Business context and reporting period
Teekay Corporation’s Form 20-F is an annual report for the fiscal year ended December 31, 2015, not a standalone fourth-quarter filing. The company consolidates Teekay Offshore, Teekay LNG and Teekay Tankers despite holding minority economic interests, so consolidated earnings include substantial non-controlling interests. Teekay operates offshore logistics and production, liquefied-gas shipping and conventional tankers.
Financial performance and position
Amounts below are U.S. dollars. The filing reports annual figures unless otherwise indicated.
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $2.450 billion | $1.994 billion |
| Net revenue (revenue less voyage expenses; non-GAAP) | $2.335 billion | $1.866 billion |
| Income from vessel operations | $625.1 million | $427.2 million |
| Net income | $405.5 million | $124.0 million |
| Net income attributable to Teekay shareholders | $82.2 million | Loss of $54.8 million |
| Adjusted EBITDA (non-GAAP) | $1.416 billion | $1.037 billion |
| Net cash from operating activities | $770.3 million | $446.3 million |
| Vessel and equipment expenditures | $1.796 billion | $994.9 million |
| Cash and cash equivalents at year-end | $678.4 million | $806.9 million |
| Total debt, including capital leases | $7.443 billion | $6.716 billion |
| Total assets / total equity | $13.061 billion / $3.701 billion | $11.780 billion / $3.389 billion |
Revenue rose about 23% and vessel-operation income about 46%. Management attributed improvement principally to stronger tanker rates and fleet additions, as well as increased FPSO contribution. The tanker market was the strongest since 2008, while low oil prices weighed on offshore growth prospects and oil-price-linked FPSO incentives. Interest expense rose to $242.5 million from $208.5 million. Net realized and unrealized losses on non-designated derivatives were $102.2 million, versus $231.7 million in 2014; these results include non-cash fair-value movements as well as realized settlements.
Operating cash flow increased, but investing cash outflow was $1.823 billion and cash declined by $128.5 million during the year. Consolidated liquidity, including cash and undrawn credit facilities, was $860.7 million at year-end. Debt to total capitalization was 66.8%, compared with 66.5% in 2014; net debt to total net capitalization was 64.0%, compared with 63.1%. The company reported compliance with debt covenants at December 31, 2015.
Material changes and unusual items
- Teekay Tankers’ income from vessel operations increased to $184.1 million from $58.3 million, reflecting higher tanker rates and a larger fleet, including 12 Suezmax tankers acquired in 2015.
- Teekay Offshore’s income from vessel operations rose to $283.4 million from $256.2 million. Its offshore production result benefited from the Petrojarl Knarr FPSO; offshore logistics was reduced by $66.7 million of shuttle-tanker write-downs. Consolidated asset impairments totaled $71.6 million.
- Teekay LNG’s income from vessel operations was $181.4 million, compared with $183.8 million; equity income declined to $84.2 million from $115.5 million, including lower MALT LNG joint-venture results following vessel off-hire and charter disputes.
- Cash dividend declared was $1.7325 per share for 2015, but the quarterly rate was cut effective with the fourth-quarter 2015 dividend to $0.055 from $0.55. Teekay Offshore cut its quarterly common-unit distribution to $0.11 from $0.56 and Teekay LNG to $0.14 from $0.70. Management described the reductions as temporary, without assuring restoration.
- Teekay Offshore estimated cash-flow gaps of approximately $250 million in 2016 and $90 million in 2017, before using its reported $282.7 million liquidity balance. It also reported a $504.5 million working-capital deficit. Teekay LNG reported a $179.6 million working-capital deficit. These are subsidiary-level exposures within the consolidated group.
- Capital commitments remain substantial. The filing lists $12.9 billion of contractual obligations across the group, including debt repayments, leases and construction commitments. Teekay reported $1.1 billion of scheduled annual debt principal repayments in each of 2016 and 2017. Management said approximately $1.2 billion of financing had been pre-arranged, including financing arranged in February 2016.
Outlook, risks and contingencies
Management expected tanker-market fundamentals that supported 2015 rates to persist into 2016, while acknowledging forecast tanker fleet growth and uncertainty. It characterized operating cash flows as largely stable and growing, supported by fee-based contracts, but noted capital-market weakness and expensive or dilutive equity financing. Teekay Parent said existing liquidity and other sources were expected to meet its needs for at least 12 months, conditional on refinancing facilities maturing in 2016. Teekay LNG’s near-term liquidity outlook depended on securing financing for committed projects and refinancing debt maturing in 2016–2018.
Principal risks include oil and gas price and demand changes; volatile spot tanker rates; customer concentration; offshore project delays, production declines and vessel redeployment; limited access to financing; high leverage, refinancing and covenant risks; currency and interest-rate exposure; and environmental, regulatory, political and operating hazards. Three international oil-company customers represented 27% of consolidated revenue in the financial-statement disclosure, while another passage reports 28% and $677.1 million; the filing’s customer concentration figures should be reconciled.
Other contingencies include a securities class action filed in March 2016 concerning dividend statements, for which potential losses could not be estimated; Sevan-related claims concerning the Logitel transactions, with Sevan claiming approximately $50 million while Teekay Offshore had accrued $18.8 million; and a Petrobras claim concerning the Piranema Spirit contract estimated by Teekay Offshore at approximately $7.5 million. Teekay LNG disclosed a potential approximately $60 million share of exposure related to a UK tax challenge to lease arrangements. The April 2016 Arendal Spirit gangway damage could cause extended off-hire and potentially trigger a charter termination option; its financial impact was uncertain. The Banff FPSO storm-damage matter was settled, and the company reported collecting $55 million from the charterer.
The filing provides management expectations and risk disclosures, but no consolidated numerical earnings or cash-flow guidance. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Reconcile customer-concentration disclosure: 27%/$673.1 million versus 28%/$677.1 million.
- Track Teekay Offshore’s 2016–2017 funding gap, working-capital deficit, UMS delivery decisions and ability to finance or defer committed projects.
- Confirm refinancing and repayment plans for upcoming maturities, including the January 2016 Teekay Tankers refinancing and Teekay Parent facilities due in 2016.
- Monitor dividend and subsidiary-distribution policy; the stated expectation that cuts are temporary is not a commitment to restore prior rates.
- Assess the status and potential financial impact of the class action, Sevan dispute, Piranema Spirit claim, UK tax exposure and Arendal Spirit damage.
- Review the non-GAAP definitions and reconciliations for net revenue and Adjusted EBITDA, and distinguish consolidated results from income attributable to Teekay shareholders.