Business Context and Reporting Period
Company: Teekay Tankers Ltd. (NYSE: TNK)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Date: November 25, 2008
Subject: Restatement of financial results for the first and second quarters of fiscal year 2008 (periods ended March 31, 2008, and June 30, 2008).
Business Overview: Teekay Tankers owns a fleet of nine Aframax and two Suezmax double-hull tankers, managed by an affiliate of Teekay Corporation. The company distributes cash available for distribution on a quarterly basis.
Key Financial Metrics (Restated)
The following metrics reflect the restated figures for the periods ended June 30, 2008, and March 31, 2008. All figures are in thousands of U.S. dollars unless otherwise noted.
| Metric | Three Months Ended June 30, 2008 |
Three Months Ended March 31, 2008 |
Six Months Ended June 30, 2008 |
|---|---|---|---|
| Net Income | $22,628 | $10,494 | $33,122 |
| Earnings Per Share (Basic & Diluted) | $0.89 | $0.39 | $1.28 |
| Net Voyage Revenues | $35,600 (approx) | $33,400 (approx) | $69,000 (approx) |
| Cash Available for Distribution | $22,384 | Not explicitly restated in summary | Not explicitly restated in summary |
| Cash Dividend Declared (Q2 2008) | $0.90 per share | N/A | N/A |
| Cash Dividend Declared (Q3 2008) | $1.07 per share | N/A | N/A |
| Total Assets (as of June 30, 2008) | $495,255 | N/A | N/A |
| Long-Term Debt (as of June 30, 2008) | $317,028 | N/A | N/A |
Material Changes vs. Prior Periods
The filing details significant restatements driven by two accounting adjustments. These changes are non-cash in nature and do not affect the company's liquidity or cash available for distribution.
- Derivative Instrument Accounting (SFAS 133): The company restated results to reflect an interest rate swap agreement that did not qualify for hedge accounting. Unrealized gains and losses are now recognized in the statement of income rather than equity.
- Q2 2008 Impact: Increased net income by $325,000 (unrealized gain).
- Q1 2008 Impact: Decreased net income by $4,356,000 (unrealized loss).
- Dropdown Transaction Accounting (SFAS 141): Two Suezmax tankers acquired from Teekay Corporation were reclassified from asset acquisitions to business acquisitions. Financial statements were retroactively adjusted to include the historical results of these vessels from the date they were originally acquired by Teekay (August 1, 2007).
- Q2 2008 Impact: Increased net income by $298,000.
- Q1 2008 Impact: Increased net income by $812,000.
Comparison to Prior Year: Restated net income for the six months ended June 30, 2008, was $33.1 million, compared to $27.9 million for the same period in 2007. Net voyage revenues for the six months ended June 30, 2008, increased to $69.0 million from $55.7 million in 2007.
Guidance, Outlook, and Risks
Management Commentary:
- CFO Vince Lok emphasized that the restatements are due solely to changes in accounting treatment and have no impact on actual cash flows, liquidity, or the economics of the company's hedging transactions.
- The company discontinued the use of hedge accounting for the interest rate swap; future unrealized gains/losses will be reflected in interest expense.
- The company intends to distribute all cash available for distribution quarterly, subject to board reserves.
Outlook and Risks:
- Dividend Policy: A cash dividend of $1.07 per share was declared for the quarter ended September 30, 2008, payable December 10, 2008.
- Future Filings: Detailed financial information regarding the restatements will be included in amended Form 6-K/A reports expected by December 5, 2008.
- Market Conditions: The filing does not provide specific forward-looking guidance on freight rates or market conditions beyond the discussion of the restatement.
Investor Verification Checklist
- Verify Cash Flow Impact: Confirm that the restatement adjustments are strictly non-cash and do not alter the "Cash Available for Distribution" metric used for dividend calculations.
- Review Amended Filings: Await the amended Form 6-K/A for Q1 2008 and the Form 6-K for Q2 2008 (expected by Dec 5, 2008) for full reconciliation details.
- Assess Hedge Accounting: Understand the implications of discontinuing hedge accounting for the interest rate swap on future earnings volatility (mark-to-market fluctuations in interest expense).
- Check Dropdown Details: Review the specific historical performance of the two Suezmax tankers (Ganges Spirit and Narmada Spirit) included in the retroactive adjustment.
- Dividend Sustainability: Monitor the company's ability to maintain the declared dividend of $1.07 per share for Q3 2008 given the broader market environment in late 2008.