International Seaways, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report. Results include Diamond S from the July 16, 2021 merger, so year-over-year comparisons are affected by the enlarged fleet and differing periods of ownership.
Business context
INSW transports crude oil and refined petroleum products in international markets through its Crude Tankers and Product Carriers segments. At year-end, it owned or operated 83 vessels, including chartered-in vessels, and held interests in two FSO joint-venture vessels. Three dual-fuel LNG VLCCs were under construction for expected delivery in first-quarter 2023. About 81% of 2021 TCE revenue came from spot-market employment.
Key financial results
| Metric | 2021 | 2020 |
|---|---|---|
| Shipping revenue | $272.5 million | $421.6 million |
| TCE revenue | $255.9 million | $402.0 million |
| Loss from vessel operations | $112.1 million | Income of $39.9 million |
| Net loss attributable to INSW | $133.5 million; $3.48 per diluted share | $5.5 million; $0.20 per diluted share |
| Adjusted EBITDA | $40.4 million | $220.1 million |
| Net cash from/(used in) operating activities | $(76.2) million | $216.1 million |
TCE revenue, EBITDA and Adjusted EBITDA are non-GAAP measures. TCE revenue fell 36%, principally because average daily rates declined across fleet sectors; reported vessel-operation results also included $50.7 million of merger and integration costs. Net loss additionally reflected depreciation, interest expense and other items.
- Segments: Crude Tankers TCE revenue was $144.3 million versus $318.6 million in 2020, with adjusted vessel-operation loss of $25.7 million. Product Carriers TCE revenue rose to $111.6 million from $83.4 million as the merger enlarged the fleet, but adjusted vessel-operation loss was $12.1 million. Average daily TCE rates declined in both segments.
- Margins: The filing does not present a single consolidated operating-margin measure; reported vessel-operation loss was $112.1 million on revenue of $272.5 million.
- Cash and liquidity: Year-end cash and cash equivalents were $97.9 million, restricted cash was $1.1 million, and undrawn revolver capacity was $140.0 million, for reported consolidated liquidity of $238.9 million. Working capital was negative $10.0 million, including $178.7 million of current debt installments.
- Debt and leverage: Debt, net of discounts and deferred financing costs, was approximately $1.105 billion, up from $535.8 million at year-end 2020, largely reflecting the merger and financing transactions. Net debt to total capitalization was 46.2%, versus 24.8%. INSW reported compliance with financial and non-financial debt covenants at year-end.
- Capital allocation: 2021 cash dividends totaled $40.9 million, including a $31.5 million pre-merger special dividend; share repurchases cost $16.7 million. Vessel and other property sale proceeds were $165.8 million. Capital expenditures and drydocking payments totaled $78.0 million and $42.4 million, respectively.
Material changes and unusual items
- The Diamond S stock-for-stock merger added 64 vessels and materially expanded INSW’s scale. Former Diamond S shareholders received 44.25% of the combined company’s shares immediately after the transaction.
- INSW sold 16 older tankers under a post-merger fleet optimization program, generating $165.2 million in net proceeds before repayment of associated debt. The year’s net gain on vessel and other asset disposals, including impairments, was $9.8 million; a $3.5 million impairment was recorded on a Panamax held for sale.
- Financing actions included a 10-year sale-and-leaseback of six VLCCs, new term loans and lease financings, and refinancing or repayment of existing facilities. The company said the initiatives generated $195.3 million of net liquidity after financing costs and repayment of associated principal.
- The FSO joint venture contributed to higher equity-method earnings: equity in income of affiliates was $21.8 million versus $4.1 million. The prior-year comparison was affected by a $32.8 million noncash deferred tax provision at the FSO joint venture.
- A 2002-built Panamax was detained by Indonesian authorities from September 2021 pending an investigation; it remained off-hire awaiting release. INSW expected sale for recycling after release.
Outlook, commentary and risks
Management described tanker-market conditions as weak, with crude tanker rates at or below industry-average cash breakeven levels in fourth-quarter 2021 and weak rates continuing into early 2022. It nevertheless characterized the outlook as constructive, citing a historically low orderbook, an aging fleet, recycling and emissions regulation; demand recovery and inventory restocking were possible supports, subject to COVID-19 and oil-price developments. No specific earnings or rate guidance was provided.
- Management expected more than $25 million in annual merger cost synergies and $9 million in revenue synergies, with benefits expected to be fully realized in 2022. These are targets, not assured outcomes.
- The three LNG VLCCs, with approximately $290 million total construction cost, are expected in first-quarter 2023 and contracted for seven-year time charters with Shell. The filing cites expected efficiency improvements and lower CO2 emissions relative to specified conventional vessel benchmarks.
- Expected 2022 cash uses included debt service, construction commitments, ballast-water treatment systems for 22 vessels, a Suezmax scrubber installation and approximately $43 million of drydocking. Management planned to recycle the two remaining Panamaxes during 2022.
- Principal risks include volatile spot rates and vessel values, operating cash-flow weakness, substantial debt and refinancing/covenant exposure, execution and integration of the merger, counterparty performance, drydock and regulatory costs, environmental liability and the possibility of inadequate insurance. The filing also discusses COVID-related crew-change and operating disruption.
- INSW qualified for the U.S. Section 883 shipping-income tax exemption in 2021 but said future qualification was not assured. Failure to qualify could subject relevant U.S.-source shipping income to a 4% gross tax.
- At year-end, estimated market values were below carrying value by $64.5 million for certain crude vessels and $22.2 million for certain product carriers. The company stated that estimated undiscounted future cash flows for those vessels exceeded their carrying values; valuation and impairment assumptions remain sensitive to freight rates and other estimates.
- The filing describes the Russia-Ukraine war, which began after year-end, as a potential source of disruption, sanctions exposure and higher operating, insurance or security costs; it reported no material impact from the cited attacks or seizures as of the filing discussion.
Most important facts for investors to verify
- Whether spot tanker rates and operating cash flow recover sufficiently to support debt service, planned capital spending and shareholder distributions.
- Debt maturity, repayment and covenant headroom, including the impact of lease financings and floating-rate exposure.
- Actual realization and timing of merger cost and revenue synergies, and progress integrating Diamond S operations and controls.
- Construction funding, delivery timing and charter economics for the three LNG VLCCs, including the remaining unfunded commitment.
- Fleet valuation and impairment assumptions, the status of the detained Panamax, and expected costs for drydocking and environmental compliance.
- Continued eligibility for the Section 883 tax exemption and any material changes in litigation, contingencies, insurance coverage or regulatory requirements.