Teekay Tankers Ltd. — FY2011 Form 20-F Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2011, filed April 13, 2012, prepared under U.S. GAAP. The filing is annual rather than a standalone fourth-quarter report, although management discusses fourth-quarter 2011 tanker-market conditions. Teekay Tankers owns and operates Aframax and Suezmax crude-oil tankers, using a mix of fixed-rate time charters, spot-market pool arrangements and vessels chartered in from third parties. Teekay Corporation controls the company through its Class B shares and provides management, technical and commercial services.
At December 31, 2011, the fleet comprised 15 owned vessels, two chartered-in Aframax vessels and a 50% interest in one VLCC newbuilding scheduled for delivery in the second quarter of 2013.
Key financial and operating metrics
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Total revenues | $121.0 million | $139.5 million | Down 13.3% |
| Net revenues | $118.3 million | $136.9 million | Down 13.6% |
| Income from operations | $7.1 million | $35.4 million | Down 79.9% |
| Net income (loss) | $(9.1) million | $16.3 million | Declined to a loss |
| Basic and diluted EPS | $(0.15) | $0.37 | Declined |
| EBITDA | $38.2 million | $69.2 million | Down 44.7% |
| Adjusted EBITDA | $63.0 million | $81.6 million | Down 22.8% |
| Operating cash flow | $55.1 million | $58.4 million | Down 5.6% |
| Cash and cash equivalents | $15.9 million | $12.5 million | Increased |
| Total debt | $348.9 million | $454.0 million | Down $105.1 million |
| Total liquidity | $293.4 million | $186.7 million | Increased |
| Total equity | $489.4 million | $442.7 million | Increased |
Adjusted EBITDA excludes the goodwill impairment charge and realized and unrealized derivative losses, among other items. It is a non-GAAP measure and should not be viewed as a substitute for GAAP income or operating cash flow.
Average TCE rates decreased to $19,360 per revenue day from $23,971 in 2010. Voyage-charter Aframax TCE declined to $13,088 from $17,118, voyage-charter Suezmax TCE declined to $14,447 from $24,465, and time-charter Aframax TCE declined to $21,515 from $25,544.
Operating expenses included $42.1 million of vessel operating expenses, $4.0 million of time-charter hire expense, $43.2 million of depreciation and amortization, and $8.6 million of general and administrative expense. No vessels underwent scheduled dry docking in 2011.
Material changes versus the prior comparable period
- Net revenues fell primarily because of weaker spot-market and time-charter rates, fewer revenue days following 2010 vessel sales, and lower profit-sharing revenue.
- Interest income from the $115.0 million term-loan investment increased from $5.3 million to $11.3 million and partly offset weaker tanker earnings.
- The company recorded a $13.3 million goodwill impairment charge in 2011, eliminating the remaining goodwill balance. Management identified continuing tanker-market oversupply as an impairment indicator but concluded that no vessel impairment was required.
- Realized and unrealized derivative losses increased to $11.4 million from $10.5 million, comprising approximately $6.1 million of realized and $5.3 million of unrealized interest-rate-swap losses.
- Interest expense declined to $4.2 million from $7.5 million, primarily because of lower average debt and lower amortization of capitalized loan costs.
- Operating cash flow declined modestly despite lower earnings, helped by no dry-docking cash expenditures in 2011 and lower interest and working-capital cash requirements.
- The company issued 9.89 million Class A shares in February 2011 for gross proceeds of $112.1 million and used the net proceeds principally to prepay $103.0 million of revolving-credit debt.
- Two Aframax vessels were chartered in during 2011 at fixed rates of $14,000 per day during their initial firm periods. Four owned Aframax vessels were placed on fixed-rate time charters at approximately $17,000 to $18,000 per day.
Liquidity, debt and distributions
At year-end, long-term debt consisted primarily of $339.0 million drawn under a revolving credit facility and a $9.9 million term loan. The revolving facility had total capacity of $616.5 million, with $277.5 million undrawn, and matured in 2017. The company was in compliance with all debt covenants, including minimum liquidity and vessel-value requirements.
Total cash dividends declared and paid in 2011 were $51.4 million, or $0.83 per share. A $0.11 per-share dividend relating to the fourth quarter of 2011 was paid on February 28, 2012. The dividend policy is variable and depends on Cash Available for Distribution, reserves, debt covenants, capital needs and board discretion; future dividends are not guaranteed.
Contractual obligations at December 31, 2011 totaled approximately $465.9 million, including $348.9 million of debt, $76.0 million of technical-management and administrative fees, $39.2 million of remaining commitments for the VLCC newbuilding and $1.8 million for chartered-in vessels. The company reported no material off-balance-sheet arrangements.
Guidance, outlook, management commentary and risks
- Management expected tanker-fleet supply growth to exceed demand growth through at least the first half of 2012, creating weaker and volatile spot rates before possible improvement later in 2012 as supply growth moderated.
- Fourth-quarter 2011 tanker rates strengthened because of seasonal demand, record global oil production, weather disruptions, Turkish Straits delays, the recovery of Libyan oil production and higher Asian imports. Management cautioned that this seasonal strength might not persist.
- The company estimated 2012 tanker-fleet growth of approximately 4.5%, assuming newbuilding-delivery slippage and scrapping, while global oil demand was expected to grow by approximately 1.0 million barrels per day.
- Seven of nine fixed-rate time charters outstanding at March 1, 2012 were scheduled to expire in 2012, exposing the company to potentially weaker spot-market rates when contracts are renewed or vessels return to the spot market.
- Principal risks include spot-rate volatility, tanker oversupply, declining vessel values, customer credit risk, piracy and geopolitical disruption, environmental and emissions regulation, higher crew and operating costs, dry-docking requirements, interest-rate exposure and access to financing.
- The company has concentrated exposure to Teekay Corporation through management services, pooling arrangements, related-party receivables and common ownership. Teekay also controls voting matters through the dual-class share structure and may pursue business opportunities that could otherwise be attractive to Teekay Tankers.
- The company held $115.0 million of term loans, collateralized by two VLCCs and maturing in 2013. Borrower default or insufficient collateral value could reduce cash flows and cause losses.
- Interest-rate swaps had aggregate notional amounts of $215.0 million at year-end and a total fair-value liability of approximately $24.2 million.
- In February 2012, after year-end, the company issued 17.25 million Class A shares at $4.00 per share for gross proceeds of $69.0 million and used $55.0 million of net proceeds to repay revolving-credit debt.
Most important facts for an investor to verify
- Reconcile the annual filing’s $120.997 million revenue figure with the MD&A presentation of $109.674 million revenue plus $11.323 million of term-loan interest income.
- Review the sustainability of dividends given the 2011 net loss, weaker TCE rates, large scheduled debt obligations and the variable dividend policy.
- Assess the effect of 2012 charter expirations and the company’s resulting exposure to spot tanker rates.
- Evaluate the $13.3 million goodwill impairment and the substantial gap between vessel market values of approximately $434 million and carrying values of approximately $716.6 million.
- Review debt maturities, revolving-facility availability, minimum-liquidity and vessel-value covenants, and the effect of interest-rate swaps.
- Assess the credit quality and collateral supporting the $115.0 million term-loan investment and the $39.2 million remaining VLCC newbuilding commitment.
- Examine related-party management, pooling and commercial-fee arrangements, Teekay’s voting control and potential conflicts of interest.
- Confirm the impact of the February 2012 equity offering on per-share dividends, leverage, liquidity and shareholder dilution.