Teekay Tankers .(US:TNK)2023-03-31 17:17PART I Item 1. Identity of Directors, Senior Management and Advisors This item states that the information is not applicable for this report Item 2. Offer Statistics and Expected Timetable This item states that the information is not applicable for this report Item 3. Key Information This section outlines the key risks associated with the company's operations, industry, legal and regulatory environment, information technology, and investment in its securities, highlighting the cyclical and competitive nature of the tanker industry, geopolitical risks, operational hazards, financial leverage, and compliance challenges - The company is a well-known seasoned issuer and an accelerated filer, indicating its size and reporting history68 - The company's financial statements are prepared in accordance with U.S. GAAP and audited by KPMG LLP911 Risk Factors The company faces a broad range of risks, including significant volatility in the tanker market due to supply/demand imbalances, geopolitical events, operational risks inherent in marine transportation, and increasing regulatory and ESG pressures, alongside financial risks and reliance on Teekay Corporation for management services - The tanker industry is cyclical, leading to volatile charter rates and vessel utilization, with 93.7% of net revenues from the spot market in 2022, making the company highly sensitive to spot rate fluctuations3539 - Geopolitical events, such as Russia's invasion of Ukraine, have significantly reshaped global oil trading patterns, increasing tanker demand and rates by rerouting Russian oil exports and European imports, though changes or resolution could reverse these trends3847 - Marine transportation is inherently risky, with potential for accidents, environmental contamination, and business disruption from piracy, terrorism, or public health threats like COVID-19, which could harm reputation and financial results455051 - The company is exposed to interest rate fluctuations on its variable-rate debt and finance lease obligations, totaling $390.0 million as of December 31, 2022, with the transition from LIBOR to SOFR potentially impacting costs919394 - Compliance with environmental regulations (e.g., IMO 2020, ballast water management, GHG emissions) requires significant capital expenditures and operational changes, increasing costs and potentially affecting vessel values and demand120122129 - Teekay Corporation, through its subsidiaries, provides essential management services, and the company's success depends on this relationship, with potential conflicts of interest arising due to shared officers and directors88109110 Item 4. Information on the Company This section provides an overview of Teekay Tankers Ltd., including its history, business operations, fleet composition, strategic objectives, and the regulatory environment it operates within, detailing the company's evolution, its chartering strategy, competitive landscape, and commitment to safety and environmental standards A. History and Development of the Company Teekay Tankers Ltd. was formed in October 2007 by Teekay Corporation, starting with nine Aframax tankers, and by December 31, 2022, its fleet grew to 44 owned/leased, 5 in-chartered, and 1 jointly-owned VLCC, with total capacity increasing from 980,000 dwt to 6,327,900 dwt, including key acquisitions and recent vessel purchase options exercised - Teekay Tankers Ltd. was incorporated in October 2007 by Teekay Corporation148 Fleet Growth (2007 vs. 2022) | Metric | 2007 | 2022 | | :----- | :--- | :--- | | Owned Aframax Tankers | 9 | 44 (owned/leased) | | In-chartered Tankers | - | 5 | | Jointly-owned VLCC | - | 1 | | Total DWT Capacity | 980,000 | 6,327,900 | - Significant acquisitions include the STS transfer business in 2015 and a merger with Tanker Investments Ltd. (TIL) in 2017, adding 18 tankers150152 - In early 2023, the company exercised purchase options for 9 vessels (1 Suezmax, 8 Aframax/LR2) for $164.3 million, and plans to acquire 6 more (5 Suezmax, 1 Aframax/LR2) for $142.8 million by May 2023154 B. Business Overview The company's core business is owning and operating crude oil and refined product tankers, employing a chartering strategy that balances spot market opportunities with fixed-rate contracts and full-service lightering (FSL) to mitigate risks, also providing STS support services and tanker commercial/technical management, with a fleet of 52 vessels as of December 31, 2022, predominantly operating in the spot market - Primary business: Own and operate crude oil and refined product tankers, using a chartering strategy that combines spot market exposure with fixed-rate time charters and FSL contracts158173 - The company also provides Ship-to-Ship (STS) support services and tanker commercial/technical management operations to manage market cyclicality158 Fleet Summary as of December 31, 2022 | Category | Owned and Leased Vessels | Chartered-in Vessels | Total | | :------- | :----------------------- | :------------------- | :---- | | Fixed-rate Suezmax | — | 1 | 1 | | Fixed-rate Aframax/LR2 | 1 | — | 1 | | Spot-rate Suezmax | 25 | — | 25 | | Spot-rate Aframax/LR2 | 18 | 4 | 22 | | Spot-rate VLCC | 1 | — | 1 | | Total Tanker Fleet | 45 | 5 | 50 | | Ship-to-Ship Support Vessels | — | 2 | 2 | | Total Teekay Tankers Fleet | 45 | 7 | 52 | Business Strategies The company's key business strategies include expanding its fleet through accretive acquisitions, tactically managing its mix of spot, fixed-rate, and full-service lightering contracts, and providing superior customer service by maintaining high reliability, safety, environmental, and quality standards - Strategies include fleet expansion via acquisitions, tactical management of charter mix (spot, fixed-rate, FSL), and maintaining high service standards173 Our Chartering Strategy and Participation in the Vessel Revenue Sharing Agreements The company employs a flexible chartering strategy, utilizing spot market, time-charter, and full-service lightering (FSL) contracts to optimize cash flow, with a significant portion of its fleet participating in Revenue Sharing Agreements (RSAs) with third-party owners, which pool vessels for spot market employment and share net revenues based on performance capabilities - Chartering strategy involves a mix of spot market, time-charter, and FSL contracts to maximize cash flow based on market outlook173 - As of December 31, 2022, 43 owned/leased vessels, one joint venture VLCC, and four time-chartered-in vessels operated in the spot market173 - Revenue Sharing Agreements (RSAs) involve 25 Suezmax and 15 Aframax/LR2 tankers from the company's fleet, plus seven third-party vessels, pooling them for spot market operations and sharing net revenues177178 Industry and Competition The company competes in the Suezmax, Aframax, and LR2 product tanker markets, facing competition from other tanker owners and alternative transportation methods, particularly in its U.S. Gulf lightering business, with the tanker industry being cyclical, influenced by global oil supply/demand, refining capacity, and geopolitical events, while supply is driven by newbuilding deliveries, scrapping rates, and financing availability, emphasizing its competitive advantage through high-quality vessels and operational standards - The company competes in Suezmax (125,000-199,999 dwt), Aframax (85,000-124,999 dwt), and LR2 product tanker markets182183 - In the U.S. Gulf lightering business, the company is one of three active STS lightering providers, and one of two offering full-service STS with Aframax tonnage185 - Global oil demand recovered substantially in 2021 and 2022, with further increases expected in 2023, particularly from China, which is positive for tanker tonne-mile demand190191 - As of December 31, 2022, the world Aframax fleet had 680 vessels (46 newbuildings on order), Suezmax had 655 vessels (20 newbuildings), and LR2 had 416 vessels (44 newbuildings)193 Safety, Management of Ship Operations and Administration Safety and environmental compliance are top operational priorities, managed through a three-tiered risk management approach and continuous improvement programs, with the company's safety management system being ISM Code-certified and complying with ISO 9001, ISO 14001, ISO 45001:2018, and MLC 2006 standards, and Teekay Corporation's sustainability report and ESG strategy guiding efforts in emissions reduction, operational efficiency, and strengthening ESG profile - Safety and environmental compliance are top operational priorities, with a three-tiered risk management approach196 - The company's safety management system is ISM Code-certified and complies with ISO 9001, ISO 14001, ISO 45001:2018, and MLC 2006199203 - Teekay's ESG strategy focuses on capital allocation for energy transition, efficient fleet operations, and strengthening its ESG profile, with annual targets set and monitored204 Risk of Loss, Insurance and Risk Management The company's operations inherently carry risks of marine disasters, personal injury, and property losses, and it maintains hull and machinery, protection and indemnity, and other liability insurance, including $1 billion per vessel for pollution, but while current coverage is deemed adequate, there's no guarantee against all risks, timely vessel replacement, or future commercially reasonable rates, especially with increasing environmental regulations - The company carries hull and machinery, protection and indemnity, and other liability insurance, with a maximum pollution coverage of $1 billion per vessel per incident206 - No insurance is carried for loss of revenues due to vessel off-hire time206 - Insurance costs, particularly for protection and indemnity, increased significantly in 2022 and are expected to continue rising in 2023208 Flag, Classification, Audits and Inspections The company's vessels are registered with reputable flag states and are 'Classed' by major classification societies (DNV, Lloyd's Register, American Bureau of Shipping), ensuring compliance with design, build, and maintenance standards through regular surveys and audits, with a comprehensive internal inspection scheme and customer vetting inspections further ensuring adherence to high operational and safety standards, providing a competitive advantage - Vessels are registered with reputable flag states and 'Classed' by major classification societies (DNV, Lloyd's Register, American Bureau of Shipping)211 - Compliance is ensured through a five-year special survey cycle, annual/intermediate surveys, flag state inspections, port state checks, and internal audits212213214 - Customer vetting inspections under the Ship Inspection Report Program (SIRE) are also conducted to ensure vessels meet charterer safety requirements215 Regulations The company's operations are subject to extensive and evolving international, national, and local environmental and safety regulations, including those from the IMO, EU, and U.S., covering oil spills, emissions (SOx, NOx, GHG), ballast water management, ship recycling, and vessel security, with compliance requiring significant capital expenditures and operational adjustments, and potential for increased costs and liabilities - All company tankers are double-hulled, complying with IMO regulations for pollution prevention220 - IMO Annex VI regulations impose limits on SOx and NOx emissions, with a global sulfur cap of 0.50% m/m effective January 1, 2020, and the company switched to compliant low sulfur fuel without installing scrubbers on most of its fleet224226 - The IMO's Ballast Water Management Convention requires approved Ballast Water Treatment Systems (BWTS) by September 8, 2024, and as of December 31, 2022, 33 vessels have completed upgrades at an average cost of $1.3 million per vessel, with the remainder expected by July 2024232 - New IMO regulations (EEXI and CII) for GHG emission reduction became effective January 1, 2023, requiring technical and operational measures to improve efficiency274 - U.S. regulations, including OPA 90 and CERCLA, impose strict liability for oil and hazardous substance spills, and the company maintains $1 billion pollution liability coverage per incident and has USCG-approved vessel response plans243245249 - The EU has adopted regulations on low sulfur fuel, GHG emissions monitoring (MRV), and ship recycling, while China has also established Domestic Emission Control Areas (DECAs) with sulfur content limits239240241256260 C. Organizational Structure As of December 31, 2022, Teekay Corporation held a 28.5% economic interest and a 53.7% voting interest in Teekay Tankers Ltd. through its ownership of Class A and Class B common stock, with Class B common stock carrying five votes per share, capped at 49% of total voting power, ensuring Teekay Corporation's control over the company - As of December 31, 2022, Teekay Corporation held a 28.5% economic interest and a 53.7% voting interest in the company279 - Class B common stock has five votes per share, with aggregate voting power capped at 49% of total outstanding Class A and Class B common stock, ensuring Teekay Corporation's control280 D. Property, Plant and Equipment The company's primary material property consists of its vessels and related equipment, with further details on these assets and any major encumbrances provided in the financial statements - The company's material property is primarily its vessels and related equipment282 E. Taxation of the Company This section discusses the U.S. and non-U.S. tax considerations for the company, highlighting the potential for U.S. federal income tax on U.S. Source International Transportation Gross Income if the Section 883 Exemption does not apply, confirming the company's exemption from Marshall Islands taxation, and noting exposure to taxes in other non-U.S. jurisdictions and the potential impact of global tax reforms like Pillar Two - A substantial portion of the company's Transportation Income is from non-U.S. sources and is not subject to U.S. federal income tax286 - The company believes it qualifies for the Section 883 Exemption, which exempts U.S. Source International Transportation Gross Income from U.S. federal income tax, based on its Marshall Islands organization and stock trading on a U.S. established securities market287289 - If the Section 883 Exemption does not apply, the company could be subject to a 4% U.S. federal income tax on U.S. Source International Transportation Gross Income, estimated at $10.2 million for 2022295 - The company and its controlled affiliates are not subject to income, capital gains, or profits taxation under current Marshall Islands law296 - The company is subject to taxation in certain non-U.S. jurisdictions and monitors potential impacts from global tax reforms like the OECD's Pillar Two, which could impose a minimum 15% corporate tax rate297145 Item 4A. Unresolved Staff Comments This item indicates that there are no unresolved staff comments Item 5. Operating and Financial Review and Prospects This section provides a detailed discussion of the company's financial condition and results of operations, highlighting significant developments in 2022 and early 2023, key financial and operational terms, and a comparison of financial performance between 2022 and 2021, covering revenue, expenses, market conditions, liquidity, capital resources, and critical accounting estimates General Teekay Tankers Ltd., formed by Teekay Corporation in 2007, operates crude oil and product tankers with a chartering strategy balancing spot market opportunities and fixed-rate contracts, also providing ship-to-ship (STS) support and management services to mitigate market cyclicality, while Teekay Corporation maintains majority voting power - The company's business involves owning and operating crude oil and product tankers, employing a chartering strategy that balances spot market exposure with fixed-rate time charters and FSL contracts300 - Teekay Corporation holds a majority of the voting power of the company's common stock302 Significant Developments in 2022 and Early 2023 Key developments include the impact of the Ukraine conflict and associated sanctions on global oil trade, the diminishing effect of the COVID-19 pandemic on oil demand, vessel sales generating gains, new time charter-in and time charter-out contracts, and significant sale-leaseback financing transactions, with the company also exercising vessel purchase options and arranging a new secured revolving credit facility - The Russian invasion of Ukraine and subsequent sanctions significantly impacted global oil trade routes, leading to increased tanker demand and rates303 - The COVID-19 pandemic's impact on oil demand diminished in 2022, with no material business interruptions experienced by the company305 - In 2022, the company sold one Suezmax and three Aframax/LR2 tankers for $68.4 million, realizing an aggregate gain of $9.4 million307308722 - New time charter-in contracts were secured for Aframax/LR2 and Suezmax tankers, with deliveries extending into early 2023309310311312 - Two sale-leaseback financing transactions in 2022 totaled $291.3 million for 13 vessels, and in early 2023, the company exercised purchase options for 15 vessels under sale-leaseback arrangements for a total of $307.1 million314315316317 - A new secured revolving credit facility for up to $350.0 million is expected to be completed in Q2 2023 to refinance 19 vessels318 Important Financial and Operational Terms and Concepts This section defines key financial and operational terms used in analyzing the company's performance, including Revenues, Voyage Expenses, Net Revenues (non-GAAP), Vessel Operating Expenses, Income (Loss) from Vessel Operations, Dry Docking, Depreciation and Amortization, Time-Charter Equivalent (TCE) Rates, Revenue Days, and Average Number of Ships - Net revenues (non-GAAP) are defined as income (loss) from operations before vessel operating expenses, time-charter hire expenses, depreciation and amortization, general and administrative expenses, gain or loss on sale and write-down of assets, and restructuring charges322 - TCE rates, a common industry measure, represent net revenues divided by revenue days, before costs to commercially manage vessels and off-hire bunker expenses328 - Revenue days are total calendar days vessels were in possession, minus off-hire days for major repairs, dry dockings, or surveys, representing days available to earn revenue329 Our Charters The company generates revenue through voyage charters (short-term, spot market rates, owner pays voyage expenses) and time charters (fixed period, generally fixed daily rate, customer pays voyage expenses), with the table illustrating the primary distinctions between these contract types Primary Distinctions Between Voyage Charter and Time Charter | Feature | Voyage Charter | Time Charter | | :---------------------- | :------------- | :----------- | | Typical contract length | Single voyage | One year or more | | Hire rate basis | Varies | Daily | | Voyage expenses | We pay | Customer pays | | Vessel operating expenses | We pay | We pay | | Off hire | Customer does not pay | Customer does not pay | Summary Financial Data This section presents summary consolidated financial and other data for fiscal years 2022 and 2021, including GAAP and non-GAAP measures, showing significant improvements in revenues, income from operations, and net income in 2022 compared to 2021, alongside changes in balance sheet items and fleet data Summary Consolidated Financial Data (2022 vs. 2021) | Metric (in thousands of U.S. dollars) | 2022 | 2021 | | :------------------------------------ | :--- | :--- | | GAAP Financial Comparison: | | | | Revenues | 1,063,111 | 542,367 | | Income (loss) from operations | 255,949 | (194,095) | | Net income (loss) | 229,086 | (242,372) | | Earnings (loss) per share - diluted | 6.68 | (7.16) | | Cash and cash equivalents | 180,512 | 50,572 | | Total vessels and equipment | 1,296,262 | 1,351,255 | | Total debt | 532,760 | 639,772 | | Total equity | 1,070,006 | 838,412 | | Non GAAP Financial Comparison: | | | | Net revenues | 567,507 | 227,246 | | EBITDA | 363,050 | (103,310) | | Adjusted EBITDA | 348,095 | 3,016 | Average Number of Tankers (2022 vs. 2021) | Tanker Type | 2022 | 2021 | | :---------- | :--- | :--- | | Suezmax | 25.1 | 26.0 | | Aframax / LR2 | 23.8 | 25.6 | | VLCC | 0.5 | 0.5 | Items You Should Consider When Evaluating Our Results of Operations Key factors influencing operating results include the cyclicality and seasonality of tanker markets, the impact of the COVID-19 pandemic (which diminished in 2022), competition in the U.S. Gulf lightering business, industry-wide cost pressures on vessel operating expenses, and the timing of dry dockings and major vessel modifications - Voyage revenues are highly affected by the cyclical and seasonal nature of tanker markets, with stronger performance typically in winter months342 - The U.S. Gulf lightering business faces competition from alternative crude oil delivery methods, potentially limiting earnings342 - Vessel operating and other costs are subject to industry-wide pressures, including a shortfall in qualified personnel and rising commodity prices342 - Dry dockings and major modifications significantly impact revenues due to off-hire days; in 2022, 9 vessels underwent dry docking and 3 had BWTS installations, totaling 561 off-hire days (compared to 611 in 2021)342343 Results of Operations The company experienced a significant turnaround in 2022, reporting $255.9 million in income from operations compared to a $194.1 million loss in 2021, driven by higher spot TCE rates, reduced write-downs, gains from vessel sales, and increased chartered-in fleet activity, with the tanker market remaining strong in late 2022 and early 2023 due to geopolitical shifts and positive supply fundamentals Summary Consolidated income from operations significantly increased to $255.9 million in 2022 from a loss of $194.1 million in 2021, primarily due to higher spot TCE rates, decreased write-downs, gains on vessel sales, and increased chartered-in fleet activity - Income from operations increased by $450.0 million, from a loss of $194.1 million in 2021 to an income of $255.9 million in 2022344 - Key drivers for the increase include: $329.3 million from higher average realized spot TCE rates, $89.3 million from decreased write-downs, and $12.0 million from gains on vessel sales344 Year Ended December 31, 2022 versus Year Ended December 31, 2021 Net revenues surged by 150% to $567.5 million in 2022, driven by higher spot rates and increased FSL activities, while vessel operating expenses decreased by 9% due to vessel sales and lower crewing costs, time-charter hire expenses rose by 98% with new chartered-in vessels, and depreciation and amortization decreased by 7% due to vessel sales and impairments, with the company recording an $8.9 million gain on asset sales/write-downs in 2022, a significant improvement from a $92.4 million loss in 2021 Income Statement Data (2022 vs. 2021) | Metric (in thousands of U.S. dollars) | 2022 | 2021 | % Change | | :------------------------------------ | :--- | :--- | :------- | | Revenues | 1,063,111 | 542,367 | 96% | | Voyage expenses | (495,604) | (315,121) | 57% | | Net revenues | 567,507 | 227,246 | 150% | | Vessel operating expenses | (150,448) | (165,375) | (9)% | | Time-charter hire expenses | (27,374) | (13,799) | 98% | | Depreciation and amortization | (99,033) | (106,084) | (7)% | | General and administrative expenses | (41,769) | (43,715) | (4)% | | Gain (loss) on sale and (write-down) of assets | 8,888 | (92,368) | (110)% | | Restructuring charges | (1,822) | — | —% | | Income (loss) from operations | 255,949 | (194,095) | (232)% | | Interest expense | (35,740) | (35,031) | 2% | | Interest income | 1,338 | 122 | 997% | | Realized and unrealized gain on derivative instruments | 5,179 | 564 | 818% | | Equity income (loss) | 244 | (14,107) | (102)% | | Other income (expense) | 2,645 | (1,756) | (251)% | | Net income (loss) before income tax | 229,615 | (244,303) | (194)% | | Income tax (expense) recovery | (529) | 1,931 | (127)% | | Net income (loss) | 229,086 | (242,372) | (195)% | - Net revenues increased by $325.5 million due to higher average realized spot rates for Suezmax and Aframax/LR2 tankers350 - Gain on sale and (write-down) of assets improved significantly from a $92.4 million loss in 2021 (due to impairments of 7 tankers and 1 ROU asset) to an $8.9 million gain in 2022 (due to sales of 4 tankers and reversal of prior write-downs, partially offset by ROU asset impairments)353 - Equity income improved from a $14.1 million loss in 2021 (due to a write-down of the High-Q joint venture investment) to a $0.2 million gain in 2022, driven by higher spot rates for the VLCC360 Tanker Market Mid-size crude tanker spot rates reached near-record highs in late 2022 and early 2023, driven by geopolitical shifts (Ukraine conflict, Russian oil rerouting), increased Chinese crude imports, and weather-related delays, with global oil demand projected to grow by 2.0 mb/d in 2023, surpassing pre-pandemic levels, with Asia leading demand, and fleet supply fundamentals being very positive, with a record-low orderbook (under 4%) and new environmental regulations (CII) expected to increase inefficiencies, further tightening supply and supporting rates - Mid-size crude tanker spot rates were the second highest on record in Q4 2022 and remained high in Q1 2023, driven by longer voyages, pre-sanction cargo bookings, increased Chinese imports, and weather delays363 - Russia's invasion of Ukraine led to significant rerouting of oil trade, increasing tonne-mile demand for mid-size tankers as Russian oil moved to Asia and Europe sourced from more distant locations364 - Global oil demand is expected to grow by 2.0 mb/d in 2023 to 102.0 mb/d, surpassing pre-pandemic levels, with China accounting for almost half of this growth365 - The global tanker orderbook is at a record low of less than 4% of the existing fleet, with limited new deliveries expected in the next 2-3 years due to full shipyards, and new environmental regulations (CII) are also expected to increase fleet inefficiencies366 Fleet and TCE Rates As of December 31, 2022, the company's fleet comprised 44 owned/leased tankers, 5 time-chartered-in vessels, and a 50% interest in one VLCC, with average TCE rates significantly increasing in 2022 compared to 2021 across all segments, reflecting the strong spot market conditions - As of December 31, 2022, the fleet included 44 owned/leased double-hulled oil/product tankers, 4 Aframax/LR2 and 1 Suezmax time-chartered-in tankers, and a 50% interest in one VLCC368 Average TCE Rates (2022 vs. 2021) | Contract Type | Average TCE per Revenue Day (2022) | Average TCE per Revenue Day (2021) | | :-------------------------------- | :--------------------------------- | :--------------------------------- | | Voyage-charter contracts - Suezmax | $32,257 | $9,639 | | Voyage-charter contracts - Aframax / LR2 | $32,721 | $10,525 | | Time charter-out contracts - Suezmax | $37,611 | $44,678 | | Time charter-out contracts - Aframax / LR2 | $21,070 | $23,934 | | Total Average TCE per Revenue Day | $32,034 | $11,704 | Liquidity and Capital Resources The company's liquidity is primarily derived from cash and cash equivalents, net operating cash flow, and undrawn credit facilities, with net operating cash flow significantly improving in 2022, turning from a $107.3 million outflow in 2021 to a $193.3 million inflow, and total consolidated liquidity increasing to $343.0 million by December 31, 2022, with the company anticipating sufficient liquidity for at least one year, and future fleet renewal expenditures expected to be funded through various financing arrangements Sources and Uses of Capital The company's cash flows are primarily generated from chartering vessels, with volatility influenced by spot market rates, interest rates, working capital, and dry-docking expenditures, with key sources of capital including cash from operations, long-term debt, lease/equity financings, and vessel sales, and primary uses of cash being operating expenses, dry-docking, debt servicing, and potential fleet acquisitions, and the company was in compliance with all debt covenants as of December 31, 2022 - Primary cash sources: chartering vessels (spot and fixed-rate), long-term debt, lease/equity financings, and vessel sales374376 - Primary cash uses: operating expenses, dry-docking, debt servicing, scheduled repayments, and potential fleet acquisitions378 - As of December 31, 2022, the company was in compliance with all covenants under its revolving credit facility, working capital loan, and finance lease obligations377 Cash Flows Net cash flow from operating activities significantly improved, turning from a $107.3 million outflow in 2021 to a $193.3 million inflow in 2022, driven by higher operating earnings and lower dry-docking expenditures, while net financing cash flow decreased by $135.0 million due to increased debt repayments, partially offset by sale-leaseback proceeds, and net investing cash flow increased by $13.1 million, primarily from higher proceeds from vessel sales and lower capital expenditures Consolidated Cash Flows (2022 vs. 2021) | Activity (in thousands of U.S. dollars) | 2022 | 2021 | | :------------------------------------ | :--- | :--- | | Net cash flow provided by (used for) operating activities | 193,265 | (107,312) | | Net cash flow (used for) provided by financing activities | (113,048) | 21,951 | | Net cash flow provided by investing activities | 51,216 | 38,143 | - Net operating cash flow increased by $300.6 million, primarily due to higher operating earnings ($352.3 million increase) and lower dry-docking expenditures ($12.6 million decrease), partially offset by increased working capital outflows ($64.2 million)380 - Net financing cash flow decreased by $135.0 million, mainly due to increased debt repayments ($399.4 million) and working capital facility repayments ($40.0 million), partially offset by sale-leaseback proceeds ($305.2 million)381382 - Net investing cash flow increased by $13.1 million, driven by higher proceeds from vessel sales ($11.6 million increase) and lower capital expenditures ($6.0 million decrease)383 Liquidity Total consolidated liquidity, including cash, cash equivalents, and undrawn credit facilities, increased by $198.2 million to $343.0 million at December 31, 2022, primarily due to sale-leaseback proceeds, net operating cash inflow, and vessel sales, partially offset by reduced revolving credit facility capacity and debt repayments, with the company expecting sufficient liquidity for at least one year, and future fleet renewal funded by existing liquidity and new financing - Total consolidated liquidity increased by $198.2 million to $343.0 million at December 31, 2022 (from $144.8 million at December 31, 2021)386 - The increase was driven by $288.1 million from sale-leaseback transactions, $193.3 million net operating cash inflow, and $69.6 million from vessel sales386 - The company anticipates sufficient liquidity to meet cash requirements for at least one year387 - Approximately 30% of the fleet is 15 years or older, necessitating future fleet renewal, which is expected to be funded by undrawn credit facilities, cash on hand, and new financing388 Contractual Obligations as at December 31, 2022 (in millions of U.S. dollars) | Obligation Type | Total | 2023 | 2024 | 2025 | 2026 | 2027 | Beyond 2027 | | :------------------------------------ | :---- | :--- | :--- | :--- | :--- | :--- | :---------- | | Scheduled repayments of finance leases | 536.5 | 61.0 | 61.9 | 62.8 | 63.7 | 64.8 | 222.3 | | Chartered-in vessels (operating leases) | 162.8 | 53.9 | 36.0 | 30.0 | 18.8 | 11.2 | 12.9 | | Total | 699.3 | 114.9 | 97.9 | 92.8 | 82.5 | 76.0 | 235.2 | Critical Accounting Estimates This section details the critical accounting estimates that require significant judgment and can materially impact financial statements, including revenue recognition (load-to-discharge vs. discharge-to-discharge), vessel depreciation (estimated useful life of 25 years), vessel impairment (based on undiscounted cash flows and fair value, with specific assumptions for charter rates and residual values), and taxes (uncertain tax positions and interpretations of tax laws) Revenue Recognition Revenue from voyage charters is recognized on either a load-to-discharge or discharge-to-discharge basis, depending on whether the customer directs the vessel's use, with this judgment impacting the timing of revenue recognition; for 2022, using a load-to-discharge basis would have decreased income from operations by $15.9 million - Voyage revenue is recognized on a load-to-discharge or discharge-to-discharge basis, with the latter used when the customer directs vessel use395396 - Had revenue from voyages in progress been recognized on a load-to-discharge basis, 2022 income from operations would have decreased by approximately $15.9 million397 Vessel Depreciation Vessels are depreciated on a straight-line basis over an estimated useful life of 25 years, less residual value, with this estimate involving judgment, and a shorter actual useful life would increase depreciation expense and potentially lead to impairment; for example, using a 20-year useful life would have increased 2022 depreciation by approximately $43.8 million - Vessels are depreciated over an estimated useful life of 25 years from delivery, less an estimated residual value400 - Using a 20-year useful life instead of 25 years would have increased 2022 depreciation by approximately $43.8 million401 Vessel Impairment Vessels are reviewed for impairment when carrying value may not be recoverable, comparing it to future undiscounted cash flows, and if impaired, the asset is written down to fair value (appraised values or discounted cash flows), with estimates relying on assumptions for charter rates (including historical averages and discounts for older vessels), utilization, operating expenses, and residual values; as of December 31, 2022, four vessels had market values below carrying values but were not impaired as undiscounted cash flows exceeded carrying values - Vessels are reviewed for impairment if carrying value exceeds future undiscounted cash flows; if so, they are written down to fair value (appraised values or discounted cash flows)402 - Future charter rate estimates are based on existing contracts, prevailing 3-year time-charter rates, and a 10-year historical average of spot rates (excluding outliers like 2013 and 2021), with discounts for vessels aged 15 years or older403 - As of December 31, 2022, four vessels had market values below carrying values but were not impaired because their estimated future undiscounted cash flows exceeded their carrying values407 - Even with a 5% or 10% reduction in estimated future charter rates, these four vessels would not have been impaired at December 31, 2022408 Taxes Tax expenses are based on income, statutory rates, and interpretations of tax regulations, with the company recognizing tax benefits from uncertain tax positions only if 'more-likely-than-not' to be sustained; as of December 31, 2022, total recognized uncertain tax liabilities were $42.0 million, with interest and penalties of $22.3 million, and these amounts are subject to change based on tax authority examinations and evolving tax laws - Tax benefits from uncertain tax positions are recognized only if 'more-likely-than-not' to be sustained upon examination410 - As of December 31, 2022, total recognized uncertain tax liabilities were $42.0 million (down from $45.6 million in 2020), with total interest and penalties of $22.3 million411730731 Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures, Net Revenues, EBITDA, and Adjusted EBITDA, to their most directly comparable GAAP measures, with these metrics used by management and investors to assess fundamental performance and comparability within the shipping industry, excluding disparate effects of financing, capital structure, and non-recurring items Net Revenues Net revenues, a non-GAAP measure, equates revenues from voyage and time charters by including voyage expenses, providing a comparable metric for operational decisions, and is widely used in the shipping industry for performance comparison - Net revenues are defined as income (loss) from operations before vessel operating expenses, time-charter hire expenses, depreciation and amortization, general and administrative expenses, gain or loss on sale and write-down of assets, and restructuring charges412 Reconciliation of Net Revenues to Income (Loss) from Operations (in thousands of U.S. Dollars) | Metric | 2022 | 2021 | | :------------------------------------ | :--- | :--- | | Income (loss) from operations | 255,949 | (194,095) | | Restructuring charges | 1,822 | — | | (Gain) loss on sale and write-down of assets | (8,888) | 92,368 | | General and administrative expenses | 41,769 | 43,715 | | Depreciation and amortization | 99,033 | 106,084 | | Time-charter hire expenses | 27,374 | 13,799 | | Vessel operating expenses | 150,448 | 165,375 | | Net revenues | 567,507 | 227,246 | EBITDA and Adjusted EBITDA EBITDA and Adjusted EBITDA are non-GAAP measures used to compare fundamental performance by excluding interest, taxes, depreciation, amortization, and other non-recurring items, with these metrics aiding management and investors in assessing financial strength and operational health, but should not replace GAAP measures - EBITDA is net income (loss) before interest, taxes, depreciation, and amortization; Adjusted EBITDA further excludes gain/loss on asset sales/write-downs, realized/unrealized derivative gains/losses, equity income/loss, and other income/expenses414 Reconciliation of EBITDA and Adjusted EBITDA to Net Income (Loss) (in thousands of U.S. Dollars) | Metric | 2022 | 2021 | | :------------------------------------ | :--- | :--- | | Net income (loss) | 229,086 | (242,372) | | Depreciation and amortization | 99,033 | 106,084 | | Interest expense, net of interest income | 34,402 | 34,909 | | Income tax expense (recovery) | 529 | (1,931) | | EBITDA | 363,050 | (103,310) | | (Gain) loss on sale and write-down of assets | (8,888) | 92,368 | | Realized (gain) loss on interest rate swaps | (532) | 296 | | Unrealized gain on derivative instruments | (3,163) | (1,432) | | Equity (income) loss | (244) | 14,107 | | Other (income) expense | (2,128) | 1,263 | | Adjusted EBITDA | 348,095 | 3,292 | Item 6. Directors, Senior Management and Employees This section details the company's governance structure, including its Board of Directors and executive officers, their compensation, long-term incentive programs, and board practices, also covering crewing and staff, emphasizing the company's commitment to training and labor relations, and providing information on share ownership by directors and executive officers Directors and Executive Officers of Teekay Tankers Ltd. The Board of Directors consists of five members, with Kevin Mackay as President and CEO and Stewart Andrade as CFO, and several officers and directors also hold positions at Teekay Corporation, leading to potential conflicts of interest, with the board including independent directors, and Sai W. Chu serving as the Audit Committee Chair and financial expert Directors and Executive Officers as of December 31, 2022 | Name | Age | Position | | :------------- | :-- | :-------------------------------- | | Stewart Andrade | 50 | Chief Financial Officer | | Peter Antturi | 64 | Director | | Sai W. Chu | 56 | Director (Chair of Audit Committee) | | Richard T. du Moulin | 76 | Director | | Kenneth Hvid | 54 | Chair | | Kevin Mackay | 54 | President and Chief Executive Officer | | David Schellenberg | 59 | Director | - Kevin Mackay (President and CEO) and Stewart Andrade (CFO) also hold positions at Teekay Corporation, leading to potential conflicts of interest420427432 - The Board has determined that all directors, except Kenneth Hvid, are independent, and Sai W. Chu qualifies as an audit committee financial expert442446 Compensation of Directors and Senior Management Executive officers' compensation (excluding long-term incentives) is set and paid by Teekay Corporation, with the company reimbursing Teekay for time spent on management matters, while non-employee directors receive annual cash fees ($60,000) and restricted stock unit awards ($75,000), plus additional fees for committee service, and in 2022, non-employee directors received $349,500 in cash fees - Executive officer compensation (excluding long-term incentives) is set and paid by Teekay Corporation, with the company reimbursing Teekay for management time435 - Non-employee directors receive an annual cash fee of $60,000 and an annual award of $75,000 in restricted stock units436 - In 2022, non-employee directors received an aggregate of $349,500 in cash fees437 Long-Term Incentive Program In March 2023, the company adopted a new 2023 Long-Term Incentive Plan (2023 Plan) and suspended the 2007 Plan, authorizing up to 600,000 additional Class A common shares, and in 2022, 104,185 restricted stock units were granted under the Prior Plan to officers and employees, vesting equally over three years - A new 2023 Long-Term Incentive Plan was adopted in March 2023, authorizing up to 600,000 additional Class A common shares319438 - In 2022, 104,185 restricted stock units were granted under the 2007 Plan to officers and employees, with an aggregate fair value of $1.9 million, vesting equally over three years439711 Board Practices The Board consists of five directors serving one-year terms, with a majority being independent, and it operates with an Audit Committee, Conflicts Committee, and Nominating and Corporate Governance Committee, all composed of independent members, with the company, as a 'foreign private issuer' and 'controlled company,' being exempt from certain NYSE corporate governance rules, such as shareholder approval for equity compensation plans or large equity issuances - The Board has five members, with directors appointed for one-year terms, and all directors except the Chair are independent440442 - The Board has three committees: Audit, Conflicts, and Nominating and Corporate Governance, all comprised of independent members445446447448 - As a 'foreign private issuer' and 'controlled company,' the company is exempt from certain NYSE corporate governance rules, including shareholder approval for equity compensation plans or certain equity issuances (e.g., 20% or more of outstanding shares)444554 The Board's Role in Oversight of Environmental, Social and Corporate Governance The Board's Corporate Governance Guidelines outline its role in overseeing health, safety, environmental performance, sustainability, and diversity efforts, and it is responsible for evaluating and ensuring compliance with ESG policies and practices - The Board oversees health, safety, environmental performance, sustainability, and diversity efforts, and evaluates compliance with ESG policies449 Crewing and Staff Approximately 1,750 seagoing staff served on the company's owned and leased vessels as of December 31, 2022, with many employed under collective bargaining agreements with unions affiliated with the International Transport Workers' Federation, and Teekay Corporation's commitment to training and career development for seafarers is emphasized as crucial for high-quality marine operations - As of December 31, 2022, approximately 1,750 seagoing staff served on owned and leased vessels450 - A significant portion of seafarers are employed under collective bargaining agreements with unions affiliated with the International Transport Workers' Federation (ITF)451 - Teekay Corporation's training programs (cadet training, career development) aim to ensure a continuous flow of qualified officers and high operational standards452 Share Ownership As of December 31, 2022, all directors and executive officers as a group beneficially owned 633,366 Class A common shares, representing 2.2% of Class A common stock and 1.9% of total Class A and Class B common stock, and they do not beneficially own any Class B common stock Share Ownership by Directors and Executive Officers as of December 31, 2022 | Identity of Person or Group | Class A Common Stock | Percent of Class A Common Stock Owned | Percent of Total Class A and Class B Common Stock Owned | | :-------------------------- | :------------------- | :------------------------------------ | :---------------------------------------------------- | | All directors and executive officers as a group (7 persons) | 633,366 | 2.2% | 1.9% | - Directors and executive officers do not beneficially own any Class B common stock453 Item 7. Major Shareholders and Related Party Transactions This section details the company's major shareholders, particularly Teekay Corporation's controlling interest, and outlines various related-party transactions, covering the control structure, business opportunity agreements, executive officer affiliations, past acquisitions/divestments, registration rights, and the long-term management agreement with Teekay Services Limited, including compensation and termination rights A. Major Shareholders As of March 15, 2023, Teekay Corporation beneficially owned 17.2% of Class A common stock and 100.0% of Class B common stock, representing a total of 28.5% economic interest and 53.7% voting power, with this dual-class structure ensuring Teekay Corporation's control over corporate matters, and other major shareholders including Dimensional Fund Advisors LP (5.8% Class A) and BlackRock, Inc. (5.1% Class A) Major Shareholders as of March 15, 2023 | Identity of Person or Group | Class A Common Stock | Percent of Class A Common Stock Owned | Class B Common Stock | Percent of Class B Common Stock Owned | Percent of Total Class A and Class B Common Stock Owned | | :-------------------------- | :------------------- | :------------------------------------ | :------------------- | :------------------------------------ | :---------------------------------------------------- | | Teekay Corporation | 5,036,306 | 17.2% | 4,625,997 | 100.0% | 28.5% | | Dimensional Fund Advisors LP | 1,714,667 | 5.8% | — | — | 5.1% | | BlackRock, Inc. | 1,482,066 | 5.1% | — | — | 4.4% | - Teekay Corporation's voting power is 9.6% for Class A, 44.1% for Class B, and 53.7% total, ensuring control due to the dual-class structure (Class B has five votes per share, capped at 49% of total voting power)457458 B. Related Party Transactions The company has various related-party transactions with Teekay Corporation and its affiliates, including a long-term Management Agreement for commercial, technical, administrative, and strategic services, with this agreement including management fees and a performance fee contingent on Gross Cash Available for Distribution exceeding an Incentive Threshold, and conflicts of interest are acknowledged due to shared officers and directors, with Teekay Corporation retaining rights to pursue business opportunities - Teekay Corporation controls the company and, through a contribution agreement, retains the right to pursue business opportunities that may also be attractive to the company461462463464 - Executive officers (Kevin Mackay, Stewart Andrade) and certain directors (Kenneth Hvid, David Schellenberg, Peter Antturi) also hold positions at Teekay Corporation, leading to potential conflicts of interest465466467468 - The company has engaged in past acquisitions and divestments with Teekay affiliates, including acquiring the remaining 50% of Teekay Tanker Operations Ltd. in 2017 and merging with Tanker Investments Ltd. (TIL) in 2017470472 - Under a long-term Management Agreement with Teekay Services Limited, the company pays fees for commercial, technical, administrative, and strategic services474475477 - A performance fee is payable to the Manager if Gross Cash Available for Distribution exceeds $25.60 per share, subject to a Cumulative Dividend Account, and no performance fees were paid in 2020, 2021, or 2022479480 - The Management Agreement expires December 31, 2027, with automatic five-year renewals, and termination by either party under certain conditions may result in a substantial Termination Payment to the Manager481482483 Item 8. Financial Information This section refers to the consolidated financial statements and notes for detailed financial information, also briefly addressing legal proceedings, dividend policy, and significant changes Consolidated Financial Statements and Notes Detailed consolidated financial statements and accompanying notes are provided in Item 18 of this Annual Report - Consolidated financial statements and notes are included in Item 18484 Legal Proceedings The company is subject to ordinary course legal proceedings and claims, primarily personal injury and property casualty, but no current legal proceedings or claims are believed to have a material adverse effect on financial condition or results of operations - The company is subject to ordinary course legal proceedings, but none are expected to have a material adverse effect on financial condition or results485 Dividend Policy The dividend policy was revised in November 2019, making dividend payments subject to the discretion of the Board of Directors, with a focus on building net asset value and reducing the cost of capital, and timing and amount depend on financial results, cash requirements, Marshall Islands law, and financing agreement restrictions - Dividend payments are at the discretion of the Board of Directors, with a focus on building net asset value and reducing capital costs486 Significant Changes Significant changes since December 31, 2022, are described in Item 5 ('Significant Developments in 2022 and Early 2023') and Item 18 ('Subsequent Events') - Significant changes are detailed in Item 5 and Item 18487 Item 9. The Offer and Listing The company's Class A common stock is listed on the NYSE under the symbol 'TNK', and its Class B common stock is held entirely by Teekay Corporation and is not listed on any exchange - Class A common stock is listed on the NYSE (symbol: TNK); Class B common stock is held by Teekay and not listed488 Item 10. Additional Information This section provides additional legal, tax, and market risk information, referencing the company's Articles of Incorporation and Bylaws, material contracts, and discussing U.S. and non-U.S. tax considerations, including the potential for Passive Foreign Investment Company (PFIC) classification and Marshall Islands tax exemptions, also outlining exposures to foreign currency, interest rate, credit, and spot tanker market risks Articles of Incorporation and Bylaws The company's Amended and Restated Articles of Incorporation and Bylaws are incorporated by reference, and there are no limitations on the rights of non-resident or foreign shareholders to hold or vote securities under Marshall Islands law or the company's governing documents - The company's Articles of Incorporation and Bylaws are incorporated by reference489 - No limitations exist on non-resident or foreign shareholders' rights to own or vote securities491 Material Contracts Material contracts not in the ordinary course of business are included as exhibits to the annual report, and a description of the credit facility is in Note 9 of the financial statements - Material contracts are filed as exhibits; credit facility details are in Note 9 of the financial statements492 Exchange Controls and Other Limitations Affecting Security Holders There are no governmental laws, decrees, or regulations in the Republic of the Marshall Islands that restrict the export or import of capital or affect the remittance of dividends, interest, or other payments to non-resident security holders - No Marshall Islands laws restrict capital export/import or remittance of payments to non-resident security holders493 Material United States Federal Income Tax Considerations This section discusses U.S. federal income tax considerations for shareholders, focusing on distributions and dispositions of common stock, detailing the potential for the company to be treated as a 'passive foreign investment company' (PFIC), which could have adverse tax consequences for U.S. Holders, and outlining the implications of QEF and mark-to-market elections, with the company intending to take the position that it is not and has never been a PFIC - Distributions to U.S. Holders are generally dividends, taxable as ordinary income or 'qualified dividend income' (for non-corporate holders) to the extent of earnings and profits499500 - Gain or loss on sale of common stock is generally capital gain or loss, treated as long-term if held over one year503 - The company intends to take the position that it is not and has never been a Passive Foreign Investment Company (PFIC), but there are legal uncertainties regarding time-chartering activities and no assurance this position would be sustained505 - If classified as a PFIC, U.S. Holders would face adverse tax consequences unless a timely 'qualified electing fund' (QEF) or 'mark-to-market' election is made, and the company does not currently provide information for QEF elections506507509510513 Non-United States Tax Considerations Under current Marshall Islands law, non-resident shareholders are not subject to Marshall Islands taxation on dividends, stamp, capital gains, or other taxes related to the purchase, ownership, or disposition of the company's common stock, as the company does not conduct business or operations there - Non-resident shareholders are not subject to Marshall Islands taxation on dividends, capital gains, or other taxes related to common stock522 Documents on Display Documents referred to in the report are available on the company's website and the SEC's website - Documents are available on the company's website (www.teekay.com/business/tankers) and the SEC's website (www.sec.gov)[524](index=524&type=chunk) Item 11. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency fluctuations, changes in interest rates, credit risk from cash holdings, and spot tanker market rates, and it uses interest rate swaps to manage interest rate risks but has not used foreign currency forward contracts, with counterparty risk mi