International Seaways, Inc. (INSW) FY 2022 MD&A

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

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INTRODUCTION

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

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A detailed discussion of the 2021 to 2020 year-over-year changes is not included herein and can be found in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 2, 2022.

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GENERAL

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We are a provider of ocean transportation services for crude oil and refined petroleum products. We operate our vessels in the International Flag market. Our business includes two reportable segments: Crude Tankers and Product Carriers. For the years ended December 31, 2022 and 2021 we derived 62% and 44%, respectively, of our TCE revenues from our Product Carriers segment. Revenues from our Crude Tankers segment constituted the balance of our TCE revenues during these periods.

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As described in Note 2, “Merger Transaction,” to the accompanying consolidated financial statements as set forth in Item 8, “Financial Statements and Supplementary Data,” on July 16, 2021 pursuant to the Merger Agreement dated as of March 30, 2021, the Company completed a stock-for-stock merger with Diamond S. As of December 31, 2022, we owned or operated an International Flag fleet of 74 vessels aggregating 8.1 million dwt, including 16 vessels that have been chartered-in under leases for durations exceeding one year at inception. In addition to our operating fleet of 74 vessels, three dual-fuel LNG VLCC newbuilds are scheduled for delivery to the Company in the first half of 2023, bringing the total operating and newbuild fleet to 77 vessels. Our fleet includes VLCC, Suezmax and Aframax crude tankers and LR2, LR1 and MR product carriers.

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The Company’s revenues are highly sensitive to patterns of supply and demand for vessels of the size and design configurations owned and operated by the Company and the trades in which those vessels operate. Rates for the transportation of crude oil and refined petroleum products from which the Company earns a substantial majority of its revenues are determined by market forces such as the supply and demand for oil, the distance that cargoes must be transported, and the number of vessels expected to be available at the time such cargoes need to be transported. The demand for oil shipments is significantly affected by the state of the global economy, levels of U.S. domestic and international production and OPEC exports. The number of vessels is affected by newbuilding deliveries and by the removal of existing vessels from service, principally through storage, recycling or conversions. The Company’s 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.

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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 81% of our total TCE revenues in the spot market for the years ended December 31, 2022 and 2021, respectively, primarily driven by the higher average daily spot market rates earned across all of INSW’s fleet sectors in 2022 compared with 2021.

COVID-19

The COVID-19 pandemic resulted in a significant decline in global demand for oil during 2020; although oil demand has recovered since 2020, new outbreaks may continue to have a negative impact on oil demand in the future. As our business is the transportation of crude oil and refined petroleum products on behalf of our customers, any significant decrease in demand for the cargo we transport could adversely affect demand for our vessels and services.

We continue to monitor the impact of COVID-19 on the Company’s financial condition and operations and on the tanker industry in general. While it is not always possible to distinguish incremental costs or off-hire associated with the impact of COVID-19 on our operations, we estimate that for the three years ended December 31, 2022, incremental operating costs associated with COVID-19 were approximately $2.6 million, $4.3 million, and $1.8 million, respectively.

Given the dynamic nature of the pandemic, including the development of variants of the virus that cause COVID-19 and the levels of effectiveness and delivery of vaccines and other actions to contain or treat the virus, the duration of any future potential business disruption and the related financial impact and effects on us and our suppliers, customers and industry, cannot be reasonably estimated at this time and could materially affect our business, results of operations and financial condition.

Russian-Ukraine Conflict

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The ongoing military conflict in Ukraine has had a significant direct and indirect impact on the trade of crude oil and refined petroleum products. This conflict has resulted in the United States, United Kingdom, and the European Union, among other countries, implementing sanctions and executive orders against citizens, entities, and activities connected to Russia. Some of these sanctions and executive orders target the Russian oil sector, including a prohibition on the import of oil from Russia to the United States or the United Kingdom, and the European Union's recent ban on Russian crude oil and petroleum products which took effect in December 2022 and February 2023, respectively.

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Russia’s invasion of Ukraine also led to a disruption in supply chains for crude oil and refined petroleum products, changing volumes and trade routes, thus increasing ton-mile demand for the seaborne transportation of refined petroleum products, which resulted in a prolonged spike in freight rates. Self-sanctioning by Western oil majors and many ship owners resulted in lower product flows, primarily diesel, from Russia to Europe, while high arbitrage spreads incentivized Middle Eastern and U.S. diesel flows to Europe, increasing ton-mile demand for vessels.

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The U.S., EU nations and other countries could impose wider sanctions and take other actions. Further sanctions imposed or actions taken by the U.S., EU nations or other countries, and retaliatory measures by Russia in response, could lead to increased volatility in global oil demand, which could have a material impact on our business, results of operations and financial condition. In addition, it is possible that third parties with which we do business may be impacted by events in Russia and Ukraine, which could adversely affect us.

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OPERATIONS AND OIL TANKER MARKETS

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The International Energy Agency (“IEA”) estimates global oil consumption for the fourth quarter of 2022 at 100.5 million barrels per day (“b/d”), down 0.4% from the same quarter in 2021. The estimate for global oil consumption for 2023 is 101.7 million b/d, an increase of 1.8% over 2022. OECD demand in 2023 is estimated to increase by 0.9% to 46.4 million b/d, while non-OECD demand is estimated to increase by 2.6% to 55.3 million b/d.

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Global oil production in the fourth quarter of 2022 was 101.2 million b/d, an increase of 3.3% from the fourth quarter of 2021. OPEC crude oil production averaged 29.1 million b/d in the fourth quarter of 2022, a decrease of 0.3 million b/d from the third quarter of 2022, and an increase of 1.4 million b/d from the fourth quarter of 2021. Non-OPEC production increased by 1.7 million b/d to 66.8

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million b/d in the fourth quarter of 2022 compared with the fourth quarter of 2021. Oil production in the U.S. in the fourth quarter of 2022 increased by 4.5% to 12.4 million b/d compared to the third quarter of 2022 and by 7.0% from the fourth quarter of 2021.

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U.S. refinery throughput decreased by 0.6 million b/d to 16.3 million b/d in the fourth quarter of 2022 compared with the third quarter of 2022. U.S. crude oil imports in the fourth quarter of 2022 increased by 0.3 million b/d to 6.2 million b/d compared with the fourth quarter of 2021, with imports from OPEC countries increasing by 0.1 million b/d and imports from non-OPEC countries increasing by 0.2 million b/d.

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China’s average crude oil imports declined to 10.2 million b/d in 2022, a decrease of 0.9% when compared with 2021. However, December 2022 imports of 11.3 million b/d were up 4% year-over-year, the third highest monthly figure for the year.

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After a protracted period of inventory draws, global inventories began to stabilize during 2022. Total commercial stocks in the OECD increased by approximately 26 million barrels in the year ending November 2022, the most recent available combined inventory data. Days of forward cover for OECD commercial stocks stood at 59.5 days in November 2022, 3.5 days below the five-year average.

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During the fourth quarter of 2022, the tanker fleet of vessels over 10,000 dwt increased, net of vessels recycled, by 4.4 million dwt as the crude fleet increased by 3.3 million dwt, with VLCCs, Suezmaxes and Aframaxes growing by 2.4 million dwt, 0.3 million dwt and 0.6 million dwt, respectively. The product carrier fleet increased by 1.2 million dwt, with MRs growing 1.1 million dwt. Year-over-year, the size of the tanker fleet increased by 22.3 million dwt with the VLCCs, Suezmaxes, Aframaxes and MRs increasing by 11.3 million dwt, 5.2 million dwt, 2.7 million dwt and 3.0 million dwt, respectively. The LR1/Panamax fleet remained flat.

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During the fourth quarter of 2022, the tanker orderbook declined by 2.1 million dwt overall compared with the third quarter of 2022. The crude tanker orderbook decreased by 1.6 million dwt, with a decrease in the VLCC orderbook of 2.7 million dwt, and an increase in the Suezmax orderbook of 1.1 million dwt. The product carrier orderbook decreased by 0.5 million dwt, with declines in the LR1 and MR sectors of 0.1 million dwt and 0.4 million dwt, respectively. Year-over-year, the total tanker orderbook decreased by 20.6 million dwt, with all sectors seeing declines.

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The fourth quarter of 2022 saw the continued strengthening in rates experienced during the year, as disruptions in trade flows caused by the Russian invasion of Ukraine positively affected tanker earnings. Fourth quarter earnings, in addition to being the strongest of the year, were also significantly over 10-year average rates.

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RESULTS FROM VESSEL OPERATIONS

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During 2022, income from vessel operations increased by $554.8 million to $442.7 million from a loss of $112.1 million in 2021. Such increase resulted principally from a $597.9 million year-over-year increase in TCE revenues and $50.7 million in merger and integration related costs incurred in 2021 related to the Company’s Merger with Diamond S. Such items were partially offset by increased vessel expenses and depreciation and amortization, which are reflective of the Company’s larger post-Merger fleet.

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The increase in TCE revenues in 2022 of $597.9 million, or 234%, to $853.7 million from $255.9 million in 2021 primarily reflects a net aggregate $504.9 million rates-based increase resulting from higher average daily rates earned across all of INSW’s fleet sectors. Significant days-based increases in the Suezmax and MR fleets, which reflects the Merger-driven fleet growth, also contributed a total of $82.1 million to the increase in TCE revenues.

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The following tables provide a quarterly trend analysis of spot TCE rates earned between the fourth quarter of 2021 and 2022 by our Crude Tankers and Product Carriers fleet. See the “Operations and Oil Tanker Markets” discussion above and segment discussion below for a description of the market factors that impacted the quarterly trend of spot rates during 2022.

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See Note 5, “Business and Segment Reporting,” to the Company’s consolidated financial statements as set forth in Item 8, “Financial Statements and Supplementary Data,” for additional information on the Company’s segments, including equity in income of affiliated companies and reconciliations of (i) time charter equivalent revenues to shipping revenues and (ii) adjusted income/(loss) from vessel operations for the segments to income/(loss) before income taxes, as reported in the consolidated statements of operations.

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Crude Tankers

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The following table provides a breakdown of TCE rates achieved for the years ended December 31, 2022 and 2021 between spot and fixed earnings and the related revenue days. The information is based, in part, on information provided by the commercial pools in which the segment’s vessels participate and excludes commercial pool fees/commissions averaging approximately $787 and $592 per day in 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.

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During 2022, TCE revenues for the Crude Tankers segment increased by $177.6 million, or 123%, to $321.9 million from $144.3 million in 2021. Such increase principally resulted from (i) an aggregate rates-based increase in the Suezmax, VLCC and Aframax fleets of $162.8 million due to higher average daily blended rates in these sectors, (ii) a $19.3 million days-based increase in the Suezmax fleet which reflected the Company’s acquisition of 13 Suezmaxes as a part of the Merger, two of which have been subsequently disposed of by the Company, (iii) a $10.2 million increase relating to activity growth in the Crude Tankers Lightering business, and (iv) a $2.8 million days-based increase in the VLCC fleet, which primarily reflected 360 fewer off-hire days in 2022. These increases were partially offset by (v) a $19.2 million days-based decrease in the Panamax fleet driven by the sale of four 2002-built Panamaxes and one 2003-built Panamax between August and December 2021 and the Company taking advantage of the strong demand for steel to recycle its two remaining Panamaxes in April 2022.

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Vessel expenses increased by $3.0 million to $98.8 million in 2022 from $95.8 million in 2021. Such increase was driven by the Suezmaxes and Aframax acquired in the Merger, offset substantially by the impact of the sales in the Panamax fleet described above. Charter hire expenses decreased by $0.9 million to $15.4 million in 2022 from $16.3 million in 2021. The decrease reflects a $0.5 million reduction in charter hire expense in the Crude Tankers Lightering business as well as the impact of the bareboat charters for two of the Company’s Aframaxes being classified as finance leases subsequent to the Company providing notice in December 2022 that it intends to exercise its purchase options under the bareboat charters. Depreciation and amortization increased by $4.7 million to $62.6 million in 2022 from $57.9 million in 2021. Such increase resulted principally from the net impact of the changes in the Suezmax and Panamax fleets noted above, along with the impacts of drydockings and ballast water treatment system and scrubber installations performed during 2021 and 2022. The scrubber installation on one of the Company’s 2021-built Suezmaxes was completed in September 2022.

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Excluding depreciation and amortization and general and administrative expenses, operating income for the Crude Tankers Lightering business was $16.7 million for 2022 compared to $6.0 million for 2021. The increase in the current year’s operating income as compared to the prior year’s primarily reflects higher levels of lightering activity in 2022. During 2022, 472 service support only lighterings were performed, as compared to 343 service support only lighterings in the prior year. Additionally, during 2022 one full-service lightering was performed, while no full-service lighterings were performed in 2021.

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Product Carriers

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The following table provides a breakdown of TCE rates achieved for the years ended December 31, 2022 and 2021 between spot and fixed earnings and the related revenue days. The information is based, in part, on information provided by the commercial pools in which the segment’s vessels participate and excludes commercial pool fees/commissions averaging approximately $665 and $624 per day in 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.

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During 2022, TCE revenues for the Product Carriers segment increased by $420.3 million, or 377%, to $531.9 million from $111.6 million in 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 of approximately $341.4 million. Also contributing 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 during March 2022, one during the second quarter of 2022, and one during the fourth quarter of 2022. The net effect of these transactions was the primary driver of a 6,734-day increase in MR revenue days during the current year, which contributed a $62.8 million days-based increase in TCE revenues. Additionally, there was a $14.9 million days-based increase in the LR1 fleet, which reflected (i) the deliveries of two time chartered-in 2008-built LR1s between August and October 2021, and one time chartered-in 2009-built LR1 in February 2022, and (ii) the purchase of a 2011-built LR1 in February 2022, partially offset by (iii) the redelivery of a 2006-built LR1 to its owners at the expiry of its two year charter in August 2021. The Company also acquired six Handysize vessels in the Merger, and subsequently sold two in the fourth quarter of 2021, and the remaining four during the second quarter of 2022. These Handysizes contributed a total of $1.2 million more TCE revenue during 2022 than in 2021.

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Vessel expenses during 2022 increased by $54.6 million to $141.8 million from $87.3 million in 2021. Such increase is primarily the result of an increase of 6,557 operating days in the MR fleet, which was principally driven by the additions to the fleet as a result of the Merger. Charter hire expenses increased by $9.1 million to $16.8 million in 2022 from $7.7 million in 2021 primarily as a result of the time chartered-in LR1s described above. Depreciation and amortization increased by $19.0 million to $47.7 million in the current year from $28.7 million in the prior year. Such increase resulted primarily from the net vessel additions noted above.

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General and Administrative Expenses

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During 2022, general and administrative expenses increased by $13.2 million to $46.4 million from $33.2 million in 2021. The primary drivers for such increase were principally related to the Merger and were comprised of (i) increased compensation and benefits costs of $6.4 million, of which $3.3 million relates to increases in the annual employee bonus accrual based upon the Company’s strong operating and financial performance in 2022, and $1.7 million relates to non-cash stock compensation, (ii) $4.0 million of costs relating to shareholder activism-related matters, and financing and corporate projects that were ultimately not pursued to completion, (iii) increased travel and entertainment expenses of $0.9 million reflecting the impact of the easing of COVID-19 related travel restrictions (iv) an increase in the non-cash provision for expected credit losses of $0.3 million, and (v) increased

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insurance costs of $0.3 million, substantially attributable to the non-cash amortization of a prepaid Directors and Officers run-off policy related to the Merger.

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Equity in Income of Affiliated Companies

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During 2022 equity in income of affiliated companies decreased by $21.1 million to $0.7 million from $21.8 million in 2021. This decrease was attributable to the sale of the Company’s interest in the FSO joint ventures on June 7, 2022. The Company recognized a $9.5 million loss on such sale.

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Other Income/(Expense)

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Other income was $2.3 million for the year ended December 31, 2022 compared with $5.9 million of other expense for the year ended December 31, 2021. The current period other income includes $3.7 million of interest income from invested cash, resulting from a significant increase in the average balance of invested cash and the rate earned on such investments during 2022 compared to 2021. Such income in 2022 was partially offset by (i) the write-off of unamortized deferred financing costs totaling $1.3 million, in connection with the prepayment and extinguishment of certain of the Company’s debt facilities and (ii) the net effect of currency losses and net actuarial gains associated with the Company’s retirement benefit obligation in the United Kingdom. Similarly, the 2021 expense includes (i) loan breakage fees of $0.3 million related to the prepayment of the Sinosure Credit Facility and a write-off of $1.6 million of unamortized deferred financing costs associated with such loan prepayment in November 2021, which was treated as an extinguishment of debt, (ii) a $4.2 million loss related to the extinguishment of the financing component of the interest rate swap agreement associated with the Sinosure Credit Facility, and (iii) a write-off of $0.5 million of unamortized deferred financing costs associated with the $390 Million Facility Term Loan due to the principal prepayments made in December 2021, upon the sale and leaseback of three vessels that were part of the collateral for this facility. Such charges in 2021 were partially offset by interest income on cash deposits, net actuarial gains and currency gains associated with the retirement benefit obligation in the United Kingdom.

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Interest Expense

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The components of interest expense are as follows:

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Interest expense was $57.7 million in 2022, compared with $36.8 million in 2021. Interest expense increased as a result of (i) higher average outstanding debt balances during 2022 compared to 2021, principally attributable to the debt that was assumed in connection with the Merger, and the refinancing of then existing debt between November 2021 and May 2022 with resulting higher principal amounts outstanding and (ii) higher average floating interest rates during 2022 compared with 2021. During 2022, the Company incurred approximately $18.6 million in interest expense related to $750 Million Facility, which was partially offset by the impact of the $525 Million Term Loan Facility and $360 Million Term Loan Facility payoff in May 2022. Additionally, the Company entered into three new sale and leaseback transactions during 2022, which incurred $2.3 million interest expense. See Note 10, “Debt,” to the accompanying consolidated financial statements as set forth in Item 8, “Financial Statements and Supplementary Data,” for further information on the Company’s debt facilities.

Income Tax Provision

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If we do not qualify for an exemption pursuant to Section 883, or the “Section 883 exemption,” of the U.S. Internal Revenue Code of 1986, as amended, or the “Code,” then we will be subject to U.S. federal income tax on our shipping income that is derived from U.S. sources. If we are subject to such tax, our results of operations and cash flows would be reduced by the amount of such tax. We qualified for the Section 883 exemption for the tax year ended December 31, 2022. We will qualify for the Section 883 exemption for 2023 and forward if, among other things, (i) our common shares are treated as primarily and regularly traded on an established securities market in the United States or another qualified country (“publicly traded test”), or (ii) we satisfy one of two other

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ownership tests. Under applicable U.S. Treasury Regulations, the publicly traded test will not be satisfied in any taxable year in which persons who directly, indirectly or constructively own five percent or more of our common shares (sometimes referred to as “5% shareholders”) own 50% or more of the vote and value of our common shares for more than half the days in such year, unless an exception applies. We can provide no assurance that ownership of our common shares by 5% shareholders will allow us to qualify for the Section 883 exemption in future taxable years. If we do not qualify for the Section 883 exemption, our gross shipping income derived from U.S. sources, i.e., 50% of our gross shipping income attributable to transportation beginning or ending in the United States (but not both beginning and ending in the United States), generally would be subject to a four percent tax without allowance for deductions.

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In 2021, we obtained advice regarding freight taxes in a certain jurisdiction related to the uncertainty surrounding the application of a law given the limited transparency into the actions of the tax authorities in this jurisdiction. During 2022, the Company increased its reserve for uncertain tax liabilities for this jurisdiction by $0.2 million.

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

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EBITDA and Adjusted EBITDA

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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:

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While EBITDA and Adjusted EBITDA are frequently used by companies as a measure of operating results and performance, neither of those items as prepared by the Company is necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation.

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

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LIQUIDITY AND SOURCES OF CAPITAL

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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.

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Liquidity

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As of December 31, 2022, we had total liquidity on a consolidated basis of $541.1 million comprised of $243.7 million of cash, $80.0 million of short-term investments and $217.4 million of undrawn revolver capacity.

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Working capital at December 31, 2022 was $385.2 million compared with a negative $10.0 million at December 31, 2021. Current assets are highly liquid, consisting principally of cash, interest-bearing deposits, short-term investments consisting of time deposits with original maturities of between 90 and 180 days, and receivables. Current liabilities include current installments of long-term debt and finance lease liabilities of $204.7 million and $178.7 million at December 31, 2022 and 2021, respectively.

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The Company’s total cash increased by $144.8 million during the year ended December 31, 2022. This increase reflects cash provided by operating activities of $287.8 million, proceeds from the sale of the Company’s 50% ownership interest in the FSO Joint Venture of $140.1 million, proceeds from disposal of vessels and other assets of $99.2 million, and proceeds from issuance of lease financing, net of issuance and deferred financing costs, of $108.0 million. Such cash inflows were partially offset by $116.0 million in expenditures for vessels and other property including construction costs for three dual-fuel LNG-powered VLCCs, a net outflow of $196.4 million related to debt extinguishment, scheduled principal amortization for the Company’s secured debt facilities and lease financing arrangements and the refinancing of the $390 Million Credit Facility, $525 Million Credit Facility and $360 Million Credit Facility, $20.0 million in expenditures made under the Company’s stock repurchase program, $80.0 million of cash invested in the short-term investments described above and cash dividends of $69.8 million.

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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.

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As of December 31, 2022, we had total debt and finance lease obligations outstanding (net of original issue discount and deferred financing costs) of $1,065.3 million and a net debt (including finance lease obligations) to total capitalization ratio of 33.3%, which compares with 46.2% at December 31, 2021.

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Sources, Uses and Management of Capital

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During the low end of the tanker cycle in 2021, we maintained a strong balance sheet, which allowed us to take advantage of attractive strategic opportunities. During 2022, we continued to lower our financial leverage to what we believed to be appropriate for the current strong point in the tanker cycle.

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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.

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The following is a summary of the significant capital allocation initiatives we executed during 2022 and the sources of capital we have at our disposal for future use as well as our current commitments for future uses of capital:

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During the first quarter of 2022, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.06 per share. The regular quarterly dividend was subsequently doubled to $0.12 per share for the second, third and fourth quarters of 2022. Additionally, during the fourth quarter a supplemental dividend of $1.00 per share was declared. Pursuant to such dividend declarations, the Company made dividend payments totaling $69.8 million during 2022.

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In January 2022, continuing our 2021 post-merger fleet optimization program, the Company entered into memoranda of agreements for the sale of a 2010-built MR for a sale price of $16.5 million and the purchase of a 2011-built LR1 for a purchase price of $19.5 million with the same counterparty. The LR1 was delivered into our niche commercial pool, Panamax International, which has historically outperformed the market. The Company closed both transactions during the first quarter of 2022, recognizing a gain of $4.5 million on the sale of the 2010-built MR and a net cash outflow of $3.0 million representing the difference in value between the two vessels. The LR1 vessel replaced the MR as collateral under the $525 Million Credit Facility with no further mandatory principal repayment required. During 2022, the Company also delivered two 2008-built MRs, one 2002-built Panamax, one 2004-built Panamax and four 2006-built Handysize product carriers to buyers. The aggregate net proceeds from the sale of these eight vessels after the prepayment of associated debt was approximately $68.0 million.

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On January 14, 2022, the Company entered into a lease financing arrangement with Hyuga Kaiun Co., Ltd (“Hyuga”) for the sale and leaseback of a 2011-built MR, which was a $390 Million Facility Collateral Vessel, for a net sale price of $16.7 million (the “Hyuga Lease Financing”). The transaction generated net proceeds of $5.7 million, after prepaying $11.0 million of the $390 Million Facility Term Loan. Under the lease financing arrangement, the vessel is subject to a nine-year bareboat charter at a bareboat rate of $6,300 per day for the first three years, $6,200 per day for the second three years, and $6,000 per day for the last three years, with purchase options exercisable commencing at the end of the fourth year and a $2.0 million purchase obligation at the end of the nine-year term.

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On April 25, 2022, the Company entered into a lease financing arrangement with Kaiyo Ltd. (“Kaiyo”) for the sale and leaseback of a 2010-built MR, which was a $390 Million Facility Collateral Vessel, for a net sale price of $15.2 million (the “Kaiyo Lease Financing”). The transaction generated net proceeds of $5.4 million, after prepaying $9.8 million of the $390 Million Facility Term Loan. Under the lease financing arrangement, the vessel is subject to an eight-year bareboat charter at a bareboat rate of $6,250 per day for the first four years, and $6,150 per day for the remaining four years, with purchase options exercisable commencing at the end of the fourth year and a $1.5 million purchase obligation at the end of the eight-year term.

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On May 12, 2022, the Company entered into a lease financing arrangement with Kabushiki Kaisha (“Kaisha”) for the sale and leaseback of a 2010-built MR, which was a $525 Million Facility Collateral Vessel, for a net sale price of $15.2 million (the “Kaisha Lease Financing”). The transaction generated net proceeds of $10.6 million, after prepaying $4.6 million of the $525 Million Facility Term Loan. Under the lease financing arrangement, the vessel is subject to an eight-year bareboat charter at a bareboat rate of $6,250 per day for the first four years, and $6,150 per day for the remaining four years, with purchase options exercisable commencing at the end of the fourth year and a $1.5 million purchase obligation at the end of the eight-year term.

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On May 20, 2022, International Seaways Operating Corporation, the borrower, and certain of their subsidiaries entered into a credit agreement comprising $750 million of secured debt facilities (the “$750 Million Credit Facility”) with Nordea Bank Abp, New York

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Branch (“Nordea”), Crédit Agricole Corporate & Investment Bank (“CA-CIB”), BNP Paribas, DNB Markets Inc. and Skandinaviska Enskilda Banken AB (PUBL) (or their respective affiliates), as mandated lead arrangers and bookrunners; Danish Ship Finance A/S and ING Bank N.V., London Branch (or their respective affiliates), as mandated lead arrangers; and National Australia Bank Limited, as co-arranger. Nordea is acting as administrative agent, collateral agent and security trustee under the credit agreement, and CA-CIB is acting as sustainability coordinator. Capitalized terms used in this paragraph and elsewhere not otherwise defined herein shall have the meanings set forth in the credit agreement.

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The $750 Million Credit Facility consists of (i) a five-year senior secured term loan facility in an aggregate principal amount of $530 million (the “$750 Million Facility Term Loan”) and (ii) a five-year revolving credit facility in an aggregate principal amount of $220 million (the “750 Million Facility Revolving Loan. The $750 Million Facility Term Loan contains an uncommitted accordion feature whereby, for a period of up to 24 months following the closing date, the amount of the loan thereunder may be increased up to an additional incremental $250 million (in increments of at least $10 million) for the acquisition of Additional Vessels, subject to certain conditions.

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On May 24, 2022, the available amount of $530 million under the $750 Million Facility Term Loan was drawn in full, and $70 million of the $220 million available under the $750 Million Facility Revolving Loan was also drawn. Those proceeds, together with available cash, were used (i) to repay the $163 million outstanding principal balance under the $390 Million Credit Facility; (ii) to repay the $284 million outstanding principal balance under the $525 Million Credit Facility; (iii) to repay the $128 million outstanding principal balance under the $360 Million Credit Facility; and to pay certain expenses related to the refinancing, including certain structuring and arrangement fees, legal and administrative fees totaling $10.5 million.

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The $750 Million Facility Term Loan amortizes in 19 quarterly installments of approximately $30.6 million (other than the final payment of $9.8 million) commencing November 20, 2022. The maturity date of the $750 Million Credit Facility is May 20, 2027, and is subject to acceleration upon the occurrence of certain events (as described in the credit agreement).

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The $70 million drawn under the $750 Million Facility Revolving Loan was repaid on June 15, 2022, using a portion of the proceeds from the sale of the FSO Joint Venture.

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In August 2022, the Company’s Board of Directors authorized an increase in the share repurchase program to $60.0 million from $33.3 million and extended the expiration of the program to December 31, 2023. During the third quarter of 2022, share repurchases of $20.0 million were executed under such program.

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On August 5, 2022, the Company redeemed the $25 million aggregate principal outstanding of the 8.5% Senior Notes due June 2023.

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On November 17, 2022, the Company repaid the $17.8 million outstanding balance of the Macquarie Credit Facility in full and the facility was terminated in accordance with its terms.

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

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As of December 31, 2022, the Company has vessel construction commitments for three dual-fuel LNG-powered VLCCs. The Company also has contractual commitments for the purchase and installation of 16 ballast water treatment systems and ten Mewis ducts, and the final outstanding installment payments due for four ballast water treatment systems that had been installed as of December 31, 2022. The Company’s debt service commitments and aggregate purchase commitments for vessel construction and betterments as of December 31, 2022, are presented in the Aggregate Contractual Obligations Table below.

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During the first quarter of 2023, we have continued to execute on our capital allocation strategy, balance sheet enhancement efforts and fleet optimization program through the following actions:

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In December 2022 the Company tendered notice of its intention to exercise its options to purchase two 2009-built Aframaxes that are currently bareboat chartered-in. Under the terms of the options, the Company expects to purchase the two vessels in March 2023 for an aggregate purchase price of $43.0 million, representing an over 45% discount to the current market values of for these vessels.

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In January 2023 we executed a memorandum of agreement to sell a 2008-built MR for approximately $20.5 million. The vessel will be delivered to its buyers by April 2023. This sale will save the Company the cost of having to conduct a third special survey and

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installing a ballast water treatment system on the vessel. Also, the sale will result in a principal prepayment of approximately $9.7 million of the $750 Million Facility Term Loan.

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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 $1.88 per share of common stock on February 27, 2023. Both dividends will be paid on March 28, 2023 to stockholders of record as of March 14, 2023.

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Outlook

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We executed various liquidity enhancing initiatives during 2021 and 2022 that significantly diversified our financing sources and spread our debt maturities out between 2026 and 2031, putting the Company in a strong position to navigate through any period of weaker rates. Vessel prices remain at the top end of the 10-year average, but we believe the tanker market fundamentals should remain strong for the next few years, though we expect volatility during 2023 due to macroeconomic uncertainty. Our balance sheet and diverse fleet, positions us to support our operations over the next twelve months as we continue to advance our disciplined capital allocation strategy of fleet renewal, incremental debt reduction and tanker-cycle appropriate returns to shareholders and provides us with flexibility to continue pursuing potential strategic opportunities that may arise within the diverse sectors in which we operate.

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Aggregate Contractual Obligations

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A summary of the Company’s long-term contractual obligations as of December 31, 2022 follows:

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In addition to the above long-term contractual commitments, we have certain obligations for our shore-based employees as of December 31, 2022, related to a defined benefit pension plan in the U.K. as follows:

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Carrying Value of Vessels

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At December 31, 2022, 67 of the Company’s 70 owned and chartered-in vessels were pledged as collateral under certain of the Company’s debt and lease financing facilities. The following table presents information with respect to the carrying amount of the Company’s vessels by type. Instances in which the fair market values of the Company’s vessels, which are estimated by a third-party vessel appraisal, are below their carrying values as of December 31, 2022, are indicated in the footnote(s) to the table. The carrying value of each of the Company’s vessels does not necessarily represent its fair market value or the amount that could be obtained if the vessel were sold. The Company’s estimates of market values for its vessels assume that the vessels are all in good and seaworthy condition without need for repair and, if inspected, would be certified as being in class without notations. In addition, because vessel values are highly volatile, these estimates may not be indicative of either the current or future prices that the Company could achieve if it were to sell any of the vessels. The Company would not record a loss for any of the vessels for which the fair market value is below its carrying value unless and until the Company either determines to sell the vessel for a loss or determines that the vessel is impaired as discussed below in “Critical Accounting Policies — Vessel Impairment.” The Company believes that the future undiscounted cash flows expected to be earned over the estimated remaining useful lives for those vessels that have experienced declines in market values below their carrying values would exceed such vessels’ carrying values.

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

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Off-Balance Sheet Arrangements

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Pursuant to an agreement between INSW and the trustees of the OSG Ship Management (UK) Ltd. Retirement Benefits Plan (the “Scheme”), INSW guarantees the obligations of INSW Ship Management UK Ltd., a subsidiary of INSW, to make payments to the Scheme. See Note 17, “Pension and other postretirement benefit plans,” to the Company’s consolidated financial statements set forth in Item 8, “Financial Statements and Supplementary Data,” for additional information.

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Risk Management

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Interest rate risk

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The Company is exposed to market risk from changes in interest rates, which could impact its results of operations and financial condition. The Company manages this exposure to market risk through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. To manage its interest rate risk in a cost-effective manner, the Company, from time-to-time, enters into interest rate swap, collar or cap agreements, in which it agrees to exchange various combinations of fixed and variable interest rates based on agreed upon notional amounts or to receive payments if floating interest rates rise above a specified cap rate. The Company uses such derivative financial instruments as risk management tools and not for speculative or trading purposes. In addition, derivative financial instruments are entered into with a diversified group of major financial institutions in order to manage exposure to nonperformance on such instruments by the counterparties.

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The Company uses interest rate swaps for the management of interest rate risk exposure associated with changes in variable interest rate payments due on its credit facilities. See Note 9, “Fair Value of Financial Instruments, Derivative and Fair Value Disclosures,” to the Company’s consolidated financial statements set forth in Item 8, “Financial Statements and Supplementary Data,” for additional information on the Company various interest rate derivatives.

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Currency and exchange rate risk

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The shipping industry’s functional currency is the U.S. dollar. All of the Company’s revenues and most of its operating costs are in U.S. dollars. The Company incurs certain operating expenses, such as some vessel and general and administrative expenses, in currencies other than the U.S. Dollar, and the foreign exchange risk associated with these operating expenses is immaterial. If foreign exchange risk becomes material in the future, the Company may seek to reduce its exposure to fluctuations in foreign exchange rates

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through the use of short-term currency forward contracts and through the purchase of bulk quantities of currencies at rates that management considers favorable. For contracts which qualify as cash flow hedges for accounting purposes, hedge effectiveness would be assessed based on changes in foreign exchange spot rates with the change in fair value of the effective portions being recorded in accumulated other comprehensive income/(loss).

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Fuel price volatility risk

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The Company has installed scrubbers on its ten VLCCs and two of its Suezmaxes. During 2022, the average price differential between very low sulfur fuel and high sulfur fuel in Singapore and Fujairah, the most common bunkering locations for VLCCs, was approximately $277 per ton. Assuming a VLCC bunker consumption rate of 50 metric tons per day, this translated to approximately $13,800 per day in lower bunker consumption costs on our VLCCs during 2022. In addition to installing scrubbers on certain of the larger vessels in the Company’s fleet, significant consideration continues to be given to other ways of managing the risk of volatility in the price spread between high-sulfur fuel and low-sulfur fuel as well as the risk of limited supply of compliant fuel or HFO along the routes that the Company’s vessels typically travel.

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Interest Rate Sensitivity

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

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

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As of December 31, 2022, the Company had secured term loans or lease financings, and revolving credit facilities under which borrowings bear interest at a rate based on LIBOR or SOFR, plus the applicable margin, as stated in the respective financing arrangements. The Company has entered into interest rate swaps agreements covering a notional amount of $447.6 million of the $750 Million Facility Term Loan that was outstanding as of December 31, 2022, with major financial institutions participating in such 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.

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CRITICAL ACCOUNTING ESTIMATES AND POLICIES

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The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates in the application of its accounting policies based on the best assumptions, judgments, and opinions of management. Following is a discussion of the accounting policies that involve a higher degree of judgment and the methods of their application. For a description of all of the Company’s material accounting policies, see Note 3, “Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements set forth in Item 8, “Financial Statements and Supplementary Data.”

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Vessel Lives and Salvage Values

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

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

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Company management estimates the steel recycle value of all of its vessels to be $300 per lightweight ton consistent with its commitment to implement and practice environmentally and socially responsible ship recycling. The Company’s assumptions used in the determination of estimated salvage value take into account current steel recycling prices, the historic pattern of annual average steel recycling rates over the five years ended December 31, 2022, which ranged from $270 to $670 per lightweight ton, estimated changes in future market demand for recycled steel and estimated future demand for vessels. Steel recycling prices also fluctuate depending upon type of ship, bunkers on board, spares on board and delivery range. Market conditions that could influence the volume and pricing of vessel recycling activity in 2023 and beyond include the combined impact of scheduled newbuild deliveries and charter rate expectations for vessels potentially facing age restrictions imposed by oil majors as well as the impact of ballast water treatment systems regulatory requirements or proposals, costs and timing of pending special surveys, which are likely to be expensive for vessels over 15 years of age and IMO requirements for the use of low-sulfur fuels and other carbon reduction initiatives. These factors will influence owners’ decisions to accelerate the disposal of older vessels, especially those with upcoming special surveys.

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

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Vessel Impairment

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

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

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

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Company utilizes weighted probabilities assigned to the possible outcomes for such vessels being sold or recycled before the end of their respective useful lives.

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

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

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