Abou t us
Scorpio Tankers Inc. is a provider of marine transportation of petroleum products worldwide. As
of April 9, 2014, our owned fleet consisted of 20 tankers (one Handymax tanker, 15 MR tankers,
two LR1 tankers, one post-Panamax tanker and one LR2 tanker) with an average age of 3.1 years,
28 time chartered-in product tankers (eight Handymax, seven MR, five LR1 and eight LR2
tankers), and 55 newbuilding product tankers (29 MR, 12 LR2 and 14 Handymax ice class-1A
vessels), 42 vessels are expected to be delivered to us within 2014 and the remaining 13 by the
second quarter of 2015. We also own approximately 26% of Dorian LPG Ltd. Scorpio Tankers Inc.
is incorporated in the Republic of the Marshall Islands and has its principal offices in Monaco
and New York. Scorpio Tankers is listed on the New York Stock Exchange (NYSE) under the
symbol STNG.
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Le Millenium—9, Boulevard Charles III—MC 98000 Monaco
Monaco
Tel +377 9798 5716
New York
150 East 58th Street—New York, NY 10155
Tel +1 212 542 1616
info@scorpiotankers.com
39195_CV.indd 1-3
4/15/14 8:17 AM
2013 AN N uAL R EP o RT
Le t ter from the
Chairman and Ceo
Corpor ate
information
SENIOr MANAgEMENT
COrPOrATE OFFICES
AND DIrECTOrS
Emanuele A. Lauro
Chairman & Chief Executive Officer
robert Bugbee
President & Director
Brian Lee
Chief Financial Officer
Cameron Mackey
Chief Operating Officer & Director
Luca Forgione
general Counsel
Sergio gianfranchi
Vice President, Vessel Operations
Anoushka Kachelo
Company Secretary
Alexandre Albertini
Director
Ademaro Lanzara
Director
Donald C. Trauscht
Director
Marianne Økland
Director
Jose Tarruella
Director
Le Millenium—9, Boulevard Charles III—
150 East 58th Street—New York, NY 10155
Scorpio Tankers Inc.’s common stock is
traded on the New York Stock Exchange
under the symbol STNg.
Monaco
MC 98000 Monaco
Tel +377 9798 5716
New York
Tel +1 212 542 1616
info@scorpiotankers.com
STOCK LISTINg
TrANSFEr AgENT
Computershare
250 royall Street
Canton, MA 02021
USA
LEgAL COUNSEL
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
USA
INVESTOr rELATIONS
Brian Lee
Chief Financial Officer
Scorpio Tankers Inc.
150 East 58th Street
New York, NY 10155
Tel +1 212 542 1616
dear Shareholder,
It is my pleasure to present the 2013 results for Scorpio
Tankers Inc. and to review the Company’s position for
2014 and beyond. Last year marked our first full year
of profitability since our initial public offering in 2010;
we are pleased but by no means satisfied with this
accomplishment. We believe that the timing and nature
of our investments in new vessels, coupled with our
balance sheet and the improving fundamentals for
product tankers, ensures that we are well-positioned
for many years ahead.
In 2013, the United States continued its dramatic surge
in energy self-sufficiency, shifting from a net importer
to a net exporter of refined petroleum products. This
shift from customer to supplier, breathtaking in its
speed, has driven substantial demand for product
tankers. With access to cheaper feedstocks and tech-
nologically advanced refineries, our American-based
customers now compete favorably across the globe.
Our vessels carry cargoes over longer distances,
delivering cheaper and consistent cargoes into
developed and emerging markets alike. Meanwhile,
older, smaller, “local” refineries, those close to consum-
ers, but otherwise with little competitive strengths,
are in decline. During 2013 we witnessed a number
of these legacy refineries closing—in places like
Australia, France and England and we expect that this
trend will continue.
In addition, oil majors and commodity traders, our core
clients, continue to value both the flexibility of modern
assets as well as sophisticated and safe operations.
Two distinct interests drive their choices in ocean
trans portation. The first interest is financial returns.
The modern product tanker is designed to perform
complex operations across multiple cargoes, ports,
terminals and conditions, which we believe customers
demand because of the underlying opportunities to
profitably buy and sell their cargoes. Only a portion
of the global fleet of vessels, and only a portion of all
operators, can work for these clients. It is our central
aim to stay in this select group.
The second interest is risk-avoidance. Every year there
are marine casualties, breaches of regulatory compli-
ance, or counterparty defaults. These show our cus-
tomers that there is still ample room for error; that the
100-year storm might be happening every 5 years, or
that the process that they thought was failsafe in fact
was poorly designed. Equally, the consequences of
these errors can be catastrophic, immediate, visible
(on TV, social media, or otherwise!) and persistent.
As these mishaps occur in the maritime industry, the
scrutiny to which we are subjected gets tighter. We
welcome this scrutiny because we think it is an impor-
tant point of differentiation for Scorpio Tankers. We
continue to spend tremendous time and resources on
the people, the process, and the technology to com-
pete effectively, and with integrity in our markets. Not
only our vessels, but also our personnel, our offices,
and even our balance sheet are an open book for our
customers and regulators.
Finally, our fleet of new product tankers, constructed at
reputable shipyards around the world, are performing
just as we expected. Beyond the value to the customer,
we are able to realize the cost savings we anticipated,
about 6–8 tons of fuel per day at sea, which trans-
lates into significant sums considering the current
39195_CV.indd 4-6
4/15/14 8:17 AM
Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com
LE T TER FROM THE
CHAIRMAN AND CEO
price of marine fuel, which is approximately $650 per
ton. Starting in 2015, regulations which govern emis-
sions from ships will tighten further, raising the cost
of marine fuel and consequently the savings we can
expect relative to older vessels.
In this setting, we are staying true to our strategy.
In 2013, we committed a further $3.5 billion towards
new vessels on the basis that availability and pricing
at shipyards were poised to move “off the bottom.”
We have consistently maintained that the window of
opportunity to invest in shipping assets is a narrow
one. We are keen to stay light on our feet, deploying
capital when it is attractive but—at the right time—
harvesting capital too. On two separate occasions
during 2013, we were able to create significant value
in adjacent sectors. The first, our investment in VLGCs
(Very Large Gas Carriers, or vessels which carry
80,000 cubic meters of propane or butane) was
born of our relationships with Korean shipbuilders; a
market—LPG transportation—adjacent to our own
and similarly poised to expand, and, most importantly,
a tightly consolidated market. The result, and our sub-
sequent shareholding in Dorian LPG Ltd., has increased
over 40% in value so far as they prepare for their ini-
tial public offering on the New York Stock Exchange.
The second investment in VLCCs (Very Large Crude
Carriers, or 2 million barrel, crude oil vessels) was also
born out of our special relationships with shipbuilders
and our insight into this adjacent market. Our ability to
move quickly and capture returns—in this case about
$50 million over the course of 4 months—evidenced
our commitment to bigger returns, not necessarily
bigger ships.
As we turn to our balance sheet, 2013 was notable for
two significant achievements. The first is the initiation
of a dividend as we gained comfort with our cash
flow and profitability going forward. It is another
facet of our plan to return excess capital where it is
prudent to do so. In addition, we fully financed our
fleet, including our vessels on order. We are thankful
for the support of our financial partners.
In conclusion, your management team is focused on
being good stewards of your capital. Our vessels may
move at only 13 knots across the oceans, but informa-
tion and capital have never moved quicker, and the
corresponding need for discipline and decisiveness have
never been greater. We are committed to providing the
strong returns consistent with a strong balance sheet,
a dynamic market cycle, and a world that—despite
all we think we know—can still surprise us. Thank you
for your continued support.
Sincerely,
EMANUELE A. LAURO
Chairman and Chief Executive Officer
39195_PR.indd 2
4/15/14 1:04 PM
FLEE T LIST
OWNED VESSELS
Vessel Name
Year
Built
DWT
Ice
Class
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Handymax
STI Highlander
MR
STI Amber
STI Topaz
STI Ruby
STI Garnet
STI Onyx
STI Sapphire
STI Emerald
STI Beryl
STI Le Rocher
STI Larvotto
STI Fontvieille
STI Ville
STI Duchessa
STI Opera
STI Texas City
LR1/Post-Panamax
STI Harmony
STI Heritage
17
18
19 Venice
2007
2012
2012
2012
2012
2012
2013
2013
2013
2013
2013
2013
2013
2014
2014
2014
2007
2008
2001
37,145
1A
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
73,919
73,919
81,408
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1A
1A
1C
—
LR2
STI Spirit(1)
20
Total owned DWT
2008
113,100
1,159,491
TIME CHARTERED-IN VESSELS(2)
Vessel Name
Handymax
Jinan
Iver Progress
Iver Prosperity
21 Kraslava
22 Krisjanis Valdemars
23
24
25
26 Histria Azure
27 Histria Coral
28 Histria Perla
MR
STX Ace 6
29
30 Targale
31 Gan-Triumph
32 Nave Orion
33 Hafnia Lupus
34 Gan-Trust
35 Usma
LR1
SN Federica
SN Azzura
36
37
38 King Douglas
39 Hellespont Promise
40 FPMC P Eagle
LR2
41 FPMC P Hero
42 FPMC P Ideal
43
Swarna Jayanti
44 Densa Alligator
45 Khawr Aladid
46 Fair Seas
47
48 Four Sky
Southport
Year
Built
DWT
Ice
Class
2007
2007
2003
2007
2007
2007
2006
2005
2007
2007
2010
2013
2012
2013
2007
2003
2003
2008
2007
2009
2011
2012
2010
2013
2006
2008
2008
2010
37,258
37,266
37,285
37,412
37,455
40,394
40,426
40,471
46,161
49,999
49,999
49,999
50,385
51,561
52,684
72,344
72,344
73,666
73,669
73,800
99,995
99,993
104,895
105,708
106,003
115,406
115,462
115,708
1B
1B
—
—
—
—
—
—
—
—
—
—
—
—
1B
—
—
—
—
—
—
—
—
—
—
—
—
—
Total time chartered-in DWT
1,887,748
NEWBUILDINGS CURRENTLY UNDER CONSTRUCTION(3)
Vessel Name
Handymax
Yard
DWT
Ice
Class
Estimated
Delivery
49 Hull 2451
50 Hull 2453
51 Hull 2454
52 Hull 2452
53 Hull 2462
54 Hull 2476
55 Hull 2463
56 Hull 2464
57 Hull 2465
58 Hull 2477
59 Hull 2478
60 Hull 2479
61 Hull 2499
62 Hull 2500
MR
63 Hull S5123
64 Hull 2458
65 Hull S5124
66 Hull 2459
67 Hull S1138
68 Hull 2392
69 Hull S1139
70 Hull 2391
71 Hull 2449
72 Hull 2450
73 Hull S5125
74 Hull S1140
75 Hull S1141
76 Hull S1142
77 Hull 2460
78 Hull 2445
79 Hull 2461
80 Hull S1143
81 Hull S1144
82 Hull S1169
83 Hull S1170
84 Hull S1145
85 Hull S1167
86 Hull 2474
87 Hull S1168
88 Hull 2490
89 Hull 2492
90 Hull 2493
91 Hull 2475
LR2
92 Hull S703
93 Hull S704
94 Hull S705
95 Hull S706
96 Hull S709
97 Hull S710
98 Hull 5394
99 Hull 5395
100 Hull S715
101 Hull S716
102 Hull 5398
103 Hull 5399
Total newbuilding DWT
Total Fleet DWT
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
SPP
HMD
SPP
HMD
SPP
HMD
SPP
HMD
HMD
HMD
SPP
SPP
SPP
SPP
HMD
HMD
HMD
SPP
SPP
SPP
SPP
SPP
SPP
HMD
SPP
HMD
HMD
HMD
HMD
HSHI
HSHI
HSHI
HSHI
HSHI
HSHI
DSME
DSME
HSHI
HSHI
DSME
DSME
38,000
38,000
38,000
38,000
38,000
38,000
38,000
38,000
38,000
38,000
38,000
38,000
38,000
38,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
114,000
114,000
114,000
114,000
114,000
114,000
114,000
114,000
114,000
114,000
114,000
114,000
3,408,000
6,455,239
1A
1A
1A
1A
1A
1A
1A
1A
1A
1A
1A
1A
1A
1A
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Q2 2014
Q2 2014
Q2 2014
Q2 2014
Q3 2014
Q3 2014
Q3 2014
Q3 2014
Q3 2014
Q3 2014
Q3 2014
Q3 2014
Q4 2014
Q4 2014
Q2 2014
Q2 2014
Q2 2014
Q2 2014
Q2 2014
Q2 2014
Q2 2014
Q2 2014
Q2 2014
Q3 2014
Q3 2014
Q3 2014
Q3 2014
Q3 2014
Q3 2014
Q3 2014
Q4 2014
Q4 2014
Q4 2014
Q4 2014
Q1 2015
Q1 2015
Q1 2015
Q1 2015
Q1 2015
Q2 2015
Q2 2015
Q2 2015
Q2 2015
Q3 2014
Q3 2014
Q3 2014
Q3 2014
Q4 2014
Q4 2014
Q4 2014
Q4 2014
Q1 2015
Q1 2015
Q2 2015
Q2 2015
(1) We have entered into an agreement to sell this vessel. This sale is expected to
close by the end of April 2014.
(2) See fleet list on pages 23, 25 and 26 of Form 20-F for a description of these
time charter-in agreements.
(3) See fleet list on pages 24, 25 and 26 of Form 20-F for a description of our
Newbuilding Program.
39195_PR.indd 3
4/15/14 2:40 PM
FORM 20 – F
2013
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
(cid:134) REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
OR
(cid:134) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
OR
(cid:134) SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report _________________
Commission file number: 001-34677
OR
SCORPIO TANKERS INC.
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name into English)
Republic of the Marshall Islands
(Jurisdiction of incorporation or organization)
9, Boulevard Charles III Monaco 98000
(Address of principal executive offices)
Mr. Emanuele Lauro
+377-9898-5716
info@scorpiotankers.com
9, Boulevard Charles III Monaco 98000
(Name, Telephone, E-mail and/or Facsimile, and address of Company Contact Person)
Securities registered or to be registered pursuant to section 12(b) of the Act.
Title of each class
Common stock, par value $0.01 per share
Securities registered or to be registered pursuant to section 12(g) of the Act.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
NONE
(Title of class)
NONE
(Title of class)
Name of each exchange on which registered
New York Stock Exchange
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
As of December 31, 2013, there were 198,791,502 outstanding shares of common stock, par value $0.01 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
X
No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Yes
X
No
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from
their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes
X
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
X
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See the definitions of “large accelerated
filer” and “accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:95)
Accelerated filer (cid:134)
Non-accelerated filer (cid:134)
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
X
International Financial Reporting Standards as issued by the international Accounting Standards Board
Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17
Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
X
No
TABLE OF CONTENTS
PART I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4A.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.
1
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS...................................... 1
OFFER STATISTICS AND EXPECTED TIMETABLE ....................................................................... 1
KEY INFORMATION ............................................................................................................................ 1
INFORMATION ON THE COMPANY ................................................................................................. 19
UNRESOLVED STAFF COMMENTS .................................................................................................. 41
OPERATING AND FINANCIAL REVIEW AND PROSPECTS .......................................................... 41
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ........................................................... 79
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS. ........................................ 86
FINANCIAL INFORMATION ............................................................................................................... 90
OFFER AND THE LISTING .................................................................................................................. 91
ADDITIONAL INFORMATION ............................................................................................................ 92
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ........................ 99
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES ........................................ 100
101
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES .................................................. 101
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS ............................................................................................................................................. 101
CONTROLS AND PROCEDURES ........................................................................................................ 101
ITEM 15.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT ...................................................................................... 102
ITEM 16B. CODE OF ETHICS ................................................................................................................................. 102
ITEM 16C.
PRINCIPAL ACCOUNTING FEES AND SERVICES .......................................................................... 102
ITEM 16D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES .................................. 103
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES...... 103
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT ......................................................... 103
ITEM 16G. CORPORATE GOVERNANCE ............................................................................................................. 103
ITEM 16H. MINE SAFETY DISCLOSURE ............................................................................................................. 103
104
FINANCIAL STATEMENTS ................................................................................................................. 104
FINANCIAL STATEMENTS ................................................................................................................. 104
EXHIBITS ............................................................................................................................................... 104
ITEM 17.
ITEM 18.
ITEM 19.
ITEM 13.
ITEM 14.
PART II
PART III
CAUTIONARY STATEMENT REGARDING 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. We desire 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,” “intends,” “estimate,” “forecast,” “project,” “plan,” “potential,” “may,” “should,” “expect,”
“pending” and similar expressions identify forward-looking statements.
The forward-looking statements in this report are based upon various assumptions, many of which are based, in turn,
upon further assumptions, including without limitation, our management’s examination of historical operating trends, data
contained in our records and other data available from third parties. Although we believe 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 our control, we cannot assure you that we will achieve or accomplish
these expectations, beliefs or projections.
In addition to these important factors, other important factors that, in our view, could cause actual results to differ
materially from those discussed in the forward-looking statements include the failure of counterparties to fully perform their
contracts with us, the strength of world economies and currencies, general market conditions, including fluctuations in
charter rates and vessel values, changes in demand for tanker vessel capacity, changes in our operating expenses, including
bunker prices, drydocking and insurance costs, the market for our vessels, availability of financing and refinancing, charter
counterparty performance, ability to obtain financing and comply with covenants in such financing arrangements, changes in
governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future
litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents or
political events, vessels breakdowns and instances of off-hires and other factors described from time to time in the reports we
file with the Securities and Exchange Commission, or SEC. We caution readers of this report not to place undue reliance on
these forward-looking statements, which speak only as of their dates. We undertake no obligation to update or revise any
forward-looking statements. These forward looking statements are not guarantees of our future performance, and actual
results and future developments may vary materially from those projected in the forward looking statements. Please see our
Risk Factors in Item 3.D of this annual report for a more complete discussion of these and other risks and uncertainties.
PART I
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
Unless the context otherwise requires, when used in this annual report, the terms “Scorpio Tankers,” the
“Company,” “we,” “our” and “us” refer to Scorpio Tankers Inc. and its subsidiaries. “Scorpio Tankers Inc.” refers only to
Scorpio Tankers Inc. and not its subsidiaries. Unless otherwise indicated, all references to “dollars,” “US dollars” and “$”
in this annual report are to the lawful currency of the United States. We use the term deadweight tons, or dwt, expressed in
metric tons, each of which is equivalent to 1,000 kilograms, in describing the size of tankers.
A.
Selected Financial Data
The following tables set forth our selected consolidated financial data and other operating data as of and for the
years ended December 31, 2013, 2012, 2011, 2010 and 2009. The selected data is derived from our audited consolidated
financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB). Our audited consolidated financial statements for the years
ended December 31, 2013, 2012 and 2011 and our consolidated balance sheets as of December 31, 2013 and 2012, together
with the notes thereto, are included herein. Our audited consolidated financial statements for the years ended December 31,
2010 and 2009 and our consolidated balance sheets as of December 31, 2011, 2010 and 2009, and the notes thereto, are not
included herein.
We began our operations in October 2009, when Liberty Holding Company Ltd., or Liberty, a wholly-owned
subsidiary of Simon Financial Limited, or Simon, a company owned and controlled by the Lolli-Ghetti family, of which our
founder, Chairman and Chief Executive Officer, Mr. Emanuele Lauro, is a member, transferred to us three vessel owning and
operating subsidiaries. Prior to October 1, 2009, our historical consolidated financial statements were prepared on a carve-out
basis from the financial statements of Liberty. These carve-out financial statements include all assets, liabilities and results of
operations of the three vessel-owning subsidiaries owned by us, formerly subsidiaries of Liberty, for the periods presented.
Prior to October 1, 2009, certain of the expenses incurred by these subsidiaries for commercial, technical and administrative
management services were under management agreements with other entities owned and controlled by the Lolli-Ghetti
family, which we refer to collectively as the Scorpio Group, consisting of: (i) Scorpio Ship Management S.A.M., or SSM;
and Scorpio Commercial Management S.A.M., or SCM; which provide us and third parties with technical and commercial
management services, respectively; (ii) Liberty, which provided us with administrative services until March 13, 2012 when
the administrative services agreement was assigned to Scorpio Services Holding Limited, or SSH, a company owned and
controlled by the Lolli-Ghetti family; and (iii) other affiliated entities. Since agreements with related parties are by definition
not at arms length, the expenses incurred under these agreements may have been different than the historical costs incurred if
the subsidiaries had operated as unaffiliated entities during prior periods. Our estimates of any differences between historical
expenses and the expenses that may have been incurred had the subsidiaries been stand-alone entities during 2009 have been
disclosed in the notes to our historical consolidated financial statements for the year ended December 31, 2009 which are not
presented herein.
1
In thousands of U.S. dollars except per share
and share data
Consolidated income statement data
Revenue:
Vessel revenue ............................................ $
Operating expenses:
Vessel operating costs .................................
Voyage expenses ........................................
Charterhire ..................................................
Impairment (1) ..............................................
Depreciation ................................................
General and administrative expenses ..........
Write down of vessels held for sale and
loss from sales of vessels ........................
Gain on sale of VLGCs ...............................
Total operating expenses ............................
Operating income/(loss) ............................
Other income and expense:
Financial expenses ......................................
Realized gain / (loss) on derivative
financial instruments ...............................
Unrealized gain / (loss) on derivative
financial instruments ...............................
Financial income .........................................
Share of profit from associate .....................
Other expense, net ......................................
Total other income and expense .................
Net income/(loss) ....................................... $
Earnings/(loss) per common share(2):
Basic earnings / (loss) per share.................. $
Diluted earnings / (loss) per share .............. $
Basic weighted average shares
For the year ended December 31,
2013
2012
2011
2010
2009
207,580 $
115,381 $
82,110 $
38,798 $
27,619
(40,204)
(4,846)
(115,543)
—
(23,595)
(25,788)
(21,187)
41,375
(189,788)
17,792
(30,353)
(21,744)
(43,701)
—
(14,818)
(11,536)
(31,370)
(6,881)
(22,750)
(66,611)
(18,460)
(11,637)
(10,404)
—
(132,556)
(17,175)
—
—
(157,709)
(75,599)
(18,440)
(2,542)
(276)
—
(10,179)
(6,200)
—
—
(37,637)
1,161
(8,562)
—
(3,073)
(4,512)
(6,835)
(417)
—
—
(23,399)
4,220
(2,705)
(8,512)
(7,060)
(3,231)
(699)
3
443
—
(280)
(808)
567
1,147
369
(158)
(777)
17,015 $
(1,231)
35
—
(97)
(9,362)
(26,537) $
—
51
—
(119)
(7,128)
(82,727) $
—
37
—
(509)
(3,983)
(2,822) $
956
5
—
(256)
(802)
3,418
0.12 $
0.11 $
(0.64) $
(0.64) $
(2.88) $
(2.88) $
(0.18) $
(0.18) $
0.61
0.61
outstanding .............................................. 146,504,055 41,413,339 28,704,876 15,600,813 5,589,147
Diluted weighted average shares
outstanding .............................................. 148,339,378 41,413,339 28,704,876 15,600,813 5,589,147
2013
In thousands of U.S. dollars
Balance sheet data
Cash and cash equivalents ........................... $
530,270
Vessels and drydock ....................................
649,526
Vessels under construction ..........................
Total assets .................................................. 1,646,676
Current and non-current bank loans .............
167,129
Shareholders’ equity .................................... 1,450,723
78,845 $
As of December 31,
2012
2011
2010
2009
87,165 $
395,412
50,251
573,280
142,459
414,790
36,833 $
322,458
60,333
448,230
145,568
286,853
68,187 $
333,425
—
412,268
143,188
264,783
444
99,594
—
104,423
36,200
61,329
2
In thousands of U.S. dollars
Cash flow data
Net cash inflow/(outflow)
Operating activities ...................................... $
Investing activities .......................................
Financing activities ......................................
2013
2012
2011
2010
2009
For the year ended December 31,
(5,655) $
(935,101)
932,436
(1,928) $
(90,155)
142,415
(12,452) $
(122,573)
103,671
4,907 $
(245,595)
308,431
9,306
—
(12,469)
(1) In the years ended December 31, 2011 and December 31, 2009, we recorded an impairment charge of $66.6 million for
12 owned vessels and $4.5 million for two owned vessels, respectively.
(2) Basic earnings per share is calculated by dividing the net income/(loss) attributable to equity holders of the parent by the
weighted average number of common shares outstanding assuming, for the period prior to October 1, 2009 when our
historical consolidated financial statements were prepared on a carve-out basis, that the reorganization described above
was effective during the period. Diluted earnings per share are calculated by adjusting the net income/(loss) attributable
to equity holders of the parent and the weighted average number of common shares used for calculating basic earnings
per share for the effects of all potentially dilutive shares. Such potentially dilutive common shares are excluded when the
effect would be to increase earnings per share or reduce a loss per share.
The following table sets forth our other operating data. This data should be read in conjunction with “Item 5.
Operating and Financial Review and Prospects.”
2013
2012
2011
2010
2009
For the year ended December 31,
Average Daily Results
Time charter equivalent per day(1) ............... $
Vessel operating costs per day(2) ..................
14,369 $
6,781
12,960 $
7,605
12,898 $
7,581
16,213 $
8,166
23,423
7,819
Aframax/LR2
TCE per revenue day (1) ................................
Vessel operating costs per day(2) ..................
Panamax/LR1
TCE per revenue day (1) ...............................
Vessel operating costs per day(2) .................
MR
TCE per revenue day (1) ...............................
Vessel operating costs per day(2) .................
Handymax
TCE per revenue day (1) ...............................
Vessel operating costs per day(2) .................
Fleet data
Average number of owned vessels (3) .........
Average number of time chartered-in
vessels (3) .................................................
Drydock
Expenditures for drydock (in thousands of
12,718
8,203
10,201
8,436
14,951
6,960
12,460
8,293
—
—
12,599
7,756
14,264
7,714
14,743
7,891
19,413
8,189
23,423
7,819
16,546
6,069
12,289
6,770
12,092
6,748
—
—
12,862
6,852
13,069
7,594
11,343
7,619
9,507
8,107
15.94
10.81
11.29
6.19
22.85
9.18
4.95
0.06
—
—
—
—
3.00
0.33
U.S. dollars) ............................................
—
2,869
2,624
974
1,681
3
(1) Freight rates are commonly measured in the shipping industry in terms of time charter equivalent per revenue day.
Vessels in the pool and on time charter do not have voyage expenses; therefore, the revenue for pool vessels and time
charter vessels is the same as their TCE revenue. Please see “Item 5. Operating and Financial Review and Prospects—A.
Operating Results—Important Financial and Operational Terms and Concepts” for a discussion of TCE revenue, revenue
days and voyage expenses.
(2) Vessel operating costs per day represent vessel operating costs, as such term is defined in “Item 5. Operating and
Financial Review and Prospects—A. Operating Results—“Important Financial and Operational Terms and Concepts,”
divided by the number of days the vessel is owned during the period.
(3) For a definition of items listed under “Fleet Data,” please see the section of this annual report entitled “Item 5. Operating
and Financial Review and Prospects.”
B.
Capitalization and Indebtedness
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
The following risks relate principally to the industry in which we operate and our business in general. Other risks
relate principally to the securities market and ownership of our common stock. The occurrence of any of the events described
in this section could significantly and negatively affect our business, financial condition, operating results or cash available
for dividends or the trading price of our common shares.
RISKS RELATED TO OUR INDUSTRY
If the tanker industry, which historically has been cyclical, continues to be depressed in the future, our earnings and
available cash flow may be adversely affected.
The tanker industry is both cyclical and volatile in terms of charter rates and profitability. While the first quarter of
2014 has seen an increase in tanker charter rates relative to the rates obtained since the financial crisis that began in 2008, a
worsening of current global economic conditions may cause tanker charter rates to decline and thereby adversely affect our
ability to charter or recharter our vessels or to sell them on the expiration or termination of their charters, and the rates
payable in respect of our vessels currently operating in tanker pools, or any renewal or replacement charters that we enter
into, may not be sufficient to allow us to operate our vessels profitably. Fluctuations in charter rates and vessel values result
from changes in the supply and demand for tanker capacity and changes in the supply and demand for oil and oil products.
The factors affecting the supply and demand for tankers are outside of our control, and the nature, timing and degree of
changes in industry conditions are unpredictable.
The factors that influence demand for tanker capacity include:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
supply and demand for energy resources and oil and petroleum products;
regional availability of refining capacity and inventories;
global and regional economic and political conditions, including armed conflicts, terrorist activities, and strikes;
the distance oil and oil products are to be moved by sea;
changes in seaborne and other transportation patterns;
environmental and other legal and regulatory developments;
(cid:120) weather and natural disasters;
(cid:120)
(cid:120)
competition from alternative sources of energy; and
international sanctions, embargoes, import and export restrictions, nationalizations and wars.
4
The factors that influence the supply of tanker capacity include:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
supply and demand for energy resources and oil and petroleum products;
the number of newbuilding deliveries;
the scrapping rate of older vessels;
conversion of tankers to other uses;
the number of vessels that are out of service;
environmental concerns and regulations; and
port or canal congestion.
We are dependent on spot-oriented pools and spot charters and any decrease in spot charter rates in the future may
adversely affect our earnings.
As of the date of this annual report, all of our vessels except one are employed in either the spot market or in spot
market-oriented tanker pools, such as the Scorpio LR2 Pool, Scorpio Panamax Tanker Pool, the Scorpio MR Pool, or the
Scorpio Handymax Tanker Pool, which we refer to collectively as the Scorpio Group Pools and which are managed members
of the Scorpio Group, exposing us to fluctuations in spot market charter rates. The spot charter market may fluctuate
significantly based upon tanker and oil supply and demand. The successful operation of our vessels in the competitive spot
charter market, including within the Scorpio Group Pools, depends on, among other things, obtaining profitable spot charters
and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo. The
spot market is very volatile, and, in the past, there have been periods when spot charter rates have declined below the
operating cost of vessels. If future spot charter rates decline, then we may be unable to operate our vessels trading in the spot
market profitably, meet our obligations, including payments on indebtedness, or pay dividends in the future. Furthermore, as
charter rates for spot charters are fixed for a single voyage which may last up to several weeks, during periods in which spot
charter rates are rising, we will generally experience delays in realizing the benefits from such increases.
Our ability to renew expiring charters or obtain new charters will depend on the prevailing market conditions at the
time. If we are not able to obtain new charters in direct continuation with existing charters, or if new charters are entered into
at charter rates substantially below the existing charter rates or on terms otherwise less favorable compared to existing charter
terms, our revenues and profitability could be adversely affected.
An over-supply of tanker capacity may lead to a reduction in charter rates, vessel values, and profitability.
The market supply of tankers is affected by a number of factors, such as supply and demand for energy resources,
including oil and petroleum products, supply and demand for seaborne transportation of such energy resources, and the
current and expected purchase orders for newbuildings. If the capacity of new tankers delivered exceeds the capacity of
tankers being scrapped and converted to non-trading tankers, tanker capacity will increase. According to Drewry Shipping
Consultants Ltd., or Drewry, as of January 31, 2014, the newbuilding order book, which extends to 2016 and beyond, equaled
approximately 12.5% of the existing world tanker fleet and the order book may increase further in proportion to the existing
fleet. If the supply of tanker capacity increases and if the demand for tanker capacity does not increase correspondingly or
declines, charter rates could materially decline. A reduction in charter rates and the value of our vessels may have a material
adverse effect on our results of operations and available cash.
Acts of piracy on ocean-going vessels could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China
Sea, the Indian Ocean and in the Gulf of Aden. Although the frequency of sea piracy worldwide decreased during 2013 to its
lowest level since 2009, sea piracy incidents continue to occur, particularly in the Gulf of Aden off the coast of Somalia and
increasingly in the Gulf of Guinea, with drybulk vessels and tankers particularly vulnerable to such attacks. If these piracy
attacks result in regions in which our vessels are deployed being characterized by insurers as “war risk” zones by insurers or
Joint War Committee “war and strikes” listed areas, premiums payable for such coverage could increase significantly and
such insurance coverage may be more difficult to obtain. In addition, crew costs, including costs which may be incurred to
the extent we employ onboard security guards, could increase in such circumstances. We may not be adequately insured to
cover losses from these incidents, which could have a material adverse effect on us. In addition, detention hijacking as a
result of an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could have a
5
material adverse impact on our business, results of operations, cash flows and financial condition and may result in loss of
revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make payments to us
under our charters.
The current state of the global financial markets and current economic conditions may adversely impact our ability to
obtain additional financing on acceptable terms and otherwise negatively impact our business.
Global financial markets and economic conditions have been, and continue to be, volatile. In recent years, operating
businesses in the global economy have faced tightening credit, weakening demand for goods and services, deteriorating
international liquidity conditions, and declining markets. There has been a general decline in the willingness of banks and
other financial institutions to extend credit, particularly in the shipping industry, due to the historically volatile asset values of
vessels. As the shipping industry is highly dependent on the availability of credit to finance and expand operations, it has
been negatively affected by this decline.
Also, as a result of concerns about the stability of financial markets generally and the solvency of counterparties
specifically, the cost of obtaining money from the credit markets has increased as many lenders have increased interest rates,
enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt and reduced, and
in some cases ceased to provide funding to borrowers. Due to these factors, additional financing may not be available if
needed and to the extent required on acceptable terms or at all. If additional financing is not available when needed, or is
available only on unfavorable terms, we may be unable to expand our fleet or meet our obligations as they become due or we
may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of
business opportunities as they arise.
Changes in fuel, or bunkers, prices may adversely affect profits.
Fuel, or bunkers, is typically the largest expense in our shipping operations for our vessels and changes in the price
of fuel may adversely affect our profitability. The price and supply of fuel is unpredictable and fluctuates based on events
outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the Organization of
the Petroleum Exporting Countries, or OPEC, and other oil and gas producers, war and unrest in oil producing countries and
regions, regional production patterns and environmental concerns. Further, fuel may become much more expensive in the
future, which may reduce the profitability.
We are subject to complex laws and regulations, including environmental laws and regulations that can adversely
affect our business, results of operations, cash flows and financial condition, and our available cash.
Our operations are subject to numerous laws and regulations in the form of international conventions and treaties,
national, state and local laws and national and international regulations in force in the jurisdictions in which our vessels
operate or are registered, which can significantly affect the ownership and operation of our vessels. These requirements
include, but are not limited to, the U.S. Oil Pollution Act of 1990, or OPA, the U.S. Comprehensive Environmental
Response, Compensation and Liability Act of 1980, or CERCLA, requirements of the U.S. Coast Guard and the U.S.
Environmental Protection Agency, or EPA, the U.S. Clean Air Act, U.S. Clean Water Act and the U.S. Marine
Transportation Security Act of 2002, European Union Regulation, and regulations of the International Maritime
Organization, or the IMO, including the International Convention for the Prevention of Pollution from Ships of 1973, as from
time to time amended and generally referred to as MARPOL including the designation of Emission Control Areas thereunder,
the IMO International Convention for the Safety of Life at Sea of 1974, as from time to time amended and generally referred
to as SOLAS, the International Convention on Load Lines of 1966, as from time to time amended,, the International
Convention of Civil Liability for Oil Pollution Damage of 1969, as from time to time amended and generally referred to as
CLC, the International Convention on Civil Liability for Bunker Oil Pollution Damage, and the International Ship and Port
Facility Security Code. Compliance with such laws and regulations, where applicable, may require installation of costly
equipment or operational changes and may affect the resale value or useful lives of our vessels. We may also incur additional
costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to
air emissions including greenhouse gases, the management of ballast and bilge waters, maintenance and inspection,
elimination of tin-based paint, development and implementation of emergency procedures and insurance coverage or other
financial assurance of our ability to address pollution incidents. The 2010 Deepwater Horizon oil spill in the Gulf of Mexico
may also result in additional regulatory initiatives or statutes or changes to existing laws that may affect our operations or
require us to incur additional expenses to comply with such regulatory initiatives, statutes or laws.
6
These costs could have a material adverse effect on our business, results of operations, cash flows and financial
condition and our available cash. A failure to comply with applicable laws and regulations may result in administrative and
civil penalties, criminal sanctions or the suspension or termination of our operations. Environmental laws often impose strict
liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without
regard to whether we were negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are
jointly and severally strictly liable for the discharge of oil within the 200-nautical mile exclusive economic zone around the
United States (unless the spill results solely from the act or omission of a third party, an act of God or an act of war). An oil
spill could result in significant liability, including fines, penalties, criminal liability and remediation costs for natural resource
damages under other international and U.S. federal, state and local laws, as well as third-party damages, including punitive
damages, and could harm our reputation with current or potential charterers of our tankers. We are required to satisfy
insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution
incidents. Although we have arranged insurance to cover certain environmental risks, there can be no assurance that such
insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on our business,
results of operations, cash flows and financial condition and available cash.
If we fail to comply with international safety regulations, we may be subject to increased liability, which may
adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.
The operation of our vessels is affected by the requirements set forth in the IMO’s International Management Code
for the Safe Operation of Ships and Pollution Prevention, or the ISM Code, promulgated by the IMO under the International
Convention for the Safety of Life at Sea of 1974, or SOLAS. The ISM Code requires the party with operational control of a
vessel to develop and maintain an extensive “Safety Management System” that includes, among other things, the adoption of
a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing
procedures for dealing with emergencies. If we fail to comply with the ISM Code, we may be subject to increased liability,
may invalidate existing insurance or decrease available insurance coverage for our affected vessels and such failure may
result in a denial of access to, or detention in, certain ports.
Adverse market conditions could cause us to breach covenants in our credit facilities and adversely affect our
operating results.
The market values of tankers have generally experienced high volatility. The market prices for tankers declined
significantly from historically high levels reached in early 2008 and remain at relatively low levels. You should expect the
market value of our vessels to fluctuate depending on general economic and market conditions affecting the shipping industry
and prevailing charterhire rates, competition from other tanker companies and other modes of transportation, types, sizes and
ages of vessels, applicable governmental regulations and the cost of newbuildings. We believe that the current aggregate
market value of our vessels will be in excess of loan to value amounts required under our credit facilities. Please see “Item 5.
Operating and Financial Review and Prospects.”
A decrease in vessel values or a failure to meet these financial ratios required by our credit facilities could cause us
to breach certain covenants in our existing credit facilities and future financing agreements that we may enter into from time
to time. If we breach such covenants and are unable to remedy the relevant breach or obtain a waiver, our lenders could
accelerate our debt and foreclose on our owned vessels. Additionally, if we sell one or more of our vessels at a time when
vessel prices have fallen, the sale price may be less than the vessel’s carrying value on our consolidated financial statements,
resulting in a loss on sale or an impairment loss being recognized, ultimately leading to a reduction in earnings. For the year
ended December 31, 2013, we evaluated the recoverable amount of our vessels and we did not recognize an impairment loss,
however we did record a $21.2 million write-down resulting from the designation of four vessels, Senatore, Noemi, Venice
and STI Spirit as held for sale. For the year ended December 31, 2012, we evaluated the recoverable amount of our vessels
and we did not recognize an impairment loss, however we did record a $10.4 million total loss from disposal on the sales of
the STI Conqueror, STI Gladiator, STI Matador, STI Diamond and STI Coral. See “—Risks Related to Our Indebtedness”
and “Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources - Long-Term Debt
Obligations and Credit Arrangements” for a more comprehensive discussion of our current credit facilities and the related
risks.
7
If our vessels suffer damage due to the inherent operational risks of the tanker industry, we may experience
unexpected drydocking costs and delays or total loss of our vessels, which may adversely affect our business and
financial condition.
The operation of an ocean-going vessel carries inherent risks. Our vessels and their cargoes will be at risk of being
damaged or lost because of events such as marine disasters, bad weather, and other acts of God, business interruptions caused
by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy and other
circumstances or events. Changing economic, regulatory and political conditions in some countries, including political and
military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes
and boycotts. These hazards may result in death or injury to persons, loss of revenues or property, the payment of ransoms,
environmental damage, higher insurance rates, damage to our customer relationships, and market disruptions, delay or
rerouting, which may also subject us to litigation. In addition, the operation of tankers has unique operational risks associated
with the transportation of oil. An oil spill may cause significant environmental damage, and the associated costs could exceed
the insurance coverage available to us. Compared to other types of vessels, tankers are exposed to a higher risk of damage
and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due to the high flammability and high volume
of the oil transported in tankers.
If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are
unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover in full. The
loss of revenues while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, may
adversely affect our business and financial condition. In addition, space at drydocking facilities is sometimes limited and not
all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or our
vessels may be forced to travel to a drydocking facility that is not conveniently located to our vessels’ positions. The loss of
earnings while these vessels are forced to wait for space or to travel to more distant drydocking facilities may adversely affect
our business and financial condition. Further, the total loss of any of our vessels could harm our reputation as a safe and
reliable vessel owner and operator. If we are unable to adequately maintain or safeguard our vessels, we may be unable to
prevent any such damage, costs, or loss which could negatively impact our business, financial condition, results of operations
and available cash.
We operate our vessels worldwide and as a result, our vessels are exposed to international risks which may reduce
revenue or increase expenses.
The international shipping industry is an inherently risky business involving global operations. Our vessels and their
cargoes will be at risk of being damaged or lost because of events such as marine disasters, bad weather, and other acts of
God, business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war,
terrorism, piracy and other circumstances or events. In addition, changing economic, regulatory and political conditions in
some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of
waterways, piracy, terrorism, labor strikes and boycotts. These sorts of events could interfere with shipping routes and result
in market disruptions which may reduce our revenue or increase our expenses.
International shipping is subject to various security and customs inspection and related procedures in countries of
origin and destination and trans-shipment points. Inspection procedures can result in the seizure of the cargo and/or our
vessels, delays in the loading, offloading or delivery and the levying of customs duties, fines or other penalties against us. It
is possible that changes to inspection procedures could impose additional financial and legal obligations on us. Furthermore,
changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain
cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may
have a material adverse effect on our business, results of operations, cash flows, financial condition and available cash.
Political instability, terrorist or other attacks, war or international hostilities can affect the tanker industry, which
may adversely affect our business.
We conduct most of our operations outside of the United States, and our business, results of operations, cash flows,
financial condition and available cash may be adversely affected by the effects of political instability, terrorist or other
attacks, war or international hostilities. Continuing conflicts and recent developments in the Middle East, including Egypt,
and North Africa, including Libya, and the presence of the United States and other armed forces in Afghanistan may lead to
additional acts of terrorism and armed conflict around the world, which may contribute to further world economic instability
and uncertainty in global financial markets. As a result of the above, insurers have increased premiums and reduced or
restricted coverage for losses caused by terrorist acts generally. Future terrorist attacks could result in increased volatility of
8
the financial markets and negatively impact the U.S. and global economy. These uncertainties could also adversely affect our
ability to obtain additional financing on terms acceptable to us or at all.
In the past, political instability has also resulted in attacks on vessels, such as the attack on the M/T Limburg, a very
large crude carrier not related to us, in October 2002, mining of waterways and other efforts to disrupt international shipping,
particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the
South China Sea and the Gulf of Aden off the coast of Somalia. Any of these occurrences could have a material adverse
impact on our business, financial condition, results of operations and available cash.
If our vessels call on ports located in countries that are subject to sanctions and embargos imposed by the U.S. or
other governments that could adversely affect our reputation and the market for our common stock.
Although no vessels owned or operated by us have called on ports located in countries subject to sanctions and
embargoes imposed by the U.S. government and other authorities or countries identified by the U.S. government or other
authorities as state sponsors of terrorism, such as Cuba, Iran, Sudan, and Syria, in the future, our vessels may call on ports in
these countries from time to time on charterers’ instructions. Sanctions and embargo laws and regulations vary in their
application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and
embargo laws and regulations may be amended or strengthened over time. In 2010, the U.S. enacted the Comprehensive Iran
Sanctions Accountability and Divestment Act, or “CISADA”, which expanded the scope of the Iran Sanctions Act. Among
other things, CISADA expands the application of the prohibitions of companies, such as ours, and introduces limits on the
ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or
export of refined petroleum or petroleum products.
In 2012, President Obama signed Executive Order 13608 which prohibits foreign persons from violating or
attempting to violate, or causing a violation of any sanctions in effect against Iran or facilitating any deceptive transactions
for or on behalf of any person subject to U.S. sanctions. Any persons found to be in violation of Executive Order 13608 will
be deemed a foreign sanctions evader and will be banned from all contacts with the United States, including conducting
business in US dollars. Also in 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights
Act of 2012, or the Iran Threat Reduction Act, which created new sanctions and strengthened existing sanctions. Among
other things, the Iran Threat Reduction Act intensifies existing sanctions regarding the provision of goods, services,
infrastructure or technology to Iran’s petroleum or petrochemical sector. The Iran Threat Reduction Act also includes a
provision requiring the President of the United States to impose five or more sanctions from Section 6(a) of the Iran
Sanctions Act, as amended, on a person the President determines is a controlling beneficial owner of, or otherwise owns,
operates, or controls or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person
is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the person
otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used.
Such a person could be subject to a variety of sanctions, including exclusion from U.S. capital markets, exclusion from
financial transactions subject to U.S. jurisdiction, and exclusion of that person’s vessels from U.S. ports for up to two years.
Although we believe that we have been in compliance with all applicable sanctions and embargo laws and
regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future,
particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation
could result in fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and
conduct our business, and could result in some investors deciding, or being required, to divest their interest, or not to invest,
in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding
securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism.
The determination by these investors not to invest in, or to divest from, our common stock may adversely affect the price at
which our common shares trade. Additionally, some investors may decide to divest their interest, or not to invest, in our
company simply because we do business with companies that do business in sanctioned countries. Moreover, our charterers
may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels,
and those violations could in turn negatively affect our reputation. In addition, our reputation and the market for our
securities may be adversely affected if we engage in certain other activities, such as entering into charters with individuals or
entities in countries subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries,
or engaging in operations associated with those countries pursuant to contracts with third parties that are unrelated to those
countries or entities controlled by their governments. Investor perception of the value of our common stock may also be
adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and
surrounding countries.
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The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
We expect that our vessels will call in ports where smugglers attempt to hide drugs and other contraband on vessels,
with or without the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or
attached to the hull of our vessel and whether with or without the knowledge of any of our crew, we may face governmental
or other regulatory claims which could have an adverse effect on our business, results of operations, cash flows, financial
condition and ability to pay dividends.
Maritime claimants could arrest our vessels, which would have a negative effect on our cash flows.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a
maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may
enforce its lien by arresting or attaching a vessel through foreclosure proceedings. The arrest or attachment of one or more of
our vessels could interrupt our business or require us to pay large sums of money to have the arrest lifted, which would have
a negative effect on our cash flows.
In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may
arrest both the vessel which is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned
or controlled by the same owner. Claimants could try to assert “sister ship” liability against one vessel in our fleet for claims
relating to another of our ships.
Governments could requisition our vessels during a period of war or emergency, which may negatively impact our
business, financial condition, results of operations and available cash.
A government could requisition one or more of our vessels for title or hire. Requisition for title occurs when a
government takes control of a vessel and becomes the owner. Also, a government could requisition our vessels for hire.
Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated
charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of
our vessels may negatively impact our business, financial condition, results of operations and available cash.
Technological innovation could reduce our charterhire income and the value of our vessels.
The charterhire rates and the value and operational life of a vessel are determined by a number of factors including
the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability to
load and discharge cargo quickly. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass
through canals and straits. The length of a vessel’s physical life is related to its original design and construction, its
maintenance and the impact of the stress of operations. If new tankers are built that are more efficient or more flexible or
have longer physical lives than our vessels, competition from these more technologically advanced vessels could adversely
affect the amount of charterhire payments we receive for our vessels and the resale value of our vessels could significantly
decrease. As a result, our available cash could be adversely affected.
If labor interruptions are not resolved in a timely manner, they could have a material adverse effect on our business,
results of operations, cash flows, financial condition and available cash.
We, indirectly through SSM, employ masters, officers and crews to man our vessels. If not resolved in a timely and
cost-effective manner, industrial action or other labor unrest could prevent or hinder our operations from being carried out as
we expect and could have a material adverse effect on our business, results of operations, cash flows, financial condition and
available cash.
RISKS RELATED TO OUR BUSINESS
Newbuilding projects are subject to risks that could cause delays, cost overruns or cancellation of our newbuilding
contracts.
We have entered into shipbuilding contracts with Hyundai Mipo Dockyard Co. Ltd., or HMD, SPP Shipbuilding
Co., Ltd., or SPP, Hyundai Samho Heavy Industries Co. Ltd., or HSHI and Daewoo Shipbuilding & Marine Engineering Co.,
Ltd., or DSME for the construction of 55 newbuilding vessels, of which 42 are expected to be delivered to us throughout
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2014 and 13 in 2015. As of the date of this annual report, we have made total yard payments in the amount of $551.0 million
and we have remaining yard installments in the amount of $1,417.5 million before we take possession of all of these vessels.
The delivery of such vessels or vessels that we may acquire in the future could be delayed, not completed or
cancelled, which would delay or eliminate our expected receipt of revenues from the employment of such vessels. In
addition, the yards or a seller could fail to deliver vessels to us as agreed, or we could cancel a purchase contract because
such yard or seller has not met its obligations.
If the delivery of any vessel is materially delayed or cancelled, especially if we have committed the vessel to a
charter for which we become responsible for substantial liquidated damages to the customer as a result of the delay or
cancellation, our business, financial condition and results of operations could be adversely affected.
In addition, in the event HMD, SPP, HSHI and DSME do not perform under their contracts and we are unable to
enforce certain refund guarantees with third party banks for any reason, we may lose all or part of our investment, which
would have a material adverse effect on our results of operations, financial condition and cash flows.
We cannot assure you that our internal controls and procedures over financial reporting will be sufficient.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange
Act, and the other rules and regulations of the SEC, including the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley. Section
404 of Sarbanes-Oxley requires that we evaluate and determine the effectiveness of our internal controls over financial
reporting. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a
timely basis and our financial statements may be materially misstated. We dedicate a significant amount of time and
resources to ensure compliance with these regulatory requirements. We will continue to evaluate areas such as corporate
governance, corporate control, internal audit, disclosure controls and procedures and financial reporting and accounting
systems. We will make changes in any of these and other areas, including our internal control over financial reporting, which
we believe are necessary. However, these and other measures we may take may not be sufficient to allow us to satisfy our
obligations as a public company on a timely and reliable basis.
We may have difficulty managing our planned growth properly.
One of our principal strategies is to continue to grow by expanding our operations and adding to our fleet. Our future
growth will primarily depend upon a number of factors, some of which may not be within our control. These factors include
our ability to:
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identify suitable tankers and/or shipping companies for acquisitions at attractive prices;
obtain required financing for our existing and new operations;
identify businesses engaged in managing, operating or owning tankers for acquisitions or joint ventures;
integrate any acquired tankers or businesses successfully with our existing operations, including obtaining any
approvals and qualifications necessary to operate vessels that we acquire;
hire, train and retain qualified personnel and crew to manage and operate our growing business and fleet;
identify additional new markets;
enhance our customer base; and
improve our operating, financial and accounting systems and controls.
Our current operating and financial systems may not be adequate as we implement our plan to take delivery of 55
newbuilding vessels between the date of this annual report and the second quarter of 2015 and to expand the size of our fleet
and our attempts to improve those systems may be ineffective. In addition, as we take delivery of our newbuilding vessels
and if we further expand our fleet, we will need to recruit suitable additional seafarers and shore side administrative and
management personnel. We cannot guarantee that we will be able to hire suitable employees as we take delivery of our new
vessels or expand our fleet. If we or our crewing agent encounters business or financial difficulties, we may not be able to
adequately staff our vessels. If we are unable to grow our financial and operating systems or to recruit suitable employees as
we expand our fleet, our financial performance may be adversely affected and, among other things, the amount of cash
available for distribution as dividends to our shareholders may be reduced.
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Our failure to effectively identify, purchase, develop and integrate any tankers or businesses could adversely affect
our business, financial condition and results of operations. The number of employees that perform services for us and our
current operating and financial systems may not be adequate as we implement our plan to expand the size of our fleet, and we
may not be able to effectively hire more employees or adequately improve those systems. Finally, acquisitions may require
additional equity issuances or debt issuances (with amortization payments), both of which could lower our available cash. If
any such events occur, our financial condition may be adversely affected.
Growing any business by acquisition presents numerous risks such as undisclosed liabilities and obligations,
difficulty in obtaining additional qualified personnel and managing relationships with customers and suppliers and integrating
newly acquired operations into existing infrastructures. The expansion of our fleet may impose significant additional
responsibilities on our management and staff, and the management and staff of our commercial and technical managers, and
may necessitate that we, and they, increase the number of personnel. We cannot give any assurance that we will be successful
in executing our growth plans or that we will not incur significant expenses and losses in connection with our future growth.
If we purchase and operate secondhand vessels, we will be exposed to increased operating costs which could adversely
affect our earnings and, as our fleet ages, the risks associated with older vessels could adversely affect our ability to
obtain profitable charters.
Our current business strategy includes additional growth through the acquisition of new and secondhand vessels.
While we typically inspect secondhand vessels prior to purchase, this does not provide us with the same knowledge about
their condition that we would have had if these vessels had been built for and operated exclusively by us. Generally, we do
not receive the benefit of warranties from the builders for the secondhand vessels that we acquire.
In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. Older
vessels are typically less fuel-efficient than more recently constructed vessels due to improvements in engine technology.
Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers.
Governmental regulations, safety or other equipment standards related to the age of vessels may require
expenditures for alterations, or the addition of new equipment, to our vessels and may restrict the type of activities in which
the vessels may engage. As our vessels age, market conditions may not justify those expenditures or enable us to operate our
vessels profitably during the remainder of their useful lives.
An increase in operating costs would decrease earnings and available cash.
Under time charter-out agreements, the charterer is responsible for voyage costs and the owner is responsible for the
vessel operating costs. The same applies to time-charter-in agreements. With the exception of certain vessels on short-term
time charter-out agreements, we currently have one vessel on a long-term time charter-out agreement (greater than one year)
and 31 vessels on time-charter-in agreements. When our owned vessels are employed under one of the Scorpio Group Pools,
the pool is responsible for voyage expenses and we are responsible for vessel costs. As of the date of this annual report, we
have 16 of our owned vessels and 31 of our time-chartered-in vessels employed through the Scorpio Group Pools. When our
vessels operate in the spot market, we are responsible for both voyage expenses and vessel operating costs. As of the date of
this annual report, four of the vessels in our Operating Fleet (defined later) operate in the spot market and one vessel is on
time charter. Our vessel operating costs include the costs of crew, fuel (for spot chartered vessels), provisions, deck and
engine stores, insurance and maintenance and repairs, which depend on a variety of factors, many of which are beyond our
control. Further, if our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydocking
repairs are unpredictable and can be substantial. Increases in any of these expenses would decrease earnings and available
cash.
Declines in charter rates and other market deterioration could cause us to incur impairment charges.
We evaluate the carrying amounts of our vessels to determine if events have occurred that would require an
impairment of their carrying amounts. The recoverable amount of vessels is reviewed based on events and changes in
circumstances that would indicate that the carrying amount of the assets might not be recovered. The review for potential
impairment indicators and projection of future cash flows related to the vessels is complex and requires us to make various
estimates including future freight rates, earnings from the vessels and discount rates. All of these items have been historically
volatile.
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We evaluate the recoverable amount as the higher of fair value less costs to sell and value in use. If the recoverable
amount is less than the carrying amount of the vessel, the vessel is deemed impaired. The carrying values of our vessels may
not represent their fair market value at any point in time because the new market prices of secondhand vessels tend to
fluctuate with changes in charter rates and the cost of newbuildings. For the year ended December 31, 2013, we evaluated the
recoverable amount of our vessels and we did not recognize an impairment loss, however we did record a $21.2 million
write-down resulting from the designation of four vessels, Senatore, Noemi, Venice and STI Spirit as held for sale. For the
year ended December 31, 2012, we evaluated the recoverable amount of our vessels, which did not result in an impairment
loss, however we did record a $10.4 million loss from disposal on the sales of the STI Conqueror, STI Gladiator, STI
Matador, STI Diamond and STI Coral. We cannot assure you that there will be not be further impairments in future years.
Any additional impairment charges incurred as a result of further declines in charter rates could negatively affect our
business, financial condition, operating results or the trading price of our common shares.
The market values of our vessels may decrease, which could limit the amount of funds that we can borrow or trigger
certain financial covenants under our current or future credit facilities and our may incur a loss if it sells vessels
following a decline in their market value.
The fair market values of our vessels have generally experienced high volatility. The fair market value of our vessels
may increase and decrease depending on a number of factors including, but not limited to, the prevailing level of charter rates
and day rates, general economic and market conditions affecting the international shipping industry, types, sizes and ages of
vessels, supply and demand for vessels, availability of or developments in other modes of transportation, competition from
other shipping companies, cost of newbuildings, governmental or other regulations and technological advances. In addition,
as vessels grow older, they generally decline in value. If the fair market value of our vessels declines, we may not be in
compliance with certain provisions of our credit facilities and we may not be able to refinance our debt, obtain additional
financing or make distributions to our shareholders and our subsidiaries may not be able to make distributions to us. The
prepayment of certain credit facilities may be necessary to cause us to maintain compliance with certain covenants in the
event that the value of its vessels fall below certain levels. Additionally, if we sell one or more of our vessels at a time when
vessel prices have fallen, the sale price may be less than the vessel’s carrying value on our consolidated financial statements,
resulting in a loss on sale or an impairment loss being recognized, ultimately leading to a reduction in earnings. Furthermore,
if vessel values fall significantly, this could indicate a decrease in the recoverable amount for the vessel which may result in
an impairment adjustment in our financial statements, which could adversely affect our financial results and condition.
If we are unable to operate our vessels profitably, we may be unsuccessful in competing in the highly competitive
international tanker market, which would negatively affect our financial condition and our ability to expand our
business.
The operation of tanker vessels and transportation of crude and petroleum products is extremely competitive, in an
industry that is capital intensive and highly fragmented. The recent global financial crisis may reduce the demand for
transportation of oil and oil products which could lead to increased competition. Competition arises primarily from other
tanker owners, including major oil companies as well as independent tanker companies, some of whom have substantially
greater resources than we do. Competition for the transportation of oil and oil products can be intense and depends on price,
location, size, age, condition and the acceptability of the tanker and its operators to the charterers. We will have to compete
with other tanker owners, including major oil companies as well as independent tanker companies.
Our market share may decrease in the future. We may not be able to compete profitably as we expand our business
into new geographic regions or provide new services. New markets may require different skills, knowledge or strategies than
we use in our current markets, and the competitors in those new markets may have greater financial strength and capital
resources than we do.
If we do not set aside funds and are unable to borrow or raise funds for vessel replacement, at the end of a vessel’s
useful life our revenue will decline, which would adversely affect our business, results of operations, financial
condition, and available cash.
If we do not set aside funds and are unable to borrow or raise funds for vessel replacement, we will be unable to
replace the vessels in our fleet upon the expiration of their remaining useful lives, which we expect to occur between 2026 to
2039, depending on the vessel. Our cash flows and income are dependent on the revenues earned by the chartering of our
vessels. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our business, results of
operations, financial condition, and available cash per share would be adversely affected. Any funds set aside for vessel
replacement will reduce available cash.
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Our ability to obtain additional financing may be dependent on the performance of our then existing charters and the
creditworthiness of our charterers.
The actual or perceived credit quality of our charterers, and any defaults by them, may materially affect our ability
to obtain the additional capital resources that we will require to purchase additional vessels or may significantly increase our
costs of obtaining such capital. Our inability to obtain additional financing at all or at a higher than anticipated cost may
materially affect our results of operation and our ability to implement our business strategy.
United States tax authorities could treat us as a “passive foreign investment company,” which could have adverse
United States federal income tax consequences to United States shareholders.
A foreign corporation will be treated as a “passive foreign investment company,” or PFIC, for United States federal
income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive
income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the production of those
types of “passive income.“For purposes of these tests, “passive income” includes dividends, interest, and gains from the sale
or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated
parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the
performance of services does not constitute “passive income.“United States shareholders of a PFIC are subject to a
disadvantageous United States federal income tax regime with respect to the income derived by the PFIC, the distributions
they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
Based on our current and proposed method of operation, we do not believe that we will be a PFIC with respect to
any taxable year. In this regard, we intend to treat the gross income we derive or are deemed to derive from our time
chartering activities as services income, rather than rental income. Accordingly, our income from our time and voyage
chartering activities should not constitute “passive income,” and the assets that we own and operate in connection with the
production of that income should not constitute assets that produce or are held for the production of “passive income.”
There is substantial legal authority supporting this position, consisting of case law and United States Internal
Revenue Service, or IRS, pronouncements concerning the characterization of income derived from time charters and voyage
charters as services income for other tax purposes. However, it should be noted that there is also authority that characterizes
time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be
given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could determine
that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if
the nature and extent of our operations change.
If the IRS were to find that we are or have been a PFIC for any taxable year, our United States shareholders would
face adverse United States federal income tax consequences and incur certain information reporting obligations. Under the
PFIC rules, unless those shareholders make an election available under the United States Internal Revenue Code of 1986, as
amended, or the Code (which election could itself have adverse consequences for such shareholders), such shareholders
would be subject to United States federal income tax at the then prevailing rates on ordinary income plus interest, in respect
of excess distributions and upon any gain from the disposition of their common shares, as if the excess distribution or gain
had been recognized ratably over the shareholder’s holding period of the common shares. See “Taxation—Passive Foreign
Investment Company Status and Significant Tax Consequences” for a more comprehensive discussion of the United States
federal income tax consequences to United States shareholders if we are treated as a PFIC.
We may have to pay tax on United States source shipping income, which would reduce our earnings.
Under the Code, 50% of the gross shipping income of a corporation that owns or charters vessels, as we and our
subsidiaries do, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United
States may be subject to a 4% United States federal income tax without allowance for deductions, unless that corporation
qualifies for exemption from tax under Section 883 of the Code and the regulations promulgated thereunder by the United
States Department of the Treasury.
We and our subsidiaries intend to take the position that we qualify for this statutory tax exemption for United States
federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause
us to lose the benefit of this tax exemption and thereby become subject to United States federal income tax on our United
States source shipping income. For example, we may no longer qualify for exemption under Section 883 of the Code for a
particular taxable year if shareholders with a five percent or greater interest in our common shares, or “5% Shareholders,”
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owned, in the aggregate, 50% or more of our outstanding common shares for more than half the days during the taxable year,
and there does not exist sufficient 5% Shareholders that are qualified shareholders for purposes of Section 883 of the Code to
preclude nonqualified 5% Shareholders from owning 50% or more of our common shares for more than half the number of
days during such taxable year or we are unable to satisfy certain substantiation requirements with regard to our 5%
Shareholders. Due to the factual nature of the issues involved, there can be no assurances on the tax-exempt status of us or
any of our subsidiaries.
If we or our subsidiaries were not entitled to exemption under Section 883 of the Code for any taxable year, we or
our subsidiaries could be subject for such year to an effective 2% United States federal income tax on the shipping income
we or they derive during such year which is attributable to the transport of cargoes to or from the United States. The
imposition of this taxation would have a negative effect on our business and would decrease our earnings available for
distribution to our shareholders.
We will be required to make additional capital expenditures to expand the number of vessels in our fleet and to
maintain all our vessels, which will be dependent on additional financing.
Our business strategy is based in part upon the expansion of our fleet through the purchase of additional vessels. If
we are unable to fulfill our obligations under any memorandum of agreement for future vessel acquisitions, the sellers of such
vessels may be permitted to terminate such contracts and we may forfeit all or a portion of the down payments we already
made under such contracts, and we may be sued for any outstanding balance.
In addition, we will incur significant maintenance costs for our existing and any newly-acquired vessels. A
newbuilding vessel must be drydocked within five years of its delivery from a shipyard, and vessels are typically drydocked
every 30 months thereafter, not including any unexpected repairs. We estimate the cost to drydock a vessel to be between
$500,000 and $1,000,000, depending on the size and condition of the vessel and the location of drydocking.
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate
law and, as a result, shareholders may have fewer rights and protections under Marshall Islands law than under a
typical jurisdiction in the United States.
Our corporate affairs are governed by our articles of incorporation and bylaws and by the Marshall Islands Business
Corporations Act, or BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in
the United States. However, there have been few judicial cases in the Republic of The Marshall Islands interpreting the BCA.
The rights and fiduciary responsibilities of directors under the law of the Republic of The Marshall Islands are not as clearly
established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain
United States jurisdictions. Shareholder rights may differ as well. While the BCA does specifically incorporate the non-
statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions,
our public shareholders may have more difficulty in protecting their interests in the face of actions by management, directors
or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction.
It may be difficult to serve process on or enforce a United States judgment against us, our officers and our directors
because we are a foreign corporation.
We are a corporation formed in the Republic of The Marshall Islands, and some of our directors and officers and
certain of the experts named in this offering are located outside the United States. In addition, a substantial portion of our
assets and the assets of our directors, officers and experts are located outside of the United States. As a result, you may have
difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty
enforcing, both in and outside the United States, judgments you may obtain in U.S. courts against us or any of these persons
in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. Furthermore,
there is substantial doubt that the courts of the Republic of The Marshall Islands or of the non-U.S. jurisdictions in which our
offices are located would enter judgments in original actions brought in those courts predicated on U.S. federal or state
securities laws.
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RISKS RELATED TO OUR RELATIONSHIP WITH SCORPIO GROUP AND ITS AFFILIATES
We are dependent on our managers and their ability to hire and retain key personnel, and there may be conflicts of
interest between us and our managers that may not be resolved in our favor.
Our success depends to a significant extent upon the abilities and efforts of our technical manager, SSM, our
commercial manager, SCM, and our management team. Our success will depend upon our and our managers’ ability to hire
and retain key members of our management team. The loss of any of these individuals could adversely affect our business
prospects and financial condition.
Difficulty in hiring and retaining personnel could adversely affect our results of operations. We do not maintain
“key man” life insurance on any of our officers.
Our technical and commercial managers are affiliates of Scorpio Group, which is owned and controlled by the Lolli-
Ghetti family, of which our founder, Chairman and Chief Executive Officer, Mr. Emanuele Lauro, is a member. Conflicts of
interest may arise between us, on the one hand, and our commercial and technical managers, on the other hand. As a result of
these conflicts, our commercial and technical managers, who have limited contractual duties, may favor their own or their
owner’s interests over our interests. These conflicts may have unfavorable results for us.
Our founder, Chairman and Chief Executive Officer has affiliations with our commercial and technical managers
which may create conflicts of interest.
Emanuele Lauro, our founder, Chairman and Chief Executive Officer, is a member of the Lolli-Ghetti family which
owns and controls our commercial and technical managers. These responsibilities and relationships could create conflicts of
interest between us, on the one hand, and our commercial and technical managers, on the other hand. These conflicts may
arise in connection with the chartering, purchase, sale and operations of the vessels in our fleet versus vessels managed by
other companies affiliated with our commercial or technical managers. Our commercial and technical managers may give
preferential treatment to vessels that are time chartered-in by related parties because our founder, Chairman and Chief
Executive Officer and members of his family may receive greater economic benefits. In particular, as of the date of this
annual report, our commercial and technical managers provide commercial and technical management services to
approximately 56 and 8 vessels respectively, other than the vessels in our fleet, that are owned or operated by entities
affiliated with Mr. Lauro, and such entities may acquire additional vessels that will compete with our vessels in the future.
Such conflicts may have an adverse effect on our results of operations.
Certain of our officers do not devote all of their time to our business, which may hinder our ability to operate
successfully.
Certain of our officers participate in business activities not associated with us, and as a result, they may devote less
time to us than if they were not engaged in other business activities and may owe fiduciary duties to the shareholders of both
us as well as shareholders of other companies which they may be affiliated, including other Scorpio Group companies. This
may create conflicts of interest in matters involving or affecting us and our customers and it is not certain that any of these
conflicts of interest will be resolved in our favor. This could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
Our commercial and technical managers are each privately held companies and there is little or no publicly available
information about them.
SCM is our commercial manager and SSM is our technical manager. SCM’s and SSM’s ability to render
management services will depend in part on their own financial strength. Circumstances beyond our control could impair our
commercial manager’s or technical manager’s financial strength, and because each is a privately held company, information
about the financial strength of our commercial manager and technical manager is not available. As a result, we and our
shareholders might have little advance warning of financial or other problems affecting our commercial manager or technical
manager even though their financial or other problems could have a material adverse effect on us.
16
We are subject to certain risks with respect to our counterparties on contracts, and failure of such counterparties to
meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.
We have entered into, and may enter in the future, various contracts, including, charter agreements and credit
facilities. Such agreements subject us to counterparty risks. The ability of each of our counterparties to perform its
obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among
other things, general economic conditions, the condition of the maritime and offshore industries, the overall financial
condition of the counterparty, charter rates received for specific types of vessels, and various expenses. For example, the
combination of a reduction of cash flow resulting from declines in world trade, a reduction in borrowing bases under reserve-
based credit facilities and the lack of availability of debt or equity financing may result in a significant reduction in the ability
of our charterers to make charter payments to us. In addition, in depressed market conditions, our charterers and customers
may no longer need a vessel that is currently under charter or contract or may be able to obtain a comparable vessel at lower
rates. As a result, charterers and customers may seek to renegotiate the terms of their existing charter agreements or avoid
their obligations under those contracts. Should a counterparty fail to honor its obligations under agreements with us, we could
sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations
and cash flows.
The failure of our charterers to meet their obligations under our charter agreements, on which we depend for our
revenues, could cause us to suffer losses or otherwise adversely affect our business.
As of the date of this annual report, we employ one vessel under a long-term time charter agreement and we may
enter into such agreements in the future. The ability and willingness of each of our counterparties to perform their obligations
under a time charter, spot voyage or other agreement with us will depend on a number of factors that are beyond our control
and may include, among other things, general economic conditions, the condition of the tanker shipping industry and the
overall financial condition of the counterparties. Charterers are sensitive to the commodity markets and may be impacted by
market forces affecting commodities such oil. In addition, in depressed market conditions, there have been reports of
charterers renegotiating their charters or defaulting on their obligations under charters. Our customers may fail to pay
charterhire or attempt to renegotiate charter rates. Should a counterparty fail to honor its obligations under agreements with
us, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements we secure in the
spot market or on time charters may be at lower rates given currently decreased tanker charter rate levels. When we employ a
vessel in the spot charter market, we generally place such vessel in a tanker pool managed by our commercial manager that
pertains to that vessel’s size class. If our charterers fail to meet their obligations to us or attempt to renegotiate our charter
agreements, we could sustain significant losses which could have a material adverse effect on our business, financial
condition, results of operations and cash flows, as well as our ability to pay dividends, if any, in the future, and compliance
with covenants in our credit facilities.
Our insurance may not be adequate to cover our losses that may result from our operations due to the inherent
operational risks of the tanker industry.
We carry insurance to protect us against most of the accident-related risks involved in the conduct of our business,
including marine hull and machinery insurance, protection and indemnity insurance, which include pollution risks, crew
insurance and war risk insurance. However, we may not be adequately insured to cover losses from our operational risks,
which could have a material adverse effect on us. Additionally, our insurers may refuse to pay particular claims and our
insurance may be voidable by the insurers if we take, or fail to take, certain action, such as failing to maintain certification of
our vessels with applicable maritime regulatory organizations. Any significant uninsured or under-insured loss or liability
could have a material adverse effect on our business, results of operations, cash flows and financial condition and our
available cash. In addition, we may not be able to obtain adequate insurance coverage at reasonable rates in the future during
adverse insurance market conditions.
Changes in the insurance markets attributable to terrorist attacks may also make certain types of insurance more
difficult for us to obtain due to increased premiums or reduced or restricted coverage for losses caused by terrorist acts
generally.
Because we obtain some of our insurance through protection and indemnity associations, which result in significant
expenses to us, we may be required to make additional premium payments.
We may be subject to increased premium payments, or calls, in amounts based on our claim records, the claim
records of our managers, as well as the claim records of other members of the protection and indemnity associations through
17
which we receive insurance coverage for tort liability, including pollution-related liability. In addition, our protection and
indemnity associations may not have enough resources to cover claims made against them. Our payment of these calls could
result in significant expense to us, which could have a material adverse effect on our business, results of operations, cash
flows, financial condition and available cash.
RISKS RELATED TO OUR INDEBTEDNESS
Servicing our current or future indebtedness limits funds available for other purposes and if we cannot service our
debt, we may lose our vessels.
Borrowing under our credit facilities requires us to dedicate a part of our cash flow from operations to paying
interest on our indebtedness. These payments limit funds available for working capital, capital expenditures and other
purposes, including further equity or debt financing in the future. Amounts borrowed under our credit facilities bear interest
at variable rates. Increases in prevailing rates could increase the amounts that we would have to pay to our lenders, even
though the outstanding principal amount remains the same, and our net income and cash flows would decrease. We expect
our earnings and cash flow to vary from year to year due to the cyclical nature of the tanker industry. If we do not generate or
reserve enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing
plans, such as:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
seeking to raise additional capital;
refinancing or restructuring our debt;
selling tankers; or
reducing or delaying capital investments.
However, these alternative financing plans, if necessary, may not be sufficient to allow us to meet our debt
obligations. If we are unable to meet our debt obligations or if some other default occurs under our credit facilities, our
lenders could elect to declare that debt, together with accrued interest and fees, to be immediately due and payable and
proceed against the collateral vessels securing that debt even though the majority of the proceeds used to purchase the
collateral vessels did not come from our credit facilities.
Our credit facilities contain restrictive covenants which limit the amount of cash that we may use for other corporate
activities, which could negatively affect our growth and cause our financial performance to suffer.
Our credit facilities impose operating and financial restrictions on us. These restrictions limit our ability, or the
ability of our subsidiaries party thereto to, among other things:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
\pay dividends and make capital expenditures if we do not repay amounts drawn under our credit facilities or if
there is another default under our credit facilities;
incur additional indebtedness, including the issuance of guarantees;
create liens on our assets;
change the flag, class or management of our vessels or terminate or materially amend the management
agreement relating to each vessel;
sell our vessels;
(cid:120) merge or consolidate with, or transfer all or substantially all our assets to, another person; or
(cid:120)
enter into a new line of business.
Therefore, we will need to seek permission from our lenders in order to engage in some corporate actions. Our
lenders’ interests may be different from ours and we may not be able to obtain our lenders’ permission when needed. This
may limit our ability to pay dividends to you if we determine to do so in the future, finance our future operations or capital
requirements, make acquisitions or pursue business opportunities.
18
ITEM 4.
INFORMATION ON THE COMPANY
A.
History and Development of the Company
Scorpio Tankers Inc. was incorporated in the Republic of the Marshall Islands pursuant to the Marshall Islands
Business Corporations Act on July 1, 2009. We provide seaborne transportation of refined petroleum products and crude oil
worldwide. We began our operations in October 2009 with three vessel owning and operating subsidiary companies. In April
2010, we completed our initial public offering and commenced trading on the New York Stock Exchange, or NYSE, under
the symbol “STNG.” We have since expanded our fleet and as of the date of this annual report, our fleet consists of 21
wholly owned tankers (one LR2 tanker, three LR1 tankers, one Handymax tanker, 15 MR tankers, and one post-Panamax
tanker) with a weighted average age of approximately 3.9 years, and 31 time chartered-in tankers which we operate (nine
Handymax tankers, seven MR tankers, five LR1 tankers and ten LR2 tankers), which we refer to collectively as our
Operating Fleet. In addition, we currently have contracts for the construction of 55 newbuilding product tankers (29 MR
tankers, 14 Handymax ice class 1-A tankers, and 12 LR2 tankers), which we refer to as our Newbuilding Program. Of the
vessels in our Newbuilding Program, 42 are expected to be delivered to us throughout 2014 and 13 in 2015. We also own
approximately 26% of the outstanding shares of Dorian LPG Ltd., or Dorian, an international liquefied petroleum gas, or
LPG, shipping company, which has an operating fleet of four LPG carriers (three of which are very large gas carriers, or
VLGCs) and contracts for the construction of 19 fuel-efficient VLGC newbuildings from reputable shipyards.
Our principal executive offices are located at 9, Boulevard Charles III, Monaco 98000 and our telephone number at
that address is +377-9798-5716.
Fleet Development
Newbuilding vessels
Under our Newbuilding Program, we currently have contracts for the construction of 55 newbuilding product
tankers with shipyards, including HMD, HSHI, SPP and DSME, consisting of (i) 14 MR tankers with HMD for an aggregate
purchase price of $487.7 million, (ii) 15 MR product tankers with SPP for an aggregate purchase price of $515.7 million, (iii)
14 Handymax ice class-1A tankers with HMD for an aggregate purchase price of $440.5 million, (iv) eight LR2 product
tankers with HSHI for an aggregate purchase price of $404.0 million and (v) four LR2 product tankers with DSME for an
aggregate purchase price of $200.0 million. Of these vessels, 42 vessels are expected to be delivered to us throughout 2014
and 13 in 2015.
As of March 31, 2014, we have paid $551.0 million of installment payments related to these newbuilding product
tankers and are committed to make additional installment payments of $1,417.5 million.
Owned vessels
We currently have 21 wholly-owned vessels in operation.
During 2013, we took delivery of seven MR vessels in our Newbuilding Program, STI Sapphire, STI Emerald, STI
Beryl, STI Le Rocher, STI Larvotto, STI Fontvieille, and STI Ville, and in January and March 2014, we took delivery of an
additional three vessels in our Newbuilding Program, STI Duchessa, STI Opera and STI Texas City.
In December 31, 2013, we designated four vessels as held for sale in our consolidated financial statements; two
2004-built LR1 product tankers, Noemi and Senatore, a 2001-built Post-Panamax tanker, Venice, and a 2008-built LR2
product tanker, STI Spirit. As part of this designation, we recorded a $21.2 million write-down to remeasure these vessels at
the lower of their carrying amount and fair value less costs to sell.
In December 2013, we reached agreements with DSME and HSHI for the construction of seven Very Large Crude
Carriers, or VLCCs, for an aggregate purchase price of $662.2 million with deliveries in 2015 and 2016. In March 2014, we
entered into an agreement to sell these seven VLCCs to an unaffiliated third party for cash. As part of these sales, we expect
to record a gain on disposal of approximately $50.0 million in the first quarter of 2014.
In January 2014, we took delivery of two vessels in our Newbuilding Program, STI Duchessa and STI Opera. Upon
delivery, these vessels began short term time charters for up to 120 days at approximately $19,000 per day.
19
In January 2014, we agreed to sell Noemi and Senatore for an aggregate selling price of $44.0 million. Noemi was
sold in March 2014 and the sale of Senatore is expected to close in April 2014. As part of these sales, we repaid $22.7
million into our 2010 Revolving Credit Facility in March 2014. Consequently, the availability of this facility is reduced by
such amount and the quarterly reduction is reduced to $2.1 million from $3.1 million per quarter. We will also write-off a
total of $0.2 million of deferred financing fees as part of the debt repayments associated with these sales.
In February 2014, we agreed to sell STI Spirit for approximately $30.2 million. As part of this sale, we will repay all
amounts due under the STI Spirit Credit Facility of $21.4 million. This sale is expected to close in April 2014. We will also
write-off a total of $0.3 million of deferred financing fees as part of the debt repayments associated with this sale.
In March 2014, we took delivery of an MR tanker under our Newbuilding Program, STI Texas City. After delivery,
this vessel began a time charter for two years at $16,000 per day. This time charter includes a profit sharing mechanism
whereby earnings in excess of the base time charter rate will be split between us and the charterer, Valero.
Investment in Dorian LPG Ltd.
In July and August 2013, we entered into contracts with HSHI and DSME for the construction of nine VLGCs for
$75.6 million each, and in October 2013, we entered into contracts with HSHI for the construction of two additional VLGCs
for $75.0 million each.
In November 2013, we contributed the VLGC business, which included the aforementioned 11 VLGC contracts
along with options to purchase two additional VLGCs, together with a cash payment of $1.9 million, to Dorian in exchange
for newly issued shares of Dorian representing 30% of Dorian’s pro-forma outstanding shares at that time. As of the closing
date of the transaction, we paid $83.1 million in installment payments under the 11 VLGC contracts.
Additionally, in November 2013, we purchased 24,121,621 new Dorian common shares as part of a private
placement of shares for total consideration of $75.0 million. We currently own 64,073,744 common shares representing
approximately 26% of the outstanding shares of Dorian. As of March 31, 2014, these shares were traded on the Norwegian
OTC List under the symbol “DORIAN.”
Time chartered-in vessels
During 2013, we time chartered-in 30 vessels (nine Handymax tankers, seven MR tankers, five LR1 tankers and
nine LR2 tankers), compared to 21 vessels in 2012. As of the date of this annual report, we time charter-in 31 vessels (nine
Handymax tankers, seven MR tankers, five LR1 tankers and ten LR2 tankers). Please see our fleet list below under “—B.
Business Overview” for further information regarding these vessels.
In February 2014, we entered into a new time charter-in agreement on an LR2 vessel that is currently time
chartered-in. The new agreement is for six months at $16,500 per day and commenced upon the expiration of the existing
charter in February 2014.
In February 2014, we entered into a new time charter-in agreement on an LR2 vessel. The agreement is for one year
at $15,000 per day. We have the option to extend the charter for an additional six months at $16,250 per day. We took
delivery of this vessel in March 2014.
Other Recent Developments
Credit Facilities
2010 Revolving Credit Facility
In January 2014, we drew down $72.4 million from the 2012 Revolving Credit Facility. In March 2014, we paid
$22.7 million into this facility as a result of the sales of Noemi and Senatore.
2011 Credit Facility
In January 2014, we drew down $52.0 million from the 2011 Credit Facility. In connection with this drawdown, STI
Duchessa, STI Le Rocher and STI Larvotto were provided as collateral under the facility.
20
Newbuilding Credit Facility
In March 2014, we amended and restated our Newbuilding Credit Facility with Credit Agricole Corporate and
Investment Bank and Skandinaviska Enskilda Banken AB, to convert it from a term loan to a reducing revolving credit
facility. This gives us the ability to pay down and re-borrow from the total available commitments under the loan. All other
terms and definitions remain unchanged. The facility was fully drawn as of the date of this annual report.
2013 Credit Facility
In February 2014, we drew down $64.2 million from the 2013 Credit Facility. In connection with the drawdown, STI
Opera, STI Fontvieille and STI Ville were provided as collateral under the facility.
In March 2014, we drew down $20.5 million from this facility to partially finance the delivery of STI Texas City.
Upon delivery from the shipyard, this vessel began a time charter for two years at $16,000 per day. The agreement also
contains a profit sharing provision whereby we will split all of the vessel’s profits above the daily base rate with the charterer.
K-Sure Credit Facility
In February 2014, we executed a $458.3 million senior secured term loan facility which consists of a $358.3 million
tranche with a group of financial institutions that is being 95% covered by Korea Trade Insurance Corporation, or the K-Sure
Tranche, and a $100.0 million commercial tranche with a group of financial institutions led by DNB Bank SA, or the
Commercial Tranche. We refer to this credit facility as our K-Sure Credit Facility. For a full description of this credit facility,
please see the section of this annual report entitled “Item 5. Operating and Financial Review and Prospects.”
KEXIM Credit Facility
In February 2014, we executed a senior secured term loan facility with a group of financial institutions led by DNB
Bank ASA and Skandinaviska Enskilda Banken AB (publ) and from the Export-Import Bank of Korea, or KEXIM, for a total
loan facility of $429.6 million. This facility includes commitments from KEXIM of up to $300.6 million, or the KEXIM
Tranche, and a group of financial institutions led by DNB Bank ASA and Skandinaviska Enskilda Banken AB (publ) of up to
$129.0 million, or the Commercial Tranche. We refer to this credit facility as our KEXIM Credit Facility. For a full
description of this credit facility, please see the section of this annual report entitled Item “5. Operating and Financial Review
and Prospects.”
Dividend Declaration
On February 21, 2014, our board of directors declared a quarterly cash dividend of $0.08 per share, which was paid
on March 26, 2014 to shareholders of record as of March 11, 2014.
B.
Business Overview
We provide seaborne transportation of refined petroleum products and crude oil worldwide. As of the date of this
annual report, our fleet consists of 21 wholly owned tankers (one LR2 tanker, three LR1 tankers, one Handymax tanker, 15
MR tankers, and one post-Panamax tanker) with a weighted average age of approximately 3.9 years and 31 time chartered-in
tankers (ten LR2 tankers, five LR1 tankers, seven MR tankers and nine Handymax tankers), which we refer to collectively as
our Operating Fleet. Additionally, we currently have contracts for 55 newbuilding product tankers (14 Handymax ice class 1-
A tankers, 29 MR tankers and 12 LR2 tankers), of which 42 are expected to be delivered to us throughout 2014 and 13 in
2015. We also own approximately 26% of the outstanding shares of Dorian.
21
The following table sets forth certain information regarding our fleet as of the date of this annual report:
Vessel Name
Year Built
DWT
Ice
class
Employment
Vessel type
Owned vessels
1 STI Highlander
2 STI Amber
3 STI Topaz
4 STI Ruby
5 STI Garnet
6 STI Onyx
7 STI Sapphire
8 STI Emerald
9 STI Beryl
10 STI Le Rocher
11 STI Larvotto
12 STI Fontvieille
13 STI Ville
14 STI Duchessa
15 STI Opera
16 STI Texas City
17 Senatore
18 STI Harmony
19 STI Heritage
20 Venice
21 STI Spirit
2007
2012
2012
2012
2012
2012
2013
2013
2013
2013
2013
2013
2013
2014
2014
2014
2004
2007
2008
2001
2008
37,145
1A
SHTP (1)
Handymax
52,000
52,000
52,000
52,000
52,000
52,000
52,000
-
-
-
-
-
-
-
52,000
-
SMRP(4)
SMRP(4)
SMRP(4)
SMRP(4)
SMRP(4)
SMRP(4)
SMRP(4)
SMRP(4)
52,000
-
SMRP(4)
52,000
-
SMRP(4)
52,000
52,000
52,000
52,000
-
-
-
-
52,000
-
72,514
73,919
73,919
81,408
113,100
-
1A
1A
1C
-
SMRP(4)
SMRP(4)
Spot
Spot
Time Charter
(5)
Spot
SPTP (2)
SPTP (2)
Spot
SLR2P (3)
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
LR1
LR1
LR1
Post-Panamax
LR2
(6)
(6)
Total owned DWT
1,232,005
22
Vessel Name
Year Built
DWT
Time chartered-in vessels
22 Freja Polaris
23 Kraslava
24 Krisjanis Valdemars
25 Jinan
26 Iver Progress
27 Iver Prosperity
28 Histria Azure
29 Histria Coral
30 Histria Perla
31 STX Ace 6
32 Targale
33 Gan-Triumph
34 Nave Orion
35 Hafnia Lupus
36 Gan-Trust
37 Usma
38 SN Federica
39 SN Azzura
40 King Douglas
41 Hellespont Promise
42 FPMC P Eagle
43 FPMC P Hero
44 FPMC P Ideal
45 Swarna Jayanti
46 Densa Alligator
47 Khawr Aladid
48 Fair Seas
49 Southport
50 Pink Stars
51 Four Sky
52 Orange Stars
2004
2007
2007
2003
2007
2007
2007
2006
2005
2007
2007
2010
2013
2012
2013
2007
2003
2003
2008
2007
2009
2011
2012
2010
2013
2006
2008
2008
2010
2010
2011
37,217
37,258
37,266
37,285
37,412
37,455
40,394
40,426
40,471
46,161
49,999
49,999
49,999
50,385
51,561
52,684
72,344
72,344
73,666
73,669
73,800
99,995
99,993
104,895
105,708
106,003
115,406
115,462
115,592
115,708
115,756
Total time chartered-in DWT
2,156,313
Ice
class
1B
1B
1B
-
-
-
-
-
-
-
-
-
-
-
-
1B
-
-
-
-
-
-
-
-
-
-
-
-
-
Employment
Vessel type
Daily
Base Rate
Expiry (7)
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
MR
MR
MR
MR
MR
MR
MR
LR1
LR1
LR1
LR1
LR1
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
$12,700
$12,800
$12,800
$12,600
$12,500
$12,500
$12,600
$12,800
$12,800
$14,150
$14,500
$14,150
$14,300
$14,760
$16,250
$14,500
$11,250
$13,600
$14,000
$14,250
$14,525
$15,000
$15,250
$15,000
$16,500
$15,400
$16,500
$15,700
$16,125
$16,250
$16,125
14-Apr-14 (8)
18-May-14 (9)
14-Apr-14 (10)
28-Apr-15
03-Mar-15 (11)
20-Oct-14 (12)
04-Apr-14 (13)
17-Jul-14 (14)
15-Jul-14 (14)
17-May-14 (15)
17-May-14 (16)
20-May-14
25-Mar-15 (17)
26-Apr-14 (18)
06-Jan-16 (19)
03-Jan-15
15-May-15 (20)
25-Dec-14
08-Aug-14 (21)
14-Aug-14
09-Sep-15
02-May-14 (22)
09-Jul-14 (23)
11-Mar-15 (24)
17-Sep-14 (25)
11-Jul-15
21-Aug-14
10-Dec-14
10-Apr-14
02-Sep-14
06-Apr-14
SHTP (1)
SHTP (1)
SHTP (1)
SHTP (1)
SHTP (1)
SHTP (1)
SHTP (1)
SHTP (1)
SHTP (1)
SMRP(4)
SMRP(4)
SMRP(4)
SMRP(4)
SMRP(4)
SMRP(4)
SMRP(4)
SPTP (2)
SPTP (2)
SPTP (2)
SPTP (2)
SPTP (2)
SLR2P (3)
SLR2P (3)
SLR2P (3)
SLR2P (3)
SLR2P (3)
SLR2P (3)
SLR2P (3)
SLR2P (3)
SLR2P (3)
SLR2P (3)
23
Newbuildings currently under construction
Vessel Name
Yard
DWT
53 Hull 2451
54 Hull 2452
55 Hull 2453
56 Hull 2454
57 Hull 2462
58 Hull 2463
59 Hull 2464
60 Hull 2465
61 Hull 2476
62 Hull 2477
63 Hull 2478
64 Hull 2479
65 Hull 2499
66 Hull 2500
67 Hull 2391
68 Hull 2392
69 Hull 2449
70 Hull 2450
71 Hull 2458
72 Hull 2459
73 Hull 2460
74 Hull 2461
75 Hull 2492
76 Hull 2493
77 Hull 2445
78 Hull 2474
79 Hull 2475
80 Hull 2490
81 Hull S1138
82 Hull S1139
83 Hull S1140
84 Hull S1141
85 Hull S1142
86 Hull S1143
87 Hull S1144
88 Hull S1145
89 Hull S1167
90 Hull S1168
91 Hull S1169
92 Hull S1170
93 Hull S5123
94 Hull S5124
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
HMD
SPP
SPP
SPP
SPP
SPP
SPP
SPP
SPP
SPP
SPP
SPP
SPP
SPP
SPP
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(26)
(27)
(27)
(27)
(27)
(27)
(27)
(27)
(27)
(27)
(27)
(27)
(27)
(27)
(27)
38,000
38,000
38,000
38,000
38,000
38,000
38,000
38,000
38,000
38,000
38,000
38,000
38,000
38,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
52,000
Ice
class
1A
1A
1A
1A
1A
1A
1A
1A
1A
1A
1A
1A
1A
1A
24
Vessel type
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
Ice
class
Vessel type
MR
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
Vessel Name
95 Hull S5125
96 Hull S703
97 Hull S704
98 Hull S705
99 Hull S706
100 Hull S709
101 Hull S710
102 Hull S715
103 Hull S716
104 Hull 5394
105 Hull 5395
106 Hull 5398
107 Hull 5399
Yard
SPP
HSHI
HSHI
HSHI
HSHI
HSHI
HSHI
HSHI
HSHI
DSME
DSME
DSME
DSME
DWT
52,000
114,000
114,000
114,000
114,000
114,000
114,000
114,000
114,000
114,000
114,000
114,000
114,000
(27)
(28)
(28)
(28)
(28)
(28)
(28)
(28)
(28)
(29)
(29)
(29)
(29)
Total newbuilding product tankers DWT
3,408,000
Total Fleet DWT
6,796,318
(1) This vessel operates in or is expected to operate in the Scorpio Handymax Tanker Pool (SHTP). SHTP is operated by Scorpio Commercial
Management (SCM). SHTP and SCM are related parties to the Company.
(2) This vessel operates in or is expected to operate in the Scorpio Panamax Tanker Pool (SPTP). SPTP is operated by SCM. SPTP is a related party to the
Company.
(3) This vessel operates in or is expected to operate in the Scorpio LR2 Pool (SLR2P). SLR2P is operated by SCM. SLR2P is a related party to the
Company.
(4) This vessel operates in or is expected to operate in the Scorpio MR Pool (SMRP). SMRP is operated by SCM. SMRP is a related party to the
Company.
(5) This vessel is on a time charter agreement for two years at $16,000 per day that expires in March 2016. The agreement also contains a 50% profit
sharing provision whereby we split all of the vessel’s profits above the daily base rate with the charterer.
(6) We have entered into agreements to sell these vessels. These sales are expected to close in April 2014.
(7) Redelivery from the charterer is plus or minus 30 days from the expiry date.
(8) We have an option to extend the charter for an additional year at $14,000 per day.
(9) We have an option to extend the charter for an additional year at $13,650 per day.
(10) We have an option to extend the charter for an additional year at $13,650 per day. The agreement also contains a 50% profit and loss sharing provision
whereby we split all of the vessel’s profits and losses above or below the daily base rate with the vessel’s owner.
(11) We have an option to extend the charter for an additional year at $13,500 per day.
(12) We have an option to extend the charter for an additional year at $13,250 per day.
(13) We have an option to extend the charter for an additional year at $13,550 per day.
(14) We have an option to extend the charter for an additional year at $13,550 per day.
(15) We have an option to extend the charter for an additional year at $15,150 per day.
(16) We have options to extend the charter for up to three consecutive one year periods at $14,850 per day, $15,200 per day and $16,200 per day,
respectively.
(17) We have an option to extend the charter for an additional year at $15,700 per day.
(18) We have an option to extend the charter for an additional year at $16,000 per day.
(19) The daily base rate represents the average rate for the three year duration of the agreement. The rate for the first year is $15,750 per day, the rate for
the second year is $16,250 per day, and the rate for the third year is $16,750 per day. We have options to extend the charter for up to two consecutive
one year periods at $17,500 per day and $18,000 per day, respectively.
(20) We have an option to extend the charter for an additional year at $12,500 per day. We have also entered into an agreement with the vessel’s owner
whereby we split all of the vessel’s profits above the daily base rate.
25
(21) We have an option to extend the charter for an additional year at $15,000 per day.
(22) We have options to extend the charter for two consecutive six month periods at $15,250 per day, and $15,500 per day respectively.
(23) We have an option to extend the charter for an additional six months at $15,500 per day.
(24) We have an option to extend the charter for an additional six months at $16,250 per day.
(25) We have an option to extend the charter for one year at $17,550 per day.
(26) These newbuilding vessels are being constructed at HMD (Hyundai Mipo Dockyard Co. Ltd. of South Korea). 23 vessels are expected to be delivered
in 2014 and five vessels in the first and second quarters of 2015.
(27) These newbuilding vessels are being constructed at SPP (SPP Shipbuilding Co., Ltd. of South Korea ). 11 vessels are expected to be delivered in 2014
and four in the first and second quarters of 2015.
(28) These newbuilding vessels are being constructed at HSHI (Hyundai Samho Heavy Industries Co., Ltd.). Six vessels are expected to be delivered in the
third and fourth quarters of 2014 and two in the first quarter of 2015.
(29) These newbuilding vessels are being constructed at DSME (Daewoo Shipbuilding and Marine Engineering). Two vessels are expected to be delivered
in the fourth quarter of 2014 and two in the second quarter of 2015.
Chartering strategy
Generally, we operate our vessels in commercial pools on time charters or in the spot market.
Commercial Pools
To increase vessel utilization and thereby revenues, we participate in commercial pools with other shipowners of
similar modern, well-maintained vessels. As of the date of this annual report, 47 of the vessels in our Operating Fleet operate
in one of the Scorpio Group Pools. By operating a large number of vessels as an integrated transportation system, commercial
pools offer customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools employ
experienced commercial managers and operators who have close working relationships with customers and brokers, while
technical management is performed by each shipowner. Pools negotiate charters with customers primarily in the spot market.
The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and
contracts of affreightment, or COAs, thus generating higher effective TCE revenues than otherwise might be obtainable in
the spot market.
Time Charters
Time charters give us a fixed and stable cash flow for a known period of time. Time charters also mitigate in part the
seasonality of the spot market business, which is generally weaker in the second and third quarters of the year. In the future,
we may opportunistically look to enter our vessels into time charter contracts. We may also enter into time charter contracts
with profit sharing agreements, which enable us to benefit if the spot market increases. As of the date of this annual report,
one of the vessels in our Operating Fleet is operating under a long-term time charter (greater than one year).
Spot Market
A spot market voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for
an agreed freight per ton of cargo or a specified total amount. Under spot market voyage charters, we pay voyage expenses
such as port, canal and bunker costs. Spot charter rates are volatile and fluctuate on a seasonal and year-to-year basis.
Fluctuations derive from imbalances in the availability of cargoes for shipment and the number of vessels available at any
given time to transport these cargoes. Vessels operating in the spot market generate revenue that is less predictable, but may
enable us to capture increased profit margins during periods of improvements in tanker rates. As of the date of this annual
report, four of the vessels in our Operating Fleet, STI Duchessa, STI Opera, Senatore and Venice were operating directly in
the spot market.
26
Management of our fleet
Commercial and Technical Management
Our vessels are commercially managed by Scorpio Commercial Management S.A.M., or SCM, and technically
managed by Scorpio Ship Management S.A.M., or SSM, pursuant to a Master Agreement, which may be terminated upon
two years notice. SCM and SSM are related parties of ours. We expect that additional vessels that we may acquire in the
future will also be managed under the Master Agreement or on substantially similar terms.
SCM’s services include securing employment, in the spot market and on time charters, for our vessels. SCM also
manages the Scorpio Group Pools. When our vessels are operating in one of the Scorpio Group Pools, SCM, the pool
manager, charges fees of $300 per vessel per day with respect to our Panamax/LR1 vessels, $250 per vessel per day with
respect to our LR2 vessels, and $325 per vessel per day with respect to each of our Handymax and MR vessels, plus 1.50%
commission on gross revenues per charter fixture. These are the same fees that SCM charges other vessel owners in these
pools, including third party owned vessels. For commercial management of our vessels that are not operating in any of the
Scorpio Group Pools, we pay SCM a fee of $250 per vessel per day for each Panamax, LR1 and LR2 vessel and $300 per
vessel per day for each Handymax and MR vessel, plus 1.25% commission on gross revenues per charter fixture.
SSM’s services include day-to-day vessel operation, performing general maintenance, monitoring regulatory and
classification society compliance, customer vetting procedures, supervising the maintenance and general efficiency of
vessels, arranging the hiring of qualified officers and crew, arranging and supervising drydocking and repairs, purchasing
supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants and providing technical
support. We currently pay SSM $685 per vessel per day to provide technical management services for each of our vessels
which is the same fee that SSM charges to third parties.
Administrative Services Agreement
We have an Administrative Services Agreement with Scorpio Services Holding Limited, or SSH, or our
Administrator, for the provision of administrative staff and office space, and administrative services, including accounting,
legal compliance, financial and information technology services. SSH is a related party of ours. Liberty, a company affiliated
with us, acted as our Administrator until March 13, 2012 when the Administrative Services Agreement was novated to SSH.
The effective date of the novation was November 9, 2009, the date that we first entered into the agreement with Liberty. We
reimburse our current Administrator for the reasonable direct or indirect expenses it incurs in providing us with the
administrative services described above. Our Administrator also arranges vessel sales and purchases for us. The services
provided to us by our Administrator may be sub-contracted to other entities within the Scorpio Group.
We pay our Administrator a fee for arranging vessel purchases and sales for us, equal to 1% of the gross purchase or
sale price, payable upon the consummation of any such purchase or sale. For the year ended December 31, 2013, we paid our
Administrator $9.1 million, which consisted of $2.5 million related to the purchase and delivery of seven newbuilding vessels
in 2013 and $6.6 million on the purchase and subsequent sale of our VLGC business to Dorian in November 2013. We
believe this 1% fee on purchases and sales is customary in the tanker industry.
Further, pursuant to our administrative services agreement, our Administrator, on behalf of itself and other members
of the Scorpio Group, has agreed that it will not directly own product or crude tankers ranging in size from 35,000 dwt to
200,000 dwt.
Our administrative services agreement, whose effective commencement began in December 2009, and can be
terminated upon two years notice.
The International Oil Tanker Shipping Industry
All the information and data presented in this section, including the analysis of the oil tanker shipping industry, has
been provided by Drewry Shipping Consultants Ltd., or Drewry. The statistical and graphical information contained herein
is drawn from Drewry’s database and other sources. According to Drewry: (i) certain information in Drewry’s database is
derived from estimates or subjective judgments; (ii) the information in the databases of other maritime data collection
agencies may differ from the information in Drewry’s database; and (iii) while Drewry has taken reasonable care in the
compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is
subject to limited audit and validation procedures.
27
Oil Tanker Demand
In broad terms, demand for oil products traded by sea is principally affected by world and regional economic
conditions, as well as other factors such as changes in the location of productive capacity, and variations in the regional
prices.
Demand for shipping capacity is a product of the physical quantity of the cargo (measured, depending on the cargo
in terms of tons or cubic metrics) together with the distance the cargo is carried. Demand cycles move broadly in line with
developments in the global economy, with demand for products slowing significantly in the period immediately after the
onset of the global economic downturn in late 2008, before recovering gradually in 2012 and 2013 with the general
improvement in the economic climate.
Product tankers carry refined products, such as fuel oil and vacuum gas oil (often referred to as ‘dirty products’), gas
oil, gasoline, jet fuel, kerosene and naphtha (often referred to as ‘clean products’), and sometimes crude oil. In addition, some
product tankers are able to carry bulk liquid chemicals and edible oils and fats. Clean petroleum products are carried by
International Maritime Organisation (IMO) and non IMO certified tankers. IMO tankers also carry, depending on their tank
coatings, a range of other products including organic and inorganic bulk liquid chemicals, vegetable oils and animal fats and
special products such as molasses.
World oil consumption has generally experienced sustained growth over the last two decades, although it declined in
2008-2009 due to the steep downturn in the global economy. Data for 2013 however suggests that world oil demand
rebounded to reach 90.9 million barrels per day and since 1990 it has grown at a compound annual growth rate (CAGR) of
approximately 1.2%.
World Oil Consumption: 1990–2013
(Million Barrels Per Day)
Source: Drewry
Regionally, while oil consumption has been static or slightly declining in most of the developed world, consumption
is increasing in most of the developing world. In recent years, Asia, in particular China has been the main generator of
additional demand for oil, with this demand largely supplied from traditional sources such as the Middle East. In the period
2003 to 2013 Chinese oil consumption grew by a CAGR of 6.1% to reach 10.1 million barrels per day.
Oil consumption on a per capita basis also remains low in countries such as China and India when compared with
the United States and Western Europe, but it is nonetheless growing rapidly thereby leading to increases in crude oil and
refined product imports, as both countries have insufficient domestic supplies to meet demand.
28
Oil Product Exports & Imports
A significant development in the product tanker industry in recent years has been the growth of exports from the
United States. Historically, the United States was a net importer of products, but this situation has changed with the
exploitation of shale reserves in the United States and the growth in domestic oil production. In the period 2003-2013 exports
of products from the United States increased by a CAGR of 11.8% and much of this traffic went to South America to satisfy
growing local demand.
Oil Product Exports – Major Growth Regions
(Million Bpd)
Source: Drewry
In the United States a combination of moderate oil demand and increased availability of crude oil supplies from tight
oil and offshore sources has led to a situation where large scale exports of products are feasible, especially middle distillates
from the US Gulf. In light of the projected growth in United States crude oil production, and strong demand growth in South
America combined with increasing long-haul flows to Asia, this is a trend which seems likely to continue. Other United
States exports have been moving transatlantic into Europe, where local refinery shutdowns have supported import demand.
Oil Product Imports – Major Growth Regions
(’000 Bpd)
Source: Drewry
29
Product trades are also affected by the location of refinery capacity. During the past five years some oil producing
regions in the developing world – most notably the Middle East and Asia - have expanded their own refinery capacity; just as
poor financial margins have forced refinery closures in the developed world, especially in Europe and on the United States
East Coast. In addition, most of the planned increases in global refinery capacity are scheduled to take place in the Middle
East and Asia. Therefore, the recent trends in the location of global refinery capacity look set to continue.
Export-oriented refineries in India and the Middle East, coupled with the closure of refining capacity in the
developed world, have prompted longer haul shipments to cater for product demand. Refinery closures close to consuming
regions elsewhere in the world will also help to support product import demand. For example, in Australia, trade from
Singapore is expected to become increasingly important to compensate for the conversion of local producing refineries into
storage depots. This would be part of a general increase in intra-Asian trade which is already boosting product tanker
demand, something which may be further supported by expected closures in Japan (a result of new government standards).
Current Tanker Fleet
As of February 28, 2014 the total oil tanker fleet (crude and products) consisted of 3,196 ships with a combined capacity of
420.8 million dwt.
Oil Tanker Fleet – February 28, 2014
Sector
Handy ................................................
Panamax ............................................
Aframax ............................................
Suezmax ............................................
VLCC ................................................
ULCC ................................................
Total .................................................
Deadweight Tons
(dwt)
10-54,999
55-79,999
80-119,999
120-199,999
200-320,000
320,000+
Number of
Vessels
% of Fleet
795
394
890
493
578
46
3,196
24.9
12.3
27.8
15.4
18.1
1.4
100.0
Capacity
(million dwt)
29.1
28.3
95.6
76.3
176.5
15
420.8
% of Fleet
6.9
6.7
22.7
18.1
41.9
3.6
100.0
Source: Drewry
Additionally, the tanker fleet is divided between crude tankers that carry crude oil or residual fuel oil (“dirty”
products), and product tankers that carry refined petroleum products (“clean” products) such as gasoline, jet fuel, kerosene,
naphtha and gas oil. There is no industry accepted standard definition of the world oil product tanker fleet but typically the
fleet can be divided into four major categories based on vessel size. The world product tanker fleet as of January 2014
consisted of 1,255 ships with a combined capacity of 72.6 million dwt. The breakdown of the fleet by size together with the
orderbook for newbuilding product tankers as of January 2014 is illustrated in the table below.
The World Product Tanker Fleet(1)& Orderbook
Size Category
Dwt
Existing Fleet
Jan-14
No.
000 Dwt
196 3,405
10-29,999 ......
132 4,833
30-41,999 ......
425 19,863
42-54,999 ......
295 21,527
55-79,999 ......
80,000+ .........
207 22,941
Total .............. 1,255 72,569
Orderbook – Scheduled Deliveries
2014
2015
2016+
No.
000 Dwt
101
5
21
804
22 1,026
510
7
19 2,171
74 4,612
No.
1
4
000 Dwt
19
158
54 2,734
210
3
36 4,085
98 7,206
No.
000 Dwt
0
0
9
356
41 2,094
440
6
9 1,017
65 3,907
Total
Orderbook as
000 Dwt % of Fleet
No.
6
120
34 1,318
117 5,854
16 1,160
64 7,273
237 15,725
3.5%
27.3%
29.5%
5.4%
31.7%
21.7%
(1) Product tankers only, excludes chemical tankers
Source: Drewry
As of January 31, 2014, the world product tanker orderbook for all vessels above 10,000 DWT comprised 231 ships
with a combined capacity of 15.7 million dwt, equivalent to 21.7% of the existing fleet. Most of the ships are due for delivery
by the end of 2015, although it is worth noting that in recent years the orderbook has been affected by the non-delivery of
vessels. Product tankers scheduled for delivery were not delivered for a variety of reasons, including delays, either through
mutual agreement or through shipyard problems, and some were due to vessel cancellations. Slippage and non-delivery is
likely to remain an issue going forward and will continue to moderate fleet growth.
30
The Oil Tanker Freight Market
Tanker charter hire rates and vessel values for all tankers are influenced by the supply and demand for tanker
capacity. Also, in general terms, time charter rates are less volatile than spot rates, because they reflect the fact that the vessel
is fixed for a longer period of time. In the spot market, rates will reflect the immediate underlying conditions in vessel supply
and demand and are thus prone to more volatility. The trend in spot rates since 2000 for the main vessel classes is shown in
the table below.
Oil Tanker – Spot (TCE) Rates
(US$/Day)
Year
2000 ...............................................................................................
2001 ...............................................................................................
2002 ...............................................................................................
2003 ...............................................................................................
2004 ...............................................................................................
2005 ...............................................................................................
2006 ...............................................................................................
2007 ...............................................................................................
2008 ...............................................................................................
2009 ...............................................................................................
2010 ...............................................................................................
2011 ...............................................................................................
2012 ...............................................................................................
2013 ...............................................................................................
Feb-14 ...........................................................................................
AG
Japan
Caribs
USES
NW Europe West Africa
NW Europe Caribs/USES
40-70,000 dwt 70-100,000 dwt 150-160,000 dwt 280-300,000 dwt
52,450
36,891
21,667
49,342
95,258
59,125
51,142
45,475
89,300
29,483
40,408
19,933
17,617
16,417
27,100
40,375
35,308
22,800
41,883
55,408
57,517
47,067
41,975
56,408
19,883
27,825
12,283
9,625
12,000
37,600
40,950
31,992
19,325
37,367
64,792
40,883
40,142
35,392
52,650
20,242
19,658
8,909
10,517
7,500
5,400
28,375
26,300
16,567
28,833
42,158
34,933
28,792
30,100
36,992
13,450
17,950
11,000
15,245
14,783
27,600
Source: Drewry
Between 2003 and 2007, the differential between demand and supply for tankers remained narrow and product
tanker freight rates were generally firm. Following the recent recession, product tanker demand slowed, coinciding with
substantial tonnage entering the fleet, driving earnings down. In late 2013 however, there was some evidence that rates had
started to move upwards from the recessionary lows.
31
Oil Tanker Newbuilding Prices
Newbuilding prices increased significantly between 2003 and 2007 primarily as a result of increased tanker demand.
Thereafter prices weakened in the face of a poor freight market and lower levels of new ordering. In late 2013 prices started
to recover, but it is worth noting that they are still significantly below the peaks reported at the height of the market in 2008, a
fact evident from the data shown in the table below.
Oil Tankers: Newbuilding Prices
(US$ Millions)
Year End
30,000
Dwt
50,000
Dwt
75,000
Dwt
110,000 160,000
Dwt
Dwt
300,000
Dwt
2000 .......................................................................
2001 .......................................................................
2002 .......................................................................
2003 .......................................................................
2004 .......................................................................
2005 .......................................................................
2006 .......................................................................
2007 .......................................................................
2008 .......................................................................
2009 .......................................................................
2010 .......................................................................
2011 .......................................................................
2012 .......................................................................
2013 .......................................................................
Feb-14 ....................................................................
n/a
n/a
n/a
28.5
34.0
37.5
40.5
46.0
40.0
31.0
33.0
31.5
30.0
31.0
33.0
31.5
27.0
26.5
30.5
39.0
42.0
47.5
54.0
46.5
36.0
36.0
36.0
33.0
35.0
37.5
36.5
33.5
31.0
34.5
41.0
43.0
50.0
64.0
57.0
42.5
46.0
44.0
42.0
43.0
45.0
41.0
38.0
36.0
40.0
57.0
59.0
65.0
78.0
71.5
52.0
57.0
52.8
48.0
51.5
54.0
49.5
47.0
44.0
52.0
68.0
71.0
78.0
90.0
87.0
62.0
67.0
61.7
56.5
59.0
64.0
76.0
72.0
66.0
73.0
105.0
120.0
128.0
146.0
142.0
101.0
105.0
99.0
92.0
93.5
98.5
Source: Drewry
Secondhand Prices
Secondhand values primarily, albeit with a lag, reflect prevailing and expected charter rates. During extended
periods of high charter rates vessel values tend to appreciate and vice versa. However vessel values are also influenced by
other factors, including the age of the vessel. Prices for young vessels, those approximately up to five years old, are also
influenced by newbuilding prices while prices for old vessels, near the end of their useful economic life, those approximately
at or in excess of 25 years, are influenced by the value of scrap steel.
The table below illustrates the movements of prices (expressed in US$ million) for second hand oil tankers from
2000 to February 2014. In the last few months of 2013 prices for all modern started to rise as a result of the rise in freight
rates and more positive market sentiment, but they remain a long way from the last cyclical peak seen in 2007/2008.
32
Oil Tanker Secondhand Prices: 2000-2014
(US$ Million)
Year End
30,000
Dwt
10 Yrs
45,000
Dwt
5 Yrs
70,000
Dwt
5 Yrs
95,000 150,000
Dwt
5 Yrs
Dwt
5 Yrs
300,000
Dwt
5 Yrs
2000 ...........................................................................
2001 ...........................................................................
2002 ...........................................................................
2003 ...........................................................................
2004 ...........................................................................
2005 ...........................................................................
2006 ...........................................................................
2007 ...........................................................................
2008 ...........................................................................
2009 ...........................................................................
2010 ...........................................................................
2011 ...........................................................................
2012 ...........................................................................
2013 ...........................................................................
Feb-14 ........................................................................
25.5
25.0
21.5
29.5
42.0
45.5
47.5
52.0
42.0
24.0
21.5
22.5
20.0
21.0
21.5
25.5
25.0
21.5
29.5
42.0
45.5
47.5
52.0
42.0
24.0
24.0
27.0
24.0
29.0
29.0
Environmental and Other Regulations
Source: Drewry
28.5
25.5
21.0
24.0
38.0
39.0
48.0
59.0
46.0
32.5
35.0
32.0
25.0
31.0
32.0
36.5
34.5
29.5
37.0
57.0
58.0
63.0
68.5
55.0
38.0
42.0
33.5
27.5
32.0
36.0
44.0
41.5
39.0
47.0
73.0
75.0
77.0
91.5
77.0
53.0
58.0
45.5
40.0
42.0
47.0
70.0
63.0
55.0
70.0
112.0
110.0
115.0
130.0
110.0
77.5
85.5
58.0
57.0
60.0
71.0
Government laws and regulations significantly affect the ownership and operation of our vessels. We are subject to
various international conventions, laws and regulations in force in the countries in which our vessels may operate or are
registered. Compliance with such laws, regulations and other requirements entails significant expense, including vessel
modification and implementation costs.
A variety of government, quasi-governmental and private organizations subject our vessels to both scheduled and
unscheduled inspections. These organizations include the local port authorities, national authorities, harbor masters or
equivalent entities, classification societies, relevant flag state (country of registry) and charterers, particularly terminal
operators and oil companies. Some of these entities require us to obtain permits, licenses, certificates and approvals for the
operation of our vessels. Our failure to maintain necessary permits, licenses, certificates or approvals could require us to incur
substantial costs or temporarily suspend operation of one or more of the vessels in our fleet, or lead to the invalidation or
reduction of our insurance coverage.
We believe that the heightened levels of environmental and quality concerns among insurance underwriters,
regulators and charterers have led to greater inspection and safety requirements on all vessels and may accelerate the
scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for tankers that
conform to stricter environmental standards. We are required to maintain operating standards for all of our vessels that
emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with
applicable local, national and international environmental laws and regulations. We believe that the operation of our vessels
is in substantial compliance with applicable environmental laws and regulations and that our vessels have all material
permits, licenses, certificates or other authorizations necessary for the conduct of our operations; however, because such laws
and regulations are frequently changed and may impose increasingly strict requirements, we cannot predict the ultimate cost
of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels.
In addition, a future serious marine incident that results in significant oil pollution, release of hazardous substances, loss of
life, or otherwise causes significant adverse environmental impact, such as the 2010 Deepwater Horizon oil spill in the Gulf
of Mexico, could result in additional legislation, regulation, or other requirements that could negatively affect our
profitability.
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International Maritime Organization
The International Maritime Organization, or the IMO, is the United Nations agency for maritime safety and the
prevention of pollution by ships. The IMO has adopted several international conventions that regulate the international
shipping industry, including but not limited to the International Convention on Civil Liability for Oil Pollution Damage of
1969, generally referred to as CLC, the International Convention on Civil Liability for Bunker Oil Pollution Damage, and the
International Convention for the Prevention of Pollution from Ships of 1973, or the MARPOL Convention. The MARPOL
Convention is broken into six Annexes, each of which establishes environmental standards relating to different sources of
pollution: Annex I relates to oil leakage or spilling; Annexes II and III relate to harmful substances carried, in bulk, in liquid
or packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and Annex VI,
adopted by the IMO in September of 1997, relates to air emissions.
In 2012, the IMO’s Marine Environmental Protection Committee, or MEPC, adopted by resolution amendments to
the international code for the construction and equipment of ships carrying dangerous chemicals in bulk, or the IBC Code.
The provisions of the IBC Code are mandatory under MARPOL and SOLAS. These amendments, which are expected to
enter into force in June 2014, pertain to revised international certificates of fitness for the carriage of dangerous chemicals in
bulk and identifying new products that fall under the IBC Code. We may need to make certain financial expenditures to
comply with these amendments.
In 2013, the MEPC adopted by resolution amendments to the MARPOL Annex I Conditional Assessment Scheme,
or CAS. The amendments, which are expected to become effective on October 1, 2014, pertain to revising references to the
inspections of bulk carriers and tankers after the 2011 ESP Code, which enhances the programs of inspections, becomes
mandatory. We may need to make certain financial expenditures to comply with these amendments.
Air Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution. Effective May 2005, Annex
VI sets limits on nitrogen oxide emissions from ships whose diesel engines were constructed (or underwent major
conversions) on or after January 1, 2000. It also prohibits “deliberate emissions” of “ozone depleting substances,” defined to
include certain halons and chlorofluorocarbons. “Deliberate emissions” are not limited to times when the ship is at sea; they
can for example include discharges occurring in the course of the ship’s repair and maintenance. Emissions of “volatile
organic compounds” from certain tankers, and the shipboard incineration (from incinerators installed after January 1, 2000)
of certain substances (such as polychlorinated biphenyls (PCBs)) are also prohibited. Annex VI also includes a global cap on
the sulfur content of fuel oil and allows for special areas to be established with more stringent controls of sulfur emissions
known as “Emission Control Areas” (“ECAs”) (see below).
The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive
reduction of the amount of sulfur contained in any fuel oil used on board ships. As of January 1, 2012, the amended Annex
VI requires that fuel oil contain no more than 3.50% sulfur. By January 1, 2020, sulfur content must not exceed 0.50%,
subject to a feasibility review to be completed no later than 2018.
Sulfur content standards are even stricter within certain ECAs. As of July 1, 2010, ships operating within an ECA
were not permitted to use fuel with sulfur content in excess of 1.0% (from 1.50%), which will be further reduced to 0.10% on
January 1, 2015. Amended Annex VI establishes procedures for designating new ECAs. Currently, the Baltic Sea and the
North Sea have been so designated. On August 1, 2012, certain coastal areas of North America were designated ECAs and
effective January 1, 2014, the applicable areas of the United States Caribbean Sea were designated ECAs. If other ECAs are
approved by the IMO or other new or more stringent requirements relating to emissions from marine diesel engines or port
operations by vessels are adopted by the EPA or the states where we operate, compliance with these regulations could entail
significant capital expenditures, operational changes, or otherwise increase the costs of our operations.
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for new ships in
part to address greenhouse gas emissions. It made the Energy Efficiency Design Index (EEDI) apply to all new ships, and the
Ship Energy Efficiency Management Plan (SEEMP) apply to all ships.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for new marine
engines, depending on their date of installation. The U.S. Environmental Protection Agency promulgated equivalent (and in
some senses stricter) emissions standards in late 2009. As a result of these designations or similar future designations, we
may be required to incur additional operating or other costs.
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Safety Management System Requirements
The IMO also adopted the International Convention for the Safety of Life at Sea, or SOLAS, and the International
Convention on Load Lines, or LL, which impose a variety of standards that regulate the design and operational features of
ships. The IMO periodically revises the SOLAS and LL standards. May 2012 SOLAS amendments entered into force as of
January 1, 2014. The Convention on Limitation for Maritime Claims (LLMC) was recently amended and the amendments are
expected to go into effect on June 8, 2015. The amendments alter the limits of liability for a loss of life or personal injury
claim and a property claim against ship owners.
Our operations are also subject to environmental standards and requirements contained in the International Safety
Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, promulgated by the IMO
under Chapter IX of SOLAS. The ISM Code requires the owner of a vessel, or any person who has taken responsibility for
operation of a vessel, to develop an extensive safety management system that includes, among other things, the adoption of a
safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and
describing procedures for responding to emergencies. We rely upon the safety management system that has been developed
for our vessels for compliance with the ISM Code.
The ISM Code requires that vessel operators also obtain a safety management certificate for each vessel they
operate. This certificate evidences compliance by a vessel’s management with code requirements for a safety management
system. No vessel can obtain a certificate unless its manager has been awarded a document of compliance, issued by each
flag state, under the ISM Code. We have obtained documents of compliance for its offices and safety management
certificates for all of our vessels for which the certificates are required by the ISM Code. These documents of compliance and
safety management certificates are renewed as required.
Noncompliance with the ISM Code and other IMO regulations may subject the shipowner or bareboat charterer to
increased liability, may lead to decreases in, or invalidation of, available insurance coverage for affected vessels and may
result in the denial of access to, or detention in, some ports.
Pollution Control and Liability Requirements
IMO has negotiated international conventions that impose liability for pollution in international waters and the
territorial waters of the signatory nations to such conventions. For example, many countries have ratified and follow the
liability plan adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage of
1969, as amended by different Protocol in 1976, 1984, and 1992, and amended in 2000, or the CLC. Under the CLC and
depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel’s
registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of
persistent oil, subject to certain exceptions. The 1992 Protocol changed certain limits on liability, expressed using the
International Monetary Fund currency unit of Special Drawing Rights. The limits on liability have since been amended so
that compensation limits on liability were raised. The right to limit liability is forfeited under the CLC where the spill is
caused by the shipowner’s personal fault and under the 1992 Protocol where the spill is caused by the shipowner’s personal
act or omission by intentional or reckless conduct where the shipowner knew pollution damage would probably result. The
CLC requires ships covered by it to maintain insurance covering the liability of the owner in a sum equivalent to an owner’s
liability for a single incident. We believe that our protection and indemnity insurance will cover the liability under the plan
adopted by the IMO.
The IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage, or the Bunker
Convention, to impose strict liability on shipowners for pollution damage in jurisdictional waters of ratifying states caused by
discharges of bunker fuel. The Bunker Convention requires registered owners of ships over 1,000 gross tons to maintain
insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international
limitation regime (but not exceeding the amount calculated in accordance with the Convention on Limitation of Liability for
Maritime Claims of 1976, as amended). With respect to non-ratifying states, liability for spills or releases of oil carried as
fuel in ship’s bunkers typically is determined by the national or other domestic laws in the jurisdiction where the events or
damages occur.
In addition, the IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water
and Sediments, or the BWM Convention, in February 2004. The BWM Convention will not become effective until 12
months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross
tonnage of the world’s merchant shipping. To date, there has not been sufficient adoption of this standard for it to take force,
35
but it is close. Many of the implementation dates originally written in the BWM Convention have already passed, so that
once the BWM Convention enters into force, the period for installation of mandatory ballast water exchange requirements
would be extremely short, with several thousand ships a year needing to install ballast water management systems (BWMS).
For this reason, on December 4, 2013, the IMO Assembly passed a resolution revising the application dates of BWM
Convention so that they are triggered by the entry into force date and not the dates originally in the BWM Convention. This
in effect makes all vessels constructed before the entry into force date ‘existing’ vessels, and allows for the installation of a
BWMS on such vessels at the first renewal survey following entry into force. Once mid-ocean ballast exchange or ballast
water treatment requirements become mandatory, the cost of compliance could increase for ocean carriers. Although we do
not believe that the costs of compliance with a mandatory mid-ocean ballast exchange would be material, it is difficult to
predict the overall impact of such a requirement on our operations.
The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations,
if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
U.S. Regulations
The U.S. Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability regime for the
protection and cleanup of the environment from oil spills. OPA affects all “owners and operators” whose vessels trade in the
United States, its territories and possessions or whose vessels operate in U.S. waters, which includes the U.S. territorial sea
and its 200 nautical mile exclusive economic zone. The United States has also enacted the Comprehensive Environmental
Response, Compensation and Liability Act, or CERCLA, which applies to the discharge of hazardous substances other than
oil, whether on land or at sea. OPA and CERCLA both define “owner and operator” “in the case of a vessel, as any person
owning, operating or chartering by demise, the vessel.” Accordingly, both OPA and CERCLA impact our operations.
Under OPA, vessel owners and operators are “responsible parties” and are jointly, severally and strictly liable
(unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and
clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels. OPA defines
these other damages broadly to include:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;
injury to, or economic losses resulting from, the destruction of real and personal property;
net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or
personal property, or natural resources;
loss of subsistence use of natural resources that are injured, destroyed or lost;
lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or
natural resources; and
net cost of increased or additional public services necessitated by removal activities following a discharge of
oil, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources.
OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. Effective July
31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability to the greater of $2,000 per gross ton or $17.088 million
for any double-hull tanker that is over 3,000 gross tons (subject to periodic adjustment for inflation), and our fleet is entirely
composed of vessels of this size class. These limits of liability do not apply if an incident was proximately caused by the
violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent,
employee or a person acting pursuant to a contractual relationship), or a responsible party’s gross negligence or willful
misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the
incident where the responsibility party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as
requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the
Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal
and remedial costs, as well as damage for injury to, or destruction or loss of, natural resources, including the reasonable costs
associated with assessing same, and health assessments or health effects studies. There is no liability if the discharge of a
hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under
CERCLA is limited to the greater of $300 per gross ton or $5 million for vessels carrying a hazardous substance as cargo or
residue and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the
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responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous
substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable
safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible
person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities
where the vessel is subject to OPA.
OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law.
OPA and CERCLA both require owners and operators of vessels to establish and maintain with the U.S. Coast
Guard evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular
responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility obligations by
providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We have provided such evidence
and received certificates of financial responsibility from the U.S. Coast Guard’s for each of our vessels that is required to
have one.
OPA permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring
within their boundaries, provided they accept, at a minimum, the levels of liability established under OPA. Some states have
enacted legislation providing for unlimited liability for discharge of pollutants within their waters, however, in some cases,
states which have enacted this type of legislation have not yet issued implementing regulations defining tanker owners’
responsibilities under these laws.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico may also result in additional regulatory initiatives or
statutes, including the raising of liability caps under OPA. For example, on August 15, 2012, the U.S. Bureau of Safety and
Environmental Enforcement (BSEE) issued a final drilling safety rule for offshore oil and gas operations that strengthens the
requirements for safety equipment, well control systems, and blowout prevention practices. Compliance with any new
requirements of OPA may substantially impact our cost of operations or require us to incur additional expenses to comply
with any new regulatory initiatives or statutes.
Through our P&I Club membership, we expect to maintain pollution liability coverage insurance in the amount of
$1 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance
coverage, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The U.S. Clean Water Act, or CWA, prohibits the discharge of oil, hazardous substances and ballast water in U.S.
navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties
for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and
damages and complements the remedies available under OPA and CERCLA. Furthermore, many U.S. states that border a
navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and
damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S.
federal law.
The EPA and U.S. Coast Guard, or USCG, have enacted rules relating to ballast water discharge, compliance with
which requires the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation
of other port facility disposal arrangements or procedures at potentially substantial cost, and/or otherwise restrict our vessels
from entering U.S. waters.
The EPA requires a permit regulating ballast water discharges and other discharges incidental to the normal
operation of certain vessels within United States waters under the Vessel General Permit for Discharges Incidental to the
Normal Operation of Vessels, or VGP. For a new vessel delivered to an owner or operator after September 19, 2009 to be
covered by the VGP, the owner must submit a Notice of Intent, or NOI, at least 30 days before the vessel operates in United
States waters. On March 28, 2013 the EPA re-issued the VGP for another five years. This VGP took effect on December 19,
2013. The VGP focuses on authorizing discharges incidental to operations of commercial vessels and the new VGP contains
numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in US waters, more stringent
requirements for exhaust gas scrubbers and the use of environmentally acceptable lubricants.
USCG regulations adopted and proposed for adoption under the U.S. National Invasive Species Act, or NISA,
impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering U.S. waters,
which require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation
of other port facility disposal arrangements or procedures, and/or otherwise restrict our vessels from entering U.S. waters.
37
The USCG must approve any technology before it is placed on a vessel, but has not yet approved the technology necessary
for vessels to meet the foregoing standards.
Notwithstanding the foregoing, as of January 1, 2014, vessels are technically subject to the phasing-in of these
standards. As a result, the USCG has provided waivers to vessels which cannot install the as-yet unapproved technology. The
EPA, on the other hand, has taken a different approach to enforcing ballast discharge standards under the VGP. On December
27, 2013, the EPA issued an enforcement response policy in connection with the new VGP in which the EPA indicated that it
would take into account the reasons why vessels do not have the requisite technology installed, but will not grant any
waivers.
Compliance with the EPA and the U.S. Coast Guard regulations could require the installation of equipment on our
vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or
procedures at potentially substantial cost, and/or otherwise restrict our vessels from entering U.S. waters.
European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source
discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious
negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and
abetting the discharge of a polluting substance may also lead to criminal penalties. Member States were required to enact
laws or regulations to comply with the directive by the end of 2010. Criminal liability for pollution may result in substantial
penalties or fines and increased civil liability claims.
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the
United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting
countries have been required to implement national programs to reduce greenhouse gas emissions. As of January 1, 2013, all
new ships must comply with two new sets of mandatory requirements to address greenhouse gas emissions from ships which
were adopted by MEPC, in July 2011. Currently operating ships are required to develop Ship Energy Efficiency Management
Plans, and minimum energy efficiency levels per capacity mile, outlined in the Energy Efficiency Design Index, will apply to
new ships. These requirements could cause us to incur additional compliance costs. The IMO is also planning to implement
market-based mechanisms to reduce greenhouse gas emissions from ships at an upcoming MEPC session. The European
Union has indicated that it intends to propose an expansion of the existing European Union emissions trading scheme to
include emissions of greenhouse gases from marine vessels, and in January 2012 the European Commission launched a
public consultation on possible measures to reduce greenhouse gas emissions from ships. In April 2013, the European
Parliament rejected proposed changes to the European Union Emissions Law regarding carbon trading. In June 2013 the
European Commission developed a strategy to integrate maritime emissions into the overall European Union Strategy to
reduced greenhouse gas emissions. If the strategy is adopted by the European Parliament and Council large vessels using
European Union ports would be required to monitor, report, and verify their carbon dioxide emissions beginning in January
2018. In December 2013 the European Union environmental ministers discussed draft rules to implement monitoring and
reporting of carbon dioxide emissions from ships. In the United States, the EPA has issued a finding that greenhouse gases
endanger the public health and safety and has adopted regulations to limit greenhouse gas emissions from certain mobile
sources and large stationary sources. Although the mobile source emissions regulations do not apply to greenhouse gas
emissions from vessels, such regulation of vessels is foreseeable, and the EPA has in recent years received petitions from the
California Attorney General and various environmental groups seeking such regulation. Any passage of climate control
legislation or other regulatory initiatives by the IMO, European Union, the U.S. or other countries where we operate, or any
treaty adopted at the international level to succeed the Kyoto Protocol, that restrict emissions of greenhouse gases could
require us to make significant financial expenditures, including capital expenditures to upgrade our vessels, which we cannot
predict with certainty at this time.
International Labour Organization
The International Labour Organization (ILO) is a specialized agency of the UN with headquarters in Geneva,
Switzerland. The ILO has adopted the Maritime Labor Convention 2006 (MLC 2006). A Maritime Labor Certificate and a
Declaration of Maritime Labor Compliance will be required to ensure compliance with the MLC 2006 for all ships above 500
gross tons in international trade. The MLC 2006 entered into force on August 20, 2013. The MLC 2006 requires us to
develop new procedures to ensure full compliance with its requirements.
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Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel
security. On November 25, 2002, the U.S. Maritime Transportation Security Act of 2002, or the MTSA, came into effect. To
implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard issued regulations requiring the implementation
of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. The
regulations also impose requirements on certain ports and facilities, some of which are regulated by the EPA.
Similarly, in December 2002, amendments to SOLAS created a new chapter of the convention dealing specifically
with maritime security. The new Chapter V became effective in July 2004 and imposes various detailed security obligations
on vessels and port authorities, and mandates compliance with the International Ship and Port Facilities Security Code (“ISPS
Code”). The ISPS Code is designed to enhance the security of ports and ships against terrorism. Amendments to SOLAS
Chapter VII, made mandatory in 2004, apply to vessels transporting dangerous goods and require those vessels be in
compliance with the International Maritime Dangerous Goods Code (“IMDG Code”).
To trade internationally, a vessel must attain an International Ship Security Certificate (“ISSC”), from a recognized
security organization approved by the vessel’s flag state. Among the various requirements are:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
on-board installation of automatic identification systems to provide a means for the automatic transmission of
safety-related information from among similarly equipped ships and shore stations, including information on a
ship’s identity, position, course, speed and navigational status;
on-board installation of ship security alert systems, which do not sound on the vessel but only alert the
authorities on shore;
the development of vessel security plans;
ship identification number to be permanently marked on a vessel’s hull;
a continuous synopsis record kept onboard showing a vessel’s history, including the name of the ship, the state
whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship’s
identification number, the port at which the ship is registered and the name of the registered owner(s) and their
registered address; and
(cid:120)
compliance with flag state security certification requirements.
Ships operating without a valid certificate, may be detained at port until it obtains an ISSC, or it may be expelled
from port, or refused entry at port.
The USCG regulations, intended to align with international maritime security standards, exempt from MTSA vessel
security measures non-U.S. vessels provided that such vessels have on board a valid ISSC that attests to the vessel’s
compliance with SOLAS security requirements and the ISPS Code. We have implemented the various security measures
addressed by MTSA, SOLAS and the ISPS Code, and our fleet is in compliance with applicable security requirements.
Inspection by classification societies
Every seagoing vessel must be “classed” by a classification society. The classification society certifies that the
vessel is ’‘in class,’’ signifying that the vessel has been built and maintained in accordance with the rules of the classification
society and complies with applicable rules and regulations of the vessel’s country of registry and the international
conventions of which that country is a member. In addition, where surveys are required by international conventions and
corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official
order, acting on behalf of the authorities concerned.
The classification society also undertakes on request other surveys and checks that are required by regulations and
requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the regulations
of the country concerned.
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For maintenance of the class, regular and extraordinary surveys of hull, machinery, including the electrical plant,
and any special equipment classed are required to be performed as follows:
(cid:120) Annual Surveys. For seagoing ships, annual surveys are conducted for the hull and the machinery, including the
electrical plant, and where applicable for special equipment classed, within three months before or after each
anniversary date of the date of commencement of the class period indicated in the certificate.
(cid:120)
Intermediate Surveys. Extended annual surveys are referred to as intermediate surveys and typically are
conducted two and one-half years after commissioning and each class renewal. Intermediate surveys are to be
carried out at or between the occasion of the second or third annual survey.
(cid:120) Class Renewal Surveys. Class renewal surveys, also known as special surveys, are carried out for the ship’s
hull, machinery, including the electrical plant, and for any special equipment classed, at the intervals indicated
by the character of classification for the hull. At the special survey, the vessel is thoroughly examined, including
audio-gauging to determine the thickness of the steel structures. Should the thickness be found to be less than
class requirements, the classification society would prescribe steel renewals. The classification society may
grant a one-year grace period for completion of the special survey. Substantial amounts of money may have to
be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear. In lieu of
the special survey every four or five years, depending on whether a grace period was granted, a vessel owner
has the option of arranging with the classification society for the vessel’s hull or machinery to be on a
continuous survey cycle, in which every part of the vessel would be surveyed within a five-year cycle.
At an owner’s application, the surveys required for class renewal may be split according to an agreed schedule to
extend over the entire period of class. This process is referred to as continuous class renewal.
All areas subject to survey as defined by the classification society are required to be surveyed at least once per class
period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of
each area must not exceed five years.
Most vessels are also dry-docked every 30 to 36 months for inspection of the underwater parts and for repairs related
to inspections. If any defects are found, the classification surveyor will issue a “recommendation’’ which must be rectified by
the ship owner within prescribed time limits.
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in-class” by a
classification society which is a member of the International Association of Classification Societies (“IACS”). In December
2013 the IACS adopted new harmonized Common Structure Rules which will apply to oil tankers and bulk carriers to be
constructed on or after July 1, 2015. All our vessels are certified as being “in-class” by American Bureau of Shipping and Det
Norske Veritas. All new and secondhand vessels that we purchase must be certified prior to their delivery under our standard
purchase contracts and memoranda of agreement. If the vessel is not certified on the scheduled date of closing, we have no
obligation to take delivery of the vessel.
In addition to the classification inspections, many of our customers regularly inspect our vessels as a precondition to
chartering them for voyages. We believe that our well-maintained, high-quality vessels provide us with a competitive
advantage in the current environment of increasing regulation and customer emphasis on quality.
Risk of Loss and Liability Insurance
General
The operation of any cargo vessel includes risks such as mechanical failure, collision, property loss, cargo loss or
damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition,
there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the
liabilities arising from owning and operating vessels in international trade. OPA, which in certain circumstances imposes
virtually unlimited liability upon owners, operators and demise charterers of any vessel trading in the United States exclusive
economic zone for certain oil pollution accidents in the United States, has made liability insurance more expensive for vessel-
owners and operators trading in the United States market. While we believe that our present insurance coverage is adequate,
not all risks can be insured against, and there can be no guarantee that any specific claim will be paid, or that we will always
be able to obtain adequate insurance coverage at reasonable rates.
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Marine and War Risks Insurance
We have in force marine and war risks insurance for all of our vessels. Our marine hull and machinery insurance
covers risks of particular average and actual or constructive total loss from collision, fire, grounding, engine breakdown and
other insured named perils up to an agreed amount per vessel. Our war risks insurance covers the risks of particular average
and actual or constructive total loss from confiscation, seizure, capture, vandalism, sabotage, and other war-related named
perils. Each vessel is covered up to at least its fair market value at the time of the insurance attachment and subject to a fixed
deductible per each single accident or occurrence, but excluding actual or constructive total loss.
Protection and Indemnity Insurance
Protection and indemnity (P&I) insurance is provided by mutual protection and indemnity associations, commonly
referred to as P&I Clubs, and provides unlimited coverage, except for pollution which is capped as discussed below. P&I
insurance covers our third party liabilities in connection with our shipping activities. This includes liability and other related
expenses resulting from injury, illness or death of crew, passengers and other third parties, loss of or damage to cargo, claims
arising from collisions with other vessels, damage to third-party property including piers and other fixed or floating objects,
pollution arising from oil or other substances, and salvage, towing and other related costs, including wreck removal.
As a member of a P&I Club that is, in turn, a member of the International Group of P&I Clubs we carry protection
and indemnity insurance coverage for pollution of $1 billion per vessel per incident. The P&I Clubs that comprise the
International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement
to reinsure each Club’s liabilities. Although the P&I Clubs compete with each other for business, they have found it
beneficial to pool their larger risks under the auspices of the International Group. This pooling is regulated by a contractual
agreement which defines the risks that are to be pooled and exactly how these risks are to be shared by the participating P&I
Clubs. We are subject to calls payable to the Clubs of which we are members based on its claim records as well as the claim
records of all other members of the individual Clubs and members of the pool of P&I Clubs comprising the International
Group.
C.
Organizational Structure
Please see Exhibit 8.1 to this annual report for a list of our current subsidiaries.
D.
Property, Plants and Equipment
For a description of our fleet, see “Item 4. Information on the Company—B. Business Overview.”
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following presentation of management’s discussion and analysis of results of operations and financial condition
should be read in conjunction with our consolidated financial statements, accompanying notes thereto and other financial
information appearing in Item 18. “Financial Statements.” You should also carefully read the following discussion with the
sections of this annual report entitled “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—
B. Business Overview—The International Oil Tanker Shipping Industry,” and “Cautionary Statement Regarding Forward-
Looking Statements.” Our consolidated financial statements as of December 31, 2013 and 2012 and for the years ended
December 31, 2013, 2012 and 2011 have been prepared in accordance with IFRS as issued by the IASB. The consolidated
financial statements are presented in U.S. dollars ($) unless otherwise indicated. Any amounts converted from another non-
U.S. currency to U.S. dollars in this annual report are at the rate applicable at the relevant date, or the average rate during
the applicable period.
We generate revenues by charging customers for the transportation of their refined oil and other petroleum products
using our vessels. Historically, these services generally have been provided under the following basic types of contractual
relationships:
(cid:120) Voyage charters, which are charters for short intervals that are priced on current, or “spot,” market rates.
41
(cid:120) Time charters, which are chartered to customers for a fixed period of time at rates that are generally fixed, but
may contain a variable component based on inflation, interest rates, or current market rates.
(cid:120) Commercial Pools, whereby we participate with other shipowners to operate a large number of vessels as an
integrated transportation system, which offers customers greater flexibility and a higher level of service while
achieving scheduling efficiencies. Pools negotiate charters primarily in the spot market. The size and scope of
these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and contracts
of affreightment (described below), thus generating higher effective time charter equivalent, or TCE, revenues
than otherwise might be obtainable in the spot market.
(cid:120) For all types of vessels in contractual relationships, we are responsible for crewing and other vessel operating
costs for our owned vessels and the charterhire expense for vessels that we time charter-in.
The table below illustrates the primary distinctions among these different employment arrangements:
Typical contract length ..........................................
Hire rate basis(1) ....................................................
Voyage expenses(2) ...............................................
Vessel operating costs for owned vessels(3) ..........
Charterhire expense for vessels chartered-in(3) .....
Off-hire (4) ............................................................. Customer does not pay Customer does not pay Pool does not pay
____________________
(1) “Hire rate” refers to the basic payment from the charterer for the use of the vessel.
Varies
Varies
Pool pays
We pay
We pay
Time Charter
One year or more
Daily
Customer pays
We pay
We pay
Voyage Charter
Single voyage
Varies
We pay
We pay
We pay
Commercial Pool
(2) “Voyage expenses” refers to expenses incurred due to a vessel’s traveling from a loading port to a discharging port, such
as fuel (bunker) cost, port expenses, agent’s fees, canal dues and extra war risk insurance, as well as commissions.
(3) Defined below under “—Important Financial and Operational Terms and Concepts.”
(4) “Off-hire” refers to the time a vessel is not available for service due primarily to scheduled and unscheduled repairs or
drydockings. For time chartered-in vessels, we do not pay the charterhire expense when the vessel is off-hire.
As of the date of this annual report, all of our owned and time chartered-in vessels were operating in the Scorpio
Group Pools except STI Duchessa, STI Opera, Senatore and Venice, which were operating directly in the spot market and STI
Texas City which is on a two year time charter-out agreement expiring in March 2016.
Important Financial and Operational Terms and Concepts
We use a variety of financial and operational terms and concepts. These include the following:
Vessel revenues. Vessel revenues primarily include revenues from time charters, pool revenues and voyage charters
(in the spot market). Vessel revenues are affected by hire rates and the number of days a vessel operates. Vessel revenues are
also affected by the mix of business between vessels on time charter, vessels in pools and vessels operating on voyage
charter. Revenues from vessels in pools and on voyage charter are more volatile, as they are typically tied to prevailing
market rates.
Voyage charters. Voyage charters or spot voyages are charters under which the customer pays a transportation
charge for the movement of a specific cargo between two or more specified ports. We pay all of the voyage expenses.
Voyage expenses. Voyage expenses primarily include bunkers, port charges, canal tolls, cargo handling operations
and brokerage commissions paid by us under voyage charters. These expenses are subtracted from voyage charter revenues to
calculate time charter equivalent revenues.
Vessel operating costs. For our owned vessels, we are responsible for vessel operating costs, which include crewing,
repairs and maintenance, insurance, stores, lube oils, communication expenses, and technical management fees. The two
largest components of our vessel operating costs are crewing, and repairs and maintenance. Expenses for repairs and
maintenance tend to fluctuate from period to period because most repairs and maintenance typically occur during periodic
42
drydocking. Please read “Drydocking” below. We expect these expenses to increase as our fleet matures and to the extent that
it expands.
Additionally, these costs include technical management fees that we paid to SSM, which is controlled by the Lolli-
Ghetti family. Pursuant to our Master Agreement, SSM provides us with technical services, and we provide them with the
ability to subcontract technical management of our vessels with our approval.
Charterhire. Charterhire is the amount we pay the owner for time chartered-in vessels. The amount is usually for a
fixed period of time at rates that are generally fixed, but may contain a variable component based on inflation, interest rates,
or current market rates. The vessel’s owner is responsible for crewing and other vessel operating costs.
Drydocking. We periodically drydock each of our owned vessels for inspection, repairs and maintenance and any
modifications to comply with industry certification or governmental requirements. Generally, each vessel is drydocked every
30 months to 60 months. We capitalize a substantial portion of the costs incurred during drydocking and amortize those costs
on a straight-line basis from the completion of a drydocking to the estimated completion of the next drydocking. We
immediately expense costs for routine repairs and maintenance performed during drydocking that do not improve or extend
the useful lives of the assets. The number of drydockings undertaken in a given period and the nature of the work performed
determine the level of drydocking expenditures.
Depreciation. Depreciation expense typically consists of:
(cid:120)
(cid:120)
charges related to the depreciation of the historical cost of our owned vessels (less an estimated residual value)
over the estimated useful lives of the vessels; and
charges related to the amortization of drydocking expenditures over the estimated number of years to the next
scheduled drydocking.
Time charter equivalent (TCE) revenue or rates. We report time charter equivalent, or TCE revenues, a non-IFRS
measure, because (i) we believe it provides additional meaningful information in conjunction with voyage revenues and
voyage expenses, the most directly comparable IFRS measure, (ii) it assists our management in making decisions regarding
the deployment and use of our vessels and in evaluating their financial performance, (iii) it is a standard shipping industry
performance measure used primarily to compare period-to-period changes in a shipping company’s performance irrespective
of changes in the mix of charter types (i.e., spot charters, time charters and bareboat charters) under which the vessels may be
employed between the periods, and (iv) we believe that it presents useful information to investors. TCE revenue is vessel
revenue less voyage expenses, including bunkers and port charges. The TCE rate achieved on a given voyage is expressed in
US dollars/day and is generally calculated by taking TCE revenue and dividing that figure by the number of revenue days in
the period. For a reconciliation of TCE revenue, deduct voyage expenses from revenue on our Statement of Income or Loss.
Revenue days. Revenue days are the total number of calendar days our vessels were in our possession during a
period, less the total number of off-hire days during the period associated with major repairs or drydockings. Consequently,
revenue days represent the total number of days available for the vessel to earn revenue. Idle days, which are days when a
vessel is available to earn revenue, yet is not employed, are included in revenue days. We use revenue days to show changes
in net vessel revenues between periods.
Average number of vessels. Historical average number of owned vessels consists of the average number of vessels
that were in our possession during a period. We use average number of vessels primarily to highlight changes in vessel
operating costs and depreciation and amortization.
Contract of affreightment. A contract of affreightment, or COA, relates to the carriage of specific quantities of
cargo with multiple voyages over the same route and over a specific period of time which usually spans a number of years. A
COA does not designate the specific vessels or voyage schedules that will transport the cargo, thereby providing both the
charterer and shipowner greater operating flexibility than with voyage charters alone. The charterer has the flexibility to
determine the individual voyage scheduling at a future date while the shipowner may use different vessels to perform these
individual voyages. As a result, COAs are mostly entered into by large fleet operators, such as pools or shipowners with large
fleets of the same vessel type. We pay the voyage expenses while the freight rate normally is agreed on a per cargo ton basis.
Commercial pools. To increase vessel utilization and revenues, we participate in commercial pools with other
shipowners and operators of similar modern, well-maintained vessels. By operating a large number of vessels as an integrated
transportation system, commercial pools offer customers greater flexibility and a higher level of service while achieving
43
scheduling efficiencies. Pools employ experienced commercial charterers and operators who have close working
relationships with customers and brokers, while technical management is performed by each shipowner. Pools negotiate
charters with customers primarily in the spot market. The size and scope of these pools enable them to enhance utilization
rates for pool vessels by securing backhaul voyages and COAs, thus generating higher effective TCE revenues than otherwise
might be obtainable in the spot market while providing a higher level of service offerings to customers.
Operating days. Operating days are the total number of available days in a period with respect to the owned vessels,
before deducting available days due to off-hire days and days in drydock. Operating days is a measurement that is only
applicable to our owned vessels, not our chartered-in vessels.
Items You Should Consider When Evaluating Our Results
You should consider the following factors when evaluating our historical financial performance and assessing our
future prospects:
Our vessel revenues are affected by cyclicality in the tanker markets. The cyclical nature of the tanker industry
causes significant increases or decreases in the revenue we earn from our vessels, particularly those vessels we trade in the
spot market. We employ a chartering strategy to capture upside opportunities in the spot market while using fixed-rate time
charters to reduce downside risks, depending on SCM’s outlook for freight rates, oil tanker market conditions and global
economic conditions. Historically, the tanker industry has been cyclical, experiencing volatility in profitability due to changes
in the supply of, and demand for, tanker capacity. The supply of tanker capacity is influenced by the number and size of new
vessels built, vessels scrapped, converted and lost, the number of vessels that are out of service, and regulations that may
effectively cause early obsolescence of tonnage. The demand for tanker capacity is influenced by, among other factors:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
global and regional economic and political conditions;
increases and decreases in production of and demand for crude oil and petroleum products;
increases and decreases in OPEC oil production quotas;
the distance crude oil and petroleum products need to be transported by sea; and
developments in international trade and changes in seaborne and other transportation patterns.
Tanker rates also fluctuate based on seasonal variations in demand. Tanker markets are typically stronger in the
winter months as a result of increased oil consumption in the northern hemisphere but weaker in the summer months as a
result of lower oil consumption in the northern hemisphere and refinery maintenance that is typically conducted in the
summer months. In addition, unpredictable weather patterns during the winter months in the northern hemisphere tend to
disrupt vessel routing and scheduling. The oil price volatility resulting from these factors has historically led to increased oil
trading activities in the winter months. As a result, revenues generated by our vessels have historically been weaker during
the quarters ended June 30 and September 30, and stronger in the quarters ended March 31 and December 31.
Our general and administrative expenses were affected by the fees we pay SCM and SSH for commercial
management and administrative services respectively, and costs incurred from being a public company. SCM and SSH,
companies controlled by the Lolli-Ghetti family of which our founder, Chairman and Chief Executive Officer is a member,
provide commercial and administrative management services to us, respectively. We pay fees under our Master Agreement
with SCM, which are identical to what SCM charges third-party owned vessels. We reimburse our Administrator for the
reasonable direct or indirect expenses it incurs in providing us with the administrative services described above. We also pay
our Administrator a fee for arranging vessel purchases and sales for us equal to 1% of the gross purchase or sale price,
payable upon the consummation of any such purchase or sale. We believe this 1% fee on purchases and sales is customary in
the tanker industry. In addition, we continue to incur general and administrative expenses related to our being a publicly
traded company, including, among other things, costs associated with reports to shareholders, filings with the U.S. Securities
Exchange Commission, investor relations, New York Stock Exchange fees and tax compliance expenses.
Critical Accounting Policies
In the application of the accounting policies, we are required to make judgments, estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ
from these estimates.
44
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future periods.
The significant judgments and estimates are as follows:
Revenue recognition
We currently generate all revenue from vessels operating in pools or in the spot market. From time to time we also
employ our vessels on time charters. Revenue recognition for time charters and pools is generally not as complex or as
subjective as voyage charters (spot voyages). Time charters are for a specific period of time at a specific rate per day. For
long-term time charters, revenue is recognized on a straight-line basis over the term of the charter. Pool revenues are
determined by the pool managers from the total revenues and expenses of the pool and allocated to pool participants using a
mechanism set out in the pool agreement.
We generated revenue from spot voyages during the year ended December 31, 2013. Within the shipping industry,
there are two methods used to account for spot voyage revenue: (1) ratably over the estimated length of each voyage or (2)
completed voyage. The recognition of voyage revenues ratably over the estimated length of each voyage is the most prevalent
method of accounting for voyage revenues and the method used by us. Under each method, voyages may be calculated on
either a load-to-load or discharge-to-discharge basis. In applying our revenue recognition method, we believe that the
discharge-to-discharge basis of calculating voyages more accurately estimates voyage results than the load-to-load basis. In
the application of this policy, we do not begin recognizing revenue until (i) the amount of revenue can be measured reliably,
(ii) it is probable that the economic benefits associated with the transaction will flow to the entity, (iii) the transactions stage
of completion at the balance sheet date can be measured reliably and (iv) the costs incurred and the costs to complete the
transaction can be measured reliably.
Vessel impairment
Impairment methodology
The carrying values of our vessels may not represent their fair market value at any point in time since the market
prices of second-hand vessels fluctuate with changes in charter rates and the cost of constructing new vessels. At each
reporting period end date, we review the carrying amounts of our vessels to determine whether there is any indication that
those vessels may have suffered an impairment loss. In this regard, fluctuations in market values below carrying values are
considered to represent an impairment triggering event that necessitates performance of a full impairment review.
Impairment losses are calculated as the excess of a vessel’s carrying amount over its recoverable amount. Under
IFRS, the recoverable amount is the higher of an asset’s (i) fair value less costs to sell and (ii) value in use. Fair value less
costs to sell is defined by IFRS as “the amount obtainable from the sale of an asset or cash-generating unit in an arm’s length
transaction between knowledgeable, willing parties, less the costs of disposal”. When we calculate value in use, we discount
the expected future cash flows to be generated by our vessels to their net present value.
Our impairment evaluation is performed on an individual vessel basis when there are indications of impairments.
First, we assess the fair value less the cost to sell our vessels taking into consideration vessel valuations from leading,
independent and internationally recognized ship brokers. We then compare that estimate of market values (less an estimate of
selling costs) to each vessel’s carrying value and, if the carrying value exceeds the vessel’s market value, an indicator of
impairment exists. The indicator of impairment prompts us to perform a calculation of the potentially impaired vessel’s value
in use, in order to appropriately determine the ‘higher of’ the two values.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which
the estimates of future cash flows have not been adjusted. In developing estimates of future cash flows, we make assumptions
about future charter rates, vessel operating expenses, the estimated remaining useful lives of the vessels and the discount
rate. These assumptions are based on historical trends as well as future expectations. Although management believes that the
assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective.
Reasonable changes in the assumptions for the discount rate or future charter rates could lead to a value in use for some of
our vessels that is equal to or less than the carrying amount for such vessels. All of the aforementioned assumptions have
been highly volatile in both the current market and historically.
45
For the year ended December 31, 2013, we performed an assessment as described above. The results of this
assessment are described as follows for the 19 vessels in our fleet and 65 vessels under construction at December 31, 2013:
(cid:120) Four vessels were designated as held for sale and, in accordance with our accounting policy for non-current
assets held for sale, were written down to their fair value less costs to sell.
(cid:120) Eight vessels had fair values less costs to sell in excess of their carrying amount.
(cid:120) Seven vessels had fair values less costs to sell less than their carrying amount which served as indicators of
impairment. We prepared a value in use calculation for each these vessels which resulted in no impairment
being recognized.
(cid:120) Two vessels under construction (that were delivered in January 2014) had fair values less costs to sell exceeding
their carrying amount.
We did not obtain independent broker valuations for the remaining 63 vessels under construction at December 31,
2013. To assess their carrying values, we prepared value in use calculations which resulted in no impairment indicators.
In line with our policy we performed a value in use calculation where we estimated each vessels’ future cash flows
based on a combination of the latest forecast time charter rates for the next three years (obtained from a third party service
provider), a growth rate of 3.0% in freight rates for each period thereafter, and our best estimate of vessel operating expenses
and drydock costs, which also assume a growth rate of 3.0% in each succeeding year. These cash flows were then discounted
to their present value using an estimated weighted average cost of capital of 8.45%. The value in use calculations were
greater than the fair value less estimated costs to sell in all instances. As a result of this testing, no impairment charge was
recorded.
For the year ended December 31, 2012, we performed an assessment as described above. At that date, the carrying
amounts of our vessels were greater than the basic, meaning charter free, market value for all of our owned vessels. In line
with our policy we performed a value in use calculation where we estimated each vessels’ future cash flows based on a
combination of the latest forecast time charter rates for the next three years (obtained from a third party service provider), a
growth rate of 3.0% in freight rates for each period thereafter, and our best estimate of vessel operating expenses and drydock
costs, which also assume a growth rate of 3.0% in each succeeding year. These cash flows were then discounted to their
present value, using a discount rate of 7.90%, based on our current borrowing rates adjusted for certain credit risks. The value
in use calculations were greater than the fair value less estimated costs to sell in all instances. As a result of this testing, no
impairment charge was recorded.
Our Fleet—Illustrative comparison of excess of carrying amounts over estimated charter-free market value of certain
vessels
During the past few years, the market values of vessels have experienced particular volatility, with substantial
declines in many vessel classes. As a result, the charter-free market value, or basic market value, of certain of our vessels
may have declined below the carrying amounts of those vessels. After undergoing the impairment analysis discussed above,
we have concluded that at December 31, 2013, no impairment is required.
The table set forth below indicates the carrying amount of each of our vessels as of December 31, 2013 and
December 31, 2012 and the aggregate difference between the carrying amount and the market value represented by such
vessels (see footnotes to the table set forth below). This aggregate difference represents the approximate analysis of the
amount by which we believe we would record a loss if we sold those vessels, in the current environment, on industry
standard terms, in cash transactions and to a willing buyer where we are not under any compulsion to sell, and where the
buyer is not under any compulsion to buy. For purposes of this calculation, we have assumed that the vessels would be sold at
a price that reflects our estimate of their basic market values. For the four vessels that we have designated as held for sale at
December 31, 2013, we used the agreed upon selling price of these vessels if an agreement has been reached to sell these
vessels and our estimate of basic market value if an agreement has not been reached as of the date of this report.
Our estimate of basic market value assumes that our vessels are all in good and seaworthy condition without need
for repair and if inspected would be certified in class without notations of any kind. Our estimates are based on information
available from various industry sources, including:
(cid:120)
reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel
values;
46
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
news and industry reports of similar vessel sales;
news and industry reports of sales of vessels that are not similar to our vessels where we have made certain
adjustments in an attempt to derive information that can be used as part of our estimates;
approximate market values for our vessels or similar vessels that we have received from shipbrokers, whether
solicited or unsolicited, or that shipbrokers have generally disseminated;
offers that we may have received from potential purchasers of our vessels; and
vessel sale prices and values of which we are aware through both formal and informal communications with
shipowners, shipbrokers, industry analysts and various other shipping industry participants and observers.
As we obtain information from various industry and other sources, our estimates of basic market value are
inherently uncertain. In addition, vessel values and revenues are highly volatile; as such, our estimates may not be indicative
of the current or future basic market value of our vessels or prices that we could achieve if we were to sell them.
In millions of U.S. dollars
Vessel Name
1 STI Highlander
2 Noemi
3 Senatore
4 STI Harmony
5 STI Heritage
6 Venice
7 STI Spirit
8 STI Amber
9 STI Topaz
10 STI Ruby
11 STI Garnet
12 STI Onyx
13 STI Sapphire
14 STI Emerald
15 STI Beryl
16 STI Le Rocher
17 STI Larvotto
18 STI Fontvieille
19 STI Ville
Year Built
Carrying value as at,
December 31, 2013
December 31, 2012 (4)
2007
2004
2004
2007
2008
2001
2008
2012
2012
2012
2012
2012
2013
2013
2013
2013
2013
2013
2013
$
21.8 (1) $
21.2 (2)
21.2 (2)
32.0 (3)
34.1 (3)
10.7 (2)
29.5 (2)
37.1 (3)
37.2 (3)
37.2 (3)
37.3 (3)
37.3 (3)
37.1 (1)
36.9 (1)
36.0 (1)
36.6 (1)
36.6 (1)
36.6 (1)
36.8 (1)
23.1
27.0
27.1
33.6
35.9
17.7
37.4
38.6
38.7
38.7
38.8
38.8
N/A (5)
N/A (5)
N/A (5)
N/A (5)
N/A (5)
N/A (5)
N/A (5)
Total
$
613.2 $
395.4
(1) As of December 31, 2013, the basic charter-free market value is higher than each vessel’s carrying value. We believe
that the aggregate basic charter-free market value of these vessels exceeds their aggregate carrying value by
approximately $5.9 million.
(2) Noemi, Senatore, Venice and STI Spirit were written-down to the lower of their carrying value and fair value less costs to
sell since these vessels were designated as “held for sale” at December 31, 2013. As such, we believe that the carrying
amounts noted above are representative of fair value less estimated costs to sell as of December 31, 2013.
(3) As of December 31, 2013, the basic charter-free market value is lower than each vessel’s carrying value. We believe that
the aggregate carrying value of these vessels exceeds their aggregate basic charter-free market value by approximately
$14.9 million.
(4) As of December 31, 2012, the basic charter-free market value is lower than each vessel’s carrying value. We believe that
the aggregate carrying value of these vessels exceeded their aggregate basic charter-free market value at that date by
approximately $64.2 million.
(5) These vessels were acquired during the year ended December 31, 2013.
47
The impairment test that we conduct is most sensitive to variances in the discount rate and future time charter rates.
Based on the sensitivity analysis performed for December 31, 2013, a 1.0% increase in the discount rate would result in no
impairment being recognized. Alternatively, a 5% decrease in forecasted time charter rates would also result in no
impairment being recognized.
We refer you to the discussion herein under “Item 3. Key Information — D. Risk Factors — Risks Related to our
Industry,” including the risk factor entitled “Adverse market conditions could cause us to breach covenants in our credit
facilities and adversely affect our operating results.”
Vessel lives and residual value
The carrying value of each of our vessels represents its original cost at the time it was delivered or purchased less
depreciation and impairment. We depreciate our vessels to their residual value on a straight-line basis over their estimated
useful lives of 25 years. The estimated useful life of 25 years is management’s best estimate and is also consistent with
industry practice for similar vessels. The residual value is estimated as the lightweight tonnage of each vessel multiplied by a
forecast scrap value per ton. The scrap value per ton is estimated taking into consideration the historical four year scrap
market rate average at the balance sheet date.
An increase in the estimated useful life of a vessel or in its scrap value would have the effect of decreasing the
annual depreciation charge and extending it into later periods. A decrease in the useful life of a vessel or scrap value would
have the effect of increasing the annual depreciation charge.
When regulations place significant limitations over the ability of a vessel to trade on a worldwide basis, the vessel’s
useful life is adjusted to end at the date such regulations become effective. The estimated salvage value of the vessels may
not represent the fair market value at any one time since market prices of scrap values tend to fluctuate.
Deferred drydock cost
We recognize drydock costs as a separate component of the vessels’ carrying amounts and amortize the drydock cost
on a straight-line basis over the estimated period until the next drydock. We use judgment when estimating the period
between drydocks performed, which can result in adjustments to the estimated amortization of the drydock expense. If the
vessel is disposed of before the next drydock, the remaining balance of the deferred drydock is written-off and forms part of
the gain or loss recognized upon disposal of vessels in the period when contracted. We expect that our vessels will be
required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed
while the vessels are operating. Costs capitalized as part of the drydock include actual costs incurred at the drydock yard and
parts and supplies used in making such repairs. We only include in deferred drydocking costs those direct costs that are
incurred as part of the drydocking to meet regulatory requirements, or are expenditures that add economic life to the vessel,
increase the vessel’s earnings capacity or improve the vessel’s efficiency. Direct costs include shipyard costs as well as the
costs of placing the vessel in the shipyard. Expenditures for normal maintenance and repairs, whether incurred as part of the
drydocking or not, are expensed as incurred.
48
A.
Operating Results
Results of Operations for the Year ended December 31, 2013 Compared to the Year Ended December 31, 2012
In thousands of US dollars
Vessel revenue ......................................................... $
Vessel operating costs ..............................................
Voyage expenses .....................................................
Charterhire ...............................................................
Depreciation .............................................................
General and administrative expenses .......................
Write down of vessels held for sale and loss from
sales of vessels .....................................................
Gain on sale of VLGCs ............................................
Financial expenses ...................................................
Realized gain on derivative financial instruments ...
Unrealized gain / (loss) on derivative financial
instruments ...........................................................
Financial income ......................................................
Share of profit from associate ..................................
Other expenses, net ..................................................
Net income / (loss) ................................................... $
For the year ended December 31,
2013
207,580 $
(40,204)
(4,846)
(115,543)
(23,595)
(25,788)
2012
115,381 $
(30,353)
(21,744)
(43,701)
(14,818)
(11,536)
(21,187)
41,375
(2,705)
3
(10,404)
—
(8,512)
443
567
1,147
369
(158)
17,015 $
(1,231)
35
—
(97)
(26,537) $
Change
Percentage
Change
92,199
(9,851 )
16,898
(71,842 )
(8,777 )
(14,252 )
(10,783 )
41,375
5,807
(440 )
1,798
1,112
369
(61 )
43,552
80%
(32%)
78%
(164%)
(59%)
(124%)
(104%)
N/A
68%
(99%)
146%
3177%
N/A
(63%)
164%
Net income / (loss). Net income for the year ended December 31, 2013 was $17.0 million, an increase of $43.6
million, or 164%, from a net loss of $26.5 million for the year ended December 31, 2012. The differences between the two
periods are discussed below.
Vessel revenue. Revenue for the year ended December 31, 2013 was $207.6 million, an increase of $92.2 million, or
80%, from revenue of $115.4 million for the year ended December 31, 2012. Overall revenue increases were driven by
growth in our fleet of both owned and time chartered-in vessels to an average of 15.9 owned and 22.9 time chartered vessels
during the year ended December 31, 2013 from an average of 10.8 owned and 9.2 time chartered-in vessels during the year
ended December 31, 2012. These increases were augmented by an overall improvement in TCE rates to $14,369 per day
from $12,960 per day.
The following table summarizes our revenue:
In thousands of US dollars
Owned vessels
For the year ended December 31,
Percentage
2013
2012
Change
Change
Pool revenue ..................................................................................... $
Voyage revenue ................................................................................
80,269 $
9,007
38,522 41,747 108%
(66%)
26,668 (17,661)
Time chartered-in vessels
Pool revenue .....................................................................................
Voyage revenue ................................................................................
$
109,748
8,556
207,580 $
33,740 76,008 225%
16,451 (7,895)
(48%)
115,381 $ 92,199
80%
Owned vessels – Pool revenue. Pool revenue for owned vessels for the year ended December 31, 2013 was $80.3
million, an increase of $41.7 million or 108% from $38.5 million during the year ended December 31, 2012. The increase
was primarily driven by an increase in the number of pool revenue days to 5,323 from 2,851 during the years ended
December 31, 2013 and 2012, respectively, which was the result of growth in our owned fleet to an average of 15.9 vessels
from 10.8 vessels during those time periods. Furthermore, the increase was also driven by an increase in pool revenue per day
to $15,080 from $13,510 per day during years ended December 31, 2013 and 2012, respectively. The increase in pool
49
revenue per day was primarily driven by our MR operating segment which experienced growth driven by vessels delivered
under our Newbuilding Program.
Owned vessels – Voyage revenue. Voyage revenue for owned vessels for the year ended December 31, 2013 was
$9.0 million, a decrease of $17.7 million or 66% from $26.7 million during the year ended December 31, 2012. The decrease
was primarily driven by a decrease in the number of days that our vessels operated in the spot market to 445 days for the year
ended December 31, 2013 from 1,015 days during the year ended December 31, 2012. STI Conqueror, STI Matador, STI
Gladiator, STI Coral and STI Diamond, operated in the spot market for a total of 1,015 days during the year ended December
31, 2012 prior to their sales. STI Sapphire, STI Emerald, STI Beryl, STI Le Rocher, STI Larvotto, STI Fontvieille and STI
Ville operated in the spot market for a total of 445 days immediately following their deliveries from the shipyard during the
year ended December 31, 2013.
Time chartered-in vessels – Pool revenue. Pool revenue for time chartered-in vessels for the year ended December
31, 2013 was $109.7 million, an increase of $76.0 million or 225% from $33.7 million during the year ended December 31,
2012. The increase in pool revenue for time chartered-in vessels was primarily due to an increase in pool revenue days to
8,016 days from 2,662 days during the years ended December 31, 2013 and 2012, respectively which was driven by growth
in our time chartered-in fleet to an average of 22.9 vessels from an average of 9.2 vessels during those time periods.
Additionally, the increase in pool revenue for time chartered-in vessels was also driven by an increase in pool revenue per
day to $13,691 from $12,656 per day during the years ended December 31, 2013 and 2012, respectively.
Time chartered-in vessels – Voyage revenue. Voyage revenue for time chartered-in vessels for the year ended
December 31, 2013 was $8.6 million, a decrease of $7.9 million or 48% from $16.5 million for the year ended December 31,
2012. During the year ended December 31, 2013, Gan-Trust, Nave Orion, King Douglas, Pacific Duchess and SN Federica
operated in the spot market for a total of 326 days compared to FPMC P Eagle, Pacific Duchess, Targale, STX Ace 6, Freja
Lupus, Endeavour and Valle Bianca, which operated in the spot market for a total of 698 days during year ended December
31, 2012.
Vessel operating costs. Vessel operating costs for the year ended December 31, 2013 were $40.2 million, an
increase of $9.9 million or 32%, from $30.4 million for the year ended December 31, 2012. This increase was driven by an
overall increase in operating days for our owned vessels to 5,820 from 3,957 during the years ended December 31, 2013 and
2012, respectively. The increase in operating days was driven by the increase in the average number of owned vessels to 15.9
from 10.8 for the years ended December 31, 2013 and 2012, respectively. The overall increase in operating days was offset
by a decrease in vessel operating costs per day to $6,781 per day from $7,605 per day for the years ended December 31, 2013
and 2012, respectively. This decrease was driven by the growth in the fleet of MRs delivered under the Company’s
Newbuilding Program, which realized improved operating performance when compared to the Company’s older vessels.
Voyage expenses. Voyage expenses for the year ended December 31, 2013 were $4.8 million, a decrease of $16.9
million, or 78%, from $21.7 million during the year ended December 31, 2012. The decrease was primarily driven by a
decrease in the number of days vessels operated in the spot market to 771 days from 1,712 days for the years ended
December 31, 2013 and 2012, respectively.
Furthermore, the vessels delivered under our Newbuilding Program in 2013 (STI Sapphire, STI Emerald, STI Beryl,
STI Le Rocher, STI Larvotto, STI Fontvieille and STI Ville) were employed on short-term time charters (ranging from 45 to
120 days) for a total of 445 days which commenced upon deliveries from the shipyard during the year ended December 31,
2013. These short term time charters were agreed to at fixed TCE rates, where only nominal voyage expenses were incurred.
The vessels delivered under our Newbuilding Program in 2012 were employed on similar short-term time charters for a total
of 414 days during the year ended December 31, 2012.
Charterhire. Charterhire expense for the year ended December 31, 2013 was $115.5 million, an increase of $71.8
million, or 164%, from $43.7 million during the year ended December 31, 2012. The increase was the result of an increase in
the average number of time chartered-in vessels to 22.9 from 9.2 for the years ended December 31, 2013 and 2012,
respectively.
Depreciation. Depreciation expense for the year ended December 31, 2013 was $23.6 million, an increase of $8.8
million or 59%, from $14.8 million during the year ended December 31, 2012. The increase was the result of an increase in
the average number of owned vessels to 15.9 from 10.8 for the years ended December 31, 2013 and 2012, respectively, in
addition to a change in the mix vessels in our fleet. Both were driven by the deliveries of the first 12 vessels under our
50
Newbuilding Program in 2012 and 2013, offset by the sales of STI Conqueror, STI Matador, STI Gladiator, STI Diamond
and STI Coral in 2012.
General and administrative expenses. General and administrative expenses for the year ended December 31, 2013
were $25.8 million, an increase of $14.3 million, or 124%, from $11.5 million during the year ended December 31, 2012. The
increase was driven by a $9.7 million increase in restricted stock amortization (non-cash) and an overall increase in general
and administrative expenses due to the significant growth of the Company.
Write down of vessels held for sale and loss from sales of vessels. Write down of vessels held for sale and loss from
sales of vessels for the year ended December 31, 2013 was $21.2 million, an increase of $10.8 million or 104%, from $10.4
million during the year ended December 31, 2012. Write-down of vessels held for sale for the year ended December 31, 2013
relates to the designation of Noemi, Senatore, Venice and STI Spirit as held-for-sale and the corresponding write-down to the
lower of their carrying value and fair value less costs to sell at that date.
Loss from sale of vessels for the year ended December 31, 2012 of $10.4 million was the result of the sales of STI
Conqueror, STI Matador, STI Gladiator, STI Coral and STI Diamond during that period.
Gain on sale of VLGCs. Gain on sale of VLGCs of $41.4 million during the year ended December 31, 2013 relates
to the gain recorded as a result of our investment in Dorian. In November 2013, we contributed our VLGC business, which
consisted of 11 VLGC newbuilding contracts and options to construct two additional VLGCs, together with a cash payment
of $1.9 million to Dorian in exchange for newly issued shares representing 30% of Dorian’s outstanding shares immediately
following the transaction. As of the closing date of the transaction, we paid $83.1 million in installment payments for the 11
VLGC contracts. A gain of $41.4 million was recognized at the closing date for the difference between the book value of the
assets contributed and the fair value of the consideration received less costs to sell.
Financial expenses. Financial expenses for the year ended December 31, 2013 were $2.7 million, a decrease of $5.8
million or 68%, from $8.5 million during the year ended December 31, 2012. The decrease was primarily driven by a one-
time write-off of deferred financing fees of $3.0 million due to the extension of the availability period on the 2011 Credit
Facility during the year ended December 31, 2012. The decrease was also the result of a reduction in interest expense which
was driven by an increase in interest capitalized during the year ended December 31, 2013 as a result of the significant
growth in our Newbuilding Program.
Financial expenses for the year ended December 31, 2013 consisted of interest expense on our bank loans ($1.0
million), commitment fees on the undrawn portions of our credit facilities ($1.4 million) and amortization of loan fees ($0.3
million).
Financial expenses for the year ended December 31, 2012 consisted of interest expense on our bank loans ($3.3
million), commitment fees on the undrawn portions of our credit facilities ($1.0 million), amortization of loan fees ($1.3
million), and a one-time write-off of deferred financing fees of $3.0 million due to the extension of the availability period on
the 2011 Credit Facility.
Realized gain on derivative financial instruments. Realized gain on derivative financial instruments for the year
ended December 31, 2013 was $3,208, a decrease of $0.4 million or 99% from $0.4 million from the year ended December
31, 2012. Realized gain on derivative financial instruments relates to earnings from profit and loss sharing agreements with
third parties relating to a time chartered-in vessel and a vessel that was neither owned or operated by us. These agreements
expired on October 2013 and January 2013, respectively.
Unrealized gain / (loss) on derivative financial instruments. Unrealized gain on derivative financial instruments for
the year ended December 31, 2013 was $0.6 million, an increase of $1.8 million or 146% from an unrealized loss of $1.2
million during the year ended December 31, 2012. The unrealized gain / (loss) on derivative financial instruments consists of
the change in the fair value of our interest rate swaps relating to the 2010 Revolving Credit Facility and change in the fair
value of profit and loss sharing agreements with third parties on time chartered-in vessels.
During the year ended December 31, 2013, we recorded an unrealized gain relating to our interest rate swaps of $0.4
million and an unrealized gain of $0.2 million related to our profit and loss sharing agreements with third parties on time
chartered-in vessels.
51
During the year ended December 31, 2012, we recognized a one-time expense of $1.0 million which related to the
reclassification from other comprehensive income to the statement of income or loss for the de-designation of hedge
accounting on our interest rate swaps relating to the 2010 Revolving Credit Facility in addition to an unrealized loss of $0.2
million related to our profit and loss sharing agreements with third parties on time chartered-in vessels.
Financial income. Financial income consists of interest earned on our cash balance. Financial income increased
$1.1 million during the year ended December 31, 2013 as a result of an increase in our average cash balance during the year.
This was primarily driven by the receipt of net proceeds of $947.8 million from four separate offerings of common stock. See
“Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources” for a discussion of our cash
flows during the period.
Share of profit from associate. Share of profit from associate for the year ended December 31, 2013 was $0.4
million. This relates to our share of Dorian’s earnings from the closing date of our investment in Dorian of November 26,
2013 to December 31, 2013.
Results of operations — segment analysis
During the years ended December 31, 2013, 2012 and 2011, we owned or chartered-in vessels spanning four
different vessel classes, Handymax, MR, Panamax/LR1, and Aframax/LR2, all of which earn revenues in the seaborne
transportation of crude oil and refined petroleum products in the international shipping markets. Each vessel within its
respective class qualifies as an operating segment under IFRS. However, each vessel also exhibits similar long-term financial
performance and similar economic characteristics to the other vessels within the respective vessel class, thereby meeting the
aggregation criteria in IFRS. We have therefore chosen to present our segment information by vessel class using the
aggregated information from the individual vessels.
Segment results are evaluated based on reported profit or loss from each segment. The accounting policies applied to
the reportable segments are the same as those used in the preparation of our consolidated financial statements.
LR2 segment
The following table summarizes segment profit or loss for our LR2 segment.
For the year ended
December 31,
LR2 segment
In thousands of U.S. dollars
Change
Vessel revenue .................................................................................................... $ 28,204 $ 4,541 $ 23,663 521%
3%
Vessel operating costs .........................................................................................
93
Voyage expenses ................................................................................................. —
25 100%
Charterhire .......................................................................................................... (29,341) (1,287) (28,054) (2180%)
(1%)
Depreciation ........................................................................................................
(54%)
General and administrative expenses ..................................................................
N/A
Write down of vessels held for sale .....................................................................
22%
Financial expenses ..............................................................................................
Other expenses, net .............................................................................................
9%
Segment loss ....................................................................................................... $(13,294) $ (3,007) $ (10,287) (342%)
(15)
(1,750) (1,735)
(54)
(100)
(6,185) — (6,185)
239
1
(3,211) (3,304)
(25)
(847) (1,086)
(11)
(10)
Percentage
(154)
Change
2013
2012
TCE per revenue day ........................................................................................... $ 12,718 $ 10,201 $ 2,517
233
Owned vessel operating costs per day .................................................................
8,203 8,436
25%
3%
Revenue days ......................................................................................................
Owned vessel operating days ..............................................................................
2,218
365
443 1,775 401%
0%
366
(1)
Average number of owned vessels ......................................................................
Average number of time chartered-in vessels .....................................................
1.00 1.00 —
5.10 0.29
0%
4.81 1659%
52
Vessel revenue. Vessel revenue for the year ended December 31, 2013 was $28.2 million, an increase of $23.7
million, or 521%, from the year ended December 31, 2012. The increase was primarily driven by an increase in revenue days
to 2,218 from 443 days during the years ended December 31, 2013 and 2012, respectively. This was the result of growth in
our time chartered-in fleet as during the year ended December 31, 2013, we time chartered-in Khawr Aladid, FPMC P Hero,
FPMC P Ideal, Fair Seas, Pink Stars, Orange Stars, Densa Alligator, Four Sky and Southport whereas only Khawr Aladid
was time chartered-in during the year ended December 31, 2012. The increase in revenue was also driven by an increase in
revenue per day to $12,718 per day from $10,201 per day during the years ended December 31, 2013 and 2012, respectively.
Vessel operating costs. Vessel operating costs for the year ended December 31, 2013 were $3.2 million, a decrease
of $0.1 million, or 3%, from the year ended December 31, 2012. Operating costs per day related to our owned LR2 vessel,
STI Spirit, which improved to $8,203 per day from $8,436 per day during the years ended December 31, 2013 and 2012,
respectively. This improvement was offset by certain, nominal operating costs incurred on our time chartered-in fleet as a
result of the growth to 5.1 vessels from 0.3 vessels during the years ended December 31, 2013 and 2012, respectively.
Charterhire. Charterhire expense for the year ended December 31, 2013 was $29.3 million, an increase of $28.1
million or 2,180% from the year ended December 31, 2012. This increase was driven by the delivery of nine time chartered-
in vessels during the year ended December 31, 2013 (Khawr Aladid, FPMC P Hero, FPMC P Ideal, Fair Seas, Pink Stars,
Orange Stars, Densa Alligator, Four Sky and Southport). During the year ended December 31, 2012, we time chartered-in
one vessel (Khawr Aladid), on a six month time charter-in agreement that expired in April 2012.
Depreciation. Depreciation expense for the year ended December 31, 2013 was $1.8 million, which remained
consistent from the year ended December 31, 2012.
Write down of vessels held for sale. Write down of vessels held for sale for the year ended December 31, 2013 was
$6.2 million. The write down relates to the re-measurement of STI Spirit at the lower of its carrying value and fair value less
costs to sell as the vessel was designated as “held for sale” at December 31, 2013. An agreement to sell this vessel was
reached in February 2014 for $30.2 million. This sale is expected to close in April 2014.
Financial expenses. Financial expenses for the year ended December 31, 2013 were $0.8 million, a decrease of $0.2
million or 22% from the year ended December 31, 2012. Financial expenses for the LR2 segment relates to interest expense
for our STI Spirit Credit Facility, which decreased as a result of a decrease in the outstanding balance under this loan.
Panamax / LR1 segment
The following table summarizes segment profit or loss for our Panamax / LR1 segment.
For the year ended
December 31,
Panamax/LR1 segment
In thousands of U.S. dollars
Change
46%
Vessel revenue .................................................................................................... $ 41,683 $ 28,602 $ 13,081
(1%)
Vessel operating costs ........................................................................................ (14,276) (14,137)
(139)
(999) (2,859) (286%)
(3,858)
Voyage expenses ................................................................................................
(1,629) (12,734) (782%)
Charterhire .......................................................................................................... (14,363)
1%
(7,352)
(7,275)
Depreciation .......................................................................................................
General and administrative expenses .................................................................
(8%)
(495)
(536)
Write down of vessels held for sale .................................................................... (15,002) — (15,002) N/A
(440)
Realized gain on derivative financial instruments ..............................................
(99%)
Unrealized gain on derivative financial instruments ..........................................
370 201%
Segment profit .................................................................................................... $(13,438) $ 4,249 $(17,687) (416%)
443
(184)
3
186
77
(41)
Change
Percentage
2013
2012
TCE per revenue day .......................................................................................... $ 12,599 $ 14,264 $ (1,665)
(42)
Owned vessel operating costs per day ................................................................
7,714
7,756
(12%)
(1%)
Revenue days ......................................................................................................
Owned vessel operating days .............................................................................
3,005
1,825
1,936 1,069
(5)
1,830
55%
0%
Average number of owned vessels .....................................................................
Average number of time chartered-in vessels ....................................................
5.00
3.20
5.00 —
0.35
0%
2.85 814%
53
Vessel Revenue. Vessel revenue for the year ended December 31, 2013 was $41.7 million, an increase of $13.1
million or 46% from the year ended December 31, 2012. The increase in revenue was the result of an increase in the number
of revenue days to 3,005 from 1,936 during the years ended December 31, 2013 and 2012, respectively. This was driven by
the deliveries of the time-chartered vessels, FPMC P Eagle, Hellespont Promise, SN Federica, King Douglas and SN Azzura
during the year ended December 31, 2013. We time chartered-in two LR1 vessels, FPMC P Eagle and Hellespont Promise
during the year ended December 31, 2012. The increase in revenue days was offset by decrease in TCE revenue per day to
$12,599 from $14,264 during the years ended December 31, 2013 and 2012, respectively.
Vessel operating costs. Vessel operating costs for the year ended December 31, 2013 were $14.3 million, an
increase of $0.1 million, or 1%, from the year ended December 31, 2012. The increase was driven by a slight increase in
operating costs per day to $7,756 from $7,714 per day during the year ended December 31, 2013 and 2012, respectively.
Voyage expenses. Voyage expenses for the year ended December 31, 2013 were $3.9 million, an increase of $2.9
million or 286% from the year ended December 31, 2012. The increase was driven by the time chartered-in vessels, SN
Federica and King Douglas, which operated in the spot market for 187 days during the year ended December 31, 2013.
FPMC P Eagle operated in the spot market for 48 days during the year ended December 31, 2012.
Charterhire. Charterhire expense for the year ended December 31, 2013 was $14.4 million, an increase of $12.7
million, or 782% from the year ended December 31, 2012. The increase was driven by an increase in the number of time
chartered-in days to 1,180 from 129 during the years ended December 31, 2013 and 2012, respectively. This increase was
driven by the deliveries of SN Federica, King Douglas and SN Azzura during the year ended December 31, 2013. In addition,
FPMC P Eagle and Hellespont Promise were time chartered-in for an aggregate of 728 days and 129 days during the years
ended December 31, 2013 and 2012, respectively.
Write down of vessels held for sale. Write down of vessels held for sale for the year ended December 31, 2013 was
$15.0 million. The write down represents the re-measurement of Venice, Senatore and Noemi to the lower of their carrying
value and fair value less costs to sell as these vessels were designated as “held for sale” at December 31, 2013. In February
2014, we agreed to sell Noemi and Senatore for an aggregate selling price of $44.0 million.
Realized and unrealized gains on derivative financial instruments. Realized and unrealized gains on derivative
financial instruments for the year ended December 31, 2013 were a net of $0.2 million, a decrease of $0.1 million or 137%
from the year ended December 31, 2012. Realized and unrealized gains and losses on derivative financial instruments related
to profit and loss agreements on time chartered-in vessels entered into with third parties. These agreements related to the time
chartered-in vessel, FPMC P Eagle and an LR1 vessel that was not time chartered-in or operated by the Company and they
expired in October 2013 and January 2013, respectively.
54
MR segment
The following table summarizes segment profit or loss for our MR segment.
For the year ended
December 31,
MR segment
In thousands of U.S. dollars
Change
Vessel revenue .................................................................................................... $101,488 $ 46,857 $ 54,631 117%
(7,484) (12,585) (168%)
Vessel operating costs ......................................................................................... (20,069)
Voyage expenses ................................................................................................
95%
Charterhire .......................................................................................................... (40,753) (17,593) (23,160) (132%)
(4,015) (9,263) (231%)
Depreciation ........................................................................................................ (13,278)
(5,879) 5,879 100%
Loss from sale of vessels .................................................................................... —
(632) (159%)
(1,030)
General and administrative expenses ..................................................................
(33%)
4
Financial income .................................................................................................
Other expenses, net .............................................................................................
(59%)
(21)
Segment profit / (loss) ........................................................................................ $ 25,364 $ (6,536) 31,900 488%
(977) (17,979) 17,002
(398)
6
(51)
(2)
30
Change
Percentage
2012
2013
TCE per revenue day .......................................................................................... $ 16,546 $ 12,289 $ 4,257
701
Owned vessel operating costs per day ................................................................
6,770
6,069
35%
10%
Revenue days ......................................................................................................
Owned vessel operating days ..............................................................................
6,072
3,265
2,350 3,722 158%
1,089 2,176 200%
Average number of owned vessels .....................................................................
Average number of time chartered-in vessels .....................................................
8.90
7.80
2.97
3.51
5.93 200%
4.29 122%
Vessel revenue. Vessel revenue for the year ended December 31, 2013 was $101.5 million, an increase of $54.6
million or 117% from the year ended December 31, 2012. The increase in revenue was the result of an increase in the overall
number of revenue days to 6,072 from 2,350 during the years ended December 31, 2013 and 2012, respectively, in addition
to an increase in overall TCE revenue to $16,546 per day from $12,289 per day.
The increase in revenue days was driven by the deliveries of STI Sapphire, STI Emerald, STI Beryl, STI Le Rocher,
STI Larvotto, STI Fontvieille and STI Ville during the year ended December 31, 2013 in addition to the deliveries of STI
Amber, STI Topaz, STI Ruby, STI Garnet and STI Onyx during the year ended December 31, 2012, which were employed
during the entire year ended December 31, 2013 as compared to a partial period during the year ended December 31, 2012.
The increase in revenue days was also driven by an increase in the average number of time chartered-in vessels to 7.8 from
3.5 during the years ended December 31, 2013 and 2012, respectively.
Vessel operating costs. Vessel operating costs for the year ended December 31, 2013 were $20.1 million, an
increase of $12.6 million, or 168%, from the year ended December 31, 2012. The increase was primarily driven by an
increase in the number of operating days to 3,265 from 1,089 days during the years ended December 31, 2013 and 2012,
respectively. The increase in operating days was driven by the deliveries of STI Sapphire, STI Emerald, STI Beryl, STI Le
Rocher, STI Larvotto, STI Fontvieille and STI Ville during the year ended December 31, 2013, in addition to the deliveries of
STI Amber, STI Topaz, STI Ruby, STI Garnet and STI Onyx during the year ended December 31, 2012, which were employed
during the entire year ended December 31, 2013 as compared to a partial period during the year ended December 31, 2012.
The increase in operating days was offset by the sales of STI Diamond and STI Coral, which operated for a total of 477 days
during the year ended December 31, 2012 prior to their sales.
The increase in operating days was offset by a decrease in daily vessel operating costs of $701 per day, or 10%,
from the year ended December 31, 2012. This was driven by improved operating performance of vessels delivered under our
Newbuilding Program, whose daily operating costs were $6,069 per day during the year ended December 31, 2013. The year
ended December 31, 2012 reflects 477 operating days of STI Diamond and STI Coral, which were sold in August and
September 2012, respectively and whose daily operating costs were $8,166 per day during that period.
55
Voyage expenses. Voyage expenses for the year ended December 31, 2013 were $1.0 million, a decrease of $17.0
million or 95% from the year ended December 31, 2012. The year ended December 31, 2013 reflects 583 days of vessels
operating in the spot market as compared to 1,541 days during the year ended December 31, 2012. 445 of the 583 spot
market revenue days during the year ended December 31, 2013 reflect days where vessels delivered under our Newbuilding
Program were employed on short-term time charters (ranging from 45 to 120 days) that commenced upon delivery from the
shipyard. These short term time charters were agreed to at fixed TCE rates, where only nominal voyage expenses were
incurred. The vessels delivered under our Newbuilding Program in 2012 were employed on similar short-term time charters
for 414 days during that period.
Charterhire. Charterhire expense for the year ended December 31, 2013 was $40.8 million, an increase of $23.2
million, or 132%, from the year ended December 31, 2012. The increase was the result of an increase in the number of time
chartered-in days to 2,839 from 1,283 days during the years ended December 31, 2013 and 2012, respectively. Pacific
Duchess, Freja Lupus, STX Ace 6, Targale, Endeavour, Valle Bianca, USMA, Ugale, Gan-Trust, Nave Orion and Gan-
Triumph where chartered-in for all or part of the year ended December 31, 2013 and Pacific Duchess, Targale, STX Ace 6,
Freja Lupus, Endeavour and Valle Bianca were chartered-in for all or part of the year ended December 31, 2012.
Depreciation. Depreciation expense for the year ended December 31, 2013 was $13.3 million, an increase of $9.3
million, or 231%, from the year ended December 31, 2012. The increase was driven by an increase in the average number of
owned MR vessels to 7.8 from 3.5 for the years ended December 31, 2013 and 2012, respectively. This was the result of the
deliveries of seven vessels under our Newbuilding Program in 2013 along with five vessels delivered under our Newbuilding
Program in the third quarter of 2012 (which were depreciated for a partial period during the year ended September 2012). The
increase in depreciation expense was offset by the sales of STI Diamond and STI Coral in August and September 2012,
respectively.
Loss from sale of vessels. Loss from sale of vessels during the year ended December 31, 2012 relates to the sales of
STI Diamond and STI Coral in August and September 2012, respectively. We did not sell or have any MR vessels held for
sale during the year ended December 31, 2013.
General and administrative expenses. General and administrative expenses for the year ended December 31, 2013
were $1.0 million, an increase of $0.6 million, or 159%, from the year ended December 31, 2012. General and administrative
expenses for the MR segment primarily consist of administrative fees to SSH. The increase was the result of an increase in
the average number of owned vessels to 7.8 from 3.5 during the year ended December 31, 2012.
Handymax Segment
The following table summarizes segment profit or loss for our Handymax segment.
Handymax segment
In thousands of U.S. dollars
Vessel revenue ........................................................................................... $
Vessel operating costs ...............................................................................
Voyage expenses .......................................................................................
Charterhire .................................................................................................
Depreciation ..............................................................................................
Loss from sale of vessels ...........................................................................
General and administrative expenses ........................................................
Segment profit / (loss) ............................................................................... $
For the year ended December 31,
Percentage
2013
36,205 $
(2,648)
(11)
(31,086)
(1,292)
—
(118)
1,050 $
Change Change
2012
2%
35,381 $
824
51%
(5,428) 2,780
(2,741) 2,730 100%
(34%)
(1,716)
25%
(4,525) 4,525 100%
39%
(2,416) $ 3,466 143%
(23,192) (7,894)
424
(195)
77
TCE per revenue day ................................................................................. $
Owned vessel operating costs per day .......................................................
12,862 $
6,852
13,069 $ (207)
742
7,594
(2%)
10%
Revenue days .............................................................................................
Owned vessel operating days ....................................................................
2,815
365
2,498
673
317
(308)
13%
(46%)
Average number of owned vessels ............................................................
Average number of time chartered-in vessels ...........................................
1.00
6.70
1.84 (0.84)
5.03 1.67
(46%)
33%
56
Vessel revenue. Vessel revenue for the year ended December 31, 2013 was $36.2 million, an increase of $0.8
million, or 2%, from the year ended December 31, 2012. The increase in revenue was the result of an increase in the number
of revenue days to 2,815 from 2,498 during the years ended December 31, 2013 and 2012, respectively, offset by a decrease
in daily TCE revenue to $12,862 from $13,069 per day during those same periods. The increase in revenue days was driven
by an increase in the average number of time chartered-in vessels from 6.70 from 5.03 during the years ended December 31,
2013 and 2012, respectively. The increase in the average number of time chartered-in vessels was offset by the sales of STI
Conqueror, STI Gladiator, and STI Matador during 2012 which decreased the average number of owned Handymax vessels
to 1.00 from 1.84 during the years ended December 31, 2013 and 2012, respectively.
Vessel operating costs. Vessel operating costs for the year ended December 31, 2013 were $2.6 million, a decrease
of $2.8 million, or 51%, from the year ended December 31, 2012. The decrease was driven by a decrease in the number of
operating days to 365 from 673 during the year ended December 31, 2012 which was due to the sales of STI Conqueror, STI
Matador, and STI Gladiator during 2012.
Voyage expenses. Nominal voyage expenses were incurred during the year ended December 31, 2013 as compared
to $2.7 million during the year ended December 31, 2012. STI Conqueror, STI Matador, and STI Gladiator operated in the
spot market for 124 days during the year ended December 31, 2012 prior to their sales. We did not have any Handymax
vessels operating in the spot market during the year ended December 31, 2013.
Charterhire. Charterhire expense for the year ended December 31, 2013 was $31.1 million, an increase of $7.9
million or 34% from the year ended December 31, 2012. The increase was driven by an increase in the average number of
time chartered-in vessels to 6.70 from 5.03 during the years ended December 31, 2013 and 2012, respectively. During the
year ended December 31, 2012, we time chartered-in Krisjanis Valdemars, Kraslava, Histria Azure, Kazdanga, Histria Perla
and Histria Coral for all or part of the period. In addition to these vessels and with the exception of Kazdanga, we time
chartered-in Jinan, Freja Polaris and Iver Progress for all or part of the year ended December 31, 2013.
Depreciation. Depreciation expense for the year ended December 31, 2013 was $1.3 million, a decrease of $0.4
million, or 25%, from the year ended December 31, 2012. This decrease was due to the sales of STI Conqueror, STI Matador,
and STI Gladiator during 2012.
Loss from sale of vessels. Loss from sale of vessels during the year ended December 31, 2012 relates to the sales of
STI Conqueror, STI Matador and STI Gladiator which were sold during 2012. We did not sell or have any Handymax vessels
held for sale during the year ended December 31, 2013.
Results of Operations for the Year ended December 31, 2012 Compared to the Year Ended December 31, 2011
For the year ended December 31,
2012
2011
In thousands of US dollars
Vessel revenue ....................................................................... $
Vessel operating costs ...........................................................
Voyage expenses ...................................................................
Charterhire .............................................................................
Impairment ............................................................................
Depreciation ..........................................................................
Loss from sale of vessels .......................................................
General and administrative expenses ....................................
Financial expenses .................................................................
Earnings from profit or loss sharing agreements ...................
Unrealized loss on derivative financial instruments ..............
Financial income ...................................................................
Other expenses, net ................................................................
Net loss .................................................................................. $
115,381 $
(30,353)
(21,744)
(43,701)
—
(14,818)
(10,404)
(11,536)
(8,512)
443
(1,231)
35
(97)
(26,537) $
Percentage
Change Change
41%
3%
(216%)
(92%)
100%
20%
N/A
1%
(21%)
N/A
N/A
(31%)
18%
68%
82,110 $ 33,271
(31,370) 1,017
(6,881) (14,863)
(22,750) (20,951)
(66,611) 66,611
(18,460) 3,642
— (10,404)
101
(7,060) (1,452)
—
443
— (1,231)
(16)
51
22
(119)
(82,727) $ 56,190
(11,637)
Net Loss. Net loss for the year ended December 31, 2012 was $26.5 million, compared to a net loss of $82.7 million
for the year ended December 31, 2011. The differences between the two periods are discussed below.
57
Vessel revenue. Revenue for the year ended December 31, 2012 was $115.4 million, an increase of $33.3 million, or
41% from revenue of $82.1 million for the year ended December 31, 2011. The following table summarizes our revenue:
In thousands of US dollars
Owned vessels ..........................................................................
Time charter revenue ........................................................
Pool revenue .....................................................................
Voyage revenue ................................................................
Time chartered-in vessels ........................................................
Pool revenue .....................................................................
Voyage revenue ................................................................
$
For the year ended December 31,
2012
2011
Percentage
Change Change
— $
38,522
26,668
9,626 $ (9,626)
39,522 (1,000)
12,287 14,381
(100%)
(3%)
117%
33,740
16,451
115,381 $
20,675 13,065
— 16,451
82,110 $33,271
63%
N/A
41%
Owned vessels – Time charter revenue. We did not time charter-out any owned vessels for the year ended
December 31, 2012. For the year ended December 31, 2011, Noemi and STI Spirit were employed on time charters for a total
of 427 days.
Owned vessels – Pool revenue. Pool revenue for owned vessels for the year ended December 31, 2012 was $38.5
million, a decrease of $1.0 million or 3% from $39.5 million for the year ended December 31, 2011. We had 2,851 revenue
days of owned vessels in the pools during the year ended December 31, 2012 compared to 3,149 during the year ended
December 31, 2011. This decrease in revenue days was primarily driven by the sales of STI Conqueror, STI Matador, and
STI Gladiator during March, April and May 2012 resulting in 911 less pool days partially offset by (i) the entrance in the
Scorpio MR Pool by our first five vessels delivered under our Newbuilding Program during the fourth quarter of 2012 for a
total of 176 additional days, (ii) Noemi , which was on time charter for the majority of 2011 and operated in the pool during
the year ended December 31, 2012 (net increase of 355 days), and (iii) an increase in TCE earnings from our owned vessels
operating in the pools to $13,510 per day for the year ended December 31, 2012 from $12,550 per day for the year ended
December 31, 2011.
Owned vessels – Voyage revenue. Voyage revenue for owned vessels for the year ended December 31, 2012 was
$26.7 million, an increase of $14.4 million, or 117% from $12.3 million during the year ended December 31, 2011. The
increase was primarily the result of an increase in the number of days that our vessels operated in the spot market for the year
ended December 31, 2012 and 2011 to 1,015 days from 450 days, respectively. Additionally, TCE earnings from our owned
vessels operating in the spot market increased to $13,220 per day in 2012 from $12,092 per day in 2011. Our first five vessels
delivered under our Newbuilding Program operated in the spot market immediately after delivery from the yards in 2012 for
a total of 414 days. Furthermore, STI Conqueror, STI Matador, STI Gladiator, STI Coral and STI Diamond all operated in the
spot market during 2012 prior to their sales. STI Coral and STI Diamond were the only vessels operating in the spot market
during 2011.
Time chartered-in vessels – Pool revenue. Pool revenue for time chartered-in vessels for the year ended December
31, 2012 was $33.7 million, an increase of $13.1 million, or 63% from $20.7 million during the year ended December 31,
2011. The increase was primarily the result of an increase in the number of days that our time chartered-in vessels operated in
the pools for the years ended December 31, 2012 and 2011 to 2,662 days from 1,806 days, respectively. Additionally, TCE
earnings from our time chartered-in vessels operating in the pools increased to $12,656 per day for the year ended December
31, 2012 from $11,448 per day for the year ended December 31, 2011.
Time chartered-in vessels – Voyage revenue. Voyage revenue for our time chartered-in vessels for the year ended
December 31, 2012 was $16.5 million. During the year ended December 31, 2012, time chartered-in vessels operated 698
days in the spot market. There were no time chartered-in vessels operating in the spot market during the year ended
December 31, 2011.
Vessel operating costs. Vessel operating costs for the year ended December 31, 2012 were $30.4 million, a decrease
of $1.0 million or 3%, from $31.4 million during the year ended December 31, 2011. We had 3,957 operating days during
2012 compared to 4,121 operating days during 2011. The decrease was primarily the result of the sales of STI Conqueror,
STI Gladiator and STI Matador in 2012 which resulted in a decrease of 789 operating days for these vessels during the year
ended December 31, 2012 versus the same period of the prior year. This decrease was partially offset by an increase of 612
operating days resulting from the delivery of our first five vessels delivered under our Newbuilding Program during the third
58
quarter of 2012. Overall operating costs per day were consistent at $7,605 per day for the year ended December 31, 2012
compared to $7,581 per day for the year ended December 31, 2011.
Voyage expenses. Voyage expenses for the year ended December 31, 2012 were $21.7 million, an increase of $14.9
million, or 216%, from $6.9 million during the year ended December 31, 2011. The increase was primarily due to an increase
in the number of days vessels operated in the spot market. There were 1,712 spot voyage days (owned and time chartered-in)
during the year ended December 31, 2012 as compared to 450 days during year ended December 31, 2011.
Charterhire. Charterhire expense for the year ended December 31, 2012 was $43.7 million, an increase of $21.0
million, or 92%, from $22.8 million during the year ended December 31, 2011. The increase was the result of additional time
chartered-in vessels in 2012 compared with 2011, where the average number of chartered-in vessels increased to 9.18 from
4.95 during the years ended December 31, 2012 and 2011, respectively.
Impairment. In the year ended December 31, 2011, we recognized an impairment loss of $66.6 million for our 12
owned vessels. This impairment loss was triggered by reductions in vessel values, and represented the difference between the
carrying value and recoverable amount, being fair value less cost to sell. No impairment was recognized in the year ended
December 31, 2012.
Depreciation. Depreciation expense for the year ended December 31, 2012 was $14.8 million, a decrease of $3.6
million or 20%, from $18.5 million during the year ended December 31, 2011. The decrease was a result of (i) a $66.6
million impairment charge recorded at December 31, 2011 which decreased the depreciable basis of our vessels and (ii) a
decrease in the number of owned vessels to 10.81 from 11.29 which was driven by the sales of STI Conqueror in March
2012, STI Matador in April 2012, STI Gladiator in May 2012, STI Diamond in August 2012 and STI Coral in September
2012, partially offset by the delivery of our first five vessels delivered under our Newbuilding Program between July 2012
and September 2012.
Loss from sale of vessels. Loss from sale of vessels for the year ended December 31, 2012 was $10.4 million. This
loss is related to the sales of STI Conqueror, STI Matador, STI Gladiator, STI Coral, and STI Diamond during the year ended
December 31, 2012 and includes $0.2 million relating to a loss on the interest rate swaps used to hedge the interest payments
on the borrowings on these vessels.
General and administrative expenses. General and administrative expenses for the year ended December 31, 2012
were $11.5 million, a decrease of $0.1 million, or 1%, from the year ended December 31, 2011. These costs remained
relatively stable as there were no significant changes in our overhead structure on a period over period basis.
Financial expenses. Financial expenses for the year ended December 31, 2012 were $8.5 million, an increase of
$1.5 million, or 21%, from $7.1 million during the year ended December 31, 2011. The increase for the year ended December
31, 2012 was primarily driven by a $3.0 million write-off of deferred financing fees relating to our 2011 Credit Facility offset
by a decrease in interest expense of $1.7 million which was driven by an increase in capitalized interest expense of $2.6
million for the year ended December 31, 2012 related to our vessels under construction.
Financial expenses for the year ended December 31, 2012 consisted of interest expense of $3.3 million, commitment
fees of $1.0 million on the undrawn portions of the 2010 Revolving Credit Facility and 2011 Credit Facility, deferred
financing fee amortization of $1.1 million, write-off of deferred financing fees of $3.0 million and other costs of $0.1 million.
Financial expenses for the year ended December 31, 2011 consisted of interest expense of $5.0 million, commitment
fees of $1.1 million on the undrawn portions of the 2010 Revolving Credit Facility and 2011 Credit Facility and deferred
financing fee amortization of $1.0 million.
Earnings from profit or loss sharing agreements. Earnings from profit or loss sharing agreements consist of
realized earnings from profit and loss sharing agreements with third parties relating to time chartered-in vessels. There were
no similar agreements for the comparative period.
Unrealized loss on derivative financial instruments. Unrealized loss on derivative financial instruments consists of
(i) the impact of the reclassification of $1.0 million from other comprehensive income to the statement of profit or loss
relating to the de-designation of the hedge relationship on our interest rate swaps relating to the 2010 Revolving Credit
Facility and (ii) the change in the fair value of profit and loss sharing agreements on time chartered-in vessels with third
parties of $0.2 million.
59
The following is a discussion of our operating results by operating segment:
Aframax/LR2 segment
The following table summarizes vessel operations for our Aframax/LR2 segment.
For the year ended
December 31,
Aframax/LR2 segment
In thousands of US dollars except per day and fleet data
Vessel revenue ............................................................................................... $ 4,541 $ 6,484 ($ 1,943)
(757)
Vessel operating costs .................................................................................... (3,304)
(25)
Voyage expenses............................................................................................
Charterhire ..................................................................................................... (1,287)
(448)
Impairment ..................................................................................................... — (12,459) 12,459
339
Depreciation ................................................................................................... (1,735)
36
(100)
General and administrative expenses .............................................................
(245)
Financial expenses ......................................................................................... (1,086)
Other expenses, net ........................................................................................
123
(11)
Segment loss .................................................................................................. $ (3,007) $(12,546) $ 9,539
(2,547)
(25) —
(839)
(2,074)
(136)
(841)
(134)
Change
2012
2011
Percentage
Change
(30%)
(30%)
N/A
(53%)
100%
16%
26%
(29%)
92%
76%
TCE revenue per day ..................................................................................... $10,201 $ 14,951 $ 4,750
6,960 (1,476)
Owned vessel operating costs per day ........................................................... 8,436
32%
(21%)
Revenue days .................................................................................................
Owned vessel operating days .........................................................................
443
366
433
365
10
1
Average number of owned vessels.................................................................
Average number of time chartered-in vessels ................................................
1.00
0.29
1.00 —
.10
0.19
2%
0%
0%
53%
Vessel Revenue. Vessel revenue for the year ended December 31, 2012 was $4.5 million, a decrease of $1.9 million
or 30% from the year ended December 31, 2011. There were two vessels operating in this segment during both periods, STI
Spirit and Khawr Aladid. The decrease in revenue is due to a decrease in TCE revenue per day to $10,201 per day from
$14,951 per day. This was primarily driven by STI Spirit, which in June 2012 needed repairs and a subsequent positioning
voyage which negatively affected the vessel’s earnings.
Vessel operating costs. Vessel operating costs for the year ended December 31, 2012 were $3.3 million, an increase
of $0.8 million, or 30%, from the year ended December 31, 2011. On a daily basis, vessel operating costs for the year ended
December 31, 2012 increased $1,476 per day, or 21% from the year ended December 31, 2011. This was a result of
unplanned repairs on STI Spirit during the year ended December 31, 2012.
Charterhire. Charterhire expense for the year ended December 31, 2012 was $1.3 million, an increase of $0.5
million, or 53%, from the year ended December 31, 2011. This increase was driven by the time chartered-in vessel, Khawr
Aladid, which was delivered on October 24, 2011, on a six month arrangement that expired in April 2012.
Depreciation. Depreciation expense for the year ended December 31, 2012 was $1.7 million, a decrease of $0.3
million, or 16%, from the year ended December 31, 2011. This was a result of an impairment charge that was recorded in
December 2011 which reduced the depreciable basis of STI Spirit in 2012.
Financial expense. Financial expense for the year ended December 31, 2012 was $1.1 million, an increase of $0.2
million or 29% from the year ended December 31, 2011. Financial expense for the Aframax/LR1 segment represents interest
for the STI Spirit Credit Facility, which was signed and drawn in March 2011. Therefore, the year ended December 31, 2012
represents a full year of interest expense as opposed to approximately nine months of interest expense during year ended
December 31, 2011.
Other expenses, net. Other expenses, net for the year ended December 31, 2012 decreased $0.1 million or 92% from
the year ended December 31, 2011. This decrease was driven by the write-off of the fair value of vessel purchase options that
were acquired with STI Spirit in September 2011.
60
Panamax/LR1 segment
The following table summarizes vessel operations for our Panamax/LR1 segment.
For the year ended
December 31,
2012
Panamax/LR1 segment
In thousands of US dollars except per day and fleet data
Vessel revenue .............................................................................................. $ 28,602 $ 31,101 ($ 2,499)
291
Vessel operating costs .................................................................................. (14,137) (14,428)
Voyage expenses ..........................................................................................
(986)
(13)
(4,554) 2,925
Charterhire ....................................................................................................
Impairment ................................................................................................... — (28,616) 28,616
(9,279) 1,927
Depreciation .................................................................................................
197
General and administrative expenses ............................................................
443
Earnings from profit and loss sharing agreements ........................................
(184)
Unrealized loss on derivative financial instruments .....................................
Other expenses, net ....................................................................................... —
(23)
Segment profit / (loss) .................................................................................. $ 4,249 $(26,458) $ 30,707
(7,352)
(495)
(692)
443 —
(184) —
23
(999)
(1,629)
Change
2011
TCE revenue per day .................................................................................... $ 14,264 $ 14,743 ($
7,891
Owned vessel operating costs per day ..........................................................
7,714
479)
177
Revenue days ................................................................................................
Owned vessel operating days .......................................................................
1,935
1,830
2,109
1,825
(174)
(5)
Percentage
Change
(8%)
2%
(7585%)
64%
100%
21%
28%
N/A
N/A
100%
116%
(3%)
2%
(8%)
0%
Average number of owned vessels ...............................................................
Average number of time chartered-in vessels ...............................................
5.00
0.35
5.00 —
(0.56)
0.91
0%
(62%)
Vessel Revenue. Vessel revenue for the year ended December 31, 2012 was $28.6 million, a decrease of $2.5
million or 8% from the year ended December 31, 2011. The decrease in revenue was the result of (i) a decrease in the number
of revenue days to 1,935 for the year ended December 31, 2012 compared to 2,109 days during the year ended December 31,
2011 and (ii) a decrease in overall TCE revenue per day to $14,264 from $14,743 for the years ended December 31, 2012 and
December 31, 2011, respectively. This was driven by a reduction in the average number of time chartered-in vessels to 0.35
from 0.91 for the years ended December 31, 2012 and 2011, respectively. This reduction is due to the redelivery of the time
chartered-in vessel, BW Zambesi in November 2011 following its 10 month time charter-in agreement partially offset by the
delivery of the time chartered-in vessels, FPMC P Eagle and Hellespont Promise in September and December 2012,
respectively.
Noemi was time chartered-out during the year ended December 31, 2011 at a rate of $24,500 per day and was
redelivered in December 2011. The effect of the decrease on overall pool revenue resulting from the expiration of this charter
was offset by an increase of pool revenue per day to $14,242 per day during the year ended December 31, 2012 from $12,876
per day during the year ended December 31, 2011.
Vessel operating costs. Vessel operating costs for the year ended December 31, 2012 were $14.1 million, a decrease
of $0.3 million, or 2%, from the year ended December 31, 2011. Vessel operating costs per day for the year ended December
31, 2012 decreased $177 per day, or 2% from the year December 31, 2011. These costs remained relatively stable as there
were no changes in our owned Panamax/LR1 fleet on a period over period basis.
Voyage expenses. Voyage expenses for the year ended December 31, 2012 were $1.0 million, an increase of $1.0
million from the year ended December 31, 2011. This increase was the result of the time chartered-in vessel, FPMC P Eagle,
which operated in the spot market for 48 days during the year ended December 31, 2012. No vessels operated in the spot
market for the year ended December 31, 2011.
Charterhire. Charterhire expense for the year ended December 31, 2012 was $1.6 million, a decrease of $2.9
million or 64% from the year ended December 31, 2011. This decrease was the result of the redelivery of the time chartered-
in vessel, BW Zambesi in November 2011 from its 10 month time charter-in agreement. This was partially offset by the
delivery of the time chartered-in vessels, FPMC P Eagle and Hellespont Promise in September and December 2012,
respectively.
61
Depreciation. Depreciation expense for the year ended December 31, 2012 was $7.4 million, a decrease of $1.9
million, or 21%, from the year ended December 31, 2011. This was a result of an impairment charge recorded in December
2011, which reduced the depreciable basis of all owned vessels in the Panamax / LR1 Segment.
General and administrative expenses. General and administrative expenses for the year ended December 31, 2012
were $0.5 million, a decrease of $0.2 million or 28%, from the year ended December 31, 2011. General and administrative
expenses for the Panamax / LR1 segment primarily consist of administrative fees.
Earnings from profit or loss sharing agreements Earnings from profit or loss sharing agreements consist of
realized earnings from profit and loss sharing agreements with third parties relating to time chartered-in vessels. We had two
such agreements in place during the year ended December 31, 2012, one with our time chartered-in vessel, FPMC P Eagle
and the other relating to a vessel for which the Company neither owns nor time charters-in (i.e. the vessel is chartered-in by
an unrelated third party.) There were no similar agreements for the comparative period.
Unrealized loss on derivative financial instruments. Unrealized loss on derivative financial instruments consists of
a $0.2 million change in the fair value of our profit and loss sharing agreements with third parties. There were no similar
agreements for the comparative period.
MR segment
The following table summarizes vessel operations for our MR segment.
For the year ended
December 31,
2012
MR segment
In thousands of US dollars except per day and fleet data
Change
Vessel revenue ..................................................................................................... $ 46,857 $ 12,287 $ 34,570 281%
(3,178) (4,306) (135%)
Vessel operating costs .........................................................................................
(7,484)
Voyage expenses ................................................................................................. (17,979)
(6,842) (11,137) (163%)
Charterhire ........................................................................................................... (17,593) — (17,593) N/A
Impairment .......................................................................................................... — (12,574) 12,574 100%
(4,015)
Depreciation ........................................................................................................
(97%)
(5,879) — (5,879) N/A
Loss from sale of vessels .....................................................................................
(27%)
General and administrative expenses ...................................................................
Financial income .................................................................................................
6 N/A
(51) N/A
Other expenses, net ..............................................................................................
48%
Segment loss ........................................................................................................ $ (6,536) $(12,659) $ 6,123
(314)
6 —
(51) —
(2,038) (1,977)
Change
(398)
Percentage
(84)
2011
TCE revenue per day ........................................................................................... $ 12,289 $ 12,092 $
6,748
Owned vessel operating costs per day .................................................................
6,770
197
(22)
2%
0%
Revenue days .......................................................................................................
Owned vessel operating days ..............................................................................
2,350
1,089
450 1,900 422%
618 131%
471
Average number of owned vessels ......................................................................
Average number of time chartered-in vessels ......................................................
2.97
1.29
3.51 —
1.68 130%
3.51 N/A
Vessel Revenue. Vessel revenue for the year ended December 31, 2012 was $46.9 million, an increase of $34.6
million or 281% from the year ended December 31, 2011. Vessel revenue less voyage expenses, or TCE revenue, was $28.9
million, an increase of $23.4 million, or 430% from $5.4 million for the year ended December 31, 2011. The change in
revenue was the result of an increase in revenue days to 2,350 for the year ended December 31, 2012 from 450 during the
year ended December 31, 2011. During the year ended December 31, 2011, only STI Diamond and STI Coral were operating
in this segment as these vessels were acquired in May 2011. Revenue days increased during the year ended December 31,
2012 as a result of the delivery of the first five vessels under our Newbuilding Program in the third quarter of 2012 (STI
Amber, STI Topaz, STI Ruby, STI Garnet, and STI Onyx) and the delivery of six time chartered-in vessels (Pacific Duchess,
Freja Lupus, STX Ace 6, Targale, Endeavour, and Valle Bianca). The increase in revenue was also driven by an increase in
voyage revenue per day to $12,541 during the year ended December 31, 2012 from $12,092 during the year ended December
31, 2011.
62
Vessel operating costs. Vessel operating costs for the year ended December 31, 2012 were $7.5 million, an increase
of $4.3 million, or 135%, from the year ended December 31, 2011. The increase was driven by an increase in the number of
operating days to 1,089 from 471 days during the year ended December 31, 2012. This increase was the result of the delivery
of our first five vessels under our Newbuilding Program during the third quarter of 2012.
Voyage expenses. Voyage expenses for the year ended December 31, 2012 were $18.0 million, an increase of $11.1
million or 163% from the year ended December 31, 2011. The increase was primarily driven by STI Coral, STI Diamond,
Pacific Duchess, Freja Lupus, STX Ace 6, Targale, Endeavour, Valle Bianca and the first five vessels delivered under our
Newbuilding Program operating in the spot market for a total of 1,541 days during the year ended December 31, 2012
compared to only STI Coral and STI Diamond operating in the spot market for 450 days during the year ended December 31,
2011.
Charterhire. Charterhire expense for the year ended December 31, 2012 was $17.6 million, which was the result of
time chartering-in Pacific Duchess, Freja Lupus, STX Ace 6, Targale, Endeavour and Valle Bianca during the year ended
December 31, 2012. There were no vessels time chartered-in during the year ended December 31, 2011.
Depreciation. Depreciation expense for the year ended December 31, 2012 was $4.0 million, an increase of $2.0
million, or 97%, from the year ended December 31, 2011. The increase was driven by an increase in the average number of
owned MR vessels to 2.97 for the year ended December 31, 2012 from 1.29 for the year ended December 31, 2011, which
was the result of the delivery of the first five vessels under our Newbuilding Program during the third quarter of 2012. The
increase was partially offset by a decrease of depreciation expense which was driven by an impairment charge recorded in
December 2011 that reduced the depreciable basis of STI Diamond and STI Coral.
Loss from sale of vessels. Loss from sale of vessels for the year ended December 31, 2012 was $5.9 million. This
was the result of the sales of STI Diamond and STI Coral for $25.25 million each in August and September 2012,
respectively.
General and administrative expenses. General and administrative expenses for the year ended December 31, 2012
were $0.4 million, an increase of $0.1 million, or 27%, from the year ended December 31, 2011. General and administrative
expenses for the MR segment primarily consist of administrative fees to SSH. The increase was the result of an increase in
the average number of owned vessels to 2.97 during the year ended December 31, 2012 from 1.29 during the year ended
December 31, 2011.
Handymax segment
The following table summarizes vessel operations for our Handymax segment:
For the year ended
December 31,
Handymax segment
In thousands of US dollars except per day and fleet data
Change
Vessel revenue ............................................................................................... $ 35,381 $ 32,238 $ 3,143
(5,428) (11,217) 5,789
Vessel operating costs ...................................................................................
Voyage expenses ...........................................................................................
(2,741)
Charterhire ..................................................................................................... (23,192) (17,357) (5,835)
Impairment .................................................................................................... — (12,962) 12,962
(5,069) 3,353
Depreciation ..................................................................................................
(1,716)
(4,525) — (4,525)
Loss from sale of vessels ...............................................................................
General and administrative expenses ............................................................
567
Segment loss .................................................................................................. $ (2,416) $(15,155) $12,739
10%
52%
(26) (2,715) (10442%)
(34%)
100%
66%
N/A
74%
84%
Percentage
Change
(762)
(195)
2012
2011
Revenue per day ............................................................................................ $ 13,069 $ 11,343 $ 1,726
25
Owned vessel operating costs per day ...........................................................
7,619
7,594
Revenue days.................................................................................................
Owned vessel operating days ........................................................................
2,498
673
2,840
1,460
(342)
787
Average number of owned vessels ................................................................
Average number of time chartered-in vessels ...............................................
1.84
5.03
4.00 (2.16)
3.85 1.18
63
15%
0%
(12%)
54%
(54%)
31%
Vessel Revenue. Vessel revenue for the year ended December 31, 2012 was $35.4 million, an increase of $3.1
million or 10% from the year ended December 31, 2011. Vessel revenue less voyage expenses, or TCE revenue, was $32.6
million for the year ended December 31, 2012, an increase of $0.4 million, or 1.3% from $32.2 million for the year ended
December 31, 2011. The Handymax segment had 2,498 revenue days for the year ended December 31, 2012 and 2,840
revenue days for the year ended December 31, 2011. This decrease was driven by the sales of STI Conqueror, STI Matador
and STI Gladiator in March, April and May of 2012, respectively, and was partially offset by an increase in the number of
vessels time chartered-in for the year ended December 31, 2012. The average number of vessels (owned and time chartered-
in) was 6.87 for the year ended December 31, 2012 and 7.85 for the year ended December 31, 2011.
The decrease in revenue days was offset by an increase in TCE revenue per day to $13,069 for the year ended
December 31, 2012 from $11,343 per day for the year ended December 31, 2011.
Vessel operating costs. Vessel operating costs for the year ended December 31, 2012 were $5.4 million, a decrease
of $5.8 million, or 52%, from the year ended December 31, 2011. The decrease was driven by a decrease in the number of
operating days to 673 during the year ended December 31, 2012 from 1,460 during the year ended December 31, 2011 which
was due to the sales of STI Conqueror, STI Matador, and STI Gladiator in March, April and May of 2012, respectively.
Voyage expenses. Voyage expenses for the year ended December 31, 2012 were $2.7 million, increasing $2.7
million from the year ended December 31, 2011. This was a result of STI Conqueror, STI Matador, and STI Gladiator
operating in the spot market for 124 days during the year ended December 31, 2012 prior to their sales. There were nominal
voyage expenses incurred for the year ended December 31, 2011.
Charterhire. Charterhire expense for the year ended December 31, 2012 was $23.2 million, an increase of $5.8
million or 34% from the year ended December 31, 2011. This was the result of an increase in the number of days of vessels
chartered-in to 1,840 during the year ended December 31, 2012 from 1,404 days during the year ended December 31, 2011.
The increase was primarily driven by Histria Perla and Histria Coral whose time charters began in July 2011. These vessels
therefore operated for partial periods during the year ended December 31, 2011 as compared to the full year during the year
ended December 31, 2012. The average number of time chartered-in vessels increased to 5.03 for the year ended December
31, 2012 as compared to 3.85 for the year ended December 31, 2011.
Depreciation. Depreciation expense for the year ended December 31, 2012 was $1.7 million, a decrease of $3.4
million, or 66%, from the year ended December 31, 2011. This was due to the sales of STI Conqueror, STI Matador, and STI
Gladiator which ceased being depreciated and were written down to their disposal values in February 2012, the date which
they were considered held for sale. In addition, we recorded an impairment charge in December 2011 which decreased the
depreciable basis of our owned vessels in this segment.
Loss from sales of vessels. Loss from sales of vessels for the year ended December 31, 2012 was $4.5 million which
was the result of the sales of STI Conqueror, STI Matador, and STI Gladiator in March, April, and May 2012, respectively.
General and administrative expenses. General and administrative expenses for the year ended December 31, 2012
were $0.2 million, a decrease of $0.6 million, or 74% from the year ended December 31, 2011. General and administrative
expenses for the Handymax segment primarily consist of administrative fees. The decrease in administrative fees was driven
by a decrease in the average number of owned vessels to 1.84 for the year ended December 31, 2012 from 4.00 for the year
ended December 31, 2011 resulting from the sales of STI Conqueror, STI Matador and STI Gladiator during the year ended
December 31, 2012.
B.
Liquidity and Capital Resources
Our primary source of funds for our short-term and long-term liquidity needs will be the cash flows generated from
our vessels, which are currently operating in Scorpio Group Pools, in the spot market or on time charter, in addition to
availability under our 2010 Revolving Credit Facility, 2011 Credit Facility, 2013 Credit Facility, KEXIM and K-Sure Credit
Facilities (as defined later), sales of vessels, and cash on hand. The Scorpio Group Pools reduce volatility because (i) they
aggregate the revenues and expenses of all pool participants and distribute net earnings to the participants based on an agreed
upon formula and (ii) some of the vessels in the pool are on time charter. Furthermore, spot charters provide flexibility and
allow us to fix vessels at prevailing rates. We believe these cash flows from operations, amounts available for borrowing
under our various credit facilities and our cash balance will be sufficient to meet our existing liquidity needs for the next 12
months from the date of this annual report.
64
As of December 31, 2013, our cash balance was $78.8 million, which was lower than our cash balance of $87.2
million as of December 31, 2012. At December 31, 2013, we had $72.4 million in availability under our 2010 Revolving
Credit Facility, which was fully drawn in January 2014. Additionally, in January 2014, we drew down $52.0 million from our
2011 Credit Facility. In connection with this draw down, STI Duchessa, STI Le Rocher and STI Larvotto were provided as
collateral under that facility. In February 2014, we drew down $64.2 million from our 2013 Credit Facility and provided STI
Opera, STI Fontvieille and STI Ville as collateral. In March 2013, we drew down $20.5 million from our 2013 Credit Facility
to partially finance the delivery of STI Texas City.
For the year ended December 31, 2013, our net cash outflow from operating activities was $5.7 million, net cash
outflow from investing activities was $935.1 million and the net cash inflow from financing activities was $932.4 million.
For the year ended December 31, 2012, our net cash outflow from operating activities was $1.9 million, net cash outflow
from investing activities was $90.2 million, and the net cash inflow from financing activities was $142.4 million.
As of December 31, 2013, our long-term liquidity needs were comprised of our debt repayment obligations for our
credit facilities, our obligations under construction contracts related to the vessels in our Newbuilding Program, and
obligations under our time charter-in arrangements.
Our credit facilities require us to comply with a number of covenants, including financial covenants related to
liquidity, consolidated net worth, minimum interest coverage, maximum leverage ratios, loan to value ratios and collateral
maintenance; delivery of quarterly and annual financial statements and annual projections; maintenance of adequate
insurances; compliance with laws (including environmental); compliance with the Employee Retirement Income and Security
Act, or ERISA; maintenance of flag and class of the initial vessels; restrictions on consolidations, mergers or sales of assets;
approvals on changes in the manager of the vessels; limitations on liens; limitations on additional indebtedness; prohibitions
on paying dividends if a covenant breach or an event of default has occurred or would occur as a result of payment of a
dividend; prohibitions on transactions with affiliates; and other customary covenants.
Cash Flows
There was significant amount of activity in our cash balance during the year ended December 31, 2013 primarily as
a result of four follow on offerings of common stock (net proceeds of $947.8 million) that led to the significant growth in our
Newbuilding Program. Additionally, we made drawdowns from our 2011 Credit Facility ($52.1 million), completed our
investment in Dorian ($84.6 million), made VLGC installment payments ($83.1 million), made delivery and progress
payments for vessels in our Newbuilding Program ($767.4 million), debt service payments ($43.1 million in principal
payments and debt issuance costs) and dividend payments ($24.4 million). This activity is summarized below.
The table below summarizes our sources and uses of cash for the periods presented:
For the year ended December 31,
In thousands of U.S. dollars
Cash flow data
Net cash inflow/(outflow)
Operating activities .................................................................................................................. $ (5,655) $ (1,928) $(12,452)
Investing activities ................................................................................................................... (935,101) (90,155) (122,573)
Financing activities .................................................................................................................. 932,436 142,415 103,671
2012
2011
2013
Net cash outflow from operating activities
Operating cash flows are driven by our results of operations along with movements in working capital. Both of these
components were impacted by our growth during 2013. Operating cash inflows, before changes in working capital were
$33.0 million for the year ended December 31, 2013, an increase of $25.5 million from a cash inflow of $7.5 million for the
year ended December 31, 2012. This improvement was driven by growth in our operating fleet to an average of 38.8 owned
and time chartered-in vessels for the year ended December 31, 2013 from an average of 20.0 owned and time-chartered-in
vessels for the year ended December 31, 2012. Additionally, our overall time charter equivalent per day for our fleet
improved to $14,369 per day for the year ended December 31, 2013 from $12,960 per day for the year ended December 31,
2012.
Changes in working capital were a cash outflow of $37.2 million for the year ended December 31, 2013, an increase
of $29.4 million from a cash outflow of $7.8 million during the year ended December 31, 2012. The increase in working
65
capital was driven by our fleet growth to an average of 38.8 owned and time chartered-in vessels for the year ended
December 31, 2013 from an average of 20.0 owned and time-chartered-in vessels for the year ended December 31, 2012.
The activity within operating cash flows for the years ended December 31, 2013, 2012 and 2011 are summarized as
follows:
Net cash outflow from operating activities was $5.7 million for the year ended December 31, 2013, which was an
increase in cash outflows of $3.8 million from a cash outflow of $1.9 million for the year ended December 31, 2012. The
increase in cash outflows was primarily attributable to (i) an increase in charterhire expense of $71.8 million (ii) an increase
in vessel operating costs of $9.9 million (iii) a net increase in the change in working capital from 2012 to 2013 of $29.4
million (iv) an increase in cash general and administrative expenses of $4.6 million and (v) a decrease in realized gain on
derivative financial instruments and other expenses of $0.5 million. These decreases were offset by (i) an increase in vessel
revenue of $92.2 million (ii) a decrease in voyage expenses of $16.9 million (iii) a decrease in cash financial expenses of $2.1
million (iv) an increase in financial income of $1.1 million and (v) a decrease in drydock payments of $0.2 million.
Net cash outflow from operating activities was $1.9 million for the year ended December 31, 2012, which was a
decrease in cash outflows of $10.5 million from a cash outflow of $12.5 million the year ended December 31, 2011. The
decrease in cash outflows was primarily attributable to (i) an increase in vessel revenue of $33.3 million (ii) a decrease in
vessel operating costs of $1.0 million (iii) earnings from profit or loss arrangements of $0.4 million (iv) a decrease in drydock
payments of $0.8 million (v) a net decrease in the change in working capital of $9.1 million and (vi) a decrease in financial
expenses of $1.7 million (excluding non-cash items such as deferred financing fee amortization). These changes were offset
by (i) an increase in voyage expenses of $14.9 million and (ii) an increase in charterhire expense of $21.0 million.
Net cash outflow from investing activities
Cash inflows from investing activities of $935.1 million during the year ended December 31, 2013 were driven by
investments in our Newbuilding Program which grew to 65 vessels under construction at December 31, 2013 from 11 vessels
under construction at December 31, 2012. These investments were the direct result of the receipt of net proceeds of $947.8
million during the year ended 2013 from four separate follow-on offerings of common shares in addition to the receipt of net
proceeds of $127.2 million from a follow on offering of common shares in December 2012 (which are reflected in cash
inflows from financing activities discussed below).
The components of investing cash flows for the years ended December 31, 2013, 2012 and 2011 are summarized as
follows:
Cash outflow from investing activities was $935.1 million for the year ended December 31, 2013 compared to $90.2
million for the year ended December 31, 2012. Investing activities during the year ended December 31, 2013 were driven by
installment payments and other vessel related costs on our vessels under construction along with final installment payments
of $139.3 million relating to seven vessels delivered under our Newbuilding Program (STI Sapphire, STI Emerald, STI Beryl,
STI Le Rocher, STI Larvotto, STI Fontvieille and STI Ville) Additionally, we paid an aggregate of $93.1 million for the sale
of our VLGC business to Dorian which consists of $83.1 million of installment payments to the shipyards for the 11 VLGC
contracts, the contribution of $2.3 million in cash and other capitalized costs and $7.7 million in legal and advisory fees
(including commissions paid to SSH) in exchange for newly issued shares representing 30% of Dorian’s outstanding shares
immediately following the transaction. We also purchased 24,121,621 new shares of Dorian’s common stock as part of a
separate private placement of shares for total consideration of $75.0 million.
Cash outflow from investing activities was $90.2 million for the year ended December 31, 2012 compared to net
cash outflows of $122.6 million for the year ended December 31, 2011. Investment activity during the year ended December
31, 2012 was driven by payments on our newbuilding vessels of $191.5 million (including capitalized costs). This was offset
by the sales of STI Conqueror, STI Matador, STI Gladiator, STI Coral and STI Diamond for aggregate net proceeds of
$101.3 million.
Cash outflow from investing activities was $122.6 million for the year ended December 31, 2011. Investment
activity during the year ended December 31, 2011 was driven by the purchase of STI Coral and STI Diamond for an
aggregate purchase price of $71.0 million (including a 1% commission paid to Liberty, our related party Administrator at that
time, along with other capitalized costs). Additionally, as of December 31, 2011, we had made payments of $51.0 million
relating to our newbuilding vessels under construction at HMD.
66
Net cash inflow from financing activities
Cash inflows from financing activities during the year ended December 31, 2013 were driven by the issuance
118,828,578 shares of common stock as part of four separate follow-on offerings for net proceeds of $947.8 million.
Additionally, we made borrowings under our 2011 Credit Facility which were offset by principal repayments of debt into all
of our credit facilities. During 2013, we also incurred debt issuance costs primarily as a result of the execution our 2013
Credit Facility in July 2013. Furthermore, we began issuing quarterly dividends during the year ended December 31, 2013.
Total dividend payments for 2013 were $24.4 million.
The components of financing cash flows for the years ended December 31, 2013, 2012 and 2011 are summarized as
follows:
Cash inflow from financing activities was $932.4 million for the year ended December 31, 2013 compared to $142.4
million for the year ended December 31, 2012. Cash inflow from financing activities during the year ended December 31,
2013 was driven by net proceeds of $947.8 million from our registered direct placements of common shares in February,
March and May 2013 and an underwritten offering of common shares in August 2013. Additionally, we borrowed $52.1
million under our 2011 Credit Facility to partially finance the deliveries of STI Sapphire, STI Emerald and STI Beryl. These
inflows were offset by (i) principal payments of $17.2 million into our 2010 Revolving Credit Facility, $3.5 million into our
2011 Credit Facility, $6.0 million into our Newbuilding Credit Facility, and $1.7 million into our STI Spirit Credit Facility,
(ii) debt issuance costs of $14.7 million and (iii) dividend payments of $24.4 million.
Cash provided by financing activities was $142.4 million for the year ended December 31, 2012 compared to cash
provided by financing activities of $103.7 million for the year ended December 31, 2011. Financing activities during the year
ended December 31, 2012 were driven by the receipt of net proceeds of $153.1 million from two registered direct placements
of common shares in April and December 2012, borrowings of $32.2 million under our 2010 Revolving Credit Facility, and
borrowings of $92.0 million under our Newbuilding Credit Facility. These inflows were offset by repayments of $106.0
million into the 2010 Revolving Credit Facility, principal payments of $2.8 million into the STI Spirit Credit Facility, $18.2
million into the 2011 Credit Facility (of which $16.1 million was the repayment made as a result of the sale of STI Coral) and
$2.1 million into the Newbuilding Credit Facility. Cash outflows from financing activities also include the acquisition of
treasury shares of $2.4 million and debt issuance costs of $3.3 million.
Financing activities during the year ended December 31, 2011 were driven by net proceeds of $68.5 million from an
underwritten public offering of common shares in May 2011, net proceeds of $36.5 million from an underwritten public
offering of common shares in November 2011, borrowings of $35.0 million under the 2011 Credit Facility, borrowings of
$27.3 million under the STI Spirit Credit Facility, and borrowings of $53.0 million under the 2010 Revolving Credit Facility.
These inflows were offset by payments of $99.0 million into the 2010 Revolving Credit Facility, principal payments on all of
our credit facilities of $10.6 million, payment of debt issuance cost of $4.1 million under the 2011 Credit Facility, STI Spirit
Credit Facility and the 2010 Revolving Credit Facility along with $2.9 million of costs related to the repurchase of our
common shares.
Long-Term Debt Obligations and Credit Arrangements
The following is a table summarizing our indebtedness at December 31, 2013:
In thousands of U.S. dollars
2010 Revolving Credit Facility ................................................................................. $
STI Spirit Credit Facility ...........................................................................................
2011 Credit Facility ...................................................................................................
Newbuilding Credit Facility ......................................................................................
2013 Credit Facility ...................................................................................................
K-Sure Credit Facility ...............................................................................................
KEXIM Credit Facility ..............................................................................................
Total .......................................................................................................................... $
____________________
Amount Outstanding at
December 31, 2013
Availability as of the
date of this report
— (1)
—
— (2)
—
440,324(3)
458,300(4)
429,600(4)
1,328,224
— $
21,736
64,006
83,839
—
—
—
169,581 $
(1) We have the ability to pay down and re-borrow from the available commitments under this loan as needed and in January
2014, we drew down $72.4 million from this facility. We repaid $22.1 million into this facility in March 2014 as a result
of the sales of Noemi and Senatore, which cannot be re-borrowed.
67
(2) In January 2014, we drew down $52.0 million from our 2011 Credit Facility. In connection with this draw down, STI
Duchessa, STI Le Rocher, and STI Larvotto were provided as collateral under this facility. The availability period under
this credit facility expired on January 31, 2014.
(3) In February 2014, we drew down $64.2 from our 2013 Credit Facility. In connection with this draw down, STI Opera,
STI Fontvieille and STI Ville were provided as collateral under this facility. In March 2014, we drew down $20.5 million
from this facility to finance the delivery of STI Texas City. The remaining availability can be used to finance up to 60%
of future vessel acquisitions.
(4) These facilities were signed in February 2014. The loans can be used to finance the lesser of 60% of the newbuilding
contract price and 74% of the fair market value of the relevant vessel specified in the agreement.
2010 Revolving Credit Facility
On June 2, 2010, we executed a credit facility with Nordea Bank Finland plc, acting through its New York branch,
DNB Bank ASA, acting through its New York branch, and ABN AMRO Bank N.V, for a senior secured term loan facility of
up to $150 million. On July 12, 2011, we amended and restated the credit facility to convert it from a term loan to a reducing
revolving credit facility. This gave us the ability to pay down and re-borrow from the total available commitments under the
loan. The availability under this facility as of December 31, 2013 was $72.4 million which is scheduled to reduce by $3.1
million each quarter, with a lump sum reduction of $57.1 million at the maturity date of June 2, 2015.
Our subsidiaries that own vessels that are collateralized by this loan act as guarantors under the amended and
restated credit facility. All terms mentioned are defined in the agreement.
Drawdowns under the credit facility bear interest as follows: (1) through December 29, 2011, at LIBOR plus an
applicable margin of 3.00% per annum when our debt to capitalization (total debt plus equity) ratio is equal to or less than
50% and 3.50% per annum when our debt to capitalization ratio is greater than 50%; (2) from December 30, 2011 through
September 30, 2013, at LIBOR plus an applicable margin of 3.50% per annum; and (3) from October 1, 2013 and at all times
thereafter, at LIBOR plus an applicable margin of 3.25% per annum when our debt to capitalization (total debt plus equity)
ratio is equal to or less than 50% and 3.50% per annum when our debt to capitalization ratio is greater than 50%. A
commitment fee equal to 40% of the applicable margin is payable on the unused daily portion of the credit facility. The credit
facility matures on June 2, 2015 and can only be used to refinance amounts outstanding from the original loan agreement and
for general corporate purposes.
The credit facility requires us to comply with a number of covenants, including financial covenants; delivery of
quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws
(including environmental); compliance with ERISA; maintenance of flag and class of the initial vessels; restrictions on
consolidations, mergers or sales of assets; approvals on changes in the Manager of our initial vessels; limitations on liens;
limitations on additional indebtedness; prohibitions on paying dividends if a covenant breach or an event of default has
occurred or would occur as a result of payment of a dividend; prohibitions on transactions with affiliates; and other
customary covenants.
In addition to the customary restrictive covenants discussed above, the 2010 Revolving Credit Facility requires our
compliance with the following financial covenants:
(cid:120) The ratio of net debt to capitalization shall be no greater than 0.60 to 1.00.
(cid:120) Consolidated tangible net worth (i.e. total shareholders’ equity) shall be no less than $150.0 million plus 25% of
cumulative positive net income (on a consolidated basis) for each fiscal quarter from July 1, 2010 going forward
and 50% of the value of any new equity issues from July 1, 2010 going forward.
(cid:120) The ratio of EBITDA to interest expense shall be no less than 1.25 to 1.00 commencing with the fourth fiscal
quarter of 2011 until the fourth quarter of 2012, at which point it increased to 1.50 to 1.00 for the first quarter of
2013, 1.75 to 1.00 for the second quarter of 2013 and 2.00 to 1.00 at all times thereafter. Such ratio shall be
calculated quarterly on a trailing four quarter basis. In addition, we are restricted from paying dividends until
our EBITDA to interest expense ratio is 2.00 to 1.00 or greater. EBITDA, as defined in the loan agreement,
excludes non-cash charges such as impairment.
68
(cid:120) Consolidated liquidity (cash, cash equivalents, and availability under the 2010 Revolving Credit Facility) needs
to be not less than $25.0 million, of which unrestricted cash and cash equivalents shall be not less than $15.0
million, until we own, directly or indirectly, more than 15 vessels, at which time the amount increases by
$750,000 per each additional vessel.
(cid:120) The aggregate fair market value of the collateral vessels (see note 6) shall at all times be no less than 150% of
the then aggregate outstanding principal amount of loans under the credit facility.
In June 2013, we voluntarily repaid $17.2 million into this facility. As of December 31, 2013, there was no
outstanding balance and there was $72.4 million available to draw down at our option. As of December 31, 2012, the
outstanding balance was $17.2 million and $67.4 million was available to draw down. We were in compliance with the
financial covenants relating to this facility as of December 31, 2013.
In January 2014, we drew down the entire amount available under this facility of $72.4 million. In March 2014, we
repaid $22.7 million into this facility as part of the sales of Noemi and Senatore. Consequently, the availability of this facility
was reduced by such amount and the quarterly reduction was reduced to $2.1 million from $3.1 million per quarter. We will
also write-off a total of $0.2 million of deferred financing fees relating to this facility as part of this repayment.
STI Spirit Credit Facility
On March 9, 2011, we executed a credit facility with DVB Bank SE for a senior secured term loan facility of $27.3
million for STI Spirit, which was acquired on November 10, 2010. The credit facility was drawn down on March 17, 2011
and matures on March 17, 2018. On September 28, 2011 and on December 30, 2011, we amended certain financial covenants
contained in the credit facility. The loan bears interest at LIBOR plus a margin of 2.75% per annum. The loan is repayable
over 28 equal quarterly installments and a lump sum payment at maturity. The quarterly installments commenced three
months after the drawdown and were calculated using an 18 year amortization profile. Our subsidiary, STI Spirit Shipping
Company Limited, which owns the vessel, is the borrower and Scorpio Tankers Inc. is the guarantor.
The credit facility requires us to comply with a number of covenants, including financial covenants; delivery of
quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws
(including environmental); compliance with ERISA; maintenance of flag and class of the initial vessels; restrictions on
consolidations, mergers or sales of assets; approvals on changes in the Manager of our initial vessels; limitations on liens;
limitations on additional indebtedness; prohibitions on paying dividends if a covenant breach or an event of default has
occurred or would occur as a result of payment of a dividend; prohibitions on transactions with affiliates; and other
customary covenants.
In addition to the customary restrictive covenants discussed above, the STI Spirit Credit Facility requires our
compliance with the following financial covenants:
(cid:120) The ratio of debt to capitalization no greater than 0.60 to 1.00.
(cid:120) Consolidated tangible net worth (i.e. shareholders equity) shall be no less than $150 million plus 25% of
cumulative positive net income (on a consolidated basis) for each fiscal quarter.
(cid:120) The ratio of EBITDA to interest expense shall be no less than 1.25 to 1.00 for the period commencing with the
fourth quarter of 2011 through the fourth quarter of 2012, at which time it will increase to: (i) 1.50 to 1.00 for
the first quarter of 2013, (ii) 1.75 to 1.00 for the second quarter of 2013 and (iii) 2.00 to 1.00 at all times
thereafter. Such ratio shall be calculated quarterly on a trailing four quarter basis. In addition, we are restricted
from paying dividends until our EBITDA to interest expense ratio is 2.00 to 1.00 or greater. EBITDA, as
defined in the loan agreement, excludes non-cash charges such as impairment.
(cid:120) Consolidated liquidity (cash, cash equivalents, and availability under the 2010 Revolving Credit Facility) not
less than $25 million, of which unrestricted cash and cash equivalents shall be not less than $15.0 million, until
we own, directly or indirectly, more than 15 vessels, at which time the amount increases by $750,000 per each
additional vessel.
(cid:120) The aggregate fair market value of STI Spirit not less than (i) 140% of the then outstanding loan balance if the
vessel is operating in a pool or in the spot market or (ii) 130% of the then outstanding loan if the vessel is on
time charter with a duration of at least one year.
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As described above, the credit facility requires that the charter-free market value of the STI Spirit shall be no less
than 140% of the then outstanding loan balance. In order to stay in compliance with this covenant, we prepaid $1.4 million in
addition to the $0.3 million scheduled principal payment into this credit facility in December 2013.
The outstanding balance at December 31, 2013 and December 31, 2012 was $21.7 million and $23.4 million,
respectively. We were in compliance with the financial covenants relating to this facility as of December 31, 2013.
In February 2014, we agreed to sell the 2008 built LR2 product tanker, STI Spirit, for approximately $30.2 million.
As part of this sale, we will repay all amounts due under the STI Spirit Credit Facility of $21.4 million. This sale is expected
to close by the end of April 2014. We will also write-off a total of $0.3 million of deferred financing fees relating to this
facility as part of this repayment.
2011 Credit Facility
On May 3, 2011, we executed a credit facility with Nordea Bank Finland plc, acting through its New York branch,
DnB NOR Bank ASA, acting through its New York branch, and ABN AMRO Bank N.V., for a senior secured term loan
facility of up to $150.0 million. On July 20, 2012, we extended the availability period of the 2011 Credit Facility until
January 31, 2014. The availability period was previously scheduled to expire in May 2013.
All terms mentioned in this section are defined in the agreement.
Drawdowns under this credit facility are available until January 31, 2014 and bear interest as follows: (1) until
December 29, 2011, at LIBOR plus an applicable margin of (i) 2.75% per annum when our debt to capitalization (total debt
plus equity) ratio is less than 45%, (ii) 3.00% per annum when our debt to capitalization ratio is greater than or equal to 45%
but less than or equal to 50% and (iii) 3.25% when our debt to capitalization ratio is greater than 50%; (2) from December 30,
2011 through September 30, 2013, at LIBOR plus an applicable margin of 3.50% per annum and (3) from October 1, 2013
and at all times thereafter, at LIBOR plus an applicable margin of (i) 3.25% per annum when our debt to capitalization (total
debt plus equity) ratio is equal to or less than 50% and (ii) 3.50% per annum when our debt to capitalization ratio is greater
than 50%. A commitment fee equal to 40% of the applicable margin is payable on the unused daily portion of the credit
facility. The credit facility matures on May 3, 2017 and can only be used to finance up to 50% of the cost of future vessel
acquisitions, which vessels would be the collateral for the credit facility.
Borrowings for each vessel financed under this facility represent a separate tranche, with repayment terms
dependent on the age of the vessel at acquisition. Each tranche under the credit facility is repayable in equal quarterly
installments, with a lump sum payment at maturity, based on a full repayment of such tranche when the vessel to which it
relates is sixteen years of age. Our subsidiaries, which may at any time, own one or more of our vessels, will act as
guarantors under the credit facility.
The credit facility requires us to comply with a number of covenants, including financial covenants; delivery of
quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws
(including environmental); compliance with ERISA; maintenance of flag and class of the initial vessels; restrictions on
consolidations, mergers or sales of assets; approvals on changes in the Manager of our initial vessels; limitations on liens;
limitations on additional indebtedness; prohibitions on paying dividends if a covenant breach or an event of default has
occurred or would occur as a result of payment of a dividend; prohibitions on transactions with affiliates; and other
customary covenants.
In addition to the customary restrictive covenants discussed above, the 2011 Credit Facility requires our compliance
with the following financial covenants:
(cid:120) The ratio of net debt to capitalization shall be no greater than 0.60 to 1.00.
(cid:120) Consolidated tangible net worth (i.e. shareholders’ equity) shall be no less than $150.0 million plus 25% of
cumulative positive net income (on a consolidated basis) for each fiscal quarter from July 1, 2010 going forward
and 50% of the value of any new equity issues from July 1, 2010 going forward.
(cid:120) The ratio of EBITDA to interest expense shall be no less than 1.25 to 1.00 commencing with the fourth fiscal
quarter of 2011 until the fourth quarter of 2012, at which point it increased to 1.50 to 1.00 for the first quarter of
2013, 1.75 to 1.00 for the second quarter of 2013 and 2.00 to 1.00 at all times thereafter. Such ratio shall be
calculated quarterly on a trailing four quarter basis. In addition, we are restricted from paying dividends until
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our EBITDA to interest expense ratio is 2.00 to 1.00 or greater. EBITDA, as defined in the loan agreement,
excludes non-cash charges such as impairment.
(cid:120) Consolidated liquidity (cash, cash equivalents, and availability under the 2010 Revolving Credit Facility) needs
to be not less than $25 million, of which unrestricted cash and cash equivalents shall be not less than $15.0
million, until we own, directly or indirectly, more than 15 vessels, at which time the amount increases by
$750,000 per each additional vessel.
(cid:120) The aggregate fair market value of the collateral vessels shall at all times be no less than 150% of the then
aggregate outstanding principal amount of loans under the credit facility.
In January 2013, March 2013 and April 2013, we drew down an aggregate of $52.1 million from this facility in
connection with the deliveries of STI Sapphire, STI Emerald and STI Beryl, respectively.
As of December 31, 2013, there was $62.9 million available for borrowing which could be used to finance up to
50% of future vessel acquisitions through January 31, 2014. The outstanding balance at December 31, 2013 and December
31, 2012 was $64.0 million and $15.5 million, respectively. We were in compliance with the financial covenants relating to
this facility as of December 31, 2013.
In January 2014, we drew down an aggregate of $52.0 million from this facility. In connection with this draw down,
STI Duchessa, STI Le Rocher and STI Larvotto were provided as collateral under the facility.
Newbuilding Credit Facility
On December 21, 2011, we executed a credit facility agreement with Credit Agricole Corporate and Investment
Bank and Skandinaviska Enskilda Banken AB for a senior secured term loan facility of up to $92.0 million. During the year
ended December 31, 2012, we drew down an aggregate of $92.0 million from this facility to partially finance the deliveries
of STI Amber, STI Topaz, STI Ruby and STI Garnet ($23.0 million per vessel). These vessels are owned individually by
certain of our subsidiaries, who together are the borrowers under this credit facility, and Scorpio Tankers Inc. is the
guarantor. Borrowings under the credit facility bear interest at LIBOR plus an applicable margin of 2.70% per annum. A
commitment fee equal to 1.10% per annum is payable on the unused daily portion of the credit facility.
The facility is separated into four tranches (one tranche per vessel) and the four vessels are collateral for the credit
facility. The repayment of the tranche relating to the respective vessel commenced after delivery of that vessel in quarterly
installments of $375,000, which equates to a repayment profile of 15.33 years. Each tranche is scheduled to mature
approximately seven years after delivery of the relevant vessel from the shipyard.
The credit facility requires us to comply with a number of covenants, including financial covenants; delivery of
quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws
(including environmental); compliance with ERISA; maintenance of flag and class of the initial vessels; restrictions on
consolidations, mergers or sales of assets; approvals on changes in the Manager of our initial vessels; limitations on liens;
limitations on additional indebtedness; prohibitions on paying dividends if a covenant breach or an event of default has
occurred or would occur as a result of payment of a dividend; prohibitions on transactions with affiliates; and other
customary covenants.
In addition to the customary restrictive covenants discussed above, the Newbuilding Credit Facility requires our
compliance with the following financial covenants:
(cid:120) The ratio of debt to capitalization no greater than 0.60 to 1.00.
(cid:120) Consolidated tangible net worth (i.e. shareholders equity) shall be no less than $150 million plus 25% of
cumulative positive net income (on a consolidated basis) for each fiscal quarter from July 1, 2010 going forward
and 50% of the value of any new equity issues from July 2, 2010 going forward.
(cid:120) The ratio of EBITDA to interest expense not less than 2.00 to 1.00 commencing with the third fiscal quarter of
2011 until the fourth quarter of 2012, and 2.50 to 1.00 for all times thereafter. Such ratio shall be calculated
quarterly on a trailing four quarter basis. EBITDA, as defined in the loan agreement, excludes non-cash charges
such as impairment.
(cid:120) Unrestricted cash and cash equivalents not less than $15.0 million, until we own, directly or indirectly, more
than 15 vessels, at which time the amount increases by $750,000 per each additional vessel.
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(cid:120) The aggregate fair market value of the collateral vessels shall at all times not less than 140% (120% if the vessel
is subject to acceptable long term employment) of the aggregate principal amount outstanding plus a pro rata
amount of any allocable swap exposure for the credit facility.
During the year ended December 31, 2013, we made scheduled principal payments of $6.0 million into this credit
facility. The outstanding balance at December 31, 2013 and December 31, 2012 was $83.8 million and $89.8 million,
respectively. We were in compliance with the financial covenants relating to this facility as of December 31, 2013.
In March 2014, we amended and restated our Newbuilding Credit Facility with Credit Agricole Corporate and
Investment Bank and Skandinaviska Enskilda Banken AB, to convert it from a term loan to a reducing revolving credit
facility. This gives us the ability to pay down and re-borrow from the total available commitments under the loan. All other
terms and definitions remain not changed. This facility was fully drawn as of the date of this report.
2013 Credit Facility
On July 2, 2013, we entered into a senior secured revolving credit facility and term loan facility with Nordea Bank
Finland plc and the other lenders named therein of up to $525.0 million to finance the acquisition of the Firm Vessels
(defined below), the Option Vessels (defined below) and certain other vessels and for general corporate purposes, including
working capital. This credit facility is secured by, among other things, a first-priority cross-collateralized mortgage on certain
vessels for which we have entered into newbuilding contracts, or the Firm Vessels, and certain vessels for which we may
exercise construction options, or the Option Vessels, and together with the Firm Vessels, the Collateral Vessels. Our
subsidiaries that own the Collateral Vessels act as joint and several guarantors under our 2013 Credit Facility. We refer to
this credit facility as our 2013 Credit Facility.
Our 2013 Credit Facility consists of a $260.0 million delayed draw term loan facility to finance the acquisition of
the Firm Vessels and a $265.0 million revolving credit facility to finance the acquisition of the Option Vessels and certain
other vessels built on January 1, 2012 or later, and for general corporate purposes, including working capital.
Drawdowns of the term loan may occur in connection with the delivery of a Firm Vessel in an amount equal to the
lesser of 60% of (i) the contract price for such vessel or (ii) such vessel’s fair market value. Drawdowns of the revolving
credit facility may occur in connection with the delivery of an Option Vessel and are also capped at the lesser of 60% of
(i) the contract price for such vessel or (ii) such vessel’s fair market value, with such amount, once drawn, available on a
revolving basis. Drawdowns under the term loan are available until the earlier of the delivery of each Firm Vessel and
January 31, 2015 and drawdowns under the revolving loan are available until July 31, 2015 and bear interest at LIBOR plus
an applicable margin of 3.50%.
The term loan is repayable and the revolving loans reduced, in each case, in an amount equal to 1/60th of such loan
on a consecutive quarterly basis until final maturity on the sixth anniversary of the facility. In addition to restrictions imposed
upon the owners of the Collateral Vessels (such as, limitations on liens and limitations on the incurrence of additional
indebtedness), our 2013 Credit Facility includes financial covenants that require us to maintain:
(cid:120) The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
(cid:120) Consolidated tangible net worth no less than (i) $150.0 million plus 25% of cumulative positive net income (on
a consolidated basis) for each fiscal quarter beginning on July 1, 2010 going forward and (ii) 50% of the value
of any new equity issues from July 1, 2010 going forward.
(cid:120) The ratio of EBITDA to net interest expense greater than 2.00 to 1.00 through December 31, 2013 and 2.50 to
1.00 thereafter.
(cid:120) Minimum liquidity of not less than the greater of $25.0 million or 5% of total indebtedness.
(cid:120) The aggregate fair market value of the Collateral Vessels shall at all times be no less than 140% of the then
aggregate outstanding principal amount of loans under the credit facility.
We had no borrowings under this facility at December 31, 2013 and we were in compliance with the financial
covenants relating to this credit facility as of December 31, 2013.
In February 2014, we drew down $64.2 million from this credit facility. In connection with this draw down, STI
Opera, STI Fontvieille and STI Ville were provided as collateral under the facility.
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In March 2014, we drew down $20.5 million from this facility to partially finance the delivery of STI Texas City.
K-Sure Credit Facility
On February 24, 2014, we entered into a $458.3 million senior secured term loan facility which consists of a $358.3
million tranche with a group of financial institutions that is being 95% covered by Korea Trade Insurance Corporation (the
‘K-Sure Tranche’) and a $100.0 million commercial tranche with a group of financial institutions led by DNB Bank SA (the
“Commercial Tranche”). We refer to this credit facility as our K-Sure Credit Facility.
Drawdowns under the K-Sure Credit Facility may occur in connection with the delivery of certain of our
newbuilding vessels as specified in the agreement. The amount of each drawdown shall not exceed the lesser of 60% of the
newbuilding contract price and 74% of the fair market value of the relevant vessel. Drawdowns are available until the earlier
of (i) the delivery date of the last vessel specified in the agreement to be acquired, (ii) September 30, 2015 and (iii) the date
on which the total commitments under the loan are fully borrowed, cancelled or terminated.
Repayments will be made in equal consecutive six month repayment installments in accordance with a 15 year
repayment profile under the Commercial Tranche and a 12 year repayment profile under the K-Sure Tranche. Repayments
will commence in July 2015 for the K-Sure Tranche and six months after the delivery of the last vessel to be acquired for the
Commercial Tranche. The Commercial Tranche matures on the sixth anniversary of the delivery date of the last vessel to be
acquired and the K-Sure Tranche matures in January 2027 assuming the Commercial Tranche is refinanced through that date.
Borrowings under the K-Sure tranche bear interest at LIBOR plus an applicable margin of 2.25%. Borrowings under
the Commercial Tranche bear interest at LIBOR plus an applicable margin of 3.25% from the effective date of the agreement
to the fifth anniversary thereof and 3.75% thereafter until the maturity date in respect of the Commercial Tranche. A
commitment fee equal to 40% of the applicable margin is payable on the unused daily portion of the credit facility.
In addition to restrictions imposed upon the owners of the vessels that are collateralized under this credit facility
(such as, limitations on liens and limitations on the incurrence of additional indebtedness), the K-Sure Credit Facility requires
our compliance with the following financial covenants:
(cid:120) The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
(cid:120) Consolidated tangible net worth no less than $677.3 million plus (i) 25% of cumulative positive net income (on
a consolidated basis) for each fiscal quarter commencing on or after October 1, 2013 and (ii) 50% of the value
of any new equity issues occurring on or after October 1, 2013.
(cid:120) The ratio of EBITDA to net interest expense greater than 2.50 to 1.00 calculated on a trailing four quarter basis.
(cid:120) Minimum liquidity of not less than the greater of $25.0 million or 5% of total indebtedness.
(cid:120) The aggregate fair market value of the vessels provided as collateral under the facility shall at all times be no
less than 135% of the then aggregate outstanding principal amount of loans under the credit facility.
KEXIM Credit Facility
On February 28, 2014, we executed a senior secured term loan facility with a group of financial institutions led by
DNB Bank ASA and Skandinaviska Enskilda Banken AB (publ) and from the Export-Import Bank of Korea (“KEXIM”) for
a total loan facility of $429.6 million. This facility includes commitments from KEXIM of up to $300.6 million (the “KEXIM
Tranche”) and a group of financial institutions led by DNB Bank ASA and Skandinaviska Enskilda Banken AB (publ) of up
to $129.0 million (the “Commercial Tranche”).We refer to this credit facility as our KEXIM Credit Facility.
Drawdowns under the KEXIM Credit Facility may occur in connection with the delivery of 18 of our newbuilding
vessels as specified in the loan agreement. The amount of each drawdown shall not exceed the lesser of 60% of the
newbuilding contract price and 74% of the fair market value of the relevant vessel. Drawdowns are available until the earlier
of (i) the delivery date of the last vessel specified in the agreement to be acquired, (ii) March 31, 2015 and (iii) the date on
which the total commitments under the loan are fully borrowed, cancelled or terminated.
Repayments will be made in equal consecutive semi-annual repayment installments in accordance with a 15 year
repayment profile under the Commercial Tranche and a 12 year repayment profile under the KEXIM Tranche. Repayments
will commence on the next semi-annual date falling after the weighted average delivery date of the vessels specified under
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the facility for the KEXIM Tranche and on the next semi-annual date falling after the final delivery date of the vessels
specified under the facility for the Commercial Tranche.
The Commercial Tranche matures on the sixth anniversary of the delivery date of the last vessel specified under the
loan and the KEXIM Tranche matures on the twelfth anniversary of the weighted average delivery date of the vessels
specified under the loan assuming the Commercial Tranche is refinanced through that date.
Borrowings under the KEXIM tranche bear interest at LIBOR plus an applicable margin of 3.25%. Borrowings
under the Commercial Tranche bear interest at LIBOR plus an applicable margin of 3.25% from the effective date of the
agreement to the fifth anniversary thereof and 3.75% thereafter until the maturity date in respect of the Commercial Tranche.
A commitment fee equal to 40% of the applicable margin is payable on the unused daily portion of the credit facility.
In addition to restrictions imposed upon the owners of the vessels that are collateralized under this credit facility
(such as, limitations on liens and limitations on the incurrence of additional indebtedness), the KEXIM Credit Facility
requires our compliance with the following financial covenants:
(cid:120) The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
(cid:120) Consolidated tangible net worth no less than $677.3 million plus (i) 25% of cumulative positive net income (on
a consolidated basis) for each fiscal quarter commencing on or after October 1, 2013 and (ii) 50% of the value
of any new equity issues occurring on or after October 1, 2013.
(cid:120) The ratio of EBITDA to net interest expense greater than 2.50 to 1.00 calculated on a trailing four quarter basis.
(cid:120) Minimum liquidity of not less than the greater of $25.0 million or 5% of total indebtedness.
(cid:120) The aggregate fair market value of the vessels provided as collateral under the facility shall at all times be no
less than 135% of the then aggregate outstanding principal amount of loans under the credit facility.
In addition to KEXIM’s commitment of up to $300.6 million, KEXIM has also provided an optional guarantee for a
five year amortizing note of $125.3 million (the “KEXIM Guaranteed Note”) that may be issued by us at our discretion in
2014; the proceeds of which will be used to reduce the $300.6 million KEXIM Tranche.
Derivative Contracts
Interest Rate Swaps
In August 2011, we entered into six interest rate swap agreements with three different banks to manage the interest
costs and the risk associated with changing interest rates on our 2010 Revolving Credit Facility and 2011 Credit Facility. The
notional amount of the swaps relating to the 2010 Revolving Credit Facility is $51.0 million with an average fixed rate of
1.27% starting on July 2, 2012 and expiring on June 2, 2015. The notional amount of the swaps relating to the 2011 Credit
Facility was $24.0 million with an average fixed rate of 1.30% and expiring on June 30, 2015. In September 2012, in
conjunction with the sales of STI Coral and STI Diamond, we reduced the notional amount on the interest rate swaps relating
to the 2011 Credit facility to $15.0 million from $24.0 million. In December 2012, we de-designated the hedge relationship
of the interest rate swaps related to the 2010 Revolving Credit Facility prospectively and reclassified all amounts
accumulated in other comprehensive income ($1.0 million) to the statement of profit or loss for the year ended December 31,
2012 as a component of Financial Expenses.
The interest rate swaps relating to the 2011 Credit Facility continue to qualify for hedge accounting. Hedge
effectiveness is measured quarterly. Accordingly, changes in their fair value, which the hedge is deemed to be effective, are
recognized directly in other comprehensive income and classified as ‘hedging reserves’. Changes in their fair value for any
portion deemed to be ineffective are recognized in the consolidated statement of profit or loss. The fair market value of the
interest rate swaps relating to both the 2010 Revolving Credit Facility and 2011 Credit Facility at December 31, 2013 and
December 31, 2012 was a liability of $0.9 million and $1.4 million, respectively.
In January 2014, we agreed to sell Noemi and Senatore. As part of these sales and related debt repayments into our
2010 Revolving Credit Facility, we reduced the notional amount of the swaps relating to the 2010 Revolving Credit Facility
from $51.0 million to $30.0 million.
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Profit or loss sharing agreements
In July 2012, we entered into a profit or loss sharing arrangement on the earnings of an LR1 vessel that was not
owned or operated by us. Under the agreement, 50% of the profits and losses on this vessel were shared with the
counterparty. The counterparty to this agreement was time chartering-in this vessel for a period of six months at $12,750 per
day and this agreement expired in January 2013.
In September 2012, we took delivery of an LR1, FPMC P Eagle, on a time charter-in arrangement for one year at
$12,800 per day. We also entered into a profit and loss sharing arrangement whereby 50% of the profits and losses relating to
this vessel above or below the charterhire rate were shared with a third party that neither owns nor operates this vessel and
this agreement expired in October 2013.
These agreements have been treated as derivatives, recorded at fair value with any resultant gain or loss recognized
in the statement of profit or loss. Changes in fair value are recorded as unrealized gains and losses on derivative financial
instruments and actual earnings are recorded as realized gains or losses on derivative financial instruments, within the
consolidated statement of profit or loss. The fair value of these instruments is determined by comparing published time
charter rates to the charterhire rate and discounting those cash flows to their estimated present value.
For the year ended December 31, 2013, we recognized a realized gain of $3,208 and an unrealized gain of $0.2
million. For the year ended December 31, 2012, we recognized a gain of $0.4 million and an unrealized loss of $0.2 million.
Equity
In April 2010, we closed the issuance of 12,500,000 shares of common stock at $13.00 per share in our initial public
offering and received net proceeds of $149.6 million, after deducting underwriters’ discounts and offering expenses.
In May 2010, pursuant to the underwriters’ exercise of their over-allotment option that we granted in connection
with our initial public offering, we closed the issuance of 450,000 shares of common stock at $13.00 and received $5.2
million, after deducting underwriters’ discounts.
In November 2010, we closed on a follow-on public offering of 4,575,000 shares of common stock at $9.80 per
share. After deducting underwriters’ discounts and paying offering expenses, the net proceeds were $41.8 million, and
510,204 shares were issued in a concurrent private placement to a member of the Lolli-Ghetti family for total proceeds of
$5.0 million. On December 2, 2010, we closed the issuance of 686,250 shares of common stock at $9.80 and received $6.4
million, after deducting underwriters’ discounts, when the underwriters in our follow-on public offering fully exercised their
over-allotment option.
In May 2011, we closed on a follow-on public offering of 6,000,000 shares of common stock and also closed on the
underwriters’ over-allotment option to purchase 900,000 additional common shares at an offering price of $10.50 per share.
We received net proceeds of $68.5 million, after deducting underwriters’ discounts and offering expenses.
In December 2011, we closed on a follow-on public offering of 7,000,000 shares of common stock at an offering
price of $5.50 per share. We received net proceeds of $36.5 million, after deducting underwriters’ discounts and offering
expenses.
In April 2012, we closed on the sale of 4,000,000 shares of common stock in a registered direct placement of
common shares at an offering price of $6.75 per share. We received net proceeds of $25.9 million, after deducting the
placement agents’ discount and offering expenses.
In December 2012, we closed on the sale of 21,639,774 shares of common stock in a registered direct placement of
common shares at an offering price of $6.10 per share. We received net proceeds of $127.2 million, after deducting the
placement agents’ discount and offering expenses.
In February 2013, we closed on the sale 30,672,000 shares of common stock in a registered direct placement of
common shares at an offering price of $7.50 per share. We received net proceeds of $222.1 million, after deducting
placement agents’ discounts and offering expenses.
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In March 2013, we closed on the sale 29,012,000 shares of common stock in a registered direct placement of
common shares at an offering price of $8.10 per share. We received net proceeds of $226.8 million, after deducting
placement agents’ discounts and offering expenses.
In May 2013, we closed on the sale of 36,144,578 newly issued shares of common stock in a registered direct
placement of common shares at an offering price of $8.30 per share. We received net proceeds of $289.2 million, after
deducting placement agents’ discounts and offering expenses.
In August 2013, we closed on the sale of 20,000,000 newly issued shares of common stock in an underwritten
offering of common shares at an offering price of $9.50 per share. In addition, the underwriters also fully exercised their
over-allotment option to purchase 3,000,000 additional common shares at the offering price. We received aggregate net
proceeds of $209.8 million after deducting underwriters’ discounts and offering expenses.
In November 2013, we issued 3,611,809 common shares to unaffiliated third parties in connection with our
acquisition of four MR vessel newbuilding contracts.
In December 2013, we issued 3,523,271 common shares to unaffiliated third parties in connection with our
acquisition of four MR vessel newbuilding contracts.
Capital Expenditures
Vessel acquisitions and disposals
During 2013 we entered into agreements to construct 11 VLGCs and in November 2013, we closed an agreement
with Dorian whereby we contributed our VLGC business and a cash payment of $1.9 million in exchange for newly issued
shares representing 30% of Dorian’s pro-forma outstanding shares immediately following the transaction. As of the closing
date of the transaction, we paid $83.1 million in installment payments under the 11 VLGC newbuilding contracts. We
currently own approximately 26% of Dorian’s outstanding shares.
In December 2013, we reached agreements with DSME and HSHI for the construction of seven VLCCs for an
aggregate purchase price of $662.2 million. In March 2014, we entered into an agreement to sell these contracts for cash. As
part of these sales, we expect to record a gain on disposal of approximately $50.0 million in the first quarter of 2014.
We currently have contracts for the construction of 55 newbuilding product tankers with shipyards, including HMD,
HSHI, SPP and DSME, consisting of (i) 14 MR tankers with HMD for an aggregate purchase price of $487.7 million, (ii) 15
MR product tankers with SPP for an aggregate purchase price of $515.7 million, (iii) 14 Handymax ice class-1A tankers with
HMD for an aggregate purchase price of $440.5 million, (iv) eight LR2 product tankers with HSHI for an aggregate purchase
price of $404.0 million and (v) four LR2 product tankers with DSME for an aggregate purchase price of $200.0 million. Of
these vessels, 42 vessels are expected to be delivered to us throughout 2014 and 13 in 2015.
Our remaining commitments under all newbuilding vessel agreements as of the date of this report, including the
above mentioned vessels are as follows*
Q1 2014 ............................................................
Q2 2014 ............................................................
Q3 2014 ............................................................
Q4 2014 ............................................................
Q1 2015 ............................................................
Q2 2015 ............................................................
Total .................................................................. $
190.9 million**
367.6 million
422.0 million
292.1 million
167.5 million
168.2 million
1,608.3 million
* These are estimates only and are subject to change as construction progresses.
** All first quarter 2014 installment payments have been paid, which include $63.5 million in
aggregate for the delivery installment payments on STI Duchessa and STI Opera in January
2014 and STI Texas City in March 2014.
76
During 2012, we sold three Handymax vessels, STI Conqueror, STI Matador and STI Gladiator, and recorded a $4.5
million loss in connection with the sales of these vessels. The availability of the 2010 Revolving Credit Facility decreased by
$31.0 million as a result of these sales. During 2012, we also completed the sales of two MR product tankers, STI Diamond
and STI Coral and recorded a $5.9 million loss in connection with the sales of these vessels. A portion of the proceeds from
the sale of STI Coral was used to repay $16.1 million under our 2011 Credit Facility. STI Onyx, a newbuilding vessel which
was delivered in September 2012, was substituted as collateral under our 2011 Credit Facility on our outstanding borrowings
related to STI Diamond.
In December 31, 2013, we designated four vessels as held for sale in our consolidated financial statements; two
2004-built LR1 product tankers, Noemi and Senatore, a 2001-built Post-Panamax tanker, Venice, and a 2008-built LR2
product tanker, STI Spirit. As part of this designation, we recorded a $21.2 million write-down to remeasure these vessels at
the lower of their carrying amount and fair value less costs to sell.
In January 2014, we agreed to sell Noemi and Senatore for an aggregate selling price of $44.0 million. Noemi was
sold in March 2014 and Senatore is expected to close in April 2014. As part of these sales, we repaid $22.7 million into our
2010 Revolving Credit Facility. Consequently, the availability of this facility was reduced by such amount and the quarterly
reduction was reduced to $2.1 million from $3.1 million per quarter. We will also write-off a total of $0.2 million of deferred
financing fees as part of this debt repayment.
In February 2014, we agreed to sell STI Spirit for $30.2 million. As part of this sale, we will repay all amounts due
under the STI Spirit Credit Facility of $21.4 million. This sale is expected to close in April 2014.
Please see “—Liquidity and Capital Resources—Long Term Debt Obligations and Credit Arrangements” for a
discussion on the impact of these sales on the related credit facilities.
Drydock
During 2013, none of our vessels were in drydock. Venice is scheduled to be drydocked within the next 12 months
for an estimated cost $0.8 million and an estimated 20 days of off-hire.
As our fleet matures and expands, our drydock expenses will likely increase. Ongoing costs for compliance with
environmental regulations and society classification survey costs are a component of our vessel operating costs. We are not
currently aware of any regulatory changes or environmental liabilities that we anticipate will have a material impact on our
results of operations or financial condition.
Dividends
On April 15, 2013, our board of directors declared a quarterly cash dividend of $0.025 per share, which was paid on
June 25, 2013 to all shareholders of record as of June 11, 2013.
On July 29, 2013, our board of directors declared a quarterly cash dividend of $0.035 per share, which was paid on
September 25, 2013 to all shareholders of record as of September 10, 2013.
On October 28, 2013, our board of directors declared a quarterly cash dividend of $0.07 per share, which was paid
on December 18, 2013 to all shareholders of record as of December 3, 2013.
On February 21, 2014, our board of directors declared a quarterly cash dividend of $0.08 per share, which was paid
on March 26, 2014 to all shareholders of record as of March 11, 2014.
Share Buy-Back
On July 9, 2010, the board of directors authorized a share buyback program of $20.0 million. We repurchase our
common shares in the open market at the times and prices that we consider to be appropriate. No shares were repurchased
during the year ended December 31, 2013. As of December 31, 2013 and December 31, 2012, 1,170,987 shares have been
purchased under the plan at an average price of $6.7793 per share including commissions. As of December 31, 2013, the
remaining stock buyback authorization was $12.1 million.
77
C.
Research and Development, Patents and Licenses, Etc.
Not applicable.
D.
Trend Information
See “Item 4. Information on the Company—B. Business Overview—The International Oil Tanker Shipping
Industry.”
E.
Off-Balance Sheet Arrangements
As of December 31, 2013, we were committed to make charter-hire payments to third parties for certain chartered-in
vessels. These arrangements are accounted for as operating leases. Additionally, we are committed to make payments on our
newbuilding vessel orders. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital
Resources” for further information.
F.
Tabular Disclosure of Contractual Obligations
The following table sets forth our total contractual obligations at December 31, 2013:
3 to 5
years
1 to 3
years
Less than
More than
In thousands of U.S. dollars
1 year
5 years
Bank loan(1) ....................................................................................................... $
12,121 $ 24,241 $79,371 $ 53,848
Estimated interest payments(2) .........................................................................
7,634 13,606 7,511 1,288
Interest rate swap derivative contracts(3) ..........................................................
190 — —
Bank loan - commitment fees(4) .......................................................................
11,433 2,855 — —
Time charter-in commitments(5) .......................................................................
96,103 17,854 — —
Technical management fees(6) ..........................................................................
4,750 4,750 — —
Commercial management fees(7) ......................................................................
2,172 2,172 — —
Newbuilding installments (8) ............................................................................. 1,367,044 813,649 — —
Total .................................................................................................................. $1,501,948 $879,317 $86,882 $ 55,136
____________________
(1) Represents principal payments due on our 2011 Credit Facility, STI Spirit Credit Facility and Newbuilding Credit
Facility based on our outstanding borrowings as of December 31, 2013. There were no outstanding borrowings under our
2010 Revolving Credit Facility, 2013 Credit Facility, KEXIM Credit Facility and K-Sure Credit Facility as of December
31, 2013.
691
(2) Represents estimated interest payments on our credit facilities:
(cid:120) There were no borrowings under the 2010 Revolving Credit Facility, 2013 Credit Facility, KEXIM Credit
Facility and K-Sure Credit Facility as of December 31, 2013.
(cid:120) For the 2011 Credit Facility, we used the weighted average of the 3-year and 4-year interest swap rates of
1.10% (as published by the US Federal Reserve as of December 31, 2013) plus a margin of 3.25% which is the
margin on the 2011 Credit Facility. We used the weighted average 3-year and 4-year interest swap rates to
reflect the maturity date of this facility of May 3, 2017.
(cid:120) For the STI Spirit Credit Facility, we used the weighted average of the 4-year and 5-year interest swap rates of
1.44% (as published by the US Federal Reserve as of December 31, 2013) plus a margin of 2.75%, which is the
margin for the STI Spirit Credit Facility. We used the 4-year and 5-year swap rate to reflect the maturity date of
this facility of March 17, 2018.
(cid:120) For the Newbuilding Credit Facility, we used the weighted average of the 5-year and 7-year interest swap rates
of 2.13% (as published by the US Federal Reserve as of December 31, 2013) plus a margin of 2.70%, which is
the margin for our Newbuilding Credit Facility. We used the weighted average of the 5-year and 7-year interest
swap rates to reflect the maturity date of this facility of June 30, 2019.
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(3) Represents estimated payments due under our interest rate swaps:
(cid:120) The three swaps relating to the 2010 Credit Facility with a total notional amount of $51.0 million carry an
average fixed interest rate of 1.27% during the time period the swap is outstanding (January 1, 2014 through
June 2, 2015). The payments due were estimated by offsetting the fixed payments against the estimated interest
received using the forward swap curve at December 31, 2013 for each of the swaps.
(cid:120) The three swaps relating to the 2011 Credit Facility with a total notional amount of $15.0 million carry an
average fixed interest rate of 1.30% during the time period the swap is outstanding (January 1, 2014 through
June 30, 2015). The payments due were estimated by offsetting the fixed payments against the estimated
interest received using the forward swap curve at December 31, 2013 for each of the swaps.
(4) As of December 31, 2013, a commitment fee equal to 40% of the applicable margin is payable on the unused daily
portion of our 2010 Revolving Credit Facility, 2011 Credit Facility, 2013 Credit Facility and the commercial tranches of
our KEXIM Credit Facility and K-Sure Credit Facility. The STI Spirit Credit Facility and Newbuilding Credit Facility
were fully drawn as of December 31, 2013.
(5) Represents amounts due under our time charter-in agreements as of December 31, 2013.
(6) We pay our technical manager, SSM, $685 per day per owned vessel, which are the same fees that SSM charges to third
parties.
(7) We pay our commercial manager, SCM, $250 per vessel per day for LR2 vessels, $300 per vessel per day for LR1
vessels, $325 per vessel per day for MR and Handymax vessels plus 1.50% of gross revenue for vessels that are in one of
the Scorpio Group Pools. When the vessels are not in the pools, SCM charges fees of $250 per vessel per day for the
LR1 and LR2 vessels, $300 per vessel per day for the Handymax and MR vessels plus 1.25% of gross revenue.
(8) Represents obligations under our agreements with HMD, SPP, HSHI and DSME for the construction of 65 newbuilding
vessels under our Newbuilding Program as of December 31, 2013.
G.
Safe Harbor
See “Cautionary Statement Regarding Forward-Looking Statements” at the beginning of this annual report.
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior management
Set forth below are the names, ages and positions of our directors and executive officers. Our board of directors is
elected annually, and each director elected holds office for a three-year term or until his successor shall have been duly
elected and qualified, except in the event of his death, resignation, removal or the earlier termination of his term of office.
The term of office of each director is as follows: two will serve for a term expiring at the 2014 annual meeting of the
shareholders, three will serve for a term expiring at the 2015 annual meeting of shareholders and three will serve for a term
expiring at the 2016 annual meeting of shareholders. Officers are elected from time to time by vote of our board of directors
and hold office until a successor is elected. The business address for each director and executive officer is the address of our
principal executive office which is Scorpio Tankers Inc., 9, Boulevard Charles III, Monaco 98000.
In April 2013, we appointed Marianne Økland to our board of directors to serve as a Class III director. In May 2013,
we appointed Jose Tarruella and Cameron Mackey to our board of directors to serve as a Class II and Class III director,
respectively, in each case effective as of the same date.
Certain of our officers participate in business activities not associated with us. As a result, they may devote less time
to us than if they were not engaged in other business activities and may owe fiduciary duties to the shareholders of both us as
well as shareholders of other companies which they may be affiliated, including other Scorpio Group companies. This may
create conflicts of interest in matters involving or affecting us and our customers and it is not certain that any of these
conflicts of interest will be resolved in our favor. While there will be no formal requirements or guidelines for the allocation
of their time between our business and the business of members of the Scorpio Group, their performance of their duties will
be subject to the ongoing oversight of our board of directors.
79
Name
Emanuele A. Lauro
Robert Bugbee
Brian Lee
Cameron Mackey
Luca Forgione
Sergio Gianfranchi
Anoushka Kachelo
Alexandre Albertini
Ademaro Lanzara
Donald C. Trauscht
Marianne Økland
Jose Tarruella
Age Position
35
53
47
45
37
69
34
37
70
79
51
43
Chairman, Class I Director, and Chief Executive Officer
President and Class II Director
Chief Financial Officer
Chief Operating Officer and Class III Director
General Counsel
Vice President, Vessel Operations
Secretary
Class III Director
Class I Director
Class II Director
Class III Director
Class II Director
Biographical information concerning the directors and executive officers listed above is set forth below.
Emanuele A. Lauro, Chairman, Director and Chief Executive Officer
Emanuele A. Lauro, our founder, has served as Chairman, and Chief Executive Officer since the closing of our
initial public offering in April 2010. Mr. Lauro also co-founded and serves as Chairman and Chief Executive Officer of
Scorpio Bulkers Inc., which was formed in 2013. He joined Scorpio Group in 2003 and has continued to serve there in a
senior management position since 2004. Under Mr. Lauro’s leadership, Scorpio Group has grown from an owner of three
vessels in 2003 to become a leading operator and manager of over 100 vessels in 2013. Over the course of the last several
years, Mr. Lauro has founded and developed all of the Scorpio Group Tanker Pools in addition to several other ventures such
as Scorpio Logistics in 2007, which owns and operates specialized assets engaged in the transshipment of coal and invests in
coastal transportation and port infrastructure developments and Scorship Navigation in 2005, which engaged in the
identification, placement, and management of certain international shipping investments on behalf of retail investors in
Europe. Mr. Lauro has a degree in international business from the European Business School, London.
Robert Bugbee, President and Director
Robert Bugbee, has more than 25 years of experience in the shipping industry and has served as President and as a
director since the closing of our initial public offering in April 2010. Mr. Bugbee also co-founded and has serves as Director
and President of Scorpio Bulkers Inc. since 2013. Mr. Bugbee also serve as a director of Dorian since November 2013. He
joined Scorpio Group in February 2009 and has continued to serve there in senior management. Prior to joining Scorpio
Group, Mr. Bugbee was a partner at Ospraie Management LLP between 2007 and 2008, a company which advises and
invests in commodities and basic industry. From 1995 to 2007, Mr. Bugbee was employed at OMI Corporation, or OMI, a
NYSE-listed tanker company sold in 2007. While at OMI, Mr. Bugbee most recently served as President from January 2002
until the sale of the company, and he previously served as Executive Vice President since January 2001, Chief Operating
Officer since March 2000 and Senior Vice President of OMI from August 1995 to June 1998. Mr. Bugbee joined OMI in
February 1993. Prior to this, he was employed by Gotaas-Larsen Shipping Corporation since 1984. During this time he took a
two year sabbatical in 1987 for the M.I.B. Programme at the Norwegian School for Economics and Business administration
in Bergen. He has a Fellowship from the International Shipbrokers Association and a B.A. (Honors) from London University.
Brian Lee, Chief Financial Officer
Brian Lee has served as Chief Financial Officer since the closing of our initial public offering in April 2010. He
joined Scorpio Group in April 2009 where he continues to serve in a senior management position. He has been employed in
the shipping industry since 1998. Prior to joining Scorpio Group, he was the Controller of OMI Corporation from 2001 until
the sale of the company in 2007. Mr. Lee has an M.B.A. from the University of Connecticut and has B.S. in Business
Administration from the University at Buffalo, State University of New York.
Cameron Mackey, Chief Operating Officer, Director
Cameron Mackey, has served as Chief Operating Officer since the closing of our initial public offering in April 2010
and as a director since May 2013. Mr. Mackey also serves as Chief Operating Officer of Scorpio Bulkers Inc. He joined
Scorpio Group in March 2009, where he continues to serve in a senior management position. Prior to joining Scorpio Group,
80
he was an equity and commodity analyst at Ospraie Management LLC from 2007-2008. Prior to that, he was Senior Vice
President of OMI Marine Services LLC from 2004-2007 and in Business Development at OMI Corporation from 2002-2004.
He has been employed in the shipping industry since 1994 and, earlier in his career, was employed in unlicensed and licensed
positions in the merchant navy, primarily on tankers in the international fleet of Mobil Oil Corporation, where he held the
qualification of Master Mariner. He has an M.B.A. from the Sloan School of Management at the Massachusetts Institute of
Technology, a B.S. from the Massachusetts Maritime Academy and a B.A. from Princeton University.
Luca Forgione, General Counsel
Luca Forgione, has served as General Counsel since the closing of our initial public offering in April 2010 and as
secretary until December 2, 2013. Mr. Forgione also serves General Counsel of Scorpio Bulkers Inc. He joined Scorpio
Group in August 2009 where he continues to serve as General Counsel. He is licensed as a lawyer in his native Italy and as a
Solicitor of the Supreme Court of England & Wales. Mr. Forgione has ten years of shipping industry experience and has
worked in the fields of shipping, offshore logistics, commodity trading and energy since the beginning of his in-house career,
most recently with Constellation Energy Commodities Group Ltd. in London, which is part of Constellation Energy Group
Inc. listed on the NYSE under “CEG,” from 2007 to 2009, and previously with Coeclerici S.p.a. in Milan from 2004 to 2007.
He has experience with all aspects of the supply chain of drybulk and energy commodities (upstream and downstream), and
has developed considerable understanding of the regulatory and compliance regimes surrounding the trading of physical and
financial commodities as well as the owning, managing and chartering of vessels. Mr. Forgione was a Tutor in International
Trade Law and Admiralty Law at University College London (U.K.) and more recently a Visiting Lecturer in International
Trade Law at King’s College (U.K.). He has a Master’s Degree in Maritime Law from the University of Southampton (U.K.)
and a Law Degree from the University of Genoa (Italy).
Sergio Gianfranchi, Vice President, Vessel Operations
Sergio Gianfranchi, has served as Vice President of Vessel Operations since our initial public offering in April 2010.
Mr. Gianfranchi also serves as Vice President of Vessel Operations of Scorpio Bulkers Inc. since September 19, 2013. He
served as Operations Manager of our technical manager, SSM, at its headquarters in Monaco from 2002 to 2004. He has been
instrumental in launching and operating the Scorpio Group Pools during the last six years, and was employed as the Fleet
Manager of SCM, the Scorpio Group affiliate that manages the commercial operations of approximately 50 vessels grouped
in the three Scorpio Group Pools, from 2007 to 2009. Mr. Gianfranchi is currently employed as the Pool Fleet Manager of
SCM. From 1999 to 2001, Mr. Gianfranchi served as the on-site owner’s representative of the Scorpio Group affiliates
named Doria Shipping, Tristan Shipping, Milan Shipping and Roma Shipping, to survey the construction of their Panamax
and Post-Panamax newbuilding tankers being built at the 3Maj Shipyard in Rijeka, Croatia. When Mr. Gianfranchi joined
SSM in 1989, he began as vessel master of its OBOs (multipurpose vessels that carry ore, heavy drybulk and oil). Upon
obtaining his Master Mariner License in 1972, he served until 1989 as a vessel master with prominent Italian shipping
companies, including NAI, which is the largest private Italian shipping company and owned by the Lolli-Ghetti family, and
Almare, initially a subsidiary of NAI but later controlled by Finmare, the Italian state shipping financial holding company. In
this position he served mostly on OBOs, tankers and drybulk carriers. He graduated from La Spezia Nautical Institute in Italy
in 1963.
Anoushka Kachelo, Secretary
Anoushka Kachelo has served as our Secretary since December 2, 2013. Mrs. Kachelo joined Scorpio Group in
September 2010 as Senior Legal Counsel. She is a Solicitor of the Supreme Court of England & Wales and has worked in the
fields of commodity trading, energy and asset finance. Prior to joining the Scorpio Group, Mrs. Kachelo was Legal Counsel
for the Commodities Team at JPMorgan (London) and prior to that in private practice for the London office of McDermott
Will & Emery and Linklaters. She has a BA in Jurisprudence from the University of Oxford (U.K.).
Alexandre Albertini, Director
Alexandre Albertini has served on our board of directors since the closing of our initial public offering in April
2010. Mr. Albertini has more than 11 years of experience in the shipping industry. He has been employed by Marfin
Management SAM, a drybulk ship management company, since 1997 and has served as Managing Director there since 2009,
working in fields related to crew and human resources, insurance, legal, financial, technical, commercial, and information
technology. He is a director of eight drybulk ship owning companies and serves as President of Ant. Topic srl, a vessel and
crewing agent based in Italy. The aggregate valuation of the drybulk shipping companies for which Mr. Albertini serves as a
Secretary or director is approximately $300 million. In 2008, Mr. Albertini was elected as a member of the Executive
81
Committee of InterManager. He is a founding member of the Chamber of Shipping of Monaco and has served as its Secretary
General since 2006. Mr. Albertini also holds various board positions in several other local business and associations.
Ademaro Lanzara, Director
Ademaro Lanzara has served on our board of directors since the closing of our initial public offering in April 2010.
Mr. Lanzara has served as Chairman of BPV Finance (International) Plc Dublin, a subsidiary of Banca Popolare di Vicenza,
Italy, since 2008. He has also served as the deputy Chairman and Chairman of the Audit Committee of Cattolica Life Inc.
Dublin since 2011, Chairman of BPVI Fondi Sgr SpA, Milano from April 2012 until November 2013 and Chairman of NEM
Sgr SpA Vicenza since November 2013. From 1963 to 2006, Mr. Lanzara held a number of positions with BNL spa Rome, a
leading Italian banking group, including Deputy Group CEO, acting as the Chairman of the Credit Committee and Chairman
of the Finance Committee. He also served as Chairman and/or director of a number of BNL controlled banks or financial
companies in Europe, the United States and South America. He formerly served as a director of each of Istituto
dell’Enciclopedia Italiana fondata da Giovanni Treccani Spa, Rome, Italy, the Institute of International Finance Inc. in
Washington DC, Compagnie Financiere Edmond de Rothschild Banque, in Paris, France, ABI—Italian Banking Association
in Rome, Italy, FITD—Interbank deposit Protection Fund, in Rome, Italy, ICC International Chamber of Commerce Italian
section, Rome, Italy and Co-Chairman Round Table of Bankers and Small and Medium Enterprises, European Commission,
in Brussels, Belgium. Mr. Lanzara has an economics degree (graduated magna cum laude) from the University of Naples, a
law degree from the University of Naples and completed the Program for Management Development (PMD) at Harvard
Business School.
Donald C. Trauscht, Director
Donald C. Trauscht has served on our board of directors since the closing of our initial public offering in April 2010.
Mr. Trauscht has served as the Chairman of BW Capital Corporation, a private investment company, since 1996. From 1967
to 1995, Mr. Trauscht held a number of positions at Borg-Warner Corporation, including Chairman and Chief Executive
Officer. While at Borg Warner, Mr. Trauscht supervised an annual capital budget of $250 million and was responsible for
risk assessment decisions involving the company’s investments. He has participated in acquisitions, divestments, financings,
public offerings and other transactions whose combined value is over $30 billion. Mr. Trauscht is a director of Esco
Technologies Inc., Hydac International Corporation, Bourns Inc., and Eyes For Learning LLC. He formerly served as a
director of Baker Hughes Inc., Cordant Technologies Inc., Blue Bird Corporation, Imo Industries Inc., Mannesmann Capital
Corporation, Wynn International Inc., Recon Optical Inc., Global Motorsport Group Inc., OMI Corporation, IES Corporation,
and NSK-Warner Ltd. He has served as the Chairman, Lead Director, and Audit Committee, Compensation Committee, and
Governance Committee Chairman at numerous public and private companies.
Marianne Økland, Director
Marianne Økland has served on our board of directors since April 2013. Ms. Økland is also a Managing Director of
Avista Partners, a London based consultancy company that provides advisory services and raises capital. In addition, she is a
non-executive director at each of Islandsbanki (Iceland) and IDFC (India). Previously, she was a non-executive director at
NLB (Slovenia). Between 1993 and 2008, Ms. Økland held various investment banking positions at JP Morgan Chase & Co.
and UBS where she focused on debt capital raising and structuring. Ms. Økland has led many transactions for large Nordic
banks and insurance companies, including some of the most significant mergers and acquisitions in these sectors. Between
1990 and 1993, Ms. Økland headed European operations of Marsoft, a Boston, Oslo and London based consulting firm that
advises banks and large shipping, oil and raw material companies on shipping strategies and investments. Ms. Økland holds
a M.Sc. degree in Finance and Economics from the Norwegian School of Economics and Business Administration where she
also worked as a researcher and taught mathematics and statistics.
Jose Tarruella, Director
Jose Tarruella has served on our board since May 2013. Ms. Tarruella is also the founder and Chairman of Camino
de Esles s.l., a high-end restaurant chain with franchises throughout Madrid, since 2007. Prior to forming Camino de Esles,
Mr. Tarruella was a Director in Group Tragaluz, which owns and operates restaurants throughout Spain. Mr. Tarruella also
acts as a consultant for the Spanish interests of Rank Group plc (LSE: RNK.L) a leading European gaming-based
entertainment business. He has been involved in corporate relations for Esade Business School in Madrid. He earned an
International MBA from Esade Business School in Barcelona and an MA from the University of Navarre in Spain.
82
B.
Compensation
We paid an aggregate compensation of $15.7 million, $6.3 million and $6.1 million to our senior executive officers
in 2013, 2012, and 2011, respectively. Executive management remuneration was as follows during these periods:
For the year ended December 31,
In thousands of US dollars
Short-term employee benefits (salaries) ................................................................................... $ 5,433 $ 2,896 $ 2,875
Share-based compensation (1) ................................................................................................... 10,274 3,368 3,189
Total ........................................................................................................................................ $ 15,707 $ 6,264 $ 6,064
2012
2013
2011
(1) Represents the amortization of restricted stock issued under our equity incentive plans. See Note 12 in the consolidated
financial statements for further description.
Each of our non-employee directors receive cash compensation in the aggregate amount of $60,000 annually, plus
an additional fee of $10,000 for each committee on which a director serves plus an additional fee of $20,000 for each
committee for which a director serves as Chairman, per year, plus an additional fee of $20,000 to the lead independent
director, plus reimbursements for actual expenses incurred while acting in their capacity as a director. During the year ended
December 31, 2013 and 2012, we paid an aggregate compensation of $0.8 million and $0.4 million to our directors,
respectively. Our officers and directors are eligible to receive awards under our equity incentive plan which is described
below under “—2010 Equity Incentive Plan and 2013 Equity Incentive Plan.”
We believe that it is important to align the interests of our directors and management with that of our shareholders.
In this regard, we have determined that it will generally be beneficial to us and to our shareholders for our directors and
management to have a stake in our long-term performance. We expect to have a meaningful component of our compensation
package for our directors and management consisted of equity interests in us in order to provide them on an on-going basis
with a meaningful percentage of ownership in us.
We do not have a retirement plan for our officers or directors.
2010 Equity Incentive Plan
We have adopted an equity incentive plan, which we refer to as the 2010 Equity Incentive Plan, under which
directors, officers, employees, consultants and service providers of us and our subsidiaries and affiliates are eligible to
receive incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock
units and unrestricted common stock. We reserved a total of 1,148,916 common shares for issuance under the plan, subject to
adjustment for changes in capitalization as provided in the plan and it is not expected that any additional common shares will
be reserved for issuance under our equity incentive plan prior to the third anniversary of the closing of our initial public
offering. The plan is administered by our compensation committee. We issued a total of 559,458 restricted shares under the
plan to our executive officers in the second quarter of 2010 which vest in three equal installments on the third, fourth and
fifth anniversaries, respectively, of the closing date of the initial public offering, which was April 6, 2010. In the second
quarter of 2010, we also issued 9,000 restricted shares to our independent directors, which vested on April 6, 2011. We
issued a total of 281,000 restricted shares under the plan to our executive officers in the first quarter of 2011 which vest
ratably in three equal installments on the first, second and third anniversaries, respectively, of the grant date, which was
January 31, 2011. In the first quarter of 2011, we also issued 9,000 restricted shares to our independent directors, which
vested on January 31, 2012. In the first quarter of 2012, we issued a total of 281,000 restricted shares under the plan to our
executive officers, which vest ratably in three equal installments on the first, second and third anniversaries of the grant date,
which was January 31, 2012. In the first quarter of 2012, we also issued 9,000 restricted shares to our independent directors,
which vested on January 31, 2013. There are no shares remaining available for issuance under the 2010 Plan.
Under the terms of the plan, stock options and stock appreciation rights granted under the plan will have an exercise
price equal to the fair market value of a common share on the date of grant, unless otherwise determined by the plan
administrator, but in no event will the exercise price be less than the fair market value of a common share on the date of
grant. Options and stock appreciation rights will be exercisable at times and under conditions as determined by the plan
administrator, but in no event will they be exercisable later than ten years from the date of grant.
83
The plan administrator may grant shares of restricted stock and awards of restricted stock units subject to vesting,
forfeiture and other terms and conditions as determined by the plan administrator. Following the vesting of a restricted stock
unit, the award recipient will be paid an amount equal to the number of vested restricted stock units multiplied by the fair
market value of a common share on the date of vesting, which payment may be paid in the form of cash or common shares or
a combination of both, as determined by the plan administrator. The plan administrator may grant dividend equivalents with
respect to grants of restricted stock units.
Adjustments may be made to outstanding awards in the event of a corporate transaction or change in capitalization
or other extraordinary event. In the event of a “change in control” (as defined in the plan), unless otherwise provided by the
plan administrator in an award agreement, awards then outstanding will become fully vested and exercisable in full.
Our board of directors may amend or terminate the plan and may amend outstanding awards, provided that no such
amendment or termination may be made that would materially impair any rights, or materially increase any obligations, of a
grantee under an outstanding award. Shareholder approval of plan amendments will be required under certain circumstances.
Unless terminated earlier by our board of directors, the plan will expire ten years from the date the plan is adopted.
2013 Equity Incentive Plan
In April 2013, we adopted an equity incentive plan, which we refer to as the 2013 Equity Incentive Plan, under
which directors, officers, employees, consultants and service providers of us and our subsidiaries and affiliates are eligible to
receive incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock
units and unrestricted common stock. We initially reserved a total of 5,000,000 common shares for issuance under the plan.
Under the terms of the plan, stock options and stock appreciation rights granted under the plan will have an exercise
price equal to the fair market value of a common share on the date of grant, unless otherwise determined by the plan
administrator, but in no event will the exercise price be less than the fair market value of a common share on the date of
grant. Options and stock appreciation rights will be exercisable at times and under conditions as determined by the plan
administrator, but in no event will they be exercisable later than ten years from the date of grant.
The plan administrator may grant shares of restricted stock and awards of restricted stock units subject to vesting,
forfeiture and other terms and conditions as determined by the plan administrator. Following the vesting of a restricted stock
unit, the award recipient will be paid an amount equal to the number of vested restricted stock units multiplied by the fair
market value of a common share on the date of vesting, which payment may be paid in the form of cash or common shares or
a combination of both, as determined by the plan administrator. The plan administrator may grant dividend equivalents with
respect to grants of restricted stock units.
Adjustments may be made to outstanding awards in the event of a corporate transaction or change in capitalization
or other extraordinary event. In the event of a “change in control” (as defined in the plan), unless otherwise provided by the
plan administrator in an award agreement, awards then outstanding will become fully vested and exercisable in full.
Our board of directors may amend or terminate the plan and may amend outstanding awards, provided that no such
amendment or termination may be made that would materially impair any rights, or materially increase any obligations, of a
grantee under an outstanding award. Shareholder approval of plan amendments will be required under certain circumstances.
Unless terminated earlier by our board of directors, the plan will expire ten years from the date the plan is adopted.
In the second quarter of 2013, we issued 4,610,000 shares of restricted stock to our employees and 390,000 shares to
our directors for no cash consideration. The weighted average share price on the issuance dates was $8.69 per share. The
vesting schedule of the restricted stock to our employees is (i) one-third of the shares vest on March 10, 2016, (ii) one-third
of the shares vest on March 10, 2017, and (iii) one-third of the shares vest on March 10, 2018. The vesting schedule of the
restricted stock to our directors is (i) one-third of the shares vest on March 10, 2014, (ii) one-third of the shares vest on
March 10, 2015, and (iii) one-third of the shares vest on March 10, 2016.
In October 2013, we amended the 2013 Equity Incentive Plan to increase the number of common shares eligible for
issuance to 11,376,044. All other terms of the plan remained unchanged.
In October 2013, we issued 3,749,998 shares of restricted stock to our employees and 250,000 shares to our
directors for no cash consideration. The weighted average share price on the issuance date was $9.85 per share. The vesting
schedule of the restricted stock to our employees is (i) one-third of the shares vest on October 11, 2016, (ii) one-third of the
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shares vest on October 11, 2017, and (iii) one-third of the shares vest on October 11, 2018. The vesting schedule of the
restricted stock to our directors is (i) one-half of the shares vest on October 11, 2014 and (ii) one-half of the shares vest on
October 11, 2015.
In February 2014, we issued 2,011,000 shares of restricted stock to our employees and 145,045 shares to our
directors for no cash consideration. The weighted average share price on the issuance date was $9.30 per share. The vesting
schedule of the restricted stock to our employees is (i) one-third of the shares vest on February 21, 2017, (ii) one-third of the
shares vest on February 21, 2018, and (iii) one-third of the shares vest on February 21, 2019. The vesting schedule of the
restricted stock to our directors is (i) one-third of the shares vest on February 21, 2015, (ii) one-third of the shares vest on
February 21, 2016, and (iii) one-third of the shares vest on February 21, 2017. Compensation expense is recognized ratably
over the vesting periods for each tranche using the straight-line method.
In March 2014, we amended the 2013 Equity Incentive Plan to clarify that the plan administrator has the ability to
redeem restricted stock for fair market value (as defined in the plan) at the vesting date at its discretion.
Employment Agreements
In April 2010, we entered into employment agreements with each of our executives. These employment agreements
remain in effect until terminated in accordance with their terms upon not less than 24 months prior written notice. Pursuant to
the terms of their respective employment agreements, our executives are prohibited from disclosing or unlawfully using any
of our material confidential information.
Upon a change in control of us, the annual bonus provided under the employment agreement becomes a fixed bonus
of up to 150% of the executive’s base salary and such employee may be entitled to receive upon termination an assurance
bonus equal to such fixed bonus and an immediate lump-sum payment in an amount equal to three times the sum of the
executive’s then current base salary and the assurance bonus, and he will continue to receive all salary, compensation
payment and benefits, including additional bonus payments, otherwise due to him, to the extent permitted by applicable law,
for the remaining balance of his then-existing employment period. If an executive’s employment is terminated for cause or
voluntarily by the employee, he shall not be entitled to any salary, benefits or reimbursements beyond those accrued through
the date of his termination, unless he voluntarily terminated his employment in connection with certain conditions. Those
conditions include a change in control combined with a significant geographic relocation of his office, a material diminution
of his duties and responsibilities, and other conditions identified in the employment agreement.
C.
Board Practices
Our board of directors currently consists of eight directors, five of whom have been determined by our board of
directors to be independent under the rules of the New York Stock Exchange and the rules and regulations of the SEC. Our
board of directors has an Audit Committee, a Nominating Committee, a Compensation Committee and an Environmental
Committee, each of which is comprised of certain of our independent directors, who are Messrs. Alexandre Albertini,
Ademaro Lanzara, Donald Trauscht, Marianne Økland, and Jose Tarruella. The Audit Committee, among other things,
reviews our external financial reporting, engage our external auditors and oversee our internal audit activities, procedures and
the adequacy of our internal controls. In addition, provided that no member of the Audit Committee has a material interest in
such transaction, the Audit Committee is responsible for reviewing transactions that we may enter into in the future with
other members of the Scorpio Group that our board believes may present potential conflicts of interests between us and the
Scorpio Group. The Nominating and Corporate Governance Committee is responsible for recommending to the board of
directors nominees for director and directors for appointment to board committees and advising the board with regard to
corporate governance practices. The Compensation Committee oversees our equity incentive plan and recommends director
and senior employee compensation. The Environmental Committee oversees to minimize the environmental impact by
constant monitoring and measuring progresses of our vessels. Our shareholders may also nominate directors in accordance
with procedures set forth in our bylaws.
D.
Employees
As of December 31, 2013, we had ten employees. SSM and SCM were responsible for our commercial and technical
management.
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E.
Share ownership
The following table sets forth information regarding the share ownership of our common stock as of the date of this
annual report by our directors and officers, including the restricted shares issued to our executive officers and to our
independent directors as well as shares purchased in the open market.
% Owned
Name
Emanuele A. Lauro (1) ...................................................................................................................... 3,435,101 1.71%
Robert Bugbee (2) ............................................................................................................................ 3,342,914 1.66%
Cameron Mackey (3) ........................................................................................................................ 2,168,489 1.08%
*
All other officers and directors individually ....................................................................................
No. of Shares
*
(1) Includes 2,880,901 shares of restricted stock from the 2010 Equity Incentive Plan and the 2013 Equity Incentive Plan.
(2) Includes 2,880,901 shares of restricted stock from the 2010 Equity Incentive Plan and the 2013 Equity Incentive Plan.
(3) Includes 1,929,314 shares of restricted stock from the 2010 Equity Incentive Plan and the 2013 Equity Incentive Plan.
* The remaining officers and directors individually each own less than 1% of our outstanding shares of common stock.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
A.
Major shareholders.
The following table sets forth information regarding beneficial ownership of our common stock for owners of more
than five percent of our common stock, of which we are aware as of the date of this annual report.
Name
Wellington Management Company, LLP (1) ................................................................................... 14,142,229
Galahad Securities Limited (2) ........................................................................................................ 11,170,568
York Capital Management Global Advisors, LLC (3) .................................................................... 10,416,752
Kensico Capital Management Corporation, Michael Lowenstein and Thomas J. Coleman (4) ...... 10,116,500
No. of Shares % Owned
7.1%
5.7%
5.2%
5.1%
(1) This information is derived from Schedule 13G/A filed with the SEC on February 14, 2014.
(2) This information is derived from Schedule 13G/A filed with the SEC on February 14, 2014.
(3) This information is derived from Schedule 13G filed with the SEC on February 14, 2014.
(4) This information is derived from Schedule 13G/A filed with the SEC on February 14, 2014.
B.
Related Party Transactions
Management of Our Fleet
Commercial and Technical Management
Our vessels are commercially managed by Scorpio Commercial Management S.A.M., or SCM and technically
managed by Scorpio Ship Management S.A.M., or SSM, pursuant to a Master Agreement (which may be terminated upon a
two year notice). SCM and SSM are related parties of ours. We expect that additional vessels that we may acquire in the
future will also be managed under the Master Agreement or on substantially similar terms.
SCM’s services include securing employment, in the spot market and on time charters, for our vessels. SCM also
manages the Scorpio Group Pools. When our vessels are in the Pools, SCM, the pool manager, charges fees of $300 per
vessel per day with respect to our Panamax/LR1 vessels, $250 per vessel per day with respect to our LR2 vessels, and $325
per vessel per day with respect to each of our Handymax and MR vessels, plus 1.50% commission on gross revenues per
charter fixture. These are the same fees that SCM charges other vessels in these pools, including third party owned vessels.
For commercial management of our vessels that do not operate in any of the Scorpio Group Pools, we pay SCM a fee of $250
per vessel per day for each Panamax, LR1 and LR2 vessel and $300 per vessel per day for each Handymax and MR vessel,
plus 1.25% commission on gross revenues per charter fixture.
86
SSM’s services include day-to-day vessel operation, performing general maintenance, monitoring regulatory and
classification society compliance, customer vetting procedures, supervising the maintenance and general efficiency of
vessels, arranging the hiring of qualified officers and crew, arranging and supervising drydocking and repairs, purchasing
supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants and providing technical
support. We currently pay SSM $685 per vessel per day to provide technical management services for each of our vessels
which is the same fee that SSM charges to third parties.
Administrative Services Agreement
We have an Administrative Services Agreement with Scorpio Services Holding Limited, or SSH, or our
Administrator, for the provision of administrative staff and office space, and administrative services, including accounting,
legal compliance, financial and information technology services. SSH is a related party of ours. Liberty, a company affiliated
with us, acted as our Administrator until March 13, 2012 when the Administrative Services Agreement was novated to SSH.
The effective date of the novation was November 9, 2009, the date that we first entered into the agreement with Liberty. We
reimburse our current Administrator for the reasonable direct or indirect expenses it incurs in providing us with the
administrative services described above. Our Administrator also arranges vessel sales and purchases for us. The services
provided to us by our Administrator may be sub-contracted to other entities within the Scorpio Group.
We pay our Administrator a fee for arranging vessel purchases and sales for us, equal to 1% of the gross purchase or
sale price, payable upon the consummation of any such purchase or sale. For the year ended December 31, 2013 we paid our
Administrator $9.1 million, which consisted of $2.5 million related to the purchase and delivery of seven newbuilding vessels
in 2013 and $6.6 million on the purchase and subsequent sale of our VLGC business to Dorian in November 2013. We
believe this 1% fee on purchases and sales is customary in the tanker industry.
Further, pursuant to our administrative services agreement, our Administrator, on behalf of itself and other members
of the Scorpio Group, has agreed that it will not directly own product or crude tankers ranging in size from 35,000 dwt to
200,000 dwt.
Our administrative services agreement, whose effective commencement began in December 2009 and can be
terminated upon two years notice.
Tanker pools
To increase vessel utilization and thereby revenues, we participate in commercial pools with other shipowners of
similar modern, well-maintained vessels. By operating a large number of vessels as an integrated transportation system,
commercial pools offer customers greater flexibility and a higher level of service while achieving scheduling efficiencies.
Pools employ experienced commercial charterers and operators who have close working relationships with customers and
brokers, while technical management is performed by each shipowner. The managers of the pools negotiate charters with
customers primarily in the spot market. The size and scope of these pools enable them to enhance utilization rates for pool
vessels by securing backhaul voyages and COAs, thus generating higher effective TCE revenues than otherwise might be
obtainable in the spot market while providing a higher level of service offerings to customers. When we employ a vessel in
the spot charter market, we generally place such vessel in a tanker pool managed by our commercial manager that pertains to
that vessel’s size class. The earnings allocated to vessels (charterhire expense for the pool) are aggregated and divided on the
basis of a weighted scale, or Pool Points, which reflect comparative voyage results on hypothetical benchmark routes. The
Pool Point system generally favors those vessels with greater cargo-carrying capacity and those with better fuel consumption.
Pool Points are also awarded to vessels capable of carrying clean products and to vessels capable of trading in certain ice
conditions. We currently participate in four pools: the Scorpio LR2 Pool, the Scorpio Panamax Tanker Pool, Scorpio MR
Pool and the Scorpio Handymax Tanker Pool.
SCM is responsible for the commercial management of participating vessels in the pools, including the marketing,
chartering, operating and bunker (fuel oil) purchases of the vessels. The Scorpio LR2 Pool is administered by Scorpio LR2
Pool Ltd., the Scorpio Panamax Tanker Pool is administered by Scorpio Panamax Tanker Pool Ltd., or SPTP, the Scorpio
MR Pool is administered by Scorpio MR Pool Ltd, or SMRP and the Scorpio Handymax Tanker Pool is administered by
Scorpio Handymax Tanker Pool Ltd., or SHTP. Our founder, Chairman and Chief Executive Officer is a member of the
Lolli-Ghetti family which owns all issued and outstanding stock of SLR2P, SPTP, SMRP and SHTP. Taking into account the
recommendations of a pool committee and a technical committee, each of which is comprised of representatives of each pool
participant, SLR2P, SPTP, SMRP and SHTP set the respective pool policies and issues directives to the pool participants and
SCM. The pool participants remain responsible for all other costs including the financing, insurance, manning and technical
87
management of their vessels. The earnings of all of the vessels are aggregated and divided according to the relative
performance capabilities of the vessel and the actual earning days each vessel is available.
Our Relationship with Scorpio Group and its Affiliates
We were incorporated in the Republic of The Marshall Islands on July 1, 2009 by Simon Financial Limited, or
Simon, which is owned by the Lolli-Ghetti family and manages their shipping interests. On October 1, 2009, (i) Simon,
through its wholly-owned subsidiary, Liberty Holding Company Ltd., or Liberty, transferred three operating subsidiary
companies to us that owned the vessels in our initial fleet consisting of the Venice, Senatore and Noemi; (ii) Liberty became a
wholly-owned subsidiary and operating vehicle of Simon; (iii) Scorpio Owning Holding Ltd. became a wholly-owned
subsidiary of Liberty; and (iv) we became a wholly-owned subsidiary of Scorpio Owning Holding Ltd. Liberty’s operations
include chartered-in vessels, and interests in joint ventures and investments. Scorpio Group and will preclude itself from
directly owning product or crude tankers ranging in size from 35,000 dwt to 200,000 dwt.
Our board of directors consists of eight individuals, five of whom are independent directors. Three of the
independent directors form the board’s Audit Committee and, pursuant to the Audit Committee charter, are required to
review all potential conflicts of interest between us and Scorpio Group. The three non-independent directors, Emanuele
Lauro, Robert Bugbee and Cameron Mackey serve in senior management positions within the Scorpio Group which is also
our Administrator, and is an affiliate of the Scorpio Group.
The Scorpio Group is owned and controlled by the Lolli-Ghetti family, of which Mr. Lauro is a member. Mr. Lauro
is considered to be the acting Chief Executive Officer and Mr. Bugbee is considered to be the acting President of the Scorpio
Group. Mr. Lauro is employed by Scorpio Commercial Management and Mr. Bugbee is employed by Scorpio USA LLC, and
both entities are affiliates within the Scorpio Group. Mr. Lauro, Mr. Bugbee and other senior management have a minority
equity interest in Scorpio Services Holding Limited. We are not affiliated with any other entities in the shipping industry
other than those that are members of the Scorpio Group.
SCM, SSM and SSH our commercial manager, technical manager and administrator, respectively, are affiliates of
the Scorpio Group. For information regarding the details regarding our relationship with SCM, SSM and SSH, please see “–
Management of our Fleet.”
Transactions with Related Parties
Transactions with entities controlled by the Lolli-Ghetti family (herein referred to as related party affiliates) in the
consolidated statements of profit or loss and balance sheet are as follows:
In thousands of US dollars
Pool revenue(1)
For the year ended December 31,
2013
2012
2011
Scorpio MR Pool Limited ................................................................................................... $89,597 $ 9,558 $ —
Scorpio Handymax Tanker Pool Limited ........................................................................... 36,199 31,280 32,238
Scorpio Panamax Tanker Pool Limited .............................................................................. 36,018 26,884 22,594
Scorpio LR2 Pool Limited .................................................................................................. 28,203 4,540 5,195
170
Scorpio Aframax Tanker Pool Limited .............................................................................. — —
Time charter revenue(2)
King Dustin ........................................................................................................................ — — 8,507
Vessel operating costs(3) ............................................................................................................ (3,703) (2,280) (2,203)
Commissions(4) .........................................................................................................................
(270)
Administrative expenses(5) ......................................................................................................... (1,944) (1,862) (1,937)
(218)
(532)
(1) These transactions relate to revenue earned in the Scorpio LR2, Scorpio Panamax, Scorpio MR, Scorpio Aframax and
Scorpio Handymax Tanker Pools (the Pools), which are owned by Scorpio LR2 Pool Limited, Scorpio Panamax Tanker
Pool Limited, Scorpio MR Pool Limited, Scorpio Aframax Tanker Pool Limited and Scorpio Handymax Tanker Pool
Limited, respectively. The Pools are related party affiliates.
(2) The revenue earned was for Noemi’s time charter with King Dustin (which is 50% jointly controlled by a related party
affiliate).
88
(3) These transactions represent technical management fees charged by SSM, a related party affiliate, which are included in
the vessel operating costs in the consolidated statement of income or loss. We believe our technical management fees for
the years ended December 31, 2013, 2012 and 2011 were at arms-length rates as they were based on contracted rates that
were the same as those charged to other vessels managed by SSM at the time the management agreements were entered
into. In June 2013, this fee was increased to $685 per vessel per day from $548 per vessel per day (2012 and 2011: $548
per vessel per day) for technical management.
(4) These transactions represent the expense due to SCM for commissions related to the commercial management services
provided by SCM under the Commercial Management Agreement (see description below). Each vessel pays a
commission of 1.25% of their gross revenue when not in the Pools. When our vessels are in the Pools, SCM, the pool
manager, charges fees of $300 per vessel per day with respect to our Panamax/LR1 vessels, $250 per vessel per day with
respect to our LR2 vessels, and $325 per vessel per day with respect to each of our Handymax and MR vessels, plus
1.50% commission on gross revenues per charter fixture. These are the same fees that SCM charges other vessels in
these pools, including third party owned vessels, and they are and were included in voyage expenses in the consolidated
statement of income or loss.
(5) We have an Administrative Services Agreement with Scorpio Services Holding Limited, or SSH, for the provision of
administrative staff and office space, and administrative services, including accounting, legal compliance, financial and
information technology services. SSH is a related party to us. We reimburse SSH for the reasonable direct or indirect
expenses it incurs in providing us with the administrative services described above. SSH also arranges vessel sales and
purchases for us. The services provided to us by SSH may be sub-contracted to other entities within the Scorpio Group.
Our Commercial Management Agreement with SCM includes a daily flat fee charged payable to SCM for the vessels
that are not in one of the pools managed by SCM. The flat fee is $250 per day for Panamaxes/LR1 and LR2 vessels and
$300 per day for Handymax and MR vessels.
(cid:120) The expense for the year ended December 31, 2013 of $1.9 million included the flat fee of $0.3 million charged by
SCM and administrative fees of $1.6 million charged by SSH and were included in voyage expenses and general and
administrative expenses in the consolidated statement of income or loss.
(cid:120) The expense for the year ended December 31, 2012 of $1.9 million included the flat fee of $0.7 charged by SCM,
and administrative fees of $1.2 million charged by SSH and were both included in voyage expenses and general and
administrative expenses in the consolidated statement of income or loss.
(cid:120) The expense for the year ended December 31, 2011 of $1.9 million included the flat fee of $0.3 charged by SCM,
and administrative fees of $1.7 million charged by SSH and were both included in general and administrative
expenses in the consolidated statement of income or loss.
(6) The Administrative Services Agreement with SSH includes a fee for arranging vessel purchases and sales, on our behalf,
equal to 1% of the gross purchase or sale price, payable upon the consummation of any such purchase or sale. These fees
are capitalized as part of the carrying value of the related vessel for a vessel purchase and are included as part of the gain
or loss on sale for a vessel disposal. During the year ended December 31, 2013, we paid SSH an aggregate fee of $9.1
million, which consisted of $2.5 million related to the purchase and delivery of seven newbuilding vessels in 2013 and
$6.6 million on the purchase and subsequent sale of our VLGC business to Dorian. During the year ended December 31,
2012, we paid SSH an aggregate fee of $2.4 million, which consisted of $0.5 million on the sales of three Handymax
vessels and $1.9 million on the purchase and delivery of our first five newbuilding vessels. In the year ended December
31, 2011, we paid SSH an aggregate fee of $0.7 million in May 2011 for the purchase of two MRs.
We had the following balances with related parties, which have been included in the consolidated balance sheets:
As of December 31,
In thousands of US dollars
Assets:
Accounts receivable (due from the Pools) ........................................................ $68,512 $33,271
8 —
Accounts receivable (SCM) .............................................................................
2012
2013
Liabilities:
95
Accounts payable (owed to the Pools) .............................................................
Accounts payable (SSM) ..................................................................................
1
Accounts payable (SCM) ................................................................................. —
59
70
146
89
In 2011, we also entered into an agreement to reimburse costs to SSM as part of its supervision agreement for
newbuilding vessels. $0.2 million and $0.1 million were charged under this agreement during the years ended December 31,
2013 and December 31, 2012, respectively. No amounts were charged under this agreement during the year ended December
31, 2011.
C.
INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8.
FINANCIAL INFORMATION
A.
Consolidated Statements and Other Financial Information
See “Item 18. Financial Statements.”
Legal Proceedings
To our knowledge, we are not currently a party to any lawsuit that, if adversely determined, would have a material
adverse effect on our financial position, results of operations or liquidity. As such, we do not believe that pending legal
proceedings, taken as a whole, should have any significant impact on our financial statements. From time to time in the future
we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and
property casualty claims. While we expect that these claims would be covered by our existing insurance policies, those
claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. We have not
been involved in any legal proceedings which may have, or have had, a significant effect on our financial position, results of
operations or liquidity, nor are we aware of any proceedings that are pending or threatened which may have a significant
effect on our financial position, results of operations or liquidity.
Dividend Policy
The declaration and payment of dividends is subject at all times to the discretion of our board of directors. The
timing and amount of dividends, if any, depends on our earnings, financial condition, cash requirements and availability, fleet
renewal and expansion, restrictions in the loan agreements, the provisions of Marshall Islands law affecting the payment of
dividends and other factors.
In addition, since we are a holding company with no material assets other than the shares of our subsidiaries through
which we conduct our operations, our ability to pay dividends will depend on our subsidiaries’ distributing to us their
earnings and cash flow.
During the period from our initial public offering in April 2010 through April 2013, we did not declare or pay any
dividends to our shareholders. For the year ended December 31, 2013, we paid aggregate dividends to our shareholders in the
amount of $24.4 million. We have paid the following dividends per share in respect of the periods set forth below:
Payment Date
June 25, 2013 .................................................................................. $
September 25, 2013 ........................................................................ $
December 18, 2013 ......................................................................... $
March 26, 2014 .............................................................................. $
Amount
per Share
0.025
0.035
0.070
0.080
B.
Significant Changes.
There have been no significant changes since the date of the annual consolidated financial statements included in
this report, other than as described in Note 22-Subsequent Events to our consolidated financial statements included herein.
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ITEM 9. OFFER AND THE LISTING
A.
Offer and Listing Details.
Since our initial public offering, our shares of common stock have traded on the NYSE under the symbol “STNG”.
The high and low market prices for our shares of common stock on the NYSE are presented for the periods listed below:
For the Year Ended
December 31, 2010* ........................................................................... $ 13.01 $ 9.50
December 31, 2011 ............................................................................. 12.18 4.28
7.50 4.93
December 31, 2012 .............................................................................
December 31, 2013 ............................................................................. 12.48 6.92
* For the period beginning March 31, 2010
High
Low
Low
High
For the Quarter Ended:
7.50 4.93
March 31, 2012 ...................................................................................
7.50 5.14
June 30, 2012 ......................................................................................
6.88 5.14
September 30, 2012 ............................................................................
7.14 5.19
December 31, 2012 .............................................................................
8.94 6.92
March 31, 2013 ...................................................................................
June 30, 2013 ......................................................................................
9.60 7.55
September 30, 2013 ............................................................................ 10.51 8.87
December 31, 2013 ............................................................................. 12.48 9.37
March 31, 2014 (through and including March 28, 2014) .................. 11.91 9.00
Most Recent Six Months:
September 2013 .................................................................................. $ 10.28 $ 9.38
October 2013 ...................................................................................... 12.03 9.37
November 2013 .................................................................................. 12.48 11.26
December 2013 ................................................................................... 12.17 10.62
January 2014 ....................................................................................... 11.91 9.87
February 2014 ..................................................................................... 10.29 9.00
March 2014 (through and including March 28, 2014) ........................ 10.69 9.47
High
Low
B.
Plan of Distribution
Not applicable
C.
Markets.
The information set forth above, including the tabular information, under the heading “Offering and Listing Details”
in incorporated herein.
D.
Selling Shareholders
Not applicable.
E.
Dilution
Not applicable.
F.
Expenses of the Issue
Not applicable.
91
ITEM 10. ADDITIONAL INFORMATION
A.
Share capital.
Not applicable.
B.
Memorandum and Articles of Association.
Our amended and restated articles of incorporation have been filed as exhibit 3.1 to Amendment No. 2 to our
Registration Statement on Form F-1 (Registration No. 333-164940), filed with the SEC on March 18, 2010. Our amended
and restated bylaws are filed as exhibit 1.2 to our Annual Report on Form 20-F filed on June 29, 2010. The information
contained in these exhibits is incorporated by reference herein.
Information regarding the rights, preferences and restrictions attaching to each class of our shares of common stock
is described in the section entitled “Description of Capital Stock” in the accompanying prospectus to our Registration
Statement on Form F-3 (Registration No. 333-186815) with an effective date of February 25, 2013, provided that since the
date of such Registration Statement, our total issued and outstanding common shares has increased to 200,947,547 as of the
date of this annual report.
C.
Material contracts.
Attached as exhibits to this annual report are the contracts we consider to be both material and outside the ordinary
course of business during the two-year period immediately preceding the date of this annual report. We refer you to “Item 5.
Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Credit Facilities” and “Item 7. Major
Shareholders and Related Party Transactions—B. Related Party Transactions” for a discussion of these agreements.
Other than as set forth above, there were no material contracts, other than contracts entered into in the ordinary
course of business, to which we were a party during the two year period immediately preceding the date of this annual report.
D.
Exchange controls.
Under Marshall Islands law, there are currently no restrictions on the export or import of capital, including foreign
exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of
our common shares.
E.
Taxation
United States Federal Income Tax Considerations
The following are the material United States federal income tax consequences to us of our activities and to United
States Holders and Non-United States Holders, each as defined below, of the ownership of common shares. The following
discussion of United States federal income tax matters is based on the United States Internal Revenue Code of 1986, or the
Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the United States
Department of the Treasury, or the Treasury Regulations, all of which are subject to change, possibly with retroactive effect.
The discussion below is based, in part, on the description of our business in this Report and assumes that we conduct our
business as described herein. References in the following discussion to the “Company,” “we,” “our” and “us” are to Scorpio
Tankers Inc. and its subsidiaries on a consolidated basis.
United States Federal Income Taxation of Operating Income: In General
We earn and anticipate that we will continue to earn substantially all our income from the hiring or leasing of
vessels for use on a time charter basis, from participation in a pool or from the performance of services directly related to
those uses, all of which we refer to as “shipping income.”
Unless exempt from United States federal income taxation under the rules of Section 883 of the Code, or Section
883, as discussed below, a foreign corporation such as us will be subject to United States federal income taxation on its
“shipping income” that is treated as derived from sources within the United States, which we refer to as “United States source
shipping income.” For United States federal income tax purposes, “United States source shipping income” includes 50% of
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shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United
States.
Shipping income attributable to transportation exclusively between non-United States ports will be considered to be
100% derived from sources entirely outside the United States. Shipping income derived from sources outside the United
States will not be subject to any United States federal income tax.
Shipping income attributable to transportation exclusively between United States ports is considered to be 100%
derived from United States sources. However, we are not permitted by United States law to engage in the transportation of
cargoes that produces 100% United States source shipping income.
Unless exempt from tax under Section 883, our gross United States source shipping income would be subject to a
4% tax imposed without allowance for deductions, as described more fully below.
Exemption of Operating Income from United States Federal Income Taxation
Under Section 883 and the Treasury Regulations thereunder, a foreign corporation will be exempt from United
States federal income taxation on its United States source shipping income if:
(1)
it is organized in a “qualified foreign country,” which is one that grants an “equivalent exemption” from tax
to corporations organized in the United States in respect of each category of shipping income for which exemption is being
claimed under Section 883; and
(2)
one of the following tests is met:
more than 50% of the value of its shares is beneficially owned, directly or indirectly, by
“qualified shareholders,” which as defined includes individuals who are “residents” of a qualified foreign country, which we
refer to as the “50% Ownership Test”; or
(A)
foreign country or in the United States, to which we refer as the “Publicly-Traded Test”.
(B)
its shares are “primarily and regularly traded on an established securities market” in a qualified
The Republic of The Marshall Islands, the jurisdiction where we and our ship-owning subsidiaries are incorporated,
has been officially recognized by the United States Internal Revenue Service, or the IRS, as a qualified foreign country that
grants the requisite “equivalent exemption” from tax in respect of each category of shipping income we earn and currently
expect to earn in the future. Therefore, we will be exempt from United States federal income taxation with respect to our
United States source shipping income if we satisfy either the 50% Ownership Test or the Publicly-Traded Test.
For our 2013 taxable tax year, we intend to take the position that we satisfy the Publicly-Traded Test and we
anticipate that we will continue to satisfy the Publicly-Traded Test for future taxable years. However, as discussed below,
this is a factual determination made on an annual basis. We do not currently anticipate a circumstance under which we would
be able to satisfy the 50% Ownership Test.
Publicly-Traded Test
The Treasury Regulations under Section 883 provide, in pertinent part, that shares of a foreign corporation will be
considered to be “primarily traded” on an established securities market in a country if the number of shares of each class of
stock that are traded during any taxable year on all established securities markets in that country exceeds the number of
shares in each such class that are traded during that year on established securities markets in any other single country. Our
common shares, which constitute our sole class of issued and outstanding stock, are “primarily traded” on the New York
Stock Exchange, or the NYSE.
Under the Treasury Regulations, our common shares will be considered to be “regularly traded” on an established
securities market if one or more classes of our stock representing more than 50% of our outstanding stock, by both total
combined voting power of all classes of stock entitled to vote and total value, are listed on such market, to which we refer as
the “Listing Threshold.” Since our common shares are listed on the NYSE, we expect to satisfy the Listing Threshold.
93
It is further required that with respect to each class of stock relied upon to meet the Listing Threshold, (i) such class
of stock is traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or one-sixth of
the days in a short taxable year, or the “Trading Frequency Test”; and (ii) the aggregate number of shares of such class of
stock traded on such market during the taxable year is at least 10% of the average number of shares of such class of stock
outstanding during such year or as appropriately adjusted in the case of a short taxable year, or the “Trading Volume Test.”
We currently satisfy and anticipate that it will continue to satisfy the Trading Frequency Test and Trading Volume Test. Even
if this were not the case, the Treasury Regulations provide that the Trading Frequency Test and Trading Volume Tests will be
deemed satisfied if, as is the case with our common shares, such class of stock is traded on an established securities market in
the United States and such class of stock is regularly quoted by dealers making a market in such stock.
Notwithstanding the foregoing, the Treasury Regulations provide, in pertinent part, that a class of stock will not be
considered to be “regularly traded” on an established securities market for any taxable year during which 50% or more of the
vote and value of the outstanding shares of such class are owned, actually or constructively under specified attribution rules,
on more than half the days during the taxable year by persons who each own 5% or more of the vote and value of such class
of outstanding shares, to which we refer as the “5% Override Rule.”
For purposes of being able to determine the persons who actually or constructively own 5% or more of the vote and
value of our common shares, or “5% Shareholders,” the Treasury Regulations permit us to rely on those persons that are
identified on Schedule 13G and Schedule 13D filings with the United States Securities and Exchange Commission, or the
SEC, as owning 5% or more of our common shares. The Treasury Regulations further provide that an investment company
which is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% Shareholder for such
purposes.
In the event the 5% Override Rule is triggered, the Treasury Regulations provide that the 5% Override Rule will
nevertheless not apply if we can establish that within the group of 5% Shareholders, there are sufficient qualified
shareholders for purposes of Section 883 to preclude non-qualified shareholders in such group from owning 50% or more of
our common shares for more than half the number of days during the taxable year. In order to benefit from this exception to
the 5% Override Rule, we must satisfy certain substantiation requirements in regards to the identity of its 5% Shareholders.
We believe that we currently satisfy the Publicly-Traded Test and intend to take this position on our United States
federal income tax return for the 2013 taxable year. However, there are factual circumstances beyond our control that could
cause us to lose the benefit of the Section 883 exemption. For example, if we trigger the 5% Override Rule for any future
taxable year, there is no assurance that we will have sufficient qualified 5% Shareholders to preclude nonqualified 5%
Shareholders from owning 50% or more of our common shares for more than half the number of days during such taxable
year, or that we will be able to satisfy the substantiation requirements in regards to our 5% Shareholders.
United States Federal Income Taxation In Absence of Section 883 Exemption
If the benefits of Section 883 are unavailable, our United States source shipping income would be subject to a 4%
tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, which we refer to as the “4%
gross basis tax regime,” to the extent that such income is not considered to be “effectively connected” with the conduct of a
United States trade or business, as described below. Since under the sourcing rules described above, no more than 50% of our
shipping income would be treated as being United States source shipping income, the maximum effective rate of United
States federal income tax on our shipping income would never exceed 2% under the 4% gross basis tax regime.
To the extent our United States source shipping income is considered to be “effectively connected” with the conduct
of a United States trade or business, as described below, any such “effectively connected” United States source shipping
income, net of applicable deductions, would be subject to United States federal income tax, currently imposed at rates of up
to 35%. In addition, we would generally be subject to the 30% “branch profits” tax on earnings effectively connected with the
conduct of such trade or business, as determined after allowance for certain adjustments, and on certain interest paid or
deemed paid attributable to the conduct of our United States trade or business.
Our United States source shipping income would be considered “effectively connected” with the conduct of a
United States trade or business only if:
(cid:120) we have, or are considered to have, a fixed place of business in the United States involved in the earning of
United States source shipping income; and
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(cid:120)
substantially all of our United States source shipping income is attributable to regularly scheduled
transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at
regular intervals between the same points for voyages that begin or end in the United States.
We do not currently have, intend to have, or permit circumstances that would result in having, any vessel sailing to
or from the United States on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping
operations and other activities, it is anticipated that none of our United States source shipping income will be “effectively
connected” with the conduct of a United States trade or business.
United States Federal Income Taxation of Gain on Sale of Vessels
If we qualify for exemption from tax under Section 883 in respect of the shipping income derived from the
international operation of our vessels, then gain from the sale of any such vessel should likewise be exempt from United
States federal income tax under Section 883. If, however, our shipping income from such vessels does not for whatever
reason qualify for exemption under Section 883, then any gain on the sale of a vessel will be subject to United States federal
income tax if such sale occurs in the United States. To the extent possible, we intend to structure the sales of our vessels so
that the gain therefrom is not subject to United States federal income tax. However, there is no assurance we will be able to
do so.
United States Federal Income Taxation of United States Holders
The following is a discussion of the material United States federal income tax considerations relevant to an
investment decision by a United States Holder, as defined below, with respect to our common shares. This discussion does
not purport to deal with the tax consequences of owning common shares to all categories of investors, some of which may be
subject to special rules. This discussion only addresses considerations relevant to those United States Holders who hold the
common shares as capital assets, that is, generally for investment purposes. You are encouraged to consult your own tax
advisors concerning the overall tax consequences arising in your own particular situation under United States federal, state,
local or foreign law of the ownership of common shares.
As used herein, the term “United States Holder” means a beneficial owner of common shares that is an individual
United States citizen or resident, a United States corporation or other United States entity taxable as a corporation, an estate
the income of which is subject to United States federal income taxation regardless of its source, or a trust if a court within the
United States is able to exercise primary jurisdiction over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.
If a partnership holds our common shares, the tax treatment of a partner will generally depend upon the status of the
partner and upon the activities of the partnership. If you are a partner in a partnership holding common shares, you are
encouraged to consult your tax advisor.
Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect
to our common shares to a United States Holder will generally constitute dividends to the extent of our current or
accumulated earnings and profits, as determined under United States federal income tax principles. Distributions in excess of
such earnings and profits will be treated first as a nontaxable return of capital to the extent of the United States Holder’s tax
basis in his common shares on a dollar-for-dollar basis and thereafter as capital gain. Because we are not a United States
corporation, United States Holders that are corporations will not be entitled to claim a dividends received deduction with
respect to any distributions they receive from us. Dividends paid with respect to our common shares will generally be treated
as “passive category income” for purposes of computing allowable foreign tax credits for United States foreign tax credit
purposes.
Dividends paid on our common shares to a United States Holder who is an individual, trust or estate (a “United
States Non-Corporate Holder”) will generally be treated as “qualified dividend income” that is taxable to such United States
Non-Corporate Holder at preferential tax rates provided that (1) the common shares are readily tradable on an established
securities market in the United States (such as the NYSE, on which our common shares are traded); (2) we are not a passive
foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year
(which, as discussed below, we believe we have not been, we believe we are not and do not anticipate being in the future); (3)
the United States Non-Corporate Holder has owned the common shares for more than 60 days in the 121-day period
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beginning 60 days before the date on which the common shares become ex-dividend; and (4) the United States Non-
Corporate Holder is not under an obligation to make related payments with respect to positions in substantially similar or
related property. Any distributions out of earnings and profits we pay which are not eligible for these preferential rates will
be taxed as ordinary income to a United States Non-Corporate Holder.
Special rules may apply to any “extraordinary dividend”—generally, a dividend in an amount which is equal to or in
excess of 10% of a shareholder’s adjusted tax basis in his common shares—paid by us. If we pay an “extraordinary dividend”
on our common shares that is treated as “qualified dividend income,” then any loss derived by a United States Non-Corporate
Holder from the sale or exchange of such common shares will be treated as long-term capital loss to the extent of such
dividend.
Sale, Exchange or Other Disposition of Common Shares
Assuming we do not constitute a passive foreign investment company for any taxable year, a United States Holder
generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common shares in an amount
equal to the difference between the amount realized by the United States Holder from such sale, exchange or other 94
disposition and the United States Holder’s tax basis in such shares. Such gain or loss will be treated as long-term capital gain
or loss if the United States Holder’s holding period is greater than one year at the time of the sale, exchange or other
disposition. Such capital gain or loss will generally be treated as United States source income or loss, as applicable, for
United States foreign tax credit purposes. Long-term capital gains of United States Non-Corporate Holders are currently
eligible for reduced rates of taxation. A United States Holder’s ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company Status and Significant Tax Consequences
Special United States federal income tax rules apply to a United States Holder that holds shares in a foreign
corporation classified as a “passive foreign investment company”, or a PFIC, for United States federal income tax purposes.
In general, we will be treated as a PFIC with respect to a United States Holder if, for any taxable year in which such Holder
holds our common shares, either:
(cid:120)
(cid:120)
at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest,
capital gains and rents derived other than in the active conduct of a rental business); or
at least 50% of the average value of our assets during such taxable year produce, or are held for the production
of, passive income.
For purposes of determining whether we are a PFIC, we will be treated as earning and owning our proportionate
share of the income and assets, respectively, of any of our subsidiary corporations in which we own at least 25% of the value
of the subsidiary’s stock. Income earned, or deemed earned, by us in connection with the performance of services would not
constitute passive income. By contrast, rental income would generally constitute “passive income” unless we were treated
under specific rules as deriving our rental income in the active conduct of a trade or business.
Based on our current operations and future projections, we do not believe that we have been, are, nor do we expect
to become, a passive foreign investment company with respect to any taxable year. Although there is no legal authority
directly on point, our belief is based principally on the position that, for purposes of determining whether we are a passive
foreign investment company, the gross income we derive or are deemed to derive from the time chartering and voyage
chartering activities of our wholly-owned subsidiaries should constitute services income, rather than rental income.
Accordingly, such income should not constitute passive income, and the assets that we own and operate in connection with
the production of such income, in particular, the vessels, should not constitute assets that produce or are held for the
production of passive income for purposes of determining whether we are a PFIC. Therefore, based on our current operations
and future projections, we should not be treated as a PFIC with respect to any taxable year. There is substantial legal
authority supporting this position, consisting of case law and IRS pronouncements concerning the characterization of income
derived from time charters and voyage charters as services income for other tax purposes. However, there is also authority
that characterizes time charter income as rental income rather than services income for other tax purposes. It should be noted
that in the absence of any legal authority specifically relating to the statutory provisions governing PFICs, the IRS or a court
could disagree with our position. Furthermore, although we intend to conduct our affairs in a manner to avoid being classified
as a PFIC with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the
future.
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As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a United States Holder
would be subject to different United States federal income taxation rules depending on whether the United States Holder
makes an election to treat us as a “Qualified Electing Fund,” which election we refer to as a “QEF election.” As an alternative
to making a QEF election, a United States Holder should be able to make a “mark-to-market” election with respect to our
common shares, as discussed below. In addition, if we were to be treated as a PFIC for any taxable year ending on or after
December 31, 2013, a United States Holder would be required to file an annual report with the IRS for that year with respect
to such Holder’s common shares.
Taxation of United States Holders Making a Timely QEF Election
If a United States Holder makes a timely QEF election, which United States Holder we refer to as an “Electing
Holder,” the Electing Holder must report for United States federal income tax purposes his pro rata share of our ordinary
earnings and net capital gain, if any, for each of our taxable years during which we are a PFIC that ends with or within the
taxable year of the Electing Holder, regardless of whether distributions were received from us by the Electing Holder. No
portion of any such inclusions of ordinary earnings will be treated as “qualified dividend income.” Net capital gain inclusions
of United States Non-Corporate Holders would be eligible for preferential capital gain tax rates. The Electing Holder’s
adjusted tax basis in the common shares will be increased to reflect taxed but undistributed earnings and profits. Distributions
of earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the
common shares and will not be taxed again once distributed. An Electing Holder would not, however, be entitled to a
deduction for its pro rata share of any losses that we incur with respect to any taxable year. An Electing Holder would
generally recognize capital gain or loss on the sale, exchange or other disposition of our common shares. A United States
Holder would make a timely QEF election for our shares by filing one copy of IRS Form 8621 with his United States federal
income tax return for the first year in which he held such shares when we were a PFIC. If we were to be treated as a PFIC for
any taxable year, we would provide each United States Holder with all necessary information in order to make the QEF
election described above.
Taxation of United States Holders Making a “Mark-to-Market” Election
Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate will be the case, our
common shares are treated as “marketable stock,” a United States Holder would be allowed to make a “mark-to-market”
election with respect to our common shares, provided the United States Holder completes and files IRS Form 8621 in
accordance with the relevant instructions and related Treasury Regulations. If that election is made, the United States Holder
generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the common
shares at the end of the taxable year over such Holder’s adjusted tax basis in the common shares. The United States Holder
would also be permitted an ordinary loss in respect of the excess, if any, of the United States Holder’s adjusted tax basis in
the common shares over its fair market value at the end of the taxable year, but only to the extent of the net amount
previously included in income as a result of the mark-to-market election. A United States Holder’s tax basis in his common
shares would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition
of our common shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition
of the common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market
gains previously included by the United States Holder.
Taxation of United States Holders Not Making a Timely QEF or Mark-to-Market Election
Finally, if we were to be treated as a PFIC for any taxable year, a United States Holder who does not make either a
QEF election or a “mark-to-market” election for that year, whom we refer to as a “Non-Electing Holder,” would be subject to
special rules with respect to (1) any excess distribution (i.e., the portion of any distributions received by the Non-Electing
Holder on the common shares in a taxable year in excess of 125% of the average annual distributions received by the Non-
Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder’s holding period for the common
shares), and (2) any gain realized on the sale, exchange or other disposition of our common shares. Under these special rules:
(cid:120)
(cid:120)
(cid:120)
the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s aggregate holding
period for the common shares;
the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we
were a PFIC, would be taxed as ordinary income and would not be “qualified dividend income”; and
the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect
for the applicable class of taxpayer for that year, and an interest charge for the deemed tax deferral benefit
would be imposed with respect to the resulting tax attributable to each such other taxable year.
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United States Federal Income Taxation of “Non-United States Holders”
A beneficial owner of common shares (other than a partnership) that is not a United States Holder is referred to
herein as a “Non-United States Holder.”
If a partnership holds common shares, the tax treatment of a partner will generally depend upon the status of the
partner and upon the activities of the partnership. If you are a partner in a partnership holding common shares, you are
encouraged to consult your tax advisor.
Dividends on Common Stock
A Non-United States Holder generally will not be subject to United States federal income tax or withholding tax on
dividends received from us with respect to his common shares, unless that income is effectively connected with the Non-
United States Holder’s conduct of a trade or business in the United States. If the Non-United States Holder is entitled to the
benefits of a United States income tax treaty with respect to those dividends, that income is subject to United Stated federal
income tax only if it is attributable to a permanent establishment maintained by the Non-United States Holder in the United
States.
Sale, Exchange or Other Disposition of Common Shares
Non-United States Holders generally will not be subject to United States federal income tax or withholding tax on
any gain realized upon the sale, exchange or other disposition of our common shares, unless:
(cid:120)
(cid:120)
the gain is effectively connected with the Non-United States Holder’s conduct of a trade or business in the
United States (and, if the Non-United States Holder is entitled to the benefits of a United States income tax
treaty with respect to that gain, that gain is attributable to a permanent establishment maintained by the Non-
United States Holder in the United States); or
the Non-United States Holder is an individual who is present in the United States for 183 days or more during
the taxable year of disposition and other conditions are met.
If the Non-United States Holder is engaged in a United States trade or business for United States federal income tax
purposes, dividends on the common shares, and gains from the sale, exchange or other disposition of such shares, that are
effectively connected with the conduct of that trade or business will generally be subject to regular United States federal
income tax in the same manner as discussed in the previous section relating to the taxation of United States Holders. In
addition, if you are a corporate Non-United States Holder, your earnings and profits that are attributable to the effectively
connected income, subject to certain adjustments, may be subject to an additional “branch profits” tax at a rate of 30%, or at a
lower rate as may be specified by an applicable United States income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to
information reporting requirements if you are a non-corporate United States Holder. Such payments or distributions may also
be subject to backup withholding if you are a non-corporate United States Holder and you:
(cid:120)
(cid:120)
(cid:120)
fail to provide an accurate taxpayer identification number;
are notified by the IRS that you have failed to report all interest or dividends required to be shown on your
United States federal income tax returns; or
in certain circumstances, fail to comply with applicable certification requirements.
Non-United States Holders may be required to establish their exemption from information reporting and backup
withholding by certifying their status on an appropriate IRS Form W-8.
If you are a Non-United States Holder and you sell your common shares to or through a United States office of a
broker, the payment of the proceeds is subject to both United States backup withholding and information reporting unless you
certify that you are a non-United States person, under penalties of perjury, or you otherwise establish an exemption. If you
sell your common shares through a non-United States office of a non-United States broker and the sales proceeds are paid to
you outside the United States, then information reporting and backup withholding generally will not apply to that payment.
98
However, United States information reporting requirements, but not backup withholding, will apply to a payment of sales
proceeds, even if that payment is made to you outside the United States, if you sell your common shares through a non-
United States office of a broker that is a United States person or has some other contacts with the United States. Such
information reporting requirements will not apply, however, if the broker has documentary evidence in its records that you
are a non-United States person and certain other conditions are met, or you otherwise establish an exemption.
Backup withholding is not an additional tax. Rather, you generally may obtain a refund of any amounts withheld under
backup withholding rules that exceed your United States federal income tax liability by filing a refund claim with the IRS.
Pursuant to recently enacted legislation, individuals who are United States Holders (and to the extent specified in
applicable Treasury Regulations, certain individuals who are Non- United States Holders and certain United States entities)
who hold “specified foreign financial assets” (as defined in Section 6038D of the Code) are required to file IRS Form 8938
with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at
any time during the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by
applicable Treasury regulations). Specified foreign financial assets would include, among other assets, our common shares,
unless the shares are held through an account maintained with a United States financial institution. Substantial penalties apply
to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful
neglect. Additionally, in the event an individual United States Holder (and to the extent specified in applicable Treasury
Regulations, an individual Non- United States Holder or a United States entity) that is required to file IRS Form 8938 does
not file such form, the statute of limitations on the assessment and collection of United States federal income taxes of such
holder for the related tax year may not close until three years after the date that the required IRS Form 8938 is filed. United
States Holders (including United States entities) and Non- United States Holders are encouraged consult their own tax
advisors regarding their reporting obligations under this legislation.
F.
Dividends and paying agents.
Not applicable.
G.
Statement by experts.
Not applicable.
H.
Documents on display.
We file reports and other information with the SEC. These materials, including this annual report and the
accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the Commission at 100
F Street, N.E. Washington, D.C. 20549, or from the SEC’s website http://www.sec.gov. You may obtain information on the
operation of the public reference room by calling 1 (800) SEC-0330, and you may obtain copies at prescribed rates.
Shareholders may also request a copy of our filings at no cost, by writing or telephoning us at the following address:
Scorpio Tankers Inc., 9, Boulevard Charles III Monaco 98000, +377-9898-5716.
I.
Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to the impact of interest rate changes primarily through our unhedged variable-rate borrowings.
Significant increases in interest rates could adversely affect our operating margins, results of operations and our ability to
service our debt. From time to time, we will use interest rate swaps to reduce our exposure to market risk from changes in
interest rates. The principal objective of these contracts is to minimize the risks and costs associated with our variable-rate
debt and are not for speculative or trading purposes. We have six interest rate swaps which we entered into in August 2011
and went into effect on July 1, 2012 for an aggregate notional amount of $75.0 million, which was reduced to $66.0 million
in September 2012 and further reduced to $45.0 million in March 2014. See Note 10 of the consolidated financial statements
for further information. The fair market value of our interest rate swaps was a liability of $0.9 million and $1.4 million at
December 31, 2013 and 2012, respectively.
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Based on the floating rate debt at December 31, 2013, a one-percentage point increase in the floating interest rate
would increase interest expense by $1.6 million per year. The following table presents the due dates for the principal
payments on our fixed and floating rate debt:
As of December 31,
In thousands of U.S. dollars
Principal payments floating rate debt (unhedged) .............................. $
Principal payments fixed rate debt (hedged) ......................................
Total principal payments on outstanding debt ................................... $
Spot Market Rate Risk
2014
2015-2016
2017-2018
7,169 $
4,952
12,121 $
21,619 $
2,623
24,242 $
Thereafter
79,371 $ 53,848
— —
79,371 $ 53,848
The cyclical nature of the tanker industry causes significant increases or decreases in the revenue that we earn from
our vessels, particularly those vessels that operate in the spot market or participate in pools that are concentrated in the spot
market such as the Scorpio Group Pools. We currently do not have any vessels on time charter contracts. Additionally, we
have the ability to remove our vessels from the pools on relatively short notice if attractive time charter opportunities arise. A
$1,000 per day increase or decrease in spot rates for all of our vessel classes would have increased or decreased our operating
income / (loss) by $14.1 million and $7.2 million for the years ended December 31, 2013 and 2012, respectively.
Foreign Exchange Rate Risk
Our primary economic environment is the international shipping market. This market utilizes the US dollar as its
functional currency. Consequently, virtually all of our revenues and the majority of our operating expenses are in US dollars.
However, we incur some of our combined expenses in other currencies, particularly the Euro. The amount and frequency of
some of these expenses (such as vessel repairs, supplies and stores) may fluctuate from period to period. Depreciation in the
value of the US dollar relative to other currencies will increase the US dollar cost of us paying such expenses. The portion of
our business conducted in other currencies could increase in the future, which could expand our exposure to losses arising
from currency fluctuations.
There is a risk that currency fluctuations will have a negative effect on our cash flows. We have not entered into any
hedging contracts to protect against currency fluctuations. However, we have some ability to shift the purchase of goods and
services from one country to another and, thus, from one currency to another, on relatively short notice. We may seek to
hedge this currency fluctuation risk in the future.
Bunker Price Risk
Our operating results are affected by movement in the price of fuel oil consumed by the vessels – known in the
industry as bunkers. The price and supply of fuel is unpredictable and fluctuates based on events outside our control,
including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers,
war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Further, fuel
may become much more expensive in the future, which may reduce the profitability. We do not hedge our exposure to bunker
price risk.
Inflation
We do not expect inflation to be a significant risk to direct expenses in the current and foreseeable economic
environment.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
100
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PART II
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
A.
Disclosure Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed
in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed,
summarized and reported within time periods specified in the SEC’s rules and forms, and that such information is
accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosures. Our controls and procedures are designed to provide
reasonable assurance of achieving their objectives.
We carried out an evaluation under the supervision, and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15e under the Securities Act of 1934) as of
December 31, 2013. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of December 31, 2013 to provide reasonable assurance that (1)
information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) that such information is
accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosures.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
B.
Management’s Annual Report on Internal Control Over Financial Reporting.
In accordance with Rule 13a-15(f) of the Securities Exchange Act of 1934, the management of Scorpio Tankers Inc.
and its subsidiaries (the “Company”) is responsible for the establishment and maintenance of adequate internal controls over
financial reporting for the Company. Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. The Company’s system of internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on
the financial statements. Management has performed an assessment of the effectiveness of the Company’s internal controls
over financial reporting as of December 31, 2013 based on the provisions of Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 1992. Based on our assessment,
management determined that the Company’s internal controls over financial reporting was effective as of December 31, 2013
based on the criteria in Internal Control—Integrated Framework issued by COSO (1992).
101
The Company’s internal control over financial reporting, at December 31, 2013, has been audited by
PricewaterhouseCoopers Audit, an independent registered public accounting firm, who also audited the Company’s
consolidated financial statements for that year. Their audit report on the effectiveness of internal control over financial
reporting is presented in Item 18 Financial Statements.
C.
Attestation Report of the Registered Public Accounting Firm.
The attestation report of the Registered Public Accounting Firm is presented on page F-2 of the Financial Statements
filed as part of this annual report.
D.
Changes in Internal Control Over Financial Reporting.
None
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that Mr. Ademaro Lanzara, who serves on the Audit Committee, qualifies as
an “audit committee financial expert” and that he is “independent” in accordance with SEC rules.
ITEM 16B. CODE OF ETHICS
We have adopted a code of ethics applicable to officers, directors and employees, which complies with applicable
guidelines issued by the SEC. Our code of ethics is filed as an exhibit to this annual report and can be found on our website at
www.scorpiotankers.com. We will also provide a hard copy of our code of ethics free of charge upon written request to
Scorpio Tankers Inc., 9 Boulevard Charles III, Monaco, 98000.
ITEM 16C. PRINCIPAL ACCOUNTING FEES AND SERVICES
A.
Audit Fees
Our principal accountant for fiscal year ended December 31, 2013 was PricewaterhouseCoopers Audit (Marseille,
France) and the audit fee for that period was $428,000. Our principal accountant for fiscal years ended December 31, 2012
and 2011 was Deloitte LLP (London, United Kingdom), and the audit fees for those periods were $434,247 and $380,174,
respectively.
During 2013, our principal accountant, PricewaterhouseCoopers Audit, provided services related to follow-on
offerings that were completed in May 2013 and August 2013 and two transactions related to issuance of shares for the
acquisitions of vessels. The fees for these services were $38,500, $39,328 and $30,000, respectively.
During 2012, our principal accountant, Deloitte LLP, provided services related to an SEC comment letter review and
follow-on offerings that were completed in April and December 2012. The fees for these services were $38,743, $80,675 and
$97,128, respectively. During 2011, our principal accountant, Deloitte LLP provided services related to our F-3 shelf
registration and follow-on offerings that were completed on May 10, 2011, May 18, 2011 and December 6, 2011,
respectively. The fees for these services were $28,982, $72,896 and $86,206, respectively.
During 2013, Deloitte LLP, provided services related to follow-on offerings that were completed in January, March,
May and July 2013. The fees for these services were $47,049, $76,160, $60,284 and $23,274, respectively.
B.
Audit-Related Fees
Our principal accountant for the fiscal year ended December 31, 2013, PricewaterhouseCoopers Audit, provided
services related to Sarbanes-Oxley compliance for the fiscal year ended December 31, 2012. The fees for these services
during that year were $150,900.
C.
Tax Fees
None.
102
D.
All Other Fees
None
E.
Audit Committee’s Pre-Approval Policies and Procedures
Our Audit Committee pre-approves all audit, audit-related and non-audit services not prohibited by law to be
performed by our independent auditors and associated fees prior to the engagement of the independent auditor with respect to
such services.
F.
Audit Work Performed by Other Than Principal Accountant if Greater Than 50%
Not applicable.
ITEM 16D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES
On July 9, 2010, the board of directors authorized a share buyback program of $20 million. We repurchase these
shares in the open market at the time and prices that we consider to be appropriate. During the year ended December 31,
2013, no shares were purchased under the program. As of the date of this report, 1,170,987 shares have been purchased under
the plan at an average price of $6.7793 per share.
ITEM 16F.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
On April 2, 2013, our board of directors, upon recommendation of our audit committee, appointed
PricewaterhouseCoopers Audit as our independent auditor for the fiscal year ending December 31, 2013, replacing Deloitte
LLP, or Deloitte. On May 30, 2013, at our annual general meeting of shareholders, our shareholders passed a resolution
ratifying such appointment. The Company dismissed Deloitte as its independent auditor effective April 2, 2013.
The information required to be disclosed pursuant to this Item 16F was previously reported on Form 6-K, filed with
the SEC on April 8, 2013.
ITEM 16G. CORPORATE GOVERNANCE
Pursuant to an exception for foreign private issuers, we, as a Marshall Islands company, are not required to comply
with the corporate governance practices followed by U.S. companies under the NYSE listing standards. We believe that our
established practices in the area of corporate governance are in line with the spirit of the NYSE standards and provide
adequate protection to our shareholders. In this respect, we have voluntarily adopted NYSE required practices, such as (i)
having a majority of independent directors, (ii) establishing audit, compensation and nominating committees and (iii)
adopting a Code of Ethics.
There are two significant differences between our corporate governance practices and the practices required by the
NYSE. The NYSE requires that non-management directors meet regularly in executive sessions without management. The
NYSE also requires that all independent directors meet in an executive session at least once a year. The Marshall Islands law
and our bylaws do not require our non-management directors to regularly hold executive sessions without management.
During 2012 and through the date of this annual report, our non-management directors met in executive session four times.
The NYSE requires companies to adopt and disclose corporate governance guidelines. The guidelines must address, among
other things: director qualification standards, director responsibilities, director access to management and independent
advisers, director compensation, director orientation and continuing education, management succession and an annual
performance evaluation. We are not required to adopt such guidelines under Marshall Islands law and we have not adopted
such guidelines.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
103
PART III
ITEM 17. FINANCIAL STATEMENTS
See “Item 18. Financial Statements.”
ITEM 18. FINANCIAL STATEMENTS
The financial information required by this Item is set forth on pages F-1 to F-52 and is filed as part of this annual
report.
ITEM 19. EXHIBITS
Exhibit Number Description
1.1
1.2
2.1
2.3
2.4
4.1
4.2
4.3
Amended and Restated Articles of Incorporation of the Company (1)
Amended and Restated Bylaws of the Company (3)
Form of Stock Certificate (1)
Form of Senior Debt Securities Indenture (5)
Form of Subordinated Debt Securities Indenture (5)
Amended and Restated Loan Agreement for $150 Million Revolving Credit Facility, dated July 12, 2011 (6)
Letter Agreement to July 12, 2011 Amended and Restated Loan Agreement, dated September 22, 2011(6)
First Amendatory Agreement to July 12, 2011 Amended and Restated Loan Agreement, dated December 22,
2011 (6)
2010 Equity Incentive Plan (3)
2013 Amended and Restated Equity Incentive Plan
Administrative Services Agreement between the Company and Liberty Holding Company Ltd. (2)
Master Agreement between the Company, SSM and SCM dated January 24, 2013 (7)
STI Spirit Credit Facility, dated March 9, 2011 (4)
Letter Agreement to STI Spirit Credit Facility, dated September 28, 2011 (6)
First Amendatory Agreement to STI Spirit Credit Facility, dated December 30, 2011 (6)
2011 Credit Facility, dated May 3, 2011 (6)
Letter Agreement to 2011 Credit Facility, dated September 22, 2011 (6)
First Amendatory Agreement to 2011 Credit Facility, dated June 27, 2011 (6)
Second Amendatory Agreement to 2011 Credit Facility, dated December 22, 2011 (6)
Newbuilding Credit Facility, dated December 21, 2011 (6)
2013 Credit Facility, dated July 2, 2013
KEXIM Credit Facility, dated February 28, 2014
K-Sure Credit Facility, dated February 24, 2014
Subsidiaries of the Company
Code of Ethics (7)
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
8.1
11.1
11.2 Whistleblower Policy
11.3 Whistleblower Policy - Environmental
12.1
12.2
13.1
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers Audit
Consent of Independent Registered Public Accounting Firm, Deloitte LLP
Consent of Drewry Shipping Consultants, Ltd.
13.2
15.1
15.2
15.3
104
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Filed as an Exhibit to the Company’s Amended Registration Statement on Form F-1/A (Amendment No. 1) (File
No. 333-164940) on March 10, 2010.
Filed as an Exhibit to the Company’s Amended Registration Statement on Form F-1/A (Amendment No. 2) (File
No. 333-164940) on March 18, 2010.
Filed as an Exhibit to the Company’s Annual Report filed on Form 20-F on June 29, 2010.
Filed as an Exhibit to the Company’s Annual Report filed on Form 20-F on April 21, 2011.
Filed as an Exhibit to the Company’s Registration Statement on Form F-3 (File No. 333-173929) on May 4, 2011.
Filed as an Exhibit to the Company’s Annual Report on Form 20-F on April 13, 2012, as amended.
Filed as an Exhibit to the Company’s Annual Report on Form 20-F on March 29, 2013.
105
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and
authorized the undersigned to sign this annual report on its behalf.
Dated March 31, 2014
Scorpio Tankers Inc.
(Registrant)
/s/ Emanuele Lauro
Emanuele Lauro
Chief Executive Officer
106
SCORPIO TANKERS INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firms ................................................................................................ F-2
Consolidated Balance Sheets as of December 31, 2013 and December 31, 2012 ................................................................ F-4
Consolidated Statements of Income or Loss for the years ended December 31, 2013, 2012 and 2011 ................................ F-5
Consolidated Statements of Comprehensive Income or Loss for the years ended December 31, 2013, 2012 and 2011 ...... F-6
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2013, 2012 and 2011 .... F-7
Consolidated Statements of Cash Flow for the years ended December 31, 2013, 2012 and 2011 ....................................... F-8
Notes to Consolidated Financial Statements ......................................................................................................................... F-9
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Scorpio Tankers Inc.
In our opinion, the accompanying consolidated balance sheet and the related consolidated statement of income or loss,
statement of comprehensive income or loss, statement of changes in shareholders’ equity and cashflow statement present
fairly, in all material respects, the financial position of Scorpio Tankers Inc. and its subsidiaries at December 31, 2013, and
the results of their operations and their cash flows for the year ended December 31, 2013 in conformity with International
Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013 based on
criteria established in Internal Control - Integrated Framework 1992 issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on these financial statements and on the Company’s internal control over financial
reporting based on our integrated audit. We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States) and International Standards on Auditing. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement
and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the
financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers Audit
Monaco, Principality of Monaco
March 31, 2014
F-2
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Scorpio Tankers Inc.
Majuro, Marshall Island
We have audited the accompanying consolidated balance sheet of Scorpio Tankers Inc. and subsidiaries (the “Company”) as
of December 31, 2012 and the related consolidated statements of profit or loss, consolidated statements of comprehensive
loss or income, consolidated statements of changes in shareholders’ equity, and consolidated cash flow statements for the
years ended December 31, 2012 and December 31, 2011. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Scorpio
Tankers Inc. and subsidiaries as of December 31, 2012 and the results of their operations and their cash flows for years ended
December 31, 2012 and December 31, 2011, in conformity with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
/s/ DELOITTE LLP
London, United Kingdom
March 28, 2013
F-3
Notes
As of
December 31, 2013
December 31, 2012
Scorpio Tankers Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2013 and 2012
In thousands of U.S. dollars
Assets
Current assets
Cash and cash equivalents ...............................................................
Accounts receivable .........................................................................
Prepaid expenses and other current assets .......................................
Inventories .......................................................................................
Vessels held for sale ........................................................................
Total current assets ........................................................................
Non-current assets
Vessels and drydock ........................................................................
Vessels under construction ..............................................................
Other assets ......................................................................................
Investment in associate ....................................................................
Total non-current assets ................................................................
Total assets .....................................................................................
2 $
3
4
4
4
6
7
$
Current liabilities
Bank loans .......................................................................................
Accounts payable .............................................................................
Accrued expenses ............................................................................
Derivative financial instruments ......................................................
Bank loan related to vessels held for sale ........................................
Total current liabilities ..................................................................
Non-current liabilities
Bank loans .......................................................................................
Derivative financial instruments ......................................................
Total non-current liabilities ..........................................................
Total liabilities ................................................................................
9
8
10
9
9
10
78,845 $
72,542
2,277
2,857
82,649
239,170
530,270
649,526
17,907
209,803
1,407,506
1,646,676 $
10,453
20,696
7,251
689
21,397
60,486
135,279
188
135,467
195,953
Shareholders’ equity
Issued, authorized and fully paid in share capital:
Share capital .................................................................................
Additional paid in capital .............................................................
Treasury shares ................................................................................
Hedging reserve ...............................................................................
Accumulated deficit .........................................................................
Total shareholders’ equity ............................................................
Total liabilities and shareholders’ equity.....................................
12
12
10
$
1,999
1,536,945
(7,938)
(212)
(80,071)
1,450,723
1,646,676 $
The accompanying notes are an integral part of these consolidated financial statements.
F-4
87,165
36,438
956
2,169
—
126,728
395,412
50,251
889
—
446,552
573,280
7,475
11,387
3,057
844
—
22,763
134,984
743
135,727
158,490
650
519,493
(7,938)
(329)
(97,086)
414,790
573,280
Scorpio Tankers Inc. and Subsidiaries
Consolidated Statements of Income or Loss
For the years ended December 31, 2013, 2012 and 2011
In thousands of U.S. dollars except per share and share data
Revenue
Notes
2013
2012
2011
For the year ended December 31,
Vessel revenue ................................................................................. 14 $
207,580 $
115,381 $
82,110
Operating expenses
Vessel operating costs ......................................................................
Voyage expenses ..............................................................................
Charterhire ....................................................................................... 15
Impairment ....................................................................................... 5
Depreciation ..................................................................................... 4
General and administrative expenses ............................................... 16
Write down of vessels held for sale and loss from sales of vessels .. 4
Gain on sale of VLGCs .................................................................... 7
Total operating expenses ..................................................................
Operating income / (loss) ..................................................................
Other (expense) and income, net
Financial expenses ........................................................................... 17
Realized gain/(loss) on derivative financial instruments .................. 10
Unrealized gain/(loss) on derivative financial instruments .............. 10
Financial income ..............................................................................
Share of profit from associate .......................................................... 7
Other expenses, net ..........................................................................
Total other income/(expense), net ....................................................
Net income / (loss) .............................................................................
$
(40,204)
(4,846)
(115,543)
—
(23,595)
(25,788)
(21,187)
41,375
(189,788)
17,792
(30,353)
(21,744)
(43,701)
—
(14,818)
(11,536)
(10,404)
—
(132,556)
(17,175)
(2,705)
3
567
1,147
369
(158)
(777)
17,015 $
(8,512)
443
(1,231)
35
—
(97)
(9,362)
(26,537) $
(31,370)
(6,881)
(22,750)
(66,611)
(18,460)
(11,637)
—
—
(157,709)
(75,599)
(7,060)
—
—
51
—
(119)
(7,128)
(82,727)
Attributable to:
Equity holders of the parent .............................................................
$
17,015 $
(26,537) $
(82,727)
Earnings / (loss) per share
Basic ................................................................................................. 19 $
(2.88)
(2.88)
Diluted .............................................................................................. 19 $
Basic weighted average shares outstanding ..................................... 19 146,504,055 41,413,339 28,704,876
Diluted weighted average shares outstanding .................................. 19 148,339,378 41,413,339 28,704,876
(0.64) $
(0.64) $
0.12 $
0.11 $
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Scorpio Tankers Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income or Loss
For the years ended December 2013, 2012 and 2011
In thousands of U.S. dollars
Net income / (loss) ...............................................................................
Other comprehensive income / (loss):
Items that may be reclassified subsequently to profit or loss
Cash flow hedges
Notes
$
For the year ended December 31,
2013
17,015 $
2012
(26,537) $
2011
(82,727)
Unrealized gain/(loss) on derivative financial instruments ............ 10
Reclassification adjustment for derivative financial instruments
included in net loss ..................................................................... 10
Other comprehensive income / (loss) ................................................
117
(904)
—
117
1,276
372
(701)
—
(701)
Total comprehensive income / (loss) .................................................
$
17,132 $
(26,165) $
(83,428)
Attributable to:
Equity holders of the parent ...........................................................
$
17,132 $
(26,165) $
(83,428)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Scorpio Tankers Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31, 2013, 2012 and 2011
In thousands of U.S. dollars
except share data
Number of
shares
Share
outstanding capital
Additional
paid-in
capital
Treasury Merger Accumulated Hedging
reserve
reserve
shares
deficit
Balance as of January 1, 2011 ................... 24,634,913 $
Net loss for the period ...............................
Other comprehensive loss .........................
Net proceeds from follow on offerings ..... 13,900,000
Issuance of restricted stock .......................
290,000
Amortization of restricted stock ................
Purchase of treasury shares .......................
Transfer to/ (from) reserves ......................
249 $
— —
— —
139
3
— —
(479,519 ) —
— —
255,004
—
—
104,847
(3)
3,362
—
—
—
—
—
—
—
(2,851)
(2,647) $ 13,292 $
—
—
—
—
—
—
— (13,292)
(1,114) $ — $
(82,727) —
(701)
—
— —
— —
— —
— —
13,292 —
Total
264,784
(82,727)
(701)
104,986
—
3,362
(2,851)
—
Balance as of December 31, 2011 ........... 38,345,394 $
391 $
363,210 $ (5,498) $ — $
(70,549) $
(701) $
286,853
Balance as of January 1, 2012 ................... 38,345,394 $
Net loss for the period ...............................
Other comprehensive income ....................
Net proceeds from follow on offerings ..... 25,639,774
Issuance of restricted stock .......................
290,000
Amortization of restricted stock ................
Purchase of treasury shares .......................
391 $
— —
— —
256
3
— —
(447,322 ) —
363,210 $ (5,498) $ — $
—
—
—
—
—
—
—
—
152,796
(3)
3,490
—
—
—
—
—
—
(2,440)
(70,549) $
(701) $
(26,537) —
—
372
— —
— —
— —
— —
286,853
(26,537)
372
153,052
—
3,490
(2,440)
Balance as of December 31, 2012 ........... 63,827,846 $
650 $
519,493 $ (7,938) $ — $
(97,086) $
(329) $
414,790
650 $
Balance as of January 1, 2013 ................... 63,827,846 $
— —
Net income for the period..........................
Other comprehensive income ....................
— —
Net proceeds from follow on offerings ..... 118,828,578 1,188
Issuance of restricted stock .......................
90
— —
Amortization of restricted stock ................
— —
Dividends paid ...........................................
71
Shares issued for acquisition of vessels ....
8,999,998
7,135,080
519,493 $ (7,938) $ — $
—
—
—
—
—
—
—
—
—
946,774
(90)
13,142
(24,353)
81,979
—
—
—
—
—
—
—
(97,086) $
(329) $
17,015 —
—
117
— —
— —
— —
— —
—
414,790
17,015
117
947,962
—
13,142
(24,353)
82,050
Balance as of December 31, 2013 ........... 198,791,502 $ 1,999 $ 1,536,945 $ (7,938) $ — $
(80,071) $
(212) $ 1,450,723
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Scorpio Tankers Inc. and Subsidiaries
Consolidated Cash Flow Statements
For the years ended December 31, 2013, 2012 and 2011
Notes
For the year ended December 31,
2012
2013
2011
In thousands of U.S. dollars
Operating activities
Net income / (loss) ....................................................................................................
Gain on sale of VLGCs .............................................................................................
Write down of vessels held for sale and loss from sales of vessels ...........................
Depreciation .............................................................................................................
Impairment ...............................................................................................................
Amortization of restricted stock................................................................................
Amortization of deferred financing fees ...................................................................
Write off of vessel purchase options .........................................................................
Straight-line adjustment for charterhire expense ......................................................
Share of profit from associate ...................................................................................
Unrealized (gain) / loss on derivative financial instruments .....................................
Changes in assets and liabilities:
Drydock payments ....................................................................................................
(Increase)/decrease in inventories ............................................................................
Increase in accounts receivable .................................................................................
(Increase)/decrease in prepaid expenses and other current assets .............................
(Increase)/decrease in other assets ............................................................................
(Decrease)/increase in accounts payable ...................................................................
Increase in accrued expenses ....................................................................................
Net cash outflow from operating activities
Investing activities
Acquisition of vessels and payments for vessels under construction ........................
Proceeds from disposal of vessels .............................................................................
VLGC installment payments ....................................................................................
Investment in associate .............................................................................................
Net cash outflow from investing activities ............................................................
Financing activities
Bank loan repayment ................................................................................................
Bank loan drawdown ................................................................................................
Debt issuance costs ...................................................................................................
Gross proceeds from issuance of common stock ......................................................
Equity issuance costs ................................................................................................
Purchase of treasury shares .......................................................................................
Dividends paid ..........................................................................................................
Net cash inflow from financing activities ..............................................................
(Decrease)/increase in cash and cash equivalents .................................................
Cash and cash equivalents at January 1, ..................................................................
Cash and cash equivalents at December 31, ........................................................
$
7
4
4
5
7
10
$
17,015 $
(41,375)
21,187
23,595
—
13,142
332
—
53
(369)
(567)
33,013
(1,469)
(687)
(36,104)
(823)
(1,849)
(2,021)
4,285
(38,668)
(5,655)
(26,537) $
—
10,404
14,818
—
3,490
4,093
—
41
—
1,231
7,540
(1,702)
526
(16,052)
547
2,443
3,966
804
(9,468)
(1,928)
(767,448)
—
(83,070)
(84,583)
(935,101)
(191,490)
101,335
—
—
(90,155)
(28,410)
52,050
(14,693)
983,537
(35,695)
—
(24,353)
932,436
(8,320)
87,165
78,845 $
(129,076)
124,172
(3,293)
159,002
(5,950)
(2,440)
—
142,415
50,332
36,833
87,165 $
(82,727)
—
—
18,460
66,611
3,362
986
126
84
—
—
6,902
(2,516)
(1,410)
(13,031)
(1,075)
(1,374)
(954)
1,006
(19,354)
(12,452)
(122,573)
—
—
—
(122,573)
(109,638)
115,308
(4,134)
110,950
(5,964)
(2,851)
—
103,671
(31,354)
68,187
36,833
Supplemental information:
Interest paid ..............................................................................................................
$
6,497 $
6,618 $
5,349
During the year ended December 31, 2013, we issued an aggregate of 7,135,080 common shares as partial consideration for
the purchase of eight newbuilding MRs currently under construction in two separate transactions. These transactions are
further described in Note 4.
Furthermore, as of December 31, 2013, 2012 and 2011, we accrued $15.0 million, $3.5 million and $9.4 million,
respectively, for installment payments on our newbuilding vessels. These payments were made in January 2014, 2013 and
2012, respectively.
These items represent significant non-cash transactions incurred during the years ended December 31, 2013, 2012 and 2011.
The accompanying notes are an integral part of these consolidated financial statements
F-8
Notes to the consolidated financial statements
1.
General information and significant accounting policies
Company
Scorpio Tankers Inc. and its subsidiaries (together “we”, “our” or the “Company”) are engaged in the seaborne
transportation of refined petroleum products and crude oil in the international shipping markets. Scorpio Tankers Inc. was
incorporated in the Republic of the Marshall Islands on July 1, 2009. On April 6, 2010, we closed on our initial public
offering and the stock currently trades on the New York Stock Exchange under the symbol STNG.
Our owned fleet at December 31, 2013 consisted of 19 tankers (one LR2 tanker, four LR1 tankers, one Handymax
tanker, 12 MR tankers, and one post-Panamax tanker), 30 time chartered-in tankers (eight LR2, five LR1, eight MR and nine
Handymax tankers), and 58 newbuilding product tankers and seven newbuilding Very Large Crude Carriers (‘VLCCs’) under
construction. We also owned 30% of Dorian LPG Ltd (“Dorian”) at December 31, 2013. Dorian is a liquefied petroleum gas
shipping company that owns three Very Large Gas Carriers (‘VLGCs’) and one pressurized gas carrier and has 19 VLGCs
under construction.
Our vessels are commercially managed by Scorpio Commercial Management S.A.M. (“SCM”), which is majority
owned by the Lolli-Ghetti family of which, Emanuele Lauro, our Chairman and Chief Executive Officer is a member. SCM’s
services include securing employment, in pools, in the spot market and on time charters.
Our vessels are technically managed by Scorpio Ship Management S.A.M. (“SSM”), which is majority owned by
the Lolli-Ghetti family. SSM facilitates vessel support such as crew, provisions, deck and engine stores, insurance,
maintenance and repairs, and other services as necessary to operate the vessels such as drydocks and vetting/inspection under
a technical management agreement.
We also have an administrative services agreement with Scorpio Services Holding Ltd. (“SSH”), which is majority
owned by the Lolli-Ghetti family. The administrative services provided under this agreement primarily include accounting,
legal compliance, financial, information technology services, and the provision of administrative staff and office space, which
are contracted to SCM. We pay our managers fees for these services and reimburse them for direct or indirect expenses that
they incur in providing these services.
Basis of accounting
The consolidated financial statements incorporate the financial statements of Scorpio Tankers Inc. and its
subsidiaries. The consolidated financial statements have been presented in United States dollars (USD or $), which is the
functional currency of Scorpio Tankers Inc. and all its subsidiaries and have been authorized for issue on March 31, 2014.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRSs) as issued by the International Accounting Standards Board and on a historical cost basis, except for the revaluation
of certain financial instruments.
All inter-company transactions, balances, income and expenses were eliminated on consolidation. During the year
ended December 31, 2012, our revenue recognition policy with regards to voyage charter revenue was amended to the policy
indicated below. This amendment did not have a material impact on each of vessel revenues, operating loss, and net loss as of
and for the years ended December 31, 2013, December 31, 2012 and December 31, 2011.
Going concern
The financial statements have been prepared in accordance with the going concern basis of accounting as described
further in the “Liquidity risk” section of Note 20.
F-9
Significant Accounting Policies
Revenue recognition
Vessel revenue is measured at the fair value of the consideration received or receivable and represents amounts
receivable for services provided in the normal course of business, net of discounts, and other sales-related or value added
taxes.
Vessel revenue is comprised of time charter revenue, voyage revenue and pool revenue.
(1) Time charter revenue is recognized as services are performed based on the daily rates specified in the time
charter contract.
(2) Voyage charter agreements are charter hires, where a contract is made in the spot market for the use of a vessel
for a specific voyage for a specified charter rate. Revenue from voyage charter agreements is recognized as
voyage revenue on a pro-rata basis over the duration of the voyage on a discharge to discharge basis. In the
application of this policy, we do not begin recognizing revenue until (i) the amount of revenue can be measured
reliably, (ii) it is probable that the economic benefits associated with the transaction will flow to the entity, (iii)
the transactions stage of completion at the balance sheet date can be measured reliably and (iv) the costs
incurred and the costs to complete the transaction can be measured reliably.
(3) Pool revenue for each vessel is determined in accordance with the profit sharing terms specified within each
pool agreement. In particular, the pool manager aggregates the revenues and expenses of all of the pool
participants and distributes the net earnings to participants based on:
(cid:120)
(cid:120)
the pool points (vessel attributes such as cargo carrying capacity, fuel consumption, and construction
characteristics are taken into consideration); and
the number of days the vessel participated in the pool in the period. We recognize pool revenue on a
monthly basis, when the vessel has participated in a pool during the period and the amount of pool revenue
for the month can be estimated reliably. We receive estimated vessel earnings based on the known number
of days the vessel has participated in the pool, the contract terms, and the estimated monthly pool revenue.
On a quarterly basis, we receive a report from the pool which identifies the number of days the vessel
participated in the pool, the total pool points for the period, the total pool revenue for the period, and the
calculated share of pool revenue for the vessel. We review the quarterly report for consistency with each
vessel’s pool agreement and vessel management records. The estimated pool revenue is reconciled
quarterly, coinciding with our external reporting periods, to the actual pool revenue earned, per the pool
report. Consequently, in our financial statements, reported revenues represent actual pooled revenues.
While differences do arise in the performance of these quarterly reconciliations, such differences are not
material to total reported revenues.
Acquired time charter contracts
Acquired time charter contracts arise from the purchase of time charter contracts from third parties and are stated at
cost at the date of acquisition, less accumulated amortization. When the time charter contract is acquired along with a vessel,
the cost of the acquisition is determined based on the relative fair values of each element acquired. Amortization expense is
recognized on a straight line basis over the useful life of the asset, which has been determined to be the remaining contract
life at the date of acquisition. The useful life and amortization method are reviewed at least annually. Changes in the expected
useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by
changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The
amortization expense related to the assets is recognized as an offset to revenue.
Voyage expenses
Voyage expenses, which primarily include bunkers, port charges, canal tolls, cargo handling operations and
brokerage commissions paid by us under voyage charters are expensed ratably over the estimated length of each voyage,
which can be allocated between reporting periods based on the timing of the voyage. The impact of recognizing voyage
expenses ratably over the length of each voyage is not materially different on a quarterly and annual basis from a method of
recognizing such costs as incurred. Consistent with our revenue recognition for voyage charters, voyage expenses are
calculated on a discharge-to-discharge basis. The procurement of these services is managed on our behalf by our commercial
manager, SCM (see Note 13).
F-10
Vessel operating costs
Vessel operating costs, which include crewing, repairs and maintenance, insurance, stores, lube oils, communication
expenses, and technical management fees, are expensed as incurred. The procurement of these services is managed on our
behalf by our technical manager, SSM (see Note 13).
Earnings / (loss) per share
Basic earnings and loss per share is calculated by dividing the net income or loss attributable to equity holders of the
common shares by the weighted average number of common shares outstanding. Diluted earnings per share are calculated by
adjusting the net income or loss attributable to equity holders of the parent and the weighted average number of common
shares used for calculating basic per share for the effects of all potentially dilutive shares. Such dilutive common shares are
excluded when the effect would be to increase earnings per share or reduce a loss per share. In the years ended December 31,
2013, 2012 and 2011, there were dilutive items as a result of our restricted stock plan (see Note 12). During the years ended
December 31, 2012 and 2011, we were in a loss making position, therefore there was no impact of these dilutive items on
loss per share.
Charterhire expense
Charterhire expense is the amount we pay the owner for time chartered-in vessels. The amount is usually for a fixed
period of time at rates that are generally fixed, but may contain a variable component based on inflation, interest rates, profit
sharing or current market rates. The vessel’s owner is responsible for crewing and other vessel operating costs. Charterhire
expense is recognized ratably over the charterhire period.
Operating leases
Costs in respect of operating leases are charged to the consolidated statement of income or loss on a straight line
basis over the lease term.
Foreign currencies
The individual financial statements of Scorpio Tankers Inc. and each of its subsidiaries are presented in the currency
of the primary economic environment in which we operate (its functional currency), which in all cases is US dollars. For the
purpose of the consolidated financial statements, our results and financial position are also expressed in US dollars.
In preparing the financial statements of Scorpio Tankers Inc. and each of its subsidiaries, transactions in currencies
other than the US dollar are recorded at the rate of exchange prevailing on the dates of the transactions. At the end of each
reporting period, monetary assets and liabilities denominated in other currencies are retranslated into the functional currency
at rates ruling at that date. All resultant exchange differences have been recognized in the consolidated statement of income
or loss. The amounts charged to the consolidated statements of income or loss during the years ended December 31, 2013,
2012 and 2011 were not material.
Segment reporting
During the years ended December 31, 2013, 2012 and 2011, we owned or chartered-in vessels spanning four
different classes, Handymax, MR, Panamax/LR1, and Aframax/LR2, all of which earn revenues in the seaborne
transportation of crude oil and refined petroleum products in the international shipping markets. Each vessel within its
respective class qualifies as an operating segment under IFRS. However, each vessel also exhibits similar long-term financial
performance and similar economic characteristics to the other vessels within the respective vessel class, thereby meeting the
aggregation criteria in IFRS. We have therefore chosen to present our segment information by vessel class using the
aggregated information from the individual vessels.
Segment results are evaluated based on reported profit or loss from each segment. The accounting policies applied to
the reportable segments are the same as those used in the preparation of our consolidated financial statements.
It is not practical to report revenue or non-current assets on a geographical basis due to the international nature of
the shipping market.
F-11
Non-current assets held for sale
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and
fair value less costs to sell.
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered
through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly
probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be
committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date
of classification.
When the Company is committed to a sale plan involving loss of control of a subsidiary, all of the assets and
liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the
Company will retain a non-controlling interest in its former subsidiary after the sale.
Vessels under construction
As of December 31, 2013 and 2012, we had 65 and 11 vessels under construction, respectively. Vessels under
construction are measured at cost and include costs incurred that are directly attributable to bringing the asset to the location
and condition necessary for it to be capable of operating in the manner intended by management. These costs include
installment payments made to the shipyards, directly attributable financing costs, professional fees and other costs deemed
directly attributable to the construction of the asset.
Vessels and drydock
Our fleet is measured at cost, which includes directly attributable financing costs and the cost of work undertaken to
enhance the capabilities of the vessels, less accumulated depreciation and impairment losses.
Depreciation is calculated on a straight-line basis to the estimated residual value over the anticipated useful life of
the vessel from date of delivery. Vessels under construction are not depreciated until such time as they are ready for use. The
residual value is estimated as the lightweight tonnage of each vessel multiplied by scrap value per ton. The scrap value per
ton is estimated taking into consideration the historical four year average scrap market rates at the balance sheet date with
changes accounted for in the period of change and in future periods.
The vessels are required to undergo planned drydocks for replacement of certain components, major repairs and
maintenance of other components, which cannot be carried out while the vessels are operating, approximately every 30
months or 60 months depending on the nature of work and external requirements. These drydock costs are capitalized and
depreciated on a straight-line basis over the estimated period until the next drydock. We only include in deferred drydocking
those direct costs that are incurred as part of the drydocking to meet regulatory requirements, or are expenditures that add
economic life to the vessel, increase the vessel’s earnings capacity or improve the vessel’s efficiency. Direct costs include
shipyard costs as well as the costs of placing the vessel in the shipyard. Expenditures for normal maintenance and repairs,
whether incurred as part of the drydocking or not, are expensed as incurred.
For an acquired or newly built vessel, a notional drydock is allocated from the vessel’s cost. The notional drydock
cost is estimated by us, based on the expected costs related to the next drydock, which is based on experience and past history
of similar vessels, and carried separately from the cost of the vessel. Subsequent drydocks are recorded at actual cost
incurred. The drydock asset is depreciated on a straight-line basis to the next estimated drydock. The estimated amortization
period for a drydock is based on the estimated period between drydocks. When the drydock expenditure is incurred prior to
the expiry of the period, the remaining balance is expensed.
Impairment of vessels, drydock and vessels under construction
At each balance sheet date, we review the carrying amount of our vessels and drydock and vessels under
construction to determine whether there is any indication that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the vessels and drydock and vessels under construction is estimated in order to
determine the extent of the impairment loss (if any). We treat each vessel and the related drydock as a cash generating unit.
F-12
Recoverable amount is the higher of the fair value less cost to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have
not been adjusted.
If the recoverable amount of the cash generating unit is estimated to be less than its carrying amount, the carrying
amount of the cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized as an expense
immediately.
Where an impairment loss subsequently reverses, the carrying amount of the cash generating unit is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount
that would have been determined had no impairment loss been recognized for the cash generating unit in the prior years. A
reversal of impairment is recognized as income immediately.
Inventories
Inventories consist of lubricating oils and other items including stock provisions, and are stated at the lower of cost
and net realizable value. Cost is determined using the first in first out method. Stores and spares are charged to vessel
operating costs when purchased.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of
those assets, until such time as the assets are substantially ready for their intended use or sale.
To the extent that variable rate borrowings are used to finance a qualifying asset and are hedged in an effective cash
flow hedge of interest rate risk, the effective portion of the derivative is recognized in other comprehensive income and
released to profit or loss when the qualifying asset impacts profit or loss. To the extent that fixed rate borrowings are used to
finance a qualifying asset and are hedged in an effective fair value hedge of interest rate risk, the capitalized borrowing costs
reflect the hedged interest rate.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognized in the consolidated statement of income or loss in the period in which they
are incurred.
Equity method investments
We use the equity method to account for investments in associates over which we otherwise have significant
influence (generally defined as investments in companies that correspond to holdings of between 20% and 50% of voting
shares). Under the equity method, the investment is initially recognized at cost, and this amount will be adjusted in each
subsequent period for the Company’s share of profit or loss (adjusted for any fair value adjustments made upon initial
recognition) and reduced by any distributions received. The Group’s investment in associate includes goodwill identified on
acquisition, if applicable.
We consider investments in associates for impairment testing whenever there is a quoted share price and when this
has a fair value less than the carrying value per share for the investment. For unquoted investments in associated companies
recent financial information is taken into account to assess whether impairment testing is necessary. In a situation in which,
based on the quoted share price, the fair value less cost to sell is considered to be below the carrying amount, the value in use
is determined in order to test the investment for impairment. If the value in use is also below the carrying amount an
impairment loss is recognized for the difference between carrying amount and the higher of “value in use” or “fair value less
costs to sell”.
In November 2013, we acquired 30% of the outstanding shares of Dorian LPG Ltd. in exchange for the contribution
of our VLGC business, which included 11 VLGC newbuilding contracts together with a cash payment of $1.9 million.
Additionally, in November 2013, we purchased 24,121,621 new shares of Dorian’s common stock as part of a private
placement of shares for total consideration of $75.0 million. As of December 31, 2013, we owned 64,073,744 shares, or
F-13
approximately 30% of Dorian’s outstanding shares at that date. Given our ownership percentage, we have determined that we
have significant influence over Dorian’s financial and operating policy decisions and are therefore accounting for our
investment under the equity method. See Note 7 for a further description of this investment.
Financial instruments
Financial assets and financial liabilities are recognized in our balance sheet when we become a party to the
contractual provisions of the instrument.
Financial assets
All financial assets are recognized and derecognized on a trade date where the purchase or sale of a financial asset is
under a contract whose terms require delivery within the timeframe established by the market concerned, and are initially
measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss,
which are initially measured at fair value.
Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or
loss’ (FVTPL), and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and
is determined at the time of initial recognition.
Income is recognized on an effective interest basis for debt instruments other than those financial assets classified as
at FVTPL.
Financial assets at FVTPL
Financial assets are classified as at FVTPL where the financial asset is held for trading.
A financial asset is classified as held for trading if:
(cid:120)
(cid:120)
(cid:120)
it has been acquired principally for the purpose of selling in the near future; or
it is a part of an identified portfolio of financial instruments that we manage together and has a recent actual
pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.
Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognized in profit or loss. The net
gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset. Fair value is
determined in the manner described in Note 20.
Loans and receivables
Amounts due from the pool and other receivables that have fixed or determinable payments and are not quoted in an
active market are classified as accounts receivable. Accounts receivable are measured at amortized cost using the effective
interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-
term receivables when the recognition of interest would be immaterial.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the
initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.
Financial assets objective evidence of impairment could include:
(cid:120)
(cid:120)
(cid:120)
significant financial difficulty of the issuer or counterparty; or
default or delinquency in interest or principal payments; or
it becomes probable that the borrower will enter bankruptcy or financial re-organization.
F-14
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly-liquid
investments with original maturities of three months or less, and that are readily convertible to a known amount of cash and
are subject to an insignificant risk of changes in value. The carrying value of cash and cash equivalents approximates fair
value due to the short-term nature of these instruments.
Financial liabilities
Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’.
Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL where the financial liability is held for trading, using the criteria set
out above for financial assets.
Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognized in profit or loss. The
net gain or loss recognized in profit or loss incorporates any interest paid on the financial liability. Fair value is determined in
the manner described in Note 20.
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other
financial liabilities are subsequently measured at amortized cost using the effective interest method.
Effective interest method
The effective interest method is a method of calculating the amortized cost of a financial asset and a financial
liability. It allocates interest income and interest expense over the relevant period. The effective interest rate is the rate that
discounts estimated future cash flows (including all fees on points paid or received that form an integral part of the effective
interest rate, transaction costs and other premiums or discounts) over the expected life of the financial asset and financial
liability, or, where appropriate, a shorter period.
Derivative financial instruments
Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently
remeasured to their fair value at each balance sheet date. A derivative with a positive fair value is recognized as a financial
asset whereas a derivative with a negative fair value is recognized as a financial liability. The resulting gain or loss is
recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which
event the timing of the recognition in profit or loss depends on the nature of the hedging relationship. We designate certain
derivatives as hedges of highly probable forecast transactions (cash flow hedges) as described further below.
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument
is more than 12 months, and it is not expected to be realized or settled within 12 months.
Our derivative financial instruments for the years ended December 31, 2013, 2012 and 2011 consisted of interest
rate swaps and profit or loss sharing arrangements on time-chartered in vessels with third parties. See Notes 10 to the
consolidated financial statements for further description.
Hedge accounting for cash flow hedges
Our policy is to designate certain hedging instruments, which can include derivatives, embedded derivatives and
non-derivatives in respect of foreign currency risk, as either fair value hedges, cash flow hedges, or hedges of net investments
in foreign operations. At the inception of the hedge relationship, we document the relationship between the hedging
instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge
transactions. Furthermore, at the inception of the hedge and on an ongoing basis, we document whether the hedging
instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.
F-15
Derivative financial instruments are initially recognized in the balance sheet at fair value at the date the derivative
contract is entered into and are subsequently measured at their fair value as other assets or other liabilities, respectively.
Changes in fair value of derivative financial instruments, which are designated as cash flow hedges and deemed to be
effective, are recognized directly in other comprehensive income and classified as ‘hedging reserves’. Changes in fair value
of a portion of a hedge deemed to be ineffective are recognized in net income or loss. Hedge effectiveness is measured
quarterly.
Amounts previously recognized in other comprehensive income and accumulated in the hedging reserve are
reclassified to profit or loss in the periods when the hedged item is recognized in profit or loss, in the same line of the
statement of income or loss as the recognized hedged item. However, when the forecast transaction that is hedged results in
the recognition of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are
transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued when we revoke the hedging relationship, the hedging instrument expires or is
sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any gain or loss recognized in other
comprehensive income at that time is accumulated in the hedge reserve and is recognized when the forecast transaction is
ultimately recognized in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss
accumulated in the hedge reserve is recognized immediately in profit or loss.
For the years ended December 31, 2013, 2012, and 2011 we were party to derivative financial instruments to
manage our exposure to interest rate fluctuations. In August 2011, we entered into six interest rate swap agreements to
manage interest costs and the risk associated with changing interest rates on our 2011 Credit Facility and 2010 Revolving
Credit Facility. The swaps relating to the 2011 Credit Facility were designated and accounted for as cash flow hedges as of
December 31, 2013. The swaps relating to the 2010 Credit Facility were de-designated at December 31, 2012.
In conjunction with the sales of STI Diamond and STI Coral in August and September 2012, respectively, we
reduced the notional amount on the interest rate swaps relating to the 2011 Credit Facility to $15.0 million from $24.0 million
in aggregate.
In December 2012, we voluntarily repaid $50.0 million into our 2010 Revolving Credit Facility. After the payment,
the debt outstanding under the 2010 Credit Facility was less than the total notional amount of the three interest rate swaps
related to the facility of $51.0 million. As such, the swaps relating to the 2010 Revolving Credit Facility no longer met the
criteria for hedge accounting, and we therefore de-designated the hedge relationship prospectively and reclassified all
amounts accumulated in other comprehensive loss ($1.0 million) for the 2010 Revolving Credit Facility to the statement of
income or loss as of December 31, 2012.
Equity instruments
An equity instrument is any contract that evidences a residual interest in our assets after deducting all of its
liabilities. Equity instruments issued by us are recorded at the proceeds received, net of direct issue costs.
We had 198,791,502 registered shares authorized and issued with a par value of $0.01 per share at December 31,
2013. These shares provide the holders with the same rights to dividends and voting rights.
Provisions
Provisions are recognized when we have a present obligation as a result of a past event, and it is probable that we
will be required to settle that obligation. Provisions are measured at our best estimate of the expenditure required to settle the
obligation at the balance sheet date, and are discounted to present value where the effect is material.
Dividends
A provision for dividends payable is recognized when the dividend has been declared in accordance with the terms
of the shareholder agreement.
Dividend per share presented in these consolidated financial statements is calculated by dividing the aggregate
dividends declared by all of our subsidiaries by the number of our shares assuming these shares have been outstanding
throughout the periods presented.
F-16
Restricted stock
The restricted stock awards granted to our employees and directors as described in Note 12 contain only service
conditions and are classified as equity settled. Accordingly, the fair value of our restricted stock awards was calculated by
multiplying the average of the high and low share price on the grant date and the number of restricted stock shares granted
that are expected to vest. In accordance with IFRS 2 “Share Based Payment,” the share price at the grant date serves as a
proxy for the fair value of services to be provided by the employees and directors under the plan.
Compensation expense related to the awards is recognized ratably over the vesting period, based on our estimate of
the number of awards that will eventually vest. The vesting period is the period during which an employee or director is
required to provide service in exchange for an award and is updated at each balance sheet date to reflect any revisions in
estimates of the number of awards expected to vest as a result of the effect of service vesting conditions. The impact of the
revision of the original estimate, if any, is recognized in the profit or loss statement such that the cumulative expense reflects
the revised estimate, with a corresponding adjustment to equity reserves.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the accounting policies, we are required to make judgements, estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future periods.
The significant judgements and estimates are as follows:
Revenue recognition
We currently generate all revenue from time charters, spot voyages, or pools. Revenue recognition for time charters
and pools is generally not as complex or as subjective as voyage charters (spot voyages). Time charters are for a specific
period of time at a specific rate per day. For long-term time charters, revenue is recognized on a straight-line basis over the
term of the charter. Pool revenues are determined by the pool managers from the total revenues and expenses of the pool and
allocated to pool participants using a mechanism set out in the pool agreement.
We generated revenue from spot voyages during the years ended December 31, 2013, 2012 and 2011. Within the
shipping industry, there are two methods used to account for spot voyage revenue: (1) ratably over the estimated length of
each voyage or (2) completed voyage. The recognition of voyage revenues ratably over the estimated length of each voyage
is the most prevalent method of accounting for voyage revenues and the method used by us. Under each method, voyages
may be calculated on either a load-to-load or discharge-to-discharge basis. In applying our revenue recognition method, we
believe that the discharge-to-discharge basis of calculating voyages more accurately estimates voyage results than the load-
to-load basis. In the application of this policy, we do not begin recognizing revenue until (i) the amount of revenue can be
measured reliably, (ii) it is probable that the economic benefits associated with the transaction will flow to the entity, (iii) the
transactions stage of completion at the balance sheet date can be measured reliably and (iv) the costs incurred and the costs to
complete the transaction can be measured reliably.
Vessel impairment
We evaluate the carrying amounts of our vessels and vessels under construction to determine whether there is any
indication that those vessels have suffered an impairment loss. If any such indication exists, the recoverable amount of
vessels is estimated in order to determine the extent of the impairment loss (if any).
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have
not been adjusted. The projection of cash flows related to vessels is complex and requires us to make various estimates
including future freight rates, earnings from the vessels and discount rates. All of these items have been historically volatile.
As part of our process of assessing the fair value less cost to sell of the vessel, we obtain vessel valuations for our operating
F-17
vessels from leading, independent and internationally recognized ship brokers on an annual basis or when there is an
indication that an asset or assets may be impaired. We generally do not obtain vessel valuations for vessels under
construction. If an indication of impairment is identified, the need for recognizing an impairment loss is assessed by
comparing the carrying amount of the vessels to the higher of the fair value less cost to sell and the value in use. Likewise, if
there is an indication that an impairment loss recognized in prior periods no longer exists or may have decreased, the need for
recognizing an impairment reversal is assessed by comparing the carrying amount of the vessels to the latest estimate of
recoverable amount.
For the period ended December 31, 2013, we reviewed the carrying amount of our vessels to determine whether
there was an indication that these assets had suffered an impairment. First, we compared the carrying amount of our vessels
to their fair values less costs to sell (determined by taking into consideration two independent broker valuations). If the
carrying amount of our vessels was greater than the fair values less costs to sell, we prepared a value in use calculation where
we estimated the vessel’s future cash flows based on a combination of the latest, published, forecast time charter rates for the
next three years, a steady growth rate in freight rates in each period thereafter which is based on management’s long-term
view of the market, and our best estimate of vessel operating expenses and drydock costs. These cash flows were then
discounted to their present value, using an estimated weighted average cost of capital of 8.45%.
At December 31, 2013, we had 19 vessels in our fleet and 65 vessels under construction:
(cid:120) Four vessels were held for sale and written down to their fair value less costs to sell (see Note 4).
(cid:120) Eight vessels had fair values less costs to sell in excess of their carrying amount.
(cid:120) Seven vessels had fair values less costs to sell less than their carrying amount. We prepared a value in use
calculation for each these vessels which resulted in no impairment being recognized.
(cid:120) Two vessels under construction (that were delivered in January 2014) had fair values less costs to sell exceeding
their carrying amount.
(cid:120) We did not obtain independent broker valuations for the remaining 63 vessels under construction. To assess
their carrying values, we prepared value in use calculations which resulted in no impairment indicators.
Vessel lives and residual value
The carrying value of each of our vessels represents its original cost at the time it was delivered or purchased less
depreciation and impairment. We depreciate our vessels to their residual value on a straight-line basis over their estimated
useful lives of 25 years. The estimated useful life of 25 years is management’s best estimate and is also consistent with
industry practice for similar vessels. The residual value is estimated as the lightweight tonnage of each vessel multiplied by a
forecast scrap value per ton. The scrap value per ton is estimated taking into consideration the historical four year scrap
market rate average at the balance sheet date.
An increase in the estimated useful life of a vessel or in its scrap value would have the effect of decreasing the
annual depreciation charge and extending it into later periods. A decrease in the useful life of a vessel or scrap value would
have the effect of increasing the annual depreciation charge.
When regulations place significant limitations over the ability of a vessel to trade on a worldwide basis, the vessel’s
useful life is adjusted to end at the date such regulations become effective. The estimated salvage value of the vessels may
not represent the fair market value at any one time since market prices of scrap values tend to fluctuate.
Deferred drydock cost
We recognize drydock costs as a separate component of each vessel’s carrying amount and amortize the drydock
cost on a straight-line basis over the estimated period until the next drydock. We use judgment when estimating the period
between drydocks performed, which can result in adjustments to the estimated amortization of the drydock expense. If the
vessel is disposed of before the next drydock, the remaining balance of the deferred drydock is written-off and forms part of
the gain or loss recognized upon disposal of vessels in the period when contracted. We expect that our vessels will be
required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed
while the vessels are operating. Costs capitalized as part of the drydock include actual costs incurred at the drydock yard and
parts and supplies used in making such repairs.
F-18
Adoption of new and amended IFRS and IFRIC interpretations from January 1, 2013
Standards and interpretations adopted during the period
(cid:120)
(cid:120)
(cid:120)
IFRS 10 – Consolidated Financial Statements
IFRS 11 – Joint arrangements
IFRS 12 – Disclosure of interests in other entities
(cid:120) Amendment to IAS 27 – Separate financial statements
(cid:120) Amendment to IAS 28 – Associates and joint ventures
(cid:120) Amendments to IFRS 10, 11, 12 – Transition guidance
(cid:120)
IFRS 13 – Fair value measurement
(cid:120) Amendment to IAS 1 – Presentation of financial statements
(cid:120) Amendment to IAS 19 – Employee benefits
(cid:120)
IFRS 7 – Financial instruments – Disclosures on offsetting
(cid:120) Amendment to IAS 32 – Financial instruments: presentation
(cid:120)
IFRIC 20 – Stripping costs in the production phase of a surface mine
(cid:120) Annual improvement 2011
The adoption of these standards did not have a material impact on these consolidated financial statements.
Standards and Interpretations in issue not yet adopted
At the date of authorization of these consolidated financial statements, the following Standards and Interpretations
which have not been applied in these consolidated financial statements were in issue but not yet effective:
(cid:120)
(cid:120)
IFRS 9 – Financial Instruments
IFRIC 21 - Levies
(cid:120) Amendment to IAS 32, ‘Financial instruments: Presentation’ – Offsetting financial assets and liabilities
(cid:120) Amendments to IAS 36 – Impairment of Assets
(cid:120) Amendments to IAS 39 – Financial Instruments
We do not expect that the adoption of these standards in future periods will have a material impact on our financial
statements.
2.
Cash and cash equivalents
In thousands of U.S. dollars
Cash at banks ................................................................................................................................. $
Deposits (1) ....................................................................................................................................
Cash on vessels ..............................................................................................................................
$
(1) Represents bank deposits with original maturities of three months or less.
At December 31,
2013
53,652 $
25,035
158
78,845 $
2012
87,023
—
142
87,165
F-19
3.
Accounts receivable
In thousands of US dollars
Scorpio MR Pool Limited .................................................................................................................. $ 28,282 $
21,110
Scorpio LR2 Pool Limited .................................................................................................................
12,578
Scorpio Panamax Tanker Pool Limited .............................................................................................
6,542
Scorpio Handymax Tanker Pool Limited ..........................................................................................
1,212
Freight receivables .............................................................................................................................
345
Insurance receivables .........................................................................................................................
2,473
Other receivables ...............................................................................................................................
$ 72,542 $
2013
2012
12,010
3,244
11,289
6,369
2,192
191
1,143
36,438
At December 31,
Scorpio MR Pool Limited, Scorpio LR2 Pool Limited, Scorpio Panamax Tanker Pool Limited and Scorpio
Handymax Tanker Pool Limited are related parties, as described in Note 13. The increase in accounts receivable due from all
of the pools was driven by the overall increase in our operating fleet to 38.8 vessels from 20.0 vessels for the years ended
December 31, 2013 and 2012, respectively.
Freight receivables primarily represent amounts collectible from customers for our vessels operating in the spot
market.
Insurance receivables primarily represent amounts collectible on our insurance policies in relation to vessel repairs.
We consider that the carrying amount of accounts receivable approximates their fair value due to the short maturity
thereof. Accounts receivable are non-interest bearing. At December 31, 2013 and December 31, 2012, no material receivable
balances were either past due or impaired.
F-20
4.
Vessels
Operating vessels and drydock
In thousands of U.S. dollars
Cost
Vessels
Drydock
Total
As of January 1, 2013 ..............................................................
Additions (1) .............................................................................
Transfer to vessels held for sale (2) ..........................................
As of December 31, 2013 ........................................................
$
$
500,696
256,858
(190,971)
566,583
$
10,924
5,433
(4,255)
12,102
Accumulated depreciation and impairment
As of January 1, 2013 ..............................................................
Charge for the period ...............................................................
Write-offs of vessels held for sale (3) .......................................
Transfer to vessels held for sale (2) ..........................................
As of December 31, 2013 ........................................................
(112,575)
(20,401)
(20,367)
108,322
(45,021)
(3,634)
(3,194)
(821)
4,255
(3,394)
Net book value
511,620
262,291
(195,226)
578,685
(116,209)
(23,595)
(21,188)
112,577
(48,415)
As of December 31, 2013 ........................................................
$
521,562
$
8,708
$
530,270
Cost
As of January 1, 2012 ..............................................................
Additions (4) .............................................................................
Disposals (5) .............................................................................
Write-offs (6) ...........................................................................
As of December 31, 2012 ........................................................
$
$
450,658
192,413
(142,375)
—
500,696
$
7,137
6,619
(2,023)
(809)
10,924
Accumulated depreciation and impairment
As of January 1, 2012 ..............................................................
Charge for the period ...............................................................
Disposals (5) .............................................................................
Write-offs (6) ...........................................................................
As of December 31, 2012 ........................................................
(132,019)
(12,595)
32,039
—
(112,575)
(3,319)
(2,038)
1,098
625
(3,634)
Net book value
457,795
199,032
(144,398)
(809)
511,620
(135,338)
(14,634)
33,137
625
(116,209)
As of December 31, 2012 ........................................................
$
388,121
$
7,291
$
395,412
(1) Additions in 2013 primarily relate to the deliveries of seven newbuilding vessels and corresponding calculations of notional drydock on these vessels.
(2) Represents the reclassification of the net book value of Noemi, Senatore, Venice and STI Spirit from “Vessels” to “Vessels Held for Sale” at December
31, 2013. See Note 22 for further description of the sales of Noemi, Senatore and STI Spirit in 2014.
(3) Represents the write-off to remeasure Noemi, Senatore, Venice and STI Spirit at the lower of their carrying amount and fair value less costs to sell due
to their designation as ‘held for sale’ at December 31, 2013.
(4) Additions in 2012 relate to (i) the delivery of the first five vessels under our Newbuilding Program and corresponding calculation of notional drydock
on these vessels and (ii) $2.9 million of drydock costs for STI Spirit and STI Heritage.
(5) Represents the write-off of the net book value of STI Conqueror, STI Gladiator, STI Matador, STI Diamond and STI Coral which were sold in 2012.
(6) Represents the write-off of the net book value of drydock costs for STI Spirit of $0.2 million, which was drydocked in November 2012.
F-21
Newbuilding vessel deliveries
We took delivery of the following vessels during the year ended December 31, 2013 resulting in the reclassification
of $262.1 million from Vessels under construction to Vessels:
Vessel name
STI Sapphire
STI Emerald
STI Beryl
STI Le Rocher
STI Larvotto
STI Fontvieille
STI Ville
Vessels Held for Sale
Vessel type
MR
MR
MR
MR
MR
MR
MR
Date delivered
January 2013
March 2013
April 2013
July 2013
July 2013
August 2013
September 2013
In December 2013, we designated Noemi, Senatore, Venice and STI Spirit as held for sale. As part of this
designation, we recorded a $21.2 million write-down to remeasure these vessels at the lower of their carrying amount and fair
value less costs to sell. Their revised carrying amount of $82.6 million was then reclassified from ‘Vessels’ to ‘Vessels Held
for Sale’ on the consolidated balance sheet as of December 31, 2013. Noemi, Senatore, and Venice were held as collateral
under the 2010 Revolving Credit Facility as of December 31, 2013. No amounts were due under this facility as of that date.
STI Spirit was held as collateral under the STI Spirit Credit facility as of December 31, 2013. All amounts due under this
facility have been classified as current as of that date.
Vessels under construction
In January 2013, we reached an agreement with Hyundai Mipo Dockyard Co. Ltd of South Korea (“HMD”) for the
construction of two MR product tankers for $32.5 million each. These vessels are scheduled to be delivered in May and June
2014.
In February 2013, we reached an agreement with HMD for the construction of four MR product tankers for $33.0
million each and six Handymax ice class-1A product tankers for $31.3 million each. Two of the MR’s are scheduled to be
delivered in the second quarter of 2014 with the third and fourth MR’s scheduled to be delivered in the third and fourth
quarters of 2014, respectively. The six Handymax vessels are scheduled to be delivered in the second and third quarters of
2014.
In February 2013, we reached an agreement with SPP Shipbuilding Co. Ltd of South Korea, (“SPP”) for the
construction of four MR product tankers for $32.5 million each. These vessels are scheduled to be delivered in the third and
fourth quarters of 2014.
In March 2013, we reached an agreement with Hyundai Samho Heavy Industries Co. Ltd., (“HSHI”) for the
construction of six LR2 product tankers for $50.5 million each. These vessels are scheduled to be delivered in the third and
fourth quarters of 2014.
In March 2013, we reached an agreement with Daewoo Shipbuilding & Marine Engineering Co., Ltd (“DSME”) for
the construction of two LR2 product tankers for $49.5 million each. These vessels are expected to be delivered in the fourth
quarter of 2014.
In April 2013, we reached an agreement with HMD for the construction of two Handymax ice class-1A vessels for
$31.5 million each. These vessels are scheduled to be delivered in the third quarter of 2014.
In April 2013, we reached an agreement with an unaffiliated third party for the purchase of four MR product tankers
currently under construction at HMD for $36.5 million each. The transaction was completed by novating the existing
shipbuilding agreements. These vessels were delivered in the third quarter of 2013.
In May 2013, we reached an agreement with HMD to construct four Handymax ice class-1A product tankers for
$31.6 million each. These vessels are scheduled to be delivered in the third quarter of 2014.
F-22
In May 2013, we reached an agreement with SPP to construct four MR product tankers for $33.0 million each.
These vessels are scheduled to be delivered in the first and second quarters of 2015.
In May 2013, we reached agreements to construct four LR2 product tankers for $50.5 million each, consisting of
two at HSHI and two at DSME. These vessels are scheduled to be delivered in the first and second quarters of 2015.
In July and August 2013 we reached agreements to construct nine Very Large Gas Carriers (“VLGCs”) for $75.6
million each with HSHI and DSME with deliveries scheduled in 2015.
In August 2013, we reached an agreement with HMD to construct four product tankers consisting of two MR
product tankers for $35.0 million each and two Handymax ice class-1A product tankers for $32.0 million each. The MR
tankers are scheduled to be delivered in the second quarter of 2015 and the Handymax ice class-1A tankers are scheduled to
be delivered in the fourth quarter of 2014.
In October 2013, we reached an agreement with HSHI to construct two VLGCs for $75.0 million each with first
quarter of 2016 deliveries.
In November 2013, we contributed our VLGC business, which included 11 VLGC newbuilding contracts, options to
purchase two additional VLGCs and a cash payment of $1.9 million (together our “initial investment”) to Dorian LPG Ltd.
(“Dorian”) in exchange for newly issued shares representing 30% of Dorian’s outstanding shares immediately following the
transaction. See Note 7 for a description of this transaction.
In November 2013, we issued 3,611,809 shares in exchange for the transfer of ownership to the Company of four
MR product tankers currently under construction in South Korea with certain unaffiliated third parties for an aggregate
purchase price of $150.2 million. 28% of the consideration for the vessels consisted of the newly issued common shares of
the Company having a valuation based on the fair market value of the shares at the time of issuance. The new common shares
were issued to Ceres, Valero and a group of institutional investors advised by J.P. Morgan Asset Management and the
remainder of the purchase price is being paid to the shipyard from cash-on-hand and bank debt. The shares granted have
registration rights and we issued a prospectus to facilitate selling them. One of these newbuildings was delivered in March
2014 and the remaining three are scheduled to be delivered in the second quarter of 2014.
The transaction also includes a time charter-out agreement for each of the four vessels for a fixed daily revenue
amount at current market levels plus a profit sharing scheme whereby earnings in excess of the base time charter rate will be
split between the Company and the charterer, Valero. The first vessel is currently time chartered-out for a 24 month period,
and the remaining three will each be time chartered-out for 12 month periods. These time charter contracts have been valued
at $1.1 million which has been recorded within other current and other non-current assets. They will begin amortization, on a
straight line basis over the duration of the contract, upon delivery of each vessel.
In December 2013, we acquired contracts for the construction of four MR product tankers from unaffiliated third
parties for a total purchase price of approximately $153.9 million. We paid $4.4 million in cash and issued 3,523,271
common shares, representing approximately 26% of the total purchase price, to affiliates of York Capital and the remaining
amount of the total purchase price will be paid to the shipyard from cash on hand and bank debt when installment payments
relating to these newbuildings become due. One vessel is expected to be delivered in the third quarter of 2014, one in the first
quarter and two in the second quarter of 2015.
In December 2013, we reached agreements with DSME and HSHI for the construction of seven VLCCs for an
aggregate purchase price of $662.2 million. One vessel is scheduled for delivery in the third quarter of 2015, two in the fourth
quarter of 2015, two in the first quarter of 2016, one in the second quarter of 2016 and one in the third quarter of 2016. These
contracts were sold for cash in March 2014 as further described in Note 22.
As of December 31, 2013, we had a total of 58 newbuilding product tanker orders with HMD, SPP, HSHI and
DSME which include 32 MRs, 14 Handymax ice class-1A vessels and 12 LR2s for an aggregate purchase price of $2,154.1
million, of which $453.3 million was paid as of that date. Additionally, we had seven newbuilding VLCC orders with HSHI
and DSME for an aggregate purchase price of $662.2 million, of which $89.9 million was paid as of December 31, 2013.
F-23
A roll-forward of activity within Vessels under construction is as follows:
In thousands of US dollars
Balance as of January 1, 2012
$ 60,333
Installment payments and other capitalized expenses ................................................ 182,016
3,221
Capitalized interest .....................................................................................................
Transferred to operating vessels and drydock ............................................................ (195,319)
Balance as of December 31, 2012 ............................................................................ $ 50,251
Installment payments and other capitalized expenses ................................................ 856,959
Sale of VLGC business (1) ......................................................................................... (83,070)
Value of common shares issued for vessel purchases (2) ...........................................
81,114
6,379
Capitalized interest .....................................................................................................
Transferred to operating vessels and drydock ............................................................ (262,107)
Balance as of December 31, 2013 ............................................................................ $ 649,526
(1) Represents installment payments on the 11 VLGC newbuilding contracts which were part of the transaction to sell our
VLGC business to Dorian in exchange for newly issued shares representing 30% of the Dorian’s outstanding shares
immediately following the transaction. See Note 7 for a description of this transaction.
(2) Represents the consideration of newly issued common shares of (i) approximately 28% of the purchase price for four
MRs currently under construction with first and second quarter 2014 deliveries; and (ii) approximately 26% of the
purchase price for four MRs currently under construction with scheduled deliveries in the third quarter 2014, one in the
first quarter and two in the second quarter of 2015. These shares were issued in the fourth quarter of 2013.
The following table is a timeline of future expected payments and dates for our vessels under construction as of
December 31, 2013*:
Q1 2014 ...................................................................................
Q2 2014 ...................................................................................
Q3 2014 ...................................................................................
Q4 2014 ...................................................................................
Q1 2015 ...................................................................................
Q2 2015 ...................................................................................
Q3 2015 ...................................................................................
Q4 2015 ...................................................................................
Q1 2016 ...................................................................................
Q2 2016 ...................................................................................
Q3 2016 ...................................................................................
Total ........................................................................................ $
190.9 million**
433.8
431.4
310.9
205.5
205.9
80.3
103.5
105.1
56.7
56.7
2,180.7
million
million
million
million
million
million
million
million
million
million
million
* These are estimates only and are subject to change as construction progresses.
** As of the date of this report, all first quarter 2014 installment payments have been paid.
Capitalized interest
In accordance with IAS 23 “Borrowing Costs”, applicable interest costs are capitalized during the period that vessels
are under construction. For the years ended December 31, 2013 and 2012, we capitalized interest expense for the vessels
under construction of $6.4 million and $3.2 million, respectively. The capitalization rate used to determine the amount of
borrowing costs eligible for capitalization was 3.1%. We cease capitalizing interest when the vessels reach the location and
condition necessary to operate in the manner intended by management.
F-24
Collateral agreements
Noemi, Senatore, Venice, STI Harmony, STI Heritage, and STI Highlander with an aggregated net book value of
$141.1 million as of December 31, 2013 were provided as collateral under a loan agreement dated June 2, 2010 and amended
on July 13, 2011 (the “2010 Revolving Credit Facility,” See Note 9).
STI Onyx, STI Sapphire, STI Emerald and STI Beryl with an aggregated net book of $147.3 million as of December
31, 2013 were provided as collateral under a loan agreement dated May 3, 2011 and amended on July 20, 2012 (the “2011
Credit Facility,” See Note 9).
STI Spirit, with a net book value of $29.5 million as of December 31, 2013, was provided as collateral under a loan
agreement dated March 9, 2011 (the “STI Spirit Credit Facility,” See Note 9).
STI Amber, STI Topaz, STI Ruby and STI Garnet, with an aggregated net book value of $148.7 million as of
December 31, 2013 were provided as collateral under a loan agreement dated December 21, 2011 (the “Newbuilding Credit
Facility,” See Note 11).
The vessels which collateralize the 2011 Credit Facility and 2010 Revolving Credit Facility also serve as collateral
for the designated interest rate swap agreements (as described in Note 10), subordinated to the outstanding borrowings under
each credit facility.
5.
Carrying values of vessels and vessels under construction
At each balance sheet date, we review the carrying amounts of vessels and related drydock costs to determine if
there is any indication that those vessels and related drydock costs have suffered an impairment loss. If such indication exists,
the recoverable amount of the vessels and related drydock costs is estimated in order to determine the extent of the
impairment loss (if any). Recoverable amount is the higher of fair value less costs to sell and value in use. As part of this
evaluation, we consider certain indicators of potential impairment, such as market conditions including forecast time charter
rates and values for second hand product tankers, discounted projected vessel operating cash flows and the Company’s
overall business plans.
At December 31, 2013, we reviewed the carrying amount of our vessels to determine whether there was an
indication that these assets had suffered an impairment. First, we compared the carrying amount of our vessels to their fair
values less costs to sell (determined by taking into consideration two independent broker valuations). If the carrying amount
of our vessels was greater than the fair values less costs to sell, we prepared a value in use calculation where we estimated the
vessel’s future cash flows based on a combination of the latest forecast, published time charter rates for the next three years, a
steady growth rate in freight rates in which each period thereafter which is based on management’s long term view of the
market, and our best estimate of vessel operating expenses and drydock costs. These cash flows were then discounted to their
present value using an estimated weighted average cost of capital of 8.45%. The results of these tests were as follows:
At December 31, 2013, we had 19 vessels in our fleet and 65 vessels under construction:
(cid:120) Four vessels were held for sale and written down to their fair value less costs to sell (see Note 4)
(cid:120) Eight vessels had fair values less costs to sell in excess of their carrying amount.
(cid:120) Seven vessels had fair values less costs to sell less than their carrying amount. We prepared a value in use
calculation for each these vessels which resulted in no impairment being recognized.
(cid:120) Two vessels under construction (that were delivered in January 2014) had fair values less costs to sell exceeding
their carrying amount.
(cid:120) We did not obtain independent broker valuations for the remaining 63 vessels under construction. To assess
their carrying values, we prepared value in use calculations which resulted in no impairment indicators.
F-25
At December 31, 2011, we determined fair value less estimated costs to sell for our vessels, taking into
consideration three independent broker valuations for each vessel and adjusting for estimated disposal costs. Our estimate of
fair value less costs to sell was then compared to each vessel’s respective carrying amount. The fair value less estimated costs
to sell were lower than the carrying amount for all vessels indicating that an impairment might exist. We then performed a
value in use calculation and the value in use calculations for all vessels were less than the fair value less estimated costs to
sell and accordingly, the recoverable amount of all vessels was determined to be its fair valueless costs to sell. As a result, we
recorded an impairment loss of $66.6 million to adjust the carrying amounts of our vessels to their fair value less estimated
selling costs.
6.
Other non-current assets
In thousands of US dollars
Capitalized loan fees (1) ............................................................................................................... $
Scorpio Handymax Tanker Pool Ltd. pool working capital contributions(2) ..............................
Non-current portion of acquired time charter contracts (3) .........................................................
$
At December 31,
2013
16,168 $
1,207
532
17,907 $
2012
530
359
—
889
(1) Primarily represents upfront loan fees on our credit facilities being used to finance our newbuilding vessels. These
are reclassified to Bank Loans when the tranche of the loan to which the newbuilding vessel relates is drawn.
(2) Upon entrance into the Scorpio Handymax Tanker Pool (“SHTP”), all vessels are required to make working
capital contributions of both cash and bunkers. The contribution amount is repaid, without interest, upon a vessel’s exit from
the SHTP no later than six months after the exit date. Bunkers on board a vessel exiting the SHTP are credited against such
repayment at the actual invoice price of the bunkers. For all owned vessels we assume that these contributions will not be
repaid within 12 months and for time chartered-in vessels we classify the amounts according to the expiration of the contract.
(3) Represents the non-current portion of the value of time charter contracts acquired in November 2013 as part of the
acquisition of four MRs in exchange for common shares. See Note 4 for further description.
7.
Investment in Associate
Investment in Dorian LPG Ltd.
In July and August 2013 we reached agreements to construct nine Very Large Gas Carriers (“VLGCs”) for $75.6
million each with HSHI and DSME with deliveries scheduled in 2015.
In October 2013, we reached an agreement with HSHI to construct two VLGCs for $75.0 million each with
deliveries scheduled in the first quarter of 2016.
In November 2013, we contributed our VLGC business, which included 11 VLGC newbuilding contracts, options to
purchase two additional VLGCs and a cash payment of $1.9 million (together our “initial investment”) to Dorian LPG Ltd.
(“Dorian”) in exchange for newly issued shares representing 30% of Dorian’s outstanding shares immediately following the
transaction. As of the closing date of the transaction, we paid $83.1 million in installment payments for the 11 VLGC
contracts. Additionally, in November 2013, we purchased 24,121,621 new shares of Dorian’s common stock as part of a
private placement of shares for total consideration of $75.0 million.
As of December 31, 2013, we owned 64,073,744, shares or approximately 30% of the outstanding shares of Dorian.
Dorian’s shares are traded on the Norwegian Over the Counter Exchange (‘NOTC’) and closed at NOK 22.90 per share, or
approximately $3.78 per share, on December 31, 2013. As part of the shareholder’s agreement, we are entitled to appoint one
member to Dorian’s eight member board until we cease to beneficially own at least 10% of Dorian’s issued and outstanding
common shares.
We have determined that we have significant influence over Dorian’s financial and operating policy decisions given
our 30% ownership interest and limited board representation at December 31, 2013. We are therefore accounting for our
investment under the equity method.
F-26
Accounting for the initial investment
A gain was recognized at the closing date for the difference between the book value of the assets contributed and the
fair value of the consideration received minus costs to sell. The resultant gain of $41.4 million was calculated as the excess of
the value of the 39,952,123 shares of Dorian on November 26, 2013, the closing date of the transaction, over the carrying
value of our VLGC business, which included 11 VLGC contracts and options to purchase two additional newbuilding
VLGCs, net of costs to sell. This calculation is set forth below:
In thousands of US dollars
Installment payments on 11 VLGCs made through November 26, 2013 .................. $
Additional cash and other capitalized costs ...............................................................
Selling costs ..............................................................................................................
Total book value of assets contributed ......................................................................
Value of initial shares received at closing .................................................................
Gain on sale ............................................................................................................... $
83,070
2,300(1)
7,690(2)
93,060
134,435(3)
41,375
Gain on sale of assets
In thousands of US dollars
Value of initial shares received at closing ................................................................. $
Investment in private placement ................................................................................
Value of investment at November 26, 2013 ..............................................................
Carrying value of
initial investment
134,435(3)
75,000(4)
209,435
(1) Represents additional cash consideration and the contribution of certain capitalized costs that were incurred on these
vessels under construction prior to closing.
(2) Represents legal and advisory fees relating to the transaction, including commissions paid to SSH. See Note 13 for
further description of these commissions.
(3) The value of our initial investment was determined based on the closing price of Dorian on the NOTC at November 26,
2013 of NOK 20.5, using an NOK/USD exchange rate of 6.0923 NOK/USD at that date. See below for further
discussion of our assessment of fair value.
(4) We purchased 24,121,621 new shares of Dorian’s common stock as part of a private placement of shares for total
consideration of $75.0 million in November 2013.
Fair value of the initial investment
Fair value has been based on published quoted prices on the NOTC, which we consider to be an active market
particularly for shipping companies given the high level of interest and activity in shipping in that region. To assess the
adequacy of this valuation, we performed a separate analysis of the fair market value of Dorian’s net assets, which considered
recent, third party vessel valuations. This analysis confirmed our valuation of the shares received.
Our share of current period results
Dorian LPG Ltd. was incorporated on July 1, 2013, under the laws of the Republic of the Marshall Islands, and has a
fiscal year end of March 31. The results included herein are derived from Dorian’s quarterly results as of December 31, 2013.
Furthermore, Dorian prepares its financial statements in accordance with Generally Accepted Accounting Principles in the
United States (‘US GAAP’). As such adjustments were made to convert our share of Dorian’s results from US GAAP to
IFRS.
F-27
Adjusted Dorian
LPG Ltd. for the
three months ended
December 31, 2013
13,800
3,652
5,195
— $
(48)
(48)
(14) $
369(3)
Adjusted Dorian
LPG Ltd. as of
December 31, 2013
337,026
516,397
853,423
—
(48)
(48)
The following table depicts summarized financial information of Dorian and its predecessor companies for the fiscal
year ended March 31, 2013 in addition to the unaudited financial information of Dorian for the three months ended December
31, 2013. The financial statements as of December 31, 2013 are then reconciled to our carrying value at that date.
Predecessor
companies for the
year ended
March 31, 2013(1) (2)
Adjustments
Dorian LPG Ltd.
for the three
months ended
December 31, 2013 (1)
Revaluation of
initial interest to
fair value
Impact of
revaluation and
conversion to
IFRS(5)
In thousands of US dollars
Revenue ....................................... $
Operating income / (loss) .............
Net (loss) / income .......................
38,662 $
3,360
(4,851)
13,800 $
3,700
5,243
STI’s share of net income ............ $
— $
383 $
— $
—
—
— $
Predecessor
companies as of
March 31, 2013 (1) (2)
Dorian LPG Ltd. as of
December 31, 2013 (1)
Adjustments
Revaluation of
initial interest to
fair value (4)
Impact of
revaluation and
conversion to IFRS
(5)
337,026
413,054
750,080
—
103,391
103,391
Current assets ..............................
Non-current assets ......................
Total assets .................................
Current liabilities ........................
Non-current liabilities .................
Total liabilities ............................
6,158
188,290
194,448
31,601
150,089
181,690
22,166
131,911
154,077
—
—
—
—
—
—
22,166
131,911
154,077
Net assets ....................................
12,758
596,003
103,391
(48)
699,346
STI’s share of net assets.............. $
— $
178,801 $
31,017 $
(14) $
209,803(6)
(1) Prepared in accordance with US GAAP.
(2) The formation of Dorian consisted of the acquisition of four vessel owning entities on July 29, 2013 that were previously
operating under separate ownership. As such, financial statements for the fiscal year ended March 31, 2013 are the
combined financial statements of these four entities (‘Predecessor companies’).
(3) We estimated our 30% share of Dorian’s net income for the 35 day period beginning with the closing date of November
26, 2013 and ending on December 31, 2013 by pro-rating Dorian’s results for quarter ending December 31, 2013 and
adjusting for any material transactions occurring before or after the closing date.
(4) Represents the step-up adjustment to revalue Dorian’s balance sheet to fair value as of the closing date of November 26,
2013. We mainly attributed this step up to Dorian’s fleet of vessels which was based on recent, third party, vessel
valuations.
(5) This represents the (i) excess depreciation calculated as a result of our stepped up basis and (ii) our conversion of
depreciation expense from US GAAP to IFRS.
(6) Calculated as 30% of Dorian’s adjusted net assets at December 31, 2013.
F-28
8.
Accounts payable
In thousands of US dollars
Progress payments due for vessels under construction .................................................. $
Suppliers ........................................................................................................................
Scorpio MR Pool Limited ..............................................................................................
Scorpio Handymax Tanker Pool Limited ......................................................................
Scorpio Ship Management .............................................................................................
Scorpio Commercial Management ................................................................................
$
At December 31,
2013
2012
14,969 $
5,631
63
32
1
—
20,696 $
3,500
7,612
—
59
70
146
11,387
The majority of accounts payable are settled with a cash payment within 90 days. No interested is charged on
accounts payable. We consider that the carrying amount of accounts payable approximates fair value.
9.
Bank loans
The following is a breakdown of the current and non-current portion of our bank loans outstanding at December 31,
2013 and December 31, 2012.
In thousands of US dollars
Current portion (1) ........................................................................................................... $
Bank loan related to vessels held for sale (2) .................................................................
Current bank loans .........................................................................................................
Non-current portion (3) ...................................................................................................
$
As of December 31,
2013
2012
10,453 $
21,397
31,850
7,475
—
7,475
135,279
167,129 $
134,984
142,459
(1) The current portion at December 31, 2013 was net of unamortized deferred financing fees of $0.2 million. The current portion at December 31, 2012
was net of unamortized deferred financing fees of $0.1 million.
(2) This relates to amounts due under our STI Spirit Credit Facility at December 31, 2013 and is shown net of $0.3 million unamortized deferred financing
fees. The vessel held as collateral in this facility, STI Spirit, was designated as held for sale at December 31, 2013. Accordingly, all assets and liabilities
related to this vessel have been classified as current.
(3) The non-current portion at December 31, 2013 was net of unamortized deferred financing fees of $2.0 million. The non-current portion at December
31, 2012 was net of unamortized deferred financing fees of $3.3 million.
2010 Revolving Credit Facility
On June 2, 2010, we executed a credit facility with Nordea Bank Finland plc, acting through its New York branch,
DNB Bank ASA, acting through its New York branch, and ABN AMRO Bank N.V, for a senior secured term loan facility of
up to $150 million. On July 12, 2011, we amended and restated the credit facility to convert it from a term loan to a reducing
revolving credit facility. This gave us the ability to pay down and re-borrow from the total available commitments under the
loan. In 2012, we sold three of our Handymax vessels that were collateral to this facility. As a consequence of these
disposals, the availability of the 2010 Revolving Credit Facility decreased by $31.0 million. The total available commitments,
after taking into consideration the impact of these sales, reduces by $3.1 million each quarter, with a lump sum reduction of
$57.1 million at the maturity date of June 2, 2015. Our subsidiaries that own vessels that are collateralized by this loan act as
guarantors under the amended and restated credit facility. All terms mentioned are defined in the agreement.
Drawdowns under the credit facility bear interest as follows: (1) through December 29, 2011, at LIBOR plus an
applicable margin of 3.00% per annum when our debt to capitalization (total debt plus equity) ratio is equal to or less than
50% and 3.50% per annum when our debt to capitalization ratio is greater than 50%; (2) from December 30, 2011 through
September 30, 2013, at LIBOR plus an applicable margin of 3.50% per annum; and (3) from October 1, 2013 and at all times
thereafter, at LIBOR plus an applicable margin of 3.25% per annum when our debt to capitalization (total debt plus equity)
ratio is equal to or less than 50% and 3.50% per annum when our debt to capitalization ratio is greater than 50%. A
commitment fee equal to 40% of the applicable margin is payable on the unused daily portion of the credit facility. The credit
facility matures on June 2, 2015 and can only be used to refinance amounts outstanding from the original loan agreement and
for general corporate purposes.
F-29
The credit facility requires us to comply with a number of covenants, including financial covenants; delivery of
quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws
(including environmental); compliance with ERISA (Employee Retirement Income Security Act); maintenance of flag and
class of the initial vessels; restrictions on consolidations, mergers or sales of assets; approval on changes in the Manager of
our initial vessels; limitations on liens; limitations on additional indebtedness; prohibitions on paying dividends if a covenant
breach or an event of default has occurred or would occur as a result of payment of a dividend; prohibitions on transactions
with affiliates; and other customary covenants.
The financial covenants include:
(cid:120) The ratio of net debt to capitalization shall be no greater than 0.60 to 1.00.
(cid:120) Consolidated tangible net worth (i.e. total shareholders’ equity) shall be no less than $150.0 million plus 25% of
cumulative positive net income (on a consolidated basis) for each fiscal quarter from July 1, 2010 going forward
and 50% of the value of any new equity issues from July 1, 2010 going forward.
(cid:120) The ratio of EBITDA to interest expense shall be no less than 1.25 to 1.00 commencing with the fourth fiscal
quarter of 2011 until the fourth quarter of 2012, at which point it increased to 1.50 to 1.00 for the first quarter of
2013, 1.75 to 1.00 for the second quarter of 2013 and 2.00 to 1.00 at all times thereafter. Such ratio shall be
calculated quarterly on a trailing four quarter basis. In addition, we are restricted from paying dividends until
our EBITDA to interest expense ratio is 2.00 to 1.00 or greater. EBITDA, as defined in the loan agreement,
excludes non-cash charges such as impairment.
(cid:120) Consolidated liquidity (cash, cash equivalents, and availability under the 2010 Revolving Credit Facility) needs
to be not less than $25.0 million, of which unrestricted cash and cash equivalents shall be not less than $15.0
million, until we own, directly or indirectly, more than 15 vessels, at which time the amount increases by
$750,000 per each additional vessel.
(cid:120) The aggregate fair market value of the collateral vessels (see note 4) shall at all times be no less than 150% of
the then aggregate outstanding principal amount of loans under the credit facility.
In June 2013, we voluntarily repaid $17.2 million into this facility. As of December 31, 2013, there was no
outstanding balance and there was $72.4 million available to draw when needed. As of December 31, 2012, the outstanding
balance was $17.2 million and $67.4 million was available to draw. We were in compliance with the financial covenants
relating to this facility as of December 31, 2013.
During January 2014, we drew down this facility in full. In March 2014, we repaid $22.7 million into this facility as
part of the sales of Noemi and Senatore. See Note 22 for further discussion of these transactions and the impact on this credit
facility.
STI Spirit Credit Facility
On March 9, 2011, we executed a credit facility with DVB Bank SE for a senior secured term loan facility of $27.3
million for STI Spirit, which was acquired in November 2010. The credit facility was drawn down on March 17, 2011 and
matures on March 17, 2018. The loan bears interest at LIBOR plus a margin of 2.75% per annum. The loan will be repaid
over 28 equal quarterly installments and a lump sum payment at maturity. The quarterly installments commenced three
months after the drawdown and were calculated using an 18 year amortization profile. Our subsidiary, STI Spirit Shipping
Company Limited, which owns the vessel, is the borrower and Scorpio Tankers Inc. is the guarantor.
The credit facility requires us to comply with a number of covenants, including financial covenants; delivery of
quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws
(including environmental); compliance with ERISA (Employee Retirement Income Security Act); maintenance of flag and
class of the vessel; restrictions on consolidations, mergers or sales of assets; approval of changes in the Manager of our
vessels; limitations on liens; limitations on additional indebtedness; prohibitions on paying dividends if a covenant breach or
an event of default has occurred or would occur as a result of payment of a dividend; prohibitions on transactions with
affiliates; and other customary covenants.
F-30
All terms mentioned are defined in the agreement. The financial covenants of the credit facility are described below.
(cid:120) The ratio of debt to capitalization shall be no greater than 0.60 to 1.00.
(cid:120) Consolidated tangible net worth (i.e. shareholders equity) shall be no less than $150.0 million plus 25% of
cumulative positive net income (on a consolidated basis) for each fiscal quarter.
(cid:120) The ratio of EBITDA to interest expense shall be no less than 1.25 to 1.00 for the period commencing with the
fourth quarter of 2011 through the fourth quarter of 2012, at which time it increased to 1.50 to 1.00 for the first
quarter of 2013, 1.75 to 1.00 for the second quarter of 2013 and 2.00 to 1.00 at all times thereafter. Such ratio
shall be calculated quarterly on a trailing four quarter basis. In addition, we are restricted from paying dividends
until our EBITDA to interest expense ratio is 2.00 to 1.00 or greater. EBITDA, as defined in the loan
agreement, excludes non-cash charges such as impairment.
(cid:120) Consolidated liquidity (cash, cash equivalents, and availability under the 2010 Revolving Credit Facility) needs
to be not less than $25.0 million, of which unrestricted cash and cash equivalents shall be not less than $15.0
million, until we own, directly or indirectly, more than 15 vessels, at which time the amount increases by
$750,000 per each additional vessel.
(cid:120) The aggregate fair market value of STI Spirit shall at all times be no less than (i) 140% of the then outstanding
loan balance if the vessel is operating in a pool or in the spot market or (ii) 130% of the then outstanding loan if
the vessel is on time charter with a duration of at least one year.
As described above, the credit facility requires that the charter-free market value of the STI Spirit shall be no less
than 140% of the then outstanding loan balance. In order to stay in compliance with this covenant, we prepaid $1.4 million in
addition to the $0.3 million scheduled principal payment into this credit facility in December 2013.
The outstanding balance at December 31, 2013 and December 31, 2012 was $21.7 million and $23.4 million,
respectively. We were in compliance with the financial covenants relating to this facility as of December 31, 2013.
In February 2014, we agreed to sell STI Spirit. See Note 22 for further description of this transaction and the
resultant impact on this credit facility.
2011 Credit Facility
On May 3, 2011, we executed a credit facility with Nordea Bank Finland plc, acting through its New York branch,
DnB NOR Bank ASA, acting through its New York branch, and ABN AMRO Bank N.V., for a senior secured term loan
facility of up to $150.0 million. On July 20, 2012, we extended the availability period of the 2011 Credit Facility until
January 31, 2014. The availability period was previously scheduled to expire in May 2013.
All terms mentioned in this section are defined in the agreement.
Drawdowns under this credit facility are available until January 31, 2014 and bear interest as follows: (1) until
December 29, 2011, at LIBOR plus an applicable margin of (i) 2.75% per annum when our debt to capitalization (total debt
plus equity) ratio is less than 45%, (ii) 3.00% per annum when our debt to capitalization ratio is greater than or equal to 45%
but less than or equal to 50% and (iii) 3.25% when our debt to capitalization ratio is greater than 50%; (2) from December 30,
2011 through September 30, 2013, at LIBOR plus an applicable margin of 3.50% per annum and (3) from October 1, 2013
and at all times thereafter, at LIBOR plus an applicable margin of (i) 3.25% per annum when our debt to capitalization (total
debt plus equity) ratio is equal to or less than 50% and (ii) 3.50% per annum when our debt to capitalization ratio is greater
than 50%. A commitment fee equal to 40% of the applicable margin is payable on the unused daily portion of the credit
facility. The credit facility matures on May 3, 2017 and can only be used to finance up to 50% of the cost of future vessel
acquisitions, which vessels would be the collateral for the credit facility.
Borrowings for each vessel financed under this facility represent a separate tranche, with repayment terms
dependent on the age of the vessel at acquisition. Each tranche under the credit facility is repayable in equal quarterly
installments, with a lump sum payment at maturity, based on a full repayment of such tranche when the vessel to which it
relates is sixteen years of age. Our subsidiaries, which may at any time, own one or more of our vessels, will act as
guarantors under the credit facility.
F-31
The credit facility requires us to comply with a number of covenants, including financial covenants; delivery of
quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws
(including environmental); compliance with ERISA (Employee Retirement Income Security Act); maintenance of flag and
class of the initial vessels; restrictions on consolidations, mergers or sales of assets; approvals on changes in the Manager of
our initial vessels; limitations on liens; limitations on additional indebtedness; prohibitions on paying dividends if a covenant
breach or an event of default has occurred or would occur as a result of payment of a dividend; prohibitions on transactions
with affiliates; and other customary covenants.
The financial covenants include:
(cid:120) The ratio of net debt to capitalization shall be no greater than 0.60 to 1.00.
(cid:120) Consolidated tangible net worth (i.e. shareholders’ equity) shall be no less than $150.0 million plus 25% of
cumulative positive net income (on a consolidated basis) for each fiscal quarter from July 1, 2010 going forward
and 50% of the value of any new equity issues from July 1, 2010 going forward.
(cid:120) The ratio of EBITDA to interest expense shall be no less than 1.25 to 1.00 commencing with the fourth fiscal
quarter of 2011 until the fourth quarter of 2012, at which point it increased to 1.50 to 1.00 for the first quarter of
2013, 1.75 to 1.00 for the second quarter of 2013 and 2.00 to 1.00 at all times thereafter. Such ratio shall be
calculated quarterly on a trailing four quarter basis. In addition, we are restricted from paying dividends until
our EBITDA to interest expense ratio is 2.00 to 1.00 or greater. EBITDA, as defined in the loan agreement,
excludes non-cash charges such as impairment.
(cid:120) Consolidated liquidity (cash, cash equivalents, and availability under the 2010 Revolving Credit Facility) needs
to be not less than $25 million, of which unrestricted cash and cash equivalents shall be not less than $15.0
million, until we own, directly or indirectly, more than 15 vessels, at which time the amount increases by
$750,000 per each additional vessel.
(cid:120) The aggregate fair market value of the collateral vessels shall at all times be no less than 150% of the then
aggregate outstanding principal amount of loans under the credit facility.
In January 2013, March 2013 and April 2013, we drew down an aggregate of $52.1 million from this facility in
connection with the deliveries of STI Sapphire, STI Emerald and STI Beryl, respectively.
As of December 31, 2013, there was $62.9 million available for borrowing which can be used to finance up to 50%
of future vessel acquisitions through January 31, 2014. The outstanding balance at December 31, 2013 and December 31,
2012 was $64.0 million and $15.5 million, respectively. We were in compliance with the financial covenants relating to this
facility as of December 31, 2013.
In January 2014, we drew down an aggregate of $52.0 million. See Note 22 for further description.
Newbuilding Credit Facility
On December 21, 2011, we executed a credit facility agreement with Credit Agricole Corporate and Investment
Bank and Skandinaviska Enskilda Banken AB for a senior secured term loan facility of up to $92.0 million. During the year
ended December 31, 2012, we drew down an aggregate of $92.0 million from this facility to partially finance the deliveries
of STI Amber, STI Topaz, STI Ruby and STI Garnet ($23.0 million per vessel). These vessels are owned individually by
certain of our subsidiaries, who together are the borrowers under this credit facility, and Scorpio Tankers Inc. is the
guarantor. Borrowings under the credit facility bear interest at LIBOR plus an applicable margin of 2.70% per annum. A
commitment fee equal to 1.10% per annum was payable on the unused daily portion of the credit facility, and the facility was
fully drawn as of December 31, 2012. All terms mentioned in this section are defined in the agreement.
The facility is separated into four tranches (one per each vessel) and repayment of the tranche relating to the
respective vessel commenced after delivery of that vessel in quarterly installments of $375,000, which equates to a repayment
profile of 15.33 years. Each tranche is scheduled to mature approximately seven years after delivery of the relevant vessel
from the shipyard.
The credit facility requires us to comply with a number of covenants, including financial covenants; delivery of
quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws
(including environmental); compliance with ERISA; maintenance of flag and class of the initial vessels; restrictions on
consolidations, mergers or sales of assets; approvals on changes in the Manager of our initial vessels; limitations on liens;
F-32
limitations on additional indebtedness; prohibitions on paying dividends if a covenant breach or an event of default has
occurred or would occur as a result of payment of a dividend; prohibitions on transactions with affiliates; and other
customary covenants.
The financial covenants include:
(cid:120) The ratio of net debt to capitalization shall be no greater than 0.60 to 1.00.
(cid:120) Consolidated tangible net worth (i.e. shareholders equity) shall be no less than $150.0 million plus 25% of
cumulative positive net income (on a consolidated basis) for each fiscal quarter from July 1, 2010 going forward
and 50% of the value of any new equity issues from July 2, 2010 going forward.
(cid:120) The ratio of EBITDA to interest expense shall be no less than 2.00 to 1.00 commencing with the third fiscal
quarter of 2011 until the fourth quarter of 2012, and 2.50 to 1.00 for all times thereafter. Such ratio shall be
calculated quarterly on a trailing four quarter basis. EBITDA, as defined in the loan agreement, excludes non-
cash charges such as impairment.
(cid:120) Unrestricted cash and cash equivalents shall at all times be no less than $15.0 million, until we own, directly or
indirectly, more than 15 vessels, at which time the amount increases by $750,000 per each additional vessel.
(cid:120) The aggregate fair market value of the collateral vessels shall at all times be no less than 140% (120% if the
vessel is subject to acceptable long term employment) of the aggregate principal amount outstanding plus a pro
rata amount of any allocable swap exposure for the credit facility.
During the year ended December 31, 2013, we made scheduled principal payments of $6.0 million into this credit
facility. The outstanding balance at December 31, 2013 and December 31, 2012 was $83.8 million and $89.8 million,
respectively. We were in compliance with the financial covenants relating to this facility as of December 31, 2013.
In March 2014, we amended the Newbuilding Credit Facility to convert it from a term loan to a reducing revolving
credit facility. See Note 22 for further description on the amendment.
2013 Credit Facility
On July 2, 2013, we entered into a senior secured revolving credit facility and term loan facility with Nordea Bank
Finland plc and the other lenders named therein of up to $525.0 million to finance the acquisition of the Firm Vessels
(defined below), the Option Vessels (defined below) and certain other vessels and for general corporate purposes, including
working capital. This credit facility is secured by, among other things, a first-priority cross-collateralized mortgage on certain
vessels for which we have entered into newbuilding contracts, or the Firm Vessels, and certain vessels for which we may
exercise construction options, or the Option Vessels, and together with the Firm Vessels, the Collateral Vessels. Our
subsidiaries that own the Collateral Vessels act as joint and several guarantors under our 2013 Credit Facility. We refer to
this credit facility as our 2013 Credit Facility.
Our 2013 Credit Facility consists of a $260.0 million delayed draw term loan facility to finance the acquisition of
the Firm Vessels and a $265.0 million revolving credit facility to finance the acquisition of the Option Vessels and certain
other vessels built on January 1, 2012 or later, and for general corporate purposes, including working capital.
Drawdowns of the term loan may occur in connection with the delivery of a Firm Vessel in an amount equal to the
lesser of 60% of (i) the contract price for such vessel or (ii) such vessel’s fair market value. Drawdowns of the revolving
credit facility may occur in connection with the delivery of an Option Vessel and are also capped at the lesser of 60% of (i)
the contract price for such vessel or (ii) such vessel’s fair market value, with such amount, once drawn, available on a
revolving basis. Drawdowns under the term loan are available until the earlier of the delivery of each Firm Vessel and
January 31, 2015 and drawdowns under the revolving loan are available until July 31, 2015 and bear interest at LIBOR plus
an applicable margin of 3.50%.
The term loan is repayable and the revolving loans reduced, in each case, in an amount equal to 1/60th of such loan
on a consecutive quarterly basis until final maturity on the sixth anniversary of the facility. In addition to restrictions imposed
upon the owners of the Collateral Vessels (such as, limitations on liens and limitations on the incurrence of additional
indebtedness), our 2013 Credit Facility includes financial covenants that require us to maintain:
(cid:120) The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
F-33
(cid:120) Consolidated tangible net worth no less than (i) $150.0 million plus 25% of cumulative positive net income (on
a consolidated basis) for each fiscal quarter beginning on July 1, 2010 and (ii) 50% of the value of any new
equity issues from July 1, 2010 going forward.
(cid:120) The ratio of EBITDA to net interest expense greater than 2.00 to 1.00 through December 31, 2013 and 2.50 to
1.00 thereafter.
(cid:120) Minimum liquidity of not less than the greater of $25.0 million or 5% of total indebtedness.
(cid:120) The aggregate fair market value of the Collateral Vessels shall at all times be no less than 140% of the then
aggregate outstanding principal amount of loans under the credit facility.
We had no borrowings under this facility at December 31, 2013 and we were in compliance with the financial
covenants relating to this credit facility as of December 31, 2013.
In February and March 2014, we drew down $64.2 and $20.5 million from this credit facility, respectively. See Note
22 for further description.
KEXIM Financing
In September 2013, we received loan commitments from a group of financial institutions led by DNB Bank ASA
and Skandinaviska Enskilda Banken AB (publ) and from the Export-Import Bank of Korea (“KEXIM”) for a total loan
facility of up to $429.6 million. This facility includes commitments from KEXIM of up to $300.6 million (the “KEXIM
Tranche”) and a group of financial institutions led by DNB Bank ASA and Skandinaviska Enskilda Banken AB (publ) of up
to $129.0 million (the “Commercial Tranche”).
In addition to KEXIM’s commitment of up to $300.6 million, KEXIM has also provided an optional guarantee for a
five year amortizing note of $125.3 million (the “KEXIM Guaranteed Note”) that may be issued by the Company at the
Company’s discretion in 2014; the proceeds of which will be used to reduce the $300.6 million KEXIM Tranche.
This facility was executed in February 2014 as further described in Note 22.
K-Sure Financing
In October 2013, we received an Acceptance of Insurance Agreement from Korea Trade Insurance Corporation (“K-
Sure”) covering 95% of an up to $358.3 million K-Sure tranche as part of a credit facility of up to $458.3 million (the “K-
SURE Financing”) with a group of financial institutions. The K-Sure Financing will also include a commercial tranche (the
“Commercial Tranche”) of up to $100.0 million.
The K-Sure Financing will be used to finance up to 60% of the contract price of up to 21 newbuilding product
tankers upon delivery. This facility was executed in February 2014 as further described in Note 22.
10.
Derivative financial instruments
In August 2011, we entered into six interest rate swap agreements to manage interest costs and the risk associated
with changing interest rates on our 2011 and 2010 Credit Facilities with three different banks. Pursuant to these interest rate
swap contracts, we agreed to exchange the difference between fixed and floating rate interest amounts calculated on agreed
notional principal amounts. Such contracts enable us to partially mitigate the risk of changing interest rates on the cash flow
exposures on the issued variable rate debt held. We determined the estimated fair value of our derivatives by discounting the
future cash flows using the curves at the reporting date and the credit risk inherent in the contract. These swaps have been
designated and accounted for as cash flow hedges.
In September 2012, as a result of the sales of two MRs and corresponding debt repayment, we reduced the notional
amount on the interest rate swaps relating to the 2011 Credit Facility to $15.0 million from $24.0 million in aggregate. As a
result of the reduction, we recognized a realized loss of $0.2 million, which was reclassified out of other comprehensive loss
and recorded as a component of loss from sale of vessels.
F-34
The notional principal amounts of these swaps aggregate $66.0 million, the details of which are as follows as of
December 31, 2013 and 2012, respectively:
Hedged item
2010 Revolving Credit Facility .......
2011 Credit Facility ........................
Notional amount
$51 million
$15 million
Start Date
July 2, 2012
June 2, 2015
July 2, 2012 June 30, 2015
Expiration date Fixed interest rate Floating interest rate
3 mo. LIBOR
3 mo. LIBOR
1.27%
1.30%
The vessels which collateralize the 2011 Credit Facility and 2010 Revolving Credit Facility also serve as collateral
for the designated interest rate swap agreements, subordinated to the outstanding borrowings under each credit facility.
In December 2012, we voluntarily repaid $50.0 million into our 2010 Revolving Credit Facility. After the payment,
we had $17.2 million of debt outstanding under the 2010 Credit Facility, which is less than the total notional amount of $51.0
million for the three interest rate swaps related to the facility. As such, the swaps related to the 2010 Revolving Credit
Facility no longer met the criteria for hedge accounting and we therefore de-designated the hedge relationship prospectively
and reclassified all amounts accumulated in other comprehensive income ($1.0 million) to the statement of income or loss for
the year ended December 31, 2012 as a component of Financial Expenses.
The interest rate swaps relating to the 2011 Credit Facility continue to qualify for hedge accounting. Accordingly,
changes in their fair value, which the hedge is deemed to be effective, are recognized directly in other comprehensive income
and classified as ‘hedging reserves’. Changes in their fair value for any portion deemed to be ineffective are recognized in the
consolidated statement of income or loss.
Profit or loss sharing agreements
In July 2012, we entered into a profit or loss sharing arrangement on the earnings of an LR1 vessel that was not
owned or operated by us. The agreement stipulated that 50% of the profits and losses were shared with the counterparty. The
counterparty to this agreement was time chartering-in this vessel for a period of six months at $12,750 per day and this
agreement expired in January 2013.
In September 2012, we took delivery of an LR1, FPMC P Eagle, on a time charter-in arrangement for one year at
$12,800 per day. We also entered into a profit and loss sharing arrangement whereby 50% of the profits and losses relating to
this vessel above or below the charterhire rate were shared with a third party who neither owns nor operates FPMC P Eagle.
The profit or loss agreement expired on October 2013.
These agreements were treated as derivatives, recorded at fair value with any resultant gain or loss recognized in the
statement of profit or loss. Changes in fair value were recorded as unrealized gains and losses on derivative financial
instruments and actual earnings were recorded as realized gains or losses on derivative financial instruments, within the
consolidated statement of profit or loss. The fair value of these instruments is determined by comparing published time
charter rates to the charterhire rate and discounting those cash flows to their estimated present value.
The following table summarizes the fair value of our derivative financial instruments as of December 31, 2013 and
2012, which are included in the consolidated balance sheet:
In thousands of US dollars
Assets
Prepaid expenses and other current assets (profit and loss agreements) ...................................... $
At December 31,
2013
2012
— $
26
Liabilities
Derivative financial instrument (profit and loss agreements - current) .......................................
Derivative financial instrument (interest rate swap - current) ......................................................
Total current liabilities .................................................................................................................
—
(689)
(689)
(211)
(633)
(844)
Derivative financial instrument (interest rate swap - non-current) ..............................................
Total liabilities ............................................................................................................................. $
(188)
(877) $
(743)
(1,587)
F-35
The following has been recorded as realized and unrealized gains or losses on our derivative financial instruments:
Fair value adjustments
In thousands of US dollars
Profit and loss agreements .............................................................................. $
Interest rate swap ............................................................................................
Total period ended December 31, 2013 ....................................................... $
Profit and loss agreements .............................................................................. $
Interest rate swap ............................................................................................
Total period ended December 31, 2012 ....................................................... $
Statement of profit or loss
Realized
gain/ (loss)
Unrealized
gain/ (loss)
3
—
3
$
$
$
443
(229) (1)
$
214
185 $
382
567 $
(184) $
(1,047)
(1,231) $
Recognized
in equity
—
117
117
0
(904)
(904)
(701)
(701)
Interest rate swap ............................................................................................
Total period ended December 31, 2011 ....................................................... $
—
—
$
—
— $
(1) The realized loss on our interest rate swap was recorded as a component of the loss from sale of vessels on the
consolidated statement of income or loss.
11.
Segment reporting
Information about our reportable segments for the years ended December 31, 2013, 2012 and 2011 is as a follows:
For the year ended December 31, 2013
In thousands of U.S. dollars
Panamax/LR1 Handymax Aframax/LR2 MR
Reportable
segments
subtotal
Corporate
and
eliminations Total
Vessel revenue ............................................................... $
Vessel operating costs ...................................................
Voyage expenses ...........................................................
Charterhire .....................................................................
Depreciation ..................................................................
General and administrative expenses ............................
Write down of vessels held for sale ..............................
Gain on sale of VLGCs .................................................
Financial expenses .........................................................
Realized gain on derivative financial instruments ........
Unrealized gain on derivative financial instruments ....
Financial income ...........................................................
Share of profit from associate .......................................
Other expenses, net .......................................................
41,683 $
(14,276)
(3,858)
(14,363)
(7,275)
(536)
(15,002)
—
—
3
186
—
—
—
36,205 $
(2,648)
(11)
(31,086)
(1,292)
(118)
—
—
—
—
—
—
—
—
28,204 $ 101,488 $ 207,580 $
(40,204)
(3,211)
(4,846)
—
(115,543)
(29,341)
(23,595)
(1,750)
(1,838)
(154)
(21,187)
(6,185)
—
—
(847)
(847)
3
—
186
—
4
—
—
—
(31)
(10)
(20,069)
(977)
(40,753)
(13,278)
(1,030)
—
—
—
—
—
4
—
(21)
— $ 207,580
(40,204)
—
—
(4,846)
— (115,543)
(23,595)
—
(25,788)
(23,950)
(21,187)
—
41,375
41,375
(2,705)
(1,858)
3
—
567
381
1,147
1,143
369
369
(158)
(127)
Segment profit or loss ................................................. $
(13,438) $
1,050 $
(13,294) $ 25,364 $
(318) $
17,333 $
17,015
F-36
For the year ended December 31, 2012
In thousands of U.S. dollars
Panamax/LR1 Handymax Aframax/LR2 MR
Reportable
segments
subtotal
Corporate
and
eliminations Total
Vessel revenue ............................................................... $
Vessel operating costs ...................................................
Voyage expenses ...........................................................
Charterhire .....................................................................
Depreciation ..................................................................
General and administrative expenses ............................
Loss from sales of vessels .............................................
Financial expenses .........................................................
Realized gain on derivative financial instruments ........
Unrealized loss on derivative financial instruments .....
Financial income ...........................................................
Other expense, net .........................................................
28,602 $
(14,137)
(999)
(1,629)
(7,352)
(495)
—
—
443
(184)
—
—
35,381 $
(5,428)
(2,741)
(23,192)
(1,716)
(195)
(4,525)
—
—
—
—
—
4,541 $ 46,857 $ 115,381 $
(30,353)
(7,484)
(3,304)
(21,744)
(25) (17,979)
(43,701)
(1,287) (17,593)
(14,818)
(4,015)
(1,735)
(1,188)
(398)
(100)
(10,404)
(5,879)
—
(1,086)
—
(1,086)
—
—
443
(184)
—
—
6
6
—
(62)
(51)
(11)
— $ 115,381
(30,353)
—
(21,744)
—
(43,701)
—
(14,818)
—
(11,536)
(10,348)
(10,404)
—
(8,512)
(7,426)
443
—
(1,231)
(1,047)
35
29
(97)
(35)
Segment profit or loss ................................................. $
4,249 $
(2,416) $
(3,007) $
(6,536) $
(7,710) $
(18,827) $ (26,537)
For the year ended December 31, 2011
In thousands of U.S. dollars
Panamax/LR1 Handymax Aframax/LR2 MR
Reportable
segments
subtotal
Corporate
and
eliminations Total
Vessel revenue ............................................................... $
Vessel operating costs ...................................................
Voyage expenses ...........................................................
Charterhire .....................................................................
Impairment ....................................................................
Depreciation ..................................................................
General and administrative expenses ............................
Financial expenses .........................................................
Financial income ...........................................................
Other expenses, net .......................................................
31,101 $
(14,428)
(13)
(4,554)
(28,616)
(9,279)
(692)
—
—
23
32,238 $
(11,217)
(26)
(17,357)
(12,962)
(5,069)
(762)
—
—
—
6,484 $ 12,287 $
(3,178)
(2,547)
(6,842)
—
—
(839)
(12,459) (12,574)
(2,038)
(314)
—
—
—
(2,074)
(136)
(841)
—
(134)
82,110 $
(31,370)
(6,881)
(22,750)
(66,611)
(18,460)
(1,904)
(841)
—
(111)
— $ 82,110
— (31,370)
—
(6,881)
— (22,750)
— (66,611)
— (18,460)
(9,733) (11,637)
(7,060)
(6,219)
51
51
(119)
(8)
Segment profit or loss ................................................. $
(26,458) $ (15,155) $
(12,546) $ (12,659) $
(66,818) $
(15,909) $ (82,727)
All of our operating segments contained revenue from at least one major customer representing greater than 10% of
total revenue. The revenue from those customers within their respective segments was:
Amounts in thousands of US dollars
Segment
MR
Handymax
Panamax/LR1
LR2
Customer
2013
2012
2011
Scorpio MR Pool Limited (1)
Scorpio Handymax Tanker Pool Limited (1)
Scorpio Panamax Tanker Pool Limited (1)
Scorpio LR2 Pool Limited (1)
King Dustin (1)
$
$
89,597 $
36,199
36,018
28,203
—
190,017 $
9,558 $
31,280
26,884
4,540
—
72,262 $
—
32,238
22,594
5,195
8,507
68,534
(1) These customers are related parties (see note 13)
12.
Common shares
February 2013 Shelf Registration Statement
On February 22, 2013, we filed a Form F-3 with the Securities and Exchange Commission, with an effective date of
February 25, 2013, which can be used to issue common shares, preferred shares, debt securities, warrants, purchase contracts,
and units. If a debt security is issued, all of our subsidiaries may guarantee the securities issued by the parent company. Each
subsidiary is 100% owned and each guarantee of the registered security will be full, unconditional, and joint and several with
all other subsidiary guarantees.
F-37
Share issuances
In February 2013, we closed on the sale of 30,672,000 newly issued shares of common stock in a registered direct
placement of common shares at an offering price of $7.50 per share. We received net proceeds of $222.1 million, after
deducting placement agent discounts and offering expenses of $7.9 million.
In March 2013, we closed on the sale of 29,012,000 newly issued shares of common stock in a registered direct
placement of common shares at an offering price of $8.10 per share. We received net proceeds of $226.8 million, after
deducting placement agent discounts and offering expenses of $8.2 million.
In May 2013, we closed on the sale of 36,144,578 newly issued shares of common stock in a registered direct
placement of common shares at an offering price of $8.30 per share. We received net proceeds of $289.2 million, after
deducting placement agent discounts and offering expenses of $10.8 million.
In August 2013, we closed on the sale of 20,000,000 newly issued shares of common stock in an underwritten
offering of common shares at an offering price of $9.50 per share. In addition, the underwriters also fully exercised their
over-allotment option to purchase 3,000,000 additional common shares at the offering price. We received aggregate net
proceeds of $209.8 million after deducting underwriters’ discounts and offering expenses of $8.7 million.
In November 2013, we issued 3,611,809 common shares to unaffiliated third parties in connection with our
acquisition of four MR vessel newbuilding contracts. See Note 4 for further description of this transaction.
In December 2013, we issued 3,523,271 common shares to unaffiliated third parties in connection with our
acquisition of four MR vessel newbuilding contracts. See Note 4 for further description of this transaction.
Restricted stock
2010 Equity Incentive Plan Issuances
On June 18, 2010, we issued 559,458 shares of restricted stock to our employees for no cash consideration. The
share price at the date of issue was $10.99 per share. The vesting schedule of the restricted stock is (i) one-third of the shares
vested on April 6, 2013, (ii) one-third of the shares vest on April 6, 2014, and (iii) one-third of the shares vest on April 6,
2015. Compensation expense is recognized ratably over the vesting periods for each tranche using the straight-line method.
On June 18, 2010, we issued 9,000 shares of restricted stock to our directors for no cash consideration. The share
price at the date of issue was $10.85 per share and these shares vested on April 6, 2011.
On January 31, 2011, we issued 281,000 shares of restricted stock to our employees for no cash consideration. The
share price at the date of issue was $9.83 per share. The vesting schedule of the restricted stock is (i) one-third of the shares
vested on January 31, 2012, (ii) one-third of the shares vested on January 31, 2013, and (iii) one-third of the shares vest on
January 31, 2014. Compensation expense is recognized ratably over the vesting periods for each tranche using the straight-
line method.
On January 31, 2011, we issued 9,000 shares of restricted stock to our independent directors for no cash
consideration. The share price at the date of issue was $9.83 per share. These shares vested on January 31, 2012.
On January 31, 2012, we issued 281,000 shares of restricted stock to employees for no cash consideration. The share
price at the date of issue was $5.65 per share. The vesting schedule of the restricted stock is (i) one-third of the shares vested
on January 31, 2013, (ii) one-third of the shares vest on January 31, 2014, and (iii) one-third of the shares vest on January 31,
2015. Compensation expense is recognized ratably over the vesting periods for each tranche using the straight-line method.
On January 31, 2012, we issued 9,000 shares of restricted stock to our independent directors for no cash
consideration. The share price at the date of issue was $5.65 per share. These shares vested on January 31, 2013.
2013 Equity Incentive Plan
In April 2013, we adopted an equity incentive plan, which we refer to as the 2013 Equity Incentive Plan, under
which directors, officers, employees, consultants and service providers of us and our subsidiaries and affiliates are eligible to
F-38
receive incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock
units and unrestricted common stock. We reserved a total of 5,000,000 common shares for issuance under the plan.
Under the terms of the plan, stock options and stock appreciation rights granted under the plan will have an exercise
price equal to the fair market value of a common share on the date of grant, unless otherwise determined by the plan
administrator, but in no event will the exercise price be less than the fair market value of a common share on the date of
grant. Options and stock appreciation rights will be exercisable at times and under conditions as determined by the plan
administrator, but in no event will they be exercisable later than ten years from the date of grant.
The plan administrator may grant shares of restricted stock and awards of restricted stock units subject to vesting,
forfeiture and other terms and conditions as determined by the plan administrator. Following the vesting of a restricted stock
unit, the award recipient will be paid an amount equal to the number of vested restricted stock units multiplied by the fair
market value of a common share on the date of vesting, which payment may be paid in the form of cash or common shares or
a combination of both, as determined by the plan administrator. The plan administrator may grant dividend equivalents with
respect to grants of restricted stock units.
Adjustments may be made to outstanding awards in the event of a corporate transaction or change in capitalization
or other extraordinary event. In the event of a “change in control” (as defined in the plan), unless otherwise provided by the
plan administrator in an award agreement, awards then outstanding will become fully vested and exercisable in full.
Our board of directors may amend or terminate the plan and may amend outstanding awards, provided that no such
amendment or termination may be made that would materially impair any rights, or materially increase any obligations, of a
grantee under an outstanding award. Shareholder approval of plan amendments will be required under certain circumstances.
Unless terminated earlier by our board of directors, the plan will expire ten years from the date the plan is adopted.
In the second quarter of 2013, we issued 4,610,000 shares of restricted stock to our employees and 390,000 shares to
our directors for no cash consideration. The weighted average share price on the issuance dates was $8.69 per share. The
vesting schedule of the restricted stock to our employees is (i) one-third of the shares vest on March 10, 2016, (ii) one-third
of the shares vest on March 10, 2017, and (iii) one-third of the shares vest on March 10, 2018. The vesting schedule of the
restricted stock to our directors is (i) one-third of the shares vest on March 10, 2014, (ii) one-third of the shares vest on
March 10, 2015, and (iii) one-third of the shares vest on March 10, 2016.
In October 2013, we amended the 2013 Equity Incentive Plan to increase the number of common shares eligible for
issuance to 11,376,044. All other terms of the plan remained unchanged.
In October 2013, we issued 3,749,998 shares of restricted stock to our employees and 250,000 shares to our
directors for no cash consideration. The weighted average share price on the issuance date was $9.85 per share. The vesting
schedule of the restricted stock to our employees is (i) one-third of the shares vest on October 11, 2016, (ii) one-third of the
shares vest on October 11, 2017, and (iii) one-third of the shares vest on October 11, 2018. The vesting schedule of the
restricted stock to our directors is (i) one-half of the shares vest on October 11, 2014 and (ii) one-half of the shares vest on
October 11, 2015.
Compensation expense is recognized ratably over the vesting periods for each tranche using the straight-line
method.
As of December 31, 2013, there were 9,653,970 unvested shares of restricted stock outstanding. Assuming that all
the restricted stock will vest, the stock compensation expense in future periods, including that related to restricted stock
issued in prior periods will be:
In thousands of U.S. dollars
For the year ending December 31, 2014 .........................................................
For the year ending December 31, 2015 .........................................................
For the year ending December 31, 2016 .........................................................
For the year ending December 31, 2017 .........................................................
For the year ending December 31, 2018 .........................................................
Employees Directors Total
21,354 2,856 24,210
997 21,697
20,700
15,907
77 15,984
8,269 — 8,269
2,436 — 2,436
$ 68,666 $ 3,930 $72,596
F-39
Dividend Payments
On April 15, 2013, the board of directors declared a quarterly cash dividend of $0.025 per share, which was paid on
June 25, 2013 to all shareholders of record as of June 11, 2013.
On July 29, 2013, the board of directors declared a quarterly cash dividend of $0.035 per share, which was paid on
September 25, 2013 to all shareholders of record as of September 10, 2013.
On October 28, 2013, the board of directors declared a quarterly cash dividend of $0.07 per share, which was paid
on December 18, 2013 to all shareholders of record as of December 3, 2013.
Shares outstanding
As of December 31, 2013, we had 275,000,000 registered shares of which 250,000,000 are designated as common
shares with a par value of $0.01 and 25,000,000 designated as preferred shares with a par value of $0.01,
As of December 31, 2013 we had 198,791,502 shares outstanding. These shares provide the holders with rights to
dividends and voting rights.
13.
Related party transactions
Transactions with entities controlled by the Lolli-Ghetti family (herein referred to as related party affiliates) in the
consolidated statement of income or loss and balance sheet are as follows:
In thousands of US dollars
Pool revenue(1)
For the year ended December 31,
2013
2012
2011
Scorpio MR Pool Limited .............................................................. $
Scorpio Handymax Tanker Pool Limited ......................................
Scorpio Panamax Tanker Pool Limited .........................................
Scorpio LR2 Pool Limited .............................................................
Scorpio Aframax Tanker Pool Limited .........................................
Time charter revenue(2)
King Dustin ...................................................................................
Vessel operating costs(3) ............................................................................................
Commissions(4) .....................................................................................
Administrative expenses(5)........................................................................................
89,597 $
36,199
36,018
28,203
—
—
(3,703)
(218)
(1,944)
9,558 $
31,280
26,884
4,540
—
—
(2,280)
(532)
(1,862)
—
32,238
22,594
5,195
170
8,507
(2,203)
(270)
(1,937)
(1) These transactions relate to revenue earned in the Scorpio LR2, Scorpio Panamax, Scorpio MR, Scorpio Aframax and
Scorpio Handymax Tanker Pools (the Pools), which are owned by Scorpio LR2 Pool Limited, Scorpio Panamax Tanker
Pool Limited, Scorpio MR Pool Limited, Scorpio Aframax Tanker Pool Limited and Scorpio Handymax Tanker Pool
Limited, respectively. The Pools are related party affiliates.
(2) The revenue earned was for Noemi’s time charter with King Dustin (which is 50% jointly controlled by a related party
affiliate).
(3) These transactions represent technical management fees charged by SSM, a related party affiliate, which are included in
the vessel operating costs in the consolidated statement of income or loss. We believe our technical management fees for
the years ended December 31, 2013, 2012 and 2011 were at arms-length rates as they were based on contracted rates that
were the same as those charged to other vessels managed by SSM at the time the management agreements were entered
into. In June 2013, this fee was increased to $685 per vessel per day from $548 per vessel per day (2012 and 2011: $548
per vessel per day) for technical management.
(4) These transactions represent the expense due to SCM for commissions related to the commercial management services
provided by SCM under the Commercial Management Agreement (see description below). Each vessel pays a
commission of 1.25% of their gross revenue when not in the Pools. When our vessels are in the Pools, SCM, the pool
manager, charges fees of $300 per vessel per day with respect to our Panamax/LR1 vessels, $250 per vessel per day with
respect to our LR2 vessels, and $325 per vessel per day with respect to each of our Handymax and MR vessels, plus
1.50% commission on gross revenues per charter fixture. These are the same fees that SCM charges other vessels in
F-40
these pools, including third party owned vessels, and they are and were included in voyage expenses in the consolidated
statement of income or loss.
(5) We have an Administrative Services Agreement with Scorpio Services Holding Limited, or SSH, for the provision of
administrative staff and office space, and administrative services, including accounting, legal compliance, financial and
information technology services. SSH is a related party to us. We reimburse SSH for the reasonable direct or indirect
expenses it incurs in providing us with the administrative services described above. SSH also arranges vessel sales and
purchases for us. The services provided to us by SSH may be sub-contracted to other entities within the Scorpio Group.
Our Commercial Management Agreement with SCM includes a daily flat fee charged payable to SCM for the
vessels that are not in one of the pools managed by SCM. The flat fee is $250 per day for Panamaxes/LR1 and LR2
vessels and $300 per day for Handymax and MR vessels.
(cid:120) The expense for the year ended December 31, 2013 of $1.9 million included the flat fee of $0.3 million
charged by SCM and administrative fees of $1.6 million charged by SSH and were included in voyage
expenses and general and administrative expenses in the consolidated statement of income or loss.
(cid:120) The expense for the year ended December 31, 2012 of $1.9 million included the flat fee of $0.7 charged by
SCM, and administrative fees of $1.2 million charged by SSH and were both included in voyage expenses
and general and administrative expenses in the consolidated statement of income or loss.
(cid:120) The expense for the year ended December 31, 2011 of $1.9 million included the flat fee of $0.3 charged by
SCM, and administrative fees of $1.7 million charged by SSH and were both included in general and
administrative expenses in the consolidated statement of income or loss.
(6) The Administrative Services Agreement with SSH includes a fee for arranging vessel purchases and sales, on our behalf,
equal to 1% of the gross purchase or sale price, payable upon the consummation of any such purchase or sale. These fees
are capitalized as part of the carrying value of the related vessel for a vessel purchase and are included as part of the gain
or loss on sale for a vessel disposal. During the year ended December 31, 2013, we paid SSH an aggregate fee of $9.1
million, which consisted of $2.5 million related to the purchase and delivery of seven newbuilding vessels in 2013 and
$6.6 million on the purchase and subsequent sale of our VLGC business to Dorian in November 2013. During the year
ended December 31, 2012, we paid SSH an aggregate fee of $2.4 million, which consisted of $0.5 million on the sales of
three Handymax vessels and $1.9 million on the purchase and delivery of our first five newbuilding vessels. In the year
ended December 31, 2011, we paid SSH an aggregate fee of $0.7 million in May 2011 for the purchase of two MRs.
We had the following balances with related parties, which have been included in the consolidated balance sheets:
In thousands of US dollars
Assets:
Accounts receivable (due from the Pools) ..........................................................................
Accounts receivable (SCM) ................................................................................................
As of December 31,
2013
2012
$
68,512 $
8
33,271
—
Liabilities:
Accounts payable (owed to the Pools) ................................................................................
Accounts payable (SSM) ....................................................................................................
Accounts payable (SCM) ....................................................................................................
95
1
—
59
70
146
In 2011, we also entered into an agreement to reimburse costs to SSM as part of its supervision agreement for
newbuilding vessels. $0.2 million and $0.1 million were charged under this agreement during the years ended December 31,
2013 and 2012, respectively. No amounts were charged under this agreement during the year ended December 31, 2011.
F-41
Key management remuneration
The table below shows key management remuneration for the years ended December 31, 2013, 2012 and 2011:
In thousands of US dollars
Short-term employee benefits (salaries) ................................................................. $
Share-based compensation (1) ..................................................................................
For the period ended December 31,
2013
2012
2011
5,433 $
10,274
2,896 $
3,368
2,875
3,189
Total ...................................................................................................................... $
(1) Represents the amortization of restricted stock issued under our equity incentive plans as described in note 12.
15,707 $
6,264 $
6,064
There are no post-employment benefits.
14.
Vessel revenue
During the years ended December 31, 2013 and December 31, 2012, all revenue was generated from vessels
operating in pools or in the spot market. During the year ended December 31, 2011, we had two vessels that earned revenue
through time-charter contracts.
Revenue Sources
In thousands of US dollars
Pool revenue ........................................................................................................... $
Voyage revenue (spot market) ................................................................................
Time charter revenue ..............................................................................................
$
For the year ended December 31,
2013
190,017 $
17,563
—
2012
72,262 $
43,119
—
207,580 $ 115,381 $
2011
60,197
12,287
9,626
82,110
F-42
15.
Charterhire
The following table depicts our time chartered-in vessel commitments during the year ended December 31, 2013.
Name
Active as of December 31, 2013
Year
built
Type
Delivery (1)
Charter Expiration
Rate ($/ day)
1 Freja Polaris
2 Kraslava
3 Krisjanis Valdemars
4 Jinan
5 Iver Progress
6 Iver Prosperity
7 Histria Azure
8 Histria Coral
9 Histria Perla
10 STX Ace 6
11 Targale
12 Ugale
13 Gan-Triumph
14 Nave Orion
15 Hafnia Lupus
16 Gan-Trust
17 Usma
18 SN Federica
19 SN Azzura
20 King Douglas
21 Hellespont Promise
22 FPMC P Eagle
23 FPMC P Hero
24 FPMC P Ideal
25 Densa Alligator
26 Khawr Aladid
27 Fair Seas
28 Southport
29 Pink Stars
30 Four Sky
31 Orange Stars
April-13
January-11
February-11
April-13
April-12
July-11
July-11
May-12
May-12
January-13
May-13
March-13
April-12
January-13
January-13
February-13
December-13
2004 Handymax
2007 Handymax
2007 Handymax
2003 Handymax
2007 Handymax September-13
2007 Handymax October-13
2007 Handymax
2006 Handymax
2005 Handymax
2007
2007
2007
2010
2013
2012
2013
2007
2003
2003
2008
2007
2009
2011
2012
2013
2006
2008
2008
2010
2010
2011
December-12
September-12
April-13
January-13
September-13
July-13
January-13
December-13
MR
MR
MR
MR
MR
MR
MR
MR
LR1
LR1
LR1
LR1
LR1
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
April-13
September-13
April-13
August-13
April-14
May-14
April-14
April-15
March-15
October-14
April-14
July-14
July-14
May-14
May-14
January-14
May-14
March-15
April-14
January-16
January-15
May-15
December-14
August-14
August-14
September-15
May-14
July-14
September-14
July-15
January-14
December-14
April-14
September-14
April-14
Time Charters That Expired In 2013
1 Endeavour
2 Pacific Duchess
3 Valle Bianca
2004
2009
2007
MR
MR
MR
July-12
March-12
August-12
February-13
March-13
March-13
(1) Represents delivery date or estimated delivery date.
(2) We have an option to extend the charter for an additional year at $14,000 per day.
(3) We have an option to extend the charter for an additional year at $13,650 per day.
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
12,700
12,800
12,800
12,600
12,500
12,500
12,600
12,800
12,800
14,150
14,500
14,000
14,150
14,300
14,760
16,250
13,500
11,250
13,600
14,000
12,500
14,525
15,000
15,000
16,500
15,400
16,250
15,700
16,125
16,250
16,125
11,525
13,800
12,000
(4) We have an option to extend the charter for an additional year at $13,650 per day. The agreement also contains a 50% profit and loss sharing provision
whereby we split all of the vessel’s profits and losses above or below the daily base rate with the vessel’s owner.
(5) We have an option to extend the charter for an additional year at $13,500 per day.
(6) We have an option to extend the charter for an additional year at $13,250 per day.
F-43
(7) We have an option to extend the charter for an additional year at $13,550 per day.
(8) We have options to extend each charter for an additional year at $13,550 per day.
(9) We have an option to extend the charter for an additional year at $15,150 per day.
(10) We have options to extend the charter for up to three consecutive one year periods at $14,850 per day, $15,200 per day and $16,200 per day,
respectively.
(11) We have an option to extend the charter for an additional year at $15,000 per day.
(12) We have an option to extend the charter for an additional year at $15,700 per day.
(13) We have an option to extend the charter for an additional year at $16,000 per day.
(14) The daily base rate represents the average rate for the three year duration of the agreement. The rate for the first year is $15,750 per day, the rate for
the second year is $16,250 per day, and the rate for the third year is $16,750 per day. We have options to extend the charter for up to two consecutive
one year periods at $17,500 per day and $18,000 per day, respectively.
(15) In October 2013, we declared an option to extend the charter for an additional year at $14,500 per day effective January 2014.
(16) We have an option to extend the charter for an additional year at $12,500 per day. We have also entered into an agreement with the vessel owner
whereby we split all of the vessel’s profits above the daily base rate.
(17) We have an option to extend the charter for an additional year at $15,000 per day.
(18) In December 2013, we declared an option to extend the charter for an additional six months at $14,250 per day effective February 2014.
(19) We entered into a new charter agreement for an additional two years at $14,525 per day effective October 2013.
(20) We have options to extend the charter for two consecutive six month periods at $15,250 per day and $15,500 per day, respectively.
(21) In December 2013, we declared an option to extend the charter for an additional six months at $15,250 per day effective January 2014. We have an
option to extend the charter for six month periods at $15,500 per day.
(22) We have an option to extend the charter for one year at $17,550 per day.
(23) We have options to extend the charter for two consecutive six month periods at $16,500 per day and $16,750 per day, respectively.
The undiscounted remaining future minimum lease payments under these arrangements as of December 31, 2013 are
$114.0 million. The obligations under these agreements will be repaid as follows:
In thousands of U.S. dollars
Less than 1 year .......................................................................................................................... $
1 - 5 years ...................................................................................................................................
Total ............................................................................................................................................ $
2013
96,103 $
17,854
113,957 $
2012
62,612
23,771
86,383
As of December 31,
The total expense recognized under charterhire agreements during the years ended December 31, 2013, 2012 and
2011 was $115.5 million, $43.7 million and $22.8 million, respectively.
16.
General and administrative expenses
General and administrative expenses primarily represent employee benefit expenses, professional fees and
administration/commercial management fees (see note 13).
Employee benefit expenses consist of:
In thousands of US dollars
Short term employee benefits (salaries) ............................................................ $
Share based compensation (see note 12)...........................................................
$
2013
2012
2011
6,673 $
13,142
19,815 $
4,066 $
3,490
7,556 $
3,796
3,362
7,158
For the year ended December 31,
F-44
17.
Financial expenses
Financial expenses comprise:
In thousands of US dollars
Commitment fees on undrawn portions of bank loans .......................................... $
Interest payable on bank loans (2) ..........................................................................
Amortization of deferred financing fees ...............................................................
Total financial expenses........................................................................................ $
For the year ended December 31,
2013
2012
2011
1,391 $
982
332
2,705 $
998 $
3,421
4,093(1)
8,512 $
1,123
4,951
986
7,060
(1) The amortization of deferred financing fees in the year ended December 31, 2012 includes a $3.0 million charge
arising from the amendment of the 2011 Credit Facility to extend its availability period from May 2013 to January 2014 (see
note 9).
(2) The decrease in interest payable from the year ended December 31, 2012 was primarily driven by an increase in
interest capitalized during the year ended December 31, 2013 which was the result of the significant growth in our
Newbuilding Program.
18.
Tax
Scorpio Tankers Inc. and its subsidiaries are incorporated in the Republic of the Marshall Islands, and in accordance
with the income tax laws of the Marshall Islands, are not subject to Marshall Islands’ income tax. We are also exempt from
income tax in other jurisdictions including the United States of America due to tax treaties; therefore, we did not have any tax
charges, benefits, or balances as of or for the periods ended December 31, 2013, 2012 and 2011.
19.
Earnings / loss per share
The calculation of both basic and diluted earnings/loss per share is based on net income/loss attributable to equity
holders of the parent and weighted average outstanding shares of:
In thousands of US dollars except for share data
Net income / (loss) attributable to equity holders of the parent ............... $
Basic weighted average number of shares ..............................................
Effect of dilutive potential basic shares:
For the year ended December 31,
2013
17,015 $
146,504,055
2012
(26,537 ) $
41,413,339
2011
(82,727)
28,704,876
Restricted stock ................................................................................
1,835,323
—
—
Diluted weighted average number of shares ............................................
148,339,378
41,413,339
28,704,876
The dilutive effect of 1,835,323 shares of restricted stock for the year ended December 31, 2013 is related to
9,653,970 unvested restricted shares. During the years ended December 31, 2012 and 2011, we incurred a loss, and as a
result, the inclusion of potentially dilutive shares in the diluted loss per share calculation would have an antidilutive effect on
the loss per share for the period. Therefore, all restricted shares (1,036,791 and 849,458 for the years ended December 31,
2012 and 2011, respectively) have been excluded from the diluted loss per share calculation for these periods.
20.
Financial instruments
Funding and capital risk management
We manage our funding and capital resources to ensure our ability to continue as a going concern while maximizing
the return to the shareholder through optimization of the debt and equity balance.
F-45
Categories of financial instruments
Amounts in thousands of US dollars
Financial assets
Cash and cash equivalents ............................................................................................................. $
Loans and receivables ....................................................................................................................
Derivatives at fair value through profit or loss ..............................................................................
As of December 31
2013
2012
78,845 $
72,542
—
87,165
36,797
26
Financial liabilities
Derivatives designated in a cash flow hedge .................................................................................
Derivatives at fair value through profit or loss ..............................................................................
Other liabilities (at amortized cost) ................................................................................................
212
665
195,076
329
1,257
156,903
Derivative financial instruments in 2013 and 2012 consisted of (i) interest rate swaps, recorded at the present value
of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates to
determine the fair value, and (ii) profit or loss sharing agreements on time charter-in agreements with third parties, where the
fair value of these instruments is determined by comparing published time charter rates to the charterhire rate and discounting
those cash flows to their estimated present value.
Derivative financial instrument in 2011 solely comprised of interest rate swaps, recorded at the present value of
future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates to
determine the fair value.
IFRS 13 requires classifications of fair value measures into Levels 1, 2 and 3. Level 1 fair value measurements are
those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 fair value
measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset
or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 fair value measurements are
those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market
data (unobservable inputs). In accordance with IFRS 13, the fair value measurement for the interest rate swaps and profit or
loss sharing agreements in 2013, 2012 and 2011 were classified as Level 2.
The fair value of other financial assets and liabilities are approximately equal to their carrying values.
Financial risk management objectives
We identify and evaluate significant risks on an ongoing basis with the objective of managing the sensitivity of our
results and financial position to those risks. These risks include market risk, credit risk, liquidity risk and foreign exchange
risk.
The use of financial derivatives is governed by our policies as approved by the board of directors.
Market risk
Our activities expose us to the financial risks of changes in interest rates.
In the years ended December 31, 2013, 2012, and 2011, we were party to interest rate swaps to mitigate the risk of
rising interest rates. In August 2011, we entered into six interest rate swap agreements to manage interest costs and the risk
associated with changing interest rates on our 2011 Credit Facility and 2010 Revolving Credit Facility with three different
banks.
Details of the amounts recorded in the consolidated statement of profit or loss and statement of other comprehensive
income in respect of such instruments are provided in Note 10.
F-46
Sensitivity analysis - Interest rate risk
The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative
instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability
outstanding at balance sheet date was outstanding for the whole year.
If interest rates had been 1% higher/lower and all other variables were held constant, our net income for the year
ended December 31, 2013 would have decreased/increased by $0.2 million. This is mainly attributable to our exposure to
interest rate movements on our 2011 Credit Facility, STI Spirit Credit Facility and Newbuilding Credit Facility.
If interest rates had been 1% higher/lower and all other variables were held constant, our net income for the year
ended December 31, 2012 would have decreased/increased by $1.6 million. This is mainly attributable to our exposure to
interest rate movements on our 2010 Revolving Credit Facility, 2011 Credit Facility, STI Spirit Credit Facility and
Newbuilding Credit Facility.
If interest rates had been 1% higher/lower and all other variables were held constant, our net income for the year
ended December 31, 2011 would have decreased/increased by $1.6 million. This is mainly attributable to our exposure to
interest rate movements on our 2010 Revolving Credit Facility, 2011 Credit Facility and STI Spirit Credit Facility.
Credit risk
Credit risk is the potential exposure of loss in the event of non-performance by customers and derivative instrument
counterparties.
We only place cash deposits with major banks covered with strong and acceptable credit ratings.
Accounts receivable are generally not collateralized; however, we believe that the credit risk is partially offset by the
creditworthiness of our counterparties including the commercial and technical managers. We did not experience material
credit losses on our accounts receivables portfolio in the years ended December 31, 2013, 2012, and 2011.
The carrying amount of financial assets recognized in the consolidated financial statements represents the maximum
exposure to credit risk without taking account of the value of any collateral obtained. We did not experience any impairment
losses on financial assets in the years ended December 31, 2013, 2012, and 2011.
We monitor exposure to credit risk, and believe that there is no substantial credit risk arising from counterparties.
Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated
with financial instruments.
We manage liquidity risk by maintaining adequate reserves and borrowing facilities and by continuously monitoring
forecast and actual cash flows.
Current economic conditions make forecasting difficult, and there is the possibility that our actual trading
performance during the coming year may be materially different from expectations. Based on internal forecasts and
projections that take into account reasonably possible changes in our trading performance, we believe that we have adequate
financial resources to continue in operation and meet our financial commitments (including but not limited to newbuilding
installments, debt service obligations and charterhire commitments) for a period of at least twelve months from the date of
approval of these consolidated financial statements. Accordingly, we continue to adopt the going concern basis in preparing
our financial statements.
Remaining contractual maturity on secured bank loans (Note 9)
The following table details our remaining contractual maturity for our secured bank loans. The amounts represent
the future undiscounted cash flows of the financial liability based on the earliest date on which we can be required to pay.
The table includes both interest and principal cash flows and takes into consideration the amount fixed via the interest rate
swap discussed above.
F-47
As the interest cash flows are not fixed, the interest amount included has been determined by reference to the
projected interest rates as illustrated by the yield curves existing at the reporting date.
To be repaid as follows:
Amounts in thousands of US dollars
Less than 1 month ...................................................................................................................... $
1-3 months .................................................................................................................................
3 months to 1 year ......................................................................................................................
1-5 years ....................................................................................................................................
5+ years .....................................................................................................................................
Total ........................................................................................................................................... $
2013
— $
5,137
15,309
124,919
55,135
200,500 $
2012
—
3,228
10,042
78,804
80,404
172,478
As of December 31,
The following table details our remaining contractual maturity for our interest rate swaps. The amounts represent the
future undiscounted cash flows of the financial liability based on the earliest date on which we can be required to pay.
Amounts in thousands of U.S. dollars
Less than 1 month ...................................................................................................................... $
1 - 3 months ...............................................................................................................................
3 months to 1 year ......................................................................................................................
1 - 5 years ..................................................................................................................................
Total ........................................................................................................................................... $
As of December 31
2013
2012
— $
207
484
190
881 $
—
160
475
748
1,383
All other current liabilities fall due within less than one month.
Foreign Exchange Rate Risk
Our primary economic environment is the international shipping market. This market utilizes the U.S. Dollar as its
functional currency. Consequently, virtually all of our revenues and the majority of our operating expenses are in U.S.
Dollars. However, we incur some of our combined expenses in other currencies, particularly the Euro. The amount and
frequency of some of these expenses (such as vessel repairs, supplies and stores) may fluctuate from period to period.
Depreciation in the value of the U.S. dollar relative to other currencies will increase the U.S. dollar cost of us paying such
expenses. The portion of our business conducted in other currencies could increase in the future, which could expand our
exposure to losses arising from currency fluctuations.
There is a risk that currency fluctuations will have a negative effect on our cash flows. We have not entered into any
hedging contracts to protect against currency fluctuations. However, we have some ability to shift the purchase of goods and
services from one country to another and, thus, from one currency to another, on relatively short notice. We may seek to
hedge this currency fluctuation risk in the future.
21.
Replacement of Auditor
In April 2013, the Board, upon recommendation from our audit committee, appointed PricewaterhouseCoopers
Audit as our independent auditor for the fiscal year ending December 31, 2013, replacing Deloitte LLP.
22.
Subsequent events
Delivery of Newbuilding Vessels
In January 2014, we took delivery of two vessels under our Newbuilding program, STI Duchessa and STI Opera.
After delivery, each vessel began a short term time charter for up to 120 days at approximately $19,000 per day.
F-48
In March 2014, we took delivery of an MR tanker under our Newbuilding program, STI Texas City. After delivery,
this vessel began a time charter for two years at $16,000 per day. This time charter includes a profit sharing mechanism
whereby earnings in excess of the base time charter rate will be split between the Company and charterer, Valero.
2010 Revolving Credit Facility
In January 2014, we drew down $72.4 million from the 2010 Revolving Credit Facility. In March 2014, we paid
$22.7 million into this facility as a result of the sales of Noemi and Senatore which are discussed further below.
2011 Credit Facility
In January 2014, we drew down $52.0 million from the 2011 Credit Facility. In connection with this draw down, STI
Duchessa, STI Le Rocher and STI Larvotto were provided as collateral under the facility.
2013 Credit Facility
In February 2014, we drew down $64.2 million from the 2013 Credit Facility. In connection with this draw down,
STI Opera, STI Fontvieille and STI Ville were provided as collateral under the facility.
In March 2014, we drew down $20.5 million from the 2013 Credit Facility to partially finance the delivery of STI
Texas City.
K-Sure Credit Facility
In February 2014, we entered into a $458.3 million senior secured term loan facility which consists of a $358.3
million tranche with a group of financial institutions that is being 95% covered by Korea Trade Insurance Corporation (the
‘K-Sure Tranche’) and a $100.0 million commercial tranche with a group of financial institutions led by DNB Bank SA (the
“Commercial Tranche”). We refer to this credit facility as our K-Sure Credit Facility.
Drawdowns under the K-Sure Credit Facility may occur in connection with the delivery of certain of our
newbuilding vessels as specified in the agreement. The amount of each drawdown shall not exceed the lesser of 60% of the
newbuilding contract price and 74% of the fair market value of the relevant vessel. Drawdowns are available until the earlier
of (i) the delivery date of the last vessel specified in the agreement to be acquired, (ii) September 30, 2015 and (iii) the date
on which the total commitments under the loan are fully borrowed, cancelled or terminated.
Repayments will be made in equal consecutive six month repayment installments in accordance with a 15 year
repayment profile under the Commercial Tranche and a 12 year repayment profile under the K-Sure Tranche. Repayments
will commence in July 2015 for the K-Sure Tranche and six months after the delivery of the last vessel to be acquired for the
Commercial Tranche. The Commercial Tranche matures on the sixth anniversary of the delivery date of the last vessel to be
acquired and the K-Sure Tranche matures in January 2027 assuming the Commercial Tranche is refinanced through that date.
Borrowings under the K-Sure tranche bear interest at LIBOR plus an applicable margin of 2.25%. Borrowings under
the Commercial Tranche bear interest at LIBOR plus an applicable margin of 3.25% from the effective date of the agreement
to the fifth anniversary thereof and 3.75% thereafter until the maturity date in respect of the Commercial Tranche. A
commitment fee equal to 40% of the applicable margin is payable on the unused daily portion of the credit facility.
In addition to restrictions imposed upon the owners of the vessels that are collateralized under this credit facility
(such as, limitations on liens and limitations on the incurrence of additional indebtedness), our K-Sure Credit Facility
includes financial covenants that require us to maintain:
(cid:120) The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
(cid:120) Consolidated tangible net worth no less than $677.3 million plus (i) 25% of cumulative positive net income (on
a consolidated basis) for each fiscal quarter commencing on or after October 1, 2013 and (ii) 50% of the value
of any new equity issues occurring on or after October 1, 2013.
(cid:120) The ratio of EBITDA to net interest expense greater than 2.50 to 1.00 calculated on a trailing four quarter basis.
(cid:120) Minimum liquidity of not less than the greater of $25.0 million or 5% of total indebtedness.
F-49
(cid:120) The aggregate fair market value of the vessels provided as collateral under the facility shall at all times be no
less than 135% of the then aggregate outstanding principal amount of loans under the credit facility.
KEXIM Credit Facility
In February 2014, we executed a senior secured term loan facility with a group of financial institutions led by DNB
Bank ASA and Skandinaviska Enskilda Banken AB (publ) and from the Export-Import Bank of Korea (“KEXIM”) for a total
loan facility of $429.6 million. This facility includes commitments from KEXIM of up to $300.6 million (the “KEXIM
Tranche”) and a group of financial institutions led by DNB Bank ASA and Skandinaviska Enskilda Banken AB (publ) of up
to $129.0 million (the “Commercial Tranche”).We refer to this credit facility as our KEXIM Credit Facility.
Drawdowns under the KEXIM Credit Facility may occur in connection with the delivery of 18 of our newbuilding
vessels as specified in the loan agreement. The amount of each drawdown shall not exceed the lesser of 60% of the
newbuilding contract price and 74% of the fair market value of the relevant vessel. Drawdowns are available until the earlier
of (i) the delivery date of the last vessel specified in the agreement to be acquired, (ii) March 31, 2015 and (iii) the date on
which the total commitments under the loan are fully borrowed, cancelled or terminated.
Repayments will be made in equal consecutive semi-annual repayment installments in accordance with a 15 year
repayment profile under the Commercial Tranche and a 12 year repayment profile under the KEXIM Tranche. Repayments
will commence on the next semi-annual date falling after the weighted average delivery date of the vessels specified under
the facility for the KEXIM Tranche and on the next semi-annual date falling after the final delivery date of the vessels
specified under the facility for the Commercial Tranche.
The Commercial Tranche matures on the sixth anniversary of the delivery date of the last vessel specified under the
loan and the KEXIM Tranche matures on the twelfth anniversary of the weighted average delivery date of the vessels
specified under the loan assuming the Commercial Tranche is refinanced through that date.
Borrowings under the KEXIM tranche bear interest at LIBOR plus an applicable margin of 3.25%. Borrowings
under the Commercial Tranche bear interest at LIBOR plus an applicable margin of 3.25% from the effective date of the
agreement to the fifth anniversary thereof and 3.75% thereafter until the maturity date in respect of the Commercial Tranche.
A commitment fee equal to 40% of the applicable margin is payable on the unused daily portion of the credit facility.
In addition to restrictions imposed upon the owners of the vessels that are collateralized under this credit facility
(such as, limitations on liens and limitations on the incurrence of additional indebtedness), our KEXIM Credit Facility
includes financial covenants that require us to maintain:
(cid:120) The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
(cid:120) Consolidated tangible net worth no less than $677.3 million plus (i) 25% of cumulative positive net income (on
a consolidated basis) for each fiscal quarter commencing on or after October 1, 2013 and (ii) 50% of the value
of any new equity issues occurring on or after October 1, 2013.
(cid:120) The ratio of EBITDA to net interest expense greater than 2.50 to 1.00 calculated on a trailing four quarter basis.
(cid:120) Minimum liquidity of not less than the greater of $25.0 million or 5% of total indebtedness.
(cid:120) The aggregate fair market value of the vessels provided as collateral under the facility shall at all times be no
less than 135% of the then aggregate outstanding principal amount of loans under the credit facility.
In addition to KEXIM’s commitment of up to $300.6 million, KEXIM has also provided an optional guarantee for a
five year amortizing note of $125.3 million (the “KEXIM Guaranteed Note”) that may be issued by us at our discretion in
2014; the proceeds of which will be used to reduce the $300.6 million KEXIM Tranche.
Time Chartered-in Vessels
In February 2014, we entered into a new time charter-in agreement on an LR2 vessel that is currently time
chartered-in. The new agreement is for six months at $16,500 per day and commenced upon the expiration of the existing
charter in February 2014.
F-50
In February 2014, we entered into a new time charter-in agreement on an LR2 vessel. The agreement is for one year
at $15,000 per day. We have the option to extend the charter for an additional six months at $16,250 per day. We took
delivery of this vessel in March 2014.
2013 Equity Incentive Plan
In February 2014, we issued 2,011,000 shares of restricted stock to our employees and 145,045 shares to our
directors for no cash consideration. The weighted average share price on the issuance date was $9.30 per share. The vesting
schedule of the restricted stock to our employees is (i) one-third of the shares vest on February 21, 2017, (ii) one-third of the
shares vest on February 21, 2018, and (iii) one-third of the shares vest on February 21, 2019. The vesting schedule of the
restricted stock to our directors is (i) one-third of the shares vest on February 21, 2015, (ii) one-third of the shares vest on
February 21, 2016, and (iii) one-third of the shares vest on February 21, 2017. Compensation expense is recognized ratably
over the vesting periods for each tranche using the straight-line method.
Assuming that all the restricted stock will vest, the stock compensation expense relating to these and prior issuances
under our 2013 Equity Incentive Plan in future periods will be:
In thousands of U.S. dollars
For the year ending December 31, 2014 .................................................................. $
For the year ending December 31, 2015 ..................................................................
For the year ending December 31, 2016 ..................................................................
For the year ending December 31, 2017 ..................................................................
For the year ending December 31, 2018 ..................................................................
For the year ending December 31, 2019 ..................................................................
Employees Directors
Total
25,536 $
25,577
20,797
11,367
3,904
177
87,358 $
3,562 $ 29,098
27,013
1,436
21,056
259
11,388
21
3,904
—
177
—
5,278 $ 92,636
$
In March 2014, we amended the 2013 Equity Incentive Plan to clarify that the plan administrator has the ability to
redeem restricted stock for fair market value (as defined in the plan) at the vesting date at its discretion.
Dividend Declaration
In February 2014, the board of directors declared a quarterly cash dividend of $0.08 per share, which was paid on
March 26, 2014 to all shareholders of record as of March 11, 2014.
Vessel Sales
In January 2014, we agreed to sell Noemi and Senatore for an aggregate selling price of $44.0 million. Noemi was
sold in March 2014 and Senatore is expected to close in April 2014. As part of these sales, we repaid $22.7 million into our
2010 Revolving Credit Facility. The availability of this facility is reduced by such amount and the quarterly reduction is
reduced to $2.1 million from $3.1 million per quarter. We will also write-off a total of $0.2 million of deferred financing fees
as part of these debt repayments.
In February 2014, we agreed to sell the 2008 built LR2 product tanker, STI Spirit, for approximately $30.2 million.
As part of this sale, we will repay all amounts due under the STI Spirit Credit Facility of $21.4 million. This sale is expected
to close in April 2014.
Newbuilding Credit Facility
In March 2014, we amended and restated our Newbuilding Credit Facility with Credit Agricole Corporate and
Investment Bank and Skandinaviska Enskilda Banken AB, to convert it from a term loan to a reducing revolving credit
facility. This gives us the ability to pay down and re-borrow from the total available commitments under the loan. All other
terms and definitions remain not changed. This facility was fully drawn as of the date of this report.
Sale of VLCCs under construction
In March 2014, we entered into an agreement to sell our seven VLCCs under construction for cash. As part of these
sales, we expect to record a gain on disposal of approximately $50.0 million in the first quarter of 2014.
F-51
Subsequent to this transaction, we have 55 newbuilding product tanker orders with HMD, SPP, HSHI and DSME
(29 MRs, 14 Handymaxes and 12 LR2s). The estimated future payment dates and amounts are as follows*:
Q1 2014 ...................................................................................................
Q2 2014 ...................................................................................................
Q3 2014 ...................................................................................................
Q4 2014 ...................................................................................................
Q1 2015 ...................................................................................................
Q2 2015 ...................................................................................................
Total ......................................................................................................... $
190.9 million**
367.6 million
422.0 million
292.1 million
167.5 million
168.2 million
1,608.3 million
* These are estimates only and are subject to change as construction progresses.
** All first quarter 2014 installment payments have been paid as of the date of this report.
F-52
SCORPIO TANKERS INC.
Le t ter from the
Chairman and Ceo
dear Shareholder,
It is my pleasure to present the 2013 results for Scorpio
The modern product tanker is designed to perform
Tankers Inc. and to review the Company’s position for
complex operations across multiple cargoes, ports,
2014 and beyond. Last year marked our first full year
terminals and conditions, which we believe customers
of profitability since our initial public offering in 2010;
demand because of the underlying opportunities to
we are pleased but by no means satisfied with this
profitably buy and sell their cargoes. Only a portion
accomplishment. We believe that the timing and nature
of the global fleet of vessels, and only a portion of all
of our investments in new vessels, coupled with our
operators, can work for these clients. It is our central
balance sheet and the improving fundamentals for
aim to stay in this select group.
product tankers, ensures that we are well-positioned
for many years ahead.
The second interest is risk-avoidance. Every year there
are marine casualties, breaches of regulatory compli-
In 2013, the United States continued its dramatic surge
ance, or counterparty defaults. These show our cus-
in energy self-sufficiency, shifting from a net importer
tomers that there is still ample room for error; that the
to a net exporter of refined petroleum products. This
100-year storm might be happening every 5 years, or
shift from customer to supplier, breathtaking in its
that the process that they thought was failsafe in fact
speed, has driven substantial demand for product
was poorly designed. Equally, the consequences of
tankers. With access to cheaper feedstocks and tech-
these errors can be catastrophic, immediate, visible
nologically advanced refineries, our American-based
(on TV, social media, or otherwise!) and persistent.
customers now compete favorably across the globe.
As these mishaps occur in the maritime industry, the
Our vessels carry cargoes over longer distances,
scrutiny to which we are subjected gets tighter. We
delivering cheaper and consistent cargoes into
welcome this scrutiny because we think it is an impor-
developed and emerging markets alike. Meanwhile,
tant point of differentiation for Scorpio Tankers. We
older, smaller, “local” refineries, those close to consum-
continue to spend tremendous time and resources on
ers, but otherwise with little competitive strengths,
the people, the process, and the technology to com-
are in decline. During 2013 we witnessed a number
pete effectively, and with integrity in our markets. Not
of these legacy refineries closing—in places like
only our vessels, but also our personnel, our offices,
Australia, France and England and we expect that this
and even our balance sheet are an open book for our
trend will continue.
customers and regulators.
In addition, oil majors and commodity traders, our core
Finally, our fleet of new product tankers, constructed at
clients, continue to value both the flexibility of modern
reputable shipyards around the world, are performing
assets as well as sophisticated and safe operations.
just as we expected. Beyond the value to the customer,
Two distinct interests drive their choices in ocean
we are able to realize the cost savings we anticipated,
trans portation. The first interest is financial returns.
about 6–8 tons of fuel per day at sea, which trans-
lates into significant sums considering the current
Corpor ate
information
SENIOr MANAgEMENT
AND DIrECTOrS
Emanuele A. Lauro
Chairman & Chief Executive Officer
robert Bugbee
President & Director
Brian Lee
Chief Financial Officer
Cameron Mackey
Chief Operating Officer & Director
Luca Forgione
general Counsel
Sergio gianfranchi
Vice President, Vessel Operations
Anoushka Kachelo
Company Secretary
Alexandre Albertini
Director
Ademaro Lanzara
Director
Donald C. Trauscht
Director
Marianne Økland
Director
Jose Tarruella
Director
COrPOrATE OFFICES
Monaco
Le Millenium—9, Boulevard Charles III—
MC 98000 Monaco
Tel +377 9798 5716
New York
150 East 58th Street—New York, NY 10155
Tel +1 212 542 1616
info@scorpiotankers.com
STOCK LISTINg
Scorpio Tankers Inc.’s common stock is
traded on the New York Stock Exchange
under the symbol STNg.
TrANSFEr AgENT
Computershare
250 royall Street
Canton, MA 02021
USA
LEgAL COUNSEL
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
USA
INVESTOr rELATIONS
Brian Lee
Chief Financial Officer
Scorpio Tankers Inc.
150 East 58th Street
New York, NY 10155
Tel +1 212 542 1616
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4/15/14 8:17 AM
Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com
Abou t us
Scorpio Tankers Inc. is a provider of marine transportation of petroleum products worldwide. As
of April 9, 2014, our owned fleet consisted of 20 tankers (one Handymax tanker, 15 MR tankers,
two LR1 tankers, one post-Panamax tanker and one LR2 tanker) with an average age of 3.1 years,
28 time chartered-in product tankers (eight Handymax, seven MR, five LR1 and eight LR2
tankers), and 55 newbuilding product tankers (29 MR, 12 LR2 and 14 Handymax ice class-1A
vessels), 42 vessels are expected to be delivered to us within 2014 and the remaining 13 by the
second quarter of 2015. We also own approximately 26% of Dorian LPG Ltd. Scorpio Tankers Inc.
is incorporated in the Republic of the Marshall Islands and has its principal offices in Monaco
and New York. Scorpio Tankers is listed on the New York Stock Exchange (NYSE) under the
symbol STNG.
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Monaco
Le Millenium—9, Boulevard Charles III—MC 98000 Monaco
Tel +377 9798 5716
New York
150 East 58th Street—New York, NY 10155
Tel +1 212 542 1616
info@scorpiotankers.com
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2013 AN N uAL R EP o RT