FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward looking statements. Such forward-looking statements represent the Company's reasonable expectation with respect to future events or circumstances based on various factors and are subject to various risks and uncertainties and assumptions relating to the Company's operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Accordingly, there are or will be important factors, many of which are beyond the control of the Company, that could cause the Company's actual results to differ materially from those indicated in these statements. Undue reliance should not be placed on any forward-looking statements and consideration should be given to the following factors when reviewing any such statement. Such factors include, but are not limited to:
? the highly cyclical nature of INSW's industry;
? fluctuations in the market value of vessels;
? declines in charter rates, including spot charter rates or other market
deterioration;
? an increase in the supply of vessels without a commensurate increase in demand;
? the impact of adverse weather and natural disasters;
? the adequacy of INSW's insurance to cover its losses, including in connection
with maritime accidents or spill events;
? constraints on capital availability;
? changing economic, political and governmental conditions in
and/or abroad and general conditions in the oil and natural gas industry;
? the impact of changes in fuel prices;
? acts of piracy on ocean-going vessels;
? terrorist attacks and international hostilities and instability;
? the impact of public health threats and outbreaks of other highly communicable
diseases, including the effects of the current COVID-19 pandemic;
the effect of the Company's indebtedness on its ability to finance operations,
? pursue desirable business opportunities and successfully run its business in
the future;
? an event occurs that causes the rights issued under the Rights Agreement
adopted by the Company on
? the Company's ability to generate sufficient cash to service its indebtedness
and to comply with debt covenants;
the Company's ability to make capital expenditures to expand the number of
? vessels in its fleet, and to maintain all of its vessels and to comply with
existing and new regulatory standards;
the possibility that costs or difficulties related to the integration of the
? operations of INSW and Diamond S as a result of the Merger will be greater than
expected;
? the risk that stockholder litigation in connection with the Merger may result
in significant costs of defense, indemnification and liability;
? the risk that the anticipated tax treatment of the Merger is not obtained;
? the availability and cost of third-party service providers for technical and
commercial management of the Company's fleet;
? fluctuations in the contributions of the Company's joint ventures to its
profits and losses;
? the Company's ability to renew its time charters when they expire or to enter
into new time charters;
termination or change in the nature of the Company's relationship with any of
? the commercial pools in which it participates and the ability of such
commercial pools to pursue a profitable chartering strategy;
? competition within the Company's industry and INSW's ability to compete
effectively for charters with companies with greater resources;
? the loss of a large customer or significant business relationship;
? the Company's ability to realize benefits from its past acquisitions or
acquisitions or other strategic transactions it may make in the future;
31INTERNATIONAL SEAWAYS, INC.
increasing operating costs and capital expenses as the Company's vessels age,
? including increases due to limited shipbuilder warranties or the consolidation
of suppliers;
? the Company's ability to replace its operating leases on favorable terms, or at
all;
? changes in credit risk with respect to the Company's counterparties on
contracts;
? the failure of contract counterparties to meet their obligations;
? the impact of the discontinuance of LIBOR on interest rates of our debt that
reference LIBOR;
? the Company's ability to attract, retain and motivate key employees;
? work stoppages or other labor disruptions by employees of INSW or other
companies in related industries;
? unexpected drydock costs;
? the potential for technological innovation to reduce the value of the Company's
vessels and charter income derived therefrom;
? the impact of an interruption in or failure of the Company's information
technology and communication systems upon the Company's ability to operate;
? seasonal variations in INSW's revenues;
? government requisition of the Company's vessels during a period of war or
emergency;
the Company's compliance with complex laws, regulations and in particular,
? environmental laws and regulations, including those relating to ballast water
treatment and the emission of greenhouse gases and air contaminants, including
from marine engines;
? any non-compliance with the
applicable regulations relating to bribery or corruption;
? the impact of litigation, government inquiries and investigations;
? governmental claims against the Company;
? the arrest of INSW's vessels by maritime claimants;
? changes in laws, including governing tax laws, treaties or regulations,
including those relating to environmental and security matters;
? changes in worldwide trading conditions, including the impact of tariffs, trade
sanctions, boycotts and other restrictions on trade; and
? the war between
The Company assumes no obligation to update or revise any forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q and written and oral forward-looking statements attributable to the Company or its representatives after the date of this Quarterly Report on Form 10-Q are qualified in their entirety by the cautionary statement contained in this paragraph and in other reports hereafter filed by the Company with theSecurities and Exchange Commission .
INTRODUCTION
This Management's Discussion and Analysis, which should be read in conjunction with our accompanying condensed consolidated financial statements, provides a discussion and analysis of our business, current developments, financial condition, cash flows and results of operations. It is organized as follows:
General. This section provides a general description of our business, which we
? believe is important in understanding the results of our operations, financial
condition and potential future trends.
Operations & Oil Tanker Markets. This section provides an overview of industry
? operations and dynamics that have an impact on the Company's financial position and results of operations. 32INTERNATIONAL SEAWAYS, INC.
Critical Accounting Estimates and Policies. This section identifies any updates
? to those accounting policies that are considered important to our results of
operations and financial condition, require significant judgment and involve
significant management estimates.
Results from Vessel Operations. This section provides an analysis of our
? results of operations presented on a business segment basis. In addition, a
brief description of significant transactions and other items that affect the
comparability of the results is provided, if applicable.
Liquidity and Sources of Capital. This section provides an analysis of our cash
flows, outstanding debt and commitments. Included in the analysis of our
? outstanding debt is a discussion of the amount of financial capacity available
to fund our ongoing operations and future commitments as well as a discussion
of the Company's planned and/or already executed capital allocation activities.
General: We are a provider of ocean transportation services for crude oil and refined petroleum products. We operate our fleet of VLCC, Suezmax, Aframax and Panamax crude tankers and LR1, LR2, MR and Handysize product carriers in the International Flag market. As ofJune 30, 2022 , we no longer operate any Handysize product carriers, as our final remaining Handysize vessel was sold and delivered to buyers inJune 2022 . Our business includes two reportable segments: Crude Tankers and Product Carriers. For the three and six months endedJune 30, 2022 , we derived 32% and 34%, respectively, of our TCE revenues from our Crude Tankers segment compared with 70% and 75% for the three and six months endedJune 30, 2021 , respectively. Revenues from our Product Carriers segment constituted the balance of our TCE revenues in the 2022 and 2021 periods. As ofJune 30, 2022 , the Company's operating fleet consisted of 75 wholly-owned, finance leased or bareboat chartered-in and time-chartered-in vessels aggregating 8.2 million deadweight tons ("dwt"). In addition to our operating fleet of 75 vessels, three dual-fuel LNG-powered VLCC newbuilds are scheduled for delivery to the Company in the first quarter of 2023, bringing the total operating and newbuild fleet to 78 vessels. The Company's revenues are highly sensitive to patterns of supply and demand for vessels of the size and design configurations owned and operated by the Company and the trades in which those vessels operate. Rates for the transportation of crude oil and refined petroleum products from which the Company earns a substantial majority of its revenues are determined by market forces such as the supply and demand for oil, the distance that cargoes must be transported, and the number of vessels expected to be available at the time such cargoes need to be transported. The demand for oil shipments is significantly affected by the state of the global economy, levels ofU.S. domestic and international production andOPEC exports. The number of vessels is affected by newbuilding deliveries and by the removal of existing vessels from service, principally through storage, recycling or conversions. The Company's revenues are also affected by its vessel employment strategy, which seeks to achieve the optimal mix of spot (voyage charter) and long-term (time or bareboat charter) charters. Because shipping revenues and voyage expenses are significantly affected by the mix between voyage charters and time charters, the Company measures the performance of its fleet of vessels based on TCE revenues. Management makes economic decisions based on anticipated TCE rates and evaluates financial performance based on TCE rates achieved. In order to take advantage of market conditions and optimize economic performance, management employs all of the Company's LR1 product carriers, which currently participate in the Panamax International pool, in the transportation of crude oil cargoes. Our revenues are derived predominantly from spot market voyage charters and our vessels are predominantly employed in the spot market via market-leading commercial pools. We derived approximately 96% and 95% of our total TCE revenues in the spot market for the three and six months endedJune 30, 2022 , respectively, compared with 75% and 72% for the three and six months endedJune 30, 2021 , respectively. The following is a discussion and analysis of our financial condition as ofJune 30, 2022 and results of operations for the three and six months endedJune 30, 2022 and 2021. You should consider the foregoing when reviewing the condensed consolidated financial statements and this discussion and analysis. You should read this section together with the condensed consolidated financial statements, including the notes thereto. This Quarterly Report on Form 10-Q includes industry data and forecasts that we have prepared based, in part, on information obtained from industry publications and surveys. Third-party industry publications, surveys 33INTERNATIONAL SEAWAYS, INC. and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. In addition, certain statements regarding our market position in this report are based on information derived from internal market studies and research reports. Unless we state otherwise, statements about the Company's relative competitive position in this report are based on our management's beliefs, internal studies and management's knowledge of industry trends.
Operations and Oil Tanker Markets:
The International Energy Agency ("IEA") estimates global oil consumption for the second quarter of 2022 at 97.8 million barrels per day ("b/d"), up 1.7% from the same quarter in 2021. The estimate for global oil consumption for 2022 is 99.2 million b/d, an increase of 1.7% over 2021.OECD demand in 2022 is estimated to increase by 2.2% to 45.8 million b/d, while non-OECD demand is estimated to increase by 1.3% to 53.4 million b/d. Global oil production in the second quarter of 2022 was 98.8 million b/d, an increase of 5.0% from the second quarter of 2021.OPEC crude oil production averaged 28.6 million b/d in the second quarter of 2022, an increase of 0.2 million b/d from the first quarter of 2022, and an increase of 3.1 million b/d from the second quarter of 2021. Non-OPEC production increased by 1.3 million b/d to 64.8 million b/d in the second quarter of 2022 compared with the second quarter of 2021. Oil production in theU.S. in the second quarter of 2022 increased by 2.3% to 11.6 million b/d compared to the first quarter of 2022 and increased by 3.5% from the second quarter of 2021.U.S. refinery throughput increased by 0.2 million b/d to 16.1 million b/d in the second quarter of 2022 compared with the first quarter of 2022.U.S. crude oil imports in the second quarter of 2022 increased by 0.2 million b/d to 6.1 million b/d compared with the second quarter of 2021, with imports fromOPEC countries remaining flat and imports from non-OPEC countries increasing by 0.2 million b/d. Due to continuing pandemic-related lockdowns,China's crude oil imports declined to 8.7 million b/d inJune 2022 , down from 10.8 million b/d inMay 2022 , and the lowest level sinceJuly 2018 .China's crude oil imports averaged 10.2 million b/d during the first half of 2022, down 3% from the first half of 2021. As a result of rising oil demand outpacing production of crude oil and refined products and significant increases in the current prices of crude oil, global inventories continued to be drawn down during the second quarter of 2022 to levels that are significantly below the average over the last five years. Total commercial stocks in theOECD have declined by approximately 253 million barrels in the 12 months endingMay 2022 , with crude stocks declining by 100 million barrels and products by 153 million barrels. During the second quarter of 2022, the tanker fleet of vessels over 10,000 dwt increased, net of vessels recycled, by 4.8 million dwt. The crude fleet increased by 4.2 million dwt, with VLCCs growing by 3.4 million dwt, Suezmaxes by 0.6 million dwt, and Aframaxes by 0.3 million dwt. The product carrier fleet increased by 0.6 million dwt. Year-over-year, the size of the tanker fleet increased by 11.4 million dwt with the VLCCs, Suezmaxes, Aframaxes and MRs increasing by 6.6 million dwt, 1.7 million dwt, 1.7 million dwt and 2.0 million dwt, respectively. The LR1/Panamax fleet declined by 0.7 million dwt. During the second quarter of 2022, the tanker orderbook declined by 6.0 million dwt overall compared with the first quarter of 2022. The crude tanker orderbook decreased by 5.0 million dwt, with decreases in the VLCC and Suezmax sectors of 3.6 million dwt and 1.7 million dwt, respectively. The Aframax sector increased by 0.4 million dwt. The product carrier orderbook decreased by 1.0 million dwt, with LR1s declining by 0.2 million dwt and MRs by 0.9 million dwt. Year-over-year, the total tanker orderbook decreased by 20.0 million dwt, with all sectors seeing declines. Two main factors have impacted the tanker market during the second quarter of 2022. First, reduced Chinese crude demand affected the VLCC market asChina is one of the main destinations for VLCCs. Second, continued disruptions to global crude and product flows resulting from the Russian invasion ofUkraine have had positive impacts on rates for other segments due to the resulting trade flow inefficiencies in the market. (See Item 1A, Risk Factors in ourMarch 31, 2022 Form 10-Q - The war betweenRussia andUkraine could adversely affect INSW's business). The smaller ships have benefited more than the larger ships, with MRs having very 34INTERNATIONAL SEAWAYS, INC.
strong earnings during the quarter, although all segments other than VLCCs enjoyed better markets during the second quarter compared with the first quarter of 2022. VLCC rates have subsequently started to strengthen during the third quarter of 2022. The pandemic involving the novel coronavirus (COVID-19) has adversely affected the Company's business, operations and financial results, and will likely continue to do so. See Item 1A, Risk Factors in ourDecember 31, 2021 Form 10-K - The current pandemic involving the novel coronavirus (COVID-19) has adversely affected the Company's business, operations and financial results, and will likely continue to do so.
Update on Critical Accounting Estimates and Policies:
The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted inthe United States , which require the Company to make estimates in the application of its accounting policies based on the best assumptions, judgments and opinions of management. For a description of all of the Company's material accounting policies, see Note 2, "Summary of Significant Accounting Policies," to the Company's consolidated financial statements as of and for the year endedDecember 31, 2021 included in the Company's Annual Report on Form 10-K. See Note 3, "Significant Accounting Policies," to the accompanying condensed consolidated financial statements for any changes or updates to the Company's critical accounting policies for the current period.
Results from Vessel Operations:
During the second quarter of 2022, results from vessel operations increased by$104.8 million to income of$87.4 million from a loss of$17.4 million in the second quarter of 2021. Such increase resulted principally from a$140.8 million increase in TCE revenues, offset by increased vessel expenses and depreciation and amortization, which are reflective of the Company's larger post-Merger fleet. The increase in TCE revenues in the second quarter of 2022 of$140.8 million , or 315%, to$185.5 million from$44.7 million in the corresponding quarter of the prior year reflects a net aggregate$91.2 million rates-based increase resulting from higher average daily rates earned across INSW's fleet sectors. Significant days-based increases in the Suezmax and MR fleets, which reflected the growth in the vessel count in these fleets that resulted from the Merger, also contributed a total of$45.7 million to the increase in TCE revenues. During the first half of 2022, results from vessel operations increased by$111.0 million to income of$81.8 million from a loss of$29.2 million in the first half of 2021. Such increase resulted principally from a$193.6 million increase in TCE revenues, offset by increased vessel expenses and depreciation and amortization, which are reflective of the Company's larger post-Merger fleet. The increase in TCE revenues in the first half of 2022 of$193.6 million , or 215%, to$283.5 million from$89.9 million in the corresponding period of the prior year reflects a net aggregate$112.6 million rates-based increase resulting from higher average daily rates earned across INSW's fleet sectors, with the exception of the VLCCs. Significant days-based increases in the Suezmax and MR fleets, which reflected the growth in the vessel count in these fleets that resulted from the Merger, also contributed a total of$76.7 million to the increase in TCE revenues. See Note 5, "Business and Segment Reporting," to the accompanying condensed consolidated financial statements for additional information on the Company's segments, including equity in income of affiliated companies and reconciliations of (i) time charter equivalent revenues to shipping revenues and (ii) adjusted income/(loss) from vessel operations for the segments to income/(loss) before income taxes, as reported in the condensed consolidated statements of operations. 35INTERNATIONAL SEAWAYS, INC. Crude Tankers Three Months EndedJune 30 , Six Months EndedJune 30 ,
(Dollars in thousands, except daily rate amounts) 2022
2021 2022 2021 TCE revenues$ 59,456 $ 31,096 $ 95,932 $ 67,046 Vessel expenses (24,588) (21,100) (47,811) (40,943)
Charter hire expenses (4,116) (4,015) (8,059) (8,076) Depreciation and amortization (15,187) (13,039) (30,339) (26,042) Adjusted income/(loss) from vessel operations (a)$ 15,565 $ (7,058) $ 9,723$ (8,015) Average daily TCE rate$ 25,279 $ 17,237 $ 20,342 $ 17,770 Average number of owned vessels (b) 18.2 21.0 19.1 21.0 Average number of vessels chartered-in 9.1 2.0 9.1 2.0 Number of revenue days (c) 2,352 1,804 4,716 3,773 Number of ship-operating days: (d) Owned vessels 1,658 1,911 3,458 3,801 Vessels bareboat chartered-in under operating leases (e) 819 182 1,629 362 Vessels spot chartered-in under operating leases (f) 13 - 13 -
(a) Adjusted income/(loss) from vessel operations by segment is before general
and administrative expenses, third-party debt modification fees, merger and
integration related costs and loss/(gain) on disposal of vessels and other
property, net of impairments.
(b) The average is calculated to reflect the addition and disposal of vessels
during the period.
(c) Revenue days represent ship-operating days less days that vessels were not
available for employment due to repairs, drydock or lay-up. Revenue days are
weighted to reflect the Company's interest in chartered-in vessels.
(d) Ship-operating days represent calendar days.
(e) Includes six VLCCs and one Aframax that secure lease financing arrangements.
(f) The Company's Crude Tankers Lightering business spot chartered-in one vessel
under an operating lease during the three and six months ended
for a full service lightering job. 36INTERNATIONAL SEAWAYS, INC. The following tables provide a breakdown of TCE rates achieved for the three and six months endedJune 30, 2022 and 2021, 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$806 and$648 per day for the three months endedJune 30, 2022 and 2021, respectively, and$768 and$630 per day for the six months endedJune 30, 2022 and 2021, respectively, as well as activity in the Crude Tankers Lightering business and revenue and revenue days for which recoveries were recorded by the Company under its loss of hire insurance policies. 2022
2021
Spot Earnings Fixed Earnings Spot Earnings Fixed Earnings Three Months EndedJune 30 , VLCC: Average rate$ 16,441 $ 43,903 $ 13,684 $ 43,877 Revenue days 808 91 651 91 Suezmax: Average rate$ 23,684 $ 26,698 $ 18,485 $ - Revenue days 963 91 182 - Aframax: Average rate$ 34,116 $ - $ 8,589 $ - Revenue days 326 - 266 - Panamax: Average rate $ - $ -$ 16,535 $ 11,396 Revenue days - - 91 523 Six Months EndedJune 30 , VLCC: Average rate$ 14,364 $ 44,260 $ 14,780 $ 46,125 Revenue days 1,609 126 1,410 246 Suezmax (1): Average rate$ 18,405 $ 26,658 $ 15,367 $ - Revenue days 2,023 181 362 - Aframax: Average rate$ 23,979 $ -$ 10,139 - Revenue days 633 - 536 $ - Panamax: Average rate$ 20,356 $ -$ 15,360 $ 11,044 Revenue days 70 - 181 1,039 During the second quarter of 2022, TCE revenues for the Crude Tankers segment increased by$28.4 million , or 91%, to$59.5 million from$31.1 million in the second quarter of 2021. Such increase principally resulted from (i) a$15.7 million days-based increase in the Suezmax fleet which reflected the Company's acquisition of 13 Suezmaxes as a part of the Merger and (ii) an aggregate rates-based increase in the Suezmax, VLCC, Panamax and Aframax fleets of$14.8 million due to higher average daily blended rates in these sectors. These increases were offset by (iii) a$6.7 million days-based decrease in the Panamax fleet driven by the sale of four 2002-built Panamaxes and one 2003-built Panamax between August andDecember 2021 and the Company taking advantage of the strong current demand for steel to recycle its two remaining Panamaxes inApril 2022 . Vessel expenses increased by$3.5 million to$24.6 million in the second quarter of 2022 from$21.1 million in the second quarter of 2021. Such increase was driven by the vessels acquired in the Merger, partially offset by the impact of the vessel sales described above. Depreciation and amortization increased by$2.1 million to$15.2 million in the current quarter from$13.0 million in the prior year's quarter. Such increase resulted principally from the net impact of the changes in the Suezmax and Panamax fleets noted above. Excluding depreciation and amortization and general and administrative expenses, operating income for the Crude Tankers Lightering business was$3.1 million for the second quarter of 2022 compared to$1.6 million for the second quarter of 2021, with the increase 37 INTERNATIONAL SEAWAYS, INC.
principally attributable to performing 104 service support only lighterings during the three months endedJune 30, 2022 , which is an increase of 18 when compared to the 86 performed during the three months endedJune 30, 2021 . In the second quarter of 2022, there was also one full-service lightering performed, while none were performed in the second quarter of 2021. During the first six months of 2022, TCE revenues for the Crude Tankers segment increased by$28.9 million , or 43%, to$95.9 million from$67.0 million in the first six months of 2021. Such increase principally resulted from (i) a$27.8 million days-based increase in the Suezmax fleet which reflected the Company's acquisition of 13 Suezmaxes as a part of the Merger and (ii) an aggregate rates-based increase in the Suezmax, Panamax and Aframax fleets of$15.6 million due to higher average daily blended rates in these sectors. These increases were offset by (iii) a$5.3 million rates-based decline in the VLCC sector and (iv) a$12.7 million days-based decrease in the Panamax fleet driven by the sale of all seven vessels in this fleet betweenAugust 2021 andApril 2022 described above. Vessel expenses increased by$6.9 million to$47.8 million in the first six months of 2022 from$40.9 million in the first six months of 2021. Such increase was driven by the vessels acquired in the Merger, partially offset by the impact of the vessel sales described above. Depreciation and amortization increased by$4.3 million to$30.3 million in the six months endedJune 30, 2022 from$26.0 million in the prior year's comparable period. Such increase resulted principally from the net impact of the changes in the Suezmax and Panamax fleets noted above. Excluding depreciation and amortization and general and administrative expenses, operating income for the Crude Tankers Lightering business was$4.0 million during the first half of 2022 compared to$2.4 million for the first half of 2021. Incremental lightering activity in the current year's period drove the increase, as one full service lightering and 184 service support only lighterings were performed in the current year's period, as compared to 166 service support only lighterings in the prior year's period.
Product Carriers
Three Months EndedJune 30 , Six Months EndedJune 30 , (Dollars in thousands, except daily rate amounts) 2022
2021 2022 2021 TCE revenues$ 126,083 $ 13,622 $ 187,582 $ 22,841 Vessel expenses (34,975) (6,777) (72,069) (13,261)
Charter hire expenses (3,577) (1,848) (6,943) (3,528) Depreciation and amortization (12,044) (4,022) (23,885) (7,750) Adjusted income/(loss) from vessel operations $ 75,487$ 975 $ 84,685 $ (1,698) Average daily TCE rate $ 28,244$ 13,085 $ 21,448 $ 12,015 Average number of owned vessels 44.0 10.0 46.1 10.0 Average number of vessels chartered-in 6.9 1.5 6.2 1.3 Number of revenue days 4,464 1,041 8,746 1,901 Number of ship-operating days: Owned vessels 4,005 910 8,346 1,810 Vessels bareboat chartered-in under operating leases (a) 382 - 639 - Vessels time chartered-in under operating leases 246 137 491 244 (a) Includes one LR2 and four MRs that secure lease financing arrangements.
38 INTERNATIONAL SEAWAYS, INC. The following tables provide a breakdown of TCE rates achieved for the three and six months endedJune 30, 2022 and 2021, 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$563 and$633 per day for the three months endedJune 30, 2022 and 2021, respectively, and$598 and$630 per day for the six months endedJune 30, 2022 and 2021, respectively, as well as revenue and revenue days for which recoveries were recorded by the Company under its loss of hire insurance policies. 2022 2021 Spot Earnings Fixed Earnings Spot Earnings Fixed Earnings Three Months EndedJune 30 , LR2: Average rate $ -$ 17,143 $ -$ 17,784 Revenue days - 91 - 91 LR1(1): Average rate$ 25,910 $ -$ 15,291 $ - Revenue days 787 - 541 - MR: Average rate$ 30,436 $ 19,175 $ 10,627 $ - Revenue days 3,386 19 410 - Handy: Average rate$ 19,521 $ - $ - $ - Revenue days 126 - - - Six Months EndedJune 30 , LR2: Average rate $ -$ 17,144 $ -$ 17,782 Revenue days - 181 - 181 LR1(1): Average rate$ 23,314 $ -$ 14,297 $ - Revenue days 1,465 - 915 - MR(2): Average rate$ 22,576 $ 16,148 $ 9,108 $ - Revenue days 6,501 75 785 - Handy: Average rate$ 14,200 $ - $ - $ - Revenue days 469 - - -
(1) During the 2022 and 2021 periods, each of the Company's LR1s participated in
the
During the second quarter of 2022, TCE revenues for the Product Carriers segment increased by$112.5 million , or 826%, to$126.1 million from$13.6 million in the second quarter of 2021. The growth in TCE revenues was primarily as a result of substantial period-over-period increases in average daily blended rates earned by the MR and LR1 fleet sectors, which accounted for a rates-based increase in TCE revenue of approximately$76.5 million . Also contributing significantly to the increased TCE revenues were days-based increases. In conjunction with the Merger, the Company acquired 44 MRs. The Company subsequently sold seven of the MRs during the third quarter of 2021, one duringMarch 2022 , and one during the second quarter of 2022. The net effect of these transactions, partially offset by 129 more off-hire days during the current period (primarily drydock related), were the primary drivers of a 3,051-day increase in MR revenue days during the current year's quarter, which contributed a$30.0 million days-based increase in TCE revenues. Additionally, there was a$3.6 million days-based increase in the LR1 fleet, which reflected (i) the deliveries of two time chartered-in 2008-built LR1s between August andOctober 2021 , and one time chartered-in 2009-built LR1 inFebruary 2022 , 39INTERNATIONAL SEAWAYS, INC. and (ii) the purchase of a 2011-built LR1 inFebruary 2022 , partially offset by (iii) the redelivery of a 2006-built LR1 to its owners at the expiry of its two year charter inAugust 2021 . The Company also acquired six Handysize vessels in the Merger, and subsequently sold two in the fourth quarter of 2021, and the remaining four during the second quarter of 2022. These Handysizes contributed a total of$2.4 million in TCE revenues during the current quarter. Vessel expenses increased by$28.2 million to$35.0 million in the second quarter of 2022 from$6.8 million in the second quarter of 2021. Such increase reflects additions to the fleet as a result of the Merger. Charter hire expenses increased by$1.7 million to$3.6 million in the current quarter from$1.9 million in the prior year's quarter, primarily as a result of the time chartered-in LR1s described above. Depreciation and amortization increased by$8.0 million to$12.0 million in the current quarter from$4.0 million in the prior year's quarter. Such increase resulted primarily from the additions to the MR and Handysize fleets noted above. During the first half of 2022, TCE revenues for the Product Carriers segment increased by$164.7 million , or 721%, to$187.6 million from$22.8 million in the first half of 2021. The net effect of the Merger and subsequent vessel sales discussed above, partially offset by 659 more off-hire days during the current period (primarily drydock related), were the primary drivers of a 5,847-day increase in MR revenue days during the current year's period, which contributed a$48.6 million days-based increase in TCE revenues. Additionally, there was a$7.4 million days-based increase in the LR1 fleet, which reflected the time chartered-in transactions described above and 135 fewer off-hire days in the current period. The Handysize vessels that were acquired as part of the Merger and subsequently sold contributed a total of$6.4 million in TCE revenues during the first half of 2022. Consistent with the quarter-over-quarter discussion above, the strong rate environment for Product Carriers in 2022 accounted for a rates-based increase in TCE revenues of approximately$102.3 million for the six months endedJune 30, 2022 compared to the equivalent 2021 period. Vessel expenses increased by$58.8 million to$72.1 million in the first half of 2022 from$13.3 million in the first half of 2021. Such increase reflects additions to the fleet as a result of the Merger. Charter hire expenses increased by$3.4 million to$6.9 million in the current period from$3.5 million in the prior year's period, primarily as a result of the time chartered-in LR1s described above. Depreciation and amortization increased by$16.1 million to$23.9 million in the current period from$7.8 million in the prior year's period. Such increase resulted primarily from the additions to the MR and Handysize fleets noted above.
General and Administrative Expenses:
During the second quarter of 2022, general and administrative expenses increased by$4.0 million to$10.8 million from$6.8 million in the second quarter of 2021. The primary drivers for such increase were comprised of (i) increased compensation and benefits costs, which principally resulted from increased staffing levels following the Merger, of$1.7 million , of which$0.4 million relates to non-cash stock compensation, (ii) increased legal and consulting costs totaling$1.3 million relating to shareholder activism-related matters, financing and corporate projects that were ultimately not pursued to completion, and increased insurance costs, and (iii) increased travel and entertainment expenses of$0.3 million related to the lifting of COVID-19 related travel restrictions.
For the six months ended
Equity in Income of Affiliated Companies:
During the three and six months endedJune 30, 2022 , equity in income of affiliated companies decreased by$10.5 million to a loss of$5.2 million and$10.4 million to income of$0.4 million , respectively, from$5.4 million and$10.8 million , respectively, in the corresponding 2021 periods. These decreases were principally attributable to the sale of the Company's interest in the FSO joint ventures onJune 7, 2022 , as the Company recorded a loss on the sale
of$9.5 million . 40INTERNATIONAL SEAWAYS, INC. Interest Expense:
The components of interest expense are as follows:
Three Months Ended
June
30, Six Months Ended June 30, (Dollars in thousands) 2022 2021 2022 2021 Interest before items shown below$ 14,193 $ 4,257 $ 25,895 $ 8,734 Interest cost on defined benefit pension obligation 117 97 241 192 Impact of interest rate hedge derivatives (907) 2,710 667 5,418 Capitalized interest (845) (58) (1,505) (58) Interest expense$ 12,558 $ 7,006 $ 25,298 $ 14,286 Interest expense was$12.6 million and$7.0 million for the three months endedJune 30, 2022 and 2021, respectively, and$25.3 million and$14.3 million for the six months endedJune 30, 2022 and 2021, respectively. These increases are attributable to higher average outstanding debt balances in the current year periods compared to the 2021 periods principally attributable to the debt that was assumed in connection with the Merger, the Macquarie Credit Facility and the refinancing of then existing debt betweenNovember 2021 andMay 2022 with resulting higher principal amounts outstanding. In addition, higher average floating interest rates during the first months of 2022 compared with the corresponding periods of 2021 contributed to such increase. See Note 10, "Debt," in the accompanying condensed consolidated financial statements for further information on the Company's debt facilities.
Taxes:
The Company qualifies for an exemption fromU.S. federal income taxes under Section 883 of theU.S. Internal Revenue Code of 1986, as amended (the "Code") andU.S. Treasury Department regulations for the 2022 calendar year as less than 50 percent of the total value of the Company's stock is held by one or more shareholders who own 5% or more of the Company's stock for more than half of the days of 2022. There can be no assurance at this time that INSW will continue to qualify for the Section 883 exemption beyond calendar year 2022. Should the Company not qualify for the exemption in the future, INSW will be subject toU.S. federal income taxation of 4% of itsU.S. source shipping income on a gross basis without the benefit of deductions. Shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in theU.S. will be considered to be 50% derived from sources within theUnited States. Shipping income attributable to transportation that both begins and ends in theU.S. would be considered to be 100% derived from sources withinthe United States , but INSW does not and cannot engage in transportation that gives rise to such income. EBITDA and Adjusted EBITDA: EBITDA represents net income/(loss) before interest expense, income taxes and depreciation and amortization expense. Adjusted EBITDA consists of EBITDA adjusted for the impact of certain items that we do not consider indicative of our ongoing operating performance. EBITDA and Adjusted EBITDA are presented to provide investors with meaningful additional information that management uses to monitor ongoing operating results and evaluate trends over comparative periods. EBITDA and Adjusted EBITDA do not represent, and should not be considered a substitute for, net income or cash flows from operations determined in accordance with GAAP. EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of our results reported under GAAP. Some of the limitations are:
? EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future
requirements for capital expenditures or contractual commitments;
? EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for,
our working capital needs; and
EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or
? the cash requirements necessary to service interest or principal payments, on our debt. 41
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