Filed by Bowne Pure Compliance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K/A
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2008
Commission file number 1- 33867
TEEKAY TANKERS LTD.
(Exact name of Registrant as specified in its charter)
4th floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover
Form 20-F or Form 40-F.
Form 20-F þ Form 40-F o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by
Regulation S-T Rule 101(b)(1).
Yes o No þ
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by
Regulation S-T Rule 101(b)(7).
Yes o No þ
Indicate by check mark whether the registrant by furnishing the information contained in this
Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934.
Yes o No þ
If Yes is marked, indicate below the file number assigned to the registrant in connection with
Rule 12g3-2(b):
82-
EXPLANATORY NOTE
Teekay Tankers Ltd. (generally referred to herein as the Company, we, our or us) is filing this Quarterly Report on
Form 6-K/A for the three months ended March 31, 2008 (this Amendment or this First Quarter 2008 Form 6-K/A Report) to
amend our Quarterly Report on Form 6-K for the three months ended March 31, 2008 (the Original Filing) that was
furnished to the U.S. Securities and Exchange Commission (or SEC) on May 28, 2008.
In August 2008, we commenced a review of our application of Statement of Financial Accounting Standards (or SFAS) No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended. Although we believe that our derivative
transactions were consistent with our risk management policies and that our overall risk management policies continue
to be sound, based on our review we concluded that our interest rate swap did not qualify for hedge accounting
treatment under SFAS No. 133. Our hedge documentation in respect of our assessment of effectiveness and measurement of
ineffectiveness of our interest rate swap for accounting purposes was not in accordance with the technical
requirements of SFAS No. 133.
Accordingly, although we believe our interest rate swap was and continues to be an effective economic hedge, for
accounting purposes we should have reflected changes in fair value of this interest rate swap as increases or decreases
to our net income on our consolidated statements of income, instead of being reflected as increases or decreases to
accumulated other comprehensive income, a component of stockholders equity on our consolidated balance sheets.
The change in accounting for these transactions does not affect the economics of the derivative transactions or our
cash flows, liquidity or total stockholders equity.
As a result of the conclusions described above, we are restating in this First Quarter 2008 Form 6-K/A Report our
historical balance sheet as of March 31, 2008, and our statements of income and cash flows for the three months ended
March 31, 2008.
Note 2 of the notes to the unaudited consolidated financial statements included in this First Quarter 2008 Form 6K/A
Report reflects the changes to our unaudited consolidated financial statements as a result of our restatement and
provides additional information about the restatement.
For the convenience of the reader, this First Quarter 2008 Form 6-K/A Report sets forth the Original Filing in its
entirety, although we are only restating portions of Part I. Financial Information affected by the amended financial
information. The changes we have made are a result of and reflect the restatement described herein; no other
information in the Original Filing has been updated.
Except for the amended or restated information described above, this First Quarter 2008 Form 6-K/A Report continues to
speak as of the date of the Original Filing. Other events occurring after the filing of the Original Filing or other
disclosures necessary to reflect subsequent events have been or will be addressed in other reports filed with or
furnished to the SEC subsequent to the date of the Original Filing.
Page 2 of 21
TEEKAY TANKERS LTD.
REPORT ON FORM 6-K/A FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008
INDEX
Page 3 of 21
TEEKAY TANKERS LTD.
(Successor to Teekay Tankers Predecessor)
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands of U.S. dollars, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(restated note 2) |
|
|
|
|
|
|
$ |
|
|
$ |
|
REVENUES |
|
|
|
|
|
|
|
|
Time charter revenues ($3.0 million and
$2.6 million for 2008 and 2007,
respectively, from related parties)
(note 7d) |
|
|
13,302 |
|
|
|
7,869 |
|
Pool revenues (note 7f) |
|
|
12,518 |
|
|
|
|
|
Voyage charter revenues |
|
|
851 |
|
|
|
31,986 |
|
|
|
|
|
|
|
|
|
|
|
26,671 |
|
|
|
39,855 |
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
Voyage expenses (note 7f) |
|
|
96 |
|
|
|
10,742 |
|
Vessel operating expenses |
|
|
5,580 |
|
|
|
4,943 |
|
Depreciation and amortization |
|
|
3,489 |
|
|
|
3,904 |
|
General and administrative expenses
($1.1 million and $3.2 million for 2008
and 2007, respectively, from related
parties) (notes 7a, 7b and 7e) |
|
|
1,321 |
|
|
|
3,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
10,486 |
|
|
|
22,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
16,185 |
|
|
|
17,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ITEMS |
|
|
|
|
|
|
|
|
Interest expense ($nil and $0.6 million
for 2008 and 2007, respectively, from
related parties) (includes $4.4 million
and $nil of unrealized losses related to
an interest rate swap) (notes 5 and 7c) |
|
|
(6,562 |
) |
|
|
(1,527 |
) |
Interest income |
|
|
65 |
|
|
|
|
|
Other (expense) income net |
|
|
(6 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
Total other items |
|
|
(6,503 |
) |
|
|
(1,526 |
) |
|
|
|
|
|
|
|
|
Net income |
|
|
9,682 |
|
|
|
15,485 |
|
|
|
|
|
|
|
|
|
Per common share amounts: |
|
|
|
|
|
|
|
|
Basic and diluted earnings (note 9) |
|
|
0.39 |
|
|
|
1.03 |
|
Cash dividends declared |
|
|
0.115 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares
outstanding: |
|
|
|
|
|
|
|
|
Basic and diluted (note 9) |
|
|
25,000,000 |
|
|
|
15,000,000 |
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the unaudited consolidated financial statements.
Page 4 of 21
TEEKAY TANKERS LTD.
(Successor to Teekay Tankers Predecessor)
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
As at |
|
|
|
March 31, 2008 |
|
|
December 31, 2007 |
|
|
|
(restated note 2) |
|
|
|
|
|
|
$ |
|
|
$ |
|
ASSETS |
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
44,477 |
|
|
|
34,839 |
|
Due from Teekay Pool, net (note 7f) |
|
|
6,160 |
|
|
|
1,600 |
|
Accounts receivable (including $0.3 million and $2.4 million for 2008 and 2007,
respectively, from related parties) |
|
|
5,173 |
|
|
|
2,494 |
|
Prepaid expenses |
|
|
1,735 |
|
|
|
2,078 |
|
Other assets |
|
|
121 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
57,666 |
|
|
|
41,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessels and equipment (note 4) |
|
|
|
|
|
|
|
|
At cost, less accumulated depreciation of $81.4 million (2007 - $79.7 million) |
|
|
265,406 |
|
|
|
267,729 |
|
Due from Teekay Pool (note 7f) |
|
|
1,000 |
|
|
|
|
|
Other non-current assets |
|
|
1,731 |
|
|
|
1,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
325,803 |
|
|
|
310,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
1,467 |
|
|
|
787 |
|
Accrued liabilities |
|
|
3,972 |
|
|
|
3,828 |
|
Current portion of long-term debt (note 4) |
|
|
3,600 |
|
|
|
3,600 |
|
Current portion of derivative instruments (note 5) |
|
|
2,305 |
|
|
|
894 |
|
Due to affiliates (note 7c) |
|
|
3,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
15,287 |
|
|
|
9,109 |
|
|
|
|
|
|
|
|
Long-term debt (note 4) |
|
|
144,600 |
|
|
|
145,500 |
|
Derivative instruments (note 5) |
|
|
10,809 |
|
|
|
6,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
170,696 |
|
|
|
161,530 |
|
|
|
|
|
|
|
|
Commitments and contingencies (note 4) |
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Common stock and additional paid-in capital (300 million shares authorized; 12.5 million
Class A and 12.5 million Class B shares issued and outstanding as of March 31, 2008
and December 31, 2007) (note 6) |
|
|
181,333 |
|
|
|
180,915 |
|
Accumulated deficit |
|
|
(26,226 |
) |
|
|
(33,033 |
) |
Accumulated other comprehensive income |
|
|
|
|
|
|
912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
155,107 |
|
|
|
148,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
|
325,803 |
|
|
|
310,324 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the unaudited consolidated financial
statements.
Page 6 of 21
TEEKAY TANKERS LTD.
(Successor to Teekay Tankers Predecessor)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(restated note 2) |
|
|
|
|
|
|
$ |
|
|
$ |
|
Cash and cash equivalents provided by (used for) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income |
|
|
9,682 |
|
|
|
15,485 |
|
Non-cash items: |
|
|
|
|
|
|
|
|
Unrealized loss on derivative instruments |
|
|
4,356 |
|
|
|
|
|
Depreciation and amortization |
|
|
3,489 |
|
|
|
3,904 |
|
Debt issuance cost amortization |
|
|
63 |
|
|
|
62 |
|
Other net |
|
|
32 |
|
|
|
|
|
Change in non-cash working capital items related to operating activities |
|
|
(1,931 |
) |
|
|
4,207 |
|
Expenditures for drydocking |
|
|
(1,058 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating cash flow |
|
|
14,633 |
|
|
|
23,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
|
|
|
|
|
80,564 |
|
Scheduled repayments of long-term debt |
|
|
(900 |
) |
|
|
(900 |
) |
Prepayments of long-term debt |
|
|
|
|
|
|
(65,458 |
) |
Debt issuance costs |
|
|
(220 |
) |
|
|
|
|
Share issuance costs |
|
|
(892 |
) |
|
|
|
|
Cash dividends paid |
|
|
(2,875 |
) |
|
|
|
|
Net advances to affiliates |
|
|
|
|
|
|
(319 |
) |
Return of capital |
|
|
|
|
|
|
(37,440 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing cash flow |
|
|
(4,887 |
) |
|
|
(23,553 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Expenditures for vessels and equipment |
|
|
(108 |
) |
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investing cash flow |
|
|
(108 |
) |
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
9,638 |
|
|
|
|
|
Cash and cash equivalents, beginning of the period |
|
|
34,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period |
|
|
44,477 |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the unaudited consolidated financial statements.
Page 6 of 21
TEEKAY TANKERS LTD.
(Successor to Teekay Tankers Predecessor)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
1. |
|
Basis of Presentation and Nature of Operations |
During October 2007, Teekay Corporation formed Teekay Tankers Ltd., a Marshall Islands
corporation (the Company), to acquire from Teekay Corporation a fleet of nine double-hull
Aframax-class oil tankers. Prior to the closing of the Companys initial public offering (or
IPO) on December 18, 2007, a subsidiary of Teekay Corporation transferred nine wholly owned
subsidiaries to the Company, each of which owns one Aframax-class oil tanker, in exchange for
12,500,000 shares of the Companys Class B common stock, 2,500,000 shares of the Companys Class
A common stock and a non-interest bearing promissory note.
The results of the operations and financial position prior to the IPO are collectively referred
to as Teekay Tankers Predecessor or the Predecessor. The accounts of the Predecessor consist of
the nine wholly owned subsidiaries transferred to the Company and any other transactions
specifically attributable to the nine vessels that were incurred in Teekay Corporation or any of
its other subsidiaries that were not transferred to the Company. These transfers represent a
reorganization of entities under common control and have been recorded at historical cost. The
combined carve-out financial statements for the periods prior to December 18, 2007, reflect the
combined carve-out financial position, results of operations and cash flows of the Predecessor.
All references in these financial statements to consolidated financial statements refer to
consolidated financial statements for the periods subsequent to December 17, 2007 and combined
carve-out financial statements for periods prior to December 18, 2007, respectively.
Teekay Corporation uses a centralized treasury system and, as a result, the cash and cash
equivalents attributable to the Predecessors vessels before the IPO were co-mingled with other
funds in accounts that were owned by companies other than Teekay Tankers Ltd. or the nine wholly
owned subsidiaries historically included in the Predecessor and transferred to the Company.
Consequently, for periods preceding the IPO, any cash transactions made on behalf of the nine
wholly owned subsidiaries are reflected as increases or decreases of advances from affiliates,
and any cash transactions attributable to vessels that were made by other Teekay subsidiaries
are reflected as increases or decreases in owners equity.
Two of the Predecessors wholly owned subsidiaries were capitalized in part with non-interest
bearing loans from Teekay Corporation and its subsidiaries. Generally, these intercompany loans
were used to finance the acquisition of the vessels. For periods preceding the IPO, interest
expense includes the allocation of interest to the Predecessor from Teekay Corporation and its
subsidiaries based upon the weighted-average outstanding balance of these intercompany loans and
the weighted-average interest rate outstanding on Teekay Corporations loan facilities that were
used to finance these intercompany loans. In addition, the combined carve-out financial
statements reflect interest on external loans of the two wholly owned subsidiaries and other
external loans that are directly attributable to the two vessels.
In the preparation of the combined carve-out financial statements, general and administrative
expenses were not identifiable as relating solely to the vessels. General and administrative
expenses consist primarily of salaries and other employee-related costs, office rent, legal and
professional fees, and travel and entertainment. For periods preceding the IPO, general and
administrative expenses of Teekay Corporation have been apportioned to Teekay Corporations spot
tanker segment and fixed-rate tanker segment, which includes, among other vessels, the
Predecessors nine vessels, based on estimated use of corporate resources. The resulting amounts
were partially allocated to the Predecessor, for each of the periods preceding the IPO, based on
its proportionate share of the total ship-operating (calendar) days of Teekay Corporations spot
tanker segment and fixed-rate tanker segment. Management believes this allocation reasonably
presents the general and administrative expenses of the Predecessor.
The accompanying unaudited interim consolidated financial statements have been prepared in
conformity with United States generally accepted accounting principles. Significant intercompany
balances and transactions have been eliminated upon consolidation or combination. The
preparation of financial statements in conformity with United States generally accepted
accounting principles requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual results could differ
from those estimates. In addition, estimates have been made when allocating expenses from Teekay
Corporation to the Predecessor and such estimates may not be reflective of actual results after
the Companys IPO.
Certain information and footnote disclosures required by United States generally accepted
accounting principles for complete annual financial statements have been omitted and, therefore,
these interim financial statements should be read in conjunction with the Companys audited
consolidated financial statements for the year ended December 31, 2007. In the opinion of
management, these interim consolidated financial statements reflect all adjustments, of a normal
recurring nature, necessary to present fairly, in all material respects, the Companys
consolidated financial position, results of operations, and cash flows for the interim periods
presented. The results of operations for the interim periods presented are not necessarily
indicative of those for a full fiscal year. Certain of the comparative figures have been reclassified to conform with the presentation
adopted in the current period.
Certain of the accompanying consolidated financial statements
have been restated. The nature of the restatements and the effect on the consolidated financial statement line items is discussed in
Note 2 of the Notes to Consolidated Financial Statements. In addition, certain disclosures in the following notes have been restated to be consistent
with the consolidated financial statements.
2. |
|
Restatement of Previously Issued Financial Statements |
In August 2008, the Company commenced a review its application of Statement of Financial
Accounting Standards (or SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended. Although the Company believes that its derivative transactions were
consistent with its risk management policies and that its overall risk management policies
continue to be sound, based on its review the Company concluded that its interest rate swap
agreement does not qualify for hedge accounting treatment under SFAS No. 133. The Companys
findings were as follows:
|
|
|
One of the requirements of SFAS No. 133 is that hedge accounting is appropriate only for
those hedging relationships that a company expects will be highly effective in achieving
offsetting changes in fair value or cash flows attributable to the risk being hedged. To
determine whether transactions satisfy this requirement, entities must periodically assess
the effectiveness of hedging relationships both prospectively and retrospectively. Based on the Companys review, the Company
concluded that the prospective hedge effectiveness assessment that was conducted on its
interest rate swap on the date of designation was not sufficient to conclude that the
interest rate swap would be highly effective, in accordance with the technical requirements
of SFAS No. 133, in achieving offsetting changes in cash flows attributable to the risk
being hedged. |
Page 7 of 21
TEEKAY TANKERS LTD.
(Successor to Teekay Tankers Predecessor)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
2. |
|
Restatement of Previously Issued Financial Statements (contd) |
For accounting purposes the Company should have reflected changes in fair value of this
interest rate swap as increases or decreases to the Companys net income on its consolidated
statements of income, instead of being reflected as increases or decreases to accumulated other
comprehensive income, a component of stockholders equity on the consolidated balance sheets.
The change in accounting for these transactions does not affect the Companys cash flows,
liquidity or total stockholders equity
As a result of the conclusions described above in this Note 2, the effect of the restatement on
the Company's unaudited consolidated statement of income for the three months ended March 31, 2008 was an
increase to interest expense of $4.4 million from $2.2 million to $6.6 million. As a result,
net income decreased to $9.7 million, or $0.39 per common share, from $14.0 million, or $0.56
per common share. The effect of the restatement on the Company's unaudited consolidated balance sheet was
an increase in accumulated deficit of $4.4 million, from $21.8 million to $26.2 million and a
decrease to accumulated other comprehensive loss of $4.4 million, from $4.4 million to zero.
There was no effect on total stockholders equity. The effect of the restatement on the Company's
unaudited consolidated statement of cash flows for the three months ended March 31, 2008 was a
decrease in net income, a component of net operating cash flow, by $4.4 million, from $14.0
million to $9.6 million and an increase in decrease in fair value of interest rate swap a
component of net operating cash flow by $4.4 million, from zero to $4.4 million. There was no
effect on net operating cash flow, net financing cash flow or net investing cash flow.
3. |
|
Fair Value Measurements |
Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS No.
157). In accordance with the Financial Accounting Standards Board (FASB) Staff Position No. FAS
157-2, Effective Date of FASB Statement No. 157 (FSP 157-2), the Company will defer the adoption
of SFAS No. 157 for its nonfinancial assets and nonfinancial liabilities, except those items
recognized or disclosed at fair value on an annual or more frequently recurring basis, until
January 1, 2009. The adoption of SFAS No. 157 did not have a material impact on the Companys
fair value measurements.
SFAS No. 157 clarifies the definition of fair value, prescribes methods for measuring fair
value, establishes a fair value hierarchy based on the inputs used to measure fair value and
expands disclosures about the use of fair value measurements. The fair value hierarchy has three
levels based on the reliability of the inputs used to determine fair value as follows:
|
Level 1. |
|
Observable inputs such as quoted prices in active markets; |
|
Level 2. |
|
Inputs, other than the quoted prices in active markets, that are observable either
directly or indirectly; and |
|
Level 3. |
|
Unobservable inputs in which there is little or no market data, which require the
reporting entity to develop its own assumptions. |
The following table presents the Companys assets and liabilities that are measured at fair
value on a recurring basis and are categorized using the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at |
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Asset / (Liability) |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreement (1) |
|
|
(13,114 |
) |
|
|
|
|
|
|
(13,114 |
) |
|
|
|
|
|
|
|
(1) |
|
The fair value of the Companys interest rate swap agreement is the estimated amount that
the Company would receive or pay to terminate the agreement at the reporting date, taking into
account current interest rates, and the current credit worthiness of both the Company and the swap counterparty.
The estimated amount is the present value of future cash flows. |
Page 8 of 21
TEEKAY TANKERS LTD.
(Successor to Teekay Tankers Predecessor)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
USD-denominated Revolving Credit Facility due 2017 |
|
|
114,000 |
|
|
|
114,000 |
|
USD-denominated Term Loan due through 2017 |
|
|
34,200 |
|
|
|
35,100 |
|
|
|
|
|
|
|
|
|
|
|
148,200 |
|
|
|
149,100 |
|
Less current portion |
|
|
3,600 |
|
|
|
3,600 |
|
|
|
|
|
|
|
|
Total |
|
|
144,600 |
|
|
|
145,500 |
|
|
|
|
|
|
|
|
As of March 31, 2008, the Company had one long-term revolving credit facility (or the Revolver)
available, which, as at such date, provided for borrowings of up to $229.0 million, of which
$115.0 million was undrawn. The total amount available under the Revolver reduces
by a semi-annual amount of $12.6 million commencing in November 2012. Interest payments are
based on LIBOR plus a margin of 0.60%. As at March 31, 2008, the interest rate on the Revolver
was 3.54%. The Revolver is collateralized by first-priority mortgages granted on seven of the
Companys vessels, together with other related collateral, and includes a guarantee from the
Company for all outstanding amounts. The Revolver requires that the Company and certain of its
subsidiaries maintain liquidity (cash, cash equivalents and undrawn committed revolving credit
lines with more than six months to maturity) of at least $35.0 million and 5.0% of the Companys
total debt.
As at March 31, 2008, the Company had one term loan outstanding in the amount of $34.2 million.
This term loan bears interest at a fixed-rate of 4.06%, requires quarterly principal payments of
$0.9 million, and is collateralized by first-preferred mortgages on two of the Companys
vessels, together with certain other related collateral. The term loan is guaranteed by Teekay
Corporation.
The aggregate annual long-term debt principal repayments required to be made by the Company
under the Revolver and term loan subsequent to March 31, 2008 are $2.7 million (remainder of
2008), $3.6 million (2009), $3.6 million (2010), $3.6 million (2011), $3.6 million (2012) and
$131.1 million (thereafter).
The weighted-average effective interest rate on the Companys long-term debt as at March 31,
2008 was 3.66% (December 31, 2007 5.34%). This rate does not reflect the effect of the
interest rate swap the Company has used to hedge certain of its floating rate debt (see Note 5).
5. |
|
Derivative Instruments and Hedging Activities |
The Company uses derivatives in accordance with its overall risk management policies. The Company enters into
interest rate swaps which exchange a receipt of floating interest for a payment of fixed interest to reduce the Companys
exposure to interest rate variability on its outstanding floating-rate debt. The Company has not designated, for accounting purposes, its
interest rate swap as a cash flow hedge of its USD LIBOR denominated borrowings. Unrealized gains or losses relating to the change in fair value of the Companys interest rate swap has been reported
in interest expense in the unaudited consolidated statements of income. During the three months ended March 31, 2008, the Company recognized an unrealized
loss of $4.4 million relating to the changes in fair value of its interest rate swap.
The following summarizes the Companys derivative position as at March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value / |
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Average |
|
|
Fixed |
|
|
|
Interest |
|
|
Principal |
|
|
Amount of Asset |
|
|
Remaining |
|
|
Interest |
|
|
|
Rate |
|
|
Amount |
|
|
(Liability) |
|
|
Term |
|
|
Rate |
|
|
|
Index |
|
|
$ |
|
|
$ |
|
|
(Years) |
|
|
(%) (1) |
|
LIBOR-Based Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar-denominated interest rate swap (1) |
|
USD LIBOR 3M |
|
|
100,000 |
|
|
|
(13,114 |
) |
|
|
9.5 |
|
|
|
5.55 |
|
|
|
|
(1) |
|
Excludes the margin the Company pays on its variable-rate debt, which as of March 31,
2008 was 0.6%. |
The Company is exposed to credit loss in the event of non-performance by the counterparty to
the interest rate swap agreement. In order to minimize counterparty risk, the Company only
enters into derivative transactions with counterparties that are rated A or better by Standard &
Poors or Aa3 or better by Moodys at the time of the transactions. In addition, to the extent
possible and practical, interest rate swaps are entered into with different counterparties to
reduce concentration risk.
Page 9 of 21
TEEKAY TANKERS LTD.
(Successor to Teekay Tankers Predecessor)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
The authorized capital stock of Teekay Tankers Ltd. at March 31, 2008 was 100,000,000 shares of
preferred stock, with a par value of $0.01 per share, 200,000,000 shares of Class A common
stock, with a par value of $0.01 per share, and 100,000,000 shares of Class B common stock, with
a par value of $0.01 per share. The shares of Class A common stock entitle the holder to one
vote per share while the shares of Class B common stock entitle the holder to five votes per
share, subject to a 49% aggregate Class B common stock voting power maximum. As at March 31,
2008, the Company had 12,500,000 shares of Class A common stock, 12,500,000 shares of Class B
common stock and no shares of preferred stock issued and outstanding.
Dividends may be declared and paid out of surplus only, but if there is no surplus, dividends
may be declared or paid out of the net profits for the fiscal year in which the dividend is
declared and for the preceding fiscal year. Subject to preferences that may apply to any shares
of preferred stock outstanding at the time, the holders of Class A common stock and Class B
common stock shall be entitled to share equally in any dividends that the board of directors may
declare from time to time out of funds legally available for dividends.
Upon the Companys liquidation, dissolution or winding-up, the holders of Class A common stock and Class B
common stock shall be entitled to share equally in all assets remaining after the payment of any
liabilities and the liquidation preferences on any outstanding preferred stock.
Shares of the Companys Class A common stock are not convertible into any other shares of the Companys capital
stock. Each share of Class B common stock is convertible at any time at the option of the holder
thereof into one share of Class A common stock. In addition, (a) upon any transfer of shares of
Class B common stock to a holder other than Teekay Corporation or any of its affiliates or any
successor to Teekay Corporations business or to all or substantially all of its assets, such
shares of Class B common stock shall automatically convert into Class A common stock upon such
transfer and (b) all shares of Class B common stock will automatically convert into shares of
Class A common stock if the aggregate number of outstanding shares of Class A common stock and
Class B common stock beneficially owned by Teekay Corporation and its affiliates falls below 15%
of the aggregate number of outstanding shares of common stock. Any such conversions will be
effected on a one-for-one basis.
Prior to the closing of the Companys IPO on December 18, 2007, a subsidiary of Teekay
Corporation transferred to the Company nine wholly owned subsidiaries, each of which owns one
Aframax-class oil tanker, in exchange for 12,500,000 shares of the Companys Class B common
stock, 2,500,000 shares of the Companys Class A common stock and a $180.8 million non-interest
bearing promissory note.
On December 18, 2007, the Company completed its IPO of 11,500,000 shares of Class A common stock
at a price of $19.50 per share. The proceeds received by the Company from the Offering and the
use of those proceeds are summarized as follows:
|
|
|
|
|
Proceeds received: |
|
|
|
|
Sale of 11,500,000 shares of Class A common stock at $19.50 per share |
|
$ |
224,250 |
|
|
|
|
|
|
|
|
|
|
Use of proceeds: |
|
|
|
|
Underwriting and structuring fees |
|
$ |
14,015 |
|
Offering expenses and other |
|
|
2,013 |
|
Repayment of promissory note |
|
|
180,800 |
|
Repurchase of 1,500,000 shares of Class A common stock from Teekay Corporation |
|
|
27,422 |
|
|
|
|
|
|
|
$ |
224,250 |
|
|
|
|
|
As at March 31, 2008, the Company had reserved under its 2007 Long-Term Incentive Plan 1,000,000
shares of Class A common stock for issuance pursuant to awards that may be granted.
7. |
|
Related Party Transactions |
|
a. |
|
Prior to the IPO, the Predecessors vessels were managed by subsidiaries of Teekay
Corporation. Pursuant to the associated management services agreements, the Predecessor
incurred general and administrative expenses of $1.2 million for the three months ended
March 31, 2007. |
|
|
b. |
|
During the three months ended March 31, 2007, $2.0 million of general and
administrative expenses attributable to the operations of the Predecessor prior to the IPO
were incurred by Teekay Corporation and have been allocated to the Predecessor. |
|
|
c. |
|
During the three months ended March 31, 2007, $0.6 million of interest expense was
incurred on loans advanced from Teekay Corporation and its subsidiaries to the Predecessor
prior to the IPO. Interest expense was allocated to the Predecessor based upon the
weighted-average outstanding balance of these loans and the weighted-average interest rate
outstanding on Teekay Corporations loan facilities that were used to finance these loans.
The amounts due to affiliates at March 31, 2008 are without interest or stated terms of
repayment. |
Page 10 of 21
TEEKAY TANKERS LTD.
(Successor to Teekay Tankers Predecessor)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
7. |
|
Related Party Transactions (contd) |
|
d. |
|
During the three months ended March 31, 2008 and 2007, $3.0 million and $2.6 million,
respectively, of revenues were earned from Skaugen PetroTrans Inc., a company in which
Teekay Corporation owns a 50% beneficial interest. |
|
|
e. |
|
Pursuant to a long-term management agreement with Teekay Tankers Management Services
Ltd., a wholly owned subsidiary of Teekay Corporation, the Company incurred management fees
of $1.1 million for the three months ended March 31, 2008 for commercial, strategic,
technical and administrative services. The management agreement provides for payment to
Teekay Tankers Management Services of a performance fee in certain circumstances. If Gross
Cash Available for Distribution for a given fiscal year exceeds $3.20 per share of the Companys
outstanding common stock (or the Threshold), the Company is generally required to pay a
performance fee equal to 20% of all Gross Cash Available for Distribution for such year in
excess of the Threshold. Cash Available for Distribution represents net income plus
depreciation and amortization, loan cost amortization, non-cash tax costs and any
write-offs or other non-recurring items. Gross Cash Available for Distribution represents
Cash Available for Distribution without giving effect to any deductions for performance
fees and reduced by the amount of any reserves the Companys board of directors may have
taken during the applicable fiscal period that have not already reduced the Cash Available
for Distribution. No performance fees were payable by the Company for the three months
ended March 31, 2008. |
|
|
f. |
|
Pursuant to a pool agreement with Teekay Chartering Limited, a wholly owned subsidiary
of Teekay Corporation, the Company incurred pool management fees of $0.4 million for the
three months ended March 31, 2008. Teekay Chartering Limited provides commercial services
to the pool participants and administers the pool in exchange for a fee currently equal to
$350 per vessel per day plus 1.25% of the gross revenues attributable to each pool
participants vessels. Voyage revenues and voyage expenses of the Companys vessels
operating in pool arrangements are pooled with the voyage revenues and voyage expenses of
other pool participants. The resulting net pool revenues, calculated on the time charter
equivalent basis, are allocated to the pool participants according to an agreed formula.
The Company accounts for the net allocation from the pool as voyage revenues. For the three
months ended March 31, 2008, the Companys allocation from the pool was net of $9.5 million
of voyage expenses. |
|
|
|
|
As of March 31, 2008, the Company had advanced $1.0 million to Teekay Chartering Limited for
working capital purposes. The Company may be required to advance additional working capital
funds from time to time. Working capital advances will be returned to the Company when a
vessel no longer participates in the pool, less any set-offs for outstanding liabilities or
contingencies. These advances are without interest or stated terms of repayment. |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(restated) |
|
|
|
|
|
|
$ |
|
|
$ |
|
Net income and comprehensive income |
|
|
9,682 |
|
|
|
15,485 |
|
Page 11 of 21
TEEKAY TANKERS LTD.
(Successor to Teekay Tankers Predecessor)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
Earnings per share is determined by dividing net income by the weighted-average number of shares
outstanding during the period. For periods prior to December 18, 2007, such shares are deemed
equal to the 15,000,000 common shares received by Teekay Corporation in exchange for net assets
contributed by it to the Company in connection with the IPO.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(restated) |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Net income available for common stockholders |
|
|
9,682 |
|
|
|
15,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares |
|
|
25,000,000 |
|
|
|
15,000,000 |
|
|
|
|
|
|
|
|
Common stock and common stock equivalents |
|
|
25,000,000 |
|
|
|
15,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share: |
|
|
|
|
|
|
|
|
- Basic and diluted |
|
|
0.39 |
|
|
|
1.03 |
|
Page 12 of 21
TEEKAY TANKERS LTD.
March 31, 2008
PART I FINANCIAL INFORMATION
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion below includes the impact of our restatement, as described in Note 2 of the notes to
the consolidated financial statements.
General
We are a Marshall Islands corporation that was formed by Teekay Corporation to acquire from it a
fleet of nine double-hull Aframax-class oil tankers in connection with our initial public offering
in December 2007. Our business is to own oil tankers and we employ a chartering strategy that seeks
to capture upside opportunities in the tanker spot market while using fixed-rate time charters or
hedging (through financial instruments such as freight forward agreements) to reduce downside
risks. Historically, the tanker industry has experienced volatility in profitability due to changes
in the supply of, and demand for, tanker capacity. Tanker supply and demand are each influenced by
several factors beyond our control. As at May 1, 2008, we owned nine Aframax-class tankers and two
Suezmax-class tankers. Four of our Aframax tankers currently operate under fixed-rate time-charters
with our customers, one of which charters expire in July 2008, two in 2009 and one in 2010. Our
remaining five Aframax tankers currently participate in an Aframax pooling arrangement operated by
Teekay Chartering Limited, a subsidiary of Teekay Corporation. As of May 1, 2008, this pooling
arrangement included 44 tankers. One of our Suezmax tankers participates in the Gemini Pool, a
Suezmax pool operated by a subsidiary of Teekay Corporation which primarily employs Suezmax tankers
on spot market voyage charters. The remaining Suezmax tanker operates under a fixed-rate
time-charter contract that includes a component providing for additional revenues to us beyond the
fixed hire rate when spot market rates exceed threshold amounts. This time charter contract expires
in 2012.
We distribute to our stockholders on a quarterly basis all of our Cash Available for Distribution
(which represents our net income plus depreciation and amortization, loan cost amortization,
non-cash tax costs and any write-offs or other non-recurring items), subject to any reserves our
board of directors may from time to time determine are required for the prudent conduct of our
business. No reserves had been determined as of March 31, 2008.
In connection with our initial public offering, Teekay Corporation contributed to us nine wholly
owned subsidiaries, each of which owns one Aframax tanker. These transfers represented a
reorganization of entities under common control and have been recorded at historical cost. Prior to
these transfers to us, Teekay Corporation transferred seven of the nine tankers to seven new
ship-owning subsidiaries. The accounts of the remaining two
wholly owned subsidiaries and any other transactions specifically attributable to the nine vessels
that, prior to the public offering, were incurred in Teekay Corporation or any of its other
subsidiaries that were not transferred to us are collectively referred to as Teekay Tankers
Predecessor or the Predecessor.
Significant Developments in 2008
In connection with our initial public offering, Teekay Corporation agreed to offer us, prior to
July 2009, the right to purchase from it up to four existing Suezmax tankers at the fair market
value of each such tanker at the time of the offer. On April 7, 2008, we acquired two of these
double-hull Suezmax tankers from Teekay Corporation for a total cost of $186.9 million. We financed
the acquisition by assuming existing debt related to the vessels and utilizing our revolving credit
facility for the remainder of the purchase price. As of May 1, 2008, we had approximately $41
million of remaining availability under our revolving credit facility. We anticipate additional opportunities to expand
our fleet through acquisitions of tankers from third parties and additional tankers that we expect
Teekay Corporation will offer to us from time to time. These tankers may include crude oil and
product tankers.
Our Charters
We generate revenues by charging customers for the transportation of their crude oil using our
vessels. Historically, these services generally have been provided under the following basic types
of contractual relationships:
|
|
|
Voyage charters, which are charters for shorter intervals that are priced on a
current, or spot, market rate; and |
|
|
|
|
Time charters, whereby vessels are chartered to customers for a fixed period of time
at rates that are generally fixed, but may contain a variable component based on
inflation, interest rates or current market rates. |
The table below illustrates the primary distinctions among these types of charters and contracts:
|
|
|
|
|
|
|
Voyage Charter |
|
Time Charter |
Typical contract length
|
|
Single voyage
|
|
One year or more |
Hire rate basis (1)
|
|
Varies
|
|
Daily |
Voyage expenses (2)
|
|
We pay
|
|
Customer pays |
Vessel operating expenses (3)
|
|
We pay
|
|
We pay |
Off-hire (4)
|
|
Customer does not pay
|
|
Customer does not pay |
|
|
|
(1) |
|
Hire rate refers to the basic payment from the charterer for the use of the vessel. |
|
(2) |
|
Voyage expenses are all expenses unique to a particular voyage, including any bunker
fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees
and commissions. |
|
(3) |
|
Vessel operating expenses include crewing, repairs and maintenance, insurance, stores,
lube oils and communication expenses. |
|
(4) |
|
Off-hire refers to the time a vessel is not available for service. |
Page 13 of 21
Items You Should Consider When Evaluating Our Results
You should consider the following factors when evaluating our historical financial performance and
assessing our future prospects:
|
|
|
Our financial results reflect changes in our capital structure. The vessel-owning
subsidiaries for seven of the nine vessels in our fleet were borrowers under a revolving
credit facility along with other subsidiaries of Teekay Corporation. This facility, which
was repaid prior to our initial public offering, was previously used in part for
corporate-related investments of Teekay Corporation. Consequently, the amount outstanding
under this facility fluctuated significantly during the period from January 1, 2007 to
December 18, 2007 and our historical interest expense is not necessarily indicative of our
interest expense following our initial public offering. |
|
|
|
|
Our voyage revenues are affected by cyclicality in the tanker markets. The cyclical
nature of the tanker industry causes significant increases or decreases in the revenue we
earn from our vessels, particularly those we trade in the spot market. This will affect the
amount of dividends, if any, we pay on our common stock from period to period. |
|
|
|
|
Tanker rates also fluctuate based on seasonal variations in demand. Tanker markets are
typically stronger in the winter months as a result of increased oil consumption in the
northern hemisphere but weaker in the summer months as a result of lower oil consumption in
the northern hemisphere and increased refinery maintenance. In addition, unpredictable
weather patterns during the winter months tend to disrupt vessel scheduling, which
historically has increased oil price volatility and oil trading activities in the winter
months. As a result, revenues generated by our vessels have historically been weaker during
the quarters ended June 30 and September 30, and stronger in the quarters ended March 31
and December 31. |
|
|
|
|
Our general and administrative expenses are affected by our Management Agreement and
costs we incur from being a public company. In connection with our initial public offering,
we entered into a long-term management agreement (the Management Agreement) with Teekay
Tankers Management Services Ltd., a subsidiary of Teekay Corporation (or our Manager).
Under this agreement, our Manager provides to us commercial, technical, administrative and
strategic services. We pay a market-based fee for these services. Our general and
administrative expenses prior to our initial public offering reflect an allocation of
general and administrative expenses from Teekay Corporation. This allocation may not be
equivalent to a market-based fee and, thus, our general and administrative expenses for
periods preceding our initial public offering may not reflect what we incur following the
public offering. We expect that the annual expenses we incur after our initial public
offering under the Management Agreement for commercial, technical, administrative and
strategic services will be lower than our general and administrative expenses for
comparable periods prior to our initial public offering. However, we may incur additional
general and administrative expenses as a result of our Manager being entitled to a
performance fee under the Management Agreement under certain circumstances. Please read
Note 7(e) to our consolidated financial statements included in this Report. In addition,
we are also incurring additional general and administrative expenses as a result of being a
publicly traded company, including costs associated with annual reports to stockholders and
SEC filings, investor relations, The New York Stock Exchange annual listing fees and tax
compliance expenses. |
|
|
|
|
Our vessel operating expenses are facing industry-wide cost pressures. The shipping
industry is experiencing a global manpower shortage due to significant growth in the world
fleet. This shortage has resulted in crew wage increases during 2007, the effect of which
is included the Results of Operations section below. We expect a trend of increasing
crew compensation to continue throughout 2008. |
|
|
|
|
The amount and timing of drydockings of our vessels can significantly affect our
revenues between periods. Our vessels are normally offhire when they are being drydocked.
During March 2008, one of our vessels, the Nassau Spirit, was in drydock for 3 days. We
estimate that this vessel will be offhire for an additional 76 days during the three months
ending June 30, 2008. None of our vessels were in drydock during 2007. |
Results of Operations
The following discussion and analysis includes the impact of our restatement results as described
in Note 2 of the notes to the unaudited consolidated financial statements included elsewhere in
this Report.
We use a variety of financial and operational terms and concepts when analyzing our results of
operations, which can be found in Item 5. Operating and Financial Review and Prospects in our
Annual Report on Form 20-F for the year ended December 31, 2007. In accordance with U.S. GAAP, we
report gross voyage revenues in our income statements and include voyage expenses among our
operating expenses. However, shipowners base economic decisions regarding the deployment of their
vessels upon anticipated time charter equivalent (or TCE) rates, and industry analysts typically
measure bulk shipping freight rates in terms of TCE rates. There are two main reasons for this.
Firstly, under time charters the customer usually pays the voyage expenses, while under voyage
charters the shipowner usually pays the voyage expenses. Secondly, the revenues and voyage expenses
of our vessels that operate in pool arrangements are pooled with the voyage revenues and voyage
expenses of other pool participants. The resulting net pool revenues, calculated on the time
charter equivalent basis, are allocated to the pool participants according to an agreed formula. We
account for the net allocation from the pool as voyage revenues. Accordingly, the discussion of
revenue below focuses on net voyage revenues (or voyage revenues less voyage expenses) and TCE
rates where applicable.
Page 14 of 21
The following table presents our operating results for the three months ended March 31, 2008 and
2007, and compares net voyage revenues, a non-GAAP financial measure, for those periods to voyage
revenues, the most directly comparable U.S. GAAP financial measure:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues |
|
$ |
26,671 |
|
|
$ |
39,855 |
|
Voyage expenses |
|
|
96 |
|
|
|
10,742 |
|
|
|
|
|
|
|
|
Net voyage revenues |
|
|
26,575 |
|
|
|
29,113 |
|
Vessel operating expenses |
|
|
5,580 |
|
|
|
4,943 |
|
Depreciation and amortization |
|
|
3,489 |
|
|
|
3,904 |
|
General and administrative |
|
|
1,321 |
|
|
|
3,255 |
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
16,185 |
|
|
|
17,011 |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(6,562 |
) |
|
|
(1,527 |
) |
Interest income |
|
|
65 |
|
|
|
|
|
Other net |
|
|
(6 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
9,682 |
|
|
$ |
15,485 |
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008 versus Three Months Ended March 31, 2007
Tanker Market
During the first quarter of 2008, spot tanker freight rates strengthened from the previous quarter
primarily driven by growing tanker demand, limited fleet growth, and increasing discrimination
against single-hull tankers. Early in the second quarter of 2008, freight rates for oil tankers
experienced a considerable counter seasonal increase and have thus far averaged above those
experienced during the first quarter of 2008. The strength of the spot tanker markets is being
driven primarily by higher volumes of crude imports into China (up approximately 15% from the prior
year), which in turn is driving higher volumes of ton-mile intensive Atlantic to Pacific crude oil
movements.
In its May 2008 report, the International Energy Agency estimated 2008 oil demand growth of 1.0
million barrels per day, a 1.2% increase from 2007. Nearly all of the growth in global oil demand
in 2008 is expected to originate from energy intensive developing economies which have so far have
been affected only marginally by the economic moderation in the United States.
The trend of tanker sales for conversion to offshore units and dry bulk vessels continues to dampen
tanker supply growth. In addition, record-high scrap steel prices have led to an increase in oil
tanker scrapping. We believe the removal of these tankers should keep tanker supply and demand
finely-balanced during the remainder of 2008.
Fleet and TCE Rates
The number of vessels in our fleet remained unchanged at nine vessels for the three months ended
March 31, 2008 compared to the same period in 2007. The following table outlines TCE rates earned
by our vessels for the three months ended March 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Three Months Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
Net |
|
|
|
|
|
|
TCE per |
|
|
Net |
|
|
|
|
|
|
TCE per |
|
|
|
Voyage |
|
|
Revenue |
|
|
Revenue |
|
|
Voyage |
|
|
Revenue |
|
|
Revenue |
|
|
|
Revenues
(1) |
|
|
Days |
|
|
Day (1) |
|
|
Revenues |
|
|
Days |
|
|
Day |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage-charter contracts |
|
$ |
13,841 |
|
|
|
382 |
|
|
$ |
36,253 |
|
|
$ |
21,318 |
|
|
|
532 |
|
|
$ |
40,041 |
|
Time-charter contracts |
|
|
13,302 |
|
|
|
415 |
|
|
|
32,025 |
|
|
|
7,795 |
|
|
|
269 |
|
|
|
28,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
27,143 |
|
|
|
797 |
|
|
$ |
34,050 |
|
|
$ |
29,113 |
|
|
|
801 |
|
|
$ |
36,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net voyage revenues and TCE per revenue day excludes pool management fees of $0.4 million and
commissions of $0.1 million. |
Net Voyage Revenues. Net voyage revenues decreased 8.7% to $26.6 million for three months
ended 2008, from $29.1 million for same period in 2007. The decrease was primarily due to the
decrease in average TCE rates earned by our vessels operating on spot-market voyage charters. This
was partially offset by an increase in average TCE rates earned by our vessels operating on
fixed-rate time-charters.
Vessel Operating Expenses. Vessel operating expenses increased by 12.9% to $5.6 million for
the three months ended March 31, 2008, from $4.9 million for the same period in 2007. The increase
in vessel operating expenses was primarily due to increases in crewing costs of $0.7 million,
partially offset by a decrease of $0.1 million in maintenance activities and the cost of lube oils.
Depreciation and amortization. Depreciation and amortization decreased by 10.6% to $3.5
million for the three months ended March 31, 2008, from $3.9 million for the same period in 2007.
The decrease in depreciation and amortization was primarily due to an increase in the estimated
residual value of our vessels. This increase was primarily the result of increases in steel prices.
General and Administrative Expenses. General and administrative expenses decreased by 59.4%
to $1.3 million for the three months ended March 31, 2008, from $3.3 million for the same period in
2007. The decrease was primarily due to a decrease in management fees and general and
administrative expenses that were allocated to Predecessor from Teekay Corporation prior to our
initial public offering. We entered into the
management agreement with Teekay Corporation in December 2007. This decrease was partially offset
by $0.2 million of expenses relating to our being a public company in 2008.
Page 15 of 21
Interest Expense. Interest expense increased to $6.6 million for the three months ended
March 31, 2008, from $1.5 million for the same period in 2007. This increase was primarily the
result of the recognition of a $4.4 million unrealized loss from the decrease in the value of our
interest rate swap during the three months ended March 31, 2008, compared to none in the same
period in 2007. We have not applied hedge accounting for this interest rate swap and as such we
recognize the change in value of the interest rate swap in interest expense. The balance of the
increase was primarily due to an increase in the weighted-average outstanding balance of revolving
credit facilities during the three months ended March 31, 2008 compared to same period in 2007.
Net Income. As a result of the foregoing factors, net income decreased to $9.7 million for
the three months ended March 31, 2008, from $15.5 million for the same period in 2007.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Cash Needs
Our short-term liquidity requirements are for the payment of operating expenses, drydocking
expenditures, debt servicing costs, dividends on our shares of common stock, scheduled repayments
of long-term debt, as well as funding our other working capital requirements. As at March 31, 2008,
our total cash and cash equivalents was $44.5 million. Our total liquidity, including cash and
undrawn credit facilities, was $159.5 million as at March 31, 2008, up from $149.8 million as at
December 31, 2007. The change in liquidity was mainly the result of net operating cash flow,
partially offset by the payment of dividends. We believe that our working capital is sufficient for
our present requirements.
Our spot market operations contribute to the volatility of our net operating cash flow, and, thus,
our ability to generate sufficient cash flows to meet our short-term liquidity needs. Historically,
the tanker industry has been cyclical, experiencing volatility in profitability and asset values
resulting from changes in the supply of, and demand for, vessel capacity. In addition, tanker spot
markets historically have exhibited seasonal variations in charter rates. Tanker spot markets are
typically stronger in the winter months as a result of increased oil consumption in the northern
hemisphere and unpredictable weather patterns that tend to disrupt vessel scheduling.
Our long-term capital needs are primarily for capital expenditures and debt repayment. Generally,
we expect that our long-term sources of funds will be cash balances, cash from operations,
long-term bank borrowings and other debt or equity financings. Because we expect to pay a variable
quarterly dividend equal to our Cash Available for Distribution during the previous quarter,
subject to any reserves our board of directors may from time to time determine are required for the
prudent conduct of business, we expect that we will rely upon external financing sources, including
bank borrowings and the issuance of debt and equity securities, to fund acquisitions and expansion
capital expenditures, including opportunities we may pursue to purchase additional vessels that
Teekay Corporation has agreed to offer to us prior to July 2009.
As at March 31, 2008, our revolving credit facility provided for borrowings of up to $229.0
million, of which $115.0 million was undrawn. Following our acquisition of two Suezmax tankers from
Teekay Corporation, as of May 1, 2008 the undrawn portion of our revolving credit facility was $41
million. The amount available under this credit facility decreases by $12.6 million commencing in
2012 and the credit facility matures in 2017. Borrowings under this facility bear interest at LIBOR
plus a margin and may be prepaid at any time in amounts of not less than $5.0 million. The
acquisitions of two of our Aframax tankers have been financed with a term loan that bears interest
at a rate of 4.06%. As of March 31, 2008, the balance of this term loan was $34.2 million. The loan
requires $0.9 million in quarterly principal payments.
All of our vessel financings are collateralized by the applicable vessels. The term loan used to
finance two of our Aframax tankers and our revolving credit facility contain covenants and other
restrictions that we believe are typical of debt financing collateralized by vessels, including
those that restrict the relevant subsidiaries from:
|
|
|
incurring or guaranteeing additional indebtedness; |
|
|
|
|
making certain negative pledges or granting certain liens; and |
|
|
|
|
selling, transferring, assigning or conveying assets. |
In addition, our revolving credit facility contains covenants that require us to maintain liquidity
(i.e., cash, cash equivalents and undrawn committed revolving credit lines with more than six
months to maturity) of at least $35.0 million and 5.0% of our total debt.
We are currently in compliance with all of our financing agreements.
If we breach covenants or restrictions in our financing agreements, we may be prohibited from
paying dividends on our common stock and, subject to any applicable cure periods, our lenders may
be entitled to:
|
|
|
declare our obligations under the agreements immediately due and payable and terminate
any further loan commitments; and |
|
|
|
|
foreclose on any of our vessels or other assets securing the related loans. |
In the future, some of the covenants and restrictions in our financing agreements could restrict
the use of cash generated by ship-owning subsidiaries in a manner that could adversely affect our
ability to pay dividends on our common stock. However, we currently do not expect that these
covenants will have such an effect.
Page 16 of 21
We are exposed to market risk from changes in interest rates, foreign currency fluctuations and
spot market rates. We use interest rate swaps to manage interest rate risk. We do not use these
financial instruments for trading or speculative purposes. Please read Item 3 Quantitative and
Qualitative Disclosures About Market Risk.
Cash Flows
The following table summarizes our sources and uses of cash for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Net cash flow from operating activities |
|
$ |
14,633 |
|
|
$ |
23,658 |
|
Net cash flow used in financing activities |
|
|
(4,887 |
) |
|
|
(23,553 |
) |
Net cash flow used in investing activities |
|
|
(108 |
) |
|
|
(105 |
) |
Operating Cash Flows
Net cash flow from operating activities decreased to $14.6 million for the three months ended March
31, 2008, from $23.7 million for the same period in 2007, primarily due to a decline in spot market
tanker rates, an increase in vessel operating expenses and drydocking expenditures and the timing
of our cash receipts and payments. Net cash flow from operating activities depends upon the timing
and amount of drydocking expenditures, repairs and maintenance activity, vessel additions and
dispositions, changes in interest rates, fluctuations in working capital balances and spot market
tanker rates. The number of vessel drydockings tends to be uneven between periods. One of our
vessels, the Nassau Spirit, commenced drydocking for three days during March 2008 and currently
remains in drydock.
Financing Cash Flows
During the three months ended March 31, 2008, we paid a cash dividend relating to the period from
December 18 to December 31, 2007 of $0.115 per common share, representing a total cash dividend of
$2.9 million. We also repaid $0.9 million of our term loan, and paid $0.9 million of share issuance
costs relating to our initial public offering.
Prior to our initial public offering, borrowings under a prior revolving credit facility and cash
flow from operations were used by Teekay Corporation for general corporate purposes. In addition,
Teekay Corporation paid for all repayments of long-term debt and investments in vessels and
equipment.
Investing Cash Flows
During each of the three-month periods ended March 31, 2008 and 2007, we incurred $0.1 million of
vessel upgrade and equipment expenditures.
Commitments and Contingencies
The following table summarizes our long-term contractual obligations as at March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder |
|
|
2009 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
of |
|
|
and |
|
|
and |
|
|
|
|
(in millions of U.S. dollars) |
|
Total |
|
|
2008 |
|
|
2010 |
|
|
2012 |
|
|
Beyond 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar-Denominated Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (1) |
|
|
148.2 |
|
|
|
2.7 |
|
|
|
7.2 |
|
|
|
7.2 |
|
|
|
131.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
148.2 |
|
|
|
2.7 |
|
|
|
7.2 |
|
|
|
7.2 |
|
|
|
131.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes expected interest payments of $5.7 million (remainder of 2008), $15.2 million
(2009 and 2010), $14.6 million (2011 and 2012) and $33.7 million (beyond 2012). Expected
interest payments are based on the existing interest rates (fixed-rate loans) and LIBOR
plus margin of 0.60% at March 31, 2008. |
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or
future material effect on our financial condition, results of operations, liquidity, capital
expenditures or capital resources.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with U.S. GAAP, which require us to
make estimates in the application of our accounting policies based on our best assumptions,
judgments and opinions. On a regular basis, management reviews the accounting policies,
assumptions, estimates and judgments to ensure that our consolidated financial statements are
presented fairly and in accordance with U.S. GAAP. However, because future events and their effects
cannot be determined with certainty, actual results could differ from our assumptions and
estimates, and such differences could be material. Accounting estimates and assumptions that we
consider to be the most critical to an understanding of our financial statements because they
inherently involve significant judgments and uncertainties, are described in Item 5. Operating and
Financial Review and Prospects in our Annual Report on Form 20-F for the year ended December 31,
2007.
Page 17 of 21
FORWARD-LOOKING STATEMENTS
This
Report on Form 6-K/A for the three months ended March 31, 2008 contains certain forward-looking
statements (as such term is defined in Section 21E of the Securities Exchange Act of 1934, as
amended) concerning future events and our operations, performance and financial condition,
including, in particular, statements regarding:
|
|
|
our future growth prospects and opportunities; |
|
|
|
|
tanker market fundamentals, including the balance of supply and demand in the tanker
market and spot tanker charter rates and oil production; |
|
|
|
|
the effectiveness of our chartering strategy in capturing upside opportunities and
reducing downside risks; |
|
|
|
|
the sufficiency of working capital for short-term liquidity requirements; |
|
|
|
|
crewing costs for vessels; |
|
|
|
|
the duration of drydockings; |
|
|
|
|
future capital expenditure commitments and the financing requirements for such
commitments; |
|
|
|
|
our compliance with covenants under our credit facilities; |
|
|
|
|
our hedging activities relating to foreign exchange, interest rate and spot market
risks; |
|
|
|
|
the ability of the counter-parties to our derivative contracts to fulfill their
contractual obligations; and |
|
|
|
|
the growth of global oil demand. |
Forward-looking statements include, without limitation, any statement that may predict, forecast,
indicate or imply future results, performance or achievements, and may contain the words believe,
anticipate, expect, estimate, project, will be, will continue, will likely result, or
words or phrases of similar meanings. These statements involve known and unknown risks and are
based upon a number of assumptions and estimates that are inherently subject to significant
uncertainties and contingencies, many of which are beyond our control. Actual results may differ
materially from those expressed or implied by such forward-looking statements. Important factors
that could cause actual results to differ materially include, but are not limited to: changes in
the demand for oil transportation services; greater or less than anticipated levels of vessel
newbuilding orders or greater or less than anticipated rates of vessel scrapping; changes in
trading patterns; changes in applicable industry laws and regulations and the timing of
implementation of new laws and regulations; potential inability to implement our growth strategy;
competitive factors in the markets in which we operate; loss of any customer, time charter or
vessel; drydocking delays; our potential inability to raise financing to purchase additional
vessels; our exposure to currency exchange, interest and tanker spot market rate fluctuations;
conditions in the public equity markets; and other factors detailed from time to time in our
periodic reports filed with the SEC, including our Annual Report on Form 20-F for the year ended
December 31, 2007. We do not intend to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in our expectations with respect
thereto or any change in events, conditions or circumstances on which any such statement is based.
Page 18 of 21
TEEKAY TANKERS LTD.
MARCH 31, 2008
PART I FINANCIAL INFORMATION
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from foreign currency fluctuations, changes in interest rates and
changes in spot tanker market rates. We have not used foreign currency forward contracts to manage foreign
currency fluctuation, but we may do so in the future. We use interest rate swaps to manage interest
rate risks. We do not use these financial instruments for trading or speculative purposes.
Foreign Currency Fluctuation Risk
Our primary economic environment is the international shipping market. This market utilizes the
U.S. Dollar as its functional currency. Consequently, virtually all our revenues and the majority
of our operating costs are in U.S. Dollars. We incur certain voyage expenses, vessel operating
expenses, drydocking expenditures and general and administrative expenses in foreign currencies,
the most significant of which are the Canadian Dollar, Euro, British Pound, and Norwegian Kroner.
As at March 31, 2008, we had not entered into forward contracts as a hedge against changes in
certain foreign exchange rates.
Interest Rate Risk
We are exposed to the impact of interest rate changes primarily through our borrowings that require
us to make interest payments based on LIBOR. Significant increases in interest rates could
adversely affect our operating margins, results of operations and our ability to repay debt. We use
interest rate swaps to reduce our exposure to changes in interest rates. Generally our approach is
to hedge a substantial majority of our floating-rate debt.
In order to minimize counterparty risk, we only enter into derivative transactions with
counterparties that are rated A or better by Standard & Poors or Aa3 by Moodys at the time of the
transactions. In addition, to the extent possible and practical, interest rate swaps are entered
into with different counterparties to reduce concentration risk.
The table below provides information about our financial instruments at March 31, 2008, that are
sensitive to changes in interest rates, including our debt and interest rate swap. For long-term
debt, the table presents principal cash flows and related weighted-average interest rates by
expected maturity dates. For the interest rate swap, the table presents its notional amount and
weighted-average interest rate by its expected contractual maturity date.
|
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|
|
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|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
Expected Maturity Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
|
|
|
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
Asset / |
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
Thereafter |
|
|
Total |
|
|
(Liability) |
|
|
Rate (1) |
|
|
|
(in millions of U.S. dollars, except percentages) |
|
Long-Term Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114.0 |
|
|
|
114.0 |
|
|
|
(114.0 |
) |
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Amount (2),(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
(13.1 |
) |
|
|
5.6 |
% |
|
|
|
(1) |
|
Rate refers to the weighted-average effective interest rate for our long-term debt, including
the margin we pay on our variable-rate debt, and the average fixed rate we pay under our
interest rate swap agreement, which excludes the margin we pay on our variable-rate debt. |
|
(2) |
|
Interest payments on U.S. Dollar-denominated debt and interest rate swap are based on LIBOR. |
|
(3) |
|
The average variable rate paid to us under our interest rate swap is set quarterly at the
three-month LIBOR. |
Spot
Tanker Market Rate Risk
The cyclical nature of the tanker industry causes significant increases or decreases in the revenue
that we earn from our vessels, particularly those that trade in the
spot tanker market. From time to time
we may use freight forward agreements as a hedge to protect against
changes in spot tanker market rates.
Freight forward agreements involve contracts to provide a fixed number of theoretical voyages along
a specified route at a contracted charter rate. Freight forward agreements settle in cash based on
the difference between the contracted charter rate and the average rate of an identified index. As
at March 31, 2008, we had not entered into any freight forward agreements, although we may do so in
the future.
Page 19 of 21
TEEKAY TANKERS LTD.
MARCH 31, 2008
PART II OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 1A Risk Factors
In addition to the other information set forth in this Report on Form 6-K/A, you should
carefully consider the risk factors discussed in Part I, Item 3. Key InformationRisk
Factors in our Annual Report on Form 20-F for the year ended December 31, 2007, which could
materially affect our business, financial condition or results of operations. There have been
no material changes in our risk factors from those disclosed in our 2007 Annual Report on
Form 20-F.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits
None
THIS REPORT ON FORM 6-K/A IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING REGISTRATION
STATEMENT OF THE COMPANY.
|
|
REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-148055) FILED WITH THE SEC ON DECEMBER 13,
2007 |
Page 20 of 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
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TEEKAY TANKERS LTD. |
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Dated:
November 27, 2008 |
|
By:
|
|
/s/ Vincent Lok
Vincent Lok
|
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|
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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Page 21 of 21