Business Context and Reporting Period
Company: Teekay Tankers Ltd. (NYSE: TNK)
Filing Type: Form 6-K (Earnings Release)
Reporting Period: Fourth Quarter and Full Year ended December 31, 2012
Date of Report: February 21, 2013
Teekay Tankers operates a fleet of double-hull vessels, including Suezmax, Aframax, LR2, and MR product tankers, managed through a mix of fixed-rate time-charter contracts and spot market trading. The company reported results for Q4 2012 and the full fiscal year 2012, highlighting a challenging market environment characterized by oversupply and reduced OPEC production.
Key Financial Metrics
| Metric | Q4 2012 | Q4 2011 | Full Year 2012 | Full Year 2011 |
|---|---|---|---|---|
| Net Revenues | $44.5 million | $47.5 million | $192.8 million | $211.6 million |
| GAAP Net Loss (Attributable to Shareholders) | ($356.6 million) | ($0.5 million) | ($361.0 million) | ($9.1 million) |
| GAAP Loss Per Share | ($4.27) | ($0.01) | ($4.54) | ($0.15) |
| Adjusted Net Loss (Non-GAAP) | ($7.8 million) | ($1.2 million) | ($11.4 million) | $10.1 million (Income) |
| Adjusted Loss/Income Per Share | ($0.09) | ($0.02) | ($0.14) | $0.17 |
| Cash Available for Distribution (Q4) | $10.8 million ($0.13/share) | N/A | N/A | N/A |
| Total Liquidity (Dec 31, 2012) | $327.3 million | N/A | N/A | N/A |
Note: Net revenues represent revenues less voyage expenses. Adjusted net loss excludes specific non-cash items, primarily a $352.5 million vessel impairment charge.
Material Changes vs. Prior Period
- GAAP Loss Expansion: The GAAP net loss for Q4 2012 widened significantly to $356.6 million compared to a $0.5 million loss in Q4 2011. This is primarily driven by a non-cash vessel impairment charge of $352.5 million related to declining market values of Suezmax and older Aframax tankers.
- Adjusted Performance: On an adjusted basis (excluding impairments), the company reported a net loss of $7.8 million in Q4 2012, an increase from a $1.2 million loss in Q4 2011. This deterioration was caused by vessels transitioning from fixed-rate charters to lower spot rates and renewals at reduced rates.
- Revenue Decline: Net revenues decreased to $44.5 million in Q4 2012 from $47.5 million in the prior year quarter, reflecting lower average realized rates.
- Full Year Comparison: For the full year 2012, the company shifted from an adjusted net income of $10.1 million in 2011 to an adjusted net loss of $11.4 million in 2012, attributed to drydocking costs and lower charter rates.
Guidance, Outlook, and Management Commentary
- Dividend Policy Change: The company moved to a fixed dividend policy commencing with the Q1 2013 dividend. The annual dividend is set at $0.12 per share, payable quarterly. A Q4 2012 dividend of $0.03 per share was declared, payable March 11, 2013.
- Market Outlook: Management notes that while spot rates improved briefly in late Q4 2012, current oversupply and reduced OPEC production have offset seasonal strengthening in Q1 2013. However, LR2 product tanker rates remain relatively strong due to increased refinery capacity east of Suez.
- Investment Strategy: Management views current cyclically low asset values as favorable opportunities for future growth through newbuilding orders or acquisitions of quality on-the-water tonnage.
- Liquidity and Covenants: The company maintains $327.3 million in liquidity (cash plus undrawn credit facilities) and remains in compliance with all debt covenants. The impairment charge is non-cash and does not impact loan covenants.
- Fleet Updates:
- Sold the Aframax tanker Nassau Spirit for net proceeds of $9.1 million on January 22, 2013.
- Time-chartered out the Aframax Esther Spirit at $14,250/day for 12 months.
- Time-chartered in the Aframax BM Breeze at $11,100/day for 12 months.
Investor Verification Checklist
- Impairment Details: Verify the specific vessels included in the $352.5 million non-cash impairment charge and the methodology used to determine fair market value.
- Dividend Sustainability: Assess the sustainability of the new fixed $0.12 annual dividend policy given the shift to spot rates and current market weakness.
- Liquidity Runway: Confirm the utilization of the $301 million undrawn revolving credit facility and the schedule for scheduled amortization.
- Dropdown Accounting: Review the impact of "dropdown" accounting rules on the book value of vessels acquired from Teekay Corporation in June 2012 versus their actual purchase price.
- Fixed Coverage: Validate the management estimate of approximately 42% fixed coverage for fiscal 2013, including income from term loans secured by VLCCs.