Form 6-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
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 September 30, 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
TEEKAY TANKERS LTD.
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008
INDEX
Page 2 of 22
ITEM 1 FINANCIAL STATEMENTS
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)
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(Note 1) |
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Three Months |
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Three Months |
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Nine Months |
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Nine Months |
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Ended |
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Ended |
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Ended |
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Ended |
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September 30, |
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September 30, |
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September 30, |
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September 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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$ |
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$ |
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$ |
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$ |
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REVENUES |
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Time charter
revenues ($4.2 million, $7.9 million, $10.1 million and $15.1 million, respectively, |
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12,995 |
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9,969 |
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45,417 |
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25,773 |
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from related parties) (note 6d) |
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28,548 |
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1,336 |
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65,049 |
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1,336 |
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Net pool revenues from related parties(note 6f)Voyage charter revenues |
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25,788 |
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851 |
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87,247 |
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Total revenues |
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41,543 |
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37,093 |
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111,317 |
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114,356 |
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OPERATING EXPENSES |
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Voyage expenses (notes 6e and 6f) |
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187 |
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11,846 |
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1,004 |
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33,457 |
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Vessel operating expenses |
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7,755 |
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6,457 |
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22,109 |
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16,572 |
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Depreciation and amortization |
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5,823 |
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5,318 |
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17,026 |
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13,127 |
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General and administrative expenses ($3.0 million, $3.1 million, $5.7
million and $9.6 million, respectively, from related parties) (notes
6a, 6b and 6e) |
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3,394 |
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3,276 |
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6,965 |
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9,791 |
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Total operating expenses |
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17,159 |
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26,897 |
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47,104 |
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72,947 |
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Income from vessel operations |
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24,384 |
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10,196 |
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64,213 |
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41,409 |
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OTHER ITEMS |
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Interest expense (nil, $0.7 million, $nil and $1.9 million,
respectively, from related parties) (includes $1.4 million, $nil,
$0.4 million and $nil, respectively, of unrealized loss related to an
interest rate swap) (notes 4 and 6c) |
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(4,888 |
) |
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(3,230 |
) |
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(11,872 |
) |
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(6,546 |
) |
Interest income |
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68 |
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358 |
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Other (expense) income net |
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(3 |
) |
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1 |
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(16 |
) |
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1 |
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Total other items |
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(4,823 |
) |
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(3,229 |
) |
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(11,530 |
) |
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(6,545 |
) |
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Net income |
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19,561 |
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6,967 |
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52,683 |
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34,864 |
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Per common share amounts: |
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Basic and diluted earnings (note 7) |
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0.78 |
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0.56 |
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2.06 |
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2.42 |
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Cash dividends declared |
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0.90 |
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1.715 |
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Weighted-average number of common shares
outstanding: |
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Basic and diluted (note 7) |
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25,000,000 |
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15,000,000 |
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25,000,000 |
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15,000,000 |
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
Page 3 of 22
TEEKAY TANKERS LTD.
(Successor to Teekay Tankers Predecessor)
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
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As at |
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As at |
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September 30 |
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December 31, |
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2008 |
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2007 |
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(Note 1) |
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$ |
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$ |
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ASSETS |
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Current |
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Cash |
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16,873 |
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34,839 |
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Pool receivable from related parties, net (note 6f) |
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16,866 |
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1,711 |
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Accounts receivable |
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4,091 |
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2,997 |
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Due from affiliates (note 6c) |
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4,979 |
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133,722 |
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Prepaid expenses |
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3,062 |
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2,403 |
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Other assets |
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947 |
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10 |
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Total current assets |
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46,818 |
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175,682 |
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Vessels and equipment (note 3) |
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At cost, less accumulated depreciation of $98.6 million (2007 - $83.3 million) |
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436,354 |
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446,541 |
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Non-current amounts due from related parties (note 6f) |
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2,025 |
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775 |
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Other non-current assets |
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1,992 |
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1,956 |
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Goodwill (note 1) |
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4,670 |
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4,670 |
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Total assets |
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491,859 |
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629,624 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current |
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Accounts payable |
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2,684 |
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777 |
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Accrued liabilities |
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5,691 |
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4,441 |
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Current portion of long-term debt (note 3) |
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3,600 |
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3,600 |
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Current portion of derivative instruments (note 4) |
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1,239 |
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894 |
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Due to affiliates (note 6c) |
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3,580 |
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2,434 |
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Other |
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422 |
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451 |
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Total current liabilities |
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17,216 |
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12,597 |
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Long-term debt (note 3) |
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316,128 |
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328,507 |
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Derivative instruments (note 4) |
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7,876 |
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6,921 |
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Other |
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738 |
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1,048 |
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Total liabilities |
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341,958 |
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349,073 |
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Stockholders equity |
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Dropdown Predecessor equity (note 1) |
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131,757 |
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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 September 30, 2008
and December 31, 2007) (note 5) |
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181,245 |
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180,915 |
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Accumulated deficit |
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(31,344 |
) |
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(33,033 |
) |
Accumulated other comprehensive income |
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912 |
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Total stockholders equity |
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149,901 |
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280,551 |
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Total liabilities and stockholders equity |
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491,859 |
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629,624 |
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The accompanying notes are an integral part of the unaudited consolidated financial
statements.
Page 4 of 22
TEEKAY TANKERS LTD.
(Successor to Teekay Tankers Predecessor)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
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(Note 1) |
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Nine Months Ended September 30, |
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2008 |
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2007 |
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$ |
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$ |
|
Cash provided by (used for) |
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OPERATING ACTIVITIES |
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Net income |
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|
52,683 |
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|
34,864 |
|
Non-cash items: |
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|
Depreciation and amortization |
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17,026 |
|
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|
13,127 |
|
Unrealized loss on derivative instrument |
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|
386 |
|
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|
Debt issuance cost amortization and other |
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|
(99 |
) |
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|
220 |
|
Change in non-cash working capital items related to operating activities |
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|
(16,531 |
) |
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|
762 |
|
Expenditures for drydocking |
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|
(4,391 |
) |
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|
(1,037 |
) |
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Net operating cash flow |
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49,074 |
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47,936 |
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FINANCING ACTIVITIES |
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Proceeds from long-term debt |
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|
115,000 |
|
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|
230,862 |
|
Repayments of long-term debt |
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|
(17,700 |
) |
|
|
(220,770 |
) |
Proceeds from long-term debt of Dropdown Predecessor |
|
|
44,027 |
|
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|
872 |
|
Repayment of long-term debt of Dropdown Predecessor |
|
|
(153,656 |
) |
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|
Debt issuance costs |
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|
(276 |
) |
|
|
(417 |
) |
Share issuance costs |
|
|
(1,130 |
) |
|
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|
Cash dividends paid |
|
|
(42,875 |
) |
|
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|
Net advances to affiliates |
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(9,002 |
) |
|
|
(1,245 |
) |
Contribution (return) of capital |
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|
1,020 |
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(56,459 |
) |
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Net financing cash flow |
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(64,592 |
) |
|
|
(47,157 |
) |
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|
INVESTING ACTIVITIES |
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Expenditures for vessels and equipment |
|
|
(2,448 |
) |
|
|
(779 |
) |
|
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|
|
|
|
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|
Net investing cash flow |
|
|
(2,448 |
) |
|
|
(779 |
) |
|
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|
|
|
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|
|
|
|
|
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|
|
|
Decrease in cash |
|
|
(17,966 |
) |
|
|
|
|
Cash, beginning of the period |
|
|
34,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Cash, end of the period |
|
|
16,873 |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the unaudited consolidated financial
statements.
Page 5 of 22
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 (together with its wholly owned subsidiaries and the Dropdown Predecessor, as
described below, collectively 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.
In connection with the IPO, Teekay Corporation contributed to Teekay Tankers Ltd. 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 Teekay Tankers Ltd., 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 IPO, were incurred in Teekay Corporation or any of its other subsidiaries that were
not transferred to Teekay Tankers Ltd. are collectively referred to as Teekay Tankers
Predecessor or the Predecessor. 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 Corporation
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 unaudited interim consolidated financial statements have been prepared in conformity with
United States generally accepted accounting principles (or GAAP). These financial statements
include the accounts of the Company, including Teekay Tankers Ltd., its wholly owned
subsidiaries and the Dropdown Predecessor. The preparation of financial statements in conformity
with GAAP 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 the Dropdown Predecessor and such estimates may not be
reflective of actual results.
Certain information and footnote disclosures required by GAAP 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. As discussed below, the comparative December 31, 2007 balances have been
retroactively adjusted to reflect the Dropdown Predecessor. In the opinion of management, these
interim unaudited 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. Significant intercompany balances and transactions
have been eliminated upon consolidation or combination. Certain of the comparative figures have
been reclassified to conform with the presentation adopted in the current period.
As required by Statement of Financial Accounting Standards (SFAS) No. 141, the Company accounts
for the acquisition of interests in vessels from Teekay Corporation as a transfer of a business
between entities under common control. The method of accounting prescribed by SFAS No. 141 for
such transfers is similar to the pooling of interests method of accounting. Under this method,
the carrying amount of net assets recognized in the balance sheets of each combining entity are
carried forward to the balance sheet of the combined entity, and no other assets or liabilities
are recognized as a result of the combination. The excess of the proceeds paid, if any, by the
Company over Teekay Corporations historical cost is accounted for as a return of capital to
Teekay Corporation. In addition, transfers of net assets between entities under common control
are accounted for as if the transfer occurred from the date that the Company and the acquired
vessels were both under the common control of Teekay Corporation and had begun operations. As a
result, the Companys financial statements prior to the date the interests in these
vessels were actually acquired by the Company are retroactively adjusted to include the results
of these vessels operated during the periods under common control of Teekay Corporation.
Page 6 of 22
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)
1. |
|
Basis of Presentation and Nature of Operations (contd) |
In April 2008, the Company acquired from Teekay Corporation two Suezmax-class tankers, the
Ganges Spirit and the Narmada Spirit. The acquisition included the assumption of debt and Teekay
Corporations rights and obligations under a time-charter contract on the Narmada Spirit. These
transactions were deemed to be business acquisitions between entities under common control. As a
result, the Companys consolidated balance sheet as of December 31, 2007 and consolidated
statements of income and cash flows for the three and nine months ended September 30, 2008
reflect these vessels and their related operations (referred to herein as the Dropdown
Predecessor) as if the Company had acquired them on August 1, 2007, when each respective vessel
began operations under the ownership of Teekay Corporation. The effect of adjusting the
Companys financial statements to account for this common control exchange increased the
Companys goodwill by $4.7 million and vessels and equipment by $181.1 million as of August 1,
2007 and net income (loss) for the three and nine months ended September 30, 2008 and 2007 by
nil, $1.1 million, $(1.4) million and $(1.4) million, respectively. The adjustment for the
Dropdown Predecessor increased the Companys voyage revenues for the three and nine months ended
September 30, 2008 and 2007 by nil, $7.3 million, $3.1 million and $3.1 million, respectively.
The consolidated financial statements reflect the financial position, results of operations and
cash flows of the Dropdown Predecessor. In the preparation of these consolidated financial
statements, general and administrative expenses and interest expense were not identifiable as
relating solely to the each specific vessel. General and administrative expenses (consisting
primarily of salaries, share-based compensation, and other employee related costs, office rent,
legal and professional fees, and travel and entertainment) were allocated based on the Dropdown
Predecessors proportionate share of Teekay Corporations total ship-operating (calendar) days
for the period presented in a manner consistent with the general and administrative expenses
allocated to Teekay Tankers Predecessor. In addition, the Dropdown Predecessor includes debt of
Teekay Corporation which has been recorded on a pushed-down basis having a principal amount of
$115.0 million as at December 31, 2007. Teekay Corporation incurred debt to finance
substantially all the acquisition price of 50% of OMI Corporation in 2007, and as the Dropdown
Predecessor is a component of that acquisition, the portion of such debt relating to the two
drop-down tankers was recorded as debt of the Dropdown Predecessor. This debt was partially
repaid by the Dropdown Predecessor prior to the dropdown, with the remaining debt of
approximately $108.1 million being repaid on the dropdown date. Interest expense includes the
allocation of interest to the Dropdown Predecessor from Teekay Corporation based upon the
weighted-average outstanding balance of the push-down debt and the weighted-average interest
rate outstanding on Teekay Corporations loan facilities that were used to finance these loans.
During the three and nine months ended September 30, 2008 and 2007, nil, $1.2 million, $1.9
million and $1.9 million, respectively, of interest expense was attributable to the Dropdown
Predecessor. Management believes these allocations reasonably present the general and
administrative expenses and interest expense of the Dropdown Predecessor.
2. |
|
Fair Value Measurements |
Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements. In
accordance with the Financial Accounting Standards Board (or FASB) Staff Position No. FAS 157-2,
Effective Date of FASB Statement No. 157, the Company deferred 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.
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Fair Value at |
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|
|
|
|
|
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|
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September 30, |
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2008 Asset / |
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|
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(Liability) |
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Level 1 |
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Level 2 |
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Level 3 |
|
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$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Interest rate swap agreement (1) |
|
|
(9,115 |
) |
|
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|
|
|
|
(9,115 |
) |
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(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. Given the
current volatility in the credit markets, it is reasonably possible that the amount recorded as
a derivative liability could vary by a material amount in the near term. |
Page 7 of 22
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)
|
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September 30, 2008 |
|
|
December 31, 2007 |
|
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$ |
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|
$ |
|
|
|
|
|
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|
|
|
|
USD-denominated Revolving Credit Facility due 2017 |
|
|
287,328 |
|
|
|
114,000 |
|
USD-denominated Term Loan due through 2017 |
|
|
32,400 |
|
|
|
35,100 |
|
Long-term debt of Dropdown Predecessor (Note 1) |
|
|
|
|
|
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183,007 |
|
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|
|
|
|
|
|
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319,728 |
|
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|
332,107 |
|
Less current portion |
|
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3,600 |
|
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|
3,600 |
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Total |
|
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316,128 |
|
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|
328,507 |
|
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|
As of September 30, 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 $343.0 million, of
which $55.7 million was undrawn. The total amount available under the Revolver reduces by a
semi-annual amount of $18.9 million commencing in 2012, and the Revolver matures in 2017. The
Revolver may be prepaid at any time in amounts of not less than $5.0 million. Interest payments
are based on LIBOR plus a margin of 0.60%. As at September 30, 2008, the interest rate on the
Revolver was 3.43%. The Revolver is collateralized by first-priority mortgages granted on nine
of the Companys vessels, together with other related security, 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 greater of $35.0 million and 5.0% of the
Companys total debt. As at September 30, 2008, the Company was in compliance with all its
covenants on its credit facilities.
As at September 30, 2008, the Company had one term loan outstanding in the amount of $32.4
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 security. 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 September 30, 2008 are $0.9 million (remainder of
2008), $3.6 million (2009), $3.6 million (2010), $3.6 million (2011), $3.6 million (2012) and
$304.4 million (thereafter).
The weighted-average effective interest rate on the Companys long-term debt as at September 30,
2008 was 3.50% (December 31, 2007 5.49%). This rate does not reflect the effect of the
interest rate swap (see Note 4).
4. |
|
Derivative Instruments |
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. Unrealized gains or losses relating to the change in fair value
of the Companys interest rate swap have been reported in interest expense in the unaudited
consolidated statements of income. During the three and nine months ended September 30, 2008 the
Company recognized an unrealized loss of $1.4 million and $0.4 million, respectively, relating
to the changes in fair value of its interest rate swap. The Company expects to record a material
unrealized loss during the fourth quarter of 2008 resulting from an increase in the fair value
of the liability related to its interest rate swap agreement. The following summarizes the
Companys derivative position as at September 30, 2008:
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Fair Value / |
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Carrying |
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Weighted- |
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Amount |
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Average |
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Fixed |
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Interest |
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Principal |
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Asset / |
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Remaining |
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Interest |
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Rate |
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Amount |
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(Liability) |
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Term |
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Rate |
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Index |
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$ |
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$ |
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(Years) |
|
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(%)(1) |
|
LIBOR-Based Debt: |
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|
|
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|
|
U.S. Dollar-denominated interest rate swap (1) |
|
USD LIBOR 3M |
|
|
100,000 |
|
|
|
(9,115 |
) |
|
|
9.0 |
|
|
|
5.55 |
|
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|
|
(1) |
|
Excludes the margin the Company pays on its variable-rate debt, which as of September
30, 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 transactions are entered in to.
The authorized capital stock of Teekay Tankers Ltd. at September 30, 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 September 30,
2008 and December 31, 2007, 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.
Page 8 of 22
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)
5. |
|
Capital Stock (contd) |
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 are 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.
As at September 30, 2008 and December 31, 2007, 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. To date, 13,253 shares have been granted in respect of these
reserved shares.
6. |
|
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 and $3.6 million for the three
and nine months ended September 30, 2007. |
|
b. |
|
During the three and nine months ended September 30, 2007, $1.6 million and $5.7
million, respectively, 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. During the three and nine months ended September 30,
2008 and 2007, nil, $0.3 million, $0.3 million and $0.3 million, respectively of general
and administrative expenses attributable to the operations of the Dropdown Predecessor were
incurred by Teekay Corporation and have been allocated to the Company. |
|
c. |
|
During the three and nine months ended September 30, 2007, $0.7 million and $1.9
million, respectively, 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 and from affiliates at
September 30, 2008 and December 31, 2007, are without interest or stated terms of
repayment. |
|
d. |
|
During the three and nine months ended September 30, 2008 and 2007, $2.9 million, $8.8
million, $7.9 million and $15.1 million, respectively, of charter revenues were earned from
Skaugen PetroTrans Inc., a company in which Teekay Corporation owns a 50% beneficial
interest. In August 2008, the Company chartered out the Nassau Spirit to Teekay Corporation
under a fixed-rate time-charter contract expiring in August 2009. During the three and nine
months ended September 30, 2008, $1.3 million of revenues were earned from Teekay
Corporation under this time charter. |
|
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 $3.2 million and $6.0 million for the three and nine months ended September 30, 2008 for
commercial, strategic, technical, administrative services and performance fees. The
management fee includes $0.2 million and $0.6 million for the three and nine months ended
September 30, 2008 for commercial services, which have been recorded as voyage expenses.
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 weighted average 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. Performance fees of $1.7 million were accrued by the Company for the three
months and nine months ended September 30, 2008 and included in due to affiliates. Cash
Available for Distribution represents net income plus depreciation and amortization, loan
cost amortization, non-cash tax costs, fair value changes in interest rate swap asset or
liability, 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 establish during the applicable fiscal period that have not already
reduced the Cash Available for Distribution. No reserves had been determined as at
September 30, 2008. |
Page 9 of 22
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)
6. |
|
Related Party Transactions (contd) |
|
f. |
|
Pursuant to pool agreements with Teekay Chartering Limited and Gemini Tankers LLC, both
wholly owned subsidiaries of Teekay Corporation (collectively the Pool Managers), the
Company incurred pool management fees during the three and nine months ended September 30,
2008, of $0.8 million and $1.7 million, respectively, with respect to Company vessels that
participate in the pools. The Pool Managers provide commercial services to the pool
participants and administer the pools in exchange for a fee currently equal to 1.25% of the
gross revenues attributable to each pool participants vessels and a fixed amount per
vessel per day which ranges from $275 to $350. Voyage revenues and voyage expenses of the
Companys vessels operating in these pool arrangements are pooled with the voyage revenues
and voyage expenses of other pool participants. The resulting net pool revenues, calculated
on a time charter equivalent basis, are allocated to the pool participants according to an
agreed formula. The Company accounts for the net allocation from the pools as voyage
revenues. For the three and nine months ended September 30, 2008, the Companys allocation
from the pools was net of $15.0 million and $34.2 million of voyage expenses, which
includes pool management fees. |
As of September 30, 2008, the Company had advanced $2.0 million to the Pool Managers 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 applicable pool, less any set-offs for outstanding
liabilities or contingencies. These advances are without interest or stated terms of
repayment.
|
g. |
|
On April 7, 2008, the Company acquired two double-hull Suezmax-class oil tankers, the
2002-built Ganges Spirit and the 2003-built Narmada Spirit, from Teekay Corporation. As
described in Note 1, the acquisition was accounted for as a reorganization of entities
under common control and accounted for on a pooling of interest basis. Debt with a
principal amount of $73.3 million recorded in the Dropdown Predecessor was assumed by the
Company on the acquisition. Additional cash payments of $115.0 million were recorded as a
reduction of the push-down debt of $108.1 million and a return of capital to Teekay
Corporation of $6.9 million, representing the excess of the purchase price over the
historical book value of the Dropdown Predecessor. The cash was obtained by drawing funds
available under the Companys revolving credit facility. The Ganges Spirit is employed on a
pre-existing time-charter contract that expires in May 2012 and the Narmada Spirit is
currently employed in spot market trading. |
|
|
|
|
The Companys financial statements prior to the date the interests in these two vessels were
actually acquired are retroactively adjusted to include the results of these vessels during
the periods under common control of Teekay Corporation. For the three and nine months ended
September 30, 2008 and 2007, the Company earned voyage revenues of $8.6 million, $25.3
million, $3.1 million and $3.1 million, respectively (including voyage revenues earned prior
to the Companys acquisition of the vessels see Note 1). See Note 7 for net income
attributable to the Dropdown Predecessor and common stockholders for the three and nine
months ended September 30, 2008 and 2007. |
Earnings per share is determined by dividing (a) net income, after deducting the amount of net
income attributable to the Dropdown Predecessor by (b) the weighted-average number of shares
outstanding during the applicable 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. The net income available
for common stockholders and earnings per commons share presented in the table below excludes the
results of operations of the Dropdown Predecessor.
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
|
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September 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
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|
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|
|
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|
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|
Net income |
|
|
19,561 |
|
|
|
6,967 |
|
|
|
52,683 |
|
|
|
34,864 |
|
Net loss (income) attributable to the Dropdown Precedessor |
|
|
|
|
|
|
1,399 |
|
|
|
(1,110 |
) |
|
|
1,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available for common stockholders |
|
|
19,561 |
|
|
|
8,366 |
|
|
|
51,573 |
|
|
|
36,263 |
|
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|
Weighted-average number of common shares |
|
|
25,000,000 |
|
|
|
15,000,000 |
|
|
|
25,000,000 |
|
|
|
15,000,000 |
|
|
|
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|
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|
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|
|
|
|
|
|
Common stock and common stock equivalents |
|
|
25,000,000 |
|
|
|
15,000,000 |
|
|
|
25,000,000 |
|
|
|
15,000,000 |
|
|
|
|
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|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic and diluted |
|
|
0.78 |
|
|
|
0.56 |
|
|
|
2.06 |
|
|
|
2.42 |
|
8. |
|
Supplemental Cash Flow Information |
In August 2007, the Company exchanged net assets in the Narmada Spirit and Ganges Spirit for
debt pushed down from Teekay Corporation of $184.8 million and a receivable from Teekay
Corporation of $58.7 million in exchange for additional net investment of Teekay Corporation in
the Dropdown Predecessors equity. In April 2008, the Dropdown Predecessor declared a non-cash
dividend and return of capital totaling $141.2 million to Teekay Corporation to reduce the
receivable from Teekay Corporation.
Page 10 of 22
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)
9. |
|
Recent Accounting Pronouncement |
In October 2008, the FASB issued SFAS No. 157-3, Determining the Fair Value of a Financial Asset
in a Market That Is Not Active, which clarifies the application of SFAS 157 when the market for
a financial asset is inactive. Specifically, SFAS No. 157-3 clarifies how (1) managements
internal assumptions should be considered in measuring fair value when observable data are not
present, (2) observable market information from an inactive market should be taken into account,
and (3) the use of broker quotes or pricing services should be considered in assessing the
relevance of observable and unobservable data to measure fair value. The guidance in SFAS
No. 157-3 is effective immediately but has not had any impact on the Companys consolidated
financial statements.
10. |
|
Change in Accounting Estimate |
Effective January 1, 2008, the Company increased its estimate of the residual value of its
vessels due to an increase in the estimated scrap rate per lightweight ton. The Companys
estimate of salvage values took into account the then current scrap prices and the historical
scrap rates over the five years prior to December 31, 2007. As a result, depreciation and
amortization expense has decreased by $0.5 million and $1.6 million, and net income has
increased by $0.5 million and $1.6 million, or $0.02 and $0.06 per share for the three and nine
months ended September 30, 2008.
In November 2008, the Company announced that its Board of Directors has approved the Companys
quarterly cash dividend of $1.07 per share for the quarter ended September 30, 2008. This
dividend was paid on December 10, 2008 to shareholders of record as at December 3, 2008. In
February 2009, the Company announced that its Board of Directors has approved the Companys
quarterly cash dividend of $0.72 per share for the quarter ended December 31, 2008. This
dividend will be paid on March 13, 2009 to shareholders of record as at March 6, 2009.
Page 11 of 22
TEEKAY TANKERS LTD.
September 30, 2008
PART I FINANCIAL INFORMATION
|
|
|
ITEM 2 |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following Managements Discussion and Analysis of Financial Condition and Results of Operations
should be read in conjunction with the consolidated financial statements and accompanying notes
contained in Item 1 Financial Statements.
General
We were 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 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 January 31, 2009, we owned nine Aframax-class tankers and two Suezmax-class
tankers. Five of our Aframax tankers currently operate under fixed-rate time-charter contracts with
our customers, of which two charters expire in March and December 2009, respectively, one in
2010 and two in 2011. One of our Aframax tankers is chartered out to Teekay Corporation under a
time charter that expires in August 2009. Our remaining three Aframax tankers currently participate
in an Aframax pooling arrangement operated by Teekay Chartering Limited, a subsidiary of Teekay
Corporation. As of January 31, 2009, this pooling arrangement included 31 tankers. One of our
Suezmax tankers participates in the Gemini Pool, a Suezmax pool arrangement 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, fair value changes in interest rate swap asset or liability, 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. To date our board of directors has
not established any reserves that have reduced previous distributions to our stockholders.
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
On April 7, 2008, we acquired two double-hull Suezmax tankers from Teekay Corporation, the
2002-built Ganges Spirit and the 2003-built Narmada Spirit, for a total cost of $186.9 million,
excluding $1.4 million of working capital assumed. These acquisitions were accounted for as
reorganizations of entities under common control and accounted for using the pooling of interests
method. These acquisitions (collectively the 2008 Suezmax Additions) were financed by assuming
existing debt of $73.3 million related to the vessels and utilizing our revolving credit facility
for the remainder of the purchase price. The 2008 Suezmax Additions were originally acquired by
Teekay Corporation on August 1, 2007 and their operating results have been recorded within the
consolidated financial statements of the Company since that date.
In connection with our initial public offering, Teekay Corporation agreed to offer us, prior to
July 2009, the right to purchase an additional two existing Suezmax tankers at the fair market
value of each such tanker at the time of the offer. 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 12 of 22
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 the results of the interests in vessels acquired from
Teekay Corporation for all periods the vessels were under common control. On April 7, 2008,
we acquired the Ganges Spirit and the Narmada Spirit from Teekay Corporation in the 2008
Suezmax Additions. This transaction was deemed to be a business acquisition between
entities under common control. Accordingly, we have accounted for these transactions in a
manner similar to the pooling of interest method. Under this method of accounting, our
financial statements prior to the date the interests in these vessels were actually
acquired by us are retroactively adjusted to include the results of these acquired vessels.
The periods retroactively adjusted include all periods that we and the acquired vessels
were both under common control of Teekay Corporation and had begun operations. As a result,
our statements of income for the three and nine months ended September 30, 2008 and 2007,
reflect these vessels, referred to herein as the Dropdown Predecessor, as if we had
acquired them on August 1, 2007, when each respective vessel began operations under the
ownership of Teekay Corporation. |
|
|
|
Our financial results reflect changes in our capital structure. Prior to our initial
public offering, the ship-owning subsidiaries for seven of the eleven 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 the 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 our initial public offering on December 18, 2007 and our historical interest
expense is not necessarily indicative of our interest expense following the 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 affects 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. Prior to our initial
public offering, our general and administrative expenses reflect an allocation of general
and administrative expenses from Teekay Corporation. We expect that the annual expenses we
incur after our initial public offering under the Management Agreement for commercial,
technical, administrative and strategic services generally 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 6(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 oil shipping
industry is experiencing a global manpower shortage due to significant growth in the world
fleet. This shortage resulted in crew wage increases during 2007 and 2008. We expect the
trend of increasing crew compensation to continue during 2009. |
|
|
|
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 the three and nine months ended September 30, 2008, one and two vessels respectively
were in drydock. None of our vessels were in drydock during 2007. |
Results of Operations
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 United States
generally accepted accounting principals (or 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. First, under time charters the customer
usually pays the voyage expenses, while under voyage charters the shipowner usually pays the voyage
expenses. Second, 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 13 of 22
The following table presents our operating results for the three and nine months ended September
30, 2008 and 2007, and compares net voyage revenues, a non-GAAP financial measure, for those
periods to voyage revenues, the most directly comparable GAAP financial measure.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
(in thousands of U.S. dollars |
|
September 30, |
|
|
|
|
|
|
September 30, |
|
|
|
|
except percentages) |
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
41,543 |
|
|
|
37,093 |
|
|
|
12.0 |
|
|
|
111,317 |
|
|
|
114,356 |
|
|
|
(2.7 |
) |
Voyage expenses |
|
|
187 |
|
|
|
11,846 |
|
|
|
(98.4 |
) |
|
|
1,004 |
|
|
|
33,457 |
|
|
|
(97.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net voyage revenues |
|
|
41,356 |
|
|
|
25,247 |
|
|
|
63.8 |
|
|
|
110,313 |
|
|
|
80,899 |
|
|
|
36.4 |
|
Vessel operating expenses |
|
|
7,755 |
|
|
|
6,457 |
|
|
|
20.1 |
|
|
|
22,109 |
|
|
|
16,572 |
|
|
|
33.4 |
|
Depreciation and amortization |
|
|
5,823 |
|
|
|
5,318 |
|
|
|
9.5 |
|
|
|
17,026 |
|
|
|
13,127 |
|
|
|
29.7 |
|
General and administrative expenses |
|
|
3,394 |
|
|
|
3,276 |
|
|
|
3.6 |
|
|
|
6,965 |
|
|
|
9,791 |
|
|
|
(28.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
24,384 |
|
|
|
10,196 |
|
|
|
139.2 |
|
|
|
64,213 |
|
|
|
41,409 |
|
|
|
55.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(4,888 |
) |
|
|
(3,230 |
) |
|
|
51.3 |
|
|
|
(11,872 |
) |
|
|
(6,546 |
) |
|
|
81.4 |
|
Interest income |
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
358 |
|
|
|
|
|
|
|
|
|
Other (expense) income net |
|
|
(3 |
) |
|
|
1 |
|
|
|
(400.0 |
) |
|
|
(16 |
) |
|
|
1 |
|
|
|
(1,700.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
19,561 |
|
|
|
6,967 |
|
|
|
180.8 |
|
|
|
52,683 |
|
|
|
34,864 |
|
|
|
51.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three and Nine Months Ended September 30, 2008 versus Three and Nine Months Ended September 30,
2007
Tanker Market
Average spot tanker freight rates during the third quarter of 2008 were the highest on record for a
third quarter. This counter-seasonal strength in tanker freight rates was primarily due to higher
volumes of oil production from ton-mile intensive OPEC producers, rising crude oil import volumes
into the United States, China and India, as well as other factors, including port delays in the
United States and Japan and stockpiling of oil ahead of the Olympics in China.
Rates also were supported in the second half of 2008 by a dampening of tanker supply growth due to
the removal of tankers from the global fleet for conversion purposes and an increase in scrapping
compared to previous years. During the first nine months of 2008, the world tanker fleet grew by
three percent, a decrease from the annual fleet supply growth rate of approximately six percent
experienced for the same period in 2006 and 2007.
During the fourth quarter of 2008, rates for very large crude carriers eased as OPEC producers
implemented production cutbacks in response to declining oil prices. In comparison, rates for
medium-sized crude oil tankers remained relatively firm, primarily due to the seasonal increase in
oil demand during the northern hemisphere winter, rising volumes of non-OPEC production as seasonal
maintenance was completed in the North Sea and weather-related delays, particularly in the
Bosphorus Straits.
Fleet and TCE Rates
At September 30, 2008, we owned nine Aframax-class and two Suezmax-class oil tankers. In April
2008, we acquired the Suezmax tankers Ganges Spirit and Narmada Spirit. However, as a result of the
inclusion of the Dropdown Predecessor, the Ganges Spirit and the Narmada Spirit have been included
for accounting purposes in our results as if they were acquired on August 1, 2007, when they were
acquired and began operations as conventional tankers for Teekay Corporation. Please read Items
You Should Consider When Evaluating Our Results of Operations Our financial results reflect the
results of the interests in vessels acquired from Teekay Corporation for all periods the vessels
were under common control above.
The following table outlines TCE rates earned by our vessels, including the Dropdown Predecessor,
for the three and nine months ended September 30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Three Months Ended September |
|
|
|
2008 |
|
|
30, 2007 |
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
Voyage |
|
|
|
|
|
|
TCE per |
|
|
Voyage |
|
|
|
|
|
|
TCE per |
|
|
|
Revenues (1) |
|
|
Revenue |
|
|
Revenue |
|
|
Revenues |
|
|
Revenue |
|
|
Revenue |
|
|
|
(in thousands) |
|
|
Days |
|
|
Day (1) |
|
|
(in thousands) |
|
|
Days |
|
|
Day |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage-charter contracts Aframax |
|
$ |
23,318 |
|
|
|
492 |
|
|
$ |
47,425 |
|
|
$ |
12,535 |
|
|
|
506 |
|
|
$ |
24,770 |
|
Voyage-charter contracts Suezmax |
|
|
6,003 |
|
|
|
92 |
|
|
|
65,254 |
|
|
|
1,336 |
|
|
|
61 |
|
|
|
21,897 |
|
Time-charter contracts Aframax |
|
|
10,389 |
|
|
|
323 |
|
|
|
32,201 |
|
|
|
9,618 |
|
|
|
306 |
|
|
|
31,441 |
|
Time-charter contracts Suezmax |
|
|
2,824 |
|
|
|
92 |
|
|
|
30,744 |
|
|
|
1,758 |
|
|
|
61 |
|
|
|
28,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
42,534 |
|
|
|
999 |
|
|
$ |
42,577 |
|
|
$ |
25,247 |
|
|
|
934 |
|
|
$ |
27,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes $0.8 million of management fees payable by us for participating in pooling
arrangements managed by subsidiaries of Teekay Corporation and $0.3 million in commissions. |
Page 14 of 22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
Net |
|
|
|
|
|
|
TCE per |
|
|
Net |
|
|
|
|
|
|
TCE per |
|
|
|
Voyage |
|
|
|
|
|
|
Revenue |
|
|
Voyage |
|
|
|
|
|
|
Revenue |
|
|
|
Revenues (1) |
|
|
Revenue |
|
|
Day (1) |
|
|
Revenues |
|
|
Revenue |
|
|
Day |
|
|
|
(in thousands) |
|
|
Days |
|
|
$ |
|
|
(in thousands) |
|
|
Days |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage-charter contracts Aframax |
|
$ |
51,586 |
|
|
|
1,203 |
|
|
$ |
42,894 |
|
|
$ |
52,594 |
|
|
|
1,584 |
|
|
$ |
33,193 |
|
Voyage-charter contracts Suezmax |
|
|
16,139 |
|
|
|
274 |
|
|
|
58,902 |
|
|
|
1,336 |
|
|
|
61 |
|
|
|
21,897 |
|
Time-charter contracts Aframax |
|
|
35,993 |
|
|
|
1,132 |
|
|
|
31,797 |
|
|
|
25,211 |
|
|
|
848 |
|
|
|
29,722 |
|
Time-charter contracts Suezmax |
|
|
9,518 |
|
|
|
274 |
|
|
|
34,758 |
|
|
|
1,758 |
|
|
|
61 |
|
|
|
28,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
113,236 |
|
|
|
2,883 |
|
|
$ |
39,277 |
|
|
$ |
80,899 |
|
|
|
2,554 |
|
|
$ |
31,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes $1.8 million of management fees payable by us for participating in pooling
arrangements managed by subsidiaries of Teekay Corporation and $1.0 million in commissions. |
Net Voyage Revenues. Net voyage revenues increased for the three and nine months ended
September 30, 2008, compared to the same periods in 2007, primarily due to:
|
|
|
increases of $5.4 million and $22.0 million, respectively, due to the 2008 Suezmax
Additions and the Dropdown Predecessor; and |
|
|
|
increases of $11.0 million and $12.1 million, respectively, from an increase in
average TCE rates earned by our vessels operating on spot-market-based voyage charters
and time-charter contracts; |
partially offset by
|
|
|
decreases of nil and $3.7 million, respectively, due to 92 off-hire days incurred in
2008 from the scheduled drydock of the Nassau Spirit; the drydocking was completed in
June 2008; and |
|
|
|
decreases of $0.3 and $1.0 million, respectively, due to 23 off-hire days incurred
in 2008 for vessel repairs to the Sotra Spirit. |
The scheduled drydock of the Nassau Spirit was longer than a typical drydock primarily due to
extensive steel work performed.
Vessel Operating Expenses. Vessel operating expenses increased for the three and nine
months ended September 30, 2008, compared to the same periods in 2007, primarily due to:
|
|
|
increases of $0.5 million and $2.8 million, respectively, due to the 2008 Suezmax
Additions and the Dropdown Predecessor; |
|
|
|
increases of $0.3 million and $1.6 million, respectively, primarily from increased
wage levels; and |
|
|
|
increases of $0.2 million and $0.8 million, respectively, from increases in repairs
and maintenance. |
Depreciation and Amortization. Depreciation and amortization increased for the three and
nine months ended September 30, 2008, compared to the same periods in 2007, primarily due to:
|
|
|
increases of $0.7 million and $5.0 million due to the 2008 Suezmax Additions and the
Dropdown Predecessor; |
partially offset by
|
|
|
decreases of $0.2 million and $1.1 million, respectively, due to an increase in the
estimated residual value of our vessels for accounting purposes, which was primarily
driven by increases in steel prices. |
General and Administrative Expenses. General and administrative expenses were $3.4 million
and $7.0 million, respectively, for the three and nine months ended September 30, 2008, compared to
$3.3 million and $9.8 million for the same periods last year. The change in general and
administrative expenses was primarily due to:
|
|
|
net decreases of $0.3 million and $3.7 million, respectively, from our entering into
the Management Agreement with Teekay Corporation in December 2007; and |
|
|
|
increases of $0.4 million and $0.9 million, respectively, due to associated public
company costs in 2008. |
General and administrative expenses for the three and nine months ended September 30, 2008 includes
an accrued performance fee of $1.7 million to our Manager under the Management Agreement.
Interest Expense. Interest expense was $4.9 and $11.9 million, respectively, for the three
and nine months ended September 30, 2008, compared to interest expense of $3.2 million and $6.5
million for the same periods last year. The change in interest expense was primarily due to:
|
|
|
increases of $0.3 million and $5.0 million, respectively, primarily due to an
increase in the weighted-average outstanding balance under revolving credit facilities
during the three and nine months ended September 30, 2008 compared to the same periods
in 2007 (this increase was due to net debt we incurred relating to the 2008 Suezmax
Additions and the Dropdown Predecessor); and |
|
|
|
increase of $1.4 million and $0.4 million, respectively, for the three and nine
months ended September 30, 2008, relating to the change in fair value of our interest
rate swap. |
Page 15 of 22
We have not designated, for accounting purposes, our interest rate swap as a cash flow hedge of our
U.S. Dollar LIBOR-denominated borrowings, and as such, the unrealized changes in fair value of the
swap are reflected in interest expense in our consolidated statements of income.
Net Income. As a result of the foregoing factors, net income was $19.6 million and $52.7
million, respectively, for the three and nine months ended September 30, 2008, compared to $7.0
million and $34.9 million for the same periods last year.
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 September 30,
2008, our total cash was $16.9 million. Our total liquidity, including cash and undrawn credit
facilities, was $72.6 million as at September 30, 2008, down from $149.8 million as at December 31,
2007. The change in liquidity was mainly the result of utilizing availability under our revolving
credit facility for the acquisition of the two Suezmax vessels in April 2008, the prepayment of
long-term debt and the payment of dividends, partially offset by net operating cash flow. We
believe that our working capital is sufficient for our present requirements.
Our spot tanker 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,
spot tanker 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 or 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 September 30, 2008, our revolving credit facility provided for borrowings of up to $343.0
million, of which $55.7 million was undrawn. The amount available under this credit facility
decreases by a semi-annual amount of $18.9 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 were financed with a term loan that bears interest at a rate of 4.06%. As of
September 30, 2008, the balance of this term loan was $32.4 million. The loan requires $0.9 million
in quarterly principal payments.
As of December 31, 2008, our vessel financings were collateralized by eleven of our 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 the greater of $35.0 million and 5.0% of our total debt. As at September 30, 2008,
we were in compliance with all of our covenants under our credit facilities.
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.
We are exposed to market risk from changes in interest rates, foreign currency fluctuations and
spot tanker 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.
Page 16 of 22
Cash Flows
The following table summarizes our sources and uses of cash for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2008 |
|
|
September 30, 2007 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Net operating cash flows |
|
$ |
49,074 |
|
|
$ |
47,936 |
|
Net financing cash flows |
|
|
(64,592 |
) |
|
|
(47,157 |
) |
Net investing cash flows |
|
|
(2,448 |
) |
|
|
(779 |
) |
Operating Cash Flows
Net cash flow from operating activities increased to $49.1 million for the nine months ended
September 30, 2008, from $47.9 million for the same period in 2007, primarily due to an increase in
average spot tanker market rates and the 2008 Suezmax Additions, partially offset by an increase in
drydocking expenditures, the reduction in revenue from one of our vessels being in drydock from
March 2008 to June 2008, working capital advances to the managers of the pooling arrangements in
which some of our vessels participate, and the timing of our cash receipts and payments. Net cash
flow from operating activities primarily 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.
Net cash flow from operating activities for the nine months ended September 30, 2008 and 2007
includes $2.7 million and $(2.0) million of net cash flows from the Dropdown Predecessor.
Financing Cash Flows
During the nine months ended September 30, 2008 we repaid $2.7 million of our term loan, prepaid
$15.0 million of indebtedness under our revolving credit facility, and paid $1.1 million of share
issuance costs relating to our initial public offering.
We received $115.0 million from our revolving credit facility during the nine months ended
September 30, 2008. These funds were used to pay for the acquisition of Ganges Spirit and Narmada
Spirit and such payment is presented in the statement of cash flows as a return of capital. In
connection with this acquisition, our statement of cash flows was retroactively adjusted to include
the cash flows of the Dropdown Predecessor for the period from August 1, 2007 through April 6,
2008. For the nine months ended September 30, 2008, in addition to the $2.7 million of operating
cash flows received, the Dropdown Predecessor also received $116.0 million from Teekay Corporation,
which has been reflected as a contribution of capital in the statements of cash flows, and $44.0
million from a revolving credit facility drawdown. $153.7 million of these funds was used to repay
a revolving credit facility and the remaining $9.0 million was used to repay amounts owing to
Teekay Corporation by the Dropdown Predecessor, prior to the acquisition.
Dividends paid by us during the nine months ended September 30, 2008 were $42.9 million, or $1.715
per share, for the period from December 18, 2007 to June 30, 2008. On November 24, 2008, we
declared a cash dividend of $1.07 per share for the three months ended September 30, 2008, which
was paid on December 10, 2008. We intend to distribute on a quarterly basis all of our Cash
Available for Distribution, subject to any reserves established by our board of directors.
Investing Cash Flows
During each of the nine-month periods ended September 30, 2008 and 2007, we incurred $2.4 million
and $0.8 million, respectively, of vessel upgrade and equipment expenditures.
Commitments and Contingencies
The following table summarizes our long-term contractual obligations as at September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth |
|
|
2009 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
Quarter of |
|
|
and |
|
|
and |
|
|
|
|
(in millions of U.S. dollars) |
|
Total |
|
|
2008 |
|
|
2010 |
|
|
2012 |
|
|
Beyond 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar-Denominated Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (1) |
|
|
319.7 |
|
|
|
0.9 |
|
|
|
7.2 |
|
|
|
7.2 |
|
|
|
304.4 |
|
Technical vessel management and administrative fees |
|
|
49.2 |
|
|
|
0.9 |
|
|
|
6.9 |
|
|
|
6.9 |
|
|
|
34.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
368.9 |
|
|
|
1.8 |
|
|
|
14.1 |
|
|
|
14.1 |
|
|
|
338.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes expected interest payments of $2.8 million (fourth quarter of 2008), $22.0 million
(2009 and 2010), $21.4 million (2011 and 2012) and $40.9 million (beyond 2012). Expected
interest payments are based on LIBOR at September 30, 2008 plus a margin of 0.60% at September
30, 2008. |
Page 17 of 22
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 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 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.
The sharp decline in economic and market conditions during the fourth quarter of 2008, including
the significant disruptions in the global credit markets, have affected the estimates used in the
valuation of a broad range of assets and liabilities. For the fourth quarter of 2008, the Company
will assess whether these events have caused any of its assets to be impaired and if so, the amount
of any writedown. Any writedown will not have an effect on the cash flows of the Company.
Page 18 of 22
FORWARD-LOOKING STATEMENTS
This Report on Form 6-K for the three months ended September 30, 2008 contains certain
forward-looking statements (as such term is defined in Section 27A of the Securities Exchange Act
of 1933 as amended, and 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, including future vessel acquisitions; |
|
|
|
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; and |
|
|
|
the ability of the counterparties to our derivative contracts to fulfill their
contractual obligations. |
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 19 of 22
TEEKAY TANKERS LTD.
SEPTEMBER 30, 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 or freight forward agreements to manage spot tanker market
fluctuations, 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 September 30, 2008, we had not entered into forward contracts as a hedge against changes in
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 operating margins, results of operations and our ability to service debt. We use
interest rate swaps to reduce exposure to market risk from changes in interest rates. The principal
objective of these contracts is to minimize the risks and costs associated with the 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 practical, interest rate swaps are entered into with
different counterparties to reduce concentration risk.
The table below provides information about our financial instruments at September 30, 2008, that
are sensitive to changes in interest rates. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date |
|
|
|
Remainder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
|
|
|
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
287.3 |
|
|
|
287.3 |
|
|
|
(287.3 |
) |
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Amount (2)(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
(9.1 |
) |
|
|
5.6 |
% |
|
|
|
(1) |
|
Rate refers to the weighted-average effective interest rate for our long-term debt, including
the margin we pay on our floating-rate debt, and the average fixed pay rate for the interest
rate swap agreement, which excludes the margin we paid on the floating-rate debt. |
|
(2) |
|
Interest payments on U.S. Dollar-denominated debt and interest rate swap are based on LIBOR. |
|
(3) |
|
The average variable receive rate for the 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 September 30, 2008, we had not entered into any freight forward agreements,
although we may do so in the future.
Page 20 of 22
TEEKAY TANKERS LTD.
SEPTEMBER 30, 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, 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
The Companys adjourned 2008 Annual Meeting of Shareholders was held on September 24, 2008.
The following persons were elected directors for a one year term until the 2009 annual
meeting and until their respective successors are elected.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes Against or |
|
|
Shares which |
|
|
|
|
Votes for |
|
|
Withheld |
|
|
Abstained |
|
Broker Non-Votes |
C. Sean Day |
|
|
22,500,545 |
|
|
|
1,153,783 |
|
|
N/A |
|
N/A |
Bjorn Moller |
|
|
22,506,355 |
|
|
|
1,147,973 |
|
|
N/A |
|
N/A |
Peter Evensen |
|
|
22,498,855 |
|
|
|
1,155,473 |
|
|
N/A |
|
N/A |
Richard T. du Moulin |
|
|
23,565,876 |
|
|
|
88,452 |
|
|
N/A |
|
N/A |
Richard J.F. Bronks |
|
|
23,566,683 |
|
|
|
87,645 |
|
|
N/A |
|
N/A |
William Lawes |
|
|
23,567,083 |
|
|
|
87,245 |
|
|
N/A |
|
N/A |
Shareholders also ratified the selection of Ernst & Young LLP, Chartered Accountants, as
Teekay Tankers independent auditors for fiscal 2008 as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes Against or |
|
|
Shares which |
|
|
|
|
|
|
Votes for |
|
|
Withheld |
|
|
Abstained |
|
|
Broker Non-Votes |
|
Ernst & Young LLP |
|
|
23,621,987 |
|
|
|
24,249 |
|
|
|
8,092 |
|
|
|
855,475 |
|
Item 5 Other Information
None
Item 6 Exhibits
None
THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING REGISTRATION
STATEMENT OF THE COMPANY.
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REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-148055) FILED WITH THE SEC ON DECEMBER 13,
2007 |
Page 21 of 22
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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Dated: March 11, 2009 |
TEEKAY TANKERS LTD.
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By: |
/s/ Vincent Lok
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Vincent Lok |
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Chief Financial Officer
(Principal Financial and Accounting Officer) |
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Page 22 of 22