Ardmore Shipping Corp 6-K, filed Nov 2, 2022
Ardmore Shipping Corp (ASC)
About this 6-K
Ardmore Shipping Corp filed this 6-K on November 2, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For three and nine months ended
Commission file number 001-36028
(Exact name of Registrant as specified in its charter)
Belvedere Building,
Ground Floor,
69 Pitts Bay Road,
Pembroke,
HM08,
Bermuda
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ⌧ Form 40- F ◻
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1).
Yes ◻ No ⌧
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7).
Yes ◻ No ⌧
INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Attached to this Report on Form 6-K are (1) Management’s Discussion and Analysis of Financial Condition and Results of Operations and (2) the unaudited interim condensed consolidated financial statements and related notes of Ardmore Shipping Corporation (the “Company”), as at September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021.
This Report is hereby incorporated by reference into the following registration statements of the Company:
| ● | Registration Statement on Form F-3D (Registration No. 333-203205) filed with the U.S. Securities and Exchange Commission on April 2, 2015; |
| ● | Registration Statement on Form S-8 (Registration No. 333-213344) filed with the U.S. Securities and Exchange Commission on August 26, 2016; |
| ● | Registration Statement on Form F-3 (Registration No. 333-258974) filed with the U.S. Securities and Exchange Commission on August 20, 2021; and |
| ● | Registration Statement on Form F-3 (Registration No. 333-267260) filed with the U.S. Securities and Exchange Commission on September 2, 2022. |
FORWARD-LOOKING STATEMENTS
Matters discussed in this report may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. The Company desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation. The words “believe”, “anticipate”, “intend”, “estimate”, “forecast”, “plan”, “potential”, “should”, “may”, “will”, “expect” and similar expressions are among those that identify forward-looking statements.
Forward-looking statements in this report include, among others, statements regarding: future operating results; the employment of the Company’s vessels; the outcome of the Company’s strategies and implementation of the Company’s Energy Transition Plan; the effect of the COVID-19 pandemic and Russia’s invasion of Ukraine on, among others things, oil demand, the Company’s business, financial condition and results of operations including liquidity; the sale and purchase of certain vessels; future drydocking days; sufficiency of liquidity and capital resources; the Company’s expectations regarding the risk and potential effects of inflation; the timing and payment of quarterly dividends by the Company; and the anticipated timing and benefits of the Company’s new loan facilities. The forward-looking statements in this report are based upon various assumptions, including, among others, the Company’s examination of historical operating trends, data contained in the Company’s records and other data available from third parties. Although the Company believes that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond the Company’s control, the Company cannot assure you that it will achieve or accomplish these expectations, beliefs or projections.
In addition to these important factors, other important factors that, in the Company’s view, could cause actual results to differ materially from those discussed in the forward-looking statements include: general market conditions, including fluctuations in charter rates and vessel values; changes in demand for and the supply of tanker vessel capacity; changes in the Company’s operating expenses, including bunker prices, drydocking and insurance costs; changes in the projections of spot and time charter or pool trading of the Company’s vessels; fluctuations in oil prices; the market for the Company’s vessels; competition in the tanker industry; availability and completion of financing and refinancing, the Company’s operating results and capital requirements and the declaration of any future dividends by the Company’s board of directors; charter counterparty performance; ability to obtain financing and comply with covenants in the Company’s financing arrangements; the strength of world economies and currencies; changes in governmental rules and regulations or actions taken by regulatory authorities; new or revised accounting pronouncements; general domestic and international political conditions; potential disruption of shipping routes due to accidents, piracy or political events; vessel breakdowns and instances of off-hires; the Company’s financial condition and liquidity; the duration and scope of the COVID-19 pandemic; the effect of the conflict between Russia and Ukraine on, among other things, oil demand, the Company’s business, financial condition and results of operations; and other factors. Please see the Company’s filings with the U.S. Securities and Exchange Commission, including the Company’s Form 20-F for the year ended December 31, 2021, for a more complete discussion of these and other risks and uncertainties. The Company cautions readers of this report not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to update or revise any forward-looking statements. These forward-looking statements are not guarantees of the Company’s future performance, and actual results and future developments may vary materially from those projected in the forward-looking statements.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ARDMORE SHIPPING CORPORATION | |
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Date: November 2, 2022 | By: | /s/ Bart Kelleher |
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| Bart Kelleher |
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| Chief Financial Officer |
ARDMORE SHIPPING CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited interim condensed consolidated financial statements and accompanying notes contained in this Report on Form 6-K and with our audited consolidated financial statements contained in “Item 18. Financial Statements” and “Item 5. Operating and Financial Review and Prospects” of our Annual Report on Form 20-F for the year ended December 31, 2021. The unaudited interim condensed consolidated financial statements included in this report have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements (“U.S. GAAP”) and are presented in U.S. dollars as at September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021. Unless the context otherwise requires, the terms “Ardmore,” the “Company”, “we,” “our” and “us” refer to Ardmore Shipping Corporation (NYSE: ASC) and its consolidated subsidiaries.
GENERAL
Ardmore owns and operates a fleet of Medium Range (“MR”) product and chemical tankers ranging from 25,000 to 50,000 deadweight tonnes (“Dwt”). We provide through our modern, fuel-efficient fleet of mid-size tankers, seaborne transportation of petroleum products and chemicals worldwide to oil majors, national oil companies, oil and chemical traders, and chemical companies. As at September 30, 2022, we had in operation 27 vessels (including five chartered-in vessels), including 21 MR tankers ranging from 45,000 Dwt to 49,999 Dwt (15 Eco-Design and six Eco-Mod) and six Eco-Design (IMO 2 product / chemical tankers) ranging from 25,000 Dwt to 37,800 Dwt. Since March 1, 2021, we have been commercially managing three of Carl Büttner's 24,000 Dwt chemical tankers.
We are strategically focused on modern, fuel-efficient, mid-size product and chemical tankers. We actively pursue opportunities to exploit the overlap we believe exists between the clean petroleum product (“CPP”) and chemical sectors in order to enhance earnings, and also seek to engage in more complex CPP trades, such as multi-grade and multi-port loading and discharging operations, where our knowledge of chemical operations is beneficial to our CPP customers.
Our fuel-efficient operations are designed to enhance our operating performance and provide value-added service to our customers. We believe we are at the forefront of fuel efficiency and emissions reduction trends and are well positioned to capitalize on these developments with our fleet of Eco-design and Eco-mod vessels. Our acquisition strategy includes to continue to build our fleet with Eco-design newbuilds or Eco-design second-hand vessels and with modern second-hand vessels that can be upgraded to Eco-mod.
We believe that the global energy transition will have a profound impact on the shipping industry, including the product and chemical tanker segments. While this transition will unfold over years, the impact is already being felt through anticipated Energy Efficiency Existing Ship Index and Carbon Intensity Indicator regulations and constraints on newbuilding ordering activity. We view energy transition as less of a compliance challenge and more of an opportunity, which we have set out in our Energy Transition Plan (“ETP”), which is posted on our website. We have established Ardmore Ventures as our holding company for existing and future potential investments related to the ETP and we completed our first projects under the plan in June 2021. The information in our ETP is not incorporated by reference into this Report.
We are an integrated shipping company. The majority of our fleet is technically managed by a combination of Ardmore Shipping Services (Ireland) Limited and Anglo Ardmore Ship Management Limited, a joint venture entity that is 50% owned by us, and we also retain a third-party technical manager for some of our vessels. We have a resolute focus on both high-quality service and efficient operations, and we believe that our corporate overhead and operating expenses are among the lowest of our peers.
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We are commercially independent, as we have no blanket employment arrangements with third-party or related-party commercial managers. Through our in-house chartering and commercial team, we market our services directly to a broad range of customers, including oil majors, national oil companies, oil and chemical traders, chemical companies, and pooling service providers. We monitor the tanker markets to understand how to best utilize our vessels and may change our chartering strategy to take advantage of changing market conditions.
As of September 30, 2022, our fleet consisted of the following 22 owned vessels, excluding five chartered-in vessels.
Vessel Name |
| Type |
| Dwt Tonnes |
| IMO |
| Built |
| Country |
| Flag |
| Specification |
Ardmore Seavaliant |
| Product/Chemical |
| 49,998 |
| 2/3 |
| Feb-13 |
| Korea |
| MI |
| Eco-design |
Ardmore Seaventure |
| Product/Chemical |
| 49,998 |
| 2/3 |
| Jun-13 |
| Korea |
| MI |
| Eco-design |
Ardmore Seavantage |
| Product/Chemical |
| 49,997 |
| 2/3 |
| Jan-14 |
| Korea |
| MI |
| Eco-design |
Ardmore Seavanguard |
| Product/Chemical |
| 49,998 |
| 2/3 |
| Feb-14 |
| Korea |
| MI |
| Eco-design |
Ardmore Sealion |
| Product/Chemical |
| 49,999 |
| 2/3 |
| May-15 |
| Korea |
| MI |
| Eco-design |
Ardmore Seafox |
| Product/Chemical |
| 49,999 |
| 2/3 |
| Jun-15 |
| Korea |
| MI |
| Eco-design |
Ardmore Seawolf |
| Product/Chemical |
| 49,999 |
| 2/3 |
| Aug-15 |
| Korea |
| MI |
| Eco-design |
Ardmore Seahawk |
| Product/Chemical |
| 49,999 |
| 2/3 |
| Nov-15 |
| Korea |
| MI |
| Eco-design |
Ardmore Endeavour |
| Product/Chemical |
| 49,997 |
| 2/3 |
| Jul-13 |
| Korea |
| MI |
| Eco-design |
Ardmore Enterprise |
| Product/Chemical |
| 49,453 |
| 2/3 |
| Sep-13 |
| Korea |
| MI |
| Eco-design |
Ardmore Endurance |
| Product/Chemical |
| 49,466 |
| 2/3 |
| Dec-13 |
| Korea |
| MI |
| Eco-design |
Ardmore Encounter |
| Product/Chemical |
| 49,478 |
| 2/3 |
| Jan-14 |
| Korea |
| MI |
| Eco-design |
Ardmore Explorer |
| Product/Chemical |
| 49,494 |
| 2/3 |
| Jan-14 |
| Korea |
| MI |
| Eco-design |
Ardmore Exporter |
| Product/Chemical |
| 49,466 |
| 2/3 |
| Feb-14 |
| Korea |
| MI |
| Eco-design |
Ardmore Engineer |
| Product/Chemical |
| 49,420 |
| 2/3 |
| Mar-14 |
| Korea |
| MI |
| Eco-design |
Ardmore Seafarer | | Product | | 49,999 | | — | | Jun-10 |
| Japan |
| SG |
| Eco-mod |
Ardmore Dauntless |
| Product/Chemical |
| 37,764 |
| 2 |
| Feb-15 |
| Japan |
| MI |
| Eco-design |
Ardmore Defender |
| Product/Chemical |
| 37,791 |
| 2 |
| Feb-15 |
| Japan |
| MI |
| Eco-design |
Ardmore Cherokee |
| Product/Chemical |
| 25,215 |
| 2 |
| Jan-15 |
| Japan |
| MI |
| Eco-design |
Ardmore Cheyenne |
| Product/Chemical |
| 25,217 |
| 2 |
| Mar-15 |
| Japan |
| MI |
| Eco-design |
Ardmore Chinook |
| Product/Chemical |
| 25,217 |
| 2 |
| Jul-15 |
| Japan |
| MI |
| Eco-design |
Ardmore Chippewa |
| Product/Chemical |
| 25,217 |
| 2 |
| Nov-15 |
| Japan |
| MI |
| Eco-design |
Total |
| 22 |
| 973,181 |
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SIGNIFICANT DEVELOPMENTS
Financing
We completed the refinancing of 19 vessels into our new sustainability-linked senior loan facilities, including five vessels previously financed under lease arrangements for which we exercised purchase options in October 2022. We expect this will substantially reduce our interest cost and provide for significant flexibility and we have extended maturities through to mid-2027. As a result of the refinancing, as of November 2, 2022, 20 of our 22 owned vessels are financed through senior loan facilities with two vessels remaining under finance lease arrangements.
We issued 2.0 million shares of its common stock, raising $18.7 million in net proceeds under our “at-the-market” offering from July 29, 2022 to September 12, 2022, the proceeds of which were used for general corporate purposes including debt reduction.
Vessel Sale and Time-charter Back
On July 14 and July 29, 2022, we completed the previously announced sales of the Ardmore Sealifter and the Ardmore Sealancer to Leonhardt & Blumberg, respectively. Both vessels were subsequently time-chartered back by the Company for a period of 24 months at attractive hire rates, plus one-year extension options.
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Capital Allocation Policy, Including Dividends
As announced separately today, commencing with our performance for the quarter ending December 31, 2022, we intend to pay a quarterly cash dividend. The declaration and payment of dividends is subject to the discretion of our Board of Directors.
Audit Committee Changes
We are announcing today that director Helen Tveitan de Jong has been appointed as Audit Committee Chair, being joined by new Audit Committee member, director Mats Berglund, and standing member Curtis Mc Williams. Helen has extensive financial and accounting experience over her 30 year career in shipping, has been a member of the Audit Committee since September 2018, and is replacing Brian Dunne, who has chosen to step down from the Board for personal reasons. Ardmore has benefited greatly from Brian’s skills and expertise and the Board expresses its sincere thanks to him for his many years of exemplary service and collegiality on the Board and as the Audit Committee Chair.
New CFO
As announced previously, effective September 28, 2022, Bart Kelleher became our new Chief Financial Officer
Conflict in Ukraine
Russia’s invasion of Ukraine in February 2022 has disrupted supply chains and caused instability and significant volatility in the global economy. Much uncertainty remains regarding the global impact of the conflict in Ukraine, and it is possible that such instability, uncertainty and resulting volatility could significantly increase our costs and adversely affect our business, including our ability to secure charters and financing on attractive terms.
As a result of Russia’s invasion of Ukraine, the United States, several European Union nations, the United Kingdom and other countries have announced unprecedented sanctions and other measures against Russia, Belarus and certain Russian and Belarussian entities and nationals.
The sanctions announced by the U.S. and other countries against Russia and, in some instances, Belarus include, among others, restrictions on selling or importing goods, services or technology in or from affected regions, travel bans and asset freezes impacting connected individuals and political, military, business and financial organizations in Russia, severing large Russian banks from U.S. and/or other financial systems, and barring some Russian enterprises from raising money in the U.S. market. The U.S. also banned the import of certain Russian energy products into the U.S., including crude oil, petroleum, petroleum fuels, oils, liquefied natural gas and coal.
The U.S., EU nations and other countries could impose wider sanctions and take other actions. While it is difficult to anticipate the impact the sanctions announced to date may have on our business and us, these and any further sanctions imposed or actions taken by the U.S., EU nations or other countries, and any 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.
COVID-19
In response to the COVID-19 pandemic, many countries, ports and organizations, including those where Ardmore conducts a large part of its operations, have implemented measures to combat the outbreak, such as quarantines and travel restrictions. Such measures have caused severe trade disruptions. In addition, the pandemic initially resulted and may again result in a significant decline in global demand for refined oil products.
As Ardmore’s business is the transportation of refined oil products on behalf of oil majors, oil traders and other customers, any significant decrease in demand for the cargo Ardmore transports has and could continue to adversely affect demand for its vessels and services.
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The extent to which the pandemic may impact Ardmore’s results of operations and financial condition, including possible impairments, depends on future developments, which are highly uncertain and cannot be predicted, including, among others, new information which may emerge concerning the virus and its variants and the level of the effectiveness and administration of vaccines and other actions to contain or treat its impact. Accordingly, an estimate of the impact of the COVID-19 pandemic on Ardmore cannot be made at this time.
RESULTS OF OPERATIONS
Factors You Should Consider When Evaluating Our Results
There are a number of factors that should be considered when evaluating our historical financial performance and assessing our future prospects and we use a variety of financial and operational terms and concepts when analyzing our results of operations. Please read “Item 5. Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2021 for additional information.
In accordance with U.S. GAAP, we report gross revenues in our condensed statements of operations and report voyage expenses separately. Ship-owners base economic decisions regarding the deployment of their vessels upon actual and anticipated time charter equivalent, or TCE rates (which represent net revenues divided by revenue days) and industry analysts typically measure rates in terms of TCE rates. This is because under time charters the customer typically pays the voyage expenses, while under voyage charters, also known as spot market charters, the shipowner usually pays the voyage expenses. Accordingly, the discussion of revenue below focuses on TCE rates where applicable, as TCE provides meaningful information in conjunction with shipping revenues, the most directly comparable GAAP measure, because it allows the Company to evaluate its revenue on a consistent basis, regardless over whether the Company chooses to employ its vessels on voyage charters or time charters. The Company’s calculation of TCE may not be comparable to that reported by other companies. Net revenues, a non-U.S. GAAP financial measure, represents revenues less voyage expenses. Voyage expenses are all expenses related to a particular voyage, which include, among other things, bunkers and port/canal costs. Net revenue utilized to calculate TCE is determined on a discharge to discharge basis, which is different from how we record revenue under U.S. GAAP. Under discharge to discharge, revenue is recognized beginning from the discharge of cargo from the prior voyage to the anticipated discharge of cargo in the current voyage, and voyage expenses are recognized as incurred.
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Statement of Operations for the Three Months Ended September 30, 2022 and September 30, 2021
The following table presents our operating results for the three months ended September 30, 2022 and September 30, 2021.
| | Three Months Ended | |
| | | | ||||
In thousands of U.S. Dollars |
| September 30, 2022 |
| September 30, 2021 |
| Variance |
| Variance (%) | |||
Revenue, net | | $ | 142,417 | | | 47,200 | | | 95,217 | | 202% |
| | | | | | | | | | | |
Voyage expenses | |
| (45,970) | | | (23,101) | | | (22,869) | | (99%) |
Vessel operating expenses | |
| (13,316) | | | (15,453) | | | 2,137 | | 14% |
Time charter-in | | | | | | | | | | | |
Operating expense component | | | (2,320) | | | (1,188) | | | (1,132) | | (95%) |
Vessel lease expense component | | | (2,135) | | | (1,093) | | | (1,042) | | (95%) |
Depreciation | |
| (7,253) | | | (7,978) | | | 725 | | 9% |
Amortization of deferred drydock expenditures | |
| (1,006) | | | (1,134) | | | 128 | | 11% |
General and administrative expenses | |
| | | | | | | | | |
Corporate | |
| (5,830) | | | (4,294) | | | (1,536) | | (36%) |
Commercial and chartering | |
| (919) | | | (750) | | | (169) | | (23%) |
Unrealized gains / (losses) on derivatives | | | 3,364 | | | (25) | | | 3,389 | | - |
Interest expense and finance costs | |
| (5,159) | | | (4,383) | | | (776) | | (18%) |
Interest income | |
| 191 | | | 9 | | | 182 | | - |
Income / (Loss) before taxes | |
| 62,064 | | | (12,190) | | | 74,254 | | 609% |
Income tax | |
| (27) | | | (45) | | | 18 | | 40% |
Loss from equity method investments | | | (205) | | | (59) | | | (146) | | (100%) |
Net Income / (Loss) | | $ | 61,832 | | | (12,294) | | | 74,126 | | 603% |
Preferred dividend | | | (857) | | | (536) | | | (321) | | (60%) |
Net Income / (Loss) attributable to common stockholders | | $ | 60,975 | | | (12,830) | | | 73,805 | | 575% |
Revenue. Revenue for the three months ended September 30, 2022, was $142.4 million, an increase of $95.2 million from $47.2 million for the three months ended September 30, 2021. Our average number of operating vessels was 27.0 for the three months ended September 30, 2022, consistent with 27.0 for the three months ended September 30, 2021.
We had one product tanker employed under time charter as at September 30, 2022 as compared with four as at September 30, 2021. Revenue days derived from time charters were 92 for the three months ended September 30, 2022, as compared to 362 for the three months ended September 30, 2021. The decrease in revenue days for time-chartered vessels resulted in a decrease in revenue of $3.6 million.
We had 2,374 spot revenue days for the three months ended September 30, 2022, as compared to 2,024 for the three months ended September 30, 2021. We had 26 and 23 vessels employed directly in the spot market as at September 30, 2022 and 2021, respectively. The increase in spot revenue days resulted in an increase in revenue of $7.3 million, while changes in spot rates resulted in an increase in revenue of $91.4 million for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.
Voyage Expenses. Voyage expenses were $46.0 million for the three months ended September 30, 2022, an increase of $22.9 million from $23.1 million for the three months ended September 30, 2021. An increase in bunker prices resulted in an increase of $18.9 million and an increase in spot revenue days resulted in an increase in port and agency expenses plus commission costs, of $4.0 million for the three months ended September 30, 2022 compared with the three months ended September 30, 2021.
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TCE Rate. The average TCE rate for our fleet was $40,308 per day for the three months ended September 30, 2022, an increase of $29,989 per day from $10,319 per day for the three months ended September 30, 2021. The increase in average TCE rate was primarily the result of higher spot rates for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, which was partially offset by an increase in bunker prices. TCE rates represent net revenues (or revenue less voyage expenses) divided by revenue days. Net revenue utilized to calculate TCE is determined on a discharge to discharge basis, which is different from how we record revenue under U.S. GAAP.
Vessel Operating Expenses. Vessel operating expenses were $13.3 million for the three months ended September 30, 2022, a decrease of $2.2 million from $15.5 million for the three months ended September 30, 2021. This decrease was primarily attributable to the completion of the sales of the Ardmore Sealeader, Ardmore Sealifter and Ardmore Sealancer earlier in 2022. This decrease can also be attributed to the timing of vessel operating expenses between quarters. Vessel operating expenses, by their nature, are prone to fluctuations between periods.
Charter Hire Costs. Total charter hire expenses were $4.5 million for the three months ended September 30, 2022 an increase of $2.2 million from $2.3 million for the three months ended September 30, 2021. This increase is the result of the Company having five vessels chartered-in for the three months ended September 30, 2022 compared to two vessels for the three months ended September 30, 2021. Total charter hire expenses in the third quarter of 2022 were comprised of an operating expense component of $2.3 million and a vessel lease expense component of $2.2 million.
Depreciation. Depreciation expense for the three months ended September 30, 2022, was $7.3 million, a decrease of $0.7 million from $8.0 million for the three months ended September 30, 2021. This decrease is a result of the sale of one vessel in June 2022, and two additional vessels in July 2022. All three vessels were classified as held for sale up until their respective disposal dates. We ceased depreciating these three vessels, when they were classified as held for sale, during the first quarter of 2022.
Amortization of Deferred Drydock Expenditures. Amortization of deferred drydock expenditures for the three months ended September 30, 2022 was $1.0 million, a decrease of $0.1 million from $1.1 million for the three months ended September 30, 2021. The deferred costs of drydockings for a given vessel are amortized on a straight-line basis to the next scheduled drydocking of the vessel.
General and Administrative Expenses: Corporate. Corporate-related general and administrative expenses for the three months ended September 30, 2022 were $5.8 million, an increase of $1.5 million from $4.3 million for the three months ended September 30, 2021. The increase in costs was primarily due to one-off costs during the three months ended September 30, 2022, that aren’t expected to reoccur, compared to the three months ended September 30, 2021.
General and Administrative Expenses: Commercial and Chartering. Commercial and chartering expenses are the expenses attributable to our chartering and commercial operations departments in connection with our spot trading activities. Commercial and chartering expenses for the three months ended September 30, 2022 were $0.9 million, an increase of $0.1 million from $0.8 million for the three months ended September 30, 2021. The increase in costs was primarily due to an increase in travel-related costs during the three months ended September 30, 2022 compared to the three months ended September 30, 2021.
Unrealized Gain / (Loss) on Derivatives: Unrealized gain on derivatives was $3.4 million for the three months ended September 30, 2022, an increase of $3.4 million from an unrealized gain of $nil for the three months ended September 30, 2021. The increase is primarily due to the accelerated reclassification of $2.1 million from other comprehensive income into earnings. As further discussed in Note 5 (“Interest Rate Swaps”) to our interim condensed consolidated financial statements included in this Report on Form 6-K, the reclassification was triggered by the refinancing of our debt agreements and paying down our revolving credit facility, which caused the forecasted transactions that the interest rate swaps were designated to hedge against no longer being probable to occur. The unrealized gain on derivatives was also impacted by the increase in the value of the interest rate swaps that have not been designated as hedging instruments because of rising interest rates during the nine months ended September 30, 2022, which are recognized directly into earnings.
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Interest Expense and Finance Costs. Interest expense and finance costs for the three months ended September 30, 2022 were $5.2 million, an increase of $0.8 million from $4.4 million for the three months ended September 30, 2021. This is due to the costs incurred upon the early termination of our finance leases. Amortization of deferred finance fees for the three months ended September 30, 2022 was $1.0 million, an increase of $0.6 million from $0.4 million for the three months ended September 30, 2021 as a result of deferred finance fees of $0.6 million being written off following the prepayment of the debt related to the exercises of the purchase options.
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Statement of Operations for the Nine Months Ended September 30, 2022 and September 30, 2021
The following table presents our operating results for the nine months ended September 30, 2022 and September 30, 2021.
| | Nine Months Ended | |
| | | | ||||
In thousands of U.S Dollars |
| September 30, 2022 |
| September 30, 2021 |
| Variance |
| Variance (%) | |||
Revenue, net | | $ | 312,910 | | | 140,025 | | | 172,885 | | 123% |
| | | | | | | | | | | |
Voyage expenses | |
| (114,223) | | | (63,986) | | | (50,237) | | (79%) |
Vessel operating expenses | |
| (45,846) | | | (45,033) | | | (813) | | (2%) |
Time charter-in | | | | | | | | | | | |
Operating expense component | | | (4,664) | | | (2,523) | | | (2,140) | | (85%) |
Vessel lease expense component | | | (4,291) | | | (2,322) | | | (1,970) | | (85%) |
Depreciation | |
| (22,025) | | | (23,694) | | | 1,669 | | 7% |
Amortization of deferred drydock expenditures | |
| (3,162) | | | (3,884) | | | 722 | | 19% |
General and administrative expenses | |
| | | | | | |
| | |
Corporate | |
| (14,588) | | | (12,730) | | | (1,858) | | (15%) |
Commercial and chartering | |
| (2,863) | | | (2,197) | | | (666) | | (30%) |
Loss on vessels sold | |
| (6,917) | | | — | | | (6,917) | | 100% |
Unrealized gains on derivatives | | | 4,264 | | | 55 | | | 4,209 | | - |
Interest expense and finance costs | |
| (14,190) | | | (12,471) | | | (1,719) | | (14%) |
Interest income | |
| 221 | | | 39 | | | 182 | | - |
Income / (Loss) before taxes | |
| 84,626 | | | (28,721) | | | 113,347 | | (395%) |
Income tax | |
| (72) | | | (136) | | | 65 | | 48% |
Loss from equity method investments | | | (36) | | | (59) | | | 23 | | (100%) |
Net Income / (Loss) | | $ | 84,518 | | | (28,916) | | | 113,434 | | (392%) |
Preferred dividend | | | (2,543) | | | (617) | | | (1,926) | | (312%) |
Net Income / (Loss) attributable to common stockholders | | $ | 81,975 | | | (29,533) | | | 111,508 | | (378%) |
Revenue. Revenue for the nine months ended September 30, 2022 was $312.9 million, an increase of $172.9 million from $140.0 million for the nine months ended September 30, 2021.
Our average number of operating vessels increased to 27.0 for the nine months ended September 30, 2022, from 26.4 for the nine months ended September 30, 2021.
We had one product tanker employed under time charter as at September 30, 2022 compared with four as at September 30, 2021. Revenue days derived from time charters were 445 for the nine months ended September 30, 2022, as compared to 911 for the nine months ended September 30, 2021. The decrease in revenue days for time-chartered vessels resulted in a decrease in revenue of $5.7 million.
We had 6,846 spot revenue days for the nine months ended September 30, 2022, as compared to 6,126 for the nine months ended September 30, 2021. We had 26 and 23 vessels employed directly in the spot market as at September 30, 2022 and September 30, 2021, respectively. Changes in spot rates resulted in an increase in revenue of $163.6 million and the increase in spot revenue days resulted in an increase in revenue of $15.0 million for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.
Voyage Expenses. Voyage expenses were $114.2 million for the nine months ended September 30, 2022, an increase of $50.2 million from $64.0 million for the nine months ended September 30, 2021. An increase in bunker prices resulted in an increase of $42.7 million and an increase in spot revenue days resulted in an increase in port and agency expenses plus commission costs, of $7.5 million for the nine months ended September 30, 2022.
8
TCE Rate. The average TCE rate for our fleet was $27,895 per day for the nine months ended September 30, 2022, an increase of $16,742 per day from $11,153 per day for the nine months ended September 30, 2021. The increase in average TCE rate was the result of higher spot rates for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. TCE rates represent net revenues (or revenue less voyage expenses) divided by revenue days. Net revenue utilized to calculate TCE is determined on a discharge to discharge basis, which is different from how we record revenue under U.S. GAAP.
Vessel Operating Expenses. Vessel operating expenses were $45.8 million for the nine months ended September 30, 2022, an increase of $0.8 million from $45.0 million for the nine months ended September 30, 2021. Vessel operating expenses, by their nature, are prone to fluctuations between periods. Average fleet operating expenses per day, including technical management fees, were $6,792 per vessel for the nine months ended September 30, 2022, as compared to $6,370 per vessel for the nine months ended September 30, 2021. This increase was a result of higher costs due to additional crew changes, as well as an overall increase in costs due to inflation, together with lower operating days due to the sale of three vessels during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.
Charter Hire Costs. Total charter hire expenses were $9.0 million for the nine months ended September 30, 2022, an increase of $6.4 million from $2.6 million for the nine months ended September 30, 2021. This increase was a result of our having five vessels chartered in as at September 30, 2022 compared with two vessels chartered-in as at September 30, 2021. Total charter-hire expenses were comprised of an operating expense component of $4.7 million and a vessel lease expense component of $4.3 million for the nine months ended September 30, 2022.
Depreciation. Depreciation expense for the nine months ended September 30, 2022 was $22.0 million, a decrease of $1.7 million from $23.7 million for the nine months ended September 30, 2021. This decrease is a result of the sale of one vessel in June 2022, and two additional vessels in July 2022. All three vessels were classified as held for sale up until their respective disposal dates. We ceased depreciating these three vessels, when they were classified as held for sale, during the first quarter of 2022.
Amortization of Deferred Drydock Expenditures. Amortization of deferred drydock expenditures for the nine months ended September 30, 2022 was $3.2 million, a decrease of $0.7 million from $3.9 million for the nine months ended September 30, 2021. The deferred costs of drydockings for a given vessel are amortized on a straight-line basis to the next scheduled drydocking of the vessel.
General and Administrative Expenses: Corporate. Corporate-related general and administrative expenses for the nine months ended September 30, 2022 were $14.6 million, an increase of $1.9 million from $12.7 million for the nine months ended September 30, 2021. The increase in costs was primarily due to one-off costs during the nine months ended September 30, 2022, that aren’t expected to reoccur, compared to the nine months ended September 30, 2021.
General and Administrative Expenses: Commercial and Chartering. Commercial and chartering expenses for the nine months ended September 30, 2022 were $2.9 million, an increase of $0.7 million from $2.2 million for the nine months ended September 30, 2021. The increase in costs was primarily due to an increase in travel-related costs during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.
Unrealized Gain on Derivatives: Unrealized gain on derivatives was $4.3 million for the nine months ended September 30, 2022, an increase of $4.2 million from $0.1 million for the nine months ended September 30, 2021. The increase is due to the accelerated reclassification of $2.1 million from other comprehensive income into earnings. As further discussed in Note 5 (“Interest Rate Swaps”) to our interim condensed consolidated financial statements included in this Report on Form 6-K, the reclassification was triggered by the refinancing of our debt agreements and paying down our revolving credit facility, which caused the forecasted transactions that the interest rate swaps were designated to hedge against no longer being probable to occur The unrealized gain on derivatives was also impacted by the increase in the value of the interest rate swaps, that have not been designated as hedging instruments, because of rising interest rates during the nine months ended September 30, 2022, which are recognized directly into earnings.
9
Interest Expense and Finance Costs. Interest expense and finance costs for the nine months ended September 30, 2022 were $14.2 million, an increase of $1.7 million from $12.5 million for the nine months ended September 30, 2021. This is due to the costs incurred upon the early termination of our finance leases. Amortization of deferred finance fees for the nine months ended September 30, 2022 was $1.8 million, consistent with $1.8 million for the nine months ended September 30, 2021.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash and cash equivalents, cash flows provided by our operations, our undrawn credit facilities and capital raised through debt and equity financing transactions. As at September 30, 2022, we had $191.2 million in liquidity available with cash and cash equivalents of $50.6 million (December 31, 2021: $55.4 million) and amounts available and undrawn under our revolving credit facilities of $140.6 million (December 31, 2021: $11.6 million). We believe that our working capital, together with expected cash flows from operations, will be sufficient for our present requirements.
Our short-term liquidity requirements include the payment of operating expenses (including voyage expenses and bunkers from spot chartering our vessels), drydocking expenditures, debt servicing costs, lease payments, quarterly preferred stock dividends, interest rate swap settlements, any dividends on our shares of common stock, scheduled repayments of long-term debt, as well as funding our other working capital requirements. Our short-term and spot charters contribute to the volatility of our net operating cash flow, and thus our ability to generate sufficient cash flows to meet our short-term liquidity needs. Historically, the tanker industry has been cyclical, experiencing volatility in profitability and asset values resulting from changes in the supply of, and demand for, vessel capacity. In addition, tanker spot markets historically have exhibited seasonal variations in charter rates. Tanker spot markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere and unpredictable weather patterns that tend to disrupt vessel scheduling. Time charters provide contracted revenue that may reduce the volatility (as rates can fluctuate within months) and seasonality from revenue generated by vessels that operate in the spot market. Spot charters preserve flexibility to take advantage of increasing rate environments, but also expose the ship-owner to decreasing rate environments. Variability in our net operating cash flow also reflects changes in interest rates, fluctuations in working capital balances, the timing and the amount of drydocking expenditures, repairs and maintenance activities and the average number of vessels in service. The number of vessel dry dockings tends to vary each period depending on the vessel's maintenance schedule and required maintenance.
Our long-term capital needs are primarily for capital expenditures and debt repayment and finance lease payments. Generally, we expect that our long-term sources of funds will be cash balances, long-term bank borrowings, finance leases and other debt or equity financings. We expect that we will rely upon internal and external financing sources, including, cash balances, bank borrowings, lease financings and the issuance of debt and equity securities, to fund vessel acquisitions or newbuildings and expansion capital expenditures.
Our credit facilities and finance leases are described in Notes 3 (“Debt”) and 4 (“Leases”), respectively, to our interim condensed consolidated financial statements included in this Report on Form 6-K. Our financing facilities contain covenants and other restrictions we believe are typical of debt financing collateralized by vessels, including those that restrict the relevant subsidiaries from incurring or guaranteeing additional indebtedness, granting certain liens, and selling, transferring, assigning or conveying assets. The majority of our financing facilities do not impose a restriction on dividends, distributions, or returns of capital unless an event of default has occurred, is continuing or will result from such payment. Our financing facilities require us to maintain various financial covenants. Should we not meet these financial covenants or other covenants, the lenders may declare our obligations under the applicable agreements immediately due and payable, and terminate any further loan commitments, which would significantly affect our short-term liquidity requirements. As at September 30, 2022, we were in compliance with all covenants relating to our financing facilities.
10
CASH FLOW DATA
Cash Flow Data for the Nine Months Ended September 30, 2022 and September 30, 2021
|
| Nine Months Ended | ||||
CASH FLOW DATA | | September 30, 2022 |
| September 30, 2021 | ||
Net cash provided by / (used in) operating activities | | $ | 63,466 | | | (2,248) |
Net cash provided by investing activities | | $ | 37,659 | | | 2,500 |
Net cash (used in) financing activities | | $ | (105,952) | | | (4,141) |
Cash provided by / (used in) operating activities
For the nine months ended September 30, 2022, net cash provided by operating activities was $63.5 million. Net income of $84.5 million was driven by a significant increase in TCE rates, which was partially offset by an increase in receivables of $45.2 million due to the increase in TCE rates and an increase in inventories resulting from higher bunker prices. For the nine months ended September 30, 2021, net cash used in operating activities was $2.2 million. Net loss of $28.9 million for that period was due to poor market conditions, together with non-cash items such as depreciation of $23.7 million and amortization of $3.9 million.
Cash provided by investing activities
For the nine months ended September 30, 2022, net cash provided by investing activities was $37.7 million, with proceeds received from the sales of the Ardmore Sealeader, Ardmore Sealifter, and Ardmore Sealancer of $39.9 million, as well as payments in relation to vessel equipment, advances for ballast water treatment systems and other non-current assets of $2.2 million. For the nine months ended September 30, 2021, net cash provided by investing activities was $2.5 million, with proceeds from the sale of the Ardmore Seamariner in January 2021 of $9.9 million partially offset by payments made for the Element 1 Corp. investments and related transaction costs of $5.1 million as well as payments in relation to vessel equipment, advances for ballast water treatment systems and other non-current assets of $2.2 million.
Cash (used in) financing activities
For the nine months ended September 30, 2022, the net cash used in financing activities was $106.0 million. Advance payments of $84.7 million were made against the lease obligations relating to four vessels that were previously financed by leases. Proceeds from debt were $96.0 million. Repayments of debt amounted to $138.1 million and total principal repayments of finance lease arrangements were $12.3 million. Proceeds from the issuance of common stock pursuant to our “at-the-market” offerings were $39.0 million. Payment of preferred stock dividends was $2.4 million. Payments of deferred finance fees were $3.4 million. For the nine months ended September 30, 2021, the net cash used in financing activities was $4.1 million. Repayments of debt amounted to $60.3 million and total principal repayments of finance lease arrangements were $14.7 million. Net proceeds from the issue of preferred stock were $23.0 million and proceeds from finance lease arrangements were $49.0 million. Payments of preferred stock dividends were $0.3 million.
11
CAPITAL EXPENDITURES
Drydock
The drydocking schedule for our vessels that were in operation as of September 30, 2022 is as follows:
|
| For the Years Ending December 31, | ||||||
|
| 2022(1) |
| 2023 |
| 2024 |
| 2025 |
Number of vessels in drydock (excluding in-water surveys) | | 1 | | 7 | | 3 | | 13 |
We endeavor to manage the timing of future dockings across the fleet in order to minimize the number of vessels that are drydocked at any one time. As our fleet matures, our drydock expenses are likely to increase and are also likely to be impacted by inflation.
(1) Includes one drydocking due to commence in the fourth quarter of 2022.
Ballast Water Treatment Systems Installation
The installation schedule for ballast water treatment systems on our vessels that were in operation as of September 30, 2022 is as follows:
|
| For the Years Ending December 31, | ||||||
|
| 2022(1) |
| 2023 |
| 2024 |
| 2025 |
Number of ballast water treatment system installations | | 1 | | 7 | | 3 | | — |
Ballast water treatment system installations are timed to coincide with the drydock schedule.
(1) Includes one ballast water treatment system due to be installed in the fourth quarter of 2022.
12
CRITICAL ACCOUNTING ESTIMATES
We prepare our financial statements in accordance with U.S. GAAP, which require us to make estimates in the application of our accounting policies based on our best assumptions, judgments and opinions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ materially from our assumptions and estimates. Accounting estimates and assumptions that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties are discussed in “Item 5. Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2021. There have been no significant changes to these estimates and assumptions in the three and nine months ended September 30, 2022.
DISCLOSURES ABOUT MARKET RISK
In addition to the risks set forth below, you should carefully consider the risk factors discussed in “Item 3. Key Information – D. Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2021, regarding risks which could materially affect our business, financial condition and results of operations.
Operational Risk
We are exposed to operating costs arising from various vessel operations. Key areas of operating risk include drydock, repair costs, insurance, piracy and fuel prices. Our risk management includes various strategies for technical management of drydock and repairs coordinated with a focus on measuring cost and quality. Our relatively young fleet helps to minimize the risk. Given the potential for accidents and other incidents that may occur in vessel operations, the fleet is insured against various types of risk. We have established a set of countermeasures in order to minimize the risk of piracy attacks during voyages, particularly through regions which the Joint War Committee or our insurers consider high risk, or which they recommend monitoring, to make the navigation safer for sea staff and to protect our assets. The price and supply of fuel is unpredictable and can fluctuate from time to time. We periodically consider and monitor the need for fuel hedging to manage this risk. We are also subject to operational risks relating to COVID-19 as described in the “Significant Developments” section of this report.
Foreign Exchange Risk
The majority of our transactions, assets and liabilities are denominated in U.S. Dollars, our functional currency. We incur certain general and operating expenses in other currencies (primarily the Euro, Singapore Dollar, and Pounds Sterling) and, as a result, there is a risk that currency fluctuations may have a negative effect on the value of our cash flows. Such risk may also have an adverse effect on our financial condition and results of operations. We believe these adverse effects to be immaterial and we have not entered into any derivative contracts to manage foreign exchange risk during the three and nine months ended September 30, 2022.
Interest Rate Risk
We are exposed to the impact of interest rate changes, primarily through borrowings that require us to make interest payments based on SOFR and LIBOR. Significant increases in interest rates could adversely affect our results of operations and our ability to repay debt. We regularly monitor interest rate exposure and enter into swap arrangements to hedge exposure where it is considered economically advantageous to do so.
We are exposed to the risk of credit loss in the event of non-performance by the counterparties to the interest rate swap agreements. In order to minimize counterparty risk, we have only entered into derivative transactions with investment grade counterparties at the time of the transactions. In addition, to the extent possible and practical, interest rate swaps are entered into with different counterparties to reduce concentration risk.
13
During the three months ended June 30, 2020, we entered into floating-to-fixed interest rate swap agreements over a three-year term with multiple counterparties. In accordance with these transactions, we will pay an average fixed-rate interest amount of 0.32% and will receive floating rate interest amounts based on LIBOR. These interest rate swaps have a total notional amount of $237.9 million of which $73.6 million are currently designated as cash flow hedges. The swaps are due to expire in mid-2023 and as interest rates are currently rising, interest costs could increase significantly on expiration of the swaps.
LIBOR is scheduled to be phased out by June 30, 2023. During the three months ended September 30, 2022, we entered into new financing arrangements with ABN AMRO and CACIB and with Nordea/SEB. These new facilities are priced at the Adjusted Secured Overnight Financing Rate (SOFR), which tracks the cost of funds in the overnight Treasury repo market and has been chosen to replace LIBOR in the US. Interest on these facilities will be paid from the fourth quarter of 2022 onwards.
For additional information related to the phase out of LIBOR, please see the risk factor entitled “There is uncertainty as to the continued use of LIBOR in the future, and the interest rates on our LIBOR-based obligations may increase in the future” included in Item 3.D (Key Information--Risk Factors) in our Annual Report on Form 20-F for the year ended December 31, 2021.
Liquidity Risk
Our principal objective in relation to liquidity is to ensure that we have access at minimum cost to sufficient liquidity to enable us to meet our obligations as they come due and to provide adequately for contingencies. Our policy is to manage our liquidity by forecasting of cash flows arising from or expense relating to spot voyage revenue, time charter revenue, pool revenue, vessel operating expenses, general and administrative overhead and servicing of debt.
Credit Risk
There is a concentration of credit risk with respect to our cash and cash equivalents to the extent that substantially all of the amounts are held in ABN AMRO and Nordea, and in short-term funds (with a credit risk rating of at least AA) managed by BlackRock State Street Global Advisors and JPMorgan Asset Management. While we believe this risk of loss is low, we intend to review and revise our policy for managing cash and cash equivalents if considered prudent to do so.
We limit our credit risk with trade accounts receivable by performing ongoing credit evaluations of our customers’ financial condition. We generally do not require collateral for our trade accounts receivable.
We may be exposed to a credit risk in relation to vessel employment and at times may have multiple vessels employed by one charterer. We consider and evaluate concentration of credit risk regularly and perform on-going evaluations of these charterers for credit risk, including credit concentration risk. As at September 30, 2022, our 27 vessels in operation (including five chartered-in vessels) were employed with 13 different charterers.
Inflation
With inflation becoming a significant factor in the global economy, inflationary pressures are expected to result in increased operating, voyage (including bunkers) and general and administrative costs. Inflationary pressures on bunker costs could adversely affect our operating results to the extent our spot charter rates do not adequately cover the cost of any increases in bunker costs.
14
Ardmore Shipping Corporation
INDEX TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
| Page |
F-2 | ||
F-3 | ||
F-4 | ||
F-5 | ||
F-6 | ||
Notes to the Unaudited Interim Condensed Consolidated Financial Statements | F-7 |
F-1
Ardmore Shipping Corporation
Unaudited Interim Condensed Consolidated Balance Sheets
As at September 30, 2022 and December 31, 2021
|
| As at | ||
In thousands of U.S. Dollars, except as indicated |
| September 30, 2022 |
| December 31, 2021 |
ASSETS |
|
|
|
|
Current assets | |
|
|
|
Cash and cash equivalents | | |
| |
Receivables, net of allowance for bad debts of $ | | |
| |
Prepaid expenses and other assets | | |
| |
Advances and deposits | | |
| |
Inventories | | |
| |
Current portion of derivative assets | | | | |
Total current assets | | |
| |
| | |
| |
Non-current assets | | |
| |
Investments and other assets, net | | | | |
Vessels and vessel equipment, net | | |
| |
Deferred drydock expenditures, net | | |
| |
Advances for ballast water treatment systems | | |
| |
Amount receivable in respect of finance leases | | |
| |
Deferred finance fees, net | | | | |
Non-current portion of derivative assets | | | | |
Operating lease, right-of-use asset | | |
| |
Total non-current assets | | |
| |
| | |
| |
TOTAL ASSETS | | |
| |
| | |
| |
LIABILITIES, REDEEMABLE PREFERRED STOCK AND EQUITY | | |
| |
Current liabilities | | |
| |
Accounts payable | | |
| |
Accrued expenses and other liabilities | | |
| |
Deferred revenue | | |
| |
Accrued interest on debt and finance leases | | |
| |
Current portion of long-term debt | | |
| |
Current portion of finance lease obligations | | |
| |
Current portion of operating lease obligations | | |
| |
Total current liabilities | | |
| |
| | |
| |
Non-current liabilities | | |
| |
Non-current portion of long-term debt | | |
| |
Non-current portion of finance lease obligations | | |
| |
Non-current portion of operating lease obligations | | |
| |
Other non-current liabilities | | | | |
Total non-current liabilities | | |
| |
| | | | |
TOTAL LIABILITIES | | | | |
| | | | |
Redeemable Preferred Stock | | | | |
Cumulative Series A | | |
| |
Total redeemable preferred stock | | | | |
| | | | |
Stockholders' equity | | |
| |
Common stock | | |
| |
Additional paid in capital | | |
| |
Accumulated other comprehensive income | | |
| |
Treasury stock | | ( |
| ( |
Accumulated deficit | | ( |
| ( |
Total stockholders' equity | | |
| |
| | | | |
Total redeemable preferred stock and stockholders’ equity | | | | |
| | |
| |
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND EQUITY | | |
| |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F-2
Ardmore Shipping Corporation
Unaudited Interim Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2022 and September 30, 2021
|
| Three Months Ended |
| Nine Months Ended | ||||
In thousands of U.S. Dollars except share data |
| September 30, 2022 |
| September 30, 2021 |
| September 30, 2022 |
| September 30, 2021 |
Revenue, net |
| |
| |
| |
| |
|
| |
| |
| |
| |
Voyage expenses |
| ( |
| ( |
| ( |
| ( |
Vessel operating expenses |
| ( |
| ( |
| ( |
| ( |
Time charter-in | | | | |
| |
| |
Operating expense component | | ( |
| ( |
| ( |
| ( |
Vessel lease expense component | | ( |
| ( |
| ( |
| ( |
Depreciation |
| ( |
| ( |
| ( |
| ( |
Amortization of deferred drydock expenditures |
| ( |
| ( |
| ( |
| ( |
General and administrative expenses |
| | | | | | | |
Corporate |
| ( |
| ( |
| ( |
| ( |
Commercial and chartering |
| ( |
| ( |
| ( |
| ( |
Loss on vessels sold | | — |
| — | | ( |
| |
Unrealized gains / (losses) on derivatives | | |
| ( | | |
| |
Interest expense and finance costs |
| ( |
| ( |
| ( |
| ( |
Interest income |
| |
| |
| |
| |
|
| |
| |
| |
| |
Income / (Loss) before taxes |
| |
| ( |
| |
| ( |
|
| |
| |
| |
| |
Income tax |
| ( |
| ( |
| ( |
| ( |
Loss from equity method investments |
| ( |
| ( |
| ( |
| ( |
Net Income / (Loss) |
| |
| ( |
| |
| ( |
| | | | | | | | |
Preferred dividend | | ( | | ( | | ( |
| ( |
| | | | | | | | |
Net Income / (Loss) attributable to common stockholders | | |
| ( |
| |
| ( |
|
| |
| |
| |
| |
Earnings / (loss) per share, basic | | |
| ( | | |
| ( |
Weighted average number of shares outstanding, | | |
| | | |
| |
Earnings / (loss) per share, diluted | | |
| ( | | |
| ( |
Weighted average number of shares outstanding, | | |
| | | |
| |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F-3
Ardmore Shipping Corporation
Unaudited Interim Condensed Consolidated Statements of Comprehensive Income / (Loss)
For the Three and Nine Months Ended September 30, 2022 and September 30, 2021
| | Three Months Ended |
| Nine Months Ended | ||||
In thousands of U.S. Dollars |
| September 30, 2022 |
| September 30, 2021 |
| September 30, 2022 |
| September 30, 2021 |
Net Income / (Loss) | | | | ( | | | | ( |
Other comprehensive income / (loss), net of tax | | | | | | | | |
Net change in unrealized (losses) / gains on cash flow hedges |
| ( |
| ( | | | | |
Other comprehensive (loss) / income net of tax |
| ( |
| ( | | |
| |
| | | | | | | | |
Comprehensive Income / (Loss) |
| |
| ( | | |
| ( |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F-4
Ardmore Shipping Corporation
Unaudited Interim Condensed Consolidated Statements of Changes in Redeemable Preferred Stock and Stockholders’ Equity
For the Three and Nine Months Ended September 30, 2022 and September 30, 2021
|
| | | | | | | | |
| |
| Accumulated |
| | | |
| |
| | Redeemable Preferred | | | | | | | Additional | | other | | | | | | | ||
| | Stock | | | Common Stock | | paid in | | comprehensive | | Treasury |
| Accumulated | | | ||||
In thousands of U.S. Dollars | | Shares | | Amount | | | Shares | | Amount | | capital |
| income / (loss) | | stock | | deficit | | TOTAL |
Balance as at July 1, 2021 |
| | | | | | | | | | | | ( | | ( | | ( |
| |
Share-based compensation |
| — | | — | | | — |
| — |
| |
| — |
| — |
| — |
| |
Changes in unrealized losses on cash flow hedges | | — | | — | | | — | | — | | — | | ( | | — | | — | | ( |
Preferred dividend | | — | | — | | | — | | — | | — | | — | | — | | ( | | ( |
Net loss |
| — | | — | | | — |
| — |
| — |
| — |
| — |
| ( |
| ( |
Balance as at September 30, 2021 |
| |
| | | | |
| |
| |
| ( |
| ( |
| ( |
| |
| | | | | | | | | | | | | | | | | | | |
Balance as at July 1, 2022 |
| | | | | | |
| |
| | | |
| ( |
| ( |
| |
Issue of common stock | | — | | — | | | | | | | ( | | — | | — | | — | | — |
Share-based compensation |
| — | | — | | | — | | — | | | | — | | — | | — | | |
Changes in unrealized gain on cash flow hedges |
| — | | — | | | — | | — | | — | | ( | | — | | — | | ( |
Net proceeds from equity offering | | — | | — | | | | | | | | | — | | — | | — | | |
Preferred dividend | | — | | — | | | — | | — | | — | | — | | — | | ( | | ( |
Net income |
| — | | — | | | — | | — | | — | | — | | — | | | | |
Balance as at September 30, 2022 |
| |
| | | | |
| |
| |
| |
| ( |
| ( |
| |
|
| | | | | | | | |
| |
| Accumulated |
| | | |
| |
| | Redeemable Preferred | | | | | | | Additional | | other | | | | | | | ||
| | Stock | | | Common Stock | | paid in | | comprehensive | | Treasury |
| Accumulated | | | ||||
In thousands of U.S. Dollars | | Shares | | Amount | | | Shares | | Amount | | capital |
| income / (loss) | | stock | | deficit | | TOTAL |
Balance as at January 1, 2021 |
| — | | — | | | |
| |
| |
| ( |
| ( |
| ( |
| |
Issue of redeemable preferred stock, net of issuance costs | | | | | | | — | | — | | — | | — | | — | | — | | — |
Issue of common stock | | — | | — | | | | | | | | | — | | — | | — | | |
Share-based compensation |
| — | | — | | | — |
| — |
| |
| — |
| — |
| — |
| |
Changes in unrealized gain on cash flow hedges | | — | | — | | | — | | — | | — | | | | — | | — | | |
Preferred dividend | | — | | — | | | — | | — | | — | | — | | — | | ( | | ( |
Net loss |
| — | | — | | | — |
| — |
| — |
| — |
| — |
| ( |
| ( |
Balance as at September 30, 2021 |
| |
| | | | |
| |
| |
| ( |
| ( |
| ( |
| |
| | | | | | | | | | | | | | | | | | | |
Balance as at January 1, 2022 |
| | | | | | |
| |
| |
| |
| ( |
| ( |
| |
Issue of common stock |
| — | | — | | | |
| | | ( | | — | | — | | — | | — |
Share-based compensation |
| — | | — | | | — |
| — | | | | — | | — | | — | | |
Changes in unrealized gain on cash flow hedges |
| — | | — | | | — |
| — | | — | | | | — | | — | | |
Net proceeds from equity offering | | — | | — | | | | | | | | | — | | — | | — | | |
Preferred dividend | | — | | — | | | — | | — | | — | | — | | — | | ( | | ( |
Net income |
| — | | — | | | — |
| — | | — | | — | | — | | | | |
Balance as at September 30, 2022 |
| |
| | | | |
| |
| |
| |
| ( |
| ( |
| |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F-5
Ardmore Shipping Corporation
Unaudited Interim Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2022 and 2021
| | Nine Months Ended | ||
In thousands of U.S. Dollars |
| September 30, 2022 |
| September 30, 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
| |
| |
Net Income / (Loss) |
| |
| ( |
Adjustments to reconcile net income / (loss) to net cash provided by / (used in) operating activities: |
| |
| |
Depreciation |
| |
| |
Amortization of deferred drydock expenditures |
| |
| |
Share-based compensation |
| |
| |
Loss on vessels sold |
| |
| |
Amortization of deferred finance fees |
| |
| |
Unrealized (gains) on derivatives | | ( |
| ( |
Foreign exchange |
| ( |
| ( |
Loss from equity method investments | | | | |
Deferred drydock payments |
| ( |
| ( |
Changes in operating assets and liabilities: |
| | | |
Receivables |
| ( |
| ( |
Prepaid expenses and other assets |
| ( |
| |
Advances and deposits |
| |
| ( |
Inventories |
| ( |
| |
Accounts payable |
| ( |
| ( |
Accrued expenses and other liabilities |
| |
| |
Deferred revenue |
| ( |
| |
Accrued interest |
| |
| ( |
Net cash provided by / (used in) operating activities |
| |
| ( |
|
| |
| |
CASH FLOWS FROM INVESTING ACTIVITIES |
| |
| |
Proceeds from sale of vessels |
| |
| |
Payments for acquisition of vessels and vessel equipment |
| ( |
| ( |
Advances for ballast water treatment systems |
| ( |
| ( |
Payments for other non-current assets |
| ( |
| ( |
Payments for equity investments | | ( |
| ( |
Net cash provided by investing activities |
| |
| |
|
| |
| |
CASH FLOWS FROM FINANCING ACTIVITIES |
| |
| |
Prepayment of finance lease obligation | | ( | | |
Proceeds from long-term debt |
| |
| |
Repayments of long-term debt |
| ( |
| ( |
Proceeds from finance leases |
| |
| |
Repayments of finance leases |
| ( |
| ( |
Payments for deferred finance fees |
| ( |
| ( |
Issuance of common stock, net | | | | |
Issuance of preferred stock, net | | |
| |
Payment of preferred dividend | | ( |
| ( |
Net cash (used in) financing activities | | ( | | ( |
|
| |
| |
Net (decrease) in cash and cash equivalents |
| ( |
| ( |
|
| |
| |
Cash and cash equivalents at the beginning of the year |
| |
| |
|
| |
| |
Cash and cash equivalents at the end of the period |
| |
| |
|
| |
| |
Cash paid during the period for interest in respect of debt | | | | |
Cash paid during the period for interest in respect of finance leases | | | | |
Cash paid during the period for operating lease liabilities | | | | |
Cash paid during the period for income taxes | | | | |
Non-cash investing activity: Investment in Element 1 by issuing | | | | |
Non-cash financing activity: Accrued preferred dividends | | | | |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
F-6
Ardmore Shipping Corporation
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2022 and September 30, 2021
(Expressed in thousands of U.S. Dollars, except for shares and as otherwise stated)
1. General information and significant accounting policies
1.1. Background
Ardmore Shipping Corporation (NYSE: ASC) (“ASC”), together with its subsidiaries (collectively, the “Company”), provides seaborne transportation of petroleum products and chemicals worldwide to oil majors, national oil companies, oil and chemical traders, and chemical companies, with its modern, fuel-efficient fleet of mid-size product and chemical tankers and the Company operates its business in
In response to the COVID-19 pandemic, many countries, ports and organizations, including those where ASC conducts a large part of its operations, have implemented measures to combat the outbreak, such as quarantines and travel restrictions. Such measures have caused severe trade disruptions. In addition, the pandemic initially resulted and may again result in a significant decline in global demand for refined oil products. As the Company’s business is the transportation of refined oil products on behalf of oil majors, oil traders and other customers, any significant decrease in demand for the cargo the Company transports has and could continue to adversely affect demand for its vessels and services. The extent to which the pandemic may impact the Company’s results of operations and financial condition, including possible impairments, will depend on future developments, which are highly uncertain and cannot be predicted, including, among others, new information which may emerge concerning the virus and its variants and the level of the effectiveness and administration of vaccines and other actions to contain or treat its impact. Accordingly, an estimate of the impact of the COVID-19 pandemic on the Company cannot be made at this time.
1.2. Management and organizational structure
ASC was incorporated in the Republic of the Marshall Islands on May 14, 2013. ASC commenced business operations through its predecessor company, Ardmore Shipping LLC, on April 15, 2010.
As at September 30, 2022, ASC had (a)
Ardmore Maritime Services (Asia) Pte, a wholly owned subsidiary incorporated in Singapore, carries out the Company’s management services and associated functions. Ardmore Shipping Services (Ireland) Limited, a wholly owned subsidiary incorporated in Ireland, provides the Company’s corporate, accounting, fleet administration and operations services. Each of Ardmore Shipping (Asia) Pte. Limited and Ardmore Shipping (Americas) LLC, wholly owned subsidiaries incorporated in Singapore and Delaware, respectively, performs commercial management and chartering services for the Company.
1.3. Basis of preparation
The accompanying interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) that apply to interim condensed financial statements.
F-7
Ardmore Shipping Corporation
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2022 and September 30, 2021
(Expressed in thousands of U.S. Dollars, except for shares and as otherwise stated)
1.3. Basis of preparation (continued)
Accordingly, they do not include all of the information and footnotes normally included in consolidated financial statements prepared in conformity with U.S. GAAP. They should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2021 Annual Report on Form 20-F, filed with the SEC on March 11, 2022. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements at that date but does not include all of the footnotes required by U.S. GAAP for complete financial statements.
The accompanying interim condensed consolidated financial statements are unaudited and include all adjustments (consisting of normal recurring adjustments) that management considers necessary for a fair presentation of its condensed consolidated financial position and results of operations for the interim periods presented. All intercompany balances and transactions have been eliminated on consolidation.
The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year.
1.4. Significant accounting policies
There have been no changes in the Company’s significant accounting policies for the three and nine months ended September 30, 2022 as compared to the significant accounting policies described in the Company’s audited consolidated financial statements for the year ended December 31, 2021. The accounting policies used in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those applied in the audited financial statements for the year ended December 31, 2021.
2. Equity Investments
Element 1 Corp. - On June 17, 2021, the Company purchased a
e1 Marine LLC - On June 17, 2021, the Company established a joint venture, e1 Marine LLC, with E1 and an affiliate of Maritime Partners LLC (“MP”), which seeks to deliver hydrogen delivery systems to the marine sector with each joint venture partner owning
The Company records its share of earnings and losses in these investment on a quarterly basis. The Company recorded an investment of $
F-8
Ardmore Shipping Corporation
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2022 and September 30, 2021
(Expressed in thousands of U.S. Dollars, except for shares and as otherwise stated)
3. Debt
As at September 30, 2022, the Company had
|
| As at | ||
In thousands of U.S. Dollars |
| September 30, 2022 |
| December 31, 2021 |
Nordea/SEB Joint Bank Facility and Nordea / SEB Revolving Facility | | |
| |
Nordea/SEB Revolving Facility | | | | |
ABN/CACIB Joint Bank Facility | | | | |
ABN AMRO Revolving Facility | | |
| |
IYO Bank Facility | | | | |
Total debt | | |
| |
Deferred finance fees | | ( |
| ( |
Net total debt | | |
| |
Current portion of long-term debt | | |
| |
Current portion of deferred finance fees | | ( |
| ( |
Total current portion of long-term debt | | |
| |
Non-current portion of long-term debt | | |
| |
Future minimum scheduled repayments under the Company’s loan facilities for each year are as follows:
|
| As at |
In thousands of U.S. Dollars | | September 30, 2022 |
2022(1) |
| |
2023 |
| |
2024 | | |
2025 |
| |
2026 | | |
2027 | | |
|
| |
(1) Three-month period ending December 31, 2022
F-9
Ardmore Shipping Corporation
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2022 and September 30, 2021
(Expressed in thousands of U.S. Dollars, except for shares and as otherwise stated)
3. Debt (continued)
Old Nordea / SEB Joint Bank Facility and Nordea / SEB Revolving Facility
On December 11, 2019,
Nordea / SEB Revolving Facility
On August 5, 2022,
Old ABN/CACIB Joint Bank Facility
On December 11, 2019,
ABN/CACIB Joint Bank Facility
On August 5, 2022,
Old ABN AMRO Revolving Facility
On October 24, 2017, the Company entered into a $
ABN AMRO Revolving Facility
On August 9, 2022, the Company entered into a new sustainability-linked $
F-10
Ardmore Shipping Corporation
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2022 and September 30, 2021
(Expressed in thousands of U.S. Dollars, except for shares and as otherwise stated)
3. Debt (continued)
IYO Bank Facility
On December 17, 2020,
Long-term debt financial covenants
The Company’s existing long-term debt facilities described above include certain covenants. The financial covenants require that the Company:
| ● | maintain minimum solvency of not less than |
| ● | maintain minimum cash and cash equivalents (of which at least |
owned and chartered-in and
| ● | ensure that the aggregate fair market value of the applicable vessels plus any additional collateral is not less than |
| ● | maintain a corporate net worth of not less than $ |
| ● | maintain positive working capital, excluding current portion of debt and leases, balloon repayments and amounts outstanding under the ABN AMRO Revolving Facility, provided that the facility has a remaining maturity of more than three months. |
The Company was in full compliance with all of its long-term debt financial covenants as at September 30, 2022 and December 31, 2021.
F-11
Ardmore Shipping Corporation
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2022 and September 30, 2021
(Expressed in thousands of U.S. Dollars, except for shares and as otherwise stated)
4. Leases
As at September 30, 2022, the Company was a party, as the lessee, to
|
| As at | ||
In thousands of U.S. Dollars |
| September 30, 2022 |
| December 31, 2021 |
Japanese Leases No.1 and 2 | | — |
| |
Japanese Lease No.3 | | — |
| |
CMBFL Leases No.1 to 4 | | |
| |
Ocean Yield ASA | | | | |
Japanese Lease No.4 | | |
| |
China Huarong Leases | | — |
| |
CMBFL / Shandong | | | | |
Finance lease obligations | | |
| |
Amounts representing interest and deferred finance fees | | ( |
| ( |
Finance lease obligations, net of interest and deferred finance fees | | |
| |
Current portion of finance lease obligations | | |
| |
Current portion of deferred finance fees | | ( |
| ( |
Non-current portion of finance lease obligations | | |
| |
Non-current portion of deferred finance fees | | ( |
| ( |
Total finance lease obligations, net of deferred finance fees | | |
| |
Maturity analysis of the Company’s finance lease facilities for each year are as follows:
| | As at |
In thousands of U.S. Dollars | | September 30, 2022 |
2022 |
| |
2023 |
| |
2024 |
| |
2025 |
| |
2026 |
| |
2027 - 2030 |
| |
Finance lease obligations |
| |
Amounts representing interest and deferred finance fees |
| ( |
Finance lease obligations, net of interest and deferred finance fees |
| |
F-12
Ardmore Shipping Corporation
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2022 and September 30, 2021
(Expressed in thousands of U.S. Dollars, except for shares and as otherwise stated)
4. Leases (continued)
Japanese Leases No. 1 and 2
On May 30, 2017,
Japanese Lease No. 3
On January 30, 2018,
CMBFL Leases No. 1 to 4
On June 26, 2018,
On October 25, 2018, two of ASC’s subsidiaries entered into an agreement for the sale and leaseback (under a finance lease arrangement) of the Ardmore Encounter and Ardmore Explorer, respectively, with CMBFL. The facility was drawn down in October 2018. Interest was calculated at a rate of LIBOR plus 3.00%. Principal repayments on the leases were made on a quarterly basis. The finance leases were scheduled to expire in 2025 and included a mandatory purchase obligation for the Company to repurchase the vessels, as well as purchase options exercisable by the Company, which the Company could elect to exercise at an earlier date. During the third quarter of 2022, the Company delivered notice to exercise its purchase options on both vessels, which purchases closed on October 28, 2022. The Company repaid the facility in full and both vessels are being refinanced through the Nordea / SEB Revolving Facility subsequent to September 30, 2022. As at September 30, 2022, the full lease obligation was presented in current portion of finance lease obligations on the balance sheet.
F-13
Ardmore Shipping Corporation
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2022 and September 30, 2021
(Expressed in thousands of U.S. Dollars, except for shares and as otherwise stated)
4. Leases (continued)
Ocean Yield ASA
On October 25, 2018,
The finance leases were scheduled to expire in
Japanese Lease No. 4
On November 30, 2018,
China Huarong Leases
On November 30, 2018,
CMBFL / Shandong
On June 25, 2021,
F-14
Ardmore Shipping Corporation
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2022 and September 30, 2021
(Expressed in thousands of U.S. Dollars, except for shares and as otherwise stated)
4. Leases (continued)
Finance Leases Financial Covenants
Some of the Company’s existing finance lease facilities (as described above) include financial covenants which are the same, or no more onerous than, the Company’s long-term debt financial covenants described in Note 3. The Company was in full compliance with all of its finance lease related financial covenants as at September 30, 2022 and December 31, 2021.
Long Term Operating Leases
The Company sold the Ardmore Sealeader, the Ardmore Sealifter and Ardmore Sealancer on June 5, 2022, July 16, 2022 and July 31, 2022, respectively and subsequently chartered the vessels back from the buyer for a period of 24 months. Chartered-in vessels include both lease and non-lease components. The lease component relates to the cost to a lessee to control the use of the vessel and the non-lease components relate to the cost to the lessees for the lessor to operate the vessel. For time charters-in, the Company has elected to separate lease and non-lease components.
Operating leases are included in operating lease, right-of-use (“ROU”) asset, current portion of operating lease obligations, and non-current portion of operating lease obligations in the Company’s consolidated balance sheets. The ROU asset represents our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate used by the Company of
The Company makes significant judgements and assumptions to separate the lease component from the non-lease component of its time chartered-in vessels. The Company uses readily determinable and observable data for the purposes of determining the standalone cost of the vessel lease and operating service components of the Company’s time charters. The Company proportionately allocates the consideration of the contract to lease and non-lease components based on their relative standalone prices.
Short Term Leases
The Company entered into
F-15
Ardmore Shipping Corporation
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2022 and September 30, 2021
(Expressed in thousands of U.S. Dollars, except for shares and as otherwise stated)
5. Interest Rate Swaps
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
During the second quarter of 2020, the Company entered into floating-to-fixed interest rate swap agreements, associated with existing variable-rate debt and financing facilities, over a
During the third quarter of 2022, the Company refinanced its debt arrangements with the Nordea / SEB Revolving Facility. As none of the revolving credit facility was drawn down at September 30, 2022 and the Company cannot forecast with any certainty what, if any, of the revolving credit facility will be drawn down at December 31, 2022, or in future quarters, the Company concluded that the forecasted transactions that the interest rate swaps were designated to hedge are no longer probable to occur. As a result, the Company accelerated the reclassification of amounts in other comprehensive income to earnings. The accelerated amounts consisted of a gain of $2.7 million of which $
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings.
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.
The Company records the fair value of the interest rate swap as an asset or liability on its balance sheet. The following table shows the interest rate swap assets designated as hedging instruments as of September 30, 2022 and December 31, 2021:
Derivatives designated as hedging instruments (in thousands of U.S. Dollars) |
| Balance Sheet location |
| September 30, 2022 |
| December 31, 2021 | |
Interest rate swap |
| Current portion of derivative assets | | $ | |
| |
Interest rate swap |
| Non - current portion of derivative assets | | $ | — |
| |
The following table shows the interest rate swap assets not designated as hedging instruments as of September 30, 2022 and December 31, 2021:
Derivatives not designated as hedging instruments (in thousands of U.S. Dollars) |
| Balance Sheet location |
| September 30, 2022 |
| December 31, 2021 | |
Interest rate swap |
| Current portion of derivative assets | | $ | |
| |
Interest rate swap |
| Non - current portion of derivative assets | | $ | — |
| |
F-16
Ardmore Shipping Corporation
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2022 and September 30, 2021
(Expressed in thousands of U.S. Dollars, except for shares and as otherwise stated)
6. Share-based compensation
Stock appreciation rights
As at September 30, 2022, the Company had granted
A summary of awards, simulation inputs, outputs and valuation methodology is as follows:
Model Inputs | | | |||||||||||||||||||||
|
| |
| | |
| |
| | |
| |
| |
| |
| Weighted |
| |
| | |
| | | | | | | | | | | | | | Risk-free | | | | Average Fair | | | | | |
| | SARs | | Exercise | | Vesting | | Grant | | Dividend | | rate of | | Expected | | Value @ | | Average Expected | | Valuation | |||
Grant Date | | Awarded | | Price | | Period | | Price | | Yield | | Return | | Volatility | | grant date | | Exercise Life | | Method | |||
12‑Mar‑14 |
| | | $ | |
| | $ | |
| | % | | % | | % | $ | |
|
| |||
01‑Sept‑14 |
| | | $ | |
| | $ | |
| | % | | % | | % | $ | |
|
| |||
06‑Mar‑15 |
| | | $ | |
| | $ | |
| | % | | % | | % | $ | |
|
| |||
15‑Jan‑16 |
| | | $ | |
| | $ | |
| | % | | % | | % | $ | |
|
| |||
04‑Apr‑18 |
| | | $ | |
| | $ | |
| | % | | % | | % | $ | |
|
| |||
07‑Mar‑19 | | | | $ | | | | $ | | | | % | | % | | % | $ | | | | |||
04‑Mar‑20 | | | | $ | | | | $ | | | | % | | % | | % | $ | | | | |||
04‑Mar‑21 | | | | $ | | | | $ | | | | % | | % | | % | $ | | | | |||
Changes in the SARs for the nine months ended September 30, 2022 are set forth below in full numbers:
|
| |
|
| |
| |
| | Weighted average | |
|
| No. of SARs |
| exercise price | |
Balance as at January 1, 2022 |
| | $ | ||
SARs granted during the nine months ended September 30, 2022 | | | | | |
SARs exercised during the nine months ended September 30, 2022 | | ( | | $ | ( |
SARs forfeited during the nine months ended September 30, 2022 | | | | | |
Balance as at September 30, 2022 (none of which are exercisable or convertible) |
| | $ | ||
The total cost related to non-vested SAR awards expected to be recognized through 2024 is set forth below in thousands of U.S. Dollars:
Period | | | TOTAL |
2022(1) | | $ | |
2023 | | | |
2024 | | | |
| | $ | |
(1) Three-month period ending December 31, 2022
F-17
Ardmore Shipping Corporation
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2022 and September 30, 2021
(Expressed in thousands of U.S. Dollars, except for shares and as otherwise stated)
6. Share-based compensation (continued)
Restricted stock units
As at September 30, 2022, the Company had granted
A summary of awards is as follows:
Grant Date |
| RSUs Awarded |
| Service Period |
| Grant Price | |
02-Jan-19 | | | | | $ | | |
07-Mar-19 | | | | | $ | | |
28-May-19 | | | | | $ | | |
04-Mar-20 | | | | | $ | | |
29-May-20 |
| | | | $ | | |
04-Mar-21 | | | | | $ | | |
04-Mar-21 | | | | | $ | | |
07-Jun-21 | | | | | $ | | |
30-Mar-22 | | | | | $ | | |
07-Jun-22 | | | | | $ | | |
01-Sep-22 | | | | | $ | | |
Changes in the RSUs for the nine months ended September 30, 2022 are set forth below in thousands of U.S. Dollars:
|
| |
| Weighted average | |
| | | | fair value at grant | |
| | No. of RSUs | | date | |
Balance as at January 1, 2022 |
| |
| $ | |
RSUs granted during the nine months ended September 30, 2022 | | | | $ | |
RSUs vested during the nine months ended September 30, 2022 | | ( | | $ | ( |
Balance as at September 30, 2022 (none of which are vested) |
| | | $ | |
The total cost related to non-vested RSU awards expected to be recognized through 2025 is set forth below:
Period |
| | TOTAL |
2022(1) | | $ | |
2023 | | | |
2024 | | | |
2025 | | | |
| | $ | |
| (1) | Three-month period ending December 31, 2022 |
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Ardmore Shipping Corporation
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2022 and September 30, 2021
(Expressed in thousands of U.S. Dollars, except for shares and as otherwise stated)
7. Preferred Stock
On June 17, 2021 and on December 3, 2021, ASC issued
The Series A Preferred Stock is redeemable, in whole or in part, upon the election of the Company or the holder of shares of Series A Preferred Stock, upon the occurrence of certain change of control events, including if a person or group becomes the beneficial owner of a majority of ASC’s total voting power. As it is possible, regardless of the probability of such occurrence, that a person or group could acquire beneficial ownership of a majority of the voting power of ASC’s outstanding common stock without Company approval and thereby trigger a “change of control,” the Series A Preferred Stock is classified as temporary equity for accounting purposes. The Company’s obligations to the holder of shares of Series A Preferred Stock are secured by a pledge of the Company’s stake in E1. The Series A Preferred Stock is presented in the Company’s financial statements net of the related stock issuance costs.
As part of the issuance of the Series A Preferred Stock to Maritime Partners, the Company granted to Maritime Partners a profits interest of
8. Subsequent Events
As disclosed in Note 4, the Company exercised the purchase options of
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