may change accordingly. There were no changes in such reserve recorded during the three and nine months ended September 30, 2024 and 2023.
15
Additionally, a number of countries, including some in which certain of the Company’s subsidiaries are domiciled, have drafted or are actively considering drafting legislation to implement the Organization for Economic Cooperation and Development's (“OECD”) international tax framework, including the Pillar Two Model Rules. These model rules call for a minimum global tax of 15% on large multinational enterprises with possible application from January 1, 2024 or later, depending on implementation by the individual countries in which the Company is domiciled. As currently enacted, the Pillar Two Model Rules have no impact on the Company’s consolidated financial statements in 2024, however, the Company is monitoring these developments and evaluating the necessary steps it can take to minimize the impact, if any, to the Company’s consolidated financial statements and operations going forward.
Note 10 — Capital Stock and Stock Compensation:
The Company accounts for stock-based compensation expense in accordance with the fair value method required by ASC 718, Compensation – Stock Compensation. Such fair value method requires share-based payment transactions to be measured according to the fair value of the equity instruments issued.
Director Compensation – Restricted Common Stock
On February 19, 2024, Mr. Nadim Qureshi resigned from the Board of Directors of the Company. Mr. Qureshi’s resignation was not the result of any disagreement with the Company or the Board on any matter relating to the Company’s operations, policies or practices. In connection with his resignation, the Board approved the accelerated vesting of the 2,635 restricted shares of INSW common stock previously granted to Mr. Qureshi in June 2023 (valued at approximately $0.1 million) and the Company did not seek reimbursement of any cash director fees paid to Mr. Qureshi in advance for the first quarter of 2024. In consideration of this action, Mr. Qureshi entered into a one-year agreement not to compete with the Company’s crude and product tanker operations.
In June 2024, the Company awarded a total of 20,198 restricted common stock shares to its non-employee directors. The weighted average fair market value of INSW’s stock on the measurement date of such awards was $57.17 per share. Such restricted share awards vest in full on the earlier of the next annual meeting of the stockholders or June 13, 2025, subject to each director continuing to provide services to INSW through such date. The restricted share awards granted may not be transferred, pledged, assigned or otherwise encumbered prior to vesting. Prior to the vesting date, a holder of restricted share awards otherwise has all the rights of a shareholder of INSW, including the right to vote such shares and the right to receive dividends paid with respect to such shares at the same time as common shareholders generally.
Management Compensation
Stock Options
There were no stock options granted during the three and nine months ended September 30, 2024 and 2023. A total of 65,179 and 25,937 stock options were exercised during the nine months ended September 30, 2024 and 2023, respectively, by certain senior officers and employees of the Company at an average exercise price of $21.74 and $22.11 per share, respectively. After withholdings for taxes and costs, the Company issued a total of 18,765 and 6,843 shares, during the nine months ended September 30, 2024 and 2023, respectively, in conjunction with these exercises.
Restricted Stock Units
During the nine months ended September 30, 2024, the Company granted 82,076 time-based restricted stock units (“RSUs”) to certain of its senior officers and employees. The weighted average grant date fair value of these awards was $52.99 per RSU. Each RSU represents a contingent right to receive one share of INSW common stock upon vesting. 48,078 of the RSUs awarded will vest in equal installments on each of the first three anniversaries of the grant date and 33,998 of the RSUs awarded will cliff vest on October 24, 2025.
16
During the nine months ended September 30, 2024, the Company also granted 48,080 performance-based RSUs to certain of its senior officers. Each performance stock unit represents a contingent right to receive RSUs based upon the covered employees being continuously employed through the end of the period over which the performance goals are measured and shall vest as follows: (i) one-half of the target RSUs shall vest on December 31, 2026, subject to INSW’s return on invested capital (“ROIC”) performance in the three-year ROIC performance period relative to a target rate (the “ROIC Target”) set forth in the award agreements; and (ii) one-half of the target RSUs shall vest on December 31, 2026, subject to INSW’s three-year total shareholder return (“TSR”) performance relative to that of a performance peer group over a three-year performance period (“TSR Target”). Vesting is subject in each case to the Human Resources and Compensation Committee of the Company’s Board of Directors’ certification of achievement of the performance measures and targets no later than March 15, 2027. The weighted average grant date fair value of the awards with performance conditions was determined to be $52.57 per RSU. The weighted average grant date fair value of the TSR based performance awards which have a market condition was estimated using a Monte Carlo probability model and determined to be $41.08 per RSU.
Dividends
During 2024, the Company’s Board of Directors have declared and paid the following regular quarterly and supplemental dividends:
Declaration Date
Record Date
Payment Date
Regular Quarterly Dividend per Share
Supplemental Dividend per Share
Total Dividends Paid (Dollars in Thousands)
February 28, 2024
March 14, 2024
March 28, 2024
0.12
1.20
64,665
May 7, 2024
June 12, 2024
June 26, 2024
1.63
86,930
August 6, 2024
September 11, 2024
September 25, 2024
1.38
73,789
On November 6, 2024, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.12 per share of common stock and a supplemental dividend of $1.08 per share of common stock. Both dividends will be paid on December 27, 2024 to stockholders of record as of December 13, 2024.
Share Repurchases
During the nine months ended September 30, 2024, the Company repurchased and retired 501,646 shares of its common stock in open-market purchases, at an average price of $49.81 per share, for a total cost of $25.0 million. During the nine months ended September 30, 2023, the Company repurchased and retired 366,483 shares of its common stock in open-market purchases, at an average price of $38.03 per share, for a total cost of $13.9 million. As of September 30, 2024, the remaining buyback authorization under the Company’s $50.0 million stock repurchase program expiring in December 2025 was $25.0 million. In November 2024, the Company’s Board of Directors authorized an increase in the share repurchase program to $50.0 million from $25 million.
In connection with the settlement of vested restricted stock units and the exercise of stock options, the Company repurchased 158,591 shares of common stock during the nine months ended September 30, 2024, at an average cost of $53.42 per share (based on the closing market prices on the dates of vesting or exercise) from employees and certain members of management to cover withholding taxes. Similarly, the Company repurchased 9,473 and 130,810 shares of common stock during the three and nine months ended September 30, 2023, respectively, at an average cost of $45.50 and $43.81, respectively, per share.
Shares issued relating to Vessel Acquisitions
Refer to Note 5, “Vessels” for further details.
17
Note 11 — Accumulated Other Comprehensive Loss:
The components of accumulated other comprehensive loss, net of related taxes, in the condensed consolidated balance sheets follow:
Unrealized gains on derivative instruments
4,647
9,349
Items not yet recognized as a component of net periodic benefit cost (pension plans)
(13,870)
(10,412)
The changes in the balances of each component of accumulated other comprehensive income/(loss), net of related taxes, during the three and nine months ended September 30, 2024 and 2023 follow:
Unrealized gains/(losses) on cash flow hedges
Items not yet recognized as a component of net periodic benefit cost
Balance as of June 30, 2024
8,924
(10,340)
Current period change, excluding amounts reclassified
from accumulated other comprehensive loss
(3,530)
(5,913)
Amounts reclassified from accumulated other comprehensive loss
Balance as of September 30, 2024
Balance as of June 30, 2023
16,155
(10,400)
from accumulated other comprehensive income
372
2,269
Amounts reclassified from accumulated other comprehensive income
Balance as of September 30, 2023
15,187
(10,028)
Unrealized losses on cash flow hedges
Balance as of December 31, 2023
(3,458)
(1,692)
Balance as of December 31, 2022
16,912
(9,948)
(80)
6,211
18
Amounts reclassified out of each component of accumulated other comprehensive income/(loss) follow:
Statement of Operations Line Item
Reclassifications of (gains)/losses on cash flow hedges:
Interest rate swaps entered into by the Company's subsidiaries
Reclassifications of losses on discontinued hedging instruments
Interest rate swap entered into by the Company's subsidiaries
Total before and net of tax
At September 30, 2024, the Company expects that it will reclassify $2.1 million (gross and net of tax) of net gain on derivative instruments from accumulated other comprehensive income to earnings during the next twelve months attributable to interest rate swaps held by the Company.
See Note 7, “Fair Value of Financial Instruments, Derivatives and Fair Value Disclosures,” for additional disclosures relating to derivative instruments.
Note 12 — Revenue:
Revenue Recognition
The majority of the Company’s contracts for pool revenues, time charter revenues, and voyage charter revenues are accounted for as lease revenue under ASC 842. The Company’s contracts with pools are short term which are cancellable with up to 90 days’ notice. As of September 30, 2024, the Company is a party to time charter out contracts with customers on three VLCCs, two Suezmaxes, one Aframax, one LR2, and eight MRs with expiry dates ranging from November 2024 to April 2030. The Company’s contracts with customers for voyage charters are short term and vary in length based upon the duration of each voyage. Lease revenue for non-variable lease payments is recognized over the lease term on a straight-line basis and lease revenue for variable lease payments (e.g., demurrage) is recognized in the period in which the changes in facts and circumstances on which the variable lease payments are based occur.
Lightering services provided by the Company’s Crude Tanker Lightering Business, and voyage charter contracts that do not meet the definition of a lease are accounted for as service revenues under ASC 606. In accordance with ASC 606, revenue is recognized when a customer obtains control of or consumes promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services.
19
The following tables present the Company’s revenues from leases accounted for under ASC 842 and revenues from services accounted for under ASC 606 for the three and nine months ended September 30, 2024 and 2023:
Revenues from leases
Pool revenues
67,674
102,333
18,595
18,247
Voyage charter revenues from non-variable lease payments
2,525
1,398
3,923
Revenues from services
Voyage charter revenues from lightering services
14,418
Total shipping revenues
80,562
113,903
19,319
8,268
1,669
4,958
6,627
Voyage charter revenues from variable lease payments
329
12,700
246,979
356,991
Time and bareboat charter revenues
59,291
39,739
4,550
4,812
9,362
44,638
309,000
392,634
47,575
19,274
5,324
9,825
15,149
66
479
545
36,864
Contract Balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers, and significant changes in contract assets and liabilities balances, associated with revenue from services accounted for under ASC 606.
Balances related to revenues from leases accounted for under ASC 842 are excluded from the table below.
Voyage receivables - Billed receivables
Contract assets (Unbilled voyage receivables)
Contract liabilities (Deferred revenues and off hires)
Opening balance as of January 1, 2024
6,512
1,029
Closing balance as of September 30, 2024
4,665
184
We receive payments from customers based on the schedule established in our contracts. Contract assets relate to our conditional right to consideration for our completed performance obligations under contracts and decrease when the right to consideration becomes unconditional or payments are received. Contract liabilities include payments received in advance of performance under contracts and are recognized when performance under the respective contract has been completed. Deferred revenues allocated to unsatisfied performance obligations will be recognized over time as the services are performed.
Performance Obligations
All of the Company’s performance obligations are generally transferred to customers over time. The expected duration of services is less than one year. There were no material adjustments in revenues from performance obligations satisfied in previous periods recognized during the three and nine months ended September 30, 2024 and 2023, respectively.
Costs to Obtain or Fulfill a Contract
As of September 30, 2024, there were no unamortized deferred costs of obtaining or fulfilling a contract.
European Union’s Emissions Trading System
Commencing January 1, 2024, the European Union’s Emissions Trading System (“EU ETS”) was extended to cover Carbon dioxide (“CO2”) emissions from ships over 5,000 gross tons entering EU ports. The EU ETS covers (a) 50% of emissions from voyages either starting in or ending in an EU port, and (b) 100% of emissions from voyages between two EU ports or emissions generated while a ship is within an EU port.
Shipping companies will have to surrender EU ETS emissions allowances (“EUA”) for each ton of reported CO2 emissions in the scope of the EU ETS. There is a phase-in period for the regulations, as allowances will have to be submitted for 40% of 2024 emissions, 70% of 2025 emissions and 100% of emissions for 2026 and subsequent years. Beginning in 2026, the scope of the EU ETS will also be expanded to include Methane (“CH4”) and Nitrous oxide (“N2O”).
EUAs are valued based upon a market approach utilizing prices published on an EUA market index. The value of the EUAs to be provided to the Company pursuant to the terms of its agreements with the charterers of its vessels and the commercial pools in which it participates is included in shipping revenues in the condensed consolidated statements of operations. The value of the EUA obligations incurred by the Company under the EU ETS while its vessels are on-hire is included in voyage expenses, or in vessel expenses while its vessels are off-hire, in the condensed consolidated statements of operations.
EUAs held by the Company are intended to be used to settle its EUA obligations and are accounted for as intangible assets. The Company did not hold any EUAs as of September 30, 2024. EUAs relating to 2024 emissions are required to be surrendered to the EU authorities in September 2025.
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The following table presents the components of the non-cash revenues and expenses recognized for EUAs earned and incurred during the three and nine months ended September 30, 2024 and 2023:
910
2,954
455
946
1,365
3,900
The value of EUAs due to the Company from its charterers or commercial pools in which it participates, and the value of the EUAs the Company is obligated to surrender to the EU authorities is $3.9 million as of September 30, 2024 and is included in other receivables and other current liabilities, respectively, in the condensed consolidated balance sheet.
Note 13 — Leases:
As permitted under ASC 842, the Company has elected not to apply the provisions of ASC 842 to short term leases, which include: (i) tanker vessels chartered-in where the duration of the charter was one year or less at lease commencement; (ii) workboats employed in the Crude Tankers Lightering business which have a lease term of 12-months or less; and (iii) short term leases of office and other space.
Contracts under which the Company is a Lessee
The Company currently has two major categories of leases – chartered-in vessel and leased office and other space. The expenses recognized during the three and nine months ended September 30, 2024 and 2023 for the lease component of these leases are as follows:
Nine Months EndedSeptember 30,
Operating lease cost
Vessel assets
2,393
2,092
7,127
3,837
Finance lease cost
Amortization of right-of-use assets
731
Interest on lease liabilities
124
Office and other space
226
203
678
659
45
135
Short-term lease cost
Vessel assets (1)
1,173
5,881
3,671
15,304
Total lease cost
8,221
11,611
20,790
22
Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used for operating leases
8,072
3,822
Finance cash flows used for finance leases
42,284
Supplemental balance sheet information related to leases was as follows:
(7,673)
(10,223)
(6,773)
(11,631)
Total operating and finance lease liabilities
(14,446)
(21,854)
Weighted average remaining lease term - operating leases
4.92 years
4.42 years
Weighted average discount rate - operating leases
5.54%
5.90%
1. Charters-in of vessel assets:
As of September 30, 2024, the Company has commitments to time charter-in two LR1s through to June 2025 and March 2026, respectively. The 18-month charter-in lease period of one of the LR1s did not commence until the vessel was delivered in October 2024. Accordingly, the associated operating lease liability and right of use asset were not recognized as of September 30, 2024. The minimum lease payments (including both lease and non-lease components) due under this time charter-in will be $3,240, $12,994, and $2,563 in 2024, 2025, and 2026, respectively.
The remaining minimum lease payments and related number of operating days under the operating lease that commenced prior to September 30, 2024 are as follows:
Amount
Operating Days
2,427
92
2025
4,301
163
Total lease payments (lease component only)
6,728
255
less imputed interest
(142)
Total operating lease liabilities
6,586
2. Office and other space:
The Company has operating leases for offices and a lightering workboat dock space. These leases have expiry dates ranging from December 2024 to May 2033. The lease for the workboat dock space contains renewal options executable by the Company for periods through December 2027. We have determined that the options through December 2024 are reasonably certain to be executed by the Company, and accordingly the options are included in the lease liability and right of use asset calculations for such lease.
23
Payments of lease liabilities for office and other space as of September 30, 2024 are as follows:
318
1,093
2026
1,113
2027
1,077
2028
Thereafter
4,754
Total lease payments
9,432
(1,572)
7,860
Contracts under which the Company is a Lessor
See Note 12, “Revenue,” for discussion on the Company’s revenues from operating leases accounted for under ASC 842.
The future minimum contracted revenues, before the deduction of brokerage commissions, expected to be received on non-cancelable time charters for three VLCCs, two Suezmaxes, one Aframax, one LR2, and eight MRs, and the related revenue days as of September 30, 2024 are as follows:
Revenue Days
36,528
1,332
114,169
4,112
79,611
2,699
39,433
1,259
34,038
1,098
41,013
Future minimum revenues
344,791
11,823
Future minimum contracted revenues do not include the Company’s share of time charters entered into by the pools in which it participates or profit-sharing above the base rate on the newbuild dual-fuel LNG VLCCs. Revenues from a time charter are not generally received when a vessel is off-hire, including time required for normal periodic maintenance of the vessel. In arriving at the minimum future charter revenues, an estimated time off-hire to perform periodic maintenance on each vessel has been deducted, although there is no assurance that such estimate will be reflective of the actual off-hire in the future.
Note 14 — Other Operating Expenses
Other operating expenses consist of the following expenses:
Settlement of multi-employer pension plan obligations
44
1,019
Legal and consulting fees associated with settlement of pension plan obligations
941
1,696
Total other operating expenses
24
See Note 15, “Pension and Other Postretirement Benefit Plans,” for additional information on the Company’s defined benefit pension plan obligations.
Note 15 – Pension and Other Postretirement Benefit Plans
Defined Benefit Pension Plan
In September 2024, the Company contributed $3.6 million into the OSG Ship Management (UK) Ltd. Retirement Benefits Plan (the “Plan”) to allow the Trustee of the Plan to purchase a $21.0 million insurance contract tailored to match the full value of future Plan benefits payable from the Plan. In this arrangement, the Company’s pension benefit obligation and related risks and rewards are not transferred to the insurance company, and as a result, the Company continues to be responsible for paying the benefits. However, this arrangement generally constitutes an economic settlement of the liability by eliminating relevant risks associated with changes to the obligation, including investment, interest rate and longevity risk. The contract is accounted for as a plan asset in the accompanying condensed consolidated balance sheet as of September 30, 2024. As this arrangement does not qualify for settlement accounting under ASC 715, Compensation – Retirement Benefits, the corresponding obligation is netted against the plan asset in the accompanying condensed consolidated balance sheet at an equal amount.
The Company expects the benefits due to the participants under the Plan to be transferred to the insurance company at the completion of their standard review of the Plan’s underlying data with minimal or no additional cost to the Company. At such time, the Company believes the arrangement will qualify for the settlement accounting.
Multi-Employer Plans
The Merchant Navy Officers Pension Fund (“MNOPF”) is a multi-employer defined benefit pension plan covering British crew members that served as officers on board INSW’s vessels (as well as vessels of other owners). The Trustees of the MNOPF have indicated that, under the terms of the High Court ruling in 2005, which established the liability of past employers to fund the deficit on the Post 1978 section of MNOPF, calls for further contributions may be required if additional actuarial deficits arise or if other employers liable for contributions are not able to pay their share in the future. On July 11, 2024, the Company and the Trustees of the MNOPF entered into an agreement pursuant to which the Company paid $0.1 million and the Trustees of the MNOPF agreed not to seek any future contributions from the Company.
The Merchant Navy Ratings Pension Fund (“MNRPF”) is a multi-employer defined benefit pension plan covering British crew members that served as ratings (seamen) on board INSW’s vessels (as well as vessels of other owners) more than 20 years ago. Based on a High Court ruling in 2015, the Trustees of the MNRPF levied assessments to recover the significant deficit in the plan from participating employers. Participating employers include current employers, historic employers that have made voluntary contributions, and historic employers such as INSW that have made no deficit contributions. In September 2024, the Company entered into an agreement with the Trustees of the MNRPF to release the Company from any future obligation to fund deficits in the plan in exchange for the Company’s payment of $0.8 million.
The Company also made payments totaling $0.1 million to reimburse the Trustees of the MNOPF and MNRPF for costs incurred in connection with the agreements entered into with the Company.
Note 16 — Contingencies:
INSW’s policy for recording legal costs related to contingencies is to expense such legal costs as incurred.
Legal Proceedings Arising in the Ordinary Course of Business
The Company is a party, as plaintiff or defendant, to various suits in the ordinary course of business for monetary relief arising principally from personal injuries, wrongful death, collision or other casualty and to claims arising under charter parties and other contract disputes. A substantial majority of such personal injury, wrongful death, collision or other casualty claims against the
25
Company are covered by insurance (subject to deductibles not material in amount). Each of the claims involves an amount which, in the opinion of management, should not be material to the Company’s financial position, results of operations and cash flows.
In late July 2023, one of the Company’s vessels was arrested in connection with a commercial dispute arising earlier in 2023. Although the vessel was subsequently released, the arresting parties continue to seek approximately $25 million in security. The underlying commercial dispute is in arbitration in England. The Company is defending itself vigorously against the arrest and the allegations in the underlying dispute. The Company is currently unable to predict the outcome of this matter, and no estimate of liability has been accrued at this time.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. Such forward-looking statements represent the Company’s reasonable expectation with respect to future events or circumstances based on various factors and are subject to various risks and uncertainties and assumptions relating to the Company’s operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Accordingly, there are or will be important factors, many of which are beyond the control of the Company, that could cause the Company’s actual results to differ materially from those indicated in these statements. Undue reliance should not be placed on any forward-looking statements and consideration should be given to the following factors when reviewing any such statement. Such factors include, but are not limited to:
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The Company assumes no obligation to update or revise any forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q and written and oral forward-looking statements attributable to the Company or its representatives after the date of this Quarterly Report on Form 10-Q are qualified in their entirety by the cautionary statement contained in this paragraph and in other reports hereafter filed by the Company with the Securities and Exchange Commission.
INTRODUCTION
This Management’s Discussion and Analysis, which should be read in conjunction with our accompanying condensed consolidated financial statements and notes thereto, provides a discussion and analysis of our business, current developments, financial condition, cash flows and results of operations as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023. It is organized as follows:
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This Quarterly Report on Form 10-Q includes industry data and forecasts that we have prepared based, in part, on information obtained from industry publications and surveys. Third-party industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. In addition, certain statements regarding our market position in this report are based on information derived from internal market studies and research reports. Unless we state otherwise, statements about the Company’s relative competitive position in this report are based on our management’s beliefs, internal studies and management’s knowledge of industry trends.
General:
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 three and nine months ended September 30, 2024 we derived 55% and 54%, respectively, of our TCE revenues from our Product Carriers segment compared with 53% and 52% for the three and nine months ended September 30, 2023, respectively. Revenues from our Crude Tankers segment constituted the balance of our TCE revenues in the 2024 and 2023 periods.
As of September 30, 2024, the Company’s operating fleet consisted of 76 wholly-owned or lease financed and time chartered-in vessels aggregating 9.0 million deadweight tons (“dwt”). In addition to our operating fleet of 76 vessels, six LR1 newbuilds are scheduled for delivery to the Company between the second half of 2025 and third quarter of 2026, bringing the total operating and newbuild fleet to 82 vessels. Our fleet includes VLCC, Suezmax and Aframax crude tankers and LR2, LR1 and MR product carriers.
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 available to transport cargo is affected by newbuilding deliveries and by the removal of existing vessels from service, principally through storage, recycling or conversions. The Company’s revenues are also affected by its vessel employment strategy, which seeks to achieve the optimal mix of spot (voyage charter) and long-term (time or bareboat charter) charters. Because shipping revenues and voyage expenses are significantly affected by the mix between voyage charters and time charters, the Company measures the performance of its fleet of vessels based on TCE revenues. Management makes economic decisions based on anticipated TCE rates and evaluates financial performance based on TCE rates achieved. In order to take advantage of market conditions and optimize economic performance, management employs all of the Company’s LR1 product carriers, which currently participate in the Panamax International Pool, in the transportation of crude oil cargoes.
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Our revenues are derived primarily from spot market voyage charters and our vessels are predominantly employed in the spot market via market-leading commercial pools. We derived approximately 84% and 87% of our total TCE revenues in the spot market for the three and nine months ended September 30, 2024, respectively, compared with 89% and 92% for the three and nine months ended September 30, 2023, respectively. The future minimum revenues, before reduction for brokerage commissions, expected to be received on non-cancelable time charters for three VLCCs, two Suezmaxes, one Aframax, one LR2, and eight MRs, as of September 30, 2024 are as follows:
(Dollars in millions)
Amount(1)
36.5
114.2
79.6
39.4
34.0
41.0
344.8
30
Operations and Oil Tanker Markets:
The International Energy Agency (“IEA”) estimates global oil consumption for the third quarter of 2024 at 103.6 million barrels per day (“b/d”), up 0.7% from the same quarter in 2023. The estimate for global oil consumption for 2024 is 102.8 million b/d, an increase of 0.8% over the 2023 estimate of 102.0 million b/d. OECD demand in 2024 is estimated to remain unchanged at 45.6 million b/d, while non-OECD demand is estimated to increase by 1.6% to 57.2 million b/d.
Global oil production in the third quarter of 2024 was 102.6 million b/d, a decrease of 0.1 million b/d from the third quarter of 2023. OPEC crude oil production averaged 26.5 million b/d in the third quarter of 2024, down 0.1 million b/d from the second quarter of 2024, and a decrease of 1.0 million b/d from the third quarter of 2023. Non-OPEC production increased by 0.8 million b/d to 70.5 million b/d in the third quarter of 2024 compared with the third quarter of 2023. Oil production in the U.S. of 13.2 million b/d in the third quarter of 2024 remained unchanged from the second quarter of 2024 and increased by 2.1% from the third quarter of 2023.
U.S. refinery throughput increased by 0.5 million b/d to 16.9 million b/d in the third quarter of 2024 compared with the second quarter of 2024. U.S. crude oil imports in the third quarter of 2024 increased by 0.8 million b/d to 7.1 million b/d compared with the third quarter of 2023, with imports from OPEC countries increasing by 0.1 million b/d and imports from non-OPEC countries increasing by 0.7 million b/d.
China’s crude oil imports for the first three quarters of 2024 decreased 2.8%, or 0.3 million b/d, to 11.0 million b/d, compared with the same period in 2023.
Total OECD commercial inventories ended the third quarter of 2024 down 1.3% or 18 million barrels of crude and up 1.5% or 23 million barrels of products, compared with the third quarter of 2023.
During the third quarter of 2024, the tanker fleet of vessels over 10,000 dwt increased, net of vessels recycled, by 1.5 million dwt as the crude fleet increased by 0.8 million dwt, split between Suezmaxes and Aframaxes. The product carrier fleet increased by 0.6 million dwt, all in the MR fleet. Year-over-year, the size of the tanker fleet increased by 5.5 million dwt with the VLCCs, Suezmaxes, Aframaxes, and MRs increasing by 0.6 million dwt, 0.3 million dwt, 2.3 million dwt, and 2.3 million dwt, respectively. The LR1/Panamax fleet remained unchanged.
During the third quarter of 2024, the tanker orderbook increased by 3.0 million dwt overall compared with the second quarter of 2024. The crude tanker orderbook increased by 1.9 million dwt. The VLCC orderbook increased by 1.5 million dwt and the Aframax orderbook increased by 0.3 million dwt. The product carrier orderbook increased by 1.1 million dwt, with increases in the LR1 and MR sectors of 0.3 million dwt and 0.8 million dwt respectively. Year-over-year, the total tanker orderbook increased by 44.8 million dwt, with increases in VLCC, Suezmaxes, Aframaxes, Panamaxes and LR1s of 15.2 million dwt, 7.9 million dwt, 9.1 million dwt, 2.7 million dwt and 10.0 million dwt, respectively.
While VLCC rates held steady during the third quarter, smaller vessel segments experienced decreases from the higher levels achieved during the first and second quarters of 2024. The weaker Chinese economy remains an impediment to stronger rates. Even so, rates remain significantly over 10-year average rates and cash breakeven levels, reflecting the continuing impact of the disruptions in trade flows on tanker demand.
Update on Critical Accounting Estimates and Policies:
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates in the application of its accounting policies based on the best assumptions, judgments and opinions of management. For a description of all of the Company’s material accounting policies, see Note 3, “Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements as of and for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K. See Note 2, “Significant Accounting Policies,” to
31
the accompanying condensed consolidated financial statements for any changes or updates to the Company’s critical accounting policies for the current period.
Results from Vessel Operations:
During the third quarter of 2024, income from vessel operations decreased by $13.2 million to $101.0 million from $114.2 million in the third quarter of 2023. Such decrease resulted principally from a quarter-over-quarter decrease in TCE revenues and increased vessel expenses and depreciation and amortization in the current quarter, partially offset by a $13.5 million gain on the sale of a vessel recognized in the current quarter.
TCE revenues in the third quarter of 2024 decreased by $16.3 million, or 7%, to $219.7 million from $236.0 million in the third quarter of 2023. This decrease reflects (i) an aggregate $17.6 million rates-based decline resulting from lower average daily rates earned in each of INSW’s Crude tanker fleet sectors and the LR1 fleet, (ii) a $9.5 million days-based decline in the LR1 fleet due to a smaller time chartered-in portfolio and 41 more off-hire days during the current quarter, partially offset by (iii) a $6.0 million aggregate rates-based increase in the MR and LR2 sectors, and (iv) a $1.2 million increase attributable to the Company’s Lightering business.
During the first nine months of 2024, income from vessel operations decreased by $58.0 million to $410.2 million from $468.1 million in the first nine months of 2023. Such decrease resulted principally from a $65.1 million decrease in TCE revenues and increased depreciation and amortization and vessel expenses in the current period, partially offset by higher gains on the sale of three vessels recognized in the first nine months of 2024 compared to one vessel sold in the first nine months of 2023.
The decrease in TCE revenues in the first nine months of 2024 of $65.1 million, or 8%, to $742.5 million from $807.6 million in the first nine months of 2023 reflects (i) a $41.2 million days-based decline in the LR1 sector, which was driven by factors similar to those discussed above for the quarter-over-quarter period, and (ii) a net rates-based decrease of $36.3 million resulting from lower average daily rates in the Crude tanker and LR1 fleets, partially offset by strengthened rates in the MR and LR2 sectors. Such decreases were partially offset by (iii) a $11.5 million days-based increase in the VLCC fleet resulting from the delivery of three dual-fuel LNG VLCC newbuilds between March 2023 and May 2023
See Note 4, “Business and Segment Reporting,” to the accompanying condensed consolidated financial statements for additional information on the Company’s segments, including reconciliations of (i) time charter equivalent revenues to shipping revenues and (ii) adjusted income from vessel operations for the segments to income before income taxes, as reported in the condensed consolidated statements of operations.
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Crude Tankers
(Dollars in thousands, except daily rate amounts)
TCE revenues
(34,218)
(29,111)
(94,643)
(83,156)
(4,411)
(2,690)
(11,728)
(9,239)
(20,536)
(20,039)
(60,571)
(56,583)
Adjusted income from vessel operations (a)
Average daily TCE rate
36,587
41,470
43,350
50,699
Average number of owned vessels (b)
21.0
19.7
Average number of vessels chartered-in
9.2
9.1
9.3
Number of revenue days (c)
2,701
2,671
7,927
7,672
Number of ship-operating days: (d)
Owned vessels
1,932
1,930
5,754
5,368
Vessels bareboat chartered-in under leases (e)
828
830
2,466
2,509
Vessels spot chartered-in under leases (f)
33
The following tables provide a breakdown of TCE rates achieved for the three and nine months ended September 30, 2024 and 2023, between spot and fixed earnings and the related revenue days. The information in this table is based, in part, on information provided by the commercial pools in which the segment’s vessels participate and excludes commercial pool fees/commissions averaging approximately $1,132 and $1,022 per day for the three months ended September 30, 2024 and 2023, respectively, and $1,055 and $992 per day for the nine months ended September 30, 2024 and 2023, respectively, as well as activity in the Crude Tankers Lightering business and revenue and revenue days for which recoveries were recorded by the Company under its loss of hire insurance policies. The fixed earnings rates in the table are net of broker/address commissions.
Spot Earnings
Fixed Earnings
VLCC:
Average rate
29,711
31,903
40,961
35,319
Revenue days
881
276
870
297
Suezmax:
38,044
30,979
38,708
30,973
1,014
183
1,012
Aframax(1):
25,119
38,574
34,046
38,652
186
91
232
73
40,111
36,702
46,342
40,597
2,572
822
2,431
703
42,564
31,003
52,627
31,093
3,013
548
2,996
496
32,997
38,524
47,640
597
273
926
During the third quarter of 2024, TCE revenues for the Crude Tankers segment decreased by $11.9 million, or 11%, to $98.8 million from $110.8 million in the third quarter of 2023. Such decrease principally resulted from (i) an aggregate rates-based decrease in the VLCC, Suezmax and Aframax fleets of $13.6 million due to lower average daily blended rates in these sectors. This decrease was partially offset by (ii) a $1.2 million increase in the Crude Tankers Lightering business, and (iii) a $0.9 million days-based increase in the Aframax fleet, which reflected 25 fewer off-hire days in the current quarter.
Vessel expenses increased by $5.1 million to $34.2 million in the third quarter of 2024 from $29.1 million in the third quarter of 2023. Such increase primarily reflects increased costs for repairs and renewals, off-hire fuel, transportation and crew. Charter hire expenses increased by $1.7 million quarter-over-quarter due to increased charter hire expense in the Crude Tankers Lightering business, which primarily reflects incremental chartered-in Aframax days for full-service jobs.
Excluding depreciation and amortization and general and administrative expenses, operating income for the Crude Tankers Lightering business was $5.5 million for the third quarter of 2024 compared with $6.5 million for the third quarter of 2023. The decrease reflects lower service support only activity levels period-over-period, with 106 service support only lighterings being performed during the
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three months ended September 30, 2024 compared to 114 in the prior year’s period. The decrease was partially offset by an increase in full service jobs, from one in the three months ended September 30, 2023, to three in the current quarter.
During the first nine months of 2024, TCE revenues for the Crude Tankers segment decreased by $45.3 million, or 12%, to $343.6 million from $389.0 million in the first nine months of 2023. Such decrease principally resulted from (i) an aggregate rates-based decrease in the VLCC, Suezmax and Aframax fleets of $62.3 million due to lower average daily blended rates in these sectors and (ii) a $4.7 million days-based decline in the Aframax fleet, which reflected 107 more off-hire days in the current period. These decreases were offset by (iii) a $11.5 million days-based increase in the VLCC fleet, which reflected the delivery of three dual-fuel LNG VLCC newbuilds during the first half of 2023, partially offset by 66 more off-hire days in the current period, (iv) a $6.9 million increase in the Crude Tankers Lightering business, and (v) a $3.3 million days-based increase in the Suezmax sector resulting from 56 fewer off-hire days in the current period.
Vessel expenses increased by $11.5 million to $94.6 million in the first nine months of 2024 from $83.2 million in the first nine months of 2023. The VLCC newbuild deliveries described above resulted in $3.2 million of incremental vessel expense in the current year’s period. The remainder of the increase was driven by factors consistent with the quarter-of-quarter variance described above, along with the timing of the delivery of stores and spare parts. Charter hire expenses increased by $2.5 million in the current year’s period due to increased charter hire expense in the Crude Tankers Lightering business, which primarily reflects incremental chartered-in Aframax days for full-service jobs and an increased daily rate on two of the workboats being chartered-in. Depreciation and amortization increased by $4.0 million to $60.6 million in the nine months ended September 30, 2024 from $56.6 million in the prior year’s comparable period principally as a result of the commencement of depreciation on the Company’s three dual-fuel LNG VLCC newbuilds.
Excluding depreciation and amortization and general and administrative expenses, operating income for the Crude Tankers Lightering business was $20.4 million for the first nine months of 2024 compared to $17.7 million for the first nine months of 2023. The increase reflects increased activity levels period-over-period, with 368 service support only lighterings and six full-service lightering jobs being completed during the first nine months of 2024 compared with 339 service support only lighterings and two full-service job during the first nine months of 2023.
Product Carriers
(37,051)
(35,484)
(107,846)
(105,360)
(2,834)
(8,608)
(9,113)
(21,360)
(18,768)
(13,298)
(49,403)
(38,694)
29,880
30,645
34,695
33,956
Average number of owned vessels
41.2
40.0
39.9
39.6
5.0
6.5
7.3
Number of revenue days
4,045
4,085
11,495
12,329
Number of ship-operating days:
3,786
3,678
10,940
10,809
Vessels bareboat chartered-in under leases (a)
368
371
1,096
1,276
Vessels time chartered-in under leases
231
274
729
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The following table provides a breakdown of TCE rates achieved for the three and nine months ended September 30, 2024 and 2023, between spot and fixed earnings and the related revenue days. The information in this table is based, in part, on information provided by the commercial pools in which the segment’s vessels participate and excludes commercial pool fees/commissions averaging approximately $841 and $786 per day for the three months ended September 30, 2024 and 2023, respectively, and $879 and $792 per day for the nine months ended September 30, 2024 and 2023, respectively, as well as revenue and revenue days for which recoveries were recorded by the Company under its loss of hire insurance policies. The fixed earnings rates in the table are net of broker/address commissions.
LR2(1):
39,498
32,603
69
LR1(2):
46,899
56,295
594
685
MR(3):
29,006
21,920
26,563
21,200
2,685
692
2,836
382
53,172
30,436
18,588
149
133
140
55,397
63,950
1,671
2,265
33,912
21,745
28,857
20,732
7,828
1,665
8,877
781
During the third quarter of 2024, TCE revenues for the Product Carriers segment decreased by $4.3 million, or 3%, to $120.9 million from $125.2 million in the third quarter of 2023. The reduction in TCE revenues was primarily as a result of (i) a $9.5 million days-based decrease in the LR1 fleet sector which reflects the impacts of a 139-day net decrease in time-chartered in days and an increase of 41 off-hire days in the current period and (ii) a $4.1 million rates-based decrease in the LR1 sector due to lower average daily rates earned in the current quarter. Partially offsetting these decreases were (iii) a $5.5 million rates-based increase in MR fleet due to higher average blended rates earned in the current quarter, and (iv) a $4.1 million days-based increase in the MR sector, which reflects a 106-day increase in owned vessel days and 58 less off-hire days in the current period. The increase in owned vessel days resulted
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from the Company’s acquisition of six MRs between April 2024 and May 2024, partially offset by the sales of five MRs between October 2023 and July 2024.
Vessel expenses increased by $1.6 million to $37.1 million in the third quarter of 2024 from $35.5 million in the third quarter of 2023. Such increase principally reflects higher drydock deviation costs in the LR1 sector. Charter hire expenses decreased by $5.8 million to $2.8 million in the current quarter from $8.6 million in the third quarter of 2023, primarily as a result of the quarter-over-quarter decrease in time chartered-in LR1 days described above. Depreciation and amortization increased by $5.5 million to $18.8 million in the current quarter from $13.3 million in the prior year’s quarter. Such increase resulted primarily from increased drydock amortization and the MR purchases and sales referenced above, as the acquired vessels have higher cost bases than the older vessels that were sold.
During the first nine months of 2024, TCE revenues for the Product Carriers segment decreased by $19.8 million, or 5%, to $398.8 million from $418.6 million in the first nine months of 2023. The reduction in TCE revenues was primarily as a result of (i) a $41.2 million days-based decrease in the LR1 fleet sector which reflects the impacts of a 455-day net decrease in time-chartered in days and an increase of 215 off-hire days in the current year’s period, (ii) a $13.1 million rates-based decrease in the LR1 sector due to lower average daily rates earned in the current period, and (iii) a $3.1 million days-based decline in the MR sector, which reflects 55 fewer owned vessel days and 59 more off-hire days in the current period. The decrease in owned vessel days reflects the sale of six MRs between March 2023 and July 2024, partially offset by the six MR acquisitions during the second quarter of 2024 described above. Partially offsetting the TCE revenue decreases described above was (iv) a $39.1 million aggregate rates-based increase in the MR and LR2 sectors due to higher average daily blended rates earned in the current period.
Vessel expenses increased by $2.5 million to $107.9 million in the first nine months of 2024 from $105.4 million in the first nine months of 2023. Such increase principally reflects higher LR1 drydock deviation costs, partially offset by the impacts of the reduction in owned MR days noted above. Charter hire expenses decreased by $12.2 million to $9.1 million in the current period from $21.4 million in the first nine months of 2023, primarily as a result of the period-over-period decrease in time chartered-in LR1 days described above. Depreciation and amortization increased by $10.7 million to $49.4 million in the first nine months of 2024 from $38.7 million in the prior year’s period. The drivers of this increase were consistent with the quarter-over-quarter increase described above.
General and Administrative Expenses
During the third quarter of 2024, general and administrative expenses increased by $1.1 million to $13.4 million from $12.3 million in the third quarter of 2023. The primary drivers for the increase were higher legal and consultancy fees of $0.3 million and an increase in compensation and benefits costs of $0.3 million.
For the nine months ended September 30, 2024, general and administrative expenses increased by $2.4 million to $37.5 million from $35.1 million for the same period in 2023. The increase principally relates to increased compensation and benefits costs of $0.7 million and higher legal fees of $0.8 million, principally incurred in connection with a commercial dispute. See Note 16, “Contingencies,” to the accompanying condensed consolidated financial statements for additional information.
Other Operating Expenses
See Note 14, “Other Operating Expenses,” to the accompanying condensed consolidated financial statements for additional information on these expenses.
Other Income
Other income was $3.2 million and $8.5 million for the three and nine months ended September 30, 2024, respectively, compared with $0.6 million and $8.3 million of other income for the three and nine months ended September 30, 2023. Other income for the current 2024 periods includes $2.6 million and $7.9 million, respectively, of interest income earned on invested cash, compared to $3.6 million and $11.3 million of interest income earned for the three and nine months ended September 30, 2023, respectively. The
37
decrease in interest income reflects the impact of a lower average balance of invested cash during the three and nine months ended September 30, 2024, attributable to the significant deleveraging initiatives completed during 2023 as well as a decrease in interest rates in anticipation of the Federal Reserve’s move to cut rates at the end of third quarter of 2024.
The components of interest expense are as follows:
Interest before items shown below
14,562
19,471
44,497
61,219
Interest cost on defined benefit pension obligation
138
211
523
757
Impact of interest rate hedge derivatives
(1,893)
Capitalized interest
(311)
(744)
(2,282)
12,496
16,817
37,808
51,678
Interest expense decreased in the 2024 periods compared to the corresponding 2023 periods as a result of (i) a reduction in the average outstanding principal balance under the $750 Million Term Loan Facility (which was amended and extended in April 2024), (ii) the repayment in full of the COSCO Lease financing in July 2023 and (iii) the repayment in full of the ING Credit Facility in April 2024, partially offset by post-delivery interest expense related to the BoComm Lease Financing. See Note 8, “Debt,” in the accompanying condensed consolidated financial statements for further information on the Company’s debt facilities.
Taxes
The Company qualifies for an exemption from U.S. federal income taxes under Section 883 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and U.S. Treasury Department regulations for the 2024 calendar year, as less than 50 percent of the total value of the Company’s stock was held by one or more shareholders who own 5% or more of the Company’s stock for more than half of the days of 2024. There can be no assurance at this time that INSW will continue to qualify for the Section 883 exemption beyond calendar year 2024. Should the Company not qualify for the exemption in the future, INSW will be subject to U.S. federal income taxation of 4% of its U.S. source shipping income on a gross basis without the benefit of deductions. Shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the U.S. will be considered to be 50% derived from sources within the United States. Shipping income attributable to transportation that both begins and ends in the U.S. would be considered to be 100% derived from sources within the United States, but INSW does not and cannot engage in transportation that gives rise to such income.
EBITDA and Adjusted EBITDA
EBITDA represents net income 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:
While EBITDA and Adjusted EBITDA are frequently used by companies as a measure of operating results and performance, neither of those items as prepared by the Company is necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation.
The following table reconciles net income, as reflected in the condensed consolidated statements of operations, to EBITDA and Adjusted EBITDA:
52
432
EBITDA
143,487
148,169
528,682
571,798
Write-off of deferred financing costs
1,343
(Gain)/loss on disposal of vessels and other assets
Provision for settlement of multi-employer pension plan obligations
1,211
Adjusted EBITDA
130,032
150,945
488,467
564,993
Liquidity and Sources of Capital:
Our business is capital intensive. Our ability to successfully implement our strategy is dependent on the continued availability of capital on attractive terms. In addition, our ability to successfully operate our business to meet near-term and long-term debt repayment obligations is dependent on maintaining sufficient liquidity.
Liquidity
As of September 30, 2024, we had total liquidity on a consolidated basis of $693.8 million comprised of $153.3 million of cash and $540.5 million of undrawn revolver capacity.
Working capital at September 30, 2024 and December 31, 2023 was $269.0 million and $269.4 million, respectively. Current assets are highly liquid, consisting principally of cash, interest-bearing deposits, short-term investments consisting of time deposits with original maturities of between 91 and 180 days and receivables. Current liabilities include current installments of long-term debt of $49.8 million and $127.4 million at September 30, 2024 and December 31, 2023, respectively.
The Company’s cash and cash equivalents decreased by $23.5 million during the nine months ended September 30, 2024. The decrease principally reflects:
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Such cash outflows were partially offset by:
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 September 30, 2024, we had total debt outstanding (net of original issue discount and deferred financing costs) of $650.5 million and net debt to capital of 21%, compared with 23.8% at December 31, 2023.
Sources, Uses and Management of Capital
Building on the strong market conditions during the first half of 2024 to date, we have (i) used incremental liquidity generated from operations and the proceeds from disposal of older tonnage at strong prices to invest in renewing and growing the fleet, (ii) enhanced our balance sheet and liquidity position, and (iii) continued to make substantial returns to shareholders.
In addition to future operating cash flows, our other future sources of funds are proceeds from issuances of equity securities, additional borrowings as permitted under our loan agreements and proceeds from the opportunistic sales of our vessels. Our current uses of funds are to fund working capital requirements, maintain the quality of our vessels, purchase vessels, pay newbuilding construction costs, comply with international shipping standards and environmental laws and regulations, repay or repurchase our outstanding loan facilities, pay a regular quarterly cash dividend, and from time to time, repurchase shares of our common stock and pay supplemental cash dividends.
The following is a summary of the significant capital allocation and strategic fleet optimization activities the Company executed so far during 2024 and sources of capital the Company has at its disposal for future use as well as the Company’s current commitments for future uses of capital:
Total Dividends Paid
$0.12
$1.20
$64.7 million
$1.63
$86.9 million
$1.38
$73.8 million
Also, during the quarter ended September 30, 2024, we repurchased and retired 501,646 shares of our common stock in open-market purchases, at an average price of $49.81 per share, for a total cost of $25.0 million.
In continuation of our strategic fleet optimization program, in February 2024, we entered into agreements for the en bloc purchase of four 2015-built and two 2014-built MR Product Carriers for an aggregate purchase price of $232 million. Eighty-five percent of the
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purchase price consideration was funded from available liquidity and the balance of 15% with the issuance of common stock. All of the six vessels were delivered during the second quarter of 2024. An automatic shelf registration statement on Form S-3 was filed with the SEC on April 29, 2024 that, in connection with prospectus supplements filed during the second quarter of 2024, registered the aggregate 623,778 shares that were issued in conjunction with these vessel acquisitions and facilitated the seller’s ability to offer and sell or otherwise dispose of the shares of common stock issued to them under this transaction.
During the nine months ended September 30, 2024, we entered into agreements for the sale of one 2009-built MR and two 2008-built MRs for aggregate net proceeds of approximately $72 million after fees and commissions. The vessels were delivered to their buyers between the second and third quarters of 2024 and we recognized total gains on the sales of approximately $41.4 million.
In March 2024 we also declared options to build two additional dual-fuel ready LNG 73,600 dwt LR1 Product Carriers at the same shipyard where our other four newbuild LR1s are currently under construction. The six LR1s are expected to be delivered beginning in the second half of 2025 through the third quarter of 2026 for an aggregate cost of approximately $359 million, which will be paid for through a combination of long-term financing and available liquidity.
Further building on our liquidity enhancing, deleveraging and financing diversification initiatives, we executed the following transactions:
By entering into the $500 Million Revolving Credit Facility we have (i) eliminated $19.5 million in mandatory quarterly debt repayments since the balance drawn on closing is not required to be repaid until Maturity, (ii) reduced cash break evens by over $3,000 per day, (iii) extended the maturity profile of the facility from 2027 to 2030, and (iv) reduced future interest expense through a margin reduction of over 85 basis points.
As of September 30, 2024, the Company has contractual commitments for the construction of six dual-fuel ready LR1s, and the purchase and installation of one ballast water treatment system and seven mewis ducts, the final outstanding installment payments due for three ballast water treatment systems that were installed prior to September 30, 2024, and purchase and installation of various performance efficiency devices for the fleet. The Company’s debt service commitments and aggregate purchase commitments for vessel construction and betterments as of September 30, 2024, are presented in the Aggregate Contractual Obligations Table below.
Outlook
Our strong balance sheet, as evidenced by a substantial level of liquidity, 34 unencumbered vessels (excluding the six LR1s under construction) as of September 30, 2024, and diversified financing sources with debt maturities spread out between 2030 and 2031, positions us to support our operations over the next twelve months as we continue to advance our vessel employment strategy, which seeks to achieve an optimal mix of spot (voyage charter) and long-term (time charter) charters. Our balance sheet strength and balanced fleet position us to continue pursuing our disciplined capital allocation strategy of fleet renewal, incremental debt reduction and returns to shareholders and pursue potential strategic opportunities that may arise within the diverse sectors in which we operate.
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Aggregate Contractual Obligations
A summary of the Company’s long-term contractual obligations as of September 30, 2024 follows:
Beyond
$500 Million Revolving Credit Facility(1)
1,635
6,315
6,570
8,000
7,743
103,135
133,398
$160 Million Revolving Credit Facility(2)
258
986
898
730
161
3,844
Ocean Yield Lease Financing - floating rate(3)
13,374
53,160
52,535
49,860
47,151
201,053
417,133
BoComm Lease Financing - fixed rate(4)
5,989
23,761
23,762
23,827
166,034
267,134
Toshin Lease Financing - fixed rate(4)
549
2,160
2,151
2,223
6,934
16,177
Hyuga Lease Financing - fixed rate(4)
566
2,232
6,416
15,838
Kaiyo Lease Financing - fixed rate(4)
562
2,250
2,410
2,214
4,341
13,991
Kaisha Lease Financing - fixed rate(4)
2,438
2,225
4,501
14,154
Operating lease obligations(5)
Time Charter-ins
6,414
18,618
2,563
27,595
Vessel and vessel betterment commitments(6)
13,779
138,103
188,480
340,362
44,006
251,116
284,947
92,321
89,339
497,329
1,259,058
Risk Management:
The Company is exposed to market risk from changes in interest rates, which could impact its results of operations and financial condition. The Company manages this exposure to market risk through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. To manage its interest rate risk exposure associated with changes in variable interest rate payments due on its credit facilities 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
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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.
Available Information
The Company makes available free of charge through its internet website, www.intlseas.com, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission.
The public may also read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E. Washington D.C. 20549 (information on the operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330). The SEC also maintains a web site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at https://www.sec.gov.
The Company also makes available on its website, its corporate governance guidelines, its Code of Business Conduct and Ethics, insider trading policy, anti-bribery and corruption policy, incentive compensation recoupment policy, and charters of the Audit Committee, the Human Resources and Compensation Committee and the Corporate Governance and Risk Assessment Committee of the Board of Directors. The Company is required to disclose any amendment to a provision of its Code of Business Conduct and Ethics. The Company intends to use its website as a method of disseminating this disclosure, as permitted by applicable SEC rules. Any such disclosure will be posted to the Company website within four business days following the date of any such amendment. Neither our website nor the information contained on that site, or connected to that site, is incorporated by reference into this Quarterly Report on Form 10-Q.
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s current disclosure controls and procedures were effective as of September 30, 2024 to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting during the three months ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
See Note 16, “Contingencies,” to the accompanying condensed consolidated financial statements for a description of the current legal proceedings, which is incorporated by reference in this Part II, Item 1.
Item 1A. Risk Factors
You should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our 2023 Form 10-K. The risks described in that document are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes the activity related to repurchases of our equity securities during the three months ended September 30, 2024:
Total Number of Shares Purchased
Average Price paid per Share
Total Cost (in Millions)
Total Number of Shares Purchased as Part of Publicly Announced Program
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program(in Millions)
July 2024
-
50.0
August 2024
September 2024
501,646
49.81
25.0
As of September 30, 2024, the maximum number of shares that may still be purchased under the program is 485,165 shares, which was determined by dividing the remaining buyback authorization by the September 30, 2024 closing price of the Company’s common stock. Future buybacks under the stock repurchase program will be at the discretion of our Board of Directors and subject to limitations under the Company’s debt facilities.
See Note 10, “Capital Stock and Stock Compensation,” to the accompanying condensed consolidated financial statements for additional information about the stock repurchase plan and a description of shares withheld to cover the cost of stock options exercised by certain members of management and tax withholding liabilities relating to the vesting of previously-granted equity awards to certain members of management, which is incorporated by reference in this Part II, Item 2.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Insider Trading Arrangements and Policies
During the third quarter of 2024, none of our directors or executive officers adopted Rule 10b5-1 trading plans and none of our directors or executive officers terminated a Rule 10b5-1 trading plan or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K).
Item 6. Exhibits
*31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended.
*31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended.
*32
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EX-101.INS
Inline XBRL Instance Document
EX-101.SCH
Inline XBRL Taxonomy Extension Schema
EX-101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase
EX-101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase
EX-101.LAB
Inline XBRL Taxonomy Extension Label Linkbase
EX-101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase
EX-104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
Date: November 7, 2024
/s/ Lois K. Zabrocky
Lois K. Zabrocky
Chief Executive Officer
/s/ Jeffrey D. Pribor
Jeffrey D. Pribor
Chief Financial Officer
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