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, 2019
Commission file number 1-33867
  ___________________________________________________________
TEEKAY TANKERS LTD.
(Exact name of Registrant as specified in its charter)
  ___________________________________________________________
Suite 2000 - 550 Burrard Street, Bentall 5, Vancouver, BC V6C 2K2 Canada
(Address of principal executive offices)
  ___________________________________________________________
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  ý            Form 40-F  ¨
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  ¨            No   ý
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  ¨            No   ý








 



TEEKAY TANKERS LTD.
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019
INDEX
 




PART I – FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
TEEKAY TANKERS LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF LOSS (note 1)
(in thousands of U.S. dollars, except share and per share amounts)
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
$
 
$
 
$
 
$
REVENUES
 
 
Voyage charter revenues (note 3)
 
173,034

 
152,047

 
576,256

 
432,017

Time-charter revenues (note 3)
 
1,909

 
12,326

 
6,775

 
51,820

Other revenues (notes 3 and 4)
 
7,361

 
11,542

 
34,051

 
32,202

Total revenues
 
182,304

 
175,915

 
617,082

 
516,039

 
 
 
 
 
 
 
 
Voyage expenses (note 14e)
 
(87,726
)
 
(83,048
)
 
(277,733
)
 
(249,974
)
Vessel operating expenses (note 14b)
 
(48,539
)
 
(52,161
)
 
(156,726
)
 
(157,808
)
Time-charter hire expenses (note 8)
 
(10,637
)
 
(4,317
)
 
(30,877
)
 
(14,697
)
Depreciation and amortization
 
(31,536
)
 
(29,595
)
 
(92,059
)
 
(88,598
)
General and administrative expenses (note 14b)
 
(8,739
)
 
(8,747
)
 
(27,412
)
 
(27,939
)
Gain on sale of vessel (note 16)
 

 

 

 
170

Restructuring charges (note 18)
 

 
(213
)
 

 
(1,195
)
(Loss) income from operations
 
(4,873
)
 
(2,166
)
 
32,275

 
(24,002
)
 
 
 
 
 
 
 
 
 
Interest expense
 
(16,134
)
 
(15,006
)
 
(49,683
)
 
(41,666
)
Interest income
 
138

 
250

 
724

 
568

Realized and unrealized gain (loss) gain on derivative instruments (note 9)
 
1,453

 
596

 
(1,172
)
 
4,725

Equity income (loss) (note 5)
 
68

 
(359
)
 
652

 
265

Freight tax and other tax expenses (note 11)
 
(1,435
)
 
(2,050
)
 
(5,688
)
 
(10,014
)
Other income (note 10)
 
933

 
1,251

 
1,182

 
6,074

Net loss
 
(19,850
)
 
(17,484
)
 
(21,710
)
 
(64,050
)
 
 
 
 
 
 
 
 
 
Per common share amounts (note 15)
 
 
 
 
 
 
 
 
 - Basic loss per share
 
(0.07
)
 
(0.07
)
 
(0.08
)
 
(0.24
)
 - Diluted loss per share
 
(0.07
)
 
(0.07
)
 
(0.08
)
 
(0.24
)
 
 
 
 
 
 
 
 
 
Weighted-average number of Class A and Class B common stock outstanding (note 15)
 
 
 
 
 
 
 
 
 - Basic and diluted
 
268,990,399

 
268,558,556

 
268,887,485

 
268,470,804

 
 
 
 
 
 
 
 
 
Related party transactions (note 14)
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

1


TEEKAY TANKERS LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS (notes 1 and 2)
(in thousands of U.S. dollars)
 
 
As at
 
As at
 
 
September 30,
2019
 
December 31, 2018
 
 
$
 
$
ASSETS
 
 
 
 
Current
 
 
 
 
Cash and cash equivalents
 
76,705

 
54,917

Restricted cash – current (note 17)
 
2,341

 
2,153

Pool receivable from affiliates, net (note 14d)
 
562

 
56,549

Accounts receivable, including affiliate balances of $0.8 million (2018 - $2.1 million) (note 9)
 
52,245

 
17,365

Due from affiliates (note 14c)
 
1,634

 
39,663

Current portion of derivative assets (note 9)
 
1,878

 
2,905

Bunker and lube oil inventory (note 1)
 
50,473

 
23,179

Prepaid expenses
 
14,108

 
10,917

Other current assets
 
61,598

 
17,943

Total current assets
 
261,544

 
225,591

Restricted cash – long-term (note 17)
 
3,437

 
3,437

Vessels and equipment
 
 
 
 
At cost, less accumulated depreciation of $551.3 million (2018 - $494.4 million) (note 6)
 
1,310,541

 
1,401,551

Vessels related to finance leases, at cost, less accumulated depreciation of $136.1 million (2018 - $111.3 million) (note 8)
 
525,597

 
482,010

Operating lease right-of-use assets (notes 2 and 8)
 
23,595

 

Total vessels and equipment
 
1,859,733

 
1,883,561

Investment in and advances to equity-accounted joint venture (note 5)
 
26,418

 
25,766

Derivative assets (note 9)
 
82

 
2,973

Other non-current assets
 
910

 
74

Intangible assets at cost, less accumulated amortization of $12.5 million (2018 - $10.9 million)
 
9,955

 
11,625

Goodwill
 
8,059

 
8,059

Total assets
 
2,170,138

 
2,161,086

LIABILITIES AND EQUITY
 
 
 
 
Current
 
 
 
 
Accounts payable, including affiliate balances of $nil (2018 - $0.6 million)
 
54,824

 
11,146

Accrued liabilities (note 14c)
 
46,519

 
40,856

Short-term debt (note 7)
 
50,000

 

Due to affiliates (note 14c)
 
1,241

 
18,570

Current portion of derivative liabilities (note 9)
 

 
57

Current portion of long-term debt (note 6)
 
101,295

 
106,236

Current obligations related to finance leases (note 8)
 
24,875

 
20,896

Current portion of operating lease liabilities (notes 2 and 8)
 
16,405

 

Other current liabilities
 
255

 

Total current liabilities
 
295,414

 
197,761

Long-term debt (note 6)
 
507,665

 
629,170

Long-term obligations related to finance leases (note 8)
 
396,059

 
354,393

Long-term operating lease liabilities (notes 2 and 8)
 
7,190

 

Other long-term liabilities (note 11)
 
37,474

 
32,829

Derivative liabilities (note 9)
49

 

Total liabilities
 
1,243,851

 
1,214,153

Commitments and contingencies (notes 5, 6, 7, 8 and 9)
 
 
 
 
Equity
 
 
 
 
Common stock and additional paid-in capital (585.0 million shares authorized, 232.0 million Class A and 37.0 million Class B shares issued and outstanding as of September 30, 2019 and 585.0 million shares authorized, 231.6 million Class A and 37.0 million Class B shares issued and outstanding as of December 31, 2018) (note 13)
 
1,296,993

 
1,295,929

Accumulated deficit
 
(370,706
)
 
(348,996
)
Total equity
 
926,287

 
946,933

Total liabilities and equity
 
2,170,138

 
2,161,086

The accompanying notes are an integral part of the unaudited consolidated financial statements.

2


TEEKAY TANKERS LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (note 1)
(in thousands of U.S. dollars)
 
 
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
 
$
 
$
Cash, cash equivalents and restricted cash provided by (used for)
 
 
 
 
OPERATING ACTIVITIES
 
 
 
 
Net loss
 
(21,710
)
 
(64,050
)
Non-cash items:
 


 

Depreciation and amortization
 
92,059

 
88,598

Gain on sale of vessel (note 16)
 

 
(170
)
Unrealized loss (gain) on derivative instruments (note 9)
 
3,960

 
(3,287
)
Equity income (note 5)
 
(652
)
 
(265
)
Freight tax expense (note 11)
 
4,181

 
3,859

Other
 
3,690

 
4,307

Change in operating assets and liabilities
 
18,685

 
(17,402
)
Expenditures for dry docking
 
(37,430
)
 
(17,035
)
Net operating cash flow
 
62,783

 
(5,445
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds from short-term debt (note 7)
 
125,000

 

Proceeds from long-term debt, net of issuance costs
 
56,788

 
46,128

Scheduled repayments of long-term debt
 
(76,216
)
 
(92,380
)
Prepayments of long-term debt
 
(109,688
)
 
(102,717
)
Prepayments of short-term debt (note 7)
 
(75,000
)
 

Proceeds from financing related to sales and leaseback of vessels (note 8)
 
63,720

 
156,644

Scheduled repayments of obligations related to finance leases (note 8)
 
(18,075
)
 
(8,841
)
Cash dividends paid
 

 
(8,052
)
Other
 
(126
)
 
(92
)
Net financing cash flow
 
(33,597
)
 
(9,310
)
 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Proceeds from sale of vessel (note 16)
 

 
589

Expenditures for vessels and equipment
 
(7,210
)
 
(3,463
)
Return of capital from equity-accounted for joint venture
 

 
746

Net investing cash flow
 
(7,210
)
 
(2,128
)
 
 
 
 
 
Increase (decrease) in cash, cash equivalents and restricted cash
 
21,976

 
(16,883
)
Cash, cash equivalents and restricted cash, beginning of the period
 
60,507

 
75,710

Cash, cash equivalents and restricted cash, end of the period
 
82,483

 
58,827

Supplemental cash flow information (note 17)
The accompanying notes are an integral part of the unaudited consolidated financial statements.


3


TEEKAY TANKERS LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (note 1)
(in thousands of U.S. dollars, except share amounts)
 
 
 
Common Stock and Additional
Paid-in Capital
 
 
 
 
 
 
Thousands
of Common
Shares
#
 
Class A Common Shares
$
 
Class B Common Shares
$
 
Accumulated
Deficit
$
 
Total
$
Balance as at December 31, 2018
 
268,559

 
1,207,397

 
88,532

 
(348,996
)
 
946,933

Net income
 

 

 

 
12,447

 
12,447

Equity-based compensation (note 13)
 
431

 
668

 


 


 
668

Balance as at March 31, 2019
 
268,990

 
1,208,065

 
88,532

 
(336,549
)
 
960,048

Net loss
 

 

 

 
(14,307
)
 
(14,307
)
Equity-based compensation (note 13)
 

 
154

 

 

 
154

Balance as at June 30, 2019
 
268,990

 
1,208,219

 
88,532

 
(350,856
)
 
945,895

Net loss
 

 

 

 
(19,850
)
 
(19,850
)
Equity-based compensation (note 13)
 

 
242

 

 

 
242

Balance as at September 30, 2019
 
268,990

 
1,208,461

 
88,532

 
(370,706
)
 
926,287


 
 
Common Stock and Additional
Paid-in Capital
 
 
 
 
 
 
Thousands
of Common
Shares
#
 
Class A Common Shares
$
 
Class B Common Shares
$
 
Accumulated
Deficit
$
 
Total
$
Balance as at December 31, 2017
 
268,202

 
1,206,466

 
88,532

 
(288,397
)
 
1,006,601

Net loss
 

 

 

 
(19,153
)
 
(19,153
)
Dividends declared ($0.03 per share)
 

 

 

 
(8,052
)
 
(8,052
)
Equity-based compensation (note 13)
 
357

 
613

 

 

 
613

Other
 

 
(274
)
 

 

 
(274
)
Balance as at March 31, 2018
 
268,559

 
1,206,805

 
88,532

 
(315,602
)
 
979,735

Net loss
 

 

 

 
(27,413
)
 
(27,413
)
Equity-based compensation (note 13)
 

 
148

 

 

 
148

Balance as at June 30, 2018
 
268,559

 
1,206,953

 
88,532

 
(343,015
)
 
952,470

Net loss
 

 

 

 
(17,484
)
 
(17,484
)
Equity-based compensation (note 13)
 

 
224

 

 

 
224

Other
 

 

 

 
1

 
1

Balance as at September 30, 2018
 
268,559

 
1,207,177

 
88,532

 
(360,498
)
 
935,211

The accompanying notes are an integral part of the unaudited consolidated financial statements.


1.
Basis of Presentation

The unaudited interim consolidated financial statements (or consolidated financial statements) have been prepared in accordance with United States generally accepted accounting principles (or GAAP). These consolidated financial statements include the accounts of Teekay Tankers Ltd., its wholly-owned subsidiaries, equity-accounted joint venture and any variable interest entities (or VIEs) of which it is the primary beneficiary (collectively, the Company). The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, these consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2018, filed on Form 20-F with the U.S. Securities and Exchange Commission (or the SEC) on April 10, 2019. In the opinion of management, these consolidated financial statements reflect all adjustments, consisting solely of a normal recurring nature, necessary to present fairly, in all material respects, the Company’s 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. Intercompany balances and transactions have been eliminated upon consolidation.

Effective March 31, 2019, the Company separately presents bunker and lube oil inventory on the Company’s consolidated balance sheet. Such amounts were previously classified as prepaid expenses. Bunker and lube oil inventory increased significantly as of the first quarter of 2019, as a result of changes to the Company’s revenue sharing arrangements (or RSAs) whereby the Company now directly procures and has legal title to the bunker fuel for the vessels in the RSAs, with such assets being used as collateral for the new working capital loan arrangement entered into by the Company. Bunker and lube oil inventory is stated at cost, which is determined on a first-in, first-out basis. Comparative figures have been reclassified to conform to the presentation adopted in the current period.


2.
Recent Accounting Pronouncement
In February 2016, the Financial Accounting Standards Board (or FASB) issued Accounting Standards Update 2016-02, Leases (or ASU 2016-02). ASU 2016-02 established a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. For lessees, leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 requires lessors to classify leases as a sales-type, direct financing, or operating lease. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all of the risks and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease. All leases that are not sales-type leases or direct financing leases are operating leases. FASB issued an additional accounting standards update in July 2018 that made further amendments to accounting for leases, including allowing the use of a transition approach whereby a cumulative effect adjustment is made as of the effective date, with no retrospective effect and providing an optional practical expedient to lessors to not separate lease and non-lease components of a contract if certain criteria are met. The Company adopted ASU 2016-02 on January 1, 2019 and has elected to use this new optional transition approach. To determine the cumulative effect adjustment, the Company has not reassessed lease classification, initial direct costs for any existing leases and whether any expired or existing contracts are or contain leases. The adoption of ASU 2016-02 has resulted in a change in accounting method for the lease portion of the daily charter hire for the Company’s chartered-in vessels accounted for as operating leases with firm periods of greater than one year as well as a small number of office leases. The Company’s time charters and voyage charters include both a lease component, consisting of the lease of the vessel, and non-lease component, consisting of operation of the vessel for the customer. The Company has elected not to separate the non-lease component from the lease component for all such charters, where the lease component is classified as an operating lease, and account for the combined component as an operating lease. The Company identified the following differences:

Under ASU 2016-02, the Company recognizes an operating lease right-of-use asset and an operating lease liability on the balance sheet for these chartered-in vessels and office leases based on the present value of future minimum lease payments, whereas previously no right-of-use asset or lease liability was recognized. As a result, operating lease right-of-use assets and operating lease liabilities of $11.0 million were each recognized on January 1, 2019. The pattern of expense recognition of chartered-in vessels has remained unchanged, unless the right-of-use asset becomes impaired.
The adoption of ASU 2016-02 results in sale and leaseback transactions where the seller lessee has a fixed price repurchase option, or other situations where the leaseback would be classified as a finance lease, being accounted for as a failed sale of the vessel and a failed purchase of the vessel by the buyer lessor. Prior to the adoption of ASU 2016-02, such transactions were accounted for as a completed sale and a completed purchase. Consequently, for such transactions, the Company does not derecognize the vessel sold and continues to depreciate the vessel as if it was the legal owner. Proceeds received from the sale of the vessel are recognized as an obligation related to finance lease, and bareboat charter hire payments made by the Company to the lessor are allocated between interest expense and principal repayments on the obligation related to finance lease. The adoption of ASU 2016-02 has resulted in the sale and leaseback of the Aspen Spirit and Cascade Spirit during the second quarter of 2019 being accounted for as a failed sale and unlike the 14 sale-leaseback transactions entered into in prior years, the Company is not considered as holding a variable interest in the buyer lessor entity and, thus, does not consolidate the buyer lessor entities (see note 8).

4

TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)






3.
Revenue
The Company’s primary source of revenue is from chartering its vessels (Aframax tankers, Suezmax tankers and Long Range 2 (or LR2) tankers) to its customers. The Company utilizes two primary forms of contracts, consisting of voyage charters and time-charters.

The extent to which the Company employs its vessels on voyage charters versus time charters is dependent upon the Company’s chartering strategy and the availability of time charters. Spot market rates for voyage charters, including conventional voyages and lightering voyages, are volatile from period to period, whereas time charters provide a stable source of monthly revenue. The Company also provides ship-to-ship support services, which include managing the process of transferring cargo between seagoing ships positioned alongside each other, either stationary or underway, as well as commercial management services to third-party owners of vessels. Finally, the Company manages liquefied natural gas (or LNG) terminals and procures LNG-related goods for terminal owners and other customers. For descriptions of these types of contracts, see Item 18 - Financial Statements: Note 3 in the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2018.

The following table contains a breakdown of the Company's revenue by contract type for the three and nine months ended September 30, 2019 and September 30, 2018. All revenue is part of the Company's conventional tanker segment, except for revenue for ship-to-ship support services and LNG terminal management, consultancy, procurement and other related services, which are part of the Company's ship-to-ship transfer segment. The Company’s lease income consists of the revenue from its voyage charters and time-charters.

 
Three Months Ended September 30,
 
Nine Months Ended September 30,

 
2019
 
2018
 
2019
 
2018
 
$
 
$
 
$
 
$
Voyage charter revenues
 
 
 
 
 
 
 
     Suezmax
85,523

 
90,267

 
268,972

 
243,771

     Aframax
51,075

 
29,210

 
164,381

 
76,952

     LR2
23,989

 
16,712

 
84,001

 
40,312

     Full service lightering
12,447

 
15,858

 
58,902

 
70,982

     Total
173,034

 
152,047

 
576,256

 
432,017

 
 
 
 
 
 
 
 
Time-charter revenues
 
 
 
 
 
 
 
     Aframax

 
7,784

 
1,837

 
31,608

     Suezmax
1,909

 
2,909

 
4,938

 
13,063

     LR2

 
1,633

 

 
7,149

     Total
1,909

 
12,326

 
6,775

 
51,820

 
 
 
 
 
 
 
 
Other revenues
 
 
 
 
 
 
 
     Ship-to-ship support services
4,649

 
8,217

 
17,810

 
22,452

     Commercial management
1,893

 
2,050

 
6,219

 
6,246

     LNG terminal management, consultancy, procurement and other
819

 
1,275

 
10,022

 
3,504

     Total
7,361

 
11,542

 
34,051

 
32,202

 
 
 
 
 
 
 
 
Total revenues
182,304

 
175,915

 
617,082

 
516,039

Charters-out
As at September 30, 2019, one (December 31, 2018 - two) of the Company’s vessels operated under a fixed-rate time charter contract, which is scheduled to expire in 2020. As at September 30, 2019, the minimum scheduled future revenues to be received by the Company under this time charter were approximately $6.3 million (December 31, 2018 - $6.3 million).


5

TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)



4.
Segment Reporting

The Company has two reportable segments, its conventional tanker segment and its ship-to-ship transfer segment. The Company’s conventional tanker segment consists of the operation and commercial management of all of its tankers and those tankers employed on full service lightering contracts. The Company’s ship-to-ship transfer segment consists of the Company’s ship-to-ship support services, including those provided to the Company’s conventional tanker segment as part of full service lightering operations and LNG terminal management, consultancy, procurement and other related services. Segment results are evaluated based on (loss) income from operations. The accounting policies applied to the reportable segments are the same as those used in the preparation of the Company’s consolidated financial statements.

The following tables include results for the Company’s revenues and (loss) income from operations by segment for the three and nine months ended September 30, 2019 and September 30, 2018.

Three Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Conventional Tanker Segment
 
Ship-to-Ship
Transfer Segment
 
Inter-segment Adjustment (1)
 
Total
 
$
 
 
$
 
 
$
 
 
$
 
Revenues (2)
176,836

 
 
8,685

 
 
(3,217
)
 
 
182,304

 
Voyage expenses
(90,943
)
 
 

 
 
3,217

 
 
(87,726
)
 
Vessel operating expenses
(41,833
)
 
 
(6,706
)
 
 

 
 
(48,539
)
 
Time-charter hire expenses
(9,331
)
 
 
(1,306
)
 
 

 
 
(10,637
)
 
Depreciation and amortization
(30,634
)
 
 
(902
)
 
 

 
 
(31,536
)
 
General and administrative expenses (3)
(7,955
)
 
 
(784
)
 
 

 
 
(8,739
)
 
Loss from operations
(3,860
)
 
 
(1,013
)
 
 

 
 
(4,873
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity income
68

 
 

 
 

 
 
68

 

Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Conventional Tanker Segment
 
Ship-to-Ship Transfer Segment
 
Inter-segment Adjustment (1)
 
Total
 
$
 
 
$
 
 
$
 
 
$
 
Revenues (2)
166,423

 
 
12,019

 
 
(2,527
)
 
 
175,915

 
Voyage expenses
(85,575
)
 
 

 
 
2,527

 
 
(83,048
)
 
Vessel operating expenses
(43,432
)
 
 
(8,729
)
 
 

 
 
(52,161
)
 
Time-charter hire expenses
(2,935
)
 
 
(1,382
)
 
 

 
 
(4,317
)
 
Depreciation and amortization
(28,532
)
 
 
(1,063
)
 
 

 
 
(29,595
)
 
General and administrative expenses (3)
(7,985
)
 
 
(762
)
 
 

 
 
(8,747
)
 
Restructuring charges

 
 
(213
)
 
 

 
 
(213
)
 
Loss from operations
(2,036
)
 
 
(130
)
 
 

 
 
(2,166
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity loss
(359
)
 
 

 
 

 
 
(359
)
 


6

TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)



Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Conventional Tanker Segment
 
Ship-to-Ship Transfer Segment
 
Inter-segment
Adjustment (1)
 
Total
 
 
$
 
 
$
 
 
$
 
 
$
 
Revenues (2)
589,250

 
 
36,421

 
 
(8,589
)
 
 
617,082

 
Voyage expenses
(286,322
)
 
 

 
 
8,589

 
 
(277,733
)
 
Vessel operating expenses
(129,555
)
 
 
(27,171
)
 
 

 
 
(156,726
)
 
Time-charter hire expenses
(26,497
)
 
 
(4,380
)
 
 

 
 
(30,877
)
 
Depreciation and amortization
(89,422
)
 
 
(2,637
)
 
 

 
 
(92,059
)
 
General and administrative expenses (3)
(25,030
)
 
 
(2,382
)
 
 

 
 
(27,412
)
 
Income (loss) from operations
32,424

 
 
(149
)
 
 

 
 
32,275

 
 
 
 
 
 
 
 
 
 
 
 
 
Equity income
652

 
 

 
 

 
 
652

 

Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Conventional Tanker Segment
 
Ship-to-Ship Transfer Segment
 
Inter-segment
Adjustment (1)
 
Total

 
 
$
 
 
$
 
 
$
 
 
$
 
Revenues (2)
490,083

 
 
35,061

 
 
(9,105
)
 
 
516,039

 
Voyage expenses
(259,079
)
 
 

 
 
9,105

 
 
(249,974
)
 
Vessel operating expenses
(131,886
)
 
 
(25,922
)
 
 

 
 
(157,808
)
 
Time-charter hire expenses
(10,326
)
 
 
(4,371
)
 
 

 
 
(14,697
)
 
Depreciation and amortization
(85,171
)
 
 
(3,427
)
 
 

 
 
(88,598
)
 
General and administrative expenses (3)
(25,385
)
 
 
(2,554
)
 
 

 
 
(27,939
)
 
Gain on sale of vessel

 
 
170

 
 

 
 
170

 
Restructuring charges
(152
)
 
 
(1,043
)
 
 

 
 
(1,195
)
 
Loss from operations
(21,916
)
 
 
(2,086
)
 
 

 
 
(24,002
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity income
265

 
 

 
 

 
 
265

 

(1)
The ship-to-ship transfer segment provides lightering support services to the conventional tanker segment for full service lightering operations and the pricing for such services was based on actual costs incurred.
(2)
Revenues, net of the inter-segment adjustment, earned from the ship-to-ship transfer segment are reflected in Other Revenues in the Company's consolidated statements of loss.
(3)
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).

A reconciliation of total segment assets to total assets presented in the accompanying consolidated balance sheets is as follows:
 
As at
 
As at
 
September 30, 2019
 
December 31, 2018
 
$
 
$
Conventional Tanker Segment
2,059,873

 
2,069,854

Ship-to-Ship Transfer Segment
33,560

 
36,315

Cash and cash equivalents
76,705

 
54,917

Consolidated total assets
2,170,138

 
2,161,086


5. Investment in and Advances to Equity-Accounted Joint Venture
 
 
As at September 30, 2019
 
As at December 31, 2018
 
 
$
 
$
High-Q Joint Venture
 
26,418

 
25,766


The Company has a joint venture arrangement with Wah Kwong Maritime Transport Holdings Limited (or Wah Kwong), whereby the Company has a 50% economic interest in the High-Q joint venture, which is jointly controlled by the Company and Wah Kwong. The High-Q joint venture owns one 2013-built Very Large Crude Carrier (or VLCC), which traded on a fixed time charter-out contract that expired in May 2018. Under the fixed contract, the vessel earned a daily rate and an additional amount if the daily rate of sub-charters exceeded a certain threshold. The VLCC completed its dry dock in July 2018 and subsequently began trading on spot voyage charters in a pooling arrangement managed by a third party.

As at September 30, 2019, the High-Q joint venture had a loan of $33.5 million (December 31, 2018 – $37.5 million) outstanding with a financial institution. The loan is secured by a first-priority mortgage on the VLCC owned by the High-Q joint venture and 50% of the outstanding loan balance is guaranteed by the Company.

6. Long-Term Debt
 
As at
 
As at
 
September 30, 2019
 
December 31, 2018
 
$
 
$
Revolving Credit Facilities due through 2022
363,930

 
417,997

Term Loans due through 2021
248,947

 
323,995

Total principal
612,877

 
741,992

Less: unamortized discount and debt issuance costs
(3,917
)
 
(6,586
)
Total debt
608,960

 
735,406

Less: current portion
(101,295
)
 
(106,236
)
Non-current portion of long-term debt
507,665

 
629,170


As at September 30, 2019, the Company had two revolving credit facilities (or the Revolvers), which, as at such date, provided for aggregate borrowings of up to $382.3 million, of which $18.4 million was undrawn (December 31, 2018 - $429.8 million, of which $11.8 million was undrawn). Interest payments are based on LIBOR plus margins. As at September 30, 2019, such margins ranged between 2.00% and 2.75% (December 31, 2018 - 2.00% and 2.75%). The total amount available under the Revolvers will decrease by $3.0 million (remainder of 2019), $12.1 million (2020), $304.8 million (2021) and $62.4 million (2022). As at September 30, 2019, the Company also had three term loans outstanding, which totaled $249.0 million (December 31, 2018 - $324.0 million). Interest payments on the term loans are based on a combination of a fixed rate of 5.4% (December 31, 2018 - 5.4%) and variable rates based on LIBOR plus margins. As at September 30, 2019, the margins ranged from 0.3% to 2.0% (December 31, 2018 - 0.3% to 2.0%). The term loan repayments are made in quarterly or semi-annual payments. Two of the term loans also have a balloon or bullet repayment due at maturity in 2021. The Revolvers and term loans are further described below.

In May 2019, the Company completed a $63.7 million sale-leaseback financing transaction related to two of the Company's vessels (note 8). The Company used the proceeds from the sale-leaseback transaction to prepay a portion of the Company's 2017 Revolver (as defined below). In November 2018, the Company completed an $84.7 million sale-leaseback financing transaction relating to four of the Company's vessels (note 8). The Company used the proceeds from the sale-leaseback transaction to refinance one of the Company's corporate revolving credit facilities that matured in November 2018 and to prepay a portion of the Company's 2017 Revolver. In September 2018, the

7

TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)



Company completed a $156.6 million sale-leaseback financing transaction relating to six of the Company's vessels (note 8). The Company used the proceeds from the sale-leaseback transaction to prepay a portion of the Company's 2017 Revolver.

In December 2017, the Company entered into a $270.0 million long-term debt facility (or the 2017 Revolver), which is scheduled to mature in December 2022 and which had an outstanding balance of $71.2 million as at September 30, 2019 (December 31, 2018 - $125.3 million). The 2017 Revolver is collateralized by five of the Company's vessels, together with other related security. The total net book value of the five vessels as at September 30, 2019 was $140.0 million (December 31, 2018 - $192.6 million). The 2017 Revolver requires that the Company maintain a minimum hull coverage ratio of 125% of the total outstanding drawn balance for the facility period. Such requirement is assessed on a semi-annual basis with reference to vessel valuations compiled by two or more agreed upon third parties. Should the ratio drop below the required amount, the lender may request that the Company either prepay a portion of the loan in the amount of the shortfall or provide additional collateral in the amount of the shortfall, at the Company's option. As of September 30, 2019, the hull coverage ratio was 243% (December 31, 2018 - 163%). The vessel values used in this ratio are appraised values provided by third parties where available or prepared by the Company based on second-hand sale and purchase market data. A decline in the tanker market could negatively affect the ratio. In addition, the Company is required to maintain minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) of $35.0 million and at least 5% of the Company's total consolidated debt.

In January 2016, the Company entered into a $894.4 million long-term debt facility (or the 2016 Debt Facility), consisting of both a term loan of $98.5 million and a revolving credit component of $292.7 million, which are scheduled to mature in December 2020 and January 2021, respectively, and which had a total outstanding balance of $391.2 million as at September 30, 2019 (December 31, 2018 - $450.3 million). The 2016 Debt Facility is collateralized by 29 of the Company’s vessels, together with other related security. The total net book value of the 29 vessels as at September 30, 2019 was $930.9 million (December 31, 2018 - $972.5 million). The 2016 Debt Facility also requires that the Company maintain a minimum hull coverage ratio of 125% of the total outstanding drawn balance for the facility period. Such requirement is assessed on a semi-annual basis with reference to vessel valuations compiled by two or more agreed upon third parties. Should the ratio drop below the required amount, the lender may request that the Company either prepay a portion of the loan in the amount of the shortfall or provide additional collateral in the amount of the shortfall, at the Company’s option. As at September 30, 2019, the hull coverage ratio was 192% (December 31, 2018 - 137%). The vessel values used in this ratio are appraised values provided by third parties where available or prepared by the Company based on second-hand sale and purchase market data. A decline in the tanker market could negatively affect the ratio. In addition, the Company is required to maintain minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) of $35.0 million and at least 5.0% of the Company’s total consolidated debt.

The Company’s remaining two term loans, with a total outstanding balance of $150.4 million as at September 30, 2019 (December 31, 2018 - $166.4 million), which are scheduled to mature between October 2020 and August 2021, are guaranteed by Teekay Corporation (or Teekay) and are collateralized by six of the Company’s vessels, together with other related security. One of the term loans contains covenants that require Teekay to maintain the greater of (a) free cash (cash and cash equivalents) and undrawn committed revolving credit lines with at least six months to maturity of at least $50.0 million and (b) an aggregate of free cash and undrawn committed revolving credit lines with at least six months to maturity of at least 5.0% of Teekay’s total consolidated debt (excluding the debt of Teekay LNG Partners L.P., (or TGP) and its subsidiaries and the Company and its subsidiaries that are non-recourse to Teekay). The other term loan requires Teekay and the Company collectively to maintain the greater of (a) free cash (cash and cash equivalents) of at least $100.0 million and (b) an aggregate of free cash and undrawn committed revolving credit lines with at least six months to maturity of at least 7.5% of Teekay's total consolidated debt (excluding the debt of TGP and its subsidiaries).

As of the date these consolidated financial statements were issued, the Company was in compliance with all covenants in respect of the Revolvers and term loans. Teekay has also advised the Company that Teekay is in compliance with all covenants relating to the revolving credit facilities and term loans to which the Company is a party.
The weighted-average interest rate on the Company’s long-term debt as at September 30, 2019 was 4.2% (December 31, 2018 - 4.6%). This rate does not reflect the effect of the Company’s interest rate swap agreements (note 9).
The aggregate annual long-term principal repayments required to be made by the Company under the Revolvers and term loans subsequent to September 30, 2019 are $25.4 million (remainder of 2019), $101.8 million (2020), $426.6 million (2021) and $59.1 million (2022).


8


7. Short-Term Debt

In November 2018, Teekay Tankers Chartering Pte. Ltd. (or TTCL) a wholly-owned subsidiary of the Company and a manager of the Company's RSAs entered into a working capital loan facility agreement (or the Working Capital Loan), which initially provided available aggregate borrowings of up to $40.0 million for TTCL, and which was subsequently increased to $55.0 million, effective June 2019. Proceeds of the Working Capital Loan are used to provide working capital in relation to certain vessels trading in the RSAs and to fund pooling operations. The Working Capital Loan had an initial maturity date in August 2019, but is continually extended for further periods of six months thereafter until the lender gives notice in writing that no further extensions shall occur. Interest payments are based on LIBOR plus a margin of 3.5%. The Working Capital Loan is collateralized by the assets of TTCL. The Working Capital Loan requires the Company to maintain its paid-in capital contribution to the RSAs and the retained distributions of the RSA participants in an amount equal to the greater of (a) an amount equal to the minimum average capital contributed by the RSA participants per vessel in respect of the RSA (including cash, bunkers or other working capital contributions and amounts accrued to the RSA participants but unpaid) and (b) $20.0 million. As at September 30, 2019, $50.0 million (December 31, 2018 - nil) was owing under this facility, and the effective interest rate on the facility was 5.5% (December 31, 2018 - nil). As of the date these consolidated financial statements were issued, the Company was in compliance with all covenants in respect of this facility.


9

TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)



8. Operating Leases and Obligations Related to Finance Leases
Operating Leases
The Company charters-in vessels from other vessel owners on time-charter contracts, whereby the vessel owner provides use and technical operation of the vessel for the Company. A time charter-in contract is typically for a fixed period of time, although in certain cases, the Company may have the option to extend the charter. The Company typically pays the owner a daily hire rate that is fixed over the duration of the charter. The Company is generally not required to pay the daily hire rate during periods the vessel is not able to operate.
The Company has determined that all of its time charter-in contracts contain both a lease component (lease of the vessel) and a non-lease component (technical operation of the vessel). The Company has allocated the contract consideration between the lease component and non-lease component on a relative standalone selling price basis. The standalone selling price of the non-lease component has been determined using a cost-plus approach, whereby the Company estimates the cost to technically operate the vessel using cost benchmarking studies prepared by a third party, when available, or internal estimates when not available, plus a profit margin. The standalone selling price of the lease component has been determined using an adjusted market approach, whereby the Company calculates a rate excluding the operating component based on a market time-charter rate information from published broker estimates, when available, or internal estimates when not available. Given that there are no observable standalone selling prices for either of these two components, judgment is required in determining the standalone selling price of each component. The discount rate of the lease is determined using the Company’s incremental borrowing rate, which is based on the fixed interest rate the Company could obtain when entering into a secured loan facility of similar terms.
With respect to time charter-in contracts with an original term of more than one year, for the three and nine months ended September 30, 2019, the Company incurred $6.4 million and $17.4 million of time-charter hire expense related to four time charter-in contracts, of which $3.6 million and $9.7 million were allocable to the lease component and $2.8 million and $7.7 million were allocable to the non-lease component. The $3.6 million and $9.7 million allocable to the lease component approximate the cash paid for the amounts included in lease liabilities and reflected as a reduction in operating cash flows for the three and nine months ended September 30, 2019. Three of these time charter-in contracts include an option to extend the charter for an additional one-year term. Since it is not reasonably certain that the Company will exercise the options, the lease components of the options are not recognized as part of the right-of-use assets and lease liabilities. As at September 30, 2019, the weighted-average remaining lease term and weighted-average discount rate for these time charter-in contracts were 1.5 years and 5.58%, respectively.
The Company has elected to recognize the lease payments of short-term leases in the statement of loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred, which is consistent with the recognition of payment for the non-lease component. Short-term leases are leases with an original term of one year or less, excluding those leases with an option to extend the lease for greater than one year or an option to purchase the underlying asset that the lessee is deemed reasonably certain to exercise. For the three and nine months ended September 30, 2019, the Company incurred $4.2 million and $13.4 million of time-charter hire expense related to time charter-in contracts classified as short-term leases, respectively.
During the nine months ended September 30, 2019, the Company chartered in two LR2 vessels and one Aframax vessel for periods of 24 months, which resulted in the Company recognizing right-of-use assets of $14.6 million and $7.8 million on the lease commencement dates for the LR2 vessels and Aframax vessel, respectively.
A maturity analysis of the Company’s operating lease liabilities from time charter-in contracts (excluding short-term leases) as at September 30, 2019 is as follows:
 
Lease
Commitment
 
Non-Lease Commitment
 
Total
Commitment
 
$
 
$
 
$
As at September 30, 2019
 
 
 
 
 
Payments:
 
 
 
 
 
  October to December 2019
4,352

 
3,445


7,797

  2020
16,956

 
13,406

 
30,362

  2021
3,315

 
2,585


5,900

Total payments
24,623

 
19,436

 
44,059

Less: imputed interest
(1,028
)
 
 
 
 
Carrying value of operating lease liabilities
23,595

 
 
 
 

As at September 30, 2019, minimum commitments to be incurred by the Company under short-term time charter-in contracts, were approximately $4.3 million (remainder of 2019) and $2.7 million (2020). As at December 31, 2018, minimum commitments to be incurred by the Company relating to eight chartered-in vessels accounted for as operating leases, including three workboats for the Company's lightering support services, were approximately $36.9 million (2019), $23.5 million (2020) and $2.0 million (2021).



10

TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)



Obligations Related to Finance Leases
 
As at
 
As at
 
September 30, 2019
 
December 31, 2018
 
$
 
$
Total obligations related to finance leases
420,934

 
375,289

Less: current portion
(24,875
)
 
(20,896
)
Long-term obligations related to finance leases
396,059

 
354,393

In May 2019, the Company completed a $63.7 million sale-leaseback financing transaction with a financial institution relating to two of the Company's Suezmax tankers, Aspen Spirit and Cascade Spirit.
In November 2018, the Company completed an $84.7 million sale-leaseback financing transaction with a financial institution relating to four of the Company's tankers, consisting of two Aframax tankers, one Suezmax tanker and one LR2 product tanker, the Explorer Spirit, Navigator Spirit, Pinnacle Spirit and Trysil Spirit.
In September 2018, the Company completed a $156.6 million sale-leaseback financing transaction with a financial institution relating to six of the Company's Aframax tankers, the Blackcomb Spirit, Emerald Spirit, Garibaldi Spirit, Peak Spirit, Tarbet Spirit and Whistler Spirit.
In July 2017, the Company also completed a $153.0 million sale-leaseback financing transaction with a financial institution relating to four of the Company's Suezmax tankers, the Athens Spirit, Beijing Spirit, Moscow Spirit and Sydney Spirit.
Under these arrangements, the Company transferred the vessels to subsidiaries of the financial institutions (or collectively, the Lessors) and leased the vessels back from the Lessors on bareboat charters ranging from 9- to 12-year terms. The Company is obligated to purchase six of the Aframax vessels and two of the Suezmax vessels upon maturity of their respective bareboat charters. The Company also has the option to purchase each of the 16 tankers at various times starting between July 2020 and November 2021 until the end of their respective lease terms.
The Company consolidates 14 of the 16 Lessors for financial reporting purposes as VIEs. The Company understands that these vessels and lease operations are the only assets and operations of the Lessors. The Company operates the vessels during the lease terms, and as a result, is considered to be the Lessors' primary beneficiary.
The liabilities of the 14 Lessors are loans and are non-recourse to the Company. The amounts funded to the 14 Lessors in order to purchase the vessels materially match the funding to be paid by the Company's subsidiaries under these lease-back transactions. As a result, the amounts due by the Company's subsidiaries to the 14 Lessors considered as VIEs have been included in obligations related to finance leases as representing the Lessors' loans.
Subsequent to the adoption of ASU 2016-02 on January 1, 2019, sale and leaseback transactions where the lessee has a purchase obligation are treated as a failed sale. Consequently, the Company has not derecognized the Aspen Spirit and Cascade Spirit and continues to depreciate the assets as if it was the legal owner. Proceeds received from the sale are set up as an obligation related to finance lease and bareboat charter hire payments made by the Company to the Lessor are allocated between interest expense and principal repayments on the obligation related to finance lease.
The bareboat charters related to these vessels require that the Company maintain a minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) of $35.0 million and at least 5.0% of the Company's consolidated debt and obligations related to finance leases (excluding applicable security deposits reflected in restricted cash - long-term on the Company's consolidated balance sheets).
Four of the bareboat charters require the Company to maintain, for each vessel, a minimum hull coverage ratio of 90% of the total outstanding principal balance during the first three years of the lease period and 100% of the total outstanding principal balance thereafter. As at September 30, 2019, this ratio was approximately 121% (December 31, 2018 - 101%).
Six of the bareboat charters require the Company to maintain, for each vessel, a minimum hull coverage ratio of 75% of the total outstanding principal balance during the first year of the lease period, 78% for the second year, 80% for the following two years and 90% of the total outstanding principal balance thereafter. As at September 30, 2019, this ratio was approximately 113% (December 31, 2018 - 91%).
Four of the bareboat charters also require the Company to maintain, for each vessel, a minimum hull overage ratio of 100% of the total outstanding principal balance. As at September 30, 2019, this ratio was approximately 153% (December 31, 2018 - 122%).
The remaining two bareboat charters also require the Company to maintain, for each vessel, a minimum hull coverage ratio of 75% of the total outstanding principal balance during the first year of the lease period, 78% for the second year, 80% for the following two years and 90% of the total outstanding principal balance thereafter. As at September 30, 2019, this ratio was approximately 108% (December 31, 2018 - nil).

11

TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)



Such requirement is assessed annually with reference to vessel valuations compiled by one or more agreed upon third parties. As of the date these consolidated financial statements were issued, the Company was in compliance with all covenants in respect of its obligations related to finance leases.
The weighted-average interest rate on the Company’s obligations related to finance leases as at September 30, 2019 was 7.7% (December 31, 2018 - 7.5%).
As at September 30, 2019 and December 31, 2018, the Company's total remaining commitments related to the financial liabilities of these Suezmax, Aframax and LR2 product tankers were approximately $615.9 million (December 31, 2018 - $557.1 million) , including imputed interest of $195.0 million (December 31, 2018 - $181.8 million), repayable from 2019 through 2030, as indicated below:
 
 
Commitments
Year
 
September 30, 2019
December 31, 2018
Remainder of 2019
 
14,242

47,962

2020
 
56,364

47,373

2021
 
56,202

47,237

2022
 
56,193

47,230

2023
 
56,184

47,222

Thereafter
 
376,749

320,064




12

TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)



9. Derivative Instruments
Interest rate swap agreements

The Company uses derivative instruments in accordance with its overall risk management policies. The Company enters into interest rate swap agreements which exchange a receipt of floating interest for a payment of fixed interest to reduce the Company’s exposure to interest rate variability on its outstanding floating-rate debt. The Company has not designated, for accounting purposes, its interest rate swaps as cash flow hedges of its U.S. Dollar LIBOR-denominated borrowings.

As at September 30, 2019, the Company was committed to the following interest rate swap agreements:
 
 
Interest Rate
 
Notional Amount
 
Fair Value / Carrying Amount of Asset
 
Fair Value /Carrying Amount of Liability
 
Remaining Term
 
Fixed Interest Rate
 
 Index
 
$
 
$
 
$
 
(years)
 
(%) (1)
LIBOR-Based Debt:
 
 
 
 
 
 
 
 
 
 
 
U.S. Dollar-denominated interest rate swaps (2)
LIBOR
 
57,852

 
167

 

 
1.3
 
1.46
U.S. Dollar-denominated interest rate swaps
LIBOR
 
150,000

 
383

 
49

 
1.3
 
1.55
U.S. Dollar-denominated interest rate swaps
LIBOR
 
50,000

 
365

 

 
1.3
 
1.16
 
(1)
Excludes the margin the Company pays on its variable-rate debt, which, as of September 30, 2019, ranged from 0.30% to 3.50%.
(2)
Notional amount reduces quarterly.

The Company is potentially exposed to credit loss in the event of non-performance by the counterparty to the interest rate swap agreements in the event that the fair value results in an asset being recorded. In order to minimize counterparty risk, the Company only enters into interest rate swap agreements with counterparties that are rated A– or better by Standard & Poor’s or A3 or better by Moody’s at the time transactions are entered into.
Forward freight agreements
The Company uses forward freight agreements (or FFAs) in non-hedge-related transactions to increase or decrease its exposure to spot market rates, within defined limits. Net gains and losses from FFAs are recorded within realized and unrealized gain (loss) on derivative instruments in the Company's consolidated statements of loss.
The following table presents the location and fair value amounts of derivative instruments, segregated by type of contract, on the Company’s consolidated balance sheets.
 
Current portion of derivative assets
 
Derivative assets
 
Accounts receivable (Accrued liabilities)
 
Current portion of derivative liabilities
 
Derivative liabilities
 
$
 
$
 
$
 
$
 
 
As at September 30, 2019


 


 

 


 
 
     Interest rate swap agreements
833

 
82

 
365

 

 
(49
)
     Forward freight agreements
1,045

 

 

 

 

 
1,878

 
82

 
365

 

 
(49
)
 
 
 
 
 
 
 
 
 
 
As at December 31, 2018
 
 
 
 
 
 
 
 
 
     Interest rate swap agreements
2,905

 
2,973

 
422

 

 

Forward freight agreements

 

 
(3
)
 
(57
)
 

 
2,905

 
2,973

 
419

 
(57
)
 


Realized and unrealized gains (losses) relating to the interest rate swaps and FFAs are recognized in earnings and reported in realized and unrealized gain (loss) on derivative instruments in the Company’s consolidated statements of loss as follows:

13

TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)



 
Three Months Ended
 
Three Months Ended
 
September 30, 2019
 
September 30, 2018
 
Realized gains
Unrealized (losses) gains
Total
 
Realized gains (losses)
Unrealized
gains (losses)
Total
 
$
$
$
 
$
$
$
Interest rate swap agreements
613

(541
)
72

 
711

13

724

Forward freight agreements
435

946

1,381

 
(119
)
(9
)
(128
)
 
1,048

405

1,453

 
592

4

596

 
 
 
 
 
 
 
 
 
Nine Months Ended
 
Nine Months Ended
 
September 30, 2019
 
September 30, 2018
 
Realized gains
Unrealized (losses) gains
Total
 
Realized gains
(losses)
Unrealized gains
Total
 
$
$
$
 
$
$
$
Interest rate swap agreements
2,395

(5,010
)
(2,615
)
 
1,575

3,262

4,837

Forward freight agreements
393

1,050

1,443

 
(137
)
25

(112
)
 
2,788

(3,960
)
(1,172
)
 
1,438

3,287

4,725


10. Other Income
The components of other income are as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
2018
 
$
 
$
 
$
$
Foreign exchange gain
918

 
1,251

 
1,100

6,025

Other income
15

 

 
82

49

Total
933

 
1,251

 
1,182

6,074




14

TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)



11.
Freight Tax and Other Tax Expenses

The following table reflects changes in uncertain tax positions relating to freight tax liabilities, which are recorded in other long-term liabilities on the Company's consolidated balance sheets:
 
Nine Months Ended September 30
 
2019
$
 
2018
$
Balance of unrecognized tax benefits as at January 1
32,059

 
26,054

     Increases for positions related to the current year
2,067

 
2,099

     Changes for positions taken in prior years
2,114

 
1,852

     Decreases related to statute of limitations

 
(93
)
Balance of unrecognized tax benefits as at September 30
36,240

 
29,912

The Company does not presently anticipate its uncertain tax positions will significantly increase in the next 12 months; however, this is dependent on the jurisdictions of the trading activity of its vessels. The Company reviews its freight tax obligations on a regular basis and may update its assessment of its tax positions based on available information at that time. Such information may include legal advice as to applicability of freight taxes in relevant jurisdictions. Freight tax regulations are subject to change and interpretation; therefore, the amounts recorded by the Company may change accordingly.

12. Financial Instruments
a.
Fair Value Measurements
 
For a description of how the Company estimates fair value and for a description of the fair value hierarchy levels, see Item 18 - Financial Statements: Note 13 to the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2018.

The following table includes the estimated fair value and carrying value of those assets and liabilities that are measured at fair value on a recurring basis, as well as the estimated fair value of the Company’s financial instruments that are not accounted for at the fair value on a recurring basis. 
 
 
 
 
September 30, 2019
 
December 31, 2018
 
 
Fair
Value
Hierarchy
Level
 
Carrying
Amount
Asset /
(Liability)
$
 
Fair
Value
Asset /
(Liability)
$
 
Carrying
Amount
Asset /
(Liability)
$
 
Fair
Value
Asset /
(Liability)
$
Recurring:
 
 
 
 
 
 
 
 
 
 
Cash, cash equivalents and restricted cash
 
Level 1
 
82,483

 
82,483

 
60,507

 
60,507

Derivative instruments (note 9)
 
 
 
 
 
 
 
 
 
 
     Interest rate swap agreements (1)
 
Level 2
 
866

 
866

 
5,878

 
5,878

     Forward freight agreements (1)
 
Level 2
 
1,045

 
1,045

 
(57
)
 
(57
)
 
 
 
 
 
 
 
 
 
 
 
Other:
 
 
 
 
 
 
 
 
 
 
Short-term debt (note 7)
 
Level 2
 
(50,000
)
 
(50,000
)
 

 

Advances to equity-accounted for joint venture
 
(2)
 
9,930

 
(2)

 
9,930

 
(2)

Long-term debt, including current portion (note 6)
 
Level 2
 
(608,960
)
 
(604,434
)
 
(735,406
)
 
(723,031
)
Obligations related to finance leases, including current portion (note 8)
 
Level 2
 
(420,934
)
 
(451,145
)
 
(375,289
)
 
(377,652
)
 
(1)
The fair value of the Company’s interest rate swap agreements and FFAs at September 30, 2019 and December 31, 2018 excludes accrued interest income and expenses which are recorded in accounts receivables and accrued liabilities, respectively, on the unaudited consolidated balance sheets.
(2)
The advances to its equity-accounted joint venture, together with the Company’s investment in the equity-accounted joint venture, form the net aggregate carrying value of the Company’s interests in the equity-accounted joint venture in these consolidated financial statements. The fair values of the individual components of such aggregate interests as at September 30, 2019 and December 31, 2018 were not determinable.




15

TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)



b.
Financing Receivables
The following table contains a summary of the Company’s financing receivables by type and the method by which the Company monitors the credit quality of its financing receivables on a quarterly basis.
 
 
 
 
September 30, 2019
 
December 31, 2018
Class of Financing Receivable
Credit Quality Indicator
 
Grade
$
 
$
Advances to equity-accounted joint venture
Other internal metrics
 
Performing
9,930

 
9,930

Total
 
 
 
9,930

 
9,930


13. Capital Stock and Equity-Based Compensation
The authorized capital stock of the Company at September 30, 2019 was 100,000,000 shares of preferred stock (December 31, 2018 - 100,000,000), with a par value of $0.01 per share, 485,000,000 shares of Class A common stock (December 31, 2018 - 485,000,000), with a par value of $0.01 per share, and 100,000,000 shares of Class B common stock (December 31, 2018 - 100,000,000), with a par value of $0.01 per share. A share of Class A common stock entitles the holder to one vote per share while a share of Class B common stock entitles the holder to five votes per share, subject to a 49% aggregate Class B common stock voting power maximum. As of September 30, 2019, the Company had 232.0 million shares of Class A common stock (December 31, 2018 – 231.6 million), 37.0 million shares of Class B common stock (December 31, 2018 – 37.0 million) and no shares of preferred stock (December 31, 2018 – nil) issued and outstanding.

During March 2019, the Company granted, under the Teekay Tankers Ltd. 2007 Long-Term Incentive Plan, a total of 159,375 shares of Class A common stock with an aggregate value of $0.2 million and 0.5 million stock options with an exercise price of $1.00 per share to the Company’s non-management directors as part of their annual compensation for 2018. During March 2018, 0.5 million stock options with an exercise price of $1.22 per share were granted to non-management directors of the Company. These stock options have a ten-year term and vest immediately. For the nine months ended September 30, 2019 and 2018, the compensation relating to the granting of such stock and stock options has been included in general and administrative expenses in the amount of $0.3 million and $0.4 million, respectively.

The Company also grants stock options and restricted stock units as incentive-based compensation under the Teekay Tankers Ltd. 2007 Long-Term Incentive Plan to the officers of the Company and certain employees of Teekay subsidiaries that provide services to the Company. The Company measures the cost of such awards using the grant date fair value of the award and recognizes that cost, net of estimated forfeitures, over the requisite service period. The requisite service period consists of the period from the grant date of the award to the earlier of the date of vesting or the date the recipient becomes eligible for retirement. For stock-based compensation awards subject to graded vesting, the Company calculates the value for the award as if it was one single award with one expected life and amortizes the calculated expense for the entire award on a straight-line basis over the requisite service period. The compensation cost of the Company's stock-based compensation awards is reflected in general and administrative expenses in the Company’s consolidated statements of loss.
During March 2019, the Company granted 1.4 million (2018 - 0.7 million) stock options with an exercise price of $1.00 (2018 - $1.22) per share to the officers of the Company and certain employees of Teekay subsidiaries that provide services to the Company. Each stock option has a ten-year term and vests equally over three years from the grant date.
The weighted-average fair value of the stock options granted in 2019 to non-management directors, officers and certain employees of Teekay subsidiaries that provide services to the Company was $0.35 (2018 - $0.35) per option, estimated on the grant date using the Black-Scholes option pricing model. The following assumptions were used in computing the fair value of the stock options granted: expected volatility of 48.7% (2018 - 48.7%); expected life of five years (2018 - five years); dividend yield of 3.0% (2018 - 5.5%); and risk-free interest rate of 2.4% (2018 - 2.6%). The expected life of the stock options granted was estimated using the historical exercise behavior of employees of Teekay that receive stock options from Teekay. The expected volatility was based on historical volatility of the Company's share price as calculated using historical data during the five years prior to the grant date.
During March 2019, the Company also granted 0.6 million (2018 - 0.8 million) restricted stock units to the officers of the Company and certain employees of Teekay subsidiaries that provide services to the Company with an aggregate fair value of $0.6 million (2018 - $0.9 million). Each restricted stock unit is equal to one share of the Company’s common stock plus reinvested distributions from the grant date to the vesting date. The restricted stock units vest equally over three years from the grant date. Any portion of a restricted stock unit award that is not vested on the date of the recipient’s termination of service is cancelled, unless the recipient's termination arises as a result of the recipient’s retirement and, in this case, the restricted stock unit award will continue to vest in accordance with the vesting schedule. Upon vesting, the value of the restricted stock unit awards, net of withholding taxes, is paid to each recipient in the form of common stock.
During the three and nine months ended September 30, 2019 and 2018, the Company recorded $0.2 million and $0.9 million (2018 - $0.2 million and $0.8 million), respectively, of expenses related to the restricted stock units and stock options. During the nine months ended September 30, 2019, a total of 0.4 million restricted stock units (2018 - 0.3 million) with a market value of $0.5 million (2018 - $0.3 million) vested and were paid to the grantees by issuing 0.3 million shares (2018 - 0.2 million shares) of Class A common stock, net of withholding taxes.


16

TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)



14.
Related Party Transactions
Management Fee - Related and Other

a.
The Company's operations are conducted in part by its subsidiaries, which receive services from Teekay's wholly-owned subsidiary, Teekay Shipping Ltd. (or the Manager, as successor by merger to Teekay Tankers Management Services Ltd.) and its affiliates. The Manager provides various services under a long-term management agreement (the Management Agreement). Commencing October 1, 2018, the Company elected to receive commercial and technical management services for its owned and leased vessels (other than certain former Teekay Investment Ltd. (or TIL) vessels, which are managed by a third party) from its wholly-owned subsidiaries and no longer contracts these services from the Manager. Prior to this date, the Manager provided these services to the Company, which it did by subcontracting such services from the Company's subsidiary, Teekay Tanker Operations Ltd. (or TTOL) and its affiliates. Certain of the Company’s vessels participate in RSAs that are managed by the Company's subsidiaries, TTOL or Teekay Tankers Chartering Pte Ltd.

b.     Amounts received and (paid by) the Company for related party transactions for the periods indicated were as follows:
 
Three Months Ended
Nine Months Ended
 
September 30, 2019
September 30, 2018
September 30, 2019
September 30, 2018
 
$
$
$
$
Vessel operating expenses - technical management fee (i)

(2,800
)

(8,900
)
Strategic and administrative service fees (ii)
(7,437
)
(7,875
)
(23,179
)
(25,204
)
Secondment fees (iii)
(21
)
(189
)
(120
)
(548
)
LNG service revenues (iv)
(150
)
72

1,979

344

Technical management fee revenue (v)
169

3,490

596

9,819

Service revenues (vi)
100

343

317

758


(i)
The cost of ship management services provided by the Manager has been presented as vessel operating expenses on the Company's consolidated statements of loss. There were no technical management fees paid to a related party for the three and nine months ended September 30, 2019 as the Company elected to receive technical management services for its owned and leased vessels (other than certain former TIL vessels, which are managed by a third party) from its wholly-owned subsidiaries and no longer contracts these services from the Manager.
(ii)
The Manager’s strategic and administrative service fees have been presented in general and administrative expenses, except for fees related to technical management services, which have been presented in vessel operating expenses on the Company’s consolidated statements of loss. The Company’s executive officers are employees of Teekay or subsidiaries thereof, and their compensation (other than any awards under the Company’s long-term incentive plan described in note 13) is set and paid by Teekay or such other subsidiaries. The Company reimburses Teekay for time spent by its executive officers on the Company’s management matters through the strategic portion of the management fee.
(iii)
The Company pays secondment fees for services provided by some employees of Teekay. Secondment fees have been presented in general and administrative expenses, except for fees related to technical management services, which have been presented in vessel operating expenses on the Company's consolidated statements of loss.
(iv)
In November 2016, the Company's ship-to-ship transfer business signed an operational and maintenance subcontract with Teekay LNG Bahrain Operations L.L.C., an entity wholly-owned by TGP, for the Bahrain LNG Import Terminal. The terminal is owned by Bahrain LNG W.I.L., a joint venture for which Teekay LNG Operating L.L.C., an entity wholly-owned by TGP, has a 30% interest. The sub-contract ended in April 2019.
(v)
The Company receives reimbursements from Teekay, which subcontracts technical management services from the Manager. These reimbursements have been presented in general and administrative expenses on the Company's consolidated statements of loss.
(vi)
The Company recorded revenue relating to TTOL's administration of certain RSAs and provision of certain commercial services to participants in the arrangements.