Business Context and Reporting Period
Company: Teekay Tankers Ltd.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarterly period ended June 30, 2009 (Unaudited)
Business Overview: The Company owns and operates oil tankers, utilizing a chartering strategy that combines fixed-rate time charters to reduce downside risk with spot market exposure to capture upside opportunities. As of September 1, 2009, the fleet consisted of nine Aframax tankers and three Suezmax tankers.
Key Financial Metrics
| Metric (in thousands USD) | Six Months Ended June 30, 2009 |
Six Months Ended June 30, 2008 |
Three Months Ended June 30, 2009 |
Three Months Ended June 30, 2008 |
|---|---|---|---|---|
| Total Revenues | $65,453 | $78,836 | $31,005 | $42,836 |
| Net Income | $32,535 | $35,948 | $16,894 | $26,272 |
| Earnings Per Share (Basic/Diluted) | $1.20 | $1.28 | $0.64 | $0.89 |
| Operating Cash Flow | $42,248 | $31,706 | N/A | N/A |
| Cash and Cash Equivalents (as of June 30, 2009) |
$17,575 | $26,698 (Dec 31, 2008) | N/A | N/A |
| Total Debt (Long-term + Current) |
$307,028 | $421,139 (Dec 31, 2008) | N/A | N/A |
| Total Liquidity (Cash + Undrawn Credit) |
$141.3 million | N/A | N/A | N/A |
Note: Financial results include the "Dropdown Predecessor" (vessels acquired from Teekay Corporation under common control), which are recast to include results as if acquired on August 1, 2007.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 17.0% for the six months ended June 30, 2009, compared to the same period in 2008. This was primarily driven by a decrease in average Time Charter Equivalent (TCE) rates for vessels operating on spot-market-based voyage charters and time-charter contracts.
- Net Income: Net income decreased 9.5% year-over-year for the six-month period. Despite lower operating revenues, the decline was mitigated by a significant unrealized gain on interest rate swaps ($6.8 million for six months 2009 vs. a loss of $0.07 million in 2008) and reduced interest expense due to lower rates and debt prepayments.
- Debt Reduction: Total long-term debt decreased significantly from $421.1 million at year-end 2008 to $307.0 million at June 30, 2009, following prepayments and the repayment of debt associated with the Dropdown Predecessor.
- Operating Expenses: Vessel operating expenses increased slightly (5.9% for six months) primarily due to the inclusion of the Dropdown Predecessor, while General and Administrative expenses decreased 21.8% due to lower management fees.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Market Conditions: Management notes that average spot rates for crude oil tankers declined in Q2 2009 due to reduced global oil demand and fleet growth. Rates continued to decline in Q3 2009 due to weak fundamentals, including production outages in Nigeria and refinery maintenance.
- Dividends: The Company declared a quarterly cash dividend of $0.40 per share for the quarter ended June 30, 2009, paid on August 31, 2009. The Company intends to distribute all Cash Available for Distribution quarterly, subject to reserves.
- Capital Strategy: On June 24, 2009, the Company completed a follow-on public offering of 7.0 million Class A shares, raising gross proceeds of $68.6 million. Net proceeds were used to acquire the Suezmax tanker Ashkini Spirit for $57.0 million and repay debt. This acquisition increased undrawn availability under the revolving credit facility by $58.0 million.
Risks and Contingencies
- Market Risk: The Company is exposed to volatility in spot tanker rates, interest rates, and foreign currency fluctuations. While interest rate swaps are used to hedge floating-rate debt, no freight forward agreements were in place as of June 30, 2009.
- Liquidity Covenants: The revolving credit facility requires maintaining minimum liquidity of $35.0 million and at least 5.0% of total debt. The Company was in compliance as of June 30, 2009.
- Seasonality: Tanker markets are typically weaker in summer months (Q2/Q3) due to lower oil consumption and refinery maintenance, and stronger in winter months.
Key Facts for Investor Verification
- Accounting Recasting: Verify the impact of the "Dropdown Predecessor" accounting treatment, which recasts historical results for three Suezmax vessels as if they were owned since 2007, affecting comparability with prior periods.
- Derivative Gains: Note that net income is significantly supported by unrealized gains on interest rate swaps ($6.8 million for the six-month period), which are non-cash items and subject to market volatility.
- Debt Structure: Confirm the weighted-average effective interest rate on long-term debt (1.69% as of June 30, 2009) and the maturity profile, with a significant portion ($290.8 million) due after 2013.
- Related Party Transactions: Review the extent of reliance on Teekay Corporation for management services, vessel acquisitions, and pooling arrangements, which constitute a significant portion of operations and expenses.
- Liquidity Position: Verify the $141.3 million total liquidity figure, which includes $123.7 million in undrawn credit facilities, to assess the ability to meet debt service and dividend obligations.