Business Context and Reporting Period
Company: Teekay Tankers Ltd.
Filing Type: Form 6-K (Earnings Release)
Reporting Period: Second Quarter ended June 30, 2011
Report Date: August 16, 2011
Teekay Tankers operates a fleet of double-hull Aframax and Suezmax tankers, utilizing a mix of fixed-rate time-charter contracts and spot market trading. The company declared a quarterly cash dividend of $0.21 per share, down from $0.25 in the prior quarter, reflecting market conditions and strategic fleet management.
Key Financial Metrics
| Metric | Q2 2011 | Q2 2010 | YTD 6 Months 2011 | YTD 6 Months 2010 |
|---|---|---|---|---|
| Net Revenues | $30.9 million | $35.8 million | $62.0 million | $74.1 million |
| GAAP Net Income | $1.4 million ($0.02/share) | $2.2 million ($0.05/share) | $8.5 million ($0.14/share) | $7.3 million ($0.20/share) |
| Adjusted Net Income | $4.3 million ($0.07/share) | $7.6 million ($0.18/share) | $9.9 million ($0.17/share) | $14.0 million ($0.38/share) |
| Cash Available for Distribution | $14.9 million | N/A | N/A | N/A |
| Total Liquidity | $294.1 million | N/A | N/A | N/A |
| Long-Term Debt | $348.0 million | N/A | N/A | N/A |
Note: Adjusted Net Income excludes unrealized losses on interest rate swaps and other non-cash items. Net Revenues are a non-GAAP measure representing revenues less voyage expenses.
Material Changes vs. Prior Period
- Revenue Decline: Net revenues decreased 13.7% year-over-year in Q2 2011, primarily due to lower average realized tanker rates for the spot fleet.
- Profitability Impact: Adjusted net income fell 43% year-over-year in Q2 2011. This was partially offset by $2.9 million in increased revenue from investments in two term loans.
- Derivative Impact: GAAP net income was reduced by $2.9 million in Q2 2011 due to unrealized losses on interest rate swaps, compared to a $5.3 million reduction in the same period in 2010.
- Liquidity: Total liquidity decreased slightly to $294.1 million from $297.5 million in Q1 2011, consisting of $16.6 million in cash and $277.5 million in an undrawn revolving credit facility.
Guidance, Outlook, and Management Commentary
Strategic Fleet Management
Management executed accretive charter-in/charter-out arrangements on four ships, locking in positive cash flow of approximately $6,000 per day. This strategy involves time-chartering out owned Aframaxes at rates roughly $3,000 per day higher than the rates paid to charter in third-party vessels.
Fixed-Rate Coverage
- H2 2011: Approximately 60% of the fleet is covered by fixed-rate contracts.
- Next 12 Months: Approximately 55% fixed-rate coverage.
Q3 2011 Dividend Outlook
The company provided a dividend estimate table based on spot rate assumptions. Estimated dividends range from $0.14 to $0.42 per share depending on Suezmax and Aframax spot rates (TCE per day). Estimates assume a $2.0 million reserve for drydocking and capital expenditures.
Market Risks and Contingencies
- Market Conditions: The tanker market remains weak due to oversupply, geopolitical factors (Libyan unrest), and seasonal maintenance.
- Fleet Growth: Global fleet grew 3.1% in H1 2011, though new ordering is at historic lows.
- Forward-Looking Risks: Risks include changes in oil demand, early contract termination, interest rate fluctuations, and potential increases in drydocking costs.
Investor Verification Checklist
- Dividend Sustainability: Verify the company's ability to maintain the $0.21/share dividend given the decline in spot rates and the reduction in Cash Available for Distribution.
- Charter Spread Execution: Confirm the actual performance of the new charter-in/charter-out spreads ($6,000/day profit) against market volatility.
- Derivative Exposure: Review the reconciliation of GAAP to Adjusted Net Income to understand the magnitude of unrealized losses on interest rate swaps.
- Liquidity Position: Monitor the utilization of the $277.5 million undrawn revolving credit facility against upcoming debt principal payments and drydocking reserves.
- Spot Rate Sensitivity: Assess the impact of further declines in Aframax and Suezmax spot rates on the Q3 dividend estimate.