Teekay Tankers Q4 & Year End Results

Tuesday, March 01, 2011

Teekay Tankers Ltd. (NYSE:TNK) -

Highlights
·         Declared a cash dividend of $0.22 per share for the quarter ended December 31, 2010.
·         Reported fourth quarter adjusted net income of $2.6 million, or $0.05 per share (excluding specific items which increased GAAP net income by $5.2 million, or $0.10 per share).
·         Over 60 percent of fourth quarter revenue days earned average fixed time-charter rate of $24,390 per day; significantly above average spot TCE of $14,779 per day earned on remaining spot revenue days.
·         Completed acquisition of one Suezmax tanker and one Aframax tanker for a total cost of $107.5 million.
·         In January 2011, commenced a 23-month extension of an existing Suezmax tanker time-charter.
·         Total liquidity of approximately $295 million as of February 22, 2011.
Teekay Tankers Ltd. (Teekay Tankers or the Company) today reported its fourth quarter results for 2010. During the quarter, the Company generated $13.1 million in Cash Available for Distribution(1). Today, Teekay Tankers declared a dividend of $0.22 per share(2) for the fourth quarter of 2010, which will be paid on March 15, 2011 to all shareholders of record on March 8, 2011. The fourth quarter dividend was calculated using the weighted average number of shares outstanding for the quarter ended December 31, 2010, a methodology that is consistent with the Company's dividend policy. The dividend payable on the 9.9 million shares of new Class A common stock the Company issued in its public offering in February 2011, amounting to approximately $2.2 million, will be funded from the Company's working capital.
Teekay Tankers' policy is to pay a variable quarterly dividend equal to its Cash Available for Distribution, subject to any reserves its board of directors may from time to time determine are required. Since the Company's initial public offering in December 2007, it has declared a dividend in 13 consecutive quarters, which now totals $6.145 per share on a cumulative basis (including the $0.22 per share dividend to be paid on March 15, 2011).
"Despite the weak spot tanker rates in the fourth quarter, we were able to pay a relatively healthy dividend as a result of having approximately 70 percent of our fourth quarter revenue generated from fixed-rate time-charter contracts and our investment in two VLCC loans," commented Bjorn Moller, Teekay Tankers' Chief Executive Officer. "With the potential for continued spot tanker market weakness in 2011, we have tactically managed our fleet employment mix such that over 50 percent of our vessel operating days for the year are covered under fixed-rate charters earning a weighted average time-charter rate of approximately $24,500 per day." Mr. Moller continued, "Including the proceeds from our recent equity offering, Teekay Tankers' balance sheet is strong and with almost $300 million of available liquidity, we are well positioned to take advantage of attractive vessel acquisition opportunities."
1.     Cash Available for Distribution represents net income (loss) excluding depreciation and amortization, unrealized (gains) losses from derivatives, any non-cash items or write-offs of other non-recurring items, and net income attributable to the historical results of vessels acquired by the Company from Teekay Corporation (Teekay), referred to herein as theDropdown Predecessor, for the period when these vessels were owned and operated by Teekay.
2.     Please refer to Appendix B to this release for the calculation of the cash dividend amount.
Summary of Recent Transactions
As previously announced, in early November 2010, Teekay Tankers acquired one Aframax tanker and one Suezmax tanker for a total purchase price of $107.5 million. To finance the vessel acquisitions, Teekay Tankers used net proceeds from the public follow-on offering of Class A common stock completed in October 2010. TheEsther Spirit is currently operating under a fixed-rate time-charter (with a profit-share component) through July 2012 and the Iskmati Spirit is trading in the spot market as part of Teekay's Gemini Suezmax tanker pool.
In addition, the Company signed a 23 month extension of the time-charter on the Suezmax tanker, the Narmada Spirit, with an average fixed-rate floor of $21,500 per day plus a profit-share component, which commenced in January 2011.
 
Tanker Market
Average crude tanker freight rates during the fourth quarter of 2010 remained weak, despite relatively strong tanker demand. This was primarily the result of an oversupply of vessels, caused by a net fleet growth during 2010 and compounded by the return of vessels previously used for temporary floating storage. This imbalance between tanker supply and demand prevented the typical winter rally in rates from occurring, although a short-lived strengthening of rates was experienced towards the end of the quarter when cold winter weather in Europe and North America led to an increase in both oil demand and weather related transit delays. In the first quarter of 2011 to date, tanker rates have remained at relatively weak levels. Rising bunker fuel prices during the fourth quarter of 2010 and continuing into 2011 have adversely impacted spot tanker earnings.
During 2010, the world tanker fleet grew by 19.7 million deadweight tones (mdwt), or approximately 4.6 percent, compared to 28.8 mdwt, or 7.1 percent, in 2009. A total of 41.2 mdwt of new vessel capacity was delivered into the fleet, offset by tanker removals which increased to 21.4 mdwt in 2010, the highest annual figure since 2003, primarily due to the regulatory phase-out of single hull tankers and the conversion of tankers for use in dry bulk or offshore projects. The tanker delivery schedule for 2011 is similar to 2010. However, with the phase-out of single hull tankers now largely complete, the scope for scrapping in 2011 is expected to focus on first generation double hull tankers, which face increasing age discrimination from customers.
Global oil demand in 2010 grew by 2.8 million barrels per day (mb/d), or 3.3 percent, the highest figure since 2004. As a result, 2010 tanker demand is estimated to have grown by approximately 7 percent. In January 2011, the International Monetary Fund (IMF) raised its forecast for 2011 global economic growth to 4.4 percent, up from 4.2 percent previously, based on strength in developing and emerging economies. As a result, the International Energy Agency (IEA) has raised its global oil demand forecast for 2011 to 89.3 mb/d, an increase of 1.5 mb/d, or 1.7 percent, from 2010.
Financial Summary
The Company reported adjusted net income(1) of $2.6 million, or $0.05 per share, for the quarter ended December 31, 2010, compared to adjusted net income of $5.8 million, or $0.13 per share, for the quarter ended September 30, 2010. The reduction in adjusted net income per share is primarily the result of lower average realized tanker rates for our time-charter and spot fleets during the fourth quarter, compared to the third quarter. Adjusted net income for the three months ended December 31, 2010 excludes an unrealized gain relating to changes in the fair value of interest rate swaps of $5.9 million, or $0.12 per share, and $0.7 million, or $0.02 per share, related to a net loss attributable to the Dropdown Predecessor. Adjusted net income for the three months ended September 30, 2010 excludes an unrealized loss of $4.2 million, or $0.10 per share, relating to changes in the fair value of interest rate swaps, and $0.4 million, or $0.01 per share, related to a net loss attributable to the Dropdown Predecessor, as well as a net loss of $1.9 million, or $0.04 per share, from the sale of Sotra Spirit. These adjustments are detailed in Appendix A included in this release. Including these items, the Company reported net income, on a GAAP basis, of $7.8 million, or $0.17 per share, for the quarter ended December 31, 2010, compared to net loss, on a GAAP basis, of $0.7 million, or $0.01 per share, for the quarter ended September 30, 2010. Net revenues(2) for the fourth quarter of 2010 were $29.6 million compared to $33.2 million in the prior quarter.
Adjusted net income(1) for the year ended December 31, 2010 was $22.4 million, or $0.53 per share, compared to adjusted net income of $27.7 million, or $0.97 per share, for the prior year. The reduction in the adjusted net income is primarily the result of lower average realized spot tanker rates in 2010, compared to 2009, which was partially offset by increased revenues of $5.3 million, or $0.13 per share, from the Company's investment in two VLCC loans, and the net increase of three vessels to the Company's fleet during 2010. Adjusted net income for the year ended December 31, 2010 excludes an unrealized loss relating to changes in the fair value of interest rate swaps of $5.0 million, or $0.12 per share, as well as net income of $0.7 million, or $0.02 per share attributable to the Dropdown Predecessor, and a loss of $1.9 million, or $0.04 per share from the sale of the Falster Spirit and Sotra Spirit during the year. Adjusted net income for the year ended December 31, 2009 excludes an unrealized gain of $9.0 million, or $0.31 per share relating to changes in the fair value of an interest rate swap, as well as net income of $5.3 million, or $0.19 per share attributable to the Dropdown Predecessor. These adjustments are detailed in Appendix A included in this release. Including these items, the Company reported net income, on a GAAP basis, of $16.3 million, or $0.37 per share, for the year ended December 31, 2010, compared to net income, on a GAAP basis, of $42.1 million, or $1.28 per share, for the year ended December 31, 2009. Net revenues(2) for the year ended December 31, 2010 amounted to $136.9 million compared to $154.2 million in the prior year.
1.     Adjusted net income is a non-GAAP financial measure. Please refer to Appendix A included in this release for a reconciliation of this non-GAAP measure to the most directly comparable financial measure under United States generally accepted accounting principles (GAAP) and information about specific items affecting net income that are typically excluded by securities analysts in their published estimates of the Company's financial results.
2.     Net revenues represents revenues less voyage expenses. Net revenues is a non-GAAP financial measure used by certain investors to measure the financial performance of shipping companies. Please see the Company's website at www.teekaytankers.com
Teekay Tankers' Fleet
The fleet list above includes a VLCC newbuilding that Teekay Tankers owns through a 50/50 joint venture it entered into with Wah Kwong Maritime Transport Holdings Limited in October 2010. The newbuilding is scheduled to deliver in April 2013 at which time it will commence a time-charter to a major Chinese shipping company for a period of five years. The time-charter includes a fixed floor rate, coupled with a profit-sharing component.
Including the income earned by the Company from the loans it made in July 2010 secured by first-priority ship mortgages on two VLCC newbuildings which are equivalent in amount to two vessels trading on fixed-rate bareboat charters, the Company currently has fixed-rate coverage of approximately 62 percent and 57 percent for the first quarter and fiscal 2011, respectively.
Liquidity
As of December 31, 2010, the Company had total liquidity of $186.7 million (which consisted of $12.5 million of cash and $174.2 million in an undrawn revolving credit facility), compared to total liquidity of $132.9 million as at September 30, 2010. Total liquidity increased from $186.7 million as at December 31, 2010 to approximately $295 million as at February 22, 2011, primarily as a result of the Company's recently completed follow-on equity offering, which provided net proceeds to the Company of $107.6 million, including net proceeds received upon the exercise of the underwriters' over-allotment option in full.
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